Income Tax Appellate Tribunal - Delhi
Trinity Touch (P) Ltd., New Delhi vs Assessee on 11 September, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'H' DELHI
BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL
ITA No. 352(Del)/2010
Assessment year: 2006-07
Trinity Touch Private Ltd., Income-tax Officer,
D-10, Defence Colony, Vs. Ward 16(4), New Delhi.
New Delhi-110024.
(Appellant) (Respondent)
Appellant by : Shri Hari Mittar, FCA
Respondent by : Shri Amarendra Kumar, Sr. DR
ORDER
PER K.G. BANSAL : AM The facts of the case are that the assessee filed its return on 27.11.2006 declaring nil income. The assessment proceedings were initiated by serving notice u/s 143(2) on the assessee. In the course of assessment, it was inter-alia found that an expenditure of Rs.8,34,435/- was debited on account of fees paid to the Registrar of Companies for increasing the authorized share capital. The assessee was required to show cause why this amount may not be disallowed as capital expenditure in view of the decision of the apex court in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT, 225 ITR 792. The assessee surrendered the amount for taxation but requested that penalty 2 ITA No.352(Del)/2010 proceedings may not be initiated. However, the AO not only disallowed the expenditure but also initiated penalty proceedings by mentioning that the assessee did not voluntarily surrender the amount for taxation. The penalty proceedings were completed on 26.6.2009. The decision in the case of Punjab State Industrial Development Corporation Ltd. was referred to. It was held that the assessee intentionally and willfully sought to evade tax by furnishing inaccurate particulars of income. Therefore, penalty of Rs. 2,80,870/-, being the minimum penalty, was levied.
2. Various submissions were made before the CIT(Appeals)-XXIX, New Delhi. He referred to a number of judgments including in the case of CIT Vs. Escorts Finance Ltd., 183 Taxman 453 (Del), in which it has been held that a claim made in the return which is ex-facie bogus would lead to the inference of furnishing inaccurate particulars of income. In view of this decision, the appeal of the assessee was dismissed.
3. Aggrieved by this order, the assessee is in appeal before us. Following grounds have been taken in the appeal:-
1.1 That on the facts and in the circumstances of the case, the ld.
CIT(A) has erred in law in confirming penalty of Rs. 2,80,870/- levied u/s 271(1)(c) of the Income-tax Act, 1961.
3 ITA No.352(Del)/20101.2 That the ld. CIT(A) has erred in not appreciating the following facts:
a. That it was not a fit case for penalty as there was no concealment of particulars of income or furnishing of inaccurate particulars of income. In the audited profit and loss account filed along with the return, this amount stood glaringly disclosed and debited under the clear head "Fee for capital increase". There was no camouflage to hide the nature of the expenses or to mislead the Assessing Officer into allowing the expense and no malafide were involved, the particulars of the expense and the nature thereof having been duly disclosed in the Income-tax return.
b. As statutorily required under section 44AB of the Act, the accounts were audited by Chartered Accountants who in their report, which specifically required them to mention the capital expenditure, if any, debited in the profit and loss account. In the tax audit report, the tax Auditors expected to be well conversant with law and the judicial decisions did not specify this expense as of capital nature.
c. That the provisions of the Income-tax Act are so frequently amended that it is not possible for not only the tax payer but also for the tax experts to know or to correctly interpret the various provisions of the Act at any given date and so long as the particulars of expense have correctly been disclosed in the return without any malafide, it is for the Assessing Officer to make the correct assessment under the Income-tax Act.
1.3 That on the facts and in the circumstances of the case, the observations of the ld. CIT(A) that there was a deliberate attempt on the part of the appellant to defraud the revenue were totally unwarranted and based on no material or evidence or logical inferences."
4. Before us, the ld. counsel for the assessee referred to page nos. 1 and 2 of the paper book, which are profit and loss account and Schedule 14 to the accounts. It is seen that a sum of Rs. 1,66,99,222/- has been 4 ITA No.352(Del)/2010 debited to the profit and loss account as administration, selling and other expenses. The break-up of the expenditure has been given in Schedule 14, which shows inter-alia an expenditure of Rs. 8,34,435/- on account of fees for increase in capital. The case of the ld. counsel is that the facts regarding the claim were fully disclosed in the return of income. The question of levy of penalty has to be seen from the explanation tendered by the assessee. The explanation is that all facts have been fully disclosed.
This explanation is bona fide. Therefore, the inference of penalty cannot be drawn in such a case. Reliance has been placed on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158; Hon'ble Delhi High Court in the case of CIT Vs. Zoom Communication (P) Ltd. (2010) 327 ITR 510; CIT Vs. IFCI Ltd. (2010) 328 ITR 611; Hon'ble Chattisgarh High Court in the case of CIT Vs. Vijay Kumar Jain (2010) 325 ITR 378; "B" Bench of Mumbai Tribunal in the case of Mimosa Investment Co. (P) Ltd. Vs. ITO (2010) 6 ITR (Trib.) 789; and Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Shahabad Cooperative Sugar Mills Ltd. (2010) 322 ITR 73. It is also submitted that statutory audit u/s 44AB of the Act had been carried out by an independent auditor in column no. 17(a) of his report, nil amount has been mentioned against expenditure of capital 5 ITA No.352(Del)/2010 nature. Therefore, it is argued that this is not a fit case for levy of penalty. When questioned as to whether any action has been taken against the auditor, no reply has been furnished by the ld. counsel.
5. In reply, the ld. DR submitted that the issue as to whether fees paid to the Registrar of Companies for increasing authorized capital is in the revenue or capital field has been settled long back by the apex court in the case of Brook Bond India Ltd. on 4.12.1996. The assessee filed its return on 27.11.2006, 10 years after rendering of this judgment. The return has also not been revised. Therefore, it is a case of prima facie false claim. Accordingly, it is argued that this is a fit case for levy of penalty. Reliance has been placed on the decision of Hon'ble Delhi High Court in the case of Zoom Communication (P) Ltd. (supra); Escorts Finance Ltd. (supra); Union of India Vs. Dharmendra Textile Processor (2008) 306 ITR 277 (SC); order of "D" Bench of Delhi Tribunal in the case of Tel Abridge International Ltd. 2010-TIOL-01-ITAT dated 11.09.2009; Pune Bench in the case of Cambay Software India (P) Ltd. (2009) 31 SOT 153 and Delhi Bench "A" in the case of Anand & Anand, in ITA No. 25(Del)/2010.
6 ITA No.352(Del)/2010
6. In the rejoinder, the ld. counsel distinguished the facts of the case of Tel Abridge International Ltd., Escorts Finance Ltd. and Anand & Anand (supra).
7. We have considered the facts of the case and submissions made before us. The facts of the case are that the assessee claimed deduction of expenditure amounting to Rs. 8,34,435/- in respect of fees paid to Registrar of Companies for increasing the authorized share capital. The assessee was requested to state why this expenditure should not be disallowed. The assessee filed a letter surrendering the amount for taxation. The expenditure was debited under the head administration, selling and other expenses. The details of these expenditure were available in schedule 14, which shows that the amount of Rs. 8,34,435/- was debited under this head as fees for capital increase. Therefore, the facts in regard to claim of expenditure were disclosed in the return of income. However, the tax audit report did not treat this expenditure as capital expenditure. An affidavit has been filed from Shri S.K. Aggarwal, Chartered Accountant, to the effect that he has been compiling/scrutinizing the returns of the assessee, the tax audit report was prepared by M/s Bansal & Company, a firm of Chartered Accountants, which shows nil 7 ITA No.352(Del)/2010 amount in column 17(a), and this amount escaped his attention also while preparing the return of income. On these facts, the question is-whether, the assessee is liable to be penalized u/s 271(1)(c)? 7.1 In so far as the question of admissibility of the expenditure is concerned, the same stands decided against the assessee by the judgment of Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Ltd. (supra) dated 4.12.1996, which made the following observations:
"We do not consider it necessary to examine all the decisions in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit-making, it still retains the character of a capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. We are, therefore, of the opinion that the view taken by the different High Courts in favour of the revenue in this behalf is the preferable view as compared to the view based on the decision of the Madras High Court in Kisenchand Chellaram's case [1981] 130 ITR 385."
7.2 The aforesaid judgment has been followed consistently in a number of other decisions of the apex court and the High Courts. The assessee filed its return of income on 27.11.2006, more or less 10 years after the 8 ITA No.352(Del)/2010 rendering of the aforesaid decision by the apex court. Therefore, the claim is ex-facie wrong.
7.3 In the case of Reliance Petro Products (P) Ltd. (supra), the question before the Hon'ble Supreme Court was regarding levy of penalty in respect of disallowance of an expenditure of Rs. 28,77,242/- u/s 14A. The Hon'ble Court mentioned that it is not concerned with mens rea. What is to be seen is whether, as a matter of fact, the assessee has furnished inaccurate particulars, which according to Webster's dictionary mean "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". Therefore, where there is no finding that any detail supplied by the assessee in the return is incorrect or erroneous or false, it cannot be said that the assessee has committed the default of furnishing inaccurate particulars. Thus, the penalty was set aside. The facts of the case are somewhat distinguishable. The assessee has furnished the details regarding expenditure incurred by way of payment of fees to Registrar of Companies for enhancing its capital. The expenditure has been claimed to be revenue expenditure, a claim which is ex-facie false, in view of the 9 ITA No.352(Del)/2010 judgment of Hon'ble Supreme Court delivered as early as in October, 1996.
7.4 In the case of Zoom Communication P. Ltd.(supra), the question was regarding admissibility of the deduction of income-tax in computing the total income. The claim is prima facie inadmissible. The case of the assessee was that the mistake occurred due to oversight. The Hon'ble Court mentioned that only a small percentage of income-tax returns are picked up for scrutiny. In such a situation, if the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty. If such a view is taken that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making the claim of this nature, that would give a license to unscrupulous assessees to make wholly untenable and unsustainable claims. It is further mentioned that it is not explained as to who committed the oversight resulting in failure to add this amount and under what circumstances the oversight occurred and why it was not detected by those who checked the income-tax return. The revenue 10 ITA No.352(Del)/2010 has placed heavy reliance on this case, while the ld. counsel has distinguished this case by mentioning that the assessee has explained the cause of oversight. In the affidavit of Shri S.K. Aggarwal, it is mentioned that the auditors, M/s Bansal & Company did not show this amount as disallowable in tax audit report in column 17(a) and this matter also escaped his attention. No affidavit has been filed from M/s Bansal & Company. In the course of hearing, the assessee was requested to state what action has been taken against M/s Bansal & Company or Shri S.K. Aggarwal. The ld. counsel did not furnish any reply, which means that no action has been taken. These very persons continue to be auditors and tax filers for the assessee. In view of this circumstance, we are of the view that the affidavit is an afterthought and it cannot be relied upon. In any case, it cannot be held as a general preposition of law that mistake of the auditor absolve the assessee from its default. Accordingly, it is held that the decision of this case is in favour of the revenue.
7.5 In the case of Escorts Finance Ltd. (supra), the question before the court was regarding the levy of penalty in respect of claim of deduction u/s 35D, which was denied by the AO as conditions for the deduction 11 ITA No.352(Del)/2010 did not stand satisfied. The Hon'ble Court referred to the decision in the case of Dharmendra Textile Processors. It is mentioned that a sum of Rs. 21,02,228/- u/s 35D was disallowed by the AO. According to the assessee, the claim was made on the basis of opinion given by the chartered accountant, which is clear from the prospectus of the public issue of shares. The case of the revenue was that merely because information in this behalf was made available in the tax audit report, that would not absolve the assessee from levy of penalty where ex-facie bogus claim is made. It was further submitted that only 5 % of the returns are taken up for scrutiny. Therefore, with the hope that return may not come under scrutiny and may be assessed on the basis of "self- assessment", an assessee can venture to give wrong information. Therefore, it was argued that merely because wrong information was there in the tax audit report will not absolve the assessee from levy of penalty. What is to be seen is whether the claim is bogus. The Hon'ble jurisdictional High Court concurred with this line of argument and mentioned that even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which is made is ex-facie bogus, it may still attract penalty provisions. We have already seen that the claim that the error was committed by the chartered 12 ITA No.352(Del)/2010 accountant is not acceptable. Hon'ble Delhi High Court has accepted this line of argument in the aforesaid case. Beyond that, it is clear that the claim is ex-facie bogus. Therefore, the ratio of this case is also applicable to the facts of the case.
7.6 In the case of Vijay Kumar Jain (supra), the facts are that the AO rejected the book results and made an addition of Rs. 1,70,920/- by estimating the net profit at 10% of the receipts against 6.36% shown by the assessee. The Hon'ble Court considered inter-alia the decision in the case of Dharmendra Textile Processor. It has been mentioned that it is not the case of the revenue that the assessee concealed the particulars of his income or any particular of income furnished by him was found to be inaccurate by the AO. Therefore, the penalty was cancelled. The facts of this case are clearly distinguishable because that case did not involve any ex-facie bogus or false claim.
7.7 In the case of Mimosa Investment Co. P. Ltd. (supra), the question before the Tribunal was in regard to levy of penalty in respect of disallowance of Rs. 38,31,322/- u/s 14A of the Act. The Tribunal considered the meaning of the word "concealed" as mentioned in 13 ITA No.352(Del)/2010 Webster's New International dictionary, the form of return and the statutory provisions. Finally, the penalty was deleted by mentioning that all relevant material facts had been disclosed. The assessee offered an explanation which was not found to be false. The AO may not agree with the assessee while computing income on the same facts. That however does not lead to the inference of concealment of income or furnishing inaccurate particulars of income. We have already seen that the Hon'ble Delhi High Court has taken a totally different view in this matter in the case of Zoom Communication P. Ltd. and Escorts Finance Ltd., in which it has been held that an ex-facie bogus claim in a scenario where facts have been correctly submitted, will lead to levy of penalty. Therefore, we chose to follow the decision of jurisdictional High Court in preference to the aforesaid decision of Mumbai Tribunal. 7.8 In the case of Shahbad Cooperative Sugar Mills Ltd. (supra), the question was regarding levy of penalty in respect of profit earned on manufacturing of articles. The Hon'ble Court inter-alia referred to the decision in the case of Hindustan Steel Ltd. Vs. State of Orissa (1972) 83 ITR 26, and mentioned that from the order of the Tribunal, we do not find any such point having been raised by the revenue. In any case, the reasoning which has been applied for setting aside penalty in respect of 14 ITA No.352(Del)/2010 wrong claim u/s 80P of the Act will also apply to wrong claim under the head depreciation. Making of wrong claim is not at par with concealment or furnishing inaccurate particulars of income. It may be mentioned that the decision was rendered by Punjab & Haryana High Court, not being the jurisdictional High Court. No plea of ex-facie bogus claim was raised in this case. Thus, the case was only of a wrong claim as against a false claim. The latter situation is covered by the two decisions of Hon'ble Delhi High Court, which have been decided in favour of the revenue.
7.9 In the case of IFCI Ltd. (supra), the question before the Hon'ble jurisdictional High Court was regarding levy of penalty in respect of "investments written off". The case of the assessee was that all particulars were furnished in the return of income and the loss was actually incurred. The Tribunal after analyzing the factual matrix expressed the view that there has been no furnishing of inaccurate particulars and it is a case where a claim of loss was not accepted. That would not per se amount to furnishing any kind of inaccurate particulars. The Hon'ble Court concurred with this finding and mentioned that it does not perceive any merit in the appeal. The same was dismissed at the 15 ITA No.352(Del)/2010 stage of admission. From this decision, it transpires that the material issue is whether the claim is ex-facie false and whether explanation furnished by the assessee is bona fide? It is a fact that the claim is ex- facie false. The plea of bona fide cannot be accepted because the circumstances in which auditors committed the errors have not been explained. Therefore, we are of the view that the lower authorities were right in levying the penalty.
7.10 In the case of Tel Abridge International Ltd., the Delhi Tribunal was concerned with the case of levy of penalty in respect of expenditure incurred to increase the share capital. The penalty was confirmed by making the following observations:
"We are in agreement with the aforesaid submission of learned counsel for the revenue. We fail to understand as to how the chartered accountants who are supposed to be expert in tax laws, could give such an opinion having regard to the plain language of s. 35D of the Act. It would be important to note that assessee has nowhere pleaded that return was filed claiming benefit of s. 35D of the Act on the basis of the said opinion. What was stated was that in the prospectus it was mentioned that as per the opinion given by the chartered accountants, the company would be entitled for relief under s. 35D of the Act. Therefore, it is not the case of the assessee that while filing the return it got assistance from the chartered accountants who opined that the aforesaid expenses qualify for amortization over a period of 10 years under s. 35D of the Act. That apart, when we find that it is not a case where two opinions about the 16 ITA No.352(Del)/2010 applicability of s. 35D were possible, therefore, it cannot be a case of a bona fide error on the part of the assessee. As has been pointed out above, the relief available under s. 35D of the Act to a finance company is ex facie inadmissible as that is confined only to the existing industrial undertaking for their extension or for setting up a new industrial unit. It was, thus, not a 'wrong claim' preferred by the assessee, but is a clear case of 'false claim'. In CIT Vs. Vidyagauri Natverlal & Ors. (1999) 153 CTR (Guj.) 546: (1999) 238 ITR 91 (Gu.) Gujarat High Court made a distinction between wrong claim as opposed to false claim and held that if the claim is found to be false, the same would attract penalty. We may also take note of the following observations of the Supreme Court in the case of Union of India & Ors. Vs. Dharmendra Textile Processors & Ors. (2008) 219 CTR (SC) 617: (2008) 14 DTR (SC) 114: (2008) 306 ITR 277 (SC): (2008) 13 SCC 369. In such a case it is difficult to accept the plea that error was bona fide."
15. Now reverting to the facts of the instant case, we find that the assessee has not explained as to why it made the claim for the expenditure in the return when their Lordships of Hon'ble apex Court laid down the law in the decision in the case of Brooke Bond India Ltd. (supra) and Punjab State Industrial Development Corporation Ltd. (supra) wherein the nature of similar expenditure claimed by the assessee was held to be capital. We fail to understand why the assessee still claimed the same by treating it as revenue expenditure in the return despite the apex court in their decisions (supra) have clearly held the same to be capital in nature. The law was laid down by the apex court (supra) much before the filing of the return of the assessee, hence, in our opinion the assessee now cannot absolve itself from levy of penalty under s. 271(1)(c) in view of Explanation 1 to s. 271(1)(c) by giving an explanation during the assessment proceedings that it disclosed all particulars before the AO or that the claim made by the assessee was due to a bona fide error. In our opinion in the facts already narrated in detail by us, the claim of expenditure made by the assessee even against the law laid down by the apex court can be called to be ex- 17 ITA No.352(Del)/2010
facie bogus and hence cannot be called bona fide.
Therefore, the assessee's case comes within the purview of Explanation 1 to s. 271(1)(c) for levy of penalty for furnishing inaccurate particulars by the assessee. In this view, we find support from the recent decision of the Hon'ble jurisdictional High Court of Delhi in the case of Escort Finance Ltd. (supra) wherein in identical facts their Lordships held such a claim made by the assessee to be not due to a bona fide error because ex-facie the claim made by the assessee was bogus. Therefore, in our opinion, the CIT(A) by relying upon various decisions while coming to a conclusion that no penalty under s. 271(1)(c) was leviable because the claim of the assessee was on account of a bona fide error, was misplaced because of improper appreciation of the facts as well as improper application of the case law to the facts of the instant case of the assessee. Accordingly, the order of CIT(A) in deleting the impugned penalty amount levied under s. 271(1)(c) by the AO is set aside and the order of the AO in levying the impugned penalty amount of Rs. 3,84,757/- under s. 271(1)(c) of the Act is upheld.
Consequently, the ground of appeal taken by the revenue is allowed."
7.11 The facts of the two cases are in pari materia.
7.12 Therefore, it is held that the lower authorities were right in levying the penalty.
8. In the result, the appeal is dismissed.
This order was pronounced in the open court on 21 January, 2011.
Sd/- sd/-
(A.D. Jain) (K.G.Bansal)
Judicial Member Accountant Member
Date of order: 21st January, 2011.
SP Satia
18 ITA No.352(Del)/2010
Copy of the order forwarded to:-
Trinity Touch Pvt. Ltd., New Delhi.
ITO, Ward 16(4), New Delhi.
CIT(A)
CIT
The DR, ITAT, New Delhi. Assistant Registrar.