FERANI HOTELS P.LTD, MUMBAI V. ASST CIT CEN CIR 4(1), MUMBAI

ITA 5218/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0238 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 05-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Bogus purchase; Depreciation; Deemed to accrue or arise in india
• Section: 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 5218/MUM/2015 & 5219/MUM/2015 (ASSESSMENT YEAR: 2009 - 10 & 2010 - 11 ) M/S. FERANI HOTELS PVT. LTD., CONSTRUCTION HOUSE, B, 2 ND FLOOR 623, LINKING ROAD, KHAR (W) MUMBAI 400 052 PAN NO: AAACF0693B . APPELLANT V/S ASST. CIT CEN CIR 4(1) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI . RESPONDENT ASSESSEE BY : SHRI. SANJAY SAWANT REVENUE BY : MS. POOJA SWAROOP DATE OF HEARING 09.08.2017 DATE OF ORDER - 18 .08 .2017 O R D E R PER: SHAMIM YAHYA THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST ORDER OF LD. CIT - A DATED 28/08/2015 AND PERTA IN TO ASSESSMENT YEAR 2009 - 10 & 2010 - 11 SUSTAINING THE ADDITION U/S.271(1)(C) AS UNDER: - ASSESSMENT YEAR PENALTY (RS.) 2009 - 10 5,69,713/ - 2010 - 11 8,78,882/ - ITA NO.5218 & 5219/MUM/2015 M/S. FERANI HOTELS PVT. LTD., 2 2. SINCE FACTS ARE SIMILAR, THE APPEAL S WERE HEARD TOGETHER , AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. THE ADDITION 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 ADDITION, THE AO HAS GRANTED RELIEF U/S.80IB(1 0 ). IN SUCH CIRCUMSTANCES, 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 A MOUNT OF TAX PAYABLE, NO PENALTY IS LEVIABLE U/S.271(1)(C), HOWEVER, THIS PLEA OF ASSESSEE WAS DISMISSED BY THE AUTHORITIES BELOW. 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 RATE S EMANATING THE SAID DECISION IS THAT WHEN THERE IS NO CHANGE IN THE TAX PAYABLE AFTER THE ASSESSMENT AND FINDING OF CONCEALMENT ETC., NO PENALTY U/S. 271(1)(C) IS LEVIABLE AS THE MACHINERY P ROV ISION FOR THE LEVY OF PENALTY U/S. 271(1)(C) FAILS IN AS MUCH AS THE SAID PENALTY IS LEVIABLE WITH REFERENCE TO THE TAX SOUGHT TO BE EVADED. 4. IN THIS REGARD, WE MAY GAINFULLY REFER TO THE FOLLOWING DECISION OF THE HONBLE HIGH COURT. ITA NO.5218 & 5219/MUM/2015 M/S. FERANI HOTELS PVT. LTD., 3 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. JUDGMENT 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 EVASION. AS PER SECTION 271 (1) (C), THE PENALTY CAN BE IMPOSED WHEN ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISH ED INCORRECT PARTICULARS OF THE INCOME. ONCE THIS CONDITION IS SATISFIED, QUANTUM OF PENALTY IS TO BE LEVIED AS PER CLAUSE (3) OF SECTION 271 (1) ( C) WHICH STIPULATES THAT THE PENALTY SHALL NOT EXCEED TH REE TIMES ' THE AMOUNT OF TAX SOUGHT TO BE EVADED'. THE EXPRESSION 'THE AMOUNT OF TAX SOUGHT 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 SUPREME COURT EXPLAINED THE LEGAL POSITION AS UNDER: - DATED 24.7.1976 REPORTED IN 1977 (110) ITR 21 (ST.) HAS ALSO SUBSTANTIAL 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 THE DIFFERENCE BETWEEN THE TAX ON THE TOTAL INCOME ASSESSED AND THE TAX THAT WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED B Y 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 LOSS INCURRED BY THE ASSESSEE UNDER OTHER HEAD OF INCOME OR BROUGHT FORWARD FROM EARLIER YEARS, THE TOTA L 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 CHARGEABLE ON THE CONCEALED INCOME AS IF IT WERE THE 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 SOUGHT TO BE EVADED WILL BE THE TAX CHARGEABLE ON THE ENTIRE TOTAL INCOME ASSESSED. A COMBINED READING OF THE COMMITTEES RECOMMENDATIONS AND THE CI RCULAR MAKES THE POSITION CLEAR THAT EXPLANATION 4 (A) TO SECTION 271 (1) (C) INTENDED TO LEVY THE PENALTY NOT ONLY IN A CASE WHERE AFTER ADDITION OF CONCEALED INCOME, A LOSS RETURNED, AFTER ASSESSMENT BE COMES POSITIVE INCOME BUT ALSO IN A CASE WHERE ADDITION OF CONCEALED INCOME REDUCES THE RETURNED LOSS AND FINALLY THE ASSESSED 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 WHERE ADDITION OF CONCEALED INCOME REDUCES THE RETURNED LOSS. WHEN THE WORD 'INCOME' IS READ TO INCLUDE LOSSES AS HELD IN HARPRASADS CASE (SUPRA) IT BECOMES CRYSTAL CLEAR THAT EVEN IN A CASE WHERE ON ACCOUNT OF ADDITIO N OF CONCEALED INCOME THE RETURNED LOSS STANDS REDUCED AND EVEN IF THE FINAL ASSESSED INCOME IS A LOSS, STILL PENALTY WAS LEVIABLE THEREON EVEN DURING THE PERIOD 1.4.1976 TO 1.4.2003. EVEN IN THE CIRCULAR DATED 24.7.1976, REFERRED TO ABOVE, THE POSITION WA S CLARIFIED BY CENTRAL BUREAU OF DIRECT TAXES (IN SHORT ITA NO.5218 & 5219/MUM/2015 M/S. FERANI HOTELS PVT. LTD., 4 CBDT). IT IS STATED THAT IN A CASE WHERE ON SETTING OFF THE CONCEALED INCOME AGAINST ANY LOSS INCURRED BY THE ASSESSEE UNDER ANY OTHER HEAD OF INCOME OR BROUGHT FORWARD FROM EARLIER YEARS, 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 IT IS 'TOTAL INCOME'. 21. THE QUES TION, HOWEVER, IN THE PRESENT CASE, WOULD BE, AS TO WHETHER FURNISHING OF SUCH WRONG PARTICULARS HAD ANY THE EFFECT ON THE AMOUNT OF TAX SOUGHT TO BE EVADED. UNDER THE SCHEME OF THE ACT, THE TOTAL INCOME OF THE ASSESSEE IS FIRST COMPUTED UNDER THE NORMAL P ROVISIONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARED WITH THE PRESCRIBED PERCENTAGE OF THE BOOK PROFITS COMPUTED UNDER SECTION 115JB OF THE ACT. THE HIGHER OF THE TWO AMOUNTS IS REGARDE D AS TOTAL INCOME AND TAX IS PAYABLE WITH REFERENCE TO SUCH TOTAL INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER, SUCH AMOUNT IS THE TOTAL INCOME OF THE ASSESSEE, OTHERWISE, BOOK PROFITS ARE DEEMED AS THE TOTAL INCOME OF THE APPELLANT I N 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 DETERMINED BY LEGAL FICTION NAMELY BOOK PROFITS UNDER SECTION 115 J B OF THE ACT. ON THE BASIS OF NORMAL PROVISION, THE INCOME WAS ASSESSED IN THE NEGATIVE I.E. AT A LOSS OF RS. 369521018. 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 , 1961 . 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 UNDER SECTION 115 JB AND NOT UNDER THE NORMAL P ROVISIONS. IT IS IN THIS CONTEXT THAT WE HAVE TO SEE AND EXAMINE THE APPLICATION OF EXPLANATION 4. 25. JUDGMENT IN THE CASE OF GOLD COINS (SUPRA), OBVIOUSLY, DOES NOT DEAL WITH SUCH A SITUATION. WHAT IS HELD BY THE SUPREME COURT IN THAT CASE IS THAT EVEN I F IN THE INCOME TAX RETURN FILED BY THE ASSESSEE LOSSES ARE SHOWN, PENALTY CAN STILL BE IMPOSED IN A CASE WHERE ON SETTING OFF THE CONCEALED INCOME AGAINST ANY LOSS INCURRED BY THE ASSESSEE UNDER OTHER HEAD OF INCOME OR BROUGHT FORWARD FROM EARLIER YEARS, 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 ITA NO.5218 & 5219/MUM/2015 M/S. FERANI HOTELS PVT. LTD., 5 TOTAL INCOME. ONCE, WE APPLY THIS RATIONALE T O EXPLANATION 4 GIVEN BY THE SUPREME COURT, IN THE PRESENT CASE, IT WILL BE DIFFICULT TO SUSTAIN THE PENALTY PROCEEDINGS. REASON IS SIMPLE. NO DOUBT, THERE WAS CONCEALMENT BUT THAT HAD ITS REPERCUSSIONS ONLY WHEN THE ASSESSMENT WAS DONE UNDER THE NORMAL PR OCEDURE. THE ASSESSMENT AS PER THE NORMAL PROCEDURE WAS, HOWEVER, NOT ACTED UPON. ON THE CONTRARY, IT IS THE DEEMED INCOME ASSESSED UNDER SECTION 115 JB OF THE ACT WHICH HAS BECOME THE BASIS OF ASSESSMENT AS IT WAS HIGHER OF THE TWO. TAX IS THUS PAID ON TH E INCOME ASSESSED UNDER SECTION 115 JB OF THE ACT. HENCE, 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 GROUNDS. THEREFORE, WHILE WE DO NOT AGREE WITH THE REASONING AND APPROACH OF THE TRIBUNAL, FOR OUR REASONS DISCLOSED ABOVE, WE ARE OF THE OPINIO N THAT PENALTY COULD NOT HAVE BEEN IMPOSED EVEN IN RESPECT OF CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. THIS APPEAL IS ACCORDINGLY DISMISSED. 5. AS IN THE ABOVE CASE LAW, IN THE PRESENT CASE ALSO WE FIND THAT THE CONCEALMENT / INACCURATE PARTICULARS DID NOT LEAD TO ANY TAX EVASION IN THIS ASSESSMENT YEAR AS THERE IS NO C HANGE IN THE TAX PAYMENT PURSUANT TO THE ASSESSMENT ON THIS ISSUE. HENCE WE HOL D THAT NO PENALTY IS LEVIABLE U/S. 271(1)(C). HENCE, THESE APPEALS FILED BY THE ASSESSEE STAND ALLOWED. 6. IN THE RESULT, APPEALS BY THE ASSESSEE STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 8 .0 8 .2017 S D / - S D / - SANDEEP GOSAIN SHAMIM YA HYA JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 1 8 .08 .2017 ITA NO.5218 & 5219/MUM/2015 M/S. FERANI HOTELS PVT. LTD., 6 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE. BY ORDER KARUNA SR. PRIVATE SECRETARY (DY./ASSTT.REGISTRAR) ITAT, MUMBAI