DCIT, CHENNAI V. M/s. Om Shakthy Agencies (Madras) P Ltd., CHENNAI

ITA 1100/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0885 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-01-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 14-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Keywords: Wrong claim
• Section: 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1100(MDS)/2011 ASSESSMENT YEAR : 2006-07 THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE III(1), CHENNAI. VS. M/S. OM SHAKTHY AGENCIES (MADRAS) PVT. LTD., 1, JAWAHARLAL NEHRU ROAD, EKATUTHANGAL, CHENNAI-32. PAN AAACO3722E. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P JACOB, IRS, ADDL.CIT RESPONDENT BY : SHRI PHILIP GEORG E, ADVOCATE DATE OF HEARING : 16 TH JANUARY, 2013 DATE OF PRONOUNCEMENT : 21 ST JANUARY, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX(APPE ALS)-V AT CHENNAI, ON 31-3-2011. THE APPEAL ARISES OUT OF TH E ORDER - - ITA 1100 OF 2011 2 PASSED BY THE ASSESSING AUTHORITY IMPOSING A PENALT Y OF ` 50 LAKHS UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR 2 006-07 ON A TOTAL INCOME OF ` 1,38,85,390/-. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLE D FOR DETAILS RELATING TO TWO ITEMS OF EXPENSES CLAIMED BY THE AS SESSEE IN COMPUTING ITS INCOME. THE FIRST ITEM IS LAND DEVEL OPMENT EXPENSES AMOUNTING TO ` 95,07,225/-. THE SECOND ITEM IS MISCELLANEOUS SITE EXPENSES AMOUNTING TO ` 4,58,680/-. 3. IN RESPONSE TO THE QUERY MADE BY THE ASSESSING OFFICER, THE ASSESSEE FILED CONFIRMATION LETTERS IS SUED BY THOSE PARTIES TO WHOM THE ASSESSEE HAD MADE THE ABOVE-STA TED PAYMENTS. IN THE LIGHT OF THE CONFIRMATION LETTERS , FOR FURTHER ENQUIRIES, THE ASSESSING OFFICER ISSUED COMMISSION UNDER SECTION 131 OF THE INCOME-TAX ACT, 1961. COMMISSIO N WAS ISSUED TO THE ASSISTANT DIRECTOR OF INCOME-TAX (INV .), UNIT III(1), AT CHENNAI. THE COMMISSION REPORT WAS SUBMITTED ON 23-12-2008. THE COMMISSION STATED THAT THE EXPENSE S WERE STATED TO BE INCURRED BY THE ASSESSEE TOWARDS DEVEL OPMENT - - ITA 1100 OF 2011 3 EXPENSES OF DEVELOPING A PROPERTY AT LAKSHMI NAGAR LAYOUT, SIDCO INDUSTRIAL MAIN ROAD, VILLANUR VILLAGE. THE ASSESSEE HAD CLAIMED THAT PAYMENTS FOR DEVELOPING THE PROPERTY W ERE MADE TO TWO PARTIES, NAMELY, M/S.PRAKASH ENGINEERING CONSTR UCTION AND M/S.PROACTIVE CONSTRUCTION. THE COMMISSION HAS STA TED THAT ON ENQUIRIES MADE BY HIM IT WAS FOUND THAT THERE WAS N O SUCH ADDRESS AS GIVEN BY M/S.PRAKASH ENGINEERING CONSTRU CTION. FURTHER ENQUIRIES REVEALED THAT THE SAID FIRM M/S.P RAKASH ENGINEERING CONSTRUCTION WAS FUNCTIONING FROM ANOTH ER ADDRESS. IN THE OTHER CASE ALSO, IT WAS FOUND THAT THE ADDRE SS FURNISHED BY THE ASSESSEE DID NOT EXIST. THE COMMISSION MADE FU RTHER ENQUIRIES WITH REFERENCE TO THE LAYOUT AT LAKSHMINA GAR, SIDCO INDUSTRIAL MAIN ROAD, VILLANUR VILLAGE, WHERE THE A SSESSEE HAD CLAIMED THAT THE EXPENSES WERE INCURRED FOR DEVELOP MENT. ON A SITE VISIT IT WAS NOTICED THAT THE ENTIRE AREA WAS A NATURALLY RAISED PLATEAU AND THERE WAS NO NECESSITY FOR MAKING ANY F ILLING OF THE LAYOUT, AS CLAIMED BY THE ASSESSEE. THE COMMISSION REPORT CONCLUDED THAT THE ADDRESSES OF THE PARTIES PROVIDE D BY THE ASSESSEE ARE FOUND TO BE FALSE AND ALSO THERE WAS N O NECESSITY TO INCUR ANY SUCH DEVELOPMENT EXPENDITURE AS WELL A ND IN THESE - - ITA 1100 OF 2011 4 CIRCUMSTANCES THE EXPENSES CLAIMED BY THE ASSESSEE TOTALING TO ` 95,07,225/- RELATING TO LAND DEVELOPMENT EXPENSES WERE FOUND TO BE BOGUS. 4. ON THE BASIS OF THE ABOVE COMMISSION REPORT, TH E ASSESSING AUTHORITY REJECTED THE EXPLANATIONS OFFER ED BY THE ASSESSEE AND ADDED THE SAID AMOUNTS OF ` 95,07,225/- RELATING TO LAND DEVELOPMENT EXPENSES AND ` 4,58,680/- BEING MISCELLANEOUS SITE EXPENSES, TO THE INCOME RETURNED BY THE ASSESSEE-COMPANY. 5. IT IS IN THE LIGHT OF THE ABOVE ADDITIONS THAT THE PENALTY HAS BEEN LEVIED ON THE ASSESSEE-COMPANY. I N LEVYING THE PENALTY, THE ASSESSING OFFICER HAS RELIED ON TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF I NDIA VS. DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277, WHICH H AS OVERRULED THE EARLIER DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF DILIP N SHROFF VS JCIT, 291 ITR 517. I N THE LIGHT OF THE ABOVE RULING OF THE HONBLE SUPREME COURT, THE ASSESSING OFFICER REJECTED THE LEGAL PROPOSITION RAISED BY TH E ASSESSEE AND LEVIED THE PENALTY OF ` 50 LAKHS. - - ITA 1100 OF 2011 5 6. IN FIRST APPEAL, THE COMMISSIONER OF INCOME- TAX(APPEALS) OBSERVED THAT THE ASSESSEE HAS PROVED THE PAYMENTS MADE TO M/S.PROACTIVE CONSTRUCTION AND M/S .PRAKASH ENGINEERING CONSTRUCTION. HE ALSO RECORDED A FINDI NG THAT MEASUREMENT BOOKS OF THOSE PARTIES WERE PRODUCED BE FORE HIM AND VOUCHERS WERE ALSO PRODUCED AND THE ACCOUNTS OF THE ASSESSEE ALSO SUPPORTED THE INCIDENCE OF THE EXPENS ES. ON THE FACTS OF THE CASE, HE HAS OBSERVED THAT IT WAS NECE SSARY FOR THE ASSESSEE TO INCUR SUCH EXPENSES TOWARDS DEVELOPMENT OF THE LAND. ON THE LEGAL PROPOSITION, THE COMMISSIONER O F INCOME- TAX(APPEALS) FOUND THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277, IS NOT APPLICABLE HERE, AS IN THE PRESENT CASE THERE WAS NO ISSUE OF ANY MENS REA. THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHA RMENDRA TEXTILE PROCESSORS, 306 ITR 277, HAS HELD THAT MENS REA WAS NOT ESSENTIAL FOR LEVYING PENALTY UNDER SECTION 271(1)( C) OF THE ACT. BUT, IN THAT DECISION THE HONBLE COURT DID NOT FIN D FAULT WITH THE EXPLANATION OF THE TERMS CONCEAL AND INACCURATE , AS DISCUSSED IN THE CASE OF DILIP N SHROFF VS. JCIT, 291 ITR 519 . THE - - ITA 1100 OF 2011 6 COMMISSIONER OF INCOME-TAX(APPEALS) HELD THAT IN TH E PRESENT CASE THERE IS NO CASE OF CONCEALMENT OR NO CASE OF FURNISHING OF INACCURATE PARTICULARS. HE HELD THAT EXPLANATION 1 TO SECTION 271(1)(C) IS VITAL FOR PENALTY PROCEEDINGS AND IN T HE PRESENT CASE THE EXPLANATION OF THE ASSESSEE CANNOT BE FOUND TO BE FALSE, THOUGH THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE TH E SAME BECAUSE OF LAPSE OF TIME AND OTHER FACTORS. HE ACC ORDINGLY DELETED THE PENALTY AND ALLOWED THE APPEAL FILED BY THE ASSESSEE. 7. THE REVENUE IS AGGRIEVED AND THEREFORE THE PRESENT SECOND APPEAL BEFORE US. 8. WE HEARD SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E AND SHRI PHILIP GEORGE, THE LEARNED COUNSEL APPEARING F OR THE RESPONDENT-ASSESSEE. 9. THE ASSESSEE HAS CLAIMED HUGE AMOUNTS AS EXPENSES TOWARDS SITE DEVELOPMENT. ACCORDING TO TH E ASSESSEE, THOSE PAYMENTS WERE MADE MAINLY TO TWO PARTIES, M/S . PRAKASH ENGINEERING CONSTRUCTION AND M/S. PROACTIVE CONSTRU CTION. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESS EE HAS NOT - - ITA 1100 OF 2011 7 PRODUCED THE DETAILS OF THE WORK CARRIED OUT BY THO SE PARTIES IN DEVELOPING THE SITE OF THE ASSESSEE. CONFIRMATION LETTERS OF THE PARTIES ALONE WERE PRODUCED BEFORE THE ASSESSING OF FICER. WHEN THE CONFIRMATION LETTERS AS SUCH WERE NOT OF M UCH HELP TO THE ASSESSING OFFICER IN VERIFYING THE BONA FIDES O F THE EXPENDITURE CLAIMED BY THE ASSESSEE, HE APPOINTED A COMMISSION TO REPORT ON THE STATE OF AFFAIRS BACK T O HIM. THE COMMISSION HAS MADE EXHAUSTIVE ENQUIRIES INCLUDING FIELD INSPECTION. THE ADDRESSES OF THE PARTIES TO WHOM T HE ASSESSEE HAS STATED TO HAVE PAID MONEY WERE FOUND TO BE EITH ER ERRONEOUS OR NON EXISTING. THEY WERE NOT AVAILABLE AT ALL. THE COMMISSION COULD NOT EXAMINE THEIR BOOKS OF ACCOUNT . NOBODY EXPLAINED THE EXACT NATURE OF WORK CARRIED OUT BY T HOSE PARTIES BEFORE THE COMMISSION. THE COMMISSION VISITED THE LOCATION. THE COMMISSION FOUND THAT THE LAND WAS NATURALLY EL EVATED AND THERE WAS NO NEED OF FILLING UP OF THE LAND, AS CLA IMED BY THE ASSESSEE. 10. IT IS IN THE LIGHT OF THE COMPREHENSIVE REPORT SUBMITTED BY THE COMMISSION THAT THE ASSESSING OFFI CER HAS HELD THAT THE CLAIMS MADE BY THE ASSESSEE WERE BOGU S. MAKING - - ITA 1100 OF 2011 8 BOGUS CLAIMS TO UNDERSTATE THE INCOME IS DEFINITELY THE OUTCOME OF CONCEALMENT OF INCOME VIS--VIS FURNISHING OF IN ACCURATE PARTICULARS. 11. IN FIRST APPEAL, THE COMMISSIONER OF INCOME- TAX(APPEALS) HAS NOT QUESTIONED THE VERACITY OF THE COMMISSION REPORT. THE COMMISSIONER OF INCOME-TAX(APPEALS) RE LIED ON EVIDENCES STATED TO HAVE BEEN PRODUCED BY THE ASSES SEE BEFORE HIM. IT IS THE CASE OF THE COMMISSIONER OF INCOME- TAX(APPEALS) THAT THE PARTIES HAVE PRODUCED BEFORE HIM THE MEASU REMENT BOOKS, VOUCHERS AND THE OTHER DETAILS TO SHOW THAT THE EXPENSES WERE INCURRED IN DEVELOPING THE SITE OF THE ASSESSE E. IT IS ON THE ABOVE BASIS THAT HE HAS DELETED THE PENALTY. 12. IT IS TO BE SEEN THAT BOOKS OF ACCOUNT, VOUCHE RS AND THE OTHER WORK BOOKS ARE ALL INTERNALLY CREATED EVI DENCES. WHEN THOSE EVIDENCES ARE QUESTIONED, IT IS NECESSARY THA T THOSE EVIDENCES ARE SUPPORTED BY EMPIRICAL EVIDENCES. IN SPITE OF THE ABOVE STATED MATERIALS PLACED BEFORE HIM, THE COMMI SSIONER OF INCOME-TAX(APPEALS) HAS NOT EXAMINED WHETHER DEVELO PMENT WAS NECESSARY AT ALL WHEN THE NATURE OF THE LAND IS LOOKED INTO. IT IS STATED IN THE COMMISSION REPORT THAT THE LAND IS NATURALLY - - ITA 1100 OF 2011 9 ELEVATED. WHEN THAT FINDING IS NOT CONTROVERTED AN D THE INCIDENCE OF EXPENDITURE CANNOT BE ACCEPTED AS GENU INE, IT MEANS THAT EVEN THE DETAILS STATED TO BE FURNISHED BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCOME-TAX(APPE ALS) WERE FABRICATED AND BOGUS. 13. ALL THE PAYMENTS HAVE BEEN MADE IN CASH, IF AT ALL THEY WERE MADE. THE ASSESSEE HAS NOT DEDUCTED ANY TAX AT SOURCE WHILE MAKING SUCH HUGE PAYMENTS. THERE IS N OTHING ON RECORD TO SHOW THAT THE PAYMENTS WERE MADE PROPORTI ONATE TO THE WORK CARRIED OUT BY THE PARTIES. THE PARTIES A RE NOT AVAILABLE FOR DISCUSSION OR EXAMINATION. IT IS ALSO STATED T HAT THE SO-CALLED PROJECT OF THE ASSESSEE NEVER CAME INTO EXISTENCE. WHEN ALL THESE COMPELLING REASONS ARE EXAMINED IN THEIR TOTA LITY, WE FIND THAT THE ASSESSEE HAD MADE BOGUS CLAIMS SO AS TO RE DUCE ITS TAX LIABILITY. MAKING BOGUS CLAIM IS A REFLECTION OF C ONCEALMENT OF INCOME. IN ORDER TO SUPPORT SUCH BOGUS CLAIMS THE ASSESSEE HAS PRODUCER CERTAIN X,Y,Z PAPERS BEFORE THE ASSESSIN G OFFICER BY WAY OF CONFIRMATION. THIS AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS. AS ALREADY STATED, IF AT ALL DETAILS WERE FURNISHED BEFORE THE COMMISSIONER OF INCOME-TAX(APPEALS), THO SE DETAILS - - ITA 1100 OF 2011 10 ARE ALSO NOT GENUINE AND THEY ALSO AMOUNTED TO FURN ISHING OF INACCURATE PARTICULARS. 14. IT IS NOT A CASE WHERE THE ASSESSEE HAS MADE A CLAIM AND THE ASSESSEE WAS NOT IN A POSITION TO PRO VE THE GENUINENESS OF THE CLAIM TO THE SATISFACTION OF THE ASSESSING OFFICER. THE COMMISSIONER OF INCOME-TAX(APPEALS) H AS ACCEPTED THE CONTENTION OF THE ASSESSEE ON THE ABOV E GROUND. BUT THAT IS NOT CORRECT. IT IS NOT A CASE OF CLAIM ING EXPENDITURE AND A SIMPLE DISALLOWANCE MADE BY THE ASSESSING OFF ICER. HERE IS A CASE WHERE THE ASSESSEE HAS CLAIMED HUGE EXPEN DITURE BY WAY OF DEDUCTION, FOR WHICH THE ASSESSEE WAS NOT IN A POSITION TO ESTABLISH EITHER THE ACTUAL INCIDENCE OF THE EXPEND ITURE OR THE NECESSITY OF SUCH EXPENDITURE. IT IS FURTHER TO BE SEEN THAT AS THE PROJECT DID NOT TAKE OFF, IT SHOULD BE TREATED AS A N ABORTED PROJECT AND THE EXPENSES SHOULD BE CONSIDERED AS CAPITAL IN NATURE, IF AT ALL THE EXPENSES WERE INCURRED. ANYHOW THIS IS ONL Y ONE OF OUR OBSERVATIONS AND NOT A REASON FOR COMING TO OUR CON CLUSION. 15. ON THE BASIS OF THE ORDERS PASSED BY THE LOWER AUTHORITIES, WE FIND THAT THE ASSESSING AUTHORITY I S JUSTIFIED IN PASSING THE PENALTY ORDER UNDER SECTION 271(1)(C) A ND IN LEVYING - - ITA 1100 OF 2011 11 THE PENALTY OF ` 50 LAKHS. THIS IS A CLEAR CASE OF CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS. A CCORDINGLY, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-T AX(APPEALS) AND RESTORE THE ORDER OF PENALTY PASSED BY THE ASSE SSING OFFICER. 16. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 21 ST OF JANUARY, 2013 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 21 ST JANUARY, 2013. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.