CIT v. Morgan Finvest (P.) Ltd.

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The Tax Publishers2013 TaxPub(DT) 0609 (Del-HC) : (2013) 050 (I) ITCL 0246 : (2013) 081 DTR 0441 INCOME TAX ACT, 1961 --Penalty under section 271(1)(c)--Concealment Disallowance to depreciation claimAssessing officer observed that assessee claimed depreciation in respect of property which was not used for business purpose and also included cost of land in claim of depreciation, though no depreciation was allowable on land. Thus assessee had not only concealed income but also furnished inaccurate particulars and therefore, assessing officer levied penalty. Assessee disputed the same holding that mere disallowance of claim in assessment does not automatically lead to conclusion that it either concealed income or furnished inaccurate particulars. *Held:* Assessing officer rightly initiated penalty proceedings as there was no evidence to show use of the property for the purpose of assessee's business, it was clear that the claim of depreciation was not bona fide. Moreover, it cannot be denied that while claiming depreciation, the cost of the land was also included, contrary to the provisions of the Act. Therefore, the attempt made by assessee to show to the contrary was indicative of the frivolous nature of the claim and therefore, penalty was levied. Income Tax Act, 1961, Section 271(1)(c) Income Tax Act, 1961, Section 32 In The Delhi High Court S. Ravindra Bhat & R.V. Easwar CIT v. Morgan Finvest Pvt Ltd. ITA 1855/2010 6 December, 2012 JUDGEMENT *R.V. Easwar, J.* This is an appeal filed by the Commissioner under section 260A of the Income Tax Act, 1961 (Act, for short). 2. Admit. 3. The following question of law is framed : 'Whether the Tribunal erred in law in deleting the penalty of 14,46,239 imposed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 and confirmed by the Commissioner (Appeals) ?' 4. The appeal relates to the assessment year 2005-06. The assessee, respondent herein, is a private limited company engaged mainly in the business of investment and to undertake and transact financial services. It filed its return of income declaring 'nil income and the same was processed under section 143(1). It was later picked up for scrutiny and notice under section 143(2) was issued. It was noticed by the assessing officer in the course of the assessment proceedings that the assessee-company had claimed depreciation of 39,52,300 in respect of a property at No.3, Eastern Avenue, Maharani Bagh, New Delhi. The property was purchased on 29-4-2004 for 3.5 crores from one Smt. Heminder Kumari, on which stamp duty and taxes of 25 lakhs were also paid. The sale deed executed on 29.4.2004 was registered. It would appear that the assessee had raised a loan in order to acquire the property. It was further noticed by the assessing officer that the property was sold by the assessee on 18-9-2004 to a company, viz. Hindustan Udyog Limited for a consideration of 4.5 crores. An agreement of sale was executed on the said date; possession of the property was however, not given, nor was any sale deed executed and registered. The assessing officer found on examination of the facts that the property was residential in nature and had not been put to use for the purpose of the assessees business. He sent his Inspector to make local inquiries about the ownership of the property. The Inspector was informed by the caretaker that the property remained vacant since it was sold by the original owner i.e. Smt.Heminder Kumari. He was further informed by the caretaker that one Smt.Ritu Aggarwal of Kolkata was the present owner of the property. According to the information furnished by the caretaker, this lady lived in Kolkata and came to Delhi twice or thrice to inspect the property. From these facts the assessing officer concluded that the assessee had kept the property with it only for four months or so and had entered into an agreement to dispose of the same, which indicated a motive to earn short-term gains and not any intention to use the property for the purpose of the business. He also noticed that the building cost on which depreciation was claimed included the cost of land on which no depreciation was allowable under the Act. On this basis, the assessing officer held that the property had not been used by the assessee for the purpose of its business and, therefore, no depreciation was allowable under Section 32 of the Act. He, therefore, did not allow the depreciation. It may be added that in course of the assessment proceedings, the assessee informed the assessing officer that Smt.Ritu Aggarwal was one of the directors of the assessee-company and reported as such in the list of directors. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0609 (Del-HC) : (2013) 050 (I) ITCL 0246 : (2013) 081 DTR 0441

INCOME TAX ACT, 1961

--Penalty under section 271(1)(c)--Concealment Disallowance to depreciation claimAssessing officer observed that assessee claimed depreciation in respect of property which was not used for business purpose and also included cost of land in claim of depreciation, though no depreciation was allowable on land. Thus assessee had not only concealed income but also furnished inaccurate particulars and therefore, assessing officer levied penalty. Assessee disputed the same holding that mere disallowance of claim in assessment does not automatically lead to conclusion that it either concealed income or furnished inaccurate particulars. Held: Assessing officer rightly initiated penalty proceedings as there was no evidence to show use of the property for the purpose of assessee's business, it was clear that the claim of depreciation was not bona fide. Moreover, it cannot be denied that while claiming depreciation, the cost of the land was also included, contrary to the provisions of the Act. Therefore, the attempt made by assessee to show to the contrary was indicative of the frivolous nature of the claim and therefore, penalty was levied.

Income Tax Act, 1961, Section 271(1)(c)

Income Tax Act, 1961, Section 32

In The Delhi High Court

S. Ravindra Bhat & R.V. Easwar

CIT v. Morgan Finvest Pvt Ltd.

ITA 1855/2010

6 December, 2012

JUDGEMENT

R.V. Easwar, J.

This is an appeal filed by the Commissioner under section 260A of the Income Tax Act, 1961 (Act, for short).

2. Admit.

3. The following question of law is framed :

'Whether the Tribunal erred in law in deleting the penalty of 14,46,239 imposed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 and confirmed by the Commissioner (Appeals) ?'

4. The appeal relates to the assessment year 2005-06. The assessee, respondent herein, is a private limited company engaged mainly in the business of investment and to undertake and transact financial services. It filed its return of income declaring 'nil income and the same was processed under section 143(1). It was later picked up for scrutiny and notice under section 143(2) was issued. It was noticed by the assessing officer in the course of the assessment proceedings that the assessee-company had claimed depreciation of 39,52,300 in respect of a property at No.3, Eastern Avenue, Maharani Bagh, New Delhi. The property was purchased on 29-4-2004 for 3.5 crores from one Smt. Heminder Kumari, on which stamp duty and taxes of 25 lakhs were also paid. The sale deed executed on 29.4.2004 was registered. It would appear that the assessee had raised a loan in order to acquire the property. It was further noticed by the assessing officer that the property was sold by the assessee on 18-9-2004 to a company, viz. Hindustan Udyog Limited for a consideration of 4.5 crores. An agreement of sale was executed on the said date; possession of the property was however, not given, nor was any sale deed executed and registered. The assessing officer found on examination of the facts that the property was residential in nature and had not been put to use for the purpose of the assessees business. He sent his Inspector to make local inquiries about the ownership of the property. The Inspector was informed by the caretaker that the property remained vacant since it was sold by the original owner i.e. Smt.Heminder Kumari. He was further informed by the caretaker that one Smt.Ritu Aggarwal of Kolkata was the present owner of the property. According to the information furnished by the caretaker, this lady lived in Kolkata and came to Delhi twice or thrice to inspect the property. From these facts the assessing officer concluded that the assessee had kept the property with it only for four months or so and had entered into an agreement to dispose of the same, which indicated a motive to earn short-term gains and not any intention to use the property for the purpose of the business. He also noticed that the building cost on which depreciation was claimed included the cost of land on which no depreciation was allowable under the Act. On this basis, the assessing officer held that the property had not been used by the assessee for the purpose of its business and, therefore, no depreciation was allowable under Section 32 of the Act. He, therefore, did not allow the depreciation. It may be added that in course of the assessment proceedings, the assessee informed the assessing officer that Smt.Ritu Aggarwal was one of the directors of the assessee-company and reported as such in the list of directors.