IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI Before Shri Sanjay Garg, Judicial Member, and Shri Ashwani Taneja, Accountant Member ITA NO.1660/Mum/2012 Assessment Year: 2002-03 & ITA NO.1661/Mum/2012 Assessment Year: 2003-04 Rochem Separation Systems ACIT Cen Cir 10 (I) P. Ltd., 8th Floor, CGO Bldg. 101 HDIL Tower, Anant Annex, M. K. Marg, Vs. Kanekar Marg, Bandra(E) Mumbai-400020 Mumbai-400050 (Appellant) (Revenue) P.A. No. AABCR1955P Appellant by Shri S.C. Gupta (AR) Revenue by Shri B.S. Bist (Sr. DR) Date of 04/10/2016 Hearing : Date of Order: 19/10/2016 ORDER Per Ashwani Taneja (Accountant Member): These appeals have been filed by Assessee against common order of Ld. Commissioner of Income Tax (Appeals), 2 Rochem Separation Systems Mumbai-37,{(in short CIT(A) }, passed against penalty order u/s 271(1)(c) for Assessment Years 2002-03 & 2003-04 on following grounds: CIT (A) erred in law and on facts in confirming penalty of Rs. 2,39,112/- (being proportionate penalty on disallowance for higher education expenses) u/s 271(1)(c) of Income tax Act on disallowance made by assessing officer for higher education expenses incurred by assessee company and confirmed by Hon'ble ITAT though issue is debatable issue and there is no finding that appellant furnished any incorrect particulars in return of income as in profit and loss account expenditure incurred on higher education was separately shown and no particulars were concealed. Therefore, penalty levied u/s 271(1)(c) merely because disallowance is confirmed by Hon'ble ITAT, should be deleted. 2. During course of hearing, arguments were made by Shri S.C. Gupta, Authorised Representative (AR) on behalf of Assessee and by Shri B.S. Bist, Departmental Representative (DR) on behalf of Revenue. 3. identical ground has been raised in both years. similar issue is whether levy of penalty u/s 271(1)(c) on disallowance made by AO for higher education expenses incurred by assessee company related to Mr. Prerak Goel is justified or not. 3.1. brief background in this case is that search and seizure operation u/s 132 of I. T. Act, 1961 was carried out on 10.08.2005 at business premises of various companies of Rochem Group and residential premises of directors of said companies. Subsequently, assessment proceedings were carried out u/s 153A of Act. Notice u/s 153A was issued by AO, in response to which return was 3 Rochem Separation Systems filed by assessee u/s 153A. It was noted by AO from said return that assessee had claimed expenses on education of Mr. Prerak Goel for Rs.6,69,142/- for A.Y. 2002- 03 and Rs.8,53,286/- for A.Y. 2003-04. These expenses were incurred by assessee for MBM training course at Manila. It was replied by assessee that expenses were reimbursed for education of Mr. Prerak Goel as he was working as apprentice with company and also furnished undertaking that he would serve company for minimum continuous period of five years. assessee submitted detailed justification for business necessity of expenses, but AO was not satisfied and therefore, disallowance was made. Subsequently, said disallowance was confirmed in appeal by Ld. CIT(A) as well as by Tribunal vide its order dated 16th May 2011. Therefore, AO initiated penalty proceeding and levied penalty. Subsequently, penalty was confirmed by Ld. CIT(A) in impugned order against which appeal has been filed before us by assessee. 3.2. During course of hearing before us, it was submitted by Ld. Counsel that genuine claim was made by assessee under belief that these expenses are allowable as business expenses in hands of assessee. Full facts have been disclosed in this regard; genuineness of expenses has not been doubted by lower authorities. only allegation of lower authorities is that business necessity of same could not be established by assessee. It was further submitted that in any case impugned amount has been brought to tax as income in hands of Mr. Prerak Goel 4 Rochem Separation Systems u/s 2(24)(iv) of Act. Thus, it shows that there was no motive on part of assessee to evade taxes. expenses have been disallowed only on ground that recipient happens to be close relative of Directors. But, no defects have been pointed out in evidences submitted to lower authorities to substantiate these expenses. Under these circumstances, it was not case of concealment or furnishing inaccurate particulars of income. Thus, penalty has been wrongly levied and should be deleted. 3.3. Per contra, it was submitted by Ld. DR that expenses have been incurred in relation to education of Mr. Prerak Goel who is son of Director of assessee company and he was not employee of company. Under these circumstances, disallowance was rightly made by AO and also confirmed by Tribunal. Under these circumstances, penalty has been rightly levied upon said disallowance and same should be confirmed. 3.4. In rejoinder, Ld. Counsel submits that this is debatable issue and therefore, penalty levied in many cases upon identical disallowance has been deleted in many cases. He placed reliance upon judgment of Mumbai Bench of Tribunal in case of ACIT v. Vijay Jyot Seats Ltd. (ITA No.4441/Mum/2007 dated 02.02.2010), M/s. Westin Hospitality Services Pvt. Ltd. vs. DCIT, (ITA Nos. 1274 & 1275/Mum/2013 dated 27.08.2014) and of High Court of Punjab & Haryana in case of CIT vs. Mehta Engineers Ltd. Ludhiana in ITA No. 599 & 600 of 2007 dated 7th February 2008, and High Court of Delhi in case of M/s. Kostub 5 Rochem Separation Systems Investment Ltd. v. CIT in ITA No.10/2014 dated 25th February 2014. He vehemently contended that in view of these judgments, penalty is not leviable upon assessee. 3.5. We have gone through facts of case and arguments made by both sides as well as orders passed by lower authorities and also order passed by Tribunal in quantum appeal. It is not disputed before us that payment was made and duly substantiated by assessee with help of evidences. It is also not disputed that Shri Prerak Goel was working as apprentice with said company and resolution was passed by company for financing his education expenses on basis of his undertaking tendered by him committing himself for working with company for minimum period of five years. Copy of detailed resolution justifying business necessity of education of Mr. Goel for business of company has been placed before us. Our attention was drawn upon undertaking submitted by Mr. Goel as well. Nothing adverse has been brought on record by lower authorities while levying penalty with respect to these crucial evidences. Undeniably, Tribunal has found in quantum appeal that assessee could not properly substantiate business necessity of these expenses. But, fact remains that these expenses were incurred by assessee as admitted by lower authorities also and in opinion of assessee these expenses were incurred for business purpose of assessee. belief of assessee about business utility of these expenses is reasonable belief and not something 6 Rochem Separation Systems purely imaginary or farfetched. Thus, explanation tendered by assessee during course of penalty proceedings can be said to be plausible explanation. amount of expenses has been disallowed as AO had different opinion whereby these expenses were found to be devoid of any business necessity. But, we find that on this issue two opinions are possible, and thus there was apparently difference in opinion between AO and assessee. It is also noted that complete facts with respect to impugned expenses were made available before lower authorities. Full disclosure of facts and related information was made available by assessee. Under these circumstances, we doubt if this claim can be categorized as one giving rise to concealment of income or furnishing of inaccurate particulars of income . It is further noted by us that penalty was levied under similar situations in many cases which had subsequently been tested in courts. In case of ACIT v. Vijay Jyoti Seats Ltd. (supra) penalty levied with respect to similar disallowance was found not sustainable and therefore it was deleted by Tribunal by observing as under: 7. We have carefully considered submissions of rival parties and perused material available on record. It is settled law that penalty under section 271(1)(c) is civil liability and revenue is not required to prove willful concealment as held by Hon ble Supreme Court in case of Union of India vs. Dharmendra Textiles and Processors (2008) 306 ITR 277(SC). However, each and every addition made in assessment cannot automatically lead to levy of penalty for concealment of income. case for imposition of penalty has to be examined in terms of provisions of Explanation 1 to section 271(1)(c). Secondly, it is also settled legal 7 Rochem Separation Systems position that penalty proceedings are different from assessment proceedings. finding given in assessment though is good evidence but same is not conclusive in penalty proceedings as held by Hon ble Supreme court in case of Anantharam Veerasinghaiah & Co. vs. CIT ((1980) 123 ITR 457 (SC). 8. In instant case penalty has been imposed on sustenance of disallowance of higher education expenses amounting to Rs.14,35,000/- claimed by assessee on education of Ms. Janaki Motasha, daughter of one of Directors of company. We further find that there is no dispute that in support of claim of deduction, assessee has filed copy of MOU between assessee co. and Ms. Janaki Motasha, list of share holders, resolution of Board of Directors approving education expenses of Ms. Janaki Motasha, copy of Board Exam Certificate of Ms. Janaki Motasha showing her educational qualification before she was sent abroad for higher education, copy of Degree conferred on Ms. Janaki Motasha by Rensselaer Polytechnic Institute, New York(USA) and salary certificate issued to Ms. Janaki Motasha for Assessment Years 2005-06 and 2006-07 to show that Ms. Janaki Motasha took up employment with assessee immediately after completing her higher education. We further find that disallowance was sustained by Tribunal on ground that it was duty of parents of employee to provide education to her, study course for which employee was sponsored was not seat designing but was information technology , her designation was Marketing Executive and not Designer of Seats . Thus, there is complete mismatch between degree acquired by her and business of company and job entrusted to her after her return, expenditure incurred by assessee has no nexus either with business of assessee or job being actually performed by her in assessee company, company s decision to sponsor her studies was guided more by family considerations than business consideration and issue is covered against assessee by decision of Hon ble Jurisdictional High Court in case of CIT vs. Hindustan Hosiery Industries (supra). Tribunal has also distinguished decision of Hon ble Jurisdictional 8 Rochem Separation Systems High Court in Sakal Papers Pvt. Ltd. (supra), relied on by learned Counsel for assessee holding that facts in present case are completely different and ratio laid down in present case is not applicable to facts of present case. 9. There is no dispute that assessee has made above claim on basis of documentary evidence (supra), supported by decision of Hon ble Jurisdictional High Court in Sakal Papers Pvt. Ltd. (supra). In CIT vs. Airlines Financial Support Services (I) Ltd. (2009) 24 DTR (Bom) 124 it has been held that assessee having claimed certain expenditure as revenue expenditure bonafide relying on decision of Jurisdictional High Court it cannot be said that predicates of section 271(1)(c) were satisfied for imposing penalty merely because AO held that it was capital expenditure. 10. Further it has been repeatedly held by Courts that when facts are clearly disclosed in return of income, penalty cannot be levied. Merely because amount is not allowed or taxed to income, it cannot be said that assessee had filed inaccurate particulars or concealed any income chargeable to tax. Even if some deduction or benefit is claimed by assessee wrongly but bonafide and no malafide can be attributed, penalty would not be levied. In this view of matter and in absence of any other contrary material placed on record by revenue we respectfully following ratio of decisions relied on by learned Counsel for assessee hold that there was no deliberate omission on part of assessee either for purpose of concealment of income or furnishing of inaccurate particulars and accordingly we are inclined to uphold finding of learned CIT(A) in deleting penalty imposed by AO. grounds taken by revenue are therefore rejected. 11. In result revenue s appeal stands dismissed. Order pronounced in open court on 02.02.2010. 3.6. Similar view has been taken in another case by Mumbai Bench in case of M/s. Westin Hospitality Services Pvt. Ltd. vs. DCIT, (supra). It is further noted that similar issue came up before Hon ble Punjab and Haryana 9 Rochem Separation Systems High Court in case of CIT vs. Mehta Engineers Ltd. (supra) wherein Hon ble High Court deleted penalty by observing inter-alia as under: We have heard counsel for appellant and perused impugned order. Undisputedly, in this case, assessee had only claimed certain expenditure incurred on education of Mr.Varun Mehta on basis of written agreement, according to which, he was to serve company for at least three years after finishing his studies abroad. It is neither case of revenue nor there is any material to this effect available on record that said agreement was f alse and f abricated document. Moreover, there is no such f inding recorded by any adjudicating authority. Therefore, in view of said fact and finding of fact recorded by IT AT as reproduced above, we are of opinion that Commissioner of Income T ax (Appeals) has rightly deleted penalty while coming to conclusion that it is not case where assessee had claimed intentionally and deliberately expenditure in order to evade tax liability. Thus, we do not find any ground to interfere in finding of fact recorded by no substantial question of law is involved in both appeals and same are hereby dismissed. 3.7. Therefore, in view of legal position as discussed above and facts of this case brought before us, we find that penalty is not sustainable in both years and therefore same is directed to be deleted. Both appeals are allowed and penalty of Rs.2,39,112/- for A.Y. 2002-03 and Rs.3,14,520/- for A.Y. 2003-04 are directed to be deleted. 10 Rochem Separation Systems 4. In result, appeals of Assessee are allowed. Order pronounced in open court on 19th October, 2016. Sd/- Sd/- (Sanjay Garg ) (Ashwani Taneja) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 19/10/2016 Copy of Order forwarded to : 1.The Appellant 2. Respondent. 3. CIT, Mumbai. 4. / CIT(A)- , Mumbai 5 DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// / (Dy./Asstt. Registrar)ITAT, Mumbai Rochem Separation Systems (I) P. Ltd. v. ACIT, Cen Cir-10, Mumbai