JNC INTERNATIONAL, MUMBAI V. ITO WD 14(3)(3), MUMBAI

ITA 1058/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4074 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 03-09-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N PADMANABHAN
• Assessee Lawyers: G P MEHTA
• Keywords: Business income; Depreciation; Opportunity of being heard; Question of law; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J, MUMBAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO.1058/MUM/2014 ASSESSMENT YEAR: 2005-06 M/S J.N.C. INTERNATIONAL, C/O G.P.MEHTA & CO., CAS, 807, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI-400021 PAN:AACFJ5518Q VS. ITO, WARD 14(3)(3), EARNEST HOUSE, 6 TH FLOOR, NCPA MARG, NARIMAN POINT, MUMBAI-400021 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.P.MEHTA REVENUE BY : SHRI N.PADMANABHAN DATE OF HEARING : 28.09.2015 DATE OF PRONOUNCEMENT : 03.02.2016 O R D E R PER SANDEEP GOSAIN, JM: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER DATED 01.01.2014 PASSED BY CIT(A)-25, MUMBAI THEREBY CONF IRMING THE ORDER OF PENALTY DATED 25.03.2011 PASSED BY ASSESSING OFFICE R (AO) U/S 271(1)(C) OF THE INCOME-TAX ACT (FOR SHORT THE ACT) 1961. GROU NDS OF APPEAL ARE EXTRACTED AS UNDER: 01. THE PENALTY ORDER PASSED/UPHELD BY THE LEARNED LOWER AUTHORITIES ARE BAD IN LAW AND BAD IN FACTS. 02. THE PENALTY ORDER PASSED U/S 271(1)(C) OF THE I . T. ACT, 1961 , LEVYING PENALTY AT RS. 1,88,712/- IS AB-INITIO VOID , INASMUCH AS, THE 2 ITA NO.1058/M/2014 M/S J.N.C. INTERNATIONAL EXPLANATION OF THE APPELLANT WAS NOT FOUND FALSE BY THE LEARNED LOWER AUTHORITIES WHICH IS CONDITION PRECEDENT FOR LEVY O F PENALTY. 03. THE LEARNED LOWER AUTHORITIES HAVE GROSSLY ERRE D IN LEVYING/ CONFIRMING THE PENALTY U/S 271 (1)(C) OF THE I.T.AC T,1961 AT RS. 1,88,712/- MERELY ON THE BASIS OF CERTAIN DISALLOWA NCES MADE CONSEQUENT TO CHANGE OF HEADS OF INCOME, WHICH WERE OF A HIGHLY DEBATABLE NATURE AND ON WHICH ASSESSEE'S APPEAL IS PENDING BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. 04. THE LEARNED CIT (A) HAS GROSSLY ERRED IN PLACIN G RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DH ARMENDRA TEXTILE PROCESSORS 306 ITR 277, EVEN THOUGH THE SAID DECISI ON HAS BEEN OVERRULED IN THE SUBSEQUENT DECISIONS. 05. HAVING REGARD TO THE FACTS OF THE CASE, PROVISI ONS OF LAW AND JUDICIAL PREPOSITIONS, THE PENALTY ORDER IN QUESTIO N IS WHOLLY UNTENABLE. 06 THE APPELLANT MAY PLEASE BE PERMITTED TO RAISE A NY ADDITIONAL OR ALTERNATIVE GROUND ON OR BEFORE THE HEARING OF APPE AL. 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE-FI RM FILED RETURN OF INCOME ON 29.08.2005 DECLARING TOTAL INCOME OF RS. 2,62,08 8/-.THEREAFTER, REVISED RETURN WAS FILED ON 18.10.2006, DECLARING TOTAL INC OME OF RS. 5,40,281/-. THE ORDER U/S 143(3) WAS PASSED ON 20.12.2007 DETERMINI NG TOTAL INCOME OF RS. 18,18,240/-. THIS INCOME HAS BEEN REDUCED TO RS.14, 57,880/- IN CONSEQUENCE TO THE RELIEF OF RS.3,61,394/- ALLOWED BY THE LEARN ED CIT(APPEALS) IN RESPECT OF SUNDRY CREDITORS. THE ASSESSEE FIRM HAS CLAIMED INTEREST AND RENTAL I NCOME AS BUSINESS INCOME. ASSESSEE EARNS RENTAL INCOME OUT OF SUBLETT ING. HOWEVER, THE AO, WHILE PASSING ORDER U/S.143(3) HELD THAT THE INTERE ST INCOME AS WELL AS RENT INCOME IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS VIEW HAS ALSO BEEN UPHELD BY THE LEARNED CIT(APPEAL S) VIDE ORDER DATED 17/2/2010. THE ASSESSEE'S CLAIM OF EXPENSES UNDER VARIOUS HEAD S WHICH ARE NOT COVERED BY PROVISIONS OF SECTION 57 OF THE I.T. ACT . THEREFORE, THEY ARE NOT ALLOWED BY THE REVENUE AUTHORITIES. THE PENALTY PRO CEEDINGS U/S. 271 (1)(C) OF THE ACT WERE INITIATED. ACCORDINGLY, STATUTORY N OTICE U/S. 274 READ WITH SECTION 271(1)(C) WAS ISSUED ON 21.12.2007 AND SERV ED UPON THE ASSESSEE ON 24/12/2007. 3 ITA NO.1058/M/2014 M/S J.N.C. INTERNATIONAL 3. THE ASSESSEE SUBMITTED ITS EXPLANATION WHICH IS AS UNDER: 'THE ASSESSEE FIRM FILED ITS RETURN OF INCOME ON TH E SAME BASIS AND IN THE SAME MANNER AS IN THE PAST, WHEN NO FAULT WAS F OUND. THE BASIS OF ASSESSMENT HAS BEEN ALTERED ONLY FOR THE YEAR UNDER CONSIDERATION HENCE IT CANNOT BE SAID THAT THE ASSESSEE FIRM, IN ANY MA NNER, HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. THUS INVOCATION OF PENAL PROVISIONS FOR THE YEAR UNDER CONSIDERATION IS WHOLLY UNWARRANTED. THE ASSESSEE FIRM, IN THE RETURN OF INCOME & ACCOMP ANYING FINANCIAL STATEMENTS HAS VERY CLEARLY DISCLOSED THE BASIS OF COMPUTATION OF INCOME, WHICH HAS BEEN ALTERED AND THE BASIS WHEREO F IS HIGHLY DEBATABLE AND SUBJECT MATTER OF APPEAL. THERE IS NO FINDING IN THE ASSESSMENT ORDER FOR THE YEAR UNDER CONSIDERATION, THAT ANY EXPENDITURE CLAIMED OR INCURRED WAS NOT A GENUINE EXPENDITURE. IN THE SITUATION, WHERE GENUINENESS OF THE EXPENDITURE HAS NOT BEEN D OUBTED, THE DISALLOWANCE THEREOF IN VIEW OF ALTERNATION IN THE METHOD OF ARRIVING AT TOTAL INCOME DOES NOT ATTRACT PENAL PROVISIONS. IN THIS CONTEXT, YOUR KIND ATTENTION IS DRAWN TO THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF CII VS. RELIANCE PETROPRODUCTS (P) LTD, 322ITR 1 58, WHEREIN IT WAS HELD THAT: 'WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITS ELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT OF FU RNISHING INACCURATE PARTICULARS'. THE CASE OF THE ASSESSEE UNDER CONSIDERATION IS SQU ARELY COVERED BY THE ABOVE JUDGMENT OF THE APEX COURT. THE ASSESSEE DEMO NSTRATED THAT THEIR CLAIM WAS BONAFIDE CLAIM. IN THE LIGHT OF ABO VE DISCUSSION, THE CASE UNDER CONSIDERATION IS NOT A FIT CASE FOR LEVY OF P ENALTY UNDER SECTION 271 (1)(C).' 4. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSE E, THE AO FOUND THE SAME TO BE NOT ACCEPTABLE AND PASSED ORDER OF PENAL TY U/S 271(1)(C) OF THE ACT VIDE ORDER DATED 25.03.2011. 5. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). HOWEVER, THE CIT(A) DISMISSED THE APPEAL FI LED BY THE ASSESSEE AND UPHELD THE ORDER OF PENALTY LEVIED BY THE AO. 4 ITA NO.1058/M/2014 M/S J.N.C. INTERNATIONAL 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE F ILED THE PRESENT APPEAL ON THE GROUNDS REPRODUCED HERE IN ABOVE. 7. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE (AR ) REPRESENTING THE ASSESSEE HAS RELIED UPON THE DETAILED WRITTEN SUBMI SSIONS MADE BEFORE THE CIT(A). FURTHER, LD. AR FILED A COPY OF THE JUDGMENT DATED 12.03.13 OF HONBLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CAS E IN ITA NO. 2575 OF 2011 AND EVIDENCED FACT OF ADMISSION OF THE ASSESSEES A PPEAL BY THE HONBLE HC ON THE SAID ADDITIONS. THE ISSUES ADMITTED ARE DETAILE D IN PARA 2 OF THE JUDGMENT. THE SAME READS AS UNDER: 2 ADMIT-ON THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW:- (I) WHETHER EN THE FACTS AND IN THE CIRCUMSTANCES O F CASE AND IN LAW, THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE PERIOD OF LI MITATION FOR ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT READ WITH PROVISO W OULD COMMENCE FROM THE DATE OF FILING OF THE REVISED RETURN OF INCOME AND NOT FROM THE DATE OF FILING OF THE ORIGINAL RETURN OF INCOME? (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME OF RS.11,85,504 RECEIVED AS RENT FROM SUB- L EASE OF THE FACTORY PREMISES IS ASSESSABLE AS INCOME UNDER THE HEAD 'BU SINESS'? (III) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE INTEREST INCOME OF RS.8,73,493/- HAS BEEN CORRECTLY ASSESSED AS INCOME UNDER THE HEAD 'OTHER SOURCES'? (IV) WHETHER ON THE FACTS AND LL1 THE CIRCUMSTANCES AND IN LAW VARIOUS EXPENSES CLAIMED BY THE APPELLANT IS ALLOWABLE AS D EDUCTION? (V) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW THE DEPRECIATION AMOUNTING TO RS.1,86,484/- HAS BEEN RI GHTLY DISALLOWED? (VI) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE INTEREST OF RS.2,72,651/- PAID TO PARTNERS IS ALLOW ABLE?' THUS, LD. AR FOR ASSESSEE ARGUED THAT SINCE THE APP EAL OF THE ASSESSEE HAS ALREADY BEEN ADMITTED ON THE SUBSTANTIAL QUESTI ON OF LAW BEFORE THE HONBLE HIGH COURT, THEREFORE, THE ADDITIONS ARE NO T FREE FROM DEBATE. THEREFORE, PENALTY PROCEEDINGS MAY BE DROPPED/DISMI SSED. FOR THIS PREPOSITION, THE LD. AR FOR ASSESSEE RELIED UPON TH E CASE OF CIT VS. M/S. 5 ITA NO.1058/M/2014 M/S J.N.C. INTERNATIONAL NAYAN BUILDERS & DEVELOPERS PRIVATE LIMITED. (ITA N O. 415/DEL/12 AND 2379/MUM/2014) BOMBAY HIGH COURT (2014) 89 CCH 0187 , MUMBAI HIGH COURT. ON THE OTHER HAND, DR REPRESENTING THE REVENUE RELI ED UPON THE ORDERS PASSED BY THE LOWER AUTHORITY AND PRAYED FOR DISMIS SAL OF APPEAL. 8. WE HAVE HEARD BOTH THE PARITIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE OF THE CONSIDERED OPINION THAT SINCE THE APPEAL OF ASSESSEE HAS ALREADY BEEN ADMITTED ON THE SUBSTANTIAL QUESTION O F LAW BY THE HONBLE BOMBAY HIGH COURT WHICH MAKES IT CLEAR THAT THE ADD ITIONS MADE BY AO AND CONFIRMED BY CIT(A) CONSTITUTES DEBATABLE ISSUES. ON THE SIMILAR FACTS, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF NAYAN BUIL DERS & DEVELOPERS PRIVATE(SUPRA) HELD THAT THE PENALTY U/S 271(1)(C) OF THE ACT IS LEVIABLE. RELEVANT PARA FROM THE SAID JUDGMENT IS EXTRACTED A S FOLLOWS: PENALTY U/S 271(L)(C)-CONCEALMENT OF INCOME-ADMISSI ON OF APPEAL BY HIGH COURT AGAINST QUANTUM ADDITION-AO MADE ADDITION IN HANDS OF ASSESSEE ON ACCOUNT OF INCOME FROM SPECTRUM CORPORATE SERVIC ES LTD., DISALLOWANCE OF BROKERAGE AND DISALLOWANCE OF LEGAL FEES- TRIBUNAL UPHELD ADDITIONS IN QUANTUM PROCEEDINGS-ASSESSEE HAD FILED APPEAL AGAINST QUANTUM ADDITION IN HIGH COURT AND SAME HAS BEEN AD MITTED-AO LEVIED PENALTY U/S 271(1)(C)-CIT(A) UPHELD PENALTY IMPOSED BY AO-TRIBUNAL DELETED PENALTY IMPOSED BY AO ON GROUND THAT APPEAL AGAINST QUANTUM ADDITION HAS BEEN ADMITTED BY HIGH COURT-HELD WHEN HIGH COURT ADMITS SUBSTANTIAL QUESTION OF LAW ON AN ADDITION, IT BECO ME APPARENT THAT THE ADDITION IS CERTAINLY DEBATABLE-IN SUCH CIRCUMSTANC ES PENALTY CANNOT BE LEVIED U/S 271 (1)(C)-ADMISSION OF SUBSTANTIAL QUES TION OF LAW BY HIGH COURT LENDS CREDENCE TO BONA FIDES OF THE ASSESSEE IN CLAIMING DEDUCTION- ONCE IT WAS HELD THAT CLAIM OF ASSESSEE COULD HAVE BEEN CONSIDERED FOR DEDUCTION AS PER A PERSON. PROPERLY INSTRUCTED IN L AW AND IS NOT COMPLETELY DEBARRED AT ALL, MERE FACT OF CONFIRMATION OF DISAL LOWANCE WOULD NOT PER SE LEAD TO THE IMPOSITION OF PENALTY-SINCE ADDITIONS, IN RESPECT OF WHICH PENALTY HAS BEEN UPHELD, HAVE BEEN HELD BY HIGH COU RT TO BE INVOLVING A SUBSTANTIAL QUESTION OF LAW, PENALTY IS NOT EXIGIBL E UNDER SECTION 271(1)(C) AND THUS DELETED-REVENUES' APPEAL DISMISSED. 9. APART FROM THE ABOVE SUBMISSIONS, WE HAVE ALSO A NALYZED THE ORDERS PASSED BY CIT(A) AND OUR FINDINGS ON GROUNDS OF APP EAL AS ARE AS UNDER: GROUND NOS. 1 & 2 6 ITA NO.1058/M/2014 M/S J.N.C. INTERNATIONAL 10. AFTER HEARING THE ARGUMENTS OF BOTH THE PARTIES ON THE AFOREMENTIONED GROUNDS, WE HAVE ALSO NOTICED THAT ON COMPLETION OF ASSESSMENT PROCEEDINGS A NOTICE U/S 274 R.W.S. 271 OF I.T.ACT, 1961 DATED 20.12.2007 WAS ISSUED. ON PERUSAL OF THE SAID NOTICE WE HAVE OBSERVED THAT TH E SAID NOTICE DID NOT CONTAIN ANY SPECIFIC CHARGE AS TO WHETHER THE PENAL TY PROCEEDING WAS INITIATED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FUR NISHING OF SUCH INCOME AND EVEN IN THE BODY OF THE ASSESSMENT ORDER, WHAT HAS BEEN STATED IS, PENALTY PROCEEDINGS U/S 271(1)(C) R.W. EXPLANATION THERETO ARE INITIATED SEPARATELY. IN THESE SITUATION IT IS CLEAR THAT BY NOT SPECIFYING THE SPECIFIC CHARGE IN THE SHOW CAUSE NOTICE, THE ASSESSEE HAS INFACT BEEN DENIED I S REASONABLE AND SUFFICIENT OPPORTUNITY OF BEING HEARD AS THE ASSESSEE WAS NOT EVEN KNOWING WHAT WAS THE FAULT FOR WHICH IT WAS TO EXPLAIN INNOCENCE. IT IS SETTLED LAW THAT WHEN A PARTICULAR PENAL PROVISION LIKE CLAUSE-C OF SUB-SEC TION1 OF SECTION 271 OF I.T. ACT, 1961, DEALS WITH MORE THAN ONE SITUATION FOR A TTRACTING PENALTY PROVISIONS, THE AO IS DUTY BOUND TO COMMUNICATE THE CHARGE SPE CIFICALLY SO THAT ASSESSEE CAN EXPLAIN HIS REASONS AND SUPERIOR AUTHO RITY CAN TEST THE APPLICATION OF MIND. IN THIS REGARD WE FOUND SUPPOR T FROM THE JUDGMENT RENDERED BY HONBLE BOMBAY HIGH COURT IN CASE OF CI T VS. KAUSHALAYA 216 ITR 660. CONSIDERING THE AFOREMENTIONED FACTS AND C IRCUMSTANCES, WE ACCEPT/ALLOWED BOTH THE GROUNDS AS MENTIONED ABOVE. GROUND NOS. 3 & 4 11. AFTER HEARING THE ARGUMENTS OF BOTH THE PARTIES ON THE AFOREMENTIONED GROUNDS, WE HAVE ALSO NOTICED THAT WHILE PASSING OF THE PENALTY ORDER THERE IS NO RECORDING OF THE FACT THAT THE EXPLANATION OFFER ED BY ASSESSEE WAS FOUND FALSE AND UNLESS FALSITY OF THE EXPLANATION IS ESTA BLISHED, NO PENALTY CAN BE IMPOSED. WE ARE OF THE CONSIDERED VIEW THAT THE PEN ALTY UNDER THE AFOREMENTIONED GROUNDS HAS BEEN LEVIED MERELY ON TH E BASIS OF ADDITIONS BY DISALLOWING CERTAIN CLAIM/EXPENSES AND THERE IS NO MATERIAL OR EVIDENCE HAS BEEN BROUGHT ON RECORD TO SHOW CONSTRUCTIVE CONCEAL MENT ON THE PART OF 7 ITA NO.1058/M/2014 M/S J.N.C. INTERNATIONAL ASSESSEE. WE FOUND OUR SUPPORT FROM THE DECISION RE NDERED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. WHEREIN IT HAS BEEN CATEGORICALLY MENTIONED THAT IN ORDER TO E XPOSE THE ASSESSEE TO THE PENALTY, THE CASE SHOULD BE STRICTLY COVERED BY THE PROVISIONS AND THE PENALTY PROVISIONS CANNOT BE INVOKED IN THE ROUTINE MANNER. A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISH INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE AN D AS SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICUL ARS, THEREFORE, CONSIDERING THE ENTIRE CASE AS WELL AS FACTUAL POSITION, WE ALL OW THE ABOVESIAD GROUNDS. 12. THEREFORE, WHILE SUMMONING UP THE ENTIRE DISCUS SION ABOVE AND RESPECTFULLY FOLLOWING THE JUDGMENT OF CIT VS. NAYA N BUILDERS & DEVELOPERS PRIVATE LIMITED, WE HOLD THAT SINCE THE APPEAL OF T HE ASSESSEE HAS ALREADY BEEN ADMITTED BY THE HONBLE BOMBAY HIGH COURT AND IT IS APPARENT THAT THE ADDITIONS MADE BY AO AND CONFIRMED BY CIT(A) ARE NO T FREE FROM DEBATE. THEREFORE, IN SUCH CIRCUMSTANCES, THE IMPOSITION OF PENALTY IS UNWARRANTED. THEREFORE, WE ALLOWED THE APPEAL FILED BY THE ASSES SEE AND SET-ASIDE THE PENALTY LEVIED BY THE AO AND CONFIRMED BY CIT(A) AG AINST THE ASSESSEE. 13. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF FEBRUARY, 2016. SD/- SD/- ( D.KARUNAKARA RAO) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 03.02.2016 SHARWAN P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI 8 ITA NO.1058/M/2014 M/S J.N.C. INTERNATIONAL THE CIT(A) CONCERNED, MUMBAI THE DR J BENCH BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.