The West Bengal State Co - Operative ... vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA [Before Shri P.K.Bansal, A.M. & Shri Mahavir Singh, J.M.]

I.T.A. No.85/Kol/2013 : Assessment Year : 2008-09

The W.B.State Co-Opt. Marketing Federation Ltd. ... (Appellant) -Vs- (PAN: AABAT 0010H) D.C.I.T., Circle-36, Kolkata ... (Respondent)

Date of concluding the hearing : 26.05.2015 Date of pronouncing the Order : 10.06.2015

Appearances :For the Assessee : Shri Miraj D. Shah, FCA :For the Department : Shri Kanhiya Lal Kanak, Sr.DR

ORDER

Per Shri P.K.Bansal, A.M.

This appeal has been filed by the assessee against the order of the C IT(A)-XX, Kolkata dated 05.11.2012 for the a sse ssment year 2008-09, by which the CIT(A) partly allo wed the penalty imposed on the assessee by the AO vide order dated 27.06.2011.

2. The only issue involved in this appeal relates to the sustenance of the penalty levied by the AO under section 271(1)(c). Brief facts of the case are that the assessee is an apex marketing society in cooperative sector in West Bengal. Its activities include marketing, procurement and distribution of fertilizer and other agricultural inputs like jute, paddy, seeds, and pesticides, etc. through various member primary co-operative societies. In this

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case, the assessee has filed the return at an income of Rs.1,32,45,463/- on 03.11.2009. The assessment was completed on the returned income of rs.1,32,45,460/- by making certain disallo wances and allo wing the set-off of the business loss for the assessment years 2003-04 and 2004-05 in the following manner:

" Income from business Rs. 5,66,06,763/- Add : Provision s for Audit Fees Rs. 30,000/- Pro visions for Sundr y Debtors Rs. 2,43,00,000/- (Jute Products)

Pro visions for closing stock suspense Rs. 61,60,000/- Pro visions for H/Transport receivable Rs. 38,37,000/-

Pro visions for su spense Rs. 1,23,32,000/- Godown Mainten ance Rs. 3,37,700/- u/s. 14A Rs. 36 ,950/- Rs.12,69,41,255/- Less: Business Loss set-off- 1) A.Y. 2003-04 Rs.6,48,15,260/- 2) A.Y. 2004-05 Rs.5,85 ,25,995/- Rs.12,69,41,255/- NIL Balance business lo ss for A.Y. 2004-05 & other A.Yrs carried forward as per Act. Income from other sources Rs. 4,69,99,816/-

Gross Total Income Rs. 4,69,99,816/- Less: Deduction under section 80P Rs. 3,37,54,353/- Total Income Rs. 1,32,45,463/- R/off Rs. 1,32,45,460/-" 2.1 The assessee had not gone on appeal in respect of the

disallo wances made, as, according to him, he has to make certain provisions in accordance with the West Bengal State Cooperative Act. The assessee has added back the provisions for FBT, depreciation on WIP in its computation of income but did not add back other disallowance s. The AO initiated the penalty under 3 ITA No.85/Kol/2013 WB State Co-Op. Marketing Fedrn. Ltd. : A. Yr: 2008-09

section 271(1)(c) for concealment of income and for furnishing of inaccurate particulars of income. Ultimately, after giving the opportunity to the assessee, the AO levied the penalty at Rs.1,45,22,000/-, being 100% of tax sought to be evaded. The assessee went in appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee and sustained the penalty in respect of addition made due to provision for sundry debtors and provision for suspense.

3. Before us, the ld. AR has vehemently contended that it is not a case of concealment of particulars of income or filing of inaccurate particulars. The assessee has duly disclosed all the particulars. The provision has been made by the assessee, as per the suggestion of the government auditor, vide their report dated 20.06.2008. The asse ssee is not aware of and while making the computation, the profit has not to be taken as per the audited profit & loss a/c. and therefore, a bona fide mistake has been committed by the asse ssee but that bona fide mista ke does not envisage the penalty as there was proper disclosure about the particulars of the income as well as particulars of each of the provisions made by the assessee. There was no intention of the assessee to conceal the particulars of its income or furnishing inaccurate particula rs of income. The AO has applied the provision of Explanation 4(a) to section 271(1)(c). This explanation is applicable when the amount of the income has the effect of reducing the loss declared in the return or converting the loss into income. In the ca se of the assessee, neither net loss declared in the return was reduced nor the loss has been converted into the income. Reliance wa s placed on 4 ITA No.85/Kol/2013 WB State Co-Op. Marketing Fedrn. Ltd. : A. Yr: 2008-09

the decision of the Hon'ble Supreme Court in the case of CIT-vs- Reliance Petro Products Pvt. Ltd. 322 ITR 158.

3.1 The ld. D R, on the other hand, relied on the order of the tax authorities below.

4. We heard the rival submissions and carefully considered the same. We have also gone through the case laws as well as relevant provision of section 271(1)(c). We noted that under section 271(1)(c), penalty can be imposed, if the AO, in the course of any proceeding under the Act, is satisfied that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. If the AO wa s satisfied in this regard that the assessee has committed either of the defaults, the AO may direct such person to pay by way of penalty in addition to the tax, if any payable, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or furnishing of inaccurate particulars of such income. This is an undisputed fact that the provisions, which have been disallo wed by the AO , are not deductible, while computing the total income, as per the provisions of Income-Tax Act. These provisions might have been made on the suggestion of government auditors but will not become an allowable expenditure under the Income-Tax Act. If those provisions were allowable, the assessee would have come in appeal before the appellate authorities. Claiming tho se provisions as deduction under the Income Tax Act, it shall prove that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. Therefore, we do not agree with the ld. A.R. that the assessee has not concealed the particulars of 5 ITA No.85/Kol/2013 WB State Co-Op. Marketing Fedrn. Ltd. : A. Yr: 2008-09

income or furnished the inacc urate particulars of the income. It is not a case where the assessee has claimed an expenditure which may or may not be allowable under the Income-Tax Ac t as is in the case of claim of interest by the a ssessee in the case of Relia nce Petro Products Pvt. Ltd. (supra), the decision as relied on by the assessee, in our opinion, will not assist the asse sse e. The assessee in this case has claimed the deduction of the provisions, which, he was fully a ware of, that the provisions are not deductible under the law. It is not the plea of the assessee that the assessee ha s committed a bona fide mistake by claiming the said deduction. Thus, in our opinion, the assessee has complied with the basic condition that the assessee has concealed the particulars of income or furnished the inaccurate particulars of income.

4.1 Now, the question arises how the penalty should be computed. Section 271(1)(c)(iii) authorized the AO to impose the penalty which should not be less than 100% or more than 300% of the tax sought to be evaded. The amount of tax sought to be evaded has been defined under Explanation 4, which reads as under:

"Explanation 4. - For the purposes of clause (iii) of sub- section, the expression "the amount of tax sought to be evaded",-

(a) In any case where the amount of income in respect of wh ich particulars have been concealed or inaccurate particulars have been furnished has the effect o f reducing the loss declared in the return or converting that loss into income, means the tax that would have been chargeable on the incom e in respect of wh ich particulars have been concealed or inaccurate particulars have been furnished had such income been the total income;

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(b) in any case to which Explanation 3 applies, means the tax on the total income assessed (as reduced by the amount of advance tax, tax deducted at source, tax collected at source and self-asse ssment tax paid before the issue of notice under section 148);

(c) in any other case, means the difference between the tax on the total income asse ssed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished."

4.2 The AO, we noted in the instant case, has levied the penalty by applying Explanation 4(a). Fro m the reading of Explanation 4(a), it is apparent that this clause defines the amount of tax to be evaded. The tax that would have been chargeable on the income in respect of which particulars have been concealed or the inaccurate particulars have been furnished, had such income been the total income, the profit that it has the effect of reducing the los s declared in the return or converting that loss into the income. In the case of the assessee, we noted tha t the assessee has returned the income at Rs.1,32,45,460/- and the income has been assessed at Rs.1,32,45,460/-, even though there has been addition made by the AO in respect of provision for sundry debtors and provision for suspense, for which the penalty has been sustained by the CIT(A) but the addition so made does not affect either reducing the loss declared in the return or converting the loss declared in the return into income. The assessee has not declared loss in the return. Therefore, in our opinion, explanation 4(a) on the basis of which, the penalty ha s been imposed and confirmed by the C IT(A), will not apply. The clause (b) and (c) of explanation 4, even though defines the amount of tax sought to be evaded but they are also not 7 ITA No.85/Kol/2013 WB State Co-Op. Marketing Fedrn. Ltd. : A. Yr: 2008-09

applicable in the case of the asse ssee, as tax on the total income assessed remains the same and even there is no difference between the tax on the total income assessed and the tax that would have been chargeable as such total income be reduced by the amount of the income in respect of which particulars have been concealed o r inaccurate particulars have been furnished. This is a settled law if the computation provision fails, there cannot be any penalty. We have also gone through the decision of the Hon'ble Supreme Court in the case of CIT-vs- Gold Coin Health Food Pvt. Ltd. 304 ITR

308. In this case, we noted that question involved wa s:-

(Whether on the facts and circumstances of the case, the Appellate Tribunal wa s right in law in holding that the penalty under section 17(1)(c) of the Income Tax Act, 1961 cannot be levied, if the returned income is a loss in the cases prior to the amendment in the year 2002)

4.3 On this question, the Hon'ble Supreme Court took the view that explanation 4 to section 271(1)(c)(iii) of the Income Tax Act, 1961 regarding the imposition of penalty, even if the returned income is a loss, is clarificatory and not substantive. It applie s even to the a ssessment yea rs prior to April 2003, the date on which it wa s brought into force. The facts involved in this case were that the income disclosed and the income assessed was negative. The facts of this case were different from the facts of the assessee's case. In the case of the assessee, the income disclosed and the income asse ssed are the same. Since, in our opinion, explanation 4(a) is not applicable as the addition made does not affect the loss declared in the re turn or converts the loss into income, the 8 ITA No.85/Kol/2013 WB State Co-Op. Marketing Fedrn. Ltd. : A. Yr: 2008-09

explanation 4(a) is not applicable. We, the refore, set aside the order of the CIT(A) and delete the penalty imposed by the AO under section 271(1)(c).

5. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the Open Court on 10.06.2015.

Sd/- Sd/- (Mahavir Singh) (P.K.Bansal) Judicial Member Accountant Member Dated : 10.06.2015

Talukdar(Sr.P.S.)

Copy of the order forwarded to:

1. The W.B. State Co-operative Marketing Federation Ltd.1582, Rajdanga Main Road, South End Enclave, 3rd floor, Kolkata - 700 017 2 DCIT, Circle-36, Kolkata

3. The CIT(A),

4. CIT,

5. DR, True Copy, By order,

Asstt. Registrar, ITAT, Kolkata