SIMPLEX ENGINEERING & FOUNDRY WORKS P. LTD, MUMBAI V. DCIT 19(3), MUMBAI

ITA 6108/MUM/2010

• Counselvise Citation: 610819914 RSA 2010
• Duration Of Justice: 3 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 07-10-2013
• Assessment Year: 1997-1998
• Appeal Filed On: 09-08-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: S C TIWARI MS NATASHA MANGAT
• Keywords: Wrong claim; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI . . , ! ' #'' '$ , % ! & BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 6108 / / 2010 A.YS. 1997-98 ITA NO. : 6108/MUM/2010 (ASSESSMENT YEAR: 1997-98) M/S. SIMPLEX ENGG. & FOUNDRY WORKS P. LTD., 1503, 15 TH FLOOR, 98, NEHRU PLACE, NEW DELHI -110 019 .: PAN: AABCS 4930 P VS DCIT-CIRCLE -3(3), AAYAKAR BHAVAN, M.K. MARG, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.C. TIWARI MS. NATASHA MANGAT RESPONDENT BY : SHRI PITAMBAR DAS /DATE OF HEARING : 07-10-2013 !' / DATE OF PRONOUNCEMENT : 11-10-2013 * O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A) 7, MUMBAI, DATED 01.02.2010, WHEREIN, THE ASSESSEE HA S RAISED THE GROUNDS AGAINST LEVY OF PENALTY U/S 271(1)(C) AT RS. 3,00,823/-. 2. THE FACTS EMANATING FROM THE ORDERS OF THE REVENUE A UTHORITIES ARE THAT, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IA, W HEREIN, THE ASSESSEE HAD INCLUDED INSURANCE CLAIM, CRANE HIRE CHARGES AND SALE OF EMPTY GUNNY BAGS/DRUMS. M/S. SIMPLEX ENGG . & FOUNDRY WORKS P. LTD. ITA NO. 6108/MUM/2010 2 3. IN THE ASSESSMENT PROCEEDINGS, THE AO HELD THAT THE ABOVE NAMED RECEIPTS DO NOT FALL WITHIN THE CATEGORY FROM INCOME DERIVED FROM THE BUSINESS OF THE ASSESSEE. HE, THEREFORE, REDUCED TH E DEDUCTION AND ADDED THE SUMS TO THE INCOMES OF THE ASS ESSEE. CONSEQUENTLY, THE AO LEVIED THE PENALTY BY INITIATING THE P ROCEEDINGS UNDER SECTION 271(1)(C). 4. IN THE PENALTY PROCEEDINGS, THE ASSESSEE SUBMITTED T HAT, THE PRIMARY FACTS HAVE BEEN SUPPLIED TO THE REVENUE AUTHORI TIES AND THERE IS NO OCCASION FOR THE LEVY OF PENALTY, AS THIS IS NOT A DELIBERATE ATTEMPT TO CONCEAL INCOME OR FURNISH ANY INACCURATE PARTICULARS OF INCOME. THE ARGUMENTS OF THE ASSESSEE WERE REJECTED BY THE AO. 5. THE ASSESSEE, THEREFORE, APPROACHED THE CIT(A), BEFORE WHOM, HE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND PRAY ED THAT PENALTY SHOULD NOT BE LEVIED. 6. THE CIT(A) OBSERVING THAT INSURANCE CLAIM, CRANE HIRE CHA RGES AND SALE OF GUNNY BAGS/DRUMS CANNOT BE TAKEN TO BE INC OME DERIVED FROM THE BUSINESS OF THE ASSESSEE. THE CIT(A) WENT ON TO HOLD THAT BY NO STRETCH OF IMAGINATION CAN IT BE TERMED AS THE ONE DERIVED OUT OF INDUSTRIAL ACTIVITY . THE APPELLANT HAS MADE A PATENTLY WRONG CLAIM BY INCLUDING THE SAID AMOUNTS IN THE ELIGIBLE PROFITS FO R THE PURPOSE OF DEDUCTION U/S 80IA OF THE ACT. THE CIT(A), THUS, SUSTAINED THE LEVY OF PENALTY U/S 271(1)(C). 7. AGGRIEVED, THE ASSESSEE IS BEFORE THE ITAT. 8. BEFORE US, THE AR REITERATED THE SUBMISSIONS MADE BEFOR E THE REVENUE AUTHORITIES AND SUBMITTED THAT THE ENTIRE FACTS, ON THE BASIS OF WHICH THE PENALTY HAS BEEN LEVIED HAD BEEN SUPPLIED BY TH E ASSESSEE TO THE AO DURING THE COURSE OF PROCEEDINGS BEFORE HIM. TH IS WAS ONLY A CASE OF DIFFERENCE OF INFERENCES ARRIVED AT BY THE REVENUE AUTHORITIES AND THE ASSESSEE. HENCE, PENALTY IS NOT LEVIABLE, BECAUSE, THERE WAS NO M/S. SIMPLEX ENGG . & FOUNDRY WORKS P. LTD. ITA NO. 6108/MUM/2010 3 INACCURATE PARTICULARS EXCEPT FOR THE DIFFERENCE IN DRAWING THE INFERENCES. THE PENALTY PROVISIONS CAN ONLY BE INITIATED, IF TH ERE IS FACTUM OF INACCURATE PARTICULARS OF INCOME SUPPLIED BY THE ASSESSEE. THE AR SUBMITTED THAT THE ASSESSEE HAD MADE A BONA FIDE CLAIM BEFORE THE AO, WHICH THE AO THOUGHT TO BE OTHERWISE. HENCE, THE AR SUBMITTED THAT SINCE THE FACTS WERE BEFORE THE REVENUE AUTHORITIES, WHICH WERE INTERPRETED OTHERWISE, THAT BY ITSELF CANNOT H AVE THE FOUNDATION FOR THE LEVY OF PENALTY. THE AR PRIMARILY RELIED O N THE DECISION OF CIT VS RELIANCE PETROPRODUCTS LTD., REPORTED IN 322 ITR 1 58 (SC). HE, THEREFORE, PRAYED THAT THE LEVY OF PENALTY WAS NOT CORRECT AND SHOULD BE CANCELLED. 9. THE DR, ON THE OTHER HAND, SUBMITTED THAT THE IMPUGNE D RECEIPTS CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE B USINESS ACTIVITY OF THE ASSESSEE AND, THEREFORE, SUBMITTED THAT THE LEVY O F PENALTY BY THE REVENUE AUTHORITIES WAS IN ACCORDANCE WITH THE LAW. HE REFERRED TO THE DECISIONS RENDERED BY THE HONBLE DELHI HIGH COURT, IN THE CASE OF CIT VS ESCORTS FINANCE LTD., REPORTED IN 328 ITR 44 AND IN THE CASE OF CIT VS ZOOM COMMUNICATION P. LTD, REPORTED IN 327 ITR 510. 10. THE AR IN THE REJOINDER SUBMITTED THAT THE RECEIPTS, FOR EXAMPLE, THE CRANE HIRE CHARGES AND SALE OF EMPTY GUNNY BAGS/DR UMS IS INTRICATELY ASSOCIATED WITH THE BUSINESS OF THE ASSESSEE. IT WAS FURTHER SUBMITTED BY THE AR THAT CRANE HIRE CHARGES INCURRED B Y THE ASSESSEE, IN THE COURSE OF BUSINESS IS UTILIZED ONLY FOR THE PURPOSE S OF BUSINESS AND NOTHING ELSE. HE, THEREFORE, SUBMITTED THAT IF IN THE IDLE PERIOD THE CRANE(S) IS GIVEN ON HIRE BY THE ASSESSEE AND EARNED REN TAL/ HIRE CHARGES WOULD BE THE INCOME OF THE ASSESSEE DERIVED FROM THE BUSINESS. HE, THEREFORE, SUBMITTED THAT THE RECEIPTS ARE FR OM THE ELIGIBLE BUSINESS AND THE REVENUE AUTHORITIES ERRED IN INITIAT ING PENALTY PROCEEDINGS AND LEVY OF PENALTY U/S 271(1)(C). 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND WE FIND THAT RECEIPTS OF CRANE HIRE CHARGES, SALE OF EMPTY GUNNY BAGS/ DRUMS AND M/S. SIMPLEX ENGG . & FOUNDRY WORKS P. LTD. ITA NO. 6108/MUM/2010 4 INSURANCE CLAIM MADE BY THE ASSESSEE AND ADDED TO THE PROFITS OF ELIGIBLE UNITS TO CLAIM A HIGHER DEDUCTION U/S 80IA ARE OUTS IDE THE SCOPE OF EXPRESSION DERIVED FROM . HERE WE CAN TAKE AN EXAMPLE OF FUNDS PLACED IN THE BANK IN TERM DEPOSIT, UNDER TWO SITUA TIONS, I.E. TO AVAIL BANK FACILITIES LIKE L/C OR PACKING CREDIT FACILITY AND AS A CONSEQUENCE, EARNING INTEREST ON THAT TERM DEPOSIT AND ANOTHER SITUATION, FUNDS ARE LYING AND THE FUNDS ARE PLACED IN TERM DEPOSIT AND EARNING INTEREST THEREON. BOTH THESE SITUATIONS ARE ENTIR ELY DIFFERENT. FIRST SITUATION CAN BE CALLED AS INTRICATELY LINKED TO THE C ONDUCT OF BUSINESS, BUT THE SECOND SITUATION IS SOLELY FOR THE PURPO SES FOR EARNING OF INTEREST ON IDLE FUNDS. IT IS THIS CONTEXT, THE EX PRESSION DERIVED FROM HAS BEEN EXPLAINED BY THE VARIOUS JUDICIAL FORA. 12. THE CASE OF THE ASSESSEE HAS BEEN THAT IT HAD EARN ED INCOME DURING THE COURSE OF BUSINESS, BUT THAT BY ITSELF CANNOT A BSOLVE THE ASSESSEE FROM THE INFIRM CLAIM, BECAUSE, THE AR HAS SUBMITT ED BEFORE US THAT INCOME FROM CRANE HIRE IS A RESULT OF HIRING OF THE CRANE, WHEN IT IS LYING IDLE. SIMILARLY, SALE OF GUNNY BAGS/DRUMS CANNOT BE HAVING A STRAIGHT AND CLEAR NEXUS WITH THE OPERATION OF THE BUSIN ESS AND BECAUSE OF WHICH THE CONDUCT OF BUSINESS COULD GET HAMPE RED. EVEN THE CLAIM OF INSURANCE CANNOT BE COMPREHENDED THAT IT WO ULD HAVE A CLEAR NEXUS WITH THE BUSINESS OPERATION. IN OUR OPINION, TH E CASE OF THE ASSESSEE SQUARELY FALLS WITHIN THE RATIO OF THE DECISION S RELIED UPON BY THE AO/DR, WHEREIN IT HAS BEEN HELD, IN 328 ITR 44 ( SUPRA ) , BY HONBLE DELHI HIGH COURT HELD, WHAT WAS TO BE SEEN WAS THAT WHETHER THE CLAIM MAD E WAS BOGUS. WE ARE INCLINED TO AGREE WITH THE AFORESAID SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE. EVEN IF THERE IS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS, BUT ON THE BASIS THEREOF THE CLAIM WHI CH IS MADE IS EX FACIE BOGUS, IT MAY STILL ATTRACT PENALTY PROVISION. CASES OF BO GUS HUNDI LOANS OR BOGUS SALES OR PURCHASES HAVE BEEN TREATED AS THAT OF CONCEALME NT OF INACCURACY IN PARTICULARS OF INCOME BY THE JUDICIAL PRONOUNCEMENT S (SEE KRISHNA KUMARI CHAMANLAL V. CIT [1965] 217 ITR 465 (BOM); RAJARAM AND CO. V. CIT [1992] 193 ITR 614 (GUJ) AND BEENA METALS V. CIT [1999] 240 IT R 222 (KER.) AND IN 327 ITR 510 ( SUPRA ), WHEREIN DELHI HIGH COURT HELD THAT, M/S. SIMPLEX ENGG . & FOUNDRY WORKS P. LTD. ITA NO. 6108/MUM/2010 5 IT WAS ALSO NOT THE CASE OF THE ASSESSEE THAT IT W AS UNDER A BONA FIDE BELIEF THAT THESE TWO AMOUNTS COULD BE CLAIMED AS REVENUE EXPENDITURE. IF THE ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW BUT IS ALSO WHOLLY WITHOUT ANY BASIS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOUND TO BE BONA FIDE, IT WOULD BE DIF FICULT TO SAY THAT HE WOULD STILL NOT BE LIABLE TO PENALTY UNDER SECTION 271(1)(C) OF THE ACT. IF WE TAKE THE VIEW THAT A CLAIM WHICH IS WHOLLY UNTENABLE IN LAW AND HAS ABSOLUTELY NO FOUNDATION ON WHICH IT COULD BE MADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENALTY, EVEN IF HE WAS NOT ACTING B ONA FIDE WHILE MAKING A CLAIM OF THIS NATURE, THAT WOULD GIVE A LICENCE TO UNSCR UPULOUS ASSESSEES TO MAKE WHOLLY UNTENABLE AND UNSUSTAINABLE CLAIMS WITHOUT THERE BEING ANY BASIS FOR MAKING THEM, IN THE HOPE THAT THEIR RETURN WOULD NO T BE PICKED UP FOR SCRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF-ASS ESSMENT UNDER SECTION 143(1) OF THE ACT AND EVEN IF THEIR CASE IS SELECTE D FOR SCRUTINY, THEY CAN GET AWAY MERELY BY PAYING THE TAX, WHICH IN ANY CASE, W AS PAYABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE PERSONS WHO MAKE CLAI MS OF THIS NATURE, ACTUATED BY A MALA FIDE INTENTION TO EVADE TAX OTHE RWISE PAYABLE BY THEM WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYAB LE BY THEM, IF THEIR CASES ARE NOT PICKED UP FOR SCRUTINY. THIS WOULD TAKE AWA Y THE DETERRENT EFFECT, WHICH THESE PENALTY PROVISIONS IN THE ACT HAVE. WE FIND T HAT THE ASSESSEE BEFORE US DID NOT EXPLAIN EITHER TO THE INCOMETAX AUTHORITIES OR TO THE INCOME-TAX APPELLATE TRIBUNAL AS TO IN WHAT CIRCUMSTANCES AND ON ACCOUNT OF WHOSE MISTAKE, THE AMOUNTS CLAIMED AS DEDUCTIONS IN THIS CASE WERE NOT ADDED, WHILE COMPUTING THE INCOME OF THE ASSESSEE-COMPANY. WE CANNOT LOSE SIGHT OF THE FACT THAT THE ASSESSEE IS A COMPANY WHICH MUST BE HAVING PROFESSI ONAL ASSISTANCE IN COMPUTATION OF ITS INCOME, AND ITS ACCOUNTS ARE COM PULSORILY SUBJECTED TO AUDIT. IN THE ABSENCE OF ANY DETAILS FROM THE ASSESSEE, WE FAIL TO APPRECIATE HOW SUCH DEDUCTIONS COULD HAVE BEEN LEFT OUT WHILE COMPUTING THE INCOME OF THE ASSESSEE-COMPANY AND HOW IT COULD ALSO HAVE ESCAPED THE ATTENTION OF THE AUDITORS OF THE COMPANY. 13. THUS, FROM THE ABOVE TWO JUDGMENTS, IT CAN VERY WELL BE DECIPHERED THAT THE INCOME SHOULD INEXTRICABLY HAVE A DIR ECT NEXUS WITH THE ONGOING BUSINESS OF THE ASSESSEE. INSURANCE CLAI M, SALE OF EMPTY GUNNY BAGS AND CRANE HIRE CHARGES, THOUGH MAY B E PART OF THE BUSINESS OF THE ASSESSEE BUT THEY CANNOT BY ANY STRET CH OF IMAGINATION COULD HAVE ANY DIRECT NEXUS WITH THE CONDUCT OF BUSINESS. 14. WE ARE, THEREFORE, UNABLE TO ACCEPT THE ARGUMENT OF T HE ASSESSEE THAT THE IMPUGNED RECEIPTS ARE PART AND PARCEL OF THE B USINESS ACTIVITY OF THE ASSESSEE AND WERE ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80IA, SPECIALLY IN VIEW OF THE EXISTING JUDICIAL INTERPRETATIONS CO NSISTENTLY COMING FROM THE PAST, THAT THE INCOME HAS TO BE DERIVED FROM THE BUSINESS ACTIVITY. M/S. SIMPLEX ENGG . & FOUNDRY WORKS P. LTD. ITA NO. 6108/MUM/2010 6 15. IN OUR OPINION, THE CASE OF RELIANCE PETROPRODUCTS (SUPRA) CITED AND RELIED UPON BY THE AR, CANNOT AID THE ASSESSEE, BECA USE, THIS CASE TALKS OF THE SITUATION, WHERE THERE IS A CLAIM MADE, WHICH MA Y BE ALLOWABLE, BUT HAS BEEN OTHERWISE DISALLOWED BY THE REVENUE AUTHORITIES. IN THE INSTANT CASE, THE ASSESSEE HAS MADE A CLAIM WHICH HAS BEEN CONSISTENTLY HELD AGAINST THE ASSESSEE AND WA S CONTRARY TO THE EXISTING JUDICIAL PRECEDENTS AND LAW, WHICH HAS BEEN HE LD, TO BE NOT ALLOWABLE. 16. IN THESE CIRCUMSTANCES, IN OUR OPINION, THE REVENUE A UTHORITIES WERE CORRECT IN DISALLOWING THE SAME AND INITIATED PENAL PRO CEEDINGS AGAINST THE ASSESSEE, AS WE FIND THAT THE ASSESSEE HAD DELIBERATELY INCLUDED RECEIPTS WHICH COULD NOT HAVE BEEN ALLOWED. ACCORD ING TO US, THIS CONDUCT OF THE ASSESSEE WOULD BE GOOD GROUND FOR T HE LEVY OF PENALTY, WHICH WAS RIGHTLY INITIATED AND LEVIED. 17. WE, THEREFORE, SUSTAIN THE ORDERS OF THE REVENUE AUTH ORITIES AND REJECT THE GROUNDS TAKEN BY THE ASSESSEE IN THE IMPUG NED APPEAL, HENCE THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. IN THE RESULT, THE ASSESSEES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH OCTOBER, 2013. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 11 TH OCTOBER, 2013 / COPY TO:- M/S. SIMPLEX ENGG . & FOUNDRY WORKS P. LTD. ITA NO. 6108/MUM/2010 7 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) & & ' ( ) - 7 MUMBAI / THE CIT (A)-7, MUMBAI. 4) & & ' 3, MUMBAI / THE CIT3, MUMBAI, 5) )*+ , , & , , -. / THE D.R. E BENCH, MUMBAI. 6) +/ 0 COPY TO GUARD FILE. &12 / BY ORDER / / TRUE COPY / / [ 3 / 4 5 & , , -. DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *784 . . * CHAVAN, SR. PS