Income Tax Appellate Tribunal - Mumbai
Sanghvi Swiss Refills P. Ltd, Mumbai vs Department Of Income Tax on 7 March, 2007
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'J' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI PRAMOD KUMAR ,(AM)
ITA No.3893/Mum/2007
Assessment Year : 2001-02
Asstt. Commissioner of Income tax
Range-8(3), Room No.204
2nd Floor, Aayakar Bhavan
New Marine Lines
M.K. Road
Mumbai-400 020. .....(Appellant)
Vs.
M/s. Sanghvi Swiss Refills P. Ltd.
Plot No.A-3, Mira, MIDC
P.O. Mira,
Thane. .....(Respondent)
P.A. No.(AACCS 8696 R)
Appellant by : Ms. M. Khare
Respondent by : Shri Arun Sathe alongwith
Ms. Aarti Sathe and
Shri Vishwas Mehendale
ORDER
Per D.K. AGARWAL (JM).
This appeal preferred by the revenue is directed against the order dated 07.03.2007 passed by the ld. CIT(A) for the Assessment Year 2001-02.
2. Briefly stated facts of the case are that the assessee company is engaged in the manufacturing and trading in writing instruments and receiving of service charges. The return was filed declaring a loss of 2 ITA No.3893/M/07 A.Y:01-02 Rs.16,33,280/- . It has been interalia observed by the ld. CIT(A) in para-7 appearing at page 8-9 of the impugned order that ".....Finally assessed income after giving effect to the CIT(A)'s order is Rs.6,30,420/-. This figure has been arrived because in the original assessment order the computation has been started with the returned loss of Rs.16,33,280/-....." During the course of assessment proceedings the AO observed that the assessee has shown income from "Sales & Service(Net)" at negative figure of Rs.33,62,022/-. The assessee has also shown other income of Rs.53,49,255/- which includes rental income of Rs.50,40,000/-. He further observed that vide point No.7(1) to the Notes to Account it is apparent that during the year under consideration actual production is Nil. Then how employees emoluments expenses are shown on higher side. If these expenses are not allowed then there must be positive income under the head "Income from House Property." The AO after considering the assessee's reply that the company has taken the property on lease from Mr. Jayant D. Sanghvi as per agreement and to generate extra income, the management has thought it fit to sublet the extra space available in the factory to M/s. Boston Education and Software Technologies Private Limited (BEST) as per the Agreement dated 28.01.1999 and hence, the income earned on account of the same is rightly taken as "Business Income" and not as "Income from House 3 ITA No.3893/M/07 A.Y:01-02 Property" and examining the rent agreements was of the view that it is a case of sub-letting out of a property and accordingly he assessed the rental income of the property Rs.50,40,000/- 'protectively' under the head 'income from other sources'. Besides this, it was also observed by the AO that the assessee had unaccounted sales returns of Rs.45,27,400/-. He further observed that from the P&L Account the assessee has finished goods worth Rs.45,27,400/- as on 31.3.2000 i.e. at the end of previous financial year or at the beginning of the current financial year. He further observed that the assessee had further shown a negative purchase of Rs.60,62,592/- which is due to the purchase returns. He further observed that during the impugned Assessment Year there are only transactions of return of goods either from sale parties or from the purchase parties. He further observed that by adopting this process the assessee has declared a loss of Rs.45,38,962/-(Rs.45,27,400 - Rs.11,562 being net consumption). On being questioned, it was explained by the assessee that the opening stock worth Rs.45,27,400/- had become dry and not usable and in support the assessee filed copy of necessary entries along with credit note. The AO after considering the assessee's explanation and the evidence produced by the assessee, disbelieved the assessee's claim and accordingly disallowed Rs.45,27,400/- from the loss claimed by the assessee and added back to the total income of the assessee 4 ITA No.3893/M/07 A.Y:01-02 and accordingly completed the assessment at an income of Rs.28,94,120/- vide order dated 30.01.2004 passed u/s.143(3) of the Income Tax Act, 1961(the Act). On appeal, the ld. CIT(A) held that the income in the form of rent received from BEST is only 'income from other sources' and not income from business. With regard to disallowance of loss of Rs.45,27,400/- the ld. CIT(A) held that even after considering the preponderance of probability it cannot be said that the entire ink had become unusable when the assessee is not in a position to lead any conclusive evidence in this regard. At the same time it also cannot be said that the ink which was available with the assessee since at least from 1.4.1996 was in good condition and usable even for the relevant Assessment Year 2001-02. He, therefore, was of the opinion that it would be reasonable to estimate the value of such ink at 50% of Rs.45,27,400/- and accordingly he restricted the disallowance to Rs.22,63,200/-.
3. While making the assessment the AO also initiated penalty proceeding u/s.271(1)(c) of the Act. Accordingly the AO issued notice to show cause as to why penalty u/s.271(1)(c) may not be imposed. In response, it was interalia submitted by the assessee that there was no fresh letting out of the property by Shri Jayant Sanghvi, with a malafide intention. In fact, the said property was already under assessee's occupation as the tenant, since the year 1981, which is 5 ITA No.3893/M/07 A.Y:01-02 much before the year in which Shri Jayant Sanghvi became the owner thereof. The assessee further submitted that the reliance to the case of McDowell and company is totally without any basis and misplaced and further the AO has not made substantive assessment, hence, there is not concealment in respect of rental income of the property on the part of the assessee. With regard to the disallowance of claim of loss of opening stock of ink of Rs.45,27,400/- that the ld. CIT(A) has rejected the entire suspicion theory of the AO . It is only in his view that the assessee has not been able to provide the details/proof for the zero value of the stock of ink, the ld. CIT(A) restricted the disallowance at 50% which cannot be held to be liable to penalty for concealment. Therefore, the penalty may be dropped. However, the AO did not accept the assessee's explanation. He was of the view that in view of the finding recorded in the assessment the assessee has filed inaccurate particulars of its income liable for penalty and accordingly he imposed penalty of Rs.11,44,430/- vide order dated 29.3.2006 passed u/s.271(1)(c) of the Act. On appeal, the ld. CIT(A) with regard to the rental income assessed under the head income from other sources protectively observed that when the AO himself does not believe that the income belongs to the appellant, there is no question of levying penalty on such addition. With regard to the disallowance of write-off of opening stock he held that it was pointed out by the 6 ITA No.3893/M/07 A.Y:01-02 appellant that this stock of ink was four years old and preponderance of probability is that this ink might have become bad and further it was certified by the expert that the ink being unusable, such disallowance do not merit levy of penalty and accordingly he deleted the penalty imposed by the AO.
4. Being aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us taking following sole ground of appeal:
"On the facts and in the circumstances of the acse and in law, the ld. CIT(A) erred in directing the Assessing Officer to cancel the penalty of Rs.11,44,426/- levied by the Assessing Officer u/s.271(1)(c) of the I.T. Act, 1961."
5. At the time of hearing the ld. DR submits that for the reasons as mentioned in the penalty order, the ld. CIT(A) was not justified in deleting the penalty imposed by the AO. The reliance was also placed on the order of the Tribunal in quantum appeal sustaining the disallowance of 50% of loss of opening stock of ink and the following decisions:
(i) CIT vs. T.J. Mathai (2004) 269 ITR 492 (Ker.)
(ii) CIT vs. Dr. A.K. Sharma (1993) 204 ITR 62 (Raj.)
(iii) CIT vs. K.P. Madhusudanan (2000) 246 ITR 218(Ker.)
(iv) K.P. Madhusudhanan vs. CIT (2001) 251 ITR 99 (SC)
6. On the other hand the ld. Counsel for the assessee while relying on the order of the ld. CIT(A) submits that there is no concealment of income or furnishing of inaccurate particulars of such income on the part of the assessee. The reliance was also placed on the finding 7 ITA No.3893/M/07 A.Y:01-02 recorded by the Tribunal, in quantum appeal in M/s. Sanghvi Swiss Refills Pvt. Ltd. vs. DCIT and vice-versa in ITA No.1796 & 1617/Mum/2005 for the Assessment Year 2001-02(along with other appeals) in paras-14, 23 and 34 of the order dated 26.2.2009. The reliance was also placed on the decision in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC). He therefore, submits that the order passed by the ld. CIT(A) in deleting the penalty be upheld.
7. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the assessee has shown rental income of Rs.50,40,000/- received from BEST as part of the income from business. The AO assessed the same on protective basis under the head 'income from other sources' and in the case of Jayant D. Sanghvi he assessed the same on substantive basis. The ld. CIT(A) confirmed the action of the Assessing Officer. However, the Tribunal vide its finding recorded in para-23 of its consolidated order dated 26.2.2009 (supra), has held that "... The assessment of rents received by SSRPL (Sanghvi Swiss Refills (P) Ltd.) from BEST has to be made on substantive basis in the hands of the SSRPL and this issue is decided accordingly." 8 ITA No.3893/M/07
A.Y:01-02
8. In ITO vs. Roborant Investment (I) Ltd.(2006) 7 SOT 181 (Mum) the Tribunal after considering various decisions including the judgment in K.P. Madhusudhanan vs. CIT (2001) 251 ITR 99(SC) while observing that the aforesaid judgment, in our view, supports the case of the assessee more than the case of the Department has held vide para -10 of the order dated 14.12.05 as under :-
"10. In view of the foregoing, we are of the opinion that mere rejection of a legal claim of the assessee for taxability of income under a particular head of income is not by itself sufficient to warrant imposition of penalty. Tax matters are highly complex and hence there is bound to be a genuine difference of opinion in matters of law between the tax collectors and the tax payers. It is indeed very difficult for the assessee to predict, in advance, as to what view the assessing officer or appellate authorities would take on the legal claim made by the assessee. Cases involving genuine difference of opinion on matters of law between the assessee and the assessing officer are clearly outside the scope of Explanation 1 to section 271(1) provided the assessee has made full disclosure of all the relevant facts and also acted bona fide. Tested on the aforesaid parameters, we feel that the learned Commissioner (Appeals) has correctly cancelled the impugned penalty. His order is, therefore, confirmed."
9. The above view has been reiterated by the Tribunal in Devanshi Warehousing Ganga House, Mumbai and others vs. ITO in ITA Nos. 2638,2639& 2640/M/08 for the assessment year 2004-05 order dated 1.10.2009 and in Reclamation Properties (I) Pvt. Ltd. and Others vs. ACIT in ITA No.2239 & 2240/Mum/2006 for Assessment Year 2002-03 order dated 17.12.2009 in which one of us (J.M.) was the party. 9 ITA No.3893/M/07
A.Y:01-02
10. With regard to the levy of penalty on the sustenance of disallowance of write-off of opening stock we find that it has been interalia observed by the Tribunal in quantum appeal supra in para 35 of its order dated 26.2.2009 as under :-
"....... Therefore, the question now arises is as to how the writing off of the stock by the assessee has to be considered. According to the assessee since the stock is not in a condition to use, therefore, it has written off the same. However, due to non production any satisfactory evidence, the Assessing Officer disallowed the entire amount and the CIT(A) restricted such disallowance to 50% of the amount holding that the entire ink cannot be said to have become unusable especially when the assessee is not in a position to lead any conclusive evidence in this regard. But at the same time it also cannot be said that the ink which was available with the assessee since 1.4.1996 was in a good condition and was usable even in the A.Y. 2001-02. We do not find any infirmity in the aforesaid observation of the CIT(A). Normally over a lapse of time the quality of ink deteriorates and slowly becomes unusable. Therefore, in the absence of any further evidence before him and considering the time factor the stock was lying with the assessee, the CIT(A), in our opinion, was justified in giving part relief to the assessee. Therefore, we do not find any infirmity in the order of the CIT(A) restricting such disallowance to 50% of the stock written off. The assessee could have got the full benefit of writing off of the stock in normal course provided he would have led adequate supporting evidence as to how the stock was found to be unusable and the manner of disposal of the unusable stock. Since the assessee did not produce any evidence either before the Assessing Officer or before the CIT(A) or even before us, therefore, no further benefit could be allowed to the assessee. In this view of the matter the ground raised by the Revenue as well as the ground raised by the assessee are dismissed."
11. We further find that the ld. CIT(A) in para-9 of the impugned order has also observed that "....The appellant has further pointed out that M/s. Hi Shine Ink, being expert, had certified that this ink 10 ITA No.3893/M/07 A.Y:01-02 being unusable ....." In the light of the expert report which has not been controverted by the revenue even at this stage we are of the view, that the assessee has filed adequate supporting evidence to show that the stock of the ink was unusable and, in any case, it is a case of difference of opinion.
12. In T.J. Mathai (supra), the assessee had filed a return showing Nil income whereas the income was assessed at Rs.3,85,725/-. It has been held that the Tribunal was not correct in holding that the Explanation does not come into play. As per the Explanation, the burden is on the assessee. The Tribunal should have decided the appeal in the light of the Explanation to sec.271(1)(c) and hence, the matter was remanded to the Tribunal to consider the matter in the light of the direction given by Their Lordships.
13. In Dr. A.K. Sharma (supra), the AO after completion of assessment found that the assessee had received Rs.60,571/- as consultation and injection charges from the employees of the Post and Telegraph Department but the same had not been disclosed in the return submitted. In the assessment the AO estimated the income at a figure of Rs.65,571/-. It has been held that it was for the assessee to discharge his burden initially. No positive evidence had been brought 11 ITA No.3893/M/07 A.Y:01-02 by the assessee to discharge the burden of proving that there had been no concealment of income.
14. Whereas in the case before us it is not the case of the revenue that the assessee has not disclosed its rental income or the write-off of opening stock is not supported by documentary evidence, or it is not a case of difference of opinion, therefore, both the decisions relied on by the ld. DR are distinguishable and not applicable to the facts of the present case.
15. In K.P. Madhusudhanan (supra), the assessee interalia stated that since it was unable to furnish evidence for such loans it offered the amount of Rs.93,000/- as additional income. In penalty proceeding the AO noted that it has offered the amount of Rs.93,000/- as additional income and applying Explanation 1(B) to sec 271 imposed a penalty on the assessee. The Appellate Tribunal cancelled the penalty, interalia, for the reason that in the notice initiating penalty proceedings the assessee was not intimated about the proposed action under Explanation 1(B) to section 271(1)(c); but the Hon'ble High Court on reference held that the imposition of penalty was valid. On appeal, the Hon'ble Supreme Court held, affirming the decision of the Hon'ble High Court that the penalty was validly levied further held that no express invocation of the Explanation to Sec. 271 in the notice 12 ITA No.3893/M/07 A.Y:01-02 u/s.271 is necessary before the provisions of the Explanation are applied. However, it is not the case of the assessee that the penalty is not leviable as notice initiating penalty proceeding the assessee was not intimated about the proposed action under Explanation 1(B) to sec.271(1)(c). Therefore, the decision relied on by the ld. DR is not applicable to the facts of the present case.
16. Recently Their Lordships in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC) after considering various decisions including Dilip N. Shroff vs. JCIT (2007) 291 ITR 519(SC) and Union of India vs. Dharmendra Textile Processors (2008) 306 ITR 277(SC) have observed and held (page 158 headnotes) as under :
"A glance at the provisions of section 271(1)(c) of the Income- tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.13 ITA No.3893/M/07
A.Y:01-02 Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
17. Respectfully following the above decisions and keeping in view that there is no finding of the AO that the details furnished by the assessee are found to be incorrect or erroneous or false we are of the view that, under such circumstances, the penalty is not leviable. Further making of wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty u/s. 271(1)(c) of the Act. This view also finds support from the recent decisions in CIT vs. Sidhartha Enterprises (2010) 322 ITR 80 (P&H) and CIT vs. Shahabad Co-op. Sugar Mills Ltd. (2010) 322 ITR 73(P&H). Accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the penalty imposed by the AO. The ground taken by the revenue is therefore, rejected.
18. In the result, revenue's appeal stands dismissed. Order pronounced in the open court on 7.5.2010.
Sd/- Sd/-
(PRAMOD KUMAR) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 7.5.2010.
Jv.
14 ITA No.3893/M/07
A.Y:01-02
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
Details Date Initials Designation
1 Draft dictated on 9.4.10 Sr.PS/PS
2 Draft Placed before author 12.4.10 Sr.PS/PS
3 Draft proposed & placed before the JM/AM
Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on 7.5.10 Sr.PS/PS
7. File sent to the Bench Clerk 11.5.10 Sr.PS/PS
8 Date on which the file goes to the
Head clerk
9 Date of Dispatch of order