Income Tax Appellate Tribunal - Delhi
Forza Medi India (P) Ltd., New Delhi vs Department Of Income Tax on 29 October, 2005
IN THE INCOME TAX APPELLATE TRIBUNAL
[ DELHI BENCH "B" DELHI ]
BEFORE SHRI A. D. JAIN, JM AND SHRI K. D. RANJAN, AM
I. T. A. No. 4403 (Del) of 2010
Assessment year : 2006-07.
Dy. Commissioner of Income-tax, M/s. Forza Medi India (Pvt.) Ltd.,
C i r c l e : 11 (1), Vs. A-5, Malcha Marg, Diplomatic Enclave,
N E W D E L H I. Chanakya Puri, N E W D E L H I.
P A N / G I R No. AAA CF 4557 G.
( Appellant ) ( Respondent )
Assessee by : Shri P. D. Mittal, C. A.;
Department by : Ms. Y. Kakkar, Sr. D. R.;
O R D E R.
PER K. D. RANJAN, AM :
This appeal by the Revenue for assessment year 2006-07 arises out of order of the ld. CIT (Appeals)-XIII, New Delhi.
2. The grounds of appeal raised by the Revenue are reproduced as under :-
" 1. The order of the ld. CIT (Appeals) is wrong, perverse, illegal and against the provisions of law, liable to be set aside;
2. On the facts and circumstances of the case and in law, the ld. CIT (Appeals) has erred in deleting the penalty under section 271(1)(c) of the I. T. Act of Rs.4,20,672/- on account of excess claim of depreciation under section 40(a)(ia) of the Act. "2
I. T. A. No. 4403 (Del) of 2010
3. The only issue raised in the Revenue's appeal relates to penalty imposed under section 271(1)(c) of the Income-tax Act, 1961 [hereinafter referred to as the Act]. The facts of the case stated in brief are that the assessee claimed a deduction of Rs.20,79,475/- in computation of income on account of rent of building and professional charges. On a query it was submitted that tax deducted at source on rental income was not deposited during the period relevant to assessment year 2005-06 and the same was deposited in assessment year 2006-07. It was also submitted that provisions of section 40(a)(ia) of the Act were applicable to rental income with effect from 1/04/2006. The AO observed that the tax audit report for AY 2005-06 stated that the payments made towards rent of building and professional charges amounting to Rs.10,33,725.49 and Rs.8,29,436.89 respectively, on which TDS amounting to Rs.1,58,160/- and Rs.42,716/- was deposited after stipulated date due for such payment. From these facts the AO came to the conclusion that amount of Rs.8,29,436/- disallowed in AY 2005-06 was required to be allowed on payment basis in the current year. Therefore, the assessee had made a claim of deduction to the extent of Rs.12,50,039/- (20,79,475- 8,29,436) in excess. He accordingly added the amount of Rs.12,50,039/- and initiated penalty proceedings under section 271(1)(c) of the Act.
4. The assessing officer imposed penalty under section 271(1)(c) of the Act on the ground that the assessee has furnished inaccurate particulars to the extent of Rs.12,50,039/-. On appeal it was submitted that tax deducted at source was deposited late and addition has been made on account of operation of section 40(a)(ia). There was nothing on record to show that the assessee had concealed income or furnished inaccurate particulars of such income. All the facts with regard to disallowance made was very much available on record. It was also submitted that the statutory auditors have made the remarks in the tax audit report for AY 2005-06 without taking into consideration that the rent expenses have been included in the provisions of section 40(a)(ia) with effect from 1/04/2006 by Taxation Laws (Amendment) Act, 2006. The mistake on the part of the statutory auditors appears to be bonafide and as a result of out of sight. It was also submitted that the bonafide belief has arisen on account of error committed by statutory auditors of the company while issuing tax audit report for AY 2005-06. In fact the statutory auditors, M/s. S. N. Dhawan & Co. have observed that the rent of the building and the professional 3 I. T. A. No. 4403 (Del) of 2010 charges will not be allowed due to delayed payment of TDS in replying to item No. 17-F of the Form No. 3-CD prepared for AY 2005-06 dated 29/10/2005. Subsequently, it was noticed that the disallowance of rent of building on account of delayed payment of TDS has come into operation with effect from 1/04/2006 relevant to AY 2006-07 and not AY 2005-06. Further there was nothing to show that the assessee had concealed the particulars of income or has furnished inaccurate particulars of such income. The facts of the present case thus squarely covered by the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products P. Ltd. 322 ITR 158 (SC).
5. The ld. CIT (Appeals) after considering the facts deleted the penalty by observing as under :-
" It is, however, observed from the facts as referred to above that the claim of deduction of Rs.20,79,374/- under section 40(a)(ia) of the Act was made by the appellant in AY 2006-07 under the bonafide belief that the said deduction was not allowable for AY 2005-06. This bonafide belief had arisen on account of error committed by the statutory auditors of the company while issuing the tax audit report for AY 2005-06, a copy of which has been filed during the appellate proceedings and is on record. It is this error of the statutoty auditors which lead to the claim of deduction of Rs.20,79,475/- by the assessee in his return of income for AY 2006-07. That as the error was apparent therefore, consequent to the disallowance of Rs.12,50,039/- from the total claim of Rs.20,79,475/-, the appellant did not file an appeal against the said assessment order. The assessee has also relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products P. Ltd. 322 ITR 158 (SC). Thus, it is not a case which can be said to be strictly covered by the provisions of section 271(1)(c) and from the explanation given by the assessee it is observed that the bonafide error happened in the return because of tax audit report of the statutory auditors, who in any case are supposed to be more conversant with the Income-tax provisions. Respectfully following the observations of Hon'ble Supreme Court in the case of 4 I. T. A. No. 4403 (Del) of 2010 CIT Vs. Reliance Petro Products P. Ltd. 322 ITR 158 and applying it to the facts of the appellant's case, the penalty imposed is deleted. "
6. Before us the ld. Sr. DR submitted that the assessee had made excess claim of deduction in the year under consideration. No appeal was filed by the assessee against quantum addition. It has been submitted that the explanation offered by the assessee should be bonafide and not a fantastic explanation. Mistake of auditors is not a criteria. The ld. CIT (Appeals) has placed reliance on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products P. Ltd. (supra) which is not applicable to the facts of the assessee's case. She placed reliance on the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Sri Valliappa Textiles 294 ITR 322 (Kar.) for the proposition that tax deduction or exemption should be for bonafide reason and not for those who make false declaration for the purpose of benefit in terms of statute. The provisions of section 271(1)(c) had to be strictly applied in the larger interest of discipline in filing correct returns of income by the assessee. On the other hand, the ld. Counsel for the assessee submitted that there was bonafide mistake on the part of the assessee as the statutory auditors have given note in assessment year 2005-06 that provisions of section 40(a)(ia) were applicable to rentals. The assessee has not furnished any inaccurate particulars of income. Therefore, the ld. CIT (A) has rightly deleted the penalty.
7. We have heard both the parties and gone through the material available on record. In the instant case that the assessee had not claimed deduction on account of rent paid in AY 2005-06 on the ground that TDS was deposited late and in AY 2006-07. The counsel for the assessee were under the belief that provisions of section 40(a)(ia) were applicable for AY 2006-07. The assessee had not concealed any income nor has furnished any inaccurate particulars of income. In the case of CIT Vs. Reliance Petro Products P. Ltd. (supra) Hon'ble Supreme Court has held that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars of his income. In AY 2006-07 the assessee claimed deduction on the advice of his chartered accountant that deduction of Rs 20,79,475 was not allowable as the TDS was deposited late. The assessing officer allowed deduction of Rs 8,29,436/- as provisions of section 40(a)(ia) were applicable in AY. 2005-06 in respect of professional income. But in respect of rental income the 5 I. T. A. No. 4403 (Del) of 2010 provisions of section 40(a)(ia) came into operation w.e.f. 2006. Hence amount of Rs 12,50,039/- was allowable as deduction in AY. 2005-05. Thus mistake was committed on the advice his Charterd Accountant which led to making of claim in AY 2006-07, the year in which TDS was deposited Therefore, it is a case of bonafide belief that the assessee was eligible for deduction in respect of rental payments in AY 2006-07 on the basis of payment of TDS which was disallowed by the assessee in AY 2005-06. Therefore, the ld. CIT (A) was justified in cancelling the penalty imposed under section 271(1)(c) of the Act relying on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products P. Ltd. (supra).
8. In the result, the appeal filed by the Revenue is dismissed.
The order pronounced in the open court on : 04th February, 2011.
Sd/- Sd/-
[ A. D. JAIN ] [ K. D. RANJAN ]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 04th February, 2011.
*MEHTA*
" Copy of the order forwarded to : -
1. Appellant.
2. Respondent.
3. CIT,
4. CIT (Appeals),
5. DR, ITAT, NEW DELHI.
True Copy. By Order.
Assistant Registrar, ITAT. "