Income Tax Appellate Tribunal - Mumbai
Chemical Process Equipments P. Ltd, ... vs Assessee on 3 October, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'C' BENCH
BEFORE SHRI D.MANMOHAN, VICE PRESIDENT &
BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER
I.T.A.NO.2642/Mum/2010 - A.Y 2006-07
Chemical Process Equipments Pvt. Vs. Asst. Commissioner of I.T.,
Ltd., Range 10(2),
CPE Plots, Govandi Station Road, Mumbai.
Off Sion Trombay Road,
Mumbai 400 088.
PAN: AAACC 0465 C
(Appellant) (Respondent)
Appellant by : Shri Farookh Irani.
Respondent by : Shri C.G.K.Nair.
Date of Hearing: 03-10-2011
Date of Pronouncement:
ORDER
Per T.R.SOOD, AM:
In this appeal various grounds have been raised by the assessee but the only dispute is regarding confirmation of penalty u/s.271(1)©.
2. After hearing both the parties we find that during the assessment proceedings AO noticed that assessee had debited a sum of Rs.99,46,023/- in the profit & loss account under the head "Sundry Balances Written Off" which included debits of the following parties:
(i) Rajpurohit India Ltd. Rs. 22,66,337/-
(ii) Rajpurohit Accessories Rs. 27,00,000/-
(iii) GMP India Ltd. Rs. 2,33,415/-
(iv) Rajpurohit GMP India Ltd. Rs. 18,84,069/-
Total Rs. 70,83,821/-
It was further noticed that all these four concerns were concerns which were owned by the director and/or a share holder of the assessee company or their family members. Therefore, assessee was asked to 2 ITA NO.2642 OF 2010 explain the nature of debts which were being claimed as bad debts. In response to this query, assessee vide letter dated 17-11-08 explained as under:
"The following parties are group concerns to whom advances have been made and as they have suffered heavy losses, the business activities of these companies have been closed down and they have no capacity to repay the amount, hence the same have been written off' and the assessee furnished copy of their Final Accounts to establish that these companies have suffered losses and are not in a position to repay the loans. Hence, the amounts were written off as not recoverable".
After examining the submissions and on further verification AO found that these amounts were interest free advances to family concerns of the directors. It was further found that these advances were not for the purpose of business and accordingly it was observed that since debts were never taken into consideration for computing the income of the assessee as per sec.36[1][vii] r.w.s. 36[2], therefore, claim for bad debts was not maintainable. In response to this, the following reply was given on behalf of the assessee:
"The amount advanced to sister concerns in the normal course of business and not recoverable, hence written off This claim is being made out of business income and particularly under the provisions of section 37 where in the expenditure incurred by the Company may be allowed as an expenses, if the same is not of a capital nature and covered by the items covered u/s 36 of the I. T Act."
After enquiry AO observed that advances were given to the four family concerns of the directors and the same were not for the purpose of business and or profession and these advances were in the capital advances as these were interest free advances. Accordingly, the claim for bad debts amount to Rs. 70,83,821/- was disallowed and penalty proceedings u/s.271(1)© were initiated.
3 ITA NO.2642 OF 2010
3. The Ld. Counsel for the assessee informed us that this addition was accepted by the assessee and no appeal was filed.
4. A show cause notice was issued as to why penalty should not be imposed for filing inaccurate particulars of income. In response to the above notice it was mainly stated that these amounts represented amounts advanced to sister concerns which had become irrecoverable as the sister concerns had suffered heavy losses and were not in a position to repay the amounts and assessee has no option but to write off the same. It was also stated that there was no law to prevent a parent company to advance sums to its sister concern and once these concerns were not in a position to repay them the write off of the amounts as irrecoverable was justified. Merely disallowance of claim does not warrant levy of penalty. The AO after examining these submissions did not find force in them and observed that these facts emerged only because the return was selected for scrutiny. Had the return not taken up for scrutiny, these facts could not have been revealed. Thereafter, AO discussed various case laws including the decision of the Hon'ble Supreme Court in the case of UOI v. Dharmendra Textile Processors And Ors. [306 ITR 277] and accordingly minimum penalty @ 100% of the tax sought to evaded amounting to Rs.23,84,414/- was levied.
5. Before the Ld. CIT[A] similar contentions were reiterated and it was stated that assessee has not preferred an appeal just to buy peace and not to litigate the matter further. It was also argued that penal provisions of the Act are not automatic. It was also submitted that 4 ITA NO.2642 OF 2010 even after the decision of the Hon'ble Supreme Court in the case of UOI v. Dharmendra Textile Processors And Ors. [supra], in various other cases it has been held that presence of men's rea was required for levying the penalty u/s.271(1)©. The Ld.CIT[A] did not find force in the submissions and confirmed the levy of penalty vide para 2.3 which is as under:
"2.3. I have carefully considered the facts of the case. The appellant advanced a substantial amount of Rs. 70,83,821 I-to its sister concern free of interest. The same was claimed as bad debt as not recoverable. In my considered opinion, the appellants claim was not allowable as bad debt since the same was not considered as income of the appellant in any of the earlier years. The appellant's claim was also not allowable under the provisions of section 37 (1) of the Act since the amounts were not advanced to the sister concerns for the purposes of appellant's business. During assessment proceedings as well as during penalty proceedings the appellant failed to prove that the act of advancing those amounts to sister concern were incidental to its business or the amounts were advanced to sister concerns for the purpose of commercial expediency. The appellant failed to explain that how the advancing of amounts to sister concern without interest was its business activity and how these amounts were advanced in the normal course of business. The appellant argued that no law prevents parent company to advance sum to its sister concern. However the appellant failed to explain that how the amounts advanced to sister concerns were allowable either u/s 36(1)(vii) or u/s 37(1) of the Act. The appellant also failed to explain that how the issue involved was in the nature of difference of opinion and debatable one. The appellant's claim was not at allowable and hence was neither debatable nor there could be difference of opinion on this issue. In the facts and circumstances the appellants claim was patently wrong/inadmissible. The appellant's claim was not allowable from any stretch of argument. Thus by claiming a wrong/inadmissible claim the appellant attempted to lower down the taxable income. Thus appellant committed the act of concealing the particulars of its income and also furnishing of inaccurate particulars. The appellant also argued that in absence of mens rea the penalty could not have been levied. In my considered opinion, the act of claiming such a patently inadmissible claim shows the presence of appellant's mens rea also. The AO correctly held that it was only after appellant return was taken under scrutiny that AO found that it had claimed the deduction not allowable under law. Had it not come under scrutiny, the facts would have never been revealed and the appellant's attempt of claiming a false claim would have succeeded. The appellant also argued that the penalty could not have been levied on mere disallowance of claim or addition without any proper evidences. It is true that on mere disallowance penalty cannot be levied, but such 5 ITA NO.2642 OF 2010 disallowance should be of debatable nature on which two opinions could have been possible. However, in the case of appellant, it was neither debatable nor there could have been more opinion thereon as the same was not at all allowable under the provisions of the Act. There are various decisions of courts/tribunals supporting the view that the 'penalty u/s 271(1)(c) is leviable where the claim was patently inadmissible as in the case of appellant.
In the facts and circumstances, I am of the considered opinion that the appellant concealed the particulars of its income by furnishing inaccurate particulars of such income by claiming a patently inadmissible claim of bad debt u/s 36(l)(vii) or u/s 37(1) of the Act. The penalty levied by AO u/s 271(1 )(c) is therefore confirmed."
6. Before us Ld. Counsel for the assessee submitted that the AO was not sure whether it is a case of concealment or furnishing of inaccurate particulars and in this regard referred to para-5 of the penalty order where both expressions have been made applicable. He also referred to the copy of notice u/s.274 and pointed out that simply a tick mark has been made against the column "for concealing the particulars of income or furnishing inaccurate particulars of income". This only shows non application of mind which itself becomes a ground for non levy of penalty. In this regard he referred to the decision of the Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT & Another [291 ITR 519]. He particularly invited our attention to placitum-21 at page 534 of the report wherein it was argued that no satisfaction was recorded whether assessee had concealed the particulars of income or furnished inaccurate particulars which were the conditions precedent for initiate penalty proceedings u/s.271(1)© of the Act. In this case a show cause notice was also issued in a standard format without deleting there from any inappropriate words which shows non application of mind. It was also contended that the penalty 6 ITA NO.2642 OF 2010 proceedings had been initiated on all possible grounds. On these arguments the Hon'ble Supreme Court has affirmed the same by holding at placitum 79 and 80 that concealment of income and furnishing of inaccurate particulars of income are two separate conditions and would not over lap each other. Thus, it is clearly held that unless and until a proper allegation is made penalty cannot be confirmed. The Ld. Counsel for the assessee further pointed out that though the decision in the case of Dilip N. Shroff vs. JCIT & Another [supra] has been over ruled in the case of UOI v. Dharmendra Textile Processors And Ors [supra], by a larger Bench of the Supreme Court but these observations would still stand because the case of Dilip N. Shroff vs. JCIT & Another [supra] was over ruled only with respect to the concept of men's rea required in penalty proceedings. In this regard he referred to the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [322 ITR 158] wherein at placitum-9 it has been clarified that the above observation still holds good.
7. The Ld. Counsel for the assessee further contended that in any case assessee had made all the disclosure regarding the bad debts and the amounts given to its sister concerns, therefore, it cannot be said that assessee has failed to disclose all the particulars and, therefore, in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [supra], the penalty is not leviable. In this regard he also referred and furnished a copy of the decision in the case of Sree Krishna Electricals v. State of Tamil Nadu 7 ITA NO.2642 OF 2010 [2009] 23 Law Suit (S.C) 635. He carried us through the judgment of Sree Krishna Electricals v. State of Tamil Nadu [supra] and pointed out that in that case issue was regarding levy of penalty under Tamil Nadu General Sales Tax Act 1959. The assessee had purchased parts required to be put together to form a wet-grinder and what has been sold by the assessee was not a wet-grinder but parts thereof. Though authorities recorded a finding that what was sold in fact was a complete wet grinder which was a new product and when the issue arose regarding penalty on exemption claimed by the assessee, it was held that items which were not included in the turn over found incorporated in the appellant's account books. Where certain items which were not included in the turnover but were recorded in the assessee's own account books, then penalty was not leviable. Therefore what is ultimately held that if a disclosure has been made then penalty cannot be levied and this theory has been accepted by the Hon'ble apex court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [supra]. Since in the case before us assessee has made the disclosure regarding giving of advances to sister concerns which means fully disclosure was made and, therefore, penalty was not leviable.
8. On the other hand, Ld. DR referred to sec.271[1B] and submitted that the order of assessment itself constitute satisfaction of the AO for initiation of penalty proceedings. He argued that mere disclosure of an item which is palpably wrong cannot be accepted as a disclosure in the light of the decision of the apex court in CIT vs. Reliance Petro Products Pvt. Ltd. [supra] for not levying a penalty. In 8 ITA NO.2642 OF 2010 fact what has been held in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [supra] is that if a bona fide disclosure has been made, then penalty cannot be levied. When a claim for deduction is not bona fide then levy of penalty is justified and similar view has been taken by the Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication P. Ltd. [327 ITR 510]. When a claim is patently wrong and not maintainable under the law, then mere mention of that claim would not amount to a bona fide disclosure. In the case before us, the amounts have been given to sister concerns which were not for the purpose of business and the same have been wrongly written off in the guise of bad debts. As observed by the AO and confirmed by the Hon'ble Delhi High Court that in such case if return is not selected for scrutiny then assessee would go scot free without inviting the consequences of penalty proceedings which is not as per the scheme of the Act.
9. In the rejoinder, Ld. Counsel for the assessee submitted that as far as sec.271[1B] is concerned, this amendment was brought in statute with retrospective effect from 1-4-1989 by Finance Act, 2008 to over come various decisions of the Tribunal and some High Courts where penalty proceedings were set aside because no proper satisfaction has been recorded. Since assessee has not challenged the penalty proceedings on the basis of satisfaction, therefore, this contention has no relevance to the issue raised before us. He submitted that as far as decision of Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication P. Ltd. [supra] is concerned, the same has to be treated as limited to its own facts and has to be read in 9 ITA NO.2642 OF 2010 the light of the decision of the Hon'ble apex court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [supra]. However, in response to a query by the Bench that for what purpose the advances were given to the sister concern, he showed his inability to give any details.
10. We have considered the rival submissions carefully in the light of the material on record as well as the decisions cited by the parties. The main thrust of the argument by the Ld. Counsel of the assessee is that penalty is required to be knocked down simply on the basis that AO has failed to apply his mind because notice has been issued without specifying the allegation as AO has simply tick marked the column "for concealing the particulars of income or furnishing inaccurate particulars of income" in the show cause notice. We are unable to agree with this submission. First of all, it is settled law that a precedent has to be followed only for the ratio laid down in a particular judgment by a higher forum. In the case of Dilip N. Shroff vs. JCIT & Another [supra], the ratio laid down was that penalty cannot be levied without the mens rea which was essential for levy of penalty. This decision has been over-ruled by the decision of a larger bench of the Apex Court in the case of Dharmendra Textile Processors And Ors. [supra], wherein it was held that explanation appended to sec.271(1)© of the I.T.Act, 1961, indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars in the return. The provision being a civil liability, therefore, mens rea was not required. However, at the same time as observed by the Hon'ble Supreme Court again the observation that concealment and filing of inaccurate 10 ITA NO.2642 OF 2010 particulars are two different requirements, is still valid. The Ld. Counsel of the assessee had also argued that even non striking of a particular column in the notice would amount to non application of mind, but we find no such observation by the Hon'ble Supreme Court. The arguments of the Ld. Counsel of the assessee in the case of Dilip N. Shroff vs. JCIT & Another [supra] have been recorded by the Hon'ble apex court at page 534 which read as under:
"Mr. Anil B. Dewan, learned senior counsel appearing on behalf of the ' appellant, would contç1 that the first respondent in the order of assessment, did not record his satisfaction that the assessee had concealed the particulars of his income or furnished inaccurate particulars which were conditions precedent for initiating penalty proceeding under section 271(1) (c) of the Act. The show-cause notice also was issued in a standard form without deleting therefrom in appropriate words and paragraphs and it showed total non application of mind on the part of the Assessing Officer."
On the above argument, the Hon'ble court observed at placitum 80 & 81 at page 551 as under:
"The authorities did not arrive at a finding that the consideration amount 80 fixed for the sale of property was wholly inadequate. The authorities also do not show that what are the inaccurate particulars furnished by the appellant. They also do not state that what should have been the accepted principles of valuation. We, therefore, do not accept the submissions of the learned Additional Solicitor General that concealment or furnishing of inaccurate particulars would overlap with each other, the same would not mean that they do not represent different concepts. Had they not been so, Parliament would not have used the different terminologies. "We have noticed hereinbefore that even the Wanchoo Committee laid 81 emphasis on the fact that Explanation appended to sub- section (1) of section 271 should be inserted to clarify that where a tax payer's explanation in respect of any receipt, deposit, outgoing or investment is found to be false, the amount represented by such receipt, etc., shall be deemed to be income in respect of which particulars have been concealed or inaccurate particulars have been furnished. What was, therefore, necessary to be found out in respect whereof the Assessing Officer was required to arrive at a satisfaction was "falsity" in furnishing of explanation by the assessee. Explanation 1, therefore, categorically states that such explanation must either be false or not otherwise substantiated. Even in Explanation 4, the expression "evaded" finds place."11 ITA NO.2642 OF 2010
From the above it is clear that what court observed was that "concealment and filing of inaccurate particulars" are two different requirements. There can be a situation where both these ingredients may be applicable. For example, in case of an item of income if only half of such income is disclosed and that too as a capital receipt, then the situation would be that as far as the first half of income is concerned which has not been disclosed, the same has been concealed and the other half which has been disclosed as a capital receipt would be a case of filing of inaccurate particulars. Therefore, at the initial stage it is difficult even for an assessing authority to be specific. The whole idea behind the show cause notice is to make assessee aware that penalty provisions are going to be invoked and assessee has a right to offer an explanation. Therefore, merely non striking of a particular column cannot lead to a conclusion that penalty needs to be deleted merely because of such failure. In any case, in the case before us though the column "concealment and filing of inaccurate particulars"
was merely ticked without striking of either concealment or inaccurate particulars but para-3 of penalty order makes it clear that the action was initiated only for filing inaccurate particulars of income. Para 3 of the order reads as under:
"3. Assessee company was given fresh opportunity of hearing vide notice u/s 27 1(1)(c) on 21/05/2009 asking them to explain why penalty should not be imposed on them for filing inaccurate particulars of Income......."
Further, para 8 of penalty order which is a concluding para reads as under:
12 ITA NO.2642 OF 2010
"8. In view of the above, and as per the law, it is held that the assessee company has filed inaccurate particulars of its income coming within the meaning of section 271(1) (c) read with Explanation 1 thereto of the Income Tax Act, 1961 in respect of the claim of bad debt aggregating to Rs 70,83,821/- and the assessee company has made itself liable for imposition of penalty u/s 27 1(1)(c) of the Income Tax Act, 1961."
The above clearly shows that penalty has been levied for filing inaccurate particulars. The concluding para of the appellate order reads as under:
"In the facts and circumstances, I am of the considered opinion that the appellant concealed the particulars of its income by furnishing inaccurate particulars of such income by claiming a patently inadmissible claim of bad debt u/s 36(l)(vii) or u/s 37(1) of the Act. The penalty levied by AU u/s 271(1)(c) is therefore confirmed."
The above further confirms that penalty has been confirmed by the ld. CIT(A) on the basis that assessee has furnished inaccurate particulars of a particular item.
11. The second major submission was that assessee has disclosed all the particulars and, therefore, penalty was not leviable in view of the decision of the decision of Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [supra]. The Hon'ble Hon'ble Supreme Court highlighted that whether it is a concealment or filing of inaccurate particulars, though both involve a common element of "particulars". The court also referred to the definition of "particulars" in the law lexicon which means the details of a claim, or the separate items of an account. Thus, it is clear that assessee is required to give details of a particular claim. This can further be treated that wherever a claim is bona fide and even if it is not tenable under the law, still 13 ITA NO.2642 OF 2010 penalty cannot be levied. But if claim itself is not bona fide, then penalty would be leviable. Sec.271(1)© reads as under:
[Failure to furnish returns, comply with notices, concealment of income, etc.
271. (1) If the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the Commissioner] in the course of any proceedings under this Act, is satisfied that any person--
a) xx xx xx
b) xx xx xx
c) has concealed the particulars of his income or [*
* *] furnished inaccurate particulars of [such income, or
d) xx xx xx [Explanation 1.--Where in respect of any facts material to the computation of the total income of any person under this Act,--
(A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the Commissioner] to be false, or (B) such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him], then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed.
A plain reading of the above clearly shows that the combined meaning of sec.271(1)© read with Explanation 1 is that if assessee has filed inaccurate particulars and such person offers an explanation which is not bona fide or offers no explanation, then penalty is leviable. This clearly means that if the claim/explanation is not bonafide, then penalty is leviable. Thus, in case of failure on the part of the assessee to offer any explanation or the explanation furnished by him being found to be false, penalty may be imposed on such a person. The decision of the Hon'ble Supreme Court has been analysed and 14 ITA NO.2642 OF 2010 interpreted by the Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication Pvt. Ltd. [supra]. The relevant portion where this decision has been considered is as under:
Relying upon the decision of the Supreme Court in CIT v. Reliance Petroproducts P. Ltd. [2010] 322 ITR 158, it was contended by the learned counsel for the respondent that since the factual information in respect of the amounts wrongly included in schedule 9 to the profit and loss account was disclosed by the assessee, this was not a case where penalty could be imposed under section 271(1)(c) of the Act. In the case before the Supreme Court, the assessee had claimed interest under section 36(1)(iii) of the Act. The interest was paid on the loan which the assessee had utilized for pur-chasing some IPL shares by way of its business policies. However, the assessee did not earn any income by way of dividend from those shares. It was submitted before the Supreme Court that the assessee-company was an investment company and that in its own case for the assessment year 2000-01 the Commissioner (Appeals) had deleted the disallowance of interest made by the Assessing Officer and the Tribunal had also confirmed the stand of the Commissioner (Appeals) for that year and it was on the basis of this that the expenditure was claimed. The Income-tax Appellate Tribunal had, however, restored the issue back to the Assessing Officer. In the appeal arising out of penalty proceedings, the Tribunal, in these circumstances, was of the view that the confirmation of disallowance by the Tribunal did not mean that the assessee had concealed the income or had filed inaccurate particulars thereof. Noticing that the assessee had given an explanation, vide its letter dated March 22, 2006, giving reasons for claim-ing the interest as a deduction, the Tribunal was of the view that the onus shifted on the Revenue to prove that the explanation offered by the asses-see was false. The Tribunal felt that the bona fides of the explanation were clearly proved from the fact that the High Court admitted the appeal of the assessee about the disallowance of the interest. The Tribunal held that if there could be two views about the claims of the assessee, the explanation offered by it cannot be said to be false. The penalty was accordingly deleted by the Tribunal. The order of the Tribunal was maintained by the High Court. It was contended on behalf of the Revenue, before the Supreme Court, that only the amount of interest paid in respect of capital borrowed for the purposes of the business or profession could have been claimed under section 36(1)(iii) of the Act and the case before the court was not in respect of the capital borrowed by the assessee. It was further pointed out that under section 14A of the Act, no deduction could be allowed in respect of the expenditure incurred by the assessee in relation to income which did not form part of the total income under this Act. The attention of the court was also drawn to section 10(33) to show that the income arising from the transfer of a capital asset could not be reckoned as an income which formed part of the total income. The contention thus was that the claim made by the assessee was unacceptable in law.15 ITA NO.2642 OF 2010
The Supreme Court was of the view that under section 271(1)(c), there has to be concealment of income of the assessee or he must have furnished inaccurate particulars of his income. The contention of the Revenue that it was a case of furnishing of inaccurate by making incorrect claim for the expenditure on interest was rejected noticing that the words "particulars" used in section 271(1)(c) would embrace the meaning of the details of the claim made by the assessee and that the assessee before the court had not given any such information which was found to be incorrect or inaccurate. No statement or details supplied by the assessee had been found to be factually incorrect. The court rejected the contention that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. The court was of the view that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. After considering the meaning of "inaccurate" given in Webster's Dictionary, the court was of the view that inaccurate particulars would mean 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 giving inaccurate particulars.
It was contended before the Supreme Court that since the assessee had claimed deduction knowing that they were incorrect, it amounted to concealment of income since 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 claimed or an exaggerated amount could be claimed and since attempts of both the types reduces taxable income, both amount to concealment of particulars of one's income as well as to furnishing of inaccurate particulars of income. The contention was rejected by the court.
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 bona fide. If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) would come in to play and the assessee will be liable to for the prescribed penalty.
After noticing the facts of the case, the Hon'ble Delhi High Court further observed as under:
"In the case of Reliance Petroproducts P. Ltd. [2010] 322 ITR 158 (SC), the addition made by the Assessing Officer in respect of the 16 ITA NO.2642 OF 2010 interest claimed as a deduction under section 36(1)(iii) of the Act was deleted by the Commissioner of Income-tax (Appeals) though it was later restored, by the Tribunal, to the Assessing Officer. The appeal filed by the assessee against the order of the Tribunal was admitted by the High Court. It was, in these circumstances, that the Tribunal came to the conclusion that the assessee had neither concealed the income nor filed inaccurate particulars thereof. In recording this finding, the Tribunal felt that if two views of the claim of the assessee were possible, the explanation offered by it could not be said to be false. This, however, is not the factual position in the case before us.
The facts of the present case thus are clearly distinguishable." From the above, it clearly emerges that as long as a bona fide claim has been made, then penalty cannot be levied. But wherever the claim itself is not bona fide or no explanation has been furnished, then penalty can be levied. When the claim is patently wrong, then merely putting that claim in the books of accounts would not amount to filing of particulars rather it would be treated as a case of filing of inaccurate particulars. As observed by the Hon'ble Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [supra], that the meaning of the word "particular" is a detail or details [in plural sense]; the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in sec.271[1][c] would embrace the meaning of the details of the claim made.
12. Now in the case before us the assessee has written off certain amounts given as interest free advances to its sister concerns as bad debts. Nowhere in the return it is disclosed that such written off amounts were merely interest free advances to the sister concerns. The following explanations have been given which were extracted earlier also:
"The following parties are group concerns to whom advances have been made and as they have suffered heavy losses, the business 17 ITA NO.2642 OF 2010 activities of these companies have been closed down and they have no capacity to repay the amount, hence the same have been written off' and the assessee furnished copy of their Final Accounts to establish that these companies have suffered losses and are not in a position to repay the loans. Hence, the amounts were written off as not recoverable.
The amount advanced to sister concerns in the normal course of business and not recoverable, hence written off This claim is being made out of business income and particularly under the provisions of section 37 where in the expenditure incurred by the Company may be allowed as an expenses, if the same is not of a capital nature and covered by the items covered u/s 36 of the I. T Act."
The above clearly shows that these advances were not given for any business purposes. Even during the course of hearing it was admitted by the Ld. Counsel of the assessee that he was not in a position to inform the court that for what purposes such advances were given. Obviously, such advances were not given for any purchases or expenditures for carrying on the business of the assessee and, therefore, this clam could not have been made as business expenditure in the form of bad debts. The non filing of an appeal itself shows that assessee did not have any bona fide claim. The Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication P. Ltd. [supra] has further observed at placitum 20 that it cannot be lost sight of that only a very small percentage of returns are picked up for scrutiny and, therefore, if assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and if the explanation furnished by the assessee for making such claim is not found to be bona fide, then it would be difficult to say that he still would not be liable to penalty and if a claim which is wholly untenable in law and has absolutely no foundation on which it should be made, the assessee would not be 18 ITA NO.2642 OF 2010 liable to imposition of penalty even if he was not acting bona fide while making the claim of such nature. That would give a license to unscrupulous assessees' to make wholly untenable and unsustainable claim in the hope that there returns would not be picked up for scrutiny u/s.143[1] of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax. Such a situation would take away the deterrent effect of the penalty provisions in the Act. Therefore, if a claim is patently wrong, as in the case before us, then merely because such claim has been made through books of accounts cannot be said that assessee has disclosed full and true particulars of income.
13. The Ld. Counsel of the assessee had also relied on the decision of Sree Krishna Electricals v. State of Tamil Nadu [supra]. This decision has been rendered on its own facts under the Tamil Nadu Sales Tax Act. We do not know as to what are the provisions of Tamil Nadu Sales Tax Act. It is settled law that decision rendered under one Act and interpretation given to a particular section under such Act, cannot be made automatically applicable in the contexts of interpretation of provisions of another enactment though both the provisions under these two enactments may be meant for levying penalty. Reference in this regard may be made to the decision of the Hon'ble Karnataka High Court in the case of Saraswathi Estate vs. Commissioner of Agricultural Income Tax and Another [251 ITR 168].
14. In view of the above discussion, we are of the opinion, that the Ld. CIT(A) was right in confirming the penalty u/s.271(1)©. 19 ITA NO.2642 OF 2010
15. In the result, assessee's appeal is dismissed.
Order pronounced in the open Court on this day of
24/11/2011.
Sd/- Sd/-
(D.MANMOHAN) (T.R.SOOD)
Vice President Accountant Member
Mumbai: 24/11/2011.
P/-*