Case Law Details
HIGH COURT OF BOMBAY
Sanghvi Swiss Refills (P.) Ltd.
Versus
Assistant Commissioner of Income-tax
IT APPEAL NO. 250 OF 2011
NOVEMBER 20, 2012
JUDGMENT
M.S. Sanklecha, J.
This Appeal under Section 260A of the Income Tax Act 1961 (the Act) challenges the order dated 14th May, 2010 of the Income Tax Appellate Tribunal (the Tribunal) upholding penalty under Section 271 (1)(c) of the Act relating to the assessment year 1989-90.
2. Being aggrieved by order dated 14th May 2010, the Appellant has formulated the following questions of law for consideration of this Court:
(A) Whether on the facts and in the circumstance of the case the Tribunal was right in law and on facts to confirm the penalty for the assessment year 1989-1990 under the provisions of Section 271(1)(c) of the Act by merely relying on the Tribunal’s order in the quantum proceedings, wherein there has been no evidence or finding adduced that the Appellant had furnished inaccurate or wrong particulars of income to warrant the levy of penalty?
(B) Whether on the facts and in the circumstances of the case, the Tribunal was right in law and on facts to confirm the penalty for the assessment year 1989-1990 under the provisions of section 270(1)(c) of the Act, on the basis of certain documents found during search conducted at the premises of the Appellant in the previous year relevant assessment year, which has no connection with the Appellant to warrant the levy of penalty?
(C) Whether on the facts and in the circumstances of the case the Tribunal was right in law and on facts to confirm the penalty for the assessment year 1989-1990 under the provisions of section 271(1)(c) of the Act, when the Appellant had offered a valid explanation and substantiated its claim in respect of service charges paid to its sister concern M/s Primco Private Limited of an amount of Rs. 10,38,792/- (Rupees Ten Lacs Thirty Eight Thousand Seven Hundred Ninety Two Only)?
3. The facts leading to this appeal are as under:
(a) The appellant is engaged in manufacture of refills and ball pens. On 29th December, 1989 the appellant filed its Return of Income for the assessment year 1989-90 declaring a loss of Rs. 48.78 lacs. During the previous year relevant to the assessment year 1989-90 there was a search action under section 132 of the Act on the appellant’s premises. In the course of the search several incriminating documents, loose papers etc. was seized. During the proceedings a statement of the Director of the appellant was recorded under section 132(4) of the Act, wherein he offered an amount of Rs.25lacs as an additional income from the different concerns belonging to the appellant Group. Thereafter on 27th March, 1992 an Assessment Order under section 143(3) of the Act was passed assessing the appellant to an Income of Rs. 4.75 crores as against the returned loss of Rs. 48.78 lacs. In the course of the assessment year, an amount of Rs. 10.81 lacs paid by the appellant to its sister concern M/s. Primco Private Ltd. as service charges (reimbursement of salary and wages) was disallowed as unproved expenses. This was inter alia on the basis that M/s Primco Pvt. Ltd. had filed a ‘Nil’ Return of Income for the Assessment Year 1989-90 and the activity of M/s Primco Private Ltd. was only at Nasik while the appellant’s activities was in Mumbai and therefore the expenditure of service charges viz. salary and wages paid to M/s Primco Pvt. Ltd. was disallowed.
(b) In appeal, the Commissioner of Income Tax (Appeals) by order dated 28th December 1992 allowed the appeal of the appellant herein in respect of Rs. 10.81 lacs being paid as service charges to M/s Primco Pvt. Ltd. This was allowed by the Commissioner of Income Tax (Appeals) on the ground that the revenue had not produced any material/evidence to show that the labour of M/s Primco Pvt. Ltd. was not utilized by the appellant.
(c) The revenue-respondents herein being aggrieved by the Order dated 28th December 1992 of the Commissioner of Income Tax (Appeals) carried the matter in appeal to the Tribunal. By an order dated 4th May, 2006, the Tribunal allowed the respondent-revenue’s appeal holding that during the course of search of the appellants premises documentary evidence was found which showed that the appellant was indulging in manipulating its accounts to reduce its profit. Further the Tribunal held that the deletion of the addition of Rs. 10.81 lacs paid to M/s Primco Pvt. Ltd. by the Commissioner of Income Tax (Appeals) was without considering the input-out put ratios, quantum of production, price of the finished products etc. Therefore, the Tribunal while reversing the order dated 28th. December 1992 of the Commissioner of Income Tax (Appeals) upheld the order of the Assessing Officer.
(d) By a notice dated 8th.December, 2006 the respondent-revenue called upon the appellant to show cause why penalty under section 271(1)(c) of the Act should not be imposed inter alia in respect of service charges i.e. reimbursement of salaries and wages of Rs.10.81lacs paid by the appellant to M/s Primco Pvt. Ltd. By an order dated 29th December, 2006 the Assessing Officer held that the amount of Rs. 10.81 lacs had not been paid as service charges to M/s Primco Pvt. Ltd. and that the appellant had deliberately filed inaccurate particulars so as to avoid payment of taxes and defraud the revenue. Consequently, a penalty under section 271(1)(c) of the Act was inter alia imposed in respect of Rs. 10.81 lacs being the service charges paid to M/s. Primco Pvt. Ltd.
(e) Being aggrieved, the appellant carried the matter of imposition of penalty in appeal. The Commissioner of Income Tax (Appeals) by an order dated 15th February, 2008 upheld the order of the Assessing Officer dated 29th December 2006 imposing penalty in respect of disallowance of service charges of Rs. 10.81 lacs. The Commissioner of Income Tax (Appeals) relied upon the order of the Tribunal dated 4th May, 2006 ( in quantum proceeding) which reversed the order of the Commissioner of Income Tax (Appeals) and held that the amount of Rs. 10.81 lacs shown as payment in respect of service charges to M/s Primco Pvt. Ltd. has to be disallowed. The Commissioner of Income Tax (Appeals) by the order dated 15th February 2008 also held that the appellant had filed inaccurate particulars of expenditure of Rs. 10.81 lacs with intent to evade the tax and therefore, penalty under section 271(1)(c) of the Act is warranted.
(f) In 2nd Appeal, the Tribunal by its order dated 14th May, 2010 dismissed the appeal of the appellant against imposition of penalty with regard to payment of Rs. 10.81 lacs as service charges shown to have been paid by the appellant to M/s. Primco Pvt. Ltd. The Tribunal held that during the search proceeding various incriminating documents were found which showed that the appellant was indulging in manipulating its account to reduce its profit. Consequently, the Tribunal held that the appellant had shown (inaccurate) not genuine expenditure in the shape of service charges to a loss making sister concern so as to reduce its taxable income. In view of the above, penalty under section 271(1)(c) of the Act with regard to Rs. 10.81 lacs was upheld.
4. Mr. Arun Sathe, Senior Counsel in support of the appeal submits as under:
(a) Penalty not imposable as in quantum proceeding, the Commissioner of Income Tax (Appeals) by order dated 28th. December 1992 has allowed the expenditure of Rs. 10.81 lacs being service charges (salary and wages) paid to M/s Primco Pvt. Ltd. Therefore as there could be two possible views on the allowability of the expenditure, no penalty is imposable; and
(b) In view of the decision of the Apex Court in the matter of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 no penalty can be imposed merely on account of making an unsustainable claim. Therefore he submits that mere making of a claim which is not sustainable in law, would not amount to furnishing of inaccurate particulars regarding the income;
In view of the above, Mr. Sathe the learned Sr. Counsel submits that the Appeal be admitted.
5. Mr. Suresh Kumar, learned Counsel for the Revenue supports the order passed by the Tribunal and submits as under:
(a) The order dated 28th December 1992 of the Commissioner of Income Tax (Appeals) in quantum proceeding was bad in law and the same had been set aside by an order dated 4th May, 2006 of the Tribunal. Consequently, no reliance can be placed upon the order dated 28th December, 1992, as the same having been set aside is not in existence;
(b) The appellant had accepted the order dated 4th May, 2006 of the Tribunal (in quantum proceeding) reversing the order dated 28th December 1992 in as much so as no appeal there from has been filed by the appellant. Consequently, the finding that the appellant had shown a false expense with regard to Rs. 10.81 lacs as service charges paid to M/s Primco Pvt. Ltd was an admitted/accepted position. Consequently penalty is imposable; and
(c) There was a categorical finding of fact that M/s Primco Pvt. Ltd. had filed a ‘Nil’ Return of Income Tax showing substantial carry forward unabsorbed depreciation/investment allowance. Consequently, the payment of Rs. 10.81 lacs to M/s Primco Pvt. Ltd. was shown in the accounts of the appellant only with a view to reduce its taxable income.
In the circumstances, Mr. Suresh Kumar submits that the appellant had filed inaccurate particulars, warranting penalty under section 271(1)(c) of the Act.
6. We have considered the submissions. We find that an amount of Rs.10.81lacs paid to M/s Primco Pvt. Ltd. was appellant’s sister concern. Further these payments were made through a debit note raised at the close of the year. This was done only with a view to reduce the taxable profits of the appellant. It has been further recorded by the Assessing Officer that the manufacturing activity of M/s Primco Pvt. Ltd. was at Nasik and therefore, there was no occasion for M/s Primco Pvt. Ltd. to have substantial staff at Mumbai, to be utilized by the appellant. The authorities under the Act have reached a finding of fact that the particulars of the expenditure of Rs. 10.81 lacs paid to M/s Primco Pvt. Ltd. were inaccurate, inasmuch as no such amounts were paid. This finding of the Tribunal in its order dated 4th May, 2006 has also been accepted by the appellant, as no appeal there from has been filed. The aforesaid finding clearly establishes that inaccurate particulars had been furnished by the appellant so as to arrive at a lower income to reduce the incidence of tax. The submission of the appellant that in view of the order dated 28th December, 1992 of the Commissioner of Income Tax (Appeals ) accepting the appellant’s submission that an amount of Rs. 10.81 lacs had been paid to M/s Primco Pvt. Ltd. as reimbursement of wages and salaries would estop the Revenue from imposing penalty under section 271(1)(c) of the Act is not acceptable. This is for the reason that the order dated 28th December, 1992 no longer exists, as the same has been set aside by an order dated 4th May, 2006 passed by the Tribunal. The order of the Tribunal dated 4th May, 2006 is the `final word on the alleged payment of Rs. 10.81 lacs to M/s Primco Pvt. Ltd. In the above order the Tribunal has held that in fact the payment of Rs.10.81lacs was not made. This finding has also been accepted by the appellant. A notice to show cause why penalty should not be imposed upon the appellant was issued to the appellant on 8th December 2006 i.e. after the order of the Tribunal dated 4th May, 2006 in quantum proceeding setting aside the order dated 28h. December 1992 of the Commissioner of Income Tax (Appeals). Therefore, an order which has been set aside is an order which does not exist and cannot be relied upon to establish that the payment of Rs.10.81lacs made by the appellant to M/s Primco Pvt. Ltd. is genuine. The explanation with regard to the payment of Rs. 10.81 lacs made to M/s Primco Pvt. Ltd. was found to be unacceptable by the Tribunal. Further the Tribunal in the penalty proceedings has by its order dated 14th May 2010 independent of the findings in quantum proceedings has reached a conclusion that various incriminating documents found during search established that the appellant’s were manipulating its accounts so as to reduce its profits. Consequently, penalty under section 271(1)(c) is imposable and has been rightly imposed by the authorities under the Act.
7. So far as reliance upon the decision of the Apex Court in the matter of Reliance Petroproducts Pvt. Ltd. (supra) is concerned, we find that the same is distinguishable. In that case, there was no finding recorded by the Tribunal that the details supplied by the assessee therein were inaccurate or false and therefore, the Apex Court held that no penalty under section 271(1)(c) of the Act could be visited upon the assessee in that case. As against that in the present case the Tribunal has reached a finding of fact that the appellant had filed inaccurate particulars regarding its income by showing false/exaggerated expenses. Therefore in the present case the provisions of Section 271(1)(c) of the Act stand attracted. Making of a claim on admitted/disclosed facts is different from filing false/inaccurate particulars. In the present case, the details furnished by the appellant were found to be inaccurate leading to a concealment of income on the part of the appellant. In view of the above, we find no fault with the order of the Tribunal dated 14th May, 2010 upholding penalty under section 271(1)(c) of the Act upon the appellant.
8. In view of the above, we are of the view that no substantial question of law arises. Therefore the appeal is dismissed with no order as to costs.
