Income Tax Appellate Tribunal - Hyderabad
M/S Prajay Engineers Syndicate ... vs Department Of Income Tax on 8 June, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 259/Hyd/2013
Assessment Year: 2008-09
Asst. Commissioner of Income- vs. M/s Prajay Holdings Pvt. Ltd.,
tax, Circle - 16(3), Hyderabad. Hyderabad.
PAN - AAECP 1668A
(Assessee) (Respondent)
Revenue by : Shri M. Sitraram
Assessee by : Shri Mohd. Afzal
Date of hearing 24-03-2016
Date of pronouncement -06-2016
O RDE R
PER S. RIFAUR RAHMAN, A.M.:
This appeal is preferred by the revenue against the order of the learned Commissioner of Income-tax(Appeals) - V, Hyderabad dated 23/11/2012 for AY 2008-09.
2. Briefly the facts of the case are that the assessee company engaged in the business of "Property Developers", filed its e-return of income for the Asst. Year 2008-09 on 30.09.2008 admitting total loss of Rs.92,25,188/- under normal provisions and Book Loss u/s. 115JB was admitted at Rs. 91,90,000/- The case was selected for scrutiny as per CASS and statutory notices were issued.
2 ITA No. 259 /Hyd/2013M/s Prajay Holdings Pvt. Ltd.
2.1 During the course of assessment proceedings u/s 143(3) of the I.T. Act, on verification of the details filed, it was noticed by the AO that the assessee company has increased its Authorized Share Capital from 2 crores equity shares to 16 crores equity shares of Rs. 10 each. For increasing the Authorized Share Capital, the assessee- company had incurred an expenditure of Rs. 1,29,48,645/- paid to the Registrar of Companies towards ROC fee. The expenses were incurred for enhancement of authorized capital of the assessee- company. The said amount of Rs. 1,29,48,645/- paid towards ROC fees was debited to the Profit & Loss a/c and claimed as Revenue expenditure. Referring to the Apex Court decision rendered in the case of M/s Punjab State Industrial Development Corporation Ltd. Vs. CIT, AO observed that the ROC fees paid towards enhancement of authorized share capital was held to be in the nature of capital expenditure. The same was confronted with the assessee and as the expenditure incurred gives enduring benefit to the assessee, the assessee was asked to explain why the same should not be treated as Capital Expenditure and be disallowed. The AO noted that the assessee neither filed any explanation nor made any submissions in this regard. In the absence of any explanation or any reply from the assessee, relying on the decision of the Apex Court cited supra, the AO disallowed the expenditure of Rs. 1,29,48,645/- incurred towards ROC Fee and added to the income returned.
2.2 Since the assessee had furnished inaccurate particulars of income by debiting the expenses towards ROC fees to the P&L A/c, the AO initiated penalty proceedings u/s 271(1)(c) by issue of notice u/s 274 r.w.s. 271 of the IT Act on 22/12/2010 and again a letter dated 10/06/2011. In response, the assessee filed written submissions on 20/06/2011 wherein it was stated as under:
" the assessee company has furnished all the necessary details/ particulars relating to expenditure incurred to increase of share capital paid to ROC. Moreover, the assessee's representative 3 ITA No. 259 /Hyd/2013 M/s Prajay Holdings Pvt. Ltd.
agreed to add the- same though, it is debatable issue the assesses AR agreed the same to add back.
From the above facts, it is to be noticed that on the basis of material on. record as well as on the facts and circumstances of the case, it cannot be said that the assessee company had consciously concealed the particulars of income (or) had furnished inaccurate particular of such income with respect to difference in the amount of income returned and assessed."
2.3 Rejecting the submissions of the assessee, the AO levied a penalty of Rs. 39,90,500/- u/s 271(1)(c) by holding that this is a fit case to levy penalty u/s 271(1)(c) for furnishing inaccurate particulars of income and for failure to furnish explanation during the course of assessment proceedings and also for failure 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 it.
3. Aggrieved, the assessee preferred an appeal before the CIT(A)
4. Before the CIT(A), the assessee submitted that it had duly reflected the expenditure in the profit & loss account. Further, it was submitted that it is only a difference of opinion and the assessee had no intention of non-disclosure and relied on various case laws.
5. The CIT(A) relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products (P) Ltd., 322 ITR 158 and relying on the decision of the ITAT, Delhi Bench in the case of Alankit Assignments Ltd. Vs. DCIT, ITA No. 3859/Del/2010, dated 07/01/2011, cancelled the penalty levied by the AO u/s 271(1)(c) by observing as under:
"6.1 ...........it is clear that there is a difference of opinion on the issue and there is no concealment of any facts by the appellant. It is a settled law that for mere disallowances, even though they may be confirmed in appeal, penalty for concealment of income is not attracted. I further find that the AO has not placed on record an fact to show that the appellant has not offered proper explanation or that it had falsified entries to deliberately conceal income."
4 ITA No. 259 /Hyd/2013M/s Prajay Holdings Pvt. Ltd.
6. Aggrieved by the order of CIT(A), the revenue is in appeal before us raising the following grounds of appeal:
1. The order of the CIT(A) is erroneous both in law and in facts of the case.
2. The CIT(A) ought to have considered the fact that the assessee has failed to provide any explanation as required in Clause (A) to explanation 1 to section 271(1) at the time of assessment as to why the expenses having enduring benefit on the revenue generating capacity of a concern be treated as capital expenditure.
3. The CIT (A) ought to have appreciated the fact that the facts of the case in respect of CIT Vs Reliance Petro Products P Ltd are not applicable to the present case as the assessee has not made and claim of deduction.
4. The CIT(A) ought to have considered a fact that the assessee offered an explanation at the time of appeal which he is not able to substantiate as to how the expenses having enduring benefit on the revenue generating capacity of a concern is a revenue expenditure."
7. The ld. DR submitted that CIT(A) has allowed the assessee's appeal by citing that there is a difference of opinion on the issue whereas the facts are, the assessee claimed ROC fees as revenue expenditure whereas the same was held to be capital in lieu of the decision of the Hon'ble Supreme Court in the case of M/s Punjab State Industrial Development Corporation (supra). There is no dispute, the same was confronted with the assessee, there is no clarification from the assessee and it was accepted. It clearly shows that assessee had claimed the expenses deliberately as revenue. He submitted that CIT(A) has relied on M/s Reliance Petro Products (P) Ltd. (supra),but, the facts of this case are different. He submitted that this is a fit case for penalty. He further submitted that the accounts were audited by M/s Deloitte and they are aware of the statutory position, in such case, assessee is aware of the situation and still treated the ROC fees as revenue expenditure. He relied on the following case laws:
i) SHR Trading (P) Ltd., Vs. CIT, 150 ITD 383 5 ITA No. 259 /Hyd/2013 M/s Prajay Holdings Pvt. Ltd.
ii) CIT Vs. NG Technologies Ltd., 370 ITR 7 (Delhi)
iii) Gourav Goenka Vs. ACIT, 364 ITR 186 (Cal.)
8. Ld. AR of the assessee submitted that the assessee genuinely believed that ROC payment of fees is an allowable expenditure and not aware of the decision of the Hon'ble Supreme Court at the time of filing of return of income. It is understood from the order of the Hon'ble Supreme Court, the issue has been answered in favour of the assessee by the High Court of Madras, Karnataka AP & Kerala and some of the Hon'ble High Court are in favour of the revenue i.e. Allahabad, HP, Delhi, Kolkatta, Punjab, Gujarat & Rajasthan. The Hon'ble Supreme Court has appreciated the difference of opinion among the different High Courts and followed the decision of the majority and held in favour of the revenue. Ld. AR submitted that in view of the conflicting decisions of the various High Courts, it cannot be said that the claim of the assessee is totally wrong which led to inaccurate claim.
8.1 Ld. AR also submitted that the assessee claimed this expenditure in P&L a/c and agreed for addition during the course of assessment proceedings when it is brought to the notice that this issue is settled in favour of revenue. He submitted that merely making a claim in P&L account which is disallowable does not lead to concealment of income or filing of inaccurate particulars.
8.2 Ld. AR further submitted that CIT(A) has rightly allowed the assessee's appeal by considering the rationale of the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products (P) Ltd. (supra). He also relies on the decision in the case of Alankit Assignments Ltd. VS. DCIT, ITA No. 3859/Del/2010.
9. Considered the submissions of both the parties and material facts on record. There is no dispute that assessee had claimed the 6 ITA No. 259 /Hyd/2013 M/s Prajay Holdings Pvt. Ltd.
ROC fees paid to increase the share capital as revenue expenditure. When this aspect was brought to the assessee's knowledge, assessee had accepted the mistake and did not prefer to contest further. No doubt the accounts were audited by well known accountant and it is not clear whether the accountants were advised the assessee on this aspect. But, assessee had filed its return of income after the Apex Court delivered the decision on 4 th December, 1996, wherein, their lordships have clearly held that expenditure incurred by a company in connection with issue of shares with a view to increase its share capital, directly related to expansion of capital base of the company, and is capital expenditure even though it may incidentally help in the business of the company, and in the profit making. It means, the nature of this expenditure is clearly explained by the Hon'ble Apex Court and hence there is no question of forming two opinions regarding the nature of such expenditure. In such cases, there cannot be any quarrel regarding the proposition of law for invoking provision of Explanation 1 to section 271(1)(c) of the Act, by the AO.
10. We also cannot ignore the fact that presently there are 5% returns which are taken up for scrutiny by issue of notice u/s 143(2) of the Act for 'assessment' u/s 143(3) of the Act, whereas in the remaining cases the return of income declared by the assessees in their returns accepted u/s 143(1). Therefore, the possibility of assessee filing return of income by intentionally giving wrong particulars/information with a hope that the return of income may not come under scrutiny and return of income may be accepted as filed on the basis of self-assessment cannot be ruled out.
11. Coming to the facts of the present case, we find that the assessee has not explained as to why it made the claim for the 7 ITA No. 259 /Hyd/2013 M/s Prajay Holdings Pvt. Ltd.
expenditure in the return of income when the Hon'ble Apex Court laid down the law in the case of Punjab State Industrial Development Corporation Ltd. (supra) wherein the nature of expenditure claimed by the assessee was held to be capital. We fail to understand why the assessee chose to claim this expenditure as revenue, even though, the accounts were audited by the well known accountants. The law was laid down much before the return of income was filed. Hence, in our opinion, the assessee now cannot absolve itself from levy of penalty u/s 271(1)(c) in view of explanation 1 to section 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 bonafide error. Now, assessee cannot argue before us that the Apex Court decision itself can be distinguishable simply because the different High Courts had expressed different opinion. Once, the Hon'ble Apex Court laid down decision, it becomes the 'law of the land'. Hence, the assessee comes within the purview of the explanation 1 of section 271(1)(c) of the Act for levy of penalty for furnishing of inaccurate particulars. We find support from the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Escort Finance Ltd. [2010] 328 ITR 44 (Del.) wherein, on identical facts, it was held such a claim made by the assessee to be not due to a bonafide error because ex facie the claim made by the assessee was bogus. Therefore, in our opinion, the CIT(A) by relying on Reliance Petrochemical (supra) decision while coming to the conclusion that no penalty u/s 271(1)(c) was leviable because of the difference of opinion on the issue of nature of expenditure, was misplaced because of the improper appreciation of the facts as well as improper application of the case law to the facts on the instant case of the assessee. Accordingly, the order of CIT(A) in deleting the impugned penalty amount levied u/s 271(1)(c) by the AO is set aside and the order of the AO is restored.
8 ITA No. 259 /Hyd/2013M/s Prajay Holdings Pvt. Ltd.
12. In the result, appeal of the revenue is allowed.
Pronounced in the open court on 8 th June, 2016.
Sd/- Sd/-
(D. MANMOHAN) (S. RIFAUR RAHMAN)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated: 8 th June, 2016
kv
Copy to:-
1) ACIT, Circle - 16(3), 6 th Floor, Aayakar Bhavan, Basheerbagh,
Hyderabad.
2) M/s Prajay Holdings Pvt. Ltd., 8-2-293/82/A, Plot No. 1091, Near Peddamma Temple, Jubilee Hills, Hyderabad - 500 033.
3) CIT(A) - V, Hyderabad
4) CIT - IV, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
De scri pti on Date Intls
S.No.
1. Draft dictated on Sr.P.S./P.S
2. Draft placed before author Sr.P.S/PS
Draf t propo sed & pl ac ed b ef ore the se con d Mem ber JM/AM
3
4 Draf t di scu ssed/a ppr ov ed by sec on d Mem ber JM/AM
5 Approv ed Draft comes to the Sr.P.S./PS Sr.P.S./P.S
6. Kept for pronouncement on Sr. P.S./P.S.
7. Fi l e sent to the B enc h Cl erk Sr.P.S./P.S
8 Dat e o n whi ch f i l e goe s t o t he H ea d Cl erk
9 Date of Di sp atch of order