IN THE INCOME TAX APPELLATE TRIBUNAL
`H' : NEW DELHI
DELHI BENCH `H
G.D.AGRAWAL, VICE PRESIDENT AND
BEFORE SHRI G.D.AGRAWAL,
YADAV, JUDICIAL MEMBER
SHRI RAJPAL YADAV,
No.1841/Del/2010
ITA No.1841/Del/2010
2002-03
Assessment Year : 2002-
Deputy Commissioner of Vs. M/s Vikram Bakshi & Co.Pvt.Ltd.,
Income Tax, Top Floor, Mohan Dev Building,
Circle-
Circle-17(1), 13, Tolstoy Marg,
Delhi.
New Delhi. New Delhi 110 001.
PAN : AAACV0661P.
(Appellant) (Respondent)
Appellant by : Dr.B.R.R.Kumar, Sr.DR.
Respondent by : Shri Sumant Chadha, CA.
ORDER
G.D.AGRAWAL, VP :
PER G.D.AGRAWAL,
The only ground raised in this appeal by the Revenue is against
the cancellation of penalty of `10,98,757/- levied by the Assessing
Officer under Section 271(1)(c) of the Income-tax Act, 1961.
2. The facts of the case are that the assessee is a company which is
engaged in the business of building maintenance and renting of
properties. During the year under consideration, the assessee has
secured the loan of `7.71 crores from HDFC Bank which was partly
invested in the share of two companies. The Assessing Officer
disallowed the interest amounting to `30,77,750/- by invoking the
provisions of Section 14A of the IT Act. He also levied the penalty
under Section 271(1)(c) thereon amounting to `10,98,757/-. The
CIT(A) cancelled the penalty. Hence, this appeal by the Revenue.
3. At the time of hearing before us, it is stated by the learned DR
that the assessee has utilized the borrowed money for acquisition of
shares. These shares were held as an investment and not as a trading
2 ITA-1841/Del/2010
stock, therefore, the investment was either for the purpose of earning
capital gain or earning of dividend. That the dividend income was
exempt under Section 10(33), therefore, any expenditure incurred for
earning of dividend was to be disallowed under Section 14A. The
assessee knowing all the facts claimed the deduction of interest
without making any disallowance under Section 14A, therefore, the
claim of deduction for interest was certainly furnishing of inaccurate
particulars and penalty was rightly levied under Section 271(1)(c). In
support of this contention, he relied upon the decision of Hon'ble
Jurisdictional High Court in the case of Commissioner of Income-tax Vs.
Zoom Communication P.Ltd. 327 ITR 510 and submitted that the
penalty under Section 271(1)(c) was rightly levied by the Assessing
Officer and the same should be upheld.
4. The learned counsel for the assessee, on the other hand, stated
that the assessee disclosed all the facts in the return of income.
Merely because the assessee's claim of interest was disallowed, it
would not amount to concealment of income or furnishing of
inaccurate particulars. That the issue of disallowance of interest under
Section 14A is a highly debatable issue. That this provision was newly
introduced by the Finance Act, 2001. Therefore, when the assessee
filed the return for AY 2002-03, it was an absolutely new provision.
There were no judicial pronouncements and even recently, the
decisions came from a Jurisdictional High Court or other High Courts
have mainly set aside the matter to the Assessing Officer for reworking
of the disallowance. He stated that there is no dispute that the money
was borrowed by the assessee company and interest was paid thereon.
Merely because part of the interest was disallowed by invoking the
deeming provision of Section 14A, it cannot be said that the assessee
either furnished inaccurate particulars or concealed the income. In
support of this contention, he relied upon the following decisions:-
3 ITA-1841/Del/2010
(i) CIT Vs. Reliance Petro Products Pvt.Ltd. 322 ITR 158 (SC).
(ii) CIT Vs. Nalwa Sons Investment Ltd. (Supreme Court)
Special Leave to Appeal (Civil) No.18564/2011 dated
4.5.2012.
(iii) CIT Vs. Mahanagar Telephone Nigam Limited (Delhi High
Court) ITA No.626 of 2011 dated 10.10.2011.
(iv) Karan Raghav Exports Pvt.Ltd. Vs. CIT (Delhi High Court)
ITA No.1152 of 2011 dated 14.3.2012.
(v) CIT Vs. Kas Movie Pvt.Ltd. (Delhi High Court) ITA No.793
of 2011 dated 18.11.2011.
5. We have carefully considered the arguments of both the sides
and perused the material placed before us. We find that the Hon'ble
Jurisdictional High Court in the case of Zoom Communication P.Ltd.
(supra) relied upon by the learned DR considered the decision of
Hon'ble Apex Court in the case of Reliance Petroproducts Pvt.Ltd.
(supra) relied upon by the learned counsel for the assessee and held
as under:-
"In the case of Reliance Petroproducts P.Ltd. [2010] 322
ITR 158 (SC), the addition made by the Assessing Officer in
respect of the interest claimed as a deduction under
section 36(1)(iii) of the Act was deleted by the
Commissioner of Income-tax (Appeals) though it was later
restored, by the Tribunal, to the Assessing Officer. The
appeal filed by the assessee against the order of the
Tribunal was admitted by the High Court. It was, in these
circumstances, that the Tribunal came to the conclusion
that the assessee had neither concealed the income nor
filed inaccurate particulars thereof. In recording this
finding, the Tribunal felt that if two views of the claim of
the assessee were possible, the explanation offered by it
4 ITA-1841/Del/2010
could not be said to be false. This, however, is not the
factual position in the case before us. The facts of the
present case thus are clearly distinguishable.
It is true that mere submitting a claim which is
incorrect in law would not amount to giving inaccurate
particulars of the income of the assessee, but it cannot be
disputed that the claim made by the assessee needs to be
bona fide. If the claim besides being incorrect in law is
mala fide, Explanation 1 to section 271(1)(c) would come
into play and work to the disadvantage of the assessee.
The court cannot overlook the fact that only a small
percentage of the income-tax returns are picked up for
scrutiny. If the assessee makes a claim which is not only
incorrect in law but is also wholly without any basis and the
explanation furnished by him for making such a claim is
not found to be bona fide, it would be difficult to say that
he would still not be liable to penalty under section
271(1)(c) of the Act. If we take the view that a claim which
is wholly untenable in law and has absolutely no foundation
on which it could be made, the assessee would not be
liable to imposition of penalty, even if he was not acting
bona fide while making a claim of this nature, that would
give a licence to unscrupulous assessees to make wholly
untenable and unsustainable claims without there being
any basis for making them, in the hope that their return
would not be picked up for scrutiny and they would be
assessed on the basis of self-assessment under section
143(1) of the Act and even if their case is selected for
scrutiny, they can get away merely by paying the tax,
which in any case, was payable by them. The
consequence would be that the persons who make claims
5 ITA-1841/Del/2010
of this nature, actuated by a mala fide intention to evade
tax otherwise payable by them would get away without
paying the tax legally payable by them, if their cases are
not picked up for scrutiny. This would take away the
deterrent effect, which these penalty provisions in the Act
have.
We find that the assessee before us did not explain
either to the income-tax authorities or to the Income-tax
Appellate Tribunal as to in what circumstances and on
account of whose mistake, the amounts claimed as
deductions in this case were not added, while computing
the income of the assessee-company. We cannot lose
sight of the fact that the assessee is a company which
must be having professional assistance in computation of
its income, and its accounts are compulsorily subjected to
audit. In the absence of any details from the assessee, we
fail to appreciate how such deductions could have been left
out while computing the income of the assessee-company
and how it could also have escaped the attention of the
auditors of the company."
6. Thus, after considering the decision in the case of Reliance
Petroproducts Pvt.Ltd. (supra), it was stated by the Hon'ble
Jurisdictional High Court that mere submitting a claim which is
incorrect in law would not amount to giving inaccurate particulars of
the income of the assessee but if the claim, besides being incorrect in
law is mala fide, Explanation 1 to Section 271(1)(c) would come into
play. If the assessee's claim is bona fide, then he will not be liable for
penalty. Therefore, the precise question to be adjudicated by us is
whether the assessee's claim was bona fide or mala fide.
6 ITA-1841/Del/2010
7. After considering the facts of the case and the arguments of both
the sides, we are clearly of the opinion that the assessee's claim was
bona fide. The provision of Section 14A was inserted in the Income-tax
Act by the Finance Act, 2001. The assessment year under
consideration is AY 2002-03. Thus, the assessee's claim that at the
time of filing of the return it was a new provision for which no judicial
pronouncement was available, appears to be correct. It is not in
dispute that the assessee correctly disclosed the money borrowed by it
and its utilisation which was partly for the purchase of shares. It is not
the case of the Revenue that the assessee furnished either any
inaccurate facts or wrong facts. Therefore, merely because the
Assessing Officer disallowed part of interest, it would not amount to
either concealment of income or furnishing of inaccurate particulars.
We, therefore, respectfully following the decision of Hon'ble Apex Court
in the case of Reliance Petroproducts Pvt.Ltd. (supra), and also the
decision of Hon'ble Jurisdictional High Court in the case of Zoom
Communication P.Ltd. (supra), uphold the order of learned CIT(A)
cancelling the penalty levied under Section 271(1)(c).
8. In the result, the appeal of the Revenue is dismissed.
Decision pronounced in the open Court on 13th July, 2012.
Sd/- Sd/-
YADAV)
(RAJPAL YADAV) (G.D.AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 13.07.2012
VK.
Copy forwarded to: -
1. Appellant : Deputy Commissioner of
Income Tax,
Circle-17(1),
Circle-
New Delhi.
2. Respondent : M/s Vikram Bakshi & Co.Pvt.Ltd.,
Top Floor, Mohan Dev Building,
7 ITA-1841/Del/2010
13, Tolstoy Marg,
New Delhi 110 001.
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
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