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TMI Blog2014 (7) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... tails in respect to foreign travel expenses before the AO during the course of assessment proceedings and also filed explanation during the course of penalty proceeding u/s. 271(1)(c) of the Act - nowhere the AO has proved concealment or the explanation furnished by assessee is false or not bonafide - the assessee is not liable for penalty for concealment of income u/s. 271(1)(c) of the Act – Decided against Revenue. Excess claim of depreciation on leasehold properties – Inaccurate particulars furnished – Held that:- Once the assessee has taken lease for 99 years the assessee is entitled for depreciation - Once the assessee is entitled for depreciation then where is the question of levy of penalty - the assessee filed complete details of depreciation before the AO while filing the return of income and also during assessment proceedings - there is no question of concealment of income on depreciation - CIT(A) has rightly deleted the penalty – Decided against Revenue. Income earned from dividend – Held that:- A return of investment cannot be construed to mean "expenditure" and if it is construed to mean "expenditure" in the sense of physical spending still the expenditure was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no evidence before AO that assessee has received amount higher than the declared sum of ₹ 53.59 lacs and that also without any basis – Decided against Revenue. - ITA Nos.2304 & 2305/Kol/2010 & ITA No.136/Kol/2011 - - - Dated:- 30-6-2014 - Mahavir Singh And Shamim Yahya, JJ. For the Appellant : Shri Ravi Jain, CIT-DR For the Respondent : Shri S K Tulsiyan, Adv. ORDER :- PER : Mahavir Singh I.T.A Nos. 2304 2305/Kol/2010 by revenue are arising out of common order of CIT(A) -1, Kolkata in Appeal No. 2 3/CIT(A)-1/Cir-3/10-11dated 02.09.2010 and ITA No. 136/Kol/2011 by revenue is arising out of order of CIT(A)-1, Kolkata in Appeal No. 81/CIT(A)-1/Cir-3/10-11 dated 25.0.2010. Assessments were framed by DCIT, Spl. Range- 13, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for Assessment Years 1993-94, 1994-95 and 2008-09 (by DCIT, Circle-3) vide his separate orders dated 29.03.1996, 27.03.197 and 20.07.2010. 2. First we take up ITA No. 2304 2305/Kol/2010. The first common issue in these two appeals of revenue is as regards to the order of CIT(A) deleting the penalty levied by AO u/s. 271(1)(C) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before CIT(A), who after considering the submissions of the assessee deleted the penalty vide para 8 of his order as under: Admittedly, the assessee filed a written submission before the AO in response to his show cause letter. In the penalty order the AO has nowhere held that such explanation of the assessee was false or not bonafide and full particulars regarding these additions/disallowances were not furnished before the AO. The AO has imposed a penalty of ₹ 52,09,568 holding that the additions of interest of ₹ 90,60,118 on account of Surrendered certificates u/s. 41(1) was a concealed income. But while dealing with this item in para (1) of his order, he has himself admitted that It is true that there was no concealment of fact . This is therefore not a fit case for levy of penalty. Aggrieved, revenue is in appeal before us. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee has objected to levy of penalty before CIT(A) on account of addition made by AO on account of direction of ITAT directing it to recompute the disallowance of interest at ₹ 90,60,118/- on account of surr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect ; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms ; an item of receipt may be suppressed fraudulently ; (ii) an item of expenditure may be fals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lip N. Shroff 291 ITR 519 held that the AO is required to arrive at a finding that explanation offered by the assessee, in the event he offers one, is false or not bonafide. The AO must record a finding that the explanation is not only bonafide but all the facts relating to the same and the material income was not disclosed by him. As is evident in the present case that the addition made by AO on account of surrender Certificates u/s. 41(1) of the Act was on the basis of the details filed in the return of income and after applying the provisions of section 41(1) of the Act. From the above facts and circumstances and legal position as enunciated by Hon ble Supreme Court in the case of Reliance Petro Product Ltd. and Dilip N. Shroff (Supra), we are of the considered view that in the present case the facts does not warrant levy of penalty. Accordingly, CIT(A) has rightly deleted the penalty and we confirm the same. This issue of revenue s appeals in both the years is dismissed. 6. The next issue in these appeals of revenue is against the order of CIT(A) deleting the penalty levied by the AO in respect of excess claim of foreign travel to the tune of ₹ 16,77,208/- in AY 1993-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. On this point the A.R.s have also pointed out that the CIT(A) allowed 50% of the assessee s claim of foreign travel expenses. But on further appeal by the Deptt. against the order of the CIT(A), the Tribunal restored the orders of the AO disallowing the travelling expenses. The A.R. has also claimed that the AO has nowhere held that the assessee s claim in this regard was false. Aggrieved, now revenue is in appeals before us. 8. We have heard rival submissions and gone through facts and circumstances of the case. We find that the AO has made merely a disallowance of foreign expenses on the ground that the same is not allowable. The AO has made disallowance only on the premise that the assessee is enquired to give details regarding expansion plan and what was the purpose for visit for a particular project to the foreign nations. From the penalty order it is seen that there is no iota of any concealment brought out on record even the disallowance is just for the sake of disallowance. The assessee has filed complete details in respect to foreign travel expenses before the AO during the course of assessment proceedings and also filed explanation during the course of penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the same amount was added to the total income of the assessee. CIT(A) deleted the addition, but the Tribunal restored the issue and the addition was made. The detection of the point was so proper and the addition was so authentic and genuine, the assessee co. did not file any appeal against this addition. So the imposition of penalty is an obvious next course of action. Here by claiming depreciation on lease hold properties the assessee reduced its total income. Now for furnishing inaccurate particulars of income, penalty u/s. 271(1)(c) @ 100% of the tax sought to be evaded which calculated at ₹ 146482/- (Rs.1,27,376/- + Surcharge @ 15% ₹ 19106/-), is hereby imposed. Aggrieved, assessee preferred appeal before CIT(A), but CIT(A) deleted the penalty by observing as under: The last item on which a penalty of ₹ 1,46,482 has been imposed is on account of disallowance of depreciation of ₹ 2,54,752 on leasehold buildings. The AR has explained that these leasehold buildings were taken by the appellant for more than 99 years and consequently it became a beneficial owner of such properties. It was also claimed before the AO that in terms of Sec. 27(iiib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate basis made addition of dividend to the extent of ₹ 91 lac on 35 lac units of UTI @ 26%. Assessee contended that he has not received any dividend on this 35 lacs unit but the AO estimated the dividend @ 26% for the reason that for other units of UTI the dividend received is 26%, he applied the same. The assessee carried the matter to the CIT(A) and Tribunal. CIT(A) deleted the addition in quantum but Tribunal restored the addition on legal issue regarding applicability of section 94(3) of the Act. The relevant finding of the Tribunal at pages 28 and 29 of its order dated 30.06.2003 reads as under: We have to examine as to whether there has been any avoidance of any income-tax on a transaction of selling and buying back of units by the assessee in respect of 77 lacs units to M/s. Assam Co. Ltd. with reference to the capital gain shown by the assessee and the dividend income avoided by the assessee. Since this aspect of the matter was not examined by the AO nor full details and informations have been furnished by the assessee before us we think it fit and proper that the matter be re-examined by the AO so as to ascertain as to whether the assessee has been able to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erential amount between the purchase and sale price of the units constituted expenditure incurred by the assessee for earning tax-free income, hence, liable to be disallowed under section 14A. As a result of the dividend payout, according to the Department, the NAV of the mutual fund, which was ₹ 17.23 per unit on the record date, fell to ₹ 13.23 on March 27, 2000 (the next trading date) and, thus, ₹ 4 per unit, according to the Department, constituted expenditure incurred in terms of section 14A of the Act. In its return, the assessee, thus, claimed the dividend received as exempt under section 10(33) and also claimed set off for the loss against its taxable income, thereby seeking to reduce its tax liability and gain tax advantage. The insertion of section 14A with retrospective effect is the serious attempt on the part of Parliament not to allow deduction in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act against the taxable income (see Circular No. 14 of 2001 dated November 22, 2001). In other words, section 14A clarifies that expenses incurred can be allowed only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduction though of the nature specified in sections 15 to 59 but related to the income not forming part of the total income could not be allowed against other income includible in the total income for the purpose of chargeability to tax. The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. Reading section 14 in juxtaposition with sections 15 to 59, it is clear that the words expenditure incurred in section 14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for (see sections 30 to 37). Every pay-out is not entitled to allowances for deduction. These allowances are admissible to qualified deductions. These deductions are for debits in the real sense. A pay-back does not constitute an expenditure incurred in terms of section 14A. Even applying the principles of accountancy, a pay-back in the strict sense does not constitute an expenditure as it does not impact the profit and loss account. Pay-back or return of investment will impact the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein it is held that the deemed dividend or estimated dividend cannot be subject matter of penalty u/s. 271(1)(c) of the Act and no penalty can be levied for concealment of income on such income. Accordingly, this issue of revenue s appeal is dismissed. 15. Now, we take up ITA No.136/K/2011. The first issue in this appeal of revenue is against the order of CIT(A) deleting the addition made by AO by invoking the provision of Rule 8D read with section 14A of the Act at ₹ 2,77,57,075/- on account of interest and a sum of ₹ 20,24,545/- as demat account charges. For this revenue has raised following ground nos. 1 to 3: 1. That in the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 2,77,57,075/- made u/s. 14A of the Act read with Rule 8D of the I.T. Rule as expenses related to exempted income, without applying the provision of Rule 8D properly. 2. That in the facts and in the circumstances of the case Ld. CIT(A) erred in deleting the addition of ₹ 2,77,57,075/- added as interest as per provision of Rule 8D(2)(ii), by considering the interest component as NIL. 3. That in the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The AO also made disallowance of demat account expenses at ₹ 20,24,545/-. Aggrieved, assessee preferred appeal before CIT(A), who deleted the disallowance of interest of ₹ 2,77,57,075/- and also the disallowance of demat expenses at ₹ 20,24,545/- by observing as under: I have gone through the judicial decisions referred to by the A.R. in his reply to the A.O. s remand report. In the case of P. Firm Muar (56-ITR-67), R. B. Jeesa Ram Fateh Chand (81-ITR-409, 442) and D.I. vs. Pooran Mall (96-ITR- 390) the Hon ble Supreme Court had held that an assessee cannot be taxed on the principle of estoppel . A similar view had been taken by the Apex Court in the case of National Thermal Power Co. Ltd. (229-ITR-383) in which it has been observed that a the purpose of the assessment proceedings before the taxing authorities is to correctly assess a the tax liability of an assessee in accordance with law. Respectfully following these decisions, the contention of the A.O. in his remand report that the revised computation of disallowance under Rule 8D should not be accepted in view of the original computation submitted by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst such deposits, interest on accrual basis is debited to P L A/C to the tune of ₹ 160.40 cr, which relates to such accrued interest. As per the Balance Sheet of the assessee as on 31.3.08, the total amount of deposits from the public is ₹ 4301.98, which included unpaid/ unclaimed maturity value of Certificates amounting to ₹ 1394.68 cr. Since no interest is paid or payable on unpaid / unclaimed maturity value, interest of ₹ 160.40 cr. debited to P L A/C related to total deposit of ₹ 2907.30 cr. from the Certificate Holders. The assessee before us stated that it being a Residuary Non-Banking Finance Company, its activities are directly controlled by the Reserve Bank of India. In order to protect the interest of the Certificate Holders, the RBI issued guidelines directing the assessee to invest its fund in a particular manner. Such guidelines are contained in Residuary Non-Banking Companies (Reserve bank) Direction 1987. As these guidelines were issued by the RBI in exercise of its statutory powers conferred by Sec.45J and 45K of the RBI Act 1934, these were mandatory and binding on the assessee. As per Para-6 of these direction the assessee was requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f revenue is against the order of CIT(A) deleting the disallowance of long term capital loss. For this revenue has raised following ground no.4: 4. That in the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of ₹ 3,16,71,690/- under Long Term Capital Loss without appreciating the fact that the assessee company considered the price per share of PAFL @ ₹ 1/- arbitrarily. 21. Briefly stated facts are that the assessee company was the owner of 53.59 lacs of shares of Peerless Abasan Finance Ltd. (in short PAFL). This company incurred heavy losses and entered into an MOU with Shristi Infrastructure Development Corporation Ltd. (in short SIDCL) and its promoter Milan Commercial Ltd. for selling shares of this company at a price not exceeding ₹ 53.59 lacs. By way of this MOU, the assessee got the shares of this company valued by a Chartered Accountant firm Ray Ray, who computed the value per share of PAFL at ₹ 1.10 per share on the basis of net worth of the company. According to AO, the market price of the share of PAFL should be valued at ₹ 5.91. Therefore, he computed long term capital l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee also obtained a valuation report of the equity shares of PAFL and an Auditor firm vide its report dated 07.07.2005 valued the share of PAFL @ ₹ 1.10 per share. This valuation report was available before the AO at the time of assessment and even before CIT(A). We find from the assessment order that the AO has not disputed the valuation report on the merits of this valuation. Prior to omission of section 52 of the Act the AO empowered to estimate the market value of capital asset i.e. the equity shares also. But in view of the decision of Hon ble Supreme Court in the case of ITO Vs. K. P. Varghese 131 ITR 597 (SC) wherein it is held that the AO has no power to enhance the sale price unless he proves that the consideration for transfer of capital asset was understated in the instrument or the consideration received is lesser than what actually it is. In the present case before us, there is no evidence before AO that assessee has received amount higher than the declared sum of ₹ 53.59 lacs and that also without any basis. In view of the above facts, we are of the considered view that the CIT(A) has rightly deleted the same. We confirm the same. This issue of r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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