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TMI Blog2012 (6) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... able on the files of the A.O., and a part of such payments was allowed by CIT[A]s in earlier years, and such orders were accepted by the department as bona fide claim, (NOPL and the appellant assessed by the same A.O. as scrutiny assessment in central circle) 3. The ld. CIT[A] further erred in confirming the penalty insofar as: (i) The appellant did not fail to offer an explanation or that it offered an explanation which was found to be false by the A.O. (ii) The appellant offered an explanation which it was able to substantiate and proved that such explanation was bona fide and that all the facts relating to the same and material to the computation of its income had been disclosed by it. (iii) He erred in holding "that furnishing of details and explanations in the course of assessment proceedings and in the course of penalty proceedings is of no significance for the purpose at hand" (para 18 Profits and gains. 18), thereby making the explanation provision, redundant. 4. The ld. CIT[A] erred in confirming the penalty on the basis of the findings given by the ITAT in the appellant's quantum appeal which are not in consonance with the order of the ITAT (S.B) [2008] 111 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther family settlement agreement was made on 30-1-1992 through which again assessee company was required to vacate and handover peaceful possession of the said premises to Shri Rajesh Narang. 4. The above noted various family settlement agreements were brought to the knowledge of City Civil Court and the court vide its order dated 29-6-1993 directed NIHPL to hand over the vacant and peaceful possession of the said premises to NOPL along with the arrears of commission. The assessee company carried the matter to the Bombay High Court and applied for stay of operation of this order. The Hon'ble High Court stayed the operation of this order and directed the assessee to deposit a sum of Rs. 10 lakhs towards arrears of commission and to further deposit a sum of Rs. 1,25,000/- p.m. w.e.f. 1-8-1992. The other parties i.e., Shri Rajesh Narang and NOPL also filed letters patent appeal for payment of arrears 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -2001 and also paid a sum of Rs. 33,57,01,137/- in addition to the payment of Rs. 1.10 crores paid in earlier year. 6. On the above claim it was mainly represented before the AO that the liability for payment of Rs. 33.63 crores made to NOPL has mainly arisen because of settlement of the Leave & License Agreement. This amount was quantified by the Bombay High Court which was agreed to be decreed and implemented in terms of minutes of consent order dated 12-12-2001. The payment was in the character of a trader under a valid business contract. It was also submitted that such payments towards commission vide agreement dated 13-2-1990 as well as order of the Bombay High Court have already been allowed up to assessment year 1999-2000. For this reliance was also placed on some case laws. The AO after detailed discussion disallowed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the court and he was not vacating the property belonging to the assessee company at Pali Hill, Bandra, Mumbai. He also observed that there was no justification at all in payment of compensation @ Rs. 10 lakhs p.m. against the annual turnover of Rs. 1 crore which defies the commercial logic. According to him, the payment was basically to settle the family disputes and not for the premises occupied at Beach View Co-Op. Hsg. Society, Warden Road, Mumbai. He also mentioned that it may be true that the Tribunal had confirmed the addition being in the nature of capital receipt, but at the same time vide para-22 of the Tribunal's order the amount in question was not given for any business expediency, nor wholly and exclusively laid out for the business purposes. In respect of disclosure, 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 - Rs. 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 decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 wherein it was held that it was not universally true proposition that what may be the capital receipts in the hands of the payee, must necessarily be a capital expenditure in relation to the payer. However, he admitted that he is not trying to argue the appeal on quantum basis again, but at best the disallowance was made mainly because the expenditure was held to be capital expenditure. Therefore, disallowance was merely because the expenditure was of capital nature. He then contended that an item of expenditure which is treated by the assessee as in the nature of revenue, but authorities hold the view that same was of capital nature, then same would 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 cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creed in terms of the minutes of the consent order. The contention of the AO is that the decree of the Hon'ble Supreme Court merely gave effect to the consent terms agreed to between the parties. Therefore, the same cannot be regarded as an award of damages by the order of a Court which is essential for mesne profits. However, I do not find any merit in this contention of the AO. Just because a suit is disposed of by a consent decree it will not be any less than an award in a contested suit. In law there is no real difference between the two. Even a vigorously contested suit may eventually end up in an out of Court settlement subsequently decreed by the Court. In this instant case what has been 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 @ Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars. Further submitted that even the decision of the Hon'ble Delhi High . Court in the case of Nath Bros. Exim. International Ltd.'s case (supra) was distinguishable. He then referred to para-12 of the CIT(A)'s order wherein the CIT(A) has discussed the issue regarding the disclosure wherein it has been observed that no detailed note was given and perhaps this was done because the assessee wanted to take a chance of limited scrutiny system being followed by the income tax department. He pointed out that assessee's case is in the Central Circle wherein all cases are taken up for scrutiny and, therefore, there was no question of taking 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d why the same was not left to be decided by the Court, particularly when the liquidated damages claimed are very high and in this case again the normal lease charges in terms of commission payment which was in the range of about Rs. 1 to 1.25 lakhs and the other party had claimed the sum of Rs. 10 lakhs and normally in such a situation only the aggregate charges with a very nominal markup are paid at the settlement or allowed by the courts then why the assessee company agreed to pay such high damages, the Ld. counsel of the assessee very clearly conceded that, the "payment is definitely a shoot of a larger 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 Spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the minutes of Consent order and order passed by Hon'ble Supreme Court of India on I2th December, 2001, and Minutes of Board of Directors Meeting held on 31st December, 2002, and EOGM held on 1st January, 2002, and the orders passed by the Hon'ble Supreme Court of India dated 8th January, 2002, and subject to audit, approval by the Board of Directors and shareholders." Even the above para does not show the nature of payment. (4) In fact, AO has dealt with this issue at para-8 and clearly mentioned that no further details like nature of payment and subject matter of suit have been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness dispute, then such amount would constitute business expenditure. But what has happened in the case before us is that the amounts were paid by way of consent decree to settle family disputes, whereas the family disputes were going on between the parties and other party was also not vacating certain property and that is why the assessee was also not vacating the said premises. In fact, AO has clearly observed in penalty order at para-5 that assessee had admitted before the City Civil Court for not vacating the premises as per the family settlement at Warden Road, Mumbai 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profit received by the assessee under the consent decree awarded by the Apex Court @ Rs. 10 lakhs per month 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." Thus, it is clear that the compensation was basically paid as mesne profit under the consent decree awarded by the Hon'ble Supreme Court. 23. We have considered the rival submissions carefully and have also perused the material on record as well as the decisions 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 Rs. 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 appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ren and Shri Rajesh Narang, his son from the first wife on the other hand. The dispute between Shri Rajesh Narang and Shri Rama Narang was regarding distribution of family assets. The first family settlement was entered on 12.07.1990. Before the settlement, Shri Rajesh Narang was holding only 10 shares in M/s. NOPL and 771 1 shares in M/s. NIHPL. According to this settlement, Shri Rajesh Narang or his nominee will get all assets and liabilities of M/s. NOPL. Shri Rajesh Narang also to get right to live at Pali 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 Rajes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant depositing Rs. 10,00,000/- within four weeks towards arrears and continue to deposit Rs. 1,25,000/- per month with effect from 01.08.1993. Appellant to maintain the status quo and not to create third party rights." 1.9.6 Aggrieved by this order of the Bombay High Court, NOPL along with its Director Shri Rajesh Narang filed letters patent appeal praying for payment of arrears of commission as well as payment of mesne profit. A request was also made to lift 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 qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of Rs. 1,10,00,000/- paid in the earlier years. 1.9.10 Vide order sheet entry dated 02.04.2008 the appellant was called upon to furnish the following details: - (i) Profits of company derived from the business carried out from the flats and Beach View Co-operative Society taken on lease from NOPI. for F.Y. 1991-92 till the date of vacation for each year. (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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng family members on the issue of dividing family properties. When as per family settlement dated 12.7.90 all the assets and liabilities of NOPL was to be given to Shri Rajesh Narang, Smt. Manu Narang should not have extended the leave and license agreement on 13.11.90 and that too for 12 years and making it irrevocable. Thus this 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 settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of carrying out its business and therefore expenditure cannot be allowed as deduction in computing the business income of the appellant. 1.9.13 The nature of payment paid by the appellant and received by NOPL came for consideration before five member bench of ITAT Mumbai in 111 ITD 1 where NOPL was claiming that the amount 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 Rs. 34,57,01,137/- c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y involved because the appellant was never able to make more profit then the interim relief granted by the Bombay High Court as per which the appellant was required to deposit Rs. 10 Lacs per month. As held by Supreme Court in the case of S.A. Builders 299 1TR 88 compensation on 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" a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant group had, on the basis of these appellate orders opined that the claim of expenditure under consideration during the assessment year under consideration would be a justified claim and therefore, the claim was based upon opinion of the Chartered Accountant, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of business. Since the agreement has ceased to exist the assessee was continuing the possession and was paying commission to the other company as per the directions of the Hon'ble Bombay High Court and accordingly the amounts were allowed as revenue expenditure 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 Rs. 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 Rs. 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 Rs. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not incurred in the course of assessee's business and was not made wholly and exclusively for the purpose of business. In fact, the relevant para of assessment order at page 15 reads as under: "To sum up, the payment of Rs. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same, viz., Rs. 13,07,646 and the income as computed on final assessment was Rs. 6,86,519; (iii) no further tax was payable and since the assessee had paid tax amounting to Rs. 6,90,000 a refund became payable to it as a result of the final assessment; (iv) as against deduction of Rs. 6,73,298, claimed by the assessee the total deduction allowed in the final assessment was more, viz., Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract, unless the assessee is able to show how under any bona fide belief this expenditure was treated as related to 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 Rs. 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in the business of production and sale of Indian made foreign liquor. The assessee filed its return for the asst. yr. 2001-02 on 30th Oct., 2001 declaring a loss of Rs. 14,56,07,202. It filed a revised return on 28th March, 2003 declaring a reduced loss of Rs. 13,13,57,690. The assessment under s. 143(3) was completed by the AO at a reduced loss of Rs. 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 Rs. 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 Rs. 48,30,927 (ii) Compensation paid to Gemini Distilleries (P) Ltd. Rs. 10,80,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly 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)(c) was levied for furnishing inaccu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rs. 28,000.00 Sale of shares Rs. 776,601.55 Miscellaneous income Rs. 4,422.00 However, the above items were not offered to tax. A notice u/s. 148 was issued. In response to that notice assessee included the said items in the income and paid taxes accordingly. However, AO levied pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. But on the other hand, if the state of affairs reveals a stage where one can positively reach a conclusion that the fact alleged is proved or disproved, the principle that mere rejection of explanation cannot r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 assessment order by the following expression: "Initiate penalty proceedings u/s. 271B and 271(1)(c) of the I.T. Act." As pointed out by the Id. DR, penalty has been initiated in a very general term. Further at the time of init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mises 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 Rs. 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 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." The above clearly shows that AO was very clear in mind that while making the addition in the assessment order that the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot amount to the inaccurate particulars." From the above observations it is clear that penalty can be levied only when there is concealment of particulars of income or furnishing of inaccurate particulars of income. The court has also very clearly observed that everything would depend upon the return filed by the assessee that is particular of facts of the case. In case before the Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme 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 basis of this that the expenditure was claimed. The Income tax Appellate Tribunal had, however, restored the issue back to the Assessing Officer. In the appeal arising out of penalty proceedings, the Tribunal, 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 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 forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely claimed or an exaggerated amount, could be claimed and since attempts of both the 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue 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, in these circumstances, that the Tribunal came to the conclusion that the assessee had neither concealed the income nor filed inaccurate particulars thereof. In recording this finding, the Tribunal felt that if two views of the claim of the assessee were possible, the explanation offered by it could not be said to be false. This, however, is not the factual position in the case before us. The facts of the present case thus are clearly distinguish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 Tribunal has nowhere held that it was due to oversight that the amount of this deduction could not be added while computing the income of the assessee company. As regards deduction on account of income tax paid by the assessee, the Tribunal felt that since no person would claim the same as deduction, to evade payment of tax, the claim made by the assessee was not mala fide. In the absence of the assessee company telling the Assessing Officer as to who committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulal 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 says is reasonably valid. " 16. The above views were approved by the Hon'ble Supreme Court in the case of CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14. Referring the judgment of Hon'ble Patna High Court, Their Lordships observed as follows: "The Patna High Court emphasised that as to the nature of the explanation to be rendered by the assessee, it was plain on principle that it was not the law that the moment any fantastic or unacceptable explanation was given, the burden placed upon him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. 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 and Shri Ramesh Narang had to bring suit of contempt of Court against their father Shri Rama Narang. As a result of the contempt petition, the Hon'ble Supreme Court considered Shri Rama Narang as contemnor and issued a notice for award of punishment. However, soon after being held as contemnor, Shri Rama Narang decided to implement the family settlements and also to have all suits decreed by a consent decree, including the suit filed by Rajesh Narang before the Bombay High "Court (Suit No. 3578 of 1994), Eventually, the Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. NOPL owned the premises bearing Flat Nos. 3, 3A, 4,5, 6 and 7 on the ground floor of premises known as Beach View Co-operative Housing Society Ltd., bearing No. 93, Warden Road,. Bombay-400 007, hereinafter referred to as "the Property". On 13-2-1990, NOPL gave the property on leave and license basis to NIHPL, the Assessee for a period of 11 months. NIHPL was to use the premises so given on leave and license-basis for the purpose of carrying on business of selling fast food under the name "Croissants". The consideration payable by NIHPL to NOPL for occupation of the premises was percentages of sales which are described as commission under the leave and license agreement, vide clause-11 of the leave and license agreement. 48. Disputes arose between the members of the Narang family which were referred to the sole arbitrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 compromise and further directed NIHPL to deliver vacant possession and further directed that NIHPL will continue to pay commission as agreed under the leave and license agreement till delivery of possession. 51. NIHPL filed an appeal being Appeal No. 591 of 1993 before the Hon'ble Bombay High Court, Bombay, against the order of the Bombay City Civil Court, Bombay referred to above and obtained an order of stay of operation of the decree till disposal of the appeal subject to the condition that NIHPL shall pay a sum of Rs. 10 lacs towards arrears and continue to deposit a sum of Rs. 1.25 lacs every month with effect from 1-8-1993. This order was passed on 24-8-1993. 52. Aggrieved by the above order, NOPL company along with its Director Shri Rajesh Narang filed a Letter Patent Appeal praying for payment of arrears and commission as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) To pay to the Plaintiff and Defendant No. 9 a sum of Rs. 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. (iv) To direct Defendant No. 6 company to withdraw first appeal No. 591 of 1993 filed by him in this Hon'ble Court arising from Bombay City Civil Court Suit No. 8079 of 1990 forthwith unconditionally. Para-49(j) of the Plaint contained the following prayer: (j) that pending the hearing and final disposal of this suit, this Hon'ble Court be pleased to order Defendant No.6 company to pay to the Plaintiff and Defendant No. 9 a sum of Rs. 10,00,000/- per month as and by way of mesne profit at the rate of Rs. ... per month for use, occupation and enjoyment of the premises being Flat Nos. 3, 3A, 4,5,6 and 7 on the ground floor of Beach View Co-operative Housing Society, Warden Road, Bombay-400 007 from the date of filing of this suit till actual handing over the possession thereof" The working of the figures as set out in prayer (ii) and (iii) is as follows: Exhibit 'T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the of the order. In meeting of the Board of Directors of NIHPL (to give effect to the Minutes of the Consent Order/and order of the Hon'ble Supreme Court), inter-alia, the following - resolution was passed: "12. RESOLVED THAT the license created by Narang Overseas Private Limited in favour of the company in respect of premises being flat Nos. 3,3A,5,6 and 7 on the ground floor of Beach View Cooperative Housing Society Limited, Warden Road. Bombay -400 007 stands cancelled with effect 3rd July, 1991, and that accordingly the said license in favour of the company has come to an end from the said date. FURTHER RESOLVED THAT the company does agree and undertakes to hand over quite, peaceful and vacant possession of the said premises to Narang Overseas Private Limited on or before 1st January, 2002 and that the company agrees and undertakes to simultaneously pay to Narang Overseas Pvt. Ltd. Rs. 2,61, 745/-(rounded off) being arrears of commission for occupation of the said 'premises till 31st March, 1992 along with interest @ 21%per annum till 31st December, 2001 amounting to Rs. l6,84,487/-and further agrees and undertakes to simultaneously pay damages and mesne profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,000 1.4.1995 to 31.3.1996 Rs. 15,00,000 1.4.1997 to 31.3.1998 Rs. 15,00,000 1.4.1997 to 31.3.1998 Rs. 15,00,000 1.4.1998 to 31.3.1999 Rs. 15,00,000 1.4.1999 to 31.3.2000 Rs. 15,00,000 1.4.2000 to 31.3.2001 Rs. 15,00,000 1.4.2001 to 30.11.2001 Rs. 10,00,000 Rs. 1,10,00,000 58. The Assessee had been claiming the aforesaid payments as deduction in computing its total income in AY up to 1998-99. In Assessment year 1999-2000, the AO disallowed the claim for deduction on the ground that the Assessee did not furnish a copy of the court order requiring the Assessee to pay the said commission. On appeal by the Assessee the CIT(A), Central VI, Mumbai by his order dated 17-9-2004 was pleased to allow the claim of the Assessee for deduction. The CIT(A) in this order has observed that the documentation regarding the payment was available to the AO in the earlier 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 Assessment year 2000-01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon'ble Calcutta High Court in the case of Tar & Bitumen Products Ltd. v. CIT [1982] 136 ITR 833 (Cal) and Hon'ble Delhi High Court decision in the case of Northern India Chemical Distributors Ltd. v. CIT [2001] 248 ITR 790/114 Taxman 332 (Delhi). 62. The findings of the CIT(A) in the quantum proceedings: (a) 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 Rs. 10 lakhs 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. (b) NIHPL did not deliver possession of the property only because Rajesh Narang did not vacate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in AY 1999-2000 to 2001-02 which was allowed by the CIT(A) which order of CIT(A) was accepted by the Revenue also. (c) The particulars furnished were correct and there is no complaint in this regard. (d) The claim for deduction was made on the basis of legal pronouncements and legal advice that the deduction was fully allowable. The Assessee also pointed out that the issue whether the deduction claimed is allowable or not is still subject matter of proceedings before the Hon'ble High Court. (e) The fact that the addition has been made in the quantum proceedings is not sufficient to hold that the Assessee furnished inaccurate particulars of income. (f) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) The quantum of Rs. 10 lacs per month (Rs. 1.2 crores per year) paid as compensation by the Assessee was much more than the gross turnover of the business of the shops which the Assessee was occupying and carrying on business. No prudent businessman would have agreed to pay such sum. The payment is therefore not for business exigencies but for extraneous consideration. (e) The Assessee retained possession of the premises not because of any business necessity but on account of dispute among the members of "Narang" family. The Assessee retained possession of the property only to put pressure on the other party to the dispute and there was no commercial expediency involved. (f) Mesne profits were paid for unauthorized occupation of the property. Such payment cannot be said to be payment made in the usual course of business wholly and exclusively for the purpose of business. (g) The payment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosure. What it conveys is that there has been some litigation and in the process of those litigation appellant seems to have paid the specified amount. Thus, all that this disclosure conveys is that there is a legal dispute on some issue under which an organization by the name NOPL has been paid the specified amount. The Assessing Officer's immediate interest in this disclosure made by appellant would be whether the amount specified has been claimed as an expenditure item in the profit and loss account and, if so, whether it is an allowable expenditure in the sense of being revenue expense. These things are not at all apparent from the disclosure made by appellant. The amount under consideration has not been shown as an independent item of the profit and loss account. This is an extremely crucial factor. The quantum here is substantial and if the intention of appellant 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of all facts at the time of assessment proceedings is not sufficient and the disclosure has to be at the time of filing the return of income. (e) The CIT(A) thereafter referred to the decision of the Hon'ble Supreme Court in the case of Dharmendra Textile Processors (supra) and expressed the view that the burden of establishing bona fides is on the part of the Assessee. The CIT(A) held that the Assessee failed to prove its bona fides in making a claim for deduction of the disputed sum. 68. Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. 69. The learned counsel for the Assessee submitted as follows: 1. Initiation and imposition of penalty cannot be on different grounds. In the Assessment Order the A.O initiated the penalty proceedings on the main issue of admissibility of expenses incurred by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 67/128 Taxman 632 (Raj.) - ITO v. Roborant Investment (P.) Ltd. [2006] 7 SOT 181 (Mum.) - Premier Proteins Ltd. (supra) 7. No penalty if a claim is made under a bona fide belief: Reliance was placed on the following decisions: - CIT v. Sudhirkumar Chottubhai [2001] 250 ITR 528/[2002] 120 Taxman 277 (Bom.) - ITO v. Bipinchandra Velji [1991] 41 TTJ 347 (Ahd.) 8. Reliance was also placed on a recent order dated 7/5/2010 of the Hon'ble ITAT "C" Bench, Mumbai in the case of ITO v. Parikh Investment & Development (P.) Ltd. [2010] 5 taxmann.com 100/[2011] 43 SOT 537 wherein the decision of the Supreme Court in the case of Reliance Petroproducts (P.) Ltd. (supra) was followed. 70. The learned D.R. submitted that Mesne Profits 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loss account the Assessee had given the break up of the "Administrative & Other Expenses, in which a sum of Rs. 33,63,85,624 was shown as "NOPL paid under suit No. 3587". According to the CIT(A) this disclosure was not adequate because the AO, without sufficient background of the issue, cannot understand the claim made by the Assessee as deduction in the profit and loss account. According to him the item of expenditure should have been shown as a separate item of expenditure in the profit and loss account rather than giving the above details in the Schedule to the Profit and loss account. The Assessee ought to have given a detailed note on the nature of the expenditure. Had the case not been selected for scrutiny, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question would therefore be as to whether the claim made was bona fide. In this regard, one has to look at the following circumstances. The Assessee had been claiming the aforesaid payments as deduction in computing its total income in AY upto 1998-99. In AY 1999-2000, the AO disallowed the claim for deduction on the ground that the Assessee did not furnish a copy of the court order requiring the Assessee to pay the said commission. On appeal by the Assessee the CIT(A), Central VI, Mumbai by his order dated 17-9-2004 was pleased to allow the claim of the Assessee for deduction. The CIT(A) in this order has observed that the documentation regarding the payment was available to the AO in the earlier 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 concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he position in this regard was doubtful. Even the 5 member Special Bench found that there were conflict of opinion on the issue among Hon'ble High Courts and preferred to follow the view that mesne profits are capital receipts not chargeable to tax in the hands of recipient. Therefore the Special Bench decision in the case of Narang Overseas (P.) Ltd. (supra) can never be the basis to hold that the Assessee furnished inaccurate particulars by making an unsustainable claim. 78. The next aspect to be highlighted is the fact that the Tribunal has held that the expenditure was not wholly and exclusively for the purpose of business and that it was a payment for settlement of 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 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrangement. Under the family arrangement, the Assessee only agreed to deliver possession of the property on or before a particular date. The Assessee did not deliver possession as per the family arrangement and therefore had to pay mesne profits. The quantum of mesne profits was awarded as per the claim made in the suit. The fact that it was paid pursuant to consent memo of parties does not make it a payment for extraneous reasons. There is no material on record to say that the payment of mesne profits was as part of the consideration for settlement of family disputes and not for use and occupation of the property by the Assessee. It cannot therefore be said that the 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 paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m for expenditure would amount to giving inaccurate particulars of such income" is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. If the contention of the Revenue is accepted then in case of every Return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(1)(c). That is clearly not the intendment of the Legislature. THIRD MEMBER ORDER R.S. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) The entire dispute between the family members was carried before the Hon'ble Supreme Court. The Hon'ble Supreme Court was informed about various suits pending before the Hon'ble Bombay High Court amongst various family members, including suit no. 3578 of 1994. The petition was called for hearing on 12.12.2001 by the Hon'ble Supreme Court. Some consent was arrived at amongst various parties and Minutes of Consent were placed before the Hon'ble Supreme Court. Vide judgment dated 08.01.2002, the Hon'ble Supreme Court passed the order transferring of pending suits including 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OPL. 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 Rs. 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 order passed by the Tribunal on 11.05.2009 confirming the sustenance of disallowance of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to increase the monthly payment from Rs. 1.25 lakh, as determined by the Hon'ble Bombay High Court on 24.08.1993 to Rs. 10 lakhs as per the terms of consent. He vociferously put forth that this payment of Rs. 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 been recorded by the tribunal also. 10. Before I proceed to determine the true nature of payment of Rs. 33.63 crores made by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 Rs. 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 proceedings against the claim of the assessee for deduction of Rs. 33.63 crores. The observations of the tribunal in para 5 of the order dated 11th May, 2009 are that : "The A.O. disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Rs. 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 by the Hon'ble Supreme Court in its order. It is thus evident that when consent was arrived at on 12.12.2001, several controversies were on amongst the members on the distribution of family properties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 33.63 crores towards family settlement essentially on the premise that the payment at the rate of Rs. 10.00 lakh per month with interest was highly excessive when seen in the light of Rs. 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 compensation for deprivation of property at the rate of Rs. 10.00 lakhs per month with interest. If the payment finally made by the assessee company had some hidden element towards the family settlement, then the amount paid would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 themselves. The facts are required to be examined afresh in the penalty proceedings with a view to determine as to whether the assessee is caught within the mischief of section 271(1)(c). If the assessee were not to be allowed an opportunity of making out a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealment 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 it would apply only qua the items of income and not of expenses. On the other hand the second expression, being the furnishing of inaccurate particulars of such income envisages that though the income earned was offered for taxation but some other means were employed by the assessee which resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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(1)(c), it is seen that the assessee claimed deduction for a particular sum, which was not allowed. Obviously it cannot be a case of concealment of income. Furnishing of inaccurate particulars of income in the context of claim for expenses pre-supposes the knowledge of the assessee about its inadmissibility. It can happen in two situations, viz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the assessee succeeds in proving that none of these three conditions are satisfied in his case, then obviously the addition made by the Assessing Officer shall not constitute income in respect of which particulars have been concealed for the purposes of section 271(1)(c). 26. I will proceed to examine the facts of this case to determine as to whether it is failing in any of these thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 as to its allowability. First condition is that the assessee offers an explanation, which he is not able to substantiate or prove. It divulges that condition (i) is satisfied in this case. Bona fide explanation 30. The second condition has further two elements viz., (iia) bona fide explanation and (iib) adequate disclosure of all the material facts. I shall examine element (iia) first as to whether the expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 around two years from the date of filing of the return. 32. I am not convinced with this line of reasoning. It is obvious that the bona fide of the claim has to be considered on the facts and circumstances prevailing at the time when the return is filed claiming the deduction. It is no doubt true that on the date of filing of the return for the year in question, the assessee's claim for deduction already stood rejected by the Assessing Officer for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchased some shares. The A.O. made disallowance of interest and also imposed penalty on such disallowance. When the matter eventually came up before the Supreme Court, the said penalty was deleted by observing that simply because deduction of expenditure has not been accepted by the Revenue, penalty u/s.271(1)(c) is not attracted. It has further been observed that mere making of the claim which is not sustainable in law by itself will not amount to furnishing inaccurate pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders." 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 Rs. 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 continuously making disallowance of payment made under the same suit in the immediately preceding three years. Primarily, there can be no doubt that it is the duty of the assessee to make a proper disclosure from which the Assessing Officer can ascertain the relevant facts. However 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 deduction, which has been held by the Tribunal to be not allowable for the reasons given in the order, the assessee has not violated the provisions of section 271(1)(c). 42. For the foregoing reasons I agree with the view expressed by the learned Judicial Member. The Registry of the Tribunal is directed to list this matter before the division bench for passing an order in accordance with majority view. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 There was a difference of opinion between the members who heard the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, if there is a majority, but is the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred , by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it. Therefore we have no other option but to pass an order in accordance with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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