TMI Blog2010 (6) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and accordingly the addition is confirmed – Appeal is dismissed In respect of bogus expenses - After considering the entire facts of the case, we are of the opinion that ld. CIT(A) has rightly confirmed the action of AO in making addition as assessee has failed to prove the nature of service rendered by the broker - Thus, the genuineness of expenditure is not fully verifiable and therefore, addition is confirmed Regarding penalty u/s 271(1)(c) - The case of the assessee is also covered in terms of Explanation -1(B) if we treat that explanation furnished by the assessee during the course of assessment proceedings as the explanation assessee could have furnished in response to show cause notice before levy of penalty - It was held that explanation raised rebuttable presumption and the burden which is cast on an assessee is akin to a civil burden which may be discharged on a preponderance of probabilities - S. 271(1)(c) applies where the assessee “has concealed the particulars of his income or furnished inaccurate particulars of such in - . In the result, the appeal filed by the assessee is partly allowed - ITA No.351/Ahd/2008 - - - Dated:- 25-6-2010 - T.K. Sharma Judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired the assessee to explain the source of such gifts and creditworthiness of the donors but no explanation was furnished and donors were also not produced for verification. He accordingly treated the loan amount of 3 Rs.2,45,000/- as bogus and added the same in the total income of the assessee under section 68. 4. Regarding brokerage expenses the AO required the assessee to prove the expenses as incurred wholly and exclusive for the purposes of business and further that such expenses were not claimed in earlier years. The AO required the assessee to produce confirmatory letters from the recipients and produce the persons who have received the payments. But the assessee failed to furnish any evidence. The AO accordingly treated the expenses as bogus and added the same in the total income of assessee. The matter traveled to the Tribunal in quantum addition. The Tribunal vide its order in ITA No.718/Ahd/2006 pronounced on 28.10.2009 deleted the first addition and confirmed the other two as under :- (i) Addition in respect of bogus purchases (at pages 4-5 of the Tribunal s order) 7. We have considered the rival submissions and the materials placed on record. After consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to prove the nature of service rendered by the broker. Further, the payments have been made in cash and are supported by self made vouchers. Thus, the genuineness of expenditure is not fully verifiable and therefore, addition is confirmed. The ground no.3 is therefore dismissed. 5. In penalty proceedings the AO sent a show cause notice on 13.2.2007. Assessee was required to show cause why penalty under section 271(1)(c) should not be levied in this case. In response to the same the assessee did not attend nor file any written submission or request for adjournment. The AO accordingly proceeded to levy the penalty. The ld. CIT(A) confirmed the penalty in respect of all the three additions. 6. Before us, ld. AR for the assessee submitted that no penalty should be levied in respect of first addition as the same is deleted by the Tribunal. 7. The ld. DR on the other hand submitted that penalty should be levied because assessee failed to furnish any explanation in response to show cause notice and case of assessee is covered under Explanation -1 to section 271(1)(c). He submitted that in spite of specific request the assessee failed to produce the alleged donors or to show tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J 289 (Mum) wherein it has been held that where the addition was deleted by the Tribunal in quantum appeal, the very foundation for levy of the penalty ceased to exist. 8.6 Accordingly penalty levied in respect of addition of Rs.3,45,984/- is deleted. 9. However, in respect of other two additions, the position is different. These additions are confirmed by the Tribunal as above. The assessee failed to give any explanation in response to show cause notice before levy of penalty. Therefore, the case of the assessee is covered under Explanation-1 to section 271(1)(c). For the sake of convenience we reproduce Explanation -1 to section 271(1)(c) as under :- Sec. 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) . (b) . (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) He may direct that such person shall pay by way of penalty Explanation -1 Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nors and assessee fails to do so. Under the circumstances explanation furnished by the assessee during the course of assessment proceedings cannot be treated as bona fide. As all the three ingredients laid down in Explanation -1(B) are satisfied the addition made by the AO can be deemed as the income in respect of which assessee has concealed the particulars of income or furnished inaccurate particulars. 10. In respect of claim for bogus expenses ld. DR submitted that case is covered under Explanation -1(B) to section 271(1)(c) as assessee failed to prove that the payments were made for business purposes. Once the claim of expenses is not substantiated and all the material facts relating to 9 the claim are not disclosed to the AO inasmuch as neither the identity of persons to whom the payments were made nor the evidence of services having been rendered are furnished then it cannot be said that expenditure was actually incurred for the purposes of business. On the other hand, the ld. AR for the assessee has relied on the decisions of Hon. Gujarat High Court in National Textile vs. CIT (2001) 249 ITR 125 (Guj) and CIT vs. Jalaram Oil Mills (2002) 253 ITR 192 (Guj) for the propositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion-1 existing prior to Taxation Laws (Amendment) Act, 1976. It was held that explanation raised rebuttable presumption and the burden which is cast on an assessee is akin to a civil burden which may be discharged on a preponderance of probabilities. The word used in section 68 suggests that where an addition is warranted then penalty under section 271(1)(c) would not follow as a natural corolarry. In National Textiles case it was held that in order to justify the levy of penalty under Explanation-1 to section 271(1)(c) two factors must co-exist, there must be some material or circumstances leading to the reasonable confirmation that amount does represent assessee s income. It is not enough for the purpose of penalty that the amount has been assessed as income and secondly the circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on the part of the assessee. Explanation-1 to section 271(1)(c) as above and as was existing at that time had no bearing at factor No.1 but had bearing on factor No.2. The explanation does not make the assessment conclusive evidence that the amount as addition was in fact income of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other purely arithmetical and in view of the committee it would not be correct to initiate penalty proceedings in every case which the difference exceeded 20%. The provisions in the United Kingdom relating to levy of penalty on the basis of which Explanation-1 was framed has been dropped. Thus it was experienced that Explanation-1 as existing at that time has failed and did not serve any useful purpose. The committee felt that penalty should not be draconian but those who are tempted to resort to concealment of income should not be allowed to get away tenuous of legal interpretation. The committee accordingly made following recommendations which became the basis for inserting Explanation-1 to section 271(1)(c) by the Taxation Laws (Amendment) Act, 1976: (a) Presumption of concealment where explanation found false Several officers of Department invited our attention to the Supreme Court's decision in the case CIT, West Bengal vs. Anwar Ali (76 ITR 696 ). It has held by the Court that penalty for concealment of income cannot be imposed merely because the explanation given by an assessee is found to be false. While this decision was given in the context of clause (c) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide and the facts relating to the Explanation and material to the computation of total income has been disclosed by the assessee Explanation-1 will not be applicable. In other words, addition to total income would be the deemed concealed income in two situations covered by clause (A) and clause (B). Clause (A) provides that where an assessee fails to offer an explanation or where explanation offered in respect of amount added to the total income is found to be false and as per clause (B) where in respect of the addition to the total income assessee offers an explanation which he is not able to substantiate. As per proviso Clause (B) would not be applicable where explanation offered by the assessee is merely rejected if such explanation is bona fide and all the facts relating to the same and material to the computation of total income have been disclosed by him. Thus out of larger area where an explanation is not substantiated a large chunk of circumstances are taken out where explanation given is considered bona fide and all the material facts necessary for computation of income have been disclosed. The Explanation -1 in this form created difficulties inasmuch as it was found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of total income have been disclosed by him. 16.2 Explanation-1(B) has been interpreted by ITAT Lucknow Bench-B in Star International vs. ACIT (2008) 23 SOT 88 (Lucknow) wherein it is held that burden is on the Revenue to show that all the three ingredients to the Explanation-1 (B) are satisfied. It is held that the first ingredient of clause (B) is such person offers an explanation which he is not able to substantiate does not mean that explanation is not accepted by the concerned authorities but it means that there is no substance in the claim made by the assessee. The word substantiate is opposed to words vague or fanciful, or without any foundation or basis . 16.3 The second ingredient is that assessee fails to prove that such explanation is bona fide which means that facts and circumstances exist and there is preponderance of probabilities that what assessee states could be true or could have been true. It is primarily supported by material on record, history of the case and books of accounts of the assessee. The claim of the assessee is apparently in accordance with principles of Accountancy or as per judicial pronouncement existing at the relevant time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imately, the view in favour of the assessee might have to be taken In the income-tax matters, which are governed by an All India statute, when there is a decision of a High Court interpreting a statutory provision, it would be a wise judicial policy and practice not to take a different view, barring, of course, certain exceptions, like where the decision is sub silentio, per incuriam, obiter dicta or based on a concession or takes a view which it is impossible to arrive at or there is another view in the field or there is a subsequent amendment of the statute or reversal or implied overruling of the decision by a High Court or some such or similar infirmity is manifestly perceivable m the decision. If one High Court has interpreted the provision or section of a taxing statute, which is an All India statute and there is no other view in the field another High Court should ordinarily accept that view in the . Therefore, in our humble view the above two judgments in National Textile vs. CIT (supra) and CIT vs. Jalaram Oil Mills (supra) would not be applicable in respect of addition made in the Asst. Year 2002-03. 18. Thus when we apply explanation-1as existing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion given in the Return was found to be incorrect or inaccurate. The words inaccurate particulars mean that the details supplied in the Return are not accurate, not exact or correct, not according to truth or erroneous . In the absence of a finding by the AO that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false, there would be no question of inviting penalty u/s 271(1)(c). (ii) The argument of the revenue that submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such income is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee . If the contention of the Revenue is accepted then in case of every Return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(1)(c). That is clearly not the intendment of the Legislature. (iii) The law laid down in Dilip Shroff 291 ITR 519 (SC) as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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