SALMAN KHAN, MUMBAI V. ACIT, 11(1), MUMBAI

ITA 2560/MUM/2013

• Counselvise Citation: 256019914 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 17-07-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 04-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Assessee Lawyers: PRAKASH J JOTWANI
• Keywords: Business expenditure; Wrong claim

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI H.L. KARWA, HONBLE PRESIDENT AND P.M . JAGTAP, AM ./ I.T.A. NO.2559 /MUM/2013 ( / ASSESSMENT YEAR : 2003-2004 ./ I.T.A. NO.2560 /MUM/2013 ( / ASSESSMENT YEAR : 2004-2005 SALMAN KHAN, 3, GALAXY APTS., B.J. ROAD, BAND STAND, BANDRA (W), MUMBAI 400 050. / VS. ACIT 11(1), 4 TH FLOOR, 439, AAYAKAR BHAWAN, M.K. ROAD, MUMBAI. ./ PAN : AACPK8429P ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI PRAKASH J. JOTWANI R E SPONDENT BY : SHRI PRAKASH L. PATHADE / DATE OF HEARING : 17-07-2014 / DATE OF PRONOUNCEMENT : 30-7-2014 [ / O R D E R PER BENCH . : THESE TWO APPEALS FILED BY THE ASSESSEES ARE DIRECT ED AGAINST TWO SEPARATE ORDERS OF THE LD. CIT(A)- 3, MUMBAI DATED 4-2-2013 WHEREBY HE CONFIRMED THE PENALTIES OF RS. 3,68,550/- AND RS. 1 0,24,650/- IMPOSED BY THE A.O. U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 FOR ASSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVELY. 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH ESE APPEALS ARE AS FOLLOWS. THE ASSESSEE IN THE PRESENT CASE IS A LEADING FILM ACTOR WHO DERIVES INCOME FROM PROFESSION OF ACTING AND ADVERTISEMENT ASSIGNM ENTS. THE RETURNS OF INCOME FOR BOTH THE YEARS UNDER CONSIDERATION I.E A SSESSMENT YEARS 2003-04 ITA 2559/M/13 & ITA 2560/M/13 2 & 2004-05 WERE FILED BY HIM ON 28-11-2003 AND 29-10 -2004 DECLARING TOTAL INCOME OF RS. 3,74,10,421/- AND RS. 4,32,19,821/- R ESPECTIVELY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS CLAIMED LEGAL EXPENSES OF RS. 12,90,00 0/- AND RS. 33,75,000/- IN ASSESSMENT YEARS 2003-04 AND 2004-05 RESPECTIVEL Y. HE ALSO FOUND THAT THE SAID EXPENSES WERE INCURRED BY THE ASSESSEE FOR DEFENDING HIMSELF IN VARIOUS CRIMINAL PROCEEDINGS PENDING IN THE COURT. ACCORDING TO THE A.O., THE SAID EXPENSES INCURRED BY THE ASSESSEE TO DEFEND HI MSELF IN CRIMINAL PROCEEDINGS WERE PERSONAL EXPENSES AND THE SAME THE REFORE COULD NOT BE ALLOWED AS BUSINESS EXPENDITURE. ACCORDINGLY, HE DI SALLOWED THE LEGAL EXPENSES CLAIMED BY THE ASSESSEE IN BOTH THE YEARS UNDER CONSIDERATION. ON APPEAL, THE LD. CIT(A) DELETED THE DISALLOWANCE MAD E BY THE A.O. ON ACCOUNT OF LEGAL EXPENSES FOR BOTH THE YEARS UNDER CONSIDERATI ON OBSERVING THAT THE SAID EXPENSES WERE INCURRED BY THE ASSESSEE FOR THE PRES ERVATION AND PROTECTION OF HIS PROFESSION FROM ANY LEGAL PROCESS OR PROCEEDING S WHICH MIGHT HAVE RESULTED IN REDUCTION OF HIS INCOME. IN SUPPORT OF THIS CONCLUSION, THE LD. CIT(A) RELIED ON THE DECISIONS OF HONBLE SUPREME C OURT IN THE CASE OF CIT VS. BIRLA COTTON SPINNING & WVG. MILLS, 82 ITR 166 AND CIT VS. DHARAJGIRI RAJA NARASINGIRJI, 91 ITR 544. ON FURTHER APPEAL, THE TRIBUNAL, HOWEVER, REVERSED THE DECISION OF THE LD. CIT(A) ON THIS ISSUE AND CO NFIRMED THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF LEGAL EXPENSES FOR B OTH THE YEARS UNDER CONSIDERATION HOLDING THAT THE LEGAL EXPENSES INCUR RED BY THE ASSESSEE TO DEFEND HIMSELF IN THE CRIMINAL PROCEEDINGS HAD NOTH ING TO DO WITH HIS PROFESSIONAL ACTIVITIES AND THE SAME THEREFORE WERE RIGHTLY DISALLOWED BY THE A.O. BEING EXPENDITURE OF PERSONAL NATURE. 3. AS A RESULT OF SUSTENANCE BY THE TRIBUNAL OF ADD ITIONS MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DISALLOWANCE O F LEGAL EXPENSES IN BOTH THE YEARS UNDER CONSIDERATION, NOTICES WERE ISSUED BY THE A.O. REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY PENALTY U/S 271(1) (C) OF THE ACT SHOULD NOT ITA 2559/M/13 & ITA 2560/M/13 3 BE IMPOSED IN RESPECT OF THE SAID ADDITIONS. IN RE PLY, IT WAS EXPLAINED BY THE ASSESSEE THAT THE DISALLOWANCE MADE ON ACCOUNT OF L EGAL EXPENSES WAS DELETED BY THE LD. CIT(A) IN BOTH THE YEARS UNDER CONSIDERA TION AND THE DECISION OF THE LD. CIT(A) ON THIS ISSUE WAS REVERSED BY THE TRIBUN AL IN THE QUANTUM PROCEEDINGS PURELY ON INTERPRETATION OF LAW. IT WAS CONTENDED THAT THE CONFIRMATION BY THE TRIBUNAL OF THE ADDITION MADE O N THIS ISSUE NOT ACCEPTING THE LEGAL CLAIM OF THE ASSESSEE THUS DID NOT REPRES ENT CONCEALMENT OF PARTICULARS OF HIS INCOME BY THE ASSESSEE OR FURNIS HING OF IN-ACCURATE PARTICULARS OF SUCH INCOME TO ATTRACT PENALTY U/S 2 71(1)(C) OF THE ACT. THE A.O. DID NOT ACCEPT THIS EXPLANATION OF THE ASSESSE E AND HELD THAT BY CLAIMING DEDUCTION ON ACCOUNT OF PERSONAL EXPENSES IN THE GA RB OF PROFESSIONAL EXPENDITURE, THERE WAS CONCEALMENT OF PARTICULARS O F HIS INCOME BY THE ASSESSEE. HE THEREFORE IMPOSED PENALTY OF RS. 3,68, 550/- AND RS. 10,24,650/- U/S 271(1)(C) OF THE ACT FOR ASSESSMENT YEARS 2003- 04 AND 2004-05 RESPECTIVELY BEING 100% OF THE TAX SOUGHT TO BE EVA DED BY THE ASSESSEE IN RESPECT OF ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF DISALLOWANCE OF LEGAL EXPENSES. ON APPEAL, THE LD. CIT(A) CONFIRMED THE PENALTIES IMPOSED BY THE A.O. FOR BOTH THE YEARS UN DER CONSIDERATION HOLDING THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACC OUNT OF LEGAL EXPENSES, WHICH REPRESENTED PERSONAL EXPENSES, WAS NOT PERMIS SIBLE AS PER LAW AS HELD BY THE TRIBUNAL IN THE QUANTUM PROCEEDINGS AND THE ASSESSEE WAS UNABLE TO OFFER ANY SATISFACTORY EXPLANATION TO SUBSTANTIATE HIS CLAIM FOR DEDUCTION ON ACCOUNT OF LEGAL EXPENSES. AGGRIEVED BY THE ORDERS OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THESE APPEALS BEFORE THE TRI BUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD GONE TO JODHPUR FOR SHOOTING HINDI MOVIE HAM SATH SATH HAIN. HE SUBMITTED THAT THE ASSESSEE DURING HIS STAY AT JODHPUR WAS IM PLICATED IN FALSE CRIMINAL PROCEEDINGS BY LEVELING AN ALLEGATION THAT HE HAS S HOT A BLACK BUCK, WHICH IS AN ENDANGERED SPECIE AND RELIGIOUS IN NATURE. HE SU BMITTED THAT THE ASSESSEE ITA 2559/M/13 & ITA 2560/M/13 4 WAS ARRESTED BY THE LOCAL POLICE AND IN ORDER TO GE T HIMSELF RELEASED, HE HAD TO ENGAGE SOME LAWYERS. HE SUBMITTED THAT THE CRIMINA L PROCEEDINGS AS A RESULT OF THIS CASE HAVE CONTINUED THEREAFTER AND THE ASSE SSEE HAS BEEN REGULARLY INCURRING LEGAL EXPENSES TO DEFEND HIMSELF AND OBTA IN EXEMPTIONS FROM THE PERSONAL HEARINGS FROM THIS CASE. HE CONTENDED THA T IF THE ASSESSEE HAD NOT DEFENDED HIMSELF IN THE CRIMINAL PROCEEDINGS AND AS KED FOR PERSONAL EXEMPTIONS, IT WOULD HAVE RESULTED IN HIS ABSENCE F ROM ALL THE MOVIES/PROJECTS UNDERTAKEN BY HIM CAUSING LOSS OF R EVENUE TO HIM AS WELL AS TO THE PRODUCERS OF HIS FILMS. HE CONTENDED THAT I T WAS THUS NECESSARY FOR HIM TO INCUR THE LEGAL EXPENSES DURING THE YEARS UN DER CONSIDERATION TO PRESERVE AND PROTECT HIS PROFESSION AND THE SAID EX PENSES THEREFORE WERE CLAIMED BY THE ASSESSEE AS DEDUCTION. HE CONTENDED THAT THE LD. CIT(A) IN THE QUANTUM PROCEEDINGS ACCEPTED THE STAND OF THE ASSES SEE WHILE ALLOWING THE DEDUCTION ON ACCOUNT OF LEGAL EXPENSES AND ALTHOUGH THE TRIBUNAL HAS REVERSED THE DECISION OF THE LD. CIT(A), IT IS SUFF ICIENT TO SHOW THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF LEGAL EXPE NSES WAS A LEGAL CLAIM ON WHICH TWO VIEWS WERE CLEARLY POSSIBLE. HE CONTENDED THAT THIS ALSO SHOWS THAT THE CLAIM MADE BY THE ASSESSEE FOR DEDUCTION ON ACC OUNT OF LEGAL EXPENSES WAS A BONAFIDE CLAIM AND SINCE ALL THE PARTICULARS RELEVANT TO THE SAID CLAIM WERE DULY FURNISHED BY THE ASSESSEE, THERE WAS NO C ASE FOR IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. IN SUPPORT OF TH IS CONTENTION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F RELIANCE PETROPRODUCTS LTD., 322 ITR158. HE ALSO CONTENDED THAT THE CLAIM OF THE ASSESSEE FOR LEGAL EXPENSES WAS NOT FOUND TO BE BOGUS OR FALSE AND THE SAME WAS DISALLOWED FINALLY BY THE TRIBUNAL TREATING THE LEGAL EXPENSES AS IN THE NATURE OF PERSONAL EXPENSES AS AGAINST THE CLAIM OF THE ASSESSEE THAT THE SAME WERE IN THE NATURE OF PROFESSIONAL EXPENSES WHICH WAS ACCEPTED BY THE LD. CIT(A) IN THE QUANTUM PROCEEDINGS. HE CONTENDED THAT THE CLAIM MA DE BY THE ASSESSEE ON ACCOUNT OF LEGAL EXPENSES THUS IS A LEGAL CLAIM ON WHICH TWO VIEWS ARE POSSIBLE AND SINCE THERE IS NO ALLEGATION MADE BY T HE A.O. EVEN IN THE PENALTY ITA 2559/M/13 & ITA 2560/M/13 5 ORDER ALLEGING ANY CONCEALMENT OF PARTICULARS OF H IS INCOME FURNISHED BY THE ASSESSEE IN RESPECT OF SUCH LEGAL CLAIM, PENALTIES IMPOSED BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ARE LIABLE TO BE CANCEL LED. 5. THE LD. D.R., ON THE OTHER HAND, STRONGLY RELIED ON THE IMPUGNED ORDERS OF THE LD. CIT(A) IN SUPPORT OF THE REVENUES CASE THAT PENALTIES U/S 271(1)(C) OF THE ACT FOR BOTH THE YEARS ARE RIGHTLY IMPOSED B Y THE A.O. HE SUBMITTED THAT THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT O F LEGAL EXPENSES HAS BEEN FINALLY CONFIRMED BY THE TRIBUNAL IN THE QUANTUM PR OCEEDINGS HOLDING THAT THE SAID EXPENSES CLAIMED BY THE ASSESSEE REPRESENT ING HIS PERSONAL EXPENDITURE WERE NOT ALLOWABLE IN ACCORDANCE WITH L AW. HE CONTENDED THAT THE CLAIM MADE BY THE ASSESSEE ON ACCOUNT OF LEGAL EXPENSES THUS WAS A WRONG CLAIM AND BY MAKING SUCH WRONG CLAIM, THE ASS ESSEE WAS GUILTY OF FURNISHING OF INACCURATE PARTICULARS OF HIS INCOME CLEARLY ATTRACTING PENALTY U/S 271(1)(C) OF THE ACT. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF LEGAL EXPENSES WAS DISALLOWE D BY THE A.O. IN BOTH THE YEARS UNDER CONSIDERATION BY TREATING THE SAID EXPE NSES AS OF PERSONAL NATURE. A PERUSAL OF THE ORDERS PASSED BY THE A.O. IN THIS REGARD CLEARLY SHOWS THAT THE RELEVANT ASPECTS OF THE MATTER SUCH AS THE NATURE OF COMPLAINT FILED AGAINST THE ASSESSEE, THE NATURE OF LEGAL PRO CEEDINGS INITIATED AGAINST THE ASSESSEE, THE NATURE OF EXPENSES INCURRED BY THE AS SESSE ETC. WERE NOT GONE INTO BY THE A.O. AND A VERY CRYPTIC ORDER WAS PASSE D BY HIM ON THIS ISSUE MAKING THE DISALLOWANCE ON ACCOUNT LEGAL EXPENSES T REATING THE SAME AS PERSONAL IN NATURE WITHOUT GIVING ANY SOUND OR CONV INCING REASONS. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE FOR DEDUCTION ON ACCOUNT OF LEGAL EXPENSES OBSERVING THAT THE SAME W ERE INCURRED BY THE ASSESSEE FOR PRESERVATION AND PROTECTION OF HIS PRO FESSION FROM ANY LEGAL ITA 2559/M/13 & ITA 2560/M/13 6 PROCESS OR PROCEEDINGS WHICH MIGHT HAVE RESULTED IN LOSS OF INCOME OF THE ASSESSEE AS WELL AS THE PRODUCERS OF HIS FILMS. ALT HOUGH THE TRIBUNAL HAS REVERSED THE DECISION OF THE LD. CIT(A) ON THIS ISS UE, THE FACT THAT THE CLAIM OF THE ASSESSEE WAS ACCEPTED BY THE LD. CIT(A) ON MERI T CLEARLY SHOWS THAT THE SAID CLAIM MADE BY THE ASSESSEE WAS BASED ON A POSS IBLE VIEW OF THE MATTER. IT ALSO SHOWS THAT THE CLAIM MADE BY THE ASSESSEE F OR DEDUCTION ON ACCOUNT OF LEGAL EXPENSES WAS A BONAFIDE CLAIM AND AS SUBMITTE D BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US, THE ASSESSEE HAS CAPITALIZED THE SIMILAR LEGAL EXPENSES INCURRED IN THE SUBSEQUENT Y EARS AFTER HAVING COME TO KNOW ABOUT THE DISALLOWANCE MADE IN THE YEARS UNDER CONSIDERATION WHICH AGAIN GOES TO SHOW THE BONAFIDE OF THE ASSESSEE. A S FURTHER SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, ALL THE MATERIAL PART ICULARS RELEVANT TO THE CLAIM MADE BY THE ASSESSEE WERE FULLY AND TRULY FURNISHED BY THE ASSESSEE AND THERE IS NO ALLEGATION MADE BY THE A.O. IN THE PENA LTY ORDER THAT ANY IN- ACCURATE PARTICULARS WERE FURNISHED BY THE ASSESSEE WHILE MAKING THE CLAIM ON ACCOUNT OF DEDUCTION OF LEGAL EXPENSES. IT IS AL SO NOT IN DISPUTE THAT THE LEGAL EXPENSES CLAIMED BY THE ASSESSEE WERE ACTUALL Y INCURRED BY HIM AND IT IS NOT THE CASE OF THE REVENUE AT ANY STAGE THAT THE E XPENSES SO CLAIMED BY THE ASSESSEE WERE BOGUS. 7. IN THE CASE OF RELIANCE PETROPRODUCTS LTD., (SUP RA), THE HONBLE SUPREME COURT HELD THAT IN ORDER TO BE COVERED BY T HE PROVISIONS OF SECTION 271(1)(C), THERE HAS TO BE CONCEALMENT OF PARTICULA RS OF INCOME BY THE ASSESSEE OR FURNISHING OF IN-ACCURATE PARTICULARS O F HIS INCOME. EXPLAINING FURTHER, THE HONBLE SUPREME COURT OBSERVED THAT WH EN NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE IN-CORRECT OR IN-ACCUR ATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING IN-ACCURATE PARTICULARS O F ITS INCOME AND UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENA LTY CANNOT BE IMPOSED. IT IS FURTHER HELD THAT WHERE THERE IS NO FINDING THAT T HE PARTICULARS FURNISHED BY THE ASSESSEE IN ITS RETURN ARE IN-ACCURATE OR ERRON EOUS OR FALSE, THERE IS NO ITA 2559/M/13 & ITA 2560/M/13 7 QUESTION OF IMPOSING PENALTY U/S 271(1)(C) OF THE A CT MERELY BECAUSE THE CLAIM OF THE ASSESSEE FOR DEDUCTION IS DISALLOWED IN THE QUANTUM PROCEEDINGS. KEEPING IN VIEW THE RATIO OF THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS LTD. (SUPRA) AND HAVING R EGARD TO ALL THE FACTS OF THE CASE AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT TH E PRESENT CASE IS NOT A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C) OF THE ACT AND THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE PENALTIES IMPOSED BY TH E A.O. FOR BOTH THE YEARS UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER, W E CANCEL THE PENALTIES IMPOSED BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) FOR BOTH YEARS UNDER CONSIDERATION AND ALLOW THESE APPEALS OF THE ASSESS EE. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2014. # % & 30-07-2014 SD/- SD/-. (H.L. KARWA) (P.M. JAGTAP ) PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; & DATED 30-07-2014. [ .3../ RK , SR. PS ! '$% &% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 4 () / THE CIT(A)3, MUMBAI 4. 4 / CIT II MUMBAI 5. 7 339 , 9 , / DR, ITAT, MUMBAI E BENCH 6. = / GUARD FILE. / BY ORDER, 7 3 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI