TMI Blog2008 (2) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... y making following additions in the profit declared as per P L a/c : ₹ 1. Profit before tax as per P L a/c 6,71,67,092 Add : Depreciation considered separately 5,74,62,948 12,46,30,040 Add : Expenses disallowed on Maidan Project 1,07,48,933 Provision for ex gratia 36,43,310 Disallowance under s. 43B 16,69,673 Disallowance under s. 37(3A) and (3B). 1,74,276Sales promotion 10,14,000 Stock difference 6,87,000 Earlier years adjustments 1,64,066 14,27,31,298 Less : Depreciation as per chart given by the 3,90,40,642 assessee 10,36,90,656 The AO also mentioned that : Total income of the assessee corporation thus works out at ₹ 10,36,90,656 on which assessment is completed as per ITNS-150. Issue notice of demand and challan. Charge interest under s. 139 (8)/215/217. Issue notice under ss. 273(2)(a) and 271(1)(c). The above note of the AO indicated that AO had issued notice under s. 271(1)(c) of the IT Act, 1961 also. Thereafter matter went in appeal before the CIT(A) who vide his order dt. 28th Oct., 1988 confirmed disallowance under s. 43B of the Act, disallowance under ss. 37(3A) and 37(3B) of the Act, disallowance in respect of sales promotion as also stock additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11,83,429 out of total disallowances of ₹ 16,69,673 made under s. 43B. He accordingly allowed a relief of ₹ 4,86,244 in respect of this issue. The learned CIT(A) confirmed the addition in respect of second issue being disallowance on account of sales promotion. 9. The order giving effect to this order of learned CIT(A) was passed by the AO on 15th March, 2004. A copy of this order is neither produced by the assessee nor by the Revenue. It was claimed by the assessee that no copy of such order has been served on him. 10. The AO had initiated penalty proceedings in his order dt. 21st Dec., 1987 as well as in his order dt. 7th Feb., 1991 as also in her order dt. 31st March, 2003. In the last order dt. 31st March, 2003, the AO had mentioned as under : Assessed accordingly at an income of ₹ 7,79,45,650. Issue notice of demand and challan. Charge interest under s. 215/217. Penalty notice under ss. 273(2)(a) and 271(1)(c) as per original order are initiated. 11. In response to penalty notice issued in the assessment order dt. 7th Feb., 1991 assessee had filed its reply on 25th March, 1991. 12. The AO levied a penalty of ₹ 3,20,60,021 under s. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case, the assessee has filed a revised return of net loss of ₹ 1,41,40,655 on 21st Dec., 1987 whereas the income was finally assessed under s. 143(3)/251/254/251 on 15th March, 2004 on total income of ₹ 7,74,59,406. Thus, there was an total addition of income of ₹ 9,16,00,061 in the hands of the assessee duly confirmed by the Tribunal and CIT(A) due to inaccurate particulars furnished by the assessee before the AO, treating it as escaped assessment, the assessee is liable to pay penalty under s. 271(1)(c) on the escaped amount of ₹ 9,16,00,061 which is chargeable to tax @ 35 per cent Therefore a minimum penalty 100 per cent of the tax and maximum penalty 300 per cent of the tax is worked out ₹ 3,20,60,021 of ₹ 9,61,80,064 respectively. Considering the facts of the case a minimum penalty of ₹ 3,20,60,021 is imposed on the assessee under s. 271(1)(c) of the IT Act, 1961 with the approval of the learned CIT, R-I, Lucknow. Issue notice of demand and challan. 13. The learned CIT(A) in the impugned order partly confirmed the penalty. She cancelled penalty in respect of disallowance of ₹ 1,57,012 made under ss. 37(3A) and 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as merely an academic exercise. This was not done despite adverse comments made by the auditors in their tax audit report. The case laws relied upon by the appellant therefore do not help. Concealment penalty is therefore upheld on this account. She however, did not accept the contention of the assessee that the AO has not recorded any satisfaction and therefore no penalty could be levied. In appeal before us, the assessee has taken following grounds : 1. The order passed by the learned CIT(A)-I, Lucknow is illegal and against the facts of the case. 2. The learned CIT(A) has erred in confirming the penalty under s. 271(1)(c) of the IT Act, 1961 with regard to the following additions made in the assessment : (a) Disallowance of expenses of ₹ 10,14,000. (b) Addition of difference in valuation of stock ₹ 6,87,000. The learned CIT(A) failed to appreciate that none of the additions stated above constituted any concealment or furnishing of any inaccurate particulars of its income by the appellant so as to attract the imposition of any penalty under s. 271(1)(c) of the IT Act, 1961. The learned CIT(A) also failed to appreciate that the learned AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of non-production of books before the auditors and also before the Departmental authorities. This could not be said to be concealment. In respect of difference in valuation of stock of ₹ 6,87,000, the learned counsel for the assessee submitted that difference is arising as a result of applying two methods of valuation adopted for stores and spares i.e., one method was predetermined rates and another was weighted rates. The difference was charged to material consumed account. Addition was made on account of stock difference, but there is no concealment in this addition. The learned counsel for the assessee relied on the following judgments : (1) CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del); (2) Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324 : (2000) 246 ITR 571 (Del); (3) CIT vs. Munish Iron Store (2004) 186 CTR (P H) 159 : (2003) 263 ITR 484 (P H); (4) CIT vs. B.R. Sharma (2005) 196 CTR (Del) 454 : (2005) 275 ITR 303 (Del); (5) CIT vs. Harshvardhan Chemicals Mineral Ltd. (2004) 186 CTR (Raj) 552 : (2003) 259 ITR 212 (Raj); (6) Cement Marketing Co. of India Ltd. vs. Asst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .41 crores and assessed income which is ₹ 7,74,59,406, is ₹ 9,16,00,061, the penalty has been finally considered in respect of four additions as is apparent from the order of the learned CIT(A). These additions are (i) addition of ₹ 11,83,429 made under s. 43B, (ii) disallowance of ₹ 1,57,012 under ss. 37(3A) and 37(3B), (iii) disallowance of expenses of ₹ 10,14,000 and (iv) difference in valuation of closing stock. There is no discussion in respect of other additions in the impugned order of the learned CIT(A) or in the penalty order of the AO. He submitted that penalty is at least barred by limitation in respect of items of additions which were confirmed earlier by the order of the Tribunal. If penalty is levied with respect to those items which became final after the order of the Tribunal and were not subject-matter of any discussion or any reassessment in the order of the AO passed on 31st March, 2003 or on 15th March, 2004, then penalty would be barred by limitation and what would survive would be penalty in respect of four additions only which were discussed by the AO in his order dt. 15th March, 2004. But according to him that is also barred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for an amount of ₹ 4,85,290 being employer s pension fund contribution;)-Set aside to the AO to allow relief as per order of CIT(A) for the asst. yr. 1995-96. (ii) Ground No. 4 not pressed, hence dismissed. (iii) Ground No. 5-(disallowances out of expenses at Bahrain office Rs. 10,14,000) set aside to AO to allow reasonable expenses. (iv) Ground No. 6 (addition on account of stock difference Rs. 6,87,000)-dismissed. (v) Ground Nos. 7 to 12-not pressed and hence dismissed. (vi) Additional grounds raised-dismissed. Appeal of the assessee partly allowed. 24. In Departmental appeal (ITA No. 381/All/1989), the Tribunal decided various issues as under : (i) Claim under s. 32A-assessee not entitled, ground allowed. (ii) Directions of learned CIT(A) regarding treating assessee as non-industrial company and exchange variation reserve account Departmental grounds allowed. Grounds of the Revenue are allowed. 25. Thus out of various additions as referred to above, most of them became final after the order of the Tribunal dt. 19th Feb., 2001 except two items [(i) and (iii) above in assessee s appeal] which were restored to the AO and which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the CIT(A) is received by the Chief CIT or CIT, whichever is later; (b) in a case where the relevant assessment or other order is the subject-matter of revision under s. 263 or s. 264, after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. (2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any action initiated for the imposition of penalty on or before the 31st March, 1989. Explanation.............not relevant hence not reproduced. 28. For adjudicating the issue of limitation we summarize relevant dates as under : (i) Dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty order passed on 30th March, 2005 would be within limitation. Before we take up the main argument of learned Departmental Representative as to whether AO will get two years from the end of financial year 2002-03 for passing penalty order, we identify difference between old provisions and new provisions of s. 275. In our considered view there is no material difference in application of law as it stood prior to amendment of Direct Tax Laws (Amendment) Act, 1987 and as it is standing now after amendment except that in earlier law period of two years was provided in sub-s. (a) of s. 275 (old provisions). That is penalty order has to be passed before expiry of two years from the end of financial year in which assessment proceedings during the course of which proceedings for imposition of penalty were initiated are completed (or six months from the end of the month in which the order of the Tribunal/appellate authority is received whichever period expires later) whereas now the penalty order has to be passed before the end of financial year in which assessment proceedings in the course of which action for imposition of penalty is initiated are completed (or six months from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to the order of the Tribunal where the original assessment order during the course of which the impugned penalty proceedings were initiated was the subject- matter of appeal and not with respect to any other order of Tribunal or CIT(A) where reassessment order under s. 251/143, passed after first inning of appeal, was the subject-matter of appeal in the second inning. However where the original order is completely set aside by the Tribunal then original order does not survive as no addition survives, therefore penalty proceedings initiated during the course of original assessment proceedings become infructuous. When original order is completely set aside the satisfaction arrived at by the AO for initiating penalty proceeding therein cannot be said as upheld by the appellate authorities. The AO has to arrive at a fresh satisfaction on prima facie concealment or of filing inaccurate particulars of income in the fresh assessment order in respect of items of additions considered in the fresh assessment order. As we will see later while discussing the issue of satisfaction, the satisfaction of the AO before initiating penalty proceedings has to be with respect to each item of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erse to passing multiple penalty orders for the same assessment year. Suppose in a case assessment becomes final and penalty order is passed within limitation. Subsequently, assessment is reopened under s. 147 of the Act, escapement of income or concealment is found, then after passing reassessment order under s. 147/148(1) of the Act penalty proceedings may be initiated and penalty may be imposed in respect of those items which were subject-matter of additions in the reassessment order. Further, if the CIT finds that reassessment order is erroneous and he discovers further concealment, then he may direct the AO to impose penalty in respect of those items which were discovered by him during revision proceedings. Thus, in the case of one assessee for the same assessment year there may be more than one penalty order. Limitation for imposing penalty under s. 275 of the Act would be counted with respect to the assessment order during the course of which penalty proceedings were initiated for concealment by the AO. Once the AO passes another order as per directions of the Tribunal after carrying out necessary enquiries and giving opportunities of being heard to the assessee, redetermini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erits and it was allowed in part. The ITO reframed the assessment on 11th March, 1983, and issued another notice under s. 271(1)(c) on the same date. After passing the assessment order on 11th March, 1983, under s. 143/251 the assessing authority passed an order on 27th Jan., 1986, giving effect to the order of the Tribunal allowing certain reliefs to the assessee. The ITO passed an order on 7th March, 1986, levying penalty under s. 271(1)(c). The CIT(A) held that the order was barred by limitation. The Tribunal held that the appeal of the Department had been dismissed by the Tribunal by its order dt. 27th June, 1980 and the penalty proceedings should have been finalised within six months from the end of the month in which the order of the Tribunal had been received by the CIT. Even assuming that the penalty proceedings initiated in the order passed on 11th March, 1983, had been validly so done the order passed by the ITO under s. 271(1)(c) on 7th March, 1986, was once again out of time having been passed after a period of two years from the end of the financial year. The Tribunal upheld the order of the CIT(A). On a reference : Held, that on 27th Jan., 1986, no assessment order h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, provides for bar of limitation for imposition of various penalties under Chapter XXI of the Act. Sub-cl. (i) of cl. (a) thereof provides that where the relevant assessment order is the subject-matter of appeal under s. 246 or under s. 253 of the Act, no order of penalty can be passed after the expiry of the period of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. The word completed has to be given its full meaning in a case where in appeal, the assessment order, during the course of which the penalty proceedings are initiated, is set aside and the case is remanded for fresh assessment. The assessment proceedings cannot be held to be completed till such time the order is passed in the remand proceedings. Held, that the original assessment passed on 28th March, 1982, was set aside and the matter was remanded to the AO. Thereafter, the remand case was decided on 14th March, 1986, and the penalty order was passed on 16th March, 1988. Calculating the period from the date, the remand order was passed, i.e., on 14th March, 1986, the penalty order passed on 16th March, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Representative. Without discussing and arriving at a finding in respect of each item of addition that assessee has filed inaccurate particulars of income or concealed such particulars of income or the case of the assessee falls in the Explanation to s. 271(1)(c), the AO cannot levy penalty. Even though penalty under s. 271(1)(c) is a civil liability but finding that the conduct of the assessee falls within four corners of that section is necessary. If there is no such finding in respect of any addition about which satisfaction was arrived at, the levy of penalty in respect to those items cannot be upheld. There is another related issue. Once the AO initiates another penalty proceeding in a fresh order like those initiated in the assessment/appeal effect giving orders dt. 7th Feb., 1991 or 31st March, 2003 in addition to the one initiated in original assessment order dt. 21st Dec., 1987, the effect would be that (i) either the AO has dropped the earlier penalty proceedings after initiating fresh proceedings, or (ii) he has discovered or determined fresh items of concealment for which he has initiated the penalty proceedings, or (iii) the earlier order of assessment becomes non-ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed view limitation goes to the root of the matter and if an action is barred by limitation, then such an action cannot become within limitation if either parties have not taken it as a ground in the appeal. Even though the question of limitation is a mixed question of law and facts but its adjudication does not depend upon specific ground to be raised by the parties. Limitation decides the accrual of rights of one party and extinguishment of rights of other party to the dispute. Therefore if the issue of limitation is taken up in arguments by the parties, it would be sufficient for the Court to consider and examine it after hearing other party on the objections raised as to whether action of the authorities are within limitation or not. We are also of the view that once IT Act provides time limitation for taking an action against a taxpayer then not taking action within that time would create a right in favour of the assessee. Issue of limitation is a mandate to the judicial forum and it is required to adjudicate the same if it is brought into its knowledge or even suo motu when it strikes to the Court during appeal proceedings. In this regard we refer to the decision of Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court observed in para 12 that that it was the duty of the Court to see as to whether the suit was within limitation or not. A suit filed beyond limitation is liable to be dismissed even though limitation may not be set up as a defence. The above position as provided under the law cannot be disputed nor has it been disputed before us. But in all fairness it is always desirable that if the defendant would like to raise such an issue, he would better raise it in the pleadings so that the other party may also note the basis and the facts by reason of which suit is sought to be dismissed as barred by time. It is true that the Court may have to check at the threshold as to whether the suit is within limitation or not. Similar view was held by Hon ble Supreme Court in Ittyavira Mathai vs. Varkey Varkey Anr. AIR 1964 SC 907 (Civil Appeal No. 372 of 1960, dt. 15th Jan., 1963) in the context of s. 3 of Limitation Act that it is true that s. 3 of the Limitation Act is peremptory and that it is the duty of the Court to take notice of this provision and give effect to it even though the point of limitation is not referred to in the pleadings...... Hon ble Supreme Court relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty fails on this ground also. In this regard, we refer to the decision of the Hon ble Supreme Court of India in Dilip N. Shroff vs. Jt. CIT (2007) 210 CTR (SC) 228 : (2007) 291 ITR 519 (SC) wherein Hon ble Supreme Court held as under : The primary burden of proof, therefore, is on the Revenue. The statute requires a satisfaction on the part of the AO. He is required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the Department [see D.M. Manasvi vs. CIT 1972 CTR (SC) 437 : (1973) 3 SCC 207]. 45. In the same case, the Hon ble Supreme Court of India held that merely because the AO is satisfied during the course of assessment proceedings that assessee has concealed particulars of income or filed inaccurate particulars, then levy of penalty will not be automatic. The Hon ble Supreme Court as under (headnotes) : Clause (c) of s. 271(1) of the IT Act, 1961, categorically states that penalty would be leviable if the assessee conceals particulars of his income or furnishes inaccurate particulars thereof. But by reason of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 depends upon the satisfaction of the ITO in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in cl. (a), (b) or (c) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the ITO before the completion of the assessment proceedings by the ITO. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction. There is no evidence on the record that the ITO was not satisfied in the course of the assessment proceeding that the firm had concealed its income. The assessment order is dt. the 10th Nov., 1951, and there is an endorsement at the foot of the assessment order by the ITO that action under s. 28 had been taken for concealment of income indicating clearly that the ITO was satisfied in the course of the assessment proceeding that the firm had concealed its income. 48. From this decision which was given in the context of s. 28(1), we note that Hon ble Supreme Court highlighted following points : (i) The power to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order of the ITO dt. 30th Nov., 1963, he wrote question of penalty for concealment of income under s. 271/274 will also be taken . It is sufficient for the validity of the penalty proceedings, if there is something to show (as in that case) that the ITO was satisfied in the course of assessment proceedings that it is a case where penalty proceedings should be taken. It is open to the AO to actually commence the penalty proceedings after the assessment is concluded. 52. Hon ble Calcutta High Court in Appejay Steel Works (P) Ltd. vs. IAC (1976) 103 ITR 806 (Cal), on the observation of the AO in the assessment order that penalty notice under s. 274 r/w s. 271 (1)(c) for concealing true particulars of income has already been issued...... held that notice under s. 271(1)(c) issued by a subsequent officer to whom case was transferred was valid. While following the decision of apex Court in Angidi Chettiar s case, Hon ble Calcutta High Court in Becker Gray Co. (1930) Ltd. vs. ITO (1978) 112 ITR 503 (Cal) observed that there can, therefore, be no doubt that the condition precedent to the imposition of penalty is the satisfaction of the ITO in the course of the proceedings under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Delhi High Court by following the decisions of Hon ble Supreme Court in D.M. Manasvi vs. CIT (supra) and Angidi Chettiar s case (supra) in various judgments such as : (i) CIT vs. Ram Commercial Enterprises Ltd. (supra); (ii) CIT vs. Super Metal Re-rollers (P) Ltd. (2003) 185 CTR (Del) 349 : (2004) 265 ITR 82 (Del); (iii) CIT vs. Vikas Promoters (P) Ltd. (2005) 194 CTR (Del) 384 : (2005) 277 ITR 337 (Del); (iv) CIT vs. Auto Lamps Ltd. (2005) 196 CTR (Del) 459 : (2005) 278 ITR 32 (Del). A dissenting view was taken by Hon ble Madras High Court in M. Sajjanraj Nahar vs. CIT (2006) 204 CTR (Mad) 53 : (2006) 283 ITR 230 (Mad) wherein it is held that if in the assessment only it is mentioned that penalty proceedings were initiated separately under ss. 271(1)(c) and 273(2)(a) would be sufficient to show that AO has recorded his satisfaction regarding concealment of income. There is another aspect of the matter. Sec. 271(1)(c) speaks of satisfaction of the AO in respect of concealed the particulars of income or filing inaccurate particular of such income . The use of article the is also important. The satisfaction should relate to the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation is false, the assessee must be held to have proved that there was no mens rea or guilty mind on his part; even in this view of the matter, the Explanation alone cannot justify levy of penalty and absence of proof acceptable to the Department cannot be equated with fraud or wilful default. The AO should be satisfied during the course of the assessment proceedings that the assessee had concealed particulars of income or has furnished inaccurate particulars of such income. The satisfaction can be gathered from the assessment order. The AO is not required to record his satisfaction in a particular manner or reduce it to writing.-CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del) and Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324 : (2000) 246 ITR 571 (Del) distinguished. Deposits of ₹ 1,65,000 appearing in the name of three minors had been added as unexplained cash credits under s. 68 of the IT Act, 1961 in the hands of the assessee firm. The explanation given by the assessee had been found to be false by all the authorities including the Tribunal. The AO while passing the assessment order, directed initiation of penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculars of income. (iv) Though a formal record of satisfaction [as held in the decision of Hon ble Allahabad High Court in Shyam Biri Works (P) Ltd. s case (supra) which is binding on us] is not compulsory before assuming jurisdiction under s. 271(1)(c) but assessment order must show a satisfaction of the AO. Though it is not necessary to use statutory words of s. 271(1)(c) but satisfaction about contumacious conduct of the assessee is necessary such as he is not filing correct particulars of income or hiding some part of income followed by initiation of penalty proceedings relating to such conduct or furnishing inaccurate particulars or hiding income. If the assessment order is silent on these aspects except making addition on the basis other than contumacious conduct, filing inaccurate particulars or concealing some income, the AO cannot assume jurisdiction for initiating penalty proceedings. (v) The inference whether the AO was satisfied about contumacious conduct of the assessee or his not filing correct particulars or not disclosing full facts will depend upon facts of each case. Thus it may be inferred that it may not be necessary to record satisfaction in a part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10,36,90,656. It was revised after the orders of CIT(A) to ₹ 9,69,97,030. Further this was revised by Your Honour to ₹ 7,79,45,650 on 7th Feb., 1991. That if the above order is taken into consideration the difference between the returned loss and final assessed income will arise because of the following additions only. Rs. Disallowance under s. 43B 16,69,673Disallowance of sales promotion 10,14,000 expenses Disallowance of stock difference 6,87,000 Disallowance under s. 80HH 51,86,438 Disallowance under s. 80HHB 2,21,02,135 Disallowance under s. 80J 70,39,589 We have filed an appeal against the above additions/disallowance before the Tribunal, Allahabad (copy enclosed). We are confident that most of the additions will be deleted by the Tribunal. We may however mention that even otherwise the additions involve constitutional issues. The provisions of s. 271(1)(c) of IT Act, 1961 do not apply to such additions/disallowance as they do not suggest any concealment on our part. In the circumstance stated above, we request you to kindly drop the penalty proceedings initiated under s. 271(1)(c) of the IT Act, 1961. The AO had also considered reply of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only a reimbursement of expenses by the State Government, and was not treated as contribution to any fund, the amount was allowed. On this analogy the learned CIT(A) allowed a sum of ₹ 4,86,244. In respect of sales promotion expenses, the learned CIT(A) had confirmed addition on the ground that books of account of Bahrain office are not available and the claim could not be allowed only on the basis of balance sheet and P L a/c. According to the learned CIT(A), the Sch. K which contained these expenses was not signed by the auditors. Since in these two disallowances, no element of concealment of income or filing of inaccurate particulars of income has been pointed out either by the AO or by the learned CIT(A), the case could not be covered under s. 271(1)(c) of the IT Act, 1961. Merely on disallowances of claims penalty cannot be levied. We are fortified in our view by the decisions of Hon ble Rajasthan High Court in CIT vs. Harshvardhan Chemicals Mineral Ltd. (supra), Cement Marketing Co. of India Ltd. vs. Asstt. CIT (supra) and CIT vs. Sivananda Steels Ltd. (supra). As a result, we hold that the AO has not been able to make out any case for levy of penalty even on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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