TMI Blog2012 (11) TMI 754X X X X Extracts X X X X X X X X Extracts X X X X ..... r with the business of the assessee and that the explanation furnished by the assessee is not bona fide. Accordingly, the levy of penalty is upheld - appeals dismissed - I.T.A. Nos. 5087 & 5088 (Del)/2011 - - - Dated:- 25-1-2012 - SHRI RAJPAL YADAV AND SHRI K.G. BANSAL, JJ. Appellant by : Shri Ajay Vohra, Advocate, Shri Gaurav Jain Ms. Pinky Kapoor, C.As Respondent by: Shri R.S. Negi, Sr. D.R. ORDER PER K.G. BANSAL : A.M Both these appeals were argued in a consolidated manner by the ld. counsel for the assessee and the ld. senior D.R. as a common issue is involved. It is the case of both the parties that the facts of two years are identical and the common question is regarding the levy of penalty u/s 271(1)(c) of the Act. The ground taken by the assessee in the appeal for assessment year 2001-02 is that the ld. CIT(Appeals) erred on facts and in law in confirming the penalty of Rs. 5,10,286/- levied by the AO u/s 271(1)(c). The ground in the appeal for assessment year 2002-03 is that the ld. CIT(Appeals) erred in confirming the penalty of Rs. 4,28,400/- levied by the AO under the aforesaid provision. In the ground it is clarified that the ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services. Therefore, the amount was disallowed in computing the total income. This issue was subject matter of appeal up to the level of the appellate Tribunal, which confirmed the action of the AO. The case of the assessee in the penalty proceedings is that Shri Sandilya is an expert professional having very long experience. It appears that the assessee had deducted tax at source from payment made to Shri Sandilya in respect of which a certificate was issued to him. A copy of this certificate was also produced in penalty proceedings. The AO considered the evidence and the submissions. However, he did not agree with the assessee. It is mentioned that the assessee could not produce any agreement for rendering of consultancy services. The payment is stated to be made on a mutually agreed basis. The assessee did not produce any evidence that Shri Sandilya actually rendered any service to the assessee. In this context he again referred to his finding in the assessment order that no business activity had been carried out in this year which necessitated the availment of the consultancy services. Therefore, it has been concluded that the amount has been debited to the profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion etc. This constitutes business activity although no income was earned. The ld. CIT(Appeals) considered the facts of the case and submissions made before her. She referred to the provision contained in Explanation 1(B) of section 271(1)(c). This provision casts a burden to offer explanation on the assessee and to substantiate the explanation. If these things are not done, the amount added or disallowed is deemed to be the income in respect of which particulars of have been concealed. Relying on this provision and various cases, the levy of penalty has been confirmed. 3.1 At this stage, we may also deal with the decision of the Tribunal in quantum appeal in which the disallowance had been upheld. In the consolidated order dated 30.05.2008 passed for assessment years 2001- 02, 2002-03 and 2003-04, it has been mentioned that the case of the assessee is based on the agreement dated 03.04.2000 and confirmation letter of Shri Sandilya regarding receipt of consultancy fee of Rs. 12.92 lakh. There is no evidence regarding rendering of actual service except making verbal submissions of the nature of services rendered by him. The agreement is effective for assessment year 2000-01, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out in this year. The investments in shares were made in earlier years. The CIT(Appeals) has appreciated the facts of the case and legal position in their right and correct perspective. The CIT(A) has given sound reasons and basis in confirming the disallowance of consultancy charges. It is well settled that the burden to prove and establish that the expenditures were incurred for the purpose of business is on the assessee, and mere existence of an agreement and payment in that behalf is not sufficient to discharge the said burden as so rightly observed by the CIT(A) with reference to the decided cases referred to in his order. In the present case, the assessee has not been able to discharge its burden by producing or showing any proper evidences of services being rendered by Shri Sandilya to the assessee during the relevant year under consideration. We, therefore, uphold the CIT(A) s order on this issue. 4. Before us, it has been submitted that the assessee is an investment company of Eicher group. It is wholly owned by Eicher Ltd. It holds the shares of group companies and other companies by way of long-term investments. It also holds bonds of Industrial Finance Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure in the account about the payment. The profit loss account shows payment of consultancy charges of Rs. 13.51 lakh. The account has been placed on page no. 99 of the paper book. The assessee had furnished explanation before the AO and the ld. CIT(Appeals). This explanation has also been summarized by us. It is vehemently argued that in view of the agreement, deduction of tax at source and confirmation, the explanation cannot be said to be false. The payment has actually been made to Shri Sandilya. Therefore, the explanation is bona-fide. Thus, the provision contained in Explanation-1 to section 271(1)(c) goes against the levy of penalty. 4.4 In reply, the ld. senior DR submitted that the real issue is as to whether Shri Sandilya has actually rendered any service to the assessee. The Tribunal has held that the assessee has failed to prove that any service was actually rendered by him and, therefore, disallowed the claim of the assessee. There are surrounding circumstances which show that the payment has not been made for any genuine rendering of services. The first payment of Rs. 10.00 lakh has been made even prior to formation of the agreement on 05.04.2001. No explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 190 Taxman 157 (Del), the AO had treated share-trading loss of Rs. 1,63,83,650/- as speculative loss under the Explanation to section 73. The assessee agreed to the amount being treated as speculative loss. The AO also initiated penalty proceedings u/s 271(1)(c) and thereafter imposed a penalty of Rs. 63,16,710/-. The penalty was deleted by the CIT(Appeals) and his order was confirmed by the Tribunal. It came to the conclusion that having regard to the loss suffered by the assessee and the nature of activity of its business, the assessee-company was under a belief that the transactions form a part of its business. Therefore, mere treating the loss as speculative loss does not automatically results in inference of concealment. The Hon ble Court held that penalty proceedings and assessment proceedings are distinct and independent of each other. Although the findings given in the assessment order will have a bearing on the penalty proceedings, but such findings are not decisive and determinative. This case was relied upon for the limited proposition that penalty proceedings and assessment proceedings are distinct proceedings. We are of the view that no exception can be taken to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Shri Sandilya has any connection with the business at all or not. 6.2 In the case of CIT Vs. Deeksha Holidays Ltd., (2010) 186 Taxman 183 (Del), the AO inter-alia made three additions/disallowances-(i) Rs. 1,47,901/- on account of short-term capital gains on sale of cars; (ii) Rs. 6,86,436/- disallowed from professional development expenses; and (iii) Rs. 12,26,000/- disallowed from advertisement expenses. He also levied penalty u/s 271(1)(c), which was upheld by the CIT(Appeals). However, the Tribunal set aside the penalty order on the ground that it was not a case of concealment of income or furnishing inaccurate particulars of income. The Hon ble Court considered the nature of addition/disallowance under each head. It has been mentioned that the addition of Rs. 1,47,901/- had been accepted by the assessee as a mistake. A sum of Rs. 3.00 lakh was disallowed as the expenditure was incurred for earning tax-free income. The AO had also not recorded any finding in the assessment order that the assessee either concealed income or furnished inaccurate particulars of income. Further, expenses were disallowed on the ground that they were not incurred for the purpose of business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to tender explanation and thereafter for the assessing officer to examine as to whether such explanation is bona fide or not. Thus, arguments regarding lack of bona fide are not material in deciding the appeals. Further, the argument that no tax is payable on finally assessed income is not material in view of this decision. The argument also looses weight in view of Explanation-4 to section 271(1)(c). 6.4 The question before Hon ble Delhi High Court in the case of CIT Vs. Zoom Communication (P) Ltd., (2010) 327 ITR 510, was-whether, the ITAT erred in deleting the penalty in respect of two sums amounting to Rs. 4.74 lakh imposed by the AO under section 271(1)(c) of the Act? In this case, the claims of the assessee regarding deduction of income-tax and loss on sale of assets were disallowed. The explanation of the assessee was that this happened due to over sight. The Tribunal deleted the penalty by mentioning that nobody would claim deduction of income-tax to evade payment of tax. It accepted the contention that the error occurred due to oversight and there was a bona fide mistake. The Hon ble Court reversed this finding. In doing so, the case of Reliance Petro Products (P) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Shri Sandilya. We do not find any substance in this part of the argument. Further, no basis has been provided for computing the payment either in this or in the next year. This has to be seen in the context of the fact that no business has been conducted in these two years and there is no change in the investments also. Even after confirmation of the disallowance by the Tribunal, the assessee could not bring any evidence on record in respect of availment of any service from Shri Sandilya. It has not shown any eagerness even in the face of possible levy of penalty to file affidavit or produce Shri Sandilya to explain the nature of services rendered by him. Therefore, mere showing the expenditure under a separate head consultancy charges does not lead to inference that all the facts were disclosed. Ultimately when the agreement was filed, a curious fact was noticed that a sum of Rs.10.00 lakh had already been paid to him. Therefore, we tend to agree with the ld. DR that the payment has no nexus whatsoever with the business of the assessee and that the explanation furnished by the assessee is not bona fide. Accordingly, the levy of penalty is upheld. 8. The facts of assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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