ELIAS A KHATRI, MUMBAI V. ASST CIT CEN CIR 9, MUMBAI

ITA 6936/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8739 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHEDR
• Assessee Lawyers: R C JAIN
• Keywords: Business income; Depreciation; Wrong claim; Revenue expenditure; Capital expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI , BEFORE SHRI RAJENDRA, A.M. AND SHRI PAWAN SINGH,J.M . ./ ITA NO.6936/MUM/2013 / ASSESSMENT YEAR: 2009-10 ELIAS A. KHATRI 638, GORI HOUSETPS, III, 8 TH ROAD,KHAR (WEST),MUMBAI-400 052. PAN: AAIPK 4049 D VS. ACIT-CC-9 6 TH FLOOR, CGO ANNEXE M.K. ROAD MUMBAI-400 020. ( / // / APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI VISHWAS MUNDHE-DR ASSESSEE BY: SHRI R.C. JAIN / // / DATE OF HEARING: 02.01.2017 / DATE OF PRONOUNCEMENT: 18.01.2017 , ,, , 1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 02/09/2013 OF THE CIT(A )-37,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE,AN INDIVIDUAL,IS A CIVIL CO NTRACT.HE FILED HIS RETURN OF INCOME ON 31/ 03/2010,DECLARING LOSS AT RS.7.82 LAKHS. THE ASSESS ING OFFICER(AO)COMPLETED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 11/08/2011 COMPUTING HIS I NCOME AT RS. 18.19 LAKHS. 2. EFFECTIVE GROUND OF APPEAL DEALS WITH IMPOSITION OF PENALTY U/S. 271(1)(C) OF THE ACT, AMOUNTING TO RS. 2.5 LAKHS.DURING THE ASSESSMENT PR OCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD ACQUIRED MACHINERY WORTH RS.5.85 CRORES FOR BUS INESS EXPANSION.HE DIRECTED THE ASSESSEE TO PRODUCE THE COPIES OF THE INVOICES/PURCHASE BILL S, DETAILS REGARDING SOURCES OF FUNDS FOR ACQUISITION OF MACHINERY,EVIDENCES SHOWING THE DATE ON WHICH THE MACHINERY WAS FIRST PUT TO USE,DETAILS OF BANK CHARGES,INTEREST CLAIMED AS REV ENUE EXPENDITURE ALONG WITH THE DECLARATION AS TO KNOW PORTION OF THE BANK CHARGES/INTEREST CLA IMED WAS LIABLE TO BE TREATED AS CAPITAL EXPENDITURE. IN RESPONSE TO THE SAID QUERY THE ASSE SSEE, VIDE HIS LETTER DATED 05/08/2011 STATED THAT OUT OF THE TOTAL INTEREST AT RS. 11.23 LAKHS C LAIMED AS REVENUE EXPENDITURE RS. 8.90 LAKHS NEEDED TO BE TREATED AS CAPITAL EXPENDITURE,THAT TH E SAME WAS RELATABLE TO THE PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE MACHINERY TILL THE DATE ON WHICH THE MACHINERY WAS FIRST PUT TO USE.AS A RE SULT, THE AO DISALLOWED SOME OF RS. 9, 56, 914/-OUT OF THE TOTAL INTEREST ON LOAN PAID AND CLA IMED AS REVENUE EXPENSES IN LIGHT OF THE PROVISO TO CLAUSE (III) OF SUBSECTION(1)OF SECTION 36 OF THE ACT.SIMILARLY,OUT OF THE BANK CHARGES OF RS. 1.01 LAKHS, CLAIMED AS REVENUE EXPEN SES U/S.37(1) OF THE ACT,RS. 1 LAKHS WAS 6936/M/13-ELIAS 2 DISALLOWED ON ACCOUNT OF STAMP DUTY PAID.THE ASSESS EE ACCEPTED THAT THE AMOUNT IN QUESTION WAS TO BE TREATED AS CAPITAL EXPENDI -TURE.THE AO I NITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IN RESPONSE TO THE PENALTY NOTICE, AS PER THE AO, THE ASSESSEE NEITHER ATTENDED NOT FILED ANY EXP LANATION. LATER ON, ON 21/02/2012 THE ASSESSEE STATED THAT IT HAD NOT FILED ANY APPEAL AGAINST THE ADDITIONS MADE DURING THE ASSESSMENT PROCEEDINGS IN ORDER TO BY PIECE AND TO AVOID LENGTHY LITIGATION WITH THE DEPARTMENT,THAT THERE WAS NO DE LIBERATE INTENT OR ATTEMPT ON PART OF THE ASSESSEE TO CONCEAL INCOME OR TO FURNISH INACCURATE PARTICULARS, THAT ALL THE FACTS HAD BEEN DULY RECORDED IN REFLECTED IN THE AUDITED BOOKS OF ACCOU NTS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE WAS ASKED CLEARLY VIDE ORDER SHEET ENTRY DATED 25/07/20 11 TO FURNISH DETAILS OF BANK CHARGES CLAIMED AND INTEREST PAYMENT CERTIFICATE ALONG WITH AN EXPLANATION AS TO WHAT PROPORTION OF THE BANK INTEREST AND/OR BANK CHARGES NEEDED TO BE TREATED AS CAPITAL EXPENDITURE, THAT IT WAS ONLY AFTER THE ISSUE WAS RAISED THE ASSESSEE ACCEPT ED THE MISTAKE AND OFFERED RS. 10.56 LAKHS FOR TAXATION, THAT THE ADMISSION WAS NOT VOLUNTARY ON PART OF THE ASSESSEE, THAT THE ASSESSEE HAD FAILED TO DISCLOSE TRULY AND CORRECTLY ALL THE PARTICULARS OF THE INCOME WHILE FILING HIS RETURN. THE AO REFERRED TO THE CASES OF DHARMENDRA TEXTILE PROCESSORS (13SCC 369) AND RELIANCE PETRO PRODUCTS (189 TAXMAN 322)AND HELD TH AT THE ASSESSEE HAD CONCEALED THE PARTICULARS OF INCOME WHICH HAD BEEN UNEATHERED DUR ING THE ASSESSMENT PROCEEDINGS.HE IMPOSED A PENALTY OF RS.2,51,609/-,INVOKING THE PRO VISIONS OF SECTION 271(1)(C) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,THE ASSESSEE A RGUED THAT THE DISALLOWANCES WERE NOT LEGALLY SUSTAINABLE,THAT DEPRECIATION WOULD BE ALLO WED OVER A PERIOD OF TIME AND THERE WOULD BE NO LOSS OF REVENUE,THAT THE DISALLOWANCE OF INTE REST AND STAMP DUTY,BASED ON THE CONCESSION GIVEN BY THE ASSESSEE COULD NOT BE CONSI DERED TO BE DEFAULT U/S. 271(1)(C) OF THE ACT, THAT PENALTY COULD NOT BE LEVIED FOR WRONG CLA IM MADE AND AFTER FULL PARTICULARS WERE FURNISHED.IT RELIED UPON THE CASE OF NALI P SHAH OF THE JURISDICTIONAL HIGH COURT. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE PENALTY ORDER,THE FAA REFERRED TO THE EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT A ND HELD THAT THE ONUS TO ESTABLISH THAT EXPLANATION OFFERED BY THE ASSESSEE WAS BONA FIDE A ND THAT ALL THE FACTS RELATING TO THE COMPETITION OF HIS INCOME HAD BEEN DISCLOSED BY HIM WAS ON THE ASSESSEE,THAT THE LEGISLATURE HAD USED WORD PARTICU -LARS OF INCOME, THAT IF FACT S MATERIAL TO DETERMINE THE INCOME WAS NOT FILED OR IF FILED WERE INACCURATE THE ASSESSEE WOUL D BE LIABLE TO PAY PENALTY,THAT WILFUL 6936/M/13-ELIAS 3 CONCEALMENT WAS NOT ESSENTIAL INGREDIENT FOR LIVING PENALTY.HE REFERRED TO SEVERAL CASE LAWS AND OBSERVED THAT THE AO HAD GIVEN A CATEGORICAL FI NDING OF FACT THAT ASSESSEE HAD ADMITTED THAT EXPENDITURE CLAIM AS REVENUE EXPENDITURE WAS C APITAL EXPENDITURE.WITH REGARD TO CASE OF NALIN P SHAH, THE FAA OBSERVED THAT ASSESSEE HAD,IN ITS RETURN OF INCOME,HAD FILED A NOTE DISCLOSING ALL THE RELEVANT DETAILS REGARDING THE L OSS CLAIMED AND CARRIED FORWARD,THAT THE HONBLE HIGH COURT HAD HELD THAT THE ISSUE WAS FACT S BASED,THAT THE ASSESSEE HAD MADE NO SUCH DISCLOSURE IN THE RETURN OF INCOME, THAT IT WA S ONLY AFTER THE RELEVANT FACTS WERE CALLED FOR AND EXAMINED,THAT HE ADMITTED THE TRUE STATE OF THE AFFAIRS, THAT THE ASSESSEE DID NOT PREFER ANY APPEAL AGAINST THE ADDITIONS MADE BY THE AO, THAT T HE FACTS OF THE CASE OF RELIANCE PETRO PRODUCTS WERE DISTINGUISHABLE,THAT NO LEGAL CLAIM H AD BEEN ACCEPTED FOR WHICH THE ASSESSEE HAD DISCLOSED ALL THE FACTS,THAT IT WAS NOT A CASE OF MEARLY REJECTING A LEGAL CLAIM BUT IT INVOLVED NON-DISCLOSURE OF MATERIAL FACTS,THAT IT W AS ALSO NOT A BONA FIDE CLAIM.WITH REGARD TO THE ARGUMENT THAT DEPRECIATION WAS OTHERWISE ALLOWA BLE, THE FAA HELD THAT FOR THE YEAR UNDER CONSIDERATION IT WAS CLEAR CASE OF FURNISHING INACC URATE PARTICULARS OF INCOME,THAT DEPRECIATION ALLOWANCE IN THE SUBSEQUENT YEARS WOUL D NOT DETECT THE FACT THAT INCOME RETURN IN THE CURRENT YEAR WAS INACCURATE.REFERRING TO THE EX PLANATION 4 TO THE SECTION 271(1)(C), THE FAA HELD THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME, THAT THE LOSS CLAIMED BY IT HAD BEEN REDUCED AND ASSESSED INCOME HAD TURNED INTO WAS POSITIVE,THAT THE AO HAD RIGHTLY INVOKED THE PROVISIONS OF SECTION 271(1 )(C) OF THE ACT. 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) ARGUED THAT OVER A PERIOD OF YEARS DEPRECIATION HAD TO BE ALLOW ED TO THE ASSESSEE, THAT THERE WAS NO LOSS TO THE REVENUE, THAT NO PENALTY COULD BE LEVIED FOR RE GISTRATION, THAT IT WAS FOR RUNNING OF BUSINESS.HE REFERRED TO THE CASE OF SON OF THE ASSE SSEE FIRDAUS E. KHATRI (ITA/6935/MUM/2013 AY-09-10, DT.12.1.2016). THE DEP ARTMENTAL REPRESENTATIVE (DR) STATED THAT THE ASSESSEE AGREED FOR THE ADDITIONS O NLY AFTER AO MADE ENQUIRIES IN THAT REGARD, THAT THE AO HAD ASKED POINTED QUESTIONS, THAT THE A DMISSION WAS NOT VOLUNTARY, THAT THE AO/FAA WAS JUSTIFIED IN LEVYING PENALTY. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD MADE CLAIM FOR DEPRECIATION ON ACCOUN T OF PURCHASE OF MACHINERY,THAT THE AO HAD DIRECTED IT TO PRODUCE VARIOUS DETAILS WITH RE GARD TO THE PURCHASE,INCLUDING THE COPIES OF THE INVOICES/ PURCHASE BILLS, SOURCES OF FUNDS,BANK CHARGES ETC.,THAT THE SCRUTINY REVEALED THAT CERTAIN EXPENSES WERE CAPITAL IN NATURE.HE CALLED F OR FURTHER EXPLANATION FROM THE ASSESSEE IN 6936/M/13-ELIAS 4 THAT REGARD. IT WAS ONLY AFTER THE INQUIRY MADE BY THE AO,THAT THE ASSESSEE ADMITTED THAT THE CLAIM MADE BY IT WERE NOT AS PER THE PROVISIONS OF THE ACT,THAT HE ADMITTED TO PAY TAX ON DISPUTED ITEMS.IT IS NOT A CASE THAT THE ASSESSEE ON ITS OWN MADE THE OFFER AND HAD ACCEPTED THAT BY MISTAKE IT HAD NOT PAID TAXES ON THE DISPUT ED ITEMS.HAD THE CASE NOT BEEN SELECTED FOR SCRUTINY AND HAD THE AO NOT INQUIRY THE RETURN FILE D BY IT WOULD HAVE BEEN PROCESSED AS IT WAS FILED.THE ASSESSEE HIMSELF ADMITTED THAT CLAIM MADE BY IT WERE DISALLOWABLE.HERE,WE WOULD LIKE TO REFER TO THE CASE OF MATTER OF ZOOM COMMUNI CATION (327ITR510),OF THE HONBLE DELHI HIGH COURT.WE WOULD LIKE TO REPRODUCE THE RELEVANT PART OF THE ORDER AND IT READS AS UNDER: IF THE EXPLANATION IS NEITHER SUBSTANTIATED NOR SH OWN TO BE BONA FIDE, EXPLANATION 1 TO SECTION 271(1)(C) WOULD COME INTO PLAY AND THE ASSE SSEE WILL BE LIABLE FOR THE PRESCRIBED PENALTY. ..THE COURT CANNOT OVERLOOK THE FACT THAT ONLY A S MALL PERCENTAGE OF THE INCOME-TAX RETURNS ARE PICKED UP FOR SCRUTINY. IF THE ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW BUT IS ALSO WHOLLY WITHOUT ANY BASIS AND THE EXPLANATIO N 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 W E TAKE THE VIEW THAT A CLAIM WHICH IS WHOLLY UNTENABLE IN LAW AND HAS ABSOLUTELY NO FOUNDATION O N WHICH IT COULD BE MADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENALTY, EVEN IF HE WAS NOT ACTING BONA FIDE WHILE MAKING A CLAIM OF THIS NATURE, THAT WOULD GIVE A LICENCE T O UNSCRUPULOUS ASSESSEES TO MAKE WHOLLY UNTENABLE AND UNSUSTAINABLE CLAIMS WITHOUT THERE BE ING ANY BASIS FOR MAKING THEM, IN THE HOPE THAT THEIR RETURN WOULD NOT BE PICKED UP FOR S CRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF-ASSESSMENT UNDER SECTION 143(1) OF TH E ACT AND EVEN IF THEIR CASE IS SELECTED FOR SCRUTINY, THEY CAN GET AWAY MERELY BY PAYING THE TA X, WHICH IN ANY CASE, WAS PAYABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE PERSONS WHO MAKE CLAIMS OF THIS NATURE, ACTUATED BY A MALA FIDE INTENTION TO EVADE TAX OTHERWISE PAYABLE BY THEM WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM,IF THEIR CASES ARE NOT PICKED UP FOR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT, WHICH THESE PENALTY PROV ISIONS IN THE ACT HAVE. ..WE CANNOT ACCEPT THE GENERAL PROPOSITION THAT NO PERSON WOULD EVER CLAIM THE AMOUNT OF INCOME-TAX AS A DEDUCTION WITH A VIEW TO AVOID PAYM ENT OF TAX. NO HARD AND FAST RULE IN THIS REGARD CAN BE LAID DOWN AND EVERY CASE WILL HAVE TO BE DECIDED CONSIDERING THE FACTS AND CIRCUMSTANCES IN WHICH SUCH A DEDUCTION IS CLAIMED, COUPLED WITH AS TO WHETHER THE EXPLANATION OFFERED BY THE ASSESSEE FOR MAKING THE CLAIM, IS SHOWN TO BE BONA FIDE OR NOT. THE ALLEGED ADMISSION BY THE ASSESSEE IS AFTER DETE CTION BY THE DEPARTMENT.IT IS NOT A CASE OF MERE MAKING WRONG CLAIM.BOTH THE CLAIMS WERE INADMI SSIBLE PRIMA-FACIE.THE ASSESSEE HAD NO JUSTIFICATION TO CLAIM DISPUTED ITEMS AS REVENU E EXPENDITURE.IT WAS ALSO NOT THE CASE OF THE ASSESSEE THAT IT WAS UNDER A BONA FIDE BELIEF THAT THESE TWO AMOUNTS COULD BE CLAIMED AS REVENUE EXPENDITURE.HAD IT BEEN SO,HE WOULD HAVE NO T ADMITTED THAT SAME SHOULD BE DISALLOWED.IT IS ALSO A FACT THAT HE DID NOT AGITAT E THE DISALLOWANCE IN APPELLATE PROCEEDINGS.FACTS OF RELIANCE PETROPRODUCT (P.)LTD. WERE TOTALLY DIFFERENT.BESIDES,IN PENALTY MATTERS WHAT IS IMPORTANT IS THE EXPLANATION FILED BY ANASSESSEE IN RESPONSE TO THE NOTICE OF PENALTY.THERE IS NEED TO SAY THAT PENALTY AND ASSES SMENT PROCEEDINGS ARE TWO DIFFERENT PROCEEDINGS AND THEREFORE, THE EXPLANATION BECOMES VERY IMPORTANT.IF THE EXPLANATION FILED BY 6936/M/13-ELIAS 5 THE ASSESSEE IS BONAFIDE THERE IS JUSTIFICATION FO R LEVYING PENALTY.BUT,IF THE AO/FAA FIND THAT EXPLANATION IS NOT BONAFIDE,PENALTY HAS TO BE LEVIE D/CONFIRMED.IN THE INSTANT CASE,BOTH THE AUTHORITIES HAS GIVEN A FACT OF THE FACT THAT EXPLA NATION OFFERED BY THE ASSESSEE ABOUT THE DISPUTED ITEMS WAS NOT BONAFIDE CONSIDERING THE PEC ULIAR FACTS OF THE MATTER.IT IS ALSO AN ACCEPTED PRINCIPLE OF TAX-JURISPRUDENCE THAT PENALT Y IS LEVIED TO COMPENSATE THE REVENUE LOSS SUFFERED BY THE DEPARTMENT AND IT IS NOT PENAL IN N ATURE. UNLIKE THE CASE OF NALIN P SHAH,THE ASSESSEE HAD NOT FILED A NOTE ALONG WITH THE RETURN DISCLOSING ALL THE RELEVANT AND NECESSARY DETAILS OF THE TRANSACTIONS. 5.1 .WE FIND THAT IN CASE OF FIRDAUS E. KHATRI THE ISSU E WAS ABOUT DEPRECIATION CLAIMED ON MOTOR CAR AGAINST INTEREST INCOME RECEIVED FROM FIR MS ON HIS CAPITAL BALANCE CHARGEABLE AS BUSINESS INCOME U/S. 28 OF THE ACT AND THE USE OF T HE CAR FOR PERSONAL PURPOSES. IN OUR OPINION THE CASE RELIED UPON BY THE AR IS OF NO HELD TO DEC IDE THE ISSUE BEFORE US. 5.2. WE ARE OF THE OPINION THAT ALLOWABILTIY OF CLAIM OF DEPRECIATION IN SUBSEQUENT YEARS WOULD NOT JUSTIFY THE ACTION OF THE ASSESSEE NOT TO FILE A BONAFIDE CLAIM.IT IS NOT THE DUTY OF A TAXPAYER TO DETERMINE THE TAX LIABILITY FOR A PARTI CULAR YEAR.THE AO HAS BEEN ASSIGNED THE ROLE OF TAX ADMINISTRATOR IN THE ACT.THE ASSESSEE HAS TO MAKE ONLY BONAFIDE CLAIM IN THE RETURNS OF INCOME.TO DECIDE THE TAXABILITY OR OTHERWISE OF SUC H ITEMS IS THE DOMAIN OF THE AO.IN THIS BACKGROUND,WE ARE OF THE OPINION, THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL INFIRMITY.SO,CONSIDERING THE FACTS AND CIRCUMSTANCE S OF THE CASE,WE UPHOLD HIS ORDER.EFFECTIVE GROUND OF APPEAL FILED BY THE ASSES SEE IS DECIDED AGAINST HIM. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS DI SMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JANUARY, 2017. !' 18 , 2017 SD/- SD/- ( # $ /PAWAN SINGH) ( %&' / RAJENDRA) !( / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; !' DATED : 18 .01.2017 . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 6936/M/13-ELIAS 6 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.