Income Tax Appellate Tribunal - Chandigarh
Punjab Urban Planning And Development ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A' CHANDIGARH
BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER
AND Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
ITA Nos.26 & 27/CH D/2012 AND
ITA Nos. 814, 254 & 815/Chd/2013
A.Ys : 2004-05, 2005-06, 2007-08
2008-09 & 2009-10
The Dy Commissioner of Vs M/s Punjab Urban Planning &
Income Tax, Development Authority,
Circle 6(1), PUDA Bhawan,
Mohali. Sector 62,
SAS Nagar,
Mohali.
PAN : AAALP0045J
&
ITA No.149/CHD/2013
Assessment Year : 2008-09
M/s Punjab Urban Planning Vs The A.C.I.T.,
& Development Authority, Circle 6(1),
PUDA Bhawan, Mohali.
Sector 62,
Mohali.
PAN : AAALP0045J
(Appellant) (Respondent)
Department by : S h r i A k h i l e s h G u pt a
Assessee by : S h r i S u d hi r S e h ga l
Date of Hearing : 2 1 . 0 1 . 2 0 14
Date of Pronouncement : 2 6 .0 2 . 2 0 14
O R D E R
PE R S U S H M A C H O W L A , J M Out of this bunch of six appeals, four appeals are filed by the revenue against different orders of Commissioner of Income Tax (Appeals) against deletion of penalty under section 271(1)(c) of the 2 I n c o m e T a x A c t , 1 9 6 1 ( i n s h o r t ' t h e A c t ' ) r e l a t i n g t o a s s e s s m e n t ye a r s 2004-05, 2005-06, 2007-08 and 2009-10. The cross appeals have been filed by the assessee and the revenue against the order of the Commissioner of Income Tax (Appeals) dated 07.02.2013 against the levy of penalty under section 271(1)(c) of the Act relating to a s s e s s m e n t ye a r 2 0 0 8 - 0 9 .
2. All these appeals relating to the same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience.
3. The assessee has raised the following grounds of appeal in ITA No. 149/Chd/2012:
1. That on the facts and in the circumstances. of the case and in law, the Worthy CIT(A) through his order dated 07.02.2013 has erred in passing that order in contravention of provisions of Section 250(6) of the Income Tax Act, 1961.
(2) (i) That on the basis of facts and circumstances of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO, wherein he had erred in levying penalty of Rs. 1,04,28,75,000/- on addition of Rs. 225 crores on account of expenditure incurred on the development of infrastructure in the form of setting up of an international airport at Mohali, which is accordance with the objects and functions for which the assessee authority has been constituted and the application of funds were in accordance with the provisions of the Act under which the authority has been constituted.
(ii) That on the basis of facts and circumstances of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO, wherein he had erred in levying penalty on addition of Rs. 225 crores even when this expenditure has been incurred wholly and exclusively for the purpose of business of the assessee authority.
(iii) That on the basis of facts and circumstances of the case, Worthy CIT(A) has erred in confirming the action of Ld. AO, wherein he had erred in levying penalty despite the fact that the issue being a debatable issue and the quantum is still pending for adjudication before Hon'ble ITAT and has not attained finality.
3. That Worthy CIT(A) has erred in not allowing the ground of the appellant that the Ld. AO acted with biased and prejudice mind, did not afford proper opportunity, did not confront any bad inference drawn by him, acted in 3 haste and illegal manner even though the penalty was going to be time barred by 31.03.2013.
4. That Worthy CIT(A) has erred in confirming the action of Ld. AO, wherein he had acted with such biased and prejudiced mind that he has levied a penalty to the extent of 1 50% which is totally unwarranted.
5. That the Worthy CIT(A) has erred in passing the impugned order in haste as the appeal was filed before him on 30.11.2012 and was originally fixed for hearing on 21.03.2013. However, even without any request from the appellant, the same was preponed for 31.01.2013 and the same was decided on the basis of that solitary date of hearing and such a delicate matter involving huge quantum was decided without affording further opportunity to argue the matter.
6. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.
4. In ITA No. 26/Chd/2012, the revenue has raised the following grounds of appeal :
I. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
5. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.5,99,62,243/- on account of installments received.
6. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.53,31,784/- on account of installments received pending adjustments.
7. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.6,78,007/- on account of adjusted hire purchase debtors.
5. It is prayed that the order of the Ld. CIT (A) be set aside and that of the Assessing officer may be restored.
6. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or disposed off.
5. In ITA No. 27/Chd/2012, the revenue has raised the following grounds of appeal :
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.4,90,51,888/- on account of installments for sale of houses/flats received during the year.
3. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.46,47,680/- on account of installments received pending 4 adjustments.
4. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.6,84,104/- on account of adjusted hire purchase debtors.
5. It is prayed that the order of the Ld. CIT (A) be set aside and that of the Assessing officer may be restored.
6. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or disposed off.
6. In ITA No. 814/Chd/2013, the revenue has raised the following grounds of appeal :
1. On the facts and circumstances of the case and in law, the ld Commissioner of Income Tax (Appeals) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.1,94,64,044/- on account of installments for sale of houses/flats received during the year.
3. It is prayed that the order of the Ld. CIT (A) be set aside and that of the Assessing officer may be restored.
4. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or disposed off.
7. In ITA No. 254/Chd/2013, the revenue has raised the following grounds of appeal:
1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. On the facts and circumstances of the case an in law, the Ld. C1T(A), has erred in deleting the penalty amounting to Rs.14,26,215/- which was levied by the Assessing Officer u/s 271(l)(c) with respect to addition of Rs.46,15,584/- made on account of installments received during the year on account of for sale of houses/flats.
3. It is prayed that the order of the Ld. CIT (A) be set aside and that of the Assessing officer may be restored.
8. In ITA No. 815/Chd/2013, the revenue has raised the following grounds of appeal :
1 . On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.5
3. On the facts and circumstances of the case an in law, the Ld. CIT(A), has erred in deleting the penalty u/s 271(l)(c) on addition of Rs.41,54,303/- on account of installments for sale of houses/flats received during the year.
3. It is prayed that the order of the Ld. CIT (A) be set aside and that of the Assessing officer may be restored.
9. In ITA No. 149/Chd/2013, the ground No. 1 raised b y the assessee is general in nature and the ground Nos. 3 & 5 are not pressed, hence the same are dismissed.
10. The only issue raised in the present appeal is against levy of penalty under section 271(1)(c) of the Act at Rs. 104,28,75,000/- on addition of Rs. 225 Crores on account of expenditure incurred on the development of infrastructure in the form of setting up of international airport at Mohali. The assessee, by way of ground No. 4 i s a g g r i e v e d b y t h e o r d e r o f A s s e s s i n g O f f i c e r i n l e v yi n g t h e p e n a l t y to the extent of 150%.
11. T h e b r i e f f a c t s o f t h e c a s e a r e t h a t t h e a s s e s s e e f o r t h e ye a r under consideration had furnished return of income declaring loss of Rs. 160.89 Cr and the assessment in the case was completed under section 143(3) of the Act on a total income of Rs. 194.46 Cr. While completing the assessment vide order dated 29.12.2010, the Assessing Officer made various additions and some of the additions were revised vide order passed under section 154 of the Act dated 23.03.2011. The assessee's appeal was partl y allowed b y the Commissioner of Income Tax (Appeals), Chandigarh and pursuant to the order of Commissioner of Income Tax (Appeals), the following additions were upheld :
a) Addition of Rs. 16,42,01,257/- on account of disallowance of 50% of administrative expenditure.
b) Addition of Rs. 225 Cr on account of amount paid for development of airport at Mohali.6
c) Addition of Rs. 46,15,584/- on account of instalment received on sale of houses/flats
12. The Assessing Officer completed the penalty proceedings initiated under section 271(1)(c) of the Act in respect of the first addition of disallowance of the 50% of the administrative expenses, and dropped the penalty proceedings initiated under section 271(1)(c) of the Act. However, in respect of the addition of Rs. 225 Cr being amount paid for development of the airport at Mohali, the Assessing Officer after considering the reply of the assessee on this issue which i s i n c o r p o r a t e d a t p a g e s 5 t o 1 0 o f t h e o r d e r , l e v yi n g p e n a l t y u n d e r section 271(1)(c) of the Act, held that the nature of the business activity carried on by the assessee was for the urban development of the State of Punjab and the activities included development of land and subsequent sale of residential as well as commercial properties. The Assessing Officer further observed that the Commissioner of Income Tax (Appeals) had considered the objections raised b y the assessee in entirety and confirmed the addition. The Assessing Officer observed that, "Falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely claimed or an exaggerated amount could be claimed and since attempts of both the types reduces taxable income, both amount to concealment of particulars of one's income as well as to furnishing of inaccurate particulars of income. Since the assessee had claimed the expenditure knowing that it was incorrect, it amounts to concealment of income and furnishing inaccurate particulars of income." It was further held b y the Assessing Officer, "If we take the view that such a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, would not be liable to imposition of penalty that would 7 give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims in the hope that their return would not be picked up for scrutiny. And even if their case is selected for scrutiny, they an get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a malafide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have." The Assessing Officer, thus held that by making an incorrect claim of expenditure, the assessee had furnished inaccurate particulars of income. It was further observed b y the Assessing Officer that, " Explanation 1 to S. 271(1) provides a legal fiction where under any addition or disallowance is deemed to represent the concealed income for the purpose of levy of concealment penalty once the condition provided in the Explanation are satisfied. The said Explanation shifts the burden of proof from the Department to the assessee as regards the concealed income. In substance, the said Explanation provides for a deeming fiction whereunder any addition or disallowance made to the total income is regarded as concealed income for the purpose of levy of concealment penalty under the circumstances mentioned therein. As per the provisions of Explanation 1 to section 271(1)(c), the onus to establish that the explanation offered was bonafide and all facts relating to the same and material to the computation of its income have been disclosed will be on the person charged with concealment".
13. The Assessing Officer held that the assessee had failed to discharge the onus cast upon it and having furnished inaccurate particulars of income was liable to levy of penalty under section 8 271(1)(c) of the Act to the extent of 150% of the tax sought to be evaded. Further, the Assessing Officer held that the assessee had also furnished inaccurate particulars of income in respect of the addition m a d e o n a c c o u n t o f i n s t a l m e n t r e c e i v e d d u r i n g t h e ye a r o n a c c o u n t o f sale of houses/flats. The Assessing Officer imposed penalty under section 271(1)(c) of the Act to the extent of 100% of the tax sought to be evaded.
14. The Commissioner of Income Tax (Appeals) at pages 3 to 8 of the appellate order reproduced the submissions of the assessee and thereafter considered the issue of levy of penalty on the disallowance of expenditure of Rs. 225 Cr. The Commissioner of Income Tax (Appeals) noted that the amount debited by the assessee was not an expenditure of the assessee at all, and it was purely a case of application of income for a purpose which had no direct or even indirect relation with the business of the assessee. The Commissioner of Income Tax (Appeals) further observed that in the quantum proceedings, it was held that even in the notings available on the file of PUDA, there was no mention of any benefit which was expected to accrue to PUDA, because of the establishment of an international airport. In relation to the levy of penalty under section 271(1)(c) of the Act, the Commissioner of Income Tax (Appeals) observed that where the assessee had a bonafide explanation for non-inclusion of receipt in its taxable income or for claiming particular item of expenditure as deduction from taxable income, even though the stand of the assessee was rejected, no penalty for concealment of particulars or furnishing inaccurate particulars could be imposed. However, the said legal position had to be carefully applied as in the present scenario, very few tax returns were taken up by the department for s c r u t i n y a n d a s t h e l e v e l o f t r u s t o f t h e d e p a r t m e n t o n t h e t a x p a ye r s 9 had increased, the level of the assessee to make correct and full disclosure of his income in the return had gone up.
15. The Commissioner of Income Tax (Appeals) vide para 4.3.2 held as under :
"As discussed earlier, the appellant had quietly debited the expenditure of Rs. 225 crores in the income and expenditure account and when the revenue questioned the allowability of this expenditure, it was asserted that the expenditure was allowable under section 37(1) of the Act, but when the claim of the appellant was examined in depth, it was found that there existed absolutely no basis for claiming this amount as deduction.
16. It was further held by the Commissioner of Income Tax (Appeals) that the assessee's case was not covered under any of the conditions laid down in Explanation-I below section 271(1) of the Act as the assessee had not proved that the explanation given by it was bonafide. The Commissioner of Income Tax (Appeals) held that the case of the assessee was squarely covered b y Explanation I(B) under section 271(1) of the Act because the correct facts relating to the claim of Rs. 225 Cr were not disclosed. The Commissioner of Income Tax (Appeals) thus, held that where the said amount had been spent on the directions of the Punjab Government and such incurring of the expenditure by the assessee being not for business purposes, could not be apportioned for a fund as deduction from the tax able income. In view thereof, the Commissioner of Income Tax (Appeals) upheld lev y of penalty under section 271(1)(c) of the Act.
17. The ld. AR for the assessee pointed out that the appeal of the assessee is in respect of the levy of penalty under section 271(1)(c) of the Act on addition of Rs. 225 Cr. It was pointed out b y the ld. AR for the assessee that the said amount was debited to the Profit & Loss 10 Account and was claimed as an expenditure of revenue account. Even the tax auditors did not object to the said claim of revenue ex penditure. It was further pointed out b y the ld. AR for the assessee that the accounts of the assessee were audited by CAG who in-turn had not raised an y objection against the said claim of the assessee. It was further pointed out by the ld. AR for the assessee that the Tribunal while disallowing the claim of the assessee had held that the said expenditure was made on the behest of directions of the State Government and was not business expenditure. The assessee, however at the time of filing the return of income had claimed the expenditure incurred for the development of airport as revenue expenditure, though the said expenditure was incurred at the directions of State Government.
18. The next plea of the ld. AR for the assessee was that the Tribunal while deciding the issue against the assessee in para 215 had r e l i e d o n t h e r a t i o l a i d d o w n b y t h e H yd e r a b a d B e n c h o f T r i b u n a l i n A n d h r a P r a d e s h H o u s i n g B o a r d V s D C I T i n I T A N o . 7 1 7 / H yd / 2 0 1 2 & Ors., against which the Hon'ble Andhra Pradesh High Court had admitted the appeal and hence the issue was debatable. The ld. AR for the assessee pointed out that where the issue is debatable, whether penalty under section 271(1)(c) of the Act is leviable or not has been laid down b y the Hon'ble Delhi High Court in CIT Vs Liquid Investment & Trading Co. in ITA No. 240 of 2009 vide judgement dated 05.10.2010. Another plea was raised by the assessee that where the claim of the assessee was not found to be false, no penalty under section 271(1)(c) was leviable on such bonafide claim of the assessee. Reliance in this respect was laid down on CIT Vs Reliance Petroproducts P.Ltd. (2010) 322 ITR 158 (S.C), CIT Vs Amtek Auto Ltd. (2013) 84 CCH 140 (P&H) & CIT Vs Sidhartha Enterprises (2010) 11 322 ITR 80 (P&H). It was pointed out b y the ld. AR for the assessee that where the claim of the assessee is bonafide and entries are made to that extent, then no penalty is leviable under section 271(1)(c) of the Act. Our attention was drawn to para 16 of CIT Vs Zoom Communication (P) Ltd. (2010) 327 ITR 510 (Del) and it was pointed out that the Hon'ble Delhi High Court in the said decision had not said a n yt h i n g n e w e x c e p t t h a t h a s b e e n l a i d d o w n b y t h e H o n ' b l e S u p r e m e Court in CIT Vs Reliance Petro Products (P) Ltd.(supra).
19. The next argument of the ld. AR for the assessee was that where the claim is not found to be bogus, even though it was disallowed, no penalty was leviable under section 271(1)(c) of the Act. Reliance was p l a c e d o n C I T V s D e e k s h a H o l i d a ys L t d . ( 2 0 1 0 ) 1 8 6 T a x m a n 1 8 3 ( D e l ) and ACIT Vs T.R.B. Exports P.Ltd. (2010) 134 TTJ 49 (Chd). Further, where the issue is a debatable issue against which complete facts were furnished on record, there is no basis for levy of penalty under section 271(1)(c) of the Act. Reliance was placed on CIT Vs Gurdaspur Co- operative Sugar Mills Ltd. (2013) 354 ITR 27 (P&H) and CIT Vs Raj Overseas(2011) 336 ITR 261 (P&H). The ld. AR for the assessee further pointed out that the assessee was a government organization and the intent was to pay due taxes and in such circumstances lenient view needs to be taken. Reliance was placed on CIT Vs H.P.State Forest Corporation Ltd. (2012) 340 ITR 204 (HP) in this regard.
20. The ld. AR for the assessee further submitted that the Assessing Officer while passing the assessment order had initiated the penalty both for concealment of income or furnishing of inaccurate particulars o f i n c o m e . H o w e v e r , w h i l e l e v yi n g t h e p e n a l t y u n d e r s e c t i o n 2 7 1 ( 1 ) ( c ) of the Act, the Assessing Officer levied penalty for furnishing of inaccurate particulars of income.
12
21. The last plea made by the ld. AR for the assessee was that there w a s n o m e r i t i n l e v yi n g t h e s a i d p e n a l t y @ 1 5 0 % o f t h e t a x s o u g h t t o be evaded.
22. The ld. DR for the revenue pointed out that the expenditure had not been incurred by the assessee in its own right, which is the pre- requisite for allowing the expenditure under section 37 of the Act. The said expenditure was incurred at the behest of the State Government and the assessee was not even clear as to the nature of the expenditure, whether it was loan to the government, share application or any other advance. The expenditure incurred by the assessee being purely contribution to purchase land on the directions of the Government of Punjab was held to be not allowable as a revenue expenditure in the hands of the assessee by the Tribunal in the quantum proceedings.
23. The ld. DR for the revenue pointed out that the assessee has placed reliance on series of decisions which have been over-ruled by the Hon'ble Supreme Court in CIT Vs Atul Mohan Bindal 317 ITR 1 (S.C) wherein it has been held that the levy of penalty under section 2 7 1 ( 1 ) ( c ) o f t h e A c t i s s t r i c t c i v i l l i a b i l i t y. I t w a s f u r t h e r p o i n t e d o u t b y the ld. DR for the revenue that reliance on CIT Vs Sidhartha Enterprises (2010) 322 ITR 80 (P&H) b y the assessee was incorrect as in the facts of the said case, penalty was deleted on element of omission. In order to decide whether the explanation of the assessee is bonafide, it was submitted by the ld. DR for the revenue, that we have to see the degree i.e. is it close to the truth to fall within the domain of 'debatable'. The assessee, in the present facts of the case has tried to make the issue debatable which is not debatable. It was further pointed out by the ld. DR for the revenue that CAG audit was only to check the accounts and not the legality of allowability of 13 expenditure and the submissions made by the assessee in this regard were thus, to be dismissed. In respect of the audit report, it was pointed out by the ld. DR for the revenue that the auditors have failed to remark on the said expenditure and in the absence of the same, it could not be said that the disclosure made by the assessee was bonafide. Further reference was made to Explanation I to section 271(1)(c) of the Act and it was pointed out that though an explanation has been filed by the assessee but the assessee is unable to substantiate that it is bonafide or prove it is true. As the assessee had failed to show how the expenditure incurred by it was genuine and incurred for the purpose of business, no immunity could be provided to the assessee from penal consequences. Reliance was placed on MAK Data P.Ltd. Vs CIT (2013) 358 ITR 593 (Del). In the conclusion it was pointed out by the ld. DR for the revenue that the Commissioner of Income Tax (Appeals) while upholding the penalty under section 271(1)(c) of the Act at pages 2 & 3 of the appellate order has given a finding that from the notings of file of PUDA, the officers of the PUDA were against bearing the said financial burden and even against the same, the expenditure was not only incurred by the assessee but was further booked as revenue expenditure.
24. In the rejoinder, it was pointed out by the ld. AR for the assessee that the expenditure was incurred by the assessee on the directions of the government and its disallowance could not attract levy of penalty for concealment under section 271(1)(c) of the Act.
25. We have heard the rival contentions and perused the records. Penalt y for concealment is leviable u/s 271 (1)(c) of the Act in case any one of the two pre-conditions are satisfied. The pre-conditions for levy of penalt y are either the assessee had concealed the particulars of its income or in the 14 alternative, the assessee had furnished inaccurate particulars of income. Either of the two conditions needs to be fulfilled before levy of penalt y under section 271 (1)(c) of the Act. The provisions of the Act envisages an opportunit y of hearing to be afforded to the assessee to prove its bonafides and where the assessee is able to prove the bonafides of his claim, with regard to the particulars of income furnished in the return of income, in such circumstances no penalt y is leviable for concealment of income or for furnishing inaccurate particulars of income under section 271 (1)(c) of the Act. The expressions 'concealment' and 'inaccurate particulars' u/s 271 (1)(c) of the Act has been deliberated upon in plethora of judgments by various Courts. The Hon'ble Supreme Court in Dharmendra Textiles & Processors case (supra), observed that the penalt y u/s 271 (1)(c) of the Act is a civil liabilit y. However, where the liabilit y is penal in nature though being civil liabilit y and there is no requirement of establishing the mens rea of the intention of the assessee in cases where the assessee is found to have concealed the particulars of his income or furnished inaccurate particulars of income. However, where the information furnished by the assessee in the return of income to the best of knowledge of the assessee is correct and complete, it cannot be said that the onus on the assessee has not been discharged to prove its bonafides. Where any addition to, or disallowance from, had been made to the returned income, it per se cannot be the foundation of penalty under section 271 (1)(c) of the Act as findings in the assessment order cannot be taken a conclusive proof of concealment for the purpose of levy of penalt y under section 271 (1)(c) of the Act. Under the Explanation 1 to section 271 (1), the onus is upon the assessee to establish the bonafides of his claim and where the assessee discharges its onus of proving his claim to be bonafidel y made, the Courts have held that there is no merit in levy of penalt y under section 271(1)(c) of the Act. 15
26. In the fact of the present case, the assessee had claimed an expenditure of Rs. 225 Cr against the cost of land for establishing an International Airport at Mohali. The said expenditure was claimed by the assessee as business expenditure under section 37(1) of the Act on the plea that the establishment of International Airport in the vicinit y o f t h e a r e a , w h i c h i s u n d e r t h e c o n t r o l o f t h e a s s e s s e e a u t h o r i t y, w o u l d result in higher profitability to the assessee vis-à-vis the increase in the price of the land/houses sold by the assessee. The assessee claimed that the said expenditure was made in furtherance of development object of the authority including economic development o f t h e l a n d a n d a l s o o f t h e a r e a i n t o t a l i t y. The said expenditure was incurred because of commercial necessity and as it had not acquired any capital asset nor made any donation to any organization, the same was duly claimed as wholly and exclusively laid out for the purpose of business. The assessee took a decision to contribute towards the development of International Airport in the jurisdictional area a u t h o r i t y, o n t h e s u g g e s t i o n s o f t h e P u n j a b G o v e r n m e n t w h i c h i n - t u r n would result into many fold increase in the rates of the land to be sold b y t h e a s s e s s e e t o v a r i o u s p e r s p e c t i v e b u ye r s . T h e A s s e s s i n g O f f i c e r , however, disallowed the expenditure claimed by the assessee totaling Rs. 225 Cr on the following issues :
"a. The JVC had been formed for the purpose of construction of airport at Mohali in which GMADA, HUDA and Airport Authority of India had their specific shares, but PUDA had no share holding in JVC and had nothing to do with the airport at Mohali and so it was not known as to in what capacity PUDA had booked the amount of Rs. 225 Crores for acquisition of land for airport at Mohali.
b. The expenditure of Rs. 225 Crores for acquisition of land for airport at Mohali was not at all related to income earned during the year.
c. That assessee had not shown the acquired land in its fixed assets schedule/balance sheet, which clearly substantiated 16 that the expenditure was not related to the business of the appellant."
27. The Commissioner of Income Tax (Appeals) upheld the order of Assessing Officer.
28. The Tribunal in ITA No. 390/Chd/2012 relating to assessment year 2008-09 vide consolidated order dated 16.12.2013 adjudicated the issue vide paras 188 to 217 of the order. The Tribunal after considering the various facets of section 37 of the Income Tax Act vide para 198 and 199 considered the issue of allowability of expenditure under section 37 of the Act in relation to the nature of the expenditure whether the same is capital in nature or revenue in nature. The relevant findings of the Tribunal vide paras 198 and 199 are as under :
"198 The last condition for allowability of expenditure u/s 37 was that it should not be in the nature of capital expenditure. In the case before us, it has been held that the expenditure was incurred for the purpose of acquisition of land and therefore, being in capital nature is not allowable. In this regard we have perused Joint Venture Agreement (In short JVA) carefully and find that the same was entered on 17th day of Sept, 2009 between Airport authority of India (statutory authority established under the Airport Act, 1994) and Government of Punjab through GMADA (statutory authority constituted by Government of Punjab and HUDA (statutory authority constituted by Haryana Housing development authority). In the recitation clause it has been recited that Memorandum of Understanding was signed among those parties on 4.1.2008 which broadly provide for the following terms and conditions:
"a Joint Venture Company (JVC) would be formed with 51% equity stake of AAI and 24.5% equity stake each of GMADA and HUDA to operate and maintain the Chandigarh International Airport (CIA) at Chandigarh to be built by AAI;
Punjab Government would transfer the required land located at Mohali, Punjab of 300 acres approximately to be JV Company including land for city side development. The cost of land would be equally shared between the Governments of Punjab & Haryana and would be capitalized and shall count towards the equity contribution of GMADA and HUDA. AAI would be responsible for creating the Terminal Building and other airside facilities for the JVC without seeking any cash consideration form other JV partners which would be subsequently capitalized at a value to be determined by AAI at the time of transfer and shall count towards the equity contribution of AAI; and The cost of land would be counted towards the 49% equity contribution of GMADA and HUDA and the cost of International Civil Air Terminal & Other aeronautical assets to be built by AAI will be 17 counted towards the 51% equity contribution of AAI as per the provisions in the Shareholders Agreement to be executed by the JV Parties and the JV Company." As per recitation clause it is further agreed that same (JVC) is for the following purposes:
to form a Joint venture Company which will undertake the operation and maintenance of Chandigarh International Airport to be built by AAI at Chandigarh;
to subsequently take over the existing infrastructure belonging to AAI at the Civil Enclave at Chandigarh at such value as may be determined by AAI and to operate and maintain the same.
to undertake further development of Civil Air Terminal at Chandigarh, commensurate with the traffic potential, commercial viability and availability of financial resources;
to record the terms and conditions on which the parties to this agreement will subscribe to the Share Capital (as defined hereinafter) of the Joint Venture Company (JKVC) and to regulate the relationship amongst the Joint Venture Parties as long as they are Shareholders of the JVC."
Further while defining the responsibility of the parties, it has been provided in respect of responsibility of the State Government/GMADA as under:
Responsibilities of State Government / GMADA:
Clearances / permissions / NOC to be obtained by GMADA from concerned authorities - Activities / Services for Responsibilities for Clearance / Permission. Transfer of land (200 acres) to GMADA the JV company for development of project.
The GMADA shall acquire the land of around 300 acres and transfer to the JVC for the development of Chandigarh International Airport.
The GMADA and HUDA shall bear all the expenditure in equal share in respect of claim or liabilities arising out the any litigation, present or future in the matter of land acquisition.
The GMADA shall ensure that initial establishment of sub station and waterline to be done by State Government free of cost.
The GMADA shall exempt the Civil Air Terminal Complex including apron i.e. area including city side development staff colony and the land used for the installation of Navigational Aids and other related equipment from property tax and other municipal taxes initially for a period of ten years commencing from the date of transfer of land to JVC to minimize operational looses. The need for further extension of these concession and exemptions will be jointly reviewed by GMADA & AAI at the end of the ten year period.
The GMADA will acquire the land and develop fourland approach road to Civil Air Terminal with lighting, horticulture, signages etc. and the cost of the same shall be equally shared between GMADA & HUDA.
The GMADA shall remove the identified obstacles, if any, hazard for safely of aircraft operation form the approach path of extended runway and transitional area such as high tension / low tension power lines, canal, gas pipeline, structures, buildings, chimneys, trees etc. at their cost.
In clause 3.1 it has been specifically noted that JVC will be incorporated as a Private Ltd Company. Clause 3.2 deals with shareholders agreement which is as under:
Shareholders' Agreement A Shareholders' Agreement will be executed by and between AAI, GMADA, HUDA and the JVC, after the Joint Venture Company is incorporated.18
Till such time the Shareholders' Agreement is executed and AoA is approved by the parties, it is agreed by the parties that the Regulations contained in Table A in Schedule I to the Indian Companies Act, 1956 may be applied to the proposed JVC.
In the event of any inconsistency between the provisions of this Agreement and the MoA or AoA, the parties shall take all steps to alter or amend the MoA and AoA to make it consistent with the terms of this Agreement.
Clause 4.2 and 4.3 deals with share capital which is as under:
4.2 Initial subscribed / paid up capital At the time of incorporation, the Issued share Capital of the Company shall be Rs. 1000,00,000/- (Rs.
Ten Crore) and the contribution of the Parties hall be as follows:-
AAI shall subscribe to 51,00000/- (Fifty one Lac) equity share of Rs. 10/- (Rs. Ten only) each for cash aggregating to Rs. 5,20,00,000/- (Rs. Five Crore Ten Lac only) GMADA shall subscribe to 24,50,000/- (Twenty Four Lac Fifty Thousand) equity shares of Rs. 10 (Rupees Ten only) each for cash aggregating to Rs. 2,45,00,000/- (Rs. Two Crore Forty Five Lac only) HUDA shall subscribe to 24,50,000/- (Twenty Four Lac Fifty Thousand) equity shares of Rs. 10 (Rupees Ten only) each for cash aggregating to Rs. 2,45,00,000/- (Rs. Two Crore Forty Five Lac only)
(a) The proportion in which the Parties shall subscribe to the equity share capital of the JVC shall be as follows subject to provisions contained in para 5:-
AAO = 51% GMADA = 24.5% HUDA = 24.5%
(B) The State Government would transfer the required land located at Mohali, Punjab to the JVC and AAI would be responsible for creating the airside facilities and Terminal building for the JVC, which will be appropriated towards share capital and share premium. At the time of voluntary winding up of the Company, the Share Premium paid by GMADA, HUDA & AAI shall be considered for determining the value of assets to be bifurcated / allocated to these three parties."
199 Rest all the clauses are general clauses and not very relevant for us and therefore, same are not being reproduced. Combined reading of above clauses clearly show that both the State Governments have contributed towards development of the Airport at Mohali in terms of acquisition of land and against such acquisition of land the Government of Punjab through GMADA has been allowed 24.5% equity stake in the airport which would ultimately be run as business venture by floating Private Ltd Company. Therefore, it becomes very clear that what has been contributed by the assessee, is only land. It seems that the land has been acquired by Government of Punjab and since Government of Punjab did not have money, therefore, the assessee authority has been roped in to make contribution to make the payment for acquisition of land. It is not clear in whose name the land has been registered from the documents produced before us. However, the fact remains that the contribution was made only in terms of land for which the Government of Punjab through GMADA would acquire shares to the tune of 24.5%. This is clear because of capital contribution for starting a new business venture of running Airport. It has further to be noted that name of PUDA does not appear in the JVA despite PUDA making the biggest chunk of the contribution i.e. Rs. 225 crores out of Rs. 300 cores of total contribution. When the money has been spent only for acquisition of land that is for ultimately purchasing of land for the proposed Airport, this cannot be called a revenue expenditure. It is clearly a case 19 of capital expenditure which is not allowable u/s 37 because it clearly provides that expenditure in the nature of capital is not allowable for the purpose of computing "profits and gains of business and profession". In view of above clauses, we hold that this expenditure i.e. the contribution made by PUDA is not for the business purposes and it is in form of capital contribution and in the nature of capital expenditure and therefore, same is not allowable u/s 37. We fail to understand why PUDA has not looked after its interest either by becoming shareholder in the proposed Airport or by raising a claim against the Government of Punjab for transfer of land or recovery of the contribution if the land was retained by the Government of Punjab against which Government of Punjab was to receive 24.5% of equity shares in the JVA."
29. The Tribunal, thus held that where the money had been spent only for the acquisition of land for the ultimately purchase of land for the proposed Airport, such expenditure could not be called as revenue ex penditure. It was held "It is clearly a case of capital expenditure which is not allowable under section 37 because it clearly provides that expenditure in the nature of capital is not allowable for the purpose of computing "profits and gains of business and profession". The Tribunal further held that the expenditure i.e. the contribution made by the assessee was not for business purposes but was in the form of capital contribution and in the nature of capital expenditure and hence, not allowable under section 37(1) of the Act. Thereafter, t h e T r i b u n a l a n a l yz e d t h e c a s e l a w s r e l i e d u p o n b y b o t h t h e a u t h o r i z e d representatives and vide para 213 has elaborated upon the decision relied upon by the revenue of Oil Industry Development Board Vs ACIT 123 ITD 67 (Del) (Trib) and held as under :
"From above it is clear that unless and until the expenditure is related to the business of the assessee so as to meet the requirement of Section 37 that the expenditure has been incurred "wholly and exclusively" for the purpose of business, same is not allowable. Therefore, clearly this case law is applicable to the assessee in the sense that even if the expenditure is incurred to meet the objects of a particular undertaking the same is still not allowable unless the same has been incurred for the purpose of business.20
30. Further, vide para 215 the decision in Andhra Pradesh Housing B o a r d V s D C I T i n I T A N o . 7 1 7 / H yd . / 2 0 1 2 & O r s . w a s c o n s i d e r e d b y the Tribunal and it was observed that the facts of the said case were identical to the facts of this case. I n t h e c a s e b e f o r e H yd e r a b a d Bench, sum of Rs. 1180 Cr was given to the Andhra Pradesh Housing Corporation on the directive of the Government and it was held by the Tribunal that the said would not amount to an expenditure incurred for the purpose of business. The said amount being transferred to Andhra Pradesh State Housing Corporation at the directive of the government for implementing certain housing projects and the assessee being not in any way connected with the implementation of that Project, it was held that the said expenditure could not be said to be an expenditure laid out wholly and exclusively for the purpose of business. The T r i b u n a l , i n t h e c a s e o f t h e a s s e s s e e a p p l yi n g t h e s a i d r a t i o h e l d t h a t as the facts were identical, the expenditure was not allowable in the hands of the assessee. In conclusion, the Tribunal held that the expenditure had not been incurred for the purpose of business and in any case, the expenditure was in the nature of capital expenditure and therefore, the same was not allowable.
31. In view of the abovesaid findings of the Tribunal in assessee's case under which the expenditure claimed at Rs. 225 Cr incurred for the establishment of International Airport at Mohali being disallowed, the issue arising is whether the assessee is exigible to levy of penalty under section 271(1)(c) of the Act. The Assessing Officer and the Commissioner of Income Tax (Appeals) were of the view that the assessee was liable to levy of penalty under section 271(1)(c) of the Act and on concealed income of Rs. 225 Cr, penalty @ 150% amounting to Rs. 104,28,75,000/- was levied by the Assessing Officer 21 and upheld by the Commissioner of Income Tax (Appeals). As per the Assessing Officer, the Explanation I to section 271(1)(c) of the Act provides a legal fiction whereunder any addition or disallowance is deemed to represent the concealed income for the purpose of levy of penalty for concealment, once the additions prescribed in the explanation are satisfied. The onus is also upon the assessee to establish that the explanation offered was bonafide and all facts relating to the same and material to the computation of its income had been disclosed, would be upon the person charged with concealment. The Assessing Officer, in the present case had held the assessee to have failed to discharge the onus cast upon it and having furnished inaccurate particulars of income, was liable to levy of penalty under section 271(1)(c) of the Act. As per the Commissioner of Income Tax, the expenditure incurred by the assessee was purely a case of application of income which had no direct or indirect connection with the business carried on by the assessee and hence, the same was disallowed as business expenditure and in the facts of the case where the assessee had debited the expenditure of Rs. 225 Cr to its income and expenditure having been disallowed in the hands of the assessee, the onus was upon the assessee to establish that the case of the assessee was not covered by Explanation I to section 271(1)(c) of the Act.
32. Section 271(1) of the Act reads as under :
271. (1) If the Assessing] Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person--
(a) [* * *]
(b) has failed to comply with a notice under sub-section (2) of section 115WD or under sub-section (2) of section 115WE or under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142], or 22
(c) has concealed the particulars of his income or [* * *] furnished inaccurate particulars of such income, or [(d) has concealed the particulars of the fringe benefits or furnished inaccurate particulars90 of such fringe benefits,] he may direct that such person shall pay by way of penalty,--
(i) [* * *]
(ii) in te cases referred to in clause (b), in addition to tax, if any, payable by him, a sum of ten thousand rupees] for each such failure ;
(iii) in the cases referred to in clause (c) or clause (d) in addition to tax, if any, payable] by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or fringe benefits or the furnishing of inaccurate particulars of such income 1or fringe benefits.".
33. The Explanation I under section 271(1) reads as under :
Explanation 1.--Where in respect of any facts material to the computation of the total income of any person under this Act,--
(A) such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.
34. The Hon'ble Supreme Court of India in CIT, Ahemdabad Vs. Reliance Petroproducts Pvt. Ltd (supra) while referring to the word particulars in "inaccurate particulars of income", observed, "as per Law Lexicon, the meaning of word 'particular' is a detail or details, the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in Section 271 (1)(c) would embrace the meaning of the details of the claim made." It was further held as under:-
"We have already seen the meaning of the word "particulars"
in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in the case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting 23 the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to inaccurate particulars. (underlined supplied by us)
35. The Hon'ble Supreme Court in CIT, Ahemdabad Vs. Reliance Petroproducts Pvt Ltd (supra) further noted that in the facts of the case before it, there were no findings that any details supplied by the assessee in its return of income were not incorrect or erroneous or false nor an y statement made or any details supplied was found to be factuall y incorrect. The Court thus held that merel y because the assessee had claimed the expenditure, which was not accepted or was not acceptable to the Revenue, that by itself would not, attract penalt y under section 271 (1)(c) of the Act. It was also laid down by the Court that the intendment of the Legislature is not to levy penalt y u/s 271 (1)(c) of the Act in case of every non acceptance of claim made by the assessee in the return of income.
36. The Hon'ble Supreme Court in CIT Vs Reliance Petroproducts P.Ltd. (supra) further held as under :
Reading the words "inaccurate" and "particulars" in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under s. 271(l)(c). A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. The assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract the penalty under s. 271(l)(c). If the contention of the Revenue is accepted then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under s. 271(l)(c). That is clearly not the intendment of the legislature. The Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion.--Sree Krishna Electricals vs. State of Tamil Nadu & Anr. (2009) 23 VST 249 (SC) applied; Reliance Petroproducts (P) Ltd.
(judgment dt. 23rd Oct., 2007 of the Gujarat High Court in Tax Appeal No. 1149 of 2007) affirmed.
24
37. T h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T V s A m t e k Auto Ltd. (supra) held that the assessee had disclosed the nature of transaction in its return of income and based on interpretation of provisions of the Statute where the Assessing Officer found that the expenditure claimed by the assessee was not revenue in nature but capital expenses, merely for that reason would not render the assessee liable to penalty proceedings. The relevant findings of the Hon'ble P u n j a b & H a r ya n a H i g h C o u r t v i d e p a r a 4 a r e a s u n d e r :
4 . The assessee has disclosed the nature of transactions in its return.
It was on the basis of interpretation of the provisions of the Statute, the Assessing Officer found that such expenditure claimed by the assessee is not the revenue expenditure but the capital expenses. There is fine distinction as to when an expenditure can be treated as a revenue or a capital expenditure. Therefore, merely for the reason that the assessee has claimed the expenditure to be revenue will not render the assessee liable to penalty proceedings. The order passed by the Tribunal does not give rise to the questions of law sought by the revenue.
38. The Hon'ble Punjab & Haryana High Court in C IT Vs. Sidhartha Enterprises [(2010) 228 CTR (P&H) 579 ] held that "the judgment of the Hon'ble Supreme Court in Dharmendra Textile (supra) cannot be read as laying down that every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under s. 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the finding having been recorded on facts that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse."
25
39. Similar ratio has been laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. Shahbad Cooperative Sugar Mills Ltd [322 ITR 73 (P&H)], wherein it has been observed that making wrong claim for deduction, does not amount to concealment or giving of inaccurate particulars within the meaning of section 271 (1)(c) of the Act.
40. The Hon'ble Himachal Pradesh High Court in C IT Vs H.P. State Forest Corporation Ltd. (supra) held as under :
"We are of the considered view that the latest judgement of the Apex Court in Reliance Petro Products' case (supra) squarely covers the present case also. The apex Court in this judgment has clearly held that the word 'inaccurate' as used in the Act would mean something which is not accurate, not exact or not correct. Something which is untrue is inaccurate. The same facts can be given two interpretations. If the interpretation given is plausible though not accepted by the assessing authority it cannot be said that the statement of particulars is so inaccurate or erroneous as to invite imposition of penalty. True it is that mens rea is not required to be proved. When mens rea is proved it shows that the person had an intention of evading payment of tax by illegal means. Merely because a wrong interpretation to the same set of facts is given would not, in our opinion, mean that the assessee is liable to pay penalty also. We must remember that penalty is by its very nature penal and somebody is being punished for an act which is unjustified. The assessee in the present case has already been burdened with tax and interest on the amount added to his income. The moot question is whether the assessee should be made liable to pay penalty.
22. The apex Court in Reliance Petro Products' case (supra) has clearly laid down that merely because the assessee makes a claim which is not sustainable in law, will not amount to furnishing inaccurate particulars regarding the income of the assessee. In the present case, as pointed out above, the assessee was deducting the amount of Rs. 2,12,18,295 on account of deterioration of old stock. This was being done on estimation on the basis of the reports made by various officers of the Corporation. This estimation was not accepted mainly on the ground that the reports were made and resolution passed by the board after the assessment year was over and therefore they could not be given retrospective benefit. It has not been found that the claim of the assessee that the wood had rotted and deteriorated is false. It is nobody's case that the assessee fudged the amounts, the books of accounts or tried to create false evidence. The claim made by the assessee may not have been accepted by the Revenue but it cannot be said that the assessee furnished inaccurate particulars to such an extent that penalty should be imposed upon it. There does not appear to be falsehood in the accounts though the system of calculating the depreciation may have been improper. We also cannot lose sight of the fact that assessee is a Government Corporation. Its accounts are duly audited and even the CAG has gone through and approved the accounts of the Corporation. In such circumstances, we are of the view that merely because the assessee had claimed depreciation which claim was not accepted by the Revenue that by itself would not, in our opinion, attract penalty under s. 271(l)(c) of the Act.26
41. The second aspect in relation to the levy of penalty is to be considered in view of the Explanation I clause (A) under section 271(1) of the Act. The said Explanation under section 271(1) of the A c t l a ys o u t t h a t i n c a s e s w h e r e a n y p e r s o n u n d e r t h i s A c t f a i l s t o offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner of Income Tax (Appeals) or the Commissioner to be false, then the amount added or disallowed for computing the total income of such person is deemed to represent the income in respect of which particulars have been concealed.
42. Further clause (B) to Explanation 1 under section 271(1) of the Act provides that while computing the total income of any person, where such person offers an explanation which he is not able to substantiate and fails to proves that such explanation is bonafide and that all the facts relating to the same and material to the computation of his income have been disclosed by him, then such amount added to his income is to be treated as income in respect of which particulars have been concealed. The clause (B) to Explanation 1 under section 271(1) of the Act, thus set out that in case where the assessee offers an explanation which, (a) is not able to substantiate and; (b) he is unable to prove that the explanation offered by him was bonafide and all the facts relating to the same had been disclosed by him, then he is liable to levy of penalty under section 271(1)(c) of the Act. However, where the explanation furnished by such person is bonafide and all the facts and material relating to the computation of income had been furnished on record, then the said person having discharged, his onus cannot be said to have concealed the particulars of his income.
43. T h e H o n ' b l e D e l h i H i g h C o u r t i n C I T V s D i k s h a H o l i d a ys L t d . (supra) had deliberated upon the issue and had upheld the order of the 27 Tribunal who in turn had considered various judicial propositions on the issue and held as under :
Penalty having been cancelled by the Tribunal on finding that assessee had disclosed all the facts before the A.O. and disallowance was made because the assessee's claim had not been substantiated with sufficient evidence, no substantial question of law arises.
44. S i m i l a r l y, t h e C h a n d i g a r h B e n c h o f T r i b u n a l i n A C I T V s T R B Exports Pvt. Ltd. (supra) had, on the issue of penalty under section 271(1)(c) of the Act and whether the same was leviable where an expenditure had been disallowed in the hands of the assessee, had held as under :
Penalty under s. 271(l)(c) is attracted in case the assessee has concealed its income or furnished inaccurate particulars of income. In the facts of the present case the assessee had claimed foreign travel expenses of wife of the director who had accompanied her husband on foreign travel. The said expenditure was disallowed being not relatable to the business of the assessee company. Merely because an expenditure has been disallowed in the hands of the assessee does not automatically make the assessee exigible to levy of penalty under s. 271(l)(c). In any case, mere disallowance of expenditure does not attract the levy of penalty under s. 271(l)(c). There is no merit in the levy of penalty on disallowance of expenses holding the same to be non-business expenses. Further, estimated disallowance of personal expenses totalling Rs. 33,135 does not warrant levy of penalty under s. 271(l)(c) in the facts of the case where no evidence has been found to establish that the assessee had either concealed its income or furnished inaccurate particulars of income. The order of the CIT(A) deleting penalty under s. 271(l)(c) on account of disallowance of foreign travelling expenses is upheld.
45. The Hon'ble Punjab & Haryana High Court in CIT Vs. Tek Ram (HUF) 300 ITR 354 (P&H) had held that where the issue is highl y debatable in as much as two views were possible on the said issue and where the claim of the assessee on the issue was based on one possible view, the making of such bonafide claim on the basis of a possible view could not be treated as concealment of its income by the assessee or furnishing of inaccurate particulars of income so as to attract the penal provisions of section 271 (1)(c) of the Income Tax Act.
46. T h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T V s G u r d a s p u r Cooperative Sugar Mills Ltd. on deciding the issue of levy of penalt y 28 under section 271(1)(c) of the Act where the assessee had received grant-in-aid which was held to be revenue receipts in the hands of the assessee and not capital receipts, as claimed by the assessee, held that the issue was debatable and there was no merit in the levy of penalty under section 271(1)(c) of the Act. The Hon'ble High Court held as under :
"In the present case, there is no dispute about the quantum of receipt of grant in aid from the State Government. The assessee reflected the same as capital receipt, whereas it has been treated as to be revenue receipt. The issue; whether the amount of grant in aid is capital receipt or a revenue receipt, is a debatable issue. The findings returned in the judgment relied upon is on fact of non-furnishing of details of expenses. The issue was not debatable as in the present case. Therefore, the reliance on the Division Bench Judgment is misconceived."
47. F u r t h e r , t h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T V s R a j Overseas also adjudicating the issue of levy of penalty under section 271(1)(c) of the Act on disallowance of claim of deduction under section 80IB of the Act in respect of income from Dut y Drawback held as under :
The assessee is manufacturer and derived income from exports. The assessee claimed deduction under s. 80-IB of the Act in respect of income from duty draw back. The AO disallowed the said claim on the ground that the income derived from duty draw back was not income derived from industrial undertaking, as held by the Hon'ble Supreme Court in CIT vs. Sterling Foods India (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC). Penalty was also levied. The CIT(A) upheld the view of the AO but the Tribunal deleted the penalty with the following observations :
"...................Thus, prima facie, it indicates that this issue was a debatable one.
4. In view of factual finding of the Tribunal, it cannot be disputed that the issue was debatable and deduction claimed by the assessee did not lack bona fides. In such a situation, penalty under s. 71(c) of the Act was not attracted. In recent judgment of the Hon'ble Supreme Court in CIT vs. Reliance Petroproducts (P) Ltd. (2010) 230 CTR (SC) 320 : (2010) 36 DTR (SC) 449 the legal position to this effect has been reiterated. If the assessee has made full disclosure in the return, claim for deduction cannot be held to be giving of inaccurate particulars. The view taken by the Tribunal is, thus, a possible view.
48. Another aspect of the appeal before us, as pointed out by the ld. AR for the assessee was that the present appeal was dismissed against 29 the assessee in view of the ratio laid down in Andhra Pradesh Housing Board Vs DCIT (supra) against which an appeal has been admitted by the Hon'ble Andhra Pradesh High Court in IT Appeal No. 611 of 2013 and the said issue is pending before the Hon'ble High Court. In view thereof, it was pointed out by the ld. AR for the assessee that as an appeal is pending before the Hon'ble High Court, the issue becomes debatable and no penalty under section 271(1)(c) of the Act is leviable. In relation thereto, the ld. AR for the assessee placed reliance on the ratio laid down b y the Hon'ble Delhi High Court in CIT Vs Liquid Investment Trading Co. (supra).
49. The Hon'ble Delhi High Court in CIT Vs Liquid Investment & Trading Co. (supra) held that in cases where the appeal has been preferred against the order of the Tribunal and the same have been admitted and substantial question of law framed shows that the issue is debatable and for these reasons, no penalty under section 271(1)(c) of the Act could be levied.
50. T h e l d . D R f o r t h e r e v e n u e , h o w e v e r i n r e p l y, r e l i e d u p o n t h e ratio laid down b y the Hon'ble Delhi High Court in CIT Vs Splendour Construction in IT Appeal 1977 of 2010, date of judgement 14.01.2011 wherein the issue was considered and it was held that in each case wherein appeal has been preferred, it cannot be said that the issue was debatable and the assessee was liable to levy of penalty under section 271(1)(c) of the Act.
51. The ld. DR for the revenue, in reply had placed reliance on CIT Vs Atul Mohan Bindal (supra) wherein it has been held that levy of p e n a l t y u n d e r s e c t i o n 2 7 1 ( 1 ) ( c ) o f t h e A c t w a s a s t r i c t c i v i l l i a b i l i t y. We are in conformity with the plea of the ld. DR for the revenue in this regard. The Hon'ble Supreme Court in Dharmindera Textile & 30 Processors' case (supra) have earlier laid down the proposition that the levy of penalty under section 271(1)(c) of the Act is civil liability and the same proposition has been upheld by the later decision of the Hon'ble Supreme Court. However, in each case, where an addition has been made in the hands of the assessee, the issue to be considered is whether the claim of the assessee was bonafide and complete information in this regard was furnished in the return of income. The issue having been decided against the assessee perse does not attract the levy of penalty under section 271(1)(c) of the Act as held by various Courts and further, where such claim of the assessee is a debatable issue then, there is no merit in any levy of penalty under section 271(1)(c) of the Act, which proposition has also been held by various Courts as referred to by us in the paras herein above.
52. Now coming to the facts of the present case, the issue arising in the present appeal is whether the assessee is liable to levy of penalty u n d e r s e c t i o n 2 7 1 ( 1 ) ( c ) o f t h e A c t . T h e H o n ' b l e S u p r e m e C o u r t i n CIT, Ahemdabad Vs. Reliance Petroproducts Pvt. Ltd (supra) have laid down the proposition that "A mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee".
53. T h e H o n ' b l e P u n j a b & H a r ya n a H i g h C o u r t i n C I T V s . M / s Gurdaspur Cooperative Sugar Mills (supra) on the issue whether the amount of grant-in-aid was capital receipt or revenue receipt being debatable issue held that the penalty u/s 271(1)(c) of the Act was not i m p o s a b l e . T h e r e l e v a n t f i n d i n g s o f t h e H o n ' b l e P u n j a b & H a r ya n a 31 High Court in CIT Vs. M/s Gurdaspur Cooperative Sugar Mills (supra) are as under:
3. We find that the reliance on the abovesaid judgment is not tenable, as in the aforesaid case, the deductions under section 80-O of the Act was declined for the reason that the assessee has not produced any details of the expenses allegedly incurred by it. The Delhi High Court observed (page
170):
"The assessee, for claiming deduction under section 80-O of the Act, wanted the same at 50 per cent of the gross income received in convertible foreign exchange in India provided by it to its foreign clients. The Assessing Officer, however, was of the view that on correct interpretation under section 80-O, deduction is restricted to the net income and, therefore, expenditure incurred in India for earning the foreign exchange had to be deducted. The Assessing Officer, therefore, wanted the assessee to furnish the details of expenses. As the assessee failed to do the needful in respect of various particulars demanded, the Assessing Officer was left with no alternative but to estimate such expenditure in the ratio of proportion of foreign income to the total income."
4. In the present case, there is no dispute about the quantum of receipt of grant-in-aid from the State Government. The assessee reflected the same as capital receipt, whereas it has been treated as to be revenue receipt. The issue whether the amount of grant-in-aid is capital receipt or a revenue receipt, is a debatable issue. The findings returned in the judgment relied upon is on feet of non-furnishing of details of expenses. The issue was not debatable as in the present case. Therefore, the reliance on the Division Bench judgment is misconceived.
5. In view of the above, we do not find any error in the findings recorded by the Tribunal while setting aside the penalty. Consequently, we do not find that the order of the Tribunal gives rise to any substantial question of law for the opinion of this court."
54. In view of the above, it is to be seen whether claim of the assessee was bonafide or malafide with an intention to evade taxes. A d m i t t e d l y, t h e a s s e s s e e h a d a c t e d o n t h e a d v i c e o f S t a t e G o v e r n m e n t and paid Rs. 225 Cr for the development of International Airport at Mohali, with the aim that such establishment of International Airport in the region would provide better infrastructural facilities, which in turn would boost urban development of the State of Punjab and boost the activities undertaken by it, resulting in higher profits to the assessee. Explanation 1 to section 271(1) does provide a legal fiction under which the onus is upon the assessee to establish that all facts relating to the claim and material facts relating to the computation of 32 income had been disclosed in the Return of Income and also that deduction or expenditure was allowable in its hands and merely because the addition or disallowance has been made to its total income, does not establish concealment in the hands of assessee. Hence, where there is no finding that any of the details supplied by assessee in Return of Income were found to be incorrect or erroneous or false, the assessee is not liable for levy of penalty for concealment under section 271(1)(c) of the Act.
55. The assessee in present case having paid for the establishment of International Airport at Mohali was under the bonafide belief that the expenditure is duly allowable as revenue expenditure and same was so claimed in the Profit & Loss Account. The said expenditure has been held by the Tribunal not to have been incurred for the purpose of business. It has also been held b y the Tribunal that the ex penditure is in nature of capital expenditure and therefore, the same is not allowable. Mere disallowance of expenditure in the hands of assessee does not establish the charge of concealment in the hands of assessee. Various Courts have time and again laid down the principle that where the assessee has bonafide explanation of non-exclusion of receipts as its income or for claiming particular item of expenditure as deduction, even where claim of assessee is rejected, no penalty for concealment of income or furnishing of inaccurate particulars of income could be levied under section 271(1)(c) of the Act. The assessee having declared complete facts with regard to expenditure of Rs. 225 Cr and the claim of the assessee being bonafide, though not allowed as expenditure in the hands of assessee, does not justify levy of penalty under section 271(1)(c) of the Act, much less penalty @ 150% of the tax sought to be evaded.
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56. Further, in the totality of the facts and following the ratio laid down by the Hon'ble Supreme Court and the various other High Courts in series of the decisions, we hold that in view of the findings of the Tribunal in assessee's own case, wherein the addition in the hands of the assessee has been made on two accounts i.e., the expenditure having been incurred for the purpose of business being not allowable. Further finding of the Tribunal in assessee's case is that the expenditure in any case is in the nature of capital expenditure and therefore, the same was not allowable. The issue being debatable does not warrant levy of penalty for concealment under section 271(1)(c) of the Act.
57. In view of the abovesaid findings, we hold that the assessee, in the present set of facts and circumstances, is not exigible to levy of penalty under section 271(1)(c) of the Act where the claim of the assessee vis-à-vis expenditure incurred on establishment of International Airport had been rejected. A c c o r d i n g l y, w e d e l e t e the penalty levied under section 271(1)(c) of the Act and the Assessing Officer is directed to delete the same. The grounds of appeal raised by the assessee are allowed.
ITA Nos. 26,27/Chd/2012 & ITA Nos. 814, 254 and 815/Chd/2013 Revenue's Appeals (A.Ys : 2004-05, 2005-06, 2007-08 to 2009-10
58. In all the appeals, the revenue has raised identical grounds of appeal. Therefore, the grounds of appeal as raised in ITA No. 254/Chd/2013 read as under :
1. T he facts and in the circumstances of the case and in law, the Ld. C1T(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. On the facts and circumstances of the case an in law, the 34
3. Ld. C1T(A), has erred in deleting the penalty amounting to Rs.14,26,215/- which was levied by the Assessing Officer u/s 271(l)(c) with respect to addition of Rs.46,15,584/- made on account of installments received during the year on account of for sale of houses/flats."
59. Identical issue has been raised b y the revenue in all the appeals and we proceed to decide the same after hearing both the authorized representatives by way of this consolidated order for the sake of convenience.
60. The revenue is in appeal against the deletion of penalty on the issue of addition made on account of installment received on sale of houses/flats.
61. T h e b r i e f f a c t s r e l a t i n g t o t h e i s s u e a r e t h a t d u r i n g t h e ye a r under consideration, the assessee had changed its method of accounting to mercantile s ys t e m of accounting. However, the installments received on sales of houses/flats under various schemes were not recognized as income by the assessee, while computing its i n c o m e f o r t h e d i f f e r e n t ye a r s u n d e r c o n s i d e r a t i o n . The Assessing Officer, in view of the addition made in the hands of the assessee which in turn was confirmed by the Commissioner of Income Tax (Appeals) holding the assessee to be liable for penalty under section 271(1)(c) of the Act and the same was levied upon the assessee.
62. The Commissioner of Income Tax (Appeals), in the appeal filed a g a i n s t t h e o r d e r l e v yi n g p e n a l t y u n d e r s e c t i o n 2 7 1 ( 1 ) ( c ) o f t h e A c t deleted the penalty on the issue of installments received on sale of houses/flats.
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63. The revenue is in appeal against the said part deletion of penalty leviable under section 271(1)(c) of the Act.
64. We find that the present issue of addition on account of installments received on sale of houses/flats has been remitted back to the file of Assessing Officer with directions to recompute the income in the hands of the assessee arising on account of the installments received on sale of houses/flats after holding that the same are includible in the hands of the assessee in view of the mercantile s ys t e m o f a c c o u n t i n g f o l l o w e d b y t h e a s s e s s e e . T h e A s s e s s i n g O f f i c e r was directed to recompute the income after considering the receipts and expenditure incurred by the assessee on this account. C o n s e q u e n t l y, t h e a d d i t i o n o n t h i s i s s u e h a s b e e n c a n c e l l e d a n d t h e issue sent back to the Assessing Officer with directions to decide the same denovo. In view thereof, we hold that the issue of levy of penalty under section 271(1)(c) of the Act in relation to the aforesaid addition on account of installments received on sale of flats/houses does not stand as the said addition has not been upheld by the Tribunal and the matter has been sent back to the file of Assessing Officer. However, in the interest of justice, we hold that the Assessing Officer shall be at liberty to initiate and complete the penalty proceedings under section 271(1)(c) of the Act after deciding the issue of addition on account of instalments received on sale of houses/flats and the proportionate expenditure allowable against the same, under the r e g u l a r l y e m p l o ye d m e t h o d o f a c c o u n t i n g f o l l o w e d b y t h e a s s e s s e e . I n view thereof, we delete the penalty levied under section 271(1)(c) of the Act on the addition made on account of sale/purchase of houses/flats with the liberty to re-initiate the said proceedings after 36 giving appeal effect to the order of the Tribunal. Thus, the grounds of appeal raised by the revenue in all the appeals are dismissed.
65. In the result, appeal of the assessee is allowed and all the appeals of the revenue are dismissed.
O r d e r p r o n o u n c e d i n t h e o p e n C o u r t o n 2 6 t h F e b r u a r y, 2 0 1 4 .
Sd/- Sd/-
( T. R . S O O D ) (SUSHMA CHOWLA)
A C C O U N TA N T M E M B E R JUDICIAL MEMBER
Dated:26th February,2014
'Poonam'
Copy to:
The Appellant, The Respondent, The CIT(A), The CIT,DR.
Assistant Registrar ITAT,CHD.