Income Tax Appellate Tribunal - Amritsar
The Hoshiarpur Distt.Coop Milk ... vs Deputy Commissioner Of Incomme Tax , ... on 24 April, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH, AMRITSAR.
BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER
AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER
I.T.A. No. 207/Asr/2018
Assessment Year: 2014-15
The Hoshiarpur Distt. Coop. vs. Deputy Commissioner of Income
Milk Producers Union Ltd., Tax, Hoshiarpur
VPO:Ajjowal, Distt. Hoshiarpur
[PAN: AABFT 3731E]
(Appellant) (Respondent)
Appellant by : Sh. Sachin Malhotra (Adv.)
Respondent by: Sh. Charan Dass (D.R.)
Date of Hearing: 28.03.2019
Date of Pronouncement: 24.04.2019
ORDER
Per Sanjay Arora, AM:
This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-1, Jalandhar, ('CIT(A)' for short) dated 27.03.2018, confirming the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 ('the Act' hereinafter) in its case for Assessment Year (AY) 2014-15 vide order dated 22/5/2017.
2. The brief facts of the case are that the assessee, a cooperative-society in the business of processing and marketing of milk and milk products under the brand name 'Verka', furnished its' return of income for the relevant year on 03.11.2014 at a loss Rs.469.69 lacs. During assessment proceedings for the relevant year, it 2 ITA No. 207/Asr/2018 (AY 2014-15) The Hoshiarpur Distt. Coop. M. P.U. Ltd. v. Dy. CIT was found to have claimed per its' said return gratuity expenses, already claimed per its' return for AY 2013-14. The same (Rs.47,29,674) were accordingly disallowed vide order u/s. 143(3) dated 04.11.2016 (copy on record). In penalty proceedings u/s. 271(1)(c), initiated for furnishing inaccurate particulars of income per the assessment order, it was explained that the double claim of gratuity expenditure (to that extent) was on account of a mistake by the Accountant, who had instead of debiting the payment (of gratuity) to the Provision A/c in books, debited it to the 'Gratuity paid A/c'. A provision of Rs.70 lacs was created in the accounts for f.y. 2012-13, the previous year relevant to AY 2013-14, in respect of seven employees who had retired during that year (at the rate of Rs.10 lacs each), made in view of the exact quantum of liability being yet to be determined. Payment thereto was made during the current year at Rs.47,29,674, at which sum, therefore, it was allowed for that year (AY 2013-14); the balance (Rs.22.70 lacs) being an excess provision, not representing any liability. It is this payment that stands, instead of being adjusted against the said provision claimed again through debit to the P&L Account for the current year (under the account head 'gratuity paid'). In other words, the impugned claim was stated to have been made mistakenly, on account of a clerical error by the Accountant - who did not have knowledge of accountancy or of the legal provisions, which remained unchecked by the Auditors. A mere wrong claim would not though attract penalty u/s. 271(1)(c), as explained in, among others, CIT v. Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) (RPPL), also followed by the Hon'ble jurisdictional High Court, as in CIT v. Sidhartha Enterprises [2010] 322 ITR 80 (P&H) and CIT v. Rubber Udyog Vikas Pvt. Ltd. [2011] 335 ITR 558 (P&H). The same did not find favour with the Assessing Officer (AO) as the blame for wrong claim could not be passed off as a clerical mistake without any responsibility being taken by the assessee (or it's Management). The payment had been made during the current year, within a gap 3 ITA No. 207/Asr/2018 (AY 2014-15) The Hoshiarpur Distt. Coop. M. P.U. Ltd. v. Dy. CIT of a few months of making the claim for the immediately preceding year. Penalty was accordingly imposed by him at the minimum rate prescribed under the Act, i.e., at 100% of the tax sought to be evaded, at Rs.14.61 lacs. The same stood confirmed in appeal as there was no bona fide reason for the assessee to have claimed an expense, already claimed, again, relying on the decision in CIT v. Zoom Communications Pvt. Ltd. [2010] 327 ITR 510 (Del), also reproducing therefrom. Aggrieved, the assessee is in second appeal.
3. We have heard the parties, and perused the material on record. 3.1 Explanation 1 to section 271(1)(c) provides for penalty where in respect of facts material to the computation of his income, any person fails to offer any explanation or offers one which is found to be false, or one which he is otherwise unable to substantiate and prove the bona fides of such explanation as well as the disclosure of all the relevant facts, by deeming him to have concealed the particulars of the income added or disallowed in the computation of his total income. The burden, thus, is strictly on the assessee to explain his return, which bears his verification as to the truth and the correctness of the particulars furnished therein, as well as his conduct. This, in fact, represents trite law, clarified by the Apex Court per a series of decisions, viz. Mak Data (P.) Ltd. vs. CIT [2013] 358 ITR 593 (SC); Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC); K.P. Madhusudhanan vs. CIT [2001] 251 ITR 99 (SC); B.A. Balasubramaniam and Bros v. CIT [1999] 236 ITR 977 (SC); Addl. CIT vs. Jeevan Lal Shah [1994] 205 ITR 244 (SC); CIT vs. K. R. Sadayappan [1990] 185 ITR 49 (SC)), to cite some, followed by Hon'ble High Courts throughout the country, including the jurisdictional High Court, as in CIT v. Lalchand Tirath Ram [1997] 225 ITR 675 (P&H); Prem Pal Gandhi v. CIT (in ITA No. 353 of 2009, dated 22/7/2009), to note two. This is also the basis and the purport of the decision in 4 ITA No. 207/Asr/2018 (AY 2014-15) The Hoshiarpur Distt. Coop. M. P.U. Ltd. v. Dy. CIT Zoom Communications Pvt. Ltd. (SC), relied upon by the Revenue. The reason is simple. It is only the assessee who furnishes his return of income and, besides, is in the know of his affairs, so that the element of deliberateness is implicit in the income as disclosed, including the deduction/s claimed. As such, where the return is found to bear a wrong claim, the onus is on the assessee to exhibit his bona fides in preferring that claim, or else he is deemed by law to have concealed the particulars of his income, attracting penalty u/s. 271(1)(c), which is pegged with reference to the tax sought to be evaded, ranging from a minimum of 100% to a maximum of 300% thereof. When, therefore, the Apex court in RPPL (supra) states that a mere wrong claim shall not invite penalty u/s. 271(1)(c), all that is meant is that penalty is neither absolute nor automatic. Explanation 1 itself provides the gateway; by offering an explanation that he can substantiate, showing his bona fides, with the disclosure of all facts material to the computation of his income - the same being itself an act toward establishing his bona fides, an assessee can escape penalty. It is for this reason that it is oft said that a plausible explanation saves penalty. In the facts of that case, the assessee had claimed interest on borrowing/s applied in shares on which no dividend income had been received. The same was disallowed u/s. 36(1)(iii) and, in any case, u/s. 14A in-as- much as dividend income is tax-exempt, i.e., is not includible in the total income. The assessee's case was that the investment in shares was a part of its' business, with its' claim for interest having been in fact accepted in the past by the appellate authorities. The assessee, the Apex Court opined, can at best be said to have made a claim which was not sustainable in law. Impliedly, the assessee had taken a possible view, even if the same did not stand or may not have stood the test of judicial scrutiny. This proposition gets captured in the dictum that no penalty can be levied where the matter is debatable. The Apex Court in RPPL (supra) does not contradict the law laid down by the Apex Court per a host of decisions, some of 5 ITA No. 207/Asr/2018 (AY 2014-15) The Hoshiarpur Distt. Coop. M. P.U. Ltd. v. Dy. CIT which stand cited supra. It could in law even otherwise not as, where not in agreement, would have to refer the matter to a larger Bench, with in fact some decisions afore-referred being by its' larger benches.
3.2 Continuing further, admission of a mistake itself implies that the assessee has no explanation, so that Explanation 1 to section 271(1)(c) would, for sure, get attracted. A 'mistake', however, may be without any intention whatsoever to evade tax, a notion implicit in Explanation 1, besides being integral to the concept of levy of penalty. A bona fide mistake eliminates or removes the element of deliberateness on which penalty is premised or it's edifice rests. The limits to the concept of a 'mistake' are, however, implicit therein, for otherwise any wrong claim per its return, which he is in law obliged to prove, including the claims preferred thereby, can be passed off by an assessee as a mistake, by-passing Explanation 1, which is the acid test laid down by law for a person to eschew penalty u/s. 271(1)(c). Section 273B provides both, the legal framework as well as the limits afore-referred. It, so to speak, extends the scope of the exclusion per Explanation 1 (to section 271(1)(c)) to further exclude cases of 'reasonable cause', proving which saves penalty under several provisions of Chapter XXI u/s. 273B. The concept is well accepted, and for which we may refer to the decision in Pricewaterhouse Coopers Pvt. Ltd. v. CIT [2012] 348 ITR 306 (SC) wherein, incidentally, the patently wrong claim, on which penalty was excused on being found to be on account of a bona fide mistake, was again of gratuity expense. The decisions by the Hon'ble jurisdictional High Court, cited supra, are to the same effect. It is under this legal framework, then, that the assessee's claim of it being a mistake, committed bona fide, is to be thus examined.
3.3 'Reasonable cause', as well as proving it, are matters of fact, to be determined taking into account the totality of the facts and circumstances, 6 ITA No. 207/Asr/2018 (AY 2014-15) The Hoshiarpur Distt. Coop. M. P.U. Ltd. v. Dy. CIT including conduct. We may accordingly, next, examine the surroundings facts and circumstances in the instant case, which we observe as follows:
(a) the assessee is a Government body, i.e., it's character is of a public institution;
(b) it is mandated to work on a 'no profit no loss basis', even as some profit or, as the case may be, loss may arise out of its operations;
(c) it has incurred a loss of Rs.392.44 lacs during the current year, i.e., exclusive of the excess claim of gratuity;
(d) it's loss for the next year, i.e., AY 2015-16, as informed by the ld. counsel, Sh. Malhotra during hearing, is to the tune of Rs. 250 lacs;
(e) it is operating in a competitive environment, so that the recoupment of loss/es, particularly considering that it is a Government institution, is itself a challenge in- as-much as it would first be required to break even;
(f) the assessee is well served by statutory and tax auditors as well as legal professionals;
(g) the claim of gratuity is not a regular claim of expenditure but subject to section 40A(7), being, rather, the subject matter of reporting in Form 3CD by the Auditors.
There is, clearly, no immediate and, as it appears, even probable tax impact. The losses of such institutions are usually met by Government through budgetary support. Further, in the given circumstances, the filing of the return of income and matters connected therewith; including its finalization, can reasonably be expected by the Management - which has no stake in tax avoidance, to be taken care of by the professionals. As it appears to us, the provision for gratuity was made, as is usually the case for year-end provisions, at the time of finalizing the accounts for the immediately preceding year, i.e., AY 2013-14, at the instance of the auditor and/or the tax professionals. It's Accountant had by then already debited the gratuity paid (on the payment of the gratuity during the current year) to the since retired employees in the accounts for the current year. He was, as it appears, oblivious of a provision having been already made/proposed in accounts, so that 7 ITA No. 207/Asr/2018 (AY 2014-15) The Hoshiarpur Distt. Coop. M. P.U. Ltd. v. Dy. CIT the said payment ought to have been debited (or transferred) to the said provision account. It is the Auditors' who have failed to exercise proper professional care in detecting the irregularity while finalizing the accounts and their report thereon, including that under the Act, for the current year; the claim for gratuity for the current year being at an amount perceptibly higher than that for the immediately preceding year, so that it ought to have been inquired into. Further, and more importantly, inasmuch as it also establishes the bona fides of the assessee, the provision (for gratuity) continues to be unadjusted, i.e., outstands in accounts at the same amount at which it outstood as at 31/3/2013, i.e., the end of the immediately preceding year, so that even the amount disallowed (for that year) or provided for in excess - being not ascertained at the relevant time, had not been reversed even as the payment had been made at a lesser amount during the current year. There is, thus, clearly a dereliction of duty on the part of the Auditors who had apparently also not reported correctly u/s. 44AB. Equally, the tax professional/s preparing the return failed to detect the anomaly which is patent inasmuch as there is no fresh provision for gratuity while the brought forward provision continues to outstand in accounts despite payment of gratuity, and even as the assessee makes a claim for gratuity for the year in a higher than normal sum of Rs. 214.91 lacs.
4 In view of the foregoing, we have no doubt that the excess claim of gratuity expense (Rs. 47.30 lacs) was a result of a bona fide mistake by the assessee, saving penalty. The assessee has also raised a Ground qua the invalidity of the penalty proceedings on the basis that in the notice u/s. 274, show causing the assessee therefor, the specific limb of s. 271(1)(c) is not struck off, even as, admittedly, the satisfaction recorded by the AO in the assessment order is for furnishing inaccurate particulars of income. The same was, in view of our acceptance of the assessee's appeal on the principal issue, not pressed nor, consequently, responded to by the 8 ITA No. 207/Asr/2018 (AY 2014-15) The Hoshiarpur Distt. Coop. M. P.U. Ltd. v. Dy. CIT Revenue. The impugned penalty is accordingly directed to be deleted. We decide accordingly.
5. In the result, the assessee's appeal is allowed.
Order pronounced in the open court on April 24, 2019
Sd/- Sd/-
(N. K. Choudhry) (Sanjay Arora)
Judicial Member Accountant Member
Date: 24.04.2019
/GP/Sr. Ps.
Copy of the order forwarded to:
(1) The Appellant: The Hoshiarpur Distt. Coop. Milk Producers Union Ltd., VPO: Ajjowal, Distt. Hoshiarpur (2) The Respondent: Deputy Commissioner of Income Tax, Hoshiarpur (3) The CIT(Appeals)-1, Jalandhar (4) The CIT concerned (5) The Sr. DR, I.T.A.T. True Copy By Order