ACIT, NEW DELHI vs. M/S. RESURGERE MINES AND MINERALS INDIA LTD., MUMBAI

PER ANADEE NATH MISSHRA, AM

This appeal by Revenue is filed against the order of Learned Commissioner of Income Tax (Appeals)-7, [“Ld. CIT(A)”, for short], New Delhi, dated 09.12.2016 for Assessment Year 2008-09, on the following grounds:

“1. Whether on the facts and circumstances of the case, the Ld. CIT(A) was correct in deleting the penalty imposed by the AO u/s 271(1)(c) of the Act by holding that there was a difference of opinion between the assessee and the AO regarding valuation of stock disregarding the fact that the assessee had valued its stock as per the correct method of accounting of stocks.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) was correct in deleting the penalty imposed by the AO u/s 271(1)(c) of the I.T. Act by holding that disallowance u/s 14A of the I.T. Act was a debatable matter disregarding that the assessee had incorrectly computed the disallowance in contravention of Rule 8D of the I.T. Rules. 3. The appellant craves to be allowed to add any fresh ground(s) of appeal and / or Deleted or amend any of the ground(s) of appeal.”

tax Act, 1961 (in short “the Act”) determining the total income on

Rs.94,52,99,610/- wherein separate additions amounting to Rs.1,69,57,108/-

(on account of valuation of stock) and Rs.71,223/- (on account of disallowance

u/s 14A of the Act r.w. Rule 8D of Income tax Rules) were made. The AO also

passed penalty order dated 30.03.2014 u/s 271(1)(c) of the Act levying penalty

amounting Rs.57,87,930/- in respect of the aforesaid two additions. The

aforesaid additions were confirmed by CIT(A) vide here order dated 23.07.2011.

The assessee filed appeal in ITAT against the aforesaid order dated 27.03.2012

vide ITA No.6600/Del/2014. The assessee’s appeal in aforesaid appeal was

disposed of vide order dated 22.12.2017 wherein the aforesaid addition of

Rs.1,69,57,108/- was deleted. The addition amounting to Rs.71,223/- made

u/s 14A r.w.Rule 8D was confirmed because the assessee did not press the

grounds relating to this addition due to smallness of amount involved. A copy

of the aforesaid order dated 22.12.2017 in assessee’s aforesaid appeal in ITA

No.6600/Del/2014 for AY 2008-09 was placed on record on behalf of the

assessee during the appellate proceedings in the present appeal before us.

Vide order dated 09.12.2016, the CIT(A) deleted the entire amount of penalty

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. u/s 271(1)(c) of the Act and allowed the assessee’s appeal. The relevant portion

of the order of CIT(A) is reproduced hereunder:-

4.1. On these grounds, the Ld. AR submitted as under:

"During the year under consideration the assessee company was engaged

in the business of - extraction, processing and sale of minerals products,

exploration at Nueqeon in Kheonijhar district and Mayutbhanj district of

Orissa and export of iron ore fines. Further while preparing the tinenciels,

the assessee has followed various accounting policies consistently and the

same is duly disclosed in and procedures as prescribed by the various

laws.

Assessee is consistently following uniform accounting policies since years

and the same and the same is being duly disclosed by the assessee

company in its balance sheet.

During the assessment proceedings the Id. AO asked assessee to furnish

valuation of closing stock. Assessee vide its reply dated 6.12.2010

submitted the valuation of stock. On Perusal of the said reply the Ld AO

noticed that the assessee company is following weighted Average method

for valauation of stock. The Id. Assessing officer disregarded the method

followed by the assessee irrespective of the fact that assessee do have the

authority and right to choose as to what method for valuation of the closing

stock to be adopted as conferred on him by the various laws provided that

the said valuation leads to the true and fair view of the state of affairs of Page | 3

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. the business, profession or vocation in the financial statements prepared

and presented on the basis of such accounting policies.

The Ld. Assessing officer however disregarded all the explanations given

and replies filed for and made an addition of Rs. 169,57108 on account of

disallowance on account of valuation of stock.

In addition to this the AO has also made a additional disallowance of Rs.

71233/- under section 14A against the suo moto disallowance by the

assessee of Rs. 29120/-.

The assessee then filed an appeal before the CIT(A) wherein the Ld. CIT(A)

in his order dated 23.07.2013 upheld the additions made by the AO.

However, the assessee being not satisfied with the decision of the CIT(A)

has moved before the ITAT and has filed an appeal before the same which

is still pending.

Now the Id. AO levied the penalty under section 271(1)(c) on both the

additions. On going through the penalty order your honour will notice that

the Id. AO has no where mentioned what made him believe that the

assessee has done any concealment or furnished any inaccurate

particular in the return of income. He has simply quoted the text of the

addition made by him in the assessment order and quoted the judgment of

Delhi High Court in the case of Zoom Communication Pvt. Ltd. (2010) 327

ITR 510.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd.

Your honour the said judgment of Delhi High Court has nothing to do with

the case of the assessee as the facts of the said case are different from

that of the assessee company. In the said it was established that

deduction claimed by the assessee in the profit and loss account are not in

compliance with the provisions of the act. Accordingly, the court held that

the penalty on unlawful claim cannot be avoided.

Your honour in the present case of the assessee no claim made in the

return of income has been regarded as unlawful. The additions made by

the AO are mere on the basis of difference of opinion and not account of

violation of any provision of the act.

The power to impose penalty cannot be exercised if the AO is not satisfied

about the existence of conditions specified in clause (a), (b), (c) of Section

271(1), before the proceedings are concluded.

In the assessee's case, the penalty proceedings have been sustained not

on the basis of any defects in the books of accounts but for difference in

the opinion in the AO and the assessee.

As the penalty proceedings are independent proceedings, though the

finding in assessment proceedings are independent proceedings, these

cannot be taken as res adjudicata.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. Penalty on difference in value of stock applying FIFO as against weighted

adopted by the assessee

On going through the reply of the assessee filed during the course of

assessment proceedings your honour will agree that the assessee has no

where concealed any particular of income and neither has furnished any

inaccurate particulars of the income. Infact there arises only a difference of

opinion between the two. The assessee has bonafidely followed the

weighted average method of valuation of stock for years.

Your honor according to the Income Tax Act 1961, the penalty under

section 271(1)(c) can be levied when the assessee has actually concealed

the particulars of income. Mere suspicion of AO that the assessee has

given wrong particulars or concealed its income is no ground to levy the

penalty under section 271(1)(c) of the Act. Also additions made on the

basis of difference of opinion between the AO and the appellant cannot

lead to levy of penalty. In the present case the assessee has duly

disclosed its income in returns of income filed and has calculated the

income which as per the assessee is correct and is without any contention

of concealing the income. It is not the case that the appellant has

concealed some income. It is just that assessee was under a bonafide

belief that the income so calculated is correct and the method used for

calculating the value of stock is valid and accordingly the same was

offered for taxation. Thus there can be no allegation that the assessee has

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. concealed the particulars of its income. There is no instance in the order

passed by the Ld. AO wherein the Id. AO has mentioned any activity of the

appellant which could conclude that there was some concealment of any

facts. Also your honor the assessee has not furnished any inaccurate

particulars. Thus the initiation of penalty proceedings is bad in law and

against the facts of the case.

Your honour it is not a case here where the assessee has adopted an

unlawful method to value its inventory. The weighted average method is a

recognised method of valuation and therefore the same cannot be regarded

as baseless. Accordingly, the penalty cannot be levied for the difference on

account of new method adopted by the AO.

Your honor further reliance is placed on following case laws where it is

held that no penalty can be imposed on disallowance on account of

valuation of stock:

In the case of CIT vs. J.H. PARABIA (TRANSPORT) (P) LTD. HIGH COURT

OF GUJARAT (2006) 284 ITR 0361 it was held as under:

submission of Revenue and the basis of levy of penalty gets

summarised in the frame of the question. However, in light of the

facts found by the Tribunal, and in absence of any evidence to show

that such findings are incorrect in any manner whatsoever, it is not

possible to accept the contention raised on behalf of the applicant- Page | 7

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. Revenue. It is not possible to state that the method of accounting

adopted by the assessee was such that it did not reflect the position

correctly considering the fact that for three years the same had been

accepted by the Department. Once this was the position, the bona

fides of the assessee could not be doubted.

In the case of Rajiv Kumar Garg Vs.ITO (ITAT Delhi), ITA No.

519/Del/2014 it was held as under:

quantum proceedings cannot be conclusive of penalty imposition.

Mills Vs. CIT (2004) 265 ITR 25 (Cal.) has held that quantum

proceedings are different from penal proceedings. The Hon'ble

Kerala High Court in CIT Vs. P.K. Narayanan (1999) 238 ITR 905

(Ker.) has held that despite the addition being confirmed by Tribunal

in quantum proceedings, the penalty can still be deleted by the

Tribunal, if the facts justify.

by the A.O. It is settled legal position that when income is estimated,

then there can be no question of imposing penalty u/s 271 (l)(c) of

the Act.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 5. The Hon'ble Delhi High Court in CIT Vs. Aero Traders Pvt. Ltd.

(2010) 322 ITR 316 (Del.) has held that no penalty v/e 271(1)(c) can

be imposed when income is determined on estimate basis.

a) Hon'ble Punjab and Haryana High Court in Harigopal Singh Vs.

CIT (2002) 258 ITR 85 (P&H) b) Hon'ble Gujarat High Court in err Vs.

Subhash Trading Co. 221 ITR 110 (Guj.)

valuation of closing stock, the same cannot be sustained. The

penalty is thus, ordered to be deleted.

In the case of ACIT vs, Agrawal Enterprises IT Appeal No. 1201(Pune) of

2009 it was held as under by the ITAT:

Weighted average method is a recognized method and it cannot be

branded as something abnormal or baseless. It is a case where

assessee has been following a consistent method of valuation of

closing stock for the last 16 years. Reliance on the principle of cost

or market price whichever is less, for determining the closing stock

as per cost, the assessee has been employing the weighted average

cost method. The approved AS-2 for valuation of inventories also

make it clear that 'the cost of inventories is to be determined by

following the FIFO method or the weighted average cost method.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. Undisputedly, it is not a case of change of method of valuation in the

case of assessee but the method of valuation which has consistently

been followed for the last so many years. Under these

circumstances, we fully concur with the finding of the learned CIT(A)

that the method of valuation of stock followed by the assessee was

an accepted method in consonance with the law as well as

Accounting Standard and therefore, there is no reason to discard the

same. We thus do not find reason to interfere with the first appellate

order on the issue which is a speaking order supported with the

decisions relied upon by him. The same is upheld. Ground No. 2 is

accordingly rejected.

In the case of Lakshmi Jewellery vs CIT, 1988 (2) TMI59 - Hon'ble

ANDHRA PRADESH High Court held as under

There is force in the submission of Mr. Satyanarayana that while

valuing the closing stock for ascertaining the profits, the assessee

went by his usual method adopted in the past years and did not

think that the Income-tax Officer would act in a manner different

from what he did in the past years. As long as an inconsistent

behaviour on the part of the assessee is not shown in the method of

valuation of closing stock adopted for 1973-74 assessment, the

Revenue would not be justified in attaching any blame on the

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. assessee or for the matter of that of having concealed income by

undervaluing the closing stock.

We need not reiterate the principles governing the levy of penalty

under section 271(1)(c) of the Act as these are too well-settled. If we may

refer to the most celebrated judgment of the Supreme Court in this matter

in C!T v. Anwar AIi[1970] 76 ITR 696, the requirement tor levying a penalty

under section 271 (1)(c) is that the Revenue must straightaway discharge

its obligation to prove concealment positively. If there is no evidence on the

record except the explanation given by the assessee which explanation is

either found to be false or is unacceptable to the Revenue, it does not

follow that escapement has been established. The finding given in the

assessment proceedings for determining or computing the tax is not

conclusive. It may be good evidence and it is open to the assessee to

establish his case during the course of penalty proceedings even though

the assessment as such has been accepted.

In the case of R Madhavan Nair Versus Commissioner Of Income-

Tax, Kerala. 1972 (1) TMI 22 - KERALA High Court held that

Apart from the rejection of the explanation of the assessee, there

was no material whatever available before the authorities to come to

the conclusion that the value of the 471 bags of raw nuts with the

bank represented the income of the assessee. Nor was there any

clear evidence in the case or for that matter any finding that the

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. valuation given by the assessee was a deliberate under-valuation in

order to conceal the particular income. The Tribunal in its order used

the words deliberately undervalued ". But this we do not

understand as a finding sufficient to discharge the burden that is

cast on the department by section 271 (l)(c). The matter is concluded

by the decision of the Supreme Court in Commissioner of Income-tax

v. Anwar Ali. That too was a case where the assessee's explanation

regarding the sum of Rs. 87,000 which he had admittedly deposited

in a bank was rejected, and the amount added as his income in the

assessment proceedings. When action for imposition of penalty was

taken under section 271(1)(c) it was contended that the ingredients

that should be satisfied for the application of the section had not

been made out. This contention was accepted by the Supreme Court

and their Lordships came to two conclusions : the first of the

conclusions is :

"The section is penal in the sense that its consequences are

intended to be an effective deterrent which will put a stop to

practices which the legislature considers to be against the public

interest. "

Having said so, they proceeded to deal with the next question and

we shall extract the paragraph dealing with this question:

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 'The next question is that when proceedings under section 28 are

penal in character what would be the nature of the burden upon the

department for establishing that the assessee is liable to payment of

penalty. As has been rightly observed by Chagla C. J. in

Commissioner of Income-tax v. Gokuldas Harivallabhdas, the gist of

the offence under section 28(1)(c) is that the assessee has concealed

the particulars of his income or deliberately furnished inaccurate

particulars of such income and therefore, the department must

establish that the receipt of the amount in dispute constitutes income

of the assessee. If there is no evidence on the record except the

explanation given by the assessee, which explanation has been

found to be false, it does not follow that the receipt constitutes his

taxable income. "

Their Lordships proceeded to state:

" Another point is whether a finding given in the assessment

proceedings that a particular receipt is income after rejecting the

explanation given by the assessee as false would, prima facie, be

sufficient for establishing, in proceedings under section 28, that the

disputed amount was the assessee's income. It must be remembered

that the proceedings under section 28 are of a penal nature and the

burden is on the department to prove that a particular amount is a

revenue receipt. It would be perfectly legitimate to say that the mere

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. fact that the explanation of the assessee is false does not

necessarily give rise to the inference that the disputed amount

represents income. It cannot be said that the finding given in the

assessment proceedings for determining or computing the tax is

conclusive. However, it is good evidence. Before penalty can be

imposed the entirety of circumstances must reasonably point to the

conclusion that the disputed amount represented income and that

the assessee had consciously concealed the particulars of his

income or had deliberately furnished inaccurate particulars.

In the present case, it was neither suggested before the High

Court nor has it been contended before us that, apart from the

falsity of the explanation given by the assessee, there was cogent

material or evidence from which it could be inferred that the

assessee had concealed the particulars of his income or had

deliberately furnished inaccurate particulars in respect of the same

and that the disputed amount was a revenue receipt. "

It has not been contended before us that, apart from the

rejection of the explanation of the assessee as false, there was any

material before the authorities justifying the conclusion that the

value of 471 bags of raw nuts pledged with the bank represented

the income of the assessee or that the amount representing the

difference in the value of the closing stock by the adoption of a

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. higher valuation of the closing stock by the assessing authorities

represented the assessee's income. We therefore think that the

matter must be governed by the decision of the Supreme Court in

Commissioner of Income-tax v. Anwar Ali. This decision has been

again referred to with approval by the Supreme Court in a recent

pronouncement in Commissioner of Income-tax v. Khoday Eswarsa

and Sons. We therefore answer the question in the negative, that is,

in favour of the assessee and against the department. We make no

order as to costs. "

Penalty on disallowance under section 14A

Your honour the Id. AD has made additional disallowance under

14A rejecting the calculation done by the assessee without giving

any basis of the same.

It is to be noted that every addition/disallowance must not give rise

to imposition of penalty. If that be so penalty would have been made

compulsory on all additions/ disallowances made in the assessment

proceedings without looking into the facts of the case. But this is not

the case. Penalty proceedings are separate from assessment

proceedings and are quasi criminal. Penalty cannot be blindly

imposed. Assessing officer has to prove the malice intention of the

assessee or furnishing of some inaccurate particulars. Here in the

case of the appellant the Id. AO has failed to do so.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. In the case of CIT vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR

158 the honorable Supreme Court of India held as under:

"10. It was tried to be suggested that Section 14A of the Act

specifically excluded the deductions in respect to the expenditure

incurred by the assessee in relation to income which does not form

part of the total income under the Act. It was further pointed out that

the dividends from the shares did not form the part of the total

income. It was, therefore, reiterated before us that the Assessing

Officer had correctly reached the conclusion that since the assessee

had claimed excessive deductions knowing that they are incorrect; it

amounted to concealment of income. It was tried to be argued that

the falsehood in accounts can take either of the two forms; (i) an item

of receipt may be suppressed fraudulently; (ii) an item of expenditure

may be falsely (or in an exaggerated amount) claimed, and both

types attempt to reduce the taxable income and, therefore, both

types amount to concealment of particulars of one's income as well

as furnishing of inaccurate particulars of income. We do not agree,

as the assessee had furnished all the details of its expenditure as

well as income in its Return, which details, in themselves, were not

found to be inaccurate nor could be viewed as the concealment of

income on its part. It was up to the authorities to accept its claim in

the Return or not. Merely because the assessee had claimed the

expenditure, which claim was not accepted or was not acceptable to Page | 16

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. the Revenue, that by itself would not, in our opinion, attract the

penalty under Section 271(1) (c). If we accept the contention of the

Revenue then in case of every Return where the claim made is not

accepted by Assessing Officer for any reason, the assessee will

invite penalty under Section 271(1)(c). That is clearly not the

intendment of the Legislature. "

In the case of Espire Infolabs Private Limited vs. ITO ITA No. 4190-

4191/Del/2013, the Honorable ITAT (Delhi) held as under:

In our opinion, merely because certain disallowance is made under Section

14A rejecting the assessee's contention that no disallowance is called for

would not be sufficient to levy the penalty under Section 271 (1)(c). There is

no allegation of the Revenue that the assessee furnished any details which

are found to be false or inaccurate. Merely because some disallowance is

computed as per the formula prescribed under Rule SO, it cannot be

presumed that the assessee has concealed the income or furnished

inaccurate particulars of income. While taking this view, we derive support

from the decision of Hon'ble Apex Court in the case of CIT Vs. Reliance

Petroproducts Pvt.Ltd. - 322 ITR 158.

In the case of Nalwa Investment Limited I. T.A. No.380S/0/2010 for

assessment year 2005-06, dated 29.10.2010 the Honorable ITAT(Delhi

Bench) held as under:

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. "No computation of disallowance was made u/s 14A as no disallowance

was made in the return of income. However, the accounts have been

audited and the return was accompanied by the tax audit report. The

latter did not suggest any disallowance u/s 14A. Therefore, it can be

inferred that all expenses were claimed in full as the auditors did not

suggest disallowance of any part of the expenditure relating it to the

dividend income. Thus, it can be concluded that the claim was made on

the basis of tax audit report. There is no allegation by the AO that there

was any collusion between the auditor and the assessee to enhance the

loss in' the return of income by ignoring the provision contained in section

14A. Therefore, it can be said that the assessee has furnished an

explanation which is bona fide. In regard to proposition at (c) above, the

finding of the Id. CIT(A) is that the disallowance is disputable. The section,

as it existed at the time of filing the return, does contain a provision for

disallowance of expenditure which is related to non-taxable income.

Therefore, it is expected of any assessee to attempt at segregating

expenditure which is related to such a claim. No attempt has been made in

this behalf. However, it is also a fact that such segregation is beset with

lot of problems as the issue has finally been laid to rest by introduction of

Rule 80 in the Income-tax Rules in the year 2008. The assessee did not

have benefit of this rule when it filed the return of income. Therefore, even

in absence of any attempt on the part of the assessee, it can be said that

questions of disallowance and its quantification are quite disputable and

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. can lead to bona fide difference in opinion between the assessee and the

authorities. In such a situation, the levy of penalty will not be justified. "

In the case of ACIT vs. Jindal Equipment Leasing and Consultancy

Services Ltd. 2012 51 SOT 133 (Delhi) (URO) the honorable ITAT (Delhi

Bench) following the above judgments held as under:

that the assessee had claimed expenditure, which was incurred in the

course of business, a part of which was disallowed by the Assessing

Officer on a proportionate basis by allocating it towards the earning of

dividend income. The facts are in pari-materia with the facts of the case of

Nalwa Investments Limited (supra), in which the penalty pertained to a

subsequent year, being assessment year 2005-06. The provision contained

in section 14A was applicable to the assessee. It was inter alia mentioned

that allocation of expenses is beset with a lot of problems and the issue

was laid to rest by introduction of Rule 80, in the year 2008. Therefore,

even in absence of any attempt on the part of the assessee to segregate

the expenditure, it can be said that the questions of disallowance and its

quantification are contentious, which leads to the inference that the

difference of opinion between the assessee and the authorities is bonafide.

Respectfully following this decision, it is held that the learned CIT (A) was

right in deleting the penalty.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. Your honor the issue in the case of the assessee of disallowance of

claim under section 14A is highly debatable one. The issue being

debatable no penalty can be levied as such. In this regard reliance has

been placed on the following judgments:

In the case of CIT vs. Jindal Equipment Leasing and Consultancy

Services Ltd. ITA no. 68/2012, the Honorable High Court of Delhi in its

order dated 03/02/2012 held as under:

"6. The CIT (Appeals) and the tribunal have considered the aforesaid

explanation given by the assessee to justify their claim why no

disallowance was mandated under Section 14A in the present case. They

have accepted that the explanation given by the assessee was genuine

and bona fide. The contention of the respondent assessee may have been

rejected in the quantum proceedings but when deciding whether or not

penalty for concealment should be imposed, the justification and

explanation why the assessee had made the claim, is to be examined.

Disallowance under the said section have been subject matter of debate

and different views have been expressed. A legal contention which was

plausible and merited consideration was raised. Accordingly, the appellate

authorities have applied the explanation to Section 271(1)(c) of the Act.

Looking at the nature of explanation offered and the provision in question

i.e. Section 14A, which was incorporated by the Finance Act, 2001 with

retrospective effect from 1st April, 1962, we do not think in the present

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. case any substantial question of law arises in view of the factual matrix

involved. Accordingly, the appeal is dismissed."

In the case of CIT vs. Liquid Investment and Trading Co. ITA No. 240/2009

the Honorable High Court of Delhi vide its order dated 05/10/2010 held

as under:

"Both the CIT(A) as well as the ITAT have set aside the penalty imposed by

the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961

on the ground that the issue of deduction under Section 14A of the Act was

a debatable issue. We may also note that against the quantum

assessment where under deduction under Section 14A of the Act was

prescribed to the assessee, the assessee has preferred an appeal in this

Court under Section 260A of the Act which has also been admitted and

substantial question of law framed. This itself shows that the issue is

debatable. For these reasons, we are of the opinion that no question of law

arises in the present case. "

In the case of ACIT vs. AT Invofin India Pvt. Ltd. ITA no. 4479/Del/2013,

the Honorable ITAT Delhi Bench held as under:

a difference of opinion as regards to the working of disallowance u/s 14A

of the Act. The assessee disallowed suo-moto a sum of 16,020/- while the

A.O worked out the disallowance at 41,10,546/- which was more the total

claim of the expenses at 32,06,595/-. Therefore, merely on this basis that Page | 21

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. the claim of the assessee was not accepted by the A. 0 it cannot be said

that the assessee either concealed the income or furnished inaccurate

particulars of income. Therefore, by keeping in view the ratio laid down by

the Hon'ble Apex Court in the case of CIT Vs Reliance Petro Products Pvt.

Ltd. (supra), we are of the view that the Ld. CIT(A) was fully justified in

deleting the penalty levied by the A.O u/s 271(1)(c) of the Act:

We do not see any infirmity in the impugned order of the Id. CIT(A) and

accordingly do not see any merit in this aspect of the department.

In the' case of Trans Asia Consultant Pvt. Ltd. vs. ACIT ITA No.

141/Del/2013, the Honorable ITAT Delhi Bench held as under:

(supra) cancelled the penalty imposed on the assessee pertaining to the

disallowance u/s 14A of the Act. The relevant observations and findings

are as under:-

recorded any finding that the explanation offered by the assessee before

the Assessing Officer was found to be false and in this situation, the

decision of Hon'ble Supreme Court in the case of Reliance Petroproducts

Pvt. Ltd. (surpa) comes into play to rescue the assessee from penalty.

Respectfully following the above decision, we hold that if the contention of

the revenue is accepted, then in the case of Shri Manish Jain where the

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. claim is not accepted by the Assessing Officer for any reason, the assessee

will invite the penalty u/s 271 (l)(c) of the Act which is not the intention of

the legislature. Accordingly, sole ground of the assessee is allowed and

penalty order as well as impugned order is set aside by deleting the

penalty.

In view of the above judgment, it is can be concluded that the stand taken

by the Id. AO is totally incorrect and same is liable to be deleted. Mere

rejection of claim does not mean concealment

Your honour will endorse that the Id. AD has taken all the details, on the

basis of which the disallowances have been made, either from the return

of income filed by the assessee or from the Balance Sheet and the Profit

and Loss Account attached with that.

It is thus beyond the rarest stretch of imagination of the assessee that if

every detail has been taken from the papers filed by the assessee then

how can the Id. AD reach a conclusion that the assessee has concealed the

particulars of its income. It is just that while making the addition the Id.

AO has grossly ignored the facts of the case and material brought on

record by the assessee.

Your honour will appreciate that when called upon the assessee has given

the explanation and that explanation was a bona fide one. Accordingly the

case is not covered by Explanation 1 to section 271 (1)(c) of the Act. Your

honour will endorse that on going through the assessment order it is Page | 23

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. clearly evident that the Id. AO has made the addition on the basis of not

being satisfied by the explanation filed by the assessee. Now, by every

chance this cannot be a ground for initiating the penalty under section

271(1)(c) of the Act. The Id. AO has failed to bring out the fact that the

assessee willfully concealed the particulars of its income or furnished

inaccurate particulars.

Your honour will appreciate the decisions delivered by various courts in

the following cases where they have specifically held that mere rejection of

certain claims for expenses/ deductions does not mean that there was

concealment of income on the part of the assessee.

i) .J.K Jajoo vs. CIT (1990) 181 ITR 410, 412(MP) [mere rejection of claim

for expenses would not mean that there was concealment of income]

ii) CIT vs. University Printers, (1991) 188 ITR 206(AII) [mere rejection of the

explanation of the assessee would not mean that there was concealment

of income]

iii) CIT vs. Nepani Biri Co. Trust, (1991) 190 ITR 402, 403(AII) [where the

difference between the income returned and the income assessed was due

to 'disallowance of expenditure claimed by the assessee]

iv) CIT vs. Dhamchand 1. Shah,(1993) 204 ITR 462, 468-69(Bombay)

[penalty cannot be sustained merely on the grounds that certain additions

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. were made and the same were accepted by the assessee without invoking

the Explanation to Section Uls 271 (1)(c)].

v) CIT vs. Inden Bislers (1999) 240 ITR 943, 946, 947 (Madras)[tribunal

was held - justified in canceling the penalty where it has recorded a

finding that the additions . have' been made because a particular

expenditure was not justifiable from a commercial point of view and that

there was no evidence of concealment of income). Thus the action of the

assessing officer in levying the penalty is bad in law and the penalty is

liable to be deleted otherwise same will create undue hardship on the

assessee. Penalty and assessment proceedings are two different things

The power to impose penalty cannot be exercised if the AO is not satisfied

about the existence of conditions specified in clause (a), (b), (c) of Section

271(1), before the proceedings are concluded.

In the assessee's case, the penalty proceedings have been sustained not

on the basis of any defects in the books of accounts but for some error

which has been accepted by the assessee.

As the penalty proceedings are independent proceedings, though the

finding in assessment proceedings are independent proceedings, these

cannot be taken as res adjudicata. Reliance is placed on the following

cases:-

(i) Consideration that arise in penalty proceedings are different from those

that arise in assessment proceedings. Page | 25

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. a. 169 ITR 782 (All) Banaras Textiles

b. CIT vs Govind Gokhale 178 ITR 509 (Ker).

c. Hotels a Allied Traders vs CIT 221 ITR 619 (Kar)

(ii) Finding recorded in Asstt. Order constitute good evidence but cannot be

reported in conclusion.

a. Anantharam Veerasinghani a Co. vs err 123 ITR 457

b. CIT vs Ishtiaq Hussain 232 tm 673 (All).

(iii)Finding contained in the Asstt. Order would not be of any use. AO is

required to record its own findings in penalty order.

a. CIT vs Ratnam (1995) Tax LR 504,506

b. CIT vs Chetan Dass Lachman Dass 214 ITR 726 (Del)

c. CIT vs J K Synthetics Ltd 219 tm 267 (Del).

Thus the levy of penalty is bad in law specifically with respect to the fact

that the assessing officer has been unable to depict that the appellant has

failed to disclose certain particulars.

Your honour assessee is innocent and has always co-operated with the

department in all legal proceedings. Merely if some disallowances are

made on the basis of various assumptions drawn by the Id. AO the

assessee could not be asked to be held liable for penalty. Your honor in the

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. case of CIT vs Reliance Petro Products 322 ITR 158 (SC) it was held that S.

271 (1) (c) penalty cannot be imposed even for making unsustainable

claims. In the said case The assessee claimed deduction u/s 36 (1) (iii) for

interest paid on loan taken for purchase of shares. The AO disallowed the

interest u/s 14A and levied penalty u/s 271 (1) (c) on the ground that the

claim was unsustainable. The penalty was deleted by the appellate

authorities. On appeal by the department to the Supreme Court, HELD

dismissing the appeal:

"(i) S. 271 (1) (c) applies where the assessee "has concealed the particulars

of his income or furnished inaccurate particulars of such income". The

present was not a case of concealment of the income. As regards the

furnishing of inaccurate particulars, no information given in the Return

was found to be incorrect or inaccurate. The words "inaccurate particulars"

mean that the detail$ supplied in the Return are not accurate, not exact or

correct, not according to truth or erroneous. In the absence of a finding by

the AO that any details supplied by the assessee in its Return were found

to be incorrect or erroneous or false, there would be no question of inviting

penalty u/s 271 (1)(c).

(ii) The argument of the· revenue that "submitting an incorrect claim for

expenditure would amount to giving inaccurate particulars of such income"

is not correct. By no stretch of imagination can the making of an incorrect

claim in law tantamount to furnishing inaccurate particulars. A mere

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. making ot the claim, which is not sustainable in law, by itself, will not

amount to furnishing inaccurate particulars regarding the income of the

assessee. If the contention of the Revenue is accepted then in case of every

Return where the claim made is not accepted by the AO for any reason,

the assessee will invite penalty u/s 271(1)(c). That is clearly not the

intendment of the Legislature.

(iii) The law laid down in Dilip Shroff 291 ITR 519 (SC) as to the meanings

of the words "conceal" and "inaccurate" continues to be good law because

what was overruled in Dharmendra Textile Processors 306 ITR 277 (SC)

was only that part in Dilip Shroff where it was held that mens rea was an

essential requirement for penalty u/s 271 (1)(c)."

Your honor in the case of CIT vs Mahanagar Telephone Nigam Limited ITA

No. 626/2011 the AO imposed penalty u/s. 271(1)(c) on the ground that

the assessee had filed "inaccurate particulars" by wrongly (i) claiming

deduction for contribution to a 'staff welfare fund' despite the bar in s.

40A(9) and the qualification of the auditors and (ii) claiming depreciation

on vehicles at 25% though the prescribed rate was 20%. The assessee

argued that despite s. 40A(9), the payment to the fund was allowable as

"business expenditure" and that the higher depreciation was claimed on

the basis that the vehicles were "plant & machinery" despite the lower rate

prescribed for vehicles in the Rules. The CIT (A) & Tribunal deleted the

penalty. On appeal by the department, HELD dismissing the appeal:

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. "There is no finding by the AO that the assessee furnished inaccurate

particulars and that its explanation was not bonafide. Accordingly, the

imposition of penalty u/s 271(1.)(c) was a "complete non-starter". A mere

erroneous claim made by an assessee, though under a bonafide belief

that, it was a claim which was maintainable in law cannot lead to an

imposition of penalty. The claim for deduction was made in a bona fide

manner and the information with respect to the claims was provided in the

return and documents appended thereto. Accordingly, there is no

furnishing of "inaccurate particulars". Making of an incorrect claim for

expenditure does not constitute furnishing of inaccurate particulars of

income (Reliance Petroproducts 322 ITR 158 (SC) followed)"

It is therefore requested before you honour to kindly delete the penalty

levied by the Id. AO as neither the appellant has furnished inaccurate

particulars nor it has concealed its income.

Even otherwise the addition made bv the AQ is not sustainable in law

Your honour the Id. AO has made two disallowances vide his order dated

06/12/2010 i.e. 1. Valuation of stock on FIFO basis rejecting the weighted

average followed by the assessee thereby making addition of Rs.

16957108/-

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. The above additions made by the Id. AO are not tenable in law and on the

facts of the case.

Valuation of stock;

Your honour the assessee is into the business of extraction, processing and

sale of Iron ore. The main product of the assessee company is Calibrated

Lump Ore(CLO). The other products are lump ore and size ore. The CLO is

processed out of the Run of Mine(ROM) which extracted out of the big rock

using the explosives. The said Run of Mine is passed through series of

crushers and processed until the particles are smaller than 19mm. The

said particles of 19mm are termed as CLO which is the ultimate product of

the assessee company.

The ROM, Calibrated Lump Ore(CLO) and other products is measured in

tons/ metric tons. Accordingly, the assessee adopted weighted average

method for valuation of the same. The Id. Ao during the course of

assessment proceedings doubted the methodology adopted by the

assessee and proposed to value the ROM using FIFO method of valuation.

Accordingly, he worked out the value of stock on the basis of FIFO method

and added differential amount of Rs. 1,69,57,108/- in the hands of

assessee and treated the same as undervaluation of stock.

Your honour the Id. AO simply rejected the method of valuation adopted by

the assessee without giving any reason as to why the same is not suitable

method for valuation. He has worked the monetary difference in the value Page | 30

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. of the closing stock as per the two methods. In para no. 4 of the

assessment order the Id. Ao has shown an example that the closing value

of the stock of ROM is less than cost of production due to the credit of low

priced opening stock. Your honour here it important to point here that the

difference worked out by the AO is only for the closing stock. He has not

done the similar calculation for the opening stock. Accordingly, the gross

profit of the company is substantially effected by the by the modified value

of closing stock. The method of valuation has to be applied for both closing

and opening stock otherwise the profit and loss a/c will not give the true

picture. Accordingly, the under valuation of stock worked out by the AO is

fundamentally incorrect and against the facts of the case.

Even otherwise the undervaluation depicted by the AO is incorrect as the

Id. AO has picked up stock at a single point of time and valued it using

other valuation method. The working as done by the AO if done at a

particular point of time will always show a difference in the value of stock.

Your honour the Id. AO has easily ignored the fact that the weighted

average method of valuation has been adopted by the since its

incorporation i.e. 24/03/1987. Accordingly, the impact of change in

method of valuation (under/over valuation), if any, is to be worked out

then it has to be done from the very beginning. The AO cannot select a

particular point of time from where it has to be applied as the value of

stock at particular point of time has a cumulative effect of method followed

over the number of years. Page | 31

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. Furthermore the weighted average method of valuation is also recognised

method of valuation. The Accounting Standard- 2 of ICAl on Valuation of

Inventory suggests both weighted average and FIFO method as' fair/good

method of valuation. Moreover, various judicial forums have acknowledged

the use of weighted average method of accounting and criticized the

adoption of other method by the AO at particular time and working the

difference accordingly.

Accordingly, we pray before your honour that the addition of under

valuation of stock worked out by the AO is itself not tenable in law and

accordingly the same cannot in any away form basis for levying the

penalty for concealment or furnishing of inaccurate particulars.

Disallowance under section 14A:

Your honour the Id. AO has computed a disallowance of Rs. 1,00,343/-

under 14A as against the suo moto disallowance of Rs. 29,120/- done by

the assessee itself. The Id. AO has rejected the disallowance done by the

assessee without giving any reason for the same.

Your honor as per the provisions of section 14A r.w.r. 8D of the I. T.Rules,

that the having regard to the books of accounts maintained by the

assessee if the assessing officer is not satisfied with the any of the

following claims of the assessee:

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. a) Expenses incurred in relation to income which does not form part of the

total income or,

b) No expenses incurred in relation to income which does not form par to

the total income.

Then the assessing officer being not satisfied with the claim of the

assessee shall determine such expenses with help of the methods

prescribed under the act i.e. Rule 8D of the I T Rules. Meaning thereby, the

assessing officer cannot adopt the methodology given in Rule 80(2) unless

satisfaction as to the claim of the assessee is recorded. The satisfaction is

not simply stating that the claims of the assessee are not acceptable. The

assessing officer must make reference to the books of accounts of the

assessee while recording such satisfaction.

In this regard it is important to refer to the recent judgment of High Court of

Delhi in the case of CIT vs. Taikisha Engineering India Limited ITA

115/2014 & 119/2014 dated 25/11/2014 where the court has discussed

in length the relevance the statutory requirement of recording of

satisfaction by the assessing officer. The court held as under:

"Section 14A of the Act postulates and states that no deduction shall be

allowed in respect of expenditure incurred by an assessee in relation to

income which does not form part of the total income under the Act. Under

sub Section (2) to Section 14A of the Act, the Assessing ·Officer is required

to examine the accounts of the assessee and only when he is not satisfied Page | 33

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. with the correctness of the claim of the assessee in respect of expenditure

in relation to exempt income, the Assessing Officer can determine the

amount of expenditure which should be disallowed in accordance with

such method as prescribed, i.e. Rule 8D of the Rules (quoted and

elucidated below). Therefore, the Assessing Officer at the first instance

must examine the disallowance made by the assessee or the claim of the

assessee that no expenditure was incurred to earn the exempt income'. If

arid only if the Assessing Officer is not satisfied on this count after making

reference to the accounts, that he is entitled to adopt the method as

prescribed i.e. Rule 80 of the Rules. Thus, Rule BDis not attracted and

applicable to all assessee who have exempt income and it is. not

compulsory and necessary that an assessee must voluntarily compute

disallowance as per Rule BD of the Rules. Where the disallowance or _nil'

disallowance made by the assessee is found to be unsatisfactory on

examination of accounts, the assessing officer is entitled and authorised to

compute the deduction under Rule 80 of the Rules. This pre-condition and

stipulation as noticed below is also mandated in sub Rule (1) to Rule 80 of

the Rules.

The above judgment of Delhi High Court clearly interprets the provisions of

law given in section 14A(2) and Rule 80(1), as to mandatory recording of

satisfaction by the assessing officer before exercising/adopting the

methodology given in sub rule (2) of the Rule 80.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. Your honour in the present case of the assessee the Id. AO in his

assessment order has no where discussed as to why the claim of the

assessee of suo moto disallowance of Rs. 29,120/- is not satisfactory

having regard to its books of accounts.

Moreover, while calculating the value of investment in the working as per

Rule 80(2) he has wrongly taken the value of investments in subsidiary

companies of Rs. 1904.5 lacs.

Your honor, it must be noted here that the amount of investment made by

the appellant company in its subsidiary was not made for the purpose of

earning exempt income but to exercise control and ownership over it. The

said investment has been duly disclosed in the audited balance sheet of

the appellant company for the year under consideration.

In this regard reliance is being placed on the following:

Delhi And Others I. T.A. No. 2897/0el/2007, I. T.A. No. 2807/0el/2007

Dated - 10 June 2015 ITAT Delhi

judgment dated 15/01/2014

1503/MDS/2012

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 4. M/s.J M Financial Limited vs. Additional Commissioner of Income Tax

(ITA No. 4521/Mum/2012 dated 26 march 2014)

1032/Del/2013

In all the above judgments, it has been categorically held that investment

in subsidiary company or group concern cannot be regarded as investment

income of which does not form part of the total income.

In view of the above the addition made by the AO is otherwise not tenable

in law and accordingly, the same cannot be basis of levying of penalty

under section 271 (1)(c). "

4.2. I have carefully considered the penalty order and written

submissions filed by the Ld. AR. The AO levied penalty u/s 271 (1 )(c) on

quantum addition of RS.1,69,57, 108/- on account of rejection of books of

accounts u/s 145 of the Act to the extent of method of valuation of closing

stock adopted by the appellant. The AO rejected the weighted average

value method adopted by the appellant and adopted the FIFO method

resulting in difference in valuation at RS.1,69,57,108/- which was added

to the total income. Further, penalty u/s 271(1)(c) was also 1evied on

additional disallowance of Rs.71,223/- u/s 14A read with Rule BD. The

impugned additions were confirmed by the Ld. CIT(Appeals) vide her order

dated 23.07.2011. Pursuant thereto the AO issued a show cause notice

dated 10.03.2014 but no reply was filed by the appellant Penalty was Page | 36

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. levied by the AO relying on the judgement of the Hon'ble Delhi Court in the

case of CIT vs. Zoom Communication Ltd. 327 ITR 510. The AO held that

the appellant had evaded tax by filing inaccurate particulars and thereby

concealing its income of RS.1,70,28,321/- and levied a penalty of

Rs.57,87,930/-.

4.3. It is evident that penalty is levied on addition resulting out of rejection

of method of valuation of closing stock. The appellant had been

consistently following weighted average method for valuation of stock. The

AO however, substituted the FIFO method of valuation in place of the

weighted average method and rejected the books of accounts of the

appellant to this extent Consequential addition due to the substitution of

the valuation method resulted in the impugned addition of

Rs.1,69,57,108/-. The impugned addition arose only because the AO was

of the opinion that the valuation method adopted by the appellant was not

acceptable. All the facts were available in the return of income and in the

submissions filed before the AO. Weighted average method is also an

accepted method of valuation of stock and the appellant had been

following the same consistently over the years. It is not the case of the AO

that there is any suppression of information or furnishing of inaccurate

particulars with the intent to conceal income. These are critical

prerequisites for invocation of penal proceedings within the meaning of

section 271 (1 )(c) of the Act.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 4.4. Further, it is for consideration whether penalty for concealment must

be imposed as the quantum is decided against the appellant It is a settled

legal position that penalty proceedings and quantum proceedings are

separate and distinct. It is equally a settled legal position that the

explanation offered in the penalty proceedings has to be considered

separately and independently in the matrix of requirements of the penal

provisions. As per opinion expressed by the Hon'ble Supreme Court in CIT

vs. Anwar Ali, 76 ITR 696 findings in assessment order may constitute

good evidence but it does not follow that penalty for concealment u/s 271

(1 )(c) is mandatory whenever an addition or disallowance is made. The

appellant has stated that the AO has not given any finding that the details

submitted by the appellant were incorrect or false. The appellant had

clearly not concealed or furnished inaccurate details. The details were on

record but there was a difference of opinion between the appellant and the

AO regarding valuation of closing stock.

4.5. In the case of Commissioner of Income-tax v. Inden Bislers (1990) 240

ITR 943, 947 (Mad), it was observed:

"A finding of fraud is a serious matter in any context against any

person and should not be lightly recorded in the absence of proper

evidence in support of that finding. The mere fact that certain

amounts claimed by the assessee had been disallowed and treated

as income does not necessarily lead to the conclusion that the

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. assessee was guilty of fraud or willful neglect. The fact that the

Explanation to section 271(1)(c) of the Income-tax Act, 1961, requires

the assessee to show that there was no fraud or willful neglect does

not in any way enable the Revenue to contend that there is a

presumption of fraud or neglect without adducing any evidence,

whatever to substantiate such assertion. "

4.6. The Hon'ble Supreme Court in the case of CIT vs. Reliance

Petroproducts (P) Ltd. observed as under:

"A glance at the provisions of section 271(1)(c) of the Income-tax Act,

suggest that in order to be covered by it, there has to be concealment

of the particulars of the income of the assessee. Secondly, the

assessee must have furnished inaccurate particulars of his income.

The meaning of the word ''particulars'' used in section 271(I)(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.

In order to expose the assessee to penalty, unless the case is strictly

covered by the provision, the penalty provision cannot be invoked By

no stretch of imagination can making an incorrect claim tantamount

to furnishing inaccurate particulars. There can be no dispute that

everything depend upon the return filed by the assessee, because

that is the only document where the assessee can furnish the

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. particulars of his income. When such particulars are found to be

inaccurate, the liability would arise. To attract penalty, the details

supplied in the return must not be accurate, not exact or correct, not

according to the truth or erroneous.

Where there is no finding that any details supplied by the assessee

in its return are found to be incorrect or erroneous or false there is no

question of inviting the penalty under section 271(1)(c). A mere

making of a claim, which is not sustainable in law, by itself, will not

amount to furnishing of inaccurate particulars regarding the income

of the assessee. Such a claim made in the return cannot amount to

furnishing inaccurate particulars.

4.7. In view of the facts of the case and the rulings referred above, penalty

u/s 271 (1 )(c) with reference to the addition of Rs.1,69,57, 108/- on

account of valuation of stock is clearly not leviable as the appellant had

disclosed all material facts and charge of furnishing of inaccurate

particulars and concealment of income do not survive. Levy of penalty with

reference to the impugned amount is not warranted.

4.8. The other item in respect of which penalty is levied is additional

disallowance of Rs.71,223/- u/s 14A read with Rule 80. Disallowance u/s

14A has been a debatable and a contentious issue and there are

numerous rulings by the Hon'ble Courts and Tribunals regarding its

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. application. In CIT vs. Liquid Investments (ITA No. 240/2009 dated

05.10.2010), the Hon'ble Delhi High Court held as under:

"Both the CIT(A) and the ITA T have set aside the penalty imposed

by the Assessing Officer under Section 271(1)(c) of the Income Tax

Act, 1961 on the ground that issue of deduction under Section 14A

of the Act was a debatable issue. We may also note that against the

quantum assessment where deduction under Section 14A of the Act

was prescribed to the assessee, the assesseee has preferred an

appeal in the Court under Section 260A of the Act which has also

been admitted and substantial question of law has framed This

itself shows that the issue is debatable.

4.9. The Hon'ble Tribunal in the case of Manish Jain Prop., New Delhi vs.

ACIT in ITA No. 5999/Del/2012 & C.O. 4/0/2013 had held:

has passed a reasonable order. The penalty in this case has been

levied on account of disallowance made in accordance with Rule 8D

read with section 14A. There has been no concealment or furnishing

of inaccurate particulars by the assessee in this case. The

disallowance has been made by computing the sums which were

duly disclosed in the return and accounts of the assessee. We find

that Section 271(l)(c) postulates imposition of penalty for furnishing

of inaccurate particulars and concealment of income. Hence, in our

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. considered opinion on the facts and circumstances of this case the

assessee's conduct cannot be said to be contumacious so as to

warrant levy of penalty. Hence, we hold that there is no infirmity in

the order of the Ld. Commissioner of Income Tax (A) and the same

deserves to be upheld.

the Apex Court decision rendered by a larger Bench comprising of

three of their Lordships in the case of Hindustan Steel vs. State of

Orissa in 83 ITR 26 wherein it was held that "An order imposing

penalty for failure to carry out a statutory obligation is the result of a

quasi-criminal proceedings, and penalty will not ordinarily be

imposed unless the party obliged either acted deliberately in

defiance of law or was guilty of conduct contumacious or dishonest,

or acted in conscious disregard of its obligation. Penalty will not also

be imposed merely because it is lawful to do so. Whether penalty

should be imposed for failure to perform a statutory obligation is a

matter of discretion of the authority to be exercised judicially and on

a consideration of all the relevant circumstances. Even if a minimum

penalty is prescribed, the authority competent to impose the penalty

will be justified in refusing to impose penalty, when there is a

technical or venial breach of the provisions of the Act, or where the

breach flows from a bonafide belief that the offender is not liable to

act in the manner prescribed by the statute. " Page | 42

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 11. We further place reliance upon the Hon'ble Apex Court decision

in the case of CIT vs. Reliance Petro Products Ltd. in Civil Appeal No.

2463 of 2010. In this case vide order dated 17.3.2010 it has been

held that the law laid down in the Dilip Sheroff case 291 ITR 519

(SC) as to the meaning of word 'concealment' and 'inaccurate'

continues to be a good law because what was overruled in the

Dharmender Textile case was only that part in Dilip Sheroff case

where it was held that mensrea was a essential requirement of

penalty u/s 271(l)(c). The Hon'ble Apex Court also observed that if

the contention of the revenue is accepted then in case of every return

where the' claim is not accepted by the Assessing Officer for any

reason, the assessee will invite the penalty u/s 271(1)(c). This is

clearly not the intendment of legislature.

we do find any infirmity in the order of the Ld. Commissioner of

Income Tax (A), accordingly, we uphold the same.

4.10. The bonafides of the appellant can be seen from the fact that all

details were furnished. There was no concealment of material facts. There

was no intention of the appellant to conceal income and evade tax and

mislead the revenue.

4.11. In view of the judicial pronouncement referred above and the totality

of facts and circumstances, the appellant had furnished an explanation,

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. which is bonafide. Therefore, there is no furnishing of inaccurate

particulars of income or deliberate attempt to conceal income. The rigors of

the provisions of section 271 (1 )(c) are clearly not attracted in this case. In

view thereof, penalty levied u/s 271(1)(c) of the Act of Rs.57,88,000/- is

deleted.”

impugned order dated 09.12.2016 of the CIT(A). In the course of appellate

proceedings in the present appeal, a synopsis was filed from the assessee’s

side; the relevant portion of which is reproduced as under:-

penalty of Rs. 57,88,000/- was levied. First addition was made on

account of valuation of stock amounting to Rs. 1,69,57,108/- and second

addition is of Rs. 71,223/- u/s 14A read with rule 80 of IT rules.

valuation of stock is deleted by Hon'ble ITAT in the order passed dt.

22.12.2017 bearing ITA No. 6600/De1l2014. Relevant finding of Hon'ble

tribunal is at Page No.6 Para 6 of the ITAT Order.

the order due to smallness of the amount (Page No. 4 Para 3 of IT AT

Order). However assessee had a good case on merits and the addition

made by the AO is untenable in law.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 5. In the present case, assessee had made suo-motto disallowance of Rs.

29,120/- under section 14A of the Income Tax Act whereas AO computed

the total disallowance of Rs. 1,00,343/- (Rule 80(iii) of Rs. 22,798/- and

Rule 80(ii) of Rs. 77,545/-) and thus difference of Rs. 71,223/- was added

in the hands of the assessee.

any proper reasoning and has merely rejected the same Section 14A(2) of

the Act requires the AO to first examine the accounts of the assessee and

then record his satisfaction in this regard, which has not at all been done

by the AO in the present case.

assessee, and only after arriving at the dissatisfaction as to the

correctness of the claim of assessee in respect of expenditure incurred in

relation to exempt income, that he can resort to the provisions of section

14A read with Rule 80. Reliance in this regard is placed on the following

judgements:

i. Maxopp Investment Ltd. Versus Commissioner of Income Tax, New Delhi

2018 (3) TMI 805 - SUPREME COURT OF INDIA

ii. Godrej & Boyce Manufacturing Company Ltd. v. DCIT [2017] 394 ITR

449- Supreme Court

assessee no disallowance under section 14A is called for. In the present

case, own funds are of Rs. 22,591 Lacs whereas investment is RS.191 0

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. Lacs, therefore, disallowance under section 14A cannot be made. In this

regard, reliance is placed in the case of CIT v. Reliance Industries Ltd. Civil

Appeal No. 10 of 2019 dated 02.01.2019 wherein Hon'ble Supreme Court

held that

"Insofar as the first question is concerned, the issue raises a pure

question of fact. The High Court has noted the finding of the Tribunal

that the interest free funds available to the assessee were sufficient

to meet its investment. Hence, it could be presumed that the

investments were made from the interest free funds available with

the assessee. The Tribunal has also followed its own order for

Assessment Year 2002-03. In view of the above findings, we find no

reason to interfere with the judgment of the High Court in regard to

the first question. Accordingly, the appeals are dismissed in regard

to the first question. Insofar as the second question is concerned, the

issue, it is common ground, is governed by the decision of this Court

in Plasti blends India Limited Vs. Additional Commissioner of Income

Tax, Mumbai and Another (2017) 9 SCC 685."

Haryana in the case of CIT v. Max India Ltd. in ITA No. 186 of 2013 dated

06.09.2016

"Merely because the interest free funds with the assessee have

decreased during any period, it does not follow that the funds

borrowed on interest were utilized for the purpose of investing in

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. assets yielding exempt income. If even after the decrease the

assessee has interest free funds sufficient to make the investment in

assets yielding the exempt income, the presumption that it was such

funds that were utilized for the said investment remains. There is no

reason for it not to. The basis of the presumption as we will

elaborate later is that an assessee would invest its funds to its

advantage. It gains nothing by investing interest free funds towards

other assets merely on account of the interest free funds having

decreased. In that event so long as even after the decrease thereof

there are sufficient interest free funds the presumption that they

would be first used to invest in assets yielding exempt income

applies with equal force."

Reliance in this regard is placed on the following catena of judgements:

i. CIT versus HDFC Bank Ltd in ITA No. 330 of 2012 dated 23 July 2014

(Bombay High Court) 1[2014] 366 ITR 505 (Bombay)

ii. Gujarat High Court in the case of CIT v. Suzlon Energy Ltd. (2013) 354

ITR 630

iii. H.T. Media Ltd. vs Principal Commissioner of Income Tax-IV, New Delhi-

[2017] 399 ITR 576 (Delhi)

iv. ITAT Delhi in the case of NATH BROS. EXIM INTERNATIONAL LTD.

VERSUS THE ACIT, ITA No. 5547/De1/2012, C.O.No.95/DeI/2013 And

ITA.No.6030/Del/2015

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. v. ITAT Delhi in the case of CHINA TRUST COMMERCIAL BANK VERSUS

ADIT, INTERNATIONAL TAXATION, ITA No. 1257/Del/2011 order dated

26.12.2017

debatable issue, penalty under section 271(1)(c) is not leviable. Reliance in

this regard is placed on the following judgements.

i. CIT v. Jindal Equipment Leasing and Consultancy Services Ltd.

ITA NO. 68/2012 (Del) (HC) Relevant finding is as under:

"6. The CIT (Appeals) and the tribunal have considered the aforesaid

explanation given by the assessee to justify their claim why no

disallowance was mandated under Section 14A in the present case.

They have accepted that the explanation given by the assessee was

genuine and bona fide. The contention of the respondent assessee

may have been rejected in the quantum proceedings but when

deciding whether or not penalty for concealment should be imposed,

the justification and explanation why the assessee had made the

claim, is to be examined. Disallowance under the said section have

been subject matter of debate and different views have been

expressed. A legal contention which was plausible and merited

consideration was raised. Accordingly, the appellate authorities

have applied the explanation to Section 271(1)(c) of the Act. Looking

at the nature of explanation offered and the provision in question i.e.

Section 14A, which was incorporated by the Finance Act, 2001 with

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. retrospective effect from 1st April, 1962, we do not think in the

present case any substantial question of law arises in view of the

factual matrix involved. Accordingly, the appeal is dismissed."

ii. CIT v. Liquid Investments Ltd. ITA No. 240112009 (Del) (HC)

iii. PTC INDIA LTD VERSUS ACIT, CIRCLE-14 (1) , NEW DELHI, DCIT,

CIRCLE-14 (1) , NEW DELHI AND DCIT, CIRCLE-14 (1), NEW DELHI

VERSUS PTC INDIA L TD.- 2019 (1) TMI 674 - ITAT DELHI

iv. MIS. MOHAIR INVESTMENT AND TRADING COMPANY (P)

LIMITED VERSUS DCIT, CIRCLE 5 (1) , NEW DELHI- 2015 (12) TMI

299 -ITAT DELHI

and is to be deleted.”

the submissions made in the aforesaid synopsis. The Ld. Departmental

Representative (in short “DR”) did not dispute the facts, submissions and

contentions contained in this synopsis. However, Ld. DR contended that the

penalty levied in respect of aforesaid addition amounting to Rs.71,223/-

towards disallowance u/s 14A r.w. Rule 8D should be confirmed. For this

purpose, he submitted that any addition made in the assessment order should

invariably lead to imposition of penalty u/s 271(1)(c) of the Act. Regarding

penalty levied in respect of the aforesaid addition of Rs.1,69,57,108/-, Ld.DR

relied on the order of the AO.

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. 5. We have heard both sides. We have considered materials on record

carefully. As far as the penalty levied in respect of aforesaid addition of

Rs.1,69,57,108/- is concerned, we note that this addition has already been

deleted by order of Co-ordinate Bench of ITAT in aforesaid ITA

No.6600/Del/2014. Since the quantum addition already stands deleted, the

penalty levied u/s 271(1)(c) of the Act has no legs to stand. When the quantum

addition stands deleted, the corresponding penalty levied u/s 271(1)(c) of the

Act is unsustainable. In coming to this conclusion, we are guided by the

decision of Hon’ble Supreme Court in the case of K.C.Builders vs ACIT [2004]

135 taxmann 461 (SC) in which the Hon’ble Supreme Court held that “where

the additions made in the assessment order, on the basis of which penalty for

concealment was levied, are deleted there remains no basis at all for levying the

penalty for concealment, and therefore, in such a case no such penalty can

survive and the same is liable to be cancelled.” Therefore, the penalty levied

u/s 271(1)(c) of the Act in respect of the aforesaid addition of Rs.1,69,57,108/-

is held to be untenable and the order of the CIT(A) on this issue is upheld.

5.1. As far as the penalty levied in respect of the aforesaid addition of

Rs.71,223/- u/s 14A r.w. Rule 8D is concerned, we find that the Ld.DR has

not disputed the facts, submissions and contentions contained in the aforesaid

synopsis filed from the assessee’s side during the appellate proceedings in

ITAT. In the facts and circumstances of this case, therefore, and having regard

to the synopsis filed from assessee’s side, we reject the contention of the Ld.DR

that every addition made in assessment order should invariably lead to penalty Page | 50

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd. u/s 271(1)(c) of the Act. For this purpose, we take guidance from the order of

the Hon’ble Supreme Court in the case of CIT vs Reliance Petro Products

Pvt.ltd. [2010] 189 taxmann 322 (SC) in which the Hon’ble Supreme Court

held that “a mere making of claim, which is not sustainable in law by itself, will

not amount to furnishing inaccurate particulars regarding income of the

assessee.” After careful perusal of the afore-said synopsis filed from assessee’s

side, and after careful perusal of the order of CIT(A) in this issue, relevant

portion of which is already reproduced earlier in this order; we are of the view

that, in the facts and circumstances of the case, no interference from our side

is warranted in the order of the Ld.CIT(A) deleting the penalty u/s 271(1)(c) of

the Act in respect of the aforesaid addition of Rs.71,223/- u/s 14A r.w. Rule

8D. Accordingly, the order of Ld.CIT(A) on this issue is also upheld.

5.2. In view of the foregoing, all the grounds of appeal filed by the Revenue

are dismissed. In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 18th day of July, 2019.

Sd/- Sd/- (KULDIP SINGH) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18.07.2019 * Pooja & Amit * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Page | 51

ITA No.- 1531/Del/2017. M/s Resurgere Mines and Minerals India Ltd.

Date of dictation

Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member

Date on which the approved draft comes to the Sr. PS/PS

Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT

Date on which the file goes to the Bench Clerk

Date on which the file goes to the Head Clerk

The date on which the file goes to the Assistant Registrar for signature on the order

Date of dispatch of the Order