TaxTMI 
TaxTMI 
2012 (11) TMI 754
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....oresaid provision. In the ground it is clarified that the ld. CIT(Appeals) wrongly mentioned the amount for this year also at Rs. 5,10,986/-. The appeals were argued with reference to the facts for assessment year 2001-02. Therefore, we will be describing the facts of this year while disposing of both the penalties. 2. The facts are that the return declaring loss of Rs. 32,87,247/- was filed on 29.10.2001. The assessment proceedings were initiated by issuing notice u/s 143(2). It was found that the assessee-company is engaged in investment business. Coming to the specific issue which led to the levy of penalty, the assessee was required to furnish the details of consultancy expenditure. The details were filed. The details showed that an expenditure of Rs. 12.92 lakh was incurred under this head as the amount paid to Shri Sandilya. It was submitted that the amount has been paid to him for liaison work with internal and external auditors, getting the accounts audited and rendering secretarial and legal services in the matters of company law. However, the assessee was not able to file the invoice or the bill. Opportunity was also granted to produce Shri Sandilya for verification of....
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....een concluded that the amount has been debited to the profit and loss account in order to avoid payment of tax. The provision contained in Explanation-1 to section 271(1)(c) has also been invoked and it is held that the provision is applicable to the facts. Therefore, it is for the assessee to furnish explanation and to substantiate the explanation, failing which the addition or disallowance made is deemed to be the income in respect of which particulars have been concealed. The case of the assessee falls under this provision. Therefore, as mentioned earlier, penalty of Rs. 5,10,986/- has been imposed. 3. The levy was agitated before the ld. CIT(Appeals). The assessee took up three grounds before him but the main ground was that the AO grossly erred on facts and in law in levying the penalty of Rs. 5,10,986/-. It was submitted that Shri Sandilya had rendered services in the area of liaison with statutory, internal and tax auditors, the audit of the accounts under the Companies Act, tax matters, secretarial and legal services and filing of returns as per the Companies Act. He also rendered other legal services and helped the company in formulation of business strategy. He is a....
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....s rendered by him. The agreement is effective for assessment year 2000-01, but it does not specify any particular amount, which has to be decided as mutually agreed upon at a later date. The first payment of Rs. 10.00 lakh has been made on 01.04.2000 even prior to 03.04.2000 when the agreement was entered into. The balance amount of Rs. 2.92 lakh was paid on 01.10.2000. The basis of quantification of the amount has not been explained. It is further mentioned that no business activity has been carried out in this year. The investment in shares continues to be as it was in the earlier year. The burden to prove that the expenditure has been incurred for the purpose of business is on the assessee and the existence of the agreement and payment do not discharge this burden. Therefore, the disallowance has been upheld. For ready reference, the concluding paragraph nos. 38 and 39 of the decision are reproduced below:- "38. The assessee has given emphasis upon the service agreement dated 3rd April, 2000 and confirmation letter of Shri S. Sandilya confirming the receipt of a sum of Rs. 12.92 lakh as consultancy fee. No evidences or details were filed or furnished showing Shri Sandilya ....
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....by way of long-term investments. It also holds bonds of Industrial Finance Corporation of India as short-term investment. The aggregate value of the investments as on 31.03.2001 amounts to about Rs. 3.00 crore. 4.1 The issue regarding disallowance of consultancy charges paid to Shri Sandilya traveled to the Tribunal, which decided the matter in favour of the revenue. The payment was made in pursuance of the agreement dated 05.04.2001, a copy of which has been placed in the paper book on page nos. 82 and 83. The following services are contemplated in the agreement:- (i) "To give specialized advice on formation and implementation of business strategy of the company from time to time. (ii) To liaise with Government officials and departments for getting various approvals etc. (iii) To represent the company in various business chambers, confederations etc. (iv) To give specialized advice on any other issues that may be required from time to time. (v) To coordinate with statutory and tax auditors, finalization of accounts, providing secretarial, legal and taxation services and filing of requisite returns under the Companies Act." 4.2 The assessee-company has n....
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.... of Rs. 10.00 lakh has been made even prior to formation of the agreement on 05.04.2001. No explanation exists for such a conduct. The assessee has not carried out any business in this year. Therefore, there was no need to engage the services of a highly qualified person. Even after his employment, there has been no change in the investments. Therefore, it is argued that the case of the assessee is squarely covered under clause (B) of Explanation-1. Accordingly, it is vehemently argued that the levy of penalty is justified on the facts of the case. 4.5 In the rejoinder, it has been argued that the circumstances are in favour of holding that the provision contained in section 271(1) and the aforesaid Explanation-1 support the case of the assessee. 5. We have considered the facts of the case and submissions made before us. The facts are that the assessee had debited a sum of Rs. 12.92 lakh to the profit and loss account as consultancy charges. No bill or voucher or any other evidence was filed in the course of assessment proceedings, however, submissions were made that the amount has been paid for liaisoning work etc. The AO disallowed the payment on various ground....
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....d assessment proceedings are distinct proceedings. We are of the view that no exception can be taken to this proposition. 6.1 In the case of CIT Vs. Reliance Petroproducts (P) Ltd., (2010) 322 ITR 158 (SC), the question before the Hon'ble Court was-whether, the appellate Tribunal is right in law and on facts in confirming the order passed by the Commissioner (Appeals) cancelling the penalty levied u/s 271(1)(c) amounting to Rs. 11,37,949/- by the AO in respect of the addition, which stood confirmed? The AO had made addition in respect of interest expenditure and initiated penalty proceedings u/s 271(1)(c) of the Act. The interest was paid in respect of shares purchased by the assessee on which no dividend was received. The disallowance was made by invoking the provision contained in section 14A. In the penalty proceedings, it was submitted that mere disallowance of a claim could not be the sole basis for levying penalty. In the assessment for 2000-01, the Commissioner (Appeals) had deleted similar disallowance made by the AO and the Tribunal had confirmed the order of the CIT(Appeals). The Hon'ble Court inter-alia considered the decision in the case of Union of India Vs. Dharmen....
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....ome. Further, expenses were disallowed on the ground that they were not incurred for the purpose of business or they have been claimed against income which is not liable to be taxed. The penalty has been levied on the ground that the additions have been accepted. It has been held that assessment and penalty proceedings are independent of each other. It is further held that the penalty in respect of non-disclosure of short-term capital gains could not have been levied as it was a genuine mistake, which was accepted soon after it was pointed out to the assessee. Therefore, concealment of income has not been proved in the light of the decision in the case of CIT Vs. Suresh Chand Mittal, (2001) 251 ITR 9. It has also been held that penalty in respect of amounts disallowed has been levied merely on the ground that the additions have been accepted and appeal has not been filed against the assessment order. Since no independent enquiry was made in penalty proceedings, the department has not demonstrated that the assessee had concealed income. We are of the view that the facts of this case are also distinguishable. In so far as addition is concerned, the ratio in the case of Suresh Chan....
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....a bona fide mistake. The Hon'ble Court reversed this finding. In doing so, the case of Reliance Petro Products (P) Ltd. (supra) was also considered. It has been mentioned that mere submitting a claim, which is incorrect in law, would not amount to giving inaccurate particulars of income. But it cannot be disputed that the claim made by the assessee has to be bona fide. If such a claim is mala fide, Explanation-1 would come into play. On the facts, it was held a general proposition that a person would never claim income-tax to avoid payment of tax cannot be accepted. The assessee has not explained the circumstances in which the mistake was committed. Therefore, the explanation is not bona fide. 6.5 The ld. counsel submitted that the case of Dharmendra Textile Processors (supra) was considered in the case of Union of India Vs. Rajasthan Spinning & Weaving Mills, (2009) 8 SCALE 231, in which it is mentioned that this decision is referred to in almost all cases of penalty as if it lays down that whenever an addition is made, the penalty would become automatically leviable and that the authority has no discretion in the matter. There is no reason to understand or read the decision in....