Income Tax Appellate Tribunal - Delhi
Eicher Goodearth Ltd. vs Dy. Cit on 18 February, 2007
ORDER
R.V. Easwar, Vice President
1. These are cross appeals for the assessment year 1996-97. The assessee is a public limited ' company engaged in publishing and selling city maps for Delhi and surrounding towns and' also1 denves income byway of licence fee dividend, etc.
2. In the return filed 'for 'the assessment year under appeal the assessee claimed 100 per cent depreciation on a structure on the ground that it was a temporary structure' While completing the assessment under Section 143(3) of the IT Act, the assessing officer noticed that the assessee had spent Rs. 17.71 lakh on the boundary wall and Rs. 25,200 as cost of bricks and held that having regard to the quantum of expenditure incurred the structure cannot be called at temporary one and further that at any rate a boundary wall cannot be called a temporary structure. He accordingly restricted the claim of depreciation to 10per cent as against 100 per cent claimed. The disallowance made on this basis was Rs. 16,17,030.
3. While completing the assessment, the assessing officer also noticed that the assessee had claimed deduction under Section 80M at Rs. 1,53,38,560 against the dividend income of Rs. 158.83 lakhs The assessing officer referred to the assessments of the preceding years wherein it was held, that the major part of the expenses, including interest paid, debited to the Profit and Loss Account related to the investment made by the assessee in the shares and dividend earned there from. He also referred to the assessment year 1995-96 in which it was held that the expenses incurred by the assessee were more than the dividend income, leaving no scope for' deduction under Section 80M. On the ground that the facts for the instant year are the same, the assessing officer held that the assessee was not eligible for the deduction.
4. The assessment was thus completed by disallowing a part of the depreciation and by denying the deduction under Section 80M. At the end of the assessment order, the assessing officer observed that penalty proceedings under Section 271(1)(c) are separately initiated.
5. There was an appeal against the assessment to the Commissioner (Appeals) who by order dated 15-12-1999 confirmed, the disallowance of the depreciation and set: aside the issue relating to Section 80M to the assessing officer for fresh adjudication. The assessing officer passed an order on 11-8-2003 to give effect to the order of the Commissioner (Appeals) and in another order passed under Section 154 on 29-9-2003, 'he allowed deduction at Rs. 71,83,000 under Section 80M. It appears that no appeal was taken to the Tribunal by the assessee against the order passed by. the Commissioner (Appeals),. However, the revenue had filed an appeal to the Tribunal against the relief granted by the Commissioner (Appeals) and the Tribunal disposed of the appeal(by order dated 13-1-2003.
6. The assessing officer thereafter issued penalty notice on the ground that the assessee n concealed its income or furnished inaccurate particulars thereof. In response thereto, the assessee first contended that the proceedings are barred toy limitation as the Commissioner (Appeals) passed the order on 15-12-1999 and penalty fought to have been imposed within six months from the date of service of the order on the Commissioner/Chief Commissioner as provided in Section 275(1)(a). On merits, it was pointed out that the assessee did not incur any expenditure for, earning the dividend income and, therefore, deduction under Section 80M had been claimed to-the extent of dividends distributed and there, was no furbishing of inaccurate particulars of income. It was also argued that the investment in the shares of Eicher Ltd. was made entirely out of internal, accruals, or surplus funds and not out of borrowed funds. It was further, submitted. that the assessee purchased the shares of Eicher Ltd. essentially, to safeguard its source of income consisting of licence fee and service charges for providing corporate, services and thus any returns on the investment must be treated ,as' business income notwithstanding that the dividend is assessable under the head "Income from other sources" by reason o'f specific provisions of the Act.'! The assessee also contended that the' cteirri ;for' deduction was made bona fide.:
7. The assessing officer rejected the assessee's contention, So far as the limitation aspect is concerned he observed that the department had filed an appeal, before the Tribunal aganist the order of the Commissioner (Appeals) which was decided by the Tribunal in ITA No. 1209/Del/2000 by order dated 13-1-2003 received by the assessing officer in March,' 2004 and 'the penalty order having been passed within 6 months from the end of the month in which the order of the 'Tribunal was thus received, the penalty proceedings were not barred by time. On merits, it was argued' by the assessing officer that in the appeal before the Commissioner (Appeals) filed against the consequential 'order passed' by the assessing officer on 11-8-2003, the part 'disallowance of the claim under Section 80M was not pressed. He also observed that the assessee did not maintain separate record for expenses incurred against 'the dividend income and, therefore, an estimated allowance have to be made by the assessing officer? As regards the purpose of the investment in the shares of Eicher Ltd., the assessing officer; stated that he has allocated the business expenses to; the dividend income proportionately by treating the same at par with the business income. He also observed that the assessee's claim was not bona fide since in the assessment years 1993-94 to 1995-96, the claim for deduction under Section 80M was the subject of litigation. For these reasons, the assessing officer held that the assessee furnished inaccurate particulars of its income and accordingly levied a penalty of Rs. 45,41,242.
8. On appeal, the Commissioner (A) held that in the earlier years, the Tribunal has referred the question of law to the Hon'ble Delhi High Court on the issue whether the deduction under Section 80M is to be allowed on the gross or net dividend, whether the shares of Eicher Ltd. were held by the assessee as stock-in-trade or investment and whether the expenditure is to be allowed under Section 36(1)(iii) and accordingly held that the issue is debatable and, therefore, it cannot be said that the assessee by claiming the deduction furnished inaccurate particulars of income, nor can it be said that the claim was false. In this view of the matter, the cancelled the penalty relating to the deduction claimed under Section 80M.
9. However, as regards the claim for depreciation, the Commissioner (Appeals) held that the assessee's claim was incorrect since only 10 per cent depreciation was allowable on the structure and no reasons were given as to why depreciation was claimed at 100 per cent. He further found that the assessee's claim was not supported by judicial precedents. According to the Commissioner (Appeals), in view of Explanation 1 below Section 271(1)(c), there was no more any need to prove conscious concealment or mala mala fide for the levy of penalty. Accordingly, the penalty with reference to the depreciation claimed was affirmed.
10. With regard to the question of limitation, the Commissioner (Appeals) agreed with the assessing officer that the proceedings were not barred by limitation.
11. Before the Commissioner (Appeals), the assessee had also taken up the point that the assessing officer had not recorded his satisfaction in the assessment order to the effect that the assessee concealed its income or furnished inaccurate particulars thereof. The Commissioner (Appeals), however, relying on the observations of the Supreme Court in CIT v. S.V. Angidi Chettiai to the effect that the endorsement at the foot of the assessment order that action is taken by issue of notice for concealment of income amounts to recording of satisfaction/rejected the assessee's contention. He noted that in the present case also, the assessing officer has recorded a similar footnote in the assessment order.
12. Both the assessee as well as the revenue are aggrieved by the order of the Commissioner (Appeals) and have filed the present appeals. Whereas the appeal of the assessee is against the confirmation of the penalty in respect of the disallowance of depreciation, the appeal of the revenue is against the cancellation of the penalty in respect of the claim for deduction under Section 80M.
13. We have heard the rival contentions. The assessee filed an additional ground of appeal before the Tribunal by application dated 3-8-2005. The following grounds have been taken therein:
1. That on the facts and circumstances of the case and in law the order dated 10-9-2004 passed by the assessing officer levying penalty under Section 271(1)(c) of the. Income Tax Act, 1961 Income Tax Act, is without jurisdiction, illegal, bad in law and void ab initio.
1.1 That on the facts and circumstances of the case and in law the impugned penalty order is without jurisdiction, illegal, bad in law and void ab initio since the same has been passed without there being a satisfaction in the assessment order that the appellant had furnished inaccurate particulars of income/loss, which is sine qua non for assumption of valid jurisdiction, It is submitted that the additional ground raises a purely legal issue in respect of which facts are already on record and no fresh investigation is required. It is also submitted that the additional ground is taken since the assessee was recently informed of the correct position of law and that the omission to raise the same in the memorandum of appeal was neither wilful nor unreasonable. Reliance is placed on the judgments of the Supreme Court in Jute Corporation of India v. CIT and National Thermal Corporation Ltd. v. CIT : . On behalf of the department, the admission of the additional ground was vehemently opposed.
14. On a careful consideration of the matter, we are of the view that the additional ground requires to be admitted. It raises a pure question of law and requires no investigation into facts which are already on record. Further, in view of the recent judgments of the Hon'ble Delhi High Court on the question of satisfaction, which we shall presently note, the omission to take the ground in the memorandum of appeal cannot be said to be wilful or unreasonable. Respectfully following the judgments of the Supreme Court cited above, we admit the additional ground for adjudication.
15. As regards the merits of the additional ground, we have heard the rival submissions. We are of the view that the additional ground has to be decided in favour of the assessee. We have carefully perused the assessment order. At the end of the same, the assessing officer has noted that "penalty proceedings under Section 271(1)(c) are separately initiated". It has been held by the Hon'ble Delhi High Court in CIT v. Ram Commercial Enterprises Ltd. , after noticing the judgment of the Supreme Court in the case of Anqidi chettiar (supra) that merely because there is note in the assessment order that penalty proceedings have been initiated it cannot be assumed that the satisfaction was arrived at, in the absence of the same being spelt out by the order of the assessing authority. In the case of Diwan Enterprises v. CIT : , the Hon'ble Delhi High Court after referring to its judgment in Ram Commercial Enterprises Ltd. (supra) held that non-recording of the satisfaction in the assessment order before the issue of notice or initiation of any step for imposing penalty is a jurisdictional defect which cannot be cured. In CIT v. B.R. Sharma , if was. held by the Hon'ble Delhi High Court; that the assessment order should apparently show that there is application of mind and this can. only be gathered by the reasons stated in the order and reference to other records may not be very relevant,. It was pointed out that Section 271(1) (c) being a penal provision, should be construed strictly and the satisfaction, though subjective, must be arrived at objectively, In CIT v. Vikas. Piomoteis (P) Ltd, (20051277 ITR 337 (Del), the Hon'ble Delhi High Court observed that in the case of Angidi Chettiar. (supra), the Supreme Court have repeatedly emphasized the word "satisfaction" and the satisfaction is not to be merely in the, mind of the assessing officer but must be reflected from the record. It was further held that the element of satisfaction should be apparent from the order itself and it is not for the courts to go into the minds of the authorities or trace the reasons from the files of such authorities. If we peruse the assessment order in, the light of the. above binding, authorities, we are unable to. find any satisfaction being recorded therein to the effect that the assessee congealed its income or furnished inaccurate particulars thereof. It may be clarified that the penalty has been levied not for concealment of income but for furnishing inaccurate particulars of income as can be seen from the closing paras of. the penalty order. Therefore, the satisfaction of the assessing officer must be that the assessee, furnished inaccurate particulars of income. The disallowance of depreciation and the deduction' under Section 80M are discussed in paras 6 and 7 respectively of the assessment order. So far as the depreciation is concerned, the assessing officer has merely stated that the structure built by the assessee, on which depreciation has been claimed, cannot be, termed, as temporary structure. He has, therefore, restricted the claim of depreciation to 10 per cent as against 100 per cent claim. Nowhere in this para has the assessing officer stated that the particulars furnished by the assessee in support of the claim were wrong or false, nor has he unearthed any material fact or particulars which the assessee did not' disclose. 'The position with regard to the claim under Section 80M is even worse. In para 7 of the assessment order, the assessing officer has merely referred to the assessments of the earlier years and has stated that in line with those assessments, the assessees claim for the year under appeal cannot be allowed. In the course of the arguments before us, the learned Counsel for the assessed had drawn' our attention to the order of the Tribunal for the assessment year 1991-94 to 1995-96, dt. 27-10-1999, a copy of' which has been placed at pp! 74 to 96 of the paper book. In those years, the claim had reached the Tribunal and the argument of the assessee (before the Tribunal) was that it was in its Own business interest to hold the shares of the subsidiary company (Eicher Ltd,) and, therefore, the acquisition of' the shares was motivated by considerations such as holding control ovver the company in the interests of its business. This argument was1 not accepted by the Tribunal as can be seen from para 23 of the order. The Tribunal found it inconsistent to compute, the1 expenditure under the head business while computing the dividend income under the head "Income from other sources". The claim of the assesses was sought to be supported by the judgment of the Gujarat High Court in Addl CIT v. Laxmi Agents (P) Ltd. (1980) 125 ITR 227 (Guj) and that of the Calcutta High Court in CIT v. National & Grindlays bank Ltd. before the Tribunal. All that the Tribunal has stated is that the assessee's claim is not consistent with the scheme of the Income Tax Act or with logic and that it was an implausible stand. The assessing officer has not referred to the order of the Tribunal in the assessment order presumably because it was passed after the assessment order. Be that as it may, we have referred to the Tribunal's order only for the purpose of showing that if at all, the assessee's claim can only be stated to be debatable or contentious and in all fairness to the assessee it must also be said to be supported by High Court judgments. Even before, us, the learned Counsel for the assessee cited several other judgments in support of its claim that despite the dividend income being assessed as income from other sources, the expenditure could be computed under the head business. In the light of the authorities which prima facie: support the assessee, it is difficult to hold that the assessing officer could have, been satisfied that the assessee furnished inaccurate particulars of its income with regard to Section 80M. This is quite apart from the fact that there is no satisfaction recorded in para 7 of the assessment order.
16. We accordingly accept the additional ground and cancel the penalty sustained by the Commissioner (Appeals).
17. In the appeal filed by the department also, the assessee is entitled to succeed on the ground of non-recording of satisfaction as pointed out in the earlier paras. The assessee is entitled under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 to support the decision of the Commissioner (Appeals), which is appealed against by the department, on the ground of non-recording of satisfaction, which ground has been dismissed by the Commissioner (Appeals). We have already noted that so far as the claim under Section 80M is concerned, there is no recording' of satisfaction in the assessment order to the effect that the assessee furnished inaccurate particulars thereof. Though the Commissioner (Appeals) has rejected the assessees plea based on non-recording of satisfaction and has cancelled the penalty levied with reference to the deduction under Section 80M on other grounds on the ground that the assessee has not furnished inaccurate particulars of income we accept the assessee's plea regarding non-recording of satisfaction in view of Rule 27 and uphold the ultimate decision of the Commissioner (Appeals) to cancel the penalty.
18. The above discussion would suffice to dispose of both the appeals, but. in deference to the arguments advanced before us by both the sides, we wish to advert to them and render our decision. So far as the question whether the assessee is guilty of furnishing of inaccurate particulars concerned, we are unable to say that the assessee furnished inaccurate particulars of income either with regard to the claim for depreciation or with regard to the claim for deduction under Section 80M. With respect to the claim for depreciation, we have already noted that the assessing officer has not found fault with the particulars furnished by the assessee nor has he shown them to be false. He has not also unearthed any material fact or particulars which the assessee did not disclose. All that the assessing officer stated was that on the existing facts furnished by the assessee, the structure cannot be said to be a temporary structure. The Commissioner (Appeals) has referred to Explanation 1 to Section 271(1)(c) to hold that the assessee's claim is not supported by judicial precedents and, therefore, is not bona fide. We fail to see how it can be said so. The Hon'ble Delhi High Court in Addl. CIT v. Delhi Cloth & General Mills Company Ltd. .2 (Del) has held as under:
...The observation of the Tribunal comes to nothing but this, that the assessee's plea that the expenditure in question was of a revenue nature did not have any force and the expenditure had to be treated as capital expenditure and, therefore, the assessee was bound to add the same back to its total income, and the fact that the assessee did not so add back that expenditure amounted to the furnishing of inaccurate particulars of income by the assessee. It is obvious that the fact that the expenditure in question was capital expenditure in nature and was, therefore, liable to be added back to the income of the assessee is quite different from the fact as to whether, on the facts and in the circumstances of the case, the assessee could be under a bona fide belief that the expenditure in question was revenue expenditure and for that reason the same was not added back to its total income with the result that no penalty was exigible on that account, are two quite different facts. The aforesaid plea of the assessee regarding its jbona fide belief about the nature of the expenditure was not duly considered by the Tribunal. The mere fact that the plea of the assessee that the expenditure in question was of revenue nature was not accepted upto the Tribunal, by itself did not mean that the assessee had furnished inaccurate particulars of its income by not adding that back to its total income. Before we comment on the merits of the plea of the assessee, it may be stated here that it is a settled law that the mere fact that a claim of expenditure stands disallowed, does not by itself lead to the inference that the assessee had furnished inaccurate particulars in regard to that item. Penalty on account of concealment can be imposed only if there is conscious and deliberate concealment on the part of the assessee.
The aforesaid observations are a complete answer to the view taken by the Commissioner (Appeals) that Explanation 1 to Section 271(1)(c) applies to the case. Further, the assessing officer has merely taken a view different from that of the assessee on the very same facts and this cannot be brought within the meaning of the phrase "furnishing inaccurate particulars of 'income". The following authorities support this proposition:
(i) Cement Marketing Co. of India Ltd. v. Asstt. CST ,
(ii) Burma Shell Oil Storage & Distributing Company of India Ltd. v. ITO
(iii) CIT v. Late G.D. Naidu By LRs .
19. So far as the claim under Section 80M is concerned, the Commissioner (Appeal) has noticed that for the assessment years 1998-99 and 1999-2000, the Hon'ble Delhi High Court by order dt. 20-8-2001 has admitted the appeal of the assessee on the following substantial questions of law:
(a) Whether the Tribunal was justified in law in holding that assessee-appellant was entitled to deduction under Section 80M of the Income Tax Act, 1961 in respect of net dividend and not gross dividend ?
2. Whether the Tribunal was correct in holding that assessee's shares were stock-in-trade and/or investment in shares ?
3. Whether the Tribunal was correct in holding that expenditure under Section 36(1)(iii) of the Act was not linked to earning of dividend income ?
Taking into consideration the above development, the Commissioner (Appeals) has rightly held that the assessee cannot be said to have furnished inaccurate particulars relating to the claim. We have already noticed that the assessee's claim has the prima facie support of the judgments of the Gujarat and Calcutta High Courts (cited supra), and the Bombay High Court in CIT v. Amritaben R. Shah has also taken the same view. When the assessee's claim is supported by judgments of the High Courts, the assessing officer cannot possibly say, without bringing out any material difference between the cases before the High Courts and the case of the assessee, that the assessee is guilty of furnishing inaccurate particulars of income. Further, the issue has been recurring from earlier years and the disallowance has been made based on the earlier assessments without bringing out any material inaccuracy or falsity in the facts placed by the assessee. The issue is at best a debatable or contentious issue. In our view, the Commissioner (Appeals) was, therefore, right in saying that the assessee did not furnish inaccurate particulars in relation to the claim for deduction under Section 80M.
20. For the above reasons, we hold that the assessee did not furnish inaccurate particulars of income either with regard to the claim for depreciation or with regard to the deduction under Section 80M.
21. In the course of the arguments in the assessee's appeal, 'the learned Counsel for the assessee raised the contention that the penalty order is barred by limitation under Section 275(l)(a) of the Act. We are unable to agree with the contention. The order of the Tribunal in the appeal filed by the department in ITA No. 1209/Del/2000, dated 13-1-2003 is stated to have been received in the office of the CIT-IV, Delhi, in the month of March, 2004. Even assuming that it was received on 31-3-2004, the assessing officer has six months time from that date to pass the penalty order. The penalty order was passed on 20-9-2004, which is within time. We, therefore, do not agree with the learned Counsel for the assessee that the penalty order is barred by time.
22. The learned Counsel for the assessee, however, submitted that so far as the penalty with regard to the disallowance of depreciation is concerned, the penalty order is barred by time under Section 275(1)(a) of the Act. He pointed out that the disallowance of the depreciation was confirmed by the Commissioner (Appeals) by order dated 15-12-1999 against which there is no appeal to the Tribunal either by the assessee or by the department and, therefore, the penalty with regard to depreciation should have been imposed within six months from the end of the month in which the order of the Commissioner (Appeals) was received by the Chief Commissioner or Commissioner. He submitted that it is not conceivable that the order passed on 15-12-1999 would not have been received by the Chief Commissioner or Commissioner for such a long time and, therefore, submitted that the penalty order passed on 20-9-2004 must be certainly time-barred. We are unable to accept this submission also since once the "order" of the Commissioner (Appeal) is subjected to appeal then the extended period of limitation is available to the assessing officer for passing the penalty order. In the present case, the order of the Commissioner (Appeals) dated 15-12-1999 was appealed against by the department and, therefore, the assessing officer is entitled to pass the penalty order within six months from the end of the month in which the order of the Tribunal is received by the Commissioner or the Chief Commissioner. The learned senior departmental Representative has filed a letter dated 21-11-2006 written by the assessing officer to him saying that the order of the Tribunal was received in the office of the Commissioner in March, 2004. This was not disputed on behalf of the assessee. The penalty order having been passed on 20-9-2004 is, therefore, within the period of limitation. The argument of the learned Counsel for the assessee to the contrary is not accepted.
In the result, the appeal filed by the assessee is allowed and the penalty relating to the claim of depreciation is cancelled and the appeal filed by the department against the cancellation of the penalty levied with reference to the claim for deduction under Section 80M is dismissed. No costs.