Income Tax Appellate Tribunal - Mumbai
M.S.M. Refill Manufacturers, Mumbai vs Assessee on 26 July, 2011
आयकर अपील य अ धकरण "बी" यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI ी संजय अरोड़ा,लेखा सद य एवं ी अ मत शु ला, या यक सद य के सम । BEFORE SHRI SANJAY ARORA, A.M. AND SHRI AMIT SHUKLA, J.M. आयकर अपील सं./I.T.A. No. 6898/Mum/2011 ( नधारण वष / Assessment Year: 2007-08) M.S.M. Refill Manufacturers I.T.O. Ward 18(3)(3), A/6, Crystal Colony No.1, S.A. Marg, बनाम/ C.G.O. Bldg., M. K. Road, Mahim (W), Mumbai-400 016 Vs. Mumbai-400 020 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AAAFS 6516 M (अपीलाथ /Appellant) : ( यथ / Respondent) अपीलाथ ओर से / Appellant by : Shri Pravin N. Shah & Shri Mitesh P. Shah यथ क ओर से/Respondent by : Shri O. P. Singh सनु वाई क तार ख / : 01.08.2013 Date of Hearing घोषणा क तार ख / : 30.08.2013 Date of Pronouncement आदे श / O R D E R Per Sanjay Arora, A. M.:
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-29, Mumbai ('CIT(A)' for short) dated 26.07.2011, partly allowing the assessee's appeal contesting the levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2007-08.2 ITA No.6898/Mum/2011 (A.Y. 2007-08)
M.S.M. Refill Manufacturers vs. ITO
2. The brief facts of the case are that the assessee returned its income for the year at Rs.2,58,068/-, claiming remuneration to working partners at Rs.2,16,000/-, as under:
(Amt in Rs.)
a) Business income (-) 74,563
b) Income from house property 5,48,632 4,74,069 Less : Remunerations to partners (-) 2,16,000 2,58,069 _______________________________________}_ _______________________________________}_ The said claim was found not acceptable by the Revenue inasmuch as the assessee had included the amount assessable u/s.22, i.e., under the head 'income from house property', in computing the deduction in respect of remuneration to working partners, claim qua which falls u/s.37(1) of the Act. The same stood, accordingly, disallowed, assessing the assessee's income at Rs.5,06,098/-, and penalty proceedings in its respect initiated. In the penalty proceedings, while the assessee relied on Explanation (3) to section 40(b) in support of its claim, the same stood not accepted as the assessee had deliberately claimed the expenditure on remuneration to working partners, so that there was a willful attempt on the part of the assessee to deflate and, thus, conceal its income. The same stood confirmed in appeal by the ld. CIT(A), relying on the decision in the case of Union of India vs. Dharmendra Textile Processors [2008] 306 ITR 277 (SC), so that mens rea or willful concealment is not an essential ingredient of penalty and, further, that mere disclosure would not save penalty, and that the findings in the assessment proceedings constitute good evidence for concealment, relying on the decisions in the case of CIT vs. Vidyagauri Natverlal [1999] 238 ITR 91 (Guj.) and CIT vs. Somnath Oil Mills [1995] 214 ITR 32 (Guj.) respectively. However, as the assessee was entitled to a claim for Rs.50,000/- toward remuneration to working partners even u/s.40(b), i.e., in case of a loss, he reduced the penalty, levied at 100% of the tax sought to be evaded, as to be with reference to an amount of Rs.1,66,000/-. Aggrieved, the assessee is in second appeal.
3. We have heard the parties, and perused the material on record. 3.1 As regards the law in the matter, the same is trite and well-settled, and the assessee has to furnish an explanation towards its claim, duly substantiating it as well as 3 ITA No.6898/Mum/2011 (A.Y. 2007-08) M.S.M. Refill Manufacturers vs. ITO establishing it bona fides, so that in its absence, it would be deemed to have concealed or furnished inaccurate particulars of income. The case law relied upon by the first appellate authority are on the point, representing the legal position in the matter.
3.2 It would be at this stage relevant to advert to the facts of the case. The assessee firm credited a sum of Rs.8,24,500/- to its profit and loss account, as also the interest and dividend income at Rs.93,746/- and Rs.20,000/- respectively. While it excluded the latter two amounts, aggregating to Rs.1.14 lacs, assessable as income from other sources, in the computation of the remuneration exigible u/s. 40(b) of the Act, the rent income, admittedly assessable as income from house property, was not. Excluding the same would have led to a negative book profit. In the view of the Revenue, the said inclusion of rental income was deliberate, so as to inflate the claim of remuneration to working partners. The primary facts are admitted and undisputed. The assessee, however, relies on interpretation of Explanation 3 to section 40(b), which provision reads as under:
'Amounts not deductible.
40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession", -
(a) in the case of any assessee--
(b) in the case of any firm assessable as such,--
(i) .......................
(ii) ......................
(iii) ......................
(iv) ......................
(v) ......................
Explanation 1 .....................
Explanation 2 .....................
Explanation 3 - For the purposes of this clause, "book-profit" means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.' 4 ITA No.6898/Mum/2011 (A.Y. 2007-08) M.S.M. Refill Manufacturers vs. ITO On the basis thereof, it is claimed that the rent income stood rightly included in the computation of 'book profit', with reference to which the quantum of remuneration to the working partners is to be allowed. The ld. AR, toward the same, placed reliance on a number of decisions, as in the case of Md. Serajuddin & Bros vs. CIT [2012] 210 Taxman 84 (Cal); Suresh A. Shroff vs. Jt. CIT [2013] 35 Taxman.com 103 (Guj.) and CIT vs. J. J. Industries [2013] 35 Taxman.com 103 (Guj), to the effect that as no particular method of accounting has been prescribed for ascertaining the net profit, the same could include, apart from income assessable u/s.28, i.e., as business income, income assessable under the other heads of income as well.
3.3 In our view, the same cannot be said to be a settled matter. In fact, the same gives rise to certain fundamental issues, as observed by the tribunal in the case of Mehta Exports v. Addl. CIT (in ITA No. 7321/Mum/2010 dated 28/8/2013), as under:
"9. ......... We may, however, mention that the said issue, i.e., the inclusion of the income assessed as income from other sources in reckoning the quantum of remuneration allowable to the working partners, deductible u/s.37(1) of the Act, is not a clear or a settled issue. In fact, it raises several fundamental issues, viz., as to how the expenditure allowable in the computation of the income assessable under one head of income could possibly be based on the income assessed under another head of income. Put differently, how income assessed under one head, viz. 'income from other sources', could possibly form the basis for allowance of expenditure in computing the income under another head, i.e., 'profits and gains from business and profession'. Two, without prejudice, under which head of income or provision of law would the expenditure attributable to the income assessed under the other head, as income from other sources in the instant case, be allowed. This is as only the expenditure exigible to be set off against the income assessable under that head, as section 56, being specifically provided for, as u/s.57, could be allowed there-against."
So however, it has to be borne in mind that these are penalty proceedings. The said explanation does give rise to a plausible interpretation; rather, one that has prevailed with even the higher appellate authorities. Under the circumstances, therefore, the matter would certainly qualify to be a debatable one, saving penalty. We, accordingly, direct the deletion of the impugned penalty. We decide accordingly.
5 ITA No.6898/Mum/2011 (A.Y. 2007-08)M.S.M. Refill Manufacturers vs. ITO
4. In the result, the assessee's appeal is allowed.
प रणामतः नधा रती क अपील वीकृत क जाती है ।
Order pronounced in the open court on August 30, 2013 Sd/- Sd/-
(AMIT SHUKLA) (SANJAY ARORA)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated : 30.08.2013
व. न.स./rRoshani, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई /
DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai