TMI Blog2014 (5) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee was under good faith and with the advice of the auditors and the employees - assessee has furnished an explanation which has not been found false. Relying upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETRO PRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] – the assessee has made a genuine claim of write off with regard to the obsolete items - The fact has been disclosed in the return of income - the assessee has failed to obtain approval from the excise authorities shall not make assessee’s claim as bogus - It was a bonafide claim and no penalty u/s 271(1)(c) can be levied on the bonafide claim made in the return of income - with regard to the disallowance out of the unpaid amount, the claim was also not false claim - The assessee is following mercantile system of accounting where principle of accrual of expenses is allowable - Simply by stating that liability was unascertained, no penalty can be levied on the assessee on the ground - there is no concealment of income or filing of any inaccurate particulars of income which could bring the assessee under the provisions of section 271(1)(c) of the Act - The assessee has huge accumulated losses and depreciation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t records of various assessment years. 2A. Without prejudice to ground no. '2' above, that the learned Commissioner of Income-tax (Appeals), on the facts and circumstances of the case, has erred in confirming the levy of penalty without bringing on record any material to show that the administrative expenses of Rs.3,89,78,000/- did not relate to business or were expenses of personal or capital nature and hence not allowable u/s 37 of the Act. 2B. Without prejudice to ground nos. '2' and '2A' above, that the learned Commissioner of Income-tax (Appeals) on the facts and circumstances of the case has erred in confirming the imposition of penalty in respect of disallowance of Rs.3,89,78,000/- without considering that no opportunity was allowed to this appellant to explain in writing why penalty should not be imposed on the aforesaid amount and the order so passed is against natural justice and deserves to be quashed. 3. Without prejudice to ground no. 1 above, that the learned Commissioner of Income-tax (Appeals) has erred in confirming the levy of penalty in respect of disallowances/claims for write off of un-saleable stocks Rs. 8,57,119/- on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of various disallowances of expenses in assessment without appreciating that disallowances in assessment do not ipso-facto call for imposition of penalty, more particularly when there is complete absence of concealment of any income or filing of any inaccurate particulars as provided in section 271(l)(c) of the Act, 1961 and that the assessee company had huge accumulated/brought forward losses amounting to Rs.9,55,26,169/- and was not liable to pay any tax and there was, therefore, no question of any concealment or furnishing inaccurate particular of income as per the law laid down and applicable at the relevant time. (The explanation 4 (a) below section 271(l)(c) is inserted through Finance Act, 2002, w.e.f. 1- 4-2003 and is not applicable to the assessment year under consideration). 7. That the order is otherwise bad in law and on facts. 8. That the above grounds are independent and without prejudice to each other. 9. That the Appellant craves leave to amend, alter, add or forego any of the above grounds. 3. While pleading on behalf of the assessee in grounds no.2 to 2B, the ld. AR submitted that the addition of Rs.3,89,78,000/- was made by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an open and bona fide manner without concealing any thing from the department. Therefore, it is not a case of concealment at all and that it cannot be termed as furnishing of inaccurate particulars of income. The ld. AR further submitted that assessee was in possession of huge losses pertaining to earlier years as is evident from the order of assessment wherein the income of the assessee has been finally assessed at NIL. He submitted that no prudent corporate entity would make any bogus claim to enhance its losses in such circumstances. He submitted that whatever claim was made by the assessee is made in good faith and upon the advice of the auditors and the employees. At the most, such claim can be termed as a wrong claim but the same cannot be put at par with false claim. For this, he relied on the decision of ITAT, Delhi Bench in the case of Prakash Industries in ITA No.1420/Del/2010. A copy of the order was supplied. Ld. AR further submitted that similar type of expenses in the case of sister concern, M/s. Newquest Corporation Ltd., have been allowed by the ITAT, Nagpur Bench and he draw our attention to the copy of the order of ITAT placed at pages 141 to 171 of the paper b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. Ld. AR further submitted that the provisions of section 271(1)(c) are discretionary provisions and the same has to be exercised in judicious manner at least in those cases where there is no evidence to prove that the claim of the assessee is bogus and it has not been made to reduce tax liability. In assessee s case, there is huge carry forward losses and depreciation to be set off, therefore, there cannot be any intention to furnish inaccurate particulars of income or to make bogus claims. Ld. AR relied on the following decisions where provisions section 271(1)(c) was held to be discretionary :- (i) CIT vs. Maya Rani - 92 ITR 349 (Del); (ii) Hindustan Steel Ltd. vs. State of Orissa 83 ITR 276 (SC); (iii) Prem Arora in ITA No.4702 of 2010 (Del.)(ITAT). Ld. AR further submitted that the explanation furnished by the assessee has not been proved false. The assessee has procured services from M/s APR. In support of this, the assessee has submitted a copy of agreement executed between the assessee and M/s APR for the services. M/s. APR provided the services to the assessee and had charged the amount. While confirming the addition, the ITAT has also observed that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 225 (SC). He further submitted that M/s. APR Ltd. to whom the impugned expenses were payable was also regularly assessed to tax and filing the return of income where no adverse inference can be drawn. He further submitted that assessee has made a true and correct disclosure in his return of income. He also submitted that in the case of CIT vs. M/s. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC), Hon'ble Supreme Court has held that inaccuracy and concealment has to be judged from the return of income of the assessee and he draw our attention to the relevant observation of the Hon'ble Supreme Court which is reproduced as under Reading the words inaccurate and particulars in conjunction, the must mean the details supplied in the return which are no accurate not exact or correct not according to truth 0 erroneous. In this case, 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). He submitted that Hon'ble Supreme Court has confirmed the view taken in the case of Dilip Shroff to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such cases as assessee has not furnished any inaccurate particulars of income. 5. While pleading on ground nos.4 4A and 5, the ld. AR submitted that these were unpaid expenses. The third disallowance on account of unpaid expenses made by Assessing Officer was unascertainable liability. The assessee has not pressed this disallowance before the ITAT. The assessee is following mercantile system of accounting. The assessee has consumed the services but payments have been made at a later date for want of bills. Thus, the claim of the assessee was not incorrect or inaccurate, therefore, no penalty is leviable. Finally, he submitted that the Assessing Officer has not recorded clear satisfaction in the body of the assessment for assuming the jurisdiction of levy of penalty. He further submitted that the reliance of the CIT (A) and Assessing Officer on the case of Dharmendra Textile reported in 306 ITR 277 (SC) is not at all applicable to the assessee s case. This decision has been distinguished by the Hon'ble Apex Court in the case of Rajasthan Weaving and Spinning Mill reported in 224 CTR 1 (SC) wherein Hon'ble Supreme Court has held that judgment of Dharmedra Textile, cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer for the reason that assessee has not got any benefit out of these expenses and assessee failed to establish whether the expenses were wholly and exclusively for the purpose of the business of the assessee. The assessee has failed to advance the argument with regard to the benefit of waiver of loan came due to these expenses. Further, we also agree with the pleadings of the ld. AR that the quantum additions in penalty proceedings are two separate and distinct proceedings. Penalty cannot be levied for every disallowance made in the assessment order. The assessee has submitted the agreement, debit note for these expenses, ledger account of M/s. APR Limited to whom the payments were made. Further, the confirmation from M/s. APR Limited was also filed in penalty proceedings. The revenue authorities have not brought anything on record which could prove the non-genuineness of these documents. The facts with regard to these claims were clearly mentioned and disclosed in the return of income. The expenses payable to M/s. APR Limited were shown separately by the assessee in the profit and loss account and the same has been also discussed by the auditor in the audit report whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. Further, with regard to the penalty levied on stock written off, we find that assessee has made a genuine claim of write off with regard to the obsolete items. This fact has been disclosed in the return of income. Simply, the assessee has failed to obtain approval from the excise authorities shall not make assessee s claim as bogus. It was a bonafide claim and no penalty u/s 271(1)(c) can be levied on the bonafide claim made in the return of income. Similarly, with regard to the disallowance of Rs.72,794/- out of the unpaid amount, we hold that this claim was also not false claim. The assessee is following mercantile system of accounting where principle of accrual of expenses is allowable. Simply by stating that liability was unascertained, no penalty can be levied on the assessee on this ground. Considering all the facts, we find that there is no concealment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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