IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH `B' : NEW DELHI)
BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND
SHRI K.G. BANSAL, ACCOUNTANT MEMBER
ITA No.3984/Del./2011
(Assessment Year : 2005-06)
Kay Jay Auto Ltd., Vs. ACIT, Circle 5(1),
C/o M/s Wahi & Co., New Delhi
K-1, Kailash Colony,
New Delhi.
(PAN/GIR No.AAACK0163H)
(Appellant) (Respondent)
Assessee by : Shri A.K. Malhotra, CA
Revenue by : Shri Vikas K. Suryawanshi, Sr.DR
ORDER
PER U.B.S. BEDI, JM
This appeal of the assessee is directed against the order passed by the CIT (A)-
VIII, New Delhi, dated 08.07.2011, relevant to assessment year 2005-06, whereby
confirmation of penalty of Rs.1,26,423/- imposed by the Assessing Officer u/s 271(1)(c)
of the I.T. Act, 1961 has been challenged.
2. Facts indicate that assessment in this case was completed u/s 143(3) of the Act on
31.12.2007 at a total income of Rs.5,24,12,027 as against the returned income of
Rs.5,05,89,567/-. In the assessment, apart from other disallowances on account of
deprecation on farm house and commercial flats totaling to Rs.3,45,490/- was made.
3. On appeal, the aforesaid disallowance was sustained by the first appellate
authority. Thereafter, the Assessing Officer imposed the impugned penalty vide his order
dated 29.3.2010 after giving due opportunity to the assessee.
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(A.Y. : 2005-06)
4. Assessee filed appeal against such imposition of penalty and submitted before
first appellate authority that under similar circumstances and on identical grounds of
additions in assessment year 2006-07, the same CIT(A) has dropped penalty u/s 271(1)(c)
of the Act and by filing copy of such order before first appellate authority and relying
upon various case laws including the decision of Delhi Bench, ITAT in the case of
Standard Chartered Grindlays Bank Limited vs. DDIT (International Taxation) and
Director of IT (International Taxation vs. ANZ Grindlays Bank (2010) 127 TTJ (Trib)
319 and CIT vs. Reliance Petro Products (P) Ltd., 230 CTR 320 (SC) and other case
laws, it was pleaded for deletion of the impugned penalty.
5. Ld.CIT while considering, but not accepting the plea of the assessee has
concluded to confirm the action of the CIT(A) as per para.3.5 of his order which reads as
under:
"3.5 When the facts of the present case are analyzed in the light of the above
observations of the Hon'ble Apex Court, I find that the appellant company has
claimed depreciation on a commercial flat income from which was offered to tax
as "income from house property." It has also claimed deprecation on a far house
which was also not an admissible claim. Therefore, the information furnished by
the appellant company in the return of income was factually incorrect and the
appellant company cannot escape the rigors of section 271(1) of the I.T. Act,
1961. The Hon'ble Delhi High Court in the case of CIT vs. Escort Finance Ltd.,
328 I.T.R. 44 has held that even if there is no concealment of income or
furnishing of inaccurate particulars, but if a claim which is ex-facie bogus is
made, the same still attract penalty provisions. Similar views have been
expressed by the Hon'ble Court in the case of CIT vs. Zoom Communications (P)
Ltd. holding that very few returns are selected for scrutiny and therefore, non-
sustainable claims cannot be said to be bonafide. Prima facie unsustainable claim
made in the return of income shall definitely invite penalty u/s 271(1) of the
Act. In view of the aforesaid, I hold that the Assessing Officer has rightly
charged the appellant company with concealment and furnishing of inaccurate
particulars. Accordingly, the penalty u/s 271(1(c) of the Act is being sustained."
6. Still aggrieved, assessee has come up in further appeal and while reiterating the
submissions as made before lower authorities, it was pleaded for deletion of the
impugned penalty as imposed by the Assessing Officer and confirmed by the CIT(A). It
was strongly pleaded that disallowing of claim cannot attract penalty, while relying upon
the ratio in the case of Reliance Petro Products (P) Ltd., 230 CTR 320 (SC), it was
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(A.Y. : 2005-06)
pleaded for deletion of the penalty as assessee has not concealed any income nor
furnished any inaccurate particulars of income because of material facts were there before
the Assessing Officer. Therefore, penalty could not be levied which could be deleted.
7. Ld.DR has relied upon the order of CIT(A) and pleaded for confirmation of the
impugned order.
8. We have heard both the sides and gone through the facts of the case,
relevant material and the decisions relied upon on behalf of the assessee as well as
by the department, as regards penalty levied in respect of amount of excess
depreciation on farm house and commercial flats and find that not even a whisper has
been made in the penalty order as to which specific particulars were furnished
inaccurate or were concealed. The expression 'has concealed the particulars of
income' and 'has furnished inaccurate particulars of income' have not been
defined either in sect ion 271 or elsewhere in the Act . However, not withstanding
the difference in the two circumstances, it is now well established that they lead
to the same effect namely, keeping of f a certain port ion of the income from the
return. According to Law Lexicon, the word "conceal" means:
"to hide or keep secret . The word 'conceal ' is con+celare which
implies to hide. It means to hide or withdraw from observation; to
cover or keep from sight ; to prevent the discovery of ; to withhold
knowledge of . The offence of concealment is, thus, a direct at
tempt to hide an item of income or a portion thereof from the
knowledge of the income-tax authorities."
In Webster's Dictionary, " inaccurate" has been defined as :
"not accurate, not exact or correct ; not according to truth;
erroneous; as an inaccurate statement , copy or transcript .".
9. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied
in the course of any proceedings under this Act that any person has concealed
the particulars of his income or furnished inaccurate particulars of such income.
It is settled position that assessment proceedings and penalty proceedings are
4 I.T.A. No.3984/Del./2011
(A.Y. : 2005-06)
separate and distinct and as held by Hon'ble Supreme Court in the case of
Ananthraman Veerasinghaiah & Co. Vs. CIT, 123 ITR 457, the findings in the
assessment proceedings cannot be regarded as conclusive for the purposes of the
penal ty proceedings. It is also well settled that the criterion and yardsticks for
the purpose of imposing penalty u/s 271(1) (c) of the Act are different than
those applied for making or confirming the additions. It is, therefore,
necessary to re-appreciate and reconsider the matter so as to find out as to
whether the addition or disallowance made in the quantum proceedings actual ly
represents the concealment on the part of the assessee as envisaged in sec.
271(1)(c) of the Act, and whether it is a fit case to impose the penalty by invoking
the said provisions. The provisions of sect ion 271(1)(c) of the Act stipulate that
if the Assessing Officer or the CIT(Appeals) or the Commissioner, in the course
of proceedings under this Act, is satisfied that any person has concealed the
particulars of his income or furnished inaccurate particulars thereof , he may
direct that such person shall pay by way of penalty a sum which shall not
be less than but which shall not exceed three times the amount of tax sought
to be evaded by a reason of the concealment of particulars of his income.
Explanation 1 to section 271(1)(c) of the Act mentions that where in respect of
any facts material to the computation of the total income of any person under
the Act , such person fails to offer an explanation or offers an explanation which
is found by the AO or the CIT (Appeals) or the Commissioner to be false, or such
person offers an explanation which he is not able to substantiate and fails to
prove that such explanation is bona fide and that all the facts relating to the
same and material to the computation of his total income have been disclosed by
him, then the amount added or disallowed in computing the total income of
such person as a result thereof shall for the purpose of clause (c) of sect ion
271(1), be deemed to represent the income in respect of which particulars have
been concealed. In other words, the necessary ingredients for attracting
Explanation 1 to sect ion 271(1) (c) are that (i) the person fails to offer the
explanation, or (ii) he offers the explanation which is found by the AO or the
CIT (Appeals) or the Commissioner to be false, or (iii) the person offers
5 I.T.A. No.3984/Del./2011
(A.Y. : 2005-06)
explanation which he is not able to substantiate and
fails to prove that such explanation is bona fide and that al l the facts relating to
the same have been disclosed by him.
10. If the case of any assessee falls in any of these three categories, then
the deeming provision provided in Explanation 1 to section 271(1) (c) come into
play, and the amount added or disallowed in computing the total income shall
be considered as the income in respect of which particulars have been concealed,
for the purposes of clause (c) of section 271(1), and the penalty follows. On the
other hand, if the assessee is able to offer an explanation, which is not found
by the authorities to be false, and assessee has been able to prove that such
explanation is bona fide and that all the facts relating to the same have been
disclosed by him, the assessee shall be out of the clutches of explanation ion 1
to sect ion 271(1) (c) of the Act , and in that case, the penalty shall not be
imposed. In the instant case, the assessee discharged the onus cast on it in terms
of explanation 1 to sec. 271(1)(c) of the Act . Hon'ble Supreme Court in the
case of Dilip N. Shroff v. Jt . CIT [2007] 210 CTR (SC) 228 : [2007] 291
ITR 519 (SC) while considering the scope of these provisions u/s 271(1) ( c) of
the Act observed in the following terms:
"The legal history of sect ion 271(1) (c) of the Act t raced from the
1922 Act prima facie shows that the Explanations were applicable to
both the parts. However, each case must be considered on its own facts.
The role of the Explanation having regard to the principle of
statutory interpretation must be borne in mind before interpreting the
aforementioned provisions. Clause (c) of sub-sect ion (1) of section
271 categorically states that the penal ty would be leviable if the
assessee conceals the particulars of his income or furnishes inaccurate
particulars thereof . By reason of such concealment or furnishing of
inaccurate particulars alone, the assessee does not ipso facto become
liable for penalty. Imposition of penalty is not automatic. Levy of
penalty is not only discretionary in nature but such discretion is
required to be exercised on the part of the Assessing Officer keeping
the relevant factors in mind. Some of those factors apart from being
inherent in the nature of penal ty proceedings as has been not iced in
some of the decisions of this court , inheres on the face of the
statutory provisions. Penal ty proceedings are not to be initiated, as
has been noticed by the Wanchoo Committee, only to harass the
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(A.Y. : 2005-06)
assessee. The approach of the Assessing Officer in this behalf must be
fair and objective.
.......................................................................................
The term " inaccurate particulars" is not defined. Furnishing of an
assessment of value of the property may not by itself be
furnishing of inaccurate particulars. Even, if the Explanations are
taken recourse to, a finding has to be arrived at having regard to
clause (A) of Explanation 1 that the Assessing Officer is required
to arrive at a finding that the explanation offered by an assessee,
in the event he offers one, was false. He must be found to have
failed to prove that such explanation is not only not bona fide but
al l the facts relating to the same and material to the income were
not disclosed by him. Thus, apart from his explanation being not
bona fide, it should have been found as of fact that he has not
disclosed all the facts which was material to the computation of his
income. "
11. In the light of aforesaid observations of the Hon'ble Apex Court, what
is to be seen in the instant case, is whether the claim for deduction of
depreciation made by the assessee was bona-fide and whether at all the material
facts relevant thereto have been furnished and once it is so established, the assessee
cannot be held liable for concealment penalty u/s 271(l )(c) of the Act . The
Assessing Officer has not been able to establish that the claim of the assessee
for deduction of depreciation was not bona fide or that any specific particulars
were concealed or furnished inaccurate. A mere reject ion of the claim of the
assessee by relying on different interpretations does not amount to concealment
of the particulars of income or furnishing inaccurate particulars thereof by the
assessee. Hon'ble Apex Court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322
ITR 158, after considering various decisions including Dilip N. Shroff v. Jt. CIT
[2007] 291 ITR 519/ 161 Taxman 218 (SC) and Union of India v. Dharmendra
Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC) concluded that a mere
making of a claim, which is not sustainable in law, by itself, will not amount to
furnishing inaccurate particulars regarding the income of the assessee. Such a
claim made in the return cannot amount to furnishing inaccurate particulars. In the
case under consideration, there is nothing to suggest that the assessee furnished
any inaccurate particulars or concealed the particulars. Admittedly, the claim for
7 I.T.A. No.3984/Del./2011
(A.Y. : 2005-06)
deduction of depreciation was there in the documents forwarded with the return. In this
view of the matter, no fault can be found with the claim of the assessee that it
had claimed the deduct ion in a bona fide manner.
12. In the case under consideration, as pointed out by the ld. AR of the
assessee had given all the particulars of income and had disclosed all facts to the AO
in relation to claim for deduction of depreciation. Mere disallowance of a claim
will not amount to filing of inaccurate particulars of income. It can at best be a
"wrong claim" not "a false claim". In such circumstances, Hon'ble Delhi High Court
held in the case of Commissioner of Income-Tax vs Bacardi Martini India
Limited.,288 ITR 585(Del) that no penalty was leviable. In CIT vs. Harshvardhan
Chemicals & Minerals Ltd. (259 ITR 212) (Raj), Hon'ble Rajasthan High Court
upheld the finding of the Tribunal that when the assessee has claimed some
amount though that is debatable, in such cases, it cannot be said that the assessee has
concealed any income or furnished inaccurate particulars for evasion of the tax.
Recently, Hon'ble Apex Court in Reliance Petro Products(supra) held that a mere
making of the claim, which is not sustainable in law, by itself, will not amount to
furnishing inaccurate particulars regarding the income of the assessee. Thus, merely
because the assessee had claimed the expenditure in relation to exempt income, which
claim was not accepted or was not acceptable to the Revenue, that by itself would
not, attract the penalty u/s 271(1)(c) of the Act. In the present case, we are of the
opinion that the disallowance of claim for deductions of depreciation, cannot be
considered as concealment of income or furnishing inaccurate particulars thereof,
especially when all the relevant particulars were disclosed before the AO. The
following observations made by the Hon'ble Apex Court in the aforesaid case of
M/s Reliance Petro Products(supra) are relevant:
" 10. It was tried to be suggested that Section 14A of the Act
specifically excluded the deductions in respect of the expenditure
incurred by the assessee in relation to income which does not form part of
the total income under the Act. It was further pointed out that the
dividends from the shares did not form the part of the total income. It was,
therefore, reiterated before us that the Assessing officer had correctly
reached the conclusion that since the assessee had claimed excessive
8 I.T.A. No.3984/Del./2011
(A.Y. : 2005-06)
deductions knowing that they are incorrect; it amounted to
concealment of income. It was tried to be argued that the falsehood in
accounts can take either of the two forms; (i) an item of receipt
may be suppressed fraudulently; (ii) an item of expenditure may be
falsely (or in an aggregated amount) claimed, and both types attempt
to reduce the taxable income and, therefore, both types amount to
concealment of particulars of one's income as well as furnishing of
inaccurate particulars of income. We do not agree, as the assessee had
furnished all the details of its expenditure as well as income in its Return,
which details, in themselves, were not found to be inaccurate nor could
be viewed as the concealment of income on its part. It was up to the
authorities to accept its claim in the Return or not. Merely because
the assessee had claimed the expenditure, which claim was not accepted
or was not acceptable to the Revenue, that by itself would not, in our
opinion, attract the penalty under Section 271(1)(c). If we accept the
contention of the Revenue then in case of
very Return where the claim made is not accepted by Assessing Officer
for any reason, the assessee will invite penalty under Section 271(1)(c).
That is clearly not the intendment of the Legislature.
11. In this behalf the observations of this Court made in Sree Krishna
Electrical v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as
regards the penalty are apposite. In the aforementioned decision
which pertained to the penalty proceedings in Tamil Nadu General
Sales Tax Act, the Court had found that the authorities below had found
that there were some incorrect statements made in the Return. However,
the said transactions were reflected in the accounts of the assessee. This
Court, therefore, observed:
"So far as the question of penalty is concerned the items
which were not included in the turnover were found incorporated
in the appellant's account books. Where certain items which are
not included in the turnover are disclosed in the dealer's own
account books and the assessing authorities include these
items in the dealer's turnover disallowing the exemption,
penalty cannot be imposed. The penalty levied stands set aside."
The situation in the present case is still better as no fault has been found
with the particulars submitted by the assessee in its Return. "
13. In view of the foregoing, we are of the opinion that mere erroneous claim in the
absence of any concealment or furnishing of inaccurate particulars, is no ground
for levying penalty, especially when there is nothing on record to show that the
9 I.T.A. No.3984/Del./2011
(A.Y. : 2005-06)
explanation offered by the assessee was not bona fide or any material particulars were
concealed or furnished inaccurate . In these circumstances, we have no hesitation in
observing that no penalty is exigible in relation to claim for deduction of excess
depreciation on farm house and commercial flats. Therefore, we hold that penalty is not
imposable in this case and action of authorities below in imposing/confirming the penalty
u/s 271(1)(c) of the Act is neither proper nor justified. As such, while accepting the plea
of the assessee, we direct to delete the impugned penalty imposed/confirmed.
14. In view of discussion as held above and in the light of facts and circumstances of
the case, we direct and hold accordingly.
15. As a result, the appeal of the assessee gets accepted.
Order pronounced in open court on 18.07.2012
Sd/- Sd/-
(K.G. BANSAL) (U.B.S. BEDI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : July 18, 2012
SKB
Copy of the order forwarded to:-
1. Appellant
2. Respondent
3. CIT
4. CIT(A)-VIII, New Delhi.
5. CIT(ITAT) Deputy Registrar, ITAT
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