ALD AUTOMOTIVE P.LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 2486/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1597 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 11-04-2014
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: B M AGARWAL
• Keywords: Bonafide belief
• Section: 37

Judgement Text

, , A, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2486/MUM/2014 ASSESSMENT YEAR: 2005-06 ALD AUTOMOTIVE PVT. LTD. 3 RD FLOOR, WING B, COMMERCIAL I OFFICE TOWER, KOHINOOR CITY, KIROL ROAD, KURLA (W) MUMBAI-400070 / VS. DCIT CIRCLE 3(1), 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI- ( APPELLANT ) (RESPONDENT ) P.A. NO. AAFCA0924K APPELLANT BY SH RI B.M . AGARWAL ( A R) REVENUE BY SHRI M.V. RAJGURU (DR) / DATE OF HEARING: 28/11/2016 / DATE OF ORDER: 15/12/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS), MUMBAI- 5 (IN SHORT CIT(A)}, DATED 25.02.2014 PASSED AGAINST PE NALTY ORDER U/S 271(1)(C) OF THE ACT, DATED 25.02.2013 FOR ASSE SSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS: 1. THE LEARNED ASSESSING OFFICER (DY. COMMISSIONER OF INCOME TAX, CIRCLE 3(1), MUMBAI) HAS ERRED IN LEVYI NG PENALTY OF RS.13,07,785/- U/S 271(1)(C) OF THE INCO ME TAX ALD AUTOMOTIVE P. LTD. 2 ACT, 1961 AND FURTHER THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS)-5 HAS ALSO ERRED IN CONFIRMING THE PE NALTY LEVIED BY THE ASSESSING OFFICER. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE BY SHRI B.P. AGARWAL, AUTHORISED REPRESENTATIVES (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI M.V. RAJGURU, DEPARTMEN TAL REPRESENTATIVE (CIT-DR) ON BEHALF OF THE REVENUE. 3. THE BRIEF BACKGROUND IS THAT THE ASSESSEE COMPANY WAS INCORPORATED FOR CARRYING OUT THE BUSINESS AS OPERA TORS OF CARRIERS, TRANSPORT VEHICLES, AGRICULTURAL VEHICLES AND OTHER VEHICLES. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, IT WAS NOTED BY THE AO THAT PROFIT AND LOSS ACCOUNT OF THE COMPANY REFLECTED THAT NO INCOME WAS EARNED DURING THE YEAR . ACCORDINGLY, THE AO GAVE A SHOW CAUSE NOTICE TO THE ASSESSEE FOR DISALLOWING ENTIRE EXPENSES IN ABSENCE OF COMME NCEMENT OF BUSINESS. IN RESPONSE, THE ASSESSEES SUBMITTED T O THE AO VIDE ITS LETTER DATED 12.12.2007 AS UNDER: THE ASSESSEE COMPANY WAS INCORPORATED ON 11-02-200 5. THE COMPANY WAS SET TO CARRY ON THE BUSINESS OF PRO VIDING OPERATIONAL LEASE TO CUSTOMERS WITH REGARD TO THE V EHICLES AS PER THEIR REQUIREMENTS. THERE IS A CLEAR DISTINC TION BETWEEN COMMENCEMENT OF BUSINESS AND SETTING UP OF THE BUSINESS. THE QUESTION AS TO WHEN BUSINESS CAN BE SAID TO HAVE BEEN SET UP ANTI COMMENCED WILL DEPEND ON FACTS AND SURROUNDING CIRCUMSTANCES OF EACH CASE AN D NOT ON THE ACCOUNTING TREATMENT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IT IS ONLY WHEN THE UNIT HAS BEEN PUT INT O SUCH A SHAPE THAT IT CAN START FUNCTIONING AS A BUSINESS O R A MANUFACTURING ORGANIZATION THEN IT CAN BE SAID THE AT THE UNIT HAS BEEN SET UP. THE ASSESSEE CAN HE SAID TO H AVE SET UP ITS BUSINESS FROM THE DATE WHEN ONE OF THE E SSENTIAL CATEGORIES OF ITS BUSINESS ACTIVITIES IS STARTED AN D IT IS NOT NECESSARY THAT ALL CATEGORIES OF ITS BUSINESS ACTIV ITIES MUST START EITHER SIMULTANEOUSLY OR THAT THE LAST S TAGE MUST START BEFORE IT CAN BE SAID THE BUSINESS WAS S ET UP'. ALD AUTOMOTIVE P. LTD. 3 3.1. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE BUT FOUND THE SAME AS UNACCEPTABLE. IT WAS HELD BY HIM THAT NO BUSINESS WAS DONE BY THE ASSESSEE DURING THE YEAR, THEREFORE ENTIRE EXPENSES WERE DISALLOWED. THE ASSESSEE HAD F ILED RETURN AT LOSS OF RS.36,63,262/- WHICH WAS CONVERTED INTO NIL BY THE AO BY DISALLOWING ENTIRE EXPENSES CLAIMED IN THE PR OFIT & LOSS ACCOUNT. THE MATTER REACHED UP TO TRIBUNAL WHERE TH E DISALLOWANCE MADE BY THE AO WAS CONFIRMED. 3.2. SUBSEQUENTLY, THE PENALTY PROCEEDING WERE INITIATE D BY THE AO U/S 271(1)(C). THE ASSESSEE WAS ASKED TO JUS TIFY, WHY PENALTY SHOULD NOT BE LEVIED. IN RESPONSE THE ASSES SEE EXPLAINED TO THE AO VIDE ITS LETTER DATED 23.01.201 3 AS UNDER: (A) THE ASSESSEE COMPANY WAS INCORPORATED IN FEBRU ARY, 2005. THE NECESSARY INFRASTRUCTURE WAS PUT IN PLACE BY ACQUIRING OFFICE PREMISES, STAFF, FURNITURE AND FITTINGS ETC. A WHOLE TIME DIRECTOR WAS ALSO APPOIN TED. (B) THE ASSESSEE COMPANY THEREFORE CONTENDED THAT AS THE COMPANY WAS ENTIRELY SET UP DURING THE PREVIOUS YEAR AND HENCE THE EXPENSES INCURRED AFTER ITS SETTING UP ARE ENTIRELY ALLOWABLE UNDER THE ACT AND ACCORDINGLY CLAIMED. (C)IT IS WELL SETTLED THAT FOR THE PURPOSE OF ALLOW ANCE OF ANY EXPENSES U/S 37 OF THE ACT, IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD HAVE EARNED INCOME OUT OF SUCH ACTIVITY. (D)IT HAD ALREADY STARTED THE BUSINESS, ONLY BECAUS E ANY SALES COULD NOT BE RECEIVED, IT CANNOT BE CONSIDERED THAT NO BUSINESS WAS STARTED. THE ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAWS INCLUDING THE FOLLOWING CONTENDING THAT WHERE THE EXPENSES WERE NOT ALLOWED BY HOLDING THAT THERE WAS NO BUSINESS ACTIVIT Y , THE SAME CANNOT AUTOMATICALLY LEAD TO THE VIEW OF CONCEALMENT/ FURNISHING OF INACCURATE PARTICULARS FOR PENALTY U/S.2711)(C) OF THE ACT. ALD AUTOMOTIVE P. LTD. 4 (E) IT IS A SETTLED LAW THAT IN CASE OF BONAFIDE CL AIMS OR REJECTION OF CLAIMS NO PENALTY CAN HE LEVIED DESPIT E THE FACT THAT WHEREVER THERE IS DIFFERENCE BETWEEN RETU RNED INCOME AND ASSESSED INCOME, THE PRESUMPTION IS RAIS E AGAINST ASSESSEE FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. (F) PENALTY CANNOT HE LEVIED MERELY BECAUSE THE ASSESSEE'S EXPLANATION WAS NOT ACCEPTED, WHEREAS ALL THE FACTS AND THE MATERIALS RELEVANT TO COMPUTATION OF INCOME WERE BEFORE THE AO. (G) RELIANCE IS PLACED BY THE ASSESSEE COMPANY ON VARIOUS JUDICIAL PRONOUNCEMENTS IN SUPPORT OF ITS A BOVE CONTENTIONS INCLUDING THE CASE OF RELIANCE PETROPRO DUCTS PVT. LTD. 3.3. BUT, THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE. IT WAS OBSERVED BY HIM THAT ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE SUGGEST THAT NEITHER THE BUSINESS OF THE ASSESSEE WAS SET UP NOR IT WAS COMMENCED. THUS, THE ASSESSEE WAS NOT JUSTIFIED IN CLAIMING THE EXPENSES , THEREFORE, THE EXPENSES CLAIMED BY THE ASSESSEE CANNOT SAID TO BE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THEREFORE, THE ASSESSEE WAS WRONG IN CLAIMING THE IMPUGNED EXPENSES UNDER T HE HEAD OF BUSINESS. IT WAS HELD BY HIM THAT UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSESSEE MADE LEGAL OR BONAFIDE CLAIM. UNDER THESE CIRCUMSTANCES, PENAL TY WAS LEVIED BY HIM @ 100% OF THE TAX SOUGHT TO BE EVADE D UPON THE DISALLOWANCE OF RS.36,63,262/- AMOUNTING TO RS.13,0 7,785/-. 3.4. IN THE APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED IN DETAIL THAT THE ASSESSEE HAD STARTED I TS BUSINESS ON 11.02.2005. THE COMPANY HAD APPOINTED ITS MANAGI NG DIRECTOR MR. K. SUGIT REDDY, WHO WAS CHARTERED ACCO UNTANT BY PROFESSION. HE WAS A PROFESSIONAL EMPLOYEE AND DID NOT OWN ANY OWNERSHIP IN THE COMPANY. THE COMPANY INCURRED ALD AUTOMOTIVE P. LTD. 5 EXPENSES ON SALARY OF ITS EMPLOYEE WHICH INCLUDED F EE FOR HIS CHILDREN AS PER TERMS OF THE EMPLOYMENT, THE RENT O F OFFICE PREMISES, BROKERAGE FOR OFFICE TAKEN ON RENT, LEGAL AND PROFESSIONAL FEE, PRINTING & STATIONARY AND MOTOR E XPENSES FOR THE PURPOSE OF BUSINESS OF THE COMPANY. THE ASSESSE E HAD MADE ALL THE REQUISITE ARRANGEMENTS TO CATER TO ITS CUSTOMERS. THUS, IN THE VIEW OF THE SAME, THOUGH BUSINESS OF T HE ASSESSEE WAS SET UP, BUT COULD NOT BE COMMENDED FOR WANT OF ORDERS FROM THE CUSTOMERS. BUT, AS PER LAW EXPENSES ARE AL LOWABLE IMMEDIATELY AFTER THE SETTING UP OF BUSINESS. THERE FORE, THESE EXPENSES WERE CLAIMED IN THE PROFIT AND LOSS ACCOUN T AND IN THE RETURN UNDER THE HEAD BUSINESS. THUS, THE CLAIM OF THE ASSESSEE WAS MADE IN BONAFIDE MANNER AND FULL DISCL OSURE WAS MADE IN THE PROFIT AND LOSS ACCOUNT. NOTHING IN -GENUINE OR BOGUS OR FALSE COULD BE DISCOVERED BY THE LOWER AUTHORITIES. UNDER THESE CIRCUMSTANCES, NO PENALTY WAS LEVIABLE, THEREFORE PENALTY SHOULD BE DELETED. BUT, LD. CIT(A) WAS NOT SATISFIED AND HE ENDORSED THE ACTION OF THE AO BY CONFIRMING THE PENALTY. 4.5. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L VEHEMENTLY OPPOSED THE LEVY OF PENALTY. HE REITERAT ED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) IN DETAIL. O UR ATTENTION WAS ALSO DRAWN ON THE EVIDENCES ENCLOSED IN THE PAPER BOOK COMPRISING OF BOARD RESOLUTION FOR APPOI NTMENT OF MANAGING DIRECTOR OF THE COMPANY AND FORM NO.16 ISS UED TO THE MANAGING DIRECTOR WHO WAS EMPLOYEE OF THE COMPA NY. OUR ATTENTION WAS ALSO DRAWN UPON THE LIST CONTAINING N AMES AND PARTICULARS OF EMPLOYEES WHO WERE APPOINTED IN THE IMPUGNED ALD AUTOMOTIVE P. LTD. 6 YEAR AS WELL AS IN THE SUBSEQUENT YEAR. OUR ATTENTI ON WAS ALSO DRAWN ON THE FACTS THAT COMPANY HAD EARNED INCOME I N ALL THE SUBSEQUENT YEARS. IT WAS SUBMITTED THAT THE CLAIM W AS MADE BY THE ASSESSEE IN BONAFIDE MANNER MAKING FULL DISC LOSURE AND NOTING FALSE OR BOGUS HAS BEEN FOUND BY THE LOWER A UTHORITIES. IT WAS REQUESTED THAT UNDER THESE CIRCUMSTANCES, LE VY OF PENALTY WAS NOT JUSTIFIED. 4.6. WE HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES O F THE CASE. IT IS NOTED BY US THAT EXPENSES WERE CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT WHICH WERE DISALLOWED BY THE AO ON THE GROUND THAT BUSINESS WAS NOT COMME NCED. OUR ATTENTION WAS DRAWN ON THE FACTS THAT AO HAS NO T FOUND ANY EXPENSES AS IN-GENUINE OR FALSE OR BOGUS. THE A SSESSEE CLAIMED THE EXPENDITURE IN THE PROFIT & LOSS ACCOUN T UNDER THIS BELIEF THAT THE BUSINESS OF THE ASSESSEE HAD BEEN S ET UP EVEN IF IT WAS NOT YET COMMENCED AND ACCORDINGLY EXPENSES W ERE CLAIMED IN THE RETURN SINCE AS PER LAW EXPENSES ARE ALLOWABLE IMMEDIATELY AFTER THE SETTING UP OF THE BUSINESS. B UT, AS PER THE AO THE BUSINESS WAS NOT EVEN SET UP AND THEREFO RE HE DISALLOWED THE EXPENSES. 4.7 . UNDER THESE CIRCUMSTANCES, WE NEED TO EXAMINE WHE THER THE BELIEF OF THE ASSESSEE WAS BASED UPON SOME MATE RIAL OR IT WAS WHOLLY UNFOUNDED AND DEVOID OF ANY LOGIC. IN TH E FACTS BROUGHT BEFORE US IT HAS BEEN DEMONSTRATED BY THE A SSESSEE THAT THE ASSESSEE HAD APPOINTED ITS MANAGING DIRECT OR AND OTHER EMPLOYEES IN THE IMPUGNED YEAR ITSELF. IN THE IMMEDIATELY SUBSEQUENT YEAR, THE ASSESSEE HAD EMPLO YED 25 EMPLOYEES AND ALSO MADE HUGE INCOME AS IS EVIDENT F ROM THE ALD AUTOMOTIVE P. LTD. 7 PROFIT AND LOSS ACCOUNT OF A.Y. 2006-07. THE ASSESS EE CLAIMED THAT IT WAS READY TO CATER TO ITS CUSTOMERS IN F.Y. ENDING 31.03.2005 (I.E. A.Y. 2005-06), BUT IN ABSENCE OF A NY ORDER FROM THE CUSTOMERS, NO REVENUE COULD BE EARNED. THE CLAIM OF THE ASSESSEE CANNOT BE SAID TO BE WITHOUT ANY BASIS . UNDER THESE CIRCUMSTANCES, THE VIEW ADOPTED BY THE ASSESS EE THAT ITS BUSINESS WAS SET UP CANNOT BE SAID TO BE DEVOID OF ANY BONAFIDE BELIEF. AS PER AO, ASSESSEES CLAIM OF SET UP OF BUSINESS IN A.Y. 2005-06 REMAINED UNSUBSTANTIATED T HEREFORE, IT WAS REJECTED BY HIM. BUT, IT IS NOTED THAT THE A O WAS ALSO NOT ABLE TO DISPROVE THE CLAIM OF THE ASSESSEE. THE POSSIBILITY OF THE CLAIM OF THE ASSESSEE BEING CORRECT CANNOT B E TOTALLY RULED OUT. UNDER THESE CIRCUMSTANCES, IT CAN CERTAI NLY BE SAID THAT THE CLAIM OF THE ASSESSEE WAS NOT DISPROVED BY THE AO. FURTHER, IT IS NOTED FROM THE ORDER OF THE TRIBUNAL DATED 17.04.2014 PASSED IN THE QUANTUM PROCEEDINGS THAT I T WAS FOUND BY THE TRIBUNAL AFTER ANALYZING ALL THE FACTS AND CIRCUMSTANCES OF THE CASE THAT ASSESSEES CASE WAS UNSUBSTANTIATED AND UNPROVED. 4.8. APART FROM THAT, IT IS FURTHER NOTED BY US THAT FU LL PARTICULARS OF EXPENSES CLAIMED HAVE BEEN FURNISHED . NOTHING HAS BEEN BROUGHT ON RECORD BY THE AO INDICATING IF ANY EXPENSE WAS BOGUS OR FALSE. THUS, TAKING INTO ACCOU NT, ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT T HE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT V. RELIANCE PETROPRODUCT PVT. LTD. 322 ITR 158 WOULD BE FULLY APPLICABLE ON THE FACTS OF THIS CASE. THE RELEVANT PART OF OBSERVATION OF HONBLE SUPREME COURT IS REPRODUCED AS UNDER: ALD AUTOMOTIVE P. LTD. 8 WE HAVE ALREADY SEEN THE MEANING OF THE WORD PARTICULARS IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS IN CONJUNCTION, THEY MUST MEAN THE DETAIL S SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TRUTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO F INDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RE TURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. S UCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVIT ING THE PENALTY U/S 271(1)(C) OF THE ACT. A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT OF FURNISHING INACCURATE PARTICULARS REGARDI NG THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETU RN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. 4.9. COMING BACK TO THE FACTS OF THE CASE BEFORE US, IT MAY BE NOTED THAT THOUGH THE CLAIM OF EXPENSES MADE BY THE ASSESSEE HAS BEEN FOUND TO BE NOT SUSTAINABLE BY THE AO, BUT WITHOUT BRINGING ANYTHING ON RECORD TO SHOW WHETHER ANY INA CCURATE PARTICULARS WERE FILED BY THE ASSESSEE OR IF ANY CO NCEALMENT WAS DONE BY THE ASSESSEE. RATHER, IN THE GIVEN FACT S AND CIRCUMSTANCES, IT CAN BE SAID THAT THE CLAIM OF THE ASSESSEE WAS BONAFIDE . UNDER THESE CIRCUMSTANCES, WE DO NOT FIND IT TO BE A FIT CASE FOR LEVY OF PENALTY. THUS, THE PENALT Y LEVIED BY THE AO IS DIRECTED TO BE DELETED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DECEMBER, 2016. SD/- (MAHAVIR SINGH ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 15/12/2016 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : ALD AUTOMOTIVE P. LTD. 9 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI