Income Tax Appellate Tribunal - Chennai
Om Shakthy Agencies (Madras) P Ltd., ... vs Department Of Income Tax on 16 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT
AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER
ITA No.1100(Mds)/2011
Assessment Year : 2006-07
The Deputy Commissioner M/s. Om Shakthy Agencies
of Income-tax, Vs. (Madras) Pvt. Ltd.,
Central Circle III(1), 1, Jawaharlal Nehru Road,
Chennai. Ekatuthangal, Chennai-32.
PAN AAACO3722E.
(Appellant) (Respondent)
Appellant by : Shri Shaji P Jacob, IRS, Addl.CIT
Respondent by : Shri Philip George, Advocate
Date of Hearing : 16th January, 2013
Date of Pronouncement : 21st January, 2013
ORDER
PER Dr.O.K.NARAYANAN, VICE-PRESIDENT This appeal is filed by the Revenue. The relevant assessment year is 2006-07. The appeal is directed against the order passed by the Commissioner of Income-tax(Appeals)-V at Chennai, on 31-3-2011. The appeal arises out of the order
-2- ITA 1100 of 2011 passed by the assessing authority imposing a penalty of ` 50 lakhs under section 271(1)(c) of the Income-tax Act, 1961.
2. The assessee in the present case had filed its return of income for the impugned assessment year 2006-07 on a total income of ` 1,38,85,390/-. In the course of the assessment proceedings, the Assessing Officer called for details relating to two items of expenses claimed by the assessee in computing its income. The first item is land development expenses amounting to ` 95,07,225/-. The second item is miscellaneous site expenses amounting to ` 4,58,680/-.
3. In response to the query made by the Assessing Officer, the assessee filed confirmation letters issued by those parties to whom the assessee had made the above-stated payments. In the light of the confirmation letters, for further enquiries, the Assessing Officer issued Commission under section 131 of the Income-tax Act, 1961. Commission was issued to the Assistant Director of Income-tax (Inv.), Unit III(1), at Chennai. The Commission Report was submitted on 23-12-2008. The Commission stated that the expenses were stated to be incurred by the assessee towards development
-3- ITA 1100 of 2011 expenses of developing a property at Lakshmi Nagar Layout, SIDCO Industrial Main Road, Villanur Village. The assessee had claimed that payments for developing the property were made to two parties, namely, M/s.Prakash Engineering Construction and M/s.Proactive Construction. The Commission has stated that on enquiries made by him it was found that there was no such address as given by M/s.Prakash Engineering Construction. Further enquiries revealed that the said firm M/s.Prakash Engineering Construction was functioning from another address. In the other case also, it was found that the address furnished by the assessee did not exist. The Commission made further enquiries with reference to the layout at Lakshminagar, SIDCO Industrial Main Road, Villanur Village, where the assessee had claimed that the expenses were incurred for development. On a site visit it was noticed that the entire area was a naturally raised plateau and there was no necessity for making any filling of the layout, as claimed by the assessee. The Commission Report concluded that the addresses of the parties provided by the assessee are found to be false and also there was no necessity to incur any such development expenditure as well and in these
-4- ITA 1100 of 2011 circumstances the expenses claimed by the assessee totaling to ` 95,07,225/- relating to land development expenses were found to be bogus.
4. On the basis of the above Commission Report, the assessing authority rejected the explanations offered by the assessee and added the said amounts of ` 95,07,225/- relating to land development expenses and ` 4,58,680/- being miscellaneous site expenses, to the income returned by the assessee-company.
5. It is in the light of the above additions that the penalty has been levied on the assessee-company. In levying the penalty, the Assessing Officer has relied on the decision of the Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors, 306 ITR 277, which has overruled the earlier decision of the Hon'ble Supreme Court in the case of Dilip N Shroff vs JCIT, 291 ITR 517. In the light of the above ruling of the Hon'ble Supreme Court, the Assessing Officer rejected the legal proposition raised by the assessee and levied the penalty of ` 50 lakhs.
-5- ITA 1100 of 2011
6. In first appeal, the Commissioner of Income- tax(Appeals) observed that the assessee has proved the payments made to M/s.Proactive Construction and M/s.Prakash Engineering Construction. He also recorded a finding that measurement books of those parties were produced before him and vouchers were also produced and the accounts of the assessee also supported the incidence of the expenses. On the facts of the case, he has observed that it was necessary for the assessee to incur such expenses towards development of the land. On the legal proposition, the Commissioner of Income- tax(Appeals) found that the decision of the Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors, 306 ITR 277, is not applicable here, as in the present case there was no issue of any 'mens rea'. The Hon'ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors, 306 ITR 277, has held that mens rea was not essential for levying penalty under section 271(1)(c) of the Act. But, in that decision the Hon'ble Court did not find fault with the explanation of the terms 'conceal' and 'inaccurate', as discussed in the case of Dilip N Shroff vs. JCIT, 291 ITR 519. The
-6- ITA 1100 of 2011 Commissioner of Income-tax(Appeals) held that in the present case there is no case of concealment or no case of furnishing of inaccurate particulars. He held that Explanation 1 to section 271(1)(c) is vital for penalty proceedings and in the present case the explanation of the assessee cannot be found to be false, though the assessee was not able to substantiate the same because of lapse of time and other factors. He accordingly deleted the penalty and allowed the appeal filed by the assessee.
7. The Revenue is aggrieved and therefore the present second appeal before us.
8. We heard Shri Shaji P Jacob, the learned Commissioner of Income-tax appearing for the Revenue and Shri Philip George, the learned counsel appearing for the respondent-assessee.
9. The assessee has claimed huge amounts as expenses towards site development. According to the assessee, those payments were made mainly to two parties, M/s. Prakash Engineering Construction and M/s. Proactive Construction. In the course of the assessment proceedings the assessee has not
-7- ITA 1100 of 2011 produced the details of the work carried out by those parties in developing the site of the assessee. Confirmation letters of the parties alone were produced before the Assessing Officer. When the confirmation letters as such were not of much help to the Assessing Officer in verifying the bona fides of the expenditure claimed by the assessee, he appointed a Commission to report on the state of affairs back to him. The Commission has made exhaustive enquiries including field inspection. The addresses of the parties to whom the assessee has stated to have paid money were found to be either erroneous or non existing. They were not available at all. The Commission could not examine their books of account. Nobody explained the exact nature of work carried out by those parties before the Commission. The Commission visited the location. The Commission found that the land was naturally elevated and there was no need of filling up of the land, as claimed by the assessee.
10. It is in the light of the comprehensive report submitted by the Commission that the Assessing Officer has held that the claims made by the assessee were bogus. Making
-8- ITA 1100 of 2011 bogus claims to understate the income is definitely the outcome of concealment of income vis-à-vis furnishing of inaccurate particulars.
11. In first appeal, the Commissioner of Income- tax(Appeals) has not questioned the veracity of the Commission Report. The Commissioner of Income-tax(Appeals) relied on evidences stated to have been produced by the assessee before him. It is the case of the Commissioner of Income-tax(Appeals) that the parties have produced before him the measurement books, vouchers and the other details to show that the expenses were incurred in developing the site of the assessee. It is on the above basis that he has deleted the penalty.
12. It is to be seen that books of account, vouchers and the other work books are all internally created evidences. When those evidences are questioned, it is necessary that those evidences are supported by empirical evidences. Inspite of the above stated materials placed before him, the Commissioner of Income-tax(Appeals) has not examined whether development was necessary at all when the nature of the land is looked into. It is stated in the Commission Report that the land is naturally
-9- ITA 1100 of 2011 elevated. When that finding is not controverted and the incidence of expenditure cannot be accepted as genuine, it means that even the details stated to be furnished by the assessee before the Commissioner of Income-tax(Appeals) were fabricated and bogus.
13. All the payments have been made in cash, if at all they were made. The assessee has not deducted any tax at source while making such huge payments. There is nothing on record to show that the payments were made proportionate to the work carried out by the parties. The parties are not available for discussion or examination. It is also stated that the so-called project of the assessee never came into existence. When all these compelling reasons are examined in their totality, we find that the assessee had made bogus claims so as to reduce its tax liability. Making bogus claim is a reflection of concealment of income. In order to support such bogus claims the assessee has producer certain 'x,y,z' papers before the Assessing Officer by way of confirmation. This amounts to furnishing of inaccurate particulars. As already stated, if at all details were furnished before the Commissioner of Income-tax(Appeals), those details
-10- ITA 1100 of 2011 are also not genuine and they also amounted to furnishing of inaccurate particulars.
14. It is not a case where the assessee has made a claim and the assessee was not in a position to prove the genuineness of the claim to the satisfaction of the Assessing Officer. The Commissioner of Income-tax(Appeals) has accepted the contention of the assessee on the above ground. But that is not correct. It is not a case of claiming expenditure and a simple disallowance made by the Assessing Officer. Here is a case where the assessee has claimed huge expenditure by way of deduction, for which the assessee was not in a position to establish either the actual incidence of the expenditure or the necessity of such expenditure. It is further to be seen that as the project did not take off, it should be treated as an aborted project and the expenses should be considered as capital in nature, if at all the expenses were incurred. Anyhow this is only one of our observations and not a reason for coming to our conclusion.
15. On the basis of the orders passed by the lower authorities, we find that the assessing authority is justified in passing the penalty order under section 271(1)(c) and in levying
-11- ITA 1100 of 2011 the penalty of ` 50 lakhs. This is a clear case of concealment of income and furnishing of inaccurate particulars. Accordingly, we set aside the order of the Commissioner of Income-tax(Appeals) and restore the order of penalty passed by the Assessing Officer.
16. In result, this appeal filed by the Revenue is allowed.
Order pronounced on Monday, the 21st of January, 2013 at Chennai.
Sd/- Sd/-
(Vikas Awasthy) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated, the 21st January, 2013.
V.A.P.
Copy to: 1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
6. GF.