Maxima Systems Ltd., Valsad V. The ACIT., Valsad Circle, Valsad

ITA 3929/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6018 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-06-2010
• Assessment Year: 1995-1996
• Appeal Filed On: 24-10-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: RASHESH SHAH
• Keywords: Depreciation; Question of law; Wrong claim; Unabsorbed depreciation; Set aside
• Section: 143(3); 80HHC; 192; 131; 68; 148; 6; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.3929/AHD/2007 A. Y.: 1995-96 MAXIMA SYSTEMS LTD., SURAJ ESTATE, KALASH ROAD, VALSAD PA NO. AABCM 5861 H VS THE A. C. I. T., VALSAD CIRCLE, ASHISH BUILDING, NARANGDAS PATEL MARG, BEHIND MADANWAD, VALSAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RASHESH SHAH, AR RESPONDENT BY SMT. NEETA SHAH, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), VALSAD DATED 13-09 -2007 FOR ASSESSMENT YEAR 1995-96, CHALLENGING LEVY OF PENALTY LEVIED U/ S 271 (1) ( C ) OF THE IT ACT. IN THE GROUNDS OF APPEAL, THE ASSESSEE CHALLEN GED THE LEVY OF PENALTY OF RS.30,00,000/- WHICH IS RECTIFIED BY AMOUNT OF R S.28,07,744/-. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE CLAIMED DEDUCTION U/S 880 HHC OF THE IT ACT IN RESPECT OF E XPORT OF COMPUTER SOFTWARE WHILE FILING ITS RETURN OF INCOME. THE ASS ESSEE CLAIMED TO HAVE PURCHASED THE SOFTWARE FROM M/S. GUJARAT COTEX LTD. AND EXPORTED THE SAME FOR RS.61,03,793/- BROUGHT TO INDIA BY WAY OF CONVERTIBLE FOREIGN EXCHANGE. THE AO ON EXAMINATION OF THE STATEMENT OF THE CHAIRMAN OF GUJARAT COTEX LTD. RECORDED U/S 131 OF THE IT ACT A ND EVIDENCES FILED BY THE ASSESSEE, PURCHASE OF SOFTWARE CLAIMED BY THE A SSESSEE WAS FOUND TO BE BOGUS AND TREATED THE AMOUNT OF RS.61,03,793/- A S UNEXPLAINED ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 2 INCOME OF THE ASSESSEE WHILE COMPLETING THE ASSESSM ENT U/S 143(3) OF THE IT ACT WITHOUT ALLOWING CORRESPONDING EXPENDITU RE RELATING TO PURCHASE OR OTHER INCIDENTAL EXPENSES. SINCE THERE WAS NO EXPORT OF SOFTWARE AS CLAIMED BY THE ASSESSEE THE AO DISALLOW ED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80 HHC OF THE IT ACT. ON APPEAL, THE LEARNED CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE AND DIRECTED THE AO TO TAX THE SUM OF RS.61,03,793/- AND UPHELD THE DISALLOWAN CE BY WAY OF CLAIM U/S 80 HHC OF THE IT ACT. THE DEPARTMENT AS WELL AS THE ASSESSEE WENT IN APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL ACCE PTED THE AOS CONCLUSION THAT THERE WAS NEITHER PURCHASE OF SOFTW ARE NOR ANY EXPORT AND DIRECTED THE AO THAT THE AMOUNT OF RS.61,03,793 /- ACTUALLY RECEIVED BY THE ASSESSEE HAS TO BE SEPARATELY ADDED AS UNEXP LAINED RECEIPT. ACCORDINGLY, THE AO FINALIZED THE REASSESSMENT AND TREATED RS.61,03,793/- AS UNEXPLAINED INCOME AS PER DIRECTI ON OF THE TRIBUNAL AND ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY PENALTY U/S 271(1) ( C ) OF THE IT ACT SHOULD NOT BE LEVIED TO THE EXTENT OF ADDITION MADE IN THE ASSESSMENT ORDER AND SUSTAINED BY THE T RIBUNAL. IN REPLY, THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SAID INCOME IS PART AND PARCEL OF TURNOVER AS STATED IN THE AUDIT REPORT AN D THE ULTIMATE CONCLUSION ARISING FROM THE ITATS ORDER IS THAT TH E ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80 HHC OF THE IT AC T AND HENCE, PENALTY CANNOT BE IMPOSED SINCE THERE IS NO CONCEALMENT OF INCOME. THE AO LEVIED THE PENALTY BY OBSERVING THAT THE INTENTION OF THE ASSESSEE FOR MAKING SUCH FALSE CLAIM OF ALLEGED PURCHASE AND EXP ORT SALE FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80HHC OF THE IT A CT IS FOUND TO BE MALA FIDE. THE AO ACCORDINGLY, LEVIED PENALTY OF RS .30,00,000/- U/S 271 (1) ( C ) OF THE IT ACT. 4. PENALTY ORDER WAS CHALLENGED BEFORE THE LEARNED CIT(A) AND THE ASSESSEE SUBMITTED THAT THE SAID AMOUNT WAS LATER O N RECTIFIED U/S 154 AND THE INCOME WAS DETERMINED AT RS.23,29,281/- AND SUBSEQUENTLY ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 3 ANOTHER ORDER U/S 154 WAS PASSED ON 16-03-2007 DETE RMINING THE TOTAL INCOME AT RS.3,28,357/- AFTER ALLOWING UNABSORBED D EPRECIATION LOSS. HOWEVER, ACCORDING TO THE ASSESSEE THE BUSINESS LOS S WAS NOT SET OFF AGAINST THE INCOME OF RS.61,03,790/- AS IT WAS TAXE D AS INCOME FROM OTHER SOURCES. THE ASSESSEE FURTHER SUBMITTED THAT THERE IS NO QUESTION OF IMPOSING PENALTY ON THE AMOUNT OF RS.61,03,793/- AS THE SAID AMOUNT WAS ALREADY INCLUDED IN THE TOTAL TURNOVER. IT WAS ALSO SUBMITTED THAT THE ULTIMATE OUTCOME AFTER THE ORDER OF THE TRIBUNAL IS THAT THE AO DID NOT GRANT DEDUCTION U/S 80 HHC IN RESPECT OF EXPORT OF SOFTWARE WHICH IT HAS ORIGINALLY CLAIMED AND AS A RESULT THERE IS POSITIV E TOTAL INCOME OF RS.3,28,357/- AS PER ORDER DATED 16-03-2007. ON THE ALTERNATE CONTENTION, THE ASSESSEE SUBMITTED THAT THE AMOUNT OF TAXABLE INCOME IS ULTIMATELY WORKED OUT AT RS.3,28,357/- AND PENALTY COULD BE IMPOSED ONLY ON THIS AMOUNT AND NOT ON RS.61,03,793/- AND P ENALTY WAS REQUIRED TO BE WORKED OUT ON THE DIFFERENCE OF INCO ME ASSESSED WHICH IS RS.3,28,357/- AND THE INCOME RETURNED IS RS. NIL. T HUS, THE ASSESSEE SUBMITTED THAT THE AO HAS ERRED IN IMPOSING PENALTY ON THE AMOUNT OF RS.61,03,790/- AS EXPLANATION (4) TO SECTION 271 (1 ) ( C ) OF THE IT ACT DOES NOT PERMIT IMPOSITION OF PENALTY ON THE SAID A MOUNT. THE ASSESSEE FURTHER SUBMITTED THAT PENALTY CAN BE JUSTIFIED ONL Y IF THE ASSESSEE FAILS TO OFFER ANY EXPLANATION OR HIS EXPLANATION IS FOUN D TO BE FALSE AND RELIED UPON SEVERAL JUDICIAL PRONOUNCEMENTS IN SUPPORT OF HIS CONTENTION. 5. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND MATERIAL ON RECORD CONFIRMED THE PENALTY LEVIED U/S 271(1) ( C ) IN PRINCIPLE BUT LEVIED MINIMUM PENALTY. THE LEARNED C IT(A) ALSO FOUND THAT THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE DISTINGUISHABLE ON FACTS AS NOTED ABOVE. HIS FINDIN GS ARE REPRODUCED AS UNDER: 6.3 I HAVE PERUSED THE FACTS OF THE CASE. THE APPEL LANT HAS RECEIVED A FOREIGN REMITTANCE OF RS.61,03,790/- AND THE ASSESSING ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 4 OFFICER HAS TREATED SUCH REMITTANCE AS INCOME U/S 6 8 OF THE ACT. THE HONORABLE ITAT AGREED WITH THE ASSESSING OFFICERS CONCLUSION THAT THERE WAS NEITHER PURCHASE OF SOFTWARE NOR ANY EXPO RT OF SOFTWARE AND THE ASSESSING OFFICER IS JUSTIFIED IN DENYING D EDUCTION U/S. 80 HHC ON THE ALLEGED EXPORT OF SOFTWARE. THUS THE APP ELLANTS CLAIM REGARDING PURCHASE AND EXPORT SALE OF SOFTWARE HAVE BEEN FOUND TO BE BOGUS BY THE ASSESSING OFFICER, WHICH HAS BEEN C ONFIRMED BY THE ITAT. ON A PERUSAL OF THE FACTUAL MATRIX OF THE CAS E I AM CONSTRAINED TO AGREE WITH THE ASSESSING OFFICER THAT THE INTENT ION OF THE APPELLANT FOR MAKING SUCH FALSE CLAIMS OF ALLEGED PURCHASE AN D EXPORT SALE OF SOFTWARE FOR THE PURPOSE OF CLAIMING DEDUCTION U/S. 80 HHC IS MALAFIDE AND THE ASSESSING OFFICER HAS VALIDLY INIT IATED PENALTY U/S. 271 (1) ( C ) OF HE ACT. 6.4 AS REGARDS THE ALTERNATE CONTENTION TAKEN BY TH E APPELLANT THAT THE AMOUNT OF TAXABLE INCOME IS ULTIMATELY WOR KED OUT AT RS.3,28,357/- AND PENALTY COULD BE IMPOSED ONLY ON THIS AMOUNT OF RS.3,28,357/- AND NOT ON RS.61,03,793/-, I AM OF TH E OPINION THAT SINCE THE AMOUNT OF RS.61,03,793/- IS THE UNEXPLAIN ED RECEIPT IN THE BOOKS OF ACCOUNTS OF THE APPELLANT THE ASSESSING OF FICER HAS CORRECTLY INITIATED PENALTY ON THE SUM OF RS.61,03,793/-. THE ALTERNATE CONTENTION OF THE APPELLANT IS ALSO REJECTED. THUS THIS GROUND OF APPEAL RAISED BY THE APPELLANT IS DISMISSED. 7. AS REGARDS GROUND NO.2 THE APPELLANT CONTENDED T HAT THE ASSESSING OFFICER HAS ERRED IN LEVYING PENALTY OF R S.30,00,000/- INSTEAD OF RS.28,07,744/-. 7.1 I HAVE PERUSED THE ORDER IMPOSING PENALTY. IN T HE CALCULATION PART THE ASSESSING OFFICER HAS CALCULATED THE MINIM UM PENALTY LEVIED AT RS.28,07,744/-. I FIND MERIT IN THE CONTENTION O F THE APPELLANT AND THE ASSESSING OFFICER IS DIRECTED TO LEVY PENALTY O F RS.28,07,744/-. THE APPELLANT SUCCEEDS IN THIS GROUND OF APPEAL. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) AND ALSO SUBMITTED T HAT THE ASSESSEE PURCHASED SOFTWARE FROM M/S. GUJARAT COTEX LTD. WHI CH WAS NOT CONSIDERED TO BE GENUINE BUT THE ASSESSEE PRODUCED THE PURCHASE VOUCHERS/BILLS FOR THE PURCHASE OF SOFTWARE FROM TH E SAID PARTY. THE INVOICES WERE PRODUCED BEFORE THE AO AT THE ASSESSM ENT STAGE. THE PAYMENT WAS MADE THROUGH BANKING CHANNEL WHICH WAS NOT SHOWN AS ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 5 SALES IN THE BOOKS OF ACCOUNT OF M/S. GUJARAT COTEX LTD. BUT IT WAS SHOWN AS LOAN WHICH WAS NEVER GRANTED BY THE ASSESS EE. THIS PARTY TREATED THE PAYMENT THROUGH CHEQUE AS LOAN INSTEAD OF ADJUSTING IT AGAINST SALE ONLY TO EVADE PAYMENT OF TAX ON SALE. HE HAS SUBMITTED THAT THE REMITTANCE HAS BEEN SHOWN AS PART OF THE TURNOV ER. THEREFORE, THE ASSESSEE DISCLOSED ALL THE PARTICULARS BEFORE THE L EARNED CIT(A) AND THE SAME WERE SHOWN IN THE TURNOVER IN THE AUDIT REPOR T ALSO. THE ASSESSEE ACCORDINGLY CLAIMED DEDUCTION U/S 80 HHC OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO LATE R ON PASSED ORDER U/S 154 OF THE IT ACT DATED 16-03-2007 REVISING THE TOTAL INCOME AT RS.3,28,354/-. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THOUGH THE TRIBUNAL CONFIRMED THE ADDITION BUT DIRE CTED THE AO TO RECOMPUTE THE INCOME AS PER FINDINGS GIVEN IN THE O RDER. HE HAS, THEREFORE, SUBMITTED THAT THE ASSESSEE HAS NOT CONC EALED PARTICULARS OF INCOME AND HAS ALSO NOT FILED INACCURATE PARTICULAR S OF INCOME. HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 IN WHICH IT WAS HELD THAT BY ANY STRETCH OF IMAGINATION MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING OF INACCURATE P ARTICULARS OF INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED U PON THE DECISIONS OF HONBLE GUJARAT HIGH COURT IN THE CASE S OF CIT VS JALARAM OIL MILLS 253 ITR 192 AND NATIONAL TEXTILES VS CIT 249 ITR 125 IN WHICH IT WAS HELD THAT EXPLANATION THAT CASH CREDITS REPRESENTED TEMPORARY LOANS. NO POSITIVE EVIDENCE THAT EXPLANAT ION WAS FALSE. NOTHING ON RECORD TO SHOW CASH CREDITS CONSTITUTED INCOME OF THE ASSESSEE. THEREFORE, APPLICATION OF EXPLANATION TO SECTION 271 (1) ( C ) NOT JUSTIFIED. THE LEARNED COUNSEL FOR THE ASSESSEE IN THE ALTERNATIVE CONTENTION SUBMITTED THAT SINCE THE ASS ESSEE FILED RETURN OF INCOME AT NIL AND ULTIMATELY INCOME IS ASSESSED AT RS.3,28,357/-, THEREFORE, PENALTY MAY BE IMPOSED ONLY ON THE AMOUN T OF RS.3,28,357/- AS PER EXPLANATION (4) ( C ) TO SECTION 271 (1) ( C ) OF THE IT ACT. ON THE ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 6 OTHER HAND, THE LEANED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE TRIBUNAL HAS GIVEN A SPECIFI C FINDING AGAINST THE ASSESSEE THAT THE ASSESSEE MADE A BOGUS CLAIM OF SA LE AND PURCHASE OF SOFTWARE AND CONFIRMED THE ADDITION ON MERIT VIDE O RDER DATED 23-12-2005 IN ITA NO.957/AHD/2003, THEREFORE, FINDI NG OF FACT HAS REACHED FINALITY. EXPLANATION (1) TO SECTION 271 (1 ) ( C ) OF THE IT ACT CLEARLY ATTRACTED BECAUSE THE ASSESSEE MADE A FALSE CLAIM U/S 80 HHC OF THE IT ACT OF PURCHASE AND SALE AND EXPORT OF SOFTW ARE. THE LEARNED DR SUBMITTED THAT SINCE ADDITION ON MERIT HAS BEEN CON FIRMED AND THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM, THEREFOR E, PENALTY WAS RIGHTLY IMPOSED IN THE MATER. THE LEARNED DR SUBMITTED THAT PENALTY ON WHOLE OF THE AMOUNT SHOULD HAVE BEEN IMPOSED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. THE FACTS AS NOTED ABOVE IN TH IS ORDER ARE NOT IN DISPUTE. IT IS NOT IN DISPUTE THAT ON EXAMINATION O F THE CLAIM OF THE ASSESSEE, IT WAS FOUND THAT THE PURCHASE OF SOFTWAR E CLAIMED BY THE ASSESSEE WAS BOGUS. HENCE, THE AMOUNT OF RS.61,03,7 93/- WAS TREATED AS UNEXPLAINED INCOME WHILE COMPLETING THE ASSESSME NT. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE APPELLATE AUTHOR ITIES AND ULTIMATELY THE TRIBUNAL CONFIRMED THE ADDITION OF RS.61,03,793 /- WHICH WAS CONFIRMED BY THE LEARNED CIT(A). ACCORDINGLY, IT WA S HELD THAT THE ASSESSEE IS NOT ELIGIBLE TO RELIEF U/S 80 HHC OF TH E IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT SINCE THE A BOVE AMOUNT WAS PART OF THE TURNOVER, THEREFORE, THERE IS NO CONCEA LMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. WE DO N OT AGREE WITH THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE BECAUSE THE TRIBUNAL HAS CONSIDERED THE ABOVE FACTS AND NOTED T HAT WHEN THE PURCHASE AND SALE OF THE SOFTWARE ARE TREATED AS BO GUS, THE PROFIT & LOSS ACCOUNT HAS TO BE RECASTED EXCLUDING THE ABOVE PURC HASE AND SALE OF SOFTWARE. THE ABOVE FINDING OF FACT CLEARLY SHOWS A ND PROVES THAT THE ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 7 ASSESSEE FAILED TO OFFER ANY EXPLANATION REGARDING THE CLAIM OF DEDUCTION U/S 80 HHC OF THE IT ACT ON THE BASIS OF EXPORT OF THE SOFTWARE AND THAT THE EXPLANATION OF THE ASSESSEE WAS FOUND TO BE FAL SE. THE EXPLANATION OFFERED BY THE ASSESSEE WAS ALSO NOT FOUND TO BE SU BSTANTIATED THROUGH ANY MATERIAL ON RECORD. EXPLANATION (1) TO SECTION 271 (1) ( C ) OF THE IT ACT READS AS 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 O FFERS AN EXPLANATION WHICH IS FOUND BY THE [ASSESSING] OFFICER OR THE[CO MMISSIONER (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 EXPLANAT ION 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 RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. 7.1 HONBLE SUPREME COURT IN THE CASE OF CIT VS MUS SADILAL RAM BHAROSE 165 ITR 14 HELD THAT WHERE THE TOTAL INCOME RETURNED BY THE ASSESSEE IS LESS THAN 80 PER CENT OF THE TOTAL INCOME AS ASSESSED, THE EXPLANATION TO SECTION 271 (1) ( C ) OF THE INCOME-TAX ACT 1961, SHIFTS THE BURDEN TO THE ASSESSEE TO SHOW THAT THE DIFFERENCE WAS NOT OWING TO FRAUD OR GROSS OR WILLF UL NEGLECT ON HIS PART. THIS ONUS IS REBUTTABLE. IF, IN AN APPROPRIAT E CASE, THE TRIBUNAL OR THE FACT-FINDING BODY IS SATISFIED ON R ELEVANT AND COGENT MATERIAL ON RECORD AND DRAWS AN INFERENCE TH EREUPON THAT THE ASSESSEE WAS NOT GUILTY OF GROSS OR WILLFUL NEG LECT OR FRAUD, THEN, IN SUCH A CASE, THE ASSESSEE CANNOT COME WITH IN THE MISCHIEF ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 8 OF THE SECTION AND SUFFER PENALTY. THE CONCLUSION O F THE TRIBUNAL IS A CONCLUSION OF FACT AND NO QUESTION OF LAW ARISES . 7.2 THE HONBLE KERALA HIGH COURT IN THE CASE OF DC IT VS K. SURESH KUMAR 253 ITR 640 HELD, THAT THE ASSESSEE ATTEMPTED TO SAY THAT HE HAD RECEIVED MONEY FROM HIS FATHER-IN-LAW WHO WA S EMPLOYED IN A FOREIGN COUNTRY. OBVIOUSLY, NO MONEY FROM A FOREI GN COUNTRY COULD COME INTO HIS HAND LEGALLY EXCEPT THROUGH A B ANK. THE AMOUNT COULD BE PAID OVER TO THE ASSESSEE BY THE FA THER-IN-LAW ONLY BY WAY OF A CHEQUE OR ONLY AFTER WITHDRAWING THE SA ME FROM THE BANK. THE ASSESSEE DID NOT PRODUCE ANY MATERIAL IN SUPPORT OF HIS CASE THAT THE AMOUNT WAS SOMETHING RECEIVED FROM HI S FATHER-IN- LAW, WHO WAS EMPLOYED ABROAD. IN FACT IN HIS EXPLAN ATION BEFORE THE ASSESSING OFFICER DATED AUGUST 29, 1999, HE HAD CLEARLY STATED THAT NO DOCUMENTARY EVIDENCE WAS AVAILABLE IN RESPE CT OF THE RECEIPT OF RS.70,000 FROM HIS FATHER-IN-LAW. IN THA T SITUATION, IT WAS CLEAR THAT HE HAD FAILED TO SUBSTANTIATE HIS EX PLANATION AND HENCE IN TERMS OF EXPLANATION 1 TO SECTION 271 (1) ( C ) OF THE ACT, IT MUST BE TAKEN THAT THERE WAS CONCEALMENT OF INCOME BY THE ASSESSEE MAKING HIM LIABLE TO PENALTY UNDER SECTION 271(1) ( C ). THE BURDEN WAS ON THE ASSESSEE AND HE HAD FAILED TO SUBSTANTIATE HIS EXPLANATION. 7.3 THE HONBLE KERALA HIGH COURT IN THE CASE OF K UTTOOKARAN MACHINE TOOLS VS ACIT 313 ITR 413 - HELD, THAT THE ASSESSEE HAD MADE BOGUS CLAIMS OF INVESTMENT ALLOWANCE AND DEPRECIATI ON IN RESPECT OF MACHINERY WHICH WAS NOT PURCHASED, INSTALLED OR COMMISSIONED DURING THE PREVIOUS YEAR. TOUGH THE RETURNS WERE PR EPARED BY THE AUDITOR FOE THE ASSESSEE, IT WAS FOR THE ASSESSEE T O ENSURE THAT WRONG CLAIMS WERE NOT MADE BY THE PRACTITIONER OR A UDITOR. IMPOSITION OF PENALTY WAS VALID. ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 9 8. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE DECISIONS AND THE DISCUSSION IT IS CLEAR THAT THE ASSESSEE MA DE BOGUS CLAIM OF EXPORT OF SOFTWARE WHICH WAS NOT FOUND TO HAVE BEEN PURCHASED BY THE ASSESSEE. THE CLAIM OF THE ASSESSEE HAS BEEN REJECT ED BY THE TRIBUNAL AS WELL ON MERIT. THEREFORE, EXPLANATION 1 TO SECTION 271 (1) ( C ) OF THE IT ACT CLEARLY ATTRACTED IN THE CASE OF THE ASSESSEE. NO ADEQUATE MATERIAL OR EVIDENCE IS FILED BEFORE US TO SUBSTANTIATE THE CLA IM OF THE ASSESSEE REGARDING GENUINE PURCHASE OF THE SOFTWARE. THE DEC ISIONS RELIED UPON BY LEARNED COUNSEL FOR ASSESSEE ARE CLEARLY DISTINGUIS HABLE ON FACTS AS NOTED ABOVE. WE ARE, THEREFORE, OF THE OPINION THAT THE A UTHORITIES BELOW WERE JUSTIFIED IN HOLDING IT TO BE A CASE OF CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOME. PENALTY ORDERS OF THE AUTHORITIES BELOW ARE CONFIRMED IN LEVYING PENALTY U/S 271 (1) ( C ) OF THE IT ACT. 9. NOW, WE CONSIDER THE ALTERNATE CLAIM OF THE LEAR NED COUNSEL FOR THE ASSESSEE REGARDING CALCULATION AND IMPOSITION OF PE NALTY IN THE MATTER. SECTION 271 ( 1 ) ( C ) (III) OF THE IT ACT PROVIDE S THAT THE AO MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY IN CAS E REFERRED TO IN CLAUSE ( C ) OF SECTION 271 (1) ( C ) IN ADDITION TO TAX, IF ANY PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS THAN, BUT WHICH SHALL N OT EXCEED THREE TIMES, THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REA SON OF CONCEALMENT OF PARTICULARS OF HIS INCOME OR FURNISHING OF INACC URATE PARTICULARS OF SUCH INCOME . EXPLANATION (4) TO SECTION 271 (1) ( C ) OF THE ACT READS AS UNDER: EXPLANATION 4.FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION, THE EXPRESSION THE AMOUNT OF TAX SOUGHT TO BE EVAD ED, [(A) IN ANY CASE WHERE THE AMOUNT OF INCOME IN RE SPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTI CULARS HAVE BEEN FURNISHED HAS THE EFFECT OF REDUCING THE LOSS DECLARED IN THE RETURN OR CONVERTING THAT LOSS INTO INCOME, MEANS T HE TAX THAT WOULD HAVE BEEN CHARGEABLE ON THE INCOME IN RESPECT OF WHICH ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 10 PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTI CULARS HAVE BEEN FURNISHED HAD SUCH INCOME BEEN THE TOTAL INCOM E;] (B) IN ANY CASE TO WHICH EXPLANATION 3 APPLIES, ME ANS THE TAX ON THE TOTAL INCOME ASSESSED [AS REDUCED BY THE AMOUNT OF ADVANCE TAX, TAX DEDUCTED AT SOURCE, TAX COLLECTED AT SOURCE AND SELF- ASSESSMENT TAX PAID BEFORE THE ISSUE OF NOTICE UNDE R SECTION 148 ]; (C) IN ANY OTHER CASE, MEANS THE DIFFERENCE BETWEE N THE TAX ON THE TOTAL INCOME ASSESSED AND THE TAX THAT WOULD HAVE B EEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY TH E AMOUNT OF INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CO NCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED.] 9.1 THE ABOVE PROVISIONS HAVE BEEN SUBSTITUTED BY T HE FINANCE ACT, 2002 WITH EFFECT FROM 01-04-2003. THE HONBLE SUPRE ME COURT IN THE CASE OF CIT VS GOLD COIN HEALTH FOOD PVT. LTD. 304 ITR 308 CONSIDERING THE AMENDED PROVISIONS IN EXPLANATION (4) HELD THAT EXPLANATION 4 TO SECTION 271 (1) ( C ) (III) OF THE INCOME-TAX ACT, 1961, REGARDING THE IMPOSITION OF PENALTY8 EVEN IF THE RETURNED INCOME IS A LOSS, IS CLARIFICATORY AND NOT SUBSTANTIVE. IT APPLIES EVEN TO ASSESSMENT YEARS PRIOR TO APRIL 1, 2003, THE DATE ON WHICH IT WAS BROUGHT INTO FORCE. WHAT THE FINANCE ACT, 2002, INTENDED WAS TO MAKE THE POSITION EXPLICIT WHICH OTHERWISE WAS IMPLIED. 9.2 THE ABOVE DECISION WOULD SHOW THAT THE ABOVE AM ENDED PROVISIONS IN EXPLANATION (4) TO SECTION 271 (1) ( C ) OF THE IT ACT IS APPLICABLE TO THE ASSESSMENT YEAR UNDER APPEAL. 10. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE PROVISO, IT IS CLEAR THAT THE ASSESSEE FILED RETURN OF INCOME A T NIL INCOME WHICH IS ULTIMATELY COMPUTED BY THE AO AT RS.3,28,357/- VIDE ORDER DATED 16-03-2007. THE CONDITIONS OF SUB CLAUSE (A) AND (B ) OF EXPLANATION (4) TO SECTION 271 (1) ( C ) OF THE IT ACT THUS WOULD NOT APPLY IN THE CASE OF THE ASSESSEE. SUB CLAUSE ( C ) TO EXPLANATION (4) TO SECTION 271 (1) ( C ) OF ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 11 THE IT ACT WOULD APPLY IN THE CASE OF THE ASSESSEE IN VIEW OF THE COMPUTATION OF INCOME AS ABOVE. THERE IS ONE MORE ASPECT WHICH IS REQUIRED TO BE CLARIFIED. AS PER CLAUSE (C) OF EXP LANATION (4) TO SECTION 271(1) ( C ) OF THE IT ACT, THE BASIS FOR LEVY OF P ENALTY WHICH IS TO BE LEVIED IS TO BE CALCULATED AS THE DIFFERENCE BETWEEN THE T AX ON THE TOTAL INCOME ASSESSED AND THE TAX ON THE INCOME WHICH IS WORKED OUT AFTER REDUCING THE ADDITION IN RESPECT OF WHICH IT IS FOUND THAT T HE ASSESSEE HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PARTIC ULARS OF INCOME. THUS, THERE ARE TWO LIMBS FOR WORKING OUT QUANTUM O F PENALTY. THE FIRST LIMBS IS THE TAX ON ASSESSED INCOME AND SECOND LIMB S IS THE TAX ON INCOME SURVIVING AFTER REDUCING THE CONCEALED INCOM E FROM THE ASSESSED TOTAL INCOME. FOR WORKING OUT THE SECOND LIMB THE W ORDS USED IN THE CLAUSE IS TOTAL INCOME REDUCED BY THE AMOUNT OF C ONCEALED INCOME. THIS TOTAL INCOME IS ONE WHICH IS ASSESSED AS IT HAS A R EFERENCE WITH THE FIRST LIMBS. THE TWO TOTAL INCOMES ONE MENTIONED IN THE FIRST LIMBS AND THE OTHER MENTIONED IN THE SECOND LIMBS CANNOT BE TREAT ED DIFFERENTLY. BOTH ARE TOTAL INCOME ASSESSED. THEREFORE, IN THE SECO ND LIMBS ALSO, WE HAVE TO CONSIDER THE TOTAL INCOME AS ASSESSED FOR SUBS EQUENTLY REDUCING THERE FROM, THE CONCEALED INCOME. THE LEARNED DR SO UGHT TO ARGUE THAT THIS TOTAL INCOME SHOULD BE PRIOR TO ADJUSTMENT OF ANY BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION WHICH IN THIS CASE IS RS.20,10,924/- AND AFTER ADJUSTMENT OF SUCH BROUGHT FORWARD LOSS/U NABSORBED DEPRECIATION OF RS.20,10,357/-, FINALLY ASSESSED IN COME WAS WORKED OUT TO RS.3,28,357/- AS DETERMINED BY THE AO VIDE HIS O RDER DATED 16-03-2007. IN OTHER WORDS THE LEARNED DR SOUGHT TO IMPRESS THAT WHAT IS TO BE CONSIDERED HERE IS THE GROSS TOTAL INCOME WHICH IS PRIOR TO ADJUSTMENT OF BROUGHT FORWARD LOSS OF UNABSORBED DE PRECIATION AND NOT THE TOTAL INCOME DETERMINED AFTER ADJUSTMENT OF SUC H LOSS. IN THE PRESENT CASE, THE TOTAL INCOME ASSESSED IS RS.3,28,357/-. THIS IS THE FIGURE WHICH IS TO BE ADOPTED IN BOTH THE LIMBS OF CLAUSES ( C ) OF EXPLANATION (4) TO SECTION 271 (1) ( C ) OF THE IT ACT. IF FOR TH E PURPOSES OF FIRST LIMBS ITANO.3929/AHD/2007 MAXIMA SYSTEMS LTD. VS ACIT, VALSAD 12 TOTAL INCOME ASSESSED IF RS.3,28,357/- THEN FOR THE PURPOSES OF SECOND LIMBS TOTAL INCOME ASSESSED WOULD BE TAKEN AT RS.3, 28,357/. THERE FROM THE CONCEALED INCOME OF RS.61,03,790/- IS TO BE RE DUCED. AFTER REDUCTION WHAT IS WORKED OUT IS A LOSS OF RS.57,75,433/-. THE TAX PAYABLE THEREOF WOULD COME TO RS. NIL AND, THEREFORE, THE TAX FOR T HE PURPOSE OF SECOND LIMBS WOULD BE RS. NIL. THE TAX FOR THE PURPOSE OF FIRST LIMBS WOULD BE THE TAX ON RS.3,28,357/-. THEREFORE, THE DIFFERENCE BETWEEN THE TWO WOULD ALSO BE THE TAX ON RS.3,28,357/-. 11. THE LEARNED COUNSEL FOR THE ASSESSEE IS, THEREF ORE, JUSTIFIED IN CONTENDING THAT PENALTY SHALL HAVE TO BE CALCULATED AT THE REVISED TOTAL INCOME OF RS.3,28,357/-. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW TO THAT EXTENT AND DIRECT THE AO TO LEVY MINIMUM PENALTY ON THE TAX TO BE CALCULATED ON TOTAL INCOME ASSESSED BY THE AO AT RS.3,28,357/-. 12. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED ON 11-06-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 11-06-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD