M/s Friends Land & Estate Developers Pvt. Ltd., Delhi V. ITO, New Delhi

ITA 4619/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86566 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Keywords: Principle of natural justice; Initiation of penalty proceedings; Revenue expenditure
• Section: 143(3); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : B NEW DELHI BEFORE SHRI J.SUDHAKAR REDDY, A.M. AND SHRI GEORGE GEORGE K, J . M . ITA NO. 4619 /DEL/201 3 ASSESSMENT YEAR : 200 6 - 07 FRIENDS LAND & ESTATE DEVELOPERS P.LTD. VS. ITO, WARD 11(3) (NOW AMALGAMATED WITH LANDCRAFT NEW DELHI DEVELOPERS (P) LTD.) PARMESH CORPORATE TOWER, 309 3 RD FLOOR, PLOT NO.13, KARKARDOOMA COMMUNITY CENTRE DELHI 110 092 PAN: AAACF 7914 M (APPELLANT) (RESPONDENT) APPELLANT BY : - DR.RAKESH GUPTA, SH.ASHWANI TANEJA, ADVS RESPONDENT BY : - SMT.PARWINDER KAUR, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF LD.CIT(APPEALS) - XIII, NEW DELHI DATED 22.5.2013 PERTAINING TO THE AY 200 6 - 07, WHEREIN HE CONFIRMED THE PENALTY LEVIED U/S 271(1)(C ) OF THE ACT BY THE AO. 2. FACTS IN BRIEF: - THE ASSESSEE IS A COMPANY AND IS IN T HE BUSINESS OF REAL ESTATE. IT FILED ITS RETURN OF INCOME ON 27.11.2006 DECLARING NIL INCOME. THE AO ASSESSED THE TOTAL INCOME AT RS.4,33,139/ - IN AN ORDER PASSED U/S 143(3) ON 11.12.2008. IN THIS ORDER HE CAME TO THE FOLLOWING CONCLUSIONS: (A) THE AS SESSEE HAS NOT COMMENCED BUSINESS ; ITA NO. 4619/DEL/2013 AY 2006 - 07 FRIENDS LAND & ESTATE DEVELOPERS P.LTD. 2 (B) THE ASSESSEE S CONTENTION THAT IT HAD STARTED BUSINESS DURING THE YEAR BY THE ACT OF PURCHASING LAND IS NOT ACCEPTABLE. THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ALLOWED AS A REVENUE EXPENDITURE BUT HAS TO BE CAPITALIZED AND THE INTEREST INCOME EARNED FROM FDRS HAS TO BE BROUGHT TO TAX. THE ASSESSEE DID NOT CARRY THE MATTER IN APPEAL. THE AO PASSED ORDER U/S 271(1)(C ) ON 1.3.2012. 2.1. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL WITHOUT SUCCESS. 2.2. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD DR.RAKESH GUPTA, THE LD.COUNSEL FOR THE ASSESSEE AND SMT.PARWINDER KAUR, THE LD.SR.D.R. ON BEHALF OF THE REVENUE. 4. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMST ANCES OF THE CASE, ON PERUSAL OF ORDERS OF LOWER AUTHORITIES, MATERIAL ON RECORD AND CASE LAWS CITED, WE HOLD AS FOLLOWS. 5. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE. THE ISSUE IS WHETHER IT CAN BE SAID THAT THE ASSESSEE HAS COMMENCED BUSINESS ON MERELY PURCHASING LAND. THIS ISSUE IS NO MORE RES INTEGRA. THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT,DELHI I VS. ARCANE DEVELOPERS PVT.LTD.VIDE JUDGEMENT DT. 8 TH OCTOBER, 2013 , AT PARAGRAPH 7 HELD AS UNDER: 7. IN THE PRESENT CASE, AS NOTICED ABOVE, THE RESPONDENT COMPANY WAS INCORPORATED ON 4TH AUGUST, 2005, I.E., IN THE LAST ASSESSMENT YEAR 2006 - 07. IT HAD ENTERED INTO A MEMORANDUM OF UNDERSTANDING DATED 31ST MAY, 2006 WITH THIRD PARTIES IN RESPECT OF A PROJ ECT NEAR CHANDIGARH, MOHALI, PUNJAB. SUBSEQUENTLY, JOINT VENTURE AGREEMENT DATED 5TH JULY, 2006 WAS EXECUTED BETWEEN THE RESPONDENT AND THIRD PARTIES. THE SAID FACTUAL POSITIONS ARE NOT DISPUTED. LOAN OF RS.25 CRORES WAS TAKEN BY THE RESPONDENT - ASSESSEE ON 16TH MAY, 2006. WE DO NOT THINK THAT THE DATE OF JOINT VENTURE AGREEMENT, I.E., 5TH JULY, 2006 SHOULD BE AND CAN BE AS A DATE OF SETTING UP OF BUSINESS. THIS IS THE SECOND YEAR OF OPERATION AND FOR THE EARLIER YEAR, I.E., ASSESSMENT YEAR 2006 - 07, RETURN O F INCOME WAS FILED ON 29TH NOVEMBER, 2006 DECLARING BUSINESS LOSS OF RS.6612/ - . DATE OF SETTING UP OF BUSINESS DEPENDS UPON FACTS AND THE NATURE OF ITA NO. 4619/DEL/2013 AY 2006 - 07 FRIENDS LAND & ESTATE DEVELOPERS P.LTD. 3 THE BUSINESS. THIS IS THE REASON WHY WE HAVE REFERRED TO THE OBJECTS FOR INCORPORATION OF THE COMPANY AND TH E MAIN BUSINESS ACTIVITIES IN WHICH THE RESPONDENT - ASSESSEE WAS ENGAGED. THE FIRST APPELLATE AUTHORITY EXAMINED THE WHOLE ISSUE IN DEPTH AND HAS POINTED OUT THAT THE MEMORANDUM OF UNDERSTANDING REQUIRED PAYMENTS. THE RESPONDENT - ASSESSEE HAD, THEREFORE, ARR ANGED FOR FUNDS. MEMORANDUM OF UNDERSTANDING IS CULMINATION OF THE NEGOTIATIONS STARTED AND UNDERTAKEN EARLIER AND SUBSEQUENTLY FRUCTIFIED ON PAYMENT BY THE RESPONDENT - ASSESSEE INTO THE JOINT VENTURE AGREEMENT. SETTING UP OF BUSINESS TAKES PLACE WHEN THE B USINESS IS READY AND FIRST STEPS ARE TAKEN. IN CASE OF REAL ESTATE BUSINESS, THE SAID SETTING UP OF BUSINESS WAS COMPLETE WHEN FIRST STEPS WERE TAKEN BY THE RESPONDENT - ASSESSEE TO LOOK AROUND AND NEGOTIATE WITH PARTIES. THERE CAN BE A GAP BETWEEN SETTING U P AND WHEN FIRST STEPS WERE TAKEN BY THE RESPONDENT AND FINALISATION OF THE FIRST WRITTEN AGREEMENT. BUSINESS ACTIVITIES OF THE RESPONDENT DID NOT REQUIRE CONSTRUCTION OF A FACTORY, MACHINERY ETC. NEGOTIATIONS ARE REQUIRED TO ENTER INTO A WRITTEN UNDERSTAN DING AND IT IS OBVIOUS THAT THE LOAN WAS TAKEN FOR BUSINESS AND TO PROCEED FURTHER AND CONCLUDE THE DEAL. THE AFORESAID FACTS HAVE BEEN EXAMINED AND HIGHLIGHTED BY THE FIRST APPELLATE AUTHORITY. THE SAID FINDINGS OF FACT HAVE BEEN AFFIRMED BY THE TRIBUNAL. A PRAGMATIC AND A PRACTICAL VIEW HAS TO BE TAKEN. 5.1. THUS IN OUR VIEW THE DISALLOWANCE OF INTEREST EXPENDITURE, BY CAPITALIZING THE SAME, ON THE GROUND THAT THE ASSESSEE HAS NOT COMMENCED BUSINESS, IS NOT SUSTAINABLE. ONCE THE EXPENDITURE INCURRED ON INTEREST IS ALLOWED, THEN THE INCOME EARNED ON FDRS, THOUGH ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES , WOULD RESULT IN THE TOTAL INCOME DECLARED BY THE ASSESSEE BEING ACCEPTED. THUS THERE WOULD BE NO DIFFERENCE BETWEEN THE ASSESSED INCOME AND THE RETURNED INCOME. UNDER THOSE CIRCUMSTANCES THE QUESTION OF LEVY OF PENALTY U/S 271(1)(C ) DOES NOT ARISE. 5.2. IN ANY EVENT, THE ISSUE IS DEBATABLE. THE ASSESSEE HAD DISCLOSED ALL THE MATERIAL FACTS REQUIRED FOR THE ASSESSMENT AND UNDER THESE CIRCUM STANCES WE ARE OF THE VIEW THERE IS NO FURNISHING OF INACCURATE PARTICULARS OF INCOME AS ALLEGED BY THE AO IN THE LAST PARA OF HIS ORDER. THE AO IS ALSO CONFUSED AS ON ONE HAND THE CHARGE FOR LEVY OF PENALTY U/S 271(1)(C ), IS THAT THE ASSESSEE HAS FURNIS HED INACCURATE3 PARTICULARS OF INCOME AND ON THE OTHER HAND WHILE ITA NO. 4619/DEL/2013 AY 2006 - 07 FRIENDS LAND & ESTATE DEVELOPERS P.LTD. 4 COMPUTING LIABILITY IN TABULAR FORM, HE HOLDS THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME. 5.3. THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON GINNING FA CTORY CONSIDERED THE ENTIRE CASE LAW ON THE SUBJECT OF LEVY OF PENALTY U/S 271(1)(C ) OF THE ACT AND SUMMARIZED THE LAW AS FOLLOWS. THE HIGH COURT HAD TO CONSIDER WHETHER PENALTY U/S 271(1)(C ) CAN BE LEVIED IN A CASE WHERE THE ASSESSEE AGREES TO AN ADDIT ION MADE BY THE AO SO AS TO BUY PEACE OF MIND. HELD BY THE HIGH COURT: MERELY BECAUSE THE ASSESSEE AGREED FOR ADDITION DOES NOT LEAD TO THE INFERENCE THAT THE SAID ADDITION IS ON ACCOUNT OF CONCEALMENT IF THE ASSESSEE HAS OFFERED AN EXPLANATION WHICH IS NOT FOUND TO BE FALSE. THE MERE FACT THAT THE ASSESSEE A GREED TO PAY TAX AND DID NOT CHALLENGE THE ASSESSMENT ORDER DOES NOT MEAN T HAT HIS CONDUCT IS MALA FIDE. THE FOLLOWING PRINCIPLES APPLY: (A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABILITY. (B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSING PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. (C) WILFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY. (D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 271(1) (C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. (E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCERNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTHORITY OR REVISIONAL AUTHORITY. (F) EVEN IF THERE IS NO SPECIFIC FINDING REGARDING THE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 27 1(1) (C), AT LEAST THE FACTS SET OUT IN EXPLANATION L 1(A) AND (B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LEGAL FICTION CONSTITUTE CONCEALMENT BECAUSE OF DEEMING PROVISION. (G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASSESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDINGS UNDER SECTION 271(1)( C) IS A SINE QUA NON FOR THE ASSESSMENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PROVISION CONTAINED IN SECTION 1 ( B ). (H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE TO THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMISSIONER. (I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. (J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. (K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDER OF ASSESSMENT LEVYING TAX AND I NTEREST AND HAS PAID TAX AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE PENALT Y PROCEEDINGS OR IMPOSE PENALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER THAT, IT IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORITIES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX ITA NO. 4619/DEL/2013 AY 2006 - 07 FRIENDS LAND & ESTATE DEVELOPERS P.LTD. 5 LIABILITY CAME TO BE ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. (L) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPLANATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE FAILS TO PROVE THAT THE EXPLANATION OFFERED IS N OT 'BON A FIDE, AN ORDER IMPOSING PENALTY COULD BE PASSED. (M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUBSTANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMPOSED. (N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO SECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. ( O ) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PROCEEDINGS, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFACTION, THEN THE PENALTY PROCEEDINGS HAVE TO BE INITIATED BY THE APPELLATE AUT HORITY AND NOT THE ASSESSING AUTHORITY. (P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIFICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOME (Q) S ENDING PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW. (R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASSESSEE. (S) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. (T) THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT PROCEEDI NGS. THE PROCEEDINGS FOR IMPOSITION OF PENALTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEPENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. (U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDINGS INSOFAR AS 'CONCEALMENT OF INCOME' AND 'FURNISH ING OF INCORRECT PARTICULARS' WOULD NOT OPERATE AS RES JUDICATA IN THE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESSMENT IN PURSUANCE OF WHICH PENALTY IS LEVIE D, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE AS7ESSMEN OR REASSESSMENT CANNOT BE DECLARED AS INVALID IN THE PENALTY PROCEEDINGS. 5.4. APPLYING THE PROPOSITIONS LAID DOWN THEREIN TO THE FACTS OF THE CASE WE HAVE TO NECESSARILY QUOTE THAT T HE PENALTY HAS TO BE QUASHED FOR THE REASON THAT THE EXISTENCE OF CONDITIONS FOR LEVY OF PENALTY IS NOT DISCERNIBLE FROM THE ASSESSMENT ORDER. THE SPECIFIC COUNTS ON WHICH THE ADDITIONS ARE MADE ARE NOT SPECIFIED TO THE ASSESSEE. WHILE INITIATING PENALTY THE CHARGE WAS IT IS FOR CONCEALMENT, BUT WHILE PASSING PENALTY ORDER THE CHARGE IS NOT SPECIFIED. ITA NO. 4619/DEL/2013 AY 2006 - 07 FRIENDS LAND & ESTATE DEVELOPERS P.LTD. 6 5.5. IN VIEW OF THE ABOVE DISCUSSION WE DELETE THE PENALTY AS CONFIRMED BY THE FIRST APPELLATE AUTHORITY AND ALLOW THE APPEAL OF THE ASSESSEE. 6. IN THE RES ULT THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH JANUARY, 2015 . SD/ - SD/ - (GEORGE GEORGE K) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 09 TH JANUARY, 2015 *MANGA VATHY .G. COPY OF THE ORDER FORWARDED TO: 1 .APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ITA NO. 4619/DEL/2013 AY 2006 - 07 FRIENDS LAND & ESTATE DEVELOPERS P.LTD. 7 ASST. REGISTRAR