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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri Shamim Yahya & Shri Amarjit Singhand
आदेश / O R D E R Per Shamim Yahya (Accountant Member) This appeal by Revenue is directed against order of the Ld. CIT(A)-4, Mumbai, dated 06/09/2016 and pertains
M/s Quickjet Cargo Airlines Pvt. Ltd. to Assessment Year 2009-10. The ground of appeal raised by the Revenue is as under:-
“ Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty without appreciating that the assessee made an inadmissible claim of expenses incurred prior to setting up of business and is therefore liable for penalty u/s 271(1)(c) for furnishing unacceptable explanation and also filing inaccurate particulars of income.” 2. The brief, facts of the case are that the AO has levied penalty on the ground that during the course of assessment proceedings, it was found that business was not started by the assessee, but, various expenses were claimed, which were not allowable. The assessee is said to be engaged in the business of air transport cargo. The company has obtained NOC from the Ministry of Civil Aviation on 1st January, 2008 and thereafter, the 2nd NOC was received on 24/04/2008. According to the AO, the claim of the assessee that on 1st January, 2008 business was set up, was not accepted by the AO on the ground that the aircraft for cargo aviation was arrived in India only on 28/06/2008, hence, business was set up only on this date, and not before that date. Thus, before 28/06/2008, whatever expenditure were there, the AO has not allowed expenses.
These expenses were of employees' remuneration and M/s Quickjet Cargo Airlines Pvt. Ltd. benefits, administrative expenses, depreciation and direct overheads. According to the assessee, the expenses that pre-set up period was of Rs. 10,29,69,056/- whereas post set up expenses was of Rs. 42,49,58,077/-. According to the AO, the assessee has not carried out any business activities, but has received income from various investments shown in profit arid loss account, hence, the AC has disallowed the total expenses of Rs. 10,29,69,056/- being pre set LIP expense as these expenses are incurred before the cargo arrived in India.
Against the assessment order u/s. 143(3) dated 23/12/2011 the assessee has filed the appeal before the C!T(A). However, after filing of appeal, the assessee has withdrawn the appeal on the ground that because of change of share holding pattern of the company, there was no benefit of carry forward losses. Since the assessee has withdrawn the appeal, the CIT(A) by order dated 05/12/2012 has allowed the withdrawal and for statistical purpose, has dismissed the appeal. Thereafter, notice was issued by AO for levy of penalty. In response to the notice, the assessee has submitted its reply by letter dated
M/s Quickjet Cargo Airlines Pvt. Ltd.
25/01/2014. The reply of the assessee has not been accepted by the AO. According to the AO, pre set up of business expenses could not be allowed. The claim of the assessee that business was set up or started without obtaining aircraft is not acceptable. Further, the decision of Hon'ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. is distinguishable. According to the AO, without cargo aircraft, no business of cargo operation could be started. Although the assessee company had initiated to start setting up of the cargo airline business, but their own admission due to recessionary trends in the years 2008-09 and 2009-10 the launch of business was postponed. Since the business was not started and air cargo was to be returned to the lesser, related expenditure and depreciation of aircraft equipments was wrongly claimed by the assessee, hence, according to the AO, the assessee has wrongly claimed the expenditure, hence, liable for penalty u/s. 271(1)(c) of the I.T. Act. Further, the AO has discussed the provision of law u/s. 271(1)(c) and thereafter, making general remarks and general arguments, the AO has levied
M/s Quickjet Cargo Airlines Pvt. Ltd. the penalty of Rs. 3,50,00,000/- by order dated 18/03/2014 u/s. 271(1)© of the I.T. Act, 1961.
Upon assessee’s appeal, Ld. CIT(A) noted that the assessee’s submission as under:-
“Against the levy of penalty, the appellant has filed this appeal. It is contended that the Ld. A0 has levied the penalty without appreciating the facts of the case and without appreciati9g the legal propositions over such issue. The assessee company was incorporated on 16/05/1978. After few years, the appellant has carried consultancy in civil aviation field. Subsequently on 12.02.2007, has applied to the Ministry of Civil Aviation for granting NOC to operate non-schedule air transport services (cargo), domestic and international. NOC was granted on 1st January, 2008 for air transport cargo operation. Effectively from this date onwards, the appellant has the right too operate as a cargo transporter. For this business, appellant was to have its own aircraft. For doing such business, appellant has recruited the employees and has parted with training in aviation. Further, matter related to finalisation of maintenance agreement, preparation for approvals of manuals and other managerial works were done and, accordingly, all the relevant expenses were claimed in F.Y. 2008-09 as regular expenses. During the course of assessment proceedings or detailed submission with supporting evidences were given to the ASO on 23/11/2011. Further, compliance was made by letter dated 10/12/2011. The contention of the Ld. A0 that business was started only after arrival of aircraft is wrong. Business was started much earlier than arrival of aircraft, however, alternate arguments were also submitted to the AO that if pre-arrival of aircraft, expenses are to be disallowed; then, income pertaining to the same period should go to reduce the cost of setting up of business. A detailed working was given to the AO but, the AO has not considered the same. It is further argued by the AR that the Isd.A0 has accepted the genuineness of the expenditure, but, has disallowed only on the ground that these expenses were incurred prior to arrival of cargo, thus, the Id.A0 has accepted the fact that there is no concealment of any income or furnishing of inaccurate particulars of income. Thus, it is argued that no penalty can be levied merely for disallowance of some expenditure, which is not found ingenuine one.
3.3 In support of its contention, the AR has relied upon the following case laws:-
1) Western India Vegetable Products Ltd. v. CIT 26 ITR 151 (Born). 2) CI T v.ESPN Software India (P) Ltd. 301 ITR 368 Delhi High Court . 3) CIT v. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 4) CIT v. Nalin P. Shah 3013 (Born)
Further in paper book two, the assessee has submitted the statement of profile of technical staff, details of pilot training expenses and training of its staff members. Thus, it is argued that the Id.A0 has wrongly levied penalty without any valid reason. The withdrawal of appeal cannot be a ground for levy of penalty as the assessee has not furnished inaccurate
M/s Quickjet Cargo Airlines Pvt. Ltd. particulars of income. Therefore, it is requested that penalty so levied of Rs. 3.50.00,000/- may be deleted.
The Ld. CIT(A) accepted the assessee’s submissions and deleted the penalty holding as under:-
“3.4. I have circumspected the spectrum of facts and circumstances of the case and have carefully considered the finding in the assessment order, penalty order and rival submission of the appellant. I find that the Id. AO has levied the penalty merely on the ground that expenditure incurred prior to arrival of air cargo has not been allowed by the AO who has passed the assessment order, and the assessee has withdrawn the appeal filed against the assessment order. Thus, it is very obvious that the AO has not levied the penalty for concealment of any taxable income or for furnishing inaccurate income. The Ld. A0 has levied the penalty merely for disallowance of expenditure claimed to be before arrival of air cargo. It is very evident the Ld. A0 has levied the penalty merely for disallowance of expenditure. The approach of the AC for levy of penalty is not worth approvable. It can be seen from the facts of the case that the company was incorporated in 1978 and a few years back it has carried out consultancy in the aviation field. It has made application dated 12.02.2007 to the Ministry of Civil Aviation for non schedule air transport cargo operation. It means on or before 1st January, 2005, the assessee was in the process of doing business of air cargo operation, hence, such expenses prior to arrival of air cargo can definitely be related to the business expenditure. If such expenditure is not to be allowed on the ground that operation was not started till arrival of air cargo, in that situation, such expenses could be capitalised. But, that does not mean that there is a furnishing of inaccurate particulars of income. Thus, commencement of business in this year is very much visible and when business is commenced, expenditure is allowable, if same are genuine one vide: Western India Vegetable Products Ltd. vs. CIT 1954 26 ITR 151 (BOM). If business related process is started, it cannot be said that the business has been commenced later on when cement plant is established as held in the case of CIT vs. Saurashtra Cement and Chemical Industries Ltd. 91 ITR ITO (Guj).
Here in this case, it is very evident from the facts on record that the assessee has shown direct overhead expenses, employees' remuneration and benefit expenses, administrative expenses and depreciation and amortisation totalling to Rs. 52,79,27,122!-. The genuineness of the expenditure has not been doubted by the AO. Further, the appellant has filed statement of profile of technical staff employed and details of training expenses of pilots and staff. The AO has accepted the genuineness of the expenditure but, has disallowed merely on the ground that these expenses were incurred prior to arrival of air cargo. Obviously, before arrival of air cargo, the assessee has to incur so many expenses, which was necessary for operation of the business, which is normal requirement of business. Hence, merely for disallowance of such expenses, no penalty could be levied. The appellant has disclosed all the material facts and none of the expenses has been found ingenuine, false or bogus one, hence, no M/s Quickjet Cargo Airlines Pvt. Ltd. penalty could be levied as held by the Hon'ble Bombay High Court in the case of CIT-14, Mumbai vs. Nahin P. Shah, HUF of 2013 dated 04.03.2013. Reliance may also be placed in the case of CIT vas. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC). The necessary element's for attracting Explanation 1 to Sec. 271(1)(c) are there-fold: (a) the person fails to offer the explanation: or (b) he offers the explanation which is found by the authorities to be false, or (c) the person offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him. Asstt.CIT v. VIP Industries Ltd. (2009) 122 TTJ (Mum) 289, 295. In this case, none of the above element is visible, hence, such penalty is not leviable. The AO is, therefore, directed to delete the penalty of Rs, 3,50,00000/- levied u/s. 271(1)(c) of the I.T. Act.”
Against the above order, the Revenue is in appeal before us.
We have heard both the counsel and perused the records. The Ld. DR submitted that the assessee has claimed revenue expenditure without commencement of any business. Hence, he submitted that assessee has been guilty of concealment and furnishing of inaccurate particulars of income. He claimed that without obtaining any aircraft, the assessee is claiming the commencement of business of air cargo. Hence, the Ld. DR pleaded that the AO has correctly levied penalty u/s 271(1)(c) of the Act. In this regard, he placed reliance upon the order of the Assessing Officer.
Per contra, Ld. Counsel for the assessee submitted that assessee has regarded that business has been set upon on 1st January, 2008 pursuant to the Government of M/s Quickjet Cargo Airlines Pvt. Ltd.
India approval of this proposal for grant of initial NOC to operate scheduled Air Transport Cargo service. The Ld. Counsel for the assessee stated that pursuant to this approval from the Government, the assessee has proceeded to commence its business. For this purpose, it employed technical and administrative staffs. It was also open to the assessee to carry on the business by leasing aircraft from other concerns. He submitted that it was during the course of business that the assessee has opted to purchase aircraft subsequently. He submitted that it cannot be said that assessee has commenced business only after purchase of aircraft. Ld. Counsel, in this regard, placed reliance upon case laws from Western India Vegetable Products Ltd. vs CIT (26 ITR 151)(Bom.) and CIT vs Saurashtra Cement and Chemical Industries Ltd. (Guj.) for the proposition that assessee’s consideration of commencement of business after obtaining approval from the government is bona-fide.
In this regard, the Ld. Counsel has further refer to decision of Hon’ble Delhi High Court in the case of CIT vs ESPN Software India (Pvt.) Ltd. 301 ITR 368 (Del.) for the proposition that obtaining of license to carry on business
M/s Quickjet Cargo Airlines Pvt. Ltd. may be taken as date of set up of business. The ld. Counsel submitted that the assessee conduct was bona- fide. There is no case of booking of any bogus expenditure or any concealment of income. He relied upon the decision of Hon’ble Supreme Court in the case of Reliance Petro Products. Accordingly, he pleaded that order of the Ld. CIT(A) should be upheld.
Upon careful consideration, we find that the issue in the Income Tax Appeal is the date of commencement of business and as a consequence the booking of expenditure in capital or revenue. As per assessee, for the set up or commencement of business, obtaining NOC to its application from the Ministry of Civil Aviation is to be considered as date of commencement of business. Hence, it is assessee’s claim that expenditure subsequent to the date is revenue expenditure. Assessee claimed that pursuant to this approval, it has proceeded to carry on various activities for its business which included employing technical and administrative staff. It is also claimed that assessee could also have leased aircraft but it opted to purchase aircraft subsequently. Hence, it is the M/s Quickjet Cargo Airlines Pvt. Ltd.
assessee’s claim that date of purchase of aircraft cannot be treated as date of commencement of business. In this regard, we note that ld. Counsel for the assessee has referred to several case laws for the proposition that assessee conduct of considering the approval by the Ministry of Civil Aviation of its application to be the date of commencement of business cannot be said to be not bona- fide. We further note that it is not the case that the expenditure have been found to be bogus, the only dispute is the date of commencement of business. Admittedly, on the touch stone of facts of the case and the case laws cited above, it cannot be said that assessee’s conduct was not bona-fide. Hence, in our considered opinion that assessee should not be visited with the rigorous of penalty u/s 271(1)(c) of the Act.
In this regard, we find that reliance placed upon Hon’ble Supreme Court in the case of Reliance Petro Product is quite germane on the facts of the case. In the said decision, it was held that just because claim of the assessee is disallowed, it cannot automatically lead to levy of penalty for concealment of income or furnishing of M/s Quickjet Cargo Airlines Pvt. Ltd.
inaccurate particulars of income. In the present case, in our considered opinion, on the facts and circumstances of the case, the Ld. CIT(A) has passed a reasonable order and it does not need interference by any of our part.
Accordingly, we uphold the same.
In the result, Revenue’s appeal stands dismissed.
Order pronounced in the Open Court on 23/04/2019.
Sd/- Sd/- (Amarjit Singh) (Shamim Yahya) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 23/04/2019 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//