M/S. SHOURIE DUPLICATORS PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

raised by the assessee are as under: “1. The Ld. CIT(A) ought to hrave deleted the penalty imposed by the AO u/s 271(1)(c) of Rs.28,46,000/- as there is no concealment of income or furnishing of inaccurate particulars of income.

The facts in brief of the case are that the assessee company was engaged in manufacturing of duplicating machine and ink. For the year under consideration, the assessee filed return of income on 28/03/2007 declaring income of Rs. 2,17,594/- which was processed under section 143(1) of the Income Tax Act, 1961 (in short ‘the Act’). The case was selected for scrutiny and notice under section 143(2) of the Act was issued and assessment proceedings were completed u/s. 143(3) of the Act on 29/12/2008. In the assessment order, the Assessing Officer observed that during the year under consideration, there was no business operations as the factory of the company had been compulsorily acquired by the LAC for Delhi Metro Rail Corporation, for which the assessee received compensation against tenancy rights of the factory premises. The Assessing Officer further observed that whole of the compensation received of Rs. 1,21,16,261/- on acquisition of 45 of the Act, however, the assessee in the computation of income had shown nil income under the head long-term capital gain with the remark that compensation received would be utilised for purchase of industrial land in specified area. According to the Assessing Officer, the transfer of the factory took place in April 2005, whereas the assessee did not acquire any alternate capital asset till the date of completion of the assessment proceeding and, therefore, the assessee was not eligibel for deduction under section 54D of the Act. Further, the Assessing Officer also observed that the assessee had not made any investment in specified assets within a period of six months from the date of transfer and hence no exemption was available under section 54EC of the Act. The Assessing Officer further observed that the assessee out of the compensation amount received, invested Rs. 1,01,00,000/- in the fixed deposit account with Federal Bank and lateron, part of it was invested in Rural Electrification Corporation Bond Ltd (REC Bond Ltd). The Assessing Officer confronted the above facts to the assessee, however, in absence of any reply thereof held the entire amount of compensation received of Rs. 1,21,16,261/- as long-term capital gains taxable under section 45 of the Act. The Assessing Officer also observed that the assessee received interest of Rs. 5,95,947/- on FDR and after claiming expenses, an income of Rs. 2,17,594/- was offered for taxation. According to the Assessing Officer, interest on FDR was assessable under the head ‘income from other sources’ and being no business operations, no expenses were allowable. In view of the observation, the Assessing Officer held that whole of the interest on FDR of Rs. 5,95,947/- was taxable under the head ‘income from other source’. The assessee could not succeed before the learned Commissioner of Income-tax (Appeals) and no further appeal was filed by the assessee against the order of the learned Commissioner of Income-tax (Appeals). Thereafter, the Assessing Officer levied penalty under section 271(1)(C) of the Act on 16/11/2009 holding that there was deliberate attempt on the part of the assessee to conceal its income or furnish inaccurate particulars of its income. The learned Commissioner of Income-tax (Appeals) upheld the penalty levied by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

Before us, the learned counsel of the assessee addressing the grounds of appeal, submitted that penalty levied was wrong and bad in law as the assessee had completely disclosed the particulars of income and filed explanation to prove its bonafide. He further submitted that in the computation of income, which is available at page 3 of the paper book, the assessee disclosed the nature of income received and also the fact that amount would be utilized for the purchase of industrial land in specified areas. He further referred to page 12 of the paper book, which is a schedule of the audited accounts statement and submitted that in point No. 8 of the notes to account, the assessee has disclosed all the facts in respect of compensation received against tenancy rights for compulsory acquisition of the factory and utilization of the compensation for the purposes of the specified in the Income Tax Act in due course. He further submitted that the company vigorously pursued demand for allotment of alternate land in specified industrial area for setting up of the factory which would have resulted in exemption under capital gains. The learned counsel referred to the correspondence made in this respect with the Commissioner of Industries, Government of Delhi dated 14/07/2005, which is available at page 79 of the paper book. The assessee sent further reminder through letter dated 20/02/2006, which is available at page No. 78 of the paper book. He further submitted that the Land and Building Department by their letter dated 25/10/2006, which is available at page No. 48 of the paper book, offered to give alternate site under the relocation and rehabilitation policy, however, nothing could materialize and the issue is still pending. He further submitted that the assessee company has filed a case for enhancement of compensation, which is also pending in court. He further submitted that in view of the above reasons the assessee kept the compensation proceeds in fixed deposits with federal bank and did not use them for any other purpose on the ground that same will have to be paid as and when the alternative industrial land is allotted to the company. According to the learned counsel, in view of above, the assessee was under bonafide impression that within the stipulated time, the compensation would be invested in the purchase of another industry unit and whereby the capital gains would be exempt. The learned counsel of the assessee, further submitted that the bonafide of assessee company was also evidenced by the fact that it had invested a sum of Rs. 50 Lacs, under 54EC Bonds issued by REC on 26/01/2007, but the Assessing Officer rejected the claim on the ground that it was invested beyond the time stipulated under section 54EC of the Act. The learned counsel submitted that during the period from June 2006 to January 2007, there was no capital gain Bonds which are available in the market and therefore the company could only invest a sum of Rs. 50 Lacs on 26/01/2007. The learned counsel invited our attention to the decision of the Tribunal Ahmedabad bench in the case of Aspi Ginwala, Shriram engineering and Manufacturing industries versus ACIT, circle - 5, Baroda (2012) 52 SOT 16(Ahm.), wherein the assessee made investment in the Bonds beyond the period of six months time limit prescribed under section 54EC as the Bonds were not available in the market before the date, in such circumstances, the Tribunal relying on the circular of the CBDT held that the assessee was prevented by sufficient cause, which was beyond his control in making investment in Bonds specified under section 54EC of the Act within the time prescribed and therefore the assessee was entitled for exemption under section 54 EC of the Act.

The learned counsel also relied on the Hon’ble Supreme Court decision in the case of CIT Vs. Reliance Petroproducts Ltd. (2010) 322 ITR 158 (SC). Further, the learned counsel submitted that assessee had offered explanation which is not found by the Assessing Officer or by learned Commissioner of Income Tax (Appeals) to be false and the assessee offered its explanation to prove its bonafide and therefore the case of the assessee is not covered by the explanation to section 271(1)(c) of the Act.

In respect of the interest income received on FDR, the learned counsel submitted that taxing entire interest amount of Rs. 5,90,947/- under the head ‘income from other sources’ ,without allowing the expenditure claimed by the assessee, was also not in accordance with the facts and circumstances of the case and the legal position. The learned counsel submitted that the assessee was temporarily not able to carry on its business operations during the year under consideration because of the compulsory acquisition and therefore it had to shift the furniture and fixtures and the records to a different rented premises and the assessee had paid to security guard, one peon and one clerical staff, who was engaged for interaction with the various government agencies and for getting compensations as well as interaction with the Delhi government offices. He further submitted that in the penalty proceedings, the Assessing Officer has not unearthed or discovered any fact other than what was explained by the assessee.

The learned counsel further submitted that in view of above submissions as there was no concealment of income or furnishing of inaccurate particulars of income and thus the penalty levied might be deleted.

On the other hand, learned Senior Departmental Representative, relying on the authorities below, submitted that despite fully aware that the assessee was not eligible for the claim of exemption from the capital gain, the claim was made deliberately to avoid payment of tax, and so, the assessee furnished inaccurate particulars and concealed income, thus liable for levy of penalty under section 271(1)(c) of the Act.

We have heard the rival submissions and perused the material on record including the paper book filed by the assessee. The Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) has held that there appeared to be deliberate attempt on the part of the assessee to conceal its income or furnish inaccurate particulars of income and, therefore, provisions of section 271(1)(c) were clearly attracted in case of the assessee. However, from the facts and circumstances of the case, we find that there was a complete disclosure by the assessee in respect of both the claim of exemption from the capital gain tax and interest income under the head income from other sources. In the computation of income, which is available at page-3 of the assessee’s paper book, and which has also been referred by the Assessing Officer in the assessment order, the assessee has clearly mentioned the fact of compensation received against tenancy rights under the head income from capital gains and also mentioned the fact that as why the assessee was making a claim for exemption from the capital gains tax. The facts in respect of exemption sought from capital gains tax were also disclosed by the assessee in the notes to account, which are available at page 12 of the assessee’s paper book. The relevant part of the notes to account is reproduced as under: “8. Compensation received against tenancy right under compulsory acquisition of factory area at 2A DLF Industrial Area, Delhi by LAC for Delhi Metro Rail Corporation (DMRC) will be utilized for the purpose as specified by the Income-tax Act, 1961 within due course. Hence, no provision for tax has been provided for on the capital gain.”

The learned counsel of the assessee has submitted before us that the assessee was under bona fides impression that the assessee would be allotted industrial land and amount of compensation would be utilized against purchase of the land but despite by making persistence efforts with the respective authorities, the assessee could not get the industrial land. The learned counsel has referred to the pages of the paper book showing the correspondence with the respective government authorities for allotment of the industrial land to the assessee. We find from the page 79 of the assessee’s paper book, which is a letter dated 14/07/2005 addressed to the Commissioner Industries, Government of Delhi, by the Managing Director of the assessee company, seeking allotment of alternative land for production so that the assessee can meet the timeline for investment in land and building against the compensation received. The page-78 of the paper book, is a reminder letter dated 20/02/2006 sent by the Managing Director of the Commissioner industries, government of Delhi for allocating alternate land for setting up of the factory. The learned counsel also submitted that till date the assessee has not been allotted the land. The assessee has also justified its bonafide in claiming exemption by making investment in REC bond, which is though beyond the prescribed time limit, but the assessee was entitled for exemption in respect of the amount invested in view of the decision of the Tribunal in the case of Aspi Ginwala, Shriram engineering and Manufacturing industries versus ACIT, circle -5, Baroda (2012) 52 SOT 16( Ahm.), wherein the Tribunal has observed as under: "10. The Id. Counsel of the assessee reiterated its contentions raised before the lower authorities here before us. It was further submitted that no bonds were available at the time of filing of the return. Even upto 31.12.2006, the bonds were not available. The bonds were available only on 22.1.2007. Immediately after five days i.e. 27.1.2007 the assessee applied for purchase of bonds and on 31.1.2007 the bonds were allotted to the assessee. Therefore, this was an impossible task to the assessee to buy the bonds within the specified time as the bonds were not available. Reliance was placed on the decision of the Tribunal reported in 81 ITD 163. Attention of the Bench was drawn on paras 15 to 20 of the order of the Tribunal where in similar circumstances, the claim of deduction u/s 54F was allowed. On the other hand, the Id. DR placed reliance on the order of the CIT(A). 11. We have heard the rival submissions and consider them carefully. After taking into consideration all the facts and material on record, we find that the assessee deserves to succeed in this ground also. There is no dispute that assessee has sold its capital asset i.e. plant and machinery during the year under consideration. For claiming 54EC, upto Rs. 50 lac has to be invested in the purchase of specified bonds. The assessee approached the concerned authorities. However, the bonds were not available. Various entities approached CBDT. Taking into consideration the hardship faced by the various entities, the CBDT vide circular no. 142/9/2006 TPL dated 30.6.2006 extended the time for purchasing the specified bonds upto 31.12.2006. The assessee approached the appropriate authorities to buy the bonds; however they were not available. Therefore, it was an impossible task for the assessee to comply with the conditions of the sec. 54EC. The assessee ultimately purchased FDs of Rs.50 lacs with a view to buy specified bonds whenever they are available. Letter was issued to the SBI while purchasing FDs of Rs.50 lacs that the bonds are not available in the market and therefore, FD for an initial period of 90 days which may be extended further or may be redeemed prior to expiry date for investing the same in bonds qualified u/s 54E &f the act. Copy of the letter dated 30.10.2006 is placed at page 6 of the compilation. Copies of the FDs are placed at pages 7 & 8 of the compilation. Copies of the letters issued by Rural Electricity Corpn. Ltd along with the copy of bond certificate is placed at pages 9 of the compilation. In this allotment, it is clarified that the assessee applied for the purchase of the bonds on 27.1.2007 and they are allotted on 31.1.2007. 500 bonds for a consideration of Rs. 50 lacs were allotted. The bond certificates is also placed at page 10 of the compilation. 11.1 From these facts, it is clearly established that there was reasonable cause in not purchasing these specified bonds within the specified time allowed as they were not available in the market, as soon as the bonds were available in the market, the assessee immediately purchased the same. Therefore in our considered view, under these circumstances, the assessee is entitled for the exemption u/s 54EC. "

Further, we find that interest income from fixed deposit was duly disclosed by the assessee in the profit and loss account. The assessee offered the income under the head profit and gains of business and claimed expenses against the said income from interest, whereas according to the Assessing Officer the interest income is taxable under the head income from other sources and the expenses claimed against the same were not allowable. But again we do not find that any of the particulars filed by the assessee are inaccurate leading to concealment of income. It is a matter of claim which has not been allowed by the Assessing Officer and not of detail supplied by assessee in the return are found to be incorrect or false. We find that the Hon’ble Supreme Court in the case of CIT versus reliance Petroproducts Ltd (supra), while dealing the word “particular” held that:

It was tried to be suggested that s. 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the AO had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under s. 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under s. 271(1)(c). That is clearly not the intendment of the legislature.

In the instant case also, we find that the assessee has disclosed all particulars of income in respect of the claim of exemption from the capital gain as well as income from interest on FDR and the expenses claimed against their on and no particulars filed has been found to be incorrect or inaccurate by the authorities below.

Further, the assessee has offered explanation as why it claimed exemption from the capital gain, under bona fide belief that the alternative land would be allotted to the assessee and the amount of compensation would be utilized against that within the time prescribed. This explanation has been not found to be false by the authorities below. Further, the assessee has proved that the explanation is bonafide and all the facts relating to same and material to the computation of total income, have been disclosed by the assessee. In such circumstances the Explanation-I to section 271(1)(c) of the Act is also not attracted in the case of assessee.

In view of above discussion and respectfully following the finding of the Hon’ble Supreme Court in the case of CIT versus reliance Petroproducts Limited (supra), we are of the opinion that no penalty under section 271(1)(c) of the Act is leviable for concealment of income or furnishing of inaccurate particulars in the case of the assessee. Accordingly, we delete the penalty Assessing Officer and confirmed by the learned Commissioner of Income Tax (Appeals). Thus, the effective ground of assessee against levy of penalty is allowed.

In the result, appeal of the assessee is allowed. The decision is pronounced in the open court on 29th July, 2016.