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Trans Asia Consultant Pvt. Ltd., 202, Akash Deep Building, 26-A, Barakhamba Road, New Delhi Vs. Asstt.Commissioner of Income Tax, Circle-16(1), New Delhi.
May, 08th 2014
                                      1                       ITA No.141/Del/2013
                                                                Asstt.Year: 2008-09

            IN THE INCOME TAX APPELLATE TRIBUNAL
                   DELHI BENCH `H' NEW DELHI

        BEFORE SHRI B.C.MEENA, ACCOUNTANT MEMBER
                           AND
        SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

                          I.T.A.No.141/Del/2013
                         Assessment Year : 2008-09

Trans Asia Consultant Pvt. Ltd., vs Asstt.Commissioner of Income Tax,
202, Akash Deep Building,            Circle-16(1), New Delhi.
26-A, Barakhamba Road,
New Delhi.
(PAN:AAACT0696C)
(Appellant)                            (Respondent)
                   Appellant by: Shri Sandeep Sapra
                    Respondent by : Shri Gagan Sood, Sr.DR

                           ORDER

PER CHANDRAMOHAN GARG, J.M.

      This appeal has been preferred by the assessee against the order of

Commissioner of Income Tax(A)-XIX, New Delhi dated 12.10.2012 in

Appeal No. 28/2011-12 for AY 2008-09 by which penalty order dated

28.06.2011 passed u/s 271(1)(c) of the Income Tax Act, 1961 (for short the

Act) has been upheld by dismissing first appeal of the assessee.

2.   The sole ground raised by the assessee in this appeal reads as under:-

                   "That penalty as imposed at Rs.2,70,8321- u/s
            271 (1)(c) of 1.T. Act by the Ld. AO and confirmed by the
            Ld. CIT(A) is arbitrary, unjust and illegal on various
            factual and legal grounds including the following:
                                     2                      ITA No.141/Del/2013
                                                              Asstt.Year: 2008-09

            a)    The Appellant had not furnished inaccurate
            particulars of its income nor had concealed the
            particulars of its income.

            b) Various observations made by the authorities below
            in their respect orders are either incorrect or are
            untenable.

            c) It is not a fit case for imposing of penalty u/s 271
            (1)(c) of the I.T. Act

            d)The authorities below had either ignored or had not
            given due weight to the submissions made by the
            Appellant to the effect that it was not a fit case for
            imposition of penalty."

3.    Brief facts giving rise to this appeal are that the assessee filed its

return of income on 30.09.2008 declaring total income of Rs.2,99,79,843/-.

Subsequently, the case was selected for scrutiny and as per assessment order

dated 20.12.2010, the income of the assessee company was enhanced by

making addition of Rs.7,91,804/- on account of disallowance u/s 14A of the

Act and Rs.4997/- as interest on delayed payment.        Consequently, the

Assessing Officer initiated penalty proceedings u/s 271(1)(c) of the Act.

The Assessing Officer rejected the explanation of the assessee and imposed

impugned penalty with following observations and findings:-

            "(iii) From the plain reading of these provisions it is
            clear that if the following conditions are fulfilled,
            penalty u/s 271(1)(c) should be imposed:-
                         3                      ITA No.141/Del/2013
                                                  Asstt.Year: 2008-09




   a.    The assessee should have concealed the
particulars of his income or should have furnished
inaccurate particulars of income.

   b. If in respect of any facts material to the
computation of the total income, the assessee offers an
explanation which is found by the (assessing) Officer to
be false, then the amount added or disallowed is deemed
to represent the income ·in respect of which particulars
have been concealed.

Therefore, the case of the assessee is squarely covered
under explanation to Section 271(1)(c).

3.2 It has been held in the case of CIT Vs. Roadmaster
Industries of India Ltd. (2005) 94 TTJ (Chd.) 859/148
Taxman 18 (Mag.) that the burden to prove that the
explanation offered by him about a particular
income/expenditure or nay deduction claimed is correct
lies upon the assessee. In the Instant case, the assessee
claimed incorrect expenses which could not be
substantiated during the assessment proceedings.

4. In furnishing its return of income; as assessee is
required to furnish particulars arid accounts on which
such returned income has been arrived at. These may be
particulars as per its books of account if it has
maintained them, or any other basis upon which it has
arrived at the returned figure of income. Any inaccuracy
made in such books of account or otherwise which results
in keeping off or hiding a portion of its income is
punishable as furnishing inaccurate particulars of its
income ­ Commissioner of Income Tax v. Indian Metal &
Ferro Alloys Ltd. (1994) 117 CTR (Ori.) 378.

5.     Further, reliance is also placed on the judgment of
apex court in the case Union of India Vs. Dharmendra
Textiles Processors { 2008} 166 Taxman 65 (SC) wherein
i1 has been held that penalty under section 271 (1 )(c) is
                                       4                         ITA No.141/Del/2013
                                                                   Asstt.Year: 2008-09

            civil liability and for attracting such civil liability, willful
            concealment is not an essential ingredient."




4.    Aggrieved, the assessee preferred an appeal before the Commissioner

of Income Tax(A) which was also dismissed by the impugned order. Now,

the empty handed assessee is before this Tribunal in the second appeal with

the grounds as mentioned hereinabove.

5.    The Commissioner of Income Tax(A) dismissed the appeal of the

assessee with following findings:-

             "12. As discussed in the above paras, this is not a case
           where the explanation given was bona fide and there was
           full disclosure of facts. The appellant has stated that the
           disallowance made has not been challenged in appeal.
           Therefore, the disallowance has attained finality. In view
           of these facts the ratio of Reliance Petroproducts is not
           applicable in this case.

            13. The above discussion shows that this is not a case
           where the explanation given was bona fide and there was
           full disclosure of facts. The disallowance made has not
           been challenged in appeal and has therefore attained
           finality. Under the present system, only a very small
           percentage of returns is picked up for scrutiny. Had this
           case not been picked up for scrutiny, and had the A.O. not
           examined the matter further, the necessary disallowance
           would not have been made and the appellant's failure to
           make the mandatory disallowance would not have come to
           light. The provisions of Explanation 1 to section 271 (1)(c)
           are clearly applicable. The penalty u/s 271(1)(c) imposed
           is the minimum imposable in this case. Considering the
           facts, the penalty u/s 271 (1)(c) is justified and is upheld."
                                     5                      ITA No.141/Del/2013
                                                              Asstt.Year: 2008-09

6.    We have heard rival arguments of both the parties and carefully

perused the record including the paper book filed by the assessee, spread

over 53 pages, written synopsis and decisions of ITAT Delhi `E' Bench in

ITA No. 5999/Del/2012 in the case of ACIT vs Mahesh Jain dated

14.6.2013; decision of ITAT `C' Bench Delhi in ITA No. 4819/Del/12 dated

28.6.2013 in the case of ACIT vs Global Associates; decision of ITAT

Amritsar Bench in the case of DCIT vs Max India Ltd. in ITA No.

94/(Asr)/2011 dated 19.3.2013 and decision of ITAT Delhi `F' Bench in

ITA NO. 3805/Del/2010 in the case of DCIT vs Nalwa Investments Ltd.

dated 29.10.2010.

7.    Ld. counsel of the assessee submitted that the Assessing Officer made

disallowance by invoking section 14A of the Act r/w Rule 8D of the Income

Tax Rules 1962 on the basis of details enclosed with the return of income as

well as submissions of the assessee dated 3.12.2010. The counsel further

submitted that the assessee did not file an appeal before the Commissioner

of Income Tax(A) to avoid expenditure on litigation and under a bona fide

belief that no penalty u/s 271(1)(c) would be imposed. Ld. counsel further

submitted that the Assessing Officer levied penalty on the wrong premise

because the assessee has neither concealed particulars of its income nor

furnished inaccurate particulars of income. The counsel pointed out that no
                                       6                     ITA No.141/Del/2013
                                                               Asstt.Year: 2008-09

penalty proceeding could be initiated on disallowance of Rs.4997/- with

regard to interest on delayed payment in the assessment order u/s 143(3) of

the Act because it was an inadvertent and bonafide error on the part of the

assessee in not adding back meagre amount keeping in mind that the

assessee had filed the return declaring income of around Rs. 3 crore. In this

case, the assessee has placed reliance on the decision of Hon'ble Supreme

Court in the case of Price Water Coopers P. Ltd. vs C.I.T., Kolkata

(2012) 348 ITR 306 (SC) wherein it was held that the imposition of penalty

on the assessee is not justified when the assessee had committed inadvertent

error and had not intended to or attempted to either conceal its income or

furnish inaccurate particulars of its income.

8.    The counsel vehemently argued that it is a well-settled law that the

penalty proceedings are independent which are distinct and different from

assessment proceedings and when assessee has not preferred any appeal

against the assessment order to buy peace of mind and to avoid litigation

expenses, then findings in the assessment order for the purpose of penalty

proceedings are not conclusive. The counsel further submitted that the

entire material, facts and circumstances should be considered afresh before

imposing penalty and penalty cannot be imposed on the basis of findings in

the quantum proceedings.
                                      7                      ITA No.141/Del/2013
                                                               Asstt.Year: 2008-09

9.    The counsel of the assessee further submitted that the authorities

below had either ignored or had not give due weightage to the submissions

of the assessee during the penalty proceedings. The counsel submitted that

the penalty can be levied on fulfillment of two conditions, first the assessee

should have concealed the particulars of his income or should have furnished

inaccurate particulars of his income and secondly, in respect of any facts

material to the computation of total income, the assessee offers an

explanation which is found to be false, then the amount added or disallowed

is deemed to represent an income in respect of which particulars have been

concealed. The counsel of the assessee has placed his reliance on the

decision of Hon'ble Supreme Court in the case of Reliance

Petroproducts Pvt. Ltd. reported as (2010)189 Taxman 322 (SC).

10.   On careful consideration of above submissions, at the outset, we

observe that the assessee placed all details and material before the Assessing

Officer with the return of income. During the assessment proceedings, the

Assessing Officer observed that the assessee has paid interest on delayed

payment of TDS amounting to Rs.4997/- and disallowed the same. we

further observe that during the assessment proceedings when the Assessing

Officer asked for details about proposed disallowance u/s 14A of the Act,
                                    8                      ITA No.141/Del/2013
                                                             Asstt.Year: 2008-09

r/w 8D of the Income Tax Rules, then assessee in its reply dated 3.12.2010

submitted as under:-

                 "11. With reference to your goodself's show cause
           notice for disallowance of "Expenses Attributable for
           Earning Tax Free Income" as per Rule 8-D of the Income
           Tax Rules, 1962, as provided under section 14-A of the
           Income Tax Act, 1961, we give below the details working
           thereof for your kind perusal:-

                 i) That the assessee company had not incurred any
           direct expenditure for earning Tax Free Income of Rs.
           1,19,033/- as Dividend on Shares/Mutual Fund and Rs.
           382,690/-as Interest on HUDCO & ARS Bonds, and thus
           no disallowance thereto could be made;

           ii. That the assessee company had not made any
           Investment in Shares/Mutual Fund and/or Tax Free Bonds
           out of Loans bearing funds and thus the question of
           disallowance of interest, if any, does not arise. We may
           add here that the assessee company had raised fund for an
           IPO and paid interest of Rs. 5.94 lacs and the same
           disallowable u/s 36(1)(iii) and formed part of Cost of
           Acquisition of Shares acquired under IPQ which please
           note. Apart from above, the assessee company had not
           paid any interest and thus disallowance as per Rule 8D
           does not arise; and ;

            iii) Disallowance to be made out of overhead expenses
            equal to one-half percent of the average value of
            Investment, as appearing in the Balance Sheet on the first
            day and the last day of the previous year, as per details
            below:-
Particulars                        31.03.2008                31.03.2007
Investment as per Balance Sheet
- Shares/Mutual Funds/Bonds etc. 4,83,41,474              3,05,33,813
Total of the Two comes to                   Rs.7,88,75,388/-
Average thereof worked out to               Rs.3,94,37,694/-
1/2% thereof arrived at                      Rs. 1,97,188/-
                                      9                       ITA No.141/Del/2013
                                                                Asstt.Year: 2008-09




           which please note and the same to be disallowed u/s 14-A
           of the Income Tax Act, 1961.


11.   From the above, we clearly observe that the disallowances made by

the Assessing Officer were based on the same material which was placed

before the Assessing Officer with the return of income and from bare

reading of the assessment order, we observe that the Assessing Officer made

impugned disallowance with the following observations wherein the

Assessing Officer has noted that the assessee company has offered

disallowances. The relevant part of assessment order reads as under:-

                  "The assessee has made certain investments in
           shares/mutual funds/bonds etc. out of the funds either
           borrowed by the assessee or from company own sources.
           Since, these investments have yielded an exempted income
           amounting to Rs. 1,19,033/- and Rs. 3,82,690/- on account
           of interest on HUIDCO & ARS Bond which does not form
           part of income of the assessee, the expenditures are
           required to be disallowed under the provisions of section
           14A of the Act. Hence, during the course of assessment
           proceedings, the assessee was specifically asked to show
           cause as to why expenses should not be disallowed
           following the provisions of section 14A of the IT Act read
           with Rule 8D of IT Rules. In response to this, the assessee
           filed reply vide letter dated 03/12/2010 and offered the
           total disallowances u/s 14A amounting to Rs.1,97,188/-.

                  After considering the aforesaid reply of the assessee,
           it is found that reply filed by the assessee on the issue
           under consideration fulfil the requirements laid down in
           section 14A of the Act, r/w Rule 8D of the Rules and
                                      10                       ITA No.141/Del/2013
                                                                 Asstt.Year: 2008-09

           further the assessee        Company      has    offered     the
           disallowances."


12.   In the case of Shri Manish Jain (supra), ITAT Delhi `E' Bench, by

upholding the order of Commissioner of Income Tax(A) which cancelled the

penalty, observed as under:-

             "9. Even on merits, we find that Ld. Commissioner of
           Income Tax (A) has passed a reasonable order. The
           penalty in this case has been levied on account of
           disallowance made in accordance with Rule 8D read with
           section 14A. There has been no concealment or furnishing
           of inaccurate particulars by the assessee in this case. The
           disallowance has been made by computing the sums which
           were duly disclosed in the return and accounts of the
           assessee. We find that Section 271(1)(c) postulates
           imposition of penalty for furnishing of inaccurate
           particulars and concealment of income.' Hence, in our
           considered opinion on the facts and circumstances of this
           case the assessee's conduct cannot be said to be
           contumacious so as to warrant levy of penalty. Hence, we
           hold that there is no infirmity in the order of the Ld.
           Commissioner of Income Tax (A) and the same deserves to
           be upheld.

           10. While coming to the aforesaid conclusion, we place
           reliance from the Apex Court decision rendered by a
           larger Bench comprising of three of their Lordships in the
           case of Hindustan Steel vs. State of Orissa in 83 ITR 26
           wherein it was held that "An order imposing penalty for
           failure to carry out a statutory obligation is the result of a
           quasi-criminal proceedings, and penalty will not
           ordinarily be imposed unless the party obliged either acted
           deliberately in defiance of law or was guilty of conduct
           contumacious or dishonest, or acted in conscious
           disregard of its obligation. Penalty will not also be
           imposed merely because it is lawful to do so. Whether
                                    11                      ITA No.141/Del/2013
                                                              Asstt.Year: 2008-09




          penalty should be imposed for failure to perform a
          statutory obligation is a matter of discretion of the
          authority to be exercised judicially and on a consideration
          of all the relevant circumstances. Even if a minimum
          penalty is prescribed, the authority competent to impose
          the penalty will be justified in refusing to impose penalty,
          when there is a technical or venial breach of the provisions
          of the Act, or where the breach flows from a bonafide
          belief that the offender is not liable to act in the manner
          prescribed by the statute."

          11. We further place reliance upon the Hon'ble Apex Court
          decision in the case of CIT vs. Reliance Petro Products
          Ltd, in Civil Appeal No, 2463 of 2010. In this case vide
          order dated 17.3,2010 it has been held that the law laid
          down in the Dilip Sheroff case 291 ITR 519 (SC) as to the
          meaning of word 'concealment' and 'inaccurate' continues
          to be a good law because what was overruled in the
          Dharmender Textile case was only that part in Dilip
          Sheroff case where it was held that mensrea was a
          essential requirement of penalty u/s 271(1)(c). The Hon'ble
          Apex Court also observed that if the contention of the
          revenue is accepted then in case of every return where the
          claim is not accepted by the Assessing Officer for any
          reason, the assessee will invite the penalty u/s 271(1)(c).
          This is clearly not the intendment of legislature."




13.   In the case of ACIT vs Global Associate (supra), the penalty was also

cancelled pertaining to the addition made u/s 14(a)(ia) and section 14A of

the Act by respectfully following the decision of Hon'ble Supreme Court in

the case of Commissioner of Income Tax vs Reliance Petroproducts Pvt.

Ltd. (supra) and Price Waterhouse Coopers P.Ltd. vs Commissioner of

Income Tax (supra). We further observe that the ITAT Amritsar Bench in
                                     12                       ITA No.141/Del/2013
                                                                Asstt.Year: 2008-09

the case of DCIT vs M/s Max India Limited deleted the penalty pertaining to

the disallowance u/s 14A of the Act with following observations:-

                  "23. We are of the view that the aforesaid decision
           squarely applies to the facts of the present case. Even if it
           is assumed that the assessee made incorrect claim of the
           expenditure by not offering any amount of disallowance u/s
           14A, the fact remains that there was no filing of inaccurate
           particulars of income since there was not factual
           inaccuracy in the information or details regarding various
           expenses filed alongwith the return of income/or during the
           assessment proceedings. There is, in fact, no such finding
           in the assessment order. As held by the Hon'ble Supreme
           Court that mere making of the claim which is not
           sustainable in law, will not amount to furnishing of
           inaccurate particulars of income and such claim made in
           the return cannot amount to furnishing of inaccurate
           particulars.

           23.1 Further, merely because no appeal was filed by the
           assessee against AO's order does not lead to any adverse
           inference that the assessee has filed inaccurate particulars
           of income relation to addition/disallowance made by the
           A.O. There is sufficient authority for the proposition to
           which reference has been made by the ld. counsel for the
           assessee hereinabove.

           23.2 Accordingly, we are of the view that penalty levied
           under section 271(1)(c) is not sustainable and we find no
           infirmity in the order of the ld. Commissioner of Income
           Tax(A), who has rightly cancelled the penalty levied by the
           A.O. Thus all the grounds of the Revenue are dismissed."

14.   The ITAT Delhi `F' Bench in the case of DCIT vs Nalwa Investments

Ltd. (supra) cancelled the penalty imposed on the assessee pertaining to the
                                      13                      ITA No.141/Del/2013
                                                                Asstt.Year: 2008-09

disallowance u/s 14A of the Act. The relevant observations and findings are

as under:-

             "5. We have considered the facts of the case and
             submissions made before us. The facts of the case are
             that the assessee claimed payment of bank interest and
             charges amounting to Rs.1,10,02,323/-. Certain other
             expenses were also claimed. Besides interest income of
             Rs.14,38,977/-, the assessee earned dividend income on
             investment in shares. Such investment amounted to
             Rs.1,19,90,011/-. The dividend income was not liable to
             be taxed in view of the provisions contained in section
             10(34) of the Act. The AO was of the view that the net
             interest of Rs.95,63,346/-, demat charges of Rs. 60/- and
             proportionate expenses amounting to Rs.11,70941/- were
             not deductible in computing the total income by dint of
             the provision contained in section 14A, as such expenses
             related to earning of tax-free income. The explanation of
             the assessee was two-fold ­(i) the assessee was primarily
             holding shares in selected companies of Jindal group
             with the intention to acquire and retain controlling stake
             in them, and (ii) the computation of disallowance u/s 14A
             involves considerable debate and two views are always
             possible. On careful consideration of various cases relied
             upon by the assessee, it is found that three major
             propositions arise therefrom ­(a) penalty proceedings
             are quasi-criminal in nature and, therefore, it is for the
             revenue to establish contumacious conduct on the part of
             the assessee; (b) if all facts in respect of a claim have
             been furnished fully and correctly and no falsity is found
             therein, then, the claim made on the basis of such facts
             does not lead to inference of concealment of income and
             (c) the penalty is not leviable when there is honest
             difference of opinion between the assessee and the
             authorities in respect of admissibility of a claim.

             5.1 In so far as proposition at (a) above is concerned, the
             same stands displaced by the decision of Hon'ble
             Supreme Court in the case of Union of India Vs.
                         14                      ITA No.141/Del/2013
                                                   Asstt.Year: 2008-09

Dharmendra Textile Processors (2008) 306 ITR 277. It
has been held in this case that the penalty is levied for
compensating the revenue on account of a wrong claim
made by the assessee and it is civil in nature. Coming to
the proposition at (b) above, claim of interest and
expenditure finds a mention in the profit and loss
account. As such no further facts have been furnished. No
computation of disallowance was made u/s 14A as no
disallowance was made in the return of income.
However, the accounts have been audited and the return
was accompanied by the tax audit report. The latter did
not suggest any disallowance u/s 14A. Therefore, it can
be inferred that all expenses were claimed in full as the
auditors did not suggest disallowance of any part of the
expenditure relating it to the dividend income. Thus, it
can be concluded that the claim was made on the basis of
tax audit report. There is no allegation by the Assessing
Officer that there was any collusion between the auditor
and the assessee to enhance the loss in the return of
income by ignoring the provision contained in section
14A. Therefore, it can be said that the assessee has
furnished an explanation which is bona fide. In regard to
proposition at (c) above, the finding of the ld. CIT(A) is
that the disallowance is disputable. The section, as it
existed at the time of filing the return, does contain a
provision for disallowance of expenditure which is
related to non-taxable income. Therefore, it is expected
of any assessee to attempt at segregating expenditure
which is related to such a claim. No attempt has been
made in this behalf. However, it is also a fact that such
segregation is beset with lot of problems as the issue has
finally been laid to rest by introduction of Rule 8D in the
Income-tax Rules in the year 2008. The assessee did not
have benefit of this rule when it filed the return of
income. Therefore, even in absence of any attempt on the
part of the assessee, it can be said that questions of
disallowance and its quantification are quite disputable
and can lead to bona fide difference in opinion between
the assessee and the authorities. In such a situation, the
levy of penalty will not be justified."
                                      15                       ITA No.141/Del/2013
                                                                 Asstt.Year: 2008-09



15.   In view of above, we observe that the authorities below have not

recorded any finding that the explanation offered by the assessee before the

Assessing Officer was found to be false and in this situation, the decision of

Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd.

(surpa) comes into play to rescue the assessee from penalty. Respectfully

following the above decision, we hold that if the contention of the revenue is

accepted, then in the case of Shri Manish Jain where the claim is not

accepted by the Assessing Officer for any reason, the assessee will invite the

penalty u/s 271(1)(c) of the Act which is not the intention of the legislature.

Accordingly, sole ground of the assessee is allowed and penalty order as

well as impugned order is set aside by deleting the penalty.

16.   In the result, the appeal of the assesse is allowed.

      Order pronounced in the open court on 06.05.2014.

     Sd/-                                       Sd/-
(B.C. MEENA)                           (CHANDRA MOHAN GARG)
ACCOUNTANT MEMBER                        JUDICIAL MEMBER

DT. 6th MAY 2014
`GS'
Copy forwarded to:-
  1.    Appellant
  2.    Respondent
  3.    CIT(A)
  4.    CIT 5. DR                                  By order

                                                  Asstt. Registrar

 
 
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