M/s ISGEC Heavy Engineering Ltd., Yamunanagar V. ITO, Ward -1, Yamunanagar

ITA 577/CHANDI/2022

AI Insights

The case involves ISGEC Heavy Engineering Limited, which appealed against the penalty imposed by the Income Tax Officer (ITO) under section 271(1)(c) for the assessment year 2014-15. The penalty was based on the disallowance made under section 14A read with Rule 8D, which was initially a substantial amount but later reduced to a lump sum of Rs. 5,00,000 by the Tribunal. The assessee argued that the penalty was unjust as the additions were made on an ad-hoc basis and all particulars were disclosed in the financial statements. The Tribunal examined the submissions, the legal provisions, and various precedents, ultimately deciding in favor of the assessee by deleting the penalty.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127603 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-03-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 01-08-2022
• Other Referred Cases: CIT vs Reliance Petro Products (P) Ltd., Commissioner of Income Tax Vs Ajaib Singh & Co., Yogesh R. Desai vs. ACIT, CIT vs. Parasamal Babulal Jain, ACIT, Circle-3 vs Prashant Srivastava, Shri Manish Bhargav vs Income Tax Officer, M/s. Triloknath Corporation vs ITO, Kamal Sahdev Vs ACIT, M/s Apollo Finance Ltd. vs DCIT, M/s. Mohair Investment and Trading Company (P) Ltd. vs. DCIT, CIT vs. Liquid Investment and Trading Co., DCIT vs. NATIONAL COOPERATIVE DEVELOPMENT CORPORATION, VEEJAY SERVICE STATION vs. ASSISSTANT COMMISSIONER OF INCOME TAX, CIT vs. MAHABALESHWAR GAS & CHEMICAL (P) LTD., ACIT vs. MEDVERSITY ONLINE LIMITED, ACIT vs Manish Jain, ACT vs M/s Kajaria Ceramics Limited, CIT vs. Jindal Equipment Leasing and Consultancy Services Ltd., CIT vs. Liquid Investments Ltd., DCIT vs. Nalwa investment Ltd., ACIT vs. A.T. Invofin India (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Initiation of penalty proceedings; Difference of opinion; Rule 8D; Capital Gains
• Section: 271(1)(c); 143(3); 14A; 260A; 13

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी आकाश द प जैन, उपा य एवं ी #व$म &संह यादव, लेखा सद+य BEFORE: SHRI. AAKASH DEEP JAIN, VP & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 577/Chd/ 2022 Assessment Year : 2014-15 M/s ISGEC Heavy Engineering Limited Formerly The Saraswati Industrial Syndicate Ltd. Regd. Office: Radaur Road, Yamuna Nagar- 135001, Haryana The ITO NFAC, Centre Delhi PAN NO: AAACT5540K Appellant Respondent ! " Assessee by : Shri Sudhir Sehgal, Advocate # ! " Revenue by : Smt. Gagan Kundra, JCIT, Sr. DR $ % ! & Date of Hearing : 06/03/2023 '()* ! & Date of Pronouncement : 13/03/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the assessee against the order of the Ld. CIT(A), NFAC, New Delhi dt. 08/06/2022 pertaining to A.Y. 2014-15 wherein the assessee has taken the following grounds of appeal: “1. That the Ld. CIT(A) has erred in confirming the levy of penalty u/s 271(1)(c) of the Income Tax Act as levied by the Assessing Officer to the tune of Rs. 1,54,500/- and failed to appreciate that no penalty U/S 271(1)(C) is leviable on the 'deeming provisions', such as Section 14A r.w. rule 8D. 2. That the Ld. CIT(A) has failed to appreciate that the Hon'ble ITAT had sustained the addition of Rs. 5 lacs u/s 14A only on adhoc/estimate basis and no penalty u/s 271(1)(c) is leviable on such adhoc addition, as confirmed by the Ld. CIT(A). 3. That the Ld. CIT(A) has failed to appreciate that all the particulars with regard to the investments, expenses etc. has duly been disclosed in the Balance Sheet while filing the return of income and, as such, the assessee 2 has neither concealed the particulars of income or furnished inaccurate particulars of income. 4. That the Ld. CIT(A) has ignored the binding judgments of the Hon'ble Apex Court in case of CIT vs Reliance Petro Products (P) Ltd. reported in 322 ITR 158 and Hon'ble High Courts in similar cases and various other cases of coordinate Benches of the ITAT before confirming the levy of penalty u/s 271 (1 )(c) of the Income Tax Act, 1961. 5. Notwithstanding the above said grounds of appeal, the confirmation of levy of penalty u/s 271(1)(c) is again not proper since no specific charge either of concealment of income or for furnishing inaccurate particulars of income have been framed against the assessee as per binding judgment of full Bench of the Hon'ble Bombay High Court. 6. That the appellant craves leave to add, amend or alter any of the above grounds of appeal before the appeal is finally heard or disposed off.” 2. During the course of hearing the Ld. AR submitted that the assessee is a public limited Company having its registered office at Radaur Road, Yamunanagar, Haryana and is engaged in the business of manufacturing of heavy engineering goods and undertakes Erection, Procurement and Construction Contracts (EPC contracts). The assessee for the year under consideration filed its return of income on 29.11.2014 declaring total income at Rs. 124,98,52,813/- which was revised on 31-03-2016 declaring total income of Rs. 124,68,88,610/-. The case of the assessee was selected for regular assessment and the order u/s 143(3) of the Act was passed on 30.12.2016 making various additions which includes addition amounting to Rs.1,42,26,765/- under Section 14A read with Rule 8D. The assessee filed the appeal before the first appellate authority wherein, the appeal of the assessee was partly allowed and various additions were deleted except addition under Section 14A read with Rule 8D. 3. It was submitted that for addition u/s 14A read with Rule 8D sustained by the ld CIT(A), the assessee preferred further appeal before the Chandigarh Benches of the Tribunal wherein the addition made u/s 14A was restricted to a lump sum amount of Rs. 5,00,000/- only. 3 4. It was submitted that as against the original addition of Rs.1,42,26,765/- on account of disallowance u/s 14A of the Act, which was later on reduced to Rs. 63,21,654/- by the Assessing Officer by passing order u/s 154, the final addition sustained was Rs.5,00,000/- only by the Tribunal, which was also on an estimated and lump sum basis. 5. It was submitted that the A.O initially issued a show-cause notice on 30/12/2016 and thereafter a fresh show cause notice u/s 271(l)(c) was issued on 10.06.2021 which was replied by the assessee on 28.07.2021. The A.O. again issued a show cause notice u/s 271(l)(c) on 12.08.2021, without taking into account reply of the assessee filed on 28.07.2021 and the assessee again replied to this show cause notice on 13.08.2021. The A.O. thereafter on 15.11.2021 passed the order u/s 271(l)(c) of the Income Tax Act, 1961 and levied a penalty of Rs. 1,54,500/- on restricted addition of Rs. 5,00,000/- holding that the assessee had furnished inaccurate particulars of income. 6. It was submitted that the assessee had disclosed and furnished complete and accurate particulars of its income while filing return of income and during the course of assessment proceedings u/s 143(3). There is no finding recorded by the AO as to how the assessee has furnished inaccurate particulars of income and merely the fact that in the quantum proceedings, the addition has been confirmed, the same cannot be a basis for levy of penalty u/s 271(1)(c) of the Act. It was submitted that even the ld CIT(A) has completely ignored the details submissions as filed before him and has confirmed the levy penalty without assigning any reasons. In support, reliance was placed on the judgment of Hon’ble Supreme Court in the case of Reliance Petro Products (P) Ltd 322 ITR 158. 4 7. It was further submitted that even no specific charge has been made against the assessee as is apparent from the notice u/s 271(1)(c) and as per judgment of Full Bench of Hon'ble Bombay High Court in the case of Moh. Farhan, 125 Taxman.com 253, the levy of penalty u/s 271(1)( c) is liable to be cancelled. 8. Further, the ld AR placed reliance on the written submission filed before the Ld. CIT(A) and contents thereof read as under: “1. At the outset, it is submitted that two primary conditions for levy of penalty under section 271 (1)(c) of the Act are that: the assessee has concealed particulars of his income; or the assessee has furnished inaccurate particulars of such income. Further, the concept of deemed penalty for concealment of income as envisaged by explanation 1 to section 271(1) of the Act provides that where in respect of any facts material to the computation of the total income of any person under the Act such person: fails to offer an explanation; or offers an explanation, which is found by the assessing officer to be false; or which he is not able to substantiate and he fails to prove that such explanation is bonafide and that all facts relating to such explanation and material to the computation of his total income have been disclosed, then the amount added or disallowed shall be deemed to represent income the particulars of which have been concealed. 2. Therefore, from the above, it is clear that the section lays down two primary conditions for the levy of penalty and three other conditions which provide for deemed concealment of income. The submissions herein have been made, keeping in view the above conditions and we trust you would appreciate that where the above conditions are not satisfied, then the instant case would not be a case fit for levy of penalty. 3. The brief facts regarding the disallowance made by the Ld. AO u/s 14A of the Act, against which penalty have been levied are that during the course of the assessment proceedings, the assessee duly submitted that the investments on which the disallowance u/s 14A have been calculated are old investments and it has also been categorically submitted that the assessee had more than sufficient amount of own funds in the years in which the investments have been made and as per the law settled by various judgments including the judgment of the Hon'ble jurisdictional High Court it is clear that no addition u/s 14A can be made if the 5 amount of investments have been made from own funds and moreover, it is also a settled presumption that if the assessee has sufficient own funds then the presumption that the investments have been made from the same funds are correct. Further it has also been submitted that the investments made in the subsidiaries are strategic investments and it is also a settled law that the disallowance u/s 14A cannot be made on strategic investments. However, the Ld. AO without taking the cognizance of such explanation and with a presumptive mindset made the additions by applying the provisions of Rule 8D. 4. Further, the matter was taken before the Hon'ble Bench of ITAT, wherein the Hon'ble Bench considered the submissions made by the assessee and held that the additions made by the Ld. AO are incorrect and that the additions have been made without considering the submissions of the assessee and the said para is reproduced below:- "the Assessing Officer was supposed to consider the submissions of the assessee and examine the accounts of the assessee and was required to record his findings/reasoning that he is not satisfied with the plea/submissions of the assessee. However, no such exercise has been done by the Assessing Officer in this case." Further, the Hon'ble ITAT also upheld the contention of the assessee that the investments made by the assessee were strategic investments for the business purpose but also made old investments in other Companies. Thus, the Hon'ble Bench upheld the contention of the assessee and made a lump sum disallowance of Rs.5 Lakhs on account of administrative expenses incurred for management of old investments. 5. From a perusal of the above extracts of the judgment passed by the Hon'ble Bench it is clear that the very basis of making addition by the Ld. AO have totally been rejected by the Hon'ble Bench and a disallowance has merely been made on an ad-hoc basis. Thus, the addition has been sustained merely on the basis of the estimation and moreover, it is also not the case that the explanation provided by the assessee has not been accepted by the departmental authorities, rather the Hon'ble Bench has duly accepted the contention of the assessee and on the basis of the same only :he above said estimated addition has been sustained. Thus, mere disallowance on estimation basis does not establish concealment or furnishing of inaccurate particulars.. Reliance in this regard is placed on the following judgments: • The Hon'ble jurisdictional Punjab & Haryana High Court in the case of Commissioner of Income Tax Vs Ajaib Singh & Co. (2002) 253 ITR 630 (P&H) held that: "Tribunal having rightly cancelled the penalty under s. 271(1)(c) vis-a-vis the addition partly sustained in appeal holding that the disallowance of expenses was made on estimate basis and the admissibility of payment of sales tax/penalty was debatable, no substantial question of law arises; appeal under s. 260A dismissed." 6 • Yogesh R. Desai vs. ACIT (2010) 38 DTR 101 (Mum.) (Trib.) Assessing Officer having disallowed assessee's claim for expenses on estimation basis and the Tribunal has sustained the addition partly, it cannot be said that there was conscious act of concealment of income or furnishing of inaccurate particulars of income and therefore levy of penalty under section 271 (1 )(c) is not justified. • The Karnatka High Court in the case of CIT vs. Parasamal Babulal Jain dated: 14-09-2011, ITA NO. 20 OF 2006 in which it has been held as under: "Penalty cannot be levied on the disallowance of expenses made on estimate basis. If no facts are brought on record that any income has been concealed by the assessee or the assessee has furnished inaccurate particulars. It is because of the disallowance of the expenditure the total amount representing total income is enhanced to the extent of disallowance. Conditions which are to be fulfilled before section 271(1)(c) is attracted do not exist." . • Delhi Bench of the Tribunal in the case of ACIT, Circle-3 vs Prashant Srivastava in ITA No. 5102/Del/2012 wherein the addition in. the case of the assessee was made for not producing any bills or vouchers, however, the Hon'ble Tribunal deleted the penalty on the same addition by stating that"9. In the background of the aforesaid discussions and precedents, we find that the levy of penalty in this case is not justified particularly when the assessment was framed on the income determined on estimate basis and without bringing any material on record to substantiate that the assessee willfully and intentionally concealed the income cr furnished the inaccurate particulars of the income, hence, we do not see any reason to interfere with the order of the Ld. CIT(A), accordingly, we uphold the same and decide the issue against the Revenue." • Delhi Bench of the Tribunal in the case of Shri Manish Bhargav, vs Income Tax Officer in ITA No. 2157/Del/2014 a 2158/Del/2014 wherein the bench deleted the penalty because the addition was made merely for the non-production of the vouchers by stating that, "Merely because the assessee could not file the supporting vouchers/bills for the expenses claimed by it, it could not. be concluded that the assessee has claimed bogus expenses and could be penalized u/s 271(1)(c) of the Act. The conduct of the assessee was bona-fide and the assessee has filed an explanation before the Revenue authorities. In the facts of the case, we are of the view that it was not a fit case for levy of penalty u/s 271(1)(c) of the Act, which is accordingly cancelled and the ground of appeal of the assessee is allowed." • M/s. Triloknath Corporation vs ITO, ITAT Ahmedabad ITA No. 412 a 413 /Ahd/2011-We are of the considered opinion that mere ad-hoc and estimated disallowance for want of details is not sufficient to levy penalty and hence,, we feel that in the facts and circumstances of the present case, the penalty is not justified. As per the decision of Hon'ble Apex Court rendered in the case of Dharmendra Textiles (supra), mens rea is not essential for levy of penalty but even then, it has to be seen that there is concealment. In our opinion, mere ad hoc disallowance does not establish concealment. Hence, penalty is not justified. 7 • Kamal Sahdev Vs ACIT, ITAT New Delhi- Disallowance made on adhoc basis does not imply concealment of income and penalty is not justified 6. It is further submitted here that the addition made by the Ld. AO have been made by taking into consideration the interest expenditure incurred by the assessee and whereas in the order of the Hon'ble Bench of the ITAT the addition has been sustained out of the administrative expenditure incurred by the assessee which duly depicts that there is a definite difference of opinion on the basis of the addition sustained as there is no direct expenditure that has been incurred for earning of exempt income. All the details were filed with the AO substantiating the fact that no expenditure to earn the exempt income has been incurred. It is only on account of difference of opinion on the basis of which addition has been made. Therefore, merely on the basis of difference of opinion penalty cannot be levied. There are various judgments supporting the said fact & few of them are as under: UNI DESIGN JEWELLERY (P) LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX as reported in (2010) 6 ITR (Trib) 10 (Mumbai) Where there is difference between the income returned and income assessed and such difference is on account of disallowance of the bona fide claim for deduction made under s. 10A it would not constitute concealment and hence penalty under s. 271(1)(c) would not be leviable. ❖ DCIT vs. NATIONAL COOPERATIVE DEVELOPMENT CORPORATION as reported in (2012) 136 ITD 1 (Delhi) Formation of different opinion by AO on the basis of details provided by assessee does not amount to concealment of income warranting imposition of penalty. ❖ VEEJAY SERVICE STATION vs. ASSISSTANT COMMISSIONER OF INCOME TAX as reported in (2009) 122 TTJ (Del) 824 Assessee having disclosed complete facts regarding goodwill on introduction of a new partner, it cannot be said that the assessee has furnished inaccurate particulars merely because there was a difference of opinion between the AO and the assessee regarding computation of capital gains and, therefore, levy of penalty under s. 271(1)(c) was not justified. ❖ COMMISSIONER OF INCOME TAX vs. MAHABALESHWAR GAS & CHEMICAL (P) LTD. as reported in (2008) 170 TAXMAN 38 (Del) ❖ ACIT vs. MEDVERSITY ONLINE LIMITED as reported in (2012) 145 TTJ (Hyd) 398 6. Reliance in this regard is placed on the following judgments which are passed on the specific issue that the disallowance under section 14A does not attract penalty u/s 271(1)(c):- • M/s Apollo Finance Ltd., New Delhi vs DCIT, ITAT Delhi • M/s. Mohair Investment and Trading Company (P) Ltd. vs. DCIT (ITAT Delhi), Income tax (Appeal) no. 4677 of 2009, Date of Judgment: 27/11/2015- ITAT Delhi 8 held In the case of M/s. Mohair Investment and Trading Company (P) Ltd. vs. DCIT that it is clear that the present issue, related to application of section 14A, especially in relation to shares held as trading assets, was clearly debatable and so it cannot be visited with penalty under section 271 (1 )(c). Further we find that the assessee has furnished all the details relating to the earning of dividend income. So it cannot be said that the assessee had concealed income or furnished inaccurate particulars of income. Hence penalty u/s 271 (1) (C) is not sustainable. • CITv. Liquid Investment and Trading Co. [ITA 240/2009 dated 5/10/2010 –Del HC] • The DCIT vs Hycron Electronics, ITA 1194 a 1195/CHD/2016, ITAT Chd. • Skill Infrastructure Ltd. v.AC/T[2013] 157 TTJ 565 (Mum.)(Trib.) • ACIT vs Manish Jain ITAT Delhi in ITA No. 5999/Del/2012 • ACT vs M/s Kajaria Ceramics Limited in ITA No. 4320/Del/2014 ITAT Delhi. • CIT v. Jindal Equipment Leasing and Consultancy Services Ltd. ITA NO. 68/2012 (Del) (HC), • CIT v. Liquid Investments Ltd. ITA No. 2401/2009 (Del) (HC), • DCIT v. Nalwa investment Ltd. ITA No. 3805/2010(Del) (ITAT) • ACIT v. A.T. Invofin India (P) Ltd. ITA No. 4479/2013. 7. Further, it is submitted that the assessee has duly disclosed all the material facts i.e. the exempt income received has duly been reflected in the profit and loss account, the details and the amount of the investments outstanding at the opening and closing of the relevant assessment year, the amount of the expenditures in the nature of interest and administrative has duly been reported in the profit and loss account. Furthermore, the details filed by the assessee during the course of the assessment proceedings have also never been doubted by the Ld. AO substantiating that there has been no act of deliberate concealment of income or furnishing inaccurate particulars of income by assessee such that penalty under section 271 (1 )(c) of the Act can be levied. Reliance in this regard is placed on the latest judgment of Hon’ble SC in the case of CIT vs Reliance Petro Products (P) Ltd. as reported in 322 ITR 158 wherein it has Been held as under: "A glance at the provision of s. 271(l)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the s. 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must 9 be shown that the conditions under s. 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income." 8. Further, reliance is also placed on the following judgments in which based on the judgment of CIT vs Reliance Petro Products (P) Ltd., similar view has been taken: ❖ COMMISSIONER OF INCOME TAX vs. MAHANAGAR TELEPHONE NIGAM LTD. as reported in (2011) 63 DTR (Del) 87 A mere erroneous claim made by assessee under a bona fide belief that it is maintainable in law, cannot by itself, lead to imposition of penalty under s. 271(1)(c) especially when there is no finding of the AO that the assessee has furnished inaccurate particulars. ❖ DCIT vs. INTERCONTINENTAL TRADING AND INVESTMENT COMPANY LTD. as reported in (2012) 32 CCH 066 Del Trib Where there is no finding that the details furnished by assessee in its return were found to be incorrect or erroneous or false, there would not be any question of inviting penalty u/s 271(1) (c ). Mere claim of deduction which is not sustainable in law does not amount to furnishing of inaccurate particulars of income and hence, penalty cannot be imposed. DEPUTY COMMISSIONER OF INCOME TAX vs. NOKIA INDIA (P) LTD. as reported in (2009) 124 TTJ (Del) 145 AO having disallowed 25 per cent of assessee's claim on account of provision for obsolescence of inventory on estimate basis on the ground that old models of cellular phones can be easily sold in the market, it cannot be said that the claim was false and, therefore, penalty under s. 271(1)(c) is not leviable in respect of said disallowance. ❖ MIMOSA INVESTMENT CO. (P) LTD. vs. ITO (2010) as reported in 6 ITR 789 "Penalty under s. 271 (1)(c)—Concealment of income-All relevant facts furnished with return—Mere fact that the AO while discharging his duty is recalculating the total income in accordance with law which is not the same as calculated by the assessee, it cannot be held that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income or there is a deemed concealment in accordance with Expln. 1 to s. 271(1)." Thus, in view of above, it is amply clear that penalty proceedings cannot be initiated on additions made u/s 14A of the Act. 9. Lastly and most importantly, it is to be seen that in the impugned penalty order Ld. AO has not given even a single reason to substantiate his allegation that the assessee has furnished inaccurate particulars of income. The Ld. AO after giving a brief history of the case till page 12 of the penalty has merely written one small paragraph number 5.2 wherein it has been vaguely and without providing 10 any reason has alleged that, "it is evident that assessee has deliberately furnished inaccurate particulars of income". Therefore, it is clear that the impugned penalty levied by the Ld. AO are devoid of any merits and against the facts of the case. The Ld. AO has not even cared to consider the fact that the whole explanation filed by the assessee had been accepted by the Hon'ble ITAT and a minor portion of the whole addition have been sustained and that too on estimated. The Ld. AO has merely presumed that if any addition has been sustained then it would automatically attract penalty and it is a settled law that penalty proceedings and assessment proceedings are distinct and separate proceedings in view of Judgment of Hon'ble Amritsar Tribunal in the case of ITO vs. Preet Palace Pictures in IT A No. 456/ ASR/ 1996. Further, we also rely on the following judgments including the judgments of jurisdictional High court in which it has been clearly held that both penalty proceedings and assessment proceedings are separate and independent proceedings and disallowance of an expense per se cannot mean that the assessee has furnished incorrect particulars of its income: AC IT vs. Modern Coal Company as reported in 103 TTJ (Asr.) 726 CIT vs. Bhoj Raj and Co. (2001) 247 ITR 696 ( P&H) CIT vs. Ajaib Singh & Co. (2002) 253 ITR 630 (P&H) CIT vs. Chelan Doss Lachhman Dass (1995) 214 ITR 726 (Delhi) Harijan Co-op. I. C Society Ltd. (2007) 34 I.T. Rep 540 In view of the above submissions, it is humbly requested that the penalty levied in the case of the assessee may kindly be deleted and oblige.” 9. Per contra, the Ld. Sr. DR has relied on the order of the lower authorities. It was submitted that the Tribunal in the quantum proceedings has upheld the applicability of provisions of Section 14A r.w. Rule 8D of the Act and as against the addition of Rs. 1,42,26,765/- made by the AO, the addition is restricted to Rs. 5,00,000/-. Therefore there is no dispute that the provision of Section 14 r.w. Rule 8D are applicable and which has not been applied by the assessee while filing its return of income, and only where the AO during the course of assessment proceedings has inquired about the investments and dividend income and the corresponding expenditure, the details have been furnished and basis that the provisions of Section 14 r.w. Rule 8D were held applicable and which has been affirmed by the Tribunal. It was submitted that it is therefore a case where the specific provision as applicable in the fact of the present case were deliberately not considered and the disallowance so warranted under the said provision 11 were not made while filing the return of income. It is therefore a clear case of furnishing of inaccurate particulars of income and in view of the same, the order of the ld CIT(A) be confirmed and the appeal of the assessee be dismissed. 10. We have heard the rival contentions and perused the material available on the record. Firstly, on perusal of the penalty order, it is noted that the AO has referred to the order of the Coordinate Bench dt. 13/10/2020 in the context of quantum proceedings and has held that since the disallowance under section 14A r.w. Rule 8D amounting to Rs. 1,42,26,765/- is now restricted to Rs. 5,00,000/-, it is a fit case for levy of penalty under section 271(1)(c) of the Act and penalty for furnishing inaccurate particulars of income has thereafter been levied on the amount of disallowance of Rs 5,00,000/- under section 14A r.w. Rule 8D. We therefore find that the AO has levied the penalty merely basis confirmation of addition of Rs 5,00,000/- in the quantum proceedings and it is a settled legal proposition that the quantum and penalty proceedings are independent proceedings. Though the initiation of penalty proceedings happens during the course of assessment proceedings and has to be evident and emerges from the assessment order, however, before the penalty is fastened on the assessee, the AO has to record independent finding justifying the charge of furnishing of inaccurate particulars of income or for concealment of particulars of income. In the present case, we find that there is no independent and specific finding which has been recorded by the AO as to why he is of the belief that the charge of furnished inaccurate particulars of income can be fastened on the assessee and the reasons for arriving at such a finding given that penalty provisions have to be strictly construed and unless it is demonstrated that the case of the assessee falls within the four corners of provisions of section 271(1)(C), the penalty cannot be levied under the provisions of the Act. 11. Further the Ld. CIT(A) NFAC has again referred to the order of the Coordinate Bench and has held that in view of the order of the Coordinate 12 Bench in assessee’s own case, he sees no reason to interfere with the findings of the AO for levy of minimum penalty amounting to Rs. 1,54,500/- under section 271(1)(c) of the Act. 12. We therefore find that both the AO as well as the Ld. CIT(A), NFAC has decided the matter regarding levy of penalty under section 271(1)(c) merely on account of the fact that the addition have been confirmed by the Tribunal in the quantum proceeding. However, we do not find any specific finding recorded by either of the lower authorities as to how the disallowance so made by the AO and which has been upheld by the Tribunal though with a restricted amount leads to charge of furnishing of inaccurate particulars of income by the assessee. 13. Having said that, even on perusal of the order passed by the Coordinate Bench in the quantum proceedings, it is relevant to note the findings of the Coordinate Bench where it was held that as per provisions of Section 14A, before the AO proceed to calculate the disallowance under Rule 8D(2)(iii), he is supposed to consider the assessee’s submission and examine the accounts of the assessee and has to record his findings/reasoning that he is not satisfied with the submissions of the assessee and in the instant case, no such exercise has been done by the Assessing officer. We find that the said findings of the Coordinate Bench in fact supports the case of the assessee in the sense that where there is no examination of books of accounts of the assessee so presented before the AO, how the AO has arrived at a finding that there are certain administrative expenditure which has been incurred by the assessee in relation to exempt income and which has not been disallowed in terms of Section 14A r/w Rule 8D(2)(iii) while filing the return of income. 14. Infact, we find that the whole thrust of the AO during the course of assessment proceedings has been on the fact that the assessee has incurred 13 significant interest cost and has earned exempt income, and therefore, there should be disallowance of interest cost under Rule 8D(2)(ii) , however, the AO didn’t finally made any disallowance under Rule 8D(2)(ii) and has gone ahead and has made disallowance under Rule 8D(2)(iii). As regards disallowance under Rule 8D(2)(iii), there is however no discussion in the body of the assessment order disputing the assessee’s claim that it has not incurred any administrative expenditure for managing the investments and at the same time, we find that towards the end, while working out the disallowance, the AO has applied the standard formulae of 0.5% of average value of investment as prescribed in the rules and has made the disallowance under Rule 8D(2)(iii). The same also raises a question mark on the recording of satisfaction before initiation of penalty proceedings vis-à-vis disallowance under Rule 8D(2)(iii) of the Act as also evident from the wording so employed by the AO while recording the satisfaction where he says that “The undersigned is satisfied (that) the assessee has furnished inaccurate particulars of income by charging capital expense to the profit/loss account. Penalty proceedings u/s 271(1)(C) of the Act are being initiated separately.” which shows that the satisfaction has been recorded regarding charging capital expense in the profit/loss account and not any administrative expense in the profit/loss account. 15. We further find that the disallowance has been made under section 14A r.w. Rule 8D(2)(iii) of the Act wherein 0.5% of the average value of investment is computed and basis which the disallowance of Rs. 1,42,26,765/- has been determined by the AO which has been subsequently rectified by the AO to a figure of Rs. 63,21,654/- and finally which has been sustained to the extent of Rs. 5,00,000/- by the Co-ordinate Bench. We therefore find that the computation under Rule 8D(2)(iii) is basically a mechanism to work out various administrative expenses incurred by the assessee for managing the investment on which interest free income is earned by the assessee. However the same has been 14 worked out as a percentage of average value of investment which goes on to show that the same has no linkage to the expenditure actually incurred by the assessee during the relevant financial year. Even in the findings of the lower authorities, we do not see any specific finding which has been recorded by the AO stating that the assessee has claimed certain administrative expenditure in the P&L Account and which has not been disallowed in terms of Rule 8D(2)(iii) of the Act. The investments have been considered by the AO as disclosed in the books of accounts. Even on perusal of the order of the Coordinate Bench, we find that considering the submissions of the assessee that not much effort has been made to manage old investments and major chunk of dividend income was earned from strategic investment made in subsidiary companies and thus, taking into account the entirety of facts and circumstances of the case, lump sum disallowance of Rs 5,00,000/- was found reasonable on account of administrative expenditure and to that extent, the addition was sustained. We therefore find that the disallowance so provided in Rule 8D(2)(iii) is basically by virtue of deeming fiction and basis which the amount was computed and even the deeming fiction has not been applied in the strictest of the language and has been held amenable to the peculiar facts and circumstances of the given case, as can be seen from the order of the Co-ordinate Bench, therefore the same cannot lead to a scenario where it can be held that there is any inaccurate furnishing of particulars of income in the return so filed by the assessee. 16. Further, we find that the mere fact that the provision of Section 14A r.w. Rule 8D(2)(iii) are held applicable and the claim of the assessee that it has not incurred any expenditure in relation to exempt income not being accepted cannot lead to a situation where the charge of furnishing of inaccurate particulars of income can be fastened on the assessee without leading any positive evidence to the effect that there is wrong furnishing of information vis-à- 15 vis the investments which has yielded or can yield exempt income in future and secondly, there is actual incurrence of certain administrative expenditure for managing these investments during the year under consideration. In the present case, as we have noted above, there is no finding recorded by the AO either during the assessment proceedings or even during the penalty proceedings to this effect and no positive evidence has been led in this regard and in absence thereof, the penalty cannot be levied on the assessee. 17. Further, w e find that the matter is squarely covered by the decision of the Hon’ble Supreme Court in case of Reliance Petroproducts Ltd (Supra) wherein an identical matter relating to levy of penalty u/s 271(1)(C) on disallowance under Section 14A was under consideration before the Hon’ble Supreme Court and it was held that the same cannot lead to satisfaction of charge of furnishing of inaccurate particulars of income and the penalty was held not sustainable in the eyes of law. It would be useful to refer to the findings of the Hon’ble Supreme Court and the same read as under: “7. As against this, Learned Counsel appearing on behalf of the respondent pointed out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under:- "271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made 16 or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India Vs. Dharamendra Textile Processors [2008(13) SCC 369], as also, the decision in Union of India Vs.Rajasthan Spg. & Wvg. Mills [2009(13) SCC 448] and reiterated in para 13 that:- "13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist." 8. Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and 17 such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra). However, it must be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled. 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:- "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred 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, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that 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 forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types 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 well 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 not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the 18 Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.”(Emphasis supplied] 18. In light of aforesaid discussions and in the entirety of facts and circumstances of the case and respectfully following the decision supra, the levy of penalty u/s 271(1)(c) is hereby directed to be deleted. 19. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 13/03/2023. Sd/- Sd/- आकाश द प जैन #व$म &संह यादव (AAKASH DEEP JAIN) ( VIKRAM SINGH YADAV) उपा य / VICE PRESIDENT लेखा सद+य/ ACCOUNTANT MEMBER AG Date: 13/03/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. - 0 ग 2 3 & 2 3 456 ग7 DR, ITAT, CHANDIGARH 5. ग 6 8 % Guard File ( + $ By order, 9 # Assistant Registrar