ACIT Range I, V. Nuchem Ltd,

ITA 1958/DEL/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3488 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 15-06-2010
• Assessment Year: 1995-1996
• Appeal Filed On: 19-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: VIRENDER TALWAR
• Keywords: Bogus purchase; Capital asset; Business income; Depreciation; Retrospective amendment; Cost of acquisition; Wrong claim; Bad and doubtful debts; Revised return; Bonafide mistake; Revenue expenditure
• Section: 143(3); 139(5); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H: NEW DELHI BEFORE SHRI C.L.SETHI, JM & SHRI B.C. MEENA, AM I.T. A. NO.1958/DEL OF 2007 ASSESSMENT YEAR: 1995-96 ACIT, RANGE I, VS M/S NUCHEM LIMITED, FARIDABAD. 20/6, MATHURA ROAD, FARIDABAD. APPELLANT RESPONDENT APPELLANT BY: SHRI N.K. CHAND, SR. DR RESPONDENT BY: SHRI VIRENDER TALWAR ORDER PER C.L.SETHI, JM: THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 13 .2.2007 PASSED BY THE LEARNED CIT(A) IN THE MATTER OF PENALTY LEVIED BY THE AO U/S 271(1)(C ) OF THE INCOME-TAX ACT, 1961 (THE ACT) PERTAINING TO THE ASSTT. YEAR 1995-96. 2. THE REVENUE HAS TAKEN A GROUND THAT CIT(A) HAS E RRED IN DELETING THE PENALTY OF RS.93,70,000/- IMPOSED BY THE AO U/S 271 (1)(C) OF THE ACT. THIS APPEAL INITIALLY CAME TO BE HEARD ON 15.11.2007 BY THE TRIBUNAL, AND AFTER HEARING BOTH THE PARTIES, THE ORDER OF LEARNED CIT( A) IN DELETING THE PENALTY WAS UPHELD IN THE LIGHT OF THE DECISION OF HONBLE PUNJAB & HARYANA HIGH 2 COURT IN THE CASE OF CIT VS PRITHIPAL SINGH & CO, 1 83 ITR 69, WHICH HAS BEEN FURTHER UPHELD BY THE HONBLE SUPREME COURT VI DE ITS DECISION REPORTED IN 249 ITR 670 (SC). THE TRIBUNAL HAS ALSO RELIED U PON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIRTUAL SOFT S YSTEMS VS CIT, 289 ITR 83 (SC) WHEREIN THE HONBLE SUPREME COURT HAS HELD THAT PRIOR TO INSERTION OF EXPLANATION 4 TO SECTION 271(1)(C) OF THE ACT, B Y THE FINANCE ACT, 2002 W.E.F. 1.4.2003, IN THE ABSENCE OF ANY POSITIVE INC OME, AND/OR ANY TAX BEING LEVIED, PENALTY FOR CONCEALMENT OF INCOME COULD NOT BE LEVIED. THE TRIBUNALS ORDER IS DATED 7 TH DECEMBER, 2007, WHICH WAS APPEALED AGAINST BY THE REVENUE BY FILING AN APPEAL BEFORE THE HONBLE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. THE HONBLE HIGH COURT OF P UNJAB & HARAYANA VIDE ITS DECISION DATED 15.7.2009 SET ASIDE THE ORD ER OF THE TRIBUNAL BY OBSERVING THAT THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF VIRTUAL SOFT SYSTEMS LTD. (SUPRA) HAS SINCE BEEN OVERRULED IN SUBSEQUENT JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS GOLD COIN HEALTH & FOOD P. LTD., (2008) 304 ITR 308 (SC), AND REMANDED THE MATTER TO THE TRIBUNAL FOR DECISION ON REMAINING POINTS, WHICH MA Y SURVIVE. 3. THIS IS HOW THIS APPEAL HAS AGAIN COME UP FOR OU R DECISION. 4. IN THE COURSE OF HEARING, THE LEARNED COUNSEL FO R THE ASSESSEE HAS SUBMITTED THAT ONLY POINT NOW SURVIVED FOR DECISION OF THE TRIBUNAL IS THE 3 POINT RAISED IN GROUND NO.2, WHERE THE REVENUE HAS TAKEN A GROUND THAT THE LEARNED CIT(A) HAS ERRED IN LAW IN DELETING THE PEN ALTY IMPOSED U/S 271(1)(C) BY NOT TAKING COGNIZANCE OF THE PROVISION S OF SECTION 275(1)(A) OF THE ACT. HE FURTHER SUBMITTED THAT THE ISSUE WHETH ER PENALTY IS TO BE LEVIED U/S 271(1)(C) ON MERIT IS NOT NOW A SUBJECT MATTER FOR CONSIDERATION INASMUCH AS THE SAME WAS NEVER RAISED BY THE REVENU E. 5. WE HAVE CONSIDERED THIS SUBMISSION OF THE ASSESS EE, AND FIND THAT THE CONTENTIONS OF THE ASSESSEE ARE NOT CORRECT. THE R EVENUE IN GROUND NO.1 HAS TAKEN A GROUND THAT CIT(A) HAS ERRED IN DELETING PE NALTY OF RS.93,70,000/- IMPOSED BY THE AO U/S 271(1)(C) OF T HE ACT BY APPLYING THE RATIO OF THE JUDGMENT OF HONBLE P&H HIGH COURT IN THE CASE OF PRITHIPAL SINGH & CO.(SUPRA). THIS GROUND WOULD SHOW THAT THE DEPARTMENT IS INTENDED TO CHALLENGE THE ORDER OF CIT(A) IN DELETI NG THE PENALTY. IN OTHER WORDS, THE DEPARTMENT HAS TAKEN A GROUND THAT CIT(A ) HAS ERRED IN DELETING THE PENALTY. WE, THEREFORE, ARE OF THE VIEW THAT TH IS GROUND WOULD ALSO COVER AS TO WHETHER THE LEARNED CIT(A) WAS JUSTIFIED IN D ELETING THE PENALTY OF RS.93,70,000 ON MERIT IMPOSED BY THE AO U/S 271(1)( C ) OF THE ACT. WE, THEREFORE, PROCEED TO DECIDE AS TO WHETHER THE PENA LTY U/S 271(1)(C ) HAS BEEN RIGHTLY LEVIED BY THE AO ON MERIT, ON WHICH ASPECT OF THE MATTER, BOTH THE PARTIES WERE HEARD AT LENGTH. 4 6. IN THIS CASE, THE ASSESSEE COMPANY FILED A RETUR N OF LOSS AT RS.16,72,46,572/- ON 30.11.95, WHICH INCLUDED BROUG HT FORWARD LOSSES OF RS.22,12,87,570/-. THE ASSESSEE COMPANY THEN FILED REVISED RETURN ON 22.2.96 DECLARING NET LOSS OF RS.16,70,46,050/-. A SSESSEE FILED ANOTHER REVISED RETURN ON 27.2.97 DECLARING A LOSS OF RS.21 ,47,97,740/-. ASSESSEE AGAIN REVISED COMPUTATION OF INCOME ON 03.03.98, AN D SUBMITTED A LETTER DATED 27.3.98 ACCEPTING CERTAIN ADDITIONS POINTED O UT BY THE AO. THEREAFTER, THE ASSESSMENT U/S 143(3) WAS FRAMED BY THE AO ON 3 1.3.98 AT NIL INCOME WHERE VARIOUS ADDITIONS AND DISALLOWANCES WERE MADE BY THE AO. AGAINST THE AOS ORDER, THE ASSESSEE PREFERRED AN APPEAL BE FORE THE LEARNED CIT(A), WHO VIDE ORDER DATED 10.2.2005 DELETED CERTAIN ADDI TIONS OUT OF THE VARIOUS ADDITIONS MADE BY THE AO. THE LEARNED CIT(A) CONFI RMED THE FOLLOWING ADDITIONS OR DISALLOWANCES: 1. RS.11,668/- ADDITION ON ACCOUNT OF PURCHASES. 2. RS.96,000/- BEING CHARGES PAID TO MRS. BELA MUKHERJ EE FOR TECHNICAL SERVICES. 3. RS.21,000/- OUT OF TELEPHONE EXPENSES. 4. RS.6,14,160/- BEING REIMBURSEMENT OF EXPENSES RELAT ING TO AGENTS FOR COLLECTING/RENEWING FDRS. 7. HOWEVER, THE ASSESSEE DID NOT FILE ANY APPEAL AG AINST THE FOLLOWING ITEMS OF ADDITIONS OR DISALLOWANCES MADE IN THE ASS ESSMENT:- 1. RS.65,622/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL D EBTS. 5 2. RS.29,25,207/- ON ACCOUNT OF LOSS ON SALE OF SHARES . 3. RS.9,26,060/- ON ACCOUNT OF EARLIER YEAR LIABILITY. 4. RS.48,000/- ON ACCOUNT OF RENT RECEIVABLE. 5. RS.6629/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED . 8. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. THE AO ULTIM ATELY LEVIED PENALTY OF RS.93,70,000/- IN RESPECT OF THE VARIOUS ADDITIONS AND DISALLOWANCES, RUNNING INTO 22 ITEMS, MADE BY HIM. 9. ON AN APPEAL, THE LEARNED CIT(A) DELETED THE PEN ALTY IN RESPECT OF 13 NUMBERS OF ADDITIONS OR DISALLOWANCES MADE BY THE A O, WHICH ADDITIONS STOOD DELETED BY THE CIT(A). THE LEARNED CIT(A) HA D TAKEN A VIEW THAT AS THESE ADDITIONS WERE NO MORE SURVIVED, NO PENALTY C OULD BE LEVIED ON THESE ADDITIONS SINCE DELETED. 10. IN SO FAR AS THE FOUR ADDITIONS OR DISALLOWANCE S CONFIRMED BY CIT(A), THE LD. CIT(A) OBSERVED THAT THE ASSESSEE COMPANY H AD PREFERRED AN APPEAL BEFORE THE INCOME-TAX APPELLATE TRIBUNAL ON 30.3.20 05, WHICH WAS YET TO BE DECIDED UPON AT THE TIME WHEN THE CIT(A) DECIDED TH E APPEAL ARISING FROM PENALTY ORDER. HOWEVER, THE CIT(A) HAS TAKEN A VIE W THAT IN RESPECT OF THESE FOUR ITEMS OF ADDITIONS OR DISALLOWANCES CONFIRMED IN QUANTUM APPEAL BY THE LEARNED CIT(A), THERE WAS NO QUESTION OF PENALTY B EING LEVIED AS THERE WAS NO CONCEALMENT ON THE PART OF THE ASSESSEE AS THERE WAS NO FINDING GIVEN BY 6 THE AO THAT THE ASSESSEES CLAIM WERE BOGUS AND NON GENUINE. THE CIT(A) FURTHER OBSERVED THAT MERE DISALLOWANCE OF CERTAIN CLAIM WOULD NOT ATTRACT THE PENALTY FOR FURNISHING INACCURATE PARTICULARS O F INCOME OR CONCEALMENT OF PARTICULARS OF INCOME AS WAS HELD BY THE JURISDICTI ONAL HIGH COURT IN THE CASE OF AJAIB SINGH & CO. VS CIT, 253 ITR 630 (P&H). THE LEARNED CIT(A) FURTHER OBSERVED THAT ASSESSEE WAS UNDER BONAFIDE B ELIEF THAT EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND ARE AL LOWABLE AS DEDUCTION. 11. WITH REGARD TO 5 NUMBERS OF THE ADDITIONS OR DI SALLOWANCES IN RESPECT OF WHICH THE ASSESSEE COMPANY DID NOT FILE ANY APPE AL, THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSEE COMPA NY ON ITS OWN AGREED TO THE ADDITIONS AS WAS MENTIONED IN THE THIRD REVISED RETURN FIELD ON 3.3.98 IN RESPECT OF ITEM NO.4,AND AS WAS SO STATED IN ASSESS EES LETTER DATED 27.3.98 IN RESPECT OF ITEM NOS. 1, 2 & 3, AND IN THE LIGHT OF DIFFERENCE IN THE CALCULATION OF DEPRECIATION ARISING DUE TO THE RECTIFICATION OF THE ORDER U/S 154 OF EARLIER YEAR IN SO FAR AS ITEM NO.5 OF ADDITION IS CONCERNE D. ALL THESE FIVE ITEMS WERE CONSIDERED BY THE CIT(A), AND HE HAD TAKEN A V IEW THAT NO PENALTY ON THESE ITEMS IS CALLED FOR. THE LEARNED CIT(A)S OBS ERVATION IN RESPECT OF PENALTY WITH REFERENCE TO THE ADDITIONS OR DISALLOW ANCES OF 5 ITEMS IN RESPECT OF WHICH THE ASSESSEE HAS NOT PREFERRED ANY APPEAL IS AS UNDER: 7 9.1 FURTHER THE FACT THAT THE APPELLANT COMPANY HAS ACCEPTED THE ABOVE DISALLOWANCES DO NOT INVITE THE PENALTY AS THE ACCEPTANCE MAY BE DUE TO SEVERAL REASONS AND THE AO HAS NOT BROUGHT OUT ANYTHING ON RECORD PROVING THAT THE APPELLANT COMPANY HAS DELIBERATELY CONCEALED ANYTHING OR FURNISHED INACCURATE PARTICULARS OF ITS INCOME. THERE IS NO FINDING BY THE AO TO COMPEL THE APPELLANT COMPANY TO REVISE OR DISCLOSE PARTICULARS REGARDING THE ITEMS FROM (1) TO (5) AS ABOVE. FURTHER, NO PENAL CONSEQUENCE CAN BE DRAWN FROM THE ABOVE UNDISPUTED DISALLOWANCES OR ADD BACKS. THEREFORE, ON THESE ADDITIONS/DISALLOWANCES ALSO, NO PENAL INFERENCE CAN BE DRAWN AND, THEREFORE, NO PENALTY IS LEVIABLE. 12. THE CIT(A) ALSO MADE A GENERAL OBSERVATION COVE RING ALL THE ADDITIONS THAT ON PERUSAL OF THE PENALTY ORDER, IT WAS REVEAL ED THAT AO HAS MERELY REPRODUCED THE ASSESSMENT ORDER BY JUST NARRATING T HE ADDITIONS AND DISALLOWANCES MADE IN THE ASSESSMENT ORDER WITHOUT BRINING OUT ANYTHING IN THE PENALTY ORDER TO PROVE THE CONCEALMENT OF PARTI CULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BY T HE ASSESSEE COMPANY. THE CIT(A), THEREFORE, HAD TAKEN A VIEW THAT THE AO HAS PASSED THE PENALTY ORDER IN A VERY MECHANICAL MANNER. 13. THE LEARNED CIT(A) HAS ALSO TAKEN A VIEW THAT N O SATISFACTION WAS ALSO RECORDED BY THE AO IN THE BODY OF THE ASSESSMENT AS TO THE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME BY THE ASSESSEE 8 EXCEPT BY MENTIONING AT THE FAG END OF THE ASSESSME NT ORDER THAT PENALTY PROCEEDINGS U/S 271(1)(C ) FOR FURNISHING INACCURAT E PARTICULARS OF INCOME HAS BEEN INITIATED. FURTHER, THE LEARNED CIT(A) HA S ALSO DELETED THE PENALTY BY RELYING ON THE DECISION OF P&H HIGH COURT IN THE CASE OF CIT VS PRITHIPAL SINGH & CO.( SUPRA), WHICH ISSUE NO MORE SURVIVES A S ALREADY INDICATED AND DISCUSSED ABOVE. 14. WE SHALL FIRST TAKE THE VARIOUS ADDITIONS AND D ISALLOWANCES, WHICH WERE CONFIRMED BY THE LEARNED CIT(A), AND AGAINST W HICH THE ASSESSEE FILED APPEAL BEFORE THE TRIBUNAL. THESE ADDITIONS OR DIS ALLOWANCES ARE AS UNDER: 1. RS.11,668/- ADDITION ON ACCOUNT OF PURCHASES. 2. RS.96,000/- BEING CHARGES PAID TO MRS. BELA MUKHERJ EE FOR TECHNICAL SERVICES. 3. RS.21,000/- OUT OF TELEPHONE EXPENSES. 4. RS.6,14,160/- BEING REIMBURSEMENT OF EXPENSES RELAT ING TO AGENTS FOR COLLECTING/RENEWING FDRS. 15. OUT OF THE AFORESAID FOUR ADDITIONS, THE DISALL OWANCE OF RS.96,000/- BEING CHARGES PAID TO MRS. BELA MUKHERJEE FOR TECHN ICAL SERVICES THOUGH CONFIRMED BY THE LD. CIT(A) HAS BEEN DELETED BY THE TRIBUNAL. SIMILARLY, THE ADDITION OF RS.21,000/- OUT OF TELEPHONE EXPENSES, AND DISALLOWANCE OF RS.6,14,160/-, BEING REIMBURSEMENT OF EXPENSES RELA TING TO AGENTS FOR COLLECTING OR RENEWING FDRS HAS ALSO BEEN DELETED B Y THE TRIBUNAL. 9 THEREFORE, ONLY ADDITION OUT OF THE FOUR ADDITIONS, WHICH IS SURVIVED, IS RS.11,668/-, BEING THE DISALLOWANCE OF PURCHASES. 16. THE OTHER ADDITIONS, WHICH HAVE BEEN SURVIVED, AGAINST WHICH NO APPEAL WAS PREFERRED BY THE ASSESSEE, ARE AS UNDER: 1. RS.65,622/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL D EBTS. 2. RS.29,25,207/- ON ACCOUNT OF LOSS ON SALE OF SHARES . 3. RS.9,26,060/- ON ACCOUNT OF EARLIER YEAR LIABILITY. 4. RS.48,000/- ON ACCOUNT OF RENT RECEIVABLE. 5. RS.6629/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED . THEREFORE, WE ARE CONCERNED WITH THE FOLLOWING SIX ITEMS FOR THE PURPOSE OF DECIDING THE QUESTION AS TO WHETHER PENALTY U/S 271 (1)(C ) HAS BEEN RIGHTLY LEVIED BY THE AO IN RESPECT OF THESE ADDITIONS: 1. RS.11,668/- ADDITION ON ACCOUNT OF PURCHASES. 2. RS.65,622/- ON ACCOUNT OF PROVISIONS FOR DOUBTFUL D EBTS. 3. RS.29,25,207/- ON ACCOUNT OF LOSS ON SALE OF SHARES . 4. RS.9,26,060/- ON ACCOUNT OF EARLIER YEAR LIABILITY. 5. RS.48,000/- ON ACCOUNT OF RENT RECEIVABLE. 6. RS.6629/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED . 17. WITH REGARD TO THE ADDITION OF RS.11,668/-, THE AO HAS STATED IN THE ASSESSMENT ORDER THAT, AS ON 31.3.95, THE ASSESSEE HAS SHOWN THE CLOSING STOCK AT NIL. WHILE EXAMINING THE BOOKS OF ACCOUNT S AND DETAILS OF PURCHASES AND SALES MADE IN THE MONTH OF MARCH, 1995, IT WAS OBSERVED THAT ONE 10 PURCHASE OF RS.11,668/- WAS MADE BY THE ASSESSEE VI DE INVOICE NO.697 DATED 31.3.95 OF MAHARASHTRA DRY CHEMICALS. THE AO ALSO FOUND THAT THE LAST SALE MADE BY THE ASSESSEE WAS ON 30.3.95, BEIN G MADE TO NUCHEM WEIR LTD., FARIDABAD, A SISTER CONCERN OF THE ASSESSEE. IN THE LIGHT OF THESE FACTS, THE ASSESSEE WAS ASKED TO SHOW AS TO WHY THIS PURCH ASE AMOUNT WAS NOT SHOWN IN THE CLOSING STOCK AS ON 31.3.95. THE ASSES SEE IN ITS REPLY DATED 23.3.98 SUBMITTED THAT THE SAID PURCHASES WERE PART AND PARCEL OF ITEMS SOLD TO NUCHEM LTD. VIDE SALE BILL DATED 30.3.95 AND THE SAID PURCHASE WAS CLAIMED TO HAVE BEEN INCLUDED IN THE SAID SALE. TH E ASSESSEES CONTENTION WAS REJECTED BY THE AO BY OBSERVING THAT IT IS VERY STRANGE TO NOTE AS TO HOW THE GOODS PURCHASED FROM BOMBAY ON 31.03.1995 COULD BE CONSUMED IN THE SALE MADE ON 30.03.1995. THE ASSESSEES REPLY WAS NOT FOUND TO BE CONVINCING AND ADDITION OF RS.11,668/- WAS ACCORDIN GLY MADE BY THE AO ON ACCOUNT OF INFLATION OF PURCHASES. 18. ON AN APPEAL, CIT(A) HAS CONFIRMED THE ADDITION BY OBSERVING THAT NO EVIDENCE IN THE FORM OF DETAILED INVOICES WERE FURN ISHED TO SUPPORT THE ASSESSEES CONTENTION. THE CIT(A) HAS ALSO TAKEN T HE NOTE OF THE AOS FINDING THAT THERE WAS NO EVIDENCE ON RECORD TO SHO W THAT THE PURCHASES MADE BY THE ASSESSEE ON 31.03.95 DID FORM PART AND PARCEL OF THE ITEMS SOLD TO M/S NUCHEM WEIR LTD. ON 30.3.1995. 11 19. ON FURTHER APPEAL, THE TRIBUNAL UPHELD THE CIT( A)S ORDER IN CONFIRMING THE ADDITION MADE BY THE AO, BY OBSERVIN G THAT EVEN BEFORE THE TRIBUNAL, THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE ANY SUCH EVIDENCE TO SHOW THAT THE PURCHASES MADE BY THE ASSESSEE DID FO RM A PART AND PARCEL OF THE ITEMS SOLD TO NUCHEM WEIR LTD. THE TRIBUNAL, T HUS, CONFIRMED THE FINDINGS OF THE LEARNED CIT(A). IN THE PENALTY ORD ER, THE AO HAS STATED THAT IN THE LIGHT OF THE MATERIAL DISCUSSED IN THE ASSES SMENT ORDER, IT WAS EVIDENT THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICUL ARS OF INCOME AND ALSO CONCEALED THE PARTICULARS OF INCOME BY MAKING WRONG CLAIMS OR BY CONCEALING CERTAIN RELEVANT FACTS, SO THAT THE TAXA BLE INCOME COULD BE GET REDUCED. 20. ON AN APPEAL AGAINST PENALTY ORDER, CIT(A) HAS DELETED THE PENALTY FOR THE REASONS AS ALREADY MENTIONED ABOVE. THE CIT(A) HAS OBSERVED THAT NO CONCEALMENT ON THE PART OF THE ASSESSEE HAS BEEN PO INTED OUT BY THE AO, AND THE AO HAS NOT GIVEN ANY FINDING IN THE ASSESSMENT ORDER WHETHER THE ABOVE EXPENDITURE WAS BOGUS OR NON GENUINE, AND MERE DISA LLOWANCE WOULD NOT ATTRACT PENALTY. 21. THE LEARNED DR HAS SUBMITTED THAT CIT(A) HAS ER RED IN DELETING THE PENALTY IN RESPECT OF THE ADDITIONS, WHICH HAS BEEN CONFIRMED BY THE TRIBUNAL AND AGAINST WHICH THE ASSESSEE DID NOT FIL E ANY FURTHER APPEAL. HE 12 FURTHER SUBMITTED THAT THE ASSESSEES EXPLANATION I N RESPECT OF THIS ADDITION IS NOT AT ALL BONAFIDE AND HONEST ONE, AND THE ASSESSE E HAS FAILED TO FURNISH ALL RELEVANT MATERIALS RELATING TO THE MATTER. HE FURT HER SUBMITTED THAT WHEN THIS ADDITION WAS MADE IN THE ASSESSMENT ORDER, IT WAS T HE BURDEN OF THE ASSESSEE TO PROVE AND ESTABLISH THAT THE CLAIM WAS MADE BONA FIDE, AND ALL THE DETAILS RELATED THERETO WERE DISCLOSED TO THE DEPARTMENT. HE, THEREFORE, SUBMITTED THAT IF ONE LOOK TO THE BACKGROUND UNDER WHICH THE ADDITION IS MADE, IT IS CLEAR THAT THE ASSESSEES CONDUCT IN MAKING THE CLA IM OF PURCHASES IN THE RETURN OF INCOME WAS NOT AT ALL BONAFIDE AS NO PERS ON DULY INSTRUCTED UNDER THE LAW AND FACT WOULD CLAIM SUCH A CLAIM IN THE RE TURN OF INCOME, WHICH IS PRIMA FACIE NOT ADMISSIBLE, EVEN BY ANY STRETCH OF IMAGINATION. IN SUPPORT OF THE AOS ORDER IN LEVYING PENALTY, THE LEARNED DR H AS PLACED RELIANCE UPON THE FOLLOWING DECISIONS: 1. CIT VS. ZOOM COMMUNICATION PVT. LTD., 2010-TIOL-360 -HC-DEL- IT 2. ACIT VS TVS FINANCE & SERVICES LTD., 2009-TIOL-710- ITAT- MAD 3. CIT VS ECS LTD., 2010-TIOL-287-HC-DEL-IT 4. CIT VS SHRI RAKESH SURI, 2010-TIOL-357-HC-ALL-IT 5. CIT VS ESCORTS FINANCE LTD. ITA NO.1005/2008 6. ACIT VS SMT. AARATHI A LAD, 2009-TIOL-755-ITAT-BANG 13 22. WITH REGARD TO THE ADDITION OF RS.11,668/- ON A CCOUNT OF PURCHASES, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ITEMS PURCHASED WERE ACTUALLY RECEIVED BY THE ASSESSEE ON 8.4.94, AND WE RE HANDED OVER TO NUCHEM WEIR LTD., WHO MADE THESE PURCHASES VIDE ASS ESSEES SALE BILL DATED 30.3.95, AND THUS, THESE PURCHASES WERE MADE PART O F THE SAID SALE TO NUCHEM WEIR LTD., AND, THEREFORE, THE SAME WAS RIGH TLY NOT TAKEN INTO CLOSING STOCK SHOWN AS ON 31.3.95. HE, THEREFORE, SUBMITTED THAT THERE WAS NO CONCEALMENT OR FURNISHING INACCURATE PARTICULARS OF INCOME ON THE PART OF THE ASSESSEE SO AS TO ATTRACT PENALTY LEVIABLE U/S 271(1)(C ) OF THE ACT. 23. RIVAL CONTENTIONS OF BOTH THE PARTIES HAVE BEEN CONSIDERED. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW IN CLUDING THE ORDERS IN THE QUANTUM MATTER. WE HAVE DELIBERATED UPON THE RELEV ANT PROVISIONS OF LAW CONTAINED IN THAT BEHALF. THE VARIOUS DECISIONS CI TED BY BOTH THE PARTIES HAVE BEEN PERUSED. 24. SECTION 271(1)(C ) OF THE ACT PROVIDES FOR IMPO SITION OF PENALTY IN CASE THE AO, IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT, IS SATISFIED THAT ANY PERSON HAS CONCEALED PARTICULARS OF HIS INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. EXPLANATION 1 TO SUB SECTION (1) TO SECTION 271 OF THE ACT PROVIDES THAT WHERE IN RESPE CT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON, SUCH PERSON FAILS TO OFFER 14 AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FO UND TO BE FALSE OR HE OFFERS AN EXPLANATION, WHICH HE IS NOT ABLE TO SUBS TANTIATE 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 ITS TOTAL INCOME , HAVE BEEN DISCLOSED BY HIM, THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTI NG THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURP OSE OF CLAUSE (C ), BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THUS, IN THE CASE OF FAILURE OF THE ASS ESSEE TO OFFER ANY EXPLANATION OR EXPLANATION FURNISHED BY HIM BEING F OUND FALSE, PENALTY MAY BE IMPOSED ON HIM. HOWEVER, IF THE ASSESSEE OFFERS AN EXPLANATION, MERE FAILURE ON HIS PART TO SUBSTANTIATE IT WILL NOT BE ENOUGH TO WARRANT PENALTY, IF THE EXPLANATION IS BONAFIDE, AND ALL THE FACTS RELA TING TO THE SAME WERE DISCLOSED BY HIM IN THE RETURN. EXPLANATION 1 TO SECTION 271(1)(C ) WOULD BE INAPPLICABLE IN RESPECT OF ANY AMOUNT ADDED OR D ISALLOWED AS A RESULT OF REJECTION OF THE EXPLANATION FURNISHED BY THE ASSES SEE, PROVIDED THAT HIS EXPLANATION IS SHOWN TO BE BONAFIDE AND ALL THE FAC TS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF TOTAL INCOME WAS DIS CLOSED BY HIM. THIS POSITION HAS BEEN SUMMARIZED BY VARIOUS DECISIONS O F THE COURTS FROM TIME TO TIME AND HAS BEEN RECENTLY SUMMARIZED BY THE HON BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS ZOOM COMMUNICATION P. L TD. REPORTED IN (2010) 15 DIOL-360-HC-DEL-IT, ORDER BEING DATED MAY 24, 2010. THE POSITION OF LAW, THUS, EMERGES IS THAT SO LONG AS THE ASSESSEE HAS NOT CONCEALED ANY MATERIAL FACT, OR THE FACTUAL INFORMATION GIVEN BY HIM HAS NOT BEEN FOUND TO BE INCORRECT, HE WILL NOT BE LIABLE TO IMPOSITION O F PENALTY U/S 271(1)(C ) OF THE ACT, EVEN IF THE CLAIM MADE BY HIM IS UNSUSTAIN ABLE IN LAW, PROVIDED THAT HE EITHER SUBSTANTIATE THE EXPLANATION OFFERED BY H IM OR THE EXPLANATION OFFERED BY HIM, EVEN IF NOT SUBSTANTIATED, IS FOUND TO BE BONAFIDE. IN OTHER WORDS, IF THE EXPLANATION IS NEITHER SUBSTANTIATED NOR SHOWN TO BE BONAFIDE, EXPLANATION 1 TO SECTION 271(1)(C ) WOULD COME INTO PLAY AND THE ASSESSEE WILL BE LIABLE TO PENALTY LEVIABLE U/S 271(1)(C ) O F THE ACT IN RESPECT OF THE ADDITIONS OR DISALLOWANCES MADE BY THE AO IN THE AS SESSMENT. 25. THEREFORE, WE HAVE TO SEE AS TO WHETHER THE EXP LANATION OFFERED BY THE ASSESSEE WITH REGARD TO THE ADDITION OF RS.11,668/- MADE BY THE AO IS BONAFIDE, AND WHETHER THE ASSESSEE HAS FURNISHED AL L THE FACTS RELATING TO THE SAME, AND MATERIAL TO THE COMPUTATION OF ASSESSEES TOTAL INCOME. 26. THE ADDITION OF RS.11,668/- IS ON ACCOUNT OF A LLEGED PURCHASES OF TRI- METHYL MINEA FROM MAHARASHTRA CHEMICALS, BOMBAY VI DE BILL NO.697 DATED 31.3.95. THIS PURCHASE HAS BEEN DEBITED IN THE PURC HASE ACCOUNT AND HAS NOT BEEN SHOWN AS CLOSING STOCK IN HAND AS ON 31.3.95. THE ASSESSEE HAS SUBMITTED THAT ASSESSEE HAD SOLD CERTAIN ITEMS TO N UCHEM WEIR LTD. VIDE 16 SALE INVOICE DATED 30.3.95, AND THIS ITEM WAS A PAR T OF THE SAID SALE SOLD TO NUCHEM WEIR LTD. HOWEVER, WE FIND THAT THE ASSESSE E HAS NOT FURNISHED ANY EVIDENCE OR INFORMATION TO SUBSTANTIATE THIS EXPLAN ATION. WHILE DECIDING THE QUANTUM APPEAL, THE TRIBUNAL HAS CATEGORICALLY STAT ED THAT THE ASSESSEE HAS FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF ITS EX PLANATION EVEN BEFORE THE AUTHORITIES BELOW AS WELL BEFORE THE TRIBUNAL. THE ASSESSEE HAS NOW CONTENDED BEFORE US THAT THE DELIVERY OF THE ITEM W AS ACTUALLY RECEIVED ON 8.4.95, AND WAS DIRECTLY HANDED OVER TO NUCHEM WEIR LTD., BEING PART OF SALE ITEMS SOLD ON 30.3.95. HOWEVER, NO EVIDENCE H AS BEEN PLACED BEFORE US. THIS TRANSACTION IS SHOWN TO HAVE BEEN MADE BY THE ASSESSEE WITH ITS SISTER CONCERN. IT IS NOT UNDERSTOOD THAT HOW THE PURCHASES MADE ON 31.3.95 COULD BE MADE A PART OF SALE OF ITEMS, WHICH WERE S OLD ON ONE DAY BEFORE I.E. 30.3.95. IT IS, THUS, A CASE OF FURNISHING INACCUR ATE PARTICULARS OF INCOME, AND EVEN IT IS A CASE OF MAKING A FALSE CLAIM OF PURCHA SES OF RS.11,668/-, WHICH WERE NOT EVEN INCLUDED IN THE CLOSING STOCK IN HAND SHOWN AS ON 31.3.95. THE ASSESSEES EXPLANATION CANNOT BY ANY STRETCH OF IMAGINATION BE SAID TO BE BONAFIDE. THE ASSESSEE HAS ALSO NOT DISCLOSED O R FURNISHED ALL RELEVANT PARTICULARS RELATING TO THIS ITEM. IT IS, THUS, A CASE WHERE THE ASSESSEE HAS MADE A FALSE CLAIM AND THE ASSESSEE HAS NOT BEEN AB LE TO SUBSTANTIATE IT, AND AS WELL AS THE EXPLANATION OFFERED BY THE ASSESSEE IS ALSO FOUND NOT TO BE 17 BONAFIDE, AND, AT THE SAME TIME, IT IS ALSO FOUND T HAT THE ASSESSEE HAS FAILED TO FURNISH ALL RELEVANT DETAILS OR PARTICULARS RELATIN G TO THIS CLAIM. THIS CLAIM WAS DETECTED BY THE AO DURING THE COURSE OF THE ASS ESSMENT PROCEEDINGS WHEN HE EXAMINED THE DETAIL OF PURCHASES AND VERIFI ED THE CLOSING SOCK INVENTORY SHOWN AS ON 31.3.95. THUS, THIS ITEM IS FIT FOR IMPOSITION OF PENALTY U/S 271(1)( C) OF THE ACT EVEN IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS P. LTD. (2010) 322 ITR 158 (SC), ON WHICH A STRONG RELIANCE HAS BEEN PLACED BY THE ASSESSEE INASMUCH AS, IN THE PRESENT CASE, THERE I S A CATEGORICAL FINDING ABOUT FURNISHING INACCURATE PARTICULARS OF CLAIM OF PURCHASES AND IT IS NOT A CASE WHERE CLAIM OF THE ASSESSEE IN LAW HAS BEEN ME RELY DISALLOWED WITHOUT ANYTHING MORE. WE, THEREFORE, SUSTAIN THE PENALTY W ITH REFERENCE TO THIS ADDITION OF RS.11,668/- ON ACCOUNT OF DISALLOWANCE OF BOGUS PURCHASES CLAIMED BY THE ASSESSEE. THE PENALTY ORDER OF AO IS , THUS, RESTORED AND THAT OF THE CIT(A) IS SET ASIDE ON THIS ITEM. 27. THE NEXT ADDITION IN RESPECT OF WHICH PENALTY H AS BEEN LEVIED BY THE AO IS OF RS.65,622/- ON ACCOUNT OF PROVISION FOR DO UBTFUL DEBTS. WHILE MAKING THIS ADDITION, THE AO HAS OBSERVED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.65,622/- IN THE PROFIT AND LOSS ACCOUNT A S PROVISION FOR DOUBTFUL DEBTS, THOUGH SUCH PROVISION IS NOT ALLOWABLE AS D EDUCTION. HE FURTHER 18 OBSERVED THAT THE ASSESSEE HAS ALSO AGREED TO THE A DDITION. AGAINST THIS ADDITION, NO APPEAL WAS PREFERRED BY THE ASSESSEE B EFORE THE LEARNED CIT(A). IN THE PENALTY ORDER, THE AO HAS STATED THAT IN THE LIGHT OF THE OBSERVATIONS MADE IN THE BODY OF THE ASSESSMENT ORDER, IT WAS EV IDENT THAT ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF ITS INCOME, AND CONCEALED THE PARTICULARS OF INCOME BY MAKING WRONG CLAIM. HOWEVER, THE PENA LTY HAS BEEN DELETED BY THE CIT(A) BY OBSERVING THAT THE AO HAS NOT BROU GHT OUT ANYTHING ON RECORD PROVING THAT THE ASSESSEE HAS DELIBERATELY C ONCEALED ANYTHING OR FURNISHED INACCURATE PARTICULARS OF INCOME, AND THE RE WAS NO FINDING THAT ASSESSEE WAS COMPELLED TO SURRENDER THE INCOME BY F ILING THE REVISED COMPUTATION OF INCOME. 28. HERE, WE ARE CONCERNED WITH DISALLOWANCE OF CLA IM OF PROVISION FOR DOUBTFUL DEBTS. IT IS BY NOW WELL SETTLED THAT PRO VISION FOR DOUBTFUL DEBTS IS NOT ADMISSIBLE U/S 36(1)(VII) OF THE ACT. THE QUES TION AS TO WHETHER PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE AC COUNTS OF THE ASSESSEE IS ALLOWABLE AS BAD DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE U/S 36(1)(VII) WAS DEBATABLE BEFORE THE IN SERTION OF EXPLANATION TO THAT SECTION VIDE FINANCE ACT, 2001 WITH RETROSPECT IVE EFFECT FROM 1.4.1989. THE POSITION HAS BEEN CLARIFIED BY THE LEGISLATURE BY INSERTING EXPLANATION BY THE FINANCE ACT 2001 WITH RETROSPECTIVE EFFECT FROM 1.4.89. IN THE PRESENT 19 CASE, WE ARE CONCERNED WITH THE ASSTT. YEAR 1995-96 , IN RESPECT OF WHICH THE ASSESSEE FILED RETURN OF INCOME ON 30.11.95, WHEN T HE POSITION ABOUT THE CLAIM OF PROVISION FOR DOUBTFUL DEBTS WAS NOT CLEAR . THEREFORE, IN THIS VIEW OF THE MATTER, IT IS VERY DIFFICULT TO HOLD THAT TH E ASSESSEES CLAIM WAS FALSE AND NOT BONAFIDE. HERE, WE FIND THAT THE ASSESSEE HAS MADE A CLAIM FOR PROVISION FOR DOUBTFUL DEBTS AND HAS DISCLOSED THE SAME IN ITS ACCOUNT. THEREFORE, THE ASSESSEE HAS BEEN ABLE TO DISCHARGE ITS BURDEN THAT LAY UPON IT VIDE EXPLANATION 1 TO SECTION 271(1)( C) OF THE ACT . HENCE, THE PENALTY LEVIED ON THIS ITEM HAS BEEN RIGHTLY DELETED BY THE LEARNED CIT(A), AND HIS ORDER ON THIS ASPECT OF THE MATTER IS UPHELD. 29. NEXT ADDITION IN RESPECT OF WHICH PENALTY U/S 2 71(1)(C) HAS BEEN LEVIED BY THE AO IS THE DISALLOWANCE OF RS.29,25,20 7/- ON ACCOUNT OF LOSS ON SALE OF SHARES. IN THE ASSESSMENT, THE AO HAS STAT ED THAT IN THE BODY COMPUTATION OF INCOME, THE ASSESSEE COMPANY HAS CLA IMED LOSS OF RS.29,25,207/- ON ACCOUNT OF SALE OF SHARES OF SSL/ KPIL, AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMP ANY WAS ASKED WHY SET OFF OF LONG TERM CAPITAL LOSS ON SALE OF SHARES SHO ULD NOT BE DISALLOWED AGAINST THE CURRENT YEARS BUSINESS INCOME. IN RES PONSE TO THE NOTICE, THE ASSESSEE COMPANY FILED A WRITTEN REPLY DATED 27.3.9 8, AND AFTER CONSIDERING THE REPLY OF THE COMPANY, LONG TERM CAPITAL LOSS WA S NOT ALLOWED TO BE SET OFF 20 AGAINST CURRENT YEARS BUSINESS INCOME, AND ADDITIO N WAS ACCORDINGLY MADE. AT THE SAME TIME, THE AO FURTHER MENTIONED THAT LON G-TERM CAPITAL LOSS IS TO BE ALLOWED TO BE CARRIED FORWARD IN THE NEXT ASSESS MENT YEAR AS PER SECTION 74(1) OF THE ACT. AGAINST THIS DISALLOWANCE MADE B Y THE AO, ASSESSEE DID NOT PREFER ANY APPEAL BEFORE THE LEARNED CIT(A). I N THE LIGHT OF THE FINDINGS GIVEN IN THE ASSESSMENT ORDER, THE AO HAD TAKEN A V IEW THAT ASSESSEE HAD CONCEALED ITS PARTICULARS OF INCOME OR CONCEALED IT S INCOME MAKING IT LIABLE TO PENALTY LEVIABLE U/S 271(1)(C ) OF THE ACT. THE AO, THUS, LEVIED THE PENALTY. HOWEVER, CIT(A) DELETED BY THE PENALTY BY OBSERVING THAT AO HAS NOT BROUGHT OUT ANYTHING ON RECORD THAT THE ASSESSE E COMPANY HAS DELIBERATELY CONCEALED ANYTHING OR FURNISHED INACCU RATE PARTICULARS OF INCOME. 30. THE LEARNED DEPARTMENTAL REPRESENTATIVE ADVANCE D IDENTICAL ARGUMENTS SIMILAR TO THE ARGUMENTS ADVANCED IN RELA TION TO ADDITION OF RS.11,668/- ON ACCOUNT OF BOGUS PURCHASES AND RELIE D ON SAME DECISIONS. 31. WITH REGARD TO THE ADDITION OF RS.29,25,207/- O N ACCOUNT OF LOSS ON SALE OF SHARES, THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE REVISED VOLUNTARILY THE INCOME DURING THE ASSESSMENT PROCEEDINGS BY SUBMITTING LETTER DATED 27.3.98, WHERE THE ASSES SEE AGREED TO MAKE THE ADDITION IN RESPECT OF WHICH FULL PARTICULARS WERE DISCLOSED IN THE 21 COMPUTATION OF INCOME ITSELF, AND THUS, IT IS NOT A FIT CASE WHERE PENALTY CAN BE LEVIED U/S 271(1)(C ) OF THE ACT INASMUCH AS THE ASSESSEE HAS VOLUNTARILY OFFERED THE AMOUNT FOR TAX AS AND WHEN IT WAS SO RE ALIZED. 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE COMPUTATION OF INCOME FILED ALONG W ITH THE RETURN OF INCOME, THE ASSESSEE COMPANY CLAIMED A LOSS OF RS.29,25,207 /- ON ACCOUNT OF SALE OF SHARES OF SSL/KPIL. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS ASKED AS TO WHY THE CLAIM OF S ET OFF OF LONG-TERM CAPITAL LOSS ON SALE OF SHARES AGAINST BUSINESS INC OME SHOULD NOT BE DISALLOWED. IN RESPONSE TO THE AOS SHOW CAUSE NOT ICE, THE ASSESSEE COMPANY FILED A WRITTEN REPLY DATED 27.3.98 STATING THAT THE LOSS ON SALE OF SHARES OF SSL/KPIL IS THE LONG TERM CAPITAL LOSS AN D IT WAS INCLUDED IN COMPUTATION OF INCOME SINCE THERE WAS INCOME IN THE YEAR. IT WAS FURTHER STATED THAT, HOWEVER, LONG TERM CAPITAL LOSS OF THE CURRENT YEAR MAY BE CARRIED FORWARD FOR ADJUSTMENT IN THE NEXT ASSESSME NT YEAR AS PER SECTION 74(1) OF THE ACT. THE AO THEN CONSIDERED THE ASSES SEES REPLY, AND HAD TAKEN A VIEW THAT LONG TERM CAPITAL LOSS IS NOT ELI GIBLE TO BE SET OFF AGAINST THE CURRENT YEARS BUSINESS INCOME, AND THUS, ASSES SEES CLAIM OF SET OFF OF LONG-TERM CAPITAL LOSS AGAINST BUSINESS INCOME IS D ISALLOWED, AND ADDITION WAS ACCORDINGLY MADE. HOWEVER, THE AO STATED THAT LONG-TERM CAPITAL LOSS 22 SHALL BE ELIGIBLE TO BE CARRIED FORWARD TO NEXT ASS ESSMENT YEAR AGAINST LONG- TERM CAPITAL GAIN AS PER SECTION 74(1) OF THE ACT. AGAINST THE AOS ACTION, ASSESSEE DID NOT PREFER ANY APPEAL BEFORE THE LEARN ED CIT(A). THUS, THE AOS ORDER STOOD FINAL. THE AO INITIATED PENALTY P ROCEEDINGS U/S 271(1)(C ) OF THE ACT, AND IN THE LIGHT OF THE FACTS POINTED O UT IN THE ASSESSMENT ORDER, THE AO HAD TAKEN A VIEW THAT THE ASSESSEE HAS CONCE ALED ITS PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF I NCOME. HOWEVER, THE CIT(A) DELETED THE PENALTY BY OBSERVING THAT AO HAS NOT BROUGHT OUT ANYTHING ON RECORD TO PROVE THAT ASSESSEE COMPANY H AS DELIBERATELY CONCEALED ANYTHING OR FURNISHED INACCURATE PARTICUL ARS OF INCOME. 33. AFTER CONSIDERING THE POSITION OF LAW AS DISCUS SED ABOVE IN PARA 24 HERETO, WE ARE OF THE VIEW THAT CIT(A) WAS WRONG IN HOLDING THAT IT WAS THE BURDEN OF THE AO TO PROVE AND ESTABLISH THAT ASSESS EE COMPANY HAS DELIBERATELY CONCEALED ANYTHING OR FURNISHED INACCU RATE PARTICULARS OF INCOME. IT IS NOW WELL SETTLED THAT THE MENS REA I S NOT AN ESSENTIAL INGREDIENT FOR LEVYING PENALTY U/S 271(1)( C) OF THE ACT AS WA S HELD BY THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS DHA RMENDRA TEXTILES PROCESSORS (2008-TIOL-192-SC-CX-LB). IN THIS CASE, SINCE THE ASSESSEES CLAIM WAS DISALLOWED, IT WAS THE DUTY OF THE ASSESS EE TO PROVE AND ESTABLISH THAT HIS CLAIM WAS BONAFIDE, AND ALL THE FACTS RELA TING TO THE CLAIM WERE DULY 23 DISCLOSED AS SO PROVIDED IN UNDER EXPLANATION 1 TO SECTION 271(1)( C) OF THE ACT. WE, THEREFORE, PROCEED TO SEE AS TO WHETHER T HE ASSESSEES CLAIM WAS BONAFIDE AND THE ASSESSEE HAS DISCLOSED ALL THE PAR TICULARS MATERIAL TO THE COMPUTATION OF INCOME. WE HAVE CAREFULLY GONE THROU GH THE COMPUTATION OF INCOME FILED BY THE ASSESSEE WITH THE ORIGINAL RETU RN OF INCOME FILED ON 30.11.95. IN THE COMPUTATION OF INCOME, THE ASSESS EE WORKED OUT THE SUM OF RS.29,25,207/-, BEING LOSS ON SALE OF SHARES AS PER ANNEXURE NO.11. THE ASSESSEE MADE A CLAIM OF SET OFF OF LONG-TERM CAPIT AL LOSS AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. IN THE COMPUTATION OF INCOME, THE ASSESSEE COMPUTED THE BUSINESS INCOME B Y TAKING THE NET PROFIT AS PER P&L ACCOUNT AS THE BASE FOR DETERMINING THE INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AFTE R MAKING SEVERAL ADJUSTMENT TO THE NET PROFIT SHOWN IN THE P&L ACCOU NT. IN THE PROFIT AND LOSS ACCOUNT, THE LOSS ON SALE OF ASSETS I.E. SHARE OF M /S SSL/KPIL WAS SHOWN AT RS.11,44,000/-. IN OTHER WORDS, THE ACTUAL BOOK LO SS ON SALE OF SHARES WAS OF RS.11,44,000/-, WHICH WAS ENHANCED TO RS.29,25,207/ - AFTER APPLYING THE INFLATION INDEXED COST, AS PER WORKING GIVEN VIDE A NNEXURE 11 TO THE COMPUTATION OF INCOME. WHILE COMPUTING THE AMOUNT OF LONG-TERM CAPITAL LOSS, THE ASSESSEE COMPANY DETERMINED THE INDEXED C OST OF SHARES BY APPLYING THE COST INFLATION INDEX TO ACTUAL COST. IN OTHER WORDS, THE ASSESSEE 24 CLAIMED INDEXED COST OF ACQUISITION INSTEAD OF ACTU AL COST OF SHARES TO THE ASSESSEE ARRIVED AT A LOSS OF RS.29,25,207/-, AND T HUS, AS AGAINST THE ACTUAL BOOK LOSS OF RS.11,44,000/-. IT IS WELL KNOWN THAT THE ACTUAL COST OF LONG TERM CAPITAL ASSETS CAN BE SUBSTITUTED BY THE INDEX ED COST ONLY FOR THE PURPOSE OF COMPUTING THE INCOME UNDER THE LONG TERM CAPITAL GAIN AS PROVIDED UNDER CHAPTER IV PART E CAPITAL GAINS OF THE ACT. THE ASSESSEE HAS CONSCIOUSLY AND KNOWINGLY TAKEN THE INDEXED COS T OF ACQUISITION OF SHARES, AND COMPUTED THE LONG-TERM CAPITAL LOSS ON SALE OF SHARES AT RS.29,25,207/-. IT WAS, THUS, WELL WITHIN THE KNOW LEDGE OF THE ASSESSEE THAT THE LOSS OF RS.29,25,207/- WAS A LONG-TERM CAPITAL LOSS, WHICH WAS WORKED OUT BY THE ASSESSEE AS PER THE PROVISIONS OF COMPUT ATION OF CAPITAL GAIN UNDER THE INCOME-TAX ACT. AS PER SECTION 71 OF THE ACT, THE LOSS UNDER THE HEAD CAPITAL GAIN IS NOT ALLOWED TO BE SET OFF AG AINST INCOME UNDER OTHER HEAD IN THAT RELEVANT ASSESSMENT YEAR. THIS SECTIO N PROVIDES THAT WHEN NET RESULT OF THE COMPUTATION UNDER THE HEAD CAPITAL G AIN IS A LOSS AND THE ASSESSEE HAS INCOME ASSESSABLE UNDER ANY OTHER HEAD OF INCOME, THE ASSESSEE SHALL NOT BE ENTITLED TO HAVE SUCH LOSS SET OFF AGA INST INCOME UNDER ANY OTHER HEAD. IN THE PRESENT CASE, THE ASSESSEE HAS CLAIME D SET OFF OF LONG TERM CAPITAL LOSS AGAINST THE BUSINESS INCOME, WHICH, BY ANY STRETCH OF IMAGINATION IS NOT PERMISSIBLE UNDER THE PROVISIONS OF SECTION 71 OF THE ACT. 25 THE ASSESSEES EXPLANATION THAT IT HAS CLAIMED SET OFF OF LONG TERM CAPITAL LOSS AGAINST OTHER INCOME BECAUSE OF THE FACT THAT THERE WAS POSITIVE INCOME IN THAT YEAR IS TOTALLY UNACCEPTABLE AND UNBELIEVAB LE INASMUCH AS IT IS BEYOND ANY DOUBT THAT THE LONG TERM CAPITAL LOSS IS NOT AT ALL PERMITTED TO BE SET OFF AGAINST THE POSITIVE INCOME UNDER OTHER HEADS. THE REFORE, THE ASSESSEES EXPLANATION IS PRIMA FACIE CONTRARY TO THE CLEAR PR OVISIONS OF LAW CONTAINED IN SECTION 71 OF THE ACT. THE ASSESSEE IS A LIMITE D COMPANY, WHICH IS GUIDED AND INSTRUCTED BY THE TAX EXPERTS, AS WOULD BE CLEA R FROM FACTS OF THE PRESENT CASE. IN THE COMPUTATION OF INCOME, THE ASSESSEE H AS MADE SEVERAL ADJUSTMENTS TO THE NET PROFIT SHOWN AS PROFIT AND L OSS ACCOUNT, AND WHILE MAKING VARIOUS ADJUSTMENTS, THE ASSESSEE COMPANY HA S MADE A REFERENCE TO THE VARIOUS PROVISIONS OF THE INCOME-TAX ACT INCLUD ING CERTAIN DECISIONS ALSO. THEREFORE, IT CANNOT ALSO BE BELIEVED THAT T HE ASSESSEE COMPANY DID NOT KNOW THE PROVISIONS OF INCOME-TAX ACT. IT IS NOT T HE CASE OF THE ASSESSEE THAT IT WAS ADVISED BY SOME TAX EXPERTS THAT THE LONG TE RM CAPITAL LOSS CAN BE SET OFF AGAINST THE BUSINESS INCOME. IN FACT, IN VIEW OF PLAIN, SPECIFIC AND UNAMBIGUOUS PROVISIONS CONTAINED IN SECTION 71 OF T HE ACT, NO SUCH ADVISE COULD BE EXPECTED TO BE GIVEN BY ANY AUDITOR OR OTH ER TAX EXPERT. THE ASSESSEE IS NOT AN ORDINARY LAYMAN, BUT IS A COMPAN Y INCORPORATED UNDER THE COMPANIES ACT AND ACCOUNTS OF WHICH ARE MANDATORILY SUBJECTED TO AUDIT. IT 26 IS THE CASE WHERE ASSESSEE HAS MADE ADJUSTMENT TO T HE ACTUAL BOOK LOSS OF RS.11,44,000/- INCURRED BY THE ASSESSEE ON SALE OF SHARES, AND REVISED IT TO RS.29,25,207/- AFTER APPLYING THE INFLATION INDEXAT ION COST. THEREFORE, THE ASSESSEES CLAIM TO SET OFF LONG-TERM CAPITAL LOSS AGAINST BUSINESS INCOME CANNOT SAID TO BE A BONAFIDE MISTAKE ON THE PART OF THE ASSESSEE. THE ASSESSEE WAS WELL AWARE ABOUT THE PROVISIONS OF COM PUTATION OF LONG TERM CAPITAL GAIN AS IT HAS WORKED OUT THE LOSS AT RS.29 ,25,207/- AFTER APPLYING INDEXED COST OF ACQUISITION AS AGAINST ACTUAL LOSS OF RS.11,44,000/- AS PER BOOKS. IT IS ALSO NOT THE CASE WHERE THE CLAIM WAS LATER WITHDRAWN VOLUNTARILY BY FILING THE VALID REVISED RETURN OF I NCOME PERMITTED U/S 139(5) OF THE ACT BEFORE ANY ENQUIRY WAS MADE OR ANY QUERY WAS RAISED BY THE AO. IN THE PRESENT CASE, THE AO ISSUED A SHOW CAUSE LET TER AND THEN THE ASSESSEE FILED ITS REPLY ON 27.3.98, JUST BEFORE THE ASSESSM ENT MADE ON 31.3.98. IT IS PERTINENT TO NOTE THAT THE ORIGINAL RETURN OF INCOM E FILED BY THE ASSESSEE ON 30.11.95 WAS REVISED THRICE I.E. FIRST BY REVISED R ETURN FILED ON 22.2.96, SECONDLY ON 27.2.97 AND THIRDLY, ON 3.3.98. AFTER REVISING THE ORIGINAL RETURN OF INCOME FOR THREE TIMES, THE ASSESSEE AGAIN SUBMI TTED A LETTER DATED 27.3.98 IN REPLY TO THE AOS QUERY WHERE CERTAIN ITEMS OF I NCOME WERE AGREED TO BE TAXED. THE CLAIM OF THE ASSESSEE MADE IN THE ORIGI NAL RETURN OF INCOME WAS NEVER REVISED OR MODIFIED VOLUNTARILY BY THE ASSESS EE IN ANY OF THE THREE 27 REVISED RETURN FILED FROM TIME TO TIME BY THE ASSES SEE. IT IS THUS, A CASE OF DELIBERATE ACT OF MAKING A FALSE AND IMPERMISSIBLE CLAIM ON THE PART OF THE ASSESSEE. IN THE LIGHT OF THE FACTS OF THE PRESENT CASE, IT IS THUS ESTABLISHED THAT IT IS NOT A CASE WHERE CLAIM OF THE ASSESSEE H AS BEEN MERELY DISALLOWED UNDER THE LAW AFTER REJECTING THE ASSESSEES PROBAB LE VIEW BUT IT IS THE CASE WHERE THE CLAIM OF THE ASSESSEE WAS NOT AT ALL MAIN TAINABLE BY ANY STRETCH OF IMAGINATION UNDER THE PLAIN PROVISIONS OF LAW, AND, THUS, BY CLAIMING THE SAME, ASSESSEE HAS FURNISHED FALSE CLAIM IN THE RET URN OF INCOME. AS POINTED OUT ABOVE, WE CANNOT LOSE SIGHT OF THE FACT THAT TH E ASSESSEE COMPANY IS A COMPANY, WHICH IS AVAILING PROFESSIONAL ASSISTANCE IN PREPARING COMPUTATION OF INCOME, AND FILING RETURN OF INCOME. IN THE LIG HT OF PLAIN AND UNAMBIGUOUS PROVISIONS CONTAINED IN SECTION 71 OF T HE ACT, WE FAIL TO UNDERSTAND AS TO HOW SUCH CLAIM COULD BE MADE BY TH E PRESENT ASSESSEE COMPANY, AND HOW THIS COULD HAVE ESCAPED THE ATTENT ION OF THE TAX CONSULTANT OR THE AUDITOR OF THE ASSESSEE COMPANY W HILE PREPARING AND FILING RETURN OF INCOME. MOREOVER, IT HAS BEEN NEVER A CL AIM OF THE ASSESSEE THAT THE CLAIM WAS MADE UNDER ANY BONAFIDE ADVICE. 34. IN THE CASE OF CIT VS ZOOM COMMUNICATIONS P. LT D. (SUPRA) AND IN THE CASE OF CIT VS ESCORTS FINANCE LTD., 183 TAXMAN 453 (DELHI), THE HONBLE DELHI HIGH COURT HAS EXAMINED THE CLAIM MAD E BY THE ASSESSEE ON 28 ACCOUNT OF INCOME-TAX PAID BY THE ASSESSEE AND EQUI PMENT WRITTEN OFF, AND CLAIM OF DEDUCTION U/S 35D OF THE ACT, FOR THE PURP OSE OF PENALTY LEVIABLE U/S 271(1)( C) OF THE ACT. 35. IN THE CASE OF CIT VS ZOOM COMMUNICATIONS P. LT D.(SUPRA), THE HONBLE DELHI HIGH COURT HAS NOT ACCEPTED THE GENER AL VIEW TAKEN BY THE TRIBUNAL THAT SINCE NO PERSON WOULD CLAIM THE DEDUC TION ON ACCOUNT OF INCOME-TAX PAID BY THE ASSESSEE TO EVADE PAYMENT OF TAX, THE CLAIM MADE BY THE ASSESSEE WAS NOT MALAFIDE. THE HONBLE HIGH CO URT OBSERVED THAT IN THE ABSENCE OF THE ASSESSEE COMPANY TELLING THE AO AS T O WHO COMMITTED THE OVERSIGHT RESULTING IN FAILURE TO ADD THIS AMOUNT O N ACCOUNT OF INCOME-TAX PAID BY THE ASSESSEE WHILE COMPUTING THE INCOME OF THE ASSESSEE, UNDER WHAT CIRCUMSTANCES THE OVERSIGHT OCCURRED AND WHY IT WAS NOT DETECTED BY THOSE, WHO CHECKED THE INCOME-TAX RETURN BEFORE IT WAS FIL ED AND LATER BY THE AUDITORS OF THE ASSESSEE COMPANY, WE CANNOT ACCEPT THE GENERAL VIEW TAKEN BY THE TRIBUNAL. THE HONBLE HIGH COURT WAS OF THE VIEW THAT NO SUCH GENERAL VIEW TAKEN BY THE TRIBUNAL COULD HAVE REASO NABLY BEEN TAKEN, ON THE FACTS AND CIRCUMSTANCES PREVAILING IN THAT CASE AND , THEREFORE, THE DECISION OF THE TRIBUNAL IN THAT REGARD FOUND TO BE SUFFERED FR OM THE VICE OF PERVERSITY. THEY FURTHER OBSERVED THAT NO HARD AND FAST RULE IN THIS REGARD CAN BE LAID DOWN, AND EVERY CASE WILL HAVE TO BE DECIDED CONSID ERING THE FACTS AND 29 CIRCUMSTANCES IN WHICH SUCH A DEDUCTION IS CLAIMED, EXCEPT THAT AS TO WHETHER THE EXPLANATION OFFERED BY THE ASSESSEE FOR MAKING THE CLAIM IS SHOWN TO BE BONAFIDE OR NOT. APPLYING THIS DECISIO N OF JURISDICTIONAL DELHI HIGH COURT TO THE FACTS OF THE PRESENT CASE, WE FIN D THAT, IN THE PRESENT CASE, THE ASSESSEE HAS NOT EXPLAINED AS TO WHY AND UNDER WHAT CIRCUMSTANCES, THE ASSESSEE MADE A CLAIM OF SET OFF OF LONG-TERM CAPIT AL LOSS AGAINST BUSINESS INCOME, AND WHY THE SAME WAS NOT DETECTED AT A LATE R STAGE WHEN THE ASSESSEE REVISED THE RETURN OF INCOME THRICE I.E. O N 22.2.96, 27.2.97 AND LASTLY, ON 3.3.98 EXCEPT BY AGREEING TO THE ADDITIO N VIDE LETTER DATED 27.3.98 AFTER AN ENQUIRY WAS MADE BY THE AO AS TO WHY THIS CLAIM OF SET OFF OF LONG TERM CAPITAL LOSS SHOULD NOT BE DISALLOWED AGAINST THE BUSINESS INCOME. THUS, IT IS NOT A CASE WHERE ASSESSEE HAS VOLUNTARI LY WITHDRAWN THE CLAIM IN A BONAFIDE MANNER. THE ASSESSEE HAS WITHDRAWN THE CL AIM ONLY AFTER THE SAME WAS DETECTED BY THE AO. AS ALREADY OBSERVED ABOVE, THE ASSESSEE COMPANY IS A COMPANY, WHICH WAS HAVING PROFESSIONAL ASSISTA NCE IN COMPUTING OF ITS INCOME AND FILING THE RETURN OF INCOME, AND IT IS N OT EXPLAINED BY IT AS TO HOW SUCH DEDUCTION COULD HAVE BEEN MADE WHILE COMPU TING THE INCOME UNDER THE HEAD BUSINESS OF THE ASSESSEE COMPANY, AND HOW IT COULD ALSO HAVE ESCAPED THE ATTENTION OF THE ASSESSEE COMPANY PARTICULARLY IN VIEW OF THE FACT THAT ASSESSEE CLAIMED THE AMOUNT OF LONG-T ERM CAPITAL LOSS AFTER 30 APPLYING THE COST INFLATION INDEX, WHICH IS ONLY PE RMISSIBLE WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS AND NOT U NDER THE HEAD BUSINESS INCOME. IN THE SAID DECISION OF CIT VS ZOOM COMMU NICATIONS P. LTD.(SUPRA), THE HONBLE HIGH COURT HAS ALSO TAKEN NOTE OF THE FACT THAT ONLY SMALL PERCENTAGE OF INCOME-TAX RETURNS ARE PICKED U P FOR SCRUTINY, AND IN THAT CASE, THE ASSESSEE WOULD GET AWAY EVEN WITHOUT PAYI NG THE TAX LEGALLY PAYABLE BY IT, IF THE ASSESSEES CASE IS NOT PICKED UP FOR SCRUTINY. THE RELEVANT OBSERVATION OF THE HONBLE HIGH COURT IN T HIS REGARD ARE REPRODUCED AS UNDER: 20. THE COURT CANNOT OVERLOOK THE FACT THAT ONLY A SMALL PERCENTAGE OF THE INCOME-TAX RETURNS ARE PICKED UP FOR SCRUTINY. IF THE ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW BUT IS ALSO WHOLLY WITHOUT ANY BASIS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOUND TO BE BONAFIDE, IT WOULD BE DIFFICULT TO SAY THAT HE WOULD STILL NOT BE LIABLE TO PENALTY U/S 271(1)( C) OF THE ACT. IF WE TAKE THE VIEW THAT A CLAIM WHICH IS WHOLLY UNTENABLE IN LAW AND HAS ABSOLUTELY NO FOUNDATION ON WHICH IT COULD BE MADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENALTY, EVEN IF HE WAS NOT ACTING BONAFIDE WHILE MAKING A CLAIM OF THIS NATURE, THAT WOULD GIVE A LICENCE TO UNSCRUPULOUS ASSESSEES TO MAKE WHOLLY UNTENABLE AND UNSUSTAINABLE CLAIM, WITHOUT THERE BEING ANY BASIS FOR MAKING THEM, IN THE HOPE THAT THEIR RETURN WOULD NOT BE PICKED UP FOR SCRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF ASSESSMENT U/S 143(1) OF THE ACT AND EVEN IF THEIR 31 CASE IS SELECTED FOR SCRUTINY, THEY CAN GET AWAY MERELY BY PAYING THE TAX, WHICH IN ANY CASE, WAS PAYABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE PERSONS WHO MAKE CLAIMS OF THIS NATURE, ACTUATED BY A MLAFIDE INTENTION TO EVADE TAX OTHERWISE PAYABLE BY THEM WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM, IF THEIR CASES ARE NOT PICKED UP FOR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT, WHICH THESE PENALTY PROVISIONS IN THE ACT HAVE. IN THIS CASE, THE HONBLE HIGH COURT OF DELHI HAS A LSO CONSIDERED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RE LIANCE PETRO PRODUCTS P. LTD. (SUPRA) AND THE POSITION OF LAW EMERGING FROM THAT CASE IN THE FACTUAL MATRIX OF THE CASE BEFORE HONBLE HIGH COURT, HAS B EEN DISCUSSED AND ANALYZED AS UNDER: 16. THE PROPOSITION OF LAW WHICH EMERGES FROM THIS CASE, WHEN CONSIDERED IN THE BACKDROP OF THE FACTS OF THE CASE BEFORE THE COURT, IS THAT SO LONG AS THE ASSESSEE HAS NOT CONCEALED ANY MATERIAL FACT OR THE FACTUAL INFORMATION GIVEN BY HIM HAS NOT BEEN FOUND TO BE INCORRECT, HE WILL NOT BE LIABLE TO IMPOSITION OF PENALTY U/S 271(1)(C ) OF THE ACT, EVEN IF THE CLAIM MADE BY HIM IS UNSUSTAINABLE IN LAW, PROVIDED THAT HE EITHER SUBSTANTIATES THE EXPLANATION OFFERED BY HIM OR THE EXPLANATION, EVEN IF NOT SUBSTANTIATED, IS FOUND TO BE BONAFIDE . IF THE EXPLANATION IS NEITHER SUBSTANTIATED NOR SHOWN TO BE BONAFIDE, EXPLANATION 1 TO SECTION 271(1)( C) WOULD COME IN TO PLAY AND THE ASSESSEE WILL BE LIABLE TO FOR T HE PRESCRIBED PENALTY. 32 17. THE ASSESSEE BEFORE US IS A COMPANY WHICH DECLARED AN INCOME OF RS.1,21,49,861/- AND ACCOUNTS OF WHICH ARE MANDATORILY SUBJECTED TO AUDIT. IT IS NOT THE CASE OF THE ASSESSEE THAT IT WAS ADVISED THAT THE AMOUNT OF INCOME TAX PAID BY IT COULD BE CLAIMED AS A REVENUE EXPENDITURE. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT DEDUCTION OF INCOME TAX PAID BY IT WAS A DEBATABLE ISSUE. IN FACT, IN VIEW OF THE SPECIFIC PROVISIONS CONTAINED IN SECTION 40(II) OF THE ACT, NO SUCH ADVICE COULD BE GIVEN BY AN AUDITOR OR OTHER TAX EXPERT. NO SUCH ADVICE HAS BEEN CLAIMED BY THE ASSESSEE EVEN WITH RESPECT TO THE AMOUNT CLAIMED AS DEDUCTION ON ACCOUNT OF CERTAIN EQUIPMENT HAVING BECOME USELESS AND HAVING BEEN WRITTEN OFF. AS NOTICED EARLIER, THE TRIBUNAL WAS ENTIRELY WRONG IN SAYING THAT SECTION 32(1)(III) OF THE ACT APPLIES TO SUCH A DEDUCTION. IT WAS NOT THE CONTENTION BEFORE US THAT CLAIMING OF SUCH A DEDUCTION U/S 32(1)(III) WAS A DEBATABLE ISSUE ON WHICH THERE WERE TWO OPINIONS PREVAILING AT THE RELEVANT TIME. IN FACT, THE ASSESSEE DID NOT CLAIM , EITHER BEFORE THE AO OR BEFORE THE CIT(A) THAT SUCH A DEDUCTION WAS PERMISSIBLE U/S 32(1)(III) OF THE ACT, NO SUCH CONTENTION ON BEHALF OF THE ASSESSEE FINDS NOTED IN THE ORDER OF THE TRIBUNAL. THUS, IT WAS THE TRIBUNAL, WHICH TOOK THE VIEW THAT SECTION 32(1)(III) COULD BE ATTRACTED TO THE DEDUCTION CLAIMED BY THE ASSESSEE. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT IT WAS DUE TO OVERSIGHT THAT THE AMOUNT OF INCOME TAX PAID BY THE ASSESSEE AS WELL AS THE AMOUNT CLAIMED AS DEDUCTION ON ACCOUNT OF CERTAIN EQUIPMENT BEING WRITTEN OFF COULD NOT BE ADDED BACK IN THE COMPUTATION OF INCOME. 18. IN THE CASE OF RELIANCE PETRO PRODUCTS PRIVATE LIMITED (SUPRA), THE ADDITION MADE BY THE AO IN RESPECT OF THE INTEREST CLAIMED AS A DEDUCTION U/S 36(1)(III) OF THE ACT WAS DELETED BY THE CIT(A) 33 THOUGH IT WAS LATER RESTORED BY THE TRIBUNAL TO THE AO. THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE TRIBUNAL WAS ADMITTED BY THE HIGH COURT. IT WAS, IN THESE CIRCUMSTANCES THAT THE TRIBUNAL CAME TO THE CONCLUSION THAT THE ASSESSEE HAD NEITHER CONCEALED THE INCOME NOR FILED INACCURATE PARTICULARS THEREOF. IN RECORDING THIS FINDING THE TRIBUNAL FELT THAT IF TWO VIEWS OF THE CLAIM OF THE ASSESSEE WERE POSSIBLE, THE EXPLANATION OFFERED BY IT COULD NOT BE SAID TO BE FALSE. THIS, HOWEVER, IS NOT THE FACTUAL POSITION IN THE CASE BEFORE US. THE FACTS OF THE PRESENT CASE THUS ARE CLEARLY DISTINGUISHABLE. 19. IT IS TRUE THAT MERE SUBMITTING A CLAIM WHICH IS INCORRECT IN LAW WOULD NOT AMOUNT TO GIVING INACCURATE PARTICULARS OF INCOME OF THE ASSESSEE, BUT IT CANNOT BE DISPUTED THAT THE CLAIM MADE BY THE ASSESSEE NEEDS TO BE BONAFIDE. IF THE CLAIM BESIDES BEING INCORRECT IN LAW IS MALAFIDE, EXPLANATION 1 TO SECTION 271(1) COME INTO PLAY AND WORK TO THE DISADVANTAGE OF THE ASSESSEE. 36. SIMILARLY, IN THE CASE OF CIT VS ESCORTS FINANC E LTD.(SUPRA), THE ORDER OF THE TRIBUNAL DELETING THE PENALTY WITH REFERENCE TO THE DISALLOWANCE OF CLAIM MADE U/S 35D OF THE ACT WAS SET ASIDE AND THE AOS ORDER LEVYING THE PENALTY WAS UPHELD. IN THAT CASE, THE HONBLE HIGH COURT HAD AGREED THAT THE SUBMISSION OF THE LEARNED COUNSEL FOR THE REVEN UE THAT HARDLY 5% RETURNS ARE TAKEN UP FOR SCRUTINY AND, THEREFORE, WITH THE HOPE THAT ASSESSEES RETURN MAY NOT COME UNDER SCRUTINY AND MAY BE ASSESSED ON THE SELF ASSESSMENT, AN ASSESSEE CAN VENTURE TO GIVE WRONG INFORMATION, AND , THEREFORE, MERELY BECAUSE INFORMATION WAS AVAILABLE IN THE TAX AUDIT REPORT, WOULD NOT ABSOLVE 34 THE ASSESSEE, AND WHAT WAS TO BE SEEN WAS THAT WHET HER THE CLAIM MADE WAS BOGUS. THE HONBLE HIGH COURT FURTHER OBSERVED THA T EVEN IF THERE IS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS, BUT ON THE BASIS THEREOF THE CLAIM, WHICH IS MADE IS EX FACIE BOGUS, IT MAY STILL ATTRACT PENALTY PROVISION. IN THAT CASE, THE HONBLE HIGH COURT EXAMINED THE ISSUE AS TO WHETHER THE CLAIM U/S 35D OF THE ACT WAS BOGU S OR IT WAS A BONAFIDE CLAIM. THE ASSESSEE PLEADED BONAFIDE AS, ACCORDING TO THE ASSESSEE, IT WAS BASED ON THE INFORMATION OF THE CHARTERED ACCOUNTAN T. HOWEVER, IT WAS OBSERVED BY THE HONBLE HIGH COURT THAT THEY FAILED TO UNDERSTAND AS HOW THE CHARTERED ACCOUNTANTS, WHO ARE SUPPOSED TO BE E XPERTS IN TAX LIABILITIES, COULD GIVE SUCH INFORMATION HAVING REGARD TO THE PL AIN LANGUAGE OF SECTION 35D OF THE ACT. THE HONBLE HIGH COURT ALSO FOUND THAT IT WAS NOT A CASE WHERE TWO OPINIONS ABOUT THE APPLICABILITY OF SECTI ON 35D WERE POSSIBLE. THE HONBLE HIGH COURT, THEREFORE, HOLD THAT IT CAN NOT BE A CASE OF BONAFIDE ERROR ON THE PART OF THE ASSESSEE, AS RELIEF AVAILA BLE U/S 35D OF THE ACT TO FINANCE COMPANY IS EX FACIE INADMISSIBLE AS THAT IS CONFINED ONLY TO THE EXISTING INDUSTRIAL UNDERTAKING FOR THEIR EXTENSION OR FOR SETTING UP A NEW INDUSTRIAL UNDERTAKING. THE HONBLE COURT, THEREFO RE, HOLD THAT IT WAS NOT A WRONG CLAIM MADE BY THE ASSESSEE BUT IS A CLEAR CAS E OF FALSE CLAIM, WHICH WOULD ATTRACT PENALTY. 35 37. WITH REGARD TO THE ASSESSEES CONTENTION THAT A SSESSEE SURRENDERED THE AMOUNT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AND THUS, NO PENALTY COULD BE LEVIED, WE MAKE A USEFUL REFERENCE TO A DE CISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS SHRI RAK ESH SURI (SUPRA) WHERE IT HAS BEEN HELD THAT SURRENDER MADE AFTER THE CONC EALED INCOME WAS DETECTED BY THE DEPARTMENT CANNOT BE HELD TO BE VOLUNTARY OR BONAFIDE BUT UNDER COMPULSION, AND IN THAT CASE, THE ASSESSEE CANNOT B E ABSOLVED FROM LEVYING PENALTY BECAUSE HE AGREED TO THE ADDITION AT THE TI ME OF ASSESSMENT. 38. THESE DECISIONS OF HONBLE DELHI HIGH COURT AND ALLAHABAD HIGH COURT ARE SQUARELY APPLICABLE TO THE CASE BEFORE US INASMUCH AS, IN THE PRESENT CASE, IT IS TOTALLY UNBELIEVABLE THAT HOW A ND UNDER WHAT CIRCUMSTANCES, THE CLAIM OF SET OFF OF LONG TERM CA PITAL LOSS COULD BE MADE AGAINST THE BUSINESS INCOME IN THE LIGHT OF THE PLA IN AND UNAMBIGUOUS LANGUAGE TO SECTION 71 OF THE ACT, AND HOW SUCH ADV ISE COULD BE GIVEN BY ANY TAX CONSULTANT TO CLAIM THE SAME. THEREFORE, I T CANNOT BE A CASE OF BONAFIDE ERROR ON THE PART OF THE ASSESSEE BUT IT I S A CLEAR CASE OF MAKING FALSE CLAIM. IN SUPPORT OF THE VIEW, WE HAVE TAKEN ABOVE, RELIANCE MAY ALSO BE PLACED UPON ANOTHER DECISION OF HONBLE DELHI HI GH COURT IN THE CASE OF CIT VS ECS LTD. (SUPRA) WHERE PENALTY LEVIED BY THE AO WITH REGARD TO THE CLAIM OF DEDUCTION U/S 80-O ON GROSS INCOME WAS FOU ND TO BE JUSTIFIED 36 INASMUCH AS ONCE IT WAS THE ACCEPTED POSITION THAT DEDUCTION U/S 80-O HAD TO BE ALLOWED ONLY ON NET INCOME, IT WAS BUT OBVIOUS T HAT EXPENDITURE INCURRED IN INDIA HAD ALSO TO BE DEDUCTED TO ARRIVE AT SUCH A NET INCOME. THEREFORE, THE ASSESSEES CLAIM OF DEDUCTION U/S 80-O ON GROSS INCOME WAS FOUND TO BE MALAFIDE AND THE PENALTY LEVIED U/S 271(1)(C ) BY T HE AO WAS UPHELD. SIMILARLY, IN THE PRESENT CASE BEFORE US, THERE IS NO CONTROVERSY AT LEAST TO THE EXTENT THAT LONG-TERM CAPITAL LOSS IS NOT PERMITTED TO BE SET OFF AGAINST BUSINESS INCOME AS CLEARLY STATED IN PLAIN AND UNAM BIGUOUS LANGUAGE OF SECTION 71 OF THE ACT, AND, THEREFORE, THE ASSESSEE S CLAIM CANNOT BE SAID TO BE BONAFIDE. 39. FURTHER, THE DECISION OF HONBLE P&H HIGH COURT IN THE CASE OF CIT VS AJAIB SINGH & CO. (SUPRA), UPON WHICH A STRONG RELI ANCE HAS BEEN PLACED BY THE LEARNED CIT(A) AS WELL BY THE LEARNED COUNSEL F OR THE ASSESSEE, WOULD ALSO OF NO ASSISTANCE TO THE ASSESSEES CASE INASMU CH AS, FACTS OF THAT CASE ARE QUITE DIFFERENT AND DISTINCT TO THAT OF THE PRESENT CASE. IN THE CASE OF CIT VS AJAIB SINGH & CO. (SUPRA), THE PENALTY WAS LEVIED B Y THE AO IN RESPECT OF ADDITION OF RS.40,000/- WHICH WAS SUSTAINED ON ESTI MATED BASIS AND IN THAT CONTEXT, IT WAS HELD BY THE HONBLE HIGH COURT THAT MERE BECAUSE ADDITION WAS SUSTAINED THAT BY ITSELF, WOULD NOT ATTRACT PEN ALTY U/S 271(1)(C ) OF THE ACT. THE OTHER ADDITION MADE IN THAT CASE WAS OF RS.4200/- ON ACCOUNT OF 37 SALES-TAX LIABILITY, WHICH WAS A MATTER OF DEBATE, AND IN THAT CONTEXT, IT WAS HELD THAT MERE MAKING A CLAIM, WHICH IS NOT ACCEPTA BLE TO THE REVENUE, NO PENALTY CAN BE LEVIED. HOWEVER, IN THE PRESENT CAS E, IT IS NOT THE CASE WHERE ADDITION HAS BEEN MADE EITHER ON ESTIMATED BASIS OR ON A MATTER OF DEBATE. IN THE PRESENT CASE, THE CLAIM OF THE ASSESSEE IS P RIMA FACIE NOT AT ALL MAINTAINABLE IN THE EYES OF LAW AND NO PERSON ACTIN G BONAFIDE WOULD MADE SUCH A CLAIM IN THE RETURN OF INCOME. 40. IN THE LIGHT OF THE POSITION OF LAW AND THE TOT ALITY OF FACTS OF THE CASE REGARDING THIS ADDITION OF RS.29,25,207/- ON ACCOUN T OF DISALLOWANCE OF CLAIM OF LOSS OF LONG-TERM CAPITAL LOSS ON SALE OF SHARES AS DISCUSSED IN DETAIL ABOVE, WE REVERSE THE ORDER OF LEARNED CIT(A) AND R ESTORE THAT OF THE AO ON THIS COUNT. IN OTHER WORDS, WE HOLD THAT THE AO WA S JUSTIFIED IN LEVYING PENALTY U/S 271(1)(C ) OF THE ACT IN SO FAR AS ASSE SSEES CLAIM OF SET OFF OF LONG TERM CAPITAL LOSS WORKED OUT AFTER APPLYING TH E COST INFLATION INDEX, AGAINST THE BUSINESS INCOME IS CONCERNED. THE ORDE R OF PENALTY PASSED BY THE AO ON THAT COUNT IS CONFIRMED. 41. NOW, WE COME TO THE ADDITION OF EARLIER YEAR LI ABILITY NO LONGER REQUIRED AMOUNTING TO RS.9,26,060/- CLAIMED BY THE ASSESSEE AS DEDUCTION IN THE RETURN OF INCOME. THE ASSESSEES CLAIM WAS DIS ALLOWED BY THE AO WHILE DETERMINING THE TOTAL INCOME IN THE ASSESSMENT MADE U/S 143(3) BY AO. IT IS 38 NOT IN DISPUTE THAT AN AMOUNT OF RS.9,26,060/- INCL UDED IN THE PROFIT & LOSS ACCOUNT WAS CLAIMED AS DEDUCTION ON ACCOUNT OF EARL IER YEAR LIABILITY NO LONGER REQUIRED AND WRITTEN OFF, BY THE ASSESSEE. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS GI VEN A SHOW CAUSE BY THE AO AS TO WHY THE SAID CLAIM SHOULD NOT BE DISAL LOWED. THE ASSESSEE COMPANY IN ITS REPLY DATED 27.3.98 ADMITTED THE MIS TAKE. ACCORDINGLY, THE ADDITION OF RS.9,26,060/- WAS MADE TO THE TOTAL INC OME OF THE ASSESSEE AGAINST WHICH NO APPEAL WAS PREFERRED BY THE ASSESS EE. THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, AND A FTER HEARING THE ASSESSEE, HE LEVIED THE PENALTY BY OBSERVING THAT ASSESSEE HA D FURNISHED INACCURATE PARTICULARS OF HIS INCOME AND ALSO CONCEALED THE PA RTICULARS OF INCOME BY MAKING WRONG CLAIMS SO THAT TAXABLE INCOME OF THE A SSESSEE MAY GET REDUCED. HOWEVER, THE LEARNED CIT(A) DELETED THE P ENALTY BY OBSERVING THAT NO CONCEALMENT HAS BEEN POINTED OUT IN THE ASSESSME NT ORDER AND THE AO HAS NOT GIVEN ANY FINDING THAT THE ASSESSEE HAS CONCEAL ED ANYTHING OR FURNISHED INACCURATE PARTICULARS OF INCOME. THE LEARNED CIT( A) FURTHER OBSERVED THAT AGREEING TO THE ADDITION MAY BE DUE TO SEVERAL REAS ONS BUT THAT BY ITSELF NOT SUFFICIENT TO LEVY PENALTY WHEN THERE WAS NO FINDIN G BY THE AO THAT THE AO COMPELLED THE ASSESSEE COMPANY EITHER TO REVISE OR DISCLOSE THE INCOME. HE FURTHER OBSERVED THAT THE AO HAS PASSED THE PENALTY ORDER IN A VERY 39 MECHANICAL MANNER WITHOUT RECORDING ANY MANDATORY S ATISFACTION TO INITIATE PENALTY PROCEEDINGS IN THE ASSESSMENT ORDER. 42. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BE FORE US. 43. THE CONTENTIONS AND SUBMISSIONS OF THE LEARNED DR WERE SIMILAR AND IDENTICAL AS THAT OF CONTENDED IN RESPECT OF ABOVE MENTIONED ITEM OF RS.11,668/- ON ACCOUNT OF BOGUS PURCHASES AND RS.29 ,25,207/-, BEING THE ADDITION BY WAY OF DISALLOWANCE OF ASSESSEES CLAIM TO SET OFF LOSS OF LONG TERM ON SALE OF SHARES AGAINST BUSINESS INCOME. 44. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HAS SUBMITTED THAT THE ASSESSEE HAS VOLUNTARILY ACCEPTED THE ADDI TION AS SOON AS THE ASSESSEES MISTAKE WAS DETECTED, AND THUS, IT COULD NOT BE SAID THAT ASSESSEE HAD CONCEALED ITS INCOME OR FURNISHED INACCURATE PA RTICULARS OF INCOME PARTICULARLY IN THE LIGHT OF THE FACT THAT AL THE P ARTICULARS RELATING TO THIS CLAIM WERE DISCLOSED IN THE RETURN OF INCOME AND IN THE C OURSE OF ASSESSMENT PROCEEDINGS AS WELL. 45. ON THIS ASPECT OF THE MATTER AS TO WHETHER PENA LTY U/S 271(1)(C ) HAS BEEN RIGHTLY LEVIED BY THE AO WITH REGARD TO THE DI SALLOWANCE OF ASSESSEES CLAIM OF DEDUCTION OF EARLIER YEARS LIABILITIES NO LONGER REQUIRED AND WRITTEN BACK OF RS.9,26,060/-, WE FIND THAT, IN THE COURSE OF ASSESSMENT PROCEEDINGS, 40 THE AO ISSUED A QUERY ON 23.3.98 TO THE ASSESSEE AS TO WHY THE ASSESSEES CLAIM OF DEDUCTION OF LIABILITIES NO LONGER REQUIRE D WRITTEN BACK IS NOT TO BE DISALLOWED AND IN RESPONSE TO THE AOS QUERY MADE O N 23.3.90, THE ASSESSEE SUBMITTED POINT-WISE REPLY VIDE ITS LETTER DATED 27 TH MARCH, 1998 WHERE THE ASSESSEE HAS STATED THAT THE LIABILITIES NO LONGER REQUIRED WRITTEN BACK HAS BEEN INCLUDED IN THE OTHER INCOME IN PROFIT AND LOS S ACCOUNT, BUT BY MISTAKE, DEDUCTION WAS CLAIMED IN THE RETURN OF INCOME, AND HENCE, THE SAME MAY BE DISALLOWED. THE AO, THEREFORE, DISALLOWED THE ASSE SSEES CLAIM OF DEDUCTION OF LIABILITIES NO LONGER REQUIRED WRITTEN BACK. WE HAVE GONE THROUGH THE PROFIT AND LOSS ACCOUNT AS WELL AS COMPUTATION OF I NCOME FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME, AND ALSO THE REVISED COMPUTATION OF INCOME FILED DURING THE COURSE OF ASSESSMENT PRO CEEDINGS FROM TIME TO TIME. THE ASSESSEE HAD A LIABILITY OF RS.9,26,060/ -, WHICH WAS FOUND TO BE NO MORE PAYABLE BY THE ASSESSEE, AND HENCE, IT WAS WRITTEN BACK AND CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAD SH OWN OTHER INCOME OF RS.3,82,94,886/-, WHICH INCLUDES AN ITEM OF RS.9,26 ,060/-, BEING THE LIABILITIES WRITTEN BACK (NET OF BALANCES WRITTEN O FF). SINCE THIS LIABILITY WAS NO LONGER REQUIRED TO BE PAID BY THE ASSESSEE AND T HE NET OF THE BALANCES WERE WRITTEN OFF IN THE BOOKS OF ACCOUNTS, IT WAS R IGHTLY BROUGHT TO PROFIT AND LOSS ACCOUNT AS INCOME. HOWEVER, WHILE FILING THE RETURN OF INCOME, THE 41 ASSESSEE DEDUCTED THE SAME FROM THE NET PROFIT AS P ER P&L ACCOUNT WITHOUT WHISPERING ANYTHING OR GIVING ANY EXPLANATION OR NA RRATION AS TO WHY IT HAS BEEN REDUCED THE SAME FROM THE NET PROFIT SHOWN AS PER PROFIT AND LOSS ACCOUNT. IT IS, THUS, CLEAR THAT THOUGH THE AMOUNT WAS INCLUDED IN THE P&L ACCOUNT, THE DEDUCTION HAS BEEN CLAIMED BY THE ASS ESSEE IN THE COMPUTATION OF TOTAL INCOME FOR THE PURPOSE OF ASSESSMENT UNDER THE INCOME-TAX ACT, AND CLAIMED THE SAME IN THE RETURN OF INCOME FILED BY T HE ASSESSEE. WHEN ASSESSEE WAS CONFRONTED WITH THE SITUATION, THE ASS ESSEE, IN ITS REPLY, MERELY STATED THAT IT HAS BEEN CLAIMED BY MISTAKE WITHOUT STATING FURTHER, AS TO WHY AND HOW THIS MISTAKE WAS COMMITTED. WHEN THIS AMOU NT WAS SPECIFICALLY INCLUDED IN THE PROFIT AND LOSS ACCOUNT, AND THEREA FTER IT WAS REDUCED FROM THE NET PROFIT WHILE COMPUTING THE TOTAL INCOME FOR THE PURPOSE OF ASSESSMENT UNDER THE INCOME-TAX ACT, IT IS NOT BELI EVABLE THAT THE DEDUCTION WAS CLAIMED BY MISTAKE. IN THE LIGHT OF THE FACTS O F THE PRESENT CASE, WE FIND THAT IT WAS A CONSCIOUS DECISION OF THE ASSESSEE TO CLAIM THE DEDUCTION WITHOUT GIVING ANY SORT OF BASIS OR REASON FOR CLAI MING THE SAME AS DEDUCTION. IT IS NOT THE CASE OF THE ASSESSEE THAT THESE LIABILITIES NO LONGER REQUIRED TO PAY BUT WRITTEN BACK BY CREDITING THE S AME IN THE PROFIT AND LOSS ACCOUNT WAS ON ANY CAPITAL ACCOUNT THAT THE SAME WE RE NOT TO BE INCLUDED IN THE TAXABLE INCOME COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. 42 THE ASSESSEE HAS MERELY GIVEN A WILD AND EVASIVE RE PLY THAT THE CLAIM WAS MADE BY MISTAKE WITHOUT SAYING ANYTHING MORE AS TO HOW AND WHY THE MISTAKE CAME TO BE COMMITTED WHEN PARTICULARLY IT I S NOT IN DISPUTE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE COMPAN IES ACT AND IS GUIDED BY THE TAX EXPERTS, AS WAS ALREADY DISCUSSED AND IN DICATED ABOVE AND THE AMOUNT WAS INCLUDED IN THE PROFIT AND LOSS ACCOUNT. THEREFORE, THE VIEWS WE HAVE TAKEN ABOVE WITH REGARD TO THE ITEM OF RS.29,2 5,207/-, BEING THE CLAIM OF SET OFF OF LONG TERM CAPITAL LOSS AGAINST BUSINE SS INCOME, FULLY SUPPORTS THE PENALTY LEVIED BY THE AO IN RESPECT OF THIS DIS ALLOWANCE OF LIABILITIES NO LONGER REQUIRED WRITTEN BACK BUT CLAIMED AS DEDUCTI ON INASMUCH AS THE ASSESSEES EXPLANATION OR CONDUCT IS NOT AT ALL FOU ND TO BE BONAFIDE, AND THE ASSESSEE HAS NOT BEEN ABLE TO DISCHARGE ITS BURDEN THAT LAY UPON IT UNDER EXPLANATION 1 TO SECTION 271(1)( C) OF THE ACT. WE FURTHER HOLD THAT THE LEARNED CIT(A) WAS UNJUSTIFIED IN CASTING THE BURDE N UPON THE AO TO PROVE THAT ASSESSEE HAS CONCEALED THE INCOME THOUGH IN TH E LIGHT OF THE VARIOUS DECISIONS OF THE HONBLE SUPREME COURT, IT WAS NOT NECESSARY FOR THE DEPARTMENT TO PROVE MENS REA ON THE PART OF THE ASS ESSEE BUT, ON THE OTHER HAND, THE ASSESSEE WAS OBLIGED TO PROVE AND ESTABL ISH THAT HIS CLAIM WAS BONAFIDE AND THE SURRENDER MADE BY HIM WAS VOLUNTAR ILY. BEFORE PARTING WITH THIS MATTER, WE WOULD LIKE TO STATE THAT THE A SSESSEES CONDUCT IN 43 AGREEING TO THE ADDITION VIDE LETTER DATED 27.3.98 CANNOT SAID TO BE VOLUNTARY INASMUCH AS THIS SURRENDER WAS MADE BY THE ASSESSEE ONLY AFTER THE SAME WAS DETECTED BY THE AO, AND AFTER ISSUING A SHOW CAUSE NOTICE TO THE ASSESSEE. AT THIS STAGE, IT IS ALSO PERTINENT TO NOTE THAT HA D THE CLAIM WAS MADE BY MISTAKE WHILE FILING THE ORIGINAL RETURN OF INCOME, IT IS NOT UNDERSTOOD AND EXPLAINED AS TO WHY ASSESSEE THEN FAILED TO WITHDRA W THE CLAIM IN THE REVISED RETURN FIXED THREE TIMES BEFORE A QUERY WAS RAISED BY THE AO. WE, THEREFORE, REVERSE THE ORDER OF LEARNED CIT(A) AND RESTORE THA T OF THE AO. IN OTHER WORDS, THE PENALTY LEVIED BY THE AO ON THIS ITEM OF LIABILITIES NO LONGER REQUIRED BUT WRITTEN BACK AND CLAIMED AS DEDUCTION, IS JUSTIFIED. THE ORDER OF AO LEVYING PENALTY ON THIS ITEM IS, THUS, CONFIR MED. 46. NOW, WE SHALL COME TO THE MATTER REGARDING PENA LTY LEVIED BY THE AO U/S 271(1)( C) IN RESPECT OF THE ADDITION OF RS.48, 000/- ON ACCOUNT OF RENTAL INCOME ADDED IN THE ASSESSMENT MADE BY THE AO. IT WAS NOTICED BY THE AO THAT THE ASSESSEE COMPANY HAD GIVEN PART OF BUSINES S PREMISES ON RENT TO M/S PRECISION INDUSTRIAL MOULDERS, FARIDABAD, A SISTER CONCERN OF THE ASSESSEE. M/S PRECISION INDUSTRIAL MOULDERS HAS CLAIMED THE D EDUCTION OF RENT OF RS.48,000/- IN ASSTT. YEAR 1995-96. HOWEVER, THE A SSESSEE IN ITS RETURN DID NOT DECLARE THIS INCOME. HOWEVER, THE ASSESSEE INC LUDED THIS AMOUNT IN THE REVISED COMPUTATION OF INCOME FILED ON 3.3.98. ACC ORDINGLY, ADDITION OF 44 RS.48,000/- WAS MADE BY THE AO. ASSESSEE DID NOT F ILE ANY APPEAL AGAINST THIS ADDITION. THE AO THEN LEVIED THE PENALTY. HO WEVER, THE CIT(A) DELETED THE PENALTY BY GIVING IDENTICAL REASONS AS GIVEN IN THE CASE OF OTHER ADDITIONS DISCUSSED ABOVE. 47. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE FILED ITS ORIGINAL RETURN O F INCOME ON 30.11.95 WITHOUT INCLUDING THEREIN THE AFORESAID RENTAL INCOME OF RS .48,000/-. THEREAFTER, THE ASSESSEE FILED REVISED RETURN ALONG WITH THE REVISE D COMPUTATION OF INCOME ON 20.2.96. THE REASONS FOR REVISING THIS RETURN A S EXPLAINED BY THE ASSESSEE ARE - THAT INTEREST RECEIVED FROM INCOME-TAX DEPAR TMENT, AND CERTAIN OTHER MATTERS RELATING TO THE FILING OF TDS CERTIFICATE, EVIDENCE OF PAYMENT U/S 35(1), EVIDENCE OF PAYMENT OF HGST AND INTEREST RE CEIVABLE FROM VARIOUS PARTIES WERE LEFT TO BE CONSIDERED WHILE FILING THE ORIGINAL RETURN. IN THIS FIRST REVISED RETURN OF INCOME FILED BY THE ASSESSEE ON 2 2.2.96, THE RENTAL INCOME RECEIVABLE BY THE ASSESSEE FROM THE SISTER CONCERN WAS STILL NOT DISCLOSED. IN THE SECOND REVISED RETURN FILED ON 27.2.97, THE REN TAL INCOME WAS AGAIN NOT DISCLOSED. THE ASSESSEE THEN AGAIN FILED A LETTER DATED 3 RD MARCH, 1998 IN REPLY TO THE QUERIES RAISED BY THE AO ON 24.12.97. ALONG WITH THIS LETTER DATED 3 RD MARCH, 1998, ASSESSEE AGAIN SUBMITTED THIRD REVIS ED COMPUTATION OF INCOME. THE REVISED COMPUTATION OF INCOME FILED ON 3 RD MARCH, 1998 IS 45 PLACED AT PAGES 35 TO 38 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE ASSESSEE HAD ALSO GIVEN REASONS FOR REVISING THE CO MPUTATION OF INCOME VIDE ANNEXURE V, WHICH IS PLACED AT PAGE NO.39 OF THE PA PER BOOK. FROM PERUSAL OF THE REVISED COMPUTATION OF INCOME FILED ALONG WI TH THE LETTER DATED 3.3.98, WE FIND THAT THE ASSESSEE HAD INCLUDED THE SUM OF R S.48,000/-, BEING THE RENT RECEIVABLE FROM M/S PRECISION INDUSTRIAL MOULDER, F ARIDABAD WITH THE REASONS THAT THE RENT RECEIVABLE FROM M/S PRECISION INDUSTRIAL MOULDERS, FARIDABAD COULD NOT BE ACCOUNTED FOR IN THE YEAR EN DED 31.3.95, AMOUNTING TO RS.48,000/-, WHICH HAS BEEN ADDED TO THE INCOME IN THIS REVISED COMPUTATION. FROM THIS, IT IS CLEAR THAT THE ASSES SEE FILED THIS REVISED COMPUTATION OF INCOME ON 3.3.98 ONLY AFTER NECESSAR Y QUERIES WERE MADE BY THE AO ON 24.12.97. PRIOR TO THIS REVISED COMPUTATI ON OF INCOME FILED ON 03.03.98, THE ASSESSEE ALREADY REVISED THE RETURN TWICE, FIRST ON 22.2.96, AND THEN AGAIN ON 27.2.97 WHERE THIS RENTAL INCOME WAS NOT OFFERED FOR TAXATION. THE RENT PAYABLE BY M/S PRECISION INDUSTRIAL MOULDE R, FARIDABAD WAS CLAIMED AS DEDUCTION IN THEIR RETURN OF INCOME. TH E FACT THAT THE ASSESSEE HAD TO RECEIVE RENT FROM THAT SISTER CONCERN IS NOT IN DISPUTE. IN THE REASONS GIVEN FOR REVISING THE COMPUTATION ON 03.03.98, THE ASSESSEE HAS MERELY STATED THAT THE RENT RECEIVABLE FROM M/S PRECISION INDUSTRIAL MOULDER COULD NOT BE ACCOUNTED FOR IN THE YEAR ENDED 31.3.95, WIT HOUT MENTIONING ANY 46 REASON OR CAUSE AS TO WHY AND UNDER WHAT CIRCUMSTA NCES THE SAID RENTAL INCOME LEFT TO BE INCLUDED IN THE ORIGINAL RETURN O F INCOME AND AS WELL IN THE REVISED RETURN FILED TWICE BEFORE THE INCOME WAS OF FERED TO TAX ON 03.03.98. IN OTHER WORDS, THE ASSESSEE HAS NOT GIVEN ANY EXPL ANATION AS TO WHY THIS AMOUNT WAS NOT INCLUDED IN THE ORIGINAL RETURN OF I NCOME AND FURTHER IN THE REVISED RETURNS FILED BY THE ASSESSEE PRIOR TO 3.3. 98. THE REVISED COMPUTATION OF INCOME ON 3.3.98 IS ONLY AFTER CERTAIN QUERIES W ERE RAISED BY THE AO ON 24.12.97 IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE HAS STATED IN HIS LETTER DATED 3 RD MARCH, 1998 THAT THE ASSESSEES REPLY DATED 3.3.98 IS WITH REFERENCE TO THE AOS QUERIES MADE ON 24.12.97. IT , THUS, MAKES IT CLEAR THAT THIS REVISED COMPUTATION OF INCOME FILED BY THE ASS ESSEE WAS MADE AFTER ENQUIRY AND INVESTIGATION WAS MADE BY THE AO AND NO T VOLUNTARILY. HAD IT BEEN A BONAFIDE MISTAKE WHILE FILING THE ORIGINAL R ETURN OF INCOME, THAT COULD HAVE BEEN EASILY RECTIFIED IN THE REVISED RETURN OF INCOME FILED TWICE BEFORE FILING THIS REVISED RETURN OF COMPUTATION OF INCOME ON 3 RD MARCH,1998. WE, THEREFORE, HOLD THAT THE ASSESSEE HAS DISCLOSED THI S AMOUNT OF RS.48,000/- UNDER COMPULSION AND HIS CONDUCT IS NOT BONAFIDE. IN OTHER WORDS, THE DISCLOSURE OF INCOME BY THE ASSESSEE IN THE LETTER DATED 03.03.1998 IS NOT BONAFIDE BUT IS AS A RESULT OF ENQUIRY MADE BY THE AO DURING THE ASSESSMENT PROCEEDINGS. THE VARIOUS OBSERVATIONS AND REASONS GIVEN BY US WHILE 47 SUSTAINING THE PENALTY IN RESPECT OF THE ITEM OF RS .29,25,207/- AND RS.9,26,060/- HOLDS THE FIELD EVEN ON THIS POINT. WE, ACCORDINGLY, REVERSE THE ORDER OF LEARNED CIT(A) AND RESTORE THAT OF THE AO. IN OTHER WORDS, THE PENALTY LEVIED BY THE AO U/S 271(1)( C) IN RESPECT OF THE AMOUNT OF RS.48,000/- ON ACCOUNT OF RENTAL INCOME IS UPHELD. 48. THE LAST ADDITION IN RESPECT OF WHICH PENALTY H AS BEEN LEVIED BY THE AO IS THE DISALLOWANCE OF RS.6629/- ON ACCOUNT OF E XCESS DEPRECIATION CLAIMED. THIS ADDITION OF RS.6629/- WAS MADE BY TH E AO IN THE LIGHT OF THE WDV WORKED OUT IN THE ASSESSMENT ORDERS OF EARLIER YEARS, WHICH WERE RECTIFIED U/S 154 VIDE ORDER DATED 30.3.98. 49. THE AO LEVIED PENALTY U/S 271(1)(C), WHICH HAS BEEN DELETED BY THE CIT(A) BY MAKING IDENTICAL OBSERVATIONS AS MADE IN OTHER ITEMS. WITH REGARD TO THE CLAIM OF DEPRECIATION, LEARNED AR SUB MITTED THAT DEPRECIATION WAS DISALLOWED CONSEQUENT TO RECTIFICATION OF ASSES SMENT ORDER OF EARLIER YEARS VIDE ORDER U/S 154 DATED 30.3.98 I.E. ONE DAY BEFORE THE IMPUGNED ASSESSMENT, AND, THEREFORE, THIS ADDITION CANNOT BE A SUBJECTED TO A PENALTY. 50. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT DISALLOWANCE OF CLAIM OF DEPRE CIATION IS MERELY CONSEQUENTIAL TO THE ASSESSMENT ORDERS OF EARLIER Y EARS, WHICH WERE RECTIFIED U/S 154 ON 30.3.95 AFTER THE RETURN WAS FILED BY TH E ASSESSEE. THE ADJUSTMENT 48 TO THE OPENING WDV OF ASSETS IS AS A RESULT OF THE WDV FINALLY WORKED OUT IN EARLIER YEARS AFTER GIVING EFFECT TO THE VARIOUS ORDERS OF EARLIER YEARS. THEREFORE, THIS CANNOT BE CONSIDERED TO BE A MATERI AL WHERE PENALTY U/S 271(1)(C ) CAN BE LEVIED. THEREFORE, WE UPHOLD THE ORDER OF CIT(A) IN CANCELING THE PENALTY IN SO FAR AS THE DISALLOWANCE OF DEPRECIATION OF RS.6629/- IS CONCERNED. IN OTHER WORDS, THE PENALT Y LEVIED BY THE AO ON THIS ITEM OF DISALLOWANCE OF DEPRECIATION OF RS.6629/- I S CANCELLED. 51. WITH REGARD TO THE OTHER ITEMS ON WHICH THE AO HAS LEVIED PENALTY, WE FIND THAT THE OTHER ADDITIONS MADE BY THE AO IN ASS ESSMENT ORDER ARE NO MORE SURVIVED INASMUCH AS THEY HAVE BEEN DELETED BY THE APPELLATE AUTHORITY, AND, THUS, THE QUESTION OF IMPOSING PENA LTY ON THOSE ITEMS DID NOT ARISE. 52. HAVING REGARD TO THE OBSERVATIONS MADE BY THE A O IN THE ASSESSMENT ORDER WITH REGARD TO THE ADDITIONS MADE BY HIM AND IN RESPECT OF WHICH NO APPEAL WAS PREFERRED BY THE ASSESSEE, IT IS QUITE D ISCERNIBLE THAT THE ASSESSEE HAS FAILED TO DISCLOSE TRUE AND CORRECT INCOME AND THEIR PARTICULARS IN THE RETURN OF INCOME FILED BY THE ASSESSEE, WHICH FACT WAS SUFFICIENT FOR AO TO INITIATE PENALTY PROCEEDINGS U/S 271(1)( C) OF THE ACT. FURTHER, IN THE LIGHT OF FACTS POINTED OUT BY THE AO IN SUPPORT OF MAKING AD DITION OF RS.11,668/- ON ACCOUNT OF BOGUS PURCHASES, IT IS CLEAR THAT THE AO HAS INITIATED CORRECTLY THE 49 PENALTY PROCEEDINGS FOR FURNISHING INACCURATE PARTI CULARS OF INCOME BY THE ASSESSEE. IT IS BY NOW WELL SETTLED THAT THERE IS NO REQUIREMENT FOR THE AO TO RECORD SPECIFICALLY HIS SATISFACTION IN THE ASSESSM ENT ORDER INITIATING PENALTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT, BUT SUCH SAT ISFACTION IS ONLY REQUIRED TO BE DISCERNIBLE FORM THE ASSESSMENT ORDER READING AS A WHOLE. IN THE PRESENT CASE, THIS CONDITION IS SATISFIED, AS OBSER VED ABOVE. 53. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE, WE, THEREFORE, HOLD THAT THE ORDER OF THE PENALTY U/S 271(1)( C) PASSED BY THE A O IS VALID AND JUSTIFIED IN SO FAR AS THE FOLLOWING ITEMS OF ADDITIONS OR DISAL LOWANCES ARE CONCERNED AS DISCUSSED AND HELD ABOVE: (I) RS.11,668/- ADDITION ON ACCOUNT OF PURCHASES; (II) RS.29,25,207/- ON ACCOUNT OF SET-OFF OF LONG-TERM C APITAL LOSS AGAINST BUSINESS INCOME; (III) RS.9,26,060/- ON ACCOUNT OF LIABILITY NO LONGER REQ UIRED; (IV) RS.48,000/- ON ACCOUNT OF RENT RECEIVABLE. 54. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. 55. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 23 RD JULY, 2010. (B.C. MEENA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD JULY, 2010 50 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A), FARIDABAD 5. DR ASSISTANT REGISTRAR