Diana Euro Chem Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 2542/DEL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65602 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 27-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM BILAS MEENA
• Assessee Lawyers: TEJINDER SINGH
• Keywords: Bonafide belief

Judgement Text

ITA NO. 2542/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2542/DEL/2012 A.Y. : 2007-08 DIANA EURO CHREM PRIVATE LIMITED, M-50, 2 ND FLOOR, GREATER KAILASH, PART-II, NEW DELHI 110 048 (PAN : AABCD2667C) VS. I NCOME TAX OFFICER, WARD -10(3), C.R. BUILDING, I.P. ESTATE, NEW DELHI 110 003 (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. TEJINDER SINGH, A/R DEPARTMENT BY : SH. RAM BILAS MEENA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XIII, NEW DEL HI DATED 27.3.2012 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- 1.1 THAT THE AUTHORITIES BELOW ERRED BOTH IN LAW AND ON FACTS IN IMPOSING PENALTY U/S. 271(1)(C) ON ACCOU NT OF DISALLOWANCE OF EXPENSES OF ` 3,19,981/- ON MISAPPLICATION OF FACTS AND WRONG ASSUMPTION THAT THE ASSESSEE COMPANY IS ENGAGED IN THE RECONSTRUCTION AND RENOVATION OF CEMENT FACTORY PURCHASED BY THE ASSESSEE COMPANY WHEREAS THERE WAS NO ITA NO. 2542/DEL/2012 2 RECONSTRUCTION WORK WAS CARRIED ON BY THE ASSESSEE COMPANY. 1.2 THAT THE AUTHORITIES BELOW WHILE IMPOSING PENALTY ERRED BOTH IN LAW AND ON FACTS IN WRONGLY CONCLUDING THAT THE ASSESSEE COMPANY HAS NOT CARRIED OUT ANY BUSINESS ACTIVITY WHEREAS THE ASSESSEE COMPANY HAS REALIZED SUNDRY DEBTORS, PAID OFF THE SUNDRY CREDITORS WHICH AMOUNT TO CARRYING ON BUSINESS. 3. THE ASSESSEE COMPANY DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 2002-03 HAD PURCHASED AN OLD CEMENT FACTORY AT DEHRADUN ALONGWITH OLD PLANT AND MACHINERY. THE OLD MACHINERY WAS SOLD AND THE WORK WAS STILL UNDER PROGRESS AT THE FACTORY. THE EXPENSES WERE CAPITALIZED BY THE ASSESSEE COMPANY IN ITS BOOKS. T HE ASSESSEE COMPANY HAD ALSO BOOKED THE REVENUE EXPENSES OF ` 3 ,19,981/-. ASSESSING OFFICER NOTED THAT NO COMMERCIAL ACTIVITY WAS CONDUCTED BY THE ASSESSEE. AS PER THE PROFIT AND LOSS ACCOUNT, ASSESSEE HAD DECLARED ONLY AN OTHER INCOME OF ` 1,31,243/- WHICH WAS RECEIVED FORM ITS OLD DEBTORS. ASSESSING OFFICER OBSERVED THA T SINCE THERE WAS NO COMMERCIAL ACTIVITY, A/R OF THE ASSESSEE COMPANY WAS ASKED WHY THE EXPENSES MAY NOT BE DISALLOWED IN VIEW OF ITS BUSINE SS ACTIVITIES YET TO COMMENCE. IN REPLY, ASSESSEE SUBMITTED THAT ONLY C ERTAIN EXPENDITURE INCURRED AT DELHI OFFICE, WHICH INCLUD ED AUDIT FEE, SALARY FOR MAINTENANCE OF OFFICE WERE CLAIMED AS REVENUE EX PENDITURE HOWEVER, THE EXPENSES WHICH WERE INCURRED AT SITE H AD ALREADY BEEN CAPITALIZED. ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION. HE HELD THAT SINCE IN THE INSTANT CASE, NO COMMERC IAL ACTIVITY HAS ITA NO. 2542/DEL/2012 3 BEEN CARRIED OUT BY THE ASSESSEE COMPANY, A SUM OF ` 3,19,981/- WAS LIABLE TO BE DISALLOWED. ACCORDINGLY, ASSESSING OF FICER MADE THE DISALLOWANCE. ON THIS ADDITION PENALTY U/S. 271(1) (C) WAS ALSO IMPOSED. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) NOTED THAT ASSESSEE HAS CLAIMED THAT THESE EXPENSES WERE PERTAINING TO OFFICE EXPENSES OF THE COMPANY. LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT ASSESSEE COMPANY HAD NOT COMMENCED ITS BUSINESS AS ASSESSEE HAD ACQUIRED AN OLD CEMENT FACTORY AND ITS PLANT AND MACHINERY FOR REPAIRS AND RENOVATION. LD. COMMISSION ER OF INCOME TAX (A) OBSERVED THAT WHEN THERE IS NO BUSINESS DUR ING THE YEAR, THERE IS NO QUESTION OF INCURRING EXPENDITURE IN THE NORM AL COURSE OF BUSINESS. HENCE, LD. COMMISSIONER OF INCOME TAX ( A) REJECTED THE CONTENTIONS OF THE ASSESSEE. LD. COMMISSIONER OF IN COME TAX (A) OBSERVED THAT ASSESSEE HAS HIMSELF ADMITTED THAT MAINTENANCE AND UPKEEP OF FACTORY EXPENSES WERE CAPITALIZED AS THE BUSINESS HAD NOT COMMENCED. LD. COMMISSIONER OF INCOME TAX (A) FURTH ER OBSERVED THAT IN THE SAME WAY THE OFFICE EXPENSES SHOULD HA VE CAPITALIZED AS THE BUSINESS OF THE ASSESSEE COMPANY HAD NOT COMMENC ED. LD. COMMISSIONER OF INCOME TAX (A) PROCEEDED TO CONFIRM T HE PENALTY LEVIED BY THE ASSESSING OFFICER. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT IN THIS CASE IT IS THE CLAIM OF THE ASS ESSEE THAT THE EXPENDITURE OF ` 3,19,981/- WERE INCURRED IN THE NO RMAL COURSE OF BUSINESS. HENCE, THE SAME WERE DEBITED TO THE PRO FIT AND LOSS ITA NO. 2542/DEL/2012 4 ACCOUNT, MAINTAINED AND DULY AUDITED. HOWEVER, T HE AUTHORITIES BELOW HAVE NOT ACCEPTED THIS CONTENTION OF THE ASSE SSEE. IT IS NOTED THAT ASSESSEE HAS PURCHASED AN OLD CEMENT FACTORY ALONGWITH ITS PLANT AND MACHINERY WHICH WAS UNDER REPAIR AND RENOV ATION. WE FIND THAT ASSESSING OFFICER HAS NOT DOUBTED THE GENUINE NESS OF THE EXPENDITURE, BUT HAS ONLY DISPUTED THE TREATMENT OF SUCH EXPENSES. IT IS FURTHER NOTED THAT ASSESSING OFFICER HAS NO T GIVEN ANY FINDING THAT NO DETAIL WAS SUBMITTED BY THE ASSESSEE ALONGW ITH THE RETURN OF INCOME OR WAS FOUND TO BE INCORRECT OR ERRONEOUS. 7. WE FIND THAT SECTION 271(1(C) OF THE ACT POSTUL ATES IMPOSITION OF PENALTY FOR FURNISHING OF INACCURATE PARTICULARS AN D CONCEALMENT OF INCOME. WE FIND THAT IN THE PRESENT CASE THE ASSES SEE HAS DULY DISCLOSED ALL THE MATERIALS. THERE IS NO CASE OF CO NCEALMENT, ONLY IT WAS THE TREATMENT OF THE EXPENDITURE ON WHICH ASSES SING OFFICER WAS OF DIFFERENT OPINION. IN SUCH CIRCUMSTANCES, IN OU R CONSIDERED OPINION, ASSESSEES CONDUCT CANNOT BE SAID TO BE CONTUMACIOUS SO AS TO WARRANT THE LEVY OF PENALTY U/S. 271(1)(C). 8. IN THIS REGARD, WE PLACE RELIANCE FROM THE HON BLE APEX COURT DECISION RENDERED BY A LARGER BENCH COMPRISING OF T HREE OF THEIR LORDSHIPS 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 ITA NO. 2542/DEL/2012 5 CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDINGS, AND PENALTY WILL NOT ORDINARILY BE IMP OSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CO NSCIOUS DISREGARD 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 DISCR ETION OF THE AUTHORITY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION O F ALL THE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCRIBE D, 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 PROVISIONS OF THE ACT, OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRI BED BY THE STATUTE. 9. WE WOULD ALSO LIKE TO REFER TO THE HONBLE APE X COURT DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. IN CIVIL APPEAL NO. 2463 OF 2010. IN THIS CASE VIDE ORDER DATED 17.3.2 010 IT HAS BEEN HELD THAT THE LAW LAID DOWN IN THE DILIP SHEROFF CASE 291 ITR 519 (SC) AS TO THE MEANING OF WORD CONCEALMENT AND INACCURATE C ONTINUES TO BE A GOOD LAW BECAUSE WHAT WAS OVERRULED IN THE DHARMENDE R TEXTILE CASE WAS ONLY THAT PART IN DILIP SHEROFF CASE WHERE IT WA S HELD THAT MENSREA WAS A ESSENTIAL REQUIREMENT OF PENALTY U/S 271(1)(C ). THE HONBLE ITA NO. 2542/DEL/2012 6 APEX COURT ALSO OBSERVED THAT IF THE CONTENTION 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 PENALTY U/S 271(1)(C). THIS IS CLEARLY NOT THE INTENDMENT OF LE GISLATURE. 10. IN THE BACKGROUND OF THE AFORESAID DISCUSSION S AND PRECEDENTS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AN D DELETE THE LEVY OF PENALTY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/9/2012, UPON CONCLUSION OF HEARING. SD/- SD/- [ [[ [JOGINDER SINGH] JOGINDER SINGH] JOGINDER SINGH] JOGINDER SINGH] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 27/9/2012 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES