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Judgment
M.S. Sanklecha, J.—This appeal under s. 260A of the IT Act, 1961 (the Act) challenges the order dt. 14th May, 2010 of the Tribunal upholding penalty under s, 271(1)(c) of the Act relating to the asst. yr. 1989-90. Being aggrieved by order dt. 14th May, 2010, the appellant has formulated the following questions of law for consideration of this Court:
(A) Whether on the facts and in the circumstance of the case, the Tribunal was right in law and on facts to confirm the penalty for the asst. yr. 1989-90 under the provisions of s. 271(1)(c) of the Act by merely relying on the Tribunal''s order in the quantum proceedings, wherein there has been no evidence or finding adduced that the appellant had furnished inaccurate or wrong particulars of income to warrant the levy of penalty?
(B) Whether on the facts and in the circumstances of the case, the Tribunal was right in law and on facts to confirm the penalty for the asst. yr. 1989-90 under the provisions of s. 271(1)(c) of the Act, on the basis of certain documents found during search conducted at the premises of the appellant in the previous year relevant to assessment year, which has no connection with the appellant to warrant the levy of penalty ?
(C) Whether on the facts and in the circumstances of the case, the Tribunal was right in law and on facts to confirm the penalty for the asst. yr. 1989-90 under the provisions of s. 271(1)(c) of the Act, when the appellant had offered a valid explanation and substantiated its claim in respect of service charges paid to its sister-concern M/s. Primco (P) Ltd. of an amount of Rs. 10,38,792 (rupees ten lacs thirty eight thousand seven hundred ninety two only)?
The facts leading to this appeal are as under:
(a) The appellant is engaged in manufacture of refills and ball pens. On 29th Dec, 1989 the appellant filed its return of income for the asst. yr. 1989-90 declaring a loss of Rs. 48.78 lacs. During the previous year relevant to the asst. yr. 1989-90 there was a search action under s. 132 of the Act on the appellant''s premises. In the course of the search several incriminating documents, loose papers etc. were seized. During the proceedings a statement of the director of the appellant was recorded under s. 132(4) of the Act, wherein he offered an amount of Rs. 25 lacs as an additional income from the different concerns belonging to the appellant group. Thereafter on 27th March, 1992 an assessment order under s. 143(3) of the Act was passed assessing the appellant to an income of Rs. 4.75 crores as against the returned loss of Rs. 48.78 lacs. In the course of the assessment year, an amount of Rs. 10.81 lacs paid by the appellant to its sister concern M/s. Primco (P) Ltd. as service charges (reimbursement of salary and wages) was disallowed as unproved expenses. This was inter alia on the basis that M/s. Primco (P) Ltd. had filed a ''nil'' return of income for the asst. yr. 1989-90 and the activity of M/s. Primco (P) Ltd. was only at Nasik while the appellant''s activity was in Mumbai and therefore the expenditure of service charges viz., salary and wages paid to M/s. Primco (P) Ltd. was disallowed.
(b) In appeal, the CIT(A) by order dt. 28th Dec, 1992 allowed the appeal of the appellant herein in respect of Rs. 10.81 lacs being paid as service charges to M/s. Primco (P) Ltd. This was allowed by the CIT(A) on the ground that the Revenue had not produced any material/evidence to show that the labour of M/s. Primco (P) Ltd. was not utilized by the appellant.
(c) The Revenue-respondents herein being aggrieved by the order dt. 28th Dec, 1992 of the CIT(A) carried the matter in appeal to the Tribunal. By an order dt. 4th May, 2006, the Tribunal allowed the respondent-Revenue''s appeal holding that during the course of search of the appellant''s premises, documentary evidence was found which showed that the appellant was indulging in manipulating its accounts to reduce its profit. Further the Tribunal held that the deletion of the addition of Rs. 10.81 lacs paid to M/s. Primco (P) Ltd. by the CIT(A) was without considering the input-output ratios, quantum of production, price of the finished products, etc. Therefore, the Tribunal while reversing the order dt. 28th Dec, 1992 of the CIT(A) upheld the order of the AO.
(d) By a notice dt. 8th Dec, 2006 the respondent-Revenue called upon the appellant to show cause why penalty under s. 271(1)(c) of the Act should not be imposed inter alia in respect of service charges i.e. reimbursement of salaries and wages of Rs. 10.81 lacs paid by the appellant to M/s. Primco (P) Ltd. By an order dt, 29th Dec, 2006 the AO held that the amount of Rs. 10.81 lacs had not been paid as service charges to M/s. Primco (P) Ltd. and that the appellant had deliberately filed inaccurate particulars so as to avoid payment of taxes and defraud the Revenue. Consequently, a penalty under s. 271(1)(c) of the Act was inter alia imposed in respect of Rs. 10.81 lacs being the service charges paid to M/s. Primco (P) Ltd.
(e) Being aggrieved, the appellant carried the matter of imposition of penalty in appeal. The CIT(A) by an order dt. 15th Feb., 2008 upheld the order of the AO dt. 29th Dec,-2006 imposing penalty in respect of disallowance of service charges of Rs. 10.81 lacs. The CIT(A) relied upon the order of the Tribunal dt. 4th May, 2006 (in quantum proceeding) which reversed the order of the CIT(A) and held that the amount of Rs. 10.81 lacs shown as payment in respect of service charges to M/s. Primco (P) Ltd. has to be disallowed. The CIT(A) by the order dt. 15th Feb., 2008 also held that the appellant had filed inaccurate particulars of expenditure of Rs. 10.81 lacs with intent to evade the tax and therefore, penalty under s. 271(1)(c) of the Act is warranted.
(f) In second appeal, the Tribunal by its order dt. 14th May, 2010 dismissed the appeal of the appellant against imposition of penalty with regard to payment of Rs. 10.81 lacs as service charges shown to have been paid by the appellant to M/s. Primco (P) Ltd. The Tribunal held that during the search proceeding, various incriminating documents were found which showed that the appellant was indulging in manipulating its account to reduce its profit. Consequently, the Tribunal held that the appellant had shown (inaccurate) hot genuine expenditure in the shape of service charges to a loss-making sister-concern so as to reduce its taxable income. In view of the above, penalty under s. 271(1)(c) of the Act with regard to Rs. 10.81 lacs was upheld.
Mr. Arun Sathe, senior counsel in support of the appeal submits as under:
(a) Penalty not imposable as in quantum proceeding, the CIT(A) by order dt. 28th Dec, 1992 has allowed the expenditure of Rs. 10.81 lacs being service charges (salary and wages) paid to M/s. Primco (P). Ltd. Therefore as there could be two possible views on the allowability of the expenditure, no penalty is imposable; and
(b) In view of the decision of the apex Court in the matter of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., , no penalty can be imposed merely on account of making an unsustainable claim. Therefore he submits that mere making of a claim which is not sustainable in law, would not amount to furnishing of inaccurate particulars regarding the income.
In view of the above, Mr. Sathe, the learned senior counsel submits that the appeal be admitted.
Mr. Suresh Kumar, learned counsel for the Revenue supports the order passed by the Tribunal and submits as under:
(a) The order dt. 28th Dec, 1992 of the CIT(A) in quantum proceeding was bad in law and the same had been set aside by an order dt. 4th May, 2006 of the Tribunal. Consequently, no reliance can be placed upon the order dt. 28th Dec, 1992, as the same having been set aside is not in existence;
(b) The appellant had accepted the order dt. 4th May, 2006 of the Tribunal (in quantum proceeding) reversing the order dt. 28th Dec, 1992 in as much so as no appeal therefrom has been filed by the appellant. Consequently, the finding that the appellant had shown a false expense with regard to Rs. 10.81 lacs as service charges paid to M/s. Primco (P) Ltd. was an admitted/accepted position. Consequently penalty is imposable; and
(c) There was a categorical finding of fact that M/s. Primco (P) Ltd. had filed a ''nil'' return of income tax showing substantial carry forward unabsorbed depreciation/investment allowance. Consequently, the payment of Rs. 10.81 lacs to M/s. Primco (P) Ltd. was shown in the accounts of the appellant only with a view to reduce its taxable income.
In the circumstances, Mr. Suresh Kumar submits that the appellant had filed inaccurate particulars, warranting penalty under s. 271(1)(c) of the Act.
We have considered the submissions. We find that an amount of Rs. 10.81 lacs paid to M/s. Primco (P) Ltd. was appellant''s sister-concern. Further these payments were made through a debit note raised at the close of the year. This was done only with a view to reduce the taxable profits of the appellant. It has been further recorded by the AO that the manufacturing activity of M/s. Primco (P) Ltd. was at Nasik and therefore, there was no occasion for M/s. Primco (P) Ltd. to have substantial staff at Mumbai, to be utilized by the appellant. The authorities under the Act have reached a finding of fact that the particulars of the expenditure of Rs. 10.81 lacs paid to M/s. Primco (P) Ltd. were inaccurate, in as much as no such amounts were paid. This finding of the Tribunal in its order dt. 4th May, 2006 has also been accepted by the appellant, as no appeal therefrom has been filed. The aforesaid finding clearly establishes that inaccurate particulars had been furnished by the appellant so as to arrive at a lower income to reduce the incidence of tax. The submission of the appellant that in view of the order dt. 28th Dec., 1992 of the CIT(A) accepting the appellant''s submission that an amount of Rs. 10.81 lacs had been paid to M/s. Primco (P) Ltd. as reimbursement of wages and salaries would stop the Revenue from imposing penalty under s. 271(1)(c) of the Act is not acceptable. This is for the reason that the order dt. 28th Dec., 1992 no longer exists, as the same has been set aside by an order dt. 4th May, 2006 passed by the Tribunal. The order of the Tribunal dt. 4th May, 2006 is the final word on the alleged payment of Rs. 10.81 lacs to M/s. Primco (P) Ltd. In the above order the Tribunal has held that in fact the payment of Rs. 10.81 lacs was not made. This finding has also been accepted by the appellant. A notice to show cause why penalty should not be imposed upon the appellant was issued to the appellant on 8th Dec, 2006 i.e., after the order of the Tribunal dt. 4th May, 2006 in quantum proceeding setting aside the order dt. 28th Dec, 1992 of the CIT(A). Therefore, an order which has been set aside is an order which does not exist and cannot be relied upon to establish that the payment of Rs. 10.81 lacs made by the appellant to M/s. Primco (P) Ltd. is genuine. The explanation with regard to the payment of Rs. 10.81 lacs made to M/s. Primco (P) Ltd. was found to be unacceptable by the Tribunal. Further the Tribunal in the penalty proceedings has by its order dt. 14th May, 2010 independent of the findings in quantum proceedings has reached a conclusion that various incriminating documents found during search established that the appellants were manipulating its accounts so as to reduce its profits. Consequently, penalty under s. 271(1)(c) is imposable and has been rightly imposed by the authorities under the Act.
So far as reliance upon the decision of the apex Court in the matter of Reliance Petroproducts (P) Ltd. (supra) is concerned, we find that the same is distinguishable. In that case, there was no finding recorded by the Tribunal that the details supplied by the assessee therein were inaccurate or false and therefore, the apex Court held that no penalty under s. 271(1)(c) of the Act could be visited upon the assessee in that case. As against that in the present case the Tribunal has reached a finding of fact that the appellant had filed inaccurate particulars regarding its income by showing false/exaggerated expenses. Therefore in-the present case the provisions of s. 271(1)(c) of the Act stand attracted. Making of a claim on admitted/disclosed facts is different from filing false/inaccurate particulars. In the present case, the details furnished by the appellant were found to be inaccurate leading to a concealment of income on the part of the appellant. In view of the above, we find no fault with the order of the Tribunal dt. 14th May, 2010 upholding penalty under s. 271(1)(c) of the Act upon the appellant. In view of the above, we are of the view that no substantial question of law arises. Therefore, the appeal is dismissed with no order as to costs.