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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
Per L.P. Sahu, Accountant Member:
This is an appeal by the assessee against the order of ld. CIT(A) XXVIII, New Delhi dated 02.11.2010 for A.Y. 2003-04, challenging the sustenance of penalty of Rs.27,04,800/- imposed by AO u/s. 271(1)(c) of the I.T. Act, 1961.
The brief facts of the case are that the appellant filed its return of income on 02.12.2003 declaring loss of Rs.3,80,83,680/-. The assessment u/s. 143(3) was completed on 23.12.2005 at total loss of Rs.3,62,83,470/-.
Subsequently, the ld. CIT, Delhi-IV, New Delhi revised the assessment order u/s. 263 of the Act on 28.03.2008. Pursuant upon this order u/s 263, assessment was made u/s. 143(3) read with section 263 on 24.09.2008, whereby the deduction of Rs.73,60,000/- claimed by the assessee as revenue expenditure u/s. 37(1) incurred for getting the hotel premises vacant, was disallowed holding the same as capital expenditure. The appellant did not prefer any appeal against this assessment order challenging the impugned disallowance. Later on, penalty proceedings u/s. 271(1)(c) of the Act were initiated for filing inaccurate particulars of income and after considering the submissions of the appellant, the AO imposed a penalty of Rs.27,04,800/-. The assessee challenged the penalty order in appeal before the ld. CIT(A) who confirmed the penalty vide impugned order. Aggrieved, the appellant is in appeal before the Tribunal.
During the course of hearing, the ld. AR submitted that the appellant is a company which came into existence after demerger of ITDC and as a part of disinvestment of ITDC, the assessee company bought the premises of Ranjit Hotel, New Delhi which was being run by ITDC. It was submitted that as per scheme of demerger policy, the appellant was not entitled to run the hotel business after taking it over. The appellant was in need of vacant possession of the premises for the purpose of its further business. He, therefore, had to pay Rs.73,60,000/- to the tenants occupying the premises for getting vacant possession of the hotel building. This expenditure was claimed by the assessee as revenue expenditure u/s. 37(1) of the Act on the advice of their Chartered Accountant. It was submitted that during the assessment proceedings, all particulars of payments made have been fully disclosed and therefore, it is not the case of furnishing inaccurate particulars of income. Reliance was placed on the decision of Hon’ble Supreme Court in the case of Bikaner Gypsum Ltd. vs. CIT, 187 ITR 40 (SC). It was also submitted that the wrong claim, made by the assessee does not amount to concealment or furnishing inaccurate particulars of income.
On the other hand, the ld. DR supporting the orders of the authorities below, submitted that the appellant had furnished inaccurate particulars of income by making the false statements before the authorities below. It was submitted that in order to take benefit of illegitimate claim of deduction u/s. 37(1) of the impugned amount, the appellant had given wrong statement in the return itself that he is running the hotel business whereas under the agreement of demerger, the appellant was not authorized to do the hotel business. It is also borne out on record, that the assessee had not started any other business, but the hotel premises was demolished for conversion of a shopping complex. Therefore, there being no business in existence, the expenditure incurred for acquiring the capital asset, shall be capital in nature and the appellant has made false statement that the impugned expenditures were revenue expenditure deductible u/s. 37(1) of the Act. He, therefore, contended that the ld. Authorities below were justified in imposing penalty against the assessee.
Having heard the rival submissions and perused the material available on record, we do not find any justification to interfere with the orders of the authorities below. It is notable that the provisions of section 37(1) of the Act are quite unambiguous providing that only such expenditure are eligible for deduction which are laid out or expended wholly and exclusively for the purposes of business or profession, meaning thereby existence of business is sine qua non for the purpose of which the expenditure has to be incurred for deduction. This section also clearly bars the deduction of capital expenditure.
In the present case, as per demerger agreement, the appellant acquired the hotel premises and under the terms of demerger the appellant was not having any right to continue the hotel business from the very date of its takeover. It is also an undisputed fact that no further business was there in existence, on which the impugned expenditure were incurred to claim deduction u/s. 37(1).
In presence of these facts, the explanation of the assessee that Chartered Accountant of the assessee advised him to do so, does not carry any weight without any evidence in this regard. It is worthwhile to note that the assessee vide letter dated 08.08.2008 given to the AO, has stated that the business of hotel stood discontinued immediately on taking over the hotel premises, whereas in column No. 15 of the return regarding the nature of business or profession, the appellant has written “running of hotel business”. Such a statement given by the assessee is false and contradictory to the statements made before AO vide letter dated 08.08.2008. Moreover, in our considered opinion, it is not a case where two opinions about the applicability of section 37(1) or deductibility of impugned expenditure u/s. 37(1) were possible in view of unambiguous language of the section. Had it been so, the assessee would have challenged the disallowance in further appeal, which he failed to do. The ld. CIT(A) has relied upon the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Escorts Finance Ltd., 328 ITR 44 (Del.) in this regard, which deals with the similar situation though about applicability of section 35D of the Act, against which no contrary decision is brought on record by the ld. Counsel for the assessee. The expenditure so incurred by the assessee are not on revenue account for the simple reason that it was not in respect of any continuing business, but in respect of making asset in a condition to be fit to be utilized for the new business and hence, such expenditure were clearly of capital nature. The ld. Authorities below have distinguished the decision of Hon’ble Apex Court in Bikaner Gypsum Ltd. (supra) stating that in that case, the issue of expenditure incurred during the course of continuing business of mining was dealt in, whereas in the present case the impugned expenditure were not incurred for the purpose of any existing business. In view of all these facts, there appears no bona fide in the explanation of the assessee, as contemplated in Explanation 1 to section 271(1)(c) of the Act. The ld. CIT(A) has also mentioned that in the tax audit report in form No. 3CD, there is no mention of this expenditure of Rs.73,60,000/-. The ld. CIT(A) further observed that in the notes to account also, there is no mention of the payment of Rs.73,60,000/- and the reasons for making this payment. No rebuttal has been given by the assessee to these findings of fact, which go to suggest that the appellant has not made a complete disclosure in terms of Explanation 1 to section 271(1)(c) of the Act.
We therefore, find no justification to disregard the finding of the ld. CIT(A) that the assessee had made a false claim that he is engaged in the hotel business with motive to claim deduction of impugned expenditure falsely as revenue expenses. The explanation offered by the assessee being not bona fide, the ld. Authorities below have rightly applied Explanation 1 to section 271(1)(c) of the Act in the peculiar facts and circumstances of the present case. In view of above discussion, it follows that it is not a case where the explanation given by assessee was bona fide and there was full disclosure of facts. The assessee has also not been able to substantiate the explanation offered by any credible evidence. Therefore, the penalty sustained by the ld. CIT(A) does not call for any interference in view of catena of other decisions relied by the first appellate authority.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 16.09.2016.