Rama Paper Mills Ltd, Bijnore V. DCIT Central Circle-01, Kanpur

ITA 3802/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8135 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 29-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Difference of opinion; Capital receipt
• Section: 68; 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F : NEW DELHI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA No.3802/Del/2019 Assessment Year: 2014-15 Rama Paper Mills Ltd., Najeebabad Road, Kiratpur, Bijnor, Uttar Pradesh. PAN: AABCR5686D Vs. DCIT, Central Circle-01, Kanpur. (Appellant) (Respondent) Assessee by : Shri P.C. Yadav, Advocate Revenue by : Shri Ramdhan Meena, Sr. DR Date of Hearing : 29.08.2022 Date of Pronouncement : 12.09.2022 ORDER PER C.M. GARG, JM: This appeal filed by the assessee is directed against the order dated 11.03.2019 of the CIT(A), Moradabad, relating to Assessment Year 2014-15. 2. The grounds of appeal raised by the assessee read as under:- “1. That the Ld. CIT (Appeal) has erred in upholding the penalty of Rs.9,27,000/-,imposed by the AO., invoking the provisions of sec 271 (1) ( c) of IT Act 1961. ITA No.3802/Del/2019 2 2. That the Ld. CIT (Appeal) has erred in upholding the penalty of Rs. 9,27,000/-, without looking into facts and circumstances of the case and relying on irrelevant judicial pronouncements. 3. That the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence. 4. That the Ld. Assessing Officer has erred on facts and in law in levying the penalty of Rs. 9,27,000/- u/s. 271(1) (C) without clearly specifying the charge i.e. Concealment of income "or furnishing of inaccurate particulars. 5. That the Appellant craves leave to add/alter any/all grounds of appeal before or at the time of hearing of the Appeal. 6. That the Ld. Assessing Officer has erred on facts and in law in levying the penalty of Rs. 9,27,000/- u/s. 271(1) (C) despite there is no concealment of income by the appellant nor assessee furnished in inaccurate particulars of income by the appellant.” 3. The ld. Counsel of the assessee submitted that the ld.CIT(A) has erred in upholding the penalty of Rs.9,27,000/- imposed by the AO u/s 271(1)(c) of the Act without looking into facts and circumstances of the case and relying on irrelevant judicial pronouncements. The ld. Counsel also submitted that the impugned appellate order is arbitrary, illegal, bad in law and in violation of rudimentary principles of contemporary jurisprudence without clearly specifying the charge i.e., concealment of income or furnishing of inaccurate particulars of income. Therefore, the impugned penalty may kindly be deleted. The ld. Counsel also placed reliance on the following decisions:- (i) CIT vs. Baroda Tin Works, 221 ITR 661 (Guj); (ii) S.K. Kalyan vs. ITO, 327 ITR 477 (Mad); ITA No.3802/Del/2019 3 (iii) CIT vs. MTNL, 79 CCH 726-Delhi High Court; & (iv) Pfizer vs. DCIT, 146 TTJ 385 (Mum). 4. The ld. Counsel further pressing into service, the proposition of the Hon’ble High Court of Gujarat in the case of CIT vs. Baroda Tin Works (supra) and submitted that even though the addition u/s 68 was made on admission of the assessee, the Tribunal, after considering the relevant material and evidence on record, having come to the conclusion that the presumption under the Explanation to section 271(1)(c) stood rebutted, it was justified in deleting the penalty in the absence of any positive evidence brought by the Department. The ld. Counsel of the assessee, relying on the ITAT Mumbai Bench decision in the case of Pfizer Ltd. vs. DCIT (supra) also submitted that in this order, the Tribunal, after taking cognizance of the judgement of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd., 322 ITR 158 (SC) held that mere making of a claim which is not sustainable in law by itself will not amount to levy of penalty. The ld. Counsel, lastly, submitted that the Hon’ble jurisdictional High Court of Delhi in the case of CIT vs. Mahanagar Telephone Nigam Ltd. (supra), held that a mere erroneous claim by the assessee under bona fide belief that it is maintainable in law cannot by itself lead to imposition of penalty u/s 271(1)(c) of the Act, especially when there is no finding by the AO that the assessee has furnished inaccurate particulars of income. The ld. Counsel submitted that in the present case, the AO has made addition u/s 68 of the Act on account of unsecured loan obtained by the assessee from M/s Ramfin Fortunes ITA No.3802/Del/2019 4 Pvt. Ltd., and the assessee’s counsel agreed to the proposed addition to terminate the litigation, but, when the factum of obtaining unsecured loan from the said creditor was clearly discernible from the balance sheet as well as other financial statements of the assessee, then, the furnishing of inaccurate particulars of income or concealment of particulars of income cannot be alleged against the assessee for imposing penalty u/s 271(1)(c) of the Act. 5. Replying to the above, the ld. Sr. DR, supporting the first appellate order, submitted that the addition made by the AO cannot be said to be an estimated addition because he has added the specific amount after giving sufficient opportunity to the appellant assessee. He further submitted that it is not a case where somebody genuinely claimed an expenditure which was disallowed by the AO because of difference in opinion and the appellant has ploughed back its unaccounted money, therefore, the mala fide intention cannot be ruled out. Thus, this being a fit case for imposition of penalty u/s 271(1)(c) of the Act, penalty may kindly be confirmed. 6. Placing rejoinder to the above, the ld. Counsel of the assessee submitted that in the case of Pfizer Ltd. (supra), the coordinate Bench of the Tribunal clearly held that there are two essential conditions for invoking clause (B) of Explanation 1 to section 271(1)(c) of the Act and both the conditions must be cumulatively satisfied so as to bring a case within the mischief of this clause. The ld. Counsel submitted that it would be relevant to take note that conjunction ITA No.3802/Del/2019 5 ‘and’ has been used by the legislature between the two essential conditions and if only one condition is satisfied and the other is not, the penalty would not follow. The ld. Counsel submitted that if the person offers an explanation which he is not able to substantiate being condition (i), but, succeeds is proving that such explanation is bona fide and that all the material facts disclosed being condition (ii), the penalty would not be attracted. The ld. Counsel submitted that in the present case, neither the AO nor the ld.CIT(A) has brought on record that the explanation of the assessee pertaining to the unsecured loan from M/s Ramfin Fortunes Pvt. Ltd. was bona fide and that all the material facts relating to the same were disclosed by him before the authorities below during assessment and all subsequent proceedings, therefore, the two essential conditions have not been satisfied cumulatively, therefore, penalty u/s 271(1)(c) of the Act cannot be held as sustainable. 7. In the present case, from the relevant part of assessment as well as penalty order, it is clearly discernible that the AO has made addition of Rs.30 lakh pertaining to unsecured loan from M/s Ramfin Fortunes Pvt. Ltd. and the authorized representative/counsel of the assessee agreed to the addition before the AO, as per the assessee, to terminate litigation in this regard. 8. Now, before this Bench, after relying on various judicial pronouncements/judgements including the judgement of the jurisdictional High Court of Delhi in the case of CIT vs. MTNL and the judgement of the Hon’ble ITA No.3802/Del/2019 6 High Court of Gujarat in the case of CIT vs. Baroda Tin Works (supra) and the judgement of the coordinate Bench of ITAT Mumbai in the case of Pfizer Ltd. vs. DCIT (supra), it has been contended that merely because the assessee has agreed to the addition, penalty u/s 271(1)(c) of the Act is not attracted automatically. Vehement reliance has been placed by the ld. Counsel of the assessee on the judgement of ITAT Mumbai Bench in the case of Pfizer Ltd. (supra) that the two essential conditions required of clause (B) of Explanation 1 to section 271(1)(c) of the Act has not been satisfied cumulatively as the assessee has successfully demonstrated that explanation offered by him before the AO was bona fide and all material facts relating to the same was disclosed by him by way of balance sheet and other financial audited statements. In this regard, we find it appropriate to reproduce the relevant part of the order of the ITAT, Mumbai in the case of Pfizer Ltd. (supra) which reads as follows:- “10. It is important to note that the main provision of clause (c) of section 271(1) covers the cases of concealment of income and furnishing of inaccurate particulars of such income in a general way. Apart from that, there have been enshrined certain Explanations, some of which contain the cases of deemed concealment. These include the situations in which there may not be concealment etc. within the parameters of main provision but by the legal fiction contained in such Explanations, it is deemed as concealment of income. It is nobody's case that any Explanation, other than Expl. 1, applies to the facts of the instant case. Explanation 1, which, therefore, assumes significance, is reproduced as under :- "Explanation 1. - Where in respect of any facts material to the computation of the total income of any person under this Act, - ITA No.3802/Del/2019 7 (A) such person fails to offer an explanation or offers an explanation which is found by the [Assessing] Officer or the [Commissioner (Appeals)] [or the Commissioner] to be false, or (B) such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed." 11. A cursory look at the mandate of this Explanation transpires that the following elements must be present in order to bring a case with in the charge of concealment :- (a) the person fails to offer an explanation, or (b) he offers the explanation which is found by the concerned authority to be false, or (c) the person offers an explanation which he is not able to substantiate and further fails to prove that such explanation is valid and that all the facts relating to same have been disclosed by him. Whereas the above (a) and (b) are covered within clause (A) of the Explanation, (c) is enclosed in clause (B). 12. If the case falls in any of these three categories, then the deeming provision is activated and the amount added or disallowed in computing the total income is considered as the income in respect of which particulars have been concealed as per clause (c) of section 271(1). Only in such circumstances the penalty follows. If however the assessee succeeds in proving that none of these three conditions are satisfied in his case, then obviously the addition made by the Assessing Officer shall not constitute income in respect of which particulars have been concealed for the purposes of section 271(1)(c). 13. We will proceed to examine the facts of this case to determine as to whether it is falling in any of these three categories. First category consists of cases where the assessee fails to offer an explanation in respect of the addition made. Obviously it is not the situation here inasmuch as the assessee has furnished complete justification for its claim of capital receipt before the Assessing Officer in quantum as ITA No.3802/Del/2019 8 well as penalty proceedings. Second category comprises of cases in which the assessee offers an explanation which is found by the authority to be false. The case of the assessee is not covered under this category as well. Third category consists of cases where the assessee offers explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same were disclosed by him. Here it is relevant to mention that the above bracketed portion of clause (B) of the Expl. was inserted en bloc by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986 w.e.f. 10.09.1986. On reading of the clause (B) of the Expl. 1,it is clear that in order to encompass a case within its purview, the following two conditions must be satisfied:- (i) assessee offers explanation which he is not able to substantiate; and (ii) he fails to prove that such explanation is bona fide; and all the facts relating to the same have been disclosed by him. 14. At this juncture it would be relevant to take note that conjunction "and" has been used by the legislature between these two essential conditions of clause (B) of Explanation (1) to section 271(1)(c). It shows that both the above referred conditions must be cumulatively satisfied so as to bring a case within the mischief of this clause. If only one condition is satisfied and the other is not, the penalty would not follow. In other words, if the person offers an explanation which he is not able to substantiate [being condition(i) above] but succeeds in proving that such explanation is bona fide and that all the material facts relating to the same were disclosed by him, [being condition (ii) above], the penalty would not be attracted.” 9. Coming back to the facts of the instant case, it is seen that the assessee claimed an amount of Rs.30 lakh as unsecured loan from M/s Ramfin Fortunes Pvt. Ltd., which was clearly shown in the balance sheet as well as other audited financial statements of the assessee and this fact has never been controverted by the authorities below at any stage of assessment or penalty proceedings. At this stage, it is also relevant to consider the judgement of the Hon’ble Gujarat High ITA No.3802/Del/2019 9 Court in the case of CIT vs. Baroda Tin Works (supra), wherein their Lordships held that even though the addition u/s 68 was made on admission of the assessee, the Tribunal, after considering the relevant material and evidence on record drew a conclusion that the presumption under Explanation u/s 271(1)(c) of the Act stood rebutted, it was justified in deleting the penalty in the absence of any positive evidence brought by the Department. 10. Further, when we consider the proposition rendered by the coordinate Bench of ITAT Mumbai in the case of Pfizer Ltd. (supra), then we find ourselves in agreement with the contention of the ld. Counsel that for invoking clause (B) of Explanation 1 to section 271(1)(c) of the Act and both the conditions must be cumulatively satisfied so as to bring a case within the scope of imposing of penalty u/s 271(1)(c) of the Act. If only one condition is satisfied and the other is not, the penalty would not follow. In the present case, the assessee was not found able to substantiate the explanation pertaining amount of unsecured loan from M/s Ramfin Fortunes Pvt. Ltd., but, the assessee successfully proved that the explanation is bona fide and all the material facts relating to the same was disclosed by him before the authorities below. Therefore, in absence of cumulative satisfaction of both the conditions as per the requirement of clause (B) of Explanation 1 to section 271(1)(c) of the Act, the penalty imposed by the AO and confirmed by the ld.CIT(A) cannot be held as sustainable and, thus, the AO is directed to delete the penalty. ITA No.3802/Del/2019 10 11. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 12.09.2022. Sd/- Sd/- (PRADIP KUMAR KEDIA) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 12 th September, 2022. dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi