Income Tax Appellate Tribunal - Delhi
B.S.V. Enterprises, New Delhi vs Assessee on 8 November, 2010
ITA 586/Del/11
B.S. Enterprises
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR
ITA No. 586/Del/11
A.Yr. 2004-05
B.S. Enterprises, Vs. DCIT Cir. 39(1),
4842, Bara Tooti Chowk, New Delhi.
Sadar Bazar, Delhi-06.
PAN: AALFV2791D
( Appellant ) ( Respondent )
Appellant by : Shri Ved Jain FCA &
Shri Venketesh Mohan CA
Respondent by : Shri Sanjay Pandey SR. DR
ORDER
PER R.P. TOLANI, J.M::
This is assessee's appeal against CIT(A)'s order dated 8-11-2010, challenging the sustenance of penalty of Rs. 23,47,760/- levied u/s 271(1)(c) of the Income-tax Act, 1961, relating to A.Yr. 2004-05.
2. Brief facts are: The assessee is a partnership firm, which came into existence vide partnership deed dated 16-8-1999. The assessee firm had not entered into business activity, except the purchase of a disputed plot auctioned by Recovery Officer, DRT, which was claimed to be held as capital asset by the firm for its own use for construction of office. Clause 4 of the partnership deed reads as under:
"That the business of the partnership shall be of sale purchase of property construction and fabrication etc. or to do any other business which the partners may hereafter decide."2
2.1. On 24-3-2000 the assessee purchased impugned plot/ property by way of action held by Recovery Officer-I, Debts Recovery Tribunal, Delhi. According to assessee, the property was purchased by the partners to construct the office premises of the assessee firm as its capital asset. . As the disputes ensued between the partners, it was decided that the firm be dissolved after paying all the liabilities. For this purpose the property in question was sold to M/s Apra Auto (India )Pvt. Ltd. for a consideration of Rs. 2,20,00,000/-, the registration of this property was made through sale deed dated 10-9-2003. The sale proceeds derived from the property were deposited in the bank. All the outstanding loans and liabilities were paid and the balance was distributed among the partners of the firm and thereafter the firm was dissolved.
2.2. No books of a/cs are maintained by the firm as there was no business. In the return of income, the income from sale of this property was declared by the assessee under the head long term capital gains. During the course of assessment proceedings the Assessing Officer noticed that the assessee firm was constituted for carrying out business of sale and purchase of property and fabrication etc., therefore, it was proposed that this sale should be treated as stock in trade and surplus be treated as business income. 2.3. The assessee filed a detailed reply, its summary is as under:
"That regarding the capital gain, it is submitted that as per partnership deed, the nature of business is sale purchase of property construction and fabrication etc. or do any other business but the firm had not conducted any 'business activity, the only purpose which was purchased was 3 IOC Mehrauli Road, Gurgaon and the same was purchased for the establishment of the office of the firm itself but due to the differences between the partners the same has to be sold out and the sale receipt was duly deposited in the bank and after paying back the loans the balance was distributed among the partners 3 and firm was dissolved. So the income was claimed as capital gains and the due tax was deposited on the same. It is not the income from the business as no business activities was done by the firm.".
2.4. Assessing Officer, however, rejected the assessee's claim of long term capital gains and treated the difference as business income. Aggrieved, assessee preferred first appeal. Vide order dated 13-12-2007 the CIT(A) dismissed the same. Second appeal was preferred to ITAT. Vide order dated 5-8-09 the ITA T confirmed the order of Assessing Officer and CIT(A). Aggrieved, the assessee is before Hon'ble Delhi High Court and vide order dated 19-5-2011 substantial question of law has been admitted in this behalf as under:
"(i) Whether the Tribunal erred in holding that notice under section 143(2) was validly served by way of affixture in accordance with law and that too within limitation period?
(ii) Whether the Tribunal erred in holding that profit on sale of property was assessable under the head "business" and not under the head "capital gain"?
2.5. Assessing Officer initiated penalty proceedings u/s 271(1)(c) where assessee reiterated its stand and claimed that all the relevant particulars were furnished along with the return of income and it is only on the basis of information filed in the return, the Assessing Officer was of the view that the head of income is to be changed. Thus, the assessee furnished all the details and it was a question about assessability of income in a particular head of income.
2.7. Assessee held an opinion and Assessing Officer held a different opinion on the same set of facts. This eventuality alone cannot become an 4 occasion for concealment penalty. The Assessing Officer held that though mens rea was not applicable to income-tax proceedings, however, it was held that it was a deliberate and conscious attempt on the part of the assessee to reduce its tax liability. The penalty was imposed.
2.78. Aggrieved, assessee preferred first appeal. CIT(A) confirmed the penalty by following observations:
"The above discussion shows that this is not a case where the explanation given was bona fide and there was full disclosure of facts. The provisions of Explanation 1(B) to section 271(1)(c) are applicable because the assessee has offered an explanation before the Assessing Officer , which he is not able to substantiate and has also failed 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. The penalty u/s 271(1)(c) imposed is the minimum impossible in this case. Considering the facts, the penalty u/s 271(1)(c) is justified and is upheld.
2.9. Aggrieved, assessee is before us.
3. Learned counsel for the assessee relies on Hon'ble Supreme Court judgment in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) for the proposition that concealment penalty is intrinsically linked with the disclosure of particulars in the return of income. It is not the case of the department that any document or information was not filed along with the return.
3.1. The penalty has been imposed only for the reason that clause 4 of the partnership deed claimed to be business of the assessee as sale and purchase of property. It is vehemently argued that even in the case of assessee dealing in property business, they are allowed to hold business premises as capital assets. Assessee also held the plot for construction of its office premises as 5 capital asset. The assessee firm claimed that disputed property was purchased through Recovery Officer, Debt Recovery Tribunal to construct its own office building. While carrying out property business it is difficult to sell a disputed property to another person. The fact that the property was purchased through Recovery Officer, Debt Recovery Tribunal implies that it was not held as stock in trade. The assessee's contention is thus correct that the plot was purchased for the construction of property. 3.2. It has been admitted by Assessing Officer that except this property transaction no other business what-so-ever has been carried out by the assessee. Thus, though there was a partnership deed for all practical purposes, the firm was non-functional which is not disputed by the department. The fact that there were severe disputes among the partners and the plot which was held by the firm as capital asset was sold to meet out the liabilities of the partnership firm and dissolution leads to a belief that it was held as capital asset. The contention of the assessee is manifested by the fact that the sale proceeds were deposited in the bank a/c, out of which all the loans and liabilities were paid and the balance was distributed among the partners. All these facts put together lead to a bona fide belief that the property was held by the assessee as its capital asset and its sale after three years of such capital asset is allowable to be taxed as long term capital gain. 3.3. Assessee's belief can neither be called as mala fide nor false. If the intention was to carry on the business, the assessee would have done some business activity of properties. The fact that the property was a disputed property for own use and sold under compulsion and after payment of liabilities the surplus amount was distributed among partners. All these facts and circumstances make it is a clear case of holding the bona fide belief that it was a capital asset.
63.4. It has been admitted by Assessing Officer that no books of a/cs are maintained and no business activity has been carried out. This admitted fact also speak voluminously that there was no business activity and this plot was not stock in trade.
3.5. There is no law which prohibits a property dealing firm in owning a capital asset for its own use with an intention for construction of own office premises. It is a trite law that a firm dealing in property can own a capital asset for its utilization which on sale can be claimed as long term capital gain.
3.6. In case of share dealer where income from trading in shares is taxed under the head "business income", however, if the share broker held certain shares by way of investment, and are sold, surplus is to be taxed as capital gains. The sole basis adopted by the Assessing Officer for holding it was stock in trade rests on clause 4 of the partnership deed and no other fact. All the attending facts and circumstances explained by assessee have been ignored by Assessing Officer without ascribing cogent reasons for disbelieving the explanation. the same.
3.7. CIT(A) on the other hand has held that the assessee's explanation was not bona fide and there was no full disclosure of facts. The fact of the matter is that Assessing Officer has not made any allegation that there was no full disclosure of the fact. Therefore, the CIT(A)'s finding is not borne out from the record. Similarly, no reason or logic has been given as to why the assessee's explanation was not bona fide.
3.8. Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (supra) has clearly held that when all the particulars are furnished along with the return of income, merely a change of opinion on the assessability as an expenditure or under a head of the Act cannot tantamount to concealment.
7The importance of furnishing of details along with the return has been emphasized by the Hon'ble Supreme Court. From the facts of the case it clearly emerges that assessee had disclosed all the relevant particulars in the return of income.
3.9. The tax and penalty have been held to be civil liability. However, in the case of penalty it has been held that if the assessee has a bona fide explanation and relevant particulars are filed along with the return of income, the penalty should not be imposed merely because it is lawful to do so as held in the case of Hindustan Steels Ltd. Vs. State of Orissa 83 ITR 26. Further reliance is placed on the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Aretic Investment (P) Ltd. (2010) 190 Taxman 155 wherein the Hon'ble High Court referring to the decision in the case of CIT Vs. Auric Investment & Securities Ltd. (2007) 163 Taxman 533 (Del) has observed as under:
"3. After referring to the said decisions, the Tribunal was of the view that the mere change of nature of the loss from business loss to speculative loss was not enough to impose penalty on the assessee. The Tribunal held that t he assessee had claimed the loss as business loss under a bona fide belief that he was entitled to do so.
4. It is well settled that assessment proceedings and penalty proceedings are distinct and independent of each other. No doubt, the findings in the assessment proceedings would have significance in the penalty proceedings in the penalty proceedings also but they are not decisive or determinative. This position has been established in several decisions which include CIT vs. Khoday Eswarsa & Sons 1972 CTR (SC) 295; (1972) 83 ITR 369(SC) and CIT vs. J.K. Synthetics Ltd (1996) 135 CTR (Del) 4; (1996) 219 ITR 267(Del).
5. With respect to the fact that the assessee had accepted the view taken by the AO that the loss due to trading in shares was 8 in nature of a speculative loss, the assessee contended that in the penalty proceedings, it can take up the plea that the claim made in the return was bona fide."
3.10. Various case laws have been relied as mentioned in the short note filed by the assessee, which is placed on record.
4. Ld. D.R. supports the order of lower authorities. It is pleaded that:
(i) The firm was constituted for property business and the property in question was purchased as stock in trade and irrespective of the circumstances, when such property is sold the income is liable to be charged under the head "business income"
(ii) The assessee claimed it to be long term capital gains deliberately with intention to reduce its tax liability. Penalty is a civil liability; mens rea is not applicable to the penalty proceedings and it is not for the Assessing Officer to prove that there was any mens rea.
(iii) Assessments can be framed u/s 143(1) or 143(3). Assessee took a calculated chance with a hope that its return would be accepted u/s 143(1). Therefore, it is only because of the scrutiny and inquiries by Assessing Officer that the veracity of assessee's claim and actual facts surfaced. The head of income is chosen by assessee with an intention to reduce its tax liability. Reliance is placed on Hon'ble Supreme Court judgment in the case of Dharmendra Textile 306 ITR 277 (SC).
4.1. Ld. DR thus pleads that penalty was rightly imposed and should be upheld.
95. We have heard rival contentions and gone through the relevant material available on record. On the issue of imposition of penalty Hon'ble Supreme Court in the case of Reliance Petro Products P. Ltd. (supra), has held that when assessee had furnished all the details and particulars of its expenditure as well as income in its return, which details in themselves were not found to be inaccurate or to be used for concealing income on its part, it is up to the authorities to accept the assessee's claim made in the return or not. If the relevant particulars are filed merely because assessee claimed the expenditure which has not been accepted by the revenue, by itself will not be sufficient to attract the penalty. Similarly, it is trite law that penalty should not be imposed merely because it is lawful to do so as held by Hon'ble Supreme Court in the case of Hindustan Steels (supra).. 5.1. On the issue of change of head of income or non allowance of any loss or claim, Hon'ble Delhi High Court in the case of Aretic Investment (P) Ltd. (supra) has held that the finding in the assessment order may be significant but they alone are not decisive or determinative. 5.2. Considering all these case laws it becomes imperative to appreciate the explanation of the assessee while making a claim under a particular head of income. It is clear that the assessee firm could never start its business in effective terms. Therefore, no books of a/cs are maintained. The question to be considered is whether the assessee held it as stock in trade or as a capital asset. In the absence of any other business transaction or maintenance of books of a/cs, the issue becomes vexed one to be decided on circumstantial evidence. It has not been questioned that there were disputes among the partners and the firm was to be dissolved and the liabilities were to be paid which is corroborated by the fact that the assessee firm sold this property, paid out the liabilities and distributed the remainder among partners. The 10 property purchased was also disputed property attached by the DRT and thereafter auctioned through Recovery Officer.
5.3. The assessee has filed an explanation that it purchased the property to construct its own office implying thereby that the plot was intended to be held as capital asset for the firm's own use. In support of this contention assessee has given above reasons and explanation. In our considered view unless the reasons given by the assessee are refuted in effective terms, the assessee's explanation deserves to be accepted. It is again a trite law that what is stated to be true unless the contrary is proved.
5.4. Though the element of mens rea are not relevant in penalty proceedings, nevertheless as held by Hon'ble Supreme Court in Dharmendra Textiles, consideration of reasonable belief is still relevant. If the assessee has given an explanation, without rebutting the same it cannot be held that the assessee's explanation is not bona fide or false. In the instant case there is no rebuttal to the assessee's contention except giving certain assumptions and presumptions. Ld. CIT(A) has given two findings - (i) that full disclosure of facts was not there. In our view this is not the case. Assessing Officer has never alleged that full facts were not disclosed. (ii) The explanation is not bona fide. Coming to the issue of bona fides of the assessee's explanation, what has been stated, does not reflect out right to be untrue or false. The circumstances and facts mentioned do indicate possibility of a reasonable belief that the property was intended to be held as capital asset of the firm. In the absence of any rebuttal or demolition of this explanation, it cannot be held that assessee's explanation was not bona fide or false. Thus it can neither be held that particulars were not filed along with the return nor the explanation can be termed as unbonafide or false.
115.5. In these circumstances we are of the view that assessee having disclosed all the particulars in the return of income relying on Hon'ble Supreme Court judgment in the case of Reliance Petroproducts P. Ltd. (supra) and the explanation being not false , penalty u/s 271(1)(c) are not attracted in the present case. Similarly, Hon'ble Delhi High Court has also taken a view that change of head of income or its allowance is not liable for penalty. Respectfully following the above authorities we are of the view that the assessee's case do not deserve penalty u/s 271(1)(c) of the Act which is deleted.
6. In the result, assessee's appeal is allowed.
Order pronounced in open court on 09-08-2012.
Sd/- Sd/-
( T.S. KAPOOR ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 09-08-2012.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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