DCIT, New Delhi V. M/s. National Textiles Corporation Ltd., New Delhi

ITA 5757/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3457 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 15-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S RANA
• Keywords: Business income; Depreciation; Salary income; Additional depreciation; Question of law; Wrong claim; Revised return; Unabsorbed depreciation
• Section: 40A(3); 143(3); 133A; 14A; 27; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DLEHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER I.T.A. NO.5757/DEL/2015 ASSESSMENT YEAR: 2009-10 DY. COMMR. OF INCOME-TAX VS M/S NATIONAL TEX TILE CORPORATION LTD. CIRCLE 17(2), NEW DELHI. 9 TH FLOOR, VANDANA BUILDING, 11 TOLSTOY MARG, NEW DELHI. (PAN: AAACN1107A) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.S. RANA, CIT DR DEPARTMENT BY: SMT. RANO JAIN, SHRI ASHISH GOEL MS DEVINA SHARMA DATE OF HEARING: 30.11.2017 DATE OF PRONOUNCEMENT: 22 .02.2018 ORDER PER L.P. SAHU, AM THIS IS AN APPEAL FILED BY THE REVENUE U/S 271(1)(C ) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AGAINST AN ORDER DATED 17.7.2015 PASSED BY THE COMMISSIONER OF INCOME-TAX (A)-6, NE W DELHI (HEREINAFTER REFERRED 2 TO AS THE CIT(A)} IN APPEAL NO.94/14-15 FOR THE AS SESSMENT YEAR 2009-10. FOLLOWING GROUNDS OF APPEAL WERE RAISED: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE PENALTY OF RS.4,40,47,933/- IMPOSED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE ACT WITHOUT CONSIDERING THE PROVISIONS OF EXPLANATION 1 TO SECT ION 271(1)(C) OF THE ACT? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE PENALTY IMP OSED BY THE AO U/S 271(1)(C) OF THE ACT WITHOUT CONSIDERING THAT THE A SSESSEE HAS MADE A CLAIM WHICH IS INCORRECT IN LAW AND THE EXPLANATI ON OF THE ASSESSEE IS NEITHER SUBSTANTIATED NOR SHOWN TO BE BONAFIDE? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE PENALTY IGN ORING RATIO DECIDENDI AS LAID DOWN BY HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. ZOOM COMMUNICATIONS P. LTD. (327 ITR 510)? 2. THE BRIEF FACTS OF THIS CASE ARE THAT THE ASSESS EE, A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE , FILED ITS RETURN OF INCOME ON 28.7.2009 DECLARING AN INCOME OF RS.1,16,540/-. SU BSEQUENTLY, ON 31.3.2010, ASSESSEE REVISED ITS RETURN DECLARING NIL INCOME. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT ON 22.3.2011. LATER ON THE CASE W AS SELECTED FOR SCRUTINY. DURING THE COURSE OF SCRUTINY PROCEEDINGS, AO MADE THE FOLLOWING ADDITIONS: I) DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT RS.1,17,24,660/- II) DISALLOWANCE OF PRIOR PERIOD EXPENSES RS.16,61,43 ,509/- III) DISALLOWANCE ON ACCOUNT OF FOREIGN EXCHANGE RS.14, 25,49,948/- FLUCTUATION LOSS 3 3. AGGRIEVED BY THE ABOVE THREE ADDITIONS, ASSESSEE APPEALED BEFORE THE CIT(A). THE LEARNED CIT(A) WHILE ALLOWING DEPRECIA TION @ 15% PLUS ADDITIONAL DEPRECIATION @ 20% ON THE INCREASE IN THE VALUE OF PLANT AND MACHINERY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION, PARTLY ALL OWED ITS APPEAL. THE LEANED AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) ON THE TOTAL FOREIGN EXCHANGE FLUCTUATION LOSS DEBITED TO THE P&L ACCOUNT BY HOLD ING THAT THE ASSESSEE HAS CONCEALED AS ALSO FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND LEVIED A PENALTY OF RS.4,40,47,993/- . ASSESSEE APPEALED AGAINST THE PENALTY ORDER AND THE LEARNED CIT(A) CANCELLED THE PENALTY HOLDING TH AT AO FAILED TO PROVE THAT THE CLAIM WAS MADE WITH MALAFIDE INTENTION. 4. THE LEARNED DR RELIED ON THE ORDER OF AO. IN SU PPORT OF HIS ARGUMENTS, HE SUBMITTED THAT THE FOLLOWING DECISIONS MAY BE CONSI DERED WITH REGARD TO LEVY OF PENALTY U/S 271 (1 )(C) OF THE ACT: 1. UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS F F2007) 295 ITR 244] WHERE HONBLE SUPREME COURT HELD THAT PENALTY U/S 2 71(1)(C) IS A CIVIL LIABILITY FOR WHICH WILLFUL CONCEALMENT IS NOT AN E SSENTIAL INGREDIENT FOR ATTRACTING THE CIVIL LIABILITY AS IS THE CASE IN TH E MATTER OF PROCEEDINGS UNDER SECTION 276C; 2. CIT VS ZOOM COMMUNICATION (P.) LTD. [191 TAXMAN 179 (DELHI)/[2010] 327 ITR 510 (DELHI)/[2010] 233 CTR 465] 4 WHERE HONBLE DELHI HIGH COURT HELD THAT IF ASSESSE E MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW, BUT IS ALSO WHOLLY WI THOUT ANY BASIS AND EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAI M IS NOT FOUND TO BE BONA FIDE, EXPLANATION 1 TO SECTION 271(1 )(C) WOUL D COME INTO PLAY AND ASSESSEE WILL BE LIABLE TO PENALTY; 3. CIT VS MOSER BAER INDIA LTD. (184 TAXMAN 8 (SC)/R2 0091 315 ITR 460 (SC)/R20091 222 CTR 213) WHERE HONBLE SUPREME COURT CONFIRMED PENALTY UNDER SECTION 271(1)(C) FOR WRONG ADJUSTMENT OF UNABSORBED DEPRECIATION. 4. C1T VS GOLD COIN HEALTH FOOD (P.) LTD (172 TAXMAN 3 86 (SC)/R20081 304 ITR 308 (SCVR20081 218 CTR 359) : WHERE HONBLE DELHI SUPREME COURT HELD THAT AMENDME NT MADE IN EXPLANATION 4 TO SECTION 271 (1 )(C)(III) WITH EFFE CT FROM 1-4-2003 IS CLARIFICATORY AND, THEREFORE, WILL HAVE RETROSPECTI VE EFFECT. PENALTY U/S 271(1)(C) COULD BE LEVIED IN CASE OF LOSS RETURN 5. MAK DATA P. LTD VS. CIT T38 TAXMANN.COM 448 (SC)/R2 0131 358 ITR 593 WHERE HONBLE SUPREME COURT HELD THAT UNDER EXPLANA TION 1 TO SECTION 271(1 )(C), VOLUNTARY DISCLOSURE OF CONCEALED INCOM E DOES NOT ABSOLVE ASSESSEE OF S. 271(1)(C) PENALTY IF THE ASSESSEE FA ILS TO OFFER AN EXPLANATION WHICH IS BONA FIDE AND PROVES THAT ALL THE MATERIAL FACTS HAVE BEEN DISCLOSED '9. WE ARE OF THE VIEW THAT THE SURRENDER OF INCOME IN THIS CASE IS NOT VOLUNTARY IN THE SENSE THAT THE OFFER OF SURRENDER WAS MADE IN VIEW OF DETECTION MADE BY THE AO IN THE SEARCH CONDUCTED IN THE SISTER CONCERN OF 5 THE ASSESSEE. IN THAT SITUATION, IT CANNOT BE SAID THAT THE SURRENDER OF INCOME WAS VOLUNTARY. AO DURING THE COURSE OF ASSES SMENT PROCEEDINGS HAS NOTICED THAT CERTAIN DOCUMENTS COMPRISING OF SH ARE APPLICATION FORMS, BANK STATEMENTS, MEMORANDUM OF ASSOCIATION OF COMPA NIES, AFFIDAVITS, COPIES OF INCOME TAX RETURNS AND ASSESSMENT ORDERS AND BLANK SHARE TRANSFER DEEDS DULY SIGNED, HAVE BEEN IMPOUNDED IN THE COURSE OF SURVEY PROCEEDINGS UNDER SECTION 133A CONDUCTED ON 16.12.2 003, IN THE CASE OF A SISTER CONCERN OF THE ASSESSEE. THE SURVEY WAS COND UCTED MORE THAN 10 MONTHS BEFORE THE ASSESSEE FILED ITS RETURN OF INCO ME. HAD IT BEEN THE INTENTION OF THE ASSESSEE TO MAKE FULL AND TRUE DIS CLOSURE OF ITS INCOME, IT WOULD HAVE FILED THE RETURN DECLARING AN INCOME INC LUSIVE OF THE AMOUNT WHICH WAS SURRENDERED LATER DURING THE COURSE OF TH E ASSESSMENT PROCEEDINGS. CONSEQUENTLY, IT IS CLEAR THAT THE ASS ESSEE HAD NO INTENTION TO DECLARE ITS TRUE INCOME. IT IS THE STATUTORY DUTY O F THE ASSESSEE TO RECORD ALL ITS TRANSACTIONS IN THE BOOKS OF ACCOUNT, TO EXPLAI N THE SOURCE OF PAYMENTS MADE BY IT AND TO DECLARE ITS TRUE INCOME IN THE RE TURN OF INCOME FILED BY IT FROM YEAR TO YEAR. THE AO, IN OUR VIEW, HAS RECORDE D A CATEGORICAL FINDING THAT HE WAS SATISFIED THAT THE ASSESSEE HAD CONCEAL ED TRUE PARTICULARS OF INCOME AND IS LIABLE FOR PENALTY PROCEEDINGS UNDER SECTION 271 READ WITH SECTION 274 OF THE INCOME TAX ACT, 1961.' 6. B.A. BALASUBRAMANIAM & BROS. CO VS CIT [116 TAXMAN 842,236 ITR 977, 157 CTR 556] WHERE HONBLE SUPREME COURT HELD THAT DIFFERENCE BE TWEEN INCOME ASSESSED AND INCOME RETURNED BEING MORE THAN 20 PER CENT, EXPLANATION TO SECTION 271(1)(C) BECAME APPLICABLE AND ASSESSEE HA VING FAILED TO DISCHARGE ONUS BEING CAST ON ASSESSEE BY VIRTUE OF SAID EXPLANATION, ASSESSING OFFICER WAS JUSTIFIED IN IMPOSING PENALTY . 7. CIT VS GATES FOAM & RUBBER CO T91 ITR 467] CIT VS INDIA SEAFOOD [105 ITR 708] 6 WHERE HONBLE KERALA HIGH COURT HELD THAT CLAIMING EXCESSIVE DEDUCTION ALSO AMOUNTS TO CONCEALMENT OF INCOME 8. STEEL INGOTS LTD VS. CIT [296 ITR 228] WHERE HONBLE MADHYA PRADESH HIGH COURT HELD THAT I N CASE OF CONCEALMENT OF TRUE INCOME CHARGEABLE TO TAX BY MAK ING BOGUS CLAIM, LEVY OF PENALTY U/S 271 (1 )(C) READ WITH EXPLANATION 1 IS JUSTIFIED. 9. CIT VS ESCORTS FINANCE LTD [183 TAXMAN 453 (DELHI)/[2010] 328 ITR 44 (DELHI)/[2009] 226 CTR 105] WHERE HONBLE DELHI HIGH COURT HELD THAT IF CLAIM M ADE IN RETURN OF INCOME APPEARS TO BE EX FACIE BOGUS, IT WOULD BE TREATED A S A CASE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS AND PENALTY PROCEEDING WOULD BE JUSTIFIED. 5. HE FURTHER SUBMITTED THAT THE ENTIRE FACTS AND C IRCUMSTANCES LEADING TO THE LEVY OF PENALTY HAS TO BE SEEN AND SIMPLY BECAUSE I NAPPROPRIATE WORD HAD NOT BEEN DELETED IN THE NOTICE U/S 271(1)(C) DOES NOT MEAN THAT PENALTY PROCEEDINGS GET VITIATED. SECTION 271(1)(C) PROVIDES FOR LEVY OF PENALTY IF THE AO IS SATISFIED THAT ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. IN OTHER WORDS, INCOME TAX A UTHORITY MAY LEVY PENALTY, IF ANY ONE OF THE CONDITIONS IS SATISFIED I.E. (I) ASS ESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME; (II) ASSESSEE HAS FURNISHED INACCURA TE PARTICULARS OF INCOME. IF THE AO LEVIED THE PENALTY ON ANYONE OF THE CHARGE, IT C ANNOT BE HELD THAT PENALTY 7 ORDER IS BAD IN LAW. HE FURTHER SUBMITTED THAT THE LEARNED AO HAS PROPERLY RECORDED HIS SATISFACTION WHILE PASSING ASSESSMENT ORDER AS WELL AS PENALTY ORDER. THEREFORE, IT CLEARLY INDICATES PROPER APPLICATION OF MIND BY THE AO 6. ON THE OTHER HAND, LEARNED AUTHORIZED REPRESENTA TIVE RELIED ON THE ORDER OF CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE T HE AUTHORITIES BELOW. IT IS TO BE NOTED THAT THE AO WHILE IMPOSING PENALTY, HAS GO NE ON A WRONG PREMISES THAT THE CIT(A) HAS CONFIRMED THE DISALLOWANCE OF RS. 14 ,25,49,948/- IN AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE AO U/S 143 (3). IT IS TO BE APPRECIATED THAT THE SUBMISSION OF THE ASSESSEE HAS ALL ALONG B EEN THAT IT HAD MADE THE CLAIM OF THIS AMOUNT ON ACCOUNT OF A BONA FIDE MISTAKE AN D THEREFORE IT PREFERRED NOT TO FILE AN APPEAL ON THIS ACCOUNT BEFORE THE CIT(A). T HE ASSESSEE HAD ASKED FOR THE RELIEF OF DEPRECIATION ON INCREASE IN VALUE OF ASSE T ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION ONLY WHICH IS IN ANY CASE HAS TO BE ALL OWED AS IT AMOUNTS TO ADDITION IN THE VALUE OF ASSET. 7. NO PENALTY U/S 271 (1)(C) IS LEVIABLE IF THE CLA IM HAS BEEN MADE BY ASSESSEE OUT OF A BONA FIDE ERROR. THE ASSESSEE CLAIMED THE FOREIGN EXCHANGE FLUCTUATION AMOUNT ON ACCOUNT OF AN INADVERTENT ERROR AND THIS FACT HAS ALL ALONG BEEN CONTENDED BY THE ASSESSEE RIGHT FROM THE ASSESSMENT PROCEEDINGS U/S 143(3). 8 THIS FACT IS ALSO STRENGTHENED BY THE ACTION OF THE ASSESSEE IN NOT FILING ANY APPEAL BEFORE THE CIT(A) ON THIS ISSUE. IN SUCH A SCENARIO NO PENALTY U/S 271 (1)(C) CAN BE LEVIED. RELIANCE IS PLACED ON THE FOLLOWING JUDGMEN TS: (I) PRICE WATERHOUSE COOPERS PVT. LTD. VS CIT 348 ITR 3 06 (SC) 19. THE CONTENTS OF THE TAX AUDIT REPORT SUGGEST T HAT THERE IS NO QUESTION OF THE ASSESSEE CONCEALING ITS INCOME. THERE IS ALSO N O QUESTION OF THE ASSESSEE FURNISHING ANY INACCURATE PARTICULARS. IT APPEARS T O US THAT ALL THAT HAS HAPPENED IN THE PRESENT CASE IS THAT THROUGH A BONA FIDE AND INADVERTENT ERROR, THE ASSESSEE WHILE SUBMITTING ITS RETURN, FA ILED TO ADD THE PROVISION FOR GRATUITY TO ITS TOTAL INCOME. THIS CAN ONLY BE DESC RIBED AS A HUMAN ERROR WHICH WE ARE ALL PRONE TO MAKE. THE CALIBER AND EXP ERTISE OF THE ASSESSEE HAS LITTLE OR NOTHING TO DO WITH THE INADVERTENT ERROR. THAT THE ASSESSEE SHOULD HAVE BEEN CAREFUL CANNOT BE DOUBTED, BUT THE ABSENC E OF DUE CARE, IN A CASE SUCH AS THE PRESENT, DOES NOT MEAN THAT THE ASSESSE E IS GUILTY OF EITHER FURNISHING INACCURATE PARTICULARS OR ATTEMPTING TO CONCEAL ITS INCOME. 20. WE ARE OF THE OPINION, GIVEN THE PECULIAR FACTS OF THIS CASE, THAT THE IMPOSITION OF PENALTY ON THE ASSESSEE IS NOT JUSTIF IED. WE ARE SATISFIED THAT THE ASSESSEE HAD COMMITTED AN INADVERTENT AND BONA FIDE ERROR AND HAD NOT INTENDED TO OR ATTEMPTED TO EITHER CONCEAL ITS INCO ME OR FURNISH INACCURATE PARTICULARS. (II) CIT VS. M/S BENNETT COLEMAN AND CO. LTD2013 (3) TMI 373 2. SO FAR AS QUESTION (I) IS CONCERNED, THE RESPON DENT- ASSESSEE HAS CLAIMED DEDUCTION OF INTEREST ON TAX FREE BONDS OF RS. 5,60 ,11,644/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASK ED TO GIVE DETAILS OF INTEREST ON TAX FREE BONDS. WHILE PREPARING THE SAI D DETAILS, IT WAS NOTICED THAT 6 PERCENT GOVERNMENT OF INDIA CAPITAL INDEX BONDS P URCHASED DURING THE YEAR HAD INADVERTENTLY BEEN CATEGORIZED AS TAX FREE BOND S AND, THEREFORE, INTEREST OF RS. 75,00,000/- EARNED ON SUCH BONDS HAD ALSO IN ADVERTENTLY ESCAPED TAX. THE ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER. ON FURTHER APPEAL, THE TRIBUNAL IN THE IMPUGNED ORDER RECORDS A FINDING OF FACT THAT BY INADVERTENT MISTAKE INTEREST AT 6 PERCENT O N THE GOVERNMENT OF INDIA 9 CAPITAL INDEX BONDS WAS SHOWN AS TAX FREE BONDS. TH E TRIBUNAL CONCLUDED THAT THERE WAS NO DESIRE ON THE PART OF THE RESPONDENT-A SSESSEE TO HIDE OR CONCEAL THE INCOME SO AS TO AVOID PAYMENT OF TAX ON INTERES T FROM THE BONDS. IN THAT VIEW OF THE MATTER, THE TRIBUNAL DELETED THE PENALT Y IMPOSED UPON THE RESPONDENT- ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT. IN VIEW OF THE FACT THAT THE DECISION OF THE TRIBUNAL IS BASED ON FINDI NG OF FACT THAT THERE WAS AN INADVERTENT MISTAKE ON THE PART OF THE ASSESSEE IN INCLUDING THE INTEREST RECEIVED OF 6 PERCENT ON THE GOVERNMENT OF INDIA CA PITAL INDEX BONDS AS INTEREST RECEIVED ON TAX FREE BONDS. IT IS NOT CONT ENDED BY THE REVENUE THAT ABOVE FINDING OF FACT BY THE TRIBUNAL IS PERVERSE. IN THESE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN THE PROPOSED QUESTION (I ). (III) CIT VS. ESCORTS FINANCE LTD. [2010] 328 ITR 44 (DE LHI) 10 IT IS REPEATEDLY HELD BY THE COURTS THAT THE PENALT Y ON THE GROUND OF CONCEALMENT OF PARTICULARS OR NON-DISCLOSURE OF FUL L PARTICULARS CAN BE LEVIED ONLY WHEN IN THE ACCOUNTS/RETURN AN ITEM HAS BEEN SUPPRESSED DISHONESTLY OR THE ITEM HAS BEEN CLAIMED FRAUDULENT LY OR A BOGUS CLAIM HAS BEEN MADE. WHEN THE FACTS ARE CLEARLY DISCLOSED IN THE RETURN OF INCOME, PENALTY CANNOT BE LEVIED AND MERELY BECAUSE AN AMOU NT IS NOT ALLOWED OR TAXED AS INCOME, IT CANNOT BE SAID THAT THE ASSESSE E HAD FILED INACCURATE PARTICULARS OR CONCEALED ANY INCOME CHARGEABLE TO T AX. FURTHER, CONSCIOUS CONCEALMENT IS NECESSARY. EVEN IF SOME DEDUCTION OR BENEFIT IS CLAIMED BY THE ASSESSEE WRONGLY BUT BONA FIDE AND NO MALA FIDE CAN BE ATTRIBUTED, THE PENALTY WOULD NOT BE LEVIED. A FORTIORARI, IF THERE IS A DELIBERATE CONCEALMENT AND FALSE/INACCURATE RETURN WAS FILED, WHICH WAS REVISED AFTER THE ASSESSEE WAS EXPOSED OF THE FALSEHOOD, IT WOULD BE TREATED AS CONCEALMENT OF INCOME IN THE ORIGINAL RETURN AND WO ULD ATTRACT PENALTY EVEN IF REVISED RETURN WAS FILED BEFORE THE ASSESSM ENT IS COMPLETED. LIKEWISE, WHERE CLAIM MADE IN THE RETURN APPEARS TO BE EX FACIE BOGUS, IT WOULD BE TREATED AS CASE OF CONCEALMENT OR INACCURA TE PARTICULARS AND PENALTY PROCEEDINGS WOULD BE JUSTIFIED. 10 (IV) CIT VS. MAHANAGAR TELEPHONE NIGAM LTD. (2011) 63 I TR 87 THERE IS NO FINDING OF THE AO AS REGARDS ASSESSEE HAVING FURNISHED INACCURATE PARTICULARS ALSO, THERE IS NO DISCUSSION THAT THE EXPLANATION G IVEN BY THE ASSESSEE WAS NOT BONA FIDE THUS, THE IMPOSITION OF PENALTY UNDER S. 271(1)(C) WAS A COMPLETE NON-STARTERTHIS FINDING OF FACT STA NDS AFFIRMED BY THE TRIBUNALA MERE ERRONEOUS CLAIM MADE BY AN ASSESSEE UNDER A BONA FIDE BELIEF THAT IT IS MAINTAINABLE IN LAW, CANNOT BY IT SELF, LEAD TO IMPOSITION OF PENALTYIN THE INSTANT CASE, BOTH THE CLAIMS WERE M ADE UNDER THE BELIEF THAT THEY ARE MAINTAINABLE IN LAWAS REGARDS THE CONTRIB UTIONS MADE TO THE STAFF WELFARE FUND, ASSESSEE HAD MADE THE CLAIM FOR DEDUC TION AS IT GENUINELY DIFFERED WITH THE OPINION OF ITS AUDITOR THAT THE C LAIM WAS DISALLOWABLE SIMILARLY, THE CLAIM OF HIGHER RATE OF DEPRECIATION ON VEHICLES WAS BASED ON THE PREMISE THAT THE VEHICLES USED BY THE ASSESSEE WERE IN THE NATURE OF PLANT AND MACHINERY AS THESE VEHICLES WERE USED TO CORRECT FA ULTS AND TO PROVIDE OTHER SERVICES TO ITS CUSTOMERSDENIAL OF THESE CLAIMS BY THE AO DOES NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAD FURNISHED INAC CURATE PARTICULARS ADMITTEDLY, THE INFORMATION PERTAINING TO BOTH THE CLAIMS WAS PROVIDED IN THE RETURN FILED BY THE ASSESSEE AND THE DOCUMENTS APPE NDED THERETOFINDINGS OF THE TRIBUNAL UPHOLDING THE ORDER OF THE CIT(A) D ELETING THE PENALTY ARE PURE FINDINGS OF FACT AND NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION. 8. IT IS ALSO TO BE APPRECIATED THAT THERE IS A FU LL DISCLOSURE MADE BY THE ASSESSEE IN ITS RETURN OF INCOME AND IN FACT, ALL F ACTS AND FIGURES ARE BEING TAKEN BY THE AO FROM THE RETURN OF INCOME OF THE ASSESSEE ON LY. THE AMOUNT OF FOREIGN EXCHANGE FLUCTUATION IS BEING DULY REFLECTED IN THE BALANCE SHEET OF THE ASSESSEE AS NOTED BY THE AO AT PAGE 5 PARA 5.1 OF THE ASSESS MENT ORDER AS WELL AS BY CIT(A) AT PAGE 13 PARA 6.3. IT IS NOT A CASE OF CONCEALMEN T OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. IN THESE CIRC UMSTANCES, NO PENALTY U/S 271 (1)(C) CAN BE LEVIED. RELIANCE IS PLACED ON THE FOL LOWING JUDGMENTS: 11 (I) CIT VS. RELIANCE PETRO PRODUCTS LTD. 322 ITR 158 (S C) 10. IT WAS TRIED TO BE SUGGESTED THAT S. 14A OF THE ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITURE INCURR ED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFOR E, REITERATED BEFORE US THAT THE AO HAD CORRECTLY REACHED THE CONCLUSION TH AT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT; IT AMOUNTED TO CONCEALMENT OF INCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FO RMS; (I) AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITE M OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME AND, THEREFORE, BOTH TYPE S AMOUNT TO CONCEALMENT OF PARTICULARS OF ONE'S INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WEL L AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NO T. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM W AS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF W OULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER S. 271(1)(C). IF WE ACCEP T THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAI M MADE IS NOT ACCEPTED BY AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENA LTY UNDER S. 271(1)(C). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATU RE. (II) COMMISSIONER OF INCOME TAX LARGE TAXPAYER UNIT V INDIAN RENEWABLE ENERGY (ITA NO. 294/2016 DELHI HIGH COURT ): 7. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSE SSEE PLACED BEFORE US A COPY OF THE P&L ACCOUNT OF THE ASSESSEE FOR THE AY IN QUESTION WHERE THE FACT OF THE SAID AMOUNT BEING CLAIMED AS ADMINISTRA TIVE EXPENSES IS CLEARLY MENTIONED IN THE NOTES TO THE ACCOUNTS. HE POINTS OUT THAT THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] NOT ICED THIS AND THEN PROCEEDED TO REVISE THE ASSESSMENT ORDER UNDER SECT ION 263 OF THE ACT. 8. HAVING CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL OF THE PARTIES, THE COURT IS OF THE VIEW THAT THE DECISION OF THE I T AT WAS A PLAUSIBLE ONE IN 12 THE FACTS AND CIRCUMSTANCES OF THE CASE. THE COURT IS UNABLE TO AGREE WITH THE REVENUE THAT THERE IS A DELIBERATE CONCEALMENT BY THE ASSESSEE WARRANTING THE LEVY OF PENALTY. 9. OTHERWISE ALSO, THE ASSESSEE BEING A PUBLIC SECTOR UNDERTAKING, THERE CANNOT BE ANY ALLEGATION OF MALAFIDE IN THIS CASE. NO PENA LTY UNDER SUCH SITUATION CAN BE LEVIED U/S 271 (1 )(C) OF THE ACT. RELIANCE IS PLAC ED ON THE FOLLOWING JUDGMENTS: (I) DEPUTY COMMISSIONER OF INCOME-TAX VERSUS RURAL ELE CTRICAL COOPERATIVE SOCIETY LTD. [2005] 279 ITR 319 (MP) SO FAR AS THE APPLICABILITY OF THE EXPLANATION TO SECTION 271(1)(C) IS CONCERNED, THE SAME IS NOT ATTRACTED. THE ISSUE OF EXPLANATION WAS CONSIDERED ON THE FACTS AND IT WAS HELD THAT THE SA ME WAS PROPERLY EXPLAINED ON THE FACTS. EVERY CONCEALMENT DOES NOT ATTRACT THE RIGOUR OF SECTION 271(1)(C). IT MUST BE DELIBERATE AND INTENT IONAL BEING IN THE KNOWLEDGE OF THE ASSESSEE SO AS TO EVADE PAYMENT OF INCOME-TAX. THE ASSESSEE BEING A NON-PROFIT ORGANIZATION MANAGED AN D CONTROLLED BY THE GOVERNMENT OF INDIA FOR SUPPLY/DISTRIBUTION OF ELEC TRICITY IN THE STATE, IT CANNOT BE HELD THAT THEY HAD ANY DELIBERATE INTENTI ON TO EVADE PAYMENT OF TAX. IF DUE TO SOME ACCOUNTANCY SYSTEM MAINTAINED, ONE ENTRY COULD NOT BE SUBJECTED TO TAX, THE SAME WAS RIGHTLY NOT MADE THE BASIS FOR IMPOSING A PENALTY OF RS. 1,00,000 UNDER SECTION 271(1)(C) IBI D. (II) COMMISSIONER OF INCOME-TAX VERSUS SENIOR ACCOUNTS OFFICER, MADHYA PRADESH ELECTRICITY BOARD. [2005] 276 ITR 84 (MP) 7. IN OUR OPINION, THE TRIBUNAL RIGHTLY ACCEPTED T HE EXPLANATION OFFERED BY THE BOARD/ASSESSEE. IT WAS NOT A CASE OF DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO AVOID PAYMENT BY WAY OF DEDUCTION F OR BEING DEPOSITED. THE ASSESSEE IS NOT A PRIVATE BUSINESSMAN BUT IT IS A GOVERNMENT STATUTORY ORGANIZATION. MOREOVER THERE WAS SOME CONFUSION AS REGARDS THE EXTENT OF PERCENTAGE TO BE DEDUCTED FROM THE DIFFERENT CLASS OF CUSTOMERS. NO SOONER IT WAS CLARIFIED, THE BOARD MADE COMPLIANCE FROM THEIR OWN FUNDS. 13 (III) STEEL AUTHORITY OF INDIA LTD. VERSUS INCOME-TAX OF FICER. [ITD 100, 029/TTJ 107, 372, ITAT NAGPUR] IN THE FACTS OF THE PRESENT CASE IT IS SEEN THAT TH ERE IS NO EVIDENCE ON RECORD TO SHOW THAT THERE WAS ANY DELIBERATE INTENT ION ON THE PART OF ASSESSEE WHILE MAKING DEDUCTION OF TAX AT SOURCE BY CONSIDERING THE EXEMPTION AVAILABLE TO ITS EMPLOYEES AT RS. 2.50 LA KHS. THERE COULD BE NO PERSONAL GAIN TO ASSESSEE AS IT IS A GOVERNMENT COM PANY AND THEREFORE, ALLEGATION IN THE ORDERS OF LOWER AUTHORITIES AS TO MALA FIDE INTENTION ARE NOT JUSTIFIED. IN THE FACTS OF THE PRESENT CASE, TH E ASSESSEE-COMPANY HAS AMPLY DEMONSTRATED THAT ACTIONS OF ASSESSEE WERE BO NA FIDE BY REFERRING TO VARIOUS CORRESPONDENCES WHICH ARE PLACED IN THE PAPER BOOK. THE COMPANY HAS MADE HONEST ESTIMATE OF SALARY INCOME O F EMPLOYEES FOR DEDUCTION OF TAX AT SOURCE. THE RATIO AS LAID DOWN BY VARIOUS AUTHORITIES REFERRED TO IN THE SUBMISSIONS OF THE COUNSEL OF TH E ASSESSEE FULLY SUPPORTS THE CASE OF ASSESSEE THAT IT WAS A BONA FIDE ESTIMA TE BY THE ASSESSEE FOR THE PURPOSE OF DEDUCTION OF TAX AT SOURCE IN THE CA SE OF ASSESSEE-COMPANY. (IV) DENA BANK. VERSUS INSPECTING ASSISTANT COMMISSIONE R [ITD 025, 109, ITAT BOMBAY] 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE AGREE WITH THE LEARNED DEPARTMENTAL REPRESENTATIVE, SHRI SUBRAMANI AN, THAT AFTER THE AMENDMENT OF SECTION 271(1)(C) OF THE INCOME-TAX AC T, 1961 BY THE FINANCE ACT, 1964 THE ELEMENT OF MEANS ARE IS NOT IMPORTANT AND IN ANY CASE THE ONUS IS NOT ON THE REVENUE TO ESTABLISH MENSREA BEFORE P ENALTY FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THER EOF CAN BE IMPOSED. WE FURTHER AGREE THAT A FRAUDULENT CLAIM OF DEDUCTION IN WORKING OUT THE INCOME AS SUCH AMOUNTS TO CONCEALMENT OF INCOME OR FURNISH ING INACCURATE PARTICULARS THEREOF AS SUPPRESSION OF ANY ITEM OF I NCOME. IT IS, HOWEVER, NECESSARY TO BEAR IN MIND THAT WE ARE DEALING WITH THE CASE OF A NATIONALIZED BANK, WHICH IS FULLY OWNED BY THE GOVERNMENT OF INDIA AND ADMINISTERED BY ITS NOMINEES. IT WOULD NOT BE AN UNREASONABLE PRESU MPTION THAT IT COULD NOT BE THE INTENTION OF AN ORGANIZATION OWNED AND RUN B Y THE GOVERNMENT OF 14 INDIA TO CONCEAL ITS INCOME OR FURNISH INACCURATE P ARTICULARS THEREOF WITH A VIEW TO EVADE PAYMENT OF PROPER TAXES DUE TO THE GO VERNMENT OF INDIA. WE HAVE THE AUTHORITY OF THE HON'BLE SUPREME COURT IN THE CASE OF BRIJ MOHAN V. CIT [1979] 120 ITR 1 THAT THE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THEREOF TAKES PLACE WHEN THE RETURN OF INCOME IS FILED. WE HAVE, THEREFORE, TO CONSIDER THE FACTS AND CIRCU MSTANCES AT THE TIME THE RETURN OF INCOME WAS FILED FOR DECIDING WHETHER THE ASSESSEE- BANK CAN BE CHARGED WITH THE DEFAULT OF CONCEALMENT OF INCOME O R FURNISHING OF INACCURATE PARTICULARS THEREOF. VIEWED IN THIS CONT EXT, IT IS FOUND IN THE PRESENT CASE THAT THE ASSESSEE-BANK WAS FALLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THE LIABILITY FOR BONUS RELATING TO A PARTICULAR YEAR FOR WHICH A PROVISION WAS MADE IN THE ACCOUNT BOOKS OF THAT YEA R CRYSTALLIZED IN THE NEXT YEAR WHEN A RESULT OF NEGOTIATIONS WITH THE UNION OF BANK WORKERS THE EXACT AMOUNT TO BE PAID AS BONUS WAS SETTLED. IN THESE CI RCUMSTANCES, IF THE ASSESSEE-BANK WAS IN DOUBT WHETHER THE EXCESS AMOUNT, I.E., OVER AND ABOVE THE PROVISION FOR BONUS, WHICH THE BANK HAD TO PAY IN THE YEAR IN WHICH THE ACTUAL AMOUNT WAS SETTLED AFTER NEGOTIATIONS WITH T HE UNION OF THE BANK WORKERS, WILL BE AN ADMISSIBLE DEDUCTION IN WORKING OUT THE BUSINESS INCOME OF THE YEAR TO WHICH IT RELATED OR THE YEAR IN WHIC H THE LIABILITY CRYSTALLIZED ON FINALIZATION OF NEGOTIATIONS WITH THE UNION OF BANK WORKERS, THE DOUBT OF THE ASSESSEE- BANK CANNOT BE SAID TO BE FRIVOLOUS PARTICULARLY WHEN TH IS ISSUE WAS A HIGHLY ARGUABLE CONTENTION, WHICH REQUIRED SERIOU S CONSIDERATION. IT IS NECESSARY HERE TO POINT OUT THAT IT IS NOT DISPUTED THAT ON THE DATES ON WHICH THE CLAIM FOR DEDUCTION AS A PROTECTIVE MEASURE WAS MADE FOR THE YEARS UNDER APPEAL THE ASSESSMENTS FOR THE IMMEDIATELY PR ECEDING YEARS HAD NOT BEEN COMPLETED AND, THEREFORE, THE ASSESSEE-BANK COULD NOT BE SURE OF THE YEAR IN WHICH THE CLAIM OF DEDUCTION WILL ULTIMATEL Y BE HELD TO BE ADMISSIBLE. IN THESE CIRCUMSTANCES, IF THE ASSESSEE -BANK MADE A CLAIM OF DEDUCTION OF THE EXCESS IN THE YEAR TO WHICH IT RELATED BASED ON THE MERCANTILE SYSTEM OF ACCOUNTING AND AS A PROTECTIVE MEASURE IN THE YEARS IN WHICH THE LIABILITY CRYSTALLIZED, I.E., THE ASSESSMENT YEARS UNDER CONS IDERATION IN THE PRESENT APPEALS, WE FAIL TO SEE HOW THE ASSESSEE- BANK CAN BE SAID TO HAVE MADE A 15 FRAUDULENT CLAIM OF DEDUCTION. THE HON'BLE SUPREME COURT IN THE CASE OF CEMENT MARKETING CO. OF INDIA LTD. V. ACST [1980] 1 24 ITR 15 HAS LAID DOWN THAT WHERE A CLAIM WAS MADE BASED ON A HIGHLY ARGUA BLE CONTENTION, WHICH REQUIRED SERIOUS CONSIDERATION, IT CANNOT BE SAID T HAT THE CLAIM WAS FRIVOLOUS AND ON ACCOUNT OF SUCH A CLAIM IT WOULD NOT BE RIGH T TO CONDEMN THE RETURN AS A FALSE RETURN INVITING IMPOSITION OF PENALTY. IT I S TRUE THAT THE ASSESSEE- BANK OUGHT TO HAVE WITHDRAWN THE CLAIM OF DEDUCTION MADE AS A PROTECTIVE MEASURE FOR THE ASSESSMENT YEARS UNDER CONSIDERATIO N BEFORE US WHEN THE ASSESSMENTS FOR THE IMMEDIATELY PRECEDING ASSESSMEN T YEARS IN WHICH THE CLAIM WAS ALLOWED WERE FINALIZED. THIS, HOWEVER, WILL NOT AFF ECT THE DEFAULT, WHICH HAD ALREADY TAKEN PLACE EARLIER AND WHICH HAS TO BE JUDGED, AS ALREADY DESCRIBED, ON THE FACTS AND CIRCUMSTANCES PREVAILIN G ON THE DATES ON WHICH THE RETURNS WERE FILED. THE HON'BLE SUPREME COURT I N THE CASE OF HINDUSTAN STEEL LTD. HAS LAID DOWN THAT PENALTY FOR FAILURE T O PERFORM A STATUTORY OBLIGATION SHOULD NOT BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO AND WHETHER PENALTY SHOULD BE IMPOSED WAS A MATTER OF DISCRETION TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL THE FACTS AND CIRCUMSTANCES. THEIR LORDSHIPS FURTHER LAID DOWN THAT IF THE DEFAU LT WAS MERELY A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT, THE AUT HORITY IMPOSING PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE A PENALTY. CONSI DERING ALL THIS AND LOOKING TO THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE HAV E NO HESITATION IN COMING TO THE CONCLUSION THAT THE PENALTIES UNDER SECTION 271(1)(C) UNDER CONSIDERATION HERE WERE NOT JUSTIFIED. THESE PENALT IES ARE, THEREFORE, HEREBY CANCELLED. 10. LT IS ALSO TO BE NOTED THAT THE AO IN HIS ORDER U/S 143(3) AFTER MAKING THE IMPUGNED ADDITION AT PAGE 5, PARA 5.4 STATES THAT H E IS INITIATING PENALTY PROCEEDINGS AS THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND HAS CONCEALED ITS INCOME ON THIS ISSUE. FURTHER, FROM THE ORDER LEVYING 16 PENALTY U/S 271 (1)(C) AT PAGE 4, PARA 8, ALSO HE S TATES THAT I AM SATISFIED THAT IN RESPECT OF AMOUNT OF RS. 14,25,49,948/- THE ASSESSE E HAS CONCEALED THE PARTICULARS OF ITS INCOME AS ALSO FURNISHED INACCUR ATE PARTICULARS THEREOF. IN THIS BACKGROUND IT BECOMES VERY CLEAR THAT THE PENALTY H AS BEEN LEVIED WITHOUT SPECIFYING THE SPECIFIC REASON AS TO WHETHER IT IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. THE AO HIMSELF IS NOT SURE EVEN TILL THE TIME OF LEVYING PENALTY WHETHER HE IS LEVYING T HE SAME FOR CONCEALMENT OR FOR FURNISHING INACCURATE PARTICULARS. NO PENALTY U/S 2 71 (1)(C) CAN BE LEVIED IN SUCH CIRCUMSTANCES. RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS: (I) COMMISSIONER OF INCOME TAX &ANR. VERSUS M/S SSA'S EMERALD MEADOWS WHEREIN THE HONBLE APEX COURT DISMISSED THE SLP FI LED BY THE REVENUE AGAINST THE JUDGMENT OF HONBLE KARNATAKA HIGH COUR T WHEREIN RELIANCE WAS PLACED UPON RATIO LAID DOWN BY HONBLE KARNATAK A HIGH COURT IN THE CASE OF CIT V. MANJUNATHA COTTON AND GINNING FACTOR Y [2013] 359 ITR 565 (II) IN COMMISSIONER OF INCOME TAX, BANGALORE AND THE IN COME TAX OFFICER, WARD-6 (3), BANGALORE VERSUS M/S SSAS EMERALD MEAD OWS, THE HONBLE KARNATAKA HIGH COURT HELD THAT: 11. THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY TH E ASSESSEE HOLDING THE NOTICE ISSUED BY THE ASSES SING OFFICER UNDER SECTION 274 READ WITH SECTION 271 (1)( C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) TO B E BAD IN LAW AS IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, THE PEN ALTY PROCEEDINGS HAD BEEN 17 INITIATED I.E., WHETHER FOR CONCEALMENT OF PARTICUL ARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE TRIBUNAL, WHI LE ALLOWING THE APPEAL OF THE ASSESSEE, HAS RELIED ON THE DECISION OF THE DIVISIO N BENCH OF THIS COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME-TAX VS MANJUN ATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. (III) IN CIT V. MANJUNATHA COTTON AND GINNING FACTORY [20 13] 359 ITR 565 (KAR) 9. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE PREFE RRED AN APPEAL TO THE TRIBUNAL. THE TRIBUNAL HELD THAT ON PERUSAL OF THE NOTICE ISSUED UNDER SECTION 271(1)(C) OF THE ACT, IT IS CLEAR THAT IT I S A STANDARD PROFORMA USED BY THE ASSESSING AUTHORITY. BEFORE ISSUING THE NOTICE THE INAPPROPRIATE WORDS AND PARAGRAPHS WERE NEITHER STR UCK OFF NOR DELETED. THE ASSESSING AUTHORITY WAS NOT SURE AS TO WHETHER SHE HAD PROCEEDED ON THE BASIS THAT THE ASSESSEE HAD EITHER CONCEALED ITS INCOME OR HAS FURNISHED INACCURATE DETAILS. THE NOT ICE IS NOT IN COMPLIANCE WITH THE REQUIREMENT OF THE PARTICULAR S ECTION AND THEREFORE IT IS A VAGUE NOTICE, WHICH IS ATTRIBUTABLE TO A PA TENT NON-APPLICATION OF MIND ON THE PART OF THE ASSESSING AUTHORITY. 8. A READING OF SECTION CLEARLY INDICATES THAT THE ASS ESSMENT ORDER SHOULD CONTAIN A DIRECTION FOR INITIATION OF PENALTY PROCE EDINGS. THE MEANING OF THE WORD DIRECTION IS OF IMPORTANCE. MERELY SAYING THAT PENALTY PROCEEDINGS ARE BEING INITIATED WILL NOT SATISFY TH E REQUIREMENT. THE DIRECTION TO INITIATE PROCEEDINGS SHOULD BE CLEAR A ND NOT BE AMBIGUOUS. IT IS WELL SETTLED LAW THAT FISCAL STATUTES ARE TO BE CONSTRUED STRICTLY AND MORE SO THE DEEMING PROVISIONS BY WAY OF LEGAL FICT ION ARE TO BE CONSTRUED MORE STRICTLY. THEY HAVE TO BE INTERPRETE D ONLY FOR THE SAID ISSUE FOR WHICH IT HAS DEEMED AND THE MANNER IN WHI CH THE DEEMING HAS BEEN CONTEMPLATED TO BE RESTRICTED IN THE MANNER SO UGHT TO BE DEEMED. /AS THE WORDS USED IN THE LEGAL FICTION OR THE DEEMING PROVISIONS OF SECTION 271 (1B) IS DIRECTION, IT IS IMPERATIVE THA T THE ASSESSMENT ORDER CONTAINS A DIRECTION. USE OF THE PHRASES LIKE (A) P ENALTY PROCEEDINGS ARE 18 BEING INITIATED SEPARATELY AND (B) PENALTY PROCEEDI NGS UNDER SECTION 271(1)(C) ARE INITIATED SEPARATELY, DO NOT COMPLY W ITH THE MEANING OF THE WORD DIRECTION AS CONTEMPLATED EVEN IN THE AMEN DED PROVISIONS OF LAW. THE DIRECTION SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. THE WORD DIRECTION HAS BEEN INTERPRETED BY THE DECISION OF THE APEX COURT IN THE CASE OF RAJENDRANATH REPORTED IN 120 ITR PG.14, WHE RE IT HAS BEEN HELD THAT IN ANY EVENT WHATEVER ELSE IT MAY AMOUNT TO, O N ITS VERY TERMS THE OBSERVATION THAT THE ITO IS FREE TO TAKE ACTION, TO ASSESS THE EXCESS IN THE HAND OF THE CO OWNERS CANNOT BE DESCRIBED AS A DIRECTION. A DIRECTION BY A STATUTORY AUTHORITY IS IN THE NATURE OF AN ORDER REQUIRING POSITIVE COMPLIANCE. WHEN IT IS LEFT TO THE OPTION AND DISCRETION OF THE ITO WHETHER OR NOT TAKE ACTION, IT CANNOT BE DESCRI BED AS A DIRECTION. 12. WITHOUT PREJUDICE TO ABOVE, IT IS TO BE APPRECI ATED THAT TOTAL DISALLOWANCE OF RS. 14,25,49,948/- WAS MADE BY THE AO ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WHILE THE CIT(A) HAD ALLOWED HIM THE DE PRECIATION ON THE SAID INCREASE IN THE VALUE OF ITS ASSETS AMOUNTING TO RS . 3,45,93,316/-. THIS HAS ALSO BEEN CONFIRMED BY THE ITAT. RESULTANTLY, EVEN IF TH E PENALTY IS LEVIED, THE SAME HAS TO BE COMPUTED ON THE AMOUNT OF DIFFERENCE BETW EEN THESE TWO FIGURES. THE AO HAS ERRED IN COMPUTING THE PENALTY ON THE TOTAL AMOUNT OF DISALLOWANCE OF RS. 14,25,49,948/- MADE BY HIM. 13. IT IS FURTHER SUBMITTED THAT THE CIT(A) IN AP PEAL AGAINST PENALTY U/S 271 (1)(C) HAS CORRECTLY DELETED THE PENALTY LEVIED BY THE AO. THE FINDING OF THE CIT(A) ARE AT PAGE 8 ONWARDS. THE CIT(A) HAS GIVEN A DETAI LED REASONING IN THIS REGARD AND ALSO DEALT WITH THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF ZOOM 19 COMMUNICATION PVT. LTD. 327 ITR 510 WHICH IS REFERR ED IN THE GROUND TAKEN BY THE DEPARTMENT IN THE PRESENT APPEAL. 14. IN VIEW OF THE ABOVE, LEARNED AR PRAYED THAT T HE APPEAL FILED BY THE REVENUE MAY KINDLY BE DISMISSED. 15. THE LEARNED AR ALSO SUBMITTED A CASE LAW COMPIL ATION COMPRISING 80 PAGES. HE FURTHER SUBMITTED THAT IN THE QUANTUM PROCEEDING S, BY AN ORDER DATED 9 TH NOVEMBER 2014 IN ITA NO.2211/DEL/2013, ITAT CONFIRM ED THE ORDER OF CIT(A) AND ALLOWED ADDITIONAL DEPRECIATION ON THE INCREASE IN VALUE OF PLANT AND MACHINERY ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIONS. HE FU RTHER SUBMITTED THAT THE ASSESSEE ALTHOUGH DECLARED THE AMOUNT IN PROFIT AND LOSS ACCOUNT BUT OMITTED TO ADD BACK AS PER SECTION 40A(3) READ WITH SECTION 43 (1) OF THE ACT. THERE WAS NO MALAFIDE INTENTION BUT IT WAS SIMPLE OMISSION TO AP PLY INTRICATE INCOME-TAX PROVISIONS. THERE WAS TRUE AND FAIR DISCLOSURE OF EXPENSES. THE ASSESSEE NEITHER SUPPRESSED ANY INCOME NOR CLAIMED ANY BOGUS OR FALS E EXPENSES. THE DISALLOWANCE HAS BEEN MADE BY THE AO ON TECHNICAL A ND LEGAL GROUND WHICH DOES NOT TANTAMOUNT TO CONCEALMENT. HE FURTHER SUBMITTE D THAT THE AO HAS NOT CLEARLY CHARGED PENALTY PROCEEDINGS UNDER ANY LIMB OF SECTION 271(1)(C) I.E WHETHER FOR CONCEALMENT OF INCOME OR FILING INACCUR ATE PARTICULARS OF INCOME. AS 20 SUCH, THE AO IS NOT JUSTIFIED IN IMPOSING PENALTY O N THE FOREIGN EXCHANGE FLUCTUATIONS DEBITED TO P&L ACCOUNT. HE FURTHER SU BMITTED THAT THE CASE LAWS RELIED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE A RE NOT APPLICABLE IN THE PRESENT CASE. 16. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW AND THE MATERIAL PLACED BEFORE US. WE HAVE ALSO DELIBERATE D ON THE JUDICIAL PRONOUNCEMENTS REFERRED TO BY THE LOWER AUTHORITIES IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY THE LEARNED DR AND AR DURING THE C OURSE OF HEARING. THE LEARNED CIT(A) WHILE DELETING THE PENALTY HAS PASSED A WELL REASONED ORDER WHICH DOES NOT REQUIRE ANY INTERFERENCE. THE FINDINGS OF THE LEARNED CIT(A) ARE AS UNDER: GROUND NO. 1, 3 &5 RELATED TO IMPOSITION OF PENALTY U/S 27 1(1 )(C) WHICH ARE DEALT WITH AS UNDER ON THE FACTUAL FRONT, THERE IS LOSS IN FOREIGN EXCH ANGE FLUCTUATION. WHETHER IT IS CAPITAL IN NATURE OR REVENUE IN NATUR E IS THE ISSUE OF CONTENTION. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE SU FFERED LOSS DUE TO FOREIGN EXCHANGE RATE FLUCTUATIONS. THIS WAS IN REL ATION TO IMPORT OF MACHINERY FROM OTHER COUNTRIES. AS PER SECTION 43A, WHEN THE ASSESSEE WAS SUPPOSED TO ADD THIS AMOUNT TO THE COST OF PLANT AND MACHINERY AND CLAIM DEPREC IATION AGAINST IT, INSTEAD IT CLAIMED IT WRONGLY AS REVENUE EXPENDITUR E. IT IS A FACT THAT THE ASSESSEE ACCEPTED THE ADDITIO N AT CIT(A)S LEVEL AND DID NOT FURTHER CARRY THE MATTER TO HIGHER APPELLAT E FORUM. ONCE ON THE FACTUAL FRONT THE ISSUE IS DECIDED, NOW COMES THE I SSUE OF PENALTY. MENS REA 21 AFTER THE AMENDMENT TO SEC.271(L)(C) W.E.F 1.4.1964 , MENS REA NEED NOT BE ESTABLISHED. HENCE ON THIS GROUND ASSESSEES CON TENTION FAILS. SUPPORT FOR THIS RATIONAL IS TAKEN FROM THE FOLLOWING JUDGM ENTS . HONBLE APEX COURT IN UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS (SC) 306 ITR 277, GULJAG INDUSTRIES LTD. VS. CTO (S C) 293 ITR 584 AND CIT VS. ATUL MOHAN BINDAL (SC) 317 ITR 1 HAVE HELD THAT MENS REA NOT ESSENTIAL FOR CIVIL LIABILITY OF PENALTY - PENALTIE S UNDER FISCAL STATUTES ARE FOR BREACH OF CIVIL LIABILITIES - WILLFUL CONCEALME NT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS IS THE CASE IN THE MATTER OF PROSECUTION U/S 276C. ASSESSMENT AND PENALTY PROCEEDINGS ARE TWO SEPARATE AND DISTINCT PROCEEDINGS. EVERY ADDITION IN ASSESSMENT ORDER DOES NOT AUTOMAT ICALLY QUALIFY FOR LEVY OF PENALTY. IT IS SETTLED POSITION THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE, AND DISTINCT AND AS HELD BY HONBLE SUPREME COURT IN THE CASE OF ANANTHARAMAN VEERASINGHAIAH & CO. V. CIT {1980] 123 ITR 457, THE FINDINGS IN THE ASSESSMENT PROCEED INGS CANNOT BE REGARDED AS CONCLUSIVE FOR THE PENALTY PROCEEDINGS. IT IS ALSO WELL SETTLED THAT THE CRITERION AND YARDSTICKS FOR THE PURPOSE O F IMPOSING PENALTY U/S 271 (L)(C) O F THE ACT ARE DIFFERENT THAN THOSE APPLIED FOR MAKI NG OR CONFIRMING THE ADDITIONS. IT HAS BEEN HELD BY HONB LE COURTS, INCLUDING HONBLE MUMBAI TRIBUNAL IN THE CASE OF YOGESH R.DES AI VS. ACIT (8DTR 101), EACH AND EVERY ADDITION MADE DURING ASSESSMEN T PROCEEDINGS DOES NOT AUTOMATICALLY LEAD TO LEVY OF PENALTY FOR CONCE ALMENT OF INCOME. IF THE REVENUE IS NOT ABLE TO ESTABLISH EITHER CONCEAL MENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME, PEN ALTY U/S 271(1 )(C) IS NOT LEVIABLE. IN SUCH CIRCUMSTANCES, HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. BACARDI MARTINI INDIA LTD. [2007] 288 ITR 585/158 TAXMAN 348 HELD THAT NO PENALTY IS IMPOSABLE. IN THE PRESENT CASE, IN THE PENALTY PROCEEDINGS NO CONCEALMENT OF INCOME OR INACCURATE PARTICULARS OF ITS INCOME HAS BEEN ES TABLISHED BY THE DEPARTMENT. THEY SIMPLY RELIED ON THE FINDINGS IN T HE ASSESSMENT ORDER, WHICH WILL NOT SUFFICE FOR LEVY OF PENALTY. 22 MAKING A WRONG CLAIM OF DEDUCTION-WILL IT QUALIFY F OR LEVY OF PENALTY U/S 271(L)(C) ? THE HONBLE APEX COURT IN ITS JUDGMENT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. 189 TAXMAN 322(SC) SAID NO TO THIS PR OPOSITION. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPEND ITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PE NALTY UNDER SECTION 271(L)(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSE SSING OFFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UN DER SECTION 271(L)(C). THAT IS CLEARLY NOT THE INTENDMENT OF TH E LEGISLATURE. NON POINTING OF THE WRONG CLAIM BY TAX AUDIT SEC.43A IN ITS AMENDED FORM CAME INTO EFFECT FROM 0 1.04.2003. IN THE PRESENT CASE, THE TAX AUDIT WAS DONE ON 25.09.2009. THE FOREIGN EXCHANGE FLUCTUATION WITH REFERENCE TO IMPORT OF PLANT & MAC HINERY, IN WHAT WAY THEY WOULD AFFECT THE TAXABILITY OF THE ASSESSEE SH OULD HAVE BEEN POINTED OUT BY THE TAX AUDITORS OF THE COMPANY. BUT IT MISS ED THEIR ATTENTION. FOR THE OMISSIONS AND COMMISSIONS ON THE PART OF THE TA X AUDIT PERSONNEL, THE ASSESSEE SHOULD NOT BE FOUND FAULT WITH. THIS RATIO NAL IS SUPPORTED BY DELHI ITATS DECISION IN THE CASE OF NALWA INVESTME NTS (THIS DECISION RELATES TO 14A DEDUCTION BUT CAN BE APPLIED TO THE FACTS OF THE CASE. THE OPERATIONAL PART OF THIS JUDGMENT IS REPRODUCED AS UNDER: HOWEVER, THE ACCOUNTS HAVE BEEN AUDITED AND THE RE TURN WAS ACCOMPANIED BY THE TAX AUDIT REPORT. THE LATTER DID NOT SUGGEST ANY DISALLOWANCE U/S 14A. THEREFORE, IT CAN BE INFERRED THAT ALL EXPENSES WERE CLAIMED IN FULL AS THE AUDITORS DID NOT SUGGES T DISALLOWANCE OF ANY PART OF THE EXPENDITURE RELATING IT TO THE DIVI DEND INCOME. THUS, IT CAN BE CONCLUDED THAT THE CLAIM WAS MADE ON THE BASIS OF TAX AUDIT REPORT. THERE IS NO ALLEGATION BY THE AO THAT THERE WAS ANY COLLUSION BETWEEN THE AUDITOR AND THE ASSESSEE TO ENHANCE THE LOSS IN THE RETURN OF INCOME BY IGNORING THE PROVISION CONTAINE D IN SECTION 14A. THEREFORE, IT CAN BE SAID THAT THE ASSESSEE HAS FUR NISHED AN EXPLANATION WHICH IS BONA FIDE. AOS RELIANCE ON THE DECISION OF DELHI HIGH COURT I N ZOOM COMMUNICATION (P)LTD. 327 ITR 510. 23 IN THIS CASE, THE HONBLE DELHI HIGH COURT TOOK THE VIEW THAT, AS THE INCOME TAX DEPARTMENT IS RESORTING TO SCRUTINY IN L IMITED NUMBER OF CASES, THE PENALTY SHOULD BE TREATED AS A DETERRENT EFFECT AND NO LENIENT VIEW MAY BE TAKEN. THERE IS MERIT IN THE AOS CONTENTION. BUT IT WONT APPLY IN ALL THE CASES ON A BLANKET LEVEL. THE OPERATIONAL PART OF THIS JUDG MENT IS REPRODUCED AS UNDER: ' IT IS TRUE THAT MERE SUBMITTING A CLAIM WHICH IS INCORRECT, IN LAW; WOULD NOT AMOUNT TO GIVING INACCURATE PARTICULARS O F THE INCOME OF THE ASSESSEE, BUT IT CANNOT BE DISPUTED THAT THE CL AIM MADE BY THE ASSESSEE NEEDS TO BE BONA FIDE. IF THE CLAIM BESIDE S BEING INCORRECT, IN LAW, IS MALA FIDE THE EXPLANATION 1 TO SECTION 271( 1) WOULD COME INTO PLAY AND WORK TO THE DISADVANTAGE OF THE ASSESSEE. [PARA 19] THE COURT CANNOT OVERLOOK THE FACT THAT ONLY A SMAL L PERCENTAGE OF THE INCOME- TAX RETURNS ARE PICKED UP FOR SCRUTINY. IF THE ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW, B UT IS ALSO WHOLLY WITHOUT ANY BASIS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOUND TO BE BONA FIDE, IT WOULD BE DIFFICULT TO SAY THAT HE WOULD STILL NOT BE LIABLE TO PENALTY UNDER SECTION 271(L)(C ). IF ONE TAKES THE VIEW THAT A CLAIM WHICH IS WHOLLY UNT ENABLE IN LAW AND HAS ABSOLUTELY NO FOUNDATION ON WHICH IT COULD BE M ADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENALTY, EVEN IF HE WAS NOT ACTING BONA FIDE WHILE MAKING A CLAIM OF THIS NATURE, THAT WOULD GIVE A LICENCE TO THE UNSCRUPULOUS ASSESSEES TO MAKE WHOLL Y UNTENABLE AND UNSUSTAINABLE CLAIMS WITHOUT THERE BEING ANY BASIS FOR MAKING THEM, IN THE HOPE THAT THEIR RETURN WOULD NOT BE PICKED U P FOR SCRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF-ASSESSM ENT UNDER SECTION 143(1) AND EVEN IF THEIR CASE IS SELECTED FOR SCRUT INY, THEY CAN GET AWAY MERELY BY PAYING THE TAX, WHICH, IN ANY CASE, WAS PAYABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE PERSONS, WH O MAKE CLAIMS OF THIS NATURE, ACTUATED BY A MALA FIDE INTENTION T O EVADE TAX OTHERWISE PAYABLE BY THEM, WOULD GET AWAY WITHOUT P AYING THE TAX LEGALLY PAYABLE BY THEM, IF THEIR CASES ARE NOT PIC KED UP FOR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT, WHICH TH ESE PENALTY PROVISIONS IN THE ACT HAVE. ' [PARA 20]' SO TO APPLY THE JUDGMENT AO HAS TO PROVE THAT 24 1. THE CLAIM OF ASSESSEE IS WRONG BUT ALSO THAT 2. IT WAS MADE WITH MALAFIDE INTENTION. THE FACTS IN THE PRESENT CASE, SHOW THAT - ASSESSEE IS A PUBLIC SECTOR UNDERTAKING OWNED BY TH E GOVT. OF INDIA - ASSESSEE IS INCURRING HEAVY LOSSES - NO PERSONAL BENEFIT ACCRUES TO ANYBODY BECAUSE OF W RONG CLAIM OF DEDUCTION - ASSESSEE HAS ALSO NOT CONCEALED ANY INCOME OR FURNI SHED ANY INACCURATE PARTICULARS - IT IS ONLY AN ISSUE OF WRONG CLAIM OF DEDUCTION HENCE AS AO FAILED TO PROVE THAT THE CLAIM WAS MADE WITH MALAFIDE INTENTION, THE ABOVE CITED JUDGMENT WONT APPLY. BASED ON THE ABOVE FACT AND CIRCUMSTANCES, THE PENA LTY U/S 271(1)(C) LEVIED FOR AY 2009-10 IS HEREBY CANCELLED. 17. FROM THE PERUSAL OF ABOVE, IT IS CLEAR THAT THE ASSESSEES INTENTION WAS NOT TO CONCEAL THE INCOME. THE ASSESSEE HAD RIGHTLY DI SCLOSED IT IN THE PROFIT AND LOSS ACCOUNT AND NOT INCLUDED WHILE COMPUTING THE TAXABL E INCOME. THE REVISED RETURN OF INCOME FILED BY THE ASSESSEE HAS ALSO BEE N ACCEPTED BY THE AO. IN VIEW OF THE JUDGMENT OF HONBLE SUPREME IN THE CASE OF C IT VS. RELIANCE PETRO PRODUCTS P. LTD. (2010) 322 ITR 158, WE ARE OF THE VIEW THA T IT IS NOT A FIT CASE FOR LEVY OF PENALTY AS AO HAD NOT GIVEN ANY FINDING SEPARATELY AS TO WHETHER THERE WAS CONCEALMENT OF INCOME OR WHETHER ASSESSEE HAD FURNI SHED INACCURATE PARTICULARS OF INCOME. THE AO HAS IMPOSED THE PENALTY ON THE G ROUND OF DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION. THE ASSESSEE CANNOT BE FASTENED WITH THE LAW OF 25 PENALTY WITHOUT THERE BEING A CLEAR SPECIFIC CHARGE . FIXING A CHARGE SHOULD NOT BE IN A CASUAL MANNER AND IT HAS NOT BEEN PERMITTED UN DER THE LAW. AFTER CONSIDERING THE JUDGMENTS RELIED ON BY BOTH THE SID ES AND ORDERS OF THE LOWER AUTHORITIES, WE, WHILE UPHOLDING THE ORDER OF CIT(A ), ARE OF THE CONSIDERED OPINION THAT LEARNED CIT(A) IS JUSTIFIED IN DELETIN G THE PENALTY. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND . FEBRUARY, 2018. SD/- SD/- (H.S. SIDHU) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 ND FEBRUARY, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT BY ORDER ASSTT. REGISTRAR 26