TMI Blog2012 (8) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing up the matter in the higher appellate forums - no penalty is leviable in respect of the disallowance of commission - appeal is partly allowed. - IT APPEAL NO. 3246 (DELHI) OF 2011 - - - Dated:- 23-3-2012 - U.B.S. BEDI, K.G. BANSAL, JJ. Mrs. Sweety Kothari for the Appellant. C.B. Singh for the Respondent. ORDER K.G. Bansal, Accountant Member The assessee has taken up three substantive grounds in the appeal. The real grievance is projected in ground no. 1, which is to the effect that the ld. CIT(Appeals) erred in confirming the levy of penalty of Rs. 24,94,596/- in respect of disallowance of claims made by the assessee u/s 80G and commission. It is mentioned that both these amounts were disclosed in the return of income and mere disallowance thereof does not invite the levy of penalty. It is further mentioned that the deduction of commission was disallowed on account of non-deduction of tax at source. This matter was decided by the Tribunal in favour of the assessee and, thus, it is a debatable matter. It is also mentioned that penalty in respect of claim u/s 80G has been levied by ignoring the facts of the case. 2. The facts of the case are that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The AO did not accept this submission. It is mentioned that the assessee knew that it was filing a loss return and yet claimed deduction u/s 80G. This issue has also not been contested before the ld. CIT(Appeals). Thus, it was held that at the time of filing the return, the assessee was aware that it was furnishing inaccurate particulars of income. 2.5 In regard to payment of commissions, it was submitted that in the opinion of the assessee the said amount is not chargeable to tax and, therefore, tax was not required to be deducted at source. However, the basis of such an opinion was not filed. The AO did not accept this submission also. Referring to the decision in the case of Transmission Corpn. of A.P. ( supra ), it has been mentioned that if the opinion was that the foreign agent was not liable to be taxed in India, the assessee or the foreign agent ought to have obtained a certificate to this effect u/s 195(2) from the Assessing Officer. There is no basis also for holding such an opinion. Accordingly, it was held that the assessee has made itself liable for imposition of penalty in respect of commission also. 2.6 It was also mentioned that in view of the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levy of penalty was upheld. 4. Before us, the ld. counsel referred to the background facts in brief. It is submitted that the return of income was filed on 31.10.2005 declaring loss of about Rs. 12.28 crore. However, the tax was paid u/s 115JB at about Rs. 1.12 crore on adjusted book profit of about Rs. 14.32 crore. The AO assessed the loss at about Rs. 10.61 crore against the returned loss of about Rs. 12.28 crore. While doing so, he inter-alia disallowed deduction u/s 80G and commission paid to a foreign agent. 4.1 Coming to deduction u/s 80G, it is submitted that the same has been rightly disallowed as gross total income resulted in loss. However, the donation is not to be disallowed while computing adjusted book profit u/s 115JB. This becomes important because the assessee has paid tax under this provision. Our attention has been drawn to page no. 9 of the paper book, which contains the details of "operating and general expenses" in schedule-XVII, which shows that an amount of Rs. 50,98,500/- is debited as donation. Further, our attention is drawn to page no. 128 of the paper book, which is a part of the audit report in form no. 3CD. Item no. 17 of the report deals with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el Ltd. Radisson Hotel ( supra ). 4.3 The case of the ld. counsel is that the assessee had disclosed all the facts in respect of both the matters. Therefore, mere disallowance of the amount cannot lead to the inference of furnishing inaccurate particulars of income. 4.4 Before proceeding with the submissions of the ld. CIT, DR, it may be mentioned that appeal in the case of the assessee for assessment year 2006-07 bearing ITA No. 3030(Del)/2010 was decided by "H" Bench of Delhi Tribunal on 17.09.2010. In this appeal, the finding of the ld. CIT(Appeals) that commission paid to foreign agent cannot be disallowed u/s 40(a)(i) was upheld. For ready reference, paragraph nos. 5 and 6 of the decision is reproduced below:- "5. We have considered the rival contentions, gone through the orders of the authorities below and found from the record that assessee has paid commission and brokerage to the non-resident travel agents outside India in respect of services rendered outside India. As no tax was deducted at source on such payment, by invoking provisions of section 40(a)(i), the AO disallowed the deduction. As per our considered view, under the provisions of section 195 tax has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( supra ) held that obligation to deduct tax at source u/s 195 arises only when the payment is chargeable to tax in India. In this case, Indian company remitted mobilization charges to its parent company based in Netherlands. As no tax was deducted u/s 195, the AO disallowed the same u/s 40(a)(i). It was held by CIT(A) that assessee was duty bound to deduct tax u/s 195(1) and could not escape liability without obtaining a certificate u/s 195(2). On a further appeal, Hon'ble High Court held that tax at source is to be deducted from the sum chargeable under provisions of the Act. Thus, obligation to deduct tax at source is attracted only when the payment is chargeable to tax in India. Since the alleged payment was not chargeable to tax in India, there was no obligation to deduct any tax thereon, accordingly no disallowance can be made u/s 40(a)(i). Recently, Hon'ble Supreme Court in the case of G.E. India Technology Centre held that Section 195(1) uses the expression "sum chargeable under the provisions of the Act", this means that person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax. It was further observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 40(a)(i) comes into operation. The ld. CIT(Appeals) has also confirmed the disallowance. No appeal has been filed against the order of the ld. CIT(Appeals). Thus, the disallowance has become final. This claim is also false as it is in violation of the statutory provision contained in section 40(a)(i). Therefore, the ld. CIT(Appeals) rightly confirmed the levy of penalty in respect of this amount also. 6. In the rejoinder, the ld. counsel referred to the provisions of UTELL services agreement dated 11.03.2003 entered into between UTELL Ltd., registered in England and the assessee, incorporated in India. On the basis of the agreement, it is submitted that the services were rendered out side India. The assessee also remitted the commission to the agent outside India. The agent has no fixed place of business in India. The income earned by the agent is in the nature of business income. In absence of the existence of PE, it is not liable to tax in India in the hands of the foreign agent. Thus, there is no requirement of tax deduction at source as held by the Tribunal in its own case in appeal for assessment year 2006-07. Thus, penalty is not leviable on this issue. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is liable for consequences of the claim made in the return. Thus, it is a case of false claim and not merely incorrect claim. 7.2 The facts in the case of CIT v. Reliance PetroProducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 (SC) are that addition was made to the income returned by the assessee in respect of interest expenditure. The interest was paid on various loans taken by the assessee from which it purchased IPL shares by way of business policies. No dividend income was earned on these shares. The assessee disallowed the expenditure of Rs. 28,77,242/- u/s 14A. The Hon'ble Court mentioned that it is not concerned with mens rea. It has only to see whether the assessee has furnished inaccurate particulars of income. The word "inaccurate" has been defined in Webster's dictionary as "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". The word "particular" as per Law Laxicon means a detail or details; the details of a claim, or the separate items of an account. Therefore, under section 271(1)(c), this word would embrace the meaning of the details of the claim made. The admitted position is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be bona fide, Explanation-1 to section 271(1)(c) would come into play and the assessee will be liable to imposition of penalty. It is further mentioned that mere submitting a claim which is incorrect in law, would not amount to furnishing inaccurate particulars of income, but it cannot be disputed that the claim made by the assessee needs to be bona fide. The assessee did not explain to the Income-tax authorities or to the Tribunal circumstances in which the mistake took place. It cannot be lost sight of that the assessee is a company which is being assisted by tax professional and its accounts are subject to audit. In absence of any detail, it cannot be appreciated how the deduction in respect of income-tax and loss on sale of unusable assets could have been left out while computing the income. The explanation was not accepted either by the AO or the CIT(Appeals). The Tribunal has not recorded a finding that the claim in respect of loss on account of unusable assets was substantiated or the explanation was bona fide. In respect of income-tax, the Tribunal felt that no person would claim the deduction for the same for evading payment of tax, therefore, the claim was not mala fide. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no evidence of furnishing adequate explanation to the auditors, it can also be concluded that the explanation now tendered is bona fide. 7.5 It has also been explained that the return of income was filed on 31.10.2005, being the last date of filing the return u/s 139(1). In hurry, the issue was lost sight of. We are unable to accept this as a bona fide explanation for the reason that between 1st April, 2005 to 31st October, 2005, the assessee had sufficient time to get the books audited and prepare statement of income in accordance with law. The laxity on the part of the assessee cannot be made a ground of defense and, therefore, this explanation is also not bona fide. 7.6 Finally, it has been submitted that both the returned and assessed incomes are losses. Thus, there was no intention to evade payment of tax. In the case of Reliance Petroproducts (P.) Ltd. ( supra ). The Hon'ble Court referred to its own decision in the case of Dharmendra Textile Processors ( supra ). It has been mentioned that the decision in the case of Dilip N. Shroff v. Jt. CIT [2007] 161 Taxman 218/291 ITR 519 (SC) was overruled to the extent that mens rea is not an essential ingredi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
