DCIT, New Delhi V. M/s. AES (India) P. Ltd, New Delhi

ITA 1508/DEL/2009

• Counselvise Citation: 150820114 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: K C SINGHAL
• Keywords: Bonafide belief; Question of law; Difference of opinion; Capital receipt; Onus to prove
• Section: 37(1); 148; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI & SHRI B.C. MEENA I.T.A.NO.1395/DEL/2009 ASSESSMENT YEAR : 1997-98 ASSTT. COMMISSIONER OF INCOME-TAX, VS. M/S. KHANNA & ANNADHANAM, CIR. 37(1) , NEW DELHI. 706-707, AKASHDEEP, 26A, BARAKHAMBA ROAD, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.K. MONGA SR. DR RESPONDENT BY : SHRI K.C. SINGHAL ADV. & SHRI RANJAN CHOPRA CA O R D E R PER R.P. TOLANI, JUDICIAL MEMBER: THIS IS REVENUES APPEAL AGAINST CIT(A)S ORDER DAT ED 30-01-2009, CANCELING PENALTY LEVIED U/S 271(1)(C) OF THE INCOM E-TAX ACT, 1961 RELATING TO A.Y. 1997-98. SOLE GROUND RAISED IS AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY OF RS. 46,28,000/- IMPOSED U/S 27(1)(C). 2. BRIEFLY, THE CONTROVERSY IS THAT ASSESSEE IS A F IRM OF CHARTERED ACCOUNTANTS AND CARRYING ON PROFESSION AS SUCH. DU RING THE YEAR THE ASSESSEE HAD SHOWN A SUM OF RS.1,15,70,000/- IN THE CAPITAL ACCOUNT OF THE PARTNERS AS RECEIVED FROM AN INTERNATIONAL CONSULTA NCY FIRM DELOITTE TOUCHE TOHMATU INTERNATIONAL (DTTI). THE AMOUNT WAS NOT R EFLECTED BY THE ASSESSEE IN ITS P&L A/C BUT DIRECTLY CREDITED TO PA RTNERS ACCOUNTS. ON AOS QUESTIONING, IT WAS STATED THAT THE RECEIPT IS NOT TAXABLE IN FIRMS HAND AS IT IS ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 2 CAPITAL RECEIPT IN THE HANDS OF PARTNERS. THE ASSE SSING OFFICER HELD THAT IT WAS PATENTLY A RECEIPT OF THE FIRM LIABLE FOR INCOM E TAX. ITAT CONFIRMED AOS DECISION, IN PENALTY PROCEEDINGS AO FURTHER HE LD THAT ASSESSEE FIRM CAMOUFLAGED THE NATURE OF RECEIPT BY FURNISHING INA CCURATE PARTICULARS AND IMPOSED THE PENALTY WHICH IS THE SUBJECT MATTER OF THIS APPEAL. 2.1. DELOITTEE TOUCHE TOHMATSU INTERNATIONAL (DTTI) , ONE OF THE LEADING ACCOUNTING FIRMS IN THE WORLD ESTABLISHED UNDER SWI SS VEREIN ENGAGED IN THE PRACTICE OF PUBLIC ACCOUNTANCY IN VARIOUS COUNTRIES . THE VEREIN CONSISTS OF MEMBERS THAT ARE PROFESSIONAL FIRMS AND ARE ENGAGED IN THE PROFESSION OF PUBLIC ACCOUNTANCY. IN OTHER WORDS, DTTI IS A CONG LOMERATION OF MEMBER FIRMS, NOT INDIVIDUALS, WHICH IS BEING MANAGED AND RUN BY A BOARD OF DIRECTORS SELECTED BY MEMBER FIRMS. DTTI HAS A MEM BER FIRM IN INDIA BY THE NAME OF DELOITTEE HASKINS & SELLS (DHS) WHICH I S AN ASSOCIATION OF FOUR INDIAN ACCOUNTING FIRMS NAMELY KHANNA & ANNADHANAM, THE ASSESSEE FIRM (KA), FRASER & ROSS (FR), GUPTA CHOUDHARY AND GHOSH (GCG) AND P.C. HANSOTIA & CO. (PCH). EACH OF THESE FOUR FIRMS NOM INATED THREE TO FOUR PARTNERS TO DHS TO REPRESENT THE FIRMS. 2.2. BY VIRTUE OF AN AGREEMENT DATED 1-1-1978 BETWE EN DELOITTE HASKINS & SELLS INTERNATIONAL AND GUPTA CHOUDHARY & GHOSH, CALCUTTA, THE PARTNERS OF GUPTA CHOUDHARY & GHOSH WERE ALLOWED TO PRACTICE IN THE NAME OF DELOITTE HASKINS & SELLS IN INDIA. ACCORDINGLY, PA RTNERS OF GUPTA CHOUDHARY & GHOSH FORMED A PARTNERSHIP IN THE NAME OF DELOITTE HASKINS & SELLS IN INDIA (DH&S). CONSEQUENT UPON THE MERGE R OF PRACTICES OF DH&S AND TOUCHE & ROSS INTERNATIONALLY, A REGIONAL MEETING OF DELOITTE ROSS AND TOHMATSU (DRT) INTERNATIONAL WAS HELD ON 5 -4-1990 IN HONG KONG WHERE THE REPRESENTATIVES OF DRT INTERNATIONAL , DH&S AND TR FIRMS IN INDIA WERE PRESENT. AT THE SAID MEETING, DRT IN TERNATIONAL REPRESENTATIVES PROPOSED THE MERGER OF DH&S AND TR FIRMS IN INDIA IN ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 3 KEEPING WITH THE INTERNATIONAL TREND. IN VIEW OF T HE FACT THAT THE INDIAN LAWS PERMITTED FORMATION OF A FIRM WITH NOT MORE THAN TW ENTY PARTNERS, TOTAL MERGER WAS NOT CONSIDERED FEASIBLE. IN THE CIRCUMST ANCES, AN `UMBERALLA FIRM WAS FORMED WITH THE REPRESENTATIVE PARTNERS O F DH&S AND TR FIRMS. IT WAS DECIDED THAT THE RESPECTIVE FIRMS JOINING TH E UMBERALLA FIRM WOULD NOMINATE PARTNERS TO THE OTHER FIRMS. 2.3. KA BECAME PARTNER OF DHS ON 4 TH SEPTEMBER, 1991 ALONG WITH TWO OTHER FIRMS NAMELY GCG AND PCH. LATER ON THE PARTN ERS OF FR, ONE OF THE TR FIRMS ALSO AGREED TO JOIN THE SAID MERGER. A ME MORANDUM OF UNDERSTANDING WAS THEN EXECUTED ON 1-6-1992 BETWEEN THE CONSTITUENT FIRMS NAMELY KA, FR, GCG, PCH AND THE FIRM DHS WAS RECONS TITUTED. THIS MOU POSTULATED NOMINATION OF PARTNERS BY MEMBER FIR MS AS UNDER: GCG 5 PARTNERS PCH 4 PARTNERS KA 3 PARTNERS FR 3 PARTNERS 2.4. THE MOU CONTAINS CLAUSES FOR RENDERING PROFESS IONAL SERVICES IN THE NAME OF DHS WHICH INTER ALIA, PROVIDED THAT FOR SER VICES RENDERED BY THE RESPECTIVE CONSTITUENT FIRMS FOR THE WORK OF DHS IN DIA, THESE WOULD BE ENTITLED TO FEES COMMENSURATE WITH THE WORK DONE AS MUTUALLY AGREED. 2.5. IN THE YEAR 1987, INTERNATIONALLY DHS AND TR, ANOTHER ACCOUNTING FIRM MERGED. TR WAS REPRESENTED IN INDIA BY C.C. C HOKSI & CO., BOMBAY AND FR, MADRAS. IT DID NOT PRACTICE IN INDIA IN IT S OWN NAME, BUT THE REFERRED WORK WAS DONE EITHER BY CCC OR FR. HOWEVER, THE T RS WORK IN INDIA, UNLIKE DHS WAS NOT SUBSTANTIAL. AFTER MERGER, THE INTERNATIONAL FIRM WAS KNOWN BY THE NAME OF DTTI. 2.6. THE CLIENTS OF DHS WHICH WERE MOSTLY MULTI-NAT IONAL COMPANIES OPERATING IN INDIA WERE REFERRED TO DHS FOR PROVIDI NG PROFESSIONAL SERVICES ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 4 BY MEMBER FIRMS OF DTTI, MOSTLY THE US AND UK FIRMS . SINCE DHS WAS CONSTITUTED BY THREE FIRMS AND LATER ON BY FOUR FIR MS, AFTER ADMISSION OF M/S. FRASER & ROSS, THE FIRMS AGREED THAT THE DHS CLIENT S SHOULD BE SERVICED BY THE LOCAL FIRMS AS DHS DID NOT HAVE NECESSARY INFRA STRUCTURE IN THE VARIOUS CITIES. THE BILLING OF THE CLIENTS WAS DONE BY DHS THROUGH THE SERVICES RENDERED BY THE CONSTITUENT FIRMS. IT WAS AGREED B ETWEEN THE FIRMS THAT FOR THE SERVICES RENDERED BY THE RESPECTIVE FIRMS TO DH S CLIENTS, THE FIRM WILL BE ENTITLED TO FEE COMMENSURATE WITH THE WORK DONE AS MAY BE MUTUALLY AGREED TO BETWEEN THE FIRMS. IN VIEW OF THIS, 80 TO 90% OF THE FEES COLLECTED BY THE DHS WAS PASSED ON TO THE CONSTITUENT FIRMS FOR THEI R SERVICES. THE BALANCE WAS LEFT IN DHS FOR CERTAIN COMMON EXPENSES LIKE TR AINING COURSE, SECRETARIAL SERVICES, INDEMNITY INSURANCES, ETC. 2.7. IN VIEW OF THE INCREASED ACTIVITIES OF DHS IN INDIA, THE APEX BODIES I.E. DTTI WAS KEEN THAT ALL THE FIRMS CONSTITUTING DHS SHOULD MERGE INTO ONE FIRM AND PRACTICE ONLY IN THE NAME OF DHS. ACC ORDING TO ASSESSEE, THIS ARRANGEMENT WAS TIME CONSUMING, DTTI, IN THE MEANTI ME, DECIDED TO GRANT CONCURRENT MEMBERSHIP TO THE FOUR CONSTITUENT FIRMS OF DHS. ACCORDINGLY CONCURRENT MEMBERSHIP AGREEMENT DATED 1-9-92 WAS EX ECUTED BETWEEN KA AND DTTI WHEREIN KA WAS FORMALLY ADMITTED AS A MEMB ER FIRM OF DTTI. 2.8. REGARDING REASONS FOR WITHDRAWAL FROM THE CONC URRENT MEMBERSHIP OF DTTI, ASSESSEE SUBMITTED THAT DTTI WAS KEEN THAT T HE FOUR CONSTITUENT FIRMS OF DHS AND TWO OF TR FIRMS SHOULD MERGE AND F ORM ONE NATIONAL FIRM. THE SAID MERGER REQUIRED LOSING NATIONAL IDENTITY F OR THE FIRMS AND TRANSFER OF NATIONAL CLIENTS TO DHS AS ALSO, M/S. C.C. CHOKS I & CO. INSISTED ON TAKING OVER DHS PRACTICE IN INDIA. AS THIS WAS NOT ACCEPTABLE TO KA, THE ASSESSEE CONTENDS THAT IT WAS DECIDED THAT DTTI WOU LD ASK KA TO WITHDRAW FROM THE MEMBERSHIP OF DHS/DTTI AND AGREED TO PAY C OMPENSATION IN ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 5 QUESTION TO KA, WHICH HAS BEEN TREATED BY IT AS CA PITAL RECEIPT IN THE HANDS OF THE PARTNERS. 2.9. IN THE COURSE OF ASSESSMENT THE ASSESSEE WAS A SKED TO SUBSTANTIATE ITS CLAIM AS TO WHY THE AMOUNT SHOULD NOT BE TREATED A S REVENUE RECEIPT BEING RECEIVED IN THE PURSUIT OF ITS PROFESSION. THE ASS ESSEE FILED COPIES OF RELEVANT AGREEMENT WITH DTTI ALONG WITH RELEASE DOC UMENT DATED14-11- 1996 ENTERED INTO BETWEEN THE ASSESSEE FIRM AND DTT I AND PLEADED THAT THE AMOUNT WAS A CAPITAL RECEIPT AND THEREFORE IT WAS D IRECTLY CREDITED TO PARTNERS ACCOUNTS. 2.10. THE ASSESSING OFFICER HELD THAT WHEN THE ASSE SSEE ORIGINALLY ENTERED INTO CONTRACT WITH DTTI FOR GRANT OF CONCURRENT MEM BERSHIP, IT WAS A CONTRACT LIKE ANY OTHER CONTRACT IN THE COURSE OF P ROFESSION. THE ASSESSEE FIRM HAD CERTAIN RIGHTS AND OBLIGATIONS IN DTTI AND WAS ENTITLED TO REMAIN A MEMBER OF DTTI AT THE PLEASURE OF DTTI AND AS LONG AS IT ACTED IN ACCORDANCE WITH THE TERMS OF CONTRACT. BEING MEMBER OF DTTI ENTAILED RECOGNITION AS A GLOBAL PROFESSIONAL FIRM AND THUS THE CONTRACT BETWEEN THE ASSESSEE AND DTTI WAS NOT DIFFERENT FROM OTHER CONT RACTS TO ACHIEVE PROFESSIONAL EXCELLENCE AND BENEFITS. THE ASSESSIN G OFFICER ALSO HELD THAT THE ASSESSEE HAD MADE SUSTAINED EFFORTS FOR PROMOTI NG DTTI AND HAS PROVIDED VALUED SERVICES TO DTTIS REFERRED CLIENTS AND WAS INSTRUMENTAL IN BUILDING A SUBSTANTIAL BHS PROFESSIONAL PRACTICE IN DELHI. THIS FACT HAS BEEN ACKNOWLEDGED IN CLAUSE 5 OF THE AGREEMENT DATED 14. 11.1996. BY VIRTUE OF THIS AGREEMENT THE ASSESSEE BECOME ENTITLED TO IMPU GNED PAYMENT TO COMPENSATE THE ASSESSEE FOR THE CONSEQUENT PROFESSI ONAL LOSS AND PREJUDICE, THE DTTI AGREED TO PAY US$ 3.25 LACS. THE ASSESSIN G OFFICER ALSO HELD THAT THOUGH AFTER THE EXCLUSION OF THE ASSESSEE FROM DTT I MEMBERSHIP THERE WAS ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 6 NO REFERENCE OF THE CLIENTS BY DTTI, YET THE ASSESS EE WAS NOT PROHIBITED FROM PRACTICING THE PROFESSION OF ACCOUNTANCY. THUS THE RE WAS NEITHER RESTRICTIVE COVENANT TO CARRY ON THE PROFESSION BY ASSESSEE NOR CESSATION OF ASSESSEES BUSINESS. THE COMPENSATION PAID WAS THUS FOR PROFI TS WHICH THE ASSESSEE WOULD HAVE EARNED IN FUTURE IN THE CARRYING ON WORK WITH DTTI. THUS IT CAN BE SAID THAT THE ASSESSEE ONLY PARTED WITH PARTICU LAR FRUITS OF THE TREE AND NOT THE TREE ITSELF. THE SOURCE OF ASSESSEES INCOME WA S ACCOUNTANCY PROFESSION AND EVERY CLIENT OF THE ASSESSEE CANNOT BE REGARDED AS SEPARATE SOURCE OF INCOME. THE SOURCE OF INCOME WAS PROFESSION OF AC COUNTANCY AS A WHOLE. THE ASSESSING OFFICER DISTINGUISHED THE CASE LAWS C ITED BY ASSESSEE AND RELIED UPON FOLLOWING CASE LAWS TO HOLD THAT THE AM OUNT RECEIVED BY THE ASSESSEE WAS REVENUE RECEIPT SIMPLICITER, CHARGEABL E TO INCOME TAX:- 1. CHEMPLANT ENGINEERING PVT. LTD., 234 ITR 23 (MAD.); 2. HIGHWAY CONSTRUCTION CO. PVT. LTD., 223 ITR 32 (GAU H); 3. BLUE STAR LTD., 217 ITR 514 (BOM.); 4. BISHAMBHAR NATH SWARUP NARAIN, 119 ITR 581 (ALL); 5. STEWART AND DHOLAKIA (P) LTD., 95 ITR 573 (CAL.); 6. MANNA RAMJI & CO., 86 ITR 29; & 7. KARAM CHAND THAPAR & BROS. P. LTD., 67 ITR 705 (CAL .). 2.11. AGGRIEVED, ASSESSEE CHALLENGED THIS ADDITION IN FIRST APPEAL. THE LEARNED CIT (A) HELD AS UNDER:- 29. I HAVE CONSIDERED THE SUBMISSION OF THE AR OF THE APPELLANT. I HAVE ALSO EXAMINED CAREFULLY THE ARGU MENTS TAKEN BY THE A.O. AND CASE LAWS RELIED UPON BY BOTH THE S IDES. ON THE TOTALITY OF THE FACTS AND ENTIRETY OF THE CIRCUMSTA NCES OF THE CASE AND IN THE LIGHT OF THE CASE LAWS RELIED UPON BY TH E ASSESSEE, UNLIKE THE ONE RELIED BY THE A.O., WHICH ARE DISTIN GUISHABLE, I AM OF THE CONSIDERED OPINION THAT THE STAND OF THE ASSESSEE HAS GREAT FORCE. IN THIS VIEW OF THE MATTER, I HOLD TH AT THE ASSESSEES CLAIM THAT THE AMOUNT RECEIVED FROM DTTI IS A CAPIT AL RECEIPT, AND HENCE NOT TAXABLE. ACCORDINGLY THE ADDITION MAD E BY THE A.O. OF RS.1,15,70,000/- IS DELETED. ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 7 2.12. AGGRIEVED ON THE CIT(A)S ORDER GRANTING RELI EF, REVENUE APPEALED BEFORE ITAT, WHICH HELD THE IMPUGNED RECEIPT TO BE REVENUE IN NATURE BY FOLLOWING OBSERVATIONS: 15. APPLYING THE PRINCIPLE LAID DOWN ABOVE AND ALS O ON THE BASIS OF VARIOUS JUDICIAL PRONOUNCEMENTS WE ANALYZE FACTS OF THE PRESENT CASE. THE ASSESSEE RECEIVED THE PAYMEN T TO FACILITATE ORDERLY TRANSFER OF DTTIS CLIENTS, FILE S ETC. TO THE DHS FIRM TO BE RECONSTITUTED. THE SAME WAS MEASURE D IN FORM OF THREE TIMES OF NET PROFIT THAT THE ASSESSEE WILL REALIZE IN CONNECTION WITH DTTI REFERRED INTERNATIONAL WORK I. E. THE PROFIT FROM THAT PORTION OF WORK WHICH IS RECURRING AND WI LL BE LOST DUE TO THE WITHDRAWAL FROM DTTI. AFTER THE CESSATI ON OF THE ASSOCIATION BETWEEN THE ASSESSEE AND DTTI, IT MAY B E A CASE THAT DTTI WILL NOT REFER ITS CLIENTS TO THE ASSESSE E BUT THE ASSESSEE CONTINUES AND IS NOT PROHIBITED FROM CARRY ING ON THE PROFESSION OF ACCOUNTANCY. THE CLIENTS OF THE ASSE SSEE REMAIN WITH IT AND ARE NOT TO BE TRANSFERRED TO DTTI OR IT S ASSOCIATE OFFICE IN INDIA NAMELY DHS. THE ASSESSEE FIRM IS A N OLD ESTABLISHED FIRM AND IN THE COURSE OF CARRYING ON O F SUCH PROFESSION, ENTERED INTO AN AGREEMENT FOR CONCURREN T MEMBERSHIP OF DTTI IN 1992. SINCE THIS ARRANGEMENT WAS NO MORE AGREEABLE, THIS ARRANGEMENT CAME TO AN END IN A WAY IT CAN BE SAID THAT THE ARRANGEMENT OR CESSATION OF THE AR RANGEMENT IS OF IN THE COURSE OF CARRYING ON THE PROFESSION AS S UCH. THE ARRANGEMENT WITH DTTI AND BECAUSE OF SUCH ASSOCIATI ON IF ANY PROFESSIONAL INCOME IS GENERATED, IT CANNOT BE CONS IDERED AS A SEPARATE OR DISTINGUISHED PROFESSION DE HORSE OR UN CONNECTED WITH EXISTING PROFESSION. THE AFFECT OF NEW ARRANG EMENT IS THAT DTTI WILL NOT REFER THE CLIENTS AND TO FACILITATE T HE TRANSFER OF ALL REFERRED CLIENTS. THE ASSESSEE WAS COMPENSATED FOR PROBABLE LOSS OR BREACH FOR THE FORM OF NON-RECEIPT OF THE P ROFESSIONAL FEES. THUS ALL THESE THINGS PUT TOGETHER WILL BE P ART OF THE PROFESSION. ACCORDINGLY, IT CAN BE SAID THAT, THOU GH VOLUNTARILY, THE PAYMENT CAME TO THE ASSESSEE IN THE COURSE OF C ARRYING ON THE PROFESSION OF ACCOUNTANCY. WHEN SUCH VOLUNTARY PAYMENTS, WHICH ARE CONNECTED WITH PROFESSION, WILL CONSTITUT E INCOME CHARGEABLE TO TAX. THE PAYMENT HAS ORIGIN IN THE P ROFESSION CARRIED ON WHICH ITSELF IS A DEFINITE SOURCE OF INC OME AND HENCE CHARGEABLE TO TAX. SERVING THE CLIENTS REFERRED BY DTTI CANNOT BE CONSIDERED AS SEPARATE, DISTINCT AND DEFINITE SO URCE OF INCOME ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 8 DE HORSE THE EXISTING PROFESSION CARRIED ON. EACH CLIENT IF SERVED DOES NOT BECOME A SEPARATE AND IDENTIFIABLE OR DISTINCT PROFESSION SO AS TO SAY THAT IF SOME OF THE CLIENTS CEASE, THE RECEIPT FROM THEM WILL BE CONSIDERED AS CAPITAL. T HIS FINE DISTINCTION HAS ALWAYS BEEN UPHELD BY VARIOUS CASE LAWS CITED BY BOTH THE PARTIES. IN VIEW OF THE ABOVE FACTS, WE HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS ARISING IN THE C OURSE OF CARRYING ON PROFESSION AND HENCE CHARGEABLE TO TAX AS REVENUE RECEIPT. 3. AFTER ITATS JUDGMENT ON QUANTUM, AO COMMENCED P ENALTY PROCEEDINGS U/S 271(1)(C). IN REPLY TO SHOW CAUSE N OTICE ISSUED BY THE AO, THE ASSESSEE CONTENDED THAT ASSESSEE WAS NOT LIABLE FOR PENALTY U/S 271(1)(C) FOR THE FOLLOWING REASONS: (I) THE ASSESSEE WAS ADVISED THAT THE RECEIPT WAS CAPIT AL IN NATURE AND NOT LIABLE TO INCOME-TAX. (II) DISALLOWANCE BEING MADE ON ACCOUNT OF DIFFERENCE OF OPINION WHEN ALL THE FACTS WERE PLACED BEFORE THE LD. AO. (III) NO SATISFACTION WAS RECORDED AS WARRANTED BY SEC. 2 71 FOR INITIATING PENALTY PROCEEDINGS. (IV) ASSESSEE WAS NOT GUILTY OF CONTUMACIOUS CONDUCT OR WILLFUL OR GROSS NEGLECT. (V) PENALTY PROCEEDINGS WERE BARRED BY LIMITATION. 3.1. RELIANCE WAS PLACED ON FOLLOWING CASE LAWS: - CIT VS. DEVI DAYAL (1988) 171 ITR 683; - CIT VS. RAM COMMERCIAL ENTT. LTD. 246 ITR 568; - CIT VS. INDIA SEA FOODS 218 ITR 629 (KER.); - GL DIDWANIA VS. ITO 224 ITR 687 (SC); - CIT VS. AJAIB SINGH & CO. 253 ITR 630. ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 9 3.2. AO, HOWEVER, HELD THAT RECEIPT OF COMPENSATION IN QUESTION WAS PATENTLY A REVENUE RECEIPT AND THE ASSESSEE IN ORDE R TO BENEFIT ITSELF AND TO DEFRAUD REVENUE, INSTEAD OF CREDITING THE AMOUNT IN ITS P&L A/C CREDITED THE AMOUNT DIRECTLY IN THE ACCOUNT OF PARTNERS. THEREFO RE, THE ASSESSEE TRIED TO EVADE TAXES BY TREATING PATENT REVENUE RECEIPT AS CAPITAL RECEIPT BY CREDITING TO PARTNERS ACCOUNTS. AO FURTHER OVERRULED ASSESSEE S OBJECTION BY OBSERVING THAT IN VIEW OF PROVISIONS OF SEC. 271B, THE INITIA TION OF PENALTY PROCEEDINGS CONSTITUTES A VALID INITIATION. RELYING ON VARIOUS CASE LAWS AND THAT OF HONBLE SUPREME COURT JUDGMENT IN THE CASE OF DHARM ENDRA TEXTILE PROCESSORS 295 ITR 244, HOLDING THAT THE PENALTY U/ S 271(1)(C) WAS A CIVIL LIABILITY AND ESTABLISHMENT OF WILLFUL CONCEALMENT WAS NOT NECESSARY, AO LEVIED THE IMPUGNED PENALTY OF RS. 46,28,000/- BEIN G 100% OF THE TAX SOUGHT TO BE EVADED. 3.3. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL BEF ORE THE CIT(A), WHO CANCELLED THE PENALTY BY FOLLOWING OBSERVATIONS: I HAVE CONSIDERED FACTS OF THE CASE, IT IS SEEN TH AT THE BASIC ISSUE INVOLVED IN THIS CASE WAS WHETHER THE AMOUNT OF RS. 1,15,70,000/- RECEIVED BY THE APPELLANT WAS A CAPIT AL RECEIPT OR A REVENUE RECEIPT, EXIGIBLE TO TAX. IT IS NOTICED F ROM THE ASSESSMENT ORDER THAT THIS AMOUNT WAS SHOWN IN THE CAPITAL ACCOUNTS OF THE PARTNERS. THE APPELLANT HAD EARLIER PAID ADVANCE TAX ON THIS AMOUNT, TREATING IT AS REVENUE RECEIPT. HOWEVER, LATER ON, WHILE FILING THE RETURN OF INCOME, THE APPELLAN T CLAIMED THAT IT WAS ADVISED THAT THIS RECEIPT CONSTITUTED CAPITA L RECEIPT AND HENCE, WAS NOT LIABLE TO TAX. ACCORDINGLY, THE RECE IPT WAS NOT OFFERED TO TAX. THIS FACT IS ALSO STATED IN THE PEN ALTY ORDER. THE CLAIM OF THE APPELLANT THAT THIS RECEIPT WAS A REVE NUE RECEIPT WAS NEGATIVED AT THE ASSESSMENT STAGE BY THE ASSESS ING OFFICER BUT WAS ACCEPTED BY THE CIT(A). HOWEVER, IN THE SEC OND APPEAL THE HONBLE ITAT VIDE ITS ORDER IN ITA NO. 3444/DEL /2001 DATED 18.01.2008 REVERSED THE DECISION OF THE FCIT (A), TREATING THE RECEIPT AS REVENUE RECEIPT AND TAXABLE UNDER THE INCOME TAX ACT. THE ASSESSING OFFICER, THEREAFTER, LEVIED PENALTY ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 10 U/S 271(1)(C) HOLDING THAT THE ASSESSEE HAD FURNISH ED INACCURATE PARTICULARS OF INCOME. FROM THE ABOVE FACTS, IT IS OBVIOUS THAT IT IS NOT A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. ALL THE FACTS RELATING TO THE RECEIPT HA D BEEN DISCLOSED BY THE APPELLANT IN THE COMPUTATION OF IN COME AS WELL AS IN THE AUDIT REPORT AND BALANCE SHEET FILED WIT H THE RETURN. IT WAS, THEREFORE, ONLY A CASE OF DIFFERENCE OF OPINIO N WHICH RESULTED IN TREATMENT OF THIS RECEIPT AS REVENUE RE CEIPT INSTEAD OF CAPITAL RECEIPT, AS CLAIMED BY THE APPELLANT. IT IS TRUE THAT LEVY OF PENALTY IS A CIVIL LIABILITY. HOWEVER, THE PENALTY FOR CONCEALMENT CANNOT BE LEVIED MERELY ON ACCOUNT OF D IFFERENCE OPINION. AS HELD BY THE APEX COURT, WHERE THE ASSES SEE DOES NOT INCLUDE A PARTICULAR ITEM IN THE TAXABLE INCOME UNDER A BONAFIDE BELIEF THAT HE IS NOT LIABLE SO TO INCLUDE IT, IT WOULD NOT BE RIGHT TO CONDEMN THE RETURN AS A FALSE RETURN, INVITING IMPOSITION OF PENALTY (124 ITR 15). IN THE CASE BEF ORE US, IT IS APPARENT THAT THE APPELLANT HAD DISCLOSED ALL THE F ACTS RELATING TO THE RECEIPT BUT HAD NOT OFFERED IT TO TAX UNDER A B ONA FIDE BELIEF, BASED ON THE OPINION OF TAXATION EXPERTS, THAT IT W AS IN THE NATURE OF CAPITAL RECEIPT. THE MERE FACT THAT THE C LAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER DOES NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING OF IN ACCURATE PARTICULARS OF INCOME. THIS VIEW HAS ALSO BEEN UPHE LD BY THE HIGH COURTS IN THE DECISION REPORTED IN 259 ITR 212 (RAJ.) AND 300 ITR 354 (P&H). SINCE THIS CASE IS NOT CAUGHT BY THE MISCHIEF OF SECITON271(1)(C), THE ISSUE OF MENS REA DOES NOT ARISE AT ALL. THE PENALTY LEVIED BY THE ASSESSING O FFICER, THEREFORE, APPEARS TO BE UNJUSTIFIED AND IS, ACCORD INGLY, CANCELLED. AGGRIEVED, REVENUE IS BEFORE US. 4. LEARNED DR AT THE OUT SET CONTENDS THAT THE ISSU E OF AMOUNT RECEIVED BY THE ASSESSEE FROM DTTI HAS BEEN DECIDED BY THE I TAT AND IT HAS BEEN CLEARLY HELD THAT: ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 11 (I) THE ASSESSEE IS CARRYING ON THE PROFESSION OF ACCO UNTANCY AND ANY RECEIPT FROM THE CARRYING ON OF SUCH PROFESSION WIL L BE A PROFESSIONAL RECEIPT; (II) SERVICES PROVIDED BY THE ASSESSEE TO CLIENTS REFERR ED BY DTII WAS UNDISPUTEDLY THE SOURCE OF INCOME OF THE ASSESSEE A ND MERELY BECAUSE THE ASSESSEE ENTERED INTO AN AGREEMENT WITH DTII, THE COMPENSATION RECEIVED BY THE ASSESSEE AGAINST A POS SIBLE FUTURE STOPPAGE OF INCOME FROM SUCH REFERRED CLIENTS, CANN OT AMOUNT TO CLOSURE OF A SOURCE OF INCOME; (III) THE IMPUGNED RECEIPT OF THE ASSESSEE WAS PATENTLY IN THE COURSE OF CARRYING ON ACCOUNTANCY PROFESSION OF THE ASSESS EE; (IV) THE ASSESSEE HAD NO JUSTIFIABLE REASON TO ASSUME TH AT SUCH RECEIPTS WERE CAPITAL RECEIPTS. THE SO CALLED DISPUTE ABOUT THE NATURE OF RECEIPT IS ONLY FIGMENT OF ASSESSEES IMAGINATION T O EVADE TAX AND WAS INVENTED TO CREATE A SMOKE SCREEN. (V) THE ASSESSEE ITSELF IS AN ACCOUNTING FIRM AND THE D TTI REFERRED CLIENTAGE YIELDED PROFESSIONAL FEE AND IN LIEU OF C OMPENSATION ASSESSEE GAVE UP SUCH FUTURE PROFESSIONAL FEE, THES E CLIENTS IN DUE COURSE WERE REPLACED BY OTHER CLIENTS. MORE SO WHEN THE ASSESSEE EARNED DTTI MEMBERSHIP REPUTATION. (VI) ASSUMING BUT NOT ADMITTING, EVEN IF IT WAS ASSUMED TO BE A CAPITAL RECEIPT, THE SAME SHOULD HAVE BEEN CREDITED THROUGH FIRMS P&L A/C. THE ASSESSEE IN ORDER TO CREATE SHROUD AND MIN IMIZE DISCLOSURE INSTEAD OF CREDITING RECEIPT TO P&L A/C ROUTED IT TO PARTNERS CAPITAL ACCOUNT. IT AMOUNTS TO BREACH OF ACCOUNTING STANDARDS AND PRACTICES. AN ACCOUNTANCY FIRM SHOULD NOT INDULGE IN SUCH TYPE OF TRICKS. THE ASSESSEE HAS FAILED TO DIS CLOSE THIS AMOUNT ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 12 BY WAY OF PROPER ACCOUNTING ENTRIES AND IS THUS LIA BLE FOR FURNISHING OF INACCURATE PARTICULARS QUA THIS INCO ME; (VII) MERELY A NOTE IN BALANCE-SHEET WILL NOT AMOUNT TRU E AND PROPER DISCLOSURE AS THE LAW & ACCOUNTING POLICIES EXPECT THE ASSESSEE TO INCORPORATE THE RECEIPTS IN PROPER AND LEGAL MANNER . (VIII) THE INTERPRETATION OF A PRIVATE AGREEMENT BETWEEN D TTI AND ASSESSEE CANNOT OVER-RIDE THE STATUTORY PROVISIONS SO AS TO GIVE ANY CREDENCE TO ASSESSEES EXPLANATION THAT THERE WAS A NY DOUBT ABOUT THE NATURE OF PAYMENT. AGREEMENT NO WHERE INDICATES IT TO BE CAPITAL PAYMENT. THEREFORE, FACTUALLY DOUBT NEVER EXISTED, IT HAS BEEN CREATED BY THE ASSESSEE TO EVADE THE TAX BY GI VING A FAADE OF ADVISE. (IX) ASSESSEE CLAIMS TO HAVE FOLLOWED THE SO CALLED LEGA L ADVISES WHICH WERE NEVER FURNISHED BEFORE THE AO DURING THE COURS E OF ASSESSMENT PROCEEDINGS. ONLY A GENERALIZE STATEMENT TO THE EFFECT THAT WE WERE ADVISED WAS GIVEN. THE ASSESSEE THUS BEFORE THE ENTIRE LENGTH AND BREADTH OF ASSESSMENT PROCEEDINGS UP TO THE ITAT LEVEL NEVER FURNISHED COPIES OF THE WRITTEN LE GAL OPINIONS OF MR. P.N. PANDEY EX. CHAIRMAN CBDT; MR. G.N. GUPTA, EX. CHAIRMAN CBDT; AND MR. M.S. SYALI, ADVOCATE. THEY W ERE FOR THE FIRST TIME FILED MUCH LATER BEFORE THE CIT(A) I N PENALTY PROCEEDINGS. WHEN ASSESSEE FURNISHES AN EXPLANATIO N BEFORE AO, BURDEN IS ON IT TO FULLY SUBSTANTIATE THE SAME WITH RELEVANT MATERIAL. THE ASSESSEE FOR THE FIRST TIME PRODUCED THESE WRIT TEN OPINIONS BEFORE CIT(A), WHO DELETED THE PENALTY WITHOUT BOTH ERING THAT THE OPINIONS WERE NEW MATERIAL, PRODUCED IN WRITING FOR THE FIRST TIME BEFORE HIM AT A BELATED STAGE. ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 13 (X) ATTENTION WAS INVITED TO WRITTEN SUBMISSIONS FILED BEFORE AO BY THE ASSESSEE, PLACED ON PAPER BOOK (PAGES 18 TO 38) . IN THIS 21 PAGES WRITTEN SUBMISSIONS, THERE IS NOT A WHISPER A BOUT THE LEGAL ADVICE. FURTHER ATTENTION IS INVITED TO ASSESSEES WRITTEN SUBMISSIONS BEFORE CIT(A) IN ASSESSMENT PROCEEDINGS (PAPER BOOK PAGES 39 TO 91). IN THOSE PROCEEDINGS ALSO THERE IS NO REFERENCE TO ANY ALLEGED LEGAL OPINION. IN THE PAPER BOOK FILED BEFORE ITAT IN QUANTUM PROCEEDINGS, THERE IS NEITHER COPY NOR REFE RENCE TO ANY LEGAL OPINION. (XI) IT IS CLEAR THAT THE ISSUE OF LEGAL OPINION WAS RAI SED IN PENALTY PROCEEDINGS FOR THE FIRST TIME THAT TOO ASSESSEE FA ILED TO DISCHARGE ITS BURDEN BY NOT ADDUCING THE OPINIONS BEFORE THE AO. THESE WERE PRODUCED BEFORE THE CIT(A) FOR THE FIRST TIME IN PE NALTY PROCEEDINGS. 4.1. LEARNED DR FURTHER CONTENDS THAT: (A) DTTI AGREEMENT DID NOT CREATE ANY DOUBT, ASSESSEE P AID ADVANCED TAX ON SUCH RECEIPT AND FACTUALLY NEVER IN TENDED TO BELIEVE IN THESE OPINIONS AND NEVER TOOK A PLEA IN THE COURSE OF ASSESSMENT PROCEEDINGS BY FILING COPIES OF THESE L EGAL OPINIONS. (B) FINDING OF THE CIT(A) THAT ASSESSEE HAD A BONA FIDE BELIEF IS BEREFT OF ANY RELIABLE MATERIAL AND ANALYSIS OF FAC TS. THE ASSESSEES BONA FIDE IS QUESTIONABLE AND ITS CONDUC T DOES NOT MATCH WITH THE SITUATION AND THE ATTEMPT AMOUNTS TO UNACCEPTABLE STRATEGY TO PUT BLINKERS IN THE EYES O F LEGAL PROCESS TO WHATEVER EXTENT POSSIBLE. A FIRM OF CHAR TERED ACCOUNTANTS WHICH IS BOUND BY THE ETHICAL CODE OF P ROFESSION OF ACCOUNTANCY AND ALSO INCOME-TAX LAW PRACTICES, S HOULD NOT ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 14 RECOURSE TO SUCH TYPE OF DUBIOUS ACCOUNTING ENTRIES AND MISINTERPRET FACTS WHICH TEND TO SUBVERT THE PROP ER TAX ASSESSMENT. SUCH ATTEMPT NEEDS TO BE PENALIZE IN AC CORDANCE WITH LAW, WHICH HAS BEEN DULY EXERCISED BY THE AO. CIT(A) HAS GIVEN RELIEF ONLY ON SUBJECTIVE TERMS WITHOUT A PPRECIATING THE RELEVANT AND CRUCIAL FACTS. LEARNED DR RELIED O N FOLLOWING JUDGMENTS: (1) DILIP N. SHROFF 291 ITR 519 SC THE WORD INACCURATE SIGNIFIES A DELIBERATE ACT O R OMISSION ON THE PART OF THE ASSESSEE. SUCH DELIBERATE ACT MUST BE EITHER FOR THE PURPOSE OF CONCEALMENT OF INCOME OR FURNISHING INAC CURATE PARTICULARS. THE TERM INACCURATE PARTICULARS IS N OT DEFINED. FURNISHING OF AN ASSESSMENT OF THE VALUE OF PROPERT Y MAY NOT BY ITSELF BE FURNISHING INACCURATE PARTICULARS. EVEN I F THE EXPLANATIONS ARE TAKEN RECOURSE TO, A FINDING HAS T O BE ARRIVED AT HAVING REGARD TO CLAUSE (A) OF EXPLANATION THAT THE ASSESSING OFFICER IS REQUIRED TO ARRIVE AT A FINDING THAT THE EXPLANATION OFFERED BY THE ASSESSEE, IN THE EVENT HE OFFERS ONE , WAS FALSE. HE MUST BE FOUND TO HAVE FAILED TO PROVE THAT SUCH EXP LANATION IS NOT ONLY NOT BONA FIDE BUT ALL THE FACTS RELATING T O 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 BEEN FOUND AS A FACT THAT HE HAS NOT DISCLOSED ALL THE F ACTS, WHICH WERE MATERIAL TO THE COMPUTATION OF HIS INCOME. THE EXPL ANATION MUST BE PRECEDED BY A FINDING AS TO HOW AND IN WHAT MANN ER HE FURNISHED THE PARTICULARS OF HIS INCOME. IT IS BEYO ND ANY DOUBT OR DISPUTE THAT FOR THE SAID PURPOSE THE ASSESSING OFF ICER MUST ARRIVE AT A SATISFACTION IN THIS BEHALF. CIT V. RAM COMMERCIAL ENTERPRISES LTD. [2000] 246 I TR 568 (DELHI) AND DIWAN ENTERPRISES V. CIT [2000] 246 ITR 571 (DELHI) FOLLOWED. THE PRIMARY BURDEN OF PROOF IS ON THE REVENUE. THE STATUTE REQUIRES A SATISFACTION ON THE PART OF THE ASSESSIN G OFFICER: 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. ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 15 D.M. MANASVI V. CIT [1972] 86 ITR 557 (SC); [1973] 3 SCC 207 RELIED ON. WHILE CONSIDERING WHETHER THE ASSESSEE HAS BEEN ABL E TO DISCHARGE HIS BURDEN THE ASSESSING OFFICER SHOULD N OT BEGIN WITH THE PRESUMPTION THAT HE IS GUILTY. THE ORDER IMPOSING PENALTY IS QUASI-CRIMINAL IN NAT URE AND THE BURDEN LIES UPON THE DEPARTMENT TO ESTABLISH THAT T HE ASSESSEE HAD CONCEALED HIS INCOME. SINE BURDEN OF PROOF IN P ENALTY PROCEEDINGS VARIES FROM THAT IN THE ASSESSMENT PROC EEDINGS, A FINDING IN THE ASSESSMENT PROCEEDINGS THAT A PARTIC ULAR RECEIPT IS INCOME CANNOT AUTOMATICALLY BE ADOPTED, THOUGH A FI NDING IN THE ASSESSMENT PROCEEDINGS CONSTITUTES GOOD EVIDENCE I N THE PENALTY PROCEEDINGS. IN THE PENALTY PROCEEDINGS THE AUTHORI TIES MUST CONSIDER THE MATTER AFRESH AS THE QUESTION HAS TO B E CONSIDERED FROM A DIFFERENT ANGLE. (II) DHARAMENDRA TEXTILES 295 ITR 244(SC DB) 8. WE ARE OF THE VIEW THAT THERE IS A CONFLICT OF OPIN IONS BETWEEN THE JUDGMENTS OF THE DIVISION BENCH OF THIS COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) ON ONE HAND AND ON THE OTHER HAND WE HAVE ANOTHER JUDGMENT OF THIS COURT I N THE CASE OF SHRIRAM MUTUAL FUND (SUPRA) . SECONDLY, IT MAY BE POINTED OUT THAT THE OBJECT BEHIND ENACTMENT OF SEC TION 271 (1)( C) READ WITH THE E XPLANATIONS QUOTED ABOVE INDICATES THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE. THE PENALTY UNDER THE SAID SECTION IS A CIVIL LIABILITY. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING THE CIVIL CONCEALMENT, THAT WOULD BE SUFFICIENT TO SUSTAIN THE PENALTY. KEEPING IN MIND THESE TWO CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE JUDGMENT OF THE DIVISION BENCH IN THE CASE OF DILIP N SHROFF (SUPRA) NEEDS CONSIDERATION. THE EXPLANATIONS ADDED TO SECTION 271(1)(C) IN THAT ENTIRETY ALSO INDICATE THE ELEMENT OF STRICT L IABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE P ARTICULARS WHILE FILING RETURNS. THE JUDGMENT IN DILIP N SHROFF'S CASE (SUPRA) HAS ALSO NOT CONSIDERED THE PROVISIONS OF SECTION 276C OF THE INCOME-TAX ACT. THEREFORE, IN OUR VIEW, THE JUDGMENT IN THE CASE OF DILIP N SHROFF (SUPRA) NEEDS CONSIDERATION BY THE LARGER BENCH OF THIS COURT PAR TICULARLY WHEN IT HAS RAMIFICATIONS NOT ONLY REGARDING PROVIS IONS OF ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 16 THE INCOME-TAX ACT BUT ALSO WITH REGARD TO THE PROV ISIONS OF SECTIONS 3A AND LLAC OF THE CENTRAL EXCISE ACT AND RULE 6ZQ(S) OF THE CENTRAL EXCISE RULES. 9. FOR THE AFORE STATED REASONS, WE DIRECT THE REGI STRY TO PLACE OUR ORDER IN THIS BATCH OF CIVIL APPEALS BEFO RE THE HON'BLE CHIEF JUSTICE OF INDIA FOR APPROPRIATE DIRE CTIONS. (III) DHARMENDRA TEXTILES 306 ITR 277 (THREE JUDGE) IT IS OF SIGNIFICANCE TO NOTE THAT THE CONCEPTUAL A ND CONTEXTUAL DIFFERENCE BETWEEN SECTION 271(1)(C) AND SECTION 276C OF THE INCOME-TAX ACT WAS LOST SIGHT OF IN DILIP N SHROFF'S CASE (SUPRA) . THE EXPLANATIONS APPENDED TO SECTION 272(1)(C) OF THE INCOME-TAX ACT ENTIRELY INDICATES THE ELEMENT OF ST RICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GI VING INACCURATE PARTICULARS WHILE FILING RETURN. THE JUD GMENT IN DILIP N SHROFF'S CASE (SUPRA) HAS NOT CONSIDERED THE EFFECT AND RELEVANCE OF SECTION 276C OF THE INCOME-TAX ACT. OB JECT BEHIND ENACTMENT OF SECTION 271(1)(E) READ WITH EXPLANATIONS INDICATE THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE. THE PENALTY UNDER THA T PROVISION IS A CIVIL LIABILITY. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS IS THE CASE IN THE MATTER OF PROSECUTION UNDER SECTION 276C OF THE INCOME-TAX ACT. (IV) CIT V RELIANCE PETRO PRODUCTS 322 ITR 158 SC A GLANCE OF PROVISION OF SECTION 271(J)(C) WOULD S UGGEST 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 I NCOME. THE INSTANT CASE WAS NOT THE CASE OF CONCEALMENT OF THE INCOME. THAT WAS NOT THE CASE OF THE REVENUE EITHER. IT WAS AN ADMITTED POSITION IN THE INSTANT CASE THAT NO INFORMATION GI VEN IN THE RETURN WAS FOUND TO BE INCORRECT OR INACCURATE. IT WAS NOT AS IF ANY STATEMENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUALLY INCORRECT. HENCE, AT LEAST, PRIMA FACIE, THE ASSESSEE COULD NOT BE HELD GUILTY OF FURNISHING INACCURATE P ARTICULARS. ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 17 THE REVENUE ARGUED THAT SUBMITTING AN INCORRECT CLA IM IN LAW FOR THE EXPENDITURE ON INTEREST WOULD AMOUNT TO GIV ING INACCURATE PARTICULARS OF SUCH INCOME. SUCH CANNOT BE THE INTERPRETATION OF THE CONCERNED WORDS. THE WORDS AR E PLAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE TO THE PENA LTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENA LTY PROVISION CANNOT BE INVOKED BY ANY STRETCH OF IMAGINATION, MA KING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISH ING OF INACCURATE PARTICULARS. [PARA 7] THEREFORE, IT MUST BE SHOWN THAT THE CONDITIONS UND ER SECTION 271(J)(C) EXIST BEFORE THE PENALTY IS IMPOSED THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETUR N FILED, BECAUSE THAT IS THE ONLY DOCUMENT, WHERE THE ASSESS EE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PA RTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. [PARA 8] THE WORD 'PARTICULARS' MUST MEAN THE DETAILS SUPPLI ED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORREC T, NOT ACCORDING TO TRUTH OR ERRONEOUS. IN THE INSTANT CAS E, THERE WAS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE I N ITS RETURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. S UCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVITING TH E PENALTY UNDER SECTION 271(J)(C). A MERE MAKING OF THE CLAIM , WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. [PARA 9] THE REVENUE CONTENDED THAT SINCE THE ASSESSEE HAD C LAIMED EXCESSIVE DEDUCTIONS KNOWING THAT THEY WERE INCORRE CT, IT AMOUNTED TO CONCEALMENT OF INCOME. IT WAS ARGUED TH AT THE FALSEHOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FO RMS: (I) AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AM OUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXAB LE INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF ONE S INCOME AS WELL AS FURNISHING OF INACCURATE PARTICUL ARS OF INCOME. SUCH CONTENTION COULD NOT BE ACCEPTED AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPEN DITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELV ES, WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE C ONCEALMENT ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 18 OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECAUSE THE ASSE SSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPT ED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT, BY ITSELF, WOU LD NOT ATTRACT THE PENALTY UNDER SECTION 271 (L)(C). IF THE CONTENTION OF THE REVENUE WAS ACCEPTED, THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE WAS NOT ACCEPTED BY THE ASSESSING OFFICE R FOR ANY REASON, THE ASSESSEE WOULD INVITE PENALTY UNDER SEC TION 271 (L)(C). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATU RE. [PARA 10 ] THEREFORE, THE APPEAL FILED BY THE REVENUE HAD NO M ERITS AND WAS TO BE DISMISSED. 4.2. SHRI K.C. SINGHAL, ADVOCATE, LEARNED COUNSEL F OR THE ASSESSEE, WHO APPEARED INITIALLY, REITERATED THE FACTS AND SUBMI SSIONS ARGUED BEFORE AO AND CONTENDED THAT THE ASSESSEE HAD DISCLOSED SUFFI CIENT DETAILS ABOUT ITS BELIEF THAT THE INCOME IN QUESTION WAS A CAPITAL RE CEIPT BY FOLLOWING NOTES IN COMPUTATION: NOTE: DURING THE YEAR THE FIRM RECEIVED US DOLLARS 3,25,000 (RS. 1,15,70,000/-) AS COMPENSATION ON WITHDRAWAL F ROM THE INTERNATIONAL ACCOUNTING FIRM DELOITTE TOUCHE TOHMA TSU INTERNATIONAL. THE FIRM HAS BEEN ADVISED THIS RECEI PT CONSTITUTE A CAPITAL RECEIPT AND HENCE NOT LIABLE TO INCOME TAX. BALANCE-SHEET: NOTE ON WITHDRAWAL FROM DELOITTE TOUCHE TOHMATSU INTERNATIONAL AS A MEMBER FIRM, THE FIRM RECEIVED A COMPENSATION OF RS. 1,15,70,000/-. THE FIRM HAS BEE N LEGALLY ADVISED THAT THE AMOUNT BEING IN THE NATURE OF CAPI TAL RECEIPT, IT IS NOT LIABLE TO TAX. AFTER TRANSFERRING RS. 23,14, 000/- TO RESERVE FOR PROFESSIONAL RISKS, THE BALANCE AMOUN T HAS BEEN CREDITED TO THE PARTNERS ACCOUNTS IN THE AGREED RA TIO. 4.3. THE ASSESSEE MADE A LEGAL CLAIM AND MERELY BEC AUSE THE CLAIM HAS BEEN REJECTED, IT CANNOT LEAD TO LEVY OF PENALTY U/ S 271(1)(C). RELIANCE IS PLACED ON FOLLOWING JUDGMENTS: ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 19 - CIT VS. RELIANCE PETROPRODUCTS 322 ITR 158 (SC); - SHREE KRISHNA ELECTRICAL V STATE OF T.N. 23 VST 249 SC - CIT V. NATH BROS EXIM INTERNATIONAL 288 ITR 670 (DE L.) - CIT V. AURIC INVESTMENT & SECURITIES 310 ITR 121 (D EL.); - CIT V. HARI MACHINES 311 ITR 285 (DEL.); - CIT V. BUDHEWAL CO-OP SUGAR MILLS 312 ITR 92 (P&H) - KANBAY SOFWARE INDIA V. DCIT 122 TTJ 72 (PUNE); - RUPAM MERCANTILES V. DCIT 91 ITD 237 (AHD) (T.M) - NAVBHARAT ENTERPRISES V. ACIT 309 ITR (AT) 79 (AHD) - ACIT V. U.P. HOTELS 83 ITD 443 (ALL); - EQUEST INDIA (P) LTD. V. ITO 41 SOT 225 (MUM.); 4.4. LEARNED COUNSEL CONTENDS THAT THE ASSESSEE FOL LOWED THE LEGAL ADVICE GIVEN BY THE TAXATION EXPERTS SHRI T.N. PANDY; SHRI G.N. GUPTA AND SHRI M.S. SYALI. IF THE ASSESSEE FOLLOWS THE LEGAL ADVIC ES, THEN PENALTY CANNOT BE IMPOSED IF THE CLAIM IS REJECTED. RELIANCE IS PLACE D ON FOLLOWING DECISIONS: - T. ASHOK PAI V. CIT 292 ITR 11 (SC); - DCIT V. VERTEX CUSTOMER SERVICES 126 TTJ 184 (DEL.) ; - CIT V. S. DHANBAL 309 ITR 268 (DEL). 4.5. THE ISSUE IN QUESTION WAS CLEARLY A DEBATABLE MATTER AND TWO VIEWS WERE SQUARELY POSSIBLE ON THAT ISSUE. THE COMPENSAT ION WAS GIVEN BY DTTI BINDING THE ASSESSEE NOT TO GIVE PROFESSIONAL SERVI CES TO THE CLIENTS WHICH WERE REFERRED BY HIM. DTTI CONSTITUTES A DISTINCT S TREAM/ SOURCE OF A PARTICULAR NATURE; CLOSURE THEREOF AMOUNT TO THE EN D OF A SOURCE. SINCE THE RECEIPT WAS FOR CLOSURE OF A PROFESSIONAL SOURCE, T HERE EXISTED A GENUINE DEBATE ABOUT THE RECEIPT BEING CAPITAL IN NATURE. T HE ASSESSEE ADOPTED ONE OF THE POSSIBLE VIEWS WHICH WAS PLACED ON SOUND LEGAL OPINIONS, THEREFORE, THE PENALTY CANNOT BE IMPOSED. RELIANCE IS PLACED ON FO LLOWING JUDGMENTS: ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 20 - CIT V. HARSHWARDHAN CHEMICALS 133 TAXMAN 320 (RAJ.) ; - SOUTHERN GAS FITTINGS V. DCIT 80 ITD 202 (CHENNAI); - CIT V. REGENCY EXPRESS BUILDERS 166 TAXMAN 269 (DEL ) - DCIT V. PRABHA DEVI 34 SOT 125 (BANG.). 4.6. LEARNED COUNSEL CONTENDS THAT CONCLUSIVE DETER MINATION OF A CAPITAL OR REVENUE RECEIPT IS A COMPLEX ISSUE AND THERE ARE NO SPECIFIC TEST LAID DOWN TO DECIDE THE NATURE AND EACH CASE HAS TO BE DECIDED O N ITS OWN FACTS AS HELD BY HONBLE SUPREME COURT IN FOLLOWING JUDGMENTS: - CIT V. RAI BAHADUR JAIRAM VELJI 35 ITR 148 SC - KETTLEWELL BULLEN AND CO. V. CIT 53 ITR 261 (SC) - CIT V. SAURASHTRA CEMENTS 325 ITR 422 (SC). 4.7. THEIR LORDSHIPS OF THE HONBLE SUPREME COURT, THE CASE OF RAI BAHADUR JAIRAM VELJI (SUPRA), OBSERVED AS UNDER: THE QUESTION WHETHER A RECEIPT IS CAPITAL OR INCOM E HAS FREQUENTLY COME UP FOR DETERMINATION BEFORE THE COU RTS. VARIOUS RULES HAVE BEEN ENUNCIATED AS FURNISHING A KEY TO T HE SOLUTION OF THE QUESTION, BUT AS OFTEN OBSERVED BY THE HIGHEST AUTHORITIES, IT IS NOT POSSIBLE TO LAY DOWN ANY SINGLE TEST AS INFALLI BLE OR ANY SINGLE CRITERION AS DECISIVE IN THE DETERMINATION OF THE Q UESTION, WHICH MUST ULTIMATELY DEPEND ON THE FACTS OF THE PARTICUL AR CASE, AND THE AUTHORITIES BEARING ON THE QUESTION ARE VALUABLE ON LY AS INDICATING THE MATTERS THAT HAVE TO BE TAKEN INTO ACCOUNT IN R EACHING A DECISION. 4.8. IT IS PLEADED THAT THE HONBLE SUPREME COURT I N THE CASE OF RELIANCE PETROPRODUCTS (SUPRA), HAS HELD THAT IF THE ASSESSE E HAS GIVEN THE PARTICULARS IN THE RETURN OF INCOME THEN TAKING A DIFFERENT VI EW BY AO DID NOT CONSTITUTE FURNISHING OF INACCURATE PARTICULARS. MERE MAKING O F CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF WILL NOT AMOUNT TO FU RNISHING OF INACCURATE PARTICULARS AND IT WAS UP TO THE AO TO ACCEPT OR RE JECT THE CLAIM. MERELY ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 21 BECAUSE THE ASSESSEE HAS MADE A PARTICULAR CLAIM AN D THE SAME IS NOT ACCEPTED, WILL NOT MAKE IT LIABLE FOR IMPOSITION OF PENALTY. 4.9. LEARNED COUNSEL FURTHER CONTENDS THAT MERELY B ECAUSE ADVANCE TAX, WILL NOT LEAD TO A CONCLUSION THAT THE ASSESSEE HAD FORMED AN OPINION THAT THE RECEIPT IN QUESTION WAS REVENUE IN NATURE. THE ADVA NCE TAX WAS PAID TO AVOID LEVY OF CONSEQUENTIAL INTEREST. THE SAME CANNOT BE HELD TO BE ADMISSION ON THE PART OF THE ASSESSEE THAT THE IMPUGNED INCOME W AS REVENUE IN NATURE. THE ASSESSEE HAS A RIGHT TO SEEK LEGAL OPINION AND FURNISH RETURN OF INCOME ACCORDING TO THE LEGAL ADVICE, MAKING A CLAIM WHICH IT HAD NO OTHER WAY TO MAKE EXCEPT BY FILING A RETURN OF INCOME. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IT IS IMPERATIVE TO CONSIDER T HE NATURE OF PENALTY PROCEEDINGS AND THE CASE LAW IN THAT BEHALF. HONBL E SUPREME COURT IN THE CASE OF DILIP N. SHROF (SUPRA) HAS HELD THAT CONCE ALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS ARE DIFFERENT AND REFER TO DELIBERATE ACT OF THE ASSESSEE AND THE REVENUE MUST ESTABLISH THE EXI STENCE OF MENS REA. LATER ON, DIVISION BENCH OF THE HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILES (SUPRA) HAD OCCASION TO CONSIDE R THIS JUDGMENT AND HELD THAT THE PENALTY LEVIED U/S 271(1)(C) WAS NOT QUASI CRIMINAL IN NATURE, BUT WAS A CIVIL LIABILITY. HOWEVER, THE BENCH REFE RRED ITS JUDGMENT FOR DECISION BY A LARGER BENCH OF THE SUPREME COURT. TH E THREE JUDGE BENCH IN THE CASE OF DHARMENDRA TEXTILES 306 ITR 277 (SUPRA) , HELD THAT THE EXPLANATION APPENDED TO SEC. 271(1)(C)ENTIRELY INDI CATES THE ATTRIBUTION OF ELEMENTS OF STRICT LIABILITY ON THE ASSESSEE VIS A VIS CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS WHILE FILING T HE RETURN. THUS, THE SETTLED PREPOSITION AS LAID DOWN BY THE THREE JUDGE BENCH OF THE HONBLE SUPREME COURT, UNEQUIVOCALLY HOLDS THE ACT OF FURNISHING OF INACCURATE PARTICULARS IN ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 22 THE RETURN OF INCOME, AS A CIVIL LIABILITY, ALBEIT STRICT CIVIL LIABILITY. THIS BEING THE PROPOSITION LAID DOWN BY HONBLE SUPREME COURT, THE FACTS OF THE ASSESSEES CASE ARE TO BE VIEWED AS TO WHETHER PART ICULARS IN THIS CASE WERE FURNISHED ACCURATELY AND IF SO WHETHER IT AMOUNTS T O PENALTY AS ENVISAGED BY THESE CASE LAWS. 5.1. ADVERTING TO THE FACTS OF THE CASE, THE ASSESS EE IS IN THE PROFESSION OF CHARTERED ACCOUNTANCY AND DURING THE COURSE THEREOF , IT HAS TO BE ASSOCIATED WITH VARIOUS MODALITIES FOR RENDERING DESIRED PROFE SSIONAL SERVICES TO GOVERNMENT AGENCIES, BANKS, FINANCIAL INSTITUTIONS, COMPANIES AND VARIOUS OTHER ENTITIES BY DIFFERENT PROFIT EARNING ARRANGEM ENTS. IN THIS CASE, AS A PART OF ITS PROFESSION, IT ENTERED INTO A PARTNERSHIP WI TH DTTI, A NON-RESIDENT PROFESSIONAL UNDERTAKING, FOR THE FURTHERANCE OF IT S PROFESSIONAL PURSUIT. THE DTTI GAVE CHOICE TO ASSESSEE EITHER TO CONTINUE WIT H IT OR DISCONTINUE WITH A COMPENSATION. ASSESSEE THOUGHT, IN ITS PROFESSIONAL WISDOM, CHOSE TO REMAIN AN INDEPENDENT PLAYER INSTEAD OF AN ASSOCIAT E, SO IT PREFERRED TO DISASSOCIATE FROM DTTI. IF IT HAD CONTINUED, THE EA RNING WOULD HAVE BEEN PROFESSIONAL RECEIPT AND THE ALTERNATE RECEIPT ALSO TAKES SAME ANALOGY AND HAS NO TRAPPING OF HAVING ANY DOUBT ABOUT ITS BEING A P URELY PROFESSIONAL RECEIPT OR THE REVENUE RECEIPT. THE ASSESSEE IS A FIRM OF CHARTERED ACCOUNTANTS AND IT IS NOT UNDERSTANDABLE THAT FOR SUCH AN ISSUE ABO UT A CLEARLY PROFESSIONAL RECEIPT, WHICH IS VERY BASIC IN CHARACTER, ASSESSEE HAD ANY DOUBT ABOUT ITS NATURE. IF IT IS SO, WE ARE UNABLE TO UNDERSTAND HO W THE ASSESSEE CAN DISCHARGE ITS ROLE AS A PROFESSIONAL CONSULTANT, AU DITING NUMBER OF CLIENTS, GIVING THEM VALUABLE ADVICES ON THE ACCOUNTING AND TAXATION ASPECTS. IT IS UNIMAGINABLE THAT A PROFESSIONAL FIRM LIKE THE ASSE SSEE, WILL TEND TO HAVE ANY DOUBT ON SUCH A SIMPLE PROPOSITION OF PROFESSIONA L RECEIPT. THERE IS NO WHISPER IN THE AGREEMENT BETWEEN DTTI AND THE ASSES SEE WHICH CREATES ANY DOUBT AT ALL. IN OUR VIEW, THE ISSUE NEVER CALLED F OR ANY DOUBT OR AMBIGUITY, ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 23 THE SAME HAS BEEN CREATED BY ASSESSEE AND NOT BY T HE LAW. ASSESSEE HAS VENTURED INTO AN ADVENTURE WHICH WAS FRAUGHT WITH O BVIOUS RISKS WHICH IT HAS PREFERRED TO TAKE. THE ASSESSEE HAS PLEADED THA T PAYMENT OF ADVANCE TAX DOES NOT AMOUNT TO ADMISSION AND THE ASSESSEE IS FR EE TO CHANGE ITS STAND. IN OUR VIEW, ADVANCE TAX PAYMENT MAY NOT BE CONCLUSIVE , BUT IT IS AN INDICATION TO THE MIND SET OF THE ASSESSEE. WHILE CONSTRUING STRICT CIVIL LIABILITY, IT BECOMES IMPERATIVE TO CORRELATE ASSESSEES VARIOUS ACTIVITIES AND EXPLANATIONS. 5.2. EXPLANATION TO SEC. 271(1)(C) IS ATTRACTED W HERE AN ASSESSEE FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHIC H IS FALSE OR, AFTER SEPTEMBER 10, 1986, WHERE AN EXPLANATION IS OFFERED BUT THE ASSESSEE IT IS NOT ABLE TO SUBSTANTIATE SUCH EXPLANATION AND IS NO T ABLE TO PROVE THAT EXPLANATION IS BONA FIDE. BONA FIDE EXPLANATION IS ONE WHICH IS NOT MALA FIDE, CONSEQUENTLY ASSESSEES MIND SET BECOMES A M ATTER OF INFERENCE. WHILE INFERRING SOMETHING, THE FACTS ARE TO BE HOLISTICAL LY SEEN AND THE DISCRETION IS TO BE ACCORDINGLY EXERCISED. WE HAVE TO PROCEED WIT H THE MANDATE OF HONBLE SUPREME COURT THAT THERE IS NO OBLIGATION O N REVENUE TO ESTABLISH MENS REA IN TERMS OR AKIN TO SECTION 276C FOR PROSE CUTION. NOW THE ISSUE SHIFTS TO WHETHER THE ASSESSEES EXPLANATION IS BONA FIDE AND WHETHER THE EXPLANATION GIVEN IS PROPERLY SUBSTANTIATED BY ASS ESSEE OR NOT. 5.3. THE DEFENCE OF THE ASSESSEE IS THAT IT HAD MAD E ABOVE DISCLOSURE IN THE COMPUTATION OF INCOME WHICH IS ACCOMPANIED TO THE R ETURN OF INCOME AND THE AUDITORS HAD GIVEN ABOVE QUANTIFICATION IN THE BALANCE-SHEET. THE DISCLOSURE WAS MADE ON THE BASIS OF OPINION SOUGHT FROM THE ABOVE THREE GENTLEMEN WHO ARE TERMED BY THE ASSESSEE TO BE EXP ERTS IN THE FIELD OF TAXATION TWO BEING RETIRED CHAIRMAN OF CBDT AND O NE BEING A PROMINENT LAWYER. ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 24 5.4. COMING TO THE DEFENCE OF THE ASSESSEE, WE HAVE ALREADY HELD THAT THE NATURE OF RECEIPT ITSELF WAS DECISIVE OF THE FACT T HAT ASSESSEE, A PROMINENT CHARTERED ACCOUNTANTS FIRM, RENDERING PROFESSIONAL SERVICES BY VARIOUS ARGUMENTS AND ITS ASSOCIATION WITH WORLD FAMOUS DTT I WAS IN FURTHERANCE OF PROFESSION AND EARNED A LUMP SUMP PROFESSIONAL COMP ENSATION BY CHOOSING ONE OUT OF TWO OPTIONS. 5.5. THE ASSESSEE FIRM CAN HARBOUR ANY NUMBER OF DO UBTS, HOWEVER, THE LAW POSTULATES THAT THE ASSESSEE SHOULD FILE A RETU RN WHICH IS CORRECT, COMPLETE AND TRUTHFUL. THE LAW OF INCOME-TAX PRESCR IBES ALLOWABILITY OF VARIOUS KINDS OF INCOMES AND EXPENSES AND IN RESPEC T OF PROFESSIONAL INCOME MANDATE IS CLEAR. THE NEED OF PROPER VERIFICATION C LEARLY INDICATES THAT LAW WANTS THE ASSESSEE TO BE VERY VIGILANT WHILE MAKING A CLAIM AND NOT TO MAKE A CLAIM WHICH IS NOT IN ACCORDANCE WITH LAW. IF THE RECEIPT IS PRIMA FACIE REVENUE IN NATURE, THERE IS NO GAINSAYING THAT ASSE SSEE HARBOURED DOUBT IN RESPECT OF EARNING FRUITS OF THE TREE THOUGH NOT F ROM SAME BRANCH OF THE TREE. 5.6. LEARNED DR HAS POINTED OUT THAT THOUGH THE ASS ESSEE IS TRYING TO SHIELD ITSELF BEHIND THE LEGAL OPINIONS, THE GLARIN G FACTS ARE TILL THE ITAT LEVEL IN QUANTUM PROCEEDINGS I.E. BEFORE AO, IN FIR ST APPEAL AND IN SECOND APPEAL, THE ASSESSEE HAS NOT REVEALED THE CONTENTS OF THESE LEGAL OPINIONS. IN PENALTY PROCEEDING ALSO BEFORE AO THE SAME WERE NOT PRODUCED. 5.7. IN OUR VIEW, HERE ARISES THE QUESTION ABOUT TH E ASSESSEES EXPLANATION, ABOUT ASSESSEES BONA FIDES AND ABILITY TO SUBSTANT IATE ITS EXPLANATION. THE FACT THAT DURING THE ENTIRE LENGTH AND BREADTH OF ASSESSMENT PROCEEDINGS CONTENTS OF NONE OF THE LEGAL OPINIONS WERE FURNISH ED INDICATES THAT THE ASSESSEE REALIZED THE INEFFECTIVENESS OF THESE OPIN IONS AND STILL VENTURED INTO MAKING A CLAIM WHICH WAS BASICALLY NOT ALLOWAB LE. OUR VIEW IS FURTHER STRENGTHENED BY THE FACT THAT IN PENALTY PROCEEDING S BEFORE THE AO NONE OF THESE LEGAL OPINIONS WERE FURNISHED AND ONLY BEFORE CIT(A) THEY WERE FILED ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 25 WHICH IS EVIDENT FROM THE PAPER BOOK FILED BY THE A SSESSEE ON THE QUERY FROM THE BENCH, WHICH IS NOT DISPUTED BY THE ASSESSEE. L D. CIT(A) ALSO HAS NOT ADVERTED TO ANY LEGAL OPINION AND HAS FAILED TO APP RECIATE THAT THEY WERE BEING PRODUCED BEFORE HIM FOR THE FIRST TIME. 5.8. UNDER THESE CIRCUMSTANCES, WE ARE UNABLE TO AG REE WITH THE ASSESSEE THAT THE IMPUGNED PROFESSIONAL RECEIPT CREATED ANY DEBATE ABOUT ITS NATURE AS THE RECEIPT WAS PATENTLY A REVENUE RECEIPT. FROM AB OVE IT IS CLEAR THAT THE ASSESSEE FIRM HAS ATTEMPTED TO EVADE TAX ON A PUREL Y PROFESSIONAL RECEIPT BY PROPPING UP THEORY OF DOUBT AS A CAPITAL RECEIPT. BESIDES, IN THE CASE OF A PARTNERSHIP FIRM, RECEIPT WHETHER CAPITAL OR REVENU E ARE TO BE CREDITED TO P&L A/C. THE ASSESSEE IN ORDER TO MINIMIZE DISCLOSU RE, HAS TAKEN A SMART ROUTE OF DIRECTLY CREDITING THE ABOVE RECEIPT IN TH E CAPITAL ACCOUNTS OF PARTNERS. THE STRATEGY SAVED THE FIRM FROM TAXATIO N AND THE PARTNERS TOOK PLEA THAT THIS WAS A CAPITAL RECEIPT IN THE HANDS O F THE FIRM AND NOT TAXABLE IN THEIR HANDS, RESULT - THE INDIAN REVENUE LOOSES DU E TAX IN THE HANDS OF THE FIRM AS WELL AS PARTNERS. IN THESE FACTS AND CIRCUM STANCES WE ARE UNABLE TO ACCEDE TO ASSESSEES PLEA THAT ANY DOUBT COULD BE E NTERTAINED ABOUT THE ASSESSEES PROFESSIONAL REVENUE RECEIPT OR ASSESSEE S EXPLANATION WAS BONA FIDE AS IT, APART FROM OTHER FACTS, FAILED TO CONT EST THE PARTICULAR LEGAL OPINIONS BEFORE LOWER AUTHORITIES. 5.9. COMING TO THE ASSESSEES PLEA THAT A SUBSTANTI AL QUESTION OF LAW HAS BEEN ADMITTED BY THE HONBLE DELHI HIGH COURT ON AS SESSEES QUANTUM APPEAL, THEREFORE, THE QUESTION OF LEVY OF PENALTY U/S 271(1)(C) DOES NOT ARISE. RELIANCE HAS BEEN PLACED ON AHMEDABAD BENCH THIRD MEMBER DECISION IN THE CASE OF RUPAM MERCANTILES (SUPRA), IN OUR VIEW THE RATIO OF THIS JUDGMENT IS NOT APPLICABLE TO THE ASSESSEES CASE A S I. THIS DOES NOT LAY A GENERAL PROPOSITION OF LAW AND THIS CALL IS TO BE TAKEN IN THE FACTUAL PECULIARITIES OF A CASE. ITA 1395/DEL/2009 ACIT VS. M/S KHANNA & ANNADHANAM 26 II. IN ASSESSEES CASE LEGAL OPINIONS HAVE BEEN RELIED ON IN PENALTY PROCEEDING, WHICH WERE NOT PRODUCED BEFORE ANY AUTH ORITY IN QUANTUM PROCEEDINGS. THUS, THERE BEING A MATERIAL D EVELOPMENT IN PENALTY PROCEEDINGS THE PLEA CANNOT BE ENTERTAINED. 5.10. IN VIEW OF THE FOREGOINGS, WE HAVE NO HESITAT ION TO HOLD THAT AO WAS RIGHT IN IMPOSING THE PENALTY LEVIED ON THE ASSESSE E U/S 271(1)(C) OF THE ACT. THE ORDER OF CIT(A) IS REVERSED AND THAT OF AO IMPO SING THE PENALTY IN QUESTION IS RESTORED. 6. IN THE RESULT, REVENUES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 22- 07,2011. SD/- SD/- (B.C. MEENA ) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22- 07, 2011. MP COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR