Income Tax Appellate Tribunal - Mumbai
Pelican Air P. Ltd, Mumbai vs Department Of Income Tax on 13 May, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, MUMBAI
BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, AND
SHRI R.S. PADVEKAR, JUDICIAL MEMBER
ITA no. 6393/Mum./2010
(Assessment Year : 2005-06)
Dy. Commissioner Income Tax
Circle-8(2), Aayakar Bhavan
101, M.K. Road, Mumbai 400 020 ....................... Appellant
v/s
M/s. Pelican Air Pvt. Ltd.
6, Adarsh Industrial Estate
Sahar Road, Andheri (E)
Mumbai 400 099
PAN - AACCP3376P ................... Respondent
Revenue by : Mr. Parthasarathi Naik
Assessee by : Mr. Nikhil V. Narkar
Date of Hearing - 14.02.2012 Date of Order - 22.02.2012
ORDER
PER J. SUDHAKAR REDDY, A.M.
This appeal preferred by the Revenue, is directed against the impugned order dated 13th May 2010, passed by the Commissioner (Appeals)-XVII, Mumbai, for assessment year 2005-06. The sole dispute in this appeal is, whether or not the first appellate authority was justified in confirming penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act").
2. Brief facts of the case are that the assessee is a company and is engaged in the business of providing services in cargo handling. In an order 2 Pelican Air P. Ltd.
ITA no.6393/Mum./2010 passed under section 143(3) of the Act, three additions were made. In the case of donation and provisions for gratuity, the Assessing Officer found that the assessee has not suo-motu disallowed the amounts. On being pointed out, the assessee had agreed that this was a mistake. It was a case of the assessee that, inadvertently, these two items were not added in the computation of income. On the third addition i.e., dividend income, the Assessing Officer found that the assessee claimed ` 10,89,740, as exempt income under section 10(34) and, whereas the dividend income was only ` 73,811. It is the case of the assessee that this is a clerical error, as these two figures were appearing one after the other in the audited Profit & Loss account and while computing the income, an inadvertent mistake is taken place. The additions were not disputed by the assessee. Thereafter, on 27th June 2008, penalty under section 271(1)(c) was levied on these items. The Assessing Officer rejected the contentions of the assessee that these were inadvertent mistakes.
3. Aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals), vide Para-3.3 of his order, held as follows:-
"3.3 The submission has been considered. Disallowance made in assessment would not automatically lead to penalty under section 271(1)(c) where facts are disclosed in return as held by ITAT, Mumbai, in the case of ACIT v/s VIP Industries, ITA no.4524 dt. 20.03.2009. It was held in Kambay Software India (P) Ltd. v/s DCIT, 112 TTJ (Pune) deeming fiction of Explanation 1 to section 271(1)(c) can be pressed into service in connection with "facts material to computation of income" and not in connection with computation of income per se. The contention that these were bonafide mistakes is accepted. In the circumstances, this is not a fit case for levy of penalty under section 271(1)(c). The penalty levied of ` 4,55,573, is deleted."
4. Being aggrieved, the Revenue is in appeal before the Tribunal.
5. We have heard the learned Departmental Representative, Mr. Parthasarathi Naik, representing the Revenue as well as the learned Counsel, Mr. Nikhil V. Naskar, representing the assessee. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, we hold as follows:-
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ITA no.6393/Mum./2010
6. Insofar as the provisions for gratuity is concerned, the same is not allowable under section 40A(7) of the Act. Similarly, donation paid is not allowable under the Act, as it is not incurred for the purpose of business. These two claims in the computation of income were made by the assessee, despite the fact that they are assisted by professionals in the field of taxation. The explanation that this is an inadvertent mistake, does not appeal to us. The learned Counsel relied on the judgment of Hon'ble Madras High Court in CIT v/s Laxmi Vilas Bank Ltd., [2008] 303 ITR 0428 (Mad.). That was a case where the Court has come to the conclusion that it was an inadvertent mistake as there was misplacement of a decimal. Similarly, the judgment of Hon'ble Jurisdictional High Court in CIT v/s Ask Enterprises, [1998] 230 ITR 048] (Bom.), the conclusion of the Hon'ble Court is that the mistake in question was an inadvertent and bona fide mistake. In our opinion, the assessee, not adding the provisions for gratuity and expenditure by way of donation to the total income while filing his return of income, cannot be classified as "inadvertent mistake". In our opinion, it is not bona fide either. Under these circumstances, we apply the judgment of Hon'ble Delhi High Court in CIT v/s Zoom Communication P. Ltd., [2010] 191 Taxman 179 (Del.), wherein the Court held as follows:-
"7. Admittedly, in view of the provisions contained in Section 40(ii) of the Income Tax Act, the amount of income tax could not have been claimed as a deduction while computing income of the assessee. It is, therefore, an undisputed proposition that the assessee was not entitled to exclude the amount of income tax while computing its income for the purpose of income tax.
8. As regards the amount claimed on account of unusable and discarded assets, the Tribunal, in our view, was entirely incorrect in taking the view that the deduction claimed by the assessee was admissible to it under Section 32(1)(iii) of the Income Tax Act, though not as a revenue expenditure. Section 32(1)(iii) of the Act provides for deduction, in the case of any building, machinery, plant or furniture, in respect of which depreciation is claimed and allowed under Clause (i) and which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), of the amount by which money payable in respect of such building, machinery, furniture, together with the amount of scrap, if any, falls short of the written down value thereof. Thus, this clause would apply only in the case of machinery, plant, etc., in respect of which depreciation has been claimed and allowed under Clause (i). If the plant/machinery is such, to which the provisions of Clause (i) do not apply, no deduction in respect of such plant or machinery, etc. can be claimed under Clause (iii).
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ITA no.6393/Mum./2010
9. Clause (i) of sub-section (1) of Section 32 relates to assets of an undertaking engaged in generation and/or distribution of power.
Admittedly, the assessee company was ITA No.7/2010 Page 5 of 18not engaged in generation and for distribution of power, during the relevant year. Thus, the provisions of clause (i) of sub- section (1) of Section 32 do not apply in respect of the assets claimed to have become unusable and written off. Therefore, it cannot be disputed that the assessee had no justification to claim this amount of Rs 13,24,539/- as a revenue expenditure.
10. Section 271(1)(c) of the Act, to the extent it is relevant, provides for imposition of penalty in case the Assessing Officer, in the course of any proceedings under Act, is satisfied that any person had concealed particulars of his income or had furnished inaccurate particulars of such income. Explanation 1 to sub-Section (1) of Section 271 provides that where in respect of any facts material to the computation of the total income of any person, such person fails to offer an explanation or offers an explanation which is found to be false or he offers an explanation which he is not able to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income, have been disclosed by him, then the amount added or disallowed in computing total income of such person, as a result thereof, shall for the purpose of clause (c) be deemed to represent the ITA No.7/2010 Page 6 of 18 income in respect of which particulars have been concealed.
11. Thus, in case of failure of the assessee to offer any explanation or the explanation furnished by him being found false, penalty may be imposed on him. However, if an explanation is offered by the assessee, mere failure on his part to substantiate it will not be enough to warrant penalty, if the explanation is bonafide and all the facts relating to the same were disclosed by him in the Return. Explanation 1 to Section 271(1) would be inapplicable in respect of any amount added or disallowed as a result of rejection of the explanation furnished by the assessee, provided that his explanation is shown to be bonafide and all the facts relating to the same and material to the computation of his total income were disclosed by him.
16. The proposition of law which emerges from this case, when considered in the backdrop of the facts of the case before the Court, is that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under Section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bonafide. If the explanation is neither substantiated nor shown to be ITA No.7/2010 Page 11 of 18 bonafide, Explanation 1 to Section 271(1)(c) would come in to play and the assessee will be liable to for the prescribed penalty.
17. The assessee before us is a company which declared an income of Rs.1,21,49,861/- and accounts of which are mandatorily subjected to audit. It is not the case of the assessee that it was advised that the 5 Pelican Air P. Ltd.
ITA no.6393/Mum./2010 amount of income tax paid by it could be claimed as a Revenue Expenditure. It is also not the case of the assessee that deduction of income tax paid by it was a debatable issue. In fact, in view of the specific provisions contained in Section 40(ii) of the Act, no such advice could be given by an Auditor or other Tax Expert. No such advice has been claimed by the assessee even with respect to the amount claimed as deduction on account of certain equipment having become useless and having been written off. As noticed earlier, the Tribunal was entirely wrong in saying that Section 32(1)(iii) of the Act applies to such a deduction. It was not the contention before us that claiming of such a deduction under Section32(1)(iii) was a debatable issue on which there were two opinions prevailing at the relevant time. In fact, the assessee did not claim, either before the Assessing Officer or before the Commissioner of Income Tax(Appeals) that ITA No.7/2010 Page 12 of 18 such a deduction was permissible under Section 32(1)(iii) of the Act. No such contention on behalf of the assessee finds noted in the order of the Tribunal. Thus it was the Tribunal which took the view that Section 32(1)(iii) could be attracted to the deduction claimed by the assessee. It is also not the case of the assessee that it was under a bonafide belief that these two amounts could be claimed as Revenue Expenditure. The assessee, in fact, outrightly conceded before the Assessing Officer that these amounts could not have been claimed as revenue deductions. The only plea taken by the assessee before the Income Tax Authorities was that it was due to oversight that the amount of income tax paid by the assessee as well as the amount claimed as deduction on account of certain equipment being written off could not be added back in the computation of income.
19. It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bonafide. If the claim besides being incorrect in law is malafide, Explanation 1 to Section 271(1) would come into play and work to the disadvantage of the assessee.
20. The Court cannot overlook the fact that only a small percentage of the Income Tax Returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would still not be liable to penalty under Section 271(1)(c) of the Act. ITA No.7/2010 Page 14 of 18 If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bonafide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self Assessment under Section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a malafide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are 6 Pelican Air P. Ltd.
ITA no.6393/Mum./2010 not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have.
21. We find that the assessee before us did not explain either to the Income Tax Authorities or to the Income Tax Appellate Tribunal as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this ITA No.7/2010 Page 15 of 18 case were not added, while computing the income of the assessee company. We cannot lose sight of the fact that the assessee is a company which must be having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details from the assessee, we fail to appreciate how such deductions could have been left out while computing the income of the assessee company and how it could also have escaped the attention of the auditors of the company.
22. The explanation offered by the assessee company was not accepted either by the Assessing Officer or by the Commissioner of Income Tax(Appeals). The view of Income Tax Appellate Tribunal regarding admissibility of the deduction on account of written off of certain assets, under Section 32(1)(iii) of the Act is wholly erroneous. The Tribunal has not recorded a finding that the explanation furnished by the assessee in respect of the deduction due to certain assets being written off was a bonafide explanation. The Tribunal has nowhere held that it was due to oversight that the amount of this deduction could not be added while computing the income of the assessee company.
23. As regards deduction on account of income tax paid ITA No.7/2010 Page 16 of 18 by the assessee, the Tribunal felt that since no person would claim the same as deduction, to evade payment of tax, the claim made by the assessee was not malafide. In the absence of the assessee company telling the Assessing Officer as to who committed the oversight resulting in failure to add this amount while computing the income of the assessee, under what circumstances the oversight occurred and why it was not detected by those who checked the Income Tax Return before it was filed and later by the auditors of the assessee company, we cannot accept the general view taken by the Tribunal. In our view, no such view could have reasonably been taken, on the facts and circumstances prevailing in this case and, therefore, the decision of the Tribunal in this regard suffers from the vice of perversity. We cannot accept the general proposition that no person would ever claim the amount of income tax as a deduction with a view to avoid payment of tax. No hard and fast rule in this regard can be laid down and every case will have to be decided considering the facts and circumstances in which such a deduction is claimed, coupled with as to whether the explanation offered by the assessee for making the claim, is shown to be bonafide or not.
24. For the reasons given in the preceding paragraphs, ITA No.7/2010 Page 17 of 18 we answer the question of law framed in this case in favour of the revenue and against the assessee. The Income Tax Appellate Tribunal erred in law in deleting the penalty in respect of the amount of Rs.1 lakh claimed as deduction on account of payment of income tax and the amount of Rs.13,24,539/- debited under the head "equipment written off‟, in the Profit and Loss Account of the assessee. The appeal stands disposed of accordingly.
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ITA no.6393/Mum./2010
7. We, thus, reverse the impugned order passed by the Commissioner (Appeals) on these two issues and restore the penalty levied by the Assessing Officer under section 271(1)(c), as, in our opinion, the assessee furnished inaccurate particulars of income.
8. Coming to the issue of dividend income, we find from the copy of the Profit & Loss account that under Schedule "K", handling income dividend income and bank interest were noted in seriatim and while transposing these figures into the computation of income, a clerical mistake has taken place. Dividend income is shown as interest on fixed deposit income and handling income is shown as dividend income. In our opinion, this is a bona fide mistake and the ratio laid down in the judgment of Laxmi Vilas Bank Ltd. (supra) and Ask Enterprises (supra), are applicable to the facts of the present case. Thus, we confirm the order passed by the Commissioner (Appeals) to this extent only.
9. In the result, Revenue's appeal is partly allowed.
Order pronounced in the open Court on 22nd February 2012 Sd/- Sd/-
R.S. PADVEKAR J. SUDHAKAR REDDY
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 22nd February 2012
Copy to:
(1) The Assessee;
(2) The Respondent;
(3) The CIT(A), Mumbai, concerned;
(4) The CIT, Mumbai City concerned;
(5) The DR, "C" Bench, ITAT, Mumbai.
TRUE COPY
BY ORDER
Pradeep J. Chowdhury ASSISTANT REGISTRAR
Sr. Private Secretary ITAT, MUMBAI BENCHES, MUMBAI
8 Pelican Air P. Ltd.
ITA no.6393/Mum./2010
Date Initial
1. Draft dictated on 14.2.2012 Sr.PS
2. Draft placed before author 16.2.2012 Sr.PS
3. Draft proposed & placed 17.2.2012 JM/AM
before the second
member
4. Draft discussed/approved 17.2.2012 JM/AM
by Second Member
5. Approved Draft comes to 17.2.2012 Sr.PS
the Sr.PS/PS
6. Date of pronouncement 22.2.2012 Sr.PS
7. File sent to the Bench 22.2.2012 Sr.PS
Clerk
8. Date on which file goes to
the Head Clerk
9. Date of dispatch of Order