Income Tax Appellate Tribunal - Ahmedabad
Draft Air International, Ahmedabad vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A"
Before SHRI T K SHARMA,JM & SHRI A N P AHUJ A, AM
ITA no.2905/Ahd/2009
(Assessment Year:-2004-05)
Deputy Commissioner of V/s
Draft Air International
Income-tax, Circle-12, 1 s t A/401, Time Square
Floor, Narayan Chambers Building, B/h Pariseema, C
Ashram Road, Ahmedabad G Road, Ellisbridge,
Ahmedabad
PAN: AACFD 2183 M
[Appellant] [Respondent]
Revenue by :- Shri A K Patel, DR
Respondent by:- None
O R D E R
A N Pahuja: This appeal by the Revenue against an order dated 20- 07-2009 of the ld. CIT(Appeals)-XX, Ahmedabad, for the Assessment Year 2004-05, raises the following grounds:-
1. The Ld. CIT(A)-XX, Ahmedabad has erred in law and on facts in canceling the penalty of Rs.2,33,300/- levied u/s. 271(1)(c) of the Act, by the AO, without properly appreciating the facts of the case and the material brought on record by the AO.
1.2 In doing so, the Ld. CIT(A) has erred in law and on facts in holding that the assessee did not make palpably false or wrong claim, without appreciating the fact that the convertible foreign exchange of US$ 32000 was not brought in India within the stipulated time period was within the knowledge of the assessee and the action of the assessee in claiming deduction u/s. 80HHC in respect of the said amount which was not brought into India within the stipulated time period was clearly palpably false and wrong.
1.3 In doing so, the Ld. CIT(A) has erred in law and on facts in not appreciating that the assessee could not substantiate its claim for wrong deduction u/s. 80HHC of the Act by producing cogent or convincing evidence.
1.4 The Ld. CIT(A) has erred in law and on facts in canceling the said penalty without appreciating the ratio of the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Sohan Singh reported in 2 ITA no.2905/Ahd/2009 254 ITR 117, in which the Hon'ble Court has held that the assessee must offer an explanation to show that there was no fraud, gross or willful negligence involved in not returning the correct income in his return and it is not sufficient if any fanciful or totally untenable explanation is offered.
1.5 In doing so, the Ld. CIT(A) has erred in law and on facts in not appreciating the decision of Hon'ble Supreme Court in the case of Darmendra Textile Processors Ltd. Vs. CIT reported in 306 ITR 277 (SC) in which the Hon'ble Apex Court has held that the penalty u/s.
271(1)(c) is a civil liability and willful concealment is not an essential ingredient for attracting the civil liability.
2. On the facts and in the circumstances of the case, the Ld. CIT (A) ought to have upheld the order of the A.O.
3. It is, therefore, prayed that the order of the CIT(A) be set aside and that of A.O. be restored to the above extent."
2 None appeared before us on behalf of the assesse nor any request for adjournment has been received. Considering the nature of issue, we, therefore, decided to dispose of the appeal after hearing the learned Departmental Representative.
3 Adverting first to Ground nos. 1 to 1.5 in the appeal, facts, in brief, as per relevant orders are that return declaring income of Rs.25,26,080/- filed on 27-10-2004 by the assessee, exporting humidification and ventilation systems, after being processed u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as the "Act"] was selected for scrutiny with the issue of a notice u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that the assessee did not bring in the export proceeds of Rs. 14,72,000/- equivalent to 32000 US dollars[20,000+12,000] as per bills dated 27.7.2003 & 30.12.2003 within the stipulated period of six months to India nor submitted any permission of the RBI or competent authority, granting extension of the stipulated period. Accordingly, the AO excluded an amount of Rs. 14,72,000/- from the export turnover while computing deduction u/s 80HHC of the Act, resulting in determination of total income 2 3 ITA no.2905/Ahd/2009 Rs.31,76,380/-.Besides the AO concluded that interest on FDR and RD account do not have any nexus with exports and accordingly excluded 90% of the amount of Rs.4,90,995/ from the profits of the business. Moreover, 1/6th of the vehicle and telephone expenses were also disallowed. Inter alia, penalty proceedings u/s 271(1)(c) of the Act were also initiated.
3.1 On appeal, the ld. CIT(A) upheld the findings of the AO on the ground that the remittance received by the assessee in respect of both the aforementioned transactions were not within the statutory period of six months as per provisions of section 80HHC(2)(a) of the Act and therefore, the A.O. was justified in excluding the sales proceeds of Rs.14,72,000/- out of total export sales. The disallowance of 1/6th of the vehicle and telephone expenses was also upheld.
3.2 After the receipt of appeal order of the ld. CIT(A), in response to a show cause notice before levy of penalty, the assesse did not furnish any reply .Accordingly , invoking explanation 1 to sec. 271(1)(c) of the Act and referring to decisions in Dharmendra Textile Processors,306 ITR 277(SC);294 ITR 322 ( Kar), 292 ITR 86 (Kar.),279 ITR 80(Ker.);277 ITR 429 (Del);277 ITR 209(All);251 ITR 99 (SC) ;238 ITR 415 (Guj); 236 ITR 977 (SC);214 ITR 32 (Guj.) and 205 ITR 244 ( SC ), the AO imposed a penalty of Rs.2,33,300/- u/s.271(l)(c) of the Act on the ground that the assessee failed to furnish the correct and complete particulars of his income and concealed the particulars of income and that the mistake was not bonafide .
4. On appeal, the learned CIT(A) cancelled the penalty in the following terms:-
"2.2 Before me, the Id. Counsel for the appellant submitted that the Hon'ble Gujarat High Court in the case of New Sorathia Engineering Co. vs. CIT 282 1TR 642 (Guj) held that no penalty can be levied for both default simultaneously i.e. for concealment or for furnishing inaccurate particulars of income. He contended that in the penalty order, the Assessing Officer had stated that penalty is levied for the default of failure to furnish correct and complete particulars of income without reasonable 3 4 ITA no.2905/Ahd/2009 cause and for concealment of income. Hence on this ground penalty is required to be cancelled. It is claimed that the appellant had put up his claim u/s.80HHC on the basis of Auditors report in form No.1OCCAC. Hence, when claim is put on the basis of Auditors report and when there is any variance, addition may be made but penalty cannot be imposed. In support, the ld. Counsel of the appellant relied upon the following case decisions.
1. Prasad international Pvt. Ltd. vs. ITO (ITAT Ahmedabad "D" Bench)
2. CIT vs. Deep Tools 274 ITR 663 (P &H)
3. T. Ashok Pai vs. CIT 292 ITR 11 (SC)
4. BTX Chemicals vs. CIT 288 ITR 196 (Guj.)
5. CIT vs. Panavision Electronics P. Ltd, 264 ITR 710
6. Gordhandas Jethabhai 162 ITR 84 (Guj.) It is further stated that from Auditors report as well as details of sales furnished, it was apparent that there was full disclosure of material and hence even though the appellant's claim may be wrong no penalty can be levied u/s.271(1)(c) on such, reduction / rejection in claim. In support, the learned Counsel for the appellant relied upon the case of CIT Vs. Nath Bros Exim international 208 CTR (Del.), CIT Vs. International Audio Visual 208 CTR 328 (Del.), Smt. Kokilaben Pael vs. ITO (ITAT SMC Bench, Ahrnedabad), Orion Travels (P) Ltd. vs. CIT 87 TTJ 246 (ITAT Bombay Bench), National Textiles vs. CIT (Guj.) and Gopal Shetty vs. ITO 298 ITR 49 (Pune).
Accordingly, the Id. Counsel had stated that appellant has neither concealed the particulars of income nor furnished any inaccurate particulars of income attracting penalty u/s. 271(1)(c) of the I.T Act and therefore, penalty levied by the AO may kindly be cancelled.
2.3 I have considered the facts of the case and the submission filed alongwith case laws relied upon by the Id. Counsel of the appellant and Assessing Officer. It is seen that no penalty can be levied for a bonafide mistake and in this case it is not a case where the appellant has not disclosed full details at the time of assessment proceedings, it is clear that the appellant claimed deduction u/s.80HHC on the basis of Auditors report in Form No.10CCAC. The appellant had bonafide belief in respect of claim of deduction on the given set of facts and only due to the fact that the addition stood confirmed after rejection of explanation offered by the appellant at the appellate stage it would not automatically result into levy of penalty u/s.271(1)(c). As the penalty proceedings are entirely different from the assessment proceedings no penalty can be levied u/s. 271(1)(c) of the Act, unless it is established that there is dear concealment of income and / or filing of inaccurate particulars. The ratio on laid down in case of New Sorathia Engineering Co. vs. CIT (supra) relied by the learned Counsel for the appellant is squarely applicable to the facts of the present 4 5 ITA no.2905/Ahd/2009 case. In the said case, the Hon'ble Gujarat High Court held that no penalty can be levied for both default simultaneously i.e. for concealment or for furnishing inaccurate particulars of income. As the facts of this case reveal the bonafide belief and replies filed by the appellant cannot be termed as false or malafide and hence the appellant is not covered by Explanation-1 to Section 271(1)(c), The Assessing Officer has not established the case that assessee furnished a false reply or explanations which were not bonafide. Looking from another angle, even if the appellant believed that there were two possible views in deciding the chargeability of deduction u/s 80HHC, it has chosen one and has disclosed its view in the return of income and further explained the detailed basis for holding this view in proper terms. It cannot be held that assessee made a palpably false or wrong claim. In consideration of foregoing discussion, I have no hesitation to hold that assessee neither concealed particulars of income nor furnished such particulars which can be held to be inaccurate particulars with malafide intention, in light of the above facts and taking into consideration the various judicial pronouncements, I hold that the action of the AO in levying penalty u/s 271(1)(c) in this case is not justified and the penalty levied is directed to be cancelled."
5 The Revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). The learned DR supported the order of the AO while referring to the grounds of appeal and decisions mentioned therein.
6. W e have heard the learned DR and gone through the facts of the case. As is apparent from the aforesaid facts, the assessee claimed deduction u/s 80HHC of the Act on the basis of report of the CA in form no. 10CCAC ,indicating total export turnover of Rs.3,14,58,848/-.However, the AO on verification found that sale proceeds in respect of bill dated 27.7.2003 for US dollars 20,000/- and bill dated 30.12.2003 for US dollars 12,000/- were not received within the stipulated period of six months nor any approval was sought for extension of time from the competent authority. Accordingly, deduction u/s 80HHC of the Act was reduced by excluding the aforesaid amount of 32,000/- US dollars(Rs.14,72,000) from the export turnover besides excluding 90% of the interest on FDR and RD account from the profits of business. Consequently, penalty proceedings u/s 271(1)(c) of the Act were initiated .In the 5 6 ITA no.2905/Ahd/2009 assessment order, it is nowhere specified as to whether penalty proceedings were initiated for concealment of particulars of income or furnishing inaccurate particulars thereof. On appeal, initially the ld. CIT(A) and later the ITAT upheld the findings of the AO in their order dated 4.3.2011 in ITA no.219/Ahd./2009. Meanwhile, the AO levied a penalty of R.2,33,300/- u/s 271(1)(c) of the Act vide his order dated 19.3.2009 6.1 The ld. CIT(A) in the impugned order concluded that it is not a case where the assessee has not disclosed full details at the time of assessment. In terms of provisions of sec. 80HHC(4) of the Act, the deduction is not admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as def ined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. The assessee in the instant case merely made a bonafide claim for the deduction in terms of the said certificate. If in the process, interest was not excluded from the profits of the business or the factum of sale proceeds of exports not received within the stipulated time, was not considered by the Chartered Accountant, the assessee could not be faulted. Even otherwise the AO in the assessment order has not specified as to whether the assessee concealed the particulars of income or furnished inaccurate particulars thereof while in his penalty order on page 2 , the AO mentions that that the assessee filed inaccurate particulars for claiming the deduction whereas on page 3 , it is mentioned that the assessee failed to furnish the correct and complete particulars of his income and concealed the particulars of income. Not even a whisper has been made in the penalty order as to which specific particulars were furnished inaccurate or were concealed. The expression 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271 or elsewhere in 6 7 ITA no.2905/Ahd/2009 the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word "conceal" means:
"to hide or keep secret. The word 'conceal' is con+celare which implies to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of ; to withhold knowledge of. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income- tax authorities."
In W ebster's Dictionary, "inaccurate" has been defined as :
"not accurate, not exact or correct; not according to truth; erroneous ; as an inaccurate statement, copy or transcript.".
6.2. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is well settled that assessment proceedings and penalty proceedings are separate and distinct and as held by Hon'ble Supreme Court in the case of Ananthraman Veerasinghaiah & Co. Vs. CIT, 123 ITR 457, the findings in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is also well settled that the criterion and yardsticks for the purpose of imposing penalty u/s 271(1)(c) of the Act are different than those applied for making or confirming the additions. It is, therefore, necessary to reappreciate and reconsider the matter so as to find out as to whether the addition or disallowance made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in sec. 271(1 )(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions. The provisions of section 271(1)(c) of the Act stipulate that if the Assessing Officer or the CIT(Appeals) or the Commissioner, in the course of proceedings under this Act, is satisfied that any person 7 8 ITA no.2905/Ahd/2009 has concealed the particulars of his income or furnished inaccurate particulars thereof , he may direct that such person shall pay by way of penalty a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by a reason of the concealment of particulars of his income. Explanation 1 to section 271(1)(c) of the Act mentions that where in respect of any facts material to the computation of the total income of any person under the Act, such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT (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 purpose of clause (c) of section 271(1), be deemed to represent the income in respect of which particulars have been concealed. In other words, the necessary ingredients for attracting Explanation 1 to section 271(1)(c) are that
(i) the person fails to offer the explanation, or
(ii) he offers the explanation which is found by the AO or the CIT (Appeals) or the Commissioner to be false, or
(iii) the person offers 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 have been disclosed by him.
6.3 If the case of any assessee falls in any of these three categories, then the deeming provision provided in Explanation 1 to section 271(1)(c) come into play, and the amount added or disallowed in computing the total income shall be considered as the income in respect of which particulars have been concealed, for the purposes of clause (c) of section 271(1), and the penalty follows. On the other hand, if the assessee is able to offer an explanation, 8 9 ITA no.2905/Ahd/2009 which is not found by the authorities to be false, and assessee has been able to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him, the assessee shall be out of the clutches of explanation 1 to section 271(1)(c) of the Act, and in that case, the penalty shall not be imposed. In the instant case, the assesse did not reply to the showcause notice issued by the AO. Hon'ble Supreme Court in the case of Dilip N. Shroff v. Jt. CIT [2007] 210 CTR (SC) 228 : [2007] 291 ITR 519 (SC) while considering the scope of these provisions u/s 271(1)( c) of the Act observed in the following terms:
"The legal history of section 271(1)(c) of the Act traced from the 1922 Act prima facie shows that the Explanations were applicable to both the parts. However, each case must be considered on its own facts. The role of the Explanation having regard to the principle of statutory interpretation must be borne in mind before interpreting the aforementioned provisions. Clause (c) of sub-section (1) of section 271 categorically states that the penalty would be leviable if the assessee conceals the particulars of his income or furnishes inaccurate particulars thereof. By reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Levy of penalty is not only discretionary in nature but such discretion is required to be exercised on the part of the Assessing Officer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been noticed in some of the decisions of this court, inheres on the face of the statutory provisions. Penalty proceedings are not to be initiated, as has been noticed by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective.
....................................................................................... The term "inaccurate particulars" is not defined. Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the Explanations are taken recourse to, a finding has to be arrived at having regard to clause (A) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, 9
10 ITA no.2905/Ahd/2009 apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all the facts which was material to the computation of his income."
6.4 In the light of aforesaid observations of the Hon'ble Apex Court , what is to be seen in the instant case, is whether the claim for deduction u/s 80HHC of the Act on the basis of certificate of the accountant made by the assessee was bona-fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty u/s 271(l)(c) of the Act. The Assessing Officer has not been able to establish that the claim of the assessee for deduction under sections 80HHC was not bona fide. A mere rejection of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars thereof by the assessee.. In the case under consideration, there is nothing to suggest that the assessee furnished any inaccurate particulars or concealed the particulars . If export turnover was shown incorrectly by the CA or 90% of interest on FDR and RD account was not excluded from the profits of the business, it was the mistake of the Chartered Accountant determining the deduction u/s 80HHC of the Act. Admittedly, the claim for deduction u/s 80HHC was duly supported by the certificate of the chartered accountant in the prescribed form. In this view of the matter, no fault can be found with the claim of the assessee that it had claimed the deduction in a bona fide manner. In similar circumstances. Hon'ble Punjab and Haryana High Court cancelled the penalty levied in respect of disallowance of deduction u/s.80I in the case of CIT Vs. SD Rice Mills, 275 ITR 206 (P&H). Similar view was taken in ACIT vs. Arisudana Spinning Mills Ltd.,19 DTR1(Chd.) and Model Footwear P Ltd. vs. ITO,124 ITD 353(Del.) Moreover, mere fact that the report prepared by the CA in form 10CCAC was not in accordance with the provisions of section 80HHC(4) of the Act, was not enough to hold that the mistake was 10 11 ITA no.2905/Ahd/2009 not bona fide. This view is supported by the decision in the case of CIT Vs. Deep Tools Pvt. Ltd., 274 ITR 603 (P&H),where in also levy of penalty was held to be unjustified. A similar view was taken in CIT vs. Caplin Point Laboratories Ltd.,293 ITR 524(Mad.) 6.5 As regards decision in the case of Sohan Singh(supra) cited in the grounds of appeal, the said decision relates to the AY 1963-64. In the said case of an assessee ,an individual , the assessment was reopened under section 147 and the AO clubbed the income of the firm with the income of the assesse on the ground that the income of the partnership was really that of the assessee. The partnership was constituted as evidenced by a deed of partnership dated December 7, 1961, with two partners, namely, S and SS. Three minor were the children of the assessee. Income of the firm was assessed, but such assessment was made on protective basis as the Income-tax Officer was of the view that the firm was a benami concern of the assessee. AAC also refused the relief in appeal. On further appeal Tribunal confirmed AO action. Penalty under section 271(1)(c) was imposed and the Tribunal cancelled the penalty without examining the matter in the background of the Expl. 10 section 271(1)(c) of the Act. Hon'ble High Court found that the findings of the ITAT in quantum appeal were at variance with their findings in penalty appeal. In the quantum appeal , the Tribunal noted that the mere fact that registration was granted does not stand in the way of coming to the conclusion that the firm was a benami concern of the assessee. W ith reference to the materials brought before it, the Tribunal had come to a definite conclusion about the benami character. In the penalty appeal ,the tribunal itself proceeded on the basis that no positive evidence about the flow of capital invested by the partners was on record and so far as the enjoyment of the profits was concerned there was also no positive evidence to show that the profits were enjoyed by the assessee. Hon'ble High Court observed that these conclusions were at variance with those recorded by the Tribunal in the appeal relating to the assessment. The onus lies on the assessee to prove that there was no fraud, gross or willful negligence which can be 11 12 ITA no.2905/Ahd/2009 attributed to the assessee. This was the initial onus which lay on the assessee. Accordingly, the Hon'ble High Court remanded the case to the Tribunal with the directions to decide matter afresh keeping in view the relevant provision, the tribunal having not examined the background of the Explanation to section 271(1)(c) of the Act, operative at the relevant point of time, in its proper perspective. But such are not the facts and circumstances in the instant case.As already stated , the assessee claimed deduction u/s 80HHC of the Act on the strength of a prescribed certificate of the CA while the AO computed the deduction differently on the basis of material on record, adopting different interpretations in the light of decisions of the Courts. There is no finding in the assessment order as to the concealment of particulars of income or furnishing inaccurate particulars thereof. Thus, reliance on the aforesaid decision is totally misplaced .
6.6 Likewise, the decision in the case of Dharmendra Textile Processors Ltd. vs. CIT 306 ITR 277 (SC), is not relevant to the issue before us. In the said decision, Hon'ble Apex Court held that the explanations appended to s. 271(1)(c) of the Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The penalty under that provision was a civil liability and wilful concealment was not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under s. 276C of the IT Act. How this decision is relevant in the facts and circumstances of the instant case, has not been explained by the ld. DR.
6.7. In view of the foregoing, we are of the opinion that mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especially when there is nothing on record to show that any material particulars were concealed or furnished inaccurate . In these circumstances, we 12 13 ITA no.2905/Ahd/2009 are of the opinion that levy of penalty is not justified. Consequently, we have no hesitation in upholding the findings of the ld. CIT(A). Therefore, ground nos.1 to 1.5 to in the appeal are dismissed.
7. Ground nos. 2 & 3 in the appeal being mere prayer nor any submissions having been made before us on these grounds, do not require any separate adjudication and are, therefore, dismissed.
8. In the result, appeal is dismissed.
Order pronounced in the court today on 3 -06-2011
Sd/- Sd/-
(T K SHARMA) (A N P AHUJ A)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 3 -06-2011
Copy of the order forwarded to:
1. Draft Air International A/401, Time Square Building, B/h Pariseema, C G Road, Ellisbridge, Ahmedabad
2. Deputy Commissioner of Income-tax, Circle-12, Ahmedabad
3. CIT concerned
4. CIT(A)-VI, Ahmedabad
5. DR, ITAT, Ahmedabad Bench-A, Ahmedabad
6. Guard File BY ORDER Deputy Registrar Assistant Registrar ITAT, AHMEDABAD 13