TaxTMI 
TaxTMI 
2009 (3) TMI 635
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.... earning of tax free dividend income for the purposes of deduction under section 80M. The Assessing Officer made the addition of Rs. 2,43,948 by estimating such expenses at 5 per cent of the dividend income received during the year. When the matter finally came up before the Tribunal in quantum proceedings, the said addition was deleted having been made on the basis of estimation of expenses. Copy of the order passed by the Tribunal in ITA Nos. 3877/Mum./2004 and 5036/Mum./2004 has been placed at page 24 onwards of the paper book. The relevant discussion is made in para 3 by which such disallowance has been deleted. In view of the fact that the addition for which the penalty was imposed by the Assessing Officer does not stand, in our considered opinion, the very foundation for the penalty ceases to exist. We, therefore, uphold the impugned order on this issue. 4. The second aspect of this ground is against the deletion of penalty on the claim made by the assessee under section 80HHC in respect of interest income. The learned Counsel for the assessee submitted that the similar penalty imposed under section 271(1)(c) with reference to claim of deduction under section 80HHC on gross ....
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....his opinion the scenario of penalty under section 271(1)(c) has drastically changed with the advent of this judgment inasmuch as now the penalty can be levied when the assessee claims deduction by disclosing the correct particulars of his income but still the addition is made. He further stated that with the confirmation of the addition by the Tribunal in the quantum proceedings, it has become crystal clear that the assessee had wrongly claimed the deduction for which the penalty must be imposed. In the opposition the ld. AR submitted that the ld. CIT(A) was right in deleting the penalty on this item because the assessee had made proper disclosure in the return of income when it claimed deduction at hundred per cent of the cost of the car, which was purchased and used in connection with the work relating to Research and development. 8. We have heard the rival submissions and perused the relevant material on record. A great deal of emphasis had been laid by the ld. DR on the fact that since the addition has been upheld by the Tribunal, then the penalty should also be confirmed. In our considered opinion the mere fact of confirmation of addition cannot per se lead to the confirmatio....
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....nt the income in respect of which the particulars have been concealed. The necessary elements for attracting this Explanation are three-fold. (a)the person fails to offer the explanation, or (b)he offers the explanation which is found by the authorities to be false, or (c)the person offers 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 have been disclosed by him. If the case falls in any of these three ingredients, then the deeming provision comes into play and the amount added or disallowed in computing the total income is 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. If the assessee successfully comes out of the above three constituents then he cannot be deemed to have concealed the particulars of his income with reference to the amount added or disallowed in computation of total income. 10. With this background in mind, now we will proceed to test the facts of our case on the touchstone of the above referred three ingredients of Explanation 1 to section 271(1) one by one. ....
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....um of Rs. 3.23 lakhs towards purchase of Maruti car for the R&D staff. The Assessing Officer allowed the deduction under section 35 in entirety except for disallowing 80 per cent of Rs. 3.23 lakhs by treating it as not used for R&D activity. The facts that the assessee had carried out R&D activity and the car was also purchased by it for the use by the R&D staff have not been denied by the Assessing Officer. The explanation of the assessee for claiming full deduction under section 35 cannot be said to be fanciful. Further the assessee disclosed all the facts relating to its claim by way of Statement No. 6 annexed to the Audit report, which forms part and parcel of the return of income, in which it has been specifically mentioned about the R&D expenses debited to the P&L account '(including depreciation)'. Hence the case of the assessee cannot be covered in the third category also. Under these circumstances it is patent that the necessary conditions for invoking Explanation 1 to section 271(1)(c) are lacking. 11. The Hon'ble Supreme Court in Dharmendra Textiles Processor's case (supra) has held that the penalty under section 271(1)(c) is a civil liability and the "wilful concealmen....
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....t aware of having earned interest income from the tenth bank account. But in a case where a genuine claim is made for deduction which is not accepted by the revenue but all the necessary particulars are declared by the assessee in the return of income, it cannot be said by any stretch of imagination that the assessee has concealed his income or furnished inaccurate particulars of income in respect of the claim of deduction which stands repelled by the authorities. If penalty is imposed under such circumstances also then probably there will remain no course open to the assessee for genuinely claiming a deduction which in his opinion is admissible, because the fear of such claim being rejected in eventuality will expose him to the rigor of penalty. Obviously such a proposition is beyond any recognized canon of law. 12. We have noted above that the penalty proceedings are distinct from the assessment proceedings and hence it becomes amply clear that any addition made does not automatically lead to the imposition of penalty under section 271(1)(c). In the penalty proceedings the assessee is given a chance to explain his case. If he successfully explains his position and is not trapped....
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....d in the first appeal. 15. Having heard the rival submissions and perused the relevant material on record we again notice that there is no concealment of income by the assessee on this issue. Strictly speaking section 41(1) is attracted when there is cessation or remission of a trading liability. Simply because a period of three years has expired and the creditor cannot lawfully enforce his claim, it does not mean that there is a cessation or remission of liability. Suppose in the fourth year or thereafter the creditor demands the money and the assessee agrees to pay, which is otherwise rightfully payable to him based on a genuine and existing liability, can it be said that the assessee should be prevented from making the payment because the lawfully enforceable right vested in the creditor does not exist? In our considered opinion the answer is in negative. There may be several situations when the money is not claimed or paid by one party to another within three years and thereafter the claim is made and honored by the other. So simply because a particular amount is outstanding for a period of more than three years, that does not constitute income under section 41(1). The act of ....