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TMI Blog2008 (12) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts, the Assessing Officer observed that for the assessment year 1996-97 the assessee had debited a sum of Rs. 26,55,189 to the Profit and Loss Account on account of interest. Since there was no trading activity carried on by the assessee in the said year, the Assessing Officer felt that the claim made by the assessee was not justified. The assessee was confronted and a show-cause notice dated 26-1-1999 was issued to the assessee, requiring it to explain as to why the claim of interest amounting to Rs. 26,55,189 should not be disallowed. In response, the assessee informed the Assessing Officer that the assessee had acquired tenancy rights and other plant and machinery in the previous year, which ended on 31-3-1995, for the purchase of which the company had taken unsecured loans and incurred interest expenditure. It was also brought to the notice of the Assessing Officer that the assessee had entered into a Memorandum of Understanding with Mrs. R.K. Modi for acquisition of certain leasehold land in consideration of Rs. 1,30,00,000. It was pointed out, the MOU had been entered on 19-5-1994, the certificate under section 269UL(3) of the Income-tax Act, 1961, had been received on 19- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction even if the same had been utilised for acquisition of assets which may not have actually been used for the purpose of business in the relevant accounting year. The Assessing Officer was not satisfied. He accordingly disallowed the claim of the assessee and initiated penalty proceedings under section 271(1)( c ) of the Act. 4. On appeal, the CIT(A) confirmed the disallowance for both the assessment years. 5. Subsequently, the Tribunal has also confirmed the disallowance made by the Assessing Officer for both the assessment years in ITA No. 5618/Mum./1999 and ITA No. 3612/Mum./2001, order dated 17-2-2005. 6. The Assessing Officer has imposed the penalty under section 271(1)( c ) of the Act at Rs. 6,89,425 for assessment year 1996-97 and Rs. 9,12,585 for assessment year 1997-98. 7. The CIT(A) has confirmed the levy of penalty and the assessee is in appeal before us. 8. The learned counsel for the assessee contended before us that the penalty under section 271(1)( c ) in this case is not justified on the facts and in the circumstances of this case. The sum and substance of the contentions advanced on behalf of the assessee is as under : That the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee could not commence the development work, as a result of non-renewal of vendor s sub-lease, would not alter the nature of the transaction, i.e., the purchase of the property by the assessee for development. That the assessee had purchased the property with the sole intention of carrying on the business of developing it. The assessee had purchased the property with the borrowed funds and had also appointed architects for developing the same. Our attention was invited to the decision of the Tribunal in the quantum appeal, wherein it has been observed that the contentions raised by the appellant are theoretically correct; but they have confirmed the disallowance on the ground that even after expiry of ten years from the date of agreement, the development work has not been started. The learned counsel has pointed out that the Tribunal has passed the order on 17-2-2005, but the issue relates to the assessment year 1996-97 in respect of the property purchased in 1994. The assessee, at that time, could not have visualized that the development work could not be started for a period of ten or more years. Learned counsel further contended that the decision of the Tribunal has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to impose the penalty: (1) CIT v. Dharamchand L. Shah [1993] 204 ITR 462 (Bom.) (2) Gujarat Credit Corpn. Ltd. v. Asstt. CIT [2008] 113 ITD 113 (Ahd.) (SB) The learned counsel for the assessee had, in the written submissions, contended that it was necessary for the revenue to establish that the assessee had consciously concealed the income. However, in the course of hearing of this appeal, the learned counsel for the assessee fairly conceded that after the Larger Bench decision of the Hon ble Supreme Court in the case of Union of India v. Dharmendra Textile Processors [2008] 174 Taxman 571, its earlier decisions holding that mens rea was to be established in the case of penalty under section 271(1)( c ) no longer hold good. The learned counsel has fairly pleaded to ignore the contentions in regard to the mens rea. However, reliance has been placed on the decision of the Rajasthan High Court in the case of CIT v. Oriental Power Cable Ltd. [2008] 303 ITR 49, to support the contention that where the assessee was under a bona fide belief that the expenditure is an allowable deduction, penalty under section 271(1)( c ) cannot be levied on disallowance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing and therefore provisions of section 271(1)( c ) read with Explanation is attracted in this case. According to the learned DR, the penalty has rightly been imposed and is justified in the light of the latest decision of the Hon ble Supreme Court in the case of Dharmendra Textile Processors ( supra ). 10. We have given our careful consideration to the rival contentions. The issue involved in these appeals is relating to the validity of penalty imposed under section 271(1)( c ) of the Act. It would therefore be relevant to reproduce section 271(1)( c ), as applicable for the relevant assessment years, which reads as under : "271. (1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person : ( a )and ( b ) ****** ( c )has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, ( i )and ( ii )****** ( iii )in the cases referred to in clause ( c ), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishes that the explanation furnished was bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him, Explanation 1(B) will be inapplicable. In the present case, whether penalty under section 271(1)( c ) is attracted or not, it is necessary to find out the facts as clearly as possible as the law will take its course in the light of facts of a particular case. It is all the more necessary to dwell upon the facts of this case as during the course of hearing of the appeals certain facts have come to light, which are not indicated in the earlier orders. 11. The assessee is engaged in the business of trading in cloth, chemicals and shares. It is not disputed that the assessee was not engaged in the business of development of properties. In the previous year relevant to assessment year 1995-96, the assessee had entered into an agreement to buy leasehold property situated at Mahalaxmi, Mumbai, for the unexpired residue of the term granted by the indenture of sub-lease on 7-5-1985, for a lump sum consideration of Rs. 1,30,00,000. As per the agreement dated 19-5-1994 (copy of which is on record), between Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall give possession of the said property to the Purchaser at the time of completion of the sale by requiring the tenants to attorn to the Purchaser." 12. During the course of hearing of the appeal, the learned counsel for the assessee was specifically asked to clarify as to whether the assessee has executed any transfer/sale deed as indicated in clause 10 of the agreement. A letter dated 27-10-2008 has been filed, the contents of which are indicated hereunder : " Re : Agreement dated 19-5-1994 between Mrs. Roshan Kavasji Mody Erstwhile Agrata Exports Private Limited. With reference to the Agreement dated 19-5-1994 between Mrs. Roshan Kavasji Mody Erstwhile Agrata Exports Private Limited, this is to confirm that Sale Deed in respect of the property referred to in the said agreement has not yet been executed as vendors sub-lease has not been renewed. However possession of the property has already been taken." 13. There is no explanation, much less satisfactory explanation as to how the consideration of Rs. 1,30,00,000 was paid to the vendor without the execution of the sale deed and as to how and when the possession of the land was given to the assessee. To be fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 1,30,00,000 appears to have been paid as an advance for handing over the possession of the land (as already pointed out, there is no basis given as to how that amount had been paid to the vendor). It is evident from the evidence on record that the assessee was conscious of the fact that the expired sub-lease had not been renewed even at the time of making the payment. Therefore, the contention advanced on behalf of the assessee that the deduction on account of interest was claimed on the premise and assurance by the vendor that the sub-lease would be renewed, does not appear to be bona fide. The assessee has claimed deduction in respect of the proposed business, which could not be started until and unless the expired lease of the vendor had been renewed. The assessee was conscious of the impediment and the difficulty in starting the business. Therefore, to claim a deduction in respect of an expenditure, which was unrelated to the existing business of the assessee, cannot be said to be a bona fide claim. The decisions cited on behalf of the assessee that when land is purchased or even when development rights in the land are purchased, it can be said that the assessee has s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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