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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ INCOME TAX APPEAL NO. 98/2013
Reserved on: 13th August, 2013
Date of decision: 30th August, 2013
COMMISSIONER OF INCOME TAX DELHI-IV
..... Appellant
Through Mr. Sanjeev Sabharwal, Sr.
Standing Counsel & Mr. Puneet Gupta, Jr.
Standing Counsel.
versus
DCM LIMITED
..... Respondent
Through Nemo.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J.:
This appeal under Section 260A of the Income Tax Act, 1961
(Act, for short) by Commissioner of Income Tax, Delhi-IV (hereinafter
referred to as the appellant/Revenue) is directed against order of the
Income Tax Appellate Tribunal dated 13th April, 2012 in the case of
DCM Limited, and relates to Assessment Year 2002-03.
2. The contention of the Revenue is that penalty for concealment
under Section 271(1)(c) of the Act was rightly imposed as during the
course of the assessment proceedings the assessee had made
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a wrong claim in respect of loss suffered on writing off loan of
Rs.98.55 lacs, which was granted to DCM International Limited, a
subsidiary company for acquiring shares of DCM Toyota Limited.
DCM International Limited suffered losses and was not in a position to
repay the loan and the same was written off as bad or doubtful debt.
3. The assessee is a limited company engaged in the business of
manufacture of textile yarn, sale etc. and information technology
related services. For the year ending 31st March, 2002, the assessee
filed original return on 30th October, 2002 showing business loss of
Rs.36,60,53,984/- and capital loss of Rs.39,80,76,080/-. This return
was processed under Section 143(1) of the Act. Subsequently, the
return was revised on 27th February, 2003, declaring business loss of
Rs.11,72,50,688/- and capital loss of Rs.13,02,27,759/-. Along with
these two returns, the assessee, however, had not filed tax audit report
under Section 44AB of the Act. It was, however, stated that a scheme
for restructuring of business was pending before the High Court and
certain directions had been issued for preparation/presentation of
accounts. Subsequently, another revised return was filed on 31st
March, 2004 with audited accounts and tax audit report under Section
44AB. In this return, the business loss was revised to
Rs.17,18,82,234/- and capital loss was computed at Rs.7,99,82,494/-.
This computation was again revised on 30th October, 2004 and the
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business loss was shown as Rs.15,28,61,385/-.
4. The last revised return was taken up for scrutiny by issue of
notice under Section 143(2) of the Act. During the course of
assessment proceedings, the assessee in the revised computation had
claimed that the loss of Rs.98.55 lacs on account of loan granted to its
subsidiary DCM International Limited, which was written off, was
deductable as business expenditure or in alternative the same should be
considered as a capital loss. The assessee had relied upon case law.
The Assessing Officer did not agree and held that loss suffered by
writing off loan given to DCM International Limited was not allowable
as business expenditure and in earlier year interest has been disallowed
as the loans were not given for business consideration. He observed
that it made no difference whether DCM International Limited was
wholly owned subsidiary and rejected the contention of the assessee
that the loss/advance was with the intention of carrying on business
through the subsidiary company. The contention of the assessee that
the loss was a capital loss was also rejected on the ground that the loan
was not a capital asset. The fact that loan was granted and had not
been paid and was rightly written off was not disputed/challenged.
5. Aforesaid order of the Assessing Officer has attained finality
and was not interfered or reversed in the appellate proceedings.
6. Penalty proceedings for concealment under Section 271(1)(c)
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were invoked and vide order dated 31st December, 2009 penalty of
Rs.35,18,326/- being 100% of tax sought to be evaded on
Rs.98,55,254/- was levied. The penalty order does not deal with the
merits and whether there was any justification or ground to impose
penalty. It has dealt with certain other issues regarding limitation etc.
and only records that the claim of the assessee with regard to the loan
had been rejected by the tribunal.
7. Commissioner of Income Tax (Appeals) upheld the order
imposing penalty, inter alia, observing that a wrong claim had been
made before the Assessing Officer during the course of the assessment
proceedings, though no such claim had been made in the return of
income, profit and loss account, etc. This, it was held, was immaterial
because the claim had been made by way of a letter before the
Assessing Officer, when the assessment proceedings were pending. He
observed that the assessee should not and cannot take the risk of
making a wrong claim by filing revised computation of income during
the assessment proceedings, instead of making the claim in the return
of income. The claim was made by way of a letter or revised
computation before the Assessing Officer, which was considered and
rejected and thus on merits, penalty under Section 271(1)(c) should be
imposed.
8. Tribunal has reversed the findings of the Assessing Officer and
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the CIT (Appeals) after recording that the claim was not made in the
return of income, claim was made during the course of the assessment
proceedings before the Assessing Officer and, therefore, it cannot be
said that there was concealment of income as such. Reference was
made to the decision of the Supreme Court in Commissioner of
Income Tax versus Reliance Petroproducts Private Limited, (2010)
322 ITR 158 (SC) wherein it has been held that where an assessee
makes a bona fide legal claim but the same is not accepted, penalty
should not be levied, provided the assessee has disclosed all material
particulars of his income and there was no concealment of facts.
9. We do not see any ground or reason to interfere with the
impugned order passed by the tribunal. It is apparent that the last
return filed by the assessee was taken up for scrutiny assessment. In
the original return no claim on account of capital or business loss of
Rs.98,55,254/- as bad debt written off on account of loan given to
DCM International Limited was claimed. When the assessment
proceedings were pending scrutiny and detailed or regular assessment
proceedings had been initiated by way of a letter or re-computation
statement, the said claim was made before the Assessing Officer. It is
obvious and crystal clear that the assessee was aware that this claim
would be examined by the Assessing Officer and the claim was put
forward on the basis that DCM International Limited was a subsidiary
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company and the loan granted to them was for specific purpose and for
the benefit of the holding company. It is not disputed or denied that
the loan in fact was granted and has been also written off. There was
no concealment or furnishing of inaccurate facts. The legal position
put forward by the respondent assessee that the loan unpaid and written
off should be either treated as business loss or alternatively as capital
loss was rejected. We fail to understand how and for what reason,
penalty for concealment can be imposed in the present case. Case is
completely covered by Explanation I. It is not disputed that full factual
matrix or the facts were before the Assessing Officer at the time of
assessment when this claim was made. The fact that scrutiny
assessment was pending is a relevant and important circumstance to
show the bona fides of the assessee as he was aware that the claim
would be examined and would not go unnoticed. Secondly, the claim
was rejected in view of the legal position, which was against the
assessee and not because of statement of incorrect or wrong facts.
10. Law does not bar or prohibit an assessee for making a claim,
which he believes may be accepted or is plausible. When such a claim
is made during the course of regular or scrutiny assessment, liberal
view is required to be taken as necessarily the claim is bound to be
carefully scrutinized both on facts and in law. Full probe and appraisal
is natural and normal. Threat of penalty cannot become a gag and/or
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haunt an assessee for making a claim which may be erroneous or
wrong, when it is made during the course of the assessment
proceedings. Normally, penalty proceedings in such cases should not
be initiated unless there are valid or good grounds to show that factual
concealment has been made or inaccurate particulars on facts were
provided in the computation. Law does not bar or prohibit a person
from making a claim, when he knows the matter is going to be
examined by the Assessing Officer. There is no merit in the present
appeal and the same has to be dismissed.
(SANJIV KHANNA)
JUDGE
(SANJEEV SACHDEVA)
JUDGE
AUGUST 30th, 2013
VKR
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