ELIAS A KHATRI,MUMBAI vs. ASST CIT CEN CIR 9, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य, राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार/ Per Rajendra A.M.- अनुसार Challenging the order dated 02/09/2013 of the CIT(A)-37,Mumbai the assessee has filed the present appeal.Assessee,an individual,is a civil contract.He filed his return of income on 31/ 03/2010,declaring loss at Rs.7.82 lakhs. The Assessing Officer(AO)completed the assessment u/s.143(3) of the Act,on 11/08/2011 computing his income at Rs. 18.19 lakhs. 2.Effective ground of appeal deals with imposition of penalty u/s. 271(1)(c) of the Act, amounting to Rs. 2.5 lakhs.During the assessment proceedings,the AO found that the assessee had acquired machinery worth Rs.5.85 crores for business expansion.He directed the assessee to produce the copies of the invoices/purchase bills, details regarding sources of funds for acquisition of machinery,evidences showing the date on which the machinery was first put to use,details of bank charges,interest claimed as revenue expenditure along with the declaration as to know portion of the bank charges/interest claimed was liable to be treated as capital expenditure. In response to the said query the assessee, vide his letter dated 05/08/2011 stated that out of the total interest at Rs. 11.23 lakhs claimed as revenue expenditure Rs. 8.90 lakhs needed to be treated as capital expenditure,that the same was relatable to the period beginning from the date on which the capital was borrowed for acquisition of the machinery till the date on which the machinery was first put to use.As a result, the AO disallowed some of Rs. 9, 56, 914/-out of the total interest on loan paid and claimed as revenue expenses in light of the proviso to clause (iii) of subsection(1)of section 36 of the Act.Similarly,out of the bank charges of Rs. 1.01 lakhs, claimed as revenue expenses u/s.37(1) of the Act,Rs. 1 lakhs was

6936/M/13-Elias disallowed on account of stamp duty paid.The assessee accepted that the amount in question was to be treated as capital expendi -ture.The AO initiated penalty proceedings u/s. 271(1)(c) for furnishing inaccurate particulars of income. In response to the penalty notice, as per the AO, the assessee neither attended not filed any explanation. Later on, on 21/02/2012 the assessee stated that it had not filed any appeal against the additions made during the assessment proceedings in order to by piece and to avoid lengthy litigation with the Department,that there was no deliberate intent or attempt on part of the assessee to conceal income or to furnish inaccurate particulars, that all the facts had been duly recorded in reflected in the audited books of accounts. After considering the submissions of the assessee, the AO observed that the assessee was asked clearly vide order sheet entry dated 25/07/2011 to furnish details of bank charges claimed and interest payment certificate along with an explanation as to what proportion of the bank interest and/or bank charges needed to be treated as capital expenditure, that it was only after the issue was raised the assessee accepted the mistake and offered Rs. 10.56 lakhs for taxation, that the admission was not voluntary on part of the assessee, that the assessee had failed to disclose truly and correctly all the particulars of the income while filing his return. The AO referred to the cases of Dharmendra Textile Processors (13SCC 369) and Reliance Petro Products (189 Taxman 322)and held that the assessee had concealed the particulars of income which had been uneathered during the assessment proceedings.He imposed a penalty of Rs.2,51,609/-,invoking the provisions of section 271(1)(c) of the Act.

3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,the assessee argued that the disallowances were not legally sustainable,that depreciation would be allowed over a period of time and there would be no loss of revenue,that the disallowance of interest and stamp duty,based on the concession given by the assessee could not be considered to be default u/s. 271(1)(c) of the Act, that penalty could not be levied for wrong claim made and after full particulars were furnished.It relied upon the case of Nali P Shah of the jurisdictional High Court. After considering the submission of the assessee and the penalty order,the FAA referred to the Explanation 1 to section 271(1)(c) of the Act and held that the onus to establish that explanation offered by the assessee was bona fide and that all the facts relating to the competition of his income had been disclosed by him was on the assessee,that the legislature had used word particu -lars of income, that if facts material to determine the income was not filed or if filed were inaccurate the assessee would be liable to pay penalty,that wilful 2

6936/M/13-Elias concealment was not essential ingredient for living penalty.He referred to several case laws and observed that the AO had given a categorical finding of fact that assessee had admitted that expenditure claim as revenue expenditure was capital expenditure.With regard to case of Nalin P Shah, the FAA observed that assessee had,in its return of income,had filed a note disclosing all the relevant details regarding the loss claimed and carried forward,that the Hon’ble High Court had held that the issue was facts based,that the assessee had made no such disclosure in the return of income, that it was only after the relevant facts were called for and examined,that he admitted the true state of the affairs, that the assessee did not prefer any appeal against the additions made by the AO, that the facts of the case of Reliance Petro Products were distinguishable,that no legal claim had been accepted for which the assessee had disclosed all the facts,that it was not a case of mearly rejecting a legal claim but it involved non-disclosure of material facts,that it was also not a bona fide claim.With regard to the argument that depreciation was otherwise allowable, the FAA held that for the year under consideration it was clear case of furnishing inaccurate particulars of income,that depreciation allowance in the subsequent years would not detect the fact that income return in the current year was inaccurate.Referring to the explanation 4 to the section 271(1)(c), the FAA held that the assessee had furnished inaccurate particulars of income, that the loss claimed by it had been reduced and assessed income had turned into was positive,that the AO had rightly invoked the provisions of section 271(1)(c) of the Act.

4.During the course of hearing before us, the Authorised Representative (AR) argued that over a period of years depreciation had to be allowed to the assessee, that there was no loss to the revenue, that no penalty could be levied for registration, that it was for running of business.He referred to the case of son of the assessee Firdaus E. Khatri (ITA/6935/Mum/2013 AY-09-10, dt.12.1.2016). The Departmental Representative (DR) stated that the assessee agreed for the additions only after AO made enquiries in that regard, that the AO had asked pointed questions, that the admission was not voluntary, that the AO/FAA was justified in levying penalty.

5.We have heard the rival submissions and perused the material before us.We find that the assessee had made claim for depreciation on account of purchase of machinery,that the AO had directed it to produce various details with regard to the purchase,including the copies of the invoices/ purchase bills, sources of funds,bank charges etc.,that the scrutiny revealed that certain expenses were capital in nature.He called for further explanation from the assessee in 3

6936/M/13-Elias that regard. It was only after the inquiry made by the AO,that the assessee admitted that the claim made by it were not as per the provisions of the Act,that he admitted to pay tax on disputed items.It is not a case that the assessee on its own made the offer and had accepted that by mistake it had not paid taxes on the disputed items.Had the case not been selected for scrutiny and had the AO not inquiry the return filed by it would have been processed as it was filed.The assessee himself admitted that claim made by it were disallowable.Here,we would like to refer to the case of matter of Zoom Communication (327ITR510),of the Hon’ble Delhi High Court.We would like to reproduce the relevant part of the order and it reads as under: “If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) would come into play and the assessee will be liable for the prescribed penalty. …..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) 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 would 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 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 away the deterrent effect, which these penalty provisions in the Act have. …..We cannot accept the general proposition that no person would ever claim the amount of Income-tax as a deduction with a view to avoid payment of tax. No hard and fast rule in this regard can be laid down and every case will have to be decided considering the facts and circumstances in which such a deduction is claimed, coupled with as to whether the explanation offered by the assessee for making the claim, is shown to be bona fide or not.” The alleged admission by the assessee is after detection by the Department.It is not a case of mere making wrong claim.Both the claims were inadmissible prima-facie.The assessee had no justification to claim disputed items as revenue expenditure.It was also not the case of the assessee that it was under a bona fide belief that these two amounts could be claimed as revenue expenditure.Had it been so,he would have not admitted that same should be disallowed.It is also a fact that he did not agitate the disallowance in appellate proceedings.Facts of Reliance Petroproduct (P.)Ltd.were totally different.Besides,in penalty matters what is important is the explanation filed by anassessee in response to the notice of penalty.There is need to say that penalty and assessment proceedings are two different proceedings and therefore, the explanation becomes very important.If the explanation filed by 6936/M/13-Elias the assessee is bonafide there is justification for levying penalty.But,if the AO/FAA find that explanation is not bonafide,penalty has to be levied/confirmed.In the instant case,both the authorities has given a fact of the fact that explanation offered by the assessee about the disputed items was not bonafide considering the peculiar facts of the matter.It is also an accepted principle of tax-jurisprudence that penalty is levied to compensate the revenue loss suffered by the Department and it is not penal in nature. Unlike the case of Nalin P Shah,the assessee had not filed a note along with the return disclosing all the relevant and necessary details of the transactions.

5.1.We find that in case of Firdaus E. Khatri the issue was about depreciation claimed on motor car against interest income received from firms on his capital balance chargeable as business income u/s. 28 of the Act and the use of the car for personal purposes. In our opinion the case relied upon by the AR is of no held to decide the issue before us.

5.2.We are of the opinion that allowabiltiy of claim of depreciation in subsequent years would not justify the action of the assessee not to file a bonafide claim.It is not the duty of a taxpayer to determine the tax liability for a particular year.The AO has been assigned the role of tax administrator in the Act.The assessee has to make only bonafide claim in the returns of income.To decide the taxability or otherwise of such items is the domain of the AO.In this background,we are of the opinion, that the order of the FAA does not suffer from any legal infirmity.So,considering the facts and circumstances of the case,we uphold his order.Effective ground of appeal filed by the assessee is decided against him.

As a result,appeal filed by the assessee stands dismissed. फलतःिनधा�रती �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 18th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 18 जनवरी, 2017 को क� गई । Sd/- Sd/- ( पवन�सह/Pawan singh) (राजे�� / RAJENDRA) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांकDated : 18.01.2017. Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ� 2. Respondent /��यथ� 5

6936/M/13-Elias