TaxTMI 
TaxTMI 
2010 (5) TMI 665
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.... 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 sustained was made on estimate basis. (2) The ld. CIT(A) has further erred in a....
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....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 291 (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 (Ahd.) 600, ITO v. Rajkot Rice & General Mill [2000] 110 Taxman 102 (Chd.) (Mag.), Dy. CIT v. Smt. Pannaben P. Desai [2000] 112 Taxman 84 (Ahd.)(Ma....
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....e 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 5681 , 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.), the assessee further pleaded that penalty cannot be levied for estimated disallowance under section 14A of the Act. It was submitted that provision made for bad and doubtful debts a....
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....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 Less: Interest on infrastructure Bonds/ Debentures Exempt u/s 10(23G) SSNL Bonds 3575000 207365026 GIPCL-97 11% Debentures 2193972 5768072 Add: Amount of Lease Equalization debited to Profit and Loss A/c. 201596054 16330460 217926514 Less: Depreciation as per Income-t....
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....ite 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 stated there is no specific mention in the computation statement as to which of the provision was applicable in making the claim for deductions on account of provision for bad and doubtful debts and diminution in value of investments. In other words, the computation of income under the head "Business" was incorrect on facts as well as in the eye of law. It was only during the assessment proceedings that the Assessing Officer scrutinized the accounts and rejected the appellant's claim in this regard. Nothing was made apparent on the records as t....
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..... 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 case of CIT v. S.V. Angidi Chettiar 44 ITR 739 vide paras 27, 28, 29 and 30 which is as under: The question of initiating penalty proceedings under section 28(1) of the Indian Income-tax Act, 1922 came up for consideration of the Apex Court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 , which is also relied upon in the Delhi High Court in (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568; and (b) Diwan Enterprises v. CIT [2000] 246 ITR 571. The Apex Court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 , held as follows (page 745) : The power....
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....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 337 (Delhi). Therefore, the indication in the assessment order by the Assessing Officer that penalty proceedings are initiated separately is suffice to prove that the Assessing Officer had satisfied himself in the course of the assessment proceedings that the assessee had concealed his income, as in the instance case." 5.1-4.1 Thus, the reliance placed by the appellant on the decision of Hon'ble Delhi High Court squarely fails in view of the dissenting judgment of Hon'ble Madras High Court and the appellant's contentions in this regard are rejected. 5.1-5 Section 430 of R.B.I. Act to override the provision....
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....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 provisions of section 36(1)(vii). The only provision under which the said claim could have been allowed. All other subsequent claims are only afterthought and further rejected as untenable in view of the above discussion. The Assessing Officer had rightly rejected the claim of the appellant as regards the provision for doubtful debts and the provision for diminution in value of assets as legally wrong claims and not in accordance with section 36(1)(vii) and further that the appellant did not furnish full and complete particulars of their claim either in the computation statement or during the course of assessment. The fact that the bad debts were not....
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....ment. 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. 9.91 lakhs sustained on an estimate basis in view of the legal pronouncements supporting the claim of the appellant, no penalty under section 271(1)(c) is leviable there being no furnishing of inaccurate particulars or concealment of information in this regard. In effect, the penalty under section 271(1)(c) attributable to provision for bad and doubtful debts at Rs. 1,62,81,557 and provision for diminution in value of investments at Rs. 21,98,638 is confirmed." 4. The assessee is now in appeal before us against findings of the ld. CIT(A) in confirming the levy of penalty on the disallowance of provision for bad and doubtful debts-Rs. 1,62,81,557 and....
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....ssioner 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 particulars of his income or the furnishing of inaccurate particulars of such income. Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act, :- (A)such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) to be false, or (B)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 c....
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.... 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 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." 5.3 If the disclosure of facts is incorrect or false to the knowledge of the assessee and it is established, then such disclosure cannot take it out from the purview of the act of concealment of particulars or furnishing inaccurate particulars thereof for the purpose of levy of penalty. The penalty under section 271(1)(c) of the Act is leviable if the Assessing Officer is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furni....
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....01 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 and not bad debts written off. The relevant provisions of section 36(1)(vii) of the Act effective from 1-4-1989 stipulate that bad debts written off of as irrecoverable in the accounts of the assessee, alone were deductible. The Explanation introduced by the Finance Act, 2001 with retrospective effect from 1-4-1989 clarifies that provision for bad and doubtful debts were not deductible. As pointed out by the ld. CIT(A), the assessee is an established company assisted by a number of reputed professionals. The Explanation that they were not aware of the provisions of law while making huge claims for deductions, is not tenable, there being no material in support of such claim. Apparently, in the computation of income under the head "Business" the ass....
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....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 be that the persons who make claims of this nature, actuated by an 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 Assessing Officer/ld. CIT(A) and even to us as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added back, while computing the income of the assessee company. We cannot ignore the fact that the assessee is a company which is having professional assistance in computation of its income, and its accounts are....
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....essee 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 the Assessing Officer/CIT(A) have not specifically invoked the Explanation 1 to section 271(1)(c), it had to be considered at the appellate stage in view of decision of Hon'ble Bombay High Court in CIT v. SMJ Builders [2003] 262 ITR 60 and of Hon'ble Apex Court in K.P. Madhusudanan's case (supra). There is no discretion on the Assessing Officer as to whether he can invoke the explanation or not. We agree with the findings of the ld. CIT(A) that there is no material in support of the claim for deduction of the aforesaid provisions or for not adding back the provisions, debited to profit and loss account while preparing the statement of total income. 5.5 Hon'ble Supreme Court in the case of K.P. Madhusudanan (supra) held that : "We find it diff....
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...., 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 provision for diminution in value of investments relying upon the decision in the case of Gujarat Gas Financial Services Ltd. v. Asstt. CIT [2008] 115 ITD 218 (Ahd.) (SB). Even the reliance on the decisions in the case of Overseas Sanmar Financial Ltd. (supra) and Tedco Investment & Financial Services (P.) Ltd.'s case (supra) is also misplaced in view of decision of the Hon'ble Apex Court in Southern Technologies Ltd. v. Joint CIT [Civil Appeal No. 1337/2003, dated 11-1-2010], wherein it was pointed out that the essence of RBI directions under Chapter III-B of the RBI Act, 1934, deal essentially with Income Recognition. They force the NBFCs to disclose the amount of NPA in their financial accounts. They force the NBFCs to reflect "true and correct" profits. By....
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....ve 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 to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. 5.9 In their decision in the case of Usha Fertilisers v. CIT [2004] 269 ITR 591 (Guj.), the Hon'ble jurisdictional High Court, while upholding the levy of penalty observed that : "The Supreme Court in the case of Mussadilal Ram Bharose [1987] 165 ITR 14 has specifically laid down the scope of the explanation in the following words: The position, therefore, in law is clear. If the returned income is less than 80 per cent, of the assessed income, the presumption is raised against the assessee that the assessee is guilty of fraud or gross or wilful neglect as a result ....
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....ot 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 shadow of doubt one's existence of bona fide belief that amount is not taxable does not arise. It goes without saying that any violation of the law or rules relating to economic offences, either relating to the payment of duty or tax as the case may be, the theory of mens rea is not attracted. In such matters, the rules of interpretation contemplate a strict interpretation rather than a liberal and wider interpretation. The breach of civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not vide Chairman, SEBI v. Shriram Mutual Fund [2006] 131 Comp. Cas. 591 (SC). This view has been reiterated by the Hon'ble Supreme Court in their decision....
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....e 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" given in Webster's Dictionary, the Court was of the view that inaccurate particulars would mean the details supplied in the return which are not accurate, not exact or correct, not according to truth, or erroneous. In the case before us, the assessee claimed deduction for provision for bad and doubtful debts and provision for diminution in value of investments in violation of provisions of the Act and not an iota of evidence was placed before the Assessing Officer/CIT(A) or even before us , in relation to the bona fide of the claim. As is apparent from the findings of the ld. CIT(A), the claim made in the return was not supported either on facts or in law. Thus , the assessee while claiming deduction of the aforesaid provisions furnished inaccurate particulars. Thus, reliance on the said decision, in our opini....
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.... 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 circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added back while computing the income of the assessee company in terms of the relevant provisions of the Act. The assessee is a Government company having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details/evidence 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 these escaped the attention of the auditors of the company. Since the onus placed upon the assessee to explain the difference in the returned income and finally assessed income has not been discharged, in terms of Explanation 1(B) to section 271(1)(c) of the Act, the amount added in computing th....