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September, 16th 2013
+                 INCOME TAX APPEAL NO. 98/2013

                                         Reserved on: 13th August, 2013
                                     Date of decision: 30th August, 2013
                                                           ..... Appellant
                            Through Mr. Sanjeev Sabharwal, Sr.
                            Standing Counsel & Mr. Puneet Gupta, Jr.
                            Standing Counsel.


                                                         ..... Respondent
                            Through Nemo.


        This appeal under Section 260A of the Income Tax Act, 1961

(Act, for short) by Commissioner of Income Tax, Delhi-IV (hereinafter

referred to as the appellant/Revenue) is directed against order of the

Income Tax Appellate Tribunal dated 13th April, 2012 in the case of

DCM Limited, and relates to Assessment Year 2002-03.

2.          The contention of the Revenue is that penalty for concealment

under Section 271(1)(c) of the Act was rightly imposed as during the

course of the assessment proceedings the assessee had made

ITA No. 98/2013                                                  Page 1 of 7
a wrong claim in respect of loss suffered on writing off loan of

Rs.98.55 lacs, which was granted to DCM International Limited, a

subsidiary company for acquiring shares of DCM Toyota Limited.

DCM International Limited suffered losses and was not in a position to

repay the loan and the same was written off as bad or doubtful debt.

3.      The assessee is a limited company engaged in the business of

manufacture of textile yarn, sale etc. and information technology

related services. For the year ending 31st March, 2002, the assessee

filed original return on 30th October, 2002 showing business loss of

Rs.36,60,53,984/- and capital loss of Rs.39,80,76,080/-. This return

was processed under Section 143(1) of the Act. Subsequently, the

return was revised on 27th February, 2003, declaring business loss of

Rs.11,72,50,688/- and capital loss of Rs.13,02,27,759/-. Along with

these two returns, the assessee, however, had not filed tax audit report

under Section 44AB of the Act. It was, however, stated that a scheme

for restructuring of business was pending before the High Court and

certain directions had been issued for preparation/presentation of

accounts.         Subsequently, another revised return was filed on 31st

March, 2004 with audited accounts and tax audit report under Section

44AB.             In this return, the business loss was revised to

Rs.17,18,82,234/- and capital loss was computed at Rs.7,99,82,494/-.

This computation was again revised on 30th October, 2004 and the

ITA No. 98/2013                                                 Page 2 of 7
business loss was shown as Rs.15,28,61,385/-.

4.      The last revised return was taken up for scrutiny by issue of

notice under Section 143(2) of the Act.          During the course of

assessment proceedings, the assessee in the revised computation had

claimed that the loss of Rs.98.55 lacs on account of loan granted to its

subsidiary DCM International Limited, which was written off, was

deductable as business expenditure or in alternative the same should be

considered as a capital loss. The assessee had relied upon case law.

The Assessing Officer did not agree and held that loss suffered by

writing off loan given to DCM International Limited was not allowable

as business expenditure and in earlier year interest has been disallowed

as the loans were not given for business consideration. He observed

that it made no difference whether DCM International Limited was

wholly owned subsidiary and rejected the contention of the assessee

that the loss/advance was with the intention of carrying on business

through the subsidiary company. The contention of the assessee that

the loss was a capital loss was also rejected on the ground that the loan

was not a capital asset. The fact that loan was granted and had not

been paid and was rightly written off was not disputed/challenged.

5.      Aforesaid order of the Assessing Officer has attained finality

and was not interfered or reversed in the appellate proceedings.

6.      Penalty proceedings for concealment under Section 271(1)(c)

ITA No. 98/2013                                                    Page 3 of 7
were invoked and vide order dated 31st December, 2009 penalty of

Rs.35,18,326/- being 100% of tax sought to be evaded on

Rs.98,55,254/- was levied. The penalty order does not deal with the

merits and whether there was any justification or ground to impose

penalty. It has dealt with certain other issues regarding limitation etc.

and only records that the claim of the assessee with regard to the loan

had been rejected by the tribunal.

7.      Commissioner of Income Tax (Appeals) upheld the order

imposing penalty, inter alia, observing that a wrong claim had been

made before the Assessing Officer during the course of the assessment

proceedings, though no such claim had been made in the return of

income, profit and loss account, etc. This, it was held, was immaterial

because the claim had been made by way of a letter before the

Assessing Officer, when the assessment proceedings were pending. He

observed that the assessee should not and cannot take the risk of

making a wrong claim by filing revised computation of income during

the assessment proceedings, instead of making the claim in the return

of income. The claim was made by way of a letter or revised

computation before the Assessing Officer, which was considered and

rejected and thus on merits, penalty under Section 271(1)(c) should be


8.      Tribunal has reversed the findings of the Assessing Officer and

ITA No. 98/2013                                                  Page 4 of 7
the CIT (Appeals) after recording that the claim was not made in the

return of income, claim was made during the course of the assessment

proceedings before the Assessing Officer and, therefore, it cannot be

said that there was concealment of income as such. Reference was

made to the decision of the Supreme Court in Commissioner of

Income Tax versus Reliance Petroproducts Private Limited, (2010)

322 ITR 158 (SC) wherein it has been held that where an assessee

makes a bona fide legal claim but the same is not accepted, penalty

should not be levied, provided the assessee has disclosed all material

particulars of his income and there was no concealment of facts.

9.      We do not see any ground or reason to interfere with the

impugned order passed by the tribunal. It is apparent that the last

return filed by the assessee was taken up for scrutiny assessment. In

the original return no claim on account of capital or business loss of

Rs.98,55,254/- as bad debt written off on account of loan given to

DCM International Limited was claimed.          When the assessment

proceedings were pending scrutiny and detailed or regular assessment

proceedings had been initiated by way of a letter or re-computation

statement, the said claim was made before the Assessing Officer. It is

obvious and crystal clear that the assessee was aware that this claim

would be examined by the Assessing Officer and the claim was put

forward on the basis that DCM International Limited was a subsidiary

ITA No. 98/2013                                                Page 5 of 7
company and the loan granted to them was for specific purpose and for

the benefit of the holding company. It is not disputed or denied that

the loan in fact was granted and has been also written off. There was

no concealment or furnishing of inaccurate facts. The legal position

put forward by the respondent assessee that the loan unpaid and written

off should be either treated as business loss or alternatively as capital

loss was rejected. We fail to understand how and for what reason,

penalty for concealment can be imposed in the present case. Case is

completely covered by Explanation I. It is not disputed that full factual

matrix or the facts were before the Assessing Officer at the time of

assessment when this claim was made.            The fact that scrutiny

assessment was pending is a relevant and important circumstance to

show the bona fides of the assessee as he was aware that the claim

would be examined and would not go unnoticed. Secondly, the claim

was rejected in view of the legal position, which was against the

assessee and not because of statement of incorrect or wrong facts.

10.     Law does not bar or prohibit an assessee for making a claim,

which he believes may be accepted or is plausible. When such a claim

is made during the course of regular or scrutiny assessment, liberal

view is required to be taken as necessarily the claim is bound to be

carefully scrutinized both on facts and in law. Full probe and appraisal

is natural and normal. Threat of penalty cannot become a gag and/or

ITA No. 98/2013                                                  Page 6 of 7
haunt an assessee for making a claim which may be erroneous or

wrong, when it is made during the course of the assessment

proceedings. Normally, penalty proceedings in such cases should not

be initiated unless there are valid or good grounds to show that factual

concealment has been made or inaccurate particulars on facts were

provided in the computation. Law does not bar or prohibit a person

from making a claim, when he knows the matter is going to be

examined by the Assessing Officer. There is no merit in the present

appeal and the same has to be dismissed.

                                        (SANJIV KHANNA)

                                      (SANJEEV SACHDEVA)
AUGUST 30th, 2013

ITA No. 98/2013                                                 Page 7 of 7
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