Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “ SMC ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & MS. MADHUMITA ROY
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–2, Vadodara [CIT(A) in short] vide appeal no.CIT(A)-2/156/2014-15 dated 15/06/2015 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 08/11/2011 relevant to Assessment Year (AY) 2009-10.
The assessee has raised the following grounds of appeal:-
On the facts and in the circumstances of the case the learned CIT(A) erred on law and on facts in arriving at the conclusion that your appellant had concealed the impugned income and
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 2 - thereby confirming of levying penalty of Rs.2,70,000/- u/s.271(1)(c) of the IT Act, 1961.
At the outset, it was noticed that there was a delay in filing the appeal by the assessee by 265 days. The assessee explained it in the condonation petition supported with the affidavit that the concerned director looking after the taxation matters was out of India. The accountant of the assessee did not intimate to the director of the company about the receipt of the order from the Ld. CIT(A). Therefore the delay occurred in filing the appeal. The assessee in support of his claim filed the affidavit which is placed on record.
On the other hand, the Ld. DR opposed condoning the delay in filing the appeal by the assessee on the ground that there were other directors in the company who could look after the tax matters. However the Ld. DR left the issue at the discretion of the bench.
We have heard the rival contentions and perused the materials available on record. Considering the facts and circumstances for the delay in filing the appeal by the assessee, we are inclined to condone the same after having the reliance on the judgment of Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471) where certain laid down certain principles for considering the condonation petition for filing the appeal which are reproduced hereunder: (1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late (2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10
- 3 - delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. (3) 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, commonsense and pragmatic manner. (4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non- deliberate delay. (5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. (6) It must be grasped that the judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
5.1. From the above judgment of the Hon’ble Apex Court, we note that the substantial justice deserves to be preferred rather than deciding the matter on the basis of a technical defect. Thus we condone the delay, and accordingly we proceed to hear the ground of appeal of the assessee on merit.
The only issue raised by the assessee is that the Ld. CIT(A) erred in confirming the order of the Assessing Officer by sustaining the penalty of Rs. 2,70,000/- u/s 271(1)(c) of the Act.
Briefly stated facts are that the assessee in the present case is a Limited Company. It was engaged in the business of manufacturing, assembling of Air Conditioner Machines in the earlier years. However, in the year under consideration, the assessee started trading in air-
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 4 - conditioners. The assessee during the year has sold three ACs amounting to Rs. 45,000/- and claimed the cost of goods sold at Rs. 38,765/- leaving a gross profit of Rs. 6,235/- only. The assessee against such gross profit has claimed indirect expenses amounting to Rs. 21,51,880/- only. Thus, the assessee has declared net loss of Rs. 21,45,645/-.
However, the assessee in its statement of income while computing the income under the head “business and profession” has made the disallowance of Rs. 12,74,366/- only. Thus, the assessee has claimed a loss of Rs. 8,71,279/- under the head “business and profession.” The relevant extract of the statement of income is reproduced as under:
“Income under head Business & Profession: Net Profit as Per P & L A/c. 17,54,335 Add : Items Inadmissible or disallowable Expenses disallowed 78,300 Expenses relating to other Heads of Income 11,87,880 Income Tax Paid 8,166 ------------- Sub Total 12,74,366 ----------- 30,28,721 Less : Income Considered Separately Rent Received 39,00,000 ------------- Income under the head profit & Gains of Business (-) 8,71,279”
8.1. The assessee in the year under consideration has also shown rental income amounting to Rs. 27,30,000/- after claiming the deduction u/s 24
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 5 - of the Act. Thus, the assessee claimed the set off of the business loss amounting to Rs. 8,71,279/- against the income under the head “house property.” However, the Assessing Officer was of the view that there were no manufacturing activities carried out by the assessee during the year. Therefore, it was not eligible for claiming any expenses under the head “business and profession.” Accordingly, the Assessing Officer disallowed the loss of Rs. 8,71,279/- and denied the set off of such loss against the income under the head “house property.” Thus, the Assessing Officer initiated the penalty proceedings on account of the expenses claimed by the assessee under the head “business and profession” for furnishing inaccurate particulars of income and concealment of income in his assessment order framed u/s 143(3) of the Act vide order dated 08/11/2011.
8.2. Subsequently, the Assessing Officer issued a notice u/s.274 r.w.s. 271(1)(c) of the Act for levying the penalty on account of furnishing inaccurate particulars of income. The assessee in compliance to it submitted that the expenses were claimed in the course of its business of sale purchase of Air Conditioner. Therefore, it has not furnished any inaccurate particulars of income. However, the Assessing Officer disagreed with the submission of the assessee by observing that the assessee has tried to claim the double benefit of the expenses under the heads “house property” as well as “business and profession” which is not allowable under the provisions of the Act.
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 6 - 9. The addition made by the Assessing Officer in the assessment framed u/s 143(3) of the Act was confirmed by the Ld. CIT(A) as well as by the Hon’ble ITAT. Therefore, the Assessing Officer held the assessee guilty for furnishing inaccurate particulars of income and deemed to have concealed particulars of income. Accordingly, the Assessing Officer levied penalty u/s. 271(1)(c) of the Act, for Rs. 2,70,000/- being 100% of the amount of tax sought to be evaded.
The aggrieved assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the expenses claimed under the head business and profession were incurred in the course of business of sale/purchase of air conditioner. Therefore, it has not furnished any inaccurate particulars of income. Accordingly, there is no occasion for levying the penalty u/s. 271(1)(c) of the Act.
However, the Ld. CIT(A) disregarded the contention of the assessee by observing that the assessee cannot claim double benefit under the provisions of the Act. As such, the assessee has claimed bogus expenses to claim the set off of the business loss against the income under the head “house property.” Therefore, the Ld. CIT(A) confirmed the penalty order of the Assessing Officer.
Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 7 - 13. The Ld.AR before us submitted that the assessee-company being a body corporate has to incur certain expenses to keep its status active. Therefore, the expenses claimed by the assessee in P&L account were incurred in connection with the business of the assessee. It did not claim any deduction of any expenses two times as alleged by the authorities below. As such, the assessee in its statement of income has already disallowed the expenses claimed under the head “repair and maintenance” which was available to it under section 24 of the Act. Thus, the question of claiming the double benefit of the same expenses does not arise.
The Ld.AR in support of his claim relied upon the judgment of Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts (P) Ltd reported at (2010) 322 ITR 158 (SC).
On the other hand, the Ld. DR submitted that it had claimed the expenses incurred for “repairs & maintenance” in the P&L account as well as u/s 24 of the Act which amounts to double deduction of the same expenses. Similarly, there was no business activity during the year, then the question of claiming traveling expense does not arise. But the assessee has claimed the same in the P&L account.
The Ld. DR accordingly submitted that the assessee had used the colorable device by claiming such expenses under the head “business and profession” by showing its small amount of the sales of the air conditioner. The purpose of the assessee is to claim the expenses is to
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 8 - book the losses under the business and profession so that it can claim set off from house property income. The Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival contention and perused the materials available on record. The assessee in the instant case has shown losses under the head business and profession amounting to Rs. 8,71,279/- which was set off against the income under the head house property. The expenses claimed by the assessee resulting losses under the head business and profession was disallowed by the AO on the ground that there were no business activities carried out by the assessee. The Ld CIT(A) and ITAT subsequently confirmed the view taken by the AO.
Accordingly, the AO levied the penalty of Rs. 2,70,000/- on account of furnishing inaccurate particular of income for the expenses claimed under the head business and profession. The penalty was levied under the provisions of section 271(1)(c) of the Act. The Ld. CIT(A) subsequently confirmed the penalty order of the AO.
Now the controversy arises before us for adjudication whether the assessee has furnished inaccurate particular of income in the given facts and circumstances. From the preceding discussion, we note that it was alleged that the assessee had claimed double benefit by claiming expenses under section 24 of the Act as well as under the head business and profession.
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 9 - 20. In this regard, we note that the assessee has claimed deduction under section 24 of the Act on account of repair and maintenance expenses as per the provision of law. This fact is undisputed. On perusal of the statement of income of the assessee, we note that the assessee has suo-moto disallowed the expenses claimed on account of repair and maintenance under the head business and profession amounting to Rs. 11,87,880/-only. This act of the assessee proves that it has not claimed a double deduction of repair and maintenance expenses under the head business and profession as well as under the head house property. Thus we disagree with the finding of the lower authorities that the assessee has claimed the double benefit of the same expenses.
It is an undisputed fact the assessee has claimed losses under the head business and profession amounting to Rs. 21,84,145/- approximately after adjusting the gross profit of Rs. 6235.00 only.
21.1. However, the assessee in the statement of income has made the disallowances of certain expenses as discussed in the preceding paragraph.
Thus the loss claimed by the assessee comes to Rs. 8,71,279/- only under the head business and profession. The assessee is body corporate and listed with the stock exchange. The assessee to keep its status active has to incur certain expenses such as audit fees, listing fees, administrative expenses, ROC filing fees, and on the other connected matters. Thus the expenses which have been incurred by the assessee to
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 10 - keep the status of it active cannot be treated as bogus. As such the assessee has claimed expenses under the head business and profession of Rs. 8,77,514/- only which was reduced by the amount of gross profit of Rs. 6,235/-only. Thus the net loss comes to Rs. 8,71,279/-only. The authorities below have disallowed all the expenses.
We note that the ITAT has also disallowed these expenses in its order vide ITA number2536/AHD/2012 dated 31.07.2013. Thus, there cannot be any question about the allowability the expenses on merit.
The limited issue before us for our adjudication whether the assessee has furnished inaccurate particular of income. In this regard, we find that the authorities below have not pointed out any defect in the expenses claimed by the assessee suggesting that these are bogus in nature. The basis used for disallowance of the expenses was that there was no business activity of the assessee. Though the assessee has shown a turnover of Rs. 45,000/- which was duly accepted by the Revenue.
The assessee has claimed expenses under the head house property for which it was entitled under the provisions of section 24 of the Act. But the assessee claimed the set off business losses against the house property income which was disallowed by the authorities below on the ground that there was no business activity carried out by the assessee during the year.
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 11 - 25.1. In this regard, we note that whether there was any business activity in the year under consideration or not is no point of dispute. It is because the assessee being a body corporate has to incur certain essential expenses to keep its status active. Therefore the claim of the assessee for the expenses cannot be treated as if the assessee has furnished inaccurate particular of income. The claim made by the assessee might be a wrong claim which is not allowable under the Act but does not mean that the assessee has furnished inaccurate particular of income.
25.2. In this regard, we find support and guidance from the judgment of Hon’ble Supreme Court in the case of Reliance Petroproducts (P) Ltd reported in 189 taxman 322, wherein it was held as under:
“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.”
25.3. Moreover, the assessee is very much entitled to claim the set of the loss under one head against the income of another head subject to certain exceptions under the provisions of section 71 of the Act. The case of the assessee does not fall in any of the exceptions as provided under section 71 of the Act. Thus the claim of the assessee not allowed by the authorities below cannot render the claim of the assessee as if it has
ITA No.1310/Ahd/2016 Phelix Appliances Ltd. vs. ITO Asst.Year – 2009-10 - 12 - furnished inaccurate particulars of income. In view of the above, we are not inclined to uphold the order of the authorities below. Accordingly, we set aside the order of the Ld. CIT (A) and direct the AO not to levy the penalty under section 271(1)(c) of the Act. Hence, the ground of appeal of the assessee is allowed.
In the result, assessee’s appeal is allowed. This Order pronounced in Open Court on 01/01/2019
Sd/- Sd/- (MS.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 01/01/2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad