TMI Blog2010 (3) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... income or furnished inaccurate particulars of such income. Asst. yr. 2004-05 : On the facts and circumstances of the case the learned CIT(A) has erred : (1) in confirming the order of the AO under s. 271(1)(c) which is arbitrary, illegal, unjustified and bad in law. (2) in confirming the penalty of ₹ 95,64,084 under s. 271(1)(c) imposed by the AO when the income of the joint venture was distributed amongst the members of the AOP as defined in the deed of agreement and returned by them in their respective returns of income. 3. in confirming the penalty imposed by the AO under s. 271(1)(c) when the assessee has not concealed the particulars of its income or furnished inaccurate particulars of such income. 3. The assessee in the present case is an AOP constituted by a joint venture agreement entered into by five different entities on 30th March, 2002. Constitution of AOP is as under : Sl. No. Name of member Share in P L of JV 1. Laxmi Traders (registered firm) 25% 2. Bijay Paper Trading Co. (propriet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for : (i) CIT vs. Murlidhar Jhawar Purna Ginning Pressing Factory (1966) 60 ITR 95 (SC); (ii) CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC); (iii) CIT vs. Chandrasekaran [SLP (Civil) Nos. 1782-1784 of 1988] : (1989) 178 ITR (St) 73; (iv) Laxmichand Hirjibhai vs. CIT (1981) 21 CTR (Guj) 181 : (1981) 128 ITR 747 (Guj); (v) CIT vs. V.H. Sheth Ors. (1984) 41 CTR (Bom) 380 : (1984) 148 ITR 169 (Bom); (vi) Narnauli Jewel Corporation vs. CIT (1987) 163 ITR 293 (Raj); (vii) CIT vs. Taj Oil Tradres (2003) 130 Taxman 585 (Raj). Reference was also made to the Board's Circular No. 75/19/191/62-ITJ dt. 24th Aug., 1966 and it was pointed out that ss. 86 and 167B of the Act have no relevance in the facts of the case. It was submitted that these sections will come into play when the income is first assessed in the hands of AOP and not in those cases where first assessment has not been made in the hands of AOP. It was submitted that as member of the AOP are assessed without making prior assessment in the hands of the AOP, therefore, ss. 86 and 167B could not be applied. It was submitted that second proviso to s. 86 contemplates a situation where when no in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an on the issue of taxing the commission income received during the year under s. 167B(2) and tried to mislead the Department and such fact has been confirmed by the CIT(A) in his quantum order. It is also observed by the AO that the assessee has committed default deliberately by misleading and claiming the commission income as exempt under s. 167A of the Act whereas the income is taxable under s. 167B(2) and distributed the income amongst the members. In this manner, the impugned penalties have been levied. For asst. yr. 2004-05, the AO has rest upon his findings on the basis of decision of Special Bench in which the action of the AO for assessing the income in the hands of the AOP has been confirmed. 7. The learned CIT(A) has also confirmed the penalties. The assessee is aggrieved and hence the present appeals before us. 8. The learned Authorised Representative, after narrating the facts, invited our attention towards p. 22 of the paper book on which copy of computation of income is placed. He submitted that in the return of income it was clearly stated that profit is distributed to the members as taxable in their hands. It was submitted that not only the fact was stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st March, 2006. Then he referred to the decision of the Hon'ble Supreme Court in the case of Murlidhar Jhawar Purna Ginning Pressing Factory (supra), wherein their Lordships while interpreting the provisions of s. 3 of Indian IT Act, 1922, have observed that since s. 3 (corresponding s. 4 for IT Act, 1961) expressly treats an AOP and individual member of an association as two distinct and different assessable entities and, therefore, tax can be levied on either of the said two entities and when the Department has assessed the members of the AOP on their shares, the Department cannot ask the AOP to submit the return of income of the joint venture on the footing that they constituted an unregistered firm. It was submitted that the effect of the aforementioned decision of Hon'ble Supreme Court was examined by CBDT vide aforementioned circular dt. 24th Aug., 1966 and it was opined that though the decision was rendered in the context of Indian IT Act, 1922, but it will equally be applicable to the provisions of the IT Act, 1961 and he referred to the copy of the said circular of the Board which is placed at pp. 71 and 72 of the paper book. 9. Referring to the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich they had returned in their respective IT returns as per s. 67A of the IT Act and assessed accordingly, the AOP was not taxable on such income which would have led to the same income being doubly assessed. Reliance has been placed by the assessee on Board's circular dt. 24th Aug., 1966, which has not been withdrawn, and which is binding on the IT authorities as held by the various Courts including Supreme Court. (3) The allegation of the IT authorities that it was device for avoiding tax or getting taxed at a lower figure does not hold good as the joint venture agreement was entered into on 30th March, 2002 when all the members of the joint venture were having other incomes which included profit on shares, interest income, dividend and income from business and other miscellaneous income. All of them were having huge incomes apart from the shares from the AOP. One cannot anticipate as to what it would be the profits/income of the members of joint venture during the financial years 2002-03 and 2003-04 relevant to the asst. yrs. 2003-04 and 2004-05. It would be seen from the chart (para 6.1) of the CIT(A)'s order that Laxmi Traders and Biswanath Industries were assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Though the amount was assessable, it was held that penalty was not exigible because there was no concealment of the fact of receipt but only a claim of that it was not taxable, though such claim was misconceived. The High Court in coming to the conclusion followed the guidelines of the Supreme Court in Addl. CIT vs. Jeevan Lal Sah (1994) 117 CTR (SC) 130 : (1994) 205 ITR 244 (SC) and Sir Shadi Lal Sugar General Mills Ltd. Anr. vs. CIT (1987) 64 CTR (SC) 199 : (1987) 168 ITR 705 (SC); (iii) National Textiles vs. CIT (2000) 164 CTR (Guj) 209 : (2001) 249 ITR 125 (Guj); CIT vs. P.K. Narayanan (1999) 152 CTR (Ker) 115 : (1999) 238 ITR 905 (Ker); Durga Kamal Rice Mills vs. CIT (2003) 183 CTR (Cal) 223 : (2004) 265 ITR 25 (Cal) : When two views are possible and when no clear and definite inference can be drawn, penalty cannot be imposed as held in the above cases. (iv) K.C. Builders Anr. vs. Asstt. CIT (2004) 186 CTR (SC) 721 : (2004) 265 ITR 562 (SC) : The word concealment as used in s. 271(1)(c) inherently carries with it the element of mens rea. In order a penalty under s. 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made the concealme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of material placed before us. Sec. 271(1)(c) regulates the levy of concealment penalty. Explanation 1 to that section has to be examined whether the same is applicable or not. Explanation 1 to s. 271(1)(c) 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 AO or the CIT(A) or the CIT 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 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 cl. (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. Explanation 1 is a deeming provision for holding that in what circumstances the income can be said to be an income in respect of which particulars have been concealed. Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nevolent circular which was held to be binding on the IT authorities as per decision of Hon'ble Gujarat High Court in the case of Laxmichand Hirjibhai vs. CIT (supra). The text of circular reads as under : The effect of this decision is that once the ITO assesses directly an assessee's share of income from an AOP or firm, it is not open to him to assess the same income again in the hands of the AOP of firm. In other words, once the assessment of the partner or a member of an association has been made by taxing directly as proportionate share from the firm or association, the ITO as precluded from assessing the firm in the status of an unregistered firm as or AOP. Thus, all the partners of the firm or members of the association will have to be assessed as partners of a registered firm, even though while dealing with the assessment of the firm, the ITO comes to the conclusion that the firm is not entitled to registration. Although the Supreme Court's decision is under the Indian IT Act, 1922, the Board is advised that it will equally apply to the assessments made under the IT Act, 1961. However, the legal position enunciated by various High Courts in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sides, the Special Bench has concluded that the contents of the circular could not be applied and decision of Hon'ble Supreme Court will be applicable. Thus, it is certainly a case where two views of the matter were possible. It has been held by the Hon'ble jurisdictional High Court that where there is a debatable issue and action of the assessee is bona fide being based on adoption of one of the possible views, the penalty is not leviable even if in the quantum proceedings it was not finally accepted by the Tribunal. Reference can be made to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Lotus Trans Travels (P) Ltd. (2009) 177 Taxman 37 (Del) wherein their Lordships held as under : 3. With regard to the question of inclusion of the interest income in the business income for the purpose of computing deduction under s. 80HHD, the Tribunal was of the view that the same was debatable issue and that appeals in respect of this issue were pending before this Court. Considering this fact, the Tribunal returned a finding that the claim made by the assessee for deduction under s. 80HHD was bona fide being based on adoption of one of the possible views ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares allocated and it was clearly mentioned that the allocated amount is taxable in their hands. During the course of hearing also, the assessee had stated before the AO that some of the members of the AOP have already been assessed and had returned their respective shares in their income. It is not even the case of the AO that the members have not disclosed their share earned from this AOP in their respective returns of income. Thus, all the primary facts were disclosed. The claim of the assessee is also bona fide as it is based on circular issued by the CBDT and the said claim of the assessee also could not be stated to be an impossible claim as the constitution of the Special Bench itself suggests that the view taken by the assessee was requiring a considerable deliberation. If the claim is supported by some material, then the claim cannot be said to be a claim which is not bona fide. Therefore, the ratio of the said decision of the Hon'ble Delhi High Court will also be fully applicable to the present case and it has to be held that it is not a case where levy of penalty can be held to be justified. 19. In view of aforementioned discussion, we see no justification in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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