Landmark Landholdings Pvt. Ltd., New ... vs Assessee

Landmark Landholdings Pvt. Vs. ACIT, Circle - 4(1), Ltd., 11th Floor, Narain Manzil, Circle - 4(1), New Delhi 23, Barakhamba Road, New Delhi (PAN:AAACL9256A) (Appellant) (Respondent)

Appellant by : Sh. R.M. Mehta, CA Respondent by : Sh. B.R.R. Kumar, Sr. DR

Date of hearing: 19.03.2015 Date of pronouncement: 20.03.2015

ORDER

PER R.S. SYAL, A.M.:

This appeal by the assessee is directed against the order passed by the

CIT(A) on 24.07.2013 affirming the penalty of Rs. 1,68,300/- imposed by the

Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961

(hereinafter also referred to as "the Act") in relation to the assessment year

2007-08.

2. Briefly stated facts of the case are that the assessee is engaged in the

business of promotion and development of residential colonies, flats etc. A sum

of Rs. 5 lacs and odd was paid to the Securities and Exchange Board of India

(SEBI) as filing fees for registration of Landmark Real Estate Fund - 1 as a

venture capital fund. This fund was created for the purpose of inviting 2 ITA No. 5277/Del /2013 AY: 2007-08

contributions and making investments in venture capital undertakings as may be

permitted in India. On being called upon to prove the deductibility of this sum,

the assessee explained that the said expenditure was incurred out of commercial

expediency for the purpose of business. The assessee explained that it was

appointed as Investment Manager of IL & FS Trustee India Ltd. and in order to

carry on this business the above said filing fee was paid. The Assessing Officer

did not accept the explanation tendered on behalf of the assessee and treated the

amount as capital expenditure. This resulted into disallowance of Rs.5,00,228/-,

for which the present penalty was imposed and upheld in the first appeal.

3. We have heard the rival submissions and perused the relevant material on

record. It is seen from the tribunal order, passed in quantum proceeding of the

assessee, a copy of which is available on page 71 onwards of the paper book,

that the addition so made by the Assessing Officer has been upheld. There is

some further elaboration of the facts in the tribunal order from which it

transpires that as per clause 5.2.1 of the Agreement between IL & FS Trustee

Company Ltd. and the assessee as its Investment Manager, any amount spent by

the assessee was to be reimbursed. The tribunal held that since the assessee

could not establish the connection of said deposit of fee with its business, the

said expenditure was not allowable.

4. Before proceeding with the merits of the sustenance or otherwise of the

present penalty, we want to make it clear that the mere fact that the addition has 3 ITA No. 5277/Del /2013 AY: 2007-08

been confirmed by the Tribunal in quantum proceedings, cannot automatically

lead to the imposition or confirmation of penalty under Section 271(1)(c) of the

Act. Both the proceedings, namely, assessment and penalty are separate and

distinct from each other. Notwithstanding the fact that the addition may have

been confirmed in the quantum proceedings, the assessee has full right to make

out a case in penalty proceeding that the penalty be not levied for one reason or

the other within the framework of law.

5. Adverting to the facts of instant case, we find that the assessee was

appointed as Investment Manager of IL & FS Trustee Company Ltd. to carry on

the business as a venture capital fund. In furtherance of the intention to carry on

such business, the assessee paid a sum of Rs. 5 lac and odd as filing fee to SEBI

for registration of Landmark Real Estate Fund - 1 as a venture capital fund.

Undisputedly, the said sum of Rs. 5 lac was paid by the assessee out of his own

funds. The arrangement to carry on business as Investment Manager of IL & FS

Trustee Company Ltd. did not fructify and hence the assessee could not recover

this amount from the said party. In view of the fact that this amount of filing fee

was paid for starting a business as venture capital fund, it cannot be conclusively

held that no person properly instructed in law would claim deduction for the

same. At the most, we can call it as a debatable issue. Whenever a deduction is

claimed on a debatable issue after disclosing all the necessary facts and the

claim of the assessee is jettisoned, no penalty can be automatically levied unless 4 ITA No. 5277/Del /2013 AY: 2007-08

it is shown to be a case of concealment or furnishing of inaccurate particulars of

income. Our view fortified by the judgment of the Hon'ble Rajasthan High

Court in the case of CIT Vs. Harshwardhan Chemicals and Minerals Ltd.,

(2003) 259 ITR 212. Similar view has been reiterated by several Courts

including the Hon'ble Calcutta High Court in Durga Kamal Rice Mills Vs. CIT,

(2004) 265 ITR 25 (Cal.).

6. We are confronted with a situation in which the assessee lost a claim for a

genuine deduction after making a proper disclosure. It cannot be said that the

claim of the assessee was ex facie inadmissible as per law. In view of the fact

that the assessee claimed deduction on a debatable point, which albeit came to

be rejected, cannot per se call for imposition of any penalty. Respectfully

following the above precedents, we hold that no penalty is leviable. The

impugned order is set aside and the penalty is directed to be deleted.

7. In the result, the appeal of the assessee is allowed.

The decision is pronounced in the open court on 20th March, 2015.

Sd/- Sd/- (H.S. SIDHU) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 20th March, 2015. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi