TMI Blog2009 (5) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... been concealed for the purpose of imposing penalty under s. 271(1)(c). (iv) If the assessee offers the explanation but is found to be false by the AO or the learned CIT(A) or the CIT, the penalty u/s. 271(1)(c) would be attracted. (v) If the assessee offers explanation, which he has not been able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the computation of assessee's income have been disclosed by him, then the penalty u/s. 271(1)(c) shall be attracted. (vi) Though the penalty provision contained in s. 271(1)(c) is civil liability and wilful concealment is not an essential ingredient for attracting this liability, but still the penalty u/s. 271(1)(c) shall not be imposed if the assessee has been able to discharge his burden that lay upon him under Expln. 1 to s. 271(1)(c). (vii) Whether an explanation offered by the assessee is false or bona fide depends on the cumulative effect of all the facts and circumstances of a given case, and no uniform or strait-jacket formula can be laid down for determining whether or not the explanation offered by the assessee is false or bona fide and whether the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. We are of the considered view that the assessee has been able to prove and establish that the assessee's claim of expenses in question were bona fide and not a false claim. We, therefore, hold that assessee has discharged the burden that lay upon it under Expln. 1 to s. 271(1)(c) insofar as the assessee's claim on marketing expenses representing the gift of cellular phone handsets given to employees and dealers. Therefore, the order of CIT(A) in deleting the penalty on this item of addition is upheld by us. Disallowance on marketing expenses - Products for own use - benefit of enduring nature - business expenditure - revenue or capital in nature - AO, allowed the depreciation at the rate of 25 per cent - CIT(A) upheld the order of AO - HELD THAT:- Merely because the assessee's view that these expenditures are to be allowed as admissible deduction as revenue expenditure has not been accepted by the Revenue, that by itself cannot be a ground to say that an assessee has made a false claim and, thus, the assessee's stand to claim these expenses as revenue expenditure cannot be said to be mala fide and dishonest one. All the details and particulars ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance in respect of which penalty has been levied by the AO under s. 271(1)(c), we find it appropriate to deliberate upon the scope and effect of s. 271(1)(c) read with Expln. 1 thereto. 4. We have gone through the provisions of s. 271(1)(c) read with Expln. 1 thereto. Sec. 271(1)(c) provides that if the AO or the CIT(A) or the CIT, in the course of the proceedings in this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, 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 reason of the concealment of particulars of his income. Explanation 1 states that where in respect of any facts material to the computation of the total income of any person under this Act, such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT(A) or the CIT 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay and the amount added or disallowed in computing the total income shall be considered to be the income in respect of which particulars have been concealed for the purpose of imposing penalty under s. 271(1)(c) of the Act. (iv) If the assessee offers the explanation but is found to be false by the AO or the learned CIT(A) or the CIT, the penalty under s. 271(1)(c) would be attracted. (v) If the assessee offers explanation, which he has not been able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the computation of assessee's income have been disclosed by him, then the penalty under s. 271(1)(c) shall be attracted. (vi) Though the penalty provision contained in s. 271(1)(c) is civil liability and wilful concealment is not an essential ingredient for attracting this liability, but still the penalty under s. 271(1)(c) shall not be imposed if the assessee has been able to discharge his burden that lay upon him under Expln. 1 to s. 271(1)(c) of the Act. (vii) Whether an explanation offered by the assessee is false or bona fide depends on the cumulative effect of all the facts and circumstances of a given case, and no uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redecessor's order for the asst. yr. 1998-99. The assessee company has been treated as a training hub for nurturing/grooming of officers/executives for onward transmission/absorption in other group companies. The AO further stated that long duration of such abroad cannot be justified by explanation provided by the assessee against each foreign trip, and the disallowance of foreign travelling expenses in the asst. yr. 1998-99 has been upheld by the learned CIT(A). On an appeal against the assessment, the disallowance was reduced to 10 per cent by the learned CIT(A) on the basis that exact nature of services provided by the assessee's employees outside India were not clearly specified and no evidences were furnished by way of confirmations from the overseas Nokia entities in relation to work done by Nokia employees. However, on an appeal before the Tribunal, the disallowance of foreign travelling expenditure sustained to the extent of 10 per cent by the learned CIT(A) was deleted. Hence, basis for imposing the penalty under s. 271(1)(c) does not survive any more. We, therefore, hold that no penalty under s. 271(1)(c) is imposable in respect of foreign travelling expenditure. 12. Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be allowed in the absence of full and proper evidences regarding the same, and as the assessee has not submitted sufficient evidences before the AO as repeatedly mentioned by the AO in his assessment order as well as in the remand report. The learned CIT(A) further observed that once the assessee states that it has given gifts to its employees and dealers, it cannot be said that these were for official use. The learned CIT(A) further observed that a gift is given without any expectation of return from the receiver. 13.6 In the light of the aforesaid findings in the quantum appeal recorded by the learned CIT(A), it is clear that the learned CIT(A) has confirmed the disallowance in the absence of full and proper evidences in support of the claim and for the reason that the gift given to employees and dealers cannot be considered for official use. The fact that assessee had given cellular phone handsets to dealers and employees by way of gift is not in dispute. The assessee has a business relation with the employees as well as the dealers, and the handsets were given in the course of business carried on by the assessee. Since the handsets were given to employees and dealers and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and AMCs, the assessee increased its market presence and, thus, derived benefit of enduring nature and, thus, these expenses cannot said to be expenditure of revenue in nature but are capital expenditure. The AO, therefore, disallowed the claim but at the same time allowed the depreciation at the rate of 25 per cent thereupon. 14.2 On an appeal against the assessment, the learned CIT(A) upheld the order of AO. The learned CIT(A) observed that these handsets cannot allow to be written off in the present assessment year merely because the assessee has treated the same as such in its books of accounts. The learned CIT(A) further observed that the arguments advanced by the assessee that the handsets were given to AMCs as "swap handsets" were to be given by AMCs to customers, whose defective handsets could not be repaired, and sample of cellular handsets were provided to the dealers for display and promotional purpose either on concessional basis or on a free of charge basis cannot be accepted for the reason that (i) for receipt of defective handsets, the company has a separate provision and the amount over and above the provision are claimed as current repairs, and (ii) by giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vied the penalty under s. 271(1)(c) is the addition made by disallowing the extent of 25 per cent of assessee's claim on account of provision of obsolescence of inventory. 15.1 The assessee company debited in the P L a/c an amount of Rs. 49,46,656 as provision for obsolescence of inventory. In the absence of documentary evidence to justify the claim, the AO disallowed the sum of Rs. 12,36,664 being 25 per cent of the total claim, and added the same to the total income of the assessee. On an appeal, the learned CIT(A) upheld the AO's action by observing that merely providing a list of the names of items sought to be treated as obsolete and the names of the model which had gone out of market, is not sufficient to allow the assessee's claim in full, and the assessee could not justify the claim supported by any market survey report and quality control report suggesting phasing out the model from time to time. On further appeal before the Tribunal, the Tribunal upheld the learned CIT(A)'s order by giving identical reasons as given by the AO and by the learned CIT(A). 15.2 Since the 25 per cent of the total claim stood disallowed, the AO levied the penalty in respect of aforesaid dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of learned CIT(A) in deleting the penalty on this item also. 16. Now, we shall come to the asst. yr. 2001-02. 17. In this assessment year, the AO has levied penalty in respect of the additions of disallowance made on the following account: (i) Disallowance out of foreign travelling expenses; (ii) Disallowance of provisions for warranty; (iii) Disallowance of deduction on account of mobile sets given to dealers, employees and AMCs by treating the same to be a capital in nature, and then allowing the depreciation at the rate of 25 per cent; (iv) Disallowance of claim on account of handsets given to the dealers, employees and AMCs as swap handsets; (v) Disallowance on account of provision for obsolescence of inventory. 18. We have heard both the parties and have carefully gone through the orders of the authorities below. 19. The penalty levied by the AO has been deleted by the learned CIT(A), and the Department is now in appeal before us. 20. The items on which penalty has been levied by the AO are based on facts identical to the facts of the asst. yr. 2000-01. We have already deliberated upon these items in asst. yr. 2000-01 as above, and have come to conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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