TaxTMI 
TaxTMI 
2014 (6) TMI 538
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO on examination of the Profit and Loss A/c. as well as the books of account of the assessee noticed that the assessee had debited an expenditure of Rs. 2,12,36,953. The aforesaid expenditure comprised of an amount of Rs. 1,50,78,739 towards amount paid to workers for vacating workers' chawls given to the workers as part of the condition of service and an amount of Rs. 61,58,214 towards other expenses incurred to maintain corporate structure and meeting statutory obligations and mandatory expenses including administrative expenses, gratuity, contribution to PF, etc. The AO after examining the details and submissions of the assessee, noted that the assessee is having valuable vacant land at Colaba, Mumbai which earlier was used as a textile mill known as M/s. Mukesh Textile Mills Ltd. This mill was closed permanently before 1980 and there were no operations at all for the past several years. He further noted that earlier this mill used to be a venture of M/s. Transport Corporation of India Ltd. In a scheme of arrangement the mill was acquired by the assessee-company in 1995. 4. He further noted that from the facts on record it appears that the assessee intended to develop the....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., which was transferred from Mukesh Textile Mills by way of scheme of arrangement in 1995 and also entered into an agreement of sale of property at the rate of Rs. 10,000 per sq. ft with many sister concerns and received huge amount of Rs. 11.44 crores as sale advances. Even though there was no development of the said property, there was an intention to develop the property under discussion by the assessee. We find that the assessee-company has not done any manufacturing activity durinq the assessment years under consideration. With these backgrounds, we proceed to adjudicate the appeal as under. We see merit in the findings of the lower authorities that the alleged purchase and sale of cloth shown in the profit and loss account by the assessee is nothing but only a paper transaction, since the parties to whom these transactions are shown were not found to exist. We find that even though the lower authorities informed the assessee about the result of the enquiry conducted about the aforesaid transaction, the assessee could not give any other addresses of the parties except giving the PAN Number and confirmation letters. Since, on enquiry conducted by the department, the parties are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t be imposed. Though the assessee submitted its explanation objecting to initiation of penalty proceedings both on the ground of limitation as well as on the merits of the issues, the AO rejecting the explanation of the assessee, proceeded to pass an order imposing penalty of Rs. 74,25,734 u/s. 271(1)(c) of the Act. While doing so, the AO was of the view that the assessee being fully aware of the fact that the claim of expenditure is for a business which is not in existence and not directly related to its business activity, has still claimed the expenditure as a business expenditure. Thus, according to the AO, this amounts to furnishing of inaccurate particulars of income as envisaged u/s. 271(1)(c) of the Act. Being aggrieved of the penalty order so passed, the assessee preferred appeal before the CIT(A). 7. The CIT(A), on considering the fact that the claim of cloth trading business being found to be bogus, held that it clearly establishes the fact that the assessee has indulged in filing of incorrect and false particulars in the return of income for the purpose of evading huge amount of tax which the assessee would have succeeded in his effort had proper investigation not been ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeal as under. We see merit in the findings of the lower authorities that the alleged purchase and sale of cloth shown in the profit and loss account by the assessee is nothing but Only a paper transaction, since the parties to whom these transactions are shown were not found to exist. We find that even though the lower authorities informed the assessee about the result of the enquiry conducted about the aforesaid transaction, the assessee could not give any other addresses of the parties except giving the PAN and confirmation letters. Since, on enquiry conducted by the department, the parties are not existed, the confirmation letters given in the name of the parties do not have any evidentiary value in the matter. We are fully convinced with the findings arrived at by the lower authorities that the transaction of sale or purchase of cloth is only a bogus transaction. Since the assessee fails to bring any evidence on record with regard to the existence of the parties and on the face of adverse findings made by the assessing officer about the non-existence of parties, the other arguments made by the learned counsel for the assessee with regard to the parties having PAN Numbers, s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erence of opinion or of a debatable issue or of a bona fide mistake. This is a case of a well-planned strategy of tax evasion and of a deliberate creation of false evidence. In this case penalty u/s 271(1)(c) is definitely imposable. I see no reasons to interfere with the order of the assessing officer and confirm the penalty imposed." 8. Being aggrieved of the order of the CIT(A), the assessee is in appeal before us raising as many as 15 grounds. Ground Nos. 1 and 15 are general in nature and need no adjudication. In ground No. 2 the assessee has challenged the penalty order by raising a legal issue on the question of limitation. In ground Nos. 3 to 14, the assessee has challenged the imposition of penalty on various reasons. 9. We will first deal with ground No. 2 which is a legal issue on the question of limitation. 10. The learned AR has submitted before us that the penalty order passed is barred by limitation in view of proviso to section 275(1) of the Act. It was contended that the penalty order, as per the aforesaid proviso to section 275(1), should have been passed within one year from the end of financial year in which the order of the CIT(A) is received by the CIT or C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary lull in its activity. 15. So far as the disallowance of other expenditure of Rs. 61,58,214 is concerned, the learned AR advancing similar argument, submitted that the expenditure is of revenue nature as it was required to be incurred because the company had to continue its existence as a corporate entity. It was submitted that the company has to fulfil basic requirements such as audit of accounts, distribution of internal accounts, notices to shareholders, various other expenses relating to stock exchange, electricity expenses, municipal taxes, establishment expenses, which are purely in the nature of revenue expenditure because incurring of these expenses shows that the company is in existence for carrying on business. The learned AR submitted that the fact that the assessee is still in business would be evident from the fact that the shares of the company are quoted in Bombay Stock Exchange and the trading of shares takes place on daily basis. It was submitted that had the company was not carrying on any business no one would have acquired the shares of the company. 16. Contesting the finding of the CIT(A) that in the quantum proceedings, the CIT(A) as well as the Tribunal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... them being trading in cloth. This claim of the assessee has been found to be bogus not only by the AO and CIT(A), but also by the Tribunal in the quantum proceedings. As can be seen from the findings of the Tribunal, extracted herein before, after considering all the arguments which are also reiterated before us by the learned AR, the Tribunal has given a categorical finding that the trading business in cloth is bogus. In view of such finding of the Tribunal, we neither intend to enter into the controversy as to whether the assessee, in fact, was carrying on cloth trading business nor we can entertain such plea of the assessee again in the present proceeding. 20. However, as can be seen from the facts and material on record, the incurring of expenditure by the assessee to the tune of Rs. 2,12,36,953 has not been disputed by the Departmental authorities as well as by the Tribunal. The only dispute, as it appears, remains in respect of the nature of expenditure claimed, whether capital or revenue. It is the claim of the assessee that even assuming that the assessee is not carrying on the cloth trading business, still the fact remains that the assessee has always intended to carry o....