TMI Blog2011 (7) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... , assessee had any doubt about its nature - If it is so, it is unable to be understand how the assessee can discharge its role as a professional consultant, auditing number of clients, giving them valuable advices on the accounting and taxation aspects - There is no whisper in the agreement between DTTI and the assessee which creates any doubt at all - unable to agree with the assessee that the impugned professional receipt created any debate about its nature as the receipt was patently a revenue receipt - It is clear that the assessee firm has attempted to evade tax on a purely professional receipt by propping up theory of doubt as a capital receipt - Besides, in the case of a partnership firm, receipt whether capital or revenue are to be credited to P/L A/c. The assessee in order to minimize disclosure, has taken a smart route of directly crediting the above receipt in the capital accounts of partners - The strategy saved the firm from taxation and the partners took plea that this was a capital receipt in the hands of the firm and not taxable in their hands, result - the Indian revenue looses due tax in the hands of the firm as well as partners - Decided against the assessee. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal and Gupta Choudhary and Ghosh, Calcutta, the partners of Gupta Choudhary and Ghosh were allowed to practice in the name of Deloitte Haskins and Sells in India. Accordingly, Partners of Gupta Choudhary and Ghosh formed a partnership in the name of Deloitte Haskins and Sells in India (DHandS). Consequent upon the merger of practices of DHandS and Touche and Ross internationally, a regional meeting of Deloitte Ross and Tohmatsu (DRT) International was held on 5-4-1990 in Hong Kong where the representatives of DRT International, DHandS and TR Firms in India were present. At the said meeting, DRT International representatives proposed the merger of DHandS and TR Firms in India in keeping with the international trend. In view of the fact that the Indian Laws permitted formation of a firm with not more than twenty partners, total merger was not considered feasible. In the circumstances, an 'Umberalla Firm' was formed with the representative partners of DHandS and TR Firms. It was decided that the respective firms joining the Umberalla Firm would nominate partners to the other firms. 2.3. KA became partner of DHS on 4th September, 1991 along with two other firms namely GCG and PCH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eantime, decided to grant concurrent membership to the four constituent firms of DHS. Accordingly concurrent membership agreement dated 1-9-92 was executed between KA and DTTI wherein KA was formally admitted as a member firm of DTTI. 2.8. Regarding reasons for withdrawal from the concurrent membership of DTTI, assessee submitted that DTTI was keen that the four constituent firms of DHS and two of TR firms should merge and form one national firm. The said merger required losing national identity for the firms and transfer of national clients to DHS as also, M/s. C.C. Choksi and Co. insisted on taking over DHS practice in India. As this was not acceptable to KA, the assessee contends that it was decided that DTTI would ask KA to withdraw from the membership of DHS/DTTI and agreed to pay compensation in question to KA, which has been treated by it as capital receipt in the hands of the partners. 2.9. In the course of assessment the assessee was asked to substantiate its claim as to why the amount should not be treated as revenue receipt being received in the pursuit of its profession. The assessee filed copies of relevant agreement with DTTI along with release document dated1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., 223 ITR 32 (Gauh); 3. Blue Star Ltd., 217 ITR 514 (Bom.); 4. Bishambhar Nath Swarup Narain, 119 ITR 581 (All); 5. Stewart and Dholakia (P) Ltd., 95 ITR 573 (Cal.); 6. Manna Ramji and Co., 86 ITR 29; and 7. Karam Chand Thapar and Bros. P. Ltd., 67 ITR 705 (Cal.). 2.11. Aggrieved, assessee challenged this addition in first appeal. The learned CIT (A) held as under:- "29. I have considered the submission of the AR of the appellant. I have also examined carefully the arguments taken by the A.O. and case laws relied upon by both the sides. On the totality of the facts and entirety of the circumstances of the case and in the light of the case laws relied upon by the assessee, unlike the one relied by the A.O., which are distinguishable, I am of the considered opinion that the stand of the assessee has great force. In this view of the matter, I hold that the assessee's claim that the amount received from DTTI is a capital receipt, and hence not taxable. Accordingly the addition made by the A.O. of Rs.1,15,70,000/- is deleted." 2.12. Aggrieved on the CIT(A)'s order granting relief, revenue appealed before ITAT, which held the impugned receipt to be revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome a separate and identifiable or distinct profession so as to say that if some of the clients cease, the receipt from them will be considered as capital. This fine distinction has always been upheld by various case laws cited by both the parties. In view of the above facts, we hold that the amount received by the assessee is arising in the course of carrying on profession and hence chargeable to tax as revenue receipt." 3. After ITAT's judgment on quantum, AO commenced penalty proceedings u/s 271(1)(c). In reply to show cause notice issued by the AO, the assessee contended that assessee was not liable for penalty u/s 271(1)(c) for the following reasons: (i) The assessee was advised that the receipt was capital in nature and not liable to income-tax. (ii) disallowance being made on account of difference of opinion when all the facts were placed before the ld. AO. (iii) No satisfaction was recorded as warranted by sec. 271 for initiating penalty proceedings. (iv) Assessee was not guilty of contumacious conduct or willful or gross neglect. (v) Penalty proceedings were barred by limitation. 3.1. Reliance was placed on following case laws: - CIT vs. Dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(c) holding that the assessee had furnished inaccurate particulars of income. From the above facts, it is obvious that it is not a case of concealment of income or furnishing of inaccurate particulars of income. All the facts relating to the receipt had been disclosed by the appellant in the computation of income as well as in the audit report and balance sheet filed with the return. It was, therefore, only a case of difference of opinion which resulted in treatment of this receipt as revenue receipt instead of capital receipt, as claimed by the appellant. It is true that levy of penalty is a civil liability. However, the penalty for concealment cannot be levied merely on account of difference opinion. As held by the Apex Court, where the assessee does not include a particular item in the taxable income under a bonafide belief that he is not liable so to include it, it would not be right to condemn the return as a "false" return, inviting imposition of penalty (124 ITR 15). In the case before us, it is apparent that the appellant had disclosed all the facts relating to the receipt but had not offered it to tax under a bona fide belief, based on the opinion of taxation experts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to disclose this amount by way of proper accounting entries and is thus liable for furnishing of inaccurate particulars qua this income; (vii) Merely a note in balance-sheet will not amount true and proper disclosure as the law and accounting policies expect the assessee to incorporate the receipts in proper and legal manner. (viii) The interpretation of a private agreement between DTTI and assessee cannot over-ride the statutory provisions so as to give any credence to assessee's explanation that there was any doubt about the nature of payment. Agreement no where indicates it to be capital payment. Therefore, factually doubt never existed, it has been created by the assessee to evade the tax by giving a facade of advise. (ix) Assessee claims to have followed the so called legal advises which were never furnished before the AO during the course of assessment proceedings. Only a generalize statement to the effect that "we were advised" was given. The assessee thus before the entire length and breadth of assessment proceedings up to the ITAT level never furnished copies of the written legal opinions of Mr. P.N. Pandey Ex. Chairman CBDT; Mr. G.N. Gupta, Ex. Chairman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed DR relied on following judgments: (1) DILIP N. SHROFF 291 ITR 519 SC "The word 'inaccurate' signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing inaccurate particulars. The term 'inaccurate particulars' is not defined. Furnishing of an assessment of the value of property may not by itself be furnishing inaccurate particulars. Even if the Explanations are taken recourse to, a finding has to be arrived at - having regard to clause (A) of Explanation - that the Assessing Officer is required to arrive at a finding that the explanation offered by the assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as a fact that he has not disclosed all the facts, which were material to the computation of his income. The explanation must be preceded by a finding as to how and in what manner he furnished the particulars of his incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in that entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns. The judgment in Dilip N Shroff's case (supra) has also not considered the provisions of section 276C of the Income-tax Act. Therefore, in our view, the judgment in the case of Dilip N Shroff (supra) needs consideration by the larger Bench of this Court particularly when it has ramifications not only regarding provisions of the Income-tax Act but also with regard to the provisions of sections 3A and IIAC of the Central Excise Act and rule 6ZQ(S) of the Central Excise Rules. 9. For the afore stated reasons, we direct the Registry to place our order in this batch of civil appeals before the Hon'ble Chief Justice of India for appropriate directions." (iii) DHARMENDRA TEXTILES 306 ITR 277 (THREE JUDGE) " It is of significance to note that the conceptual and contextual difference between section 271(1)(c) and section 276C of the Income-tax Act was lost sight of in Dilip N Shroff's case (supra). The Explanations appended to section 272(1)(c) of the Income-tax Act entirely indicates the element of strict liability on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(J)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9] The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (Ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one s income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 91 ITD 237 (Ahd) (T.M) - Navbharat Enterprises v. ACIT 309 ITR (AT) 79 (Ahd) - ACIT v. U.P. Hotels 83 ITD 443 (All); - Equest India (P) Ltd. v. ITO 41 SOT 225 (Mum.); 4.4. Learned counsel contends that the assessee followed the legal advice given by the taxation experts Shri T.N. Pandy; Shri G.N. Gupta and Shri M.S. Syali. If the assessee follows the legal advices, then penalty cannot be imposed if the claim is rejected. Reliance is placed on following decisions: - T. Ashok Pai v. CIT 292 ITR 11 (SC) - DCIT v. Vertex Customer Services 126 TTJ 184 (Del.) - CIT v. S. Dhanbal 309 ITR 268 (Del) 4.5. The issue in question was clearly a debatable matter and two views were squarely possible on that issue. The compensation was given by DTTI binding the assessee not to give professional services to the clients which were referred by him. DTTI constitutes a distinct stream/source of a particular nature; closure thereof amount to the end of a source. Since the receipt was for closure of a professional source, there existed a genuine debate about the receipt being capital in nature. The assessee adopted one of the possible views which was placed on sound legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the impugned income was revenue in nature. The assessee has a right to seek legal opinion and furnish return of income according to the legal advice, making a claim which it had no other way to make except by filing a return of income. 5. We have considered rival contentions and perused the material available on record. It is imperative to consider the nature of penalty proceedings and the case law in that behalf. Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) has held that concealment of income and furnishing of inaccurate particulars are different and refer to deliberate act of the assessee and the revenue must establish the existence of mens rea. Later on, Division Bench of the Hon'ble Supreme Court in the case of Dharmendra Textiles (supra) had occasion to consider this judgment and held that the penalty levied u/s 271(1)(c) was not quasi criminal in nature, but was a civil liability. However, the Bench referred its judgment for decision by a larger bench of the Supreme Court. The Three Judge Bench in the case of Dharmendra Textiles 306 ITR 277 (supra), held that the Explanation appended to sec. 271(1)(c) entirely indicates the attribution of elements of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the law. Assessee has ventured into an adventure which was fraught with obvious risks which it has preferred to take. The assessee has pleaded that payment of advance tax does not amount to admission and the assessee is free to change its stand. In our view, advance tax payment may not be conclusive, but it is an indication to the mind set of the assessee. While construing strict civil liability, it becomes imperative to correlate assessee's various activities and explanations. 5.2. Explanation to Sec. 271(1)(c) is attracted where an assessee fails to offer an explanation or offers an explanation which is false or, after September 10, 1986, where an explanation is offered but the assessee it is not able to substantiate such explanation and is not able to prove that explanation is bona fide. Bona fide explanation is one which is not mala fide, consequently assessee's mind set becomes a matter of inference. While inferring something, the facts are to be holistically seen and the discretion is to be accordingly exercised. We have to proceed with the mandate of Hon'ble Supreme Court that there is no obligation on revenue to establish mens rea in terms or akin to Section 276C f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these opinions and still ventured into making a claim which was basically not allowable. Our view is further strengthened by the fact that in penalty proceedings before the AO none of these legal opinions were furnished and only before CIT(A) they were filed which is evident from the paper book filed by the assessee on the query from the Bench, which is not disputed by the assessee. Ld. CIT(A) also has not adverted to any legal opinion and has failed to appreciate that they were being produced before him for the first time. 5.8. Under these circumstances, we are unable to agree with the assessee that the impugned professional receipt created any debate about its nature as the receipt was patently a revenue receipt. From above it is clear that the assessee firm has attempted to evade tax on a purely professional receipt by propping up theory of doubt as a capital receipt. Besides, in the case of a partnership firm, receipt whether capital or revenue are to be credited to PandL A/c. The assessee in order to minimize disclosure, has taken a smart route of directly crediting the above receipt in the capital accounts of partners. The strategy saved the firm from taxation and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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