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TMI Blog2012 (8) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee filed its return on 31.10.2005 declaring loss of Rs. 12,27,93,400/-. The return was processed u/s 143(1) on 12.10.2006. Thereafter, assessment proceedings were initiated by issuing notice u/s 143(2) dated 25.10.2006. The assessee has been running a hotel named 'The Grand' situated in Vasant Kunj. The assessment u/s 143(3) was completed on 31.12.2007 at loss of Rs. 10,61,22,320/-. However, tax was levied u/s 115JB at the adjusted book profit of Rs. 14,47,91,070/-. For our purpose two issues are relevant, namely, deduction u/s 80G in respect of donations and deduction for the claim of commission paid. 2.1 In regard to deduction u/s 80G, it is mentioned that the gross total income of the assessee as defined in section 80B(5) is loss both as per returned income and assessed income. Therefore, deduction u/s 80G is not admissible. 2.2 In respect of foreign commission, it was found that the assessee debited a sum of Rs. 18,89,158/- to the profit and loss account as travel agent's commission. This commission was paid to a foreign party, UTELL. No tax was deducted from the payments as required u/s 195. Therefore, the assessee was required to state why the provision contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571 (SC), it was not incumbent on the AO to prove mens rea on the part of the assessee. The explanation of the assessee has not been found to be bona fide. Therefore, the penalty was imposed. 3. The levy of penalty was agitated before the CIT(Appeals)-XXI, New Delhi. He disposed off the appeal on 08.04.2011 by dismissing the appeal. In regard to deduction u/s 80G, it was submitted that the amount of donation should have been disallowed in the statement of income while computing the gross total income. Thereafter, deduction u/s 80G had to be claimed from the gross total income. Since this was a loss, no deduction is admissible to the assessee. This fact escaped the attention of the official of the company who prepared the statement of assessable income because the same was prepared in the last week of September, 2005. No advantage accrued to the assessee on account of failure to add back the donations. There is no tax effect as ultimately the total income was computed at loss. Therefore, it can be a case of incorrect computation of income but no mala fide is involved. In regard to the disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , personal nature or advertisement etc. The report shows the expenditure under all these heads at nil. The case of the ld. counsel on the basis of this report is that even the auditor failed to mention the amount of donation paid by the assessee in this column. Our attention has also been drawn towards page no. 132, which is again a part of the audit report. Item No. 26 is regarding section-wise details of deduction admissible, if any, under chapter VIA. The amount has been shown at nil. On the basis of this entry, it has been argued that the auditors did not point out that the amount of donation had to be disallowed and thereafter no deduction was admissible u/s 80G. The return of income was prepared on the basis of audit report. Since the report did not show any inadmissible item of expenditure and it also escaped the attention of the official of the assessee-company, requisite adjustment was not made on this ground. It is argued that no loss has occurred to the revenue and there was no intention to evade payment of tax. The mistake occurred due to oversight. Therefore, it is argued that penalty is not leviable in respect of this claim. 4.2 Coming to the disallowance u/s 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident which is chargeable to tax under this Act. If no such tax has been deducted by the assessee, an exemption certificate u/s 195(2) is required to be obtained, only if provisions of Section 195(1) are applicable. Under Section 40(a)(i), the payment of any amount to a non-resident on which tax is deducted at source under Chapter XVII-B will not be allowed as deduction/expenditure if tax has not been paid or deducted thereon. On combined reading of provisions of section 195 and 40(a)(i), if the sum in question paid to non-resident is not chargeable to tax in India under the IT Act, there would be no requirement to deduct tax at source in respect of such payments and provisions of Section 40(a)(i) and 195 would not be applicable to such payments and no disallowance can be made in respect of the same. In the instant case before us, the amount of Rs.24.86 lakhs was paid to overseas agents who have accepted booking from clients/customers at a place outside India. The services have been provided by non-resident commission agents to the assessee only outside India. These agents were not having business connection in India nor any permanent establishment in India. These agents we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee". The payer is not the assessee. The payer becomes an assessee in default only when he fails to fulfill the statutory obligation u/s 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee in default. The provisions of Section 195(2) were held to be applicable where the payer is in no doubt that tax is payable in respect of some part of the remittance but is not sure as to what is the taxable portion. In that situation, he is required to make an application to the ITO(TDS) for determining the amount. Section 195(2) and 195(3) are safeguards and not of practical importance. It was categorically observed by the Hon'ble Supreme Court that department's apprehension that if tax is not deducted on all payments, there will be seepage of revenue, is ill-founded because there are adequate safeguards in the act to prevent the payer from wrongly not deducting tax at source such as Section 40(a)(i) which disallowed deduction for the expenditure. 6. In view of the above, we do not find any infirmity in the order of CIT(A) for deleting disallowance made by the AO u/s 40(a)(i) of the Act." 5. In reply, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us. The facts in regard to deduction u/s 80G are that the assessee debited to the profit and loss account a sum of Rs. 50,98,500/- as donations by clubbing this expenditure with other expenses such as repairs and maintenance, rent, rates and taxes, advertisement and publicity etc. under the head "operating and general expenses". The expenses are detailed in schedule XVII of the annual accounts. The schedule shows that no donation was made in last year. The auditors, while preparing report in form no. 3CB did not show the expenditure to be capital, personal or advertisement etc. expenditure. The deduction under chapter VIA was also shown at nil. In the statement of income, the donation was not deducted from the loss and, thus, claim was made for deduction of the expenditure as if it was business expenditure. In other words, the claim was made u/s 37(1). The question is-whether, the assessee is liable to be penalized for making the aforesaid claim? 7.1 The submissions of the assessee are that no such expenditure was incurred in the immediately preceding year. The return was filed on 31.10.2005, the last date of filing the return. Due to paucity of time, an inadvertent mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the assessee cannot be held guilty of furnishing inaccurate particulars on a prima facie basis. The word is plain and simple. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty cannot be invoked. It is further mentioned that there is no finding that any details supplied by the assessee were found to be incorrect, erroneous or false. Such not being the case, there would be no question of inviting penalty u/s 271(1)(c). Mere making a claim, which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding the income. It has been suggested by the revenue that the assessee made excessive claim of deduction knowing that it was incorrect. The falsehood in the account can take two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income. Therefore, both types amount to concealment of particulars of income. This line of argument did not find favour with the Hon'ble Court. It is mentioned that assessee had furnished all details of expenditure. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsight and did not explain the circumstances in which the oversight took place. In absence thereof, no such view could reasonably be taken as the general proposition that no person would ever claim deduction of income-tax with a view to avoid payment of tax. Accordingly, the levy of penalty has been sustained by reversing the order of the Tribunal. 7.4 Coming to the facts of our case, the assessee has made an oral submission that the official of the company who prepared the statement of income did not disallow the amount involved in donations given by the assessee. The name of the official has not been furnished. His affidavit has also not been furnished. Therefore, it can be very well said that the explanation has not been substantiated. It is obvious that merely an oral statement unsupported by the affidavit and even without disclosing the name of the official cannot be taken to be bona fide. The amount of donation is quite large. At the very first instance, this amount had to be deducted from the loss computed in profit and loss account. The omission is, in fact, a very serious lapse for which the company ought to have held some body responsible. No such action has been taken. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plea of mens rea cannot be form a basis for deleting the penalty. At the same time, it may also be mentioned that Explanation 4 to section 271(1)(c) defines the expression "the amount of tax sought to be evaded" in cases where the disallowance has the effect of reduction of returned loss in its conversion into profit. Thus, a bland submission that since both the returned and assessed incomes are losses, the penalty is not leviable, if accepted, would make the former part of this provision otiose. One of the canons of construction of the statute is that no part thereof should be rendered otiose by judicial interpretation. Accordingly, this explanation is not acceptable on the face of it as a bona fide explanation. 7.7 In the result, it is held that the assessee is liable to penalty in respect of the aggregate amount of donation, not disallowed in computing the total income. 8. In so far as the issue of disallowance of commission is concerned, we have already noted in paragraph no. 4.4 (supra) that similar disallowance has been deleted in the assessment of the assessee for assessment year 2006-07. However, the assessee did not prefer appeal in this year and, therefore, the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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