The ITO, Ward-6(4),, Ahmedabad v. M/s. Winfab Engineers,, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO.1656/AHD/2007 A. Y.: 2001-02 THE INCOME TAX OFFICER WARD-6(4) C. U. SHAH BUILDING ASHRAM ROAD AHMEDABAD VS M/S. WINFAB ENGINEERS 7610 PHASE-IV GIDC VATVA AHMEDABAD PA NO. AAAFW 3610 N (APPELLANT) (RESPONDENT) APPELLANT BY SHRI C. K. MISHRA DR RESPONDENT BY SHRI M. K. PATEL (FOR SN DIVETIA) AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-XII AHMEDABAD DATE D 15-01-2007 FOR ASSESSMENT YEAR 2001-02 CHALLENGING THE ORDER OF TH E LEARNED CIT(A) IN CANCELING THE PENALTY LEVIED U/S 271 (1) ( C ) OF T HE IT ACT. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. THE FACTS OF THE CASE ARE THAT ASSESSMENT U/S 14 3(3) READ WITH SECTION 147 OF THE IT ACT WAS FINALIZED ON 29-03-20 04. ADDITION OF RS.21 35 434/- WAS MADE BY THE AO TO THE RETURNED I NCOME. THE LEARNED CIT(A) DIRECTED TO CONSIDER THE INCOME SHOWN BY THE ASSESSEE FROM RENT AND SERVICE CHARGES ETC. AS INCOME FROM THE BUSINES S AND ALLOWED EXPENSES AS PER RELEVANT PROVISIONS OF LAW AND ALSO DIRECTED TO ALLOW DEPRECIATION ON BUILDING PLANT AND MACHINERY. THE TRIBUNAL VIDE ORDER DATED 03-03-2005 DIRECTED TO COMPUTE THE RENTAL INC OME ETC. UNDER THE HEAD INCOME FROM OTHER SOURCES BUT ALLOW DEPRECIATI ON AND EXPENSES AS ITA NO.1656/AHD/2007 ITO VS M/S. WINFAB ENGINEERS 2 PROVIDED U/S 57 (II) AND (III) OF THE IT ACT. THE A O VIDE SEPARATE ORDER IMPOSED PENALTY U/S 271 (1) ( C ) OF THE IT ACT IN RESPECT OF INACCURATE PARTICULARS OF INCOME AND CONCEALING THE INCOME TO THE EXTENT OF RS.10 79 590/-. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH CAME INTO EXISTENCE VIDE PAR TNERSHIP DEED DATED 02-01-1993 WITH EFFECT FROM 01-01-1993. THE PROJECT WAS COMPLETE EVERYTHING WAS READY TO COMMENCE PRODUCTION BUT BE CAUSE OF FINANCIAL CRUNCHES AND OTHER FACTORS OF THE MARKET THE FIRM HAD GIVEN THE FACTORY BUILDING MACHINERY AND EQUIPMENT INSTALLED IN THE FACTORY TO M/S. K. H.S. MACHINERY PVT. LTD. UNDER LEASE FOR A PERIOD O F TWO YEARS. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESS EE HAS SHOWN INCOME AND EXPENSES IN THE RETURN OF INCOME. IT WAS SUBMIT TED THAT THE ASSESSEE SUCCEEDED BEFORE THE LEARNED CIT(A) BUT THE TRIBUNA L REVERSED THE ORDER OF THE LEARNED CIT(A) HOLDING THE INCOME OF THE ASS ESSEE FROM OTHER SOURCES. IT WAS SUBMITTED THAT LEGAL POINT WAS INVO LVED IN THE MATTER IN ISSUE. THEREFORE THERE IS NO CASE OF CONCEALMENT O F INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. THE ASSESSEE BELI EVED THAT ITS SOURCES OF INCOME SHOULD BE ASSESSED AS BUSINESS INCOME. TH EREFORE THE ASSESSEE CLAIMED SET OFF OF THE PRE-OPERATIVE EXPEN SES. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE AND MATE RIAL ON RECORD CANCELLED THE PENALTY. HIS FINDINGS IN PARA 5 ARE R EPRODUCED AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE SUBMISSION MADE BY THE APPELLANT AND ALSO GONE THRO UGH THE CASES RELIED UPON BY THE APPELLANT. FROM THE SAID F ACTS IT REVEALS THAT THOUGH THE APPELLANT HAD NOT STARTED I TS OPERATION HE HAD CLAIMED EXPENSES TO THE TUNE OF RS.7 28 129/- AND PREOPERATIVE EXPENDITURE OF RS.14 .12 LACS. WHILE FINALIZING THE ASSESSMENT PROCEEDINGS THE A. O. TREATED INCOME RECEIVED FROM RENT SERVICE CHARGES AND INTE REST ON DEPOSIT WITH AEC AS INCOME FROM OTHER SOURCES AND DISALLOWED T HE APPELLANTS CLAIM OF RS.7 28 129/-. AS AGAINST THIS ORDER THE CIT(A) HAS DIRECTED TO CONSIDER THE INCOME SHOWN BY THE APPELLANT FROM RENT AND SERVICE CHARGE S UNDER THE HEAD BUSINESS AND ALLOW THE EXPENSES AS PER THE RELEVANT ITA NO.1656/AHD/2007 ITO VS M/S. WINFAB ENGINEERS 3 PROVISIONS OF LAW AND ALSO DIRECTED TO ALLOW THE DE PRECIATION ON BUILDING AND PLANT AND MACHINERY. AS AGAINST THE ORDER OF THE CIT(A) THE HONBLE ITAT DIRECTED TO COMPUTE TH E RENTAL INCOME ETC. UNDER THE HEAD INCOME FROM OTHER SOURCE S BUT ALLOWED DEPRECIATION AND EXPENSES WHICH ARE PROVIDE D U/S. 57 ((II) AND (III) OF THE ACT. HERE THE BONA FIDE OF THE EXPLANATION WAS NOT DOUBTED BUT IT WAS TREATED AS C ONCEALED INCOME BASED ON THE ONLY FACTS THAT THE ADDITION WA S SUSTAINED BY THE HONBLE TRIBUNAL. MERE SUSTAINING OF AN ADDITION BY THE TRIBUNAL IS NO GROUND FOR LEVY OF P ENALTY AS HELD BY FOLLOWING JUDGEMENTS (1) CIT VS. SMT. PADMA DEVI JAIN (2000) 245 ITR 818 (2) CIT VS. INDIN BISLERS (2000) 240 ITR 943 (3) DURGA PRASAD RICE MILLS VS. CIT (2003) 265 ITR 25 IN THE CASE OF DURGA PRASAD RICE MILLS (SUPRA) ON T HE IDENTICAL FACTS TO THE PRESENT CASE THE HONBLE CALCUTTA HIG H COURT HELD AS UNDER: WHEN TWO VIEWS ARE POSSIBLE AND WHEN NO CLEAR AND DEFINITE INFERENCE CAN BE DRAWN IN A PENALTY PROCEEDINGS PENALTY COULD NOT BE IMPOSED. 5.1 AS RIGHTLY CONTENDED BY THE LD. COUNSEL IN VIE W OF THE RATIO OF VARIOUS DECISIONS OF DIFFERENT HIGH COURTS AS WELL AS TRIBUNALS IT IS WELL SETTLED LAW THAT WHERE THE AS SESSEE OFFERS A BONA FIDE EXPLANATION BUT HE FAILS TO SUBSTANTIAT E ITS EXPLANATION OR THE REVENUE DOES NOT PROVE THE EXPLA NATION TO BE FALSE NO PENALTY U/S. 271(1) ( C ) CAN BE LEVIE D. IN THIS CASE THE EXPLANATION OFFERED BY THE APPELLANT THOUGH HAS NOT BEEN ACCEPTED BY THE DEPARTMENT BUT HAS NOT BEEN PROVED TO BE FALSE SO AS TO ATTRACT THE PROVISIONS OF SECTION 2 71(1) ( C ) OF THE I. T. ACT. IN THIS CASE THE FACT THAT HE APPEL LANT HAS CLAIMED INCOME UNDER A PARTICULAR HEAD WHICH HAS NO T BEEN ACCEPTED ULTIMATELY BY THE DEPARTMENT BUT EXPENSES CLAIMED BY THE APPELLANT HAVE BEEN ALLOWED IN THAT CASE ALS O U/S. 57 (II) AND 57(III) OF THE I. T. ACT. IT HAS NOT BEEN WELL SETTLED THAT THE SUM OF RS.10 79 590/- REPRESENTS CONCEALED INCO ME OF THE APPELLANT AND THEREFORE MENS ERA IS NOT PROVED. IN VIEW OF THE ABOVE THE PENALTY LEVIED BY THE ASSESSING OFFICER VIDE ORDER UNDER APPEAL IS CANCELLED. ITA NO.1656/AHD/2007 ITO VS M/S. WINFAB ENGINEERS 4 4. LEARNED DR RELIED ON THE ORDER OF THE AO AND SUB MITTED THAT THE ASSESSEE FILED INACCURATE PARTICULARS OF INCOME AS WELL AS CONCEALED PARTICULARS OF INCOME BY MAKING A WRONG CLAIM IN TH E RETURN OF INCOME. THEREFORE PENALTY WAS RIGHTLY IMPOSED BY THE AO. O N THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUB MISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESS EE DISCLOSED ALL THE PARTICULARS IN THE RETURN OF INCOME. THE ISSUE WAS HIGHLY DEBATABLE WHETHER INCOME OF THE ASSESSEE SHOULD BE TREATED AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES. THEREFORE IT IS NOT A C ASE OF CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOM E. HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE FILED RETURN OF I NCOME DECLARING TOTAL INCOME AT NIL. THE ASSESSEE HAS NETTED OFF THE PRE- OPERATIVE EXPENSES WITH THE LEASE RENTAL INCOME. THE ASSESSEE CLAIMED THAT LEASE RENTAL INCOME AND INTEREST INCOME ETC. BE TREATED AS BUSIN ESS INCOME BECAUSE THE ASSESSEE EXPLOITED THE BUSINESS ASSETS. THE ASS ESSEE RELIED UPON SEVERAL DECISIONS IN SUPPORT OF THE CONTENTION. THE ASSESSEE ALSO EXPLAINED THAT EVERYTHING WAS COMPLETE AND PROJECT WAS READY TO COMMENCE PRODUCTION BUT DUE TO FINANCIAL CRUNCHES T HE ASSESSEE HAD GIVEN THE LAND FACTORY BUILDING AND MACHINERY ETC. ON LEASE. THE ASSESSEE THEREFORE PLEADED THAT SINCE THE PROJECT OF THE ASSESSEE WAS COMPLETE AND PRODUCTION WAS YET TO BE STARTED THER EFORE IT WAS BUSINESS INCOME. THE CLAIM OF THE ASSESSEE WAS REJECTED BY T HE AO BUT IT WAS ACCEPTED BY THE LEARNED CIT(A). THE TRIBUNAL HOWEVE R REVERSED THE ORDER OF THE LEARNED CIT(A) AND HELD THE INCOME TO BE INC OME FROM OTHER SOURCES. THE FACTS NOTED ABOVE THEREFORE CLEARLY SHOW THAT THE ASSESSEE HAS MADE A BONA FIDE CLAIM BEFORE THE AO THAT ITS I NCOME IS INCOME FROM BUSINESS BECAUSE LEASE RENTAL WAS EARNED ON ACCOUNT OF EXPLOITATION OF ITA NO.1656/AHD/2007 ITO VS M/S. WINFAB ENGINEERS 5 BUILDING PLANT AND MACHINERY THE PROJECT OF THE A SSESSEE WAS ALSO COMPLETE FOR THE PURPOSE OF PRODUCTION. THE EXPLANA TION OF THE ASSESSEE WAS NOT FOUND TO BE FALSE. IT IS NOT A CASE OF CONC EALING ANY PARTICULARS OF INCOME FROM THE REVENUE DEPARTMENT BECAUSE THE ASSE SSEE HAS DISCLOSED ALL THE FACTS AND MATERIAL IN THE RETURN OF INCOME AS WELL AS AT THE ASSESSMENT STAGE. IT IS A CASE OF MAKING A BONA FID E CLAIM WHETHER IT WAS INCOME FROM OTHER SOURCES OR INCOME FROM BUSINESS. THE EXPLANATION OF THE ASSESSEE WAS THUS ACCEPTABLE THAT IT WAS A BONA FIDE CLAIM MADE BY THE ASSESSEE FOR CLAIMING THE INCOME AS INCOME FROM BUSINESS. SINCE ALL THE PARTICULARS WERE DISCLOSED BEFORE THE AO AND TH E ISSUE WAS HIGHLY DEBATABLE WHETHER INCOME WAS TO BE TREATED FROM OTH ER SOURCES OR FROM BUSINESS INCOME WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE FOR HOLDING THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FILED INACCURATE PARTICULARS OF INCOME. 6. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC) HELD THAT A GLANCE AT THE PROVISIONS OF SECTION 271(1) (C ) OF THE INCOME-TAX ACT 1961 SUGGEST THAT IN ORDER TO BE COVERED BY IT THERE HAS TO BE CONCEALMENT OF PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS I NCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTION 2 71(1) ( C ) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURAT E THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PART ICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION THE PENALTY PROVISION CAN NOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORREC T CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETUR N FILED BY THE ASSESSEE BECAUSE THAT IS THE ONLY DOCUMENT WHERE T HE ASSESSEE ITA NO.1656/AHD/2007 ITO VS M/S. WINFAB ENGINEERS 6 CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUC H PARTICULARS ARE FOUND TO BE INACCURATE THE LIABILITY WOULD ARI SE. TO ATTRACT PENALTY THE DETAILS SUPPLIED IN THE RETURN MUST NO T BE ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY TH E ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE 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 NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RE TURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. DECISI ON OF THE GUJARAT HIGH COURT AFFIRMED. 7. THE HONBLE SUPREME COURT IN THE CASE OF M/S. RA JASTHAN SPINNING & WEAVING MILLS 2009 PIOL 63 SC HELD THAT ON EVERY DEMAND PENALTY IS NOT AUTOMATIC. HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS SAHABAD CO-OP. SUGAR MI LLS LTD. 322 ITR 73 (P&H) HELD THAT MAKING OF WRONG CLAIM IS NOT AT PAR WITH CONCEALMENT OR GIVING OF INACCURATE INFORMATION WHICH MAY CALL FO R LEVY OF PENALTY U/S 271 (1) ( C ) OF THE ACT. THE HONBLE PUNJAB & HARY ANA HIGH COURT AGAIN IN THE CASE OF CIT VS SIDHARTHA ENTERPRISES 322 ITR 80 (P & H) HELD THAT LOSS SUFFERED ON SALE OF MACHINERY WRONGLY TAKEN AG AINST PROFIT OF BUSINESS. ASSESSEE ON REALIZATION MISTAKE COMMITTED BY THE COUNSEL ACCEPTED THE DECISION OF THE AO. NO DELIBERATE DEFA ULT. APPELLATE AUTHORITIES JUSTIFIED IN DELETING THE PENALTY U/S 2 71 (1) ( C ) OF THE IT ACT. 8. CONSIDERING THE FACTS OF THE CASE AS NOTED ABOVE IN THE LIGHT OF THE ABOVE DECISIONS AND IN THE LIGHT OF THE FINDINGS OF THE LEARNED CIT(A) WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE FOR IMPOS ITION OF PENALTY. THE LEARNED CIT(A) HAS ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD ITA NO.1656/AHD/2007 ITO VS M/S. WINFAB ENGINEERS 7 RIGHTLY CANCELLED THE PENALTY U/S 271 (1) ( C ) OF THE IT ACT. WE ACCORDINGLY CONFIRM HIS FINDINGS AND DISMISS THE AP PEAL OF THE REVENUE. 9. AS A RESULT THE DEPARTMENTAL APPEAL IS DISMISSE D. ORDER PRONOUNCED ON 14-05-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 14-05-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD