ACIT, CHENNAI V. M/s. Harvey Heart Hospitals Ltd., CHENNAI

ITA 1397/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64508 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 08-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB IRS
• Assessee Lawyers: C V RAJAN
• Keywords: Wrong claim
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO.1397(MDS)/2012 ASSESSMENT YEAR : 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE.I(2), CHENNAI. VS. M/S.HARVEY HEART HOSPITALS LTD., NEW NO.542, OLD NO.143, TTK RD., ALWARPET, CHENNAI-600 018. PAN AAACH2237D. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P JACOB, IRS, ADDL. CIT RESPONDENT BY : SHRI C.V.RAJAN, ADVOCATE DATE OF HEARING : 8 TH NOVEMBER, 2012 DATE OF PRONOUNCEMENT :15 TH NOVEMBER, 2012 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 OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I AT CHENNAI, - - ITA 1397 OF 2012 2 DATED 2-4-2012. THE APPEAL ARISES OUT OF THE PENAL TY ORDER PASSED UNDER SECTION 271(1)(C) OF THE INCOME-TAX AC T, 1961. 2. A SEARCH UNDER SECTION 132 WAS CONDUCTED IN THE PREMISES OF M/S. HARVEY HEART HOSPITALS LTD. AND DR . M.P. NARESH KUMAR ON 14-12-2005. M/S.HARVEY HEART HOSPI TALS LTD. IS THE ASSESSEE BEFORE US. 3. THE ASSESSEE M/S.HARVEY HEART HOSPITALS LTD. WA S INCORPORATED IN 1996. DR. M.P.NARESH KUMAR, A RENO WNED CARDIAC SURGEON, IS THE MANAGING DIRECTOR OF THE CO MPANY. HE WAS ALSO ONE OF THE PROMOTERS OF THE COMPANY. THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY I N THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS IS BECAUSE THE ASSESSEE COMPANY HAS SOLD ALL I TS FIXED ASSETS TO M/S.HARVEY HEALTH CARE LIMITED. 4. IN THE RETURN FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07, NO INCOME WAS DISCLOSED IN THE ACCOUNTS OF THE ASSESSEE. AT THE SAME TIME THE ASS ESSEE COMPANY HAS CLAIMED AN EXPENDITURE OF ` 32,99,650/-. THIS EXPENDITURE COMPRISED OF ` 91,760/- AS SALARY, WAGES AND BONUS; ` 28,31,520/- AS INTEREST; ` 1,75,220/- AS TRAVELLING - - ITA 1397 OF 2012 3 EXPENSES, INCLUDING FOREIGN TRAVEL, AND ` 2,01,150/- AS OTHER MISCELLANEOUS EXPENDITURE. THE ASSESSING OFFICER A SKED THE ASSESSEE TO ESTABLISH THE NEED FOR INCURRING SUCH E XPENDITURE WHEN THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS D URING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. 5. IN REPLY TO THE QUERIES RAISED BY THE ASSESSING OFFICER, THE ASSESSEE COMPANY REPLIED THAT THE EXPE NSES WERE INCURRED FOR RESEARCH AND DEVELOPMENT ACTIVITIES. BUT NO DETAILS OR EVIDENCES WERE FURNISHED BEFORE THE ASSESSING OF FICER. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE C LAIM OF EXPENDITURE OF ` 32,99,650/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE COMPANY. THIS ADDITION WAS CONFIRM ED BY THE COMMISSIONER OF INCOME-TAX(APPEALS) AS WELL AS THE APPELLATE TRIBUNAL. THE INCOME-TAX APPELLATE TRIBUNAL, CHENN AI, IN THEIR ORDER DATED 26-2-2010, PASSED IN ITA NO. 1843(MDS)/ 2008, CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R ON THE GROUND THAT THE ASSESSEE HAS NOT PRODUCED ANY SORT OF EVIDENCE TO SUPPORT ITS CLAIM OF EXPENDITURE, BEFORE ANY OF THE AUTHORITIES, INCLUDING THE TRIBUNAL. THE TRIBUNAL HAS ALSO MADE A SPECIFIC FINDING THAT IN THE ABSENCE OF ANY MATERIAL AND EVI DENCE IT CANNOT - - ITA 1397 OF 2012 4 BE ACCEPTED THAT THE ASSESSEE COMPANY HAS CONDUCTED RESEARCH AND DEVELOPMENT. 6. IN THE LIGHT OF THE ABOVE ADDITION, THE ASSESSI NG OFFICER INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). AFTER HEARING THE ASSESSEE, THE ASSESSING OFFICER F OUND THAT IT IS A FIT CASE FOR LEVYING PENALTY UNDER SECTION 271(1) (C) FOR CONCEALMENT OF INCOME AND ALSO FOR FILING INACCURAT E PARTICULARS IN CLAIMING EXPENDITURE TO THE EXTENT OF ` 32,99,650/-. THE ASSESSING OFFICER LEVIED A PENALTY OF ` 11,10,662/- UNDER SECTION 271(1)(C) OF THE ACT. 7. THE PENALTY WAS TAKEN IN FIRST APPEAL BEFORE TH E COMMISSIONER OF INCOME-TAX(APPEALS)-I AT CHENNAI. THE COMMISSIONER OF INCOME-TAX(APPEALS) OBSERVED THAT T HE FOUNDATION FOR LEVY OF PENALTY IN THE PRESENT CASE IS THAT NO EVIDENCES WERE PRODUCED FOR THE CLAIM AT ANY STAGE. HE FURTHER OBSERVED THAT THE ASSESSEE HAD ALREADY INCURRED LOS SES AND ONLY THE IMPUGNED DISALLOWANCE MADE BY THE ASSESSING AUT HORITY HAS BROUGHT IN POSITIVE INCOME IN THIS FILE AND, THEREF ORE, AS SUCH THERE IS NO MOTIVE FOR FURNISHING FALSE PARTICULARS . HE FOUND THAT THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE WAS N OT - - ITA 1397 OF 2012 5 ACCEPTED FOR WANT OF EVIDENCE ALONE AND THEREFORE, IT IS NOT A FIT CASE FOR LEVY OF PENALTY. ACCORDINGLY, THE COMMISS IONER OF INCOME-TAX(APPEALS) DELETED THE PENALTY LEVIED BY T HE ASSESSING OFFICER. 8. IT IS AGAINST THE ABOVE THAT THE REVENUE HAS CO ME IN APPEAL BEFORE US. 9. THE GROUNDS RAISED BY THE REVENUE IN THE PRESEN T APPEAL ARE EXTRACTED BELOW:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN DELETING THE PENALTY LEVIED U/S 271(10(C) AMOUNTING TO ` 11,10,662. 2. THE LEARNED CIT(A) HAS FAILED TO NOTE THAT THE ADDITION WAS UPHELD BY THE ITAT AND THAT THE ADDITION WAS BECAUSE OF ASSESSEES FAILURE TO PROVE THE EXPENSES. 3. THE LEARNED CIT(A) HAS FAILED TO NOTE THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF - - ITA 1397 OF 2012 6 INCOME RELATING TO CLAIM REGARDING THE EXPENSES AND THAT THE SAME WAS NOT SUBSTANTIATED BY IT. 10. WE HEARD SHRI SHAJI P JACOB, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E AND SHRI C.V.RAJAN, THE LEARNED COUNSEL APPEARING FOR T HE RESPONDENT-ASSESSEE. 11. THERE IS NO DISPUTE REGARDING THE FACT THAT TH E ASSESSEE HAD NOT CARRIED ON ANY BUSINESS IN THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS IS BECAUSE ALL THE ASSETS OF THE ASSESSEE COMPANY WERE SOLD TO M/S. HARVEY HEALTH CARE LTD. OBVIOUSLY, THE ASSESSEE COMPANY D ID NOT SHOW ANY INCOME FOR THE ASSESSMENT YEAR UNDER APPEA L. 12. AT THE SAME TIME, THE ASSESSEE COMPANY HAS CLAIMED AN EXPENDITURE OF ` 32,99,650/- UNDER VARIOUS HEADS LIKE SALARY, WAGES AND BONUS, INTEREST AND TRAVELLING EX PENSES, ETC. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE COMPANY COULD NOT PRODUCE ANY SORT OF EVIDENCE BEFORE ANY OF THE AUTH ORITIES TO PROVE AND SUPPORT THE INCIDENCE OF EXPENDITURE IN T HE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS FACTUM - - ITA 1397 OF 2012 7 HAS BEEN HIGHLIGHTED BY THE TRIBUNAL IN THEIR ORDER DATED 26-2-2010, IN WHICH THE TRIBUNAL HAS CONFIRMED THE QUANTUM ADDITION OF ` 32,99,650/-. 13. IT IS WORTHWHILE TO NOTE THAT THE TRIBUNAL HAS FURTHER HELD THAT IN THE ABSENCE OF ANY MATERIAL AND EVIDEN CE IT CANNOT BE ACCEPTED THAT THE ASSESSEE COMPANY HAS CONDUCTED RESEARCH AND DEVELOPMENT. THIS IS A CRUCIAL FINDIN G BY THE TRIBUNAL AGAINST THE ASSESSEE IN THE COURSE OF DISP OSING OF THE QUANTUM APPEAL. THE TRIBUNAL HAS HELD THAT THERE W AS NO CIRCUMSTANCE PREVAILING TO HOLD A VIEW THAT THE ASS ESSEE HAD CARRIED OUT ANY RESEARCH AND DEVELOPMENT ACTIVITY. WHEN THE ENTIRE BUSINESS OF THE ASSESSEE HAS COME TO A STAND STILL AND ALL THE ASSETS WERE SOLD TO ANOTHER COMPANY, IT IS VERY DIFFICULT TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT INSPITE OF THE ABOVE, IT HAD CARRIED ON RESEARCH AND DEVELOPMENT ACTIVITY. 14. TWO QUESTIONS ARISE OUT OF THE ABOVE SITUATION . THE FIRST QUESTION IS WHETHER THE ASSESSEE COMPANY HAD PRODUCED REASONABLE EVIDENCES TO SUPPORT ITS CLAIM OF INCURR ING EXPENDITURE TO THE EXTENT OF ` 32,99,650/-. THE ANSWER IS A CATEGORICAL NO. THIS POSITION HAS BEEN UPHELD EV EN BY THE - - ITA 1397 OF 2012 8 TRIBUNAL. THE ASSESSEE HAS NOT PRODUCED DETAILS OR ANY EVIDENCE TO SUPPORT ITS CLAIM OF EXPENDITURE TO THE EXTENT OF ` 32,99,650/-. 15. THE SECOND QUESTION IS, IF AT ALL SUCH EXPENSE S WERE INCURRED BY THE ASSESSEE, WAS IT FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE COMPANY? ANY EXPENDIT URE INCURRED BY THE ASSESSEE NOT FOR CARRYING ON ITS BU SINESS, WOULD NOT BE ENTITLED FOR DEDUCTION IN COMPUTING THE TAXA BLE INCOME. THE ASSESSEE HAD ALREADY SOLD OFF ITS ASSETS. IT H AS ALSO DISCONTINUED ITS BUSINESS. IN SUCH CIRCUMSTANCES, IT CANNOT BE BELIEVED THAT EVEN IF THE EXPENSES WERE INCURRED BY THE ASSESSEE COMPANY, THOSE EXPENSES WERE INCURRED FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSES SEE COMPANY. 16. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HE CASE WE COME TO THE CONCLUSION THAT THE CLAIM OF EX PENDITURE MADE BY THE ASSESSEE COMPANY ALMOST AMOUNTS TO A FA LSE CLAIM. THEREFORE IT IS A CLEAR CASE OF CONCEALMENT OF INCOME BY FURNISHING INACCURATE PARTICULARS. FURNISHING OF I NACCURATE PARTICULARS IS HIGHLIGHTED NOT ONLY BY ABSENCE OF E VIDENCE BUT - - ITA 1397 OF 2012 9 ALSO BY THE STOPPAGE OF THE BUSINESS CARRIED ON BY THE ASSESSEE COMPANY. THERE IS NO LOCUS STANDI TO CLAIM SUCH EX PENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. 17. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD., 322 I TR 158, TO HIGHLIGHT THE LEGAL PROPOSITION THAT CLAIMING DEDUC TION PER SE WOULD NOT INVITE PENALTY. BUT, THE PRESENT CASE IS BEYOND THE ABOVE LEGAL PROPOSITION. HERE IT IS NOT A CASE OF MAKING ANY CLAIM OF EXPENDITURE AS SUCH. THE ASSESSEES BUSIN ESS HAS BECOME DEFUNCT. THE ASSESSEE HAS NO LOCUS STANDI T O CLAIM EXPENDITURE FOR THE REASON THAT THE ASSESSEE HAS NO T CARRIED ON ANY BUSINESS IN THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER APPEAL. IN ADDITION TO THAT, EVEN THE C LAIM IS NOT SUPPORTED BY ANY EVIDENCE OR MATERIAL. THEREFORE, IT IS NOT A CASE WHERE THE ASSESSEE SIMPLY CLAIMS SOME EXPENDIT URE. IT IS A CASE WHERE THE ASSESSEE IS NOT SHOWING ANY INCOME , BUT AT THE SAME TIME CLAIMING HUGE EXPENDITURE, THEREBY RE FLECTING LOSS IN ITS PROFIT AND LOSS ACCOUNT. - - ITA 1397 OF 2012 10 18. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS FURTHER CONSIDERED THE PROFESSIONAL ACHIEVEMENTS OF DR. M.P.NARESH KUMAR, THE DIRECTOR OF THE ASSESSEE COMP ANY AND THE NECESSITY OF CONTINUOUS RESEARCH IN THE FIELD O F CARDIOLOGY AND CARDIAC SURGERY. WE HAVE NO DISPUTE WITH THE A BOVE OBSERVATION OF THE COMMISSIONER OF INCOME-TAX(APPEA LS). BUT WHAT WE FIND FROM THE RECORD IS THAT THERE ARE NO D ETAILS REGARDING THE NATURE OF RESEARCH CARRIED OUT BY THE ASSESSEE COMPANY. NOT ONLY IN MEDICINE, IN EVERY FIELD OF S CIENCE AND TECHNOLOGY RESEARCH AND DEVELOPMENT IS AN ONGOING P ROCESS. BUT, THAT GENERAL PLEA ALONE IS NOT SUFFICIENT FOR THE PURPOSE OF INCOME-TAX. AN ASSESSEE HAS TO FURNISH THE DETAILS OF EXPENDITURE AND THE OUTLINE OF RESEARCH AND DEVELOP MENT CARRIED OUT IN THE COURSE OF CARRYING ON OF ITS BUSINESS. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS RELIED MAIN LY ON THE REPUTATION OF DR. M.P.NARESH KUMAR AND HIS WIFE DR. MRINALINI AS LEADING RESEARCHERS IN THEIR PROFESSIONAL FIELD. B UT, HERE ALSO THE COMMISSIONER OF INCOME-TAX(APPEALS) DOES NOT SPEAK ANYTHING ABOUT THE DETAILS FURNISHED BEFORE HIM. - - ITA 1397 OF 2012 11 19. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF T HE CASE, WE FIND THAT A SIMPLE STATEMENT THAT THE COMP ANY HAS CARRIED ON RESEARCH AND DEVELOPMENT IS NOT SUFFICIE NT TO SUPPORT THE CLAIM OF AN EXPENDITURE CONSCIOUSLY MADE IN THE RETURN OF INCOME FILED BY IT. AS ALREADY STATED ABOVE, WE FI ND THAT THIS CLAIM IS ALMOST A FALSE CLAIM. IF THE TWO DOCTORS HAVE CARRIED OUT ANY RESEARCH AND DEVELOPMENT, THE ASSESSEE SHOULD H AVE ESTABLISHED THE NEXUS BETWEEN SUCH RESEARCH AND THE BUSINESS CARRIED ON BY THE ASSESSEE COMPANY. THE MOST CRUCIA L FACTOR IS THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS I N THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. 20. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSING AUTHORITY IS JUSTIFIED IN LEVYIN G PENALTY IN THE PRESENT CASE UNDER SECTION 271(1)(C) OF THE ACT. A CCORDINGLY, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-T AX(APPEALS) AND RESTORE THE PENALTY ORDER PASSED BY THE ASSESSI NG AUTHORITY. 21. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS ALLOWED. - - ITA 1397 OF 2012 12 ORDERS PRONOUNCED ON THURSDAY, THE 15 TH OF NOVEMBER, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR . O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 15 TH NOVEMBER, 2012. V.A.P. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GF.