Income Tax Appellate Tribunal - Delhi
Kanchenjunga Advertising (P) Ltd., New ... vs Department Of Income Tax
-1-
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'D' NEW DELHI)
BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI K.G. BANSAL,
ACCOUNTANT MEMBER
ITA. No.81/D/2010
Assessment year : 2000-01
Asstt. CIT, Vs. M/s Kanchenjunga Advertising
Central Circle-12, (P) Ltd., 5, Green Avenue,
New Delhi Vasant Kunj, New Delhi
PAN No.AAACK 0015C
(Appellant) (Respondent)
Appellant by : Shri K. Ravi Rama Chandran, Sr.DR
Respondent by: Shri A.K. Khurana, CA
ORDER
PER K.G. BANSAL: AM:
The facts of the case are that the assessee company filed its return on 27.11.2000 declaring total income of `1,43,40,680/-. The return was processed u/s 143(1) on 27.03.2002. Thereafter, a case was picked up for scrutiny by issuing notice u/s 143(2) on 27.11.2001. 1.1 The assessee is engaged in the business of advertising and financing. It was inter alia found that the assessee had deposited a sum of `50 lac as share application money with M/s Dimension Investments & Securities Limited. No share was allotted to the assessee company and, therefore, it converted the share application into the loan. The aforesaid M/s Dimension Investments & Securities Limited did not send any letter etc. to show that it agreed with the assessee and acknowledged the debt as loan in any manner whatsoever. The assessee wrote off this amount from the books as bad debt and claimed the sum as deduction against the business income. The assessee was required to explain as to how the amount is 2 81-2010-KA-Bansal deductible in computing the income. The submissions of the assessee in this regard are reproduced below:-
"On 05.07.1997 we deposited `50 lacs on account of share application money in M/s Dimension Investments and Securities Limited, New Delhi. Since even after about 9 months no shares were allotted in favour of our company, we took up the matter with the said company as per letter dated 6.7.98 (copy placed below) stating that in the event of non-allotment of the shares we had exercised the opinion for conversion of the share money into loan bearing interest @22% quarterly compounded. After several reminders over the phone and in person Shri Udey Dutt, Director of the company managing its affairs made a promise that the shares would be listed before June, 99 in prominent stock exchanges and there was a likelihood of shares fetching very high prices and that he would himself help us in the matter by disposing of all the shares. More than 8 months have passed, but the Director has not been able to keep up his promise. We consulted our legal advisor Mr. S.K. Dhamija, Advocate MOU. He has advised us to make further efforts to get an acknowledgment of the debt arising from the non-allotment of the share application money which automatically gets converted carrying interest on quarterly compounded basis etc., before we think of filing a suit for recovery in any court of law."
1.2 The Assessing Officer considered the submissions of the assessee and examined them from various angles. It is mentioned that the amount was not taken into account for computing the income of the assessee of this year or an earlier year. Therefore, the amount is not deductible as bad debt. In any case, it is the submission of the assessee that M/s Dimension Investments & Securities Limited has not acknowledged the deposit as debt. Therefore, the amount cannot be termed as bad debt. The assessee is not engaged in the business of buying and selling shares. The aforesaid deposit was made with a view to get the shares allotted. Therefore, the amount is not deductible for computing the income u/s 28 or 29. The assessee has also not been allotted the shares. Therefore, there is no question of transfer of any 2 3 81-2010-KA-Bansal asset leading to capital loss. In view of these findings the claim of `50 lacs was disallowed and the total income was computed at `1,93,40,680/-. Penalty proceedings were initiated u/s 271(1)(c) of the Act. These proceedings were completed on 26.09.2008 by levying the minimum penalty of `19.25 lacs. It was submitted before him that the amount was claimed as bad debt with a bona fide belief that it is allowable as business expenditure. The Assessing Officer did not accept the explanation to be a bona fide explanation under Explanation 1 to 271 (1)(c). Thus, the penalty was levied.
1.3 Aggrieved by this order, the assessee moved an appeal before the CIT(A)-I, New Delhi, who disposed off the same on 30.10.2009 in Appeal No.13/08-09. He deleted the penalty by observing that the explanation tendered by the assessee is bona fide and all facts with regard to the transaction were duly disclosed in the return of income. On the other hand, the Assessing Officer has not brought any material on record to establish that it had made false claim or inflated claim. Therefore, it is a case of bona fide difference of opinion between the assessee and the Assessing Officer.
1.4 Aggrieved by this order, the revenue is in appeal before us. Three grounds have been taken in appeal. Ground No.2 projects the real grievance of the revenue that on the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the penalty of `19.25 lacs imposed by the Assessing Officer.
2. Before us, the case of the learned DR is that conversion of deposit for allotment of shares into loan without concurrence of the aforesaid M/s Dimension Investments & Securities Limited was a device employed by the assessee to claim the deduction of `50/- lacs in computing the income. But for this, the assessee could not have claimed the deduction from the business income. Thus, it is a case of 3 4 81-2010-KA-Bansal a deliberate false claim made by the assessee. In this connection, he referred to para No.13 of the order of the Tribunal in quantum appeal, in which the disallowance was upheld by following the decision of Hon'ble Supreme Court in the case of A.V. Thomas and Company Limited Vs. ACIT 48 ITR 67; CIT Vs. Abdullah Abdulkadar 41 ITR 445; and Amarchand Sobhachand Vs. CIT 82 ITR 591. This paragraph is reproduced below:-
"Looking into the facts of the case in the light of decisions of Hon'ble Supreme Court referred to above, we find that assessee had deposited money for allotment of shares. The share application money deposited was not converted into the loan as M/s Dimension Investment & Securities Ltd. never agreed for such conversion into loan. The assessee deposited the amount of `50 lacs to acquire a capital asset. The amount was neither deposited in the course of the business of advertising and financing nor in the ordinary course of money lending business. The accounting entries made by assessee without consent of other party cannot change the character of share application money into a loan, so as to fall within the money lending business carried on by the assessee. Thus, the assessee is directly covered by the decision of Hon'ble Supreme Court in the cases of A.V. Thomas & Co. Ltd. Vs. CIT, 48 ITR 67 (Supreme Court), CIT Vs. Abdullabhai Abdulkadar, 41 ITR 445 (Supreme Court), and Amarchand Sobhachand Vs. CIT, 82 ITR 591 Supreme Court). Since the issue is directly covered by the decisions of Hon'ble Supreme Court referred to above, respectfully following the precedents, we hold that the amount of `50,00,000/- cannot be treated as a proper debt of revenue nature or incurred in the ordinary course of money lending business carried on by the assessee, which could be allowed as bad debt under section 36(1)(vii) of the Act."
3. It is argued that since the conversion was made without obtaining the permission of the aforesaid M/s Dimension Investments & Securities Limited and there is no provision in the Company Act to convert share application money into debt, the act was malafide and, therefore, the assessee is liable to be penalized u/s 271(1)(c). In order 4 5 81-2010-KA-Bansal to support this case, reliance has been placed on the decision in the case of CIT Vs. Zoom Communication (P) Ltd. (2010) 327 ITR 510 (Delhi); CIT Vs. Escorts Finance Ltd. (2010) 328 ITR 44 (Delhi); CIT Vs. IFCI Ltd. (2010) 328 ITR 611 (Delhi); Devsons (P) Ltd. Vs. CIT (2010) 322 ITR 158 (Supreme Court).
4. In reply, the learned counsel for the assessee submitted that the Assessing Officer did not record any satisfaction while initiating the penalty proceedings, therefore, he did not properly assume jurisdiction to levy the penalty. In this connection, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of Ms. Madhushree Gupta (2009) 317 ITR 107.
4.1 It is also his case that all the facts had been disclosed before the Assessing Officer. The explanation of the assessee is bona fide. In this connection, he relied on the decision in the case of CIT Vs. Indersons Leather (P) Limited (2010) 328 ITR 167 (P&H); CIT Vs. Shahabad Co- operative Sugar Mills Ltd. (2010) 322 ITR 73 (P&H); and CIT Vs. Vijay Kumar Jain (2010) 325 ITR 378 (Chhatisgarh).
5. We have considered the facts of the case and submissions made before us. The facts are that the assessee claimed a deduction of `50/- lac in computing the business income. This amount was the money advanced to M/s Dimension Investments & Securities Limited for allotment of shares. In the course of assessment proceedings, a copy of the letter addressed to the aforesaid M/s Dimension Investments & Securities Limited on 23.02.1998 was filed, in which it is mentioned that the assessee had given a sum of `50/- lacs to this company on 05.09.1997 at the rate of 22% per annum (quarter commodity basis) as share application money with an option to recall it before 31.03.1998. This option is being exercised. M/s Dimension 5 6 81-2010-KA-Bansal Investments & Securities Limited was requested to return the full amount alongwith interest. Another letter dated 06.07.1998 was also filed before the Assessing Officer, which is in the nature of a confirmation letter to be signed by the aforesaid M/s Dimension Investments & Securities Limited, who did not sign it. Thus, there is no letter from the Dimension Investment & Securities Ltd. to support the contents of assessee's letter dated 23.02.1998 or 06.07.1998. The annual accounts for this year show a sum of `2,7564,837/- as "other expenditure" whose details are furnished in schedule-10. This schedule shows "debt" of `2,38,32,391/-. No further beak up is given. Thus, it can be said that the details were obtained only in the course of assessment proceedings. On these facts the question is - whether, the assessee is liable to penalty or not?
5.1 In the case of Zoom Communication (P) Limited (supra) the assessee had claimed inter alia the deduction of Income-tax. The explanation of the assessee was that it was a bona-fide mistake. The Tribunal held that the explanation is bona fide. It has been mentioned that no reason has been advanced as to why it was not detected by the persons who checked the return of income. The decision of the Tribunal suffers from the vice of perversity, as a general view cannot be taken in the matter. It cannot be accepted that no person would claim deduction of Income-tax with a view to avoid payment of tax. The ratio which emerges from this case is that a general view cannot be taken while weighing the explanation. It is the explanation on record which has to be taken into consideration in the context of overall facts to find whether it is bona fide or not.
5.2 In the case of Escorts Finance Limited, the assessee had claimed deduction u/s 35D. The argument of the learned counsel for the revenue was that the explanation of the assessee is that the claim is 6 7 81-2010-KA-Bansal based upon advise of the Chartered Accountant furnished at the time of the public issue. This advice could not be the basis for filing the return of income. The deduction u/s 35D is ex-facie inadmissible in the case of a finance company. The Hon'ble court agreed with these contentions and while doing so, it took note of the decision of Hon'ble Supreme Court in the case of Union of India Vs. Dharmendra Textile Processors, (2008) 306 ITR 277. The ratio of the case is that if the claim is ex facie bogus, the assessee makes himself liable for penalty.
5.3 Coming to the cases relied upon by the assessee, the facts in the case of Ms. Madhushree Gupta are that while completing the assessment, the Assessing Officer directed initiation of penalty proceedings. After hearing the assessee, penalty was levied. In the writ petition, the assessee challenged initiation of penalty proceedings. The Hon'ble Court held that the position of law both pre and post amendment is similar, inasmuch as the Assessing Officer will have to arrive at a prima facie satisfaction during the course of assessment proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings. This satisfaction should be discernible from the order passed during the course of the proceedings. The satisfaction need not reflect all items of addition or disallowance. However, the assessee would not be debarred from furnishing evidence to rebut the prima facie satisfaction of the Assessing Officer. It may be mentioned here that in rebuttal, the revenue relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. ECS Ltd. (2010) 194 Taxman
311. In this judgment, it has been held that the net effect of the amendment as read in the light of the decision in the case of Ms. Madhushree Gupta is that even when the Assessing Officer has not recorded his satisfaction in explicit term, the assessment order should indicate that the Assessing Officer has arrived at such a satisfaction.
78 81-2010-KA-Bansal 5.4 We may now discuss the cases relied upon by the learned counsel in respect of merits of the levy of the penalty. In the case of IFCI Limited, the facts are that the assessee had claimed loss occurring to it in computation of its total income. It was urged that all the facts had been disclosed in the return. Therefore, it could not be treated to be a case of concealment of income. The Hon'ble Court mentioned that the assessee had filed the return and furnished all particulars. The assessee had explained that investments were written off in the books of account and were claimed as deduction on account of loss occurred to the assessee. The Tribunal returned a finding of fact that there has been no furnishing of inaccurate particulars of income. The Hon'ble Punjab & Haryana High Court agreed with the view of the Tribunal that it is a question of fact, which stands decided by the Tribunal. No question of law arises for consideration of the Court. The facts of this case are distinguishable. The assessee had declared all the facts in the return of income, although the claim was not accepted. In the case at hand, the assessee converted deposit into debt without obtaining any consent or denial of the debtor, and claimed deduction under the overall head "bad debts" the full facts of which were not there in the return of income.
5.5 In the case of Devsons (P) Limited, the facts are that the assessee had declared receipts of `81,90,780/-. The Assessing Officer computed the receipts at `1,17,39,415/- by applying the method of accounting regularly employed by the assessee, i.e. mercantile method of accounting. Thus, addition was made to the total income. He had also added a further sum of `36,17,979/- on account of unconfirmed sundry creditors. Finally penalty of `33,07,220/- was levied. The Hon'ble Court deleted the levy of the penalty. It has been mentioned that the Tribunal was not right in law in holding that there was a 8 9 81-2010-KA-Bansal change in method of accounting introduced by the assessee without any justifiable reason. The further findings that there was no evidence regarding the payment of `36,17,980/- by the assessee to the sub contractor is also perverse. In regard to the penalty, the finding of the Tribunal was upheld. The ratio which can be culled out is that penalty cannot be levied where there is a bona fide difference of opinion between the assessee and the Assessing Officer regarding method of accounting. In other words, the whole question turns on the bona fide of the explanation.
5.6 In the case of Vijay Kumar Jain, the Hon'ble Chhatisgarh High Court mentioned that it is not the case of the revenue that the assessee has concealed the particulars of income or any particular of income was found to be inaccurate by the Assessing Officer. It is merely a case of estimating the rate of profit. No penalty can be levied in such a case. The facts of this case are distinguishable inasmuch as the income of the assessee had been estimated, while in the case at hand we are dealing with exact quantification of income, in which a claim has been held to be made falsely.
5.7 In the case of Indersons Leather (P) Limited, decided by the Hon'ble (P&H) High Court, the question was-whether, rent received from house property was business income or property income? The Hon'ble Court held that the Tribunal rightly came to the conclusion that the assessee cannot be found guilty of concealment of income or furnishing inaccurate particulars of income in respect of a debatable issue. The facts of this case are also distinguishable as this case involved disputable question regarding head of income.
6. We may now decide the issues before us in the light of facts and cases mentioned above.
910 81-2010-KA-Bansal 6.1 It is seen that the Assessing Officer elaborately examined the claim of the right off of a sum of `50/- lac made by the assessee under the head "bad debt". It is specifically mentioned that the Dimension never acknowledge the debt and, therefore, there could be no question of the amount being bad debt. In fact no letter is available from this party. It is further mentioned that the assessee is not carrying on the business of dealing in shares. The advance was on capital account. Therefore, it could not be deducted u/s 28 & 29 as alternatively claimed by the assessee. It is also mentioned that the assessee did not acquire any asset and thus did not transfer any asset, leading to loss being computed under the head "capital gains". Therefore, the claim of the assessee has been negatived on all accounts, which according to us amounts to recording satisfaction as envisaged in the case of ECS Limited. Therefore, the argument of the learned counsel in this behalf is dismissed.
6.2 Coming to the merits of the case, the assessee had not made full disclosure in the return of income by giving up break up of the debts and the nature thereof. Thus, at the time of filing the return and its processing, the nature of the amount of `50/- lacs was not known to the Assessing Officer. The assessee has relied on letter dated 23.02.1998 in which it intimated M/s Dimension Investments & Securities Limited that the investment is recalled and requested it to pay the amount with interest of `22/-% per annum. There is no basis available on record for writing this letter and there is also no reply. The account prepared thereafter for confirmation has also not been signed by M/s Dimension Investments & Securities Limited. In the explanation, the assessee has mentioned about the legal advice. Such advice has not been placed on record before the Assessing Officer, the learned CIT(A) or us. Therefore, the explanation is not supported by 10 11 81-2010-KA-Bansal any fact on record. Accordingly, it is held that the conversion was in the nature of a device to make a claim of deduction, which was not otherwise admissible to the assessee.
6.3 The penalty can be levied when income is concealed. An example could be where a part of the income from a declared source is not shown in the return. Penalty can also be levied for furnishing inaccurate particulars of income. This may be illustrated with the example where income is shown as agricultural income or gift. The charge of furnishing inaccurate particulars of income also arises under Explanation 1, where the explanation furnished by the assessee in respect of an addition made is not bona fide. There could be cases where there is a legitimate difference of opinion in respect of claim, if it is so shown, the case will go out of the ambit of the Explanation. However, where the explanation is not bona fide, the penalty can still be levied as held in the case of Dharmendra Textile Processers Limited. Further, the Hon'ble Delhi High Court has held that where the claim is ex-facie bogus, and explanation is not bona fide, the assessee makes himself liable to the penalty. Thus, penalty has been levied in respect of deduction of Income-tax, claim u/s 35D etc. According to us, the case of the assessee stands on worse footing than such cases because its claim is based on a device formed to mislead the Assessing Officer. Further, full facts regarding the claim were not furnished in the return of income. Accordingly, we are of the view that the ratio in the case of Escorts Finance Limited, and Zoom Communication Private Limited is applicable to the facts of the case. In our humble opinion, the decision of Hon'ble Supreme Court in the case of Reliance Petro Products Private Limited does not advance the case of the assessee because of the details have not been furnished in the return of income and the case involves use of a device. At the same time, we are of the view that the decision of extra jurisdictional High Court in the case of 11 12 81-2010-KA-Bansal Indersons Leather Private Limited, and Vijay Kumar Jain is not applicable to the case of the assessee. The ratio of the jurisdictional High Court in the case of IFCI Limited is also not applicable for the reason mentioned above, and the facts of the case of Devsons Private Limited are completely distinguishable. Thus, we are of the view that it is a fit case for levy of penalty.
7. In result, the appeal is allowed.
This order was pronounced in open court on 21.01.2011.
Sd/- sd/-
( C.L. SETHI ) ( K.G. BANSAL )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt.21.01.2011.
NS
Copy forwarded to:-
1. Asstt. CIT, Central Circle-12, New Delhi.
2. M/s Kanchenjunga Advertising (P) Ltd., 5, Green Avenue, Vasant Kunj, New Delhi.
3. The CIT
4. The CIT (A), New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy By Order (ITAT, New Delhi).
12