Hanuman Singh Hitendra Tak, Ritesh Wuwalka & Party, Udaipur – Rajsamand Group, 318, Bhupalpura, Udaipur v. Assistant Commissioner Of Income Tax, Circle-2,Udaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN ATJODHPUR D.B. Income Tax Appeal No. 6 / 2012 Hanuman Singh Hitendra Tak, Ritesh Wuwalka & Party, Udaipur – Rajsamand Group, 318, Bhupalpura, Udaipur. ----Appellant Versus Assistant Commissioner of Income Tax, Circle-2,Udaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr.Anjay Kothari. For Respondent(s) : Mr.KK Bissa. _____________________________________________________ HON'BLE MR. JUSTICE K. S. JHAVERI HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI Judgment / Order 24/01/2018 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasallowed the appeal of the department. 2.While admitting the appeal, this Court framed followingsubstantial question of law :- “1.Whether the ITAT has grossly misconstrued theprovisions of Sections of Section 271(1)(c) in setting asidethe order of CIT(A) dt.17.07.2008 and restoring the penaltyorder dt. 13.11.2007? 2.Whether the ITAT has failed to appreciate thatdisallowance of a bonafide claim of deduction made by theappellant in respect of the sales tax dues cannot justifyrestoration of penalty u/s. 271(1)(c) of the Act?” 3.Now the issue is squarely covered by the decision of thisCourt in M/s. Jalan Hard Coke Pvt Ltd. vs. The Asstt.Commissioner of Income Tax (D.B. Income Tax Appeal No.48/2015) decided on 1.8.2017 wherein, it has been held as under :- "3. Counsel for the appellant contended that the assessingofficer while imposing penalty has observed as under:- officer while imposing penalty has observed as under:- “The assessee company filed its return of incomedeclaring loss of Rs. 46,482/- after claim of expensesof Rs. 3,51,897/- and depreciation of Rs. 1,96,979/- onbuilding purchased during the year at Bombay on27.3.1996. The return of income was processed u/s143(1) on 9.3.1998. After processing u/s 143(1)processing u/s 147 were initiated by issuance andservice of notice u/s 148 of the I.T. Act, 1961 afterrecording reasons of reopening.” declaring loss of Rs. 46,482/- after claim of expensesof Rs. 3,51,897/- and depreciation of Rs. 1,96,979/- onbuilding purchased during the year at Bombay on27.3.1996. The return of income was processed u/s143(1) on 9.3.1998. After processing u/s 143(1)processing u/s 147 were initiated by issuance andservice of notice u/s 148 of the I.T. Act, 1961 afterrecording reasons of reopening.” 4. The CIT(A) has allowed the appeal and remitted thematter back to the Assessing Officer for reassessing the100% penalty by observing as under:- matter back to the Assessing Officer for reassessing the100% penalty by observing as under:- 4. The CIT(A) has allowed the appeal and remitted thematter back to the Assessing Officer for reassessing the100% penalty by observing as under:- matter back to the Assessing Officer for reassessing the100% penalty by observing as under:- “4.3. I have perused the penalty order as well assubmission of the assessee and case laws relied on thatthe assessee has intentionally claimed preoperationalexpenditure against income from other source anddepreciation on building which was not meant forbusiness purposes. In this case assessee has notagreed to make addition and explanation filed beforethe AO is not relevant at all. The assessee has otherobjects of finance in Memorandum of Association notmain object. Further, mere receipt of the interest oncertain loan does not tantamount to be business. Thebusiness has different definition. The assessee has nottaken any permission of banking business from RBI.There were excess funds available with the assesseeswhich were advanced to the private parties for shorttime. The expenses claimed by the assessee were alsopre-operation for starting of manufacturing activity asmain object of the company. In this cae the ld. AO hasproved the Mensrea of the assessee to evade the tax.The assessee 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 of estimationbut the penalty imposed by the ld. AO is higher side.Therefore, I restrict this penalty @ 100% of tax soughtto be evaded on concealed income. The AO is directedto calculate the penalty amount and issue freshdemand notice.” submission of the assessee and case laws relied on thatthe assessee has intentionally claimed preoperationalexpenditure against income from other source anddepreciation on building which was not meant forbusiness purposes. In this case assessee has notagreed to make addition and explanation filed beforethe AO is not relevant at all. The assessee has otherobjects of finance in Memorandum of Association notmain object. Further, mere receipt of the interest oncertain loan does not tantamount to be business. Thebusiness has different definition. The assessee has nottaken any permission of banking business from RBI.There were excess funds available with the assesseeswhich were advanced to the private parties for shorttime. The expenses claimed by the assessee were alsopre-operation for starting of manufacturing activity asmain object of the company. In this cae the ld. AO hasproved the Mensrea of the assessee to evade the tax.The assessee 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 of estimationbut the penalty imposed by the ld. AO is higher side.Therefore, I restrict this penalty @ 100% of tax soughtto be evaded on concealed income. The AO is directedto calculate the penalty amount and issue freshdemand notice.” 5. But the Tribunal while accepting the view taken by the AOand reversing the view taken by CIT(A) has partly allowedthe appeal of the department. 6. Counsel for the appellant has relied upon the decision of Supreme 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 asunder:- 5. But the Tribunal while accepting the view taken by the AOand reversing the view taken by CIT(A) has partly allowedthe appeal of the department. 6. Counsel for the appellant has relied upon the decision of Supreme 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 asunder:- “8. Therefore, it is obvious that it must be shown thatthe conditions under Section 271(1)(c) must existbefore the penalty is imposed. There can be no disputethat everything would depend upon the Return filedbecause that is the only document, where the assesseecan furnish the particulars of his income. When suchparticulars are found to be inaccurate, the liabilitywould arise. In Dilip N. Shroff v. Joint Commissioner ofIncomeTax,MumbaiandAnr.MANU/SC/3182/2007MANU/SC/3182/2007 : 2007 (6)SCC 329 this Court explained the terms "concealmentof income" and "furnishing inaccurate particulars". TheCourt went on to hold therein that in order to attractthe penalty under Section 271(1) (c), mens rea wasnecessary, as according to the Court, the word"inaccurate" signified a deliberate act or omission onbehalf of the assessee. It went on to hold that Clause(iii) of Section 271(1) provided for a discretionaryjurisdiction upon the Assessing Authority, inasmuch asthe amount of penalty could not be less than theamount of tax sought to be evaded by reason of suchconcealment of particulars of income, but it may notexceed three times thereof. It was pointed out that theterm "inaccurate particulars" was not defined anywherein the Act and, therefore, it was held that furnishing ofan assessment of the value of the property may not byitself be furnishing inaccurate particulars. It was furtherheld that the assessee must be found to have failed toprove that his explanation is not only not bona fide butall the facts relating to the same and material to thecomputation of his income were not disclosed by him.It was then held that the explanation must be precededby a finding as to how and in what manner, theassessee had furnished the particulars of his income.The Court ultimately went on to hold that the elementof mens rea was essential. It was only on the point ofmens rea that the judgment in Dilip N. Shroff v. JointCommissioner 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 since Section271(1)(c) indicated the element of strict liability on theassessee for the concealment or for giving inaccurateparticulars while filing Return, there was no necessityof mens rea. The Court went on to hold that theobjective behind enactment of Section 271(1)(c) readwith Explanations indicated with the said Section wasfor providing remedy for loss of revenue and such apenalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attractingcivil liability as was the case in the matter ofprosecution under Section 276C of the Act. The basicreason why decision in Dilip N. Shroff v. JointCommissioner of Income Tax, Mumbai and Anr. (citedsupra) was overruled by this Court in Union of India v.Dharamendra Textile Processors (cited supra), was thataccording to this Court the effect and differencebetween Section 271(1)(c) and Section 276C of the Actwas lost sight of in case of Dilip N. Shroff v. JointCommissioner of Income Tax, Mumbai and Anr. (citedsupra). However, it must be pointed out that in Unionof India 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), where theCourt explained the meaning of the terms "conceal"and inaccurate". It was only the ultimate inference inDilip N. Shroff v. Joint Commissioner of Income Tax,Mumbai and Anr. (cited supra) to the effect that mensrea was an essential ingredient for the penalty underSection 271(1)(c) that the decision in Dilip N. Shroff v.Joint Commissioner of Income Tax, Mumbai and Anr.(cited supra) was overruled.” 6.1. He has also relied upon the decision of Rajasthan HighCourt in the case of Commissioner of Income Tax v/sJawahar Kala Kendra reported in [2014] 362 ITR 515 (Raj.)wherein it has been held as under:- “11. The Hon'ble apex court considered the samerelated issue in the case of Mysore Minerals Ltd. v. CITMANU/SC/0540/1999MANU/SC/0540/1999 : [1999]239 ITR 775 (SC) and considered the concept of theterm "own", "ownership" and "owned" and afterreferring to several authorities, observed as under(page 781): It is well-settled that there cannot be two owners of theproperty simultaneously and in the same sense of theterm. The intention of the Legislature in enactingsection 32 of the Act would be best fulfilled by allowingdeduction in respect of depreciation to the person inwhom for the time being vests the dominion over thebuilding and who is entitled to use it in his own rightand is using the same for the purposes of his businessor profession. Assigning any different meaning wouldnot sub-serve the legislative intent. To take the case athand it is the appellant-assessee who having paid partof the price, has been placed in possession of thehouses as an owner and is using the buildings for thepurpose of its business in its own right. Still theassessee has been denied the benefit of section 32. Onthe other hand, the Housing Board would be denied thebenefit of section 32 because in spite of its being thelegal owner it was not using the building for its business or profession. We do not think such a benefit-tonone situation could have been intended by theLegislature. The finding of fact arrived at in the case athand is that though a document of title was notexecuted by Housing Board in favour of the assessee,but the houses were allotted to the assessee by theHousing Board, part payment received and possessiondelivered so as to confer dominion over the property onthe assessee whereafter the assessee had in its ownright allotted the quarters to the staff and they werebeing actually used by the staff of the assessee. It iscommon knowledge, under the various scheme floatedby bodies like housing boards, houses are constructedon large scale and allotted on part payment to thosewho have booked. Possession is also delivered to theallottee so as to enable enjoyment of the properly.Execution of document transferring title necessarilyfollows if the schedule of payment is observed byallottee. If only the allottee may default the propertymay revert back to the Board. That is a matter onlybetween the Housing Board and the allottee. No thirdperson intervenes. The part payment made by allotteeare with the intention of acquiring title. The delivery ofpossession by Housing Board to allottee is also a steptowards conferring ownership. Documentation isdelayed only with the idea of compelling the allottee toobserve the schedule of payment. 14. If we look to section 32(1), as reproducedhereinabove, it simply observes about owning of theproperties. Therefore, owned would not mean by wayof a registration by way of title deed as held by theHon'ble apex court in the case of Mysore Minerals Ltd.(supra). If we look to section 43(1) Explanation 2,then, value of assets has to be recognised wheretransfer is by way of gift or inheritance and here in thecase, assets have been transferred by the Governmentof Rajasthan to the assessee-society and for thatpurpose value has been adopted as the value to theprevious owner and this explanation also supports theclaim of the respondent-assessee.” 6.2. He has also relied upon another decision of RajasthanHigh Court in the case of Commissioner of Income Tax vs.Jawahar Kala Kendra reported in [2014] 369 ITR 132 (Raj.)wherein it has 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 by theCIT(a) and further not pressed by the assessee, but thefact remains that the assessee-society was constitutedas an autonomous body by an order dt. 11/08/2003issued by the Governor of Rajasthan to preserve andpromote art and culture of Rajasthan and to contributeto the social and cultural development of the people of the State. It is also an admitted fact that subsequent tothe said order of the Governor of Rajasthan, theassessee-society came to be formed and was registeredunder the Societies Registration Act, 1958 and theCommissioner of Income Tax has also grantedregistration u/s. 12a to the assessee-society. “8. In our view, the Tribunal has rightly deleted thepenalty for the reason that though the claim wasdisallowed by the AO, thereafter, partly allowed by theCIT(a) and further not pressed by the assessee, but thefact remains that the assessee-society was constitutedas an autonomous body by an order dt. 11/08/2003issued by the Governor of Rajasthan to preserve andpromote art and culture of Rajasthan and to contributeto the social and cultural development of the people of the State. It is also an admitted fact that subsequent tothe said order of the Governor of Rajasthan, theassessee-society came to be formed and was registeredunder the Societies Registration Act, 1958 and theCommissioner of Income Tax has also grantedregistration u/s. 12a to the 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 assesseerespondentand no claim of reclaiming the assets have been madeby the State Government subsequent to transfer of theassets to the assesseesociety. In our view, merelybecause title has not been transferred or properties notregistered in the name of the assessee under theIndian Registration Act, depreciation cannot bedisallowed. Admittedly possession and user is of theassessee. It would be appropriate to mention that thisCourt in Commissioner of Income Tax Jaipur-II Vs. M/s.Jawahar Kala Kendra, (the present assessee) vide orderdt. 03/01/2014 in DB Income Tax Appeal No. 121/2012had upheld the finding of the Tribunal for allowingdepreciation to the respondent-assessee in theassessment year 2007-08 and in the aforesaid order,this Court has relied upon the judgment of the Hon'bleApex 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 of CIT Vs.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 the clearopinion that the assessee-society had rightly beenallowed depreciation by the CIT(A) and the itat, as theassessee-society became owner of the said assets andwas actually using the property in its own right as anowner on and from the date of order of the Governorand 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 to showthat that the assessee has consciously concealedcertain particulars pertaining to his income or hassupplied inaccurate particulars, deliberately. Further, itis the case of the Revenue that the explanation givenby the assessee in connection with his income is notacceptable and it is not the case that the assessee hasoffered no explanation or false explanation, at all. Instead the case of the revenue is that the explanationgiven by the assessee cannot be accepted. In similarcircumstances, this Court in the case of "AmrutTubewell Company vs. Asst. CIT" (Supra), observed asunder in Para-15; "15. So far as the penalty under Section 273(2) (a) isconcerned, said section reads as under; "273(2)[a] has furnished under sub-section (1) or sub-section (2) or sub-section (3) or subsection (5) ofsection 209A, or under subsection (1) or subsection (2)of section 212, an estimate of the advance tax payableby him which he knew or had reason to believe to beuntrue, ...]" Instead the case of the revenue is that the explanationgiven by the assessee cannot be accepted. In similarcircumstances, this Court in the case of "AmrutTubewell Company vs. Asst. CIT" (Supra), observed asunder in Para-15; "15. So far as the penalty under Section 273(2) (a) isconcerned, said section reads as under; "273(2)[a] has furnished under sub-section (1) or sub-section (2) or sub-section (3) or subsection (5) ofsection 209A, or under subsection (1) or subsection (2)of section 212, an estimate of the advance tax payableby him which he knew or had reason to believe to beuntrue, ...]" The Tribunal has recorded that the CIT(A) confirmedthe penalty imposed by the AO under this section onthe ground that the difference between the earnedincome and the assessed income of the assessee wasmore and that the assessee, himself, had declaredincome of Rs. 75,000/- by filing revised return. TheTribunal, further, observed that the CIT(A) had foundthat the assessee was not able to prove the source ofcash credit, and therefore, CIT(A) upheld the penaltylevied by the AO, which is confirmed by the Tribunal.However, while doing so, here again, the Tribunal failedto appreciate the fact that the assessee had notfurnished any details pertaining to advance tax whichwas untrue. On the contrary, the additions were of suchnature that the assessee could not have foreseen. Weare, therefore, of the opinion that the order of theTribunal cannot be sustained and deserves to bequashed and set aside." 11. In above view of the matter, the decision of theApex Court in "CIT vs. Khoday Eswarsa & Sons"(Supra) and of this Court in "Amrut Tubewell Companyvs. Asst. CIT" (Supra), would apply to the facts of thepresent case. Hence, the appeal deserves to beallowed. 7. Counsel for the respondent contended that the quantumhas been upheld. Therefore, it will not be appropriate tointerfere and the Tribunal has rightly partly allowed theappeal 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), the view taken by the Tribunal is required to bereversed and that of CIT(A) is to be upheld." 4.In that view of the matter, the issue is answered in favour of the assessee and against the department. 5.Accordingly, the appeal of the assessee stands allowed interms of the aforesaid judgment. (DR. PUSHPENDRA SINGH BHATI)J. (K. S. JHAVERI)J. S.Phophaliya/-57