FERANI HOTELS PRIVATE LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-4(1), MUMBAI

ITA 5061/MUM/2017

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5618 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 26-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bogus purchase; Business income; Depreciation
• Section: 271(1)(c); 234B; 115JB; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI . , BEFORE SHRI JOGINDER SINGH, VICE PRESIDENT, AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.5061/MUM/2017 ASSESSMENT YEAR: 2011-12 FERANI HOTELS PRIVATE LIMITED CONSTRUCTION HOUSE-B 2 ND FLOOR, 623, LINKING ROAD, KHAR (WEST) MUMBAI - 400052 / VS. D CIT CENTRAL CIRCLE-4(1) AAYKAR BHAVAN MUMBAI-400020 #$%& ' /ASSESSEE) ( ) / REVENUE) P.A. NO.AAACF0693B #$%& ' / ASSESSEE BY SHRI SANJAY SAWANT - AR ) / REVENUE BY SHRI RAJEEV GU BGOTRA - DR * )+ , ' - / DATE OF HEARING : 19/11/2018 , ' - / DATE OF PRONOUNCEMENT 19/11/2018 ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 2 / O R D E R PER JOGINDER SINGH (VICE PRESIDENT) THIS APPEAL IS BY THE ASSESSEE CONFIRMING THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE INCO ME TAX ACT, 1961 (HEREINAFTER THE ACT) AMOUNTING TO RS.30 ,591/-, BY THE LD. FIRST APPELLATE AUTHORITY. 2. DURING HEARING THE LD. COUNSEL FOR THE ASSESSEE SHRI. SANJAY SAWANT CONTENDED THAT IN THE CASE OF THE ASS ESSEE THE TRIBUNAL VIDE ORDER DATED 18/08/2017 (ITA NO.5218/MUM/2015 & 5219/MUM/2015) FOR A.Y. 2009-10 & 2010-11, HELD THAT NO PENALTY IS LEVIABLE UNDER SEC TION 271(1)(C) OF THE ACT. THE LD. DR THOUGH DEFENDED TH E IMPOSITION OF PENALTY BUT DID NOT CONTROVERT THAT T HE TRIBUNAL HAS ALREADY TAKEN A VIEW VIDE AFORESAID DATED 18/08 /2017. 2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE AB OVE ARGUMENTS WE ARE REPRODUCING HEREINUNDER THE AFORES AID ORDER OF THE TRIBUNAL DATED 18/08/2017 FOR READY RE FERENCE AND ANALYSIS ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 3 THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST ORDER OF LD. CIT-A DATED 28/08/2015 AND PERTAIN TO ASSESSMENT YE AR 2009-10 & 2010-11 SUSTAINING THE ADDITION U/S.271(1)(C) AS UN DER:- ASSESSMENT YEAR PENALTY (RS.) 2009-10 5,69,713/- 2010-11 8,78,882/- 2. SINCE FACTS ARE SIMILAR, THE APPEALS WERE HEARD TOGETHER, AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. THE ADDITIO N IN THIS CASE WAS ON ACCOUNT OF BOGUS PURCHASES FOR FIXED ASSETS. FURTHERMORE, SOME PART OF THE BOGUS PURCHASE WAS FOR THE PROJECT EXEMPT U/S. 80IB(10). AS A RESULT OF WHICH DESPITE MAKING THE A DDITION, THE AO HAS GRANTED RELIEF U/S.80IB(10). IN SUCH CIRCUMSTAN CES, THE NET EFFECT OF THE FINDING IN THE ASSESSMENT WAS THAT THERE WAS NO CHANGE IN THE TAX PAYABLE. THIS ASPECT WAS RAISED BY THE ASSESSEE BEFORE THE LEARNED CIT-A THAT SINCE THERE IS NO CHANGE IN THE AMOUNT OF TAX PAYABLE, NO PENALTY IS LEVIABLE U/S.271(1)(C), HOWE VER, THIS PLEA OF ASSESSEE WAS DISMISSED BY THE AUTHORITIES BELOW. ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 4 3. BEFORE US, LEARNED COUNSEL OF THE ASSESSEE HAS PRODUCED AN ORDER OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NALWA SONS INVESTMENT PVT. LTD., 327 ITR 543. SLP AGAINST THE SAID DECISION WAS DISMISSED BY THE HONBLE SUPREME COURT REPORTED IN 21 TAXMANN.COM 184. THE RATES EMANATING THE SAID DECIS ION IS THAT WHEN THERE IS NO CHANGE IN THE TAX PAYABLE AFTER TH E ASSESSMENT AND FINDING OF CONCEALMENT ETC., NO PENALTY U/S. 271(1) (C) IS LEVIABLE AS THE MACHINERY PROVISION FOR THE LEVY OF PENALTY U/S . 271(1)(C) FAILS IN AS MUCH AS THE SAID PENALTY IS LEVIABLE WITH REFERE NCE TO THE TAX SOUGHT TO BE EVADED. 4. IN THIS REGARD, WE MAY GAINFULLY REFER TO THE FO LLOWING DECISION OF THE HONBLE HIGH COURT. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. JUDGM ENT OF THE SUPREME COURT IN GOLD COIN'S (SUPRA) CLARIFIES THAT EVEN IF THERE ARE LOSSES IN A PARTICULAR YEAR, PENALTY CAN BE IMPOSED AS EVEN IN THAT SITUATION THERE CAN BE A TAX EVASIO N. AS PER SECTION 271 (1) (C), THE PENALTY CAN BE IMPOSED WHE N ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INCORRECT PARTICULARS OF THE INCOME. ONCE THIS CONDITION IS SATISFIED, QUANTUM OF PENALTY IS TO BE LEVIED AS PER ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 5 CLAUSE (3) OF SECTION 271 (1) ( C) WHICH STIPULATES THAT THE PENALTY SHALL NOT EXCEED THREE TIMES ' THE AMOUNT O F TAX SOUGHT TO BE EVADED'. THE EXPRESSION 'THE AMOUNT OF TAX SO UGHT TO BE EVADED' IS CLARIFIED AND EXPLAINED IN EXPLANATION 4 THERETO, AS PER WHICH IT HAS TO HAVE THE EFFECT OF REDUCING THE LOSS DECLARED IN THE RETURN OR CONVERTING THAT LOSS INTO INCOME. IT IS IN THIS CONTEXT THAT IN GOLD COINS (SUPRA) THE SUPR EME COURT EXPLAINED THE LEGAL POSITION AS UNDER:- DATED 24.7. 1976 REPORTED IN 1977 (110) ITR 21 (ST.) HAS ALSO SUBSTA NTIAL RELEVANCE. SAME READS AS FOLLOWS:- NEW EXPLANATION 4 DEFINED THE AMOUNT OF TAX SOUGHT TO BE EVADED . ACCORDING TO THE DEFINITION, THIS EXPRESSION WILL ORDINARILY MEAN TH E DIFFERENCE BETWEEN THE TAX ON THE TOTAL INCOME ASSESSED AND TH E TAX THAT WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BE EN REDUCED BY THE AMOUNT OF INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. IN A CASE, HOWEVER , WHERE ON SETTING OFF THE CONCEALED INCOME, AGAINST ANY LO SS INCURRED BY THE ASSESSEE UNDER OTHER HEAD OF INCOME OR BROUG HT FORWARD FROM EARLIER YEARS, THE TOTAL INCOME IS REDUCED TO A FIGURE LOWER THAN THE CONCEALED INCOME OR EVEN TO A MINUS FIGURE, THE TAX SOUGHT TO BE EVADED WILL MEAN THE TAX ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 6 CHARGEABLE ON THE CONCEALED INCOME AS IF IT WERE TH E TOTAL INCOME. ANOTHER EXCEPTION TO THE GENERAL DEFINITION OF THE EXPRESSION TAX SOUGHT TO BE EVADED GIVEN EARLIER IS A CASE TO WHICH EXPLANATION 3 APPLIES. HERE, THE TAX SOUGH T TO BE EVADED WILL BE THE TAX CHARGEABLE ON THE ENTIRE TOT AL INCOME ASSESSED. A COMBINED READING OF THE COMMITTEE S RECOMMENDATIONS AND THE CIRCULAR MAKES THE POSITION CLEAR THAT EXPLANATION 4 (A) TO SECTION 271 (1) (C) INTEN DED TO LEVY THE PENALTY NOT ONLY IN A CASE WHERE AFTER ADDITION OF CONCEALED INCOME, A LOSS RETURNED, AFTER ASSESSMENT BECOMES POSITIVE INCOME BUT ALSO IN A CASE WHERE ADDITION O F CONCEALED INCOME REDUCES THE RETURNED LOSS AND FINALLY THE AS SESSED INCOME IS ALSO A LOSS OR A MINUS FIGURE. THEREFORE, EVEN DURING THE PERIOD BETWEEN 1.4.1976 TO 1.4.2003 THE POSITION WAS THAT THE PENALTY WAS LEVIABLE EVEN IN A CASE WH ERE ADDITION OF CONCEALED INCOME REDUCES THE RETURNED L OSS. WHEN THE WORD 'INCOME' IS READ TO INCLUDE LOSSES AS HELD IN HARPRASAD S CASE (SUPRA) IT BECOMES CRYSTAL CLEAR THAT EVEN IN A CASE WHERE ON ACCOUNT OF ADDITION OF CONCEALED INCOME THE RETURNED LOSS STANDS REDUCED AND EVEN IF THE FI NAL ASSESSED INCOME IS A LOSS, STILL PENALTY WAS LEVIABLE THEREO N EVEN DURING ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 7 THE PERIOD 1.4.1976 TO 1.4.2003. EVEN IN THE CIRCUL AR DATED 24.7.1976, REFERRED TO ABOVE, THE POSITION WAS CLAR IFIED BY CENTRAL BUREAU OF DIRECT TAXES (IN SHORT CBDT ). IT IS STATED THAT IN A CASE WHERE ON SETTING OFF THE CONCEALED I NCOME AGAINST ANY LOSS INCURRED BY THE ASSESSEE UNDER ANY OTHER HEAD OF INCOME OR BROUGHT FORWARD FROM EARLIER YEAR S, THE TOTAL INCOME IS REDUCED TO A FIGURE LOWER THAN THE CONCEALED INCOME OR EVEN TO A MINUS FIGURE THE PENALTY WOULD BE IMPOSABLE BECAUSE IN SUCH A CASE 'THE TAX SOUGHT TO BE EVADED WILL BE TAX CHARGEABLE ON CONCEALED INCOME AS IF I T IS 'TOTAL INCOME'. 21. THE QUESTION, HOWEVER, IN THE PRESENT CASE, WOU LD BE, AS TO WHETHER FURNISHING OF SUCH WRONG PARTICULARS HAD AN Y THE EFFECT ON THE AMOUNT OF TAX SOUGHT TO BE EVADED. UN DER THE SCHEME OF THE ACT, THE TOTAL INCOME OF THE ASSESSEE IS FIRST COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARED WITH THE P RESCRIBED PERCENTAGE OF THE BOOK PROFITS COMPUTED UNDER SECTION 115JB OF THE ACT. THE HIGHER OF THE TWO AMOUNTS IS REGARDED AS TOTAL INCOME AND TAX IS PAYABLE WITH REFERENCE T O SUCH TOTAL ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 8 INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISI ONS IS HIGHER, SUCH AMOUNT IS THE TOTAL INCOME OF THE ASSE SSEE, OTHERWISE, BOOK PROFITS ARE DEEMED AS THE TOTAL INCOME OF THE APPELLANT IN TERMS OF SECTION 115JB OF THE ACT. 22. IN THE PRESENT CASE, THE INCOME COMPUTED AS PER THE NORMAL PROCEDURE WAS LESS THAN THE INCOME DETERMINE D BY LEGAL FICTION NAMELY BOOK PROFITS UNDER SECTION 115 JB OF THE ACT. ON THE BASIS OF NORMAL PROVISION, THE INCO ME WAS ASSESSED IN THE NEGATIVE I.E. AT A LOSS OF RS. 3695 21018. ON THE OTHER HAND, ASSESSMENT UNDER SECTION 115 JB OF THE ACT RESULTED IN CALCULATION OF PROFITS AT RS. 40163180. 23. IN VIEW THEREOF, IN CONCLUSION, THE ASSESSMENT ORDER RECORDS AS FOLLOWS:- 'ASSESSED AT RS. 40163180 U/S 115 JB, BEING HIGHER OF TWO. INTEREST U/S 234B AND 234C HAS BEEN CHARGED AS PER THE PROVISIONS OF INCOME TAX ACT, 19 61. PENALTY PROCEEDINGS U/S 271 (1) OF THE INCOME TAX ACT, 1961 HAVE BEEN INITIATED. ISSUE NECESSARY FORMS.' 24. THE INCOME OF THE ASSESSEE WAS THUS ASSESSED U NDER SECTION 115 JB AND NOT UNDER THE NORMAL PROVISIONS. IT IS IN ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 9 THIS CONTEXT THAT WE HAVE TO SEE AND EXAMINE THE AP PLICATION OF EXPLANATION 4. 25. JUDGMENT IN THE CASE OF GOLD COINS (SUPRA), OBV IOUSLY, DOES NOT DEAL WITH SUCH A SITUATION. WHAT IS HELD B Y THE SUPREME COURT IN THAT CASE IS THAT EVEN IF IN THE I NCOME TAX RETURN FILED BY THE ASSESSEE LOSSES ARE SHOWN, PENA LTY CAN STILL BE IMPOSED IN A CASE WHERE ON SETTING OFF THE CONCE ALED INCOME AGAINST ANY LOSS INCURRED BY THE ASSESSEE UN DER OTHER HEAD OF INCOME OR BROUGHT FORWARD FROM EARLIER YEAR S, THE TOTAL INCOME IS REDUCED TO A FIGURE LOWER THAN THE CONCEALED INCOME OR EVEN A MINUS FIGURE. THE COURT WAS OF THE OPINION THAT THE TAX SOUGHT TO BE EVADED WILL MEAN THE TAX CHARGEABLE NOT AS IF IT WERE THE TOTAL INCOME. ONCE , WE APPLY THIS RATIONALE TO EXPLANATION 4 GIVEN BY THE SUPREM E COURT, IN THE PRESENT CASE, IT WILL BE DIFFICULT TO SUSTAIN T HE PENALTY PROCEEDINGS. REASON IS SIMPLE. NO DOUBT, THERE WAS CONCEALMENT BUT THAT HAD ITS REPERCUSSIONS ONLY WHE N THE ASSESSMENT WAS DONE UNDER THE NORMAL PROCEDURE. THE ASSESSMENT AS PER THE NORMAL PROCEDURE WAS, HOWEVER , NOT ACTED UPON. ON THE CONTRARY, IT IS THE DEEMED INCOM E ASSESSED ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 10 UNDER SECTION 115 JB OF THE ACT WHICH HAS BECOME TH E BASIS OF ASSESSMENT AS IT WAS HIGHER OF THE TWO. TAX IS THUS PAID ON THE INCOME ASSESSED UNDER SECTION 115 JB OF THE ACT. HE NCE, WHEN THE COMPUTATION WAS MADE UNDER SECTION 115 JB OF THE ACT, THE AFORESAID CONCEALMENT HAD NO ROLE TO PLAY AND WAS TOTALLY IRRELEVANT. THEREFORE, THE CONCEALMENT DID NOT LEAD TO TAX EVASION AT ALL. 26. THE UPSHOT OF THE AFORESAID DISCUSSION WOULD BE TO SUSTAIN THE ORDER OF THE TRIBUNAL, THOUGH ON DIFFERENT GROU NDS. THEREFORE, WHILE WE DO NOT AGREE WITH THE REASONING AND APPROACH OF THE TRIBUNAL, FOR OUR REASONS DISCLOSED ABOVE, WE ARE OF THE OPINION THAT PENALTY COULD NOT HAVE BEEN IMPOSED EVEN IN RESPECT OF CLAIM OF DEPRECIATION MADE BY TH E ASSESSEE. THIS APPEAL IS ACCORDINGLY DISMISSED. 5. AS IN THE ABOVE CASE LAW, IN THE PRESENT CASE A LSO WE FIND THAT THE CONCEALMENT / INACCURATE PARTICULARS DID N OT LEAD TO ANY TAX EVASION IN THIS ASSESSMENT YEAR AS THERE IS NO CHANGE IN THE TAX PAYMENT PURSUANT TO THE ASSESSMENT ON TH IS ISSUE. HENCE WE HOLD THAT NO PENALTY IS LEVIABLE U/S. 271( 1)(C). HENCE, THESE APPEALS FILED BY THE ASSESSEE STAND AL LOWED. ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 11 6. IN THE RESULT, APPEALS BY THE ASSESSEE STAND ALLOWED. 2.2 WE FIND THAT ON IDENTICAL FACTS, THAT TOO IN TH E CASE OF THE ASSESSEE, THE TRIBUNAL CONSIDERING THE PROVISIONS OF THE ACT, VARIOUS JUDICIAL PRONOUNCEMENTS AND THEREAFTER DELETED THE PENALTY. WE FURTHER NOTE THAT HON'BLE DELHI HIGH COURT IN CIT VS NALWA SONS INVESTMENT LTD. (2010) 327 ITR 543 [DELHI], AGAINST WHICH SLP WAS FILED BY THE DEPARTMENT AND THE SAME WAS DISMISSED BY HON'BLE APEX COURT (2012) 21 TAXMANN.COM 184(SUPREME COURT) VIDE ORDER DATED 04/05/2012. THE SAID DECISION WAS FOLLOWED BY THE TRIBUNAL IN RUCHI STRIPS & ALLOYS LTD. V. DY. CIT [ITA NO.S 6940 & 6941 (MUM) AND ALSO IN BSEL INFRASTRUCTURE REALTY LTD. VS. ACIT [2012] 137 ITD 61 DATED 13/04/2012. IT IS FURTHER NOTED THAT THE ASSESSEE VIDE LETTER DATED 10/12/2013, FILED BEFORE THE LD. ASSESSING OFFICER, CATEGORICALLY DENIED OF ANY ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 12 ACCOMMODATING BILLS. THE PROJECT WAS UNDER SECTION 80-IB(10) AND THE SALE FROM THIS PROJECT WERE OFFERED TO TAX. THE LD. ASSESSING OFFICER MADE ADDITION/DISALLOWANCES UNDER NORMAL COMPUTATION OF THE ACT, WHEREAS INCOME WAS FINALLY COMPUTED ON THE BASIS OF BOOK PROFIT UNDER 115JB OF THE ACT. IT IS FURTHER NOTED THAT IN PARA 7.6 OF THE ASSESSMENT ORDER IT IS MENTION THAT THE ASSESSEE BOOKED BILLS FROM THE PARTIES AS MENTIONED IN TABLE 7.1 IN THE BOOKS OF THE DINDOSHI PROJECT OF THE ASSESSEE. THIS PROJECT WAS ELIGIBLE UNDER SECTION 80-IB(10) OF THE ACT AND SAL E FROM THIS PROJECT HAS BEEN OFFERED TO TAX IN THIS YEAR AND DEDUCTION UNDER SECTION 80-IB(10) WAS CLAIMED. THE BOGUS PURCHASES WERE ADDED TO THE BUSINESS INCOME OF THE ASSESSEE AND CLAIMED DEDUCTION 80-IB(10) WERE ALLOWED TO THE ASSESSEE. CONSIDERING THE TOTALITY OF FACTS AND THE DECISION FROM HON'BLE APEX COURT IN CIT VS RELIANCE PETROPRODUCTS [2010] 322 ITR 158 (SUPREME ITA NO.5061/MUM/2017 FERANI HOTELS PRIVATE LIMITED 13 COURT) AND THE EXPLANATION OF THE ASSESSEE WE DEEM IT APPROPRIATE TO DELETE THE PENALTY. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 19/11/2018. SD/- (G.MANJUNATHA) SD/- (JOGINDER SINGH) / ACCOUNTANT MEMBER / VICE PRESIDENT MUMBAI; 2 ! DATED : 19/11/2018 G{|TX{? P.S/. #. . , !'#$%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. 34 / THE APPELLANT 2. 564 / THE RESPONDENT. 3. 7! 7 8' , (3) / THE CIT, MUMBAI. 4. 7! 7 8' / CIT(A)- , MUMBAI 5. :);5#'#$7! 3-3$! 0 / DR, ITAT, MUMBAI 6. <%/ GUARD FILE. ! / BY ORDER, / (DY./ASSTT. REGISTRAR) / ITAT, MUMBAI