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TMI Blog2012 (5) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... f debts which were being claimed as bad debts. In response to this query, assessee vide letter dated 17-11-08 explained as under: "The following parties are group concerns to whom advances have been made and as they have suffered heavy losses, the business activities of these companies have been closed down and they have no capacity to repay the amount, hence the same have been written off' and the assessee furnished copy of their Final Accounts to establish that these companies have suffered losses and are not in a position to repay the loans. Hence, the amounts were written off as not recoverable". After examining the submissions and on further verification AO found that these amounts were interest free advances to family concerns of the directors. It was further found that these advances were not for the purpose of business and accordingly it was observed that since debts were never taken into consideration for computing the income of the assessee as per sec.36[1][vii] r.w.s. 36[2], therefore, claim for bad debts was not maintainable. In response to this, the following reply was given on behalf of the assessee: "The amount advanced to sister concerns in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Hon'ble Supreme Court in the case of UOI v. Dharmendra Textile Processors and Ors. [supra], in various other cases it has been held that presence of men's rea was required for levying the penalty u/s.271(1)(c). The Ld.CIT[A] did not find force in the submissions and confirmed the levy of penalty vide para 2.3 which is as under: "2.3. I have carefully considered the facts of the case. The appellant advanced a substantial amount of Rs. 70,83,821 I-to its sister concern free of interest. The same was claimed as bad debt as not recoverable. In my considered opinion, the appellants claim was not allowable as bad debt since the same was not considered as income of the appellant in any of the earlier years. The appellant's claim was also not allowable under the provisions of section 37 (1) of the Act since the amounts were not advanced to the sister concerns for the purposes of appellant's business. During assessment proceedings as well as during penalty proceedings the appellant failed to prove that the act of advancing those amounts to sister concern were incidental to its business or the amounts were advanced to sister concerns for the purpose of commercial expedien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its income by furnishing inaccurate particulars of such income by claiming a patently inadmissible claim of bad debt u/s 36(1)(vii) or u/s 37(1) of the Act. The penalty levied by AO u/s 271(1)(c) is therefore confirmed." 6. Before us Ld. Counsel for the assessee submitted that the AO was not sure whether it is a case of concealment or furnishing of inaccurate particulars and in this regard referred to para-5 of the penalty order where both expressions have been made applicable. He also referred to the copy of notice u/s.274 and pointed out that simply a tick mark has been made against the column "for concealing the particulars of income or furnishing inaccurate particulars of income". This only shows non application of mind which itself becomes a ground for non levy of penalty. In this regard he referred to the decision of the Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT and Another [291 ITR 519]. He particularly invited our attention to placitum-21 at page 534 of the report wherein it was argued that no satisfaction was recorded whether assessee had concealed the particulars of income or furnished inaccurate particulars which were the conditions precede ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete wet grinder which was a new product and when the issue arose regarding penalty on exemption claimed by the assessee, it was held that items which were not included in the turn over found incorporated in the appellant's account books. Where certain items which were not included in the turnover but were recorded in the assessee's own account books, then penalty was not leviable. Therefore what is ultimately held that if a disclosure has been made then penalty cannot be levied and this theory has been accepted by the Hon'ble apex court in the case of CIT vs. Reliance Petro Products Pvt. Ltd. [supra]. Since in the case before us assessee has made the disclosure regarding giving of advances to sister concerns which means fully disclosure was made and, therefore, penalty was not leviable. 8. On the other hand, Ld. DR referred to sec.271[1B] and submitted that the order of assessment itself constitute satisfaction of the AO for initiation of penalty proceedings. He argued that mere disclosure of an item which is palpably wrong cannot be accepted as a disclosure in the light of the decision of the apex court in CIT vs. Reliance Petro Products Pvt. Ltd. [supra] for not levying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck marked the column "for concealing the particulars of income or furnishing inaccurate particulars of income" in the show cause notice. We are unable to agree with this submission. First of all, it is settled law that a precedent has to be followed only for the ratio laid down in a particular judgment by a higher forum. In the case of Dilip N. Shroff vs. JCIT and Another [supra], the ratio laid down was that penalty cannot be levied without the mens rea which was essential for levy of penalty. This decision has been over-ruled by the decision of a larger bench of the Apex Court in the case of Dharmendra Textile Processors and Ors. [supra], wherein it was held that explanation appended to sec.271(1)(c) of the I.T.Act, 1961, indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars in the return. The provision being a civil liability, therefore, mens rea was not required. However, at the same time as observed by the Hon'ble Supreme Court again the observation that concealment and filing of inaccurate particulars are two different requirements, is still valid. The Ld. Counsel of the assessee had also argued that even non striking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such explanation must either be false or not otherwise substantiated. Even in Explanation 4, the expression "evaded" finds place." From the above it is clear that what court observed was that "concealment and filing of inaccurate particulars" are two different requirements. There can be a situation where both these ingredients may be applicable. For example, in case of an item of income if only half of such income is disclosed and that too as a capital receipt, then the situation would be that as far as the first half of income is concerned which has not been disclosed, the same has been concealed and the other half which has been disclosed as a capital receipt would be a case of filing of inaccurate particulars. Therefore, at the initial stage it is difficult even for an assessing authority to be specific. The whole idea behind the show cause notice is to make assessee aware that penalty provisions are going to be invoked and assessee has a right to offer an explanation. Therefore, merely non striking of a particular column cannot lead to a conclusion that penalty needs to be deleted merely because of such failure. In any case, in the case before us though the column "con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a claim is bona fide and even if it is not tenable under the law, still penalty cannot be levied. But if claim itself is not bona fide, then penalty would be leviable. Sec.271(1)(c) reads as under: [Failure to furnish returns, comply with notices, concealment of income, etc. 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) xx xx xx b) xx xx xx c) has concealed the particulars of his income or [* * *] furnished inaccurate particulars of [such income, or d) xx xx xx [Explanation 1.-Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the [***] [Commissioner (Appeals)] [or the Commissioner] to be false, or (B) 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 computation of his t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, in these circumstances, was of the view that the confirmation of disallowance by the Tribunal did not mean that the assessee had concealed the income or had filed inaccurate particulars thereof. Noticing that the assessee had given an explanation, vide its letter dated March 22, 2006, giving reasons for claim-ing the interest as a deduction, the Tribunal was of the view that the onus shifted on the Revenue to prove that the explanation offered by the asses-see was false. The Tribunal felt that the bona fides of the explanation were clearly proved from the fact that the High Court admitted the appeal of the assessee about the disallowance of the interest. The Tribunal held that if there could be two views about the claims of the assessee, the explanation offered by it cannot be said to be false. The penalty was accordingly deleted by the Tribunal. The order of the Tribunal was maintained by the High Court. It was contended on behalf of the Revenue, before the Supreme Court, that only the amount of interest paid in respect of capital borrowed for the purposes of the business or profession could have been claimed under section 36(1)(iii) of the Act and the case before the court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... types reduces taxable income, both amount to concealment of particulars of one's income as well as to furnishing of inaccurate particulars of income. The contention was rejected by the court. The proposition of law which emerges from this case, when considered in the backdrop of the facts of the case before the court, is that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section 271(1)(c) would come in to play and the assessee will be liable to for the prescribed penalty. After noticing the facts of the case, the Hon'ble Delhi High Court further observed as under: "In the case of Reliance Petroproducts P. Ltd. [2010] 322 ITR 158 (SC), the addition made by the Assessing Officer in respect of the interest claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; The amount advanced to sister concerns in the normal course of business and not recoverable, hence written off This claim is being made out of business income and particularly under the provisions of section 37 where in the expenditure incurred by the Company may be allowed as an expenses, if the same is not of a capital nature and covered by the items covered u/s 36 of the I.T. Act." The above clearly shows that these advances were not given for any business purposes. Even during the course of hearing it was admitted by the Ld. Counsel of the assessee that he was not in a position to inform the court that for what purposes such advances were given. Obviously, such advances were not given for any purchases or expenditures for carrying on the business of the assessee and, therefore, this clam could not have been made as business expenditure in the form of bad debts. The non filing of an appeal itself shows that assessee did not have any bona fide claim. The Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication P. Ltd. [supra] has further observed at placitum 20 that it cannot be lost sight of that only a very small percentage of returns are picked up for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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