HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 48 / 2015 M/s Jalan Hard Coke Pvt Ltd. company duly incorporated under provisions of Companies Act, 1956 and having its registered office at 4/3, Kala Kuan, Housing Board, Alwar (Rajasthan) acting through its duly authorised director, Shri B.N. Jalan, aged 72 years, resident of 4/3, Kala Kuan, Housing Board, Alwar (Raj.) Appellant Versus Asstt Commissioner Of Income Tax, Circle-2 Aayakar Bhawan Moti Doongri Road, Alwar, Rajasthan Respondent For Appellant(s) : Mr. Anant Kasliwal For Respondent(s) : Ms. Parinitoo Jain with Ms. Shiva Goyal HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 01/08/2017 1. By way of this appeal, appellant has assailed judgment and order of Tribunal whereby Tribunal has dismissed appeal of assessee. 2. This court while admitting matter framed following question of law:- Whether ld. Income Tax Appellate Tribunal was justified in having confirmed levy of penalty under Section 271(1)(c) in facts & circumstances of case? 3. Counsel for appellant contended that assessing officer while imposing penalty has observed as under:- (2 of 9) [ITA-48/2015] assessee company filed its return of income declaring loss of Rs. 46,482/- after claim of expenses of Rs. 3,51,897/- and depreciation of Rs. 1,96,979/- on building purchased during year at Bombay on 27.3.1996. return of income was processed u/s 143(1) on 9.3.1998. After processing u/s 143(1) processing u/s 147 were initiated by issuance and service of notice u/s 148 of I.T. Act, 1961 after recording reasons of reopening. 4. CIT(A) has allowed appeal and remitted matter back to Assessing Officer for reassessing 100% penalty by observing as under:- 4.3. I have perused penalty order as well as submission of assessee and case laws relied on that assessee has intentionally claimed preoperational expenditure against income from other source and depreciation on building which was not meant for business purposes. In this case assessee has not agreed to make addition and explanation filed before AO is not relevant at all. assessee has other objects of finance in Memorandum of Association not main object. Further, mere receipt of interest on certain loan does not tantamount to be business. business has different definition. assessee has not taken any permission of banking business from RBI. There were excess funds available with assessees which were advanced to private parties for short time. expenses claimed by assessee were also pre-operation for starting of manufacturing activity as main object of company. In this cae ld. AO has proved Mensrea of assessee to evade tax. assessee has furnished inaccurate particular in return of income by claiming preoperational expenses and depreciation. There is no change of opinion in this case. assessee did not agree to make addition. assessee s explanation was false. There is no addition on basis of estimation but penalty imposed by ld. AO is higher side. Therefore, I restrict this penalty @ 100% of tax sought to be evaded on concealed income. AO is directed to calculate penalty amount and issue fresh demand notice. (3 of 9) [ITA-48/2015] 5. But Tribunal while accepting view taken by AO and reversing view taken by CIT(A) has partly allowed appeal of department. 6. Counsel for appellant has relied upon 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 as under:- 8. Therefore, it is obvious that it must be shown that conditions under Section 271(1)(c) must exist before penalty is imposed. There can be no dispute that everything would depend upon Return filed because that is only document, where assessee can furnish particulars of his income. When such particulars are found to be inaccurate, liability would arise. In Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. MANU/SC/3182/2007MANU/SC/3182/2007 : 2007 (6) SCC 329 this Court explained terms "concealment of income" and "furnishing inaccurate particulars". Court went on to hold therein that in order to attract penalty under Section 271(1) (c), mens rea was necessary, as according to Court, word "inaccurate" signified deliberate act or omission on behalf of assessee. It went on to hold that Clause (iii) of Section 271(1) provided for discretionary jurisdiction upon Assessing Authority, inasmuch as amount of penalty could not be less than amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that term "inaccurate particulars" was not defined anywhere in Act and, therefore, it was held that furnishing of assessment of value of property may not by itself be furnishing inaccurate particulars. It was further held that assessee must be found to have failed to prove that his explanation is not only not bona fide but all facts relating to same and material to computation of his income were not disclosed by him. It was then held that explanation must be preceded by finding as to how and in what manner, assessee had furnished particulars of his income. Court ultimately went on to hold that element of mens rea was essential. It was only on point of mens rea that judgment in Dilip N. Shroff v. Joint (4 of 9) [ITA-48/2015] Commissioner of Income Tax, Mumbai and Anr. was upset. In Union of India v. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1) (c), Court came to conclusion that since Section 271(1)(c) indicated element of strict liability on assessee for concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. Court went on to hold that objective behind enactment of Section 271(1)(c) read with Explanations indicated with said Section was for providing remedy for loss of revenue and such penalty was civil liability and, therefore, willful concealment is not essential ingredient for attracting civil liability as was case in matter of prosecution under Section 276C of Act. basic reason why decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) was overruled by this Court in Union of India v. Dharamendra Textile Processors (cited supra), was that according to this Court effect and difference between Section 271(1)(c) and Section 276C of Act was lost sight of in case of Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra). However, it must be pointed out that in Union of India v. Dharamendra Textile Processors (cited supra), no fault was found with reasoning in decision in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra), where Court explained meaning of terms "conceal" and inaccurate". It was only ultimate inference in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (cited supra) to effect that mens rea was essential ingredient for penalty under Section 271(1)(c) that 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 decision of Rajasthan High Court in case of Commissioner of Income Tax v/s Jawahar Kala Kendra reported in [2014] 362 ITR 515 (Raj.) wherein it has been held as under:- 11. Hon'ble apex court considered same related issue in case of Mysore Minerals Ltd. v. CIT MANU/SC/0540/1999MANU/SC/0540/1999 : [1999] 239 ITR 775 (SC) and considered concept of term "own", "ownership" and (5 of 9) [ITA-48/2015] "owned" and after referring to several authorities, observed as under (page 781): It is well-settled that there cannot be two owners of property simultaneously and in same sense of term. intention of Legislature in enacting section 32 of Act would be best fulfilled by allowing deduction in respect of depreciation to person in whom for time being vests dominion over building and who is entitled to use it in his own right and is using same for purposes of his business or profession. Assigning any different meaning would not sub-serve legislative intent. To take case at hand it is appellant-assessee who having paid part of price, has been placed in possession of houses as owner and is using buildings for purpose of its business in its own right. Still assessee has been denied benefit of section 32. On other hand, Housing Board would be denied benefit of section 32 because in spite of its being legal owner it was not using building for its business or profession. We do not think such benefit-to- none situation could have been intended by Legislature. finding of fact arrived at in case at hand is that though document of title was not executed by Housing Board in favour of assessee, but houses were allotted to assessee by Housing Board, part payment received and possession delivered so as to confer dominion over property on assessee whereafter assessee had in its own right allotted quarters to staff and they were being actually used by staff of assessee. It is common knowledge, under various scheme floated by bodies like housing boards, houses are constructed on large scale and allotted on part payment to those who have booked. Possession is also delivered to allottee so as to enable enjoyment of properly. Execution of document transferring title necessarily follows if schedule of payment is observed by allottee. If only allottee may default property may revert back to Board. That is matter only between Housing Board and allottee. No third person intervenes. part payment made by allottee are with intention of acquiring title. delivery of possession by Housing Board to allottee is also step towards conferring ownership. Documentation is delayed only with idea of compelling allottee to observe schedule of payment. 14. If we look to section 32(1), as reproduced hereinabove, it simply observes about owning of (6 of 9) [ITA-48/2015] properties. Therefore, owned would not mean by way of registration by way of title deed as held by Hon'ble apex court in case of Mysore Minerals Ltd. (supra). If we look to section 43(1) Explanation 2, then, value of assets has to be recognised where transfer is by way of gift or inheritance and here in case, assets have been transferred by Government of Rajasthan to assessee-society and for that purpose value has been adopted as value to previous owner and this explanation also supports claim of respondent-assessee. 6.2. He has also relied upon another decision of Rajasthan High Court in 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, Tribunal has rightly deleted penalty for reason that though claim was disallowed by AO, thereafter, partly allowed by CIT(a) and further not pressed by assessee, but fact remains that assessee-society was constituted as autonomous body by order dt. 11/08/2003 issued by Governor of Rajasthan to preserve and promote art and culture of Rajasthan and to contribute to social and cultural development of people of State. It is also admitted fact that subsequent to said order of Governor of Rajasthan, assessee-society came to be formed and was registered under Societies Registration Act, 1958 and Commissioner of Income Tax has also granted registration u/s. 12a to assessee-society. 9. It is also admitted fact and which has not disputed by Revenue that possession over property is being enjoyed by assessee- respondent and no claim of reclaiming assets have been made by State Government subsequent to transfer of assets to assessee- society. In our view, merely because title has not been transferred or properties not registered in name of assessee under Indian Registration Act, depreciation cannot be disallowed. Admittedly possession and user is of assessee. It would be appropriate to mention that this Court in (7 of 9) [ITA-48/2015] Commissioner of Income Tax Jaipur-II Vs. M/s. Jawahar Kala Kendra, (the present assessee) vide order dt. 03/01/2014 in DB Income Tax Appeal No. 121/2012 had upheld finding of Tribunal for allowing depreciation to respondent-assessee in assessment year 2007-08 and in aforesaid order, this Court has relied upon judgment of Hon'ble Apex Court in case of Mysore Mineral Ltd. Vs. CIT: MANU/SC/0540/1999MANU/SC/0540/1999 : (1999) 239 itr 775; Delhi High Court in case of CIT Vs. Oswal Agro Mills Ltd: MANU/DE/3854/2010MANU/DE/3854/2010 : (2011) 238 CTR 113; Punjab & Haryana High Court, in case of CIT Vs. Metalman Auto P. Ltd.: MANU/PH/2113/2011MANU/PH/2113/2011 : (2011) 336 ITR 434 (P & H) and after relying upon said judgments ultimately observed as under:- "In our view, on face of record, we are of clear opinion that assessee-society had rightly been allowed depreciation by CIT(A) and itat, as assessee-society became owner of said assets and was actually using property in its own right as owner on and from date of order of Governor and formation of society." 6.3. He has also relied upon decision in High Court of Gujarat in case of Bipinchandra K. Bhatia vs. Assistant Commissioner of Income Tax in tax Appeal No. 596/2006 wherein it has been held as under:- 10. In case on hand, there is no material to show that that assessee has consciously concealed certain particulars pertaining to his income or has supplied inaccurate particulars, deliberately. Further, it is case of Revenue that explanation given by assessee in connection with his income is not acceptable and it is not case that assessee has offered no explanation or false explanation, at all. Instead case of revenue is that explanation given by assessee cannot be accepted. In similar circumstances, this Court in case of "Amrut Tubewell Company vs. Asst. CIT" (Supra), observed as under in Para-15; "15. So far as penalty under Section 273(2) (a) is concerned, said section reads as under; (8 of 9) [ITA-48/2015] "273(2)[a] has furnished under sub-section (1) or sub-section (2) or sub-section (3) or sub- section (5) of section 209A, or under sub- section (1) or subsection (2) of section 212, estimate of advance tax payable by him which he knew or had reason to believe to be untrue, ...]" Tribunal has recorded that CIT(A) confirmed penalty imposed by AO under this section on ground that difference between earned income and assessed income of assessee was more and that assessee, himself, had declared income of Rs. 75,000/- by filing revised return. Tribunal, further, observed that CIT(A) had found that assessee was not able to prove source of cash credit, and therefore, CIT(A) upheld penalty levied by AO, which is confirmed by Tribunal. However, while doing so, here again, Tribunal failed to appreciate fact that assessee had not furnished any details pertaining to advance tax which was untrue. On contrary, additions were of such nature that assessee could not have foreseen. We are, therefore, of opinion that order of Tribunal cannot be sustained and deserves to be quashed and set aside." 11. In above view of matter, decision of Apex Court in "CIT vs. Khoday Eswarsa & Sons" (Supra) and of this Court in "Amrut Tubewell Company vs. Asst. CIT" (Supra), would apply to facts of present case. Hence, appeal deserves to be allowed. 7. Counsel for respondent contended that quantum has been upheld. Therefore, it will not be appropriate to interfere and Tribunal has rightly partly allowed appeal preferred by department. 8. We have heard counsel for both parties. 9. Taking into consideration observations made by Supreme Court in case of Reliance Petroproducts Pvt. Ltd (supra), (9 of 9) [ITA-48/2015] view taken by Tribunal is required to be reversed and that of CIT(A) is to be upheld. 10. issue is answered in favour of assssee against department. 11. appeal stands allowed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/118 Jalan Hard Coke Pvt. Ltd. v. Assistant Commissioner of Income-tax, Circle-2, Rajasthan