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Income Tax Appellate Tribunal, DELHI BENCH “B” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O. P. KANT
PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the assessee against the impugned order dated 12.11.2013 passed by the CIT(A), Faridabad in relation to the penalty proceedings initiated u/s.271(1)(c). The assessee is aggrieved by levy of penalty of Rs.35,67,844/- on account of disallowance made under various head of expenses debited in the P&L account which are as under: 1. Shares and allowances to the employees Rs.69,85,499/- 2. Rent (for residence of MD & directors) Rs.11,50,000/- 3. Legal and professional Fees (as recruitment Fees) Rs.8,14,864/- 4. Communication expenses Rs.1,30,068/- 5. Travelling expense Rs.14,69,392/-
Exchange Loss Rs.13,831/- Total Rs.1,05,63,654/-
None appeared on behalf of the assessee, and therefore, we are proceeding to decide the appeal on merits on the basis of material placed on record and the argument placed by the learned DR.
The facts in brief qua the levy of penalty on various disallowances are that assessee-company is engaged in the business of providing technological and personnel support of different food processing and dairy industries. The learned Assessing Officer has noted that the assessee has derived income mostly on profit of sale of investment, interest on bank deposits, dividend income, etc. In the computation of total income, assessee had shown net profit from business of Rs.79,96,584/- and in the return of income showing loss at Rs.63,14,625/-. On the perusal of the P&L account, the Assessing Officer noted that there were no commercial and business activities carried out by the assessee-company during the year under consideration and the income generated were mostly from the capital gain and income from other sources whereas the assessee has claimed following expenses. Employees cost Rs.69,85,499/- Operating and other expenses Rs.45,06,522/-(includes rent, legal travelling, communication & other) Depreciation Rs.84,884/- Interest Rs.21,038/-
Rs.1,15,97,943/- Total
In response to the show cause notice as to why expenses claimed should not be disallowed, it was submitted that the aforesaid expenditure debited like employee remuneration, rent, travelling expenses, communication expenses, etc. were incurred during the normal conduct of company’s activities and assessee was having a top management team including Managing Director, Finance Director, Sales and Distribution Director to commence the implementation of a business launch as the company had plans to launch food product in India, however, due to some litigation with the joint venture partner the products could not be launched. Since assessee- company had to keep business in mind and was looking for the business venture the expenditure incurred were for commercial expediency and are thus revenue in nature. The Assessing Officer analyzed the salary expenses, rent and professional fee, travelling expenses and held that nowhere these expenses were connected with business activity conducted during the year under consideration. Accordingly, he disallowed some of the expenses on account of rent expenses incurred for Managing Director and two Directors and in absence of any business activity, salary expenses and certain disallowance were made on account of non deduction of TDS u/s.40(a)(ia). In the quantum proceedings, the ld. CIT (A) has confirmed the addition. Now on such disallowances for sums aggregating to Rs.1,05,63,654/- penalty has been levied of Rs.35,67,844/- on the ground that assessee has concealed the particulars of income.
Before us, the learned DR has strongly relied upon the order of the Assessing Officer as well as the ld. CIT(A) not only in the quantum proceedings but also the impugned appellate order.
6. After considering the relevant finding given in the impugned orders, we find that it is not in dispute that assessee is a corporate entity and has incurred expenditure on account of salary and allowances, rent and professional fees, recruitment fees, communication expenses, travelling expenses and forex exchange loss. The assessee’s explanation before the authorities below has been that these expenditures had actually been incurred and are in the nature of revenue. Regarding carrying on business activity, it was submitted that it had undertaken to carryout launching its own food product in India in joint venture with another big company. The assessee had employed senior executives and directors to undertake the activities including seeking for partners for its potential customers mainly within its group companies to launch dairy food products in India, but due to litigation with joint venture partner, the business activity could not be started. The entire disallowance has been made on the ground that assessee could not establish the business operation/activity during the year. However, there is no whisper either in the assessment order or in the order of the CIT (A) that the expenditure claimed by the assessee are either not verifiable or not have been incurred. Once the expenditure has been incurred, even if it has been disallowed on a different ground that no business activities has been carried out, it does not mean assessee has furnished any inaccurate particulars of income so as to warrant levy of penalty u/s.271(1)(c). It is a well settled law that penalty proceedings are separate and distinct from assessment proceedings and if certain disallowance on account of expenditure has been made in the quantum proceedings it does not justify imposition of penalty automatically. Once, it is not in dispute that the expenditure has been incurred then disallowance of such expenditure after the set up of the business does not tantamount to furnishing of inaccurate particulars, because the disallowance has been made purely on the ground no business receipt or activity has been carried out during the year. Under these facts and circumstances of the case, we hold that penalty levied by the Assessing Officer and confirmed by the ld. CIT (A) cannot be sustained and same is directed to be deleted.
In the result, the appeal of the assessee is allowed.