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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
order dated 26.03.2015 passed by the Ld. CIT (Appeals)-22, New Delhi for Assessment Year 2010-11.
2.0 Brief facts of the case are that the return of income was filed at a loss of Rs. 65,44,462/-. Subsequently, the case was selected for scrutiny and during the course of scrutiny, it was observed by the Assessing Officer that there was an income of Rs. 82,932/- only whereas the expenses debited to the profit and loss account amounted to Rs. 66,29,006/-. The assessee was asked to establish its claim of allowability of expenses of Rs. 66,29,006/-.
In response, it was submitted by the assessee company that since this was the first year for incorporation of the company and the company was under the process of shifting its business unit as well as showroom in Mumbai, substantial sales had not taken place and that the major expenses were towards salary which was around Rs. 40 lacs comprising of around 60% of the total expenditure. However, the Assessing Officer was of the opinion that the expenditure of Rs. 66,29,006/-, as claimed in the profit and loss account, was in the nature of preoperative expenditure as the business operations had not started and, therefore, these expenses were not allowable u/s 36 and 37 of the Act. The Assessing Officer proceeded to make an addition of Rs. 66,29,006/- to the income of the assessee.
2.1 Thereafter, the penalty proceedings u/s 271(1)(c) of the Act were initiated and penalty of Rs. 20,47,864/- was imposed for furnishing inaccurate particulars of income.
2.2 On appeal before the Ld. CIT (A), the Ld. CIT (A) deleted the penalty. Now, the department is before the ITAT and has challenged the deletion of penalty by the Ld. CIT (A) and has raised the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in law and on the facts and in the circumstances of the case in deleting the penalty u/s 271(1)(c) amounting to Rs. 20,47,864/- ignoring the fact that no appeal was filed by the assessee against the quantum addition of Rs. 66,29,006/-.
The Ld. CIT(A) has erred in law and on the facts and in the circumstances of the case in deleting the penalty u/s 271(1)(c) amounting to Rs. 20,47,864/- ignoring the fact that assessee company had furnished the inaccurate particulars of their income and penalty is a civil liability".
None was present on behalf of the assessee/respondent when the appeal was called out for hearing nor was any application for adjournment received on behalf of the assessee/ respondent. However, looking into the facts of the case, we deem it appropriate to decide the appeal on merits ex-parte qua the assessee/respondent.
The Ld. Sr. DR argued that the assessee had not filed any appeal against the quantum addition of Rs. 66,29,006/- and, therefore, it was apparent that the assessee had accepted that the quantum addition was justified. It was further submitted that the Ld. CIT (A) had ignored the observations and findings of the Assessing Officer while deleting the penalty. It was submitted 3 that it was a clear case of furnishing of inaccurate particulars of income and the penalty had been rightly imposed. It was prayed that the order of the Ld. CIT (A) be set aside and the penalty reinstated.
5.0 We have heard the Ld. Sr. DR and have also perused the impugned orders. A perusal of the orders shows that the contention of the Assessing Officer is incorrect that the business of the assessee had not commenced. It was only submitted before the Assessing Officer that it was the first year of incorporation of the company and the company had also sold samples of wooden flooring to one of the parties towards which an income of Rs. 82,932/- had been declared by the assessee. It is also seen that the Assessing Officer has not doubted the genuineness of the expenses and the only ground for disallowing the expenditure was that in view of the Assessing Officer the expenses were in the nature of preoperative expenses. Further, it is seen that the Assessing Officer has imposed penalty for furnishing inaccurate particulars of income whereas on facts of the case, it is our considered opinion that all the information relevant to the impugned disallowances was before the Assessing Officer at the time of assessment proceedings and no case could have been made out by the AO for furnishing inaccurate particulars of income. The Hon’ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 (SC) (2010) had made the following observation with respect to the provisions of section 271(1)(c) of the Act:-
“Therefore, it is obvious that it must be shown that the conditions u/ s. 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 v. Joint CIT, (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 u/s.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 S. 271 (1) (c) 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 Assessing Officer 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 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 means rea was essential. It was only on the point of means rea jhat the judgment in Dilip N. Shroff v Joint CIT was upset.”
5.1 The Hon’ble Apex Court further held as follows:
“A glance at this provision would suggest that in order to be covered, there has to be concealment of particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The present is not a case of concealment of income. That is not the case of the Revenue either. However, the Ld. Counsel for the revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271 (1) (c) would 6 embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income." We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars.”
5.2 Therefore, in view of the judgment of the Hon’ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd. (supra), we are of the opinion that the Ld. CIT (A) was justified in deleting the impugned penalty and we find no reason to interfere with his findings on the issue. The grounds raised by the department are dismissed.
In the result, the appeal of the department stands dismissed.
Order pronounced in the Open Court on 3rd October, 2018.