ACIT, New Delhi v. M/s Kanchenjunga Advertising (P) Ltd., New Delhi

ITA 81/DEL/2010 | 2000-2001
Pronouncement Date: 21-01-2011 | Result: Allowed

Appeal Details

RSA Number 8120114 RSA 2010
Assessee PAN AAACK0015C
Bench Delhi
Appeal Number ITA 81/DEL/2010
Duration Of Justice 1 year(s) 13 day(s)
Appellant ACIT, New Delhi
Respondent M/s Kanchenjunga Advertising (P) Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 21-01-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 21-01-2011
Date Of Final Hearing 03-01-2011
Next Hearing Date 03-01-2011
Assessment Year 2000-2001
Appeal Filed On 07-01-2010
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D NEW DELHI) BEFORE SHRI C.L. SETHI JUDICIAL MEMBER AND SHRI K. G. BANSAL ACCOUNTANT MEMBER ITA. NO.81/D/2010 ASSESSMENT YEAR : 2000-01 ASSTT. CIT VS. M/S KANCHENJUNGA ADVERTISIN G CENTRAL CIRCLE-12 (P) LTD. 5 GREEN AVENUE NEW DELHI VASANT KUNJ NEW DELHI PAN NO.AAACK 0015C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K. RAVI RAMA CHANDRAN SR.DR RESPONDENT BY: SHRI A.K. KHURANA CA ORDER PER K.G. BANSAL: AM: THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN ON 27.11.2000 DECLARING TOTAL INCOME OF `1 4 3 40 680/-. THE RETURN WAS PROCESSED U/S 143(1) ON 27.03.2002. THERE AFTER A CASE WAS PICKED UP FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) ON 27.11.2001. 1.1 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ADVERTISING AND FINANCING. IT WAS INTER ALIA FOUND THAT THE ASSESSEE H AD DEPOSITED A SUM OF `50 LAC AS SHARE APPLICATION MONEY WITH M/S DIME NSION INVESTMENTS & SECURITIES LIMITED. NO SHARE WAS ALLOTTED TO THE ASSESSEE COMPANY AND THEREFORE IT CONVERTED THE SHARE APPLICATION INTO THE LOAN. THE AFORESAID M/S DIMENSION INVESTMENTS & SECURITIES LIMITED DID NOT SEND ANY LETTER ETC. TO SHOW THAT IT AGREED WITH THE ASSESSEE AND ACKNOWLEDGED THE DEBT AS LOAN IN ANY MANNER WHATSOEVER. THE ASSESSEE WROTE OFF THIS AMOUNT FROM THE BOOKS AS BAD DEBT AND CLAIMED THE SUM AS DEDUCTION AGAINST THE BUSINESS INCOME. THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO HOW T HE AMOUNT IS 81-2010-KA-BANSAL 2 2 DEDUCTIBLE IN COMPUTING THE INCOME. THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD ARE REPRODUCED BELOW:- ON 05.07.1997 WE DEPOSITED `50 LACS ON ACCOUNT OF SHA RE APPLICATION MONEY IN M/S DIMENSION INVESTMENTS AND SECURITIES LIMITED NEW DELHI. SINCE EVEN AFTER ABO UT 9 MONTHS NO SHARES WERE ALLOTTED IN FAVOUR OF OUR COMPA NY WE TOOK UP THE MATTER WITH THE SAID COMPANY AS PER LE TTER DATED 6.7.98 (COPY PLACED BELOW) STATING THAT IN THE EVENT OF NON-ALLOTMENT OF THE SHARES WE HAD EXERCISED THE OPINION FOR CONVERSION OF THE SHARE MONEY INTO LOAN BEARING INTEREST @22% QUARTERLY COMPOUNDED. AFTER SEVERAL REMINDERS OVER THE PHONE AND IN PERSON SHRI UD EY DUTT DIRECTOR OF THE COMPANY MANAGING ITS AFFAIRS M ADE A PROMISE THAT THE SHARES WOULD BE LISTED BEFORE JUNE 99 IN PROMINENT STOCK EXCHANGES AND THERE WAS A LIKELIHOOD O F SHARES FETCHING VERY HIGH PRICES AND THAT HE WOULD HIM SELF HELP US IN THE MATTER BY DISPOSING OF ALL THE SHARES. MORE THAN 8 MONTHS HAVE PASSED BUT THE DIRECTOR HAS NOT BEE N ABLE TO KEEP UP HIS PROMISE. WE CONSULTED OUR LEGAL ADVISOR MR. S.K. DHAMIJA ADVOCATE MOU. HE HAS ADVISE D US TO MAKE FURTHER EFFORTS TO GET AN ACKNOWLEDGMENT O F THE DEBT ARISING FROM THE NON-ALLOTMENT OF THE SHARE APPLICATION MONEY WHICH AUTOMATICALLY GETS CONVERTED CARRYING INTEREST ON QUARTERLY COMPOUNDED BASIS ETC. BEFORE WE THINK OF FILING A SUIT FOR RECOVERY IN ANY COURT OF LAW. 1.2 THE ASSESSING OFFICER CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND EXAMINED THEM FROM VARIOUS ANGLES. IT IS MEN TIONED THAT THE AMOUNT WAS NOT TAKEN INTO ACCOUNT FOR COMPU TING THE INCOME OF THE ASSESSEE OF THIS YEAR OR AN EARLIER YEAR. THEREF ORE THE AMOUNT IS NOT DEDUCTIBLE AS BAD DEBT. IN ANY CASE IT IS THE SUBMISSION OF THE ASSESSEE THAT M/S DIMENSION INVESTMENTS & SECURITIES LIMITE D HAS NOT ACKNOWLEDGED THE DEPOSIT AS DEBT. THEREFORE THE AMO UNT CANNOT BE TERMED AS BAD DEBT. THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF BUYING AND SELLING SHARES. THE AFORESAID DEPOSIT WAS MAD E WITH A VIEW TO GET THE SHARES ALLOTTED. THEREFORE THE AMOUNT I S NOT DEDUCTIBLE FOR COMPUTING THE INCOME U/S 28 OR 29. THE ASSESSEE HAS ALSO NOT BEEN ALLOTTED THE SHARES. THEREFORE THERE IS NO QUESTION O F TRANSFER OF ANY 81-2010-KA-BANSAL 3 3 ASSET LEADING TO CAPITAL LOSS. IN VIEW OF THESE FINDING S THE CLAIM OF `50 LACS WAS DISALLOWED AND THE TOTAL INCOME WAS COMPUTED A T `1 93 40 680/-. PENALTY PROCEEDINGS WERE INITIATED U/S 271(1)(C) OF THE ACT. THESE PROCEEDINGS WERE COMPLETED ON 26.09.2008 BY LEVYING THE MINIMUM PENALTY OF `19.25 LACS. IT WAS SUBMITTED BEF ORE HIM THAT THE AMOUNT WAS CLAIMED AS BAD DEBT WITH A BONA FIDE BELI EF THAT IT IS ALLOWABLE AS BUSINESS EXPENDITURE. THE ASSESSING OFFICER D ID NOT ACCEPT THE EXPLANATION TO BE A BONA FIDE EXPLANATIO N UNDER EXPLANATION 1 TO 271 (1)(C). THUS THE PENALTY WAS L EVIED. 1.3 AGGRIEVED BY THIS ORDER THE ASSESSEE MOVED AN APP EAL BEFORE THE CIT(A)-I NEW DELHI WHO DISPOSED OFF THE SAME ON 30.10.2009 IN APPEAL NO.13/08-09. HE DELETED THE PENALTY BY OBSER VING THAT THE EXPLANATION TENDERED BY THE ASSESSEE IS BONA FIDE AND AL L FACTS WITH REGARD TO THE TRANSACTION WERE DULY DISCLOSED IN THE RETURN OF INCOME. ON THE OTHER HAND THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO ESTABLISH THAT IT HAD MADE FALSE CLAIM OR INFLATED CLAIM. THEREFORE IT IS A CASE OF BONA FIDE DIFFERENCE OF OP INION BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER. 1.4 AGGRIEVED BY THIS ORDER THE REVENUE IS IN APPEAL BEFORE US. THREE GROUNDS HAVE BEEN TAKEN IN APPEAL. GROUND NO. 2 PROJECTS THE REAL GRIEVANCE OF THE REVENUE THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN DELETING THE PENALTY OF `19.25 LACS IMPOSED BY THE ASSESSING OFFICER. 2. BEFORE US THE CASE OF THE LEARNED DR IS THAT CONV ERSION OF DEPOSIT FOR ALLOTMENT OF SHARES INTO LOAN WITHOUT CONC URRENCE OF THE AFORESAID M/S DIMENSION INVESTMENTS & SECURITIES LIMITED WAS A DEVICE EMPLOYED BY THE ASSESSEE TO CLAIM THE DEDUCTION OF `50/- LACS IN COMPUTING THE INCOME. BUT FOR THIS THE ASSESSEE COU LD NOT HAVE CLAIMED THE DEDUCTION FROM THE BUSINESS INCOME. THUS IT IS A CASE OF 81-2010-KA-BANSAL 4 4 A DELIBERATE FALSE CLAIM MADE BY THE ASSESSEE. IN THIS C ONNECTION HE REFERRED TO PARA NO.13 OF THE ORDER OF THE TRIBUNAL IN QUANTUM APPEAL IN WHICH THE DISALLOWANCE WAS UPHELD BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF A.V. THOMAS AND COMPANY LIMITED VS. ACIT 48 ITR 67; CIT VS. ABDULLAH ABDULKAD AR 41 ITR 445; AND AMARCHAND SOBHACHAND VS. CIT 82 ITR 591. THIS PA RAGRAPH IS REPRODUCED BELOW:- LOOKING INTO THE FACTS OF THE CASE IN THE LIGHT OF D ECISIONS OF HONBLE SUPREME COURT REFERRED TO ABOVE WE FIND THAT ASSESSEE HAD DEPOSITED MONEY FOR ALLOTMENT OF SHARES. THE SHARE APPLICATION MONEY DEPOSITED WAS NOT CONVERTE D INTO THE LOAN AS M/S DIMENSION INVESTMENT & SECURITIES L TD. NEVER AGREED FOR SUCH CONVERSION INTO LOAN. THE ASSESSEE DEPOSITED THE AMOUNT OF `50 LACS TO ACQUIRE A CAPITAL ASSET. THE AMOUNT WAS NEITHER DEPOSITED IN THE COURSE O F THE BUSINESS OF ADVERTISING AND FINANCING NOR IN THE ORDINARY COURSE OF MONEY LENDING BUSINESS. THE ACCOUNTING ENTRIES MADE BY ASSESSEE WITHOUT CONSENT OF OTHER PARTY CANNOT CHANGE THE CHARACTER OF SHARE APPLICATION MONEY INTO A LOAN SO AS TO FALL WITHIN T HE MONEY LENDING BUSINESS CARRIED ON BY THE ASSESSEE. THUS THE ASSESSEE IS DIRECTLY COVERED BY THE DECISION OF HONB LE SUPREME COURT IN THE CASES OF A.V. THOMAS & CO. LTD. V S. CIT 48 ITR 67 (SUPREME COURT) CIT VS. ABDULLABHAI ABDULKADAR 41 ITR 445 (SUPREME COURT) AND AMARCHA ND SOBHACHAND VS. CIT 82 ITR 591 SUPREME COURT). SINC E THE ISSUE IS DIRECTLY COVERED BY THE DECISIONS OF HONBLE SUPREME COURT REFERRED TO ABOVE RESPECTFULLY FOLLOW ING THE PRECEDENTS WE HOLD THAT THE AMOUNT OF `50 00 000/- CANNOT BE TREATED AS A PROPER DEBT OF REVENUE NATURE OR INCURRED IN THE ORDINARY COURSE OF MONEY LENDING BUSI NESS CARRIED ON BY THE ASSESSEE WHICH COULD BE ALLOWED AS BA D DEBT UNDER SECTION 36(1)(VII) OF THE ACT. 3. IT IS ARGUED THAT SINCE THE CONVERSION WAS MADE WITH OUT OBTAINING THE PERMISSION OF THE AFORESAID M/S DIMENSION INVESTMENTS & SECURITIES LIMITED AND THERE IS NO PROVISION IN THE CO MPANY ACT TO CONVERT SHARE APPLICATION MONEY INTO DEBT THE ACT WAS MALAFIDE AND THEREFORE THE ASSESSEE IS LIABLE TO BE PENALIZED U/S 271 (1)(C). IN ORDER 81-2010-KA-BANSAL 5 5 TO SUPPORT THIS CASE RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF CIT VS. ZOOM COMMUNICATION (P) LTD. (2010) 32 7 ITR 510 (DELHI); CIT VS. ESCORTS FINANCE LTD. (2010) 328 ITR 4 4 (DELHI); CIT VS. IFCI LTD. (2010) 328 ITR 611 (DELHI); DEVSONS (P) LTD . VS. CIT (2010) 322 ITR 158 (SUPREME COURT). 4. IN REPLY THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER DID NOT RECORD ANY SATISFACTION WHILE I NITIATING THE PENALTY PROCEEDINGS THEREFORE HE DID NOT PROPERLY ASSUME JURISDICTION TO LEVY THE PENALTY. IN THIS CONNECTION RELIANCE H AS BEEN PLACED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF M S. MADHUSHREE GUPTA (2009) 317 ITR 107. 4.1 IT IS ALSO HIS CASE THAT ALL THE FACTS HAD BEEN DISCL OSED BEFORE THE ASSESSING OFFICER. THE EXPLANATION OF THE ASSESSEE IS BONA FIDE. IN THIS CONNECTION HE RELIED ON THE DECISION IN THE CASE OF CIT VS. INDERSONS LEATHER (P) LIMITED (2010) 328 ITR 167 (P&H); CIT V S. SHAHABAD CO- OPERATIVE SUGAR MILLS LTD. (2010) 322 ITR 73 (P&H); AND CIT VS. VIJAY KUMAR JAIN (2010) 325 ITR 378 (CHHATISGARH). 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIO NS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE CLAIMED A DE DUCTION OF `50/- LAC IN COMPUTING THE BUSINESS INCOME. THIS AMOUNT WAS THE MONEY ADVANCED TO M/S DIMENSION INVESTMENTS & SECURITIES LIMIT ED FOR ALLOTMENT OF SHARES. IN THE COURSE OF ASSESSMENT PROCEEDI NGS A COPY OF THE LETTER ADDRESSED TO THE AFORESAID M/S DIMENSION INVESTMENTS & SECURITIES LIMITED ON 23.02.1998 WAS FILED IN WHICH IT IS MENTIONED THAT THE ASSESSEE HAD GIVEN A SUM OF `50/- LACS TO THIS CO MPANY ON 05.09.1997 AT THE RATE OF 22% PER ANNUM (QUARTER CO MMODITY BASIS) AS SHARE APPLICATION MONEY WITH AN OPTION TO RECALL I T BEFORE 31.03.1998. THIS OPTION IS BEING EXERCISED. M/S DI MENSION 81-2010-KA-BANSAL 6 6 INVESTMENTS & SECURITIES LIMITED WAS REQUESTED TO RETUR N THE FULL AMOUNT ALONGWITH INTEREST. ANOTHER LETTER DATED 06. 07.1998 WAS ALSO FILED BEFORE THE ASSESSING OFFICER WHICH IS IN THE NATU RE OF A CONFIRMATION LETTER TO BE SIGNED BY THE AFORESAID M/S DIMENSION INVESTMENTS & SECURITIES LIMITED WHO DID NOT SIGN IT. THUS THERE IS NO LETTER FROM THE DIMENSION INVESTMENT & SECURITIES LTD. TO SUPPORT THE CONTENTS OF ASSESSEES LETTER DATED 23.02.1998 OR 06.07. 1998. THE ANNUAL ACCOUNTS FOR THIS YEAR SHOW A SUM OF `2 7564 837 /- AS OTHER EXPENDITURE WHOSE DETAILS ARE FURNISHED IN SCHEDULE-1 0. THIS SCHEDULE SHOWS DEBT OF `2 38 32 391/-. NO FURTHER B EAK UP IS GIVEN. THUS IT CAN BE SAID THAT THE DETAILS WERE OBTAINED ON LY IN THE COURSE OF ASSESSMENT PROCEEDINGS. ON THESE FACTS THE QUESTION IS WH ETHER THE ASSESSEE IS LIABLE TO PENALTY OR NOT? 5.1 IN THE CASE OF ZOOM COMMUNICATION (P) LIMITED (S UPRA) THE ASSESSEE HAD CLAIMED INTER ALIA THE DEDUCTION OF INCOME -TAX. THE EXPLANATION OF THE ASSESSEE WAS THAT IT WAS A BONA-FIDE M ISTAKE. THE TRIBUNAL HELD THAT THE EXPLANATION IS BONA FIDE. IT HAS BEEN MENTIONED THAT NO REASON HAS BEEN ADVANCED AS TO WHY IT WAS NOT DETECTED BY THE PERSONS WHO CHECKED THE RETURN OF INCOME. THE DE CISION OF THE TRIBUNAL SUFFERS FROM THE VICE OF PERVERSITY AS A GENE RAL VIEW CANNOT BE TAKEN IN THE MATTER. IT CANNOT BE ACCEPTED THAT NO PERSON WOULD CLAIM DEDUCTION OF INCOME-TAX WITH A VIEW TO AVOID PAYMENT OF TAX. THE RATIO WHICH EMERGES FROM THIS CASE IS THAT A GENER AL VIEW CANNOT BE TAKEN WHILE WEIGHING THE EXPLANATION. IT IS THE EXPLANATION ON RECORD WHICH HAS TO BE TAKEN INTO CONSIDERATION IN TH E CONTEXT OF OVERALL FACTS TO FIND WHETHER IT IS BONA FIDE OR NOT. 5.2 IN THE CASE OF ESCORTS FINANCE LIMITED THE ASSESSEE H AD CLAIMED DEDUCTION U/S 35D. THE ARGUMENT OF THE LEARNED COUN SEL FOR THE REVENUE WAS THAT THE EXPLANATION OF THE ASSESSEE IS THAT THE CLAIM IS 81-2010-KA-BANSAL 7 7 BASED UPON ADVISE OF THE CHARTERED ACCOUNTANT FURNISHE D AT THE TIME OF THE PUBLIC ISSUE. THIS ADVICE COULD NOT BE THE BA SIS FOR FILING THE RETURN OF INCOME. THE DEDUCTION U/S 35D IS EX-FACIE INADMISSIBLE IN THE CASE OF A FINANCE COMPANY. THE HONBLE COURT AGREED WITH THESE CONTENTIONS AND WHILE DOING SO IT TOOK NOTE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHARM ENDRA TEXTILE PROCESSORS (2008) 306 ITR 277. THE RATIO OF THE CASE IS THAT IF THE CLAIM IS EX FACIE BOGUS THE ASSESSEE MAKES HIMSELF LIABLE FOR PENALTY. 5.3 COMING TO THE CASES RELIED UPON BY THE ASSESSEE THE FACTS IN THE CASE OF MS. MADHUSHREE GUPTA ARE THAT WHILE COMPLETING THE ASSESSMENT THE ASSESSING OFFICER DIRECTED INITIATION OF PE NALTY PROCEEDINGS. AFTER HEARING THE ASSESSEE PENALTY WAS LE VIED. IN THE WRIT PETITION THE ASSESSEE CHALLENGED INITIATION OF PE NALTY PROCEEDINGS. THE HONBLE COURT HELD THAT THE POSITION OF LAW BOTH PRE AND POST AMENDMENT IS SIMILAR INASMUCH AS THE ASSESSING OFFICER WILL HAVE TO ARRIVE AT A PRIMA FACIE SATISFACTION DURING THE COURSE OF ASSESSMENT PROCEEDINGS WITH REGARD TO THE ASSESSEE HAVING CONCEALED PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS BEFORE HE INITIATES PENALTY PROCEEDINGS. THIS SATISFACTION SHOULD BE DISCERN IBLE FROM THE ORDER PASSED DURING THE COURSE OF THE PROCEEDINGS. THE SATISFACTION NEED NOT REFLECT ALL ITEMS OF ADDITION OR DISALLOWANC E. HOWEVER THE ASSESSEE WOULD NOT BE DEBARRED FROM FURNISHING EVIDENCE TO REBUT THE PRIMA FACIE SATISFACTION OF THE ASSESSING OFFICER. IT MA Y BE MENTIONED HERE THAT IN REBUTTAL THE REVENUE RELIED ON THE DE CISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ECS LTD. (20 10) 194 TAXMAN 311. IN THIS JUDGMENT IT HAS BEEN HELD THAT THE NET EFFECT OF THE AMENDMENT AS READ IN THE LIGHT OF THE DECISION IN THE CASE OF MS. MADHUSHREE GUPTA IS THAT EVEN WHEN THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION IN EXPLICIT TERM THE ASSESSMENT ORDER SHOULD INDICATE THAT THE ASSESSING OFFICER HAS ARRIVED AT SUCH A SATISFACTION. 81-2010-KA-BANSAL 8 8 5.4 WE MAY NOW DISCUSS THE CASES RELIED UPON BY THE LEAR NED COUNSEL IN RESPECT OF MERITS OF THE LEVY OF THE PENALT Y. IN THE CASE OF IFCI LIMITED THE FACTS ARE THAT THE ASSESSEE HAD CLAIME D LOSS OCCURRING TO IT IN COMPUTATION OF ITS TOTAL INCOME. IT WAS URG ED THAT ALL THE FACTS HAD BEEN DISCLOSED IN THE RETURN. THEREFORE IT COUL D NOT BE TREATED TO BE A CASE OF CONCEALMENT OF INCOME. THE HONBLE COU RT MENTIONED THAT THE ASSESSEE HAD FILED THE RETURN AND FURNISHED AL L PARTICULARS. THE ASSESSEE HAD EXPLAINED THAT INVESTMENTS WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT AND WERE CLAIMED AS DEDUCTION ON ACC OUNT OF LOSS OCCURRED TO THE ASSESSEE. THE TRIBUNAL RETURNED A FIN DING OF FACT THAT THERE HAS BEEN NO FURNISHING OF INACCURATE PARTICULAR S OF INCOME. THE HONBLE PUNJAB & HARYANA HIGH COURT AGREED WITH THE VIEW OF THE TRIBUNAL THAT IT IS A QUESTION OF FACT WHICH STANDS D ECIDED BY THE TRIBUNAL. NO QUESTION OF LAW ARISES FOR CONSIDERATION OF THE COURT. THE FACTS OF THIS CASE ARE DISTINGUISHABLE. THE ASSESSEE HAD DE CLARED ALL THE FACTS IN THE RETURN OF INCOME ALTHOUGH THE CLAI M WAS NOT ACCEPTED. IN THE CASE AT HAND THE ASSESSEE CONVERTED DEPOSIT INTO DEBT WITHOUT OBTAINING ANY CONSENT OR DENIAL OF THE DEBTOR AND CLAIMED DEDUCTION UNDER THE OVERALL HEAD BAD DEBTS THE FULL FACTS OF WHICH WERE NOT THERE IN THE RETURN OF INCOME. 5.5 IN THE CASE OF DEVSONS (P) LIMITED THE FACTS ARE T HAT THE ASSESSEE HAD DECLARED RECEIPTS OF `81 90 780/-. THE ASSESSI NG OFFICER COMPUTED THE RECEIPTS AT `1 17 39 415/- BY APPLYING THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE I.E. MER CANTILE METHOD OF ACCOUNTING. THUS ADDITION WAS MADE TO THE TOTAL INCOME. HE HAD ALSO ADDED A FURTHER SUM OF `36 17 979/- ON ACCOUNT O F UNCONFIRMED SUNDRY CREDITORS. FINALLY PENALTY OF `33 07 220/- WA S LEVIED. THE HONBLE COURT DELETED THE LEVY OF THE PENALTY. IT HAS BEEN MENTIONED THAT THE TRIBUNAL WAS NOT RIGHT IN LAW IN HOLDING TH AT THERE WAS A 81-2010-KA-BANSAL 9 9 CHANGE IN METHOD OF ACCOUNTING INTRODUCED BY THE ASSE SSEE WITHOUT ANY JUSTIFIABLE REASON. THE FURTHER FINDINGS THAT THE RE WAS NO EVIDENCE REGARDING THE PAYMENT OF `36 17 980/- BY THE ASSESSEE T O THE SUB CONTRACTOR IS ALSO PERVERSE. IN REGARD TO THE PENALTY THE FINDING OF THE TRIBUNAL WAS UPHELD. THE RATIO WHICH CAN BE CULLED OUT IS THAT PENALTY CANNOT BE LEVIED WHERE THERE IS A BONA FIDE DIFFEREN CE OF OPINION BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER REGARDING M ETHOD OF ACCOUNTING. IN OTHER WORDS THE WHOLE QUESTION TURNS ON THE BONA FIDE OF THE EXPLANATION. 5.6 IN THE CASE OF VIJAY KUMAR JAIN THE HONBLE CHH ATISGARH HIGH COURT MENTIONED THAT IT IS NOT THE CASE OF THE REVENU E THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR ANY PARTICULAR OF INCOME WAS FOUND TO BE INACCURATE BY THE ASSESSING OFFIC ER. IT IS MERELY A CASE OF ESTIMATING THE RATE OF PROFIT. NO P ENALTY CAN BE LEVIED IN SUCH A CASE. THE FACTS OF THIS CASE ARE DISTINGUISHABL E INASMUCH AS THE INCOME OF THE ASSESSEE HAD BEEN ESTIMATED WHILE IN THE CASE AT HAND WE ARE DEALING WITH EXACT QUANTIFICATION OF IN COME IN WHICH A CLAIM HAS BEEN HELD TO BE MADE FALSELY. 5.7 IN THE CASE OF INDERSONS LEATHER (P) LIMITED DECI DED BY THE HONBLE (P&H) HIGH COURT THE QUESTION WAS-WHETHER R ENT RECEIVED FROM HOUSE PROPERTY WAS BUSINESS INCOME OR PROPERTY INCO ME? THE HONBLE COURT HELD THAT THE TRIBUNAL RIGHTLY CAME T O THE CONCLUSION THAT THE ASSESSEE CANNOT BE FOUND GUILTY OF CONCEALMENT OF I NCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME IN RESPECT OF A DEBATABLE ISSUE. THE FACTS OF THIS CASE ARE ALSO DISTINGUISHABLE A S THIS CASE INVOLVED DISPUTABLE QUESTION REGARDING HEAD OF INCOME . 6. WE MAY NOW DECIDE THE ISSUES BEFORE US IN THE LIGHT OF FACTS AND CASES MENTIONED ABOVE. 81-2010-KA-BANSAL 10 10 6.1 IT IS SEEN THAT THE ASSESSING OFFICER ELABORATELY EXA MINED THE CLAIM OF THE RIGHT OFF OF A SUM OF `50/- LAC MADE BY THE ASSESSEE UNDER THE HEAD BAD DEBT. IT IS SPECIFICALLY MENTIONED TH AT THE DIMENSION NEVER ACKNOWLEDGE THE DEBT AND THEREFORE THERE CO ULD BE NO QUESTION OF THE AMOUNT BEING BAD DEBT. IN FACT NO LETTER IS AVAILABLE FROM THIS PARTY. IT IS FURTHER MENTIONED THAT THE ASSESSEE IS NOT C ARRYING ON THE BUSINESS OF DEALING IN SHARES. THE ADVANCE WAS ON CAPITA L ACCOUNT. THEREFORE IT COULD NOT BE DEDUCTED U/S 28 & 29 AS AL TERNATIVELY CLAIMED BY THE ASSESSEE. IT IS ALSO MENTIONED THAT THE ASSESSEE DID NOT ACQUIRE ANY ASSET AND THUS DID NOT TRANSFER ANY A SSET LEADING TO LOSS BEING COMPUTED UNDER THE HEAD CAPITAL GAINS. T HEREFORE THE CLAIM OF THE ASSESSEE HAS BEEN NEGATIVED ON ALL ACCOUNT S WHICH ACCORDING TO US AMOUNTS TO RECORDING SATISFACTION AS ENV ISAGED IN THE CASE OF ECS LIMITED. THEREFORE THE ARGUMENT OF THE LEARNED COUNSEL IN THIS BEHALF IS DISMISSED. 6.2 COMING TO THE MERITS OF THE CASE THE ASSESSEE HAD NO T MADE FULL DISCLOSURE IN THE RETURN OF INCOME BY GIVING UP BREAK UP OF THE DEBTS AND THE NATURE THEREOF. THUS AT THE TIME OF FILING THE RETURN AND ITS PROCESSING THE NATURE OF THE AMOUNT OF `50/- LACS WAS NOT KNOWN TO THE ASSESSING OFFICER. THE ASSESSEE HAS RELIED ON LETTER DA TED 23.02.1998 IN WHICH IT INTIMATED M/S DIMENSION INVEST MENTS & SECURITIES LIMITED THAT THE INVESTMENT IS RECALLED AND REQUESTED IT TO PAY THE AMOUNT WITH INTEREST OF `22/-% PER ANNUM. T HERE IS NO BASIS AVAILABLE ON RECORD FOR WRITING THIS LETTER AND THER E IS ALSO NO REPLY. THE ACCOUNT PREPARED THEREAFTER FOR CONFIRMATION HA S ALSO NOT BEEN SIGNED BY M/S DIMENSION INVESTMENTS & SECURITIES LIMITED . IN THE EXPLANATION THE ASSESSEE HAS MENTIONED ABOUT THE LEGAL ADVICE. SUCH ADVICE HAS NOT BEEN PLACED ON RECORD BEFORE THE ASSE SSING OFFICER THE LEARNED CIT(A) OR US. THEREFORE THE EXPLANATION IS NOT SUPPORTED BY 81-2010-KA-BANSAL 11 11 ANY FACT ON RECORD. ACCORDINGLY IT IS HELD THAT TH E CONVERSION WAS IN THE NATURE OF A DEVICE TO MAKE A CLAIM OF DEDUCTION WHICH WAS NOT OTHERWISE ADMISSIBLE TO THE ASSESSEE. 6.3 THE PENALTY CAN BE LEVIED WHEN INCOME IS CONCEAL ED. AN EXAMPLE COULD BE WHERE A PART OF THE INCOME FROM A DECLARED SOURCE IS NOT SHOWN IN THE RETURN. PENALTY CAN ALSO BE LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THIS MAY BE ILLUSTR ATED WITH THE EXAMPLE WHERE INCOME IS SHOWN AS AGRICULTURAL INCOME O R GIFT. THE CHARGE OF FURNISHING INACCURATE PARTICULARS OF INCOME ALSO ARISES UNDER EXPLANATION 1 WHERE THE EXPLANATION FURNISHED BY TH E ASSESSEE IN RESPECT OF AN ADDITION MADE IS NOT BONA FIDE. THERE COULD BE CASES WHERE THERE IS A LEGITIMATE DIFFERENCE OF OPINION IN RESPECT OF CLAIM IF IT IS SO SHOWN THE CASE WILL GO OUT OF THE AMBIT OF T HE EXPLANATION. HOWEVER WHERE THE EXPLANATION IS NOT BONA FIDE THE PENALTY CAN STILL BE LEVIED AS HELD IN THE CASE OF DHARMENDRA TEXTILE P ROCESSERS LIMITED. FURTHER THE HONBLE DELHI HIGH COURT HAS HELD THAT WHERE THE CLAIM IS EX-FACIE BOGUS AND EXPLANATION IS NOT BONA FIDE THE ASSESSEE MAKES HIMSELF LIABLE TO THE PENALTY. THUS PENALTY HAS BEEN LEVIED IN RESPECT OF DEDUCTION OF INCOME-TAX CLAIM U/S 35D ETC. ACCO RDING TO US THE CASE OF THE ASSESSEE STANDS ON WORSE FOOTING THAN SUCH CASE S BECAUSE ITS CLAIM IS BASED ON A DEVICE FORMED TO MISLEAD THE ASSE SSING OFFICER. FURTHER FULL FACTS REGARDING THE CLAIM WERE NOT FUR NISHED IN THE RETURN OF INCOME. ACCORDINGLY WE ARE OF THE VIEW THAT TH E RATIO IN THE CASE OF ESCORTS FINANCE LIMITED AND ZOOM COMMUNICATION PRIVA TE LIMITED IS APPLICABLE TO THE FACTS OF THE CASE. IN OUR HUMBLE O PINION THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PET RO PRODUCTS PRIVATE LIMITED DOES NOT ADVANCE THE CASE OF THE ASSESSEE BECAUSE OF THE DETAILS HAVE NOT BEEN FURNISHED IN THE RETURN OF INCOME AND THE CASE INVOLVES USE OF A DEVICE. AT THE SAME TIME WE AR E OF THE VIEW THAT THE DECISION OF EXTRA JURISDICTIONAL HIGH COURT IN THE CASE OF 81-2010-KA-BANSAL 12 12 INDERSONS LEATHER PRIVATE LIMITED AND VIJAY KUMAR JA IN IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. THE RATIO OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF IFCI LIMITED IS ALSO NOT AP PLICABLE FOR THE REASON MENTIONED ABOVE AND THE FACTS OF THE CASE OF DEVSONS PRIVATE LIMITED ARE COMPLETELY DISTINGUISHABLE. THUS WE ARE OF THE VIEW THAT IT IS A FIT CASE FOR LEVY OF PENALTY. 7. IN RESULT THE APPEAL IS ALLOWED. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 21.01.2011 . SD/- SD/- ( C.L. SETHI ) ( K.G. BANSA L ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT.21.01.2011. NS COPY FORWARDED TO:- 1. ASSTT. CIT CENTRAL CIRCLE-12 NEW DELHI. 2. M/S KANCHENJUNGA ADVERTISING (P) LTD. 5 GREEN AVENU E VASANT KUNJ NEW DELHI. 3. THE CIT 4. THE CIT (A) NEW DELHI. 5. THE DR ITAT LOKNAYAK BHAWAN KHAN MARKET NEW DEL HI. TRUE COPY BY ORDER (ITAT NEW DELHI).