Income Tax Appellate Tribunal - Chandigarh
Acit, Patiala vs Sh. Raj Kumar Wadhwa, Patiala on 30 December, 2016
I N T H E I N C O M E T A X AP P EL L AT E T R I BU N A L
D I VI S I O N B EN C H , C H AN D I G A R H
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 123/CHD/2015
Assessment Year: 2006-07
The ACIT, Vs Smt. Usha Wadhwa,
Circle, L/H of Late Shri Raj Kumar Wadhwa
Patiala. Prop. M/s Lucky Traders,
Opp. British Co-Ed School,
Lower Mall Road,
Patiala.
PAN: AABPW6062H
(Appellant) (Respondent)
Appellant by : Shri S.K.Mittal, DR
Respondent by : Shri Sudhir Sehgal &
Shri Ashok Goyal,CA
Date of Hearing : 20.12.2016
Date of Pronouncement : 30.12.2016
O R D E R
PER BHAVNESH SAINI,JM This appeal by revenue has been directed against the order of ld. CIT(Appeals) Patiala dated 15.12.2014 for assessment year 2006-07 challenging the cancellation of penalty under section 271(1)(c) of the Income Tax Act.
2. We have heard ld. Representatives of both the parties and perused the material on record. 2
3. The facts of the case are that in this case, the Assessing Officer made addition of Rs. 41,14,518/- on account of disallowance of liasoning commission. The ld. CIT(Appeals) deleted the addition, however, ITAT Chandigarh Bench confirmed the order of the Assessing Officer in making the addition of Rs. 41,14,518/- on account of liasoning commission. The Assessing Officer then imposed the penalty under section 271(1)(c) of the Act against the addition confirmed of Rs. 41,14,518/-.
4. The assessee filed detailed submissions before ld. CIT(Appeals) which have been reproduced in the impugned order in which the assessee briefly explained that assessee is individual, had been running the business of resale of cement at Patiala and was acting as handling agent for M/s J.K. Cement Works, Rajasthan for handing its products during the financial year 2005-06 relevant to the assessment year under appeal. As handling agent, the role of assessee was to get the cement dispatched by M/s J.K. Cement Works from its manufacturing unit at Rajasthan, unloaded in the company godowns at Patiala, Bathinda and Rajpura and thereafter get the same reloaded for different destinations against orders procured by the company. The assessee was acting as a sale promoter for M/s J.K. Cement Works at southern region of Punjab as well. The assessee was further appointed by M/s Sarvshaktiman Traders Pvt. Ltd. of Delhi (STPL) [Chief Sale Promoter 3 for M/s J.K.Cement Works] as service agent for the State of Haryana for catering to the government and semi-government organizations and other institutional buyers. The role of assessee was to get the supply orders from these organizations released at priority in respect of allocations made against the tender offers of the company M/s J.K. Cement Works so accepted by the government authorities and to ensure time schedule for supply and timely payments against such supplies. The assessee is engaged in the above business activities for last many years and has been maintaining offices at Patiala and Bathinda and had opened another office at Rajpura during the year under consideration with his own team of employees to look after the activities mainly in State of Punjab. However, services in the State of Haryana as service agent for catering to the government and semi government organizations and other institutional buyers were provided/managed through other service providers in that State also. The role of these service providers was to get the purchase orders released in favour of M/s J.K. Cement Works at the earliest and ensure the timely release of payments in favour of the company. They were further responsible for getting sorted out any kind of dispute that might arise during the execution of those supply orders by the company. These service providers had been assigned different areas.
44(i) The assessee was to get the service commission at Rs. 25/- per ton of cement so supplied and had agreed with the service providers to pay Rs. 20/- per ton against the services to be provided by them on the basis of quantity supplied during the financial year in the area so assigned to a particular service provider. This arrangement needs to be appreciated from the point of a prudent businessman as it was not possible for the assessee being individual to have his own office at different places in State of Haryana and to control a large number of employees required for looking after about 200 such consignees of different organizations at those places. The assessee produced all the books of account and other records to substantiate the explanation before the authorities below. The assessee incurred the expenses for business purposes only. 4(ii) The assessee preferred appeal before ld. CIT(Appeals) and addition have been deleted accepting the explanation of the assessee that business expenses incurred for running the services in the State of Haryana for STPL Delhi. However, ITAT has set aside the order of the ld. CIT(Appeals) and uphold the addition on the ground that assessee had not been able to establish the link between the expenses incurred and services rendered. It was also submitted that no satisfaction regarding concealment have been recorded by the Assessing Officer. The penalty proceedings are 5 different from assessment proceedings therefore, penalty need not to be imposed in each and every cases. The assessee relied upon several decisions in support of his contention. The assessee further submitted that he has not furnished inaccurate particulars of income and has not concealed the particulars of income because all the material facts were disclosed to the revenue authorities. It was submitted that material particulars namely, name and addresses, payment made on account of liasoning, purpose of payment had been placed on record of the Assessing Officer. The persons who have provided services in State of Haryana were produced before Assessing Officer and their statements have been recorded in which they have admitted the receipt of payment from the assessee. Thus, all the material facts were within the knowledge of the Assessing Officer. It was further stated that mere making of claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding income of the assessee. The assessee relied upon decision of Hon'ble Supreme Court in the case of CIT Vs Reliance Petroproducts Pvt. Ltd. 230 CTR 231. The assessee, therefore, pleaded that penalty may be cancelled. The Assessing Officer in the remand report reiterated the facts stated in the penalty order. The assessee in the rejoinder reiterated the same facts.
6
5. The ld. CIT(Appeals) considering material on record and rival submissions, deleted the penalty. His findings in para 4.4 and 5 of the impugned order are reproduced as under :
" 4.4 I have considered the submissions made. The facts emanating from the record is that the appellant was engaged by M/s Sarvashaktiman Traders Pvt. Ltd. (The Chief Sale Promoters for JK Cement Work) as service agent for the state of Haryana. As contended the services in the State of Haryana were managed through other service providers/ sub-agents. The A.O. however disallowed the expenditure claimed by the appellant as incurred on the service providers for providing services in the state of Haryana to the tune of Rs.41,14,518/-. During the course of assessment proceeding, the appellant submitted complete details of sub-agents. The A.O., thereafter, recorded the statements of the sub-agents who confirmed having received the payment after deduction of TDS, service tax etc. However, the A.O. disallowed the expenses on the grounds that the sub-agents have not collected the payments from the parties on behalf of the appellant. Rather, it was contended that the purchasing agents directly issued drafts to J.K. Cement. Further during the year, these parties have also not settled any dispute claiming that no dispute arose during the year. Moreover, it was noted that the payments to the sub-agents were cleared only in the month of March'06 through the liason work was continued during the entire year. Thereafter, the Id. CIT(A) allowed the expenses claimed. The Id. CIT(A) noted that the sub-agents in these statements have confirmed receipt of commission by A/c payee cheques after TDS and service tax is also levied. It was observed that the shortcoming noted by the A.O. are only procedural in nature and not of substance and that the A.O. can't decide the quantum of commission being given to sub--agents. However, Hon'ble ITAT disallowed the expenditure confirming the order passed by the A.O. The appellant has further submitted that the issue is debatable as on same set of facts different views are taken by 7 different authorities and also because on same set of facts the appeal is admitted in Hon'ble High Court in Assessment Year 2007-08 and relied on various case laws.
Thus, in this case, firstly it is noted that the appellant has disclosed all facts. The sub-agents also appeared before the A.O. and confirmed receipt of commission which was subject to TDS and service tax also. Further, the Ld. CIT(A) allowed the expense but subsequently the expense was disallowed by the Hon'ble ITAT. It is also noted that in A.Y. 2005-06, in the original scrutiny proceedings, the A.O. allowed similar expenses. Thus, it also is noted that on same set of facts, differing views are taken by the different Authorities. In this case therefore the appellant has disclosed all facts and the sub- agents have also confirmed receipt of the commission on which TDS and service tax is deducted and the issue is debatable as on same set of facts, the A.O. in A.Y. 2005-06 original proceedings has not made any addition & Id. CIT(A) in A.Y. 2006-07 has accepted the submission of the appellant. Looking into the facts of the case and submission made therefore in my opinion, penalty should not be levied in this case. Reliance is made on the case o/CITus. Reliance Petroproducts Pvt. Ltd. 230 CTR 331 (SC). Penalty levied is, therefore, cancelled.
5. In the result, the appeal is allowed."
6. The ld. DR relied upon order of the Assessing Officer and submitted that assessee failed to substantiate liasoning commission expenses. The claim of the assessee is not bonafide, therefore, Explanation-I to Section 271(1)(c) of the Act is clearly attracted. The ld. DR submitted that Hon'ble High Court has also confirmed the order of the Tribunal in confirming the addition on merits vide judgement dated 18.07.2013 in 8 the case of Raj Kumar Wadhwa Vs CIT, Patiala in IT Appeal No. 117 of 2012. Copy of the judgement of the High Court is placed on record. The ld. DR submitted that penalty is strictly a civil liability and relied upon decisions of Hon'ble Supreme Court in the case of Dharmendra Textile & Processors 306 ITR 277 and Atul Mohan Bindal 317 ITR 1. The ld. DR also relied upon decision of Hon'ble Punjab & Haryana High Court in the case of Shiv Narain Khanna 107 ITR 542 on the proposition that same material could be used in penalty proceedings on the basis of facts and circumstances of the case for the purpose of levy of the penalty. 6(i) On the other hand, ld. counsel for the assessee reiterated the submissions made before authorities below. He has referred to PB-1 which is details of liasoning commission paid during assessment year under appeal. PB-2 to 8 are copies of the bills raised by the parties for the purpose of charging commission and service tax. PB-9 is details of liasoning DS & D received and paid for the years 2002-03 to 2005-06. PB-17 to 30 are the copies of the statements of the sub-agents recorded by the Assessing Officer at assessment proceedings in which they have confirmed receipt of liasoning commission from the assessee. The ld. counsel for the assessee submitted that assessee is carrying on same business activities in past as well as in assessment year under appeal. The parties in earlier 9 year were different but modus-operandi of business of the assessee is same. Therefore, claim of the assessee cannot be said to be incorrect or false for claiming liasoning expenses. He has submitted that sub-agents have duly raised bills for commission and sales have actually been made. The assessee had deducted TDS on such payments for commission and service tax provisions are also complied with by the commission agent. The assessee at the assessment stage provided each and every material and has not concealed any particulars of income. The assessee disclosed all the material facts before the authorities below and addition is made merely on difference of opinion. The ld. counsel for the assessee relied upon following decisions on the proposition that no penalty could be levied even if addition has been confirmed by the higher authorities :
i) CIT Vs Bal Kishan Dhawan, HUF (ITA No. 183/13 Hon'ble Punjab & Haryana High Court (PB-29)
ii) CIT Vs Ajaib Singh & Co. 253 ITR 630 (P&H) (PB-34).
iii) CIT Vs Mehta Engineers Ltd. 219 CTR 285 (P&H) (PB-38).
iv) CIT Vs Sangrur Vanaspati Mills Ltd. 303 ITR 53 (P&H) ( PB-40) 6(ii) The ld. counsel for the assessee also filed comparative chart of liasoning commission paid in 10 assessment year under appeal as well as in preceding assessment years 2002-03 to 2005-06 supported by the trading and Profit & Loss Account for all these years in which assessee has shown net income by liasoning. He has submitted that in financial year 2002-03 and 2003- 4, the returned income have been accepted under section 143(1) and in financial year 2004-05 the returned income have been accepted, later on disallowance has been made under section 148 of the Act. The ld. counsel for the assessee, therefore, submitted that ld. CIT(Appeals) on proper appreciation of facts and material on record rightly deleted the penalty.
7. We have considered rival submissions. It is not in dispute that Assessing Officer disallowed the liasoning commission for the amount in question but the ld. CIT(Appeals) deleted the addition by accepting the explanation of the assessee. The revenue preferred appeal before the Tribunal and Tribunal vide order dated 23.02.2010 allowed the departmental appeal by upholding the order of the Assessing Officer in making the addition of Rs. 41,14,518/-. Copy of the judgement is placed on record. The Tribunal in the order precisely noted that assessee has failed to explain with evidence the nature of services rendered by the sub agent. The Tribunal also noted that onus is upon assessee to establish that expenses have been incurred for the 11 purpose of business. The order of the Tribunal has been confirmed by the Hon'ble High Court. In the background of these facts, it is clear that the assessee in earlier years was doing the same business activities and in earlier year, the assessee in Profit & Loss Account has shown the business income on liasoning by declaring net income on liasoning in Profit & Loss Account. The details of the same are placed on record. The assessee produced the sub agents before Assessing Officer for examination and their statements have been recorded in which they have confirmed receipt of commission from the assessee which were subjected to TDS and Service Tax Charges. The assessee also produced copies of the bills raised by the sub agent which are supported by their statements. The authorities below, however, did not accept explanation of the assessee because assessee failed to prove what services, sub agents have rendered for the purpose of business of the assessee.
7(i) It is admitted fact that assessee being individual was running the business of resale of cement as well as providing services to M/s J.K. Cement Works and M/s STPL of Delhi. The assessee was running services for them for liasoning in State of Punjab as well as in Haryana. For the State of Haryana, assessee engaged sub agents, therefore, considering the volume of business of the assessee and nature of its activities, it 12 is clear that assessee would not have conducted the entire business of liasoning by himself and would be required to engage sub agents for performing the business activities of the assessee. May be, assessee is not able to satisfy the authorities below as to what services have been rendered by the sub agents and liasoning commission have been disallowed, however, by itself, would not prove that the explanation of the assessee was incorrect or false. It is well settled law that findings given in the assessment order are relevant and have probative value but these alone are not conclusive to attract the levy of the penalty. The levy of penalty is not automatic in each and every case and it depends upon facts and circumstances of each case. It is well settled law that quantum and penalty proceedings are independent and distinct proceedings and the assessee in the penalty proceedings still could explain that levy of the penalty is not justified even if q u a n t u m a d d i t i o n have been confirmed by the authorities below. Hon'ble Supreme Court in the case of M/s Rajasthan Spinni ng & Weaving Mi lls 2009- TIOL-63-SC hel d that "On every demand, penalty i s not automatic". Hon'ble Delhi High Court in the case of CI T Vs Nath Bros. Exim International L t d . 2 8 8 I T R 6 7 0 h e l d a s u n d e r :
"The assessee had claimed dividend income as his business income and according to the assessee it was entitled to a deduction under clause (baa) of the Explanation to section 80HHC(4C) of the Income-tax Act, 1961. The Assessing Officer disallowed the claim and imposed penalty. The Tribunal 13 came to the conclusion that the assessee had disclosed all the facts, and there- fore even though it had made an erroneous claim which could not be justified in law, that by itself did not attract the penal provisions of the Act. On appeal :
to the High Court:
Held, dismissing the appeal, that there was full disclosure of all relevant material. It could not be said that the conduct of the assessee attracted the pro- visions of section 271(l)(c). The cancellation of penalty was justified.
7(ii) Hon'ble Supreme Court in the case of CIT Vs Reliance Petroproducts Pvt.Ltd. 322 ITR 158 held as under :
"A glance at th e provis ions of Section 271(1)(c ) of t h e I n c o me - t a x A c t , 1 9 6 1 s u g g e s t s t h a t i n o r d e r t o b e c o v e r e d b y i t , t h e r e h a s t o b e c o n c e a l me n t o f t h e p a r t i c u l a r s o f t h e i n c o me o f t h e a s s e s s e e . S e c o n d l y , the assessee must have f urnished inaccurate p a r t i c u l a r s o f h i s i n c o me . T h e m e a n i n g o f t h e wo r d 'particulars' used in Section 271(1)(c) wo u l d e mb r a c e t h e d e t a i l s o f t h e c l a i m m a d e . W h e r e n o inf ormation given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of f urnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provisions, 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 wo u l d depend upon the return f iled by the assessee, because that is the only d o c u me n t wh e r e the assessee can f urnish the particulars of his income. When such particulars are f ound to be inaccurate, the liability wo u l d a r i s e . T o a t t r a c t p e n a l t y , the details supplied in the return must not be accurate, 14 not exact or correct, not according to the truth or erroneous.
Where there is no f inding that any details supplied by the assessee in its return are f ound to be incorrect or erroneous or f alse there is no question o f i n v i t i n g t h e p e n a l t y u / s 2 7 1 ( 1 ) ( c ) . A me r e m a k i n g o f a c l a i m wh i c h i s n o t s u s t a i n a b l e i n l a w, b y i t s e l f , w i l l n o t a mo u n t t o f u r n i s h i n g i n a c c u r a t e p a r t i c u l a r s r e g a r d i n g t h e i n c o me o f t h e a s s e s s e e . S u c h a c l a i m made in the return cannot amount to f urnishing inaccurate particulars."
8. Considering the facts and circumstances of the case in the light of material on record, it is clear that during the course of assessment proceedings, assessee submitted complete details of sub agents rendering service for assessee in State of Haryana. Their statements were recorded in which they have confirmed having received the payment after deduction of TDS and service tax. The assessee, thus, has disclosed all the material facts to the revenue authorities. In the assessment year 2005-06, in the original scrutiny proceedings, the Assessing Officer allowed similar claim of the assessee on the same set of facts. Therefore, there is no finding by the authorities below that any details or explanations given by the assessee in his return are found to be incorrect or erroneous or false. A mere making of claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding income of the assessee. The assessee also produced complete details to show that 15 even in preceding assessment years, the assessee was engaged in the similar business activities and has shown liasoning income on net basis. Therefore, claim of the assessee could not be said to be incorrect or false so as to invite the levy of penalty in the matter. It may also be noted here that the Assessing Officer in the assessment order as well as in the penalty order has initiated and levied the penalty under section 271(1)(c) of the Act for concealment and furnishing inaccurate particulars of income. The Assessing Officer is, therefore, not sure as to which offence assessee has committed for levy of the penalty, whether concealment of income or for filing inaccurate particulars of income. The assessee has, thus, offered an explanation supported by the material evidence on record and explanation of the assessee is not found to be false. The explanation of the assessee has been substantiated by material facts and explanation of the assessee appears to be bonafide and is based on facts and circumstances of the case. Therefore, merely because commission expenses have been disallowed in assessment year under appeal and confirmed by the appellate authority, by itself is no ground to levy the penalty under section 271(1)(c) of the Act against the assessee.
9. Considering totality of the facts and circumstances, we are of the view that ld. CIT(Appeals) on proper appreciation of facts and material evidence on 16 record, correctly deleted the penalty. There is no infirmity in the order of the ld. CIT(Appeals). We confirm his order and dismiss the departmental appeal
10. In the result, departmental appeal is dismissed.
Order pronounced in the Open Court.
Sd/- Sd/-
( ANNAPURNA GUPTA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 30th December,2016.
'Poonam'
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT,DR
Assistant Registrar,
ITAT/CHD