Income Tax Appellate Tribunal - Mumbai
Uni Deritend Ltd, Mumbai vs Asst Cit Rg 1(3), Mumbai on 14 February, 2019
I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 1 of 14
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "F" MUMBAI
BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER
AND SHRI O. P. MEENA, ACCOUNTANT MEMBER
I.T.A. No. 5379 & 5380/Mum/2012: Assessment Year: 2003-04 & 2004-05
UNI Deritend Ltd. Vs ACIT-1(3)
Liberty Building, Sir Vithaldas . Mumbai. Room No. 564 5th
Thackersey Marg, Mumbai-400020. Floor, Aayakar Bhavan, M.K.
PAN:AAACU0028K Road, Mumbai-400020.
Appellant Respondent
Assessee by Shri K. Shivaram/ Rahul Hakani (AR)
Revenue by Shri Rajiv Gubgotra, Sr. D.R.
Date of hearing 13.02.2019
Date of pronouncement 14.02.2019
ORDER
PER O. P. MEENA, AM
1. These above two captioned appeals are filed by the Assessee which are directed against the orders of two separate order of learned Commissioner of Income-tax (Appeals)-2, Mumbai (in short the "CIT (A)") dated 25.06.2012 which in turn has arisen from separated order both dated 31.03.2010 passed u/s 271(1)
(c) of the Income Tax Act,1961 (in short the "CIT(A)") passed by the DCIT-1(3), Mumbai (in short "the AO") for the A.Ys. 2003-04 & 2004-05 respectively.
2. We shall take up the first ITA. No.5379/M/2012 A.Y. 2003-04.
1 Ground No. 1 to 3 are states that the Ld. CIT (A) has erred in confirming the levy of penalty u/s 271(1)(c) of the Act of Rs. 8,64,784/- being 100% of the tax sought to be evaded on an erroneous assumption that the assessee has furnished inaccurate particulars of income to the extent of Rs.23,53,154/-.
2. Ground No. 2 states that the Ld. CIT(A) has erred not passing speaking order in respect of the decision of the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro products Pvt. Ltd., Civil I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 2 of 14 Appeal No. 2463 of 2010 dated 17.03.2010 reported in (2010) (3 taxmann.com 47) (SC).
3. Ground No. 3 stated that the Ld. CIT(A) failed to appreciate that full details were furnished in respect of following items: -
a. Provision for doubtful debts for Rs.8,97,677/-.
b. Duty (Electricity Duty) disallowed u/s 43B for Rs.10,80,654/-. c. 10% of sales tax set off not offered for tax for Rs.3,74,823/-. 2 The above grounds No. 1 to 3 of appeals are relate single issue of confirming the levy of penalty of Rs.8,64,784/- u/s 271(1)(c) of the Act, hence, same are being considered together for the sake of brevity and convenience.
3. Briefly stated the facts of the case are that the assessment was completed u/s 143(3) of the Act on 22.03.2006 by making additions of Rs.8,97,677/- being provision for doubtful debts, Rs.10,80,654/-being Electricity Duty disallowance u/s 43B of the Act and Rs.3,74,823/- being 10% of Sales tax set off not offered for tax. The assessee has preferred an appeal before the CIT(A) against the aforesaid the addition but same were confirmed by CIT(A) against which the assessee has not gone in the appeal before the Hon'ble ITAT. The AO has also issued the notice u/s 271(1)(c) of the Act asking the assessee as to why penalty u/s 271(1)(c) of the Act should not be levied in view of the CIT(A) order confirming the addition made by AO. In response to which the assessee submitted his reply vide letter dated 11.03.2010 stating that the notice for initiating the penalty u/s 271(1)(c) of the Act had been initiated in the last part of the assessment order and they believed that penalty only for deduction claimed u/s 80HHC of the I.t. Act. However, the contention of the assessee were not I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 3 of 14 accepted by AO on the ground that there is no provision available in the Act which allowed for claiming of provision for doubtful debts as an eligible deduction/business expenditure. The assessee company is also not a banking companies to utilized the provisions of Section 36(1)(viia) of the I.T. Act, 1961.
Therefore, the assessee is furnished inaccurate particulars of income leading to concealment of income as far as to claim of provision for doubtful debts to the tune of Rs.8,97,677/- is concerned. The AO further, observed that the assessee has reduced the amount of energy sales (in energy division) credited to the P&L Account by amount of duty worth of Rs.10,80,654/-. The AO quoted the provisions u/s 43B of the Act that tax can be claimed on payment basis, therefore, the claim of electricity duty is not an order similarly the assessee has retained an amount of Rs.3,74,823/- being 10% of sale-tax set off and claimed that the same in the computation of income as deduction u/s 43B of the Act which is being set off, hence, can be allowed as per the provisions of Section 43B of the Act. The AO was of the view that had the assessment not picked up for scrutiny the wrong claim of the assesse would have escaped detection and, therefore, the appellant company could have walked away by suppressing its total income. Therefore, the AO has held that the assessee has furnished inaccurate particulars of income leading to concealment of income in respect of aforesaid additions/disallowances. Considering the same and placing reliance in the case of Union of India and others Vs. Dharmendra Textile Processors Ltd. I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 4 of 14 (2008)(306 ITR 277) (SC) the AO levied the penalty of Rs.8,64,784/- being 100% of the tax sought to be evaded on the amount of Rs.23,53,154/-.
4. Being, aggrieved, the assessee has carried the matter before the CIT(A) wherein it was claimed that the assessee company had furnished full particulars of all the material facts before the AO and hence the has concealed particulars of income nor furnished inaccurate particulars of income. It was further, argued that the penalty cannot be imposed in this case. Merely because certain disallowances have been made by AO and confirmed by CIT(A) in this case of the appellant. However, the CIT(A) has observed that the AO has correctly levied the penalty u/s 271(1)(c) of the Act in the case of Appellant company because it has furnished inaccurate particulars of income inspite of being assisted by professional chartered accountant firm. If this case was not selected for scrutiny, the appellant company would have walked away by not paying tax on its correct total income. The appellant company was assisted by a team and chartered accountants and they should have taken enough care to ensure that only bona- fide claims were made and the provisions of the Act should not have been interpreted in such a way as to cause loss to revenue. The CIT(A) has also referred the decision of Hon'ble Delhi High Court in the case of CIT Vs. Zoom Communications Pvt. Ltd. (2010) 191 Taxman 179 wherein the concealed penalty of certain penalty, on obvious errors in the returns were confirmed. Therefore, the CIT(A) have come to the conclusion that the Explanation-1 to Section I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 5 of 14 271(1)(c) of the Act would come into play and work to the disadvantage of the additions of the assessee. Accordingly, the penalty imposed in respect of aforesaid additions/disallowances was confirmed.
5. Being, aggrieved the assessee filed this appeal before the Tribunal. The ld. Counsel for the assessee submitted that the assessee has made all disclosure pertaining to provisions doubtful debts income in its balance-sheet and the P&L Account. The Ld. Counsel has referred page no. 8 of the paper book which is scheduled forming part of accounts and page no. 11 wherein provisions for doubtful debts amounting of Rs.8,97,677/- has been written off. The Ld. Counsel submitted that in the nomenclature the assessee has shown the provisions for doubtful debts but in actual order written off the same, therefore, claim is allowable in the light of the decision of Hon'ble Gujarat High Court in the case of Vithaldas Dhanjibhai Vs. CIT (1981)(130 ITR 95)(Guj)(High Court) wherein it was held that the reduction from bad debt reserve account is sufficient to claim deduction. However, in facts of present case, debtors have been reduced and so present case stands on a better footing. The CIT(A) has disallowed the claim on the ground that provisions for doubtful debts cannot be allowed after amendment to Section 36(1)(vii) of the Act. However, in the facts of the present case, debtors are actually reduced and provision is actually written off. Hence, the claim is allowable in view of the following decisions. Vijay Bank Vs. CIT (2010) 323 ITR 166 (SC)(Paper Book No. 11 Pg. No. 73-80) and KEC International Ltd. Vs. I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 6 of 14 DCIT (2012) (20 ITR 282/(2013)58 SOT 18(URO) (Mum)(Trib) (Paper Book-11 Pg. No. 81-89) wherein it was held that for the allowability of deduction on account of bad debts, it was not necessary for assessee to close individual account of each debtor in its books and it would suffice if amount had been reduced from debtors balance shown on asset side of balance-sheet at close of year (AY 1999- 2000)
6. With regard to the disallowance of Rs.10,80,654/- u/s 43B of the Act on account of electricity duty. The Ld. Counsel submitted that the electricity duty of Rs.10,80,654/- was reduced from energy sales of Rs.1,13,51,080/-. However, the figure of electricity duty was specifically disclosed in the profit and loss account (Pg.4) and thus there was no intention to conceal. It was further contended that provisions of Section 43B of the Act was not applicable to electricity duty and hence claimed the same on accrual basis as gross sales of electricity was creditors to the P&L Account. It was further submitted that the said amount is offered the taxed in A.Y. 2004-05 electricity duty was not paid due the dispute and this fact has been aggrieved by CIT(A) that the same was allowable in A.Y. 2004-05. The Ld. counsel further placing reliance in the case of CESC Ltd. Vs. CIT (2015) (235 Taxman 6 (Cal) (High Court) (Paper Book No.II)(Pg. No. 90-96) submitted that the Section 43B is not applicable to the electricity duty has held that the Hon'ble High Court. Similarly in the case of CIT Vs. National Institute of Technical Teacher Training of Research (2015) 231 I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 7 of 14 Taxman 657 (P&H)(Paper Book No.11 Pg. No.97-100) it is held that penalty u/s 271(1)(c) of the Act cannot be made to disallowance u/s 43B of the Act if full particulars of income are disclosed by assessee. Similarly coordinate bench of Ahmedabad Tribunal in the case of Surrel Enterrise P. Ltd. Vs. ACIT (2010) (37 SOT 117)(Ahd)(Trib)(Paper Book No.11Pg. No. 101-104) held that the claim of bonus was made as a deduction on accrual basis as per accounting method regularly employed by assessee though the same was paid in subsequent year. Same was disallowed u/s 43B of the Act. It was held that penalty u/s 271(1)(c) is not leviable. Similarly, the Hon'ble Bombay High Court in the case of CIT Vs. Nagri Mills Co. Ltd. (1958) (33 ITR 681)(Bom)(High Court)(Paper Book No. 11 Pg. No. 105-109) where a deduction is allowable, revenue should not raise disputes of year of allowability.
7. With regard to the Sales tax set off Rs.3,74,823/-not offered for tax. It was submitted that the assessee did not offer to tax Rs.3,74,823/- sales tax set off for tax on the ground that same will be offered to tax when the sales tax assessment orders are passed. This system of accounting was regularly followed by assessee. The system of accounting followed by assessee in DCIT VS. Maharashtra Scooters Ltd. (1997)(228 ITR 78)(Mum)(Trib)(AT) and ITO VS. Texmac Engineers (1991)(39 TTJ)(Ahd.)(365(Paper BookNo.11Pg.No. 115-119) This fact that the issue is decided by third members shows that issue was a debatable one which does not entail penalty u/s 271(1)(c) of the Act. The Ld. I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 8 of 14 Counsel further, submitted that it is settled principle of law as laid down in the case of CIT Vs. Reliance Petroproducts (P) Ltd. (2010) (322 ITR 158)(SC)(Paper Book No.11 Pg. No. 120-129) that merely because assessee had claimed some expenditure, which claim was not accepted was not acceptable to revenue, that by itself would not attract penalty u/s 271(1)(c) of the Act. So far reliance by revenue above on the decision of the Dharmendra Textile Processor (supra). The Ld. Counsel submitted that this decision was considered by Hon'ble Supreme Court in the case of UOI Vs. Rajasthan Spinning & weaving Mills (SC)(2009)(224 CTR 1)(SC) wherein it was held that the penalty proceeding and assessment proceeding are separate and distinct and penalty is not automatic. In view of the aforesaid submissions/argument, the Ld. Counsel prayed that the appeal of the assessee may be allowed and penalty may be deleted.
8. The learned Senior DR for the revenue submitted that the AO has made aforesaid disallowances as reflected in the assessment order and same were sustained by CIT(A) in the quantum proceeding (P.B. 36). The Ld. Senior DR submitted that the CIT(A) has sustained the additions on the ground on account of that provisions for doubtful debt and not on account of bad debts written off. The assessee further there is no provision of retaining of sales tax. There are no provisions of law to written off similarly disallowance of electricity was rightly made u/s 43B of the Act. The Ld. DR further submitted that had the was not picked up for scrutiny and could not deduct the furnishing of inaccurate I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 9 of 14 particulars of income, therefore, the CIT(A) has correctly upheld the action of the AO in levy penalty u/s 271(1)(c) of the Act.
9. Replying to above the Ld. counsel submitted that the CIT(A) has passed the order in 2008 when the decision of the case of Hon'ble Supreme Court in the case of Vijaya Bank Vs. CIT (supra) was passed in 2010, hence, this decision was not available before the CIT(A) while passing the appellant order in 2008, therefore, the debtor are actually reduced and provisions is actual written off hence same are allowable in view of the above of the decision of Hon'ble Supreme Court in the case of Vijaya Bank (supra).
10. We have heard the rival submissions of both the parties and perused the material available on record. A perusal of the assessment and penalty order reveals that the AO has rejected the contentions of the assessee on the basis that the assessee claimed for provisions of doubtful debts, electricity duty and sales tax set off is not correct. Therefore, the addition disallowances of aforesaid nature have been made on the fact disclosed by assessee in the return of income and during the course of assessment proceeding. We find that the assessee has furnished all relevant facts, therefore, the penalty cannot be levied merely because that it was not acceptable to the AO where the Explanation is bona-fide and all the facts relating to the same have been disclosed the penalty is not leviable. It is trite law that penalty proceedings are distinct and separate proceeding from the assessment proceeding. The finding recorded in the I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 10 of 14 assessment order is not conclusive for deciding the imposition of penalty. It is only and persuacing value and any finding recorded in the assessment order does not mean that penalty has to be imposed automatic. Explanation-1 to Section 271(1)(c) of the Act provides that the penalty would be deemed to attract where in respecty to that fact material is computation of income either no Explanation is offered, or Explanation offered is found to be false in the case of the assessee. The assessee has made the disclosure of provision for bad debts in the profit and loss account and balance-sheet (Paper Book 8-11). The perusal of the same reveals that the debtors are actually reduced from debtors provisions is actually written off, therefore, the claim for disallowance for provision for doubtful debts amounting to Rs.8,97,677/- is allowable in the light of the decision of Hon'ble Supreme Court in the case of Vijaya Bank Vs. CIT (supra) wherein the Hon'ble Supreme Court has observed as under.: -
"'Whether it is imperative for the assessee-bank to close the individual account of each of its debtors in its books or a mere reduction in the Loans and Advances or Debtors on the asset side of its balance sheet to the extent of the provision for bad debt would the sufficient to constitute a write off is the question which we are required to answer in these civil appeals?
"However, as stated by the Tribunal, in the present case, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee-bank had correspondingly / simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the balance sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision "for impugned bad debt". After the Explanation, the assessee(s) is now required not only to debit the profit and loss account but simultaneously also reduce loans and advances or the debtors from the asset side of the balance sheet to the extent of the corresponding amount so that, at the end of the year. the amount of loans and advances/debtors is shown as net of provisions for impugned had debt." I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 11 of 14
"However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the year-end would not suffice and, in the interest of transparency. it would he desirable for the assessee-bank to close each and every individual account of loans and advances or debtors as a pre-condition claiming deduction tinder section 36(1)(vii) of 1961 Act. There is also a upside to the argument of the Department. Assessee has instituted recovery suits in Courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the4 suit would be dismissed."
11. Similarly, the Hon'ble Gujarat High Court in the case of Vithaldas Dhamjibhai (1981) 6 Taxman 105 (Guj) held that the deduction for bad debts reserve account is sufficient to claim deduction u/s 36(2)(i)(b) of the Act, therefore, the claim of bad debts written off is allowable even it is not allowable then it is become a debatable issue on which penalty cannot be penalty u/s 271(1)(c) of the Act cannot be levied. Similarly, the figures of electricity duty of Rs.10,80,654/- were disclosed of profit and loss account (Paper Book4) and thus there was no intention to conceal the income. The Ld. Counsel has placed reliance on the decision of Hon'ble Calcutta High Court in the case of CESC Ltd. Vs. CIT (2015)(235 Taxman 6 (Cal) (High Court) (Paper Book No.II)(Pg. No. 90-96) where in it was held that the provisions of Section 43B of the Act are not applicable to the electricity duty. We further find that the assessee has claimed the deduction of electricity duty on accrual basis as gross sales of electricity was creditors to P & L Account. Further, the said amount has been offered to tax in the next A.Y. 2014-15 as electricity duty was not paid due to dispute. The Ld. Counsel has said that the case law as discussed in its submission in the aforesaid part of this order wherein it has been held that the penalty u/s 271(1)(c) of the I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 12 of 14 Act cannot be made to the disallowance u/s 43B of the Act if, full particulars of income are disclosed by assessee. Similarly, the assessee did not offer to tax the same of Rs.3,74,823/- being sales tax set off for tax on the ground that the same may be offered to be tax when the sales tax assessment order are passed. Further, this system of accounting was regularly followed by assessee. Therefore, the system of accounting followed by assessee has been upheld in DCIT Vs. Maharashtra Scooters (supra). Thus, this issue becomes debatable which does not entail the penalty u/s 271(1)(c) of the Act. Thus, the assessee has offered and Explanation and said Explanation offered was not found to be false and accordingly is not covered by clause A of Explanation 1 to Section 271(1) (c) of the Act. Further, clause (B) of Explanation-1 to Section 271(1)(c) of the Act provides that where the assessee is not able to substantiate its Explanation to prove that such Explanation is bona-fide and all the facts relating to the same have been disclosed, penalty is leviable. As the claim of aforesaid expenses is discernible from the return of income profit and loss account balance-sheet hence the same it is not amount to concealment of income or furnishing inaccurate particulars of income. This is a factual position, therefore, the penalty u/s 271(1)(c) of the Act is not leviable. We are, therefore, of the considered view that the penalty is not sustainable in the law in the light of ratio laid down by Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts (supra) wherein it was held that merely because the assessee has I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 13 of 14 claimed the expenditure which claimed was not accepted or was not acceptable by revenue, penalty u/s 271(1)(c) of the Act cannot be attracted. Reliance of the finding of the AO on the decision of Dharmendra Textile Processors (supra) has been dealt with in the case of UOI Vs. Rajasthan Spinning (Supra) wherein it was held that the penalty is not levied in each and every case and therefore, it was distinguished. In the light of aforesaid discussion, we are of the considered view that the penalty is not exigible in respect of disallowance of provisions for doubtful debts, electricity duty and sales tax set off. Accordingly, penalty levied in respect of aforesaid of disallowed/addition case amounting to Rs.8,64,784/- u/s 271(1)(c) of the Act is therefore, deleted. In view of the, ground nos. 1 to 3 of the appeal by assessee are therefore, allowed.
ITA. NO.5380/M/2012 A.Y.2004-05
12. The facts of the present case are identical to the facts of the case as narrated above in ITA. No.5379/M/2012 in the case above except the figure are different, therefore, there is no need to repeat the same. The finding of the appeal bearing ITA. No.5379/M/2012 is mutatis mutandis will apply to penalty of Rs.5,57,212/- being 100% of tax sought to be evaded of Rs.15,53,204/- being disallow & provision for doubtful debt of Rs.11 lakhs and 10% sales tax set off & Rs.4,53,204/-. Accordingly, based on our bearing in ITA. No.5379/M/2012, the present appeal is also being hereby allowed.
I.T.A. No.5379 & 5380/Mum/2012/A.Y2003-04 & 2004-05 Page 14 of 14
13. In the result, the appeals of the assessee stands allowed.
14. The order pronounced in the open Court on 14.02.2019 Sd/- Sd/-
(C.N. PRASAD) (O.P.MEENA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai: Dated:14, February, 2019/opm
Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT.
By order Assistant Registrar, Mumbai