Asiam Studio Pvt.Ltd., Ahmedabad V. The Dy.CIT., Circle-1, Ahmedabad

ITA 1917/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9110 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 10-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M SHUKLA
• Assessee Lawyers: V R CHOKSHI
• Keywords: Depreciation; Earning of tax free income
• Section: 271(1)(c); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE SHRI P.K.BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1917/AHD/2009 ASSESSMENT YEAR: 2004-05 DATE OF HEARING:11.8.09 DRAFTED:18.8.09 ASIAM STUDIO PVT. LTD., KAIVANNA, 7 TH FLOOR, OPP. BANK OF BARODA, PANCHVATI, AHMEDABAD PAN NO.AABCA8495R V/S . DCIT, CIRCLE-1, AHMEDABAD (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI V.R. CHOKSHI, AR RESPONDENT BY:- SHRI P.M SHUKLA, SR. DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, AHMEDABAD IN APPEAL NO. CIT(A)-VI/DCIT CIR.1/242/08-09 DATED 12-02-2009. THE ASSESSMENT WA S FRAMED BY THE ACIT, CIRCLE-1, AHMEDABAD U/S.143(3) OF THE INCOME-TAX AC T, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 30-0 5-2006 FOR THE ASSESSMENT YEAR 2004-05. THE PENALTY UNDER DISPUTE WAS LEVIED BY THE DCIT. CIRCLE-1, AHMEDABAD U/S.271(1)(C) OF THE ACT VIDE HIS ORDER D ATED 19-03-2008. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE PENALTY LEVIED BY THE ASSE SSING OFFICER U/S.271(1)(C) OF THE ACT OF RS.9,000/-. ITA NO.1917/AHD/2009 A.Y. 2004-05 ASIAM STUDIO P. LTD. V. DCIT, CIR-1, ABD PAGE 2 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED THE ASSESSMENT ORDER, ORDER OF CIT(A) AND PENALTY ORDER. THE BRIEF FACTS ARE THAT THE ASSESSEE- COMPANY ENGAGED IN THE EXPORT OF BUSINESS OF GARMEN T AND HOME FURNISHING ITEMS AND DURING THE YEAR UNDER CONSIDERATION THE A SSESSEE FILED RETURN OF INCOME DECLARED LOSS AT RS.22,06,430/- AS AGAINST T HE SAME THE ASSESSING OFFICER ASSESSED THE LOSS AT RS.20,09.143/- BY DISA LLOWANCE DEPRECIATION ON PROPERTY PURCHASED IN GOA AND DISALLOWANCE OF ESTIM ATED EXPENDITURE RELATING TO EARNING EXEMPTED DIVIDEND INCOME U/S.14A OF THE ACT. NO PENALTY IN RESPECT OF DISALLOWANCE OF DEPRECIATION ON PROPERTY AT GOA WAS INITIATED. THE PENALTY PROCEEDINGS WAS INITIATED IN RESPECT OF EST IMATED DISALLOWANCE OF RS.25,000/- U/S.14A OF THE ACT. THE ASSESSING OFFI CER WHILE EXAMINING THE ASSESSEES INVESTMENTS IN SHARES FOUND THAT ON INVE STMENTS AMOUNTING TO RS.1,35,14,493/- AS ON 31-03-2004 AND THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.4,93,819/-. THE ASSESSEES EXPLANATION THAT THEY HAD THEIR OWN FUNDS OF RS.389.77 LAKSHS AVAILABLE FOR INVESTMENT AND THE INVESTMENT AT THE BEGINNING OF THE YEAR WHICH WAS 200.66 LAKHS, HAD I N FACT GOT REDUCED TO RS.135.14 LAKHS AT THE CLOSE OF THE YEAR. IT WAS TH EREFORE SUBMITTED BY THE ASSESSEE THAT THERE WAS NO FRESH INVESTMENT AND CON SEQUENTLY NO EXPENDITURE WAS INCURRED DURING THE CURRENT YEAR FO R EARNING EXEMPT INCOME. NOT AGREEING WITH THE ASSESSEES SUBMISSION, THE AO DISALLOWED A SUM OF RS.25,000/- U/S. 14A OF THE ACT ON ESTIMATE HOLDING THAT THAT TRANSACTIONS OF THE SHARES HAVE BEEN MADE THROUGH SHARE-BROKER OR T HROUGH THE ASSESSEES OWN STAFF. FOR THE SERVICES RENDERED BY THESE PERSO NS, THERE MUST BE SOME EXPENSES. ASSESSEE FILED APPEAL BEFORE CIT(A) AND CIT(A) ALSO CONFIRMED BOTH DISALLOWANCES. AS REGARDS TO THE ESTIMATED DIS ALLOWANCE OF RS.25,000/- U/S. 14A OF THE ACT THIS TOO WAS CONFIRMED FOLLOWIN G THE ORDER OF THE CIT(A) FOR ASSESSMENT YEAR 2001-02 AS UNDER:- 4. THE SECOND GROUND OF APPEAL RELATES TO DISALLOW ANCE OF RS.25,000/- BY INVOKING SECTION 14A OF THE I.T. ACT. THE ASSESS ING OFFICER HAS STATED THAT THE APPELLANT HAS MAD INVESTMENTS IN SH ARES AND HAS DIVIDEND INCOME THEREFROM. IT IS STATED THAT THE TR ANSACTIONS OF SHARES ITA NO.1917/AHD/2009 A.Y. 2004-05 ASIAM STUDIO P. LTD. V. DCIT, CIR-1, ABD PAGE 3 ARE MADE THROUGH BROKERS OR THROUGH APPELLANTS OWN STAFF. FOR THE SERVICES OBTAINED FROM SUCH PERSONS, SOME EXPENSES MUST HAVE BEEN INCURRED. HE, THEREFORE, DISALLOWED RS.25,000/- ON LUMP SUM BASIS AS EXPENSES INCURRED TOWARDS EARNING OF SUCH INCOME BY INVOKING SECTION 14A. I FIND THAT SIMILAR DISALLOWANCE OF RS.25,000/- WAS MADE IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2001-02 AN D SUCH DISALLOWANCE WAS CONFIRMED BY THE CIT(A) VIDE ABOVE REFERRED APPELLATE ORDERS. FOR THE REASONS DISCUSSED IN THE SAID APPEL LATE ORDER, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE PRESENT YEAR IS ALSO CONFIRMED. AFTER THESE DISALLOWANCES WERE CONFIRMED BY THE CIT (A), THE AO VIDE HIS ORDER DATED 19-03-2008 LEVIED PENALTY US. 271(1)(C) OF RS .9,000/- ONLY IN REGARD TO THE CONFIRMATION OF DISALLOWANCE OF ESTIMATED EXPEN DITURE U/S. 14A, WHICH HAS BEEN CONFIRMED BY CIT(A). BEFORE THE ASSESSING OFFI CER IN REPLY TO SHOW CAUSE NOTICE, THE ASSESSEE REPLIED THAT EVEN IN THE ASSESSMENT YEAR 2001-02 THE AO HAS LEVIED PENALTY U/S.271(1) OF THE ACT I N REGARD TO THE DISALLOWANCE U/S. 14A OF THE ACT AND CIT(A) DELETED THE PENALTY VIDE PARA-6 OF HIS APPELLATE ORDER AS UNDER:- 6. COMING TO THE ASPECT OF DISALLOWANCE UNDER SEC. 14A OF THE ACT, IT IS SEEN THAT THE ISSUE WHETHER ADMINISTRATIVE EXPENSES ARE TO BE ALLOCATED AGAINST EXEMPT DIVIDEND INCOME OR NOT HAS BEEN SUBJ ECT TO DIFFERENT LEGAL OPINIONS. SUCH EXPENDITURE CAN DEFINITELY BE DISALLOWED IF THE ASSESSING OFFICER PINPOINTS SUCH DISALLOWABLES ON T HE BASIS OF MATERIAL ON RECORD. THIS HAS BEEN HELD BY THE DELHI TRIBUNAL IN THE CASE OF ACIT VS EICHER LTD REPORTED AT 101 TTJ 369. IN THIS CASE , ASSESSING OFFICER HAS BASICALLY WORKED OUT THE DISALLOWANCE O N ESTIMATED BASIS. THEREFORE, NO PENALTY IS LEVIABLE IN RESPECT OF THI S ADDITION ALSO. THE ASSESSEE SUBMITTED THAT THE FACTS BEING IDENTIC AL AND DISALLOWANCE U/S.14A IS UNDER LITIGATION AND IN SUCH A CASE, IT WOULD NOT BE SAID TO HAVE CONCEALED INCOME OR FURNISHED INACCURATE PARTICULAR S OF SUCH INCOME BUT THE AO LEVIED THE PENALTY BY GIVING FOLLOWING OBSERVATI ONS:- 7. ON GOING THROUGH THE ABOVE SUBMISSIONS, IT IS STATED THAT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND HAS EAR NED DIVIDEND INCOME THEREFROM. THE TRANSACTIONS OF SHARES ARE MA DE THROUGH BROKERS OR TROUGH ASSESSEES OWN STAFF. FOR THE SERVICES OB TAINED FROM SUCH ITA NO.1917/AHD/2009 A.Y. 2004-05 ASIAM STUDIO P. LTD. V. DCIT, CIR-1, ABD PAGE 4 PERSONS, SOME EXPENSES MUST HAVE BEEN INCURRED. THE REFORE, AN AMOUNT OF RS.25,000/- BEING EXPENSES RELATED TO INV ESTMENTS MADE IN EARNING EXEMPT INCOME WAS DISALLOWED ON LUMP SUM BA SIS. FURTHER, THE CIT(A)-V, AHMEDABAD HAS CONFIRMED THE DISALLOWANCE. 3.1 IN VIEW OF THE ABOVE, I AM SATISFIED THAT IT I S A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE CIT (A) AND CIT(A) CONFIRMED THE LEVIED OF PENALTY. AGGRIEVED, THE AS SESSEE CAME IN SECOND APPEAL BEFORE US. 4. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE, FIRS T OF ALL, STATED THE FACT THAT EVEN IN ASSESSMENT YEAR 2001-02, THE IDENTICAL ADDITIONS MADE WERE CONFIRMED IN APPEAL BY THE CIT(A) AND SUBSEQUENTLY PENALTY U/S. 271(1)(C) OF THE ACT WAS ALSO LEVIED BOTH FOR DISALLOWANCE OF DE PRECIATION IN RESPECT OF THE ASSESSEE PROPERTY AT GOA AND DISALLOWANCE OF RS.25 ,000/- U/S 14A OF THE ACT. THE THEN CIT(A) VIDE HIS ORDER NO. CIT(A)/V/ACIT CI R.1/12/2006-07 DATED 12- 10-2006 DELETED THE PENALTY LEVIED BY THE AO AND IT IS A FACT THAT THE DEPARTMENT HAS ACCEPTED THAT DECISION OF CIT(A) AND HAS NOT FILED ANY APPEAL BEFORE THE TRIBUNAL AND THE FACTS BEING IDENTICAL A ND THERE IS NO REASON FOR THE DEPARTMENT TO TAKE A DIFFERENT STAND FOR THE CURREN T YEAR. FURTHER, THE AD HOC DISALLOWANCE ON ESTIMATE WHICH IS THE VERY BASIS OF THE PRESENT PENALTY BY ITSELF IS WITHOUT ANY SUBSTANCE OR ANY EVIDENCE. I T HAS BEEN STATED EARLIER AS WELL THAT THE DISALLOWANCE IS COMPLETELY AD HOC AND ON ESTIMATE. MOREOVER, PENALTY LEVIED FOR IDENTICAL DISALLOWANCE IN ASSESS MENT YEAR 2001-02 WAS DELETED BY THE CIT(A) CLEARLY HOLDING THAT:- WHETHER THE ADMINISTRATIVE EXPENSES ARE TO BE ALLO CATED AGAINST THE DIVIDED INCOME OR NOT HAS BEEN SUBJECT TO DIFFERENT LEGAL OPINIONS IN THIS CASE, THE ASSESSING OFFICER HAS BASICALLY WORK ED OUT THE DISALLOWANCE ON ESTIMATED BASIS. THEREFORE, NO PENA LTY IS LEVIABLE IN RESPECT OF THIS ADDITION ALSO. ITA NO.1917/AHD/2009 A.Y. 2004-05 ASIAM STUDIO P. LTD. V. DCIT, CIR-1, ABD PAGE 5 5. AFTER HEARING BOTH THE SIDES, WE FIND THAT THE A SSESSEE BEFORE THE ASSESSING OFFICER AS WELL AS CIT(A) THAT IN THE CUR RENT YEAR THE ASSESSEES INVESTMENT HAVE IN FACT COME DOWN FROM RS.389.77 L; AKHS TO RS.200.66 LAKHS. IN OTHER WORDS, THERE IS NO FRESH INVESTMENTS IN TH E CURRENT YEAR FOR WHICH THE AO'S OBSERVATION THE TRANSACTIONS OF THE SHARES HAVE BEEN MADE THRO UGH SHARE BROKER OR THROUGH THE ASSESSEES OWN STAFF. F OR THE SERVICES RENDERED BY THESE PERSONS, HERE MUST BE SOME EXPENSES MAY HOLD VALID AND NO TRANSACTIONS IN THE CURRENT YEAR HAVE BEEN CONDUCTE D EITHER THROUGH THE STOCK BROKER OR THROUGH THE ASSESSEES STAFF FOR WHICH AN Y EXPENSES HAVE BEEN INCURRED. THEREFORE, THE VERY BASIS FOR DISALLOWAN CE DOES NOT EXIST AND CONSEQUENTLY THE LEVY OF PENALTY TOO IS WITHOUT ANY BASIS. IT IS ALSO A FACT THAT IN THESE TIMES OF ELECTRONIC CLEARING SYSTEM (ECS), EVEN THE DIVIDEND CHEQUES DO NOT NEED NOT TO BE CARRIED TO THE BANK TO BE DEP OSITED. IT IS NOT A CASE WHERE NO EXPLANATION HAS BEEN OFFERED AND IS ALSO N OT A CASE WHERE THE EXPLANATION OFFERED HAS BEEN FOUND TO BE FALSE. FUR THER, BOTH BEFORE THE AO AND CIT(A) THE ASSESSEE HAD CITED DECISIONS OF THIS TRIBUNAL IN THE CASE OF EICHER LTD. 101 TTJ 369 AND THERE ARE SEVERAL OTHER DECISIONS ON THIS ISSUE WHICH SUPPORT THE ASSESSEES CONTENTION THAT THERE CANNOT BE A PROPORTIONATE DISALLOWANCE OF EXPENSES FOR THE PURPOSES OF SECTIO N 14A. IN VIEW OF THIS, THEREFORE THE BONA FIDES OF THE ASSESSEE IN RESPEC T OF THEIR EXPLANATION ALSO CANNOT BE DOUBTED AND IN ASSESSEES OWN ASSESSEE BA SED ON THE VERY SAME ARGUMENTS, THE THEN CIT(A) FOR ASSESSMENT YEAR 2001 -02 HAD DELETED THE PENALTY LEVIED BY THE AO IN RESPECT OF THE VERY SAM E ITEM. THAT IN ITSELF IS SUFFICIENT TO PROVE THE BONA FIDES OF THE ASSESSEE S EXPLANATION AND IN THIS REGARD THE ASSESSEE RELIES UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CEMENT MARKETING CO. OF INDIA LTD. V. ACST INDORE & OTHERS 124 ITR 15 (SC), WHEREIN THE APEX COURT HAS HELD:- A RETURN CANNOT BE FALSE UNLESS THERE IS AN ELEM ENT OF DELIBERATENESS INIT. IT IS POSSIBLE THAT EVEN WHERE THE INCORRECTN ESS OF THE RETURN IS CLAIMED TO BE DUE TO WANT OF CARE ON THE PAT OF THE ASSESSEE AND THERE IS NO REASONABLE EXPLANATION FORTH COMING FROM THE ASSESSEE FOR SUCH WANT OF CARE, THE COURT MAY, INN A GIVEN ASSESSEE, INFER DELIBERATION AND THE RETURN MAY BE LIABLE TO BE BRANDED AS A FAL SE RETURN. BUT WHERE ITA NO.1917/AHD/2009 A.Y. 2004-05 ASIAM STUDIO P. LTD. V. DCIT, CIR-1, ABD PAGE 6 THE ASSESSEE DOES NOT INCLUDE A PARTICULAR ITEM IN THE TAXABLE TURNOVER UNDER A BONA FIDE BELIEF THAT HE IS NOT LIABLE SO T O INCLUDE IT, IT WOULD NOT BE RIGHT TO CONDEMN THE RETURN AS A FALSE RETURN INVITING IMPOSITION OF PENALTY. IN THE PRESENT CASE OF THE ASSESSEE, THERE IS NO RO OM FOR DOUBT THAT THERE WAS BONA FIDE BELIEF ON THE PART OF THE ASSESSEE THAT N O PROPORTIONATE DISALLOWANCE WAS CALLED FOR AND THEREFORE NO PROPORTIONATE DISAL LOWANCE WAS OFFERED WHILE FURNISHING THE RETURN. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY U/S.271(1) OF THE ACT AND CIT(A) HAS WRONGLY CONFIRMED THE PENALTY. ACCORDINGLY, WE DELETE THE P ENALTY AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 11/09/2009 SD/- SD/- (P.K.BANSAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 11/09/2009 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VI, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD