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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ NEW DELHI
Before: SMT. DIVA SINGH & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This is an appeal filed by the assessee against the order of ld. CIT(A)- VIII, New Delhi dated 25.09.2013, New Delhi for the assessment year 2006-07 on the following grounds :
GROUND – I
1. On the facts and circumstances of the case and in law, the Learned Commissioner of Income - Tax ( Appeals) – VIII , New Delhi ( “CIT (A)”) erred in upholding the action of the Assistant Commissioner of Income Tax – 5 (1), New Delhi ( “the AO”) in levying penalty u/s 271 (1) (c) of the Income Tax Act , 1961 (“the Act”) on disallowances of Rs. 29,86,080/- which works out to Rs. 10,05,115/- on the alleged ground that the appellant had furnished inaccurate particulars of income and/or concealed its income.
2. The CIT (A) erred in making irrelevant observation that the appellant in his return of income had claimed such expenditure which is not allowable as per the Act.
The CIT (A) failed to appreciate and ought to have held that: a. Where claim of the Appellant was based on certain judicial pronouncements or where the issue is debatable or where two views are possible or where adequate disclosure have been made no penalty can be levied; b. A mere making of a claim , which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. 4. of the Act, of Rs. 10,05,115/- be deleted or appropriately reduced. GROUND – II The Appellant craves leave to add to , amends and / or alter the above ground of appeal
at the time of hearing.
2. The above grounds appeal are relating to penalty u/s. 271(1)(c) of the IT Act, 1961 of Rs.10,05,115/- on the basis of two additions made by the Assessing Officer as under: Legal and professional charges Rs.17,36,080/- Cost of investment written off Rs.12,50,000/-.
3. The brief facts of the case are that the primary objects of the company are carrying on the business of an investment company and inter alia to purchase, to invest and to acquire shares/other securities. The company is also getting interest income and rental income and dividend. The appellant filed return of income on 18.11.2006 showing loss of Rs.15,65,153/-. The case was selected for scrutiny & statutory notices were issued. In response to the notice, the assessee submitted that legal and professional charges have been paid for availing consultancy in various legal matters from time to time with respect to various corporate matters such as mergers, acquisition, or other investment decisions and miscellaneous legal issues, Consultancy in various shareholding related issues was also obtained from time to time and TDS was deducted on these charges. The AO disallowed these expenses u/s. 37(1) because it was not extended wholly and exclusively for the purpose of business or profession. The AO also found that the Company has claimed expenditure of Rs.12,50,000/- on account of investments written off. In this regard, the assessee submitted as under : "Company has charged an amount of Rs. 12,50,000/- towards write off of investment value as revenue expenditure. This was on account of investment turning zero in the share of Modi Creata Promotion Pvt. Ltd. The modi Creata Promotion Pvt. Ltd. has applied to the Registrar of Company for its name to strike off under section 560 of the Companies Act, 1956. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If however, the expenditure/investment is not capable of generating any revenue or gets extinguished by sudden reasons, that results in sudden loss and the capital structure is impaired on account of this investment turning zero during the year by operation of law and the affairs of the investee company, the cost was year by operation of law and the affairs of the investee company, the cost was charged off during the year. Without prejudice to our claim for revenue expenditure, since the assessee had only investment activity, the loss arising out of investment assets which are its productive assets, has to be allowed as loss under Sec. 28 of the income Tax Act 1961. On both the counts, it is felt that such expenditure/loss is allowable during the year under reference.”
The Assessing Officer noted that the company is not a banking company and loss claimed is not directly linked to the income component of the assessee. In the computation of income, the assessee has shown income from house property and income from other sources. The income of each head has to be computed separately and expenditure of one head cannot be adjusted against the other heads of income as per IT Act. The assessee company has not carried out the business of purchase and sales of shares during the year. So the expenses cannot be adjusted against other heads and, therefore, disallowed the written off of investment of Rs.12,50,000/-. Aggrieved by the order of the Assessing Officer, he appealed before the ld. CIT(A) who confirmed the order of the Assessing Officer. Against the order of the ld. CIT(A), the assessee did not prefer any appeal before the Tribunal.
On the basis of above disallowances, the Assessing Officer initiated penalty proceedings and imposed penalty of Rs.10,05,115/- u/s. 271(1)(c) of the Act. Against this order the assessee appealed before the ld. CIT(A) who confirmed the action of the Assessing Officer for filing of inaccurate particulars of concealed income of Rs.17,38,080/- as legal and professional charges and Rs.12,50,000/- as investments written off. Against this order, the appellant has come up in appeal before the Tribunal.
During the course of hearing, the ld. AR of the assessee made two-fold arguments, i.e., (i) On validity of penalty proceedings and (ii) on merits on imposition of penalty on the basis of impugned additions. It was submitted that the initiation of penalty proceedings is not legally valid, inasmuch as the Assessing Officer has issued notice u/s. 271(1)(c) read with Section 274 of the Act in a printed format and has placed a tick mark on the paragraph “have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1, 2, 3, 4 and 5” which shows that the notice did not spell out the charge against the assessee – as to whether the assessee was guilty of having concealed the particulars of income or of having furnished inaccurate particulars of income. Reliance is placed on catena of decisions of various High Courts and Tribunals, inter alia, including the decision of Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factor reported in 359 ITR 565 (Kar.). On this aspect of the case, the ld. AR submitted that the penalty proceedings initiated by AO are not sustainable in the eye of law.
5.1 With respect to legal and professional fee paid to various professionals aggregating to Rs.17,36,080/-, it was submitted that the same were duly disclosed in the books of account and the same have been paid by cheques to the consultants. TDS was also made on the payments of these professional fees. The bills of the legal consultants were also produced before the AO. Therefore, there being complete disclosure of these expenditures before the AO, no penalty could be imposed against the assessee.
5.2 With respect to written off investments of Rs.12,50,000/-, it was submitted that the appellant company had acquired shares of Modi Creata Promotion Ltd. during the F.Y. 2001-02, but due to unavoidable conditions, Modi Creata Promotion Ltd. applied for liquidation which was approved by Hon’ble High Court. The relevant papers are at pages 40 to 54 of the paper book. Therefore, the entire amount invested was not recoverable and was of no value, which was written off in the books of account. The ld. AR also reiterated the submissions made before the AO on this issue, as reproduced in this order above. Since the factum of investment and its write off was also completely disclosed before the AO in the financial statement furnished, it is not justified to assume that the appellant has concealed the particulars of income or has furnished inaccurate particulars of such income entailing penalty u/s. 271(1)(c) of the Act. It was further submitted that merely because claimed expenditure which was not acceptable to the Revenue, that by itself would not attract penalty. Reliance is placed on the following decisions : (i). CIT vs. Reliance Petroproducts (P) Ltd. , 322 ITR 158 (SC) (ii). Larsen and Tourbro Ltd., 366 ITR 502 (Bom.)
It was further submitted that non-filing of quantum appeal against the finding of Assessing Officer does not ipso facto lead to levy of penalty as held in the following decisions :
(i). Sir Shadi Lal Sugar & Gen. Mills Ltd. vs. CIT, 168 ITR 705 (SC) (ii). Rai Indl. Power Pvt. Ltd. vs. DCIT(ITA No. 4862/Del./13(Del.Trib) (iii). Rajendra Kumar vs. ITO, 94 TTJ 280 (Jodh. Trib.)
For the proposition that no penalty can be levied on a claim on investment written off as a revenue loss allowable as a deduction, the ld. AR relied on the following decisions :
(i). CIT vs. IFCI Ltd., 328 ITR 611 (Del.) (ii). CIT vs. Ganesan Builders Ltd., 299 ITR 403 (Mad) (iii). CIT vs. Aditya Birla Nuvo Ltd (ITA No. 3899 of 2010)(Bom. HC) (iv). CIT vs. MWP Ltd., 41 Taxmann.com 496 (Kar. HC)
It was also argued that no penalty can be levied on legal and professional fees incurred for the business purpose though disallowance of the same is upheld in view of the following decisions :
(i). CIT vs. Oriental Power cable Ltd., 303 ITR 49 (Raj.) (ii). Oriental Power Cables Ltd. v. Inspecting AC,41 TTJ 225(Jaipur Tri) (iii). CIT vs. Sonth India Sugars Ltd., 275 ITR 491 (Mad.)
Reliance is further placed on the following decisions for the proposition that mere change of head of income, as computed by assessee and as assessed by the department, no penalty can be levied on the same :
(i). CIT vs. Amit Jain, 351 ITR 74 (Del.)
(ii). CIT v. Harilal Doshi (ITA No. 2331 of 2013)(Bom. HC) (iii). DCIT vs. JMD Advisors (P) Ltd. (124 ITD 223)(Del. Trib.)
The ld. DR relied on the orders of the authorities below and submitted that the notice for imposing penalty u/s. 271(1)(c) read with section 274 is in standard format which has been prescribed by the Board. Moreover, the assessee has not raised this legal issue before the first appellate authority. The assessee has paid imaginary amounts for legal and professional charges for small services alleged to have been received. The appellant did not produce any agreement regarding type of services to be received and the terms of payments so that quantum of fee paid could be decided in view of the services rendered. It was submitted that no any business was undertaken during the year, so that these expenses could not be allowed as business expenditure. It was also submitted that the company was incorporated for investing in shares and earning exempt income because the shares were purchased for the investment and earning dividend income. Therefore, the loss on shares which had no value cannot be claimed as revenue expenditure. Both the additions were confirmed by ld. CIT(A) against which the assessee did not prefer any appeal before the Tribunal. Therefore, both the authorities below are justified to impose penalty on both the counts for legal and professional charges and investments written off. She, therefore, urged for dismissal of appeal of assessee.
We have considered the rival submissions and have gone through the entire material available on record. As far as the legal aspect raised by the assessee regarding defect in the notice issued u/s. 271(1)(c) of the Act, which vitiates the entire penalty proceedings, is concerned, the contention of the ld. Counsel for assessee is that the Assessing Officer has issued notice u/s. 271(1)(c) read with Section 274 of the Act in a printed format and the said notice nowhere spells out the specific charge against the assessee as to whether the assessee was guilty of having concealed the particulars of income or of having furnished inaccurate particulars of income. A perusal of record shows that this issue has neither been raised before the first appellate authority nor before us in the grounds raised in the memo of appeal. The assessee has also not bothered even to file any additional ground in appeal raising this issue before us. We are, therefore, unable to adjudicate upon this issue only on the basis of arguments advanced before us when it is neither raised before the CIT(A) nor before us in grounds of appeal or by way of any additional ground. For this lapse on the part of assessee, this issue is observed as non-maintainable.
8. As far as the penalty imposed on the basis of two additions noted above, we find that merely because department does not concur with the stand adopted by the assessee, it will not be enough reason to hold that assessee is guilty of concealment of income or of furnishing inaccurate particulars of income. Even if the claim of the assessee was found wrong, such incorrect claim made by assessee, in the peculiar facts of the present case, cannot be said to prove furnishing of inaccurate particulars of income where the assessee had made complete disclosure in respect of the claims so made in the return of income itself. For this, we stand fortified by the decision of Hon’ble Apex Court in CIT vs. Reliance Petroproduct (P) Ltd., 322 ITR 158 (SC) and several other decisions of various courts as relied upon by the assessee, noted above. We further do not find any substance in the submission of the ld. DR that the assessee did not challenge the above additions before the Tribunal, for the reason that mere non-filing of quantum appeal against the disallowances so made does not ipso facto lead to levy penalty in view of the decisions in the case of Sir Shadi Lal Sugar & General Mills Ltd. (supra) and other decisions as relied by assessee. The ld. DR could not be able to adduce any material on record contrary to the submissions of the assessee that mere change of head of income as computed by the assessee and as assessed by the Revenue, no penalty could be imposed as held by Hon’ble Delhi High Court in the case of Amit Jain (supra) and Bombay High Court in CIT vs. Harilal Doshi (supra). In the present case the legal and professional fee paid to various professionals aggregating to Rs.17,36,080/-, was duly disclosed in the books