ACIT., Circle-16(3), Hyderabad V. M/s Prajay Engineers Syndicate Limited, Hyderabad

ITA 259/HYD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6529 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 01-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M SITRARAM
• Keywords: Difference of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 259/HYD/2013 ASSESSMENT YEAR: 2008-09 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 16(3), HYDERABAD. VS. M/S PRAJAY HOLDINGS PVT. LTD., HYDERABAD. PAN AAECP 1668A (ASSESSEE) (RESPONDENT) REVENUE BY : SHRI M. SITRARAM ASSESSEE BY : SHRI MOHD. AFZAL DATE OF HEARING 24-03-2016 DATE OF PRONOUNCEMENT -06-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS) - V, HY DERABAD DATED 23/11/2012 FOR AY 2008-09. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY ENGAGED IN THE BUSINESS OF 'PROPERTY DEVELOPERS', F ILED ITS E-RETURN OF INCOME FOR THE ASST. YEAR 2008-09 ON 30.09.2008 ADM ITTING TOTAL LOSS OF RS.92,25,188/- UNDER NORMAL PROVISIONS AND BOOK LOSS U/S. 115JB WAS ADMITTED AT RS. 91,90,000/- THE CASE WAS SELECT ED FOR SCRUTINY AS PER CASS AND STATUTORY NOTICES WERE ISSUED. 2 ITA NO. 259 /HYD/2013 M/S PRAJAY HOLDINGS PVT. LTD. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/ S 143(3) OF THE I.T. ACT, ON VERIFICATION OF THE DETAILS FILED, IT WAS NOTICED BY THE AO THAT THE ASSESSEE COMPANY HAS INCREASED ITS AUTHORI ZED SHARE CAPITAL FROM 2 CRORES EQUITY SHARES TO 16 CRORES EQ UITY SHARES OF RS. 10 EACH. FOR INCREASING THE AUTHORIZED SHARE CAPITA L, THE ASSESSEE- COMPANY HAD INCURRED AN EXPENDITURE OF RS. 1,29,48, 645/- PAID TO THE REGISTRAR OF COMPANIES TOWARDS ROC FEE. THE EXPENSE S WERE INCURRED FOR ENHANCEMENT OF AUTHORIZED CAPITAL OF T HE ASSESSEE- COMPANY. THE SAID AMOUNT OF RS. 1,29,48,645/- PAID TOWARDS ROC FEES WAS DEBITED TO THE PROFIT & LOSS A/C AND CLAIM ED AS REVENUE EXPENDITURE. REFERRING TO THE APEX COURT DECISION R ENDERED IN THE CASE OF M/S PUNJAB STATE INDUSTRIAL DEVELOPMENT COR PORATION LTD. VS. CIT, AO OBSERVED THAT THE ROC FEES PAID TOWARDS ENH ANCEMENT OF AUTHORIZED SHARE CAPITAL WAS HELD TO BE IN THE NATU RE OF CAPITAL EXPENDITURE. THE SAME WAS CONFRONTED WITH THE ASSES SEE AND AS THE EXPENDITURE INCURRED GIVES ENDURING BENEFIT TO THE ASSESSEE, THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE SAME SHOULD N OT BE TREATED AS CAPITAL EXPENDITURE AND BE DISALLOWED. THE AO NO TED THAT THE ASSESSEE NEITHER FILED ANY EXPLANATION NOR MADE ANY SUBMISSIONS IN THIS REGARD. IN THE ABSENCE OF ANY EXPLANATION OR A NY REPLY FROM THE ASSESSEE, RELYING ON THE DECISION OF THE APEX COURT CITED SUPRA, THE AO DISALLOWED THE EXPENDITURE OF RS. 1,29,48,645/- INCURRED TOWARDS ROC FEE AND ADDED TO THE INCOME RETURNED. 2.2 SINCE THE ASSESSEE HAD FURNISHED INACCURATE PA RTICULARS OF INCOME BY DEBITING THE EXPENSES TOWARDS ROC FEES TO THE P&L A/C, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) BY ISSUE OF NOTICE U/S 274 R.W.S. 271 OF THE IT ACT ON 22/12/2010 AND AGAIN A LETTER DATED 10/06/2011. IN RESPONSE, THE ASSESSEE FILED W RITTEN SUBMISSIONS ON 20/06/2011 WHEREIN IT WAS STATED AS UNDER: THE ASSESSEE COMPANY HAS FURNISHED ALL THE NECESS ARY DETAILS/ PARTICULARS RELATING TO EXPENDITURE INCURRED TO INC REASE OF SHARE CAPITAL PAID TO ROC. MOREOVER, THE ASSESSEE'S REPRE SENTATIVE 3 ITA NO. 259 /HYD/2013 M/S PRAJAY HOLDINGS PVT. LTD. AGREED TO ADD THE- SAME THOUGH, IT IS DEBATABLE ISS UE THE ASSESSES AR AGREED THE SAME TO ADD BACK. FROM THE ABOVE FACTS, IT IS TO BE NOTICED THAT ON T HE BASIS OF MATERIAL ON. RECORD AS WELL AS ON THE FACTS AND CIR CUMSTANCES OF THE CASE, IT CANNOT BE SAID THAT THE ASSESSEE COMPA NY HAD CONSCIOUSLY CONCEALED THE PARTICULARS OF INCOME (OR ) HAD FURNISHED INACCURATE PARTICULAR OF SUCH INCOME WITH RESPECT TO DIFFERENCE IN THE AMOUNT OF INCOME RETURNED AND ASS ESSED. 2.3 REJECTING THE SUBMISSIONS OF THE ASSESSEE, THE AO LEVIED A PENALTY OF RS. 39,90,500/- U/S 271(1)(C) BY HOLDING THAT THIS IS A FIT CASE TO LEVY PENALTY U/S 271(1)(C) FOR FURNISHING I NACCURATE PARTICULARS OF INCOME AND FOR FAILURE TO FURNISH EXPLANATION DU RING THE COURSE OF ASSESSMENT PROCEEDINGS AND ALSO FOR FAILURE TO PROV E THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAV E BEEN DISCLOSED BY IT. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A) 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT I T HAD DULY REFLECTED THE EXPENDITURE IN THE PROFIT & LOSS ACCO UNT. FURTHER, IT WAS SUBMITTED THAT IT IS ONLY A DIFFERENCE OF OPINION A ND THE ASSESSEE HAD NO INTENTION OF NON-DISCLOSURE AND RELIED ON VARIOU S CASE LAWS. 5. THE CIT(A) RELYING ON THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCT S (P) LTD., 322 ITR 158 AND RELYING ON THE DECISION OF THE ITAT, DE LHI BENCH IN THE CASE OF ALANKIT ASSIGNMENTS LTD. VS. DCIT, ITA NO. 3859/DEL/2010, DATED 07/01/2011, CANCELLED THE PENALTY LEVIED BY T HE AO U/S 271(1)(C) BY OBSERVING AS UNDER: 6.1 ..IT IS CLEAR THAT THERE IS A DIFFERENCE OF OPINION ON THE ISSUE AND THERE IS NO CONCEALMENT OF ANY FACTS BY THE APPELLANT. IT IS A SETTLED LAW THAT FOR MERE DISALL OWANCES, EVEN THOUGH THEY MAY BE CONFIRMED IN APPEAL, PENALTY FOR CONCEALMENT OF INCOME IS NOT ATTRACTED. I FURTHER FIND THAT THE AO HAS NOT PLACED ON RECORD AN FACT TO SHOW THAT THE APPELLANT HAS NOT OFFERED PROPER EXPLANATION OR THAT IT HAD FALSIFIED ENTRIES TO DELIBERATELY CONCEAL INCOME. 4 ITA NO. 259 /HYD/2013 M/S PRAJAY HOLDINGS PVT. LTD. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE CIT(A) IS ERRONEOUS BOTH IN LAW AND IN FACTS OF THE CASE. 2. THE CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THA T THE ASSESSEE HAS FAILED TO PROVIDE ANY EXPLANATION AS R EQUIRED IN CLAUSE (A) TO EXPLANATION 1 TO SECTION 271(1) AT TH E TIME OF ASSESSMENT AS TO WHY THE EXPENSES HAVING ENDURING B ENEFIT ON THE REVENUE GENERATING CAPACITY OF A CONCERN BE TRE ATED AS CAPITAL EXPENDITURE. 3. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT T HAT THE FACTS OF THE CASE IN RESPECT OF CIT VS RELIANCE PETRO PRO DUCTS P LTD ARE NOT APPLICABLE TO THE PRESENT CASE AS THE ASSES SEE HAS NOT MADE AND CLAIM OF DEDUCTION. 4. THE CIT(A) OUGHT TO HAVE CONSIDERED A FACT THAT THE ASSESSEE OFFERED AN EXPLANATION AT THE TIME OF APPEAL WHICH HE IS NOT ABLE TO SUBSTANTIATE AS TO HOW THE EXPENSES HAVING ENDUR ING BENEFIT ON THE REVENUE GENERATING CAPACITY OF A CONCERN IS A REVENUE EXPENDITURE. 7. THE LD. DR SUBMITTED THAT CIT(A) HAS ALLOWED THE ASSESSEES APPEAL BY CITING THAT THERE IS A DIFFERENCE OF OPIN ION ON THE ISSUE WHEREAS THE FACTS ARE, THE ASSESSEE CLAIMED ROC FEE S AS REVENUE EXPENDITURE WHEREAS THE SAME WAS HELD TO BE CAPITAL IN LIEU OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F M/S PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION (SUPRA). T HERE IS NO DISPUTE, THE SAME WAS CONFRONTED WITH THE ASSESSEE, THERE IS NO CLARIFICATION FROM THE ASSESSEE AND IT WAS ACCEPTED . IT CLEARLY SHOWS THAT ASSESSEE HAD CLAIMED THE EXPENSES DELIBERATELY AS REVENUE. HE SUBMITTED THAT CIT(A) HAS RELIED ON M/S RELIANCE PE TRO PRODUCTS (P) LTD. (SUPRA),BUT, THE FACTS OF THIS CASE ARE DIFFER ENT. HE SUBMITTED THAT THIS IS A FIT CASE FOR PENALTY. HE FURTHER SUBMITTE D THAT THE ACCOUNTS WERE AUDITED BY M/S DELOITTE AND THEY ARE AWARE OF THE STATUTORY POSITION, IN SUCH CASE, ASSESSEE IS AWARE OF THE SI TUATION AND STILL TREATED THE ROC FEES AS REVENUE EXPENDITURE. HE REL IED ON THE FOLLOWING CASE LAWS: I) SHR TRADING (P) LTD., VS. CIT, 150 ITD 383 5 ITA NO. 259 /HYD/2013 M/S PRAJAY HOLDINGS PVT. LTD. II) CIT VS. NG TECHNOLOGIES LTD., 370 ITR 7 (DELHI ) III) GOURAV GOENKA VS. ACIT, 364 ITR 186 (CAL.) 8. LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESS EE GENUINELY BELIEVED THAT ROC PAYMENT OF FEES IS AN ALLOWABLE E XPENDITURE AND NOT AWARE OF THE DECISION OF THE HONBLE SUPREME CO URT AT THE TIME OF FILING OF RETURN OF INCOME. IT IS UNDERSTOOD FROM T HE ORDER OF THE HONBLE SUPREME COURT, THE ISSUE HAS BEEN ANSWERED IN FAVOUR OF THE ASSESSEE BY THE HIGH COURT OF MADRAS, KARNATAKA AP & KERALA AND SOME OF THE HONBLE HIGH COURT ARE IN FAVOUR OF THE REVENUE I.E. ALLAHABAD, HP, DELHI, KOLKATTA, PUNJAB, GUJARAT & R AJASTHAN. THE HONBLE SUPREME COURT HAS APPRECIATED THE DIFFERENC E OF OPINION AMONG THE DIFFERENT HIGH COURTS AND FOLLOWED THE DE CISION OF THE MAJORITY AND HELD IN FAVOUR OF THE REVENUE. LD. AR SUBMITTED THAT IN VIEW OF THE CONFLICTING DECISIONS OF THE VARIOUS HI GH COURTS, IT CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE IS TOTALLY W RONG WHICH LED TO INACCURATE CLAIM. 8.1 LD. AR ALSO SUBMITTED THAT THE ASSESSEE CLAIMED THIS EXPENDITURE IN P&L A/C AND AGREED FOR ADDITION DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS WHEN IT IS BROUGHT TO THE NO TICE THAT THIS ISSUE IS SETTLED IN FAVOUR OF REVENUE. HE SUBMITTED THAT MERELY MAKING A CLAIM IN P&L ACCOUNT WHICH IS DISALLOWABLE DOES N OT LEAD TO CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTI CULARS. 8.2 LD. AR FURTHER SUBMITTED THAT CIT(A) HAS RIGHTL Y ALLOWED THE ASSESSEES APPEAL BY CONSIDERING THE RATIONALE OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. (SUPRA). HE ALSO RELIES ON THE DECISION IN THE CASE OF ALANKIT ASSIGNMENTS LTD. VS. DCIT, ITA NO. 3859/DEL/2010. 9. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES A ND MATERIAL FACTS ON RECORD. THERE IS NO DISPUTE THAT ASSESSEE HAD CLAIMED THE 6 ITA NO. 259 /HYD/2013 M/S PRAJAY HOLDINGS PVT. LTD. ROC FEES PAID TO INCREASE THE SHARE CAPITAL AS REVE NUE EXPENDITURE. WHEN THIS ASPECT WAS BROUGHT TO THE ASSESSEES KNOW LEDGE, ASSESSEE HAD ACCEPTED THE MISTAKE AND DID NOT PREFE R TO CONTEST FURTHER. NO DOUBT THE ACCOUNTS WERE AUDITED BY WELL KNOWN ACCOUNTANT AND IT IS NOT CLEAR WHETHER THE ACCOUNTA NTS WERE ADVISED THE ASSESSEE ON THIS ASPECT. BUT, ASSESSEE HAD FIL ED ITS RETURN OF INCOME AFTER THE APEX COURT DELIVERED THE DECISION ON 4 TH DECEMBER, 1996, WHEREIN, THEIR LORDSHIPS HAVE CLEARLY HELD TH AT EXPENDITURE INCURRED BY A COMPANY IN CONNECTION WITH ISSUE OF S HARES WITH A VIEW TO INCREASE ITS SHARE CAPITAL, DIRECTLY RELATED TO EXPANSION OF CAPITAL BASE OF THE COMPANY, AND IS CAPITAL EXPENDITURE EVE N THOUGH IT MAY INCIDENTALLY HELP IN THE BUSINESS OF THE COMPANY, A ND IN THE PROFIT MAKING. IT MEANS, THE NATURE OF THIS EXPENDITURE IS CLEARLY EXPLAINED BY THE HONBLE APEX COURT AND HENCE THERE IS NO QUE STION OF FORMING TWO OPINIONS REGARDING THE NATURE OF SUCH EXPENDITU RE. IN SUCH CASES, THERE CANNOT BE ANY QUARREL REGARDING THE PROPOSITI ON OF LAW FOR INVOKING PROVISION OF EXPLANATION 1 TO SECTION 271( 1)(C) OF THE ACT, BY THE AO. 10. WE ALSO CANNOT IGNORE THE FACT THAT PRESENTLY T HERE ARE 5% RETURNS WHICH ARE TAKEN UP FOR SCRUTINY BY ISSUE OF NOTICE U/S 143(2) OF THE ACT FOR ASSESSMENT U/S 143(3) OF THE ACT, WHEREAS IN THE REMAINING CASES THE RETURN OF INCOME DECLARED BY TH E ASSESSEES IN THEIR RETURNS ACCEPTED U/S 143(1). THEREFORE, THE P OSSIBILITY OF ASSESSEE FILING RETURN OF INCOME BY INTENTIONALLY G IVING WRONG PARTICULARS/INFORMATION WITH A HOPE THAT THE RETURN OF INCOME MAY NOT COME UNDER SCRUTINY AND RETURN OF INCOME MAY BE AC CEPTED AS FILED ON THE BASIS OF SELF-ASSESSMENT CANNOT BE RULED OUT . 11. COMING TO THE FACTS OF THE PRESENT CASE, WE FIN D THAT THE ASSESSEE HAS NOT EXPLAINED AS TO WHY IT MADE THE CL AIM FOR THE 7 ITA NO. 259 /HYD/2013 M/S PRAJAY HOLDINGS PVT. LTD. EXPENDITURE IN THE RETURN OF INCOME WHEN THE HONBL E APEX COURT LAID DOWN THE LAW IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. (SUPRA) WHEREIN THE NATURE OF EXPE NDITURE CLAIMED BY THE ASSESSEE WAS HELD TO BE CAPITAL. WE FAIL TO UN DERSTAND WHY THE ASSESSEE CHOSE TO CLAIM THIS EXPENDITURE AS REVENUE , EVEN THOUGH, THE ACCOUNTS WERE AUDITED BY THE WELL KNOWN ACCOUNT ANTS. THE LAW WAS LAID DOWN MUCH BEFORE THE RETURN OF INCOME WAS FILED. HENCE, IN OUR OPINION, THE ASSESSEE NOW CANNOT ABSOLVE ITSELF FROM LEVY OF PENALTY U/S 271(1)(C) IN VIEW OF EXPLANATION 1 TO S ECTION 271(1)(C) BY GIVING AN EXPLANATION DURING THE ASSESSMENT PROCEED INGS THAT IT DISCLOSED ALL PARTICULARS BEFORE THE AO OR THAT THE CLAIM MADE BY THE ASSESSEE WAS DUE TO BONAFIDE ERROR. NOW, ASSESSEE C ANNOT ARGUE BEFORE US THAT THE APEX COURT DECISION ITSELF CAN B E DISTINGUISHABLE SIMPLY BECAUSE THE DIFFERENT HIGH COURTS HAD EXPRES SED DIFFERENT OPINION. ONCE, THE HONBLE APEX COURT LAID DOWN DEC ISION, IT BECOMES THE LAW OF THE LAND. HENCE, THE ASSESSEE COMES WI THIN THE PURVIEW OF THE EXPLANATION 1 OF SECTION 271(1)(C) OF THE AC T FOR LEVY OF PENALTY FOR FURNISHING OF INACCURATE PARTICULARS. WE FIND S UPPORT FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. ESCORT FINANCE LTD. [2010] 328 ITR 44 (DEL.) WHEREIN, ON I DENTICAL FACTS, IT WAS HELD SUCH A CLAIM MADE BY THE ASSESSEE TO BE NO T DUE TO A BONAFIDE ERROR BECAUSE EX FACIE THE CLAIM MADE BY T HE ASSESSEE WAS BOGUS. THEREFORE, IN OUR OPINION, THE CIT(A) BY REL YING ON RELIANCE PETROCHEMICAL (SUPRA) DECISION WHILE COMING TO THE CONCLUSION THAT NO PENALTY U/S 271(1)(C) WAS LEVIABLE BECAUSE OF THE D IFFERENCE OF OPINION ON THE ISSUE OF NATURE OF EXPENDITURE, WAS MISPLACED BECAUSE OF THE IMPROPER APPRECIATION OF THE FACTS AS WELL A S IMPROPER APPLICATION OF THE CASE LAW TO THE FACTS ON THE INS TANT CASE OF THE ASSESSEE. ACCORDINGLY, THE ORDER OF CIT(A) IN DELET ING THE IMPUGNED PENALTY AMOUNT LEVIED U/S 271(1)(C) BY THE AO IS SE T ASIDE AND THE ORDER OF THE AO IS RESTORED. 8 ITA NO. 259 /HYD/2013 M/S PRAJAY HOLDINGS PVT. LTD. 12. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 8 TH JUNE, 2016. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHMAN ) VICE PRESIDENT ACCOUNTANT MEMBER HYDERABAD, DATED: 8 TH JUNE, 2016 KV COPY TO:- 1) ACIT, CIRCLE 16(3), 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2) M/S PRAJAY HOLDINGS PVT. LTD., 8-2-293/82/A, PLO T NO. 1091, NEAR PEDDAMMA TEMPLE, JUBILEE HILLS, HYDERABAD 500 033. 3) CIT(A) - V, HYDERABAD 4) CIT - IV, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER