NTN NEI Manufacturing India (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 1877/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4210 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 31-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS ANUSHA KHURANA SENIOR
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Revised return; Bonafide mistake

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.1877/DEL./2010 (ASSESSMENT YEAR : 2006-07) M/S. NTN MANUFACTURING INDIA PVT. LTD., VS. ACIT, CIRCLE 13 (1), 805, INTERNATIONAL TRADE TOWER, NEW DELHI. NEHRU PLACE, NEW DELHI 110 019. (PAN : AACCN2241B) (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. RAKESH GUPTA, ADVOCATE & SHRI TA RUN, ADVOCATE REVENUE BY : MRS. ANUSHA KHURANA, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER OF CIT (APPEALS)-XVI, NEW DELHI DATED 18.02.2010. THE GRO UNDS OF APPEAL READ AS UNDER :- 1. THE PENALTY OF RS.8,07,300/- IMPOSED U/S 271(1) (C) IS AGAINST FACTS AND LAW AND BE DIRECTED TO BE DELETED . 2. THE PENALTY ORDER WAS WITHOUT JURISDICTION AND I N ANY CASE IT WAS TIME BARRED. ITA NO.1877/DEL/2010 2 3. THE ASSESSEE RESERVES THE RIGHT TO ADD/ALTER/DELETE/MODIFY ANY GROUNDS OF APPEAL AT TH E TIME OF HEARING. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS SUSTAIN ING THE PENALTY OF RS.8,07,284/- U/S 271(1)(C) OF INCOME-TAX ACT, 1961 . 3. THE ASSESSEE COMPANY WAS INCORPORATED ON 20.9.2 005. THE ASSESSEE COMPANY FILED THE RETURN OF INCOME ALONG WITH THE A UDITED ACCOUNTS DECLARING A LOSS OF RS.23,98,353/-. ADMITTEDLY, THERE WERE N O BUSINESS ACTIVITIES CARRIED OUT DURING THE YEAR. THE BUSINESS WAS NOT SET UP D URING THE YEAR. A FACTORY BUILDING WAS UNDER CONSTRUCTION AT BAWAL INDUSTRIAL AREA IN HARYANA. THE CONSTRUCTION OF THE FACTORY WAS INCOMPLETE AT THE E ND OF THE FINANCIAL YEAR. THE ACCOUNTS OF THE ASSESSEE WERE AUDITED BY A CHAR TERED ACCOUNTANT. THE LOSS OF RS.23,98,353/- WAS CARRIED FORWARD TO THE B ALANCE SHEET. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SURRENDERED TH IS CLAIM OF RS.23,98,353/- THROUGH ITS LETTER DATED 10.3.2008. CONSEQUENT TO THIS ADMISSION, THE ASSESSEE ALSO REVISED THE INCOME-TAX RETURN FOR THE SUBSEQUE NT YEAR 2007-08 ON 24.5.2008 BY REDUCING THE LOSS FOR THE YEAR UNDER C ONSIDERATION FROM CARRYING FORWARD. THE ASSESSMENT WAS COMPLETED FOR THE ASSE SSMENT YEAR 2007-08 ON THE BASIS OF REVISED RETURN. ASSESSEE CLAIMED THAT IT WAS A BONAFIDE CLERICAL MISTAKE WHICH OCCURRED DUE TO FIRST YEAR OF RETURN AND FILED BY IN-HOUSE ITA NO.1877/DEL/2010 3 PERSON. REVENUE CLAIMS THAT IT WAS SURRENDERED ONL Y WHEN ASSESSING OFFICER POINTED IT OUT. 4. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LE ARNED AR SUBMITTED THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 20.9.2005. THIS WAS THE FIRST YEAR OF THE ASSESSEE IN FILING THE RETURN OF INCOME. TH E RETURN WAS FILED BY IN- HOUSE PERSON WHO WAS NOT WELL-ACQUAINTED WITH THE C OMPUTATION OF INCOME AS THIS WAS THE FIRST YEAR OF THE COMPANY. THE ASSESS EE HAS DISCLOSED ALL THE INFORMATION AND ALSO FILED THE AUDITED ACCOUNTS ALO NG WITH RETURN. WHILE FILING THE RETURN, AN INADVERTENT MISTAKE HAPPENED BY WAY OF CLAIMING LOSS OF RS.23,98,353/-. AS SOON AS IT CAME TO THE ASSESSEE S NOTICE, THE SAME WAS RECTIFIED BY WAY OF SURRENDERING AND ALSO BY WAY OF REVISING THE RETURN FOR SUBSEQUENT YEAR. THUS, THERE WAS NO LOSS OF REVENU E. THERE WAS NO INTENTION TO DO SO. THERE WAS NO MALAFIDE ON ASSESSEES PART AS FAR AS THE CLAIM OF EXPENSES WAS CONCERNED. IT WAS AN INADVERTENT ERRO R ON ACCOUNT OF BEING THE FIRST YEAR OF THE COMPANY AND HE PLACED RELIANCE ON THE FOLLOWING CASE LAWS :- (I) RATILAL ASHABHAI HUF VS. ITO 68 ITD 187 (AHMD. ) (II) ITO VS. RAJKOT RICE AND GENERAL MILLS LTD. 11 0 TAXMAN 102 (CHD.); (III) ITO VS. VEENA ESTATES PVT. LTD. 81 ITD 401 (MUM.); (IV) CIT VS. BACARDI MARTINI INDIA LTD. (2007) 288 ITR 5 85; ITA NO.1877/DEL/2010 4 (V) CIT VS. INTERNATIONAL AUDIO VISUAL CO. (2007) 288 I TR 570 (DEL.); (VI) K.C. BUILDERS VS. ACIT 265 ITR 562 (SC); (VII) DCIT VS. RURAL ELECTRICAL CO-OP. SOCIETY LTD. (2005 ) 279 ITR 319; (VIII) CIT VS. UNION ELECTRIC CORPN. (2006) 281 ITR 266 (G UJ.); (IX) CIT VS. BETA NEPTHOL LTD. 272 ITR 323 (MP); (X) BALAJI VEGETABLE PRODUCTS PVT. LTD. VS. CIT 290 ITR 172 (KAR.); (XI) DILIP N SHROFF VS. JCIT 161 TAXMAN 218 (MUM.); AND (XII) KANBAY SOFTWARE INDIA PVT. LTD. VS. DCIT 122 TTJ 72 1 (ITAT- PUNE) HE FURTHER SUBMITTED THAT THERE WAS NO DELIBERATE A TTEMPT ON THE PART OF THE ASSESSEE TO SUBMIT INACCURATE PARTICULARS OF INCOME . BEING THE FIRST YEAR OF THE COMPANY NO BUSINESS WAS COMMENCED, HENCE THERE WAS NO INCOME. THERE WAS NO SUBMISSION OF INACCURATE PARTICULARS IN THE RETURN OF INCOME. HE ALSO PLEADED THAT THE CASE LAWS RELIED UPON BY THE REVEN UE ARE DISTINGUISHABLE. THERE WAS NO MALAFIDE ON THE PART OF THE ASSESSEE C OMPANY IN CLAIMING THE EXPENDITURE. HE FURTHER SUBMITTED THAT VARIOUS COU RTS HELD THAT CERTAIN EXPENDITURE ARE NECESSARY TO SUSTAIN THE ARTIFICIAL JURIDICAL PERSON IN THE FORM OF THE COMPANY AND WHICH ARE ALLOWABLE EVEN WHEN TH E BUSINESS HAS NOT ITA NO.1877/DEL/2010 5 COMMENCED. HE ALSO PLEADED THAT THE ASSESSEE HAS S URRENDERED THE CLAIM OF EXPENDITURE VOLUNTARILY AND HE VEHEMENTLY PLEADED T HAT IT WAS A BONAFIDE MISTAKE CREPT INTO THE COMPUTATION OF INCOME WHILE FILING THE RETURN OF INCOME BY THE IN-HOUSE PERSON BEING THE FIRST YEAR OF THE COMPANY. HE RELIED ON THE DECISION OF ITAT DELHI I BENCH IN THE CASE OF ITO VS. MOKUL FINANCE (P) LTD. (2007) 110 TTJ (DEL.) 445 AND ITAT MUMBAI C BENCH IN THE CASE OF GLORIOUS REALTY (P) LTD. VS. ITO (2009) 29 SOT 292 (MUMBAI). HE PLEADED THAT THE AMOUNT WHICH WAS SURRENDERED BY THE ASSESSEE VOLUNTARILY WAS ALSO HIGHLY DEBATABLE LEGALLY, THER EFORE, THE PENALTY SHOULD NOT BE LEVIED. 5. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW. 6. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE A SSESSEE COMPANY WAS INCORPORATED ON 20.9.2005 AND THIS WAS THE FIRST FI NANCIAL YEAR 2005-06 RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. T HE FACTORY BUILDING OF ASSESSEE WAS UNDER CONSIDERATION, THEREFORE, NO COM MERCIAL BUSINESS WAS COMMENCED DURING THE YEAR. THE ACCOUNTS WERE AUDIT ED BY THE CHARTERED ACCOUNTANT WHICH WAS FILED ALONG WITH THE RETURN OF INCOME. THE ASSESSEES CLAIM THAT IT WAS A BONAFIDE MISTAKE WHICH HAS BEEN DONE ON ACCOUNT OF INADVERTENT CLERICAL ERROR APPEARS TO BE MORE REAL AND ACCEPTABLE IN THIS ITA NO.1877/DEL/2010 6 REGARD. THERE APPEARS TO BE NO DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO SUBMIT INACCURATE PARTICULARS OF INCOME. BEING THE FIRST YEAR AND DUE TO NON-COMMENCEMENT OF BUSINESS, THERE WAS NO INCOME. THE EXPENSES ARE CLAIMED IN RETURN AS PER P&L ACCOUNT INADVERTENTLY. ALTHOUGH ASSESSEE SURRENDERED WHOLE OF AMOUNT BUT SOME OF EXPENSES AR E ALLOWABLE IN VIEW OF VARIOUS DECISIONS OF HIGH COURT AND ITAT. AS PER DECISION OF ITAT, DELHI I BENCH, CITED SUPRA, CERTAIN BUSINESS EXPENDITUR E ARE ALLOWABLE EVEN WHEN NO BUSINESS TRANSACTIONS DURING THE PREVIOUS YEAR. THE ITAT HAS HELD AS UNDER :- THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON, IT NEEDS TO INCUR CERTAIN EXPENDITURE TO KEEP ITSELF AFLOAT AND HAVE ITS CONTINUED EXISTENCE. UNLIKE A NATURAL PERSON, A COM PANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONS-WHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE AO THAT THE EX PENDITURE OF THE ASSESSEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS- A-VIS ITS LEGITIMATE BUSINESS REQUIREMENTS. IN THE CASE OF TH E CORPORATE ASSESSEES SUCH EXPENSES HAVE TO BE ALLOWED AS DEDUC TION IRRESPECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGA GED IN ACTIVE BUSINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCO MES. THE CIT (A) WAS, THEREFORE, JUSTIFIED IN HIS CONCLUSION S. THAT IS, HOWEVER, NOT THE ONLY REASON WHY THE DISALLOWANCE M ADE BY THE AO WAS UNSUSTAINABLE IN LAW. THE WHOLE CAUSE OF ACT ION OF DISALLOWANCE OF EXPENSES IS IN THE BACKGROUND OF AO 'S OBSERVATION THAT THE ASSESSEE DID NOT CARRY OUT ANY BUSINESS TRANSACTIONS WHICH AT BEST WAS AO'S FINDING ABOUT A N ACTIVITY OF BUSINESS NOT BEING FUNCTIONAL IN THE RELEVANT PREVI OUS YEAR. NOT CARRYING ON BUSINESS ACTIVITY IN A PARTICULAR PERIO D CANNOT BE EQUATE WITH CLOSURE OF BUSINESS AS IT TAKES AN UNSU STAINAB1Y NARROW VIEW OF THE SCOPE OF CESSATION OF A BUSINESS . UNLESS THE BUSINESS IS ABANDONED OR CLOSED AND EVEN IF BUSINES S IS AT A DORMANT STAGE WAITING FOR PROPER MARKET CONDITIONS TO DEVELOP, ITA NO.1877/DEL/2010 7 THE EXPENDITURE INCURRED IN THE COURSE OF SUCH A BU SINESS IS TO BE ALLOWED AS DEDUCTION. FOR THIS REASON ALSO, THE DISALLOWANCE MADE BY THE AO WAS NOT JUSTIFIED, AND THE CIT(A) RI GHTLY DELETED THE SAME. THE ASSESSEE HAS SURRENDERED THE WHOLE OF THE AMOUN T AND ABANDONED THE CLAIM OF THE CARRY FORWARD LOSS AND EVEN REVISED TH E RETURN FOR SUBSEQUENT YEAR. HOWEVER, THE ISSUE OF ALLOWABILITY WAS A DEB ATABLE ISSUE. MERE REJECTION OF THE CLAIM OF DEDUCTION OF EXPENDITURE ON ACCOUNT OF NON- COMMENCEMENT OF BUSINESS WOULD NOT BE SUFFICIENT TO SATISFY THE REQUIREMENTS OF LEVY OF PENALTY UNDER SECTION 271(1 )(C). THUS, AFTER CONSIDERING THE PLEADINGS AND GOING THROUGH THE CAS E LAWS RELIED UPON, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND ALLOW THE GROUND OF ASSESSEES APPEAL. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 1 ST DAY OF APRIL, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 21 ST DAY OF APRIL, 2011/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT, NEW DELHI.