DCIT, New Delhi V. M/s Reach Interactive Com. Pvt. Ltd., New Delhi

ITA 3469/DEL/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7974 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 03-05-2016
• Assessment Year: 2001-2002
• Appeal Filed On: 07-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESONG Y SHERPA
• Keywords: Tax effect; Onus to prove; Revenue expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG: JUDICIAL MEMBER ITA NO. 3469/DEL/2011 ASSTT. YR: 2001-02 DCIT, CIRCLE 15(1), VS. REACH INTERACTIVE COM. PV T. LTD., NEW DELHI. 7, LOCAL SHOPPING CENTRE, PANCHSHEEL PARK, NEW DELHI. PAN: AABCR 9137 R ( APPELLANT ) (RESPONDENT) APPELLANT BY : MS. KESONG Y. SHERPA SR. DR ASSESSEE BY : NONE DATE OF HEARING : 05/05/2016. DATE OF ORDER : 10/05/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS REVENUES APPEAL ASSAILING THE ORDER DATE D 8.4.2011, PASSED BY THE LD. CIT(A)-XVIII, NEW DELHI IN APPEAL NO. 22 /10-11, FOR A.Y. 2001- 02, DELETING THE PENALTY LEVIED BY THE AO U/S 271(1 )(C) OF THE I.T. ACT. 2. NOTICE OF HEARING OF THE APPEAL WAS SENT THROUGH DR. THE ITO, WARD21(1), NEW DELHI HAS SUBMITTED HIS REPORT THAT THE NOTICE HAS BEEN SERVED BY AFFIXTURE. HOWEVER, NONE PUT IN APPEARANC E ON BEHALF OF THE ASSESSEE AT THE HEARING. ACCORDINGLY, WE PROCEED TO DISPOSE OF THE DEPARTMENTS APPEAL, EX PARTE, QUA THE ASSESSEE, ON MERITS AND IN THAT PROCESS WE HAVE HEARD LD. DR AND PERUSED THE RECORD OF THE CASE. 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME DECLARING LOSS OF RS. 99,81,640/- ALONG WITH AUDITE D COPIES OF BALANCE-SHEET, P&L A/C. ORIGINAL ASSESSMENT WAS COMPLETED U/S 143( 3) VIDE ORDER DATED 28.3.2003 AT RETURNED LOSS OF RS. 99,81,640/-. SUBS EQUENTLY, PROCEEDINGS U/S 263 WERE TAKEN AS IT WAS NOTICED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 1,49,74,289/- UNDER VARIOUS HEADS AND SHOWN ONL Y NOMINAL INCOME OF RS. 6455/- ON ACCOUNT OF INTEREST AND MISC. INCOME. THE CONCLUSION DRAWN WAS THAT ASSESSEE COMPANY WAS IN ITS PRE-OPERATIVE STAGE AND THE EXPENSES CLAIMED WERE RELATED TO PRE-OPERATIVE STAGE AND, AC CORDINGLY, EXPENSES SHOULD HAVE BEEN CAPITALIZED. THEREFORE, PROPOSAL W AS SENT TO THE CIT FOR CANCELLATION OF ASSESSMENT U/S 263. THE CIT, DELHI- V, NEW DELHI CANCELLED THE ASSESSMENT MADE U/S 143(3) VIDE ORDER DATED 30. 3.2005 PASSED U/S 263 OF THE ACT. THE AO COMPLETED THE ASSESSMENT AT RS. 644 5/- IN RESPECT OF INCOME FROM INTEREST AND BANK DEPOSIT AND MISC. INC OME AFTER DENYING ALL THE EXPENSES CLAIMED BY ASSESSEE, INTER ALIA, OBSER VING THAT THOUGH THE ASSESSEE HAD CLAIMED TO HAVE COMMENCED ITS BUSINESS DURING THE YEAR BUT NO EVIDENCE THEREOF HAD BEEN BROUGHT ON RECORD. HE FUR THER OBSERVED THAT COMMENCEMENT OF A WEBSITE BEING IN QUESTION, THE AS SESSEE COULD HAVE, AT LEAST, PROVIDED EVIDENCE OF UPLINKING OF ITS WEBSIT E WITH THE SERVER. HE OBSERVED THAT NO EVIDENCE WAS BROUGHT ON RECORD TO PROVE CONCLUSIVELY THAT THE ASSESSEE HAD IN FACT SET UP ITS SHOP ON THE INT ERNET. THE AO HAD INITIATED PENALTY PROCEEDINGS U/S 271(1)(C). IN THE PENALTY O RDER THE AO HAS OBSERVED THAT BEFORE LD. CIT(A) ALSO THE ASSESSEE FAILED TO PRODUCE ANY DOCUMENT TO SHOW THE COMMENCEMENT OF THE BUSINESS. HE FURTHER O BSERVED THAT ITAT VIDE ORDER DATED 17.9.2009 RECEIVED IN THE OFFICE O F LD. CIT, DELHI-V, NEW DELHI ON 8.1.2010, DISMISSED THE APPEAL OF THE ASSE SSEE FOR NON-PROSECUTION. THE AO, THEREFORE, ISSUED SHOW CAUSE NOTICE FOR IMP OSITION OF PENALTY U/S 3 271(1)(C). THE ASSESSEE VIDE ITS REPLY DATED 21.7.2 010, INTER ALIA, SUBMITTED THAT THE ASSESSEES COMPANYS BUSINESS HAD BEEN SET UP, COMMENCED DURING FY 2000-01, ENTIRE EXPENDITURE (AS INCURRED DURING THE YEAR), HAD BEEN BIFURCATED INTO 4 CATEGORIES: A. TOTAL EXPENDITURE INCURRED DURING THE SAID YEAR. B. PRE-OPERATIVE EXPENDITURE [OUT OF (1) ABOVE] C. WEB/SOFTWARE DEVELOPMENT EXPENDITURE [ OUT OF (1) A BOVE] D. BALANCE REVENUE EXPENDITURE [I.E. (1) LESS (2) & (3 )]. 4. THE ASSESSEE FURTHER EXPLAINED THE DIFFERENCE BE TWEEN SETTING UP AND COMMENCEMENT OF BUSINESS AND POINTED OUT THAT WHEN A BUSINESS IS ESTABLISHED AND IS READY TO COMMENCE BUSINESS, ONLY THEN, IT CAN BE SAID THAT THE BUSINESS HAS BEEN SET UP. HE POINTED OUT THAT T HE AO HAD CONFUSED THIS ISSUE IN HIS ORDER, WHERE HE SPECIFICALLY SAYS THE DECISION RELIED UPON BY THE ASSESSEE COMPANY TO THE EFFECT THAT THE EXPENDITURE ON PURCHASE OF SOFTWARE OR AS THE CASE MAY BE, ACQUIRING A RIGHT TO USE IS OF REVENUE NATURE, DOES NOT HOLD GOOD FOR THE REASON THAT THE QUESTION OF ALLOW ABILITY OF EXPENDITURE COMES ONLY WHEN THE BUSINESS IS COMMENCED. THE ASS ESSEE FURTHER POINTED OUT THAT THE WEBSITE OF THE COMPANY, NAMELY, WWW.UREACHUS.COM GOT INAUGURATED ON 19.3.2001. THE ASSESSEE ALSO FILED P HOTO COPY OF ADVERTISEMENT IN VARIOUS NEWS PAPERS FOR INAUGURAT ION AS WELL AS THE BILL FOR ADVERTISEMENT. THE ASSESSEE FURTHER EXPLAINED VARI OUS STEPS TAKEN BY IT TO SUBMIT THAT THE ASSESSEE COMPANY HAD UNDERTAKEN VAR IOUS STEPS AND THE BUSINESS HAD BEEN DULY SET UP AND ALSO COMMENCED DU RING THE CURRENT YEAR. FURTHER, THE WEB-PORTAL HAD BECOME ACTIVE DURING TH E CURRENT FINANCIAL YEAR. THE AO, AFTER CONSIDERING THE ASSESSEES DETAILED R EPLY, AS HAS BEEN EXTRACTED IN THE PENALTY ORDER, CONCLUDED THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 263 AND SUBSEQUENTLY BEFORE THE AO COULD 4 NOT PROVE THE COMMENCEMENT OF BUSINESS DURING THE Y EAR. HE, ACCORDINGLY, CONCLUDED THAT ASSESSEE HAD FURNISHED INACCURATE PA RTICULARS OF ITS INCOME IN THE FORM OF CLAIMING ALLOWABLE EXPENDITURE OF RS. 9 9,88,097/-. 5. LD. CIT(A) DELETED THE PENALTY OBSERVING IN PARA 5.2 AS UNDER: 5.2 ON CAREFUL EXAMINATION OF THE MATTER, I FIND THAT THE APPELLANT'S CLAIM, THAT FULL DETAILS OF ALL EXPENDI TURE HAD BEEN PROVIDED IN THE BALANCE SHEET AND THE INCOME TAX RE TURN AND THE AO HAS NOT ESTABLISHED THE SAME TO BE FALSE, CA NNOT BE DENIED. THE ISSUE INVOLVED IS A DEBATABLE ONE AS TH E AO IN THE ORIGINAL ASSESSMENT HAD ALLOWED THE EXPENSES IN FUL L, AFTER EXAMINATION OF DETAILS AND SPECIFIC DISCUSSION IN T HE ASSESSMENT ORDER. MERE CONFIRMATION OF ADDITION BY THE CIT(A) CANNOT BE A GROUND FOR LEVY OF PENALTY U/S 271 (1 )(C). IN TH IS CONTEXT, I FIND THAT THE HON'BLE ITAT, PUNE IN THE CASE OF KAN BAY SOFTWARE INDIA (P) LTD. (2009) 31 SOT 153 AFTER CON SIDERING THE DECISIONS OF THE APEX COURT IN DHARMENDRA TEXTI LE PROCESSORS 295 ITR 244 (SC) AND DILIP N. SHROFF 291 ITR 519 (SC) HAS INTER ALIA HELD AS UNDER: 'WHETHER DETAILS OR INFORMATION ABOUT INCOME DEAL WITH FACTUAL DETAILS OF INCOME AND THIS CANNOT BE EXTENDED TO AREAS WHICH ARE SUBJECTIVE , SUCH AS STATUS OF TAXABILITY OF AN INCOME, ADMISSIBILITY OF A DEDUCTION AND INTERPRETATION OF LAW-HELD, YES - WHETHER ADMISSION OR REJECTION OF A CLAIM IS A SUBJECTIVE EXERCISE; WHETHER A CLAIM IS ACCEPTED OR REJECTED HAS NOTHING TO DO FURNISHING OF INACCURATE PARTICULARS OF INCOME -HELD, YES-WHETHER RAISING A LEGAL CLAIM , EVEN IF IT IS ULTIMATELY FOUND TO BE LEGALLY UNACCEPTABLE , CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME-HELD, YES' FURTHER, I FIND THAT THE DECISION OF THE HON'BLE RA JASTHAN HIGH COURT IN THE CASE OF CIT VS HARSHVARDHAN CHEMICALS AND 5 MINERAL LTD., 259 ITR 212, AS EXTRACTED BELOW, WOUL D BE RELEVANT IN THIS CASE. 'WHILE REJECTING THE APPLICATION UNDER SECTION 256(1), THE TRIBUNAL HAS CONSIDERED AND REPRODUCED THE FACTS STATED IN PENALTY ORDER. THE RELEVANT PART OF THE -TRIBUNAL'S ORDER READS AS UNDER: 'THE CONSISTENCY OF THE ASSESSEE'S CONDUCT IS FURTHER ESTABLISHED FROM THE FACT THAT IT FILED AN APPEAL AGAINST THE ASSESSMENT ORDER THOUGH IT WAS LATER NOT PRESSED DUE TO THERE BEING NO TAX EFFECT ALLOWED. FROM THE FOREGOING DISCUSSION IT FOLLOWS THAT SUCH A DEDUCTION COULD BE AN ARGUABLE, CONTROVERSIAL OR A DEBATABLE QUESTION. IN SUCH A SITUATION THE CLAIM COULD NOT BE SAID TO BE FALSE. IF THIS WERE NOT SO, IT WOULD BECOME IMPOSSIBLE FOR ANY ASSESSEE TO RAISE ANY CLAIMS OR CLAIM ANY DEDUCTIONS WHICH ARE DEBATABLE. IT IS NOT CERTAINLY THE INTENTION OF THE LEGISLATURE TO MAKE PUNISHABLE SUCH CLAIMS OR DEDUCTIONS UNDER SECTION 271 (1)(C), IF THEY ARE NOT ACCEPTED. FURTHER THE TOTAL INCOME AS PER THE ORIGINAL AND REVISED COMPUTATION OF THE ASSESSEE AS ALSO AFTER THE FINAL ASSESSMENT, REMAINED THE SAME, NAMELY, RS. 13, 07,646 SO ALSO THE INCOME-TAX COMPUTED BY THE ASSESSEE IN BOTH THE RETURNS AND AS COMPUTED ON THE BASIS OF FINAL ASSESSMENT REMAINED THE SAME, NAMELY, RS. 6,86,519. IN SUCH - SITUATION, THEREFORE, WHEN NO FURTHER TAX WAS PAYABLE, THE QUESTION OF CONCEALMENT OR COMPUTATION OF THE PENALTY COULD NOT ARISE. THE OBSERVATION AND FINDINGS OF THE INCOME-TAX AUTHORITIES TO THE CONTRARY WERE, THEREFORE, NOT RIGHT. WHAT IS MORE, SINCE THE ASSESSEE HAD PAID TAX AMOUNTING TO RS. 6,90, 000 A 6 REFUND OF RS. 3,481 BECAME PAYABLE TO IT AS A RESUL T OF THE FINAL ASSESSMENT. THERE IS ANOTHER FACT WHIC H ALSO REQUIRED TO BE NOTICED, NAMELY, AS AGAINST THE DEDUCTION OF RS. 6,73,298, CLAIMED BY THE ASSESSEE ON THE BASIS OF THE ORIGINAL RETURN THE TOTAL DEDUCTION ALLOWED AS A RESULT OF THE FINAL ASSESSMENT WAS MORE, NAMELY, RS, 10, 17,306_ THEREFORE, IN WHATEVER MANNER THE MATTER IS LOOKED AT ON THE BASIS OF THE FOREGOING FACTS, IT IS NOT POSSIBLE TO UPHOLD THE LEVY OF ANY PENALTY UNDER SECTION 271 (I)(C) IN THIS CASE AND THE ASSESSEE CA N BE SAID TO HAVE SUCCESSFULLY DISCHARGED THE BURDEN OF PROOF, WHICH LAY ON IT IN TERMS OF THE APPLICABL E EXPLANATION TO SECTION 271 (I)(C). THE PENALTY HAS, THEREFORE, TO BE DELETED. ' THE FINDING OF THE TRIBUNAL THAT WHEN THE ASSESSEE HAS CLAIMED SOME AMOUNT THOUGH THAT IS , IN SUCH CASES, IT CANNOT BE SAID THAT THE ASSESSEE HAS CONCEALED ANY INCOME OR FURNISHED INACCURATE PARTICULARS FOR EVASION OF THE TAX. IN VIEW OF THE FINDINGS OF THE TRIBUNAL, NO CASE IS MADE OUT FOR INTERFERENCE BY THIS COURT. FURTHER, IT HAS BEEN HELD BY THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS H.M.A. UDYOG (P) LTD. 1 59 TAXMAN 394 IN THE CONTEXT OF REVENUE VS. CAPITAL EX PENDITURE, THAT IN CASE OF A DEBATABLE ISSUE, EVEN IF IT WAS U LTIMATELY DECIDED AGAINST THE ASSESSEE, IT COULD NOT BE SAID THAT THE ASSESSEE HAD ATTEMPTED TO CONCEAL THE PARTICULARS O F HIS INCOME OR FURNISH INACCURATE PARTICULARS SO AS TO ATTRACT THE PENAL PROVISIONS OF SECTION 271 (1)(C). I FIND THAT THE R ATIO OF THE ABOVE CASE LAWS SQUARELY APPLIES TO THE PRESENT APP EAL. I FIND THAT IN THE PENALTY ORDER THE AO HAS FAILED TO MAKE OUT ANY CASE OF CONCEALMENT OF PARTICULARS OF INCOME/FURNISHING OF INACCURATE PARTICULARS OF INCOME WHICH COULD JUSTIF Y LEVY OF 7 PENALTY U/S 271 (1 )(C). IT IS PERTINENT TO MENTION THAT AS HELD IN THE CASE OF CIT V. BAGGA (K.L.) (1973) 92 ITR 578 ( DEL.), IT IS SETTLED LAW THAT WHILE LEVYING PENALTY, IT NEEDS TO BE ENSURED THAT THE PERSON TO BE PENALIZED COMES FAIRLY AND SQ UARELY WITHIN THE LANGUAGE OF THE STATUTE WHICH MAKES HIS ACT AN OFFENCE. FURTHER, IT IS TRITE LAW THAT LEVY OF PENALTY IS NO T A MATTER OF COURSE OR AN AUTOMATIC CONCOMITANT OF ASSESSMENT. C ONSIDERING THE FACTS AND PLETHORA OF JUDGMENTS ABOVE ON THE IS SUE, I FIND THAT THE IMPUGNED PENALTY CANNOT BE SUSTAINED. THE SAME IS, THEREFORE, DELETED. 6. AFTER HEARING LD. DR WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A), BECAUSE ASSESSEE HAD FURNISHED ALL THE RELEVANT DETAILS IN REGARD TO THESE EXPENSES AND THE AO IN THE ORIGINAL ASSESSMENT HAD ALLOWED THESE EXPENSES. THEREFORE, THIS WAS DEFINITELY A DE BATABLE ISSUE. THE DEPARTMENT HAS NOT BEEN ABLE TO POINT OUT ANY PARTI CULARS FURNISHED BY ASSESSEE WHICH WERE INACCURATE. ACCORDINGLY, ORDER OF LD. CIT(A), DELETING THE PENALTY IN QUESTION, IS UPHELD. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 10/05/2016. SD/- SD/- (C.M. GARG) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10/05/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.