IN INCOME TAX APPELLATE TRIBUNAL "F" Bench, Mumbai Before Shri Jason P. Boaz, Accountant Member and Shri Sandeep Gosain, Judicial Member ITA No. 7349/Mum/2013 (Assessment Year: 2002-03) M/s. Forbes & Company Ltd. DCIT, Circle 1(1) (formerly Forbes Gokak Ltd.) Aayakar Bhavan Ground Floor, Forbes Bldg. Vs. M.K. Road Charanjit Rai Marg Mumbai 400020 Fort, Mumbai 400001 PAN - AAACF1765A Appellant Respondent Appellant by: Shri Milin Thakore Respondent by: Shri Dipak Kumar Sinha Date of Hearing: 25.08.2016 Date of Pronouncement: 21.09.2016 ORDER Per Jason P. Boaz, A.M. This appeal by assessee is directed against order of CIT(A)- 4, Mumbai dated 23.07.2013 for A.Y. 2002-03 upholding levy of penalty of `9,66,239/- under section 271(1)(c) of Income Tax Act, 1961 (in short 'the Act') by Assessing Officer (AO) for A.Y. 2002-03. 2. Order on condonation of delay in filing appeal for A.Y. 2002-03 2.1 impugned order of learned CIT(A)-4, Mumbai passed on 23.07.2013 for A.Y. 2002-03 was admittedly received by petitioner on 06.08.2013. In these circumstances this appeal before Tribunal ought to have been filed on or before 05.10.2013, but was filed only on 13.12.2013, thereby leading to delay of 69 days. In this regard, petitioner has filed petition dated 20.12.2013 for condonation of said delay, accompanied by affidavit of even date sworn to by petitioner. According to learned A.R. for petitioner, after receipt of impugned order, same was forwarded to their tax consultants for advice, but due to inadvertent oversight by them, appeal could not be 2 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. filed. On noticing this mistake, appeal was immediately prepared and filed on 13.12.2013. It is submitted that delay of 69 days in filing appeal was caused due to inadvertent oversight by tax consultants and mistake being not intentional but bonafide mistake of oversight, it is prayed that liberal approach be taken and delay be condoned and appeal be disposed on merits as assessee has good case on merits. In support of this proposition, learned A.R., inter alia, placed reliance on following judicial pronouncements: - (i) Collector, Land Acquisition vs. MST Katiji and Others (167 ITR 471) (SC). (ii) CIT vs. West Bengal Infrastructure Development Finance Corporation Ltd. (C.A. NO. 10462 of 2010) (SC) (iii) Radha Krishna Rai vs. Allahabad Bank & Others (2009) SCC 733 (iv) Improvement Trust, Ludhiana vs. Ujagar Singh & Others (C.A. No. 2395 of 2008 (SC) 2.2.1 We have heard rival contentions of both parties and perused and carefully considered material on record; including judicial pronouncements cited. Admittedly, there has been delay of 69 days in filing this appeal before Tribunal in respect of impugned order dated 23.07.2013 of learned CIT(A) for A.Y. 2002-03 confirming levy of penalty of `9,66,239/- under section 271(1)(c) of Act. According to petitioner, said delay that had occurred due to oversight by assessee s tax consultants, was neither deliberate nor intentional but was on account of bonafide mistake, which constituted reasonable cause for petitioner to have filed appeal belatedly. 2.2.2 Hon'ble Apex Court in case of Collector, Land Acquisition (167 ITR 471) (SC), while laying down principles for considering matter of condonation of delay in filing appeals, has stated that substantial justice should prevail over technical considerations. Hon'ble Court also explained that every days delay must be explained does not mean that pedantic approach should be taken and doctrine must be applied in natural, common sense and pragmatic manner. Considering aforesaid principles and facts and circumstances of case, we 3 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. are of opinion that if said delay of 69 days in filing this appeal is condoned there shall be no loss to Revenue as only legitimate taxes payable by petitioner to Revenue in accordance with law will be collected. Moreover, it is hard to believe that petitioner on whom penalty of `9,66,237/- has been levied under section 271(1)(c) of Act would wantonly file appeal belatedly, thereby jeopardising its cause. In this view of matter, we are of opinion that this is fit case for condoning delay of 69 days in filing this appeal and accordingly condone same in interest of justice and equity. appeal for A.Y. 2002-03 is accordingly admitted for consideration and adjudication. 3. facts of case, briefly, are as under: - 3.1 assessee, company engaged in business of, inter alia, manufacturing of yarn, engineering goods and shipping, filed its return of income for A.Y. 2002-03 on 31.10.2002 declaring taxable income of `32,47,744/- on account of long term capital gains (LTCG) and loss from business. revised return was filed on 16.12.2002 in which total income of `32,47,744/- was from LTCG, but business loss was increased by `8,36,91,997/- being provisions for diminution in investments no longer required written back which was stated to be inadvertently omitted to be excluded from total income. case was taken up for scrutiny and assessment was concluded under section 143(3) of Act vide order dated 03.02.2005 wherein income of assessee was determined at `32,74,774/- under normal provisions and book profits under section 115JB of Act was computed at (-)`4,87,49,500/-. AO also allowed carry forward of business losses to extent of `6,38,72,710/- . Penalty proceedings under section 271(1)(c) of Act were simultaneously initiated in respect of disallowances made in order of assessment, i.e. under section 14A of Act, non-compete fee of `6,41,600/-, income from bad debts recovered amounting to `12,94,498/-, disallowance towards PF/ESIC of `6,852/- and donation of `1,859/-. 3.2 AO levied penalty of `9,66,239/- under section 271(1)(c) of Act in case on hand for A.Y. 2002-03 vide order dated 30.03.2009 in respect of following items: - 4 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. (i) Disallowance under section 14A ` 7,61,476/- (ii) Disallowance of bad debts recovered `12,94,498/- (iii) Disallowance of donation ` 1,859/- (iv) Non-compete fee ` 6,41,600/- (v) PF & ESIC due paid beyond due date of ` 6,852/- those Acts 3.3 Aggrieved by order dated 30.03.2009 levying penalty of `9,66,239/- under section 271(1)(c) of Act for A.Y. 2002-03, assessee preferred appeal before CIT(A)-4, Mumbai who dismissed assessee s appeal vide impugned order dated 23.07.2013. 4.1 Aggrieved by order of CIT(A)-4, Mumbai dated 23.07.2013 for A.Y. 2002-03, assessee has preferred this appeal raising following grounds: - Levy of Penalty under section 271(1)(c) of Income Tax Act, 1961 ('the Act') of `9,66,239. 1. On facts and in circumstances of case and in law, learned CIT(A) has erred in confirming levy of penalty under section 271(1)(c) of Act, 1961 ( Act ) with respect to following disallowances Particulars Amount (Rs.) Disallowance of interest on borrowings 7,61,476 Disallowance of non-compete fees to ex-directors 6,41,600 Income from bad debts recovery 12,94,498 Disallowance of delay in employee s payment 6,852 towards PF and ESIC Disallowance of donation 1,859 2. learned CIT(A) erred in confirming penalty inter alia on grounds that Appellant had furnished inaccurate particulars of income leading to concealment of income in respect id disallowance of Appellant s various claims made by AO. 3. learned CIT(A) failed to appreciate and ought to have held that: a) Appellant has given complete disclosure in Return of income and/or in accompanying documents/audited accounts. b) Mere confirmation of additions is not, by itself, valid ground for levy of penalty 4. appellant prays that penalty levied under section 271(1)(c) of Act in respect of addition/disallowance should be deleted. 5 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. We shall consider grounds raised together and deal with each item in respect of which penalty under section 271(1)(c) of Act has been levied in seriatim. 4.2 According to learned A.R. for assessee, in grounds raised, assessee contends that impugned order of learned CIT(A) upholding levy of penalty under section 271(1)(c) of Act is erroneous since assessee has given complete disclosure of all facts in return of income for A.Y. 2002-03 and accompany financial statements and that merely because addition have been confirmed by itself should not necessarily result in levy of penalty for furnishing of inaccurate particulars of income leading to concealment of income. 5. Penalty on disallowance of `7,61,476/- under section 14A of Act 5.1 In this regard learned A.R. for assessee submitted that in order of assessment, AO made disallowance of `2,44,22,750/- under section 14A of Act in respect of expenditure incurred on interest on borrowings relatable to earning of exempted income. On appeal, learned CIT(A) restricted said disallowance to `7,61,476/-, which was upheld by Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2002-03 in its order in ITA No. 6720/Mum/2007 dated 12.06.2013. According to learned A.R. for assessee, assessee had sufficient own funds (i.e. from share capital and reserves) of `191.91 crores from out of which investments of `82.26 crores could be said to have been made. learned A.R. submits that full disclosure of facts has been made by assessee as details of investments, own funds and borrowed funds were available in Balance Sheet and therefore there is no concealment or furnishing of inaccurate particulars and therefore levy of penalty under section 271(1)(c) of Act was not called for. learned A.R. for assessee drew attention of Bench to order of Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2000-01 wherein Tribunal in its order in ITA No. 6910/Mum/2006 dated 13.10.2008 has deleted penalty levied under section 14A of Act. It is contended that in view of aforesaid decision on Coordinate 6 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. Bench of this Tribunal and, inter alia, decision of Hon'ble Bombay High Court in case of Reliance Utilities and Power Ltd. (313 ITR 340) (Bom), penalty levied under section 271(1)(c) on disallowance under section 14A of Act be deleted. 5.2 Per contra, learned D.R. supported orders of authorities below on this issue. 5.3.1 We have heard rival contentions of both parties and perused and carefully considered material on record; including judicial pronouncements cited. We find that issue of levy of penalty under section 271(1)(c) of Act on disallowance of interest on borrowed funds was considered by Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2000-01 and in its order in ITA No. 6910/Mum/2006 dated 13.10.2008, Bench deleted said penalty holding as under at para 3 thereof: - 3. We have heard rival submissions and considered them carefully. After considering submissions and perusing material on record, we find that arguments advanced by ld AR mentioned above are correct. There were no provisions on statute on date of filing return, therefore, assessee, as in past, claimed expenditure on account of interest. provisions of section 14A came on statute in 2001, through with retrospective effect. Therefore, it cannot be held that assessee had concealed any particulars of income by claiming higher interest expenditure. We have further seen that AO made disallowance of Rs.56 lacs and CIT(A) restricted same to Rs.30 lacs or odd and on re-examination of case on directions of Tribunal, disallowances were confirmed only of `7.61 lacs. Therefore, issue is highly debatable one and it cannot be said that assessee has concealed any particulars of income or has furnished inaccurate particulars of income. In view of above facts and circumstances, we hold that on facts of present case levy of penalty was not justified, therefore, same is cancelled. In case on hand also, facts being identical; i.e. AO made disallowance of `2,44,22,750/- which learned CIT(A) restricted to `7,61,476/- in period under consideration. Following decision of Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2000- 01 (supra), we also are of view that issue of disallowance under section 14A of Act is highly debatable one and it cannot be said that 7 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. assessee has concealed any particulars of income. In light of above facts and circumstances of case, we hold that levy of penalty under section 271(1)(c) of Act on this issue was not justified and cancel same. Consequently, assessee s appeal on this issue is allowed. 6. Penalty on disallowance of non-compete fee paid to ex-Directors : `6,41,000/- 6.1.1 In course of assessment proceedings, AO on observing that assessee has debited amount of `2,60,495/- in miscellaneous expenses of Engineering Division and amount of `3,81,105/- in miscellaneous expenses of Forbes Division, queried assessee in this regard and it was submitted that these expenses totalling to `6,41,600/- were non-compete fees paid to ex-Directors. AO observing that in earlier years also, non-compete fees were disallowed as they were held to be capital in nature and this was upheld by CIT(A) on appeal, disallowed same in this year also. On appeal same was upheld by learned CIT(A), following decision of Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2000-01, wherein payment of fees to ex-Directors disallowed was upheld by Bench. Penalty under section 271(1)(c) of Act was levied thereon, which was sustained by CIT(A) on appeal. 6.1.2 learned A.R. for assessee submitted that there was no concealment of income or furnishing of inaccurate particulars by assessee as facts and details of payment of non-compete fee paid to ex- Directors was fully disclosed as part of miscellaneous expenses claimed/submissions made in assessment proceedings vide letter dated 23.09.2004 and Schedule-11 in notes to account 7(a). Merely because contentions of assessee are not accepted, penalty under section 271(1)(c) of Act cannot be levied, merely because it has been held against it in quantum proceedings, particularly when all facts and details in this regard were before authorities below. It is contended that no penalty could be levied under section 271(1)(c) of Act on this issue as question of allowability of non-compete fee paid to ex-Directors, whether revenue or capital is debatable issue. According to learned A.R. for assessee even after decision of Special Bench of 8 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. ITAT Delhi in case of Tecumseh India (P.) Ltd. (127 ITD 1) (Del), certain subsequent decisions have held that non-compete fee is revenue in nature like, CIT vs. Eicher Ltd. (2008) 302 ITR 249 (Del), etc. It was prayed that merely because assessee s contentions and claims are not accepted, penalty cannot be levied. In support of this proposition, learned A.R., inter alia, placed reliance on decision of Hon'ble Apex Court in CIT vs. Reliance Petroproducts Ltd. (2010) 322 ITR 158 (SC). 6.2 Per contra, learned D.R. supported impugned order of learned CIT(A). 6.3.1 We have heard rival contentions of both parties and perused and carefully considered material on record, including judicial pronouncements cited. On appreciation of facts on record, it is seen that assessee made acclaim of expenditure of payment of non-compete fees to ex-Directors amounting to `6,41,000/- under head Miscellaneous Expenses. Admittedly, details of same claim were before AO in assessment proceedings as per assessee s letter dated 23.09.2004 (copy placed at pages 58 to 67 of assessee s paper book) and similar details were also disclosed at Note 7(a) in Annual Accounts regarding post retirement payments to ex-Directors. After considering facts on record and judicial pronouncements cited, we are of considered view that merely because assessee s claim for said expenditure as revenue was turned down in quantum appeal proceedings; that by itself would not be ground enough to reach conclusion that particulars furnished/disclosed by assessee were false, dishonest or inaccurate or that income was concealed. In this factual and legal matrix of case, we are of view that penalty under section 271(1)(c) of Act was not exigible in case on hand on issue of assessee s claim regarding non-compete fee paid to ex-Directors amounting to `6,41,000/- and cancel penalty levied thereon. Consequently ground raised by assessee this issue is cancelled. 7. Penalty on income from bad debts recovered : `12,94,498/- 7.1 We have heard rival contentions of both parties and perused and carefully considered material on record. On appreciation of 9 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. facts on record, it is seen that recovery of bad debts amounting to `12,94,498/- in year under consideration pertained to bad debts written off by assessee in period relevant to A.Y. 2000-01. According to submissions of learned A.R., admittedly this amount of recovery of bad debts was excluded from computation of income and not offered to tax, for reason that AO had disallowed assessee s claim for write off of bad debts in A.Y. 2000-01. Admittedly same issue has been held in favour of assessee by learned CIT(A). We observe that in quantum proceedings assessee has accepted that aforesaid recovery of bad debts written off of `12,94,498/- are to be taxed in year under consideration and did not file any further appeal to Tribunal. According to learned AR since all details were on record before authorities below, penalty under section 271(1)(c) of Act was not leviable on this issue. 7.2 In our view, once assessee had claimed write off of bad debts in its books of accounts in any year, correct treatment, as per provisions of section 36 of Act, was to have offered recovery of bad debts written off for tax in year of recovery. assessee, in case on hand, in clear violation of aforesaid provisions of section 36 of Act, did not comply with them knowingly and in violation thereof proceeded to not offer to tax recovery of bad debts earlier written off by it to extent of `12,94,948/-. reason put forward by assessee for its action; that since bad debts claimed in this regard had been disallowed by AO, therefore assessee had not offered recovery thereof for tax, in our considered view, is not acceptable as aforesaid action of assessee, in not offering recovery of bad debts to tax, is not in conformity with mandate of provisions of section 36 of Act. It is not case of assessee that legal claim made was disallowed, which is debatable issue. In respect of recovery on bad debts written off by assessee, position in law is clear and unambiguous; assessee has to offer same to tax in year in which recovery is made. Since assessee has failed to do, in violation of mandated provisions of law, we are of view that action of authorities below in levying 10 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. penalty under section 271(1)(c) of Act, in respect of assessee s not offering recovery of bad debts written off amounting to `12,94,498/- in facts and circumstances of case is in order and we uphold and confirm same. assessee s appeal on this issue is dismissed. 8. Penalty on disallowance of employees contribution to PF/ESIC for delayed payment : `6,852/- 8.1 We have heard rival contentions of both parties and perused and carefully considered material on record. facts on record indicate that assessee has not pressed this issue before Coordinate Bench of this Tribunal in quantum proceedings. According to learned A.R. for assessee payments of employees contribution to PF/ESIC were made belatedly, but these payments were made before due date for filing return of income for relevant A.Y. 2002-03 and details of delay of PF and ESIC payments were disclosed in Annexure 6 to tax audit report and to AO vide letter dated 23.09.2004. It was submitted that deduction of PF/ESIC is allowable as deduction to assessee in light of, inter alia, decisions of Hon'ble Bombay High Court in cases of: - (i) CIT vs. HOCL (366 ITR 1) (Bom) (ii) CIT vs. Ghatge Patil Transports Ltd. (368 ITR 749) (Bom) 8.2 authorities below have not disputed averments of assessee that PF/ESIC amounting to `6,852/- was paid to government before due date for filing return of income under section 139(1) of Act. disallowance and consequent levy of penalty by authorities below was for assessee s making said payment of PF/ESIC dues beyond due dates as per PF Act and ESIC Act respectively. We find that decisions of Hon'ble Bombay High Court in CIT vs. HOCL (supra) and CIT vs. Ghatage Patil Transport Ltd. (supra) have held that employees contribution to PF/ESIC are covered under amendment to section 43B of Act with retrospective effect. In case on hand, employees contribution to PF/ESCI of `6,852/- having been admittedly paid before due date for filing its return under section 11 ITA No. 7349/Mum/2013 M/s. Forbes & Company Ltd. 139(1) of Act, disallowance made by authorities below was not called for, as issue in case on hand would be covered by proviso to section 43B of Act. In this view of matter, we cancel penalty levied under section 271(1)(c) on employees contribution to PF/ESIC amounting to `6,852/-. assessee s appeal on this issue is allowed. 9. Penalty on disallowance of donation : `1,589/- 9.1 We have heard rival contentions of both parties and perused and carefully considered material on record. Admittedly, assessee has not disallowed this ineligible expenditure while computing its income for year under consideration. In our view this is clear case of furnishing of inaccurate particulars of income and therefore uphold penalty levied under section 271(1)(c) of Act in this regard. assessee s appeal on this issue is rejected. 10. In result, assessee s appeal for A.Y. 2002-03 is partly allowed. Order pronounced in open court on 21st September, 2016. Sd/- Sd/- (Sandeep Gosain) (Jason P. Boaz) Judicial Member Accountant Member Mumbai, Dated: 21st September, 2016 Copy to: 1. Appellant 2. Respondent 3. CIT(A) -4, Mumbai 4. CIT - 1, Mumbai 5. DR, F Bench, ITAT, Mumbai By Order //True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p. M/s. Forbes & Company Ltd. (formerly Forbes Gokak Ltd.) v. DCIT, Circle 1(1),Mumbai