TaxTMI 
TaxTMI 
2010 (5) TMI 665
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....of income or furnishing of any inaccurate particulars while passing the assessment order. It is submitted that in absence of such satisfaction penalty under section 271(1)(c) cannot be levied. It is submitted that it be so held now. (1.2) The learned Commissioner of Income-tax (Appeals) erred in confirming the penalty levied under section 271(1)(c) of the Act on the disallowance made for provision made for bad and doubtful debts for Rs. 1,62,81,557 and provision made for diminution in value of the investments for Rs. 21,98,638 as per the norms of Reserve Bank of India. It is submitted that in the facts and circumstances of the case penalty under section 271(1)(c) is not leviable. It is submitted that it be so held now. Your appellant craves leave to add, alter and/or amend all or any of the grounds before final hearing of the appeal. ITA No. 2526/Ahd./2006 [Revenue] "(1) The ld. CIT(A) erred in law and on the facts of the case in cancelling the part of the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 which was attributable to the disallowance of Rs. 9.91 lakhs under section 14A of the Income-tax Act on the ground that the addition....
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....1 After receipt of order of the ld. CIT(A), in response to a show-cause notice dated 8-2-2006 issued before levy of penalty, the assessee replied on 15-2-2006 that they have neither concealed any income nor furnished any inaccurate particulars thereof and therefore, the provisions of section 271(1)(c) would not be applicable. It was argued that out of additions of Rs. 12.87 crores, additions/disallowances of Rs. 1.87 crores were confirmed in respect of provision for doubtful debts and provision for diminution in value of the investment besides disallowance under section 14A of the Act. It was pointed out that the provision for doubtful debts and diminution in investments having been made in view of the RBI directions and in compliance with the accounting standard and separately disclosed in the audited accounts, it was not a case of any concealment of income. While relying upon decisions in the case of CIT v. Calcutta Trading Corpn. [1987] 166 ITR 29^1 (Cal.), J.K. Jajoo v. CIT [1990] 181 ITR 410 (MP), CIT v. Inden Bislers [1999] 240 ITR 943 (Mad.), Dy. CIT v. Gujarat Machinery Manufacturers Ltd. [2000] 67 TTJ (Ahd.) 466, Shivam Art Processors (P.) Ltd. v. Asstt. CIT [2000] 69 TTJ ....
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....g Officer. The Assessing Officer had not stated whether penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars. While relying upon the decisions of Hon'ble Delhi High Court in Diwan Enterprises v. CIT [2000] 246 ITR 571 , CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568^1 , CIT v. Auto Lamps Ltd. [2005] 278 ITR 32 and CIT v. B.R. Sharma [2005] 275 ITR 303, the assessee contended that in the absence of any such satisfaction being recorded in the assessment proceedings, the jurisdiction to initiate the penalty proceedings could not have been exercised. Relying upon the decisions in the case of Dahod Sahkari Kharid Vechan Sangh Ltd. v. CIT [2005] 149 Taxman 456 (Guj.), Dy. CIT v. Rural Electrical Co-operative Society Ltd. [2005] 279 ITR 319 (MP) and Dena Bank Ltd. v. IAC [1988] 25 ITD 109 (Bom.), it was further contended that being a Government Company, there was no mala fide intention in claiming the deduction. Relying on the decisions in the case of ITO v. C. Chhotalal Textiles (P.) Ltd. [2005] 95 TTJ (Mum. - ITAT) 436, CIT v. Raj Bans Singh [2005] 276 ITR 351 (All.) and ITO v. Smt. Purnima Devi Gupta [2004] 3 SOT 753 (Jodh.), ....
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....pellant filed along with the return of income which is extracted as under for the sake of facility. Particulars Rs. Rs. Rs. 1. Business income 72833695 Net Profit as per P&L A/c 123227452 Add: (1) Depreciation as per Books 64000000 2. Provision for Taxation 187227452 Less: Prior period adjustment a/c 260061147 Less: Excess Provision of I.T. 186567 259874580 1 1391745 Add: Disallowables 258482835 (1) Out of Misc. Exp. TDS Penalty of AY 1997-98 40900 (2) Out of Office Exp. PF Penalty 12563 43463 Less: Items Treated Separately 258536298 Profit on sale of investments 3006551 Profit on sale of assets (net) 19178 Dividend Income 48145543 51171272 Le....
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....) was on the Statute as on the date of filing of return. The appellant also admits that they were not aware of the said Amendment as it was not publicly known. Thus, it leads to the inevitable conclusion that the provision of the Act as regards bad debt claim was given a go by. It is not disputed by the appellant that what they had debited in the profit and loss account was mere provision and not bad debt written off. It is to be stated with emphasis that the provisions of section 36(1)(vii) was effective from 1-4-1989 which necessitates write off of bad debts as irrecoverable in the accounts of the appellant. Only the Explanation below clarifying that provision for bad and doubtful debts made in the accounts would not qualify as bad debt or part thereof written off as irrecoverable, was introduced by the Finance Act, 2001 with retrospective effect from 1-4-1989. Thus, write off of bad debts in the accounts is a must for claiming deduction under section 36(1)(vii). The appellant is an established concern assisted by reputed professional firms. It cannot be their case that they were ignorant of even the base requirements of law while making huge claims for deduction. As already stat....
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....mere provision was and had been allowed up to assessment year 2000-01. This being the case, there is no basis for the appellant to form any bona fide belief in not adjusting the said provision in the computation statement. 5.1-3 Be that as it may, now I shall advert to the arguments on the legal aspects as put forth by the appellant : 5.1-4 (i) Non-recording of reasons by the Assessing Officer in the assessment order - The appellant extensively relied on various decisions of the Hon'ble Delhi High Court as discussed in the preceding paragraphs. For the sake of brevity, it is pertinent to refer to the decision of the Hon'ble Madras High Court squarely covering the above aspect in the case of M. Sajjanraj Nahar v. CIT 283 ITR 230. In the said decision the Hon'ble High Court held that the indication in the assessment order by the Assessing Officer that penalty proceedings are initiated separately is sufficient to prove that the Assessing Officer had satisfied himself in the course of assessment proceedings that the assessee had concealed his income. In coming to the above decision, the Hon'ble High Court extensively quoted the decision of Hon'ble Apex Court in the ca....
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....v. S.V. Angidi Chettiar [1962] 44 ITR 739, because in the said decision, the Supreme Court also observed that (page 745): 'There is no evidence on the record that the Income-tax Officer was not satisfied in the course of the assessment proceeding that the firms had concealed its income. The assessment order is dated 10-11-1951, and there is an endorsement at the foot of the assessment order by the ITO that action under section 28 had been taken for concealment of income indicating clearly that the ITO was satisfied in the course of the assessment proceedings that the firm had concealed its income." [Emphasis supplied]. The above observation of the Apex Court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, dealing with the indication of the Assessing Officer as to the proposed penalty proceedings with regard to the concealment of income in the course of the assessment proceedings by the assessee. In our considered opinion, was not brought to the notice of the Delhi High Court in (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568; (b) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi); and (c) CIT v. Vikas Promoters (P.) Ltd. [2005] 277 ITR 33....
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....e of Dahod Sahakari Kharid Vechan Sangh Limited referred to in the preceding paragraphs. The said decision was rendered in the context of a co-operative society which received a sum from the insurance company on withdrawal from Group Insurance Scheme being premium paid in earlier years and the same was credited to the Gratuity Fund Account directly instead of routing the said receipt through the profit and loss account. In the said situation, it was held to be a bona fide mistake while preparing return of income and that the omission had occurred not with an intention but due to oversight and that there was nothing on record to show that any particular individual member of the Assessee Society had any personal interest in committing act of omission and hence no penalty was exigible. The facts of the case on hand as discussed in detail above are quite different and that it is not a mere receipt that was routed through the account which was omitted to be adjusted in the computation statement. But the present case is a sheer default of making a claim without carrying out the requisite write off in the accounts of the respective parties. In fact, it is a clear violation of the provisio....
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....ppellant. The same was not done and the reason for not doing so is not explained by the appellant. There is also no legal basis for forming a belief that the same is an allowable deduction, in view of the specific provision, namely, section 36(1)(vii), being not satisfied. The same argument holds good as regards the diminution in value of investments which is purely notional. The failure to adjust the above entries in the computation of statement cannot be claimed to be either of ignorance of law or on any sound factual or legal basis. In fact, there is no case for any bona fide belief on the date of filing of the return along with computation statement. Had the return been accepted on the basis of the computation statement, such inadmissible claim leading to under assessment would have escaped the due treatment under the law. In that view of the matter, I am convinced that the action of the Assessing Officer in levying penalty holding that the appellant furnished inaccurate particulars by way of incorrect computation of income leading to under statement of taxable income is justified calling for levy of penalty under section 271(1)(c). However, as regards the disallowance of Rs. 9....
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.... of concealment of its income by furnishing inaccurate particulars thereof in relation to their claim for deduction of provision for bad and doubtful debts- Rs. 1,62,81,557 and provision made for diminution in value of the investments - Rs. 21,98,638. 5. We have heard both the parties and gone through the facts of the case as also the decisions relied upon on behalf of the assessee. At the outset, we may have a look at the relevant provisions of section 271(1)(c) of the Act, which read as under: "271. Failure to furnish returns, comply with notices, concealment of income, etc..- (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- ****** (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- (iii)in the cases referred to in clause (c) , in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particula....
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....under section 271(1)(c) of the Act. In the instant case, the ld. CIT(A) upheld the levy of penalty under section 271(1)(c) of the Act since the assessee furnished inaccurate particulars of the income by claiming provision for bad debts and provision for diminution of investments in violation of provisions of the Act. Rather the provisions of the Act expressly debar deduction of such provision for bad debts and provision for diminution of investments. The expression 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion 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 attempt to hide an item of income or a portion the....
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....ct relating to the computation of total income states that the amount added or disallowed in computing the total income of an assessee shall be deemed to be the income in respect of which particulars have been concealed. This deeming provision for concealment is not absolute one. The presumption under the Explanation 1 is rebuttable and not conclusive. The assessee can submit the explanation as the onus shifts on to the assessee to prove that he has not concealed the particulars of the income. The assessee in the instant case submitted an explanation, wherein in relation to their claim for provision for bad and doubtful debts , it was pointed out on behalf of the assessee that they were not aware of the amendment introduced by the Finance Act, 2001 with retrospective effect from 1-4-1989, as it was not publicly known and that RBI directions override the provisions of the Act. The ld. CIT(A) found that there was no mention in the computation statement as to the claim under section 36(1)(vii) as regards provisions for bad and doubtful debts or as regards diminution in value of investments. Undisputedly, what the assessee had debited in the profit and loss account was mere provision a....
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....imed the deduction, even when the amount had not been written off. We 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 license 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....
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....e rebutted by the assessee with reference to facts of the case. Thus, the onus is on the assessee to rebut the inference of concealment. The absence of explanation itself would attract penalty. The explanation offered by the assessee should not be false. The onus laid down upon the assessee to rebut the presumption raised under Explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted. Since the assessee failed to substantiate their explanation in respect of amount in relation to disallowance on account of provision for bad and doubtful debts - Rs. 1,62,81,557 and provision for diminution in value of investments-Rs. 21,98,638, the onus laid down upon the assessee in terms of Explanation 1(B) to section 271(1)(c) of the Act remains undischarged. The assessee has neither substantiated his explanation nor proved that such an explanation is bona fide before the lower authorities. Thus, it cannot be said that in such a case, there could be no scope for saying that the assessee is guilty of furnishing of inaccurate particulars of income, warranting penalty under section 271(1)(c) of the Act. Even if....
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.... Hon'ble Delhi High Court that whenever there was a failure on the part of the assessee in the circumstances referred to in Explanation to section 271(1)(c), the statutory presumption automatically followed and it had to be deemed that the assessee had concealed the particulars of his income. Though the said decision of the Delhi High Court relates to the assessment year 1964-65, the proposition of law and the ratio laid down in that case is equally applicable to Explanation 1 to section 271(1)(c) inserted by Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976. 5.7 The reliance on the decisions on behalf of the assessee in support of their assertion that mere disallowance of a claim for deduction of aforesaid provisions would not attract penalty, is totally misplaced since the assessee did not place any evidence before us regarding bona fide of their claim for deduction on account of provision for bad and doubtful debts and provision for diminution in value of investments nor referred us to any provision in the Act in support of such claim. It may be pointed out that in quantum appeal, the ITAT upheld the disallowance of provisions for bad and doubtful debts as also p....
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.... to explain their claim as per the provisions of the RBI Act overriding the Income-tax Act, the said claim does not survive in view of the decision of the Hon'ble Madras High Court in the case of T.N. Power Finance & Infrastructure Development Corpn. Ltd. (supra) and aforesaid decision of the Hon'ble Apex Court. Moreover, as already pointed out, Hon'ble Supreme Court in their decision in the case of K.P. Madhusdanan (supra ), held that the Explanation to section 271(1)(c) is a part of section 271. When the Assessing Officer or the CIT(A) issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By reason of the Explanation, the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the explanation, that his failure to return his correct income was not due t....
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....ed by the Finance Act, 2001 with effect from 1-4-1989 or that the RBI guidelines override the provisions of the Act or that their explanation was bona fide. Even it has not been stated as to on account of whose mistake, these deductions were claimed and consequently the amounts were left to be added back. Reliance on certain decisions of the ITAT while making such a claim is misplaced in view of aforesaid decision in the case of Southern Technologies Ltd. (supra). Needless to say that decision of an Apex Court only clarifies the law and no new law is laid down. It is only the Legislature which can create a law and not the Court. The courts do not legislate. Since the assessee failed to establish the bona fide of their claim, therefore, in terms of Explanation 1 to section 271(1)(c) of the Act the onus is not discharged by the assessee, despite sufficient opportunity allowed by the Assessing Officer. Thus, levy of penalty is justified-CIT v. Altron Electronics India Ltd. [2008] 301 ITR 66 (Kar.). 5.11 Moreover, it is a settled law that in economic offences, the statutory liability to pay either duty or tax is nothing but a strict liability where the question of proving beyond the....
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....nce by the Tribunal did not mean that the assessee had concealed the income or had filed inaccurate particulars thereof. The Tribunal felt that the bona fides of the explanation were clearly proved from the fact that the High Court admitted the appeal of the assessee about the disallowance of the interest. The Tribunal held that if there could be two views about the claims of the assessee, the explanation offered by it cannot be said to be false. The penalty was accordingly deleted by the Tribunal. The order of the Tribunal was maintained by the High Court. The Supreme Court was of the view that under section 271(1)(c), there has to be concealment of income of the assessee or he must have furnished inaccurate particulars of his income. The contention of the revenue that it was a case of furnishing of inaccurate by making incorrect claim for the expenditure on interest was rejected noticing that the words "particulars" used in section 271(1)(c) would embrace the meaning of the details of the claim made by the assessee and that the assessee before the Court had not given any such information which was found to be incorrect or inaccurate. After considering the meaning of "inaccurate" ....
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....n the case of Sangam Enterprises v. CIT [2007] 288 ITR 396 that : "Having given our anxious consideration to the contention raised by Shri Mahajan, we find that after the insertion of Explanation 1 to section 271(1)(c) of the Act by the Taxation Laws (Amendment) Act, 1975, if the explanation offered by the assessee regarding the additions is either found to be false and remained unsubstantiated, the additions so made are deemed to be the concealed income, and therefore, the penalty provisions are attracted. The decision relied upon by the Tribunal relates to the assessment years prior to April 1, 1976, when the present Explanation was not in the statute book, and, therefore, they are not applicable in the present case. We are therefore, of the considered opinion that Tribunal has completely misdirected itself in cancelling the penalty." 5.15 In the case under consideration, the explanation given by the assessee during the assessment proceedings and reiterated in penalty proceedings has not been substantiated nor has been found to be bona fide, especially when the assessee before us did not explain either to the Assessing Officer/CIT(A) or to us as to in what circumstanc....