Unreported Decisions – April 2019

By Ajay R. Singh

1. S. 271(1)(c) : Penalty – furnishing inaccurate particulars – Bogus purchases – Levy of penalty was held to be not justified.

The assessee is a private limited company, engaged in the business of trading of Pipe material. The Assessing Officer completed the assessment under section 144 r.w.s. 147 and disallowed the aggregate purchase of Rs. 71,58,777/-. On further appeal before the ld. CIT(A) the addition was sustained to the extent of Rs. 8,94,847/- ( @ 12.5%) and balance of Rs. 62,63,930/- was deleted. On further appeal of department before the Tribunal, the disallowance was confirmed @ 12.5% of the bogus purchases.

The A.O levied the penalty u/s. 271(1)(c) of the Act @ 100% of tax sought to be evaded. In appeal against the penalty levied u/s. 271(1)(c), the ld. CIT(A) directed the A.O to restrict the levy of penalty to the extent of addition confirmed in the appeal.

Further aggrieved by the order of ld. CIT(A), the assessee filed the appeal before ITAT. The Tribunal held that it is settled legal position that no penalty under section 271(1)(c) is leviable on adhoc disallowance. Considering the peculiar facts and circumstances of the case, the entire penalty levied u/s 271(1)(c) of the Act was deleted . The appeal of the assessee was allowed.

Elcon Pipe and Fittings Pvt. Ltd. v ITO 1(1), Mumbai, ITA No.496/Mum/2018, DOH: 11/02/2019 (Mum)(Trib)

Elcon Pipe and Fittings Pvt. Ltd.

2. S. 54F : Capital gains – construction of new house- the amount is utilized before the filing of return of income under section 139(4) of the Act has to be considered for the purpose of utilisation of capital gain amount [S. 139(4)]

The Assessing Officer during the assessment proceedings noted that the assessee has claimed exemption of Rs. 77,43,425/- u/s. 54F of the Act. It was further noted by the AO that the assessee has received capital gain of Rs 77,43,425/- which was not actually utilized for purchasing of new assets, but was advanced to one company M/s Kohilco Foods and Beverages Pvt. Ltd. on interest basis. It was further noted by the AO that for availing exemption u/s. 54F, the concerned return of income u/s. 139(1) should have been filed within the time stipulated u/s. 139(1) of the Act. However, no return of income was filed u/s. 139(1) of the Act. It was further noted that as per condition, the unutilized capital gain should have been deposited in a specified capital gain scheme in any of the bank or institution notified by the Central Government. Such deposits should have been made before furnishing return of income u/s. 139(1) of the Act and conditions prescribed u/s. 54F of the Act, the AO declined the claim of exemption under section 54F of the Act. The CIT(A) also confirmed the action of the AO.

Aggrieved, the assessee filed the appeal before Tribunal. The Tribunal held that this issue has been considered by Hon’ble Bombay High Court in the case of Humayun Suleman Merchant [2016] 387 ITR 421, wherein it is held that if the amount is utilized before the last day of filing of return of income u/s 139 of the Act then the provisions of section 54(2) of the Act would not hit the assessee.

In the present case the return of income is admittedly filed on25/01/2014 beyond 139(1) but before due date u/s. 139(4) of the Act . Therefore in the present facts the decision of Hon’ble Bombay High Court in the case of Humayun Suleman Merchant (supra) squarely applies . Hence, respectfully following Hon’ble Bombay High Court the AO was directed to recompute the claim of deduction u/s. 54F of the Act considering the amount utilised till the date of filing of the return .

Amandeep Singh M. Kohli. v ITO 10(1)(4), Mumbai, ITA No.5733/Mum/2017, DOH: 01/03/2019 (Mum)(Trib)

Amandeep Singh M. Kohli.

3. S.37 – pre incorporation as well as post-incorporation expensesthe set-up of business would be the relevant date to ascertain the nature of expenditure regardless of the factum of actual commencement of business

The assessee was incorporated during the impugned FY i.e. on 17/11/2011 and raised first invoice on 20/01/2012. The assessee was promoted by HDFC who has incurred pre incorporation as well as post-incorporation expenses on behalf of the assessee, which has subsequently been reimbursed by the assessee. The Ld. AO, accepting the date of first invoice as commencement of business, opined that the expenditure incurred from the date of incorporation to the date of first invoice could not be considered as business expenses since the assessee was only exploring the business opportunities during that period. Therefore, all such expenditure was to be considered as pre-operative expenditure, being capital in nature and therefore, not allowable as revenue expenditure.

The Ld. CIT(A) noted that for allowability of expenses under Income Tax Act, the relevant date would be date on which the business of the assessee could be said to have been set up i.e. ready to commence business as against the date on which the business was actually commenced and there was subtle difference between setting up and commencement of business since the former signifies that the business has crossed the milestone that marks the entry of the business into the territory of taxation under the domestic tax laws. Therefore, as per the settled principles, the set-up of business would be the relevant date to ascertain the nature of expenditure regardless of the factum of actual commencement of business. Further, the business could be said to have been set up when the first step towards initiating operations has been undertaken by the assessee. Reliance was placed on Hon’ble Bombay High court decision in the case of CIT Vs Ralliwolf Ltd (1980) 121 ITR 262 (BOM)

The Tribunal held that the assessee had already taken effective step post incorporation to set-up its business. The necessary approvals required to carry out the business was already in place, the business plans were drawn up and the professionals were hired to carry out the business objectives. The important decisions to set-up the business was already taken by the Board of Directors. Therefore, the action of Ld. AO in treating the commencement of business from the date of first invoice could not be sustained. No contrary decisions have been placed on record to controvert the binding judicial precedents as relied upon by first appellate authority. Hence, the ground stands dismissed.

DCIT 1(1)(2) v M/s. HDFC Education & Development Services Private Limited, ITA No.4465/Mum/2017, DOH: 13/03/2019 (Mum)(Trib)

HDFC Education & Development Services Private Limited