The Co. Operative Textiles Mills Ltd. , ... vs Assessee

BEFORE SHRI G. C. GUPTA, HON'BLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No.1590 /Del/2010 Assessment year : 1997-98 The Cooperative Textiles Mills Ltd., Vs. Addl. CIT, Sehkari Nagar, Range, Bulandshahr Bulandshahr GIR / PAN: (Appellant) (Respondent)

Appellant by : None Respondent by : Smt. Parwinder Kaur, Sr. DR

Date of hearing : 19.02.2015 Date of pronouncement : 25.02.2015

ORDER

PER T.S. KAPOOR, AM:

This appeal has been filed by assessee against the order of Ld. CIT(A) dated 01.02.2010. The assessee has raised seven grounds of appeal wherein, the assessee has challenged the assessment on legal issue for non service of notice u/s 143(2) and has also taken the grounds on merit against the action of Ld. CIT(A) by which he had confirmed the imposition of penalty amounting to Rs.8.50 lacs. None was present on behalf of the assessee. However, with the help of Ld. D.R. and the material placed on file, we arrived at a conclusion that the matter can be disposed off without presence of Ld. A.R. Therefore, adjournment application filed by assessee/ Ld. A.R. was rejected and Ld. D.R. was heard on merits.

2 ITA No.1590/Del/2010 2. Ld. D.R. submitted that the case of the assessee is squarely covered by the case law of CIT Vs Zoom Communications 370 ITR 512 and, therefore the penalty needs to be upheld.

3. We have heard Ld. D.R. and have gone through the material placed on record. We find that the assessee is a cooperative society engaged in manufacture of cotton yarn. The A.O. during assessment proceedings observed that the amounts were deducted from salary and wages of employees for deposit in EPF account but which were not paid by it to Government account and, therefore the amounts were disallowed and addition was made. Ld. CIT(A) had also dismissed the appeal of assessee. On receipt of appellate order, the assessee was provided an opportunity of being heard before imposition of penalty u/s 271(1)(c). On behalf of assessee nobody attended therefore, A.O. after relying upon the provisions of Section 271(1)(c) imposed penalty of Rs.8.50 lacs. Aggrieved, the assessee filed appeal before Ld. CIT(A). However, Ld. CIT(A) upheld the penalty by holding as under:

I have carefully considered the order of the AO and the submissions of the AR as also the contents of the case-laws referred to by the AO and the AR. The AR's reference to the additions made on account of yield of yarn and expenses is not relevant at all as the AO has not imposed the penalty in respect of these two additions. The only addition that is relevant is relating to the E.P.F. Account. The AR's contention is that the disallowance of Rs.21,54,370/- did not arise because of concealment of income or furnishing of inaccurate particulars of income. It has been stated by him that the account statement filed in course of assessment proceedings contained full particulars regarding E.P.F. deduction and payment thereof. It has also been argued that the disallowance under section 43B was based on the facts and figures as disclosed and furnished by the assessee in course of the 3 ITA No.1590/Del/2010

assessment proceedings and it was not a result of any detection of concealment of income or furnishing of inaccurate particulars of income. It was also stated that the assessee held a bonafide belief based on the advice of the counsel that the deduction of salary and wages of various employees did not constitute income but was a liability dischargeable by the assessee.

To explain the meaning of word 'concealment', the AR has referred to the discussion made in the judgment of the Apex Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519 (SC). It has been argued that the word 'conceal' has been discussed by the Apex Court as under:-

"53. The expression "conceal" is of great importance. According to Law Lexicon, the word "conceal" means:

"to hide or keep secret. The word 'conceal' is con + celare which implies to hide.

It means 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."

Similarly, the word 'inaccurate' has been interpreted as under:

"not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate -statement, copy or transcript."

55. It signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars." I am afraid the AR's arguments do not cut much ice against the order of penalty made by the AO. I find that even by the definition of 'inaccurate' as cited above, the assessee's case falls within the purview of having furnished inaccurate particulars. The recoveries made from the salary and wages and having hot paid it or having paid it late ought to have been shown by the assessee in the returns of income suo moto. These amounts should have been added to the income by the assessee itself as disallowances, which was not done This, in my view, clearly establishes furnishing of inaccurate particulars.

I would also like to refer to the fact here that any reliance on the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519 does not help at all because the same has been 4 ITA No.1590/Del/2010

disapproved by the Hon'ble Supreme Court in the case of Union of India and Others vs. Dharmendra Textiles Processors & Others (2008), 306 ITR 277.

The AR's reliance on the plethora of case laws which have been cited in his written submission also are of no help and worthy of discussion in view of the fact that the Hon'ble Supreme Court in the case CIT vs. Gold Coin Health Food P. Ltd., (2008) 304 ITR 308 (SC) have overruled the judgment in the case of Virtual Soft Systems Limited vs. CIT, (2007) 289 ITR 83 (SC). The position of law now is clear beyond any doubt that penalty is leviable not only in a case where after addition of concealed income, a loss return after assessment becomes positive income, but also in a case where addition of concealed income reduces the returned loss and finally the assessed income is also a loss or a minus figure. In view of the facts of the case as- discussed above and the position of law, the penalty order is confirmed."

4. We find that penalty was imposed upon assessee on account of disallowance of Rs.21,51,370/-, which the assessee had not deposited in EPF account after deducting the same from the employees. We find that though the disallowance in this case was warranted as the provisions of Section 43B were hit. However the fact remains that necessary particulars regarding these deductions from salaries were filed along with return of income and there was no concealment of particulars of income. The penalty imposed was not the result of any detection or concealment of income or furnishing of inaccurate particulars of income. We further find that the A.O. in assessment order dated 28.01.2000 vide para 2 has observed as under:

"It is observed that in EPF account a sum of Rs.3,42,463.45 and Rs.15,03,851/- has been deducted from salary and wages of the employees which have not been paid by the assessee in Govt. account. Apart from this, the payment of Rs.3,18,056/- has been paid late by 15 days. Therefore, the entire amount ofRs.21,64,370/- is disallowable u/s 43B and the same is disallowed and added to the total income."

5 ITA No.1590/Del/2010 5. From the above findings of A.O., we find that the fact regarding nonpayment of such dues to the Government account were obtained by A.O. from the documents accompanying income tax return only and A.O. had not detected any concealed income of the assessee. Full particulars regarding statutory payment to be made were disclosed in the return of income therefore, we hold that assessee had not concealed particulars of income and had not furnished inaccurate particulars of income. Mere wrong claim made by assessee cannot amount to concealment of income. Hon'ble Supreme Court in the case of Reliance Petro Products held as under:

"The Hon'ble Supreme Court in the case of CIT v. Reliance Petro Products Pvt. Ltd. [(2010) 322 ITR 158 (SC)} has held that simply for the reason that the Assessing Officer did not find the claim of the assessee to be sustainable in law up to a certain extent, it cannot be a case for penalty u/s.271(l)(c) more so when the particulars furnished by the assessee were not inaccurate.

Similarly, the Hon'ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd. Vs. CIT (2012) 348 ITR 306 (SC) has held that no penalty u/s 271(l)(c) can be imposed for a bona fide mistake or a normal human error."

6. In the case law of Price Waterhouse Coopers, the assessee had not added back to its computation of income the quantity as per the provisions of section 40A(7) of the Act. However, Hon'ble Supreme Court deleted the penalty holding that mistake was due to human error. In the present case, we observe that not adding back to the income of unallowable expenses, was due to a bona fide mistake which is strengthened from the fact that assessee had declared a loss of Rs.153.35 lacs and even if the amount of Rs.21.54 lacs was suo moto added back by assessee, still the income figure would 6 ITA No.1590/Del/2010

have remained in negative. Therefore, it cannot be said that intention of assessee was to evade taxes by claiming wrong deductions.

6. In view of above facts and circumstances, we hold that penalty was not imposable and therefore we delete it. Since we have given relief to the assessee on merits, legal grounds raised by assessee has not been adjudicated.

7. In view of above, appeal filed by assessee is allowed.

8. Order pronounced in the open court on 25.02.2015.

Sd./- Sd./- (G. C. GUPTA ) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER th Date: 25 Feb., 2015 Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order (ITAT, New Delhi).

S.No. Details Date Initials Designation 1 Draft dictated on 19/2 Sr. PS/PS 2 Draft placed before author 24/2 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 25/2 Sr. PS/PS 6 Kept for pronouncement 25/2 Sr. PS/PS 7 File sent to Bench Clerk 25/2 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order