TMI Blog2008 (5) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... d down by the Supreme Court, it can be seen that the interpretation given by the assessee to the said document while taking the stand that the amount in question was its security deposit and did not represent any income accrued during the year under consideration, was a possible one and the stand so taken was bona fide. We are of the view that the claim of the assessee treating the amount in question received from DMIL as security deposit was bona fide as the same was based on the interpretation given to the memorandum of understanding especially the relevant clauses which was possible as discussed and although the said claim was not found to be acceptable in the quantum proceedings on the merits, it was not a case of concealment as envisaged in section 271(1)(c) attracting levy of penalty especially when all the material facts relevant to the said claim were duly furnished by the assessee before the AO. In that view of the matter, we set aside the impugned order of the ld CIT(A) imposing the penalty u/s 271(1)(c) and cancel the penalty so imposed. In the result, the appeal of the assessee is allowed. - P. M. Jagtap Accountant Member And N. V. Vasudevan Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamined the issue relating to an amount of Rs. 3 crores shown to be received by the assessee as security deposit from DMIL during the year under consideration with reference to the memorandum of understanding and accepted the claim of the assessee on this issue. He thus completed the assessment assessing the total income of the assessee at Rs. 88,582 being interest chargeable to tax under the head Income from other sources . 3. The aforesaid assessment made by the Assessing Officer was challenged by the assessee in an appeal filed before the learned Commissioner of Income-tax (Appeals) and after considering the submissions made on its behalf before him as well as the material available on record, the learned Commissioner of Income-tax (Appeals) upheld the action of the Assessing Officer in treating the interest income of Rs. 88,582 earned by the assessee as income from other sources observing that it was not the business of the assessee-company to place inter-corporate deposits. As regards the claim of the assessee for deduction on account of business expenses, he, however, held taking into consideration the activities undertaken by the assessee-company during the year under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 15 days of its accrual. 10. That DMIL will make an interest-free deposit of Rs. 3 crores with MIL within six months from the date of this memorandum of understanding, that this deposit will be adjusted against the fee that may become payable to MIL in terms of clause 8 ante. 11. That in the event of DMIL withdrawing from its offer against the DTC tender or no order is being placed on it by DTC for any reason whatsoever, the amount paid to MIL under clause 10 ante, shall not be refundable by MIL . 5. It was also noted by the learned Commissioner of Income-tax (Appeals) that the amount of Rs. 3 crores received as above from DMIL on March 2, 1998, was shown by the assessee-company as trade deposit. According to the learned Commissioner of Income-tax (Appeals), the nature and character of this amount of Rs. 3 crores, however, was required to be determined with reference to the substantive position as evident from the terms of the contract. In this regard, he noted that the relevant contract was concluded by offer and acceptance, i.e., the assessee-company offered to assist DMIL in its participation in the DTC tender and M/s. DMIL accepted this offer and agreed to pay a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T reported in [1973] 87 ITR 542 (SC) wherein it was held that it is the true nature and the quality of the receipt and not the head under which it is entered in the account books as would prove decisive. The court held that if a receipt was trading receipt, the fact that it was not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt. In this context it is also relevant to refer to the judgment of the Supreme Court in the case of CIT v. Durga Prasad More reported in [1971] 82 ITR 540 wherein it was held that (page 545 of 82 ITR) : 'if all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.' The reality of the memorandum of understanding is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and the same amount being not refundable under any circumstances and there being no corresponding liability against the said sum, the same represented the profits of the assessee-company for the year under consideration. He also relied on the decision of the honourable Supreme Court in the case of Punjab Distilling Industries Ltd. v. CIT [1959] 35 ITR 519 to hold that the said amount also represented a trading receipt of the assessee and the same represented its income for the year under consideration since the right over the said money was retained by it even if no contract was awarded and no services were rendered whatsoever. He, therefore, enhanced the income of the assessee for the year under consideration by Rs. 3 crores vide his appellate order dated October 31, 2002, and also initiated penalty proceedings under section 271(1)(c) in respect of the said addition. 8. In response to the notice issued by the learned Commissioner of Income-tax (Appeals) during the course of penalty proceedings, a request was initially made on behalf of the assessee-company for keeping the proceedings in abeyance on the ground that an appeal under section 253 had already been preferred before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration. The assessee thus was under a belief that the said amount had not accrued as income during the assessment year 1998-99 and since the said belief was held bona fide on the basis of interpretation of the relevant clauses of the memorandum of understanding as well as professional advice received in this context, it was not a case for imposition of concealment of penalty under section 271(1)(c). (v) The provisions of section 271(1)(c) are to be invoked only to cover up the cases of deliberate, mala fide, fraudulent and contumacious conduct of the assessee and since the assessee in the present case could not be said to have acted mala fide or fraudulently, the said provisions were not attracted. (vi) The Assessing Officer had accepted the stand of the assessee taken on the issue of taxability of the amount of Rs. 3 crores in question while completing the assessment after examining the memorandum of understanding and although the learned Commissioner of Income-tax (Appeals) as well as the Tribunal have taken a different view, it was clearly a case of a debatable issue on which two views are possible. The stand taken by the assessee while adopting a one possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome which arose to it in the assessment year 1998-99. On analyzing the whole issue, the honourable ITAT has confirmed the action of the Commissioner of Income-tax (Appeals) of enhancing the income under section 251(2) by Rs. 3 crores by holding that under these facts there is no question of even presuming that this Rs. 3 crores being received by the assessee during the year is not its income pertaining to the assessment year 1998-99. It has also been kept in mind that it is a clear cut admission of the learned authorised representative for the assessee during the course of hearing before the honourable ITAT that the said amount had not been refunded back to DMIL till that date. Section 271(1)(c) has to be invoked where the assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. In the present case, from the above factual discussion, there remains no scope for any doubt to infer that the assessee has furnished inaccurate particulars of his income. It is a case where an income of Rs. 3 crores accrued to the assessee during the year which, the assessee did not declare as assessable income but very conveniently opted it to show in the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned authorised representative have no application to the facts of the present case. By not declaring and offering this receipt of Rs. 3 crores as income of the assessment year 1998-99, the assessee has not furnished the true and correct particulars of income. Further, I am also convinced that the assessee has not succeeded in sustaining his explanation also for not disclosing this income of Rs. 3 crores. The various authorities referred to by the learned authorised representative, in my considered opinion do not apply in the present case since it has already been held that the assessee has furnished inaccurate particulars of his income. 10. Aggrieved by the order of the learned Commissioner of Income-tax (Appeals) imposing the penalty under section 271(1)(c) as above, the assessee has preferred this appeal before the Tribunal. 11. Learned counsel for the assessee at the outset submitted before us that the memorandum of understanding between the assessee and DMIL was examined by the Assessing Officer also during the course of assessment proceedings specifically with reference to the tax implication of the sum of Rs. 3 crores received by the assessee under the said agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no allegation of any concealment of income against the assessee on this issue and the amount of Rs. 3 crores was treated as the income of the assessee for the year under consideration interpreting the memorandum of understanding by the appellate authorities differently. He contended that even such interpretation placed by the appellate authorities was not based on the principles laid down by the honourable Supreme Court in the case of Delhi Development Authority v. Durga Chand Kaushish AIR 1973 SC 2609 wherein it was held that in construing a document, one must have regard not to the presumed intention of the parties but to the meaning of the words they have used. He submitted that the observations of the Tribunal in this regard about postponing the accrual of income by the assessee to an indefinite period of time was not borne out from the memorandum of understanding and since it was nowhere stated in the said memorandum of understanding that the sum of Rs. 3 crores was not deposit but minimum fees paid to the assessee by DMIL, the conclusion drawn by the Tribunal in this regard was not well-founded. Relying on the decisions of the honourable Supreme Court in the case of CIT v. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the learned Commissioner of Income-tax (Appeals) by way of enhancement and therefore, the assessment order made by the Assessing Officer is of no consequence in this context. He submitted that the amount of Rs. 3 crores was received by the assessee during the year under consideration as non-refundable deposit and as per the relevant terms and conditions of the memorandum of understanding between the assessee and DMIL, the said amount actually represented the income of the assessee which had accrued to it in the year under consideration itself. He submitted that this position has been accepted by the Tribunal as well as by the honourable Delhi High Court in the quantum proceedings and merely because the stand of the assessee on this issue had been accepted by the Assessing Officer while completing the assessment, it cannot be said that two views were possible on merits. He contended that the relevant observations recorded by the Tribunal as well as the honourable Delhi High Court in their orders passed in the quantum proceedings on the other hand clearly show that there was only one view which was reasonably possible on the interpretation of the relevant clauses of the memorand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of furnishing of inaccurate particulars of its income by the assessee. 17. The learned Departmental representative further contended that whether the particular amount represents income accrued to the assessee has to be seen by applying the settled legal principles to the facts of each case and any agreement between two parties cannot change or decide such accrual. He also contended that by mere drafting the agreement in a particular manner, accrual cannot be postponed and as the amount of Rs. 3 crores represented the income accrued to the assessee during the year under consideration and it was the only reasonable view possible in the facts and circumstances of the case as held by the Commissioner of Income-tax (Appeals), the Tribunal and even by the High Court, the concealment on the part of the assessee stood duly established. He also contended that even going by the conduct of the assessee throughout the proceedings, it cannot be said that the same was bona fide. He, therefore, strongly supported the impugned order of the learned Commissioner of Income-tax (Appeals) imposing penalty under section 271(1)(c) and urged that the same may be upheld. As regards the judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s) and the said amount was held by him to be the income of the assessee accrued during the year under consideration on the basis of interpretation of the very same clauses of the memorandum of understanding and this action of the learned Commissioner of Income-tax (Appeals) was upheld even by the Tribunal in the quantum proceedings. However, as rightly contended by learned counsel for the assessee before us, the findings given by the learned Commissioner of Income-tax (Appeals) as well as by the Tribunal in their orders passed in the quantum proceedings in this context, cannot be taken as conclusive for the purpose of holding the assessee liable for concealment and imposing penalty under section 271(1)(c). It is well-settled that the assessment proceedings and the penalty proceedings are separate and distinct and as held by the honourable Supreme Court in the case of Anantharam Veerasinghaiah and Co. v. CIT [1980] 123 ITR 457, the finding in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is, therefore, necessary to reappreciate and reconsider the matter so as to find out as to whether the addition made in the quantum proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrual. As per clause 10, DMIL had agreed to make an interest free deposit of Rs. 3 crores with the assessee-company and it was also agreed that the said deposit, which was non-refundable as per clause 11, would be adjusted against the fees finally payable by DMIL to the assessee-company. As the said deposit of Rs. 3 crores was equal to the amount of minimum fees agreed to be paid by the DMIL to the assessee-company and the same was not refundable in any circumstances, it was held by the learned Commissioner of Income-tax (Appeals) as well as by the Tribunal that the said deposit was nothing but a payment of minimum fees paid by DMIL to the assessee-company which represented its income accrued during the year under consideration on the signing of memorandum of understanding. It is no doubt true that this view of the learned Commissioner of Income-tax (Appeals) as well as the Tribunal was based on the interpretation as given by them to the relevant clauses of the memorandum of understanding by reading the same in the combined manner and the same was upheld even by the honourable Delhi High Court. However, a perusal of the said clauses of the memorandum of understanding shows that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on an interpretation given to the relevant clauses and after perusing the relevant clauses of memorandum of understanding as well as going by the fact that the said claim of the assessee was accepted by the Assessing Officer while completing the assessment, it definitely gives an impression that the interpretation so given by the assessee was a possible one. Moreover, all the relevant particulars relating to the said claim were duly furnished by the assessee along with its return of income and even the copy of relevant memorandum of understanding was also produced before the Assessing Officer for his examination during the course of the assessment proceedings. Although the said claim was not finally found to be acceptable in the quantum proceedings, we are of the view that the same was made bona fide on the basis of possible interpretation given to the relevant clauses of the memorandum of understanding and the assessee having furnished all the material particulars relevant thereto, it cannot be said that it was a case of concealment as envisaged in section 271(1)(c) attracting levy of penalty. 23. The impugned order of the learned Commissioner of Income-tax (Appeals) sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals) in this regard thus was not well founded and we find it very difficult to agree with the same. 24. It is well-settled that the criterion and yardsticks for the purpose of imposing penalty under section 271(1)(c) are different from those applied for making or confirming the additions. When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing of inaccurate particulars of such income. What is to be seen is whether the said claim 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 payment of concealment penalty under section 271(1)(c). In the present case, the claim of the assessee about the amount in question being security deposit, in our opinion, was bona fide as the same was based on the possible interpretation of the relevant clauses of the memorandum of understanding as well as the other aspects of the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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