TMI Blog2010 (6) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... onvertible foreign exchange. The AO on examination of the statement of the Chairman of Gujarat Cotex Ltd. recorded u/s 131 of the IT Act and evidences filed by the assessee, purchase of software claimed by the assessee was found to be bogus and treated the amount of ₹ 61,03,793/- as unexplained income of the assessee while completing the assessment u/s 143(3) of the IT Act without allowing corresponding expenditure relating to purchase or other incidental expenses. Since there was no export of software as claimed by the assessee the AO disallowed the claim of the assessee for deduction u/s 80 HHC of the IT Act. On appeal, the learned CIT(A) partly allowed the claim of the assessee and directed the AO to tax the sum of ₹ 61,03,793/- and upheld the disallowance by way of claim u/s 80 HHC of the IT Act. The department as well as the assessee went in appeal before the Tribunal and the Tribunal accepted the AO s conclusion that there was neither purchase of software nor any export and directed the AO that the amount of ₹ 61,03,793/- actually received by the assessee has to be separately added as unexplained receipt. Accordingly, the AO finalized the reassessment and tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation (4) to Section 271 (1 ) ( c ) of the IT Act does not permit imposition of penalty on the said amount. The assessee further submitted that penalty can be justified only if the assessee fails to offer any explanation or his explanation is found to be false and relied upon several judicial pronouncements in support of his contention. 5. The learned CIT(A) considering the submissions of the assessee and material on record confirmed the penalty levied u/s 271(1) ( c ) in principle but levied minimum penalty. The learned CIT(A) also found that the decisions cited by the learned Counsel for the assessee are distinguishable on facts as noted above. His findings are reproduced as under: 6.3 I have perused the facts of the case. The appellant has received a foreign remittance of ₹ 61,03,790/- and the assessing officer has treated such remittance as income u/s 68 of the Act. The honorable ITAT agreed with the assessing officer s conclusion that there was neither purchase of software nor any export of software and the assessing officer is justified in denying deduction u/s. 80 HHC on the alleged export of software. Thus the appellant s claim regarding purchase and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee disclosed all the particulars before the learned CIT(A) and the same were shown in the turnover in the audit report also. The assessee accordingly claimed deduction u/s 80 HHC of the IT Act. The learned Counsel for the assessee submitted that the AO later on passed order u/s 154 of the IT Act dated 16-03-2007 revising the total income at ₹ 3,28,354/-. The learned Counsel for the assessee submitted that though the Tribunal confirmed the addition but directed the AO to recompute the income as per findings given in the order. He has, therefore, submitted that the assessee has not concealed particulars of income and has also not filed inaccurate particulars of income. He has relied upon the decision of the Hon ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 in which it was held that by any stretch of imagination making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars of income . The learned Counsel for the assessee also relied upon the decisions of Hon ble Gujarat High Court in the cases of CIT Vs Jalaram Oil Mills 253 ITR 192 and National Textiles Vs CIT 249 ITR 125 in which it was held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the above facts and noted that when the purchase and sale of the software are treated as bogus, the profit loss account has to be recasted excluding the above purchase and sale of software. The above finding of fact clearly shows and proves that the assessee failed to offer any explanation regarding the claim of deduction u/s 80 HHC of the IT Act on the basis of export of the software and that the explanation of the assessee was found to be false. The explanation offered by the assessee was also not found to be substantiated through any material on record. Explanation (1) to section 271 (1) ( c ) of the IT Act reads as under: [Explanation 1. -Where in respect of any facts material to the computation of the total income of any person under this Act,- (A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the[Commissioner (Appeals)][or the Commissioner] to be false, or (B) such person offers an explanation which he is not able to substantiate [and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chine Tools Vs ACIT 313 ITR 413 - Held, that the assessee had made bogus claims of investment allowance and depreciation in respect of machinery which was not purchased, installed or commissioned during the previous year. Tough the returns were prepared by the auditor foe the assessee, it was for the assessee to ensure that wrong claims were not made by the practitioner or auditor. Imposition of penalty was valid . 8. Considering the facts of the case in the light of the above decisions and the discussion it is clear that the assessee made bogus claim of export of software which was not found to have been purchased by the assessee. The claim of the assessee has been rejected by the Tribunal as well on merit. Therefore, Explanation 1 to section 271 (1) ( c ) of the IT Act clearly attracted in the case of the assessee. No adequate material or evidence is filed before us to substantiate the claim of the assessee regarding genuine purchase of the software. The decisions relied upon by learned Counsel for assessee are clearly distinguishable on facts as noted above. We are, therefore, of the opinion that the authorities below were justified in holding it to be a case of concea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not substantive. It applies even to assessment years prior to April 1, 2003, the date on which it was brought into force. What the Finance Act, 2002, intended was to make the position explicit which otherwise was implied . 9.2 The above decision would show that the above amended provisions in Explanation (4) to section 271 (1) ( c ) of the IT Act is applicable to the assessment year under appeal. 10. Considering the facts of the case in the light of the above proviso, it is clear that the assessee filed return of income at Nil income which is ultimately computed by the AO at ₹ 3,28,357/- vide order dated 16-03-2007. The conditions of Sub clause (a) and (b) of Explanation (4) to section 271 (1) ( c ) of the IT Act thus would not apply in the case of the assessee. Sub clause ( c ) to Explanation (4) to section 271 (1) (c) of the IT Act would apply in the case of the assessee in view of the computation of income as above. There is one more aspect which is required to be clarified. As per clause (c) of Explanation (4) to section 271(1) ( c ) of the IT Act, the basis for levy of penalty which is to be levied is to be calculated as the difference between the tax on the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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