ABS ENTERTAINMENT PRIVATE LTD,MUMBAI vs. DCIT, WARD 9(1)(1), MUMBAI

The assessee has filed the above mentioned appeals against the different order passed by the Commissioner of Income Tax (Appeals)- 16, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the & 3468/M/2019 A.Y. 2011-12 & 2014-15 A.Ys. 2011-12 & 2014-15 in which the penalty levied by the AO has been ordered to be confirmed.

The assessee has filed the present appeal against the order dated 28.03.2019 passed by the Commissioner of Income Tax (Appeals)-16, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2011-12 in which the penalty levied by the AO has been ordered to be confirmed.

Under this issue the assessee has challenged the finding of the CIT(A) on which the CIT(A) has confirmed the penalty in view of the provision u/s 271(1)(c) of the Act. It is argued by the Ld. Representative of the assessee that the assessee claimed the depreciation @ 60% on control room equipment and digital set top box and the said claimed was declined by AO and restricted the claim to the extent of 15% which is nowhere termed as „concealment of particulars of income nor furnishing inaccurate particulars of income,‟ therefore, the penalty is not leviable in accordance with law. In & 3468/M/2019 A.Y. 2011-12 & 2014-15 support of this contention, the Ld. Representative of the assessee has placed reliance upon the decision in the case of Kanbay Software Enterprise Ltd. Vs. DCIT (122 TTJ 271 (ITAT Pune Bench), DCIT Vs. Apollo Hospitals Enterprises Ltd. (23 ITR (Tribunal) 49 (Chennai), CIT Vs. Reliance Petro Products (322 ITR 158 (SC)). It is also specifically argued that the Hon‟ble ITAT Chandigarh in the case of Fastway Transmission (P) Ltd. Vs. ACIT (ITA. No. 547/Chd/2017 dated 06.05.2020 has allowed the claim of depreciation on set top box @ 60% which means that the claim of the assessee was not false so the penalty is not justifiable in the interest of justice. However, on the other hand, the Ld. Representative of the revenue has strongly relying upon the order passed by the CIT(A) in question. The factual position is not in dispute that the assessee claimed the depreciation on set up box and on the control room equipment @ 60% which was disallowed and restricted to the extent of 15%. The ITAT Pune Bench in the case of Kanbay Software Enterprise Ltd. Vs. DCIT (122 TTJ 271 (ITAT Pune Bench) has given the following finding.:- “70. Before we part with the matter, we would like to make a couple of observations. Firstly, we may mention that, as we have stated earlier in this order as well, this appeal was taken up for hearing along with several other appeals relating to penalties under section 271(1)(c) of the Act. While deciding one aspect of this appeal, i.e., impact of Hon'ble Supreme Court's judgment in the case of Dharamendra Textile Processors (supra) on the legal framework relating to imposition of penalty under section 271(1)(c), we also had the benefit of arguments advanced by learned counsels, as also by the learned Departmental ITA. Nos.3467 & 3468/M/2019 A.Y. 2011-12 & 2014-15 Representatives, in all those cases. We would like to place on record our deep appreciation to Shri Golvala as indeed to all the learned representatives for their valuable assistance in the lengthy hearing of these appeals which was spread over several sessions. We thus place on record our deep appreciation to Shri Golvala as also to Shri Chetan Karia, Shri D.P. Bapat, Shri K.A. Sathe, Shri Kishore Phadke, Shri M.N. Kulkarni, Shri Pramod Singte, Shri Rajan Vora, Shri Sunil Ganoo, Dr. Sunil Pathak, Shri S.P. Doshi, Shri S.P. Joshi, Shri S.R. Puranik, (in alphabetical order) appearing for other assessees; and - Shri R. Kaushal, Shri A.S. Singh, Shri K. Srinivasan, and Shri Santosh Kumar - appearing for the revenue. Secondly, no matter how politely Shri Kaushal puts it, which is his hallmark anyway, we were all along alive to his submission that, by resorting to a process of interpretation, we must not dilute the law laid down by Their Lordships in Dharamendra Textile Processors' case (supra). However, just as much as we were alive to this plea, we were also alive to the words of guidance by Hon'ble Supreme Court in Mumbai Kamgar Sabha v. Abdulbahi Faizullabhai AIR 1976 SC 1455 wherein Their Lordships have, in their inimitable and felicitous words observed thus, "It is trite, going by Anglophonic principles that a ruling of a superior court is binding law. It is not of scriptural sanctity but of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and de hors the milieu we cannot impart eternal vernal value to the decisions, exalting the precedents into a prison house of bigotry, regardless of the varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration and not affecting the matters which may lurk in the dark." It is, therefore, indeed duty of every subordinate judicial forum to apply the ruling of the superior Courts in such a manner so as to enforce the true legal principles emerging from the same, by putting the words and expression used in the ruling in the right perspective and by taking a holistic legal view of the matter. Such an exercise is not to be viewed as diluting the law laid down in a ruling, but as a cerebral judicial exercise and a call of duty in judicial offices. We have highest respects for the rulings by the higher judicial forums, but it would indeed be inappropriate to use the words and expressions employed in these rulings, in isolation, as complete exposition of law and as a blind man's walking stick, rather than luminosity of judicial knowledge with the benefit of which we have to perform our duties of office. & 3468/M/2019 A.Y. 2011-12 & 2014-15

The appeal is allowed.” 6. In the case of DCIT Vs. Apollo Hospitals Enterprises Ltd. (supra) the Hon‟ble ITAT Chennai Bench has held as under.:-

But, while computing and claiming depreciation, the assessee- hospital treated its entire equipments as "life saving devices" and claimed depreciation at 40 per cent. The assessee is not a factory or a manufacturing system so as to name its equipments as normal plant and machinery. The hospital has employed innumerable and different types of medical equipments and devices to run its various departments. The assessee took a plausible view that, speaking in a general way, all the medical equipment systems deployed in a hospital could be "life saving devices". On that loose interpretation of the term, the assessee claimed depreciation at the rate of 40 per cent. on the entire assets employed by it other than buildings, furniture, etc. It is to be seen that such a misunderstanding is plausible in this case, as no separate entry is available in Appendix-I to suggest the rate of depreciation applicable to general medical equipments deployed in a hospital. This unique situation moved the assessee to presume that, being a hospital, the assessee is entitled to claim depreciation at 40 per cent. on all its medical equipment.

In the course of assessment proceedings, the Assessing Officer has rightly adopted the view that the entire equipment cannot be treated as "life saving devices". He accordingly bifurcated the medical equipment into two, the first being "life saving devices" and the other being normal equipment. He granted depreciation at 40 per cent. on "life saving devices". He granted depreciation at the normal rate on the remaining lot of equipment. & 3468/M/2019 A.Y. 2011-12 & 2014-15

In the present case the assessee has furnished the entire details of the medical equipments deployed in its hospital. As far as that matter is concerned, there is no concealment and there is no furnishing of any inaccurate particulars. The assessee also has not claimed depreciation at a non existent rate. The assessee has not misrepresented any fact. Everything was open before the Assessing Officer. It is true that the assessee claimed depreciation at 40 per cent. on the entire medical equipment. That may be a wrong claim. But, that does not mean that the assessee has concealed its income or furnished inaccurate particulars. 10. The Revenue has relied on the decision of the hon'ble Supreme Court rendered in the case of Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277/174 Taxman 571, wherein the hon'ble apex court has held that mens rea is not an essential ingredient for levying penalty under section 271(1)(c) of the Act, as it is in the nature of a civil liability. The present case does not reach to the point where the above decision should be considered by us. The above decision declares that mens rea need not be present in a case of concealment, provided it is found that the assessee has concealed the income or has furnished inaccurate particulars of income. In the present case, there is no concealment of income as such. There is no furnishing of inaccurate particulars. So it is not at all necessary even to mention the judgment of the hon'ble Supreme Court in the case of Dharamendra Textile Processors (supra). & 3468/M/2019 A.Y. 2011-12 & 2014-15

Therefore, it is obvious that it must be shown that the conditions under Section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed 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. In Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. [2007(6) SCC 329], this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under Section 271(1)(c), mens rea was necessary, as according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of Section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and 1/28/2020 C.I.T., Ahmedabad vs Reliance Petro products Pvt. Ltd on 17 March, 2010 & 3468/M/2019 A.Y. 2011-12 & 2014-15 https://indiankanoon.org/doc/1030377/4/6 material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. was upset. In Union of India Vs. Dharamendra Textile Processors (cited supra), after quoting from Section 271 extensively and also considering Section 271(1)(c), the Court came to the conclusion that since Section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of Section 271(1)(c) read with Explanations indicated with the said Section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under Section 276-C of the Act. The basic reason why decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled by this Court in Union of India Vs. Dharamendra Textile Processors (cited supra), was that according to this Court the effect and difference between Section 271(1)(c) and Section 276-C of the Act was lost sight of in case of Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra). However, it must be pointed out that in Union of India Vs. Dharamendra Textile Processors (cited supra), no fault was found with the reasoning in the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra), where the Court explained the meaning of the terms "conceal" and inaccurate". It was only the ultimate inference in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) to the effect that mens rea was an essential ingredient for the penalty under Section 271(1)(c) that the decision in Dilip N. Shroff Vs. Joint Commissioner of Income Tax, Mumbai & Anr. (cited supra) was overruled.

It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of 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 1/28/2020 C.I.T., Ahmedabad vs Reliance Petro products Pvt. Ltd on 17 March, 2010 https://indiankanoon.org/doc/1030377/ 5/6 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 & 3468/M/2019 A.Y. 2011-12 & 2014-15 accepted or was not acceptable to 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 this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.

The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.”

G round No . 9 : - Ground No. 9 is general in nature and does not require any specific adjudication. This appeal of the assessee stands partly allowed.”