SPARK DEVELOPMENT P. LTD, MUMBAI v. DCIT RG 8(3), MUMBAI

ITA 1269/MUM/2009 | 2005-2006
Pronouncement Date: 30-07-2010 | Result: Allowed

Appeal Details

RSA Number 126919914 RSA 2009
Assessee PAN AACGS0656K
Bench Mumbai
Appeal Number ITA 1269/MUM/2009
Duration Of Justice 1 year(s) 5 month(s) 3 day(s)
Appellant SPARK DEVELOPMENT P. LTD, MUMBAI
Respondent DCIT RG 8(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 30-07-2010
Date Of Final Hearing 22-07-2010
Next Hearing Date 22-07-2010
Assessment Year 2005-2006
Appeal Filed On 25-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH MUMBAI BEFORE SHRI N.V. VASUDEVAN JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 1269/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. SPARK DEVELOPMENT P. LTD. DCIT RANGE 8(3) PLOT NO. 49 MARQUIS HOUSE AAYAKAR BHAVAN M.K. ROA D ROAD NO. 13 JUHU MUMBAI 400049 VS. MUMBAI 400020 PAN - AACGS 0656 K APPELLANT RESPONDENT APPELLANT BY: SHRI D. BHASKAR RAO RESPONDENT BY: SHR D. SANGATE O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XXIX MUMBAI DATED 17.12.2008 LEVYING PENALTY OF RS.12 58 350/- UNDER SECTION 271(1)(C). 2. ALL THE GROUNDS NOS. 1 TO 8 ARE RAISED WITH REFEREN CE TO THE ABOVE PENALTY AND THE CLARIFICATIONS ABOUT THE QUANTUM OF ADDITION CONSIDERED FOR PENALTY. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 17.03.2006 DETERMINING LOSS OF RS.27 36 410/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 17 .12.2007 AT AN INCOME OF RS.4 87 849/- MAKING THE FOLLOWING ADDITI ONS: - I. UNDER SECTION 68 OF IT ACT RS.20 64 389/- II. EXPENDITURE RS. 3 43 328/- III. SUBSIDY RECEIVED RS. 24 113/- IV. ADJUSTMENT IN FINISHED STOCK/WIP RS. 4 65 992/ - V. WRITE OFF PROPERTY AT MIRA RD. RS. 3 00 000/- VI. DISALLOWANCE OF SECURITY CHARGES AND RATES & TAXES RS. 3 09 768/- ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 2 THE A.O. ALSO INITIATED PENALTY PROCEEDINGS UNDER S ECTION 271(1)(C) OF THE ACT. IN RESPECT OF THE AMOUNT OF RS.20 64 389/- TH E A.O. OBSERVED FROM THE COMPUTATION OF INCOME THAT THE ASSESSEE HAD SHOWN A GRICULTURAL INCOME OF RS.20 64 389/- AND CLAIMED EXPENDITURE OF RS.3 43 3 28/- AGAINST THE AGRICULTURAL INCOME. DISBELIEVING THE SOURCE OF INC OME THE A.O. TREATED THE SAME AS UNACCOUNTED INCOME UNDER SECTION 68 AND ADD ED TO THE INCOME OF THE ASSESSEE. THE EXPENDITURE OF RS.3 43 328/- CLAI MED FOR AGRL. OPERATIONS WAS ALSO ADDED TO THE INCOME OF THE ASSESSEE BY THE A.O. THE A.O. ALSO TREATED THE SUBSIDY RECEIVED OF RS.24 133/- AS INCO ME FROM OTHER SOURCES. REGARDING THE ADJUSTMENT IN FINISHED STOCK/WIP OF R S.4 65 992/- THE A.O. OBSERVED FROM THE DETAILS FILED THAT THE ASSESSEE H AD DEVELOPED 647.90 SQ.MT. OF SHOP AREA AND 2285.15 SQ.MT. OF RESIDENTI AL AREA RESULTING INTO TOTAL DEVELOPMENT OF 2933.14 SQ.MT. IN RESPECT OF P RIYADARSHANI PROJECT AT GOA THE TOTAL COST OF THE PROJECT WAS RS.1 71 71 7 77.75. THE A.O. WORKED OUT THE FINISHED STOCK OF RS.16 97 575/- AS AGAINST SHOWN BY THE ASSESSEE AT RS.12 31 583/- AND THE DIFFERENCE WAS ADDED AS I NCOME OF THE ASSESSEE BY THE A.O. REGARDING THE WRITE OFF OF PROPERTY AT MIRA ROAD OF RS.3 00 000/- THE A.O. NOTICED THAT THE ASSESSEE HAD WRITTEN OFF RS.3 00 000/- ON ACCOUNT OF MIRA ROAD PROPERTY. AS THE DETAILS WERE NOT FURN ISHED BY THE ASSESSEE THE A.O. DISALLOWED THIS AMOUNT AS CAPITAL EXPENDITURE OF THE ASSESSEE. IN RESPECT OF DISALLOWANCE OF SECURITY CHARGES AND RAT ES & TAXES OF RS.3 09 768/- THE A.O. OBSERVED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS.1 19 800/- ON ACCOUNT OF SECURITY CHARGE AND RS.1 89 968/- AS RATES AND TAXES. THE EXPENDITURE WAS NOT INCURRED UNDER T HESE HEADS. THE A.O. TREATED THIS AS NON-BUSINESS EXPENDITURE AND ADDED TO THE INCOME OF THE ASSESSEE. THE A.O. HAS NOTED IN THE PENALTY ORDER T HAT THE ASSESSEE HAD NOT PREFERRED APPEAL BEFORE CIT(A). IN RESPONSE TO ASSE SSING OFFICERS LETTER DATED 30.05.2008 AS TO WHY PENALTY SHOULD NOT BE IMPOSED UNDER SECTION 271(1)(C) OF THE ACT THE ASSESSEE HAD FILED ITS SUBMISSION B EFORE A.O. WHICH HAS BEEN REPRODUCED IN THE PENALTY ORDER. THE A.O. DID NOT A CCEPT THE CONTENTIONS OF THE ASSESSEE. THE A.O. ALSO RELIED UPON THE FOLLOWI NG JUDGEMENTS: - I. CIT VS. INDIA SEA FOODS 105 ITR 708 (KER) II. NAGICHAND SHIV SAHAL VS. CIT 61 ITR 534 ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 3 III. CIT VS. GATE FOAM & RUBBER & CO. 91 ITR 467 (KER) IV. L.K. SHEIK MOHAMMED BROS. VS. CIT (1977) 110 ITR 80 8 (MAD) THE A.O. FINALLY CONCLUDED THAT THE ASSESSEE HAD M ADE A CONSCIOUS ATTEMPT TO EVADE TAXES BY FURNISHING INACCURATE PARTICULARS OF INCOME AND IMPOSED A PENALTY OF RS.12 58 350/- ON THE INCOME SOUGHT TO B E EVADED OF RS.35 07 590/-. 4. BEFORE THE CIT(A) THE ASSESSEE HAD GIVEN DETAILED C LARIFICATION WITH REFERENCE TO VARIOUS ADDITIONS MADE AND ALSO THAT T HE ASSESSEE HAS NOT PREFERRED APPEAL ON THE QUANTUM ORDER DUE TO OTHER REASONS. THE CIT(A) HOWEVER DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE PENALTY. ACCORDINGLY THE GROUNDS ARE RAISED. 5. THE LEARNED COUNSEL FOR THE ASSESSEE DRAWING OUR A TTENTION TO THE ORDERS OF THE A.O. AND THE CIT(A) SUBMITTED THAT TH E A.O. REJECTED THE CLAIM OF THE ASSESSEE TO DROP THE PENALTY PROCEEDINGS AND LEVIED A PENALTY OF RS.12 58 350/- IN THE ORDER DATED 16.06.2008. PAGE 8 OF THE PENALTY ORDER CLEARLY MENTIONS THAT THE PENALTY WAS LEVIED BY THE A.O. FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ALONG WITH THE RETURN OF INCOME FOR A.Y. 2005-0 6 ITS AUDITED ACCOUNTS AND TAX AUDIT REPORT WERE FILED. THE A.O. DID NOT N OTICE ANY INCORRECT PARTICULARS IN THESE STATEMENTS. IN FACT HE HAS NOT DISPUTED ANY OF THE FIGURES MENTIONED IN THE RETURN OF INCOME OR THE ST ATEMENTS SENT ALONG WITH THE RETURN OF INCOME. THE A.O. HAS NOT BROUGHT ON R ECORD ANY INFORMATION TO SHOW THAT THE PARTICULARS FURNISHED WERE INACCURATE . WHAT THE A.O. DID WAS MERELY REJECTING THE EXPLANATION FURNISHED BY THE A SSESSEE. IN SUPPORT OF THIS CLAIM THE ASSESSEE RELIED ON THE DECISION OF T HE MUMBAI BENCH OF THE ITAT IN THE CASE OF ACIT VS. VIP INDUSTRIES REPORTE D AT 2009-TIOL-193-ITAT MUMBAI. IN PARA 6 OF HIS ORDER THE CIT(A) OBSERVED THAT AS THE ASSESSEE HAS NOT FILED AN APPEAL BEFORE THE CIT(A) AGAINST THE A SSESSMENT ORDER MADE BY THE A.O. THE SAME INDIRECTLY AMOUNTED TO ACCEPTANC E OF ADDITIONS MADE IN THE ASSESSMENT. COURTS HELD THAT FINDINGS IN THE AS SESSMENT PROCEEDINGS ARE RELEVANT BUT NOT CONCLUSIVE IN PENALTY PROCEEDI NGS. IN PENALTY PROCEEDINGS THE ASSESSEE IS ENTITLED TO ADDUCE EVID ENCE TO SHOW THAT THERE ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 4 WAS NO CONCEALMENT OF INCOME. ON THIS POINT THE COU NSEL RELIED ON THE DECISION OF THE LUCKNOW BENCH OF THE ITAT IN THE CA SE OF ASHOK GRIH UDYOG KENDRA P. LTD. VS. ACIT REPORTED AT 120 TID 151 (LU CKNOW). THE MUMBAI BENCH E OF THE ITAT IN ACIT VS. ENPACK MOTORS PVT . LTD. HELD THAT THE FACT THAT ADDITIONS/DISALLOWANCES WERE SUSTAINED BY THE APPELLATE AUTHORITY WAS NOT SUFFICIENT GROUND FOR LEVY OF PENALTY SINCE FUL L DISCLOSURE OF PARTICULARS OF TRANSACTIONS WAS MADE AND THE ADDITIONS WERE ON ACC OUNT OF A DIFFERENT VIEW ADOPTED. ON PAGE NO. 2 IN PARA 4 OF THE ASSESSMENT ORDER (PLACED AT PAGE NO. 139 OF THE PAPER BOOK) THE A.O. OBSERVED THAT T HE ASSESSEE DID NOT DERIVE AGRICULTURAL INCOME OF RS.20 64 389/- AND HE LD THAT THE SAME REPRESENTED THE ASSESSEES INCOME UNDER SECTION 68 OF THE IT ACT. THIS POINT WAS CONSIDERED BY THE CIT(A) IN PARA 6 OF THE APPEL LATE ORDER WHEREIN HE OBSERVED THAT THE ASSESSEE FAILED TO FURNISH DOCUME NTARY EVIDENCE REGARDING THE SAME AND THAT MERE OWNING OF AGRICULTURAL LAND DOES NOT ESTABLISH THAT THE ASSESSEE DERIVED AGRICULTURAL INCOME DURING THE YEAR. IT WAS SUBMITTED THAT HIS OBSERVATION MADE BY THE CIT(A) IS NOT CORR ECT. THE ASSESSEE PROCEEDED THE FOLLOWING ITEMS OF EVIDENCE: - I) MEMORANDUM AND ARTICLES OF ASSOCIATION. CLAUSE 38 O F THE MEMORANDUM AND ARTICLES OF ASSOCIATION ENABLES THE ASSESSEE TO CARRY ON AGRICULTURAL OPERATIONS VIDE PAGE 32 OF THE PA PER BOOK. II) 7/12 EXTRACT FROM REVENUE RECORDS SHOWING THE EXTEN T OF LAND HELD. THE ASSESSEE OWNS OVER 38 HECTARES OF LAND IN MUGOLI VI LLAGE OF SANGUEM TALUK GOA VIDE PAGE 50 OF THE PAPER BOOK. III) LETTER FROM THE SARPANCH OF THE VILLAGE PANCHAYAT S HOWING THAT FRUIT TREES AND HORTICULTURAL GARDENS EXIST ON THE LAND H ELD VIDE PAGE 51 OF THE PAPER BOOK. IV) LETTER FROM THE ASSISTANT AGRICULTURAL OFFICER SHOW ING AGRICULTURAL SUBSIDY PAID BY THE GOA GOVERNMENT TO THE ASSESSEE. UNDER A SCHEME FORMULATED BY THE DIRECTORATE OF AGRICULTURE GOA T HE STATE GOVERNMENT ANNOUNCED SUBSIDY FOR HORTICULTURAL DEVELOPMENT I NCLUDING RAISING OF MANGO BANANA PINEAPPLE PAPAYA CASHEW AND PEPPER AND VEGETABLES. AS THE ASSESSEE HAS BEEN PRODUCING THES E YEAR AFTER YEAR THE STATE AGRICULTURAL DEPARTMENT HAS BEEN PAYING S UBSIDY TO THE ASSESSEE. IN THE RELEVANT YEAR THE ASSESSEE RECEIVE D RS.24 113/- AS AGRICULTURAL SUBSIDY VIDE PAGE 52 OF THE PAPER BOOK V) COPY OF THE APPELLATE ORDER DATED 18.10.2002 PASSED BY THE CIT(A)-XXV FOR A.Y. 1997-98 WHEREIN THE CIT(A) IN PARA 3.2 OF HIS ORDER DIRECTED THE A.O. TO TAKE THE AGRICULTURAL INCOME OF THE ASSESSE E AT RS.2 93 000/- ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 5 INSTEAD OF RS.2 00 000/- ADOPTED BY THE A.O. WHILE DETERMINING TAXABLE INCOME UNDER SECTION 115JA OF THE I.T. ACT VIDE PAG ES 54 TO 56 OF THE PAPER BOOK. VI) COPY OF THE ASSESSMENT ORDER DATED 28.03.2006 PASSE D BY THE A.O. FOR A.Y. 2003-04 WHEREIN AGAINST ITEM 10 THE A.O. MENTI ONED THAT THE ASSESSEE CARRIED ON THE BUSINESS OF CONSTRUCTION AN D DEVELOPMENT AND AGRICULTURE VIDE PAGES 57 & 58 OF THE PAPER BOOK. AS THERE WAS NO WHOLE SALE MARKET FOR FRUITS AND VE GETABLES NEAR THE AGRICULTURAL LAND OWNED BY THE ASSESSEE THE ASSESS EE HAS BEEN SELLING THE AGRICULTURAL PRODUCE TO PERSONS AT THE PREMISES OF THE ASSESSEE. THE PERSONS INTERESTED IN PURCHASING THE ABOVE FRUITS AND VEGET ABLES USED TO PLUCK THEM AND COLLECT THE SAME. AS THESE PERSONS ARE ILLITERA TE THE ASSESSEE PREPARED RECEIPTS FOR THE SALES MADE TO THEM WHO AFFIXED THE IR THUMB IMPRESSIONS. THESE SALE BILLS WERE PRODUCED BEFORE THE A.O. THES E PURCHASERS SELL THE FRUITS/VEGETABLES TO HAWKERS IN THE NEIGHBOURING VI LLAGES. WHEN THE A.O. ACCEPTED THE POSITION THAT THE ASSESSEE CARRIED ON AGRICULTURAL OPERATIONS IN THE ACCOUNTING YEARS RELEVANT FOR THE EARLIER ASSES SMENT YEARS AND ALSO IN THE ACCOUNTING YEARS RELEVANT TO ASSESSMENT YEARS 2 007-08 AND 2008-09 THERE IS NO JUSTIFICATION IN HOLDING THAT NO AGRICU LTURAL INCOME WAS DERIVED FOR A.Y. 2005-06. THE RULE OF CONSISTENCY HAS TO BE FOLLOWED UNLESS THERE ARE MATERIAL CHANGES IN THE FACTS OF THE CASE IN THE PA RTICULAR YEAR. THE ASSESSEE CLAIMED A SUM OF RS.3 43 328/- AS EXPENDITURE INCUR RED ON AGRICULTURAL OPERATIONS INCLUDING MAINTAINING OF CATTLE. DETAILS OF THESE EXPENSES WERE FURNISHED TO THE A.O. AND ARE AVAILABLE AT PAGES 69 TO 90 OF THE PAPER BOOK. THE A.O. HAS NOT DISPUTED INCURRING OF THESE EXPENS ES SINCE AGRICULTURAL OPERATIONS WERE IN FACT CARRIED ON BY THE ASSESSEE AS DISCUSSED IN CONNECTION WITH GROUND NOS. 3(A) 3(B) AND 3(C) ABO VE. THESE EXPENSES ARE ALLOWABLE. MERE DISALLOWANCE OF EXPENDITURE INCURRE D CANNOT BE MADE THE BASIS FOR LEVY OF PENALTY UNDER SECTION 271(1)(C). ON THIS ISSUE THE ASSESSEE COUNSEL RELIED ON THE DECISION IN THE CASE OF CIT VS. AJAIB SINGH AND CO. REPORTED AT 253 ITR 630 (P&H). IT WAS SUBMITTED THA T MERE CHANGE IN THE HEAD OF INCOME FROM THE SOURCE AS ADMITTED BY THE A SSESSEE TO A DIFFERENT HEAD OF INCOME DOES NOT ENABLE THE A.O. TO LEVY CO NCEALMENT PENALTY. THE ASSESSEE CONSTRUCTED A BUILDING NEAR GOA IN THE EAR LIER YEARS. POSSESSION OF SOME OF THE SHOPS AND RESIDENTIAL FLATS CONSTRUCTED WAS HANDED OVER TO THE ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 6 PURCHASERS IN THE YEAR ENDED 31.03.2005. ONE FLAT A ND 9 SHOPS REMAINED UNSOLD AS ON 31.03.2005. WHILE WORKING OUT THE VALU E OF CLOSING STOCK THE SAME WAS DONE ON TWO SHEETS THE FIRST PAGE SHOWED THE AREA OF FLAT UNSOLD AND THE SECOND PAGE SHOWED THE AREA OF 9 UNSOLD SHO PS. IN PREPARING THE ACCOUNTS THE ASSISTANT TOOK THAT THE SECOND PAGE S HOWED THE CUMULATIVE AREA OF THE UNSOLD FLAT AND SHOPS WHEREAS THE SECO ND SHEET CONTAINED ONLY THE UNSOLD AREA COVERED BY THE 9 SHOPS AND NOT THE UNSOLD FLAT. THIS WAS A BONA FIDE MISTAKE ON THE PAR OF THE ACCOUNTS ASSIST ANT. AS ALREADY SUBMITTED ABOVE THE ASSESSEE HAS BEEN CARRYING ON B USINESS AS REAL ESTATE DEVELOPMENT BUILDER. IN THE COURSE OF ITS BUSINESS THE ASSESSEE PAID IN THE YEAR ENDED 31.03.1996 AMOUNTS TOTALLING RS.3 00 00 0/- TO SEVEN PERSONS WHO WERE IN OCCUPATION OF A SITE IN MIRA ROAD MUMB AI VIDE PAGES 93 AND 102 OF THE PAPER BOOK. THIS WAS PAID BY THE ASSESSE E AS AN ADVANCE AS THE SEVEN PERSONS PROMISED TO VACATE THE SITE OCCUPIED BY THEM. THE BALANCE WAS TO BE PAID AFTER THE ASSESSEE OBTAINED POSSESSI ON OF THE SITE. HOWEVER IN SPITE OF EFFORTS MADE THESE SEVEN PERSONS DID NO T VACATE THE SITE OCCUPIED BY THEM. THE ASSESSEE COULD NOT ALSO RECOVER THE AD VANCES AMOUNTING TO RS.3 00 000/- MADE. THE SAME WAS THEREFORE WRITTEN OFF IN THE YEAR ENDED 31.03.2005. WITH REFERENCE TO THE DISALLOWANCE OF E XPENDITURE CLAIMED IT WAS SUBMITTED THAT THE ASSESSEE OWNS A BUILDING IN JUHU MUMBAI WHICH HOUSES THE REGISTERED OFFICE OF THE ASSESSEE COMPAN Y. DEPRECIATION IS CLAIMED YEAR AFTER YEAR ON THIS BUILDING AND ALLOWE D ON THE INCOME TAX ASSESSMENTS MADE ON THE ASSESSEE. THIS EXPENDITURE OF RS.3 09 768/- COMPRISES (A) RS.1 19 800/- PAID TOWARDS SECURITY C HARGES (B) RS.1 89 968/- PAID AS MUNICIPAL TAX AND LAND REVENU E. THE ASSESSEE PAID THE SUM OF RS.1 19 800/- TO DETECTIVE SECURITY SERV ICE WHICH FIRM SENT IT PERSONS AS SECURITY GUARDS TO PROTECT THE ASSESSEE S REGISTERED OFFICE. THE DETAILS OF PAYMENTS MADE TO DETECTIVE SECURITY SERV ICE ARE AT PAGES 105TO 124 OF THE PAPER BOOK. THESE PAYMENTS WERE MADE BY THE ASSESSEE BY ISSUING CHEQUES TO DETECTIVE SECURITY SERVICE. IT C AN BE SEEN THAT THESE AMOUNTS WERE NOT PAID BY THE ASSESSEE DIRECTLY TO S ECURITY GUARDS. SIMILARLY TWO SUMS OF RS.93 481/- WERE PAID AS HALF YEARLY MU NICIPAL TAX TO TBE BMC. THESE AMOUNTS WERE ALSO PAID BY ISSUING CHEQUES TO BMC. THESE AMOUNTS ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 7 APPEAR UNDER THE HEAD DEBITS IN THE BANK ACCOUNT OF THE ASSESSEE WITH THE BANK OF BIKANER AND JAIPUR. THE DETAILS ARE AVAILAB LE AT PAGES 125 TO 137 OF THE PAPER BOOK. THE RELEVANT DEBIT ENTRIES IN THE B ANK ACCOUNT OF THE ASSESSEE APPEAR ON PAGES 132 AND 137 OF THE PAPER B OOK. THE BALANCE OF RS.3 006/- WAS PAID AS LAND REVENUE IN RESPECT OF T HE ABOVE BUILDING. AS INFORMATION WAS FURNISHED BY THE ASSESSEE TO THE A. O. IN THE FORM OF RETURN OF INCOME AUDITED STATEMENTS OF ACCOUNTS TAX AUDI T REPORT AND OTHER DETAILS WITHOUT POINTING OUT OMISSION OF ANY RECEI PT OR OVER STATEMENT OF EXPENSES CLAIMED THE A.O. WAS NOT CORRECT IN LEVYI NG CONCEALMENT PENALTY HOLDING THAT THE ASSESSEE FURNISHED INACCURATE PART ICULARS OF INCOME. THE ASSESSEE RELIED ON THE DECISION OF THE SUPREME COUR T IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. REPORTED AT 322 ITR 15 8 (SC) WHERE ON SIMILAR FACTS THE HON'BLE SUPREME COURT HELD THAT NO CONCEA LMENT PENALTY COULD BE LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INC OME. 6. THE LEARNED D.R. HOWEVER SUBMITTED THAT THE FACT THAT THE ASSESSEE HAS NOT PREFERRED APPEAL IN THE CASE SHOWS THAT THE ASSESSEE HAS NO INFORMATION ABOUT THE CLAIMS AND THE CIT(A) HAS COR RECTLY CONSIDERED THE SUBMISSIONS IN HIS ORDER VIDE PARA 6 AND HE SUPPORT ED THE CONTENTIONS AND RELIED ON THE CASE LAW RELIED UPON BY THE CIT(A) IN HIS ORDER. 7. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ASSE SSMENT ORDER THE A.O. SIMPLY DISBELIEVED ASSESSEES CLAIM OF AGRICUL TURAL ACTIVITIES. AS SEEN FROM THE ORDERS FROM A.Y. 2007-08 THERE IS A RECORDING T HAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF AGRICULTURAL ACTIVITY N AMELY PRODUCING CASHEW VEGETABLES FRUITS ETC. ON ITS AGRICULTURAL LAND A T SANGEUM GOA. THE NATURE OF BUSINESS IN THE FIRST PAGE OF THAT ORDER ALSO INDIC ATES THAT THE ASSESSEE IS INVOLVED IN AGRICULTURAL ACTIVITY. DURING THAT YEAR ASSESSEE HAS RECEIVED AGRICULTURAL INCOME OF RS.8.45 LAKHS AND SUBSIDY OF RS.75 343/- AND THE A.O. HAS ACCEPTED THE SAME. SIMILAR IS THE POSITION IN A .Y. 2008-09 WHEREIN ALSO IN THE ORDER UNDER SECTION 143(3) ASSESSEES AGRICULTU RAL INCOME AS DECLARED WAS ACCEPTED. ONLY DURING THE IMPUGNED YEAR THE A.O. DI SBELIEVED THE AGRICULTURAL ACTIVITY TREATING INCOME RETURNED AS INCOME FROM OT HER SOURCES. IN ADDITION HE ALSO DISALLOWED THE EXPENDITURE CLAIMED IN AGRICULT URAL ACTIVITY. SIMILAR ACTION ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 8 UNDERTAKEN IN EARLIER YEARS ALSO HAS RESULTED IN AP PELLATE PROCEEDINGS AND ULTIMATELY THE ASSESSEES AGRICULTURAL INCOME WAS D IRECTED TO BE ACCEPTED. IN VIEW OF THESE FACTS AS FAR AS ASSESSEES AGRICULTU RAL ACTIVITY IS CONCERNED ON MERITS THE ASSESSEE HAS SUPPORTED THAT THAT IT HAS EARNED AGRICULTURAL INCOME AND THE A.O. SIMPLY DISBELIEVED THE AGRICULTURAL IN COME AND TREATED THE SAME AS INCOME UNDER SECTION 68. THE EXPENDITURE IS ALSO DISALLOWED EVEN THOUGH THE ASSESSEE HAS SUBMITTED NECESSARY EVIDENCES. EVE N THE AGRICULTURAL SUBSIDY RECEIVED FROM THE GOVERNMENT OF GOA BY WAY OF CHEQU E TO THE EXTENT OF RS.24 113/- WAS ALSO TREATED AS OTHER SOURCE OF INC OME BY THE A.O. SIMILARLY THE CLAIM OF RS.3 00 000/- PAID TO SEVEN PARTIES FO R PURCHASE OF PROPERTY WHICH WAS IN DISPUTE AND ULTIMATELY WRITTEN OFF IN ASSESSEES PROPERTY DEVELOPMENT BUSINESS WAS DISALLOWED. THE A.O. ALSO DISALLOWED THE CLAIM OF SECURITY CHARGES OF THE JUHU OFFICE AND RENT AND RA TES & TAXES PAID WITH ONLY ONE OBSERVATION THAT MOST OF THE EXPENDITURES WERE INCURRED UNDER THE ABOVE HEAD. ACCORDINGLY EXPENDITURE OF RS.3 09 768/- ARE TREATED AS NON-BUSINESS EXPENDITURE. 8. WE WERE NOT IN A POSITION TO UNDERSTAND HOW THE CL AIMS MADE BY THE ASSESSEE IN ITS RETURN OF INCOME WERE DISALLOWED/DI SBELIEVED DURING ASSESSMENT PROCEEDINGS. ALL THESE ENTRIES/ CLAIMS A RE ARISING OUT OF THE BOOKS OF ACCOUNT AND IT IS THE A.O. WHO DISBELIEVED THE S OURCE AGRICULTURAL INCOME AND TREATED AS INCOME UNDER SECTION 68 OF THE I.T. ACT. EVEN THE AGRICULTURAL SUBSIDY RECEIVED WAS ALSO TREATED AS INCOME UNDER O THER SOURCE WHEN THERE IS EVIDENCE THAT THE ASSESSEES AGRICULTURAL ACTIVITY RESULTED IN GETTING SUBSIDY FROM THE GOVERNMENT OF GOA. IN THE LIGHT OF THESE F ACTS WE ARE OF THE OPINION THAT MERE DISALLOWANCE OF VARIOUS ITEMS OF EXPENDIT URE AND TREATMENT OF AGRICULTURAL INCOME AND SUBSIDY RECEIVED AS INCOME FROM OTHER SOURCES DOES NOT ISPO FACTO RESULT IN FURNISHING OF INACCURATE P ARTICULARS. AS STATED BY THE LEARNED COUNSEL AND SEEN FROM THE ASSESSMENT ORDER THE PROCEEDINGS UNDER SECTION 271(1)(C) WERE INITIATED AND FINALISED FOR FURNISHING INACCURATE PARTICULARS. THE A.O. HAS NOT SPECIFIED WHAT ARE IN CORRECT PARTICULARS FURNISHED BY THE ASSESSEE RESULTING IN INITIATION A ND LEVY OF PENALTY. THE HON'BLE SUPREME COURT IN CASE OF CIT VS. RELIANCE P ETROPRODUCTS PVT. LTD. 223 ITR 158 HAS HELD AS UNDER : - ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 9 A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT 1961 SUGGESTS THAT IN ORDER TO BE COVERED BY IT T HERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICU LARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTI ON 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORD ER TO EXPOSE THE ASSESSEE TO PENALTY UNLESS THE CASE IS STRICTLY CO VERED BY THE PROVISION THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRE TCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISH ING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHIN G WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE BECAUSE THAT IS T HE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF H IS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE THE LIABILI TY WOULD ARISE. THE ATTRACT PENALTY THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS O R FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C). A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NO AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FU RNISHING INACCURATE PARTICULARS. 9. IN VIEW OF THIS JUST BECAUSE THE ASSESSEES CLAIMS WERE NOT ACCEPTED BY THE A.O. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C ) ARE NOT ATTRACTED. THE ADDITIONS IN THE ASSESSMENT MAY BE GOOD ENOUGH FOR DISALLOWANCE OF EXPENDITURE BUT NOT SUFFICIENT TO CONSIDER THEM AS CONCEALMENT OF INCOME UNDER SECTION 271(1)(C). ONE OF THE REASONS FOR THE CIT(A) TO CONFIRM THE PENALTY IS THAT THE ASSESSEE HAS NOT PREFERRED AN A PPEAL WHEN THE DISALLOWANCES ARE MADE. THERE MAY BE UMPTEEN NUMBER OF REASONS WHY THE ASSESSEE HAS NOT PREFERRED APPEAL. THE EXPLANATION GIVEN BY THE LEARNED COUNSEL DURING THE APPELLATE PROCEEDING THAT THE DI RECTORS WERE STATIONED IN GOA AT THE RELEVANT POINT OF TIME AND THE ORDER REC EIVED COULD NOT BE APPEALED IN TIME. MOREOVER THE ASSESSEE HAS FILED ITS LOSS RETURN WHICH RESULTED IN A TOTAL INCOME OF RS.4.37 LAKHS AFTER DISALLOWANCE AN D SINCE THERE IS NOT HAVING MUCH OF BUSINESS ACTIVITY AND THE REAL ESTATE ACTIV ITY WAS NOT PROPERLY TOOK OFF THE DIRECTORS (BEING FAMILY MEMBERS) IN THIS P RIVATE LIMITED COMPANY COULD NOT MAKE APPEAL IN TIME AND WAS ADVISED THAT THERE IS NO PURPOSE IN APPEALING BELATEDLY. ACCORDINGLY THEY ACCEPTED THE ORDER OF THE A.O. WE AGREE ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 10 WITH THE REASONS SUBMITTED. JUST BECAUSE THE ASSESS EE HAS NOT PREFERRED APPEAL IT DOES NOT MEAN THAT THERE IS CONCEALMENT/ FURNISHING OF INACCURATE PARTICULARS IN THE CASE. AS SEEN FROM THE ASSESSMEN T ORDER ALSO THE A.O. HAS NOT MADE ANY ENQUIRIES NOR OBTAINED ANY INDEPENDENT INFORMATION THAT THE ASSESSEES AGRICULTURAL ACTIVITIES ARE NOT CORRECT/ ARE BOGUS. THE ACTION OF THE A.O. CAN BE SEEN IN THE LIGHT OF THE FACT THAT EVEN THE AGRICULTURAL SUBSIDY RECEIVED FROM THE GOVERNMENT OF GOA WAS ALSO DISBEL IEVED AND TREATED AS INCOME FROM OTHER SOURCES. IN THE LIGHT OF THESE FA CTS WE ARE OF THE OPINION THAT THE AMOUNTS WHICH ARE CONSIDERED AS INCOME FRO M OTHER SOURCES OF RS.20 64 387/- AND SUBSIDY OF RS.24 113/- AND DISAL LOWANCE OF EXPENDITURE OF RS.3 43 328/- RS.3 00 000/- WRITTEN OFF RS.1 19 800/- PAID TOWARDS SECURITY SERVICES AND RS.1 89 968/- PAID AS MUNICIP AL TAXES CANNOT BE CONSIDERED FOR THE PURPOSE OF LEVY OF PENALTY AT AL L. 10. THAT LEAVES AS WITH ONLY ONE AMOUNT OF UNDER- VALUA TION OF CLOSING STOCK AS ON 31.03.2005 AT RS.4 65 992/-. THE ASSESS EE WAS IN PROPERTY DEVELOPMENT AT THAT POINT OF TIME AND HAD ONE UNSOL D FLAT AND SIX SHOPS WHICH COULD NOT BE SOLD AS ON 31.03.2005. WHILE VAL UING ONE FLAT WAS NOT TAKEN FOR CLOSING STOCK. AS EXPLAINED THE INVENTORY WAS PREPARED IN TWO SHEETS AND THE ACCOUNTANT BY MISTAKE HAD NOT CONSID ERED ONLY ONE FLAT IN THE FIRST SHEET. ASSESSEE ACCEPTS THAT IT IS BONAFIDE M ISTAKE. WE WERE INFORMED THAT INCREASE IN CLOSING STOCK VALUATION WAS GIVEN AS A BENEFIT IN THE NEXT YEAR AS OPENING STOCK IN THE LATER YEAR. CONSIDERING THE ADMISSION BY THE ASSESSEE AS A BONAFIDE MISTAKE AND ALSO THE FACT THAT CLOSIN G STOCK VALUATION MADE IN THIS YEAR WAS GIVEN AS A BENEFIT IN THE LATER YEAR AS OPENING STOCK WHICH MAKES NO REVENUE LOSS TO THE EXCHEQUER WE ARE OF T HE OPINION THAT THE EXPLANATION GIVEN BY THE ASSESSEE WITH REFERENCE TO THIS ADDITION MADE BY THE A.O. CAN BE ACCEPTED AS A BONAFIDE EXPLANATION AND ACCORDINGLY THERE IS NO NEED FOR LEVY OF PENALTY ON THIS AMOUNT. 11. THE ASSESSEES COUNSEL RELIED ON VARIOUS CASE LAWS IN SUPPORT OF VARIOUS CONTENTIONS WHICH WE HAVE CONSIDERED. THERE IS NO NEED TO REPEAT THE PROPOSITIONS IN THIS ORDER. SUFFICE TO SAY THAT THE CASE IS EXAMINED ON FACTS AND ON LAW AND WE ARE OF THE OPINION THAT THE RE IS NO NEED TO CONSIDER ITA NO. 1269/MUM/2009 M/S. SPARK DEVELOPMENT P. LTD. 11 THE VARIOUS DISALLOWANCES/ADDITIONS/CHANGE OF HEAD MADE BY THE A.O FOR PENALTY UNDER SECTION 271(1)(C). ACCORDINGLY ASSESS EES GROUNDS ARE ALLOWED. ORDER OF PENALTY IS CANCELLED. 12. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY 2010. SD/- SD/- (N.V. VASUDEVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 30 TH JULY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXIX MUMBAI 4. THE CIT VIII MUMBAI CITY 5. THE DR E BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.