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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED, ACCOUNTANTMEMBER & Ms. MADHUMITA ROY
Consolidated Appeals (3)
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeals have been filed at the instance of the Assessee against the separate orders of the Commissioner of Income Tax (Appeals)– XIV, Ahmedabad [CIT(A) in short] vide appeal nos.CIT(A)-XVI/JCIT-R- 10/311/09-10 dated 22/10/2010, CIT(A)-XVI/ACIT/Cir.10/052/12-13 dated 20/02/2014 & CIT(A)-XVI/ACIT/Circ.10/557/11-12 dated 21/08/2012 in the assessment orders passed under s.143(3) of the Income Tax Act,
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 2 - 1961(hereinafter referred to as "the Act") dated 26/12/2008,dated 31/12/2009 and penalty u/s 271(1)(c) of the Act dated 28/03/2012 and assessment order u/s.143(3) dated 21/12/2011 relevant to Assessment Years (AYs) 2007-08, 2007-08 and 2009-10 respectively.
First we take up AY 2007-08, wherein the assessee has raised the following grounds of appeal:
11.1. the order passed u/s.250 on 22.10.2010 for A.Y. 2007-08 by CIT(A)-XVI, Ahmedabad upholding order u/s.143(3) dated 31.12.2009 is wholly illegal, unlawful and against the principles of natural justice.
1.2. TheLd.CIT(A) has grievously erred in law and or on facts in passing the impugned order without allowing sufficient opportunity to the appellant. The Ld.CIT(A) has erred in not considering fully and properly the submissions made and material produced by the appellant.
2.1. The Ld.CIT(A) has grievously erred in law and on facts in confirming the disallowance of expenses of Rs.14,26,813/-.
2.2. That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought not to have upheld the disallowance of expenses of Rs.14,26,813/-.
2.3. The Ld.CIT(A) has grievously erred in upholding that there was no business activity during the year and the appellant had failed to prove the same. The appellant was not allowed sufficient opportunity to produce evidence in this regard.
3.1. The Ld.CIT(A) has erred in upholding that rental income from lease of bungalow to Shell India Marketing Pvt.Ltd., was assessable under the head “income from other sources” and not “House property”.
3.2. That in the facts and circumstances of the case as well as in law the Ld.CIT(A) ought not to have upheld that the intention behind letting out to Shell India Marketing Pvt.Ltd., was land and not house property so that income was not assessable as property income.
4.1. Theld.CIT(A) has grievously erred in law and on facts in upholding the disallowance of interest expenses of Rs.8,00,387/-.
It is, therefore, prayed that the additions upheld by the CIT(A) may kindly be deleted.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 3 -
The first issue raised by the assessee is that the order passed by the learned CIT (A) is bad in law and against natural justice as the same was passed without granting sufficient opportunity. However, the learned AR did not press this ground before us. Accordingly we dismiss the same.
The second issue raised by the assessee is that the learned CIT (A) erred in holding that there was no business activity and confirming the disallowances of expenses of Rs. 14,26,813/-.
4. During assessment proceedings, the AO observed that the assessee for the year under consideration claimed business expenses of Rs.14,26,813/- against NIL business income. The assessee claimed that due to lull in the market, there was no business transaction carried out during the year. But he incurred the expenses in order to sustain his business.
4.1. However, the AO held that assessee has not carried business activity during the year and the incomes disclosed by the assessee were related to other sources. Therefore, the business expenses as claimed by the assessee are not eligible for deduction. Accordingly, the AO disallowed the entire business expenses of Rs.14,26,813/- and added to the total income of the assessee.
Aggrieved assessee, preferred an appeal before learned CIT (A).
The assessee before the learned CIT (A) submitted that the AO has disallowed the expenses without verifying the fact that the business is 966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 4 - continuing. He only submitted that due to lull in the market no business transaction took place during the year.
5.1. The learned CIT (A) after considering the submission of the assessee and assessment order held that the assessee has not submitted anything with regard that the business was not closed. Therefore in absence of any detail such as when he started business and when slowdown came in market and when he restarted his business after lull in market, the contention of the assessee is not acceptable. Accordingly the learned CIT (A) confirmed the order of the AO.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 71 and submitted that the business activities of the assessee were not discontinued/closed down. As such there was a lull in the business activities and therefore it could not show any income under the head business and profession. The learned AR further claimed that the assessee in the assessment year 2010-11 has re-started its business activities. The learned AR in support of his contention drew our attention on the financial statements for the assessment year 2010-11.
6.2. The learned AR also buttressed his contention by filing the assessment order under section 143(3) of the Act for the assessment year 2006-07 wherein the business activities of the assessee were shown.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 5 - 6.3. In view of the above the learned AR claimed that there cannot be disallowance of the expenses incurred by the assessee to keep its business alive.
On the other hand the learned DR submitted that there was no business activity carried out by the assessee in the year under consideration. Similarly, the assessee has not justified weather the expenses incurred by the assessee were incurred to keep the business alive. The learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The facts as discussed above are not in dispute. Therefore, we are not repeating the same for the sake of brevity and convenience. From the foregoing discussion, the issues arise for our consideration stand as under:
Whether the assessee was engaged in business activity or business was continuing or closed?
2. Whether the expenses incurred were wholly and substantially for the purpose of business or not?
8.1. Regarding the question No.1, the undisputed fact is that there was the business activity from the transactions of land dealing in the assessment year 2006-07 as evident from the assessment order under section 143(3) of the Act. The relevant finding of the AO in the assessment order stands as under:
“ The assessee is trading in land. He is also doing in investment in shares and stocks and in real estate. During the year, the assessee has sold the land which was lying with him as closing stock since assessment year 2004 05. “ XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
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, In view of the above, the total income of the assessee is determined as under: income from business and profession as per statement 259510”
8.2. Similarly, we also note that the assessee has carried out this activity in the assessment year 2010-11 as evident from the financial statements. The relevant extract of the financial statement of the assessee these as under:
Particulars 1Apr-2009 to 31-Mar-2010 Particulars 1Apri-2009 to 31-Mar-2010 Opening Stock Purchase Accounts 11,29,170.00 Sales Accounts 11,24,130.00 Futures & Options Futures & Options 11,29,170.00 11,24,130.00 Puchase A/c. Sales A/c.
8.3. From the above there remains no dispute to the fact that the assessee carried on its business activities in the immediate previous assessment year i.e. 2006-07 and in A.Y. 2010-11 but in between there was no business activity for the assessment years 2007-08, 2008-09 and 2009-10.
The next issue arises whether the temporary lull in the business activities amount to closure of the business. The answer certainly is in negative. It is because there can be a situation when the assessee is not able to generate any business but it has to incur the expenses to keep its business setup in existence. Thus in such a situation the assessee cannot be denied the claim of expenses incurred during the period when he was not able to generate the business. Furthermore, it is also important to note that the business is governed by the market forces which are beyond the control of the assessee. Thus merely lull in the business activities does not mean that the assessee has closed down its business activities. Accordingly, we hold that the 966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 7 - assessee cannot be deprived from the benefit of claiming the deduction for the expenses incurred to keep the setup of the business in existence.
Regarding the question No.2 as discussed above, we note that the expenses incurred by the assessee to keep the business setup in existence are eligible for deduction. But it is equally important to ascertain whether the expenses incurred by the assessee are really essential to keep its business setup in existence during the lull period. As such, in our considered view all the expenses incurred by the assessee during the lull period are not eligible for deduction except those expenses which were necessary to incur or keep its business setup in existence. In the case on hand, this aspect has not been verified by the authorities below. Now again the question arises whether the issue for the deduction of the expenses claimed by the assessee should be set aside to the file of the AO to find out the expenses which were necessary to be incurred for keeping the status of the business alive. Considering the facts available on record, we note that all the details of the expenses incurred by the assessee were available before the authorities below, therefore we feel that the revenue should not be given fresh inning for determining the expenses incurred by the assessee which are to be allowed/disallowed as the case may be.
10.1. In view of the above and after considering the facts in totality, we set aside the order of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 8 -
The issue raised by the assessee in ground Nos. 3 and 4 is interconnected. Therefore, we have clubbed both of them for the purpose of adjudication. The issue raised is that the learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of the deduction claimed by the assessee under section 24(a) and 24(b) of the Act on the ground that the income from letting out the land is chargeable under the head income from other sources.
11.2. The assessee is the owner of bungalow bearing plot no 93 of Town planning scheme no. 3 which was let out to M/s Shell India Marketing Pvt. Ltd. vide agreement dated 7th September 2006. The assessee revised such agreement by executing supplementary deed dated 11th September 2006. The assessee under the supplementary deed authorized the lessee to make the changes as per its requirement in the property let out to it subject to the condition that the lessee shall either return the original property or it will compensate 1 month rent to him (the assessee).
11.3. The assessee accordingly claimed to have received rent from the lessee which is chargeable to tax under the head income from house property. Thus the assessee claimed the deduction against such rental income under the provisions of section 24 (a) and 24(b) of the Act for Rs. 18,17,612/- and Rs. 8,00,388/- respectively.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 9 - 11.4. The AO during the assessment proceeding deputed the inspector to verify the property let out by the assessee to the lessee as discussed above.
11.5. The inspector of the income tax in turn submitted that the bungalow has been demolished by the lessee and the piece of land is being used for the purpose of patrol pump activity.
11.6. In view of the above the AO held that the rent received by the assessee is from letting out the land and not the house property. Therefore the same cannot be treated income under the head house property but the income from other sources. Eventually, the assessee cannot be allowed deduction claimed by him under the provisions of section 24(a) and 24(b) of the Act.
11.7. The AO also observed that the supplementary deed by the assessee dated 11th of September 2006 is self-serving document and cannot be relied to infer that the impugned rental income is taxable under the head house property. The AO finally held that the impugned rental income is chargeable to tax under the head income from other sources and thus the AO denied the benefit for the claim of the assessee under section 24(a) and 24(b) of the Act.
The AO further observed that the assessee is not entitled for the deduction of interest expenses against the rental income chargeable to tax under the head income from other sources for the reason that the interest expenses was not incurred for the running of such rental income. Accordingly the AO denied the deduction to the assessee for Rs. 8,00,387/- and added the same to the total income of the assessee.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 10 - Aggrieved assessee preferred an appeal to the learned CIT (A).
11.8. The assessee before the learned CIT (A) submitted that he has given the bungalow to the lessee as per the supplementary deed dated 11-9-2006. The inspector of the income tax visited to the property in dispute and submitted in his report that the bungalow was demolished and there was a piece of land. But the inspector visited to such property after a gap of 3 years from the date of the agreement. Therefore, the report of the inspector does not establish the fact that there was no bungalow at the time of rent agreement.
11.9. The assessee further submitted that the changes effected by the lessee in the said bungalow were approved by the municipal Corporation dated 30th November 2007. Thus, it can be inferred that the bungalow was in existence till 31st of March 2007.
11.10. The assessee also filed the municipal corporation bill till 24 July 2007 which also proves that the bungalow was in existence.
11.11. The assessee also claimed that as per the agreement, the lessee has to return the bungalow in the original form or it will compensate 1 month rent to him. As such, the subsequent event happened on the instance of the lessee cannot change the character of the income in his hands. Accordingly such income should be chargeable to tax under the head house property.
11.12. However, the learned CIT (A) disregarded the contention of the assessee and confirmed the order of the AO by observing as under:
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 11 -
“4.3. I have considered the submission made by the appellant and observation of the AO. I agree with the AO that existence of Bunglow is not the real issue. There is nothing on record that the lessee has enjoyed the Bunglow as house property or intended to enjoy it. On the contrary, as stated by the AO the intention of the appellant as well as the lessee was clearly to give and take the land on which the lessee right from the beginning wanted to construct a petrol pump. It cannot be argument of the AO that person who wanted to take Bunglow on rent decided to demolish and make petrol pump without the intention being very clear right in the beginning. The AO has quoted from the deed to show that the lessee was taking the lease of plot on rent. Page 6 of the lease agreement clearly shows that the lesser has delivered to the lessee vacant and peaceful possession f the entire said land. In the agreement itself, the intention is very clear because on page number eight and nine clause (ix), and clause (xiv) clearly show that the lessee shall have the right to carry on any construction on the said land for running its business. If the intention was to make any construction for running its business then enjoyment of bunglow can never be the intention in the beginning also. In view of this reason, I agree with the AO that the income earned by the assessee is not income from house property, but income from other sources. In view of this reason, this ground of appeal is dimsmissed.”
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us:
The learned AR before us submitted that the assessee has let out the bungalow to the party as evident from the supplementary agreement of lease placed on pages 41 to 47 of the paper book. Therefore, any subsequent change in the said bungalow should not change the character of the income in the hands of the assessee. 12.1 Without prejudice to the above the learned AR also claimed that there was no change in the bungalow till the end of the year under consideration as evident from the Municipal Corporation tax bill for assessment year 2006- 07 and 2007-08 which are placed on pages 48 to 51 of the paper book.
12.2 The learned AR without prejudice to the above also submitted that if the rental income is treated as income from other sources then also benefit of interest expenses should be extended to the assessee.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 12 -
On the other hand, the learned DR before us submitted that the entire bungalow was demolished and it became a piece of land. 13.1 The learned DR also claimed that the substance of the lease agreement was to let out the land only. Therefore, any rental income against the use of such land has to be treated as income from other sources. The learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessee has given a piece of land on rent to the lessee or the bungalow. On perusal of the original agreement dated 7th September 2006, there is no ambiguity that the assessee has given up piece of plot to the lessee. However, the assessee subsequently within 4 days of the original agreement entered into supplementary deed with the party to justify that he has given the bungalow to the party with the right to change/demolish the same as per its requirement. The dispute in the present case to be addressed is whether the assessee has given a piece of plot or the bungalow to the party. Without going into the controversy as discussed above, we find that the substance in the entire flow of transaction was that the land after demolishing the bungalow will be used for the purpose of the petrol pump. The lessee was not interested in the bungalow at all. It is because the lessee immediately after entering into the lease agreement started the process of getting approval from various authorities for the purpose of petrol pump. This fact can be verified from the commencement letter issued by the Ahmadabad Municipal Corporation to the lessee dated 30-11-2007 where the lessee got NOC from certain authorities as detailed under: i. NOC from Ministry of Commerce and Industry Dept of Explosive for petrol pump vide letter dated 27/11/2006,
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 13 - ii. NOC from police department vide letter dated 08/02/2007 and iii. NOC from Archaeological Survey of India vide letter dated 19-04- 2007.
14.1. Finally, the Ahmadabad Municipal Corporation on the basis of above mentioned NOCs issued the commencement letter vide order dated 30/11/2007. From the above mentioned facts it is transpired that the lessee never used the bungalow/building. As such, the lessee was only using land for the purpose its petrol pump business. Thus the rent paid by the lessee to the assessee was towards the use of land and not for the use of the bungalow.
14.2. We also note that the assessee has taken two different stands. Firstly, he submitted that he has let out the land to the party but subsequently changed his stand by revising the rent agreement for let out of the bungalow. In such a situation, it is difficult to believe on the statement of the assessee to ascertain when he was speaking the truth. In holding so, we draw support and guidance from the judgment of the Hon'ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal) wherein it was held that “A man indulging in double-speaking cannot be said by any means a truthful man at any stage-and no court can decide on which occasion he was truthful.”
14.3. Accordingly, the impugned rent cannot be classified as income under the head house property. To tax the rent income under the head house property, there has to be a house property or the land pertinent thereto as envisaged under the provisions of section 22 of the Act. But in the case on 966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 14 - hand, even if we assume that there was the bungalow for some time, the rent received thereto cannot be classified as income under the head house property as lease agreement was never intended for the use of bungalow. Accordingly, the only option available to tax the impugned rental income from the land is under the head income from other sources. Accordingly, we hold that the assessee is not entitled for the deduction under section 24(a) and 24(b) of the Act with respect to such rental income as discussed above.
Regarding the claim of the assessee for the interest expenses against the income from other sources, we note that the provisions of section 57 of the Act require allowing the deduction of the expenses incurred in generating the income under the head other source. Indeed the assessee has incurred interest expenses but failed to justify based on documentary evidence that such interest expenses were incurred in connection with impugned land/investments/bungalow. Accordingly, we are not convinced with the argument of the learned AR for the assessee. Hence, we do not find any infirmity in the order of the authorities below. Thus, the ground of appeal of the assessee is dismissed.
Coming to for AY 2007-08
The assessee has raised the following grounds of appeal:
1.1 The order passed u/s.250 20.2.2014 for A.Y. 2007-08 by CIT(A)-XVI, Abad confirming the penalty of Rs.13,62,000 levied by AO in respect of disallowances of business expenses of Rs.14,26,813 and rental income treated as income from other sources by Rs.26,18,000 is wholly illegal, unlawful and against the principles of natural justice. 1.2. The Ld.CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant. The Ld.AO has grievously erred in holding that the appellant had knowingly made false, incorrect, inappropriate, bogus and mischievous claim.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 15 -
2.1. The Ld.CIT(A) has grievously erred in law and or on facts in upholding that the appellant had furnished inaccurate particulars in the return of income in respect of the amount aggregating to Rs.40,44,813 consisting of disallowance of business expenses of Rs.14,26,813 and rental income treated as income from other sources by Rs.26,18,000 and thereby levying penalty of Rs.13,62,000.
2.2. That in the facts and circumstances of the case as well as in law, the ld.CIT(A) ought not to have upheld that the appellant had furnished inaccurate particulars of income in respect of Rs.40,44,813 and thereby levied penalty u/s.271(1)(c) of Rs.13,62,000.
3.1. The ld.CIT(A) has failed to appreciate that the claim of business expenses and lease rent as property income were genuine and the explanation offered by him was duly substantiated so that the provisions of Sec.271(1)9c) were not attracted.
3.2. That in the facts and circumstances of the case as well as in law, the ld.CIT(A) ought not to have held that the provisions of Sec.271(1)(c) were attracted in respect of business disallowance and rental income treated as income from other sources.
3.3. In any view of the matter, the penalty proceedings u/s.271(1)(c) initiated only in respect of disallowance of business expenses, the penalty levied by AO in respect of rental income treated as other sources is wholly illegal and unlawful.
It is therefore prayed that penalty of Rs.13,62 lakhs levied by the AO and confirmed by the CIT(A) should be deleted.
The effective issued raised by the assessee in all the grounds of appeal is that the learned CIT (A) erred in confirming the penalty of Rs.13,62,200/- imposed by the AO under section 271(1)(c) for furnishing inaccurate particular of income on account of disallowances of expenses of Rs. 14,26,813/- and disallowances of deduction for Rs. 26,18,000 claimed under section 24 of the Act.
18. At the outset, we note that the facts related to disallowances as discussed in the above issue of the assessee, have already been elaborated by us in somewhere in the preceding paragraph of this order in . Therefore, we are not inclined to repeat the same for the sake of brevity and convenience.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 16 - 18.1. We further note that there are two additions/disallowances which were made to the total income of the assessee in the quantum proceedings and the assessee further for such additions/disallowances was visited with the penalty under section 271(1)(c) of the Act by the authorities below.
Regarding the penalty imposed on the addition/ disallowance of business expenses of Rs. 14,26,813/-, we note that the addition made by the AO has already been deleted by us vide paragraph No. 10 and 10.1 of this order bearing . Accordingly in our considered view once the quantum addition itself stands deleted then there should not be any penalty on the assessee based on such addition/disallowance. Hence we direct the AO delete the penalty with respect to addition of Rs. 14 26,813/- on account of business expenses disallowed.
Coming to the next part of penalty imposed on addition of Rs. 26,18,000/- being disallowances of deduction claimed under section 24(a) and 24(b) of the Act. The first part of the penalty under section 24(a) of the Act represents the disallowance of the standard deduction claimed by the assessee against the rental income under the head house property.
20.1. The provisions of section 24(a) of the Act, mandates to allow the benefit of the standard deduction to the assessee on account of repair and maintenance expenses of the rented property from gross rental income taxable under the head house property. The standard deduction under section 24(a) of the Act, is being statutory in nature and has to be allowed irrespective of the actual expenses incurred by the assessee. In the present case the assessee has shown the income under the head house property and accordingly the deduction under section 2(a) of the Act was claimed. But the 966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 17 - claim of the assessee was denied on the ground that the impugned rental income was taxable under the head income from other sources instead of income from house property. Accordingly, the deduction claimed against such rental income was denied automatically. Now the controversy arises whether the assessee has furnished inaccurate particular of income by treating the impugned income under the head house property.
20.2. There is no dispute to the fact that the assessee has earned lease rental and declared the correct rental income but the same was declared under the wrong head i.e. under income from house property instead of income from other sources. Thus, it is transpired that the assessee has declared his income under the wrong head which can be inaccurate claim but the same cannot be treated as inaccurate particulars of income. It is because the deduction under section 24(a) of the Act is automatic against the income chargeable to tax under the head house property. Thus, in our considered view a wrong claim by the assessee cannot tantamount as inaccurate particulars of income. In holding so we find support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. reported in 322 ITR 158 wherein it was held as under:
“Therefore, it must be shown that the conditions under section 271(1)(c ) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. [Para 8] The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9]
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 18 -
The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10]”
20.3. In view of the above, we hold that the assessee did not claim the deduction under section 24(a) of the Act with mala-fide /dishonest intent.
20.4. We further note that the issue involved in hand is debatable in nature and there can be dispute to classify the impugned rental income under the head house property/income from other sources. In holding so we draw support and guidance from the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Sambhav Media Ltd. where it was held as under:
“It appears that the assessee made a claim of statutory deduction under Section 24 of the Act as well as also for depreciation. At the time of assessment, all relevant material facts were disclosed by the assessee and depreciation was also claimed on its business assets. Both Assessing Officer and CIT(A) found that assessee was dis-entitled to claim double deduction of depreciation as well as deduction under Section 24 of the Act. The Tribunal rightly held that there was no concealment of income nor was there any filing of inaccurate particulars of income. Thus, on finding the conduct of the assessee bona fide and this being a matter of bona-fide difference of opinion between the assessee and the department regarding allowability of the claim, it was justified in deleting the penalty imposed by both the authorities.”
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 19 - 20.5. In the light of the above stated discussion and after considering the facts in totality, we hold that there cannot be any penalty on account of disallowance of the deduction claimed by the assessee under section 24(a) of the Act.
Now coming to the 2nd part of the dispute whether the assessee has incurred interest expenses in the earning of impugned rental income, in this regard we note that the penalty proceedings are distinct from the assessment proceedings. Therefore the addition made during the assessment proceedings does not authorize the AO ipso facto to levy the penalty under section 271(1)(c) of the Act. As such the AO is under the obligation to carry out the necessary verification before reaching to the conclusion that the assessee has furnished any inaccurate particular of income or concealed the particulars of income.
In the instant case, the penalty was initiated on account of the disallowance of the interest expenses against the impugned rental income. However, the assessee claimed that the interest was paid on the money borrowed which was invested in the impugned property from where he was getting the rental income. The assessee has also furnished the details of the parties from whomhe has borrowed fund which was utilized for the purpose of the investments. However the AO without verifying the genuineness of the details furnished by the assessee has levied the penalty merely on the ground that such interest expenses was disallowed during the quantum proceedings. As such the penalty proceedings being distinct and separate from the assessment proceedings, the AO is under the obligation to carry out the fresh verification as held by the Hon’ble Gujarat High Court in the case of National Textiles Vs. CIT reported 249 ITR 125. The relevant extract of the judgment is extracted below:
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 20 -
“In the instant case, the cash credits were not satisfactorily explained by evidence and documents. The parties who had advanced the alleged temporary loans were neither disclosed with their particulars nor any supporting documents were on record. Only two entries were explained. The accountant who had arranged the loan was not produced stating that he had left the service and relations with him were strained. On this state of accounts and evidence in the quantum proceedings, the department was justified in treating the cash credits as income of the assessee but merely on that basis by recourse to Explanation 1, penalty under section 271(1)(c) could not have been imposed without the department making any other effort to come to a conclusion that the cash credits could in no circumstances had been amounts received as temporary loans from various parties. The assessee in the quantum proceedings failed to produce the accountant but the department also in penalty proceedings made no effort to summon him. Applying the test (ii) discussed above, therefore, it was a case where there was no circumstance to lead to a reasonable and positive inference that the assessee’s case, that the cash credits were arranged as temporary loans, was false. The facts and circumstances were equally consistent with the hypothesis that it could have been sundry loans in small amounts obtained from different parties. Therefore, even taking recourse to Explanation 1, the circumstance or state of evidence on which the cash credits were treated as income, could not by themselves justify imposition of penalty without anything more on record produced by the assessee or the department. It was, accordingly, held that the Tribunal was not justified in law in confirming the penalty levied under section 271(1)(c).”
22.1. In view of the above, we hold that the AO cannot just levy the penalty merely on the ground that the additions were made during the quantum proceedings. As such the AO has to carry out necessary verification by issuing the notice to the parties before levying the penalty. In view of the above, we are of the opinion that no penalty can be levied under section 271(1)(c) of the Act for the reasons as stated above. Hence the ground of appeal of the assessee is allowed.
Coming to for AY 2009-10
The assessee has raises following ground of appeal.
1.1. The order passed u/s.250 on 21.8.2012 for AY 2009-10 by CIT(A)-XVI, Abad, upholding the partly the disallowances made by AO is wholly illegal unlawful and without jurisdiction.
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2.1. The ld.CIT(A) has grievously erred in law and on facts in upholding the disallowance of expenses to the extent of Rs.10.0 lacs. 2.2. That in the facts and circumstances of the case, the ld.CIT(A) ought not to have upheld the disallowance of expenses to the extent of Rs.10 lacs nor held that the appellant had failed to demonstrate that the said expenses were incurred for business purposes. 3.1. Theld.CIT(A) had grievously erred in law and on facts in upholding the disallowance of interest paid of Rs.7,99,137.
The interlinked issue raised by the assessee vide ground nos. 1 and 2 is that the learned CIT (A) erred in law and in confirming the part disallowances of business expenses of Rs. 10 lakhs.
At the outset, we note that the similar identical raised by the assessee in No. 10 and 10.1 of this order. For the detail discussion please refer the relevant paragraph as discussed above. Therefore respectfully following the same and to maintain parity with the findings, we allow the ground raised by the assessee in his favour.
Second issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowances of interest expenses of Rs. 7,99,137/-
At the outset, we note that the identical issue raised by the assessee in Revenue vide paragraph No. 15 of this order. For the detail discussion please refer the relevant paragraph as discussed above. Therefore respectfully following the same and to maintain parity with the findings, we dismiss the ground raised by the assessee in his favour.
966/Ahd/2014 & 2493/Ahd/2012 Shri AtulBabubhaiShah vs.Jt.CIT/ACIT Asst.Years– 2007-08 & 2009-10 - 22 -
In the result, appeal of the assessee is partly allowed.