1 ITA Nos. 4248 &6487/Del/13
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `G' NEW DELHI
BEFORE SHRI G. D. AGRAWAL, VICE PRESIDENT
AND
SMT DIVA SINGH, JUDICIAL MEMBER
I.T.A .No.-6487/Del/2013(A. Y. 2006-07)
I.T. A. No. 4248/Del/2010 (A. Y. 2006-07)
Suzuki Motorcycle India Ltd. vs ACIT
Village Khekri Daula, Circle-9(1)
Badshahpur Link Road New Delhi
Gurgaon (RESPONDENT)
AAAC15832P
(APPELLANT)
Appellant by: Sh. Ajay Vohra, Sh. Rohit Jai,
Ms. Deepashree Rao, C.A
Respondent by: Sh. Ramesh Chandra CIT DR,
Smt. Renuka Jain Gupta, CIT,
Sh. S. N. Bhatia, Sr. DR
ORDER
PER DIVA SINGH, JM
Both these appeals have been filed by the assessee against separate orders
dated 10th June 2010 passed by the CIT(A) XII, New Delhi in quantum and
penalty proceedings pertaining 2006-07 assessment year. Both these appeals are
being decided by a common order for the sake of convenience. The grounds
raised by the assessee in the quantum proceedings read as under:-
"1. That the CIT(A) erred on facts and in law in upholding the order of the
assessing officer disallowing long-term capital loss of Rs.36,18,407/- claimed
by the appellant.
1.1 That the CIT(A) erred in not setting aside various erroneous findings/observations
of the assessing officer, including observation that (a) agreement to sell entered
into by the appellant with the buyer was self serving evidence and not a genuine
document, and (b) the loss claimed was not genuine loss.
2 ITA Nos. 4248 &6487/Del/13
1.2 That the CIT(A) erred in holding that the appellant failed to establish the source of
the amount received.
1.3 That the AO/CIT(A) failed to appreciate that the fact that appellant did not derive
any advantage/benefit set off of the declared `long-term capital loss' while
computing the taxable income of not only the current year but also the immediately
three succeeding year (s) [i.e. up to the assessment year 2009-10] was, by itself,
sufficient to: (a) establish that the claim made was bona fide; and (b) dislodge the
suspicion that the claim was not genuine.
2. Without prejudice, that the CIT(A) erred on facts and in law in not directing the
assessing officer to allow the long-term capital loss in the subsequent year (s).
The appellant craves leave to add, amend, alter or vary the above ground of appeal
at or before the time of hearing."
2. The assessee in the year under consideration was engaged in the
manufacturing of motor cycles and trading of motor cycle spare parts. Return
declaring a loss of 44,55,49,139/- was filed. This loss consisted of business loss
of Rs.44,19,30,732/-and long term capital loss amounting to Rs.36,18,407/-. The
return was processed u/s 143(1) and subsequently selected for scrutiny under
CASS. Consequent to this statutory notices u/s 143(2) and 142(1) etc were
issued and during the assessment proceeding the assessee filed the revised
computation making computation of loss for the year at Rs.35,86,67,497/-. The
Assessing Officer in the international transactions reported by the assessee did
not draw any adverse inference, however, he required the assessee to explain the
long term capital loss claimed amounting to Rs. 36,18,407/-. The explanation
offered by the assessee was rejected by the AO who held the claim to be not
genuine. Apart from making an addition of the said amount he further
considering the information placed by the assessee vide letter dated 28/10/2009
before the AO added the amount of 8,68,81,641/- to the income of the assessee.
The relevant facts qua the same are found discussed in para 5. The same is
reproduced hereunder for ready reference:
"5. During the course of the assessment proceedings, the assessee informed vide
letter dated 28.10.2009 as under:-
2. As during the FY 2005-06, assessee was in start up phase and faced a peculiar
financial situation due to delay in the project resulting in the cost overruns.
3 ITA Nos. 4248 &6487/Del/13
Therefore, SMIPL entered into a dialogue with its parent company Suzuki
Motor Corporation, Japan (`SMC') for the compensation of additional cost
incurred on account of material, labour, administrative costs etc. as per details
attached.
3. The assessee closed its books of account of the F.Y 2005-06 during last week of
April 2006 for audit and the financial statements were signed by the auditors on
31 March 2006. However the dialogue/negotiations for the compensation were
still on which SMC and got finalized in the mid of F.Y 2006-07.
4. As part of this negotiation process during the FY 2006-07, assessee was
reimbursed with Rs.500,274,999/-. Out of the total reimbursement of
Rs.500,274,999/- received Rs.86,881,641/- pertained to the expenses incurred
by the assessee during FY 2005-06. The details of the expenses of
Rs.86,881,641/- reimbursed are as follows:
Cause of Remittance Amount INR
Reimbursement of imported cost of Components 15,816,750/-
Reimbursement of imported cost of Components 6,705,898/-
Refund of technical services fee paid earlier 2,813,823/-
Reimbursement of expenses (For Production 57,163,678/-
expenses Administrative Expenses)
Receivable from SMC for advertising, Incentives, 2,454,613/-
etc
Technical advisor Fee Reimbursement 1,926,879/-
86,881,641/-
5. Your goodself will appreciate the fact that during the FY 2006-07,
Rs.86,881,641/- reimbursed by SMC has been reported as Income in the profit
and loss account as a prior period income and the same has been offered for
taxation in A.Y 2007-08. Copy of computation of Income and audited financial
statement for the AY 2007-08 is annexed herewith for your ready reference.
6. Since the reimbursement of Rs.86,881,641/- against the expenses incurred by
the assessee during the FY 2005-06 the said income forms the part of FY 2005-
06. Due the timing difference, as it was received by the assessee in FY 2006-07,
auditors have classified the same as reimbursement/subsidy received for
expenses incurred in the year ended 31st March 2006.
7. As the said income pertains to F.Y 2005-06, the assessee offers the same for the
A.Y 2006-07. Though the negotiation with SMC was finalized in AY 2007-08
and income was crystallized in AY 2007-08 and the same was shown as prior
period item in the audited financial a/c for the FY 2006-07, but as the said
income pertains to AY 2006-07, the assessee offer the same for taxation for the
AY 2006-07.
8. In view of this, the assessee requests your good self to kindly consider the same
while passing the order u/s 143(3) for the AY 2006-07 and reduce the losses
accordingly."
When asked, a revised computation determining loss at
Rs.35,86,67,497/- was also filed with letter dated 16/11/2009. In view of
these facts, amount of Rs.8,68,81,641/- is added to the total income of
the assessee for the year under assessment. Since the assessee has
4 ITA Nos. 4248 &6487/Del/13
disclosed the above facts and filed the revised computation after the
expiry of the period for filing revised return and I am satisfied that the
assessee had furnished inaccurate particulars of income to the extent of
Rs.8,68,81,641/-, penalty proceedings u/s 271(1)(c) are being initiated
separately."
2.1 As a result of this, the assessee's loss was determined at 35,50,49,090/-
3. Aggrieved by this, the assessee came in appeal before the first appellate
authority. Before whom the assessee only agitated against the rejection of capital
loss of Rs.36,80,407/-. However, the CIT(A) upheld addition made by the AO.
Aggrieved by this the assessee is in appeal before us.
4. The Ld. AR assailed the impugned order in quantum proceedings however
considering the material on record and after hearing the department cursorily it
was considered appropriate to give time to the Ld. AR in order to seek
instructions from the assessee whether the assessee would want to seriously press
the quantum appeal and or would it be satisfied by only seriously arguing the
appeal in the penalty proceedings. In the said background penalty appeal was
argued by the parties. On account of this fact the hearing in the present appeals
took place on two separate dates namely 17th April 2014 and 28th April 2014.
The grounds raised in the penalty proceedings in ITA No-6487/Del/2013 read as
under:-
"1. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not
holding that the impugned order dated 14/3/2012 levying penalty u/s 271(1)(c)
of the Income Tax Act, 1961 (`the Act') is without jurisdiction, bad in law and
void-ab-initio.
1.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not
appreciating that satisfaction for initiating penalty, particularly in respect of
addition of reimbursement of expenses, was not discernable from the assessment
order, which sine qua non for assumption of jurisdiction.
1.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in
holding that the appellant exceeded its jurisdiction in requesting the assessing
officer to keep the penalty proceedings in abeyance, without appreciating that
5 ITA Nos. 4248 &6487/Del/13
since outcome of quantum proceedings had direct bearing on the penalty
proceedings and no prejudice would have was caused to the Revenue, it would
have been prudent to in keep the proceedings in abeyance, instead of
multiplying the same.
2. Without Prejudice, that the Commissioner of Income-tax (Appeals) erred on
facts and in law in upholding the action of the assessing officer of imposition of
penalty u/s 271(1)(c) of the Act in respect of disallowance of `long term capital
loss' amounting to Rs.36,18,407/-.
2.1 That the Commissioner of Income-tax( Appeals) failed to appreciate that the
appellant did not derive any advantage/benefit/set off of the declared `long term
capital loss' while computing the taxable income of not only the current year (s)
but also the succeeding year (s) [i.e. up to the assessment year 2009-10], which
was by itself, sufficient to: (a) establish that the claim made was bona fide; and
(b) dislodge the suspicion that the claim was not genuine.
2.2. That the Commissioner of Income-tax (Appeals) erred on facts and in law in
holding that the `physical possession' of the immovable property was not
handed over by the appellant in the assessment year under consideration, in
pursuance of the agreement to sell.
2.3 That the Commissioner of Income-tax (Appeals) erred on facts and in law in
holding that the appellant furnished inaccurate particulars of income since
transfer of immovable property is complete only when sale deed is registered.
2.4. That the Commissioner of Income-tax (Appeals) erred on facts and in law in
failing to appreciate that (i) there was no concealment or furnishing of
inaccurate particulars of income;(ii) the issue of allowability of the claim of
"long-term capital loss" was only on account of difference of opinion between
the appellant and the Revenue.
3. Without prejudice, that the Commissioner of Income-tax (Appeals) erred on
facts and in law in upholding the action of the assessing officer of levying
penalty u/s 271(1)(c) of the At in respect of addition of reimbursement of
expenses amounting to Rs.8,68,81,641/- from M/s Suzuki Motor Corporation,
Japan ("SMC").
3.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not
appreciating that the amount of reimbursement of expenses had crystallized and
accrued to the appellant only on entering into the Memorandum dated
9/10/2006, falling in the A. Y 2007-08 and consequently, there was no question
of any concealment/furnishing of inaccurate particulars of income for the year
under consideration.
3.2 That the Commissioner of Income-tax (Appeals) failed to appreciate that the
appellant had, suo-moto, pointed out the factum of receipt of reimbursement of
expenses in the subsequent year during the assessment proceeding and
voluntarily offered the said amount to tax during the current year, despite the
fact that:
(a) SMC had agreed to reimburse the expenses during the previous
year 2006-07 and consequently, the amount accrued in the A.Y
2007-08; and
(b) the appellant had, and rightly so, already offered the amount for
tax in the return for the A.Y 2007-08.
6 ITA Nos. 4248 &6487/Del/13
3.3 That the Commissioner of Income-tax (Appeals) failed to appreciate that since
the appellant had suffered huge losses in the A.Y 2006-07 and also A. Y 2007-
08, the year of taxation of the aforesaid amount was immaterial.
3.4 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not
appreciating that there was no concealment or furnishing of inaccurate
particulars of income and therefore, there was no warrant to impose penalty
u/s 271(1)(c) of the Act.
4. That the Commissioner of Income-tax (Appeals) erred in leveling various
false/baseless allegations while confirming the imposition of penalty.
The appellant craves leave to add, alter, amend or vary from the above ground of
appeal at or before the time of hearing."
5. The facts qua the quantum proceedings have already been referred to and
for the sake of completeness it is necessary to bring out the relevant facts as
emanating from the penalty order. The record shows that the AO required the
assessee to explain why penalty u/s 271(1)(c) should not be imposed on account
of the following two additions :
(i) Long term capital loss Rs. 36,18,407/-
(ii) Reimbursement of expenses Rs.8,68,81,641/-
5.1. In response to the show cause notice assessee sought adjournment
requesting that the issue be kept in abeyance in view of the fact that the addition
sustained was challenged by the assessee before the Tribunal in the quantum
proceedings. The said request was not accepted by the
AO who summarized the facts qua the additions in the following manner:-
"i) Addition on account of long term capital loss:
In the computation of income, the assessee has declared long term capital loss
of Rs.36,18,407/- which is as under:-
Long Term Capital Gain
Sales consideration 2,40,00,000
Index Cost of Acquisition 2,76,18,407/- (36,18,407)
The assessee has claimed a certain amount as long term capital loss in the
computation of income; hence the onus is on the assessee to prove the same as
genuine and allowable with sufficient details and documentary evidences. It is
evident that the assessee has been allowed a number of opportunities to
discharge the onus which the assessee has failed to do so. If certain amount has
been claimed a long term capital loss and the case already under scrutiny since
7 ITA Nos. 4248 &6487/Del/13
long, the assessee should be ready with sufficient documentary evidences to
prove the same. From the facts mentioned by the assessee and evidences
brought on record, the long term capital loss as declared in the return of
income does not appear to be genuine at all. In support of the long term capital
loss the assessee has simply filed copy of alleged agreement to sell and further
documentary evidences or details as asked have not been field. Even the said
agreement to sell is not registered and appears to be a self serving evidence.
The assessee has claimed that para -4 of the said agreement stipulates the even
on which the transfer of owner ship will get transferred to buyer. It is noticed
that the alleged agreement is dated 30/3/2006 and it has been mentioned in
Clause 4 of the same that actual, physical, vacant and peaceful possession of
the said property shall be handed over by the seller to the buyer at the time of
execution of the sale deed or at the time of total payment, property in question
was not handed over. Neither the assessee has produced any documentary
evidence to prove that any actual possession was handed over by 31/3/2006 (by
the end of the year itself) as asked again and again.
The alleged agreement to sell does not appear to be a genuine
document. It is to be noticed that the said agreement to sell was never
implemented since, when asked to intimate if any actual sale deed was
registered pursuant to the said agreement to sell, the assessee accepted that no
actual sales deed has been executed till date. Rather it was also stated vide
letter 4/12/2009 that the sales as agreed vide the said agreement was cancelled
in next year and possession was taken back from the buyer of the said property.
It was also mentioned in the same letter that in the next year the cancellation
was recorded as purchase of land on payment of full consideration amounting
to Rs.2,40,00,000/- by the assessee company and the same property was sold to
another buyer on same consideration in the next year. Computation of income
showing such purchase or sales and computation of any capital gains/loss has
not been provided as asked. Even it has been accepted by the assessee that
agreement to sell made with the second buyer has also not been implemented till
date. No further details or documentary evidence in this regard as asked have
been provided by the assessee. All these facts create a strange story which
appears to be an afterthought and concocted one.
If the property in question was sold to the purchaser for a certain
amount in the year under assessment and actual possession had also been
handed over in the same year as claimed, what was the need and how it was
possible to purchase the same property for the same consideration in the next
year from the same person after a long gap of time and to again sell the same
property for the same consideration to another person after again a long gap of
time. If the assessee insists that the transactions made in respect of this
property in the year under consideration are sufficient to be considered as
transfer for long term capital gain/loss then why the similar transaction made
in respect of the same property in the very next year have not been considered
and shown under the same head of long term capital gain/loss. In any case, the
facts stated as the assessee are not convincing and the assessee has failed to
prove that there was any actual transaction or transfer which may result into
any actual long term capital loss in the year.
8 ITA Nos. 4248 &6487/Del/13
Further, the assessee was also asked to prove the genuineness of source
of Rs.2.4 crores as paid by the alleged buyer (the land was subsequently
returned to the assessee). It was specifically stated that merely giving the
cheque No. and PAN No. is not sufficient evidence. The bank statement, books
of account and personal presence of Sh. Rana Iqbal Singh Jolly was sought.
However, in response to the same, the assessee submitted only part of the bank
statement which was not even on the letter head of the bank or bearing any
stamp of the assessee company/bank. This alleged photo copy of Sh. Ran Iqbal
Singh Jolly's account reveals a sum of Rs.24,043,856/- is received on
31/3/2006 in his account No. 125-154708-006 and on the same day payment of
Rs.2.4 crores was made by vide cheque No. 021341 on 31/3/2006. It is
pertinent to note that as a matter of routine the said bank account did not have
any large deposits or withdrawals in the last one whole month of which the
assessee has submitted the alleged photo copy of bank account. In other words
this was not a routine transaction. The assessee failed to establish the
genuineness and capacity of the said amount allegedly received from one Sh.
Rana Iqbal Singh Jolly. Sh. Rana Iqbal Singh Jolly has not been produced
though his presence was specifically required and the books of accounts from
which the said amount of Rs.2.4 crores was deposited in his bank account have
not been produced. Merely mentioning a PAN No. does not establish the
genuineness and capacity of Sh. Rana Iqbal Singh Jolly, when a specific enquiry
is being made by the Department.
The above mentioned facts clearly establish that the assessee has evaded
giving any evidence regarding the source of the said amount which was routed
through Sh. Rana Iqbal Singh Jolly. The transaction becomes completely
doubtful and improbable in view of the fact that no documents pertaining to
possession being given or taken has been submitted, besides this the said
transaction has been claimed to be not executed, in as much as it is claimed that
the said amount was paid back to Sh. Rana Iqbal Singh Jolly in the next
asst.year and repossession of the land was taken (no documentary evidence to
support the said claim) and subsequently the land was sold to M/s. Patel Estate
(P) Ltd.
The claim of the assessee that it is not responsibility/discretion of the
assessee to execute or register the sale deed is also not acceptable as the onus is
on the assessee to prove the genuineness of the transaction and source of the
said amount of Rs.2.4 crores, introduced in his books of accounts on
31/3/2006."
5.2. Similarly, qua the other addition made by the AO which was not
challenged in appeal by the assessee before the CIT(A) the AO in the penalty
proceedings taking note of the submissions made in the assessment proceedings
observed as under:-
"(ii) Reimbursement of Expenses"
9 ITA Nos. 4248 &6487/Del/13
During the course of assessment proceedings, the assessee filed a
submission as under:-
During the FY 2005-06, assessee was in start up phase and faced a peculiar
financial situation due to delay in the project resulting in the cost overruns.
Therefore, SMIPL entered into a dialogue with its parent company Suzuki
Motor Corporation, Japan (`SMC') for the compensation of additional cost
incurred on account of material, labour, administrative costs etc.
The assessee closed its books of account of the F.Y 2005-06 during last
week of April 2006 for audit and the financial statements were signed by the
auditors on 31 March 2006. However the dialogue/negotiations for the
compensation were still on which SMC and got finalized in the mid of F.Y 2006-
07.
As part of this negotiation process during the FY 2006-07, assessee was
reimbursed with Rs.500,274,999/-. Out of the total reimbursement of
Rs.500,274,999/- received Rs.86,881,641/- pertained to the expenses incurred
by the assessee during FY 2005-06. The details of the expenses of
Rs.86,881,641/- reimbursed are as follows:
Cause of Remittance Amount INR
Reimbursement of imported cost of Components 1,58,16,750/-
Reimbursement of imported cost of Components 67,05,898/-
Refund of technical services fee paid earlier 28,13,823/-
Reimbursement of expenses (For Production 5,71,63,678/-
expenses Administrative Expenses)
Receivable from SMC for advertising, Incentives, 24,54,613/-
etc
Technical advisor Fee Reimbursement 19,26,879/-
8,68,81,641/-
During the FY 2006-07, Rs.86,881,641/- reimbursed by SMC has been
reported as Income in the profit and loss account as a prior period income and
the same has been offered for taxation in A.Y 2007-08. Since the reimbursement
of Rs.86,881,641/- against the expenses incurred by the assessee during the FY
2005-06 the said income forms the part of FY 2005-06. Due the timing
difference, as it was received by the assessee in FY 2006-07, auditors have
classified the same as reimbursement/subsidy received for expenses incurred in
the year ended 31st March 2006.
As the said income pertains to F.Y 2005-06, the assessee offers the same
for the A.Y 2006-07. Though the negotiation with SMC was finalized in AY
2007-08 and income was crystallized in AY 2007-08 and the same was shown as
prior period item in the audited financial a/c for the FY 2006-07, but as the said
income pertains to AY 2006-07, the assessee offer the same for taxation for the
AY 2006-07.
In view of this, the assessee requests your good self to kindly consider
the same while passing the order u/s 143(3) for the AY 2006-07 and reduce the
losses accordingly."
10 ITA Nos. 4248 &6487/Del/13
In support o the above, when asked, the assessee filed a revised
computation determining loss of Rs.35,86,67,497/-. The AO added the amount
of Rs.8,68,81,641/- to the income of the assessee.
The above facts shows that even though the assessee has disclosed the
above facts, it has filed a revised computation after the expiry of the period for
filing of revised return. Therefore, the assessee has concealed income and has
not filed a revised return disclosing these facts within the prescribed period.
The assessee has deliberately concealed the particulars relating to the
reimbursement of expenses of Rs.8,68,81,641/- with the intention to evade taxes
within the meaning of Section 271(1)(c) of the Income Tax Act, 1961."
5.3. As a result of the above reasoning the AO held that the assessee had
concealed the particulars of income and also filed inaccurate particulars of
income and hence minimum penalty u/s 271(1)(c) was imposed. In view of the
above penalty of Rupees three crore odd was imposed on both the grounds
namely that the assessee has concealed the particulars of income and has also
furnished inaccurate particulars of its income and thus committed a default within
the meaning of explanation 1 to Section 271(1)(c).
6. In appeal before the First Appellate Authority, the action of the assessing
officer was confirmed. Aggrieved by this the assessee is in appeal before the
Tribunal.
7. Mr. Ajay Vohra appearing on behalf of the assessee inviting attention to
the findings recorded in the quantum proceedings and in the penalty proceedings
submitted that in the facts of the present case, the penalty order deserves to be
quashed as neither on account of long term capital loss any inaccurate claim has
been made nor looking at the disclosures made it can be said that the assessee has
concealed any relevant fact. Inviting attention to the material available on record,
it was submitted that the assessee in the year under consideration sold land
measuring 6.25 acres in village Khekri Gaula, Badshahpur, Link Road, Gurgaon
to Mr. Rana Iqbal Singh Jolly vide Agreement to sell which is available to the
AO and on record for a consideration of Rs.2.4 crores which was duly received
by the assessee. The specific land belonged to the assessee which was agreed to
11 ITA Nos. 4248 &6487/Del/13
be sold for a specific price the amount was received through banking channels.
The same was duly incorporated in the return of income and the assessee
declared long term capital loss amounting to Rs. 36,18,407/- on account of the
aforesaid transfer. It was his submission that it is a matter of record that
subsequently Mr. Iqbal rescinded the agreement to sell and a fresh agreement was
executed with M/s Petal Estate Private Limited ("PEPL") vide agreement to sell
dated 03.03.2007 for the same amount of consideration. It was his submission
that the assessee accordingly recorded the re-purchase of land in the books of
account and declared the taxable gains in the assessment year 2007-08. It was
submitted that it is a matter of record that the sale deed for the said property was
also registered with the Registrar, Manesar on 24.12.2009. Inviting attention to
the assessment order it was his submission that the claim has been disallowed by
the AO alleging that the assessee has failed to produce evidence of handing over
the possession of the land in the assessment year 2006-07 and the agreement to
sale was not genuine. Inviting attention to the order of the CIT(A) in the
quantum proceedings it was submitted that on a similar reasoning the said action
was upheld. In this background the action of the AO in imposing penalty qua this
addition on the allegation that there is a concealment and the assessee has
furnished inaccurate particulars of its income it was submitted was unwarranted.
Relying on the arguments advanced in the penalty proceedings it was submitted
that the conclusion has been arrived at ignoring the following facts, these are
extracted from the impugned order hereunder:-
"The entire transaction of sale was duly supported by, inter-alia, the following
documentary evidences, which were placed on record;
Copy of the agreement to sell entered into with Mr. Rana Iqbal,
· Copy of PAN of Mr. Iqbal,
· Copy of cheque issued by Mr. Iqbal,
· Copy of confirmation letter dated 30. 03.2006 of the appellant,
confirming receipt of total consideration and handing over of
possession of property in A. Y 2006-07,
12 ITA Nos. 4248 &6487/Del/13
· Copy of bank statement of Mr. Iqbal as on 30.03.2006,
· Copy of agreement to sell entered into with M/s Petal Estates in A. Y.
2007-08,
· Audited accounts and computation of income of the appellant for the A.Y.2007-
08.
- The appellant did not derive any advantage/benefit/set off of the declared 'long-
term capital loss ' while computing the taxable income of
not only the current year but also the succeeding years), which was, by
itself, sufficient to: (a) establish that the claim made was bonafide; and
(b) dislodge the suspicion that the claim was not genuine;
- Undisputedly, loss has actually been suffered by the appellant in the
transaction of sale of land vide subsequent
03.03.2007, which is not disputed by the Revenue;
- The entire facts in respect of the aforesaid were fully disclosed in the return of
income and the claim made by the appellant was bonafide, at
the time of filing of return of income.
The aforesaid action of the AO is, therefore, based upon incorrect
appreciation of the facts of the case and the position in law as elaborated
at pages 24 to 30 of the broad submissions. "
7.1. Apart from the above arguments on facts reliance was placed upon CIT vs
Reliance Petro Products Pvt. Ltd. 322 ITR 158 (SC) for the proposition that on
facts where full disclosure are made penal action was not warranted. Referring to
the submissions advanced before the CIT(A) it was also emphasized that in the
case of the assessee there is a persistent loss suffered by the assessee which has
continued in subsequent years also accordingly the bona fide of the assessee
cannot be doubted as not only the assessee has not made a wrong claim as it is
based on Agreement to sell and other evidences even otherwise in these
circumstances there was no motive for the assessee to make a wrong claim.
Accordingly it was argued that the facts in the present case stand on a better
footing then as were available before their Lordships of the Supreme Court in
Reliance Petro products Ltd. It was also submitted that there is no dispute on fact
that there is transfer of property which is evidenced by the sale deed which was
finally registered on 24.12.2009 which clearly corroborates the fact that the
property was ultimately sold by the assessee and the only academic issue which
remains is with respect of the year of allowability of capital loss. Reiterating the
13 ITA Nos. 4248 &6487/Del/13
facts it was sought to be emphasized that the allegation that the claim was made
with a mala fide intention to evade taxes cannot hold water as the resultant
income of the assessee in the year under consideration still remains negative. It
was also submitted that infact had the assessee actually planned then it would
have been more beneficial to claim capital loss in subsequent year when the sale
deed was finally registered as then the benefit of enhancing the claim of capital
loss by claiming the advantage of higher indexation for an additional year would
have been made. The assessee on facts as per the particulars available on record
made a bonafide claim since as per documents i.e. Agreement to sell the specific
land the assessee had received the amounts settled from Mr. Iqbal Rana Jolly.
7.2. In the light of the above facts and circumstances and relying upon the
judgement of the Apex Court in the case of Reliance Petro Products it was his
submission that the penalty deserves to be quashed. Addressing the bona fide of
the assessee from another angle attention was invited to section 2(47)(v) of the
Act on the basis of which it was his submission that transfer in relation to capital
asset includes any transaction involving the allowing of the possession of any
immovable property to be taken or retained in part performance of a contract of
the nature referred to in section 53A of the Transfer of Property Act, 1882.
Inviting attention to the agreement to sell dated 30.03.2006 ( copy placed at
pages 1-4 of the paper book) it was argued that considering the clauses of the
same the assessee acknowledging the part performance of the Agreement made
the necessary disclosures since sale consideration had been received. The action
of the assessee in relying upon the same and placing full facts on record cannot
be said to be either concealing the facts or filing inaccurate particulars. It was
argued that the mere fact that ultimately the property was sold to M/s Petal
Estate (P.) Ltd. in whose favour it was ultimately transferred shows that the
assessee has kept the department fully informed at all stages and it is not the fault
14 ITA Nos. 4248 &6487/Del/13
of the assessee that property which was sold to Sh. Rana Iqbal Singh Jolly could
not be transferred in his name and ultimately sold to another concern. The
allegation that the property was sold at the same price instead of higher price it
was argued is baseless as it was common knowledge that property prices instead
of rising have been consistently falling over the years.
7.3. Addressing the addition made on the basis of letter addressed to the AO in
the course of the assessment proceedings it was his submission that the addition
made has not been challenged by the assessee this fact does not mean that there
was some discovery by the AO or otherwise, the same was accepted by the
assessee in good faith as it is a classic example of assessee suo moto making
complete disclosures at its own behest before the AO. The addition made could
not be shown as assessee's income as not only the assessee had no right to
receive the compensation under the agreement as such the probable receipt of
compensation could not be factored in even otherwise it was solely the discretion
of the Suzuki Motor Corp. Japan to compensate the assessee for its cost over
runs. IT was contended that by the time the amount was received the assessee's
books of accounts were being finalized. The amount has been shown as an
income for 2007-08 A.Y. and since part of it pertained to the year under
consideration the facts were disclosured to the AO by way of the letter in good
faith quoted by the AO himself in his order and the assessee revised the income.
The revision no doubt on account of the peculiar facts was beyond the date
permitted under the Act but the fact remains that the assessee has not challenged
the addition and is only aggrieved by the penal action as on facts there was no
discovery of any material fact by the AO and on the contrary it is a case of full
disclosure and bona fide disclosure by the assessee. Thus it was argued that
neither it is a case of concealment of facts and nor is it a case of inaccurate
particulars filed the penalty accordingly should be dropped.
15 ITA Nos. 4248 &6487/Del/13
8. The Ld. CIT DR, Sh. Ramesh Chandra heavily relied upon the impugned
order on the basis of which it was his submission that before the AO the assessee
did not offer any explanation and merely sought adjournment stating that
quantum proceedings are pending before the ITAT. Accordingly the request
made in the penalty proceedings before the CIT(A) that adequate opportunity was
not given by the AO was rightly rejected. Inviting attention to page-10 para 7 of
the impugned order, it was his submission that the CIT(A) has come to a correct
finding on which heavy reliance is being placed as the treatment by the assessee
on the basis of the Agreement to sell in concluding that transfer of land is
complete on the basis of which long term capital loss is claimed was admittedly
wrong since admittedly possession was to be handed over to the proposed buyer
only at the time of registration of sale deed. Inviting attention to the finding of
the CIT(A) it was submitted that transfer through sale of immovable property as
per the Transfer of Property Act is complete only when sale deed is registered
and Agreement to sell cannot replace the sale deed. Relying upon the impugned
order it was emphasized that the department has doubted how the very same
property was sold again at the same price after a gap of few years clearly shows
that the transaction claimed is not genuine. Heavy reliance was placed on the
finding of the CIT(A).
8.1. For ready-reference, we reproduce para 7 of the impugned order
hereunder:-
"7. Ground No. 2 of the appeal is against the disallowance of Rs.
36,18,4071- made by the AO on account of 'long term capital loss ' It is
noticed that the appellant bas treated the transfer of land as complete on the
basis of 'agreement to sell' only and thus computed and claimed long term
capital loss. As per the agreement, no physical possession was handed over
to the proposed buyer and the same was to be given only at the time of'
registration of sale deed. Such action of the appellant was blatantly wrong
and the same cannot be justified by any stretch of arguments. As per
Transfer of Property Act, transfer through sale of immovable property shall
be treated as complete when the sale deed is registered and 'agreement to
16 ITA Nos. 4248 &6487/Del/13
sell' cannot replace the sale deed. I am surprised to notice how the auditors
have certified the accounts, if at all actual audit of accounts had been
conducted by them. The auditors have certified Schedule-S of Balance Sheet
(Fixed Asset) and the land has been shown as sold in depreciation chart,
without verifying the facts. Therefore, the long term capitol loss so
computed by the appellant has rightly been disallowed by the AO. Further.
it cannot be denied that such action on the part of the appellant was
definitely of furnishing of inaccurate particulars of income and thus attracts
penalty u/s 271 (1) (c) of the Act. The appellant has tried to save its position
by claiming that no benefit could be derived by the appellant from such long
term capital loss and, therefore, penalty should not be imposed. Without
buying the argument of the appellant and leaving what benefit the appellant
company or their management was deriving from such transaction, it would be
sufficient to point out that as per appellant's own admission. there are
two 'agreements to sell' dt. 30.03.2006 and 30.03.2007 be/ore the final
registration of sale deed dated 24.12.2009 on the same amount of
consideration while it is in everybody knowledge that the property rates in
the area under consideration increased tremendously on month to month
basis. It has further been argued that the appellant claimed such capital
loss in the subsequent year(s) (i.e. when the sale deed was registered) the
same would have resulted in an enhanced claim of 'capital loss' on account
of claiming advantage of indexation for an additional year or so. Such
argument of the appellant is based on the premise that there was no cost
escalation between the period of 'agreement to sell' and actual registration
of sale deed. No prudent person shall agree to sell its property on the same
price after a gap of about three years knowingfully well that appreciation in
the value of property, especially in the area under consideration, was multi-
fold and definitely more than the rate of inflation. It clearly shows the
manipulation on the part of the management of the appellant company for
the reasons well known to them. Be that as it may, the/act remains that the
appellant has furnished inaccurate particulars of income which attracts
penalty u/s 271 (l)(c) of the Act. The AO was fully justified in imposing
penalty upon the amount of loss claimed by the appellant on the basis of
agreement to sell."
8.2. Addressing the next additions sustained by the CIT(A) in the quantum
proceedings on account of which penalty has been imposed. It was his
submission that admittedly part of the amount which has been added pertains to
the year under consideration and the assessee in the circumstances has not even
challenged the addition made. The argument that the assessee filed Revised
computation it was submitted is of no merit as the same was filed after the due
17 ITA Nos. 4248 &6487/Del/13
date. The re-imbursement increased the income by the stated amount and relying
upon the impugned order it was contended the penal action was fully warranted.
9. We have heard the rival submissions and perused the material available on
record. Before we proceed to arrive at a conclusion it is necessary to refer herein
to the fact that on the next date of hearing the Ld. AR who was given time to
seek instruction stated that he is not in a position to state that the quantum
proceedings are not being pressed and he would only state that the arguments
advanced before the CIT(A) in the quantum proceedings may be taken as having
been addressed on behalf of the assessee in the quantum proceedings hereinalso.
The Revenue represented by Smt. Renuka Jain Gupta in these circumstances in
the absence of any specific argument on behalf of the assessee placed heavy
reliance upon the impugned order.
9.1. In the afore-mentioned facts and circumstances first addressing the
quantum proceedings we note that in regard to the long term capital loss of
Rs.36,18,000/- odd . The assessee was required to explain the same since initially
only Agreement to sell was filed by the assessee the AO accordingly directed the
assessee to supply the following information:-
"(i) To file copy of actual sale deed of the property in question; copy of
agreement is not sufficient.
(ii) Documentary evidence far acquisition of property in question;
(iii) Current status of the property, whether actually transferred or not.
Adjourned for 25/11/2009."
9.2. The record shows that in response to the same the assessee is stated to
have filed the following reply :-
"No sales deed is executed for the property in question, as the same sales
was cancelled in next assessment year (AY 2007-08). And possession was
taken back from the buyer of said property. In accounts the cancellation was
recorded as purchase of land on payment of full consideration amounting to
Rs.2,40,00,000/- by us. However same property was sold to another buyer
on same consideration in AY 2007-08 and no capital loss was computed
treating same year purchase."
18 ITA Nos. 4248 &6487/Del/13
Regarding the current status of the property it was stated that, "Mentioned
above the said property has been sold to another buyer M/s Petal Estate
Private Limited vide agreement to sale dated 3rd March 2007 and possession
was handed over to buyer in terms of said agreement to sale. Execution of
sales deed is pending and expected to be executed within this month."
9.3. The AO vide para 4.4 concluded that the explanation offered by the
assessee could not be accepted and proceeded to make the addition of
Rs.36,18,407/- holding as under:-
4.4 "The assessee has claimed a certain amount as long term capital loss
in the computation of income, hence it is his onus to prove the same as
genuine and allowable with sufficient details and documentary evidences. It
is evident from the above mentioned facts that the assessee has' been allowed
a number of opportunities to discharge his onus but he has [ailed to do so. 1f
certain amount has been claimed as long term capital loss and the case is
already under scrutiny since long, the assessee should he ready with
sufficient documentary evidences to prove the same, more so if the A () is
asking for the same again and again. From the facts mentioned by the
assessee and evidences brought on record by him the long term capital loss
as declared in the return of income does not appear to he genuine at all. In
support of the long term capital loss simply copy of alleged agreement to sell
has been filed and further documentary evidences or details as asked have
not been filed. Even the said agreement to sell is not registered and appears
to be a self serving evidence. The assessee has claimed that para 4 of the
said agreement stipulates the event on which the transfer of owner ship will
get transferred to buyer. It is noticed that the alleged agreement is dated
30.03.2006 and it has been mentioned in clause 4 of the same that the actual,
physical, vacant and peaceful possession of the said property shall be handed
over by the seller to the buyer at the time of execution of the sale deed or at
the time of total payment, whichever is earlier. This clearly shows that till
30.rJ3.2006 actual possession of the properly in question was not handed
over. Neither the assessee has produced any documentary evidence to prove
that any actual possession was handed overby31.3.2006(by the end of the
year itself) as asked again and again. The alleged agreement to sell does not
appear to be a genuine document. It is to be noticed that the said agreement
to sell was never implemented since. when asked to intimate if any actual
sale deed was registered pursuant to the said agreement to sell, the assessee
accepted that no actual sales deed has been executed till date. Rather it was
also stated vide letter dated 04. J 2.2009 that the sales as agreed vide the said
agreement was cancelled in next year and possession was taken back from
the buyer of the said properly. It was also mentioned in the same letter that
in the next year the cancellation was recorded as purchase of land on
payment of full consideration amounting to Rs. 2,40,00,000/- by the assessee
company and the same property was sold to another buyer on same
consideration in the next year. Computation of income showing such
19 ITA Nos. 4248 &6487/Del/13
purchase or sales and computation of any capital gains/loss has not been
provided as asked. Even it has been accepted by the assessee that agreement
to sell made with the second buyer has also not been implemented till date.
No further details or documentary evidence in this regard as asked have been
provided by the assessee. /111 these facts create a strange story which appears
to be an after thought and concocted one.
If the property in question was sold to the purchaser for a certain
amount in the year under assessment and actual possession had also -been
handed over in the same year, as claimed what was the need and how it was
possible to purchase the same property for the same consideration in the next
year from the same person after a long gap of time and to again sell the same
property for the same consideration to another person after again long gap
of time. If the assessee insists that the transactions made in respect of this
property in the year under consideration are sufficient to be considered as
transfer for long term capital gain/loss then why the similar transaction
made in respect of the same property in the very next year have not been
considered and shown under the same head of long term capital gain/loss. In
any case, the facts stated by the assessee are not convincing and the assessee
has failed to prove that there was any actual transaction or transfer which
may result into any actual long term capital loss in the year.
After having considered all facts of the case it is held that the long
term capital loss declared by the assessee in the return of income at Rs.
36,18,407/- is not genuine and hence not allowable. Accordingly the long
term capital loss declared by the assessee at Rs. 36,18,407/-. "
9.4. Aggrieved by this the assessee came in appeal before the First Appellate
Authority who confirmed the addition made holding as under:-
"During the course of present proceedings vide order sheet entry dated
11.3.10, the assessee was asked to prove the genuineness of source of Rs. 2.4
crores as paid by the alleged buyer (the land was subsequently returned to
the assessee). It was specifically stated that merely giving the cheque No. and
PAN No. is not sufficient evidence. The bank statement, books of account and
personal presence of Sh. Rana Iqbal Singh Jolly was sought. However, in
response to the same, the assessee submitted only part of the bank statement
which was not even on the letter head of the bank or hearing any stamp of the
assessee company/bank. This alleged photocopy of Sh. Rana Iqbal Singh
Jolly's account reveals a sum of Rs. 24,043,856/- is received on 31.03.2006
in his account No. 125-154708-006 and on the same day payment of Rs. 2.4
crores was made by vide cheque No. 021341 on 31.03.06. It is pertinent to
note that as a matter of routine the said hank account did not have any large
deposits or withdrawals in the last one whole month for which the assessee
has submitted the alleged photocopy of hank account. In other words this
was not a routine transaction. The assessee failed to establish the genuineness
and capacity of the said amount allegedly received from one Sh. Rana Iqbal
Singh Jolly. Sh. Rana Iqbal Singh jolly has not been produced though his
presence was specifically required and the books of accounts from which the
20 ITA Nos. 4248 &6487/Del/13
said amount of Rs. 2.4 crores was deposited in his bank account have also
not been produced. Merely mentioning a PAN No. does not establish the
genuineness and capacity of Sh. Rana Iqbal Singh Jolly, when a specific
enquiry is being made by the Department.
The above mentioned facts clearly establish that the assessee has
evaded giving any evidence regarding the source of the said amount which
was routed through Sh. Rana Iqbal Singh Jolly. The transaction becomes
completely doubtful and improbable in view of the facts that no documents
pertaining to possession being given or taken has been submitted, besides
this the said transaction has been claimed to be not executed, inasmuch as it
is claimed that the said amount was paid back to Sh. Rana Iqbal Singh Jolly
in the next asstt. year and the repossession of the land was taken (no
documentary evidence to support the said claim) and subsequently the land
was sold to M/s Patel Estate (P) Ltd.
The AR has claimed that it is not the responsibility/discretion of the assessee
to execute/register the sale deed. This contention of the assessee cannot be
accepted as the onus is on him to prove the genuineness of the transaction
and source of the said amount of Rs. 2.4 crores, introduced in his books of
accounts on 31.3.2006.
The assessee has failed to establish the source of the said amount hence, the
stand of the AO is accepted. "
9.5. Considering the above peculiar facts and circumstances and the arguments
advanced, we are of the view that in the peculiar facts and circumstances of the
case the addition sustained by the CIT(A) deserves to be upheld and no
interference with the said conclusion on facts is warranted as admittedly the very
same property was sold in the next assessment year stands demonstrated by the
Registration of the said transaction. In the circumstances the addition is
sustained.
9.6. In the result ITA No.-4248/Del/2013 is dismissed.
10. In the above background we now proceed to consider the arguments
advanced in the penalty proceedings wherein penalty has been imposed on
account of two additions. Taking the second addition first wherein the addition
of Rs.8,68,81,641/- pertaining to re-imbursement of expenses it is seen that the
same was made solely on account of letter dated 28.10.2009 addressed by the
assessee to the AO (relevant portion has been extracted in the earlier part of this
21 ITA Nos. 4248 &6487/Del/13
order) the same has also been offered to tax in the revised computation filed on
16.11.2009. We have considered the material available on record and the
arguments advanced by the parties, on a consideration thereof we are firmly of
the view that penal action on the grounds of concealment or of filing inaccurate
particulars on account of this addition cannot be upheld. In the facts of the case
there is no whisper either in the quantum proceedings or in the penalty
proceedings that the letter dated 28.10.2009 was a result of some discovery or
query made by the AO. It has been pleaded that there was no right in favour of
the assessee to receive the compensation and is purely a discretionary
compensation for cost overruns. IT was submitted that the memorandum
executed between the assessee and SMC, Japan on 09.10.2006 copy of which is
placed at pages 19-20 on the basis of which it has been argued and the payment
received as a result thereof is purely a gratuitous payment made to subsidiary to
overcome the delay in commissioning of plant and there is no right in assessee's
favour. We have taken note of pages 61 & 67 which is a copy of the P&L A/c of
the assessee dated 31.03.2007 wherein the other income referred to the details of
which appearing at schedule-7 (page 67) disclosed that the other income includes
expenses incurred in the year 31.03.2006 amounting to Rs.8,68/- lakh odd which
was included in the income of 2007-08 assessment year. The details thereof are
available at page 85 which is a computation of total income for 2007-08
assessment year. It is a matter of record that the amount has been shown as an
income in 2007-08 A.Y. and only in the appellate proceedings due to the same
having been considered as income in 2006-07 A.Y. the same has been deleted.
However as far as the penalty proceedings are concerned we hold that neither the
assessee filed any inaccurate particulars nor has any income been concealed. The
finding arrived at is fact specific and although we have seen that various case
laws have been referred to in the arguments before the CIT(A) we are of the view
22 ITA Nos. 4248 &6487/Del/13
that no precedent is required to be relied on in order to come to a finding where
facts speak for themselves.
10.1. In regard to the other addition on the basis of which penal action has been
upheld by the CIT(A) namely long term capital loss it is seen that the addition in
the quantum proceedings has been upheld by us. It is settled legal position for
which no authority need be cited that penalty proceedings and quantum
proceedings are separate and distinct. It is equally a settled legal position which
also needs no authority that the explanation offered in the penalty proceedings
has to be considered separately and independently in the matrix of the
requirements of the penal provision. It is a matter of record that the specific
property vested with the assessee for which a specific amount was received from
a specific person by way of banking channels in pursuance to an Agreement to
Sell (copy available on record) and the said property was ultimately sold to a
different unconnected concern again by Agreement to Sell (copy also available
on record) which was duly registered with the Land Revenue Authorities at
Manesar in the subsequent assessment year. In the above background the record
shows that the genuineness of the assessee's claim has been doubted as Mr. Rana
Iqbal Singh Jolly the person with whom the first agreement to sell was entered
into as the source of his funds etc. could not be proved by the assessee. The
amount received was ultimately returned back to Mr. Rana Iqbal Singh Jolly as
per record again by banking channels. The fact remains that considering the
Agreement to Sell entered into on the basis of which the amount was received by
the assessee long term capital loss was claimed. In this background, we are
called upon to decide whether the claim made was exigible to penal action as the
property was sold to M/s Petal in the next assessment year for the same amount.
It is a matter of record that the Agreement to Sell entered into with M/s Petal
resulted in transferring the said land to the said concern by way of Registration
23 ITA Nos. 4248 &6487/Del/13
with the Land Revenue Authorities. On a careful consideration of the material
available on record and the arguments of the parties before the Bench we are of
the view that in the peculiar facts and circumstances of the case penal action was
not warranted either on the grounds of concealment nor on the grounds of filing
the inaccurate particulars. The record shows that full facts and necessary
disclosures were made by the assessee and for whatever reasons the property was
not Registered in Mr. Rana Iqbal Singh Jolly's name suspicions cannot be
resorted to conclude that the filing of particulars were inaccurate or there was any
concealment. Onus is on the Revenue to show which fact or particular was
concealed or inaccurately filed. At best the assessee can be faulted for basing its
claim on the belief that it was a case of part performance as the Registration of
the sale had not taken place. The wrong claim in the peculiar facts it is seen is
neither a fraudulent claim nor it is a false claim. On facts as the assessee has
consistently argued its income over the years consistently remains at a loss figure
as such neither can there be any motive or purpose. The wrong claim made on
facts is a bonafide claim which though on facts cannot be accepted in the
quantum proceedings. However as far as penalty proceeding are concerned
where there is no concealment or filing of inaccurate particulars, we find
following the precedent as considered by the Apex Court in CIT vs Reliance
Petro Product 322 ITR 158 (SC) which was re-affirmed in the case of Price
Water House Cooper (P.) Ltd. vs CIT 348 ITR 306 (SC) penalty on this addition
sustained is not maintainable. The arguments that ultimately the specific
property was sold at the same price and not at a higher price as canvassed by the
Ld. DR and the fact that prices of property have been dropping over the years
instead of rising as argued by the Ld. AR is not required to be dealt with in the
present proceedings as such the same is left unaddressed. The finding herein is
confined to the issue before us wherein considering the peculiar facts,
24 ITA Nos. 4248 &6487/Del/13
circumstances, arguments and case laws we hold that the action of the CIT(A) is
upholding the penalty order on this count also cannot be sustained.
10.2. Accordingly for the detailed reasons given hereinabove the penalty order is
directed to be quashed.
11. In the result, ITA No-4248/Del/2013 is dismissed and ITA No.-
6487/Del/2013 is allowed.
The order is pronounced in the open court on 23rd of June, 2014.
Sd/- Sd/-
(G. D. AGRAWAL) (DIVA SINGH)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 23 /06/2014
*R. Naheed/Amit Kumar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
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