Ita/714/2015 Of Pr. Commissioner Of Income Tax-4 v. M/S Minitechs

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 1 DAY OF APRIL 2016 PRESENT THE HON'BLE MR. JUSTICE JAYANT PATEL AND THE HON’BLE MRS. JUSTICE B.V.NAGARATHNA|ITA. No.714/2015 BETWEEN: 1.|PR. COMMISSIONER OF INCOME TAX-4, C.R.BUILDINGS, QUEENS ROAD, BBRENGALURU-560001 oD DBPUTY COMMISSIONER OF INCOME TAX,| CIRCLE-12(1), BENGALURU. _. APKLLANTS (BY SRI.E.I.SANMATHI, ADV.) AND: M/S.MINITECHSAEROTOOLS PVT. LTD.,RATHNA COMPLEX, [IV FLOOR,NO.143, RATHNA AVENUE,|RICHMOND ROAD,BENGALURU-560 025,PAN: AABCM 131 7/J ... RESPONDENT ‘THIS ITA IS FILED UNDER SECTION 2J60-A OF [INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED:26/05/20195PASSED IN ITA NO.1228/BANG/2013, FOR THE ASSESSMENTYEARS 2007-08, PRAYING TO DICIDE THE FOREGOING| QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF.LAW AS MAY BR FORMULATED BY THR HON’BLE COURT AS.DBEMBD FIT AND SHIT ASIDE THE APPELLATE ORDER DATED26.05.2015 PASSED BY THE ITAT, ‘A’ BENCH, BENGALURU, IN|APPEAL PROCEEDINGS IN ITA NO.11228/BANG/2013 FORASSESSMENT YEAR 2007-08, AS SOUGHT FOR IN THIS APPEAL;AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE|INTKBREST OF JUSTICE. THIS APPEAL COMING ON FOR ADMISSION THIS DAY,|JAYANT PATEL J.DELIVERED THE FOLLOWING: JU DBiGMENT The appellant-revenue has preferred the present appeal raising following substantial questions of law:- AWhether on the facts and in thecircumstances of the case, the Tribunal| 1S|justifiedin.holdingthatthe|explanation offered by the assessee for|not offering the capital gain in the|original return on income was bonafide|explain,|whenthe|factandcircumstancesrevealed.thattheassessee has declared the concealed|income only on the detection of the same|during the course of survey in _ thpremises of developer?” 2 |We have heard Mr. E.I. Sanmathi, learned counsel appearing for the appellant-revenue. 3.|The discussion in the order of the Tribunal| are from paras 11 to 17, which reads as under:- ll.We.have|consideredthe|rivalsubmissions. We have gwen a very carefulconsideration to the rival submissions. The.assessee received built up area of the flats of10,931 sq.ft. during the previous year relevant toA.Y. 2007-08 1.e., on 1.11.2006. The share ofproperty which the assessee received from thebuilder was let out by the assessee and incomefrom such letting was offered to tax by theassessee under the head ‘income from houseproperty. The return of income was filed by theassessee for A.Y.2007-O8 on 24.10.07 declaringtotal income of Rs.36,04,060 comoprising of incomefrom property of Rs.33,85,276 and income frombusiness of Rs.2, 15, 779. The return wasprocessed u/s.143(1) of the Act on 31.10.2008.There was a survey u/Ss.133A of the Act conductedin the case of M/s. VBDPL, the entity whichdeveloped the property. In the course of such survey, the Revenue came to know about the jointdevelopment agreement between the assessee andVBDPL and the fact that capital gain on transfer ofthe property by the assessee had not been offeredto tax in the return of income filed by the assesseefor A.Y. 2007-08. Immediately the assessee filed aworking of long term capital gain arising fromtransferof|theproperty,evey;withoutanyproceedings having been initated against theAssessee. The assessee filed only a computation oflong term capital gain computing the same atRs.2,14,42,340, but did not file a revised return ofincome because the time limit for filing revisedreturn of income had also expired by that time. ©Theabove|circumstancesexplainedby|theAssessee cannot be ignored and was. rightlytreated by the CIT(A) to be circumstance which go toShow the bonafides of the Assessee.| 12.The Assessee’s explanation that owingto wrong professional advise to the effect that inaJoint Development Agreement there was only abarter and no capital gain arises is also a plausibleexplanation. Though no material has been broughton record in this regard by the Assessee, it is 12.The Assessee’s explanation that owingto wrong professional advise to the effect that inaJoint Development Agreement there was only abarter and no capital gain arises is also a plausibleexplanation. Though no material has been broughton record in this regard by the Assessee, it is widely acknowledged that incidence of capital gaintax in a Joint Development Agreement and the yearof chargeability of capital gain tax in a JointDevelopment Agreement is not free from doubt andis always controversial. 13.The subsequent conduct of the Assesseein not raising any legal issue with regard to theyear of taxability of capital gain and validity ofinitiation of reassessment proceedings was alsorightly treated as a circumstance showing thebonafides of the assessee by the CIT(A). It wasopen to the Assessee to have taken a stand that inview of the decision of the Hon'ble Karnataka HighCourt case of Dr.T.K.Dayalu (supra), capital gain inthe case of transfer of capital assets under JointDevelopment agreement will be only the year inwhich the Joint Development Agreement is enteredinto and possession given to the developer fordeveloper. 14.The Assessee paid taxes much beforethe issue of the notice u/s 148 and had also dulyfuled the revised computation of income. The AO’sview 1s that “when the rental income was alreadyoffered to tax, it was in the knowledge of the assessee that the capital gains are also attractedon taking possession of the built up area”. Asalready stated, the issue was debatable and thebelief entertained by the Assessee in this regardcannot be said to be unreasonable. The levy ofpenalty with regard to computation of long termcapital gain by disallowing part of cost ofacquisition, in our view, cannot lead to concealmentand it, at best, could be an error in computation.The primary facts with regard to the computation ofcapital gain filed by the Assessee are true andthereWasTlLconcealmentOT.furnishingof|inaccurate particulars therein. Even with regard todisallowance of labour charges of Rs.1759087/-against the business receipts the disallowance wasmade|owingtomismatchbetweenTIWOsubmissions. The accountant had made a mistake.by submitting a provisional ledger extract at onepointof|timewhichresultedintocertainmismatches in the qmounts. The mismatch in thesubmissions would not result into total expenditure|to be bogus. The labour component is majorexpenditure of the Assessee. The CIT(A) hasexamined the labour payments of Rs.17,59,087made to various parties and the mode of payment andhas|foundthat|labour|chargesforRs.1759087/- have been discharged through bankbarring a small expenditure of Rs.3224/- by cash.It appears to us that the Assessee in order to avoidany litigation with the department has accepted theaddition and did not file any appeal on the additionmade though the entire expenditure is backed upwith clear documentary proof. 15.the Hon’ble Supreme Court in the caseof MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC)has discussed the approach to be adopted in casessuch as that of the Assessee. The assessee-company filed its return of income for theassessment year 2004-05 on 27[th]- October, 2004declaring income of Rs.16.17 lakh along with taxaudit report. The case was selected for scrutiny.At the time of assessment, it came to light that asurvey under section 133A was conducted on theassessee on 16.12.2003. During the course ofSUTVEY,certaindocuments.comprisingshareapplication forms, bank statements, memorandumof association of certain companies, affidavits,copies of income-tax return and blank sharetransfer deeds were impounded. The Assessing 15.the Hon’ble Supreme Court in the caseof MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC)has discussed the approach to be adopted in casessuch as that of the Assessee. The assessee-company filed its return of income for theassessment year 2004-05 on 27[th]- October, 2004declaring income of Rs.16.17 lakh along with taxaudit report. The case was selected for scrutiny.At the time of assessment, it came to light that asurvey under section 133A was conducted on theassessee on 16.12.2003. During the course ofSUTVEY,certaindocuments.comprisingshareapplication forms, bank statements, memorandumof association of certain companies, affidavits,copies of income-tax return and blank sharetransfer deeds were impounded. The Assessing Officer sought specific information pertaining toblank share transfer deeds by means of showcause notice. The assessee-company surrendered asum of Rs.40.74 lakhs as additional income with areply in the following manner: “The offer ofsurrender is by way of voluntary disclosure ofincomewithoutadmittingaryconcealment.whatsoever or with any intention to conceal andsubject to non-initiation of penalty proceedings andprosecution”. The Assessing Officer completed theassessment by adding Rs.40.74 lakhs as incomefrom other sources and the assessment wascompleted on 29.12.2006. Further, the AssessingOfficer initiated proceedings for levy of penaltytowards concealment of income. The Hon'ble DelhiHigh Court applied clause (A) of Explanation 1 andheld that the assessee has not offered anyexplanation and therefore upheld the levy ofpenalty. On appeal by the Assessee, the Hon'bleSupreme Court held that Explanation to section271(1) raises a presumption of concealment, whena difference is noticed by the Assessing Officerbetween the returned income and assessed income. |The burden then is on the assessee to showotherwise, by giving cogent and reliable evidence. When the initial onus is discharged by theassessee, the onus shifts on the Revenue to showthat the amount in question constituted the incomeand not otherwise. The Apex Court held thatsurrender of income with a view to avoid litigation,buy peace and to channelise the energy andresources towards productive work and to makeamicablesettlementwiththeIncome-tax.Department are not recognized type of defenceunder Explanation I to section 271(1)(c) of the Act.It held that the law does not absolve the assessee.from concealment penalty merely because)(Ovoluntary disclosure of concealed income is made. 16.The Hon'ble Supreme Court held thatthe surrender of income in this case ts not voluntaryand the surrender was in view of the detectionmade by Assessing Officer. It is not surrender ofincome on voluntary basis. The survey wasconducted 10 months before the assessee filed itsreturn of income. Had it been the intention of theassessee to make full and true disclosure, it couldhave filed the return declaring the amount whichwas factually surrendered only during the course ofassessment proceedings and not in the return filed. It is a clear case of the assessee not havingintention to declare its true income. 1] 7In the present case, as we have alreadyseen, the original return of income was filed by theAssessee in which the income from the propertywhich the Assessee received under the JointDevelopment Agreement was offered to tax. Aftersurvey in the case of the Property Developer, theAssessee file a revised computation of total incomeoffering capital gain to tax and also paid taxes duethereon. We have already found that theexplanation offered by the Assessee for not offeringthe capital gain in the original return of income asbonafide explanation. In the circumstances, we areof the view that the CIT(A) was fully justified incoming to the conclusion that the case is not a fitcase for imposing penalty u/s.271(1)(c) of the Act.We concur with the view of the CIT(A) and find nomerit in this appeal by the Revenue.” 4The aforesaid shows that two authorities one ClIT(Appeals) and another, Tribunal, after undertaking the fact finding exercise as to whether the explanation 4The aforesaid shows that two authorities one ClIT(Appeals) and another, Tribunal, after undertaking the fact finding exercise as to whether the explanation submitted is bonafide or not, has found that the.appellant has acted in a bonafide manner and theexplanation is accepted. As such, the aforesaid findingof tact should rest with the conclusion of the Tribunal|since the judicial scrutiny by this Court is limited toonly substantial questions of law. 5.|However,Mr.Sanmathi,learnedcounselappearing for the appellant-revenue attempted tocontend that the requisite documentary evidence withregard to any opinion by a lawyer had not come onrecord and therefore, it can be said that the findingrecorded by the Tribunal for the bonafide explanation bythe assessee is without their being any proper materialon record. He has also submitted that the Tribunal hasnot properly appreciated the documents and thematerial on record before recording the finding that it is"a bonatide explanation and hence, the finding appears to be perverse and therefore becomes a substantialquestion of law. 6.|We are not at all impressed by thesubmission for two fold reasons. One, is. that.appreciation of evidence is once again a question of factand not a question of law. The second, is that itis notamatter where the Tribunal has not considered the entirefacts and circumstances of the case under which the!income was offered by the assessee as the income fromhouse property by submission of revised returns andpayment of tax even before the proceedings wereinitiated by the department after survey. TS|Apart from the above, the additional aspect|is that the view of the Tribunal on acquiring propertyunder barter system could not be totally ruled out evenif the contention of the assessee was to be considered asto be bonafide or not. Under these circumstances, it)cannot be said that the Tribunal has recorded a factual finding without their being any material. The momentone says that the material is not sufficient or theevidence on record was not properly appreciated itwould result in upsetting the fact finding by theTribunal, which is beyond the scope of judicial scrutiny. 3.|In view of the above, no substantial questionof law would arise for consideration, as canvassed. —Hence, the appeal is meritless and therefore, dismissed. *alb/-.| Sd/-JUDGESd/-. JUDGE