TMI Blog2011 (1) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... at an expenditure of Rs. 8,34,435 was debited on account of fees paid to the Registrar of Companies for increasing the authorized share capital. The assessee was required to show cause why this amount may not be disallowed as capital expenditure in view of the decision of the Apex Court in the case of Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792/93 Taxman 5. The assessee surrendered the amount for taxation but requested that penalty proceedings may not be initiated. However, the Assessing Officer not only disallowed the expenditure but also initiated penalty proceedings by mentioning that the assessee did not voluntarily surrender the amount for taxation. The penalty proceedings were completed on 26-6-2009. The decision in the case of Punjab State Industrial Development Corpn. Ltd. (supra) was referred to. It was held that the assessee intentionally and wilfully sought to evade tax by furnishing inaccurate particulars of income. Therefore, penalty of Rs. 2,80,870, being the minimum penalty, was levied. 2. Various submissions were made before the CIT(Appeals)-XXIX, New Delhi. He referred to a number of judgments including in the case of CIT v. Escorts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee referred to page Nos. 1 and 2 of the paper book, which are profit and loss account and Schedule 14 to the accounts. It is seen that a sum of Rs. 1,66,99,222 has been debited to the profit and loss account as administration, selling and other expenses. The break-up of the expenditure has been given in Schedule 14, which shows inter alia an expenditure of Rs. 8,34,435 on account of fees for increase in capital. The case of the ld. counsel is that the facts regarding the claim were fully disclosed in the return of income. The question of levy of penalty has to be seen from the explanation tendered by the assessee. The explanation is that all facts have been fully disclosed. This explanation is bona fide. Therefore, the inference of penalty cannot be drawn in such a case. Reliance has been placed on the decision of Hon ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322; Hon ble Delhi High Court in the case of CIT v. Zoom Communication (P.) Ltd. [2010] 327 ITR 510/191 Taxman 179; CIT v. IFCI Ltd. [2010] 328 ITR 611/199 Taxman 21 (Delhi); Hon'ble Chhattisgarh High Court in the case of CIT v. Vijay Kumar Jain [2010] 325 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nistration, selling and other expenses'. The details of these expenditure were available in Schedule 14, which shows that the amount of Rs. 8,34,435 was debited under this head as fees for capital increase. Therefore, the facts in regard to claim of expenditure were disclosed in the return of income. However, the tax audit report did not treat this expenditure as capital expenditure. An affidavit has been filed from Shri S.K. Aggarwal, Chartered Accountant, to the effect that he has been compiling/scrutinizing the returns of the assessee, the tax audit report was prepared by M/s. Bansal Company, a firm of Chartered Accountants, which shows nil amount in column 17(a), and this amount escaped his attention also while preparing the return of income. On these facts, the question is-whether, the assessee is liable to be penalized under section 271(1)(c)? 7.1 Insofar as the question of admissibility of the expenditure is concerned, the same stands decided against the assessee by the judgment of Hon ble Supreme Court in the case of Punjab State Industrial Development Corpn. Ltd. (supra) dated 4-12-1996, which made the following observations: "We do not consider it necessary to exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x in computing the total income. The claim is prima facie inadmissible. The case of the assessee was that the mistake occurred due to oversight. The Hon ble Court mentioned that only a small percentage of income-tax returns are picked up for scrutiny. In such a situation, 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 is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty. If such a view is taken that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making the claim of this nature, that would give a license to unscrupulous assessees to make wholly untenable and unsustainable claims. It is further mentioned that it is not explained as to who committed the oversight resulting in failure to add this amount and under what circumstances the oversight occurred and why it was not detected by those who checked the income-tax return. The revenue has placed heavy reliance on this case, while the ld. cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned 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 provisions. We have already seen that the claim that the error was committed by the chartered accountant is not acceptable. Hon ble Delhi High Court has accepted this line of argument in the aforesaid case. Beyond that, it is clear that the claim is ex facie bogus. Therefore, the ratio of this case is also applicable to the facts of the case. 7.6 In the case of Vijay Kumar Jain (supra), the facts are that the Assessing Officer rejected the book results and made an addition of Rs. 1,70,920 by estimating the net profit at 10 per cent of the receipts against 6.36 per cent shown by the assessee. The Hon ble Court considered inter alia the decision in the case of Dharmendra Textile Processor (supra). It has been mentioned that it is not the case of the revenue that the assessee concealed the particulars of his income or any particular of income furnished by him was found to be inaccurate by the Assessing Officer. Therefore, the penalty was cancelled. The facts of this case are clearly distinguis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IFCI Ltd. (supra), the question before the Hon ble jurisdictional High Court was regarding levy of penalty in respect of "investments written off". The case of the assessee was that all particulars were furnished in the return of income and the loss was actually incurred. The Tribunal after analyzing the factual matrix expressed the view that there has been no furnishing of inaccurate particulars and it is a case where a claim of loss was not accepted. That would not per se amount to furnishing any kind of inaccurate particulars. The Hon ble Court concurred with this finding and mentioned that it does not perceive any merit in the appeal. The same was dismissed at the stage of admission. From this decision, it transpires that the material issue is whether the claim is ex facie false and whether explanation furnished by the assessee is bona fide? It is a fact that the claim is ex facie false. The plea of bona fide cannot be accepted because the circumstances in which auditors committed the errors have not been explained. Therefore, we are of the view that the lower authorities were right in levying the penalty. 7.10 In the case of Tel-Abridge International Ltd. (supra) the Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in the case of Brooke Bond India Ltd. (supra) and Punjab State Industrial Development Corporation Ltd. (supra) wherein the nature of similar expenditure claimed by the assessee was held to be capital. We fail to understand why the assessee still claimed the same by treating it as revenue expenditure in the return despite the Apex Court in their decisions (supra) have clearly held the same to be capital in nature. The law was laid down by the Apex Court (supra) much before the filing of the return of the assessee, hence, in our opinion the assessee now cannot absolve itself from levy of penalty under section 271(1)(c) in view of Explanation 1 to section 271(1)(c) by giving an explanation during the assessment proceedings that it disclosed all particulars before the Assessing Officer or that the claim made by the assessee was due to a bona fide error. In our opinion in the facts already narrated in detail by us, the claim of expenditure made by the assessee even against the law laid down by the Apex Court can be called to be ex facie bogus and hence cannot be called bona fide. Therefore, the assessee s case comes within the purview of Explanation 1 to section 271(1)(c) for lev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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