SARAOGI MANSION ESTATE PVT LTD vs. DEPUTY COMMISSIONER OF IT

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 4 / 2017 Saraogi Mansion Estate Private Limited, Having Its Registered Address At 04, Hathroi Market, Ajmer Road, Jaipur Through Its Director & Authorized Signatory Shri Kishore Kumar Saraogi ----Appellant Versus Deputy Commissioner of Income Tax, Circle 2, Jaipur Having Its Address At New Central Revenue Building, Statue Circle, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr.Siddharth Ranka For Respondent(s) : Mr.Anuroop Singhi _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 06/11/2017 1.

By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal preferred by the assessee and confirm the order of CIT(A) and AO. 2. This Court while admitting the appeal on 24.1.2017, framed the following substantial questions of law: “Whether on the facts and material available on record and in law the ld. ITAT was justified in confirming penalty u/s. 271(1)(c) of the Act?” 3. Counsel for the appellant contended that in view of guidelines issued on the Revised Schedule VI to the company under the Companies Act, 1956 by the Institute of Chartered Accountants of India, New Delhi where in

(2 of 10) Paragraph 9.8.1.3, reads as under: “9.8.1.3 Any interest on shortfall in payment of advance income-tax is in the nature of finance cost and hence should not be clubbed with the Current tax. The same should be classified as Interest expense under finance costs. However, such amount should be separately disclosed.” 4. In that view of the matter, the amount which has been shown by the assessee under the Schedule “F” “Interest Paid”, in the schedule annexed to the profit and loss account for the year ended on March 31, 2010, reads as under: On car loan A/c 32931 On loan/OD from (O.B.C. Bank) 481969 On service Tax 3084 On Income Tax 455219 _________ Total Rupees 973203 5. Learned counsel for the appellant relied upon the decision of Delhi High Court in Shervani Hospitalities Ltd. Vs. Commissioner of Income-tax, [2013] 35 taxmann.com 271 (Delhi), wherein it has been observed :- “18. Whether or not expenditure incurred on renovation or improvement or repairs on the leasehold premises can be allowed and treated as revenue expenditure, has been elucidated in several cases. There are several cases in which the said claim has been allowed. It is the contention of the assessee that Explanation 1 to Section 32 of the Act applies to expenditure on property on lease or with right to occupy which otherwise is capital expenditure. Reliance is placed on CIT vs. EDC Electronic Data Systems Pvt. Ltd. (2012) 211 Taxman 133 (Del), where the High Court has recorded that the Tribunal had accepted the plea of the assessee that the expenditure falling under the head 'current repairs' would be covered under the head 'revenue expenses'. The tribunal had observed that Explanation 1 to Section 32 would come into play when the expenditure otherwise was capital in the nature and depreciation had

(3 of 10) been claimed. We are not required to go into the correctness of the said view in the present case, but only notice that two views on the question were possible even after introduction of Explanation 1 to Section 32. We have noticed above that the Tribunal in the quantum proceedings has observed that earlier ratio expounded in Madras Auto Service (supra) and Installment Supply Co. (supra) was in favour of the assessee. We note that in the case of EDC Electronic Data Pvt. Ltd. (supra), the appeal filed by the Revenue was dismissed observing that the Tribunal had observed that the assessing Officer had partly allowed and permitted deduction to the extent of Rs. 70 lacs approximately under Section 37 of the Act. The Tribunal had remitted the matter to the lower authorities to the extent of Rs. 2.75 crores for re-examination. Similarly in CIT vs. Citi Financial Consumer Finance (2011) 335 ITR 29 (Del.), a Division Bench of this Court dismissed the appeal of the Revenue and treated expenditure of Rs. 1.52 crores on leasehold improvements as revenue in nature and did not accept the plea of the Revenue that the expenditure should be capitalized. The expenditure was incurred on civil work, laying cables, flooring, wall finishing etc. Earlier in CIT vs. Hi Line Pens (P) Ltd. [2008] 306 ITR 182 (Del), another Division Bench of this Court made specific reference to Explanation 1 to Section 31(1) and Section 30(a)(i) and the word 'current repairs'. It was observed that the expenditure under the head 'current repairs' should be allowed as revenue deduction as by very nature tenancy right is for a limited period and does not create any asset. The question was answered in favour of the assessee and against the Revenue. In CIT vs. Escorts Finance Ltd. (2006) 205 CTR 574 (Del), yet again expenditure incurred on carrying out repairs to make the premises workable, to replace glasses etc. was treated as a revenue expense. The expenditure included polishing of floor, wooden paneling etc. Reference in this regard may also be made to decisions of the Madras High Court and the Punjab and Haryana High Court in CIT vs. Ayesh Hospitals Pvt. Ltd. 2007 292 ITR 266 (Mad.) and CIT vs. Porrits & Spencer (A) Ltd. (2002) 257 ITR 49 (P & H). 19. We have extensively referred to these judgments, only to show that the issue raised by the assessee was debatable and capable of two views. The assessee had an arguable case or had taken a bonafide plea. The assessee had given his explanation and categorically and clearly stated

(4 of 10) the true and full facts in the return itself. He did not try to camouflage or cover up the expenses claimed. It is not uncommon and unusual for an assessee to bonafidely claim a particular expenditure as a revenue deduction and expense but not succeed. Every addition or disallowance made does not justify and mandate levy of penalty for concealment under Section 271(1)(c) of the Act. Levy of penalty is not an automatic consequence when an addition is made by disallowing an expense and by not accepting the interpretation given by the assessee. As stated above, the plea and contention raised by the assessee has to be examined before it is decided whether or not the assessee has been able to bring his case within the four corners of the Explanation. 20. Explanation 1 clearly stipulates that the penalty can be imposed when the details furnished by the assessee are found to be incorrect, erroneous and false. Merely making a claim which is held as not sustainable under law should not lead to penalization, when the assessee had furnished full details in the return itself and the claim is a debatable, reasonably plausible or may well have been accepted. (See CIT vs. Reliance Petro Product Pvt. Ltd. 2010 322 ITR 158 (SC), CIT vs. Dharampal Premchand Ltd. 2011 329 ITR 572 (Del.), CIT vs. Societex ITA No. 1190/2011 decided on 19.07.2012, by this Court). In Karan Raghav Exports Vs. CIT (2012) 349 ITR 112 (Del.), it has been observed as under:- 14. On the second aspect, we record that a wrong deduction claimed can amount to furnishing of incorrect particulars. However, that is not the issue in question. The issue in question is whether the appellant has been able to discharge the onus under Explanation 1 to Section 271 and show that the claim made by them or the explanation offered with regard to the claim made was bona fide and that the facts relating to the same and material for computation of the total income had been disclosed. These are two facets of clause (B) to Explanation 1. As far as disclosure of facts is concerned, this is clear from the note, which was attached with the return itself. We have quoted the relevant portion of the note above. Full and correct facts have been stated in the said note. The other question is

(5 of 10) whether the claim made was palpably wrong and legally untenable or a debatable and plausible claim on which the assessee did not succeed on legal interpretation. We have examined the nature of the claim made and the findings recorded by the High Court in their order dated 1st November, 2010. The claim made by the appellant may have been rejected, but it cannot be said that the same was not plausible or legally tenable. This aspect has been discussed above and it has been held that the claim made was bona fide. Regarding the legal opinion in writing, it is not mandatory for a person to obtain legal opinion in writing. Assessees do take legal opinion and in the present case the return of income was duly audited. Claim for depreciation is a technical claim based on interpretation of legal provision. Legal opinion, in such cases, is frequently given by Chartered Accountants to help the company to prepare its return of taxable income. In the present case, there is no allegation that the quantum of depreciation claim was incorrectly computed. The note itself indicates that it is written by a professional.” 6. He also took us through the decision of Delhi High Court in IT Appeal Nos. 116 & 118 to 122 of 2007, Commissioner of Income Tax v/s Anand Prakash dated 27.02.2009, wherein Delhi High Court has observed as under: “This takes us to the second question as to whether the Tribunal has erred in law in deleting the levy of interest under s. 234B of the IT Act. We feel that although the conclusion of the Tribunal with regard to the levy of interest under s. 234B being penal in nature is not correct, the ultimate conclusion arrived at by the Tribunal cannot be interfered with. We are of this view because interest under s.234B is clearly by way of compensation. What the Revenue proposes to do in the facts and circumstances of the cases is to charge interest for the default in payment of advance tax in the years in question. It can only justify such a levy or charge if it has suffered a loss. This follows from the conclusion that the levy

(6 of 10) of interest under s.234B is compensatory in nature. The fact remains that no money belonging to th Government was withheld by the assessee in the years in questions. In fact, the interest payable on account of enhanced compensation was not even known to the assessee till much later. How could the assessees then be expected to have paid advance tax on something which had not been received by the assessees and which would not have even been in their contemplation. In other words the assessee could not have included the interest received on enhanced compensation in the assessment years under consideration while estimating his income for the purposes of calculation of advance tax for the relevant years. It is a well known principle that the law cannot compel anyone to do the impossible. The Government itself, on the one hand delayed the payment of compensation to the assessees and on the other it expects to levy interest on the assessee for having allegedly defaulted in making payments towards advance tax. We are clear in our minds that the Revenue has not suffered any loss and, therefore, there can be no question of levying interest under s. 234B of the said Act. Thus, while we decide question 1 in favour of the Revenue and against the assessees, question 2 is decided in favour of the assessees. In view of this, the appeals are liable to be dismissed. It is ordered accordingly. The parties shall bear their own costs.” 7. Learned counsel also relied upon the decisions in different High Courts which are as under : 1. In case of Price Waterhouse Coopers (P.) Ltd. Vs. Commissioner of Income-Tax, Kolkata- I, [2012] 25 taxmann.com 400 (SC), wherein it has been observed :- - “19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as

(7 of 10) a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a cash such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income. 20. We are of the opinion, given that peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income

furnish

inaccurate particulars.” 2. In case of Commissioner of Income-Tax, Ahmedabad Vs. Reliance Petroproducts (P.) Ltd.,[2010] 189 Taxman 322 (SC) wherein it has been observed :- 5. By way of response to the Show Cause Notice regarding the penalty in its reply dated 22.3.2006, the assessee claimed that all the details given in the Return were correct, there was no concealment of income, nor were any inaccurate particulars of such income furnished. It was pointed out that the disallowance made by the Assessing Authority in the Assessment Order under Section 143(3) of the Act were solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income. It was claimed that mere disallowance of the claim in the assessment proceedings could not be the sole basis for levying penalty under Section 271(1)(c) of the Act. It was submitted specifically that it was an investment company and in its

(8 of 10) own case for Assessment Year 2000-01 the Commissioner (Appeals) had deleted the disallowance of interest made by the Assessment Officer and the Tribunal has also confirmed the stand of the Commissioner (Appeals) for that year and, therefore, it was on the basis of this that the expenditure was claimed. It was further submitted that making a claim which is rejected would not make the assessee company liable under Section 271(1)(c) of the Act. It was again reiterated that there was absolutely no concealment, nor were any inaccurate particular ever submitted by the assessee-company. 3. In case of Commissioner of Income-Tax Vs. Ms.Sania Mirza, [2013] 40 taxmann.com 17 (Andhra Pradesh), wherein it has been observed :--- “4. Later on the assessment was reopened by issuing a notice to the assessee and when the assessment was reopened, she voluntarily offered Rs. 30,63,310 for tax. Before

the

AO,

her advocate/chartered

accountant stated that the amount was shown in the capital account and was not shown as a capital receipt. But since the issue had arisen, it was being offered as taxable income. 5. The AO accepted the amount as taxable income and levied the tax accordingly. 6. However, in addition to levying tax, the AO decided to impose penalty of Rs. 10,14,582 on the ground that the assessee had furnished inaccurate particulars of her income and concealed her income. 8. We have heard learned counsel for the Revenue and find that there is nothing to suggest that the assessee acted in a manner such as to lead to the conclusion that she had concealed the particulars of her income or had furnished inaccurate particulars of

(9 of 10) income. The admitted position is that the amount of Rs. 30,63,310 was shown by her in the return. That being the position, it cannot be said that there was any concealment. There is no dispute about the fact that the amount was correctly mentioned and therefore, there is also nothing inaccurate in the particulars furnished by her. The only error that seems to have been committed was that it was not shown as a capital receipt. But as soon as this was pointed out, the error was accepted and the amount was surrendered to tax.” 4. In case of Rave Entertainment (P) Ltd. V/s Commissioner of Income Tax, [2016] 66 taxmann.com 369 (Allahabad) wherein it has been observed : “16. It is pertinent to mention that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi- criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so.” 8. Counsel for the respondent supports the order of the Tribunal. 9. We have heard counsels of both the parties. 10. In view of the well settled legal provisions as much as in the matter has specifically stated and the referred in the balance sheet, in our considered view, the view taken by the Tribunal is required to be reversed. In view of the observations made by the Delhi High Court in the last para in Shervani

(10 of 10) Hospitalities’ case mentioned above. Without entering into merit, penalty could not be imposed. 11. Issue is required to be answered in favour of assessee against the department. 12. The appeal is allowed. (VIJAY KUMAR VYAS),J.

(K.S. JHAVERI),J. Chauhan/6