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2016 (3) TMI 323 - CALCUTTA HIGH COURT

2016 (3) TMI 323 - CALCUTTA HIGH COURT - [2016] 383 ITR 635 - Penalty u/s 271 - Held that:- It may be true that the assessing officer did not accept the explanation offered by the assessee and made additions which the latter did not challenge in appeal but it is also true that the learned Tribunal in paragraph 5 of its judgement quoted above opined that "since the matter is subjudice it is not a realized or realizable income in the hands of the assessee". In that view of the matter even the firs .....

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he assessee.

Therefore, the assessee cannot be held to have furnished inaccurate particulars or concealed particulars of his income. Hence, the imposition of penalty under Section 271(1)(c) was rightly set aside both by CIT(A) and the learned Tribunal. - Decided in favour of assessee - ITA No. 291 of 2009 - Dated:- 2-2-2016 - Girish Chandra Gupta And Asha Arora, JJ. For the Appellant : Mr M P Agarwal, Adv. Mr P Dudhoria, Adv For the Respondent : Mr J P Khaitan, Sr. Adv., Mr Siddharth .....

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lows:- "i) Whether, the mere disclosure of the amount of interest earned on the income-tax refund in the notes to accounts, without including the same in the computation of the total income, constituted bona fide belief of the assessee that such interest income was not exigible to tax on actual receipt of the said income? ii) Whether, the assessee in the instant case was justified in treating the interest received on income-tax refund as being contingent in nature, although there is no prov .....

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the financial year 2004-05 the assessee received interest amounting to ₹ 101.45 lakhs with the amount of refund arising from orders passed by the Commissioner of Income Tax (Appeals) (hereinafter referred to as "CIT(A)") for the assessment years 1993-94 to 1996-97. The revenue appealed against the order of the CIT(A) before the Tribunal. Since the matter was subjudice the assessee did not include the income arising out of the aforesaid amount of interest in his profit and loss ac .....

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n the allowance of certain claims of CIT (Appeals), the Company has received interest of ₹ 101.45 lacs from Income Tax Department for the assessment years 1993-94 to 1996-97. However, the department has gone into appeal against the above judgement and accordingly, the said interest income being a matter of contingency, has not been credited to the Profit and Loss Account." The assessing officer rejected the explanation furnished by the assessee and by an order dated 21st December 2007 .....

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t there are two ways 0f accounting an income or an expense. Either accept and adjust the same after each and every event or alternatively acknowledge it when there is no more, possibility of its alteration. The company has been following the practice of accounting the interest income or interest expense only after the matter is fully closed because before that the values keep on vary (increase/decrease) according to the judgements at different levels." The assessing officer rejected the con .....

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ns of the I.T. Act, 1961 and are not based on the surmise of the assessee. It was the duty of the assessee to offer each and every kind of income for taxation and every effort whether bonafide or malafide for not including a certain part of income in the computation of income and failing to offer tax on it would attract penalty provision u/s.271(1)(c). Therefore A.O. was legally correct to initiate penalty proceedings as this is clear case of furnishing inaccurate particulars of income to reduce .....

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ssessee; (b) That the fact that no appeal was preferred by the assessee against the order dated 21st December, 2007 by which the interest income was added goes to show that there was concealment of income; (c) That there is no requirement to prove mens rea in order to impose penalty u/s.271(1)(c) of the Act. The CIT(A) by the order dated 18th August, 2008 while holding in favour of the assessee had relied on Dilip N. Shroff v. JCIT reported in 291 ITR 513 which no longer holds the field in view .....

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Section 276-C of the IT Act. Object behind enactment of Section 271(1)(c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276- C of the IT Act." (d) That Section 271(1)(c) has to be read with clause (B) of Explanation 1 thereto which .....

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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." Had the assessing officer not conducted scrutiny assessment u/s.143(3) the interest income could never have been detected. Therefore the assessee had failed to substantiate his explanation and to prove that the same was bona fide. The assessee also failed to prove that he had disclosed all the facts relating to and material to the .....

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in a bona fide manner and made the relevant disclosure on the issue under consideration in its financial statements for the assessment year 2005-06. Disclosure regarding the interest income received was made by way of a note under Clause -5 of Schedule - H titled 'Accounting Policies and Notes on Accounts' as would appear from the order of CIT(A) dated 18th August 2008. The assessee had submitted a written reply dated 29th May, 2008 (quoted above) wherein he stated the exact reason for .....

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enalty provision u/s.271(1)(c)." 3) That both the CIT(A) and Tribunal have held that the assessee entertained a bona fide belief that the interest on refund was not includible in the computation of total income and thus penalty could not have been imposed; and 4) That merely because the department rejects a claim made by the assessee the same cannot be a ground for imposing a penalty. In support of his submission he relied on the judgement of the Apex Court in the case of CIT -Vs- Reliance .....

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would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned counsel for the Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexic .....

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rrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the words concerned. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the pe .....

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ia v. Dharamendra Textile Processors [(2008) 13 SCC 369] as also the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [(2009) 13 SCC 448] and reiterated in para 13 that: (Atul Mohan Bindal case [(2009) 9 SCC 589], SCC p. 597, para 13) "13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist." 9. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imp .....

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t; has been defined as: "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." 11. We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding .....

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-A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form part of the total income. It was, therefore, reiterated before us that the assessing officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to co .....

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etails of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the .....

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sessing Officer and arguments of the Appellant, following are my observations: (i) The Assessing Officer has himself provided in the order that the Appellant has made disclosure of position taken in respect of treatment of interest on income tax refund as contingent in nature. The said disclosure substantiates the bonafide belief of the Appellant. (ii) The observation of the Assessing Officer that penalty provisions are attracted irrespective of the fact whether an addition is based on bonafide .....

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nature and would crystallize in the year when the matter reaches finality, penalty could not be imposed. (iii) On plain reading of the facts in the case of Avada Trading Co (P) Ltd (supra), it is clear that there was a conflict of opinion on the year of taxability of interest on income tax refund between two benches of Hon'ble Mumbai ITAT for which the Special Bench was constituted- Further, reliance is also placed on the decisions of Jurisdiction High Court in the case of CIT vs Jagabandhu .....

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llant did not offer the interest earned on fixed deposits made for providing guarantee to Excise Department in respect of excise duty under dispute adopting a position that the same is contingent in nature since decision of Hon'ble Delhi High Court is pending. The facts of the case are similar to the Appellant's case. (v) Following the ratios of the above-mentioned judicial pronouncements and going by the facts of the assessee's case, it is not possible to agree with the observations .....

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uot; The learned tribunal upheld the order of the learned CIT(A) and held as follows:- "5. Heard the rival contested submissions, went through the record. It is a fact that the assessee has acted bonafidely in this case. There is no condition of the provision of section 271(1)(c) with regard to the imposition of penalty for concealment. Neither there is furnishing of inaccurate particulars nor concealment of particulars by the assesse. Since the revenue has gone in further appeal against th .....

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view of the ClT(A) in allowing the assessee's appeal." The relevant portion of section 271(1)(c) together with explanation reads as follows:- "271. Failure to furnish returns, comply with notices, concealment of income, etc.-(1) If the Assessing Officer or the 1[* * *] Commissioner (Appeals) 2[or the Commissioner] in the course of any proceedings under this Act, is satisfied that any person- (a) [omitted;] (b) … (c) has concealed the particulars of his income or furnished in .....

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hat all the facts 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 sub-section be deemed to represent the income in respect of which particulars have been concealed." The assessing officer in his order imposing penalty dated 27th June 2008 has observed as follows:- "Therefore, penalty coul .....

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ent is bad. Furthermore it cannot also be said that the assesse had furnished inaccurate particulars of income. This is so because there was no material on record to indicate that the particulars furnished by the assesse were factually incorrect. As held in Reliance Petroproducts (supra) merely making a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of the assesse. The conditions precedent under clause (c) of section 271( .....

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to the computation of his total income have been disclosed by him. It may be true that the assessing officer did not accept the explanation offered by the assessee and made additions which the latter did not challenge in appeal but it is also true that the learned Tribunal in paragraph 5 of its judgement quoted above opined that "since the matter is subjudice it is not a realized or realizable income in the hands of the assessee". In that view of the matter even the first condition wa .....

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n order to determine as to what amounts to a bona fide explanation we may gainfully refer to the judicial pronouncements on what amounts to a bona fide defence in an application, for final judgement in a suit, under Chapter XIII A of the Calcutta High Court Rules (Original Side) which is in pari materia with Sub-rule 5 of Rule 3 of Order 37 of The Code of Civil Procedure, 1908. In Kiranmoyee Dassi -Vs- J. Chatterjee reported in AIR 1949 Cal 478, the plaintiff had filed an application for final j .....

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ing that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend. (c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shews such a state of facts as leads to the inference that at the trial of the .....

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