INCOME TAX APPELLATE TRIBUNAL MUMBAI - `I' BENCH MUMBAI
Before S/Sh. Vijay Pal Rao, Judicial Member & Rajendra,Accountant Member
/.ITA No. 3352/M/2008, [ [/ Assessment Year 2001-02
Nishiland Park Ltd., ITO 3(2)(3),
B Block, North Stand, Wankhede Aaykar Bhavan, R.No. 673,
Stadium, D.Road, Churchgate, Vs. M.K.Marg, Churchgate,
Mumbai- 400020 Mumbai-400020
PAN: AAACD3974E
(/ Assessee ) (×/ Respondent)
/ Assessee by : Shri M.Subramanian
× / Revenue by : Shri Pitamber Das
/ Date of Hearing : 29-04-2014
/ Date of Pronouncement : 11- 06- 2014
, 1961 ( 1 ) 254 Û[
Order u/s.254(1)of the Income-tax Act,1961(Act)
Per Rajendra,A.M Û] :
Challenging the order dated 12.03.2008 of the CIT(A)-III,Mumbai,assessee has filed following
grounds of appeal:
1.On the facts and in the circumstances of the case and in law, the penalty order passed u/s.271(1)(c) is
invalid and bad in law.
2. On the facts and in the circumstances of the case and in law,the learned CIT(A) erred in confirming the
penalty levied of Rs. 4,89,814/- u/s. 271(1)(c) of the I.T. Act, 1961 and that too without appreciating fully
and properly the facts of the case.
3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the
penalty levied of Rs. 4,89,814/- u/s. 271(1)(c) of the I.T.Act, 1961 although there has been neither any
concealment nor furnishing of inaccurate particulars of income.
6.The Appellant craves leave to add, alter or delete any or all of the grounds of appeal.
2.Assessee-company,engaged in the business of running Amusement Park and related entertain -
ment services,filed its return of income on 22.10.2001 showing loss of Rs. 9.11 lakhs. Assessing
Officer(AO)finalised the assessment on 31.03.2003,u/s.143(3) of the Act,determining the income
of the assessee at Rs.8820/-after setting off the losses of earlier years.
3.During the assessment proceedings,AO found that assessee had debited Rs. 12,38,462/- to Profit
& Loss Account under the head `Administrative and other expenses' as `loss on account of sale of
Motor Car sale'.He asked the assessee to file explanation in this regard.Assessee informed the AO
that company had sold Motor Car which were shown as fixed assets.AO found,from the schedule
showing block of assets,that assessee had reduced the value of Motor Cars to the tune of Rs.70.38
lakhs from WDV of Rs.78.68 lakhs, that the balance of Rs. 61.29 lakhs had been shown as WDV
on Motor Cars as 31.03.2001.After considering the submission of the assessee,AO held that
trading in Motor Cars was not the business of the assessee, that the Motor Cars appeared as fixed
assets in the accounts and not as stock-in-trade,that they were the capital assets,that the loss
incurred by the assessee on disposal of the Motor Car could not be treated as trading loss,the loss
was not allowable as business expenditure also,that the assessee had reduced the value of Cars
2 ITA No. 3352/Mum/2008 Nishiland Park Ltd.
sold from the block of assets,that the assessee had claimed depreciation on all the assets in the
earlier years,that only for the year under consideration it had opted not to avail depreciation
allowance.He further held that whether the assessee claimed depreciation or not,fixed assets were
to be treated as capital asset,that any loss on account of sale of such assets was to be considered as
per the provisions of the Act.Referring to the provisions of section 50 of the Act,he held that
profit/loss on sale of depreciable asset was to be treated as Short Term Capital Gain/Loss in case
entire block of asset had been sold,that loss on account of sale of part of the block could not be
allowed as revenue expenditure.Finally,the claim of loss on account of sale of Motor Cars,amount
-ing to Rs. 12.38 lakhs,was disallowed.AO also initiated penalty proceedings u/s 271(1)(c) of the
Act for furnishing inaccurate particulars.Meanwhile,the assessee preferred an appeal before the
First Appellate Authority (FAA),who decided the issue in favour of the department and held that
there was no provision in the Act to allow any loss on sale of capital asset as revenue expendi -
ture.His order was challenged by the assessee before the Tribuanl.But,there also the assessee
could not succeed.Assessee filed an MA against the order passed by the Tribunal and same was
dismissed by the Tribunal holding that no mistake was apparent from the records that could be
rectified u/s.254(2)of the Act.
4.In response to the penalty notice assessee argued before the AO that it had incurred the loss on
sale of Motor Cars,that it had not claimed depreciation on the Cars and hence was eligible for
claiming loss,that as no depreciation was charged so question of invoking the provisions of
section 50 of the Act did not arise,that penalty u/s 271(1)(c) of the Act could not be levied. After
considering the submissions of the assessee,AO held that explanation offered by the assessee was
not convincing,that it had sold Motor Cars-a capital asset,that not claiming depreciation on Motor
Cars did not mean that Motor Cars ceased to be part of block of asset eligible for depreciation.
Finally,he levied a penalty of Rs. 4,89,814/- u/s 271(1)(c) of the Act.
5.Assessee preferred an appeal before the FAA.After considering the submission of the assessee
and the penalty order,FAA held that claim of loss attracted penal provisions, that the Car were
capital asset and were eligible for depreciation,that sale of the assets were to be treated as per the
provisions of section 50 of the Act, there was neither any logic nor any element of rational for
claiming the entire loss on sale of Motor Cars,that the claim made by the assessee was not
bonafide, that incorrect particulars of income included latently wrong claim made in computation
of income, that claim of loss on capital asset had been claimed as revenue loss, that the said assets
were depreciable assets, that the loss on sale of Motor Cars claimed as revenue loss was an
independent item of profit and loss account, that it was clubbed with a varieties of expenses under
the head administrative and other expenses, there was nothing bonafide about the claimed made
by the assessee,that explanation 1 to section 271(1)(c) of the Act were applicable in the case under
consideration.Finally,he uphold the order of the AO imposing penalty.
6.Before us, Authorised Representative (AR) stated that assessee had sold four Cars, that the loss
suffered on sale of Car was debited to Profit & Loss Account, that assessee did not offered loss in
the return of income, that assessee had never claimed any depreciation on the said Cars, that the
assessee was under the bonafide belief that as depreciation was not claimed, so it did not add back
the amount, no incorrect particulars were filed by the assessee. He relied upon the decisions of
Somany Evergree Knits Ltd.(352 ITR 592),Reliance Petroproducts Pvt.Ltd.(322 ITR 158)Nalin P.
Shah(HUF)(ITA/49 of 2013 dt.04.03.2013),and Amruta Organics Pvt. Ltd.(ITA1121/PN/11, AY-
2007-08dt.22.03.2013).Departmental Representative(DR)contended that the assessee had claimed
depreciation in earlier years,that it had made a patent in admissible claimed in the return of
income,that the FAA had rightly invoked the explanation 1 to section 271(1)(c) of the Act,that
there was no bonafide in the claim made by the assessee.He referred to the judgments of Zoom
Communication (327ITR510)Escorts Finance Ltd.(328 ITR 44).
3 ITA No. 3352/Mum/2008 Nishiland Park Ltd.
7.We have heard the rival submissions and perused the material before us.We find that issue of
loss on sale of motor car had been contested by the assessee up to the level of the Tribunal.Not
only this it had filed an MA against the order of the Tribunal.We would like to reproduce the
decision of the Tribunal wherein issue has been deliberated upon as under:
"Having heard the rival submissions and from careful perusal of the record,we find that the lower
authorities have give a categorical finding that thers cars were shown as part of block asst and in
earlier years, depreciation was claimed thereon.In theis year the WDV was shown at Rs.71,39,
050/-.Undisputedly,the assessee is not a dealer or a trader in cars and thers cars have been
acquired as an asset for being used for the purposlells of assessee's business of amusement park.
Since these cars was a business asset,the loss on its sale cannot be called to be a revenue loss.We,
however,carefully examined the orders of the lower authorities and we find that the issue was
rightly adjudicated by them in the given facts anc circumstances of the case and we find on
infirmity in the order of the CIT(A).We therefore,confirm the same"
While rejecting the MA,filed by the assessee,Tribunal has,on 09.03.2011,held as following:
"5. We have carefully heard the submissions of the rival parties and perused the material
available on record. We find that the Tribunal with regard to ground No. 1 that:-
"On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in confirming
the disallowance of loss on sale of Motor Car of Rs. 12,38,469/- or alternatively he ought to have
allowed the claim of depreciation when the facts shows that no depreciation was allowed."
has held vide para No. 10 of its order dated 11.1.08 as under:
"Having heard the rival submissions and from careful perusal of the record, we find that the lower
authorities have given a categorical finding that these cars were shown as part of the block of
asset and in earlier years, depreciation was claimed thereon. In this year, the WDV was shown at
Rs.71,39,050/-. Undisputedly, the assessee is not a dealer or a trader in cars and these cars have
been acquired as an asset for being used for the purpose of assessee's business of amusement
park. Since these cars was a business asset, the loss on `its sale cannot be called to be a revenue
loss. We, however, carefully examined the order of the lower authorities and we find that the issue
was rightly adjudicated by them in the given facts and circumstances of the case and we find no
infirmity in the order of the CIT(A). We, therefore, confirm the same."
We further find that in the notes on account dated, 30.8.2001 in point No. 9 at page No. 3 and in
point No. (e) at page No.4 of the assessee's paper book it has been mentioned as under:
No depreciation is charged on assets purchased for last 5 years. Depreciation on Asset are Rs.
9606324 as such loss is understated by Rs. 9606324"
"e) DEPRECIATION
Depreciation of Fixed Asset has been provided on written down value method at the rates provided
in Schedule XIV of the companies Act, 1956 (as amended). No Depreciation is charged on the new
addition of fixed assets for last five years."
On a combined reading of the above, we observe that nowhere it has been mentioned by the
assessee that no depreciation was charged on cars from last 5 years. We further find that in the
chart of the depreciation appearing at page No. 4 of the assessee's paper book, the assessee has
charged depreciation on the motor cars as under:
Thus, in the depreciation chart, the assessee has duly charged depreciation on motor cars Rs.
48007/-. As regards the assessee's plea that no depreciation was charged for last 5 years and in
support, he also placed on record the new paper book containing page 1 to 24 of the assessee's
paper book, we find that since in the year under consideration, the assessee has duly charged
depreciation on motor cars as above, therefore, the new paper book filed by the assessee
4 ITA No. 3352/Mum/2008 Nishiland Park Ltd.
mentioning depreciation on motor cars charged and not charged is of no help to the assessee since
the appeal is for the AY 2001-02 wherein the assessee has charged depreciation on motor car as
above. In this view of the matter, we are of the view that there is no mistake in the order of the
Tribunal. The wants review, which is not permissible under Scheme of section the 254(2) of the Act
and accordingly issue No. 1 raised by the assessee is rejected."
From the above discussion it is clear that the assessee is not in the business of sale and purchase
of cars and therefore cars owned by it could not be part of its stock in trade.Cars were part of
block of assets.So,any loss suffered or profit earned on sale of such cars cannot be treated as part
of business activities.The assessee in not in a position to controvert the categorical finding of fact
given by the Tribunal that it had charged depreciation on motor cars for the AY.2001-02.Even if
depreciation was not charged the nature of cars would not change from the part of block assets to
the part of stock in trade.Revenue loss can be claimed only for business-activities carried out by
an assessee.As the cars were part of block asset,so loss arising out of their sale has to be computed
under appropriate head and not under the head revenue loss.The assessee has stated that it was a
bonafide mistake.We are of the opinion that the claim made by the assessee about the loss was not
a bonafide.Two views are not possible about the said claim-only one view is possible.By claiming
revenue loss on sale of fixed assets the assessee had filed inaccurate particulars of income.
Therefore,we are of the opinion that the order of the FAA does not suffer from any legal infirmity.
Now,we would like to discuss the cases relied upon by the assessee.In the matter of Reliance
Petro-products Pvt.Ltd.(supra) the assessee has duly disclosed about the claim of interest under
section 36(1)(iii) and in earlier year claim was allowed.No statement or details supplied by the
assessee had been found to be factually incorrect by the AO.Considering the facts of that case
Hon'ble Court had deleted the addition.But,in the case before us,a patently wrong claim was made
and that also under the head Administrative and other expenses in the P & L Account.Not only
this during the assessment and penalty proceedings department had taken the stand that by making
a falxe claim that assessee had concealed its income.Thus, the case cited by the AR is of no
help.In the case of Somany Evergree Knits Ltd.(supra)a wrong claim of depreciation was made.
But, the assessee realized its mistake during the assessment proceedings and pointed out to the
AO.In the background of those facts Hon'ble High Court had held that the assessee should not be
visited by concealment proceedings.In the matter under appeal,the assessee is agitating the issue
of claim of depreciation at various forum-it had also filed an MA.Secondly,it is a case of claiming
revenue loss on sale of block assets.In the case of Amruta Organic Pvt.Ltd.(supra) Tribunal had
found that net result of addition was negative income,so,considering the facts penalty should not
be levied.In none of the cases loss arising out of sale of assets;that were not stock in trade;was
claimed as revenue loss.Therefore in our opinion the mattere under appeal cannot be compared
with any other matter.Here we would like to refer to the judgment of Zoom Communication
(supra),cited by the DR.In that matter Hon'ble Delhi High Court has held as under :
"Section 271(1)(c) of the Act, to the extent it is relevant, provides for imposition of penalty in case
the Assessing Officer, in the course of any proceedings under the Act, is satisfied that any person
had concealed particulars of his income or had furnished inaccurate particulars of such income.
Explanation 1 to clause (c) sub-section (1) of section 271 provides that where in respect of any
facts material to the computation of the total income of any person, such person fails to offer an
explanation or offers an explanation which is found to be false or he offers an explanation which
he is not able to substantiate and fails to prove that such explanation is bona 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 purpose of clause (c) be deemed to represent the income in respect of
which particulars have been concealed.Thus, in case of failure of the assessee to offer any
explanation or the explanation furnished by him being found false, penalty may be imposed on
him. However, if an explanation is offered by the assessee, mere failure on his part to substantiate
5 ITA No. 3352/Mum/2008 Nishiland Park Ltd.
it will not be enough to warrant penalty, if the explanation is bona fide and all the facts relating to
the same were disclosed by him in the return. Explanation 1 to section 271(1)(c) would be
inapplicable in respect of any amount added or disallowed as a result of rejection of the
explanation furnished by the assessee, provided that his explanation is shown to be bona fide and
all the facts relating to the same and material to the computation of his total income were
disclosed by him...... 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.
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 dis-advantage 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 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 deter-rent effect, which these penalty provisions in the
Act have.
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 dis-advantage 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 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."
6 ITA No. 3352/Mum/2008 Nishiland Park Ltd.
In the case under consideration,the assessee had made a claim that was wholly untenable and
unsustainable.AO and the FAA had found that the assessee had failed to file any bonafide
explanation.Considering the peculiar facts and circumstances of the case,we decide the effective
ground of appeal against the assessee.
As a result,appeal filed by the assessee stands dismissed.
[ .
Order pronounced in the open court on 11th June,2014.
Û 11 twu,2014
Sd/- Sd/-
( / VIJAY PAL RAO) (Û] /RAJENDRA)
Û /JUDICIAL MEMBER /ACCOUNTANT MEMBER
/Mumbai,/Date: 11.06.2014
SK
/Copy of the Order forwarded to :
1. Assessee / 2. Respondent /×
3. The concerned CIT (A) / , 4.The concerned CIT /
5. DR "I" Bench, ITAT, Mumbai / `vkbZ' ,..Û.
6. Guard File/[
× //True Copy//
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai
|
