Income Tax Appellate Tribunal - Chennai
Shriram Transport Finance Co. Ltd., ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH, CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A Nos.1887 & 1852/Mds/2011
(Assessment years : 2005-06 & 2006-07 )
The ACIT vs M/s Shriram City Union
Company Circle-VI(2) Finance Ltd
Chennai Mookambiga Complex
No.4 Lady Desika Road
Mylapore
Chennai 600 004
[PAN AACCS7703H]
(Appellant) (Respondent)
Appellant by : Shri R.B.Naik, CIT/DR-II
Respondent by : Shri R. Kumar, Advocate
Shri R.Sivaraman, Advocate
Date of Hearing : 17 & 18-01-2012
Date of Pronouncement : 24-01-2012
I.T.A Nos.1885 & 1886/Mds/2011
(Assessment years : 2005-06 & 2006-07 )
The ACIT vs M/s Shriram Transport Finance
Company Circle-VI(2) Co. Ltd
Chennai Mookambiga Complex, 3rd Floor
No.4 Lady Desika Road
Mylapore
Chennai 600 004
[PAN AAACS7018H]
(Appellant) (Respondent)
:- 2 -: ITA 1887 & 1852/11
1885 & 1886/11
1888/11
I.T.A No.1888/Mds/2011
(Assessment year : 2005-06 )
The ACIT vs M/s Shriram Investment Ltd
Company Circle-VI(2) Mookambiga Complex, 3rd Floor
Chennai No.4 Lady Desika Road
Mylapore
Chennai 600 004
[PAN AAACS4041G]
(Appellant) (Respondent)
Appellant by : Shri R.B.Naik, CIT/DR-II
Respondent by : Shri R.Sivaraman, Advocate
Date of Hearing : 17-01-2012
Date of Pronouncement : 24-01-2012
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
As exactly identical issues are involved in the above captioned appeals, we proceed to decide them by a common order for the sake of convenience and brevity. First we will take up the case of M/s Shriram Transport Finance Co. Ltd., in I.T.A.No.1885/Mds/2011 for assessment year 2005-06, which is directed against the order of the ld.CIT(A)-V, Chennai, dated 25.08.2011.
2. Briefly stated, the facts of the case are that this assessee is engaged in the business of conducting hire purchase finance, leasing :- 3 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 and investment. The company filed its return of income for the assessment year 2005-06 admitting total income of `34,25,13,310/-.
The assessee declared book profit u/s 115JB of ` 67,86,89,000/-.
Regular assessment was completed u/s 143(3) on 28.12.2007 on an assessed total income of ` 64,23,01,450/-. In this assessment order several additions were made against which the assessee preferred appeal before the ld.CIT(A). The ld.CIT(A), vide order dated 24.12.008 upheld the additions made under the head 'Amount transferred to Statutory Reserve of ` 7,55,53,760/-'. After receiving this order, the Assessing Officer further initiated penalty proceedings u/s 271(1)(c) of the Act in the assessment order itself.
3. In fact, the assessee has claimed ` 7,55,53,760/- being the amount transferred to Statutory Reserve as per section 45IC of the RBI Act. The Assessing Officer demanded explanation from the assessee as to why this amount should not be disallowed because it was only an application of income and RBI guidelines cannot override the income-tax provisions against which the assessee submitted a detailed reason as under:
:- 4 -: ITA 1887 & 1852/111885 & 1886/11 1888/11
i) Section 45 IC in chapter III B of RBI act requires every NBFC to create a reserve fund and transfer therein a sum not less than 20% of its net profit every year as disclosed in the P&L account and before any dividend is declared.
ii) No appropriation of any sum from the reserve fund shall be made by the NBFC except for the purpose as may be specified by the bank from time to time and every such appropriation shall be reported to the bank within twenty one days from the date of such withdrawals.
iii) These provisions are to be mandatorily followed and they override the provisions of the other laws.
iv) As per Sec. 45IC (2) the amount transferred to Reserve Fund cannot be appropriated by the company for any purpose other than those that may be prescribed from time to time. As such the -incorne gets diverted from the company at the threshold itself.
v) In view of the RBI direction which has statutory binding 20% of the net profits cannot form part of the real income of the company. The company loses control over this part of its income from the beginning. This portion of its income has to be kept in a separate fund and the company has to abide by the directions that the RBI may give regarding its utilisation. His income does not form part of companies' income.
vi) It cannot be considered as an application of income,. What has to be considered is the nature of the obligation by reason of which income goes out of the control of the company. The obligation created by the RBI regulation results in the income becoming not capable of being utilised by the company at its will. It effectively slices away a part of the corpus of the right of the company to have the entire income. Only when the obligation is self-imposed or gratuitous, it can be a case of application of income.
vi) This is an expenditure laid out wholly and exclusively for the purpose of their trade and business and is necessary for the purpose of keeping our trade going and for making it to pay. If we do not comply with the provision of RBI Act, we cannot carry on our business. Thus this is an expenditure incurred wholly or exclusively with a view to preserving and carrying on the business and such expenditure is a permissible deduction :- 5 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 as per Sec. 37. This is an expenditure which we have incurred on the ground of commercial expediency also to preserve the business. In these circumstances it is submitted that the amount transferred to the reserve fund is an allowable expenditure. Assessee relied on the I TAT , New Delhi bench decision in the case of TEDCO Investment& Financial Services (P) Ltd and ITAT Bangalore bench decision in the case of Can fin Homes Ltd Vs JCIT (Asst) Spl Range 6."
4. After considering this explanation, the Assessing Officer observed that this income has been kept in reserve after receiving the same by the company and this is not allowable u/s 37 of the Act because the assessee has not spent the money and the same is still lying with it. Accordingly, the amount set apart by the assessee towards Statutory Reserve Fund was disallowed and added to the income of the assesse. While replying to notice issued u/s 271(1)(c) r.w.s 274 of the Act , the assessee filed a detailed reply as under:
"It has been stated therein that the addition made in the assessment in respect of the amount of ` 7,55,53,760/- transferred to Statutory Reserve Fund and claimed as deduction from the Profit while filing the return of income has been confirmed by the ld.CIT(A) in his order dated 24.12.08 received by you on 18.08.09. in view of the above, you have directed us to show cause why penalty u/s 271(1)(c) of the Act should not be imposed in respect of additions made by the Assessing Officer in the assessment order.
3. We submit that we had filed an appeal to the Appellate Tribunal against the order of the CIT(A) confirming the addition of amount transferred to Reserve Fund as per RBI Act ` 7,55,53,760/-. The Appellate Tribunal in its order in I.T.A.No. 235/Mds/2009 dated 16.7.2009 has dismissed our appeal. We have however filed an appeal in the High Court :- 6 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 of Judicature at Madras against the order of the Appellate Tribunal and the same has been admitted by the Hon'ble High Court on 02.02.2010 as TCA No.1264/2009. A copy of the Memorandum of Appeal u/s 260A of the Act is enclosed for your reference.
4. We submit that we have neither concealed the particulars of income nor furnished inaccurate particulars warranting levy of penalty u/s 271(1)(c) in respect of this amount of ` 7,55,53,760/-. As per the Profit & Loss Account filed alongwith the return for the assessment year 05-06, the profit before tax is ` 37,77,68,800/-. This profit includes the sum of ` 7,55,53,760/- transferred to statutory reserve as per the provisions of RBI Act. The transfer has been disclosed under the head 'appropriation' in the Profit & Loss Account. In the adjustment statement for income tax, we have proceeded to compute the taxable income starting from the profit as per Profit & Loss Account ` 37,77,68,800/- . We have made a claim for deduction of amount of ` 7,55,53,760/- in the adjustment statement with a note as under:
"Amount transferred to statutory reserve as per section 45IC of the RBI Act ` 7,55,53,760/- is claimed as deduction since it is a statutory diversion and in view of the overriding provision of section 45Q of the RBI Act.
Thus, we have neither concealed this amount nor furnished inaccurate particulars in respect of this amount. There is a full and true disclosure of the income. We have only claimed this amount as deduction under an honest and bonafide belief that it is not taxable since we are deprived of this income as per the statutory provision of the RBI Act. Simply because our claim has not been accepted, and addition has been made, it does not follow that a penalty u/s 271(1)(c) is attracted.
5. The essential ingredients for levy of penalty u/s 271(1)(c) is that there should be a concealment of income or furnishing inaccurate particulars of income. Both these ingredients are absent in our case. We submit that in a number of cases, it has been held that when full facts and details have been furnished, but the Assessing Officer :- 7 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 disallows a claim for deduction, it cannot be considered as concealment of income and penalty u/s 271(1)(c) cannot be levied. We bring to your kind notice the following decisions of the appellate authorities and High Courts in support of this proposition:
a) ITO VS GACL Finance Ltd (30 SOT 360) AT Mumbai In this case the assessee claimed certain loss from trading of shares. The Assessing Officer held it to be speculation loss under the deeming provisions of Explanation to section
73. He levied penalty u/s 271(1)(c). The CIT 'A ' cancelled the penalty holding that the assessee had disclosed all material facts and it was only under deeming provision that the loss was treated as speculation loss. In para 6.13, 6.14 & 6.15 of the order, the Appellate Tribunal has held :
"6.13 After furnishing particulars regarding calculation of income, as stated above that the assessee has right to claim exemption and deduction, according to him which are as per law. The Assessing Officer while discharging his duty allow or disallow assessee's claim and arrived at a different figure of total income then the total income declared by the asessee that case cannot be said to be a case of furnishing inaccurate particulars or concealing of particulars of income.
6.14 "In the light of the above discussion, if we consider the facts of the case under consideration, we find that the assessee has claimed loss from trading of shares and furnished all the relevant materials. The Assessing Officer treated the said loss under Explanation to section 73 and treated the said loss as deemed speculation loss and levied penalty under section 271(1)(c). The CIT(A) cancelled the said penalty by holding that the assessee has disclosed all the material facts and it was only under a deeming provisions that the loss was to be treated as speculative loss. The CIT(A) has cancelled the penalty after considering the facts on merit of the case. He has not cancelled the penalty on the ground of 'wilful' concealment or on the ground of 'mens rea: Thus, the law laid down by the Apex Court in the case of Dharamendra Textiles Processors (supra) does not help to the revenue. As said above that the CIT (A) has decided the case on facts and we also decide this case :- 8 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 considering the totality of the case with reference to above discussions, we find that it is simple case of fighting in between duty and rights which automatic do not amount to a case of concealing particulars or furnishing inaccurate particulars of income, neither there is finding of the Assessing Officer that explanation furnished by the assessee is found to be false.
6.15 view of the said discussion and in the totality of the facts of the case, in our considered view it is not a fit case for levy of penalty under section 271(1)(c). Therefore, we uphold the order of the CIT(A) on this count."
b) Mimosa Investments Co.(P) Ltd vs ITO (28 SOT 470) AT Mumbai.
In this case, the appellate Tribunal held as under:
"We find that the assessee has disclosed all the relevant material facts for the purpose of computation of total income. We also find that the assessee has offered explanation in this regard, which was not found false by the Assessing Officer. The explanation of assessee regarding claim of interest expenditures is bona fide. The assessee has substantiated his explanation. When the assessee has furnished all the material facts for the purpose of computation of total income the Assessing Officer is duty bound to calculate correct total income in accordance with law, which may be different than the total income calculated by the assessee. Mere fact that the Assessing Officer while discharging his duty is recalculating the total income - in accordance with law which is not the same as calculated by the assessee, it cannot be held that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income or there is a deemed concealment in accordance with Explanation 1 to section 271(1).":- 9 -: ITA 1887 & 1852/11
1885 & 1886/11 1888/11
c) CIT, Karnal vs Amarnath 173 Taxmann 395 P&H In this case, the assessee had made a claim of exemption u/s 36 on profit on sale of certain shares. The ITO held that the claim was wrong and levied penalty u/s 271(1)(c). it has been held by the High Court that in view of the facts that the assessee had claimed deduction under a bona fide belief that he was entitled to said deduction on the basis of legal advice given by his counsel; and that he had furnished all details relating to capital gains alongwith return of income, it could not be held that there was any malafide intention to conceal income; and penalty u/s 271(1)(c) cannot be levied.
d) CIT vs Lotus Trans Travels (P) Ltd, 177 Taxmann 37 Delhi) In this case the assessee had included interest income in the business income for the purpose of deduction u/s 80HHD. This was not allowed by the Assessing Officer and penalty u/s 271(1)(c) was levied. The appeal regarding assessment was pending in the High Court. Regarding penalty, the Appellate Tribunal returned a finding that the claim for deduction u/s 80HHD was bona fide being based on adoption of the one of the possible views. The Tribunal also found that the assessee had furnished all the material facts relevant to the claim and, therefore, it cannot be said that the assessee had concealed income by furnishing inaccurate particulars so as to attract penalty u/s 271(1)(c). The fact that the claim of the assessee was not finally accepted in the quantum proceedings before the Tribunal would not by itself be a ground for justifying the imposition and levy of penalty u/s 271(1)(c) of the Act. The Tribunal cancelled the levy of penalty and this was upheld by the High Court.
:- 10 -: ITA 1887 & 1852/111885 & 1886/11 1888/11
e) Kanbay Software India (P) Ltd vs The Dy. CIT , 31 SOT 153 Pune.
i) The decision of Supreme Court in the case of Union of India vs Dharmendra Textile Processors does not lay down the proposition that a penalty u/s 271(1)(c) is an automatic consequence of an addition made to the income.
ii) The proposition that since penalty 271(1)(c) is a civil penalty, it means that penalty can be automatically levied on the basis of any addition to income is not correct.
iii) Admission or rejection of claim is a subjective exercise; whether a claim is accepted or rejected has nothing to do with furnishing inaccurate particular of income.
iv) Raising a legal claim, even if it is ultimately found to be unacceptable cannot amount to furnishing inaccurate particulars of income.
f) CIT vs Caplin Point Laboratories Ltd, 172 Taxmann 279 (Mad) In this case, where a claim of deduction u/s 80HHC and 80I had been disallowed and penalty u/s 271(1)(c) was levied, CIT(A) allowed the appeal holding that the Assessing Officer has not proved that the assessee's claim for deduction was not bonafide and there is no case for levy of penalty. The cancellation of penalty was upheld by the appellate Tribunal and the High Court has also confirmed this.
6. We also invite your kind reference to the decision of the Supreme Court in the case of CIT vs Reliance Petro Products(P) Ltd, 322 ITR 158 which supports our contention that penalty u/s 271(1)(c) is not attracted to the facts of our case.
7. All these decisions are applicable on the facts of our case. To sum up, we submit that we have made a full and true disclosure of our income and made a claim for deduction of amount transferred to Reserve Fund as per the statutory requirement of RBI Act; that this was a bonafide :- 11 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 legal claim and was not a fallacious or flippant claim; that the fact that our appeal u/s 260A has been admitted by the Chennai High Court shows that there is a genuine legal point involved; and that in these circumstances, by no stretch of imagination, it can be considered that we have concealed our income or furnished inaccurate particulars of income.
8. Finally, we bring to your kind notice the decision of the Hon'ble Appellate Tribunal Chennai 'Ç' Bench in our case itself for the assessment year 2003-04 in I.T.A.No. 1000/Mds/2010 dated 20.01.11 where penalty levied u/s 271(1)© in respect of deduction claimed for amount transferred to statutory reserve fund was cancelled by CIT(A) and such cancellation has been upheld; and the Department's appeal has been dismissed. We request that the reasonings given by the Hon'ble Tribunal for dismissing the Department's appeal in these orders may please be taken as part and parcel of our reply in the present penalty proceedings for the assessment year 2005-06.
9. In these circumstances we submit that penalty u/s 271(1)(c) is not leviable in respect of the amount transferred to Reserve Fund."
10. After considering the above submissions, the Assessing Officer has found that the amount transferred to 'Statutory Reserve' cannot be claimed as a deduction and it cannot be a bonafide claim of the assessee as the assessee-company has claimed the amount which is not deductible as per law and hence, he has held that inaccurate particulars of income has been deliberately filed to reduce the taxale income. Accordingly, penalty u/s 271(1)(c) of the Act was levied against which the assessee preferred appeal and the ld.CIT(A) has :- 12 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 deleted this penalty after following the Tribunal's order rendered under identical circumstances in the assessee's group company's case. Now the Revenue is aggrieved and has raised the following grounds:
"1. The order of the learned CIT(A) is contrary to law and facts of the case.
2.1 The Ld. CIT(A) erred in deleting the penalty levied u/s 271 (1 )(c) of ` 2,76,47,009/-
2.2 The Ld. CIT(A) relied on the orders of the Hon'ble ITAT in the assessee's own case In ITA No. 1000/Mds/2010 dt. 20.01.2011 and then CIT(A)'s order in ITA No. 100/2009-10 for the Asst. Year 2003-04.
2.3 It is submitted that the CIT(A) 's order relied upon the ITAT's order in the assessee's case for the Asst.Year 2003- 04 has not become final and appeal to the High Court have been preferred by the Department.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored."
11. We have considered the rival submissions and have perused the entire material available on record. It was argued by the ld. A.R, Shri R.Sivaraman that penalty u/s 271(1)(c) of the Act can be levied only in case the assessee has either concealed the particulars of income or has furnished inaccurate particulars of income. According to the ld. A.R, a claim which the assessee-company has bonafide belief that this deduction is allowable and that is why it was pursuing the :- 13 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 matter further before the higher forums therefore, it is not a fit case for levy of penalty u/s 271(1)(c) of the Act. Per contra, the ld.CIT/DR argued that the impugned addition on which penalty u/s 271(1)(c) of the Act has been levied has been confirmed even by the Tribunal in the quantum appeal and therefore, it has been proved that the assessee has made a wrong claim which is not allowable as per law and hence, this is a case where inaccurate particular of income has been filed by the assesse inviting levy of penalty u/s 271(1)(c) of the Act.
12. Regarding the Tribunal's order rendered under identical circumstances in assessee's group cases, it was argued that these orders have been subjected to further appeal by the Revenue.
13. We have cogitated the entire records. We have also gone through the decisions relied before us. We have carefully treaded through the provisions and precedents relevant on this subject. There are no two opinions about the settled position of law that regular assessment proceedings and penalty proceedings are two entirely different subjects which operate in distinct and separate spheres so much so that entirely different parameters are applicable for making quantum addition and for levying penalty under section 271(1)(c) of :- 14 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 the Act. There can be no dispute with regard to the position of law that under section 271(1)(c) penalty can be levied only if either the act of "concealment of particulars of income" or "furnishing of inaccurate particulars of income" is found to have been committed by the assessee. These are two different omissions or defaults albeit they refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of either suppressio veri or suggestio falsy. By the mere reason of such concealment or of furnishing of inaccurate particulars alone, the assessee does not, ipso facto, become liable to a penalty. Imposition of penalty is not at all automatic. Meaning thereby, any addition in quantum would not lead to automatic levy of penalty and this is also true in respect of furnishing of inaccurate particulars of income. Not only is the levy of penalty discretionary in nature but the discretion has to be exercised keeping the relevant factors in mind and the approach of the taxman must be fair and objective. In this case, the assesse, in fact, has not hidden any income or any particulars of income. The assessee has declared certain amounts under the head 'Amount transferred to Statutory Reserve' and has claimed that this claim of deduction has been made under honest and bonafide interpretation of this statutory provision of section 45IC and 45Q of the RBI Act. In our considered :- 15 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 opinion, by making a claim of deduction of this amount even if it is held time and again by the Assessing Officer to be not deductible and assessee having been entertaining a legal opinion that such a deduction is allowable, by no stretch of imagination, it can be said that this act of the assessee amounts to furnishing of inaccurate particulars of income. It is apparent that assessee has not hidden any particulars of income. The assessee had made full disclosure of its income and under a bonafide belief it has claimed the deduction on the basis of provisions of RBI Act and Income-tax Act. The decisions relied on by the assessee including that of the Hon'ble Madras High Court rendered in the case of CIT vs Caplin Point Laboratories Ltd, 172 Taxman 279 Mad., and that of Hon'ble Supreme Court rendered in the case of CIT vs Reliance Petro Products (P) Ltd, 322 ITR 158 wherein it has been held that penalty is not leviable in the case of disallowance of claim made on legal grounds when the facts have been fully disclosed, such as in the assessee's case. As stated above, parameters are applicable to quantum proceedings and penalty proceedings. Penalty proceedings are entirely different and the addition made by the Assessing Officer does not automatically lead to levy of penalty. The Chennai Bench of the Tribunal in the case of Shriram Investments Ltd.
In I.T.A.No.998/Mds/2010 and in assessee's own case in I.T.A.No. :- 16 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 1000/Mds/2010, for assessment year 2003-04, order dated 20.01.2011, has held under identical facts and circumstances that penalty u/s 271(1)(c) of the Act in respect of the amount transferred to Statutory Reserve Fund as deductible has been held to be out of the purview of levy of penalty u/s 271(1)(c) of the Act. To be more specific, the Tribunal has held as under:
"4. We have considered the rival submissions and have carefully perused the entire records. Before we consider the factual matrix of this case to ascertain as to whether in the eyes of the provisions of the Act as explained by numerous judicial pronouncements, penalty can be levied in this case or not, we would like to discuss in nut shell the relevant legal position regarding levy of penalty u/s 271(1)(c) of the Act and as to how and when such penalty can be levied under this section. There are no two opinions about the settled position of law that regular assessment proceedings and penalty proceedings are two entirely different subjects which operate in distinct and separate spheres so much so that entirely different parameters are applicable for making quantum addition and for levying penalty under section 271(1)(c) of the Act. There can be no dispute with regard to the position of law that under section 271(1)(c) penalty can be levied only if either the act of "concealment of particulars of income" or "furnishing of inaccurate particulars of income"
is found to have been committed by the assessee. These are two different omissions or defaults albeit they refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of either suppressio veri or suggestio falsy. By the mere reason of such concealment or of furnishing of inaccurate particulars alone, the assessee does not, ipso facto, become liable to a penalty. Imposition of penalty is not at all automatic. Meaning thereby, any addition in quantum would not lead to automatic levy of penalty and this is also true in respect of furnishing of inaccurate particulars of income. Not only is the levy of penalty discretionary in nature but the discretion has to be exercised keeping the relevant factors in mind and the approach of the taxman must be fair and objective. This :- 17 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 subject has been a matter of great controversy. Finally, after referring to the decisions in the case of Dilip N. Shroff vs JCIT & Another, 291 ITR 519, Union of India vs. Dharmendra Textile Processors [2008] 13 SCC 369, as well as Union of India vs Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448, the Hon'ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt. Ltd, 322 ITR 158, has recently held as under:
"A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, 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. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. 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 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 liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.
Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271 (1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
5. Adverting to the facts of this case, we find that the assessee has neither concealed the particulars of income nor has furnished inaccurate particulars of income warranting levy of penalty u/s 271(1)(c) of the Act in respect of this amount of `4,75,00,000/- because in the Profit & Loss Account filed alongwith the return for assessment year 2003-04 the profit shown at ` 80 crores plus also includes :- 18 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 the sum of ` 4,75,00,000/- transferred to statutory reserves as per the provisions of RBI Act. This transfer has been disclosed under the head "apportioned" in the Profit & Loss Account. In the adjustment statement for income-tax, taxable income has been computed from the Profit & Loss Account. The assessee has clearly made a claim for deduction of the amount of ` 4,75,00,000/- in the adjustment statement with a 'note' extracted above. It is true that this claim has not been accepted even upto the Tribunal level and the assessee is in appeal against the sustained quantum additions but whatever is the case, the penalty proceedings operate in a different sphere because different parameters apply for levy or non-levy of penalty in contrast to the quantum additions which operate in an entirely different sphere. In case any legal or valid claim is made, which is not found to be correct by the authorities, it would not automatically lead to levy of penalty as discussed above. It is not a case where the assessee has not disclosed full and final facts rather it is the assessee who has disclosed this impugned amount but has claimed deduction thereof in the adjustment statement with the above 'note'. The ld.AR has relied on numerous decisions in support of his contention. The case of the Revenue is that this is a clear case of furnishing inaccurate particulars of income which the assessee has done with the aim to evade payment of tax. Before we discuss the cases relied on by the parties, we would like to mention that the assessee has made a full and true disclosure of income and has made a claim for deduction of ` 4,75,00,000/- transferred to statutory reserves as per the Statutory requirement of RBI Act. Hence, the assessee has made a bonafide legal claim which cannot be said to be fallacious or flippant and malafide. The impugned amount was transferred to the reserve fund as per the statutory requirement of RBI Act. This fact has not been disputed by the Revenue. The appeal against quantum sustained addition has been admitted by the Hon'ble Jurisdictional High Court by treating a substantial legal issue having been involved in the appeal. This factum in itself may not be a good guidance for coming to a conclusion but definitely this may be a arguable point from the side of the assessee. Be that as it may, we are of the considered opinion that in case a valid claim based on law is made by the assessee after disclosing full and true facts, and the same is rejected and :- 19 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 addition is made qua that amount, it would not tantamount to either concealment of income or furnishing of inaccurate particulars of income automatically. The Revenue is bound to establish its case which falls under either of the two conditions laid in section 271(1)(c) of the Act. The Revenue has relied on the following decisions:
The first decision of the Hon'ble Supreme Court relied on by the ld.DR in the case of CIT vs Reliance Petroproducts, has already been discussed by us which, in our opinion, supports the case of the assessee because it has been held therein that making an incorrect claim cannot by any stretch of imagination tantamount to furnishing inaccurate particulars of income. There is no finding by the Revenue that the details supplied by the assessee in its return are incorrect or erroneous or false. The assessee has made a claim which was not found to be sustainable in law and quantum addition has been made. So, it would not amount to furnishing of inaccurate particulars of income. The Court specifically rejected the Revenue's contention that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. The other decision relied on by the ld.DR is of Hon'ble Madras High Court rendered in the case of Aries Advertising, 255 ITR 510. In fact, this case does not relate to penalty proceedings and the ratio of the decision is that unclaimed balances written off and transferred to general reserves are assessable as income of the assessee chargeable to income-tax. Therefore, this case does not help the case of the Revenue in so far as penalty proceedings are concerned. The other decision relied on is in the case of Union of India & Others vs Dharmendra Textiles Processors and Others, 306 ITR 277(SC). This case is also not relevant for the present appeal because there is no issue regarding proof of mens rea. Moreover, this case was rendered in the case of Central Excise Act, 1944 and thereafter many other decisions have come whereby this decision has been diluted [UOI vs Rajasthan Spinning & Weaving Mills, 13 SCC 448, CIT vs Atul mohan Bindal, 317 ITR 1 (SC)]. The decision of Hon'ble Madras High Court in the case of T.N. Power Finance & Infrastructure Development Corporation vs JCIT, 280 ITR 491, relied on by the ld.DR is also on quantum additions :- 20 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 whereby it has been held that merely because the RBI had directed the assessee to provide for non-performing assets that direction could not override the mandatory provisions of Income-tax Act contained in section 36(1)(viia) of the Act which stipulate a deduction not exceeding 5% of the total income only in respect of the provision for bad and doubtful debts which are predominately revenue in nature or trade related and not for provision for non-performing assets which are of predominately capital nature. In such cases, the assessee is not entitled for deduction and as a matter of fact, the quantum addition has been confirmed even upto the Tribunal. But here we are concerned with different provision i.e section 271(1)(c) of the Act, which operates in an entirely different sphere and therefore, entirely different parameters are applicable to this penalty provision as discussed in the earlier part of the order.
6. In this case, the facts are simple. While computing the total income, the assessee being a non-banking finance company, registered with the RBI and therefore, bound by Chapter III of the RBI Act, it made a claim for deduction of the amount which it transferred, out of its profits chargeable to tax, to a reserve fund as mandated by section 45IC of the RBI Act and which could be utilized only for the purposes which the RBI may specify. Denial of claim for such a deduction can not ipso facto lead to levy of penalty. The Assessing Officer has summarily rejected the detailed submissions made by the assessee in reply to the penalty notice and proceeded to levy penalty stating that "by claiming deduction of the amount transferred to statutory reserve though not deductible, the assessee furnished inaccurate particulars of income and has deliberately reduced its tax liability." The assessee has neither concealed the income nor has furnished any inaccurate/false particulars for the purpose of claiming the deduction. There was no false statement of facts. The claim was not even disguised such as with a wrong description or a misleading or false label which the Assessing Officer had to unravel for making disallowance. As held by the Hon'ble Orissa High Court in the case of CIT vs Indian Metals & Ferro Alloys Ltd, 211 ITR 35, "The word conceal is derived from the latin concelare which implies to hide. Webster in his New International Dictionary equates its meaning to hide or withdraw from observation, to cover or keep from sight; to :- 21 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 prevent the discovery of; to withhold knowledge of. The offence of concealment is thus a direct attempt to hide an income or a portion thereof from the knowledge of the income-tax authorities. In furnishing its return of income, an assessee is required to furnish particulars and accounts on which such return income has been arrived at. These may be particulars as per its books of account, if it has maintained them, or any other basis upon which it had arrived at the returned figure of income. Any inaccuracy made in such books of account or otherwise which resulted in keeping off or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income." In this case, the assessee has disclosed all the facts and they are neither false nor inaccurate. The amount transferred u/s 45IC to reserve fund appears in the accounts filed. The assessee has given reasons for claiming the deduction. The claim made is on a particular understanding and interpretation of the relevant statutory provisions and Tribunal and court decisions. Whether the deduction claimed is allowable or not is a pure question of law and in fact the High Court has entertained the assessee's appeal u/s 260A of the Act on the ground that substantial questions of law are involved for its decision. Such a claim made in the case before us cannot amount to furnishing inaccurate particulars of income. After cogitating the entire facts of the case and basing them on the text of the penalty provisions with reference to the relevant precedents relied on by both the parties, we cannot allow Revenue's appeal.
7. For the foregoing reasons, we dismiss the appeal of the Revenue and confirm the cancellation of the impugned penalty levied u/s 271(1)(c) of the Act."
8. Accordingly, by following the above decision/order, we confirm the deletion of penalty u/s 271(1)(c) of the Act in this case.
9. Likewise, in all the other appeals except for the amounts of penalty being different, on the basis of additions made after disallowance of claim of deduction made under the head 'Amount :- 22 -: ITA 1887 & 1852/11 1885 & 1886/11 1888/11 transferred to Statutory Reserve Fund' and for which penalty proceedings u/s 271(1)(c) of the Act were initiated and penalties were levied. The facts, reasons for additions and the reasons for levying penalties are exactly similar. The stands of the parties are also the same in all other cases. Therefore, by following the similar reasoning, we uphold the impugned deletion and accordingly, dismiss all the appeals of the Revenue.
10. To summarize the result, all the appeals of the Revenue stand dismissed.
Order pronounced in the open court on 24.01.2012.
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 24th January, 2012
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR