Decided on May 21,2014

Suryadarshan Chs Ltd. Respondents


SANJAY ARORA,AM. - (1.) THIS is an Appeal by the Revenue and Cross Objection ('CO' for short) by the Assessee arising out of the Order by the Commissioner of Income Tax (Appeals) -25, Mumbai ('CIT(A)' for short) dated 23.02.2012, partly allowing the assessee's appeal contesting the levy of penalty u/s.271(1)(c) of the Income Tax Act, 1961 ('the Act' hereinafter) in respect of its assessment for the assessment year (A.Y.) 2000 -01 vide order dated 28.03.2007.
(2.) THE penalty in the instant case stands levied in respect of an income of Rs.14,86,753/ - comprised in the total income determined in assessment u/s.144 r.w.s 147 of the Act at Rs.15,11,010/ - vide order dated 31.12.2003. The same pertains to two items of income, i.e., for Rs.14,70,000/ - and Rs.16,753/ -. The penalty u/s.271(1)(c) having been confirmed for the latter amount, the assessee appeals per its CO, while the Revenue is in appeal in respect of that deleted, vide its sole ground, which reads as under: '1. On the facts and circumstances and in law, the ld. CIT(A) erred in cancelling the penalty u/s.271(1)(c) of the I. T. Act, 1961, levied by the A.O. without appreciating the fact that the quantum of addition amounting to Rs.14,70,000/ - was confirmed by the CIT(A) on merit.'
(3.) WE shall, as would necessarily be required of us, proceed on an income -wise basis. As regards the income of Rs.14.70 lacs, which is in respect of an advertisement income from hoarding/s earned by the assessee -society, the assessee adduced before us the copy of the order by the tribunal u/s.254(1) in its case in the quantum proceedings (in ITA No.4955/Mum/2005 dated 31.01.2014/copy on record), whereby the tribunal has since deleted the addition in respect of the said income. In this view of the matter, no penalty qua the said amount, it was submitted by the ld. Authorized Representative (AR), would survive. The ld. Departmental Representative (DR), on being confronted with the same, would submit that the Revenue intends to prefer a miscellaneous application against the quantum order by the tribunal (supra). This is as it had failed to take note of the fact that the assessment was in the instant case made u/s.144 of the Act in the absence of assessee furnishing the necessary details of the repairs, claimed to be incurred at Rs.18.80 lacs, against which the said income was set off, pleading for having resultantly suffered a loss on the said activity. Secondly, the said expenditure would, in any case, amount to a capital expenditure, being incurred on structural repairs to the building, so that the assessee ought to have claimed and been allowed depreciation thereon, and no more. As such, it was pleaded by him that the matter be kept in abeyance till the time the Revenue's proposed miscellaneous application stands disposed of by the tribunal. We have heard the parties, and perused the material on record. The fact that the assessee has incurred expenditure on the structural repairs to the building in a sum higher than the impugned income of Rs.14.70 lacs stands admitted and confirmed, so that there was no concealment or furnishing inaccurate particulars of income; the assessee transferring the net debit balance, maintained under the account head 'major repairs', at Rs.5,39,222/ -, to its income and expenditure account for the year is not in doubt (PB pg.56). The said repairs, it stands explained, stood undertaken to meet both the impact of as well to withstand the heavy construction on the terrace of the building set up to support the iron steel supporting the hoardings. What, then, is the levy of penalty about? The issue as to whether the said expenditure could be allowed, wholly or partly, against the impugned income, stands decided by the tribunal in the instant case by considering the findings by the first appellate authority as well as the remand report dated 04.04.2005 (PB pgs.9 -10) called for by him from the A.O. in the quantum proceedings, expressing a definite view that the same could be allowed as a revenue expenditure. The same, in our view, could at best be a subject matter of appeal and not of a miscellaneous application. A proposed action would even otherwise not constrain us to proceed with the matter. As regards the contention by the ld. DR that the assessee, claiming to be a mutual concern, could not have possibly claimed the expenditure on building repairs against its advertisement income, we find no such argument being raised at any stage, and as not representing the Revenue's case either in the quantum or the penalty proceedings. The ld. CIT(A) has deleted the penalty prior to the decision in the quantum by the tribunal, with reference to the decision by the apex court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 (SC), on the basis that the assessee has raised a legal issue, so that it is not liable for the levy of penalty u/s.271(1)(c). In our view, the question of whether an expenditure is a capital or revenue expenditure is largely a question of fact, rather than giving rise to a legal issue. So, however, the matter being debatable, we are inclined to be in agreement with the ld. CIT(A), i.e., even on merits. This is apart from the fact that no addition on account of the said income surviving in assessment, the penalty proceedings fail at the threshold, so that we see no reason not to uphold the impugned order deleting the penalty. We decide accordingly. ;

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