RDC CONCRETE (INDIA) PVT. LTD.,GURGAON vs. ACIT, NEW DELHI

This appeal filed by the assessee is directed against the order of the CIT(A)-XVIII, New Delhi, dated 05/03/2012 for A.Y 2006-07 passed in first appeal No. 04/2011-12.

Although the assessee has raised as many as four grounds in this appeal, but except the main effective ground No. 1, all the rest are supportive and argumentative to the main ground which reads as “1. On the facts and in the circumstances of the case the CIT(A) has erred in confirming the erroneous observation of ht AO that the appellant has claimed a deduction in respect of a sum of Rs. 17,056,951/- as miscellaneous expenses to the extent not written off or adjusted under the head deferred revenue expenditure as against Rs 6,605,954/- actually claimed as deduction.”

We have heard the arguments of both the sides and have carefully perused the relevant material placed on record on the Tribunal inter alia assessment order passed u/s 143(3) of the Income- tax Act, 1961 [hereinafter referred to as 'the Act', order of the CIT(A) alongwith the paper book of the assessee spread over 74 pages. The ld. AR took over through the original assessment order passed on 23.12.2008 and submitted that during the relevant ay 2006-07, the assessee debited only Rs. 6605955/- whereas the AO proceeded to levy penalty of an amount of Rs. 1,70,56,950/- as per incorrect addition made in the assessment order. The ld. AR further pointed out that as per the assessee’s paper book pages 46 to 48, in Schedule XII, the opening balance of deferred revenue expenditure was Rs. 72,49,150/- and after adjusting expenditure incurred during the year of Rs. 98,07,801/- total amount including opening balance reached Rs. 1,70,56,951/- and after writing off the amount of Rs. 66,05,955/-

The ld. AR also drew our attention towards assessee’s paper book page 55 to demonstrate that right from F.Y. 1999-2000, the assessee is maintaining deferred revenue expenditure account and the amount actually written off during the year has been claimed in the profit and loss account which was Rs. 66,05,955/- for the period under consideration but the AO incorrectly made addition of Rs. 1.70 crore and imposed penalty on the assessee by considering this incorrect and wrong figure which shows clear non-application of mind on the part of the AO. The ld. AR also drew our attention towards assessee’s paper book pages 56 and 57 and submitted that similar claim of the assessee was allowed by the AO during the earlier A.Ys and the assessment order dated 25.03.2004 is amply clear where no disallowance or addition has been made in this regard.

The ld. AR drew our attention towards profit and loss account for A.Y. 2001-02 Page 60 of Schedule X and submitted that the assessee has written off Rs. 27,59,060/- during the F.Y. 2000-01 pertaining to A.Y. 2001-02 and in the similar set of facts and circumstances of the case, AO, the AO allowed the written off amount without making any disallowance and addition in this regard.

Per contra, the ld. DR strongly supported the order of the AO as well as the ld. CIT(A) and submitted that as per penalty order page 4, the AO has drawn correct conclusion that the assessee has furnished inaccurate particulars of income as referred to in section 2(15) of the Act. Therefore, it was liable to penalty u/s 271(1)(c) of the Act. The ld. DR further drew our attention towards last operative para of the impugned order of the CIT(A) and submitted that ht assessee has been unable to justify its claim of filing wrong particulars in its return of income. Thus it is not a case of bonafide and the assessee has filed incorrect particulars of its income with the intention to evade tax and therefore, the CIT(A) rightly upheld the penalty imposed by the AO.

Placing rejoinder to the above submissions of the ld. DR, the ld. AR vehemently contended that neither the AO nor the CIT(A) has brought on record any fact or circumstance against the assessee to show and establish that either the assessee has furnished inaccurate particulars of income or has concealed particulars of its income.

Before we consider the factual matrix of this case to ascertain as to whether in the eyes of the provisions of the Act as explained by numerous judicial pronouncements, penalty can be levied in this case or not, we would like to discuss in nut shell the relevant legal position regarding levy of penalty u/s 271(1)(c) of the Act and as to how and when such penalty can

Adverting to the facts of this case, at the very outset, we may point out that the ld. DR has not controverted this fact that the first appeal of the assessee before the CIT(A) has been dismissed on account of non prosecution and on application of the assessee filed u/s 154 of the Act before the AO seeking rectification in the assessment order regarding amount recorded in the quantum assessment order is still pending for adjudication. We may also point out that as per the tabular chart furnished by the assessee, available at page 55 of the assessee’s paper book, which was also certified to have been placed on the assessment order during assessment proceedings showing summary of claimed expenses which reveals that the actual amount written off by the assessee on account of deferred revenue expenditure during FY 2005-06 pertaining to AY 2006-07 was 66,05,955/- which was picked up by the AO from quantum assessment order wherein the AO picked up the figure of 1,70,56,950/- which was total of opening balance and deferred revenue expenditure added during the year and actually the assessee has not claimed and written off an amount of Rs. 1,70,56,950/- in the profit and loss account during the year which shows non application of mind on the part of the AO.

From the quantum assessment order para 4 page 1, we observe that the AO made disallowance by observing that the assessee had shown a sum of Rs. 1,70,56,950/- as miscellaneous expenses to the extent of not written off or adjusted under the head deferred revenue expenditure. The AO further noted that in the notes of the accounts, it is stated that site construction and other pre operations have been booked on deferred revenue expenditure basis amortised over three years period or the actual duration of the project, whichever is less after the commencement of commercial production. The AO held that as the assessee company was incorporated on 20.4.1993 and actual production of the company commenced since long, therefore, the assessee is not entitled to claim this amount. Therefore, the same is disallowed and added to the income of the assessee. However, it is well accepted proposition that the quantum and penalty proceedings are different but at the same time considering the issue of penalty it is relevant to note that which allowances have been noted by AO while making disallowance and addition and at the time of dismissing the application of ht assessee about its claim for which disallowance and addition has been made. In the present case, in the quantum assessment order, no allocation has been levied against the assessee that the assessee has made a claim which was bogus or the assessee has made a claim by furnishing inaccurate particulars of its income or by concealing particulars of its income. From the penalty order, the 1, at last page, we may note that the AO in the beginning of the order noted the facts of the case, then the proposition of Hon’ble Rajasthan High Court in the case of Raghuvir Soni Vs. ACIT reported at 258 ITR 239 [Rsj] thereafter reproduced the submissions of the assessee dated 28.3.2011. On the 4th page of penalty order, the AO observed that the AO has not been able to show any reasonable cause for its action in claiming deferred revenue expenditure and the assessee has been unable to sustain the explanation offered by him in respect of addition made. But there is no discussion regarding the earlier assessment order wherein similar claims of the assessee has been allowed by the AO. We may further point out that in the latter part of the penalty order, the CIT(A) has reproduced the relevant part of the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Zoom Communications Pvt. Ltd dated 24.5.2010 and thereafter in the last para decided the issue against the assessee by concluding that the assessee has furnished inaccurate particulars of total income as referred to in section 2(45) of the Act and imposed penalty by considering the amount of concealed income as Rs. 1,70,56,950/- which is factually incorrect which shows clear non application of mind on the part of the AO while passing the impugned order. In the similar fashion, the CIT(A) has dismissed the appeal of the assessee wherein in first part of the order reproduced written submissions dated 29.2.2012 thereafter she noted that the assessee has claimed in its profit and loss account miscellaneous expenses of Rs. 66,05,955/- only and not Rs. 1,70,56,915/- but there is no adjudication by her on this factual discrepancy. In the subsequent part of the impugned order after referring to various judicial pronouncements, the CIT(A) in a brief para mentioned at the end of the order held the assessee has been unable to justify its claim for filing wrong particulars in its return of income and it is not a case of bonafide mistake and the assessee has filed inaccurate particulars of income with the intention to evade tax and mens rea are clearly established which are necessary components in the case of levy of penalty u/s 271(1)(c) of the Act.

In this backdrop of the conclusion of the authorities below, we are inclined to hold that the AO imposed penalty by picking wrong facts and figures and by ignoring his own assessment orders in the earlier years wherein on similar set of facts and circumstances the same claim of the assessee has been allowed. As we have already noted that in the penalty order there is no allegation of the AO that in which manner the assessee concealed particulars of its income or furnished inaccurate particulars of income. Unfortunately, during the first appellate proceedings, the CIT(A) observed the discrepancy in the figures picked up by the AO for imposing penalty and contention of the assessee in para 4.1 but did not give any heed of addition to the facts and circumstances and without adjudicating the vital contention of the assessee which is also pending before the AO as application u/s 154 of the Act for seeking rectification in the assessment order and proceeded to impose penalty by taking into consideration irrelevant allegation of bonafide mistake, mens rea, etc. It is well accepted proposition of law that penalty u/s 271(1)(c) of the Act can only be imposed on the assessee on the basis of allegations as noted by their Lordships in the case of Madhushre Gupta [supra] and the AO is duty bound to satisfy himself that the assessee has either concealed particulars of income or furnished inaccurate particulars of income on both these conditions and he has no explanation to offer or explanation offered by the assessee could not be substantiated or was not acceptable by the AO. On the basis of foregoing discussion, we reach to a final conclusion that the assessee’s conduct and explanation offered but it did not show any conscious or intentional act of the to conceal particulars of income or furnish of inaccurate particulars of income. At the same time, we cannot ignore this fact that the assessee’s appeal against quantum order was dismissed due to non prosecution and the AO has not decided the rectification application u/s 154 of the Act till date and on specific query from the Bench, the ld. DR could not controvert this fact that e actually made claim by writing off Rs. 66,05,955/- in the profit and loss account during the year under consideration and the AO has made disallowance and addition by picking wrong figure which was also taken into consideration while imposing penalty on the assessee which shows clear non application of mind by the AO as well as by the CIT(A) wherein the CIT(A) recorded the contention of the assessee but the same remained without adjudication and the CIT(A) confirmed penalty in a mechanical manner without considering the contentions, explanation of the assessee and without providing any heed towards this fact that similar claim of the assessee has been continuously allowed during the earlier A.Ys on similar facts and circumstances. In view of the above, we have no hesitation to hold that the AO as well as the CIT(A) could not establish this allegation against the assessee that the assessee has concealed particulars of income or furnished inaccurate particulars of income regarding claim of deferred revenue expenditure. Therefore, we are unable to agree with the conclusion of the authorities below and thus the main effective ground of the assessee is allowed and consequently, the AO directed to delete the penalty imposed u/s 271(1)(c) of the Act.

In the result, the appeal of the assessee stands allowed.