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Income Tax Appellate Tribunal, DELHI BENCHES : “H” NEW DELHI
Before: SHRI G.C. GUPTA & SHRI J.SUDHAKAR REDDY
O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
Both these appeals are filed by the Revenue for the A.Y. 2006-07 and 1998-99. The Cross Objection is filed by the assessee for the A.Y. 1998-99.
A.Y. 1998-99 C.O. 212/Del/2012 (In ITA 1288/Del/12)
1.1. We first take up the appeal for the A.Y. 2006-07 in ITA 2160/Del/2010. The assessee is in the business of real estate. The grounds of appeal read as under.
1. The order of the Ld. CIT(Appeals) is not correct in law and facts.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting addition of Rs.1,35,000/- on account of compensation for re-acquiring the rights in plots whereas such expenditure was incurred to earn substantial profits in future by way of repurchasing its own assets.
3. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting addition of Rs.1,35,000/- on account of compensation for re-acquiring the rights in plots whereas such re- purchase is not the main business activity of the assessee and such re- purchase are made by builders to multiply profits on its own projects.
4. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting addition of Rs.2,09,429/- on account of disallowance of foreign traveling expenses of wife of the director, being personal in nature while holding that presence of wife would help the assessee to take decisions whereas his wife is not at all conversant with highly technical architectural designs and details of construction projects for which the assessee had gone abroad and whereas his wife has not been entrusted any such responsibilities in the assessee's own organization wherein there is well organized in-house specialized architectural Department.
5. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting addition of Rs.5,68,473/- towards disallowance of depreciation on vehicles not owned by the assessee by way of relying on un-related judicial pronouncements relating to income from house property whereas there is no provisions in Income Tax Act 1961 for allowing depreciation on assets not owned by the assessee. A.Y. 1998-99 C.O. 212/Del/2012 (In ITA 1288/Del/12)
6. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding income of Rs.10,23,006 /- claimed by the assessee as agricultural income whereas no evidence was produced by the assessee before AO to substantiate the same as agricultural income and voucher of petty expenses of Rs.45,OOO/- out of claim of expenses at RS.5,OO,OOO/- was produced before AO. In doing so, Learned CIT(A) has not taken recourse to provisions of Rule 46A of Income tax Rules 1962.
7. On the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding income of RS.10,23,006 /- claimed by the assessee as agricultural income whereas it is not the activity of the assessee to plough the fields whereas lands are purchased and treated as stock in trade for construction projects from the initial stage and for which all proceedings and procedures are taken to convert use of land.
8. The appellant craves leave to add, alter or amend any/all of grounds of appeal before or during the course of the hearing of the appeal.”
We have heard ShriJ.P.Chandrekar, Ld.Sr.D.R. on behalf of the Revenue and Shri C.S. Aggarwal, the Ld.Sr.Counsel on behalf of the assessee.
After hearing rival contentions, perusing material placed on record, orders of lower authorities, case laws cited, we hold as follows.
Ground nos. 1 and 8 are general in nature. 5. Ground no.2 is against deletion of an addition of Rs.1,35,000/- made by the Ld.CIT(A) on account of compensation for re-acquiring the rights of plots of land. The assessee received advance for the sale of plots. In certain cases the sale consideration is paid in instalments. Sometimes, for certain reasons the advance received by the assessee, is returned to the purchaser. When such advance is returned, certain additional amount is paid to the A.Y. 1998-99 C.O. 212/Del/2012 (In ITA 1288/Del/12) purchaser and this is called compensation. The question is whether, the amount paid as compensation, was for reacquiring the property already sold by the assessee, in which case it would become the closing stock of the assessee otherwise it would be an expense for the assessee. 5.1. The First Appellate Authority held that, the compensation paid by the assessee is not to reacquire any rights. He recorded a fact that, when the advance is received for sale of a plot, it was not treated as sale of plot, in the books of the assessee. In the absence of receipt of full sale consideration, the assessee has not treated the sale transaction as complete. Thus, when no asset is sold by the assessee, the question of reacquiring the same does not arise. The Ld.CIT(A) records that the theory of purchasing something, which the assessee himself is the owner is in itself misconceived. 5.2. We find no infirmity in this finding of the Ld.CIT(A). We uphold the same. Similar expense was allowed by the Ld.CIT(A) for the A.Y. 2005-06 also. Thus, we dismiss ground nos. 2 and 3 of the Revenue. 6. Ground no.4 is on the disallowance of foreign travel expenses, of the wife of the Director. The Ld.CIT(A) observed that the visit of Smt.Kanchan Bhalla, W/o Shri Anil Bhalla was pursuant to an invitation for attending a formal meeting and dinner in connection with promotion of the company. He held that the expenses incurred on the travel of the wife of the Director, was for the benefit of the company and promoting its good will. This factual finding of the First Appellate Authority could not be controverted by the Ld.Sr.D.R. Hence we uphold the same and dismiss this ground of the Revenue. 7. Ground no.5 is on the issue of allowability of depreciation. The A.O. disallowed the depreciation on the ground that the vehicles were registered in the name of the employees of the company and hence the assessee company is not having ownership. The Ld.CIT(A) observed that the vehicles were purchased in the name of Shri Gautam Bhalla, who was the Director of the company and the real and beneficial ownership as well as the use of the vehicles was with and for the purpose of the company. A.Y. 1998-99 C.O. 212/Del/2012 (In ITA 1288/Del/12)
We find no infirmity in the order of the First Appellate Authority, as the assessee is the owner of these vehicles and the disallowance is made merely on the ground that the vehicles are not registered in the name of the company, but in the name of the Directors. Such disallowance cannot be made. In the result this ground of the Revenue is dismissed.
Ground no.6 is against deletion of an addition of Rs.10,23,600/- claimed as agricultural income by the assessee. The claim of the assessee of having agricultural income was partly disbelieved by the A.O. for the reason that, vouchers of agricultural expenses were submitted to the tune of Rs.45,000/- only, whereas the expenditure incurred is for Rs.5,00,000/-. The First Appellate Authority gives the factual finding that the assessee has produced the evidences of agricultural income earned by it and the bills for incurring of the expenditure. Further he records that one company by name VTPL, which was earning agricultural income, merged with the assessee company during the A.Y. 2005-06. Statistics from the A.Y. 1992-93 to the A.Y. 2005-06 have been extracted by the Ld.CIT(A), to demonstrate that the assessee has been earning agricultural income for all the earlier A.Ys and that this has been accepted by the Revenue. These factual findings could not be controverted by the Ld.Sr.D.R. Hence we uphold the finding of the First Appellate Authority and dismiss ground nos. 6 and 7 of the Revenue. 10. In the result this appeal by the Revenue is allowed in part. 11. We now take up the appeal for the AY 1998-99 in ITA 1288/Del/2012 and C.O. no.212/Del/2012. The grounds of Revenue’s appeal read as follows. “1. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deleting the penalty imposed by the A.O. u/s 271(1)(c) of the Act in respect of penalty charges of Rs.20 lakhs paid by the assessee company. 2. The order of Ld.CIT(A) is perverse in law and on facts. 3. The appellant craves leave to add, amend any/all the grounds of appeal
before or during the course of hearing of the appeal.” A.Y. 1998-99 C.O. 212/Del/2012 (In ITA 1288/Del/12)
12. Facts in brief:- The facts of the case are brought out at paras 4 to 4.5 of the order of the Ld.CIT(A), which are extracted for ready reference. “4. Facts of the case and argument of the assessing officer:- 4.1 Appellant filed a return of income declaring net assessable loss of Rs. 12,25,884/- and after adjustment of brought over loss of earlier years amounting of Rs. 81,35,576/-, claimed net carried over loss amounted to Rs. 93,56,4601-. The assessment however was completed vide order dated 29.03.2001 determining net assessable income at Rs.72,11,2481- besides credit to be allowed for brought over losses after verification. 4.2. Thus, an addition to the returned income of Rs. 84,72,132/- was made. In appeal filed by the appellant before the CIT(A), the appellant was allowed a relief of Rs. 61,72,094/- and addition of RS.23,00,038/- was sustained In second appeal filed by the department before appellate tribunal the relief given by the Commissioner of Income Tax (Appeals) was accepted. 4.3 The assessing officer levied a penalty u/s 271 (1) (c) of the Income Tax Act, 1961 of Rs.7.49.000/- vide his order dated 30.10.2006 which was calculated on the following additions made to the returned income and finally sustained by the order of Commissioner of Income Tax (Appeals) and Tribunal.
1. Disallowance for depreciation Rs. 1,40,000/-
2. Penalty charges paid by the appellant Rs.20,00,000/- 4.4 Appellant filed appeal against the order of penalty which was decided against the appellant by Commissioner of Income Tax (Appeals) by order dated 25.02.2008, but however in the second appeal filed before the Income Tax Appellate Tribunal decided on 26.05.2009, the Hon'ble members of the bench were pleased to hold as under:- ''Therefore, in the interest of justice we allow this appeal and set aside the orders of the revenue authority below. We restore the dispute to the file of assessing officer because there is no adjudication on the merit. The appellant failed to give any explanation in support of its contention against imposition of penalty. The assessing officer shall ascertain whether there was carried forward business loss from earlier years which is to be set off against current year Income while computing the penalty, if imposable upon the appellant". 4.5 The assessing officer issued a notice u/s 271 (1) (c) of the Income Tax Act, 1961 on 12.10.2009 against which the appellant filed its reply on 16.11.2009 and explained the circumstances for the claim of expenses made by the appellant in the return of income which were however not accepted by the assessing officer as well as appellate authorities and the additions were sustained. There after no notice was issued by the assessing officer and a penalty order was passed by levying a penalty u/s 271 (1) (c) of the Income Tax Act, 1961 of Rs. 7,49,0001- vide his order dated 30.03.2010.” A.Y. 1998-99 C.O. 212/Del/2012 (In ITA 1288/Del/12)
13. The First Appellate Authority deleted the penalty with respect to the disallowance of Rs.20 lakhs, which is a liability incurred towards, non performance within the stipulated time of a specific Clause in the Memorandum of Understanding. As far as the disallowance of depreciation on foreign car, the First Appellate Authority sustained the penalty.
14. After hearing rival contentions, we hold as follows. 15. The assessee has entered into an agreement dt. 30.9.1996 with M/s Vimco Ltd. As per this agreement, the assessee had to complete acquisition of agricultural land within certain time. As it could not do the same fine/penalty was incurred as per the terms of the Contract. The A.O. disallowed this penalty on the ground that: a) The expenditure has actually not been incurred and hence the genuineness is in doubt; b) The expenditure relates to capital asset, which otherwise is not admissible; 15.1. The First Appellate Authority held that the fine/penalty in question, was incurred in relation to breach of a civil contract and not for violation of any provisions of law. He held that the expenditure is incidental to the business of the assessee and as the assessee is in the business of real estate and the compensation is related to its stock in trade, the expenditure is not capital in nature. He deleted the penalty. In our view the order of the First Appellate Authority on this issue does not call for any interference. The expenditure is claimed as incurred for breach of contractual obligation between two private parties. This expenditure is incidental to business. Be it as it may, the explanation given by the assessee is bonafide. Hence we uphold the order of the Ld.CIT(A) on this issue and dismiss this ground of the Revenue. 16. In the result Revenue’s appeal is dismissed. A.Y. 1998-99 C.O. 212/Del/2012 (In ITA 1288/Del/12) 17. On the Cross Objection filed by the assessee, the assessee submits that it acquired second hand cars from an Indian person locally hence he was of the considered opinion that it was entitled to claim depreciation. The depreciation was disallowed on the ground that, what is relevant is the make of the car and not the person from whom it is purchased. The First Appellate Authority confirmed the order of the A.O. on the ground that inaccurate particulars of income has been furnished. 17.1. In our view, the claim of depreciation made by the assessee, is an inaccurate claim. The assessee is advised by professionals and depreciation on foreign cars admittedly is not allowable. The source from which an asset is purchased is not relevant. Hence we confirm the order of the Ld.CIT(A), wherein the penalty levied u/s 271(1)(c) of the Income Tax Act, 1961 levied by the A.O. as a claim of depreciation on foreign cars is confirmed. 18. In the result the appeals of the Revenue are dismissed. The assessee’s Cross Objection is also dismissed. Order pronounced in the Open Court on 08th October, 2015.