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2015 (12) TMI 299
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....o decide the issue on merits vide order dated 30.09.2011. The facts and circumstances which led to the penalty is as follows :- (i) The Assessee, which is a Company, operates in the business of shares and securities. (ii) The Assessee filed its return of income on 29.10.2001 declaring income of Rs. 3,84,75,860/- for the year under consideration i.e. 2001-02 and the same was assessed under section 143 (3) of the Act. (iii) During the relevant assessment year, the Assessee had received dividend income of Rs. 3,11,85,522/- from various other companies. (iv) While dealing with the tax assessment of the Assessee, the Assessing Officer noticed that the Assessee had claimed exemption of an expenditure of Rs. 4,15,86,591/- being interest on loans raised for acquiring shares of various companies. (v) The Assessing Officer vide assessment order dated 28.02.2003 came to the conclusion that as per Section 14A and Section 115-O(5), no deduction was allowable with respect to the expenditure incurred in relation to dividend income which was exempted from tax. (vi) On the basis of the relevant calculations, the Assessing Officer made a disallow....
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....o the ld. AR, then only in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. The ld. AR brought to our attention the "Explanation I. - Where in respect of any facts material to the computation of the total income of any person under this Act - such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false, or such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this subsection, be deemed to represent the income in respect of which particulars have been concealed." The ld. AR further contended....
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....rrant to levy / impose penalty under section 271(1)(c) of the Act primarily on the ground that the claim of the appellant was a legal and bona fide claim backed by adequate/ necessary disclosure in the return of income/ accompanying documents. The ld. AR submitted a written synopsis, relevant submissions of which are as follows :- * On perusal of Explanation I to section 271(1)(c) of the Act it will be kindly noticed that the said Explanation has two limbs (A) and (B) as under: (A) fails to offer any explanation or offers an explanation which is found by the assessing officer to be false; or (B) offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to computation of his total income have been disclosed. Clause (A) cannot be applied in the present case since the appellant has offered explanation and the same cannot be regarded as false. Further, on dissecting the provisions of clause (8), it will be kindly noted that the following three conditions must cumulatively exist in order to levy penalty under that clause: *....
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....ellant was entitled to the benefit of devalued loss, increased depreciation and development rebate. The above claim was not accepted by the [TO and penalty proceedings under section 271(1)(c) of the Act were initiated. The Court noticed in the aforesaid case that the appellant had made the claim after pursuing the expert legal advice and the same was clearly based on cogent, legal ground and there was no authoritative judicial pronouncement covering the said question raised by the appellant. It was observed by the Court that the claim of the appellant for necessary deduction based on legal contentions put forward by it could never amount to concealment of any income of the company and it could never be said that the appellant had furnished inaccurate particulars of its income by seeking to raise the legal pleas. It was held in the above case that the contention raised by the appellant did not in any way indicate that there had been any concealment of particulars of income or filing of inaccurate particulars of income by the appellant and that whether the said contentions are ultimately upheld or turned down, it could not be said that they were frivolous, dishonest or malaf....
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....ction and hence it has to be proved as a conscious act on the part of the assessee to hide or conceal an element of income. The essential pre-condition for invoking Explanation I to section 27I(1)(c) is that the assessee fails to offer an explanation or offers an explanation which is found to be incorrect by the tax authorities which is not the case in the matter under consideration. We would also like to draw your kind attention to the decision of the Madhya Pradesh High Court in the case of CIT vs S.T.I. Biplus Tubing (India) Ltd. (247 ITR 426) wherein the Hon'ble Court affirmed the Tribunal's view that: Quote .... simply because a claim not tenable in law has been made, one cannot be permitted to jump to the positive conclusion that all was deliberate. Accordingly, it held that where there is no positive evidence of wilful concealment, no penalty can be levied. Unquote In Delhi Cloth and General Mills Company Limited vs. CIT (157 [TR 822), the Delhi High Court held as under: Quote .... the mere fact that a claim for expenditure stands disallowed does not by itself lead to the inference that the assessee had f....
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....with the authorities. It might be on difference of opinion on particular set of facts but it did not imply that there had been a concealment of particulars of income. If the assessee had taken a stand that the expenditure incurred was a revenue expenditure and if it was held otherwise as a capital expenditure, it could not be said that the explanation given by the assessee was not bona fide. Unquote In this context, the assessee would also like to draw your attention to the decision of the Hon'ble Guwahati High Court in CIT vs Gurudayalram Mukhlal (190 ITR 39) wherein the Hon'ble High Court has observed as under (emphasis supplied): Quote Even in case of stipulated difference between the assessed income and the returned income, the penalty under section 271 (I) (c) is not automatic .... The fact that certain income has been assessed by the Income-tax Officer in the assessment order by itself is not conclusive evidence that the amount assessed was the income of the assessee. In fact, in very many cases, the Assessing Officer can include certain amounts in the income of the assessee if the explanation given by the assessee in regar....
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....lowing ratios while deciding on whether the penalty under section 271(1)(c) of the Act is leviable: Legal contention bona fide raised, whether it as ultimately accepted or rejected, will not generally be an act of fraud or willful negligence attracting the penal provision under section 271(1)(c) of the Act. No question of any liability will arise where the assessee is merely contending for a particular position contrary to the view taken by the Assessing Officer. The assessee has a right to make any claim which may or may not be allowed. Mere disallowance of a claim cannot by itself form the basis for initiating penalty proceedings in the absence of any material to show that the claim was made mala fide or deliberately under false premises with the ulterior intent to evade fiscal liability. The assessing officer in the course of assessment has not recorded any satisfaction regarding concealment or furnishing of inaccurate particulars of income by the appellant in respect of the additions/ disallowances made by the assessing officer. A mere mention at the end of the assessment order as a matter of routine that penalty proceedings have bee....
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....the assessing officer may, in the course of any proceedings under this Act, direct the imposition of penalty under that section. In our respectful submission the lawmakers have deliberately used the word "may" in section 271(1) of the Act which shows that discretion in this regard has been conferred on the assessing officer. Merely because certain additions / adjustments are made in the assessment, it does not necessarily follow that penalty is to be levied. Based on the above, the assessee most respectfully submits that the mere disallowance of a claim of expenditure during the assessment proceedings based on difference of opinion does not tantamount to concealment of income to justify levy of penalty under section 271(1)(c) of the Act. Accordingly, no penalty should be levied on the assessee in the present case. CONCLUSION It is most humbly submitted that the assessee was under the bona fide belief that the revenue expenditure on interest being in the nature of normal business expenditure, was deductible under the provisions of law for determining the total taxable income of the assessee. Notwithstanding the fact that the quantum appeal filed i....
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....e of the appellant when it filed the return of income and participated in the assessment proceedings before to AO and other authorities. We find that during the relevant assessment year, the appellant received dividend income of Rs. 3,11,25,522/- from the shares of 15 companies which were held as 'trading assets'. In other words, the appellant did not receive any dividend from shares held as capital asset and received dividend only from share held as trading assets which fact has been taken note at page 2 of the assessment order passed under section 143(3), wherein the aforesaid undisputed facts were noted in the following words: "The assessee has shown shares in the above-mentioned 15 companies from where dividend was received as 'trading asset'..... Therefore, the portion of interest paid relating to 15 companies (from where dividends have been received) is disallowed) is disallowed." 10. We take note that the AO taking to consideration the fact that the appellant had received dividend only from shares held as trading assets, in the assessment order passed under section 143(3) of the Act the assessing officer invoked provisions of section 14A and disallowed interest e....
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.... the appeal came up before the Division Bench, it was notice that there was difference of opinion between the Benches on the issue involved in the appeal. The revenue had relied on the decision of the Tribunal dated 5/09/2006 in the case of Ridge investment Co. Ltd. v. Jt. CIT [ IT Appeal Nos. 4260-61 (Mum.) of 2003] as well as the decision of Delhi Bench of the Tribunal in the case of Ever Plus Securities & Finance Ltd. v. Dy. CIT [2006] 101ITD 151 wherein it was held that even if the main activity of the company was to make investments in holding company for retaining control over the group companies, the disallowance under section 14A can be made irrespective of the fact that dividend earnings were only incidental in nature. On the other hand, the assessee had relied on the decision of Delhi Bench of the Tribunal in the case of vidyut Investments v. Ito [2006] 10 SOT 284 wherein it was held that when shares are held as stock-in-trade with the object of trading in shares, and dividend income earning was only incidental in nature no part of the expenses could be disallowed under section 14A of the Act. In view of such difference of opinion, the Bench recommended the constitution o....
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....o get the dividend on the shares held by him as 'stock-in-trade'. Since such dividend income is never intended at the time of purchase of shares, in our opinion, the connection between the expenditure incurred and the dividend income can be said to be incidental only since the dominant and immediate connection exists only between the expenditure incurred and profit on sale of shares. Since the existence of dominant and immediate connection is the condition precedent for invoking the provisions of section 14A of the Act, in our opinion, the mere receipt of dividend income incidentally in the case of dealer in shares would not be sufficient for invoking the provisions of section 14 A of the Act. We take note that the Majority decision expressed in Paras 23.8 and 23.9 of Special Bench order decided the aforesaid issue against the assessee. The relevant portion of the aforesaid order is reproduced hereunder for ready reference :- " .... A great deal of emphasis has been laid on the establishing of dominant and immediate connection between the expenditure incurred and the exempt income. According to the ld. AR the expenditure of interest on investment in shares has d....
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....take note of the fact that the aforesaid issue was admitted by the High Court as involving substantial question of law. 19. We also take note of the fact that the appeal bearing ITA No.263 of 2010 in the appellant's own case for the assessment year 2002-03, i.e., the immediately succeeding assessment year, was admitted by the High Court on the ground of involving substantial question of law was admitted and was adjudicated vide the common order in the aforesaid decision, reported as Maxopp Investment (supra) and in this regard, it can be seen at page 296 of the aforesaid decision of the Delhi High Court reported at 347 ITR 272 though against the assessee. Further we find that the SLP filed against the aforesaid decision of the Delhi High Court in the appellant's own case for the assessment year 2002-03 has also been admitted by the Hon'ble Supreme Court in CC No. 17279/2012. The Hon'ble Jurisdiction High Court has held that when an issue is admitted by the High Court on the ground that the same involves substantial question of law, the same cannot be visited with penalty under section 271(1)(c) of the Act. The Hon'ble jurisdictional Delhi High Court in the case o....
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.... under Section 14A of the Act was prescribed to the appellant. The appellant has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons. we are o(the opinion that no question of law arises in the present case. This appeal is accordingly dismissed... (Emphasis supplied)" 21. A useful reference may also be made to the decision of Apex Court in the case of CIT v. Reliance Petro products Private Limited: 322 ITR 158, where the decision of Bombay High Court deleting the penalty imposed by the assessing officer on the ground that quantum appeal was admitted by the High Court on the ground of involving question of law, was affirmed by the Apex Court. And we take note that various other Hon'ble High Courts and Tribunals have decided the aforesaid issue in favor of the assessee. We take note of the fact that other High Courts and various benches of Tribunal in the following cases have decided the aforesaid issue in favour of the assessee and held that section 14A cannot be invoked where shares are held as stock-in-trade: * CCI Ltd. v. ....