IN THE INCOME TAX APPELLATE TRIBUNAL
`E' : NEW DELHI
DELHI BENCH `E
BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND
GARG, JUDICIAL MEMBER
SHRI CHANDRA MOHAN GARG,
No.4444/Del/2013
ITA No.
2006-07
Assessment Year : 2006-
M/s Nadish Real Estates Vs. Assistant Commissioner of
Pvt.Ltd., Income Tax,
1-E, Naaz Cinema Complex, Circle-
Circle-13(1),
Jhandewalan Extension, New Delhi.
New Delhi 110 055.
PAN : AACCN2671D.
(Appellant) (Respondent)
Appellant by : Shri R.S. Singhvi and
Shri Satyajeet Goel, CAs.
Respondent by : Shri Vivek Kumar, Sr.DR.
ORDER
PER G.D. AGRAWAL, VP :
This appeal by the assessee is directed aginast the order of
learned CIT(A)-XVI, New Delhi dated 30th May, 2013.
2. The only ground raised by the assessee is against the levy of
penalty under Section 271(1)(c) of the Income-tax Act, 1961
amounting to `13,08,890/-.
3. At the time of hearing before us, it is submitted by the learned
counsel that for the year under consideration, the assessee filed the
return declaring loss of `38,86,482/-. The loss occurred due to
incurring of expenses by the assessee. The Assessing Officer
disallowed the entire loss and assessed the income at nil. He
submitted that the Assessing Officer disallowed the loss on the ground
that the assessee did not commence the business. It was submitted by
the learned counsel that the assessee was in the business of real
2 ITA-4444/Del/2013
estate. During the accounting year relevant to the assessment year
under consideration, the assessee had given the advance for the
purchase of land and had also purchased the stamp for registry of such
land. He, therefore, contended that the assessee had commenced the
business and the Assessing Officer wrongly held that the assessee did
not commence the business. He was fair enough to point out that in
the quantum appeal, the ITAT did not accept the assessee's claim. He
further submitted that merely because the assessee's claim for
deduction of expenses is disallowed, it does not amount to
concealment of income. In support of this contention, he relied upon
the decision of Hon'ble Apex Court in the case of CIT Vs. Reliance
Petroproducts Pvt.Ltd. (2010) 322 ITR 158 (SC). He submitted that
the genuineness of the expenses claimed by the assessee has not
been disputed. Any material or evidence furnished by the assessee
has not been found to be false or inaccurate. Therefore, the decision
of Hon'ble Apex Court in the case of Reliance Petroproducts Pvt.Ltd.
(supra) would be squarely applicable.
4. Learned DR, on the other hand, referred to the order of the ITAT
and pointed out that the ITAT has found that the assessee has not
even given the advance for purchase of land and therefore, the
business cannot be said to have commenced. He submitted that the
ITAT considered all the facts and thereafter has arrived at the
conclusion that the contention of the assessee to have commenced the
business is incorrect. He, therefore, submitted that the assessee's
claim that it has commenced the business was a factually incorrect
claim and therefore, the penalty levied under Section 271(1)(c) is quite
justified. The same should be sustained.
5. In the rejoinder, it was pointed out by the learned counsel that
the assessee had given the advance for purchase of land and had also
purchased the stamps for getting the sale deed executed. However,
3 ITA-4444/Del/2013
before the sale deed could have been executed, the assessee's
advocates noted certain defect in the title of the seller of the land and
therefore, sale deed could not be executed. However, these facts
clearly show that the assessee had already started the business
activity though the transaction of purchase of land is not materialized
but the assessee has started the process of searching the land and
negotiating for purchase of land.
6. We have carefully considered the submissions of both the sides
and perused relevant material placed before us. In the case of
Reliance Petroproducts Pvt.Ltd. (supra), their Lordships of Hon'ble
Apex Court held as under:-
"Where there is no finding that any details supplied by the
assessee in its return are found to be incorrect or
erroneous or false there is no question of inviting the
penalty under section 271(1)(c). A mere making of a
claim, which is not sustainable in law, by itself, will not
amount to furnishing inaccurate particulars regarding the
income of the assessee. Such a claim made in the return
cannot amount to furnishing inaccurate particulars."
7. From the above, it is evident that mere making of a claim which
is not sustainable in law, by itself, is not liable for penalty under
Section 271(1)(c). In the case of the assessee, it claimed the
deduction for expenses on the ground that it commenced the business.
There can be debate whether the assessee commenced the business
or not. But, merely because a view is taken that the business has not
been commenced and consequentially expenses claimed by the
assessee are to be disallowed, by itself, is not sufficient for levy of
penalty under Section 271(1)(c). It is not the case of the Revenue that
any details furnished by the assessee are found to be false, incorrect
or erroneous. The genuineness of the expenditure incurred by the
assessee has not been doubted. The expenses have been disallowed
on the technical ground that the business has not been commenced by
4 ITA-4444/Del/2013
the assessee. Hon'ble Apex Court has clearly stated that "A mere
making of a claim, which is not sustainable in law, by itself, will not
amount to furnishing inaccurate particulars regarding the income of
the assessee." These observations of their Lordships would be
squarely applicable in the case of the assessee. We have also noticed
that the CIT(A) while sustaining the penalty has relied upon the
decision of Hon'ble Delhi High Court in the case of CIT Vs. Zoom
Communication P.Ltd. [2010] 191 Taxman 179. In the said decision,
their Lordships held as under:-
"In the case of Reliance Petroproducts P.Ltd. [2010] 322
ITR 158 (SC), the addition made by the Assessing Officer in
respect of the interest claimed as a deduction under
section 36(1)(iii) of the Act was deleted by the
Commissioner of Income-tax (Appeals) though it was later
restored, by the Tribunal, to the Assessing Officer. The
appeal filed by the assessee against the order of the
Tribunal was admitted by the High Court. It was, in these
circumstances, that the Tribunal came to the conclusion
that the assessee had neither concealed the income nor
filed inaccurate particulars thereof. In recording this
finding, the Tribunal felt that if two views of the claim of
the assessee were possible, the explanation offered by it
could not be said to be false. This, however, is not the
factual position in the case before us. The facts of the
present case thus are clearly distinguishable.
It is true that mere submitting a claim which is
incorrect in law would not amount to giving inaccurate
particulars of the income of the assessee, but it cannot be
disputed that the claim made by the assessee needs to be
bona fide. If the claim besides being incorrect in law is
mala fide, Explanation 1 to section 271(1)(c) would come
into play and work to the disadvantage of the assessee.
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
5 ITA-4444/Del/2013
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 find that the assessee before us did not explain
either to the income-tax authorities or to the Income-tax
Appellate Tribunal as to in what circumstances and on
account of whose mistake, the amounts claimed as
deductions in this case were not added, while computing
the income of the assessee-company. We cannot lose
sight of the fact that the assessee is a company which
must be having professional assistance in computation of
its income, and its accounts are compulsorily subjected to
audit. In the absence of any details from the assessee, we
fail to appreciate how such deductions could have been left
out while computing the income of the assessee-company
and how it could also have escaped the attention of the
auditors of the company."
8. Thus, after considering the decision in the case of Reliance
Petroproducts Pvt.Ltd. (supra), it was stated by the Hon'ble
Jurisdictional High Court that mere submitting a claim which is
incorrect in law would not amount to giving inaccurate particulars of
the income of the assessee but if the claim, besides being incorrect in
law is mala fide, Explanation 1 to Section 271(1)(c) would come into
play. If the assessee's claim is bona fide, then he will not be liable for
penalty. Therefore, the precise question to be adjudicated by us is
whether the assessee's claim was bona fide or mala fide.
6 ITA-4444/Del/2013
9. In the case of the assessee, we find that the returned income of
the assessee was loss of `38,86,482/- and, after disallowance of
expenses, income assessed is nil. Thus, there was no tax liability on
the assessee which may motivate it to make a bogus claim of the
expenditure. Even otherwise, the genuineness of the expenses has not
been doubted by the Revenue. The fact that the assessee started
negotiation for the purchase of land is also not disputed. Considering
the totality of these facts, we find no material to hold that the claim for
the deduction of the expenses was mala-fide. Therefore, on these
facts, in our opinion, the decision of Hon'ble Jurisdictional High Court in
the case of Zoom Communication P.Ltd. (supra) would not be
applicable, but, the decision of Hon'ble Apex Court in the case of
Reliance Petroproducts Pvt.Ltd. (supra) would be applicable.
Respectfully following the same, we cancel the penalty.
10. In the result, the appeal of the assessee is allowed.
Decision pronounced in the open Court on 9th January, 2015.
Sd/- Sd/-
GARG)
(CHANDRA MOHAN GARG) AGRAWAL)
(G.D. AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 09.01.2015
VK.
Copy forwarded to: -
1. Appellant Estates Pvt.Ltd.,
: M/s Nadish Real Estates
1-E, Naaz Cinema Complex,
Jhandewalan Extension, New Delhi 110 055.
2. Respondent : Assistant Commissioner of Income Tax,
Circle-
Circle-13(1), New Delhi.
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
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