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2015 (12) TMI 299 - ITAT DELHI

2015 (12) TMI 299 - ITAT DELHI - TMI - Penalty under section 271(1)(c) - Held that:- The assessee has furnished all the details relating to the earning of dividend income. So it cannot be said that the assessee had concealed income or furnished inaccurate particulars of income. The only basis of levying the penalty u/s 271(1) (c) of the Act was that the claim of the assessee for the disallowance u/s 14A of the Act was not accepted by the AO, so it can at the most be a ground for making the addit .....

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r : This appeal, at the instance of the Assessee, is directed against the order of the Commissioner of Income-tax (Appeals)-I, Dehradun dated 12.10.2009 for the assessment year 2001-02. 2. The solitary ground involved in this appeal is against confirmation of the penalty of ₹ 1,49,38,148/- levied under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter the Act ) by the AO. 3. This is the second round of appeal before us after the Hon ble jurisdictional High Court set-aside the orde .....

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year under consideration i.e. 2001-02 and the same was assessed under section 143 (3) of the Act. (iii) During the relevant assessment year, the Assessee had received dividend income of ₹ 3,11,85,522/- from various other companies. (iv) While dealing with the tax assessment of the Assessee, the Assessing Officer noticed that the Assessee had claimed exemption of an expenditure of ₹ 4,15,86,591/- being interest on loans raised for acquiring shares of various companies. (v) The Assessi .....

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formed about the initiation of penalty proceedings. (vii) Aggrieved by the assessment order dated 28.02.2003 the Assessee filed an appeal before the first appellate authority. The CIT(A) confirmed the stand of the Assessing Officer vide order dated 23.12.2005. (viii) Thereafter, the assessee filed an appeal before the Tribunal and the Tribunal also dismissed the quantum appeal of the assessee vide order dated 11.08.2008. (ix) Vide order dated 26.02.2009, the Assessing Officer levied penalty of & .....

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. (x) Against the aforesaid order dated 30.04.2010 of the Tribunal, the Revenue went in appeal before the Hon ble jurisdictional High Court and the Hon ble High Court allowed the appeal of the Revenue and directed the Tribunal to decide the appeal on merits by observing as under :- The substantial question of law as framed is therefore decided in favour of the Revenue and against the Assessee. In the circumstances the impugned order is set aside and the matter is remitted back to the ITAT for a .....

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on, has concealed the particulars of his income or furnished inaccurate particulars of such income, then only AO may direct that such person shall pay by way of penalty. According to the ld. AR, then only in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars .....

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ts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this subsection, be deemed to represent the income in respect of which particulars have been concealed." The ld. AR further contended that on perusal of the aforesaid, section 271 (1) of the Act provides that the assessing officer may, in the cours .....

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ether the appellant had, on the facts of the case and in view of the position in law, by making a claim or not disclosing an amount, sought to conceal/file inaccurate particulars of income. Ld AR wants us to appreciated that there may be items in respect whereof there may be bona fide difference of opinion between the assessee and the assessing officer or divergence of judicial opinion, in which case there cannot be any charge of concealment or filing of inaccurate particulars of income. Further .....

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the assessee has not concealed any particulars of its income nor furnished any inaccurate particulars of its income which may be subjected to penalty under section 271(1)(c) of the Act. A perusal of the return of income and the documents filed by the Appellant Company and the order passed u/s. 143(3) on 28.02.2003 reveal that the above disallowances are in the nature of difference of opinion as to the taxability of income / allow ability of expenditure and no facts were concealed. The additions .....

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return of income/ accompanying documents. The ld. AR submitted a written synopsis, relevant submissions of which are as follows :- • On perusal of Explanation I to section 271(1)(c) of the Act it will be kindly noticed that the said Explanation has two limbs (A) and (B) as under: (A) fails to offer any explanation or offers an explanation which is found by the assessing officer to be false; or (B) offers an explanation which he is not able to substantiate and fails to prove that such expla .....

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not able to substantiate; and • Appellant fails to prove that such explanation is bona fide; and • All the facts relating to the same and material to computation of his total income have not been disclosed In the case of CIT V. Rahuljee & Co.: 250 ITR 225 the Delhi High Court upheld the deletion of penalty by the Tribunal holding that Explanation 1(B) to s. 271(1)(c) prescribed that penalty could be imposed only if (a) appellant had not been able to substantiate the explanation, (b .....

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of the appellant was a legal and bona fide claim. Therefore, in our respectful submission, neither of the two situations namely "furnishing of inaccurate particulars of income" or "concealment of income" existed so as to warrant the imposition of penalty under section 271(1 )(c) of the Act. The allegation of the assessing officer that the appellant furnished inaccurate particulars of income is, in our respectful submission, not correct. The allegation of the assessing office .....

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could be imposed under section 271 (1)( c) of the Act: In the case of Bunnah Shell Oil Storage and Distributing Co. of India Ltd. v. ITO: 112 ITR 592 (Cal.) the appellant after filing full and detailed particulars with all material relevant to assessment before the ITO raised the legal contention before the [TO that the appellant was entitled to the benefit of devalued loss, increased depreciation and development rebate. The above claim was not accepted by the [TO and penalty proceedings under .....

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of the company and it could never be said that the appellant had furnished inaccurate particulars of its income by seeking to raise the legal pleas. It was held in the above case that the contention raised by the appellant did not in any way indicate that there had been any concealment of particulars of income or filing of inaccurate particulars of income by the appellant and that whether the said contentions are ultimately upheld or turned down, it could not be said that they were frivolous, d .....

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ence, the Court further held. The aforesaid decision of the single judge of the Calcutta High Court was affirmed by the Division Bench of the same Court in [TO v. Bunnah Shell Oil Storage and Distribution Co. of India Ltd. 163 ITR496. MERE DISALLOWANCE OF EXPENDITURE NOT LIABLE TO PENALTY The assessee most respectfully submits that the mere disallowance of an expenditure claimed in the tax return does not amount to concealment of income. An analysis of the aforesaid provisions of section 271 (1) .....

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n 27I(1)(c) cannot be levied if: • the assessee acted on a bona fide belief and furnished the full facts relevant to the case or • the additions have been made on a ground on which there is difference of opinion. In other words, before penalty can be levied under the provisions of section 271 (1)(c) of the Act, it is to be proved beyond doubt that additions made by the Assessing Officer were part of the conscious attempt on the part of the assessee to conceal his income. In this contex .....

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essential pre-condition for invoking Explanation I to section 27I(1)(c) is that the assessee fails to offer an explanation or offers an explanation which is found to be incorrect by the tax authorities which is not the case in the matter under consideration. We would also like to draw your kind attention to the decision of the Madhya Pradesh High Court in the case of CIT vs S.T.I. Biplus Tubing (India) Ltd. (247 ITR 426) wherein the Hon'ble Court affirmed the Tribunal's view that: Quote .....

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see had furnished inaccurate particulars to that item. The fact that the plea of the assessee that the expenditure in question was of revenue nature was not accepted, by itself did not mean that the assessee had furnished inaccurate particulars of its income by not adding that back to its total income. The question for consideration was as to whether, on the facts and circumstances of the case, the assessee could reasonably be under a bona fide belief that the expenditure in question was of a re .....

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r inaccurate to his knowledge or was as a result of gross negligence. Unquote The Delhi Tribunal in ITO v R B G M Modi & Ors (P) Ltd. (31 ITJ 550) has held as under: Quote .... the mere holding of an addition made in the assessment proceedings would not ipso facto lead to the conclusion that there was concealment of income and for the purpose of levy on penalty the entire material is again to be apprised the explanation offered though rejected must be bona fide and all the facts relating to .....

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be said that the explanation given by the assessee was not bona fide. The Tribunal observed as under: Quote .... no penalty was leviable if after furnishing all the necessary particulars of income the assessee claimed benefit of certain provisions of the Act and raised contention but did not find favour with the authorities. It might be on difference of opinion on particular set of facts but it did not imply that there had been a concealment of particulars of income. If the assessee had taken a .....

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tween the assessed income and the returned income, the penalty under section 271 (I) (c) is not automatic …. The fact that certain income has been assessed by the Income-tax Officer in the assessment order by itself is not conclusive evidence that the amount assessed was the income of the assessee. In fact, in very many cases, the Assessing Officer can include certain amounts in the income of the assessee if the explanation given by the assessee in regard to the source thereof is not foun .....

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lDeI/2007) the jurisdictional Delhi Tribunal, has held that the issue of disallowance under section 14A of the Act has been a subject matter of a substantiated controversy and is highly debatable issue. It is further observed that on a debatable issue, it can not be said that the assessee has concealed its particulars of income and therefore, penalty under section 271(1)(c) of the Act can not be levied. A copy of the judgement is enclosed for your Honour's ready reference (Annexure - 6). In .....

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c) of the Act cannot be imposed. In the present case, none of the conditions precedent to the levy of penalty under section 27I(1)(c) of the Act were satisfied which could justify the levy of penalty. In the present case: • The assessee offered full explanations for the expenditure claimed in the tax return during assessment proceedings. • The explanations were not found to be false. • The statements/explanations made by the assessee with regard to the basis of the deductions (in .....

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ally be an act of fraud or willful negligence attracting the penal provision under section 271(1)(c) of the Act. No question of any liability will arise where the assessee is merely contending for a particular position contrary to the view taken by the Assessing Officer. The assessee has a right to make any claim which may or may not be allowed. Mere disallowance of a claim cannot by itself form the basis for initiating penalty proceedings in the absence of any material to show that the claim wa .....

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ate particulars of income cannot, it is respectfully submitted, tantamount to recording of satisfaction regarding concealment of income/submitting of inaccurate particulars of income or indicating that the assessing officer has applied his mind and formed an opinion in respect thereof, prior to initiating penalty proceedings. The assessing officer has to be categorical and should be apparent on a bare reading of the assessment order and is not something which can be read. The satisfaction assume .....

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irmed by the CIT(A). In our respectful submission, mere confirmation or sustainment of the additions/disallowance by the CIT(A) does not attract levy of penalty under section 271(1)(c) of the Act. The assessing officer is required to establish that the assessee has concealed or filed inaccurate particulars of income. The Mumbai Bench of Tribunal in the case of Shirish R. Shah v. ACIT: 114 Taxman 33 (Mum) (Mag) has held likewise. It was observed by the Bench as under: "It is well-settled tha .....

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, should be quashed. Without prejudice, it is the respectful submission of the appellant that on the facts and circumstances of the case and in law, penalty under section 271(1)(c) of the Act was not leviable for the reasons stated hereunder: Section 271 (1) of the Act, as reproduced above, provides that the assessing officer may, in the course of any proceedings under this Act, direct the imposition of penalty under that section. In our respectful submission the lawmakers have deliberately used .....

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to justify levy of penalty under section 271(1)(c) of the Act. Accordingly, no penalty should be levied on the assessee in the present case. CONCLUSION It is most humbly submitted that the assessee was under the bona fide belief that the revenue expenditure on interest being in the nature of normal business expenditure, was deductible under the provisions of law for determining the total taxable income of the assessee. Notwithstanding the fact that the quantum appeal filed in your office has be .....

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ers of the authorities below. 6. We have heard both the sides and perused the material on record. We find that the appellant is a private limited company, was, inter alia, engaged in the business of dealing in shares/securities and giving loans. As part of the aforesaid activity the appellant held share/securities both as trading assets (stock-in-trade) and investments (capital assets). The break-up of shares held as capital assets and trading assets has been perused at (page 4 of PB-1). 7. It h .....

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s held as trading assets were sold during the year and income/profit arising therefrom was offered to tax as business income. (page 4 of PB-1) perusal of the same gives the details of shares held as capital asset and trading asset as also details of shares held as trading asset and sold during the year; and perusal of (page 31of PB-1) discloses profit on sale of shares aggregating to ₹ 1.29 crores as business income as also (page 2 of PB-1) disclosing income under the head business . 9. Fr .....

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that during the relevant assessment year, the appellant received dividend income of ₹ 3,11,25,522/- from the shares of 15 companies which were held as trading assets . In other words, the appellant did not receive any dividend from shares held as capital asset and received dividend only from share held as trading assets which fact has been taken note at page 2 of the assessment order passed under section 143(3), wherein the aforesaid undisputed facts were noted in the following words: The .....

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visions of section 14A and disallowed interest expenditure incurred on borrowed funds utilized for acquiring such shares under that section. 11. Thereafter we find that the aforesaid disallowance was sustained in the quantum appeals. The assessing officer imposed penalty under section 271(1) (c) alleging furnishing of inaccurate particulars of income with respect to the claim of interest expenditure, which has been challenged in the present appeal before the Hon ble Tribunal. 12. The Ld. AR Gaur .....

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ear was filed for various reasons. Firstly the Impugned assessment year, viz., AY 2001-02 which were undisputedly the first year of application of section 14A of the Act. The Ld. AR pointed out that section 14A was inserted in the statute for the first time by the Finance Act, 2001, which received the assent of the President on 11.05.2001 (Refer Circular No. 14 of 2001 report in 252 ITR(St.) 65). Therefore, according to Ld. AR, since it was the first year, it would be appreciated that the issue .....

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ed by the various benches of Tribunal. And in order to reconcile conflicting decisions from various benches of the Tribunal, a Special Bench was also constituted in the case of IRO s. Daga Capital Management Pvt. Ltd.: 117 ITAT169 (SB). Our attention was brought in this regard to paragraph 6 of the order written by the minority view in the aforesaid decision, which has been reproduced hereunder for ready reference: 6. When the appeal came up before the Division Bench, it was notice that there wa .....

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aining control over the group companies, the disallowance under section 14A can be made irrespective of the fact that dividend earnings were only incidental in nature. On the other hand, the assessee had relied on the decision of Delhi Bench of the Tribunal in the case of vidyut Investments v. Ito [2006] 10 SOT 284 wherein it was held that when shares are held as stock-in-trade with the object of trading in shares, and dividend income earning was only incidental in nature no part of the expenses .....

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time of filing the return of income for the relevant assessment year, being the first year of application of the said section after insertion thereof in the statute. 15. The Ld, AR pointed out that the Special Bench in the case of Daga Capital constituted precisely in the issue involved in the present case and took us to the issue framed which according to the Ld. AR is precisely the issue which is in hand and the issue is reproduced below :- "Whether, in the facts and in the circumstances .....

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as a debatable issue and that the issue whether the provisions of section 14A are applicable where shares were held as stock-in-trade was clearly a debatable issue. 17. We further take note that in the aforesaid decision of the Special Bench, there was a dissent between the Minority and Majority view. The Minority view in the aforesaid decision at para 25 decided the aforesaid issue in favour of the assessee. The relevant portion of the aforesaid order is reproduced hereunder for ready reference .....

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chance may also get the dividend on the shares held by him as 'stock-in-trade'. Since such dividend income is never intended at the time of purchase of shares, in our opinion, the connection between the expenditure incurred and the dividend income can be said to be incidental only since the dominant and immediate connection exists only between the expenditure incurred and profit on sale of shares. Since the existence of dominant and immediate connection is the condition precedent for inv .....

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as been laid on the establishing of dominant and immediate connection between the expenditure incurred and the exempt income. According to the ld. AR the expenditure of interest on investment in shares has direct and proximate link with the profit or loss from trading of shares and indirect link with the dividend income which was earned incidentally and hence no disallowance is warranted. In our opinion there is a basis fallacy in this argument. Dominant and immediate connection refers to first .....

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the dividend. Both these incomes fall on the same platform and are the direct result of investment. If a person invests in the shares from which dividend income is earned and thereafter such dividend is deposited in the bank from where the interest income results, in such a situation the relation between the interest paid by the assessee on the borrowed funds for the purchase of shares with the dividend income is dominant and immediate, being that of the first degree but the relation of such in .....

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and substance of his submissions was that this section would apply only when the shares are held as 'Investment'. We are not impressed with this submission raised on behalf of the assessee for the out-and-out reason that the reference in this rule is to the 'value of investment' and not the assets 'held as investment'. A person may make investment in shares and the shares so purchased may be held either as "Stock-in-trade' or 'Investment'. The word " .....

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antial question of law was admitted and was adjudicated vide the common order in the aforesaid decision, reported as Maxopp Investment (supra) and in this regard, it can be seen at page 296 of the aforesaid decision of the Delhi High Court reported at 347 ITR 272 though against the assessee. Further we find that the SLP filed against the aforesaid decision of the Delhi High Court in the appellant's own case for the assessment year 2002-03 has also been admitted by the Hon'ble Supreme Cou .....

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39;in holding that the issue regarding allowability of interest payable on late deposit of provident fund was a debatable issue and, therefore, could not be disallowed in the intimation issued order Section 143(1)(a) of the Income Tax Act? (b) Whether the ITAT was correct in law in holding that deleting the addition made by the Assessing Officer of an amount of ₹ 18,02,0261- being interest payable on late deposit of provident fund under Section 43-8 of the Income Tax Act as the same was no .....

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id Act). The said question has travelled all the way upto the Tribunal and is now before us in the said ITA No.958/2007 as well as other connected appeals being ITA Nos.965/2007. 1248/2007. 646/2009 and 652/2009. It is therefore clear that the issue was debatable and, therefore, could not be disallowed while considering the intimation under Section 143(1)(a) of the said Act. Consequently, question (a) is decided in favour of the appellant and against the Revenue ... (Emphasis supplied) . 20. Sim .....

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Income Tax Act. 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment whereunder deduction under Section 14A of the Act was prescribed to the appellant. The appellant has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons. we are o(the opinion that no que .....

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hat various other Hon ble High Courts and Tribunals have decided the aforesaid issue in favor of the assessee. We take note of the fact that other High Courts and various benches of Tribunal in the following cases have decided the aforesaid issue in favour of the assessee and held that section 14A cannot be invoked where shares are held as stock-in-trade: • CCI Ltd. v. JCIT: 250 CTR (Kar.) [Refer pg. 90 to 92 of Case Laws PBl • CIT vs. Smt. Leena Ramachandran: 339 ITR 296 (Ker.) [Refer .....

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