M/S CHAMBAL FERTILIZERS & CHEMICALS LTD., Kota V. ACIT, Kota

ITA 528/JPR/2012

• Counselvise Citation: 52823114 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 31-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH
• Assessee Lawyers: M L PATODI; RITU G P DAS
• Keywords: Opportunity of being heard; Initiation of penalty proceedings; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 528/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2004-05 M/S CHAMBAL FERTILISERS & CHEMICALS LIMITED, GADEPAN, DISTRICT- KOTA. CUKE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA (RAJ.) LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AAACC 9762 A VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 557/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2004-05 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA. CUKE VS. M/S CHAMBAL FERTILISERS & CHEMICALS LIMITED, GADEPAN, DISTRICT- KOTA. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AAACC 9762 A VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SMT. RITU G.P. DAS (CA) & SHRI M.L. PATODI (ADV) JKTLO DH VKSJ LS @ REVENUE BY : MRS. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 11/06/2015 MN?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 11/08/2015 ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 2 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND AN OTHER BY THE REVENUE ARISE AGAINST THE ORDER DATED 30/03/201 2 PASSED BY THE LEARNED C.I.T.(A), KOTA FOR THE A.Y. 2004-05. THE GRO UNDS OF ASSESSEES AS WELL AS REVENUES ARE AS UNDER:- GROUND OF ITA NO. 528/JP/2012 1 THAT THE LD. ASST. COMMISSIONER OF INCOME TAX, CIR CLE-2, KOTA ERRED IN IMPOSING THE PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT AND THE LD CIT(A) KOTA FURTHER ERRED I N PARTIALLY MAINTAINING THE PENALTY OF RS. 67,46,313/ - UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. HENCE THE PENALTY OF RS. 67,46,313 IMPOSED U/S 271(1)(C) OF T HE INCOME TAX ACT SHOULD BE DELETED. GROUND OF ITA NO. 557/JP/2012 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT(A), KOTA HAS ERRED IN:- I) REDUCING PENALTY FROM RS. 88,08,614/- IMPOSED U/ S 271(1)(C) OF THE ACT TO RS. 67,46,313/- ON THE BASI S OF HONBLE ITAT, JAIPUR BENCHS ORDER IN QUANTUM APPEAL WHICH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. 2. THE SOLE GROUND OF THE ASSESSEES APPEAL IS AGAIN ST PARTLY CONFIRMING THE PENALTY AND REVENUES GROUND IS AGAI NST PARTLY DELETION ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 3 OF PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT). THE LD ASSESSING OFFICER OBSER VED THAT THE RETURN FOR A.Y. 2004-05 WAS FILED BY THE ASSESSEE COMPANY O N 29/10/2004 DECLARING TOTAL INCOME OF RS. 125.91 CRORES. THE CAS E WAS SCRUTINIZED U/S 143(3) OF THE ACT AND INCOME WAS ASSESSED AT RS. 165.65 CRORES AS AGAINST THE RETURNED INCOME OF RS. 125.91 CRORES. W HILE PURPOSE OF MAT U/S 115JB OF THE ACT, THE INCOME WAS ASSESSED AT RS. 189.18 CRORES. THE LD ASSESSING OFFICER INITIATED PENALTY P ROCEEDINGS U/S 271(1)(C) OF THE ACT FOR CONCEALING AND FURNISHING INACCURATE PARTICULARS OF INCOME. BEFORE IMPOSING THE PENALTY, THE ASSESSEE WAS AGAIN GIVEN REASONABLE OPPORTUNITY OF BEING HEARD. THE LD ASSESSING OFFICER OBSERVED THAT TWO ADDITIONS WERE CONFIRMED BY THE LD CIT(A) FIRSTLY THERE WAS A PROVISION FOR DEFERRED TAXATION OF RS. 19.25 CRORES, WHICH WAS ADJUSTED AS PER EXPLANATION TO SUB-SECTION (2) OF SECTION 115JB OF THE ACT. THEREFORE, ADJUSTMENTS WERE MADE U /S 115JB OF THE ACT, WHICH WAS CONFIRMED BY THE LD CIT(A). THE SECOND ADDITION WAS ON ACCOUNT OF NEW PROJECT EXPENSES INCURRED AT RS. 2 .46 CRORES. THE EXPENSES WERE ESSENTIALLY CAPITAL IN NATURE, WHICH WAS BEING CLAIMED AS REVENUE EXPENDITURE. ACCORDINGLY, THE LD ASSESSI NG OFFICER MADE ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 4 ADDITION IN THE INCOME OF THE ASSESSEE. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD CIT(A), WHICH HAS BEEN CONFIRMED BY HI M BY OBSERVING THAT THE ASSESSEES CLAIM AS CAPITAL EXPENDITURE AN D SUBSEQUENTLY ABANDONED THAT PROJECT (CEMENT PROJECT) DOES NOT ON THAT SCORE CONVERT WHAT WAS AN EXPENDITURE IN THE NATURE OF CAP ITAL EXPENDITURE INTO A REVENUE EXPENDITURE. THE SETTING UP OF NEW PRO JECT WAS CLEARLY IN THE CAPITAL EXPENSES AND NOT REVENUE EXPENSES. TH E APPELLANT IS ENGAGED IN THE MANUFACTURING OF FERTILIZERS AND WANT ED TO ADD A NEW PROJECT CEMENT AND FOR THAT PURPOSE, THE APPELLAN T HAD INCURRED CAPITAL EXPENDITURE, WHICH CANNOT BE ALLOWED IN THE F ACTS AND CIRCUMSTANCES AS REVENUE EXPENDITURE. THE ASSESSEE S SUBMISSION HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AND OBSERV ED AS UNDER:- * ARS REQUEST FOR KEEPING THE PENALTY PROCEEDINGS IN ABEYANCE TILL THE ORDER OF THE ITAT CANNOT BE ACCEDED TO IN VIEW OF THE PRESENTLY EFFECTIVE PROVISIONS OF SECTION 275 OF TH E IT ACT, 1961. * ARS LONG DISCUSSION ON THE MERITS OF THE ADDITI ONS IS NOT RELEVANT HERE AS, AFTER DUE CONSIDERATION, THE RELEVANT ADDI TIONS HAVE BEEN CONFIRMED BY LD. CIT(A) WHO HAS ALSO MADE STRONG OBSERVATIONS WHILE DECIDING THE ISSUES AGAINST THE A SSESSEE. ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 5 * ARS OBJECTION REGARDING NON-RECORDING OF SATISF ACTION NOTE BY A.O. IS NOT TRUE. IT IS TO BE APPRECIATED THAT, AFT ER EACH OF THE RELEVANT ADDITIONS, A.O. HAS SPECIFICALLY MENTIONED ABOUT THE INITIATION OF PENALTY PROCEEDINGS [REFERENCE: PARAS 2.00 & 9.00 OF THE ASSESSMENT ORDER]. * VIDE HIS DETAILED OBSERVATIONS IN HIS ASSESSMENT ORDER, THE A.O. HAS PROVEN BEYOND DOUBT THAT THE ASSESSEE HAS FURNI SHED INACCURATE PARTICULARS OF INCOME. EVEN THE TONE AND TENOR OF THE ABOVE MENTIONED OBSERVATIONS OF LD. CIT(A) CLEARLY SUGGEST THAT THERE HAS BEEN A VOLATILE APPLICATION OF THE LEGAL PROVISION BY THE ASSESSEE COMPANY FOR THE PURPOSE OF REDUCING THE IN CIDENCE OF TAX. IT IS FURTHER HELD THAT ON THE BASIS OF ABOVE FINDI NG, IT IS A FIT CASE OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. ACCORDING LY, HE IMPOSED 100% PENALTY AT RS. 88,08,614/- OF TAX SOUGHT TO BE EVADED. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WH O HAD ALLOWED THE APPEAL PARTLY BY CONSIDERING THE QUANTUM ADDITION O F HONBLE ITAT IN ASSESSEES OWN CASE, WHICH HAS BEEN REPRODUCED ON PA GES 8 AND 9 OF THE PENALTY APPEAL ORDER AND OBSERVED THAT THE HON BLE ITAT CLEARLY HELD THAT EXPENSES OF RS. 43,16,021/- ONLY WERE REVE NUE IN NATURE AND ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 6 DIRECTED THE ASSESSING OFFICER TO ALLOW THE CAPITAL EXPENSES OF RS. 1,73,53,860/- IN A.Y. 2009-10 ONLY IF THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT CAPITAL EXPENSES OF RS. 1,73,53,860 /- INCLUDED IN THE COST OF MINING RIGHT I.E. INTANGIBLE ASSETS THEN SU CH COST MAY BE CONSIDERED TO BE DEDUCTED AGAINST THE SALE OF MININ G RIGHTS IN A.Y. 2009-10. THE LD CIT(A) HELD THAT RS. 1,73,53,860/- WE RE CLAIMED CAPITAL EXPENDITURE WAS REALLY REVENUE EXPENDITURE. THUS, THE ASSESSEE TRIED TO EVADE PAYMENT OF TAXES ON THE SAM E. THE ASSESSEE STATED THAT THE ASSESSING OFFICER HAD INITIATED PEN ALTY PROCEEDINGS WITHOUT RECORDING SATISFACTION, HOWEVER, AFTER THE IN SERTION OF SUB- SECTION (1B) TO SECTION 271 THERE IS NO NEED TO REC ORD SATISFACTION BEFORE ISSUE OF NOTICE U/S 271(1)(C) MERELY ISSUE O F DIRECTION TO ISSUE PENALTY NOTICE IS SUFFICIENT. HE FURTHER CONSIDERED THE CASE LAWS RELIED UPON BY THE ASSESSEE. HOWEVER, IN ALL THESE CASES, I T WAS DECIDED THAT LEVY OF PENALTY DEPEND ON FACTS OF EACH CASE AND ME RELY DISALLOWANCE OF EXPENDITURE CLAIMED CANNOT LEAD TO THE BELIEF TH AT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS. IN THE APPELLANT S CASE, THE ASSESSEE HAD CLAIMED EXPENSES, WHICH WAS NOT RELATED TO ITS BU SINESS BUT WERE RELATED TO NEW PROJECT. THESE EXPENSES WERE ALSO CAPIT AL IN NATURE BUT ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 7 CLAIMED AS REVENUE. THEREFORE, HE CONFIRMED PENALTY U/S 271(1)(C) OF THE ACT AT RS. 67,46,313/- AND DELETED THE PENALTY OF RS. 20,62,301/-. 4. NOW BOTH ARE IN APPEALS BEFORE US. THE LD AR OF TH E ASSESSEE REITERATED THE ARGUMENTS MADE BEFORE THE LD ASSESSI NG OFFICER AS WELL AS LD. CIT(A) AND ARGUED THAT THE DIFFERENCE BETWEEN THE RETURNED INCOME AND ASSESSED INCOME WAS ON ACCOUNT OF ADDITIO NS MADE U/S 115JB OF THE ACT AT RS. 19.25 CRORES AND ADDITION O N ACCOUNT OF NEW PROJECT EXPENSES AT RS. 2.46 CRORES. HE FURTHER ARG UED THAT THERE IS NO DEFINITION PROVIDED IN THE ACT FOR CAPITAL EXPENDIT URE. WHERE A BUSINESS MAN DECIDES NOT TO ACQUIRE AN ASSET THOUGH SOME EXP ENDITURE WAS INCURRED ON IT INITIALLY, IT CANNOT BE SAID THAT SU CH INITIAL EXPENDITURE, WHICH HAS NOW PROVED TO BE INFRUCTUOUS, HAS RESULTED IN THE CREATION OF AN ASSET OR BROUGHT AN ENDURING BENEFIT TO THE ASSE SSEE. THUS SUCH EXPENDITURE CANNOT BE CLASSIFIED AS A CAPITAL EXPEN DITURE. FOR ALLOWABILITY OF EXPENDITURE IN RELATION TO EXPANSION OR EXTENSION OF A NEW BUSINESS IN THE INTER-CONNECTION, INTER-LACING A ND INTER- DEPENDENCE FROM THE POINT OF VIEW OF FINANCE MANAG EMENT AND CONTROL. SO LONG AS THERE IS UNITY OF CONTROL, MANA GEMENT AND FINANCE THE TWO BUSINESSES WOULD BE TREATED AS PART OF THE SA ME BUSINESS AND ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 8 ANY EXPENDITURE INCURRED WILL HAVE TO BE ALLOWED AS A REVENUE EXPENSE UNLESS SPECIFICALLY CAPITAL IN NATURE. HE RELIED ON THE FOLLOWING CASE LAWS:- (I) CIT VS. RELIANCE PETROPRODUCTS (P) LTD. (2010) 322 ITR 158 (SC). (II) S.A. BUILDERS LTD. VS. CIT(A) (2007) 288 ITR 1 (SC). (III) INDIA CEMENT LTD. VS. CIT 60 ITR 52 (SC). THEREFORE, HE PRAYED TO DELETE THE PENALTY CONFIRMED BY THE LD. CIT(A). 5. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE ASSESSING OFFICER AND ARGUED THAT FULL PENALTY OF RS. 88,08,614/- MAY PLEASE BE CONFIRMED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE AS SESSEE CLAIMED REVENUE EXPENDITURE WHICH WERE CLAIMED AS CAPITAL EXP ENDITURE IN THE BOOKS OF ACCOUNT UNDER THE HEAD NEW PROJECT EXPENSES IN RELATION TO CEMENT PROJECT, WHICH DID NOT ULTIMATELY MATERILISE AND SAME HAD BEEN DEBITED IN THE ACCOUNT FOR THE YEAR UNDER CONSIDERA TION. THE ASSESSEE FILED EXPLANATION ON EXPENSES CLAIMED THAT THE ASSE SSEE HAS NOT CONCEALED ANY PARTICULARS OF INCOME. THERE WAS A MERE DISALLOWANCE OF ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 9 EXPENSES BY CONSIDERING THE NATURE OF CAPITAL AND R EVENUE BUT EXPLANATION OF THE ASSESSEE WAS NOT FOUND SATISFACTO RY TO THE ASSESSING OFFICER AND CIT(A). THE ITAT HAD CONFIRMED THE ADDITI ON IN QUANTUM PROCEEDING AT RS. 1,73,53,860/- AND CONCLUDED THAT THESE EXPENSES ARE CAPITAL IN NATURE. THE EXPENSES CLAIMED BY THE ASSE SSEE WERE NOT RELATED TO ITS BUSINESS BUT WERE RELATED TO NEW PROJE CT. THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME BY CLAIMING THE CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. WHERE THE EXPEN DITURE IS PRIMA FACIE INADMISSIBLE IN LAW AND CLAIMED BY THE ASSESSE E BONAFIDE BELIEVE THAT IT IS DEDUCTIBLE CANNOT BE ACCEPTED WITHOUT ANY EVIDENCE IN SUPPORT. SINCE THE LAW THAT IT IS INADMISSIBLE IS WEL L ESTABLISHED. THE PENALTY U/S 271(1)(C) IS LIABLE TO BE IMPOSED AS HE LD BY THE COORDINATE BENCH OF DELHI ITAT IN THE CASE OF CHADDA SUGAR P. LTD. VS. ACIT (2012) 17 ITR (TRIB) 316. SIMILAR VIEW HAS ALSO HELD B Y THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNI CATION PVT. LTD. (2010) 327 ITR 510. THE ASSESSEE OFFERED THE EXPLANA TION BUT WAS NOT BONAFIDE AND FOUND FALSE. WE HAVE CONSIDERED VIEW TH AT THE APPELLANT HAD FURNISHED INACCURATE PARTICULARS OF INCOME AND CONCEALED THE INCOME. THE CASE LAW RELIED BY THE ASSESSEE ARE ON ME NS REA OR ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 10 INTENTION TO CONCEAL THE PARTICULARS OF INCOME IS T O BE PROVED BY THE REVENUE. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF MAK DATA P LTD. VS. CIT (2013) 358 ITR 593 (SC) THAT EXPLANATI ON-1 TO SECTION 271(1)(C) OF THE ACT RAISES A PRESUMPTION OF CONCEA LMENT WHEN A DIFFERENCE IS NOTICED BY THE ASSESSING OFFICER BETWE EN THE REPORTED AND ASSESSED INCOME. THE BURDEN IS THEN ON THE ASSESSEE TO SHOW OTHERWISE BY COGENT AND RELIABLE EVIDENCE. WHEN THE INITIAL ONUS PLACED BY THE EXPLANATION HAS BEEN DISCHARGED BY HI M, THE ONUS SHIFTED TO THE DEPARTMENT TO SHOW THAT THE AMOUNT I N QUESTION CONSTITUTED INCOME AND NOT OTHERWISE. IN CASE BEFORE US, THE ASSESSEE HAS NO INTENTION TO DECLARE ITS TRUE INCOME. IT IS FURTHER HELD THAT SATISFACTION OF THE ASSESSING OFFICER NEED NOT TO B E RECORDED IN A PARTICULAR MANNER. SAME VIEW ALSO EXPRESSED BY THE H ONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SHYAMRAJ S INGH (2014) 367 ITR 74 (P&H). THE SATISFACTION FOR INITIATION OF PENA LTY IS COUPLED WITH THE FINDINGS OF THE ASSESSMENT ORDER WOULD SHOW THAT SATISFACTION EXISTED IN THE COURSE OF ASSESSMENT ITSELF AND DEEM ED TO CONSTITUTE SATISFACTION. THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TESTILE PROCESSORS 306 ITR 277 HAS HEL D THAT WILLFUL ITA 528 & 557/JP/2012_ CHAMBEL FERTILIZERS VS. ACIT 11 CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTR ACTING CIVIL LIABILITY. THE ASSESSEE INTENTIONALLY CLAIMED THE CAPITAL EXPEN DITURE AS REVENUE EXPENDITURE ON NEW PROJECT (I.E. CEMENT), WHICH WAS SE PARATE ACTIVITY OF THE ASSESSEE COMPANY FROM THE EXISTING BUSINESS I.E. PRODUCTION OF FERTILIZERS. THEREFORE, WE UPHOLD THE ORDER OF THE LD CIT(A). 7. IN THE RESULT ASSESSEES AS WELL AS REVENUES APP EALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/08/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 11 TH AUGUST, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S CHAMBEL FERTILIZERS, KOTA. 2. IZR;FKHZ @ THE RESPONDENT- THE ACIT, CIRCLE-2, KOTA 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 528 & 557/JP/2012) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR