M/s. Pradeep Agencies Joint Venture, New Delhi V. ITO, New Delhi

ITA 3323/DEL/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5791 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 09-03-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 24-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAREON
• Assessee Lawyers: T R TALWAR
• Keywords: Business income; Maximum Marginal Rate; Bonafide belief; Question of law; Wrong claim
• Section: 143(3); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 3322 & 3323/DEL/2009 ASSESSMENT YEARS : 2003-04 & 2004-05 M/S PRADEEP AGENCIES JOINT VENTURE,3796, CHAWRI BAZAR, DELHI-6. PAN: AAAAP2552M VS. INCOME-TAX OFFICER, WARD-28(3), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T.R. TALWAR, ADVOCATE REVENUE BY : SMT. BANITA DEVI NAREON, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER: THESE APPEALS ARE FILED BY THE ASSESSEE. THEY ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE CIT (A) DATED 13 TH JULY, 2009 FOR ASSESSMENT YEARS 2003- 04 AND 2004-05. 2. THE GROUNDS OF APPEALS FOR BOTH THE YEARS READ A S UNDER:- A.Y. 2003-04 : ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED CIT(A) HAS ERRED:- 1. IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER U/S 271(1(C) WHICH IS ARBITRARY, ILLEGAL, UNJUSTIFIED AND BAD IN LAW. ITA NOS.3322 & 3323/DEL/09 2 2. IN CONFIRMING THE PENALTY OF RS.80,52,102 U/S 27 1(1(C) IMPOSED BY THE ASSESSING OFFICER WHEN THE INCOME OF THE JOINT VENTURE WAS DISTRIBUTED AMONGST THE MEMBERS O F THE AOP AS DEFINED IN THE DEED OF AGREEMENT AND RETURNE D BY THEM IN THEIR RESPECTIVE RETURNS OF INCOME. 3. IN CONFIRMING THE PENALTY IMPOSED BY THE ASSESSI NG OFFICER U/S 271(1)(C) WHEN THE ASSESSEE HAS NOT CONCEALED T HE PARTICULARS OF ITS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. A.Y. 2004-05 : ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED CIT(A) HAS ERRED:- 1. IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER U/S 271(1(C) WHICH IS ARBITRARY, ILLEGAL, UNJUSTIFIED AND BAD IN LAW. 2. IN CONFIRMING THE PENALTY OF RS.95,64,084 U/S 27 1(1(C) IMPOSED BY THE ASSESSING OFFICER WHEN THE INCOME OF THE JOINT VENTURE WAS DISTRIBUTED AMONGST THE MEMBERS O F THE AOP AS DEFINED IN THE DEED OF AGREEMENT AND RETURNE D BY THEM IN THEIR RESPECTIVE RETURNS OF INCOME. 3. IN CONFIRMING THE PENALTY IMPOSED BY THE ASSESSI NG OFFICER U/S 271(1)(C) WHEN THE ASSESSEE HAS NOT CONCEALED T HE PARTICULARS OF ITS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. 3. THE ASSESSEE IN THE PRESENT CASE IS AN AOP CONST ITUTED BY A JOINT VENTURE AGREEMENT ENTERED INTO BY FIVE DIFFERENT ENTITIES O N 30.3.2002. CONSTITUTION OF AO IS AS UNDER:- SL. NO. NAME OF MEMBER SHARE IN P&L OF JV 1. LAXMI TRADERS (REGD. FIRM) 25% 2. BIJAY PAPER TRADING CO. 25% (PROP. SHRI BIJAY KUMAR PASSI) 3. PRADEEP AGENCIES 25% (PROP. SHRI PRADEEP KUMAR PASSI) ITA NOS.3322 & 3323/DEL/09 3 4. BISWANATH INDUSTRIES LTD. 12.50% 5. BISHWANATH TRADERS & INVESTMENT LTD. 12.50% THE ABOVE ASSOCIATION WAS CONSTITUTED FOR CARRYING ON THE BUSINESS OF PROCURING ORDERS ON BEHALF OF M/S RELIANCE INDUSTRIES LTD. (R IL) FOR SUPPLY OF PURIFIED TEREPHTHALIC ACID TO M/S INDO RAMA SYNTHETICS INDI A LTD. DURING THE YEAR UNDER CONSIDERATION, THE AOP HAS EARNED COMMISSION OF RS. 2,40,61,937 AND AFTER MEETING THE EXPENSES, NET PROFIT AT RS.2,37,55,912/ - IS ARRIVED AT WHICH HAS BEEN APPORTIONED AMONGST MEMBERS OF THE JOINT VENTURE AC CORDING TO THEIR PROFIT SHARING RATIO. DURING THE YEAR UNDER CONSIDERATION , ALL THE MEMBERS OF THE AOP HAVE INCOME ABOVE THE EXEMPTION LIMITS. THE TAX AM OUNTING TO RS.13,63,810 WAS DEDUCTED AT SOURCE FROM THE PAYMENT OF SAID COM MISSION MADE TO THE ASSESSEE. A RETURN OF INCOME WAS FILED AT NIL ON 3 1.12.2003 AND REFUND HAS BEEN CLAIMED OF TDS. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE INCOME OF RS. 2,37,55,912 SHOULD NOT BE CHARGED TO TAX IN THE HANDS OF AOP BY APPLYING THE PROVISIONS OF SECTION 167B(2) OF THE INCOME-TAX ACT, 1961 (ACT). IT WAS SUBMITTE D THAT AOP HAD DISTRIBUTED THE PROFIT AMONGST ITS MEMBERS AS PER THEIR RESPECTIVE SHARES WHICH ARE DETERMINED AND DEFINED IN THE JOINT VENTURE AGREEMENT DATED 30 .3.2002 AND ALL OF THEM HAVE SHOWN THEIR SHARE AS INCOME UNDER THE PROVISIONS OF SECTION 67A OF THE ACT AND, THEREFORE, SECTION 167B(2) WAS NOT APPLICABLE. SUCH CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND AS THE SHARE OF EACH OF THE MEMBERS OF JOINT VENTURE AGREEMENT EXCEEDED THE MAXIMUM AMOUNT NOT C HARGEABLE TO TAX, MAXIMUM MARGINAL RATE WAS APPLIED TO THE AOP AS PER SECTION 167B(2) AND THE ITA NOS.3322 & 3323/DEL/09 4 ENTIRE INCOME WAS ASSESSED IN THE HANDS OF THE AOP. THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO. 4. BEFORE THE CIT(A) IT HAS BEEN THE CONTENTION OF THE ASSESSEE THAT AS PER FOLLOWING DECISIONS, THE TAX COULD NOT BE CHARGED I N THE HANDS OF THE AOP AS THE MEMBERS OF THE AOP HAVE ALREADY BEEN ASSESSED BY TH E DEPARTMENT ON THEIR SHARE INCOME AND, THEREFORE, ASSESSMENT ON AOP AS S UCH WAS INVALID AND UNCALLED FOR:- I) CIT V. MURLIDHAR JHAWAR & PURNA GINNING & PRESSI NG FACTORY (1966) 60 ITR 95 (SC); II) CIT V. KANPUR COAL SYNDICATE (1964) 153 ITR 225 (SC); III) CIT V. CHANDRASEKARAN (SLP(CIVIL) NOS.1782-178 4 OF 1988): (1989) 178 ITR 73 (ST.). IV) LAXMICHAND HIRJIBHAI V. CIT (1981 ) 128 ITR 747 (GUJ.); V) CIT V. V.H. SHETH (1984) 148 ITR 169 (BOM.); VI) NARNAULI JEWEL CORPN. V. CIT (1987) 163 ITR 293 (RAJ.); VII) CIT V. TAJ OIL TRADERS (2003) 130 TAXMAN 585 ( RAJ.) REFERENCE WAS ALSO MADE TO THE BOARDS CIRCULAR NO. 75/19/191/62-ITJ DATED 24.8.1966 AND IT WAS POINTED OUT THAT SECTIONS 86 A ND 167B OF THE ACT HAVE NO RELEVANCE IN THE FACTS OF THE CASE. IT WAS SUBMITT ED THAT THESE SECTIONS WILL COME INTO PLAY WHEN THE INCOME IS FIRST ASSESSED IN THE HANDS OF AOP AND NOT IN THOSE CASES WHERE FIRST ASSESSMENT HAS NOT BEEN MADE IN T HE HANDS OF AOP. IT WAS SUBMITTED THAT AS MEMBER OF THE AOP ARE ASSESSED WI THOUT MAKING PRIOR ASSESSMENT IN THE HANDS OF THE AOP, THEREFORE, SECT IONS 86 AND 167B COULD NOT ITA NOS.3322 & 3323/DEL/09 5 BE APPLIED. IT WAS SUBMITTED THAT SECOND PROVISO T O SECTION 86 CONTEMPLATES A SITUATION WHERE WHEN NO INCOME IS CHARGEABLE ON THE AOP, TAX WILL BE LEVIED ON THE MEMBERS AND THUS IT WAS CONTENDED THAT IT CANNO T BE SAID THAT LEGALLY TAX WAS TO BE LEVIED ONLY IN THE HANDS OF THE AOP. HOWEVER , THE LD. CIT(A) HAS NOT ACCEPTED SUCH SUBMISSION AND UPHELD THE ACTION OF T HE ASSESSING OFFICER. 5. WHEN THE MATTER CAME BEFORE THE TRIBUNAL, SPECIA L BENCH WAS CONSTITUTED AND FOLLOWING QUESTION WAS REFERRED TO THE SPECIAL BENCH:- WHETHER, THE ASSESSMENT MADE ON THE AOP IS INVALID , IN THE LIGHT OF THE BOARDS CIRCULAR DATED 24 TH AUGUST, 1966 OR IS VALID IN THE LIGHT OF THE JUDGMENT OF THE SUPREME C OURT IN ACHTAIAHS CASE (218 ITR 239) AND/OR STATUTORY AMEN DMENTS OF THE INCOME-TAX ACT? THE SPECIAL BENCH HAS HELD THAT ASSESSMENT MADE ON THE AOP IS VALID AS RELIANCE COULD NOT BE PLACED ON THE CIRCULAR AS THE SAME HAD LOST ITS VALIDITY IN THE LIGHT OF THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF ITO V. CH. ACHTAIAH, 218 ITR 239 (SC) AND ALSO THERE WAS AMENDMENT IN TH E PROVISIONS OF THE ACT BY VIRTUE OF WHICH THE ASSESSING OFFICER HAD LOST OPTI ON TO ASSESS EITHER AOP OR ITS MEMBERS UNDER THE PROVISIONS OF THE INCOME-TAX ACT, 1961 AS COMPARED TO THE PROVISIONS OF THE 1922 ACT. 6. FOR THE ACT OF THE ASSESSEE SHOWING NIL INCOME I N THE RETURN OF AOP, THE DEPARTMENT HAD INITIATED PENALTY PROCEEDINGS U/S 27 1(1)(C) AND ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY SUCH PENALTY SHOUL D NOT BE LEVIED. THE REPLY OF ITA NOS.3322 & 3323/DEL/09 6 THE ASSESSEE FOR ASSESSMENT YEAR 2003-04 HAS BEEN Q UOTED BY THE ASSESSING OFFICER IN THE PENALTY ORDER WHICH READS AS UNDER:- THERE IS NO MATERIAL ON RECORD TO SHOW THAT ANY IT EM INVOLVED ANY CONTUMACIOUS CONDUCT ON THE PART OF TH E ASSESSEE OR THERE WAS ANY STATEMENT MADE BY HIM WHICH WAS UNTRU E. IT CAN ALSO NOT BE SAID THAT ANY PART OF THE EXPLANATION S UBMITTED BY THE ASSESSEE WAS FALSE. EVERY PART OF THE EXPLANATION STANDS FULLY SUBSTANTIATED AND WHOLLY BONA FIDE. IT IS ALSO NOT THE CASE OF THE DEPARTMENT THAT THE EXPLANATION OFFERED BY THE ASSE SSEE WAS NOT SUBSTANTIATED OR IT WAS NOT BONA FIDE OR THE ASSESS EE DID NOT DISCLOSE ALL MATERIAL FACT. THE ABOVE EXPLANATION OF THE ASSESSEE HAS BEEN REJE CTED BY THE ASSESSING OFFICER BY OBSERVING THAT THE SUBMISSION OF THE ASS ESSEE IS NOT CORRECT AS ASSESSEE HAS NOT COME CLEAN ON THE ISSUE OF TAXING THE COMMISSION INCOME RECEIVED DURING THE YEAR UNDER SECTION 167B(2) AND TRIED TO MISLEAD THE DEPARTMENT AND SUCH FACT HAS BEEN CONFIRMED BY THE CIT(A) IN HIS QUANTUM ORDER. IT IS ALSO OBSERVED BY THE ASSESSING OFFICE R THAT THE ASSESSEE HAS COMMITTED DEFAULT DELIBERATELY BY MISLEADING AND CL AIMING THE COMMISSION INCOME AS EXEMPT U/S 167A OF THE ACT WHEREAS THE IN COME IS TAXABLE U/S 167B(2) AND DISTRIBUTED THE INCOME AMONGST THE MEMB ERS. IN THIS MANNER, THE IMPUGNED PENALTIES HAVE BEEN LEVIED. FOR ASSESSMEN T YEAR 2004-05, THE ASSESSING OFFICER HAS REST UPON HIS FINDINGS ON THE BASIS OF DECISION OF SPECIAL BENCH IN WHICH THE ACTION OF THE ASSESSING OFFICER FOR ASSESSING THE INCOME IN THE HANDS OF THE AOP HAS BEEN CONFIRMED. ITA NOS.3322 & 3323/DEL/09 7 7. THE LD. CIT(A) HAS ALSO CONFIRMED THE PENALTIES. THE ASSESSEE IS AGGRIEVED AND HENCE THE PRESENT APPEALS BEFORE US. 8. THE LD. A.R., AFTER NARRATING THE FACTS, INVITED OUR ATTENTION TOWARDS PAGE 22 OF THE PAPER-BOOK ON WHICH COPY OF COMPUTATION O F INCOME IS PLACED. HE SUBMITTED THAT IN THE RETURN OF INCOME IT WAS CLEAR LY STATED THAT PROFIT IS DISTRIBUTED TO THE MEMBERS AS TAXABLE IN THEIR HANDS. IT WAS S UBMITTED THAT NOT ONLY THE FACT WAS STATED THAT PROFIT WAS DISTRIBUTED AMONGST THE MEMBERS AS TAXABLE IN THEIR HANDS BUT THEIR PERMANENT ACCOUNT NUMBERS WERE ALSO GIVEN. IT WAS SUBMITTED THAT EVEN THE ASSESSMENT HAS BEEN FRAMED ON THE SAM E FIGURE AND THERE IS NO ADDITION WHATSOEVER. THUS IT WAS SUBMITTED THAT EX PLANATION 1 TO SECTION 271(1)(C) WILL REGULATE THE LEVY OF CONCEALMENT PEN ALTY AND ACCORDING TO SUCH EXPLANATION, THE PENALTY CAN BE LEVIED IF THE PERSO N UPON WHOM THE PENALTY IS TO BE LEVIED FAILS TO OFFER AN EXPLANATION OR OFFERS A N EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER TO BE FALSE OR IN A CASE WHER E THE EXPLANATION OFFERED IS NOT SUBSTANTIATED AND THE ASSESSEE FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL FACTS RELATING TO THE SAME AND MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME WAS NOT DISCLOSED. HE SUBMITTED THAT IN THE PRESENT CASE, AN EXPLANATION WAS OFFERED BY THE ASSESSEE WHICH HAS NOT BEEN FOUN D TO BE FALSE BY THE ASSESSING OFFICER AND THE EXPLANATION OFFERED HAS B EEN SUBSTANTIATED BY THE ASSESSEE AND THE EXPLANATION OF THE ASSESSEE IS ALS O BONA FIDE AND ALL THE MATERIAL FACTS RELATING TO THE INCOME OF THE ASSESS EE FOR COMPUTATION OF ITS INCOME WERE DULY DISCLOSED. HE SUBMITTED THAT THE ASSESSEE ACTED BONAFIDELY RELYING ON THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF MURLIDHAR ITA NOS.3322 & 3323/DEL/09 8 JHAWAR & PURNA GINNING & PRESSING FACTORY (SUPRA), READ WITH AFOREMENTIONED CIRCULAR DATED 24.8.1966 THAT ONCE THE DEPARTMENT H AS ASSESSED THE MEMBERS OF THE AOP THEN ASSESSMENT OF AOP AS SUCH COULD NOT BE DONE AS THE DEPARTMENT WILL LOSE ITS RIGHT TO ASSESS THE AOP AS SUCH IN A CASE WHEN SOME OF THE MEMBERS OF THE AOP WERE ALREADY ASSESSED BY THE REV ENUE. TO SHOW THAT THE MEMBERS OF THE AOP WERE ASSESSED ON THEIR SHARE BEF ORE THE ASSESSMENT OF THE AOP, THE LD. A.R. REFERRED TO THE ASSESSMENT ORDER OF ONE OF THE MEMBERS OF THE AOP, NAMELY, M/S LAXMI TRADERS, COPY WHEREOF IS PLA CED AT PAGES 97 TO 102 OF THE PAPER-BOOK. IT IS AN ORDER DATED 16.3.2006 PASS ED U/S 143(3) OF THE ACT. ON THE SECOND PAGE OF THE ASSESSMENT ORDER, THE ASSESS ING OFFICER HAD DULY NOTED THAT THE ASSESSEE IS MEMBER OF THE JOINT VENTURE, N AMELY, M/S PRADEEP AGENCIES, OF WHICH HE IS HAVING 25% SHARE IN THE PROFIT AND P AN NUMBER OF THE AOP IS ALSO MENTIONED. HE SUBMITTED THAT AS AGAINST THE SAID A SSESSMENT MADE ON 16.3.2006, THE ASSESSMENT IN THE HANDS OF THE AOP I S MADE BY THE ASSESSING OFFICER VIDE ORDER DATED 21.3.2006. THEN HE REFERR ED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MURLIDHAR JHAW AR & PURNA GINNING & PRESSING FACTORY (SUPRA), WHEREIN THEIR LORDSHIPS W HILE INTERPRETING THE PROVISIONS OF SECTION 3 OF INDIAN INCOME-TAX ACT, 1 922, HAVE OBSERVED THAT SINCE SECTION 3 (CORRESPONDING SECTION 4 FOR INCOME-TAX A CT, 1961 ) EXPRESSLY TREATS AN AOP AND INDIVIDUAL MEMBER OF AN ASSOCIATION AS TWO DISTINCT AND DIFFERENT ASSESSABLE ENTITIES AND, THEREFORE, TAX CAN BE LEVI ED ON EITHER OF THE SAID TWO ENTITIES AND WHEN THE DEPARTMENT HAS ASSESSED THE M EMBERS OF THE AOP ON THEIR SHARES, THE DEPARTMENT CANNOT ASK THE AOP TO SUBMIT THE RETURN OF INCOME ITA NOS.3322 & 3323/DEL/09 9 OF THE JOINT VENTURE ON THE FOOTING THAT THEY CONST ITUTED AN UNREGISTERED FIRM. IT WAS SUBMITTED THAT THE EFFECT OF THE AFOREMENTIONED DECISION OF HON'BLE SUPREME COURT WAS EXAMINED BY CBDT VIDE AFOREMENTIONED CIRC ULAR DATED 24.8.1966 AND IT WAS OPINED THAT THOUGH THE DECISION WAS RENDERED IN THE CONTEXT OF INDIAN INCOME-TAX ACT, 1922, BUT IT WILL EQUALLY BE APPLIC ABLE TO THE PROVISIONS OF THE INCOME-TAX ACT, 1961 AND HE REFERRED TO THE COPY OF THE SAID CIRCULAR OF THE BOARD WHICH IS PLACED AT PAGES 71 & 72 OF THE PAPER-BOOK. 9. REFERRING TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MURLIDHAR JHAWAR & PURNA GINNING & PRESSING FACTORY (SUPRA) AND THE AFOREMENTIONED CIRCULAR OF THE CBDT, IT WAS SUBMITT ED THAT THE ASSESSEE HAD FORMED A BONAFIDE BELIEF THAT THE AFOREMENTIONED DE CISION OF THE HON'BLE SUPREME COURT WILL BE EQUALLY APPLICABLE TO THE PRO VISIONS OF THE INCOME-TAX ACT, 1961 AND APPLYING THAT RATIO THE DISTRIBUTED INCOME WAS OFFERED IN THE INDIVIDUAL RETURNS OF THE MEMBERS OF THE AOP. ALL THE MATERIA L FACTS RELATED TO THE INCOME AS WELL AS DISTRIBUTION THEREOF AMONGST THE MEMBERS ALONGWITH THEIR PAN NUMBERS WERE DULY STATED IN THE COMPUTATION OF INCO ME AND ANNEXED DOCUMENTS WITH THE RETURN. THE INCOME WAS TRULY COMPUTED THE QUANTUM OF WHICH HAS BEEN ACCEPTED BY THE REVENUE THE REVENUE WITHOUT MAKING ANY ADDITION THERETO AND THUS IT WAS SUBMITTED THAT THE PROVISIONS OF SECTIO N 271(1)(C) WERE NOT ATTRACTED TO THE FACTS OF ASSESSEES CASE. 10. IT WAS SUBMITTED THAT RECENTLY HON'BLE SUPREME COURT IN THE CASE OF ATUL MOHAN BINDAL, 317 ITR 1 (SC), CLARIFYING THE DECISI ON OF LARGER BENCH IN THE CASE OF DHARMENDRA TEXTILE PROCESSOR, 306 ITR 277 (SC), HAS OBSERVED THAT THE ITA NOS.3322 & 3323/DEL/09 10 LEVIABILITY OR OTHERWISE OF CONCEALMENT PENALTY U/S 271(1)(C) IS TO BE DECIDED AS PER THE PROVISIONS CONTAINED THEREIN AND THE OBSERV ATIONS OF THEIR LORDSHIPS WERE IT GOES WITHOUT SAYING THAT FOR APPLICABILITY OF S ECTION 271(1(C), THE CONDITION STATED THEREIN MUST EXIST. HE SUBMITTED THAT REFE RENCE FOR RAISING SIMILAR CONTENTION CAN ALSO BE MADE TO THE DECISION OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. HARYANA WAREHOUSING COR PORATION, 314 ITR 215 (P&H). HE CONTENDED THAT DEFENCE OF THE ASSESSEE AS MADE OUT IN ITS SUBMISSIONS CAN BE BRIEFLY STATED AS FOLLOWS:- 1. IT HAS NOT CONCEALED THE PARTICULARS OF ITS INCO ME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME AS WOULD BE A PPARENT FROM THE COMPUTATION OF ITS INCOME FILED ALONG WITH ITS RETU RN AS ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N O0F ITS TOTAL INCOME HAVE BEEN DISCLOSED BY IT (PB 22). 2. IT HAS A BONA FIDE BELIEF THAT ITS PROFITS SO DI STRIBUTED TO THE MEMBERS ARE TAXABLE IN THEIR HANDS WHICH THEY HAD RETURNED IN THEIR RESPECTIVE INCOME TAX RETURNS AS PER SECTION 67A OF THE INCOME -TAX ACT AND ASSESSED ACCORDINGLY, THE AOP WAS NOT TAXABLE ON SU CH INCOME WHICH WOULD HAVE LED TO THE SAME INCOME BEING DOUBLY ASSE SSED. RELIANCE HAS BEEN PLACED BY THE ASSESSEE ON BOARDS CIRCULAR DATED 24.8.1966, WHICH HAS NOT BEEN WITHDRAWN, AND WHICH IS BINDING ON THE INCOME TAX AUTHORITIES AS HELD BY THE VARIOUS COURTS INCLUDING SUPREME COURT. 3. THE ALLEGATION OF THE INCOME TAX AUTHORITIES THA T IT WAS DEVICE FOR AVOIDING TAX OR GETTING TAXED AT A LOWER FIGURE DOE S NOT HOLD GOOD AS THE JOINT VENTURE AGREEMENT WAS ENTERED INTO ON 30. 3.2002 WHEN ALL THE MEMBERS OF THE JOINT VENTURE WERE HAVING OTHER INCOMES WHICH INCLUDED PROFIT ON SHARES, INTEREST INCOME, DIVIDEN D AND INCOME FROM BUSINESS AND OTHER MISC. INCOME. ALL OF THEM WERE HAVING HUGE INCOME APART FROM THE SHARE FROM THE AOP. ONE CANN OT ANTICIPATE AS ITA NOS.3322 & 3323/DEL/09 11 TO WHAT IT WOULD BE THE PROFITS/INCOME OF THE MEMBE RS OF JOINT VENTURE DURING THE FINANCIAL YEAR 2002-03 AND 2003-04 RELEV ANT TO THE ASSESSMENT YEAR 2003-04 AND 2004-05. IT WOULD BE S EEN FROM THE CHART (PARA 6.1) OF THE CIT(A)S ORDER THAT LAXMI T RADERS AND BISWANATH INDUSTRIES WERE ASSESSED AS A MUCH HIGHER FIGURE U/S 143(3) VIZ. 76.75 LACS AND RS.30.23 CRORES RESPECTI VELY. NO SUCH INTENTION COULD BE VISUALIZED AT THE TIME OF CONSTI TUTION OF JOINT VENTURE AGREEMENT ON 30.3.2002. NO PERSON WILL LIKE TO INC UR LOSSES TO AVOID TAXES OR BEING TAXED AT A LOWER RATE. SUCH AN ARGU MENT IS FALLACIOUS. 4. PENALTY PROCEEDINGS ARE INDEPENDENT AND DISTINCT FROM ASSESSMENT PROCEEDINGS AND HAVE TO BE DECIDED ON DIFFERENT PAR AMETERS AND IN THE CONTEXT OF PROVISIONS CONTAINED IN SECTION 271(1)(C ) AND EXPLANATION THEREUNDER. 5. NO FINDING HAS BEEN GIVEN THAT THE ASSESSEE HAS FAILED TO DISCLOSE ALL THE FACTS MATERIAL TO THE COMPUTATION OF ITS TOTAL INCOME. WHILE FURNISHING CORRECT PARTICULARS OF ITS INCOME A CLAI M WAS MADE ON THE BASIS OF BOARDS CIRCULAR DATED 24.8.1966, WHICH HA D NOT BEEN WITHDRAWN AND WHICH IS BINDING ON THE INCOME TAX AU THORITIES. THE SAME INCOME HAVING BEEN OFFERED IN THE HANDS OF THE MEMBERS OF THE AOP AND ASSESSED IN THEIR HANDS ON SUBSTANTIVE BASI S. 11. HE FURTHER REFERRED TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PATEL CHEMICAL WORKS V. ASSESSING OFFICER, 309 ITR 450 (GUJ.), TO CONTEND THAT WHERE SAME INCOME HAVING BEEN OFFERED TO TAX BY DIFFERENT ENTITY AND HAVING BEEN TAXED SUBSTANTIALLY IN THE HANDS OF OTHER ENTITY IS A RELEVANT FACTOR FOR DETERMINING WHETHER ASSESSEE HAS CONCEAL ED SAID INCOME OR FURNISHED INACCURATE PARTICULARS. ITA NOS.3322 & 3323/DEL/09 12 12. HE ALSO RELIED UPON THE FOLLOWING DECISIONS:- I) CIT V. KERALA SPINNERS LTD., 247 ITR 541 (KER.); THE HIGH COURT POINTED OUT THAT THE EXPLANATION ITS ELF PROVIDES THAT WHERE ALL THE FACTS RELATING TO THE ADDITION HAD BE EN DISCLOSED BY THE ASSESSEE AND THE EXPLANATION IN RESPECT OF ENTR IES IN THE BOOKS ARE BONA FIDE, IT IS ONLY A CASE OF ASSESSEES FAIL URE TO ESTABLISH HIS CASE, IT IS NOLT A CASE FOR PENALTY, FOLLOWING THE RATIONALE OF THE DECISION IN CIT V. MUSSADILAL RAM BHAROSE, 165 ITR 14 (SC) FOR ITS CONCLUSION. II) CIT V. SANTOSH FINANCERS 247 ITR 742 (KER.) A WRONG CLAIM BY ITSELF DOES NOT WARRANT PENALTY, I F THE FACTS RELATING TO THE SAME ARE DISCLOSED. THE ASSESSEE WHILE DISCL OSING EXTRA INTEREST CHARGED OVER AND ABOVE THE LIMIT FIXED UND ER KERALA MONEY LENDERS ACT, 1958 HAD CLAIMED IT TO BE NOT LIABLE T O TAX. THOUGH THE AMOUNT WAS ASSESSABLE, IT WAS HELD THAT PENALTY WAS NOT EXIGIBLE BECAUSE THERE WAS NO CONCEALMENT OF THE FACT OF REC EIPT BUT ONLY A CLAIM OF THAT IT WAS NOT TAXABLE, THOUGH SUCH CLAIM WAS MISCONCEIVED. THE HIGH COURT IN COMING TO THE CONCL USION FOLLOWED THE GUIDELINES OF THE SUPREME COURT IN ADDL. LCIT V . JEEVAN LAL SAH, 205 ITR 244 (SC) AND SIR SHADILAL SUGAR & GENE RAL MILLS LTD. V. CIT, 168 ITR 705(SC); III) NATIONAL TEXTILES V. CIT, 249 ITR 114-125(GUJ. ) CIT V. P.K. NARAYANAN, 238 ITR 905 (KER.); DURGA KAMAL RICE MILLS V. CIT, 265 ITR 25 (CAL.) WHEN TWO VIEWS ARE POSSIBLE AND WHEN NO CLEAR AND D EFINITE INFERENCE CAN BE DRAWN, PENALTY CANNOT BE IMPOSED A S HELD IN THE ABOVE CASES. IV) K.C. BUILDERS AND ANOTHER V. ACIT, 265 ITR 562 (SC) THE WORD CONCEALMENT AS USED IN SECTION 271(1) I NHERENTLY CARRIES WITH IT THE ELEMENT OF MENS REA. IN ORDER A PENALTY U/S 271(1)(C) MAY BE IMPOSED, IT HAS TO BE PROVED THAT THE ASSESSEE HAS CONSCIOUSLY MADE THE CONCEALMENT OR FURNISHED I NACCURATE PARTICULARS OF HIS INCOME. V) CIT V. NATH BROS. EXIM INTERNATIONAL LTD., 288 I TR 670 (DELHI) WHERE THE ASSESSEE HAS MADE A CLAIM UNDER SECTION 8 0HHC AFTER GIVING THE FULL PARTICULARS AND THE BASIS OF ITS CL AIM, THE FACT THAT ITA NOS.3322 & 3323/DEL/09 13 SUCH CLAIM WAS FOUND TO BE ERRONEOUS COULD NOT BY I TSELF BE TREATED AS JUSTIFICATION FOR PENALTY. WHERE THE ASSESSEE H AS NOT GIVEN ANY FALSE PARTICULARS, ALL THAT WAS REQUIRED WAS APPLIC ATION OF LAW, THE HIGH COURT UPHELD THE TRIBUNALS ORDER DELETING THE PENALTY. VI) CIT V. HARSHVARDHAN CHEMICALS & MINERALS LTD., (2003) 212 (RAJ.) CIT V. SOHAN LAL, HUF, 302 ITR 262 (P&H) WHERE THE ISSUE IS DEBATABLE/ARGUABLE PENALTY COULD NOT HAVE BEEN LEVIED. V) CIT V. INTERNAL AUDIO VISUAL CO., 288 ITR 570 (D ELHI) WHERE THE ASSESSEE DISCLOSES ALL FACTS, BUT DRAWS A N INFERENCE NOT ACCEPTABLE TO THE ASSESSING OFFICER, IT DOES NOT ME AN THAT THE ASSESSEE COULD BE SUBJECTED TO PENALTY ON THE ADDIT ION CONSEQUENT ON HIS INFERENCE. IT WAS A CASE WHERE PRIMARY FACT S WERE DISCLOSED, SO THAT PENALTY WAS NOT FOUND EXIGIBLE. IT WAS THUS SUBMITTED BY THE LD. AR THAT IN THE PRE SENT CASE, LEVY OF PENALTY IS UNJUSTIFIED AND THE SAME SHOULD BE DELETED. 13. ON THE OTHER HAND, THE LD. D.R. REFERRED TO THE PENALTY ORDER AND THE ORDER OF THE CIT(A). SHE PLEADED THAT THE ASSESSEE HAD A DOPTED A DEVICE TO OFFER THE INCOME IN THE HANDS OF THE MEMBERS OF THE AOP INSTE AD OF OFFERING THE SAME IN THE HANDS OF THE AOP. SHE SUBMITTED THAT ACCORDING TO THE DECISION OF SPECIAL BENCH IN THE CASE OF THE ASSESSEE, THE DEPARTMENT U NDER THE INCOME-TAX ACT, 1961 HAD NO CHOICE EITHER TO ASSESS AOP AS SUCH OR ITS MEMBERS. THE ONLY RECOURSE AVAILABLE WITH THE DEPARTMENT IS TO ASSESS THE AOP AND THUS ASSESSING OFFICER WAS RIGHT IN ASSESSING THE AOP AS SUCH. SH E SUBMITTED THAT ACCORDING TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF ITO V. CH. ATCHAIAH, 218 ITR 239 (SC), THE ASSESSMENT COULD NOT BE MADE IN THE HANDS OF MEMBERS OF THE AOP AND, THEREFORE, ASSESSEE HAS DELIBERATEL Y SHOWN THE INCOME IN THE ITA NOS.3322 & 3323/DEL/09 14 HANDS OF MEMBERS OF THE AOP. THUS, RELYING UPON TH E PENALTY ORDERS AND ORDERS OF THE CIT(A), SHE SUBMITTED THAT PENALTY SHOULD BE UPHELD. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. SECTION 271(1)(C) REGULATES THE LEVY OF CONCEALMENT PENALTY. EXPLANATION 1 TO THAT SECTION HAS TO BE EXAMINED WH ETHER THE SAME IS APPLICABLE OR NOT. EXPLANATION 1 TO SECTION 271(1)(C) READS A S UNDER:- EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATER IAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT,- (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMM ISSIONER (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM. THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURP OSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN R ESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. EXPLANATION 1 IS A DEEMING PROVISION FOR HOLDING TH AT IN WHAT CIRCUMSTANCES THE INCOME CAN BE SAID TO BE AN INCOME IN RESPECT OF WH ICH PARTICULARS HAVE BEEN CONCEALED. CLAUSE (A) OF EXPLANATION 1 GOVERNS A S ITUATION WHERE THE PERSON UPON WHOM THE PENALTY IS SOUGHT TO BE LEVIED FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSI NG OFFICER TO BE FALSE. CLAUSE (B) GOVERNS A SITUATION WHERE AN EXPLANATION OFFERE D BY THE ASSESSEE HAS NOT BEEN SUBSTANTIATED AND WHERE ASSESSEE FAILS TO PROV E THAT SUCH EXPLANATION IS ITA NOS.3322 & 3323/DEL/09 15 BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SA ME AND MATERIAL TO THE COMPUTATION OF TOTAL INCOME WERE DISCLOSED. IN CAS E OF FAILURE OF EITHER OF CLAUSE (A) OR (B), WHICH RESULTED INTO ADDITION OR DISALLO WANCE, THE RESULTANT AMOUNT WILL BE CONSIDERED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED FOR THE PURPOSES OF CLAUSE (C) OF SECTION 271(1). CLAUSE (C) OF SECTION 271(1) READS AS UNDER:- 271(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) OR THE COMMISSIONER IN THE COURSE OF ANY PROCEEDINGS U NDER THIS ACT, IS SATISFIED THAT ANY PERSON (A) . (B) .. (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME, OR 15. IN THE PRESENT CASE, ASSESSEE HAS FURNISHED AN EXPLANATION WHICH HAS BEEN REPRODUCED IN THE ABOVE PART OF THIS ORDER. T HE EXPLANATION FURNISHED BY THE ASSESSEE IS NOT FOUND TO BE FALSE BY THE ASSESS ING OFFICER. THE ASSESSEE IN ITS EXPLANATION HAS SUBMITTED THAT THERE IS NO MATE RIAL ON RECORD TO SHOW THAT ANY ITEM INVOLVED ANY CONTUMACIOUS CONDUCT ON THE PART OF THE ASSESSEE OR THERE WAS ANY STATEMENT MADE BY HIM WHICH WAS UNTRUE. TH E ASSESSING OFFICER COULD NOT STATE ANYTHING THAT THERE WAS ANY MATERIAL ON R ECORD TO SHOW THAT THE CONDUCT OF THE ASSESSEE WAS CONTUMACIOUS OR ANY PART OF THE STATEMENT MADE BY HIM WAS UNTRUE. IT IS THE CASE OF THE ASSESSEE THAT I TS EXPLANATION WAS NOT FALSE AND NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SHOW THAT EXPLANATION OF THE ASSESSEE WAS FALSE. IT IS ALSO THE SUBMISSION OF THE ASSESS EE THAT ITS EXPLANATION IS DULY ITA NOS.3322 & 3323/DEL/09 16 SUBSTANTIATED AND IS ALSO BONA FIDE AND NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT EITHER ASSESSEE COULD NOT SUBSTANTI ATE ITS EXPLANATION OR COULD NOT PROVE THE BONA FIDE OF ITS EXPLANATION. 16. AS MENTIONED EARLIER, THE CLAIM OF THE ASSESSEE IS BASED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MURLIDHAR J HAWAR & PURNA GINNING & PRESSING FACTORY (SUPRA) AND THE OPINION EXPRESSED BY THE BOARD IN ITS CIRCULAR DATED 24.8.2006. THE SAID CIRCULAR OF THE BOARD WA S CONSIDERED TO BE A BENEVOLENT CIRCULAR WHICH WAS HELD TO BE BINDING ON THE INCOME TAX AUTHORITIES AS PER DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF LAXMICHAND HIRJIBHAI V. CIT (1981 ) 128 ITR 747 (GUJ.). THE TEXT OF CIRCUL AR READS AS UNDER:- THE EFFECT OF THIS DECISION IS THAT ONCE THE ITO A SSESSES DIRECTLY AN ASSESSEES SHARE OF INCOME FROM AN ASSOCIATION OF P ERSONS OR FIRM, IT IS NOT OPEN TO HIM TO ASSESS THE SAME INCOME AGA IN IN THE HANDS OF THE ASSOCIATION OF PERSONS OF FIRM. IN OTHER WO RDS, ONCE THE ASSESSMENT OF THE PARTNER OR A MEMBER OF AN ASSOCIA TION HAS BEEN MADE BY TAXING DIRECTLY AS PROPORTIONATE SHARE FROM THE FIRM OR ASSOCIATION, THE ITO AS PRECLUDED FROM ASSESSING TH E FIRM IN THE STATUS OF AN UNREGISTERED FIRM AS OR ASSOCIATION OF PERSONS. THUS, ALL THE PARTNERS OF THE FIRM OR MEMBERS OF THE ASS OCIATION WILL HAVE TO BE ASSESSED AS PARTNERS OF A REGISTERED FIRM, EV EN THOUGH WHILE DEALING WITH THE ASSESSMENT OF THE FIRM, THE ITO CO MES TO THE CONCLUSION THAT THE FIRM IS NOT ENTITLED TO REGISTR ATION. ALTHOUGH THE SUPREME COURTS DECISION IS UNDER THE INDIA IT ACT, 1922, THE BOARD IS ADVISED THAT IT WILL EQUALLY APPLY TO THE ASSESS MENTS MADE UNDER THE IT ACT, 1961. HOWEVER, THE LEGAL POSITION ENUNCIATED BY VARIOUS H IGH COURTS IN FAVOUR OF THE CIRCULAR WAS CHANGED AS PER DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CH. ATCHAIAH (SUPRA) WHEREIN THEIR LORDSHIPS HAV E NOTED THAT THERE WAS A MATERIAL DIFFERENCE IN THE LEGAL POSITION AS ENUNCI ATED IN THE PROVISIONS CONTAINED IN THE INDIAN INCOME-TAX ACT, 1922 VIS--VIS INCOME -TAX ACT, 1961. CONSIDERING ITA NOS.3322 & 3323/DEL/09 17 THE SAID DECISION OF HON'BLE SUPREME COURT, IT WAS HELD BY THE SPECIAL BENCH THAT THOUGH THE CIRCULAR MAY BE BENEVOLENT BUT COUL D NOT BE APPLIED IN VIEW OF THE AFOREMENTIONED DECISION OF THE HON'BLE SUPREME COURT. BUT THAT WAS A MATTER OF INTERPRETATION BY THE SPECIAL BENCH. BUT IT CANNOT BE SAID THAT TWO VIEWS ON THE SAID SUBJECT WERE NOT POSSIBLE. 17. IT HAS TO BE KEPT IN MIND THAT QUANTUM PROCEEDI NGS ARE DIFFERENT AND DISTINCT FROM THE PENALTY PROCEEDINGS. IN PENALTY PROCEEDINGS, MERE CONFIRMATION OF ADDITION IN QUANTUM PROCEEDINGS CANNOT BE SAID T O BE CONCLUSIVE FACTOR TO HOLD THAT PENALTY IS LEVIABLE. EACH AND EVERY CASE OF LE VY OF PENALTY HAS TO BE EXAMINED ON ITS OWN FACTS. THEREFORE, THE CONFIRMAT ION OF ASSESSMENT ORDER ITSELF CANNOT BE CONSIDERED TO BE A SOLE GOVERNING FACTOR TO UPHOLD THE PENALTY. ACCORDING TO THE FACTS OF PRESENT CASE, RIGHT FROM THE BEGINNING IT HAS BEEN THE CASE OF THE ASSESSEE THAT ITS CLAIM OF FILING SUBST ANTIAL INCOME IN THE HANDS OF THE MEMBERS OF THE AOP WAS SUPPORTED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MURLIDHAR JHAWAR & PURNA GINNING & PRES SING FACTORY (SUPRA) WHICH WAS EVEN INTERPRETED BY CBDT IN ITS CIRCULAR DATED 24.8.1966 TO BE APPLICABLE TO THE PROVISIONS OF INCOME-TAX ACT, 1961. IT IS ALSO THE CASE OF THE ASSESSEE THAT EVEN IF THE LEGAL POSITION HAD CHANGED BY THE DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF CH. ATCHAIAH (SUPRA), THEN ALS O THE CIRCULAR BEING BENEVOLENT COULD NOT BE REFUSED TO BE APPLIED BY THE DEPARTME NT UNLESS THE SAME IS WITHDRAWN. THE CIRCULAR WAS NEVER WITHDRAWN. THE CONSTITUTION OF SPECIAL BENCH ITSELF SUGGESTS THAT THERE WAS SOME FORCE IN THE CL AIM OF THE ASSESSEE OR AT LEAST THE VIEW TAKEN BY THE ASSESSEE COULD NOT BE SAID TO BE TOTALLY DEVOID OF MERIT. ITA NOS.3322 & 3323/DEL/09 18 THE REFERENCE OF ISSUE TO SPECIAL BENCH IS INDICATI VE OF THE FACT THAT THERE WAS A LOT OF DEBATE ON THE ISSUE WHETHER THE BENEVOLENT C IRCULAR WILL PREVAIL EVEN AFTER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF CH. ATHCHAIAH (SUPRA). AFTER DUE DELIBERATION ON THE ARGUMENTS OF BOTH THE SIDES, THE SPECIAL BENCH HAS CONCLUDED THAT THE CONTENTS OF THE CIRCULAR COULD N OT BE APPLIED AND DECISION OF HON'BLE SUPREME COURT WILL BE APPLICABLE. THUS, IT IS CERTAINLY A CASE WHERE TWO VIEWS OF THE MATTER WERE POSSIBLE. IT HAS BEEN HEL D BY THE HONBLE JURISDICTIONAL HIGH COURT THAT WHERE THERE IS A DEBATABLE ISSUE AN D ACTION OF THE ASSESSEE IS BONA FIDE BEING BASED ON ADOPTION OF ONE OF THE POS SIBLE VIEWS, THE PENALTY IS NOT LEVIABLE EVEN IF IN THE QUANTUM PROCEEDINGS IT WAS NOT FINALLY ACCEPTED BY THE TRIBUNAL. REFERENCE CAN BE MADE TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. LOTUS TRANS TRAVELS PVT. LTD. , 177 TAXMAN 37 (DELHI) WHEREIN THEIR LORDSHIPS HELD AS UNDER:- 3. WITH REGARD TO THE QUESTION OF INCLUSION OF THE INTEREST INCOME IN THE BUSINESS INCOME FOR THE PURPOSE OF CO MPUTING DEDUCTION UNDER SECTION 80HHD, THE TRIBUNAL WAS OF THE VIEW THAT THE SAME WAS DEBATABLE ISSUE AND THAT APPEALS IN RE SPECT OF THIS ISSUE WERE PENDING BEFORE THIS COURT. CONSIDERING THIS FACT, THE TRIBUNAL RETURNED A FINDING THAT THE CLAIM MADE BY THE ASSESSEE FOR DEDUCTION UNDER SECTION 80HHD WAS BONA FIDE BEING B ASED ON ADOPTION OF ONE OF THE POSSIBLE VIEWS. THE TRIBUNA L ALSO FOUND THAT THE ASSESSEE HAD FURNISHED ALL THE MATERIAL FACTS R ELEVANT TO THE SAID CLAIM AND, THEREFORE, IT COULD NOT BE SAID THA T THE ASSESSEE HAD CONCEALED INCOME BY FURNISHING INACCURATE PARTICULA RS SO AS TO ATTRACT PENALTY UNDER SECTION 271(1)(C). THE FACT THAT THE CLAIM OF THE ASSESSEE WAS NOT FINALLY ACCEPTED IN THE QUANTU M PROCEEDINGS BEFORE THE TRIBUNAL WOULD NOT BY ITSELF BE A GROUND FOR JUSTIFYING THE IMPOSITION AND LEVY OF PENALTY UNDER SECTION 271(1) (C) OF THE SAID ACT. 4. WE ARE IN AGREEMENT WITH THE FINDINGS RECORDED B Y THE TRIBUNAL WITH REGARD TO THE PENALTY PROCEEDINGS. THE TRIBUNAL HA S CORRECTLY APPRECIATED THE LAW ON THIS ASPECT AND HAS APPLIED IT TO THE FA CTS DETERMINED BY IT. NO ITA NOS.3322 & 3323/DEL/09 19 CAUSE FOR INTERFERENCE HAS BEEN MADE OUT BY THE APP ELLANT. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. SIMILAR PROPOSITION OF LAW HAS BEEN LAID OUT BY HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. SOHAN PAL (HUF), 302 IT R 262 (PAPER-BOOK.) AND IN THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT V. H.M.A. UDHYOG PVT. LTD., 159 TAXMAN 394 (DELHI). IN THAT CASE ALSO, T HE ISSUE WAS DEBATABLE WHICH WAS ULTIMATELY DECIDED AGAINST THE ASSESSEE IN THE QUANTUM PROCEEDINGS AND IT WAS OBSERVED THAT IT COULD NOT BE SAID THAT THE ASS ESSEE HAD ATTEMPTED TO CONCEAL PARTICULARS OF HIS INCOME OR HAD FURNISHED INACCURATE PARTICULARS SO AS TO ATTRACT PROVISIONS OF SECTION 271(1)(C). 18. IN THE CASE OF INTERNAL AUDIO VISUAL CO. (SUPRA ), IT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT IF THERE IS NO MATERI AL ON RECORD TO SUGGEST THAT THE ASSESSEE WAS IN ANY MANNER TRYING TO MISLEAD THE AS SESSING OFFICER AND ASSESSEE WAS HAVING A BONA FIDE BELIEF THAT A PARTI CULAR DEDUCTION IS AVAILABLE TO IT AND ASSESSING OFFICER DOES NOT AGREE WITH THAT V IEW OF THE ASSESSEE THEN IN THAT CASE SINCE THERE WAS NO CONCEALMENT OF PRIMARY FACTS AND IT COULD NOT BE SAID THAT THE ASSESSEE WAS LIABLE TO SUFFER A PENAL TY UNDER THE PROVISIONS OF SECTION 271(1)(C). APPLYING THE SAID RATIO TO THE FACTS OF THE PRESENT CASE OF THE ASSESSEE, IT CAN BE HELD THAT THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT IN ANY MANNER THE ASSESSEE WAS MISLEADING THE ASSESSING OF FICER. THE COMPUTATION OF INCOME FILED BY THE ASSESSEE WITH THE RETURN OF INC OME HAD CLEARLY STATED THE PARTICULARS OF ALL THE FIVE MEMBERS ALONGWITH THEIR PERMANENT ACCOUNT NUMBERS AND THE RESPECTIVE SHARES ALLOCATED AND IT WAS CLEA RLY MENTIONED THAT THE ALLOCATED AMOUNT IS TAXABLE IN THEIR HANDS. DURING THE COURSE OF HEARING ALSO, THE ITA NOS.3322 & 3323/DEL/09 20 ASSESSEE HAD STATED BEFORE THE ASSESSING OFFICER TH AT SOME OF THE MEMBERS OF THE AOP HAVE ALREADY BEEN ASSESSED AND HAD RETURNED THEIR RESPECTIVE SHARES IN THEIR INCOME. IT IS NOT EVEN THE CASE OF THE ASS ESSING OFFICER THAT THE MEMBERS HAVE NOT DISCLOSED THEIR SHARE EARNED FROM THIS AOP IN THEIR RESPECTIVE RETURNS OF INCOME. THUS, ALL THE PRIMARY FACTS WERE DISCLOSED. THE CLAIM OF THE ASSESSEE IS ALSO BONAFIDE AS IT IS AS IT IS BASED ON CIRCULAR I SSUED BY THE CBDT AND THE SAID CLAIM OF THE ASSESSEE ALSO COULD NOT BE STATED TO B E AN IMPOSSIBLE CLAIM AS THE CONSTITUTION OF THE SPECIAL BENCH ITSELF SUGGESTS T HAT THE VIEW TAKEN BY THE ASSESSEE WAS REQUIRING A CONSIDERABLE DELIBERATION. IF THE CLAIM IS SUPPORTED BY SOME MATERIAL, THEN THE CLAIM CANNOT BE SAID TO BE A CLAIM WHICH IS NOT BONAFIDE. THEREFORE, THE RATIO OF THE SAID DECISION OF THE HO NBLE DELHI HIGH COURT WILL ALSO BE FULLY APPLICABLE TO THE PRESENT CASE AND IT HAS TO BE HELD THAT IT IS NOT A CASE WHERE LEVY OF PENALTY CAN BE HELD TO BE JUSTIFIED. 19. IN VIEW OF AFOREMENTIONED DISCUSSION, WE SEE NO JUSTIFICATION IN THE ORDER OF LD CIT(A) VIDE WHICH THE IMPUGNED PENALTY HAS BEEN UPHELD. WE DELETE THE PENALTY FOR BOTH THE YEARS. 20. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. THE ORDER WAS PRONOUNCED ON 31.3.2010. SD/- SD/- ( R.C. SHARMA ) ( I.P. BANSAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31.3.2010 VSK FIT FOR PUBLICATION IN THE ITD ( R.C. SHARMA ) ( I.P. BANSAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER ITA NOS.3322 & 3323/DEL/09 21 COPY TO: 1. ASSESSEE-APPELLANT 2. RESPONDENT-REVENUE 3. CIT (A) 4. CIT 5. DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR