DCIT 1(1), MUMBAI v. BLUE STAR LTD, MUMBAI

ITA 1190/MUM/2009 | 1996-1997
Pronouncement Date: 16-07-2010 | Result: Dismissed

Appeal Details

RSA Number 119019914 RSA 2009
Assessee PAN AAACB4487D
Bench Mumbai
Appeal Number ITA 1190/MUM/2009
Duration Of Justice 1 year(s) 4 month(s) 26 day(s)
Appellant DCIT 1(1), MUMBAI
Respondent BLUE STAR LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 16-07-2010
Date Of Final Hearing 17-06-2010
Next Hearing Date 17-06-2010
Assessment Year 1996-1997
Appeal Filed On 20-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI J SUDHAKAR REDDY ACCOUNTANT MEMBER I T A NO: 1190/MUM/2009 (ASSESSMENT YEAR: 1996-97) DEPUTY COMMISSIONER OF INCOME TAX 1(1) APPELLANT MUMBAI VS M/S BLUE STAR LTD. MUMBAI RESPONDENT (PAN: AAACB4487D) APPELLANT BY: MR S S RANA / MR B K SINGH RESPONDENT BY: MR FIROZE B ANDHYARUJINA / MR LAXMIK ANT KOTHARI O R D E R R V EASWAR PRESIDENT: THIS APPEAL BY THE DEPARTMENT RELATES TO THE ASSES SMENT YEAR 1996-97 AND IS DIRECTED AGAINST THE ORDER PASS ED BY THE CIT(A) ON 26.11.2008 CANCELLING THE PENALTY OF RS.3 75 00 000/- IMPOSED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT 1961. 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY. IT FI LED A RETURN OF INCOME SHOWING TOTAL INCOME OF RS.23.46 CRORES W HICH WAS REVISED TO RS.23.08 CRORES BY REVISED RETURN. IN T HE RETURN THE ASSESSEE CLAIMED THAT THE RECEIPT OF RS.12 26 80 00 0/- FROM HEWLETT PACKARD (HP) WAS A CAPITAL RECEIPT AND HENCE NOT TA XABLE. IT WAS THE CASE OF THE ASSESSEE THAT THE AMOUNT WAS RECEIV ED FOR TERMINATION OF THE JOINT VENTURE AGREEMENT ENTERED INTO WITH HP AND SINCE THE SOURCE OF INCOME HAD BEEN EXTINGUISHED T HE RECEIPT WAS A CAPITAL RECEIPT. THE ASSESSEES CLAIM WAS NOT AC CEPTED BY THE ASSESSING OFFICER ACCORDING TO WHOM THE RECEIPT WA S REVENUE IN ITA NO: 1190/MUM/2009 2 NATURE. HE ACCORDINGLY BROUGHT THE SAME TO TAX AS BUSINESS PROFITS. THE ASSESSEE APPEALED TO THE CIT(A) WHO HELD THAT THE AMOUNT WAS A CAPITAL RECEIPT NO DOUBT BUT ACCORDING TO HI M IT GAVE RISE TO CAPITAL GAINS WITHOUT THE BENEFIT OF COST INDEXATIO N. THE ASSESSEE APPEALED TO THE ITAT QUESTIONING THE DECISION OF TH E CIT(A). THE REVENUE ALSO FILED AN APPEAL TO THE TRIBUNAL QUESTI ONING THE DECISION OF THE CIT(A). WHEREAS THE ASSESSEE CONTE NDED THAT THE RECEIPT WAS A CAPITAL RECEIPT HAVING BEEN RECEIVED FOR THE TERMINATION OF THE JOINT VENTURE AGREEMENT AND WAS FULLY EXEMPT FROM TAX AND THAT THE CIT(A) WAS WRONG IN HOLDING T HAT THE RECEIPT GAVE RISE TO LONG TERM CAPITAL GAINS; THE CONTENTIO N OF THE DEPARTMENT WAS THAT THE CIT(A) FAILED TO APPRECIATE THAT THERE WAS NO CAPITAL ASSET ON TRANSFER OF WHICH CAPITAL GAINS COULD HAVE ACCRUED TO THE ASSESSEE AND THEREFORE THE AO WAS RIGHT IN TAXING THE ENTIRE RECEIPT AS REVENUE RECEIPT. THESE APPEA LS WERE HEARD TOGETHER BY THE TRIBUNAL IN ITA NO: 3165/MUM/2001 A ND ITA NO: 3301/MUM/2001 AND A CONSOLIDATED ORDER WAS PASSED O N 7 TH MARCH 2007. THE TRIBUNAL HELD THAT THE RECEIPT WAS CAPIT AL IN NATURE BUT THERE WAS A TRANSFER OF A CAPITAL ASSET IN THE FORM OF THE RIGHT TO SUBSCRIBE TO THE SHARE CAPITAL OF HP AND THEREFORE THE RECEIPT GAVE RISE TO CAPITAL GAINS. THE TRIBUNAL FURTHER HELD T HAT THE COST OF ACQUISITION OF THE CAPITAL ASSET IS THE AMOUNT PAID AS SHARE APPLICATION MONEY. IT WAS ALSO HELD THAT THE ASSES SEE SHOULD BE ALLOWED THE BENEFIT OF INDEXED COST OF ACQUISITION. THE DECISION OF THE TRIBUNAL THUS WAS THAT THE ASSESSEE WAS LIABLE TO CAPITAL GAINS TAX WITH THE BENEFIT OF COST INDEXATION. AN APPEAL AGAINST THE ITA NO: 1190/MUM/2009 3 AFORESAID ORDER OF THE TRIBUNAL WAS FILED BY THE AS SESSEE BEFORE THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO: 799 OF 2007 AND THE SAME WAS ADMITTED WITH THE FOLLOWING TWO SU BSTANTIAL QUESTIONS OF LAW: - (A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AMOUNT OF RS.12 26 80 000/- RECEIVED BY THE APPELLANT ON SURRENDERING / GIVING UP / EXTINGUISHMENT OF ITS RIGHTS IN THE JOINT VENTURE AGREEMENT IS A CAPITAL RECEIPT NOT LIABLE TO TAX AT ALL? (B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE COMPENSATION RECEIVED BY THE APPELLANT IS LIABLE TO BE TAXED AS LONG TERM CAPITAL GAINS? THE AFORESAID ORDER WAS PASSED BY THE HONBLE HIGH COURT ON 10 TH JULY 2008. 3. THE AO INITIATED PENALTY PROCEEDINGS FOR CONCEAL MENT OF INCOME UNDER SECTION 271(1)(C) AND SPECIFICALLY REF ERRED TO EXPLANATION 1 BELOW THE SECTION. THE ASSESSEE MADE DETAILED SUBMISSIONS BY LETTER DATED 18.07.2007 THE GIST OF IT WAS THAT ALL THE FACTS RELATING TO THE RECEIPT FROM HP WERE DISCLOSE D INCLUDING THE RELEVANT PAPERS AND AGREEMENTS AND IT WAS ONLY A CA SE OF THE ASSESSEES CLAIM NOT BEING ACCEPTED BY THE INCOME T AX AUTHORITIES AND THAT IN THESE CIRCUMSTANCES THERE WAS NO CONCEA LMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS THEREOF . THESE SUBMISSIONS WERE NOT ACCEPTED BY THE AO WHO HELD T HAT IN VIEW OF THE ORDER OF THE TRIBUNAL IT WAS VERY CLEAR THAT T HE CLAIM OF THE ASSESSEE HAS BEEN FOUND FALSE BY THE INCOME TAX AUT HORITIES AS WELL AS BY THE TRIBUNAL. EVENTUALLY THE AO HELD TH AT THE ASSESSEE ITA NO: 1190/MUM/2009 4 HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND CONCEALED ITS INCOME FOR WHICH A PENALTY WAS IMPOSABLE. HE IMPOS ED A PENALTY OF RS.3 75 00 000/-. IN THE COURSE OF THE PENALTY ORDER THE AO ALSO STATED THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS EXPLANATION AND FAILED TO PROVE THAT THE EXPLANATION WAS MADE BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE INCOME WERE DISCLOSED. IN SUBSTANCE HE REFERRED TO EXPLANATION 1 BELOW SECTION 271(1)(C) OF THE ACT. 4. ON APPEAL THE CIT(A) CANCELLED THE PENALTY AND RECORDED THE FOLLOWING FINDINGS IN HIS ORDER: - (A) THE ASSESSEE CREDITED THE AMOUNT RECEIVED FROM HP TO ITS PROFIT AND LOSS ACCOUNT BUT REDUCED THE SAME IN THE COMPUTATION OF INCOME. A NOTE WAS GIVEN ALONG WITH THE RETURN OF INCOME TO HIGHLIGHT THE REASON W HY IT WAS REDUCED FROM THE COMPUTATION OF INCOME. (B) ACCORDING TO THE NOTE NO CAPITAL GAINS AROSE B ECAUSE THERE WAS NO COST OF ACQUISITION AND REFERENCE WAS MADE TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS. B C SRINIVASA SETTY (1981) 128 ITR 294 (SC). THE ASSESSEE ALSO RELIED UPON THE OPINIO N OF AN EXPERT. (C) THE TRIBUNAL HAS ACCEPTED THE ASSESSEES CONTEN TION THAT THE RECEIPT IS A CAPITAL RECEIPT BUT HAS DISAPPROVED THE ASSESSEES PLEA THAT THERE WAS NO COST OF ACQUISITION. ACCORDING TO THE TRIBUNAL TH E SHARE APPLICATION MONIES PAID BY THE ASSESSEE ITA NO: 1190/MUM/2009 5 REPRESENTED THE COST OF ACQUISITION RULING OUT THE APPLICABILITY OF THE SUPREME COURT DECISION CITED ABOVE. (D) THREE DIFFERENT AUTHORITIES HAVE TAKEN DIFFEREN T VIEWS ON THE TRUE NATURE OF THE RECEIPT AND ITS ASSESSABI LITY. (E) THE ASSESSEES APPEAL TO THE HIGH COURT HAS BEE N ADMITTED AND QUESTIONS OF LAW HAVE BEEN FRAMED REGARDING THE CONCLUSION OF THE TRIBUNAL THAT THE RECEIPT WAS ASSESSABLE AS LONG TERM CAPITAL GAINS. WHEN A QUESTION OF LAW HAS BEEN ADMITTED BY THE HIGH COURT IT CANNOT BE SAID THAT THE ASSESSEES CL AIM IS FRIVOLOUS AS HELD BY THE THIRD MEMBER OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF RUPAM MERCANTILES LTD. VS. DCIT (2004) 91 ITD 237 (AHD) (TM) . (F) THE AO HAS FAILED TO POINT OUT HOW THE CLAIM REGARDING NON-TAXABILITY OF THE COMPENSATION RECEIV ED FROM HP AMOUNTED TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THEREOF. HE I S ALSO NOT CORRECT IN SAYING THAT THE TRIBUNAL OR THE INCO ME TAX AUTHORITIES HAVE FOUND THE ASSESSEES CLAIM TO BE FALSE. ON THE CONTRARY THE TRIBUNAL HAS PARTLY AG REED WITH THE ASSESSEE THAT THE RECEIPT IS A CAPITAL REC EIPT. 5. THE REVENUE IS IN APPEAL TO THE TRIBUNAL. WE HA VE HEARD THE RIVAL CONTENTIONS AND EXAMINED THE FACTS. WE A RE IN ENTIRE AGREEMENT WITH THE FINDINGS AND DECISION OF THE CIT (A) TO THE EFFECT ITA NO: 1190/MUM/2009 6 THAT THIS IS NOT A CASE WHERE THE ASSESSEE HAS EITH ER CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF. IT IS NOT ALSO A CASE TO WHICH EXPLANATION 1 BELOW SECTION 271(1)(C) CAN BE INVOKED. THE ASSESSEE HAS PLACED ALL THE DETAILS PAPERS AND AGREEMENTS RELATING TO THE RECEIPT OF COMPENSATION FROM HP BEFORE THE AO. EVEN THOUGH THE COMPENSATION WAS INCLUDED IN THE PROFIT AND LOSS ACCOUNT BUT EXCLUDED IN THE COMPUTATION OF INCOME THE ASSESSEE HAS SUBSTANTIATED THE CLAIM WITH REFERENCE TO THE JUDGMENT OF THE SUPREME COURT CITED SUPRA AND AN EX PERT OPINION. A NOTE WAS APPENDED TO THE COMPUTATION OF INCOME DR AWING THE ATTENTION OF THE AO TO THE CLAIM. THE AO HAS NO CA SE THAT THE ASSESSEE WITHHELD ANY MATERIAL FACTS OR ASPECT RELA TING TO THE CLAIM WHICH HE WAS ABLE TO UNEARTH IN THE COURSE OF THE A SSESSMENT PROCEEDINGS. WHEN THE ASSESSEE HAS DISCLOSED ALL T HE MATERIAL PARTICULARS RELATING TO THE CLAIM ALONG WITH THE NE CESSARY DOCUMENTATION AND THE BACKING OF THE JUDGMENT OF TH E SUPREME COURT IT CANNOT BE SAID THAT EXPLANATION 1 BELOW S ECTION 271(1)(C) IS ATTRACTED. IT IS ONLY A CASE WHERE THE ASSESSEE S CLAIM WAS NOT ACCEPTED BY THE AO FOR HIS OWN REASONS. THE CIT(A) AND THE TRIBUNAL DID ACCEPT THE CLAIM OF THE ASSESSEE PARTL Y IN THE SENSE THAT THEY AGREED WITH THE ASSESSEE THAT THE RECEIPT WAS A CAPITAL RECEIPT AND NOT A REVENUE RECEIPT AS HELD BY THE AO . WHEREAS THE CIT(A) REFUSED TO GIVE THE BENEFIT OF COST INDEXATI ON WHILE COMPUTING THE CAPITAL GAINS THE TRIBUNAL HELD THAT THE BENEFIT WAS AVAILABLE TO THE ASSESSEE. BUT NONE OF THE INCOME TAX AUTHORITIES OR THE TRIBUNAL HAS HELD THAT THE ASSESSEE MADE A F ALSE OR FRIVOLOUS ITA NO: 1190/MUM/2009 7 CLAIM. IN THESE CIRCUMSTANCES THE QUESTION OF CONC EALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THER EOF DOES NOT ARISE. IT IS ONLY A CASE OF HONEST DIFFERENCE OF O PINION ON THE SAME FACTS AND DOCUMENTATION BETWEEN THE ASSESSEE ON TH E ONE HAND AND THE INCOME TAX AUTHORITIES AND THE TRIBUNAL ON THE OTHER RELATING TO THE NATURE OF THE RECEIPT FROM HP. 6. WE MAY REFER TO THE JUDGMENT OF THE SUPREME COUR T IN THE CASE OF CEMENT MARKETING CO. OF INDIA LTD. VS. ASSI STANT COMMISSIONER OF SALES TAX (1980) 124 ITR 15 (SC) W HERE IN A CASE ARISING UNDER THE SALES TAX LAW THE SUPREME C OURT MADE THE FOLLOWING OBSERVATIONS REGARDING THE RIGHTS OF AN A SSESSEE TO CLAIM EXEMPTION FROM TAX IN RESPECT OF A RECEIPT: - NOW IT IS DIFFICULT TO SEE HOW THE ASSESSEE COULD BE SAID TO HAVE FILED FALSE RETURNS WHEN W HAT THE ASSESSEE DID NAMELY NOT INCLUDING THE AMOUNT OF FREIGHT IN THE TAXABLE TURNOVER WAS UNDER A BONA F IDE BELIEF THAT THE AMOUNT OF FREIGHT DID NOT FORM PART OF THE SALE PRICE AND WAS NOT INCLUDIBLE IN THE TAXABL E TURNOVER. THE CONTENTION OF THE ASSESSEE THROUGHOU T WAS THAT ON A PROPER CONSTRUCTION OF THE DEFINITION OF SALE PRICE IN SECTION 2(O) OF THE MADHYA PRADESH GENERAL SALES TAX ACT 1958 AND SECTION 2(H) OF TH E CENTRAL SALES TAX ACT 1956 THE AMOUNT OF FREIGHT DID NOT FALL WITHIN THE DEFINITION AND WAS NOT LIABLE T O BE INCLUDED IN THE TAXABLE TURNOVER. THIS WAS THE REA SON WHY THE ASSESSEE DID NOT INCLUDE THE AMOUNT OF FREIGHT IN THE TAXABLE TURNOVER IN THE RETURNS FILE D BY IT. NOW IT CANNOT BE SAID THAT THIS WAS A FRIVOLOUS CONTENTION TAKEN UP MERELY FOR THE PURPOSE OF AVOIDING LIABILITY TO PAY TAX. IT WAS A HIGHLY ARG UABLE CONTENTION WHICH REQUIRED SERIOUS CONSIDERATION BY THE COURT AND THE BELIEF ENTERTAINED BY THE ASSESSE E THAT IT WAS NOT LIABLE TO INCLUDE THE AMOUNT OF FRE IGHT IN THE TAXABLE TURNOVER COULD NOT BE SAID TO BE MALA F IDE OR UNREASONABLE. WHAT SECTION 43 OF THE MADHYA PRADESH GENERAL SALES TAX ACT 1958 REQUIRES IS TH AT THE ASSESSEE SHOULD HAVE FILED A FALSE RETURN AND A RETURN CANNOT BE SAID TO BE FALSE UNLESS THERE IS AN ELEMENT OF DELIBERATENESS IN IT. IT IS POSSIBLE TH AT EVEN WHERE THE INCORRECTNESS OF THE RETURN IS CLAIM ED ITA NO: 1190/MUM/2009 8 TO BE DUE TO WANT OF CARE ON THE PART OF THE ASSESS EE AND THERE IS NO REASONABLE EXPLANATION FORTHCOMING FROM THE ASSESSEE FOR SUCH WANT OF CARE THE COURT MAY IN A GIVEN CASE INFER DELIBERATENESS AND THE RETURN MAY BE LIABLE TO BE BRANDED AS A FALSE RETUR N. BUT WHERE THE ASSESSEE DOES NOT INCLUDE A PARTICULA R ITEM IN THE TAXABLE TURNOVER UNDER A BONA FIDE BELI EF THAT HE IS NOT LIABLE SO TO INCLUDE IT IT WOULD NO T BE RIGHT TO CONDEMN THE RETURN AS A FALSE RETURN INV ITING IMPOSITION OF PENALTY... THE ABOVE OBSERVATIONS APPLY TO THE PRESENT CASE WH ERE THE CONDUCT OF THE ASSESSEE IS THE SAME. THE ASSESSEE HAS DISCLOSED ALL THE FACTS RELATING TO THE RECEIPT AND HAS SOUGH T TO SUPPORT ITS CLAIM FOR EXEMPTION OF THE RECEIPT FROM TAX ON THE BASIS OF A JUDGMENT OF THE SUPREME COURT AND EXPERT OPINION. THE CLAIM CANNOT THEREFORE BE SAID TO BE FALSE. 7. THERE ARE A FEW OTHER JUDGMENTS IN WHICH IT HAS BEEN HELD THAT IF THE ASSESSEE HAS DISCLOSED ALL THE FACTS RE LATING TO THE CLAIM BEFORE THE AO BUT CONTENDS FOR A PARTICULAR POSITIO N AND THE AO ON THE VERY SAME FACTS AND WITHOUT UNEARTHING ANY OTHE R FACT TAKES A DIFFERENT POSITION REGARDING THE CLAIM AND THERE A RE NO MATERIALS TO HOLD THAT THE CLAIM WAS NOT MADE BONA FIDE MERELY BECAUSE THE AO HAS TAKEN A DIFFERENT VIEW OF THE ASSESSEES CLAIM IT CANNOT BE SAID THAT THE ASSESSEE CONCEALED HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF: - (1) ADDITIONAL CIT VS. DELHI CLOTH & GENERAL MILLS CO. L TD. (1984) 157 ITR 822 (DEL) (2) CIT VS. LATE G D NAIDU (1987) 165 ITR 63 (MAD) (3) BURMAH SHELL OIL STORAGE & DISTRIBUTING COMPANY OF I NDIA LTD. (1987) 163 ITR 496 (CAL) (4) CIT VS. INTERNATIONAL AUDIO VISUAL (2007) 288 ITR 570 (DEL) (5) CIT VS. NATH BROS EXIM INTERNATIONAL (2007) 288 ITR 67 0 (DEL) (6) CIT VS. SANTOSH FINANCIERS & ORS (2001) 247 ITR 742 (K ER) THESE JUDGMENTS ALSO SUPPORT THE DECISION OF THE CI T(A). ITA NO: 1190/MUM/2009 9 8. IN THE PRESENT CASE THERE IS ONE MORE ASPECT WHI CH IS THAT THE ASSESSEES APPEAL TO THE HIGH COURT HAS BEEN AD MITTED AND TWO SUBSTANTIAL QUESTIONS OF LAW HAVE BEEN FRAMED BY TH E HIGH COURT. IN THE CASE OF CIT VS. OFF SHORE INDIA LTD. (1994) 209 ITR 473 (CAL) THE CALCUTTA HIGH COURT HAS HELD THAT WHEN THE HIGH COURT HAS ADMITTED THE QUESTION OF LAW AGAINST THE ORDER OF T HE TRIBUNAL IT CANNOT BE SAID THAT THE CLAIM OF THE ASSESSEE IS FR IVOLOUS. THIS JUDGMENT ALSO APPLIES TO THE PRESENT CASE IN SUPPOR T OF THE ASSESSEE. 9. FOR THE ABOVE REASONS WE AGREE WITH THE ORDER OF THE CIT(A) CANCELLING THE PENALTY AND DISMISS THE APPEAL FILED BY THE REVENUE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH JULY 2010. SD/- SD/- (J SUDHAKAR REDDY) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 16 TH JULY 2010 SALDANHA COPY TO: 1. M/S BLUE STAR LTD. KASTURI BLDG. MOHAN T ADVANI CHOWK JAMSHEDJI TATA ROAD MUMBAI 400 020 2. DCIT 1(1) 3. CIT-I 4. CIT(A)-I 5. DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI