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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI BEENA A PILLAI & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
These are two appeals filed by the assessee against the order of the ld CIT(A)-XXI, New Delhi dated 04.11.2010 for the Assessment Year 2001-02 and dated 20.12.2010 for Assessment Year 2002-03, wherein, the penalty levied u/s 271(1)(c) of the Act of Rs. 1937351/- and Rs. 1216703/- levied by the ld ITO, Ward-18(4), New Delhi as per orders dated 25.09.2008 and 05.05.2009 for the above two respective Assessment Years are confirmed.
The assessee has raised the following grounds of appeal in Assessment Year 2001-02:- “1. That on the facts and circumstances of the case and in law, the ld learned Commissioner of Income-tax (Appeals) (CIT(A) erred in upholding the order passed by the ld Assessing Officer (AO) even though it was time barred under the provisions of Section 275 of the Income Tax Act, 1961 (the Act).
2. That on facts and circumstances of the case and in law, ld CIT(A) erred in upholding the order of the ld AO levying penalty on the appellant under section 271(1)(c) of the Act amounting to Rs. 1937351/-.
“1. That on the facts and circumstances of the case and in law, the learned Commissioner of The assessee has raised the following grounds of appeal in for the Assessment Year 2002-03:- Income-tax (Appeals) (CIT(A) erred in upholding the order of the ld Assessing Officer (A) levying penalty on the appellant under Section 271(1)(c) of the Act , 1961 (the Act) amounting to Rs. 12,16,703/-.”
4. A fact for AY 2001-02 shows that assessee is a company filed its return of income on 30.10.2001 at Rs. Nil. Two issues were involved in the assessment proceedings on which the additions have been made. a. The first addition is with respect to the gross receipt of the assessee. In the return of income, it was stated that the receipts of the assessee are covered by „principles of mutuality and therefore, contribution receipts are not chargeable to tax u/s 4 of the Act. The ld AO rejected the explanation of the assessee and held that excess contribution received of Rs. 4444402/- is chargeable to tax, as it is not covered by principles of mutuality. The assessee also submitted the income of the assessee is further not chargeable to tax with its income is also diverted by overriding title therefore, not chargeable to tax. This argument of the assessee was also rejected. The ld AO while taxing the above income as per assessment order dated 29.03.2004 passed u/s 143(3) of the Act initiated penalty proceedings u/s 271(1) ( C) of the Act for furnishing inaccurate particulars of income. b. The second issue was that in the income and expenditure account the assessee has debited expenses of INR 4 54992 and claimed the same under section 35D. The learned AO noted that the capital employed is only INR 10200 only. Therefore he restricted allowance to 5% of the capital employed at INR 510/- and balance sum of INR 4 54482/- was disallowed. On this disallowance, ld AO initiated penalty proceedings u/s 271(1) (C ) of the Act charging assessee with the fault of furnishing inaccurate particulars of income.
5. Issue of whether the receipts of the assessee are covered by the principles of mutuality travelled up to Hon Delhi High court and concurrent authorities have held against assessee. Now Hon Supreme court has admitted special leave petition preferred by assessee against decision of Honourable high court. Page | 2
6. Meanwhile the ld AO proceeded with the penalty proceedings. The assessee submitted before the ld AO with respect to the excess contribution received of Rs. 4444002/– that there is no furnishing of inaccurate particulars of income because a. Assessee has disclosed the complete fact before the ld AO and it also contain note in the computation of total income explaining stand of the assessee. b. Claim of the assessee was bonafide as complete disclosure was made and because of the mere rejection of the claim of the assessee by concurrent authorities penalty cannot be levied. c. Claim of the assessee was debatable as it travelled upto higher judicial forums. Therefore, on such claims if rejected, penalty cannot be levied.
7. Assessee did not submit any explanation for another disallowance of preliminary expenses of INR 454484/–. This is evident from the explanation furnished by letter dated 27/08/2008 placed at paper book page number 37 – 50. 8. The ld AO rejected the explanation of the assessee and levied penalty of Rs. 1757603/-u/s 271(1)(c) concealment for excess of contribution receipt of Rs. 4444002/-. Further penalty of Rs. 179748/- was levied on disallowance of preliminary expenditure of Rs. 454484/- holding that assessee has filed incorrect particulars of his income. Accordingly, penalty of Rs. 1937351/- was levied u/s 271(1) (C) of the Act vide order dated 25.09.2008. The assessee challenged the same before the ld CIT (A) who confirmed the same. Therefore, the assessee is in appeal before us. 9. The ld AR on the issue of the taxability of rupees 4444002/– vehemently submitted as under:- a. That penalty of Rs. 4444002/- was initiated by the ld AO for furnishing of inaccurate particulars; however the penalty is levied for concealment of income. He submitted that such penalty could not be upheld. He relied on the decision of the Hon'ble Bombay High Court in CIT Vs. Samson Perinchery dated 05.01.2017. b. That assessee has made complete disclosure of the claim by way of a note in the computation of total income. In the balance sheet, the assessee has disclosed the above sum as liability. All the facts relating to the claim of the assessee were completely explained before the ld AO as well as in the return of income. The complete disclosure of the assessee was not only in the return of income but also continued throughout the assessment proceedings. c. Claim of the assessee was bona fide which was rejected by the judicial forums but that does not make the claim of the assessee a false or not bona fide. He submitted that when bona fide claim are rejected penalty u/s 271(1) (C) of the Act cannot be levied on the same. d. Special Leave Petition has been admitted against the order of the Hon'ble Delhi High Court before the Hon'ble Supreme Court. This itself shows that the claim of the assessee is debatable and it cannot be penalized by levying penalty.
The learned departmental representative vehemently contested the various argument of the assessee. It was submitted that a. That claim of the assessee is not a debatable issue. It was stated that all the concurrent authorities from CIT appeal, ITAT and honourable High Court has decided the issue against the assessee. Therefore, there is no debate but assessee‟s claim is wrong. The assessee has claimed the principles of mutuality for not offering the contribution received as income of the assessee. It is submitted that as none of the concurrent authorities have even accepted the plea of the assessee about the mutuality concept on the gross receipt of contribution, it cannot be said that the claim of the assessee is debatable. On the issue of pending special leave petition of the assessee before the honourable Supreme Court, it was submitted that even that does not make an issue debatable. b. It was further stated that penalty is levied on the same charge in which it was initiated for filing of inaccurate particulars of income. It is very clear from both the assessment orders in penalty order is. Further, it was stated that more over these are the technical intricacies, which cannot rob the substance of the order and should not vitiate the penalty order.
We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly on the first issue of taxability of excess contribution received by the assessee of Rs. 4444002/– whether same is not taxable as income of the assessee on the principles of mutuality has reached up to the level of honourable Supreme Court where special leave petition of the assessee has been admitted. However this is a fact that all the concurrent authorities starting from CIT – A to the honourable High Court has decided this issue against the assessee holding that principle of mutuality does not apply on the facts of the case. However, regarding complete disclosure by assessee, it has completely disclosed the facts in the computation of income that the income of the assessee is covered by the principle of mutuality. At para number, III of page number 2 of the assessment order the assessee has specifically given three notes in the computation of total income. The note number 1 says that the company operates as a mutual concern on No profit basis. The note number 2 says that that excess of contribution received is being disclosed as a current liability as it would be either to be distributed to the individual contributors or to be used for further expenditure based on confirmations to that extent from the contributors. Note number 3 says that based on the judicial precedents, excess receipt of the company does not fall within the ambit of taxable income u/s 4 of the income tax act. Assessee relied upon two decisions of the honourable Supreme Court. During the course of assessment, proceedings also vide letter dated 8/9/2003 the assessee made the complete disclosure explaining that why the above amount assessee claims to be tainted with mutuality and therefore is not chargeable to tax u/s 4 of the income tax act. Evidences and arguments placed before us shows that assessee has made a claim disclosing the complete facts about the same in its return of income putting notes in the computation of total income, corroborating it with its balance sheet, supporting it with judicial precedents of the honourable Supreme Courts. This show that assessee has completely disclosed the facts about its claim along with all the arguments. It is also the fate of the claim of the assessee that it has been concurrently rejected by all the appellate forums. However, mere rejection of the claim of the assessee cannot be invited with the penalty. Further more on this issue of the excess contribution received the learned AO has recorded his satisfaction that assessee has furnished inaccurate particulars of income in the assessment order. However, at the time of levy of the penalty as per para number 1 at page number 2 of the penalty order he levied penalty for concealment of income. This fact itself renders the penalty on this issue not sustainable. The learned DR has raised an impressive argument stating that mere technicalities cannot rob the substance of the order and hence, cannot vitiate the penalty order. As there cannot be any 2 views on the above proposition, but when the assessee is asked to justify his stand with respect to levy of the penalty, it is certain that the learned assessing officer must put a specific charge making it clear that on what fault of the assessee the penalty is being levied. Unless the assessee is made aware of the specific charge, charging him for one offence and punishing him by levy of penalty on altogether another offence cannot be sustained. In view of this Assessee, on the addition of Rs. 4444002/– of the excess contribution received by the assessee claimed to be not taxable under the income tax act on principle of mutuality, though the arguments of the assessee have failed, but the complete disclosure has been made by the assessee, cannot be penalized u/s 271 (1) (C) of the act holding assessee to have committed the default of concealment but in the show cause notice and satisfaction is recorded for furnishing of inaccurate particulars, cannot be saddled with the penalty. Accordingly, we delete the penalty on this addition.
The second issue of the penalty related to the disallowance of claim of the assessee u/s 35D of the income tax act. The fact itself shows that the assessee has claimed expenses of INR 454992/– under section 35D as preliminary expenses however the capital employed of the assessee is only INR 10200/– and the claim is required to be restricted only to the extent of 5% of the capital employed for amortization. Therefore the AO disallowed a sum of INR 454482/– AO initiated penalty for furnishing of inaccurate particulars of income. The assessee explained as per letter dated 8/9/2003 before the AO that the total preliminary expenses are INR 568740/– out of which INR 113748/– being 1/5 of the total expenses were charged to the income and expenditure account for the year ended on 31st of March 2000. Thereafter the balance amount of INR 454992/– has been charged to the income and expenditure account for the year ended 31st of March 2001 it was stated that as assessee has claimed that it is a mutual concern operating on a no profit basis the above preliminary expenses are merely form part of the expenses charged to the income and expenditure account incurred by the assessee in the ordinary course of business for carrying out the activities of the assessee and therefore such preliminary expenses have been rightly claimed in the impugned assessment year. The claim of the assessee was rejected for the reason that the assessee is not a mutual concern. Therefore for the reasons given by us in cancelling the penalty levied on addition of Rs. 4444002/– of the excess contribution received claimed as a mutual concern, we also cancel the penalty on the disallowance of INR 4 54482/–.
Accordingly penalty levied of INR 1937351 by the assessing officer under section 271 (1) (C) of the act is cancelled and the orders of the lower authorities are reversed. Accordingly, appeal of the assessee is allowed.
Now we come to the appeal of the assessee for assessment year 2002 – 03 wherein the learned CIT – A has confirmed the levy of penalty u/s 271 (1) (C) of INR 1216703/– on the addition of INR 3408129/– being the excess contribution received claimed by the assessee is not chargeable to tax on the principles of the mutuality but not accepted by the learned assessing officer and higher judicial forum.
Both the parties confirmed before us that the facts of the present case are identical to the facts of the case of the assessee for assessment year 2001 – 02 wherein penalty u/s 271 (1) (C) was levied. Both the parties also confirmed that their arguments also remained the same.
We have carefully considered the rival contentions and perused the orders of the lower authorities. On examination of the facts it was found that the facts of the present case are identical to the facts of the case of the assessee for assessment year 2001 – 02 wherein on identical facts and circumstances penalty was levied u/s 271 (1) (C) of the income tax act. As per this order, we have cancelled the above penalty for assessment year 2001 – 02 on the similar addition. Therefore, for the similar reasons as given therein, we also cancel the penalty of INR 1 216703/– levied by the learned assessing officer u/s 271 (1) (C) of the act and reverse the orders of the lower authorities.