TaxTMI 
TaxTMI 
2014 (7) TMI 82
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....fficer, including observation that (a) agreement to sell entered into by the appellant with the buyer was self serving evidence and not a genuine document, and (b) the loss claimed was not genuine loss. 1.2 That the CIT(A) erred in holding that the appellant failed to establish the source of the amount received. 1.3 That the AO/CIT(A) failed to appreciate that the fact that appellant did not derive any advantage/benefit set off of the declared 'long-term capital loss' while computing the taxable income of not only the current year but also the immediately three succeeding year (s) [i.e. up to the assessment year 2009-10] was, by itself, sufficient to: (a) establish that the claim made was bona fide; and (b) dislodge the suspicion that the claim was not genuine. 2. Without prejudice, that the CIT(A) erred on facts and in law in not directing the assessing officer to allow the long-term capital loss in the subsequent year (s). The appellant craves leave to add, amend, alter or vary the above ground of appeal at or before the time of hearing." 2. The assessee in the year under consideration was engaged in the manufac....
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....ssessee during FY 2005-06. The details of the expenses of Rs.86,881,641/- reimbursed are as follows: Cause of Remittance Amount INR Reimbursement of imported cost of Components 15,816,750/- Reimbursement of imported cost of Components 6,705,898/- Refund of technical services fee paid earlier 2,813,823/- Reimbursement of expenses (For Production expenses Administrative Expenses) 57,163,678/- Receivable from SMC for advertising, Incentives, etc 2,454,613/- Technical advisor Fee Reimbursement 1,926,879/- 86,881,641/- 5. Your goodself will appreciate the fact that during the FY 2006-07, Rs.86,881,641/- reimbursed by SMC has been reported as Income in the profit and loss account as a prior period income and the same has been offered for taxation in A.Y 2007-08. Copy of computation of Income and audited financial statement for the AY 2007-08 is annexed herewith for your ready reference. 6. Since the reimbursement of Rs.86,881,641/- against the expenses incurred by the assessee during the FY 2005-06 the said income forms the part of F....
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....place on two separate dates namely 17th April 2014 and 28th April 2014. The grounds raised in the penalty proceedings in ITA No-6487/Del/2013 read as under:- "1. That the Commissioner of Income-tax (Appeals) erred on facts and in law in not holding that the impugned order dated 14/3/2012 levying penalty u/s 271(1)(c) of the Income Tax Act, 1961 ('the Act') is without jurisdiction, bad in law and void-ab-initio. 1.1 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that satisfaction for initiating penalty, particularly in respect of addition of reimbursement of expenses, was not discernable from the assessment order, which sine qua non for assumption of jurisdiction. 1.2 That the Commissioner of Income-tax (Appeals) erred on facts and in law in holding that the appellant exceeded its jurisdiction in requesting the assessing officer to keep the penalty proceedings in abeyance, without appreciating that since outcome of quantum proceedings had direct bearing on the penalty proceedings and no prejudice would have was caused to the Revenue, it would have been prudent to in keep th....
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...., there was no question of any concealment/furnishing of inaccurate particulars of income for the year under consideration. 3.2 That the Commissioner of Income-tax (Appeals) failed to appreciate that the appellant had, suo-moto, pointed out the factum of receipt of reimbursement of expenses in the subsequent year during the assessment proceeding and voluntarily offered the said amount to tax during the current year, despite the fact that: (a) SMC had agreed to reimburse the expenses during the previous year 2006-07 and consequently, the amount accrued in the A.Y 2007-08; and (b) the appellant had, and rightly so, already offered the amount for tax in the return for the A.Y 2007-08. 3.3 That the Commissioner of Income-tax (Appeals) failed to appreciate that since the appellant had suffered huge losses in the A.Y 2006-07 and also A. Y 2007- 08, the year of taxation of the aforesaid amount was immaterial. 3.4 That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that there was no concealment ....
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.... of the long term capital loss the assessee has simply filed copy of alleged agreement to sell and further documentary evidences or details as asked have not been field. Even the said agreement to sell is not registered and appears to be a self serving evidence. The assessee has claimed that para -4 of the said agreement stipulates the even on which the transfer of owner ship will get transferred to buyer. It is noticed that the alleged agreement is dated 30/3/2006 and it has been mentioned in Clause 4 of the same that actual, physical, vacant and peaceful possession of the said property shall be handed over by the seller to the buyer at the time of execution of the sale deed or at the time of total payment, property in question was not handed over. Neither the assessee has produced any documentary evidence to prove that any actual possession was handed over by 31/3/2006 (by the end of the year itself) as asked again and again. The alleged agreement to sell does not appear to be a genuine document. It is to be noticed that the said agreement to sell was never implemented since, when asked to intimate if any actual sale deed was registered pursuant to the said ....
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.... statement, books of account and personal presence of Sh. Rana Iqbal Singh Jolly was sought. However, in response to the same, the assessee submitted only part of the bank statement which was not even on the letter head of the bank or bearing any stamp of the assessee company/bank. This alleged photo copy of Sh. Ran Iqbal Singh Jolly's account reveals a sum of Rs.24,043,856/- is received on 31/3/2006 in his account No. 125-154708-006 and on the same day payment of Rs.2.4 crores was made by vide cheque No. 021341 on 31/3/2006. It is pertinent to note that as a matter of routine the said bank account did not have any large deposits or withdrawals in the last one whole month of which the assessee has submitted the alleged photo copy of bank account. In other words this was not a routine transaction. The assessee failed to establish the genuineness and capacity of the said amount allegedly received from one Sh. Rana Iqbal Singh Jolly. Sh. Rana Iqbal Singh Jolly has not been produced though his presence was specifically required and the books of accounts from which the said amount of Rs.2.4 crores was deposited in his bank account have not been produced. Merely mentioning a PAN No. does....
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....reimbursed with Rs.500,274,999/-. Out of the total reimbursement of Rs.500,274,999/- received Rs.86,881,641/- pertained to the expenses incurred by the assessee during FY 2005-06. The details of the expenses of Rs.86,881,641/- reimbursed are as follows: Cause of Remittance Amount INR Reimbursement of imported cost of Components 1,58,16,750/- Reimbursement of imported cost of Components 67,05,898/- Refund of technical services fee paid earlier 28,13,823/- Reimbursement of expenses (For Production expenses Administrative Expenses) 5,71,63,678/- Receivable from SMC for advertising, Incentives, etc 24,54,613/- Technical advisor Fee Reimbursement 19,26,879/- 8,68,81,641/- During the FY 2006-07, Rs.86,881,641/- reimbursed by SMC has been reported as Income in the profit and loss account as a prior period income and the same has been offered for taxation in A.Y 2007-08. Since the reimbursement of Rs.86,881,641/- against the expenses incurred by the assessee during the FY 2005-06 the said income forms the part of FY 2005-06. Due the timing difference, as it was received by the assessee in FY 2006-07, aud....
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....enalty order deserves to be quashed as neither on account of long term capital loss any inaccurate claim has been made nor looking at the disclosures made it can be said that the assessee has concealed any relevant fact. Inviting attention to the material available on record, it was submitted that the assessee in the year under consideration sold land measuring 6.25 acres in village Khekri Gaula, Badshahpur, Link Road, Gurgaon to Mr. Rana Iqbal Singh Jolly vide Agreement to sell which is available to the AO and on record for a consideration of Rs.2.4 crores which was duly received by the assessee. The specific land belonged to the assessee which was agreed to be sold for a specific price the amount was received through banking channels. The same was duly incorporated in the return of income and the assessee declared long term capital loss amounting to Rs. 36,18,407/- on account of the aforesaid transfer. It was his submission that it is a matter of record that subsequently Mr. Iqbal rescinded the agreement to sell and a fresh agreement was executed with M/s Petal Estate Private Limited ("PEPL") vide agreement to sell dated 03.03.2007 for the same amount of consideration. It was his....
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....ne; - Undisputedly, loss has actually been suffered by the appellant in the transaction of sale of land vide subsequent 03.03.2007, which is not disputed by the Revenue; - The entire facts in respect of the aforesaid were fully disclosed in the return of income and the claim made by the appellant was bonafide, at the time of filing of return of income. The aforesaid action of the AO is, therefore, based upon incorrect appreciation of the facts of the case and the position in law as elaborated at pages 24 to 30 of the broad submissions." 7.1. Apart from the above arguments on facts reliance was placed upon CIT vs Reliance Petro Products Pvt. Ltd. 322 ITR 158 (SC) for the proposition that on facts where full disclosure are made penal action was not warranted. Referring to the submissions advanced before the CIT(A) it was also emphasized that in the case of the assessee there is a persistent loss suffered by the assessee which has continued in subsequent years also accordingly the bona fide of the assessee cannot be doubted as not only the assess....
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....f the Agreement made the necessary disclosures since sale consideration had been received. The action of the assessee in relying upon the same and placing full facts on record cannot be said to be either concealing the facts or filing inaccurate particulars. It was argued that the mere fact that ultimately the property was sold to M/s Petal Estate (P.) Ltd. in whose favour it was ultimately transferred shows that the assessee has kept the department fully informed at all stages and it is not the fault of the assessee that property which was sold to Sh. Rana Iqbal Singh Jolly could not be transferred in his name and ultimately sold to another concern. The allegation that the property was sold at the same price instead of higher price it was argued is baseless as it was common knowledge that property prices instead of rising have been consistently falling over the years. 7.3. Addressing the addition made on the basis of letter addressed to the AO in the course of the assessment proceedings it was his submission that the addition made has not been challenged by the assessee this fact does not mean that there was some discovery by the AO or otherwise, the same was accepted by the as....
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....roperty as per the Transfer of Property Act is complete only when sale deed is registered and Agreement to sell cannot replace the sale deed. Relying upon the impugned order it was emphasized that the department has doubted how the very same property was sold again at the same price after a gap of few years clearly shows that the transaction claimed is not genuine. Heavy reliance was placed on the finding of the CIT(A). 8.1. For ready-reference, we reproduce para 7 of the impugned order hereunder:- "7. Ground No. 2 of the appeal is against the disallowance of Rs. 36,18,4071- made by the AO on account of 'long term capital loss ' It is noticed that the appellant bas treated the transfer of land as complete on the basis of 'agreement to sell' only and thus computed and claimed long term capital loss. As per the agreement, no physical possession was handed over to the proposed buyer and the same was to be given only at the time of' registration of sale deed. Such action of the appellant was blatantly wrong and the same cannot be justified by any stretch of arguments. As per Transfer of Property Act, transfer through sale of immovable proper....
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....ome which attracts penalty u/s 271(1)(c) of the Act. The AO was fully justified in imposing penalty upon the amount of loss claimed by the appellant on the basis of agreement to sell." 8.2. Addressing the next additions sustained by the CIT(A) in the quantum proceedings on account of which penalty has been imposed. It was his submission that admittedly part of the amount which has been added pertains to the year under consideration and the assessee in the circumstances has not even challenged the addition made. The argument that the assessee filed Revised computation it was submitted is of no merit as the same was filed after the due date. The re-imbursement increased the income by the stated amount and relying upon the impugned order it was contended the penal action was fully warranted. 9. We have heard the rival submissions and perused the material available on record. Before we proceed to arrive at a conclusion it is necessary to refer herein to the fact that on the next date of hearing the Ld. AR who was given time to seek instruction stated that he is not in a position to state that the quantum proceedings are not being pressed and he would only state that the arguments....
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....owable with sufficient details and documentary evidences. It is evident from the above mentioned facts that the assessee has' been allowed a number of opportunities to discharge his onus but he has [ailed to do so. 1f certain amount has been claimed as long term capital loss and the case is already under scrutiny since long, the assessee should he ready with sufficient documentary evidences to prove the same, more so if the (A) is asking for the same again and again. From the facts mentioned by the assessee and evidences brought on record by him the long term capital loss as declared in the return of income does not appear to he genuine at all. In support of the long term capital loss simply copy of alleged agreement to sell has been filed and further documentary evidences or details as asked have not been filed. Even the said agreement to sell is not registered and appears to be a self serving evidence. The assessee has claimed that para 4 of the said agreement stipulates the event on which the transfer of owner ship will get transferred to buyer. It is noticed that the alleged agreement is dated 30.03.2006 and it has been mentioned in clause 4 of the same that the actual, phy....
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....nsfer for long term capital gain/loss then why the similar transaction made in respect of the same property in the very next year have not been considered and shown under the same head of long term capital gain/loss. In any case, the facts stated by the assessee are not convincing and the assessee has failed to prove that there was any actual transaction or transfer which may result into any actual long term capital loss in the year. After having considered all facts of the case it is held that the long term capital loss declared by the assessee in the return of income at Rs. 36,18,407/- is not genuine and hence not allowable. Accordingly the long term capital loss declared by the assessee at Rs. 36,18,407/-." 9.4. Aggrieved by this the assessee came in appeal before the First Appellate Authority who confirmed the addition made holding as under:- "During the course of present proceedings vide order sheet entry dated 11.3.10, the assessee was asked to prove the genuineness of source of Rs. 2.4 crores as paid by the alleged buyer (the land was subsequently returned to the assessee). It was specifically stated that merely giving the chequ....
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....f Rs. 2.4 crores, introduced in his books of accounts on 31.3.2006. The assessee has failed to establish the source of the said amount hence, the stand of the AO is accepted." 9.5. Considering the above peculiar facts and circumstances and the arguments advanced, we are of the view that in the peculiar facts and circumstances of the case the addition sustained by the CIT(A) deserves to be upheld and no interference with the said conclusion on facts is warranted as admittedly the very same property was sold in the next assessment year stands demonstrated by the Registration of the said transaction. In the circumstances the addition is sustained. 9.6. In the result ITA No.-4248/Del/2013 is dismissed. 10. In the above background we now proceed to consider the arguments advanced in the penalty proceedings wherein penalty has been imposed on account of two additions. Taking the second addition first wherein the addition of Rs.8,68,81,641/- pertaining to re-imbursement of expenses it is seen that the same was made solely on account of letter dated 28.10.2009 addressed by the assessee to the AO (relevant portion has been extracted in the earlier part of this....
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.... proceedings has been upheld by us. It is settled legal position for which no authority need be cited that penalty proceedings and quantum proceedings are separate and distinct. It is equally a settled legal position which also needs no authority that the explanation offered in the penalty proceedings has to be considered separately and independently in the matrix of the requirements of the penal provision. It is a matter of record that the specific property vested with the assessee for which a specific amount was received from a specific person by way of banking channels in pursuance to an Agreement to Sell (copy available on record) and the said property was ultimately sold to a different unconnected concern again by Agreement to Sell (copy also available on record) which was duly registered with the Land Revenue Authorities at Manesar in the subsequent assessment year. In the above background the record shows that the genuineness of the assessee's claim has been doubted as Mr. Rana Iqbal Singh Jolly the person with whom the first agreement to sell was entered into as the source of his funds etc. could not be proved by the assessee. The amount received was ultimately returned bac....