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IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, MUMBAI
, ,
BEFORE SHRI SANJAY ARORA, AM AND SHRI AMIT SHUKLA, JM
./I.T.A. No.3695/Mum/2013
( / Assessment Year: 2003-04)
Dy. CIT-1(2), Procam International Limited,
Room No. 535, / 14, St. James Court,
5th Floor, Aayakar Bhavan, Vs. Marine Drive, Mumbai-400 020
M. K. Road, Mumbai-400 020
. / . /PAN/GIR No. AABCP 7300 E
( /Appellant) : ( / Respondent)
/ Appellant by : Shri Sachchidanand Dubey
/Respondent by : Shri Sanjiv M. Shah
/ : 20.11.2014
Date of Hearing
Date of Order : 27.11.2014
/ O R D E R
Per Sanjay Arora, A. M.:
This is an Appeal by the Revenue directed against the Order by the Commissioner
of Income Tax (Appeals)-1, Mumbai (`CIT(A)' for short) dated 12.02.2013, deleting the
levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 (`the Act' hereinafter) for the
assessment year (A.Y.) 2003-04 vide order dated 29.03.2011.
2. The only issue arising in this appeal is the maintainability in law of the penalty,
levied in the sum of Rs.10,54,869/- u/s.271(1)(c) of the Act, in the facts and
circumstances of the case, since deleted by the ld. CIT(A). The facts in brief are that the
assessee-company, in the business of sports event management and brand promotion,
wrote off in its accounts for the relevant year balances accumulated under the head
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Dy. CIT vs. Procam International Limited
`Talent Management Asia' (or TMA, at Rs.18,30,957/-), World Open Squash (WOS) (at
Rs.11,58,206/-), as well as that outstanding in the names of various parties (aggregating
to Rs.3,83,000/-), claiming the same as an expense. The assessee's explanation for the
same was that the balances written off represent expenses incurred by it over a period of
time in relation to different events, which are, under the matching principle, consistently
followed, adjusted against the revenue from the relevant event. The advances (Rs.3.83
lacs) were, again, given in the regular course of business toward different events.
However, as it could not, despite efforts to establish itself in the business of nurturing
young talent, which is only in line with its' existing business of sports event management,
succeed in doing so, the balance in account TMA, which also includes purchase of fixed
assets, was written off. The other balances were also written off as the relevant events did
not take off. The Assessing Officer (A.O.) accepted the assessee's claim qua the balance
outstanding under the account WOS (which includes Rs.2 lacs given to Doodarshan) as
the same was for a specified event, accumulated following its' consistent method of
accounting, written off as the relevant event (World Open Squash) did not take place. For
the balance, the assessee was unable to show that the expenditure was in relation to any
specified event. In its absence, the allowability of expenditure could only be considered
for the year in which it was incurred, so that it was a prior period expense for the current
year and, thus, not deductible. The advances were again not shown to be in relation to
any specific event. The write off was also not admissible u/s. 36(1)(vii) in-as-much as the
requirement of section 36(2) was not met. Disallowance in the sum of Rs.22.14 lacs was
accordingly effected, and penalty proceedings initiated. The assessee's appeal before the
first appellate authority could not be proceeded with in the absence of proper verification,
i.e., as prescribed by law and, accordingly, dismissed as not maintainable.
The assessee failing to respond to the notice u/s.274, penalty was imposed for the
same reasons. Even though the bills for the purchase of fixed assets had not been
produced, the same, even so, would only be capital expenditure and, as such, not
admissible (refer para 2 of the penalty order). In appeal, the assessee found favour with
the ld. CIT(A). The A.O's charge was that the expenditure had been incurred in the
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Dy. CIT vs. Procam International Limited
preceding years and, further, that the details of the capital expenditure had not been filed.
The assessee, however, had given the details of the bills relating to the capital
expenditure, and also explained that the expenditure was accumulated following its
consistent method of accounting. As regards loans and advances written off, the A.O.'s
case was of inadmissibility of the claim in view of section 36(2). The apex court has
since clarified that mere making of a claim would not be fatal and that therefore the
details supplied by the assessee were not found to be erroneous or false, so that no
penalty could be levied. The penalty was accordingly deleted, relying on the decision in
CIT vs. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC) and Aditya Birla Nuo
Ltd. [2012-TIOL-692-HC-Mum] (refer paras 4 to 7 of the impugned order). Aggrieved,
the Revenue is in appeal.
3. We have heard the parties, and perused the material on record.
3.1 The first thing that we observe is that while the A.O. states that the assessee did
not comply with the show cause notices u/s.274, so that he proceeded with the matter,
adjudicating it vide penalty order dated 29.03.2011, the assessee claims to have
responded (to the second notice u/s.274 dated 23.03.2011) per written submissions filed
on 28.03.2011; in fact, also stating that the time allowed by the A.O. was very short,
taking this (non-grant of opportunity) as its first objection (vide ground no.1) before the
ld. CIT(A). The ld. CIT(A) ought to have addressed the said issue. If the assessee had
indeed filed its' explanation (which we have no reason to believe was not), the same
being admittedly not considered by the A.O., he ought to have called for a remand report
from him after verifying/ascertaining the veracity of the assessee's claim, toward which
we find no finding. The assessee also does not raise this issue before us, presumably as its
appeal stands decided in its favour. So, however, a detailed submission having been made
before the ld. CIT(A), which stands reproduced by him in his order, we under the
circumstances consider the same to have included the assessee's case as made out before
the A.O. as well. Further, we observe the same to be on facts the same as that assumed by
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Dy. CIT vs. Procam International Limited
the assessee at the assessment stage, which stands considered by the AO, who can thus
also be taken to have considered the assessee's case.
3.2 Our second observation in the matter is that the basis of the Revenue's case on
merits is not the non-acceptance of the assessee's claim of write off for the reason of the
assessee following, in view of the nature of its business, set off of accumulated balances
in the year of revenue generation from a specified/particular event, as contended and
sought to be projected before us by the ld. AR. In fact, the A.O. accepts the same,
allowing the assessee's claim in respect of a balance, similarly written off, under the head
`World Open Squash'. The prime, if not the sole, basis of the A.O.'s denial of the
assessee's claim is the non-furnishing of the relevant details, i.e., the events qua which
the expenses are stated to have been incurred or accumulated. In the absence thereof, how
could it be said that the expenses were incurred therefor and, further, written off due to
the non-occurrence or the unlikely-hood of the relevant event taking place. In short, in the
absence of the factual basis to the assessee's claim.
The ld. CIT(A)'s treatment of the assessee's appeal on merits is again cryptic and,
in fact, inconsistent with the facts of the case, even as he delineates the issue arising for
consideration correctly, i.e., as to whether the assessee could be considered as having
concealed or furnished inaccurate particulars of income. He, however, while correctly
framing the issue, does not explain if the conditions of Explanation 1, providing the
circumstances under which the assessee would not be deemed to have concealed his
income, and thus is to be read along with, stand satisfied or not.
3.3 The law on penalty for concealment or furnishing inaccurate particulars of income
u/s. 271(1)(c) of the Act has been the subject matter of several decisions by the apex
court, crystallizing into a dictum that a plausible explanation saves penalty. Where,
therefore, the assessee furnishes an explanation, i.e., for making the claim, which is borne
out by the material on record, so that all the material facts have been disclosed, no
penalty could be levied. This is as the assessee is squarely within his right to make a
claim which could arise, given the position of law, in the facts and circumstances of its
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Dy. CIT vs. Procam International Limited
case. All, therefore, depends on the return of income, and the disclosure/s made thereby,
even as clarified by the apex court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322
ITR 158 (SC), relied upon by the assessee. It is in this context that its' observation therein
that a mere making of a claim which is not sustainable in law would not by itself attract
penalty, is to be read and understood. The said decision does not detract from, and is to
be read in conformity and harmony with a catena of decisions by the apex court in the
matter, viz. CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (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), continuing to decisions
rendered even prior thereto. Further, even the recent decision by the apex court in Mak
Data (P.) Ltd. vs. CIT [2013] 358 ITR 593 (SC), as well as that by the hon'ble high
courts, as in CIT vs. Usha International Limited [2013] 214 Taxmann.com 519 (Del); CIT
vs. Escorts Finance Ltd. [2010] 328 ITR 44 (Del); and CIT vs. Zoom Communication (P.)
Ltd. [2010] 327 ITR 510 (Del.), applying the law in different fact situations, including as
explained in Reliance Petroproducts (P.) Ltd. (supra), confirm the continuing position of
the law in the matter. A plausible explanation for a claim, made bona fide, saves penalty,
which though is a strict civil liability; mens rea or willful neglect being not an essential
ingredient thereof. The facts of its' claim, per its return, being only in its' know, the onus
to explain the same is only on the assessee, which he is required to substantiate, further
establishing his bona fides, as where there is proper disclosure of all material facts. The
failure to do so would attract penalty, as indeed it would where the assessee offers no
explanation, or same is found to be false.
3.4 Qua merits, we shall proceed to examine the case for both the disallowances:
a) TMA (Rs.18.31 lacs):
The A.O.'s reason is that the genuineness of the claim has not been established in-
as-much as the assessee has failed to specify the event/s for which the expenses had been
accumulated. Accordingly, its explanation that the balance written off represented
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Dy. CIT vs. Procam International Limited
revenue expenditure, accumulated for being set off on matching principle, could not be
accepted, as was in fact its' claim qua (expenses relating to) WOS. In the absence of
specification of the events, the admissibility of expenses, where on the revenue account,
could only be in the year the same were incurred. In any case, to the extent the
expenditure is admittedly capital, there is no basis for its claim. We do not agree with the
A.O., except to the extent the assessee's claim includes capital expenditure, even as we
do not find ourselves in agreement with the reasons stated by the ld. CIT(A) in the matter.
The reason for our decision is that the assessee has clearly stated to have, as a part of its
existing business, also tried to promote young talent in the field of sports, as a separate
division, since financial year (f.y.) 2000-01, incurring expenditure on salaries, rent, etc.
since that year. The assessee's method of accounting, peculiar to its business, stands in
fact accepted by the Revenue. There is accordingly no question of the assessee having
failed to specify any event, which reason prevailed with the A.O., so that a claim in its
respect would arise only for the year in which the same stood incurred. We are in any
case in penalty proceedings, whereat our perspective is qua the plausibility of the claim,
which we have found as so, so that there is no case for levy of penalty.
However, with regard to its claim comprising admittedly purchase cost of fixed
assets, stated to be at Rs.3.82 lacs, we are unable to find any substance in the assessee's
claim. The ld. Authorized Representative (AR), on being communicated so during
hearing, could not furnish any answer, though would contend that the fixed assets also
includes fixture and fittings, claim qua which may be valid, being in respect of rented
premises. We agree. If and to the extent the assessee's claim is in respect of fittings, etc.,
which cannot be removed or would be of little value upon being so, the same would bear
the character of revenue expenditure where incurred in relation to a rented premises. The
A.O. is directed to allow relief to the assessee upon verification in respect of such
expenses out of its total claim of Rs.3.82 lacs qua fixed assets.
We decide accordingly, and the Revenue gets part relief.
b) Advances (Rs.3.83 lacs):
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Dy. CIT vs. Procam International Limited
The Revenue's charge is of the assessee being unable to correlate the same with
specified events. The assessee claiming it to be made to various parties in the regular
course of its business, for carrying out various proposed events, it is only it who can and
is required to substantiate its' claim. How could, in its absence, the same be considered as
toward any event, which however did not materialize, so that the same stood forfeited or
represents a loss as the event/s became unlikely, etc. It needs to be appreciated that in the
absence of the relevant details, the `explanation' is no more than a bald assertion, and
would thus not even qualify to be an explanation, even as clarified time and again by the
honourable courts. The status continues to be so even before the ld. CIT(A). The question
of the assessee's explanation being not found to be erroneous or false, as stated by him, in
departure of the Revenue's case, would arise only after the assessee furnishes one.
There being, however, even as observed earlier, lack of application even by the
Revenue authorities, we only consider it fit and proper under the circumstances to restore
the matter back to the file of the A.O., who shall decide the matter by issuing definite
findings of fact, allowing the assessee a reasonable opportunity to present its case before
him, i.e., to substantiate its' explanation. We decide accordingly.
4. In the result, the Revenue's appeal is partly allowed and partly allowed for
statistical purposes.
Order pronounced in the open court on November 20, 2014 at the conclusion of the
hearing itself.
Sd/- Sd/-
(Amit Shukla) (Sanjay Arora)
/ Judicial Member / Accountant Member
Mumbai; Dated : 27.11.2014
. ../Roshani, Sr. PS
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Dy. CIT vs. Procam International Limited
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent
3. () / The CIT(A)
4. / CIT - concerned
5. , , / DR, ITAT, Mumbai
6. / Guard File
/ BY ORDER,
/ (Dy./Asstt. Registrar)
, / ITAT, Mumbai
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