CAMORON FINANCE AND INVESTMENTS,MUMBAI vs. ASST CIT CIR 12(3), MUMBAI

In this case, penalty has been imposed for disallowance of sum of the expenditure claimed by assessee in respect of brokerage and professional expenses. For this disallowance the AO has also levied penalty u/s.271(1)(c).

It was argued by ld. AR that assessee has furnished full particulars of expenditure so incurred and accordingly disallowance of some of the 2 expenditure will not amount to concealment of any particulars so as to attract penalty u/s.271(1)(c).

On the other hand, ld. DR relied on the order of lower authorities.

We have considered rival contentions and found from the record that assessee is a firm engaged in the business of finance and investment and real estate development. The assessee has been pursuing the development of Bahar property which continued during the entire financial year 2006-07. A part of such property had been leased during the said year. The assessee had submitted its return of income on October 29, 2007 declaring total income at Rs.4,70,53,140/-. In the course of assessment u/s.143(3), the AO disallowed brokerage of Rs.61,73,200/- paid to the party who introduced back to whom property was let out.

During the year under consideration, the assessee decided to lease out a portion of its Bahar property which is being developed by the assessee as a part of the business. Brokerage of Rs.61,73,200 was paid to a broker in order to assist the assessee in the smooth functioning of the business of Real Estate Development. The said brokerage was accordingly charged to Profit and Loss account and claimed as business expenses. The ACIT disallowed the assessee’s claim for deduction on the ground that the brokerage is not related to the business of the assessee and as such it cannot be allowed as the business expenses. The assessee claimed Rs.10,25,000/- as business expense towards professional fees paid for attending to all meetings, drafting and settling letter of intent, lease agreement etc. in respect of leasing of office 3 premises. The ACIT disallowed the Appellants claim for deduction on the ground that these expenses were not related to the business of the assessee and as such it cannot be allowed as the business expenses.

As per the nature of the assessee’s business, following principle of commercial expediency assessee has incurred expenditure of brokerage as well as professional fees. Assessee being in the business of real estate business, professional fees are required to be incurred. Merely disallowance of such expenses will not amount to concealment of particulars by the assessee. All particulars with respect to incurring of expenditure was on record, genuineness of expenses were also not doubted by the AO. The facts of the instant case is pari materia with the facts decided by the Tribunal in the case of Township Real Estate Developers (India)(P) Ltd., 51 SOT 411, wherein it was held that assessee has not concealed any particulars of income or furnished inaccurate particulars thereof. The question regarding allowability of certain expenses from house property was at least debatable during the relevant point of time. Accordingly, it was not a fit case for levy of penalty. Furthermore, Hon’ble Bombay High Court in the case of Aditya Birla Nuvo Ltd., Income Tax Appeal No..3899 of 2010. Dated 14th August, 2012, by relying on the decision of Hon’ble Supreme Court in the case of Reliance Petroproducts pvt. Ltd. 322 ITR 158 held that there was no concealment of income as the assessee has disclosed all the particulars of expenses/income. The detailed observation of Hon’ble Bombay high Court are as under :-

11. The judgment does not support Mr.Malhotra's submission that even if an assessee has disclosed all the particulars of his income and has not furnished inaccurate particulars of his income, it is mandatory upon the Assessing Officer to levy penalty under section 271(1)(c) jf a claim is made which is held to be unsustainable in law. The Supreme Court merely stated that willful concealment is not an essential ingredient. for attracting a civil law liability under section 271(1)(c) read with the explanation thereto. In other words, all that the judgment holds is that the concealment need not be willful to attract penalty. However to attract the provisions of section 271, the assessee must be held to have concealed the material particulars or to have furnished inaccurate particulars. At the cost of repetition in the present case, there was no concealment of any material particulars by the respondent. Nor did the respondent furnish inaccurate particulars. The respondent disclosed all material particulars and on the basis thereof, made certain claims which have been found purely as a question of law to be not sustainable. In the present case, Explanation 1(8) is inapplicable. This is in view of the fact that it is an admitted position that the respondent has neither concealed any particulars of income nor furnished inaccurate particulars of income. Explanation 1(8) would apply only where an assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. Explanation 1(8) provides that in such cases if the reasons given for the concealment or furnishing of inaccurate particulars of income are found to be unsubstantiated or not bona-fide, the amount added or disallowed in computing the total income would represent income in respect of which particulars have been concealed. 1 . As we noted earlier, the matter in an event stands concluded in favour of the respondent by the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) where the Supreme court considered a similar situation. The respondent therein had disclosed all the facts and there was no concealment of income. The Supreme Court negated an identical submission. The judgment considers and interprets the judgment of the Supreme Court in Union of India & Ors. vs. Dharamendra Textile Processors & Ors. (supra). The Supreme Court after setting out Section 271 (l)(c) in paragraph 10 held as under :- "10. .......................................... A glance at this provision would suggest that in order to be covered. there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned counsel for the Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, 5 the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars.

The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the words concerned. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision', the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal (2009) 9 SCC 589, where this Court was considering the same provision, the Court observed that the assessing officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of 'India v. Dharamendra Textile Processors as also the decision in Union of India v. Rajasthan Spg. & Wvg. Mills land reiterated in para 13 that: (Atul Mohan Bindal case, SCC p. 597, para 13) "13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must .exist."

It was tried to be suggested that Section 14-A 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 part of the total income. It I was, therefore, reiterated before us that the assessing officer 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 Section 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 the assessing officer for any reason. the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the legislature.

In this behalf the observations of this Court made in Sree Krishna Electricals v. State of T.N. (2009) 11 SCC 687, as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in the Tamil Nadu General Sales Tax-Act, the Court had found that the authorities below had found that there were someincorrect statements made in the return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: (SCC p. 688, para 7) "7. So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's accounts books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its return." (emphasis supplied) The Supreme Court also held that it was only on the point of mens- rea that in Union of India & Ors. vs. Dharmendra Textile Processors & Ors, the Supreme Court over-ruled the earlier judgment of the Supreme Court in Dilip N. Shroff vs. Jt. CIT, (2007) 2911TR 519. 13. Mr.Malhotra submitted that Explanation 1(8) to Section 271(1) mandates the levy of penalty even where a claim for deduction is not upheld, even though the assessee has disclosed all material facts and has not suppressed any material facts. He submitted that a view to the contrary would render explanation.1(8) nugatory. His only response to the judgment of the Supreme Court in ClT vs.'

We are unable to agree. In any event we are bound by the judgment of the Supreme Court. Merely because the Explanation was not referred to in the judgment of the Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd., it cannot be said that the judgment is per-incuriam. The learned Judges having expressly considered the very section, it can hardly be suggested that they did not notice a part of the section and delivered the. judgment in ignorance thereof merely because that part is not in terms noted in the judgment.”

In view of the above, we do not find any merit for the penalty so imposed with regard to disallowance of some of the expenditure incurred by the assessee.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 03/08/2016. Sd/- Sd/- (PAWAN SINGH) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 03/08/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत //True Copy// आदेशाि सार/ BY ORDER,