The DCIT, Circle-4, Ahmedabad V. Mazda Limited., Ahmedabad

ITA 789/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5499 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-07-2010
• Assessment Year: 1996-1997
• Appeal Filed On: 19-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U S RAINADR
• Assessee Lawyers: SN SOPARKARAR
• Keywords: Non-deduction of tax; Wrong claim; Bonafide mistake; Reassessment proceedings; Capital expenditure; TDS
• Section: 271(1)(c); 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD A BENCH (BEFORE S/SHRI MUKUL SHRAWAT, JM & A.N. PA HUJA, AM) ITA.NO.789 TO 791/AHD/2007 ASSTT.YEAR : 1996-1997, 1998-1999 AND 1999-2000 DCIT, CIRCLE-4 ASHRAM ROAD AHMEDABAD. VS. MAZDALTD.,650/1,MAZDA HOUSE PANCHVATI SECOND LANE, AMBAWADI, AHMEDABAD. [PAN:AANCM9273H] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N.SOPARKAR,AR REVENUE BY : SHRI U.S.RAINA,DR O R D E R AN PAHUJA: THESE THREE APPEALS BY THE REVENUE AGAINST A COMMO N ORDER DATED 30-11-2006 OF THE LD. CIT(APPEALS)-VII, AHMEDABAD, CANCELLING THE PENALTY LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961[HEREINAFTER REFERRED TO AS THE ACT] , RAISE THE FOLLOWING GROU NDS: 1. THE LD.CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN CANCELLING THE PENALTY OF RS.5,55,746/- IN THE AY 1 996- 97,RS.4,20,140/- IN THE AY 1998-99 & RS.2,21,751/- IN THE AY 1999-2000 LEVIED U/S.271(1)(C) OF THE I.T.ACT, 1961 IGNORING THE FACT THAT THE ASSESSEE COMPANY HAD FURNISHED INACCURATE PARTICULARS OF INCOME ON VARIOUS ISSUES TO LOWER ITS TAX LIABILITY , WHICH WERE CONFIRMED IN QUANTUM APPEAL AS HELD IN THE CASE OF A.M. SHAH & CO., VS. CIT, 238 ITR 415 (GUJ) AND CIT VS. GATES F OAM AND RUBBER COMPANY, 91 ITR 467 (KER). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO 3. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE L D.CIT(A) MAY BE CANCELLED AND THAT OF THE AO MAY BE RESTORED TO THE ABOVE EFFECT. SINCE SIMILAR ISSUES WERE INVOLVED, THESE THREE A PPEALS WERE HEARD SIMULTANEOUSLY FOR THE SAKE OF CONVENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER . 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT DURING THE COURSE OF REASSESSMENT PROCEEDINGS FOR THE AY 1996-97 & 1998- 99 AS ALSO IN THE ITA.NO.789, 790 AND 791/AHD/2007 -2- ASSESSMENT PROCEEDINGS FOR THE AY 1999-2000, THE AS SESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE, AN ENGINEERING CO MPANY ENGAGED IN MANUFACTURING VARIOUS PROCESS CONTROL EQUIPMENTS, DID NOT DEDUCT TAX AT SOURCE WHILE CLAIMING DEDUCTION OF ROYALTY PAYABLE TO THEIR NON-RESIDENT FOREIGN COLLABORATOR. TO A QUERY BY THE AO IN THE ASSESSMENT PROCEEDINGS FOR THE AY 1997-98, THE ASSESSEE EXPLAINED THAT AF TER PROVIDING FOR ROYALTY IN THE ACCOUNTS ON ACCRUAL BASIS IN VARIOUS ASSESSMENT YEARS, THE ASSESSEE HAD APPROACHED RBI FOR REMITTANCE OF THE SAME AND CONSE QUENTLY, TAX WAS NOT DEDUCTED AT SOURCE BEFORE THE RECEIPT OF PERMISSION OF THE RBI. ACCORDINGLY, ASSESSMENTS FOR THE AYS 1996-97 AND 1998-99 WERE RE OPENED U/S 147 OF THE ACT. IN THE REASSESSMENT PROCEEDINGS FOR THESE TWO ASSESSMENT YEARS AS ALSO IN THE REGULA PROCEEDINGS FOR THE AY 1999-2000, TH E ASSESSEE AGREED WITH THE VIEW OF THE AO THAT DEDUCTION FOR ROYALTY IS NO T ADMISSIBLE IN VIEW OF PROVISIONS OF SEC. 40A(IA) OF THE ACT, TAX HAVING N OT BEEN DEDUCTED AT SOURCE. HOWEVER, THE ASSESSEE SOUGHT DEDUCTION IN THE YEAR OF DEDUCTION AND PAYMENT OF TDS TO THE CREDIT OF GOVERNMENT. ACCORDI NGLY, THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF ROYALTY OF RS. 12,08,14 3/- IN THE AY 1996- 97,RS.12,00,401/- IN THE AY 1998-99 & RS.18,41,719/ - IN THE AY 1999-2000, HAVING RECOURSE TO PROVISIONS OF SEC. 40A(IA) OF TH E ACT. INTER ALIA, WHILE RELYING UPON DECISIONS IN THE CASE OF SOUTHERN SWITCH GEARS LTD. VS. CIT,232 ITR 359(SC) & CIT VS. WARNER HINDUSTAN LTD.,160 ITR 217 (AP), THE AMOUNT OF RS.18,41,719/- WAS TREATED AS CAPITAL EXPENDITURE IN THE AY 1999-2000. SIMULTANEOUSLY, THE AO INITIATED PENALTY PROCEEDING S U/S 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 2.1 ON APPEAL, THE LD. CIT(A) VIDE HIS ORDERS DATED 16.7.2003 FOR THE AYS 1996-97 & 1998-99 AND ORDER DATED 30.7.2003 FOR TH E AY 1999-2000 UPHELD THE AFORESAID DISALLOWANCE IN TERMS OF PROVISIONS OF SEC. 40A(IA) OF THE ACT, TAX HAVING NOT BEEN DEDUCTED AT SOURCE FROM THESE PAYMENTS. SUBSEQUENTLY, CLAIM OF THE ASSESSEE FOR ALLOWANCE OF DEDUCTION OF RS.12,08,143/- ON WHICH TAX WAS DEDUCTED AT SOURCE AND PAID TO THE CREDIT O F THE GOVERNMENT ON 18.2.1999 ,WAS ALLOWED BY THE AO VIDE HIS ORDER DAT ED 6.9.2004 U/S 154/250 ITA.NO.789, 790 AND 791/AHD/2007 -3- OF THE ACT FOR THE AY 1999-2000. THEREFORE, DISALLO WANCE OF ONLY RS.6,33,576/- ALONE WAS UPHELD IN THE AY 1999-2000. 2.2 ON RECEIPT OF THE ORDERS OF THE LD. CIT( A), THE AO ISSUED A SHOWCAUSE NOTICE BEFORE LEVY OF PENALTY. IN RESPONS E, THE ASSESSEE SUBMITTED VIDE LETTER DATED 19.2.2005 THAT SINCE DEPARTMENT W AS IN APPEAL BEFORE ITAT ,PENALTY PROCEEDINGS SHOULD BE KEPT IN ABEYANCE. TH ERE BEING NO EXPLANATION FOR CLAIMING DEDUCTION OF ROYALTY WITHOUT DEDUCTING TAX AT SOURCE, THE AO IMPOSED A PENALTY OF RS.5,55,746/- IN THE AY 1996-9 7,RS.4,20,140/- IN THE AY 1998-99 & RS.2,21,751/- IN THE AY 1999-2000 U/S.271 (1)(C ) OF THE ACT @100% OF TAX SOUGHT TO EVADED ON THE AFORESAID AMOUNT OF ROYALTY. 3. ON APPEAL, THE CIT(A) WHILE RELYING UPO N DECISIONS IN THE CASE OF GHISARAM TRACHAND VS. ITO,60TTJ 30(DELHI), DEVIDAS SUKHLANI VS. ITO(ITA NO.387 OF 2005 )(JODHPUR BENCH),MAHESWARA MARIS VS. CIT,144 ITR 127(KARNATAKA),CIT VS. BEST SUPPLY AGENCY,241 ITR 2 08(MADRAS),CEMENT MARKETING CO. OF INDIA LTD. VS. AC SALES TAX,124 IT R 15(SC),CIT VS. DHOOLE TEA CO. LTD.,231 ITR 65(CALCUTTA) CANCELLED THE PE NALTY IN THE IMPUGNED COMMON ORDER IN THE FOLLOWING TERMS: 6. I HAVE CONSIDERED THE ABOVE SUBMISSIONS. THE F ACTS OF NON- DEDUCTION OF TAX CAME TO THE NOTICE OF THE AO IN CO URSE OF ASSESSMENT PROCEEDINGS FOR A.Y.1997-98 FROM ASSESSEES LETTER DATED 8.3.2000. IN THIS LETTER THE APPELLANT HAS STATED THAT IT HAD NO T DEDUCTED TAX AT SOURCE AS THE COMPANY AWAITING CLEARANCE FROM RBI. THIS INFORMATION HAS BEEN SUBSEQUENTLY USED FOR REOPENING ASSESSMENT FOR A.Y.96-97 AND 98-99 AND HAS ALSO BEEN USED IN ASSESSMENT PROC EEDINGS FOR A.Y.99-2000. AS HAS BEEN MENTIONED EARLIER, AFTER DEBITING THE P&L ACCOUNT WITH ROYALTY AMOUNT, THE ASSESSEE COMPANY H AS APPLIED FOR CLEARANCE FROM SAI AND RBI FOR REMITTING THE SAME A ND ONCE SUCH PERMISSION WAS GRANTED IT HAD DEDUCTED TAX AT SOURC E AND PAID THE AMOUNT TO GOVERNMENT ACCOUNT WITHIN 7 DAYS, AFTER W HICH IT HAD REMITTED THE AMOUNT ABROAD. THE DEDUCTION OF SUCH TDS WAS MADE ON 24.2.1999, 21.4.1999 AND 3.8.1999 I.E. MUCH BEFORE THE FACT OF NON- DEDUCTION OF TAX WAS NOTICED IN COURSE OF ASSESSMEN T PROCEEDINGS DURING MARCH, 2000. THE APPELLANT HAS INFORMED THE AO THAT IT HAS NOT DEDUCTED TAX AT SOURCE AT THE TIME OF CREDITING THE SAME TO COLLABORATORS ACCOUNT AND DEBITING THE SAME TO THE P & L ACCOUNT. ONCE IT WAS POINTED OUT THAT THE CLAIM IS NOT ALLOW ABLE U/S.40A(I) ITA.NO.789, 790 AND 791/AHD/2007 -4- BECAUSE TAX AT SOURCE HAS NOT BEEN DEDUCTED, THE AP PELLANT HAS PROMPTLY AGREED FOR DISALLOWANCE. 7. ON CONSIDERATION OF THE FACTS OF THE CASE IN ITS ENTIRETY, I AM TO AGREE WITH THE APPELLANT THAT THERE WAS A BONAFIDE MISTAKE IN CLAIMING THE DEDUCTION WITHOUT DEDUCTING TAX SOURCE. IN ANY CASE, THIS DISALLOWANCE IS MOSTLY TECHNICAL IN NATURE TO THE E XTENT THAT AMOUNT DISALLOWED IN A PARTICULAR YEAR ON THE BASIS OF NON -DEDUCTION OF TAX AT SOURCE IS ALLOWABLE AS DEDUCTION IN A SUBSEQUENT YE AR ON THE BASIS OF ACTUAL DEDUCTION OF TAX AT SOURCE. THIS CAN BE COM PARED WITH A DISALLOWANCE RELATING TO SECTION 43B. THERE IS NO FINDING OF A FACT THAT APPELLANT HAS CONCEALED ANY PARTICULARS OF INCOME O R FILED INACCURATE PARTICULARS. PENALTY HAS BEEN LEVIED BECAUSE THE D ISALLOWANCE HAS BEEN ACCEPTED BY THE ASSESSEE. EVEN IF THE CLAIM I S DISALLOWED, THE SAME WILL NOT AMOUNT TO FILING OF INACCURATE PARTIC ULARS OF INCOME. IT CAN AT BEST BE A CAUSE OF WRONG CLAIM NOT A FALS E CLAIM. ................................................... ................................................... .......... 8.9 ON CONSIDERATION OF THE FACTS OF THE CASE AND R ELYING ON THE CASE LAWS CITED ABOVE, I HOLD THAT THE APPELLANT COMPANY HAS MADE A BONAFIDE MISTAKE IN CLAIMING THE DEDUCTION. THE DI SALLOWANCE OF SUCH FOR ALL THE THREE ASSESSMENT YEARS WILL NOT AMOUNT TO CONCEALMENT OF INCOME OR FILING OF INACCURATE PARTICULARS OF INCOM E. ACCORDINGLY, I HOLD THAT THE AO IS NOT JUSTIFIED IN LEVYING PENALTY FOR ALL THE THREE ASSESSMENT YEARS. THE PENALTY LEVIED FOR A.Y.96-97 ( RS.5,55,746/-) A.Y.1998-99 (RS.4,20,140/-) AND FOR A.Y.1999-2000 ( RS.2,21,751/-) ARE THEREFORE CANCELLED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAN ST THE AFORESAID FINDNGS OF THE LD. CIT(A). THE LD. DR SUPPORTED THE ORDERS OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED UPON THE FINDINGS OF THE LD. CIT(A). INTER ALIA, THE LD. AR RELIED UPON THE DECISION OF HONBLE GUJRAT H IGH COURT IN DAHOD SAHAKARI KHARID VECHAN SANGH LTD. VS. CIT, 282 ITR 321(GUJ) 5. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. UNDISPUTEDL Y, THE CLAIM FOR DEDUCTION OF ROYALTY WAS DISALLOWED IN TERMS OF PROVISIONS O F SEC.40A(IA) OF THE ACT, THE TAX HAVING NOT BEEN DEDUCTED AT SOURCE. AS POIN TED OUT BY THE LD. CIT(A),THE FACT OF NON-DEDUCTION OF TAX AT SOURCE F ROM ROYALTY PAYMENTS CAME TO THE NOTICE OF THE AO IN COURSE OF ASSESSMENT PRO CEEDINGS FOR A.Y.1997-98 FROM THE ASSESSEES LETTER DATED 8.3.2000. IN THIS LETTER, THE ASSESSEE STATED THAT THEY HAD NOT DEDUCTED TAX AT SOURCE AS THEY WE RE AWAITING CLEARANCE FROM ITA.NO.789, 790 AND 791/AHD/2007 -5- THE RBI. ON THE BASIS OF THIS INFORMATION, ASSESSME NTS FOR THE A.YS.96-97 AND 98-99 WERE REOPENED. ADMITTEDLY, ONLY AFTER DEBITIN G THE P&L ACCOUNT ON ACCRUAL BASIS AND CREDITING THE FOREIGN COLLABORATO R NAMELY M/S CROLL REYNOLDS CO.INC.,USA WITH ROYALTY AMOUNT, THE ASSESSEE COMPA NY APPLIED FOR CLEARANCE FROM SAI AND RBI FOR REMITTING THE SAME AND ONCE SU CH PERMISSION WAS GRANTED, THE ASSESSEE REMITTED THE AMOUNT AFTER DED UCTING TAX AT SOURCE AND PAYING TO THE ACCOUNT OF THE GOVERNMENT. THE RELE VANT DETAILS OF REMITTANCE REVEAL AS UNDER: AY ROYALTY AMOUNT DATE OF PERMISSION OF THE RBI TDS AMOUNT/DATE OF PAYMENT DATE OF REMITTANCE OF ROYALTY 1996-97 12,08,143 27.1.1999 1,81,222/18.2.1999 24.2.1999 1997-98 19,91,150 27.1.1999 2,98,676/20.4.1999 21.4.1999 1998-99 12,00,401 27.1.1999 1,80,060/2.8.1999 3.8.1 999 1999-2000 18,41,719 27.1.1999 2,76,258/7.9.1999 10. 9.1999 THE AFORESAID DETAILS REVEAL THAT THE DEDUCTION OF TAX AT SOURCE AND PAYMENT THEREOF TO THE CREDIT OF GOVERNMENT WAS MADE MUCH BEFORE THE FACT OF NON- DEDUCTION OF TAX WAS NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE AY 1997-98 IN MARCH, 2000. THE ASSESSEE ADMITT ED BEFORE THE AO THAT THEY HAD NOT DEDUCTED TAX AT SOURCE AT THE TIME OF CREDITING THE ROYALTY TO COLLABORATORS ACCOUNT AND DEBITING THE SAME TO THE P & L ACCOUNT. ONCE IT WAS POINTED OUT THAT THE CLAIM WAS NOT ALLOWABLE U/S.40 A(IA) OF THE ACT BECAUSE TAX AT SOURCE HAD NOT BEEN DEDUCTED, THE ASSESSEE PROMP TLY AGREED FOR DISALLOWANCE. IT IS WELL SETTLED THAT ASSESSMENT PR OCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT AND AS HELD B Y HON'BLE SUPREME COURT IN THE CASE OF ANANTHRAMAN VEERASINGHAIAH & CO. VS. CI T - 123 ITR 457, THE FINDINGS IN THE ASSESSMENT PROCEEDINGS CANNOT BE RE GARDED AS CONCLUSIVE FOR THE PURPOSES OF THE PENALTY PROCEEDINGS. IT IS ALSO WELL SETTLED THAT THE CRITERION AND YARDSTICKS FOR THE PURPOSE OF IMPOSING PENALTY U/S 271(1)(C) OF THE ACT ARE DIFFERENT THAN THOSE APPLIED FOR MAKING OR CONFIRMI NG THE ADDITIONS. IT IS, THEREFORE, NECESSARY TO REAPPRECIATE AND RECONSIDER THE MATTER SO AS TO FIND OUT ITA.NO.789, 790 AND 791/AHD/2007 -6- AS TO WHETHER THE ADDITION MADE IN THE QUANTUM PROC EEDINGS ACTUALLY REPRESENTS THE CONCEALMENT ON THE PART OF THE ASSES SEE AS ENVISAGED IN SEC. 271(1 )(C) OF THE ACT AND WHETHER IT IS A FIT CASE TO IMPOSE THE PENALTY BY INVOKING THE SAID PROVISIONS. THE PROVISIONS OF SECTION 271(1)( C ) OF THE ACT STIPULATE THAT IF THE ASSESSING OFFICER OR THE CIT( APPEALS) OR THE COMMISSIONER, IN THE COURSE OF PROCEEDINGS UNDER THIS ACT, IS SAT ISFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS THEREOF , HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NOT E XCEED THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE EVADED BY A REASON OF THE CONCE ALMENT OF PARTICULARS OF HIS INCOME. EXPLANATION 1 TO SECTION 271(1)( C ) OF THE ACT MENTIONS 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 AO OR THE CIT (AP PEALS) OR THE COMMISSIONER TO BE FALSE, OR SUCH PERSON OFFERS AN EXPLANATION W HICH HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMP UTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN THE AMOUNT ADDED O R DISALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSE OF CLAUSE ( C ) OF SECTION 271(1), BE DEEMED TO REPRESENT THE INC OME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. IN OTHER WOR DS, THE NECESSARY INGREDIENTS FOR ATTRACTING EXPLANATION 1 TO SECTION 271(1)( C ) ARE THAT ( I ) THE PERSON FAILS TO OFFER THE EXPLANATION, OR ( II ) HE OFFERS THE EXPLANATION WHICH IS FOUND BY THE A O OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE, OR ( III ) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABL E TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM. 5.1 IF THE CASE OF ANY ASSESSEE FALLS IN ANY OF THESE T HREE CATEGORIES, THEN THE DEEMING PROVISION PROVIDED IN EXPLANATION 1 TO SECTION 271(1)( C ) COMES INTO PLAY, AND THE AMOUNT ADDED OR DISALLOWED IN CO MPUTING THE TOTAL INCOME SHALL BE CONSIDERED AS THE INCOME IN RESPECT OF WHI CH PARTICULARS HAVE BEEN CONCEALED, FOR THE PURPOSES OF CLAUSE ( C ) OF SECTION 271(1), AND THE PENALTY ITA.NO.789, 790 AND 791/AHD/2007 -7- FOLLOWS. ON THE OTHER HAND, IF THE ASSESSEE IS ABL E TO OFFER AN EXPLANATION, WHICH IS NOT FOUND BY THE AUTHORITIES TO BE FALSE, AND ASSESSEE HAS BEEN ABLE TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THA T ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM, THE ASSESSEE SHALL BE OUT OF THE CLUTCHES OF EXPLANATION 1 TO SECTION 271(1)( C ) OF THE ACT, AND IN THAT CASE, THE PENALTY SHALL NOT BE IMPOSED. HONBLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF V . JT. CIT [2007] 210 CTR (SC) 228 : [2007] 291 ITR 519 (SC) WHILE CONSIDERING THE SCOPE OF THESE PROVISIONS U/S 271(1)( C ) OF THE ACT OBSERVED IN THE FOLLOWING TERMS: THE LEGAL HISTORY OF SECTION 271(1)(C) OF THE ACT TRACED FROM THE 1922 ACT PRIMA FACIE SHOWS THAT THE EXPLANATIONS WERE APPLIC ABLE TO BOTH THE PARTS. HOWEVER, EACH CASE MUST BE CONSIDERED ON ITS OWN FA CTS. THE ROLE OF THE EXPLANATION HAVING REGARD TO THE PRINCIPLE OF STATU TORY INTERPRETATION MUST BE BORNE IN MIND BEFORE INTERPRETING THE AFOREMENTIONE D PROVISIONS. CLAUSE (C) OF SUB-SECTION (1) OF SECTION 271 CATEGORICALLY STATES THAT THE PENALTY WOULD BE LEVIABLE IF THE ASSESSEE CONCEALS THE PARTICULARS O F HIS INCOME OR FURNISHES INACCURATE PARTICULARS THEREOF. BY REASON OF SUCH C ONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS ALONE, THE ASSESSEE DOES NOT IPSO FACTO BECOME LIABLE FOR PENALTY. IMPOSITION OF PENALTY IS NOT AUTOMATIC . LEVY OF PENALTY IS NOT ONLY DISCRETIONARY IN NATURE BUT SUCH DISCRETION IS REQU IRED TO BE EXERCISED ON THE PART OF THE ASSESSING OFFICER KEEPING THE RELEVANT FACTORS IN MIND. SOME OF THOSE FACTORS APART FROM BEING INHERENT IN THE NATU RE OF PENALTY PROCEEDINGS AS HAS BEEN NOTICED IN SOME OF THE DECISIONS OF THI S COURT, INHERES ON THE FACE OF THE STATUTORY PROVISIONS. PENALTY PROCEEDINGS AR E NOT TO BE INITIATED, AS HAS BEEN NOTICED BY THE WANCHOO COMMITTEE, ONLY TO HARA SS THE ASSESSEE. THE APPROACH OF THE ASSESSING OFFICER IN THIS BEHALF MU ST BE FAIR AND OBJECTIVE. THE TERM 'INACCURATE PARTICULARS' IS NOT DEFINED. F URNISHING OF AN ASSESSMENT OF VALUE OF THE PROPERTY MAY NOT BY ITSELF BE FURNI SHING OF INACCURATE PARTICULARS. EVEN IF THE EXPLANATIONS ARE TAKEN REC OURSE TO, A FINDING HAS TO BE ARRIVED AT HAVING REGARD TO CLAUSE (A) OF EXPLANATI ON 1 THAT THE ASSESSING OFFICER IS REQUIRED TO ARRIVE AT A FINDING THAT THE EXPLANATION OFFERED BY AN ASSESSEE, IN THE EVENT HE OFFERS ONE, WAS FALSE. HE MUST BE FOUND TO HAVE FAILED TO PROVE THAT SUCH EXPLANATION IS NOT ONLY N OT BONA FIDE BUT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE INCOME WER E NOT DISCLOSED BY HIM. THUS, APART FROM HIS EXPLANATION BEING NOT BONA FID E, IT SHOULD HAVE BEEN FOUND AS OF FACT THAT HE HAS NOT DISCLOSED ALL THE FACTS WHICH WAS MATERIAL TO THE COMPUTATION OF HIS INCOME. ITA.NO.789, 790 AND 791/AHD/2007 -8- SECTION 271(1)(C) REMAINS A PENAL STATUTE. THE RUL E OF STRICT CONSTRUCTION SHALL APPLY THERETO. THE INGREDIENTS FOR IMPOSING PENALTY REMAINS THE SAME. THE PURPOSE OF THE LEGISLATURE THAT IT IS MEANT TO BE D ETERRENT TO TAX EVASION IS EVIDENCED BY THE INCREASE IN THE QUANTUM OF PENALTY , FROM 20 PER CENT. UNDER THE 1922 ACT TO 300 PER CENT. IN 1985. 5.2 IN THE LIGHT OF AFORESAID OBSERVATIONS O F THE HONBLE APEX COURT , WHAT IS TO BE SEEN IN THE INSTANT CASE, IS WHETHER THE SAID CLAIM MADE BY THE ASSESSEE WAS BONA-FIDE AND WHETHER ALL THE MATERIAL FACTS RELEVANT THERETO HAVE BEEN FURNISHED AND ONCE IT IS SO ESTABLISHED, THE ASSESSEE CANNOT BE HELD LIABLE FOR CONCEALMENT PENALTY U/S 271(L)(C) O F THE ACT. A MERE REJECTION OF THE CLAIM OF THE ASSESSEE BY RELYING ON DIFFERENT I NTERPRETATIONS DOES NOT AMOUNT TO CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. HON'BLE PUNJ AB & HARYANA HIGH COURT IN THE CASE OF CIT VS. AJAIB SINGH & CO. (2001) 170 CTR (P&H) 489 : (2002) 253 ITR 630 (P&H) HAVE OBSERVED THAT MERELY BECAUSE CERTAIN E XPENSES CLAIMED BY THE ASSESSEE ARE DISALLOWED BY AN AUTHOR ITY, IT CANNOT MEAN THAT PARTICULARS FURNISHED BY THE ASSESSEE WERE WRONG. I T WAS HELD THAT MERE DISALLOWANCE OF EXPENSES PER SE CANNOT MEAN THAT AS SESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME. IN THE CASE UNDER CONSIDERATION, AS POINTED OUT BY THE LD. CIT(A), THE ASSESSEE HAD GIV EN ALL THE PARTICULARS OF INCOME AND HAD DISCLOSED ALL FACTS TO THE AO. THE L D. CIT(A) ,ACCORDINGLY, CONCLUDED THAT THERE WAS A BONAFIDE MISTAKE IN CLA IMING THE DEDUCTION FOR RPYALTY WITHOUT DEDUCTING TAX AT SOURCE AND THE DIS ALLOWANCE WAS MOSTLY TECHNICAL IN NATURE. MERE DISALLOWANCE OF A CLAIM WILL NOT AMOUNT TO FILING OF INACCURATE PARTICULARS OF INCOME. IT CAN AT BEST B E A WRONG CLAIM NOT A FALSE CLAIM. IN SUCH CIRCUMSTANCES, HONBLE DELHI HIGH COURT HELD IN THE CASE OF COMMISSIONER OF INCOME-TAX.VS BACARDI MARTI NI INDIA LIMITED.,288 ITR 585(DEL) THAT NO PENALTY WAS LEVIABLE. RECENTL Y, HONBLE APEX COURT IN CIT VS. RELIANCE PETRO PRODUCTS, ARISING OUT OF SLP (C) NO.27161 OF 2008, VIDE THEIR ORDER DATED 17.3.2010 HELD THAT A MERE M AKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOU NT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. S UCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS, HONBLE APEX COURT CONCLUDED. THUS, MERELY BECAUSE THE ASSESSEE HAD C LAIMED THE EXPENDITURE, ITA.NO.789, 790 AND 791/AHD/2007 -9- WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, ATTRACT THE PENALTY U/S 271(1)(C) OF THE ACT. IN THE PRESENT CASE, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF CLAIM FOR DEDUCTION OF ROYALTY, BY MERELY HAVING RECOURSE TO PROVISIONS OF SEC.40A(IA) OF THE ACT CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME OR FU RNISHING INACCURATE PARTICULARS THEREOF. 5.3 THE AFORESAID VIEW TAKEN BY US IS ALSO SUPPOR TED BY THE DECISION DATED 19.6.2009 IN THE ASSESSEES OWN CASE IN THE AY 1997 -98 IN ITA NO.4236/AHD./2007, WHEREIN ON SIMILAR FACTS AND CIR CUMSTANCES, ORDER OF THE LD. CIT(A),CANCELLING THE PENALTY WAS UPHELD. 5.4 WE HAVE ALSO GONE THROUGH THE TWO DECISIONS RELIED UPON BY THE REVENUE IN THEIR GROUNDS OF APPEALS NAMELY. AM SHA H & CO. VS. CIT,238 ITR 415(GUJ) & CIT VS. GATES FOAM & RUBBER & CO.,91 ITR 467(KERALA). THESE DECISIONS WERE RENDERED ON TOTALLY DIFFERENT FACTS . IN THE FIRST CASE SERIOUS DISCREPANCIES BY WAY OF MANIPULATION OF STOCKS, OMI SSION OF SALES, INFLATION OF PURCHASES, MAKING OUT OF BOGUS BILLS, ETC. WERE NOT ICED IN THE BOOKS OF ACCOUNTS. AS A RESULT ADDITIONS WERE MADE AND PENAL TY U/S 271(1)(C) WAS IMPOSED . IN THE LIGHT OF THESE FACTS, HONBLE HIGH COURT UPHELD THE LEVY OF PENALTY. LIKEWISE IN GATES FOAM & RUBBER CO.(SUPRA) , ASSESSMENT WAS REOPENED U/S 147 OF THE ACT ON THE BASIS OF ENQUIRI ES RELATING TO PAYMENT OF COMMISSION TO THE AGENT FIRM, WHEREIN THE ONLY PART NERS OF THE AGENT-FIRM WERE THE CHILDREN OF MRS. ACHAMMA SEBASTIAN, THE MANAGIN G PARTNER OF THE ASSESSEE-FIRM, OF WHOM ONLY TWO WERE ADULTS. THE IN COME-TAX OFFICER FELT THAT THE AGENT-FIRM WAS SPURIOUS AND THAT IT WAS FORMED ONLY FOR THE PURPOSE OF DIVERTING A PORTION OF THE PROFITS OF THE ASSESSEE- FIRM AND THEREBY REDUCE THE ASSESSEE'S TAX LIABILITY. SUBSEQUENTLY, IN THE RETU RN IN RESPONSE TO NOTICE U/S 148, THE ASSESSEE ADDED THE AMONT OF COMMISSION. TH EREAFTER, PENALTY U/S 271(1)(C) WAS IMPOSED. ON APPEAL, THE ITAT CANCELLE D THE PENALTY .HOWEVER, THE HONBLE KERALA HIGH COURT HELD THAT IT WAS CO NCLUSIVELY ESTABLISHED IN THIS CASE THAT THE ENTRY OF COMMISSION WAS FALSE A ND THAT IT WAS MADE FOR THE PURPOSE OF DIVERTING A LARGE PORTION OF THE TAXABLE INCOME OF THE ASSESSEE. ITA.NO.789, 790 AND 791/AHD/2007 -10- FRAUD CAN PROPERLY BE INFERRED UNDER SUCH CIRCUMSTA NCES. ACCORDINGLY, LEVY OF PENALTY WAS UPHELD. BUT SUCH ARE NOT THE FACTS IN T HE INSTANT CASE NOR THE LD. DR APPEARING BEFORE US DEMONSTRATED AS TO HOW THES E DECISIONS HELP THE REVENUE. THEREFORE, WE ARE OF THE OPINION THAT RELI ANCE BY THE REVENUE ON THESE TWO DECISIONS IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, IS TOTALLY MISPLACED. 5.5. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN N O MATERIAL HAS BEEN BROUGHT TO OUR NOTICE BY THE REVENUE, CONTROVERTING THE AFO RESAID FINDINGS OF THE LD. CIT(A) NOR ANY CONTRARY DECISION HAS BEEN BROUGHT T O OUR NOTICE ,WE HAVE NO ALTERNATIVE BUT TO UPHOLD THE FINDINGS OF THE LD. C IT(A),CANCELLING THE PENALTY LEVIED UNDER SECTION 271 (1)(C) OF THE ACT . THEREF ORE, GROUND NO.1 IN THESE THREE APPEALS IS DISMISSED. 6. GROUND NOS.2 & 3 IN THESE THREE APPEALS ,BEIN G MERE PRAYER, DO NOT REQUIRE ANY SEPARATE ADJUDICATION AND ARE, THEREFOR E, DISMISSED 7. IN THE RESULT, THESE THREE APPEALS ARE DISMISSE D. ORDER PRONOUNCED IN OPEN COURT ON 30-7 - 2010. SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A.N. PAHUJA) ACCOUNTANT MEMBER PLACE : AHMEDABAD DATE : 30 -7-2010 VK* COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : DCIT, CIRCLE-4,ASHRAM ROAD,AHMEDABAD. 3) : CIT(A)VII,AHMEDABAD 4) : CIT CONCERNED 5) : DR, A BENCH ITAT. BY ORDER AR, ITAT, AHMEDABAD