TMI Blog2012 (6) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... are manufactured to give a colour of genuineness to the deduction; or if there is not even a far-flung possibility of forming a legally sustainable opinion about the deduction either because of the facts prevailing in a particular case or because no judicial precedent in favour of allowability of such deduction or if an issue is still virgin and had not received attention of the Courts so far, then simple and plain interpretation of the provision leaves no chance to a reasonably prudent person to form an opinion that such a deduction is allowable. These are only some of the instances in which a claim for deduction shall be short of bona fide. - by no standard the claim of the assessee for deduction of ₹ 33.63 crores can be categorized as not bona fide in any manner. Penalty under section 271(1)(c) - proper disclosure - held that:- when the disclosure made by the assessee in its Profit and loss account and by way of Note in the Balance sheet is considered in the backdrop of ongoing litigation of the assessee with the Department for last three years on the same point, no hesitation in coming to the conclusion that the assessee made a proper disclosure of the facts material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT (S.B) [2008] 111 ITD 1, insofar as the amounts involved in that appeal were held to be for use and occupation of the premises and not under family settlement, and as such a different view on the same transaction, in law, is not permitted in the appellant's penalty proceedings. Yours appellant craves leave to add to, alter, amend or delete all or any of the grounds of appeal on or before the date of hearing. 2. Brief facts of the case are that during the relevant year the assessee had made a claim for an amount of ₹ 33,62,85,024/- the break up of which was as under: Damages ₹ 33,47,01,137/- Discount ₹ 16,84,487/- This payment was made to Narang Overseas Private Limited [for short NOPL] by the assessee company i.e. Narang International Hotels Private Limited [for short NIHPL]. The assessee company has taken the premises owned by NOPL viz., flat Nos.3, 3A, 4, 5, 6 and 7 in the ground floor of Beach View Co-Op. Hsg. Society at Warden Road Mumbai (for short said premises) on license basis to carry on business in fast food, particularly, for sale of pastries etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of commission as well as payment of mesne profit. Against this, Hon'ble High Court ordered release of the amount deposited by the assessee company i.e. NIHPL. On 2-7-1994, Shri Rajesh Narang, Director of NOPL filed a separate suit for specific performance and implementation of family settlement agreement. In this suit, following prayers were made: (a) to handover forthwith quiet, peaceful and vacant possession of shop premises; (b) to pay arrears of commission with interest; (c) to pay the appellant mesne profits/damages of ₹ 1000000/- per month along with interest thereon for use and occupation of the shop premises; and (d) to withdraw forthwith the first appeal No. 591/1993 filed before the Bombay High Court arising out of Bombay City Civil Court's order in Suit No. 8079 of 1990 . 5. There were other litigations also going on between the family members and ultimately Shri Rajesh Narang filed a suit for contempt of court against his father Shri Rama Narang in the Hon'ble Supreme Court. Eventually the Hon'ble Supreme Court decreed the suit vide order dated 8-1-2002 in terms of the consent terms reached on 12-12-2001 through which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed this payment, mainly because payments were not made in the course of the business. In fact, according to the AO these payments were not made wholly and exclusively for the purpose of business and are not incidental to the business of the assessee. Further, he observed that according to the assessee itself the payments were in the nature of damages for wrongful use of the premises even after termination of the license. 7. On appeal, the Id. CIT[A] discussed the issue in detail and referred to the various family settlement agreements as well as court orders and confirmed the action of the AO. Aggrieved by the order of the CIT[A] assessee filed an appeal before the Tribunal through which even the Tribunal confirmed the addition. 8. On the basis of the above addition, penalty proceedings u/s.271[l][c] were initiated and show cause notice u/s.274 was issued. During penalty proceedings, again assessee made detailed submissions, which have been summarized by the AO in para-4 of the penalty order, which are as under: 4. The explanation of the assessee was given thorough consideration in the light of the facts involved in the matter and various judicial pronouncement. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosure, he observed that though the assessee had made the disclosure in schedule M which dealt with administrative and other expenses by stating NOPL paid under suit No. 3578 - ₹ 33,63,85,624/-. Since no further details were given, therefore, it could not be called a true disclosure and such disclosure would not absolve the assessee from penal liability and in this regard he placed reliance on the decision of the Hon'ble Gujarat High Court in the case of CIT v. Vidyagauri Natverlal [1999] 238 ITR 91. He also referred to the decision of the Hon'ble Delhi High Court in the case of CIT v. Nath Bros. Exim International Ltd. [2007] 288 ITR 670, wherein it was observed that disclosure of fact relating to the issue and material to the computation of the total income should be such that no enquiry is required to be made by the AO before concluding whether assessee has furnished inaccurate or false particulars of income. It was observed that in the case before him the disclosure could not be called proper disclosure. In these circumstances, AO levied a penalty at the maximum of 300% of the tax sought to be evaded. 10. On appeal, the penalty has been confirmed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again not attract penalty provisions. When a issue is debatable, in the sense whether expenditure is capital expenditure or revenue expenditure, then penal provisions cannot be applied and in this regard he relied on the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Harshvardhan Chemicals Minerals Ltd. [2003] 259 ITR 212/133 Taxman 320. ( iii ) Then he referred to pages 68 to 72 of the paper book, which is a copy of the original agreement through which the said premises were taken on lease and licence basis. He submitted that as per Clause 11, the assessee company had agreed to pay the owner of the premises on the basis of percentage of commission on the sale. He pointed out that as per Clause 13, assessee had an option to continue the licence. He submitted that during subsistence of this agreement Shri Rajesh Narang threatened the employees of the assessee and that is why the assessee company had to go to the City Civil Court with a prayer that Shri Rajesh Narang should be restrained from creating trouble in the smooth running of the business. The said City Civil Court directed the assessee company to hand over the peaceful possession of the prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decreed by the Hon'ble Supreme Court is the Suit No. 3678 of 1994 of Shri Rajesh Narang before the Hon'ble Bombay High Court. In this suit Shri Rajesh Narang had, inter alia, claimed mesne profits @ ₹ 10 lakh per month. This claim has been decreed by the Hon'ble Supreme Court. The effect of this decree is the same as that of any other binding order of the Court. As has been pointed out by the appellant, it has been held by the Hon'ble Bombay High Court in Anant Chunilal Kate v. ITO [2004] 187 (TR (Bom) 93 : (2004) 267 ITR 482 (Bom) that a decree in terms of the settlement arrived at by the parties before the Court has the same binding force as any other decree. He also referred to the observations of the Tribunal in this case wherein while adverting to the issue of taxability of mesne profits it was observed that there was conflict in the decisions of various High Courts. In this background he ultimately argued that the expenditure was incurred in terms of the court decree and when there is conflict in the decisions of various High Courts, then the issue is really rendered as debatable and, therefore, penalty could not have been imposed on such a deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any chance. He then referred to page 315 of the paper book which is a part of the order of the Special Bench in the case of recipient i.e. Narang Overseas (P.) Ltd. ( supra ). He particularly invited our attention to para-39 and submitted that the Ld.DR had argued during the appeal for taxability of the compensation in the hands of the recipient as revenue in nature which means the stand of the department was that it was a revenue receipt in the hands of the recipient, therefore, it should have been treated as revenue expenditure in the hands of the assessee. He submitted that during assessment proceedings assessee had relied on various case laws which clearly show that the claim of this expenditure was bona fide and was made on the basis of certain judicial decisions. Once a claim is of bona fide nature, then no penalty can be imposed and this situation has been made very clear by the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322. ( v ) He also submitted that the AO had initiated penalty proceedings on the main issue of taxability of expenses incurred by the assessee company. The Tribunal had also con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger genesis family disputes and settlements . He also admitted that the assessee had agreed to pay such a huge compensation, because there was lot of pressure on the assessee, particularly in the form of contempt proceedings before the Hon'ble Supreme Court and Shri Rama Narang, Chairman of the assessee company could have been sent to jail. 16. On the other hand, Ld.DR carried us through various paras of the assessment order, and CIT(A)'s order in quantum proceedings particularly the portion reproduced by the Tribunal in quantum proceedings, penalty order, some paras of Special Bench in the case of recipient i.e. Narang Overseas (P.) Ltd. ( supra ), and made detailed submissions which can be summarized as under: (1) His first submission that it is not correct that similar expenditure was allowed in earlier year. What was allowed in earlier year was the commission which was payable for use of the premises and when the premises were not vacated the compensation which was ordered by the Hon'ble Bombay High Court to be paid, was allowed. In fact, the Tribunal has already dealt with this issue in quantum appeal in paras 16 17 of the order and clearly pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en mentioned anywhere. In fact, it has been observed by the AO that this cannot be called disclosure at all and for this proposition AO had relied on the decision of the Hon'ble Gujarat High Court in the case of Vidyagauri Natverlal (supra), wherein it was clearly observed that mere fact that some figures or some particulars have been disclosed, even if it takes out the case from the purview of non-disclosure, cannot by itself take out the case from the purview of furnishing inaccurate particulars. 17. In respect of initiation of penalty, he referred to the assessment order and submitted that penalty has been initiated in a very general term by observing that initiate penalty proceedings u/s. 271B and u/s.271[l][c] of the Act. First of all, there is no requirement in law that at the initiation stage detailed finding should be given in respect of the issue on which penalty has been initiated. AO has initiated the penalty in general terms and has not restricted the scope of the same. Therefore, penalty proceedings were initiated for the disallowance of expenditure and the scope of the same would include everything because of which such penalty has been initiated. 18. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai because the other party i.e. Shri Rajesh Narang was also not vacating the properties belonging to the assessee at Pali Hill Bandra and was also suppressing many other facts from the court. In fact, when the contempt proceedings were initiated against Shri Rama Narang and as a result of contempt proceedings, the Hon'ble Supreme Court considered Shri Rama Narang as contemptener, a settlement was reached and, therefore, by consent terms Shri Rajesh Narang was paid the compensation. This finding has been recorded by the Tribunal in the Special Bench decision in the case of recipient. This clearly shows that a family settlement was reached and it is not clear whether assessee also got its property vacated, but in any case that is not the scope of this appeal. The fact remains that the compensation was paid on account of family settlement and only a colour was given that this payment was towards mesne profit. 20. He further submitted that from the above, it becomes clear that the claim of the assessee was not bona fide because the payment was clearly made towards family settlement, whereas the expenditure was shown to have been paid for business purposes. It further becomes cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited before us. Before considering the issue before us it would be important to reproduce some paras of CIT(A)'s order in quantum appeal in which Ld. CIT(A) had culled out the facts, this portion of the order had been reproduced in the order of the Tribunal in quantum appeal at para-12: 1.9 I have considered the submissions of the appellant. The issue in the present ground of appeal is whether the payment of ₹ 33.63 Crores made to NOPL is to be allowed as deduction or not. The appellant is claiming that since the expenditure was incurred during the course of business, it is to be allowed as deduction. 1.9.1 Before deciding the issue in appeal, it is necessary to take into account the factual background leading to the payment of ₹ 33.63 Crores by the appellant to M/s. NOPL. It is necessary to take into consideration the dispute going on among the family members, herein after to be referred as Narang family who are the shareholders of the appellant as well as NOPL, and have interest in various other concerns and firms belonging to this family. 1.9.2 All the members of this family are descendents of Shri Sewaram Narang who had three sons by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hills for his lifetime. This property belongs to the appellant. For some reason this family settlement was not fully implemented. Shri Rajesh Narang, in consideralion for receiving all assets of NOPL has agreed to do the following acts: - (i) To forgo all rights and interest in the appellant company. (ii) To retire from M/s. United Corporation. (iii) To retire from M/s. Narang Enterprises. (iv) To transfer the shares of Fashion Footwear Pvt. Ltd. to Rama Narang. (v) To transfer shares in Bull worker Pvt. Ltd. to Manu Narang Group. 1.9.3 There were disputes about implementation of the family settlement deed dated 12.07.1990. As per this family settlement Shri Rajesh Narang wanted appellant company to hand over peaceful and vacant possession of the said premises to NOPL, which was given to NIHPL on leave and license basis. After waiting for the implementation of the first family settlement dated 12.7.90, Shri Ramesh Narang, who was to get the NOPL company along with all the assets of the said company, started raising objection to the business activities carried out by the appellant from the said premises. Appellant filed a suit in the Bombay Civil Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stay on the order of the City Civil Court dated 29.06.1993. The Hon'ble High Court of Bombay was pleased to pass the following order on 21.03.1994:- Amount deposited by respondent in pursuance of the order dated 24.08.1993, in pursuance of order of Chavan J. in first appeal No. 591 of 1993 be paid over to the petitioner on their furnishing security to the satisfaction of the Trial Court. 1.9.7 On 02.07.1994, Shri Rajesh Narang, Director of the NOPL filed suit No. 3578 of 1994 in the Bombay High Court seeking specific performance and implementation by Shri Rama Narang for family settlement agreements. In this case, Shri Rajesh Narang, Director of NOPL made a following prayer: - (a) to handover forthwith quiet, peaceful and vacant possession of shop premises; (b) to pay arrears of commission with interest; (c) to pay the appellant mesne profits/damages of ₹ 10,00,000/- per month along with interest thereon for use and occupation of the shop premises; and (d) to withdraw forthwith the first appeal No. 591/1993 filed before the Bombay High Court arising out of Bombay City Civil Court's order in Suit No. 8079 of 1990. 1.9.8 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Reasons for not vacating the business premises in time. (iii) Shareholding of NOPL and NIHPL at the time premises were taken on lease. 1.9.11 In the written submissions filed on 23.05.2008, the appellant furnished gross sales of pastries made from the business premises but did not furnished the detail of profits earned for each year during the leave and license period on the ground that such details were not prepared. On going through the details of sale made by the appellant company from these business premises, it is seen that average gross sale of the appellant company per year are around ₹ 1,00,00,000/-only. These are the gross sales. The appellant has not furnished the details of profits made on the ground that it has not kept such details. Even if gross profit of 10% is estimated on the sale made, the appellant has at the best made a profit of ₹ 10,00,000/- per year from the business premises. 1.9.12 The above fact shows that transaction of leave and license between NOPL and NIHPL, are not between two independent companies. When the premises were taken by the appellant on leave and license basis, Narang family was controlling both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extension of the agreement does not appear to be genuine extension. The appellant has not been able to explain who took the decision not to vacate the said premises. In the course of appellate proceeding, the appellant was asked to furnish its shareholding on the date when the business premises were taken on leave and license basis. The appellant did not furnish the same. However, record shows that Shri Rajesh Narang was holding only 10 shares in NOPL before the first family settlement dated 12.7.90 and he was holding 7711 equity shares of NIHPL at that time. As per family settlement agreement dated 12.7.90, Shri Rajesh Narang or his nominee will get all the shareholdings of NOPL. These fact shows that Shri Rama Narang and his family did not transfer the peaceful and vacant possession of the said get the business premises as agreed to in the family settlement agreement dated 12.7.90. When as per leave license agreement, Shri Rajesh Narang is to get all the shares and interest in NOPL, it is not understood why Shri Manu Narang wrote a letter to the appellant on 29.10.1990 and again on 02.11.1990 allegedly allowing the appellant to carry the business from the said premises and extend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt received by it is a capital receipt and not liable to tax. The Hon'ble ITAT made the following observation: - 3.5......There is no dispute to the fact that leave and licence agreement between the parties was concluded and terminated and NIHPL was required to vacate the said premises on or before 31.3.1992. This agreement was taken cognisance by the City Civil Court in its order dated 29.6.1993. Accordingly, the agreement was no more in existence. After the termination of the said agreement, neither the assessee could legally recover from NIHPL nor the NIHPL was liable to pay any amount to the assessee under the terms of the said agreement. What the assessee was entitled to was the compensation as per civil law against unlawful possession by NIHPL. Since the agreement ceased to exist, in our humble opinion, no part of the sun of ₹ 34,57,01,137/- can be said to arise from the said agreement. Consequently, the contention of the learned Sr. D.R. that the aforesaid disputed amount received by assessee represented business receipt chargeable to tax under the terms of the agreement cannot be accepted. 1.9.14 The Special bench has also held that NIHPL was occup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of breach of contract is allowable as deduction. But this breach of contract must be during the course of business and not on any non-business consideration. In the present case, the only consideration was family dispute between Narang family . The said premises was taken by the appellant from its associate company and the appellant has not been able to give any reasons for not vacating the said premises on time. In its written submission filed on 23.05.2008, the only reason given by the appellant was that it was the business wisdom of the director. This contention of the appellant is far from truth. Shri Rajesh Narang, who is also a director of the appellant and is also owner of the NOPL as per family settlement dated 12.7.90 would never have agreed to such a decision. No documentary evidence has been field which shows that directors of the appellant company has exercised their business wisdom and decided not to vacate the premises. 1.9.17 Further as held by ITAT in the case of NOPL in 111 ITD 1, the occupation by the appellant of the business premises, after the expiry of leave and license agreement was unlawful and unauthorized (refer para-35 of the order). There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a professional, there is no case for imposition of penalty. I have pondered over this contention. To my mind, what matters really is the date on which the claim is made, the claim for expenditure is made. This claim is obviously made in the return of income and therefore the date of filing of the return of income is extremely crucial for deciding any penalty. What was the position existing on this date of filing of return of income is what is required to be looked into. In the present facts of the case, the return of income was filed on October 30, 2002. And, in this return of income, appellant specifically put up the claim for the expenditure under consideration by including the expenditure in the broad head of Administrative and Other Expenses as also by giving a note which has been elaborated by the Assessing Officer in the order of penalty. The two contentions, one of the First Appellate Authority orders and second that of opinion of the Chartered Accountant have to be therefore analyzed with reference to the cut-off date of October 30, 2002, being the date of filing the return of income. I find that the appellate order for A.Y 1999-2000, a copy of which has been filed by app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure in the relevant assessment years of which there is no dispute. However, as seen from the claim the arrears of commission up to 31.03.1992 confirmed in family settlement dated 31.03.1992 settlement by 578/94 of ₹ 2,61,745/-pertains to commission payable up to 31.03.1992 and cannot be considered as expenditure of the assessee for the year under consideration. The interest thereon was at ₹ 14,22,000/- also cannot be allowed as an expenditure of the year as the same was arising out of the non-payment of commission of earlier year which was withheld for non-business purpose and accordingly the interest amount also cannot be considered as expenditure of the year under consideration, With reference to mesne profit quantified at ₹ 11,70,00,000/- from 01.04.1992 to 31.12.2001 since they are not based on assessee's business done from the premises or on the profits earned from the premises and as they are mutually agreed amounts considering the total family dispute, even though apparently on the various claims and counter claims, the vacation of the said premises can be considered as one of the contentious issues, consequent to the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p, the payment of ₹ 33,47,01,137/- is not admissible because the expenses was also not incurred in the course of assessee's business of conducting last food in the premises referred to above. These payments are also not made wholly and exclusively for the purpose of business and are not also incidental to the business of the assessee, besides, the payments made, according to the assessee itself, are in the nature of damages for wrongful use of the premises even after the termination of licence and also on account of penal interest on the arrears of commission. Thus, in other words these are the payments made on account of the contravention or violation of the terms of agreements and as such these are not allowable expenditure. Further, as pointed by the Ld. DR even Tribunal has confirmed this disallowance vide para-22 of its order which reads as under: 22. Considering the various case laws on the issue and particularly since the CIT (A) has given his findings on the basis of the findings of the Special Bench in the case of Narang Overseas Ltd. 111 ITD 1, the same principles will equally apply here also. Since the factual findings are given by the Special ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to ₹ 6,90,000 a refund became payable to it as a result of the final assessment; (iv) as against deduction of ₹ 6,73,298, claimed by the assessee the total deduction allowed in the final assessment was more, viz., ₹ 10,17,306; and therefore, the assessee could be said to have discharged its burden under the Explanation to section 271(1)(c). On the above facts, it was held by the Hon'ble High Court as under: Held, affirming the decision of the Tribunal that no penalty was leviable in view of the findings of the Tribunal that when the assessee had claimed some amount though that was debatable, it could not be said that the assessee had concealed any income or furnished inaccurate particulars for evasion of the tax. In view of the findings of the Tribunal, no case is made out for interference by this Court. Thus, from the above it is clear that penalty was deleted because the issue regarding allowance of deduction u/s.80HH and 80I was debatable. In those days laws was not settled and decisions were clearly available on both sides. Moreover assessee had paid tax of ₹ 6,90,000/- and original return filed was for ₹ 10,99,95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business. 28. The third submission was that the assessee entered into a lease agreement on commission basis which could be renewed from time to time and later on NOPL had made a claim of ₹ 10 lakhs p.m. with interest if the premises were not vacated. This argument would also not carry much force. Initially the premises were taken on lease and NOPL was to be paid a commission ranging from 17.5% to 12.5% depending on the turnover of sale and that is why the expenditure claimed in earlier year was allowed. But later on because of the family settlement, the premises were allotted to Shri Rajesh Narang because NOPL who is the owner of the premises was allotted to Shri Rajesh Narang who wanted these premises to be vacated. The City Civil Court in view of the family settlement agreement ordered that assessee company i.e. NIHPL should vacate these premises and hand over the peaceful possession of the same to Shri Rajesh Narang. Only at that point of time Shri Rajesh Narang wanted the Hon'ble Bombay High Court to settle the family dispute by filing a specific performance suit. In that suit he had claimed damages of ₹ 10 lakhs if the premises were not vacated. At that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee filed its return for the asst. yr. 2001-02 on 30th Oct., 2001 declaring a loss of ₹ 14,56,07,202. It filed a revised return on 28th March, 2003 declaring a reduced loss of ₹ 13,13,57,690. The assessment under s. 143(3) was completed by the AO at a reduced loss of ₹ 11,38,27,726 vide his order dt. 3rd March, 2004. AO also initiated proceedings for concealment of income and the assessee was held guilty of furnishing inaccurate particulars of income under s. 271(l)(c) of the Act vide order dt. 30th Sept., 2004 and a penalty of ₹ 1,33,03,000 was imposed on it. A perusal of the order of the AO shows that penalty was imposed on the assessee in respect of disallowances made by the AO in the relevant assessment year and also as because assessee had filed revised return of income deleting some of the losses/expenditure. The assessee in the revised return had deleted the following expenditures: A. Items in respect of which the assessee revised its return of income: (i) Advertisement and brand promotion expenses ₹ 48,30,927 (ii) Compensation paid to Gemini Distilleries (P) Ltd. ₹ 10,80,000 (iii) Depreciation on vehic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot and this has been recently settled by the Hon'ble Supreme Court in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 that if such payments are made before the due date of filing of return, then same would be allowable. Therefore, the controversies were going on relevant orders and assessee accepted the decision of the CIT(A) and revised its return and thus the bona fide's of the assessee was not doubted and penalty was deleted. Therefore, this decision is clearly distinguishable because the proposition is that if assessee has good bona fide, then penalty cannot be levied. There is no such proposition and merely because the assessee has disclosed the particulars, penalty cannot be levied. 32. In the next decision relied on by the Ld. Counsel of the assessee in Textile General Trading Co. ( supra ), the assessee in return of income had claimed interest payable on loans taken from the bank. During assessment proceedings it was noticed by the AO that in the suit filed by the bank for recovery of loans the assessee had denied its liability and had also taken a stand that the claim was barred by limitation. On these facts penalty u/s. 271(l)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee because of certain decisions and the Act was amended later on retrospectively by inserting two more clauses u/s. 28 through which such cash compensatory support was made taxable retrospectively. 34. From the above decision also it becomes clear that penalty was deleted because on the date of filing of the return assessee was not supposed to declare that portion of income known as cash compensatory support because of favourable decisions at that point of time and the law was also amended later on retrospectively. Again in this decision the ratio cannot be construed as that merely because assessee filed a note in this respect and, therefore, penalty was deleted. 35. The last decision relied in this respect is in the case of Reya R. Mama ( supra ). In this case assessee filed a return and along with the return a copy of the summary of the bank account was also filed. This summary depicted the following deposits: Directors sitting fees ₹ 28,000.00 Sale of shares ₹ 776,601.55 Miscellaneous income ₹ 4,422.00 However, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take out the case from the purview of furnishing inaccurate particulars. In any case, disclosure which has been made in any part of the return which is incorrect or false to the knowledge of the assessee and if that fact is established, such disclosure cannot take it out from the purview of the act of concealment of particulars whether the particulars furnished of income or act of furnishing inaccurate particulars for the purpose of levy of penalty. The process of inquiry into the correctness, truthfulness or accuracy of the particulars furnished by the assessee cannot be closed at the threshold by looking at the return. That would negative and render otiose the very provisions of the statute. As per rule of evidence there is distinction between set of facts not proved . Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact-finding authority reaches to a stage where it can only conclude that the fact alleged is not proved which would mean that except rejection of the explanation furnished by the assessee, there is no material to sustain the plea of concealment. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and until such a person is conversant with the facts, similarly note in the balance sheet simply states that financials are subject to the minutes of consent order and order passed by the Hon'ble Supreme Court and minutes of the Board of Directors meeting. It is nowhere clarified in the return that what was the order passed by the Hon'ble Supreme Court and in what respect and what was the subject matter of its suit or Board's resolution. Therefore, in the case before us, the disclosure itself is so vague that we are inclined to say that this cannot be called at all a disclosure as such. Therefore, we reject this submission that since assessee has disclosed particulars, therefore, penalty should not be levied. 38. The next submission that penalty has been levied on the reason that compensation was paid qua family settlement, whereas penalty proceedings were initiated on the main issue of taxability of expenses incurred by the assessee. On this aspect, Ld. Counsel of the assessee has mainly argued that penalty has been levied on a different reason than the reasoning for initiation of penalty proceedings. This is not correct because penalty has been initiated in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 34,57,01,137.00 Less: Amount already paid through Court as per Company's Account ₹ 1,10,00,000.00 ₹ 33,47,01,137.00 According to the description of the assessee the said payment towards any Commission on Sales effected by the assessee in the premises of NOPL but payment made on account of damages. Copy of the minutes of Board Resolution of Assessee Company held on 31-12-2001 are furnished by the assessee to further strengthen its claim that the payment is damages for wrongful use and occupation of the premises. Again at page 15 it has been observed as under: To sum up, the payment of ₹ 33,47,01,137/- is not admissible because the expenses was also not incurred in the course of assessee's business of conducting fast food in the premises referred to above. These payments are also not made wholly and exclusively for the purpose of business and are not also incidental to the business of the assessee. Besides, the payments made, according to the assessee itself, are in the nature of damages for wrongful use of the premises even after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination, can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is 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 s. 271(1)(c) of the Act. 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. Such claim made in the return c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been debited under the head 'income tax paid' in the schedule relating to Administrative and Other expenses and again the explanation was that this amount, due to over sight, was not added back to the compensation of income. On these facts, penalty u/s. 271(1)(c) was levied which was confirmed by the Hon'ble Delhi High Court. The Hon'ble High Court distinguished the decision of Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. ( supra ) by observing as under: In the case before the Supreme Court, the assessee had claimed interest under Section 36(l)(iii) of the Act. The interest was paid on the loan which the assessee had utilized for purchasing some IPL shares by way of its business policies. However, the assessee did not earn any income by way of dividend from those shares. It was submitted before the Supreme Court that the assessee company was an investment company and that in its own case for the Assessment Year 2000-01 the Commissioner (Appeals) had deleted the disallowance of interest made by the Assessment Officer and the Tribunal had also confirmed the stand of the Commissioner (Appeals) for that year and it was on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the details of the claim made by the assessee and that the assessee before the Court had not given any such information which was found to be incorrect or inaccurate. No statement or details supplied by the assessee had been found to be factually incorrect. The Court rejected the contention that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. The Court was of the view that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. After considering the meaning of inaccurate given in Webster's Dictionary, the Court was of the view that inaccurate particulars would mean the details supplied in the return which are not accurate, not exact or correct, not according to truth, or erroneous. It was held that making a claim which is not sustainable in law, cannot, by itself, amount to giving inaccurate particulars. It was contended before the Supreme Court that since the assessee had claimed deduction knowing that they were incorrect, it amounted to concealment of income since the falsehood in accounts can take either of the two f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee finds noted in the order of the Tribunal. Thus it was the Tribunal which took the view that Section 32(1)(iii) could be attracted to the deduction claimed by the assessee. It is also not the case of the assessee that it was under a bona fide belief that these two amounts could be claimed as Revenue Expenditure. The assessee in fact, outrightly conceded before the Assessing Officer that these amounts could not have been claimed as revenue deductions. The only plea taken by the assessee before the Income Tax Authorities was that it was due to oversight that the amount of income tax paid by the assessee as well as the amount claimed as deduction on account of certain equipment being written off could not be added back in the computation of income. In the case of Reliance Petro Products Private Limited (supra), the addition made by the Assessing Officer in respect of the interest claimed as a deduction under Section 36(l)(iii) of the Act was deleted by the Commissioner of Income Tax (Appeals) though it was later restored, by the Tribunal, to the Assessing Officer. The appeal filed by the assessee against the order of the Tribunal was admitted by the High Court. It was, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Authorities or to the Income Tax Appellate Tribunal as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added, while computing the income of the assessee company. We cannot lose sight of the fact that the assessee is a company which must be having professional assistance in computation of its income, and its accounts are compulsorily subjected to audit. In the absence of any details from the assessee, we fail to appreciate how such deductions could have been left out while computing the income of the assessee company and how it could also have escaped the attention of the auditors of the company. The explanation offered by the assessee company was not accepted either by the Assessing Officer or by the Commissioner of Income Tax (Appeals). The view of Income fax Appellate Tribunal regarding admissibility of the deduction on account of written off of certain assets, under Section 32(l)(iii) of the Act is wholly erroneous. The Tribunal has not recorded a finding that the explanation furnished by the assessee in respect of the deduction due to certain assets being written off was a bona fide explanation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied if the explanation for the same is not substantiated or bona fide. 41. In fact, while dealing with the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. ( supra ), the co-ordinate Bench of the Tribunal recently in the case of Ultramarine Pigments (P.) Ltd. v. Asstt. CIT [2010] 39 SOT 115 (Mum.) has observed that what is important is the nature of explanation. Paras 15 and 16 of that order read as under: 15. In the case of CIT v. Nathulal Agarwala Sons [1985] 145 ITR 292, Full Bench of Hon'ble Patna High Court has observed as follows: As to the nature of explanation offered by the assessee, it seems plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed on him will be discharged and presumption rebutted. It is not the law, and perhaps hardly can be, that any and every explanation of the assessee must be accepted. In my view, the explanation of the assessee for avoidance of penalty must be an acceptable explanation. He may not prove what he assets to the hilt positively, but at least material brought on record must show that what he s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers either the original rent and or commission as compensation or in marginal mark up also be allowed. But generally courts would not allow the damages at ten times i.e. ₹ 10 lakhs instead of Rs. l lakh of normal compensation and that too with an exorbitant compounding interest @ 21% p.a. In fact when a query was put to the ld. counsel of the assessee that why the matter was not left to the court, he had openly admitted that family consent was reached because of various disputes. In fact, assessee was already declared a contemnor. Now question is in what respect assessee was declared as a contemnor has not come out during the arguments and we feel that we should also not attempt to find out reasons for the same because that is beyond the scope of this appeal and relate to other family matters. The Special Bench of the Tribunal while adjudicating the issue of the receipt in the hands of the recipient i.e. in the case of Narang Overseas (P.) Ltd. ( supra ) had observed at para 24.(h) as under: '24. (h) Besides the above litigation, several other proceedings were pending before various other authorities and Courts. Litigations reached a stage where Shri Rajesh Narang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the Assessee by the AO and confirmed by the CIT(A). The family of Narangs consist of the following members: Manu Narang (brothers) Rama Narang (brothers) Omi Narang (brothers) Rachna Narang (Wife) Through First Wife Second Wife Ashok Narang (Son) Mrs. Mona Narang Sanjay Narang (Son) Rajesh Narang (Son) Rohit Narang (Son) Ramesh Narang (Son) Ramona Narang (Daughter) Rahul Narang (Son) Rakesh Narang (Son) The Narangs family owned the following businesses: 1. Narang International Hotels Pvt. Ltd. (NIHPL) 2. Fashion Wears (P) Ltd. 3. Bullworker (P) Ltd. 4. Pacchi Hotels (P) Ltd. 5. Mothercare Services (P) Ltd. 6. Narang Overseas Pvt Ltd. (NOPL) 7. Sultan Brothers (P) Ltd. 8. Sea Face Investment Consultancy Services (P) Ltd. 47. NO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rama Narang Group) will vacate and deliver vacant possession on or before 31.3.1992. It is further provided that NIHPL will pay the arrears of commission and continue to pay the commission (as per leave and license agreement) until the property is vacated. 50. We have already seen that the Assessee NIHPL occupied the property on leave and license basis from 13.2.1990. Pending settlement of the family disputes, it appears that Rajesh Narang interefered with the possession and enjoyment of the property by NIHPL i.e., on 9.11.1990. On 10.11.1990, NIHPL filed a suit S.C. Suit No. 8079 of 1990 in the Bombay City Civil Court at Bombay for perpectual injunction restraining NOPL and Rajesh Narang from disturbing the possession and the business in the property. An ad-interim injunction was also obtained by the assessee in terms of the main prayer in Notice of motion No. 5739/90. NOPL and Rajesh Narang filed Notice of Motion No. 2617 of 1993 against NIHPL, praying that the compromise dated 30-1-1992 should be recorded and in terms of the said compromise, NIHPL should be asked to vacate and deliver vacant possession of the property. By an order dated 29-6-1993 the Court recorded the compro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 30-1-1992 in letter and spirit. The important prayer in the aforesaid suit which relates to the property is prayer in para-49(d)(i) to (iv) and para-49(j) of the Plaint in the aforesaid suit. Defendant No. 9 referred to in the prayer is NOPL to which the property belongs and Defendant No. 6 referred to in the prayer is NIHPL, which was the lessee of the property. The same is as follows: 49(d) That this Hon'ble Court be pleased to order and decree Defendant No. 6:- (i) To handover quiet, peaceful and vacant possession of the premises i.e., Flat Nos. 3, 3A, 4, 5, 6 and 7 on the ground floor of Beach View Co-operative Housing Society Ltd., Warden Road, Bombay-400 007 to Defendant No. 9 (i.e., NOPL). (ii) To pay to the Plaintiff and Defendant No. 9 a sum of ₹ 2,72,61,745.24 Ps. with interest at 21% p.a. from due date till date of payment. (iii) To pay to the Plaintiff and Defendant No. 9 a sum of ₹ 2,72,61,745.24 Ps. with interest at 21% p.a. for use and occupation of the above premises from 1/4/1992 being the commission as well as damages at Rs.... the particulars of which are given in particulars of claim being Exhibit Thereto. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total of I II 35,13,745.24 Less: Received by order of Court towards arrears 32,50,000.00 Balance receivable 2,61,745.24 III. Damages and Mesne profits for Illegal occupation on and from 1/4/92 at the rate of ₹ 10 lacs p.m. till the date of suit 2,70,00,000.00 Total of I,II and III till the date of filing of the suit 2,72,61,745.24 Together with interest on 2,72,61,745.24 @ 21% p.a. From dates amounts were receivable up to date Of payment IV. Further damages and mesne profits from the date Of suit till possession of Beach View Premises are Handed over to the Plaintiff. 55. Besides the above litigation, several other proceedings were pending before various other authorities and courts. Litigation reached a stage where Shri Rajesh Narang and Shri Ramesh Narang had to bring suit of contem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the net payment of ₹ 33,63,85,624/- was shown separately and distinctly under the head Administrative Other Expenses as NOPL paid under Suit No. 3578 - ₹ 33,63,85,624/ . The breakup of the payments of ₹ 33,63,85,024/-(Rs. 33,47,01,137 and ₹ 16,84,487/-) is as under:- Rupees 2,61,745 For arrears of commission up to 31/3/92. As claimed in suit 3578/94 14,22,742 Interest on above. 16,84,487(A) -Damages and mesne profit for use Occupation and enjoyment of premises(Prayer 49) 2,70,00,000 From 1/4/92 to 30/6/94 (prior to suit filed) 9,00,00,000 From 1/7/94 to 31/12/2001 22,87,01,137 Interest on above. (Including interest on payments to NOPL allowed Up to A.Y. 2001-02) 34,57,01,137 (-) 1,10,00,000 Less: on account payment allowed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is order of the CIT(A) was accepted by the Department and no appeal was preferred before the ITAT. Similar disallowance in Assessment year 2000-01 and 01-02 made by the AO were deleted by the CIT(A) and no appeal was filed by the Revenue before the ITAT for these years. 59. The recipient of the payment from the Assessee viz., NOPL claimed that the receipt in question is mesne profits and therefore it is capital receipt in its hands and therefore not chargeable to tax. The Revenue has been taking a stand in those proceedings that the receipt is a revenue receipt chargeable to tax. Ultimately, a 5 member Special Bench of ITAT in the case of Narange Overseas (P.) Ltd. ( supra ) had held that the receipt in question in the hands of NOPL is capital receipt not chargeable to tax. 60. In Assessment year 2002-03, this is the assessment year with which we are concerned in this appeal, the AO examined the claim of the Assessee for deduction of the sum of ₹ 33,63,85,624. The character of this payment is not different from the payments made from Assessment year 1995-96 to Assessment year 2001-02 which has already been allowed by the Revenue in the assessment of the Assessee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad business decision not guided by Business Wisdom not guided by commercial expediency. ( b ) NIHPL did not deliver possession of the property only because Rajesh Narang did not vacate the premises at Pali Hills which as per the family arrangement he had to vacate and hand over to Rama Narang group. ( c ) Therefore the payment in question was a payment in the course of settlement of family disputes and not a payment made by NIHPL in the course of its business. ( d ) The receipt of the sum of ₹ 33,63,85,624 in the hands of NOPL came up for consideration before the ITAT and the ITAT had taken a view that the receipt in the hands of NOPL was mesne profits and the receipt was capital receipt not chargeable to tax as it was paid for unauthorized occupation of the property. Since the payment has been held by ITAT to be for unauthorized occupation of the property, it is not payment during the course of business and is penal in nature and had to be disallowed. 63. The findings of the ITAT in the quantum proceedings are identical to the view of the CIT(A). The Assessee is in further appeal against the order of the Tribunal in the quantum proceedings before the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that as far as the Assessee is concerned, the character of payment cannot be judged based on the treatment given in the hands of the recipient of the payment from the Assessee and in this regard reliance was placed on the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. ( supra ). It was pointed out that as far as the Assessee is concerned, the payment was made for use and occupation of the property for its business though it may be treated as damages for use and occupation. The expenditure was clearly revenue expenditure and ought to have been allowed as deduction. For the purpose of levying a charge of furnishing inaccurate particulars, it cannot be said that the view entertained by the Assessee on the basis of legal advice was free from doubt. In this regard, we may also mention that the Special Bench of the ITAT (consisting of 5 members) while dealing the character of the payment in the hands of the recipient viz., Narang Overseas (P.) Ltd. ( supra ), had to overrule another Special Bench decision of 3 members in the case of Sushil Kumar Co. v. Jt. CIT [2004] 88 ITD 35 (Kol)(SB), which had taken the view that mesne profits are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment was only towards settlement of family disputes. ( h ) In the quantum proceedings the amount in question was held to be not revenue expenditure and was only capital expenditure. ( i ) The Assessee failed to substantiate its explanation with regard to claim for deduction of the disputed sum and therefore Expln. 1 to sec. 271(1)(c) would apply. ( j ) The disclosure made by the Assessee was not a complete disclosure because the Assessee did not give the details like nature of payment, subject matter of suit etc. The Assessee should have given a note disclosing the nature and purpose of payment. 66. For all the above reasons, the AO held, that the Assessee by making a patently incorrect claim for deduction has definitely guilty of having furnished inaccurate particulars of income. The Assessee is also guilty of concealing particulars of income. 67. On appeal by the Assessee, the CIT(A) held as follows: ( a ) The Assessee had reiterated its plea that similar payment were allowed as deduction in computing total income in the past assessments and in Assessment year 1999-2000 to 2001-02. the AO bad disallowed such claim for deduction but the CIT(A) allowed the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant was bona fide, this expenditure ought to have been shown as an independent item of the profit and loss account which has not been done. The amount has been clubbed under the broad head of Administrative and Other Expenses . On the issue of allowability of expenditure under consideration as revenue expense, the disclosure conveys nothing at all. If the intention of appellant was clear, a detailed note on the nature of the expenditure and the contention that it is an allowable expenditure, according to appellant, ought to have been mentioned in the note. This has not been done. The absence of these detailed specifications goes to suggest that appellant has taken a chance, chance of the limited scrutiny system being allowed by the Income-tax Department, that the matter may not get picked up for scrutiny for the assessment year under consideration and they may escape consideration of the expenditure under consideration by the Assessing Officer. This factor has been adequately dealt with by Assessing Officer in the order imposing penalty. He has not only talked of the limited scrutiny being followed by Income-tax Department, he has also relied upon several decisions in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant in the course of its business and on the issue of whether the payments were made wholly and exclusively for the purpose of business. The Tribunal in the quantum appeal of the appellant relied upon the Special Bench decision in the case of Narang Overseas (P.) Ltd. ( supra ) and held that as the amounts were capital receipt in the hands of the recipient, the payments made by the appellant is therefore capital expenditure. The initiation of the penalty has taken place totally on different ground not qua family settlement. This is not permitted in law as held in the following judicial pronouncements: - Gujarat Credit Corpn. Ltd. v. Asstt. CIT [2008] 113 ITD 133 (Ahd.) (SB) - Addl. CIT v. Nihalchand Badrilal [1982] 135 ITR 519 (MP) - Addl. CIT v. Kejriwal Iron Stores [1987] 168 ITR 715/31 Taxman 331 (Raj.) - CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj.) 2. Penalty cannot be imposed for mere rejection of a claim: Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Reliance Petroproducts (P.) Ltd. ( supra ) wherein it was held that merely because the claim of the assessee is not accepted, that by itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits as per Sec. 2(12) of the Code of Civil Procedure, 1908, are those profits which the person in wrongful possession of such property actually received or might with ordinary diligence have received therefrom, together with interest on such profits, but shall not include profits due to improvements made by the person in wrongful possession. According to him the Special Bench has already held in the case of the recipient of the sum from the Assessee as capital receipt and therefore it was no longer necessary to discuss the question of deductibility of the sum in the hands of the Assessee. It was submitted by him that the sum in question cannot be capital in the hands of the recipient and Revenue in the hands of the person paying it. The sum in question being of a capital nature ought not to have been claimed as a deduction. The learned D.R. submitted that the family dispute was the reason why the Assessee did not vacate the premises. There was no business exigency to incur such a huge liability which was disproportionate to the revenue generated by occupying the property. He also submitted that there were no bona fides on the part of the Assessee in making the aforesaid claim fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the Assessee would have been allowed without enquiry. In my view the conclusion of the CIT(A) cannot be sustained. The law does not contemplate any particular mode of disclosure. The Assessee in my view has brought on record all primary facts as to how the income has been arrived at by enclosing the profit and loss account. It is for the AO to make necessary investigation, which he had done in the present case. It was submitted in the course of hearing that the AO assessing the Assessee as well as NOPL is one and the same person. Moreover, the background of the pending dispute is already in the knowledge of the department, since the issue of deduction of ₹ 1.25 lakhs per month, (which is an interim payment made by the Assessee pursuant to orders of Hon'ble High Court) which was claimed as deduction by the Assessee for AY 1993-94 and allowed upto AY 1998-99 and which was disallowed by AO in AY 1999-2000 to 2001-02 and allowed by CIT(A) in those years, are all part of record of the Assessee available with the AO. I would therefore tend to agree with the contention of the learned counsel for the Assessee that there was no concealment of particulars of income. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r year's records and that there were no change in the facts as it prevailed in the earlier year and there was no reason for making the impugned disallowance. This order of the CIT(A) was accepted by the Department and no appeal was preferred before the ITAT. Similar disallowance in AY 2000-01 and 2001-02 made by the AO were deleted by the CIT(A) and no appeal was filed by the Revenue before the ITAT for these years. In AY 2002-03, this is the assessment year with which we are concerned in this appeal, the AO examined the claim of the Assessee for deduction of the sum of ₹ 33,63,85,624. The character of this payment is not different from the payments made from AY 1995-96 to AY 2001-02 which has already been allowed by the Revenue in the assessment of the Assessee for those years. The only difference being the payment in the earlier years was an interim payment subject to the result of the appeal/suit, whereas the payment in AY 2002-03 is after the decree in the suit. Will this circumstance not be sufficient to hold that the Assessees claim for deduction as made in the return of income was bona fide? The conclusion of CIT(A) was that as on the date when return of income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family disputes. The findings in this regard in the quantum proceedings are required to be stated. The family members of Narang family owned various firms and companies and carried on business of hotels, construction and garments. The family through NIHPL carried on pastry business in the property under the brand name of Croissants . NIHPL took the property on lease w.e.f. 13-2-1990. NIHPL carried on business in the property at all material times i.e., from 1990 till delivery of vacant possession in the year 2001. The average sales were Re. l crore per year and the maximum profit (assumed 10% G.P.) that NIHPL could make was ₹ 10 lacs per year. The decision of NIHPL to continue to occupy the property at the risk of having to pay huge amounts to NOPL was a bad business decision not guided by Business Wisdom not guided by commercial expediency. NIHPL did not deliver possession of the property only because Rajesh Narang did not vacate the premises at Pali Hills which as per the family arrangement he had to vacate and hand over to Rama Narang group. Therefore the payment in question was a payment in the course of settlement of family disputes and not a payment made by NIHPL in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payment is made for the purpose of settlement of family disputes. 80. The next aspect which, one needs to see is applicability of Expln. 1 to Sec. 271(1)(c) of the Act. One of the factors that weighed in the mind of the ITAT while confirming the addition in the quantum proceedings was the fact that in the hands of NOPL the recipient of this payment the ITAT Special Bench has held that the same is capital in nature and taxable as income. It was submitted that as far as the Assessee is concerned, the character of payment cannot be judged based on the treatment given in the hands of the recipient of the payment from the Assessee and in this regard reliance was placed on the decision of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. ( supra ). It was pointed out that as far as the Assessee is concerned, the payment was made for use and occupation of the property for its business though it may be treated as damages for use and occupation. The expenditure was clearly revenue expenditure and ought to have been allowed as deduction. For the purpose of levying a charge of furnishing inaccurate particulars, it cannot be said that the view entertained by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Syal, Accountant Member (As A Third Member) - The following point of difference has been referred to me by the Hon'ble President u/s. 255(4) of the Income-tax Act, 1961 :- Whether on the facts and circumstances of the case, the penalty u/s. 271(1)(c) was leviable? 2. The facts of the case have been elaborately set out by my learned Brothers in their respective opinions. To recapitulate, I am recording the facts, very briefly, as under:- ( i ) The assessee, Narangs International Hotels Private Limited (hereinafter called NIHPL ), entered into a license agreement with Narang Overseas Private Limited (hereinafter called NOPL ) on 13.02.1990 by which the assessee was permitted to enter the premises of NOPL for 11 months. As per the terms of the agreement, the assessee was to pay commission at a specified rate of sales from such premises to NOPL. Here it is important to mention that the shareholding of the assessee-company as well as NOPL comprises of certain members of Narang family and some dispute, on the distribution of properties, was going on amongst them. ( ii ) A settlement was arrived through which NOPL was allotted to Shri Rajesh Narang who wanted the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suit no. 3578 to the Hon'ble Supreme Court. As per the terms of consent qua suit no. 3578, the assessee-company paid a sum of ₹ 33.47 crores to NOPL. It vacated the premises and handed over is possession to NOPL accordingly. ( viii ) The dispute between the members of Narang family was not fully resolved despite the consent. On 25.01.2005, the Hon'ble Supreme Court has recorded that although the dispute was not resolved between the parties, yet there was possibility of finding out a solution to the disputes. ( ix ) It is a matter of record that the dispute is still going on and the next date of hearing before the Hon'ble Supreme Court, as stated by the learned A.R., is on 29.03.2011. 3. For giving effect to the consent order, the Board of Directors of the assessee-company passed resolution on 31.12.2001 resolving that it would pay a sum of ₹ 34.57 crores for the user of the premises for the intervening period and also to hand over the vacant possession of the premises to NOPL. Payment to be made to NOPL was determined as under:- ₹ 2,61,745 For arrears of commission up to 31.3.92, confirmed in F.S. dated 20.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 15 lakhs was made towards the amount deposited in the High Court on account of NOPL. Such disallowance was repeated by the A.O. in assessment years 2000-2001, 2001-2002 also. The assessee filed appeal against these disallowances made in assessment years 1999-2000 to 2001-2002 before the learned CIT(A), who accepted the claim of the assessee in all the years and ordered for the deletion of addition. It is an admitted position that no second appeals were preferred by the Revenue, thereby allowing the orders of the CIT(A) for these three years to attain finality. From this factual backdrop, it becomes apparent that from assessment year 1995-96 up to assessment year 2001-2002, the assessee's claim for deduction towards payments made to NOPL was finally accepted. 7. In the previous year relevant to the assessment year under consideration, the assessee paid remaining amount of ₹ 33.63 crores as per the terms of consent and claimed deduction accordingly. The Assessing Officer refused deduction in assessment framed u/s. 143(3). The first appeal before the ld. CIT(A) and the second appeal before the tribunal also could not change the fortune of the assessee. Pursuant to the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not correct. It was argued that for the use of the same premises by the assessee-company, there could have been no reason to increase the monthly payment from ₹ 1.25 lakh, as determined by the Hon'ble Bombay High Court on 24.08.1993 to ₹ 10 lakhs as per the terms of consent. He vociferously put forth that this payment of ₹ 33.63 crores was nothing but, in reality, towards family settlement amongst the family members to adjust their respective shares. It was stated that in the garb of payment for the use of premises, the assessee-company paid such substantial sum, which was in the nature of family settlement. He took support from the order of the Tribunal passed in quantum proceedings of the assessee sustaining the disallowance of the said sum, by stating that the tribunal has also recorded a categorical finding that it was not for the use of business premises but for extraneous considerations. The sum and substance of his submissions was that the amount in question was not given for any business expediency but was on account of settlement of family disputes and hence the act of the assessee in claiming deduction for the said amount was wrong, which fact has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsent decree awarded by the Apex Court at the rate of ₹ 10 lakhs p.m. was on account of damages for deprivation of use and occupation of the profits and therefore, the sum so received was capital in nature not chargeable to tax. (Emphasis supplied) 11. From the above para it can be seen that the assessee-company continued to occupy and use the property after termination of lease, thereby depriving NOPL from the use of the property. The mesne profits received by NOPL under the consent decree at the rate of ₹ 10 lakhs per month was on account of damages for deprivation of use and occupation of property. The nutshell of the conclusion of the Special Bench is that NOPL received a sum of ₹ 33.63 crores from the assessee as mesne profits on account of damages for deprivation of use and occupation of the property. There is no reference whatsoever in the finding of the Tribunal in Special Bench that any part, of this amount related to family settlement. The simple and plain finding is that this amount was paid by NIHPL to NOPL as damages for deprivation of use and occupation of the premises. 12. Now I come to the order passed by the Tribunal in quantum proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al expenditure etc. Thereafter, incidental finding starts to the effect that: 'Apart from it the amounts in question was ... on account of settling the family dispute.' I am calling the later finding as 'incidental for the reason that the Tribunal has principally followed the finding given by the Special Bench, which in turn, is that the payment made by the assessee to NOPL was for deprivation of use and occupation of the property in question and not towards any family settlement. Further the short question before the tribunal was to decide whether the amount in question was deductible or not, which has been answered in negative. 14. This point can be examined from another angle as well. Payment of ₹ 33.63 crores was made by the assessee company to NOPL after passing Board resolution on 31.12.2001. The Board resolution was passed pursuant to the Consent decree awarded by the Apex Court as per terms dated 12.12.2001. The consent was arrived at amongst the members of Narang family to settle the on-going dispute amongst them for several properties. This dispute is manifest due to eightsuits/petitions filed by the members on each other as have been taken note of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of family settlement have also not been acted upon. It shows that no family settlement has reached so far. If there is no family settlement, naturally, the said payment was made only towards the use and occupation of property by the assessee-company to NOPL in terms of suit no.3578 of 1994, after which the premises was vacated and the controversy about the occupation and use of the property in question, was put to an end in perpetuity. 16. The Revenue is trying to correlate some part of ₹ 33.63 crores towards family settlement essentially on the premise that the payment at the rate of ₹ 10.00 lakh per month with interest was highly excessive when seen in the light of ₹ 1.25 lakhs p.m. determined by the Hon'ble Court in 1993. I am not inclined to accept this argument. It needs to be noted that Sh. Rajesh Narang was not satisfied with the verdict of the Hon'ble Court delivered in 1993, both in terms of the allowing the user of the premises to the assessee company and the interim amount fixed by the Court pending final decision on the appeal filed by the assessee. That is why he filed suit in 1994 claiming the vacant possession of the premises and compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of penalty is concerned, situation is quite different. The Assessing Officer has to initiate the penalty proceedings through his assessment order but the actual imposition of penalty is done in a separate set of proceedings, by which the assessee is put to notice about the intention of the Assessing Officer to impose penalty. The assessee is allowed to submit his explanation as to why the penalty should not be imposed in respect of each items of addition made or sustained. There is a reason behind having separate proceedings in respect of penalty u/s. 271(1)(c). The reason is that the mere fact of making or confirming the addition in quantum cannot ipso facto lead to the inference that there has been concealment of income or furnishing of inaccurate particulars of such income by the assessee. The factum of concealment or furnishing of inaccurate particulars of income needs to be distinctly made out It is neither automatic nor natural corollary of the addition made or confirmed. It, therefore, transpires that though the findings given in the quantum proceedings are quite relevant in the penalty proceedings and deserve to be given due weight, but are not conclusive in them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty, - ( i ) and ( ii )** ** ** ( iii ) in the cases referred to in clause (c) [or clause (d)], in addition to tax, if any, payable] by him, a sum which shall not be less than, but which shall not exceed [three times], the amount of tax sought to he evaded by reason of the concealment of particulars of his income [or fringe benefit or the furnishing of inaccurate particulars of such income [or fringe benefits]. 20. A bare perusal of section 271(1)(c) reveals that the concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee is sine qua non for the imposition of penalty under this section. These two expressions have not been defined in the Act. Albeit these are different in their connotation, ambit and purview, yet their consequence is one i.e. the withholding of income by the assessee. First expression, that is, concealment of particulars of income contemplates that some income earned has not been offered for taxation. It is a direct attempt to hide an item of income or a portion thereof. It may reflect a situation like the assessee making sale or earning some income but not showing it in the return of income. Thus i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ater judgment in Rajasthan Wvg. Spg. Mill ( supra ) it has been held that : The decision in Dharamendra Textile Processors ( supra ) must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharamendra Textile Processors ( supra ) decides . In this case, the penalty levied u/s. 11AC of the Central Excise Act has been set aside and the matter remitted to the Tribunal for fresh consideration in accordance with law. On going through the above referred judgments rendered by the Hon'ble Supreme Court it is vivid that penalty u/s.271(1)(c) would depend upon the existence of conditions specifically stated in this section. It is only when these conditions are satisfied that the penalty will follow and vice versa . 22. Coming back to the facts of the instant case and testing them on the touchstone of the main provision of section 271( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. 24. A cursory look at the mandate of this Explanation transpires that the following elements must be present in order to bring a case within the charge of concealment :- ( a ) the person fails to offer an explanation, or ( b ) he offers the explanation which is found by the concerned authority to be false, or ( c ) the person offers an explanation which he is not able to substantiate and further fails to prove that such explanation is valid and that all the facts relating to same have been disclosed by him. Whereas the above (a) and (b) are covered within clause (A) of the Explanation , ( c ) is enclosed in clause (B). 25. If the case falls in any of these three categories, then the deeming provision is activated and the amount added or disallowed in computing the total income is considered as the income in respect of which particulars have been concealed as per clause (c) of section 271(1). Only in such circumstances the penalty follows. If however t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red conditions must be cumulatively satisfied so as to bring a case within the mischief of this clause. If only one condition is satisfied and the other is not, the penalty would not follow. In other words, if the person offers an explanation which is not able to substantiate [being condition(i) above] but succeeds in proving that such explanation is bona fide and that all the material facts relating to the same were disclosed by him, [being condition (ii) above], the penalty would not be attracted. 29. Adverting to the facts of the instant case it is noticed that the assessee claimed deduction for ₹ 33.63 crores in its Profit and loss account towards the amount paid to NOPL for use and occupation of the property. The claim was made on actual payment and the assessee did offer the explanation in support of the claim. If the claim had been not been genuine or the assessee had not offered any explanation, the case would have been covered in clause (A) of Expl. 1 itself. The Assessing Officer was not convinced with the claim and disallowed the deduction. It shows that the assessee offered an explanation about the claim of deduction but could not satisfy the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was eventually allowed as deduction from assessment years 1995-96 up to 2001-2002. As the assessee was allowed deduction for the interim payment in the earlier years, the assessee claimed deduction in the instant year for the remaining amount paid, on the same account, in this year as well. 31. The learned Departmental Representative has vehemently argued that the assessee filed its return of income for the year in question on 30.10.2002. The order of the CIT(A) allowing relief for earlier years was passed on 10.09.2004. According to the learned Departmental Representative there was no reason for the assessee to believe or even remotely presume that the deduction was permissible as the Assessing Officer disallowed the deduction for the first time for assessment year 1999-2000 by way of his order dated 28.03.2002 and when the assessee filed its return on 30.10.2002 it was very much in the knowledge of the assessee that its claim was not accepted. In the opinion of the learned Departmental Representative the argument of bona fide claim made by the assessee stood contradicted by the very fact that the relief was allowed by the learned CIT(A) for assessment year 1999-2000 after arou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the given facts. Such a view need not be necessarily cent per cent foolproof. If chances are there that a person, properly instructed in law, can form a opinion about its deduction, then it will be considered as bona fide. A claim shall lack bona fide if the facts are manufactured to give a colour of genuineness to the deduction; or if there is not even a far-flung possibility of forming a legally sustainable opinion about the deduction either because of the facts prevailing in a particular case or because no judicial precedent in favour of allowability of such deduction or if an issue is still virgin and had not received attention of the Courts so far, then simple and plain interpretation of the provision leaves no chance to a reasonably prudent person to form an opinion that such a deduction is allowable. These are only some of the instances in which a claim for deduction shall be short of bona fide. 34. At this stage it would be relevant to consider the judgment of the Hon'ble Supreme Court in the case of Reliance Petro Products (P) Ltd. ( supra ). In this case the assessee claimed deduction for interest expenditure on the loans incurred by it by which the assessee p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er suit No.3578 ₹ 33,63,85,624/-. Further a Note was given in the balance sheet which reads as under- The financials are subject to implementation of the minutes of Consent order and order passed by Supreme Court of India on 12th December, 2001, and Minutes of Board of Directors Meeting held on 31st December, 2001, and EOGM held on 1st January, 2002, and the orders passed by the Supreme Court of India dated 8th January 2002, and subject to audit, approval by the Board of Directors and shareholders. 37. From the above disclosure made by the assessee in its Profit and loss account as well as by way of Note to its Balance sheet, it can be seen that the assessee disclosed in unequivocal terms that NOPL was paid ₹ 33.63 crores under suit No. 3578. Further fact relating to details leading to such payment, being implementation of consent order passed by the Hon'ble Supreme Court, Minutes of board meeting etc. were clearly set out. Any Assessing Officer verifying the return, on the perusal of such details, would come to know that the payment was made by the assessee under some suit. One more fact, which can't be ignored is that the Assessing Officer was conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars of the such income by the assessee so as to merit the visiting of the penalty u/s.271(1)(c). 41. Before parting with this order, I consider it my duty to clarify that it was neither my endeavor nor within my jurisdiction to re-evaluate the findings given by the tribunal in the quantum proceedings. Reference to such findings has been made only with a view to ascertain the sustainability or otherwise of penalty under section 271(1)(c) on the given facts. The tribunal in quantum proceedings was called upon to decide about the deductibility of the amount in the computation of total income of the assessee, which issue has been decided against the assessee for the reasons given in the order. Such findings of the Tribunal given in the quantum proceedings should not be construed to have been commented upon or interfered in any manner in the present order as the scope of instant proceedings is restricted in considering as to whether, by claiming this expenditure as deductible, the assessee concealed the income or furnished inaccurate particulars of his income as per the provisions of section 271(1)(c) of the Act. This question has been answered in negative that by claiming this deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of CIT v. Surendra Gulabchand Modi [1983] 140 ITR 517/[1981] 6 Taxman 373 (Guj.). In the said case the Assessee the Assessment of the Assessee for AY 1958-59 depended on the question whether HUF B was disrupted or not in AY 56-57 and 57-58 which was pending before the Hon'ble Supreme Court. The Assessment of the Assessee was made on a protective basis by the Revenue for AY 58-59 and in an appeal against such assessment before the Tribunal, the Assessee prayed that the appeal should be kept pending to await the decision of the Hon'ble Supreme Court in the appeal by the HUF B. The Tribunal did not accept the request. On a reference the Hon'ble Gujarat High Court herd that to avoid multiplicity of proceedings it was legal and proper as also pragmatic to grant1, the request to block the proceedings and to adjourn the matter awaiting decision of the Hon'ble Supreme Court. - 4. We have considered the submission of the learned D.R. and are of the view that the same are without any merit. Firstly, u/s.255(4) of the Act, if the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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