Income Tax Appellate Tribunal - Mumbai
Sushmita Holdings Ltd, Mumbai vs Asst Cit 1(3), Mumbai on 12 July, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No.3014 /Mum/2015
(A.Y:1998-99)
Sushmita Holdings Limited Asst. Commissioner of Income
Mafatlal House, 1st Floor, Backbay Tax 1(3), Aayakar Bhavan, M.K.
Vs.
Reclamation, Mumbai-400020 Road, Mumbai-400020
PAN No. AAFACS6817D
Appellant .. Respondent
Assessee by .. Miss Arti Vissanji, AR
Revenue by .. Shri S Ravi Chandran , DR
Date of hearing .. 28-06-2017
Date of pronouncement .. 12-07-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the orders of CIT(A)- 3, Mumbai, in appeal No. CIT(A)-3/IT-46/2012-13 dated 26-03-2015. The Assessment was framed by ACIT Special Range-32, Mumbai for the A.Y. 1998-99 vide order dated 02-02-2001 u/s 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act'). The penalty was levied by ACIT 1(3), Mumbai vide order dated 10-05-2007 under section 271(1)(c) of the Act.
2. The only issue in this appeal of assessee is against the levy of penalty under section 271(1)(c) of the Act and confirmed by CIT(A). The assessee has challenged on merits as well as on the issues of jurisdiction. For this assessee has raised following ground No.1: -
"1. In the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in,-ITA No.3014 /Mum/2015
Sushmita Holdings Limited (A.Y:1998-99)
(a) confirming the Order dated 10th May, 2007 passed by the AO holding that the appellant has filed inaccurate particulars of income and accordingly levying penalty U/s.271(1)(c) of the Income Tax Act, 1961 (the Act) of Rs. 1,29,22,307/-.
(b) not holding that the Order dated 10th1 May, 2007 passed by the AO U/s.271(1)(c) of the Act levying penalty of Rs.1,29,22,307/- is bad in law and accordingly not holding that penalty is not leviable on the appellant for the year U/s.271(1)(c) of the Act."
3. Briefly stated facts are that the assessee is engaged in the business of making investment in shares and securities. The assessee has claimed interest on loan amounting to Rs. 3,69,20,877/- as an expense in the profit and loss account. The AO require the assessee to explain as to why interest expenditure be not treated as part of cost of acquisition of shares for the reason that no loan appears in the balance- sheet and moreover in the P & L account also no such income earned necessitate the claim of interest expenditure. After considering the submissions of the assessee and details the AO noted that there is no corresponding income in the P&L account under the head of business which entitles the assessee to claim deduction under section 36(i)(iii) of the Act or under section 37 (1) of the Act. According to him the assessee is trying to explain under the head of business whereas income has been shown under the head of capital gains. The AO relying on the findings of CIT(A) for AY 1997-98 disallowed the claim of interest amounting to Rs. 3,69,20,877/-. The AO initiated the penalty proceedings under section 271(1)(c) of the Act read with explanation 1 for wrong claim of interest under section 36(1)(iii) of the Act. The AO while levying the penalty under section 271(1)(c) of the Act noted that the penalty proceedings under section 271(1)(c) of the Act were initiated for furnishing of inaccurate Page 2 of 11 ITA No.3014 /Mum/2015 Sushmita Holdings Limited (A.Y:1998-99) particulars of income. This fact is recorded by the AO on page 3 of the penalty order dated 10-05-2007. According to the learned Counsel for the assessee, the AO has levied the penalty on both the charges i.e. concealing the particulars of income and furnishing of inaccurate particulars of income which can be noted from page 11 to 16 of the penalty order of the AO wherein complete discussion is carried out. The relevant noting / discussion made by AO which is reads as under: -
"It may be appreciated that this explanation creates a legal fiction in certain circumstances to the effect that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of his income in the circumstances set out in the explanation. Naturally, by virtue of the above explanation the burden is not only shifted to the assessee but it is for the assessee to prove that he has not concealed particulars of his income or furnished inaccurate particulars thereof. Accordingly, it may be noticed that once the explanation is applicable the assessee would be deemed to have concealed the particulars of his income or furnished inaccurate particulars. Accordingly, it may be noticed that by virtue of the above explanation, which is produced above if any amounts have been added or disallowed in computing the total income of such person it is required to be held that the A.O. is satisfied that the assessee has concealed the particulars of income or furnished inaccurate particulars as it is inherent in the explanation itself that the appellant has concealed the particulars of income or furnished inaccurate particulars once the statute itself prescribed that the concealment has been effected in view of deeming provisions.Page 3 of 11 ITA No.3014 /Mum/2015
Sushmita Holdings Limited (A.Y:1998-99) The Hon'ble Supreme Court decision in the case of K.P. Madhusudana -reported in 251 ITR 99, wherein, the Hon'ble Supreme court has held, as under:
"The Explanation to section 271(1)(c) is a part of section 271. When the Assessing Officer or the Appellate Assistant Commissioner issues a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice under section 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently be liable to the penalty under the section."
They have further held that the assessee is, therefore, by virtue of the notice u/s.271 put to notice that if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section.
Accordingly, in view of above Supreme Court decision, it is required to be held that by issue of notice, the assessee has been made aware that in Page 4 of 11 ITA No.3014 /Mum/2015 Sushmita Holdings Limited (A.Y:1998-99) view of above deeming provision the A.O. is satisfied that the assessee has concealed the particulars of income or furnished inaccurate particulars and it is for the assessee to come forward and discharge the burden of proof placed on him in view of applicability of the above explanation."
4. According to the learned Counsel the penalty order passed by the AO under section 271(1)(c) of the Act dated 10-05-2007 is on the charge of inaccurate particulars of income in relation to disallowance of interest whereas initiation is on the charge in the order of assessment dated 02- 02-2001 is for concealment of particulars of income by invoking the explanation 1 to section 271(1)(c) of the Act. The learned Counsel for the assessee argued that the penalty cannot be levied under section 271(1)(c) of the Act on the charge which is different than the charge initiated i.e. charge initiated under explanation 1 under 271(1)(c) of the Act and penalty levied under different charge for filing of inaccurate particulars of income. According to the learned Counsel this issue is covered by Hon'ble Bombay High Court in the case of CIT vs. Samson Perinchery (Bom) in ITA No. 1154 of 2014 and dated 05-01-2017.
5. On the merits also the learned Counsel for the assessee stated the facts that the assessee received a sum of Rs. 34.90 crore during the FY 1996-97 relevant to the AY 1997-98 from Mafatlal Industries Ltd. and the said amount was utilized as under: -
(a) In making investments in equity shares of Rs.15.60 Crores Gujarat Gas Co. Limited
(b) In granting interest free advance towards subscription of Shares to Vibhadeep Rs. 19.30 crores Investments and Trading Limited She stated that the AO while framing the assessment for AY 1997-98 under section 143(3) of the Act dated 23-03-2010 disallowed the claim of interest expenditure on the amount received from Mafatlal Industries Ltd.
amounting to Rs. 2,01,67,457/- under section 36(1)(iii) of the Act. She Page 5 of 11 ITA No.3014 /Mum/2015 Sushmita Holdings Limited (A.Y:1998-99) explained that the AO granted deduction under section 57(iii) of the Act being interest attributable to utilization in investment of shares of Gujarat Gas Company Ltd. amounting to Rs. 77,78,630/- and accordingly, the resultant disallowance was at Rs. 1,23,85,617/-. This assessment was framed vide order dated 23-03-2000. She explained that no penalty proceedings under section 271(1)(c) of the Act in relation to disallowance of interest was initiated by the Revenue. The CIT(A) confirmed the order of the AO vide order dated 22-12-2000. Subsequently, ITAT vide order dated 31-07-2006 restored the matter back to CIT(A) in relation to granting of further deduction under section 57(2) of the Act of attributable interest for the period February, 1997 to March 1997 on a sum of Rs. 1.15 crores representing value of preferential shares issued to assessee vide Vibhadeep Investment and Trading Ltd. She explained the facts that for AY 1998-99, the year under consideration interest of Rs. 3,69,20,877/- accounted for FY 1997-98 on advance received for subscription of shares from Mafatlal Industries Ltd. and this amount was disallowed under section 36(1)(iii) of the Act by the AO but he recorded the fact that "In view of the above discussion, interest is considered as part of cost of acquisition of shares. The assessee will get benefit when these shares would be sold".
6. According to this, she argued that the assessee has disclosed each and every fact relating to claim of deduction and this being highly debatable issue penalty under section 271(1)(c) of the Act cannot be levied. She also relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproduct (2010) 322 ITR 158 (SC). On the other hand, the learned Sr. DR relied on the orders of the lower authorities.
7. We have heard the rival contentions and gone through the facts and circumstances of the case. As regards the facts of the case that the assessee has received an amount of Rs. 34.90 crores from Mafatlal Industries Ltd. during FY 1996-97 relevant to AY 1997-98 and was Page 6 of 11 ITA No.3014 /Mum/2015 Sushmita Holdings Limited (A.Y:1998-99) utilized by making investment in equity shares of Gujarat Gas Co. Ltd and also granting interest free advances towards subscription of shares of Vibhadeep Investment and Trading Ltd. Admittedly, the AO during the course of assessment proceedings for AY 1997-98 granted deduction under section 57(iii) of the Act being interest attributable to utilization in investment of shares of Gujarat Gas Co. Ltd. for an amount of Rs. 77,78,630/- and ultimate disallowance was restricted to 1,23,85,617/- as against the claim of assessee for Rs. 2,01,67,457/-. Further, the ITAT vide order dated 31-07-2006 restored the matter for granting further deduction of interest attributable for the period of February 1997 to March 1997 on a sum of Rs. 1.15 crores representing the value of preferential shares issued to the assessee by Vibhadeep Investment and Trading Ltd. Similarly, in AY 1998-99 the assessee also made claim on interest amounting to Rs. 3,69,20,877/- and which was disallowed by the AO under section 36(1)(iii) of the Act and AO himself considered the interest as part of acquisition of shares and according to him, the assessee will get benefit with these shares which would be sold. In the entirety of facts, we find that the entire detail to the claim of this deduction was available before the AO during the course of assessment proceedings and nothing was hidden. Although, the assessee made a wrong claim of deduction but whether this act constitute concealment of income or not in the given facts and circumstances of the case. As argued by the learned Counsel for the assessee, the case law of Hon'ble Supreme Court in the case of Reliance Petrol Chemicals Pvt. Ltd. (supra), where Hon'ble Supreme Court observed that where there is no finding that any detail supplied by assessee in its return are found to be incorrect or erroneous or false, there is no question to inviting the penalty under section 271(1)(c) of the Act. According to the Hon'ble Supreme Court that mere making of claim, which is not sustainable in law, by itself, does not amount to furnishing of inaccurate particulars of income and such a claim made in the return of income by the assessee cannot amount to furnishing of inaccurate particulars of income. The relevant para of judgement reads as under: -
Page 7 of 11 ITA No.3014 /Mum/2015Sushmita Holdings Limited (A.Y:1998-99) "......We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.
10. It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of Page 8 of 11 ITA No.3014 /Mum/2015 Sushmita Holdings Limited (A.Y:1998-99) one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c).
If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c).
That is clearly not the intendment of the
Legislature."
8. In the present case also, the assessee's claim is found to be a wrong claim not sustainable in law and accordingly, confirmed by Tribunal. But it is not case of Revenue that the assessee has furnished inaccurate particulars of income in respect to this claim of deduction and rather assessee filed all the details relevant to this claim. Once this is a case, we are of the view that the penalty for concealment under section 271(1)(c) of the Act cannot be sustained on merits.
9. As regards to the specific charge, we find that the AO has initiated penalty proceedings by noting that "penalty proceedings under section 271(1)(c) r.w.explanation-1 are initiated separately for wrong claim of interest under section 36(1)(iii)." We find that the AO while levying penalty under section 271(1)(c) of the Act in his discussion clearly stated that the expression used in section 271(1)(c) of the Act "furnishing of inaccurate particulars of income" and " concealing the particulars of income" are two distinct term but according to him both lead to the same effect. He Page 9 of 11 ITA No.3014 /Mum/2015 Sushmita Holdings Limited (A.Y:1998-99) acknowledged that making bogus claim of expenses/ expenditure/ deduction / excess claim of depreciation amounts to furnish of inaccurate particulars income and therefore false claim of expenditure would amount to concealing the particulars of income or deliberate in furnishing inaccurate particulars of such income. This issue is dealt by Hon'ble Bombay High Court in the case of Samson Perinchery (supra) wherein Hon'ble Supreme Court relying on the decision of the Karnataka High Court in the case of CIT vs. Manjunath Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka) observed as under: -
"The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. This by holding that the initiation of penalty under Section 271(1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non application of mind on the part of the Assessing Officer while issuing the penalty notice."Page 10 of 11 ITA No.3014 /Mum/2015
Sushmita Holdings Limited (A.Y:1998-99)
10. Even on the issue of specific charge penalty levied by the AO cannot be sustained. Accordingly, we reverse the orders of the lower authorities i.e. of the AO and CIT(A) of levying and confirming the penalty and allow the appeal of the assessee.
11. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 12-07-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 12-07-2017
Sudip Sarkar /Sr.PS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file. //True Copy//
BY ORDER,
Assistant Registrar
ITAT, MUMBAI
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