PETRON INVESTMENT P. LTD, MUMBAI V. ACIT 10(2), MUMBAI

ITA 8594/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78827 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 20-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reassessment proceedings; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 8594/MUM/2011 ASSESSMENT YEAR: 2008-09 M/S. PETRON INVESTMENT P. LTD. 6 TH FLOOR, SWASTIK CHAMBER, SION TROMBAY ROAD, CHEMBUR, MUMBAI-400 071 VS. ACIT 10(2) MUMBAI- (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :AAACP 4774 F ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI SANJEEV JAIN DATE OF HEARING : 09.04.2014 DATE OF PRONOUNCEMENT : 25.04.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-22, MUMBAI DATED 24.10.2011 CONFIRMING TH E PENALTY OF RS.21,97,608/- LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME TAX AC T FOR THE ASSESSMENT YEAR 2008- 09. 2. BRIEFLY STATED, THE ASSESSEE, A COMPANY, DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED EXPENDITURE OF RS.88,32,136/- ON ACCOUN T OF LEGAL AND PROFESSIONAL CHARGES WHICH INCLUDED A PAYMENT OF RS.56,12,000/- TO M/S. M.S. SANKARAN & CO. AND RS.15,00,000/- TO SHRI K.R. SHRIRAM, ADVOCATE. THE SAID EXPENDITURE WAS INCURRED BY THE ASSESSEE RELATING TO DISINVESTMENT OF SHARES BY THE ASSESSEE INTO ITS SUBSIDIARIES AND OTHER MATTERS RELATING TO ACCOUNTI NG, TAXATION AND LEGAL MATTER LIKE COMPANY PETITIONS. THE AO DISALLOWED THE SAID EXPEN DITURE AFTER OBSERVING THAT THE ENTIRE MANAGEMENT OF THE ASSESSEE COMPANY HAD CHANG ED TO M/S. KAZSTROY SERVICES LTD. AND THE EXPENSE INCURRED IN CONNECTION WITH CH ANGE OF NAMES OF SHARE HOLDERS ETC. WERE FULLY CAPITAL IN NATURE SINCE THE ASSESSE E HAD TAKEN SERVICES FOR INVESTMENT PURPOSE. AGAINST THE SAID DISALLOWANCE, THE APPEAL FILED BY THE ASSESSEE BEFORE THE ITA NO. 8594/MUM/2011 M/S. PETRON INVESTMENT P. LTD. ASSESSMENT YEAR: 2008-09 2 LD.CIT(A) WAS WITHDRAWN BY THE ASSESSEE. CONSEQUENT LY, THE AO INITIATED THE PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND THEREBY LEVIED A PENALTY OF RS.21,97,608/- BEIN G MINIMUM PENALTY @ 100% OF THE TAX SOUGHT TO BE EVADED ON THE DISALLOWANCE OF RS.71,12,000/-. ON APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION DURING THE ASSESSMENT PROCE EDINGS AS TO WHY THE PROFESSIONAL FEE CLAIMED SHOULD NOT BE ADDED BACK. ACCORDING TO THE LD.CIT(A), WITHDRAWAL OF APPEAL AGAINST THE ADDITION MADE BY T HE AO FURTHER CORROBORATES THAT THE CLAIM OF THE ASSESSEE WAS NOT BONAFIDE. AGGRIEV ED BY THE IMPUGNED ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 3. BEFORE US, THE LD.AR FOR THE ASSESSEE HAS STATED THAT THE EXPENDITURE CLAIMED BY ASSESSEE HAS BEEN DISALLOWED BY THE AO ONLY ON T HE GROUND THAT THE SAME IS CAPITAL EXPENDITURE. HOWEVER, THE PENALTY HAS BEEN LEVIED ON THE PREMISE THAT THE EXPENSES ARE NOT INCURRED BY THE ASSESSEES COMPANY FOR ITS REGULAR BUSINESS EXIGENCIES. THE LD.AR BY RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF GUJARAT CREDIT CORPORATION LTD. VS. ACIT (2008) 302 ITR (AT) 250 (AHMEDABAD)(SB), HAS ARGUED THAT PENALTY CANNOT BE LEVIED OR JUSTIF IED ON ALTOGETHER A NEW GROUND. THE LD.AR HAS FURTHER STAT ED THAT THE ISSUE OF AN EXPENDITURE WHETHER CAPITAL OR REVENUE IS HIGHLY DE BATABLE AND ALSO THE CLAIM OF THE ASSESSEE IS BONAFIDE. IN VIEW OF THIS, THE LD.AR HA S PRAYED FOR DELETION OF THE PENALTY CONFIRMED BY THE LD.CIT(A). ON THE OTHER HA ND, THE LD.DR HAS STATED THAT THE CLAIM OF THE ASSESSEE FOR THE EXPENDITURE, PRIM A FACIE IS NOT BONAFIDE AND BY PLACING RELIANCE ON THE DECISION OF DELHI HIGH COUR T IN THE CASE OF ZOOM COMMUNICATION 327 ITR 510, THE LD.DR HAS ARGUED THAT THE ORDER OF THE LD.CIT( A) CONFIRMING THE PENALTY IS JUSTIFIED. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. THE PERUSAL OF THE ASSESSMENT ORDER INDICATES THAT THE AO DISALLOWED THE SAID EXPENDITURE AFTER OBSERVING THAT THE ENTIRE MANAGEM ENT OF THE ASSESSEE COMPANY HAD CHANGED TO M/S. KAZSTROY SERVICES LTD. AND THE EXPENSE INCURRED IN CONNECTION WITH CHANGE OF NAMES OF SHARE HOLDERS ETC. ARE FULL Y CAPITAL IN NATURE SINCE THE ASSESSEE HAS TAKEN SERVICES FOR INVESTMENT PURPOSE. HOWEVER, WHILE LEVYING THE ITA NO. 8594/MUM/2011 M/S. PETRON INVESTMENT P. LTD. ASSESSMENT YEAR: 2008-09 3 IMPUGNED PENALTY, IT HAS BEEN STATED THAT THE EXPEN SES HAVE NOT BEEN INCURRED BY THE ASSESSEES COMPANY FOR ITS REGULAR BUSINESS EXI GENCIES, WHICH IS CONTRARY TO THE GROUND ON WHICH THE DISALLOWANCE HAS BEEN MADE IN T HE ASSESSMENT ORDER. WHEREAS, ON APPEAL, THE LD.CIT(A) UPHELD THE PENALT Y ORDER ON THE GROUND THAT THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION DURING THE ASSESSMENT PROCEEDINGS AS TO WHY THE PROFESSIONAL FEE CLAIMED SHOULD NOT BE ADDE D BACK AND ALSO THE WITHDRAWAL OF APPEAL AGAINST THE ADDITION CORROBORATES THAT TH E CLAIM OF THE ASSESSEE IS NOT BONAFIDE. IN THIS CONNECTION, IT IS PERTINENT TO ME NTION THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF GUJARAT CREDIT CORPORATION LTD.(SUPRA) HAS HELD AS FOLLOWS: PENALTY PROCEEDINGS UNDER SECTION 271 ARE TO BE I NITIATED IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT, EITHER BY AO OR CIT(A) O R THE CIT. HERE IN THE PRESENT CASE THEY WERE INITIATED BY THE ASSESSING OFFICER A ND WERE INITIATED IN THE CAUSE OF REASSESSMENT PROCEEDINGS FOR THE DISALLOWANCE OF LO SS AS CAPITAL LOSS. THAT GROUND OF DISALLOWANCE WAS NOT ACCEPTED BY THE CIT(A) AS CORR ECT AND THEREFORE THE ENTIRE EDIFICE CRUMBLES AND FALLS DOWN. THE PENALTY INITIA TED ON THAT GROUND CANNOT FRUCTIFY AND, THEREFORE, CANNOT ALSO BE LEVIED. THE CIT(A) U PHELD THE DISALLOWANCE ON A DIFFERENT GROUND BUT PENALTY CANNOT BE LEVIED OR JU STIFIED ON THIS NEW GROUND, AS FOR THAT, THE INITIATION HAS TO BE ON THAT GROUND AND T HAT TOO BY THE CIT(A) WHO MADE THE ORDER OF DISALLOWANCE BY UPHOLDING THE DISALLOWANCE ON A DIFFERENT GROUND. APPLYING THE SAID RATIO TO THE FACTS OF THE CASE IN HAND, WE ARE OF THE CONSIDERED OPINION THAT THE LEVY OF PENALTY ON A NEW GROUND TH AT THE EXPENSES HAVE NOT BEEN INCURRED BY THE ASSESSEES COMPANY FOR ITS REGULAR BUSINESS EXIGENCIES IS NOT JUSTIFIED AS THE DISALLOWANCE HAS BEEN MADE ON THE GROUND THAT THE EXPENDITURE IS CAPITAL IN NATURE. WHEN THE FACTS ARE BEING SO, THE LD.CIT(A) ALTOGETHER HAS GONE ON NEW GROUNDS FOR UPHOLDING THE PENALTY ORDER BY STAT ING THAT THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION DURING THE ASSESSMENT PROCE EDINGS AS TO WHY THE PROFESSIONAL FEE CLAIMED SHOULD NOT BE ADDED BACK A ND ALSO THE WITHDRAWAL OF APPEAL AGAINST THE ADDITION CORROBORATES THAT THE C LAIM OF THE ASSESSEE IS NOT BONAFIDE. CONSIDERING THE FACTS IN TOTO, WE ARE OF THE CONSIDERED OPINION THAT THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE LEVY O F PENALTY AND HENCE THE SAME STANDS DELETED. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 8594/MUM/2011 M/S. PETRON INVESTMENT P. LTD. ASSESSMENT YEAR: 2008-09 4 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 5 TH DAY OF APRIL, 2014. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 25.04.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.