Income Tax Appellate Tribunal - Kolkata
M/S. Mount Everest Mineral Water ... vs Dcit, New Delhi on 31 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI BENCH 'E' NEW DELHI
BEFORE : SHRI I.C. SUDHIR, JUDICIAL MEMBER &
SHRI L.P. SAHU, ACCOUNTANT MEMBER
ITA No. 1498/Del./2014
Asstt. Year : 2008-09
Mount Everest Mineral Water Ltd., vs. D.C.I.T., Circle 5(1),
(Merged with Tata Global Beverage Ltd.) New Delhi
I-3/1, B-1, Mohan Cooperative
Indl. Estate, New Delhi.
(PAN: AAACM 1274F)
ITA No. 2283/Del./2014
Asstt. Year : 2008-09
D.C.I.T., Circle 5(1), vs. Mount Everest Mineral Water Ltd.,
New Delhi (Merged with Tata Global Beverage Ltd.)
I-3/1, B-1, Mohan Cooperative
Indl. Estate, New Delhi.
(Appellant) (Respondent)
Assessee by : Sh. Kanchan Kaushal, CA &
Sh. Rishabh Malhotra, CA
Respondent by : Sh. Rajesh Kumar, Sr. DR
Date of hearing : 18.01.2017
Date of pronouncement : 31.01.2017
ORDER
Per L.P. Sahu, Accountant Member:
These two cross appeals are directed by the assessee and the revenue against the order of ld. CIT(A)-VIII, New Delhi dated 31.01.2014 in relation to penalty u/s. 271(1)(c) of the Income-tax Act, 1961 (for short 'the Act') for the assessment year 2008-09 on the following grounds :
2 ITA Nos. 1498 & 2283/Del./2014
Grounds raised in Revenue's appeal:
"1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting penalty u/s 271(1)(c) against addition made by A.O and accepted by the assessee itself of Rs. 1,86,97,395/- towards provision for doubtful debts?
2. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law.
3. That the grounds of appeal are without prejudice to each other."
Grounds raised in assessee's appeal:
"1. That on law as well as on the facts and in the circumstances of the case, the Ld. CIT(Appeals) grossly erred in not quashing the notice and thereby the penalty order passed by the Assessing Officer under section 271(1)(c) of the Act, as illegal and invalid since none of the conditions precedent for levy of penalty u/s 271(1)(c) of the Act existed.
2. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in sustaining the levy of penalty with respect to disallowance of Rs. 15,15,457/- u/s 14A of the Act, ignoring the decision of Honb'le Supreme Court in the case of CIT -vs.-Reliance Petroproducts (P.) Ltd. (2010) 322 ITR 158 (SC) and without appreciating that the same being a legal issue involving substantial question of law, penalty u/s 271(1)(c) of the Act was not leviable.
3. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) while sustaining the levy of penalty with respect to disallowance inflicted u/s 14A erred in not appreciating that the appellant neither concealed the particulars of his income nor furnished inaccurate particulars in respect of amount disallowed u/s 14A of the Act and accordingly penalty u/s 271(1)(c) was not leviable.
4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in sustaining the levy of penalty with respect to disallowance inflicted u/s 14A of the Act on the mere ground that the appellant did not contest the matter before ITAT in quantum appeal and without appreciating the decision of the Hon'ble jurisdictional ITAT in 3 ITA Nos. 1498 & 2283/Del./2014 the case of ACIT vs. M/s Transceivers India Ltd [ITA No. 196(Del)/2OO7] (Delhi) wherein it has been held that assessment proceedings and penalty proceedings are separate and mere acceptance of addition in quantum proceedings cannot lead to levy of penalty.
5. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in sustaining the levy of penalty with respect to disallowance of Rs. 175,742/- on account of year end salary provision without appreciating that the appellant neither concealed the particulars of his income nor furnished inaccurate particulars and accordingly penalty u/s 271(1)(c) was not leviable.
6. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in sustaining the levy of penalty with respect to disallowance of year end salary provision on the mere ground that the appellant did not contest the matter before ITAT in quantum appeal and without appreciating the decision of the Hon'ble jurisdictional ITAT in the case of ACIT vs. M/s Transceivers India Ltd [ITA No. 196(Del)/2007] (Delhi) wherein it has been held that assessment proceedings and penalty proceedings are separate and mere acceptance of addition in quantum proceedings cannot lead to levy of penalty."
2. The brief facts of the case are that the assessee company was engaged in the business of manufacturing and sale of packaged drinking water and trading of power horse-energy drinks. The assessment in this case was completed u/s. 143(3) on 13.12.2010 at loss of (-) Rs.2,65,36,440/- as against returned loss of (-) Rs.4,71,75,033/- after making following additions/disallowances :
(i). disallowance for provision for doubtful debts : Rs.1,86,97,395/-
(ii). Addition on a/c of Disallowance u/s. 14A : Rs. 15,15,457/-
(iii). Disallowance for excess provision for MD's Salary: Rs. 1,75,742/-4 ITA Nos. 1498 & 2283/Del./2014
After recording satisfaction in the assessment order, penalty proceedings u/s.
271(1)(c) were subsequently initiated by the AO by issuing show cause notice to the assessee.
3. The relevant facts relating to first issue are that the assessee debited an amount of Rs.1,86,97,395/- to the Profit & Loss account on account of provision for doubtful debts. The assessee was confronted on this issue during the assessment proceedings that why this amount should not be added to the total income of assessee as this is only a provision and not an actual expenditure. The assessee accepted the discrepancy vide its submissions dated 29.10.2010 submitting that by mistake it was not added back in the computation of taxable income. Therefore, keeping in view that it was only a provision and not actual ascertained expenditure, the AO added the same by disallowing the claim made in the return. Since the assessee had admitted this disallowance, he did not challenge the same in any further appeal.
4. In the penalty proceedings also, the assessee reiterated that it was due to the inadvertent mistake that the said provision for doubtful debt was not added back to the computation of taxable income and has admitted the same vide reply dated 29.10.2010 without being questioned offering the same for taxation. Therefore, there was no deliberate act on the part of Assessee 5 ITA Nos. 1498 & 2283/Del./2014 Company to conceal the amount of provision or filing inaccurate particulars of income, as the amount of doubtful debts was clearly reflected in the books of accounts submitted before the AO. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Price Waterhouse Coopers (P) Ltd. vs. CIT, 348 ITR 306(SC). The Assessing Officer did not accept the reply of assessee observing that the alleged mistake is not a bona fide mistake, as it was only during the course of assessment proceedings when the AO specifically pointed out this discrepancy to the assessee, then the assessee accepted the default. Had the Assessing Officer not pointed out this discrepancy to the assessee, the assessee would not have offered the same for taxation. Therefore, relying on the following decisions, the AO imposed penalty on the basis of this addition :
(i). CIT vs. Zoom Communications Pvt. Ltd., 327 ITR 51 (Del.)
(ii). Thakur V. Hari Prasad vs. CIT, 167 ITR 603 (AP)
(iii). Union of India vs. Dharmendra Textile Processors, 166 Taxman 65(SC)
(iv). K.P. Madhusudan vs. CIT, 251 ITR 99.
(v). Mussadilal Ram Bharose's case, 165 ITR 14 (SC).
5. As far as the disallowance u/s. 14A is concerned, it was noticed that the assessee earned an income of Rs.3,06,59,085/- from dividends and claimed exemption u/s. 10(33) of the Act. As per computation of income, the assessee disallowed a sum of Rs.2,50,000/- in view of section 14A read with Rule 8D of the Act stating that no direct expenses like interest on borrowed capital or 6 ITA Nos. 1498 & 2283/Del./2014 commission has been incurred by the assessee company to earn the exempt income and the investments to earn such dividend income were funded from the increase in paid up capital during the year and issue of fresh equity shares. The AO did not accept the claim of assessee observing that the assessee failed to file any details and evidence in support of its claim and has suo moto disallowed a sum of Rs.2,50,000/- on estimate basis. He, therefore, computed the disallowable expenditure as per Rule 8D at Rs.17,65,457/- and after giving benefit of expenditure of Rs.2,50,000/- disallowed by assessee itself, made net disallowance at Rs.15,15,457/- and added the same to the total income of the assessee company. This disallowance stood confirmed from the stages of first appellate Authority. In the penalty proceedings, the assessee reiterated the submissions made in the assessment proceedings and submitted that the assessee has neither concealed any particulars nor furnished any inaccurate particulars of income. The AO did not accept the reply of assessee observing that no details or evidence were submitted by assessee to justify its claim of suo moto disallowance of Rs.2,50,000/- and such disallowance was to be made strictly as per method provided in clause (iii) of Rule 8D(2) of the IT Rules, 1962. The AO, therefore, imposed penalty on the basis of this addition observing that the assessee has deliberately concealed the true particulars of its income.
7 ITA Nos. 1498 & 2283/Del./2014
6. Regarding the third disallowance on account of excess provision for MD's salary, the AO noticed in the assessment proceedings that the assessee has debited an amount of Rs.1,75,742/- in the Profit & Loss Account on account of excess provision for Managing Director's salary, which has been reversed in the next year. The contention of the assessee was that this provision was made on estimate basis which was reversed in the next year. The AO was of the view that MD's salary is fixed as per provisions of Companies Act, 1956, and are fixed by passing required resolutions and approvals from appropriate authorities. Any change in the salary requires the same procedure. Moreover, this was not the actual liability, but a provision without any basis. He, therefore, disallowed the same. This disallowance stood confirmed in appeal before the CIT(A). The AO imposed penalty on the basis of this disallowance stating that the assessee had furnished inaccurate particulars of income.
7. The assessee challenged the penalty order in appeal before the ld. CIT(A), who deleted the penalty imposed on the basis of addition of Rs.1,86,97,395/- to the Profit & Loss account on account of provision for doubtful debts and sustained the penalty imposed on the basis of other two disallowances of Rs.15,15,457/- u/s. 14A and Rs.1,75,742/- on account of excess provision for Managing Director's salary. Both the parties were not 8 ITA Nos. 1498 & 2283/Del./2014 satisfied with the impugned order, hence, these cross appeals by the assessee and the Revenue.
8. During the course of hearing, the ld. AR of the assessee submitted that the essential ingredients for levy of penalty u/s. 271(1)(c), i.e., concealment of income or furnishing inaccurate particulars of income do not exist in the instant case. It was due to inadvertent mistake that the assessee did not add the provision for doubtful debts in the computation of taxable income. Such provisions were also being made and offered for taxation in past and subsequent years. The assessee company is suffering from heavy losses in the year under consideration, hence, there was no any purported intention to derive any tax benefit by making such claim. Reliance is placed on the decision of Hon'ble Supreme Court in the case of Reliance Petroproducts (P) Ltd., 322 ITR 158 (SC) and in Price Waterhouse Coopers (P) Ltd. vs. CIT, 348 ITR 306(SC). Several other decisions are also relied on by the assessee.
9. It was further submitted that simply because the disallowance u/s. 14A was sustained in appeal, the ld. CIT(A) was not justified to confirm the penalty, as it does not constitute furnishing of inaccurate particulars of income. It was submitted that the appellant maintains the accounts on mercantile basis wherein provisions are made on the basis of best available 9 ITA Nos. 1498 & 2283/Del./2014 estimate at the end of the year and paid in next year. Excess provision made with respect of director's salary was reversed in the next financial year at the time of payment. Such provision has been reflected as contingent liability. Therefore, merely because the disallowance was sustained in appeal does not warrant to hold that the assessee had furnished inaccurate particulars of income.
10. On the other hand, the ld. DR relied on the order of the AO on the issue of penalty imposed with respect to not offering the provision of bad debts for taxation in the computation of income. It was submitted that the assessee offered the same to tax only when he was confronted with the fact in the assessment proceedings. It was submitted that had the case of assessee not been selected for scrutiny and assessee not been apprised of the above discrepancy, there was no reason to offer the same for taxation. Therefore, the penalty imposed for furnishing inaccurate particulars of income is sustainable in view of the decisions relied on by the Assessing Officer. It was also submitted that the remaining two additions stood confirmed at the appellate stage and the assessee could not be able to properly explain as to why such provisions were being made with respect of excess salary of MD, when there was no such liability as the assessee was maintaining the accounts on mercantile system of accounting. The suo moto disallowance u/s. 14A made 10 ITA Nos. 1498 & 2283/Del./2014 by assessee was based on estimate only and the assessee did not justify the same. Therefore, the addition made by applying Rule 8D and penalty imposed for furnishing inaccurate particulars of income are quite justified.
11. We have considered the rival submissions and have gone through the entire material available on record. As regards the penalty imposed with respect to the of addition of Rs.1,86,97,395/- on account of disallowance of provision for bad debts, a perusal of record shows that the ld. CIT(A) has accepted the contentions of the assessee that -
(i). the company has been incurring huge losses in the past and future years and hence, there was no intended tax benefit in making this claim and;
(ii). the assessee had been adding such provision in the past and subsequent years in the computation of taxable income.
On this basis, the ld. CIT(A) observed that the mistake committed by the assessee for not including the provision for bad debts in the computation of taxable income was a bonafide mistake and the assessee cannot be penalized for furnishing inaccurate particulars of income in view of the decision in the case of Price Water Coopers (supra). We do not concur with the findings of the ld. CIT(A). It is notable that the legislative intent behind the provisions of 11 ITA Nos. 1498 & 2283/Del./2014 section 271(1)(c) is to penalize the assessee for concealing particulars of income and/or furnishing inaccurate particulars of such income. It is of no consequence whether the income returned was a profit or loss. Therefore, even if there is loss return and no tax was leviable even after disallowance, penalty u/s 271(1)(c) was still leviable. For this view, we stand fortified by the decision of Hon'ble Apex Court in JCIT, Surat vs Saheli Leasing & Industries Ltd [2010] 191 TAXMAN 165 (SC). It is also evident from record that there is no voluntary offer by the assessee to tax the provision for bad debts, but it was only when the AO pointed out the discrepancy in the assessment proceedings and when the assessee was cornered, then he offered the same for taxation. The contention of assessee that it was a bona fide inadvertent mistake on the part of assessee further does not get support from the fact that he has been offering such provision to tax in past and subsequent years. This fact rather goes against the assessee for the reason that the assessee was well acquainted with law of such provision and therefore, it is not acceptable at all that return compilation was done by one of company's employee, who on account of ignorance committed the said mistake, as no support was taken from professional/tax expert. A perusal of the impugned order further shows that the ld. CIT(A) has failed to rebut the findings recorded by the Assessing Officer based on the decision of Hon'ble jurisdictional High Court in the case of CIT vs. Zoom Communications Pvt. Ltd., 12 ITA Nos. 1498 & 2283/Del./2014 327 ITR 51 (Del.), of AP High Court in Thakur V. Hari Prasad vs. CIT, 167 ITR 603 (AP) and Union of India vs. Dharmendra Textile Processors, 166 Taxman 65(SC). The decision in the case of Price Water Cooper (supra), in our opinion, does not render any help to the assessee, as in that case, the assessee had filed the revised return, which is not the case here. In view of decision of Hon'ble Apex court in Dharmendra Textile Processor's case, A.O. need not to prove that the assessee intentionally made incorrect or submitted false information or filed incorrect details in return of income. It is also worth consideration that the provision for bad debt included in the computation of total income by assessee in previous A.Yrs. 2005-06, 2006-07and 2007-08 was only for Rs.2,46,982/-, Rs.4,43,195/- and Rs. Nil respectively and in subsequent years 2009-10 and 2010-11 was for Rs.79,37,279/- and Rs.21,37,000/- respectively which was included in the respective computations of taxable income. However, such provision claimed during the year under consideration was for a huge amount of Rs.1,86,97,395/- which for want of any plausible circumstantial or documentary evidence could not be treated to be left from inclusion in the computation of taxable income due to inadvertent bona fide mistake. It is significant to mention here that the assessee could have voluntarily rectified this mistake while filing the return for the subsequent assessment year 2009-10 where he included the provision for bad debts in the computation of total income. The assessee had sufficient time to revise the 13 ITA Nos. 1498 & 2283/Del./2014 return for A.Y. 2008-09 upto 31.03.2010 and by that time, the scrutiny proceedings would have also been started against the assessee as per law. However, the assessee did not file any revised return. It was only on the query of AO, the assessee admitted the default and offered the provision for taxation. It, therefore, can be hardly assumed that the default was due to bonafide inadvertent mistake on the part of assessee. We, therefore, do not find any justification to sustain the impugned order deleting the penalty on this count, as the AO has justifiably proved that the assessee has furnished inaccurate particulars of income entailing penalty u/s. 271(1)(c) of the Act. Accordingly, the penalty imposed on this account deserves to be sustained and the appeal of the Revenue deserves to be allowed.
12. Adverting to the appeal of the assessee, we find substance in the contentions of assessee that the disallowance u/s. 14A in the instant case was inflicted on the legal contentions and hence, no charge can be imposed on the assessee for concealing the particulars of income. The contention of the assessee had been that no direct expenses like interest on borrowed capital or commission has been incurred by the assessee company to earn the exempt income and the investments to earn such dividend income were funded from the increased paid up capital during the year and issue of fresh equity shares. The ld. Authorities below have not tried to verify the contention of the 14 ITA Nos. 1498 & 2283/Del./2014 assessee from the books of account of the assessee before imposing penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income. The appellant has submitted before us audited balance sheet, which is available at page 7 of the paper book. The balance sheet shows that there was paid up capital of Rs.49,64,91,569/- as at 31st March, 2007,which stood increased to Rs.1,20,88,32,009/- as at 31st March, 2008. Accordingly, there was increase in paid up capital by Rs.71,23,40,440/- during the year under consideration. The schedule - 4 forming part of the balance sheet shows the investment of Rs.70,61,82,823.10 which commensurate to the increase in paid up capital. Therefore, without verifying the explanation of the assessee to justify the suo moto disallowance made by it, it can hardly be said that the assessee had furnished inaccurate particulars of income. A perusal of impugned order shows that the ld. CIT(A) has recorded a categorical finding that the assessee has disclosed all the expenses correctly in its books of account, which has been disregarded by the AO. However, the ld. CIT(A) has affirmed the penalty simply because the impugned addition u/s. 14A read with Rule 8D stood confirmed in quantum appeal and the appellant did not challenge the same in further appeal before the Tribunal. We are not inclined to concur with this finding of the ld. CIT(A), for the simple reason that penalty and assessment proceedings are separate proceedings and mere confirmation of addition does not lead to hold that the assessee had furnished inaccurate particulars of 15 ITA Nos. 1498 & 2283/Del./2014 income for imposition of penalty. Moreover, the issue involved was a debatable issue and the assessee had furnished all material facts before the AO based on its books of account. Besides, simply because the assessee's claim was not found sustainable, does not warrant to hold that the assessee had furnished inaccurate particulars, as held by Hon'ble Apex Court in the case of Reliance Petroproducts (P) Ltd. (supra). On the above facts of this issue, following decisions, as relied by the assessee, go to support its stand:
(i). Ravindra Bahl vs. ADIT, 42 Taxman.com 404(Del.)
(ii). ACIT vs. M/s. Transceivers India Ltd.(ITA No. 1996/Del./2007- ITAT, New Delhi.
(iii). CIT vs. Jayaraj Talkies, 239 ITR-914 (Mad)
(iv). Aargee Drugs vs. DCIT, 61 Taxman.com 254.
(v). ACIT vs. DSL Software Ltd., 147 TTJ 67.
In view of the above narration of facts, we set aside the order of the ld. CIT(A) on this issue and delete the penalty imposed on the basis of addition of Rs.15,15,457/- made u/s. 14A of the Act.
13. As regards the confirmation of penalty imposed on the basis of excess provision for MD's salary, we further do not find any justification to disturb the penalty order on this issue. It is notable that the Managing Director's salary is governed by Articles of Association of the company and is fixed by passing required resolutions and any increase/decrease in the salary requires the same procedure. Therefore, there was no reason for the assessee to make 16 ITA Nos. 1498 & 2283/Del./2014 such provision for excess salary of Managing Director. Moreover, there is nothing on record to rebut the finding of AO that it was a mere provision and not the actual liability. The addition on this account was confirmed in appeal and the assessee did not challenge the same in any further appeal. The assessee failed to offer plausible explanation to make such provision for excess salary, which led the AO to hold that the assessee consciously furnished inaccurate particulars of its income. We do not find any justification to disturb the findings of the AO and therefore, the ld. CIT(A) has rightly confirmed the penalty on this account. Accordingly, the appeal of the assessee deserves to be allowed in part.
14. In the result, the appeals of the Revenue and assessee are partly allowed.
Order pronounced in the open court on 31.01.2017.
Sd/- Sd/-
(I.C. SUDHIR) (L.P. SAHU)
Judicial Member Accountant Member
Dated : 31.01.2017
*aks/-
Copy of order forwarded to:
(1) The appellant (2) The respondent
(3) Commissioner (4) CIT(A)
(5) Departmental Representative (6) Guard File
By order
Assistant. Registrar
Income Tax Appellate Tribunal
Delhi Benches, New Delhi