HCL TECHNOLOGIES LTD.,,NEW DELHI vs. DCIT, NEW DELHI

Brief facts of the case, relevant for the disposal of this appeal are that the assessee had several export-oriented units which were also registered with STPI authority and in respect of such units, the assessee has been claiming deduction under section 10A of the Income Tax Act, 1961 (for short “the Act”). For the assessment year 2005-06, assessee filed the return of income on 31/10/2005 declaring an income of Rs.18,95,23,990/-and subsequently revised the same on 30/3/2007 declaring a total income of Rs.1,17,48,138/-. In the original return of incomethe assessee had shown business income of Rs.2,58,17,15,909/- and claimed deduction under section 10A of the Act to the tune of Rs.5,57,24,87,070/-considering 13 mother licenses as the undertakings eligible for such deductionwhereas in the revised return of income the assessee showed business income of Rs.2,58,77,95,991/- and claimed deduction under section 10A of the Act at Rs. 2,75,57,24,990/-and a loss from business or profession to the tune of Rs.16,79,29,000/-considering 31 undertakings registered with STPI under 13 mother licenses as independent undertakings eligible for deduction under section 10A of the Act. Draft assessment order was passed at a total income of Rs.2,16,07,60,309/-on 26/12/2008, without allowing the additional claim of deduction raised by the assessee in the revised return of income under section 10A of the Act on the ground that no scrutiny was done in initial assessment years regarding the claim of extensions as a separate units, such claim cannot be allowed in succeeding Assessment Year and extensions were not specifically and independently approved by the STPI authority.

Assessee filed objections before the Ld. Dispute Resolution Panel (DRP) and pursuant to the directions dated 30/9/2010 passed by the Ld. DRP, learned Assessing Officer passed the final assessment order on 28/12/2010 by disallowing the additional claim of deduction raised by the assessee in the revised return of income under section 10A of the Act.

Such final assessment order pursuant to the directions of the Ld. DRP was challenged by the assessee before the Tribunal and the Tribunal by order dated 30/5/2014 rejected the claim of deduction under section 10A of the Act preferred by way of revised return of income, treating each of the 31 units of separate independent undertakings and such findings of the Tribunal were upheld by the Hon’ble High Court.

Learned Assessing Officer initiated penalty proceedings under section 271(1)( c ) of the Act and by order dated 30/3/2015 and levied penalty of Rs. 13,31,04,779/- on the addition relating to the disallowance of deduction claimed under section 10A of the Act and also the disallowance of deduction of expenses incurred towards earning of income under the head “income from other sources” claimed in the revised return, holding that the assessee is guilty of furnishing of inaccurate particulars of income and also concealment of income.

Aggrieved by the levy of penalty, assessee preferred an appeal before the Ld. CIT(A) and argued that no satisfaction for the concealment/furnishing of inaccurate particulars of income in respect of additions/disallowances made in the assessment order on which penalty was levied was recorded by the learned Assessing Officerin the assessment order; that no penalty could be levied in respect of

Ld. CIT(A) recorded a finding that the assessee preferred the new claim after longtime changing its earlier stand and in view of the orders of the Tribunal such change of stand is not an inadvertent mistake or omission but it is a deliberate one, with the sole purpose of extending the period of exemption under section 10 A and the quantum of exemption, when even enquiry into the past was not possible. According to the Ld. CIT(A) this lapse of the assessee amounts to deemed concealment under explanation 1 to section 271(1)( c ) of the Act. Ld. CIT(A), therefore, did not accept the explanation of the assessee and refused to believe that the lapse of the assessee is a bona fide one and on that ground confirmed the levy of penalty. Ld. CIT(A) however noticed that, though in the penalty order the learned Assessing Officer mentioned that the additions which were confirmed by the ITAT alone were considered for the purpose of penalty under section 271(1)( c ) of the Act, as a matter of fact the learned Assessing Officer based the imposition of penalty on the disallowance that was deleted by the ITAT and therefore, instead of taking Rs. 18,32,37,920/-, learned Assessing Officer took the amount of Rs. 36,31,53,638/-as the concealed income. Ld. CIT(A) therefore directed that the total quantum of penalty levied must be with reference to the deemed concealed income but not with reference to the disallowance that was deleted by the ITAT. It, therefore, results in reducing the total

Argument of the Ld. AR is threefold. He firstly submits that the claim of deduction under section 10A supported by form 56F is a bona fide and therefore, according to him so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable for levy of penalty under section 271(1)(c) of the Act even if the claim made by the assessee is unsustainable in law. For this proposition he placed reliance on the decision of the Tribunal reported in ACIT vs. DSL Software Ltd., 147 TTJ 67 (Delhi-Trib), DCIT vs. Genesis International Corporation Limited 147 ITD 693 (mum Trib) and the decision of the Hon’ble Delhi High Court in the case of CIT vs. Zoom Communication (P) Ltd 327 ITR 510 (Del). His second limb of argument is that no penalty is leviable in respect of the disallowances which are debatable, and in that perspective when once the quantum appeal is admitted by the Hon’ble High Court or the SLP by the Hon’ble Supreme Court, the issue becomes available and therefore, no levy of penalty arises. Reliance is placed on the decision of the Hon’ble jurisdictional High Court in the case of Ld. PCIT vs. Harsh International (P) Ltd. 431 ITR 118 (Del), CIT vs. NayanBuilders and Developers 368 ITR 722 (Del) and CIT vs. Rahul Mehta in ITA No. 523/2011. Lastly he contends that where theaddition is made in respect of a bona fide claim, even if such claim is untenable according to the learned Assessing Officer, still no penalty could be levied under section 271(1)(c) of the Act. For this proposition he cited the decisions of the Hon’ble Apex Court in the cases

Per contra while placing reliance on the orders of the authorities below, learned DR submitted that it was pointed out by theTribunal in the quantum appeal that the lapses committed by the assessee in this matter are not inadvertent mistakes, but a design with the sole purpose of extending the period of exemption u/s. 10 of the Act and the quantum of exemption. In such circumstance, where enquiry into the past was not possible, she submitted that the assessee did not produce any evidence, whatsoever, before the Tribunal also to establish that the applications before the STPI authorities were for setting up of new undertakings and in these circumstances, after a long lapse of time, the assessee is changing the stand to claim the exemption in respect of 31 undertakings or 13 undertakings, as the case may be, certainly amounts to furnishing of inaccurate particulars with a design to conceal the real facts. She based this argument on the fact that the applications submitted by the assessee before the STPI authorities, whether or not for setting up of new undertakings, goes unverifiable.

We have gone through the record in the light of submissions made on either side. Facts involved in this appeal, in their simplest form, are that in the original return, the deduction u/s. 10A of the Act was claimed in respect of 13 mother licenses, as the undertakings eligible for said deduction whereas the assessee revised the return claiming deduction u/s. 10A considering 31 undertakings registered with STPI authority under 13 mother licenses as independent undertakings eligible u/s. 10A of the Act. While doing so, admittedly, the assessee filed the prescribed

Basing on these admitted facts, Ld. AR submits that the penalty is not leviable in this case. In ACIT vs. DSL Software Ltd.(2012) 20 taxmann.com 408 (Delhi), it was held that where claim for deduction was made under sections 10A of the Act on the basis of certificate of Accountant, was bona fide and where all the material facts relating thereto were furnished, the assessee could not be held liable for penalty. So also in DCIT vs. Genesys International Corporation Ltd. (2013) 32 taxmann.com 372 (Mumbai-Trib), it was held that where the assessee made adequate disclosure while claiming the exemption, penalty u/s. 271(1)(c) is not sustainable. In Zoom Communication (P) Ltd. (supra), Hon’ble High Court held that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under

Admittedly, in this case, Hon’ble High Court admitted the substantial question of law relating to the claim of assessee to avail the benefit of section 10A of the Act for the assessment year 2005-06 on the ground that enhancement in claim so made was tenable or not. This very fact shows that the issue involved in this matter is debatable issue. We find force in the argument of the ld. AR that the penalty is not leviable in case where the proposed penalty relates to the debatable issues or where two views are possible. This view is fortified by the decision of Hon’ble jurisdictional High Court in the cases of PCIT vs. Harsh International (P) Ltd. (supra), CIT vs. Nayan Builders & Developers (supra) and CIT vs.Rahul Mehta (supra).

Lastly, coming to the decisions reported in CIT vs. Reliance Petro Products Pvt. Ltd. (supra) and Dilip N. Shroff (supra), we deem it just and necessary to extract the relevant paragraphs for the sake of completeness. In Reliance Petro Products Pvt. Ltd. (supra), Hon’ble Supreme Court observed that –

It was tried to be suggested that Section 14A of the Actspecifically excluded the deductions in respect of theexpenditure incurred by the assessee in relation to incomewhich does not form part of the total income under the Act. Itwas further pointed out that the dividends from the sharesdid not form the part of the total income. It was, therefore,reiterated before us that the Assessing Officer had correctlyreached the conclusion that since the assessee had claimedexcessive deductions knowing that they are incorrect; itamounted to concealment of income. It was tried to be argued that the falsehood in accounts can takeeither of the twoforms; (i) an item of receipt may be suppressed fraudulently;(ii) an item of expenditure may be falsely (or in an exaggeratedamount) claimed, and both types attempt to reduce thetaxable income and, therefore, both types amount toconcealment of particulars of one's income as well asfurnishing of inaccurate particulars of income. We do notagree, as the assessee had furnished all the details of itsexpenditure as well as income in its Return, which details, inthemselves, were not found to be inaccurate nor could beviewed as the concealment of income on its part. It was up tothe authorities to accept its claim in the Return or not. Merelybecause the assessee had claimed the expenditure, whichclaim was not accepted or was not acceptable to the Revenue,that by itself would not, in our opinion, attract the penaltyunder Section 271(1)(c). If we accept the contention of theRevenue then in case of every Return where the claim made isnot accepted by Assessing Officer for any reason, theassessee will invite penalty under Section 271(1)(c). That isclearly not the intendment of the Legislature.” 14. In Dilip N. Shroff (supra), relevant observations of Hon’ble Apex Court are to the following effect: - “31. Section 271(1)(c) of the Act is in two parts. Whereas the first part refers to concealment of income, the second part refers to furnishing of inaccurate particulars thereof. In the instant case, the penalty has been levied upon the Appellant under the second part of Section 271(1)(c) of the Act. One of the questions which arises for consideration is as to whether Explanation 1 is applicable in respect of both the parts or in respect of the first part only.

Clause (iii) of sub-section (1) of Section 271 again provides for a discretionary jurisdiction upon the assessing authority inasmuch as the amount of penalty may not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of his income, but it may not exceed three times thereof. The factors which are material for the purpose of computation of total income as is sought to be emphasized in Explanation-1, refer to computation of income on the part of the assessee which is directly relatable to : (a) failure to offer an explanation and/ or offering an explanation which is false; and (b) which he is not able to substantiate and fails to prove that such explanation is bona fide.

Only in the event the factors enumerated in clauses (A) and (B) of Explanation-1 are satisfied and a finding in this behalf is arrived at by the Assessing Officer, the legal fiction created thereunder would be attracted.

For the purpose of invoking Clause (iii) of sub-section (1) of Section 271, the expression amount of tax sought to be evaded is set out in Explanation 4. This sub-clause would be attracted when a finding is arrived at that some amount of tax was sought to be evaded by the assessee as envisaged by Clause (a) thereof. Explanation appended to Section 271 (1)(c) is an exception to the general rule. It raises a legal fiction by reason whereof a presumption is raised against an assessee as a result whereof the burden of proof shifts from the department to the assessee. Legal fiction, however, as is well-known must be given its full effect when the conditions precedent therefor are satisfied and not

It signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars.

The term 'inaccurate particulars' is not defined. Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the explanations are taken recourse to, a finding has to be arrived at having regard to clause (a) of Explanation 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 not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, 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.

The explanation, having regard to the decisions of this Court, must be preceded by a finding as to how and in what manner he furnished the particulars of his income. It is beyond any doubt or dispute that for the said purpose the Income Tax Officer must arrive at a satisfaction in this behalf. [See Commissioner of Income Tax v. Ram Commercial Enterprises Ltd., 246 ITR 568 and Diwan Enterprises v. Commissioner of Income Tax, 246 ITR 571]

While considering as to whether the assessee has been able to discharge his burden, the assessing officer should not begin with the presumption that he is guilty.

Once the primary burden of proof is discharged, the secondary burden of proof would shift on the assessee because the proceeding

The order imposing penalty is quasi-criminal in nature and, thus, burden lies on the department to establish that the assessee had concealed his income. Since burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitute good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle. [See AnantharamVeerasinghaiah& Co. v. C.I.T., Andhra Pradesh, 1980 Supp SCC 13].

Section 271(1)(c) remains a penal statute. Rule of strict construction shall apply thereto. Ingredients of imposing penalty remains the same. The purpose of the legislature that it is meant to be deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20% under the 1922 Act to 300% in 1985.

'Concealment of income' and 'furnishing of inaccurate particulars' are different. Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressioveri or suggestiofalsi. Although it may not be very accurate or apt but suppressioveri would amount to concealment, suggestiofalsi would amount to furnishing of inaccurate particulars.

The authorities did not arrive at a finding that the consideration amount fixed for the sale of property was wholly inadequate. The authorities also do not show that what are the inaccurate particulars furnished by the Appellant. They also do not state that what should have been the accepted principles of valuation. We, therefore, do not accept the submissions of the learned Additional Solicitor General that concealment or furnishing of inaccurate particulars would overlap each other, the same would not mean that they do not represent different concepts. Had they not been so, the Parliament would not have used the different terminologies.

We have noticed hereinbefore that even the Wanchoo Committee laid emphasis on the fact that explanation appended to Sub-section (1) of Section 271 should be inserted to clarify that where a tax payer's explanation in respect of any receipt, deposit, outgoing or investment is found to be false, the amount represented by such receipt, etc. shall be deemed to be income in respect of which particulars have been concealed or inaccurate particulars have been furnished. What was, therefore, necessary to be found out in respect whereof the assessing officer was required to arrive at a satisfaction was 'falsity' in furnishing of explanation by the assessee. Explanation 1, therefore, categorically states that such explanation must either be false or not otherwise substantiated. Even in explanation 4, the expression evaded finds place.

Viewing from any angle, levy of penalty in this case is unsustainable because mere preferring a claim which is unacceptable to the Revenue does not ipso facto lead to levy of penalty. Here in this case, Form No. 56F duly signed by the Chartered Accountant justifies the plea of bona fide belief on the part of the assessee. It is not the allegation against the assessee that any material fact relating to the income had to be unearthed with any efforts of the Revenue. It is only on the basis of the material furnished by the assessee, claim of the assessee for benefit u/s. 10A of the Act in respect of 31 units as independent, was rejected. Every disallowance does not lead to penalty, and more particularly such disallowances in relation to the issues whichare debatable, in respect of which, the substantial questions of law are admitted by the Hon’ble High Court, are immune from penalty proceedings. With this view of the matter, we do not find any justification to sustain the penalty and consequently, we direct the Assessing Officer to delete the same.

In the result, appeal of the assessee is allowed. Order pronounced in the open court on this the 16th day of August, 2021.