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GUJARAT STATE FINANCIAL SERVICES LTD Versus ASSTT COMMISSIONER OF INCOME TAX

2016 (8) TMI 1042 - GUJARAT HIGH COURT

Penalty under section 271(1)(c) - Held that:- The assessee in one of the appeals is a government company engaged in the business of providing loans, leasing and hire purchase services and providing financial services whereas in the other appeal, the assessee is a partnership firm running education institution. From the assessment order it is clear that there is no satisfaction recorded by the Assessing Officer regarding concealment of income or for furnishing any inaccurate particulars. Therefor .....

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of inaccurate particulars of income. As unless and until there is some evidence or some circumstance to show that the omission was attributable to an intention or desire on the part of the assessee to conceal the income so as to avoid imposition of tax thereon. Thus, jurisdiction u/s 271(1)(c ) of the Act cannot be assumed. In the present case, we are of the view that the impugned orders passed by the Tribunal as well as CIT(A) are erroneous with regard to levy of penalty u/s 271(1)(c) of the Ac .....

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Bench (hereinafter referred to as the Tribunal ) dated 31.05.2010 & 30.03.2012 in ITA No. 2078/Ahd/2006 & 2887/Ahd/2011 for the Assessment Year 2001-02 & 2005-06 respectively, the revenue has preferred the present Tax Appeals for consideration of the following substantial question of law: Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the penalty under section 271(1)(c) of the Income Tax Act, 1961? 2. So far .....

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; 1,62,81,556/- for bad and doubtful debt; whereas the amount of ₹ 21,98,638/- was the provision made for diminution in value of investments in accordance with the accounting standard. The Assessing Officer disllowed the same. The assessee preferred an appeal before CIT(A) but the CIT(A) confirmed the views of the Assessing Officer on both the counts. The assessee preferred an appeal before the Tribunal and the Tribunal following the decision of the Special Bench of the Tribunal in the cas .....

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legal expenses. Aggrieved by the assessment order, the assessee preferred appeal before CIT(A) who restricted the disallowances of depreciation of ₹ 10,41,438 to ₹ 6,71,643/- and the remaining disallowance of depreciation and the entire disallowance of legal expenses was confirmed. The assessee preferred appeal before the Tribunal and the Tribunal dismissed the appeal thereby confirming the penalty imposed u/s 271(1)(c) of the Act. 3. Mr. Manish J. Shah, learned advocate appearing f .....

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tanding of the assessee, the prudential norms and directions of the Reserve Bank of India, which were issued under that Chapter, were therefore, binding on the assessee and overriding the provisions of the Income Tax Act, that there was judicial opinion by way of Tribunal decisions supporting the stand of the assessee, and the assessee had disclosed right in the computation of income as stated above that it was making the claim of bad debts and diminution in value of assets in accordance with th .....

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wing attention of this Court to the observations made by the Tribunal in para 5.15 of its order, Mr. Shah submitted that the Tribunal erred in holding that the fact of the assessee being a Government Company is of no relevance, on the contrary, higher onus is there on the assessee because it has better professional assistance and its accounts are compulsorily subject to audit and how their auditors failed to notice that in law wrong claim was being made. He submitted that the Tribunal held that .....

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-tax Act forgetting that in computation itself it is pointed out that the provision for bad and doubtful debt was made in accordance with RBI directions but the CIT(A) found that this was an afterthought. He submitted that the CIT(A) ultimately held that the assessee had furnished inaccurate particulars and and upheld the penalty in respect of the above two additions. He submitted that it is worth noting that the Assessing Officer in the assessment order records no satisfaction of concealment of .....

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e submitted that the disallowance of legal expenses also could not have attracted penalty u/s 271(1)(c) as there was no concealment nor any inaccurate particulars were filed by the assessee but it was a mere disallowance of a claim made by the assessee on which two views could be possible. He has relied upon the decision of the Apex Court in the case of T. Ashok Pai vs. Commissioner of Income Tax reported in [2007] 292 ITR 11 (SC), wherein the Apex Court has held as under: 16. The term 'inac .....

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na fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should be found as of fact that he has not disclosed all the facts which was material to the computation of his income. 17. The explanation having regard to the decision of this Court must be preceded by a finding as to how and as to in what manner he furnished the particulars of his income. It is beyond any doubt or dispute that for the sa .....

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e in the case of the assessee, such claim on merits was not granted. However this did not mean that the assessee had concealed any income. It is further held therein that the issue ultimately at any rate was debatable since one High court has already held in favour of the assessee. (II) Decision of this Court rendered in Tax Appeal No. 1052 of 2010 wherein this Court has held as under: 5. Having thus heard learned counsel for the parties and having perused the documents on record, we find that t .....

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at bad debts claimed by the assessee were not found to be bogus. It was further observed that the expenses claimed also were not found to be bogus or inflated. The disallowances were made on the basis of the facts and figures furnished by the assessee. 6. In view of the facts noted by the Tribunal and the conclusions arrived at, we do not find any reason to interfere when it is found that the assessee had made full disclosures and made claims which though were ultimately disallowed, were not fou .....

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ound to be untrue by any of the authorities. The finding by the Tribunal in this context that the assessee had made separate claim in the profit and loss account for deduction of gratuity on the basis of actual payment to non-suit the assessee as regards the explanation offered is based on a misconception of facts and law. It was never the assessee's case that, out of the amount received from the Insurance Company, such amount was actually paid out and claimed as a deduction. In fact, this b .....

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e return of income of an item of receipt neither amounts to concealment, nor deliberate furnishing of inaccurate particulars of income, as laid down by the Apex Court, unless and until there is some evidence or some circumstances to show that the omission was attributable to an intention or desire on part of the assessee to conceal the income so as to avoid imposition of tax thereon. In the present case, the assessee is a cooperative society managed through a governing board and as stated by the .....

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on of showing the amount received from Insurance Company as income of the assessee, a cooperative society. In fact, the entries in the books of account reflect that the assessee had credited the said sum to the fund account directly and the said entry appeared in the balance sheet without going through the profit and loss account. (IV) Price Waterhouse Coopers Pvt. Ltd vs. Commissioner of Income Tax, Kolkatta - I and Another reported in 2012 (348) ITR 306 wherein 17. Having heard learned counsel .....

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t was not allowable under Section 40A(7) of the Act indicates that the assessee made a computation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report. 19. The contents of the Tax Audit Report suggest that there is no question of the assessee conc .....

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e assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. 20. We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either .....

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ilding was the sole business of the firm and the building was its stock-intrade, and the loan was raised and used wholly for the purpose of acquiring this stock-in- trade and not for obtaining any fixed assets or raising any initial capital or for expansion of the assessee's business, the expenditure incurred for the raising of loan was not an expenditure of capital nature but revenue expenditure. Although the conclusion of the High Court was correct, we are not able to agree with the princi .....

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orrow and buy raw- material but in the assessment year the company finds it unnecessary to buy raw-material and spends it on capital assets. Will the income tax officer decide the case with reference to what happened in the accounting year or what happened in the assessment year ? In our opinion, it was rightly held by the Nagpur Judicial Commissioner in Nagpur Electric Light and Power Co. v. Commissioner of Income Tax(1) that the purpose for which the new loan was required was irrelevant to the .....

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ture was revenue expenditure within S. 10(2)(xv). (VI) Decision rendered by this Court in Tax Appeal No. 531 of 2015 on 05.08.2016 wherein this Court has considered the provisions of Section 45Q of the Income Tax Act. (VII) Commissioner of Income Tax vs. Corporation Bank Ltd. reported in 2002 (254) 791 wherein the Apex Court has held as under: 7. Turning attention to the first question as regards the provisions under Section 147(a) be it noted and as the facts depict, there is no failure on the .....

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ts of the matter under consideration. The High Court on consideration of the facts came to the conclusion that the Tribunal was justified in coming to the said finding and we also record our concurrence therewith. 8. Incidentally this issue came for consideration before this court in a batch of cases on more or less identical situations and this court while dealing with this matter finally, recorded that the question as regards reopening of the assessment under Section 147(a) of the Act would no .....

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uthorities below this Court may not interfere in the appeal. He submitted that the Tribunal has discussed the case in detail and rightly come to the conclusion that this is a case of concealment and therefore the penalty has been rightly imposed. He submitted that the assessee committed the default of concealment of its income by furnishing inaccurate particulars thereof in relation to its claim for deduction of provision for bad and doubtful debts and provision made for diminution in value of t .....

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supported by materials has no legal foundation. Learned counsel for the Revenue, on the other hand, submitted that after analysing the factual position, the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal came to hold that the explanation offered by the assessed was not acceptable and the case was clearly covered by the Explanation to Clause (c) of Section 271(1) of the Act. It is further submitted that the conclusions are essentially factual giving rise to no question .....

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decline to answer the question referred. 5. Mr. K.M. Parikh, learned advocate appearing for the revenue in Tax Appeal No. 601 of 2013 has also supported the impugned orders passed by the authorities below and submitted that the same having been passed in accordance with law does not call for interference by this Court. He submitted that in view of the wrong claim made by the assessee inspite of knowing fully well the provisions of law, the Tribunal is justified in passing the impugned order. 6. .....

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nishing any inaccurate particulars. Therefore, from the plain reading of the assessment order itself it is clear that the assumption of jurisdiction to levy penalty is lacking in the present case. The notice issued by the Assessing Officer has also not stated whether the penalty proceedings are initiated for concealment of income or for furnishing inaccurate particulars. 6.1 From the perusal of the impugned orders passed by the CIT(A) as well as the Tribunal, it is clear that there has been an a .....

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ppeal No. 531 of 2015 has observed as under: 28. In the light of the view adopted by the court, it is not necessary to enter into any detailed discussion as regards the applicability or otherwise of the CBDT Circular to the facts of the present case. The Supreme Court in UCO Bank, Calcutta v. CIT (supra) has held that such circulars are not meant for contradicting or nullifying any provision of the statute. They are meant for proper administration of the statute, they are designed to mitigate th .....

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so issued and section 145 of the Income Tax Act. In the aforesaid premises, until the circular is revoked, the same continues to be in force and the same having been issued to mitigate the hardships caused to the class of assessees covered by the circular, such assessees would be entitled to the benefit thereof. Merely because by virtue of the provisions of section 43D of the Act, a certain class of assessees is given benefit under the provisions of the Act would not mean that the same would ov .....

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ed by the assessee is not under any provision of the Income Tax Act, 1961. The assessee being bound by the RBI Guidelines which are issued under the provisions of the RBI Act has not shown the interest on NPA as income. By virtue of the provisions of section 45Q of the RBI Act, the provisions of Chapter IIIB thereof have an overriding effect over other laws including the Income Tax Act, 1961. Therefore, notwithstanding the provisions of section 43D of the Act, since the provisions of section 45Q .....

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pex Court has observed as under: 8. A glance at this provision 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 Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furni .....

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ment made or any detail supplied was found to be factually incorrect. 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 concerned words. The words are plain and simple. In order to expose the assessee to the penal .....

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ticulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:- "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 .....

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Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of part .....

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ation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after q .....

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h a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 2 .....

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as only the ultimate inference in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled. 10. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has giv .....

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truth or erroneous. We must hasten to add here that 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 Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return can .....

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f gratuity on the basis of actual payment to non-suit the assessee as regards the explanation offered is based on a misconception of facts and law. It was never the assessee's case that, out of the amount received from the Insurance Company, such amount was actually paid out and claimed as a deduction. In fact, this becomes clear when one reads the assessment order and the penalty order wherein the assessing officer has stated that the assessee cannot claim the sum of ₹ 68,332/- as a d .....

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d until there is some evidence or some circumstances to show that the omission was attributable to an intention or desire on part of the assessee to conceal the income so as to avoid imposition of tax thereon. In the present case, the assessee is a cooperative society managed through a governing board and as stated by the society, there is no personal interest involved. The omission has occurred not with an intention but due to oversight. As held by this Court, absence of proof acceptable to the .....

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had credited the said sum to the fund account directly and the said entry appeared in the balance sheet without going through the profit and loss account. 7.2 Thus, we are of the view that the contention raised by the assessees is required to be accepted. The revenue is not in a position to show the mens rea in the present cases. Disallowance of certain claims neither amounts to concealment nor deliberate furnishing of inaccurate particulars of income as laid down by the Apex Court unless and u .....

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