TCI Industries Limited, Secunderabad V. ACIT, Circle 2(3), Hyderabad

ITA 1528/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77929 (ITAT-HYDERABAD)
• Duration Of Justice: 44 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Assessee
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Keywords: Bogus purchase; Business income; Business expenditure; Wrong claim; Difference of opinion; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1527/HYD/2013 ASSESSMENT YEAR 2003-04 ITA NO. 1528/HYD/2013 ASSESSMENT YEAR 2004-05 M/S. TCI INDUSTRIES LTD. SECUNDERABAD PAN: AABCT6750G VS. THE ASST. CIT CIRCLE-2(3) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SRI Y. RATNAKAR RESPONDENT BY: SRI JEEVAN LAL LAVIDIYA DATE OF HEARING: 09 .0 4 .2014 DATE OF PRONOUNCEMENT: 06.06.2014 ORDER PER SAKTIJIT DEY, J.M.: THE AFORESAID APPEALS BY THE ASSESSEE ARE AGAINST THE SEPARATE ORDERS DATED 17.9.2013 OF CIT(A)-III, HYDERABAD CONFIRMING THE PENALTY IMPOSED U/S. 271(1 )(C) OF INCOME-TAX ACT, 1961 FOR A.YS. 2003-04 AND 2004- 05. SINCE THE ASSESSEE IS COMMON AND ISSUE IS COMMON, THESE APPEALS ARE CLUBBED TOGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. AS THE FACTS ARE IDENTICAL IN BOTH THE APPEALS, WE PROCEED TO DEAL WITH THE FACTS AS INVOLVED IN ITA N O. 1527/HYD/2013 FOR A.Y. 2003-04. 3. BRIEFLY, THE FACTS OF THE CASE ARE, THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF TRA DING 2 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= IN CLOTH. FOR THE IMPUGNED ASSESSMENT YEAR, THE AS SESSEE FILED ITS RETURN OF INCOME ON 10.11.2003 ADMITTING TOTAL LOSS OF RS. 2,02,06,080. DURING THE ASSESSMENT PROCEEDINGS, THE AO ON EXAMINATION OF THE PROFIT AN D LOSS A/C. AS WELL AS THE BOOKS OF ACCOUNT OF THE ASSESSE E NOTICED THAT THE ASSESSEE HAD DEBITED AN EXPENDITUR E OF RS. 2,12,36,953. THE AFORESAID EXPENDITURE COMPRIS ED OF AN AMOUNT OF RS. 1,50,78,739 TOWARDS AMOUNT PAID TO WORKERS FOR VACATING WORKERS' CHAWLS GIVEN TO THE W ORKERS AS PART OF THE CONDITION OF SERVICE AND AN AMOUNT O F RS. 61,58,214 TOWARDS OTHER EXPENSES INCURRED TO MAINTA IN CORPORATE STRUCTURE AND MEETING STATUTORY OBLIGATIO NS AND MANDATORY EXPENSES INCLUDING ADMINISTRATIVE EXPENSE S, GRATUITY, CONTRIBUTION TO PF, ETC. THE AO AFTER E XAMINING THE DETAILS AND SUBMISSIONS OF THE ASSESSEE, NOTED THAT THE ASSESSEE IS HAVING VALUABLE VACANT LAND AT COLA BA, MUMBAI WHICH EARLIER WAS USED AS A TEXTILE MILL KNO WN AS M/S. MUKESH TEXTILE MILLS LTD. THIS MILL WAS CLOSE D PERMANENTLY BEFORE 1980 AND THERE WERE NO OPERATION S AT ALL FOR THE PAST SEVERAL YEARS. HE FURTHER NOTED T HAT EARLIER THIS MILL USED TO BE A VENTURE OF M/S. TRANSPORT CORPORATION OF INDIA LTD. IN A SCHEME OF ARRANGEME NT THE MILL WAS ACQUIRED BY THE ASSESSEE-COMPANY IN 1995. 4. HE FURTHER NOTED THAT FROM THE FACTS ON RECORD IT APPEARS THAT THE ASSESSEE INTENDED TO DEVELOP THE V ACANT LAND FOR WHICH PURPOSE THE COMPANY INCURRED HUGE EXPENSES TOWARDS LEGAL CHARGES, SECURITY, PAYMENT T O ERSTWHILE WORKERS IN THE SHAPE OF EX-GRATIA AND GRA TUITY TO GET THEM VACATED THE QUARTERS AND LITIGATION WITH L OCAL AUTHORITIES/ STAGE GOVERNMENT FOR GETTING APPROVALS , ETC. THE AO WAS OF THE VIEW THAT IN ORDER TO CLAIM THE 3 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= EXPENDITURE INCURRED AS BUSINESS EXPENDITURE THE ASSESSEE INVENTED THE IDEA OF HAVING SOME SORT OF BUSINESS. HENCE IT WAS CLAIMING THAT IT IS ENGAGED IN THE BUSINESS OF TRADING IN CLOTH. THOUGH THE ASSESSEE TRIED TO IMPRESS UPON THE AO THAT IT WAS ACTUALLY CARRYING O N CLOTH TRADING BUSINESS, THE AO, NEVERTHELESS, DISBE LIEVING ALL EXPLANATIONS OF THE ASSESSEE OPINED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLO WED AS REVENUE EXPENDITURE AS THE ASSESSEE WAS NOT HAVI NG ANY BUSINESS IN CLOTH TRADING AND THE EXPENDITURE INCURRED DOES NOT RELATE TO ANY TRADING BUSINESS OF THE ASSESSEE. ACCORDINGLY, THE AO PROCEEDED TO COMPLET E ASSESSMENT BY DISALLOWING THE EXPENDITURE CLAIMED W HICH NOT ONLY RESULTED IN DISALLOWANCE OF LOSS CLAIMED B UT THE DETERMINATION OF INCOME FROM BUSINESS AT RS. 8,11,0 00 WHICH WAS ASSESSED ON PROTECTIVE BASIS. THE ASSESS EE, BEING AGGRIEVED OF THE ASSESSMENT ORDER, PREFERRED AN APPEAL BEFORE THE CIT(A). 5. THE CIT(A) AGREED WITH THE FINDING OF THE AO THAT A S THE ASSESSEE IS NOT HAVING ANY BUSINESS ACTIVITY, N O BUSINESS LOSS, AS CLAIMED BY THE ASSESSEE, CAN BE A LLOWED. THE CIT(A) HELD THAT EXPENDITURE CLAIMED BY THE ASS ESSEE IS ONLY OF CAPITAL NATURE AS IT IS NOT RELATED TO A NY BUSINESS ACTIVITY. THE CIT(A), HOWEVER, DID NOT AG REE WITH THE COMPUTATION OF BUSINESS INCOME AT RS. 8,11,000, AS DONE BY THE AO, AND DIRECTED THE AO TO ADOPT THE I NCOME OF THE ASSESSEE AT NIL. STILL AGGRIEVED, THE ASSES SEE WENT IN APPEAL BEFORE THE ITAT. THE ITAT AFTER HEARING THE APPEALS OF THE ASSESSEE FOR THE A.YS. 2003-04 AND 2 004- 05 PASSED A CONSOLIDATED ORDER IN ITA NOS. 70 AND 9 59/ 4 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= HYD/2007 DATED 11.2.2011 BY DISMISSING THE APPEALS WITH THE FOLLOWING OBSERVATIONS: '8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE MOOT QUESTION INVOLVED IN THIS APPEAL IS WHETHER THE EXPENDITURE CLAIMED BY THE ASSESSEE IS BUSINESS EXPENDITURE OR NOT. WE FIND FROM THE ASSESSMENT ORDER DATED 28-11- 2006 THAT THE ASSESSEE INTENDS TO DEVELOP THE PROPERTY, WHICH WAS TRANSFERRED FROM MUKESH TEXTILE MILLS BY WAY OF SCHEME OF ARRANGEMENT IN 1995 AND ALSO ENTERED INTO AN AGREEMENT OF SALE OF PROPERTY AT THE RATE OF RS. 10,000 PER SQ. FT WITH MANY SISTER CONCERNS AND RECEIVED HUGE AMOUNT OF RS. 11.44 CRORES AS SALE ADVANCES. EVEN THOUGH THERE WAS NO DEVELOPMENT OF THE SAID PROPERTY, THERE WAS AN INTENTION TO DEVELOP THE PROPERTY UNDER DISCUSSION BY THE ASSESSEE. WE FIND THAT THE ASSESSEE-COMPANY HAS NOT DONE ANY MANUFACTURING ACTIVITY DURINQ THE ASSESSMENT YEARS UNDER CONSIDERATION. WITH THESE BACKGROUNDS, WE PROCEED TO ADJUDICATE THE APPEAL AS UNDER. WE SEE MERIT IN THE FINDINGS OF THE LOWER AUTHORITIES THAT THE ALLEGED PURCHASE AND SALE OF CLOTH SHOWN IN THE PROFIT AND LOSS ACCOUNT BY THE ASSESSEE IS NOTHING BUT ONLY A PAPER TRANSACTION, SINCE THE PARTIES TO WHOM THESE TRANSACTIONS ARE SHOWN WERE NOT FOUND TO EXIST. WE FIND THAT EVEN THOUGH THE LOWER AUTHORITIES INFORMED THE ASSESSEE ABOUT THE RESULT OF THE ENQUIRY CONDUCTED ABOUT THE AFORESAID TRANSACTION, THE ASSESSEE COULD NOT GIVE ANY OTHER ADDRESSES OF THE PARTIES EXCEPT GIVING THE PAN NUMBER AND CONFIRMATION LETTERS. SINCE, ON ENQUIRY CONDUCTED BY THE DEPARTMENT, THE PARTIES ARE NOT EXISTED, THE CONFIRMATION LETTERS GIVEN IN THE NAME OF THE PARTIES DO NOT HAVE ANY EVIDENTIARY VALUE IN THE MATTER. WE ARE FULLY CONVINCED WITH THE FINDINGS ARRIVED AT BY THE LOWER AUTHORITIES THAT THE TRANSACTION OF SALE OR PURCHASE OF CLOTH IS ONLY A BOGUS TRANSACTION. SINCE THE ASSESSEE FALLS TO BRINY ANY EVIDENCE ON RECORD WITH REGARD TO THE EXISTENCE OF THE 5 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= PARTIES AND ON THE FACE OF ADVERSE FINDINGS MADE BY THE ASSESSING OFFICER ABOUT THE NON- EXISTENCE OF PARTIES, THE OTHER ARGUMENTS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE WITH REGARD TO THE PARTIES HAVING PAN NUMBERS, SALES-TAX ASSESSMENTS AND THE PAYMENTS WERE MADE BY THE ACCOUNT PAYEE CHEQUES, ETC., HAVE NO RELEVANCE. THE FACT POINTED OUT BY THE ASSESSEE THAT NECESSARY PERMISSION FOR CLOSING DOWN THE MILL WAS OBTAINED IN APRIL, 2003, IS NOT VERY MATERIAL TO THE PRESENT ISSUE, BECAUSE THE LEGAL PROCEEDINGS IN SUCH MATTERS ALWAYS TAKE SUBSTANTIAL TIME. THEREFORE, THE PERMISSION GRANTED BY HON'BLE HIGH COURT IN APRIL, 2003 HAS TO BE UNDERSTOOD AS A SUBSEQUENT EVENT CONFIRMING THE CLOSURE OF BUSINESS WHICH HAD ALREADY TAKEN PLACE SEVERAL YEARS BACK. SINCE, WE HELD THAT THE TRANSACTION OF PURCHASE OR SALE OF CLOTH IS A BOGUS ONE, THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION CANNOT BE ALLOWED AS BUSINESS EXPENDITURE DUE TO THE FACTS THAT THERE IS NO MANUFACTURING OR BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE CAN BE CONSIDERED AS ONLY AS CAPITAL EXPENDITURE WHICH IS RELATABLE TO THE PROPERTY DEVELOPMENT INTENDED BY THE ASSESSEE COMPANY. SINCE WE HELD THAT THE INTENTION OF THE ASSESSEE COMPANY IS TO DEVELOP THE PROPERTY, WHICH WAS TRANSFERRED FROM MUKESH TEXTILES, INCURRING CERTAIN EXPENDITURE TO PRESERVE AND MAINTAIN ASSESSEE'S CORPORATE STRUCTURE AND EXISTENCE, ALSO RELATED TO THE PROPERTY DEVELOPMENT ONLY. AFTER CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES, AND PURSUING ALL THE MATERIAL PAPERS PLACED IN PAPER BOOK FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE DO NOT SEE ANY INFIRMITY IN THE ORDERS OF THE LOWER AUTHORITIES IN REJECTING THE LOSS CLAIMED BY THE ASSESSEE. HENCE, WE CONFIRM THE ORDERS OF THE LOWER AUTHORITIES.' 6. MEANWHILE THE AO ISSUED A NOTICE TO THE ASSESSEE ASKING IT TO SHOW CAUSE AS TO WHY PENALTY U/S. 271( 1)(C) OF 6 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= THE ACT SHALL NOT BE IMPOSED. THOUGH THE ASSESSEE SUBMITTED ITS EXPLANATION OBJECTING TO INITIATION O F PENALTY PROCEEDINGS BOTH ON THE GROUND OF LIMITATION AS WEL L AS ON THE MERITS OF THE ISSUES, THE AO REJECTING THE EXPL ANATION OF THE ASSESSEE, PROCEEDED TO PASS AN ORDER IMPOSIN G PENALTY OF RS. 74,25,734 U/S. 271(1)(C) OF THE ACT. WHILE DOING SO, THE AO WAS OF THE VIEW THAT THE ASSESSEE BEING FULLY AWARE OF THE FACT THAT THE CLAIM OF EXPENDITU RE IS FOR A BUSINESS WHICH IS NOT IN EXISTENCE AND NOT DIRECT LY RELATED TO ITS BUSINESS ACTIVITY, HAS STILL CLAIMED THE EXPENDITURE AS A BUSINESS EXPENDITURE. THUS, ACCOR DING TO THE AO, THIS AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS OF INCOME AS ENVISAGED U/S. 271(1)(C) O F THE ACT. BEING AGGRIEVED OF THE PENALTY ORDER SO PASSE D, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 7. THE CIT(A), ON CONSIDERING THE FACT THAT THE CLAIM OF CLOTH TRADING BUSINESS BEING FOUND TO BE BOGUS, HEL D THAT IT CLEARLY ESTABLISHES THE FACT THAT THE ASSESSEE H AS INDULGED IN FILING OF INCORRECT AND FALSE PARTICULA RS IN THE RETURN OF INCOME FOR THE PURPOSE OF EVADING HUGE AM OUNT OF TAX WHICH THE ASSESSEE WOULD HAVE SUCCEEDED IN H IS EFFORT HAD PROPER INVESTIGATION NOT BEEN MADE BY TH E AO. ACCORDINGLY, THE CIT(A) CONFIRMED THE IMPOSITION OF PENALTY. THE RELEVANT PORTION FROM THE ORDER OF TH E CIT(A) IS EXTRACTED HEREUNDER: '4.8 LOOKING AT THE FACTS IN THE AFOREMENTIONED CASE, I FIND THAT THERE IS ABSOLUTELY NO TRUTH IN T HE ASSERTION THAT ALL RELEVANT FACTS AND MATERIAL HAD BEEN DISCLOSED. ON THE CONTRARY, THE CONDUCT OF THE APPELLANT ESTABLISHES THAT THE VERY INTENT FROM THE BEGINNING WAS TO CLAIM FALSE CARRY FORWARD LOSSES AND THEREBY TO EVADE TAXES. FIRSTLY, THE APPELLANT WAS NOT CARRYING OUT ANY BUSINESS OF TRADING IN CLOTH. IN A WELL THOUGHT OUT PLAN, BOGUS PURCHASE AND SALE BILLS WERE ARRANGED JUST TO SHOW THAT 7 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= SOME BUSINESS OF CLOTH TRADING HAD BEEN CARRIED OUT. THEREAFTER, AN EXPENDITURE OF MORE THAN RS. 2 CRORES WAS OFF SET AGAINST THE INCOME OF THIS 'BUSINESS' SO AS TO CLAIM HUGE LOSSES AND LATER TO CARRY FORWARD THESE NON-EXISTENT LOSSES. IN THIS WAY, FOR MANY YEARS THE APPELLANT WOULD NOT HAVE TO PAY ANY TAXES ON THE INCOME THAT IT WOULD EARN. NOT ONLY WAS THE CAPITAL EXPENDITURE ON DEVELOPMENT OF PROPERTY WRONGLY DEBITED AND CLAIMED FALSELY AS A REVENUE EXPENDITURE, BUT A NON-EXISTENT BUSINESS OF CLOTH TRADING WAS CREATED FOR THE AFOREMENTIONED PURPOSE. IT HAS BEEN CLEARLY HELD BY THE HONOURABLE ITAT THAT THE ALLEGED PURCHASE AND SALE OF CLOTH SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS ONLY A PAPER TRANSACTION. THE RELEVANT PORTION OF THE ORDER OF THE HONOURABLE ITA T IS REPRODUCED BELOW :- 'WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE POTTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE MOOT QUESTION INVOLVED IN THIS APPEAL IS WHETHER THE EXPENDITURE CLAIMED BY THE ASSESSEE IS BUSINESS EXPENDITURE OR NOT. WE FIND FROM THE ASSESSMENT ORDER DATED 28-11-2006 THAT THE ASSESSEE INTENDS TO DEVELOP THE PROPERTY, WHICH WAS TRANSFERRED FROM MUKESH TEXTILE MILLS BY WAY OF SCHEME OF ARRANGEMENT IN 1995 AND ALSO ENTERED INTO AN AGREEMENT OF SALE OF PROPERTY AT THE RATE OF RS. 10,000/- PER SQ. FT WITH MANY SISTER CONCERNS AND RECEIVED HUGE AMOUNT OF RS. 11044 CRORES AS SALE ADVANCES. EVEN THOUGH THERE WAS NO DEVELOPMENT OF THE SAID PROPERTY, THERE WAS AN INTENTION TO DEVELOP THE PROPERTY UNDER DISCUSSION BY THE ASSESSEE. WE FIND THAT THE ASSESSEE-COMPANY HAS NOT DONE ANY MANUFACTURING ACTIVITY DURING THE ASSESSMENT YEARS UNDER CONSIDERATION. WITH THESE BACKGROUNDS, WE PROCEED TO ADJUDICATE THE APPEAL AS UNDER. WE SEE MERIT IN THE FINDINGS OF THE LOWER AUTHORITIES THAT THE ALLEGED PURCHASE AND SALE OF CLOTH SHOWN IN THE PROFIT AND LOSS ACCOUNT BY THE ASSESSEE IS NOTHING BUT ONLY A PAPER TRANSACTION, SINCE THE PARTIES TO WHOM THESE TRANSACTIONS ARE SHOWN WERE NOT FOUND TO EXIST. WE FIND THAT EVEN THOUGH THE LOWER AUTHORITIES INFORMED THE ASSESSEE ABOUT THE RESULT OF THE ENQUIRY CONDUCTED ABOUT THE AFORESAID TRANSACTION, THE ASSESSEE COULD NOT GIVE ANY OTHER ADDRESSES OF THE PARTIES EXCEPT GIVING THE PAN AND CONFIRMATION LETTERS. SINCE, ON ENQUIRY CONDUCTED BY THE DEPARTMENT, THE PARTIES ARE NOT EXISTED, THE CONFIRMATION LETTERS GIVEN IN THE NAME OF THE 8 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= PARTIES DO NOT HAVE ANY EVIDENTIARY VALUE IN THE MATTER. WE ARE FULLY CONVINCED WITH THE FINDINGS ARRIVED AT BY THE LOWER AUTHORITIES THAT THE TRANSACTION OF SALE OR PURCHASE OF CLOTH IS ONLY A BOGUS TRANSACTION. SINCE THE ASSESSEE FAILS TO BRING ANY EVIDENCE ON RECORD WITH REGARD TO THE EXISTENCE OF THE PARTIES AND ON THE FACE OF ADVERSE FINDINGS MADE BY THE ASSESSING OFFICER ABOUT THE NON-EXISTENCE OF PARTIES, THE OTHER ARGUMENTS MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE WITH REGARD TO THE PARTIES HAVING PAN NUMBERS, SALES- TAX ASSESSMENTS AND THE PAYMENTS WERE MADE BY THE ACCOUNT PAYEE CHEQUES, ETC., HAVE NO RELEVANCE. THE FACT POINTED OUT BY THE ASSESSEE THAT NECESSARY PERMISSION FOR DOSING DOWN THE MILL WAS OBTAINED IN APRIL, 2003, IS NOT VERY MATERIAL TO THE PRESENT ISSUE, BECAUSE THE LEGAL PROCEEDINGS IN SUCH MATTERS ALWAYS TAKE SUBSTANTIAL TIME. THEREFORE, THE PERMISSION GRANTED BY HONBLE HIGH COURT IN APRIL, 2003 HAS TO BE UNDERSTOOD AS A SUBSEQUENT EVENT CONFIRMING THE CLOSURE OF BUSINESS WHICH HAD ALREADY TAKEN PLACE SEVERAL YEARS BACK. SINCE, WE HELD THAT THE TRANSACTION OF PURCHASE OR SALE OF CLOTH IS A BOGUS ONE, THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION CANNOT BE ALLOWED AS BUSINESS EXPENDITURE DUE TO THE FACTS THAT THERE IS NO MANUFACTURING OR BUSINESS ACTIVITY CARRIED ON BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE CAN BE CONSIDERED AS ONLY AS CAPITAL EXPENDITURE WHICH IS RELATABLE TO THE PROPERTY DEVELOPMENT INTENDED BY THE ASSESSEE COMPANY. SINCE WE HELD THAT THE INTENTION OF THE ASSESSEE COMPANY IS TO DEVELOP THE PROPERTY, WHICH WAS TRANSFERRED FROM MUKESH TEXTILES, INCURRING CERTAIN EXPENDITURE TO PRESERVE AND MAINTAIN ASSESSEE'S CORPORATE STRUCTURE AND EXISTENCE, ALSO RELATED TO THE PROPERTY DEVELOPMENT ONLY. AFTER CONSIDERING THE TOTALITY OF FACTS AND THE CIRCUMSTANCES, AND PURSUING ALL THE MATERIAL PAPERS PLACED IN PAPER BOOK FILED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE DO NOT SEE ANY INFIRMITY IN THE ORDERS OF THE LOWER AUTHORITIES IN REJECTING THE LOSS CLAIMED BY THE ASSESSEE. HENCE, WE CONFIRM THE ORDERS OF THE LOWER AUTHORITIES. ' 4.9 A PLAIN READING OF THE AFOREMENTIONED ORDER CLEARLY ESTABLISHES THAT THE HONOURABLE ITAT HAS CONCLUDED THAT THE TRANSACTION OF SALE AND PURCHASE OF CLOTH IS ONLY BOGUS IN NATURE AND THAT 9 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= THE ACTUAL BUSINESS OF TRADING IN CLOTH HAD CLOSED MANY YEARS AGO. FURTHER, IT HAS ALSO BEEN HELD THAT THE HUGE AMOUNT OF EXPENDITURE CLAIMED WAS ACTUALLY RELATABLE AS A CAPITAL EXPENDITURE TO THE DEVELOPMENT OF PROPERTY. 4.10 IT IS FURTHER CLEAR FROM THE FACTS OF THE CASE THAT HAD THE INVESTIGATIONS NOT TAKEN PLACE, WITH THE FILING OF INCORRECT AND FALSE PARTICULARS IN TH E RETURN OF INCOME AND THE MODUS OPERANDI AS DISCUSSED ABOVE, THE APPELLANT WOULD HAVE SUCCEEDED IN EVADING HUGE AMOUNT OF TAXES. THIS IS NOT A CASE OF A DIFFERENCE OF OPINION OR OF A DEBATABLE ISSUE OR OF A BONA FIDE MISTAKE. THIS IS A CASE OF A WELL-PLANNED STRATEGY OF TAX EVASION AND OF A DELIBERATE CREATION OF FALSE EVIDENCE. IN THIS CASE PENALTY U/S 271(1)(C) IS DEFINITELY IMPOSABLE. I SEE NO REASONS TO INTERFERE WITH THE ORDER OF THE ASSESSING OFFICER AND CONFIRM THE PENALTY IMPOSED.' 8. BEING AGGRIEVED OF THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING AS MANY AS 15 GROUNDS. GROUND NOS. 1 AND 15 ARE GENERAL IN NATUR E AND NEED NO ADJUDICATION. IN GROUND NO. 2 THE ASSE SSEE HAS CHALLENGED THE PENALTY ORDER BY RAISING A LEGAL ISSUE ON THE QUESTION OF LIMITATION. IN GROUND NOS. 3 TO 14, THE ASSESSEE HAS CHALLENGED THE IMPOSITION OF PENALTY O N VARIOUS REASONS. 9. WE WILL FIRST DEAL WITH GROUND NO. 2 WHICH IS A LEG AL ISSUE ON THE QUESTION OF LIMITATION. 10. THE LEARNED AR HAS SUBMITTED BEFORE US THAT THE PENALTY ORDER PASSED IS BARRED BY LIMITATION IN VIE W OF PROVISO TO SECTION 275(1) OF THE ACT. IT WAS CONTE NDED THAT THE PENALTY ORDER, AS PER THE AFORESAID PROVISO TO SECTION 275(1), SHOULD HAVE BEEN PASSED WITHIN ONE YEAR FRO M THE END OF FINANCIAL YEAR IN WHICH THE ORDER OF THE CIT (A) IS RECEIVED BY THE CIT OR CCIT WHICHEVER IS LATER. HO WEVER, 10 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= IN THE PRESENT CASE, THE ORDER OF THE CIT(A) SINCE WAS RECEIVED MUCH PRIOR TO THE LIMITATION OF ONE YEAR, PENALTY PROCEEDINGS ARE BARRED BY LIMITATION. 11. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THE PENALTY ORDER WAS PASSED WELL WITHIN THE LIMITA TION PRESCRIBED U/S. 275(1) OF THE ACT. 12. HAVING CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES ON THIS ISSUE, WE ARE OF THE VIEW THAT THE ARGUMENT OF THE LEARNED AR IS DEVOID OF MERIT. ADMITTEDLY, IN THE PRESENT CASE, THE ASSESSEE HAD CHALLENGED THE ORDER PASSED BY THE CIT(A) ON QUANTUM BEFORE THE ITAT. T HE ITAT DISPOSED OF THE APPEALS OF THE ASSESSEE ON QUA NTUM VIDE ORDER DATED 11.2.2011. HENCE THE PENALTY ORDE R HAS BEEN PASSED WITHIN THE LIMITATION PRESCRIBED U/S. 275(1)(A) OF THE ACT. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 13. IN RESPECT OF MERITS OF THE ISSUE, THE LEARNED AR APART FROM MAKING SUBMISSIONS AT THE TIME OF HEARIN G HAS ALSO FILED AN ELABORATE WRITTEN SUBMISSION REITERAT ING THE STAND TAKEN BEFORE THE DEPARTMENTAL AUTHORITIES. T HE LEARNED AR SUBMITTED THAT THE ASSESSEE WAS CARRYING ON BUSINESS ACTIVITY WHICH CAN BE PROVED BY VARIOUS EVIDENCES BROUGHT ON RECORD. THEREFORE, THE CONCLU SION DRAWN BY THE DEPARTMENTAL AUTHORITIES THAT THE ASSE SSEE WAS NOT HAVING ANY BUSINESS ACTIVITY IS WITHOUT ANY BASIS. EXPLAINING THE NATURE OF EXPENDITURE INCURRED BY TH E ASSESSEE, THE LEARNED AR SUBMITTED THAT THE EXPENDI TURE OF RS. 1,50,78,739 PAID TO EMPLOYEES TOWARDS COMPENSATION FOR VACATING THE QUARTERS AS WELL THE 11 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= RETIREMENT BENEFITS, CANNOT BE HELD TO BE A CAPITAL EXPENDITURE BECAUSE THE AMOUNT SPENT IS FOR PRESERV ATION OF THE COMPANY'S BUSINESS ASSETS. IT WAS SUBMITTED THAT THE MANUFACTURING ACTIVITY OF MUKESH TEXTILE MILLS WAS CLOSED FINALLY ONLY AFTER THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT DELIVERED ON 8.4.2003. HENCE, TILL THAT DATE THE BUSINESS ACTIVITY OF THE ASSESSEE WAS STILL CON TINUING. 14. THE LEARNED AR SUBMITTED THAT THE AMOUNT SPENT FOR GETTING THE WORKERS VACATED FROM PROPERTY IS FO R BETTER EXPLOITATION OF COMPANY'S ASSETS. HENCE IT CONSTIT UTES REVENUE EXPENDITURE. IT WAS SUBMITTED THAT THE COM PANY HAD INTENDED TO DEVELOP IMMOVABLE PROPERTY AS BUSIN ESS. HENCE IT CANNOT BE SAID THAT THE ASSESSEE HAS CLOSE D THE BUSINESS ACTIVITY OR NO BUSINESS IS CARRIED ON. AT THE MOST, THE TEMPORARY CLOSURE, IF AT ALL, MAY BE DUE TO A TEMPORARY LULL IN ITS ACTIVITY. 15. SO FAR AS THE DISALLOWANCE OF OTHER EXPENDITURE OF RS. 61,58,214 IS CONCERNED, THE LEARNED AR ADVANCIN G SIMILAR ARGUMENT, SUBMITTED THAT THE EXPENDITURE IS OF REVENUE NATURE AS IT WAS REQUIRED TO BE INCURRED BE CAUSE THE COMPANY HAD TO CONTINUE ITS EXISTENCE AS A CORP ORATE ENTITY. IT WAS SUBMITTED THAT THE COMPANY HAS TO F ULFIL BASIC REQUIREMENTS SUCH AS AUDIT OF ACCOUNTS, DISTRIBUTION OF INTERNAL ACCOUNTS, NOTICES TO SHARE HOLDERS, VARIOUS OTHER EXPENSES RELATING TO STOCK EXCHANGE, ELECTRICITY EXPENSES, MUNICIPAL TAXES, ESTABLISHMEN T EXPENSES, WHICH ARE PURELY IN THE NATURE OF REVENUE EXPENDITURE BECAUSE INCURRING OF THESE EXPENSES SHO WS THAT THE COMPANY IS IN EXISTENCE FOR CARRYING ON BU SINESS. THE LEARNED AR SUBMITTED THAT THE FACT THAT THE ASS ESSEE 12 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= IS STILL IN BUSINESS WOULD BE EVIDENT FROM THE FACT THAT THE SHARES OF THE COMPANY ARE QUOTED IN BOMBAY STOCK EXCHANGE AND THE TRADING OF SHARES TAKES PLACE ON D AILY BASIS. IT WAS SUBMITTED THAT HAD THE COMPANY WAS N OT CARRYING ON ANY BUSINESS NO ONE WOULD HAVE ACQUIRED THE SHARES OF THE COMPANY. 16. CONTESTING THE FINDING OF THE CIT(A) THAT IN THE QUANTUM PROCEEDINGS, THE CIT(A) AS WELL AS THE TRIB UNAL HAVE HELD THAT THE CLAIM OF CLOTH BUSINESS IS BOGUS , THE LEARNED AR SUBMITTED THAT FOR THE PURPOSE OF LEVYIN G PENALTY THE FINDINGS IN THE QUANTUM PROCEEDINGS ARE NOT CONCLUSIVE. THE EXPLANATION GIVEN NEEDS TO BE REPRO CESSED AND EXAMINED AFRESH IN THE LIGHT OF THE EVIDENCES B ROUGHT ON RECORD. IT WAS FINALLY SUBMITTED THAT THE FACT THAT THE ASSESSEE HAS INCURRED EXPENDITURE HAD NOT BEEN DISP UTED BY THE CIT(A) OR THE TRIBUNAL IN THE QUANTUM PROCEE DINGS. THE ASSESSEE ALL THE WHILE HAS TREATED THE EXPENDIT URE INCURRED AS BUSINESS EXPENDITURE SINCE IT WAS INCUR RED TO PROTECT AND SAFEGUARD THE ASSETS OF THE COMPANY AND THE DEPARTMENTAL AUTHORITIES AS WELL AS THE ITAT CONCLU DED THAT THE EXPENDITURE SHOULD BE TREATED AS CAPITAL I N NATURE. THEREFORE, THE DIFFERENCE OF OPINION IN TR EATING THE EXPENDITURE EITHER AS REVENUE OR CAPITAL WILL NOT A MOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME A S THE ASSESSEE WAS UNDER BONA-FIDE BELIEF THAT THE EXPEND ITURE IS ALLOWABLE AS REVENUE EXPENDITURE. 17. THE LEARNED AR SUBMITTED THAT EVERY CLAIM OF REJECTION OF EXPENDITURE WILL NOT AMOUNT TO CONCEAL MENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME S O AS TO IMPOSE PENALTY U/S. 271(1)(C) OF THE ACT. FOR THIS 13 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= PROPOSITION, THE LEARNED AR RELIED UPON THE FOLLOWI NG DECISIONS: (A) CIT VS. PHI SEEDS INDIA LTD. (301 ITR 13) (DEL.) (B) CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. (322 ITR 158) (SC) (C) CIT VS. M.S. BINDRA & SONS (P) LTD., 336 ITR 125 (DEL) 18. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT THE AO, THE CIT(A) AS WELL AS THE TRIBUNAL HAVING R ECORDED FINDINGS IN THE QUANTUM PROCEEDINGS THAT THE ASSESS EE HAS MADE A BOGUS CLAIM WITH REGARD TO CLOTH TRADING BUSINESS, IT IS CLEARLY ESTABLISHED THAT THE ASSESS EE HAS FURNISHED INACCURATE PARTICULARS OF INCOME. IT WAS SUBMITTED THAT ONLY FOR THE PURPOSE OF CLAIMING EXPENDITURE, THE ASSESSEE HAS SHOWN CLOTH TRADING BUSINESS WHICH IS IN REALITY IS NOT IN EXISTENCE. THEREFORE, THE ASSESSEE HAVING DELIBERATELY FURNISHED INACCURA TE PARTICULARS OF INCOME, IMPOSITION OF PENALTY IS JUS TIFIED. 19. WE HAVE HEARD SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD, AS WELL AS ORDERS O F THE REVENUE AUTHORITIES. WE HAVE ALSO CAREFULLY APPLIE D OUR MIND TO THE DECISIONS CITED BEFORE US. UNDISPUTEDL Y, THE ASSESSEE HAS CLAIMED THE EXPENDITURE AS REVENUE IN NATURE SUPPOSEDLY ON ACCOUNT OF CERTAIN BUSINESS ACTIVITIES, ONE OF THEM BEING TRADING IN CLOTH. TH IS CLAIM OF THE ASSESSEE HAS BEEN FOUND TO BE BOGUS NOT ONLY BY THE AO AND CIT(A), BUT ALSO BY THE TRIBUNAL IN THE QUANTUM PROCEEDINGS. AS CAN BE SEEN FROM THE FINDI NGS OF THE TRIBUNAL, EXTRACTED HEREIN BEFORE, AFTER CON SIDERING ALL THE ARGUMENTS WHICH ARE ALSO REITERATED BEFORE US BY THE LEARNED AR, THE TRIBUNAL HAS GIVEN A CATEGORICA L 14 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= FINDING THAT THE TRADING BUSINESS IN CLOTH IS BOGUS . IN VIEW OF SUCH FINDING OF THE TRIBUNAL, WE NEITHER IN TEND TO ENTER INTO THE CONTROVERSY AS TO WHETHER THE ASSESS EE, IN FACT, WAS CARRYING ON CLOTH TRADING BUSINESS NOR WE CAN ENTERTAIN SUCH PLEA OF THE ASSESSEE AGAIN IN THE PR ESENT PROCEEDING. 20. HOWEVER, AS CAN BE SEEN FROM THE FACTS AND MATERIAL ON RECORD, THE INCURRING OF EXPENDITURE BY THE ASSE SSEE TO THE TUNE OF RS. 2,12,36,953 HAS NOT BEEN DISPUTED B Y THE DEPARTMENTAL AUTHORITIES AS WELL AS BY THE TRIBUNAL . THE ONLY DISPUTE, AS IT APPEARS, REMAINS IN RESPECT OF THE NATURE OF EXPENDITURE CLAIMED, WHETHER CAPITAL OR REVENUE. IT IS THE CLAIM OF THE ASSESSEE THAT EVEN ASSUMING THAT THE ASSESSEE IS NOT CARRYING ON THE C LOTH TRADING BUSINESS, STILL THE FACT REMAINS THAT THE A SSESSEE HAS ALWAYS INTENDED TO CARRY ON THE BUSINESS OF DEVELOPMENT OF IMMOVABLE PROPERTIES. THEREFORE, EXPENDITURE WAS CLAIMED BY THE ASSESSEE HAVING A BO NA- FIDE BELIEF THAT IT IS ALLOWABLE AS A BUSINESS EXPE NDITURE. 21. WE FIND FORCE IN SUCH CONTENTION OF THE ASSESSEE. WHEN THERE IS NO DISPUTE TO THE CLAIM OF EXPENDITUR E ITSELF, THE ONLY DIFFERENCE IS WITH REGARD TO NATUR E OF EXPENDITURE. WHILE THE ASSESSEE IS CLAIMING IT AS REVENUE, THE FINDING OF THE DEPARTMENT WHICH IS ALS O CONFIRMED BY THE TRIBUNAL IS, IT IS OF CAPITAL NATU RE. HOWEVER, THAT DIFFERENCE OF OPINION WITH REGARD TO THE NATURE OF EXPENDITURE WOULD NOT AMOUNT TO FURNISHIN G OF INACCURATE PARTICULARS OF INCOME, WHEN FACT REMAINS THAT THE ASSESSEE HAS DISCLOSED FULL PARTICULARS OF EXPE NDITURE INCURRED NOT ONLY IN ITS BOOKS OF ACCOUNT BUT ALSO IN THE 15 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= RETURN OF INCOME FILED AS WELL AS DURING THE ASSESS MENT PROCEEDINGS. 22. IN THE AFORESAID CIRCUMSTANCES, THE ASSESSEE CANNOT BE ACCUSED OF FURNISHING INACCURATE PARTICULARS OF INCOME. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RE LIANCE PETRO PRODUCTS PVT. LTD. (SUPRA) HAS HELD THAT EVER Y EXPENDITURE/DEDUCTION CLAIMED BY THE ASSESSEE IN TH E RETURN OF INCOME WHEN DISALLOWED WOULD AUTOMATICALL Y NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS EI THER CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTIC ULARS OF INCOME. THE SAME VIEW HAS ALSO BEEN EXPRESSED I N THE OTHER DECISIONS RELIED UPON BY THE LEARNED AR. CONSIDERING THE FACTS OF THE PRESENT CASE IN THE LI GHT OF THE RATIO LAID DOWN IN THE DECISIONS REFERRED TO HEREINABOVE, WE ARE OF THE VIEW THAT IMPOSITION OF PENALTY U/S. 271(1)(C) OF THE ACT, IN THE PRESENT CASE, IS NOT CALLED FOR. THIS IS DUE TO THE FACT THAT THERE IS ALWAYS A DIFFERENCE OF OPINION WITH REGARD TO AN EXPENDITURE BEING REVENUE OR CAPITAL. WHEN THE INCURRING OF EXPENDIT URE HAS NOT BEEN DISPUTED, THE ASSESSEE CANNOT BE ACCUS ED OF CONCEALMENT OR FURNISHING INACCURATE PARTICULARS OF INCOME MERELY FOR THE REASON THAT THE EXPENDITURE CLAIMED IS HELD TO BE OF A CAPITAL NATURE. ACCORDI NGLY, WE DELETE THE PENALTY IMPOSED BY ALLOWING THE GROUNDS THEREOF. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1527/HYD/2013 IS PARTLY ALLOWED. 16 ITA NOS. 1527 & 1528/HYD/2013. M/S. TCI INDUSTRIES LTD. ========================= ITA NO. 1528/HYD/2013: 24. SINCE THE FACTS AND CIRCUMSTANCES IN ASSESSMENT YEAR 2004-05 ARE SIMILAR, FOLLOWING OUR DECISION (S UPRA) FOR A.Y. 2003-04, WE DELETE THE PENALTY IMPOSED U/S . 271(1)(C) OF THE ACT. 25. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 6 TH JUNE, 2014 SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/ - (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 6 TH JUNE, 2014 TPRAO COPY TO: 1 . M/S. TCI INDUSTRIES LTD., 1 - 7 - 293, MG ROAD, SECUNDERABAD-500 003. 2 . THE ASST. CIT, CIRCLE - 2(3), 8 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD. 3 . THE CIT(A) - III, HYDERABAD. 4 . THE CIT - II, HYDERABAD. 5. THE DR, B BENCH, ITAT, HYDERABAD.