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TMI Blog2013 (9) TMI 901X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing the following substantial question of law was framed:- Whether the tribunal was justified in deleting penalty on additions made on account of loss of sale of investment and vehicles, which was wrongly claimed as business loss and expenditure disallowed under Section 43B of the Income Tax Act, 1961? As is apparent from the question, tribunal has allowed the appeal of the respondent assessee and deleted penalty under Section 271(1)(c) of the Income Tax Act, 1961 (Act, for short) 2. The respondent-assessee had filed its return of income declaring loss of Rs.13,65,54,483/- duly supported by audited accounts and this return was processed under Section 143(1) of the Act. Subsequently, re-assessment notice was issued after noticing that the assessee had claimed depreciation on plant and machinery though no manufacturing activity was conducted during the year under consideration and had wrongly claimed capital loss on sale of investments amounting to Rs.59,15,000/- as business loss. 3. In response to the notice under Section 148 of the Act, the respondent-assessee filed a letter dated 9th August, 2007 stating that their earlier return filed under Section 139 dated 31st Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would like to reproduce the exact words and reasoning given by the tribunal to delete the penalty:- 5. We have heard rival contentions and gone through the relevant material available on record. Apropos the issue of claim of depreciation, penalty imposed under similar facts and circumstances has been deleted by the ITAT in preceding year, as reproduced above. Respectfully following the same, the penalty qua the claim of depreciation is deleted. 5.1. Apropos long term capital gain on sale of investments and sale of vehicles, the fact that the assessee was allowed the claim of loss is not disputed. The only difference between assessee s claim and the assessed loss is the head of allowability of loss i.e. capital loss as against assessee s claim of business loss. In our view all the relevant details were filed by the assessee along with the return of income and a change in claim of head of income cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of such income. The assessee made a legal claim which was not found to be allowable by the Assessing Officer under the head business loss but the same was allowed as long term capital loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations and the contentions of the parties, for the sake of clarity, we would like to mention that during the re-assessment proceedings the respondent s loss was reduced by Rs.5,98,74,592/- on account of the following additions/disallowances:- 1. Depreciation on plant machinery Rs.89,95,173/- 2. Loss on sale of investments Rs.59,15,000/- 3. Loss on sale of vehicles Rs.1,27,900/- 4. Disallowance u/s 43B Rs.17,325/- 5. Disallowance u/s 43B Rs.4,48,19,194/- 9. We are in agreement with the learned counsel for the respondent that as far as claim for depreciation of plant and machinery is concerned. Claim of depreciation was a debatable issue. Passive use entitles an assessee to claim depreciation (see CIT versus Geo Tech Construction Corporation, [2000] 244 ITR 452 (Ker.) and Commissioner of Income Tax versus Refrigeration and Allied Industries Limited, [2001] 247 ITR 12). No manufacturing activities were conducted during the assessment year in question but the assessee had approached Board of Financial Reconstruction for rehabilitation of the company under the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice and the issue in question was complicated or required professional advice of a highly expert nature. Further, this is not the correct way of applying Explanation 1. In paragraph 5.5 it is recorded that one cannot be oblivious to the explanation and justification given by the assesse. Indeed one has to take into consideration the explanation and the justification given by the assessee but it cannot be accepted as bona fide and true on mere asking. Onus under Explanation 1 is on the assessee to prove the reason as to why a particular claim or deduction was made. The justification and cause shown should be bona fide and acceptable. Penalty cannot be deleted by merely recording the explanation, though not proved and established. It is not for the Revenue to show that the explanation offered is not false or bogus. 12. Learned counsel for the respondent referred to paragraph 5.3 of the impugned order and has stated that the revised return was prepared by the Chartered Accountant but due to dispute with regard to payment of professional fee with them, the same was not furnished. This explanation given by the assessee has been accepted by the tribunal but is on the face of it contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held as investment or as a capital asset. The assessee was not a trader in shares and the shares were not held as stock-in-trade. They were not part of the closing stock. It is only subsequently that the respondent-assessee filed a revised computation and accepted that the said loss was capital loss and not revenue loss. Revised computation was filed after contest and on being confronted by the Assessing Officer. The aforesaid reasoning will equally apply to the loss suffered on sale of vehicles. 14. Section 271(1)(c) of the Act as applicable has been considered and interpreted in several judgments of the Supreme Court and the Delhi High Court. The said Section is invoked when an assessee furnishes inaccurate particulars or conceals his income. Explanation 1 can come to the rescue of the assessee in case he had offered an explanation but was unable to substantiate it, provided he is able to establish that the explanation offered was bona fide and the facts relating to furnishing of inaccurate particulars and material for computation of total income were duly disclosed by him. In the present case, the assessee had furnished inaccurate particulars of income and this is estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the Income Tax Act. 16. Thus, penalty under Section 271(1)(c) is imposed when an assessee conceals his income or furnishes incorrect particulars. In terms of explanation I, we have to examine whether the case in question falls within the two limbs viz. clause (A) and (B) i.e. which of the two limbs and effect thereof. Clause (A) applies when an assessee fails to furnish explanation or when an explanation is found to be false. Clause (B) applies to cases where explanation is offered but the assessee is not able to substantiate the explanation. In such cases, we have to examine two conditions: (1) Whether the assessee has been able to show that his explanation was bonafide; (2) whether the assessee had furnished and disclosed facts and material relating to computation of his income. Onus of establishing that the assessee satisfies the two conditions is on the assessee. Both the conditions have to be satisfied. In case the assessee satisfies the twin condition, penalty should not be imposed. 17. On the second aspect, which relates to addition on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty cannot be imposed because an assessee has taken a particular legal stand. However, this does not mean that the assessees can claim wrong deductions or claim without any basis or foundation to justify the claim. False, spurious and mendacious claims do not fall in this class. 19. In the present case, the assessee is a company and the accounts were audited by Chartered Accountant. Difference between capital loss or revenue loss in some cases may be marginal and debatable, but in the present case, the assessee a manufacturing company had sold shares held by them as investment or as a capital asset. There was and could not have been any debate or plausible claim that the loss was a capital loss. Anyone remotely conversant with the provisions of the Act or accounts would know that loss on the sale of the investments cannot be booked and treated as a business loss, yet the respondent-assessee had booked the said loss as a business loss instead of a capital loss. This was contrary to elementary principles of accountancy and something which is very basic. Learned counsel for the respondent has emphasized that the figures, i.e., loss of Rs.59,15,000/- has not been disputed. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 148 of the Act was issued. Even at that time, the respondent-assessee did not accept the fault and in their letter dated 9th August, 2007 stated that the original return may be treated as filed in response to the reassessment notice. Objections to re-opening were raised and the stand and stance of the respondent-assessee changed when they were repeatedly confronted. It is not a case where the assessee suo motu on his own or on immediately noticing the wrong claim rectified or corrected the purported errors and understatements. It is only when the assessee was cornered and confronted by the Assessing Officer that the revised computation was filed. The revised computation was filed after the objections to the re-opening were dismissed by the Assessing Officer. 21. At this stage, we would like to notice and refer to the judgments relied by the counsel for the respondents in Commissioner of Income Tax, Lucknow versus Hari Om Ashok Kumar Sugar Works, (2007) 295 ITR 507 (Allahabad), Commissioner of Income Tax versus Sidhartha Enterprises, (2010) 322 ITR 80 (P H), Commissioner of Income Tax versus Somany Evergree Knits Limited, (2013) 352 ITR 592 (Bombay) and Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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