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Income Tax Appellate Tribunal - Delhi

Ved Prakash Sachdeva Prop., Noida vs Department Of Income Tax on 1 June, 2011

                                       1                     ITA No. 4015/Del/2011
                                                                Asstt.Year: 2002-03

              IN THE INCOME TAX APPELLATE TRIBUNAL
                     DELHI BENCH `H' NEW DELHI

         BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT
                            AND
        SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER

                           I.T.A.No.4015/Del/2011
                          Assessment Year : 2002-03

Addl. Commissioner of Income Tax,     vs Ved Prakash Sachdeva
Range, Noida, 2nd Floor,                    Prop. M/s SAM Overseas,
G-Block, Shopping Complex,                  B-83, Sector-83,
Sector-20, Noida-201301                     Noida.
                                            (PAN: ABDPS5802N)
(Appellant)                                 (Respondent)
                                     Appellant by: Shri V.S. Rastogi
                          Respondent by : Shri Sameer Sharma, Sr. DR

                                 ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

This appeal has been preferred by the revenue against the order of the Commissioner of Income Tax(A)-Ghaziabad dated 01.06.2011 in Appeal No. 10/2008-09/GZB-Noida for AY 2003-04 by which penalty order passed by the Assessing Officer dated 26.3.2008 has been held to be unsustainable and penalty imposed therein has been deleted.

2. The grounds of appeal read as under:-

"1. That the Ld. CIT (A) has erred in law and on facts by holding that penalty u/s 271(1)(c) is not justified whereas the disallowance made on account of "amount written off" has been confirmed at the level of ITAT.

2. The Ld. CIT (A) has erred in law and on facts by holding that penalty u/s 271(1) (c) is not justified whereas the disallowance made on account of "amount written off' had been made because the assessee had given advances to M/S A.M. in which the assessee's daughter Mrs. Anju Sharma and Son in law Shri Mukesh Sharma were partners and also the salaried employees of the assessee. The assesee could not establish the nexus between advancement of loan for the business activities. Later on, this amount of advance was written off, which shows that the assessee deliberately concealed the true particulars of his income.

3. That the case law relied upon by the Ld. CIT(Appeals) is not relevant to the present case.

4. That the order of Ld.CIT (Appeals) being erroneous in law and on facts deserves to be set aside and the order of AO be restored."

3. Apropos grounds as mentioned hereinabove, the ld. DR submitted that the Commissioner of Income Tax(A) has erred in law and on facts by holding that the penalty u/s 271(1)(c) of the Income Tax Act, 1961 is not justified whereas the disallowance made on account of amount written off has been confirmed by the ITAT. The DR further pointed out that the Commissioner of Income Tax(A) was not justified in deleting the penalty whereas the disallowance made on account of amount written off has been made by the Assessing Officer on the ground that the assessee has given advances to M/s A.M. Overseas in which the assessee's daughter Mrs. Anju Sharma and son-in-law Shri Mukesh Sharma were partners and also they 3 ITA No. 4015/Del/2011 Asstt.Year: 2002-03 were salaried employees of the assessee. The DR vehemently contended that the amount of advance given to the firm of daughter and son-in-law could not establish direct nexus between advancement of impugned loan for the business activities of the assessee. The DR also submitted that the assessee has written off this advance amount which shows that the assessee deliberately concealed the true particulars of its income, therefore, the impugned order being erroneous in law and on facts deserves to be set aside by restoring the penalty order of the Assessing Officer. The DR also pointed out that the citations and case laws relied upon by the Commissioner of Income Tax(A) are not relevant to the present case.

4. Replying to the above, assessee's representative has drawn our attention towards written synopsis submitted by the assessee and pointed out that during the quantum proceedings, the Assessing Officer made certain additions on three counts out of which two additions were deleted by ITAT in ITA No. 641/Del/2007 vide order dated 23.10.2009 by partly allowing appeal of the assessee. The AR further contended that only one disallowance in respect of written off amounts related to advance to M/s A.M. Overseas was upheld by the Tribunal but mere disallowance of the claim of the assessee cannot be a basis to impose penalty u/s 271(1)(c) of the Act.

Asstt.Year: 2002-03

5. The AR placed reliance on the judgment of Hon'ble High Court of Delhi in the case of Kanchenjunga Advertising P. Ltd. vs C.I.T. 340 ITR 595 (Del) and submitted that it is a well-settled legal position relating to the exigibility of the penalty u/s 271(1)(c) of the Act that the assessment proceedings and penalty proceedings are different in nature and that the findings given in the assessment proceeding, though may constitute good evidence, cannot constitute conclusive evidence for the purpose of levying of penalty. In this judgment, the Hon'ble High Court of Delhi has considered various earlier decisions of various High Courts including judgment of Hon'ble Supreme Court in the case of Reliance Petroproducts (2010) 322 ITR 158 (SC) and its judgment in the case of Commissioner of Income Tax vs Zoom Communication (2010) 327 ITR 510 (Del). The relevant operative part of the judgment in the case of Kanchenjunga Advertising P. Ltd. vs C.I.T. (supra) reads as under:-

"It is a well settled position that assessment proceedings and penalty proceedings are different in nature and that the findings given in the assessment proceedings, though may constitute good evidence, cannot constitute conclusive evidence for the purposes of levying penalty. (please see CIT v. Anwar Ali (1970) 76 ITR 696, CIT v. Khoday Easwara and Sons (1972) 83 ITR 369 (SC) and Anantharam Veerasinghaiam & Co. v. CIT (1980)123 ITR

457). It is also well settled that for the purpose of Section 271(1)(c) of the Act, the mere making of an incorrect claim 5 ITA No. 4015/Del/2011 Asstt.Year: 2002-03 does not amount to furnishing of inaccurate particulars of income. Where the assessee has submitted all the material and relevant facts relating to the claim and has made a complete disclosure, but takes a legal contention or position that a particular receipt is not taxable as income or that a particular expenditure or loss is allowable as deduction, the mere fact that the Assessing Officer took a different view of the allowability of the expenditure or loss or the taxability of the receipt, without anything more and without unearthing any new material or fact kept back by the assessee, cannot invite penalty on the ground of furnishing inaccurate particulars of income. Reference in this connection may be made to the following judgments:-

1. Cement Marketing Co. of India Ltd. v. Asst.

Commissioner of Sales Tax, (1980)124 ITR 15 (SC)

2. ITO v. Burmah Shell Oil Storage & Distributing Co. of India Ltd. (1987)163 ITR 496 (Cal)

3. Delhi Cloth and General Mills Co. Ltd. v. Commissioner of Income Tax (1986)157 ITR 822 (Del)

4. CIT v. G.D.Naidu ( 1987) 165 ITR 63 (Madras)

17. In a series of judgments, this Court has affirmed the aforesaid legal position and these judgments are :-

1. CIT v. Bacardi Martini India Ltd. (2007) 288 ITR 585

2. CIT v. Nath Bros. Exim International (2007) 288 ITR 670

3. CIT v. International Audio Visual (2007) 288 ITR 570 In CIT v Reliance Petroproducts P. Ltd (2010) 322 ITR 158, the Supreme Court explained the meaning of the term "furnishing of inaccurate particulars". It was observed 6 ITA No. 4015/Del/2011 Asstt.Year: 2002-03 that "inaccurate particulars" means the details supplied in the return which are not accurate, not exact or correct, not according to truth, or erroneous. It was held that making a claim which is not sustainable in law, cannot, by itself, amount to furnishing of inaccurate particulars. It was further held that by no stretch of imagination can it be held that making an incorrect claim in law would tantamount to furnishing of inaccurate particulars, provided the statement or details supplied by the assessee had not been found to be factually incorrect.

Explaining the above decision, a Division Bench of this Court in CIT v Zoom Communication P. Ltd. (2010) 327 ITR 510 held as follows:

"The proposition of law which emerges from this case, when considered in the backdrop of the facts of the case before the Court, is that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under Section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bonafide. If the explanation is neither substantiated nor shown to be bonafide, Explanation 1 to Section 271(1)(c)would come in to play and the assessee will be liable to for the prescribed penalty."

It was further observed by this Court as under (page 518):

"It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bonafide. If the claim besides being incorrect in law is malafide, 7 ITA No. 4015/Del/2011 Asstt.Year: 2002-03 Explanation 1 to Section 271(1) would come into play and work to the disadvantage of the assessee.

The Court cannot overlook the fact that only a small percentage of the Income Tax Returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would still not be liable to penalty under Section 271(1)(c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bonafide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self Assessment under Section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a malafide 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."

In the above case before this Court the assessee claimed deduction of income-tax paid even though such deduction was statutorily prohibited. The assessee also claimed write off of equipment as revenue loss. Both the claims were found to be so untenable as to fall within the 8 ITA No. 4015/Del/2011 Asstt.Year: 2002-03 mischief of the expression "furnishing of inaccurate particulars". A line of distinction thus appears to have been drawn in Zoom Communication (supra) so as to prevent misinterpretation of the view taken by the Supreme Court in Reliance Petroproducts (supra). In our view, the present case falls within the ratio of the judgment of this court in Zoom Communications (supra) and not under that of Reliance Petroproducts (supra), as the following discussion would show."

6. On careful consideration of above submissions and contentions of both the parties and a careful perusal of the citations relied by both the parties, we observe that the three propositions adverted upon highlighted by the Hon'ble Apex Court and Hon'ble High Court are as under:-

i) Assessment proceedings and penalty proceedings are different in nature and the findings given in the assessment proceedings cannot constitute conclusive evidence for the purpose of levy of penalty.

ii) During the penalty proceedings, it cannot be held that if assessee is making an incorrect claim in law, it could not tantamount to furnishing of inaccurate particulars of income provided that the statement of income and related details submitted by the assessee had not been found to be factually incorrect or bogus.

iii) It is also a well accepted legal proposition that mere submitting a claim which is incorrect in law or is not acceptable by revenue authorities would not amount to furnishing of inaccurate particulars of the income. If the claim of the assessee besides being incorrect in law is also malafide, then Explanation 1 attached to section 271(1)(c) would come into play and work against the assessee and this act of the assessee will attract levy of penalty.

7. In the present case, admittedly, disallowance and addition made by the Assessing Officer has been confirmed by the ITAT against the assessee by holding that the amount was given as loan to M/s A.M. Overseas, a partnership firm with whom the assessee has no business nexus, as such amount written off cannot be considered as expenses incurred for the purpose of the business of the assessee.

8. During the penalty proceedings, the Assessing Officer imposed penalty by holding that the assessee's explanation for writing off of the advance amount cannot be treated as bona fide. On appeal before the Commissioner of Income Tax(A) against the penalty order, the Commissioner of Income Tax(A), following the judgment of Hon'ble Supreme Court in the case of Reliance Petroproducts (supra), held that the 10 ITA No. 4015/Del/2011 Asstt.Year: 2002-03 mere fact that the claim of the assessee was not allowed by the Assessing Officer, cannot lead to the imposition of penalty. We also observe that from the orders of the authorities below and also on careful reading of the order of the Tribunal dated 23.10.09, we are unable to see any findings that the claim of the assessee pertaining to the written off amount advanced to M/s A.M. Overseas was false, bogus or baseless. Therefore, the factual position is that the assessee advanced loan to M/s A.M. Overseas of Rs. 25 lakh and subsequently, it was written off by the assessee in its books of accounts and the assessee made a claim in this regard which was disallowed by the Assessing Officer and when the matter was carried out upto ITAT, the addition was confirmed by the Tribunal. At the same time, we also observe that although the claim of the assessee pertaining to the written off amount was disallowed upto the level of the Tribunal but the same was never found bogus, false or baseless because the authorities below never doubted the genuineness of the transaction and accepted that the assessee advanced loan to M/s O.M. Overseas in which assessee's daughter and son-in-law were partners and assessee has no business connection with this firm. Under these circumstances, we hold that the Assessing Officer imposed penalty on wrong surmises and basis which was rightly deleted by the Commissioner of Income Tax(A) following the judgment of Hon'ble Apex Court in the case 11 ITA No. 4015/Del/2011 Asstt.Year: 2002-03 of Reliance Petroproducts Ltd. (supra). Thus, we are unable to find any perversity, ambiguity, or any other valid reason to interfere with the impugned order. On the basis of discussions made hereinabove, we uphold the impugned order by dismissing ground no. 1 to 4 of the revenue.

9. In the result, the appeal of the revenue is dismissed.

Order pronounced in the open court on 22.11.2013.

     Sd/-                                           Sd/-
(G.D. AGRAWAL)                                (CHANDRAMOHAN GARG)
VICE PRESIDENT                                   JUDICIAL MEMBER

DT. 22nd NOVEMBER 2013
'GS'

Copy forwarded to:-
  1. Appellant
  2. Respondent
  3. C.I.T.(A)
  4. C.I.T.
  5. DR                                             By Order

                                                    Asstt.Registrar