TMI Blog2014 (7) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction has been claimed to be not executed, inasmuch as it is claimed that the said amount was paid back to Sh. Rana Iqbal Singh Jolly in the next AY and the repossession of the land was taken (no documentary evidence to support the said claim) and subsequently the land was sold to M/s Patel Estate (P) Ltd. – thus, the addition made by the CIT(A) is to be upheld and the property was sold in the next AY stands demonstrated by the Registration of the transaction – Decided against Assessee. Levy of Penalty – Held that:- The amount has been shown as an income in 2007-08 A.Y. and only in the appellate proceedings due to the same having been considered as income in 2006-07 A.Y. the same has been deleted - neither the assessee filed any inaccurate particulars nor has any income been concealed - The finding arrived at is fact specific - Following CIT vs Reliance Petro Product [2010 (3) TMI 80 - SUPREME COURT] - penalty on the addition sustained is not maintainable - the penal action was not warranted either on the grounds of concealment nor on the grounds of filing the inaccurate particulars - The record shows that full facts and necessary disclosures were made by the assessee and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly the current year but also the immediately three succeeding year (s) [i.e. up to the assessment year 2009-10] was, by itself, sufficient to: (a) establish that the claim made was bona fide; and (b) dislodge the suspicion that the claim was not genuine. 2. Without prejudice, that the CIT(A) erred on facts and in law in not directing the assessing officer to allow the long-term capital loss in the subsequent year (s). The appellant craves leave to add, amend, alter or vary the above ground of appeal at or before the time of hearing. 2. The assessee in the year under consideration was engaged in the manufacturing of motor cycles and trading of motor cycle spare parts. Return declaring a loss of 44,55,49,139/- was filed. This loss consisted of business loss of Rs.44,19,30,732/-and long term capital loss amounting to Rs.36,18,407/-. The return was processed u/s 143(1) and subsequently selected for scrutiny under CASS. Consequent to this statutory notices u/s 143(2) and 142(1) etc were issued and during the assessment proceeding the assessee filed the revised computation making computation of loss for the year at Rs.35,86,67,497/-. The Assessing Officer in the international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technical advisor Fee Reimbursement 1,926,879/- 86,881,641/- 5. Your goodself will appreciate the fact that during the FY 2006-07, Rs.86,881,641/- reimbursed by SMC has been reported as Income in the profit and loss account as a prior period income and the same has been offered for taxation in A.Y 2007-08. Copy of computation of Income and audited financial statement for the AY 2007-08 is annexed herewith for your ready reference. 6. Since the reimbursement of Rs.86,881,641/- against the expenses incurred by the assessee during the FY 2005-06 the said income forms the part of FY 2005- 06. Due the timing difference, as it was received by the assessee in FY 2006-07, auditors have classified the same as reimbursement/subsidy received for expenses incurred in the year ended 31st March 2006. 7. As the said income pertains to F.Y 2005-06, the assessee offers the same for the A.Y 2006-07. Though the negotiation with SMC was finalized in AY 2007-08 and income was crystallized in AY 2007-08 and the same was shown as prior period item in the audited financial a/c for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of addition of reimbursement of expenses, was not discernable from the assessment order, which sine qua non for assumption of jurisdiction. 1.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the appellant exceeded its jurisdiction in requesting the assessing officer to keep the penalty proceedings in abeyance, without appreciating that since outcome of quantum proceedings had direct bearing on the penalty proceedings and no prejudice would have was caused to the Revenue, it would have been prudent to in keep the proceedings in abeyance, instead of multiplying the same. 2. Without Prejudice, that the Commissioner of Income-tax (Appeals) erred on facts and in law in upholding the action of the assessing officer of imposition of penalty u/s 271(1)(c) of the Act in respect of disallowance of long term capital loss amounting to Rs.36,18,407/-. 2.1 That the Commissioner of Income-tax(Appeals) failed to appreciate that the appellant did not derive any advantage/benefit/set off of the declared long term capital loss while computing the taxable income of not only the current year (s) but also the succeeding year (s) [i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income-tax (Appeals) failed to appreciate that since the appellant had suffered huge losses in the A.Y 2006-07 and also A. Y 2007- 08, the year of taxation of the aforesaid amount was immaterial. 3.4 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that there was no concealment or furnishing of inaccurate particulars of income and therefore, there was no warrant to impose penalty u/s 271(1)(c) of the Act. 4. That the Commissioner of Income-tax (Appeals) erred in leveling various false/baseless allegations while confirming the imposition of penalty. The appellant craves leave to add, alter, amend or vary from the above ground of appeal at or before the time of hearing. 5. The facts qua the quantum proceedings have already been referred to and for the sake of completeness it is necessary to bring out the relevant facts as emanating from the penalty order. The record shows that the AO required the assessee to explain why penalty u/s 271(1)(c) should not be imposed on account of the following two additions : (i) Long term capital loss Rs. 36,18,407/- (ii) Reimbursement of expenses Rs.8,68,81, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed over by 31/3/2006 (by the end of the year itself) as asked again and again. The alleged agreement to sell does not appear to be a genuine document. It is to be noticed that the said agreement to sell was never implemented since, when asked to intimate if any actual sale deed was registered pursuant to the said agreement to sell, the assessee accepted that no actual sales deed has been executed till date. Rather it was also stated vide letter 4/12/2009 that the sales as agreed vide the said agreement was cancelled in next year and possession was taken back from the buyer of the said property. It was also mentioned in the same letter that in the next year the cancellation was recorded as purchase of land on payment of full consideration amounting to Rs.2,40,00,000/- by the assessee company and the same property was sold to another buyer on same consideration in the next year. Computation of income showing such purchase or sales and computation of any capital gains/loss has not been provided as asked. Even it has been accepted by the assessee that agreement to sell made with the second buyer has also not been implemented till date. No further details or documentary evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from one Sh. Rana Iqbal Singh Jolly. Sh. Rana Iqbal Singh Jolly has not been produced though his presence was specifically required and the books of accounts from which the said amount of Rs.2.4 crores was deposited in his bank account have not been produced. Merely mentioning a PAN No. does not establish the genuineness and capacity of Sh. Rana Iqbal Singh Jolly, when a specific enquiry is being made by the Department. The above mentioned facts clearly establish that the assessee has evaded giving any evidence regarding the source of the said amount which was routed through Sh. Rana Iqbal Singh Jolly. The transaction becomes completely doubtful and improbable in view of the fact that no documents pertaining to possession being given or taken has been submitted, besides this the said transaction has been claimed to be not executed, in as much as it is claimed that the said amount was paid back to Sh. Rana Iqbal Singh Jolly in the next asst.year and repossession of the land was taken (no documentary evidence to support the said claim) and subsequently the land was sold to M/s. Patel Estate (P) Ltd. The claim of the assessee that it is not responsibility/discretion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the FY 2006-07, Rs.86,881,641/- reimbursed by SMC has been reported as Income in the profit and loss account as a prior period income and the same has been offered for taxation in A.Y 2007-08. Since the reimbursement of Rs.86,881,641/- against the expenses incurred by the assessee during the FY 2005-06 the said income forms the part of FY 2005-06. Due the timing difference, as it was received by the assessee in FY 2006-07, auditors have classified the same as reimbursement/subsidy received for expenses incurred in the year ended 31st March 2006. As the said income pertains to F.Y 2005-06, the assessee offers the same for the A.Y 2006-07. Though the negotiation with SMC was finalized in AY 2007-08 and income was crystallized in AY 2007-08 and the same was shown as prior period item in the audited financial a/c for the FY 2006-07, but as the said income pertains to AY 2006-07, the assessee offer the same for taxation for the AY 2006-07. In view of this, the assessee requests your good self to kindly consider the same while passing the order u/s 143(3) for the AY 2006-07 and reduce the losses accordingly. In support o the above, when asked, the assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d long term capital loss amounting to Rs. 36,18,407/- on account of the aforesaid transfer. It was his submission that it is a matter of record that subsequently Mr. Iqbal rescinded the agreement to sell and a fresh agreement was executed with M/s Petal Estate Private Limited ( PEPL ) vide agreement to sell dated 03.03.2007 for the same amount of consideration. It was his submission that the assessee accordingly recorded the re-purchase of land in the books of account and declared the taxable gains in the assessment year 2007-08. It was submitted that it is a matter of record that the sale deed for the said property was also registered with the Registrar, Manesar on 24.12.2009. Inviting attention to the assessment order it was his submission that the claim has been disallowed by the AO alleging that the assessee has failed to produce evidence of handing over the possession of the land in the assessment year 2006-07 and the agreement to sale was not genuine. Inviting attention to the order of the CIT(A) in the quantum proceedings it was submitted that on a similar reasoning the said action was upheld. In this background the action of the AO in imposing penalty qua this addition on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinued in subsequent years also accordingly the bona fide of the assessee cannot be doubted as not only the assessee has not made a wrong claim as it is based on Agreement to sell and other evidences even otherwise in these circumstances there was no motive for the assessee to make a wrong claim. Accordingly it was argued that the facts in the present case stand on a better footing then as were available before their Lordships of the Supreme Court in Reliance Petro products Ltd. It was also submitted that there is no dispute on fact that there is transfer of property which is evidenced by the sale deed which was finally registered on 24.12.2009 which clearly corroborates the fact that the property was ultimately sold by the assessee and the only academic issue which remains is with respect of the year of allowability of capital loss. Reiterating the facts it was sought to be emphasized that the allegation that the claim was made with a mala fide intention to evade taxes cannot hold water as the resultant income of the assessee in the year under consideration still remains negative. It was also submitted that infact had the assessee actually planned then it would have been more bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee this fact does not mean that there was some discovery by the AO or otherwise, the same was accepted by the assessee in good faith as it is a classic example of assessee suo moto making complete disclosures at its own behest before the AO. The addition made could not be shown as assessee s income as not only the assessee had no right to receive the compensation under the agreement as such the probable receipt of compensation could not be factored in even otherwise it was solely the discretion of the Suzuki Motor Corp. Japan to compensate the assessee for its cost over runs. IT was contended that by the time the amount was received the assessee s books of accounts were being finalized. The amount has been shown as an income for 2007-08 A.Y. and since part of it pertained to the year under consideration the facts were disclosured to the AO by way of the letter in good faith quoted by the AO himself in his order and the assessee revised the income. The revision no doubt on account of the peculiar facts was beyond the date permitted under the Act but the fact remains that the assessee has not challenged the addition and is only aggrieved by the penal action as on facts there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny stretch of arguments. As per Transfer of Property Act, transfer through sale of immovable property shall be treated as complete when the sale deed is registered and 'agreement to sell' cannot replace the sale deed. I am surprised to notice how the auditors have certified the accounts, if at all actual audit of accounts had been conducted by them. The auditors have certified Schedule-S of Balance Sheet (Fixed Asset) and the land has been shown as sold in depreciation chart, without verifying the facts. Therefore, the long term capitol loss so computed by the appellant has rightly been disallowed by the AO. Further. it cannot be denied that such action on the part of the appellant was definitely of furnishing of inaccurate particulars of income and thus attracts penalty u/s 271(1)(c) of the Act. The appellant has tried to save its position by claiming that no benefit could be derived by the appellant from such long term capital loss and, therefore, penalty should not be imposed. Without buying the argument of the appellant and leaving what benefit the appellant company or their management was deriving from such transaction, it would be sufficient to point out that as per a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state that the quantum proceedings are not being pressed and he would only state that the arguments advanced before the CIT(A) in the quantum proceedings may be taken as having been addressed on behalf of the assessee in the quantum proceedings hereinalso. The Revenue represented by Smt. Renuka Jain Gupta in these circumstances in the absence of any specific argument on behalf of the assessee placed heavy reliance upon the impugned order. 9.1. In the afore-mentioned facts and circumstances first addressing the quantum proceedings we note that in regard to the long term capital loss of Rs.36,18,000/- odd . The assessee was required to explain the same since initially only Agreement to sell was filed by the assessee the AO accordingly directed the assessee to supply the following information:- (i) To file copy of actual sale deed of the property in question; copy of agreement is not sufficient. (ii) Documentary evidence far acquisition of property in question; (iii) Current status of the property, whether actually transferred or not. Adjourned for 25/11/2009. 9.2. The record shows that in response to the same the assessee is stated to have filed the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual, physical, vacant and peaceful possession of the said property shall be handed over by the seller to the buyer at the time of execution of the sale deed or at the time of total payment, whichever is earlier. This clearly shows that till 30.rJ3.2006 actual possession of the properly in question was not handed over. Neither the assessee has produced any documentary evidence to prove that any actual possession was handed over by 31.3.2006 (by the end of the year itself) as asked again and again. The alleged agreement to sell does not appear to be a genuine document. It is to be noticed that the said agreement to sell was never implemented since. when asked to intimate if any actual sale deed was registered pursuant to the said agreement to sell, the assessee accepted that no actual sales deed has been executed till date. Rather it was also stated vide letter dated 04. J 2.2009 that the sales as agreed vide the said agreement was cancelled in next year and possession was taken back from the buyer of the said properly. It was also mentioned in the same letter that in the next year the cancellation was recorded as purchase of land on payment of full consideration amounting to Rs. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence. The bank statement, books of account and personal presence of Sh. Rana Iqbal Singh Jolly was sought. However, in response to the same, the assessee submitted only part of the bank statement which was not even on the letter head of the bank or hearing any stamp of the assessee company/bank. This alleged photocopy of Sh. Rana Iqbal Singh Jolly's account reveals a sum of Rs. 24,043,856/- is received on 31.03.2006 in his account No. 125-154708-006 and on the same day payment of Rs. 2.4 crores was made by vide cheque No. 021341 on 31.03.06. It is pertinent to note that as a matter of routine the said hank account did not have any large deposits or withdrawals in the last one whole month for which the assessee has submitted the alleged photocopy of hank account. In other words this was not a routine transaction. The assessee failed to establish the genuineness and capacity of the said amount allegedly received from one Sh. Rana Iqbal Singh Jolly. Sh. Rana Iqbal Singh jolly has not been produced though his presence was specifically required and the books of accounts from which the said amount of Rs. 2.4 crores was deposited in his bank account have also not been produced. Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.11.2009. We have considered the material available on record and the arguments advanced by the parties, on a consideration thereof we are firmly of the view that penal action on the grounds of concealment or of filing inaccurate particulars on account of this addition cannot be upheld. In the facts of the case there is no whisper either in the quantum proceedings or in the penalty proceedings that the letter dated 28.10.2009 was a result of some discovery or query made by the AO. It has been pleaded that there was no right in favour of the assessee to receive the compensation and is purely a discretionary compensation for cost overruns. IT was submitted that the memorandum executed between the assessee and SMC, Japan on 09.10.2006 copy of which is placed at pages 19-20 on the basis of which it has been argued and the payment received as a result thereof is purely a gratuitous payment made to subsidiary to overcome the delay in commissioning of plant and there is no right in assessee s favour. We have taken note of pages 61 67 which is a copy of the P L A/c of the assessee dated 31.03.2007 wherein the other income referred to the details of which appearing at schedule-7 (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remains that considering the Agreement to Sell entered into on the basis of which the amount was received by the assessee long term capital loss was claimed. In this background, we are called upon to decide whether the claim made was exigible to penal action as the property was sold to M/s Petal in the next assessment year for the same amount. It is a matter of record that the Agreement to Sell entered into with M/s Petal resulted in transferring the said land to the said concern by way of Registration with the Land Revenue Authorities. On a careful consideration of the material available on record and the arguments of the parties before the Bench we are of the view that in the peculiar facts and circumstances of the case penal action was not warranted either on the grounds of concealment nor on the grounds of filing the inaccurate particulars. The record shows that full facts and necessary disclosures were made by the assessee and for whatever reasons the property was not Registered in Mr. Rana Iqbal Singh Jolly s name suspicions cannot be resorted to conclude that the filing of particulars were inaccurate or there was any concealment. Onus is on the Revenue to show which fact or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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