THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1),, AHMEDABAD vs. M/S. APPLITECH SOLUTIONS LTD.,, AHMEDABAD

PER MAHAVIR PRASAD, JUDICIAL MEMBER

ITA No. 2004/Ahd/2016 2 . A.Y. 2004-05 1. That the ld. CIT(A) erred in law and on facts in deleting the penalty amount of Rs. 1,94,27,849/- levied under section 271(1)(c) of the Act.

2.1 Penalty notice u/s 274 r.w.s.271(1)(c) of the Act was issued on 26/12/2006 for concealing particulars of income/furnishing inaccurate particulars of income. However, no reply was made in any mode. 2.2 Being aggrieved with the above, the assessee preferred appeal before Hon'ble CIT(A), who vide his order dtd. 14/02/2011 dismissed the appeal of the assessee. 2.3 In view of the confirmation of disallowance by the Id. CIT(A) vide the above mentioned orders, penalty notice u/s. 271(1)(c) was issued on 12/03/2012. In response, the assessee has neither submitted the details nor attended this office. 3. Before a discussion in respect of the leviability of penalty in the case of the assessee is undertaken a look at the penalty provisions is necessary. Section 271(1)(c) reads as under:

ITA No. 2004/Ahd/2016 3 . A.Y. 2004-05 [Failure to furnish returns, comply with notices, concealment of income, etc, 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 ami person— ………… (c) has concealed the particulars of his income or [* * *] furnished inaccurate particulars [such income, or] ……………………. he may direct that such person shall pay by way of penalty,— …………………… [(in) in the cases referred to in clause (c) [or clause (d)], [in addition to tax., if any, payable] by him, a sum which shall not be less than, but which shall not exceed [three times], the amount of tax sought to be evaded by reason of the concealment of particulars of his income [or fringe benefits] or the furnishing of inaccurate particulars of such income 3.1 In this connection, it may be mentioned that the term "inaccurate particulars" has not been defined in the Act. As per law lexicon, the meaning of the word "particular" is a detail or details; the details of a claim or the separate items of an account. Similarly, 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". Thus reading the worlds in conjunction, it means the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. 3.2 The Gujarat High Court, which is also the jurisdictional High Court in the case at hand, has noted in the case of A. M. Shah & Co. v. CIT [2000] 108 Taxmann 137(Guj.) that:

ITA No. 2004/Ahd/2016 4 . A.Y. 2004-05 "Any concealment or inaccuracy in the particulars of income in the return occurring at any stage upto and inclusive of the ultimate stage of working out of total income would attract the penalty provision of section 271(1)(c). Every figure in the return which is set opposite to the item of income is a particular income, whether the figure is one which is stated independently of any thing else that appears in the return or the documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by the falsity of one or more of the constituent items in the return. The words 'inaccurate particulars' would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result". ln the said case, Hon'ble Gujarat High Court has, in great detail, dealt with the issues pertaining to Section 271(1)(c). However, for the sake of brevity, only a part of the observation of the Court has been produced here. Vide the above judgement, the Hon'ble has clarified as regards what could fall within the purview of the term "inaccurate particulars of income" 3 It is also pertinent to note that the observation of Hon'ble Supreme Court in the case of CIT, Ahmedabad vs. Reliance Petroproduct (P) Ltd. (322 ITR 158). The Hon'ble Supreme Court in the said judgement has noted as under: "......The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars............. Further, the Hon'ble Court has noted:

ITA No. 2004/Ahd/2016 5 . A.Y. 2004-05 There can be no dispute that everything would depend upon the return filed by the assessee, 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." 3.4 It is further noted that the Hon'ble Supreme Court in the case of Dharamendra Textiles Processors 306 ITR 277 (2008) (SC) has noted that the explanations appended to sec. 271(1)(c) entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. It is also held that the section has been enacted to provide for a remedy for loss of revenue and that wiliful concealment is not an essential ingredient for attracting civil liability as u/s. 271(1)(c) of the Act. 3.5 In view of the decisions discussed above, it clearly emerges that in case any where any particular filed in the return of income by the assessee is found to be inaccurate, erroneous or false and which has an impact on total income returned by the assessee, it would attract liability for penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income. Moreover, after the decision of Hon'ble Supreme Court in the case of Dharamendra Textiles Processors (discussed above), penalty u/s. 271(1)(c) is a 'civil liability' and 'mens era' need not be proved for the levy of penalty. Mere, establishing of inaccuracy in particulars of income would be adequate for attracting the 'civil liability' of penalty u/s. 271(1 )(c) of the Act. 3.6 In the present case, the issue is of filing of inaccurate particulars of income and not of concealment of particulars of income. It is pertinent to note here that Hon'ble Supreme Court in the case of Dharamendra Textiles Processors 306 ITR 277 (2008) (SC) has already laid down that penalty is a 'civil liability' thus mens rea is not essential. Thus, relied by assessee on this count are not applicable. It is further noted here that penalty in the present case is being

ITA No. 2004/Ahd/2016 6 . A.Y. 2004-05 levied on the basis of facts of the case and position of Law and not merely because there is an addition or disallowance of an expense. Further in the present case, there cannot be said to be a difference of opinion. 4. The issue wise discussion as under:- 4.1 Disallowance of claim of Depreciation on Computers: It was seen form the Rol that the assessee has claimed depreciation of Rs. 2,35,68,8177-. It was seen that during F.Y.2002-03 the year under consideration the assessee has purchased computers of Rs. 91319007- from Third Waves Systems Pvt. Ltd. The aeeeesec has produced bills issued by Third Waves Systems Pvt. Ltd. As well as copy of ILC of Union Bank of India snowing that payment is made to Third Waves Systems Pvt. Ltd. For purchase of the computers, accordingly, depreciation of Rs. 55,99,140/- was granted to assessee in that here leaving behind WDV of Rs. 43,72,7607-. During the year under consideration further depreciation on these computers %60% which comes to Rs. 25,99,656/- was hereby granted. The ld. CIT(A) confirmed the additions made by the Assessing Officer. The assessee has furnished inaccurate particulars of income. But, the assessee company has inaccurately noted 'nil' in the said column, whereas, Rs.2,09,69,161/- was required to be noted. This amounts to filing of inaccurate particulars of income. Similar view has been taken by Jurisdictional High Court in the case of A. M. Shah vs. CIT (discussed in para 3.3 above). Had the assessee's case not been selected for scrutiny, the assessee could have been benefited by filling inaccurate particulars of income. The assessee took chance with the department. Had the revenue not detected the inaccurate particulars of income of the assessee, the assessee could have enjoyed the fruits of filing inaccurate of particulars of income and would have caused loss to the revenue.

ITA No. 2004/Ahd/2016 7 . A.Y. 2004-05 In view of above facts and legal position discussed in para 3 (supra), the assessee is held to have furnished inaccurate particulars of income in the return of income filed by him and as per decision of Hon'ble Supreme Court in the case of Reliance Petroproduct (P) Ltd. (noted above) the liability of penalty arises. 4.2 Disallowance of interest expenses :- It was seen that the assessee has claimed interest expenses of Rs. 21,12,5147- on the loan taken by it. The entire amount of interest paid was in respect of such loan which was shown to have been utilized for the purpose of purchasing the computer hardware. .The whole amount of interest debited was disallowed u/s 37(1) of the Act as not made wholly and exclusively for business purpose and was added bank to the total income of the assessee. The Id. CIT(A) confirmed the additions made by the Assessing Officer. It is pertinent to note here that it is settled position of Law that such expenditure is of capital nature and as per provisions of sec.37(1) of the Act is not allowable as expenditure. There can be no ambiguity or difference of opinion so as to the treatment of such expenditure. The assessee is required to fill in the particular of "amounts debited to P&L A/c. to the extent disallowable u/s.37" in the return of income filed by the assessee company duly signed and verified. However, in the present case, the information filed at the relevant column by the assessee is 'nil'. The capital expenses amounting to Rs. 1,12,514/- debited to P&L A/c., being capital in nature have not been noted there by the assessee company at the relevant column in the return of income. It is pertinent to note here lhal the Id. CIT(A) confirmed the disallowance. Had the assessee's case not been selected for scrutiny, the assessee could have been benefited by filling inaccurate particulars of income. The assessee took chance with the department. Had the revenue not detected the inaccurate

ITA No. 2004/Ahd/2016 8 . A.Y. 2004-05 particulars of income of the assessee, the assessee could have enjoyed the fruits of filing inaccurate of particulars of income arid would have caused loss to the revenue. It has been clearly laid down in the case of A.M. Shah vs. CIT (discussed above) that "Every figure in the return which is set opposite to the item of income is a particular income, whether the figure is one which is stated independently of any thing else that appears in the return or the documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by the falsity of one or more of the constituent items in the return. The words 'inaccurate particulars' would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect" whether in the constituent or subordinate items of income or the end result". In view of above facts and legal position discussed in para 3 (supra), the assessee is held to have furnished inaccurate particulars of income in the return of income filed by him, the liability of penalty arises. 4.3. Disallowance of expenses related to increase in share capital:- During the course of assessment proceedings, it was seen that the assessee has claimed written of preliminary expenses of Rs.1,59,028/.- u/s.35D of the Act. Accordingly, the deduction u/s. 35D of the Act of Rs/ 1,59,028/- as written of preliminary expenses claimed by the assessee was disallowed and added to the total income of the assessee. It is pertinent to note here that it is settled position of Law that such expenditure is of capital nature and as per provisions of sec.37(1) of the Act is not allowable as expenditure. The Hon'ble Supreme Court in the case of Brooke Bond India Ltd. vs. CIT (1997) 225 ITR 798 has laid down that expenditure incurred for expansion of capital base of the

ITA No. 2004/Ahd/2016 9 . A.Y. 2004-05 company is capital expenditure. In light of the decision of Hon'ble Supreme Court, there can be no ambiguity or difference of opinion so as to the treatment of such expenditure. The assessee is required to fill in the particular of "amounts debited to P&L "~ A/c., to the extent disallowable u/s.37" in the return of income filed by the assessee company duly signed and verified. However, in the present case, the information filed at the relevant column by the assessee is 'nil'. The capital expenses amounting to Rs. 1,59,028/- debited to P&L A/c., being capital in nature have not been noted there by the assessee company at the relevant column in the return of income. It has been clearly laid down in the case of A.M. Shah vs. CIT (discussed above that "Every figure in the return which is set opposite to the item of income is a particular income, whether the figure is one which is stated independently of any thing else that appears in the return or the documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by the falsity of one or more of the constituent items in the return. The words 'inaccurate particulars' would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in the constituent or subordinate items of income or the end result". It is clear and established that assessee company has filed inaccurate particulars in his return of income, as discussed in preceding paragraphs. Further, in the decision of Dharamendra Textiles Processors (noted above) it has been established that 'mens rea' or deliberate attempt is not essential for levy of penalty, if it is established that assessee has furnished inaccurate particulars or concealment of particulars of income, penalty is leviable. In light of discussion held in para above, none of the cases cited by the assessee are applicable to the present case.

ITA No. 2004/Ahd/2016 10 . A.Y. 2004-05

Had the assessee's case not been selected for scrutiny, the assessee could have been benefited by filling inaccurate particulars of income. The assessee took chance with the department. Had the revenue not detected the inaccurate particulars of income of the assessee, the assessee could have enjoyed the fruits of filing inaccurate of particulars of income and would have caused loss to the revenue. In view of above facts and legal position discussed in para 3 (supra), the assessee is held to have furnished inaccurate particulars of income in the return of income filed by him, the liability of penalty arises. 4.4 Bad debts:- The assessee was shown bad debts of Rs.3, 08,76, 140/- in P&L account. Therefore, your company was requested to prove that these debts have actually become bad. The Assessing Officer disallowed the claim of bad-debts of the assessee noting that the assessee has not established that the debts become bad in the relevant year and therefore the claim of bad debts was not allowable. Further, on appeal of the assessee, the Id. CIT(A) confirmed the disallowance of Rs. 3,08,76,140/-. It is noted that, neither during the course of assessment proceedings nor penalty proceedings, no concrete evidence has been submitted to show that debt had actually become bad. It is, therefore, clear that the assessee has passed accounting entry for bad debts without proper justification for doing so knowing very well that the debts were not bad. The assessee has, thus, clearly furnished inaccurate particulars of income. It is pertinent to note here that Hon'ble Supreme Court in the case of Dharamendra Textiles Processors 306 1TR 277 (2008) (SC) has already laid down that penalty is a 'civii liability' thus mens rea is not essential. Thus, cases

ITA No. 2004/Ahd/2016 11 . A.Y. 2004-05 relied by assessee on this count are not applicable. It is further noted here that penalty in the present case is being levied on the basis of facts of the case and position of Law and not merely because there is an addition or disallowance of an expense. Further, in the present case, there can not be said to be a difference of opinion. It has been clearly laid down in the case of A.M. Shah vs. CIT (discussed above) that "Every figure in the return which is set opposite to the item of income is a particular income, whether the figure is one which is stated independently of any thing else that appears in the return or the documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by the falsity of one or more of the constituent items in the return. The words 'inaccurate particulars' would cover falsity in the final figure as also the constituent elements or items. They simply would mean inaccurate in some specific or definite respect v/hether in the constituent or subordinate items of income or the end result". It is clear and established that assessee company has filed inaccurate particulars in his return of income, as discussed in preceding paragraphs. Further, in the decision of Dharamendra Textiles Processors (noted above) it has been established that 'mens rea' or deliberate attempt is not essential for levy of penalty, if it is established that assessee has furnished inaccurate particulars or concealment of particulars of income, penalty is leviable. In light of discussion held in para above, none of the cases cited by the assessee are applicable to the present case. Had the assessee's case not been selected for scrutiny, the assessee could have been benefited by filling inaccurate particulars of income. The assessee took chance with the department. Had the revenue not detected the inaccurate

ITA No. 2004/Ahd/2016 12 . A.Y. 2004-05 particulars of income of the assessee, the assessee could have enjoyed the fruits of filing inaccurate of particulars of income and would have caused loss to the revenue. In view of above facts and legal position discussed in para 3 (supra), the assessee is held to have furnished inaccurate particulars of income in the return of income filed by him the liability of penalty arises. 4.5 Late payment of PF & ESI:- The assessee company made a default in depositing PF & ESI contribution of employers amounting to Rs.37,440/-, but claimed same as expenses u/s.36(1)(v)(a) of the I. T. Act. It has been clearly laid down in section 36(1)(va) of the I. T. Act that employees' contribution to PF, ESI etc. shall be allowed as deduction only when it is credited by the assessee to employees' account in the reserve fund on or before the due date. However, in the present case, the assessee has made a default in depositing the amount of Rs. 37,440/- in the said account before the due date. But, the assessee inspite of the fact that the default was pointed out In the Tax Audit Report claimed a deduction with respect to the same in violation of clear and unambiguous provisions of the Act. It was only during the assessment proceedings that the inaccuracy in the particulars of expenditure claimed in return of income was detected. It is pertinent to note here that the return of income filed by the assessee company duly signed and verified to be correct and true. The assessee was required to mention the amounts deposited after due date. But, the assessee company has inaccurately noted 'nil' in the said column, whereas, Rs. 37,4407- was required to be noted. This amounts to filing of inaccurate particulars of income. Similar view has been taken by Jurisdictional High Court in the case of A. M. Shah vs. CIT (discussed in para 3.3 above).

ITA No. 2004/Ahd/2016 13 . A.Y. 2004-05 Had the assessee's case not been selected for scrutiny, the assessee could have been benefited by filling inaccurate particulars of income. The assessee took chance with the department. Had the revenue not detected the inaccurate particulars of income of the assessee, the assessee could have enjoyed the fruits of filing inaccurate of particulars of income and would have caused loss to the revenue. In view of above facts and legal position discussed in para 3 (supra), the assessee is held to have furnished inaccurate particulars of income in the return of income filed by him the liability of penalty arises. 5. In view of the above facts I am satisfied that the assessee has furnished inaccurate particulars of its income and is liable for penalty u/s 271(1)(c) of the Act. I, therefore, levy a minimum penalty @ 100% of the amount of tax sought to be evaded on account of filing of inaccurate particulars of income, which works out of Rs. 1,94,27,849/- against the maximum penalty of Rs. 5,82,83,547/- on the assessee. Issue demand notice and Challan for penalty levied of Rs. 1,94,27,849/-

(i) Claim of depreciation of Rs. 2,09,69,161/- (ii) Claim of interest of Rs. 21,12,514/- (iii) Deferred revenue expenses of Rs. 1,59,028/- (iv) Payment of PF/ESI of Rs. 37,440/-

ITA No. 2004/Ahd/2016 14 . A.Y. 2004-05 6. But ld. A.O. partly allowed the claim of the assessee.

“Section 271(1)(c), read with section 36(1)(vii), of the Income-tax Act, 1961 - Penalty - For concealment of income [Bona fide claim, disallowance of] -Assessing Officer imposed penalty under section 271(1)(c) upon assessee on account of disallowance of bad debt - Tribunal deleted penalty holding that it was a case of difference of opinion on allowability of certain deductions and in absence of any material to indicate any dishonest attempt on part of assessee to conceal income, no penalty could be imposed - Whether Tribunal was justified in deleting penalty - Held, yes [Para 4] [In favour of assessee]”

ITA No. 2004/Ahd/2016 15 . A.Y. 2004-05 9. If assessee has made some claim and same was not acceptable to the Revenue. In such circumstances, penalty cannot be levied because penalty proceedings are different from assessment proceedings. Therefore, Respectfully following the aforesaid judgment and in our considered opinion, ld. CIT(A) has passed detailed and reasoned order and same does not require any kind of interference at our end. Thus, we dismiss the appeal of the Revenue.

Order pronounced in Open Court on 06 - 12- 2018

Sd/- Sd/- (WASEEM AHMED) (MAHAVIR PRASAD) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad: Dated 06 /12/2018 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad