Commissioner Of Income Tax, Central Iii, Mumbai v. M/S.adonis Electronics Private Limited

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1483 OF 2011 Commissioner of Income Tax, Central III, Mumbai Versus M/s.Adonis Electronics Private Limited ..Appellant. ..Respondent. Ms.S.V. Bharucha for the appellant.Mr.J.D. Mistri, Senior Advocate with Mr.Atul K Jasani for the respondent. CORAM : J.P. Devadhar &M.S. Sanklecha, JJ. DATE : 15[th] February 2013 P.C. : 1.In this appeal by the Revenue for assessment year 2004-2005, the basic dispute is whether the Tribunal was justified in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961 ('Act' for short). 2.The respondent – assessee is engaged in the business of providing services in respect of electronic goods sold by M/s.MIRC Electronics Limited (MRRC) under the brand name of ONIDA. In the assessment year in question, the assessee entered into an agreement with MIRC, whereby MIRC assigned its deferred sales tax loan liability of Rs.53.31 crores to the assessee in consideration of payment of Rs.17.64 crores in cash and assignment of receivables from M/s.Monica Electronics Limited, Onida Saka Limited and others amounting to Rs.33.52 crores. 3.Subsequently, the assessee settled the sales tax liability at Rs.26.64 crores and the actual relizable value of receivables was worked out at Rs.13.61 crores after approaching the concerned parties. Thus, in view of the reduction in the assigned sales tax liability worked out at Rs.10.98 crores and reduction in the value of receivables worked out at Rs.6.36 crores, the assessee claimed to have earned net income of Rs.4.62 crores (Rs.10.98 crores – Rs.6.36 crores) from the transaction of assignment with MIRC and offered the same to tax in the assessment year in question i.e. A.Y. 2004-05. 4.The assessing officer was of the opinion that the assignment transaction between the assessee and MIRC was a sham transaction / colourable device and accordingly brought to tax an amount of Rs.26.68 crores in the hands of MIRC on account of cessation of sales tax liability under Section 41(1) of the Income Tax Act. The assessing officer further held that the assessee had made profit of Rs.24.52 crores and since income of Rs.4.62 crores only was offered to tax, the differential amount of Rs.19.90 crores were liable to be added to the total income of the assessee. However, considering that a sum of Rs.26.68 crores was already added in the hands of MIRC on account of cessation of sales tax liability under Section 41(1), the amount of Rs.19.90 crores was added by him to the total income of the assessee on protective basis. 5.The aforesaid additions made on substantive basis in the hands of MIRC and on protective basis in the hands of the assessee by the assessing officer were upheld by the CIT (A). On further appeal, officer who had held that the transaction was a sham and colourable transaction and accepted the genuineness thereof. However, the Tribunal considering the fact that though the sales tax liability taken over by the assessee was Rs.53.31 crores, since the assessee had actually settled the liability for Rs.26.64 crores and had paid Rs.17.64 crores, the profit of Rs.9.03 crores (Rs.53.31 crores – Rs.26.64 crores = Rs.17.64 crores) was earned by the assessee. As the assessee had shown profit of Rs.4.62 crores from the assignment transaction instead of Rs.9.03 crores, the Tribunal confirmed the addition made by the assessing officer to the extent of Rs.4.41 crores. 6.In the penalty proceedings, the assessing officer levied penalty at 100% of the tax sought to be evaded by the assessee on the addition of Rs.4.41 crores made to its total income. The said penalty was upheld by the Commissioner of Income Tax (A). 7.By the impugned order, the Tribunal deleted the penalty on the ground that the assessee had disclosed the accounting policy adopted by it in 6.In the penalty proceedings, the assessing officer levied penalty at 100% of the tax sought to be evaded by the assessee on the addition of Rs.4.41 crores made to its total income. The said penalty was upheld by the Commissioner of Income Tax (A). 7.By the impugned order, the Tribunal deleted the penalty on the ground that the assessee had disclosed the accounting policy adopted by it in determining profits from the assignment of business, that the assignment of liability and purchase of debts were two integral part of assignment of business and the net realizable value of the debt made by the assessee was bona fide and honest. The Tribunal further held that the basis adopted by the Tribunal in the quantum proceedings to determine the income of the assessee from assignment business was entirely different from the one adopted by the assessee as also the basis adopted by the assessing officer and, therefore, it is clear that the issue of determination of exact income of the assessee from assignment business was not free from debate on which different views were possible. Accordingly, the Tribunal held that in the facts and circumstances of the case, it cannot be said that the assessee had concealed income so as to attract penalty under Section 271(1)(c) of the Act. 8.In the circumstances set out herein above, the decision of the Tribunal in deleting the penalty inter alia on the ground that all the relevant particulars about the income relating to assignment of business were fully furnished and even the accounting policy adopted for determining the said income was disclosed, cannot be faulted. 9.In the result, we see no reason entertain the appeal. Accordingly, the appeal is dismissed with no order as to costs. (M.S. Sanklecha, J.) (J.P. Devadhar, J.)