M/s Landmark Landholdings Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 5277/DEL/2013

• Counselvise Citation: 527720114 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 20-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B R R KUMAR
• Assessee Lawyers: R M MEHTA
• Keywords: Commercial expediency; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SH. R.S. SYAL, A.M. & SH. H.S. SIDHU, J.M. ITA NO. 5277/DEL /2013 ASSESSMENT YEAR: 2007 - 08 LANDMARK LANDHOLDINGS PVT. VS. ACIT, CIRCLE 4(1), LTD., 11 TH FLOOR, NARAIN MANZIL , CIRCLE 4(1), NEW DELHI 23, BARAKHAMBA ROAD, NEW DELHI (PAN: AAACL9256A ) (APPELLANT) (RESPONDENT) APPELLANT BY : SH. R.M. MEHTA, CA RESPONDENT BY : SH. B.R.R. KUMAR, SR. DR DATE OF HEARING: 19.03.2015 DATE OF PRONOUNCEMENT: 20 . 03.2015 ORDER PER R.S. SYAL, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 24.07.2013 AFFIRMING THE PENALTY OF RS. 1,68,300/ - IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER ALSO REFERRED TO AS THE ACT ) IN RELATION TO THE AS SESSMENT YEAR 2007 - 08 . 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROMOTION AND DEVELOPMENT OF RESIDENTIAL COLONIES, FLATS ETC. A SUM OF RS. 5 LACS AND ODD WAS PAID TO THE SECURITIES AND EXCHANGE BOARD OF INDI A (SEBI) AS FILING FEES FOR REGISTRATION OF LANDMARK REAL ESTATE FUND 1 AS A V ENTURE CAPITAL FUND. THIS FUND WAS CREATED FOR THE PURPOSE OF INVIT ING 2 ITA NO. 5277/DEL /2013 AY : 2007 - 08 CONTRIBUTIONS AND MAKING INVESTMENTS IN VENTURE CAPITAL UNDERTAKINGS AS MAY BE PERMITTED IN INDIA. ON BEI NG CALLED UPON TO PROVE THE DEDUCTIBILITY OF THIS SUM, THE ASSESSEE EXPLAINED THAT THE SAID EXPENDITURE WAS INCURRED OUT OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE EXPLAINED THAT IT WAS APPOINTED AS INVESTMENT MANAGER OF IL & FS TRU STEE INDIA LTD. AND IN ORDER TO CARRY ON THIS BUSINESS THE ABOVE SAID FILING FEE WAS PAID. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION TENDERED ON BEHALF OF THE ASSESSEE AND TREATED THE AMOUNT AS CAPITAL EXPENDITURE. THIS RE SULTED INTO DISALLOWANCE OF RS. 5,00,228/ - , FOR WHICH THE PRESENT PENALTY WAS IMPOSED AND UPHELD IN THE FIRST APPEAL. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS SEEN FROM THE TRIBUNAL ORDER , PASSED IN QUANTUM PROCEEDIN G OF THE ASSESSEE, A COPY OF WHICH IS AVAILABLE ON PAGE 71 ONWARDS OF THE PAPER BOOK, THAT THE ADDITION SO MADE BY THE ASSESSING OFFICER HAS BEEN UPHELD. THERE IS SOME FURTHER ELABORATION OF THE FACTS IN THE TRIBUNAL ORDER FROM WHICH IT TRANSPIRES THAT AS PER CLAUSE 5.2.1 OF THE A GREEMENT BETWEE N IL & FS TRUSTEE COMPANY LTD. AND THE ASSESSEE AS ITS INVESTMENT MANAGER, ANY AMOUNT SPENT BY THE ASSESSEE WAS TO BE REIMBURSED. THE TRIBUNAL HELD THAT SINCE THE ASSESSEE COULD NOT ESTABLISH THE CONNECTION OF SAID D EPOSIT OF FEE WITH ITS BUSINESS, THE SAID EXPENDITURE WAS NOT ALLOWABLE. 4. BEFORE PROCEEDING WITH THE MERITS OF THE SUSTENANCE OR OTHERWISE OF THE PRESENT PENALTY, WE WANT TO MAKE IT CLEAR THAT THE MERE FACT THAT THE ADDITION HAS 3 ITA NO. 5277/DEL /2013 AY : 2007 - 08 BEEN CONFIRMED BY THE T RIBUNAL IN QUANTUM PROCEEDING S , CANNOT AUTOMATICALLY LEAD TO THE IMPOSITION OR CONFIRMATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. BOTH THE PROCEEDINGS, NAMELY, ASSESSMENT AND PENALTY ARE SEPARATE AND DISTINCT FROM EACH OTHER. NOTWITHSTANDING THE F ACT THAT THE ADDITION MAY HAVE BEEN CONFIRMED IN THE QUANTUM PROCEEDINGS, THE ASSESSEE HAS FULL RIGHT TO MAKE OUT A CASE IN PENALTY PROCEEDING THAT THE PENALTY BE NOT LEVIED FOR ONE REASON OR THE OTHER WITHIN THE FRAMEWORK OF LAW. 5. ADVERTING TO THE FACTS OF INSTANT CASE, WE FIND THAT THE ASSESSEE WAS APPOINTED AS INVESTMENT MANAGER OF IL & FS TRUSTEE COMPANY LTD. TO CARRY ON THE BUSINESS AS A VENTURE CAPITAL FUND. IN FURTHERANCE OF THE INTENTION TO CARRY ON SUCH BUSINESS, THE AS SESSE E PAID A SUM OF RS. 5 LAC AND ODD AS FILING FEE TO SEBI FOR REGISTRATION OF LANDMARK REAL ESTATE FUND 1 AS A VENTURE CAPITAL FUND. UNDISPUTEDLY, THE SAID SUM OF RS. 5 LAC WAS PAID BY THE ASSESSEE OUT OF HIS OWN FUNDS. THE ARRANGEMENT TO CARRY ON BUSINESS AS INVESTMENT MANAGER OF IL & FS TRUSTEE COMPANY LTD. DID NOT FRUCTIFY AND HENCE THE ASSESSEE COULD NOT RECOVER THIS AMOUNT FROM THE SAID PARTY. IN VIEW OF THE FACT THAT THIS AMOUNT OF FILING FEE WAS PAID FOR STARTING A BUSINESS AS VENTURE CAPITAL FUND, I T CANNOT BE CONCLUSIVELY HELD THAT NO PERSON PROPERLY INSTRUCTED IN LAW WOULD CLAIM DEDUCTION FOR THE SAME . AT THE MOST, WE CAN CALL IT AS A DEBATABLE ISSUE . WHENEVER A DEDUCTION IS C LAIMED ON A DEBATABLE ISSUE AFTER DISCLOSING ALL THE NECESSARY FACTS AND THE CLAIM OF THE ASSESSEE IS JETTISONED, NO PENALTY CAN BE AUTOMATICALLY LEVIED UNLESS 4 ITA NO. 5277/DEL /2013 AY : 2007 - 08 IT IS SHOWN TO BE A CASE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME . OUR VIEW FORTIFIED BY THE JUDGMENT OF THE HON BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. HARSHWARDHAN CHEMICALS AND MINERALS LTD., (2003) 259 ITR 212 . SIMILAR VIEW HAS BEEN REITERATED BY SEVERAL COURTS INCLUDING THE HON BLE CALCUTTA HIGH COURT IN DURGA KAMAL RICE MILLS VS. CIT, (2004) 265 ITR 25 (CAL.) . 6. WE ARE CONFRONTED WITH A SITUATION IN WHICH THE ASSESSEE LOST A CLAIM FOR A GENUINE DEDUCTION AFTER MAKING A PROPER DISCLOSURE . IT CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE WAS EX FACIE INADMISSIBLE AS PER LAW. IN VIEW OF THE FACT THAT THE ASSESSEE CLA IMED DEDUCTION ON A DEBATABLE POINT, WHICH ALBEIT CAME TO BE REJECTED, CANNOT PER SE CALL FOR IMPOSITION OF ANY PENALTY. R ESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS, WE HOLD THAT NO PENALTY IS LEVIABLE. THE IMPUGNED ORDER IS SET ASIDE AND THE PENALTY IS DI RECTED TO BE DELETED. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 0 T H MARCH, 2015. S D / - S D / - ( H.S. SIDHU ) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 0 T H MARCH, 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI