TMI Blog2011 (10) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... horities below was with regard to tenability of the order passed by the Assessing Officer (hereinafter referred to as A.O.‟) in levying a penalty in the sum of Rs 21,34,200/- on the assessee under the provisions of Section 271(1)(c) of the Income Tax Act, 1961 (in short I.T. Act‟). The penalty was imposed by the revenue on account of the following:- (i) disallowance of the claim made by the assessee in respect of contributions made to the Bombay Telephone District Staff Welfare Fund (hereinafter referred to as Fund‟); a fund which is undeniably created for the welfare of its employees. A deduction in this regard was claimed by the assessee under Section 40A (9) of the I.T. Act in respect of contribution amounting to Rs 15,50,000/-. The revenue, however, disallowed the deduction. (ii) The assessee claimed depreciation on vehicles used in rendering services to its customers at the rate of 25%, whereas the A.O allowed the depreciation at the rate of 20% in accordance with rates stipulated in appendix (1) Rule 32 of the Income Tax Rules, 1962 (in short I.T. Rules‟). The difference in the admissible claim which arose thereby, was added to the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as come up in appeal before this court. 6. Mr Sahni, who appeares for the revenue has submitted that the judgment of the Tribunal deserves to be reversed as the Tribunal ignored the fact that the auditors of the assessee had categorically observed in their statutory report (submitted in Form 3CD) in clause 6(f) that contributions made to the Fund could not be claimed as deduction under Section 40A (9) of the I.T. Act. 6.1 Mr Sahni submitted that despite such an observation made in clause 6(f) of the statutory report, the assessee did not seek to revise its return and, therefore, had submitted inaccurate particulars in terms of provisions of Section 271(1) (c) of the I.T. Act. 6.2 As regards the addition of excess depreciation claimed by the assessee, Mr Sahni argued that the assessee have been filing returns for a number of years, and had, in the form of able assistance, an array of qualified accountants to maintain their accounts and, therefore, could not claim ignorance with regard to the provisions of law vis- -vis the rate of depreciation on vehicles. It was thus contended that given these circumstances the excess depreciation claimed by the assessee would also fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,000/- towards contribution to Bombay Telephone District Staff Welfare Fund. The same has been spent incurred by the company for the benefits of its employees and has been incurred wholly exclusively for the purpose of the business. However, the auditor of the company in his audit report has remarked that the sum paid by the assessee as an employer towards contribution of Bombay Telephone District Welfare Fund is not allowable under Section 40A(9) of the IT Act. It may be mentioned here that mere remark of the auditor of the company does not amount to the applicability of the provisions of Section 148. The AO should also use own analytical method, skills in order to determine the applicability of such provisions. It may be further mentioned here that the said expenditure has been issued wholly and exclusively for the purpose of business of the assessee company and for the benefit of its employer. Further, it may be stated here that the company has incurred the said amount in accordance with the rule of the firms (sic fund). In case of Western India Paper Board vs CIT (1982) 137 ITR525 (Bom), it was held by the Hon ble Court that for admissibility of a contribution toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Tele communication, Government of India even before the incorporation of the assessee, i.e., MTNL. 10.1 In support of this stand, it was sought to be brought to the notice of the A.O., that the fund was created to give financial assistance to the dependents of the deceased members of the fund or their children, as also, those members who were handicapped. There was, according to the assessee, provision for grant of scholarship for technical and non-technical purposes to handicapped and differently abled children of the members of the fund. The fund, also had provision for granting financial assistance for running cr ches, holiday homes, recreational clubs and grant of books etc. to meritorious children of the members of the fund. Attention was also drawn to the provisions of Section 40A (10) of the I.T. Act. In the alternative the assessee had also referred to the provisions of Section 37(1) of the I.T. Act; the expenditure having been incurred wholly and exclusively for the purposes of the business of the assessee, and being otherwise in the nature of a revenue expenditure, which did not fall under the provisions of Section 32 to 36 of the I.T. Act. 10.2 It was contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout a finding on both aspects; that is, the assessee furnished inaccurate particulars, and that, the explanation given by the assessee was not bonafide. It is perhaps because of this reason that the CIT(A) in his order reversed the view taken by the A.O. The CIT (A) after referring to a number of judgments on the issue made the following observations in paragraph 4.4 and 4.5 of its order which for the sake of convenience are extracted hereinbelow: In the instant case. The disallowances on account of (a) depreciation on vehicles amounting to Rs.45,47,712/- and (b) the claim of Rs. 15,50,000/- being payment made towards Bombay Telephone District Staff Welfare Funds in terms of section 40A (9) of the act does not lead to the inference that the assessee has concealed its particulars of income or furnished inaccurate particulars relating to the impugned addition were furnished before the Assessing Officer, Hon ble Punjab High Court in the case of CIT Vs. Ajaib Singh Co. (2002) ITR 630 have observed that merely because of certain expenses claimed by the assessee are disallowed by an authority, it cannot mean that particulars furnished by the assessee were wrong. It was hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g inaccurate particulars of income. No penalty can be levied on making bonafide claim. In the case of Reliance Petroproducts Pvt.Ltd.(supra), the Hon ble Supreme Court has also considered the case laws relied upon by the revenue (cited supra). Hon ble Supreme Court had also held that no penalty u/s 271 (1) (c) can be invited for mere making a claim which is not sustainable in law by itself in view of this, we confirm the order of the CIT (Appeals) for deleting he levy of penalty u/s 271 (1) (c) . (Emphasis is ours) 13. Therefore, according to us, it is quite clear, in this particular case, that the A.O. having failed to record a finding that the assessee had furnished inaccurate particulars, the imposition of penalty under Section 271(1) (c) of the I.T. Act was a complete non-starter. This finding of fact has been affirmed by the Tribunal and we find no reason to disagree with the same. A mere erroneous claim made by an assessee, though under a bonafide belief that, it was a claim which was maintainable in law, cannot with more, lead to an imposition of penalty. In the instant case it is quite evident that both claims were made under the belief that they were maintainable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income . We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589 2009 Indlaw SC 1034], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of India Vs. Dharamendra Textile Processors 2008 Indlaw SC 1837 (cited supra), after quoting from Section 271 extensively and also considering Section 271 (1)(c), the Court came to the conclusion that since Section 271 (1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271 (1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai Anr. 2007 Indlaw SC 896 (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors 2008 Indlaw SC 1837 (cited supra), was that according to this Court the effect and difference between Section 271 (1)(c) and Section 276-C of the Act was lost sight of in case of Dili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage, we need to examine the recent decision of this court in Dharmendra Textile Processors (2008) 306 ITR 277. In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of nonpayment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam, J.) was a party to the decision in Dharamendra Textile as we see no reason to understand or read that decision in that manner . 15. It may also be important to bear in mind that both in the Dharmendra Textile (supra) and Rajasthan Spinning (supra) the court was considering the provisions of Section 11 AC of the Central Excise Act, 1944. Since the provision was somewhat pari materia with the provisions of Section 271(1) (c) of the I.T. Act, there is a reference to those provisions in Dharmendra Textile (supra). 16. Be that as it may, it is quite clear on a reading of the observations made in Rajasthan Spinning (Supra) that, it is not as if, penalty would get attracted once the revenue seeks to make an addition. For penalty to get attracted, the conditions stipulated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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