TIMES INTERNET LIMITED,NOIDA vs. DEPUTY COMMISSIONER OF INCOME-TAX, NEW DELHI

PER KULDIP SINGH, ACCOUNTANT MEMBER :

“1. That the order of [earned Commissioner of Income Tax (Appeals) imposing penalty on the disallowance made of Rs.16,35,151/- representing expenditure incurred on upgradation of website and, disallowed as capital expenditure in an order of assessment dated 13.12.2010 u/s 143(3) of the Act is in excess of jurisdiction. 1.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that once the learned Assessing Officer in the order u/s 271(1)(c) of the Act has held that the issue was a debatable issue and not levied penalty thereon, it could not be validly held that, claim was not based on any reasonable interpretation of law and, appellant has failed to make a clear disclosure of his claim to warrant the levy of penalty u/s 271(1)(c) of the Act.

1.2 That adverse findings and conclusions recorded by the . learned Commissioner of Income Tax (Appeals) to levy penalty in respect of expenditure on upgradation of website are wholly misconceived, misplaced and, also contrary to the settled judicial position.

2 That the learned Commissioner of Income Tax (Appeals) has also erred both in law and on facts in upholding the levy of penalty on an addition made of sum of Rs.37,52,700/- representing expenditure incurred on fee paid to Registrar of Companies ("ROC") and, stamp duty for increase in authorized capital by the appellant company 2.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that aforesaid claim of expenditure was an inadvertent bonafide claim made by an appellant who had been assessed at a loss of Rs.71,97,11,614/- and therefore, penalty sustained by holding that appellant failed to make a full and true disclosure of facts or no evidence was failed to show it was an inadvertent error is not in accordance with law and, thus untenable.

It is, therefore, prayed that it be held that, no penalty is leviable on the facts and circumstances of the appellate company and as such, appeal of the appellant company be allowed.” 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of assessment completed under section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’) assessing the balance unabsorbed loss/depreciation to be carried forward at Rs.71,97,11,614/-, penalty proceedings have been initiated qua the addition on account of expenditure of unauthorized capital, on account of disallowance of capital expenditure and disallowance on account of section 14A of the Act. Assessee has not preferred to challenge the quantum as it was assessed at a loss bearing no revenue implication. Assessing Officer invoked Explanation 4 to section 271 (1)(c) of the Act and after declining the contentions raised by the assessee, proceeded to levy the penalty on the tax of Rs.12,42,492/- sought to be evaded @ 100% to the tune of Rs.12,42,492/-.

“NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961

To M/s. Times Business Solutions Co. Ltd., Mumbai Dated : 13.12.2010

Whereas in the course of proceedings before me for the assessment year 2008-09 it appears to me that you:-

Have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under section 22(1)/22(2)/34 of the Indian Income-tax Act, 1922 or which you were required to furnish under section 139 (1) or by a notice given under section 139(2)/148 of the Income-tax Act, 1961, No……………….Dated …………… or have without reasonable cause failed to furnish it within the time allowed and the manner required by the said section 139(1) or by such notice. have without reasonable cause failed to comply with a notice under section 22(4)/23)2 of the Indian Income-tax Act, 1922 or under section 142(1)/143(1) of the Income-tax Act, 1961, have concealed the particulars of your income or ………………… furnished inaccurate particulars of such income.

You are hereby requested to appear before me at 11.30 AM/PM on 14.1.2011 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c) within 15 days. Sd/- (CHATURBHUJ DAS) Dy. Commissioner of Income Tax, Circle 7 (3), Mumbai Income-tax Officer”

“63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Ever if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.”

“Held; dismissing the appeal, that the assessee had filed the return and furnished all particulars. The assessee had explained during the penalty proceedings that the investments were written off in the books of account and were claimed as deduction on account of loss which occurred to the assessee in the computation of total income. The Tribunal analysing the facts had expressed the view that there had been no furnishing of inaccurate particulars of such income and the assessee had declared the entire material. It was a case where a claim put forth by the assessee as regards the loss was not accepted but that would not per se tantamount to furnishing any kind of inaccurate particulars. Thus, there had been no concealment of income or furnishing of inaccurate particulars. Hence, the cancellation of penalty was valid.”

Similarly, Hon’ble High Court of Delhi in case cited as CIT 13. vs. DCM Limited – 359 ITR 102 held as under :-

"Law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible. When such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scrutinized both on facts and in law. Full probe and appraisal is natural and normal. Threat of penalty cannot become a gag and/ or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings. Normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer.”

“A glance at the provisions of section 271(1)(c) of the I.T. Act, 1961 suggests 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(1)(c) would embrace the detail 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 would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. 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 inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”