Nadish Real Estate Pvt. Ltd., New Delhi vs Assessee

M/s Nadish Real Estates Vs. Assistant Commissioner of Pvt.Ltd., Income Tax, 1-E, Naaz Cinema Complex, Circle- Circle-13(1), Jhandewalan Extension, New Delhi. New Delhi - 110 055. PAN : AACCN2671D. (Appellant) (Respondent)

Appellant by : Shri R.S. Singhvi and Shri Satyajeet Goel, CAs. Respondent by : Shri Vivek Kumar, Sr.DR.

ORDER

PER G.D. AGRAWAL, VP :

This appeal by the assessee is directed aginast the order of learned CIT(A)-XVI, New Delhi dated 30th May, 2013.

2. The only ground raised by the assessee is against the levy of penalty under Section 271(1)(c) of the Income-tax Act, 1961 amounting to `13,08,890/-.

3. At the time of hearing before us, it is submitted by the learned counsel that for the year under consideration, the assessee filed the return declaring loss of `38,86,482/-. The loss occurred due to incurring of expenses by the assessee. The Assessing Officer disallowed the entire loss and assessed the income at nil. He submitted that the Assessing Officer disallowed the loss on the ground that the assessee did not commence the business. It was submitted by the learned counsel that the assessee was in the business of real 2 ITA-4444/Del/2013

estate. During the accounting year relevant to the assessment year under consideration, the assessee had given the advance for the purchase of land and had also purchased the stamp for registry of such land. He, therefore, contended that the assessee had commenced the business and the Assessing Officer wrongly held that the assessee did not commence the business. He was fair enough to point out that in the quantum appeal, the ITAT did not accept the assessee's claim. He further submitted that merely because the assessee's claim for deduction of expenses is disallowed, it does not amount to concealment of income. In support of this contention, he relied upon the decision of Hon'ble Apex Court in the case of CIT Vs. Reliance Petroproducts Pvt.Ltd. - (2010) 322 ITR 158 (SC). He submitted that the genuineness of the expenses claimed by the assessee has not been disputed. Any material or evidence furnished by the assessee has not been found to be false or inaccurate. Therefore, the decision of Hon'ble Apex Court in the case of Reliance Petroproducts Pvt.Ltd. (supra) would be squarely applicable.

4. Learned DR, on the other hand, referred to the order of the ITAT and pointed out that the ITAT has found that the assessee has not even given the advance for purchase of land and therefore, the business cannot be said to have commenced. He submitted that the ITAT considered all the facts and thereafter has arrived at the conclusion that the contention of the assessee to have commenced the business is incorrect. He, therefore, submitted that the assessee's claim that it has commenced the business was a factually incorrect claim and therefore, the penalty levied under Section 271(1)(c) is quite justified. The same should be sustained.

5. In the rejoinder, it was pointed out by the learned counsel that the assessee had given the advance for purchase of land and had also purchased the stamps for getting the sale deed executed. However, 3 ITA-4444/Del/2013

before the sale deed could have been executed, the assessee's advocates noted certain defect in the title of the seller of the land and therefore, sale deed could not be executed. However, these facts clearly show that the assessee had already started the business activity though the transaction of purchase of land is not materialized but the assessee has started the process of searching the land and negotiating for purchase of land.

6. We have carefully considered the submissions of both the sides and perused relevant material placed before us. In the case of Reliance Petroproducts Pvt.Ltd. (supra), their Lordships of Hon'ble Apex Court held as under:-

"Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."

7. From the above, it is evident that mere making of a claim which is not sustainable in law, by itself, is not liable for penalty under Section 271(1)(c). In the case of the assessee, it claimed the deduction for expenses on the ground that it commenced the business. There can be debate whether the assessee commenced the business or not. But, merely because a view is taken that the business has not been commenced and consequentially expenses claimed by the assessee are to be disallowed, by itself, is not sufficient for levy of penalty under Section 271(1)(c). It is not the case of the Revenue that any details furnished by the assessee are found to be false, incorrect or erroneous. The genuineness of the expenditure incurred by the assessee has not been doubted. The expenses have been disallowed on the technical ground that the business has not been commenced by 4 ITA-4444/Del/2013

the assessee. Hon'ble Apex Court has clearly stated that "A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee." These observations of their Lordships would be squarely applicable in the case of the assessee. We have also noticed that the CIT(A) while sustaining the penalty has relied upon the decision of Hon'ble Delhi High Court in the case of CIT Vs. Zoom Communication P.Ltd. - [2010] 191 Taxman 179. In the said decision, their Lordships held as under:-

"In the case of Reliance Petroproducts P.Ltd. [2010] 322 ITR 158 (SC), the addition made by the Assessing Officer in respect of the interest claimed as a deduction under section 36(1)(iii) of the Act was deleted by the Commissioner of Income-tax (Appeals) though it was later restored, by the Tribunal, to the Assessing Officer. The appeal filed by the assessee against the order of the Tribunal was admitted by the High Court. It was, in these circumstances, that the Tribunal came to the conclusion that the assessee had neither concealed the income nor filed inaccurate particulars thereof. In recording this finding, the Tribunal felt that if two views of the claim of the assessee were possible, the explanation offered by it could not be said to be false. This, however, is not the factual position in the case before us. The facts of the present case thus are clearly distinguishable.

It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect in law is mala fide, Explanation 1 to section 271(1)(c) would come into play and work to the disadvantage of the assessee. The court cannot overlook the fact that only a small 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 explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation

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on 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 to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, 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 provisions in the Act have.

We find that the assessee before us did not explain either to the income-tax authorities or to the Income-tax Appellate Tribunal as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added, while computing the income of the assessee-company. We cannot lose sight of the fact that the assessee is a company which must be having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details from the assessee, we fail to appreciate how such deductions could have been left out while computing the income of the assessee-company and how it could also have escaped the attention of the auditors of the company."

8. Thus, after considering the decision in the case of Reliance Petroproducts Pvt.Ltd. (supra), it was stated by the Hon'ble Jurisdictional High Court that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee but if the claim, besides being incorrect in law is mala fide, Explanation 1 to Section 271(1)(c) would come into play. If the assessee's claim is bona fide, then he will not be liable for penalty. Therefore, the precise question to be adjudicated by us is whether the assessee's claim was bona fide or mala fide.

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9. In the case of the assessee, we find that the returned income of the assessee was loss of `38,86,482/- and, after disallowance of expenses, income assessed is nil. Thus, there was no tax liability on the assessee which may motivate it to make a bogus claim of the expenditure. Even otherwise, the genuineness of the expenses has not been doubted by the Revenue. The fact that the assessee started negotiation for the purchase of land is also not disputed. Considering the totality of these facts, we find no material to hold that the claim for the deduction of the expenses was mala-fide. Therefore, on these facts, in our opinion, the decision of Hon'ble Jurisdictional High Court in the case of Zoom Communication P.Ltd. (supra) would not be applicable, but, the decision of Hon'ble Apex Court in the case of Reliance Petroproducts Pvt.Ltd. (supra) would be applicable. Respectfully following the same, we cancel the penalty.

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

Decision pronounced in the open Court on 9th January, 2015.

Sd/- Sd/- (CHANDRA MOHAN GARG) GARG) (G.D. AGRAWAL) AGRAWAL) JUDICIAL MEMBER VICE PRESIDENT

Dated : 09.01.2015 VK.

Copy forwarded to: -

1. Appellant : M/s Nadish Real Estates Estates Pvt.Ltd., 1-E, Naaz Cinema Complex,

Jhandewalan Extension, New Delhi - 110 055.

2. Respondent : Assistant Commissioner of Income Tax, Circle-

Circle-13(1), New Delhi.

3. CIT

4. CIT(A)

5. DR, ITAT

Assistant Registrar