IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH `B' BENCH
BEFORE SHRI B.R.MITTAL (JUDICIAL MEMBER) AND
SHRI SANJAY ARORA (ACCOUNTANT MEMBER)
ITA No.587/Mum/2012
Assessment Year: 2003-04
Bhuvan Leasing & Infrastructures ITO, Ward 7(1)(2),
P.Ltd.,(formerly known as Ocean Aayakar Bhavan, M.K. Road,
City Trading (I) P.Ltd., Mumbai.
A-49/1360, MIG Colony, Vs.
Mumbai.
PA No.AAACO 1795 K
(Appellant) (Respondent)
Appellant by : Shri Rakesh Joshi
Respondent by: Shri Mohit Jain
Date of hearing: 28.1.2013
Date of pronouncement: 8 .2.2013
ORDER
Per B.R.Mittal, JM:
The assesee has filed this appeal for assessment year 2003-04 against order
dated 24.10.2011 of ld CIT(A)-13, Mumbai confirming the levy of penalty u/s.271(1)(c)
of the Act of Rs.4,22,164 on account of addition of Rs.11,48,746/-.
2. The relevant facts are that assessee filed return of income declaring income at
Rs. Nil. The AO completed assessment u/s.143(3) assessing the loss of Rs.72,34,415
after setting off brought forward unabsorbed depreciation of Rs.94,70,234 under the
normal provisions of the Act. Since the profit as per profit and loss account is of
Rs.5,30,693/-, AO computed the book profit u/s.115JB of the Act at Rs.41,792/-. Thus,
the computation was made u/s.115JB of the Act. Since in the normal computation of
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Assessment Year: 2003-04
income under the provisions of the Act, AO made disallowance of Rs.10,88,746/-
claimed by the assessee on account of fee paid to Rochester Institute of Technology,
New York State, USA on the computer course pursued by Mr Naval Kumar, S/O Shri B.R.
Kumar who holds 99% shares of the assessee company and other 1% being held by his
wife Mrs Pushpa Kumar and stated that said amount of Rs.10,88,746/- spent on account
of training of Mr Naval Kumar by deputing him for computer related studies in printing
to Rochester Institute of Technology, New York is not allowable as this amount has not
been wholly incurred for the purpose of business as per section 37(1) of the Act.
Besides above, assessee company also claimed an amount of Rs.60,000/- paid to Mr
Naval Kumar towards salary as Executive of the assessee company and AO disallowed
the same. AO stated that Mr Naval Kumar is not working for the company as there is no
contribution by Mr Naval Kumar for running of the assessee company.
3. On account of above disallowances made, AO initiated penalty proceedings
u/s.271(1)(c) of the Act. AO stated that assessee by claiming aforesaid expenses, which
were not related to the business of the assessee company, thereby inflated expenses
and reduced taxable income. AO stated that it is clear cut case of furnishing inaccurate
particulars and, accordingly, levied penalty @ 100% of tax sought to be evaded
u/s.271(1)(c) of the Act, which works out to Rs.4,21,164/-.
4. In the first appeal, ld CIT(A) confirmed the action of AO. It is relevant to state
that ld CIT(A) placed reliance on the decision of Hon'ble Kerala High Court in the case of
CIT vs. Gates Farm and Rubber C, 91 ITR 467 (Ker) and stated that assessee made
false claim which would amount to concealing the income. Ld CIT(A) also placed
reliance on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Vidyagauri
Natverlal & Ors, 238 ITR 91(Guj). Hence, this appeal by assessee.
5. At the time of hearing, ld A.R. submitted that similar kind of expense was made
in assessment year 2001-02, which was allowed by the AO himself. He referred pages 2
to 8 of PB, which contain copy of assessment order and profit and loss account for the
said assessment year. He further submitted that in assessment year 2005-06, similar
expenses were incurred and claimed by assessee. AO disallowed the claim on similar
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Assessment Year: 2003-04
facts and initiated penalty proceedings. However, AO subsequently dropped the penalty
proceedings and ld counsel referred page 17 of PB, which is copy of letter dated
29.3.2011 of AO to drop the proceedings initiated u/s.271(1)(c) of the Act. Ld A.R.
further submitted that if the assessment is finally made u/s.115JB of the Act because
the total income computed as per normal provisions of the Act is less than book profit
computed u/s.115JB of the Act, penalty u/s.271(1)(c) cannot be imposed because
disallowance so made and alleged concealment had no role to play. He submitted that
similar issue was decided by the Tribunal in the case of M/s. Ruchi Strips & Alloys Ltd vs.
DCIT (I.T.A. No.6940/M/2008) vide order dated 21.1.2011 by following the decision of
Hon'ble Delhi High Court in the case of CIT vs. Nalwa Sons Investments Ltd., 327 ITR
543(Del). Ld A.R. filed a copy of the said order of the Tribunal in the case of Ruchi
Strips & Alloys Ltd (supra) as well as the decision of Hon'ble Delhi High Court in the case
of Nalwa Sons Investments Ltd (supra) to substantiate his above submission. Ld A.R.
submitted that said decision of Hon'ble Delhi High Court (supra) squarely applies to the
case of the assessee and, therefore, levy of penalty is not justified on the facts of the
case of the assessee.
6. On the other hand, ld D.R. supported orders of authorities below. He submitted
that Mr Naval Kumar was only 19 years old in 1999 when he completed his B.Sc and
immediately he was employed and sent for the computer course to Rochester Institute
of Technology, New York. He submitted that assessee company was promoted by
parents of Mr Naval Kumar as 99% of shares are held by Mr B.R.Kumar and 1% share
held by Mrs Pushpa Kumar wife of Mr B.,R.Kumar. He further submitted that only Mr
Naval Kumar was sent for such training programme after executing an agreement and
no other employee was sent. He further submitted that at the time when Mr Naval
Kumar was sent for pursuing said computer course, assessee company was not in the
business of any computer related activity. He further submitted that said computer
course is a period of 5 years from 30.11.2000 to 31.5.2005. ld D.R. submitted that said
expenses claimed were not for business of assessee company but was an inflated claim.
Therefore, levy of penalty on account of said payment of Rs.10,88,746/- as well as
payment of salary of Rs.60,000/- are nothing but furnishing inaccurate particulars of
4 ITA No.587/Mum/2012
Assessment Year: 2003-04
income by claiming said expenses as business expenditure. He submitted that levy of
penalty be confirmed.
7. We have considered submissions of ld representatives of parties and orders of
authorities below. We have also considered decisions cited before us.
8. We agree with ld D.R. that on the facts of the case, claim of the assessee is not
bonafide as said claim of the assessee cannot be considered as business related
expenses or for business purposes. On the other hand, said expenses claimed by the
assessee are personal in nature of the promoters of the assessee company considering
that 100% of shares of the assessee company are held by parents of Mr Naval Kumar.
We, on the facts of the case, find merits in the submission of ld D.R. that these
expenses were wrongly claimed to the knowledge of the promoters of the assessee
company and, accordingly, claim was false.
9. Be that as it may, it is also a fact that income of the assessee was finally
computed under the provisions of section 115JB of the Act as the total income
computed as per normal provisions of the Act was less than the book profits computed
u/s.115JB of the Act. The Hon'ble Delhi High Court in the case of Nalwa Sons
Investments Ltd (supra) has considered similar issue, wherein, it was held that while
considering levy of penalty u/s.271(1)(c) of the Act, it has to be considered as to
whether furnishing of such wrong particulars had any effect on the amount of tax
sought to be evaded. It was held that under the scheme of the Income-tax Act, 1961,
the total income of the assessee is first computed under the normal provisions of the Act
and tax payable on such total income is compared with the prescribed percentage of the
book profits computed under section 115JB of the Act. The higher of the two amounts is
regarded as total income and tax is payable with reference to such total income. If the
tax payable under the normal provisions is higher, such amount is the total income of
the assessee, otherwise, `book profits' are deemed as the total income of the assessee
in terms of section 115JB of the Act. It is stated that the income was computed as per
the normal procedure was less than the income determined by legal fiction, namely, the
book profits under section 115JB of the Act, the income of the assessee was assessed
5 ITA No.587/Mum/2012
Assessment Year: 2003-04
under section 115JB and not under the normal provisions. Therefore, even if there is
concealment but that had it repercussions only when the assessment was made under
the normal procedure. Since the assessment as per normal procedure was not acted
upon, on the contrary it is the deemed income assessed u/s.115JB of the Act, which
has become the basis of assessment as it was higher of the two, tax is thus paid on the
income assessed under section 115JB of the Act. Hence, when the computation was
made under section 115JB of the Act, concealment had no role to play and was totally
irrelevant. It was held that concealment did not lead to tax evasion at all. Therefore,
penalty could not have been imposed even in respect of false claim made by assessee.
Hon'ble Delhi High Court also distinguished the case of Hon'ble Apex Court in the case of
CIT vs. Gold Coin Health Food (P) Ltd., 304 ITR 308(SC). The said decision of Hon'ble
Delhi High Court was followed by the ITAT Mumbai Bench in the case of M/s. Ruchi
Strips & Alloys Ltd(supra) and penalty levied u/s.271(1)(c) of the Act was cancelled on
the ground that total income of the assessee was determined on the basis of book
profits u/s.115JB of the Act as there was no tax sought to be evaded because the
addition in respect of which penalty was imposed was made while computing the total
income under the normal provisions of the Act and ultimately, total income of the
assessee was determined on the basis of book profits u/s.115JB of the Act. Therefore,
the said concealment has no effect on evasion of tax. Since above decisions squarely
apply to the facts of the assessee under consideration before us, respectfully following
the decision of the Hon'ble Delhi High Court (supra) and also the decision of coordinate
bench (supra), we cancel the penalty levied u/s.271(1)(c) of the Act. Hence, grounds of
appeal taken by assessee is allowed.
10. In the result, appeal filed by assessee is allowed.
Pronounced in the open court on 8th February, 2013
Sd/- Sd/-
(SANJAY ARORA) (B.R. MITTAL)
Accountant Member Judicial Member
Mumbai, Dated 8th February, 2013
Parida
6 ITA No.587/Mum/2012
Assessment Year: 2003-04
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),13, Mumbai
4. Commissioner of Income Tax, 7, Mumbai
5. Departmental Representative, Bench `B' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI
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