Full Judgment
S.V. Mehrotra, A.M.:
This appeal by the assessee is directed against the order of learned Commissioner (Appeals)-V, Mumbai, dated 20-11-1996, and pertains to the assessment year 1990-91.
2. The effective ground of appeal raised in the present appeal is that learned Commissioner (Appeals) erred in confirming the levy of penalty under section 271(l)(c). In the alternative ground it is submitted that the learned Commissioner (Appeals) had erred in retaining 150 per cent of the tax as penalty as against 100 per cent leviable being the minimum.
3. The assessing officer in detail examined the foreign travel expenses aggregating to Rs. 6,06,713 relating to the partners of the firm, i.e., Mr. and Mrs. Amersey who visited Canada and USA allegedly for the business purposes to contact parties at Canada and USA. After considering in detail the assessee's submissions, the assessing officer held that the foreign travel expenses were incurred for the purposes other than the business of the firm after taking note of following important facts .
(i) In all the reports to the RBI regarding sale of cotton in Canada and USA and purchase of pulp and waste-paper from USA, the same names and prices were given in all the reports which were visited by the partners.
(ii) The firm made all its exports to one party only at Japan whereas the tours were undertaken to USA and Canada.
(iii) No correspondence with the alleged parties before and after the tour was produced and it was contended that the parties were contacted only on telephones.
(iv) The son of the partners of the assessee, Shri Nitin M. Amersey studies in America. The assessing officer in the backdrop of aforementioned facts observed that it could not be believed that all the time the partners contacted and persuaded the same parties, and as their son was residing in America it was quite possible that the partners of the firm visited to USA and Canada to stay with their son.
4. Learned Commissioner (Appeals) had confirmed the addition made by assessing officer to the extent of Rs. 4,55,047, against which the assessee did not prefer any appeal. The assessing officer had levied a penalty @ 300 per cent which was reduced to 150 per cent by learned Commissioner (Appeals).
5. Learned counsel for the assessee submitted that foreign travel expenditure claimed by the assessee was disallowed since no foreign exports order could be obtained by the assessee. He pointed out that learned Commissioner (Appeals) did not totally discard the assessee's explanation and allowed only 25 per cent on estimate basis. He submitted that the assessee is in business of export and wanted to trap new avenues. Learned counsel referred to paper book p. 14, wherein the details of export and foreign travelling expenses from assessment years 1987-88 to 1993-94 are contained in order to demonstrate that the foreign travel was undertaken in course of business. He, accordingly, submitted that since the assessee's explanation was not found to be false the penalty should be cancelled and in the alternative minimum penalty @ 100 per cent should only be imposed. He relied on following decisions :
(i) Bombay Hardware Syndicate v. CIT : [1978]114ITR586(Mad)
(ii) CIT v. Anand Meter Mfg. Co.
(iii) CIT v. Mediratta Engineering Corpn. : [1981]132ITR327(Delhi) .
6. Learned departmental Representative submitted that the learned Commissioner (Appeals) after taking into consideration the facts of the case, had restricted the penalty to 150 per cent. He submitted that the son of the partners of the assessee-firm was studying at USA and, therefore, assessee had claimed personal expenses of the partners as business expenditure. The submissions made to RBI were routine submissions. He relied oil the decision in the case of Rathnam & Co. v. IAC : [1980]124ITR376(Mad) for the proposition that in case of addition to GP on estimate basis, the penalty can be levied.
7. We have considered the rival submissions and have perused the records of the case. Admittedly, the assessee was in the business of export of cotton which it extracted from Kapas and loose cotton. The details of export and foreign travelling expenses as contained at p. 14 are as under :
Details of export and foreign travelling expenses
Asst. yr.
Export
(Rs. in lakhs)
Place of export
Foreign
travel (Rs.)
Place visited
1987-88
298.00
Japan, USA, Hong Kong
59,231
Japan, Hong Kong
1988-89
598.00
Japan, Canada
Nil
Nil
1989-90
33.60
Japan, Canada, Hong Kong
2,67,628
Hong Kong, Canada, Japan
1990-91
311.00
Japan, Hong Kong
6,06,713
USA, Canada
1991-92
00.50
Japan
Nil
Nil
1992-93
60.65
Indonesia
Nil
Nil
1993-94
Nil
Nil
Nil
Nil
During the course of assessment proceedings itself vide letter dated 29-1-1993, Shri Abdul Razak in its reply had, inter alia, submitted as under :
'We have already submitted the names of persons contacted in those countries .........'
It is not the case of the revenue that the parties which the assessee allegedly mentioned in the RBI report (contained at pp. 15-22 of paper book) were not dealing in cotton business. As is evident from the aforementioned chart, the assessee had done some export to USA in 1987-88. Therefore, it could not be concluded that the assessee made a false claim before the revenue authorities. The revenue authorities have drawn the inference of claiming personal expenses by the assessee-firm because the son of the partners was residing in USA. This, in our opinion, may be a relevant factor for assessment proceedings but in penalty proceedings there should be a strong evidence to establish the false claim by assessee. Mere rejection of assessee's explanation cannot be a ground for imposition of penalty under section 271(l)(c). The assessee's explanation has not been found to be false inasmuch as assessee's claim has partly been accepted. The assessee had furnished full particulars of its income. Detailed report was submitted to RBI on utilisation of foreign exchange. The sales order to be executed was also given in RBI report. Under such circumstances it cannot be concluded that assessee made a false claim before revenue authorities or had concealed the particulars of its income.
8. In the result, the assessee's appeal is allowed.