* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ I.T.A. 804 OF 2011
Reserved on: 22nd March, 2013
% Date of Decision: 28th May, 2013
SHERVANI HOSPITALITIES LTD. ....APPELLANT
Through Mr. Ajay Vohra and Ms. Kavita Jha,
Advocates.
Versus
COMMISSIONER OF INCOME TAX ...RESPONDENT
Through Mr. Kamal Sawhney, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SIDDHARTH MRIDUL
SANJIV KHANNA, J.
This appeal by the assessee which relates to the assessment year
2001-02, in effect impugns order dated 26th March, 2010, passed by the
Income Tax Appellate Tribunal(tribunal for short) confirming imposition
of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (Act,
for short). By order dated 19th December, 2011, the following
substantial question of law was framed:-
"Whether the Income Tax Appellate Tribunal was
justified in upholding levy of penalty under
Section 271(1)(c) of the Income Tax Act, 1961?"
2. While framing the question of law, it was observed that the court
was not framing any question on the issue of limitation as there is a
ITA 804/2011 Page 1 of 21
judgment of the Delhi High Court against the assessee, on the said
aspect. It was observed that in case the judgment or ratio is reversed by
the Supreme Court, the assessee would be at liberty to raise the said
question at the time of hearing.
3. The assessee is a company engaged in hospitality services. For
the assessment year 2001-02, the assessee filed its return declaring loss
of Rs.43,15,328/-. The assessment was completed under Section 143(3)
of the Act, vide order dated 27th February, 2004, at a positive income of
Rs.9,26,510/-. The Assessing Officer made following additions/
disallowance in the quantum proceedings:
"
S.No. Particulars Amount
1. Loss of closure of South Extension Rs.25,37,521
Unit
2. Capital Expenditure for interior Rs.1,32,000
designing
3. Depreciation on assets purchased Rs. 3,03,433
from M/s Star Hospitality
4. Donations Rs. 10,494
5. Loss of subsidiary Company Rs.1,39,595
.."
4. In the first appeal, the assessee substantially succeeded and most
of the additions/disallowances were deleted. After giving the first appeal
effect, the loss was determined at Rs.34,30,680/- as against loss of
Rs.43,15,328/-. Aggrieved, the Revenue preferred an appeal before the
Tribunal, which was substantially allowed vide order dated 25th April,
2008. The 5 additions mentioned above were upheld by the Tribunal.
ITA 804/2011 Page 2 of 21
The order of the Tribunal in the quantum proceedings and the reasoning
given in respect to additional Nos. 1 and 2 are noticed below. The net
loss of the assessee was determined at Rs.4,57,726/-, vide second appeal
effect order dated 17th July, 2008 passed under Sections 254/250 of the
Act.
5. Proceedings under Section 271(1)(c) of the Act were initiated and
vide order dated 29th January, 2009, penalty of Rs.16,44,330/- was
imposed inter-alia observing that the assessee had failed to substantiate
the explanation regarding additions/disallowances made in the
assessment order resulting in reduction of returned loss. It was
observed that the losses claimed could not be justified before the
Assessing Officer and the additions had been finally upheld by the
Tribunal. Concealment penalty was upheld in the first appeal by the
Commissioner of Income Tax (Appeals). It was observed that looking at
the facts of the case, the Assessing Officer had imposed minimum
penalty @ 100% of tax payable on the amount concealed and not @
300%.
6. On second appeal before the Tribunal, case law on the subject
was referred to and it was observed that loss of Rs.1,39,595/- suffered by
the subsidiary company upon liquidation claimed in the hands of the
assessee was untenable in law because the subsidiary company was a
separate taxable entity. The assessee had accepted that this was an error
ITA 804/2011 Page 3 of 21
or a mistake and it was pointed out that even in the quantum proceedings
this claim was not pressed. However, the Tribunal observed, that this
error cannot lead to quashing of the entire penalty. On the claim for
donation, it was observed that the assessee had failed to file receipts of
Delhi Fire Service for Rs.500/- and another/third receipt for Rs.4,995/-.
Receipt of Rs.10,000/- issued by Hindustan Benevolent Trust was filed
but the claim was restricted to 50% or Rs.5,000/-, instead of 100%
deduction as claimed. The total income of the assessee having been
computed at a loss, deduction under Section 80G could not be claimed.
Further, the amount involved is small. Examining the claim for
depreciation of assets of Star Hospitality Pvt. Ltd. which had closed its
restaurant in Nepal, the Tribunal recorded that the assessee had produced
the RBI permission to close the restaurant but there was no evidence to
show and prove that the assets were brought to India and were utilized
for the purpose of assessees business. The said claim of Rs.3,03,433/-
again is not substantial.
7. The real question pertains to the first two claims i.e. loss on
closure of South Extension Unit of Rs.25,37,521/- and Capital
Expenditure for interior designing of Rs.1,32,000/-. The two amounts
are interconnected as the expenditure of interior designing was incurred
on the South Extension Unit.
ITA 804/2011 Page 4 of 21
8. The respondent assessee had taken a premises on rent/lease in
South Extension area in New Delhi in the very assessment year but the
restaurant was closed and the operations stopped in the first year itself.
The assessee had claimed that the expenditure incurred in the setting up
the restaurant like flooring, civil and electrical works, alterations,
repairing, wood work, fixtures and furniture etc. should be allowed as
revenue loss. Disagreeing, the Tribunal in the quantum proceedings
observed that the aforesaid loss was a capital loss and not a revenue loss
for the following reasons:-
"2.3 We have perused the records and considered
the rival contentions carefully. The assessee
during the year stated a new restaurant in which
substantial capital investment had been made in
the premises taken on lease. As the business was
closed during the first year itself, the assessee after
claiming the depreciation, claimed the balance
amount of capital asset as deduction from the
income which had been disallowed as a capital
expenditure, by the A.O. the case of the assessee
is that these assets could not be removed from the
leased premises and there was, therefore, no
salvage value. The Ld. A.R. for the assessee has
placed reliance on the judgment of Honble
Supreme Court in case of Madras Auto Service
(supra) and judgments of Honble High Court of
Delhi in case of Installment Supplies Pvt. Ltd.
(supra). It has been held in these judgments that
the assessee is not the owner of the assets created
in the leased premises as it belongs to someone
else. The assessee has only enduring business
advantage and no advantage in the capital filed and
therefore, the expenditure is to be allowed as
revenue expenditure. On careful perusal, we find
that both the judgments related to period prior to
ITA 804/2011 Page 5 of 21
Assessment year 1988-89 when Explanation (1) to
Section 32(1) was not on the statute. As per the
said explanation, capital expenditure on leased
premises has to be capitalized and depreciation is
allowable treating the assessee as deemed owner.
Therefore, from Assessment year 1988-89, the
capital expenditure in leased premises will have to
be treated as capital expenditure, which is entitled
for depreciation and cannot be allowed as revenue
expenditure. The expenditure is undisputedly,
capital in nature because it has resulted into
addition to the profit making apparatus of the
assessee and resulted into a new source of profit as
the new restaurant was a new source of income.
Therefore, even considering the judgments of
Honble Supreme Court in case of Empire Jute Co.
(124 ITR 01) in which it has been held that
expenditure incurred for efficient or more
profitable working of the business has to be treated
as revenue expenditure even if it provides some
enduring advantage provided there is no addition
to the profit making apparatus or the expenditure
does not result into new source of income.
Therefore, the expenditure in this case is no doubt
a capital expenditure. However, the same was
used for the purpose of business and, therefore,
when it is sold or destroyed or discarded or
demolished, the resulting loss has to be dealt with
under the provisions of law. We find that there is a
specific provision u/s 32(1)(iii) inserted w.e.f.
Assessment year 1998-99 as per which if any asset
used for the purpose of business on which
depreciation has been claimed, is sold, discarded,
demolished or destroyed in the previous year other
than the previous year in which it was first brought
into use, the difference between the sale/salvage
value and the WDV has to be allowed as a
business loss. This provision is not applicable in
the case of assessee because the assets in this case
have to be discarded in the very first year as the
restaurant was not found viable. Therefore, in our
view it is capital put by the assessee in the new
business, which was lost and has, therefore, to be
ITA 804/2011 Page 6 of 21
treated as loss of capital not allowable. This is not
a case of loss occurring during the actual carrying
on of the business, which can be allowed as
business expenditure but a case of capital put into
the new business being lost as the business not
found viable. The expenditure has therefore, to be
disallowed as a loss of capital. We order
accordingly. The order of CIT(A) is reserved and
the disallowance made by the AO is upheld."
9. The aforesaid reasoning itself discloses that two views were
possible on whether or not the loss in question was revenue or capital in
nature. Two earlier decisions of the Supreme Court in CIT vs. Madras
Auto Service,(1998) 233 ITR 468 SC and Installment Supply Company
vs. CIT (1984)149 ITR 52 were distinguished observing that they were
inapplicable in view of introduction of Explanation 1 to Section 32(1)
and Section 32(1)(iii) of the Act. The assessee had claimed that they had
taken a premise on rent/lease and during the very first year of business
itself the lease was surrendered. Therefore, no enduring business
advantage accrued and no new profit making asset came into existence.
Reliance placed by the assessee on Empire Jute Company v.
Commissioner of Income Tax, (1980) 124 ITR 01 was not accepted.
10. In the impugned order relating to penalty under Section 271(1)(c),
the Tribunal has again adopted the said reasoning and has observed as
under:-
"In the appeal of the revenue to the tribunal, the
Tribunal has categorically given a finding that the
write off under the revenue head was not
ITA 804/2011 Page 7 of 21
permissible in view of the specific provision u/s
32(1)(iii) of the Act. The Tribunal has also
categorically given a finding that the decision
relied upon by the Ld. CIT(A) for deleting the
disallowance relating to the period prior to the
Assessment Year 1988-89 when the Explanation
(1) to Section 32(1) was not on the statute. In the
course of penalty proceedings, the assessee has
mentioned that the claim was based upon some
legal lines of reasoning and it cannot be said to be
as absurd claim. When there is specific provision
in the statute, and when the accounts of the
assessee are under audit, non-application of a
specific provision cannot give any leverage for
bona fides to the assessee. Here even though the
assessee has given an explanation in the penalty
proceedings, the explanation as given by the
assessee cannot be substantiated by any form of
hair splitting or legal jugglery. Besides this, it is
also noticed that the assessee has earlier mentioned
that it had brought in plant & machinery of a value
of Rs.3,12,956/- on the liquidation of Star
Hospitality Pvt. Ltd., Nepal which machinery had
been used in the Rodeo South Extension
Restaurant. However the plant & machinery found
to have been written of is of a value of Rs.47,166/-
. How can this happen? What happened to the
balance of plant & machinery? The assessee was
able to bring back plant & machinery on the
liquidation of subsidiary in Nepal as per their letter
to RBI but on the closure of a unit in South
Extension Delhi the assessee is not able to use the
plant & machinery and has to abandon the same is
too far fetched claim to substantiate any bona fide.
Furniture and fixtures from Star Hospitalities Pvt.
Ltd., Nepal is of a value of Rs.36,618/- while what
is written of is Rs.19,978/-.
Coming to the issue of building on lease, the Ld.
CIT(A) in the appellate order in the quantum
proceedings has termed the same to include the
partition and fixing of wooden fixtures, wooden
floor, false ceiling, frame work, sanitary and
ITA 804/2011 Page 8 of 21
drainage. In the letter addressed to the RBI in
respect of bringing back the movable assets more
specifically the letter dated 14.06.2002 an amount
of Rs.9 lacs has been shown as wood/planks
removed from the building on rent. If such items
can be removed from the building on rent in Nepal
and be used in Rodeo South Extension as claimed
by the assessee, it shows that it lease such items
were dismentable. Then how can it be said that the
total amount shown under the building on lease
had to be abandoned. Thus on all these counts the
claim of the assessee lacks bonafides and
consequently the explanation as given by the
assessee being not substantiated, the penalty as
levied by the A.O. and as confirmed by the Ld.
CIT(A) is upheld."
11. Similar reasoning has been given with regard to expenditure
incurred for interior designing i.e. Architect fee and it was observed that
the expenditure, was in the nature of capital and not revenue
expenditure. The expenditure was pre-commencement expenditure.
12. With reference to case law relied by the assessee, it was observed
as under:
"The decisions as quoted by the Ld. A.R. of
Honble Jurisdictional High Court and the
coordinate benches of this Tribunal would not
come to the rescue of the assessee in so far as in all
those cases, it has been held that where there is
difference of opinion for allowing or disallowing
the expenditure between the assessee and the A.O.,
it cannot be said that the assessee had intention to
conceal its income. In all those cases, the assessee
had given all the particulars of expenditure and the
income and had disclosed all the facts to the A.O.
In the present assessees case, the facts itself are
missing. In the course of assessment proceedings,
the A.O. has asked for evidences, have not been
ITA 804/2011 Page 9 of 21
produced nor has the assessee been able to
substantiate its claim even in the penalty
proceedings or in the appellate proceedings. The
assessee has not been able to even explain the
circumstances in which it has claimed the
expenditure which have been disallowed by the
A.O. In these circumstances, the bona fides of the
assessee have not been proved and we are of the
view that the decision of the Honble Jurisdictional
High Court and the coordinate benches of this
Tribunal has referred to by the assessee, do not
help the assessee. In these circumstances, the
appeal of the assessee is dismissed."
13. The short question is whether levy of penalty for concealment is
as per law. Quantum and penalty proceedings are distinct and separate.
Findings recorded in the quantum proceedings are germane and relevant
but it does not follow that every addition justifies and compulsorily
mandates imposition of penalty. Subject matter or the core question in
the quantum or assessment proceedings is computation of correct income
as per the Act and the subject matter of the penalty proceedings is the
conduct of the assesse i.e. concealment or furnishing of inaccurate
particulars which has resulted in additions in the quantum proceedings.
Mens rea is not required or necessary to impose penalty for concealment
but an assessee can escape penalty when he can show and establish that
his case falls within four corners of the exclusion provided in
Explanation 1 applicable to the said section. Section 271(1)(c) and the
Explanation 1 read:-
ITA 804/2011 Page 10 of 21
"271. Failure to furnish returns, comply with
notices, concealment of income, etc.-(1) If the Assessing
Officer or the Commissioner (Appeals) or the Commissioner
in the course of any proceedings under this Act, is satisfied
that any person-
(c) has concealed the particulars of his income or furnished
inaccurate particulars of such income, he may direct that such
person shall pay by way of penalty."
xxxxxxxx
"Explanation 1- Where in respect of any facts material to the
computation of the total income of any person under this
Act:-
(A) Such person falls to offer an explanation or offers an
explanation which is found by the Assessing Officer or the
Commissioner (Appeals) or the Commissioner to be false, or
(B) Such person offers an explanation which he is not able to
substantiate and fails to prove that such explanation is bone
fide and that all the facts relating to the same and material to
the computation of his total income have been disclosed by
him,
Then, the amount added or disallowed in computing the total
income of such person as a result thereof shall, for the
purposes of clause (c) of this sub-section, be deemed to
represent the income in respect of which particulars have
been concealed.
14. Thus penalty under Section 271(1)(c) is imposed when an
assessee conceals his income or furnishes inaccurate particulars. In terms
of the Explanation, we have to examine whether the case falls within the
two limbs viz. sub-clause (A) or (B) and the effect thereof. Clause A
applies when an assessee fails to furnish any explanation or when an
explanation is found to be false. In respect of the two additions being
examined, the assessee had furnished an explanation and the explanation
has not been found to be factually incorrect or false. The fact that the
expenditure was incurred and spent by the assessee is not disputed or
denied but the claim of the assesee that it should be treated as revenue
ITA 804/2011 Page 11 of 21
expense has been held to be a wrong claim. It is a case where the
assessee was not been able to substantiate the claim. The explanation
given by him has not been accepted on legal grounds. Sub-clause (B) to
the Explanation is applicable and we have to examine whether two
conditions; (i) the assessee has been able to show his explanation was
bona fide and (ii) he had furnished facts and material relating to the
computation of his income had been disclosed. Onus on establishing that
the assessee satisfies the two conditions is on him i.e. the assessee. We
will examine the second condition first.
15. In the notes of accounts filed with the return, the assessee had
made the following declaration:
"4. The Rodeo restaurant situated at South
Extension, New Delhi has been closed down with
effect from 31 March 2001 on account of
continuing poor financial health. Amount of
deferred revenue expenses of Rs.7,73,984 carried
in the Balance Sheet in respect of the Unit, which
was to be written off over a period of five years as
per the provisions of the Income Tax Act 1961 has
been fully written off during the year.
The restaurant unit was in rented building, hence
the written down values as on 31st March 2001 of
Building on Lease and few minor items of other
assets amounting to Rs.25,37,521 has been shown
as loss due to closure of unit."
16. This was in reference to the entry in the profit and loss account
where under the head ,,Expenditure loss of wholly owned subsidiary and
ITA 804/2011 Page 12 of 21
closure of unit was specifically marked or indicated. The explanation as
claimed also referred to note No. 4. Thus, the assessee in its return of
income or the profit and loss account had not concealed and tried to
camouflage the nature of loss that it was loss on account of wholly
owned subsidiary and on closure of the unit. We say so with clarity and
duly note that the assessee had come clean and had narrated and stated
the facts and material. There is nothing in the penalty order or the
appellate orders to negate the said admitted position. The second
condition is thus satisfied.
17. The second aspect is whether the explanation or justification for
the claim made by the assessee was bona fide. This requires examination
of the merits of the claim and whether or not the claim made was bona
fide i.e. had legal basis or foundation on which it could be made and was
justified or was a mere pretense or make belief.
18. Whether or not expenditure incurred on renovation or
improvement or repairs on the leasehold premises can be allowed and
treated as revenue expenditure, has been elucidated in several cases.
There are several cases in which the said claim has been allowed. It is
the contention of the assessee that Explanation 1 to Section 32 of the Act
applies to expenditure on property on lease or with right to occupy
which otherwise is capital expenditure. Reliance is placed on CIT vs.
EDC Electronic Data Systems Pvt. Ltd. (2012) 211 Taxman 133 (Del),
ITA 804/2011 Page 13 of 21
where the High Court has recorded that the Tribunal had accepted the
plea of the assessee that the expenditure falling under the head ,,current
repairs would be covered under the head ,,revenue expenses. The
tribunal had observed that Explanation 1 to Section 32 would come into
play when the expenditure otherwise was capital in the nature and
depreciation had been claimed. We are not required to go into the
correctness of the said view in the present case, but only notice that two
views on the question were possible even after introduction of
Explanation 1 to Section 32. We have noticed above that the Tribunal in
the quantum proceedings has observed that earlier ratio expounded in
Madras Auto Service (supra) and Installment Supply Co. (supra) was in
favour of the assessee. We note that in the case of EDC Electronic Data
Pvt. Ltd. (supra), the appeal filed by the Revenue was dismissed
observing that the Tribunal had observed that the assessing Officer had
partly allowed and permitted deduction to the extent of Rs.70 lacs
approximately under Section 37 of the Act. The Tribunal had remitted
the matter to the lower authorities to the extent of Rs.2.75 crores for re-
examination. Similarly in CIT vs. Citi Financial Consumer Finance
(2011) 335 ITR 29 (Del.), a Division Bench of this Court dismissed the
appeal of the Revenue and treated expenditure of Rs.1.52 crores on
leasehold improvements as revenue in nature and did not accept the plea
of the Revenue that the expenditure should be capitalized. The
ITA 804/2011 Page 14 of 21
expenditure was incurred on civil work, laying cables, flooring, wall
finishing etc. Earlier in CIT vs. Hi Line Pens (P) Ltd. [2008] 306 ITR
182 (Del.), another Division Bench of this Court made specific reference
to Explanation 1 to Section 31(1) and Section 30(a)(i) and the word
,,current repairs. It was observed that the expenditure under the head
,,current repairs should be allowed as revenue deduction as by very
nature tenancy right is for a limited period and does not create any asset.
The question was answered in favour of the assessee and against the
Revenue. In CIT vs. Escorts Finance Ltd. (2006) 205 CTR 574 (Del.),
yet again expenditure incurred on carrying out repairs to make the
premises workable, to replace glasses etc. was treated as a revenue
expense. The expenditure included polishing of floor, wooden paneling
etc. Reference in this regard may also be made to decisions of the
Madras High Court and the Punjab and Haryana High Court in CIT vs.
Ayesh Hospitals Pvt. Ltd. 2007 292 ITR 266 (Mad.) and CIT vs. Porrits
& Spencer (A) Ltd. (2002) 257 ITR 49 (P&H).
19. We have extensively referred to these judgments, only to show
that the issue raised by the assessee was debatable and capable of two
views. The assessee had an arguable case or had taken a bonafide plea.
The assessee had given his explanation and categorically and clearly
stated the true and full facts in the return itself. He did not try to
camouflage or cover up the expenses claimed. It is not uncommon
ITA 804/2011 Page 15 of 21
and unusual for an assessee to bonafidely claim a particular expenditure
as a revenue deduction and expense but not succeed. Every addition or
disallowance made does not justify and mandate levy of penalty for
concealment under Section 271(1)(c) of the Act. Levy of penalty is not
an automatic consequence when an addition is made by disallowing an
expense and by not accepting the interpretation given by the assesse. As
stated above, the plea and contention raised by the assessee has to be
examined before it is decided whether or not the assessee has been able
to bring his case within the four corners of the Explanation.
20. Explanation 1 clearly stipulates that the penalty can be imposed
when the details furnished by the assessee are found to be incorrect,
erroneous and false. Merely making a claim which is held as not
sustainable under law should not lead to penalization, when the assessee
had furnished full details in the return itself and the claim is a debatable,
reasonably plausible or may well have been accepted. (See CIT vs.
Reliance Petro Product Pvt. Ltd. 2010 322 ITR 158 (SC), CIT vs.
Dharampal Premchand Ltd. 2011 329 ITR 572 (Del.), CIT vs. Societex
ITA No. 1190/2011 decided on 19.07.2012, by this Court). In Karan
Raghav Exports vs. CIT (2012)349 ITR 112(Del.), it has been observed
as under:-
"14. On the second aspect, we record that a wrong
deduction claimed can amount to furnishing of
incorrect particulars. However, that is not the issue
ITA 804/2011 Page 16 of 21
in question. The issue in question is whether the
appellant has been able to discharge the onus under
Explanation 1 to Section 271 and show that the
claim made by them or the explanation offered
with regard to the claim made was bona fide and
that the facts relating to the same and material for
computation of the total income had been
disclosed. These are two facets of clause (B) to
Explanation 1. As far as disclosure of facts is
concerned, this is clear from the note, which was
attached with the return itself. We have quoted the
relevant portion of the note above. Full and correct
facts have been stated in the said note. The other
question is whether the claim made was palpably
wrong and legally untenable or a debatable and
plausible claim on which the assessee did not
succeed on legal interpretation. We have examined
the nature of the claim made and the findings
recorded by the High Court in their order dated 1st
November, 2010. The claim made by the appellant
may have been rejected, but it cannot be said that
the same was not plausible or legally tenable. This
aspect has been discussed above and it has been
held that the claim made was bona fide. Regarding
the legal opinion in writing, it is not mandatory for
a person to obtain legal opinion in writing.
Assessees do take legal opinion and in the present
case the return of income was duly audited. Claim
for depreciation is a technical claim based on
interpretation of legal provision. Legal opinion, in
such cases, is frequently given by Chartered
Accountants to help the company to prepare its
return of taxable income. In the present case, there
is no allegation that the quantum of depreciation
claim was incorrectly computed. The note itself
indicates that it is written by a professional."
21. Similarly Delhi High Court in CIT vs. Zoom Communication Pvt.
Ltd. (2010) 327 ITR 510 (Del.) has observed:
ITA 804/2011 Page 17 of 21
"The proposition of law which emerges from
this case, when considered in the backdrop of
the facts of the case before the court, is that so
long as the assessee has not concealed any
material fact or the factual information given
by him has not been found to be incorrect, he
will not be liable to imposition of penalty
under section 271(1)(c) of the Act, even if the
claim made by him is unsustainable in law,
provided that he either substantiates the
explanation offered by him or the explanation,
even if not substantiated, is found to be bona
fide. If the explanation is neither substantiated
nor shown to be bona fide, Explanation 1 to
section 271(1)(c) would come in to play and
the assessee will be liable to for the prescribed
penalty.
The assessee before us is a company which
declared an income of Rs. 1,21,49,861 and
accounts of which are mandatorily subjected
to audit. It is not the case of the assessee that
it was advised that the amount of income-tax
paid by it could be claimed as arevenue
expenditure. It is also not the case of the
assessee that deduction of income-tax paid by
it was a debatable issue. In fact, in view of the
specific provisions contained in section
40(a)(ii) of the Act, no such advice could be
given by an auditor or other tax expert. No
such advice has been claimed by the assessee
even with respect to the amount claimed as
deduction on account of certain equipment
having become useless and having been
written off. As noticed earlier, the Tribunal
was entirely wrong in saying that section
32(1)(iii) of the Act applies to such a
deduction. It was not the contention before us
that claiming of such a deduction under
section 32(1)(iii) was a debatable issue on
which there were two opinions prevailing at
the relevant time. In fact, the assessee did not
claim, either before the Assessing Officer or
ITA 804/2011 Page 18 of 21
before the Commissioner of Income-tax
(Appeals) that such a deduction was
permissible under section 32(1)(iii) of the Act.
No such contention on behalf of the assessee
finds noted in the order of the Tribunal. Thus,
it was the Tribunal which took the view that
section 32(1)(iii) could be attracted to the
deduction claimed by the assessee. It is 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. The
assessee, in fact, outrightly conceded before
the Assessing Officer that these amounts
could not have been claimed as revenue
deductions. The only plea taken by the
assessee before the income-tax authorities was
that it was due to oversight that the amount of
income-tax paid by the assessee as well as the
amount claimed as deduction on account of
certain equipment being written off could not
be added back in the computation of income."
22. In Devsons Logistics Pvt. Ltd. vs. CIT (2010)329 ITR 483 (Del.),
it has been held that when a question arises, which is debatable but the
claim of the assessee is not finally accepted, penalty under Section
271(1)(c) should not be imposed. Divergent views on legal interpretation
of tax provisions have been subject matter of plethora of decisions. It is
not necessary that there should be uniformity or consistency of opinion
on aspects of law and the assessee must accept interpretation against
him, even when a favourable view is credible and tenable. Penalty
cannot be imposed because assessee had taken a particular legal stand
unless the assessee had not disclosed facts before the
ITA 804/2011 Page 19 of 21
department/authorities and is unable to establish his bonafides on the
legal interpretation put forward.
23. Reference can also be made to CIT vs. Brahmputra Consortium
Ltd. 2012 348 ITR 339 and Pramod Mittal vs. CIT ITA No. 67/2012
decided on 11th October, 2012 by the Delhi High Court.
24. Recently again, the Supreme Court in the case Price Water House
Coopers Pvt. Ltd v. CIT (Supreme Court) (2012) 348 ITR 306 (SC) has
observed as under:
"...The contents of the Tax Audit Report suggest
that there is no question of the assessee
concealing its income. There is also no question of
the assessee furnishing any inaccurate particulars.
All that happened in the present case is that through
a bona fide and inadvertent error failed to add the
provision for gratuity to its total income. This can
only be described as a human error which we are all
prone to make. The caliber and expertise of the
assessee has little or nothing to do with the
inadvertent error. That the assessee should have
been careful cannot be doubted, but the absence of
due care, in a case such as the present, does not
mean that the assessee is guilty of either furnishing
inaccurate particulars or attempting to conceal its
income. Consequently, given the peculiar facts of
this case, the imposition of penalty on the assessee is
not justified."
25. In view of the aforesaid discussion, the question of law is
answered in negative and in favour of the appellant assessee and it is
held that penalty under section 271(1)(c) of the Act is not justified in
respect of Rs. 25,37,521 and Rs.1,32,000/-. Penalty for concealment on
ITA 804/2011 Page 20 of 21
the said amounts is directed to be deleted. The appeal is disposed of. No
costs.
(SANJIV KHANNA)
JUDGE
(SIDDHARTH MRIDUL)
JUDGE
MAY 28th, 2013
Kkb/NA
ITA 804/2011 Page 21 of 21
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