M/s O.C. Denims & Special Finishes Ltd., New Delhi V. DCIT, New Delhi

ITA 2572/DEL/2011

• Counselvise Citation: 257220114 RSA 2011
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 13-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S NEGI SENIOR
• Keywords: Depreciation; Share purchase agreement; Wrong claim; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.2572/DEL./2011 (ASSESSMENT YEAR : 2007-08) M/S. O.C. DENIMS & SPECIAL FINISHES LTD., VS. DCIT , CIRCLE 13 (1), F 8, OKHAL INDUSTRIAL AREA, PHASE I, NEW DELH I. NEW DELHI. (PAN : AAACF8025B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. RASTOGI, ADVOCATE REVENUE BY : SHRI R.S. NEGI, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF THE ORDER OF CIT (APPEALS)-XVI, NEW DELHI DATED 25.02.2011 FOR THE A SSESSMENT YEAR 2007-08 THE GROUNDS OF APPEAL READ AS UNDER :- 1. THAT THE ORDER PASSED BY THE LEARNED AO & CIT ( A) IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THAT THE PENALTY AS IMPOSED BY AO & SUSTAINED BY CIT (A) U/S 271(1)(C) AT RS.1,59,700/- ON ACCOUNT OF FU RNISHING OF INACCURATE PARTICULARS IS ARBITRARY, UNJUST & BAD I N LAW ON VARIOUS FACTUAL & LEGAL GROUNDS. 3. YOUR APPELLANT CRAVES LEAVE, TO ADD, ALTER, AMEN D AND /OR FOREGO ANY GROUND OF APPEAL AT THE TIME OF HEARING. ITA NO.2572/DEL./2011 2 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS CONFIRM ING THE PENALTY U/S 271(1)(C) OF RS.1,59,700/- ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF JOB WORK OF WASHING, DYING AND DRY PROCESS OF THE GARMENTS. THE E.RETURN WAS FILE D ON 30.10.2007 DECLARING LOSS OF RS.3,20,61,422/-. THE RETURN WAS PROCESSED U/S 143(1) ON 31.03.2009. THEREAFTER, THIS CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS FINALIZED U/S 143(3) OF INCOME-TAX ACT 25.11.2009. ON THE BASIS OF TAX AUDIT REPORT, THE ASSESSING OFFICER MADE THREE DISALLOWAN CES. FIRST DISALLOWANCE IS REGARDING CAPITAL EXPENDITURE RELATED TO INCREASE I N AUTHORIZED CAPITAL OF RS.2,07,637/- (RS.39,879/- FOR ROC FEE, RS.1,54,166 /- STAMP DUTY ON SHARE CERTIFICATES AND RS.13,592/- LOSS ON ACCOUNT OF ASS ET DISCARDED). THESE EXPENDITURE WERE CLAIMED AS REVENUE EXPENDITURE. THE ASSESSEE SUBMITTED THAT THERE WAS AN INADVERTENT MISTAKE IN COMPUTATIO N OF INCOME. DISALLOWANCE OF PRIOR PERIOD EXPENSES WAS ALSO MADE OF RS.2,25,192/-. THIS WAS ALSO BASED ON THE TAX AUDIT REPORT. THE ASSESS EE CLAIMED THAT IT WAS AN INADVERTENT MISTAKE AND DISCLOSURE WAS MADE SUO MOT O. THE ASSESSING OFFICER OBSERVED THAT IT WAS DONE ONLY AFTER THE CA SE WAS SELECTED FOR SCRUTINY. THE THIRD DISALLOWANCE WAS ON ACCOUNT OF LOSS OF SA LE OF FIXED ASSETS OF RS.41,494/- WHICH WAS DEBITED IN PROFIT & LOSS ACCO UNT. IN THE TAX AUDIT REPORT IT WAS REPORTED BUT ASSESSEE CLAIMED THAT IT WAS INADVERTENTLY OMITTED TO BE ADDED BACK IN THE COMPUTATION OF INCOME. AGAINS T ALL THESE THREE ITA NO.2572/DEL./2011 3 DISALLOWANCES, THE ASSESSING OFFICER INITIATED PENA LTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT AND THE ASSESSING OFFICER LEVIED THE PENALTY OF RS.1,59,700/- WHICH IS 100% OF THE TAX ON THE AD DITIONS. 3. THE CIT (A) HAS CONFIRMED THE PENALTY BY HOLDING AS UNDER :- 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT AS WELL AS THE FACTS DISCUSSED IN THE PENALTY ORDER. T HE DISALLOWANCES MADE IN THE IMMEDIATELY PRECEDING YEA R BY THE APPELLANT ARE DIFFERENT FROM THOSE MADE DURING THIS YEAR. THE CIT(A)-XVIIL, AS STATED ABOVE HAS HELD THAT PENALTY U/S 271 (L )(C) CANNOT AUTOMATICALLY BE LEVIED ON THE BASIS OF MINOR DISALLOWANCES MADE BY THE A.O. WHILE RELYING UPON F ACTS DISCLOSED IN THE RETURN OF INCOME. HOWEVER, REPEATE D FAILURE/OMISSION BY THE ASSESSEE TO ADD BACK TO ITS INCOME ITEMS CLAIMED IN THE PROFIT AND LOSS ACCOUNT WHICH ARE OTHERWISE NOT ALLOWABLE (IN A.Y.2006-07 THESE WERE DELAYED PAYMENTS OF ESI & PF TO BE ADDED BACK U/S 43B, EXCE SS DEPRECIATION ON UPS, LEAVE ENCASHMENT & DISALLOWANC E U/S 40(A)(I), AGGREGATING TO RS.5,47,069/- AND IN THE A .Y.07-08 IN QUESTION THE DISALLOWANCES MADE BY THE A.O. WERE CA PITAL EXPENDITURE OF RS.2,07,637/- FOR INCREASE IN AUTHOR IZED CAPITAL, PRIOR PERIOD EXPENSES OF RS.2,25,192/-, LOSS ON SAL E OF FIXED ASSETS OF RS.41,494/-, TOTALING TO RS.4,74,323/-), YEAR AFTER YEAR, CANNOT BE TERMED AS MINOR. AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ES CORTS FINANCE LTD. (2009) 226 CTR 105, EVEN IN CASES OF F ALSE CLAIMS MADE BY AN ASSESSEE, CONCEALMENT PENALTY IS LEVIABLE THOUGH THE CLAIMS MADE WERE DECLARED IN THE RETURN OR INCOME. THE ABOVE DECISION WAS RENDERED IN VIEW OF THE FACT THAT EACH YEAR, THE REVENUE HARDLY TAKES UP THREE TO FIVE PER CENT OF RETURNS UNDER SCRUTINY U/S 143(2) OF THE ACT. THER EFORE, WITH THE HOPE THAT ITS RETURN MAY NOT COME UNDER SCRUTIN Y AND MAY BE ASSESSED ON THE BASIS OF 'SELF ASSESSMENT', AN A SSESSEE CAN VENTURE TO GIVE WRONG INFORMATION. THEREFORE, IT W AS HELD THAT MERELY BECAUSE INFORMATION WAS AVAILABLE IN THE TAX AUDIT REPORT, THAT WOULD NOT ABSOLVE IT FROM THE PENALTY. IN MY OPINION, THE ABOVE JUDGMENT APPLIES IN THE CASE OF THE APPELLANT WHICH HAS BEEN MAKING WRONG CLAIMS YEAR A FTER YEAR. ACCORDINGLY, I UPHOLD THE IMPOSITION OF CONCEALMENT PENALTY ITA NO.2572/DEL./2011 4 IN THE CASE OF THE APPELLANT DURING THE YEAR IN QUE STION. THIS GROUND OF APPEAL IS ALSO DISMISSED. 4. LEARNED AR SUBMITTED THAT THE PENALTY FOR CONCEA LMENT OF INCOME CAN BE LEVIED ONLY IF THERE IS CONSCIOUS AND DELIBERATE CONCEALMENT ON THE PART OF THE ASSESSEE. ALL THE THREE ITEMS WHICH HAS BEEN D ISALLOWED BY THE ASSESSING OFFICER ON THE BASIS OF TAX AUDIT REPORT. DUE TO I NADVERTENT MISTAKE THE AMOUNT REFLECTED IN TAR COULD NOT BE DISALLOWED IN THE RETURN OF INCOME. THE MERE FACT THAT THE EXPENDITURE DISALLOWED WOULD NOT PROVE THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME. HE ALSO RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CI T VS. RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC) FOR THE PR OPOSITION THAT PENALTY U/S 271(1)(C) IS NOT ATTRACTED IF A CLAIM MADE BY THE A SSESSEE IS NOT ACCEPTED BY THE DEPARTMENT, THOUGH NOT SUSTAINABLE IN LAW AND W OULD NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME OF THE ASSESSEE. THE ASSESSEE HAS FURNISHED ALL THE MATERIAL FACTS AND IT IS THE DUTY OF THE ASSESSING OFFICER TO CALCULATE THE CORRECT INCOME AS PER LAW WHICH MAY B E DIFFERENT FROM THE INCOME CALCULATED BY THE ASSESSEE. 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE VARIOUS COURTS HAD REPEATEDLY HELD THAT PENALTY U/S 271(1)(C) ON THE G ROUND OF CONCEALMENT OF PARTICULARS OR NON-DISCLOSURE OF FULL PARTICULARS C AN BE LEVIED ONLY WHEN, IN THE ACCOUNTS OR RETURN, AN ITEM HAS BEEN SUPPRESSED DIS HONESTLY OR THE ITEM HAS ITA NO.2572/DEL./2011 5 BEEN CLAIMED FRAUDULENTLY AND A BOGUS CLAIM HAD BEE N MADE. IF THE FACTS ARE CLEARLY DISCLOSED IN THE RETURN OF INCOME, PENALTY CANNOT BE LEVIED, SIMPLY AN AMOUNT IS NOT ALLOWED OR THE SAME IS TAXED AS INCOM E AS IT CANNOT BE SAID THAT INACCURATE PARTICULARS HAD BEEN FILED. A CONSCIOUS CONCEALMENT IS NECESSARY. EVEN WHEN WRONG CLAIMS ARE MADE BONAFIDELY AND NO M ALAFIDE IS ATTRIBUTABLE THEN ALSO PENALTY CANNOT BE LEVIED. HOWEVER, WHEN THERE IS A DELIBERATE CONCEALMENT OR FALSE OR INACCURATE RETURN WAS FILED AND THE ASSESSEE WAS EXPOSED OF THE FALSEHOOD THEN IT WILL BE TREATED AS CONCEALMENT OF INCOME IN THE ORIGINAL RETURN AND PENALTY SHALL BE ATTRACTED EVEN WHEN THE ASSESSEE HAS SURRENDERED THE AMOUNT BY WAY OF REVISED RETURN OR OTHERWISE PRIOR TO THE ASSESSMENTS ARE COMPLETE. IN VIEW OF THESE, WE FIN D THAT THE CLAIM MADE IN RESPECT OF CAPITAL EXPENDITURE RELATED TO THE ENHAN CEMENT IN THE AUTHORIZED CAPITAL WAS EX-FACIE BOGUS. BY THAT TIME, THE LAW WAS WELL SETTLED THAT SUCH EXPENDITURE IS A CAPITAL EXPENDITURE AND THIS CANNO T BE CLAIMED AS REVENUE EXPENDITURE BY WAY OF DEBITING THE SAME IN PROFIT A ND LOSS ACCOUNT. IN THE TAX AUDIT REPORT, THE AMOUNT IS QUALIFIED AS CAPITAL EX PENDITURE, HOWEVER, THE SAME WAS CLAIMED AS REVENUE IN THE RETURN OF INCOME. VE RY FEW RETURNS ARE SELECTED FOR SCRUTINY AFTER PROCESSING THE RETURN U/S 143(1) OF THE INCOME-TAX ACT, 1961. SUCH CLAIMS GO UNDETECTED IN CASE THE RETURN S ARE NOT SELECTED FOR SCRUTINY. THE ASSESSEE IS A CORPORATE AND MUST HAV E TAX AUDITORS IN ITS REACH. THE ACCOUNTS ARE AUDITED AND IN SUCH A CASE, EX-FAC IE BOGUS CLAIMS MADE GIVE ITA NO.2572/DEL./2011 6 A SEVERITY TO THE FALSEHOOD OF THE CLAIM. THEREFORE , IN OUR CONSIDERED VIEW, THE ASSESSEE DESERVES TO BE VISITED BY PENALTY FOR FILI NG INACCURATE PARTICULARS OF INCOME IN RESPECT OF THE CAPITAL EXPENDITURE OF RS. 2,07,637/- DEBITED IN THE PROFIT AND LOSS ACCOUNT. 5.1 AS FAR AS, THE CLAIM OF PRIOR PERIOD EXPENSES, WE HOLD THAT THE EXPENDITURE WERE ACTUALLY INCURRED AND SAME WERE AL LOWABLE IN PRIOR YEARS AS BUSINESS EXPENSE. HOWEVER, THESE WERE RELATED TO T HE PRIOR YEARS, HENCE COULD NOT BE ALLOWED DUE TO FOLLOWING THE MERCANTILE SYST EM OF ACCOUNTING. IN CASE OF MERCANTILE SYSTEM, SUCH EXPENDITURE COULD NOT BE ALLOWED IN SUBSEQUENT YEAR AS THE SAME INCURRED IN EARLIER YEARS. THEREF ORE, IN OUR CONSIDERED VIEW, SUCH CLAIM COULD NOT BE HELD AS EX-FACIE BOGUS CLAI MS. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND SUCH EXPENDITURE COULD NOT BE ALLOWED DURING THE YEAR UNDER CONSIDERATION, HOWEVE R PENALTY U/S 271(1)(C) COULD NOT BE LEVIED ON SUCH DISALLOWANCE. THEREFOR E, NO PENALTY U/S 271(1)(C) CAN BE SUSTAINED IN RESPECT OF PRIOR PERIOD EXPENSE S DISALLOWED OF RS.2,25,192/-. 5.2 THE THIRD DISALLOWANCE WAS IN RESPECT OF CLAIM OF THE LOSS ON THE SALE OF FIXED ASSETS. IT WAS NOT A REVENUE EXPENSE WHICH C OULD BE CLAIMED AS EXPENSES. THIS FACT WAS REPORTED IN TAX AUDIT REPO RT BUT THE SAME WAS CLAIMED BY ASSESSEE IN PROFIT AND LOSS ACCOUNT AND DID NOT DISALLOW COMPUTATION OF INCOME. IN OUR CONSIDERED VIEW, THE LOSS ON THE SA LE OF FIXED ASSETS CLAIMED IN ITA NO.2572/DEL./2011 7 PROFIT AND LOSS IS ALSO AN EX-FACIE BOGUS CLAIM. I T WAS QUALIFIED IN TAR THEN ALSO NOT ADDED BACK IN INCOME. IN THE CASE OF A C ORPORATE ASSESSEE WHERE THE TAX EXPERTS ADVICE IS AVAILABLE TO THE ASSESSEE, T HE TAX AUDIT REPORT REFLECTS THE FACTS EVEN THEN THE SAME WAS CLAIMED IN THE PROFIT & LOSS ACCOUNT WHICH SHOWS THAT THE ASSESSEE HAS DELIBERATELY FILED INAC CURATE PARTICULARS OF INCOME BY WAY OF MAKING EX-FACIE BOGUS CLAIM. THEREFORE, PENALTY U/S 271(1)(C) IS SUSTAINED ON THIS AMOUNT. 6. IN THE RESULT, WE SUSTAIN THE PENALTY IN RESPECT OF THE DISALLOWANCE MADE ON ACCOUNT OF CAPITAL EXPENDITURE FOR INCREASE IN A UTHORIZED CAPITAL AND LOSS ON SALE OF FIXED ASSETS. ASSESSEE GETS PART RELIEF . 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 16 TH DAY OF DECEMBER, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 16 TH DAY OF DECEMBER, 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.