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Income Tax Appellate Tribunal, DELHI BENCH C, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI ANADI N MISHRA
Per ANADI N MISHRA. A.M.
(A)These appeals filed by the revenue are directed against the order of Ld.CIT
(Appeals) New Delhi dt. 28.1.2014 for the Assessment Years 2010-11, 2011-12.
Grounds of appeal are as under:
ITA No. 2239/Del/2014 Asstt. year 2010-11 1. Whether Ld. CIT(A) was correct on facts and circumstances o f the case and in law in deleting the penalty o f Rs. 3,75,21,011/- levied by AO on account o f furnishing inaccurate particulars o f income ? i
ITA Nos. 2239, 2240/Del/2014
Whether Ld. CIT(A) was correct on facts and circumstances of the cae and in law in holding that in subsequent A. Y 2011-12 such expenses were allowed & thereby deleting the penalty ignoring the fact that during the year under reference the assessee company furnished inaccurate particulars o f income by claiming indirect expenses as deduction? 3. The appellant craves leave, to add, alter or amend any ground o f appeal raised above at the time o f the hearing.
ITA No. 2240/Del/2014 Asstt. year 2011-12
Whether the Ld. CIT(A) was correct on facts and circumstances o f the case and in law in deleting the penalty of Rs. 7,23,32,454/- levied by AO on account o f furnishing inaccurate particulars of income? 2. Whether Ld. CIT''A) was correct on facts and circumstances o f the case and in law in holding that mere making o f a claim which is not sustainable in law, will not amount to furnishing of inaccurate particulars o f income despite the fact that such act o f the assessee company is clearly covered by explanation o f section 271(l)(c) as held by various decisions as noted in the penalty order?
The appellant craves leave, to add, alter or amend any ground o f appal raised above at the time o f the hearing.
(B) For A.Y.2010-11, the assessee filed return showing loss of Rs. 10,98,42,458/-.
The assessee started two housing projects in Noida during the previous year
relevant to assessment year 2010-11, named name Lotus Boulevard and Lotus
Panache. The assessee company did not recognise any revenue on account of
business of construction and development of housing projects for AY 2010-11.
During the assessment proceedings the assessee was asked by the Assessing
Officer to explain the reason for not recognising any revenue despite substantial
amount of booking/ sales of flats. The assessee explained to the Assessing
Officer that it followed percentage of completion method to recognise revenue,
and percentage completion by end of the year was only 14.14%. In view of that 2
ITA Nos. 2239, 2240/Del/2014
the assessee submitted that revenue could not be reliably recognised. However,
the Assessing Officer noticed that the assessee had claimed expenditure of Rs.
11,24,67,886/-, although, no revenue was recognised by the assessee, as
aforesaid. The Assessing Officer held that until and unless the company
recognised revenue on account of business of construction/ development of
housing projects, all the expenses incurred by the assessee were pre-operative/
pre-commencement expenses only and in that view of the matter disallowed
the expenses totalling the aforesaid amount of Rs. 11,24,67,886/- claimed
under different heads. The Assessing Officer also initiated penalty proceeding
u/s 271(l)(c) of IT Act separately. He assessed the income of the assessee at
Rs. 26,25,430/- as against returned loss of Rs. 10,98,42,458/-. The assessee did
not file any appeal against this assessment order for AY 2010-11, thereby
accepting the assessment made. Based on the assessment order for AY 2010-
11, which the assessee had accepted, the assessee revised its return for AY
2011-12. In the original return for AY 2011-12 the assessee had declared a loss
of Rs. 10,18,49,703/-. Subsequently the assessee filed revised return declaring a
loss of Rs. 21,22,38,055/-. In the previous year relevant to AY 2011-12 the
assessee did recognise revenue in respect of project named Lotus Boulevard but
did not recognise revenue from the project named Lotus Panache. During the
course of assessment proceedings for AY 2011-12 the assessee company was
asked by the Assessing Officer to explain the reason for not recognising any
revenue in respect of project names Lotus Panache despite substantial booking/
sale of flats. The explanation furnished by the assessee was similar to
explanation furnished during assessment proceedings for AY 2010-11. The 3
ITA Nos. 2239, 2240/Del/2014
assessee submitted that it was following percentage of completion method to
recognise revenue and that percentage completion in respect of project Lotus
Panache by end of the year was only 15%. The assessee also submitted that the
revenue could not be reliably recognised at that stage. Following similar
rationale as in AY 2010-11 the Assessing Officer disallowed expenditure
amounting to Rs. 21,28,05,101/- pertaining to the project named Lotus Panache
in respect of which no revenue had been recognised by the assessee for AY
2012-12 and assessed income of the assessee at Rs. 5,67,046/- as against loss
of Rs. 21,22,38,055/- declared by the assessee in the revised return for the
AY 2011-12. The Assessing Officer also initiated penalty proceedings u/s
271(l)(c) of IT Act separately. In this context the following portion from
paragraph 3.5 of assessment year for AY 2011-12 is reproduced:-
".........................As per percentage o f completion method of accounting and AS-7 project was accounting is mandatory. Accordingly, each project is separate in respect o f recognisation o f revenue and allowability of expenses claimed. Moreover, in immediate preceding year additions was made treating all expenses in respect of first project as pre-operative expenses. The addition so made had been accepted by the assessee and the assessee has revised its return o f income for the year under reference giving effect to the assessment order passed u/s 143(3) for immediate proceeding year. Facts of the case are identical, thus, the contention of the assessee that indirect expenses pertaining to the project Lotus Panache is allowable without recognition any revenue does not have any substance and deserves to be rejected. Thus, a sum o f Rs. 21,28,05,101/- being expenses claimed under different heads is treated as pre-operative expenses and added back to the total income o f the assessee company. Since, I am satisfied that the assessee has furnished inaccurate particulars o f its income, penalty proceedings under section 271(l)(c) are being initiated separately."
(B.l) As mentioned earlier, the Assessing Officer had initiated penalty proceedings
u/s 271(l)(c) of IT Act for both the Assessment years i.e. for 2010-11 and 2011-12.
ITA Nos. 2239, 2240/Del/2014
The Assessing Officer, vide order dated 30.08.2013 for AY 2010-11 and vide order
dated 30.09.2013 for AY 2011-12 , levied penalty amounting to Rs. 3,75,21,011/-
and Rs. 7,23,32,454/- for AY 2010-11 and AY 2011-12 respectively on the ground
that the assessee claimed expenses for the projects without recognising any
revenue. The assessee filed appeal against the orders levying penalty u/s 271(l)(c)
before Id CIT(A) for both AYs 2010-11 and 2011-12. Vide separate orders, each
dated 21.08.2014, Id CIT(A) allowed the appeal of the assessee and deleted
penalties of Rs. 3,75,21,011/- for AY 2010-11 and Rs. 7,23,32,454/- for AY 2011-12.
The Id CIT(A), in deleting the penalties for AY 2010-11 and for AY 2011-12, held
that the assessee had commenced the business and therefore, the indirect expenses
which were claimed in terms of the guidance note of Institute of Chartered
Accountants of India (ICAI) should not have been treated as preoperative; that mere
making of a claim which is not sustainable in law does not amount to furnishing of
inaccurate particulars of income; that non filing of quantum appeal against
assessment order was no ground for the Assessing Officer to impose penalty; that
disallowance of expenditure cannot be construed as furnishing of inaccurate
particulars of income; that there was not concealment of income; that explanations
1A or IB of Section 271(l)(c) were not applicable and that expenses disallowed had
been allowed by the Assessing Officer in subsequent year. Revenue has filed appeal
in Income Tax Appellate Tribunal (ITAT) against the aforesaid orders of Id CIT(A)
deleting penalties levied u/s 271(l)(c) for AYs 2010-11 and 2011-12.
(C) During appellate proceedings before the Income Tax Appellate Tribunal, Ld. CIT
(DR) filed written submissions dated 29.06.2016 on behalf of Revenue. The assessee
ITA Nos. 2239, 2240/Del/2014
submitted paper book consisting of 129 pages and also separately filed synopsis
dated 01.08.2016 which included rejoinder dated 01.08.2016 to written submission
of the Id CIT (DR). Written submissions of Id. CIT(DR) , synopsis of assessee, and
rejoinder of the assessee to submissions of Id. CIT(DR) are being reproduced as
under for ready reference .
(C.l) Written submissions dated 29.06.2016 filed by Id. CIT(DR)
"A. The case of the assessee is squarely covered under general provisions of the section 271(l)(c) as well as mischief of explanation 1 to the section 271(1). 1.1 The assessee has claimed deduction which were found to be inadmissible. Therefore, the particulars of income furnished by assessee are 'inaccurate'. 1.2 The case is squarely covered by the binding ratio of jurisdictional High Court in case of Commissioner of Income-tax VS. NG Technologies Ltd. [2015] 57 taxmann.com 389 (Dei) which has been confirmed by the Hon'bie Supreme Court by way of dismissal of SLP in case of N.G. Technologies (In Liquidation) Vs. Commissioner of Income-tax [2016] 70 taxmann.com 37 (SC). 1.3 In this particular case, the Hon'bie Delhi High Court has explained the meaning of 'inaccurate particulars'. Hon'bie HC has stated as under: - "10. The word "concealment" would refer to somewhat malicious and maia fide conduct on the part of the assessee. The expression "inaccurate particulars" is copiously wider and broader and would include cases where particulars furnished are not accurate and which results in avoidance or evasion of tax. In Webster's Dictionary, the word "inaccurate" has been defined as: "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript. " The word "particular" means detail or details of a claim or separate items of an account. Thus, the words "furnished inaccurate particulars" would refer to inaccuracy which would cause under declaration or escapement of income. It may also refer to particulars which should have been furnished or were required to be furnished or recorded in the books of account, etc. See CIT T i/. Raj Trading Co. [1996} 217ITR 208/86 Taxman 282 (Raj). Inaccuracy or wrong furnishing of income would be covered by the said expression. " In the light of what has been stated by the Hon'bie jurisdictional High Court, it can be seen that the furnished particulars in the present case are certainly 'inaccurate'. 2.1 This case is also covered under the provisions of Explanation 1 to Section 271(1) (c) which reads as under.
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ITA Nos. 2239, 2240/Del/2014
"Explanation 1. - Where in respect of any facts material to the computation of the total income of any person under this Act, - (A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or
(B) such person offers an 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 and material to the computation of his total income have been disclosed by him,
Then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
2.2.1 During assessment proceedings for A Y 2010-11, the AO asked explanation vide order sheet entry dated 24.10.2012. In response, reply dated 04.02.2013 (para 3.2 of AO) was filed. It can be seen that the reply says that it has claimed these deductions based on Guidance Note on Accounting for Real Estate Transactions (revised 2012). It is apparent that guidance note of the year 2012 cannot be used because date of filing of Rol is 15.10.2010. Therefore, case of assessee is covered under sub clause (A).
2.2.2 Similarly, during assessment proceedings for AY 2011-12, the AO asked explanation vide order sheet entry dated 05.03.2013. In response, reply dated 19.03.2013 (para 3.3/3.4 of AO) was filed. It can be seen that the reply takes the same plea (as taken in AY 2010-11) that it has claimed these deductions based on Guidance Note on Accounting for Real Estate Transactions!revised 2012). It is apparent that guidance note of the year 2012 cannot be used because date of filing of Rol is 30.11.2011. Therefore, case of assessee is covered under sub clause (A).
2.3 Before the CIT(A), the assessee took the same plea in both the A Ys.
2.4.1 Without prejudice to the above, if the case is to considered under clause (B) of the above said explanation. It is submitted that the assessee has not discharged its onus. Jurisdictional High Court in case of Commissioner of Income-tax Vs. HCiL Kaiindee Arsspl [2013] 37 taxmann.com 347 (Dei) has laid down the ratio that initial burden of proof is upon assessee to prove that his explanation was bona-fide. The Hon'ble HC also laid down the ratio that this burden can only be discharged by producing cogent material.
Hon'ble HC has stated as under "8... The assessee had made a wrong claim for deduction under Section 801 A and, therefore, had furnished inaccurate particulars as the claim was not admissible. Sub-da use (8) of the explanation is, therefore, applicable and we have to examine the two conditions whether: (1)
ITA Nos. 2239, 2240/Del/2014
The assessee has been able to show that the explanation was bona fide; and (2) Facts and material relating to computation of his income had been disclosed.
Onus of establishing that the assessee satisfied the two conditions is on him i.e. the assessee "
2.4.2 The Hon'bie HCalso laid down the ratio that this burden can only be discharged by
producing cogent material. Hon'bie HC has stated as under
"11...... To show and establish bona Tides, the assessees had to show some more "tangible material" or basis as to why a dear statutory provision which excludes works contracts was ignored."
The case is squarely covered by the binding ratio of jurisdictional High Court in case of Commissioner of Income-tax, Dei hi-IV vs. Escorts Finance Ltd. [2009] 183 TAXMAN 453 (DEL). In this case, the Hon'bie HC Delhi has held that if the claim made in return of income appears to be ex facie bogus, it would be treated as a case of concealment or furnishing of inaccurate particulars and penalty proceeding would be justified. In that case, deduction under section 35D was claimed relating to public issue of shares. On appeal, Commissioner (Appeals) deleted the penalty, holding that assessee had not concealed income. ITAT upheld order of Commissioner (Appeals). On further appeal, the Hon'bie HC held the case would attract penalty u/s 271(l)(c). The facts and circumstances of the present case are strikingly similar because after the judgment of Hon'bie SC in case of Madras Industrial Investment Corporation Limited (supra), such claim was ex-facie inadmissible.
The judgment of jurisdictional High Court in case of CIT v. Zoom Communication (P.) Ltd. [2010] 327ITR 510 (Deihi)is applicable. The relevant portion of judgment of Hon'bie Delhi HC in the case of Zoom Communication Pvt. Ltd. is reproduced below:-
"The court cannot overlook the fact that only a small percentage of the income-tax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(i)(c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they wouid be assessed on the basis of self-assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a maiafide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for
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ITA Nos. 2239, 2240/Del/2014
scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have"
The case of Reliance Petro products Pvt. Ltd. [2010] 322 ITR 158 (Se) = 2010-TIOL-21-SC- IT Does not help the case at hand. The facts of the Reliance Petro products Pvt. Ltd. are not applicable to the facts of the case under consideration. In the matter of the Reliance Petro products Pvt. Ltd., the assessee had made a claim of deduction u/s. 36(l)(iii) of the Act in respect of interest. This deduction had also been claimed by the assessee in the earlier year and the First Appellate Authority (FAA) had allowed the deduction, while the ITAThad restored the issue back to the file of the AO. Deciding the appeal, Tribunal held that the assessee had duly filed an explanation giving the reasons for making a claim, that once the assessee offered an explanation the onus would shift on the Revenue to prove that the explanation offered by the assessee was false, that bonafides of the explanation were clearly proved, that no material or evidence was brought on record or pointed out by the DR proving that the Revenue had discharged its onus for proving the falseness o f explanation o f the assessee, that the assessee had also duly discharged its onus which was cast on the assessee. When the matter travelled up to the Hon'bie Supreme Court, it was observed by the Apex Court that in that case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false, that such not being the case, there would be no question of inviting the penalty under section 271(l)(c) of the Act. However, in the present case, the issue is not disputed even in first appeal."
('C.2'1 Synopsis dated 01.08.2016 filed by assessee
SYNOPSIS
"Brief facts are that the Assessee Co. was incorporated on 16/05/2007 and was engaged in the business of development and construction of housing projects. During the Financial Year under reference, the Assessee was engaged in construction/development of two housing projects situated at Noida called "Lotus Boulevard"and "Lotus Panache".
As per the AO, indirect expenditure incurred and claimed of Rs.21 ,28,05,101/- during the year under consideration on account of selling, business promotion expenses and commission & brokerage expenses relating to Lotus Panache project was pre-operative in nature and hence could not be allowed in the absence of recognition of any revenue from this project during this year. Accordingly, the AO added back the same to the net loss of RS.21 ,22,38,055/- as declared thereby working out and assessing net income of Rs.5,67,040/- vide assessment order dated 30/03/2013 as passed u/s 143(3) of LT. Act, copy of which is placed at pages 21 - 25 of the paper book.
3 On such disallowance of Rs.21 ,25,05,101/-, AO imposed penalty of Rs.7,23,32,454/- being 100% of tax sought to be evaded by holding that the Assessee Co. was in default for furnishing inaccurate particulars of its income and also for concealing its income in terms of the provisions of section 271 (1 )(c) read with Explanation 1.
On appeal, the Ld. CIT(A) vide order dated 28/0112014 deleted the entire penalty of Rs.3,75,21,011/- against which the Revenue is in appeal before your honour.
Submissions/documents relied upon:
ITA Nos.V2239, 2240/Del/2014
1) Penalty reply dated 22/04/2013, copy placed at pages 29 - 31 followed by another reply filed on 26/08/2013, copy placed at page 32 of the paper book.
2) Copy of audited financial statements for the year under consideration placed at pages 35-76 where Revenue recognition policy for projects based on "percentage of completion method" was disclosed in Schedule 14 at page 46 of the paper book which is being read over.
3) Calculation of revenue and cost of construction as per percentage of completion method policy placed at page 80 alongwith letter dated 19/03/2013 filed before AO placed at pages 77-79 of the paper book as, per which revenue could not be recognized during the year under consideration from Lotus Panache project in accordance with percentage completion method since the percentage of actual construction and other related costs incurred during the year (excluding land cost) as against total estimated cost of the project was below the threshold percentage as specified in its revenue recognition policy,
4) Allocation of expenditure made in both these projects towards Work in Progress and as towards indirect expenditure reflected in P&L A/c can be seen from Schedule 11, 12, 13 to P&L A/c placed 44 of the paper book.
5) Project details of direct and indirect expenses/costs incurred during the year and debited to &L A/c is placed at page 81 of the paper book. As per such detail, following indirect expenditure as incurred on Lotus Panache project was claimed as deductible revenue expenditure:
Selling and business promotion expenses (i) Rs. 2,85,78,534
Commission and brokerage expenses Rs. 18,42,26,567 00
Total Rs. 21,28,05,101
6) Assessee's letter dated 19/03/2013 filed before AO placed at pages 77-79, wherein justification for claiming the above business expenditure was provided.
7) Guidance Note on Accounting for Real Estate Transaction (Revised 2012) as issued by Institute of Chartered Accountants of India (ICAI) placed at pages 82- 99, which was cited by the Assessee during the course of assessment proceedings for justifying its claim for the above expenditure.
8) Assessee's letter dated 30/03/2013 filed before AO with details of sales and business promotion, design and development expenses and commission and brokerage expenses placed at pages 100-127 of the paper book.
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ITA Nos. 2239, 2240/Del/2014
9) Project-wise working of inventory and work in progress as filed before AO with letter dated 28/02/2013 placed at page 130 of the paper book.
10) From such documentary evidence, it is evident that the Assessee had made a bona fide expenditure claim of RS.21,28,05,101/- as incurred on Lotus Panache project during the year under consideration in accordance with Guidance Note on Accounting for Real Estate Transactions read with applicable Accounting Standards 7 and 9 as issued by ICAI.
11) In the absence of any contrary Tax Accounting Standard issued by the Tax Authorities, the applicable Accounting Standards issued by ICAI were mandatory and had to be followed by Companies in the light of decision of Hon'bie Supreme Court in the case ofJ.K. Industries vs. UOI reported in 2 9 7 ITR 176. Consequently, such indirect expenditure of Rs.21,28,05,101/- as claimed ought to have allowed as a deductible expenditure during the year under consideration.
12) Alternative submissions were made before the AO regarding the above expenditure claimed vide letter dated 19/03/2013 placed at pages 77-79, which are being read over.
13) Copy of revised computation of income placed at pages 26-28 for subsequent assessment year 2012-13, where revenue from Lotus Panache project was recognized and the above expenditure was claimed as a deductible expenditure.
14) Written submissions dated 26/12/2013 as filed before the Ld. CIT(A) placed at pages 1-20 of the paper book.
15) Further written submissions dated 13/01/2004 filed before the Ld. CIT(A) placed at pages 168-169 alongwith copy of Memorandum & Articles of Association at pages 172-195, details of selling & business promotion expenses of Rs.2,85,78,534/- at page 196 and details of commission and brokerage expenses of Rs.18,42,26,567/- at page 197 of the paper book.
16) Besides the above documentary evidence, Assessee refers to and relies upon the findings recorded by the Ld. CIT(A) in his detailed order while deleting the penalty as under:
• Brief facts are given vide para 4 to 4.4 at pages to 2 - 6.
• Submissions of the Assessee are summarized vide para 5 to 5.16 at pages 6-14.
• Findings recorded vide para 6 to 6.15 at pages 14-24 which are being read over.
17) Assessee further relies upon written submissions citing various case laws to support its case for deleting the penalty and for distinguishing the case laws as relied upon by the AO (refer to pages 7- 20 of the paper book).
18) The AO's allegation that such indirect expenditure of Rs.21,28,05,101/- as incurred on Lotus Panache project was preoperative/pre-commencement in nature based on identical/similar findings as made by him in immediately preceding assessment year 2010-11 on Lotus Boulevard project was factually incorrect and the Ld. CIT(A) has rightly given the following relevant findings at pages 19-20 of his appellate order:
ITA Nos'2239, 2240/Del/2014
"Merely because the revenue was not recognized does not imply that the business of real estate development had not started. The business of a real Estate developer requires several steps starting with fund mobilization, land identification, land acquisition efforts, advertisement for attracting potential customers, agreements with real estate brokers and with suppliers of raw material, architects, contractors, planning, setting up teams for monitoring construction, sales seeking governmental approvals, etc. Revenue recognition comes much later, only when the actual costs have exceeded the prescribed level of 25% of the estimates cost of the project in terms of ICAI guidelines. I find that the AO himself has accepted the allocation of expenditure as capitalized to 'work in progress', which was directly relatable to construction/development activity. Further the AO has also accepted the revenue recognition accounting policy based on "Percentage of completion" method of accounting followed by the Appellant, according to which revenue from Lotus Boulevard project could only be recognized once the actual construction and other related costs (excluding land cost) as against total estimated cost of such project reaches 25% or more of the total estimated cost. In view of this, it is evident that the appellant had commenced the business and therefore, the indirect expenses, which were claimed in terms of the Guidance note of. the ICAI should not have been treated as pre-operative .in the first place".
In Assessee's case relating to Lotus Panache project; it is not in dispute that the land for such project was acquired in earlier year i.e. assessment year 2010-11 and upto the assessment year 2011-12 under consideration, the Assessee had already incurred 15% of total estimated construction cost.Hence, Lotus Panache project can be said to have commenced in previous assessment year 2010-11 itself when the land for such project was acquired.
Reliance is placed on Jurisdictional Delhi High Court judgment in the case of CIT vs. Dhoomketu Builders & Development Pvt. Ltd. reported in 368 ITR 680, in which it was held as under:
“ • • • • once the land is acquired the assessee may be said to have actually commenced its business which is that of development of real estate".
In our case, admittedly, land had already been acquired by the Assessee for both its housing projects known as Lotus Boulevard and Lotus Panache and for both of them even the construction had been started and advances from customers had been taken. Hence, business had actually commenced. Further, there was no dispute with regard to revenue recognition policy adopted by the Appellant. Moreover, such indirect expenditure as claimed during the year under consideration was admittedly revenue in nature. Hence, under no circumstances could such indirect revenue expenditure be considered as pre- operative/pre-commencement in nature when the business of real estate had already commenced and therefore, the indirect revenue expenditure as originally claimed ought to have been allowed as a deductible expenditure in this year itself.
19) Further, as rightly held by the Ld. CIT(A) vide vide para 6.10 at page 21 of his order, the very basis for invoking provisions of section 271 (1 )(c) was faulty. Hence, from this angle also, the imposition of penalty u/s 271 (1 )(c) was illegal. 12
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ITA Nos. 2239, 2240/Del/2014
20) Such indirect expenditure of RS.21,28,05,101/- as claimed was neither found to be bogus nor sham in nature and therefore, no penalty u/s 271 (1 )(c) could be levied. In this connection, reliance is placed on the following case laws:
294 ITR 83, CIT vs. Span Holdings Ltd. (Jurisdictional Delhi H.C.). In this case, even though in proceedings, disallowance of depreciation had been upheld, yet the High Court upheld the order of CIT(A)/Tribunal for deleting the penalty u/s 271 (1 )(c) by making the following observations:
"There was no material or evidence to show that the transaction of sale and lease back was not genuine or was bogus nor was any material brought on record in the course of the reassessment proceedings. In the absence of any material having been produced by the Revenue to show that the transaction of sale and lease back wee- not 'genuine or was bogus, there was no reason to interfere within the concurrent findings arrived at both by the Commissioner as well as by the Tribunal. No substantial question of law arose for determination".
Allahabad High Court judgment in the case of Rave Entertainment Pvt. Ltd. vs. CIT 376 ITR 544, relevant portion from head notes is reproduced below:
"Held, allowing the appeal, that the claim of the assessee was a legal claim. The Assessing Officer had not given any finding that the claim to deduction was bogus. The Assessing Officer had only stated that such claim was not allowable as the conditions envisaged under section 80-lB(7 A) were not fulfilled. Thus, the claim was found to be legally unacceptable but it did not amount to furnishing of inaccurate particulars or concealment of income. It was a simple case of non- allowance of the legal claim. There was no concealment of income and penalty could not be levied".
21) Assessee had merely agreed for not contesting the year of allowability of such indirect expenditure in order to avoid litigation since it was not impacting its claim on an overall basis. Therefore, non filing of appeal in quantum proceedings during the year under consideration, cannot be made the basis for imposing penalty u/s 271 (1 )(c) of LT. Act particularly when quantum and penalty proceedings are distinct and separate for which reliance is placed on various case laws as given in the written submission filed before CIT(A) (refer to pages 8-9 and at pages 14 of the paper book).
22) Even if it is presumed that the claim of such indirect expenditure was not allowable during the year under consideration since in the opinion of the AO the same should have been claimed in the subsequent year in which revenue from Lotus Panache project was recognized, even then, penalty cannot be imposed in view of the following case laws since making a claim which is not sustainable or is debatable does not amount to furnishing of inaccurate particulars:
>- 322 ITR 158, CIT vs. Reliance Petroproducts Pvt. Ltd (Supreme Court)
>- 322 ITR 80, CIT vs. Sidhartha Enterprises (P & H High Court)
ITA Nos. 2239, 2240/Del/2014
288ITR 670, CIT vs. Nath Bros. Exim International Ltd. (Jurisdictional Delhi H.C.)
>- 359 ITR 101, CIT vs. DCM Ltd. (Jurisdictional Delhi HC)
>- 335 ITR 558, CIT vs. Rubber Udyog Vikas Pvt. Ltd. (P&H High Court)
>- 349 ITR 112, Karan Raghav Export P Ltd. vs. CIT (Jurisdictional Delhi H.C.)
>- 293 ITR 524, CIT vs. Caplin Point Laboratories Ltd. (Madras H.C.).
>- 352 ITR 394, CIT vs. Amtek Auto Ltd. ( P &H High Court)
>- 347 ITR 478, CIT vs. Lakhani Footwear Ltd. ( P &H High Court).
>- 329 ITR 483, Devsons Pvt. Ltd. vs. CIT (Jurisdictional Delhi H.C.)
>- 377 ITR 417, Principal CIT vs. G.K. Properties P Ltd. (T & AP)
23) It is well established that even if it is presumed that two views are possible, the assessee cannot be faulted for adopting a view favourable to him in filing in his return. In this connection reliance is placed on Hon'bie Supreme Court judgment in the case of Union of India vs. OnkarS. Kunwar and Ors 258 ITR 761, in which at page 763, it was held as under:
"It is settled law that if two views are possible then the one which is in favour of the assessee must be adopted".
Hence, from this angle also, there was absolutely no justification on the part of the AO to impose penalty u/s 271 (1 )(c) of I.T. Act just because the Assessee has adopted a favourable view.
24) Assessee was not conversant with the technicalities of Income-tax law and they had depended on their CA/counsel for claiming such indirect expenditure during the year under consideration and hence, no penalty could be levied for making a bona fide claim by relying on the advice of professionals, for which reliance is placed on the following case laws:
>- 274 ITR 603, CIT vs. Deep Tours P Ltd. ( P &H High Court)
> -118 ITR 507, Concord of India Insurance Co. Ltd. Vs. Smt. Nirmala Devi Supreme Court.
> -136 ITR 729, CIT vs. Ramniklal D. Mehta (Orissa H.C.)
>- 3 ITD (Madras) 221, WTO vs. S. P. Jayakumar
25) Moreover, the issue was only about the year of allowability of such indirect expenditure and as the rate of tax in both the relevant years was the same, therefore, no penalty could be imposed in view of the following case laws:
CIT vs. Vishnu Industrial Gases (P) Ltd. ITR No. 229/1988 (Jurisdictional Delhi High Court), copy enclosed as Annexure A to these Synopsis. In this case, the department had not disputed that the expenditure was deductible in principle but was only
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ITA Nos. 2239, 2240/Del/2014
disputing the year in which the deduction could be allowed and the Court held by castigating the department, that as the tax rates were the same in both years, the department should not fritter away its energies in raising question as to the year of deductibili ty/taxa bility.
254 ITR 630, CIT vs. Manila I Tarachand (Gujarat H.C.) in which the Hon'bie High Court has held that where there is a dispute merely regarding year of taxability of an income, penalty cannot be imposed u/s 271 (1 )(c) of I.T. Act on the ground of concealment or furnishing of inaccurate particulars of income.
323 ITR 641, Jayant Vegoils and Chemicals Pvt. Ltd. vs. CIT (Bombay H.C.) in which similar view has been expressed by the Hon'bie Bombay High Court.
ITAT Mumbai Bench judgment in the case of Dy. CIT vs. Otis Elevator Co. (I) Ltd. (copy attached as Annexure B to these Synopsis), relevant portion is reproduced below:
"It is not the case where assessee had concealed the facts of earning of income- rather it is a case where year of taxability of income was in dispute. AO and the assessee had different opinions about the year in which same should be taxed. In our opinion, in. such matters penalty u/s.271 (1 )(c) cannot be levied".
342 ITR 257, CIT us. AT & T Communication Services India P. Ltd. (Jurisdictional Delhi H.C.), in which the High Court held that cancellation of penalty u/s 271 (1 )(c) was justified. Relevant portion from head notes is reproduced below:
"That the question was whether the assessee could claim deduction of the amount paid in the assessment year 2001-02 or in the assessment year 2002-03. If this expense was allowed in the assessment year 2002-03, income for the year 2002- 03 would be proportionately reduced. There was no material to show that the assessee wanted to claim the amount paid to the non-resident company in the assessment year 2001-02 as the assessee did not have taxable income in the assessment year 2002-03. The plea and the interpretation propounded by the assessee was rejected in the quantum proceedings but the assessee could in the penalty proceedings show and explain that the interpretation was plausible and had merit, though it was not accepted. Thus, there was to be no interference in the findings of the Tribunal".
26) Explanation 1 of section 271 (1 )(c) cannot be invoked in Assessee's case as rightly held by the Ld. CIT(A) vide para 6.15 at page 23-24 of the appellate order as under:
"I also hold that the Explanation 1A to section 271(l)(c) as invoked by the AO was not applicable as the Appellant had offered an explanation regarding the indirect expenditure as claimed for its business purposes and the same was not found to be false. Even Explanation IB to section 271(l)(c)'was also not applicable to the facts of this case because the Appellant had offered an explanation which was bona fide and substantiated with the documentary evidence and all the facts relating to such indirect expenditure were duly disclosed. Hence, the primary onus which lay on the Assessee has been discharged by it by offering an explanation. Unless the AO finds any inconsistencies or factual errors in such an explanation, such explanation 15
ITA Nos. h S 9 , 2240/Del/2014
ought to have been accepted. In this case, the AO vide his penalty order has not been able to demonstrate as to how such explanation as offered by the Appellant was false or was not bona fide and accordingly, Explanation 1 to Section 271(l)(c) could not be invoked in this case".
27) As the Assessee had made a bona fide claim of such indirect revenue expenditure on the basis of mandatory Accounting Standards, and the advice of experts like auditors and tax consultants of the assessee, therefore, Explanation 1A to section 271(l)(c) could not be invoked in this case and hence, the Ld. CIT(A) was justified in deleting the penalty. For this proposition, reliance is placed on ITAT Mumbai judgment in the case of Narita Investment Pvt. Ltd. vs. CIT reported in 311 ITR (AT) 398. This was also a case of a builder following the completed project method of accounting and addition of Rs. 4,22,96,966/- was made by the AO by holding that the assessee had departed from the well accepted method of determining income from business by claiming loss on account of valuation of work-in-progress, which prior to this year was being valued at 'cost' by the assessee and during this year the assessee had decided to value it 'at cost or net realizable value', whichever is lower. Such quantum addition was confirmed by CIT(A) and by ITAT and accordingly, penalty u/s 271 (1 )(c) was imposed by the AO and confirmed by CIT(A). On appeal, ITAT deleted such penalty by observing as under:
"Explanation 1 cannot be drawn unless the case of the assessee falls under either of the clauses, viz. clause (A) or clause (B). The assessee had made full disclosure to the Revenue authorities with regard to its change in valuation of work-in-progress resulting in a substantial reduction of profit. The valuation was done on the basis of the legal advice of tax experts, accountancy standards and valuation report. The assessee had a bona fide belief that it could make a change in the method of valuation of work-in- progress. Explanation 1 to section 271 (l)(c) was not applicable. Penalty could not be imposed".
28) Assessee's Rejoinder to the written submissions of the Ld. CIT-DR as filed before the Hon'ble Bench on 29/06/2016 is attached as Annexure C to these Synopsis.
In view of the above, the Ld. CIT(A) was justified in deleting the entire penalty of Rs. 7,23,32,454/- and consequently, the appeal filed by the Revenue deserves to be dismissed. "
(C.2.1) Rejoinder dated 01.08.2016 filed by assessee to written submission of the Id
CIT (DR) :
It is submitted that on 29/06/2016, the Ld. CIT-OR had filed written submissions in the above appeals on which Assessee's rejoinder/comments are as under:
In para 1.1, the Ld. CIT -OR is factually Incorrect In stating that deduction as claimed by the Assessee was found to be inadmissible firstly because no 16
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ITA Nos. 2239, 2240/Del/2014
allegation was made by the AO that such Indirect expenditure as claimed was bogus or sham in nature and secondly because such indirect expenditure relating to Lotus Boulevard project as claimed in assessment year 2010-11 has been allowed by AO himself in the subsequent assessment year 2011-12. On the same basis, the indirect expenditure relating to Lotus Panache project as claimed in assessment year 2011-12 is bound to be allowed by the AO in subsequent assessment year 2012-13 as the revenue from such project stands recognized in that year. In other words, there was merely a difference of opinion between the Assessee and the AO regarding the year in which such expenditure was to be allowed. The Ld. CIT -DR has not brought out any argument or reasoning supported by tangible material to prove that the expenditure as claimed was preoperative in nature as alleged by the AO particularly when it was admittedly not construction/development related and was a revenue expenditure and further business had already commenced as is evident from the following findings of the Id. CIT(A) vide his appellate order for the Assessment Year 2010-11:
"Keeping in view the facts that the appellant had incurred 14. 14% of the costs of the project, which shows that the appellant had obtained approvals, acquired land and had put the operation in motion, it is evident that business of Real Estate development of the appellant had commenced as construction/development activity on "Lotus Boulevard" project had started during the year under reference".
Even the AO had noted such fact as can be borne out from the assessment order itself, relevant portion from page 1 o f assessment order for the assessment year 2010-11 as reproduced below:
"The company has started the business o f development and constructions o f housing projects. During the financial year under reference, the assessee company was engaged in the business of construction/development o f its first housing project".
Hence, the non-construction related revenue expenditure as claimed by the Assessee could never be said to be pre-operative or pre-commencement in nature as alleged.
In para 1.2, the Ld. CIT-OR has relied upon Oeihi High Court judgment in the case of CIT vs. NG Technologies Ltd. since reported in 370 ITR 7, which was distinguishable on facts. In this case, Assessee had claimed loss on account of sale o f plant & machinery i.e. fixed assets in the profit & loss account and it was held that this should obviously not have-been claimed as it was contrary to elementary and well known basic principles o f accounting. As the claim could not be explained and justified by any argument or reasoning and neither it was a case o f a debatable issue relating to legal or accounting principles which could have been interpreted differently. Therefore, on the particular facts o f such case, the Hon'bie High Court held that levy o f penalty u/s 271 (1 )(c) was justified.
V ITA Nos. 2239, 2240/Del/2014
In our case, the Assessee had made a bonafide claim o f expenditure during the year under consideration which was in accordance with the mandatory Accounting Standards read with Guidance Note on Accounting for Real Estate Transactions and the same cannot be said to be a false claim. The Ld. CIT-OR also has not been able to show as to how such claim as made was not bonafide in nature and has nowhere demonstrated that Accounting Standards as applied by the Assessee were not applicable to it. 3. In para 2.1, the Ld. CIT-OR has reproduced Explanation 1 to section 271 (1) (c) but has not been in a position to show as to how such Explanation could be applied to the facts of Assessee's case. In our respectful submission, Explanation 1 to section 271 (1 )(c) was not applicable. At any rate, the onus, if it lay on the Assessee, had been duly discharged by filing proper explanation before the authorities below. 4. In paras 2.2.1, 2.2.2 & 2.3, the CIT-OR has alleged that the Guidance Note on Accounting for Real Estate Transactions (revised 2012) cannot be used because date o f filing o f return o f income was 15/10/2010 and therefore, case o f Assessee is covered under sub-ciause (A).
It is submitted that firstly sub-ciause (A) to Explanation 1 cannot be applied in Assessee's case because it has offered an Explanation and such Explanation has not been found to be false. Guidance Note on Accounting for Real Estate Transactions (revised 2012) enclosed at pages 60-78 o f the paper book was cited by the Assessee before the authorities below because the same was issued prior to the commencement of assessment proceedings and as per such Guidance Note, the same could be used for transactions commenced even prior to its April 1, 2012 as is evident from para 1.5 at page 66, relevant portion o f which is reproduced below: "This Guidance Note should be applied to all projects in real estate which are commenced on or after April 1, 2012 and also to projects which have already commenced but where revenue is being recognized for the first time on or after April 1, 2012. An enterprise may choose to apply this Guidance Note from an earlier date provided it applies this Guidance Note to all transactions which commenced or were entered into on or after such earlier date.
Relevant portion from the Preface o f such Guidance Note (refer to page 63) is also reproduced below:
"As the premier accounting standards-setting body, the ICAI, due to the distinguished revenue model o f this sector, felt that the accounting guidance earlier given by the ICAI in the Guidance Note on Recognition o f Revenue by Real Estate Developers required revision, so that the diverse practices followed by different players in the market can be harmonized into a single uniform practice, particularly, in the 18
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ITA Nos. 2239, 2240/Del/2014
application o f Percentage o f Completion Method o f recognizing the revenue...........................................
For this purpose, the Guidance Note draws upon the principles enunciated in Accounting Standards (AS) 7, Construction Contract. In respect o f transactions of real estate which are in substance similar to delivery o f goods, principles enunciated in Accounting Standard (AS) 9, Revenue Recognition are applied".
Hence, prior to issue o f the above Guidance Note, diverse practices were followed by different players in the Real Estate sector in the application of percentage o f completion method for recognizing the revenue. As per the accounting policy regularly followed by the Assessee, it was recognizing revenue from a project in the year when percentage o f actual construction and related costs incurred thereon as against total estimated cost o f project became 30% or more. As per Guidance Note on Accounting for Real Estate Transactions (revised 2012), such percentage threshold was reduced to 25%. Admittedly, during the assessment year 2010-11, such percentage of construction and related costs incurred on Lotus Boulevard project and on Lotus Panache project was below such threshold o f even 25% and in assessment year 2011-12, such percentage was below 25% in Lotus Panache project but above 25% in Lotus Boulevard project. Hence, no revenue from any o f the two projects was recognized during assessment year 2010-11 while revenue was recognized in assessment year 2011-12 from lotus Boulevard project only In accordance with the percentage or completion method.
In any case, there was no dispute with the Department in this case regarding revenue recognition policy as adopted in either assessment year 2010-11 or in assessment year 2011-12 which stands accepted by the AO. The only dispute was with regard to indirect expenditure as claimed by the Assessee during these two years under consideration as the same being not construction related and being revenue in nature was fully deductible in the year in which it was incurred. Even as per AS-7 enclosed as Appendix-I,such type o f expenditure as claimed could not be attributed towards construction costs as is evident from para 19. The language as used here to describe such costs which are not construction related is identical to what has been used by in Guidance Note on Accounting for Real Estate Transactions (revised 2012). Hence, the Assessee had rightly claimed such indirect expenditure as a deductible revenue expenditure in the year in which the same was incurred in accordance with the mandatory Accounting Standards whereas the AO had incorrectly treated the same as pre- operative. The id. CIT-OR has not been able to bring any supporting tangible material on record to show that such expenditure as claimed could be considered as pre-operative in nature particularly when business activities had already commenced in Appellant's case when it acquired the land for both the projects respectively in 19
\ ITA Nos. 2239, 2240/Del/2014
assessment years 2009-10 and 2010-11 as already explained above and also as per the findings as recorded by the Id. CIT(A). In this connection, reliance is also placed on Jurisdictional Delhi High Court judgment in the case o f CIT vs. Dhoomketu Builders & Development Pvt. Ltd. reported in 368 ITR 680, in which it was held as under:
" 00 0 0 once the land is acquired the assessee may be said to have actually commenced its business which is that of development of real estate ".
In para 2.4.1 & 2.4.2, the id. CIT-OR has applied clause (B) o f Explanation 1 to section 271 (1 )(c) by stating that the Assessee has not discharged its onus for which it has placed reliance on Delhi High Court judgment in the case o f CIT vs. HCIL Kaiindee Arsspi. Copy of such judgment is enclosed as Appendix II from where it would be evident that the Assessee in that case was not able to establish its bon a fides by way o f any tangible material to show as to why the ciarificatory explanation as inserted by Finance Act 2007 with retrospective effect from 01/04/2000 being statutory provision (which excludes works contracts) was ignored by the Assessee (refer to para 11). Secondly, the Tribunal in that case had not dealt with the second reasoning given by the AO to make the addition about assessee having not carried out the work but having sub-contracted the same to third party/parties (refer to para 14). It was on such facts that the High Court held that dubious and fanciful claim for deduction u/s 80-IA was made under the garb of interpretation o f law and the Assessee has not been able to discharge its onus to establish that they had acted bonafideiy.
In our case, the Assessee had made a bonafide claim o f expenditure during the year under consideration which was in accordance with the mandatory Accounting Standards read with Guidance Note on Accounting for Real Estate Transactions and the same cannot be said to be a false claim. The Ld. CIT-OR also has not been able to show as to how such claim as made was maiafide in nature.
In para 3, the Ld. CIT-OR has relied on Delhi High Court judgment in CIT vs. Escorts Finance Ltd. 328 ITR 44. Facts of this case are distinguishable from the facts o f Assessee's case. In this case, penalty was levied because the Assessee had made an ex facie bogus claim under section 350. On the facts o f this case, it was held that relief available u/s 350 to a Finance Co. is ex facie inadmissible as that is confined only to the existing industrial undertaking for their extension or for setting up a new industrial unit and hence it was not; a case o f 'wrong claim' but a dear case o f 'false claim'.
In our case, the Assessee had made a bonafide claim o f expenditure during the year under consideration which was in accordance with the mandatory 20
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ITA Nos. 2239, 2240/Del/2014
Accounting Standards read with Guidance Note on Accounting for Real Estate Transactions and the same cannot be said to be a false claim or even a wrong claim. The Ld. CIT-OR also has not been able to show as to how such claim as made was not bonafide in nature. On the other two issues as taken up by the above Delhi High Court judgment where penalty was deleted, this judgment rather supports Assessee's case as explained before the Ld. CIT(A) at pages 18-19 o f the paper book
In para 4, the Id. CIT-OR has relied on Delhi High Court judgment in the case of Zoom Communications P Ltd. 327 ITR 510. Facts o f this case are distinguishable from the facts o f Assessee's case. In this case, the Assessee had claimed a sum of Rs.l ,21,49,861/- reflected In the P&L A/c as debited under the head 'equipment written off and further claimed another sum of Rs. 1,00,000/- reflected in the P&L A/c as debited under the head 'income- tax paid'. Both these amounts were accepted by the Assessee to have been claimed due to inadvertent error. The first amount o f Rs.l ,21,49,861/- could not have been claimed as admissible u/s 32(1 )(iii) which relates to assets of an undertaking engaged in generation and / or distribution o f power and admittedly the assessee Co. was not engaged in generation and for distribution o f power during the. relevant year. Further, the second amount of Rs. 1,00,000/- being income tax paid in any case is not an allowable expenditure. On such facts, the Court held that it was not a case o f the assessee that it was under a bonafide belief that these two amounts could be claimed as revenue expenditure and consequently, the penalty as imposed u/s 271 (1 )(c) was justifiable. Rather, the following observations as made by the Hon'bie Delhi High Court in 327 ITR 510 supports the case of the Assessee: "So long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition o f penalty under section 271(1 )(c) of the Income-tax Act, 1861, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bona fide”.
In our case, the Assessee had made a bonafide claim o f expenditure during the year under consideration which was in accordance with the mandatory Accounting Standards read with Guidance Note on Accounting for Real Estate Transactions and the same cannot be said to be a false claim or even a wrong claim. The Ld. CIT-DR also has not been able to show as to how such claim as made was not bona fide in nature.
In para 5, the Ld. CIT-DR has referred to Hon'bie Supreme Court judgment in the case o f Reliance Petro Products Pvt. Ltd. 322 ITR 158 as relied by the Assessee and merely stated-that- the facts o f such case .are not applicable to Assessee's case. However, he has not been able to demonstrate how the facts are distinguishable and secondly as to how the Revenue had discharged 21
V ITA Nos. 2239, 2240/Del/2014
its onus for proving the falseness of Explanation o f the Assessee with regard to its claim o f indirect expenditure. As already explained in the written submissions as filed before the Ld. CIT(A) duly supported by various case laws, merely non-fiiing o f quantum appeal by the Assessee cannot be a ground for imposition o f penalty u/s 271 (1 )(c) o f I. T. Act. The assessee may accept departmental view to avoid litigation but such acceptance cannot put him in a position worse than another to contest the departmental view and therefore, penalty u/s 271 (1 )(c) cannot be levied simply on this basis. In this connection, reliance is placed on the following case laws:
256 ITR 683, CIT vs. Sivananda Steels Ltd. reported (Madras H.C.), where penalty u/s 271 (1 )(c) was deleted even when the assessee had accepted departmental view. ITAT Delhi Bench judgment in the case o f ACIT vs. Shaiiesh Mittal, copy placed at pages 93-101 o f the paper book filed in assessment year 2010-11.
ITA T Amritsar Bench judgment in the case o f Dy. CIT vs. M/s Max India Limited, copy placed at pages 102 - 121 filed in assessment year 2010-11.
Consequently, the appeals filed by the Revenue deserve to be dismissed."
(C.3) At the time of hearing before us the Ld. CIT(DR) appearing for revenue
reiterated the submissions tendered earlier by way of written submissions dated
29.06.2016. He also drew attention to the fact that the reliance by assessee on
Guidance Notes 2012 of Institute of Chartered Accountants of India (ICAI) is
misplaced because at the relevant time when the returns were filed by the assessee
for assessment years 2010-11 and 2011-12, these Guidance Notes had not been
issued by ICAI. He informed that at the relevant time when the assessee filed these
returns of income the relevant Guidance Notes that were applicable were the
Guidance Notes issued by ICAI 2006. He further contended that the claim for various
expenses made by the assessee as per returns of income for Assessment Years
2010-11 and 2011-12 were inconsistent with Guidance Notes 2006 of ICAI. In his
ITA Nos. 2239, 2240/Del/2014
oral submissions made by the Ld. Counsel for assessee the contention of Ld.
CIT(DR) that the claim for various expenses made by the assessee as per returns of
income for Assessment Year 2010-11 and 2011-12 were inconsistent with Guidance
Notes 2006 of ICAI ; was not contradicted by the Ld. Counsel for assessee. However
the Ld. Counsel for assessee strongly defended the orders passed by the Ld. CIT(A)
and reiterated the submissions tendered earlier by way of synopsis dated
01.08.2016 and rejoinder dated 01.08.2016. He also drew our attention to the paper
book filed by the assessee and pleaded that there was no case for levy of penalty
u/s 271(l)(c) of I.T. Act.
(D) We have heard both sides carefully. We have also considered the written
submissions filed by Ld. CIT(DR), the synopsis filed by the assessee and the
rejoinder filed by the assessee to the written submissions of the Ld. CIT(DR). We
have also considered all the materials on record. The allowability of expenses
claimed by the assessee is presently not the issue in dispute before us, as the s assessee has accepted the assessment orders for both Assessment Years 2010-11
and 2011-12, and has not filed any appeal against these assessment orders. In fact
the assessee even revised the return of income for 2011-12 on the basis of
assessment order for Assessment Year 2010-11, as the assessee accepted the
disallowance of expenses made by the AO in assessment order for Assessment Year
2010-11. In the present appeals before us, the issue before us is not, whether the
disallowance of expenses by the AO in the assessment order was as per law or not.
That issue is settled and presently not in dispute; because the assessee has
accepted the assessment orders for both Assessment Years 2010-11 and 2011-12.
ITA Nos. 2239, 2240/Del/2014
The issue before us is whether it is a fit case for levy of penalty u/s 271(l)(c) of
I.T. Act for Assessment Years 2010-11 and 2011-12. We find it pertinent that the
claim for expenses made by the assessee was inconsistent with the Guidance Notes
2006, issued by ICAI; which was applicable at the relevant time when the assessee
filed the returns of income. Therefore, it cannot be said that the assessee's claim
for expenses was bonafide. The explanation offered by the assessee is that the
claim of expenses is in accordance with Guidance Notes 2012 of ICAI. This
explanation, however, is not bona fide because at the relevant time when returns
were filed by the assessee, Guidance notes 2012 had not been issued by ICAI , and
instead ,Guidance Notes issued by ICAI in 2006 were applicable. Therefore, the
assessee is clearly hit by Explanation 1(B) to section 271(l)(c) of I.T.Act. We also
take guidance from the order of Hon'ble Supreme Court of India in MAK Date (P.)
Ltd. V. Commissioner of Income-tax-II (2013) 38 taxmann.com 448 (SC). In this
case the Hon'ble Apex Court upheld the levy of penalty u/s 271(l)(c) of I.T. Act
despite offer of surrender of income made by the assessee with a view to avoid
litigation and buy peace and to make an amicable settlement of the dispute.
Hon'ble Supreme Court held that voluntary disclosure does not release the assessee
from the mischief of penal proceedings, and that the law does not provide that
when an assessee makes voluntary disclosure of his income he had to be absolved
from penalty. We are also guided by the order of Hon'ble Jurisdictional High Court
in the case of CIT vs. HCIL Kalindee Arsspl (2013) 37 taxmann.com 347 (Delhi). In
this case Hon'ble Delhi High Court held that merely because assessee complied with
statutory procedural requirement of filing prescribed form and certificate of
Chartered Accountant it could not absolve the assessee of its liability, if act or 24
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ITA Nos. 2239, 2240/Del/2014
attempt in claiming deduction was not bonafide ; and upheld the imposition of
penalty u/s 271(l)(c).- We are also guided by the order of Hon'bie Jurisdictional
High Court in the case of CIT vs. NG Technologies Ltd. (2015) 57 taxmann.com 389
(Delhi). In this case Hon'bie Delhi High Court upheld the levy of penalty u/s
271(l)(c) of I.T. Act in view of the fact that the assessee did not file revised return
voluntarily but had filed revised return after AO confronted the assessee and
assessee was asked to explain claim of loss. Moreover, we are also guided by the
judgment of Hon'bie Jurisdictional High Court in the case of CIT vs. Zoom
Communication (P.) Ltd. (2010) 327 ITR 510 (Delhi), relevant portion of which is
reproduced as under:
"It is true that mere submitting a claim which is incorrect, in law, would not amount to giving inaccurate particulars o f the income o f the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect, in law, is maia fide the Explanation 1 to section 271 (1) would come into piay and work to the disadvantage of the assessee. [Para 19]
The Court cannot overlook the fact that only a small percentage of the income-tax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271 (1)( c ). If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition o f penalty, even if he was not acting bona fide while making a claim o f this nature, that would give a licence to the unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) and even if their case is selected for scrutiny, they can get away merely by paying the tax, which, in any case, was payable by them. The consequence would be that the persons, who make claims o f this nature, actuated by a mala fide intention to evade tax otherwise payable by them, would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take
ITA Nos. 2239, 2240/Del/2014
away the deterrent effect, which these penalty provisions in the Act have. "(Para 20)"
(D.l) We also find that these appeals are also covered in favour of Revenue and
against the assessee by appellate order dated 11th August, 2016 passed by us in the
case of Nicotra India Pvt. Ltd. Vs. ACIT for asstt. Years 2005-06 and 2006-07 in
ITA Nos.:- 3953, 3954/Del/2013 In that case the assessee voluntarily withdrew
deduction claimed by it in both AY 2005-06 and 2006-07 after the Assessing officer
confronted the assessee during assessment proceedings for AY 2005-06, and had
also revised return for Assessment Year 2006-07. We had , vide aforesaid order, in
similar facts and circumstances, confirmed the levy of penalty u/s 271(l)(c) of I.T.
Act for both Assessment Years 2005-06 and 2006-07 in the case of Nicotra India Pvt.
Ltd vs. ACIT for Assessment Years 2005-06 and 2006-07. The relevant portion of
our aforesaid order is reproduced below for ready reference:
"For the sake o f convenience, these two appeals filed by the assessee are disposed off through this consolidated order. These appeals are filed against levy o f penalties amounting to Rs. 10,35,008/- for asstt. year 2005-06 and Rs. 15,20,262/- for asstt. year 2006-07 levied u/s 271(l)(c) o f I. T. Act. The penalties were imposed by the Ld. AO in respect o f claim made by the assessee u/s 801B o f I. T. Act in the original return o f income for asstt. years 2005-06 and 2006-07 respectively. The quantum o f deduction claimed u/s 80IB o f I.T. Act was Rs.28,28,472/- for asstt. year 2005-06 and Rs. 45,16,523/- for asstt. year 2006-07. In the course of asstt. proceedings for asstt. year 2005-06 the Ld. AO issued questionnaire dated 4.7.2007 wherein, vide point No. 6 o f the questionnaire, the assessee was asked by the Ld. AO to give details o f exemptions and deductions claimed by it and to clarify as to why the same should be accepted by the department. Thereafter, the assessee filed revised return u/s 139(5) of Income Tax Act on 31.10.2007 for asstt. year 2005-06 withdrawing the deduction claimed u/s 80IB of IT Act amounting to Rs. 28,28,472/-. However the Ld. AO treated the revised return as not filed since the revised return was submitted beyond the statutory time limit prescribed u/s 139(5) o f I. T. Act. In the assessment concluded, the deduction claimed u/s 80IA o f I.T. Act in the original return, amounting to Rs. 28,28,472/-
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ITA Nos. 2239, 2240/Del/2014
was disallowed. Simultaneously penalty proceedings u/s 271(l)(c) of Income Tax Act were also initiated for asstt. year 2005-06 by the Ld. AO. For asstt. year 2006-07 also, the assessee revised the original return and filed the revised return u/s 139(5) o f I. T. Act on 31.10.2007 withdrawing the deduction claimed u/s 801B amounting to Rs. 45,16,523/-. Though the revised return was filed for asstt. year 2006- 07 within the time limit for asstt. year 2006-07permissible u/s 139 (5) to I. T. Act, the Ld. AO held that the revised return was not filed suo moto but was filed on the instance o f department i.e. when the issue relating to allowability of deduction u/s 801 A o f Act was confronted with the assesee in the course of assessment proceedings for asstt. year 2005-06 vide questionnaire dated 4.7.2007 and in view o f that, the Ld. AO held that the revision o f return for asstt. year 2006-07 will not absolve the assessee o f the purview o f penalty proceedings under the provisions o f section 271(l)(c) o f Income Tax Act. Penalty proceedings were initiated by Ld. AO for asstt. year 2006-07 also u/s 271(l)(c) o f I. T. Act.
2.1. During penalty proceedings u/s 271(l)(c) for asstt. year for asstt. year 2005-06 the assessee neither appeared before the Ld. AO nor filed any reply to the show cause notice issued by Ld. AO to the assessee company. The AO levied penalty amounting to Rs. 10,35,008/- u/s 271(l)(c) of I.T. Act with the following observations:-
"4.1 From the above discussions it is dear that the assessee company was itself aware that it did not fulfilling the conditions specified in section 8018 o f the I. Tax Act and filing the revised return was also not correct. Further in the event o f penalty proceedings, it did not offer any explanation, regarding disallowances o f deduction u/s 8018 and imposition o f penalty. The case o f the assessee, therefore, squarely falls under explanation 1 & 4 to section 271(l)(c) of Income tax Act, 1961. Reference can also be made to the case law o f CIT vs. Escorts Finance Ltd. (2009) 226 CTR 105 (Dei), where the jurisdictional High Court held that in case of false claim penalty for concealment is leviable even though the said claim is declared in the return o f income. The above decision was rendered in view o f the fact that each year, the Revenue hardly takes up three to five percent of returns under scrutiny u/s 143(2) of the Act after which assessment is framed under sub-section (3) o f section 143 o f the Act. Therefore, with the hope that its return may not come under scrutiny and may be assessed on the basis o f 'self assessment.' as assessee can venture to give wrong information. Therefore, it was held that merely because information was available in the Tax Audit Report, would not absolve it from the penalty. In another case Gujarat High Court in the case o f CIT vs. Vidyagauri Natwariai and Ors. (1999) 238 ITR (Guj) had held that in the case o f false claim, penalty for concealment is attracted.
ITA Nos' 2239, 2240/Del/2014
4.2 After considering the Apex Court decision in the case o f M/s Reliance Petroproducts, The Hon'bie High Court o f Delhi in the case of M/s Zoom Communication Pvt. Ltd., in ITA No. 7/201 0 dated 24.05.2010 has held that- "The Court cannot overlook the fact that only a small percentage o f the Income Tax Returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in laws but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would still not be liable to penalty u/s 271 (l)(c) o f the Act. The Hon'bie High Court observed that the a claim which is wholly untenable in law and has absolutely no foundation on which it could be mean, the assessee would not be liable to imposition o f penalty, even if he was not acting bonafide while making a claim o f this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self Assessment Under Section 143(1) o f the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by the. The consequence would be that the persons who make claims o f this nature, actuated by a maiafide intention to evade tax otherwise payable by scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have".
2.1.1. The assessee filed appeal before Ld. CIT(A) against levy of penalty u/s 271(l)(c) of I.T. Act amounting to Rs. 10,35,008/- for asstt. Year 2005-06. The assessee submitted before Ld. CIT(A) that at the time of preparing the income tax return for asstt. year 2007-08 it came in the knowledge of the assessee company that such deduction was not available to the assessee. The assessee claimed before the Ld. CIT(A) that withdrawal of claim u/s 80IB of I.T. Act was a conscious disclosure from the assessee company itself. However the assessee company failed to provide any explanation or information / particulars about eligibility criteria on the basis of which deduction u/s 80IB of IT Act was claimed and how or on what basis it was realised (at the time of filing of return for asstt. year 2007-08) that such deduction was not available. Ld. CIT(A) held in his order dated 19.3.2013 that the assessee has furnished inaccurate particulars of income on account of ineligible deduction claimed u/s 80IB of I.T. Act and confirmed the levy of penalty u/s 271(l)(c) of I.T. Act by relying on the following decisions :
K.P. Madhusudhanan v. CIT (2001) 118 TAXMAN 324 (SC)\
ITA Nos. 2239, 2240/Del/2014
Ravi & Co. v. ACIT (2005) 143 TAXMAN 287 (MAD.)
M. Sajjanraj Nahar v. CIT (2006) 155 TAXMAN 536 (MAD.)
CIT, Delhi-IV v. Escorts Finance Ltd. *(2009) 183 TAXMAN 453 (DELHI)
CIT v. Zoom Communication (P.) Ltd. (2010) 191 TAXMAN 179 (Delhi)
2.1.2. During penalty proceedings for asstt. year 2006-07 the AO issued show cause notice to assessee on 11.1.2012.The assessee filed its reply and submitted that all the details given in the return were correct, there was no concealment of income, nor there were any inaccurate particulars of such income furnished.The assessee company also submitted that it claimed deduction u/s 80IB as it was of opinion that it is available to them, but while preparing return for asstt. year 2007-08, it came to the knowledge of the management that this deduction was not available to the assessee company, and the company immediately revised the return of income for all the earlier years thereby paying tax due alongwith interest. It was also submitted by assessee before Ld. AO that the questionnaire issued for A.Y. 2005-06 was general in nature and there was no show cause to withdraw the deduction u/s 80IB of the I.T. Act. It was further submitted by assessee before Ld. AO that the withdrawal of claim by assessee was well before passing any order u/s 143(3) in the assessment proceedings and that such withdrawal did not amount to furnishing of inaccurate particulars of income in its original return of income filed on 1.11.2006. However, the Ld. AO rejected the submissions made by the assesee, and levied penalty amounting to Rs. 15,20,262/- u/s 271(l)(c) of I.T. Act. The assessee filed appeal against levy of penalty u/s 271(1)(C) before the Ld. CIT(A). Before the Ld. CIT(A) the assessee submitted that no show cause was issued to the assessee to disallow the deduction claimed u/s 80IB of the IT A c t ; that the assessee company claimed deduction u/s 80IB as it was of the view that such deduction is available to them but while preparing return for AY 2007-08, it came to the knowledge of the management that this deduction is not available to the assessee company, and the assessee company immediately revised the returns of income for all the earlier years thereby paying tax due along with interest. The assessee submitted before Ld. CIT(A) that it was a conscious disclosure from the assessee company itself and that such withdrawal did not amount to furnishing of inaccurate particulars of income in its original return of income filed on 01.11.2006. The assesee submitted before the Ld. CIT(A) that withdrawal of claim made by the Assessee Company was 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 29
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concealment of income or furnishing of inaccurate particulars of such income. The Ld. CIT(A), vide separate order dated 19.3.2013 for asstt. year 2006-07, upheld the levy of penalty u/s 271(l)(c) and dismissed assessee's appeal relying on the following decisions
K.P. Madhusudhanan v. CIT (2001) 118 TAXMAN 324 (SC) 2. Ravi & Co. v. ACIT (2005) 143 TAXMAN 287 (MAD.) 3. M. Sajjanraj Nahar v. CIT (2006) 155 TAXMAN 536 (MAD.) 4. CIT, Delhi-IV v. Escorts Finance Ltd. *(2009) 183 TAXMAN 453 (DELHI) 5. CIT v. Zoom Communication (P.) Ltd. (2010) 191 TAXMAN 179 (Delhi)
Now the assessee is in appeal before us for both asstt. year 2005- 06 and 2006-07. We have heard both sides carefully. We have also perused the materials on record. The Authorised Representative of the assessee vehemently opposed the orders of the lower authorities for both asstt. years 2005-06 and 2006-07. She relied on Supreme Court decision in the case of Virtual Soft Systems Ltd. vs. CIT(2007) 159 Taxman 155 (SC) for the proposition that section 271 of Income Tax Act has to be construed strictly and narrowly and not widely or with the object of advancing the object and intention of the legislature. She also contended that the view favourable to the assessee should be adopted when two reasonable views are possible. She further relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd. 322 ITR 158 (SC) for the proposition that mere making of a claim, which is not sustainable in law, by itself, does not amount to furnishing inaccurate particulars regarding the income of the assessee. She contended that withdrawal of the claim u/s 80IB of I.T. Act was a voluntary and bonafide act on realising that this deduction was not available to the assessee. She also contended that this realisation came to the assessee at the time of filing return for asstt. year 2007-08. She further highlighted the fact that no show cause notice was issued to the assessee either to withdraw or to disallow the deduction claimed u/s 80IB of I.T. Act for either asstt. year 2005-06 or asstt. year 2006-07. On the other hand the Ld. DR strongly supported the orders of the Ld. AO and the Ld. CIT(A).
3.1. We find that the withdrawal of claim u/s 80IB of I.T. Act was made by the assessee only after the questionnaire was issued to the assessee for asstt. year 2005-06 by the AO, in the course of asstt. proceedings for asstt. year 2005-06 asking the assessee to furnish the details of all exemptions and deductions claimed by it in the return of income and to clarify as to why the deduction / exemption claimed by it should be accepted by the Department. Further we have also noticed that at no stage, either before the lower authorities or before us the assessee offered any explanation or information / particulars about the 30
ITA Nos. 2239, 2240/Del/2014
eligibility criteria on the basis of which the deduction was claimed in the original return filed by the assessee. Similarly though the assesee claimed that it came to the knowledge of assessee at the time of filing return for asstt year 2007-08 that deduction u/s 80IB was not available to the ass&ssee ; the assessee has also not provided any explanation or information / particulars as to on what basis it realised at the time of filing income tax return for asstt. year 2007-08 that deduction u/s 80IB of I.T. Act was not available to the assessee. The assesee submitted that claim was earlier made and later withdrawn on account of difference of opinion. However, at no stage has the assessee provided any explanation or information/ particulars about what was the difference of opinion. In these facts and circumstances we hold that the assesee has not been able to substantiate the explanation furnished by it ; and has failed to prove that the explanation is bonafide. In these facts and circumstances we also hold that facts relating to the explanation furnished by the assessee and material to the computation of assessee's total income have not been disclosed by the assessee. Thus, the assesee is clearly hit by explanation 1(B) of S. 271(l)(c) of I.T. Act, even on strict and narrow construction of S. 271(l)(c) of I.T. Act and two reasonable views are not possible. Hence the case of Virtual Soft System Ltd. vs. CIT (supra) does not help the assessee. The assessee withdrew deduction u/s 80IB of I.T. Act by filing revised return only when it was faced with query raised by Revenue during assessment proceedings for asstt. year 2005-06, to justify its claim u/s 80IB of I.T. Act. The assessee could have withdrawn the claim before the case was selected for scrutiny by issue of notice u/s 143(2) of I.T. Act, which the assessee failed to do. In fact the assessee did not withdraw the claim even after the case was selected for scrutiny by issue of notice u/s 143(2) of I.T. Act ; and waited till the AO issued the questionnaire specifically requiring the assessee to justify its claim. Under these facts and circumstances it reasonably can also be concluded that the assessee already knew at the time of filing original returns of income for asstt. year 2005-06 and for asstt. year 2006-07 that the deduction u/s 80IB of I.T. Act was not available to it and further that despite this knowledge, the assessee made claim u/s 80IB of I.T. Act, though it was not admissible, with the motive to avail of deduction u/s 80IB of I.T. Act in case the returns for asstt. year 2005-06 and 2006-07 were not selected for scrutiny.
3.2. The Ld. AR of the asseessee drew our attention to apex court decision in the case of CIT vs. Reliance Petroproducts (P) Ltd. 189 Taxman 322 (SC) and contended that merely because claim u/s 80IB of I.T. Act was not acceptable to Revenue, that by itself would not attract penalty u/s 271(l)(c) of I.T. Act. However, facts of this case are quite distinguishable from facts of the Reliance Petroproducts (P) Ltd. (supra). In that case, no information given in the returns was found to 31
\ ITA Nos. 2239, 2240/Del/2014
be incorrect or inaccurate. In the cases before us, however, the claim made by assessee u/s 80IB of I.T. Act in original returns of income for asstt. year 2005-06 and 2006-07 were incorrect by assessee's own admission. In fact, the case of the assessee is directly covered against the assessee by decision of Hon'bie Jurisdictional High court in the case of CIT vs. Zoom Communication Pvt. Ltd. 191 Taxman 179 (Delhi). In CIT vs. Zoom Communication Pvt. Ltd. (supra) , which is binding on us ; the Hon'bie Jurisdictional High Court held, after considering CIT vs. Reliance Petroproducts (supra) as under :-
"It is true that mere submitting a claim which is incorrect, in law, would not amount to giving inaccurate particulars o f the income o f the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect, in law, is mala fide the Explanation 1 to section 271 (1) would come into play and work to the disadvantage o f the assessee. [Para 19]
The Court cannot overlook the fact that only a small percentage o f the income-tax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271 (1)( c ). If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition o f penalty, even if he was not acting bona fide while making a claim o f this nature, that would give a licence to the unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis o f self-assessment under section 143(1) and even if their case is selected for scrutiny, they can get away merely by paying the tax, which, in any case, was payable by them. The consequence would be that the persons, who make claims o f this nature, actuated by a maia fide intention to evade tax otherwise payable by them, would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have. "(Para20)"
3.2.1. Further, perusal of the binding order of Hon'bie Jurisdictional High Court in the case of CIT vs. Zoom Communication Pvt. Ltd. (supra), relevant portion of which has been reproduced in the preceding paragraph 3.2, shows that the Hon'bie High Court has taken judicial notice of the fact that only a small percentage of income-tax returns are picked up for scrutiny and has held that provisions for levy 32
ITA Nos. 2239, 2240/Del/2014
of penalty u/s 271(l)(c) of I.T. Act are meant to have deterrent effect against those persons who make claims, actuated by a malafide intention to evade tax otherwise payable by them legally, if their cases are not picked up for scrutiny. Viewed in this background, we are of the view that filing of revised return for asstt. year 2005-06 and 2006- 07 by the assesee withdrawing the claim u/s 80IB of I.T. Act ; well after the case was selected for scrutiny for asstt. year 2005-06 and after the assessee was issued questionnaire by the Ld. Assessing Officer requiring the assessee to clarify as to why the same should be accepted ; was done at too late a stage. There is a critical stage after which it is too late, and withdrawal of claims made by the assessee can not save the assessee from penal provisions u/s 271(l)(c) of I.T. Act. One can appreciate the matter with the help of illustrative example of a ticketless traveller who is confronted by the Ticket Collector when he is leaving the destination station, and is asked to show ticket. This illustrative example is for analogy only and for no other purpose. The Ticket Collector at the exit gate of a railway station may ask only a small percentage of travellers to show ticket (just as Income Tax Department picks up a small percentage of income-tax returns for scrutiny) and large numbers in the crowd of travellers leaving the station may not be asked by the Ticket Collector to show the ticket. But once a ticketless passenger is confronted by the Ticket Collector and asked to show ticket, (just as in the cases before us, the Ld. AO vide questionnaire dated 04.7.2007 asked the assessee to clarify why exemptions and deductions claimed by it should be accepted) the ticketless passenger cannot get away merely by paying the normal fare. He has to also pay penalty in addition to the normal fare unless he can show that he had a legitimate basis to begin the journey without a valid ticket. In the cases before us, the assessee has not furnished any satisfactory explanation regarding what legitimate basis it had to claim deduction u/s 80IB of I.T. Act at the time of filing of original returns of income for asstt. year 2005-06 and asstt. year 2006-07. Also, the assessee did not withdraw the claims u/s 80IB of I.T. Act for asstt. year 2005-06 and asstt. year 2006-07 immediately after the case was selected for scrutiny for asstt. year 2005-06. Claims u/s 80IB of I.T. Act were withdrawn by the assessee much after the Ld. AO issued questionnaire dated 4.7.2007 asking the assessee to clarify why exemptions and deductions claimed by it should be accepted. By that time it is too late and the assessee has missed the boat. At that late a stage, well past the critical stage, the assesee cannot get away by merely paying taxes and the assessee must, in addition, also pay penalty u/s 271(l)(c) of I.T. Act.
3.2.2.The assessee has claimed that revised returns for both asstt. years 2005-06 and 2006-07 were filed, withdrawing claim u/s 80IB of I.T. Act at the time when return for asstt. year 2007-08 was being filed. The assessee claims that the realisation that the assessee was 33
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not eligible for deduction u/s 80IB of I.T. Act was arrived at the time of filing return for asstt. year 2007-08 impliedly claiming thereby that the assessee decided to withdraw the claims u/s 80IB of I.T. Act for asstt. year 2005-06 and asstt. year 2006-07 (by filing revised returns of income) not because of the questionnaire dated 4.7.2007 issued by the Ld. AO) but because subsequently at the time of filing return for asstt. year 2007-08 the assessee on its own realised that deduction u/s 80IB was not admissible. This is a self-serving claim without any credible proof. Self-serving claims without credible proof do not merit serious consideration, and in the facts and circumstances of the cases before us, it does not advance the cause of the assessee. Had the revised returns been filed (withdrawing claim made u/s 80IB of I.T. Act for asstt. year 2005-06 and 2006-07) well tefore the time of filing return for asstt. year 2007-08 i.e. well before 31.10.2007, but after questionnaire dated 4.7.2007 was issued by Ld. AO, would the assessee be justified in claiming a favourable consideration ? No. In view of the reasoning earlier given in this order, the assessee would still be hit by Explanation 1(B) to S. 271(l)(c) of I.T. Act and would be still liable to pay penalty u/s 271(l)(c) of I.T. Act. Merely because the assessee delayed the filing of revised return of income (for asstt. year 2005-06 and 2006-07) till 31.10.2007, i.e. till the time of filing of return for asstt. year 2007-08 even after receiving questionnaire dated 4.7.2007 ; the assesee cannot claim favourable consideration. One's own mistake or delay can't be used to advance one's cause. In law, nobody can claim the benefit of delays or mistakes on his own part; though it may advance the cause of the other side.
In view of the above, penalties levied u/s 271(l)(c) of I.T. Act by the Ld. AO for both asstt. years 2005-06 and 2006-07 ; and upheld by the Ld. CIT(A) for both these years are hereby confirmed. We uphold the orders of the lower authorities for both asstt. years 2005-06 and 2006-07 and dismiss the appeals filed by the assessee for both asstt. year 2005-06 and 2006-07. "
(D.2) In view of the binding judicial precedents of Hon'bie Supreme Court and
Hon'bie Jurisdictional High Court referred to earlier in this order, and in view of the
order passed by us in the case of Nicotra India Pvt. Ltd for Assessment Years 2005-
06 and 2006-07 in ITA Nos.:- 3953, 3954/Del/2013 in similar facts and
circumstances, and further in view of our finding that the assessee is hit by
Explanation 1(B) to section 271(l)(c) of I.T.Act; we hold that this is a fit case for
levy of penalty u/s 271(l)(c) of I.T. Act for both Assessment Years 2010-11 and 34
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2011-12 . Accordingly, we set aside the orders of Ld. CIT(A) for both Assessment
Years 2010-11 and 2011-12, and confirm the penalty levied by the Assessing Officer
for Assessment Years 2010-11 and 2011-12. The appeals filed by revenue for both
Assessment Years 2010-11 and 2011-12 are thus allowed.
This order was pronounced in open court on 16.12.2016.
Sd/- sd/- (H.S. SIDHU) (ANADI N MISHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 16.12.2016. *Veena*