TaxTMI 
TaxTMI 
2012 (6) TMI 648
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....f income" [para 11]. (ii) The details of the claim were available on the files of the A.O., and a part of such payments was allowed by CIT[A]s in earlier years, and such orders were accepted by the department as bona fide claim, (NOPL and the appellant assessed by the same A.O. as scrutiny assessment in central circle) 3. The ld. CIT[A] further erred in confirming the penalty insofar as: (i) The appellant did not fail to offer an explanation or that it offered an explanation which was found to be false by the A.O. (ii) The appellant offered an explanation which it was able to substantiate and proved that such explanation was bona fide and that all the facts relating to the same and material to the computation of its income had been disclosed by it. (iii) He erred in holding "that furnishing of details and explanations in the course of assessment proceedings and in the course of penalty proceedings is of no significance for the purpose at hand" (para 18 Profits and gains. 18), thereby making the explanation provision, redundant. 4. The ld. CIT[A] erred in confirming the penalty on the basis of the findings given by the ITAT in th....
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....t of the premises at Beach View Co-Op. Hsg. Society Bombay was cancelled and terminated. Even this settlement was not fully implemented and further family settlement agreement was made on 30-1-1992 through which again assessee company was required to vacate and handover peaceful possession of the said premises to Shri Rajesh Narang. 4. The above noted various family settlement agreements were brought to the knowledge of City Civil Court and the court vide its order dated 29-6-1993 directed NIHPL to hand over the vacant and peaceful possession of the said premises to NOPL along with the arrears of commission. The assessee company carried the matter to the Bombay High Court and applied for stay of operation of this order. The Hon'ble High Court stayed the operation of this order and directed the assessee to deposit a sum of Rs. 10 lakhs towards arrears of commission and to further deposit a sum of Rs. 1,25,000/- p.m. w.e.f. 1-8-1992. The other parties i.e., Shri Rajesh Narang and NOPL also filed letters patent appeal for payment of arrears of commission as well as payment of mesne profit. Against this, Hon'ble High Court ordered release of the amount deposited by the asses....
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....um amounting to Rs. 34,57,01,137/- [which is less amount already paid through the Court of Rs. 1,10,00,000/-]." In view of the above, assessee company vacated the premises on 12-12-2001 and also paid a sum of Rs. 33,57,01,137/- in addition to the payment of Rs. 1.10 crores paid in earlier year. 6. On the above claim it was mainly represented before the AO that the liability for payment of Rs. 33.63 crores made to NOPL has mainly arisen because of settlement of the Leave & License Agreement. This amount was quantified by the Bombay High Court which was agreed to be decreed and implemented in terms of minutes of consent order dated 12-12-2001. The payment was in the character of a trader under a valid business contract. It was also submitted that such payments towards commission vide agreement dated 13-2-1990 as well as order of the Bombay High Court have already been allowed up to assessment year 1999-2000. For this reliance was also placed on some case laws. The AO after detailed discussion disallowed this payment, mainly because payments were not made in the course of the business. In fact, according to the AO these payments were not made wholly and exclusively for the purpo....
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....the order of City Civil Court and observed that before the court it was admitted by the assessee that the premises were not being vacated in terms of family settlement dated 30-1-1992 because Shri Rajesh Narang has suppressed many facts from the court and he was not vacating the property belonging to the assessee company at Pali Hill, Bandra, Mumbai. He also observed that there was no justification at all in payment of compensation @ Rs. 10 lakhs p.m. against the annual turnover of Rs. 1 crore which defies the commercial logic. According to him, the payment was basically to settle the family disputes and not for the premises occupied at Beach View Co-Op. Hsg. Society, Warden Road, Mumbai. He also mentioned that it may be true that the Tribunal had confirmed the addition being in the nature of capital receipt, but at the same time vide para-22 of the Tribunal's order the amount in question was not given for any business expediency, nor wholly and exclusively laid out for the business purposes. In respect of disclosure, he observed that though the assessee had made the disclosure in schedule M which dealt with administrative and other expenses by stating "NOPL paid under suit No.....
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....fact, Special Bench of the Tribunal in the case of Narang Overseas (P.) Ltd. v. Asstt. CIT [2008] 411 ITD 1 (Mum) (S.B) has held that the receipt of this compensation in the hands of the assessee was of capital nature. He then referred to the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 wherein it was held that it was not universally true proposition that what may be the capital receipts in the hands of the payee, must necessarily be a capital expenditure in relation to the payer. However, he admitted that he is not trying to argue the appeal on quantum basis again, but at best the disallowance was made mainly because the expenditure was held to be capital expenditure. Therefore, disallowance was merely because the expenditure was of capital nature. He then contended that an item of expenditure which is treated by the assessee as in the nature of revenue, but authorities hold the view that same was of capital nature, then same would again not attract penalty provisions. When a issue is debatable, in the sense whether expenditure is capital expenditure or revenue expenditure, then penal provisions cannot be applied....
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....udgment and reads as under: "There is no dispute that vide order of the Hon'ble Supreme Court dt. 8th Jan., 2002 the Suit No. 3678 of 1994 filed by Shri Rajesh Narang before the Hon'ble Bombay High Court on 2nd July, 1994 claiming, inter alia, mesne profits (a) Rs. 10 lakh per month was decreed in terms of the minutes of the consent order. The contention of the AO is that the decree of the Hon'ble Supreme Court merely gave effect to the consent terms agreed to between the parties. Therefore, the same cannot be regarded as an award of damages by the order of a Court which is essential for mesne profits. However, I do not find any merit in this contention of the AO. Just because a suit is disposed of by a consent decree it will not be any less than an award in a contested suit. In law there is no real difference between the two. Even a vigorously contested suit may eventually end up in an out of Court settlement subsequently decreed by the Court. In this instant case what has been decreed by the Hon'ble Supreme Court is the Suit No. 3678 of 1994 of Shri Rajesh Narang before the Hon'ble Bombay High Court. In this suit Shri Rajesh Narang had, inter alia, cl....
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....88 of 09] He also submitted that the decision relied on by the AO in the case of Vidyagauri Natverlal (supra) is distinguishable because in that case what was observed was that if some particular or figure has been disclosed, then even if it takes out the case from the purview of non-disclosure, the case would not go out of the inaccurate particulars. Further submitted that even the decision of the Hon'ble Delhi High . Court in the case of Nath Bros. Exim. International Ltd.'s case (supra) was distinguishable. He then referred to para-12 of the CIT(A)'s order wherein the CIT(A) has discussed the issue regarding the disclosure wherein it has been observed that no detailed note was given and perhaps this was done because the assessee wanted to take a chance of limited scrutiny system being followed by the income tax department. He pointed out that assessee's case is in the Central Circle wherein all cases are taken up for scrutiny and, therefore, there was no question of taking any chance. He then referred to page 315 of the paper book which is a part of the order of the Special Bench in the case of recipient i.e. Narang Overseas (P.) Ltd. (supra). He particu....
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.... (1) Why the premises were not vacated particularly when the turnover itself was about Rs. 1 crore per year, whereas the lease charges as claimed by the other group were to be more than Rs. 1.2 crores. (2) Even if the premises were not vacated because of any business reasons, why the assessee company agreed to give consent for payment of such substantial amount and why the same was not left to be decided by the Court, particularly when the liquidated damages claimed are very high and in this case again the normal lease charges in terms of commission payment which was in the range of about Rs. 1 to 1.25 lakhs and the other party had claimed the sum of Rs. 10 lakhs and normally in such a situation only the aggregate charges with a very nominal markup are paid at the settlement or allowed by the courts then why the assessee company agreed to pay such high damages, the Ld. counsel of the assessee very clearly conceded that, the "payment is definitely a shoot of a larger genesis family disputes and settlements". He also admitted that the assessee had agreed to pay such a huge compensation, because there was lot of pressure on the assessee, particularly in the form of cont....
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....page 7 of the paper book, and the reference made is "NOPL paid under suit No. 3578". This does not indicate anything. Only the assessee who knows that 'NOPL' means Narang Overseas Pvt. Ltd. and no one else can decipher the word 'NOPL' and make any sense of the disclosure. Though a note was given in the balance sheet which is as under- "The Financials are subject to implementation of the minutes of Consent order and order passed by Hon'ble Supreme Court of India on I2th December, 2001, and Minutes of Board of Directors Meeting held on 31st December, 2002, and EOGM held on 1st January, 2002, and the orders passed by the Hon'ble Supreme Court of India dated 8th January, 2002, and subject to audit, approval by the Board of Directors and shareholders." Even the above para does not show the nature of payment. (4) In fact, AO has dealt with this issue at para-8 and clearly mentioned that no further details like nature of payment and subject matter of suit have been mentioned anywhere. In fact, it has been observed by the AO that this cannot be called disclosure at all and for this proposition AO had relied on the decision of the Hon'b....
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....time by this the argument, the nature of receipt cannot be changed. Therefore, when the amount was received by NOPL what was being argued was that it was a receipt and that too of a revenue nature, whereas in the case of the assessee the expenditure is not in relation to the business and was basically a settlement of family dispute. He submitted that normally where an amount is paid because of a court decree in respect of the business dispute, then such amount would constitute business expenditure. But what has happened in the case before us is that the amounts were paid by way of consent decree to settle family disputes, whereas the family disputes were going on between the parties and other party was also not vacating certain property and that is why the assessee was also not vacating the said premises. In fact, AO has clearly observed in penalty order at para-5 that assessee had admitted before the City Civil Court for not vacating the premises as per the family settlement at Warden Road, Mumbai because the other party i.e. Shri Rajesh Narang was also not vacating the properties belonging to the assessee at Pali Hill Bandra and was also suppressing many other facts from the cour....
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....at the expenditure was for unlawful occupation of the premises. The Tribunal has further reproduced para-49 of the Special Bench order in the case of Narang Overseas (P.) Ltd. (supra), wherein it was observed as under: "49. In the present case, after the termination of lease, NIHPL was occupying and using the property unauthorisedly and thus the assessee was deprived of the use and occupation of the property and therefore, the mesne profit received by the assessee under the consent decree awarded by the Apex Court @ Rs. 10 lakhs per month was on account of damages for deprivation of use and occupation of the profits and therefore, the sum so received was capital in nature not chargeable to tax." Thus, it is clear that the compensation was basically paid as mesne profit under the consent decree awarded by the Hon'ble Supreme Court. 23. We have considered the rival submissions carefully and have also perused the material on record as well as the decisions cited before us. Before considering the issue before us it would be important to reproduce some paras of CIT(A)'s order in quantum appeal in which Ld. CIT(A) had culled out the facts, this portion of the order....
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....rang. Three sons were born during the first marriage and their names are Shri Ramesh Narang, Shri Rajesh Narang and Shri Rakesh Narang. Later on Shri Rama Narang married to Smt. Mona Narang and he got three children from this marriage i.e. Smt. Ramona Narang, Shri Rohit Narang and Shri Rahul Narang. The issue in the present appeal revolves around the dispute, which is between Shri Rama Narang on the one hand along with his second wife Smt. Mona Narang and her children and Shri Rajesh Narang, his son from the first wife on the other hand. The dispute between Shri Rajesh Narang and Shri Rama Narang was regarding distribution of family assets. The first family settlement was entered on 12.07.1990. Before the settlement, Shri Rajesh Narang was holding only 10 shares in M/s. NOPL and 771 1 shares in M/s. NIHPL. According to this settlement, Shri Rajesh Narang or his nominee will get all assets and liabilities of M/s. NOPL. Shri Rajesh Narang also to get right to live at Pali Hills for his lifetime. This property belongs to the appellant. For some reason this family settlement was not fully implemented. Shri Rajesh Narang, in consideralion for receiving all assets of NOPL has agreed to d....
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....d 29,06.1993 directed NIHPL to handover the vacant and peaceful possession for the said premises at Warden Road to NOPL along with arrears of commission. 1.9.5 Aggrieved by the above said order, the appellant, company carried the matter before the Bombay High Court (591 of 1993) and applied for stay of the operation of the order and decree passed by the Bombay Civil Court. The Hon'ble High Court passed the following interim order: - "Stay in terms of prayer '(a)' till disposal of appeal on the appellant depositing Rs. 10,00,000/- within four weeks towards arrears and continue to deposit Rs. 1,25,000/- per month with effect from 01.08.1993. Appellant to maintain the status quo and not to create third party rights." 1.9.6 Aggrieved by this order of the Bombay High Court, NOPL along with its Director Shri Rajesh Narang filed letters patent appeal praying for payment of arrears of commission as well as payment of mesne profit. A request was also made to lift the stay on the order of the City Civil Court dated 29.06.1993. The Hon'ble High Court of Bombay was pleased to pass the following order on 21.03.1994:- "Amount deposited by respo....
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....on of the said premises till 31.03.1992 along with interest, @ 21% per month till 31.12.2001 amounting to Rs. 16,84,487/- and further agrees and undertakes to simultaneously pay damages and mesne profits to wrongful use and occupation of the said premises @ Rs. 10,00,000/- per month from 01.04.1992 till 31.12.2001 along with interest @ 21% per annum amounting to Rs. 34,57,01,137/- (which is less amount already paid through the Court of Rs. 1,10,0,000/-). 1.9.9 The appellant vacated the possession of the said premises on 12.12.2001 and also paid Rs. 33,57,01.137/- on 12.12.2001 in addition to payment of Rs. 1,10,00,000/- paid in the earlier years. 1.9.10 Vide order sheet entry dated 02.04.2008 the appellant was called upon to furnish the following details: - (i) Profits of company derived from the business carried out from the flats and Beach View Co-operative Society taken on lease from NOPI. for F.Y. 1991-92 till the date of vacation for each year. (ii) Reasons for not vacating the business premises in time. (iii) Shareholding of NOPL and NIHPL at the time premises were taken on lease. 1.9.11 In the written submissions filed on....
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....e paper book). It was further claimed that Shri Rajesh Narang is not vacating flat belonging to the appellant company at Pali Hills, Bandra. It was also claimed that Shri Rajesh Narang has to file consent terms in suit No. 2427/91 pending before Bombay High Court. Thus, the non-vacation of business premises was due to the fact that there were disputes among the members of Narang family and there was no independent decision of NIHPL not to vacate the said premises on business consideration. There was no director's resolution to this effect. The extension of leave and license agreement on 13.11.90 is to be seen in the context of disputes among family members on the issue of dividing family properties. When as per family settlement dated 12.7.90 all the assets and liabilities of NOPL was to be given to Shri Rajesh Narang, Smt. Manu Narang should not have extended the leave and license agreement on 13.11.90 and that too for 12 years and making it irrevocable. Thus this extension of the agreement does not appear to be genuine extension. The appellant has not been able to explain who took the decision not to vacate the said premises. In the course of appellate proceeding, the appella....
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....n of the said premises. All these aspects of the litigation and consequent resolution passed by the Board of Directors of NIHPL, make it abundantly clear that the payment is on account of family disputes and not made during the course of business carried on by the appellant. Thus the need to pay damages to M/s. NOPL arose because of family disputes and not because of any business consideration. Therefore, it cannot be said that appellant breached the leave and license agreement dated 13.02.1990 during the course of business and therefore, it cannot be said that appellant incurred the expenditure in the form of damages and mesne profit in the course of carrying out its business and therefore expenditure cannot be allowed as deduction in computing the business income of the appellant. 1.9.13 The nature of payment paid by the appellant and received by NOPL came for consideration before five member bench of ITAT Mumbai in 111 ITD 1 where NOPL was claiming that the amount received by it is a capital receipt and not liable to tax. The Hon'ble ITAT made the following observation: - "3.5......There is no dispute to the fact that leave and licence agreement between the....
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....a receipt not chargeable to tax. In the present case, it has already been held by us that mesne profit was for deprivation of use and occupation of the property. The interest received by the assessee is also for the same period as it is awarded up to the date of decree. Accordingly, it is held that interest from the date of termination of lease till the date of decree would be capital receipt not chargeable to tax................" 1.9.16 This decision of the ITAT further strengthen the fact that the appellant continued unauthorized possession of the premises not because of any business necessity but due to dispute between members of "Narang family". There was no commercial expediency involved because the appellant was never able to make more profit then the interim relief granted by the Bombay High Court as per which the appellant was required to deposit Rs. 10 Lacs per month. As held by Supreme Court in the case of S.A. Builders 299 1TR 88 compensation on account of breach of contract is allowable as deduction. But this breach of contract must be during the course of business and not on any non-business consideration. In the present case, the only consideration was family....
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....39;8. I have perused the facts of the case. I have also called for and looked into the record of assessment and have discussed the issues and the facts with the Assessing Officer. I have also gone through the written submissions filed before me in the penalty proceedings. The key contention before me is that that the issue of allowability of the expenditure under consideration had been decided by the First Appellate Authorities in favour of appellant for A.Y 1999-2000 and subsequent two assessment years. Consequently, there was a bona fide belief that the claim of the expenditure under consideration was allowable and therefore penalty should not be imposed. It has also been contended that the Chartered Accountant of the appellant group had, on the basis of these appellate orders opined that the claim of expenditure under consideration during the assessment year under consideration would be a justified claim and therefore, the claim was based upon opinion of the Chartered Accountant, a professional, there is no case for imposition of penalty. I have pondered over this contention. To my mind, what matters really is the date on which the claim is made, the claim for expenditure is mad....
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.... Accountant on the issue under consideration." Further, as pointed out by the Ld. DR this matter was even dealt by the Tribunal also in quantum appeal vide paras 16 & 17 which read as under: "16. The learned CIT (A) has also considered the findings of the Hon'ble Special Bench with reference to mense profit and since the mense profit was paid for un-authorised occupation of the property and the quantification of the amount of mense profit is not based either on the assessee's business turnover nor on the profitability of the assessee, the payment of above amount cannot be considered as an amount paid in the course of assessee's business, hence, they cannot be considered as wholly and exclusively for the purpose of business. Since the agreement has ceased to exist the assessee was continuing the possession and was paying commission to the other company as per the directions of the Hon'ble Bombay High Court and accordingly the amounts were allowed as revenue expenditure in the relevant assessment years of which there is no dispute. However, as seen from the claim the arrears of commission up to 31.03.1992 confirmed in family settlement dated 31.03.1992 set....
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....39;ble Bombay High Court for payment of lease rentals. However, the present claim clearly relates to family settlement though it has been given a colour of compensation for unauthorized use of the premises in terms of mesne profits which is not correct. 25. & 26. The second submission is that since the expenditure was mainly disallowed as capital expenditure and, therefore, penalty was not leviable whereas the dispute was only whether the expenditure was of revenue nature or capital nature. Again, we are not impressed by this argument because in assessment order itself AO had discussed about the family disputes and family settlement in various paras and in, fact, though the amount was disallowed mainly on the basis that the expenditure was not incurred in the course of assessee's business and was not made wholly and exclusively for the purpose of business. In fact, the relevant para of assessment order at page 15 reads as under: "To sum up, the payment of Rs. 33,47,01,137/- is not admissible because the expenses was also not incurred in the course of assessee's business of conducting last food in the premises referred to above. These payments are also not made w....
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....ns under sections 80HH and 80-I of the Income-tax Act, 1961, and declaring a loss, as well as a revised return declaring total income at nil as there was addition in the original return on account of wrong claim to deductions. A penalty was imposed on the assessee under section 271(1)(c), which the Appellate Tribunal deleted holding that (i) where an arguable, controversial or a debatable deduction is claimed, the claim could not be said to be false, otherwise it would become impossible for any assessee to raise any claims or deductions which might be debatable, and it was not the intention of the Legislature to make punishable such claims, if they were not accepted; (ii) the total income according to the original and revised computations of the assessee remained the same, viz., Rs. 13,07,646 and the income as computed on final assessment was Rs. 6,86,519; (iii) no further tax was payable and since the assessee had paid tax amounting to Rs. 6,90,000 a refund became payable to it as a result of the final assessment; (iv) as against deduction of Rs. 6,73,298, claimed by the assessee the total deduction allowed in the final assessment was more, viz., Rs. 10,17,306; and therefore, the ....
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....e hands of the cook would definitely be of revenue nature being salary and remuneration as a cook. This does not mean that such expenditure would be allowable as business expenditure. Therefore, this observation cannot be used for arguing that since in the hands of the recipient it was argued that the payment was of revenue nature and at best it was held to be of capital nature, it should be treated only as of capital nature and as such penalty cannot be levied. This would further depend on the fact whether the expenditure related to the business or not and since AO as well as the Tribunal in quantum appeal very clearly held that this expenditure did not relate to business and was not expended wholly and exclusively for the purpose of business, therefore, penal provisions would clearly attract, unless the assessee is able to show how under any bona fide belief this expenditure was treated as related to the business. 28. The third submission was that the assessee entered into a lease agreement on commission basis which could be renewed from time to time and later on NOPL had made a claim of Rs. 10 lakhs p.m. with interest if the premises were not vacated. This argument would also....
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....at the premises were not vacated because of family disputes and compensation was also ultimately paid to settle the family disputes. 29. On the basis of the above discussion and particularly the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra) of it is clear that the decision of the Special Bench of the Tribunal in the case of Narang Overseas (P.) Ltd. (supra) wherein receipt was held to be capital nature, will have no bearing particularly in the light of the above noted facts in the case before us. 30. The fourth submission was that assessee had made sufficient disclosure and therefore penalty was not leviable. First of all let us discuss the decisions cited by the Ld. counsel of the assessee in this regard. In the case of Bacardi Martini India Ltd. (supra) the assessee was engaged in the business of production and sale of Indian made foreign liquor. The assessee filed its return for the asst. yr. 2001-02 on 30th Oct., 2001 declaring a loss of Rs. 14,56,07,202. It filed a revised return on 28th March, 2003 declaring a reduced loss of Rs. 13,13,57,690. The assessment under s. 143(3) was completed by the AO at a reduced loss of Rs. 11,38,27....
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....to earlier assessment year 1998-99 was pending before the CIT(A) and order in respect of four issues was passed in 2002. The assessee accepted the decision of the CIT(A) and revised its return on March 28, 2003. Thus, bona fides of the assessee cannot be seen from the fact that assessee had made an application on February 4, 2003 to the assessing authority seeking permission to rectify the return for A.Yrs. 1999-2000 and 2000-01 by taking into consideration the issue decided against the assessee by the CIT(A) for A.Y 1998-99. First of all a great debate was going on whether the expenditure incurred on advertisement and brands is to be deferred or not and ultimately various courts have held that such expenditure can be claimed in the first year itself. Similarly, great debate was going on whether delayed payment of PF was allowable or not and this has been recently settled by the Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 that if such payments are made before the due date of filing of return, then same would be allowable. Therefore, the controversies were going on relevant orders and assessee accepted the decision of the CI....
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....as justification on the part of assessee in not including the disputed item, i.e., cash compensatory support because at the relevant time there was a decision of Tribunal in favour of assessee holding that it is not so taxable. Secondly, on the date of return, the law was in favour of assessee and it was brought in force retrospectively by way of amendment in section 28 much after filing of the return. Thirdly, and even with all this, the assessee did mention these facts in the return by way of 'note'. All the three factors showed that the assessee had made full disclosure regarding the disputed claim in its return and hence the Assessing Officer had no jurisdiction to initiate the penalty proceedings." From the above, it is clear that penalty was deleted because on the date of filing of the return, the law was in favour of the assessee because of certain decisions and the Act was amended later on retrospectively by inserting two more clauses u/s. 28 through which such cash compensatory support was made taxable retrospectively. 34. From the above decision also it becomes clear that penalty was deleted because on the date of filing of the return assessee was not suppos....
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....med by the First Appellate Authority. However, the Tribunal deleted the penalty on the sole reasoning that sum of Rs. 1,35,000/- was, admittedly, disclosed by the assessee in Part III of the return of income and, therefore, it could not be said that the assessee concealed particulars of its income or furnished inaccurate particulars of the same. On the above facts the Hon'ble High Court reversed the decision of the Tribunal and observed as under: The word "concealment" inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of non-disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. In any case, disclosure which has been made in any part of the return which is incorrect or false to the knowledge of the assessee and if that fact is established, such disclosure cannot take it out from the purview of the act of concealment of particulars whether the particulars furnished of income or act of furnishing inaccurate particulars for the purpose of levy of penalty. The process of inquiry into the corre....
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.... suit No. 3578 Rs. 33,63,85,624/-. Further a note has been given in the balance sheet which reads as under: "The financials are subject to implementation of the minutes of Consent order and order passed by Hon'ble Supreme Court of India on 12th December, 2001, and Minutes of Board of Directors Meeting held on 31st December, 2001, and EOGM held on January, 2002, and the orders passed by the Hon'ble Supreme Court of India dated 8th January, 2002, and subject to audit, approval by the Board of Directors and shareholders." As observed by the CIT(A) and further contended by the ld. DR it is clear that nobody can decipher any meaning from 'NOPL paid under suit No. 3578' unless and until such a person is conversant with the facts, similarly note in the balance sheet simply states that financials are subject to the minutes of consent order and order passed by the Hon'ble Supreme Court and minutes of the Board of Directors meeting. It is nowhere clarified in the return that what was the order passed by the Hon'ble Supreme Court and in what respect and what was the subject matter of its suit or Board's resolution. Therefore, in the case before us, the ....
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....erminated on the expiry of the said period of 11 months and the assessee Company shall quit, vacate and hand over the shop to the owner quite vacant and peaceful possession of the said premises. During the assessment proceedings, the Assessee has furnished copy of payment voucher, regarding the present payment made to NOPL which is reproduced below. Being the amount paid towards damages & mesne profits for Occupying of Beach View Shop premises for the period from 1/4/1992 to 31 /12/2001 as per statement attached in terms of minutes of consent order filed before honourable Supreme Court of India on 12/12/2001 and Board of Directors resolutions thereof 31/12/2001 Rs. 34,57,01,137.00 Less: Amount already paid through Court as per Company's Account Rs. 1,10,00,000.00 Rs. 33,47,01,137.00 According to the description of the assessee the said payment towards any Commission on Sales effected by the assessee in the premises of NOPL but payment made on account of damages. Copy of the minutes of Board Resolution of Assessee Company held on 31-12-2001 are furnished by the assessee to further strengthen its claim that the payment is damage....
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....es and various other issues. 40. The counsel of the assessee has laid great stress on the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra). In this case the Hon'ble Supreme Court has observed as under: ''A glance at the provision of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination, can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the li....
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....n'ble Supreme Court is quite distinguishable and we are supported on this aspect by the recent decision of the Hon'ble Delhi High Court in the case of CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510/191 Taxman 179. In that case the assessee had shown an item of Rs. l,21,49,851/- by debiting profit & loss account as equipment written off. It was stated during assessment proceedings that by over sight this amount was not added back to the computation of income as the same should have been adjusted against the block of assets. It was further noticed that a sum of Rs. l lakh had been debited under the head 'income tax paid' in the schedule relating to Administrative and Other expenses and again the explanation was that this amount, due to over sight, was not added back to the compensation of income. On these facts, penalty u/s. 271(1)(c) was levied which was confirmed by the Hon'ble Delhi High Court. The Hon'ble High Court distinguished the decision of Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra) by observing as under: "In the case before the Supreme Court, the assessee had claimed interest under Section 36(l)....
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....l asset could not be reckoned as an income which formed part of the total income. The contention thus was that the claim made by the assessee was unacceptable in law. 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(l)(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. No statement or details supplied by the assessee had been found to be factually incorrect. The Court rejected the contention that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. The Court was of the view that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. After conside....
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....n equipment having become useless and having been written off. As noticed earlier, the Tribunal was entirely wrong in saying that Section 32(1)(iii) of the Act applies to such a deduction. It was not the contention before us that claiming of such a deduction under Section 32(l)(iii) was a debatable issue on which there were two opinions prevailing at the relevant time. In fact, the assessee did not claim, either before the Assessing Officer or before the Commissioner of Income Tax (Appeals) that such a deduction was permissible under Section 32(l)(iii) of the Act. No such contention on behalf of the assessee finds noted in the order of the Tribunal. Thus it was the Tribunal which took the view that Section 32(1)(iii) could be attracted to the deduction claimed by the assessee. It is also not the case of the assessee that it was under a bona fide belief that these two amounts could be claimed as Revenue Expenditure. The assessee in fact, outrightly conceded before the Assessing Officer that these amounts could not have been claimed as revenue deductions. The only plea taken by the assessee before the Income Tax Authorities was that it was due to oversight that the amount of income t....
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....d 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 a mala fide 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 Income Tax Authorities or to the Income Tax Appellate Tribunal as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added, while computing the income of the assessee company. We cannot lose sight of the fact that the assessee is a company which must be having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details from the assessee, we fail to appreciate how such deductions could have been left out while computing the income of ....
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....ccount of payment of income tax and the amount of Rs. 13,24,539/- debited under the head 'equipment written off', in the Profit and Loss Account of the assessee. The appeal stands disposed of accordingly." Thus, it is clear from the above decision of the Hon'ble Delhi High Court that merely because factual information given in the return has been found to be incorrect, the penalty cannot be levied unless the explanation offered by the assessee is not substantiated or found to be bona fide. In other words, even if the factually information given in the return is found to be correct, the penalty can be levied if the explanation for the same is not substantiated or bona fide. 41. In fact, while dealing with the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra), the co-ordinate Bench of the Tribunal recently in the case of Ultramarine & Pigments (P.) Ltd. v. Asstt. CIT [2010] 39 SOT 115 (Mum.) has observed that what is important is the nature of explanation. Paras 15 and 16 of that order read as under: 15. In the case of CIT v. Nathulal Agarwala & Sons [1985] 145 ITR 292, Full Bench of Hon'ble Patna High Cou....
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.... to the tune of Rs. 10 lakhs may be applicable. But from the facts narrated above, it is clear that assessee was paying amounts in the range of Rs. 10 to 15 lakhs per year when there was no dispute on the said premises on the basis of various percentages as agreed as compensation towards licence agreement. Assuming that this compensation would normally have been about Rs. 1 to 1.25 lakhs p.m. and if the other party claims that damages may be paid @ Rs. 10 lakhs p.m., it is the normal practice to claim huge liquidated benefit so as to get the premises vacated, then in such a situation generally the court orders either the original rent and or commission as compensation or in marginal mark up also be allowed. But generally courts would not allow the damages at ten times i.e. Rs. 10 lakhs instead of Rs. l lakh of normal compensation and that too with an exorbitant compounding interest @ 21% p.a. In fact when a query was put to the ld. counsel of the assessee that why the matter was not left to the court, he had openly admitted that family consent was reached because of various disputes. In fact, assessee was already declared a contemnor. Now question is in what respect assessee was de....
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....s confirmed the same. Therefore we partly set aside the order of the ld. CIT[A] and direct the AO to levy penalty at 100% of the tax sought to be evaded. 44. In the result, assessee's appeal is partly allowed. DISSENTING ORDER 45. I have read the order of my learned brother but do not agree with the conclusions arrived by him. I therefore proceed to write a separate order dissenting from the view taken by my learned brother that penalty has to be imposed on the assessee. 46. For the purpose of clarity, I would like to narrate the facts and circumstances under which penalty was imposed on the Assessee by the AO and confirmed by the CIT(A). The family of Narangs consist of the following members: Manu Narang (brothers) Rama Narang (brothers) Omi Narang (brothers) Rachna Narang (Wife) Through First Wife Second Wife Ashok Narang (Son) Mrs. Mona Narang Sanjay Narang (Son) Rajesh Narang (Son) Rohit Narang (Son) Ramesh Narang (Son) Ramona Narang (Daughter) Rahu....
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....mily. For the present appeal we are concerned only with the businesses run under the name NOPL and NIHPL. The company NOPL which owned the property given on leave and license to NIHPL (i.e., Flat Nos. 3, 3A, 4,5, 6 and 7 on the ground floor of premises known as Beach View Co-operative Housing Society Ltd., bearing No. 93, Warden Road, Bombay-400 007) was allotted to Rajesh Narang Group. The company NIHPL was allotted to Rama Narang Group. The family settlement further provided that NIHPL (allotted to Rama Narang Group) will vacate and deliver vacant possession on or before 31.3.1992. It is further provided that NIHPL will pay the arrears of commission and continue to pay the commission (as per leave and license agreement) until the property is vacated. 50. We have already seen that the Assessee NIHPL occupied the property on leave and license basis from 13.2.1990. Pending settlement of the family disputes, it appears that Rajesh Narang interefered with the possession and enjoyment of the property by NIHPL i.e., on 9.11.1990. On 10.11.1990, NIHPL filed a suit S.C. Suit No. 8079 of 1990 in the Bombay City Civil Court at Bombay for perpectual injunction restraining NOPL and Rajesh ....
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.... that they shall -give all necessary consents for renewal of various statutory licenses for running business by NIHPL. NIHPL was directed to intimate in writing to NOPL the requirements in this respect. 54. On 2-7-1994, Mr. Rajesh Narang to whom the business of NOPL was allotted and which owned the property, filed a suit before the Hon'ble Bombay High Court being Suit No. 3578 of 1994, praying among other things that Rama Narang Group should specifically perform the family arrangement dated 30-1-1992 in letter and spirit. The important prayer in the aforesaid suit which relates to the property is prayer in para-49(d)(i) to (iv) and para-49(j) of the Plaint in the aforesaid suit. Defendant No. 9 referred to in the prayer is NOPL to which the property belongs and Defendant No. 6 referred to in the prayer is NIHPL, which was the lessee of the property. The same is as follows: "49(d) That this Hon'ble Court be pleased to order and decree Defendant No. 6:- (i) To handover quiet, peaceful and vacant possession of the premises i.e., Flat Nos. 3, 3A, 4, 5, 6 and 7 on the ground floor of Beach View Co-operative Housing Society Ltd., Warden Road, Bombay-400 007 t....
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.... No. 1 99,746.45 13,87,833.54 Total of I & II 35,13,745.24 Less: Received by order of Court towards arrears 32,50,000.00 Balance receivable 2,61,745.24 III. Damages and Mesne profits for Illegal occupation on and from 1/4/92 at the rate of Rs. 10 lacs p.m. till the date of suit 2,70,00,000.00 Total of I,II and III till the date of filing of the suit 2,72,61,745.24 Together with interest on 2,72,61,745.24 @ 21% p.a. From dates amounts were receivable up to date Of payment IV. Further damages and mesne profits from the date Of suit till possession of Beach View Premises are Handed over to the Plaintiff. 55. Besides the above litigation, several other proceedings were pending before various other authorities and courts. Litigation reached a stage where Shri Rajesh Narang and Shri Ramesh Narang had to bring suit of contempt of court against their fathe....
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....separately and distinctly under the head Administrative & Other Expenses as "NOPL paid under Suit No. 3578 - Rs. 33,63,85,624/". The breakup of the payments of Rs. 33,63,85,024/-(Rs. 33,47,01,137 and Rs. 16,84,487/-) is as under:- Rupees 2,61,745 For arrears of commission up to 31/3/92. As claimed in suit 3578/94 14,22,742 Interest on above. 16,84,487(A) -Damages and mesne profit for use Occupation and enjoyment of premises(Prayer 49) 2,70,00,000 From 1/4/92 to 30/6/94 (prior to suit filed) 9,00,00,000 From 1/7/94 to 31/12/2001 22,87,01,137 Interest on above. (Including interest on payments to NOPL allowed Up to A.Y. 2001-02) 34,57,01,137 (-) 1,10,00,000 Less: on account payment allowed by CIT(A) u/s.37(1) 33,47,01,137(B) A.Y. 2001-02 33,63,85,624/- (A+B)" The aforesaid payment was claimed as a deduction in computing the total income of the Assessee. 57. It has already been seen that pending disposal of the appeals before the Hon'ble High Court being Appeal No. 591 of 1993, against the ....
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....e hands of NOPL is capital receipt not chargeable to tax. 60. In Assessment year 2002-03, this is the assessment year with which we are concerned in this appeal, the AO examined the claim of the Assessee for deduction of the sum of Rs. 33,63,85,624. The character of this payment is not different from the payments made from Assessment year 1995-96 to Assessment year 2001-02 which has already been allowed by the Revenue in the assessment of the Assessee for those years. The only difference being the payment in the earlier years was an interim payment subject to the result of the appeal/suit, whereas the payment in Assessment year 2002-03 is after the decree in the suit. This aspect is very material because one of the plea put forth by the Assessee was that the claim made by the Assessee for deduction of the sum in question was allowed in the past assessment by the revenue. 61. The findings of the Assessing Officer quantum proceedings (i.e., in the assessment for Assessment year 2002-03): (a) As per the leave and license agreement between NOPL and NIHPL, only commission on sales is the consideration payable for occupation of the property. Any payment which is not in the....
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....rgeable to tax as it was paid for unauthorized occupation of the property. Since the payment has been held by ITAT to be for unauthorized occupation of the property, it is not payment during the course of business and is penal in nature and had to be disallowed. 63. The findings of the ITAT in the quantum proceedings are identical to the view of the CIT(A). The Assessee is in further appeal against the order of the Tribunal in the quantum proceedings before the Hon'ble High Court and such appeal is stated to be pending adjudication. 64. In respect of the addition made to the total income consequent to the disallowance of the claim of the Assessee for deduction of the aforesaid sum of Rs. 33,63,85,024, the AO initiated penalty proceedings. The Assessee in response to the show cause notice before imposing penalty submitted: (a) The Assessee had debited in the Profit and Loss Account under the head "Administrative & other Expenses" a sum of Rs. 37,92,67,242/-. In Schedule "M" to the profit and Loss Account the Assessee had given the break up of the "Administrative & Other Expenses in which a sum of Rs. 33,63,85,624/- was shown as "NOPL paid under suit No. 3587". Thu....
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....entertained by the Assessee on the basis of legal advice was free from doubt. In this regard, we may also mention that the Special Bench of the ITAT (consisting of 5 members) while dealing the character of the payment in the hands of the recipient viz., Narang Overseas (P.) Ltd. (supra), had to overrule another Special Bench decision of 3 members in the case of Sushil Kumar & Co. v. Jt. CIT [2004] 88 ITD 35 (Kol)(SB), which had taken the view that mesne profits are revenue receipt chargeable to tax. This change in the law happened sometime in the year 2008 (8-2-2008) when 5 member Special Bench held that mesne profits are capital receipts not chargeable to tax. The Assessee had filed its return of income for Assessment year 2002-03 on 30-10-2002 much prior to all these development of the law and therefore the action of the Assessee in making a claim for deduction of the disputed sum, as on the date when he filed the return of income cannot be said to not bona fide. (g) For the above reasons, Expln. 1 to Sec.271(1)(c) cannot also be applied as the Assessee has furnished all facts necessary for computation of income. It had offered an explanation. The Explanation is bona fid....
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....ly incorrect claim for deduction has definitely guilty of having furnished inaccurate particulars of income. The Assessee is also guilty of concealing particulars of income. 67. On appeal by the Assessee, the CIT(A) held as follows: (a) The Assessee had reiterated its plea that similar payment were allowed as deduction in computing total income in the past assessments and in Assessment year 1999-2000 to 2001-02. the AO bad disallowed such claim for deduction but the CIT(A) allowed the claim and therefore the Assessee bona fide made a claim for deduction. On the above submission, the CIT(A) held that the return of income for AY 2002-03 (the AY to which the present appeal relates) was filed by the Assessee on 30-10-2002 and as on this date there was an order of AO disallowing the claim for deduction of a similar payment and the order of CIT(A) directing the deduction to be allowed was passed only later in point of time. Therefore the plea of bona fide on the part of the Assessee in making the aforesaid claim cannot be accepted. (b) The CIT(A) relied on the findings in the quantum proceedings by the ITAT wherein it was held that the expenditure is not a revenue ex....
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.... chance, chance of the limited scrutiny system being allowed by the Income-tax Department, that the matter may not get picked up for scrutiny for the assessment year under consideration and they may escape consideration of the expenditure under consideration by the Assessing Officer. This factor has been adequately dealt with by Assessing Officer in the order imposing penalty. He has not only talked of the limited scrutiny being followed by Income-tax Department, he has also relied upon several decisions in order to construe what would be an adequate disclosure for the purpose at hand. I find that adequacy of disclosure has been considered in details by Hon'ble Delhi High Court in the case of Nath Brothers Exim International Ltd. so critically relied upon by Assessing Officer in the order imposing penalty. The ratio laid down by the Hon'ble Court is that disclosure of facts relating to the issue and material to the computation of total income should be such that no enquiry is required to be made by Assessing Officer before concluding whether assessee had furnished inaccurate particulars or false particulars of its income. In the instant case, without making any enquiry, Ass....
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.... v. Asstt. CIT [2008] 113 ITD 133 (Ahd.) (SB) - Addl. CIT v. Nihalchand Badrilal [1982] 135 ITR 519 (MP) - Addl. CIT v. Kejriwal Iron Stores [1987] 168 ITR 715/31 Taxman 331 (Raj.) - CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj.) 2. Penalty cannot be imposed for mere rejection of a claim: Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra) wherein it was held that merely because the claim of the assessee is not accepted, that by itself would not attract penalty under section 271(1)(c). 3. Penalty cannot be imposed if the conditions for imposition of penalty are not satisfied: 4. No penalty can be levied in respect of a debatable issue: Capital Expenditure vs. Revenue Expenditure: Reliance was placed on the following decisions: - Harshvardhan Chemicals & Mineral Ltd. (supra) - Jt. CIT v. Karnal Co-operative Sugar Mills Ltd. [2006] 199 TTJ 330 (Delhi) 5. Penalty cannot be imposed when a claim is based on judicial decisions:- It was submitted that it was clear from the assessment order that the assessee company subst....
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....s of the Assessee. It was submitted by him that the sum in question cannot be capital in the hands of the recipient and Revenue in the hands of the person paying it. The sum in question being of a capital nature ought not to have been claimed as a deduction. The learned D.R. submitted that the family dispute was the reason why the Assessee did not vacate the premises. There was no business exigency to incur such a huge liability which was disproportionate to the revenue generated by occupying the property. He also submitted that there were no bona fides on the part of the Assessee in making the aforesaid claim for deduction nor was there proper disclosure by the Assessee and in" this regard relied on the order of the CIT(A). It was submitted that mens rea is no longer necessary for imposing penalty u/s. 271(1)(c) of the Act. 71. The learned counsel for the Assessee in rejoinder pointed out that the CIT(A) has held that there was a disclosure by the Assessee regarding the nature of this sum claimed as deduction but his conclusion was that the disclosure was not adequate. According to him, the law contemplates only a disclosure of primary facts and the AO while making assessment h....
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....spute is already in the knowledge of the department, since the issue of deduction of Rs. 1.25 lakhs per month, (which is an interim payment made by the Assessee pursuant to orders of Hon'ble High Court) which was claimed as deduction by the Assessee for AY 1993-94 and allowed upto AY 1998-99 and which was disallowed by AO in AY 1999-2000 to 2001-02 and allowed by CIT(A) in those years, are all part of record of the Assessee available with the AO. I would therefore tend to agree with the contention of the learned counsel for the Assessee that there was no concealment of particulars of income. The CIT(A) has relied on the decision of the Hon'ble Gujarat High Court in the case of Vidyagauri Natwarlal (supra) to support his conclusion that the Assessee concealed particulars of income. That was a case where the Assessee disclosed in Part-III of the return of income certain cash credits as money borrowed from different persons. In the assessment the explanation of the cash credit was found unsatisfactory. It was held that the disclosure in the return of income was false. In the present case, there is no dispute that the Assessee actually paid the sum in question to NOPL. In such ....
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....haracter of this payment is not different from the payments made from AY 1995-96 to AY 2001-02 which has already been allowed by the Revenue in the assessment of the Assessee for those years. The only difference being the payment in the earlier years was an interim payment subject to the result of the appeal/suit, whereas the payment in AY 2002-03 is after the decree in the suit. Will this circumstance not be sufficient to hold that the Assessees claim for deduction as made in the return of income was bona fide? The conclusion of CIT(A) was that as on the date when return of income was filed, in AY 99-2000 the AO had disallowed the claim of the Assessee for deduction and therefore the plea of bona fides of the Assessee cannot be accepted. On this aspect, it has to be appreciated that the disallowance of the deduction was for the reason that details of the court proceedings were not furnished and not for any other reason. In these circumstances, the order of AO for AY 1999-2000 in our view cannot be the basis to say that there were no bona fides on the part of the Assessee in making the claim for deduction. The fact that the deduction claimed was allowed in assessments upto 1998-99,....
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.... make was Rs. 10 lacs per year. The decision of NIHPL to continue to occupy the property at the risk of having to pay huge amounts to NOPL was a bad business decision not guided by "Business Wisdom" not guided by commercial expediency. NIHPL did not deliver possession of the property only because Rajesh Narang did not vacate the premises at Pali Hills which as per the family arrangement he had to vacate and hand over to Rama Narang group. Therefore the payment in question was a payment in the course of settlement of family disputes and not a payment made by NIHPL in the course of its business. From the above findings in the quantum proceedings it is clear that the Assessee used the property at all times till delivery of possession for the purpose of its business. The fact that the quantum of expenditure to be incurred by way of payment to NOPL was much more than the revenue generated by doing business in the property would not be a ground to deny the claim for deduction. The law is well settled that the Revenue cannot sit in the armchair of a businessman and judge the expediency of incurring expenditure. Such things are best left to the wisdom of the businessmen. 79. The payment....
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.... Assessee and in this regard reliance was placed on the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra). It was pointed out that as far as the Assessee is concerned, the payment was made for use and occupation of the property for its business though it may be treated as damages for use and occupation. The expenditure was clearly revenue expenditure and ought to have been allowed as deduction. For the purpose of levying a charge of furnishing inaccurate particulars, it cannot be said that the view entertained by the Assessee on the basis of legal advice was free from doubt. For the above-reasons, Expln. 1 to Sec. 271(1)(c) cannot also be applied as the Assessee has furnished all facts necessary for computation of income, it had offered an explanation. The Explanation is bona fide and all facts relating to the same and material to the computation of total income have been disclosed. 81. The Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. 's (supra) has laid down the principle that penalty cannot be imposed just because a claim made by an Assessee has been rejected. 82. The facts in the aforesaid case were, the ....
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....reinafter called "NOPL") on 13.02.1990 by which the assessee was permitted to enter the premises of NOPL for 11 months. As per the terms of the agreement, the assessee was to pay commission at a specified rate of sales from such premises to NOPL. Here it is important to mention that the shareholding of the assessee-company as well as NOPL comprises of certain members of Narang family and some dispute, on the distribution of properties, was going on amongst them. (ii) A settlement was arrived through which NOPL was allotted to Shri Rajesh Narang who wanted the assessee to vacate the premises in terms of family settlement dated 12.07.1990. The assessee-company filed suit in the City Civil Court on 10.11.1990 for injunction restraining NOPL and Shri Rajesh Narang from disturbing possession of the said premises and the business carried on by the assessee therein. (iii) On 30.01.1992 one more family settlement was arrived at by which NOPL was allotted to Shri Rajesh Narang and the assessee was allowed to continue business and pay commission for the use, occupation and enjoyment of the said premises. As per this settlement, the possession of the premises was to be hande....
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.... date of hearing before the Hon'ble Supreme Court, as stated by the learned A.R., is on 29.03.2011. 3. For giving effect to the consent order, the Board of Directors of the assessee-company passed resolution on 31.12.2001 resolving that it would pay a sum of Rs. 34.57 crores for the user of the premises for the intervening period and also to hand over the vacant possession of the premises to NOPL. Payment to be made to NOPL was determined as under:- Rs. 2,61,745 For arrears of commission up to 31.3.92, confirmed in F.S. dated 20.1.92 and Suit 3578/94. Rs. 14,22,000 Interest on above Damage and mense profit for use, occupation and enjoyment of premises: Rs. 2,70,00,000 From 1.4.92 to 30.6.94 (prior to Suite filed) Rs. 9,00,00,000 From 1.7.94 to 31.12.2001 Rs. 22,87,01,137 Interest on above, including on payments to NOPL allowed up to A.Y. 2001-02 as per order dt. 24.8.93 of BHC. Rs. 1 34,57,01,137 Total Expenditure 4. Since the assessee had already paid a sum of Rs. 1.10 crores over a period to NOPL as per the directive of the Hon'ble Bombay High Court dated 24.08.1993, the assessee reduced this sum from the total agr....
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.... Tribunal on 11.05.2009 confirming the sustenance of disallowance of Rs. 33.63 crores, the Assessing Officer passed penalty order u/s. 271(1)(c) imposing penalty of Rs. 15 crores. The assessee remained unsuccessful before the learned CIT(A) as well. When the appeal of the assessee against the confirmation of penalty came up before the Tribunal, the learned Accountant Member agreed with the view taken by the first appellate authority confirming the imposition of penalty. However, the learned Judicial Member, through his descending note, proposed the deletion of penalty. That is how, the matter has come up before me. Nature of payment of Rs. 33.63 crores 8. The pivotal point for rendering decision on the levy or otherwise of penalty u/s. 271(1)(c) is the determination of the true character of Rs. 33.63 crores paid by the assessee to NOPL in this year. The learned Counsel for the assessee argued that the amount in question was paid as per the terms of consent between the parties, which indicated that it was towards the use of premises by the assessee. While referring to the order of the Hon'ble Supreme Court dated 12.12.2001 it was stated that several suits were pending amon....
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.... to determine the true nature of payment of Rs. 33.63 crores made by the assessee, it would be relevant to note that the controversy about the taxability of this very amount arose in the hands of the recipient, being NOPL. Whereas NOPL claimed this amount to be a capital receipt, the Assessing Officer treated it as revenue receipt chargeable to tax. When the matter finally came up before the Tribunal, a special bench consisting of five Members was constituted, which has decided the controversy in Narang Overseas (P.) Ltd. (supra). In this case it has been held that the mesne profits of Rs. 33.63 crores, being the amount given by the assessee to NOPL for deprivation of the use of premises by them, constituted capital receipt not chargeable to tax. Here it is interesting to note that the very same amount for which the assessee has claimed deduction in the instant year was considered by the Tribunal in the hands of the recipient NOPL. Exactly similar computation of Rs. 34.57 crores in the form of table from April 1992 up to December 2001 has been set out by the Special Bench in para 25 of its order. In para 35, it has been recorded that "There is no dispute to the fact that leave and ....
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....tribunal in para 5 of the order dated 11th May, 2009 are that : "The A.O. disallowed the claim holding that the aforesaid payment was for unauthorized and unlawful occupation of that premises The payment was penal in nature and cannot be held as a deduction under section 37(1)." The importance of afore-noted para no. 49 of the Special bench order can be gauged from this fact alone that the same has been reproduced thrice in the order passed by the Tribunal in quantum proceedings. The Tribunal has given its conclusion in para no. 22 which is reproduced hereunder:- ''Considering the various case laws on the issue and particularly since the CIT(A) has given his findings on the basis of the findings of the Special Bench in the case of Narang Overseas Ltd. 111 ITD 1, the same principles will equally apply here also. Since the factual findings are given by the Special bench, respectfully following the same we are of the opinion that the amounts cannot be held as revenue expenditure under section 37(1). It could be concluded that amounts in question were not a revenue expenditure but in view of fact and case law these were to be treated as capital expenditure. Apart from ....
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....2.12.2001, several controversies were on amongst the members on the distribution of family properties. One of such suits is No. 3578, which was filed by Sh. Rajesh Narang, who as per the earlier family settlement dated 12.07.1990, was allotted the property in question. This suit was filed way back in 1994 for having the vacant possession of the property and also for the mesne profits for its illegal use by the assessee company as per prayer clause no. 49. When we translate the manner of computation of the mesne profits given in prayer clause no. 49 of the suit, it gives the figure of Rs. 34.57 crores, being the same amount which was finally paid by the assessee in consonance with the terms of consent decree awarded by the Hon'ble Supreme Court after a gap of around seven years at the fag end of 2001. In 1994, there could not have been any contemplation for the so-called inflating of the compensation for deprivation of premises in such a manner so as to embeded some amount towards family settlement. It is so for the reason that, firstly, the parties were at war with each other at that time, and secondly, if it had been so arranged, then the family settlement would have taken pla....
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....e assessee company had some hidden element towards the family settlement, then the amount paid would have been on higher side vis-a-vis the amount claimed as per suit no. 3578 in 1994. As the amount ultimately paid by the assessee is identical to the manner of claim as per the suit filed so many years back, no part of it can be attributed to any other purpose except for the illegal use of property by the assessee. These facts indicate that the payment of Rs. 33.63 crores was made by the assessee in the instant year to NOPL only towards damages for deprivation of their use and occupation of the property. Imposition of penalty u/s. 271(1)(c) : 17. Now it needs to be determined whether the assessee is caught within the mischief of section 271(1)(c) by claiming deduction for Rs. 33.63 crores. Tribunal's findings in quantum proceedings are relevant but not conclusive in penalty proceedings : - 18. As per section 271(1)(c), if the Assessing Officer or the Commissioner (Appeals) or Commissioner in the course of any proceedings under this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, he may d....
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....t within the mischief of section 271(1)(c). If the assessee were not to be allowed an opportunity of making out a case of non-concealment of income or non-furnishing of accurate particulars of such income in the penalty proceedings, then there would have been no need to have any separate penalty proceedings. In such a hypothetical situation, which is not existing legally, the Assessing Officer would have been empowered to impose penalty u/s.271(1)(c) in the assessment order itself, just like the imposition of interest. It, therefore, follows that it is open to the Tribunal to determine as to whether the assessee had, in fact, concealed income or furnished inaccurate particulars of his income notwithstanding the confirmation of addition in Quantum. This view is fortified from the judgment of the Hon'ble jurisdictional High Court in CIT v. Balraj Sahani [1979] 119 ITR 36/2 Taxman 33 (Bom.). In the light of the foregoing discussion, it becomes apparent that the finding given by the Tribunal in quantum proceedings per se is not sufficient to impose or confirm penalty u/s.271(1)(c) for the obvious reason that the quantum proceedings inter alia deal with the deductibility or otherwis....
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....g of inaccurate particulars of such income envisages that though the income earned was offered for taxation but some other means were employed by the assessee which resulted into withholding of income. It is the indirect way of keeping back some part of income. It may take place under different circumstances, such as making a wrong claim of expenses or deduction or exemptions etc. In such a situation although the income earned is properly reflected but by adopting certain other measures, the overall income does not come to surface and is sliced away by means of such wrong claims. However, it is fundamental that both the situations, viz., concealment of income or furnishing inaccurate particulars of such income, ultimately lead to evasion of tax which is intended to be curbed by the penalty provision. 21. In Dilip N. Shroff v. Jt. CIT [2007] 29 ITR 519/161 Taxman 218 (SC), the Hon'ble Supreme Court observed that the expression "conceal" is of great importance, which signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars of income. It was, therefore,....
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....ccurate particulars of income in the context of claim for expenses pre-supposes the knowledge of the assessee about its inadmissibility. It can happen in two situations, viz., where either the assessee has intentionally made a bogus claim for expenses without incurring them or such expenses have been genuinely incurred but there is no possibility of their acceptance. If the expenditure genuinely incurred is of such a nature as to possibly qualify for deduction, then making of such a claim would not be characterized as furnishing of inaccurate particulars of income. Turning to the facts of the case it is seen that none of the aforesaid two conditions are satisfied. Neither the assessee made a bogus claim nor it was such so as to fall beyond the scope of possible claim, as would be seen infra under the heading "Bona fide explanation". Explanation 1 to section 271(1)(c) 23. It is important to note that the main provision of clause (c) of section 271(1) covers the cases of concealment of income and furnishing of inaccurate particulars of such income in a general way. Apart from that, there have been enshrined certain Explanations, some of which contain the cases of deemed conceal....
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....hall not constitute income in respect of which particulars have been concealed for the purposes of section 271(1)(c). 26. I will proceed to examine the facts of this case to determine as to whether it is failing in any of these three categories. First category consists of cases where the assessee fails to offer an explanation in respect of the addition made. Obviously it is not the situation here inasmuch as the assessee has furnished complete justification for its claim of deduction before the Assessing Officer in quantum as well as penalty proceedings. Second category comprises of cases in which the assessee offers an explanation which is found by the authority to be false. The case of the assessee is not covered under this category as well, as is manifest from the fact that the assessee claimed deduction of Rs. 33.63 crores as revenue expenditure. This sum was actually paid by the assessee towards the use of the property, which was recorded in the books of account. The fact of the assessee having paid the sum has not been disputed by the AO. Thus the explanation offered by the assessee for claiming deduction has nor been found to be false by the Assessing Officer. 27. Thir....
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....(i) is satisfied in this case. Bona fide explanation 30. The second condition has further two elements viz., (iia) bona fide explanation and (iib) adequate disclosure of all the material facts. I shall examine element (iia) first as to whether the explanation of the assessee for claim of deduction was bona fide or not. In simple words, the term bona fide means : in good faith or without fraud or deception and honestly as distinguished from bad faith. In an earlier para, I have come to the conclusion that the payment of Rs. 33.63 crores was made for the use and occupation of property by the assessee. It has been noticed that by the judgment of the Hon'ble Bombay High Court passed on 24.08.1993 the assessee was required to pay a sum of Rs. 10 lakhs plus Rs. 1.25 lakhs per month towards the use of the premises. As the said amount determined by the Hon'ble Court: vide its order dated 24.08.1993 was found by Shri Rajesh Narang to be on lower side and further he wanted vacant possession of the property, a suit no. 3578/94 was filed demanding mesne profits in terms of para 49 of the suit. Eventually the amount of Rs. 34.57 crores was agreed to be paid by the assessee in term....
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....ircumstances prevailing at the time when the return is filed claiming the deduction. It is no doubt true that on the date of filing of the return for the year in question, the assessee's claim for deduction already stood rejected by the Assessing Officer for the assessment year 1999-2000. At the same time it also needs to be kept in mind that the said claim was allowed by the Assessing Officer himself from assessment years 1995-96 to assessment year 1997-98. Although the claim was rejected by the A.O. for A.Y. 1998-99 but the assessee did not accept this rejection of the claim and was in appeal before the learned CIT(A) urging that the deduction be allowed. The situation would have been different if the assessee had accepted the disallowance made by the A.O. for assessment year 1998-99 onwards and still had claimed deduction in assessment year under consideration. As on the basis of such claim allowed up to assessment year 1997-98, the assessee was contesting the disallowance as on the date on which return for this year was filed, there remains no doubt that the bona fide of the assessee for making similar claim in the return was proved. Entertaining a bona fide view by the ass....
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....hat simply because deduction of expenditure has not been accepted by the Revenue, penalty u/s.271(1)(c) is not attracted. It has further been observed that 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. When we consider the facts of the instant case in juxtaposition to the judgment in the case of Reliance Petro Products (P.) Ltd. (supra) it becomes obvious that by no standard the claim of the assessee for deduction of Rs. 33.63 crores can be categorized as not bona fide in any manner. Proper disclosure 35. Now take up element (iib) for consideration, which deals with the disclosure by the assessee of all the relating facts. The learned Departmental Representative contended that the assessee disclosed the above said amount in Schedule M relating to Administrative and other expenses annexed to the Profit and loss account with the observations "NOPL paid under suit No.3578". It was argued that this narration given in a Schedule to the Profit and loss account did not, at all amount to disclosure because it did not indicate as to who was NOPL and under which suit and for ....
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....ficer can ascertain the relevant facts. However when the disclosure made by the assessee in its Profit and loss account and by way of Note in the Balance sheet is considered in the backdrop of ongoing litigation of the assessee with the Department for last three years on the same point, I have no hesitation in coming to the conclusion that the assessee made a proper disclosure of the facts material to this claim. 38. It is, therefore, evident that though the assessee failed on condition (i) of clause (B) to Explanation (1) to section 271, it fully succeeded on elements (iia) and (iib) of the condition (ii) by making a bona fide claim for the deduction of the sum in question by properly disclosing all the material facts relating to the computation of his total income. As penalty under this clause can be levied only when both the conditions are cumulatively satisfied, which is not the case here, the assessee cannot be held to have concealed the particulars of his income in terms of clause (B) of Exp 1. 39. Under such circumstances it can be seen that the assessee did offer an explanation which was not found by the Assessing Officer to be false and even though the assessee could....
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.... Judicial Member. The Registry of the Tribunal is directed to list this matter before the division bench for passing an order in accordance with majority view. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 There was a difference of opinion between the members who heard the above appeal filed by the Assessee against the order of the CIT(A) confirming the order of the AO imposing penalty on the Assessee u/s. 271(1)(c) of the Act. The following deduction was referred to the Hon'ble Third Member by the Hon'ble President. Whether on the facts and circumstances of the case the penalty u/s. 271(1)(c) was leviable? The Hon'ble Third Member vide order dated 7.4.2011 has agreed with the view that penalty u/s. 271(1)(c) is not leviable. 2. The case was fixed for passing confirmatory order on 29.04.2011. The learned D.R. sought time on the ground that the Revenue has filed miscellaneous application against the order of the third member nominated to hear the case. The case was accordingly adjourned from time to time. To-day the learned counsel for the Assessee filed before us a copy of the order dated 21.10.2011 whereby the Hon'ble Third member has dismis....
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....he other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it. Therefore we have no other option but to pass an order in accordance with the opinion of the majority of members. Secondly, the Hon'ble Third member in the miscellaneous application filed by the Revenue against his order has held that an application for rectification of mistake apparent from the record lies u/s. 264(2) of the Act only against an order passed u/s. 254(1) of the Act and that the order of the third member is not an order passed u/s. 254(1) of the Act and therefore the miscellaneous application against the order of the Third member will not lie. It was further held by the Hon'ble Third Member that the decision rendered by the third member is one which does not finally dispose of the appeal till the point or points are decided according to the opinion of the majority of the members for which another order is to be passed by the Tribunal and it is this order which finally disposes of the appeal. An application under Sec. 254(2) would lie ....