DCIT, CHENNAI V. M/s. Indian Overseas Bank, CHENNAI

ITA 1991/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0733 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 09-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Double taxation relief; Bonafide belief; Permanent establishment; Wrong claim; Revised return; Ignorance of law
• Section: 90

Judgement Text

1 ITA NO.1990/1991/MDS./12 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI (BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ) .. I.T.A. NO. 1990 & 1991/MDS/2011 ASSESSMENT YEAR : 2006-07 & 2007-08 DY. COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI. (APPELLANT) V. M/S.INDIAN OVERSEAS BANK,, 763 ANNA SALAI, CHENNAI. PAN : AAAC 1223 J (RESPONDENT) APPELLANT BY : SHRI SHAJI P JACOB RESPONDENT BY : SHRI S.SRID HAR, ADVOCATE DATE OF HEARING : 07.02.13 DATE OF PRONOUNCEMENT : 14.02.13 O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER : THESE ARE THE APPEALS FILED BY THE REVENUE AGAINS T THE ORDER OF CIT(A) LTU, CHENNAI DATED 09.02.2011 FOR ASSESSMENT YEARS 2006-07 & 2007-08. 2. IN BOTH THE APPEALS, THE REVENUE HAS TAKEN THE FOLLOWING COMMON GROUNDS OF APPEAL:- 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO L AW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO.1990/1991/MDS./12 2.1. THE CIT(A) ERRED IN DELETING THE PENALTY LEVI ED UNDER SECTION 271 (1)(C OF THE ACT. 2.2. THE CIT(A) ERRED IN STATING THAT THE ASSESSEE CANNOT BE CONSIDERED TO HAVE CONCEALED PARTICULARS OF INCOME. THE ASSESSIN G OFFICER HAD NOT STATED THAT THE ASSESSEE HAD CONCEALED PARTICULARS OF INCO ME, BUT HAD INITIATED AND LEVIED PENALTY UNDER SECTION 271(1)(C) ONLY ON THE GROUND THAT THE ASSESSEE BANK HAD FURNISHED INACCURATE PARTICULARS OF INCOME . 2.3. THE CIT(A) FAILED TO APPRECIATE THAT PENALTY P ROCEEDINGS US.271(1)(C) ARE ATTRACTED IN CASES WHERE THE ASSESSEE FURNISHES INA CCURATE PARTICULARS OF INCOME. THE DETAILS PROVIDED BY THE ASSESSEE TO CLA IM DITR IN RESPECT OF HONG KONG BRANCH WERE FOUND TO BE INACCURATE AND TH EREFORE PENALTY U/S.271(1)(C) WAS LEVIED. 2.4. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THER E IS NO MERIT IN THE ASSESSEE'S PLEA THAT IT WAS UNDER BONAFIDE BELIEF T HAT THE DIT RELIEF APPLICABLE TO HONG KONG BRANCH IS GOVERNED BY DTAA PROVISION B ETWEEN INDIA AND CHINA, (SINCE HONG KONG BECAME A SPECIAL ADMINISTRA TIVE REGION OF CHINA WITH EFFECT FROM 1.7.1997). 2.5. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE CANNOT PLEAD IGNORANCE ESPECIALLY WHEN IT IS A LARGE TAX PAYER H AVING ITS OWN INTERNAL SET UP OF LEGAL ADVISORS AND CHARTERED ACCOUNTANTS AS WELL AS PROFESSIONALS FROM OUTSIDE. 2.6. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE'S CLAIM THAT IT DID NOT KNOW ABOUT THE BASIC FACT OF NON APPLICABILITY OF THE INDO CHINA DTAA TO HONG KONG, IS A CONSCIOUS AND AFTER THOUGHT ATTEMPT BY THE ASSESSEE TO SOFTEN ITS ORIGINAL DELIBERATE WRONG CLAIM, IN ORDE R TO AVOID THE PENAL PROCEEDINGS. 2.7. THE CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION OF ITAT CHENNAI IN THE CASE OF TERRA ENERGY LTD. IN ITA NO.1014/MDS/09 DAT ED 23.4.2010 AND OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS NOT RECTI FIED OR CONCEDED THE MISTAKE POINTED OUT BY THE ASSESSING OFFICER DURING THE SCRUTINY PROCEEDINGS. 3 ITA NO.1990/1991/MDS./12 3. THE SOLE ISSUE INVOLVED IN BOTH THE APPEALS IS T HAT THE CIT(A) ERRED IN DELETING THE LEVY OF PENALTY UNDER SECTION 271(1 )(C) OF THE ACT. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PUBLIC SECTOR BANK. IT FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07 DISCLO SING IN INCOME OF RS. 652,90,26,687/- AND FOR ASSESSMENT YEAR 2007-08 DISCLOSING A TOTAL INCOME OF RS.832,78,14,867/-. IN THE RETURN OF INCO ME, THE ASSESSEE CLAIMED DOUBLE INCOME-TAX RELIEF (DITR) IN RESPECT OF INCOME FROM ITS FOREIGN BRANCHES AT SEOUL, SINGAPORE, COLOMBO AND H ONG KONG. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143 (3) OF THE ACT, THE ASSESSING OFFICER RAISED VARIOUS QUERIES AND THE AS SESSEE REPLIED TO THEM. THE A.O. DISALLOWED THE ENTIRE CLAIM OF DITR IN RESPECT OF ALL THESE COUNTRIES ON THE GROUND THAT DECISION OF HON BLE SUPREME COURT IN KULANDAGAN CHETTIAR, 267 ITR 654(SC) RELIED ON BY T HE ASSESSEE WAS NOT APPLICABLE TO ASSESSEES CASE. THEREAFTER, HE INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT FOR CONCEALMENT AND FURNISHING OF INACCURATE PARTICULARS OF THE INCOME. IN REPLY TO THE SAID NOTICE, THE ASSESSEE HAD FILED A DETAILED REPLY. I N THE APPELLATE PROCEEDINGS BEFORE THE CIT(A), THE ASSESSEE, THOUGH RELIED ON THE DECISION OF APEX COURT IN KULANDAGAN CHETTIAR(SC) (SUPRA), STATED THAT THERE WAS NO SEPARATE AGREEMENT WITH HONG KONG. HA VING NOTICED THIS, ASSESSING OFFICER PROPOSED TO IMPOSE PENALTY AND SO UGHT EXPLANATION 4 ITA NO.1990/1991/MDS./12 FROM THE ASSESSEE WHO VIDE LETTER DATED 27.07.2010 FURNISHED THE REASONS FOR THE CLAIM MADE IN RETURN. THE ASSESSIN G OFFICER BEING NOT CONVINCED WITH THE EXPLANATION, LEVIED PENALTY @ 10 0% OF THE TAX SOUGHT TO BE EVADED. AGGRIEVED BY THE PENALTY ORDER, ASSES SEE FILED AN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE AND LEVIED PENALTY @ 100% OF THE TAX SOUGHT TO BE EVADED ON THE WRONG CLAIM OF DITR FOR THE PROFIT EARNED FROM ITS HONG KONG BRANCH. ACCORDING TO ASSESSING OFFICER, WHEN THERE IS NO DOUBLE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND HONG KONG, THE ASSESSEE COULD NOT HAVE CLAIMED DITR UNDER SEC TION 90 OF THE ACT. THE CLAIM WAS MADE BY ASSESSEE BASED ON THE DECISIO N OF HONBLE APEX COURT IN THE CASE OF KULANDAGAN CHETTIAR,(SUPR A), BUT IT HAD NOT DISCLOSED THAT THERE WAS NO DTA BETWEEN INDIA AND H ONG KONG. EVEN THOUGH THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED B Y THE ASSESSING OFFICER AND DISALLOWANCE MADE, THE ASSESSING OFFICE R SUBSEQUENTLY NOTICED THAT THE ASSESSEE HAD ACCEPTED THE SAME BEF ORE THE CIT(A) FOR A.Y. 2006-07. THE ASSESSING OFFICER PLACED RELIANC E ON THE FOLLOWING DECISIONS. A) UOI VS. DHARMEDRA TEXTILE PROCESSORS (2008) 306 ITR 277 (SC) B) DCIT V. TERRA ENERGY LTD. (ITA NO.104/MDS/09 DAT ED 23.04.2010) C) P C JOSEPH & BROS. V CIT 240 ITR 818 (KER) D) ITO V GEEP INDUSTRIAL SYNDICATE LTD. E) MANI HANUMANTHAPPA SETTY V ITO 30 ITD 480 F) CIT V CHANCHAL KATYAL 173 TAXMAN 71 (ALL.) 5 ITA NO.1990/1991/MDS./12 4.1. THE ASSESSEE VEHEMENTLY ARGUED AGAINST THE OR DER OF THE ASSESSING OFFICER AND FILED WRITTEN SUBMISSION WHIC H READS AS UNDER:- 4 THE APPELLANT SUBMITS THAT : 1. THE APPELLANT WAS OF BONA FIDE BELIEF THAT THE DTA RELIEF APPLICABLE TO HONGKONG BRANCH IS GOVERNED BY THE DTA PROVISIONS B ETWEEN INDIA AND CHINA IN AS MUCH AS HONG KONG BECAME A SPECIAL ADMINISTRATIVE REGION (SAR) OF THE PEOPLE REPUBLIC OF CHINA SINCE JULY 1, 1997. 2. IN AS MUCH AS THE DTA BETWEEN INDIA AND CHINA PROVIDES THAT THE BUSINESS PROFITS ARISING FROM BUSINESS CARRIED ON WITH PERMANENT ESTABLISHMENT THEREIN IS TO BE TAXED ONLY IN THE OTHER CONTRACTING COUNTRY VIZ HONGKONG AND NOT IN INDIA BASED ON THE SUPREME COURT DECISION IN KULANDAGAN CHETTIAR R EPORTED IN 267 ITR 654(SC) THE APPELLANT WAS OF BONAFIDE BELIEF THAT INCOME OF HONG KONG BRANCH WAS NOT EXIGIBLE TO TAX IN INDIA . 3 . THE AO OUGHT NOT TO HAVE DISMISSED THE ABOVE CLAIM OF THE APPELLANT BY STATING' NOT KNOWING THE ABOVE BASIC F ACT OF NON APPLICABILITY OF THE INDO CHINA DTAA TO THE HONG KONG WAS A CONSCIOUS ATTEMPT BY THE ASESSEE TAKEN NOW TO SOFTE N THE ORIGINAL DELIBERATE WRONG CLAIM TO AVOID THE PENALTY PROCEED INGS AND HENCE THE SAME CANNOT BE ACCEPTED' 4 . WE SUBMIT THAT THE PROCEEDINGS IN THE LEVY OF PENALTY IS AN INDEPENDENT PROCEEDING FROM THAT OF THE ASSESSMENT PROCEEDING AND HENCE THE AO OUGHT NOT TO HAVE PRE JUDGED THE ISSUE WITH A COLOR OF ASSESSMENT PROCEEDINGS . MERELY BECAUSE THE REASON GIVEN FOR A CLAIM IN THE RETURN WAS CREDIBLE SAME COULD NOT BE REJECTED AS AN ATTEMPT TO SOFTEN THE EFFECT OF WRONG CLAIM . 5 . RELIANCE IS PLACED ON THE DECISION OF JURISDICTIONAL HIGH COURT DECISION IN CIT V SRI SARADHA TEXTILE PROCESSORS PV T LTD (2006) 286 6 ITA NO.1990/1991/MDS./12 499 (MAD) HOLDING THAT ' PENALTY CANNOT BE IMPOSED ON ACCOUNT OF A BONA FIDE MISTAKE. 6 . FURTHER WE SUBMIT THAT MERELY BECAUSE THE APPELLANT WITHDREW AN APPEAL AGAINST ADDITION BEFORE THE CIT(A) OR WAS NOT CONTESTED BEFORE APPELLATE AUTHORITIES THE SAME CANNOT AUTOMATICALLY RESULT IN LEVY OF PENALTY . RELIANCE IS PLACED ON THE FOLLOWING DECISIONS IN SUPPORT OF THIS CLAIM A) WTO V PREMCHAND & OTHERS 18 TLR 794 (BOM) B) CIT V BHIMJI BHANJEE & CO 146 ITR 145 (BOM) C) CIT V PUNJAB TYRES 56 CTR 7 D) ITO V PRABHU SINGH TRILOKSINGH GROVER TAXATION 82(4) 60 (CHD) 7 . WE FURTHER SUBMIT THAT IN LAW WHERE TWO VIEWS ARE POSSIBLE THE ASSESSEE CANNOT BE FAULTED FOR ADOPTING A VIEW FAVORABLE TO HIM IN FILING THE RETURN AS HELD IN CIT V CALCUTTA CREDIT CORPORATION 56 ITR 142. 8. FURTHER THE ASSESSEE MAY ADOPT /ACCEPT THE DEPARTMENTAL VIEW TO AVOID LITIGATION BUT SUCH ACCEPTANCE CANNOT PUT HIM IN A POSITION WORSE THAN ANOTHER WHO CONTESTS DEPARTMENTAL VIEW . RELIANCE IS PLACED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT V SIVANANDA STEELS LTD (2002) 256 ITR 687 (MAD) 9 . WE FURTHER SUBMIT THAT IT HAS BEEN HELD IN A NUMBER OF DECISIONS THAT IGNORANCE OF LAW CAN BE EXCUSED. IN THE APPELLANT ' S CASE IT WAS NOT THE LAW BUT THE UNDISPUTED SOVEREIGN TERRITORIAL RIGHT AND CONTIGUITY OF CHINA OVER HONG KONG YET WITH NO DISTINCT AND SEPARATE DT AA FOR HONG KONG WHICH WEIGHED IN FAVOR OF PREFERRING A CLAIM. THE PRESENT MOVE OF THE GOVERNMENT OF INDIA TO CONFER A RESTRICTED ECONOMICAL STATUS TO HONG KONG FOR A SEPARATE DTAA AS A SPECIAL T ERRITORY WIT H IN A SOVEREIGN STATE AT BEST WOULD BE CONSIDERED AS A LEGAL FICTION IN SO FAR AS THE STATUTORY ENACTMENTS ARE CONCERNED FOR THE PURPOSE OF DETERMINATI O N OF TOTAL INCOME AND HENCE MAKING A CLAIM FOR DEDUCTION IGNORANT OF 7 ITA NO.1990/1991/MDS./12 SUCH A L E GAL FICTION WOULD NOT AMOUNT TO FURNISHING WRONG PARTICULARS. REIIENCE I S PLACED O N THE DECISION OF ITAT IN ITA V.BLBHUTL MLSHRA 13 . ITD 158 (PATNA) . FURTHER TH E LATEST DECISION OF APEX COURT IN THE CASE OF UNLFLEX CABLES LTD V COMMISSIO N ER OF CENTRAL EXCISE, SURAT IN CIVIL APPEAL NO 5870 OF 2005 CLEARLY HELD THAT N O PENALTY COULD BE AND IS LIABLE TO BE IMPOSED IN A CASE OF INTERPRETATI O NAL NATURE . 10 .FURTH E R THE RELIANCE PLACED BY THE A.O ON THE DECISION OF APEX COURT IN THE CASE OF UN I ON OF INDIA V DHARMEDRA TEXTILE PROCESSORS (2008) 306 ITR 277 (SC) TO THE EFFE C T THAT ANY ADDITION TO RETURNED INCOME WOULD INVITES PENALTY IS NOT CORRECT FOR T HE FOLLOWING REASON- : A) THE AP E X COURT IN CIT V RELIANCE PETRO PRODUCTS PVT LTD 32 2 ITR 158 (SC) CATEGOR I CALLY HELD THAT 'MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPEND IT URE , WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENU E , THAT BY ITSELF WOULD NOT, IN OUR OPINION , ATTRACT THE PENALTY UNDER SECTION 271 (1)(C) . IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY R E TURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING OFFICER FOR ANY REA S ON , THE . ASSESSEE WILL INVITE PENALTY UNDER SECTION 271 (1)(C) . THAT IS CLEARLY N OT THE INTENDMENT OF THE LEGISLATURE ' 1 1. THE DE C ISION IN DHARMEDRA TEXTILE PROCESSORS ITSELF WAS IN TERPRETED BY SUBSEQUENT DECISION OF APEX COURT IN UNION OF IN DIA V RAJASTHAN SPINNING & WEAVING MI LL S LTD 224 CTR 1 (SC) THAT MERE ADDITION WOULD NOT NECESSARILY CALL FOR AUTOMATI C LEVY OF PENALTY . FURTHER THE APEX COURT DECISION IN RELIANCE PETRO PRODUCTS 32 2 ITR 158 SC THE HON'BLE COURT HELD THAT DECISION IS AN AUTHORITY ON LY FOR THE PROPOSITION THAT ELEMENT OF MENS REA STANDS EXCLUDED FROM THE S C OPE OF THE PROVISIONS OF SECTION 271(1) (C). 4 . 1 THE ID . AR FURTHER SUBMITTED THAT THE DECISIONS RELIED BY T HE AO ARE DISTINGUISHABLE O N FACTS INASMUCH THE APPELLANT'S EXPLANATION ARE BONA FIDE AND ARE BASED ON LEGAL P R ECEDENTS AS FORTIFIED BY THE DECISIONS OF THE APEX COURT. HE FURTHER SUBMI T TED THAT TH E DECISION OF HON'BLE ITAT IN 8 ITA NO.1990/1991/MDS./12 DCIT V TERRA ENERGY LTD CASE RELATED TO MISTAKE IN C O MPUTATION WHICH WAS A FACTUAL ERROR BUT WAS NOT ACCEPTED BY ASSESSE E. THE D E CISION OF KERALA HIGH COURT IN P . C.JOSEPH & BROS V CIT , 240 ITR 818 WAS THAT ON A GREED ADDITION AFTER DETECTION OF CONCEALMENT PENAL TY WAS LEVIABLE. THIS DECISION IS N OT APPLICABLE TO APPELLANT'S CASE SINCE THERE IS NO QUESTION OF CONCEALMENT IN IT S CASE AND ALL THE PARTICULARS HAD BEEN DULY FURNISHED . IT WAS FURTHER SUBM I T T ED WITHOUT PREJUDICE TO THE ABOVE THAT HAVING QUANTIFIED THE TAX SOUGHT TO BE EVADE D AT RS . 1 3 , 70 , 49 , 296/-, THE AO OUGHT NOT TO HAVE LEVIED PENALTY OF RS . 15 , 37 , 69,311/- . HE ALSO STATED THAT THE APPELLANT ITSELF BEING A PUBLIC SECTOR UND ER T AKING ASSE S SED BY THE GOVERNMENT , THE QUESTION OF EVASION OF TAX BY CONCEA L MENT OF IN C OME TO THE GOVERNMENT ITSELF WOULD NOT ARISE . 4.2. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS HELD AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS OF THE ID . AR . I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AND THE PENALTY ORDER PASSED BY THE AO. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON B Y THE AO AND AR . THE AO HAS LEVIED THE PENALTY ON THE GROUND THAT THE AP PELLANT HAD FURNISHED INACCURATE PA R TICULARS IN RESPECT OF THE CLAIM OF DITR IN RESPECT OF HONG . KONG BRANCH WHERE THERE WAS NO DTA . ON THE OTHER HAND , THE ID. AR HAS STATED THAT THE CLAIM WAS ORIGINALLY MADE AFTER DUE CONSIDERATION O F THE CIRCUMSTANCES AT THE RELEVANT POINT OF TIME. IT WAS EXPLAINED THA T ONLY AFTER THE PROVISIONS OF SECTION 90 WAS AMENDED WITH EFFECT FR OM 01 . 04.2009 , THE APPELLANT CAME TO KNOW THAT THE DTA WITH CHINA WILL NOT BE APPLICABLE TO HONG KONG . HE ALSO SUBMITTED THAT THE APPELLANT HAD CLAIMED TH E REL I EF OF HONG KONG BRANCH ONLY AND NOT OF CHINA. IT WA S ALSO SUBMITTED THAT THE AO HAD NOT ALLOWED ANY RELIEF AT THE ASSES SMENT STAGE . THEREFORE , THE LEVY OF PENALTY WAS NOT WARRAN T ED . 5 . 1 LET US NOW DISCUSS THE SCOPE OF SECTION 271 (1 )( C) OF THE ACT . 9 ITA NO.1990/1991/MDS./12 PENALTY IS LEVIED OVER AND ABOVE ANY TAX OR INTERES T PAYABLE BY THE APPELLANT . IT IS THUS DISTINCT AND SEPARATE FROM THE TAX PAYAB LE . PENALTY PROCEEDINGS ARE ALSO D I STINC T AND SEPARATE FROM ASSESSMENT PROCEEDINGS [CIT V . DHARAM CHAND L . SHAH , 204 I TR 462 (BOM ), KANBAY SOFTWARE INDIA PVT . LTD . (2009) 31 SOT 153 (PUNE)] . IT IS WELL SETTLED THAT THE PROV I SIONS DEAL I NG WITH PENALTY SHOULD BE STRICTLY CONSTRUED. IT IS TO BE CONSTRUED WITHIN THE TERMS A ND LANGUAGE OF THE PARTICULAR SECTION(S) . FINDINGS IN THE ASSESSMENT PROCEEDINGS FOR DETERMINING OR COMPUTING TAX CANNOT BE SAID TO BE C ON C L USIVE FOR THE PURPOSE OF LEVY OF PENALTY . PENALTY U/S. 271 ( 1 )( C ) IS LEVIED @ 100 PER CENT TO 300 PER CENT OF TAX SOUGHT TO BE EVADED FOR CONCEALMENT OF PARTICULARS OF INC O ME OR FURNISHING INACCURATE PARTICULARS THEREOF . SEC. 271(1)(C) NEEDS TO BE READ ALO N G WITH THE EXPLANATIONS PROVIDED THEREIN . EXPLANATION-1 STIPULATES THAT WHERE IN RESPECT OF A NY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL I NCOME OF ANY PERSON : SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN E X PLANATION WH I CH IS FOUND BY T HE AO/CIT(A)/CIT TO BE FALSE ; OR SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT A BLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM , THEN , IN THAT CASE THE AMOUNT ADDED OR DISALLOWED IS DEEM ED TO REPRESENT THE INCOME IN RESPECT OF WHICH THE PARTIC ULARS HAVE BEEN CONCEALED . 5 . 2 IT WOULD BE RELEVANT TO EXAMINE THE FACTS OF THE CASE AGAINST THE ABOVE STATU T ORY PROVISION . HERE , THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IS WHETHER THE APPE L LANT HAD FU R NISHED INACCURATE PARTICULARS IN RESPECT OF THE CLAIM OF DITR IN RESPECT OF HONG KONG BRANCH. SINCE THE DT A BETWEEN INDIA AND CHINA PROVIDES THAT THE BUSINESS PROFITS ARISING FROM BUSINESS CARRIED ON W ITH PERMANENT 10 ITA NO.1990/1991/MDS./12 ES T ABLISHMEN T (PE) THEREIN IS TO BE TAXED ONLY IN THE OTHER CONTR ACTING COUNTRY V I Z .HONG KONG (I . E . , PART OF CHINA ) AND NOT IN INDIA , BASED ON THE SUPREME COURT DECISION IN KULANDAGAN CHETTIAR REPORTED IN 267 ITR 654(SC), THE INCOME OF THE HONG KONG BRANCH IS NOT TAXABLE IN INDIA . HOWEVER , IT HAS SUBSEQUENTLY COME TO THE KNOWLEDGE O F THE APPELLANT THAT THE DTA AGREEMENT WITH CHINA IS NOT NECESSARILY BINDING ON E I THER INDIA OR CHINA IN RESPECT OF HONG KONG BRANCH BECAUSE THOUGH PART OF REPUBLIC OF CHINA , HONG KONG ENJOYED SEPARATE STATUS AS A SPECIAL ADMI NISTRATIVE REGION (SAR) . THEREFORE , HONG KONG AS A SAR CAN HAVE INDEPENDENT DTA WITH ANY OTHER COUNTRY . THIS INFORMATION IS MORE ON ACCOUNT OF DEVELOPMENT IN THE FISCAL REFORM IN THE INTERNATION AL TAXATION. IT WAS ALSO SUBMITTED THAT THE ABOVE C L AIM WAS NOT MADE FOR THE FIRST TIME IN THE RELEVANT YEAR BUT THE BANK HAS BEEN CLA I MING THE RELIEF IN THE AFORESAID MANNER IN EVERY YEAR AND THE CLAIM , WHEREVER DISPUTED , WAS CONTESTED IN APPEAL PROCEEDINGS . ANOTHER IMPORTANT FACT IN THE PRESENT CASE IS THAT THE APPELLANT CLAIMED RELIEF OF HONG KONG BRANCH AS PER TAINING TO HONG KONG AND NOT TO CHINA . 5 . 3 LET US NOW EXAMINE THE ABOVE FACTS I N THE L I GH T OF THE RECENT DECISION OF THE HON ' BLE SUPREME COURT IN THE CASE OF CIT V . RELIANCE PETROPRODUCTS PVT . L T D 322 I TR 158(SC) . THE HON ' BLE COURT HAS CONSIDERED THE NATURE OF DEFAULT WHICH WOULD CONSTI TUTE CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P AR T I CU L ARS , IN THE CONTEXT OF THE PROVISIONS OF SECTION 271 ( 1 )( C ) OF THE ACT . A F TER ANA L YZING I TS OWN DECISIONS I N THE CASES OF DILIP N . SHROFF V . JCIT (291 ITR 519 ) , UN I ON OF INDIA V . DHARMENDRA TEXTILES (306 ITR 277 ) , UNION OF INDIA V . RAJASTHAN SPINNING AND WEAVING MILLS (224 CTR 1) AND CIT V . ATUL MOHAN JINDAL (317 ITR 1 ) , T HE HON ' BLE COURT , HAS STATED AS UNDER : ' THE BASIC REASON WHY DECISION IN D I LIP N . SH R OFF V . JO I N T CL T W AS OVERRULED BY THIS COURT IN UNION OF INDIA V . DHARMENDRA TE X T I LE PROCESSORS , WAS THA T ACCORDING TO THIS COURT THE EFFECT AND DIFFERENCE BETWEEN SECTION 271 ( 1 ) (C ) AND SECTION 276C OF THE ACT 11 ITA NO.1990/1991/MDS./12 WAS LOST SIGHT ON IN THE CASE OF D ILIP N. SHROFF V . JOINT C L T , HOWEVER , IT MUST BE POINTED OUT THAT IN UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS , NO FAULT WAS FOUND WITH THE REASONING IN THE DECIS I ON IN DIL I P N . SHROFF V. JOINT CLT , WHERE THE COURT EXPLAINED THE MEA N ING OF THE TE R MS ' CONCEAL ' AND ' I NACCURATE ' . IT WAS ONLY THE ULT I MATE I NFERENCE IN DILIP N . SHROFF V . JOINT CT'T TO THE EFFECT THAT MENS REA WAS AN ESSENT I AL INGREDIENT FOR THE PENALTY ULS 271 (1 )( C ) THAT THE DECISION IN DILIP N . SHROFF V. JOINT CLT WAS OVERRULED. ' THE DEPARTMEN T IN THE RELIANCE PETROPRODUCTS ( SUPRA ) HAD ARGUED THAT S I NCE THE APPE L LANT HAD C L A I MED EXCESSIVE DEDUCT I ON KNOW I NG THAT THEY ARE I NCORRECT ; I T AMOUNTED TO CONCEALMENT OF INCOME. THE HON ' BLE COURT DID NOT FIND SUBSTANCE IN SUCH ARGUMENT AND NOTED THE ABOVE BY ITSELF TO BE INSUFFICIENT TO ATTRACT PENALTY. IT HELD AS UNDER : ' A MERE MAKING OF THE CLAIM , WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF , WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS ---- AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN , WHICH DETAILS , IN THEMSELVES , WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART . IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE , WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE , THAT BY ITSELF WOULD NOT , IN OUR OPINION, ATTRACT THE PENALTY U/S 271 (1 )(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED B Y THE ASSESSING OFFICER FOR ANY REASON , THE ASSESSEE W I LL INVITE PENALTY UNDER SECTION 271 (1)(C) . THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. ' 5 . 4 IN VIEW OF THE ABOVE FACTUAL POSITION AND AUTHORI TATIVE PRECEDENT AND SINCE THE PENALTY PROCEEDINGS ARE INDEPENDENT F ROM ASSESSMENT PROCEEDINGS , THE DEFAULT OF THE APPELLANT WARRANTING IMPOSITION OF PENALTY U/S 271(1 ) (C) NEEDS TO BE SEPARATELY AND I NDEPENDENTLY ESTABLISHED BEFORE IMPOSING PENALTY UPON THE APPELL ANT . MERELY BECAUSE CERTAIN ADDITIONS HAVE BEEN MADE BY DISALLO WING THE CLAIM OF THE APPELLANT IN THE ASSESSMENT ORDER , IT DOES NOT MEAN THAT PENALTY WOULD AUTOMATICALLY BECOME LEVIABLE IN RELA TION TO SUCH INCOME . IT MAY BE STATED THAT THEPARTICULARS/INFORMATION WE R E 12 ITA NO.1990/1991/MDS./12 AVAILABLE IN T HE DETAILS FILED BY THE APPELLANT ITSELF AND WAS NO T UNEARTHED FROM A N Y O T HER SOURCES . THE APPELLANT HAD CLAIMED RELIEF OF ITS HONG KONG BRANCH AND NOT OF CH I NA . THE FACT WOULD HAVE BEEN DIFFERENT IF THE APPELLANT HAD I NCLUDED THE I NCOME OF HONG KONG AS INCOME OF CHINA AND CLAIMED RELIEF THEREON . THAT IS NOT THE CASE . IN FACT , THE APPELLANT HAD FURN I SHED ALL DETAILS OF ITS INCOME FROM VAR I OUS FOREIGN BRANCHES INCLUDING THAT OF HONG KONG BRANCH AND CLAIMED DITR IN RESPECT OF CERTAIN BRANCHES INCLUDING HONG KONG . THESE DETAILS ARE NOT PROVED TO BE INACCURATE AND CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME BY THE APPELLANT . THE APPELLANT HAS BEEN C L AIMING RELIEF IN RESPECT OF HONG KONG BRANCH FROM T HE PRECEDING ASSESSMEN T YEARS . SUCH CLAIM HAS NOT BEEN ACCEPTED AND NECESSARY ADDITION HAS BEEN MADE . THIS , BY ITSELF , WOULD NOT ATTRACT PENALTY . THIS VIEW IS SUPPORTED BY THE DECISION OF THE HON ' BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (SUPRA ) DISCUSSED ABOVE . EVEN THE DECISION OF THE SUPREME COURT IN THE CASE OF UNION OF INDIA V. DHARMENDRA TEXTILES (SUPRA) CANNOT BE READ TO CO NSTRUE THAT PENALTY IS AUTOMATICALLY LEVIABLE , AS HAS BEEN SUBSEQUENTLY EXPLAINED BY THE SUPREME COURT IN THE CASES OF UNIO N O F INDIA V . RAJASTHAN SPINNING AND WEAVING MILLS ( SUPRA ) AND RELIANCE PETROPRODUCTS LTD (SUPRA ) . IN V I EW OF THE ABOVE FACTUAL POSITION AND JUDICIAL AUTHORITIES , I AM OF THE CONSIDERED OPINION THAT THE CASE OF THE APPELLANT DOES NOT ATTRACT LEVY O F PENALTY U/S 271 (1 )(C) . THE AO IS ACCORDINGLY DIRECTED TO DELETE THE SAME . THIS G ROUND IS ACCORDINGLY ALLOWED. 5. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE HAS FILED WRITTEN SUBMISSION WHICH READ AS FOLLOWS:- LEVY OF PENALTY UNDER SECTION 271(1)(C) AS PER THE MEMO OF TOTAL INCOME FILED ALONGWITH THE RETURN OF INCOME FILED FOR A.Y. 2006-07, ASSESSEE CLAIMED DOUBLE TAXATION RELIEF ON THE INCOME 01' FOREIGN BRANCHES TO THE TUNE OF RS. 35,32,70,363. T HIS CLAIM INCLUDED 13 ITA NO.1990/1991/MDS./12 INCOME FROM HONG KONG BRANCH ALSO. DURING THE COURS E OF ASSESSMENT PROCEEDINGS ASSESSEE WAS ASKED TO FURNISH THE RATE OF TAX IN THE CONCERNED FOREIGN COUNTRIES WHERE ASSESSEE HAS BRANCHES AND A LSO TO CLARIFY WHETHER DTAA EXISTS BETWEEN INDIA AND SUCH FOREIGN COUNTRIE S. THERE WAS NO RESPONSE FROM ASSESSEE ON THIS QUERY. DURING THE COURSE OF SCRUTINY PROCEEDINGS IT WAS NO TICED THAT ASSESSEE CLAIMED TAX CREDIT OF RS. 28,54,62,828 FROM ITS HON G KONG INCOME WHEREAS ACTUAL TAXES PAID BY ASSESSEE IN HONG, KONG WAS ONL Y SUM OF RS. 14,84,13,532. SINCE INDIA DID NOT HAVE DT AA WITH H ONG KONG IN THE RELEVANT A.Y., SEC. 91 WILL BE APPLICABLE AND ASSES SEE IS ELIGIBLE FOR DEDUCTION ONLY TO THE EXTENT OF RS. 14,84 CRORES AS AGAINST RS. 28,54 CRORCS CLAIMED BY IT IN THE RETURN. EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS WH EN THE DISCREPANCY WAS POINTED OUT TO THE ASSESSEE, IT DID NOT BOTHER TO F ILE REVISED RETURN I REVISED STATEMENT. THERE WAS NO' BASIS FOR THE ASSESSEE TO MAKE INFLAT ED CLAIM OF DOUBLE TAXATION RELIEF. BEFORE CLAIMING DTR, ASSESSEE HAS TO ENSURE EXISTENCE OR DT AA BETWEEN INDIA AND HONG KONG. WHEN ASSESSEE FAILED TO FURNISH ANY EVIDENCE TO SHO W THAT THE CLAIM MADE BY IT IS BONAFIDE, PENALTY U/S 271 (1)(C)IS LEVIABLE AS HELD IN : CIT VS ZOOM COMMUNICATION P. LTD. (DEL) 327 ITR 510 CIT VS ESCORT FINANCE ITD. (DEL) 328 RTR 44 CHADHA SUGARS P. LTD. (ITAT, DEL) 17 ITR (TRIB) 316 TRINITY TOUCH (P.) LTD. VS ITA (ITAT, DEL) 132 ITD 88 DARWABSHAW B. CURSETJEE SONS LTD. VS ITA (LTAT, KOL -TM) 7--T DTR268 CIT VS FORTIS FINANCIAL SERVICES LTD. (DEL) 76 DTR 429 6. ON THE OTHER HAND, THE A.R. RELIED ON THE SUBM ISSIONS MADE BEFORE THE CIT(A) AND SUPPORTED THE ORDER OF THE CI T(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . IN THE INSTANT CASE, ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271( 1) (C) OF THE ACT OF 14 ITA NO.1990/1991/MDS./12 ` 15,37,69,311/- FOR A.Y. 2006-07 AND OF ` 10,70,43,443/- FOR A.Y. 2007-08. IN BOTH THE YEARS, THE FACTS ARE SAME EXC EPT WITH CHANGE IN FIGURES. THE RELEVANT FACT IS THAT THE ASSESSEE CL AIMED ENTIRE INDIAN TAX ON THE INCOME OF ITS HONG KONG BRANCH AS RELIEF UN DER SECTION-90 OF THE ACT ON THE GROUND THAT HONG KONG BRANCH IS A COLO NY OF CHINA WITH WHICH THERE IS A DOUBLE TAXATION AGREEMENT. HOWEVE R, IT WAS FOUND THAT THERE WAS NO DOUBLE TAXATION AGREEMENT WITH HONG KO NG AND THEREFORE, THE ASSESSEE WAS ENTITLED FOR TAX RELIEF UNDER SECT ION 91 OF THE ACT TO THE EXTENT OF TAX PAID IN HONG KONG ONLY SUBJECT TO MA XIMUM OF TAX LEVIABLE IN INDIA ON THAT INCOME. CONSEQUENTLY, IN THE ASSE SSMENT IT WAS FOUND THAT THE ASSESSEE CLAIMED EXCESS RELIEF OF ` 13,70,49,296/- IN A.Y. 2006-07 AND OF ` 9,54,04,138/- IN A.Y. 2007-08. FOR THE ABOVE REAS ONS, THE ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT , WHICH IS UNDER PRESENT APPEAL. 8. ON APPEALS, CIT(A) DELETED THE AFORESAID LEVY O F PENALTY IN BOTH THE YEARS FOR THE REASONS AS UNDER:- 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE ID . AR . I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER AND THE PENALTY ORDER PASSED BY THE AO. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON B Y THE AO AND AR . THE AO HAS LEVIED THE PENALTY ON THE GROUND THAT THE AP PELLANT HAD FURNISHED INACCURATE PA R TICULARS IN RESPECT OF THE CLAIM OF DITR IN RESPECT OF HONG . KONG BRANCH WHERE 15 ITA NO.1990/1991/MDS./12 THERE WAS NO DTA . ON THE OTHER HAND , THE ID. AR HAS STATED THAT THE CLAIM WAS ORIGINALLY MADE AFTER DUE CONSIDERATION O F THE CIRCUMSTANCES AT THE RELEVANT POINT OF TIME. IT WAS EXPLAINED THA T ONLY AFTER THE PROVISIONS OF SECTION 90 WAS AMENDED WITH EFFECT FR OM 01 . 04.2009 , THE APPELLANT CAME TO KNOW THAT THE DTA WITH CHINA WILL NOT BE APPLICABLE TO HONG KONG . HE ALSO SUBMITTED THAT THE APPELLANT HAD CLAIMED TH E REL I EF OF HONG KONG BRANCH ONLY AND NOT OF CHINA. IT WA S ALSO SUBMITTED THAT THE AO HAD NOT ALLOWED ANY RELIEF AT THE ASSES SMENT STAGE . THEREFORE , THE LEVY OF PENALTY WAS NOT WARRAN T ED . 5 . 1 LET US NOW DISCUSS THE SCOPE OF SECTION 271 (1 )( C) OF THE ACT . PENALTY IS LEVIED OVER AND ABOVE ANY TAX OR INTERES T PAYABLE BY THE APPELLANT . IT IS THUS DISTINCT AND SEPARATE FROM THE TAX PAYAB LE . PENALTY PROCEEDINGS ARE ALSO D I STINC T AND SEPARATE FROM ASSESSMENT PROCEEDINGS [CIT V . DHARAM CHAND L . SHAH , 204 I TR 462 (BOM ), KANBAY SOFTWARE INDIA PVT . LTD . (2009) 31 SOT 153 (PUNE)] . IT IS WELL SETTLED THAT THE PROV I SIONS DEAL I NG WITH PENALTY SHOULD BE STRICTLY CONSTRUED. IT IS TO BE CONSTRUED WITHIN THE TERMS A ND LANGUAGE OF THE PARTICULAR SECTION(S) . FINDINGS IN THE ASSESSMENT PROCEEDINGS FOR DETERMINING OR COMPUTING TAX CANNOT BE SAID TO BE C ON C L USIVE FOR THE PURPOSE OF LEVY OF PENALTY . PENALTY U/S. 271 ( 1 )( C ) IS LEVIED @ 100 PER CENT TO 300 PER CENT OF TAX SOUGHT TO BE EVADED FOR CONCEALMENT OF PARTICULARS OF INC O ME OR FURNISHING INACCURATE PARTICULARS THEREOF . SEC. 271(1)(C) NEEDS TO BE READ ALO N G WITH THE EXPLANATIONS PROVIDED THEREIN . EXPLANATION-1 STIPULATES THAT WHERE IN RESPECT OF A NY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL I NCOME OF ANY PERSON : SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN E X PLANATION WH I CH IS FOUND BY T HE AO/CIT(A)/CIT TO BE FALSE ; OR SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS NOT A BLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM , THEN , IN THAT CASE THE AMOUNT ADDED OR 16 ITA NO.1990/1991/MDS./12 DISALLOWED IS DEEMED TO REPRESENT THE INCOME IN RES PECT OF WHICH THE PARTICULARS HAVE BEEN CONCEALED . 5 . 2 IT WOULD BE RELEVANT TO EXAMINE THE FACTS OF THE CASE AGAINST THE ABOVE STATU T ORY PROVISION . HERE , THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IS WHETHER THE APPE L LANT HAD FU R NISHED INACCURATE PARTICULARS IN RESPECT OF THE CLAIM OF DITR IN RESPECT OF HONG KONG BRANCH. SINCE THE DT A BETWEEN INDIA AND CHINA PROVIDES THAT THE BUSINESS PROFITS ARISING FROM BUSINESS CARRIED ON W ITH PERMANENT ES T ABLISHMEN T (PE) THEREIN IS TO BE TAXED ONLY IN THE OTHER CONTR ACTING COUNTRY V I Z .HONG KONG (I . E . , PART OF CHINA ) AND NOT IN INDIA , BASED ON THE SUPREME COURT DECISION IN KULANDAGAN CHETTIAR REPOR TED IN 267 ITR 654(SC), THE INCOME OF THE HONG KONG BRANCH IS NOT TAXABLE IN INDIA . HOWEVER , IT HAS SUBSEQUENTLY COME TO THE KNOWLEDGE O F THE APPELLANT THAT THE DTA AGREEMENT WITH CHINA IS NOT NECESSARILY BIN DING ON E I THER INDIA OR CHINA IN RESPECT OF HONG KONG BRANCH BECAUSE THO UGH PART OF REPUBLIC OF CHINA , HONG KONG ENJOYED SEPARATE STATUS AS A SPECIAL ADMINISTRATIVE REGION (SAR) . THEREFORE , HONG KONG AS A SAR CAN HAVE INDEPENDENT DTA WITH ANY OTHER COUNTRY . THIS INFORMATION IS MORE ON ACCOUNT OF DEVELOPMENT IN THE FISCAL REFORM IN THE INTERNATIONAL TAXATION. IT WAS ALSO SUBMITTED THAT THE ABOVE C L AIM WAS NOT MADE FOR THE FIRST TIME IN THE RELEVANT YEAR BUT THE BANK HAS BEEN CLA I MING THE RELIEF IN THE AFORESAID MANNER IN EVERY YEAR AND THE CLAIM , WHEREVER DISPUTED , WAS CONTESTED IN APPEAL PROCEEDINGS . ANOTHER IMPORTANT FACT IN THE PRESENT CASE IS THAT THE APPELLANT CLAIMED RELIEF OF HONG K ONG BRANCH AS PERTAINING TO HONG KONG AND NOT TO CHINA . 5 . 3 LET US NOW EXAMINE THE ABOVE FACTS I N THE L I GH T OF THE RECENT DECISION OF THE HON ' BLE SUPREME COURT IN THE CASE OF CIT V . RELIANCE PETROPRODUCTS PVT . L T D 322 I TR 158(SC) . THE HON ' BLE COURT HAS CONSIDERED THE NATURE OF DEFAULT WHICH WOULD CONSTI TUTE CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P AR T I CU L ARS , IN THE CONTEXT OF THE PROVISIONS OF SECTION 271 ( 1 )( C ) OF THE ACT . A F TER ANA L YZING I TS OWN 17 ITA NO.1990/1991/MDS./12 DECISIONS I N THE CASES OF DILIP N . SHROFF V . JCIT (291 ITR 519 ) , UN I ON OF INDIA V . DHARMENDRA TEXTILES (306 ITR 277 ) , UNION OF INDIA V . RAJASTHAN SPINNING AND WEAVING MILLS (224 CTR 1) AND CIT V . ATUL MOHAN JINDAL (317 ITR 1 ) , T HE HON ' BLE COURT , HAS STATED AS UNDER : ' THE BASIC REASON WHY DECISION IN D I LIP N . SH R OFF V . JO I N T CL T W AS OVERRULED BY THIS COURT IN UNION OF INDIA V . DHARMENDRA TE X T I LE PROCESSORS , WAS THA T ACCORDING TO THIS COURT THE EFFECT AND DIFFERENCE BETWEEN SECTION 271 ( 1 ) (C ) AND SECTION 276C OF THE ACT WAS LOST SIGHT ON IN THE CASE OF D ILIP N. SHROFF V . JOINT C L T , HOWEVER , IT MUST BE POINTED OUT THAT IN UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS , NO FAULT WAS FOUND WITH THE REASONING IN THE DECIS I ON IN DIL I P N . SHROFF V. JOINT CLT , WHERE THE COURT EXPLAINED THE MEA N ING OF THE TE R MS ' CONCEAL ' AND ' I NACCURATE ' . IT WAS ONLY THE ULT I MATE I NFERENCE IN DILIP N . SHROFF V . JOINT CT'T TO THE EFFECT THAT MENS REA WAS AN ESSENT I AL INGREDIENT FOR THE PENALTY U/S 271 (1 )( C ) THAT THE DECISION IN DILIP N . SHROFF V. JOINT CLT WAS OVERRULED. ' THE DEPARTMEN T IN THE RELIANCE PETROPRODUCTS ( SUPRA ) HAD ARGUED THAT S I NCE THE APPE L LANT HAD C L A I MED EXCESSIVE DEDUCT I ON KNOW I NG THAT THEY ARE I NCORRECT ; I T AMOUNTED TO CONCEALMENT OF INCOME. THE HON ' BLE COURT DID NOT FIND SUBSTANCE IN SUCH ARGUMENT AND NOTED THE ABOVE BY ITSELF TO BE INSUFFICIENT TO ATTRACT PENALTY. IT HELD AS UNDER : ' A MERE MAKING OF THE CLAIM , WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF , WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS ---- AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN , WHICH DETAILS , IN THEMSELVES , WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART . IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE , WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE , THAT BY ITSELF WOULD NOT , IN OUR OPINION, ATTRACT THE PENALTY U/S 271 (1 )(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED B Y THE ASSESSING OFFICER FOR ANY REASON , THE ASSESSEE W I LL INVITE PENALTY UNDER SECTION 271 (1)(C) . THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. ' 5.4. IN VIEW OF THE ABOVE FACTUAL POSITION AND AUTH ORITATIVE PRECEDENT AND SINCE THE PENALTY PROCEEDINGS ARE INDEPENDENT F ROM ASSESSMENT PROCEEDINGS , THE DEFAULT OF THE APPELLANT WARRANTING IMPOSITION OF PENALTY U/S 271(1 ) (C) NEEDS TO BE SEPARATELY AND I NDEPENDENTLY 18 ITA NO.1990/1991/MDS./12 ESTABLISHED BEFORE IMPOSING PENALTY UPON THE APPELL ANT . MERELY BECAUSE CERTAIN ADDITIONS HAVE BEEN MADE BY DISALLO WING THE CLAIM OF THE APPELLANT IN THE ASSESSMENT ORDER , IT DOES NOT MEAN THAT PENALTY WOULD AUTOMATICALLY BECOME LEVIABLE IN RELATION TO SUCH INCOME . IT MAY BE STATED THAT THE PARTICULARS/INFORMATION WE R E AVAILABLE IN T HE DETAILS FILED BY THE APPELLANT ITSELF AND WAS NOT UNEARTHED FROM A N Y O T HER SOURCES . THE APPELLANT HAD CLAIMED RELIEF OF ITS HONG KONG B RANCH AND NOT OF CH I NA . THE FACT WOULD HAVE BEEN DIFFERENT IF THE APPELLANT HAD I NCLUDED THE I NCOME OF HONG KONG AS INCOME OF CHINA AND CLAIMED RELIEF THEREON . THAT IS NOT THE CASE . IN FACT , THE APPELLANT HAD FURN I SHED ALL DETAILS OF ITS INCOME FROM VAR I OUS FOREIGN BRANCHES INCLUDING THAT OF HONG KONG BRANCH AND CLAIMED DITR IN RESPECT OF CER TAIN BRANCHES INCLUDING HONG KONG . THESE DETAILS ARE NOT PROVED TO BE INACCURATE AND CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME B Y THE APPELLANT . THE APPELLANT HAS BEEN C L AIMING RELIEF IN RESPECT OF HONG KONG BRANCH FROM THE PRECEDING ASSESSMEN T YEARS . SUCH CLAIM HAS NOT BEEN ACCEPTED AND NECESSARY ADDITION HAS BEEN MADE . THIS , BY ITSELF , WOULD NOT ATTRACT PENALTY . THIS VIEW IS SUPPORTED BY THE DECISION OF THE HON ' BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRO DUCTS (SUPRA ) DISCUSSED ABOVE . EVEN THE DECISION OF THE SUPREME COURT IN THE CASE OF UNION OF INDIA V. DHARMENDRA TEXTILES (SUPRA) CA NNOT BE READ TO CONSTRUE THAT PENALTY IS AUTOMATICALLY LEVIABLE , AS HAS BEEN SUBSEQUENTLY EXPLAINED BY THE SUPREME COURT IN THE CASES OF UNION O F INDIA V . RAJASTHAN SPINNING AND WEAVING MILLS ( SUPRA ) AND RELIANCE PETROPRODUCTS LTD (SUPRA ) . IN V I EW OF THE ABOVE FACTUAL POSITION AND JUDICIAL AUTHORITIES , I AM OF THE CONSIDERED OPINION THAT THE CASE OF THE APPELLANT DOES NOT ATTRACT LEVY O F PENALTY U/S 271(1 )(C) . THE AO IS ACCORDINGLY DIRECTED TO DELETE THE SAME . THIS G ROUND IS ACCORDINGLY ALLOWED. 9. WE FIND THAT IT IS NOT IN DISPUTE THAT INCOME O F HONG KONG BRANCH WAS TRULY AND CORRECTLY DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. 19 ITA NO.1990/1991/MDS./12 NO INACCURACY IN THE PARTICULARS OF THE INCOME DISC LOSED BY THE ASSESSEE WAS FOUND IN THE ASSESSMENT. THE ONLY ERROR WHICH WAS FOUND IN THE ASSESSMENT FOR WHICH PENALTY IN QUESTION IS LEVIED, RELATES TO THE COMPUTATION OF TAX LIABILITY. IN THE ABOVE CIRCUMST ANCES, IN OUR CONSIDERED OPINION, IT CANNOT BE HELD THAT THE ASSE SSEE HAD CONCEALED THE PARTICULARS OF ITS INCOME OR FURNISHED INACCURA TE PARTICULARS OF ITS INCOME AND CONSEQUENTLY KEEPING IN VIEW THE PROVISI ONS OF EXPLANTION-4 TO SECTION 271(1) OF THE ACT , NO PENALTY IS LEGALL Y LEVIABLE UNDER SECTION 271(1)(C) OF THE ACT. WE ,THEREFORE CONFIRM THE O RDER OF THE CIT(A) AND DISMISS BOTH THE APPEALS OF THE REVENUE. 10. IN THE RESULT, THE APPEALS OF REVENUE ARE DISMI SSED. ORDER PRONOUNCED ON THURSDAY, THE 14 TH FEBRUARY, 2013 AT CHENNAI. SD/- SD/- ( VIKAS AWASTHY ) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 14 TH FEBRUARY, 2013. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE 20 ITA NO.1990/1991/MDS./12 21 ITA NO.1990/1991/MDS./12 22 ITA NO.1990/1991/MDS./12 23 ITA NO.1990/1991/MDS./12 24 ITA NO.1990/1991/MDS./12 25 ITA NO.1990/1991/MDS./12 26 ITA NO.1990/1991/MDS./12 27 ITA NO.1990/1991/MDS./12 28 ITA NO.1990/1991/MDS./12 29 ITA NO.1990/1991/MDS./12 30 ITA NO.1990/1991/MDS./12 31 ITA NO.1990/1991/MDS./12 ITA NO. /MDS/ 33 ITA NO. /MDS/ 34 BEFORE US, THE DEPARTMENTAL REPRESENTATIVE HAS FIL ED WRITTEN SUBMISSION WHICH READ AS FOLLOWS:- LEVY OF PENALTY UNDER SECTION 271(1)(C) ON THE OTHER HAND, THE A.R. RELIED ON THE SUBMISSIO NS MADE BEFORE THE CIT(A) AND SUPPORTED THE ORDER OF THE CIT(A). WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271( 1) (C) OF THE ACT OF ` 15,37,69,311/- FOR A.Y. 2006-07 AND OF ` 10,70,43,443/- FOR A.Y. 2007-08. IN BOTH THE YEARS, THE FACTS ARE SAME EXCEPT WITH C HANGE IN FIGURES. THE RELEVANT FACT IS THAT THE ASSESSEE CLAIMED ENTIRE I NDIAN TAX RATE ON THE INCOME OF ITS HONG KONG BRANCH AS RELIEF UNDER SEC TION 90 OF THE ACT ON THE GROUND THAT HONG KONG BRANCH IS A COLONY OF C HINA WITH WHICH THERE IS A DOUBLE TAXATION AGREEMENT. HOWEVER, IT WAS FOUND THAT THERE WAS NO TAXATION AGREEMENT WITH HONG KONG AND THEREFORE, T HE ASSESSEE WAS ENTITLED FOR TAX RELIEF UNDER SECTION 91 OF THE ACT TO THE EXTENT OF TAX PAID IN ITA NO. /MDS/ 35 HONG KONG ONLY SUBJECT TO MAXIMUM OF TAX LEVIABLE IN INDIA ON THAT INCOME. CONSEQUENTLY, IN THE ASSESSMENT IT WAS FOU ND THAT THE ASSESSEE CLAIMED EXCESS RELIEF OF ` 13,70,49,296/- IN A.Y. 2006-07 AND OF ` 9,54,04,138/- IN A.Y. 2007-08. FOR THE ABOVE REAS ONS, THE ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271(1)(C) OF T HE ACT , WHICH IS UNDER PRESENT APPEAL. ON APPEALS, CIT(A) DELETED THE AFORESAID LEVY OF PENALTY IN BOTH THE YEARS FOR THE REASONS AS UNDER:- (CIT(A) FINDINGS ) WE FIND THAT IT IS NOT IN DISPUTE THAT INCOME OF H ONG KONG BRANCH WAS TRULY AND CORRECTLY DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. NO INACCURACY IN THE PARTICULAR OF THE INCOME DISCLOSE D BY THE ASSESSEE WAS FOUND IN THE ASSESSMENT. THE ONLY ERROR WHICH WAS FOUND IN THE ASSESSMENT FOR THE PENALTY IN QUESTION IS LEVIED RE LATES TO THE COMPUTATION OF TAX LIABILITY. IN THE ABOVE CIRCUMSTANCES, IN OU R CONSIDERED OPINION, IT CANNOT BE LEVIED THAT THE ASSESSEE HAD CONCEALED TH E PARTICULARS OF ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF ITS I NCOME AND CONSEQUENTLY KEEPING IN VIEW THE PROVISIONS OF EXPLANTION-4 TO S ECTION 271(1) OF THE ACT , ITA NO. /MDS/ 36 NO PENALTY IS LEGALLY LIABLE UNDER SECTION 271(1)(C ) OF THE ACT. WE ,THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND DIS MISS BOTH THE APPEALS OF THE REVENUE. . IN THE RESULT, APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED ON , THE FEBRUA RY, 2013 AT CHENNAI. CHENNAI, DATED THE FEBRUARY, 2013. K S SUNDARAM. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA NO. /MDS/ 37 ITA NO. /MDS/ 38 ITA NO. /MDS/ 39