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2016 (5) TMI 527 - ITAT MUMBAI

2016 (5) TMI 527 - ITAT MUMBAI - TMI - Levy penalty u/s 271(1)(c) - disallowance of software expense - Held that:- In order to attract the provision of section 271(1)(c) of the Income Tax Act, there has to be “concealment of particulars” of the income of the assessee” secondly, the assessee must have furnish “inaccurate particulars” of his income, in the present case both the elements are missing as no information given by the assessee in the return was found to be incorrect or inaccurate. It is .....

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can be levied. - Decided in favour of assessee - I.T.A. No. 7037/Mum/2013 - Dated:- 6-4-2016 - SHRI JASON P.BOAZ, AM AND SHRI SANDEEP GOSAIN, JM For The Appellant by : Shri Mukundraj M. Chate For The Respondent : None ORDER Per Sandeep Gosain, J. M.: The Present Appeal has been filed by the Revenue against the order of Commissioner of Income Tax (Appeals)- 31, dated 05.09.2013 for A.Y. 2007-08 whereby the CIT(A) has partly allowed the appeal filed by the assessee and deleted part of the penalty .....

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dditional new ground which may be necessary. 5. At the very outset, it is noticed that even in spite of several notices, none has appeared on behalf of assessee and on the perusal of order sheet we have noticed that nobody was appearing on behalf of assessee for the last several dates. Although the notices were also served upon the assessee for appearing before us, but even then the respondent has not preferred to appear and even no application for adjournment was moved today. On the other hand .....

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ent thereby making additions on several grounds. 3. Aggrieved by the order of the AO, assessee filed appeal before CIT(A) and the CIT(A) vide its order dated 05.09.2013 deleted the disallowance made u/s 40(a)(ia) and confirmed the disallowance on account of commission payment. The CIT(A) further held that expenditure on software is capital in nature and directed the AO to allow depreciation. After passing of the orders by CIT(A) in the quantum proceeding, AO initiated the penalty proceedings and .....

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way ld. CIT(A) vide its order dated 05.09.2013 partly allowed the appeal filed by the assessee. 4. Aggrieved by the order of CIT(A), revenue filed the present appeal before us on the grounds mentioned herein above. Ground No. 1&2 Since both the grounds raised by the assessee are inter-connected and interrelated. Therefore, we thought it fit to dispose off the same through the present consolidated order. 6. Ld. DR representing the revenue relied upon the orders passed by AO regarding levy of .....

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the assessing officer assessed a income of ₹ 6,70,78,150/- on passing order U/s. 143(3) of the Income Tax Act 1961 (ITA). The addition to the returned income was on the following 3 grounds:- U/s. 40(a) (ia) ₹ 5,60,38,120/- 2. Commission disallowed ₹ 31,21,669/- 3. Software Expenses considered as capital ₹ 55,00,000/- Aggrieved by the order of the assessing officer the appellant filed an appeal to the CIT(A) who deleted the addition U/s. 40(a)(ia), allowed depreciation on .....

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Diageo India. Mr. Umashankar Prasad Proprietor of M /s. Calyx enabled assessee to procure the contract and as per agreed terms with him the appellant paid a commission of ₹ 31,21,669/-· after withholding TDS u/s. 194H of the ITA and claimed the same as business expenditure. During the course of assessment and the appellate proceeding entire communication with M/s. Calyx was brought on record along with the bank statements of Mr. Umashankar Prasad, his return of income, ledger accou .....

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e commission payment made and the business the said expenditure was not made wholly and exclusively for the purpose of appellant s business. The CIT (A) after going through the submission and case laws referred to, by the assessing officer came to a conclusion that it was not clear whether Mr. Umashankar Prasad had disclosed the receipt of commission in his return of income. Also he held that there was no evidence brought on records by the appellant to establish that any services were rendered f .....

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med the disallowance stating that appellant had failed to substantiate the commission payment. At the outset we draw your kind attention to the fact that the assessing officer erred in not understanding the basic details like the fact that Mr. Ajay Modgil, partner in the appellant firm had known of Mr. Umeshenker Prasad Proprietor of M/s. Calyx who in turn knew M/s. Diageo from whom the appellant had procured a contract for advertising during the financial year relevant to A. Y. 2007-08. The com .....

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as not incurred for business purposes. The CIT(A) has placed reliance on venous decisions as discussed below :- Bombay High Court in case of Chemaux Private Ltd. vs. CIT (109 ITR 705) The CIT(A) has reproduced the order of the Bombay High Court in his order. The basic facts in that case were that Shri A. M. Khopkar the employee of the assessee company was agreed by the chairman to received commission of sale @ 2.5%. It was claimed by Mr. Khopkar the commission was spent for procuring business f .....

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ey have in turn expended this amount. They have reported this as a part of their turnover. Calcutta High Court in case of Vishnu Agencies Pvt. Ltd. vs; CIT (117 ITR 754) In this case the CIT(A) has relied upon only one observation contained in Para 26 of the order given in case of Mr. Mangilal Sethia which is reproduced below:- 26. On a careful consideration of the facts as found, those on record and the conclusions drawn by the authorities below thereon, it appears to us that so far as Mangilal .....

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th his agency. Before the lTG, Mangilal stated that the business has been looked after by his brother, Bhikamchand, and that he himself could not state anything as to the services rendered in connection with the agency. The ITO, the AAC and the Tribunal all have come to the conclusion that no services had been shown to have been tendered by the sole selling agent. It does not appear to us that any relevant evidence in this connection was omitted to be considered by the Tribunal or that irrelevan .....

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r that the said firm had personal acquaintance with the officers of the Government, that Sampat & Co. had duly instructed the factory staff of the assessee regarding specification and that they had attended loading and unloading of goods manufactured and supplied. The authorities below seem to have proceeded on the basis that such statements do not constitute any evidence and that the assessee had to establish its case only by documentary evidence. The oral evidence was not considered at all .....

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ssessee. The Tribunal also failed to appreciate or consider the evidence of Bhikamchand in the above context. 29. For the reasons given above, we hold that the finding of the Tribunal for the asst. yrs. 1963-64 and 1964-65 that the remuneration paid to Sampat & Co. as manufacturing supervisor was not deductible as business expenditure under s. 37(1) of the IT Act, 1961, is vitiated by nonconsideration of the aforesaid material facts and evidence on record which were relevant for arriving at .....

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was repeatedly submitted before the assessing officer. that it was personal acquaintance of Mr. Umashankar Prasad with people at Diageo which enabled the assessee to procure the contract from M/s. Diageo. The fact that such income is reflected by Mr. Umashankar Prasad is evident from his return of income filed before the AO/CIT(A) and copy of which is enclosed here once again. Karnataka High Court in case of DCIT vs. Mcdowell (291 ITR 107) In this case payment were said to have eben made to age .....

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ld to be non deductable as it was found that no special efforts were put in by the directors. In the case before your honours the appellant successfully got the contact from t-t/s. Diageo. Lachminarayan Madan Las vs. CIT (86 ITR 439) In this case the selling agency agreement was only a make-believe arrangement and device to minimize tax liability of the assessee firm and not genuine. In the present case before your honour there is no such finding that the arrangement is to avoid tax since Mr. Um .....

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stated decisions which are clearly distinguishable on facts and confirmed disallowance. The Disallowance of a claim of expense made by the assessee can certainly not be basis for levy of penalty. 2. Software Expenses considered as capital ₹ 55,00,000/- The assessing officer was furnished with the documentary evidence with respect to the purchase of software from Mr. Satish Pujari of Microbit. The software was acquired for executing of the order from M/s. Diageo. It was explained to the off .....

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treated the software expenditure to be capital in nature and he allowed depreciation on ' the same. From the fact furnished above it is submitted that the appellant has undoubtedly expended the aforesaid amounts for business purposes as even the CIT(A) has held so. He has by allowing depreciation reduced the dispute to capital vs. revenue. Your honour will appreciate that there neither any concealment nor any furnishing of in accurate particulars but merely a debate whether the software expe .....

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t that such person shall pay by way of penalty,- i) - ii) - iii) in the cases referred to in clause(c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. [Explanation 1 - Where in respect of any facts material to the computation of the total income of any person under this Act - .....

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ch person as a result thereof shall, for the purposes of clause( c) of this sub section, be deemed to represent the income in respect of which particulars have been concealed". Your goodselves will appreciate that Sec 271 (l)(c) deals with two situations namely: a)concealment of particulars of income or (b)furnishing of inaccurate particulars of income . Penalty can be levied only if either of these two conditions is satisfied as held by the Supreme Court in CIT v/s Reliance Petroproducts P .....

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ot;43. The expression "conceal" is of great importance. According to Law Lexicon, the word "conceal" means: "to hide or keep secret. The word 'conceal is con + celare which implies to hide. It means to bide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities. .....

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ficer has levied the penalty on the fact that the CIT (A) confirmed the additions made by the assessing officer. There are plethoras of cases for section 271(1)(c) to hold the fact that penalty cannot be imposed on mere making of the claim, which is not sustainable in law, by itself. The Hon'ble Supreme Court in crr vis Reliance Petroproducts Pvt . Ltd. [(2010)230 CTR 320 (SC)] wherein it was held that merely because the assessee claimed deduction of interest expenditure which has not been a .....

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ting the penalty under s. 271(1)(c). A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. The assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was .....

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Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion." Thus we pray that no penalty be imposed as there is neither concealment nor furnishing of inaccurate particulars. We submit that the assessing officer has only proceeded on surmises as the appellant had actually incurred the said expenditures and full details were furnished to him. Under these circumstances we request your honors to kindly drop the penalty levied and oblige. /I 5. I have carefully .....

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y in which the concerned expenses fall. 5.12.1 It is well accepted principle that when the disallowance made by AO itself is debatable in nature, no penalty for conealment for such debatable issue can be lvied. This principle has been elaborated in the decisions rendered in the cases of Ajaib Singh & Co 253 ITR 630 (P&H), Harshvardhan Chemicals & Minerals Ltd. 259 ITR 212 (Raj.), Shivlal Desai & Sons 114 ITR 377 (Bom.), Kalyani Enterprises 83 ITD 764 (Mad Trib), National Textiles .....

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cannot be imposed. If the view taken by the assessee required consideration and was reasonably arguable, he should not be penalized for taking the position. The tax statutes are complex and there can be a bona fide difference of opinion on legal interpretation and understanding of a provision. In such cases, even when the interpretation placed by the Revenue is accepted, penalty should not be imposed if the contention of the assessee was plausible and bona fide. Of course full facts should be di .....

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at in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account.' Therefore, the word "particulars&quo .....

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ss the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the conditions under sec.271 (1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of .....

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held to be of capital nature as against revenue expenditure claimed by the appellant. Thus the disallowance stemmed from the difference of opinion. Accordingly, in view of the facts and the citations discussed above, I find that levy of penalty on this disallowance cannot be upheld. Accordingly, the A.O. is directed to recompute the penalty with reference to the amount of commission payment disallowed and the grounds raised by the appellant .are partly allowed. 8. We have considered the argumen .....

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Products Private Ltd. reported at 322 ITR 158, wherein it has been held by Hon ble Supreme Court that in order to expose the assessee to the penalty, it is to be adhered that unless the case is strictly covered by the provision, the provisions of penalty cannot be invoked. It has further been held by the Hon ble Supreme court that by any stretch of imagination, making an incorrect claim in law cannot in itself tantamounts to furnishing inaccurate particulars . The Hon ble Supreme Court further h .....

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