Friday, 19 December 2014

Whether if assessee makes wrong claim of royalty which actually pertained to earlier AYs, it is fit case to attract penalty if assessee fails to give valid reasons for making such claims twice - YES: HC

THE issue before the Bench is - Whether if assessee makes wrong claim of royalty payment which actually pertained to earlier AYs and was also allowed by the Revenue, it is a fit case to attract penalty if the assessee fails to give valid reasons for committing such an error of making claims twice against same TDS certificates. YES is the answer of the High Court.
Facts of the case
The assessee company was engaged in the business of leather chemical manufacture and
trading. It had claimed deduction of royalty which was paid to M/s Bayer AG Germany under the agreement. As no TDS was paid during the year the same was added back at first instance and in the computation it was claimed as deduction on the basis of TDS payments. The same was done as per the provisions of section 40(a)(i). The assessee was asked to file full details of TDS payments made in respect of this royalty payments. After verifying these details it was noticed that some of the TDS certificates pertain to the earlier year and the part of the royalty payment attributable to these certificates had already been claimed and allowed as deduction to the assessee in the earlier years. When asked about this the assessee had admitted the error and stated that in AY 2002-03 a sum which had been already claimed in earlier year was again inadvertently claimed as deduction in the computation of income. Thus an addition was made and penalty for concealment was levied.
On appeal, CIT(A) allowed the appeal holding that it was a bona fide mistake and that the assessee had admitted his mistake, there was no scope for levying penalty. On further appeal, Tribunal on the basis of decision of SC in MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC), concluded that the possibility of an inadvertent mistake of this nature was remote and the scope of passing entries in the books of accounts twice was also remote, as the assessee had claimed deduction for royalty expenses paid to M/s Bayer AG Germany under an agreement taking into account the provisions of Section 40(a)(ia). It also held that the assessee had claimed the deduction twice while filing the return of income and the error was unearthed during the course of assessment proceedings under Section 143(3) on a scrutiny by the assessing officer, failing which the error would not have surfaced leading to loss of revenue. It further held that since the assessee did not take proper care to furnish accurate particulars of income, the decision of the Supreme Court relied upon by the Revenue clearly justified the levy of penalty and taking a lenient view would encourage the assessee to perpetuate such mistakes and therefore the levy of penalty for claiming deduction twice on the ground of payment of royalty, was absolutely justified.
Held that,
++ the assessee had claimed the deduction for the royalty payment for the second time, when it was in fact claimed in the preceding assessment year and allowed, and the said error of computation was unearthed during the course of assessment proceedings under Section 143(3) by the original authority, for which a notice was issued under Section 143(2) and the order of the original authority dated 28.3.2005, as extracted in the earlier portion of this order, clearly shows that when the TDS certificates in respect of the royalty paid to M/s Bayer AG Germany was asked to be furnished, after verifying the details, it was noticed that some of the TDS certificates pertained to the earlier year and part of the royalty payment attributed to these certificates had already been claimed and allowed as deduction to the assessee in the earlier years. Thereafter, when the assessee was further questioned, with a cryptic reply by way of the letter dated 14.3.2005, no cogent and reliable evidence were shown by the assessee, as such a huge amount could not have been claimed as deduction by inadvertence for the second time. The said plea has also been repelled by the SC in MAK Data (P) Ltd case, as the assessee should first show by cogent and reliable evidence that there was neither concealment of particulars of income nor furnished inaccurate particulars of income. We find that the plea taken by the assessee in the letter dated 14.3.2005 is only cursory and does not give any acceptable explanation for the wrong computation, as the error was detected by the original authority only during the proceedings u/s 143(3) and she has also recorded a categorical finding that the assessee suppressed the income by making a wrong claim of royalty payment, which actually pertained to earlier assessment years, which was claimed and allowed and therefore thought it fit to levy penalty under Section 271(1)(c);
++ we are not inclined to be guided by the decision in Gem Granites case, as the facts in the present case are clearly distinguishable, because huge amount had been claimed during the preceding assessment year based on TDS certificates and when such of those documents were sought to be verified by the original authority in the scrutiny assessment in respect of various issues, the one relating to royalty payment was also verified on the basis of TDS certificates and the wrong computation was unearthed as has been pointed out by us in the earlier portion of this order. In our view, the department was justified in imposing the penalty u/s 271(1)(c), as the explanation offered by the assessee is no explanation at all in the eye of law. We also find that the facts of the present case have been thoroughly examined by the Tribunal and has rightly held against the assessee. Therefore, we find no question of law, much less a substantial question of law arising for consideration on merits in this appeal. Accordingly, the tax case appeal fails and it is dismissed. No costs.

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