M/s Siddharth Jewellery, Chandigarh V. ACIT, Chandigarh

ITA 145/CHANDI/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95787 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 06-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D S SANDHU
• Keywords: Depreciation; Bonafide belief; Revenue expenditure; Capital expenditure
• Section: 80HHC; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT ITA NO. 145/CHD/2015 ASSESSMENT YEAR: 2007-08 M/S SIDDHARTH JEWELLERY, VS. THE ACIT, CIRCLE 4(1) , CHANDIGARH CHANDIGARH PAN NO. ABGFS4961H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JASPAL SHARMA RESPONDENT BY : SHRI D.S. SANDHU DATE OF HEARING : 09.11.2015 DATE OF PRONOUNCEMENT : 31.12.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A), CHANDIGARH DATED 11.11.2014 IN SUSTAINING THE PENAL TY OF RS. 1,22,431/- IMPOSED U/S 271(1)(C) OF THE ACT OF THE ASSESSMENT YEAR 2007-08. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER MADE THE FOLLOWING ADDITIONS:- I) SH. PANKAJ GUPTA RS. 60,000/- II) SHRI VINEET GUPTA - RS. 60,000/- III) SHRI HITESH ARORA - RS. 1,20,000/- 2. THE ASSESSING OFFICER INITIATED PENALTY PROCEEDI NGS US/ 271(1)(C) OF THE ACT AND LEVIED PENALTY OF RS. 1,50,000/- AS AGAINST MINIMUM LEVIABLE PENALTY OF 2 RS. 1,22,431/-. ON APPEAL, THE CIT(A) CAME TO THE C ONCLUSION THAT THE ASSESSING OFFICER WAS RIGHT IN LEVYING PENALTY FOR CONCEALMEN T U/S 271(1)(C) OF THE ACT. HOWEVER, THE CIT(A) SUSTAINED PENALTY OF RS. 1,22,4 31/- AS AGAINST RS. 1,50,000/- IMPOSED BY THE ASSESSING OFFICER WAS MOR E THAN THE MINIMUM LEVY OF PENALTY OF RS. 1,22,431/-. 3. NOW THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) BEFORE THIS BENCH OF THE TRIBUNAL. 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT ASSESSEE FIRM HAD STARTED BUSINESS AFTER 31.12.2009. THE SALE BI LLS AS PRODUCED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS DATED 2.1 .2005. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SUBMIT THE DETAILS OF PRE- COMMENCEMENT EXPENSES WHICH WAS CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. IN RESPONSE TO THE ABOVE QUERY, THE ASSESSEE SUBMITTED THE DETAILS AS REQUIRED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER VIDE ORDER SHEET EN TRY DATED 11.12.2009 ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PRE COMMENCEMENT EXPENDITURE OF RS. 3,79,386/- CLAIMED BY IT SHOULD NOT BE DISALLOWED A S IT BELONGS TO THE PRE- COMMENCEMENT PERIOD AND AS TO WHY IT SHOULD NOT BE AMORTISED AS PER SECTION 35D OF THE ACT. THE ASSESSING OFFICER AFTER CONSIDE RING THE ASSESSEES EXPLANATION ALLOWED 1/5 TH EXPENDITURE AMOUNTING TO RS. 75,877/- AS PER SECT ION 35D OF THE ACT. THE ASSESSING OFFICER DISALLOWED TH E BALANCE AMOUNT OF RS. 3,03,509/- AND ADDED THE SAME TO THE TOTAL INCOME O F THE ASSESSEE. THE ASSESSING OFFICER FURTHER HELD THAT THE ASSESSEE HA D CONCEALED THE PARTICULARS OF ITS INCOME AND HAVE FILED INACCURATE PARTICULARS OF INCOME. HE, THEREFORE, INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND LEVIED THE PENALTY ON THE AMOUNT OF RS. 3,03,509/- WHICH WAS ADDED TO THE INCOME OF THE ASSESSEE. 3 THE LD. CIT(A) CONFIRMED THE PENALTY. IT IS OBSERVE D THAT THE ASSESSING OFFICER ALLOWED ONLY RS. 75,877/- AS REVENUE EXPENDITURE BE ING 1/5 TH OF THE TOTAL EXPENSES AND RS. 3,79,386/- INCURRED BY THE ASSESS EE BEFORE 31.12.2006 TREATING THE SAME AS EXPENSES FOR PRE-COMMENCEMENT PERIOD AN D CAPITALIZED BALANCE AMOUNT RS. 3,03,509/- BY INVOKING THE PROVISIONS O F SECTION 35D OF THE ACT. IN THE INSTANT CASE, THE ASSESSEE DISCLOSED ALL NECESS ARY PARTICULARS REGARDING NATURE OF EXPENSES, AUDITED BOOKS OF ACCOUNT WHICH HAVE NO T BEEN PROVED TO BE INCORRECT / ERRONEOUS OR FALSE. IN MY OPINION, MER ELY BECAUSE THE ASSESSEE CLAIMED EXPENSES AS REVENUE WHICH WAS HELD BY THE A SSESSING OFFICER AS CAPITAL, NO PENALTY U/S 271(1)(C) CAN BE LEVIED. WH ILE TAKING SUCH A VIEW, I AM FORTIFIED BY THE DECISION OF THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS. AMTEK AUTO LTD (2013) 352 ITR 394 (P&H) WH EREIN THE HON'BLE HIGH COURT HAS OBSERVED AS UNDER;- 5. THE ASSESSEE HAS DISCLOSED THE NATURE OF TRANS ACTIONS IN ITS RETURN. IT WAS ON THE BASIS OF THE INTERPRETATION OF THE PR OVISIONS OF THE STATUTE, THE ASSESSING OFFICER FOUND THAT SUCH EXPENDITURE C LAIMED BY THE ASSESSEE IS NOT THE REVENUE EXPENDITURE BUT THE CAP ITAL EXPENSES. THERE IS A FINE DISTINCTION AS TO WHEN AN EXPENDITURE CAN BE TREATED AS A REVENUE OR A CAPITAL EXPENDITURE. THEREFORE, MERELY FOR THE REASON THAT THE ASSESSEE HAS CLAIMED THE EXPENDITURE TO BE REVE NUE WILL NOT RENDER THE ASSESSEE LIABLE TO PENALTY PROCEEDINGS. THE ORD ER PASSED BY THE TRIBUNAL DOES NOT GIVE RISE TO THE QUESTIONS OF LAW SOUGHT BY THE REVENUE. 5. RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HON 'BLE HIGH COURT IN THE CASE OF CIT VS. AMTEK AUTO LTD (SUPRA) NO PENALTY U /S 271(1)(C) OF THE ACT CAN BE IMPOSED. I MAY ALSO ADD HERE THAT THE HON'BLE SU PREME COURT IN THE CASE OF CIT V RELIANCE PETROPRODUCTS (P) LTD (2010) 322 ITR 158 (SC) HELD THAT AN INCORRECT CLAIM CANNOT BE TERMED FURNISHING OF INAC CURATE PARTICULARS OF INCOME. THE HON'BLE SUPREME COURT FURTHER HELD THAT MERE MA KING A CLAIM WHICH IS NOT 4 SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FUR NISHING OF INACCURATE PARTICULARS REGARDING INCOME OF THE ASSESSEE. THUS, THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCE OF RS. 3,03,509/- IS NOT SUSTAINABLE. 6. IT IS OBSERVED THAT THE ASSESSEE CLAIMED FULL DE PRECIATION ON ASSETS OF RS. 6,09,266/- WHILE THEY WERE PUT TO USE AFTER 30.9.20 07 AS THE ASSESSEE FIRM STARTED ITS BUSINESS AFTER 31.12.2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESS EE TO EXPLAIN AS TO WHY ONLY 50% DEPRECIATION SHOULD BE ALLOWED ON ASSETS OF RS. 6,09,266/- AS PER THE PROVISIONS OF SECTION 32 OF THE ACT. HOWEVER, THE A SSESSING OFFICER DISALLOWED AN AMOUNT OF RS. 35,220/- BEING EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE. THE ASSESSING OFFICER LEVIED PENALTY US/ 271(1)(C) OF THE ACT. THE PENALTY IMPOSED BY THE ASSESSING OFFICER WAS CONFIRMED BY C IT(A). 7. SHRI JASPAL SHARMA LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEPRECIATION HAS BEEN CALCULATED BY THE FIRM OF CHA RTERED ACCOUNTANTS NAMELY M/S SANJAY LAUL & COMPANY WHICH FACT IS EVENT FROM THE AUDIT IN FORM NO. 3CD ALONG WITH DEPRECIATION CHART AND RETURN HAS BE EN FILED THROUGH CHARTERED ACCOUNTANT. ACCORDING TO LD. COUNSEL FOR THE ASSESS EE, THE FIRM ACTED UPON THE ADVICE OF ITS COUNSEL WHO WAS DEALING WITH THE AUDI T OF BOOKS AND INCOME TAX MATTERS. HE FURTHER POINTED OUT THAT THE YEAR UNDER CONSIDERATION IS THE FIRST YEAR OF THE ASSESSEE BUSINESS. SHRI JASPAL SHARMA, LD. C OUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT V DEEP TOURS (P) LTD (2005) 274 ITR 603 (P&H) WHEREIN THE HON'BLE COURT HAD HELD THAT THERE WAS NOTHING TO SHOW THAT THE MISTAKE BY THE CHARTERED ACCOUNTANT WAS NOT BONAFIDE AND THE MERE FACT THAT THE CERTIFI CATE ISSUED BY THE CHARTERED ACCOUNTANT WAS NOT IN ACCORDANCE WITH SECTION 80HHC (4) OF THE ACT WAS NOT 5 ENOUGH TO HOLD THAT THE MISTAKE WAS NOT BONAFIDE. T HE HON'BLE HIGH COURT FURTHER OBSERVED THAT AT ANY RATE, AS FAR AS THE AS SESSEE IS CONCERNED, NO MALA FIDES CAN BE ATTRIBUTABLE TO IT AS THE CLAIM FOR DE DUCTION WAS BASED ON THE CERTIFICATE OF THE CHARTERED ACCOUNTANT WITH WHOM N O COLLUSION HAS BEEN PROVED. SHRI JASPAL SHARMA, LD. COUNSEL FOR THE AS SESSEE SUBMITTED THAT THE RETURN WAS FILED ON THE BASIS OF CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT AND EVEN IF IT IS A MISTAKE ON THE PART OF THE CHAR TERED ACCOUNTANT, THE ASSESSEE CAN ALWAYS TAKE THE SHELTER THAT HE WAS UNDER BONAF IDE BELIEF ON THE BASIS OF SUCH EVIDENCE THAT DEDUCTION WAS CLAIMED ON THE BAS IS OF BONAFIDE BELIEF. FOR THIS PROPOSITION, SHRI JASPAL SHARMA, LD. COUNSEL F OR THE ASSESSEE RELIED ON THE DECISION OF HON'BLE ITAT CHANDIGARH BENCH IN THE CA SE OF S. S. FOODS INDUSTRIES V ACIT (2015) 59 TAXMANN.COM 136 (CHANDI GARH TRIB.) ORDER DATED 23.12.2014. CONSIDERING THE FACTS OF THE PRESENT C ASE AND THE DECISIONS RELIED UPON BY SHRI JASPAL SHARMA, LD. COUNSEL FOR THE ASS ESSEE I AM OF THE OPINION THAT THERE IS A SUBSTANCE IN THE ABOVE SUBMISSIONS OF SHRI JASPAL SHARMA, LD. COUNSEL FOR THE ASSESSEE AND THE DECISIONS RELIED U PON BY HIM ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND ACC ORDINGLY I HOLD THAT NO PENALTY U/S 271(1)(C) OF THE ACT CAN BE LEVIED ON THIS COU NT. 8. THE NEXT ISSUE IS REGARDING PENALTY ON DISALLOWA NCE OF SALARY PAID TO PARTNERS AMOUNTING TO RS. 25,000/-. SHRI JASPAL SH ARMA, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FIRM CAME INTO EXISTENC E ON 30.8.2006. THE TOTAL ANNUAL SALARY TO THE THREE PARTNERS WAS PROVIDED AT RS. 2,40,000/- IN THE PARTNERSHIP DEED. THE LD. COUNSEL POINTED OUT THAT THE TOTAL SALARY WAS DEBITED IN THE BOOKS AT RS. 1,20,000/- WHEREAS THE TOTAL SALARY COULD HAVE BEEN DEBITED AT RS. 1,40,000/- FOR SEVEN MONTHS. HE FURTHER POI NTED OUT THAT NO SALARY WAS DEBITED IN THE NAME OF SHRI PANKAJ GUPTA ALTHOUGH P ROVIDED IN THE PARTNERSHIP DEED. SALARY IN THE NAME OF SHRI HITESH ARORA WAS S HOWN AT RS. 60,000/- I.E 6 ONLY FOR SIX MONTHS. THEREFORE, IT WAS DUE TO THE B ONAFIDE MISTAKE THAT SALARY OF RS. 60,000/- WAS SHOWN IN THE NAME OF SHRI VINEET G UPTA AT THE END OF THE YEAR FOR WHOLE OF THE YEAR. ACCORDING TO SHRI JASPAL S HARMA, LD. COUNSEL FOR THE ASSESSEE, THE NET EFFECT IS THAT THE ASSESSEE CLAI MED SALARY AT LESSER AMOUNT BY RS. 20,000/-. HE FURTHER RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (2010) 322 ITR 158 (SC) FOR THE PROPOSITION THAT MERELY BECAUSE THE ASSESSEE HAD CLAIMED EXPEND ITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO REVENUE THAT BY I TSELF WOULD NOT ATTRACT PENALTY U/S 271(1)(C) OF THE ACT. THERE IS A SUBSTA NCE IN THE ABOVE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. THERE IS NO M ATERIAL ON RECORD TO CONTROVERT THESE SUBMISSIONS OF THE ASSESSEE THAT DUE TO BONA FIDE MISTAKE, SALARY OF RS. 60,000/- WAS SHOWN IN THE NAME OF SHRI VINEET GUPTA AT THE END OF THE YEAR FOR WHOLE OF THE YEAR. IT IS APPARENT FROM THE RECORD THAT SALARY IN THE NAME OF SHRI HITESH ARORA WAS SHOWN ONLY AT RS. 60,000/- I.E. ON LY FOR SIX MONTHS. EVEN OTHERWISE ALSO, THE NET EFFECT IS THAT THE ASSESSEE CLAIMED SALARY AT LESSER AMOUNT BY RS. 20,000/- WHICH FACT IS CLEAR FROM THE RECORDS THAT TOTAL SALARY WAS DEBITED IN THE BOOKS AT RS. 1,20,000/- WHEREAS THE TOTAL SALARY COULD HAVE BEEN DEBITED AT RS. 1,40,000/- FOR SEVEN MONTHS. THUS, T HERE IS NO QUESTION OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF ITS INCOME BY THE ASSESSEE. THEREFORE, NO PENALTY IS LEVIABLE ON THE ADDITION OF RS. 25,000/-. 9. IN VIEW OF THE ABOVE, I CANCEL THE IMPUGNED PENA LTY AND ALLOW THE APPEAL OF THE ASSESSEE. 10. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.12.2015 SD/- (H.L.KARWA) VICE PRESIDENT DATED : 31 ST DECEMBER, 2015 RKK 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR