M/S E-Cosmos (India) Pvt. Ltd.,, ... vs Assessee

The Deputy Commissioner of Vs. M/s. e-Cosmos India Pvt. Ltd., Income Tax, Golden Enclave, A1 Tower, Circle 11(3), 7th Floor, Old Airport Road, Bangalore. Bangalore - 560 017. PAN : AABCE 3269K APPELLANT RESPONDENT

CO No.36/Bang/2015 [in ITA No.1298/Bang/2014] Assessment year : 2009-10

M/s. e-Cosmos India Pvt. Ltd., Vs. The Deputy Commissioner of Golden Enclave, A1 Tower, Income Tax, 7th Floor, Old Airport Road, Circle 11(3), Bangalore - 560 017. Bangalore. PAN : AABCE 3269K

APPELLANT RESPONDENT

Revenue by : Dr. Shankar Prasad K., Jt. CIT(DR) Assessee by : Shri Raj Kumar Shanbhogue, CA

Date of hearing : 18.06.2015 Date of Pronouncement : 29.06.2015 ITA No.1298/Bang/2014 & CO 36/Bang/2015 Page 2 of 8

ORDER

Per N.V. Vasudevan, Judicial Member

ITA No. 1298/B/2014 is an appeal by the Revenue against the order dated 30.6.2014 of the CIT(Appeals)-I, Bangalore relating to assessment

year 2009-10. In this appeal, the Revenue has challenged the order of

CIT(Appeals), whereby he cancelled the order of the Assessing Officer

imposing penalty u/s. 271(1)(c) of the Act.

2. Penalty u/s. 271(1)(c) of the Act was imposed by the Assessing

Officer under the following facts. The assessee is a company, engaged in

the business of computer software development. The assessee filed its

return of income for the A.Y. 2009-10 belatedly on 18.10.2010. In the

return of income so filed, the assessee claimed deduction u/s. 10A of the

Act in respect of profits derived from export of computer software. U/s.

10A(1A) proviso, no deduction u/s. 10A will be allowed to the assessee,

who does not furnish return of income on or before the due date specified

u/s. 139(1) of the Act.

3. The AO noticed that the assessee had claimed deduction u/s. 10A of

the Act at Rs.61,16,242. Relying on the provisions of proviso to section

10A(1A) and also for the reason that From 56F in the prescribed proforma

which is necessary for claiming deduction u/s. 10A had not been filed by

the assessee, deduction u/s. 10A was disallowed by the AO. The AO also ITA No.1298/Bang/2014 & CO 36/Bang/2015 Page 3 of 8

noticed that in the P&L account, administrative selling and other expenses

debited by the assessee were a sum of Rs.3,66,31,715. In the course of

assessment proceedings, the director of the company appeared before the

AO. He was asked to produce bills and vouchers in support of expenses

so debited. The director could not produce bills or vouchers. The AO

therefore disallowed a sum of Rs. 10 lakhs out of expenses debited in the

P&L account.

4. In respect of disallowance of deduction u/s. 10A of the Act and

disallowance of Rs.10 lakhs of administrative selling and other expenses,

the AO initiated penalty proceedings against the assessee and by an order

dated 28.6.2012 came to the conclusion that the assessee had filed

inaccurate particulars of income and concealed particulars of income and

imposed penalty equal to 100% tax sought to be evaded.

5. Before the CIT(Appeals), the assessee firstly submitted the reason

why the return of income was not filed on or before the due date u/s. 139(1)

of the Act. The assessee had explained before the CIT(A) in an affidavit

that the assessee faced several odds due to crash in the business following

economic meltdown in the USA where its business was concentrated,

leading to attrition in employment in the assessee's office in Bangalore due

to desertion of employees seeking better opportunities elsewhere. There

was a death in the family of Principal Officer and he could not attend the

work several days leading to Finance & Accountancy sections not being ITA No.1298/Bang/2014 & CO 36/Bang/2015 Page 4 of 8

properly looked after. The director of the assessee had to look for a

suitable auditor/counsel to enable representation before the income-tax

authorities.

6. The assessee also explained that the denial of deduction u/s. 10A

was owing to technical lapse and there could be no doubt that assessee

was engaged in the business of computer software and had brought in to

the country foreign exchange from such export. The assessee submitted

that it had disclosed facts in its return of income and there could be no

complaint of any concealment of particulars of income or furnishing of

inaccurate particulars of income.

7. With regard to disallowance of Rs.10 lakhs out of administrative

selling and other expenses, the assessee pointed out that disallowance

was made by the AO purely on estimate basis and there was nothing on

record to suggest that the assessee claimed bogus or excessive or

personal expenses. The assessee submitted that there cannot be any

adverse inference on this count also.

8. The assessee place reliance on the decision of the Hon'ble

Supreme Court in the case of CIT v. Reliance Petro Products Ltd., 322 ITR

158 (SC) wherein it was held that claiming a deduction which is disallowed

will not necessarily lead to concealment of particulars of income, when all

facts are disclosed and the claim is made for deduction. It was held that it

was upto the authorities to accept or reject the claim for deduction. Merely ITA No.1298/Bang/2014 & CO 36/Bang/2015 Page 5 of 8

because the deduction claimed is not accepted, will not by itself attract

imposition of penalty u/s. 271(1(c) of the Act.

9. The CIT(Appeals) on a consideration of the aforesaid facts, firstly

came to the conclusion that there was a reasonable cause for the assessee

in filing its return of income belatedly. The CIT(A) also held that

disallowance of deduction u/s. 10A was made purely on technical grounds

and there was no non-disclosure or inaccurate particulars of income

furnished by the assessee. The CIT(A) also held that adhoc disallowance

of Rs.10 lakhs out of administrative selling and other expenses were made

only for non-production of bills & vouchers and there is no material on

record to show that the expenses disallowed were bogus or personal in

nature. The CIT(A) therefore was of the view that the assessee cannot be

said to be guilty of having furnished inaccurate particulars of income or

having concealed the particulars of income. Penalty imposed was

cancelled by the CIT(A).

10. Aggrieved by the order of CIT(Appeals), the Revenue has filed the

present appeal before the Tribunal.

11. The ld. DR reiterated the stand of the Revenue as contained in the

grounds of appeal filed before the Tribunal. According to the Revenue,

conduct of the assessee was contumacious. The assessee was guilty of

non co-operation in the course of assessment proceedings. The assessee, ITA No.1298/Bang/2014 & CO 36/Bang/2015 Page 6 of 8

according to the Revenue, furnished inaccurate particulars by wrong claim

of deduction u/s. 10A of the Act.

12. The ld. counsel for the assessee reiterated the submissions made

before the CIT(A) and relied on his order.

13. We have considered the rival submissions. In our view, there is no

merit in the appeal filed by the Revenue. The conduct of the assessee in

filing return of income belatedly is sufficiently explained before the CIT(A).

Perusal of the orders of the AO while concluding assessment u/s.143(3) of

the Act shows that it was only the director who attended proceedings of

assessment before the AO. In our view, the explanation so offered by the

assessee deserves to be accepted. In this regard, the CIT(A) has also

noticed the fact that the IT industry was undergoing a recession phase at

the relevant point of time. The complaint that there was non-cooperative

attitude on the part of the assessee is also not true. The non-cooperative

attitude is cited by the Revenue in the context of assessee not having

furnished any reply to the show cause notice issued u/s. 274 of the Act

before imposing penalty u/s. 271(1(c) of the Act. In our view, this cannot

be the basis to impose penalty as the penalty is with reference to

concealment of particulars of income or furnishing of inaccurate particulars

of income with reference to the original assessment proceedings.

14. As far as the complaint of the Revenue that the assessee furnished

inaccurate particulars by making wrong claim of deduction u/s. 10A of the ITA No.1298/Bang/2014 & CO 36/Bang/2015 Page 7 of 8

Act is concerned, we find that this is not the basis on which deduction u/s.

10A was denied to the assessee. As rightly contended by the assessee,

deduction u/s. 10A was denied only for technical reasons viz., return of

income not having been filed on or before the due date u/s. 139(1) of the

Act. In our view, therefore, the contentions put forth by the Revenue before

us is unsustainable. In our view, the CIT(A) has rightly come to the

conclusion that mere making of a claim for deduction u/s. 10A which is not

allowed, cannot lead to the conclusion that assessee is guilty of having

furnished inaccurate particulars of income or having concealed particulars

of income. The CIT(A) has rightly placed reliance on the decision of the

Hon'ble Supreme Court in Reliance Petro Products Pvt. Ltd. (supra).

15. Even with regard to adhoc disallowance of administrative selling and

other expenses of Rs.10 lakhs, disallowance has been made only for want

of bills & vouchers. There is nothing on record to suggest that the

expenditure disallowed was bogus, excessive or personal in nature. In light

of the circumstances explained by the assessee with regard to affairs of its

business having suffered setback, we are of the view that no adverse

inference can be drawn against the assessee in respect of disallowance of

Rs.10 lakhs.

16. For the above reasons, we are of the view that no interference is

called for in the order of the CIT(Appeals) and the appeal by the Revenue

deserves to be dismissed.

ITA No.1298/Bang/2014

& CO 36/Bang/2015 Page 8 of 8

17. The assessee has filed the Cross Objection purely supportively of

the order of the CIT(Appeals) cancelling the penalty u/s. 271(1(c) of the

Act. In view of the dismissal of the Revenue's appeal, we are of the view

that the Cross Objections does not deserve any adjudication and the same

is dismissed as such.

18. In the result, the appeal by the Revenue and the CO by the

assessee are dismissed.

Pronounced in the open court on this 29th day of June, 2015.

Sd/- Sd/-

( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 29th June, 2015. /D S/

Copy to: 1. Revenue 2. Assessee 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Assistant Registrar / Senior Private Secretary ITAT, Bangalore.