ACIT, CHENNAI V. M/s. Tamil Nadu Transport Development Finance Corproation Ltd., CHENNAI

ITA 1355/CHNY/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0828 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-02-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 16-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Speculation loss; Wrong claim; Agreed addition; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.1355/MDS/2010 ASSESSMENT YEAR : 2004-05 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE-III(1) CHENNAI VS M/S TAMIL NADU TRANSPORT DEVELOPMENT FINANCE CORPORATION LTD. TAMILNADU TOURISM COMPLEX NO.2, WALLAJAH ROAD CHENNAI - 2 [PAN AAACT 0747L] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE DATE OF HEARING : 05-02-2013 DATE OF PRONOUNCEMENT : 12-02-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE CIT(A)-III, CHENNAI, DATED 14.5.2010. 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL OF THE REVEN UE IS THAT THE CIT(A) HAS ERRED IN DELETING THE LEVY OF PENALT Y U/S 271(1)(C) OF THE ACT OF ` 62,46,620/-. I.T.A.NO.1355/10 :- 2 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A STATE OWNED NON-FINANCE BANKING COMPANY AND IS ENGAGED IN THE BUSINESS OF HIRE PURCHASE FINANCING AND TERM LENDING TO VAR IOUS STATE OWNED TRANSPORT CORPORATIONS IN TAMIL NADU. DURING THE A SSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD LEASED OUT 483 CHASSIS TO 5 STATE TRANSPORT UNDERTAKINGS D URING THE FINANCIAL YEAR 1997-98 FOR A PERIOD OF 60 MONTHS. AFTER THE EXPIRY OF LEASE PERIOD, THE CHASSIS CONTINUED TO BE WITH THE LESSEE S, THOUGH THE LESSEES HAD NOT ENTERED INTO ANY FURTHER LEASE AGRE EMENT WITH THE ASSESSEE. AFTER TAKING UP THE MATTER WITH THE LESS EE STATE TRANSPORT UNDERTAKINGS, THE ASSESSEE RECEIVED A SUM OF ` 208 LAKHS WHICH WAS TREATED BY IT AS CONSIDERATION FOR SALE OF CHASSIS AND WAS OFFERED AS SHORT TERM CAPITAL GAINS U/S 50 OF THE ACT. THE A SSESSING OFFICER, HOWEVER, CALLED FOR THE PARTICULARS OF THE SALE. T HE ASSESSEE DID NOT FILE THE DETAILS AND WITHDREW THE CLAIM OF SALE OF CHASSIS AND THE CONSEQUENT SHORT TERM CAPITAL GAIN. THE ASSESSEE AGREED AT THE TIME OF ASSESSMENT TO TREAT THE TOTAL RECEIPT OF ` 206.76 LAKHS AS BUSINESS INCOME. THE ASSESSEE ALSO CLAIMED DEPRECIATION ON THE SAID CHASSIS. FROM THE ABOVE STATED FACTS, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAD ADMITTED SHORT TERM CAPITAL GAIN TO RE DUCE THE INCIDENCE OF TAXATION. THEREAFTER THE ASSESSING OFFICER INITI ATED PENALTY I.T.A.NO.1355/10 :- 3 -: PROCEEDINGS U/S 271(1)(C) OF THE ACT BY ISSUE OF NOTICE ON 19.10.2006. IN REPLY TO THE SAID NOTICE, THE ASSE SSEE FILED ITS SUBMISSION ON 2.11.2006. THE ASSESSING OFFICER REJ ECTED THE SUBMISSION OF THE ASSESSEE AND CONCLUDED THAT IT H AS FURNISHED INACCURATE PARTICULARS BY TREATING THE RECEIPTS DUR ING THE YEAR FROM THE LEASE AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINES S INCOME AND IT HAS SOUGHT TO REDUCE THE INCIDENCE OF TAXATION. THEREF ORE, HE LEVIED A MINIMUM PENALTY OF ` 62,46,620/-. 4. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN SUBM ISSION WHICH IS QUOTED IN THE ORDER OF THE CIT(A) AND REA DS AS UNDER: THE ASSESSEE IS A GOVERNMENT OF TAMILNADU UNDERTAK ING AND ITS ACCOUNTS ARE ACCEPTED BY CAG. DURING FINANCIAL YEAR 1997-98 IT HAD LEASED OUT 483 CHASSIS TO STATE CORPORATION UNDERTAKINGS. AFTER THE LEASE PERIOD THE CHASSIS CONTINUED TO BE WITH THE LESSEES, THOUGH THE ASSESSEE HAD NOT ENTERED INTO ANY FURTHE R LEASE AGREEMENT WITH THE PARTIES. THE ASSESSEE OBTAINED F ROM THESE PARTIES AN AMOUNT OF RS 208 LAKHS DURING THE YEAR TOWARDS THE WDV OF THE ASSETS REMAINING OUTSTANDING IN ITS BOOK S. THIS IS NOT THE BALANCE LEASE AMOUNT OUTSTANDING IN ITS BOOKS A S WRONGLY STATED BY THE ASSESSING OFFICER. LETTER DATED 10 TH OCTOBER FROM THE COMPANY FILED WITH THE JOINT COMMISSIONER OF INCOME TAX IS ENCLOSED. THE ASSESSEE SHOWED THE WDV OF THESE ASSE TS AS NIL TREATING THE ASSETS AS SOLD AND ADMITTED THE SALE P ROCEEDS OF RS 206.76 LAKHS LESS THE WDV AS SHORT TERM CAPITAL GAINS UNDE R SEC 50. IT DID NOT CLAIM DEPRECIATION ON THESE ASSETS. IN T HE ACCOUNTS THE AUDITOR HAD STATED THE 'WDV AS ON 31-3-2002 AMOUNTING TO RS 206.76 LAKHS HAS BEEN RECOVERED AND NO DEPRECIATION PROVIDED ON THE BALANCE. THE AO HAS TA KEN THE VIEW THAT THERE IS NO ACTUAL SALE OF THE CHASSIS SINCE T HE CHASSIS CONTINUED TO BE WITH THE LESSEES, THOUGH NO LEASE A GREEMENTS WERE ENTERED INTO WITH THE LESSEES FOR THE FURTHER PERIO D, AND OUTSTANDING LEASE RENT RECOVERY CANNOT BE EQUATED TO SALE CONSI DERATION. THE AO PROPOSED TO ASSESS THE LEASE RENTAL OF RS 208 LAKHS AS INCOME I.T.A.NO.1355/10 :- 4 -: AND TO ALLOW DEPRECIATION ON THE WDV OF CHASSIS. TH E ASSESSEE AGREED TO THE ASSESSMENT AS IT WAS NOT ABLE TO PROC URE CONFIRMATIONS FROM THE LESSEES STUS AS THEY WERE AM ALGAMATED. THE ASSEESSEE'S INTENTION WAS CLEAR AS TO SELLING T HE CHASSIS. FURTHER TREATING THE AMOUNT AS LEASE DID NOT HAVE M ATERIAL TAX IMPACT AS THE ASSESSEE WOULD CLAIM THE DEPRECIATION OVER A PERIOD. AS PER ACCOUNTS THERE WAS NO OUTSTANDING LEASE RENT ALS. THE LEASE AGREEMENT HAS EXPIRED. IT IS NOT CLEAR HOW THE SALE PRICE OF THE BUSES CAN BE CONSIDERED AS LEASE RENTAL. THE ASSESS EE AGREED TO THE ASSESSMENT AS INCOME AS AGAINST CAPITAL GAINS F OR BONA FIDE REASONS AS IT COULD NOT OBTAIN THE NECESSARY CONFIR MATIONS FROM THE LESSEES. THIS WITHDRAWAL OF CLAIM DOES NOT WARRANT LEVY OF PENALTY. THE ENTIRE TRANSACTION WAS REFLECTED IN THE BOOKS O F ACCOUNTS AND IN THE RETURN OF INCOME. IT WAS ONLY A DIFFERENT INTER PRETATION OF THE TRANSACTION. THERE WAS NO INACCURATE FURNISHING OF PARTICULARS OR CONCEALMENT OF INCOME AND HENCE TO PURCHASE PEACE A ND AVOID LITIGATION. THE ASSESSEE RELIES ON THE FOLLOWING DECISIONS: REJECTION OF BONAFIDE CLAIM PENALTY CANNOT BE LE VIED. KAMBAY SOFTWARE VS DCIT 122 TTJ 721 (PUNE) PRAKASH CHAND YADAV 167 TAXMAN 62 DEL CIT VS AMAR NATH 16 DTR 326 P&H SARAYA INDUSTRIES (2008) 1 DTR 434 KAMY SOFTWARE 214 CTR 403 (MAD) DISALLOWANCE OF A BONAFIDE CLAIM FOR DEDUCTION CANN OT RESULT IN LEVY OF PENALTY. CEMENT MARKETING CO. OF INDIA LTD. VS AC 124 ITR 1 5 (S.C) EVEN IF THE ASSESSEE FAILS TO SUBSTANTIATE THEIR EX PLANATION IF THE EXPLANATION IS BONAFIDE PENALTY IS NOT LEVIABLE. (EXPLANATION 1 TO SECTION CONSIDERED). CIT VS RAHULJEE & CO. 250 ITR 225 (DEL) CIT VS KERALA SPINNERS 247 ITR 541(KER) CIT VS GEO SEA GOODS 244 ITR 44 (KER) CIT VS SURESHCHANDRA MITTAL 251 ITR 9 (SC) CIT VS P. GOVINDASWAMY 263 ITR 509(MAD) MERE BELIEF OF EXPLANATION BY THE ASSESSEE IS NO GR OUND FOR IMPOSITION OF PENALTY. CIT VS RAMASWAMY NAIDU 208 ITR 377 (MAD) I.T.A.NO.1355/10 :- 5 -: 5. THE CIT(A) HAS DELETED THE PENALTY ON THE GROUND TH AT SINCE THE PENALTY PROCEEDINGS ARE INDEPENDENT FROM ASSESS MENT PROCEEDINGS, THE DEFAULT OF AN ASSESSEE WARRANTING IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT NEEDS TO BE SEPA RATELY AND INDEPENDENTLY ESTABLISHED BEFORE IMPOSING PENALTY U PON AN ASSESSEE. MERELY BECAUSE CERTAIN ALTERNATIVE ADDITIONS HAVE B EEN MADE IN AN ASSESSMENT ORDER, IT DOES NOT MEAN THAT PENALTY WOU LD AUTOMATICALLY BECOME LEVIABLE IN RELATION TO SUCH INCOME. 6. THE A.R OF THE ASSESSEE RELIED ON THE SUBMISSIONS MADE BEFORE THE CIT(A) AND ALSO THE ORDER OF THE CIT(A). THE A.R OF THE ASSESSEE REFERRED TO PAGE NO.5 OF THE PAPER BOOK CO NTAINING THE DETAILS OF FIXED ASSETS AND SUBMITTED THAT THE ENTI RE RECEIPT OF ` 206.76 LAKHS WAS CREDITED IN THE MOTOR BUSES USED ON HIRE ACCOUNT. FURTHER FROM PAGE 6 OF THE PAPER BOOK, HE POINTED OUT THAT IN THE NOTES TO ACCOUNT, THE ASSESSEE HAD STATED THAT THE WDV OF T HE BUS CHASSIS AS ON 31.3.2003 AMOUNTING TO ` 206.76 LAKHS HAS BEEN COVERED DURING THE YEAR 2003-04 FROM THE LESSEES AS ONE TIME SETTL EMENT. NO DEPRECIATION IS PROVIDED IN THE CURRENT YEAR. FURT HER, FROM PAGE 7 OF THE PAPER BOOK WHICH IS STATEMENT OF COMPUTATION OF TAXABLE INCOME FOR ASSESSMENT YEAR 2004-05, THE A.R POINTED OUT TH AT AT POINT NO.2 I.T.A.NO.1355/10 :- 6 -: THE ASSESSEE HAS STATED SHORT TERM CAPITAL GAIN I N RESPECT OF DEPRECIABLE ASSETS U/S 32(1)(II) OF 483 CHASSIS L EASED OUT BUS CHASSIS, SALE PROCEEDS ` 2,06,76,289, LESS WDV AS ON 1.4.2003 ` 1,14,37,536/- AND SHORT TERM CAPITAL GAIN U/S 50, ` 92,38,753/-. THUS, IT WAS HIS SUBMISSION THAT THE ENTIRE AMOUNT OF ` 206.76 LAKHS WAS SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET AND IN THE COMPUTATION OF INCOME FILED BY IT. THEREFORE, IT I S WRONG ON THE PART OF THE ASSESSING OFFICER TO ALLEGE THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS OF INCOME. HE POINTED OUT THAT IT IS F ROM THE BALANCE SHEET OF THE ASSESSEE AND COMPUTATION OF INCOME FILED BY THE ASSESSEE, THE ASSESSING OFFICER CAME TO KNOW ABOUT THE TRANSACTIO N OF LEASED ASSETS AND RECEIPT OF ` 206.76 LAKHS. HE SUBMITTED THAT SINCE THE ASSES SEE COULD NOT SUBSTANTIATE WITH EVIDENCE ABOUT THE SALE OF THE CHASSIS TO THE STATE TRANSPORT UNDERTAKINGS, THE ASSESSEE AGR EED FOR THE RECEIPT TO BE TAXED AS ITS BUSINESS INCOME. IT IS ALSO AN ADMITTED FACT BY THE ASSESSING OFFICER THAT THE LEASE PERIOD OF 60 MONTH S OF THE CHASSIS EXPIRED AND AFTER THAT THESE ASSETS WERE RETAINED B Y THE LESSEES AND THEREFORE, THE RECEIPT OF ` 206.76 LAKHS WAS RECEIPT AFTER THE LEASE PERIOD AND TOWARDS THE SALE CONSIDERATION OF THE CH ASSIS. NO MATERIAL HAS BEEN BROUGHT BY THE REVENUE ON RECORD THAT THE CHASSIS WERE ULTIMATELY RECEIVED BACK BY THE ASSESSEE AFTER THE LEASE PERIOD AND I.T.A.NO.1355/10 :- 7 -: THEREFORE, THE AMOUNT OF ` 206.76 LAKHS WAS TOWARDS LEASE RENTALS. SINCE THE CHASSIS WERE RETAINED PERMANENTLY BY THE LESSEES, THAT WAS REMOVED FROM THE BALANCE SHEET OF THE ASSESSEE AN D SINCE IT WAS DEPRECIABLE ASSET, THE ASSESSEE RIGHTLY COMPUTED T AX UNDER SHORT TERM CAPITAL GAIN U/S 50 OF THE ACT. 7. THE A.R RELIED ON THE DECISION OF THE HON'BLE S UPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD, [2010] 322 ITR 158(SC) WHEREIN IT WAS HELD THAT A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMO UNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. HE ALSO RELIED ON THE DECISION OF P&H HIGH COURT IN THE CAS E OF CIT VS SHAHABAD CO-OP. SUGAR MILLS LTD, [2010] 322 ITR 73 (P&H) WHEREIN IT WAS HELD THAT MAKING A WRONG CLAIM FOR DEDUCTION IS NOT AT PAR WITH CONCEALMENT OF GIVING INACCURATE INFORMATION WHICH MAY CALL FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT . HE FURTHER RE LIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS AURIC INVESTMENT AND SECURITIES LTD, [2009] 310 ITR 121, WHEREIN IT WAS HELD THAT THE MERE TREATMENT OF BUSINESS LOSS AS SPECULATION LOSS BY THE ASSESSING OFFICER DID NOT AUTOMATICALLY WARRANT THE INFERENCE OF CONCEALMENT OF INCOME. THE CANCELLATION OF PENALTY WAS VALID. I.T.A.NO.1355/10 :- 8 -: 8. ON THE OTHER HAND, THE DR SUPPORTED THE ORDER OF TH E ASSESSING OFFICER AND SUBMITTED THAT IT WAS ONLY WH EN THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE EVIDENCE FOR SALE OF ASSETS, THE ASSESSEE WITHDREW ITS CLAIM OF SALE OF CHASSIS AND THE CONSEQUENT SHORT TERM CAPITAL GAIN AND INSTEAD AGREED TO BE AS SESSED ON TOTAL RECEIPTS OF ` 206.76 LAKHS AS INCOME FROM BUSINESS AND SIMULTANE OUSLY ALSO MADE A CLAIM FOR DEPRECIATION ON THE SAID CHAS SIS AS PER THE INCOME-TAX ACT, 1961. HE SUBMITTED THAT THE ASSESS ING OFFICER HAS RIGHTLY HELD THAT THERE WAS NO SALE BETWEEN THE LES SOR AND THE LESSEE AND THAT THE ASSESSEE HAD FAILED TO FURNISH FULL A ND ACCURATE PARTICULARS IN ITS RETURN OF INCOME AND BY TREATING THE RECEIPTS DURING THE YEAR FROM THE LEASE AS SHORT TERM CAPITAL GAIN INSTEAD OF BUSINESS INCOME THE ASSESSEE HAD SOUGHT TO REDUCE THE INCID ENCE OF TAXATION. 9. THE DR RELIED ON THE DECISION OF THE HON'BLE MADR AS HIGH COURT IN THE CASE OF H.V. VENUGOPAL CHETTIAR VS CIT , [1985] 153 ITR 376 AND SUBMITTED THAT THE HON'BLE HIGH COURT HAS H ELD THAT MERELY BECAUSE PENALTY PROCEEDINGS ARE INDEPENDENT OF ASSE SSMENT PROCEEDINGS, IT CANNOT BE SAID THAT THE ASSESSING A UTHORITY SHOULD IGNORE ALL THE MATERIALS COLLECTED AT THE ASSESSMEN T STAGE INCLUDING THE ADMISSION MADE BY THE ASSESSEE. THE TRIBUNAL WAS ACCORDINGLY JUSTIFIED IN CONFIRMING THE LEVY OF PENALTY. I.T.A.NO.1355/10 :- 9 -: 10. THE DR ALSO RELIED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF RAVI & CO. VS ACIT, [2004 ] 271 ITR 286 WHERE IT WAS HELD THAT THE TRIBUNAL FOUND THAT THE REVISED RETURNS HAD NOT BEEN FILED VOLUNTARILY IN A BONAFIDE MANNER, B UT WITH A VIEW TO ESCAPE FROM THE CONSEQUENCES OF NOT FILING A PROPER RETURN. IN REPLY TO NOTICE U/S 271(1)(C) OF THE ACT, THE ASSESSEE DID NOT OFFER ANY CREDIBLE EXPLANATION INDICATING THE REASONS FOR WH ICH THE AMOUNT HAD NOT BEEN DISCLOSED IN THE ORIGINAL RETURN. THE TRI BUNAL WAS RIGHT IN UPHOLDING HT PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF HIRE PURCHASE FINANCING AND TERM LENDING TO VARI OUS STATE OWNED TRANSPORT CORPORATIONS IN TAMIL NADU. THE ASSESSE E HAD LEASED OUT 483 CHASSIS TO 5 STATE TRANSPORT UNDERTAKING DURING THE FINANCIAL YEAR 1997-98 FOR A PERIOD OF 60 MONTHS AND AFTER THE EXP IRY OF THE PERIOD OF LEASE, THE CHASSIS CONTINUED TO BE WITH THE LESSEES AND THE LESSEES HAD NOT ENTERED INTO ANY FURTHER LEASE AGREEMENT WITH T HE ASSESSEE. AFTER NEGOTIATING WITH THE LESSEES, THE ASSESSEE ULTIMAT ELY RECOVERED A SUM OF ` 206.76 LAKHS WHICH WAS TREATED BY THE ASSESSEE AS A CONSIDERATION FOR SALE OF CHASSIS AND ACCORDINGLY A SUM OF ` I.T.A.NO.1355/10 :- 10 -: 92,38,753/- WAS OFFERED IN THE RETURN OF INCOME AS SHORT TERM CAPITAL GAINS U/S 50 OF THE ACT. THE ASSESSING OFFICER RE QUIRED THE ASSESSEE TO PRODUCE EVIDENCE FOR SALE OF CHASSIS TO THE LESS EES. SINCE THE ASSESSEE COULD NOT PROVIDE THIS EVIDENCE IT AGREED TO TREAT THE TOTAL RECEIPT OF ` 206.76 LAKHS AS ITS BUSINESS INCOME AND TO ALLOW CONSEQUENTIAL DEPRECIATION ON IT. ACCORDINGLY, THE ASSESSING OFFICER ASSESSED THE SUM OF ` 206.76 LAKHS AS BUSINESS INCOME OF THE ASSESSEE AND ALLOWED DEPRECIATION OF ` 45,75,014/- ON THE SAID ASSETS. THEREAFTER THE ASSESSING OFFICER LEVIED PENALTY U /S 271(1)(C) OF THE ACT ON THE ASSESSEE FOR FURNISHING INACCURATE PART ICULARS OF ITS INCOME AND LEVIED MINIMUM PENALTY OF ` 62,46,620/- BEING 100% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE. 12. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, DELETED THE LEVY OF PENALTY BY OBSERVING AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE SUBMISSIONS MADE BY THE ID. AR. I HAVE ALSO GONE TH ROUGH THE DECISIONS RELIED ON BY THE AO AND THE APPELLANT. TH E AO HAS LEVIED THE PENALTY ON THE GROUND THAT THERE WAS NO SALE BETWEEN THE LESSOR (APPELLANT) AND THE LESSEE AND B Y TREATING THE RECEIPT FROM THE LEASE AS SHORT-TERM CAPITAL GA IN INSTEAD OF BUSINESS INCOME, THE APPELLANT HAS SOUGHT TO REDUCE THE INCIDENCE OF TAXATION. THE AO CONCLUDED THAT THE AP PELLANT HAD FAILED TO FURNISH FULL AND ACCURATE PARTICULARS IN ITS RETURN OF INCOME. ON THE OTHER HAND, THE ID. AR ARGUED THAT T HE APPELLANT IS A STATE GOVERNMENT UNDERTAKING AND ITS ACCOUNTS WERE AUDITED WHICH HAS BEEN ACCEPTED BY THE C&AG. T HE I.T.A.NO.1355/10 :- 11 -: AMOUNT REALIZED FROM THE STUS WAS TOWARDS THE WDV O F THE ASSETS REMAINING OUTSTANDING IN THE BOOKS OF THE AP PELLANT AND NOT THE LEASE AMOUNT RECEIVABLE FROM THE LESSEE ,S. HAD IT BEEN SO, IT WOULD HAVE BEEN CLASSIFIED UNDER THE CU RRENT ASSETS AND NOT UNDER THE FIXED ASSETS. ACCORDINGLY, THE WDV WAS ALSO SHOWN AT NIL AND NO DEPRECIATION WAS CLAIM ED. THE PROPOSAL OF THE AO TO ASSESS LEASE RENTAL OF RS.208 LACS AS BUSINESS INCOME WAS ACCEPTED BECAUSE THE APPELLANT WAS NOT ABLE TO PROCURE CONFIRMATIONS FROM THE LESSEE STUS AS THEY WERE AMALGAMATED. HE FURTHER ARGUED THAT THE AGREED ADDITION WOULD NOT HAVE MATERIAL TAX IMPACT AS APPELLANT WOU LD HAVE CLAIMED DEPRECIATION OVER A FURTHER PERIOD OF TIME. 4.1 L E T U S N O W DI SC U SS TH E S CO P E O F SEC T IO N 2 71 ( 1) OF TH E A C T . P E N A LT Y I S LEV I ED OVER A N D ABO V E ANY T AX OR I NT E R ES T PA YAB L E B Y TH E A P PEL L A NT . I T I S THUS DI S TI NC T A ND S EPA RAT E FR OM TH E T AX P AYA BL E . P E NALTY P ROC E ED INGS A RE ALS O DI S TIN C T A N D SEPAR AT E F ROM A SS E SS M E NT PR OC EEDINGS [ C IT V . DH A R A M C H A ND L . S H A H , 204 IT R 4 62 ( B O M ), KANBAY SO FTWARE IN D I A P VT . LT D . ( 2009 ) 31 SO T 153 ( P UNE) ] . IT I S W E LL S E TTL ED T H AT TH E P ROV I S I O NS D EA LIN G WITH PENA L TY S H O UL D BE S TRI C TLY CON STRU E D . IT I S T O B E CO N S T R U E D W ITHIN TH E TERM S AN D LANGU A G E O F TH E PA RTI C UL AR SEC TI O N (S). FI ND IN GS IN T H E AS S ES SM E NT PR O CEEDING S F O R DETERM I NING O R COM PUTING TA X CA NN O T BE SA I D T O BE CO N CL U SI V E F OR THE PURP OS E OF L E VY O F PENALTY. PENALTY U /S . 27L(1)(C ) I S L E VI E D @ 100 P ER CE NT TO 300 PER C ENT OF T AX S O UGH T T O BE EVADED FOR C O N C EALM E NT OF P A RTI C UL A R S OF I N C OM E O R FURNI S HIN G INA CC UR A T E PARTI C U L AR S TH E R EOF . S EC. 2 71( 1 )(C) NE E DS T O B E R EAD AL O N G WI TH T H E E XP L A N A TI O N S PR O VI DE D TH E R E IN. E XP LANA TION - 1 S TIPULATE S TH A T W HERE IN RE S PE CT O F A NY FACTS MAT E RIAL T O TH E C OM P UTATION O F TH E TOTAL IN C OM E OF A NY P E R S ON : S U C H P E RSON FAILS TO OFF E R AN EX PL A N A T IO N O R O FF E RS AN EX PLAN A TI O N WH IC H IS FO UN D BY TH E A O / C IT ( A ) / C IT T O B E FA L SE OR SUC H PE RS O N O F FE R S A N EX P LA N A TI ON W HI C H H E I S N O T A BL E T O S U BS T ANTIA T E AND FAI L S T O PRO V E T H A T S U C H E XP L A N A TI O N I S B O N A F IDE A N D T H A T A LL THE F ACTS RE L AT I NG TO T H E SAME AND MA T ERIA L T O COMP UT A TI O N OF H IS T O T AL I NCO M E H A V E BEE N DISCLO S ED BY H IM TH E N , I.T.A.NO.1355/10 :- 12 -: IN T H AT CASE T H E A M OU N T AD D ED O R DISA LL OWED I S DEE M ED T O RE PR ESE NT TH E INCOME IN RES P E CT O F WHI C H TH E P A RT ICU L A R S H A V E BEE N C ON CEALED. 4.2 IT WOULD BE RELEVANT TO EXAMINE THE FACTS OF THE CA SE AGAINST THE ABOVE STATUTORY BACKGROUND. HERE THE ON LY ISSUE THAT ARISES FOR CONSIDERATION IS WHETHER THE CONSID ERATION RECEIVED FROM THE LESSEES SHOULD BE ASSESSED TO CAP ITAL GAINS OR BUSINESS INCOME AND WHETHER THIS WOULD AMOUNT TO CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME FOR LEVYING PENALTY U/S.271(1)(C). WHAT THE APPELLA NT HAS DONE AFTER THE END OF THE LEASE PERIOD IS AS FOLLOWS: A SUM OF RS.206.76 WAS OUTSTANDING IN THE BOOKS OF ACCOUNT O F THE APPELLANT AS WDV OF LEASED ASSETS WHICH WAS RECOVER ED FROM THE LESSEES AND THE SAME WAS ADJUSTED AGAINST THE A SSET AND NOT SHOWN AS INCOME. NO DEPRECIATION WAS CLAIMED ON THIS AMOUNT BY THE APPELLANT. THIS WAS TREATED AS SALE O F ASSET AND CAPITAL GAINS TAX WAS PAID U/S.50 OF THE ACT. I T WAS ONLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHEN TH E AO INSISTED UPON PRODUCTION OF THE DOCUMENT TRANSFERRI NG THE ASSET FROM THE APPELLANT TO THE BUYERS THAT THE APP ELLANT AGREED TO OFFER THE AMOUNT AS BUSINESS INCOME AS IT WAS NOT ABLE TO PROCURE CONFIRMATIONS FROM THE LESSEES STUS AS THEY HAVE SINCE BEEN AMALGAMATED. FURTHER, TREATING THE AMOUNT AS LEASE WOULD NOT MATERIALLY AFFECT THE TAX LIABIL ITY AS THE APPELLANT WOULD THEN BE ABLE TO CLAIM THE DEPRECIAT ION ON THE WDV OVER A LONGER PERIOD. THE APPELLANT BEING A GOV ERNMENT UNDERTAKING, ITS ACCOUNTS ARE SUBJECT TO C & AG AUDIT. THE AO HAS NOT BEEN ABLE TO BRING ON RECORD THAT THE LEASE FOR THE VEHICLES CONTINUED AND THE ENTIRE AMOUNT OF RS.208 LAKHS WAS THE LEASE RENT PAYABLE BY THE LESSEES FOR THE YEAR IN APPEAL. THE APPELLANT'S EXPLANATION, ON THE OTHER HAND, IS BORNE OUT BY THEIR ACCOUNTS WHERE ASSETS WERE REMOVED FROM THE F IXED ASSETS, THE AMOUNT WAS SHOWN AS PROFIT ON SALE OF A SSETS IN THE BOOKS AND THE ENTIRE SALE CONSIDERATION WAS CRE DITED TO THE BLOCK OF ASSETS AS PER SECTION 50 OF THE ACT. T HE ACCOUNTS OF THE APPELLANT, A GOVERNMENT CONCERN, HAS BEEN AU DITED AND FOUND CORRECT BY THE C & AG. 4.3 LET US NOW EXAMINE THE ABOVE FACTS IN THE LIGHT OF THE RECENT DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD (SUPRA). THE HON'BL E COURT HAS CONSIDERED THE NATURE OF DEFAULT WHICH WOULD CO NSTITUTE CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS, IN THE CONTEXT OF THE PROVI SIONS OF SECTION 271(1)(C) OF THE ACT. AFTER ANALYZING ITS O WN DECISIONS IN THE CASES OF DILIP N. SHROFF V. JCIT (291 ITR 51 9), UNION OF I.T.A.NO.1355/10 :- 13 -: INDIA V. DHARMENDRA TEXTILES (306 ITR 277), UNION O F INDIA V. RAJASTHAN SPINNING AND WEAVING MILLS (224 CTR 1) AN D CIT V. ATUL MOHAN JINDAL (317 ITR I), THE HON'BLE COURT, BY WAY OF SETTING THE RECORDS STRAIGHT, HAS NOTED THAT- 'THE BASIC REASON WHY DECISION IN DILIP N . SHROFF V. JOINT CIT WAS OVERRULED BY THIS COURT IN UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS, WAS THAT ACCORDING TO THIS COURT THE EFFECT AND DIFFERENCE BETWEEN SECTION 271(L)(C) AND SECTION 276C OF THE ACT WAS LOST SIGHT ON IN THE CASE OF DILIP N . SHROFF V. JOINT CIT. HOWEVER, IT MUST BE POINTED OUT THAT IN UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS, NO FAULT WAS FOUND WITH THE REASONING IN THE DECISION IN DILIP N . SHROFF V . JOINT CIT, WHERE THE COURT EXPLAINED THE MEANING OF THE TERMS 'CONCEAL' AND 'INACCURATE' . IT WAS ONLY THE ULTIMATE INFERENCE IN DILIP N . SHROFF V . JOINT CIT TO THE EFFECT THAT MENS REA WAS AN ESSENTIAL INGREDIENT FOR THE PENALTY U/S 271(1)(C) THAT THE DECISION IN DILIP N . SHROFF V. JOINT CIT WAS OVERRULED. AS REGARDS THE CONTENTION PUT FORWARD BY THE REVENU E , IN THE RELIANCE PETROPRODUCTS (SUPRA) THAT ' SINCE THE APPELLANT HAD CLAIMED EXCESSIVE DEDUCTION KNOWING THAT THEY ARE I NCORRECT; IT AMOUNTED TO CONCEALMENT OF INCOME', THE APEX COURT CONSIDERED THAT THE ABOVE BY I TSELF TO BE INSUFFICIENT , TO INVITE PENAL CONSEQUENCES , IN THE FOLLOWING WORDS: 'A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES , WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART . IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NO T . MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE , THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY U/S 271(1) (C) . IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY THE ASSESSING OFFICER FOR ANY TEESON , THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271 (1)( C) . THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. ' I.T.A.NO.1355/10 :- 14 -: 4.4 IN VIEW OF THE ABOVE FACTUAL POSITION AND AUTHORITA TIVE PRECEDENT AND SINCE THE PENALTY PROCEEDINGS ARE IND EPENDENT FROM ASSESSMENT PROCEEDINGS, THE DEFAULT OF AN APPE LLANT WARRANTING IMPOSITION OF PENALTY U / S 271(1)(C) NEEDS TO BE SEPARATELY AND INDEPENDENTLY ESTABLISHED BEFORE IMP OSING PENALTY UPON AN APPELLANT . MERELY BECAUSE CERTAIN ALTERNATIVE ADDITIONS HAVE BEEN MADE IN THE ASSESSMENT ORDER, I T DOES NOT MEAN THAT PENALTY WOULD AUTOMATICALLY BECOME LEVIAB LE IN RELATION TO SUCH INCOME. EVEN THE DECISION OF THE S UPREME COURT IN THE CASE OF UNION OF INDIA V. DHARMENDRA TEXTILE S 306 ITR 277 (SC), CANNOT BE READ TO CONSTRUE THAT PENALTY IS AUTOMATICAL LY LE VIA B L E , A S HAS BEE N S UB SE QU EN T L Y EXPLAINED BY T H E S U P R EME COU R T IN THE CASES OF UNION OF INDIA V . RAJAS TH AN S P INNING AND WEAVING M ILL S 2 2 4 C T R 1 ( S C) AND RELIANCE PETROPRODUCT S LTD (SUPRA). RECENTLY, T HE PUNJAB & HARYANA HIGH COURT I N THE CASE OF CIT V. SIDHAR T HA ENTERPRISES [ 322 ITR 80 (P&H)] H AS HELD THAT CLAIM OF WRONG SET OF F O F CAP I TAL LOSS AGAINST BUSI N ESS INCOME WO U LD NOT AT T RACT L E V Y OF PE N ALT Y . S IMIL A RLY , I N TH E CA S E O F C IT V . S HAH A B AD CO - OPE R A T I V E S U GA R MILL S LT D . [322 ITR 7 3 (P & H)], IT H E L D T H A T W RONG C L AI M O F DE D UC TI O N DOES NO T AMO UNT T O CO N C E A LM E NT O F INCOME. IN VIEW OF THE A B OVE FACTUAL PO S ITION AND JUDICIAL A U T H ORITIES, I A M OF THE CONSIDERED OPINION THAT THE CASE OF THE APPELLANT DOES NOT MERIT LEVY OF PENALT Y U/S 271(1)(C). T HE A O IS ACCORDINGLY DIRECTED TO DELE T E T H E S AME . THIS GROUND IS ACCORDINGLY ALLOWED. 13. WE FIND THAT IN THE INSTANT CASE, THE CONTENTION OF THE REVENUE IS THAT AS THE ASSESSEE ADMITTED DURING TH E COURSE OF ASSESSMENT HEARING, TO PAY TAX ON ` 206.76 LAKHS BY TREATING IT AS BUSINESS INCOME, THE ASSESSEE IS LIABLE FOR PENA LTY U/S 271(1)(C) OF THE ACT. ON THE OTHER HAND, THE CONTENTION OF TH E ASSESSEE IS THAT IT IS A STATE GOVERNMENT UNDERTAKING WHOLLY OWNED BY T HE STATE GOVERNMENT AND THE ASSESSEE AGREED TO PAY TAX ONLY BECAUSE OF ITS INABILITY TO PRODUCE EVIDENCE IN SUPPORT OF ITS CLA IM MADE IN THE RETURN OF INCOME TO THE EFFECT THAT RECEIPT OF ` 206.76 LAKHS WAS ON ACCOUNT I.T.A.NO.1355/10 :- 15 -: OF ONE TIME SETTLEMENT OF CHASSIS WHICH REMAINED WI TH THE LESSEES AFTER THE EXPIRY OF THE LEASE PERIOD AND THE LESSEE S WERE ALSO STATE GOVERNMENT UNDERTAKINGS. BEFORE US, THE DR COULD N OT FILE ANY MATERIAL TO SHOW THAT DURING THE COURSE OF ASSESSME NT HEARING THE ASSESSEE ADMITTED THAT ` 206.76 LAKHS WAS ITS BUSINESS INCOME LIABLE TO BE ASSESSED AS BUSINESS INCOME. THE DR ALSO COU LD NOT PRODUCE BEFORE US ANY MATERIAL WHICH WAS GATHERED BY THE AS SESSING OFFICER EITHER DURING THE ASSESSMENT PROCEEDINGS OR DURING PENALTY PROCEEDINGS TO SHOW THAT ` 206.76 LAKHS WAS, IN FACT, REALIZATION OF LEASE RENT BY THE ASSESSEE AND THE ASSESSEE CONTI NUED TO REMAIN THE OWNER OF CHASSIS IN QUESTION. IT IS NOT THE CASE O F THE REVENUE THAT IT HAS, AFTER VERIFICATION WITH LESSEES, FOUND ANY MAT ERIAL TO SHOW THAT ` 206.76 LAKHS WAS NOT ON ACCOUNT OF ONE TIME SETTLEM ENT FOR CHASSIS, BUT WAS ON ACCOUNT OF LEASE RENT. IN ABSENCE OF AN Y SUCH MATERIAL, WE FIND THAT NO POSITIVE MATERIAL WAS BROUGHT ON RECOR D BY THE REVENUE TO SHOW THAT ` 206.76 LAKHS REPRESENTS CONCEALED INCOME OF THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES, WE DO NOT FI ND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). IT IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. I.T.A.NO.1355/10 :- 16 -: 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON TUESDAY, THE 12 TH OF FEBRUARY, 2013, AT CHENNAI. SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 12 TH FEBRUARY, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR