Ahlcon Readymix Concrete Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 4590/DEL/2013

• Counselvise Citation: 459020114 RSA 2013
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 05-08-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VISHAL SEHGAL
• Keywords: Wholly owned subsidiary; Valuation report; Revenue expenditure; Capital expenditure
• Section: 27

Judgement Text

ITA NO. 4590/D/13 AHLCON READYMIX CONCRETE P. LTD. PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.-4590/DEL/2013 ( ASSESSMENT YEAR: 2009-10) AHLCON READYMIX CONCRETE P. LTD. M-1, SAKET, NEW DELHI. AAGCA9519H VS ITO CO. WARD 1(2) NEW DELHI. ASSESSEE BY SH. VISHAL SEHGAL, CA REVENUE BY SH. SARABJEET SINGH, SR. DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER DATED 28/06/2013 PASSED BY THE LD. CIT(APPEALS)-IV, NEW D ELHI FOR AY 2009-10 IN WHICH PENALTY U/S 271(1)(C) OF THE ACT AMOUNTING TO RS. 1,80,000/- HAS BEEN CONFIRMED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, IN ITS PROFIT AND LOSS ACCOUNT, HAD DEBITED AN AMOUNT OF RS. 353,185/ - ON ACCOUNT OF DATE OF HEARING 04.05.2016 DATE OF PRONOUNCEMENT 04.08.2016 ITA NO. 4590/D/13 AHLCON READYMIX CONCRETE P. LTD. PAGE 2 OF 7 PROVISION FOR GRATUITY. THE AO FOUND THAT THE GRAT UITY FOUND WAS NOT APPROVED AND THAT AMOUNT WAS NOT PAID DURING THE YE AR. THEREFORE, THE AO DISALLOWED THE SAME AS PER PROVISIONS OF SECTION 40 A (7)(B) OF THE INCOME TAX ACT. THE AO FURTHER FOUND THAT THE ASSESSEE HA D CLAIMED EXPENDITURE OF RS. 201,838/- AS REVENUE EXPENDITURE WHICH INCLUDED AN AMOUNT OF RS. 1,58,000/- AS FEE PAID TO ROC FOR INCORPORATION OF THE COMPANY AND RS. 43,838/- AS PROFESSIONAL FEE FOR THE SAME PURPOSE. THE AO HELD THAT THIS EXPENDITURE WAS CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED THE SAME. THE ASSESSEE COMPANY DID NOT PREFER ANY APPEAL AGAI NST THE ORDER OF THE AO. THEREAFTER, THE AO PROCEEDED TO LEVY PENALTY U/S 27 1(1)(C) OF THE ACT AND AFTER CONCLUDING THAT THE ASSESSEE HAD CONCEALED TH E PARTICULARS OF ITS INCOME AND FURNISHED INACCURATE PARTICULARS OF INCOME TO T HE EXTENT OF RS. 555,023/-, LEVIED A PENALTY OF RS. 1,80,000/- U/S 271(1)(C). ON APPEAL THE LD. CIT (APPEALS) CONFIRMED THE PENALTY. 3. AGGRIEVED THE ASSESSEE IS NOW IN APPEAL BEFORE U S AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LEARNED INCOME TAX OFFICER IS NOT JUSTIFIE D IN LEVYING PENALTY OF RS.1,80,000/- U/S 271(L)(C) OF THE INCOME TAX ACT,1961 HOLDING THAT THE ASSESSEE HAS CONCEALED THE PARTICU LARS OF INCOME TO THE EXTENT OF RS.5,55,023/- I.E RS.3,53,185/- U/S 4 0A(7) PLUS ITA NO. 4590/D/13 AHLCON READYMIX CONCRETE P. LTD. PAGE 3 OF 7 RS.2,01,838/- BEING CAPITAL EXPENDITURE. THE ASSESS EE HAS NOT CONCEALED THE PARTICULARS OF INCOME NOR HAS FURNISH ED INACCURATE PARTICULARS OF INCOME. 2. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN IG NORING THE FACTS THAT THE PROVISIONS FOR GRATUITY FUND OF RS.3,53,185/- WAS MADE UNDER BONA FIDE CIRCUMSTANCES AS STATUTORY LIABILITY AFTE R ASCERTAINING THE AMOUNT AS PER ACTUARIAL REPORT FROM APPROVED VALUER AND FOR FURTHER APPROVAL OF LIC FOR ESTABLISHING GRATUITY F UND. THE ASSESSEE WAS PREVENTED BY SUFFICIENT REASONS FOR ITS INABILI TY TO DEPOSIT FUNDS WITH LIC DUE TO SCARCITY OF FUNDS RESULTING FROM CO NTINUED BUSINESS LOSSES DURING CURRENT YEAR AND IN SUBSEQUENT YEARS RESULTING ULTIMATELY INTO STOPPING OF BUSINESS ACTIVITIES. 3. THAT THE MERE HOLDING OF RS.2,01,838/- BEING EXPEN DITURE OF CAPITAL NATURE ON FORMATION OF SUBSIDIARY COMPANY AND CLAIM OF ASSESSEE BEING OF REVENUE NATURE CANNOT RENDER THE ASSESSEE LIABLE TO PENALTY PROCEEDING FOR CONCEALMENT OF PARTICULARS OF INCOME . 4. THAT THE APPELLANT CRAVES LEAVES TO ADD, TO ALTER OR AMEND THE AFORESAID GROUNDS OF APPEAL AT THE TIME OF HEARING OF APPEAL .IT IS PRAYED THAT PENALTY OF RS.1,80,000/- LEVIED U/S 271(L)(C) OF IT ACT 1961 MAY BE DELETED. 4. THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY W AS INCORPORATED AS A PRIVATE LIMITED COMPANY BEING 100% SUBSIDIARY OF AHLUWALIA CONTRACTS INDIA LTD. WITH ITS MAIN OBJECT OF ACQUIR ING THE RUNNING BUSINESS OF RMC UNIT OF AHLUWALIA CONTRACTS INDIA L TD. WHO HAD ITA NO. 4590/D/13 AHLCON READYMIX CONCRETE P. LTD. PAGE 4 OF 7 APPROVED GRATUITY FUND WITH THE LIC AND THE EMPLOYE ES OF THE RMC WERE COVERED UNDER THE SAME. IT WAS SUBMITTED THAT THE ASSESSEE WAS MAKING SERIOUS EFFORTS TO PROVIDE THE BENEFIT OF GR ATUITY TO ITS TRANSFERRED EMPLOYEES AND AN ACTUARIAL VALUATION REPORT DATED 2 6/06/09 WAS ALSO OBTAINED FROM AN APPROVED VALUER FOR FURTHER FORMAL ITIES IN CONFORMITY WITH THE REQUIREMENTS OF SECTION 40A(7)(B). THE A SCERTAINED LIABILITY OF RS. 353,185/- WAS DETERMINED FOR AY 09-10 AND WAS P ROVIDED FOR IN THE BOOKS OF ACCOUNTS. IT WAS FURTHER SUBMITTED THAT C OMPLIANCE OF SEC. 40A(7)(B) WAS SUBSEQUENTLY REVIEWED IN VIEW OF LOSS OF RS. 12,041,589/- FOR AY 09-10. IT WAS SUBMITTED THAT F OR BUSINESS CONSIDERATIONS, THE COMPLIANCE OF SEC. 40A(7)(B) FO R PAYMENT OF CONTRIBUTION TO APPROVE GRATUITY FUND WAS DEFERRED TILL THE LOSSES WERE SET OFF AND SUFFICIENT PROFITS WERE GENERATED. IT WAS SUBMITTED THAT THE ASSESSEE WAS UNDER A BONA FIDE BELIEF THAT THE APPROVAL OF THE LD. CIT (A) FOR THE GRATUITY FUND WILL BE GRANTED RETROSPECTIVE LY. IT WAS ALSO SUBMITTED THAT THE DETAILS OF THE ITEMS DISALLOWABL E U/S 40A(7)(B) WERE DULY REPORTED IN THE AUDIT REPORT AND THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE HAD CONCEALED PARTICULARS OF INCOME OR FUR NISHED INACCURATE PARTICULARS. ON THE ISSUE OF DISALLOWANCE OF EXPENS ES INCURRED ON INCORPORATION OF COMPANY AND PROFESSIONAL FEES, IT WAS SUBMITTED THAT ITA NO. 4590/D/13 AHLCON READYMIX CONCRETE P. LTD. PAGE 5 OF 7 SINCE THE ASSESSEE COMPANY WAS INCORPORATED TO TAKE OVER AND CONTINUE AN ALREADY EXISTING BUSINESS AND HENCE THE ASSERTIO N OF THE DEPARTMENT THAT THE SAME WAS A CAPITAL EXPENDITURE WAS NOT LEG ALLY TENABLE. IT WAS ALSO SUBMITTED THAT THE FACT HAD BEEN DULY HIGHLIGH TED IN THE TAX AUDIT REPORT WHICH WAS CONSIDERED BY THE AO DURING THE CO URSE OF PROCEEDINGS AND HENCE IT COULD NOT BE SAID THAT THE ASSESSEE HA D CONCEALED PARTICULARS OF INCOME OR HAD FURNISHED INACCURATE PARTICULARS O F INCOME. THE LD. AR ALSO RELIED ON THE DECISION OF THE HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS. A&T COMMUNICATION SERVICE INDIA P. LTD., 342 ITR 357 (DEL.) FOR THE PROPOSITION THAT DISALLOWANCE OF PAY MENT OF FEE TO REGISTRAR OF COMPANIES AS REVENUE EXPENDITURE DOES NOT ATTRACT PROVISIONS OF SEC. 271(1)(C) OF THE ACT. 5. THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITI ES BELOW AND SUBMITTED THAT THE PENALTY HAS BEEN RIGHTLY IMPOSED AND THE SAME OUGHT TO BE CONFIRMED. 6. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD IT IS CLEAR THAT IN THE INSTANT CASE IT CANNOT BE S AID THAT THE ASSESSEE WITHHELD ANY RELEVANT INFORMATION REGARDING THE RECEIPTS AND INCOME FROM THE AO. THE AMOUNTS ADDED BACK BY THE AO PERTAINING TO THE CONTRIBUTION TO GRATUITY FUND AS THE AMOUNT PAID FOR INCORPORATION OF THE CO MPANY INCLUDING THE ITA NO. 4590/D/13 AHLCON READYMIX CONCRETE P. LTD. PAGE 6 OF 7 PROFESSIONAL FEES WERE THE AMOUNTS DISCLOSED BY THE ASSESSEE ITSELF. WITH REGARD TO THE PROVISIONS OF SECTION 271(1)(C ) OF T HE ACT PERTAINING TO PENALTY, THE HONBLE APEX COURT HAS AUTHORITATIVELY LAID DOWN THAT MAKING OF A CLAIM BY THE ASSESSEE WHICH IS NOT SUSTAINABLE WILL NOT TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. IN CIT VS. RELIA NCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC), THE HONBLE APEX COURT HAS H ELD AS FOLLOWS: 5. A GLANCE AT THIS PROVISION WOULD SUGGEST THAT IN O RDER TO BE COVERED, THERE HAS TO BE CONCEALMENT OF PARTI CULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE PRESENT IS NOT A CASE OF CONCEALMENT OF INCOME. THAT IS NOT TH E CASE OF THE REVENUE EITHER. HOWEVER, THE LD. COUNSEL FOR TH E REVENUE SUGGESTED THAT BY MAKING INCORRECT CLAIM FOR THE EX PENDITURE ON INTEREST, THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME. AS PER LAW LEXICON, THE MEANING OF THE W ORD 'PARTICULAR' IS A DETAIL OR DETAILS (IN PLURAL SENS E); THE DETAILS OF A CLAIM, OR THE SEPARATE ITEMS OF AN ACCOUNT. TH EREFORE, THE WORD 'PARTICULARS' USED IN THE SECTION 271 (1) (C) WOULD EMBRACE THE MEANING OF THE DETAILS OF THE CLAIM MAD E. IT IS AN ADMITTED POSITION IN THE PRESENT CASE THAT NO INFOR MATION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR IN ACCURATE. IT IS NOT AS IF ANY STATEMENT MADE OR ANY DETAIL SUPPL IED WAS FOUND TO BE FACTUALLY INCORRECT. HENCE, AT LEAST, P RIMA FACIE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING IN ACCURATE PARTICULARS. THE LEARNED COUNSEL ARGUED THAT 'SUBMI TTING AN INCORRECT CLAIM IN LAW FOR THE EXPENDITURE ON INTER EST WOULD AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INC OME.' WE DO NOT THINK THAT SUCH CAN BE THE INTERPRETATION OF THE CONCERNED WORDS. THE WORDS ARE PLAIN AND SIMPLE. IN ORDER TO ITA NO. 4590/D/13 AHLCON READYMIX CONCRETE P. LTD. PAGE 7 OF 7 EXPOSE THE ASSESSEE TO THE PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CAN NOT BE INVOKED. BY ANY STRETCH OF IMAGINATION, MAKING AN I NCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCU RATE PARTICULARS. 7. ALTHOUGH BOTH THE LOWER AUTHORITIES HAVE HELD TH AT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS AND CONCEALED PART ICULARS OF INCOME, ON A CONSIDERATION ON THE FACTS, SUCH A VIEW IS NOT TENA BLE IS THE PRESENT APPEAL. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF T HE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA ) WE DELETE THE PENALTY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 04.08.2016 SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA ) VICE PRESIDENT JUDICIAL MEMBER DATED: 04.08.2016 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI