M/s Super Cassettes Industries Ltd., Noida V. DCIT, New Delhi

ITA 788/DEL/2011

• Counselvise Citation: 78820114 RSA 2011
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-09-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 08-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH G BENCH G BENCH G BENCH G : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI R.P.TOLANI BEFORE SHRI R.P.TOLANI BEFORE SHRI R.P.TOLANI BEFORE SHRI R.P.TOLANI, ,, , JM AND SHRI K.G.BANSAL, AM JM AND SHRI K.G.BANSAL, AM JM AND SHRI K.G.BANSAL, AM JM AND SHRI K.G.BANSAL, AM ITA NO. ITA NO. ITA NO. ITA NO.788/DEL/2011 788/DEL/2011 788/DEL/2011 788/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 1996 1996 1996 1996- -- -97 9797 97 M/S SUPER CASSETTES M/S SUPER CASSETTES M/S SUPER CASSETTES M/S SUPER CASSETTES INDUSTRIES LIMITED, INDUSTRIES LIMITED, INDUSTRIES LIMITED, INDUSTRIES LIMITED, E EE E- -- -2/16, ANSARI ROAD, 2/16, ANSARI ROAD, 2/16, ANSARI ROAD, 2/16, ANSARI ROAD, DARYAGANJ, DARYAGANJ, DARYAGANJ, DARYAGANJ, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. PAN PAN PAN PAN : AABCS4712P. : AABCS4712P. : AABCS4712P. : AABCS4712P. VS. VS. VS. VS. DY.COMMISSIONER OF DY.COMMISSIONER OF DY.COMMISSIONER OF DY.COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -9(1), 9(1), 9(1), 9(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI HIREN MEHTA, CA. RESPONDENT BY : SHRI ROHIT GARG, DR. ORDER ORDER ORDER ORDER PER R.P.TOLANI, JM PER R.P.TOLANI, JM PER R.P.TOLANI, JM PER R.P.TOLANI, JM : : : : THIS IS ASSESSEES APPEAL. FOLLOWING GROUNDS ARE RAISED:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LEARNED CIT (APPEALS)-XII, NEW DE LHI, ERRED IN SUSTAINING THE PENALTY OF RS.2,38,475/- IMPOSE D BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE EXPENSE S OF RS.5,18,423/- WHICH WAS CLAIMED IN PROFIT AND LOSS ACCOUNT PERTAINING TO FLAT NO.21F-2, MAGNUM TOWER, MUMBAI. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE ACTION OF THE LEARNED CIT(APPEAL S) XII, NEW DELHI IS BAD IN LAW AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COUNSEL FOR THE ASSESSEE REFERS TO THE RE LEVANT PORTION OF ASSESSING OFFICERS ORDER LEVYING THE PENALTY WHICH HAS BEEN CONFIRMED BY THE CIT(A) AS UNDER:- ITA-788/DEL/2011 2 4. THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.5,18,423/- ON ACCOUNT OF RESIDENTIAL FLAT USED BY T HE DIRECTORS. OUT OF THIS AMOUNT THE ELECTRICITY, REPAI R AND MAINTENANCE AND TELEPHONE EXPENSES AMOUNTING TO RS.1,82,800/-, RS.24,100/- AND RS.3,11,447/- RESPECTIVE LY WERE INCURRED IN RESPECT OF THE RESIDENTIAL FLAT LOCA TED IN GROUP HOUSING SOCIETY AT BOMBAY. THE ASSESSEE HAD ADMITTED THAT THE SAID PREMISES WAS UTILIZED BY THE MANAGING DIRECTOR FOR HIS PERSONAL USE. ACCORDINGLY, THE A.O. DISALLOWED THESE EXPENSES TREATING THE SAME AS PERSONAL EXPENSES UNDER THE PROVISION OF SECTION 37(4) OF THE ACT AND ALSO INITIATED PENALTY PROCEEDINGS U/S 271 (1)(C) OF THE ACT. IN ITS REPLY THE ASSESSEE HAS SUBMITTED THAT IT WAS NEVER ADMITTED BY THE ASSESSEE THAT THE FLAT IN QUESTION WAS USED BY THE MANAGING DIRECTOR FOR HIS PERSONAL PURPOSES, THAT ONE OF THE MAIN BUSINESS OF THE ASSESSEE IS BY FILM MUSIC RIGHTS AND TO SELL RECORDED CASSETTES THEREOF, THAT THE MANAGING DIRECTOR AND OTHE R DIRECTORS OF THE COMPANY WHO ARE BASED IN DELHI HAD T O MAKE FREQUENT VISITS TO MUMBAI AND DURING THE COURSE O F SUCH VISITS THE FLAT UNDER REFERENCE WAS USED BY THEM FO R THE PURPOSE OF STAY. THE ASSESSEE FURTHER SUBMITTED THAT THERE WAS NO GROSS OR WILLFUL NEGLECT AND HENCE HE WO ULD NOT COME WITHIN THE MISCHIEF OF SECTION 271(1)(C) OF THE ACT. THE CONTENTIONS RAISED BY THE ASSESSEE HAVE BEEN CONSIDERED BUT NO FORCE HAS BEEN FOUND THEREIN. THE FLAT IN QUESTION IS ADMITTEDLY BEING USED AS A GUEST HOUSE AND THEREFORE THE EXPENDITURE INCURRED BY THE ASSESSEE ON I TS MAINTENANCE IS NOT ADMISSIBLE BY VIRTUE OF THE BAR ON THE ALLOWANCE OF SUCH EXPENDITURE CONTAINED IN SECTION 3 7(4) OF THE ACT. SECTION 37(4) LAYS DOWN THAT ANY ACCOMMODATION, BY WHATEVER NAME CALLED, MAINTAINED HIRE, RESERVED OR OTHERWISE ARRANGED BY THE ASSESSEE FOR THE PURPOSE OF PROVIDING LODGING OR BOARDING AND LOD GING TO ANY PERSON (INCLUDING ANY EMPLOYEE OR, WHERE THE ASSESSEE IS A COMPANY, ALSO ANY DIRECTOR OF, OR THE HOLDE R OF ANY OTHER OFFICE IN, THE COMPANY), ON TOUR OR VI SIT TO THE PLACE AT WHICH SUCH ACCOMMODATION IS SITUATED, IS ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE WITHIN T HE MEANING OF SUB-SECTION (4). IT IS ALSO TO BE NOTICED THAT THE ADDITION MADE BY THE A.O. ON THIS ACCOUNT WAS CONFIRMED BY THE LD.CIT(A) AND FURTHER APPEAL FILED BY THE ASSESSEE WAS ALSO DISMISSED BY THE HONBLE ITAT AND IN THIS WAY THE STAND TAKEN BY THE A.O. HAS BEEN UPHELD B Y THE APPELLATE AUTHORITIES. IN VIEW OF ALL THE FACTS THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT ACCEPTABLE A ND ITA-788/DEL/2011 3 THERE IS NO DOUBT THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME RELATING TO THE CLA IM OF MAINTENANCE EXPENSES OF GUEST HOUSE IN MUMBAI AMOUNTING TO RS.5,18,423/-. ACCORDINGLY A PENALTY O F RS.2,38,475/- BEING 100% OF TAX SOUGHT TO BE EVADED O N THIS INCOME OF RS.5,18,423/- IS HERE BY IMPOSED AS PER T HE FOLLOWING CALCULATION. 3. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT THE ASSESSING OFFICER HAS IMPOSED THE PENALTY ONLY BECAUSE THE ASSESSEES APPEAL HAS BEEN DISMISSED BY THE ITAT. THE FACT OF TH E MATTER IS THAT THE ASSESSEE DID NOT PRESS THIS GROUND BEFORE THE TRIBUNAL . BESIDES, ASSESSING OFFICER HAS NOT GIVEN ANY REASON OR JUSTIFICATIO N AS TO HOW ASSESSEE FURNISHED INACCURATE PARTICULARS OF HIS INCOME RE LATING TO THE CLAIM OF EXPENSES ON GUEST HOUSE. ALL THE RELEVANT DET AILS WERE FILED ALONGWITH THE RETURN OF INCOME. RELIANCE HAS BEEN P LACED ON HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. RELIANC E PETROPRODUCTS PVT.LTD. 322 ITR 158 FOR THE PROPOSITION THAT UNL ESS THE ASSESSEE FILES INACCURATE PARTICULARS IN THE RETURN OF INCOME, IT C ANNOT BE HELD TO HAVE FILED INACCURATE PARTICULARS AND MAKING A CLAI M WHICH IS NOT ACCEPTED BY THE ASSESSING OFFICER. FURTHER RELIANCE IS PLACED ON HON'BLE DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. BRAHMAPUTRA CONSORTIUM LTD. ITA NO.1582 OF 2010. IN THIS CASE, ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE MADE A WRONG CLAIM OF DEPRE CIATION ON PLANT & MACHINERY AND BUILDING AND FEES PAID TO ROC FOR INCREASE IN AUTHORIZED SHARE CAPITAL. THE ASSESSING OFFICER LEVIED THE PENALTY IN THE CASE OF DEPRECIATION AND IN RESPECT OF ROC CHARGE S, IT WAS HELD THAT THE SAME WAS CONTRARY TO HON'BLE SUPREME COURT J UDGMENT IN THE CASE OF PSIDC LTD. VS. CIT 225 ITR 792 AND THE CLAI M WAS FALSE. THE PENALTY WAS CONFIRMED BY THE CIT(A) AND WAS DELETED B Y THE ITAT. 4. AGGRIEVED, REVENUE WENT IN APPEAL BEFORE THE HON 'BLE DELHI HIGH COURT. HON'BLE DELHI HIGH COURT, AFTER CONSIDERING THE JUDGMENT IN THE ITA-788/DEL/2011 4 CASE OF CIT VS. ESCORTS FINANCE LTD. 328 ITR 44 UPHEL D THE ORDER OF THE ITAT AND DELETED THE PENALTY ON THE GROUND THAT THE OTHER ELEMENT PRESENT IN THIS CASE GIVES A STRONG INDICATION THAT THE ERROR WAS GENUINE AND BONA-FIDE AND RELYING ON HON'BLE SUPREM E COURT JUDGMENT IN THE CASE OF RELIANCE PETROPRODUCTS PVT.LTD. (SUPRA) . 5. IT IS PLEADED THAT THE ASSESSEE BONA-FIDELY BELIEVED THAT IT WAS A RESIDENTIAL FLAT; NO CARETAKER WAS APPOINTED, NO OUTSI DER WAS ALLOWED; USED BY DIRECTORS ON BUSINESS VISIT TO SAVE EXORBITANT HOT EL COST; WAS NOT MAINTAINED AS A GUEST HOUSE, THEREFORE, IT WAS NOT IN THE NATURE OF A GUEST HOUSE. THE EXPENDITURE INCURRED ON ONLY ELEC TRICITY, TELEPHONE AND SOCIETY MAINTENANCE CHARGES WERE ALLOWABLE. THE CLAIM MADE BY THE ASSESSEE WAS NEITHER MALA-FIDE NOR IN ORDER TO MISLEA D THE ASSESSING OFFICER. NO INACCURATE PARTICULARS HAVING BEE N GIVEN IN THE RETURN OF INCOME, THE CLAIM MADE BY THE ASSESSEE WAS ON A BONA-FIDE BELIEF THAT IT WAS ALLOWABLE ON A RESIDENTIAL FLAT USE D BY DIRECTORS FOR THE ASSESSEES BUSINESS ONLY. THE SAME WAS NOT PROVIDED TO O UTSIDERS, THERE WAS NO CARETAKER AND IN ASSESSEES BONA-FIDE BELIEF , IT WAS NOT A GUEST HOUSE. THE MAKING OF A LEGAL CLAIM BASED ON A B ONA-FIDE BELIEF CANNOT BE SUBJECT TO PENALTY U/S 271(1)(C), LOWER AUT HORITIES HAVE FAILED TO CONSIDER THIS EXPLANATION AND VIEW IT IN TH E LIGHT OF HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT.LTD. (SUPRA). 6. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THAT SECTION 37(4) CLEARLY PROVIDES THAT ANY EXPENDITURE INCURRED BY TH E ASSESSEE ON THE MAINTENANCE OF A GUEST HOUSE IS NOT ALLOWABLE. THE ASSE SSEE DID NOT PRESS THE GROUND BEFORE THE ITAT IN THE APPEAL. HON' BLE SUPREME COURT ALSO IN THE CASE OF BRITANNIA INDUSTRIES LTD. VS. CIT 278 ITR 546 HELD THAT SUCH EXPENSES ARE NOT ALLOWABLE. THE SAME WA S AVAILABLE BEFORE THE ASSESSEE FILED ITS RETURN OF INCOME. THERE W AS NO DOUBT ITA-788/DEL/2011 5 ABOUT THE DISALLOWANCE OF SUCH EXPENDITURE, THE ASSESSEE HAS MADE A PRIMA-FACIE DISALLOWABLE CLAIM, THE PENALTY U/S 271(1 )(C) HAS BEEN RIGHTLY LEVIED. RELIANCE IS FURTHER PLACED ON HON'B LE DELHI HIGH COURT JUDGMENT IN THE CASE OF ZOOM COMMUNICATIONS 191 TA XMAN 179 FOR THE PROPOSITION THAT IF THE CLAIM MADE BY THE ASSESSEE I S UNSUSTAINABLE IN LAW, THE PENALTY IS LEVIABLE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE, IN THE REJOINDE R, CONTENDS THAT EVEN IN THE CASE OF ZOOM COMMUNICATIONS (SUPRA) CITED BY THE LEARNED DR, IT HAS BEEN HELD THAT THE ASSESSEES CLAIM SH OULD NOT ONLY BE UNSUSTAINABLE IN LAW BUT THE SAME SHOULD BE HELD TO BE NOT BONA- FIDE. IN THIS CASE, ASSESSEE MADE BONA-FIDE CLAIM ON TH E BASIS OF BELIEF THAT IT WAS NOT MAINTAINING A GUEST HOUSE. IT WAS A CO MPANY OWNED FLAT USED BY THE DIRECTORS ONLY FOR THE PURPOSE OF BUSI NESS STAY DURING MUMBAI VISITS, THERE BEING NO CARETAKER, THE SAME WAS NOT A GUEST HOUSE. FURTHER, THE EXPENSES WHICH ARE DISALLOWED ARE ELECTRICITY, REPAIRS, SOCIETY MAINTENANCE AND TELEPHONE EXPENSES. T HUS, NO FOOD, COOKING OR STAFF EXPENDITURE WAS INVOLVED. THE ASSESSEE CANNOT BE PENALIZED FOR A BONA-FIDE BELIEF UNDER SECTION 271( 1)(C) AS CLEARLY LAID DOWN BY RELIANCE PETROPRODUCTS PVT.LTD. (SUPRA) JUDGM ENT. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL PLACED BEFORE US. IN THE CASE OF RELIANCE PETROPRODU CTS PVT.LTD. (SUPRA), THE HON'BLE SUPREME COURT HAS CLEARLY HELD T HAT IF THE ASSESSEE HAS FURNISHED WRONG PARTICULARS IN THE RETURN O F INCOME, THE PENALTY CAN BE IMPOSED. HOWEVER, IN CASE THE ASSESSEE MA KES A BONA-FIDE LEGAL CLAIM, THE SAME CANNOT BE HELD FOR PENALTY. ON THIS PRINCIPLE, HON'BLE SUPREME COURT DELETED THE PENALT Y IN THE CASE OF RELIANCE PETROPRODUCTS PVT.LTD. (SUPRA). ITA-788/DEL/2011 6 9. LEARNED DR HAS RELIED ON HON'BLE DELHI HIGH COURT JUDGMENT IN THE CASE OF ZOOM COMMUNICATIONS (SUPRA). IN THIS CASE:- (A) THERE WAS NO FINDING BY THE TRIBUNAL ABOUT THE BONA- FIDE OF THE ASSESSEE. (B) THE OBSERVATION OF THE TRIBUNAL WAS HELD TO BE SUFFERI NG FROM PERVERSITY. (C) EVERY CASE IS TO BE DECIDED CONSIDERING THE FACTS AND CIRCUMSTANCES IN WHICH DEDUCTION IS CLAIMED TOGETHER W ITH THE EXPLANATION. 10. IN OUR CONSIDERED VIEW, THE ASSESSEES EXPLANATION CA NNOT BE HELD TO BE LACKING IN BONA-FIDES. THE EXPENDITURE I NCURRED HAS BEEN DETAILED ABOVE AND THERE IS NO EXPENDITURE WHICH IND ICATES MAINTAINING ANY FACILITIES WHICH CAN BE STRICTLY TERM ED AS A GUEST HOUSE. THE EXPENSES DEBITED ARE ELECTRICITY, REPAIRS, SOCIETY MAINTENANCE AND TELEPHONE. THE REGULAR FEATURES OF A GUEST HOUSE I.E. EXPENDITURE RELATING TO COOKING, MESSING, SALARY OF CA RETAKING STAFF IS NOT CLAIMED. THIS IS FURTHER CORROBORATED BY THE FA CT THAT THE TAX AUDIT REPORTS DID NOT CONSIDER THIS ACCOMMODATION AS A GUEST H OUSE IN NATURE AS CONTEMPLATED UNDER DISALLOWABLE SECTION 37( 4). IN OUR VIEW, IF THE TAX AUDITORS FAILED TO QUALIFY THIS EXPENDITU RE, IT AMOUNTS TO PROFESSIONAL ADVISE ABOUT THE BELIEF OF THE ASSESSEE. IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE DISCLOSED ALL THE FACTS ABOUT TH IS CLAIM IN THE RETURN OF INCOME WHICH WAS SUBJECT TO LEGAL DEBAT E AND LATER SETTLED BY HON'BLE SUPREME COURT IN THE CASE OF BRITA NNIA INDUSTRIES LTD. (SUPRA). LOOKING AT THE ENTIRETY OF FACTS AND C IRCUMSTANCES, NATURE OF EXPENSES AND THE FACT THAT THE AUDITORS DID NOT DISA LLOW THIS EXPENDITURE IN THE AUDIT REPORT, WE HOLD THE ASSESSEES EXPLANATION TO BE BONA-FIDE. THE SAME IS TO BE TERMED AS MALA-FIDE AND IS TO BE HELD AS BONA-FIDE. IN VIEW THEREOF, RESPECTFULLY FOLLOWIN G THE HON'BLE ITA-788/DEL/2011 7 SUPREME COURT JUDGMENT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT.LTD. (SUPRA), WE DELETE THE PENALTY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2011. SD/- SD/- ( (( (K.G.BANSAL K.G.BANSAL K.G.BANSAL K.G.BANSAL) )) ) (R.P.TOLANI (R.P.TOLANI (R.P.TOLANI (R.P.TOLANI) )) ) ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 30.11.2011 VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR