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2015 (7) TMI 75 - ITAT PUNE

2015 (7) TMI 75 - ITAT PUNE - TMI - Levy of penalty u/s.271(1)(c) - disallowance of depreciation as assets were not put to use for the purpose of running business activity in the years under consideration - Held that:- Since the assessee in the instant case has disclosed all material facts necessary for completion of the assessment and the assessment was based on the particulars supplied by the assessee in the return of income itself and not on the basis of any independent investigation made by .....

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order of the CIT(A) and direct the Assessing Officer to cancel the penalty and the grounds raised by the assessee for all the 3 years are allowed. - Decided in favour of assessee. - ITA Nos. 220 to 222/PN/2014 - Dated:- 20-5-2015 - Sushma Chowla, JM And R. K. Panda, AM,JJ. For the Appellant : Shri Sunil Pathak For the Respondent : Shri Ravi Prakash ORDER Per R K Panda, AM The above 3 appeals filed by the Assessee are directed against the order dated 29-11-2013 of the CIT(A)-I, Nashik relating t .....

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ls. 3. Facts of the case, in brief, are that the assessee is a private limited company and derived income from dividend and rent during the relevant previous years. During the Financial Years 2003-04, 2004-05 & 2005-06, the assessee was Constructing a building for the purpose of its business. The rental income during the relevant years was derived from letting out part of the partly constructed building and the open spaces around it for marriages and other ceremonies. The return of income fo .....

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tting out and being a company other fixed assets like furniture and fixture, computers, etc. were used for the purpose of general administration and for managing dayto- day affairs of the assessee company. The assessee claimed depreciation on them under section 32 of the Act. 4. During scrutiny assessment proceedings, the AO asked the assessee to explain as to why the depreciation claim should not be disallowed since (i) the assessee had not carried out any business during the concerned period ( .....

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8377; 16,42,307/- for A.Y. 2005- 06 and ₹ 18,37,820/- for A.Y. 2004-05. The assessee filed an appeal before the Ld.CIT(A)-I against the order of the AO. The CIT(A) allowed the appeal of the assessee as regards the other grounds of appeal are concerned. However, the disallowance on account of depreciation was confirmed by the CIT(A) on the ground that there was nothing on record to suggest that the assessee had not agreed for part disallowance of depreciation. The order of the CIT(A) was co .....

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ssee that during the course of assessment proceedings the assessee has agreed for disallowance of claim for depreciation under bonafide belief that on his agreeing for addition department will not initiate penalty. It was argued that the assessee has not concealed particulars of income or filed inaccurate particulars of income. Due to certain legal contention expenditure was disallowed and income returned by the assessee was enhanced by the AO. It was argued that the assessee has actually incurr .....

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mbay High court in the case of Ralliwolf Ltd. reported in 121 ITR 262 and Explanation 5 to section 32(1) the assessee had a bonafide reason to believe that depreciation is allowable. It was under this bonafide belief that the assessee claimed depreciation as deduction in the computation of income. It was argued that although the assessee has not filed the return of income u/s.139(1), however, the return was duly filed u/s.139(4) of the I.T. Act. Relying on various decisions it was submitted befo .....

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2013 order dated 15-07-2013 it was submitted that the Hon'ble High Court in the said decision has held that if the claim of the assessee was not sustainable in law but there was no furnishing of inaccurate particulars or concealment of income on the part of the assessee, no penalty can be levied. The assessee finally submitted that since the assessment proceedings and penalty proceedings are different and independent of each other, the addition to the income of the assessee does not per se w .....

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cision of the Hon'ble Delhi High Court in the case of CIT Vs. HCIL Kalindee ARSSPL he upheld the penalty levied by the AO for all the 3 assessment years. 9. Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 10. The Ld. Counsel for the assessee strongly opposed the order of the CIT(A). Referring to para 3 of the order of the CIT(A) he submitted that it is an undisputed fact that the assessee has shown the rental income during the relevant years from letting out a pa .....

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t for the year ending 31-03-2005 where such income has been shown in the profit and loss account and the assessee has also debited electricity charges of ₹ 88,466/-, labour charges of ₹ 49,305/-and telephone expenses of ₹ 28,404/- etc. He submitted that the assessee had disclosed all material facts necessary for assessment and the assessment was based on the particulars disclosed by the assessee in the profit and loss account and computation of income and there was nothing unea .....

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ge party and the income from such marriage functions could have been declared under the head "business income" or "income from other sources". He submitted that had there been no hotel, there would not have been any rental income. 11. Referring to the computation of income for A.Yrs. 2004- 05 to 2006-07 placed at pages 5 to 8 of the paper book he submitted that house tax amounting to ₹ 1,37,765/- each for A.Yrs. 2004-05 and 2005-06 and ₹ 1,37,758/- for A.Y. 2006-0 .....

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39;ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd., reported in 322 ITR 158 he submitted that the Hon'ble Supreme Court in the said decision has held that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. He submitted that the Explanation of the assessee has not been disproved, therefore, .....

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ibunal in the case of DCIT Vs. JMD Advisors Pvt. Ltd. reported in 310 ITR 280 he submitted that the Tribunal has held that a mere change of head of income by the AO in the assessment cannot be construed as concealment as envisaged in section 271(1)(c) of the I.T. Act so as to attract the penal provisions therein. He submitted that in the instant case it was not a bogus claim but was a bonafide claim, therefore, there is no justification for levy of penalty u/s. 271(1)(c) of the I.T. Act. 13. Ref .....

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e incorrect in law but the fact remains that all material facts are disclosed, therefore, there is neither any concealment nor filing of any inaccurate particulars of income. Therefore, there is no justification for levy of penalty u/s.271(1)(c) of the I.T. Act. 14.1 Referring to the decision of Hon'ble Supreme Court in the case of Mak Data Pvt Ltd., Vs. CIT reported in 263 CTR (SC) 1 he submitted that the above decision is not applicable to the facts of the case of the assessee. In that cas .....

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ffer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. Under those circumstances, it cannot be said that the surrender of income was voluntary. However, facts in the instant case are completely different. All material facts necessary for completion of the assessment were very much there in the return of income filed. Therefore, the said decision is not applicable. He accordingly submitted that the order of the Ld.CIT(A) be re .....

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t satisfactorily explained the reason as to why the penalty should not be levied. Therefore, the decision of Hon'ble Supreme Court in the case of Mak Data (Supra) is squarely applicable. 16. The Ld. Counsel for the assessee in his rejoinder submitted that the assessee had disclosed everything and the AO made the addition on the basis of the return and not on the basis of any investigation. Referring to the decision of the Hon'ble Bombay High Court in the case of Bhimji Bhanjee and Co. re .....

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position to call the parties in whose favour the cash credit appear. The reason given by the assessee being that it was always heavily indebted and unable to trouble its creditors to give evidence. The Assessing Officer worked out the amount of such peak credits and assessed ₹ 10,590/- as the assessee's income from undisclosed sources. Penalty was also levied u/s.271 (1)(c) of the I.T. Act but the Tribunal cancelled the penalty. On a reference the Hon'ble High Court held that in th .....

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ted before the Assessing Officer to treat such income as income from house property. Therefore, in view of the decision of Hon'ble Bombay High Court cited (Supra) no penalty is leviable u/s.271(1)(c). 17. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case has earned re .....

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and that for the purpose of claiming depreciation the primary and foremost condition is that the asset must be used for the business during the period for which depreciation has been claimed. It is also a fact that during the course of assessment proceedings the assessee had agreed for disallowance of depreciation. 18. When the matter travelled upto the Tribunal we find the Tribunal vide ITA Nos. 989, 989 and 1000/PN/2000 order dated 31-01-2012 for A.Yrs. 2004-05 to 2006-07 disallowed the claim .....

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uilding, the rooms of the hotel, the kitchen and the open spaces of the hotel were given for marriage purpose etc. from which the income was derived and under mistaken belief the assessee agreed before the Assessing Officer for treating such income as rental income. It is also the submission of the Ld. Counsel for the assessee that had there been no building the assessee would not have paid property tax and could not have earned such rental income. 19. We find some force in the above submission .....

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37,758/- for A.Y. 2006-07. All these things prove that the building was in existence and the income was derived from letting out of the property. The assessee had disclosed all material facts in the return of income and the addition has been made by the Assessing Officer on the basis of the particulars disclosed by the assessee and not on the basis of any independent investigation carried out by him and unearthed something which was not disclosed by the assessee. Under these circumstances the qu .....

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account of addition of cash credit in accounts as income from undisclosed sources due to admission by the assessee. The relevant observation of the Hon'ble High Court at pages 146 and 147 read as under : "The submission of Mr. Sajnani, the learned counsel for the Revenue, is that the assessee had in fact admitted the concealment of income and hence it was not necessary for the Revenue to prove the same. It was submitted by him that in view of this the burden was on the assessee to show .....

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n its books of account in favour of named parties and that the assessee was unable to produce evidence to show that these cash credits were genuine, as the assessee was not in a position to call the parties in whose favour the cash credits appear, the reason given by the assessee being that it was always heavily indebted and unable to trouble its creditors to give evidence. The aforesaid stand by the assessee can, in our view, never be considered as an admission by the assessee that it has conce .....

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at year and the addition was made by the ITO as the assessee's concealed income from business and not as income from undisclosed sources. In the present case, the assessee has nowhere admitted that it has concealed its income and even the ITO has not added the said amount of ₹ 10,590 as concealed income from business but as from undisclosed sources. In view of this, the said decision in the case of Western Automobiles (India) [1978] 112 ITR 1048 (Bom) is clearly inapplicable to the pre .....

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ars. The relevant observation of the Hon'ble Supreme Court at pages 163 to 166 reads as under: "A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making in .....

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rn was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The wor .....

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s concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008 (13) SCC 369], as also, the decision in Union of India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:- "13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist." 8. Therefore, it is obvious t .....

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f income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the a .....

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fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Un .....

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the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was th .....

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he meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled. 9. We are not concerned in the present case with the mens rea. However, we have to only see .....

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