Saraogi Mansion Estate Private Limited v. Deputy Commissioner Of Income Tax, Circle 2, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 4 / 2017 Saraogi Mansion Estate Private Limited, Having Its Registered Address At 04, Hathroi Market, Ajmer Road, Jaipur Through Its Director & Authorized Signatory Shri Kishore Kumar Saraogi ----Appellant Versus Deputy Commissioner of Income Tax, Circle 2, Jaipur Having Its Address At New Central Revenue Building, Statue Circle, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr.Siddharth Ranka For Respondent(s) : Mr.Anuroop Singhi _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASOrder 06/11/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal preferred by the assessee and confirm theorder of CIT(A) and AO. 2.This Court while admitting the appeal on 24.1.2017, framed the following substantial questions of law: “Whether on the facts and material available onrecord and in law the ld. ITAT was justified inconfirming penalty u/s. 271(1)(c) of the Act?” 3.Counsel for the appellant contended that in view of guidelines issued on the Revised Schedule VI to thecompany under the Companies Act, 1956 by the Institute ofChartered Accountants of India, New Delhi where in Paragraph 9.8.1.3, reads as under: “9.8.1.3 Any interest on shortfall in paymentof advance income-tax is in the nature offinance cost and hence should not be clubbedwith the Current tax. The same should beclassified as Interest expense under financecosts. However, such amount should beseparately disclosed.” 4.In that view of the matter, the amount which has beenshown by the assessee under the Schedule “F” “Interest Paid”, inthe schedule annexed to the profit and loss account for the year ended on March 31, 2010, reads as under: 5.Learned counsel for the appellant relied upon thedecision of Delhi High Court in Shervani Hospitalities Ltd. Vs.Commissioner of Income-tax, [2013] 35 taxmann.com 271(Delhi), wherein it has been observed :- “18. Whether or not expenditure incurred onrenovation or improvement or repairs on theleasehold premises can be allowed and treated asrevenue expenditure, has been elucidated inseveral cases. There are several cases in which thesaid claim has been allowed. It is the contention ofthe assessee that Explanation 1 to Section 32 ofthe Act applies to expenditure on property onlease or with right to occupy which otherwise iscapital expenditure. Reliance is placed on CIT vs.EDC Electronic Data Systems Pvt. Ltd. (2012) 211Taxman 133 (Del), where the High Court hasrecorded that the Tribunal had accepted the pleaof the assessee that the expenditure falling underthe head 'current repairs' would be covered underthe head 'revenue expenses'. The tribunal hadobserved that Explanation 1 to Section 32 wouldcome into play when the expenditure otherwisewas capital in the nature and depreciation had been claimed. We are not required to go into thecorrectness of the said view in the present case,but only notice that two views on the questionwere possible even after introduction ofExplanation 1 to Section 32. We have noticedabove that the Tribunal in the quantumproceedings has observed that earlier ratioexpounded in Madras Auto Service (supra) andInstallment Supply Co. (supra) was in favour ofthe assessee. We note that in the case of EDCElectronic Data Pvt. Ltd. (supra), the appeal filedby the Revenue was dismissed observing that theTribunal had observed that the assessing Officerhad partly allowed and permitted deduction to theextent of Rs. 70 lacs approximately under Section37 of the Act. The Tribunal had remitted thematter to the lower authorities to the extent of Rs.2.75 crores for re-examination. Similarly in CIT vs.Citi Financial Consumer Finance (2011) 335 ITR29 (Del.), a Division Bench of this Court dismissedthe appeal of the Revenue and treated expenditureof Rs. 1.52 crores on leasehold improvements asrevenue in nature and did not accept the plea ofthe Revenue that the expenditure should becapitalized. The expenditure was incurred on civilwork, laying cables, flooring, wall finishing etc.Earlier in CIT vs. Hi Line Pens (P) Ltd. [2008] 306ITR 182 (Del), another Division Bench of this Courtmade specific reference to Explanation 1 toSection 31(1) and Section 30(a)(i) and the word'current repairs'. It was observed that theexpenditure under the head 'current repairs'should be allowed as revenue deduction as by verynature tenancy right is for a limited period anddoes not create any asset. The question wasanswered in favour of the assessee and againstthe Revenue. In CIT vs. Escorts Finance Ltd.(2006) 205 CTR 574 (Del), yet again expenditureincurred on carrying out repairs to make thepremises workable, to replace glasses etc. wastreated as a revenue expense. The expenditureincluded polishing of floor, wooden paneling etc.Reference in this regard may also be made todecisions of the Madras High Court and the Punjaband Haryana High Court in CIT vs. Ayesh HospitalsPvt. Ltd. 2007 292 ITR 266 (Mad.) and CIT vs.Porrits & Spencer (A) Ltd. (2002) 257 ITR 49 (P &H). 19. We have extensively referred to thesejudgments, only to show that the issue raised bythe assessee was debatable and capable of twoviews. The assessee had an arguable case or hadtaken a bonafide plea. The assessee had given hisexplanation and categorically and clearly stated the true and full facts in the return itself. He didnot try to camouflage or cover up the expensesclaimed. It is not uncommon and unusual for anassessee to bonafidely claim a particularexpenditure as a revenue deduction and expensebut not succeed. Every addition or disallowancemade does not justify and mandate levy of penaltyfor concealment under Section 271(1)(c) of theAct. Levy of penalty is not an automaticconsequence when an addition is made bydisallowing an expense and by not accepting theinterpretation given by the assessee. As statedabove, the plea and contention raised by theassessee has to be examined before it is decidedwhether or not the assessee has been able tobring his case within the four corners of theExplanation. the true and full facts in the return itself. He didnot try to camouflage or cover up the expensesclaimed. It is not uncommon and unusual for anassessee to bonafidely claim a particularexpenditure as a revenue deduction and expensebut not succeed. Every addition or disallowancemade does not justify and mandate levy of penaltyfor concealment under Section 271(1)(c) of theAct. Levy of penalty is not an automaticconsequence when an addition is made bydisallowing an expense and by not accepting theinterpretation given by the assessee. As statedabove, the plea and contention raised by theassessee has to be examined before it is decidedwhether or not the assessee has been able tobring his case within the four corners of theExplanation. 20. Explanation 1 clearly stipulates that thepenalty can be imposed when the details furnishedby the assessee are found to be incorrect,erroneous and false. Merely making a claim whichis held as not sustainable under law should notlead to penalization, when the assessee hadfurnished full details in the return itself and theclaim is a debatable, reasonably plausible or maywell have been accepted. (See CIT vs. ReliancePetro Product Pvt. Ltd. 2010 322 ITR 158 (SC),CIT vs. Dharampal Premchand Ltd. 2011 329 ITR572 (Del.), CIT vs. Societex ITA No. 1190/2011decided on 19.07.2012, by this Court). In KaranRaghav Exports Vs. CIT (2012) 349 ITR 112(Del.), it has been observed as under:-penalty can be imposed when the details furnishedby the assessee are found to be incorrect,erroneous and false. Merely making a claim whichis held as not sustainable under law should notlead to penalization, when the assessee hadfurnished full details in the return itself and theclaim is a debatable, reasonably plausible or maywell have been accepted. (See CIT vs. ReliancePetro Product Pvt. Ltd. 2010 322 ITR 158 (SC),CIT vs. Dharampal Premchand Ltd. 2011 329 ITR572 (Del.), CIT vs. Societex ITA No. 1190/2011decided on 19.07.2012, by this Court). In KaranRaghav Exports Vs. CIT (2012) 349 ITR 112(Del.), it has been observed as under:- 14. On the second aspect, we recordthat a wrong deduction claimed canamount to furnishing of incorrectparticulars. However, that is not theissue in question. The issue in questionis whether the appellant has been ableto discharge the onus underExplanation 1 to Section 271 and showthat the claim made by them or theexplanation offered with regard to theclaim made was bona fide and that thefacts relating to the same and materialfor computation of the total income hadbeen disclosed. These are two facets ofclause (B) to Explanation 1. As far asdisclosure of facts is concerned, this isclear from the note, which was attachedwith the return itself. We have quotedthe relevant portion of the note above.Full and correct facts have been statedin the said note. The other question isthat a wrong deduction claimed canamount to furnishing of incorrectparticulars. However, that is not theissue in question. The issue in questionis whether the appellant has been ableto discharge the onus underExplanation 1 to Section 271 and showthat the claim made by them or theexplanation offered with regard to theclaim made was bona fide and that thefacts relating to the same and materialfor computation of the total income hadbeen disclosed. These are two facets ofclause (B) to Explanation 1. As far asdisclosure of facts is concerned, this isclear from the note, which was attachedwith the return itself. We have quotedthe relevant portion of the note above.Full and correct facts have been statedin the said note. The other question is whether the claim made was palpablywrong and legally untenable or adebatable and plausible claim on whichthe assessee did not succeed on legalinterpretation. We have examined thenature of the claim made and thefindings recorded by the High Court intheir order dated 1st November, 2010.The claim made by the appellant mayhave been rejected, but it cannot besaid that the same was not plausible orlegally tenable. This aspect has beendiscussed above and it has been heldthat the claim made was bona fide.Regarding the legal opinion in writing, itis not mandatory for a person to obtainlegal opinion in writing. Assessees dotake legal opinion and in the presentcase the return of income was dulyaudited. Claim for depreciation is atechnical claim based on interpretationof legal provision. Legal opinion, in suchcases, is frequently given by CharteredAccountants to help the company toprepare its return of taxable income. Inthe present case, there is no allegationthat the quantum of depreciation claimwas incorrectly computed. The noteitself indicates that it is written by aprofessional.” 6.He also took us through the decision of Delhi HighCourt in IT Appeal Nos. 116 & 118 to 122 of 2007,Commissioner of Income Tax v/s Anand Prakash dated27.02.2009, wherein Delhi High Court has observed as under: “This takes us to the second question as towhether the Tribunal has erred in law in deletingthe levy of interest under s. 234B of the IT Act.We feel that although the conclusion of theTribunal with regard to the levy of interest under s.234B being penal in nature is not correct, theultimate conclusion arrived at by the Tribunalcannot be interfered with. We are of this viewbecause interest under s.234B is clearly by way ofcompensation. What the Revenue proposes to doin the facts and circumstances of the cases is tocharge interest for the default in payment ofadvance tax in the years in question. It can onlyjustify such a levy or charge if it has suffered aloss. This follows from the conclusion that the levy of interest under s.234B is compensatory innature. The fact remains that no money belongingto th Government was withheld by the assessee inthe years in questions. In fact, the interestpayable on account of enhanced compensationwas not even known to the assessee till muchlater. How could the assessees then be expected tohave paid advance tax on something which hadnot been received by the assessees and whichwould not have even been in their contemplation.In other words the assessee could not haveincluded the interest received on enhancedcompensation in the assessment years underconsideration while estimating his income for thepurposes of calculation of advance tax for therelevant years. It is a well known principle that thelaw cannot compel anyone to do the impossible.The Government itself, on the one hand delayedthe payment of compensation to the assesseesand on the other it expects to levy interest on theassessee for having allegedly defaulted in makingpayments towards advance tax. We are clear inour minds that the Revenue has not suffered anyloss and, therefore, there can be no question oflevying interest under s. 234B of the said Act.Thus, while we decide question 1 in favour of theRevenue and against the assessees, question 2 isdecided in favour of the assessees. In view of this,the appeals are liable to be dismissed. It isordered accordingly. The parties shall bear theirown costs.” 7.Learned counsel also relied upon the decisions in different High Courts which are as under : 1. In case of Price Waterhouse Coopers (P.)Ltd. Vs. Commissioner of Income-Tax, Kolkata-I, [2012] 25 taxmann.com 400 (SC), wherein ithas been observed :- - 7.Learned counsel also relied upon the decisions in different High Courts which are as under : 1. In case of Price Waterhouse Coopers (P.)Ltd. Vs. Commissioner of Income-Tax, Kolkata-I, [2012] 25 taxmann.com 400 (SC), wherein ithas been observed :- - “19. The contents of the Tax AuditReport suggest that there is noquestion of the assessee concealing itsincome. There is also no question ofthe assessee furnishing any inaccurateparticulars. It appears to us that allthat has happened in the present caseis that through a bona fide andinadvertent error, the assessee whilesubmitting its return, failed to add theprovision for gratuity to its totalincome. This can only be described as a human error which we are all proneto make. The calibre and expertise ofthe assessee has little or nothing to dowith the inadvertent error. That theassessee should have been carefulcannot be doubted, but the absence ofdue care, in a cash such as thepresent does not mean that theassessed is guilty of either furnishinginaccurate particulars or attempting toconceal its income. 20.We are of the opinion, giventhat peculiar facts of this case, thatthe imposition of penalty on theassessee is not justified. We aresatisfied that the assessee hadcommitted an inadvertent and bonafide error and had not intended to orattempted to either conceal itsincomeoffurnishinaccurateparticulars.” 2.In case of Commissioner of Income-Tax,Ahmedabad Vs. Reliance Petroproducts (P.)Ltd.,[2010] 189 Taxman 322 (SC) wherein ithas been observed :- 5. By way of response to the ShowCause Notice regarding the penalty inits reply dated 22.3.2006, the assesseeclaimed that all the details given in theReturn were correct, there was noconcealment of income, nor were anyinaccurate particulars of such incomefurnished. It was pointed out that thedisallowance made by the AssessingAuthority in the Assessment Orderunder Section 143(3) of the Act weresolely on account of different viewstaken on the same set of facts and,therefore, they could, at the most, betermed as difference of opinion butnothing to do with the concealment ofincome or furnishing of inaccurateparticulars of such income. It wasclaimed that mere disallowance of theclaim in the assessment proceedingscould not be the sole basis for levyingpenalty under Section 271(1)(c) of theAct. It was submitted specifically that itwas an investment company and in its own case for Assessment Year 2000-01the Commissioner (Appeals) haddeleted the disallowance of interestmade by the Assessment Officer andthe Tribunal has also confirmed thestand of the Commissioner (Appeals)for that year and, therefore, it was onthe basis of this that the expenditurewas claimed. It was further submittedthat making a claim which is rejectedwould not make the assessee companyliable under Section 271(1)(c) of theAct. It was again reiterated that therewas absolutely no concealment, norwere any inaccurate particular eversubmitted by the assessee-company. 3. In case of Commissioner of Income-Tax Vs.Ms.Sania Mirza, [2013] 40 taxmann.com 17(Andhra Pradesh), wherein it has beenobserved :--- “4. Later on the assessment wasreopened by issuing a notice to theassessee and when the assessmentwas reopened, she voluntarilyoffered Rs. 30,63,310 for tax.BeforetheAO,heradvocate/charteredaccountantstated that the amount was shownin the capital account and was notshown as a capital receipt. But sincethe issue had arisen, it was beingoffered as taxable income. 5. The AO accepted the amount as taxable income and levied the tax accordingly. 6. However, in addition to levyingtax, the AO decided to imposepenalty of Rs. 10,14,582 on theground that the assessee hadfurnished inaccurate particulars ofher income and concealed herincome. 3. In case of Commissioner of Income-Tax Vs.Ms.Sania Mirza, [2013] 40 taxmann.com 17(Andhra Pradesh), wherein it has beenobserved :--- “4. Later on the assessment wasreopened by issuing a notice to theassessee and when the assessmentwas reopened, she voluntarilyoffered Rs. 30,63,310 for tax.BeforetheAO,heradvocate/charteredaccountantstated that the amount was shownin the capital account and was notshown as a capital receipt. But sincethe issue had arisen, it was beingoffered as taxable income. 5. The AO accepted the amount as taxable income and levied the tax accordingly. 6. However, in addition to levyingtax, the AO decided to imposepenalty of Rs. 10,14,582 on theground that the assessee hadfurnished inaccurate particulars ofher income and concealed herincome. 8. We have heard learned counselfor the Revenue and find thatthere is nothing to suggest thatthe assessee acted in a mannersuch as to lead to the conclusionthat she had concealed theparticulars of her income or hadfurnished inaccurate particulars of income. The admitted position isthat the amount of Rs. 30,63,310was shown by her in the return.That being the position, it cannotbe said that there was anyconcealment. There is no disputeabout the fact that the amountwas correctly mentioned andtherefore, there is also nothinginaccurate in the particularsfurnished by her. The only errorthat seems to have beencommitted was that it was notshown as a capital receipt. But assoon as this was pointed out, theerror was accepted and theamount was surrendered to tax.” 4. In case of Rave Entertainment (P) Ltd. V/s Commissioner of Income Tax, [2016] 66 taxmann.com 369 (Allahabad) wherein it hasbeen observed :been observed : “16. It is pertinent to mentionthat an order imposing penalty forfailure to carry out a statutoryobligation is the result of a quasi-criminal proceedings and penaltywill not ordinarily be imposedunless the party obliged eitheracted deliberately in defiance oflaw or was guilty of conductcontumacious or dishonest, oracted in conscious disregard of itsobligation. Penalty will not also beimposed merely because it islawful to do so.” 8.Counsel for the respondent supports the order of the Tribunal. 9.We have heard counsels of both the parties. 10.In view of the well settled legal provisions as much asin the matter has specifically stated and the referred in thebalance sheet, in our considered view, the view taken by theTribunal is required to be reversed. In view of the observationsmade by the Delhi High Court in the last para in Shervani Chauhan/6 Hospitalities’ case mentioned above. Without entering into merit, penalty could not be imposed. 11.Issue is required to be answered in favour of assessee against the department. 12.The appeal is allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J.