D.b. Income Tax Appeal v. The Asstt Commissioner Of Income Tax, Circle-2 Aayakar Bhawan Moti Doongri Road, Alwar, Rajasthan

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 48 / 2015 M/s Jalan Hard Coke Pvt Ltd. a company duly incorporated underprovisions of the Companies Act, 1956 and having its registeredoffice at 4/3, Kala Kuan, Housing Board, Alwar (Rajasthan) actingthrough its duly authorised director, Shri B.N. Jalan, aged 72years, resident of 4/3, Kala Kuan, Housing Board, Alwar (Raj.) ----Appellant Versus The Asstt Commissioner Of Income Tax, Circle-2 Aayakar Bhawan Moti Doongri Road, Alwar, Rajasthan ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anant Kasliwal For Respondent(s) : Ms. Parinitoo Jain with Ms. Shiva Goyal _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 01/08/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the assessee. 2.This court while admitting the matter framed the followingquestion of law:- “Whether the ld. Income Tax Appellate Tribunal wasjustified in having confirmed the levy of penaltyunder Section 271(1)(c) in the facts &circumstances of the case?” 3.Counsel for the appellant contended that the assessing officer while imposing penalty has observed as under:- “The assessee company filed its return of incomedeclaring loss of Rs. 46,482/- after claim ofexpenses of Rs. 3,51,897/- and depreciation of Rs.1,96,979/- on building purchased during the yearat Bombay on 27.3.1996. The return of incomewas processed u/s 143(1) on 9.3.1998. Afterprocessing u/s 143(1) processing u/s 147 wereinitiated by issuance and service of notice u/s 148of the I.T. Act, 1961 after recording reasons ofreopening.” 4.The CIT(A) has allowed the appeal and remitted the matterback to the Assessing Officer for reassessing the 100% penalty by observing as under:- 3.Counsel for the appellant contended that the assessing officer while imposing penalty has observed as under:- “The assessee company filed its return of incomedeclaring loss of Rs. 46,482/- after claim ofexpenses of Rs. 3,51,897/- and depreciation of Rs.1,96,979/- on building purchased during the yearat Bombay on 27.3.1996. The return of incomewas processed u/s 143(1) on 9.3.1998. Afterprocessing u/s 143(1) processing u/s 147 wereinitiated by issuance and service of notice u/s 148of the I.T. Act, 1961 after recording reasons ofreopening.” 4.The CIT(A) has allowed the appeal and remitted the matterback to the Assessing Officer for reassessing the 100% penalty by observing as under:- “4.3. I have perused the penalty order as well assubmission of the assessee and case laws relied onthat the assessee has intentionally claimedpreoperational expenditure against income fromother source and depreciation on building whichwas not meant for business purposes. In this caseassessee has not agreed to make addition andexplanation filed before the AO is not relevant atall. The assessee has other objects of finance inMemorandum of Association not main object.Further, mere receipt of the interest on certain loandoes not tantamount to be business. The businesshas different definition. The assessee has not takenany permission of banking business from RBI.There were excess funds available with theassessees which were advanced to the privateparties for short time. The expenses claimed by theassessee were also pre-operation for starting ofmanufacturing activity as main object of thecompany. In this cae the ld. AO has proved theMensrea of the assessee to evade the tax. Theassessee has furnished inaccurate particular in thereturn of the income by claiming preoperationalexpenses and depreciation. There is no change ofopinion in this case. The assessee did not agree tomake an addition. The assessee’s explanation wasfalse. There is no addition on the basis ofestimation but the penalty imposed by the ld. AO ishigher side. Therefore, I restrict this penalty @100% of tax sought to be evaded on concealedincome. The AO is directed to calculate the penaltyamount and issue fresh demand notice.”submission of the assessee and case laws relied onthat the assessee has intentionally claimedpreoperational expenditure against income fromother source and depreciation on building whichwas not meant for business purposes. In this caseassessee has not agreed to make addition andexplanation filed before the AO is not relevant atall. The assessee has other objects of finance inMemorandum of Association not main object.Further, mere receipt of the interest on certain loandoes not tantamount to be business. The businesshas different definition. The assessee has not takenany permission of banking business from RBI.There were excess funds available with theassessees which were advanced to the privateparties for short time. The expenses claimed by theassessee were also pre-operation for starting ofmanufacturing activity as main object of thecompany. In this cae the ld. AO has proved theMensrea of the assessee to evade the tax. Theassessee has furnished inaccurate particular in thereturn of the income by claiming preoperationalexpenses and depreciation. There is no change ofopinion in this case. The assessee did not agree tomake an addition. The assessee’s explanation wasfalse. There is no addition on the basis ofestimation but the penalty imposed by the ld. AO ishigher side. Therefore, I restrict this penalty @100% of tax sought to be evaded on concealedincome. The AO is directed to calculate the penaltyamount and issue fresh demand notice.” 5.But the Tribunal while accepting the view taken by the AOand reversing the view taken by CIT(A) has partly allowed theappeal of the department. 5.But the Tribunal while accepting the view taken by the AOand reversing the view taken by CIT(A) has partly allowed theappeal of the department. 6.Counsel for the appellant has relied upon the decision ofSupreme Court in case of Commissioner of Income Tax,Ahmedabad vs. Reliance Petroproducts Pvt. Ltd. reported in[2010] 322 ITR 158 (SC) wherein it has been held as under:- “8. Therefore, it is obvious that it must be shownthat the conditions under Section 271(1)(c) mustexist before the penalty is imposed. There can be nodispute that everything would depend upon theReturn filed because that is the only document,where the assessee can furnish the particulars of hisincome. When such particulars are found to beinaccurate, the liability would arise. In Dilip N. Shroffv. Joint Commissioner of Income Tax, Mumbai andAnr. MANU/SC/3182/2007MANU/SC/3182/2007 :2007 (6) SCC 329 this Court explained the terms"concealment of income" and "furnishing inaccurateparticulars". The Court went on to hold therein thatin order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to theCourt, the word "inaccurate" signified a deliberateact or omission on behalf of the assessee. It went onto hold that Clause (iii) of Section 271(1) providedfor a discretionary jurisdiction upon the AssessingAuthority, inasmuch as the amount of penalty couldnot be less than the amount of tax sought to beevaded by reason of such concealment of particularsof income, but it may not exceed three timesthereof. It was pointed out that the term "inaccurateparticulars" was not defined anywhere in the Actand, therefore, it was held that furnishing of anassessment of the value of the property may not byitself be furnishing inaccurate particulars. It wasfurther held that the assessee must be found to havefailed to prove that his explanation is not only notbona fide but all the facts relating to the same andmaterial to the computation of his income were notdisclosed by him. It was then held that theexplanation must be preceded by a finding as to howand in what manner, the assessee had furnished theparticulars of his income. The Court ultimately wenton to hold that the element of mens rea wasessential. It was only on the point of mens rea thatthe judgment in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. wasupset. In Union of India v. Dharamendra TextileProcessors (cited supra), after quoting from Section271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that sinceSection 271(1)(c) indicated the element of strictliability on the assessee for the concealment or forgiving inaccurate particulars while filing Return,there was no necessity of mens rea. The Court wenton to hold that the objective behind enactment ofSection 271(1)(c) read with Explanations indicatedwith the said Section was for providing remedy forloss of revenue and such a penalty was a civilliability and, therefore, willful concealment is not anessential ingredient for attracting civil liability as wasthe case in the matter of prosecution under Section276C of the Act. The basic reason why decision inDilip N. Shroff v. Joint Commissioner of Income Tax,Mumbai and Anr. (cited supra) was overruled by thisCourt in Union of India v. Dharamendra TextileProcessors (cited supra), was that according to thisCourt the effect and difference between Section271(1)(c) and Section 276C of the Act was lost sightof in case of Dilip N. Shroff v. Joint Commissioner ofIncome Tax, Mumbai and Anr. (cited supra).However, it must be pointed out that in Union ofIndia v. Dharamendra Textile Processors (citedsupra), no fault was found with the reasoning in thedecision in Dilip N. Shroff v. Joint Commissioner ofIncome Tax, Mumbai and Anr. (cited supra), wherethe Court explained the meaning of the terms"conceal" and inaccurate". It was only the ultimateinference in Dilip N. Shroff v. Joint Commissioner ofIncome Tax, Mumbai and Anr. (cited supra) to theeffect that mens rea was an essential ingredient forthe penalty under Section 271(1)(c) that thedecision in Dilip N. Shroff v. Joint Commissioner ofIncome Tax, Mumbai and Anr. (cited supra) wasoverruled.” 6.1. He has also relied upon the decision of Rajasthan High Court in the case of Commissioner of Income Tax v/s JawaharKala Kendra reported in [2014] 362 ITR 515 (Raj.) wherein ithas been held as under:- “11. The Hon'ble apex court considered the samerelated issue in the case of Mysore Minerals Ltd. v.CIT MANU/SC/0540/1999MANU/SC/0540/1999 :[1999] 239 ITR 775 (SC) and considered theconcept of the term "own", "ownership" and "owned" and after referring to several authorities,observed as under (page 781): 6.1. He has also relied upon the decision of Rajasthan High Court in the case of Commissioner of Income Tax v/s JawaharKala Kendra reported in [2014] 362 ITR 515 (Raj.) wherein ithas been held as under:- “11. The Hon'ble apex court considered the samerelated issue in the case of Mysore Minerals Ltd. v.CIT MANU/SC/0540/1999MANU/SC/0540/1999 :[1999] 239 ITR 775 (SC) and considered theconcept of the term "own", "ownership" and "owned" and after referring to several authorities,observed as under (page 781): It is well-settled that there cannot be two ownersof the property simultaneously and in the samesense of the term. The intention of the Legislaturein enacting section 32 of the Act would be bestfulfilled by allowing deduction in respect ofdepreciation to the person in whom for the timebeing vests the dominion over the building andwho is entitled to use it in his own right and isusing the same for the purposes of his business orprofession. Assigning any different meaning wouldnot sub-serve the legislative intent. To take thecase at hand it is the appellant-assessee whohaving paid part of the price, has been placed inpossession of the houses as an owner and is usingthe buildings for the purpose of its business in itsown right. Still the assessee has been denied thebenefit of section 32. On the other hand, theHousing Board would be denied the benefit ofsection 32 because in spite of its being the legalowner it was not using the building for its businessor profession. We do not think such a benefit-to-none situation could have been intended by theLegislature. The finding of fact arrived at in thecase at hand is that though a document of titlewas not executed by Housing Board in favour ofthe assessee, but the houses were allotted to theassessee by the Housing Board, part paymentreceived and possession delivered so as to conferdominion over the property on the assesseewhereafter the assessee had in its own rightallotted the quarters to the staff and they werebeing actually used by the staff of the assessee. Itis common knowledge, under the various schemefloated by bodies like housing boards, houses areconstructed on large scale and allotted on partpayment to those who have booked. Possession isalso delivered to the allottee so as to enableenjoyment of the properly. Execution of documenttransferring title necessarily follows if the scheduleof payment is observed by allottee. If only theallottee may default the property may revert backto the Board. That is a matter only between theHousing Board and the allottee. No third personintervenes. The part payment made by allottee arewith the intention of acquiring title. The delivery ofpossession by Housing Board to allottee is also astep towards conferring ownership. Documentationis delayed only with the idea of compelling theallottee to observe the schedule of payment. 14. If we look to section 32(1), as reproducedhereinabove, it simply observes about owning of the properties. Therefore, owned would not meanby way of a registration by way of title deed asheld by the Hon'ble apex court in the case ofMysore Minerals Ltd. (supra). If we look to section43(1) Explanation 2, then, value of assets has tobe recognised where transfer is by way of gift orinheritance and here in the case, assets have beentransferred by the Government of Rajasthan to theassessee-society and for that purpose value hasbeen adopted as the value to the previous ownerand this explanation also supports the claim of therespondent-assessee.” 6.2. He has also relied upon another decision of Rajasthan HighCourt in the case of Commissioner of Income Tax vs. JawaharKala Kendra reported in [2014] 369 ITR 132 (Raj.) wherein ithas been held as under:- the properties. Therefore, owned would not meanby way of a registration by way of title deed asheld by the Hon'ble apex court in the case ofMysore Minerals Ltd. (supra). If we look to section43(1) Explanation 2, then, value of assets has tobe recognised where transfer is by way of gift orinheritance and here in the case, assets have beentransferred by the Government of Rajasthan to theassessee-society and for that purpose value hasbeen adopted as the value to the previous ownerand this explanation also supports the claim of therespondent-assessee.” 6.2. He has also relied upon another decision of Rajasthan HighCourt in the case of Commissioner of Income Tax vs. JawaharKala Kendra reported in [2014] 369 ITR 132 (Raj.) wherein ithas been held as under:- “8. In our view, the Tribunal has rightly deleted thepenalty for the reason that though the claim wasdisallowed by the AO, thereafter, partly allowed bythe CIT(a) and further not pressed by the assessee,but the fact remains that the assessee-society wasconstituted as an autonomous body by an order dt.11/08/2003 issued by the Governor of Rajasthan topreserve and promote art and culture of Rajasthanand to contribute to the social and culturaldevelopment of the people of the State. It is also anadmitted fact that subsequent to the said order of theGovernor of Rajasthan, the assessee-society came tobe formed and was registered under the SocietiesRegistration Act, 1958 and the Commissioner ofIncome Tax has also granted registration u/s. 12a tothe assessee-society. 9. It is also an admitted fact and which has notdisputed by the Revenue that possession over theproperty is being enjoyed by the assessee-respondent and no claim of reclaiming the assetshave been made by the State Governmentsubsequent to transfer of the assets to the assessee-society. In our view, merely because title has notbeen transferred or properties not registered in thename of the assessee under the Indian RegistrationAct, depreciation cannot be disallowed. Admittedlypossession and user is of the assessee. It would beappropriate to mention that this Court in Commissioner of Income Tax Jaipur-II Vs. M/s.Jawahar Kala Kendra, (the present assessee) videorder dt. 03/01/2014 in DB Income Tax Appeal No.121/2012 had upheld the finding of the Tribunal forallowing depreciation to the respondent-assessee inthe assessment year 2007-08 and in the aforesaidorder, this Court has relied upon the judgment of theHon'ble Apex Court in the case of Mysore Mineral Ltd.Vs. CIT: MANU/SC/0540/1999MANU/SC/0540/1999 :(1999) 239 itr 775; Delhi High Court in the case ofCITVs.OswalAgroMillsLtd:MANU/DE/3854/2010MANU/DE/3854/2010 : (2011)238 CTR 113; Punjab & Haryana High Court, in thecase of CIT Vs. Metalman Auto P. Ltd.:MANU/PH/2113/2011MANU/PH/2113/2011 : (2011)336 ITR 434 (P & H) and after relying upon the saidjudgments ultimately observed as under:- "In our view, on the face of record, we are of theclear opinion that the assessee-society had rightlybeen allowed depreciation by the CIT(A) and the itat,as the assessee-society became owner of the saidassets and was actually using the property in its ownright as an owner on and from the date of order ofthe Governor and formation of society." 6.3. He has also relied upon the decision in High Court ofGujarat in the case of Bipinchandra K. Bhatia vs. AssistantCommissioner of Income Tax in tax Appeal No. 596/2006wherein it has been held as under:- "In our view, on the face of record, we are of theclear opinion that the assessee-society had rightlybeen allowed depreciation by the CIT(A) and the itat,as the assessee-society became owner of the saidassets and was actually using the property in its ownright as an owner on and from the date of order ofthe Governor and formation of society." 6.3. He has also relied upon the decision in High Court ofGujarat in the case of Bipinchandra K. Bhatia vs. AssistantCommissioner of Income Tax in tax Appeal No. 596/2006wherein it has been held as under:- 10. In the case on hand, there is no material toshow that that the assessee has consciouslyconcealed certain particulars pertaining to hisincome or has supplied inaccurate particulars,deliberately. Further, it is the case of theRevenue that the explanation given by theassessee in connection with his income is notacceptable and it is not the case that theassessee has offered no explanation or falseexplanation, at all. Instead the case of therevenue is that the explanation given by theassessee cannot be accepted. In similarcircumstances, this Court in the case of "AmrutTubewell Company vs. Asst. CIT" (Supra),observed as under in Para-15; "15. So far as the penalty under Section 273(2) (a) is concerned, said section reads as under; "273(2)[a] has furnished under sub-section (1)or sub-section (2) or sub-section (3) or sub-section (5) of section 209A, or under sub-section (1) or subsection (2) of section 212, anestimate of the advance tax payable by himwhich he knew or had reason to believe to beuntrue, ...]" The Tribunal has recorded that the CIT(A)confirmed the penalty imposed by the AOunder this section on the ground that thedifference between the earned income and theassessed income of the assessee was more andthat the assessee, himself, had declaredincome of Rs. 75,000/- by filing revised return.The Tribunal, further, observed that the CIT(A)had found that the assessee was not able toprove the source of cash credit, and therefore,CIT(A) upheld the penalty levied by the AO,which is confirmed by the Tribunal. However,while doing so, here again, the Tribunal failedto appreciate the fact that the assessee hadnot furnished any details pertaining to advancetax which was untrue. On the contrary, theadditions were of such nature that theassessee could not have foreseen. We are,therefore, of the opinion that the order of theTribunal cannot be sustained and deserves tobe quashed and set aside." 11. In above view of the matter, the decision ofthe Apex Court in "CIT vs. Khoday Eswarsa &Sons" (Supra) and of this Court in "AmrutTubewell Company vs. Asst. CIT" (Supra),would apply to the facts of the present case.Hence, the appeal deserves to be allowed. 7.Counsel for the respondent contended that thequantum has been upheld. Therefore, it will not beappropriate to interfere and the Tribunal has rightly partlyallowed the appeal preferred by the department. 8.We have heard counsel for both the parties. 9.Taking into consideration the observations made by theSupreme Court in case of Reliance Petroproducts Pvt. Ltd (supra),Supreme Court in case of Reliance Petroproducts Pvt. Ltd (supra), the view taken by the Tribunal is required to be reversed and that of CIT(A) is to be upheld. 10.The issue is answered in favour of the assssee against the department. 11.The appeal stands allowed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/118