TMI Blog2010 (7) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh Co. [1990] 183 ITR 69, which has been further upheld by the hon ble Supreme Court vide its decision CIT v. Prithipal Singh Co. [2001] 249 ITR 670 . The Tribunal has also relied upon the decision of the hon ble Supreme Court in the case of Virtual Soft Systems Ltd. v. CIT [2007] 289 ITR 83 wherein the hon ble Supreme Court has held that prior to insertion of Explanation 4 to section 271(1)( c ) of the Act, by the Finance Act, 2002 with effect from 1-4-2003, in the absence of any positive income, and/or any tax being levied, penalty for concealment of income could not be levied. The Tribunal s order is dated 7-12-2007, which was appealed against by the revenue by filing an appeal before the hon ble High Court of the Punjab and Haryana at Chandigarh. The hon ble High Court of the Punjab and Haryana vide its decision dated 15-7-2009 CIT v. Nuchem Ltd. [2009] 318 ITR 170 set aside the order of the Tribunal by observing that the decision of the hon ble Supreme Court in the case of Virtual Soft Systems Ltd. ( supra ) has since been overruled in the subsequent judgment of the hon ble Supreme Court in the case of CIT v. Gold Coin Health Food (P.) Ltd. [2008] 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain revised computation of income on 3-3-1998, and submitted a letter dated 27-3-1998 accepting certain additions pointed out by the Assessing Officer. Thereafter, the assessment under section 143(3) was framed by the Assessing Officer on 31-3-1998 at nil income where various additions and disallowances were made by the Assessing Officer. Against the Assessing Officer s order, the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals), who vide order dated 10-2-2005 deleted certain additions out of the various additions made by the Assessing Officer. The learned Commissioner of Income-tax (Appeals) confirmed the following additions or disallowances : (1)Rs. 11,668 addition on account of purchases. (2)Rs. 96,000 being charges paid to Mrs. Bela Mukherjee for technical services. (3)Rs. 21,000 out of telephone expenses. (4)Rs. 6,14,160 being reimbursement of expenses relating to agents for collecting/renewing fixed deposit receipts. 7. However, the assessee did not file any appeal against the following items of additions or disallowances made in the assessment : (1)Rs. 65,622 on account of provisions for doubtful debts. (2)Rs. 29,25,207 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company did not file any appeal, the assessee submitted before the Commissioner of Income-tax (Appeals) that the assessee company on its own agreed to the additions as was mentioned in the third revised return filed on 3-3-1998 in respect of item 4 and as was so stated in the assessee s letter dated 27-3-1998 in respect of items 1, 2 and 3, and in the light of difference in the calculation of depreciation arising due to the rectification of the order under section 154 of earlier year in so far as item 5 of addition is concerned. All these five items were considered by the Commissioner of Income-tax (Appeals), and he had taken a view that no penalty on these items is called for. The learned Commissioner of Income-tax (Appeals) s observation in respect of penalty with reference to the additions or disallowances of 5 items in respect of which the assessee has not preferred any appeal is as under : "9.1 Further the fact that the appellant-company has accepted the above disallowances does not invite penalty as the acceptance may be due to several reasons and the Assessing Officer has not brought out anything on record proving that the appellant-company has deliberately concealed any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of Rs. 96,000 being charges paid to Mrs. Bela Mukherjee for technical services though confirmed by the learned Commissioner of Income-tax (Appeals) has been deleted by the Tribunal. Similarly, the addition of Rs. 21,000 out of telephone expenses, and disallowance of Rs. 6,14,160, being reimbursement of expenses relating to agents for collecting or renewing fixed deposit receipts has also been deleted by the Tribunal. Therefore, only addition out of the four additions, which has survived, is Rs. 11,668, being the disallowance of purchases. 16. The other additions, which have survived, against which no appeal was preferred by the assessee, are as under : (1)Rs. 65,622 on account of provisions for doubtful debts. (2)Rs. 29,25,207 on account of loss on sale of shares. (3)Rs. 9,26,060 on account of earlier year liability. (4)Rs. 48,000 on account of rent receivable. (5)Rs. 6,629 on account of excess depreciation claimed. 17. Therefore, we are concerned with the following six items for the purpose of deciding the question as to whether penalty under section 271(1)( c ) has been rightly levied by the Assessing Officer in respect of these additions : (1)Rs. 11, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny such evidence to show that the purchases made by the assessee did form a part and parcel of the items sold to Nuchem Weir Ltd. The Tribunal, thus, confirmed the findings of the learned Commissioner of Income-tax (Appeals). In the penalty order, the Assessing Officer has stated that in the light of the material discussed in the assessment order, it was evident that the assessee had furnished inaccurate particulars of income and also concealed the particulars of income by making wrong claims or by concealing certain relevant facts, so that the taxable income could be reduced. 21. On an appeal against penalty order, the Commissioner of Income-tax (Appeals) has deleted the penalty for the reasons as already mentioned above. The Commissioner of Income-tax (Appeals) has observed that no concealment on the part of the assessee has been pointed out by the Assessing Officer, and the Assessing Officer has not given any finding in the assessment order whether the above expenditure was bogus or non genuine, and mere disallowance would not attract penalty. 22. The learned Departmental representative has submitted that the Commissioner of Income-tax (Appeals) has erred in deleting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders in the quantum matter. We have deliberated upon the relevant provisions of law contained in that behalf. The various decisions cited by both the parties have been perused. 25. Section 271(1)( c ) of the Act provides for imposition of penalty in case the Assessing Officer, in the course of any proceedings under the Act, is satisfied that any person has concealed particulars of his income or has furnished inaccurate particulars of such income. Explanation 1 to section 271(1)( c ) of the Act provides that where in respect of any facts material to the computation of the total income of any person, such person fails to offer an explanation or offers an explanation which is found to be false or he 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 its 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 purpose of clause ( c ), be deemed to represent the income in respect of which particulars have been concealed. Thus, in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that assessee had sold certain items to Nuchem Weir Ltd., vide sale invoice dated 30-3-1995, and this item was a part of the said sale sold to Nuchem Weir Ltd. However, we find that the assessee has not furnished any evidence or information to substantiate this explanation. While deciding the quantum appeal, the Tribunal has categorically stated that the assessee has failed to furnish any evidence in support of its explanation even before the authorities below as well before the Tribunal. The assessee has now contended before us that the delivery of the item was actually received on 8-4-1995, and was directly handed over to Nuchem Weir Ltd., being part of sale items sold on 30-3-1995. However, no evidence has been placed before us. This transaction is shown to have been made by the assessee with its sister-concern. It is not understood that how the purchases made on 31-3-1995 could be made a part of sale of items, which were sold one day before, i.e., 30-3-1995. It is, thus, a case of furnishing inaccurate particulars of income, and even it is a case of making a false claim of purchases of Rs. 11,668 which was not even included in the closing stock in hand shown as on 31-3-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y making a wrong claim. However, the penalty has been deleted by the Commissioner of Income-tax (Appeals) by observing that the Assessing Officer has not brought out anything on record proving that the assessee has deliberately concealed anything or furnished inaccurate particulars of income, and there was no finding that the assessee was compelled to surrender the income by filing the revised computation of income. 29. Here, we are concerned with the disallowance of the claim of the provision for doubtful debts. It is by now well settled that the provision for doubtful debts is not admissible under section 36(1)( vii ) of the Act. The question as to whether the provision for bad and doubtful debts made in the accounts of the assessee is allowable as bad debts written off as irrecoverable in the accounts of the assessee under section 36(1)( vii ) was debatable before the insertion of the Explanation to that section vide the Finance Act, 2001 with retrospective effect from 1-4-1989. The position has been clarified by the Legislature by inserting the Explanation by the Finance Act, 2001 with retrospective effect from 1-4-1989. In the present case, we are concerned with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany has deliberately concealed anything or furnished inaccurate particulars of income. 31. The learned Departmental representative advanced identical arguments similar to the arguments advanced in relation to addition of Rs. 11,668 on account of bogus purchases and relied on the same decisions. 32. With regard to the addition of Rs. 29,25,207 on account of loss on sale of shares, learned counsel for the assessee submitted that the assessee revised voluntarily the income during the assessment proceedings by submitting letter dated 27-3-1998, where the assessee agreed to make the addition in respect of which full particulars were disclosed in the computation of income itself, and thus, it is not a fit case where penalty can be levied under section 271(1)( c ) of the Act inasmuch as the assessee has voluntarily offered the amount for tax as and when it was so realised. 33. We have heard both the parties and perused the material available on record. In the computation of income filed along with the return of income, the assessee-company claimed a loss of Rs. 29,25,207 on account of sale of shares of SSL/KPIL. During the course of assessment proceedings, the assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Union of India v. Dharamendra Textile Processors [2007] 295 ITR 244 . In this case, since the assessee s claim was disallowed, it was the duty of the assessee to prove and establish that his claim was bona fide , and all the facts relating to the claim were duly disclosed as provided under Explanation 1 to section 271(1)( c ) of the Act. We, therefore, proceed to see as to whether the assessee s claim was bona fide and the assessee has disclosed all the particulars material to the computation of income. We have carefully gone through the computation of income filed by the assessee with the original return of income filed on 30-11-1995. In the computation of income, the assessee worked out the sum of Rs. 29,25,207, being loss on sale of shares as per annexure 11. The assessee made a claim of set-off of long-term capital loss against the income under the head "Profits and gains of business". In the computation of income, the assessee computed the business income by taking the net profit as per profit and loss account as the base for determining the income chargeable to tax under the head "Profits and gains of business" after making several adjustments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the fact that there was positive income in that year is totally unacceptable and unbelievable inasmuch as it is beyond any doubt that the long-term capital loss is not at all permitted to be set off against the positive income under other heads. Therefore, the assessee s explanation is prima facie contrary to the clear provisions of law contained in section 71 of the Act. The assessee is a limited company, which is guided and instructed by the tax experts, as would be clear from facts of the present case. In the computation of income, the assessee has made several adjustments to the net profit shown as the profit and loss account, and while making various adjustments, the assessee-company has made a reference to the various provisions of the Income-tax Act including certain decisions also. Therefore, it cannot also be believed that the assessee-company did not know the provisions of the Income-tax Act. It is not the case of the assessee that it was advised by some tax experts that the long-term capital loss can be set off against the business income. In fact, in view of plain, specific and unambiguous provisions contained in section 71 of the Act, no such advice could be expect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. As pointed out above, we cannot lose sight of the fact that the assessee-company is a company, which is availing of professional assistance in preparing computation of income, and filing return of income. In the light of plain and un-ambiguous provisions contained in section 71 of the Act, we fail to understand as to how such claim could be made by the present assessee-company, and how this could have escaped the attention of the tax consultant or the auditor of the assessee-company while preparing and filing return of income. Moreover, it has been never a claim of the assessee that the claim was made under any bona fide advice. 35. In the case of Zoom Communication (P.) Ltd. ( supra ) and in the case of Escorts Finance Ltd. ( supra ) the Hon ble Delhi High Court has examined the claim made by the assessee on account of income-tax paid by the assessee and equipment written off, and claim of deduction under section 35D of the Act, for the purpose of penalty leviable under section 271(1)( c ) of the Act. 36. In the case of Zoom Communication (P.) Ltd. ( supra ) the Hon ble Delhi High Court has not accepted the general view taken by the Tribunal that since no pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the income under the head "Business" of the assessee-company, and how it could also have escaped the attention of the assessee-company particularly in view of the fact that the assessee claimed the amount of the long-term capital loss after applying the cost inflation index, which is only permissible while computing the income under the head "Capital gains" and not under the head "Business income". In the said decision of Zoom Communication (P.) Ltd. s case ( supra ) the Hon ble Delhi High Court has also taken note of the fact that only small percentage of income-tax returns are picked up for scrutiny, and in that case, the assessee would get away even without paying the tax legally payable by it, if the assessee s case is not picked up for scrutiny. The relevant observation of the Hon ble High Court in this regard are reproduced as under (page 518) : "20. The court cannot overlook the fact that only a small percentage of the income-tax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjected to audit. It is not the case of the assessee that it was advised that the amount of income-tax paid by it could be claimed as a revenue expenditure. It is also not the case of the assessee that deduction of income-tax paid by it was a debatable issue. In fact, in view of the specific provisions contained in section 40( a )( ii ) of the Act, no such advice could be given by an auditor or other tax expert. No such advice has been claimed by the assessee even with respect to the amount claimed as deduction on account of certain equipment having become useless and having been written off. As noticed earlier, the Tribunal was entirely wrong in saying that section 32(1)( iii ) of the Act applies to such a deduction. It was not the contention before us that claiming of such a deduction under section 32(1)( iii ) was a debatable issue on which there were two opinions prevailing at the relevant time. In fact, the assessee did not claim, either before the Assessing Officer or before the Commissioner of Income-tax (Appeals) that such a deduction was permissible under section 32(1)( iii ) of the Act. No such contention on behalf of the assessee finds noted in the order of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat hardly 5 per cent. returns are taken up for scrutiny and, therefore, with the hope that the assessee s return may not come under scrutiny and may be assessed on the self assessment, an assessee can venture to give wrong information, and, therefore, merely because information was available in the tax audit report, would not absolve the assessee, and what was to be seen was that whether the claim made was bogus. The Hon ble High Court further observed that even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim, which is made is ex facie bogus, it may still attract penalty provision. In that case, the Hon ble High Court examined the issue as to whether the claim under section 35D of the Act was bogus or it was a bona fide claim. The assessee pleaded bona fide s as, according to the assessee, it was based on the information of the chartered accountant. However, it was observed by the Hon ble High Court that they failed to understand as to how the chartered accountants, who are supposed to be experts in tax liabilities, could give such information having regard to the plain language of section 35D of the Act. The Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O on gross income was found to be mala fide and the penalty levied under section 271(1)( c ) by the Assessing Officer was upheld. Similarly, in the present case before us, there is no controversy at least to the extent that the long-term capital loss is not permitted to be set off against business income as clearly stated in plain and unambiguous language of section 71 of the Act, and, therefore, the assessee s claim cannot be said to be bona fide. 41. Further, the decision of the Hon ble Punjab and Haryana High Court in the case of Ajaib Singh Co. [2002] 253 ITR 630, upon which a strong reliance has been placed by the learned Commissioner of Income-tax (Appeals) as well by learned counsel for the assessee, would also be of no assistance to the assessee s case inasmuch as, facts of that case are quite different and distinct to that of the present case. In the case of Ajaib Singh Co. ( supra ) the penalty was levied by the Assessing Officer in respect of addition of Rs. 40,000 which was sustained on estimated basis and in that context, it was held by the Hon ble High Court that merely because addition was sustained that by itself, would not attract penalty under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserving that the assessee had furnished inaccurate particulars of his income and also concealed the particulars of income by making wrong claims so that taxable income of the assessee may get reduced. However, the learned Commissioner of Income-tax (Appeals) deleted the penalty by observing that no concealment has been pointed out in the assessment order and the Assessing Officer has not given any finding that the assessee has concealed anything or furnished inaccurate particulars of income. The learned Commissioner of Income-tax (Appeals) further observed that agreeing to the addition may be due to several reasons but that by itself was not sufficient to levy penalty when there was no finding by the Assessing Officer that the Assessing Officer compelled the assessee-company either to revise or disclose the income. He further observed that the Assessing Officer has passed the penalty order in a very mechanical manner without recording any mandatory satisfaction to initiate penalty proceedings in the assessment order. 44. Being aggrieved, the Department is in appeal before us. 45. The contentions and submissions of the learned Departmental representative were similar and id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility was no longer required to be paid by the assessee and the net of the balances were written off in the books of account, it was rightly brought to the profit and loss account as income. However, while filing the return of income, the assessee deducted the same from the net profit as per the profit and loss account without whispering anything or giving any explanation or narration as to why it has been reduced from the net profit shown as per profit and loss account. It is, thus, clear that though the amount was included in the profit and loss account, the deduction has been claimed by the assessee in the computation of total income for the purpose of assessment under the Income-tax Act, and claimed the same in the return of income filed by the assessee. When the assessee was confronted with the situation, the assessee, in its reply, merely stated that it has been claimed by mistake without stating further, as to why and how this mistake was committed. When this amount was specifically included in the profit and loss account, and thereafter it was reduced from the net profit while computing the total income for the purpose of assessment under the Income-tax Act, it is not belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that had the claim been made by mistake while filing the original return of income, it is not understood and explained as to why the assessee then failed to withdraw the claim in the revised return filed three times before a query was raised by the Assessing Officer. We, therefore, reverse the order of learned Commissioner of Income-tax (Appeals) and restore that of the Assessing Officer. In other words, the penalty levied by the Assessing Officer on this item of liabilities no longer required but written back and claimed as deduction, is justified. The order of the Assessing Officer levying penalty on this item is, thus, confirmed. 48. Now, we shall come to the matter regarding penalty levied by the Assessing Officer under section 271(1)( c ) in respect of the addition of Rs. 48,000 on account of rental income added in the assessment made by the Assessing Officer. It was noticed by the Assessing Officer that the assessee-company had given part of business premises on rent to M/s Precision Industrial Moulders, Faridabad, a sister-concern of the assessee. M/s Precision Industrial Moulders has claimed the deduction of rent of Rs. 48,000 in the assessment year 1995-96. However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. From this, it is clear that the assessee filed this revised computation of income on 3-3-1998 only after necessary queries were made by the Assessing Officer on 24-12-1997. Prior to this revised computation of income filed on 3-3-1998, the assessee already revised the return twice, first on 22-2-1996, and then again on 27-2-1997 where this rental income was not offered for taxation. The rent payable by M/s. Precision Industrial Moulders, Faridabad was claimed as deduction in its return of income. The fact that the assessee had to receive rent from that sister-concern is not in dispute. In the reasons given for revising the computation on 3-3-1998, the assessee has merely stated that the rent receivable from M/s. Precision Industrial Moulders could not be accounted for in the year ended 31-3-1995, without mentioning any reason or cause as to why and under what circumstances the said rental income left to be included in the original return of income and as well in the revised return filed twice before the income was offered to tax on 3-3-1998. In other words, the assessee has not given any explanation as to why this amount was not included in the original return of income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order under section 154 dated 30-3-1998, i.e., one day before the impugned assessment, and, therefore, this addition cannot be a subjected to a penalty. 52. We have heard both the parties and perused the orders of the authorities below. We find that disallowance of claim of depreciation is merely consequential to the assessment orders of earlier years, which were rectified under section 154 on 30-3-1995 after the return was filed by the assessee. The adjustment to the opening written down value of assets is as a result of the written down value finally worked out in the earlier years after giving effect to various orders of the earlier years. Therefore, this cannot be considered to be material where penalty under section 271(1)( c ) can be levied. Therefore, we uphold the order of the Commissioner of Income-tax (Appeals) in cancelling the penalty in so far as the disallowance of depreciation of Rs. 6,629 is concerned. In other words, the penalty levied by the Assessing Officer on this item of disallowance of depreciation of Rs. 6,629 is cancelled. 53. With regard to the other items on which the Assessing Officer has levied penalty, we find that the other additions made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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