Mumbai 400 020 v. Airlines Financial Support Services

1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 144 OF 2009 INCOME TAX APPEAL NO. 144 OF 2009 Commissioner of Income Tax-3, Aayakar Bhavan, M.K. Road, Mumbai 400 020 ... Appellant Versus Airlines Financial Support Services (I) Ltd. Maker Chambers VI, 220, Nariman Point, Mumbai 400 021 ... Respondent Mr.Vimal Gupta with Mr. P.S. Sahadevan for Appellant. Mr.V.B. Joshi with Mr. S.G. Dalal for Respondent. CORAM: F.I. REBELLO, & CORAM: F.I. REBELLO, &R.S. MOHITE, JJ. R.S. MOHITE, JJ. DATED: MARCH 12, 2009 DATED: MARCH 12, 2009 ORAL JUDGMENT (Per F.I. Rebello,J.): ORAL JUDGMENT (Per F.I. Rebello,J.): . Revenue is in appeal on the following questions : "(a) Whether on the facts and in the circumstances of the case the Hon’ble Tribunal was right in deleting the penalty of Rs.23,05,554/- by holding that non-acceptance of the explanation of the Assessee Company by the Assessing Officer would not necessarily amount to the concealment of income o the part of the Assessee Company even though Explanation I to Section 271(1)(c) of the Income Tax Act 2 places the entire burden of proof on the Assessee to show that there was no concealment? (b) Whether on the facts and in the circumstances of the case the Hon’ble Tribunal was right in holding that since the assessed income is a loss no penalty can be levied even though the amendment of sub clause (a) of Explanation 4 to Section 271 of the Income Tax Act by Finance Act 2002 is applicable to all Assessment Years and not only with effect from 01.04.2003 as held by the Hon’ble Apex Court in the case of Gold Coin Health Food Pvt. Ltd. in Civil Appeal No. 5065 of 2008?" 2. In so far as question (a) is concerned, on behalf of the Revenue, the learned counsel submits that this will be a case of furnishing inaccurate particulars and consequently the tribunal was not right in confirming the order of the C.I.T. (A) which set aside the penalty imposed on the assessee. . On the other hand on behalf of the assessee, the learned counsel submits that that is not a case where the assessee furnished innacurate particulars, but in fact it is submitted that the assessee had 3 disclosed the same and claimed it as capital expenditure relying on the judgment of this court in Nila Products Limited Versus Commissioner of Income Tax, (1984) 148 ITR 99 (Bom). 3. We have heard the learned counsel. In the instant case, we find that the A.O. in his order itself has observed as under : "I have gone through the case laws relied upon by the assessee and noticed that there is no direct judgment on the issue and the facts and the case are entirely different." . The A.O. was pleased to distinguish the judgment in Nila Products (supra). The appellant had taken on lease the premises for a period of five years. For the purpose of better enjoyment of the premises repair works had been carried out which the assessee had claimed as revenue expenditure. The stand of the A.O. was that the renovation and improvement are very much in the nature of capital expenditure. This is how the matter proceeded before the A.O. The C.I.T. (A) on the facts confirmed the order of the A.O. The assessee did not take the case further. On this basis, the proceedings for penalty were initiated and penalty came to be imposed on the assessee. 4 4. The submission made on behalf of the assessee amongst others is that considering the various clauses in the lease agreement the work carried out in the building would ultimately belong to the owner/landlord and or company. In the case of Nila repair works had been carried out which the assessee had claimed as revenue expenditure. The stand of the A.O. was that the renovation and improvement are very much in the nature of capital expenditure. This is how the matter proceeded before the A.O. The C.I.T. (A) on the facts confirmed the order of the A.O. The assessee did not take the case further. On this basis, the proceedings for penalty were initiated and penalty came to be imposed on the assessee. 4 4. The submission made on behalf of the assessee amongst others is that considering the various clauses in the lease agreement the work carried out in the building would ultimately belong to the owner/landlord and or company. In the case of Nila Products (supra), the learned Bench of this Court was considering the issue of expenditure incurred by the tenant who had also taken the premises on lease for a particular period at the end of which period, the assessee there had to remove the improvements. It was in that context that the learned Bench held that the construction were made exclusively for the purposes of proper utilization of the premises and cannot be said to bring into being any asset or benefit of an enduring nature. Another learned Bench of this Court in C.I.T. Vs. Hede Consulatancy Pvt. Ltd. and another, (2002) 258 ITR 380 (Bom) was considering the case where the godown has been taken on lease by the assessee who spent moneys for converting the godown premises into the office by renovating it and incurring expenses. The learned Bench after considering various tests as to whether the particular expenditure is capital or revenue expenditure held that the expenditure incurred, considering the facts should be looked upon as revenue expenditure. 5 5. In the instant case, the appellant had not concealed the particulars of income. The appellant herein had disclosed the same. The bone of contention only was whether the assessee was right in claiming it as revenue expenditure. The A.O. held that it was capital expenditure. In this context, in our opinion, the judgment of the Supreme Court in T. Ashok Pai Versus Commissioner of Income Tax (2007) 292 ITR 11 (SC) would have a great bearing. The Supreme Court in the context of expression "inaccurate" has been pleased to observe as under : "The word "inaccurate" in the context of levying penalty under section 271(1)(c) signifies a deliberate omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars." . Considering the facts in the present case, we find that the assessee had furnished the particulars. He had bona fide relied on the judgment of this court which had taken a view that similar expenses has to be treated as revenue expenditure. In other words, there was no attempt 6 to conceal or to furnish inaccurate particulars. In our opinion, therefore, considering the facts it cannot be said that the predicates of Section 271(1)(c) were satisfied for imposing the penalty. There was no deliberate omission on the part of the assessee either for the purpose of concealment of income or furnishing of inaccurate particulars. An assessee who bona fide relies on a judgment of a High Court within whose jurisdiction it carries on business can not be said to be deliberately concealing. On the contrary he was following the law declared. The findings recorded by the C.I.T. (A) and as confirmed by the I.T.A.T. cannot be said to suffer from any error of law or raise any substantial question of law. In the light of that, there is no merit in question (a) as framed. 5. In so far as question (b) is concerned, the appeal to that extent will have to be allowed 271(1)(c) were satisfied for imposing the penalty. There was no deliberate omission on the part of the assessee either for the purpose of concealment of income or furnishing of inaccurate particulars. An assessee who bona fide relies on a judgment of a High Court within whose jurisdiction it carries on business can not be said to be deliberately concealing. On the contrary he was following the law declared. The findings recorded by the C.I.T. (A) and as confirmed by the I.T.A.T. cannot be said to suffer from any error of law or raise any substantial question of law. In the light of that, there is no merit in question (a) as framed. 5. In so far as question (b) is concerned, the appeal to that extent will have to be allowed considering the judgment of the Supreme Court in C.I.T. Vs. Gold Coin Pvt. Ltd. 304 ITR 308. In view of that question (b) is answered in favour of the Revenue and against the Assessee. The order of the tribunal stands modified accordingly. (R.S. MOHITE, J.) (R.S. MOHITE, J.)(F.I. REBELLO,J.) (F.I. REBELLO,J.) (R.S. MOHITE, J.)