M/s. Bharti Airtel Limited, Jammu V. The Income Tax Officer, Jammu

ITA 94/ASR/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2219 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 13-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SSH RUPESH JAINADV
• Keywords: Earning of tax free income; Difference of opinion
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.94(ASR)/2011 ASSESSMENT YEAR:2007-08 PAN :AABCM1204G DY.COMMR. OF INCOME-TAX, VS. M/S. MAX INDIA LIMITE D RANGE-II, BHAI MOHAN SINGH NAGAR, JALANDHAR. RAIL MAJRA, TEHSIL BALACHAUR, DISTT. NAWANSHAHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. TARSEM LAL, DR RESPONDENT BY:S/SH. RUPESH JAIN,ADV & DILBAGH SIN GH NARANG, ASSOCIATE DIRECTOR TAXATION DATE OF HEARING:27/02/2013 DATE OF PRONOUNCEMENT:19/03/2013 ORDER PER BENCH ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F CIT(A), JALANDHAR, DATED 13.12.2010 RELATING TO ASSESSMENT YEAR 2007-08. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO.94(ASR)/2011 2 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE PENALTY O F RS.66,65,451/- IMPOSED BY THE AO U/S 271(1)(C) OF THE I.T.ACT, 1961. 2. THAT, IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET-ASIDE AND THAT OF THE A.O. RESTORED. 3. THAT THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AME ND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AN D DISPOSED OF. 2. IN THE GROUND RAISED BY THE REVENUE, THE REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT(A) IN DELETING THE PENALTY OF RS.66,65,451/- IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) OF TH E INCOME TAX ACT, 1961 (IN SHORT, THE ACT) IN RESPECT OF DISALLOWANCE OF EXPENSES UNDER SECTION 14A MADE BY THE A.O. FOR FURNISHING INACCURATE PART ICULARS OF INCOME. 3. THE BRIEF FACTS IN THE APPEAL OF THE REVENUE ARE THAT THE RETURN OF INCOME FOR THE IMPUGNED YEAR WAS FILED BY THE ASSES SEE ON 31.10.2007 AT A LOSS OF RS.12.76 CRORES. DURING THE YEAR , THE ASSE SSEE HAD ALSO RECEIVED THE DIVIDEND INCOME OF RS.21.36 CRORES WHICH WAS EXEMP T UNDER SECTION 10(34) OF THE ACT. THE ORDER PASSED BY THE A.O. UNDER SECT ION 143(3) OF THE ACT ON 31.12.2009 WHERE HE INVOKED THE PROVISIONS OF SECTI ON 14A AND COMPUTED DISALLOWANCE OF RS.1.98 CRORES IN ACCORDANCE WITH T HE PROVISIONS OF RULE 8D. THE ASSESSEE DID NOT FILE ANY APPEAL AGAINST T HE SAID DISALLOWANCE. ITA NO.94(ASR)/2011 3 4. THE AO, THEREFORE, INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND IMPOSED PENALTY IN THAT SECTION IN RESPECT OF DISALLOWANCE MADE U/S 14A OF THE ACT, ON THE GROUND THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN RELATION TO THE SAME. 5. THE LD. CIT(A) DELETED THE PENALTY IMPOSED BY TH E AO ON THE GROUND, THAT NO INACCURATE FACTS IN RELATION TO THE ISSUE OF DISALLOWANCE UNDER SECTION 14A WERE FURNISHED BY THE ASSESSEE AND THE DISALLOWANCE WAS MADE IN THE ASSESSMENT ORDER ON A BONAFIDE DIFFERENCE OF OPINION, WHICH CANNOT BE VISITED WITH PENALTY U/S 271(1)(C) OF THE ACT. THE LD. CIT(A) ALSO HELD THAT, SIMPLY BECAUSE THE ASSESSEE DID NOT CONTEST THE DIS ALLOWANCE UNDER SECTION 14A IN FURTHER APPEAL, THE ASSESSEE CANNOT AUTOMATI CALLY BE HELD TO HAVE FURNISHED INACCURATE PARTICULARS OF INCOME. 6. IN SUPPORT OF THE APPEAL FILED BY THE REVENUE AG AINST THE AFORESAID ORDER OF THE LD. CIT(A), THE LD. DR, MR. TARSEM LAL , MADE BOTH ORAL AND WRITTEN ARGUMENTS. IT WAS ARGUED THAT THE LD. CIT(A ) ERRED IN THE FACTUAL MATRIX OF THE CASE WHILE HOLDING THAT SINCE THE PRO VISIONS OF RULE 8D OF INCOME TAX RULES, 1962, WERE NOT APPLICABLE DURING THE IMPUGNED YEAR, THE DISALLOWANCE UNDER SECTION 14A AS PER AFORESAID ME THOD WAS INCORRECT IN LAW AND THE ASSESSEE CANNOT BE VISITED WITH THE PEN ALTY U/S 271(1)(C) OF THE ACT IN SUCH A SITUATION. IT WAS SUBMITTED THAT THE ASSESSEE HAD HIMSELF IN THE ITA NO.94(ASR)/2011 4 COURSE OF ASSESSMENT PROCEEDINGS BY A LETTER DATED DECEMBER 11,2009 (PB- 82) ADMITTED THAT PERSONNEL AND ADMINISTRATIVE EXP ENSES WERE INCURRED IN RELATION TO THE INVESTMENT AND DID NOT OFFER ANY AM OUNT FOR DISALLOWANCE U/S 14A OF THE ACT, AS IT WAS EFFECTIVELY DIFFICULT TO DETERMINE ON AN EXACT BASIS AS TO WHAT PART THERE WAS ALLOCABLE TO INVESTMENT ACTIVITY, WARRANTING DISALLOWANCE U/S 14A OF THE ACT. IT WAS SUBMITTED THAT IN THE AFORESAID CIRCUMSTANCES, THE AO HAD NO OPTION BUT TO COMPUTE DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D WHICH ARE AVAILABLE IN THE STATUTE AT THE TIME OF MAKING ASSESSMENT. ACCORDINGLY, IT WAS ARGUED THAT THE AO HAD RIGHTLY APPLIED THE PROVISIONS OF RULE 8D AND THE LD. CIT( A) HAS ERRED IN HOLDING THAT SINCE DISALLOWANCE MADE BY THE AO WAS INCORREC T, THE ASSESSEE CANNOT FOR SUCH DISALLOWANCE BE VISITED WITH PENALTY UNDER SECTION 271(1)(C) OF THE ACT. FURTHER, HAVING REGARD TO THE SUBMISSIONS BY T HE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS VIDE LETTER DATED 11.12.2009 , IT WAS CERTAIN THAT PERSONNEL AND ADMINISTRATIVE EXPENSES WERE HAVING R ELATION WITH INVESTMENT ACTIVITIES. IT WAS ARGUED THAT THE ASSESSEE HAD FUR NISHED INACCURATE PARTICULARS OF INCOME BY NOT COMPUTING DISALLOWANCE U/S 14A OF THE ACT. ON THE AFORESAID REASON ITSELF I.E. ADMISSION MADE BY THE ASSESSEE. THE LD. DR, MR. TARSEM LAL, ARGUED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (P) LTD REP ORTED IN 322 ITR 158 ITA NO.94(ASR)/2011 5 RELIED UPON BY THE LD. CIT(A) WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AND IT CANNOT BE SAID THAT NO INACCURATE PART ICULARS OF INCOME WERE FURNISHED BY THE ASSESSEE. 7. AS REGARDS THE DECISION OF THE LD. CIT(A) THAT S IMPLY BECAUSE THE ASSESSEE DID NOT FILE FURTHER APPEAL AGAINST THE OR DER OF THE A.O., NO ADVERSE INFERENCE QUA FURNISHING INACCURATE PARTICULARS OF INCOME FOR IMPOSITION OF PENALTY BE DRAWN AGAINST THE ASSESSEE. IT WAS ARGUE D BY THE LD. DR THAT THE ASSESSEE HAD CONSCIOUSLY DECIDED NOT TO FILE FURTHE R APPEAL BEFORE THE LD. CIT(A) AS THE ASSESSEE WANTS TO AVOID ENHANCEMENT OF DISALLOWANCE BY THE LD. CIT(A). IT WAS FURTHER STATED THAT IN ORDER TO AVOID AFORESAID RISK, THE ASSESSEE CHOSE NOT TO FILE FURTHER APPEAL. IT WAS A RGUED THAT THE AFORESAID CIRCUMSTANCES ESTABLISHES HAT THE ASSESSEE HAD FURN ISHED INACCURATE PARTICULARS OF INCOME IN THE RETURN OF INCOME AND PENALTY IMPOSED BY THE AO WAS REQUIRED TO BE UPHELD. 8. AS REGARDS THE DECISION OF LD. CIT(A) THAT THE PENALTY U/S 271(1)(C) CANNOT BE IMPOSED ON DISALLOWANCE OF EXPENSES MADE ON ESTIMATE BASIS, IT WAS ARGUED BY THE LD. DR THAT THE SAID PROPOSITION IS NOT APPLICABLE TO THE DISALLOWANCE MADE U/S 14A OF THE ACT, ON THE GROUND THAT THE SAID SECTION MANDATES DISALLOWANCE OF EXPENSES ON ESTIMATION BAS IS ITSELF. IT WAS ALSO ARGUED THAT WHEN THE LD. CIT(A) HAD NOT HELD THAT T HE PROVISIONS OF SECTION ITA NO.94(ASR)/2011 6 14A WERE NOT APPLICABLE ON THE ASSESSEE IN THAT FAC TS OF THE ASSESSEE, THE LD. CIT(A) EXCEEDED THE JURISDICTION OF CANCELING PENAL TY IMPOSED BY THE A.O. 9. IT WAS FURTHER ARGUED BY THE LD. DR THAT THE PRO VISIONS OF EXPLANATION 1 TO SECTION 271(1)(C) STAND SATISFIED IN THE CASE OF THE ASSESSEE. ACCORDINGLY, IT WAS REITERATED THAT THE ASSESSEE HA D FURNISHED INACCURATE PARTICULARS OF INCOME BY NOT QUANTIFYING AND DISAL LOWING U/S 14A OF THE ACT, THE ELEMENT OF EXPENDITURE HAVING RELATION WI TH THE EXEMPT INCOME. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN DELETING PENALTY IMPOSED BY THE AO AND THEREFORE, HIS ORDER DESERVE S TO BE REVERSED AND PENALTY IMPOSED BE UPHELD. 10. THE LD. COUNSEL FOR THE ASSESSEE, MR. RUPESH JA IN, ADVOCATE, IN REPLY VEHEMENTLY OPPOSED THE ARGUMENTS MADE BY THE LD. DR AND SUPPORTED THE ORDER OF THE LD. CIT(A). IT WAS ARGUED THAT MERELY BECAUSE THE AO MADE DISALLOWANCE U/S 14A READ WITH RULE 8D, WHICH ORDER WAS NOT CHALLENGED IN APPEAL DOES NOT AUTOMATICALLY LEAD TO A CONCLUSION THAT THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME AND DIFFERENT CONS IDERATION APPLY FOR ADJUDICATING LEVY OF PENALTY WHICH IS SEPARATE AN D INDEPENDENT PROCEEDINGS THAN THE ASSESSMENT PROCEEDINGS. IN SUPPORT OF THE ABOVE PROPOSITION, REFERENCE WAS MADE BY THE LD. COUNSEL FOR THE ASSES SEE TO THE FOLLOWING DECISIONS: ITA NO.94(ASR)/2011 7 I) CIT VS. GLOBLE SALES CORPORATION 145 TAXMAN 730 (DEL.) II) CIT VS. J.K. SYNTHETICS LIMITED 219 ITR 267 (D EL) II) JAINARAYAN BABULAL V. CIT 170 ITR 399 (BOM.) IV) CIT VS. GANESH MAL NANAK CHAND 197 CTR 193 (RAJ.) V) SOHANLAL G. SANGHI V. ACIT 125 ITR 184 (MP) VI) KALPALATHA V. ASSTT. CIT 44 TTJ 225 (HYD) 11. IT WAS FURTHER SUBMITTED THAT FOR THE PURPOSE O F LEVY OF PENALTY, THE LAW PREVAILING AT THE TIME OF FILING THE RETURN HAS TO BE SEEN. IT WAS SUBMITTED THAT WHEN THE RETURN WAS FILED WHICH ON 31.10.2007, RULE 8D WAS NOT ON THE STATUTE, AS THE SAID RULE WAS INTRODUCED IN MARCH 2 008. THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT DISALLOWANCE MADE BY THE A O U/S 14A BY APPLYING RULE 8D, WHICH RULE WAS AVAILABLE AT THE TIME OF MA KING THE ASSESSMENT BUT NOT AT THE TIME OF FILING THE RETURN OF INCOME, I S WITHOUT ANY LEGAL BASIS, SINCE THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DY.CIT: 328 ITR 81 AND THE HONBLE DE LHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT 247 ITR 162 HAVE HELD THAT RULE 8D IS APPLICABLE PROSPECTIVELY FROM THE ASSESSMENT YEAR 2008-09 AND WAS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDE RATION. IT WAS SUBMITTED THAT IF THE VERY BASIS OF DISALLOWANCE U/S 14A WAS NOT SUSTAINABLE IN LAW, THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT HAS NO LEG S TO STAND. IT WAS SUBMITTED THAT IN THE PENALTY PROCEEDINGS, THE ASSE SSEE COULD CHALLENGE THE FINDING AS REGARDS TO DISALLOWANCE/DELETION MADE BY THE AO TO CONTEST LEVY ITA NO.94(ASR)/2011 8 OF PENALTY EVEN IF NO APPEAL IS FILED AGAINST AOS ORDER . IN SUPPORT OF THE ABOVE PROPOSITION, REFERENCE WAS MADE TO THE DECISI ON OF THE ITAT, DELHI BENCH, IN THE CASE OF TIDEWATER MARINE INTERNATIONA L INC. VS. DCIT (2005) 96 ITD 406. IT WAS, THEREFORE, SUBMITTED THAT THE V ERY DISALLOWANCE U/S 14A OF THE ACT WAS NOT LEGALLY VALID, PENALTY FOR SUCH DISALLOWANCE CANNOT BE UPHELD UNDER SECTION 271(1)(C) OF THE ACT. 12. IT WAS ALSO SUBMITTED THAT PRIOR TO INSERTION O F RULE 8D, IT HAS BEEN HELD IN SEVERAL CASES THE AO HAS TO ESTABLISH NEXU S BETWEEN THE EXPENSES INCURRED AND EXEMPT INCOME AND THAT NO DISALLOWANC E COULD BE MADE ON ESTIMATION BASIS. REFERENCE WAS MADE IN THIS REGAR D TO THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF ACIT VS. EICHER LIM ITED : 101 TTJ 369, MARUTI UDYOG LTD. VS. DCIT: 92 ITD 119 AND WIMCO S EEDINGS LIMITED VS. DCIT 107 ITD 267 (DEL.)(TM). IT WAS FURTHER SUBMITT ED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT L TD. VS. CIT (SUPRA) AND HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO.LTD. VS. DCIT (SUPRA) HAVE HELD THAT PRIOR TO INSERTION OF RULE 8D, THE AO COULD MAKE DISALLOWANCE U/S 14A PROVIDED THERE WAS PROX IMATE NEXUS BETWEEN EXPENDITURE AND EXEMPT INCOME. IT WAS SUBMITTED TH AT NO SUCH PROXIMATE NEXUS HAS BEEN SHOWN BY THE A.O. IN HIS ORDER WHI LE MAKING DISALLOWANCE U/S 14A OF THE ACT AND THE SAID DISALLOWANCE HAS BE EN MADE ON THE ITA NO.94(ASR)/2011 9 PRESUMPTION THAT THE EXPENSES MUST HAVE BEEN INCURR ED FOR EARNING EXEMPT INCOME. 13. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE ASSESSEE HAD DISCLOSED DIVIDEND INCOME EARNED DURING THE YEA R ALONGWITH PARTICULARS OF EXEMPTION CLAIMED IN RESPECT THEREOF U/S 10(34) OF THE ACT IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR. SIMI LARLY, THE PARTICULARS OF ALL THE EXPENSES INCURRED DURING THE YEAR WERE DISCLOS ED IN THE AUDITED FINANCIAL STATEMENTS FOR THE RELEVANT YEAR AND DETAILS OF SUC H EXPENSES AS AND WHEN CALLED FOR DURING THE COURSE OF ASSESSMENT PROCEEDI NGS WERE ALSO FILED. IT WAS FURTHER SUBMITTED THAT DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF EXPENS ES INCURRED IN CONNECTION WITH EARNING OF EXEMPT INCOME AND TO EXPLAIN AS TO WHY EXPENSES BE NOT DISALLOWED U/S 14A OF THE ACT IN ACCORDANCE WITH AM OUNT COMPUTED AS PER RULE 8D OF THE I.T. RULES, 1962. IN RESPONSE THERET O, THE ASSESSEE FILED VARIOUS REPLIES DATED DECEMBER 11,2009(I) AND DECEM BER 11,2009 (II), GIVING EXPLANATION REGARDING NON-APPLICABILITY OF S ECTION 14A OF THE ACT. ACCORDINGLY, ALL THE FACTS RELEVANT TO THE ISSUE OF DISALLOWANCE U/S 14A WERE DULY DISCLOSED BY THE ASSESSEE. THERE IS NO FINDING IN THE ASSESSMENT ORDER OR PENALTY ORDER THAT ASSESSEE HAS CONCEALED ANY OF THE AFORESAID PARTICULARS OR FACTUALLY INCORRECT PARTICULARS HAVE BEEN FURNIS HED EITHER IN THE RETURN OF ITA NO.94(ASR)/2011 10 INCOME OR DURING THE COURSE OF ASSESSMENT/PENALTY P ROCEEDINGS. IT WAS ONLY THAT, CLAIM OF EXPENSES MADE BY THE ASSESSEE IN THE RETURN OF INCOME WAS NOT ACCEPTED BY THE AO AND THE SAME WERE DISALLOWED BY APPLYING PROVISIONS OF SECTION 14A OF THE ACT ON BONAFIDE DIFFERENCE OF OP INION. IN SUCH CIRCUMSTANCES, THE ASSESSEE CANNOT BE SAID TO HAVE FURNISHED INACCURATE PARTICULARS OF INCOME, WARRANTING IMPOSITION OF PEN ALTY U/S 271(1)(C) OF THE ACT. THE AFORESAID ISSUE, IT WAS SUBMITTED IS SQUA RELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T V. RELIANCE PETROPRODUCTS PVT. LTD; 322 ITR 158, WHEREIN IT HAS BEEN HELD THAT WHERE ALL THE FACTS RELEVANT FOR THE ISSUE OF COMPUTATION OF DISALLOWANCE UNDER SECTION 14A ARE DISCLOSED BY AN ASSESSEE AND NO INCORRECT FACT HAS BEEN FURNISHED BY THE ASSESSEE, THE ASSESSEE CANNOT BE VISITED WIT H PENALTY U/S 271(1)(C) ON THE AFORESAID DISALLOWANCE MADE IN THE QUANTUM PROC EEDINGS, WHICH WAS SIMPLY BASED ON BONAFIDE DIFFERENCE OF OPINION. 14. REFERENCE WAS MADE TO THE FOLLOWING DECISIONS, WHERE PENALTY IMPOSED U/S 271(1)(C) ON THE DISALLOWANCE MADE U/S 14A IN THE QUANTUM PROCEEDINGS WAS DELETED, ON THE GROUND THAT THE ISS UE OF DISALLOWANCE UNDER THE LATTER SECTION IS A VEXED/DEBATABLE ISSUE, FOR WHICH ASSESSEE CANNOT BE HELD TO HAVE FURNISHED INACCURATE PARTICULARS OF IN COME, WARRANTING IMPOSITION OF PENALTY UNDER THE FORMER SECTION: ITA NO.94(ASR)/2011 11 - LAADKI TRADING AD INVESTMENTS (P) LTD. VS. DCIT ITA NO.6840/MUM/2006. - CIT VS. JINDAL EQUIPMENT LEASING AND CONSULTANCY SERVICES LTD. ITA NO.68/2012 (DEL H.C.) - CIT VS. LIQID INVESTMENTS LTD. ITA NO.240/2009 ( DEL H.C.) - DCIT VS. NALWA INVESTMENT LTD ITA NO.3805/DEL/20 10 (DEL TRIB). - NEERAJ KR. SAHU VS. DCIT: 13 SOT 1 (LUCK TRIB) - SUNASH INVESTMENT CO. VS. ACUIT: 106 TTJ 855 (MU M.TRIB) 15. IT WAS ALSO SUBMITTED THAT IN ANY CASE NO PENAL TY CAN BE IMPOSED IN A CASE WHERE ADDITION/DISALLOWANCE HAS BEEN MADE ON E STIMATE BASIS. FOR THIS PROPOSITION, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SSP LTD. REPORTED IN 189 TAXMAN 282 AND CIT VS SANGRUR VANASPATI MILLS LT D. REPORTED IN 303 ITR 53. REFERENCE WAS ALSO MADE TO THE DECISION OF THIS BENCH IN THE CASE OF ITO VS. SUKHAMARIT SINGH: ITA NO.451(ASR)/2011. 16. AS REGARDS THE CONTENTION OF THE LD. DR THAT TH E ASSESSEE ITSELF IN THE ASSESSMENT PROCEEDINGS IN LETTER DATED DECEMBER 11 ,2009 ADMITTED THAT TIME OF TREASURY DIVISION WOULD HAVE SPENT IN THE I NVESTMENTS ACTIVITIES BUT IT IS DIFFICULT TO DETERMINE THE EXACT COSTS ALLOCA BLE TO SUCH ACTIVITIES AND THEREFORE, THE ASSESSEE FILED INACCURATE PARTICULAR S OF ITS INCOME BY NOT DISALLOWING ANY AMOUNT U/S 14A OF THE ACT, IT WAS S UBMITTED THAT WHAT IS REQUIRED TO BE CONSIDERED IS THE RETURN OF INCOME. IN THE RETURN OF INCOME, NO ITA NO.94(ASR)/2011 12 DISALLOWANCE WAS OFFERED U/S 14A WHICH CLEARLY DEMO NSTRATES THAT THE ASSESSEE WAS OF THE VIEW THAT NO EXPENDITURE INCURR ED BY THE ASSESSEE IS RELATABLE TO EARNING OF EXEMPT INCOME. IT WAS FURTH ER ARGUED THAT IN ANY CASE, THERE IS NOTHING IN THE AFORESAID LETTER OF THE ASS ESSEE, WHICH WOULD DEMONSTRATE ANY PROXIMATE NEXUS BETWEEN EXEMPT INCO ME AND EXPENSES INCURRED WHICH INVOLVE QUANTIFICATION. IT WAS FURT HER SUBMITTED THAT EVEN THE ASSESSEE HAS OFFERED THE SAME DISALLOWANCE ON ESTIM ATE BASIS AND ANY UPWARD VARIATION OF THE DISALLOWANCE BY THE AO ON ESTIMATE BASIS COULD NOT FORM BASIS OF LEVY OF PENALTY U / S 271(1)(C) AS HELD IN SEVERAL DECISIONS INCLUDING THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT AND THIS BENCH AS CITED HEREINABOVE. THEREFORE, NO ADVERSE I NFERENCE CAN BE DRAWN ON THE BASIS OF AFORESAID LETTER. 17. IN THE REJOINDER, THE LD. DR SUBMITTED THAT IN THE PRESENT CASE, NO DISALLOWANCE WAS OFFERED BY THE ASSESSEE,EVEN THOUG H DISALLOWANCE OF RS.10 LACS SUSTAINED BY THE LD. CIT(A) MADE IN EARLIER YE ARS U/S 14A WAS ACCEPTED. IT WAS ALSO SUBMITTED THAT IF ANY AMOUNT WOULD HAVE BEEN OFFERED BY THE ASSESSEE FOR DISALLOWANCE U/S 14A ON ESTIMATE BASIS , THE VARIATION IN SUCH ESTIMATE BY THE AO WOULD NOT HAVE BEEN A GROUND FOR LEVY OF PENALTY BUT THAT IS NOT THE CASE HERE. IT WAS FURTHER SUBMITTE D THAT IN ANY CASE FILING OF THE APPEAL BY ASSESSEE AGAINST THE ORDER OF THE AO AND ITS ADMISSION THAT NO ITA NO.94(ASR)/2011 13 AMOUNT WAS OFFERED FOR DISALLOWANCE U/S 14A AS IT W AS NOT CAPABLE OF DETERMINATION, SHOWS THAT THE ASSESSEE HAD FILED I NACCURATE PARTICULARS OF INCOME AND LEVY OF PENALTY U/S 271(1)(C) OF THE AC T SHOULD BE SUSTAINED. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE OF THE VIEW THAT PENALTY LEVIED U/S 271(1)(C ) OF THE ACT WAS ON THE FACTS OF THE CASE AND THE LAW HAS RIGHTLY BEEN DELE TED BY THE LD. CIT(A). THERE IS NO DISPUTE THAT THE INFORMATION AND DETAIL S IN RESPECT OF EXEMPT INCOME AND EXPENSES INCURRED DURING THE RELEVANT YE AR WERE AVAILABLE IN THE AUDITED ACCOUNTS FILED WITH THE A.O. THE SAID INFO RMATION AND DETAILS HAVE NOT BEEN FOUND BY THE AO TO BE FALSE OR FACTUALLY I NCORRECT. THE AO MADE DISALLOWANCE U/S 14A ON ESTIMATE BASIS AND FOR CO MPUTING DISALLOWANCE ON SUCH BASIS, HE RESORTED TO THE APPLICABILITY OF P ROVISIONS OF RULE 8D OF THE I.T. RULES. THE AO HAS OTHERWISE NOT ESTABLISHED AN Y PROXIMATE NEXUS BETWEEN EXEMPT INCOME AND THE EXPENDITURE INCURRED WHICH HE WAS REQUIRED TO DO HAVING REGARD TO THE DECISIONS OF HO NBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE CO. LTD (SUPRA) AND AND HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. ( SUPRA) REFERRED TO HEREINABOVE. ITA NO.94(ASR)/2011 14 19. THE LD. COUNSEL FOR THE ASSESSEE IS RIGHT IN ST ATING THAT RULE 8D HAS BEEN HELD BY THE HONBLE COURTS TO BE NOT APPLICABL E TO THE ASSESSMENT YEAR 2007-08 AND THE VERY FOUNDATION OF LEVY OF PENALTY IN THE PRESENT CASE I.E. RULE 8D FOR MAKING DISALLOWANCE U/S 14A IN THE ASS ESSMENT YEAR UNDER CONSIDERATION STANDS DEMOLISHED AND THEREFORE, PENA LTY CANNOT SURVIVE THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE OF I N TIDEWATER MARINE INTERNATIONAL INC. VS. DCIT (SUPRA) SUPPORTS THE C ASE OF THE ASSESSE. 20. IT IS TRITE LAW THAT NO PENALTY CAN BE LEVIED I N THE CASE OF ESTIMATED ADDITIONS/DISALLOWANCES . REFERENCE IS MADE IN THIS REGARD TO THE DECISION OF THIS BENCH IN THE CASE OF ITO VS. SUKHAMRIT SINGH: ITA NO.451(ASR)/2011. IN THE PRESENT CASE, SINCE RULE 8D WAS NOT APPLICA BLE, THE AO HAS CONSIDERED AS HAVING MADE DISALLOWANCE U/S 14A ON ESTIMATE BASIS. THE RETURN FILED BY THE ASSESSEE OFFERING NO DISALLOWAN CE U/S 14A IS DEMONSTRATIVE OF THE ASSESSEES STAND THAT NO EXP ENDITURE INCURRED U/S 14A OF THE ACT IS DISALLOWABLE UNDER THAT SECTION. THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD (SUPRA) OBSERVED THAT IN SO FAR AS LEVY OF PENALTY U/S 271(1)(C) IS CONCERNED, FURNISH ING OF INACCURATE PARTICULARS WOULD DEPEND UPON THE RETURN FILED BECA USE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH PARTICULAR S OF HIS INCOME AND ITA NO.94(ASR)/2011 15 WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, T HE LIABILITY WOULD ARISE. THEREFORE, WHAT IS RELEVANT IS WHETHER IN THE RETUR N THERE WAS FURNISHING OF INACCURATE PARTICULARS OF INCOME OR NOT. THE LETTER DATED DECEMBER 11, 2009 TO WHICH REPEATED REFERENCE WAS MADE BY THE LD. DR IS OF LITTLE CONSEQUENCE AND THE ISSUE HAS TO BE DECIDED WITH REFERENCE TO P ARTICULARS FILED IN THE RETURN OF INCOME. IN ANY CASE, THE ABOVE LETTER ONL Y INDICATES THAT THE ASSESSEE WAS OF THE VIEW WHILE NO DISALLOWANCE WAS CALLED FOR IN THE ABSENCE OF PROXIMATE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE EXEMPT INCOME, AT THE BEST DISALLOWANCE, IF ANY, BE CAUSE OF SOME INVOLVEMENT OF TREASURY DEPARTMENT IN THE INVESTMEN T ACTIVITY IF AT ALL COULD BE MADE ON ESTIMATE BASIS, WHICH MAY NOT BE APPROPR IATE IN THE PRE-RULE 8D SCENARIO. IN OUR VIEW, NOTHING TURNS ON THE AFORES AID LETTER OF THE ASSESSEE, SINCE THE DISALLOWANCE HAS BEEN MADE BY THE AO ON ESTIMATE BASIS AND PRESUMPTION AND IF THE ASSESSEE HAD OFFERED ANY AMO UNT OF DISALLOWANCE U/S 14A ON ESTIMATION, VARIATION IN SUCH ESTIMATION CAN NOT BE A GROUND FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. 21. THE CONTENTION OF THE LD. DR THAT THE ASSESSEE HAD ACCEPTED THE DISALLOWANCE MADE U/S 14A OF THE ACT TO THE EXTENT SUSTAINED BY THE LD. CIT(A) IN THE EARLIER YEARS AND THEREFORE, ASSESSEE WAS AWARE THAT THE ITA NO.94(ASR)/2011 16 DISALLOWANCE MADE U/S 14A OF THE ACT WAS CALLED FOR BUT STILL DID NOT OFFER ANY DISALLOWANCE IS NOT FACTUALLY CORRECT, SINCE IN THOSE YEARS, ASSESSEE HAS CHALLENGED THE DISALLOWANCE SUSTAINED U/S 14A BEFOR E THE TRIBUNAL. 22. THE ASSESSEES CASE IS ALSO COVERED BY THE DECI SION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD (SUPRA), WHEREIN TOO PENALTY WAS LEVIED ON DISALLOWANCE U/S 14A AND IT WAS THE CASE OF THE A.O. TO FIND OUT THAT THE ASSESSEE HAS FILE D INACCURATE PARTICULARS OF INCOME BY NOT OFFERING ANY AMOUNT FOR DISALLOWANCE UNDER THAT SECTION. THE HONBLE SUPREME COURT WHILE HOLDING THAT THE PENAL TY WAS NOT LEVIABLE MADE THE FOLLOWING PERTINENT OBSERVATIONS IN THAT C ASE: A GLANCE AT THIS PROVISION WOULD SUGGEST THAT IN O RDER TO BE COVERED THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF I NCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHE D 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 LD. COUNSEL FOR REVENUE SUGGESTED THAT BY MAKING INCORR ECT CLAIM FOR THE EXPENDITURE ON INTEREST THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF THE INCOME. AS PER LAW LEXICON, THE MEANING OF THE WORD PARTICULARS IS A DETAIL OR DETAILS (IN PLURA L SENSE); THE DETAILS OF A CLAIM, OR THE SEPARATE ITEMS OF AN ACCOUNT. THERE FORE, THE WORD PARTICULARS USED IN THE SECTION 271(1)(C) OF THE ACT 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 TH E 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 F URNISHING INACCURATE PARTICULARS. THE LD. 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 TH INK THAT SUCH CAN BE THE INTERPRETATION OF THE CONCERNED WORDS. THE W ORDS ARE PLAIN AND ITA NO.94(ASR)/2011 17 SIMPLE IN ORDER TO EXPOSE THE ASSESSEE TO THE PENAL TY. UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY P ROVISION CANNOT BE INVOKED. BY ANY STRETCH OF IMAGINATION, MAKING AN I NCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCURATE PART ICULARS. IN CIT VS. ATUL MOHAN BINDAL [2009] 9 SCC 589, WHERE THIS COUR T WAS CONSIDERING THE SAME PROVISION, THE COURT OBSERVED THAT THE A.O. HAS TO BE SATISFIED THAT A PERSON HAS CONCEALED THE PA RTICULARS OF SUCH INCOME. 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 WEBSTERS DICTIONARY, THE WORD INACCURATE HAS BEEN DEFINED AS:- NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING T O TRUTH, ERRONEOUS, AS AN INACCURATE STATEMENT, COPY OR TRAN SCRIPT. WE HAVE ALREADY SEEN THE MEANING OF THE WORD PARTI CULARS IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS CO NJUNCTION, THEY MUST MEAN THE DETAILS SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NO EXACT OF CORRECT, NOT ACCORDING TO TRUTH OR ERRO NEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO F INDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND T O BE INCORRECT OR ERRONEOUS OR FALSE. SUCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVITING THE PENALTY U/S 271(1)(C) OF T HE ACT. A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LA W, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDI NG THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF TH E ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITU RE 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 TH AT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE, REITERATED BEFORE US THAT THAT THE AO HA D CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT; IT AMOU NTED TO CONCEALMENT OF INCOME. IT WAS TRIED TO BE ARGUED T HAT THE FALSEHOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS (I) AN IT EM OF RECEIPT MAY BE ITA NO.94(ASR)/2011 18 SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITUR E MAY BE FALSELY ( OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPE S ATTEMPT TO REDUCE THE TAXABLE INCOME AND THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF ONES 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 FOUN D TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAI IN THE RET URN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, W HICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE T HAT BY ITSELF WOULD NOT, IN OUR OPINION ATTRACT THE PENALTY U/S 271(1)( C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RET URN WHERE THE CLAIM MADE IS NOT ACCEPTED BY A.O. FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY U/S 271(1)(C). THAT IS CLEARLY NOT T HE INTENDMENT OF THE LEGISLATURE. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT MADE IN SREE KRISHNA ELECTRICALS V. STATE OF TAMIL NADU [2009] 23 VST 24 9 AS REGARDS THE PENALTY ARE, APPOSITE. IN THE AFOREMENTIONED DECISI ON WHICH PERTAINED TO THE PENALTY PROCEEDINGS IN TAMIL NADU GENERAL SA LES TAX ACT, THE COURT HAD FOUND THAT THE AUTHORITIES BELOW HAD FOUN D THAT THERE WERE SOME INCORRECT STATEMENTS MADE IN THE RETURN. HOWEV ER, THE SAID TRANSACTIONS WERE REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. THIS COURT, THEREFORE, OBSERVED: SO FAR AS THE QUESTION OF PENALTY IS CONCERNED, THE ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORP ORATED IN THE APPELLANTS ACCOUNT BOOKS. WHERE CERTAIN ITEMS WHICH ARE NOT INCLUDED IN THE TURNOVER, ARE DISCLOSED IN THE DEALERS OWN ACCOUNT BOOKS AND THE ASSESSING AUTHORITIES INCLUDE THESE ITEMS IN THE DEALERS TURNOVER DISALLOWING THE EXEMPTION, PENALTY CANNOT BE IMPOSED. THE PENALTY LEVIED STANDS SET AS IDE. THE SITUATION IN THE PRESENT CASE IS STILL BETTER A S NO FAULT HAS BEEN FOUND WITH THE PARTICULARS SUBMITTED BY THE ASSESSE E IN ITS RETURN. THE TRIBUNAL AS WELL AS THE COMMISSIONER OF INCOME -TAX (APPEALS) AND THE HIGH COURT HAVE CORRECTLY REACHED THIS CONCLUSION ITA NO.94(ASR)/2011 19 AND THEREFORE, THE APPEAL FILED BY THE REVENUE HAS NO MERITS AND IS DISMISSED. 23. WE ARE OF THE VIEW THAT THE AFORESAID DECISION SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE. EVEN IF IT IS ASSUMED T HAT THE ASSESSEE MADE INCORRECT CLAIM OF THE EXPENDITURE BY NOT OFFERING ANY AMOUNT OF DISALLOWANCE U/S 14A, THE FACT REMAINS THAT THERE W AS NO FILING OF INACCURATE PARTICULARS OF INCOME SINCE THERE WAS NOT FACTUAL I NACCURACY IN THE INFORMATION OR DETAILS REGARDING VARIOUS EXPENSES F ILED ALONGWITH THE RETURN OF INCOME/ OR DURING THE ASSESSMENT PROCEEDINGS. TH ERE IS, IN FACT, NO SUCH FINDING IN THE ASSESSMENT ORDER. AS HELD BY THE HON BLE SUPREME COURT THAT MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE I N LAW, WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME AND SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING OF INACCURAT E PARTICULARS. 23.1 FURTHER, MERELY BECAUSE NO APPEAL WAS FILED BY THE ASSESSEE AGAINST AOS ORDER DOES NOT LEAD TO ANY ADVERSE INFERENCE T HAT THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME RELATION TO ADDITI ON/DISALLOWANCE MADE BY THE A.O. THERE IS SUFFICIENT AUTHORITY FOR THE PROP OSITION TO WHICH REFERENCE HAS BEEN MADE BY THE LD. COUNSEL FOR THE ASSESSEE H EREINABOVE. 23.2 ACCORDINGLY, WE ARE OF THE VIEW THAT PENALTY L EVIED UNDER SECTION 271(1)(C) IS NOT SUSTAINABLE AND WE FIND NO INFIRMI TY IN THE ORDER OF THE LD. ITA NO.94(ASR)/2011 20 CIT(A), WHO HAS RIGHTLY CANCELLED THE PENALTY LEVIE D BY THE A.O. THUS, ALL THE GROUNDS OF THE REVENUE ARE DISMISSED. 24. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.94(ASR)/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19TH MARCH, 2013. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 19TH MARCH, 2013 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. MAX INDIA LIMITED, NAWANSHAHAR 2. THE DCIT, R-II, JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.