ACIT, New Delhi V. M/s. Jagran Agents Pvt. Ltd., New Delhi

ITA 4391/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73974 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 03-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAMEER SHARMA
• Assessee Lawyers: GOPAL NATHANI
• Keywords: Wrong claim; Capital expenditure

Judgement Text

ITA NO. 4391/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4391/DEL/2011 A.Y. : 200 6 - 0 7 ACIT, CIRCLE 4(1), NEW DELHI ROOM NO. 407, CR BLDG., I.P. ESTATE, NEW DELHI -2 VS. M/S JAGRAN AGENTS PVT. LTD. FLAT NO. 1104, 11 TH FLOOR, HEMKUNT CHAMBER, 89, NEHRU PLACE, NEW DELHI (PAN:AABCJ6371M) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. GOPAL NATHANI, CA DEPARTMENT BY : SH. S HAMEER SHARMA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS-VII), N EW DELHI DATED 22.7.2011 PERTAINING TO ASSESSMENT YEAR 2006-07. 2. IN THIS CASE THE ASSESSEE COMPANY WAS INCORPORAT ED ON 22.6.2005 RELEVANT TO ASSTT. YEAR 2005-06. THIS IS THE FIRST YEAR OF ASSESSMENT OF THE ASSESSEE COMPANY. IN THIS CASE TH E ASSESSING OFFICER ON EXAMINATION OF THE CASE, FOUND THAT THE COMPANY HAS NOT CARRIED OUT ANY BUSINESS ACTIVITIES. HOWEVER, IT HA S INCURRED TOTAL EXPENDITURE TO THE TUNE OF RS. 43,08,317/- AND ON A CCOUNT OF WHICH IT HAS CLAIMED THE LOSS TO THAT EXTENT. AGAIN, ON G OING THROUGH THE ITA NO. 4391/DEL/2011 2 DETAILS AND NATURE OF EXPENSES CLAIMED BY THE ASSES SEE, A.O. FOUND THAT THE ENTIRE EXPENDITURE OF RS. 43,08,317/- CAN BE DIVIDED INTO TWO SEGMENTS ONE ON ACCOUNT OF INTEREST PAYMENT O F RS. 40,76.035/- AND SECOND ON ACCOUNT OF MISC. EXPENDIT URE OF RS. 2,32,282/-. THE INTEREST HAS BEEN PAID ON LOANS AND THE EXPENSES ARE IN THE NATURE OF PRE-OPERATIVE EXPENSES. ON AN ALYSIS OF THE ABOVE EXPENDITURE IN THE LIGHT OF THE FACT THAT NO BUSINESS ACTIVITIES HAS BEEN CARRIED OUT DURING THE PERIOD U NDER CONSIDERATION, A.O. OPINED THAT THE PAYMENT OF INTE REST ON BORROWED FUND WAS IN THE NATURE OF CAPITAL EXPENDITURE AND N EEDS TO BE CAPITALIZED. AGAIN, THE MISCELLANEOUS EXPENDITURE W AS IN THE NATURE OF PRE-OPERATIVE EXPENSES AND HENCE AO OPINED THE S AME CANNOT BE ALLOWED. HENCE, THE AO DISALLOWED THE ENTIRE LOSS A ND THE ASSESSMENT WAS COMPLETED AT NIL INCOME. IN THE QUAN TUM PROCEEDINGS THE DISALLOWANCE WAS SUSTAINED BY THE L D. CIT(A) AND ITAT. ON THE ABOVE DISALLOWANCES PENALTY PROCEEDING S U/S. 271(1)(C) WAS ALSO INITIATED. IN THE PENALTY PROCEEDINGS, AS SESSING OFFICER OPINED THAT ASSESSEE COMPANY MADE A WRONG CLAIM OF LOSS AMOUNTING TO RS. 4308317/- AND CONCEALED INCOME BY THAT AMOUNT BY FILING INACCURATE PARTICULARS OF ITS INCOME. AC CORDINGLY, PENALTY OF RS. 14,51,000/- WAS IMPOSED UNDER SECTION 271(1)(C) . 3. UPON ASSESSEES APPEAL LD. CIT(A) NOTED THAT IT IS WELL SETTLED LEGAL POSITION THAT PENALTY PROCEEDINGS IS DISTING UISHABLE AND DISTINCT FROM THE ASSESSMENT PROCEEDINGS. THAT FIND ING IN THE ASSESSMENT PROCEEDINGS ARE NOT CONCLUSIVE AND THE ENTIRE MATERIAL AVAILABLE SHOULD BE CONSIDERED AFRESH BY THE ASSESS ING OFFICER BEFORE IMPOSING PENALTY U/S. 271(1)(C). LD. CIT(A) FURTHER OBSERVED THAT IN THIS CASE ASSESSEE HAD NOT FURNISHED THE I NACCURATE PARTICULARS OF HIS INCOME, WHEN IT FURNISHED THE RETURN AND DISCLOSED ALL THE EXPENSES DULY IN THE PROFIT AND L OSS ACCOUNT ITA NO. 4391/DEL/2011 3 ALONGWITH THE RETURN OF INCOME. LD. CIT(A) HELD TH AT THAT MERE DISALLOWANCE OR ADDITION WILL NOT BE SUFFICIENT FOR LEVY OF PENALTY UNDER SECTION 271(1)(C). LD. CIT(A) HELD AS UNDER: - IN VIEW OF THE ABOVE AND TAKING INTO CONSIDERATIO N THE FACTS (A) THAT THE APPELLANT HAD DISCLOSED ALL MATE RIAL FACTS AND (B) ON THE CLAIM OF APPELLANT TWO OPINION S ARE POSSIBLE, IT IS HELD THAT THERE IS NO CASE OF CONCE ALMENT OR FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME IN RESPECT OF DISALLOWANCE OF (I) RS. 40,76,035/- OUT OF INTEREST EXPENSES; (II) RS. 2,09,177/- ON ACCOUNT O F RENT AND TAXES, LEGAL AND PROFESSIONAL EXPENSES, AUDIT F EES, PRINTING AND STATIONERY, FILING FEES AND BANK CHARG ES; AND (III) DISALLOWANCE OF RS. 23,105/- ON ACCOUNT OF PRELIMINARY EXPENSES. THEREFORE, IT IS HELD THAT A SSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING PENALTY U/S. 2 71(1)(C) AMOUNTING TO RS. 14,51,000/-. ACCORDINGLY, THE SAM E IS CANCELED. 4. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LD. DR SUBMITTED THAT ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD DURING THE YEAR UNDER CONSIDERATION AND NO I NCOME FROM ANY PROJECT HAS BEEN OFFERED FOR TAXATION. HENCE, T HE ASSESSEE HAS MADE A WRONG CLAIM AND THE PENALTY HAS RIGHTLY BEEN LEVIED. FURTHER HE RELIED UPON THE DELHI HIGH COURT DECISION IN THE CASE OF CIT VS. ESCORTS FINANCE LTD 328 ITR 44 AND IN THE CASE CIT VS. ZOOM COMMUNICATION PVT. LTD. 327 ITR 510. 5.1 ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE IS NO CASE FOR ASSESSEE SUBMITTING INACCURA TE PARTICULARS OR MAKING ANY CONCEALMENT. HE CONTENDED THAT THIS IS THE FIRST YEAR OF ITA NO. 4391/DEL/2011 4 THE EXISTENCE OF THE COMPANY. DURING THE YEAR THE COMPANY HAS ONLY PURCHASED LAND AND NO OTHER BUSINESS ACTIVITI ES WAS UNDERTAKEN. THE EXPENDITURE INCURRED ON INTEREST O N LOAN AMOUNTING TO RS. 40,76,035/- WAS CHARGED TO THE PRO FIT AND LOSS ACCOUNT. FURTHERMORE, ADMINISTRATIVE AND SELLING E XPENSES AMOUNTED TO RS. 74,401/- AND PRELIMINARY EXPENSES WRITTEN OFF AMOUNTED TO RS. 2105/-. THESE WERE CHARGED TO THE PROFIT AND LOSS ACCOUNT. THUS, HE CLAIMED THAT THERE IS NO FURNISH ING OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME. HE STATED TH AT NO PROJECT HAS BEEN STARTED BY THE COMPANY DURING THE YEAR. HENCE, THE QUESTION OF ALLOCATING THE ABOVE EXPENDITURE TO ANY PARTICUL AR PROJECT DOES NOT ARISE. IN THIS VIEW OF THE MATTER, HE CLAIMED T HAT CHARGING OF THE AFORESAID EXPENDITURE IN THE PROFIT AND LOSS ACCOUN T CANNOT BE SAID TO BE WRONG CLAIM. HENCE, HE PLEADED THAT THE ABOVE METHOD ADOPTED BY THE ASSESSEE MAY BE DEBATABLE, BUT IT IS NOT BOGUS. IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE PLACED REL IANCE UPON THE FOLLOWING CASES LAWS:- - 330 ITR 547 CIT VS. KRISHNA MARUTI LTD. (DEL) - 349 ITR 112 KARAN RAGHAV EXPERTS P LTD. VS. CI T (DEL) - 329 ITR 483 DEVSONS PVT. LTD. VS. CIT (DEL) - 259 ITR 212 CIT VS. HARSHVARDHAN CHEMICALS & MI NERALS P LTD. - ORDER OF APEX COURT IN RELIANCE PETRO 322 ITR 15 8 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT SECTION 271(1)(C) POSTULATES IMPOSITION O F PENALTY FOR FURNISHING OF INACCURATE PARTICULARS AND CONCEALME NT OF INCOME. IN THIS CASE WE FIND THAT THIS IS THE FIRST YEAR OF TH E EXISTENCE OF THE COMPANY AND THE COMPANY HAS NOT STARTED ANY BUSINE SS ACTIVITY ITA NO. 4391/DEL/2011 5 EXCEPT PURCHASING SOME LAND. IN THIS REGARD, ASSESS EE HAS INCURRED EXPENDITURE ON THE FOLLOWING:- (I) RS. 40,76,035/- INTEREST EXPENSES; (II) RS. 2,09,177/- ON ACCOUNT OF RENT AND TAXES, LEGAL AND PROFESSIONAL EXPENSES, AUDIT FEES, PRINTING AND STATIONERY, FILING FEES AND BANK CHARGES; AND (III) RS. 23,105/- ON ACCOUNT OF PRELIMINARY EXPEN SES WRITTEN OFF. 6.1 IN VIEW OF THE AFORESAID EXPENDITURE THE SAME WERE CHARGED TO THE PROFIT AND LOSS ACCOUNT AND THE ASSESSEE HAS S HOWN LOSS AND FILED THE SAME IN THE RETURN OF INCOME. ASSESSING OFFICER WAS OF THE OPINION THAT ASSESSEE COMPANY HAS NOT CARRIED OUT A NY BUSINESS ACTIVITY. HENCE, HE WAS OF THE OPINION THAT PAYMEN T OF INTEREST ON BORROWED FUNDS IS IN THE NATURE OF CAPITAL EXPENDIT URE AND NEEDS TO BE CAPITALIZED. FURTHERMORE, ASSESSING OFFICER WAS OF THE OPINION THAT THE MISC. EXPENDITURE INCURRED BY THE ASSESSEE WERE IN THE NATURE OF PREOPERATIVE EXPENSES AND HENCE THE SAME CANNOT BE ALLOWED. IN THIS REGARD, WE NOTE THAT LD. CIT(A) A ND ITAT HAS AFFIRMED THE DISALLOWANCE. 7. IN THIS REGARD, WE ARE IN AGREEMENT WITH THE CIT (A) THAT PENALTY PROCEEDINGS ARE DISTINCT AND DIFFERENT FROM ASSESSMENT PROCEEDINGS. FINDING IN THE ASSESSMENT PROCEEDINGS ARE NOT CONCLUSIVE. THE ENTIRE MATERIAL AVAILABLE SHOULD BE CONSIDERED AFRESH BY THE ASSESSING OFFICER BEFORE IMPOSING PEN ALTY U/S. 271(1)(C). 8. IN THIS REGARD, WE NOTE THAT ASSESSEE HAS DULY D ISCLOSED ALL THE ITEMS OF EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT . HENCE, THERE ITA NO. 4391/DEL/2011 6 CANNOT BE ANY ALLEGATION OF CONCEALMENT OR FURNISHI NG OF INACCURATE PARTICULARS. IT IS NOT THE CASE THAT ANY EXPENDIT URE HAS BEEN FOUND TO BE BOGUS. 9. THIS IS THE FIRST YEAR OF THE COMPANY OPERATION. THE COMPANY HAS ONLY BEEN SET UP IN THIS YEAR AND THE ONLY ACT IVITY PERFORMED BY THE COMPANY IS PURCHASE OF LANDS. IN THIS PURCHA SE THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE. THE ASSESSEE H AS ALSO INCURRED ROUTINE ADMINISTRATIVE EXPENDITURE NECESSARY TO RUN THE COMPANY. THE COMPANY HAS ALSO WRITTEN OFF PRELIMI NARY EXPENSES. AS REGARDS THE ISSUE OF DEBITING THE ROUTINE AND A DMINISTRATIVE EXPENSES AND PRELIMINARY EXPENSES TO THE PROFIT AND LOSS ACCOUNT, WE FIND THAT IT CANNOT BE SAID THAT IT IS A BOGUS OR WRONG CLAIM. HENCE, LEVY OF PENALTY ON DISALLOWANCE OF THESE EXP ENSES CANNOT BE SUSTAINED. 10. AS REGARDS THE ISSUE OF CHARGING OFF IN THE PRO FIT AND LOSS ACCOUNT, THE INTEREST EXPENDITURE WE NOTE THAT SAME WAS INCURRED ON THE PURCHASE OF LAND. ASSESSEE HAS NOT STARTED ANY SPECIFIC PROJECT. HENCE, THE INTEREST EXPENDITURE INCURRED IN THIS REGARD HAS BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT. THE AB OVE CHARGING OF ALL THE EXPENDITURE TO THE PROFIT AND LOSS ACCOUNT CANNOT BE SAID TO BE EX-FACIE BOGUS CLAIM. IT IS CERTAINLY A DEBATABL E ISSUE. 11. IN THE CASE OF CIT VS. LOKHANDWALA CONSTRUCTION INDIA LTD. 260 ITR 579, HONBLE BOMBAY HIGH COURT HAD HELD THAT IN THAT CASE THE CONSTRUCTION PROJECT UNDERTAKEN BY THE ASSESSEE BUI LDER CONSTITUTED ITS STOCK AND TRADE AND THE ASSESSEE WAS ENTITLED T O DEDUCTION U/S. 36(1)(III) IN RESPECT OF THE INTEREST OF LOAN OBTAI NED FOR THE EXECUTION OF THE SAID PROJECT. 12. THUS, WE FIND THAT WHETHER THE ASSESSEE WHO IS ENGAGED IN CONSTRUCTION ACTIVITIES SHOULD CHARGE OFF THE INTER EST EXPENDITURE TO ITA NO. 4391/DEL/2011 7 THE PROFIT AND LOSS ACCOUNT OR LOAD IT TO THE CONCE RNED PROJECT IS A DEBATABLE ISSUE. THIS IS MORE SO IN THE PRESENT CA SE WHEN IT IS THE FIRST YEAR OF THE ASSESSEES EXISTENCE AND NO SPECI FIC PROJECT WAS STARTED. WHEN THE MATTER IS DEBATABLE, THE ASSESSEE CANNOT BE VISITED WITH THE LEVY OF PENALTY U/S. 271(1)(C). I N THIS REGARD, THE CASE LAWS REFERRED BY THE LD. COUNSEL OF THE ASSESS EE ARE GERMANE AND SUPPORT THE CASE OF THE ASSESSEE. 13. FROM THE ABOVE, DISCUSSION, WE FIND THAT THE AS SESSEES CLAIM OF EXPENDITURE DURING THE CURRENT YEAR BY CHARGING OF THE ROUTINE EXPENDITURE INCURRED FOR RUNNING THE BUSINESS, THE PRELIMINARY EXPENSES AND THE INTEREST EXPENDITURE CANNOT BE A EX-FACIE WRONG CLAIM. IN SUCH CIRCUMSTANCES, WE FIND THAT LD. DR S RELIANCE UPON THE CASE LAWS MENTIONED ABOVE ARE NOT APPLICABLE AS IN THOSE CASE LAWS OF ESCORTS FINANCE LTD. AND ZOOM COMMUNICATION PVT. LTD. THE CLAIMS MADE WERE FOUND TO BE EX-FACIE BOGUS. THIS I S NOT AT ALL THE CASE HERE. RATHER ON THE FACTS OF THE CASE WE ARE O F THE OPINION THAT THE DECISION OF THE HONBLE APEX COURT IN CIT VS. R ELIANCE PETRO PRODUCTS LTD. IN CIVIL APPEAL NO. 2463 OF 2010 O RDER DATED 17.3.2010 IS SQUARELY APPLICABLE. IN THIS CASE IT HAS BEEN HELD THAT THE LAW LAID DOWN IN THE DILIP SHEROFF CASE 291 ITR 519 (SC) AS TO THE MEANING OF WORD CONCEALMENT AND INACCURATE CONT INUES TO BE A GOOD LAW BECAUSE WHAT WAS OVERRULED IN THE DHARMEND ER TEXTILE CASE WAS ONLY THAT PART IN DILIP SHEROFF CASE WHERE IT WAS HELD THAT MENSREA WAS A ESSENTIAL REQUIREMENT OF PENALTY U/S 271(1)(C). THE HONBLE APEX COURT ALSO OBSERVED THAT IF THE CONTEN TION OF THE REVENUE IS ACCEPTED THEN IN CASE OF EVERY RETURN WH ERE THE CLAIM IS NOT ACCEPTED BY THE ASSESSING OFFICER FOR ANY REA SON, THE ASSESSEE WILL INVITE THE PENALTY U/S 271(1)(C). THIS IS CLE ARLY NOT THE INTENDMENT OF LEGISLATURE. ITA NO. 4391/DEL/2011 8 14. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS AND PRECEDENT, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . CIT(A), ACCORDINGLY, WE UPHOLD THE SAME. 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/1/2014. SD/- SD/- [ [[ [BHAVNESH SAINI BHAVNESH SAINI BHAVNESH SAINI BHAVNESH SAINI] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 10/1/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 4391/DEL/2011 9