ACIT, New Delhi v. M/s. Krishna Maruti Ltd., New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO.923/DEL./2010 (ASSESSMENT YEAR : 2004-05) ACIT CIRCLE 5 (1) VS. M/S. KRISHNA MARUTI LIMI TED NEW DELHI. B 5 CHIRAG ENCLAVE NEW DELHI. (PAN : AAAK1316N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMARJEET SINGH CA REVENUE BY : SHRI K. RAVI RANA CHANDRAN DR ORDER PER B.C. MEENA ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE ARISING OUT OF THE ORDER OF CIT (APPEALS)-VIII NEW DELHI DATED 28.1.2010. THE GR OUNDS OF APPEAL READ AS UNDER :- 1. THE ORDER OF THE LD. CIT (A) IS ERRONEOUS AND C ONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT (A) HAS ERRED IN DELETING THE PENALTY OF RS .8 50 000/- LEVIED BY THE A.O. U/S 271(1)(C) OF THE I.T. ACT. 3. THE LD. CIT (A) IGNORED THE FACT THAT THE ASSESS EE FURNISHED INACCURATE PARTICULARS OF ITS INCOME BY C LAIMING SOFTWARE DEVELOPMENT EXPENSES AS REVENUE EXPENSES A ND BY CLAIMING BOGUS CLAIM ON ACCOUNT OF DONATION. ITA NO.923/DEL./2010 2 4. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUND OF THE APPEAL RAISED ABOUT AT THE TIME OF TH E HEARING. 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE DEVELOP IMPORT BUY SELL (ON INSTALMENT HIRE PUR CHASE OR OTHER BASIS) DISTRIBUTE REPAIR CONVERT ALTER LET ON HIRE AND OTHERWISE DEAL IN SEATS FOR AUTOMOBILES AND OTHER APPLICATIONS AND OTHER SIMILA R ARTICLES PRODUCTS AND DEVICES AND THEIR ACCESSORIES STORES SPARES PARTS COMPONENTS AND ASSEMBLIES APPARATUS APPLIANCES AND GADGETS USED F OR OR IN CONNECTION THEREWITH. TO DESIGN DEVELOP MANUFACTURE ASSEMB LE TEST IMPORT EXPORT BUY SELL DISTRIBUTE SERVICE REPAIR DEAL AND TRADE IN CASTING FORGING AND STEEL OF ALL KIND OF AUTOMOBILE SEAT AND OTHER COMPONENTS . 3. THE ASSESSING OFFICER EXAMINED THE CLAIM OF EXPE NSES DEBITED RELATING TO SOFTWARE DEVELOPMENT OF RS.50 71 000/- AND ALSO DONATIONS & OTHER SUBSCRIPTION OF RS.2 03 150/-. THE ASSESSING OFFIC ER DID NOT FIND THE EXPLANATION FURNISHED BY THE ASSESSEE AS SATISFACTO RY AND DISALLOWED THE CLAIM TREATING THE SAME AS CAPITAL EXPENDITURE. THE CIT (A) ALSO TREATED THE SAME AS CAPITAL EXPENDITURE BUT ALLOWED THE DEPRECIATION ON THE SOFTWARE DEVELOPMENT EXPENSES. IN RESPECT OF DISALLOWANCE OF RS.2 03 15 0/- BEING DONATION/SUBSCRIPTION THE CIT (A) CONFIRMED THE AD DITION AND ASSESSEE DID NOT COME UP IN APPEAL AGAINST THE CIT (A)S ORDER O N BOTH THE ISSUES. ITA NO.923/DEL./2010 3 4. THE PENALTY PROCEEDINGS INITIATED BY ISSUING A N OTICE U/S 274 READ WITH SECTION 271 OF THE INCOME-TAX ACT ON 26.12.2006. A FTER CONSIDERING THE REPLY OF THE ASSESSEE THE ASSESSING OFFICER LEVIED THE P ENALTY. 5. CIT (A) DELETED THE PENALTY BY HOLDING AS UNDER :- 3.3 THUS IN THE LIGHT OF AFORESAID STATUTORY PROV ISIONS CONTAINED IN SECTION 271(1)(C) OF THE ACT AND DETAI LED INTERPRETATION BY THE HON'BLE ITAT AS TO THE REAL I MPORT OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F DHARMENDRA TEXTILE PROCESSORS I FIND MYSELF IN AGR EEMENT WITH THE LD. COUNSEL OF THE APPELLANT THAT NEITHER ANY PARTICULARS OF INCOME/MATERIAL FACTS WERE CONCEALED NOR ANY INACCURATE PARTICULARS THEREOF WERE FURNISHED BY TH E APPELLANT COMPANY. I HAVE ALREADY EXPRESSED MY VIEWS IN RELA TION TO EXPENSES CLAIMED ON ACCOUNT OF DONATION/SUBSCRIPTIO NS AND AS REGARDS SOFTWARE DEVELOPMENT EXPENSES ALSO I AM NO T AGREEMENT WITH THE LD. AO. THERE IS NO DENYING THE FACT THAT THE APPELLANT COMPANY HAD ACTUALLY INCURRED A SUM O F RS.50 71 000/- ON ACQUISITION OF SOFTWARE AND THE S AME WAS ALSO PUT TO USE DURING THE YEAR UNDER CONSIDERATION . THEREFORE THERE WAS NEITHER ANY CONCEALMENT NOR INACCURATE FU RNISHING OF PARTICULARS SO FAR AS THE INCURRING OF EXPENDITURE IS CONCERNED. NOW THE DIFFERENCE BETWEEN THE DEPARTMENT AND THE APPELLANT IS WITH RESPECT TO THE NATURE OF EXPENDITURE INCURR ED BY THE ASSESSEE COMPANY. IT IS A MATTER OF COMMON KNOWLED GE THAT THE ISSUE IN QUESTION HAS BEEN A BOND OF CONTENTION /SUBJECT MATTER OF DETAILED INTERPRETATION BY DIFFERENT FORU MS AND THERE WAS/STILL THERE IS NO CONSENSUS AS TO HOW THE EXPEN DITURE ON ACQUISITION OF SOFTWARE HAS TO BE TREATED EVEN AFTE R THE SAME HAD BEEN CLASSIFIED AS PLANT W.E.F. 01-04-2003. IT IS FOR THIS REASON ONLY THAT THE HON'BLE PRESIDENT ITAT HAD TO CONSTI TUTE A SPECIAL BENCH OF ITAT DELHI IN THE CASE OF AMWAY INDIA ENT ERPRISE VS. DCIT TO DELIBERATE UPON AND DECIDE THE ISSUE IN QUESTION. AFTER LONG DRAWN ARGUMENTS AND DETAILED DISCUSSIONS THE MATTER WAS DECIDED BY THE HON'BLE ITAT ONLY IN THE YEAR 20 08 AS REPORTED IN 301 ITR (AT) 1. IN THESE CIRCUMSTANCES WHEN THE AUTHORITIES RESPONSIBLE FOR/SHOULDERING THE RESPONS IBILITY OF DECIDING COMPLEX ISSUES WERE THEMSELVES NOT UNANIMO US AS TO THE ACTUAL NATURE90 OF EXPENDITURE INCURRED IN CONN ECTION WITH ITA NO.923/DEL./2010 4 ACQUISITION OF COMPUTE SOFTWARE IT CAN NOT BE SAID /HELD THAT THE MANAGEMENT OF THE APPELLANT COMPANY WAS KNOWING FOR SURE THAT THE EXPENDITURE IN QUESTION WAS OF CAPITAL NAT URE AND STILL CHOSE TO CLAIM THE SAME AS REVENUE EXPENDITURE. TH EREFORE IN MY OPINION THE LD.AO HAS NOT MADE OUT A CASE FOR IM POSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. ACC ORDINGLY THE PENALTY OF RS.8 50 000/- IS HEREBY CANCELLED. 6. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESS ING OFFICER AND ALSO PLEADED THAT FOR LEVYING THE PENALTY THE MENS REA IS NOT TO BE PROVED. THE ASSESSEE HAS MADE A CLAIM IN THE FORM OF REVENUE EX PENSES WHICH HAS NOT BEEN FOUND IN ORDER. AS PER THE PROVISIONS OF LAW THE SOFTWARE DEVELOPMENT EXPENDITURE WAS TO BE TREATED AS CAPITAL WHILE THE ASSESSEE HAS CLAIMED IT AS A REVENUE EXPENDITURE. SIMILARLY THE DONATIONS MADE WERE ALSO NOT ALLOWABLE AS PER LAW. THE ASSESSEE HAS MADE THE CLAIM WHICH HAS BEEN NOT ACCEPTED AND ADDITIONS WERE MADE. THUS IT IS CLEAR THAT THE AS SESSEE HAS FAILED TO SUBSTANTIATE ITS CLAIM. THE FAILURE ON THE PART OF THE ASSESSEE TO EXPLAIN AND SUSTAIN THE CLAIM MADE IN THE RETURN OF INCOME THE PENALTY IS LEVIABLE. THE CLAIM WHICH IS BEING INCORRECT IN LAW CANNOT BE SAI D TO BE A BONAFIDE CLAIM. A WHOLLY UNTENABLE CLAIM IN LAW WILL DEFINITELY ATT RACT THE PENALTY IN VIEW OF THE DECISION OF HUMBLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. ZOOM COMMUNICATION PVT. LTD. 2010-TIOL-361-HIGH CO URT-DEL-IT AND CIT VS. ESCORTS FINANCE LIMITED (2010) 328 ITR 44. 7. LEARNED AR FOR THE ASSESSEE HEAVILY RELIED ON TH E ORDER OF CIT (A) AND PLEADED THAT THE EXPLANATION IN RESPECT OF DONATION S FURNISHED BY THE ASSESSEE ITA NO.923/DEL./2010 5 WAS NOT FOUND FALSE. IN RESPECT OF THE SOFTWARE DE VELOPMENT EXPENSES THE CIT (A) HAS GRANTED THE DEPRECIATION @ 60% IN THE Y EAR UNDER CONSIDERATION. THEREFORE THE EXPLANATION FURNISHED BY THE ASSESSE E WAS NOT FALSE. THE CLAIM OF THE ASSESSEE WAS NOT LACKING BONAFIDES. THE ASS ESSEE DID NOT INDULGE IN THE LITIGATION. THE ASSESSEE COMPANY COULD NOT BE HELD RESPONSIBLE FOR EITHER FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF FACTS. THERE IS NO MENS REA ON THE PART OF THE ASSESSEE AND HE HEAVILY RELI ED ON THE ORDER OF THE CIT (A). 8. AFTER HEARING BOTH THE SIDES AND CONSIDERING THE CASE LAWS RELIED UPON BY BOTH THE PARTIES WE ARE OF THE VIEW THAT THE AS SESSEE COMPANY ACTUALLY INCURRED EXPENSES OF RS.50 71 000/- OF THE ACQUISIT ION OF SOFTWARE AND SAME WAS USED DURING THE YEAR. THE BONE OF CONTENTION B ETWEEN THE DEPARTMENT AND THE ASSESSEE WAS REGARDING THE NATURE OF EXPEND ITURE. THE YEAR OF ASSESSMENT INVOLVED IS 2004-05 AND IN THE CASE OF A MWAY INDIA ENTERPRISES VS. DCIT HON'BLE ITAT DELIBERATED ON THE NATURE OF EXPENSE IN THE YEAR 2008 AND THE ORDER IS REPORTED IN 301 ITR (AT) 1. THERE FORE IT CANNOT BE SAID THAT THERE WAS A DELIBERATE AND CONSCIOUS ATTEMPT ON THE PART OF THE ASSESSEE TO DEBIT THE CAPITAL EXPENDITURE UNDER THE HEAD REVENU E AND TO REDUCE THE TAXABLE INCOME. KEEPING ALL THESE FACTS IN VIEW WE HOLD T HAT THE ASSESSEE WAS NOT LIABLE TO BE LEVIED PENALTY U/S 271(1)(C) IN RESPEC T OF THE EXPENDITURE INCURRED ON ACQUISITION OF SOFTWARE. HOWEVER THE ASSESSEE HAS DEBITED RS.2 03 150/- ITA NO.923/DEL./2010 6 AS DONATIONS AND THESE EXPENSES WERE CLUBBED UNDER THE HEAD MISC. EXPENSES. THE SAME WERE NOT REFLECTED IN THE BALANCE SHEET UN DER THE SEPARATE HEAD. ALTHOUGH THE AMOUNT INVOLVED WAS SMALL HOWEVER THE CLAIM MADE BY THE ASSESSEE WAS NOT BONAFIDE. IT CAN ALSO NOT BE SAID THAT THIS CLAIM WAS MADE DUE TO OVERSIGHT BECAUSE THE ACCOUNTS OF THE COMPAN Y WAS AUDITED BY THE AUDITORS AND THE ASSESSEE COMPANY IS EQUIPPED WITH THE TAX ADVISERS. VERY FEW INCOME-TAX RETURNS ARE SELECTED FOR SCRUTINY. NON-SUSTAINABLE CLAIMS CANNOT BE SAID AS BONAFIDE. PRIMA FACIE UNSUSTAINA BLE CLAIM MADE IN RETURN SHALL DEFINITELY INVITE THE PENALTY U/S 271(1)(C) O F THE INCOME-TAX ACT. IN OUR CONSIDERED VIEW THIS CLAIM WAS NOT EVEN DEBATABLE. IN VIEW OF THE MATTER CONSIDERING THE DECISIONS OF HON'BLE DELHI HIGH COU RT IN THE CASES OF CIT VS. ZOOM COMMUNICATION PVT. LTD. 2010-TIOL-361-HIGH COU RT-DEL-IT AND CIT VS. ESCORTS FINANCE LIMITED (2010) 328 ITR 44 WE HOLD THAT THE PENALTY U/S 271(1)(C) IS LEVIABLE ON THE BASELESS CLAIM MAD E IN RETURN IN RESPECT OF THE EXPENDITURE OF RS.2 03 150/-. 9. IN THE RESULT THE APPEAL OF THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 11 TH DAY OF FEBRUARY 2011. SD/- SD/- (I.P. BANSAL) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 11 TH DAY OF FEBRUARY 2011 TS ITA NO.923/DEL./2010 7 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-VIII NEW DELHI. 5.CIT(ITAT) NEW DELHI. AR ITAT NEW DELHI.