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2016 (5) TMI 1220 - ITAT MUMBAI

2016 (5) TMI 1220 - ITAT MUMBAI - TMI - Penalty u/s 271 (1) (c) - disallowance of provisions for discount - Held that:- From the order of the First Appellate Authority for the subsequent year i.e. AY 2008-09, we find that the assessee had taken additional ground vide para 9 at page 6 of the appellate order passed under section 250(6) praying before the First Appellate Authority to allow the provision for discount of ₹ 30,95,650/- disallowed in the assessment year 2007-08 for being continge .....

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to the customers in assessment year 2008-09 should be allowed as expenditure in assessment year 2008-09 and further balance of ₹ 22,33,724/- which was suo motu reversed by the assessee in assessment year 2008-09 should not be taxed in assessment year 2008-09 as it has been already taxed in assessment year 2007-08.

From para 12 at page 7 of the said order, we find that the ld. CIT(A) allowed the appeal of the assessee by directing the AO not to tax the provision in the subsequen .....

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e order dated 7.8.2014 passed by the ld.CIT(A)-4, Mumbai and it relates to the assessment year 2007-08. 2. The only issue raised in all the grounds of appeal is against the confirmation of penalty of ₹ 10,41,995/- levied u/s 271 (1) (c) of the Income Tax Act, 1961 (the Act) for disallowance of provisions for discount of ₹ 30,95,650/- as made by the AO. 3. Brief facts of the case are that the assessee filed its return of income on 30.10.2007 declaring total income at ₹ 9,77,20,1 .....

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e issued, which is reproduced in the appellate order, levied the minimum penalty at the rate of 100% of the tax sought to be evaded at ₹ 10,41,995/- by holding that the assessee had filed inaccurate particulars of income. The ld. CIT(A) also confirmed the action of the AO on the ground that the assessee filed inaccurate claim to evade true and correct tax liability. The observations and findings of the ld.CIT(A) have been incorporated at para 4 of the appeal order. While confirming the act .....

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rary to the facts of the case. The counsel of the assessee submitted that the assessee was in the business of providing travel related services and it was a regular practice debiting provisions for discount being following by the assessee since many years and had been accepted by the department in earlier as well as in subsequent years. The ld. Counsel submitted that the assessee being in the travel business and other related services and had entered into various memorandum of understanding with .....

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uring the assessment year 2007-08, the assessee had created provision of discount amounting to ₹ 30,95,650/-. Out of which ₹ 8,00,331/- was passed on to the customers who made the payment within the stipulated time as per the terms of memorandum and the balance was reversed and offered to tax in the assessment year 2008-09. The ld. Counsel reiterated the submissions as made before the AO and the ld. CIT(A) that the practice was being followed which was being accepted by the departmen .....

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t of the assessee. In support of his argument, the ld. Counsel for the assessee heavily placed reliance on the decision of Hon ble Gujarat High Court in the case of CIT V/s J H Parabia (Transport (P) Ltd reported in (2006) 284 ITR 361 (Guj) and the decision of the Agra Bench of the Tribunal in the case of Addl.CIT V/s Kisan Sahkari Chini Mills Ltd reported in (2012) 20 taxmann.com 769 (Agra). The ld. Counsel also filed details showing that the said provision for discount were accepted in the ass .....

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our attention to the appeal order passed under section 250 (6) of the Act in respect of assessment year 2008-09 by the ld. CIT(A) in which, while drawing our attention to page No.6 para 9, an additional ground was taken qua the provisions for discount of ₹ 30,95,650/- disallowed in assessment year 2007-08 as contingent in nature and praying that it should be allowed as deductible expenses in the assessment year 2008-09. The FAA at page 7 in para 3.3 of the appeal order reproduced the asses .....

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t of ₹ 22,33,724 which has been reversed in assessment year 2008-09 and offered to tax suo motu should not be taxed in assessment year 2008-09 as the same has already been taxed in the assessment year 2007-08. In para 12 at page 7 of the appeal order for AY 2008-09, the ld. CIT(A) observed that if a provision for discount was not allowed in the year of creation then reversal of the same in subsequent years could not be taxed. Therefore, AO is directed to verify the amount which have been r .....

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e assessee to the customers, allow the same as expenditure relating to the year under consideration because the provisions has already been disallowed in the earlier year, whereas undisputedly such discount allowed to customers is an allowable expenditure. Lastly, the ld.AR submitted that in view of these facts and circumstances and also in view of the ratio laid down in the decisions referred and relied upon, the penalty imposed by the AO and confirmed by the ld.CIT(A) was wrong and therefore t .....

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as well as the orders of authorities below. We find that the assessee, being in the travel related business, has been regularly following the practice of accounting and creating provisions for discount on the basis of total of receivables /book debts so that the discount could be passed on those customers who makes the payment in time. Thus, the assessee used to charge discount passed on to the customers to the provision for discount so created and used to reverse that part of the provisions for .....

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assessment year 2008-09 and the balance of ₹ 22,33,724/- was reversed and offered to tax in the same year. We also find merit in the submissions of the assessee that since the said practice was followed and being accepted by the department and also being tax neutral, the assessee under the bonafide belief that the provision for discount was allowable expenses. From the order of the First Appellate Authority for the subsequent year i.e. AY 2008-09, we find that the assessee had taken additi .....

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offered to tax in assessment year 2008-09. In para 3.5 of the said order, the assessee submitted that in case, the provision for discount is held to be contingent in nature in assessment year 2007-08, actual discount of ₹ 8,23,376/- passed on to the customers in assessment year 2008-09 should be allowed as expenditure in assessment year 2008-09 and further balance of ₹ 22,33,724/- which was suo motu reversed by the assessee in assessment year 2008-09 should not be taxed in assessmen .....

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l of the same in subsequent years cannot be taxed. Therefore, A.O is directed to verify the amount which have been reversed out of this provision and reduce the same from taxable income if it is included in the taxable income because the assessee had no time to revise the return of income by the time CIT(A) decided, the issue. Similarly assessee has claimed to have made certain payments out of the provisions which are naturally charged to the provision account and not to the profit and loss acco .....

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on of Hon ble Gujarat High in the case of J H Parabia (Transport (P) Ltd(supra), wherein it has been held as under : The Tribunal found as a matter of fact that the assessee had been consistently adopting the same method of accounting, i.e. , of not including the work-in-progress for the purpose of arriving at the taxable income since the inception of the company. It had further been found by the Tribunal that this method of accounting had been accepted by the Department. It had further been rec .....

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urther went on to record that, in fact there was no allegation on this count made by the Department and even if the same was taken into consideration, there was no evidence to substantiate such allegation. The Tribunal concluded by holding that the assessee adopted a particular system of accounting for four assessment years, including the year under consideration, and for three preceding assessment years the said system had been accepted by the Department; but when the Department sought to take .....

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he facts found by the Tribunal, and in the absence of any evidence to show that such findings were incorrect in any manner whatsoever, it was not possible to accept the contention raised on behalf of the Revenue. It was not possible to state that the method of accounting adopted by the assessee was such that it did not reflect the position correctly considering the fact that for three years the same had been accepted by the Department. Once this was the position, the bona fides of the assessee c .....

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course of any proceedings under the Act that any person has concealed the particulars of his income or has furnished inaccurate particulars of such income. The expression used in clause (c ) is 'has concealed the particulars of his income' or 'furnished inaccurate particulars of such income'. Therefore, in both cases of concealment and inaccuracy the phrase 'particulars of income' are used. As regards concealment, the expression in clause (c) is 'has concealed the par .....

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ts execution. [Para 5] The word 'conceal' is derived from the latin concelare which implies concelare to hide. Webster in his New International Dictionary equates its meaning 'to hide 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. There is strict liability on the a .....

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and complete disclosure of his income and it is only when he fails in his duty by not disclosing his income or part thereof, he conceals the particulars of his income. The duty is enjoined upon him to make a complete disclosure of his income as well as a correct disclosure. Therefore, if the disclosure made of the particulars of income is incorrect, then also he commits breach of his duty. Such defaults entail the penal consequences contemplated by section 271(1)(c)( iii). There cannot be a str .....

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re in the constituents of income returned, such specific or definite particulars of income are detected as concealed, then even in the total income figure to that extent they reflect, it would amount to concealment to that extent. In the same way where specific and definite particulars of income are detected as inaccurate, then such figure will also make the total income inaccurate in particulars to the extent it does not include such income. In other words, the Assessing Officer cannot invoke p .....

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rectly detected. [Para 5.1] In addition to main provisions of concealment 'has concealed the particulars of his income' or 'has furnished inaccurate particulars of such income' are deemed to represent the income in respect of which particulars have been concealed. The deemed concealment is provided in Explanations. Often a question arise whether in cases where additions or disallowances are made by the ITO, the penal provisions of section 271(1)(c ) would attract.Explanation 1 ta .....

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ge of the assessee. Section 106 of the Indian Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation 1 comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or .....

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lment. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicated above, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn. [Para 5.3 ] Part A of the Explanation to section 271(1)(c) provides that if assessee fai .....

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nation may be attracted, mere non-acceptance of explanation offered by the assessee cannot form a basis for the satisfaction of ITO to the effect that the assessee has concealed particulars of his income, he must have some definite evidence to refuse the assessee's claim or evidence or explanation. [Para 5.4] The essence of part B of the Explanation is that the person must provide an explanation which is bona fide and he should substantiate that explanation by some evidence with him. If he f .....

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