Income Tax Appellate Tribunal - Delhi
Punj Hospitality Pvt. Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA
ITA No. 2493/Del/2011
Asstt. Yr. 2006-07
Income-tax Officer, Vs. Punj Hospitality Pvt. Ltd.
Ward 14(4), New Delhi. M-13A, Punj House, 4th floor,
Connaught Place, New Delhi.
PAN: AADCP6862H
( Appellant ) ( Respondent )
Appellant by : Shri G.S. Virk sr. DR
Respondent by : Shri Ajay Wadhwa Adv.
ORDER
PER R.P. TOLANI, J.M::
This is Revenue's appeal challenging the CIT(A)'s order dated 28-2- 2011, deleting the penalty levied by the assessing officer u/s 271(1)(c) of the I.T. Act relating to A.Y. 2006-07.
2. Brief facts are: One M/s Aggarwal Hotels (P) Ltd. ("AHPL" in short) was already running restaurant and bar under the name and style "Tavern on the Greens". The assessee company was incorporated on 5-10-2005 with business objects of hospitality, including managing hotels and restaurants and in furtherance thereof entered into an agreement on 10-10-2005 with AHPL to take over the management of restaurant and bar under the name and style of "Climax". For attraction of customers it was decided to renovate, refurbish and improve the existing set up. As per agreement, assessee incurred an expenditure of Rs. 44,03,606/- on refurbishing, repairs and renovation of these premises and filed the return of income claiming the 2 same as revenue expenditure. The Assessing officer treated this amount as capital expenditure, which was challenged by assessee. The ITAT vide order dated 23-10-2009 upheld the action of assessing officer. Qua this addition, the assessing officer initiated penalty proceedings u/s 271(1)(c) and vide penalty order dated 30-6-2010, levied a penalty of Rs. 14,08,142/- by following observations:
"A fresh show cause notice u/s 271(1)(c) was issued to the assessee on 18-05-2010 and the assessee has filed reply. In its reply the assessee has stated the same facts as already submitted during assessment and appellate proceedings. The assessee by relying on certain case laws, has requested that it has not concealed or hidden any facts and this is only a difference of opinion between the department and the assessee pertaining to the taxability of income and requested to drop the penalty proceedings.
The reply filed by the assessee has been considered. There is no merit in the same as it is repetition of the facts as already furnished by the assessee during the assessment proceedings and appellate proceedings. Nothing new has been brought on record by the assessee to substantiate its claim. It is crystal clear that the assessee could not justify its claim either during assessment proceedings, before the Ld. CIT(A) and the Hon'ble Member of the ITAT. The facts of the case laws cited by the assessee are entirely on different issues and are not relevant to the facts of the present case. The repair expenses, which are in the nature of capital expenditure, were disallowed as per explanation 1 of section 30 of the Income-tax Act which were inserted by the Finance Act, 2003 w.e.f. 01-04-2004. According to the Black dictionary, the word "concealment" means to conceal, a withholding of something, which one knows and which one in duty is bound to reveal. Thus, where a "fact" of certain "details" is/ are in the special knowledge of a particular person and he/ it hides or withholds such fact/ detail from the knowledge of other despite being under the obligation to disclose the same, it can be said that the same have been concealed. Keeping in view the facts and circumstances of the 3 case, it is held that the assessee has deliberately willfully and knowingly furnished inaccurate particulars of its income and provisions contained in section 271(1)(c) along with explanations appended to this section read with section 274 of the I.T. Act 1961 has been violated, therefore, the assessee company is liable to penalty u/s 271(1)(c). Accordingly, I hold the assessee in default u/s 271(1)(c) of the Act, as the assessee has furnished inaccurate particulars of its taxable income. A minimum penalty of Rs. 14,08,142/- which is @ 100% of the amount of tax sought to be evaded is imposed."
2.1. Aggrieved, assessee preferred first appeal challenging the imposition, where CIT(A) deleted the penalty by following observations:
"4. I have carefully considered the submission of the ld AR and perused the order passed by the AO. It is not in dispute that the expenditure I question was a capital expenditure as has been held by the ld. CIT(A) and the Hon'ble ITAT. Therefore, the arguments of the ld. AR that the expenditure was a revenue expenditure cannot be accepted as the Hon'ble ITAT has given categorical findings that the expenditure was a capital expenditure. Regarding the question as to whether the penalty is leviable or not, the ld. AR submitted that the appellant has disclosed all the facts in the return of income and ha snot concealed any facts. On perusal of a case records, I find that the appellant has shown the expenditure in Schedule 12 of the Profits and Loss Account as Rs. 44,03,606/- under the head of repair and renewal of leased premises. Since the appellant ha shown the expenditure in the Profit and Loss Account, it can not be said that the appellant has concealed the particulars of its income. The disallowance of expenditure of Rs. 44,03,606/- occurred due to difference of opinion between the appellant and the AO. Since there is very thin line between the revenue and capital expenditure, the difference in opinion is very much possible.
4.1. I further find that the Ld. AR has placed reliance on the decision of jurisdictional High Court in the case of CIT Vs. HMA Udyog (P) Ltd. (2007) 211 CTR (Del) 543. For the sake 4 of convenience, the relevant portion of finding of Hon'ble High Court is reproduced below:
"The assessee was earlier in the business of advertisement activities of various cigarette products and also concealed with garment manufacturing and sale. During the previous year relevant to the assessment year in question, the assessee started a business of restaurants and film distributorship and carried out extensive repairs in his commercial premises.
The assessee claimed the expenditure as a revenue expenditure, but the AO was of the view that this represented a capital expenditure and, therefore, made the requisite addition. Penalty proceedings were also initiated against the assessee under sec. 271(1)(c) of the IT Act.
The view of the AO on merits of the case was upheld by the CIT(A) as well as by the Tribunal.
In so far as the penalty proceedings are concerned, the matter ultimately came up before the Tribunal and by the impugned order, the Tribunal was of the view that the question whether the expenditure incurred by the assessee was a revenue expenditure or a capital expenditure was a debatable issue and even if it was ultimately decided against the assessee, it could not be said that the assessee had attempted to conceal the particulars of his income or furnished inaccurate particulars so as to attract the penal provisions of s. 271(1)(c).
After hearing ld. Counsel for the parties, we are of the view that there is no question of the assessee having attempted to conceal the particulars of his income, which is not even in the case of the revenue. So far as furnishing of inaccurate 5 particulars are concerned, it is quite clear that the assessee had furnished all relevant particulars of his income but only claimed it to be a revenue expenditure while according to the Department, the expenditure incurred was of a capital nature. This was, as rightly held by the Tribunal, a debatable issue and would not amount to furnishing of inaccurate particulars so as to attract penalty proceedings.
Under the circumstances, we are of the view that no substantial question of law arises for our consideration. Dismissed."
4.2. On going through the findings of Hon'ble Delhi High Court, I find that the facts of t he appellant's case are similar to the case of CIT vs. HMA Udyog (P) Ltd. (supra). In that case also the expenditure was claimed by the assessee as revenue expenditure on account of extensive repairs. However, the AO held the said expenditure as capital expenditure and in appeal the CIT(A) and ITAT upheld the findings of the AO. Later on, the penalty u/s 271(1)(c) was levied against the said disallowance of expenditure and Hon'ble Delhi High Court dismissing the departmental appeal observed that it was a debatable issue and penalty was not leviable against the disallowance of said expenditure by treating the same as capital expenditure. Considering the facts and circumstances of the case, legal provision and judicial pronouncements, I hold that the ratio laid down by Hon'ble Delhi High Court in the case of CIT vs. HMA Udyog (P) Ltd. (supra) is applicable to the appellant's case. Therefore, respectfully following the judgment of Hon'ble Jurisdictional High Court, the penalty levied by the AO is cancelled. The grounds of appeal are allowed."
2.2. Aggrieved. Revenue is before us.
3. Ld. DR relied on the order of assessing officer and contends that the assessee has deliberately claimed the capital expenditure as revenue expenditure to reduce its tax liability. AO's finding has been confirmed by 6 the ITAT on which assessing officer has rightly relied while imposing the penalty u/s 271(1)(c). Ld. CIT(A) only referred to Hon'ble Delhi High Court's judgment in the case of HMA Udyog (P) Ltd. (supra) for deleting the penalty without giving independent reasoning. The penalty was rightly levied by assessing officer, whose order should be restored.
4. Ld. Counsel for the assessee effectively argues following points:
(i) Penalty u/s 271(1)(c) is not automatic and cannot be levied merely because the quantum is confirmed. Penalty proceedings are independent and separate than quantum proceedings
(ii) The assessee is into hospitality business, which includes taking over of hotels, bars, restaurants for management purpose, therefore, when this bar & restaurant was taken on management, the assessee's business starts from that date. Consequently, the day assessee entered into agreement with AHPL, the assessee's business of management started. There is no justification in the assessing officer's holding that the expenditure was capital in nature and assessee's business started only after the refurbishing was complete. The bar & restaurant was already operational, for better commercial exploitation the management contract was given and assessee was obliged to share of the refurbishing expenditure.
When the business had already started by the management contract, the expenditure incurred to augment the revenue generating apparatus of the assessee becomes revenue in nature. Reliance is placed on Hon'ble Supreme Court judgment in the case of Empire Jute Co. Ltd. 124 ITR 1.
(iii) Ld. CIT(A) has given clear cut independent finding that assessing officer has not disputed that the expenditure was genuine and in 7 the nature of renewal and refurbishment. The assessee's claim has been rejected only on a mistaken finding that assessee's business started only after the refurbishment was complete. The fact of the matter is that bar & restaurant was already operational and the assessee's business of management of bar & restaurant commenced from the date on which the management contract was executed and the possession was handed over. CIT(A) has given independent finding about the assessee's bona fide belief and Hon'ble Delhi High Court's proposition that a debatable issue cannot be a basis for imposition of penalty u/s 271(1)(c). The bona fide belief of the assessee has been questioned by the assessing officer on summary assumptions without analyzing and appreciating the facts of the case.
(iv) Further reliance is placed on Hon'ble Supreme Court judgment in the case of Reliance Petro Products 322 ITR 158 for the proposition that if the assessee has furnished details and made a claim in the return of income, merely because the same is disputed by assessing officer, cannot be held to be furnishing of inaccurate particulars or concealment of income. The analogy of this judgment is clearly applicable inasmuch as all the details about the claim were properly disclosed in the return of the assessee. Assessing officer has chosen to treat the expenditure from revenue head to capital head only on his interpretation about the facts. Such debatable interpretation cannot be held to be a reason for imposition of penalty u/s 271(1)(c). Further reliance is placed on the ratio of decisions in the cases of:
- CIT v. Manibhai & Bros. (2007) 294 ITR 501 (Guj) 8
- CIT v. Auric Investment & Securities Ltd. (2007) 163 Taxman 533 (Del)
- CIT v. Bhudewal Cooperative Sugar Mills Ltd. (2008) 171 Taxman 173 (P&H)
- CIT v. Mica Wood (P) Ltd. (2008) 170 Taxman 256 (Del)
- CIT V. Eicher Good Earth Ltd. (2008) 170 Taxman 27 (Del)
- CIT v. Eicon International (P) Ltd. (2008) 166 Taxman 12 (Del).
5. We have heard rival contentions and gone through the entire material available on record. It is well settled legal proposition that penalty u/s 271(1)(c) cannot be imposed merely because the quantum addition is confirmed. The issue pertains to a continuously ongoing debate about revenue versus capital nature of expenditure. The line of distinction is very thin and is to be appreciated keeping in mind intricacies of facts and circumstances of each case. In this case the assessee took over the running of bar & restaurant for management purposes through an agreement. As per agreement share of the expenditure on renewal and refurbishing was to be born by the assessee. The sales revenue were to be distributed after the refurbishing was complete. In the given facts and circumstances, the date of commencement of business may become subject matter of debate with a clear possibility that assessee and assessing officer may hold divergent views on the same facts. In view of these facts, the assessee's bona fide belief about treating the expenditure as allowable revenue expenditure cannot be held unreasonable or without any consideration. In view thereof, we uphold the finding of CIT(A) that assessee was under bona fide belief about the allowability of the expenditure as revenue. The assessee having furnished all the details along with the return of income, the Hon'ble 9 Supreme Court's judgment in the case of Reliance Petro Products (supra) is also applicable. Therefore, we uphold the order of CIT(A) deleting the penalty.
6. In the result, revenue's appeal is dismissed.
Order pronounced in open court on 08-02-2013.
Sd/- Sd/-
( B.C. MEENA ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 08-02-2013.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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