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
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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."
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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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