Commissioner Of Income Tax-I, Ludhiana v. Mehta Engineers Ltd., Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITA Nos.599 & 600 of 2007DATE OF DECISION: FEBRUARY 07, 2008 Commissioner of Income Tax-I, Ludhiana Versus .....APPELLANT Mehta Engineers Ltd., Ludhiana ....RESPONDENT CORAM:HON'BLE MR.JUSTICE SATISH KUMAR MITTALHON'BLE MR.JUSTICE RAKESH KUMAR GARG--- Present:Mr.Sanjiv Bansal, Advocate,for the appellant. .. SATISH KUMAR MITTAL, J . This order shall dispose of ITA Nos.600 and 599 of 2007which have been filed by the revenue against the order dated 18.05.2007passed by the Income Tax Appellate Tribunal (hereinafter referred to as`the ITAT') in ITA Nos.739/Chandi/2004 and 213/Chandi/2006 in case ofthe respondent-assessee for the Assessment Years 1996-97 and 1997-98,respectively. In this case, the assessee filed the return of income for theAssessment Years 1996-97 and 1997-98 in which he had claimed certainamount as business expenditure incurred by it on studies of Shri VarunMehta son of Director of the company on the ground that under agreementbetween the company and the said Varun, he was to serve the companyfor at least three years after finishing his studies abroad. The Assessing Officer disallowed the said expenditure and the same was added towards the income. On appeals by the assessee, thesaid order became final up to the ITAT. Thereafter, the Department startedproceedings under Section 271(1)(c) of the Income Tax Act (hereinafter ITA Nos.599 & 600 of 2007 -2- referred to as `the Act') against the respondent for imposing penalty onthe ground that the assessee claimed wrong deduction in its return. Videorder dated 15.10.2001, Deputy Commissioner of Income Tax, Ludhianaimposed a penalty of Rs.2,75,451/- equivalent to 100% of the tax soughtto be evaded. Feeling aggrieved against the above order, the assessee filedan appeal before the Commissioner of Income Tax (Appeals), who videorder dated 30.03.2004 deleted the penalty imposed by the AssessingOfficer under Section 271(1)(c) of the Act while coming to the conclusionthat the case was fit for imposition of penalty for concealment underSection 271(1)(c). Against the said order of the Commissioner of IncomeTax (Appeals), the revenue filed two separate appeals before the ITAT,who vide order dated 18.05.2007 dismissed the same while observing asunder:- “....The disallowance has been sustained for the reason thatassessee failed to justify that the expenditure incurred wasfor furtherance of the purposes of its business. In so far as theproceedings u/s 271(1)(c) is concerned, it is a trite law thatthe same stand on an altogether different footing than theassessment proceeding. The findings of the Revenueauthorities in the assessment proceedings may be relevant butcannot be considered as conclusive for justifying theimposition of penalty u/s 271(1)(c) of the Act. 9. In the instant case there is no allegation by the AssessingOfficer that the assessee did not disclose the full particularsof the claim. The deduction claimed by the assessee by wayof a debit in the profit & loss account cannot be said to bebereft of bona fides. This is for the reason that the assesseeincurred expenditure as an obligation under agreement byway of which the beneficiary was to serve with the assessee ITA Nos.599 & 600 of 2007 -3- 9. In the instant case there is no allegation by the AssessingOfficer that the assessee did not disclose the full particularsof the claim. The deduction claimed by the assessee by wayof a debit in the profit & loss account cannot be said to bebereft of bona fides. This is for the reason that the assesseeincurred expenditure as an obligation under agreement byway of which the beneficiary was to serve with the assessee ITA Nos.599 & 600 of 2007 -3- company for a stipulated period after finishing his studies inabroad. It is, of course, a different matter that the claim of theassessee has not ultimately found favour with the Revenueauthorities but that by itself does not justify an inference thatit was lacking in bona fides. It is a well settled legalproposition that mere disallowance of expenditure claimedcannot ipso-facto be considered to be giving rise to penalaction u/s 271(10(c) of Act unless it is demonstrated that theclaim was made as a result of a willful omission or neglect onthe part of the assessee. No such inference is justifiable in theinstant case for the reason that the Revenue has not broughton record any material to support the same. A gainfulreference can be made to the decision of our coordinateBench in the case of Sai Builders (supra) and HarcharanSingh (supra) in this regard. We may also refer to thejudgment of Delhi High Court in the case of CIT Vs. BacardiMartini India Ltd., 288 ITR 585 wherein it has been held thatmerely because there is a difference of opinion between theassessee and the Assessing Officer, for allowing ordisallowing an expenditure, it cannot ipso-facto be said thatthe assessee had intention to conceal its income or forfurnishing inaccurate particulars of its income. In the instantcase, we find that the assessee had made the claim on thebasis of a credible material and also furnished necessaryexplanations in the course of assessment proceedings. Thereasoning advanced by the assessee has been found to beunsatisfactory and thus rejected by the AO. However, theexplanations furnished by the assessee were neither found tobe false and nor is there any finding by the A.O. either in theorder of assessment or even during the penalty proceedingsthat the assessee did not offer complete particulars or detailsof the expenditure whenever considered necessary by theAssessing Officer. Therefore, considering the totality of thecircumstances and the fact position in the instant case, we do ITA Nos.599 & 600 of 2007 -4- not find it a fit case for imposition of penalty u/s 271(1)(c) ofthe Act. Hence, we hereby affirm the decision of the CIT(Appeals) on this aspect.” We have heard the counsel for the appellant and perused theimpugned order. Undisputedly, in this case, the assessee had only claimedcertain expenditure incurred on the education of Mr.Varun Mehta on thebasis of a written agreement, according to which, he was to serve thecompany for at least three years after finishing his studies abroad. It isneither the case of the revenue nor there is any material to this effectavailable on the record that the said agreement was false and fabricateddocument. Moreover, there is no such finding recorded by anyadjudicating authority. Therefore, in view of the said fact and the findingof fact recorded by the ITAT as reproduced above, we are of the opinionthat the Commissioner of Income Tax (Appeals) has rightly deleted thepenalty while coming to the conclusion that it is not the case where theassessee had claimed intentionally and deliberately the expenditure inorder to evade the tax liability. Thus, we do not find any ground tointerfere in the finding of fact recorded by the ITAT. No substantial question of law is involved in both the appealsand the same are hereby dismissed. (SATISH KUMAR MITTAL) JUDGE February 07, 2008vkg (RAKESH KUMAR GARG) JUDGE