M/s Unison Hotels Ltd., New Delhi V. DCIT, New Delhi

ITA 3246/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58950 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 07-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 16-06-2011
• Court: TRIBUNAL
• Department Lawyers: C B SINGH
• Assessee Lawyers: MRS SWEETY KOTHARI
• Keywords: Business income; Business expenditure; Services rendered outside India; Permanent establishment; Wrong claim; Tax effect; Capital expenditure
• Section: 143(3); 115JB; 80G; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI U.B.S. BEDI AND SHRI K.G. BANSAL ITA NO. 3246(DEL)/2011 ASSESSMENT YEAR: 2005-06 M/S UNISON HOTELS LTD., DY. COMMISSIONER OF INCOME PLOT NO. 2, NELSON MANDELA ROAD, VS. TAX, CIRCLE 18(1), NEW DELHI. VASANT KUNJ, PHASE-II, NEW DELHI. PAN: AAACU0455C (APPELLANT) (RESPONDENT) APPELLANT BY : MRS. SWEETY KOTHARI, C.A. RESPONDENT BY: SHRI C.B. SINGH, SR. D.R. DATE OF HEARIN G : 12.03.2012 DATE OF PRONOUN CEMENT: 23.03.2012 ORDER PER K.G. BANSAL : AM THE ASSESSEE HAS TAKEN UP THREE SUBSTANTIVE GRO UNDS IN THE APPEAL. THE REAL GRIEVANCE IS PROJECTED IN GROUND NO. 1, W HICH IS TO THE EFFECT THAT THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE LEVY OF PENALTY OF RS. 24,94,596/- IN RESPECT OF DISALLOWANCE OF CLAIMS M ADE BY THE ASSESSEE U/S 80G AND COMMISSION. IT IS MENTIONED THAT BOTH THESE AMOUNTS WERE DISCLOSED IN THE RETURN OF INCOME AND MERE DISAL LOWANCE THEREOF DOES NOT INVITE THE LEVY OF PENALTY. IT IS FURTHER MENTI ONED THAT THE DEDUCTION OF COMMISSION WAS DISALLOWED ON ACCOUNT OF NON-DEDUCT ION OF TAX AT SOURCE. ITA NO. 3246(DEL)/2011 2 THIS MATTER WAS DECIDED BY THE TRIBUNAL IN FAVOU R OF THE ASSESSEE AND, THUS, IT IS A DEBATABLE MATTER. IT IS ALSO MENT IONED THAT PENALTY IN RESPECT OF CLAIM U/S 80G HAS BEEN LEVIED BY IGNORING THE FACTS OF THE CASE. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN ON 31.10.2005 DECLARING LOSS OF RS. 12,27,93,400/-. THE RETURN WAS PROCESSED U/S 143(1) ON 12.10.2006. THEREAFTER, ASSESSMEN T PROCEEDINGS WERE INITIATED BY ISSUING NOTICE U/S 143(2) DATED 25 .10.2006. THE ASSESSEE HAS BEEN RUNNING A HOTEL NAMED THE GRAND SITUATE D IN VASANT KUNJ. THE ASSESSMENT U/S 143(3) WAS COMPLETED ON 31.12.2 007 AT LOSS OF RS. 10,61,22,320/-. HOWEVER, TAX WAS LEVIED U/S 115 JB AT THE ADJUSTED BOOK PROFIT OF RS. 14,47,91,070/-. FOR OUR PURPOSE TWO ISSUES ARE RELEVANT, NAMELY, DEDUCTION U/S 80G IN RESPECT OF DONATIONS AND DEDUCTION FOR THE CLAIM OF COMMISSION PAID. 2.1 IN REGARD TO DEDUCTION U/S 80G, IT IS MENTIO NED THAT THE GROSS TOTAL INCOME OF THE ASSESSEE AS DEFINED IN SECTION 8 0B(5) IS LOSS BOTH AS PER RETURNED INCOME AND ASSESSED INCOME. THEREFORE, DEDUCTION U/S 80G IS NOT ADMISSIBLE. ITA NO. 3246(DEL)/2011 3 2.2 IN RESPECT OF FOREIGN COMMISSION, IT WAS FOUND THAT THE ASSESSEE DEBITED A SUM OF RS. 18,89,158/- TO THE PROFIT AN D LOSS ACCOUNT AS TRAVEL AGENTS COMMISSION. THIS COMMISSION WAS PAID TO A FOREIGN PARTY, UTELL. NO TAX WAS DEDUCTED FROM THE PAYMENTS AS REQUIRED U/S 195. THEREFORE, THE ASSESSEE WAS REQUIRED TO STATE W HY THE PROVISION CONTAINED IN SECTION 40(A)(I) SHOULD NOT BE INVOKED FOR T HE PURPOSE OF DISALLOWING THE COMMISSION EXPENDITURE. IT WAS SUBMITTED T HAT THERE IS NO CHANGE IN THE FACTS OF THE CASE VIS--VIS LAST YEAR. HOW EVER, THE AO DID NOT ACCEPT THE AFORESAID EXPLANATION. REFERRING TO THE DECISION IN THE CASE OF TRANSMISSION CORPORATION OF ANDHRA PRADESH, (1999) 239 ITR 587 (SC), IT WAS HELD THAT THE PAYMENT INCLUDES AN ELEMENT OF PROFIT ON WHICH TAX OUGHT TO HAVE BEEN DEDUCTED U/S 195. FURTHER, R ELYING ON THE LANGUAGE OF SECTION 40(A)(I), WHICH USES THE WORDS OTHER SUM CHARGEABLE UNDER THIS ACT, IT WAS HELD THAT THE PAYMENT IS REQUIRED T O BE DISALLOWED WHILE COMPUTING THE INCOME. 2.3 THE AO ALSO RECORDED A NOTE IN RESPECT OF BOTH THE ITEMS THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME. ACCORDINGLY, PENALTY NOTICE U/S 271(1)(C) WAS ISSUED. ITA NO. 3246(DEL)/2011 4 2.4 THE PENALTY PROCEEDINGS WERE DISPOSED OFF ON 17.06.2010 BY LEVYING MINIMUM PENALTY OF RS. 24,94,596/-. THE SUBMISSIO N OF THE ASSESSEE IN REGARD TO DEDUCTION U/S 80G WAS THAT THE CLAIM WAS MADE INADVERTENTLY AND IT WAS A MISTAKE. THE DONATION AMOUNT OF RS. 50,98,500/- WAS NOT DEDUCTED FROM THE LOSS WHILE PREPARING THE ST ATEMENT OF INCOME. THE AO DID NOT ACCEPT THIS SUBMISSION. IT IS MENTION ED THAT THE ASSESSEE KNEW THAT IT WAS FILING A LOSS RETURN AND YET C LAIMED DEDUCTION U/S 80G. THIS ISSUE HAS ALSO NOT BEEN CONTESTED BEFORE TH E LD. CIT(APPEALS). THUS, IT WAS HELD THAT AT THE TIME OF FILING THE RETU RN, THE ASSESSEE WAS AWARE THAT IT WAS FURNISHING INACCURATE PARTICULARS OF INCOME. 2.5 IN REGARD TO PAYMENT OF COMMISSIONS, IT WAS S UBMITTED THAT IN THE OPINION OF THE ASSESSEE THE SAID AMOUNT IS NOT CHARGEABLE TO TAX AND, THEREFORE, TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE. HOWEVER, THE BASIS OF SUCH AN OPINION WAS NOT FILED. THE AO DID NOT ACCEPT THIS SUBMISSION ALSO. REFERRING TO THE DECISION IN T HE CASE OF TRANSMISSION CORPORATION OF ANDHRA PRADESH (SUPRA), IT HAS BEEN MENTIONED THAT IF THE OPINION WAS THAT THE FOREIGN AGENT WAS NOT LIABLE TO BE TAXED IN INDIA, THE ASSESSEE OR THE FOREIGN AGENT OUGHT TO HAVE OBTAI NED A CERTIFICATE TO THIS ITA NO. 3246(DEL)/2011 5 EFFECT U/S 195(2) FROM THE ASSESSING OFFICER. TH ERE IS NO BASIS ALSO FOR HOLDING SUCH AN OPINION. ACCORDINGLY, IT WAS HEL D THAT THE ASSESSEE HAS MADE ITSELF LIABLE FOR IMPOSITION OF PENALTY IN RESPECT OF COMMISSION ALSO. 2.6 IT WAS ALSO MENTIONED THAT IN VIEW OF THE DECISION IN THE CASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA TEXTIL E PROCESSORS & OTHERS, (2008) 306 ITR 277 (SC), IT WAS NOT INCUMBENT ON THE AO TO PROVE MENS REA ON THE PART OF THE ASSESSEE. THE EXPLA NATION OF THE ASSESSEE HAS NOT BEEN FOUND TO BE BONA FIDE. THEREFORE, THE PE NALTY WAS IMPOSED. 3. THE LEVY OF PENALTY WAS AGITATED BEFORE THE CI T(APPEALS)-XXI, NEW DELHI. HE DISPOSED OFF THE APPEAL ON 08.04 .2011 BY DISMISSING THE APPEAL. IN REGARD TO DEDUCTION U/S 80G, IT WAS SUBMITTED THAT THE AMOUNT OF DONATION SHOULD HAVE BEEN DISALLOWED IN THE ST ATEMENT OF INCOME WHILE COMPUTING THE GROSS TOTAL INCOME. THEREAFTER, D EDUCTION U/S 80G HAD TO BE CLAIMED FROM THE GROSS TOTAL INCOME. SINC E THIS WAS A LOSS, NO DEDUCTION IS ADMISSIBLE TO THE ASSESSEE. THIS F ACT ESCAPED THE ATTENTION OF THE OFFICIAL OF THE COMPANY WHO PREPARED THE STATEMENT OF ASSESSABLE INCOME BECAUSE THE SAME WAS PREPARED IN THE LAST WEEK OF SEPTEMBER, ITA NO. 3246(DEL)/2011 6 2005. NO ADVANTAGE ACCRUED TO THE ASSESSEE ON ACCOUNT OF FAILURE TO ADD BACK THE DONATIONS. THERE IS NO TAX EFFECT AS U LTIMATELY THE TOTAL INCOME WAS COMPUTED AT LOSS. THEREFORE, IT CAN BE A C ASE OF INCORRECT COMPUTATION OF INCOME BUT NO MALA FIDE IS INVOL VED. IN REGARD TO THE DISALLOWANCE OF COMMISSION, IT WAS SUBMITTED THAT SIMILAR PAYMENT HAS BEEN ALLOWED IN THE SUBSEQUENT YEAR ON THE REAS ONING THAT TAX WAS NOT REQUIRED TO BE DEDUCTED AT SOURCE FROM THE PAYM ENT. THEREFORE, PENALTY IS NOT LEVIABLE IN RESPECT OF THIS AMOUNT ALSO. 3.1 THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. IN SO FAR AS DEDUC TION U/S 80G IS CONCERNED, HE REFERRED TO THE DEFINITION OF THE TERMS GROSS TOTAL INCOME, DEFINED IN SECTION 80B(5) AS TOTAL INCOME COMPU TED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT BEFORE MAKING ANY DEDU CTION UNDER CHAPTER VIA. IN VIEW OF THIS PROVISION, IT IS HELD THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM ANY DEDUCTION U/S 80G FROM THE GROSS TOTAL INCOME AS IT IS A LOSS. THUS, THE DEDUCTION IS NOT PRIMA FACIE ALLO WABLE. FURTHER, THE AMOUNT WAS DEBITED UNDER THE HEAD OPERATING AND GENERAL EXPENSES. HE ALSO CONSIDERED THE CIRCUMSTANCES LEADING TO THE CLAIM OF COMMISSION EXPENDITURE. IT HAS BEEN HELD THAT THE CLAIM OF E XPENDITURE WAS RIGHTLY ITA NO. 3246(DEL)/2011 7 FOUND TO BE FALSE. THEREAFTER, HE CONSIDERED VA RIOUS DECIDED CASES AND HELD THAT THE CLAIM WAS NOT ONLY INADMISSIBLE BUT WAS FOUND TO BE FALSE ALSO. THEREFORE, THE LEVY OF PENALTY WAS UPHELD. 4. BEFORE US, THE LD. COUNSEL REFERRED TO THE BAC KGROUND FACTS IN BRIEF. IT IS SUBMITTED THAT THE RETURN OF INCOME WAS FIL ED ON 31.10.2005 DECLARING LOSS OF ABOUT RS. 12.28 CRORE. HOWEVER, THE TAX WAS PAID U/S 115JB AT ABOUT RS. 1.12 CRORE ON ADJUSTED BOOK PROFIT O F ABOUT RS. 14.32 CRORE. THE AO ASSESSED THE LOSS AT ABOUT RS. 10.61 CRORE AGAINST THE RETURNED LOSS OF ABOUT RS. 12.28 CRORE. WHILE DOING SO, HE INTER-ALIA DISALLOWED DEDUCTION U/S 80G AND COMMISSION PAID TO A FOREIGN AGENT. 4.1 COMING TO DEDUCTION U/S 80G, IT IS SUBMITTE D THAT THE SAME HAS BEEN RIGHTLY DISALLOWED AS GROSS TOTAL INCOME R ESULTED IN LOSS. HOWEVER, THE DONATION IS NOT TO BE DISALLOWED WHILE COMP UTING ADJUSTED BOOK PROFIT U/S 115JB. THIS BECOMES IMPORTANT BECAUS E THE ASSESSEE HAS PAID TAX UNDER THIS PROVISION. OUR ATTENTION HAS BEE N DRAWN TO PAGE NO. 9 OF THE PAPER BOOK, WHICH CONTAINS THE DETAILS OF OPERA TING AND GENERAL EXPENSES IN SCHEDULE-XVII, WHICH SHOWS THAT AN AMOUNT OF R S. 50,98,500/- IS DEBITED AS DONATION. FURTHER, OUR ATTENTION IS DRAWN TO PAGE NO. 128 OF THE ITA NO. 3246(DEL)/2011 8 PAPER BOOK, WHICH IS A PART OF THE AUDIT REPORT IN FORM NO. 3CD. ITEM NO. 17 OF THE REPORT DEALS WITH EXPENDITURE OF CAPI TAL NATURE, PERSONAL NATURE OR ADVERTISEMENT ETC. THE REPORT SHOWS THE EX PENDITURE UNDER ALL THESE HEADS AT NIL. THE CASE OF THE LD. COUNSEL ON THE BASIS OF THIS REPORT IS THAT EVEN THE AUDITOR FAILED TO MENTION THE AMOUNT OF DONATION PAID BY THE ASSESSEE IN THIS COLUMN. OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS PAGE NO. 132, WHICH IS AGAIN A PART OF THE AUDIT R EPORT. ITEM NO. 26 IS REGARDING SECTION-WISE DETAILS OF DEDUCTION ADMIS SIBLE, IF ANY, UNDER CHAPTER VIA. THE AMOUNT HAS BEEN SHOWN AT NIL. ON THE BASIS OF THIS ENTRY, IT HAS BEEN ARGUED THAT THE AUDITORS DID NOT POINT OUT THAT THE AMOUNT OF DONATION HAD TO BE DISALLOWED AND THERE AFTER NO DEDUCTION WAS ADMISSIBLE U/S 80G. THE RETURN OF INCOME WAS PRE PARED ON THE BASIS OF AUDIT REPORT. SINCE THE REPORT DID NOT SHOW ANY INADMISSIBLE ITEM OF EXPENDITURE AND IT ALSO ESCAPED THE ATTENTION OF THE OFFICIAL OF THE ASSESSEE- COMPANY, REQUISITE ADJUSTMENT WAS NOT MADE ON THI S GROUND. IT IS ARGUED THAT NO LOSS HAS OCCURRED TO THE REVENUE AND THER E WAS NO INTENTION TO EVADE PAYMENT OF TAX. THE MISTAKE OCCURRED DUE T O OVERSIGHT. THEREFORE, IT IS ARGUED THAT PENALTY IS NOT LEVI ABLE IN RESPECT OF THIS CLAIM. ITA NO. 3246(DEL)/2011 9 4.2 COMING TO THE DISALLOWANCE U/S 40(A)(I), IT I S MENTIONED THAT THE AMOUNT WAS DISALLOWED ON THE GROUND THAT TAX HAS NOT BEEN DEDUCTED AT SOURCE. THIS FINDING HAS BEEN CONFIRMED BY THE LD . CIT(APPEALS). HOWEVER, SIMILAR ISSUE AROSE IN ASSESSMENT YEAR 2006-07. THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF A.B. HOTEL LTD. (RADISSON HOTEL) VS. DEPUTY COMMISSIONER OF INCOME-TAX (2008) 25 SOT 368 (DEL), DECIDED BY F BENCH OF DELHI TRIBUNAL. IT HAS BEEN HEL D THAT THERE WOULD BE NO REQUIREMENT TO DEDUCT TAX AT SOURCE IN RESPECT OF THE SUM PAID TO A NON- RESIDENT PERSON IF SUCH AMOUNT IS NOT CHARGEABLE UNDER THE ACT. THE ASSESSEE HAD PAID COMMISSION TO NON-RESIDENT AG ENTS, WHO DID NOT HAVE PERMANENT ESTABLISHMENT (PE) IN INDIA FOR BOOKI NG HOTELS FOR ITS CUSTOMERS OUTSIDE INDIA. THIS AMOUNT WAS HELD T O BE NOT TAXABLE IN INDIA AND, THEREFORE, THERE WAS NO REQUIREMENT FOR DEDU CTION OF TAX AT SOURCE FROM THE SUM PAID BY THE ASSESSEE TO THE NON-RESI DENT AGENT. REFERRING TO THE FINDING OF THE LD. CIT(APPEALS) ON THIS ISSUE IN THE QUANTUM APPEAL, IT IS SUBMITTED THAT HE RELIED ON HIS ORDER FOR ASSE SSMENT YEAR 2004-05 AND CONFIRMED THE DISALLOWANCE. HIS DECISION IS IN C ONFLICT WITH THE DECISION IN THE CASE OF A.B. HOTEL LTD. (SUPRA). ITA NO. 3246(DEL)/2011 10 4.3 THE CASE OF THE LD. COUNSEL IS THAT THE ASSE SSEE HAD DISCLOSED ALL THE FACTS IN RESPECT OF BOTH THE MATTERS. THEREFORE, MERE DISALLOWANCE OF THE AMOUNT CANNOT LEAD TO THE INFERENCE OF FURNISHING INACCURATE PARTICULARS OF INCOME. 4.4 BEFORE PROCEEDING WITH THE SUBMISSIONS OF THE LD. CIT, DR, IT MAY BE MENTIONED THAT APPEAL IN THE CASE OF THE ASS ESSEE FOR ASSESSMENT YEAR 2006-07 BEARING ITA NO. 3030(DEL)/2010 WAS DECIDE D BY H BENCH OF DELHI TRIBUNAL ON 17.09.2010. IN THIS APPEAL, THE FINDING OF THE LD. CIT(APPEALS) THAT COMMISSION PAID TO FOREIGN AGEN T CANNOT BE DISALLOWED U/S 40(A)(I) WAS UPHELD. FOR READY REFERENCE, PA RAGRAPH NOS. 5 AND 6 OF THE DECISION IS REPRODUCED BELOW:- 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT ASSESSEE HAS PAID COMMISSION AND BROKERAGE TO THE N ON-RESIDENT TRAVEL AGENTS OUTSIDE INDIA IN RESPECT OF SERVICES RENDERED OUTSIDE INDIA. AS NO TAX WAS DEDUCTED AT SOURCE ON SUCH PAYMENT, BY INVOKING PROVISIONS OF SECTION 40(A)(I) , THE AO DISALLOWED THE DEDUCTION. AS PER OUR CONSIDERED VIE W, UNDER THE PROVISIONS OF SECTION 195 TAX HAS TO BE DEDUCTE D AT SOURCE FROM ANY PAYMENT MADE TO NON-RESIDENT WHICH IS CHAR GEABLE TO TAX UNDER THIS ACT. IF NO SUCH TAX HAS BEEN DEDUCTE D BY THE ASSESSEE, AN EXEMPTION CERTIFICATE U/S 195(2) IS RE QUIRED TO BE OBTAINED, ONLY IF PROVISIONS OF SECTION 195(1) ARE APPLICABLE. UNDER SECTION 40(A)(I), THE PAYMENT OF ANY AMOUNT T O A NON- ITA NO. 3246(DEL)/2011 11 RESIDENT ON WHICH TAX IS DEDUCTED AT SOURCE UNDER C HAPTER XVII-B WILL NOT BE ALLOWED AS DEDUCTION/EXPENDITURE IF TAX HAS NOT BEEN PAID OR DEDUCTED THEREON. ON COMBINED READ ING OF PROVISIONS OF SECTION 195 AND 40(A)(I), IF THE SUM IN QUESTION PAID TO NON-RESIDENT IS NOT CHARGEABLE TO TAX IN IN DIA UNDER THE IT ACT, THERE WOULD BE NO REQUIREMENT TO DEDUCT TAX AT SOURCE IN RESPECT OF SUCH PAYMENTS AND PROVISIONS OF SECTION 40(A)(I) AND 195 WOULD NOT BE APPLICABLE TO SUCH PAYMENTS AND NO DISALLOWANCE CAN BE MADE IN RESPECT OF THE SAME. IN THE INSTANT CASE BEFORE US, THE AMOUNT OF RS.24.86 LAKHS WAS PA ID TO OVERSEAS AGENTS WHO HAVE ACCEPTED BOOKING FROM CLIENTS/CUSTOMERS AT A PLACE OUTSIDE INDIA. THE SER VICES HAVE BEEN PROVIDED BY NON-RESIDENT COMMISSION AGENTS TO THE ASSESSEE ONLY OUTSIDE INDIA. THESE AGENTS WERE NOT HAVING BUSINESS CONNECTION IN INDIA NOR ANY PERMANENT ESTA BLISHMENT IN INDIA. THESE AGENTS WERE RENDERING SERVICES OUTS IDE INDIA AND PAYMENT WAS ALSO MADE IN FOREIGN CURRENCY OUTSIDE I NDIA. THUS, NO INCOME ACCRUES OR ARISES OR DEEMED TO ARISE TO N ON-AGENTS IN INDIA, INSOFAR AS SERVICES WERE RENDERED BY THE AGE NTS OUTSIDE INDIA. THUS, THE COMMISSION PAID TO THESE AGENTS WA S NOT CHARGEABLE TO TAX IN INDIA AND NO TDS WAS REQUIRED TO BE DEDUCTED ON THE SAID PAYMENT U/S 195. SINCE NO TAX WAS REQUIRED TO BE DEDUCTED ON THE SAID PAYMENT UNDER C HAPTER XVII-B, NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THERE IS NO FINDING BY THE AO WITH REGARD TO TAXABILITY OF SUCH COMMISSION IN INDIA. ITAT DELHI BENCH IN THE CASE OF A.B.HOTELS (SUPRA) IN IDENTICAL FACTS HELD THAT COMMISSION PAID BY THE ASSESSEE TO NON-RESIDENT AGENTS FOR BOOKING HOTELS FOR ITS CUSTOMERS OUTSIDE INDIA, COULD NOT BE REGARDED AS INCOME ACCRUED OR ARISE IN INDIA AS NON- RESIDENT AGENTS HAVE NO PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA, HENCE NOT LIABLE TO DEDUCTION AT SOURCE IN INDIA AND CONSEQUENTLY NO DISALLOWANCE U/S 40(A)(I) CAN BE MADE. RECENTLY, HON'BLE DELHI HIGH COURT IN THE CAS E OF VAN OORD ACZ INDIA (SUPRA) HELD THAT OBLIGATION TO DEDU CT TAX AT SOURCE U/S 195 ARISES ONLY WHEN THE PAYMENT IS CHAR GEABLE TO TAX IN INDIA. IN THIS CASE, INDIAN COMPANY REMITTED MOBILIZATION CHARGES TO ITS PARENT COMPANY BASED IN NETHERLANDS. AS NO TAX WAS DEDUCTED U/S 195, THE AO DISALLOWED THE SAME U/ S 40(A)(I). IT WAS HELD BY CIT(A) THAT ASSESSEE WAS DUTY BOUND TO DEDUCT ITA NO. 3246(DEL)/2011 12 TAX U/S 195(1) AND COULD NOT ESCAPE LIABILITY WITHO UT OBTAINING A CERTIFICATE U/S 195(2). ON A FURTHER APPEAL, HONBL E HIGH COURT HELD THAT TAX AT SOURCE IS TO BE DEDUCTED FROM THE SUM CHARGEABLE UNDER PROVISIONS OF THE ACT. THUS, OBLIG ATION TO DEDUCT TAX AT SOURCE IS ATTRACTED ONLY WHEN THE PAY MENT IS CHARGEABLE TO TAX IN INDIA. SINCE THE ALLEGED PAYME NT WAS NOT CHARGEABLE TO TAX IN INDIA, THERE WAS NO OBLIGATION TO DEDUCT ANY TAX THEREON, ACCORDINGLY NO DISALLOWANCE CAN BE MAD E U/S 40(A)(I). RECENTLY, HON'BLE SUPREME COURT IN THE CA SE OF G.E.INDIA TECHNOLOGY CENTRE HELD THAT SECTION 195(1 ) USES THE EXPRESSION SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT, THIS MEANS THAT PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON-RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SU M IS NOT CHARGEABLE TO TAX. IT WAS FURTHER OBSERVED THAT SEC TION 195(1) USES THE WORD PAYER AND NOT THE WORD ASSESSEE. THE PAYER IS NOT THE ASSESSEE. THE PAYER BECOMES AN ASSESSEE IN DEFAULT ONLY WHEN HE FAILS TO FULFILL THE STATUTORY OBLIGAT ION U/S 195(1). IF THE PAYMENT DOES NOT CONTAIN THE ELEMENT OF INCO ME THE PAYER CANNOT BE MADE LIABLE. HE CANNOT BE DECLARED TO BE AN ASSESSEE IN DEFAULT. THE PROVISIONS OF SECTION 195( 2) WERE HELD TO BE APPLICABLE WHERE THE PAYER IS IN NO DOUBT THA T TAX IS PAYABLE IN RESPECT OF SOME PART OF THE REMITTANCE B UT IS NOT SURE AS TO WHAT IS THE TAXABLE PORTION. IN THAT SITUATIO N, HE IS REQUIRED TO MAKE AN APPLICATION TO THE ITO(TDS) FOR DETERMIN ING THE AMOUNT. SECTION 195(2) AND 195(3) ARE SAFEGUARDS AN D NOT OF PRACTICAL IMPORTANCE. IT WAS CATEGORICALLY OBSERVED BY THE HON'BLE SUPREME COURT THAT DEPARTMENTS APPREHENSIO N THAT IF TAX IS NOT DEDUCTED ON ALL PAYMENTS, THERE WILL BE SEEPAGE OF REVENUE, IS ILL-FOUNDED BECAUSE THERE ARE ADEQUATE SAFEGUARDS IN THE ACT TO PREVENT THE PAYER FROM WRONGLY NOT DED UCTING TAX AT SOURCE SUCH AS SECTION 40(A)(I) WHICH DISALLOWED DE DUCTION FOR THE EXPENDITURE. 6. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF CIT(A) FOR DELETING DISALLOWANCE MADE BY T HE AO U/S 40(A)(I) OF THE ACT. ITA NO. 3246(DEL)/2011 13 5. IN REPLY, THE LD. CIT, DR SUBMITTED THAT THE BOOKS OF ACCOUNT AND ANNUAL ACCOUNTS DRAWN ON THE BASIS THEREOF, WHIC H INCLUDE PROFIT AND LOSS ACCOUNT, ARE THE PRIMARY DOCUMENTS. THE AUDIT RE PORT CAN BE TAKEN ONLY AS A SECONDARY EVIDENCE. THE ASSESSEE HAD SHOWN LOSS OF ABOUT RS. 12.27 CRORE, IN WHICH DEDUCTION OF DONATION AT A BIG A MOUNT OF RS. 50,98,500/- WAS CLAIMED. THE DISALLOWANCE COULD BE MADE ONLY B ECAUSE THE RETURN WAS SCRUTINIZED. IF NOTICE U/S 143(2) FOR SCRUTINY ASSESSMENT HAD NOT BEEN ISSUED, THE ISSUE WOULD NOT HAVE SEEN THE LIGH T OF THE DAY. THE CLAIM IS PRIMA FACIE FALSE. THE FACT THAT THE RETURN WA S FILED ON THE LAST DAY IS NOT RELEVANT AND CANNOT BE TAKEN AS A GROUND TO HOLD THAT THE EXPLANATION OF THE ASSESSEE IS BONA FIDE. THEREFORE, IT IS A RGUED THAT SINCE THE CLAIM WAS PRIMA FACIE FALSE AND THE EXPLANATION CANNOT B E TAKEN TO BE BONA FIDE, THE LD. CIT(APPEALS) RIGHTLY UPHELD THE LEVY OF PENALTY ON THIS GROUND. IN RESPECT OF DEDUCTION OF COMMISSION, IT IS SUBM ITTED THAT THE PROVISIONS CONTAINED IN SECTION 195 HAVE BEEN HELD TO BE AP PLICABLE. THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE AND, THEREFORE, TH E PROVISION CONTAINED IN SECTION 40(A)(I) COMES INTO OPERATION. THE LD. CIT(APPEALS) HAS ALSO CONFIRMED THE DISALLOWANCE. NO APPEAL HAS BEEN FI LED AGAINST THE ORDER OF THE LD. CIT(APPEALS). THUS, THE DISALLOWANCE HA S BECOME FINAL. THIS ITA NO. 3246(DEL)/2011 14 CLAIM IS ALSO FALSE AS IT IS IN VIOLATION OF THE STATUTORY PROVISION CONTAINED IN SECTION 40(A)(I). THEREFORE, THE LD. CIT(APPE ALS) RIGHTLY CONFIRMED THE LEVY OF PENALTY IN RESPECT OF THIS AMOUNT ALSO. 6. IN THE REJOINDER, THE LD. COUNSEL REFERRED TO T HE PROVISIONS OF UTELL SERVICES AGREEMENT DATED 11.03.2003 ENTERED INTO BETWEEN UTELL LTD., REGISTERED IN ENGLAND AND THE ASSESSEE, INCORPO RATED IN INDIA. ON THE BASIS OF THE AGREEMENT, IT IS SUBMITTED THAT THE SERVICES WERE RENDERED OUT SIDE INDIA. THE ASSESSEE ALSO REMITTED THE COMMIS SION TO THE AGENT OUTSIDE INDIA. THE AGENT HAS NO FIXED PLACE OF BUSINES S IN INDIA. THE INCOME EARNED BY THE AGENT IS IN THE NATURE OF BUSINESS INCOME. IN ABSENCE OF THE EXISTENCE OF PE, IT IS NOT LIABLE TO TAX IN IND IA IN THE HANDS OF THE FOREIGN AGENT. THUS, THERE IS NO REQUIREMENT OF TAX DEDU CTION AT SOURCE AS HELD BY THE TRIBUNAL IN ITS OWN CASE IN APPEAL FOR ASSESS MENT YEAR 2006-07. THUS, PENALTY IS NOT LEVIABLE ON THIS ISSUE. 7. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS IN REGARD TO DEDUCTION U /S 80G ARE THAT THE ASSESSEE DEBITED TO THE PROFIT AND LOSS ACCOUNT A SUM OF RS. 50,98,500/- AS DONATIONS BY CLUBBING THIS EXPENDITURE WITH OTHER EXPENSES SUCH AS REPAIRS ITA NO. 3246(DEL)/2011 15 AND MAINTENANCE, RENT, RATES AND TAXES, ADVERTISEM ENT AND PUBLICITY ETC. UNDER THE HEAD OPERATING AND GENERAL EXPENSES. THE EXPENSES ARE DETAILED IN SCHEDULE XVII OF THE ANNUAL ACCOUNTS. THE SCHEDULE SHOWS THAT NO DONATION WAS MADE IN LAST YEAR. THE AUDITORS , WHILE PREPARING REPORT IN FORM NO. 3CB DID NOT SHOW THE EXPENDITURE T O BE CAPITAL, PERSONAL OR ADVERTISEMENT ETC. EXPENDITURE. THE DEDUCTION U NDER CHAPTER VIA WAS ALSO SHOWN AT NIL. IN THE STATEMENT OF INCOME, THE DONATION WAS NOT DEDUCTED FROM THE LOSS AND, THUS, CLAIM WAS MADE F OR DEDUCTION OF THE EXPENDITURE AS IF IT WAS BUSINESS EXPENDITURE. IN OTHER WORDS, THE CLAIM WAS MADE U/S 37(1). THE QUESTION IS-WHETHER, T HE ASSESSEE IS LIABLE TO BE PENALIZED FOR MAKING THE AFORESAID CLAIM? 7.1 THE SUBMISSIONS OF THE ASSESSEE ARE THAT NO SUCH EXPENDITURE WAS INCURRED IN THE IMMEDIATELY PRECEDING YEAR. THE RETURN WAS FILED ON 31.10.2005, THE LAST DATE OF FILING THE RETURN. D UE TO PAUCITY OF TIME, AN INADVERTENT MISTAKE WAS MADE AS THE AMOUNT WAS N OT DEDUCTED FROM THE LOSS WHILE COMPUTING THE TAXABLE INCOME. THE CON TRIBUTORY FACTOR WAS THAT EVEN AUDITORS HAD NOT MADE APPROPRIATE REMARKS I N RESPECT OF THIS EXPENDITURE AND THE DEDUCTION IN THE AUDIT REPO RT. THUS, IT IS A CASE OF A CLAIM IN RESPECT OF WHICH ALL FACTS HAVE BEEN DISC LOSED IN THE RETURN OF ITA NO. 3246(DEL)/2011 16 INCOME AND ACCOMPANYING DOCUMENTS. THE CLAIM MAY B E INCORRECT BUT IT IS NOT FALSE. THEREFORE, PENALTY CANNOT BE LEVI ED ON THE ASSESSEE. ON THE OTHER HAND, THE CASE OF THE LD. CIT, DR IS THAT FILING OF RETURN ON 31.10.2005, THE LAST DATE U/S 139(1), IS NOT MAT ERIAL AS THE ASSESSEE COULD HAVE TAKEN STEPS TO GET THE ACCOUNTS AUDITED U /S 44AB AND FILE THE RETURN MUCH PRIOR TO THAT AND AFTER TAKING DUE CARE WH ETHER VARIOUS CLAIMS MADE WERE ADMISSIBLE OR NOT. THE EXPENDITURE IS PRIMA FACIE INADMISSIBLE. THE CLAIM OF INADVERTENCE HAS NOT BEEN SHOWN PROPERLY IN AS MUCH AS THE NAME OF THE OFFICIAL OF THE COMPANY, WHO PREPARED THE S TATEMENT OF INCOME, HAS NOT BEEN DISCLOSED. ANY OMISSION ETC. MADE BY TH E AUDITOR CANNOT GENERALLY BE TAKEN AS A DEFENCE IN TAX PROCEED INGS BECAUSE ULTIMATELY THE ASSESSEE IS LIABLE FOR CONSEQUENCES OF THE CLAIM MADE IN THE RETURN. THUS, IT IS A CASE OF FALSE CLAIM AND NOT MERELY INCO RRECT CLAIM. 7.2 THE FACTS IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. (2010) 189 TAXMAN 322 (SC) ARE THAT ADDITION WAS MADE TO THE INCOME RETURNED BY THE ASSESSEE IN RESPECT OF INTEREST EXPENDITURE. THE INTEREST WAS PAID ON VARIOUS LOANS TAKEN BY THE ASSESSEE FROM WHICH IT PURCHASED IPL SHARES BY WAY OF BUSINESS POLICIES. NO DI VIDEND INCOME WAS EARNED ON THESE SHARES. THE ASSESSEE DISALLOWED THE EXPENDITURE OF RS. ITA NO. 3246(DEL)/2011 17 28,77,242/- U/S 14A. THE HONBLE COURT MENTIONED THAT IT IS NOT CONCERNED WITH MENS REA. IT HAS ONLY TO SEE W HETHER THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME. THE W ORD INACCURATE HAS BEEN DEFINED IN WEBSTERS DICTIONARY AS NOT AC CURATE, NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS; AS AN INACCURATE STATEMENT, COPY OR TRANSCRIPT. THE WORD PARTICULAR AS PER L AW LAXICON MEANS A DETAIL OR DETAILS; THE DETAILS OF A CLAIM, OR THE SEP ARATE ITEMS OF AN ACCOUNT. THEREFORE, UNDER SECTION 271(1)(C), THIS WORD WO ULD EMBRACE THE MEANING OF THE DETAILS OF THE CLAIM MADE. THE A DMITTED POSITION IS THAT NO INFORMATION GIVEN IN THE RETURN WAS FOUND TO BE IN CORRECT OR INACCURATE. THEREFORE, THE ASSESSEE CANNOT BE HELD GUILTY O F FURNISHING INACCURATE PARTICULARS ON A PRIMA FACIE BASIS. THE WORD IS P LAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE C ASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY CANNOT BE INVOKED. I T IS FURTHER MENTIONED THAT THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE WERE FOUND TO BE INCORRECT, ERRONEOUS OR FALSE. SUCH NOT BEIN G THE CASE, THERE WOULD BE NO QUESTION OF INVITING PENALTY U/S 271(1)(C). ME RE MAKING A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME. IT HAS BEEN SUGGESTED BY THE REVENUE THAT THE ASSESSEE MADE EXCESSIVE CLAIM OF DEDUCTION KNOWING THAT ITA NO. 3246(DEL)/2011 18 IT WAS INCORRECT. THE FALSEHOOD IN THE ACCOUNT CAN TAKE TWO FORMS; (I) AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY; ( II) AN ITEM OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIM ED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME. THEREFORE, B OTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF INCOME. THIS LINE OF ARGUMENT DID NOT FIND FAVOUR WITH THE HONBLE COURT. IT IS MENTIONED TH AT ASSESSEE HAD FURNISHED ALL DETAILS OF EXPENDITURE. THEY WERE NOT FOUND T O BE INACCURATE NOR COULD BE VIEWED AS CONCEALMENT OF INCOME. THEREFORE, IT WAS FOR THE AUTHORITY TO ACCEPT THE CLAIM OR REJECT IT. THE REJECTION WOULD NOT LEAD TO LEVY OF PENALTY UNDER THIS SECTION. 7.3 THE LD. CIT, DR DISTINGUISHED THE FACTS OF THE AFORESAID CASE AND RELIED ON THE DECISION IN THE CASE OF CIT VS. ZO OM COMMUNICATIONS LTD., (2010) 327 ITR 510 (DEL). THE HONBLE COURT CON SIDERED THE DECISION IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD. (SUP RA). IN PARAGRAPH NO. 16, IT IS MENTIONED THAT THE PROPOSITION OF LAW WHIC H EMERGES FROM THIS CASE, WHEN CONSIDERED IN THE BACKDROP OF THE FACTS OF THE CASE BEFORE THE COURT, IS THAT SO LONG AS THE ASSESSEE HAS NOT CONCEAL ED ANY MATERIAL FACT OR FACTUAL INFORMATION GIVEN BY HIM HAS NOT BEEN FOU ND TO BE INCORRECT, HE WILL NOT BE LIABLE TO IMPOSITION OF PENALTY, EVEN IF T HE CLAIM MADE BY HIM IS ITA NO. 3246(DEL)/2011 19 UNSUSTAINABLE IN LAW, PROVIDED THAT HE EITHER S UBSTANTIATES THE EXPLANATION OFFERED BY HIM OR THE EXPLANATION, EVEN IF NOT S UBSTANTIATED, IS FOUND TO BE BONA FIDE. IF THE EXPLANATION IS NEITHER SUBSTAN TIATED NOR SHOWN TO BE BONA FIDE, EXPLANATION-1 TO SECTION 271(1)(C) WOULD COME INTO PLAY AND THE ASSESSEE WILL BE LIABLE TO IMPOSITION OF PENALTY. IT IS FURTHER MENTIONED THAT MERE SUBMITTING A CLAIM WHICH IS INCORRECT IN LAW , WOULD NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME, BUT IT CANNOT BE DISPUTED THAT THE CLAIM MADE BY THE ASSESSEE NEEDS TO BE BONA FIDE. THE ASSESSEE DID NOT EXPLAIN TO THE INCOME-TAX AUTHORITIES OR TO T HE TRIBUNAL CIRCUMSTANCES IN WHICH THE MISTAKE TOOK PLACE. IT CANNOT BE LOS T SIGHT OF THAT THE ASSESSEE IS A COMPANY WHICH IS BEING ASSISTED BY TAX PROFESSIONAL AND ITS ACCOUNTS ARE SUBJECT TO AUDIT. IN ABSENCE OF ANY DETAIL, IT CANNOT BE APPRECIATED HOW THE DEDUCTION IN RESPECT OF INCOME -TAX AND LOSS ON SALE OF UNUSABLE ASSETS COULD HAVE BEEN LEFT OUT WHILE COM PUTING THE INCOME. THE EXPLANATION WAS NOT ACCEPTED EITHER BY THE AO OR T HE CIT(APPEALS). THE TRIBUNAL HAS NOT RECORDED A FINDING THAT THE CLAIM IN RESPECT OF LOSS ON ACCOUNT OF UNUSABLE ASSETS WAS SUBSTANTIATED OR T HE EXPLANATION WAS BONA FIDE. IN RESPECT OF INCOME-TAX, THE TRIBUNAL FELT THAT NO PERSON WOULD CLAIM THE DEDUCTION FOR THE SAME FOR EVADING PAY MENT OF TAX, THEREFORE, THE CLAIM WAS NOT MALA FIDE. HOWEVER, IT WAS NO T EXPLAINED BEFORE THE ITA NO. 3246(DEL)/2011 20 LOWER AUTHORITIES AS TO WHO COMMITTED THE OVERSIG HT AND DID NOT EXPLAIN THE CIRCUMSTANCES IN WHICH THE OVERSIGHT TOOK PLA CE. IN ABSENCE THEREOF, NO SUCH VIEW COULD REASONABLY BE TAKEN AS THE GEN ERAL PROPOSITION THAT NO PERSON WOULD EVER CLAIM DEDUCTION OF INCOME-TAX WITH A VIEW TO AVOID PAYMENT OF TAX. ACCORDINGLY, THE LEVY OF PENALTY HAS BEEN SUSTAINED BY REVERSING THE ORDER OF THE TRIBUNAL. 7.4 COMING TO THE FACTS OF OUR CASE, THE ASSE SSEE HAS MADE AN ORAL SUBMISSION THAT THE OFFICIAL OF THE COMPANY WHO PRE PARED THE STATEMENT OF INCOME DID NOT DISALLOW THE AMOUNT INVOLVED IN D ONATIONS GIVEN BY THE ASSESSEE. THE NAME OF THE OFFICIAL HAS NOT BEEN F URNISHED. HIS AFFIDAVIT HAS ALSO NOT BEEN FURNISHED. THEREFORE, IT CAN BE VERY WELL SAID THAT THE EXPLANATION HAS NOT BEEN SUBSTANTIATED. IT IS OBV IOUS THAT MERELY AN ORAL STATEMENT UNSUPPORTED BY THE AFFIDAVIT AND EVEN WITHOUT DISCLOSING THE NAME OF THE OFFICIAL CANNOT BE TAKEN TO BE BONA F IDE. THE AMOUNT OF DONATION IS QUITE LARGE. AT THE VERY FIRST INSTANC E, THIS AMOUNT HAD TO BE DEDUCTED FROM THE LOSS COMPUTED IN PROFIT AND LOS S ACCOUNT. THE OMISSION IS, IN FACT, A VERY SERIOUS LAPSE FOR WH ICH THE COMPANY OUGHT TO HAVE HELD SOME BODY RESPONSIBLE. NO SUCH ACTION HAS BEEN TAKEN. THEREFORE, IT IS HELD THAT THIS PART OF THE EXPLAN ATION IS NEITHER SUBSTANTIATED ITA NO. 3246(DEL)/2011 21 NOR THE SAME IS ALSO NOT BONA FIDE. THE OTHER EXPLANATION IS THAT TAX AUDIT REPORT DID NOT SHOW THE EXPENDITURE TO BE P ERSONAL, CAPITAL OR ADVERTISEMENT ETC. EXPENDITURE. THE REPORT ALSO SHOWED DEDUCTION UNDER CHAPTER VIA AT NIL. IT IS CLAIMED THAT THE STAT EMENT OF INCOME WAS PREPARED ON THE BASIS OF AUDIT REPORT. SINCE RELEVANT DE TAILS WERE NOT FILLED IN THE REPORT, ERROR TOOK PLACE IN COMPUTING THE TOTAL I NCOME. IN RESPECT OF THIS EXPLANATION ALSO, THE ASSESSEE HAS NOT BROUGHT A NY EVIDENCE ON RECORD TO SHOW THAT THE RESPONSIBILITY WAS SOUGHT TO BE FI XED ON THE AUDITOR. AT THE SAME TIME, A DONATION IS NOT PERSONAL, EXPENDITU RE IN THE CASE OF A COMPANY CAPITAL EXPENDITURE, OR THE ADVERTISEMENT ETC. EXPENDITURE. FURTHER DEDUCTION U/S 80G HAS BEEN CORRECTLY SHOW N AT NIL. FURTHER, IT IS NO WHERE SHOWN THAT ADEQUATELY REASONABLE EXP LANATION WAS FURNISHED TO THE AUDITOR TO POINT OUT WHETHER THE DONATION S WERE EX-GRATIS PAYMENT OR IN FURTHERANCE OF THE BUSINESS. THEREFORE, T HIS EXPLANATION IS ALSO NOT SUBSTANTIATED. AS THERE IS NO EVIDENCE OF FURNI SHING ADEQUATE EXPLANATION TO THE AUDITORS, IT CAN ALSO BE CONC LUDED THAT THE EXPLANATION NOW TENDERED IS BONA FIDE. 7.5 IT HAS ALSO BEEN EXPLAINED THAT THE RETURN OF INCOME WAS FILED ON 31.10.2005, BEING THE LAST DATE OF FILING THE RETUR N U/S 139(1). IN HURRY, THE ITA NO. 3246(DEL)/2011 22 ISSUE WAS LOST SIGHT OF. WE ARE UNABLE TO ACC EPT THIS AS A BONA FIDE EXPLANATION FOR THE REASON THAT BETWEEN 1 ST APRIL, 2005 TO 31 ST OCTOBER, 2005, THE ASSESSEE HAD SUFFICIENT TIME TO GET T HE BOOKS AUDITED AND PREPARE STATEMENT OF INCOME IN ACCORDANCE WITH LAW. THE LAXITY ON THE PART OF THE ASSESSEE CANNOT BE MADE A GROUND OF DEFEN SE AND, THEREFORE, THIS EXPLANATION IS ALSO NOT BONA FIDE. 7.6 FINALLY, IT HAS BEEN SUBMITTED THAT BOTH THE R ETURNED AND ASSESSED INCOMES ARE LOSSES. THUS, THERE WAS NO INTENTI ON TO EVADE PAYMENT OF TAX. IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA),. THE HONBLE COURT REFERRED TO ITS OWN DECISION IN THE CAS E OF DHARMENDRA TEXTILE PROCESSORS & OTHERS, (2008) 306 ITR 277. IT H AS BEEN MENTIONED THAT THE DECISION IN THE CASE OF DILIP N. SHROFF VS. JOINT COMMISSIONER OF INCOME-TAX & ANOTHER (2007) 6 SCC 329 WAS OVERRUL ED TO THE EXTENT THAT MENS REA IS NOT AN ESSENTIAL INGREDIENT FOR LEVY OF PENALTY, WHICH HAS TO BE DECIDED ON THE BASIS OF THE LANGUAGE OF THE PROVIS ION. THEREFORE, THE PLEA OF MENS REA CANNOT BE FORM A BASIS FOR DELETING TH E PENALTY. AT THE SAME TIME, IT MAY ALSO BE MENTIONED THAT EXPLANATION 4 TO SECTION 271(1)(C) DEFINES THE EXPRESSION THE AMOUNT OF TAX SOUGHT TO BE EVADED IN CASES WHERE THE DISALLOWANCE HAS THE EFFECT OF REDUC TION OF RETURNED LOSS IN ITS ITA NO. 3246(DEL)/2011 23 CONVERSION INTO PROFIT. THUS, A BLAND SUBMISSI ON THAT SINCE BOTH THE RETURNED AND ASSESSED INCOMES ARE LOSSES, THE P ENALTY IS NOT LEVIABLE, IF ACCEPTED, WOULD MAKE THE FORMER PART OF THIS PROVI SION OTIOSE. ONE OF THE CANONS OF CONSTRUCTION OF THE STATUTE IS THAT NO PART THEREOF SHOULD BE RENDERED OTIOSE BY JUDICIAL INTERPRETATION. ACC ORDINGLY, THIS EXPLANATION IS NOT ACCEPTABLE ON THE FACE OF IT AS A BONA FI DE EXPLANATION. 7.7 IN THE RESULT, IT IS HELD THAT THE ASSESSEE IS LIABLE TO PENALTY IN RESPECT OF THE AGGREGATE AMOUNT OF DONATION, NOT DISALLOWED IN COMPUTING THE TOTAL INCOME. 8. IN SO FAR AS THE ISSUE OF DISALLOWANCE OF COMM ISSION IS CONCERNED, WE HAVE ALREADY NOTED IN PARAGRAPH NO. 4.4 (SUPRA) THAT SIMILAR DISALLOWANCE HAS BEEN DELETED IN THE ASSESSMENT OF THE ASSES SEE FOR ASSESSMENT YEAR 2006-07. HOWEVER, THE ASSESSEE DID NOT PREFER AP PEAL IN THIS YEAR AND, THEREFORE, THE DISALLOWANCE IN THIS YEAR STANDS. FAILURE TO FILE APPEAL AND TO OBTAIN LEGITIMATE RELIEF CANNOT LEAD TO INF ERENCE OF PENALTY. IN OTHER WORDS, EVEN THOUGH THE PAYMENT OF COMMISSION HAS BEEN DISALLOWED IN THIS YEAR, THE FACT OF THE MATTER IS THAT THE ASS ESSEE COULD HAVE GOT THIS RELIEF BY FOLLOWING UP THE MATTER IN THE HIGHER APPELLATE FORUMS. IN SUCH ITA NO. 3246(DEL)/2011 24 A CASE, THE EXPLANATION OF THE ASSESSEE IS SUBST ANTIATED BY THE DECISION OF THE TRIBUNAL AND IS ALSO BONA FIDE AS IN LAW I T WAS ENTITLED TO THE RELIEF. ACCORDINGLY, IT IS HELD THAT NO PENALTY IS LEVIA BLE IN RESPECT OF THE DISALLOWANCE OF COMMISSION. 9. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. SD/- SD/- (U.B.S. BEDI) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER 23/12/2012. SP SATIA COPY OF THE ORDER FORWARDED TO:- M/S UNISON HOTELS LTD., NEW DELHI. DY. CIT, CIRCLE 18(1), NEW DELHI. CIT(A) CIT, THE D.R., ITAT, NEW DELHI. ASSISTANT REGISTRAR.