ACIT, CHENNAI V. M/s. Balaha Chemicals Agencies, CHENNAI

ITA 310/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0732 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-02-2013
• Assessment Year: 2001-2002
• Appeal Filed On: 13-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Bogus purchase; Gift; Business income; Business expenditure; Bonafide belief; Question of law; Wrong claim; Accommodation entries; Onus to prove; Revised return; Reassessment proceedings
• Section: 133A; 27; 28

Judgement Text

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.NOS.308,309 & 310/2012 ASSESSMENT YEARS : 1997-98, 1998-99 & 2001- 02 THE ASSTT. COMMISSIONER OF INCOME-TAX BUSINESS CIRCLE VII CHENNAI VS M/S BALAHA CHEMICALS AGENCIES CISSONS COMPLEX ROOM NO.12, 4 TH FLOOR 150, MONTIETH ROAD EGMORE CHENNAI 600 008 (APPELLANT) (RESPONDENT) [PAN AAAFS 1639 P] APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 11-02-2013 DATE OF PRONOUNCEMENT : 14-02-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE REVE NUE AGAINST THE CONSOLIDATED ORDER OF THE CIT(A)-XII, CHENNAI, DATE D 25.11.2011 IN ASSESSMENT YEARS 1997-98, 1998-99 AND 2001-02. I.T.A.NO. 308,309,310/12 :- 2 -: 2. IN ALL THE YEARS UNDER CONSIDERATION, THE SOLE ISSU E INVOLVED IS THAT THE CIT(A) ERRED IN DELETING THE PENALTY LEVIE D BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN DEALERSHIP AND DISTRIBUTION OF VARIOUS INDUSTRIAL C HEMICALS REQUIRED FOR TEXTILE INDUSTRY. THE TURNOVER OF THE ASSESSEE FI RM DURING THESE THREE YEARS WAS SUBSTANTIAL AND THE ASSESSEE DEBITED VAR IOUS EXPENSES INCLUDING PAYMENT OF COMMISSION TO VARIOUS PARTIES. BESIDES OTHERS, THE PARTIES TO WHOM THE COMMISSION WAS PAID FOR INTRODU CTION, CANVASSING ORDERS AND FOLLOW UP OF PAYMENT, WERE SHRI D.D. VYA S, PROPRIETOR OF M/S SHREE NAROTTAM AGENCIES, SHRI SRINIVAS VYAS, PROPRI ETOR OF M/S PUSHPAK SALES CORPORATION AND SHRI MANOHAR VYAS, PROPRIETOR OF M/S SRINIVASA ENTERPRISES. A SURVEY U/S 133A OF THE ACT WAS CON DUCTED IN THE CASE OF SHRI D.D. VYAS, WHEREIN IT WAS FOUND THAT THE COMMI SSION AMOUNTS RECEIVED BY SHRI D.D.VYAS AND HIS SONS, SHRI SRINIV ASA VYAS AND SHRI MANOHAR VYAS AND THE AGENCIES OWNED AND RUN BY THEM VIZ. M/S SHREE NAROTTAM AGENCIES, M/S PUSHPAK SALES CORPORATION AN D M/S SRINIVASA ENTERPRISES RESPECTIVELY WERE NOT GENUINE. SHRI D. D. VYAS STATED IN HIS SWORN STATEMENT RECORDED IN HIS CASE THAT HE WAS MA NAGING THE WHOLE COMMISSION BUSINESS FOR HIMSELF AS WELL AS FOR HIS SONS. IT WAS FOUND THAT I.T.A.NO. 308,309,310/12 :- 3 -: SHRI VYAS AND HIS VARIOUS OUTFITS HAD NO INFRASTRUC TURE, NO TECHNICAL KNOWLEDGE AND NO WORK FORCE TO RENDER ANY SERVICE. THE SO-CALLED SUB- AGENCIES TURNED OUT TO BE TEA STALL OWNERS AND SOAP SELLERS WHO HAD BEEN INTRODUCED BY SHRI VYAS FOR THE PURPOSE OF OPENING BANK ACCOUNT. ON RECEIPT OF THE ABOVE INFORMATION, THE ASSESSMENT OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION WAS REOPENED AND THE COMM ISSION PAID DURING THE YEARS WERE DISALLOWED WHICH WAS CONFIRMED BY TH E CIT(A) AS WELL AS THE TRIBUNAL IN AN APPEAL FILED BY THE ASSESSEE. THEREAFTER, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)( C) OF THE ACT AND LEVIED PENALTY FOR CONCEALMENT OF INCOME ON THE FOLLOWING GROUNDS: 1. IT WAS ESTABLISHED IN THE ASSESSMENT ORDER ITSE LF THAT THERE WAS ESCAPEMENT OF INCOME BY WAY OF FALSE CLAIM OF COMMI SSION EXPENDITURE OF THE ASSESSEE AND THEREFORE IT IS NOT ACCEPTABLE THAT THERE WAS NO OMISSION OR INFLATION OF EXPENDITURE. 2. IT IS PROVED BEYOND DOUBT THAT THE DEDUCTION CLA IMED WAS A BOGUS ONE AND THE ASSESSEE HAS INTENTIONALLY CLAIME D THE COMMISSION PAYMENT WITHOUT INCURRING THE SAME FOR T HE PURPOSE OF BUSINESS. 3. THE ASSESSING OFFICER HAD THOROUGHLY EXAMINED TH E ISSUE OF GENUINENESS OF PAYMENT BETWEEN THE SO-CALLED COMMIS SION PAYER AND THE RECIPIENT AND AFTER EXAMINING BOTH THE PART IES, SHE CAME TO THE CONCLUSION THAT T THE CLAIM OF COMMISSION PAYME NT WAS ONLY AN ACCOMMODATION ENTRY AND THAT THE PAYMENT WAS ACTUAL LY NOT INCURRED. 4. COMMISSION PAYMENT IS STATED TO BE ALLOWED ORIGINAL LY. IT IS NOT SO. DURING THE PROCESSING STAGE, RETURNS ARE ACCEPT ED U/S 143(1) AND THEREFORE IT CANNOT BE SAID THAT THE COMMISSION PAYMENT WAS ALLOWED ORIGINALLY. I.T.A.NO. 308,309,310/12 :- 4 -: 5. JUST BECAUSE THE MATTER IS UNDER APPEAL BEFORE I TAT, THE PENAL PROCEEDINGS U/S 271(1 )(C) COULD NOT BE KEPT PENDING. THE FINANCE ACT. 2003 INSERTED PROVISO TO SEC. 275 MANDATING IM POSITION OF PENALTY IN CASES WHERE THE CLT(A) PASSES THE ORDERS ON OR AFTER 01.6.2003. 6 FROM THE SURVEY CONDUCTED IN THE PREMISES OF S RI D D VYAS AND THE STATEMENT RECORDED FROM HIM, IT IS CLEAR THAT T HE CLAIM OF COMMISSION PAYMENT OF RS. 15,50,180 IS ONLY AN ACCO MMODATION ENTRY AND M/S. SRINIVASA ENTERPRISES HAD NOT RENDER ED ANY SERVICES FOR THE BUSINESS PROMOTION OF THE ASSESS E-FIRM. TH US, IT IS A CLEAR CASE OF THE ASSESSEE-FIRM CONCEALING THE PARTICULAR S OF ITS INCOME / FURNISHING INACCURATE PARTICULARS OF SUCH INCOME. T HEREFORE THE ASSESSEE-FIRM DESERVES TO BE PENALIZED. 7. IN THE ASSESSMENT ORDER ITSELF THE ASSESSING OFF ICER HAD CLEARLY STATED THE FACTS OF CONCEALMENT AND THEREFORE AT TH E END OF THE ORDER IT WAS STATED THAT PENAL PROCEEDINGS U/S 271(1)(C) ARE INITIATED. THERE WAS NO REQUIREMENT OF ANY SEPARATE SATISFAC TORY NOTE. IN ITS LETTER FILED ON 16.3.07, THE ASSESSEE HAS QU OTED THREE CASE LAWS IN SUPPORT OF ITS CONTENTION VIZ. NEW SOR ATHIA ENGINEERING CO. VS. CIT [GUJ.] 282 ITR 642 [2006] ; DCIT VS. AS COM INDIA (P) LTD. 99 TTJ (DEL) 728 [2006] AND VERMA TRACTORS VS. ACIT (JD) 106 TTJ 591 [2007]. HOWEVER, THE CASE LAWS QUOTED ARE N OT RELEVANT TO THE INSTANT CASE AS THE FACTS VARY. MOREOVER, THESE CASE LAWS HAVE NO BINDING OVER THIS CASE. IN THE ABOVE CIRCUMSTANCES, I AM SATISFIED THAT THE ASSESSEE- FIRM HAS CONCEALED THE PARTICULARS OF ITS INCOME/ FURNISHED INACCURATE PARTICULARS OF SUCH INCOME BY CLAIMING F ALSE EXPENDITURE. THE AMOUNT INVOLVED IN SUCH FALSE CLAIM OF EXPENDIT URE IS RS. 15.50.180. THE PENALTY LEVIABLE IS NOT LESS THAN 10 0% OF THE TAX SOUGHT TO BE EVADED BUT CANNOT EXCEED THREE TIMES O F THE AMOUNT OF THE TAX SOUGHT TO BE EVADED, BY REASON OF CONCEA LMENT OF PARTICULARS OF ASSESSEE'S INCOME/FURNISHING OF INAC CURATE PARTICULARS OF SUCH INCOME. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE T HE CIT(A) WHEREIN IT FILED WRITTEN SUBMISSION WHICH READS AS FOLLOWS: I.T.A.NO. 308,309,310/12 :- 5 -: 'THESE THREE APPEALS ARE AGAINST THE LEVY OF PENALTY UNDER SECTION 271(1 )(C) OF THE INCOME TAX ACT 1961. THE FACTS RELATING TO THESE THREE APPEALS ARE AS UNDER: THE APPELLANT IS A PARTNERSHIP FIRM DEALING IN INDUSTRIAL CHEMICALS AND AUTHORIZED STOCKISTS FOR LEADING MANUFACTURERS L IKE NIRMA AND RELIANCE ETC. THE APPELLANT FILED THE RETURNS FOR T HE ASSESSMENT YEARS 1997-98, 1998-99 AND 2001-02 DECLARING THE FOLLOWING INCOMES: ASSESSMENT YEAR INCOME RETURNED (RS.) 1997 - 98 9,85,390/- 1998 - 99 18,94,770/ - 2001 - 02 19,13,810/ - IN THE REOPENED ASSESSMENTS FOR THE ASSESSMENT YEAR S 1997-98 AND 1998-99 AND IN THE REGULAR ASSESSMENT FOR THE ASSES SMENT YEAR 2001-02, THE ASSESSING OFFICER DISALLOWED THE FOLLOWING COMM ISSION PAYMENTS CLAIMED BY THE APPELLANT : ASSESSMENT YEAR AMOUNT DISALLOWED ( RS.) 1997 - 98 15,50,180/- 1998-99 55,67,190/ - 2001 - 02 63,91,111/- THE APPELLANT FILED APPEALS AGAINST THE ABOVE DISAL LOWANCE BEFORE THE CIT (A) AND ALL THESE APPEALS WERE DISMISSED BY THE CIT (A) BY HIS ORDER DT 16 TH MARCH 2006. FURTHER APPEALS WERE FILED BY THE APPELLANT BEFORE THE INCOME TAX APPELLATE TRIBUNAL AND DURING THE PENDEN CY OF THE APPEALS BEFORE THE ITAT, THE ASSESSING OFFICER HAS LEVIED T HE FOLLOWING AMOUNTS AS PENALTY UNDER SECTION 271 (1)(C) OF THE INCOME TAX ACT 1961: ASSESSM ENT YEAR AMOUNT OF PENALTY (RS.) 1997- 98 6,20,072/- 1998-99 1 9, 48, 51 7/- 2001 - 02 25,05,316/- THE PRESENT APPEALS ARE AGAINST THE LEVY OF SUCH PENALTIES. THE COMMON ISSUE INVOLVED IN ALL THESE APPEALS ARE THE PENALTIES LEVIED UNDER SECTION 271(1 )(C) FOR THE DISALLOWANCES MADE IN RESPECT OF THE CLAIM OF THE APPELLANT TOWARDS COMMISSION PAYMENTS. IT IS THE CASE OF THE APPELLANT THAT THE ASSESSEE HAS NEITHER CONCEALED THE PARTICULARS OF INCOME NOR FURNISHED INACCURATE PARTICULARS THEREOF THE PENALTIES HAVE BEEN LEVIED AS A MATTER OF ROUTINE, JUST ON THE BASIS OF DISALLOWANC E OF EXPENSES. I.T.A.NO. 308,309,310/12 :- 6 -: THE APPELLANT FURTHER SUBMITS THAT THE ASSESSING OF FICER, EXCEPT MERELY RELYING ON THE ASSESSMENT ORDER, HAS NOT ESTABLISHED THAT THE APPELLANT HAS CONCEALED ITS INCOME OR FURNISHED I NACCURATE PARTICULARS OF ITS INCOME. IT IS AN ADMITTED POSITION OF LAW THAT WHAT IS GOOD ENOUGH FOR ASSESSMENT MAY NOT BE SUFFICIENT FOR PENALTY. THE STATUTORY AUTHORITY DEALING WITH PENALTY PROCEE DINGS MUST BE SATISFIED THAT THE ASSESSEE HAD CONSCIOUSLY CONCEALED THE PARTICULARS OF ITS INCOME WHICH ATTRACTS THE PENAL PROVISIONS OF THE ACT. THE PENALTY ORDER SHOWS NO BASIS FOR ARRIVING A T SUCH SATISFACTION EXCEPT THE REPRODUCTION OF THE ASSESSM ENT ORDER FOR THE DISALLOWANCE OF THE CLAIM. THE APPELLANT FURTHER SUBMITS THAT A MERE FAILURE OF THE APPELLANT TO EXPLAIN SATISFACTORILY WOULD NOT LEAD TO IMPOSITION OF PENALTY UNLESS THERE IS SOME MATERIAL TO PROVE THAT THE CLAIM WAS FALSE (SUPER METAL INDUSTRIES VS. DCIT 317 ITR ( AT) 161 MUMBAI. BOTH THE CIT(A) AND THE ITAT HAVE ONLY GIVEN A FINDING T HAT THE APPELLANT HAS FAILED TO FURNISH ANY PIECE OF EVIDEN CE TO PROVE THE GENUINENESS OF THE PAYMENT OF COMMISSION. NONE OF T HE AUTHORITIES HAVE STATED THAT THE CLAIM OF PAYMENT W AS FALSE. NONE OF THE RECIPIENTS OF THE COMMISSION HAVE ALSO DENIE D THE RECEIPT OF COMMISSION NOR THERE WAS AN ALLEGATION BY THE DEPAR TMENT THAT THE AMOUNTS SO RECEIVED BY THE COMMISSION AGENTS WERE PAID BACK TO THE APPELLANT. THE ONLY GROUND ON WHICH THE EXPENDITURE WAS DISALLOWED WAS THAT THE 'ASSESSEE HAS FAILED TO FURNISH ANY PIECE OF EVIDENCE TO PROVE THE GENUINENESS OF THE PAYMENT OF COMMISSION'. THUS THE FACTUM OF INCURRING OF EXPENDITURE HAS NOT BEEN DOUBTED AT ANY STAGE OF THE ASSESSMENT OR APPEAL. IN THE AB SENCE OF ANY EVIDENCE FOR PROVING THE GENUINENESS OF PAYMENT, TH E EXPENDITURE CAME TO BE DISALLOWED. IT IS THEREFORE STATED THAT THIS WOULD NOT BY ITSELF LEAD TO THE PROPOSITION OF CONCEALMENT OR FU RNISHING OF INACCURATE PARTICULARS. THE APPELLANT WOULD ALSO STATE THAT THE JURISDICTIO NAL HIGH COURT (MADRAS) HAS HELD IN THE CASE OF CIT VS. S.SSANKARAN, 241 ITR 825 THAT A MERE ADDITION OF INCOME BY DISALLOWING EXPEN SES WOULD NOT BE REGARDED AS CONCEALMENT OF INCOME AND THEREF ORE LEVY OF PENALTY UNDER SECTION 271 (1)(C) WAS NOT JUSTIFIED AND THIS DECISION HAS BEEN FOLLOWED IN THE CASE OF CIT V CAFCO SYNDICATE SHIPPING COMPANY 294 ITR 134. IT IS FURTHER CONTENDED THAT EVEN OTHERWISE ALSO, PENALTY UNDER SECTION 271 (L)(C) SHOULD NOT BE LEVIED ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN VIEW OF THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PRIVATE LIMITED 322 ITR 158(SC) IN WHICH IT WAS HELD AS UNDER :- I.T.A.NO. 308,309,310/12 :- 7 -: 'A GLANCE AT THE PROVISIONS OF SECTION 271 (1)(C) OF THE INCOME TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INC OME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHE D INACCURATE PARTICULARS OF HIS INCOME. THE MEANING O F THE WORD 'PARTICULARS' USED IN SECTION 271(1 )(C) WOULD EMBRACE THE DETAILS OF THE CLAIM, MADE. WHERE NO INFORMATION GI VEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PART ICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROV ISION CANNOT BE INVOICED. BY NO STRETCH OF IMAGINATION CAN MAKING A N INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULA RS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILI TY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RET URN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TH E 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 UNDER SECTION 271 (1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTA INABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACC URATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS.' THE APPELLANT WOULD ALSO LIKE TO STATE THAT IN NONE OF THE ORDERS LEVYING THESE PENALTIES OR FOR THAT MATTER, IN THE ASSESSMENT ORDERS, THERE IS A SPECIFIC FINDING AS TO WHETHER THE APPELLANT HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THE ASSESSING OFFICER HIMSELF IS NOT SURE OF THE ALLEGATION AGAINST THE APPELLANT WHEN H E STATES IN THE PENALTY ORDERS THAT HE IS 'SATISFIED THAT THE ASSESSED FIRM HAS CONCEALED THE PARTICULARS OF INCOME/FURNISHED INACC URATE PARTICULARS OF SUCH INCOME'. IN THE ABSENCE OF A DE FINITE FINDING AS TO WHETHER THE APPELLANT HAS CONCEALED ITS INCOME O R WHETHER THE APPELLANT HAS FILED INACCURATE PARTICULARS OF INCOME. NO PENALTY UNDER SECTION 2 71(1)(C) COULD BE LEVIED. THE GUJARAT HIGH COURT IN THE CASE OF NEW SORATHIA ENGINEERING CO. LIMITED 282 ITR 642 HAS HELD AS UNDER: I.T.A.NO. 308,309,310/12 :- 8 -: 'IT IS INCUMBENT UPON THE ASSESSING OFFICER TO STATE WHETHER THE PENALTY WAS BEING LEVIED FOR CONCEALMEN T OF PARTICULARS OF INCOME BY THE ASSESSEE OR WHETHER ANY INACCURATE PARTICULARS OF INCOME HAD BEEN FURNISHED BY THE ASSESSEE, CIT VS. MAHANAGAR TELEPHONE NIGAM LTD., (DELHI) HELD, THAT THE PENALTY ORDER AND THE ORDER OF THE COMMISSIONER (APPEALS) SHOWED THAT NO CLEAR CUT FINDING HAS BEEN REACHED. THE TRIBUNAL HAS FAILED TO APPRECIATE THIS LEGAL ISSUE. THE RATIO IN CIT VS. MANU ENGINEERING WORKS 132 ITR 306 (GUJ) WAS APPLICABLE AND THE ORDER OF THE PENALTY COULD NOT BE UPHELD BY THE TRIBUNAL. THE ORDER WAS INVALID. ' SIMILAR VIEW WAS TAKEN BY THE ITAT (A' BENCH IN ITA NO .2275/ DEL/ 2009 IN THE CASE OF RAJ RANI METAL AND IN THE CASE OF ACIT VS. AVTAR SINGH DARSHAN SINGH IN ITA NO.593 & 594/AGR/2006 ORDER DATED 15 TH APRIL 2010. THE AUTHORISED REPRESENTATIVE ALSO SUBMITS THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHANAGAR TELEPHONE NIGAM LTD., (WWW.ITATONLINE.ORG) HAS HELD THAT NO PENALTY CAN BE LEVIED WITHOUT THE ASSESSING OFFICERS FINDING ON INACCURATE PARTICULARS. ACCORDING TO THE LEARNED AUTHORISED REPRESENTATIVE THE RECENT DECISION OF THE DELHI HIGH COURT WHICH HAS HELD THA T WHEN THERE IS NO FINDING THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS AND THAT ITS EXPLANATION WAS NOT BONAFIDE, THE IMPOSITI ON OF PENALTY U/S 271(1)(C) WAS A 'COMPLETE NON- STARTER'. A MORE ERRO NEOUS CLAIM MADE BY AN ASSESSEE, THOUGH UNDER A BONAFIDE BELIEF THAT, IT WAS A CLAIM WHICH WAS MAINTAINABLE IN LAW CANNOT LEAD T O AN IMPOSITION OF PENALTY. THE CLAIM FOR DEDUCTION WAS MADE IN BON A FIDE MANNER AND THE INFORMATION WITH RESPECT TO THE CLAIMS WAS PROVIDED IN THE RETURN AND DOCUMENTS APPENDED THERETO. ACCORDINGLY, THERE IS NO FURNISHING OF 'INACCURATE PARTICULARS'. MAKING OF A N INCORRECT CLAIM FOR EXPENDITURE DOES NOT CONSTITUTE FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE AUTHORISED REPRESENTATIVE VEHEMENTLY CONTENDS T HAT THE ORDER OF THE ASSESSING OFFICER IN LEVYING PENALTY WAS A COMPLETE (NON- STARTER' AND HAS TO BE CANCELLED. IN SHORT, THE AUTHORISED REPRESENTATIVE'S CONTENTIO NS ARE FOUR FOLD :- (I) DISALLOWANCE OF EXPENSES PER SE WOULD NOT LEAD TO THE INFERENCE THAT THE ASSESSEE HAS CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTICULARS . I.T.A.NO. 308,309,310/12 :- 9 -: (II) PENALTY PROCEEDINGS ARE DIFFERENT FROM ASSESSMENT P ROCEEDINGS AND THE DEGREE OF PROOF REQUIRED FOR LEV Y OF PENALTY IS MORE. MERELY BECAUSE THE ADDITION IS CONFIRMED DOES NOT IPSO FACTO ATTRACT PENALTY PROVISION. PENALTY PROVISION REQUIRES A STRICT ADHERENCE AND THE ONUS TO PROVE THAT THERE WAS A CO NCEALMENT OF INCOME WITH A VIEW TO AVOID TAX IS ON THE DEPARTMENT. PENALTY IS NOT AUTOMATIC. IT HAS BEEN SO HELD BY THE HON'BLE ITAT CHENNAI IN THE CASE OF GEM GRANITES (KARNATAKA) VS. DEPUTY CIT 18 DTR 358. THE HON'BLE IN THE CASE OF ACIT VS. VARUN FINSTOCK PVT. LTD. 5 ITR (TRIBUNAL) 271 (AHD) HAS HELD THAT 'IT IS A SETTLED LAW THAT PENALTY PROCEEDINGS ARE DISTINCT FROM THE ASSESSMENT P ROCEEDINGS AND THEREFORE IF ANY ADDITIONS IS MADE IT DOES NOT MEAN THAT THE PENALTY WILL BE AUTOMATICALLY LEVIED. IN THE PENALTY PROCEEDINGS THE ASSESSEE IS GIVEN AN OPPORTUNITY TO EXPLAIN HIS CASE IF HE SUCCESSFULLY EXPLAINS HIS POSITION PENALTY CA NNOT BE IMPOSED. SIMILARLY THE HON 'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. HARYANA WAREHOUSING CORPORATION IN ITA N O: 871 OF 2008 AT PARA 24 - 25 HAS HELD THAT THE THEORY THAT IF AN ADDITION IS MADE IN THE QUANTUM PROCEEDINGS, WHICH ADDITION ATTAINS PENALTY, AN ASSESSEE, PER SE, BECOMES LIABLE FOR PENAL ACTION U/ S 271 (1 )(C) AND THAT THE PENALTY AUTOMATICALLY LEVIABLE U/S 271 (1 )(C) AFTER THE FINALIZATION OF QUANTUM PROCEEDINGS HAS BEEN HELD TO BE ABSOLUTELY ABSURD'. (III) A MERE REPRODUCTION OF REASONS FOR DISALLOWAN CE WOULD NOT BE SUFFICIENT TO SUSTAIN THE LEVY OF PENALTY. EVEN THE HON'BLE APEX COURT IN THE CASE OF ANWAR ALI (76 ITR 696) (SC) CLEARLY HELD THAT FINDING IN THE ASSESSMENT PROCEEDINGS ARE NOT CONCLUSIVE, THEREFORE, THE ARGUMENT OF THE LD DR TH AT QUANTUM PROCEEDINGS HAS BECOME FINAL, ITSELF IS NOT A GOOD GROUND FOR IMPOSITION OF PENALTY UNLESS AND UNTIL ANY MATERIAL IS BROUGHT ON RECORD BY THE REVENUE TO THE EFFECT THAT THE ASS ESSEE DELIBERATELY DEFIED THE PROVISIONS OF LAW. (IV) THE AUTHORITY LEVYING THE PENALTY SHOULD SPECI FICALLY STATE WHETHER THE PENALTY IS LEVIED FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS. WITHOUT A CLE AR CUT FINDING ON THIS, NO PENALTY COULD BE SUSTAINED. (V) WHEN THERE IS NO FINDING BY THE ASSESSING OFFIC ER THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS AND T HAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT BONAFID E, MERE MAKING OF AN INCORRECT CLAIM FOR EXPENDITURE DOES N OT CONSTITUTE FURNISHING OF INACCURATE PARTICULARS OF INCOME. I.T.A.NO. 308,309,310/12 :- 10 -: IT IS THEREFORE, ARGUED THAT THE PENALTIES LEVIED SHOULD NOT BE SUSTAINED'. 'WE ARE A PARTNERSHIP FIRM (SINCE DISSOLVED) TRADIN G IN VARIOUS TYPES OF CHEMICALS SUCH AS SULPHURIC ACID, CAUSTIC SODA FLAKES AND CAUSTIC SODA LYE, ETC., WE GIVE BELOW THE SALES, PURCHASE, GROSS PROFIT AND NE T PROFIT OF THE FIRM, FOR THE ASSESSMENT YEARS 1997-1998/1998-1999 AND 2001-2002. 1997-98 1998-99 2001-2002 IN LAKHS SALES 2967.34 2943.09 4889.18 PURCHASE 2544.30 2525.02 4186.12 GROSS PROFIT 162.70 167.81 251.49 NET PROFIT 9.21 29.48 29.81 WE HAD SEVEN BRANCHES AND TOTALLY 39 PEOPLE WERE EMPLOYED FOR THE OPERATION. THE BREAK UP OF THE EMP LOYEES FUNCTION WISE IS GIVEN BELOW:- MANAGER 4 ACCOUNTANTS 4 ACCOUNTS ASSISTANTS 7 MARKETING STAFF 14 FACTORY STAFF 6 PEONS 4 TOTAL 39 IN VIEW OF LESSER NUMBER OF EMPLOYEES FOR MARKETING OUR PRODUCTS, WE ENGAGED THE SERVICE OF CERTAIN AGENTS WHO WERE PROCURING ORDERS FOR US, FOLLOW UP OF COLLECTI ON AND COLLECTING ALL STATUTORY FORMS FROM THE CUSTOMERS. FOR THE CERVICES RENDERED, THEY WERE PAID COMMISSION. THE DETAILS OF TOTAL QUANTITY OF SALES AND THE QUANTITY ON WHICH C OMMISSION PAID TO THE THREE AGENCIES (IN RESPECT OF WHOM THE COMMISSION HAD BEEN DISALLOWED) ARE ATTACHED FOR YO UR PERUSAL. IN THE REOPENED ASSESSMENT FOR THE ASSESSMENT YEAR 199 7-98, 1998-99 AND THE YEAR 2001-02, THE ASSESSMENT OFFICER DISALLOWED A PORTION OF COMMISSION PAYMENTS CLAIMED BY US AS BUSINESS EXPENDITURE :- I.T.A.NO. 308,309,310/12 :- 11 -: YEAR TOTAL COMMN.PAID DISALLOWED ALLOWED 1997-98 RS. 1,71,29,234/- RS.15,50,180/- RS.1,55,79,054/- 1998-99 RS. 1,68,76,285/- RS.55,67,190/- RS. 1,13,09,095/- 2001-02 RS.1, 74,88,685/ - RS. 63, 91,111/ - RS.1, 10, 97,574/- TOTAL RS5,14,94,204/- RS1,35,0 8,481/- RS3,79,85,723/- THE ASSESSING OFFICER ALLOWED THE COMMISSION PAYMEN TS MADE TO OTHER PARTIES AND DISALLOWED ONLY THE PAYME NTS TO THE FOLLOWING PARTIES :- 1997-98 1998-99 2001-2002 AMOUNT SRI NAROTHAM AQENCIES 13,07,380.00 30,27,648.00 PUSHPAK SALES CORPN 16,07,635.00 3, 00, 000. 00 SRINIVASA ENTERPRISES 15,50,180.00 26,52,275.00 30,63,463.00 TOTAL 15,50,180.00 55,67,290.00 63,91,111.00 WE HAVE FILED APPEAL AGAINST THE ABOVE DISALLOWANCE BEFORE THE CIT(A) AND THE CIT(A) HAS DISMISSED OUR APPEALS. WE HA VE FURTHER FILED APPEAL IN ITAT AGAINST THE DISALLOWANC E AND DURING THE PENDENCY OF THE APPEALS BEFORE THE ITAT THE ASSES SMENT OFFICER HAS LEVIED THE FOLLOWING AMOUNTS AS PENALTY UNDER SECTION 271 (1) ( C) OF THE INCOME TAX ACT 1961. 1997-98 RS. 6,20,072. 00 1998-99 RS.19,48,517.00 2001-02 RS.25,05,316.00 TOTAL RS. 50,73,905.00 THE ABOVE COMMISSION AGENTS ARE IN NO WAY CONNECTED WITH THE PARTNERS AND THEY DID NOT HAVE ANY OTHER BUSINESS DEALINGS/INTEREST WITH THE FIRM AS WELL AS THE PARTNERS. ALL ARE FROM OUTSIDE STATES AND THEY ARE NOT RELATED TO THE PARTNE RS OF THE FIRM. ALL THE COMMISSION PAYMENTS WERE PAID THROUGH ACCOUNT PAYEE CHEQUES. THE COMMISSION AMOUNT HAVE BEEN REPORTED I N THEIR ANNUAL RETURN. THE DEPARTMENT HAS DISALLOWED THE PAY MENTS MADE BY THEM TO THEIR SUB- AGENTS, AS THEY WERE NOT A BLE TO FURNISH FULL DETAILS AND THEIR SUB-AGENTS ARE FOUND T O BE PEOPLE OF NO MEANS. THE COMMISSION PAYMENTS WERE DISALLOWED BY THE DEPA RTMENT WITH THE REASON THAT THE SUB-AGENTS DID NOT HAVE PRO PER INFRASTRUCTURE ETC., TO CARRY OUT THE OPERATION. I.T.A.NO. 308,309,310/12 :- 12 -: THE PAYMENTS WERE MADE THROUGHOUT THE YEAR AND THE COMMISSION AMOUNTS WERE CREDITED AT THE YEAR END. TH IS IS DONE AS THEY REQUIRED FUNDS FOR RENDERING SERVICES THROU GHOUT THE YEAR. BASED ON THE ANNUAL VOLUME OF BUSINESS DONE THROUGHO UT THE YEAR, COMMISSION AMOUNT IS CALCULATED AND CREDIT NOTES WERE ISSUED AT THE YEAR END. THIS PROVES THAT THESE WERE NOT MERE ACCOMMODATION ENTRIES. THE LEDG ER EXTRACTS OF THESE PARTIES ATTACHED, WILL VOUCH FOR THE SAME. THE DEPARTMENT ALSO DID NOT PROVE THAT THESE PAYMEN TS ARE RETURNED EITHER TO THE PARTNERSHIP FIRM OR ITS' PARTN ERS. THE ASSESSING OFFICER HAD NEVER DISPUTED THE COMMISS ION PAYMENTS TO THE AGENTS AND THE AGENTS ALSO ACCEPTED T HAT THEY RECEIVED PAYMENTS FROM THE FIRM. WE ENCLOSE COPIES OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT FOR THE ABOVE THREE YEARS FOR YOUR REFERENCE. IN VIEW OF THE ABOVE, WE PRAY THAT THE PENALTY LEVI ED FOR RS. 50,73,905.00 IN THE ABOVE YEARS MAY BE DROPPED'. 5. THE CIT(A), AFTER CONSIDERING THE ABOVE SUBMISSION, DELETED THE PENALTY FOR ALL THE THREE YEARS UNDER CONSIDERATION . 6. THE DR VEHEMENTLY ARGUED AND SUBMITTED THAT THE TRI BUNAL IN THE QUANTUM APPEAL IN THE CASE OF THE ASSESSEE, VI DE ITS ORDER DATED 15.6.2007, IN I.T.A.NO. 1236 TO 1239/MDS/2006 IN AS SESSMENT YEARS 1997- 98, 1998-99 AND 2001-02 IN PAGE 6 PARA 7 HAD HELD T HAT SHRI D.D.VYAS AND HIS SONS DID NOT HAVE THE REQUISITE CAPACITY, I NFRASTRUCTURE AND SKILL FOR RENDERING OF SERVICES, THAT THE ASSESSEE INTRODUCE D SHRI D.D.VYAS AND HIS SONS FOR OPENING THE BANK ACCOUNT. THE ASSESSEE AT NO POINT OF TIME, I.T.A.NO. 308,309,310/12 :- 13 -: COULD SUBSTANTIATE THE SERVICES RENDERED BY THESE A GENTS. THE ASSESSEE ALSO FAILED TO SHOW THAT THE SERVICES WERE ACTUALLY RENDERED AND EXPENDITURE WAS EXCLUSIVELY AND WHOLLY INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. HE FURTHER RELIED ON TH E PENALTY ORDER PASSED BY THE ASSESSING OFFICER AND SUBMITTED THAT IN PAGE 4 AND 5, IN PARA 6 & 7, THE ASSESSING OFFICER HAS GIVEN THE REASONS FOR LEV Y OF PENALTY. HE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277 AND CIT VS ATUL MOHAN BINDAL, 317 ITR 1(S.C), AND SUBMITTED THAT FO R LEVY OF PENALTY, NO MENS REA WAS REQUIRED. HENCE, HE SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS ANWAR ALI, 76 ITR 696(SC) FOR DELETI NG THE PENALTY. HE FURTHER RELIED ON THE DECISION OF THE HON'BLE P&H H IGH COURT IN THE CASE OF CIT VS LAL CHAND TIRATH RAM, 225 ITR 675, WHEREIN I T WAS HELD AS UNDER: MERE OFFERING OF AN EXPLANATION WOULD NOT ABSOLVE THE ASSESSEE FROM THE LIABILITY TO PENALTY UNDER SECTION 271(1)(C), E XPLANATION 1, CLAUSE (B) OF THE INCOME-TAX ACT, 1961. IT IS NECESSARY FO R THE ASSESSEE TO OFFER AN EXPLANATION AND ALSO TO SUBSTANTIATE IT. THE ASSESSEE CARRIED ON BUSINESS IN FOODGRAINS AS COMMISSION AGENCY. THE ASSESSEE FILED A RETURN OF INCOME FOR T HE ASSESSMENT YEAR 1976-77 SHOWING A TOTAL INCOME OF RS. 91,329. THE ASSESSING OFFICER FOUND THAT SOME STOCK OF GOODS HAD ALSO BEE N KEPT BY THE ASSESSEE IN THE CENTRAL WAREHOUSING CORPORATION AND FROM THE INFORMATION COLLECTED FROM THEM HE FOUND THAT THERE WAS A DIFFERENCE BETWEEN THE STOCK KEPT IN THE WAREHOUSE AND THE STO CK SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE ASSESSING OFF ICER ALSO FOUND I.T.A.NO. 308,309,310/12 :- 14 -: THAT 1,299 BAGS OF BARLEY WERE AVAILABLE IN THE WAR EHOUSE BUT THE ASSESSEE COULD FURNISH DETAILS WITH RESPECT TO ONLY 1,205 BAGS. THE ASSESSEE EXPLAINED THAT 94 BAGS OF BARLEY WHICH HAD BEEN KEPT IN THE WAREHOUSE BELONGED TO ONE S, BUT NO CONFIRMATION LE TTER FROM S WAS FILED NOR THE DATE OF ARRIVAL OF THE GOODS WAS DISC LOSED. THE ASSESSING OFFICER FURTHER FOUND THAT GOODS HAD BEEN SOLD BY T HE ASSESSEE ON OWN ACCOUNT AND NOT IN ITS COMMISSION AGENCY. SINCE THE STOCK OF 94 BAGS HAD NOT BEEN SHOWN BY THE ASSESSEE IN ITS CLOS ING STOCK AS ON MARCH 31, 1976, ON WHICH DATE THE ASSESSEE'S ACCOUN TING YEAR ENDED, ITS VALUE WHICH WORKED OUT AT RS. 6,440 WAS ADDED T O THE INCOME OF THE ASSESSEE TREATING IT AS UNDISCLOSED INCOME. BEF ORE THE COMMISSIONER (APPEALS), THE ASSESSEE FILED A CONFIR MATORY LETTER FROM S TO THE EFFECT THAT S HAD STORED 100 BAGS OF BARLE Y WITH THE ASSESSEE FROM HIS AGRICULTURAL PRODUCE AND HAD GIVEN INSTRUC TIONS TO SELL THE GOODS AT THE TIME WHEN THE PRICES WERE HIGH AND HAD ALSO CONFIRMED TO HAVE RECEIVED THE SALE PRICE FROM THE ASSESSEE. S FURTHER EXPLAINED THAT HE HAD 50 BIGHAS OF LAND AND THE STOCK OF BARL EY HAD BEEN HANDED OVER TO THE ASSESSEE AS AGRICULTURAL PRODUCE OF HIS OWN FIELD. THE COMMISSIONER OF INCOME-TAX (APPEALS) ON RECEIPT OF THE CONFIRMATORY LETTER REQUIRED THE ASSESSEE TO PRODUC E S FOR EXAMINATION BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER , AFTER EXAMINING S, SUBMITTED A REPORT TO THE COMMISSIONER OF INCOME -TAX (APPEALS) WHICH STATED THAT S WAS A TRUCK DRIVER AND ONLY 20 BIGHAS OF LAND WAS OWNED BY HIS FAMILY OUT OF WHICH S'S SHARE WAS ONLY 4 KILLAS AND THAT NO REVENUE RECORD WAS PRODUCED IN SUPPORT OF THE CL AIM OF POSSESSION AND CULTIVATION OF AGRICULTURAL LAND. THE COMMISSIO NER OF INCOME-TAX (APPEALS), AFTER EXAMINING THE STATEMENT OF S, REJE CTED THE ASSESSEE'S EXPLANATION REGARDING THE OWNERSHIP OF STOCK AND UP HELD THE ADDITION OF RS. 6,440 MADE BY THE ASSESSING OFFICER. THE ASS ESSEE'S APPEAL BEFORE THE TRIBUNAL FAILED. THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT INITIATED PENALTY PROCEEDINGS FOR FURNIS HING INACCURATE PARTICULARS BY THE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, AND IMPOSED A PENALTY OF RS. 4,959. IN T HE COURSE OF THE PENALTY PROCEEDINGS, THE ASSESSEE EXPLAINED THAT TH ERE WAS NO JUSTIFICATION FOR THE LEVY OF PENALTY SINCE THE STO CK OF 94 BAGS OF BARLEY HAD BEEN KEPT BY S AND A VALID EXPLANATION HAD ALSO BEEN OFFERED BY S AND ADEQUATE EVIDENCE HAD BEEN PRODUCED IN SUPPOR T OF THE EXPLANATION OF THE ASSESSEE. THE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE. HOWEVER, THE COMMISSIO NER OF INCOME- TAX (APPEALS) ACCEPTED THE ASSESSEE'S EXPLANATION A ND CANCELLED THE PENALTY. THE TRIBUNAL UPHELD THE ORDER OF THE COMMI SSIONER (APPEALS). ON A REFERENCE: HELD, THAT S WAS BASICALLY A TRUCK DRIVER AND HE HAD NO MATERIAL AVAILABLE WITH HIM TO SHOW THAT HE POSSESSED OR CUL TIVATED AGRICULTURAL LAND. THERE WAS NO EVIDENCE ON RECORD TO SHOW THAT HE I.T.A.NO. 308,309,310/12 :- 15 -: HAD BROUGHT HIS STOCK FROM HIS FIELD AND HAD DELIVE RED THE SAME TO THE ASSESSEE FOR SALE. THERE WAS NOTHING IN THE REC ORD OF THE WAREHOUSING CORPORATION WHICH COULD INDICATE THAT T HE STOCK OF 94 BAGS OF BARLEY HAD BEEN BROUGHT FOR STORAGE BY S. T HE STATEMENT OF S CONTAINED IN HIS CONFIRMATORY LETTER AS WELL AS IN HIS EXAMINATION BY THE ASSESSING OFFICER DID NOT MAKE THE EXPLANATION RELIABLE. THE LEGAL FICTION OR THE PRESUMPTION CREATED BY THE EXPLANATI ON HAD NOT BEEN REBUTTED BY THE ASSESSEE BY PRODUCING SUFFICIENT AN D RELIABLE EVIDENCE. THE ASSESSEE FAILED TO PRODUCE THE MATERI AL FACTS ON RECORD, WHICH WOULD BE SUFFICIENT TO DISPLACE THE L EGAL PRESUMPTION. THE ONUS OF PROOF FOR REBUTTING THE PRESUMPTION LAY SQUARELY ON THE ASSESSEE WHICH HE FAILED TO DISCHARGE. THEREFORE, T HE LEVY OF PENALTY ON THE ASSESSEE WAS VALID UNDER CLAUSE (B) OF EXPLA NATION 1 TO SECTION 271(1)(C) OF THE ACT. 7. HE FURTHER RELIED ON THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF KALPAKA BAZAR VS CIT, 313 ITR 414(KER ), WHEREIN IT WAS HELD AS UNDER: FOR THE ASSESSMENT YEAR 1984-85, THE ASSESSEE FILE D A RETURN DISCLOSING INCOME OF RS. 1,54,713. SEARCH WAS CARRI ED OUT IN THE PREMISES OF THE ASSESSEE AND BOOKS OF ACCOUNT AND O THER DOCUMENTS WERE SEIZED. STATUTORY AUDIT WAS DONE UNDER SECTION 142(2A). THE AUDITOR BROUGHT OUT BOGUS PURCHASES ACCOUNTED BY TH E ASSESSEE TO THE EXTENT OF RS. 1,11,193 WHICH REPRESENTED PROFOR MA INVOICES NOT REPRESENTING ANY ACTUAL PURCHASES. THE TRIBUNAL SUS TAINED PENALTY PERTAINING TO INFLATION OF PURCHASES AMOUNTING TO R S.1,11,193. ON A REFERENCE : HELD, THAT ADMITTEDLY THE DISPUTED AMOUNT REPRESENT ED PROFORMA INVOICES WHICH DID NOT REPRESENT ACTUAL PURCHASES A ND SO MUCH SO, THE DISPUTED EXPENDITURE WAS BOGUS PURCHASE ACCOUNT ED BY THE ASSESSEE. ACCOUNTING OF BOGUS PURCHASE EXPENDITURE WAS NOTHING BUT CONCEALMENT AND, THEREFORE, PENALTY WAS RIGHTLY LEVIED AND CONFIRMED. 8. HE ALSO RELIED ON THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS HARVEY HEART HOSPIT ALS LTD., [2012] 20 ITR (TRIB) 722(CHENNAI), WHEREIN THE TRIBUNAL HAS HELD AS UNDER: I.T.A.NO. 308,309,310/12 :- 16 -: WE HEARD SHRI SHAJI P. JACOB, THE LEARNED COMMISSIO NER OF INCOME-TAX APPEARING FOR THE REVENUE AND SHRI C. V. RAJAN, LEARNED COUNSEL APPEARING FOR THE RESPONDENT-ASSESS EE. THERE IS NO DISPUTE REGARDING THE FACT THAT THE ASS ESSEE HAD NOT CARRIED ON ANY BUSINESS IN THE PREVIOUS YEAR RELEVA NT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS IS BECAUSE ALL T HE ASSETS OF THE ASSESSEE-COMPANY WERE SOLD TO M/S. HARVEY HEALTH CA RE LTD. OBVIOUSLY, THE ASSESSEE-COMPANY DID NOT SHOW ANY IN COME FOR THE ASSESSMENT YEAR UNDER APPEAL. AT THE SAME TIME, THE ASSESSEE-COMPANY HAS CLAIMED AN EXPENDITURE OF RS. 32,99,650 UNDER VARIOUS HEADS LI KE SALARY, WAGES AND BONUS, INTEREST AND TRAVELLING EXPENSES, ETC. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE-COM-PANY COULD NO T PRODUCE ANY SORT OF EVIDENCE BEFORE ANY OF THE AUTHORITIES TO P ROVE AND SUPPORT THE INCIDENCE OF EXPENDITURE IN THE PREVIOUS YEAR R ELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THIS FACTUM HAS BEEN HIGH-LIGHTED BY THE TRIBUNAL IN THEIR ORDER DATED FEBRUARY 26, 2 010, IN WHICH THE TRIBUNAL HAS CONFIRMED THE QUANTUM ADDITION OF RS. 32,99,650. IT IS WORTHWHILE TO NOTE THAT THE TRIBUNAL HAS FURT HER HELD THAT IN THE ABSENCE OF ANY MATERIAL AND EVIDENCE IT CANNOT BE A CCEPTED THAT THE ASSES-SEE-COMPANY HAS CONDUCTED RESEARCH AND DE VELOPMENT. THIS IS A CRUCIAL FINDING BY THE TRIBUNAL AGAINST T HE ASSESSEE IN THE COURSE OF DISPOSING OF THE QUANTUM APPEAL. THE TRIB UNAL HAS HELD THAT THERE WAS NO CIRCUMSTANCE PREVAILING TO HOLD A VIEW THAT THE ASSESSEE HAD CARRIED OUT ANY RESEARCH AND DEVELOPME NT ACTIVITY. WHEN THE ENTIRE BUSINESS OF THE ASSESSEE HAS COME T O A STANDSTILL AND ALL THE ASSETS WERE SOLD TO ANOTHER COMPANY, IT IS VERY DIF-FICULT TO ACCEPT THE CONTENTION OF THE ASSESSEE THAT IN SP ITE OF THE ABOVE, IT HAD CARRIED ON RESEARCH AND DEVELOPMENT ACTIVITY . TWO QUESTIONS ARISE OUT OF THE ABOVE SITUATION. THE FIRST QUESTION IS WHETHER THE ASSESSEE-COMPANY HAD PRODUCED REASONABL E EVIDENCE TO SUP-PORT ITS CLAIM OF INCURRING EXPENDITURE TO T HE EXTENT OF RS. 32,99,650. THE ANSWER IS A CATEGORICAL 'NO'. THIS P OSITION HAS BEEN UPHELD EVEN BY THE TRIBUNAL. THE ASSESSEE HAS NOT P RODUCED DETAILS OR ANY EVIDENCE TO SUPPORT ITS CLAIM OF EXP ENDITURE TO THE EXTENT OF RS. 32,99,650. THE SECOND QUESTION IS, IF AT ALL SUCH EXPENSES WER E INCURRED BY THE ASSESSEE, WAS IT FOR THE PURPOSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE-COMPANY ? ANY EXPENDITURE INCURRED BY THE ASSESSEE NOT FOR CARRYING ON ITS BUSINESS, WOULD NOT BE ENTI TLED FOR DEDUCTION IN COMPUTING THE TAXABLE INCOME. THE ASSESSEE HAD A LREADY SOLD I.T.A.NO. 308,309,310/12 :- 17 -: OFF ITS ASSETS. IT HAS ALSO DISCON-TINUED ITS BUSIN ESS. IN SUCH CIRCUMSTANCES, IT CANNOT BE BELIEVED THAT EVEN IF THE EXPENSES WERE INCURRED BY THE ASSESSEE-COMPANY, THOSE EXPENS ES WERE INCURRED FOR THE PURPOSE OF CARRYING ON THE BUSINES S OF THE ASSESSEE-COMPANY. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE COME TO THE CONCLUSION THAT THE CLAIM OF EXPENDITURE MAD E BY THE ASSESSEE-COMPANY ALMOST AMOUNTS TO A FALSE CLAIM. T HEREFORE IT IS A CLEAR CASE OF CONCEALMENT OF INCOME BY FURNISHING OF INACCURATE PARTICULARS. FURNISHING OF INACCURATE PARTICULARS I S HIGHLIGHTED NOT ONLY BY ABSENCE OF EVIDENCE BUT ALSO BY THE STOPPAG E OF THE BUSINESS CARRIED ON BY THE ASSESSEE-COMPANY. THERE IS NO LOCUS STANDI TO CLAIM SUCH EXPENDITURE IN THE HANDS OF TH E ASSESSEE- COMPANY. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT V. RELIANCE PETROPRODUCTS P. LTD. [2010] 322 ITR 158 ( SC) TO HIGHLIGHT THE LEGAL PROPOSITION THAT CLAIM-ING DEDUCTION PER SE WOULD NOT INVITE PENALTY. BUT, THE PRESENT CASE IS BEYOND THE ABOVE LEGAL PROPOSITION. HERE IT IS NOT A CASE OF MAKING ANY CL AIM OF EXPENDITURE AS SUCH. THE ASSESSEE'S BUSINESS HAS BECOME DEFUNCT . THE ASSESSEE HAS NO LOCUS STANDI TO CLAIM EXPENDITURE F OR THE REASON THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS I N THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. IN ADDITION TO THAT, EVEN THE CLAIM IS NOT SUPPORTED BY ANY EVIDEN CE OR MATERIAL. THEREFORE, IT IS NOT A CASE WHERE THE ASSESSEE SIMP LY CLAIMS SOME EXPENDITURE. IT IS A CASE WHERE THE ASSES-SEE IS NO T SHOWING ANY INCOME, BUT AT THE SAME TIME CLAIMING HUGE EXPENDIT URE, THEREBY REFLECTING LOSS IN ITS PROFIT AND LOSS ACCOUNT. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS FURTHE R CONSIDERED THE PROFESSIONAL ACHIEVEMENTS OF DR. M. P. NARESH KUMAR, THE DIRECTOR OF THE ASSESSEE-COMPANY AND THE NECESSITY OF CONTINUOUS RESEARCH IN THE FIELD OF CARDIOLOGY AND CARDIAC SURGERY. WE HAVE NO DISPUTE WITH THE ABOVE OBSER-VATION OF T HE COMMISSIONER OF INCOME-TAX (APPEALS). BUT WHAT WE F IND FROM THE RECORD IS THAT THERE ARE NO DETAILS REGARDING THE N ATURE OF RESEARCH CARRIED OUT BY THE ASSESSEE-COMPANY. NOT ONLY IN ME DICINE, IN EVERY FIELD OF SCIENCE AND TECHNOLOGY RESEARCH AND DEVELOPMENT IS AN ONGOING PROCESS. BUT, THAT GENERAL PLEA ALONE IS NOT SUFFICIENT FOR THE PURPOSE OF INCOME-TAX. AN ASSESSEE HAS TO FURNI SH THE DETAILS OF EXPENDITURE AND THE OUTLINE OF RESEARCH AND DEVELOP MENT CARRIED OUT IN THE COURSE OF CARRYING ON OF ITS BUSINESS. T HE COMMISSIONER I.T.A.NO. 308,309,310/12 :- 18 -: OF INCOME-TAX (APPEALS) HAS RELIED MAINLY ON THE RE PUTATION OF DR. M. P. NARESH KUMAR AND HIS WIFE DR. MRI-NALINI AS L EADING RESEARCHERS IN THEIR PROFESSIONAL FIELD. BUT, HERE ALSO THE COMMISSIONER OF INCOME-TAX (APPEALS) DOES NOT SPEAK ANYTHING ABOUT THE DETAILS FURNISHED BEFORE HIM. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE F IND THAT A SIM- PLE STATEMENT THAT THE COMPANY HAS CARRIED ON RESEA RCH AND DEVELOPMENT IS NOT SUFFICIENT TO SUPPORT THE CLAIM OF AN EXPENDITURE CONSCIOUSLY MADE IN THE RETURN OF INCOME FILED BY IT. AS ALREADY STATED ABOVE, WE FIND THAT THIS CLAIM IS ALMOST A FALSE CLAIM. IF TWO DOCTORS HAVE CARRIED OUT ANY RESEARCH AND DEVELOPM ENT, THE ASSESSEE SHOULD HAVE ESTABLISHED THE NEXUS BETWEEN SUCH RESEARCH AND THE BUSINESS CARRIED ON BY THE ASSESSE E-COMPANY. THE MOST CRUCIAL FACTOR IS THAT THE ASSESSEE HAS N OT CARRIED ON ANY BUSINESS IN THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR UNDER APPEAL. IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE FIND THAT THE ASSESSING AUTHORITY IS JUSTIFIED IN LEVYI NG PENALTY IN THE PRESENT CASE UNDER SECTION 271(1)(C) OF THE ACT. A CCORDINGLY, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-T AX (APPEALS) AND RESTORE THE PENALTY ORDER PASSED BY THE ASSESS ING AUTHORITY. IN RESULT, THIS APPEAL FILED BY THE REVENUE IS ALLO WED. 9. LASTLY, HE RELIED ON THE HON'BLE MADRAS HIGH COUR TS DECISION IN THE CASE OF H.V. VENUGOPAL CHETTIAR VS CIT, 153 IT R 376, WHEREIN IT WAS HELD AS UNDER: IN THE COURSE OF THE ASSESSEE'S WEALTH-TAX PROCEEDI NGS FOR 1972- 73, IT CAME TO LIGHT THAT THE VALUE OF THE ASSESSEE 'S RESIDENTIAL HOUSE WAS MORE THAN THE ADMITTED VALUE OF RS. 50,00 0 AND THE INSPECTOR AFTER INSPECTION ESTIMATED THE COST OF CO NSTRUCTION AT RS. 98,000 AND WAS ALSO OF THE OPINION THAT THE CONSTRU CTION SHOULD HAVE BEEN SPREAD OVER A PERIOD OF THREE YEARS. ON T HE GROUND THAT THE ASSESSEE HAD OMITTED TO DISCLOSE IN HIS BOOKS O F ACCOUNT THE COST OF CONSTRUCTION, NOTICES TO REOPEN THE INCOME- TAX ASSESSMENTS FOR THE THREE YEARS 1969-70, 1970-71 AND 1971-72 WE RE ISSUED. HOWEVER, BEFORE THE SAID NOTICES COULD BE SERVED, T HE ASSESSEE FILED RETURNS PURPORTING TO BE REVISED RETURNS, IN WHICH HE INCLUDED A SUM OF RS. 15,000 FOR EACH OF THE THREE ASSESSMENT YEARS UNDER THE HEAD 'OTHER SOURCES'. THE ITO EXAMINED THE ASSE SSEE ON OATH IN THE REASSESSMENT PROCEEDINGS AND IN HIS DEPOSITI ON, THE ASSESSEE ADMITTED THAT THE COST OF RECONSTRUCTION O F THE HOUSE WAS I.T.A.NO. 308,309,310/12 :- 19 -: MET OUT OF HIS BUSINESS INCOME WHICH WAS NOT RECORD ED IN ACCOUNTS. HE ALSO ADMITTED THAT THE COST OF THE HOU SE WAS RS. 95,000 AS AGAINST THE ORIGINAL COST OF RS. 50,000 A LREADY ADMITTED BY HIM. IN THE REASSESSMETS, THE ITO MADE AN ADDITI ON OF RS. 18,000 FOR EACH OF THE THREE ASSESSMENT YEARS UNDER THE HEAD 'BUSINESS'. AFTER THE REASSESSMENTS, THE ITO INITIA TED PENALTY PROCEEDINGS AND LEVIED A PENALTY OF RS. 18,000 FOR 1971-72, WHICH WAS REDUCED BY THE AAC TO RS. 15,000. THE TRIBUNAL CONFIRMED THE ORDER OF THE AAC. ON A REFERENCE APPLICATION UNDER S. 256(2): HELD, DISMISSING THE APPLICATION, THAT THOUGH THE R EASSESSMENT PROCEEDINGS SHOULD BE TAKEN TO BE INDEPENDENT OF TH E PENALTY PROCEEDINGS AND THE MERE FACT THAT CERTAIN ADDITION S HAD BEEN MADE IN THE ASSESSMENT PROCEEDINGS COULD NOT AUTOMA TICALLY BE TAKEN AS A GROUND FOR LEVYING PENALTY, IN THE INSTA NT CASE, THE ASSESSEE HAD MADE A STATEMENT ADMITTING SUPPRESSION OF RS. 15,000 PER YEAR AND THIS ADMISSION MADE AT THE STAG E OF THE REASSESSMENT PROCEEDINGS HAD NOT BEEN RETRACTED BY THE ASSESSEE. IN SUCH CIRCUMSTANCES, IT WAS NOT NECESSARY FOR THE DEPARTMENT TO MAKE ANY INDEPENDENT ENQUIRY TO FIND OUT WHETHER TH ERE WAS, IN FACT, ANY SUPPRESSION AND WHETHER SUCH SUPPRESSION WAS DUE TO ANY DISHONEST INTENTION ON THE PART OF THE ASSESSEE . MERELY BECAUSE PENALTY PROCEEDINGS ARE INDEPENDENT OF ASSE SSMENT PROCEEDINGS, IT CANNOT BE SAID THAT THE ASSESSING A UTHORITY SHOULD IGNORE ALL THE MATERIALS COLLECTED AT THE ASSESSMEN T STAGE INCLUDING THE ADMISSION MADE BY THE ASSESSEE. THE TRIBUNAL WA S, ACCORDINGLY, JUSTIFIED IN CONFIRMING THE LEVY OF PE NALTY. NO QUESTION OF LAW AROSE OUT OF ITS ORDER. 10. ON THE OTHER HAND, THE A.R OF THE ASSESSEE FULLY J USTIFIED THE ORDER OF THE CIT(A) AND HEAVILY RELIED ON PARAS 7 A ND 11 OF THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF A. RAJENDRAN VS ACIT, [2010]127 ITD 361(CHENNAI), WHICH READ AS UNDER: 7. APPEALS OF THE RESPECTIVE ASSESSEES BEFORE THE CO MMISSIONER (A) MET WITH NO SUCCESS. RELYING ON THE DECISION O F HONBLE APEX COURT IN THE CASE OF ONE OF THE ASSESSEES NAMELY P. MOHANAKALAS CASE (SUPRA) THE COMMISSIONER (A) CAME TO THE FOLLOWING CONCLUSIONS : I.T.A.NO. 308,309,310/12 :- 20 -: (I)THE EXPLANATIONS GIVEN BY THE ASSESSEES WERE CON TRARY AND UNBELIEVABLE; (II)IT WAS NOT POSSIBLE TO ACCEPT THAT ASSESSEE HAD GIVEN ALL NECESSARY DETAILS REGARDING THE CREDITS; (III)IF THE DEPARTMENT HAD NOT MADE PROPER INVESTIG ATION AND EXAMINATION, THE CONCEALMENT WOULD HAVE GONE UNEART HED; (IV)RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN A. RAJENDRAN V. ASSTT. COMM., SPECIAL INVESTIGATION [2007]291 ITR 178 1 (MAD.) WAS MISDIRECTED SINCE APEX COURT HAD REVERSED THIS IN THE CASE OF P. MOHANAKALA (SUPRA ); (V)ADVANCING OF FALSE EXPLANATION AND UNRELIABLE EV IDENCE TANTAMOUNTED TO GIVING FALSE EXPLANATION; (VI)THERE WAS A DELIBERATE ATTEMPT TO CONCEAL INCOM E AND TO FURNISH INACCURATE PARTICULARS. THUS, THE LEVY OF PENALTY WAS CONFIRMED IN EACH OF THE CASE. 11. WE HAVE PERUSED THE ORDERS AND ALSO HEARD THE RIVA L CONTENTIONS INTENTLY. NO DOUBT THE APEX COURT HAS I N THE CASE OF P. MOHANAKALA (SUPRA) UPHELD THE ADDITIONS MADE BY THE ASSESSING OFFICER DISBELIEVING THE ALLEGED GIFTS RECEIVED BY THE RESPECTIVE ASSESSEES FROM SHRI SAMPATH KUMAR. WE HAVE CAREFULL Y GONE THROUGH THE FINDINGS OF THE HONBLE APEX COURT REPR ODUCED AT PARAGRAPH 5 ABOVE AND ALSO ITS FURTHER FINDINGS GIV EN IN SUBSEQUENT PARAGRAPHS OF ITS ORDER. ONE THING THAT IS CLEAR IS THAT THE APEX COURT HAD FOUND THE ALLEGED GIFTS TO BE DOUBTFUL IN NATURE. ACCORDING TO THE HONBLE APEX COURT, THE OBSERVATION OF THE J URISDICTIONAL HIGH COURT THAT THE EXPLANATIONS OF THE ASSESSEES WERE R EJECTED BASED ON SURMISES, CONJECTURES AND SUSPICIONS WAS NOT COR RECT. HOWEVER, IN OUR OPINION, THIS CANNOT BY ITSELF MEAN THAT THE EXPLANATIONS GIVEN BY THE ASSESSEES WERE NOT BONA FIDE. OF COURSE THE EXPLANATIONS REGARDING THE ALLEGED GIFTS WERE DISCOUNTED BY THE ASSESSING I.T.A.NO. 308,309,310/12 :- 21 -: OFFICER AS WELL AS COMMISSIONER (A) AND THEREAFTER BY THE TRIBUNAL FOR REASONS LIKE CONTRADICTIONS IN THE STATEMENTS G IVEN BY THE ASSESSEES AND THE DONOR, FAILURE OF THE RESPECTIVE ASSESSEES TO IDENTIFY THE DONOR CORRECTLY IN THE INITIAL PHASES OF THE ASSESSMENT, AND THEIR INABILITY TO IDENTIFY CLOSE RELATIVES OF THE DONOR. HOWEVER, IT REMAINS A FACT THAT SHRI SAMPATH KUMAR HAD APPEARED AND CONFIRMED THE GIFT AND ALSO EXPLAINED THAT HE WAS M AKING SUCH GIFTS ON ACCOUNT OF HIS RELATIONSHIP WITH SHRI A. SRINIVA SAN. NO DOUBT, NONE OF THE ASSESSEES WERE ABLE TO IDENTIFY THE CLO SE RELATIVES OF THE DONOR WHICH JUSTIFIABLY WAS SUFFICIENT ENOUGH R EASON TO AROUSE SUSPICION IN THE MIND OF THE ASSESSING OFFICER. ALS O IT CANNOT BE CONTROVERTED THAT RECEIPT OF MONEY BY BANK CHEQUES WOULD NOT BE A SUFFICIENT ENOUGH EVIDENCE TO GIVE CREDIBILITY TO A TRANSACTION OF THE NATURE PUT FORWARD BY THE ASSESSEES. BUT NONE OF TH ESE, WOULD BE SUFFICIENT ENOUGH TO COME TO A CONCLUSION THAT AMOU NTS WERE CONCEALED OR THE EXPLANATIONS FURNISHED WERE NOT BO NA FIDE. THE RULES OF PREPONDERANCE OF PROBABILITY THAT ARE TO B E APPLIED TO ASSESSMENT PROCEEDINGS CANNOT BE SO APPLIED QUA PEN ALTY PROCEEDINGS. THE RULES OF PROBABILITY WHEN APPLIED IN A PENALTY PROCEEDING WOULD, HAVE TO BE APPLIED WITH MORE RIGO UR OF PREPONDERANCE, SO AS TO TILT THE BALANCE TO THE SID E OF THE REVENUE IN AN ACCENTUATED MANNER. OTHERWISE, KEEPING THE PE NALTY PROCEEDINGS SEPARATE FROM THE ASSESSMENT PROCEEDING WOULD BECOME REDUNDANT. ASSESSEES EXPLANATIONS REGARDING GIFTS WERE ALL REJECTED ON THE APPLICATION OF RULES OF PREPOND ERANCE OF PROBABILITY. BUT AS AFORESAID, THE SAME RULES CANNO T BE APPLIED JUST AS IT IS IN A PENALTY PROCEEDING SINCE HERE WHAT IS TO BE VERIFIED IS THE BONA FIDE NATURE OF THE EXPLANATIONS AND WHETHE R THERE WAS ANY CONCEALMENT. THE TONE OF RECIPROCITY FOUND IN THE S TATEMENT GIVEN BY SHRI SAMPATH KUMAR WOULD NOT BE SUFFICIENT ENOUG H TO COME TO A CONCLUSION THAT THE EXPLANATIONS GIVEN BY THE ASS ESSEE COULD NOT BE SUBSTANTIATED BY IT. OF COURSE, THE SUBSTANTIATI ON DONE MAY FALL SHORT OF THE REQUIREMENTS FOR PROVING THE CREDITS I N AN ASSESSMENT PROCEEDING, BUT THIS WOULD NOT BE EQUIVALENT TO WHA T COULD BE AN INABILITY TO SUBSTANTIATE THE CREDITS. TAKING THE E NTIRE GAMUT OF THE CASE INTO ACCOUNT, WE ARE OF THE OPINION THAT THERE WAS NO CASE FOR THE REVENUE THAT THE EXPLANATIONS OFFERED BY THE AS SESSEES WERE I.T.A.NO. 308,309,310/12 :- 22 -: NOT BONA FIDE OR THERE WAS A CONCEALMENT. THUS, THE SE WERE NOT CASES, WHICH WERE FIT FOR A LEVY OF PENALTY UNDER S ECTION 271(1)(C) OF THE ACT. IN TAKING THIS VIEW, WE ARE FORTIFIED BY T HE DECISION OF THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF PREM CH AND GARG (SUPRA) AND THAT OF THE HONBLE PUNJAB AND HAR YANA HIGH COURT IN THE CASE OF BALBIR SINGH (SUPRA). WE THERE FORE, HAVE NO HESITATION TO DELETE SUCH LEVY OF PENALTY. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSING OFFICER LEVIED PENALTY U/S 27 1(1)(C) OF THE ACT FOR ALL THE THREE YEARS UNDER APPEAL IN RESPECT OF DISALLOW ANCE OF CLAIM OF EXPENDITURE INCURRED FOR COMMISSION PAYMENT MADE TO SHRI D.D.VYAS AND HIS SONS, SHRI SRINIVAS VYAS AND SHRI MANOHAR VYAS. THE PENALTY WAS LEVIED FOR THE REASON THAT IN THE OPINION OF THE AS SESSING OFFICER, THE PAYMENT OF COMMISSION BY THE ASSESSEE TO SHRI D.D. VYAS AND HIS SONS, SHRI SRINIVAS VYAS AND SHRI MANOHAR VYAS WAS FOUND TO BE A MERE ACCOMMODATION ENTRY IN THE ASSESSMENT MADE AND THE SAME WAS NOT A GENUINE EXPENDITURE. 12. ON APPEAL, THE CIT(A), AFTER ELABORATELY DISCUSSING THE ENTIRE FACTS, DELETED THE PENALTY FOR ALL THE THREE YEARS BY OBSERVING AS UNDER: I HAVE CONSIDERED THE ABOVE SUBMISSIONS, THE ASSESSMENT FOLDERS, ASSESSMENT & PENALTY ORDERS AND THE OTHER DETAILS FILED BY THE ASSESSEE CAREFULLY. THE I.T.A.NO. 308,309,310/12 :- 23 -: ANALYSIS OF THESE OCUMENTS AND THE SUBMISSIONS MADE BY THE ASSESSEE REVEALS THE FOLLOWING: A) THE ASSESSEE WAS DEALING IN DISTRIBUTION OF VARIOUS INDUSTRIAL CHEMICALS DURING THE RELEVANT FINANCIAL YEARS. THE MANPOWER EMPLOYED BY THE ASSESSEE WAS TOO SMALL TO HANDLE THE DISTRIBUTION WORK, WHEN COMPARED TO THE TOTAL VOLUME OF THE BUSINESS AND THE AREAS TO BE COVERED. B) HENCE THE ASSESSEE FIRM WAS ENGAGING SEVERAL COMMISSION AGENTS FOR IDENTIFYING THE CUSTOMERS, BOOKING ORDERS, RECOVERING THE DUES ETC. ALL THE COMMISSION PAYMENTS TO THESE COMMISSION AGENTS, EXCEPT PAYMENTS TO SHRI DD VYAS AND HIS SONS,. WERE CONSIDERED AS GENUINE AND ALLOWED, INDICATING THAT THE ASSESSEE IS HEAVILY DEPENDENT ON AGENTS. C) THE SURVEY UJS.133A WAS CONDUCTED IN THE CASE OF SHRI DD VYAS AND HIS SONS ONLY AND THEIR EXPENSES/COMMISSION PAYMENTS WERE TREATED AS NON- GENUINE. THE RECEIPTS OF COMMISSION FROM THE ASSESSEE BY SHRI DD VYAS AND HIS SONS WERE NOT EXAMINED. D) IN THE HANDS OF THE ASSESSEE, THE DISALLOWANCE OF COMMISSION PAYMENTS TO THE CONCERNS OF SHRI DD VYAS AN.D HIS SONS WAS MADE ONLY ON THE PRESUMPTION THAT THE SUB-COMMISSIONS CLAIMED TO HAVE BEEN PAID BY SHRI DD VYAS AND HIS SONS WERE NOT GENUINE AND SHRI DD VYAS AND HIS SONS HAVE NO TECHNICAL EXPERTI SE TO DEAL WITH THE NATURE OF THE MATERIAL HANDLED BY THE ASSESSEE. E)THE RECEIPTS OF COMMISSION IN THE HANDS OF SHRI D D VYAS AND HIS SONS (FROM THE ASSESSEE) WERE NEVER QUESTIONED AND, IN FACT, THESE RECEIPTS OF COMMISSI ON FROM THE ASSESSEE WERE ASSESSED IN THE HANDS OF SHR I DD VYAS AND HIS SONS, IN SUBSTANTIVE MANNER AND NOT ON PROTECTIVE BASIS. COMMISSION PAYMENTS BY SHRI DD VYAS AND HIS SONS TO THEIR SUB-AGENTS WERE HELD TO BE NON-GENUINE AND HENCE DISALLOWED IN THE HANDS OF SHRI DD VYAS AND HIS SONS. THUS, THE ENTIRE COMMISSION PAYMENTS BY THE ASSESSEE WERE ALREADY ASSESSED TO TAX AS SUCH IN THE HANDS OF SHR I I.T.A.NO. 308,309,310/12 :- 24 -: DD VYAS/SONS. F)SHRI DD VYAS HAS CATEGORICALLY STATED AND CONFIRMED THAT HE AND HIS SONS HAD RENDERED THE SERVICES TO THE ASSESSEE AND RECEIVED THE COMMISSION PAYMENT FROM THE ASSESSEE. G) AS SEEN FROM THE LEDGER EXTRACT FURNISHED, THE COMMISSION PAYMENTS TO SHRI DD VYAS AND HIS SONS WERE AT REGULAR INTERVALS DURING THE RELEVANT FINAN CIAL EYARS ITSELF AND WERE BY CHEQUES ONLY, INDICATING T HAT THE PAYMENTS WERE NOT POST FINANCIAL YEAR MANIPULATIONS IN ORDER TO REDUCE THE TAXABLE INCOME . H) THERE WERE NO EVIDENCES/ALLEGATIONS BROUGHT ON RECORD BY THE DEPARTMENT THAT THE COMMISSION PAID T O SHRI DD VYAS AND HIS SONS WAS RECEIVED BACK BY THE ASSESSEE OR ITS PARTNERS OR THEIR RELATIVES. I) IT WAS ALSO AN ADMITTED FACT THAT SHRI DD VYAS A ND HIS SONS WERE RENDERING SIMILAR COMMISSION AGENCY SERVICES FOR OTHERS ALSO. THE ABOVE FACTS CLEARLY ESTABLISHES THAT THE DEPARTMENT HAS NOT PROVED ANYTHING TO SHOW THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES BY WAY OF COMMISSION PAYMENTS TO SHRI DD VYAS AND HIS TWO SON S. THE DISALLOWANCE WAS ONLY ON THE GROUND THAT THE SU B- COMMISSIONS CLAIMED TO HAVE BEEN PAID BY SHRI DD VYAS AND HIS SONS, TO THEIR SUB-AGENTS, WAS NOT GEN UINE AND SHRI DD VYAS AND HIS SONS HAVE NO TECHNICAL EXPERTISE TO DEAL WITH THE NATURE OF THE MATERIAL H ANDLED BY THE ASSESSEE, WHICH IS NOTHING BUT A PRESUMPTION . IT MAY BE TRUE THAT THE ASSESSEE HAD FAILED TO ESTABLI SH THAT THE TRANSACTION OF PAYMENT OF COMMISSIONS TO SHRI D D VYAS AND HIS SONS WAS GENUINE. AND THIS MAY BE A SUFFICIENT REASON TO DISALLOW THE CLAIM OF EXPENDIT URE FOR THE PURPOSE OF ASSESSMENT. BUT ALL DISALLOWANCES OF EXPENSES NEED NOT NECESSARILY ATTRACT THE PENAL PROVISIONS U/S.271(1)(C) OF THE IT ACT. WHAT IS REQ UIRED TO ATTRACT THE PENAL PROVISIONS U/S.271(1)(C) IS CONCE ALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. MERE CLAIM OF DEDUCTION WILL NOT AUTOMATICALLY ATTRACT P ENALTY U/S.271(1)(C) OF THE ACT, AS HELD BY THE APEX COURT IN THE CASE OF OF CIT VS. RELIANCE PETROPRODUCTS PRIVATE LIMITED I.T.A.NO. 308,309,310/12 :- 25 -: 322 ITR 158(SC). IN THIS CASE, THE HONBLE SUPREME COURT HELD THAT THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE OR THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. WHERE NO INFORMATION GIVEN IN THE RETUR N IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE C ANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS . FURTHER, MERE FAILURE OF AN ASSESSEE TO EXPL AIN SATISFACTORILY WOULD NOT LEAD TO IMPOSITION OF PENA LTY UNLESS THERE IS SOME MATERIAL TO PROVE THAT THE CLA IM WAS FALSE, AS HELD BY MUMBAI ITAT IN THE CASE OF SUPER METAL INDUSTRIES VS. DCIT 317 ITR (AT) 161 (MUMBAI) . IN THIS CASE BOTH THE CIT(A) AND THE ITAT HAVE ONLY GI VEN A FINDING THAT THE APPELLANT HAS FAILED TO FURNISH AN Y PIECE OF EVIDENCE TO PROVE THE GENUINENESS OF THE PAYMENT OF COMMISSION. NONE OF THE AUTHORITIES HAVE STATED THA T THE CLAIM OF PAYMENT WAS FALSE. NONE OF THE RECIPIENTS OF THE COMMISSION HAVE ALSO DENIED THE RECEIPT OF COMMISSI ON NOR THERE WAS ANY ALLEGATION BY THE DEPARTMENT THAT THE AMOUNTS SO RECEIVED BY THE COMMISSION AGENTS WERE PAID BACK TO THE APPELLANT. THE ONLY GROUND ON WHIC H THE EXPENDITURE WAS DISALLOWED WAS THAT THE 'ASSESSEE H AS FAILED TO FURNISH ANY PIECE OF EVIDENCE TO PROVE THE GENUINENESS OR THE PAYMENT OF COMMISSION'. THUS THE FACTUM OF INCURRING OF EXPENDITURE HAS NOT BEEN DOU BTED AT ANY STAGE OF THE ASSESSMENT OR APPEAL. IN THE AB SENCE OF ANY EVIDENCE FOR PROVING THE GENUINENESS OF PAYM ENT, THE EXPENDITURE CAME TO BE DISALLOWED. IT IS THEREF ORE STATED THAT THIS WOULD NOT BY ITSELF LEAD TO THE PR OPOSITION OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICUL ARS. THE JURISDICTIONAL HIGH COURT (MADRAS), IN THE CASE OF CIT VS. S.SANKARAN 241 ITR 825 (MAD), HELD THAT A MERE ADDITION OF INCOME BY DISALLOWING EXPENSES WOULD NO T BE REGARDED AS CONCEALMENT OF INCOME AND THEREFORE LEV Y OF PENALTY UNDER SECTION 271(1)(C) WAS NOT JUSTIFIED. THE RELEVANT PORTION IS: SECTION 271( 1)(C) OF THE INCOME-TAX ACT, 1961 - PENALTY - FOR CONCEALMENT OF INCOME - ASSESSMENT YEAR 1973-74 - WHETHER IN ABSENCE OF ANY MATERIALS AVAILABLE WITH DEPARTMENT TO SHOW THAT INCOME HAD BEEN CONCEALED BY ASSESSEE, MERE ADDITION TO INCOME AT INSTANCE OF ASSESSEE WOULD NOT WARRANT A FINDING OF CONCEALMENT OR LEVY OF I.T.A.NO. 308,309,310/12 :- 26 -: PENALTY - HELD, YES. REGARDING CERTAIN CASH DEPOSITS, ASSESSEE SUBMITTED THAT IT WAS NOT POSSIBLE FOR HIM TO ASCERTAIN PRESENT WHEREABOUTS OF CREDITORS AND PRODUCE DOCUMENTS TO ESTABLISH THAT THOSE PERSONS HAD GIVEN LOANS TO ASSESSEE AND AGREED THAT THOSE AMOUNTS WERE TO BE ASSESSED AS HIS INCOME - WHETHER PENALTY COULD BE IMPOSED ON ASSESSEE - HELD, NO. THE ABOVE DECISION HAS ALSO BEEN FOLLOWED IN THE CA SE OF CIT V CAFCO SYNDICATE SHIPPING COMPANY 294 ITR 134 (MAD). THE RELEVANT PORTION IS: SECTION 271 (1)(C) OF THE INCOME-TAX ACT, 1961 - PENALTY - FOR CONCEALMENT OF INCOME - ASSESSMENT YEAR 2002-03 - DURING SURVEY OF BUSINESS PREMISES OF ASSESSEE-COMPANY, IT WAS FOUND THAT SOME OF EXPENSES CLAIMED BY IT IN ITS RETURN OF INCOME WERE NOT SUPPORTED BY THIRD PARTY RECEIPTS, VOUCHERS, ETC. - ASSESSEE, THEREAFTER, FILED A REVISED RETURN ADMITTING SOME ADDITIONAL INCOME - ASSESSING OFFICER HELD THAT WHEN EXPENSES WERE NOT SUPPORTED BY PROPER VOUCHERS, ASSESSEE SHOULD NOT HAVE CLAIMED SAME FOR DEDUCTION - HE, THEREFORE, HELD THAT ASSESSEE HAD CONCEALED ITS INCOME AND, IMPOSED ON IT PENALTY UNDER SECTION 271(L)(C) - WHETHER WHEN BOOKS OF ACCOUNT REVEALED THAT EXPENSES WERE INCURRED BY ASSESSEE, MERE INCAPACITY OF ASSESSEE TO PRODUCE PROPER VOUCHERS FOR SAID EXPENSES WOULD AMOUNT TO CONCEALMENT OF INCOME SO AS TO WARRANT IMPOSITION OF PENALTY - HELD, NO. PENALTY PROCEEDINGS ARE TOTALLY DIFFERENT FROM THOS E OF ASSESSMENT PROCEEDINGS FOR THE PURPOSE OF ASSESSMENT, IT IS THE RESPONSIBILITY OF THE ASSESSE E TO PROVE THAT THE CLAIMS (BY WAY OF EXPENSES OR ALLOWA NCE) MADE BY HIM ARE GENUINE TO THE SATISFACTION OF THE ASSESSING OFFICER. FAILURE TO DO SO BY THE ASSESSEE , THE ASSESSING OFFICER CAN DISALLOW THE CLAIM AND BRING THE AMOUNT TO TAX. WHEREAS, WITH REGARD TO THE IMPOSITION OF PENALTY, THE ONUS IS ON THE REVENUE TO PROVE THAT T HE I.T.A.NO. 308,309,310/12 :- 27 -: CLAIMS MADE BY THE ASSESSEE ARE FALSE, INACCURATE A ND MALAFIDE. IN THE ABSENCE OF SUCH FINDING BY THE REVENUE THE PENALTY CAN NOT BE SUSTAINED, AS HELD BY THE HO N 'BLE SUPREME COURT IN THE CASE OF CIT V. ANWAR ALI [1970] 76 ITR 696 (SC), WHICH IS AS UNDER: SECTION 271(1 )(C) OF THE INCOME-TAX ACT, 1961 C ORRESPONDING TO SECTION 28(1)(C) OF THE INDIAN INCOME-TAX ACT, 1922 - PENALTY - FOR CONCEALMENT OF INCOME - WHETHER PROCEEDINGS UNDER SECTION 28 OF 1922 ACT ARE OF PENAL NATURE AND BURDEN IS ON DEPARTMENT TO PROVE THAT A PARTICULAR AMOUNT IS A REVENUE RECEIPT - HELD, YES. SIMILARLY, IN THE INSTANT CASE, THE ASSESSEE'S CLAI M OF EXPENSES WERE DISALLOWED ON THE GROUND THAT, THE COMMISSION PAYMENTS MADE BY SHRI DD VYAS & HIS SONS TO THEIR SUB-AGENTS WAS NON-GENUINE AND THE SHRI DD VYAS AND HIS SONS HAVE NO TECHNICAL EXPERTISE TO RENDER SUCH SERVICES TO THE ASSESSEE. THE REVENUE HAS NOT PROVED ANY THI NG THAT THE CLAIM OF COMMISSION PAYMENT WAS TOTALLY FALSE A ND THE COMMISSION PAYMENTS MADE TO SHRI DD VYAS HAVE BEEN RECEIVED BACK BY THE ASSESSEE OR ANY OF THE INTERES TED PERSONS OF THE ASSESSEE FIRM. FURTHER, AS COULD BE SEEN FROM THE RECORDS AND THE DETAILS FURNISHED BY THE ASSESSEE, THE FIRM WAS HAV ING SUBSTANTIAL AMOUNTS OF TURNOVER AND THE ASSESSEE WA S OPERATING FROM SEVERAL AREAS/PLACES. COMPARED TO TH E NATURE OF BUSINESS AND THE VOLUME OF TRANSACTIONS, THE DEPLOYMENT OF MANPOWER BY THE ASSESSEE FIRM WAS VERY SCANTY. THIS CLEARLY SHOWS THAT THE ASSESSEE NEEDS TO DEPEND ON EXTERNAL SOURCES FOR MANPOWER OR SERVICES. IN FACT, THE ASSESSEE HAD BEEN AVAILING SERVICES OF SEVERAL COMMISSION AGENTS EVEN IN THE EARLIER YEARS. EVEN DURING THE CURRENT THREE YEARS UNDER CONSIDERATION, THE ASSESSEE HAD AVAILED SIMILAR SERVICES FROM SEVERAL OTHER COMMISSION AGENTS, OTHE R THAN SHRI DD VYAS AND HIS TWO SONS. THE COMMISSION PAID TO SHRI DD VYAS AND HIS SONS FORMS ABOUT 9 TO 36% IN THESE THREE YEARS. THE DETAILS OF TURNOVER, GROSS AND NET PROFIT MARGINS AND THE COMMISSION PAYMENTS ARE: I.T.A.NO. 308,309,310/12 :- 28 -: A SST. PAID TO SHRI PAID TO OTHER TOTAL YEAR VYAS & HIS SONS COMMN. AGENTS PAID IN THE YEAR 1997- 98 RS. 15,50,180 RS.1,55,79,054 RS.1,71,29,234 1998- 99 RS. 55,67,190 RS.1,13,09,095 RS.1,68,76,285 2001- 02 RS. 63,91,111 RS.1,10,97,574 RS.1,74,88,685 TOTAL RS.1,35,08,481 RS.3, 79,85, 723 RS.5,14,94,204 AMOUNT IN RS.LAKHS SL. NO COMMISSION PAYMENTS TO - AY 1997 -98 AY 1998 -99 AY 2001 -02 L. TOTAL TURNOVER DURING THE YEAR 2967.34 2943.09 4889.18 2. GROSS PROFIT OFFERED TO TAX 162.70 167.81 251.49 3. % OF GROSS PROFIT TO TOTAL TURNOVER 5.48% 5.70% 5.14% 4. NET PROFIT AS PER P&L A/C 9.21 29.48 29.81 5. % OF NET PROFIT TO TOTAL TURNOVER 0.31% 1.00% 0.61% 6. TOTAL COMMISSION PAYMENTS DURING THE YEAR 171.29 168.76 174.89 7. COMMISSION PAYMENTS TO DD VYAS & HIS SONS 15.50 55.67 63.91 8. % OF COMMISSION TO DD.VYAS&HIS SONS TO (6) 9.05% 32.98% 36.54% THE ABOVE CLEARLY PROVES THAT THE ASSESSEE HAD TO DEPEND HEAVILY ON THE COMMISSION AGENTS FOR ITS DAY TO DAY ACTIVITIES OF THE BUSINESS. UNDER THESE FACTS A ND CIRCUMSTANCES, COUPLED WITH THE CONFIRMATION BY SHR I DD VYAS THAT THE CONCERNS OWNED BY HIM AND HIS TWO SON S HAVE RENDERED THE COMMISSION AGENCY SERVICES TO THE ASSESSEE, THE ASSESSEE'S CLAIM OF PAYMENT OF COMMISSION TO SHRI DD VYAS AND HIS TWO SONS CAN NOT BE TREATED AS FALSE OR INACCURATE. FURTHER, AS THE REVENUE HAS NOT ESTABLISHED ANY THING CONTRARY OR T HE PAYMENTS MADE TO SHRI DD VYAS AND HIS SONS HAVE BEEN RECEIVED BACK, THE ASSESSEE'S CLAIM OF COMMISSION PAYMENTS TO SHRI DD VYAS AND HIS TWO SON S CAN NOT BE HELD AS WRONG OR FALSE. THEREFORE, IN VIEW OF THE ABOVE DISCUSSED JUDICIAL PRONOUNCEMENTS AND AS THE REVENUE FAILED TO ESTABLI SH THAT THE CLAIM OF PAYMENT OF COMMISSION TO SHRI DD I.T.A.NO. 308,309,310/12 :- 29 -: VYAS AND HIS TWO SONS WAS FALSE OR INACCURATE, THE ASSESSING OFFICER'S ACTION IN LEVYING PENALTY U/S 271(1)(C) OF THE ACT IS NOT JUSTIFIED IN ALL THE TH REE ASSESSMENT YEARS UNDER CONSIDERATION AND DELETED. 13. WE FIND THAT NO SPECIFIC ERROR IN THE FACTS FOUND B Y THE CIT(A) COULD BE POINTED OUT BY THE DR. THE DR STRONGLY RE LIED UPON THE FINDING OF THE TRIBUNAL IN THE QUANTUM APPEAL. WE FIND FRO M A PERUSAL OF THE ORDER OF THE TRIBUNAL PASSED IN THE QUANTUM APPEAL THAT THE DISALLOWANCE OF COMMISSION PAYMENT WAS MADE BY THE TRIBUNAL BY O BSERVING THAT THE ASSESSEE SHALL SHOW THAT THE SERVICE WAS ACTUALLY R ENDERED AND EXPENDITURE IS EXCLUSIVELY AND WHOLLY INCURRED FOR THE PURPOSE OF BUSINESS. THE TRIBUNAL HAS ALSO OBSERVED THAT THE PAYMENT OF COMMISSION IN QUESTION WAS MADE BY CHEQUE AND THE RECIPIENT OF C OMMISSION WAS ASSESSED TO TAX. WE FIND THAT IT IS NOT THE CASE O F THE REVENUE THAT THE MONEY WHICH THE ASSESSEE PAID BY CHEQUE CAME BACK TO THE ASSESSEE. THE GENUINENESS OF THE PAYMENT IS EVIDENCED BY BANK ING TRANSACTIONS AND ONLY DEDUCTIBILITY OF THE PAYMENTS WAS FOUND TO BE NOT TENABLE FOR WANT OF EVIDENCE TO ESTABLISH THAT THE PAYMENTS WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. IN OTHE R WORDS, IN THE INSTANT CASE, IT IS NOT A CASE OF THE REVENUE THAT THE PAYM ENTS CLAIMED BY THE ASSESSEE AS DEDUCTIBLE WERE FOUND TO BE BOGUS. ON THE ABOVE FACTS, THE DECISION OF THE CIT(A) IS SUPPORTED BY THE DECISION OF THE HON'BLE SUPREME I.T.A.NO. 308,309,310/12 :- 30 -: COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD, 322 ITR 158 (S.C) AS WELL AS TWO DECISIONS OF THE HON'BLE MADRA S HIGH COURT IN THE CASE OF CIT VS S. SANKARAN, 241 ITR 822 (MAD) AND CIT VS CAFCO SYNDICATE SHIPPING COMPANY, 294 ITR 134(MAD). NO MATERIAL W AS BROUGHT ON RECORD BEFORE US BY THE REVENUE TO SHOW THAT WHY TH E ABOVE DECISIONS RELIED UPON BY THE CIT(A) WERE NOT APPLICABLE TO TH E FACTS OF THE INSTANT CASE. IN THE ABOVE CIRCUMSTANCES, WE DO NOT FIND A NY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) WHICH IS CON FIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE IN ALL THE THREE YEARS UND ER APPEAL ARE DISMISSED. 14. IN THE RESULT, ALL THE THREE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 14 TH OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 14 TH FEBRUARY, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR