M/s. Barista Coffee Company Ltd., New Delhi V. DCIT, New Delhi

ITA 4862/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1306 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-12-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 12-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHIM SINGH
• Keywords: Depreciation; Bonafide belief; Question of law; Wrong claim
• Section: 37

Judgement Text

ITA NO. 4862/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4862/DEL/2012 A.Y. : 2002-03 M/S BARISTA COFFEE COMPANY LIMITED, F-1/9, FIRST FLOOR, OKHLA PHASE-1, INDUSTRIAL AREA, NEW DELHI 110 020 (PAN : AABCB5798A) VS. DCIT, CIR - 2(1), NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSESSEE BY : SH. K. SAMPATH, ADVOCATE DEPARTMENT BY : SH. BHIM SINGH, 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 ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-V, NEW DELH I DATED 04.6.2012 PERTAINING TO ASSESSMENT YEAR 2002-03. 2. THE GROUND RAISED IS THAT LD. COMMISSIONER OF IN COME TAX (A) ERRED IN CONFIRMING THE PENALTY LEVIED U/S. 271(1)(C ) OF THE I.T. ACT. 3. IN THIS CASE THE ASSESSING OFFICER OBSERVED THA T ASSESSEE HAS INCURRED EXPENDITURE RELATED TO PROJECT REPORT (MAR KET SURVEY AND LEGAL CHARGES FOR DRAFTING AGREEMENT) AMOUNTING TO ` 86,82 ,514/-. OUT OF THIS IT CLAIMED 1/5 TH OF ` 17,36,503/- U/S. 35D OF THE I.T. ACT. SINCE T HE AMOUNT WAS INCURRED AFTER COMMENCEMENT OF ASSESSEES B USINESS AND NO NEW INDUSTRIAL UNDERTAKING HAD BEEN SET UP OR EX PANDED, ASSESSING OFFICER OPINED THAT THE SAME SHOULD HAVE BEEN DISA LLOWED AND THUS ITA NO. 4862/DEL/2012 2 PRIMA-FACIE THE AMOUNT TO THIS EXTENT HAS ESCAPED ASSESSMENT. THE ASSESSING OFFICER PROCEEDED TO DISALLOW A SUM OF ` 17.37 LACS CLAIMED BY THE ASSESSEE. ON THIS ADDITION, PENALTY PROCEE DINGS U/S. 271(1)(C) WAS ALSO INITIATED. IN THE PENALTY PROCEEDINGS, IT WAS FOUND BY THE ASSESSING OFFICER THAT THE ASSESSEES CASE IS COVE RED WITHIN THE SCOPE OF FURNISHING INACCURATE PARTICULARS OF ITS INCOME AND THEREBY CONCEALMENT OF TAXABLE INCOME U/S. 271(1)(C) OF THE I .T. ACT. ACCORDINGLY, PENALTY OF ` 6,19,932/- WAS IMPOSED. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (A) OBSERVED THAT ASSESSEE IS IN THE BUSINESS OF RETAIL ING COFFEE AND FOOD ITEMS THROUGH ITS COFFEE BARS THROUGHOUT INDIA. IT KNEW FULL WELL THAT EXPENDITURE OF ` 86,82,514/- WAS CLEARLY CAPITAL EX PENDITURE NOT ALLOWABLE U/S. 37 OF THE I.T. ACT BECAUSE IT WAS I NCURRED FOR THE PURPOSE OF RAISING CAPITAL DURING THE RUNNING OF TH E BUSINESS (BROOKE BOND INDIA LTD. VS. C.I.T. 225 ITR 798). THEREFORE , LD. COMMISSIONER OF INCOME TAX (A) OPINED THAT ASSESSEE HAD DELIBERATE LY MADE A CLAIM U/S. 35D OF THE I.T. ACT WHICH IS PALPABLY A WRONG CLAIM BECAUSE SECTION 35D DEALS WITH INDUSTRIAL UNDERTAKING. LD. COMMISSION ER OF INCOME TAX (A) FURTHER NOTED THAT THIS DISALLOWANCE WAS NO T APPEALED AGAINST BY THE ASSESSEE. LD. COMMISSIONER OF INCOME TAX (A) OPINED THAT THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF B ROOKE BOND INDIA LTD. VS. C.I.T. (SUPRA) WAS RENDERED BY THE HONBLE APEX COURT AS FAR BACK AS 1997. THEREFORE, HE HELD THAT IT IS SE TTLED LEGAL POSITION THAT THE EXPENDITURE INCURRED IN CONNECTION WITH T HE INCREASING OF SHARE CAPITAL CANNOT BE ALLOWED AS REVENUE EXPENDIT URE. LD. COMMISSIONER OF INCOME TAX (A) FURTHER OBSERVED THAT IT IS HIGHLY UNBELIEVABLE THAT TAX PROFESSIONALS ENGAGED BY THE ASSESSEE WOULD NOT BE AWARE OF THE ABOVE SETTLED LEGAL POSITION. THUS, ASSESSEE HAS ITA NO. 4862/DEL/2012 3 MADE A WRONG AND BOGUS CLAIM. LD. COMMISSIONER OF INC OME TAX (A) FURTHER PLACED RELIANCE INTER-ALIA THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF C.I.T. VS. ZOOM COMMUNICAT ION PVT. LTD. 327 ITR 510 AND OTHER DECISION IN THE CASE OF C.I.T. VS . ESCORTS FINANCE LTD. 328 ITR 0044. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT IN THIS CASE THE ASSESSEE HAS INCURRED TOTAL SUM OF ` 86,82,514/- FO R EXPENSES ON ACCOUNT OF PAYMENT OF CONSULTANTS FOR PREPARATION OF PROJECT REPORT RELATED TO PRIVATE EQUITY PLACEMENT AND OTHER LEGA L & VALUATION EXPENSES FOR THE ALLOCATION OF ` 52,00,000/- EQUIT Y SHARES TO M/S TATA COFFEE COMPANY LTD. OUT OF THIS SUM 1/5 TH EXPENDITURE AMOUNTING TO ` 1736503/- WAS CLAIMED U/S. 35D OF THE I.T. ACT. IN THE OPINION OF THE ASSESSING OFFICER THIS SUM OF ` 1736503/- WAS NOT ALLOWABLE AS THE ENTIRE EXPENDITURE IN THIS REGARD WERE IN CAPITAL FIELD. ON ACCOUNT OF AFORESAID DISALLOWANCE PENALTY PROCEEDINGS WERE ALS O INITIATED AND PENALTY OF ` 619932/- WAS LEVIED. AS PER THE REVE NUE THE AMOUNT INVOLVED COULD NOT HAVE BEEN CLAIMED AS REVENUE EX PENSES AS IT WAS CLEARLY IN THE CAPITAL FIELD AND HONBLE APEX COURT DECISION IN THE CASE OF BROOKE INDIA LTD VS. C.I.T. (SUPRA) EXPOUNDED TH AT SUCH EXPENSES SHOULD BE CAPITALIZED. 6.1 AS AGAINST ABOVE, IT IS THE CLAIM OF THE ASSESSE E THAT ASSESSEE HAD MADE A FULL DISCLOSURE OF THE AMOUNT OF CLAIM AN D HENCE, THERE IS NO CASE OF CONCEALMENT OR FURNISHING OF INACCURATE P ARTICULARS. IT WAS PLEADED THAT MERE DISALLOWANCE OF A CLAIM OF THE ASS ESSEE CANNOT RESULT IN LEVY OF PENALTY U/S. 271(1)(C) OF THE I.T . ACT. ITA NO. 4862/DEL/2012 4 6.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSION. WE FIND THAT SECTION 271(1)(C) POSTULATES IMPOSITION OF PENALTY FOR FURNISHING OF INACCURATE PARTICULARS AND CONCEALMENT OF INCOME. O N THE FACTS AND CIRCUMSTANCES OF THIS CASE THE ASSESSEES CONDUCT C ANNOT BE SAID TO BE CONTUMACIOUS SO AS TO WARRANT LEVY OF PENALTY. 6.3 IN THIS REGARD WE PLACE RELIANCE FROM THE HONBL E APEX COURT DECISION IN THE CASE OF PRICE WATERHOUSE COOPERS P VT. LTD. VS. C.I.T. AND ANR. 348 ITR 306 (SC). IN THIS CASE IT WAS HEL D, ALLOWING THE APPEAL, THAT THE FACTS OF THE CASE WERE PECULIAR AN D SOMEWHAT UNIQUE. NOTWITHSTANDING THAT THE ASSESSEE WAS A REPUTED FIR M AND HAD GREAT EXPERTISE AVAILABLE WITH IT, IT WAS POSSIBLE THAT E VEN THE ASSESSEE COULD MAKE SILLY MISTAKE. THE FACT THAT THE TAX AUDIT RE PORT WAS FILED ALONG WITH THE RETURN AND THAT IT UNEQUIVOCALLY STATED THAT THE PROVISION FOR PAYMENT WAS NOT ALLOWABLE UNDER SECTION 40A(7) OF TH E ACT INDICATED THAT THE ASSESSEE MADE A COMPUTATION ERROR IN ITS RET URN OF INCOME. THE CONTENTS OF THE TAX AUDIT REPORT SUGGESTED THAT THERE WAS NO QUESTION OF THE ASSESSEE CONCEALING ITS INCOME OR O F THE ASSESSEE FURNISHING ANY INACCURATE PARTICULARS. APART FRO M THE FACT THAT THE ASSESSEE DID NOT NOTICE THE ERROR, IT WAS NOT EVEN NOTICED EVEN BY THE ASSESSING OFFICER WHO FRAMED THE ASSESSMENT ORDER. ALL THAT HAD HAPPENED WAS THAT THROUGH A BONA FIDE AND INADVERTE NT ERROR, THE ASSESSEE WHILE SUBMITTING ITS RETURN, FAILED TO ADD THE PROVISION FOR GRATUITY TO ITS TOTAL INCOME. THE ASSESSEE SHOUL D HAVE BEEN CAREFUL BUT THE ABSENCE OF DUE CARE, IN A CASE SUCH AS THE PRESENT, DID NOT MEAN THAT THE ASSESSEE WAS GUILTY OF EITHER FURNISHI NG INACCURATE PARTICULARS OR ATTEMPTING TO CONCEAL ITS INCOME. ON THE PECULIAR FACTS OF THIS CASE, THE IMPOSITION OF PENALTY ON THE ASSE SSEE WAS NOT JUSTIFIED. ITA NO. 4862/DEL/2012 5 6.4 WE FURTHER DRAW SUPPORT FROM THE HONBLE JURISDI CTIONAL HIGH COURT DECISION IN THE CASE OF C.I.T. VS. SOCIETEX I N I.T.A. NO. 1190/2011 VIDE ORDER DATED 19.7.2012. IN THE SAID DECISIO N THE HONBLE JURISDICTIONAL HIGH COURT VIDE PARA NO. 5 & 6 HELD AS UNDER:- 5. MR. MARATHA RELIED UPON THE DECISION OF CIT VS. ZOOM COMMUNICATION PVT. LTD. (2010) 327 ITR 510 AS WELL AS DECISION OF CIT VS. ESCORTS FINANCE LTD. (2010) 328 ITR 44. IT WAS URGED THAT IN THIS CASE, THE ASSESSEES BEH AVIOUR WAS NOT ONE OF FURNISHING A CLAIM THAT WAS INCORRECT IN LAW BUT SHOWED A CONSCIOUS KNOWLEDGE OF THE CLAIM WHICH COUL D NOT BE GRANTED. IT WAS EMPHASIZED THAT UNDER NO CIRCUMSTANCES THE ASSESSEE COULD HAVE CLAIMED PROVI SION FOR TAX AS THAT IS NOT DEDUCTABLE UNDER ANY PROVIS ION OF LAW. THEREFORE, THE PENALTY ORDER MADE BY THE ASSESSING O FFICER WAS WARRANTED IN THE CIRCUMSTANCES. LD. COUNSEL ALS O RELIED UPON THE DECISION REPORTED AS CIT VS. ESCORTS FINANC E LTD. (SUPRA). LD. COUNSEL FOR THE ASSESSEE CONTENDED TH AT IT IS EVIDENT THAT THE CIT(APPEALS) HAS PARTIALLY ACCEPTE D THE ASSESSEES CLAIMS TO THE EXTENT THAT THE DEPRECIATI ON WAS GRANTED IN RESPECT OF THE BANGALORE PROPERTY. LD. COUNSEL STRESSED UPON THE FACT THAT THE KHAN MARKET PROPERTY HAD BEEN LET OUT ONLY FROM AUGUST, 1996 AND UNDER THE CIRCUMSTANCES THERE SEEMS TO HAVE BEEN A MECHANICAL REPETITION OF THE CLAIM IN THE RETURN FILED. SO F AR AS THE QUESTION OF FURNISHING INACCURATE PARTICULARS WITH REGARD TO THE PROVISION OF TAXATION IS CONCERNED, LD. COUNSEL SUBMITTED THAT IT WAS INADVERTENT AND EVEN THE RECORD SHOWED THAT ITA NO. 4862/DEL/2012 6 SUCH A CLAIM HAD BEEN MADE FOR THE FIRST TIME DURING T HE ASSESSMENT YEAR. 6. ZOOM COMMUNICATION PVT. LTD. (SUPRA) IS PREMISED O N THE FOOTING THAT EVEN IF INADVERTENT BY PARTICULA RS ARE NOT GIVEN, IF THE AUTHORITY FINDS THAT THE EXPLANATIO N GIVEN IS NOT BONA FIDE PENALTY U/S. 271 WOULD BE WARRANTED. SIMILAR OBSERVATIONS WERE MADE IN CIT V. RELIANCE PETR O PRODUCTS PVT. LTD., (2010) 322 ITR 158. IN THE PRESE NT CASE, SO FAR AS THE QUESTION OF DEPRECIATION IS CONCERNED WHAT EMERGES FROM THE PREVIOUS DISCUSSION IS THAT THE CIT(APPEALS) HAD ACCEPTED THE ASSESSEES CLAIM FOR DEPRECIATION TO THE EXTENT OF 2/3RD IN RESPECT OF THE BANGALORE PROPERTY. IT IS ALSO THE MATTER OF RECO RD THAT THE KHAN MARKET PROPERTY WAS LET OUT FOR THE FIRST TIME IN THE LATTER PART OF THE CONCERNED ASSESSMENT YEAR I.E. I N AUGUST, 1996. IN THESE CIRCUMSTANCES, THE BENEFIT OF INAD VERTENCE OR MECHANICAL OR REPETITIVE CLAIM BEING MADE CAN B E GIVEN TO THE ASSESSEE. SIMILARLY, AS FAR AS THE PROVISION FOR TAXATION IS CONCERNED, WE NOTICE THAT THE TRIBUNAL BY THE IMPUGNED ORDER HAD STATED IN THE EXTRACT REPRODUCED ABOVE THAT THE ASSESSEE HAD MADE A CLAIM FOR DEDUCTION OF THE PROVISION FOR THE FIRST TIME IN THE YEAR UNDER APPE AL; IN OTHER WORDS, THERE WAS NO HISTORY OF FURNISHING SU CH ACCURATE PARTICULARS BY THE ASSESSEE FOR THE PREVIO US YEARS. HAVING REGARD TO THESE CIRCUMSTANCES AND THE FACT T HAT THE CIT(APPEALS) AS WELL AS THE TRIBUNAL HAD HELD IN F AVOUR OF THE ASSESSEE, THIS COURT IS OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS CASE. ITA NO. 4862/DEL/2012 7 6.5 WE FURTHER PLACE RELIANCE FROM THE APEX COURT DECISION RENDERED BY A LARGER BENCH COMPRISING OF THREE OF THEIR LORD SHIPS IN THE CASE OF HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 26 W HEREIN IT WAS HELD THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEED INGS, AND PENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED E ITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CO NDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CONSCIOUS DISREGARD OF IT S OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A ST ATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORITY TO BE EX ERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES . EVEN IF A MINIMUM PENALTY IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENAL TY, WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT, OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE OFFENDE R IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. 6.6 WE FURTHER PLACE RELIANCE UPON THE HONBLE APE X COURT DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. IN CIVIL APPEAL NO. 2463 OF 2010. IN THIS CASE VIDE ORDER DATED 17.3.2 010 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 C ONTINUES TO BE A GOOD LAW BECAUSE WHAT WAS OVERRULED IN THE DHARMENDE R TEXTILE CASE WAS ONLY THAT PART IN DILIP SHEROFF CASE WHERE IT WA S HELD THAT MENSREA WAS A ESSENTIAL REQUIREMENT OF PENALTY U/S 271(1)(C ). THE HONBLE APEX COURT ALSO OBSERVED THAT IF THE CONTENTION OF THE REVENUE IS ACCEPTED THEN IN CASE OF EVERY RETURN WHERE THE CL AIM IS NOT ACCEPTED ITA NO. 4862/DEL/2012 8 BY THE ASSESSING OFFICER FOR ANY REASON, THE ASSE SSEE WILL INVITE THE PENALTY U/S 271(1)(C). THIS IS CLEARLY NOT THE INT ENDMENT OF LEGISLATURE. 7. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS A ND PRECEDENTS, WE FIND THAT THE LEVY OF PENALTY IN THIS CASE IS NO T JUSTIFIED. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORI TIES BELOW AND DELETE THE LEVY OF PENALTY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/1/2013. SD/- SD/- [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [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 04/1/2013 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