Business Standard Digital Ltd., New Delhi V. ACIT, New Delhi

ITA 1591/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3819 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-06-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NRIPENDRA GUPTA
• Keywords: Bonafide belief; Wrong claim; Revenue expenditure
• Section: 271(1)(c)

Judgement Text

ITA NO. 1591/DEL/2010 A.Y. 2001-02 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1591/DEL/2010 A.Y. : 2001-02 BUSINESS STANDARD DIGITAL LTD., VS. ASSTT. COMMIS SIONER OF INCOME TAX NEHRU HOUSE, CIRCLE-3(1), NEW DELHI 4, BAHADUR SHAH ZAFAR MARG, NEW DELHI 110 002 (PAN: AABCB 4425E) [APPELLANT] (RESPONDENT) ASSESSEE BY : SH. NRIPENDRA GUPTA, CA DEPARTMENT BY : SH. J.P. CHANDRIKAR, SR. DR PER SHAMIM YAHYA: AM THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE O RDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 15.1.201 0 PERTAINING TO ASSESSMENT YEAR 2001-02. 2. THE ISSUE RAISED IS THAT THE LD. COMMISSIONER O F INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE LEVY OF PENALTY IMPOSED U/ S 271(1)(C) OF THE IT ACT. 3. IN THIS CASE WHILE MAKING THE ASSESSMENT ASSESS ING OFFICER DISALLOWED EXPENSES AMOUNTING TO RS. 4722756/- PERTAINING TO P RE-COMMENCEMENT PERIOD OF THE BUSINESS BY OBSERVING AS UNDER:- THE ASSESSEE COMPANY COMMENCED ITS BUSINESS FROM 2 2/6/2000. ON PERUSAL OF DETAILS FILED BY THE ASSESSEE COMPANY I T HAS BEEN SEEN THAT THE ITA NO. 1591/DEL/2010 A.Y. 2001-02 2 EXPENSES PERTAINING TO THE PRE-COMMENCEMENT PERIOD OF THE BUSINESS ARE DEBITED IN THE P&L ACCOUNT. THESE EXPENSES ARE NOT RELATED TO THE CREATION OF THE FIXED ASSETS AND THEREFORE CANNOT BE CAPITAL IZED. AT THE SAME TIME, THESE EXPENSES NOT BEING IN THE NATURE OF PRELIMINA RY EXPENSES SPECIFIED U/S 35-D, CANNOT BE AMORTISED ALSO. THE EXPENSES CLAIMED AS INCURRED IN THE PRE-COMMENCEMENT PERIOD OF THE BUSINESS ALSO. T HE EXPENSES CLAIMED AS INCURRED IN THE PRE-COMMENCEMENT PERIOD OF THE B USINESS ARE IN THE NATURE OF SALES PROMOTION, STAFF WELFARE, TRAVELLIN G, PRINTING AND STATIONERY AND RECRUITMENT, ETC. WHICH HAVE BEEN INCURRED BY T HE HOLDING COMPANY OF THE ASSESSEE COMPANY, I.E. M/S BUSINESS STANDARD L TD. (BSL), SUBSEQUENTLY IT WAS PASSED TO RS. 22,54,844/- INCLUDED IN THE PR E-COMMENCEMENT EXPENSES DISCUSSED ABOVE WHICH WAS INCURRED EVEN B EFORE THE INCORPORATION OF THE ASSESSEE COMPANY BY ITS HOLDIN G COMPANY M/S BUSINESS STANDARD LTD. THESE EXPENSES HAVE BEEN TR ANSFERRED TO THE ASSESSEE COMPANY WHICH HAS BEEN CLAIMED BY IT IN TH E P&L ACCOUNT. THESE EXPENSES BEING PRE-COMMENCEMENT /PRE-INCORPORATION EXPENSES CAN NOT BE ALLOWED. 3.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN APPEAL NO. 158/2005- 2006 DATED 31/8/2007 ALLOWED RELIEF TO THE ASSESSEE AMOUNTING TO RS. 1250537/- OUT OF THE TOTAL ADDITION OF RS. 4722756/-. BALANCE ADDITIONS OF RS. 347221 (4722756-1250537) WAS UPHELD BY THE LD. COMMISSIONE R OF INCOME TAX (APPEALS). 3.2 PENALTY PROCEEDINGS WAS ALSO INITIATED IN THIS REGARD ON THE ADDITIONS CONFIRMED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS). THE ASSESSEE CONTENDED THAT THE MAJOR EXPENDITURE WAS ON THE WEB- SITE DEVELOPMENT, WHICH ITA NO. 1591/DEL/2010 A.Y. 2001-02 3 DID NOT GIVE ANY BENEFIT OF ENDURING NATURE. HENCE , EXPENDITURE ON SUCH WEB-SITE WAS REVENUE EXPENDITURE IN NATURE. HOWEVER, THE AS SESSING OFFICER DID NOT ACCEPT THIS CONTENTION AND HELD THAT BY INCURRING T HIS EXPENDITURE THE ASSESSEE HAS DERIVED BENEFIT WHICH IS ENDURING IN NATURE. A SSESSING OFFICER FURTHER REFERRED TO DECISION OF HONBLE APEX COURT IN THE CASE OF DHARMENDRA TEXTILES AND PROCESSORS 306 ITR 277 AND IMPOSED PENALTY OF R S. 1373261/-. 4. UPON ASSESSES APPEAL, THE LD. COMMISSIONER OF IN COME TAX (APPEALS) OBSERVED THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF INTERNET SERVICES, E- COMMERCE SERVICES, DESIGNING, IMPLEMENTING, SOFTWAR E AND ALLIED SERVICES. THE PENALTY HAS BEEN LEVIED ON THE ADDITIONS/DISALLOWAN CE MADE ON ACCOUNT OF WEBSITE DEVELOPMENT AND PRIOR PERIOD EXPENSES WH ICH WERE UPHELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND SUBSEQUENT APPEAL BY THE ASSESSEE BEFORE THE ITAT HAD BEEN DISMISSED FOR NON-PROSECUT ION. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS OF THE OPINION THAT ASS ESSEE HAS MADE ANY INADMISSIBLE CLAIM. HE REFERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF C.I.T. VS. ESCORTS FINANCE LTD. 183 TAX MAN 453 AND HELD THAT THE ASSESSEE HAS MADE A FALSE CLAIM AND HENCE PENALTY WAS ATTRACTED. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT:- IN VIEW OF THE ABOVE DISCUSSION, I FIND THAT THE A SSESSING OFFICER WAS JUSTIFIED IN IMPOSING THE PENALTY ON ACCOUNT OF PRIO R PERIOD EXPENSES ON WEBSITE DEVELOPMENT AND OTHERS PRIOR EXPENSES AND T HE SAME IS UPHELD. THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE PENALTY U/S 271(1)(C) BY DELETING THE PENALTY LEVIED ON THE ADDITION OF RS. 16,23,652/- ON WEB-SITE DEVELOPMENT EXPENSES INCURRED AFTER 22.6.2000. 5. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE US. ITA NO. 1591/DEL/2010 A.Y. 2001-02 4 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAS DEBITED CERTAIN EXPENDITURES IN THE PR OFIT AND LOSS ACCOUNT. THESE EXPENDITURES WERE IN THE NATURE OF SALES PROMOTION, STAFF WELFARE, TRAVELLING, PRINTING AND STATIONERY AND RECRUITMENT AND WEBSITE EXPENSES. THE DETAILS OF THESE EXPENDITURES WERE FULLY FURNISHED. NOW IN THE OPINION OF THE REVENUE THESE EXPENDITURES WHICH INTER-ALIA INCLUDED EXPENDITURE OF WEBSITE DEVELOPMENT WERE REVENUE IN NATURE. THIS WAS BECAUSE EXPENDITURE WA S INCURRED BY THE HOLDING COMPANY AND PASSED TO THE ASSESSEE WHICH WAS CLAIME D IN THE PROFIT AND LOSS ACCOUNT. IN THIS REGARD, WE FIND THAT AS REGARD S THE EXPENDITURE OF WEB-SITE DEVELOPMENT, THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) HIMSELF HAS DELETED THE PENALTY WHICH PERTAIN TO THE EXPENDITURE OF RS . 1623652/- ON WEBSITE DEVELOPMENT INCURRED AFTER 22.6.2000. HENCE FROM T HE SAME EXPENDITURE AGAINST A PART LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE LEVY OF PENALTY. HENCE REVENUE VIEW IS THAT THESE EXPENDITURES THOUG H REVENUE IN NATURE CANNOT BE ALLOWED AS SUCH IN AS MUCH AS THEY PERTAIN TO PR E-COMMENCEMENT PERIOD. FROM THIS IT IS AMPLY CLEAR THAT THERE WAS TWO OPIN ION POSSIBLE ON THE TREATMENT OF THE NATURE OF THESE EXPENDITURES. THERE IS NO FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT BY THE ASSESSEE. IN OUR CONSIDERED OPINION ASSESSEES CLAIM CANNOT BE SAID TO BE EX-FACIE BOGUS. IT WA S AN ITEM ON WHICH TWO VIEWS ARE POSSIBLE. UNDER THE CIRCUMSTANCES, IN OUR CONSIDE RED OPINION THE ASSESSEE CANNOT BE HELD GUILTY OF PENALTY U/S 271(1)(C) OF T HE IT ACT. 7. IN THIS REGARD, WE REFER TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. IN CIVIL APPEAL NO. 2463 OF 2010. IN THIS CASE VIDE ORDER DATED 17.3.2010 IT HAS BEEN H ELD THAT THE LAW LAID DOWN IN THE DILIP SHEROFF CASE 291 ITR 519 (SC) AS TO THE M EANING OF WORD CONCEALMENT ITA NO. 1591/DEL/2010 A.Y. 2001-02 5 AND INACCURATE CONTINUES TO BE A GOOD LAW BECAUS E WHAT WAS OVERRULED IN THE DHARMENDER TEXTILE CASE WAS ONLY THAT PART IN DILI P SHEROFF CASE WHERE IT WAS HELD THAT MENSREA WAS A ESSENTIAL REQUIREMENT OF PE NALTY U/S 271(1)(C). THE HONBLE APEX COURT ALSO OBSERVED THAT IF THE CONTEN TION OF THE REVENUE IS ACCEPTED THEN IN CASE OF EVERY RETURN WHERE THE CL AIM IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE THE PENAL TY U/S 271(1)(C). THIS IS CLEARLY NOT THE INTENDMENT OF LEGISLATURE. 8. IN THIS REGARD WE ALSO PLACE RELIANCE FROM THE A PEX COURT DECISION RENDERED BY A LARGER BENCH COMPRISING OF THREE OF THEIR LOR DSHIPS IN THE CASE OF HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 26 WHEREIN IT WAS HELD THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGA TION IS THE RESULT OF A QUASI- CRIMINAL PROCEEDINGS, AND PENALTY WILL NOT ORDINARI LY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LA W OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CONSCIOUS DI SREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORITY TO BE EXERCISED JUDIC IALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENA LTY IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE P ROVISIONS OF THE ACT, OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE OF FENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. 9. UNDER THE CIRCUMSTANCES, FOLLOWING THE ABOVE PRE CEDENTS, WE HOLD THAT ASSESSEES CLAIM WAS NOT EX-FACIE BOGUS AND HENCE P ENALTY IMPOSED U/S 271(1)(C) ITA NO. 1591/DEL/2010 A.Y. 2001-02 6 IS NOT ATTRACTED MERELY BECAUSE THE REVENUE HAS NOT ACCEPTED THE CLAIM OF THE ASSESSEE. ACCORDINGLY, WE DELETE THE LEVY OF PENALT Y. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/06/2010 UP ON CONCLUSION OF HEARING. SD/- SD/- [I.P. BANSAL] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 09/06/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES