M/s. Delhi Surgical & Dressing Pvt. Ltd., Delhi V. DCIT, New Delhi

ITA 5059/DEL/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7873 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 26-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Keywords: Sale consideration of property below Jantri Value; Business expenditure; Initiation of penalty proceedings; Commercial expediency; Set aside
• Section: 271(1)(c); 50C; 37(1); 274; 43; 13; 37

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI (THROUGH VIRTUAL COURT HEARING) BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO S . 5058 & 5059 /DEL/201 6 ASSESSMENT YEAR S : 20 08 - 09 & 20 13 - 14 DELHI SURG ICAL & DRESSING PVT. LTD., 6, MOTI CINEMA COMPOUND, CHANDNI CHOWK, DELHI. PAN: AA ACD0166H VS DCIT, CIRCLE - 7(1), NEW DELHI. (APP ELL A NT ) (RESPONDENT) A SSESSEE BY : SHRI VED JAIN, ADVOCATE, SHRI ASHWIN GOEL, CA SHRI AKSHIT GOEL, CA RE VENUE BY : SHRI JAGDISH SINGH, SR. DR DATE OF HEARING : 20 . 07 . 20 20 DATE OF PRONOUNCEMENT : 27 . 0 8 . 20 20 ORDER PER R. K. PANDA, AM : ITA NO.5058/DEL/2016 FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 24 TH AUGUST, 20 16 OF THE CIT(A) - 37, NEW DELHI, RELATING TO A.Y. 2008 - 09 WHEREIN THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE PENALTY OF RS.3,78,030/ - LEVIED BY THE AO U/S 271(1)(C) OF THE ACT. ITA ITA NO S . 5058 & 5059 /DEL/201 6 2 NO.5059/DEL/2016 FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED 26 TH AUGUST, 2016 OF THE CIT(A) - 37, RELATING TO A.Y. 2013 - 14. 2. FOR THE SAKE OF CONVENIENCE, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.5058/DEL/2016 (A.Y. 2008 - 09) 3. ALT HOUGH A NUMBER OF GROUNDS HAVE BEEN RAISED BY THE ASSESSEE, THESE ALL RELATE TO THE ORDER OF THE CIT(A) CONFIRMING THE PENALTY OF RS.3,78,030/ - LEVIED BY THE AO U/S 271(1)(C) OF THE ACT. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO, IN THE ORDER PASSED U/S 147/143(3) DATED 10 TH OCTOBER, 2013, MADE AN ADDITION OF RS.13,23,400/ - BY INVOKING THE PROVISIONS OF SECTION 50C OF THE IT ACT. IN APPEAL, THE LD.CIT(A) CONFIRMED THE ADDITION OF RS.13,23,400/ - MADE BY THE AO . SUBSEQUENTLY, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) AND LEVIED PENALTY OF RS.3,78,030/ - BEING 100% OF TAX SOUGHT TO BE EVADED. IN APPEAL, THE LD.CIT(A) CONFIRMED THE PENALTY SO LEVIED. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, REFERRING TO THE COPY OF THE NOTICE ISSUED U/S 274 R.W. SECTION 271(1)(C) OF THE ACT DATED 30 TH OCTOBER, 2012, COPY OF WHICH IS PLACED AT PAGE 78 OF THE PAPER BOOK , SUBMITTED THAT THE ITA NO S . 5058 & 5059 /DEL/201 6 3 INAPPROPRIATE WOR DS IN THE SAID NOTICE HAS NOT BEEN STRUCK OFF AND, THEREFORE, IT IS NOT KNOWN AS TO UNDER WHICH LIMB OF SECTION 271(1)(C), THE AO HAS INITIATED THE PENALTY PROCEEDINGS. REFERRING TO THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. MA NJUNATHA COTTON AND GINNING FACTORY [2013] 359 ITR 565 AND THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. SSA'S EMERALD MEADOWS, HE SUBMITTED THAT SINCE THE NOTICE ISSUED U/S 271 R.W. SECTION 274 DOES NOT SPECIFY THE LIMB UNDER WHIC H THE PENALTY WAS LEVIED, THE ENTIRE PENALTY PROCEEDING STANDS VITIATED. HE SUBMITTED THAT THE ABOVE DECISIONS WERE CHALLENGED BY THE REVENUE BEFORE THE HON BLE SUPREME COURT AND THE SLP S FILED BY THE REVENUE HA VE BEEN DISMISSED. REFERRING TO THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF PR. CIT VS SAHARA INDIA LIFE INSURANCE COMPANY VIDE ITA 475/2019, ORDER DATED 02.08.2019 AND VARIOUS OTHER DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL, HE SUBMITTED THAT IN THESE DECISIONS ALSO THE P ENALTY PROCEEDINGS WERE QUASHED WHERE THE INAPPROPRIATE WORDS IN THE NOTICE WERE NOT STRUCK OFF AS THE AO HAS MISERABLY FAILED TO SPECIFY IN THE NOTICE ISSUED U/S 274 R.W. SECTION 271(1)(C) AS TO WHETHER THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS I NCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME. HE SUBMITTED THAT IN THE INSTANT CASE NOT ONLY THE NOTICE ISSUED TO THE ASSESSEE U/S 274 R.W. SECTION 271(1)(C) IS DEFECTIVE, BUT, THE AO HAS NOT EVEN MADE HIMSELF SATISFIED AT THE TIME OF MAKING T HE DISALLOWANCE/ADDITION IN THE ASSESSMENT ORDER IF THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR HAS CONCEALED PARTICULARS OF HIS INCOME. HE ACCORDINGLY SUBMITTED THAT IT IS NOT MERELY A CASE OF ITA NO S . 5058 & 5059 /DEL/201 6 4 SERVING A DEFECTIVE NOTICE U/S 274 R.W. SE CTION 271(1)(C) OF THE ACT ON THE ASSESSEE, RATHER, IT IS A CASE OF NON - APPLICATION OF MIND ON THE PART OF THE AO TO MAKE HIMSELF SATISFIED AS TO UNDER WHICH LIMB OF SECTION 271(1)(C) OF THE ACT HE IS GOING TO INITIATE/LEVY PENALTY ON THE ASSESSEE. THEREF ORE, THE PENALTY PROCEEDINGS ARE INVALID AND, CONSEQUENTLY, THE PENALTY LEVIED BY THE AO AND SUSTAINED BY THE CIT(A) SHOULD BE DELETED. HE ALSO RELIED ON THE FOLLOWING DECISIONS TO THE PROPOSITION THAT P ENALTY NOTICE ISSUED WOULD BE BAD IN LAW IF IT DID NO T SPECIFY THE LIMB OF SECTION 271(1)(C) : - 1. PCIT V. KULWANT SINGH BHATIA 2018 (5) TMI 960 MADHYA PRADESH HIGH COURT 2 . SBI DFHI LTD. V. ACIT 2018 (3) TMI 1363 BOMBAY HIGH COURT 3 . M/S BLACKROCK SECURITIES PVT LTD V. ACIT ITA NO. 3251/DEL/2019 ITAT DELHI 4 . C.S. DATAMATION RESEARCH SERVICES PVT. LTD. V. ITO ITA NO.3915/DEL/2016, DATED: 15 JUNE 2020 ITAT DELHI 5 . DCIT V. M/S TELESONIC NETWORK LTD. ITA NO. 2554/DEL/2017 ITAT DELHI 6 . M/S GLOBAL EMERGING MARKETS INDIA LTD. V. ITO ITA NO.3099/DEL/2019 DATED: 30 JUNE 2020 ITAT DELHI 7 . DCIT V. METRO TYRES PVT. LTD. ITA NO. 2874/DEL/2016 ITAT DELHI DATED: 24 JUNE 2020 8 . SRIKANT SHAH V. ITO ITA NO. 6585/DEL/2018 DATED: 08 MAY 2020 ITAT DELHI 9 . M/S ABR AUTO PVT. LTD. V. ACIT I.T.A. NO. 6236/DEL/2015 ITAT DELH I 10 . M/S ACB INDIA LTD. V. ACIT ITA NO. 1409/DEL/2015 ITAT DELHI ITA NO S . 5058 & 5059 /DEL/201 6 5 11 . HINDON FORGE (P) LTD., C/O MALIK AND CO. V. DCIT 2020 (5) TMI 383 ITAT DELHI 7. REFERRING TO THE FOLLOWING DECISIONS, HE SUBMITTED THAT M ERE DISALLOWANCE OF THE CLAIM COULD NOT BE THE SOLE BASIS FOR LEVYING PENALTY U/S 271(1)(C) : - 1 . CIT V. RELIANCE PETROPRODUCTS PVT. LTD 322 ITR 158 SUPREME COURT 11. SHERVANI HOSPITALITIES LTD. V. CIT I.T.A. 804 OF 2011 DELHI HIGH COURT 2 . CIT V. M/S DHARAMPAL PREMCHAND LTD. 329 ITR 572 DELHI HIGH CO URT 3 . CIT V. SOCIETEX ITA 1190/2011 DELHI HIGH COURT 4 . KARAN RAGHAV EXPORTS PVT LTD. V. CIT ITA 1152/2011 DELHI HIGH COURT 8. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION OF RS.13,23,400/ - M ADE BY THE AO U/S 50C WAS ON ACCOUNT OF DIFFERENCE BETWEEN THE STAMP DUTY VALUE AND ACTUAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE ON THE SALE OF PROPERTY. HE SUBMITTED THAT IN THE INSTANT CASE, THE ASSESSEE HAS SOLD OFFICE FLAT AT 206, SF SARAN CHAMB ER - II, FIVE PARK ROAD, LUCKNOW FOR RS. 6,00,000/ - TO MR. PRADEEP KUMRA AND SHOWN THE TAXABLE LONG TERM CAPITAL GAIN OF RS. 87,620/ - AFTER INDEXATION WHILE FILLING THE RETURN ON 30.09.2008. HE SUBMITTED THAT DURING THE SEARCH CONDUCTED ON MR. PRADEEP KUMRA ON 14.02.2008 IT WAS FOUND THAT THE BUYER, MR. PRADEEP KUMRA, HAS ACTUALLY PURCHASED THE OFFICE FLAT FROM ASSESSEE FOR RS.6,00,000/ - , BUT THE STAMP DUTY WAS ITA NO S . 5058 & 5059 /DEL/201 6 6 PAID ON RS.19,23,400/ - , AND ON THIS GROUND THE CASE OF THE ASSESSEE WAS REOPENED AND IN THE ORDER P ASSED U /S 14 3(3)/147, AN ADDITION OF RS.13,23,400/ - WAS ADDED BEING THE DIFFERENCE BETWEEN THE STAMP DUTY VALUE AND THE ACTUAL SALES CONSIDERATION RECEIVED . HE SUBMITTED THAT VALUATION BY STAMP VALUATION AUTHORITY IS NOT A CONCLUSIVE EVIDENCE OF ACTUAL FA IR MARKET VALUE OF THE PROPERTY. THE A.O. HAS NOT BROUGHT ANY EVIDENCE ON RECORD BY WHICH IT CAN BE ESTABLISHED THAT ASSESSEE HAS RECEIVED MORE THAN THE AMOUNT SHOWN TO HAVE BEEN RECEIVED AS PER THE SALE DEED. 9. REFERRING TO THE DECISION OF THE HON BLE KOLKATA HIGH COURT IN THE CASE OF CIT V. MADAN THREATRES LTD. ITA NO.62 OF 2013, ORDER DATED 14.05.2013 HE SUBMITTED THAT UNDER SOMEWHAT SIMILAR CIRCUMSTANCES, THE PENALTY DELETED BY THE CIT(A) WAS CHALLENGE D BEFORE THE TRIBUNAL AND THE TRIBUNAL DISMISSED THE APPEAL FILED BY THE REVENUE. REFERRING TO THE DECISION OF THE HON BLE BOMBAY HIGH COURT I N THE CASE OF CIT V. M/S FORTUNE HOTELS AND ESTATES PVT. LTD. ITA NO.1164 OF 2012 DATED 26.09.2014 HE SUBMITTED THAT THE PENALTY DELETED BY THE TRIBUNAL UNDER IDEN TICAL CIRCUMSTANCES WAS UPHELD BY THE HON BLE HIGH COURT AND THE APPEAL FILED BY THE REVENUE WAS DISMISSED. REFERRING TO THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE ITO V. AJAY SHARMA [ITA.NO.995/DEL./2016] DATED 23.11.2017 , HE SUBMIT TED THAT PENALTY LEVIED ON ACCOUNT OF ADDITION ON THE BASIS OF VALUATION OF THE STAMP VALUATION AUTHORITY WAS DELETED BY THE CIT(A) AND ON FURTHER APPEAL BY THE REVENUE THE TRIBUNAL DISMISSED THE APPEAL. WHILE DOING SO, ITA NO S . 5058 & 5059 /DEL/201 6 7 THE TRIBUNAL HAS RELIED ON THE DECI SION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. MADAN THEATRES LTD., (SUPRA), RELYING ON VARIOUS OTHER DECISIONS PLACED ON THE PAPER BOOK, THE LD. COUNSEL SUBMITTED THAT ALTHOUGH THE ADDITION HAS BEEN SUSTAINED IN THE QUANTUM PROCEEDINGS BE FORE THE CIT(A), HOWEVER, PENALTY IS NOT LEVIABLE ON ACCOUNT OF DIFFERENCE IN VALUATION BY THE STAMP VALUATION AUTHORITY. HE ALSO RELIED ON THE FOLLOWING DECISIONS: - 1 . SHRI ASHWANI JAIPATY V. DCIT ITA.NO.276/DEL./2018 , ITAT DELHI 2 . DCIT V. TRANS FREIG HT CONTAINERS LTD ., ITA NO.2337/MUM./2016 ITAT MUMBAI 3 . BHAVYA ANANT UDESHI V. ITO 43 ITR (TRIB) 487 ITAT HYDERABAD 4 . ITO V. LATED SHRI DHAN SINGH BHATI THROUGH LEGAL HEIR MS. NEHA BHATI ITA NO.40/JP/2014 ITAT JAIPUR 5 . SHRI C. BASKER & SHRI C. VIJAYA KUMAR, V. ACIT ITA NO.997 & 998/MDS/2012 ITAT CHENNAI 6 . SHRI CHIMANLAL MANILAL PATEL V. ACIT ITA NO.508/AHD/2010 ITAT AHMEDABAD 7. ITO VS. AJAY SHARMA, ITA NO.995/DEL/2016 9.1 HE ACCORDINGLY SUBMITTED THAT BOTH LEGALLY AND FACTUALLY THE PENALTY LEVIED BY T HE AO AND UPHELD BY THE CIT(A) IS NOT MAINTAINABLE. 10. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT HAD THE CASE NOT BEEN SELECTED FOR SCRUTINY, THE ADDITION WOULD NOT HAVE BEEN MADE AND THE ASSESSEE WOULD HAVE ESCAPED. REFERRING TO THE FOLLOWING ITA NO S . 5058 & 5059 /DEL/201 6 8 DECISIONS, THE LD. DR SUBMITTED THAT THE PENALTY LEVIED BY THE AO AND UPHELD BY THE CIT(A) UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IS JUSTIFIED: - I) CIT VS. ZOOM COMMUNICATIONS PVT. LTD., 327 ITR 51 (DEL); II) GOUL I MAHADEVAPPA VS. CIT, 356 ITR 90 (KAR); III) BALARAMPUR CHINI MILLS LTD., 376 ITR 1 ( CAL ); IV) JAWAHAR L AL JAIN (HUF), 370 ITR 712 (P&H) 11. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND, THE AO, IN THE INSTANT CASE, MADE ADDITION OF RS.13,23,400/ - U/S 50C ON ACCOUNT OF DIFFERENCE BETWEEN THE STAMP DUTY VALUE AND ACTUAL SALES CONS IDERATION RECEIVED BY THE ASSESSEE ON THE SALE OF THE PROPERTY. A PERUSAL OF THE NOTICE ISSUED U/S 274 R.W. SECTION 271(1)(C), COPY OF WHICH IS PLACED AT PAGE 78 OF THE PAPER BOOK, SHOWS THAT THE INAPPROPRIATE WORDS IN THE SAID NOTICE HAS NOT BEEN STRUCK OFF AND THE SAID NOTICE DOES NOT SPECIFY THE LIMB UNDER WHICH THE PENALTY WAS LEVIED. WE FIND, THE HON BLE KARNATAKA HIGH COURT IN THE CASE CIT V. MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) HAS OBSERVED AS UNDER: - 9. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE PREFERRED AN APPEAL TO THE TRIBUNAL. THE TRIBUNAL HELD THAT ON PERUSAL OF THE NOTICE ISSUED UNDER SECTION 271(1)(C) OF THE ACT, IT IS CLEAR THAT IT IS A STANDARD PRO - FORMA USED BY THE ASSESSING AUTHORITY. BEFORE ISSUING THE NOTICE THE INAPPROPRIAT E WORDS AND PARAGRAPHS WERE NEITHER STRUCK OFF NOR DELETED. THE ASSESSING AUTHORITY WAS NOT SURE AS TO WHETHER SHE HAD PROCEEDED ON THE BASIS THAT THE ASSESSEE HAD EITHER CONCEALED ITS INCOME OR HAS FURNISHED INACCURATE DETAILS. THE NOTICE IS NOT IN COMPLI ANCE WITH THE REQUIREMENT OF THE PARTICULAR SECTION AND THEREFORE ITA NO S . 5058 & 5059 /DEL/201 6 9 IT IS A VAGUE NOTICE, WHICH IS ATTRIBUTABLE TO A PATENT NON - APPLICATION OF MIND ON THE PART OF THE ASSESSING AUTHORITY. 50. A READING OF SECTION CLEARLY INDICATES THAT THE ASSESSMENT ORDER SHOULD CONTAIN A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS. THE MEANING OF THE WORD DIRECTION IS OF IMPORTANCE. MERELY SAYING THAT PENALTY PROCEEDINGS ARE BEING INITIATED WILL NOT SATISFY THE REQUIREMENT. THE DIRECTION TO INITIATE PROCEEDINGS SHOULD BE CLEAR AND NOT BE AMBIGUOUS. IT IS WELL SETTLED LAW THAT FISCAL STATUTES ARE TO BE CONSTRUED STRICTLY AND MORE SO THE DEEMING PROVISIONS BY WAY OF LEGAL FICTION ARE TO BE CONSTRUED MORE STRICTLY. THEY HAVE TO BE INTERPRETED ONLY FOR THE SAID ISSUE FOR WH ICH IT HAS DEEMED AND THE MANNER IN WHICH THE DEEMING HAS BEEN CONTEMPLATED TO BE RESTRICTED IN THE MANNER SOUGHT TO BE DEEMED. AS THE WORDS USED IN THE LEGAL FICTION OR THE DEEMING PROVISIONS OF SECTION 271(1B) IS DIRECTION, IT IS IMPERATIVE THAT THE ASSE SSMENT ORDER CONTAINS ADIRECTION. USE OF THE PHRASES LIKE (A) PENALTY PROCEEDINGS ARE BEING INITIATED SEPARATELY AND (B) PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) ARE INITIATED SEPARATELY, DO NOT COMPLY WITH THE MEANING OF THE WORD DIRECTION AS CONTEMPLA TED EVEN IN THE AMENDED PROVISIONS OF LAW. THE DIRECTION SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. THE WORD DIRECTION HAS BEEN INTERPRETED BY THE DECISION OF THE APEX COURT IN THE CASE OF RAJENDRANATH REPORTED IN 120 ITR PG.14, WHERE IT HAS BEEN HELD TH AT IN ANY EVENT WHATEVER ELSE IT MAY AMOUNT TO, ON ITS VERY TERMS THE OBSERVATION THAT THE ITO IS FREE TO TAKE ACTION, TO ASSESS THE EXCESS IN THE HAND OF THE CO - OWNERS CANNOT BE DESCRIBED AS A DIRECTION. A DIRECTION BY A STATUTORY AUTHORITY IS IN THE NATU RE OF AN ORDER REQUIRING POSITIVE COMPLIANCE. WHEN IT IS LEFT TO THE OPTION AND DISCRETION OF THE ITO WHETHER OR NOT TAKE ACTION, IT CANNOT BE DESCRIBED AS A DIRECTION. SIMILAR RATIO IS LAID DOWN IN THE CASE OF M/S VARDHMAN POLYTEX LTD. V. ACIT ITA NO.62 6/CHD/2016 DATED 31.05.2017 14. IN THE PRESENT CASE SINCE THE NOTICE DOES NOT SPECIFY FOR WHAT OFFENCE PROCEEDINGS WERE INITIATED, THE DECISION OF THE HON'BLE APEX COURT, AS POINTED OUT ABOVE, WILL SQUARELY APPLY TO THE FACTS OF THE CASE, FOLLOWING WHICH WE HOLD THAT THERE IS NO SCOPE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON THE ASSESSEE. CONSIDERING THE ABOVE, WE HAVE NO HESITATION IN CANCELLING THE PENALTY. 12. WE FIND, THE ABOVE DECISION OF THE HON BLE KARNATAKA HIGH COURT WAS CHALLENG ED BY THE REVENUE AND THE HON BLE SUPREME COURT HAS DISMISSED THE SLP. SIMILAR VIEW HAS BEEN TAKEN IN VARIOUS OTHER DECISIONS RELIED ON BY THE LD. COUNSEL PLACED IN THE PAPER BOOK. SINCE THE INAPPROPRIATE WORDS IN THE NOTICE HAS NOT BEEN ITA NO S . 5058 & 5059 /DEL/201 6 10 STRUCK OFF, THER EFORE, FOLLOWING THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) AND SSA'S EMERALD MEADOWS (SUPRA) , WHERE THE SLP FILED BY THE REVENUE HAS BEEN DISMISSED, WE HOLD THAT THE PENALTY PROCEEDINGS IN ITIATED BY THE AO ARE NOT IN ACCORDANCE WITH THE LAW AND, THEREFORE, HAS TO BE QUASHED. WE ACCORDINGLY QUASH THE PENALTY PROCEEDINGS AND DIRECT THE AO TO CANCEL THE PENALTY. SINCE THE ASSESSEE SUCCEEDS ON THIS LEGAL GROUND, THE GROUNDS CHALLENGING THE PE NALTY ON MERIT ARE NOT BEING ADJUDICATED. ITA NO.5059/DEL/2016 13. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME DECLARING THE TOTAL INCOME AT RS.1,43,62,527/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE HAS CLAIMED MEDICAL EXPENSES OF RS.19,73,792/ - IN ITS P & L ACCOUNT. THE AO ASKED THE ASSESSEE TO GIVE COMPLETE DETAILS AND FILE BILLS FOR VERIFICATION IN RESPECT OF THIS CLAIM. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE AO N OTED THAT BILLS OF RS.18,36,725/ - PERTAINED TO EXPENSES INCURRED BY LATE SHRI RAMAN KUMRA, THE NON - EXECUTIVE DIRECTOR OF THE COMPANY. HE, THEREFORE, ASKED THE COMPANY TO EXPLAIN AS TO WHY THE WHOLE AMOUNT OF EXPENSES OF RS.18,36,725/ - SHOULD NOT BE DISALL OWED. THE ASSESSEE SUBMITTED THE FOLLOWING REPLY WHICH HAS BEEN EXTRACTED BY THE AO IN THE BODY OF THE ASSESSMENT ORDER: - 'LATE MR. RAMAN KUMRA WAS THE SALES DIRECTOR OF THE COMPANY AND THE CANCER DECEASE WAS DETECTED DURING FINANCIAL YE AR 2011 - 12. THE B OARD OF D IRECTOR OF ITA NO S . 5058 & 5059 /DEL/201 6 11 THE COMPANY HAS DECIDED THAT BEST MEDICA L TREATMENT SHOULD BE GIVEN TO HIM AND ALL THE MEDICAL EXPENSES TO BE BORNE BY THE COMPAN Y BY MAKING DIRECT PAYMENT TO THE HOSPITAL ETC. AND COPY OF THE RESOLUTION OF THE BOARD OF DIRECTOR IF REQU IRED CAN BE SUBMITTED. THE BOARD OF DIRECTORS OF THE COMPANY KNEW THAT IF HE COULD NOT SURVIVE THE SALE OF THE COMPANY WILL BE EFFECTED DRASTICALLY AND DUE TO THAT REASONS THE ASSESSEE COMPANY HAS DECIDED TO BORNE ALL THE MEDICAL EXPENSES OF LATE MR. RAMAN KUMRA. WE ARE GIVING BELOW THE SALES OF THE COMPANY FOR THE FINANCIAL YEAR 2011 - 12, 2012 - 13 AND 2013 - 14, WHICH PROVES WHY THE COMPANY INTEND TO SAVE THE LIFE ---- SALES DIRECTOR: - FINANCIAL YEAR SALES 2011 - 12 RS.6.76 CRORES 2012 - 13 RS.3.26 CRORE S 2013 - 14 RS.2.46 CRORES IT IS VERY CLEAR FROM THE ABOVE THAT THE SALES OF THE ASSESSEE COMPANY HAS BEEN DRASTICALLY DROPPED FROM TO RS.5.76 CRORES TO RS.2.46 CRORES I.E. 57% DECLINE IN SALES IN F.Y. 2013 - 14 AS COMPARED TO F.Y. 2011 - 12 AND THAT IS REASO N WHY THE COMPANY INTEND TO SAVE HIS LIFE BY GIVING BEST MEDICAL TREATMENT WHICH HAS ALSO RESULTED IN DROP IN REVENUE AS WELL AS DROP IN PAYMENT OF INCOME TAX TO THE DEPARTMENT. THE EXPENSES INCURRED BY THE ASSESSEE COMPANY ARE OF BUSINESS EXPENDITURE AND SHOULD BE ALLOWED UNDER SECTION 37 OF THE INCOME TAX ACT, 1961 AFTER KEEPING IN VIEW THE FACT STATED ABOVE.' 14. THE ASSESSEE ENCLOSED THE DUPLICATE FINAL BILL OF LATE MR. RAMAN KUMRA OBTAINED FROM SIR GANGA RAM CITY HOSPITAL. RELYING ON THE DECISION OF THE CUTTACK BENCH OF THE TRIBUNAL IN THE CASE DCIT VS. PARADEEP OXYGEN PVT. LTD., 71 TTJ 662, WHERE IT HAS BEEN HELD THAT REIMBURSEMENT OF MEDICAL EXPENSES TO THE MANAGING DIRECTOR CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, HE SU BMITTED THAT THE MEDICAL EXPENSES IS AN ALLOWABLE CLAIM U/S 37(1) OF THE IT ACT. 15. HOWEVER, THE AO WAS NOT SATISFIED WITH THE ARGUMENTS ADVANCED BY THE ASSESSEE. ACCORDING TO THE AO, THE ASSESSEE SHOULD HAVE ENTERED THE PERQUISITE IN ITA NO S . 5058 & 5059 /DEL/201 6 12 THE HANDS OF LATE SHRI RAMAN KUMRA, NON - EXECUTIVE DIRECTOR OF THE COMPANY WHICH WAS NOT DONE BY THE ASSESSEE COMPANY. HE NOTED THAT THE INCOME - TAX RETURN OF LATE SHRI RAMAN KUMRA HAS NOT BEEN FILED BY THEIR LEGAL HEIR. HE FURTHER NOTED THAT WHILE THE ASSESSEE HAS CLAIMED THAT SHRI RAMAN KUMRA IS THE MANAGING DIRECTOR OF THE COMPANY, HOWEVER, THE RECORD SHOW S THAT MR. BALDEV RAJ KUMAR IS THE ONLY PERSON WHO IS INVOLVED IN THE DAY - TO - DAY MANAGEMENT OF THE COMPANY. REJECTING THE VARIOUS EXPLANATIONS FILED BY THE ASSESSEE, TH E AO DISALLOWED THE MEDICAL EXPENSES OF RS.18,36,725/ - . 16. THE LD.CIT(A), IN THE EX PARTE ORDER PASSED BY HIM, UPHELD THE ACTION OF THE AO. WHILE DOING SO, HE OBSERVED THAT MR. BALDEV RAJ KUMAR IS THE ONLY PERSON WHO IS INVOLVED IN THE DAY - TO - DAY MANA GEMENT OF THE COMPANY. ACCORDING TO HIM, T HE BOARD RESOLUTION DATED 8 TH FEBRUARY, 2015 PASSED BY THE COMPANY FOR REIMBURSEMENT OF MEDICAL EXPENSES OF THE DIRECTOR MR. RAMAN KUMRA IS RUNNING CONTRARY TO SECTION 37(1) OF THE ACT. FURTHER, THERE IS NO MATER IAL TO PROVE THAT THE PAYMENT MADE WAS ONE THAT HAD ANY LINK WITH THE QUANTUM OF SALARY OR OTHER BENEFITS TO THE DIRECTOR. RELYING ON VARIOUS DECISIONS AND DOUBTING THE BUSINESS EXPEDIENCY FOR THE INCURRENCE OF SUCH EXPENDITURE, THE LD.CIT(A) REJECTED THE CLAIM OF THE ASSESSEE AND UPHELD THE DISALLOWANCE MADE BY THE AO. 17. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO S . 5058 & 5059 /DEL/201 6 13 18. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGED THE ORDERS OF THE AO AND THE CIT(A). HE SUBMITTED THAT MR. RAMAN KUMRA WAS THE DIRECTOR OF THE ASSESSEE COMPANY WHO WAS LOOKING AFTER THE SALES OPERATION OF THE ASSESSEE COMPANY. DURING HIS TENURE THE SALES OF THE ASSESSEE COMPANY HAD GONE UP. HOWEVER, AFTER THE DEATH OF SHRI RAMAN KUMRA, T HE SALES OF THE ASSESSEE HAVE DRASTICALLY DROPPED FROM RS.6.67 CRORES TO RS.2.46 CRORES, I.E., 57% DECLINE IN SALES IN F.Y. 2013 - 14 AS COMPARED TO F.Y. 2011 - 12. THEREFORE, IT CANNOT BE SAID THAT LATE SHRI RAMAN KUMRA WAS NOT INVOLVED IN SALES OPERATION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VARIOUS DECISIONS RELIED ON BY THE CIT(A) ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND ARE DISTINGUISHABLE . HE FILED A BRIEF SYNOPSIS DISTINGUISHING THE VARIOUS DECISIONS RELIED ON BY THE LD. CIT(A) AND SUBMITTED THAT THOSE CASES ARE FACTUALLY DIFFERENT FROM THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT THE MEDICAL EXPENSES OF THE DIRECTOR CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND ARE ALLOWABLE AS BU SINESS EXPENDITURE ON ACCOUNT OF THE FOLLOWING: - I) THE INCOME OF THE ASSESSEE HAS FALLEN DUE TO THE DEATH OF SHRI RAMAN KUMRA, SINCE THE SALES HAVE DRASTICALLY FALLEN WHICH IS CLEARLY EVIDENT FROM THE PROFIT & LOSS ACCOUNT, COPY OF WHICH IS PLACED AT PAGE 9 OF THE PAPER BOOK. HE SUBMITTED THAT THE COPY OF THE BOARD RESOLUTION PASSED BY THE DIRECTOR, COPIES OF THE BANK STATEMENTS AND THE LEDGER OF MEDICAL EXPENSES ALONG WITH PROVISIONAL MEDICAL BILL WERE ALL FILED BEFORE THE AO WHICH HAS BEEN VERIFIED BY THE CIT(A). RELYING ON VARIOUS DECISIONS, HE SUBMITTED THAT THE MEDICAL ITA NO S . 5058 & 5059 /DEL/201 6 14 EXPENDITURE OF THE DIRECTOR CAN BE SAID TO BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE FURTHER SUBMITTED THAT IT IS NOT A CASE WHERE THE AO HAS POINTED OUT A NY PARTICULAR I NSTANCE THAT THE EXPENSES HAVE NOT BEEN INCURRED . SO FAR AS THE ORDER OF THE CIT(A) DOUBTING THE COMMERCIAL EXPEDIENCY OF THE PAYMENT IS CONCERNED, HE SUBMITTED THAT THE HON BLE SUPREME COURT IN THE CASE OF S H AH Z ADA NAND AND SONS VS. CIT, 108 ITR 358 HAS O BSERVED THAT COMMERCIAL EXPEDIENCY DOES NOT MEAN THAT AN EMPLOYER COULD NOT MAKE ANY PAYMENT TO AN EMPLOYEE UNLESS THE EMPLOYEE IS ENTITLED TO IT UNDER A CONTRACT. HE SUBMITTED THAT THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF ACCOUNT WHICH ARE AUDITED AND THE FULL DETAILS OF THE EXPENSES WERE PRODUCED BEFORE THE AO AND, NO DOUBT, HAS BEEN RAISED FOR INCURRING OF SUCH EXPENDITURE. HE SUBMITTED THAT THE EXPENDITURE IS NOT PERSONAL IN NATURE AND HAS BEEN INCURRED SO THAT THE COMPANY CAN SURVIVE THE LIFE OF M R. RAMAN KUMRA, THE SALES DIRECTOR OF THE COMPANY BY GIVING HIM THE BEST MEDICAL TREATMENT WHO, IN TURN, IS RESPONSIBLE FOR THE HUGE GROWTH IN THE SALES OF THE ASSESSEE COMPANY. REFERRING TO THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CI T VS. SAYAJI IRON & STEEL CO., 253 ITR 749 , HE SUBMITTED THAT THERE CANNOT BE ANY PERSONAL EXPENDITURE IN THE CASE OF A COMPANY AS THE COMPANY IS AN INANIMATE PERSON. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) DISALLOWING THE EXPENDITURE SHOULD BE SET ASIDE AND THE DISALLOWANCE MADE BY THE AO SHOULD BE DELETED. ITA NO S . 5058 & 5059 /DEL/201 6 15 19. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON THE ORDER OF THE AO AND THE CIT(A). HE SUBMITTED THAT THE LD.CIT(A), RELYING ON VARIOUS DECISIONS, HAS OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NOT AN ALLOWABLE EXPENDITURE AND, THEREFORE, THE SAME BEING IN CONF I RMITY WITH THE VARIOUS DECISIONS RELIED ON BY HIM SHOULD BE UPHELD. 20. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF T HE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND, THE ASSESSEE, IN THE INSTANT CASE, HAS DEBITED AN AMOUNT OF R S.19,73,792/ - AS MEDICAL EXPENSES IN THE PROFIT & LOSS ACCOUNT OUT OF WHICH THE AO DISALLOWED AN AMOUNT OF R S.18,36,725/ - BEING MEDICAL EXPENSES PERTAINED TO EXPENSES INCURRED FOR THE TREATMENT OF LATE SHRI RAMAN KUMRA, NON - EXECUTIVE DIRECTOR OF THE ASSESSEE COMPANY. WHILE DOING SO, THE AO NOTED THAT T HE ASSESSEE SHOULD HAVE ENTERED THE PERQUISITE IN THE HANDS OF SHRI RAMAN KUMRA, THE NON - EXECUTIVE DIRECTOR WHICH WAS NOT DONE IN THE INSTANT CASE. FURTHER, THE INCOME - TAX RETURN OF SHRI RAMAN KUMRA HAS NOT BEEN FILED BY HIS LEGAL HEIR. WE FIND, THE LD.C IT(A), IN HIS EX PARTE ORDER, UPHELD THE ACTION OF THE AO BY RELYING ON VARIOUS DECISIONS. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT INCURRING OF SUCH EXPENSES HAS NOT BEEN DOUBTED BY THE AO AND THE ASSESSEE IS MAINTAINING PROPER BOOKS OF ACCOUNT WHICH ARE DULY AUDITED. FURTHER, THE ASSESSEE HAS FILED THE COPY OF BOARD RESOLUTION, BANK STATEMENT AND BILLS OF SIR GANGARAM HOSPITEL RELATING TO THE ITA NO S . 5058 & 5059 /DEL/201 6 16 TREATMENT OF THE NON - EXECUTIVE DIRECTOR LATE SHRI RAMAN KUMRA, WHO WAS LOOKING AFTER THE SA LES OF THE COMPANY. IT IS ALSO HIS SUBMISSION THAT HE WAS THE KEY PERSON FOR ENHANCEMENT OF SALES OF THE ASSESSEE COMPANY AND, AFTER HIS DEATH, THE SALES HAS DRASTICALLY FALLEN DOWN AND, THEREFORE, HIS LIFE WAS VERY IMPORTANT TO THE ASSESSEE COMPANY FOR W HICH THE ASSESSEE COMPANY HAS INCURRED THE MEDICAL EXPENSES. WE FIND, THE LD.CIT(A), IN THE INSTANT CASE, HAS PASSED AN EX PARTE ORDER DUE TO NON - APPEARANCE OF THE ASSESSEE. A PERUSAL OF THE PAPER BOOK PAGE 50 SHOWS THAT THE ASSESSEE HAS FILED AN ADJOURN MENT APPLICATION BEFORE THE CIT(A) ON 24 TH AUGUST, 2016 SEEKING ADJOURNMENT OF THE CASE TO 2 ND SEPTEMBER, 2016. HOWEVER, THE SAME WAS REJECTED BY THE CIT(A) AND HE PASSED THE ORDER ON 26 TH AUGUST, 2016. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE A ND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE CIT(A) WITH A DIRECTION TO GRANT ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CASE AND DECIDE THE ISSUE AS PER FACT AND LAW. WE HOLD AND DIRECT ACCORDINGL Y. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 21 . IN THE RESULT, ITA NO.5058/DEL/2016 IS ALLOWED AND ITA NO.5059/DEL/2016 IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 27 .0 8 .2 0 20 . SD/ - SD/ - ( KULDIP SINGH ) ( R. K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH AUGUST, 20 20. ITA NO S . 5058 & 5059 /DEL/201 6 17 DK COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI S