ACIT, New Delhi V. Sh Vens Financial Services (P) Ltd., New Delhi

ITA 3881/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73972 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 11-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA SENIOR
• Assessee Lawyers: M K SHARMA
• Keywords: Earning of tax free income; Difference of opinion; Onus to prove
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H : NEW DELHI) SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.3881/DEL./2012 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE 7 (1), VS. M/S. VENS FINANCIAL SERVI CES (P) LTD., NEW DELHI. THAPAR HOUSE, 124, JANPATH, NEW DELHI 110 001. (PAN : AAACV3258L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.K. SHARMA, AR REVENUE BY : SHRI SAMEER SHARMA, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF CIT (APPEALS)-XIX, NEW DELHI DATED 21.05.2012. 2. THE ASSESSEE COMPANY DERIVES INCOME FROM INVESTM ENT FROM BUSINESS OF INVESTMENTS AND PURCHASE/SALE OF LAND AND IMMOVA BLE PROPERTIES. DURING THE YEAR, THE ASSESSEE HAS DEBITED INTEREST EXPENDI TURE IN P&L ACCOUNT OF RS.68,08,543/-. THE ASSESSEE COMPANY SUO MOTO DISAL LOWED RS.9,20,905/- U/S 14A OF THE ACT. FOR THE ASSESSMENT YEAR 2008-09, DI SALLOWANCE U/S 14A OF THE INCOME-TAX ACT, 1961 IS TO BE MADE AS PER RULE 8D. THE DISALLOWANCE AS ITA NO.3881/DEL./2012 2 RULE 8D WORKED OUT AT RS.51,68,961/-. FURTHER, DIS ALLOWANCE OF RS.43,53,486/- WAS MADE BY ASSESSEE WHEN DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DREW ATTENTION OF ASSESSEE TOWARD RULE 8D. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS TR IED TO RETRIEVE THE SITUATION BUT THE CLAIM DOES NOT APPEAR TO BE BONAFIDE AND PE NALTY PROCEEDINGS U/S 271(1)(C) WAS INITIATED. ASSESSING OFFICER LEVIED P ENALTY U/S 271(1)(C) @ 100% OF RS.13,06,045/-. AGAINST THIS ORDER OF ASSE SSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). THE CIT (A) HAS DELETED THE PENALTY BY HOLDING AS UNDER :- 10. THE AO DETERMINED THE INCOME AT RS.1,59,04,283 /- AGAINST DECLARED INCOME OF RS.1,16,56,223/- UNDER N ORMAL PROVISIONS. THE AO FURTHER DETERMINED THE PROFITS A T RS.2,25,90,203/ - AGAINST THE DECLARED PROFITS OF R S.1,74,21,242/- . THE INCREASE IN THE INCOME UNDER NORMAL PROVISION S AND BOOK PROFITS WAS ON ACCOUNT OF DISALLOWANCE MADE BY THE AO UNDER RULE 8D R.W.S. 14A AS MENTIONED EARLIER. IT IS FURT HER SEEN THAT THE TAX LIABILITY U/S 115JB WAS RS.25,59,470/- WHIC H IS HIGHER THAN THE TAX LIABILITY COMPUTED UNDER NORMAL PROVIS IONS, MEANING THEREBY THE INCOME COMPUTED U/S 115JB IS TO BE CONSIDERED AS TOTAL INCOME. THE ISSUE IS WHETHER PE NALTY CAN BE LEVIED WHEN ADDITIONS/ DISALLOWANCES ARE MADE UNDER THE REGULAR PROVISIONS RESULTING IN NO ADDITIONAL TAX LIABILITY UNDER NORMAL PROVISIONS IN THE IMPUGNED YEAR THOUGH THERE IS INC REASED TAX LIABILITY UNDER THE MAT PROVISIONS. THE AR HAS BROU GHT TO MY NOTICE THE DECISION IN THE CASE OF CIT VS. NALWA SO NS INVESTMENTS LTD 327 ITR 543 (DELHI). THE HON'BLE HI GH COURT OBSERVED AS UNDER AS SEEN FROM THE HEAD NOTES: 'UNDER THE SCHEME OF THE INCOME-TAX ACT, 1961, THE TOTAL INCOME OF THE ASSESSEE IS FIRST COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARED WITH THE PRESCRIBED PERCENTAGE OF THE B OOK PROFITS COMPUTED UNDER SECTION 115JB OF THE ACT. TH E ITA NO.3881/DEL./2012 3 HIGHER OF THE TWO AMOUNTS IS REGARDED AS TOTAL INCO ME AND TAX IS PAYABLE WITH REFERENCE TO SUCH TOTAL INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER, SUCH AMOUNT IS THE TOTAL INCOME OF THE ASSESSEE, OTHERWI SE, THE BOOK. PROFITS ARE DEEMED AS THE TOTAL INCOME OF THE ASSESSEE IN TERMS OF SECTION 115JB OF THE ACT. WHER E THE INCOME COMPUTED IN ACCORDANCE WITH THE NORMAL PROCEDURE IS LESS THAN THE INCOME DETERMINED BY LEG AL FICTION, NAMELY; THE BOOK PROFITS UNDER SECTION 115 JB OF THE ACT AND THE INCOME OF THE ASSESSEE IS ASSESSED UNDER SECTION 115JB AND NOT UNDER THE NORMAL PROVISIONS, THE TAX IS PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE ACT. CONCEALMENT OF INCOME WOULD HAVE NO ROLE TO PL AY AND WOULD NOT LEAD TO TAX EVASION. THEREFORE, PENAL TY CANNOT BE IMPOSED ON THE BASIS OF DISALLOWANCES OR ADDITIONS MADE UNDER THE REGULAR PROVISIONS.' 11.1 IT HAS BEEN HELD THAT THERE CANNOT BE A STRAIT JACKET FORMULA FOR DETECTION OF DEFAULTS OF CONCEALMENT OR FURNISH ING OF INACCURATE PARTICULARS OF INCOME. THERE COULD BE OV ERLAPPING BETWEEN CONCEALMENT AND FURNISHING OF INACCURATE PA RTICULARS. IT DEPENDS ON THE FACTS OF EACH CASE. 11.2 THE STATUTE HAS RECOGNIZED THAT ASSESSMENT PRO CEEDINGS AND PENALTY PROCEEDINGS ARE DISTINCT AND INDEPENDEN T OF EACH OTHER. PART (A) OF THE EXPLANATION TO SECTION 271 ( 1) IS APPLICABLE WHERE THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION OR THE EXPLANATION OFFERED IS FOUND TO BE FALSE BY THE ASS ESSING OFFICER. IT CANNOT BE APPLIED MERELY BECAUSE THE EXPLANATION OF THE ASSESSEE IS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MUST HAVE SOME DEFINITE EVIDENCES TO REFUTE THE ASSESSEE'S CLAIM OR EVIDENCE OR EXPLANATION. CLAUSE (B) OF THE EXPLANATION TO SECTION 271 (1) CASTS RESPONSIBILITY ON THE ASSESSEE TO PROVE THAT THE EXPLANATION GIVEN IS BON A FIDE AND MUST SUBSTANTIATE THAT EXPLANATION BY MEANS OF SOME EVIDENCES. WHEN THE ASSESSEE HAS OFFERED AN EXPLANATION BASED ON SOME EVIDENCES, THE ASSESSING OFFICER CANNOT INVOKE PART (B) OF THE EXPLANATION UNLESS HE HAS GIVEN A FINDING BASED ON SOME CONTRADICTORY EVIDENCE TO DISPROVE THE EXPLANATION OFFERED BY THE ASSESSEE. IN THIS CASE, THE ASSESSEE HAD DISCHA RGED ITS BURDEN BY SUBMITTING THE NECESSARY EXPLANATION AND THE ASS ESSING OFFICER HAD NOT FOUND THE EXPLANATION TO BE FALSE. ITA NO.3881/DEL./2012 4 12. IN THE CASE OF KANBAY SOFTWARE INDIA (P) LTD. V S. DCIT (2009) 31 SOT 153 (PUNE) THE HON'BLE ITAT, AFTER CO NSIDERING THE CASE LAW ON THE SUBJECT HAS OBSERVED BROADLY AS UNDER: BY NO STRETCH OF LOGIC OR RATIONALE IT CAN BE SAID THAT IMPOSITION OF PENALTY UNDER SECTION 271 (1 )(E) HAS A CAUSE AND EFFECT RELATIONSHIP WITH ADDITION BEING M ADE TO RETURNED INCOME PER SE JUST BECAUSE PENALTY UNDER SECTION 271(1)(C) IS A C IVIL LIABILITY IT MUST MEAN PENALTY CAN AUTOMATICALLY BE LEVIED ON BASIS OF ANY ADDITION TO INCOME, IS NOT C ORRECT EVEN EXPLANATION 1 TO SECTION 271(1)(C) RAISES A REBUTTABLE PRESUMPTION AND SHIFTS ONUS ON ASSESSEE TO ESTABLISH BONA FIDES OF CLAIM JUDGEMENT IN THE CASE OF UOI V. DHARMENDRA TEXTILE PROCESSOR DOES NOT MAKE A RADICAL CHANGE IN SCHEME OF SECTION 271(1)(C) BUT IT RE-EMPHASIZES PARADIGM SHI FT ON BURDEN OF PROOF AS BROUGHT ABOUT BY EXPLANATION TO SECTION 271(1)(C) ADMISSION OR REJECTION OF A CLAIM IS A SUBJECTIVE EXERCISE; WHETHER A CLAIM IS ACCEPTED OR REJECTED H AS NOTHING TO DO WITH FURNISHING OF INACCURATE PARTICU LARS OF INCOME RAISING A LEGAL CLAIM, EVEN IF IT IS ULTIMATELY FOU ND TO BE LEGALLY UNACCEPTABLE, CANNOT AMOUNT TO FURNISHING O F INACCURATE PARTICULARS OF INCOME 13. THE CASE OF THE ASSESSEE HAS BEEN EXAMINED AGAI NST THE ABOVE LEGAL BACKDROP. THE ASSESSEE HAS EXPLAINED TH E REASONS UNDER WHAT CIRCUMSTANCES THE CLAIMS WERE MADE. 14. THE APPELLANT COMPANY EARNED DIVIDEND INCOME OF RS.36,33,143/- WHICH WAS EXEMPTED. THE APPELLANT CO MPANY, SUO MOTO MADE A DISALLOWANCE OF RS.9,20,905/- AS EX PENSES RELATING TO EARNING EXEMPT INCOME BEING 12% OF TOTA L EXPENSES. THE AO, BEING NOT SATISFIED WITH THE SAID DISALLOWA NCE, WORKED OUT TO DISALLOWANCE OF RS.51,68,967/- AND ADDED RS. 43,53,486 / - AFTER GIVING CREDIT FOR THE DISALLOWANCE MADE BY TH E APPELLANT. THE AO HAS LEVIED PENALTY OF RS.3,06,045/- U/S 271( 1)(C) BY CONSIDERING THE SAID AMOUNT OF RS.43,53,486/- AS CO NCEALED INCOME. THE MAIN CONTENTIONS OF THE AR ARE AS UNDER : ITA NO.3881/DEL./2012 5 THE TAX LIABILITY U/ S 115JB WAS MORE THAN THE TAX LIABILITY UNDER NORMAL PROVISIONS. RULE 8D CANNOT BE INVOKED WHILE COMPUTING BOOK PROF IT UNDER SECTION 115JB OF THE ACT, SINCE NO SUCH ADJUSTMENT U/S14A PERMISSIBLE IN SECTION 115JB NO SUPPRESSION OF FACTS. 15. NO POSITIVE MATERIAL WAS BROUGHT ON RECORD TO P ROVE THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS T O REDUCE THE TAXABLE INCOME. THE ASSESSEE FURNISHED AN EXPLANATI ON WHICH IS A BONAFIDE ONE WITH SUFFICIENT REASONS. THE EXPLANA TION WAS NEITHER FOUND FALSE NOR UNREASONABLE BY THE AO. 16. AFTER GOING THROUGH THE FACTS 6F THE CASE AND T HE CASE LAWS CITED BY THE AR AND THE PROPOSITIONS LAID DOWN BY T HE HON'BLE ITAT IN THE CASE OF KANBAY SOFTWARE INDIA (P) LTD. VS. DCIT (SUPRA) THERE IS NO CASE FOR LEVY OF PENALTY IN RES PECT OF THE, ADDITION/DISALLOWANCE TAKEN INTO CONSIDERATION FOR LEVY OF PENALTY SINCE THERE IS NO SUPPRESSION OF FACTS. THE RE IS ONLY DIFFERENCE OF OPINION WITH REGARD TO QUANTUM OF DIS ALLOWANCE IN RESPECT OF EXPENSES RELATING TO EARNING EXEMPT INCO ME. 17. IN VIEW OF THE FACTS BROUGHT ON RECORD AND THE LEGAL POSITION CITED, THERE IS NO CASE OF LEVY OF PENALTY . THE PENALTY LEVIED IS HEREBY CANCELLED. 3. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. WE H AVE ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD AND CASE LAWS RELIED U PON BY BOTH THE SIDES. THE ASSESSEE HIMSELF DISALLOWED SOME AMOUNT OF INTEREST U/S 14A OF THE ACT. RULE 8D WAS MADE APPLICABLE FOR THE ASSESSMENT YEAR 2008 -09. THIS WAS THE FIRST YEAR OF APPLICABILITY OF RULE 8D. THE CIT (A) HAS DELETED THE ADDITION RELYING ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NALWA ITA NO.3881/DEL./2012 6 SONS INVESTMENTS LTD. 327 ITR 543 (DELHI) WHEREIN THE HON'BLE COURT HAS HELD AS UNDER :- 'UNDER THE SCHEME OF THE INCOME-TAX ACT, 1961, THE TOTAL INCOME OF THE ASSESSEE IS FIRST COMPUTED UNDER THE NORMAL PROVISI ONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARED WITH THE P RESCRIBED PERCENTAGE OF THE BOOK PROFITS COMPUTED UNDER SECTION 115JB OF TH E ACT. THE HIGHER OF THE TWO AMOUNTS IS REGARDED AS TOTAL INCOME AND TAX IS PAYABLE WITH REFERENCE TO SUCH TOTAL INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER, SUCH AMOUNT IS THE TOTAL INCO ME OF THE ASSESSEE, OTHERWISE, THE BOOK. PROFITS ARE DEEMED AS THE TOTA L INCOME OF THE ASSESSEE IN TERMS OF SECTION 115JB OF THE ACT. WHERE THE INC OME COMPUTED IN ACCORDANCE WITH THE NORMAL PROCEDURE IS LESS THAN T HE INCOME DETERMINED BY LEGAL FICTION, NAMELY; THE BOOK PROFITS UNDER SE CTION 115JB OF THE ACT AND THE INCOME OF THE ASSESSEE IS ASSESSED UNDER SE CTION 115JB AND NOT UNDER THE NORMAL PROVISIONS, THE TAX IS PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE ACT. CONCEALMENT OF INCOME WOU LD HAVE NO ROLE TO PLAY AND WOULD NOT LEAD TO TAX EVASION. THEREFORE, PENALTY CANNOT BE IMPOSED ON THE BASIS OF DISALLOWANCES OR ADDITIONS MADE UNDER THE REGULAR PROVISIONS.' KEEPING THESE FACTS IN VIEW, WE FIND NO MERITS IN T HE APPEAL OF THE REVENUE AND THE SAME IS DISMISSED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 10 TH DAY OF JANUARY, 2014. SD/- SD/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 10 TH DAY OF JANUARY, 2014/TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.