DCIT, Patiala V. M/s SBOP, Patiala

ITA 22/CHANDI/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9899 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-06-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 03-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Keywords: Business income; Depreciation; Rectification of order; Bonafide belief; Earning of tax free income; Wrong claim; Bad and doubtful debts; Revised return
• Section: 143(3); 14A; 133(6); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCBH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NOS. 6 TO 11/CHD/2014 A.YS : 2002-03 TO 2007-08 STATE BANK OF PATIALA, VS THE ACIT, HEAD OFFICE, CIRCLE, THE MALL, PATIALA. PATIALA. PAN: AACCS0143D & ITA NOS. 22 TO 26/CHD/2014 A.YS : 2003-04 TO 2007-08 THE DCIT, VS STATE BANK OF PATIALA, CIRCLE, THE MALL, PATIALA. PATIALA. PAN: AACCS0143D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. NARESH DEPARTMENT BY : SHRI AMARVEER SINGH, DR DATE OF HEARING : 09.06.2015 DATE OF PRONOUNCEMENT : 17.06.2015 O R D E R PER BENCH THIS ORDER SHALL DISPOSE OFF ALL THE ABOVE CROSS-AP PEALS CHALLENGING THE COMMON ORDER OF LD. CIT(APPEALS), P ATIALA DATED 24.10.2013 WHEREBY LD. CIT(APPEALS) HAS CONFIRMED L EVY OF THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON CERTA IN ITEMS AND ON CERTAIN OTHER ITEMS LD. CIT(APPEALS) DELETED THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THUS, BOTH PARTIES 2 ARE IN APPEALS CHALLENGING THE CONFIRMATION OF THE LEVY OF PENALTY AND DELETION OF THE LEVY OF PENALTY RESPECTIVELY. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE FILED THE BRIEF WRITTEN SUBMISSIONS ON ALL THE POINTS INVOLVED IN THE PRESENT APPEALS AND SUBMITTED THAT THE ISSUES ARE IDENTICAL MOSTLY IN ALL THE CROSS APPEALS, THER EFORE, IT WOULD BE BETTER TO ADJUDICATE UPON ALL THE CROSS APPEALS ISSUE/POINT- WISE CONSIDERED IN THE CROSS APPEALS. THE FACTS AR E TAKEN FROM IMPUGNED ORDER. ASSESSEE'S APPEALS ISSUE NO. 1 (TAXABILITY OF RECOVERY IN RESPECT OF BAD DEBTS WRITTEN OFF ISSUE ARISING IN ALL THE YEARS) 3. THIS ISSUE ARISES IN ASSESSMENT YEAR 2002-03. T HE LD. CIT(APPEALS) NOTED IN THE IMPUGNED ORDER THAT THE A SSESSEE RECOVERED ADVANCES WRITTEN OFF TO THE TUNE OF RS. 2 .93 CRORES AND DEBITED THE SAME TO THE PROFIT & LOSS ACCOUNT U NDER SECTION 41 OF THE ACT. HOWEVER, IN THE REVISED RETURN, THI S AMOUNT WAS REDUCED FROM TAXABLE INCOME. THIS FACT WAS POINTED OUT BY THE AUDITORS IN THE TAX AUDIT REPORT AS MENTIONED BY TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS SUBMITTED BY THE ASSE SSEE THAT THE BAD DEBTS RECOVERED DURING THE YEAR IS NOT TAXA BLE AS THE SAME WAS NOT CLAIMED AS DEDUCTION UNDER SECTION 36( 1)(VII) OF THE ACT IN ANY PREVIOUS YEAR AND THAT THE CA'S REPO RT HAS NO RELEVANCE. IT WAS FURTHER SUBMITTED THAT BAD DEBT WAS ALLOWED IN ASSESSMENT YEAR 2001-02. THE ASSESSING OFFICER H AD 3 DISCUSSED THE ISSUE IN DETAIL AND THEREAFTER DISCUS SED THE REPLY OF THE CHARTERED ACCOUNTANT SOUGHT DURING THE ASSES SMENT PROCEEDINGS UNDER SECTION 133(6) OF THE INCOME TAX ACT. THE CHARTERED ACCOUNTANT HAS REPLIED THAT IN THEIR TAX AUDIT REPORT, THEY HAVE MENTIONED THAT AMOUNT RECOVERED I N RESPECT OF ADVANCE WRITTEN OFF IS RS. 2.93 CR AND IS CHARGEABL E TO TAX UNDER SECTION 41 OF THE ACT. HOWEVER, THIS HAS BEEN CRE DITED BY THE BANK TO ITS PROFIT & LOSS ACCOUNT. IN OUR OPINION, THIS IS CHARGEABLE UNDER SECTION 41 OF THE ACT. IN VIEW OF THE REPORT OF THE CHARTERED ACCOUNTANT, THE ASSESSING OFFICER HAS CATEGORICALLY STATED THAT THE AMOUNT RECOVERED DURI NG THE YEAR UNDER CONSIDERATION HAD BEEN WRITTEN OFF IN THE EAR LIER YEARS WHICH MEANS THAT DEDUCTION MUST HAVE BEEN CLAIMED I N THE YEAR IN WHICH THE AMOUNT WAS WRITTEN OFF BUT THE ASSESSE E FAILED TO DO SO. IT WAS NOTED THAT IT IS OBVIOUS THAT THE AS SESSEE WANTED TO CLAIM DEDUCTION IN THE YEAR UNDER CONSIDERATION WHICH IS NOT ALLOWABLE UNDER THE ACT. THE LD. CIT(APPEALS) CONF IRMED THE ADDITION AND THE TRIBUNAL ALSO CONFIRMED THE ADDITI ON. 4. THE LD. CIT(APPEALS) FURTHER NOTED THAT FROM THE ORDER FOR ASSESSMENT YEAR 2003-04 THE ADDITION IS CONFIRMED O N THE BASIS OF REPORT OF THE AUDITOR AND BECAUSE OF THE ASSESSE E NOT DISCHARGING ITS ONUS AND FAILURE TO FILE NECESSARY DETAILS. THE TRIBUNAL IN ASSESSMENT YEAR 2002-03 OBSERVED THAT T HIS ISSUE IS SAME AS WAS CONSIDERED IN ASSESSMENT YEAR 2003-04 A ND THAT THE ASSESSEE FAILED TO FILE DETAILS OF BAD DEBT AND THE YEAR IN WHICH IT WAS WRITTEN OFF. THE LD. CIT(APPEALS), TH EREFORE, FOUND THAT ASSESSEE HAS DEFAULTED IN SUBMITTING THE REQUI SITE DETAIL AND SUBSTANTIATE THE EXPENSES CLAIMED. THE LD. CIT (APPEALS), 4 THEREFORE, CONFIRMED THE LEVY OF PENALTY AND DISMIS SED THE APPEAL OF THE ASSESSEE. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CLAIM OF RECOVERY IN RESPECT OF BAD DEBTS WRITTEN OFF EMANAT ES FROM RETURN OF INCOME AND FOR THE ASSESSMENT YEAR 2002-0 3 WAS ACCEPTED IN ORIGINAL ASSESSMENT UNDER SECTION 143(3 ) BUT DISALLOWED IN THE SUBSEQUENT ORDER UNDER SECTION 14 7 OF THE ACT. THE ASSESSEE FURNISHED EXPLANATION BEFORE ASSESSING OFFICER ON THE ISSUE OF CLAIM OF BAD DEBTS WRITTEN OFF THAT RE COVERY FROM LOAN ACCOUNTS WERE NOT OFFERED TO INCOME BECAUSE TH E BAD DEBT WRITTEN OFF DOES NOT EXCEED THE CREDIT BALANCE IN T HE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT UNDER SECTION 36 (1)(VIIA) OF THE ACT. SINCE THE BAD DEBTS WRITTEN OFF WAS NOT C LAIMED AS DEDUCTION, THE RECOVERY OF SUCH BAD DEBTS WRITTEN O FF EARLIER COULD NOT BE BROUGHT TO TAX AS PER PROVISIONS OF SE CTION 41(4) OF THE ACT. HE HAS SUBMITTED THAT NO DEDUCTION IN BAD DEBTS WRITTEN OFF WERE CLAIMED IN THE RETURN OF INCOME, H AS NOT BEEN REBUTTED BY THE ASSESSING OFFICER. IT IS CONTENDED THAT IT WAS SUBMITTED BEFORE THE AUTHORITIES BELOW THAT DEBTS R ECOVERY WHEREOF WERE NOT ALLOWED AS DEDUCTION IN ANY OF THE PRECEDING YEARS. YET THE ASSESSING OFFICER WAS INSISTING THA T THE YEAR-WISE DETAILS OF WRITE OFF AND RECOVERY WERE TO BE SUBMIT TED AS DEMONSTRABLE EVIDENCE OVERLOOKING THE BASIC FACT TH AT AT THE FIRST INSTANCE, NO CLAIM OF WRITE OFF OF BAD DEBTS WERE M ADE IN EARLIER YEARS AND ALLOWED IN THE ASSESSMENT. HE HAS SUBMITT ED THAT LEVEL OF PROOF DEMANDED BY THE ASSESSING OFFICER WA S IMPOSSIBLE BECAUSE OF THE THOUSANDS OF THE BRANCHES OF THE PUB LIC SECTOR BANK AND MILLIONS OF BORROWERS. NO CASE IS MADE OU T OF 5 CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS. THE ASSESSING OFFICER MADE DISALLOWANCE AS WELL AS LEVI ED PENALTY ALLEGING LACK OF DEMONSTRABLE PROOF. THE APPEAL OF ASSESSEE IS ADMITTED BY HON'BLE PUNJAB & HARYANA HIGH COURT ON QUANTUM. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIN CE IT IS A DEBATABLE ISSUE, THEREFORE, PENALTY IS NOT LEVIABLE . HE HAS REFERRED TO JUDGEMENT OF HON'BLE SUPREME COURT IN T HE CASE OF CATHOLIC SYRIAN BANK LTD. VS CIT 343 ITR 270 IN WHI CH IT WAS HELD, THAT THE PROVISIONS OF SECTION 36(1)(VII) AND 36(1 )(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUC TION AND OPERATE IN THEIR RESPECTIVE FIELD. THE LD. COUNSEL FOR THE ASSESSEE THEREFORE, SUBMITTED THAT PENALTY IS NOT L EVIABLE ON THIS ITEM. 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT TAX LIA BILITY IS MORE IN ALL THE ASSESSMENT YEARS. ACCORDING TO SEC TION 36(1)(VIIA) 7% IS ALLOWED DEEMING DEDUCTION UNDER T HE ACT IN CASE OF SCHEDULED BANK. PB-42 IS STATEMENT OF INCO ME ENDING MARCH,1999 IN WHICH ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT. FOR PRO VISION OF BAD DEBT, SECTION 41(1) APPLY ON RECOVERY OF BAD DEBTS. SINCE THE TRIBUNAL HAS CONFIRMED THE ADDITION, THEREFORE, LEV Y OF PENALTY IS JUSTIFIED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MATERI AL AVAILABLE ON RECORD. THE LD. CIT(APPEALS) NOTED TH E FINDINGS OF THE ASSESSING OFFICER IN THE IMPUGNED ORDER THAT TH E AMOUNT RECOVERED DURING THE YEAR UNDER CONSIDERATION HAD B EEN WRITTEN OFF IN THE EARLIER YEARS WHICH MEANS THAT DEDUCTION MUST HAVE BEEN CLAIMED IN THE YEAR IN WHICH THE AMOUNT WAS WR ITTEN OFF 6 BUT THE ASSESSEE FAILED TO DO SO. THE ASSESSEE, HO WEVER, CLAIMED THAT ORIGINALLY THE CLAIM OF ASSESSEE WAS ACCEPTED IN REGULAR ASSESSMENT ORDER UNDER SECTION 143(3) BUT DISALLOWE D IN SUBSEQUENT ORDER UNDER SECTION 147. THE ASSESSEE C LAIMED THAT EXPLANATION WAS FILED BEFORE ASSESSING OFFICER ON T HE ISSUE OF CLAIM OF BAD DEBTS WRITTEN OFF THAT RECOVERY FROM L OAN ACCOUNTS WERE NOT OFFERED TO INCOME BECAUSE THE BAD DEBTS WR ITTEN OFF DOES NOT EXCEED THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNTS UNDER SECTION 36(1)(VIIA). THE ASSESSEE ALSO CLAIMED THAT SINCE THE BAD DEBTS WRITTEN OFF W AS NOT CLAIMED AS DEDUCTION, THE RECOVERY OF SUCH BAD DEBTS WRITTE N OFF EARLIER COULD NOT BE BROUGHT TO TAX UNDER THE PROVISIONS OF SECTION 41(4) OF THE INCOME TAX ACT. IT APPEARS PENALTY IS LEV IED MERELY AN ADDITION IS CONFIRMED RELYING ON REPORT OF AUDITOR. THE ISSUE IS LEGAL IN NATURE AND DISCLOSES NO CONCEALMENT OF INC OME. 8. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO PB- 48 WHICH IS THE REVISED STATEMENT OF TAXABLE BUSINESS INCOME EN DING 31.03.2002 IN WHICH ASSESSEE DID NOT CLAIM DEDUCTIO N ON ACCOUNT OF BAD DEBTS UNDER SECTION 36(1)(VII) OF TH E ACT. THIS WOULD STRENGTHEN THE SUBMISSION OF LD. COUNSEL FOR THE ASSESSEE THAT NO DEDUCTION FOR BAD DEBTS WRITTEN OFF WERE CL AIMED IN THE RETURN OF INCOME. THE ASSESSING OFFICER HAS ALSO N OT BROUGHT ANYTHING ON RECORD IF ASSESSEE CLAIMED ANY DEDUCTIO N UNDER THE ABOVE PROVISIONS IN EARLIER YEARS. IT APPEARS THAT SINCE THE REQUISITE DETAILS WERE NOT FILED BY ASSESSEE, ASSES SING OFFICER INFERRED THAT ASSESSEE MUST HAVE MADE CLAIM OF DEDU CTION IN EARLIER YEARS IN RESPECT OF THE AMOUNT WRITTEN OFF. THE HON'BLE 7 SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROP RODUCTS PVT. LTD. 322 ITR 158 (S.C) HELD AS UNDER : A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT,1961 SUGGESTS THAT IN ORDER TO BE CO VERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULA RS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME . THE MEANING OF THE WORD PARTICULARS USED IN SECTION 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MA DE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND T O BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HEL D GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORD ER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISIONS, THE PENALTY PRO VISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THA T EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY TH E ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE T HE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LI ABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLI ED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRE CT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORREC T OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY U/S 271(1)(C). A MERE MAKING OF A CLAIM WHI CH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNO T AMOUNT TO FURNISHING INACCURATE PARTICULARS. 9. THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS HARSHVARDHAN CHEMICALS & MINERAL LTD. 259 ITR 212 H ELD AS UNDER : HELD, AFFIRMING THE DECISION OF THE APPELLATE TRI BUNAL, THAT NO PENALTY WAS LEVIABLE IN VIEW OF THE FINDING OF THE TRIBUNAL THAT WHEN THE ASSESSEE HAD CLAIMED DEDUCTI ON OF AN AMOUNT THAT WAS DEBATABLE IT COULD NOT BE SAI D THAT THE ASSESSEE HAD CONCEALED ANY INCOME OR FURNI SHED INACCURATE PARTICULARS FOR EVASION OF TAX, AND, IN VIEW OF THE FINDINGS OF THE TRIBUNAL, NO CASE WAS MADE OUT FOR INTERFERENCE. 8 10. THE HON'BLE SUPREME COURT IN THE CASE OF M/S RA JASTHAN SPINNING & WEAVING MILLS (2009) TIOL-63 HELD THAT, ON EVERY DEMAND, PENALTY IS NOT AUTOMATIC. 11. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO BEEN ABLE TO EXPLAIN THAT THERE IS A DIFFERENCE BETWEEN CLAIM MA DE UNDER SECTION 36(1)(VII) AND SECTION 36(1)(VIIA) OF THE A CT. THEREFORE, MERELY BECAUSE ASSESSEE HAS NOT OFFERED A PARTICULA R INCOME FOR TAX UNDER BONAFIDE BELIEF AND ON THE PREMISE THAT S INCE NO DEDUCTION FOR BAD DEBT WRITTEN OFF WERE CLAIMED IN THE RETURN OF INCOME AS WELL AS IN EARLIER YEARS, THEREFORE, THE AMOUNT IN QUESTION WAS NOT BONAFIDELY SURRENDERED FOR THE PUR POSE OF TAX, WOULD CLEARLY REVEAL THAT EVEN IF ADDITIONS ON MERI T HAVE BEEN CONFIRMED, BUT IN OUR VIEW IT IS NOT A FIT CASE OF LEVY OF PENALTY BECAUSE ASSESSING OFFICER HAS NOT BROUGHT ANY EVIDE NCE ON RECORD THAT IT IS A CASE OF CONCEALMENT OF INCOME O R FURNISHING INACCURATE PARTICULARS OF INCOME. MERELY MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOU NT TO FURNISHING INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. 12. CONSIDERING THE TOTALITY OF FACTS AND CIRCUMSTA NCES, WE ARE OF THE VIEW THAT PENALTY IS NOT LEVIABLE ON THIS IT EM. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BE LOW AND CANCEL THE PENALTY. 13. THIS ISSUE ALSO ARISE IN ALL THE REMAINING APPE ALS OF THE ASSESSEE FOR ASSESSMENT YEAR 2003-04, 2004-05, 2005 -06, 2006-07 AND 2007-08. FOLLOWING THE ORDER FOR ASSES SMENT YEAR 2002-03 ABOVE, WE SET ASIDE THE ORDERS OF AUTHORITI ES BELOW AND 9 CANCEL THE PENALTY. IN THE RESULT, ALL APPEALS OF ASSESSEE ON THIS ISSUE ARE ALLOWED. ISSUE NO. 2 (DEPRECIATION ON NARIMAN POINT PROPERTY ) 14. THIS ISSUE IS CONSIDERED IN ASSESSMENT YEAR 200 3-04 BY LD. CIT(APPEALS). THE LD. CIT(APPEALS) NOTED THAT THE FACTS OF THE CASE ARE THAT THE ASSESSEE CLAIMED DEPRECIATION ON THE PREMISES AT NARIMAN POINT, THE POSSESSION AND OWNERSHIP OF W HICH ARE IN DISPUTE. THE ASSESSING OFFICER HELD THAT THE DEPRE CIATION IS NOT ALLOWABLE TO THE ASSESSEE AS THE ASSESSEE DOES NOT POSSESS OR OWN THE PROPERTY. THIS ISSUE IS CONSIDERED IN DETA IL IN ASSESSMENT ORDER AND LD. CIT(APPEALS) ALSO CONFIRME D THE ADDITION HOLDING THAT TITLE OF THE OWNERSHIP OF THE ASSESSEE HAS NOT TAKEN PLACE AND IN THE ABSENCE OF WHICH THE PRE MISES COULD NOT BE CONSIDERED IN POSSESSION OF THE ASSESSEE. T HE LD. CIT(APPEALS) NOTED THAT ASSESSEE DID NOT HOLD THE T ITLE OF THE PROPERTY AND THEREFORE, WAS WELL AWARE OF THE FACT THAT IT DID NOT OWN THE PROPERTY. THE CLAIM OF DEPRECIATION WAS FO UND NOT ALLOWABLE. THE LD. CIT(APPEALS) NOTED THAT ASSESSE E MADE A FALSE CLAIM, THEREFORE, LEVY OF PENALTY WAS CONFIRMED. 15. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE WAS REMITTED BACK TO THE ASSESSING OFFICER BY ITAT IN PRECEDING ASSESSMENT YEAR 2002-03 AND SUBMITTED THAT ONCE THE ISSUE IS RESTORED TO THE FILE OF ASSESSING OFFICER, PENALTY SHOULD NOT BE IMPOSED. HE HAS REFERRED TO COPY OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2002-03 DATED 30.11.2009 UNDER SECT ION 143(3)/254 OF THE ACT (PB-97) IN WHICH THE ASSESSIN G OFFICER NOTED THAT THIS ISSUE HAS BEEN RESTORED TO HIM BY I TAT CHANDIGARH BENCH IN ITA NO. 490/2005 ASSESSMENT YEA R 2002- 10 03 VIDE ORDER DATED 19.06.2008. THE LD. COUNSEL FO R THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER, CONS IDERING THE CASE OF ASSESSEE IN THE LIGHT OF THE JUDGEMENT OF H ON'BLE SUPREME COURT IN THE CASE OF MAYSORE MINERALS LTD. (SUPRA) FOUND THE CLAIM OF ASSESSEE TO BE GENUINE AND ALLOW ED THE DEPRECIATION. THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT EVEN IF ADDITION IS SUSTAINED IN THE YEAR UNDER CON SIDERATION, BUT APPEAL OF THE ASSESSEE IS PENDING BEFORE HIGH C OURT AND IT IS A DEBATABLE ISSUE, THEREFORE, PENALTY MAY NOT BE LE VIED. 16. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 17. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW PENALTY IS NOT LEVIABLE ON THIS ITEM. IT IS A DMITTED FACT THAT IN EARLIER ASSESSMENT YEAR 2002-03, THE MATTER WAS REMANDED BY THE TRIBUNAL TO THE FILE OF ASSESSING OFFICER AND T HE ASSESSING OFFICER, ON THE IDENTICAL FACTS ACCEPTED THE CLAIM OF ASSESSEE HOLDING ASSESSEE TO BE ENTITLED FOR DEPRECIATION ON PREMISES AT NARIMAN POINT. IN THE YEAR UNDER CONSIDERATION, EV EN IF ADDITION IS SUSTAINED, BUT THE ISSUE HAS BECOME DEBATABLE BE CAUSE TWO VIEWS ARE POSSIBLE IN THE MATTER, BECAUSE IN EARLIE R YEAR ASSESSING OFFICER HAS TAKEN A FAVOURABLE VIEW IN FA VOUR OF THE ASSESSEE. THEREFORE, IT WOULD CLEARLY REVEAL THAT ASSESSEE HAS MADE A BONAFIDE CLAIM OF DEPRECIATION AND THE ISSUE BEING DEBATABLE, WOULD NOT PROVE THAT IT IS A CASE OF CON CEALMENT OF INCOME OR FILING INACCURATE PARTICULARS OF INCOME. THE DECISIONS CITED ABOVE ON ISSUE NO. 1 CLEARLY SUPPORT THE CLAI M OF ASSESSEE THAT IT IS NOT A FIT CASE OF LEVY OF PENALTY. WE, ACCORDINGLY, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND CANCEL TH E PENALTY. 11 18. SIMILAR ISSUE IS ARISING IN ASSESSMENT YEAR 200 4-05, 2005- 06 AND 2006-07. BY FOLLOWING THE ORDER FOR ASSESSM ENT YEAR 2003-04 (SUPRA), WE SET ASIDE THE ORDERS OF AUTHORI TIES BELOW FOR THESE ASSESSMENT YEARS AS WELL AND CANCEL THE PENAL TY. IN THE RESULT, ALL APPEALS OF THE ASSESSEE ON THIS ISSUE A RE ALLOWED. ISSUE NO. 3 (PRIOR PERIOD EXPENSES) 19. THE LD. CIT(APPEALS) CONSIDERED THIS ISSUE IN A SSESSMENT YEAR 2003-04. THE LD. CIT(APPEALS) NOTED THAT THE D ETAILS OF PRIOR PERIOD EXPENSES AND INCOME WAS PROVIDED IN THE TAX AUDIT REPORT. THE ASSESSING OFFICER ASKED FOR SPECIFIC DE TAILS OF PRIOR PERIOD EXPENSES AND INCOME IN THIS YEAR. IT WAS AL SO SEEN THAT IN THE ORIGINAL RETURN, THE ASSESSEE ITSELF HAS ADD ED BACK THE PRIOR PERIOD EXPENSES WHILE IN THE REVISED RETURN T HE SAME WAS NOT ADDED BACK. THE ASSESSEE CONTENDED BEFORE ASSE SSING OFFICER THAT SYSTEM OF ACCOUNTING HAS BEEN NARRATED BY THE STATUTORY AUDITORS IN BALANCE SHEET UNDER THE HEAD PRINCIPLES OF ACCOUNTING POLICIES. THE EXPENSES HAVE BEEN DEALT WITH UNDER THE SUB HEAD REVENUE RECOGNITION. THE NARRATION OF THE SAME WAS THAT THE INCOME/EXPENDITURE IS ASCERTAINED ON ACCRUAL BASIS EXCEPT IN THE CASE OF NON PERFORMING ASSETS W ERE INCOME IS RECOGNIZED ON REALIZATION AS PER PRUDENTIAL NORMS P RESCRIBED BY THE RESERVE BANK OF INDIA. IT WAS SUBMITTED THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, THE LIABILITY ON A CCOUNT OF EXPENSES ARISES ONLY ON RISING OF BILLS OR CLAIMS. THE ASSESSEE RELIED UPON SEVERAL DECISIONS IN SUPPORT OF THE CON TENTION AND IT WAS SUBMITTED THAT IN VIEW OF THE NOTE ON ACCOUNT I N THE TAX AUDIT REPORT, IT IS CLEAR THAT THERE ARE NO PRIOR P ERIOD EXPENSES WHICH HAVE BEEN BOOKED UNDER THE YEAR UNDER CONSIDE RATION. IT 12 WAS SUBMITTED THAT BANK IS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING. ONLY FEW OPERATIVE EXPENSES SUCH AS TE LEPHONE AND ELECTRICITY BILLS AND DISPUTED SALARY OF STAFF ARE ACCOUNTED FOR ON PAYMENT BASIS. THE DETAILS ARE GIVEN IN THE TAX AU DIT REPORT. THE ASSESSING OFFICER NOTED THAT APPARENTLY THE DET AILS OF PRIOR PERIOD EXPENSES WERE NOT FILED, THEREFORE, ASSESSIN G OFFICER IN ABSENCE OF DETAILS OF PRIOR PERIOD EXPENSES MADE AN ESTIMATED ADDITION OF 0.5% OF THE TOTAL OPERATING EXPENSES AS PRIOR PERIOD EXPENSES IN LINE WITH THE ADDITIONS MADE IN THE EAR LIER YEAR. THE ASSESSING OFFICER HELD THAT THE PRIOR PERIOD EX PENSES AS SHOWN IN THE TAX AUDIT REPORT APPEARS TO BE ON LOWE R SIDE. THE LD. CIT(APPEALS) ALSO HELD THAT PRIOR PERIOD EXPENS ES IS ALLOWED IN THE YEAR TO WHICH IT PERTAINS AND FURTHER THAT A DDITION BE RESTRICTED TO THE DIFFERENCE BETWEEN PRIOR PERIOD E XPENSES AND PRIOR PERIOD INCOMES. 20. THE ASSESSEE RELIED UPON VARIOUS DECISIONS BEFO RE LD. CIT(APPEALS) ON THE PROPOSITION THAT AS THE ASSESSE E WAS FOLLOWING SAME SYSTEM OF ACCOUNTING REGULARLY FROM YEAR TO YEAR, IT WAS ENTITLED TO EXPENDITURE. THE TRIBUNAL RESTO RED THE MATTER TO THE ASSESSING OFFICER FOR LOOKING INTO DETAILS O F EXPENSES. IT WAS SUBMITTED THAT DETAILS OF THE EXPENSES WERE FIL ED AND COPY OF THE DETAILS WERE ALSO FILED BEFORE LD. CIT(APPEALS) . DURING THE COURSE OF APPELLATE PROCEEDINGS IT WAS SUBMITTED TH AT THE ASSESSING OFFICER MADE ADDITION OF RS. 1.97 CR ON A CCOUNT OF PRIOR PERIOD EXPENSES ON ESTIMATE BASIS WHICH HAVE BEEN REDUCED BY THE LD. CIT(APPEALS) LEAVING AN ADDITION OF RS. 9,37,556/- ONLY. IT WAS CLAIMED THAT THERE ARE NO PRIOR PERIOD EXPENSES AND CERTAIN NEGLIGIBLE EXPENSES WERE CLAIM ED ON THE 13 BASIS OF SETTLEMENT OF DISPUTE ON RECEIPT OF THE BI LLS. IT WAS, THEREFORE, CONTENDED THAT NO PENALTY IS LEVIABLE ON PRIOR PERIOD EXPENSES. LD. CIT(APPEALS), HOWEVER, CONFIRMED THE PENALTY TO THE AMOUNT SUSTAINED AS ADDITION. 21. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIMILARLY ITAT REMANDED THE IDENTICAL MATTER TO THE FILE OF A SSESSING OFFICER IN ASSESSMENT YEAR 2002-03 (SUPRA) AND THE ASSESSING OFFICER IN THE SAID PROCEEDINGS DISALLOWED 1/3 RD OF SUCH PRIOR PERIOD EXPENSES. COPY OF THE ASSESSMENT ORDER DATED 30.11.2009 FOR ASSESSMENT YEAR 2002-03 IS FILED ON RECORD (PB-97). THE LD. COUNSEL FOR THE ASSESSEE, THEREFO RE, SUBMITTED THAT ON MERE DISALLOWANCE OF EXPENSES ON ESTIMATE B ASIS, PENALTY IS NOT LEVIABLE. HE HAS ALSO SUBMITTED THA T IN ASSESSMENT YEAR 2007-08, PENALTY IS NOT LEVIED VIDE IMPUGNED ORDER DATED 24.10.2013. THEREFORE, ON MERE DISALLOW ANCE, PENALTY MAY NOT BE IMPOSED. 22. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 23. WE HAVE CONSIDERED RIVAL SUBMISSIONS. THE ASSE SSEE CLAIMED THAT IT IS MAINTAINING THE ACCOUNTS UNDER M ERCANTILE SYSTEM OF ACCOUNTING AND THE LIABILITY ARISES ON RE CEIPT OF THE BILL OR CLAIM ETC. THE ASSESSEE ALSO CLAIMED IN THE TAX AUDIT REPORT THAT NO PRIOR PERIOD EXPENSES HAVE BEEN BOOK ED IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE MAINTAINED S AME SYSTEM OF ACCOUNTING. ACCORDING TO THE ASSESSEE, ONLY FEW OPERATING EXPENSES LIKE TELEPHONE AND ELECTRICITY AND DISPUTE D SALARY ARE ACCOUNTED FOR ON PAYMENT BASIS. THE ASSESSING OFFI CER IN THE 14 ABSENCE OF COMPLETE DETAILS MADE ESTIMATED ADDITION OUT OF PRIOR PERIOD EXPENSES. IN EARLIER YEAR ALSO, SIMILAR EST IMATED ADDITIONS HAVE BEEN MADE. THEREFORE, EVEN IF ABOVE ADDITION IS MADE ON ESTIMATE BASIS, WOULD NOT REVEAL THAT IT IS A CASE OF CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS OF INCOME. THE DECISIONS STATED ON ISSUE NO. 1 CLEARL Y SUPPORT THE CASE OF ASSESSEE THAT MERE MAKING OF CLAIM, WHICH I S NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO F URNISHING OF INACCURATE PARTICULARS OF INCOME REGARDING INCOME O F THE ASSESSEE. IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND CANCEL THE PENALTY. 24. THIS ISSUE ALSO ARISES IN ASSESSMENT YEAR 2004- 05, THEREFORE FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2 003-04, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND CANCE L THE PENALTY. IN THE RESULT, APPEAL OF THE ASSESSEE ON THIS ISSUE IS ALLOWED. ISSUE NO. 4 (DISALLOWANCE U/S 40(A)(IA) OF THE IT ACT 25. THE LD. CIT(APPEALS) DECIDED THIS ISSUE IN ASSE SSMENT YEAR 2004-05. THE LD. CIT(APPEALS) NOTED THAT ASSESSEE HAS FAILED TO DEDUCT TAX IN RESPECT OF PAYMENT MADE TO FOREIGN AG ENTS. DURING THE COURSE OF HEARING, ASSESSEE FAILED TO GIVE ANY REASON FOR THE SAME. IT APPEARS THAT SAME WAS NOT AGITATED EVEN B EFORE LD. CIT(APPEALS). IT IS CLEAR FROM THE ABOVE THAT ASSE SSEE DEFAULTED IN DEDUCTING TAX AS PER LAW. SINCE FAULT IS CLEARL Y ON THE PART OF THE ASSESSEE WITHOUT ANY VALID REASON, THEREFORE, L EVY OF PENALTY WAS CONFIRMED. 26. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ABOVE CLAIM OF ASSESSEE EMANATES FROM THE RETURN OF INCOME AND DETAILS WERE 15 FULLY FURNISHED IN THE TAX AUDIT REPORT. ON THE FO REIGN REMITTANCE, NO TAX WAS DEDUCTED THEREFORE, AMOUNT W AS DISALLOWED. THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT SUCH FOREIGN INCOME IS NOT TAXABLE IN INDIA. THEREFORE, ON MERE DISALLOWANCE OF EXPENDITURE, PENALTY NEED NOT TO BE LEVIED. 27. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. ON CONSIDERATION OF THE RIVAL S UBMISSIONS, WE FOUND THAT IT IS A CASE OF DISALLOWANCE UNDER SECTI ON 40(A)(IA) OF THE ACT BECAUSE THE ASSESSEE FAILED TO DEDUCT TAX I N RESPECT OF PAYMENT MADE TO FOREIGN AGENTS. ALL THE PARTICULAR S ARE DISCLOSED IN THE TAX AUDIT REPORT. THEREFORE, THER E IS NO QUESTION OF SAYING THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOM E. THE ASSESSEE WOULD NOT BE ENTITLED FOR DEDUCTION OF EXP ENDITURE BECAUSE NO TAX WAS DEDUCTED AT SOURCE. THEREFORE, ADDITION IS MADE ON ACCOUNT OF DEEMING PROVISIONS AND AS SUCH L EVY OF PENALTY MAY NOT BE JUSTIFIED IN THE MATTER. WE, AC CORDINGLY, SET ASIDE ORDERS OF THE AUTHORITIES BELOW AND CANCEL TH E PENALTY. 28. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D ON THIS ISSUE. ISSUE NO. 5 [DEDUCTION U/S 36(1)(VIIA) ] 29. THIS ISSUE IS CONSIDERED AND DISCUSSED IN ASSESSMEN T YEAR 2004-05. THE LD. CIT(APPEALS) NOTED THE REPLY OF T HE ASSESSEE ON THIS ISSUE OF WRONG CLAIM OF DEDUCTION. THE ASSESS EE IN THE REPLY EXPLAINED THAT ADDITION OF RS. 3.21 CR WAS MA DE VIDE RECTIFICATION ORDER. THE ADDITION HAS BEEN MADE ON ACCOUNT OF DIFFERENCE IN TOTAL OF AVERAGE RURAL ADVANCES AS PE R DETAILS FILED 16 AND THE TOTAL OF AVERAGE RURAL ADVANCES SHOWN IN TH E COMPUTATION OF INCOME. THE TOTAL OF AVERAGE RURAL ADVANCES AS PER DETAILS FILED WITH THE RETURN OF INCOME WAS SHO WN AT RS. 123.84 CR WHEREAS IN THE COMPUTATION OF INCOME, THE TOTAL OF AVERAGE RURAL ADVANCES WAS SHOWN AT RS. 1234.76 CR. ADMITTEDLY IT WAS DUE TO TYPOGRAPHICAL ERROR OR INA DVERTENT MISTAKE, THE DIFFERENCE BETWEEN TWO FIGURES WAS OF RS. 2.91 CR. THIS FACT WAS ALSO ACCEPTED BY THE ASSESSING OFFICE R IN THE ASSESSMENT ORDER, THEREFORE, THE ASSESSEE HAS CLAIM ED EXCESS DEDUCTION UNDER SECTION 36(1)(VIIA) BEING 10% OF TH E DIFFERENCE OF RS. 2.91 CR. I.E. RS. 29,17,500/-. THE DIFFEREN CE WAS REQUIRED TO BE ADDED WHEREAS THE ASSESSING OFFICER HAS MADE ADDITION OF RS. 3.21 CR BEING THE DIFFERENCE IN THE TWO TOTALS. THE DIFFERENCE IN THE TWO FIGURES OF THE TOTAL OF AVERAGE RURAL AD VANCES HAD NO AFFECT ON THE INCOME AND THE INCOME WAS REQUIRED TO BE INCREASED TO THE EXTENT OF RS. 29,17,500/- BEING EX CESS DEDUCTION CLAIMED AT 10% ON THE DIFFERENCE OF RS. 2 .91 CR. IT WAS SUBMITTED THAT THE PREDECESSOR OF THE LD. CIT(A PPEALS) ACCEPTED THE CONTENTION THAT IT WAS TYPOGRAPHICAL E RROR. THEREFORE, IT IS NOT A CASE OF CONCEALMENT OF INCOM E OR FILING INACCURATE PARTICULARS OF INCOME. THE LD. CIT(APPE ALS), HOWEVER, DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND CONFI RMED LEVY OF PENALTY. 30. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND SUBMITTED THAT TH E ADDITION WAS MADE PURELY ON TYPOGRAPHICAL ERROR AND INADVERT ENT MISTAKE IN THE ACCOUNT OF RURAL ADVANCES. THE LD. CIT(APPE ALS) SHOULD HAVE ACCEPTED BONAFIDE EXPLANATION AND ERROR IN THE STATEMENT 17 WOULD NOT REVEAL THAT IT IS A CASE OF CONCEALMENT O F INCOME OR FILING INACCURATE PARTICULARS OF INCOME. 31. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 32. WE HAVE HEARD RIVAL SUBMISSIONS. THE ASSESSEE HAS RIGHTLY CONTENDED THAT IT WAS TYPOGRAPHICAL ERROR BECAUSE T HE STATEMENT OF THE AMOUNT GIVEN IN THE AUDIT REPORT WOULD HAVE NO BEARING ON THE INCOME TO BE COMPUTED IN THE CASE OF THE ASS ESSEE. THE ASSESSEE ADMITTED THE MISTAKE BEFORE ASSESSING OFFI CER THAT IT WAS A TYPOGRAPHICAL MISTAKE IN TWO FIGURES AND THAT ULTIMATELY THE 10% OF THE DIFFERENCE WAS TO BE ADDED. THE DIF FERENCE IN THE TWO FIGURES OF THE TOTAL OF AVERAGE RURAL ADVANCES HAD NO EFFECT ON THE INCOME AND THE INCOME WAS REQUIRED TO BE INC REASED BY 10% OF THE DIFFERENCE OF THE AMOUNT. THE HON'BLE G UJRAT HIGH COURT IN THE CASE OF CIT VS UNION ELECTRIC CORPORAT ION 281 ITR 266 HELD THAT, WHEN ASSESSEE ADMITTED MISTAKE IN ACCOUNTS AND REQUESTING DISALLOWANCE, NO CONCEALMENT OF INCOME - PENALTY COULD NOT BE LEVIED. 33. CONSIDERING THE FACTS AND CIRCUMSTANCES EXPLAIN ED ABOVE, WE DO NOT FIND IT TO BE A CASE OF CONCEALMENT OF IN COME OR FILING INACCURATE PARTICULARS OF INCOME. THE ORDERS OF AU THORITIES BELOW ARE ACCORDINGLY, SET ASIDE AND PENALTY IS CAN CELLED. ISSUE NO. 6 (TAXABILITY OF UNCLAIMED BALANCES IN NOSTRO BLOCKED ACCOUNT) 34. THIS ISSUE ARISES IN ASSESSMENT YEAR 2007-08. THE ASSESSEE SUBMITTED BEFORE THE AUTHORITIES BELOW THA T ADDITION OF 18 RS. 11.89 CR. BEING OUTSTANDING BALANCE IN NOSTRO B LOCKED ACCOUNT HAS BEEN MADE TO THE INCOME RETURNED. THE OUTSTANDING BALANCE IN NOSTRO BLOCKED ACCOUNT IS SI MILAR TO THE BALANCES IN THE UN-RECONCILED ENTRIES PERTAINED TO THE INDIAN CURRENCY. THE ADDITION ON ACCOUNT OF UN-RECONCILED ENTRIES HAS BEEN DELETED BY LD. CIT(APPEALS) AND THE ORDER OF T HE LD. CIT(APPEALS) HAS BEEN UPHELD BY THE TRIBUNAL. THER E IS NO PROVISION UNDER THE INCOME TAX ACT BY WHICH ADDITIO N ON ACCOUNT OF UNCLAIMED BALANCE IN NOSTRO BLOCKED ACCO UNT CAN BE MADE AND THE PROVISION OF LAW HAS NOT BEEN QUOTED I N THE ASSESSMENT ORDER WHILE MAKING THE ADDITION. THE AS SESSEE HAS ALREADY FILED A CERTIFICATE BEFORE THE AUTHORITIES BELOW THAT THERE IS NO OUTSTANDING ENTRY IN NOSTRO BLOCKED ACCOUNT F OR WHICH THE CLAIM HAS BEEN MADE AND PAYMENT HAS NOT BEEN MADE W ITHIN THE PERIOD OF THREE YEARS FROM THE DATE OF THE CLAIM. THEREFORE, OUTSTANDING BALANCE IS NOT COVERED BY LIMITATION AC T. IT WAS SUBMITTED THAT THE BALANCE IN THIS ACCOUNT IS REDUC ED SUBSEQUENTLY AND THERE IS NO PROVISION EVEN TO MAKE ADDITION UNDER SECTION 41 OF THE ACT. THEREFORE, PENALTY MA Y NOT BE LEVIED. THE LD. CIT(APPEALS) HOWEVER, CONFIRMED LE VY OF THE PENALTY BECAUSE THE ASSESSING OFFICER HAS NOTED THA T BALANCES IN NOSTRO ACCOUNT WERE TRANSFERRED TO THE BLOCKED ACCO UNT AS PER GUIDELINES OF THE REVERSE BANK OF INDIA AND THESE W ERE UNCLAIMED DEPOSITS, THEREFORE, BECOME INCOME OF THE ASSESSEE. 35. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS A DEBATABLE ISSUE AND IN NUMBER OF CASES I.E. HOTLINE ELECTRONICS LTD. 205 TAXMAN 245 AND BHOGILAL RAMJIBHAI ATARA T AX APPEAL NO.588 OF 2013 (GUJ) (COPY FILED) IT HAS BEEN HELD THAT THE 19 LIABILITY TO TAX CANNOT ARISE WHEN THE AMOUNT IS SH OWN AS LIABILITY AND NOT CREDITED TO THE PROFIT & LOSS ACC OUNT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT APPEAL OF T HE ASSESSEE HAS BEEN ADMITTED BY HON'BLE PUNJAB & HARYANA HIGH COURT ON THIS ISSUE, THEREFORE, IT BEING A LEGAL ISSUE, PENA LTY MAY NOT BE IMPOSED. 36. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW. 37. CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES , WE ARE OF THE VIEW THAT ASSESSEE HAS AN ARGUABLE CASE ON THIS POINT AND APPEAL OF THE ASSESSEE IS PENDING. THE ISSUE IS LE GAL AND DEBATABLE AND AS SUCH, WOULD NOT REVEAL THAT ASSESS EE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED IN ACCURATE PARTICULARS OF INCOME. THE JUDGEMENT CITED BY LD. COUNSEL FOR THE ASSESSEE ALSO SUPPORT THE CASE OF THE ASSESSEE THAT MERELY ON TRANSFER OF AMOUNT FROM ONE ACCOUNT TO OTHER, AS SESSEE MAY NOT BE UNDER TAX LIABILITY. THE ASSESSEE IS SHOWIN G THE AMOUNT IN QUESTION AS LIABILITY IN ITS ACCOUNTS, THEREFORE , EVEN IF THE ADDITION IS MADE BY THE AUTHORITIES BELOW ON QUANTU M, IN OUR VIEW IT IS NOT A FIT CASE OF LEVY OF PENALTY AGAINS T THE ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT. WE, ACCORDINGL Y, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND CANCEL THE PENA LTY. 38. IN THE RESULT, ALL APPEALS OF THE ASSESSEE ARE ALLOWED. DEPARTMENTS APPEALS: ISSUE NO.1 : DISALLOWANCE UNDER SECTION 14A OF THE ACT 39. THE LEARNED CIT (APPEALS) DISCUSSED THIS ISSUE IN 20 ASSESSMENT YEAR 2003-04 AND CANCELLED THE PENALTY. THIS ISSUE ALSO ARISES IN THE REMAINING ASSESSMENT YEARS 2004- 05, 2005-06, 2006-07 AND 2007-08. THE LEARNED CIT (APPEALS) NOTED THAT THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAS SHOWN CERTAIN EXEMPT INCOME IN THE RET URN OF INCOME. OUT OF THE TOTAL EXEMPT INCOME OF RS.26.5 7 CRORES, THE ASSESSEE COMPUTED A SUM OF RS.43,62,190/- AS EX PENSES ATTRIBUTABLE TO SECTION 14A OF THE ACT ON ESTIMATED BASIS. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAS NO T ESTABLISHED SPECIFIC LINKAGE OF NON INTEREST BEARIN G FUNDS WITH THE FUNDS INVESTED FOR ACQUISITION OF TAX FREE BONDS AND SECURITIES, ETC. THE ASSESSING OFFICER, THEREFORE , DISALLOWED EXPENDITURE UNDER SECTION 14A OF THE ACT. THE LEA RNED CIT (APPEALS) PARTLY CONFIRMED THE ADDITION. THE CIT (APPEALS) HELD THAT THE AMOUNT OF PROVISIONS AND CONTINGENCY DEBITED TO PROFIT AND LOSS ACCOUNT CANNOT BE CONSIDERED FOR APPORTIONMENT. THE CIT (APPEALS) ANALIZED THE RES ERVE AND SURPLUS AND INVESTMENT MADE AND HELD THAT THE INTER EST EXPANDED ALSO NOT BE CONSIDERED FOR THE PURPOSE OF WORKING OUT PROPORTIONATE EXPENDITURE AGAINST INTEREST FREE INCOME. FINALLY, THE LEARNED CIT (APPEALS) ESTIMATED 2.5% O F THE TOTAL TAX FREE INCOME AS ADMINISTRATIVE EXPENSES AN D CONFIRMED THE ADDITION TO THAT EXTENT ONLY. THE L EARNED CIT (APPEALS) ALSO FOUND THAT NO SEPARATE ACCOUNTS HAVE BEEN MAINTAINED FOR TAX FREE AND TAXABLE INCOME AND AS SUCH EXPENDITURE CAN ONLY BE ESTIMATED. THE LEARN ED CIT (APPEALS) ON ESTIMATE BASIS MADE PART ADDITION. T HE LEARNED CIT (APPEALS) ACCORDINGLY FOUND THAT THE AD DITION 21 UNDER SECTION 14A IS MADE ONLY ON ESTIMATE BASIS. THE LEARNED CIT (APPEALS) FOUND THAT AFTER APPEAL EFFEC T ONLY SMALL PART ADDITION HAS BEEN MADE AS AGAINST MADE B Y THE ASSESSING OFFICER. THEREFORE, MERELY ADDITION MAD E ON ESTIMATE BASIS WILL NOT MAKE OUT A CASE OF LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND FURTHER NO P ENALTY IS TO BE LEVIED FOR DISALLOWANCE OF EXPENDITURE ON ES TIMATE BASIS AND ON DEBATABLE ISSUE. THE LEARNED CIT (AP PEALS) FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD., 322 ITR 158 CANCELLED THE PENALTY. 40. THE LEARNED D.R FOR THE REVENUE RELIED UPON TH E ORDER OF THE ASSESSING OFFICER. 41. ON THE OTHER HAND, THE LEARNED COUNSEL FOR ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED UPON THE DECISION OF T HE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. LI QUID INVESTMENT & TRADING CO., ITA NO.240 OF 2009 DATED 5.10.2010, IN WHICH IT WAS CLEARLY HELD THAT THE IS SUE OF ADDITION MADE UNDER SECTION 14A OF THE ACT IS DEBAT ABLE. THEREFORE, CANCELLATION OF PENALTY IS JUSTIFIED. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF T HE DECISION OF THE HON'BLE DELHI HIGH COURT, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF THE REVENUE. THE ASSESSIN G OFFICER MADE ADDITION ON ESTIMATE BASIS UNDER SECTION 14A O F THE ACT. THE LEARNED CIT (APPEALS) GRANTED SUBSTANTIA L RELIEF TO 22 THE ASSESSEE ON THE SAME OPINING THAT THE ESTIMATE BE MADE ONLY ON ADMINISTRATIVE EXPENSES. THE ASSESSEE DIS CLOSED ALL THE FACTS BEFORE THE ASSESSING OFFICER AND THE ADDITION IS MADE ONLY ON ESTIMATE BASIS. SINCE THE ISSUE UNDE R SECTION 14A OF THE ACT IS DEBATABLE AND THE ASSESSEE HAS DE CLARED ALL THE PARTICULARS OF INCOME BEFORE THE AUTHORITIE S BELOW, THEREFORE, ON MERE DISALLOWANCE OF EXPENSES ON ESTI MATE BASIS WOULD NOT REVEAL THAT THE ASSESSEE HAS CONCEA LED PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTI CULARS OF INCOME. THE LEARNED CIT (APPEALS) WAS, THEREFORE, JUSTIFIED IN CANCELING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THEREFORE, THE PENALTY CANCELLED BY THE CIT (APPEAL S) IS CONFIRMED AND ALL THE DEPARTMENTAL APPEALS ON THIS ISSUE ARE DISMISSED. ISSUE NO.2 : EXEMPTION UNDER SECTION 10(23G) OF THE ACT 42. THE LEARNED CIT (APPEALS) CONSIDERED THIS ISSU E IN ASSESSMENT YEAR 2003-04 AND THE SAME ISSUE ALSO ARI SE IN ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07. THE LEARNED CIT (APPEALS) NOTED THAT THE ASSESSEE CLAIM ED EXEMPTION UNDER SECTION 10(23G) OF THE ACT. HOWEVE R, IT FAILED TO PROVIDE THE NOTIFICATION ISSUED BY THE CE NTRAL GOVERNMENT IN SOME CASES FOR THE PURPOSE OF SECTION 10(23G) OF THE ACT. DURING THE APPELLATE PROCEEDI NGS BEFORE THE LEARNED CIT (APPEALS) IN QUANTUM CASE, I N VIEW OF FRESH NOTIFICATION FILED IN SOME OTHER CASES, THE L EARNED CIT (APPEALS) ALLOWED RELIEF IN FURTHER THREE CASES OUT OF THE SIX CASES DISALLOWED BY THE ASSESSING OFFICER. THE BA LANCE 23 ADDITION WAS CONFIRMED. THE ASSESSEE SUBMITTED TH AT THE CLAIM WAS MADE AS PER NOTIFICATION OF THE GOVERNMEN T OF INDIA. THE COPIES OF THE NOTIFICATION WERE FILED ALONGWITH THE RETURN. THE ASSESSING OFFICER DISALLOWED RS.3 .45 CRORES WHERE NO NOTIFICATION WAS ISSUED. THE LEARNED CIT (APPEALS) ALLOWED PART RELIEF BECAUSE IN SOME REMAI NING CASES NOTIFICATIONS HAVE BEEN ISSUED AND ADDITION R ESTRICTED TO RS.38,24,188/- ONLY, FOR WHICH NO NOTIFICATIONS HAVE BEEN RECEIVED. THE ASSESSEE, THEREFORE, SUBMITTED THAT IT IS NOT A CASE OF CONCEALMENT OF INCOME OR FILING OF INACCU RATE PARTICULARS OF INCOME AND RELIED UPON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HARYANA WAREHOUSING CORPORATION, 314 ITR 215. THE LEARNED CIT (APPEALS) CANCELLED THE PENALTY IN THE MATTER BECAUSE ALL FACTS WERE DISCLOSED TO THE REVENUE DEP ARTMENT AND THAT THE EXPENSES WERE CLAIMED PENDING APPROVAL/NOTIFICATION. THEREFORE, PART ADDITION W AS MADE WHERE THE ASSESSEE FAILED TO PROVIDE NOTIFICATION I SSUED BY THE CENTRAL GOVERNMENT IN CERTAIN CASES. THE LEAR NED CIT (APPEALS) IN SUPPORT OF HIS FINDINGS RELIED UPON TH E DECISION OF THE HON'BLE SUPREME COURT IN THE CASE RELIANCE P ETRO PRODUCTS PVT. LTD. (SUPRA). 43. THE LEARNED D.R FOR THE REVENUE RELIED UPON TH E ORDER OF THE ASSESSING OFFICER. 44. ON THE OTHER HAND, THE LEARNED COUNSEL FOR ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 24 45. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. TH E ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10(23G) OF THE ACT ON THE BASIS OF THE NOTIFICATIONS ISSUED BY THE GOV ERNMENT OF INDIA AND ALL FACTS WERE DISCLOSED IN THE RETURN OF INCOME. IN CERTAIN CASES WHERE NO NOTIFICATIONS WERE FILED, THE ASSESSING OFFICER MADE ADDITION BUT PENDING APPROVAL/NOTIFICATION. SOME NOTIFICATIONS WERE AL SO FILED BEFORE THE LEARNED CIT (APPEALS) AND SUBSTANTIAL RE LIEF HAD BEEN GRANTED BY THE LEARNED CIT (APPEALS) ON QUANTU M. THE ASSESSEE MADE THE CLAIM OF THE EXPENSES ON THE BASIS OF PENDING APPROVAL/ NOTIFICATION. THEREFORE, THE CL AIM OF THE ASSESSEE APPEARS TO BE BONAFIDE AND BASED ON NOTIFI CATION BUT WHERE IN SOME CASES NO NOTIFICATIONS WERE PRODU CED, ADDITION HAD BEEN MADE. THEREFORE, THE FACTS WOULD CLEARLY DISCLOSE THAT IT IS NOT A CASE OF CONCEALMENT OF IN COME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. T HE LEARNED CIT (APPEALS) WAS, THEREFORE, JUSTIFIED IN CANCELIN G THE PENALTY. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE DISMISSED ON THIS ISSUE. ISSUE NO.3 : INCENTIVE ON SECURITIES RECEIVED 46. THIS ISSUE ARISES IN ASSESSMENT YEAR 2005-06. THE LEARNED CIT (APPEALS) NOTED THAT THE ASSESSEE B ANK RECEIVED COMMISSION OF RS.7,68,902/- ON ACCOUNT OF PURCHASE OF SECURITIES. THE COMMISSION WAS CAPITA LIZED BY THE ASSESSEE BUT THE ASSESSING OFFICER HELD IT TO B E REVENUE IN NATURE AND MADE ADDITION. THE LEARNED CIT (APP EALS) CONFIRMED THE ADDITION. THE LEARNED CIT (APPEALS) DEALING 25 WITH THE PENALTY MATTER NOTED THAT THE ASSESSEE EXP LAINED THAT THE COMMISSION RECEIVED BY THE BANK WAS CAPITA LIZED IN VIEW OF THE DECISION IN THE CASE OF CIT VS. U.P. S TATE INDUSTRIAL DEVELOPMENT CORPORATION, 255 ITR 703 (SC ). IT WAS, THEREFORE, NOTED THAT THE ASSESSEE HAS DULY DI SCLOSED ALL MATERIAL FACTS IN THE RETURN OF INCOME AND CLAI MED THE EXPENSES TO BE CAPITAL IN NATURE THOUGH THE AUTHORI TIES BELOW CONSIDERED IT TO BE REVENUE IN NATURE. THE L EARNED CIT (APPEALS) FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA) CANCELLED THE LEVY OF PENALTY. 47. THE LEARNED D.R FOR THE REVENUE RELIED UPON TH E ORDER OF THE ASSESSING OFFICER. 48. ON THE OTHER HAND, THE LEARNED COUNSEL FOR ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (APPEALS) AND SUBMITTED THAT IN CERTAIN CASES W HERE BANK ACTS AS AN UNDERWRITER, THE INCENTIVE RECEIVED IN SUCH CASES IS REDUCED FROM THE COST OF THE SECURITY. T HE SAME METHOD WAS NOT ACCEPTABLE TO THE REVENUE AUTHORITIE S. THEREFORE, IT WAS THE LEGAL ISSUE AND THE PENALTY H AS BEEN CORRECTLY CANCELLED BY THE LEARNED CIT (APPEALS). 49. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE PENALTY HAS BEEN RIGHTLY CANCE LLED IN THE MATTER. THE ASSESSEE HAS DISCLOSED ALL THE FA CTS BEFORE THE AUTHORITIES BELOW FOR RECEIPT OF THE INCENTIVE ON SECURITIES. THE ASSESSEE CLAIMED THAT WHEN THE AS SESSEE BANK ACTED AS UNDERWRITER, THE INCENTIVE RECEIVED I N SUCH 26 CASES WAS REDUCED FROM THE COST OF THE SECURITIES. THE METHOD OF ACCOUNTING WAS NOT ACCEPTABLE TO THE REVE NUE AUTHORITIES. THEREFORE, THE ADDITION WAS MADE. H OWEVER, THE FACTS CLEARLY DISCLOSE THAT IT WAS NOT A CASE O F CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THEREFORE, THE LEARNED CIT (APPEALS) ON PROPER APPRECIATION OF MATERIAL FACTS ON RECORD CORRECTLY CANCELLED THE PENALTY. THIS APPEAL OF THE REVENUE IS DISMISSED. IN THE RESULT, ALL THE DEPARTMENTAL APPEALS ARE DISMISSED. 50. NO OTHER POINT IS ARGUED OR PRESSED IN THE APPE ALS. WE MAY CLARIFY THAT THE FINDINGS IN THIS ORDER DEALING WITH THE PENALTY APPEALS ARE BASED ON THE FACTS OF THE CASE FOR PENALTY PURPOSE ONLY AND WOULD HAVE NO BEARING ON THE QUANT UM APPEALS DECIDED OR TO BE DECIDED LATER ON. 51. IN VIEW OF THE ABOVE ADJUDICATION OF THE CROSS APPEALS, WE ALLOW ALL THE APPEALS OF THE ASSESSEE A ND DISMISSED ALL DEPARTMENTAL APPEALS. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17 TH JUNE,2015. POONAM/RATI COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH