Sh. Manmohan Jain, New Delhi V. ITO, Muzaffarnagar

ITA 4347/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53285 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 01-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-09-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: RISSAB JAIN
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI A.N. PAHUJA ITA NO. 4347/DEL/2011 ASSESSMENT YEAR: 2006-07 SH. MANMOHAN JAIN, VS. INCOME-TAX OFFICER, 169/1- SOUTH CIVIL LINES, WARD 1(1), COURT ROAD, MUZAFFARNAGAR MUZAFFARNAGAR (UP) (PAN: ABQPJ2719Q) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI ANIL JA IN & RISSAB JAIN, ADV. RESPONDENT BY: SHRI AK MONGA, DR DATE OF HEARING : 01.12.2011 DATE OF PRONOUNCEMENT : 09.12.2011 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF ASSESSEE AGAINST THE ORDER OF LEARNED CIT(APPEALS) DATED 29.06.2011 PASS ED FOR ASSESSMENT YEAR 2006-07. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT LEARNED FIRST APPELLATE AUTHORITY HAS ERRED IN CONFIRMING THE PEN ALTY OF RS.70,000 IMPOSED UNDER SEC. 271(1)(C) OF THE INCOME-TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE INCOME OF THE ASSESSEE HAS BEEN ASSESSED AT RS.4,81,603 VIDE AN ASSESSMENT ORDER DA TED 1.10.2008 PASSED UNDER SECTION 143(3) AS AGAINST RETURNED INCOME OF RS.2,07,137. LEARNED 2 ASSESSING OFFICER HAD MADE A DISALLOWANCE OF RS.2,7 4,466 UNDER SEC. 36(1)(III) OF THE ACT. IT EMERGES OUT FROM THE RECO RD THAT ASSESSEE HAS BORROWED MONEY IN HIS INDIVIDUAL CAPACITY AND INVES TED THE SAME IN HIS PROPRIETARYSHIP FIRM, NAMELY, M/S. TEHRI PLASTIC IN DUSTRIES. THE CASE OF THE ASSESSING OFFICER IS THAT INTEREST EXPENSES ON THE BORROWED CAPITAL WHICH WAS USED FOR THE PURPOSE OF BUSINESS HAS TO BE CAPI TALIZED BECAUSE THE BUSINESS IN THE PROPRIETARYSHIP CONCERN WAS IN THE CONSTRUCTION PHASE AND HAD NOT COMMENCED. HE FURTHER FOUND THAT THE PROPRI ETARYSHIP HAS ALSO BORROWED CAPITAL FROM 11 INDIVIDUALS AND THE INTERE ST ON SUCH BORROWED FUNDS WAS CAPITALIZED BY THE ASSESSEE. THUS, HE DIS ALLOWED THE CLAIM OF INTEREST EXPENSES IN ASSESSEES INDIVIDUAL CAPACITY . THE DISALLOWANCE HAS BEEN CONFIRMED UP TO THE ITAT. LEARNED ASSESSING OF FICER INITIATED PENALTY PROCEEDINGS UNDER SEC. 271(1)(C) OF THE ACT AND ISS UED A NOTICE UNDER SEC. 274 INVITING THE EXPLANATION OF THE ASSESSEE AS TO WHY PENALTY BE NOT IMPOSED UPON HIM. THE ASSESSEE HAS CONTENDED THAT H E HAS DISCLOSED ALL THE PARTICULARS OF HIS INCOME TRULY AND FULLY. THE INTE REST EXPENSES WERE DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND T HAT BUSINESS HAS NOT COMMENCED AND, THEREFORE, INTEREST EXPENSES OUGHT T O BE CAPITALIZED. ASSESSING OFFICER DID NOT FIND MERIT IN THE CONTENT IONS OF THE ASSESSEE AND 3 IMPOSED A PENALTY OF RS.70,000 WHICH IS EQUIVALENT TO THE TAX SOUGHT TO BE EVADED. 3. APPEAL TO THE LEARNED CIT(APPEALS) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE REIT ERATED HIS CONTENTIONS AS WERE RAISED BEFORE THE ASSESSING OFFICER. ON THE STRENGTH OF HON'BLE SUPREME COURTS DECISION IN THE CASE OF CIT VS. REL IANCE PETRO PRODUCTS (P) LTD. REPORTED IN 322 ITR 158, HE CONTENDED THAT EXP ENSES WERE CLAIMED AGAINST OTHER INCOME UNDER BONA FIDE BELIEF THAT TH E SAME WAS ALLOWABLE OTHERWISE THE ASSESSEE HAD DISCLOSED ALL THE INFORM ATION IN THE RETURN AND HAD NOT CONCEALED THE PARTICULARS OF INCOME AND NO PART ICULAR DETAILS IN THE RETURN WERE INCORRECT OR INACCURATE. ON THE OTHER HAND, LE ARNED DR SUBMITTED THAT THE ASSESSEE FAILED TO GIVE ANY EXPLANATION AS TO H OW HE CLAIMED THE INTEREST EXPENSES. MORE PARTICULARLY, WHEN IN THE PROPRIETAR YSHIP CONCERN, THE INTEREST EXPENSES ON BORROWED CAPITAL WAS CAPITALIZ ED. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. 4 6. SECTION 271(1)(C) OF THE ACT HAS A DIRECT BEARIN G ON THE CONTROVERSY AND, THEREFORE, IT IS SALUTARY UPON US TO TAKE NOTE OF THE RELEVANT PROVISIONS OF SECTION 271(1)(C) ALONG WITH EXPLANATION 1 WHICH RE AD AS UNDER: 271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTIC ES, CONCEALMENT OF INCOME, ETC. (1). IF THE ASSESSING OFFICER OR THE COMMISSIONER ( APPEALS) OR THE CIT IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT , IS SATISFIED THAT ANY PERSON (A) AND (B)******** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY. (I) AND (INCOME-TAX OFFICER,)******** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CLA USE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF T AX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INACCURATE PARTICU LARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1.- WHERE IN RESPECT OF ANY FACTS MATER IAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER(APPEALS) OR THE CIT TO BE FALSE, OR 5 (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THE N, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME O F SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C ) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHI CH PARTICULARS HAVE BEEN CONCEALED. A BARE PERUSAL OF THIS SECTION WOULD REVEAL THAT FO R VISITING ANY ASSESSEE WITH THE PENALTY, THE ASSESSING OFFICER OR THE LEARNED C IT(APPEALS) DURING THE COURSE OF ANY PROCEEDINGS BEFORE THEM SHOULD BE SAT ISFIED, THAT THE ASSESSEE HAS; (I) CONCEALED HIS INCOME OR FURNISHED INACCURA TE PARTICULARS OF INCOME. AS FAR AS THE QUANTIFICATION OF THE PENALTY IS CONC ERNED, THE PENALTY IMPOSED UNDER THIS SECTION CAN RANGE IN BETWEEN 100% TO 300 % OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE, AS A RESULT OF SUCH CONC EALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS. THE OTHER MOST I MPORTANT FEATURES OF THIS SECTION IS DEEMING PROVISIONS REGARDING CONCEALMENT OF INCOME. THE SECTION NOT ONLY COVERED THE SITUATION IN WHICH THE ASSESSE E HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS, IN CERT AIN SITUATION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUTORY DEEM ING FICTION FOR CONCEALMENT OF INCOME COMES INTO PLAY. THIS DEEMING FICTION, BY WAY OF 6 EXPLANATION I TO SECTION 271(1)(C) POSTULATES TWO S ITUATIONS; (A) FIRST WHETHER IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE FAILS TO OF FER AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR LEARNED CIT(APPEALS); AND, (B) WHERE IN RESPECT OF ANY FACT, MATERIAL TO THE COMPUTATION OF TOTAL INCOME UNDER T HE PROVISIONS OF THE ACT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLAN ATION AND THE ASSESSEE FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THA T THE ASSESSEE HAD DISCLOSED ALL THE FACTS RELATING TO THE SAME AND MA TERIAL TO THE COMPUTATION OF THE TOTAL INCOME. UNDER FIRST SITUATION, THE DEEMIN G FICTION WOULD COME TO PLAYA IF THE ASSESSEE FAILED TO GIVE ANY EXPLANATIO N WITH RESPECT TO ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME OR BY A CTION OF THE ASSESSING OFFICER OR THE LEARNED CIT(APPEALS) BY GIVING A CAT EGORICAL FINDING TO THE EFFECT THAT EXPLANATION GIVEN BY THE ASSESSEE IS FA LSE. IN THE SECOND SITUATION, THE DEEMING FICTION WOULD COME TO PLAY BY THE FAILU RE OF THE ASSESSEE TO SUBSTANTIATE HIS EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME AND IN ADDITION TO THIS THE ASSESSEE IS NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOT AL INCOME HAVE BEEN DISCLOSED BY THE ASSESSEE. THESE TWO SITUATIONS PRO VIDED IN EXPLANATION 1 7 APPENDED TO SECTION 271(1)(C) MAKES IT CLEAR THAT T HAT WHEN THIS DEEMING FICTION COMES INTO PLAY IN THE ABOVE TWO SITUATIONS THEN THE RELATED ADDITION OR DISALLOWANCE IN COMPUTING THE TOTAL INCOME OF TH E ASSESSEE, FOR THE PURPOSE OF SECTION 271(1)(C) WOULD BE DEEMED TO BE REPRESENTING THE INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAVE BEE N FURNISHED. 7. IN THE PROPRIETARYSHIP CONCERN, ASSESSEE HAS CON TRIBUTED BORROWED FUNDS AND SIMILARLY PROPRIETARYSHIP INDEPENDENTLY B ORROWED THE FUNDS. THE INTEREST EXPENSES ON THE FUNDS BORROWED BY THE PROP RIETARYSHIP HAVE BEEN CAPITALIZED. THE ONUS UPON THE ASSESSEE IS THAT WHA T OPERATED IN HIS MIND TO CLAIM THE INTEREST EXPENSES WHEN IDENTICAL EXPENSES HAVE BEEN CAPITALIZED. THE ASSESSEE SIMPLY STATED THAT HE WAS UNDER A BONA FIDE BELIEF THAT SUCH INTEREST EXPENSES COULD BE ALLOWED AGAINST OTHER IN COME. WE DO NOT FIND ANY MERIT IN THIS EXPLANATION BECAUSE ASSESSEE IS WELL AWARE ABOUT THE POSITION OF LAW OTHERWISE THE INTEREST EXPENSES INCURRED ON THE BORROWED CAPITAL OF PROPRIETARYSHIP CONCERN COULD HAVE NOT BEEN CAPITAL IZED. SAME ITEM HAS BEEN TREATED DIFFERENTLY BY THE ASSESSEE IN HIS INDIVIDU AL VIS--VIS IN THE PROPRIETARYSHIP CONCERN. TAKING INTO CONSIDERATION THIS ASPECT, WE ARE OF THE VIEW THAT ASSESSEE CANNOT DRAW ANY BENEFIT FROM THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCT S (P) LTD. (SUPRA). HE IS 8 UNABLE TO GIVE ANY PLAUSIBLE EXPLANATION. THEREFORE , WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE. IT IS DISMISSE D. DECISION PRONOUNCED IN THE OPEN COURT. SD/- SD/- ( A.N. PAHUJA ) ( RA JPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 09/12/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR