Logical Developers Pvt. Ltd., New Delhi vs Department Of Income Tax

ITA NO. 1303/Del/2010

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH "D", NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No. 1303/DEL/2010 A.Y. : 2006-07 ITO, CO. WARD 4(4), M/S LOGICAL DEVELOPERS ROOM NO. 234-B, CR BUILDING, VS. PVT. LTD., IP ESTATE, NEW DELHI 17-B, MGF HOUSE, ASAF ALI ROAD, NEW DELHI - 110 002 (PAN: AABCL 0432H) (APPELLANT) (RESPONDENT)

Department by : Sh. B.R.R. KUMAR, Sr. DR Assessee by : Sh. G.C. Srivastava, Adv., Saurav Srivastava, FCA & Gunjan Jain, CA

Date of Hearing : 16-03-2015 Date of Order : 18-03-2015

ORDER PER H.S. SIDHU, JM

Revenue has filed this appeal against the Order dated 12.1.2010 passed by the Ld. Commissioner of Income Tax (Appeals)-VII), New Delhi pertaining to assessment year 2006-07.

2. The grounds raised by the Department read as under:-

"1. The order of the Ld. CIT(A) is erroneous and contrary to facts and law.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the

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penalty of Rs. 5,09,850/- levied by the AO u/s. 271(1)(c) of the I.T. Act.

2.1 The CIT(A) ignored the facts that the assessee has furnished inaccurate particulars of his income by claiming bogus expenses of Rs. 15,00,000/- on tehsil expenses.

3. The appellant crave, leave to add, amend, alter, forego or delete any ground of appeal before at or before the time of hearing."

3. The brief facts of the case are that the assessee is engaged in the business of builders/ property developers. During the year under consideration, only land was purchased and no construction activity was carried out. All the expenses incurred during the year were capitalized under "work in progress". The return of income for A.Y. 2006-07 declaring NIL income filed on 30.11.2006 by the assessee was processed under section 143(1) of the Act on 29.8.2007. Thereafter, the case was taken up for scrutiny after issuance of notice under section 143(2) of the Act on 22.11.2007. The assessment was framed u/s. 143(3) vide order dated 26.12.2008 determining NIL income wherein the AO has disallowed Rs. 15,00,000/- out of Tehsil expenses of Rs. 79,27,957/- on the ground that certain Tehsil expenses are not properly vouched. Subsequently, penalty u/s. 271(1)(c) was imposed to the extent of Rs. 5,09,850/- in respect of the aforementioned disallowance of Rs. 15,00,000/-.

4. Against the penalty order of the Assessing Officer, Asseessee appealed before the Ld. First Appellate Authority, who vide impugned order 12.1.2010 has allowed the appeal of the assesee

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by deleting the penalty of Rs. 5,09,850/- made u/s. 271(1)(c) of the I.T. Act imposed by the Assessing Officer.

5. Aggrieved by the aforesaid order dated 12.1.2010, Revenue is in appeal before the Tribunal.

6. At the time of hearing Ld. Departmental Representative has relied upon the order of the Assessing Officer and reiterated on the contentions raised in the grounds of appeal filed by the Revenue.

7. On the other hand, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A) and submitted that the order of the Ld. CIT(A) may be upheld.

8. We have heard both the parties and perused the records especially the impugned order dated 12.1.2010, we find that Ld. CIT(A) has observed that there is no dispute to the well-settled legal proposition that the penalty proceedings are distinct and different from assessment proceedings. Ld. CIT(A) further observed that the findings in the assessment proceedings are not conclusive. The entire material available should be considered afresh by the A.O. before imposing penalty u/s 271(l)(c). The Explanation to section 271(1)(c) provides a rule of evidence raising a rebuttable presumption in certain circumstances. No substantive right is created or annulled thereby. The substantive law relating to levy of the penalty is preserved. Ld. CIT(A) further observed that the initial burden of proof is cast on the assessee to establish the presumption arising in certain cases. The assessee can discharge the onus either by direct evidence or circumstantial evidence or by both. The cumulative effect of all facts should be taken into consideration. Ld. CIT(A) further noted that during the course of penalty proceedings, the assessee is entitled to show and establish by the material and relevant facts, which may go to affect and having direct hearing on

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the liability for penalty. Whether there is a concealment to make the penalty exercisable is normally a question of fact. Where the burden of proof in a given case has been discharged on a set of facts, is also a question of fact. The burden is cast on the assessee to offer a bona fide explanation. There are also plethora of judgments to the effect that findings recorded or conclusion drawn in deciding the quantum appeal, are neither conclusive nor binding. For this Ld. CIT(A) has placed reliance on the judgment of Hon'ble Kerala High Court in the case of CIT Vs. Pawan Kumar Dalmia [1987] 168 ITR 1 and the judgment of the Hon'ble AlIahabad High Court in the case of Banaras Texturium VS. CIT [1988] 169 ITR 782 and also the judgment of the Hon'ble Delhi High Court in the case of CIT Vs. Chetandan Lachhmandas [1995] 214 ITR 726.

8.1 We are of the considered view that the Ld. CIT(A) has rightly observed that the considerations in penalty proceedings are different from those in quantum proceedings. It is trite law that merely because an addition has been made and it has not been contested by way of filing an appeal against the same, levy of penalty is not automatic. In National Textiles Vs. CIT [2001] 249 ITR 125 the Gujarat High Court held that it is not enough for the purpose of penalty that the amount has been assessed as income, the circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on the part of the assessee. In the present case, the appellant's conduct and the explanation offered by it shows that there was no conscious or intentional act of assessee to conceal or furnish inaccurate particulars of Income.

8.2 We further find that Ld. CIT(A) has force in his observation that if section 271(1)(c) is read in the light of the judicial pronouncements without the Explanations inserted w.e.f. 01-04-

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1976, it would be easy to hold that the burden which lies upon the assessee to support the claim in the assessment proceedings is not extended in relation to the penalty proceedings. In order to justify the levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee's income. It is not enough for the purpose of penalty that the amount has been assessed as income, and (ii) the circumstances must show that there was animus i.e., conscious concealment or act of furnishing of inaccurate particulars on the part of the assessee. However, Explanation 1 to section 271 (1)(c) has been inserted w.e.f. 1-4-1976 by the Finance (No. 2) Act, 1975. By this Explanation a fiction has been created for deeming the concealment of particulars of income, if in respect of any facts material to the computation to the total income any person has failed to offer an explanation or the explanation has found to be false or where such person has offered an explanation which he is unable to substantiate. Wherein an explanation is furnished which the assessee is unable to substantiate but the assessee establishes that the explanation furnished was bonafide and all the facts relating to the same and material to the computation of his total income has been disclosed by him, explanation 1 (B) will not be applicable.

8.3 We also find that Ld. CIT(A) has observed that whether a particular case falls within the ambit of the Explanation or not would depend upon the facts of each case. Therefore, he referred the Explanation 1 to section 271(1)(c) and examined the facts of the assessee's case in the light of the Explanation.

Explanation 1 to section 271 (1)( c) reads as under:

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"Where in respect of any facts material to the computation of the total income of any person under this Act,-

(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or

(B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts' relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."

From the above Explanation it is evident that the Explanation is a deeming provision and if the assessee's case falls within the ambit of circumstances provided in Part A or Part B of the Explanation, it will be deemed that the amount added or disallowed in computing the total income of the assessee represents the income in respect of which particulars have been concealed Part A of the Explanation would be applicable in circumstances-

(i) where a person fails to offer an explanation; (ii) where a person offers an explanation which is found by the Assessing Officer or by the Commissioner of Income-tax (Appeals) to be false.

Part B of the Explanation would be applicable-(i) where a person offers an explanation but he is unable to substantiate his explanation and also unable to prove that the explanation is bona fide. If the assessee is able to prove that the explanation is bona fide

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and all the facts relating to the same has been disclosed, the assessee's case would not fall within Part B of the Explanation even if he is unable to substantiate the explanation.

8.4 We find considerable cogency in the findings of the Ld. CIT(A) that in the instant case, the assessee had not furnished the inaccurate particulars of its income when it furnished the return. There is only difference of opinion on the relevant issues. If an assessee gives an explanation which is unproved but not disproved i.e., it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee's case is false, the Explanation cannot help the AO because there will be no material to show that the amount in question was concealed by the assessee or inaccurate particulars of the said amount were furnished by the assessee. Therefore, the assessee's case does not fall within the ambit of Part A of the Explanation. So far as Part B is concerned, I find that the assessee offered an explanation and was able to prove that the explanation was bona fide and all the facts relating to the same had been disclosed. Therefore, Part B is also not applicable. Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Ajaib Singh & Co. [2002] 253 ITR 630 have observed that merely because of certain expenses claimed by the assessee are disallowed by an authority, it cannot mean that particulars furnished by the assessee were wrong. It was held that mere disallowance of expenses per se cannot mean that assessee has furnished inaccurate particulars of its income. Ld. CIT(A) further noted that there are a number of decisions of the jurisdictional High Court of Delhi holding the identical view, some of which are cited below:-

(i) In CIT Vs International Audio Visual Company 285 ITR 570, Delhi High Court was concerned with a case where the assessee had claimed a deduction under section 80HHC of the I.T. Act, 1961, in

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respect of dubbing right of Hindi Films, which it had sold to some foreign company. The AO did not agree that it was a sale by the assessee and concluded that it was not a sale of goods or merchandise but a receipt of royalty for transfer of dubbing rights.

Accordingly, he disallowed the claim for deduction under section 80HHC of the Act. The AO also initiated penalty proceedings under section 271(1)(c) and levied penalty. The Tribunal deleted the penalty. On appeal to the High Court, dismissing the appeal, it held that the assessee had a bona fide belief that by selling dubbing rights to a foreign company, it was selling goods or merchandise within the meaning of section 80HHC. Under the circumstances, since there was no concealment of primary facts, penalty could not be imposed.

(ii) In CIT Vs Nath Bros. Exim International Ltd. 288 ITR 670 Delhi High Court was concerned about the claim of dividend income as his business income made by the assessee as it felt entitled to a deduction under clause (baa) of the Explanation to section 80HHC(4C) of the Income-tax Act, 1961. The Assessing Officer disallowed the claim and imposed penalty. The Tribunal came to the conclusion that the assessee had disclosed all the facts, and therefore, even though it had made an erroneous claim which could not be justified in law, that by itself did not attract the penal provisions of the Act. On appeal to the High Court, it is held that that there was full disclosure of all relevant material. It could not be said that the conduct of the assessee attracted the provisions of section 271 (1 )( c). The cancellation of penalty was justified.

(iii) In Commissioner of lncome-tax Vs. Vamchampigons and Agro Products 284 ITR 408 the issue before the Delhi High Court was levy of penalty on concealment of income on the profit from sale of debentures treated as capital gains in prior years, which the

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assessee did not show as business income but as capital gains in relevant assessment year. The Court held that there was no concealment of income and penalty could not be imposed.

(iv) CIT Vs P.H.I. India Ltd. 301 ITR 13 the Delhi High Court was

concerned with an issue of taxability/ allowability of interest on FDRs

where the assessee was engaged in agricultural activity. The

Assessing Officer imposed penalty on the assessee holding that

interest earned on fixed deposit receipts was assessable under the

head "Income from other sources", but the assessee had incorrectly

deducted expenses (being interest paid by it on its overdraft

account) therefrom. On appeal to the High Court, it was held that

the Income-tax Act does not envisage or explicitly provide that in

every case where the return is not accepted as correct and the

assessment is framed at an income higher than that offered for

taxation by an assessee in the form of its return, penalty

proceedings must be initiated. This proposition must logically follow

from the use of the word "may" in section 271 in contradistinction to

"shall" in section 234.

(v) In CIT Vs. Vibros Organics Limited: 159 Taxman 56! 206 CTR 582 (Del.): In this case deprecation was not allowed for want of manufacturing even though assets were kept ready for use. It is held that there could be two opinions in the matter and therefore, Tribunal is right in deleting penalty.

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(vi) The Delhi High Court in CIT V. HMA Udyog (P) Limited: 159 Taxman 394/211CTR 543(Delhi) deleted the penalty imposed in respect of disallowance of expenses on renovation claimed as revenue by the assessee and held to be capital by the Department.

8.5. We find force in the finding of the Ld. CIT(A) that from the

above, it can be concluded that mere disallowance or addition will

not be sufficient for levy of penalty uls 271(1) (c). In view of the

above and taking into consideration the facts (a) that the assessee

had disclosed all material facts and (b) on the claim of assessee two

opinions are possible, therefore, Ld. CIT(A) held that there is no

case of concealment or furnishing of inaccurate particulars of its

income in respect of disallowance of tehsil expenses.

9. Keeping in view of the facts and circumstances as explained

above, we are of the view that the assessee has not deliberately

furnished inaccurate particulars with a view to concealment of

income. We further find that the explanation of the assessee is

bonafide. We also find that section 271(1)(c) postulates imposition

of penalty for furnishing of inaccurate particulars and concealment

of income. On the facts and circumstances of this case the

assessee's conduct cannot be said to be contumacious so as to

warrant levy of penalty. In the background of the aforesaid

discussions and precedents, we find that Ld. CIT(A) has rightly

observed that the assessee would not be liable for levy of penalty

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and he deleted the penalty of Rs. 5,09,850/-. Therefore, we do not

see any reason to interfere with the order of the Ld. CIT(A),

accordingly, we uphold the same and decide the issue against the

Revenue by dismissing the Appeal filed by the Revenue.

Order pronounced in the Open Court on 18/03/2015.

Sd/- Sd/-

[T.S. KAPOOR] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER

Date 18/3/2015 "SRBHATNAGAR" Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches

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