The DCIT, Circle-12, Ahmedabad V. Draft Air International, Ahmedabad

ITA 2905/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6533 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-05-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 23-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PATEL
• Keywords: Bonafide belief; Wrong claim; Competent authority; Bonafide mistake
• Section: 80HHC; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA,JM & SHRI A N PAHUJA,AM ITA NO.2905/AHD/2009 (ASSESSMENT YEAR:-2004-05) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12, 1 ST FLOOR, NARAYAN CHAMBERS ASHRAM ROAD, AHMEDABAD V/S DRAFT AIR INTERNATIONAL A/401, TIME SQUARE BUILDING, B/H PARISEEMA, C G ROAD, ELLISBRIDGE, AHMEDABAD PAN: AACFD 2183 M [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI A K PATEL, DR RESPONDENT BY:- NONE O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 20- 07-2009 OF THE LD. CIT(APPEALS)-XX, AHMEDABAD, FOR THE ASSESSMENT YEAR 2004-05, RAISES THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN CANCELING THE PENALTY OF RS.2,33,300/- LEVIED U/S. 271(1)(C) OF THE ACT, BY THE AO, WITHOUT PROPERLY APPRECIATING THE F ACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 1.2 IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AN D ON FACTS IN HOLDING THAT THE ASSESSEE DID NOT MAKE PALPABLY FALSE OR WR ONG CLAIM, WITHOUT APPRECIATING THE FACT THAT THE CONVERTIBLE FOREIGN EXCHANGE OF US$ 32000 WAS NOT BROUGHT IN INDIA WITHIN THE ST IPULATED TIME PERIOD WAS WITHIN THE KNOWLEDGE OF THE ASSESSEE AND THE ACTION OF THE ASSESSEE IN CLAIMING DEDUCTION U/S. 80HHC IN RE SPECT OF THE SAID AMOUNT WHICH WAS NOT BROUGHT INTO INDIA WITHIN THE STIPULATED TIME PERIOD WAS CLEARLY PALPABLY FALSE AND WRONG. 1.3 IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THAT THE ASSESSEE COULD NOT SUBSTANTIA TE ITS CLAIM FOR WRONG DEDUCTION U/S. 80HHC OF THE ACT BY PRODUCING COGENT OR CONVINCING EVIDENCE. 1.4 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CANCELING THE SAID PENALTY WITHOUT APPRECIATING THE RATIO OF THE DECIS ION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SOHAN SINGH REPORTED IN 2 ITA NO.2905/AHD/2009 2 254 ITR 117, IN WHICH THE HON'BLE COURT HAS HELD TH AT THE ASSESSEE MUST OFFER AN EXPLANATION TO SHOW THAT THERE WAS NO FRAUD, GROSS OR WILLFUL NEGLIGENCE INVOLVED IN NOT RETURNING THE CORRECT INCOME IN HIS RETURN AND IT IS NOT SUFFICIENT IF ANY FA NCIFUL OR TOTALLY UNTENABLE EXPLANATION IS OFFERED. 1.5 IN DOING SO, THE LD. CIT(A) HAS ERRED IN LAW AN D ON FACTS IN NOT APPRECIATING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DARMENDRA TEXTILE PROCESSORS LTD. VS. CIT REPORTED IN 306 ITR 277 (SC) IN WHICH THE HON'BLE APEX COURT HAS HELD THAT THE PENALTY U/S. 271(1)(C) IS A CIVIL LIABILITY AND WILLFUL CONCEALM ENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING THE CIVIL LIABILITY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE A.O. 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE C IT(A) BE SET ASIDE AND THAT OF A.O. BE RESTORED TO THE ABOVE EXTENT. 2 NONE APPEARED BEFORE US ON BEHALF OF THE ASSESSE NOR ANY REQUEST FOR ADJOURNMENT HAS BEEN RECEIVED. CONSIDER ING THE NATURE OF ISSUE, WE, THEREFORE, DECIDED TO DISPOSE OF THE APPEAL AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3 ADVERTING FIRST TO GROUND NOS. 1 TO 1.5 IN THE AP PEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLA RING INCOME OF RS.25,26,080/- FILED ON 27-10-2004 BY THE ASSESSEE, EXPORTING HUMIDIFICATION AND VENTILATION SYSTEMS, AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS TH E ACT] WAS SELECTED FOR SCRUTINY WITH THE ISSUE OF A NOTICE U/ S 143(2) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE DID NOT BRING IN THE EXPORT PROCEEDS OF RS. 14,72,000/- EQUIVALENT TO 32 000 US DOLLARS[20,000+12,000] AS PER BILLS DATED 27.7.2003 & 30.12.2003 WITHIN THE STIPULATED PERIOD OF SIX MONTHS TO INDIA NOR SUBMITTED ANY PERMISSION OF THE RBI OR COMPETENT AUTHORITY, GRANT ING EXTENSION OF THE STIPULATED PERIOD. ACCORDINGLY, THE AO EXCLUDED AN AMOUNT OF RS. 14,72,000/- FROM THE EXPORT TURNOVER WHILE COMP UTING DEDUCTION U/S 80HHC OF THE ACT, RESULTING IN DETERMINATION OF TOTAL INCOME 3 ITA NO.2905/AHD/2009 3 RS.31,76,380/-.BESIDES THE AO CONCLUDED THAT INTERE ST ON FDR AND RD ACCOUNT DO NOT HAVE ANY NEXUS WITH EXPORTS AND A CCORDINGLY EXCLUDED 90% OF THE AMOUNT OF RS.4,90,995/ FROM THE PROFITS OF THE BUSINESS. MOREOVER, 1/6TH OF THE VEHICLE AND TELEPH ONE EXPENSES WERE ALSO DISALLOWED. INTER ALIA, PENALTY PROCEEDIN GS U/S 271(1)(C) OF THE ACT WERE ALSO INITIATED. 3.1 ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO ON THE GROUND THAT THE REMITTANCE RECEIVED BY THE ASSESSE E IN RESPECT OF BOTH THE AFOREMENTIONED TRANSACTIONS WERE NOT WITHIN THE STA TUTORY PERIOD OF SIX MONTHS AS PER PROVISIONS OF SECTION 80HHC(2)(A) OF THE ACT A ND THEREFORE, THE A.O. WAS JUSTIFIED IN EXCLUDING THE SALES PROCEEDS OF RS.14, 72,000/- OUT OF TOTAL EXPORT SALES. THE DISALLOWANCE OF 1/6TH OF THE VEHICLE AN D TELEPHONE EXPENSES WAS ALSO UPHELD. 3.2 AFTER THE RECEIPT OF APPEAL ORDER OF THE LD. C IT(A), IN RESPONSE TO A SHOW CAUSE NOTICE BEFORE LEVY OF PENALTY, THE ASSESSE DID NOT FURNISH ANY REPLY .ACCORDINGLY , INVOKING EXPLANATI ON 1 TO SEC. 271(1)(C) OF THE ACT AND REFERRING TO DECISIONS IN DHARMENDRA TEXTILE PROCESSORS,306 ITR 277(SC);294 ITR 322 ( KAR), 292 ITR 86 (KAR.),279 ITR 80(KER.);277 ITR 429 (DEL);277 ITR 209(ALL);251 ITR 99 (SC) ;238 ITR 415 (GUJ); 236 ITR 977 (SC);214 ITR 32 (GUJ.) AND 205 ITR 244 ( SC ), THE AO IMPOSED A PENALTY OF RS.2,33,300/- U/S.271(L)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE FAILED TO FURNISH THE CORRECT AND COMPLETE PARTICUL ARS OF HIS INCOME AND CONCEALED THE PARTICULARS OF INCOME AND THAT THE MISTAKE WA S NOT BONAFIDE . 4. ON APPEAL, THE LEARNED CIT(A) CANCELLED THE PENA LTY IN THE FOLLOWING TERMS:- 2.2 BEFORE ME, THE ID. COUNSEL FOR THE APPELLANT S UBMITTED THAT THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF NEW SORAT HIA ENGINEERING CO. VS. CIT 282 1TR 642 (GUJ) HELD THAT NO PENALTY CAN BE LEVIED FOR BOTH DEFAULT SIMULTANEOUSLY I.E. FOR CONCEALMENT OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. HE CONTENDED THAT IN THE PEN ALTY ORDER, THE ASSESSING OFFICER HAD STATED THAT PENALTY IS LEVIED FOR THE DEFAULT OF FAILURE TO FURNISH CORRECT AND COMPLETE PARTICULARS OF INCO ME WITHOUT REASONABLE 4 ITA NO.2905/AHD/2009 4 CAUSE AND FOR CONCEALMENT OF INCOME. HENCE ON THIS GROUND PENALTY IS REQUIRED TO BE CANCELLED. IT IS CLAIMED THAT THE AP PELLANT HAD PUT UP HIS CLAIM U/S.80HHC ON THE BASIS OF AUDITORS REPORT IN FORM NO.1OCCAC. HENCE, WHEN CLAIM IS PUT ON THE BASIS OF AUDITORS R EPORT AND WHEN THERE IS ANY VARIANCE, ADDITION MAY BE MADE BUT PENALTY CANN OT BE IMPOSED. IN SUPPORT, THE LD. COUNSEL OF THE APPELLANT RELIED UP ON THE FOLLOWING CASE DECISIONS. 1. PRASAD INTERNATIONAL PVT. LTD. VS. ITO (ITAT AHM EDABAD 'D' BENCH) 2. CIT VS. DEEP TOOLS 274 ITR 663 (P &H) 3. T. ASHOK PAI VS. CIT 292 ITR 11 (SC) 4. BTX CHEMICALS VS. CIT 288 ITR 196 (GUJ.) 5. CIT VS. PANAVISION ELECTRONICS P. LTD, 264 ITR 7 10 6. GORDHANDAS JETHABHAI 162 ITR 84 (GUJ.) IT IS FURTHER STATED THAT FROM AUDITORS REPORT AS W ELL AS DETAILS OF SALES FURNISHED, IT WAS APPARENT THAT THERE WAS FULL DISC LOSURE OF MATERIAL AND HENCE EVEN THOUGH THE APPELLANT'S CLAIM MAY BE WRON G NO PENALTY CAN BE LEVIED U/S.271(1)(C) ON SUCH, REDUCTION / REJECTION IN CLAIM. IN SUPPORT, THE LEARNED COUNSEL FOR THE APPELLANT RELIED UPON THE C ASE OF CIT VS. NATH BROS EXIM INTERNATIONAL 208 CTR (DEL.), CIT VS. INT ERNATIONAL AUDIO VISUAL 208 CTR 328 (DEL.), SMT. KOKILABEN PAEL VS. ITO (IT AT SMC BENCH, AHRNEDABAD), ORION TRAVELS (P) LTD. VS. CIT 87 TTJ 246 (ITAT BOMBAY BENCH), NATIONAL TEXTILES VS. CIT (GUJ.) AND GOPAL SHETTY VS. ITO 298 ITR 49 (PUNE). ACCORDINGLY, THE ID. COUNSEL HAD STATED THAT APPELL ANT HAS NEITHER CONCEALED THE PARTICULARS OF INCOME NOR FURNISHED A NY INACCURATE PARTICULARS OF INCOME ATTRACTING PENALTY U/S. 271(1 )(C) OF THE I.T ACT AND THEREFORE, PENALTY LEVIED BY THE AO MAY KINDLY BE C ANCELLED. 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION FILED ALONGWITH CASE LAWS RELIED UPON BY THE ID. COUNSEL OF THE APPELLANT AND ASSESSING OFFICER. IT IS SEEN THAT NO PENALTY CAN B E LEVIED FOR A BONAFIDE MISTAKE AND IN THIS CASE IT IS NOT A CASE WHERE THE APPELLANT HAS NOT DISCLOSED FULL DETAILS AT THE TIME OF ASSESSMENT PR OCEEDINGS, IT IS CLEAR THAT THE APPELLANT CLAIMED DEDUCTION U/S.80HHC ON THE BA SIS OF AUDITORS REPORT IN FORM NO.10CCAC. THE APPELLANT HAD BONAFIDE BELIE F IN RESPECT OF CLAIM OF DEDUCTION ON THE GIVEN SET OF FACTS AND ONLY DUE TO THE FACT THAT THE ADDITION STOOD CONFIRMED AFTER REJECTION OF EXPLANA TION OFFERED BY THE APPELLANT AT THE APPELLATE STAGE IT WOULD NOT AUTOM ATICALLY RESULT INTO LEVY OF PENALTY U/S.271(1)(C). AS THE PENALTY PROCEEDINGS A RE ENTIRELY DIFFERENT FROM THE ASSESSMENT PROCEEDINGS NO PENALTY CAN BE L EVIED U/S. 271(1)(C) OF THE ACT, UNLESS IT IS ESTABLISHED THAT THERE IS DEAR CONCEALMENT OF INCOME AND / OR FILING OF INACCURATE PARTICULARS. THE RATI O ON LAID DOWN IN CASE OF NEW SORATHIA ENGINEERING CO. VS. CIT (SUPRA) RELIED BY THE LEARNED COUNSEL FOR THE APPELLANT IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT 5 ITA NO.2905/AHD/2009 5 CASE. IN THE SAID CASE, THE HON'BLE GUJARAT HIGH CO URT HELD THAT NO PENALTY CAN BE LEVIED FOR BOTH DEFAULT SIMULTANEOUSLY I.E. FOR CONCEALMENT OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. AS THE FACTS OF THIS CASE REVEAL THE BONAFIDE BELIEF AND REPLIES FILED BY THE APPELL ANT CANNOT BE TERMED AS FALSE OR MALAFIDE AND HENCE THE APPELLANT IS NOT CO VERED BY EXPLANATION-1 TO SECTION 271(1)(C), THE ASSESSING OFFICER HAS NOT ESTABLISHED THE CASE THAT ASSESSEE FURNISHED A FALSE REPLY OR EXPLANATIO NS WHICH WERE NOT BONAFIDE. LOOKING FROM ANOTHER ANGLE, EVEN IF THE A PPELLANT BELIEVED THAT THERE WERE TWO POSSIBLE VIEWS IN DECIDING THE CHARG EABILITY OF DEDUCTION U/S 80HHC, IT HAS CHOSEN ONE AND HAS DISCLOSED ITS VIEW IN THE RETURN OF INCOME AND FURTHER EXPLAINED THE DETAILED BASIS FOR HOLDING THIS VIEW IN PROPER TERMS. IT CANNOT BE HELD THAT ASSESSEE MADE A PALPABLY FALSE OR WRONG CLAIM. IN CONSIDERATION OF FOREGOING DISCUSSI ON, I HAVE NO HESITATION TO HOLD THAT ASSESSEE NEITHER CONCEALED PARTICULARS OF INCOME NOR FURNISHED SUCH PARTICULARS WHICH CAN BE HELD TO BE INACCURATE PARTICULARS WITH MALAFIDE INTENTION, IN LIGHT OF THE ABOVE FACT S AND TAKING INTO CONSIDERATION THE VARIOUS JUDICIAL PRONOUNCEMENTS, I HOLD THAT THE ACTION OF THE AO IN LEVYING PENALTY U/S 271(1)(C) IN THIS CAS E IS NOT JUSTIFIED AND THE PENALTY LEVIED IS DIRECTED TO BE CANCELLED. 5 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE ORDER OF THE AO WHILE REFERRING TO THE GROUNDS OF APPEAL AND DECISIONS MENTIONED THEREIN. 6. WE HAVE HEARD THE LEARNED DR AND GONE THRO UGH THE FACTS OF THE CASE. AS IS APPARENT FROM THE AFORESAID FACTS, THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF THE ACT ON THE BASIS OF REPORT OF THE CA IN FORM NO. 10CCAC ,INDICATING TOTAL EXPORT TURNOVER OF RS.3,14,58,848/-.HOWEVER, THE AO ON VERIFICATION FO UND THAT SALE PROCEEDS IN RESPECT OF BILL DATED 27.7.2003 FOR US DOLLARS 20,000/- AND BILL DATED 30.12.2003 FOR US DOLLARS 12,000/- WERE NOT RECEIVED WITHIN THE STIPULATED PERIOD OF SIX MONTHS NOR ANY APPROVAL WAS SOUGHT FOR EXTENSION OF TIME FROM THE COMPETENT AUT HORITY. ACCORDINGLY, DEDUCTION U/S 80HHC OF THE ACT WAS RED UCED BY EXCLUDING THE AFORESAID AMOUNT OF 32,000/- US DOLLA RS(RS.14,72,000) FROM THE EXPORT TURNOVER BESIDES EXCLUDING 90% OF T HE INTEREST ON FDR AND RD ACCOUNT FROM THE PROFITS OF BUSINESS. CO NSEQUENTLY, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WERE I NITIATED .IN THE 6 ITA NO.2905/AHD/2009 6 ASSESSMENT ORDER, IT IS NOWHERE SPECIFIED AS TO WHE THER PENALTY PROCEEDINGS WERE INITIATED FOR CONCEALMENT OF PARTI CULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS THEREOF. ON AP PEAL, INITIALLY THE LD. CIT(A) AND LATER THE ITAT UPHELD THE FINDINGS O F THE AO IN THEIR ORDER DATED 4.3.2011 IN ITA NO.219/AHD./2009. MEANW HILE, THE AO LEVIED A PENALTY OF R.2,33,300/- U/S 271(1)(C) OF THE ACT VIDE HIS ORDER DATED 19.3.2009 6.1 THE LD. CIT(A) IN THE IMPUGNED ORDER CONCLUD ED THAT IT IS NOT A CASE WHERE THE ASSESSEE HAS NOT DISCLOSED FULL DETA ILS AT THE TIME OF ASSESSMENT. IN TERMS OF PROVISIONS OF SEC. 80HHC(4) OF THE ACT, THE DEDUCTION IS NOT ADMISSIBLE UNLESS THE ASSESSEE FU RNISHES IN THE PRESCRIBED FORM, ALONG WITH THE RETURN OF INCOME, T HE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB -SECTION (2) OF SECTION 288, CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. THE ASSESSEE IN THE INSTANT CASE MERELY MADE A BONAFIDE CLAIM FOR T HE DEDUCTION IN TERMS OF THE SAID CERTIFICATE. IF IN THE PROCESS, INTEREST WAS NOT EXCLUDED FROM THE PROFITS OF THE BUSINESS OR THE F ACTUM OF SALE PROCEEDS OF EXPORTS NOT RECEIVED WITHIN THE STIPUL ATED TIME, WAS NOT CONSIDERED BY THE CHARTERED ACCOUNTANT, THE ASSESSE E COULD NOT BE FAULTED. EVEN OTHERWISE THE AO IN THE ASSESSMENT OR DER HAS NOT SPECIFIED AS TO WHETHER THE ASSESSEE CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF WHILE IN HIS PENALTY ORDER ON PAGE 2 , THE AO MENTIONS THAT TH AT THE ASSESSEE FILED INACCURATE PARTICULARS FOR CLAIMING THE DEDUC TION WHEREAS ON PAGE 3 , IT IS MENTIONED THAT THE ASSESSEE FAILED T O FURNISH THE CORRECT AND COMPLETE PARTICULARS OF HIS INCOME AND CONCEALED THE PARTICULARS OF INCOME. NOT EVEN A WHISPER HAS BEEN MADE IN THE PENALTY ORDER AS TO WHICH SPECIFIC PARTICULARS WERE FURNISHED INACCURATE OR WERE CONCEALED. THE EXPRESSION 'HAS CONCEALED THE PARTICULARS OF INCOME' AND 'HAS FURNISHED INACCURAT E PARTICULARS OF INCOME' HAVE NOT BEEN DEFINED EITHER IN SECTION 271 OR ELSEWHERE IN 7 ITA NO.2905/AHD/2009 7 THE ACT. HOWEVER, NOTWITHSTANDING THE DIFFERENCE IN THE TWO CIRCUMSTANCES, IT IS NOW WELL ESTABLISHED THAT THEY LEAD TO THE SAME EFFECT NAMELY, KEEPING OFF A CERTAIN PORTION OF THE INCOME FROM THE RETURN. ACCORDING TO LAW LEXICON, THE WORD 'CONCEAL ' MEANS: 'TO HIDE OR KEEP SECRET. THE WORD 'CONCEAL' IS CO N+CELARE WHICH IMPLIES TO HIDE. IT MEANS TO HIDE OR WITHDRAW FROM OBSERVATION; TO COVER OR KEEP FROM SIGHT; TO PREVEN T THE DISCOVERY OF ; TO WITHHOLD KNOWLEDGE OF. THE OFFENC E OF CONCEALMENT IS, THUS, A DIRECT ATTEMPT TO HIDE AN I TEM OF INCOME OR A PORTION THEREOF FROM THE KNOWLEDGE OF T HE INCOME- TAX AUTHORITIES.' IN WEBSTER'S DICTIONARY, 'INACCURATE' HAS BEEN DEFI NED AS : 'NOT ACCURATE, NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS ; AS AN INACCURATE STATEMENT, COPY OR TRA NSCRIPT.'. 6.2. THE PENALTY U/S 271(1)(C) OF THE ACT IS LE VIABLE IF THE AO IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER TH IS ACT THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. IT IS WELL S ETTLED THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT AND AS HELD BY HON'BLE SUPREME COURT IN TH E CASE OF ANANTHRAMAN VEERASINGHAIAH & CO. VS. CIT, 123 ITR 4 57, THE FINDINGS IN THE ASSESSMENT PROCEEDINGS CANNOT BE RE GARDED AS CONCLUSIVE FOR THE PURPOSES OF THE PENALTY PROCEEDI NGS. IT IS ALSO WELL SETTLED THAT THE CRITERION AND YARDSTICKS FOR THE PURPOSE OF IMPOSING PENALTY U/S 271(1)(C) OF THE ACT ARE DIFF ERENT THAN THOSE APPLIED FOR MAKING OR CONFIRMING THE ADDITIONS. IT IS, THEREFORE, NECESSARY TO REAPPRECIATE AND RECONSIDER THE MATTER SO AS TO FIND OUT AS TO WHETHER THE ADDITION OR DISALLOWANCE MADE IN THE QUANTUM PROCEEDINGS ACTUALLY REPRESENTS THE CONCEALMENT ON THE PART OF THE ASSESSEE AS ENVISAGED IN SEC. 271(1 )(C) OF THE ACT AND WHETHER IT IS A FIT CASE TO IMPOSE THE PENALTY BY INVOKING THE SA ID PROVISIONS. THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT STIPULA TE THAT IF THE ASSESSING OFFICER OR THE CIT(APPEALS) OR THE COMMIS SIONER, IN THE COURSE OF PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON 8 ITA NO.2905/AHD/2009 8 HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURN ISHED INACCURATE PARTICULARS THEREOF , HE MAY DIRECT THAT SUCH PERS ON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE EVADED BY A REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INC OME. EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT MENTIONS THAT WHE RE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THE ACT, SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO OR T HE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR SUCH PERSON OFF ERS AN EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE A ND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOT AL INCOME HAVE BEEN DISCLOSED BY HIM, THEN THE AMOUNT ADDED OR DIS ALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESU LT THEREOF SHALL FOR THE PURPOSE OF CLAUSE (C) OF SECTION 271(1), B E DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. IN OTHER WORDS, THE NECESSARY INGREDIEN TS FOR ATTRACTING EXPLANATION 1 TO SECTION 271(1)(C) ARE THAT (I) THE PERSON FAILS TO OFFER THE EXPLANATION, OR (II) HE OFFERS THE EXPLANATION WHICH IS FOUND BY TH E AO OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR (III) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE A ND THAT ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM. 6.3 IF THE CASE OF ANY ASSESSEE FALLS IN ANY OF THESE THREE CATEGORIES, THEN THE DEEMING PROVISION PROVIDED IN EXPLANATION 1 TO SECTION 271(1)(C) COME INTO PLAY, AND THE AMOUNT AD DED OR DISALLOWED IN COMPUTING THE TOTAL INCOME SHALL BE C ONSIDERED AS THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CO NCEALED, FOR THE PURPOSES OF CLAUSE (C) OF SECTION 271(1), AND THE P ENALTY FOLLOWS. ON THE OTHER HAND, IF THE ASSESSEE IS ABLE TO OFFER A N EXPLANATION, 9 ITA NO.2905/AHD/2009 9 WHICH IS NOT FOUND BY THE AUTHORITIES TO BE FALSE, AND ASSESSEE HAS BEEN ABLE TO PROVE THAT SUCH EXPLANATION IS BONA FI DE AND THAT ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY H IM, THE ASSESSEE SHALL BE OUT OF THE CLUTCHES OF EXPLANATION 1 TO SE CTION 271(1)(C) OF THE ACT, AND IN THAT CASE, THE PENALTY SHALL NOT BE IMPOSED. IN THE INSTANT CASE, THE ASSESSE DID NOT REPLY TO THE SHOW CAUSE NOTICE ISSUED BY THE AO. HONBLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF V. JT. CIT [2007] 210 CTR (SC) 228 : [2007] 291 ITR 519 (SC) WHILE CONSIDERING THE SCOPE OF THESE PROVISIONS U/ S 271(1)( C) OF THE ACT OBSERVED IN THE FOLLOWING TERMS: THE LEGAL HISTORY OF SECTION 271(1)(C) OF THE ACT TRACED FROM THE 1922 ACT PRIMA FACIE SHOWS THAT THE EXPLAN ATIONS WERE APPLICABLE TO BOTH THE PARTS. HOWEVER, EACH CA SE MUST BE CONSIDERED ON ITS OWN FACTS. THE ROLE OF THE EXPLAN ATION HAVING REGARD TO THE PRINCIPLE OF STATUTORY INTERPRETATION MUST BE BORNE IN MIND BEFORE INTERPRETING THE AFOREMENTIONED PROV ISIONS. CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 CATEGO RICALLY STATES THAT THE PENALTY WOULD BE LEVIABLE IF THE AS SESSEE CONCEALS THE PARTICULARS OF HIS INCOME OR FURNISHES INACCURATE PARTICULARS THEREOF. BY REASON OF SUCH CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS ALONE, THE ASS ESSEE DOES NOT IPSO FACTO BECOME LIABLE FOR PENALTY. IMPOSITIO N OF PENALTY IS NOT AUTOMATIC. LEVY OF PENALTY IS NOT ONLY DISCR ETIONARY IN NATURE BUT SUCH DISCRETION IS REQUIRED TO BE EXERCI SED ON THE PART OF THE ASSESSING OFFICER KEEPING THE RELEVANT FACTORS IN MIND. SOME OF THOSE FACTORS APART FROM BEING INHERE NT IN THE NATURE OF PENALTY PROCEEDINGS AS HAS BEEN NOTICED I N SOME OF THE DECISIONS OF THIS COURT, INHERES ON THE FACE OF THE STATUTORY PROVISIONS. PENALTY PROCEEDINGS ARE NOT TO BE INITI ATED, AS HAS BEEN NOTICED BY THE WANCHOO COMMITTEE, ONLY TO HARA SS THE ASSESSEE. THE APPROACH OF THE ASSESSING OFFICER IN THIS BEHALF MUST BE FAIR AND OBJECTIVE. THE TERM 'INACCURATE PARTICULARS' IS NOT DEFINED. F URNISHING OF AN ASSESSMENT OF VALUE OF THE PROPERTY MAY NOT BY I TSELF BE FURNISHING OF INACCURATE PARTICULARS. EVEN IF THE E XPLANATIONS ARE TAKEN RECOURSE TO, A FINDING HAS TO BE ARRIVED AT HAVING REGARD TO CLAUSE (A) OF EXPLANATION 1 THAT THE ASSE SSING OFFICER IS REQUIRED TO ARRIVE AT A FINDING THAT THE EXPLANATION OFFERED BY AN ASSESSEE, IN THE EVENT HE OFFERS ONE, WAS FALSE. HE MUST BE FOUND TO HAVE FAILED TO PROVE THAT SUCH EXPLANATION IS NOT ONLY NOT BONA FIDE BUT ALL THE FACTS RELATIN G TO THE SAME AND MATERIAL TO THE INCOME WERE NOT DISCLOSED BY HI M. THUS, 10 ITA NO.2905/AHD/2009 10 APART FROM HIS EXPLANATION BEING NOT BONA FIDE, IT SHOULD HAVE BEEN FOUND AS OF FACT THAT HE HAS NOT DISCLOSED ALL THE FACTS WHICH WAS MATERIAL TO THE COMPUTATION OF HIS INCOME . 6.4 IN THE LIGHT OF AFORESAID OBSERVATIONS O F THE HONBLE APEX COURT , WHAT IS TO BE SEEN IN THE INSTANT CASE, IS WHETHER THE CLAIM FOR DEDUCTION U/S 80HHC OF THE ACT ON THE BASIS OF CERTIFICATE OF THE ACCOUNTANT MADE BY THE ASSESSEE WAS BONA-FIDE AND WHETHER ALL THE MATERIAL FACTS RELEVANT THERETO HAVE BEEN FURNI SHED AND ONCE IT IS SO ESTABLISHED, THE ASSESSEE CANNOT BE HELD LIAB LE FOR CONCEALMENT PENALTY U/S 271(L)(C) OF THE ACT. THE A SSESSING OFFICER HAS NOT BEEN ABLE TO ESTABLISH THAT THE CLAIM OF TH E ASSESSEE FOR DEDUCTION UNDER SECTIONS 80HHC WAS NOT BONA FIDE. A MERE REJECTION OF THE CLAIM OF THE ASSESSEE BY RELYING O N DIFFERENT INTERPRETATIONS DOES NOT AMOUNT TO CONCEALMENT OF T HE PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS THEREOF BY THE ASSESSEE.. IN THE CASE UNDER CONSIDERATION, THERE IS NOTHING T O SUGGEST THAT THE ASSESSEE FURNISHED ANY INACCURATE PARTICULARS OR C ONCEALED THE PARTICULARS . IF EXPORT TURNOVER WAS SHOWN INCOR RECTLY BY THE CA OR 90% OF INTEREST ON FDR AND RD ACCOUNT WAS NOT EXCLU DED FROM THE PROFITS OF THE BUSINESS, IT WAS THE MISTAKE OF THE CHARTERED ACCOUNTANT DETERMINING THE DEDUCTION U/S 80HHC OF THE ACT. ADMITTEDLY, THE CLAIM FOR DEDUCTION U/S 80HHC WAS D ULY SUPPORTED BY THE CERTIFICATE OF THE CHARTERED ACCOUNTANT IN T HE PRESCRIBED FORM. IN THIS VIEW OF THE MATTER, NO FAULT CAN BE FOUND W ITH THE CLAIM OF THE ASSESSEE THAT IT HAD CLAIMED THE DEDUCTION IN A BON A FIDE MANNER. IN SIMILAR CIRCUMSTANCES. HONBLE PUNJAB AND HARYANA H IGH COURT CANCELLED THE PENALTY LEVIED IN RESPECT OF DISALLOW ANCE OF DEDUCTION U/S.80I IN THE CASE OF CIT VS. SD RICE MILLS, 275 I TR 206 (P&H). SIMILAR VIEW WAS TAKEN IN ACIT VS. ARISUDANA SPINNI NG MILLS LTD.,19 DTR1(CHD.) AND MODEL FOOTWEAR P LTD. VS. ITO,124 IT D 353(DEL.) MOREOVER, MERE FACT THAT THE REPORT PREPARED BY THE CA IN FORM 10CCAC WAS NOT IN ACCORDANCE WITH THE PROVISIONS O F SECTION 80HHC(4) OF THE ACT, WAS NOT ENOUGH TO HOLD THAT TH E MISTAKE WAS 11 ITA NO.2905/AHD/2009 11 NOT BONA FIDE. THIS VIEW IS SUPPORTED BY THE DECIS ION IN THE CASE OF CIT VS. DEEP TOOLS PVT. LTD., 274 ITR 603 (P&H),WHE RE IN ALSO LEVY OF PENALTY WAS HELD TO BE UNJUSTIFIED. A SIMILAR VI EW WAS TAKEN IN CIT VS. CAPLIN POINT LABORATORIES LTD.,293 ITR 524(MAD .) 6.5 AS REGARDS DECISION IN THE CASE OF SOHAN SING H(SUPRA) CITED IN THE GROUNDS OF APPEAL, THE SAID DECISION RELATES TO THE AY 1963-64. IN THE SAID CASE OF AN ASSESSEE ,AN INDIVIDUAL , TH E ASSESSMENT WAS REOPENED UNDER SECTION 147 AND THE AO CLUBBED THE INCOME OF THE FIRM WITH THE INCOME OF THE ASSESSE ON THE GROUND THAT THE INCOME OF THE PA RTNERSHIP WAS REALLY THAT OF THE ASSESSEE. THE PARTNERSHIP WAS CONSTITUTED AS EV IDENCED BY A DEED OF PARTNERSHIP DATED DECEMBER 7, 1961, WITH TWO PARTNE RS, NAMELY, S AND SS. THREE MINOR WERE THE CHILDREN OF THE ASSESSEE. INCOME OF THE FIRM WAS ASSESSED, BUT SUCH ASSESSMENT WAS MADE ON PROTECTIVE BASIS AS THE INCOME-TAX OFFICER WAS OF THE VIEW THAT THE FIRM WAS A BENAMI CONCERN OF THE ASSESSEE. AAC ALSO REFUSED THE RELIEF IN APPEAL. ON FURTHER APPEAL TRIBUNAL CO NFIRMED AO ACTION. PENALTY UNDER SECTION 271(1)(C) WAS IMPOSED AND THE TRIBUNA L CANCELLED THE PENALTY WITHOUT EXAMINING THE MATTER IN THE BACKGROUND OF T HE EXPL. 10 SECTION 271(1)(C) OF THE ACT. HONBLE HIGH COURT FOUND THAT THE FINDI NGS OF THE ITAT IN QUANTUM APPEAL WERE AT VARIANCE WITH THEIR FINDINGS IN PENA LTY APPEAL. IN THE QUANTUM APPEAL , THE TRIBUNAL NOTED THAT THE MERE FACT THAT REGISTRATION WAS GRANTED DOES NOT STAND IN THE WAY OF COMING TO THE CONCLUSION THAT THE FIRM WAS A BENAMI CONCERN OF THE ASSESSEE. WITH REFERENCE TO THE MATERIALS BROUGHT BEFORE IT, THE TRIBUNAL HAD C OME TO A DEFINITE CONCLUSION ABOUT THE BENAMI CHARACTER. IN THE PENAL TY APPEAL ,THE TRIBUNAL ITSELF PROCEEDED ON THE BASIS THAT NO POSI TIVE EVIDENCE ABOUT THE FLOW OF CAPITAL INVESTED BY THE PARTNERS WAS ON RECORD AND SO FAR AS THE ENJOYMENT OF THE PROFITS WAS CONCERNE D THERE WAS ALSO NO POSITIVE EVIDENCE TO SHOW THAT THE PROFITS WERE ENJOYED BY THE ASSESSEE. HONBLE HIGH COURT OBSERVED THAT THESE CO NCLUSIONS WERE AT VARIANCE WITH THOSE RECORDED BY THE TRIBUNAL IN THE APPEAL RELATING TO THE ASSESSMENT. THE ONUS LIES ON THE AS SESSEE TO PROVE THAT THERE WAS NO FRAUD, GROSS OR WILLFUL NEGLIGENC E WHICH CAN BE 12 ITA NO.2905/AHD/2009 12 ATTRIBUTED TO THE ASSESSEE. THIS WAS THE INITIAL ON US WHICH LAY ON THE ASSESSEE. ACCORDINGLY, THE HONBLE HIGH COURT REMA NDED THE CASE TO THE TRIBUNAL WITH THE DIRECTIONS TO DECIDE MATTE R AFRESH KEEPING IN VIEW THE RELEVANT PROVISION, THE TRIBUNAL HAVING NO T EXAMINED THE BACKGROUND OF THE EXPLANATION TO SECTION 271(1)(C) OF THE ACT, OPERATIVE AT THE RELEVANT POINT OF TIME, IN ITS PRO PER PERSPECTIVE. BUT SUCH ARE NOT THE FACTS AND CIRCUMSTANCES IN THE INS TANT CASE.AS ALREADY STATED , THE ASSESSEE CLAIMED DEDUCTION U/S 80HHC OF THE ACT ON THE STRENGTH OF A PRESCRIBED CERTIFICATE OF THE CA WHILE THE AO COMPUTED THE DEDUCTION DIFFERENTLY ON THE BASIS OF MATERIAL ON RECORD, ADOPTING DIFFERENT INTERPRETATIONS IN THE L IGHT OF DECISIONS OF THE COURTS. THERE IS NO FINDING IN THE ASSESSMENT ORDER AS TO THE CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS THEREOF. THUS, RELIANCE ON THE AFORESAI D DECISION IS TOTALLY MISPLACED . 6.6 LIKEWISE, THE DECISION IN THE CASE OF DHARMEND RA TEXTILE PROCESSORS LTD. VS. CIT 306 ITR 277 (SC), IS NOT RE LEVANT TO THE ISSUE BEFORE US. IN THE SAID DECISION, HONBLE APEX COURT HELD THAT THE EXPLANATIONS APPENDED TO S. 271(1)(C) OF THE AC T ENTIRELY INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING RETURN. THE PENALTY UNDER THAT PROVISION WAS A CIVIL LIABILITY AND WILFUL CON CEALMENT WAS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS WAS THE CASE IN THE MATTER OF PROSECUTION UNDER S. 276C OF THE IT ACT. HOW THIS DECISION IS RELEVANT IN THE FACTS AND CIRCUMSTANCES OF THE I NSTANT CASE, HAS NOT BEEN EXPLAINED BY THE LD. DR. 6.7. IN VIEW OF THE FOREGOING, WE ARE OF THE OPI NION THAT MERE ERRONEOUS CLAIM IN THE ABSENCE OF ANY CONCEALMENT O R FURNISHING OF INACCURATE PARTICULARS, IS NO GROUND FOR LEVYING PE NALTY, ESPECIALLY WHEN THERE IS NOTHING ON RECORD TO SHOW THAT ANY MA TERIAL PARTICULARS WERE CONCEALED OR FURNISHED INACCURATE . IN THESE C IRCUMSTANCES, WE 13 ITA NO.2905/AHD/2009 13 ARE OF THE OPINION THAT LEVY OF PENALTY IS NOT JUS TIFIED. CONSEQUENTLY, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NOS.1 TO 1.5 TO IN THE APPEAL ARE DISMISSED. 7. GROUND NOS. 2 & 3 IN THE APPEAL BEING MERE PR AYER NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON THESE GRO UNDS, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFOR E, DISMISSED. 8. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE COURT TODAY ON 3 -06-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 3 -06-2011 COPY OF THE ORDER FORWARDED TO: 1. DRAFT AIR INTERNATIONAL A/401, TIME SQUARE BUILD ING, B/H PARISEEMA, C G ROAD, ELLISBRIDGE, AHMEDABAD 2. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12, AH MEDABAD 3. CIT CONCERNED 4. CIT(A)-VI, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD