Sh. Jaskaran Singh, Chandigarh V. ITO, Chandigarh

ITA 18/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6931 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 27-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Bonafide belief; Earning of tax free income; Deemed dividend

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.18 & 19/CHD/2017 ASSESSMENT YEAR: 2009-10 & 2010-11 SH. JASKARAN SINGH VS. THE ITO H.NO. 114, SECTOR-8 WARD1(3), CHANDIGARH CHANDIGARH PAN NO. AXTPS3137L (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARIKSHIT AGGARWAL RESPONDENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 30.05.2017 DATE OF PRONOUNCEMENT : 28.08.2017 O R D E R PER ANNAPURNA GUPTA A.M. BOTH THESE APPEALS HAVE BEEN FILED BY THE SAME ASSESSEE AGAINST SEPARATE ORDERS OF THE LD. CIT(APP EALS)-1, CHANDIGARH BOTH DATED 06.10.2016 RELATING TO ASSESS MENT YEARS 2009-10 AND 2010-11 RESPECTIVELY, CONFIRMING THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE INCO ME TAX ACT, 1961 (IN SHORT THE ACT). 2. IT WAS COMMON GROUND BETWEEN BOTH THE PARTIES TH AT THE FACTS AND CIRCUMSTANCES LEADING TO LEVY OF PENA LTY IN BOTH THE CASES WERE IDENTICAL, BEING PENALTY LEVIED ON ACCOUNT OF ADDITION MADE OF DEEMED DIVIDEND AS PER SECTION 2(22)(E) OF THE INCOME TAX ACT,1961. THEREFORE, BOT H THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. FOR THE SAKE OF CONVENIENCE WE SHALL BE DEALING WITH THE FACTS IN THE CASE OF ITA NO.18/CHD /2017 RELATING TO ASSESSMENT YEAR 2009-10. 2 ITA NO.18/CHD/2017: 3. BRIEFLY STATED, THE ASSESSEE DURING THE IMPUGNED YEAR HAD RECEIVED ADVANCES AMOUNTING TO RS.12,87,115/- F ROM M/S EMDIS HEALTHCARE PVT. LTD. ,A COMPANY IN WHICH HE HAD A SHAREHOLDING OF 49.95%. ON BEING CONFRONTED DURI NG ASSESSMENT PROCEEDINGS AS TO WHY THE SAID AMOUNT BE NOT TREATED AS DEEMED DIVIDEND AS PER SECTION 2(22)(E) OF THE ACT, THE ASSESSEE SUBMITTED THAT THE AFORESAID ADVA NCES HAD BEEN GIVEN BY THE COMPANY FOR PURCHASE OF LAND ON I TS BEHALF IN HIMACHAL PRADESH FOR SETTING UP A RESORT. THE ASSESSEE FURTHER EXPLAINED THAT SINCE THE DEAL COUL D NOT MATERIALIZE THE ENTIRE AMOUNT WAS REFUNDED BACK TO THE COMPANY DURING THE YEAR ITSELF. THE ASSESSING OFFI CER REJECTED THE ASSESSEES CONTENTION AND TREATED THE IMPUGNED ADVANCE AS DEEMED DIVIDEND AND ADDED THE SAME TO TH E INCOME OF THE ASSESSEE. 4. THE LD.CIT(APPEALS) RESTRICTED THE ADDITION MADE TO THE PEAK OF THE ADVANCE GIVEN, WHICH WORKED OUT TO RS.10,99,518/-. THE I.T.A.T. IN ITS TURN UPHELD TH E ADDITION CONFIRMED BY THE LD.CIT(APPEALS). ON THIS ADDITION , THE ASSESSING OFFICER INITIATED AND LEVIED PENALTY U/S 271(1)(C) OF THE ACT, HOLDING THAT THE EXPLANATION GIVEN BY T HE ASSESSEE WAS FALSE AND NOT BONAFIDE AND THUS RESULT ED IN THE ASSESSEE HAVING CONCEALED PARTICULARS OF HIS IN COME AND ALSO DELIBERATELY FURNISHED INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF RS.10,99,518/-. THE LD.CIT(APPEALS ) UPHELD THE LEVY OF PENALTY HOLDING THAT THE TREATMENT OF T HE 3 IMPUGNED ADVANCES AS DIVIDEND WAS UNAMBIGUOUS AND N OT DEBATABLE AT ALL AND ASSESSEE HAVING NOT DISCLOSED THE SAME PENALTY U/S 271(1)(C) OF THE ACT HAD BEEN RIGHTLY L EVIED. THE RELEVANT FINDINGS OF THE LD.CIT(APPEALS) AT PAR AS 4.6 TO 4.9 OF THE ORDER ARE AS UNDER: 4.6 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF THE APPELLANT AND PERUSED THE VARIOUS ORDERS ON THIS ISS UE. IF THE PROGRESS OF THE CASE IS TRACED THEN IT IS SEEN THAT T HE APPELLANT DID NOT DISCLOSED IN HIS RETURN THE FACT OF HAVING T AKEN ADVANCE/LOAN FROM ITS COMPANY WHEREIN IT HAD SUBSTANTIA L INTEREST AND THE COMPANY HAD ACCUMULATED PROFITS. TH E CASE WAS PROCESSED U/S 143(1)(A) OF THE ACT ADDITION RETU RN INCOME WAS ACCEPTED. AT THE TIME OF DETAIL SCRUTINY THE ASSES SING OFFICER OBSERVED THE PERSONAL ACCOUNT OF THE APPELLA NT AND POSED QUESTION ABOUT THE RECEIPT OF MONEY ONLY THEN DID THE ISSUE GOT HIGHLIGHTED AND ADDED TO THE INCOME OF TH E ASSESSEE. SUBSEQUENTLY, THE ADDITION WAS CONFIRMED BY THE LD. CIT(A) AND HONBLE ITAT, CHANDIGARH. ALL THIS WHILE TH E APPELLANT HA BEEN TRYING TO EXPLAIN THAT THE ADVANCE WAS TAKEN TO UNDERTAKE TRANSACTION ON BEHALF OF THE COM PANY, BUT THIS WAS NOT CONSIDERED MATERIAL FOR APPLICABILITY OF SECTION 2(22)(E) WHILE CONFIRMING THE ADDITION BY THE APPELLATE AUTHORITIES. SECTION 2(22)(E) IS VERY FORTHRIGHT AND OLD SECTION WHICH CLEARLY SPELLS OUT THE CONDITIONS ALMOST MATHEMAT ICAL IN PRECISION. THERE IS NO AMBIGUITY IN THE SECTION. THE S ECTION DOES NOT GIVE ANY REASON TO ANY PERSON TO MAKE IT A DEBATABLE SECTION. HOWEVER, DISPUTE CAN BE RAISED ON ANY ISSUE TO MAKE IT APPEAR DEBATABLE. THE APPELLANT IS A SUBSTANTIAL HOLDER HAVING MORE THAN 10% SHARE HOLDING IN THE COMPANY. H E HAS TAKEN ADVANCE DURING THE YEAR AND THE COMPANY HAS HU GE ACCUMULATED PROFITS. ALL CONDITIONS OF SECTION 2(22)(E) ARE APPLICABLE. IF APPELLANT IS NOT AWARE OF THESE PROVISI ONS THEN IT DOES NOT MAKE HIM LESS LIABLE AND THAT ARGUMENT IS NOT TENABLE. 4.7 AS REGARD THE APPLICABILITY OF THE JUDGEMENT OF T HE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PR ODUCTS (SUPRA), IT WOULD BE WORTHWHILE TO PONDER ON THIS JUDGEM ENT BECAUSE IT DISCUSSES AND CARRIES FORWARD THE LOGIC OF TWO VERY IMPORTANT JUDGEMENTS OF THE HONBLE APEX COURT ON THIS ISSUE, NAMELY, M/S DHARMENDRA TEXTILE PROCESSORS (295 ITR 244 ) AND DILIP N. SHROFF (291 ITR 519). THE MOST IMPORTANT TERMS RELEVANT FOR THE PRESENT CASE ARE INCORRECT CLAIM A ND INACCURATE PARTICULARS. THE JUDGEMENT CONCLUDES THA T INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISH ING OF INACCURATE PARTICULARS. IT REFERS TO A POINT THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BECAUSE THAT IS TH E ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICU LARS OF HIS INCOME; WHEN SUCH PARTICULARS ARE FOUND INACCUR ATE, THE LIABILITY WOULD ARISE IT WAS HELD IN THE CASE OF DILI P N. SHROFF 4 (SUPRA) THAT THE EXPLANATION (WITH RESPECT TO INACCU RATE PARTICULARS) MUST BE PRECEDED BY A FINDING AS TO HOW AND IN WHAT MANNER THE ASSESSEE HAD FURNISHED THE PARTICUL ARS OF HIS INCOME. 4.8 IN THE PRESENT CASE, IT CANNOT BE STATED WITH CERT AINTY, WHETHER THE DEFAULT WAS WILLFUL, BUT WAS IS NOT DEBAT ABLE. BEING A CIVIL LIABILITY, MENSREA IS NOT A REQUIREMENT TO IMPOSE PENALTY, HOWEVER, WHEN THE APPELLANT HAS FILED INACCUR ATE PARTICULARS WITH RESPECT TO ITS CLAIM WHICH IS NOT DEB ATABLE IN LAW THEN PENALTY U/S 271(1)(C) IS DEFINITELY LEVIABLE. IT IS NOT EASY TO FIND OUT FROM THE RETURN, THE FACTS WHICH AR E REQUIRED TO INVOKE THE PROVISIONS OF SECTION 2(22)(E). IT IS NO T SOMETHING WHICH STARES OUT AS A PRIME FACIE CONCLUSION. IT IS ON LY ON THE BASIS OF DETAILED INVESTIGATION AND SCRUTINY THAT AN ASSESSING AUTHORITY IS ABLE TO DETECT A DEFAULT OF THIS NATURE. THEREFORE, TO CONCLUDE THAT EVERYTHING WAS DISCLOSED IN THE INCO ME TAX RETURN AND PARTICULARS WERE ACCURATE IS NOT CORRECT . THE FACTS IN THE CASE OF M/S RELIANCE PETRO PRODUCTS WERE WITH RESPECT TO CLAIM OF EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME WHICH CANNOT BE COMPARED WITH THE ISSUE OF SECTION 2(22)(E) OF THE ACT. IN THE CASE OF M/S INDERSON LEATHER (P) LTD., OF HONBLE PUNJAB & HARYANA HIGH COURT, THE ISSUE WAS DEBATABLE AS WHET HER A PARTICULAR INCOME BELONGED TO THE HEAD BUSINESS INCO ME OR HOUSE PROPERTY INCOME AND DEBATE COULD HAVE SWUNG E ITHER WAY, THEREFORE, PENALTY WAS RIGHTLY DELETED BY THE HONBLE COURT. IN THE CASE OF M/S RAJ OVERSEAS (SUPRA) THE CONTROVE RSY WAS REGARDING INCLUSION OF DUTY DRAWBACK INCOME AS INCOM E FROM INDUSTRIAL UNDERTAKING. THIS IS VERY DEBATABLE SUBJECT O N WHICH DEBATE HAS BEEN CONTINUING FOR LONG AND THEREF ORE CANNOT BE A SUBJECT OF PENALTY. IN THE CASE OF BHARAT LAL DAGAR, AGAIN IT IS AN ISSUE REGARDING CHARGEABILITY OF INTEREST ON ENHANCED COMPENSATION W HICH AGAIN IS A HIGHLY DEBATABLE POINT AND WAS RIGHTLY HE LD AS NOT TO BE SUBJECT TO SECTION 271(1)(C) PENALTY. 4.9 IN VIEW OF THE ARGUMENTS DISCUSSED ABOVE, PENALTY LEVIED U/S 271(1)(C) OF THE ACT IS CONFIRMED AND GROUN DS OF APPEAL NOS. 2 AND 3 ARE DISMISSED. 5. AGGRIEVED BY THE SAME, THE ASSESSEE HAS FILED TH E PRESENT APPEAL BEFORE US CHALLENGING LEVY OF PENALT Y RAISING FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE WORTHY CIT(A) IN APPEAL NO. 145/14-15 DATED 06.10.2016 HAS ERRED IN PASSING THAT ORDER IN 5 CONTRAVENTION OF THE PROVISIONS OF SECTION 250(6) O F THE INCOME TAX ACT, 1961. 2. THAT ON THE FACTS, LEGAL POSITION AND CIRCUMSTAN CES OF THE CASE, THE WORTHY CIT(A) WAS NOT JUSTIFIED IN CONFIR MING ACTION OF LD. AO, WHEREIN THE LD. AO LEVIED PENALTY U/ S 271(L)(C ) ON THE SUSTAINED ADDITION OF RS.10,99,51 8/-, WHICH WAS ADDED DUE TO HOLDING THE RECEIPT OF AMOUN T FROM THE COMPANY AS TAXABLE DEEMED DIVIDEND U/S 2(2 2) (E) IN THE HANDS OF THE APPELLANT. 3. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITION, DEL ETION OR AMENDMENT IN THE GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 6. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY CONTESTED THE L EVY OF PENALTY STATING THAT THE ASSESSEE HAD HARBOURED A B ONAFIDE BELIEF THAT THE IMPUGNED ADVANCE RECEIVED WAS NOT H IS INCOME SINCE IT HAD BEEN ADVANCED FOR ACQUIRING LAN D FOR THE COMPANY WHICH HAD GIVEN THE SAID ADVANCE AND SI NCE THE DEAL COULD NOT FRUCTIFY THE SAME AMOUNT HAD BEE N RETURNED DURING THE YEAR ALSO. THE LD. COUNSEL FOR ASSESSEE ARGUED THAT THE ADDITION IN THE PRESENT CASE HAD BE EN MADE BY INVOKING DEEMING PROVISIONS U/S 2(22)(E) OF THE ACT AND NO PENALTY IN SUCH CIRCUMSTANCES WAS LEVIABLE. THE LD. COUNSEL FOR ASSESSEE RELIED UPON THE FOLLOWING CASE LAWS IN SUPPORT OF ITS CONTENTION: 1) CIT VS. FORTUNE HOTELS AND ESTATES PVT. LTD. (2015) 232 TAXMAN 481 (BOM HC) 2) CIT VS. MADAN TEATRES LTD. (2013) 260 CTR 75 (KOL HC) 3) CIT VS. BARODA TIN WORKS (1996) 135 CTR 126 (GUJ HC) 4) ITO VS.M/S QUIXOTIC HEALTHCARE 6 ITA NO.163/CHD/2015 DT. 06/08/2015 5) ITO VS. (LATE) DR.SHAMSHER, DIRECTOR OF M/S MEDIMARK CONSULTANTS(INDIA) PVT. LTD. ITA NO. 564/MDS/2011 DT. 31/01/2013 6) GITANJALI GHATE VSA. DCIT ITA NO.6560/MUM/2010 DT. 23/05/2012 7) ITO VS. SHRI PRAKASH NARAIN SINGH ITA NO. 2691/DEL/2013 DT. 22/11/2013 8) ACIT VS. SRI GANTA SRINIVASA RAO ITA NO. 243/VIZAG/2013 DT. 19/02/2016 9) PRINCIPAL CIT-I VS. M/S TORQUE PHARMACEU- TICALS PVT. LTD. ITA NO. 417 OF 2015 DT. 16/03/2016 (P&H HC) 7. THE LD. DR, ON THE OTHER HAND, RELIED HEAVILY ON THE FINDINGS OF THE LD.CIT(APPEALS) AND STATED THAT THE EXPLANATION OF THE ASSESSEE HAD BEEN FOUND TO BE FA LSE AND INCORRECT AND, THEREFORE, IT CANNOT BE SAID THAT TH E BELIEF OF THE ASSESSEE WAS BONAFIDE. THE LD. DR FURTHER DISTINGUISHED THE CASE LAWS RELIED UPON BY THE ASSE SSEE. 8. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIE S AND PERUSED THE ORDERS OF AUTHORITIES BELOW. THE PENAL TY IN THE PRESENT CASE HAS BEEN LEVIED ON ACCOUNT OF ADDITION MADE U/S 2(22)(E) OF THE ACT TREATING THE ADVANCES RECEI VED BY THE ASSESSEE FROM THE COMPANY IN WHICH THE ASSESSEE HAS SUBSTANTIAL INTEREST AS DEEMED DIVIDEND. THE EXPLA NATION OF THE ASSESSEE FOR HARBOURING THE BELIEF THAT THE SAID SUM WAS NOT IN THE NATURE OF INCOME WAS THAT THE SUM HAD BEEN ADVANCED TO PURCHASE THE LAND ON BEHALF OF THE COMPANY IN HIMACHAL PRADESH FOR SETTING UP THE RESO RT AND ALSO THAT SINCE THE DEAL DID NOT MATURE THE SAID AM OUNT WAS REFUNDED TO THE COMPANY. LD.COUNSEL FOR THE ASSESS EE 7 CONTENDED THAT IT WAS A BONFIDE BELIEF OF THE ASSES SEE AND THUS NO PENALTY U/S 271(1) WAS LEVIABLE . 9. THE REVENUE, ON THE OTHER HAND, HAS CONTENDED TH AT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT ARE C LEAR AND UNAMBIGUOUS AND THE AFORESAID EXPLANATION OF THE AS SESSEE IS OF NO ASSISTANCE TO HARBOUR A BELIEF THAT THE IM PUGNED SUM COULD NOT BE TREATED AS HIS INCOME. THE CONTEN TION OF THE REVENUE WAS THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE HIS EXPLANATION AND SINCE THERE WAS NO DOUBT THAT THE AMOUNT WAS IN THE NATURE OF DEEMED DIVIDEN D AS PER SECTION 2(22)(E) OF THE ACT, THE BONAFIDES OF T HE ASSESSEES EXPLANATION WERE NOT GENUINE. THE REVE NUE HAS ALSO CONTENDED THAT THE ASSESSEE DURING QUANTUM PROCEEDINGS BEFORE THE I.T.A.T. HAD OFFERED AN ALTE RNATIVE EXPLANATION ALSO THAT THE SAID SUM WAS ADVANCED IN THE CASE OF MONEY LENDING BUSINESS OF COMPANY WHICH WAS FOUND BY THE I.T.A.T. TO BE FALSE. 10. HAVING HEARD BOTH THE PARTIES, WE FIND MERIT IN THE CONTENTION OF THE ASSESSEE. THE EXPLANATION OF THE ASSESSEE, THAT THE SUM WAS ADVANCED FOR PURCHASING LAND FOR THE COMPANY, WE FIND WAS NOT ACCEPTED SINCE THE ASSESSEE HAD FAILED TO SUBSTANTIATE THE SAME. THE RELEVANT FINDINGS OF THE I.T.A.T. IN THIS REGARD IN ITS ORDE R 10.9.2014 IN ITA NOS.1030 & 1031/CHD2013 FOR ASSESSMENT YEARS 2009-10 AND 2010-11 AT PARA 9 ARE AS UNDER: 9. THE PLAIN READING OF THE ABOVE CLEARLY SHOWS TH AT IF A PERSON WHO IS A SUBSTANTIAL SHARE HOLDER TAKES A LO AN OR ADVANCE FROM A COMPANY IN WHICH HE IS SUBSTANTIAL SH ARE 8 HOLDER I.E. MORE THAN 10% SHARE HOLDER THEN SUCH AD VANCE HAS TO BE TREATED AS DEEMED DIVIDEND INCOME UPTO TH E EXTENT OF ACCUMULATED RESERVES OF THE SAID COMPANY. IT IS NOT DISPUTED THAT ASSESSEE IS A SUBSTANTIAL SHARE H OLDER AND THE COMPANY WHICH HAS GIVEN THE ADVANCE POSSESSE D SUBSTANTIAL ACCUMULATED PROFITS. THE DISPUTE HAS BEEN RAISED ON TWO COUNTS. FIRSTLY, IT WAS A BUSINESS TRANSACTION. WE DO NOT FIND ANY FORCE IN THESE SUBMISSIONS. THERE IS NO EVIDENCE TO SHOW THAT COMP ANY WHERE THE ASSESSEE WAS DIRECTOR WANTED TO SET UP A RESORT IN THE STATE OF HIMACHAL PRADESH. EVEN IF SUCH COMP ANY WANTED TO SET UP A RESORT, THE COMPANY ITSELF COULD HAVE INVESTED THE MONEY DIRECTLY IN ITS OWN NAME AND THA T WOULD HAVE BEEN PERMISSIBLE IN THE STATE OF HIMACHA L PRADESH BECAUSE LAND CAN BE PURCHASED IN THE STATE OF HIMACHAL PRADESH FOR BUSINESS PURPOSES. THEREFORE, CLEARLY THIS EXPLANATION IS NOT ACCEPTABLE. AS FAR AS THE DECISION OF HON'BLE MADHYA PRADESH HIGH COURT IN THE C ASE OF CIT V OM PARKASH SURI IS CONCERNED, THE SAME IS CLEARLY DISTINGUISHABLE BECAUSE IN THAT CASE THE ASSESSEE H AD RECEIVED THE AMOUNT AS ADVANCE AGAINST SALE OF HIS LAND. AN AGREEMENT TO THAT EFFECT WAS ALSO ENTERED AND TH E SAID AMOUNT OF LOAN WAS DULY MENTIONED IN THE AGREEMENT TO SELL. IN THE CASE BEFORE US, THERE IS NO SUCH AGREEME NT AND IT IS NOWHERE SHOWN THAT ASSESSEE WAS OWNING ANY LAND, THEREFORE, CLEARLY THE PROVISIONS OF SECTION 2(22)(E) ARE APPLICABLE. 11. IT IS CLEAR FROM THE ABOVE THAT THE SAID EXPLAN ATION OF THE ASSESSEE WAS REJECTED SINCE IT REMAINED UNSUBSTANTIATED. FURTHER UNDISPUTEDLY, THE SAID ADV ANCE WAS REFUNDED BY THE ASSESSEE ALSO DURING THE IMPUGN ED YEAR. ALSO ALL FACTS MATERIAL TO THE SAID TRANSACT ION WERE TRULY AND FULLY DISCLOSED BY THE ASSESSEE DURING TH E QUANTUM PROCEEDINGS AND NO INCORRECT PARTICULAR OR DETAIL WAS FURNISHED BY THE ASSESSEE. IN SUCH CIRCUMSTANC ES WHERE THE TRUE NATURE OF THE AMOUNT RECEIVED IS NOT INCOME BUT IS TREATED TO BE SO ONLY ON ACCOUNT OF THE DEEM ING PROVISIONS OF SECTION 2(22)(E) OF THE ACT, COUPLED WITH THE EXPLANATION OF THE ASSESSEE THAT THE SUM WAS ADVANC ED FOR BUSINESS PURPOSE WHICH EXPLANATION HAS NOT BEEN FOU ND TO BE FALSE AND ALSO THE FACT THAT THE SAID AMOUNT WA S 9 REFUNDED DURING THE YEAR, THE ASSESSEES BELIEF THA T IT WAS NOT IN THE NATURE OF INCOME APPEARS TO BE BONAFID E. 12. THE HONBLE GUJARAT HIGH COURT ,IN THE CASE OF SARABHAI CHEMICALS PVT. LTD. VS CIT 257 ITR 355 HAS HELD THAT WHERE THE ASSESSEE IS UNDER A BONAFIDE BELIEF THAT NO INCOME HAS ACTUALLY ACCRUED, NO PENALTY IS LEVIABLE . THE RELEVANT EXTRACT OF THE ORDER IS AS UNDER: 19.2 THE SATISFACTION IN THE COURSE OF ASSESSMENT PROCEEDINGS THAT ANY PERSON HAS CONCEALED THE PARTIC ULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF HI S INCOME MAY GIVE RISE TO A LIABILITY TO PAY PENALTY AS PROVID ED BY S. 271(1)(C)(III) OF THE ACT. ACCORDINGLY, IN ADDITION TO AN Y TAX PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS THAN, BUT WHICH SHALL NOT EXCEED TWICE THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME OR THE FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. EXPLN. 1 TO S. 271(1)(C)(III) RAISES A PRESUMPTION IN CASES WHERE SUCH PERSON (A) FAILS TO OFFER AN EXPLAN ATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ITO OR THE AAC OR CIT(A) TO BE FALSE, OR (B) OFFERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE, IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF SUCH PERSON. THIS PRESUMPTION IS TO THE EFFECT THAT THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME BY THE ITO, AA C OR CIT(A) IN THE QUANTUM PROCEEDINGS SHALL BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. BY ITS VERY NATURE, THE EXPRESSION FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ITO OR AAC OR THE CIT(A) TO BE FALSE OCCURRING IN SUB -CL. (A) OF EXPLN. 1 TO CL. (III) OF S. 271(1)(C) REFERS TO THE QUANTUM PROCEEDINGS. THEREFORE, THE CASES WHERE NO EXPLANATIO N WAS GIVEN IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTA TION OF TOTAL INCOME IN RESPECT OF THE AMOUNT ADDED OR DISALLO WED THEREIN OR THE EXPLANATION GIVEN IN RESPECT THEREOF WAS ALREADY FOUND IN SUCH ASSESSMENT PROCEEDINGS TO BE F ALSE, THERE WOULD ARISE A PRESUMPTION THAT PARTICULARS OF SUCH ADDED OR DISALLOWED INCOME WERE CONCEALED. IN SUCH CASE S FALLING UNDER SUB-CL. (A) OF EXPLN. 1, THERE CAN ARISE NO QUESTION ALLOWING THE ASSESSEE TO URGE THAT HE BONA F IDE BELIEVE IN THE EXPLANATION WHICH WAS PROVED TO BE F ALSE OR WHICH NEVER WAS GIVEN, FOR, ONE CANNOT BE SAID TO HAVE A REASONABLE BONA FIDE BELIEF IN AN EXPLANATION WHICH N EVER WAS GIVEN OR AN EXPLANATION PROVED TO BE FALSE. 19.3. HOWEVER, IN CASES WHERE THE EXPLANATION OFFERED BY SUCH PERSON IN THE QUANTUM PROCEEDINGS COULD NOT BE SUBSTANTIATED BY HIM IN THOSE PROCEEDINGS, AS A RESULT OF WHICH, THE AMOUNT WAS ADDED OR DISALLOWED IN COMPUTING THE 10 TOTAL INCOME OF SUCH PERSON BY THE ITO, AAC OR THE CI T(A) BEFORE WHOM THE EXPLANATION GIVEN COULD NOT BE SUBST ANTIATED AS CONTEMPLATED BY SUB-CL. (B) TO EXPLN. 1. THE DEEMING FI CTION THAT THE ADDED/DISALLOWED AMOUNTS REPRESENT THE INCOM E IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED CON TAINED IN EXPLN. 1 WILL NOT APPLY IF THE EXPLANATION THAT WAS GIVE N BY THE ASSESSEE IN THE QUANTUM PROCEEDINGS WHICH HE CO ULD NOT SUBSTANTIATE IN THOSE PROCEEDINGS WAS (I) BONA FIDE AND, (II) IF HE HAD DISCLOSED ALL THE FACTS RELATING TO THE SAME AN D MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME. 19.4. PENALTY PROCEEDINGS WHICH ARE AN AFTERMATH OF THE QUANTUM PROCEEDINGS ARE NOT DEVISED TO UNDO THE FIN DINGS REACHED IN THE QUANTUM PROCEEDINGS. THEY, ARE IN CONTINU ITY OF THE OUTCOME OF THE QUANTUM PROCEEDINGS. IF THE ASSE SSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, WHICH IS ADD ED OR ALLOWED IN THE QUANTUM PROCEEDINGS, THERE STILL WOULD RE MAIN TO BE CONSIDERED THE QUESTION AS TO THE NATURE AND CIRCUMSTANCES OF CONCEALMENT AND THE PENALTY THAT M AY BE IMPOSED ON HIM WHEN THE REQUISITE SATISFACTION IS REAC HED BY THE ITO, AAC OR CIT(A), AND THAT IS WHY, THE SHOW-CAUSE NOTICE FOR THE PENALTY PROCEEDINGS COMES TO BE ISSU ED UNDER S. 271(1) AFTER REACHING THE REQUISITE SATISFACTION. IN A LARGE NUMBER OF CASES WHERE THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE THE EXPLANATION IN RESPECT OF THE INCOM E AND BY REJECTING HIS EXPLANATION, THE ITO, AAC AND/OR CIT(A) ADDED OR DISALLOWED THE AMOUNT IN COMPUTING THE TOTAL INCOME AND IT IS NOT A CASE OF NO EXPLANATION OR AN EXPLANATION A LREADY FOUND TO BE FALSE BY THE ITO, AAC OR THE CIT AS CONTE MPLATED BY CL. (B) OF EXPLN. 1, THEN THERE STILL REMAINS A SCOPE T O EXAMINE THE BONA FIDES OF THE EXPLANATION ALREADY GIV EN BY THE ASSESSEE IN THE QUANTUM PROCEEDINGS. THE RATIONA LE BEHIND NOT GIVING SIMILAR CONSIDERATION TO CASES FALL ING IN SUB- CL. (A) OF EXPLN. 1 TO A PERSON WHO FAILS TO OFFER A EXP LANATION BEFORE THE ITO DURING THE PROCEEDINGS APPEARS TO BE THE LEGAL ASSUMPTION UNDERLYING THE PROVISION THAT IN FACT, TH ERE EXISTED NO EXPLANATION WHICH COULD HAVE BEEN OFFERED AND TO RULE OUT ANY POSSIBILITY OF BRINGING INTO EXISTENCE, EXPLANAT IONS WHICH IN FACT WERE NOT THERE. IN CASES WHERE EXPLANATION W AS OFFERED, BUT WAS REJECTED AS IT COULD NOT BE SUBSTANTIA TED BY THE ASSESSEE, THERE WOULD ARISE NO PRESUMPTION OF CONCEALMENT OF THE PARTICULARS OF INCOME THAT WAS A DDED OR DISALLOWED AND SUCH ASSESSEE CAN SHOW THAT THE SAID EXPLANATION OFFERED BY HIM WAS A BONA FIDE ONE AND T HAT HE HAD DISCLOSED ALL FACTS RELATING TO SUCH EXPLANATION A ND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME DURIN G THE QUANTUM PROCEEDINGS. IN VIEW OF THE ABOVE THEREFORE THERE WAS NO CASE FO R LEVY OF PENALTY U/S 271(1) OF THE ACT. 11 13. WE FURTHER PLACE RELIANCE ON THE DECISION OF T HE HON'BLE APEX COURT IN THE CASE OF HINDUSTAN STEELS LTD. VS. STATE OF ORISSA (1972) 83 ITR 26(SC) WHEREIN IT WAS HELD THAT: 'AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDI NGS, AND PENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PART Y OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHE R PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORI TY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL T HE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE J USTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNIC AL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT, OR WHER E THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE.' 14. IN VIEW OF THE ABOVE, IT IS OUR CONSIDERED OPIN ION THAT THE ASSESSEE SHOULD NOT BE VISITED WITH THE RIGORS OF PENALTY U/S 271(1)(C) OF THE ACT AS THE ASSESSEES CONTENTI ON THAT NO MATERIAL WAS SUPPRESSED AND, THEREFORE, THERE WAS N O MALAFIDE INTENTION ON THE PART OF THE ASSESSEE TO E VADE THE TAX HAS SUFFICIENT COGENCY. ACCORDINGLY, WE DIRECT THAT THE ORDER OF THE LD.CIT(APPEALS) BE SET ASIDE AND PENAL TY IMPOSED AMOUNTING TO RS.10,99,518/- BE DELETED. 15. THE GROUNDS OF APPEAL RAISED BY THE ASSESSE ARE ALLOWED. IN EFFECT THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.19/CHD/2017 (A.Y. 2010-11): 14. IT IS RELEVANT TO OBSERVE HERE THAT THE FACTS AND 12 CIRCUMSTANCES OF THIS APPEAL ARE SIMILAR TO THE FAC TS AND CIRCUMSTANCES IN ITA NO.18/CHD/2017 AND THE FINDING S GIVEN IN ITA NO.18/CHD/2017 SHALL APPLY TO THIS APP EAL ALSO WITH EQUAL FORCE. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNAGUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED : 28 TH AUGUST, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT , CHANDIGARH