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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & I.T.A. No.572/M/2015 (
सुनवाई की तायीख / Date of Hearing : 27.07.2016 घोषणा की तायीख /Date of Pronouncement : 26.09.2016 आदेश / O R D E R
PER D. KARUNAKARA RAO, AM:
This appeal filed by the assessee on 27.1.2015 is against the order of the CIT (A)-27, Mumbai dated 25.9.2014 for the assessment year 2006-07. In this appeal, assessee raised the following grounds which read as under:- “1. On the facts and circumstances of the case and in law, the Ld CIT (A) erred in partly confirming the penalty under the provisions of section 271(1)(c) of the Act.
2. On the facts and in the circumstances of the case and in law, Ld CIT (A) failed to appreciate that the claim of the appellant was bonafide and not having any malafide intention to defraud revenue.
3. The Ld CIT (A) ought to have appreciated that there was no concealment of any income or particulars in any manner within the meaning of provisions of section 27(1)(c) of the Act.
4. Without prejudice, on the facts and circumstances of the case, the Ld CIT (A) failed to appreciate that the claim was bonafide and debatable.”
2. Briefly stated relevant facts of the case are that the assessee is a Co-operative Housing Society (CHS) and filed the return of income declaring the total income of Rs. 68,784/-. AO completed the assessment u/s 143(3) of the Act after making addition of Rs. 15 lakhs and the assessed income was determined at Rs. 19,61,280/-. In the assessment, AO noticed that the assessee received Rs. 15 lakhs from one M/s. Deesha Leasecon Pvt Ltd (Deesha). The assessee allowed Deesha to erect a scaffolding for a display against the receipt of Rs. 15 lakhs. Rs. 1 lakh was received towards the advertisement rights @ Rs. 15,000/- per month. In addition, assessee also received Rs. 14 lakhs for meeting the incidental expenditure @ Rs. 7 lakhs per month. The assessee offered the said Rs. 1 lakh as income of the assessee under the head „income from other sources‟. Assessee accounted for the same as „miscellaneous receipts‟. Regarding Rs. 14 lakhs, assessee accounted for the same in the books of accounts as „reimbursements‟ under the „maintenance account‟ and the same was not offered to tax. The CIT (A) confirmed the addition and the matter went to the Tribunal vide dated 15.3.2013, wherein the Tribunal confirmed the addition. Subsequently, AO levied the penalty and the said amount of Rs. 15 lakhs and Rs. 5,01,230/- was the demand raised. In the penalty proceedings, assessee submitted that M/s. Deesha was given right to display the banner of 80 X 120 size on the scaffolding erected for holding of the display. The amount of Rs. 14 lakhs was paid for meeting the repairs and white wash of the building. The lease period is 2 months. M/s. Deesha made the above payment to maintain the said scaffolding, round the clock security watch and ward, access charges, storage charges etc. Assessee submitted that these are the amounts incurred by the assessee which were reimbursed by M/s. Deesha and therefore, the said reimbursements do not constitute the income of the assessee. Assessee claimed to have spent Rs. 2,64,000/- for erection of scaffolding; Rs. 10,58,629/- towards painting two layers of painting on the society building and Rs. 77,370/- being cost of material and other accessories. AO also perused the two agreements ie one for the sum of Rs. 1 lakh and the other for the sum of Rs. 14 lakhs and noticed that the said agreements constitute „self serving document‟ to suite the assessee‟s attempt to not to disclose Rs. 14 lakhs for taxation. On perusal of the said agreements, AO noticed that the said second agreement does not refer the area of the building before painting and came to the conclusion that the painting of the entire building was not borne within the facts. AO further reasoned that M/s. Deesha never agreed to reimburse the expenditure incurred for painting of the entire building. As per the AO, the two agreements were prepared to suite the assessee‟s plan to „conceal the particulars of income‟ and they constitute sham agreement.
Therefore, AO levied the penalty of Rs. 5,01,230/- was levied relatable to the addition of Rs. 15 lakhs.
During the first appellate proceedings, assessee reiterated the above reasons and also filed written submissions which are extracted in para 2.3.1 of the CIT (A)‟s order. Referring to the finding of the Tribunal on the quantum additions, CIT (A) extracted the relevant paras of the Tribunal‟s order in para 2.4.3 of his order. Referring to paras 6 to 8 of the order of the Tribunal, CIT (A) highlighted the fact that the assessee paid a sum of Rs. 3,75,360/- to the BMC towards advertising fees. It is not noticed when the said amount was paid to the BMC how the assessee can collect Rs. 1 lakh as rent from M/s. Deesha. However, reasoning that the claim of reimbursement is not proper, the CIT (A) mentioned that M/s. Deesha has no reason to bear the expenditure on painting of the entire building, which is a life of not less than two years when M/s. Deesha‟s lease period is only for 2 months. He also underlined that the finding of the Tribunal on the commission, where the Tribunal held as under:- “The affairs are so arranged that the cost to be incurred by the society for their regular maintenance was borne by the said company and receipts were bifurcated into two agreements.”
Tribunal also noted that the maintenance of the scaffolding and the relate structures are part and parcel of the regular maintenance and therefore, incurring of the expenditure on painting, watch and ward etc has no relevance on advertisement. Therefore, these cannot be allowed u/s 37(1) or section 57 of the Act. Tribunal dismissed the alternative contentions also. Relying on the various decisions discussed in para 2.4.14 to 2.4.20, CIT (A) confirmed the penalty levied u/s 271(1)(c) of the Act relatable to the addition of Rs. 14 lakhs. The penalty relatable to the sum of Rs. 1 lakh, which was already offered by the assessee in the return of income was deleted. Aggrieved with the same, assessee is in appeal before the Tribunal.
During the proceedings before the Tribunal, none appeared to represent the assessee‟s case. With the help of the Ld DR, I proceed to adjudicate this appeal on merits. It is the case of the assessee that the issue relating to the levy of penalty on the sum of Rs. 14 lakhs which was disclosed in the return of income under maintenance account but the same was not offered to tax on the ground of reimbursements. Without prejudice, assessee also raised the argument that the said amount was received from the nominal member ie M/s. Deesha. As per the Ld Counsel for the assessee, such persons are also covered by the „principle of mutuality‟ and therefore, Rs. 14 lakhs is not taxable at all. It is the submission of the assessee that Rs. 14 lakhs was received by the assessee towards „specific performance‟ ie maintenance, to meet the cost of erection of scaffolding, watch and ward and other charges. With regard to the amount disclosed in the maintenance account, it is the submission of the assessee that there is no penalty with regard to the disclosure of the particulars and on this ground alone, penalty should not be sustained. As per the record available before the Tribunal, assessee could not justify why the entire building has to be painted at the cost of M/s. Deesha‟s expenditure without offering the said receipts to tax. No evidence is brought forth on record / before me as the specific expenditure incurred for the advertisements of the company by M/s. Deesha. There is no relevant material to demonstrate as to why the fees to BMC amounting to Rs. 3,75,360/- was paid when the rental income received by the assessee is only Rs. 50,000/-.
On the other hand, Ld DR for the Revenue relied heavily on the order of the ITAT, CIT (A) and the AO for facts and legal propositions.
After hearing the Ld DR and on perusal of the orders of the Revenue Authorities as well as the relevant material placed on record, I find, it is an undisputed fact that the assessee received the said amount of Rs. 14 lakhs from M/s. Deesha and the same was spent towards painting of the entire building spending a sum of Rs. 10,58,629/-. Some of the amount was spent for erecting the scaffolding for bearing the display boards. It is the claim of the assessee that these amounts constitute „reimbursements‟ by M/s. Deesha and reimbursements are outside the scope of chargeability to tax. These arguments were dismissed by the Tribunal in the quantum proceedings and the Tribunal held that the assessee resorted to create agreement for self-serving and the assessee arrange itself affairs to not to bring the said receipts of Rs. 14 lakhs to tax. In the light of the above, I examined the various issues and find that they are unsustainable with reference to the documents on one side and the conduct of the assessee on the other. As noticed by the Tribunal in its order (supra), I am unable to understand as to how Rs. 1 lakh was received towards bimonthly rent when the BMC fees itself is exceeded the sum of Rs. 3.75 lakhs (rounded off). Further, I am unable to appreciate the fact of M/s. Deesha reimbursed the expenditure on the painting of the entire building amounting to more than Rs. 10.5 lakhs when the scaffolding for display of the advertisement is only in the area of 80 X 120 sq ft. I am absolutely convinced on the fact that the affairs are not well so far as the accounting of the amount of Rs. 14 lakhs is concerned. Assessee is not forthcoming with all the facts in this regard. Therefore, I am of the opinion that the second agreement constitutes „self-serving document‟. The judgment in the case of Reliance Petro Products Ltd ( 322 ITR 158) (SC) will not help the assessee as the facts are entirely different. We have also perused the contents of paras 2.4.20 and 2.4.21 of the CIT (A)‟s order and find they are relevant. Considering the importance of the said paras for the sake of completeness of this order, the same are extracted as under:- “2.4.20. In view of the above factual and legal analysis, I do not find any infirmity in the action of the Ld AO and accordingly, confirm the act of imposition of penalty by the Ld AO especially keeping in view the following case laws:- i) Sharma Alloys (I) Ltd (2013) 37 Taxmann.com 51 (Mad.) – penalty leviable for deliberate deception of the claim. In the garb of bona fide claim the assessee cannot escape levy of penalty. The object behind the enactment of section 271(1)(c) read with Explanations indicates that this section has been enacted to provide for a remedy for loss of revenue. ii) Salim Akhtar vs. ACIT (2013) Taxmann.com 608 (Mum) (Trib) – whether on facts, revenue authorities rightly recorded transactions in question to be a device, and a loss , thus, was self inflicted in order to reduce the assessee‟s taxable income – held – yes – penalty confirmed. 2.4.21. However, I am in agreement with the without prejudice ground taken by the appellant that penalty should not have been levied on Rs. 1 lakh which was duly offered for taxation in the return of income. In the facts of the case, the computation of penalty had to be made on the additional income Rs. 14 lakhs and not Rs. 15 lakhs as made by the AO and therefore, to that extent the penalty imposed needs to be reworked. Accordingly, whereas ground nos. 2, 3, 5 and 6 are dismissed. Ground no.4 is allowed. Consequently, ground no.1 is partly allowed as regards the quantum of penalty.”
Considering the above, I am of the opinion, the order of the CIT (A) in confirming the penalty relatable to Rs. 14 lakhs is fair and reasonable and it does not call for any interference. Accordingly, grounds raised
by the assessee are dismissed.