The DCIT, Circle-5, Ahmedabad V. M/s. Parshwanath Housing Finance Corporation Ltd., Ahmedabad

ITA 1435/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0141 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-07-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 04-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: M G PATEL
• Keywords: Wrong claim; Set aside
• Section: 271(1)(c); 14A; 264

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI BHAVNESH SAINI, JM & SHRI A N PAHUJA,AM ITA NOS.1435 TO 1437/AHD/2010 (ASSESSMENT YEARS:-2002-03 TO 2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5, AHMEDABAD V/S M/S PARSHWANATH HOUSING FINANCE CORPORATION LTD., 50, HARSIDDH CHAMBERS, ASHRAM ROAD, AHMEDABAD [PAN: AAACP 9020 A] [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI K M MAHESH, DR ASSESSEE BY:- SHRI M G PATEL, AR O R D E R A N PAHUJA: THESE THREE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THREE SEPARATE ORDERS DATED 15-02-2010 OF T HE LD. CIT(APPEALS)-XI, AHMEDABAD, CANCELLING THE PENALTY OF RS.8,62,223/- IN THE AY 2002-03,RS.8,58,931/- IN THE AY 2003-04 & RS.10, 74,066/- IN THE AY 2004- 05 LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT] 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(3) OF THE ACT ON 31 -01-2005, DETERMINING INCOME OF RS.18,46,369/- AS AGAINST RE TURNED LOSS OF RS.35,20,720/- IN THE RETURN FOR THE AY 2002-03 AS A RESULT OF DISALLOWANCE OF INTEREST OF RS.53,67,089/- U/S.14A OF THE ACT OUT OF INTEREST PAID ON FUNDS BORROWED FROM HUDCO AND IN VESTED IN PARTNERSHIP CONCERNS M/S CHINMAY CORPORATION, M/S V AIBHAV LAXMI CORPORATION AND M/S PARSHWANATH CONSTRUCTION CORPOR ATION, SHARE INCOME FROM THESE FIRMS BEING EXEMPT U/S 10(2A) OF THE ACT. LIKEWISE IN THE AY 2003-04, LOSS WAS ASSESSED AT RS . 24,57,310/- VIDE ORDER DATED 24.3.2006 AS AGAINST RETURNED LOSS OF RS.47,94,538/-, WITH THE DISALLOWANCE OF RS.23,37, 228/- ON ACCOUNT OF INTEREST U/S 14A OF THE ACT. IN THE AY 2004-05, INCOME WAS ITA NOS.1435 TO 1437/AHD/2010 2 DETERMINED AT RS.1,24,03,968/- VIDE ORDER DATED 29. 11.2006 IN PURSUANCE TO RETURN DECLARING INCOME OF RS. 18,08,5 50/- FILED ON 31.10.2004 AND DISALLOWANCE OF RS.28,93,912/- WAS M ADE ON ACCOUNT OF INTEREST U/S 14A OF THE ACT. INTER ALIA, PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT WERE ALSO INIT IATED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR FURNISHING IN ACCURATE PARTICULARS OF INCOME IN THESE THREE ASSESSMENT YE ARS. 3. ON APPEAL, THE LD. CIT(A) VIDE HIS ORDER DATE D 12-01-2006 FOR THE AY 2002-03,ORDER DATED 15.9.2006 FOR THE AY 200 3-04 & ORDER DATED FOR THE AY 2004-0513.3.2007 UPHELD THE DISALL OWANCE MADE BY THE AO. ON FURTHER APPEAL BY THE ASSESSEE, THE ITAT VIDE THEIR COMMON ORDER DATED 02-04-2008 FOR THE A.YS.2002-03 TO 2004-05, REDUCED THE DISALLOWANCE IN THE FOLLOWING TERMS:- '5. ON PERUSAL OF THIS CHART, IT APPEARS THAT OUT OF THE T OTAL FUNDS OF RS.903.2 LAKHS, WHICH WERE INTEREST BEARIN G, THE ASSESSEE HAD ADVANCED TO INDIVIDUALS A SUM OF RS.65 6.47 LAKHS. TO THIS EXTENT, THE ASSESSEE IS RIGHT THAT F UNDS HAVE A DIRECT NEXUS FOR THE UTILIZATION OUT OF REFINANCE F ROM HUDCO 'AND NHB AND FIXED DEPOSITS. IF THE INDIVIDUAL ADVA NCE OF RS.656.47 IS REDUCED FROM THE INTEREST BEARING FUND S OF RS.903.2 LACS, THE BALANCE IS RS.247 LACS. THIS ALO NG WITH THE SHARE CAPITAL OF RS.324.96 LACS HAS GONE TO THE CO- OPERATIVE SOCIETY (RS.594.77 LACS) FROM WHOM THE ASSESSEE HAD NOT CHARGED ANY INTEREST. IN THE SUBSEQUENT YEARS, THE MONEY RECEIVED FROM CO-OPERATIVE HOUSING SOCIETY HAVE BEE N INVESTED AS THE CAPITAL OF THE THREE FIRMS, THE INC OME OF WHICH IS EXEMPT FROM TAXATION. A RATIO OF THE INTEREST BE ARING FUNDS RECEIVED AND ADVANCED BY THE ASSESSES IS THAT A SUM OF RS.594.71 WAS FINANCED BY RS.247 LACS OF THE INTERE ST BEARING FUNDS AND RS.324 LACS OUT OF ASSESSEE'S CAPITAL AND RS.23.03 LACS OUT OF OWN FUNDS. THIS GIVES ROUGHLY A PROPORT IONATE OF 27 TO 33. IN OTHER WORDS, FUNDS TO THE EXTENT OF 33/60 IS OUT OF ASSESSEE'S OWN FUNDS AND 27/60 IS OUT OF THE BORROW ED FUNDS. IN THESE CIRCUMSTANCES, IN OUR OPINION, THE CAPITAL OF THE FIRM OF THE ASSESSEE IN THE PARTNERSHIP FIRM TO THE EXTENT OF 33/60 CANNOT BE DISALLOWED BECAUSE IT WAS OUT OF THE ASSE SSEE'S OWN FUNDS AND ONLY 27/60 WOULD BE DISALLOWED. THE INTER EST DISALLOWED BY THE ASSESSING OFFICER, THEREFORE, WOU LD BE REDUCED TO 27/60 IN ALL THE THREE YEARS UNDER CONSI DERATION ITA NOS.1435 TO 1437/AHD/2010 3 BECAUSE TO THAT EXTENT THE SHARE CAPITAL WAS FINANC ED OUT OF THE BORROWED FUNDS ON WHICH INTEREST HAD BEEN PAID BY THE ASSESSEE AND THAT WOULD NOT BE ALLOWED AS A DEDUCTION BECAUSE OF THE PROVISIONS OF SECTION 14A OF THE ACT . WE DIRECT ACCORDINGLY.' 4. AFTER THE RECEIPT OF ORDER OF THE ITAT, IN RESPO NSE TO A SHOWCAUSE NOTICE BEFORE LEVY OF PENALTY IN THE AY 2 002-03, THE ASSESSEE REPLIED VIDE LETTERS DATED 29-08-2008 AND 20-11-2008 THAT MERE DISALLOWANCE OF INTEREST, WHICH HAS BEEN SUSTA INED IN APPEAL, DID NOT AMOUNT TO CONCEALMENT AND IN SUPPORT THEREO F RELIED ON SEVERAL DECISIONS. FOR THE AYS 2003-04 & 2004-05, T HE ASSESSEE WHILE MENTIONING THAT THEIR APPEAL AGAINST QUANTUM ADDITION WAS PENDING BEFORE THE ITAT, CONTENDED IN THE FOLLOWIN G TERMS: (I) THE CAPITAL CONTRIBUTION IN THE PARTNERSHIP .F IRMS WAS EXPLAINED DURING THE ASSESSMENT PROCEEDINGS AND THA T NO BORROWED FUNDS WERE TRANSFERRED TOWARDS CAPITAL IN PARTNERSHIP FIRM; (II) THE AMOUNT BORROWED FROM HUDCO ON WHICH INTERE ST WAS PAID, HAD BEEN ENTIRELY UTILIZED FOR GIVING LOANS T O THE INDIVIDUALS FOR RESIDENTIAL BUILDINGS. ALL THE COND ITIONS REGARDING ALLOWABILITY OF INTEREST AS LAID DOWN U/S .36(1)(III) OF THE ACT WERE FULFILLED; (III) IT IS STATED THAT THEY HAVE NEITHER CONCEALED ANY INCOME NOR FURNISHED ANY INACCURATE PARTICULARS OF INCOME, THEREFORE, NO PENALTY CAN BE IMPOSED; (IV) IT IS CONTENDED THAT THEY HAVE FULLY AND SATIS FACTORILY EXPLAINED THE CLAIM BUT THE EXPLANATION HAS BEEN RE JECTED WITHOUT PROPER APPRECIATION;. (V) THERE IS NO MATERIAL EVIDENCE ON RECORD TO PROV E THAT THE SUBMISSION AND EVIDENCES PRODUCED, ARE FALSE AND IN CORRECT. THE EXPLANATION GIVEN HAS BEEN REJECTED ON THE BASI S OF ASSUMPTION, CONJECTURE AND SURMISES, WITHOUT PROPER APPRECIATION OF FACT AND. (VI) THE DISALLOWANCE ALONE IS NOT SUFFICIENT FOR I MPOSITION OF PENALTY, BUT IT IS NECESSARY TO BRING ON RECORD SOM E MATERIALS OR EVIDENCES TO PROVE THAT THE AMOUNTS OF DISALLOWA NCE ITA NOS.1435 TO 1437/AHD/2010 4 REPRESENTED THE INCOME OF THE ASSESSEE. THE ONUS LI ES ON THE DEPARTMENT TO PROVE THAT THE EXPLANATION OFFERED IS FALSE. 5. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSION S OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE WAS WELL A WARE THAT BORROWED FUNDS HAD BEEN DIVERTED TO ASSOCIATE FIRMS FROM WHICH EITHER NO INCOME WAS DERIVED OR INCOME WAS EXEMPT, RESULTING IN VIOLATION OF PROVISIONS OF SECTION 14A OF THE ACT. SINCE THE ASSESSEE DELIBE RATELY FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF FALSE CLAIM OF INTEREST MADE BY IT, THE AO IMPOSED A PENALTY OF PENALTY OF RS.8,62,223/- IN TH E AY 2002-03,RS.8,58,931/- IN THE AY 2003-04 & RS.10,74,066/- IN THE AY 2004-05 U/S 271(1)(C) OF THE ACT @ 100% OF THE TAX SOUGHT TO BE EVADED ON THE AMOUNT O F DISALLOWANCE SUSTAINED BY THE ITAT, HAVING RECOURSE TO EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT AND RELYING UPON DECISIONS OF THE HONBLE APEX COURT IN GOLD CO IN IND. LTD.,304 ITR 308(SC). 6. ON APPEAL, THE LEARNED CIT(A) CANCELLED THE PENA LTY VIDE HIS SIMILAR ORDERS IN HE FOLLOWING TERMS:- 4.2 ASSESSING OFFICER HAS NOT MADE OUT ANY CASE THAT THE APPELLANT HAD ACTUALLY CONCEALED CERTAIN AND SPECIFIC SUM OF INCO ME IN THE YEAR UNDER CONSIDERATION OR FURNISHED INACCURATE PARTICULARS T HEREOF. THE DISALLOWANCE, WITH REFERENCE TO WHICH PENALTY WAS L EVIED, WAS MADE ON ESTIMATE BASIS. THE DISALLOWANCE WAS ON A LEGAL ISS UE. ALL RELEVANT PARTICULARS WERE ON RECORD. THEREFORE, I HOLD THAT PENALTY U/S. 271(1)(C) IS NOT EXIGIBLE IN THIS CASE. HAVING CONSIDERED THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE DECISIONS RELIED U PON BY THE A. R. OF THE APPELLANT, I AM OF THE VIEW THAT THE ASSESSING OFFI CER IS NOT JUSTIFIED IN LEVYING THE PENALTY U/S. 271(1)(C) OF THE I. T. ACT , 1961. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAI NST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE ORDERS OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDINGS OF THE LD. CIT(A). INTER ALIA, THE LD. AR RELIED UPON THE DECISIONS OF HONBLE GUJRAT HIGH COURT IN CIT VS. HOTEL SABAR PVT. LTD., 264 ITR 381(GUJ.),CIT VS. UNION ELECTRIC CORPORATION,281 ITR 266(GUJ) ITA NOS.1435 TO 1437/AHD/2010 5 ,GUJRAT CREDIT CORPORATION LTD. VS. ACIT302 ITRSP 2 50(AHMEDABAD.) AND CIT VS. RELIANCE PETRO PRODUCTS ,322 ITR 158(SC). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON. UNDISPUTEDLY, THE CLAIM FOR DEDUCTION OF INTEREST WAS DISALLOWED HAVING RECOURSE TO THE PROVISIONS OF SEC.14A OF THE ACT ON THE BASIS OF PARTICULARS DISCLOSED BY THE ASSESSEE. THE DISALLOWANCE WAS MADE BY THE AO ON ACCOUNT OF DIVERSION OF BORROWED FUNDS TO WARDS CAPITAL INVESTED IN THE THREE FIRMS VIZ M/S CHINMAY CORPORATION, VAIBHAV L AXMI CORPORATION AND SHRI PARSHWANATH CONSTRUCTION CORPORATION. THE SHARE IN COME OF THE ASSESSEE FROM THESE THREE FIRMS IS EXEMPT U/S 10(2A) OF THE ACT. ON APPEAL, THOUGH THE LD. CIT(A) UPHELD THE DISALLOWANCE, THE ITAT RESTRICTED THE DISALLOWANCE TO 27/60 OF THE INTEREST DISALLOWED BY THE AO ON THE GROUND T HAT CAPITAL WAS FINANCED PARTLY THROUGH BORROWED FUNDS AND PARTLY THROUGH OWN FUND S. IN THE LIGHT OF THESE FACTS, THE AO IMPOSED A PENALTY U/S 271(1)(C) OF THE ACT, HAVING RECOURSE TO EXPLANATION 1 THERETO ON THE GROUND THAT THE ASSESS EE FURNISHED INACCURATE PARTICULARS OF INCOME WHILE THE LD. CIT(A) CANCELL ED THE PENALTY ON THE GROUND THAT DISALLOWANCE OF INTEREST HAD BEEN MADE ON ES TIMATE HAVING RECOURSE TO PROVISIONS OF SEC. 14A OF THE ACT AND THAT ALL T HE RELEVANT PARTICULARS WERE ON RECORD . THE EXPRESSION 'HAS CONCEALED THE PARTICUL ARS OF INCOME' AND 'HAS FURNISHED INACCURATE PARTICULARS OF INCOME' HAVE NO T BEEN DEFINED EITHER IN SECTION 271 OR ELSEWHERE IN THE ACT. HOWEVER, NOTWI THSTANDING THE DIFFERENCE IN THE TWO CIRCUMSTANCES, IT IS NOW WELL ESTABLISHED T HAT THEY LEAD TO THE SAME EFFECT NAMELY, KEEPING OFF A CERTAIN PORTION OF THE INCOME FROM THE RETURN. ACCORDING TO LAW LEXICON, THE WORD 'CONCEAL' MEANS: 'TO HIDE OR KEEP SECRET. THE WORD 'CONCEAL' IS C ON+CELARE WHICH IMPLIES TO HIDE. IT MEANS TO HIDE OR WITHDRAW FROM OBSERVATION; TO C OVER OR KEEP FROM SIGHT; TO PREVENT THE DISCOVERY OF ; TO WITHHOLD KNOWLEDGE OF . THE OFFENCE OF CONCEALMENT IS, THUS, A DIRECT ATTEMPT TO HIDE AN ITEM OF INCOM E OR A PORTION THEREOF FROM THE KNOWLEDGE OF THE INCOME-TAX AUTHORITIES.' IN WEBSTER'S DICTIONARY, 'INACCURATE' HAS BEEN DEFI NED AS : ITA NOS.1435 TO 1437/AHD/2010 6 'NOT ACCURATE, NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS ; AS AN INACCURATE STATEMENT, COPY OR TRANSCRIPT.'. 5.1 THE PENALTY U/S 271(1)(C) OF THE ACT IS LEV IABLE IF THE AO IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER TH IS ACT THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. IT IS WELL S ETTLED THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AN D DISTINCT AND AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF ANANTHRAMAN VEERASINGH AIAH & CO. VS. CIT, 123 ITR 457, THE FINDINGS IN THE ASSESSMENT PROCEEDINGS CAN NOT BE REGARDED AS CONCLUSIVE FOR THE PURPOSES OF THE PENALTY PROCEEDINGS. IT IS ALSO WELL SETTLED THAT THE CRITERION AND YARDSTICKS FOR THE PURPOSE OF IMPOSING PENALTY U/S 271(1)(C) OF THE ACT ARE DIFFERENT THAN THOSE APPLIED FOR MAKING OR CONFIRMING THE ADD ITIONS. IT IS, THEREFORE, NECESSARY TO REAPPRECIATE AND RECONSIDER THE MATTER SO AS TO FIN D OUT AS TO WHETHER THE ADDITION MADE IN THE QUANTUM PROCEEDINGS ACTUALLY REPRESENTS THE CONCEALMENT ON THE PART OF THE ASSESSEE AS ENVISAGED IN SEC. 271(1 )(C) OF THE ACT AND WHETHER IT IS A FIT CASE TO IMPOSE THE PENALTY BY INVOKING THE SAID PROVISIONS. THE PROVISIONS OF SECTION 271(1)( C ) OF THE ACT STIPULATE THAT IF THE ASSESSING OFFICER OR THE CIT(APPEALS) OR THE COMMISSIONER, IN THE COURSE OF PROCEEDINGS UNDER TH IS ACT, IS SATISFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURN ISHED INACCURATE PARTICULARS THEREOF , HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NOT EXCEED THREE TIMES T HE AMOUNT OF TAX SOUGHT TO BE EVADED BY A REASON OF THE CONCEALMENT OF PARTICULAR S OF HIS INCOME. EXPLANATION 1 TO SECTION 271(1)( C ) OF THE ACT MENTIONS THAT WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THE ACT, SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FO UND BY THE AO OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR SUCH PERSON OFF ERS 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 DIS ALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSE OF CLAUSE ( C ) OF SECTION 271(1), BE DEEMED TO REPRESENT THE INCOME IN RESPEC T OF WHICH PARTICULARS HAVE BEEN ITA NOS.1435 TO 1437/AHD/2010 7 CONCEALED. IN OTHER WORDS, THE NECESSARY INGREDIEN TS FOR ATTRACTING EXPLANATION 1 TO SECTION 271(1)( C ) ARE THAT ( I ) THE PERSON FAILS TO OFFER THE EXPLANATION, OR ( II ) HE OFFERS THE EXPLANATION WHICH IS FOUND BY THE A O OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR ( III ) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABL E TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM. 5.2 IF THE CASE OF ANY ASSESSEE FALLS IN ANY OF THESE T HREE CATEGORIES, THEN THE DEEMING PROVISION PROVIDED IN EXPLANATION 1 TO SECTION 271(1)( C ) COMES INTO PLAY, AND THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME SHALL BE CONSIDERED AS THE INCOME IN RESPECT OF WHICH PARTIC ULARS HAVE BEEN CONCEALED, FOR THE PURPOSES OF CLAUSE ( C ) OF SECTION 271(1), AND THE PENALTY FOLLOWS. ON TH E OTHER HAND, IF THE ASSESSEE IS ABLE TO OFFER AN EX PLANATION, WHICH IS NOT FOUND BY THE AUTHORITIES TO BE FALSE, AND ASSESSEE HAS BEEN ABLE TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME HAVE BEEN DISCLOSED BY HIM, THE ASSESSEE SHALL BE OUT OF THE CLUTCHES OF EXPLANATION 1 TO SECTION 271(1)( C ) OF THE ACT, AND IN THAT CASE, THE PENALTY SHALL N OT BE IMPOSED. HONBLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF V . JT. CIT [2007] 210 CTR (SC) 228 : [2007] 291 ITR 519 (SC) WHILE CONSIDERING THE SCOPE OF THESE PROVISIONS U/S 271(1)( C ) OF THE ACT OBSERVED IN THE FOLLOWING TERMS: THE LEGAL HISTORY OF SECTION 271(1)(C) OF THE ACT TRACED FROM THE 1922 ACT PRIMA FACIE SHOWS THAT THE EXPLANATIONS WERE APPLIC ABLE TO BOTH THE PARTS. HOWEVER, EACH CASE MUST BE CONSIDERED ON ITS OWN FA CTS. THE ROLE OF THE EXPLANATION HAVING REGARD TO THE PRINCIPLE OF STATU TORY INTERPRETATION MUST BE BORNE IN MIND BEFORE INTERPRETING THE AFOREMENTIONE D PROVISIONS. CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 CATEGORICALLY STATES THAT THE PENALTY WOULD BE LEVIABLE IF THE ASSESSEE CONCEALS THE PARTICULARS O F HIS INCOME OR FURNISHES INACCURATE PARTICULARS THEREOF. BY REASON OF SUCH C ONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS ALONE, THE ASSESSEE DOES NOT IPSO FACTO BECOME LIABLE FOR PENALTY. IMPOSITION OF PENALTY IS NOT AUTOMATIC. LE VY OF PENALTY IS NOT ONLY DISCRETIONARY IN NATURE BUT SUCH DISCRETION IS REQU IRED TO BE EXERCISED ON THE PART OF THE ASSESSING OFFICER KEEPING THE RELEVANT FACTO RS IN MIND. SOME OF THOSE FACTORS APART FROM BEING INHERENT IN THE NATURE OF PENALTY PROCEEDINGS AS HAS BEEN NOTICED IN SOME OF THE DECISIONS OF THIS COURT , INHERES ON THE FACE OF THE STATUTORY PROVISIONS. PENALTY PROCEEDINGS ARE NOT T O BE INITIATED, AS HAS BEEN ITA NOS.1435 TO 1437/AHD/2010 8 NOTICED BY THE WANCHOO COMMITTEE, ONLY TO HARASS TH E ASSESSEE. THE APPROACH OF THE ASSESSING OFFICER IN THIS BEHALF MUST BE FAI R AND OBJECTIVE. THE TERM 'INACCURATE PARTICULARS' IS NOT DEFINED. F URNISHING OF AN ASSESSMENT OF VALUE OF THE PROPERTY MAY NOT BY ITSELF BE FURNISHI NG OF INACCURATE PARTICULARS. EVEN IF THE EXPLANATIONS ARE TAKEN RECOURSE TO, A F INDING HAS TO BE ARRIVED AT HAVING REGARD TO CLAUSE (A) OF EXPLANATION 1 THAT T HE ASSESSING OFFICER IS REQUIRED TO ARRIVE AT A FINDING THAT THE EXPLANATION OFFERED BY AN ASSESSEE, IN THE EVENT HE OFFERS ONE, WAS FALSE. HE MUST BE FOUND TO HAVE FAI LED TO PROVE THAT SUCH EXPLANATION IS NOT ONLY NOT BONA FIDE BUT ALL THE F ACTS RELATING TO THE SAME AND MATERIAL TO THE INCOME WERE NOT DISCLOSED BY HIM. T HUS, APART FROM HIS EXPLANATION BEING NOT BONA FIDE, IT SHOULD HAVE BEE N FOUND AS OF FACT THAT HE HAS NOT DISCLOSED ALL THE FACTS WHICH WAS MATERIAL TO T HE COMPUTATION OF HIS INCOME. 5.3 IN THE LIGHT OF AFORESAID OBSERVATIONS O F THE HONBLE APEX COURT , WHAT IS TO BE SEEN IN THE INSTANT CASE, IS WHETHER THE CLA IM FOR DEDUCTION OF INTEREST MADE BY THE ASSESSEE WAS BONA-FIDE AND WHETHER ALL THE MATERIAL FACTS RELEVANT THERETO HAVE BEEN FURNISHED AND ONCE IT IS SO ESTAB LISHED, THE ASSESSEE CANNOT BE HELD LIABLE FOR CONCEALMENT PENALTY U/S 271(L)(C ) OF THE ACT. A MERE REJECTION OF THE CLAIM OF THE ASSESSEE BY RELYING ON DIFFERENT I NTERPRETATIONS DOES NOT AMOUNT TO CONCEALMENT OF THE PARTICULARS OF INCOME OR FURN ISHING INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. HON'BLE PUNJAB & HARYANA HI GH COURT IN THE CASE OF CIT VS. AJAIB SINGH & CO. (2001) 170 CTR (P&H) 489 : (2002) 253 ITR 630 (P&H) HAVE OBSERVED THAT MERELY BECAUSE CERTAIN EX PENSES CLAIMED BY THE ASSESSEE ARE DISALLOWED BY AN AUTHORITY, IT CANNOT MEAN THAT PARTICULARS FURNISHED BY THE ASSESSEE WERE WRONG. IT WAS HELD THAT MERE D ISALLOWANCE OF EXPENSES PER SE CANNOT MEAN THAT ASSESSEE HAS FURNISHED INACCURA TE PARTICULARS OF ITS INCOME. IN THE CASE UNDER CONSIDERATION, AS POINTED OUT BY THE LD. CIT(A), THE ASSESSEE HAD GIVEN ALL THE PARTICULARS OF INCOME AND HAD DIS CLOSED ALL FACTS TO THE AO. THE LD. CIT(A) ,ACCORDINGLY, CONCLUDED THAT PENALTY C AN NOT BE IMPOSED MERELY ON ESTIMATED DISALLOWANCE OF INTEREST. MERE DISALLOW ANCE OF A CLAIM WILL NOT AMOUNT TO FILING OF INACCURATE PARTICULARS OF INCOME. IT CAN AT BEST BE A WRONG CLAIM NOT A FALSE CLAIM. IN SUCH CIRCUMSTANCES, HONBLE DEL HI HIGH COURT HELD IN THE CASE OF COMMISSIONER OF INCOME-TAX.VS BACARDI MARTINI IN DIA LIMITED.,288 ITR 585(DEL) THAT NO PENALTY WAS LEVIABLE. IN CIT VS. HARSHVARDHAN CHEMICALS & ITA NOS.1435 TO 1437/AHD/2010 9 MINERALS LTD. (259 ITR 212) (RAJ),HONBLE RAJASTHAN HIGH COURT UPHELD THE FINDING OF THE TRIBUNAL THAT WHEN THE ASSESSEE HAS CLAIMED SOME AMOUNT THOUGH THAT IS DEBATABLE, IN SUCH CASES, IT CANNOT BE SAID THAT THE ASSESSEE HAS CONCEALED ANY INCOME OR FURNISHED INACCURATE PARTIC ULARS FOR EVASION OF THE TAX. RECENTLY, HONBLE APEX COURT IN CIT VS. RELIANCE P ETRO PRODUCTS, ARISING OUT OF SLP (C) NO.27161 OF 2008, VIDE THEIR ORDER DATED 17 .3.2010 HELD THAT A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LA W, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACC URATE PARTICULARS, HONBLE APEX COURT CONCLUDED. THUS, MERELY BECAUSE THE ASS ESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NO T ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, ATTRACT THE PENA LTY U/S 271(1)(C) OF THE ACT. IN THE PRESENT CASE, WE ARE OF THE OPINION THAT THE DI SALLOWANCE OF AN ESTIMATED AMOUNT OF INTEREST , BY MERELY HAVING RECOURSE TO P ROVISIONS OF SEC.14A THE ACT CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME OR FU RNISHING INACCURATE PARTICULARS THEREOF, ESPECIALLY WHEN ALL THE RELEVA NT PARTICULARS WERE DISCLOSED BEFORE THE AO. WHILE ADJUDICATING A SIMILAR ISSU E , HONBLE APEX COURT IN THE AFORESAID CASE OF M/S RELIANCE PETRO PRODUCTS(SUPRA ) OBSERVED AS UNDER: 10. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF THE ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITURE INCURR ED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHA RES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE, REITERATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASS ESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT; IT AMOU NTED TO CONCEALMENT OF INCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEHOO D IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS; (I) AN ITEM OF RECEIPT MAY BE SUPPRE SSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME AND, THE REFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF ONE'S INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSE SSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COU LD 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 H AD 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 PENAL TY UNDER SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE O F EVERY RETURN WHERE THE ITA NOS.1435 TO 1437/AHD/2010 10 CLAIM MADE IS NOT ACCEPTED BY ASSESSING OFFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT I S CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. 11. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT M ADE IN SREE KRISHNA ELECTRICALS V. STATE OF TAMIL NADU & ANR. [(2009) 23VST 249 (SC )] AS REGARDS THE PENALTY ARE APPOSITE. IN THE AFOREMENTIONED DECISION WHICH PERTAINED TO T HE PENALTY PROCEEDINGS IN TAMIL NADU GENERAL SALES TAX ACT, THE COURT HAD FOU ND THAT THE AUTHORITIES BELOW HAD FOUND THAT THERE WERE SOME INCORRECT STAT EMENTS MADE IN THE RETURN. HOWEVER, THE SAID TRANSACTIONS WERE REFLECTED IN TH E ACCOUNTS OF THE ASSESSEE. THIS COURT, THEREFORE, OBSERVED: 'SO FAR AS THE QUESTION OF PENALTY IS CONCERNED THE ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORPORATED IN THE APPELLANT'S ACCOUNT BOOKS. WHERE CERTAIN ITEMS WHICH ARE NOT INCLUDED I N THE TURNOVER ARE DISCLOSED IN THE DEALER'S OWN ACCOUNT BOOKS AND THE ASSESSING AUTHORITIES INCLUDE THESE ITEMS IN THE DEALER'S TURNOVER DISALL OWING THE EXEMPTION, PENALTY CANNOT BE IMPOSED. THE PENALTY LEVIED STAND S SET ASIDE.' THE SITUATION IN THE PRESENT CASE IS STILL BETTER A S NO FAULT HAS BEEN FOUND WITH THE PARTICULARS SUBMITTED BY THE ASSESSEE IN ITS RETURN . 5.3. IN VIEW OF THE FOREGOING, WE ARE OF THE OPI NION THAT MERE ERRONEOUS CLAIM IN THE ABSENCE OF ANY CONCEALMENT OR FURNISHING OF INA CCURATE PARTICULARS, IS NO GROUND FOR LEVYING PENALTY, ESPECIALLY WHEN THERE I S NOTHING ON RECORD TO SHOW THAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS NO T BONA FIDE OR ANY MATERIAL PARTICULARS WERE CONCEALED OR FURNISHED INACCURATE . IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT LEVY OF PENALTY IS NOT JUS TIFIED IN THE AFORESAID THREE ASSESSMENT YEARS. THEREFORE, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A), CANCELLING THE PENALTY LEVIED UNDE R SECTION 271 (1)(C) OF THE ACT . THEREFORE, GROUND NO.1 IN THESE THREE APPEALS IS D ISMISSED. 6. GROUND NOS.2 & 3 IN THESE THREE APPEALS ,BEIN G MERE PRAYER, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMI SSED ITA NOS.1435 TO 1437/AHD/2010 11 7. IN THE RESULT, THESE THREE APPEALS ARE DISMISSED . ORDER PRONOUNCED IN THE COURT TODAY ON 19-08-2010 SD/- SD/- (BHAVNESH SAINI) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 19 -08-2010 COPY OF THE ORDER FORWARDED TO: 1. M/S PARSHWANATH HOUSING FINANCE CORPORATION LTD. , 50, HARSIDDH CHAMBERS, ASHRAM ROAD, AHMEDABAD 2. THE DCIT, CIRCLE-5, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XI, AHMEDABAD 5. THE DR, BENCH-C, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD ITA NOS.1435 TO 1437/AHD/2010 12