PROBODHAN PRAKASHAH,MUMBAI vs. ITO (E) II(1), MUMBAI

PER C.N. PRASAD (JM) 1. These two appeals are filed by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals), Mumbai -1 in sustaining the penalty levied u/s. 271(1)(c) of the Act.

2 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. assessee. Learned Counsel for the assessee submitted that there is no concealment of income or furnishing of inaccurate particulars of income by the assessee. The penalty was imposed for withdrawal of Exemption u/s. 11 of the Act by the Assessing Officer. The claim made by the assessee u/s.11 of the Act was a bonafide claim which was made based on various judicial pronouncements and whether the assessee is entitled for Exemption u/s. 11 of the Act or not is a debatable one and there is no concealment of income or furnishing inaccurate particulars by the assessee.

3 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. that penalty u/s. 271(1)(c) of the Act was levied for the reason that

Exemption u/s. 11 of the Act was denied to the assessee as it was held

that business of publishing newspaper itself cannot be said to be an object

of general public utility entitled for exemption as a charitable institution.

We also notice that in some of the years it has been held that the assessee

is entitled for Exemption u/s. 11 of the Act. The stand of the assessee

was that the claim for exemption u/s. 11 of the Act was a bonafide claim.

Further, we notice that penalty was levied on similar circumstances in the

Assessment Years 2007-08, 2008-09 and 2010-11 and the Ld.CIT(A)

deleted the penalty which was confirmed by the Tribunal. While upholding

the Ld.CIT(A) order in deleting the penalty, the Tribunal in ITA.No.

3831/MUM/2015 & 3833/MUM/2015 observed as under:

“2. The 1st ground raised by the revenue in these appeals is that the learned CIT(A) erred in deleting penalty of Rs. 19,32,354/- for the A.Y. 2007-08 and Rs. 18,62,354/- for the A.Y. 2008-09 imposed by the AO u/s 271(1)(c) of the Act on the ground that there is no concealment of any fact. It is further stated that the learned CIT(A) erred in not accepting that it was a concealment, when it was proved that the assessee was not in charitable activity but in commercial / business activity and the same was upheld in appeal. Also it is stated that the learned CIT(A) erred in not accepting that the assessee is deliberately claiming exemption u/s 11, even though the judicial authorities have decided that the assessee was not doing a charitable activity. 3. The assessee filed its return of income for the A.Y. 2007-08 on 31.10.2007 declaring total loss of Rs. 1,29,54,737/-. The Assessing Officer (AO) completed the assessment on 18.12.2009 determining the loss at Rs. 39,11,377/-. The assessee also filed its return of income for the A.Y. 2008-09 on 30.09.2008 declaring Nil income. The AO completed the assessment on 02.12.2010 determining the income at Rs. 1,19,92,709/-. During the course of the impugned assessment years, the AO took into account the decision of ITAT in the case of the assessee for the A.Y. 1989-90 wherein it has been held that the activities of the assessee were not of charitable nature and it was running the business of publishing newspaper. Thus exemption u/s 11 was denied to the assessee. The AO found that the activities of the assessee in the impugned assessment years were same as the one in the A.Y. 1989-90. In view of the above, the A.O. imposed a minimum penalty of Rs. 19,32,534/-

4 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. for the A.Y. 2007-08 and Rs. 18,62,354/- for the A.Y. 2008- 09 u/s 271(1)(c) of the Act. 4. The assessee preferred appeal against the order of the AO before the learned CIT(A). It is found by the learned CIT(A) that the assessee trust was granted registration u/s 12A of the Act and also under the Bombay Public Trust Act by the Charity Commissioner. However, the trust was denied exemption u/s 11 of the Act on the ground that income from running of newspaper had not been applied for charitable purposes. Instead, the income earned had been spent towards acquisition of assets. The learned CIT(A) has mentioned that the assessee did not furnish any evidence to prove that it was engaged in the activity of giving relief to the poor, or education, or medical relief. Also the learned CIT(A) has mentioned that since the onus cast on the assessee that it had used its income for charitable purposes, i.e. relief to the poor, education or medical relief etc. was not discharged, the AO has denied to the assessee grant of exemption u/s 11 of the Act even though the registration of the trust u/s 12A was subsisting. The learned CIT(A) has mentioned that the quantum appeal of the assessee for the A.Y. 2007-08 and 2008-09 have also been dismissed by both the CIT(A) and ITAT. 4.1 The learned CIT(A) has also mentioned that in the assessment year prior to the impugned assessment years, the exemption u/s 11 was similarly denied by the AO which was later on upheld by the CIT(A) and ITAT. However, in the A.Y. 1989-90, 1992-93, 1995-96, 1996-97, 1998- 99 & 2003-04, the decision of the ITAT in the case of the assessee was not exactly the same. The learned CIT(A) observed that the issue of claim of exemption in the case of the assessee has been a debatable one, as far as its appellate history goes. Relying on the decision of the Hon'ble Supreme Court in the case of ACIT vs Thanthi Trust (2001) 247 ITR 785 (SC), the CIT(A) has stated that the claim of the assessee is debatable. He also noted that as far as the facts and figures of income and expenditure statements are concerned, there is not dispute that the assessee had not concealed any such facts and figures. But the assessee had presumed that in its opinion, it had made a bonafide claim of exemption u/s 11 of the Act, which has been denied to it by the AO and the appellate authorities in the years under consideration. Therefore, it cannot be said that the assessee had concealed the particulars of its income or had furnished inaccurate particulars of such income. 4.2 The learned CIT(A) has also mentioned that the ITAT in the case of the assessee for the A.Y. 1989-90, 1992-93, 1995-96, 1996-97, 1998- 99 and 2003-04 has explicitly recorded a finding of fact and held that the objects of trust, as a whole, are for charitable purpose falling within the meaning of section 2(15) of the Act. For the A.Y. 1998-99, 2000-01, 2003-04, 2007-08 and 2008-09, the decision has been reversed by the ITAT. Once, this proposition is accepted, the issue of grant of exemption in the case of the assessee can at best be described as a debatable issue. The learned CIT(A) relied on the judgement of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd [2010] 189 Taxman 322 (SC), wherein it has been held that penalty cannot be levied merely because the AO and the assessee hold a divergent view on allowablity of a claim for deduction. He also relied on the decision in the case of Dilip N. Shroff 210 CTR 228 (SC) and deleted the penalty imposed by the AO. 5. Before us, the learned DR referred to page 17 of the order of the learned CIT(A) wherein he has mentioned that the quantum appeals of the assessee for the A.Y 2007-08 and 2008-09 have been dismissed by both the CIT(A) and the ITAT. He also relied on the order of the AO.

5 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. 6. Per contra, the learned counsel of the assessee relied on the order of the ITAT in the assessee’s own case for the A.Y. 1989-90, 1992-93, 1995-96, 1996-97, 1998-99 & 2003-04. Also he relied on the judgement of the Hon'ble Supreme Court in the case of Thanti Trust. 7. We have heard the rival submissions and perused the relevant material on record. We begin the discussion with the decisions relied on by the learned counsel of the assessee. In the case of the assessee for the A.Y. 1989-90 (1997) 50 ITD 135, the Tribunal has held that the donations collected in boxes marked as ‘donation towards corpus’ are not eligible for exemption u/s 11(1)(d); only the donations received with confirmatory letters stating that the donation was towards corpus is exempt. Also it is held therein that donations received by charitable trust without any direction whether it was towards corpus of trust is not exempt u/s 11(1)(d) and the same is assessable as income from other sources. Regarding set off loss u/s 71, the Tribunal held that the loss incurred in the said activity is a business loss and the same cannot be set off against income from other sources comprising voluntary contribution. 7.1 In the case of the assessee for the A.Y. 1992-93 (ITA No. 340/Mum/1998), A.Y. 1995-96 (ITA No. 1492/Mum/2000) and A.Y. 1996-97 (ITA No. 5722/Mum/1999), the Tribunal held as under: ‘’We have heard both the sides and considered the facts and materials on record including the case laws relied upon by the parties. May be it is true that the Tribunal in its earlier order cited supra has given a finding that the running of newspaper Dainik Samna was for charitable purpose within the meaning of section 2(15) as it stood from 01.04.1984. However, in view of the interest decision of the Hon'ble Supreme Court reported in 247 ITR 785 (SC), what is to be seen is, whether the income of the newspaper has been utilised for the purpose of the trust, even though, the objects may be charitable and this aspect of the matter, as rightly been contended by the learned Departmental Representative, were not put to test either by the assessing office or by the Commissioner of Income Tax (Appeal). In view of this, we are inclined to restore the matter back to the file of the assessing officer with a direction to record a finding as to whether the income from the newspaper has been utilised for the objects of the trust during the relevant assessment years and if so to follow the decision of Hon'ble Supreme Court (cited supra) if the income is so utilised and otherwise to decide according to law. Thus, these appeals of the assessee are allowed for statistical purpose only’’. 7.2 In the case of the assessee for the A.Y. 1996-97, 1998-99 and 2003-04 (ITA No. 291, 292 & 293/Mum/2007), the issue before the Tribunal was whether the surplus funds utilised for acquisition of assets for business purposes would amount to application of income or not for charitable purpose. The Tribunal held that the expenditure in respect of those fixed assets in respect of which depreciation has been claimed and allowed to the assessee cannot be treated as application of income. However, the balance amount spent for acquisition of fixed assets, on which no depreciation has been allowed, is to be treated as application of income as per the test laid down by the Tribunal in assessee’s own case for A.Y. 1989-90. Accordingly, the Tribunal restored the issue to the file of the AO to decide the same in the light of their decision for the A.Y. 1989-90 and to determine the application of income accordingly.

6 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. 7.3 Now we come to the judgement of the Hon'ble Supreme Court in the case of Thanthi Trust (supra). In that case, it has been held that requirement of section 13(1)(bb) is that the exemption u/s 11 will not be available to such a trust that carries on any business unless the business is carried on ‘’in the course of the actual carrying out of the primary purpose of the trust’’, since the business of running a newspaper though held by the assessee- trust as a part of its corpus was not carried on in the course of actual accomplishment of the charitable objects of the trust, bar of section 13(1)(bb) was applicable and the assessee-trust was not entitled to exemption u/s 11 for assessment year 1979- 80 to 1983-84. Further it has been held that as the assessee-trust was existing not only for public religious purposes and it is a trust and not an institution the newspaper business carried on by assessee did not fall within sub-section (4A) of section 11 and assessee was not entitled to exemption u/s 11 for the A.Y. 1984-85 to 1991-92 in respect of income of its newspaper. Finally it has been held therein that in view of substituted sub-section (4A) of section 11 w.e.f. 1st April, 1992, assessee-trust was entitled to exemption u/s 11 for the A.Y. 1992- 93 and thereafter in respect of its income of newspaper business which was employed to achieve its charitable objects. 7.4 Now we come to the order of the ITAT ‘’C’’ Bench, Mumbai in the case of the assessee for the impugned assessment years (ITA No. 8490/M/2010 & 1880/M/2012). The principal grounds of appeal raised by the assessee for the impugned assessment years as mentioned at para 3.1 of the order of the Tribunal are as under: “a. The learned Commissioner of Income Tax (Appeals) erred in confirming the treatment of publication of Dainik Samana as a business activity not eligible for exemption u/s 11 of the I.T. Act. b. The learned Commissioner of Income Tax (Appeals) failed to appreciate that Rs. xxx incurred towards purchase of fixed assets was in the nature of application of income for objects of the trust and not for expansion of business as treated by the Assessing Officer. C The learned Commissioner of Income Tax (Appeals) erred in not appreciating that while considering application of income, deficits of the earlier years had to be considered and a holistic view had to be taken.’’ 7.5 The Tribunal concluded that the assessee’s case was wholly unmaintainable and dismissed the appeal. 7.6 Let us now go back to the background on which the AO has imposed penalty u/s 271(1)(1) of the Act. In the assessment order for the A.Y. 2007-08, the AO has made the following additions: 1 Non-Pyament of Employees & employers Contribution Rs.22,57,426/- of Provident fund 2 Non-payment/late payment of ESIC contribution Rs. 3,21,183/- 3 Penalty for contravention of law Rs. 5,910/- 4 Non-deduction of IDS on payments attracting Provisions Rs. 21,30,302/- of section 40(a)(ia) 5 Prior Period Expenses disallowed u/s 43B Rs. 23,92,292/- 6 Disallowance u/s 40A(2b) Rs. 2,97,527/- Total Rs. 74,04,640/-

7 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. 7.7 However, the learned CIT(A], considering the facts of the case, allowed certain expenses to the assessee and confirmed the following additions: 1 Non-payment of employees & employers Contribution of Rs. Provident fund (Rs. 22,57,426-10,22,021) 12,35,405/- 2 Non-payment/late payment of ESIC contribution [Rs. Rs. 1,43,093/- 3,21,183-1,78,090) 3 Penalty for contravention of law Rs. 5,910/- 4 Non-deduction of TDS on payments attracting Provisions of Rs. section 40(a)(ia) 21,30,302/- 5 Prior Period Expenses disallowed u/s 43B Rs. 23,92,292/- Total Rs. 59,08,002/- 7.8 The AO has imposed a minimum penalty of Rs. 19,32,534/- u/s 271(1) (c) on the above additions / disallowances of Rs. 59,08,002/-.

7.9 It is found that for the A.Y. 2008-09 the following additions made by the AO have been sustained by the learned CIT(A):

1 Non-payment of employees & employers Rs. 8,55,110/- Contribution of Provident fund 2 Non-payment/late payment of ESIC Rs. 2,99,385/- contribution 3 Penalty for contravention of law Rs. 18,403/- 4 Non-deduction of TDS on payments Rs. 21,84,171/- attracting Provisions of section 40[a)(ia) 5 Prior Period Expenses disallowed u/s 43B Rs. 21,05,756/- 6 Disallowance of loss on sale of fixed Rs.16,297/- assets Rs.54,79,122/-

7.10. The A.O. has imposed a minimum penalty of ₹.18,62,354/- u/s. 271(1)(c) of the Act on the above additins/disallowance of Rs.54,79,122/- 7.11 In the scheme of the Act, the proceedings for imposition of penalty, though emanating from proceedings of assessment, are essentially independent and a separate aspect of the proceedings. Whether a penalty can be imposed in a given case, the entirety of the circumstances must be taken into account. 7.12 The question arises whether penalty u/s 271(1)(c) is leviable on the additions / disallowances made by the A.O. as narrated at para 7.7 and 7.9 here-in-above. We may gainfully refer to the judgement of the Hon'ble Supreme Court in Reliance Petroproducts (P.) (supra) wherein it has held: “A glance of provision of section 271(1)(c ) would suggest that in order to be covered, 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 instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted

8 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot 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 of inaccurate particulars. [Para 7] Therefore, it must be shown that the conditions under section 271(1)(c ) 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. [Para 8] The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9] The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was 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. Such contention could not be accepted 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 the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10] Therefore, the appeal filed by the revenue had no merits and was to be dismissed.” 7.13 The present factual matrix is to be tested on the anvil of the above enunciation of law. In the light of the decision referred here-in-above, we uphold the order of the learned CIT(A).”

9 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. 6. Similarly, for the Assessment Year 2010-11 following the order of the Tribunal for the Assessment Years 2007-08, 2008-09 the Tribunal uphold the deletion of penalty observing as under: “3. We have heard the counsels for both the parties and also perused the orders passed by Ld. CIT(A) and Hon'ble ITAT as mentioned above in assessee's own case. We find that Ld. CIT(A) has passed a common order in the case of assessee in respect of AY 2007-08, 2008-09 and 2010-11 as the facts were identical in all the years. Since the Hon'ble ITAT has already upheld the order of Ld. CIT(A) in respect of AY 2007-08, 2008-09. Therefore, respectfully following the decision of the coordinate bench of Hon'ble ITAT in assessee's own case for AY 2007-08 and 2008-09 and in order to maintain judicial consistency which is applicable mutatis mutandis in the case of the assessee, we upheld the order of Ld. CIT(A) in the present appeal for AY 2010-11 and dismiss the appeal filed by the revenue.” 7. Respectfully following the said decisions, we hold that the assessee had not concealed any income or furnished inaccurate particulars of income. The exemption u/s. 11 of the Act was denied to the assessee on a mere change of opinion. The issue of whether the assessee trust is entitled for exemption u/s. 11 of the Act is highly debatable. The claim made u/s. 11 of the Act was also appears to be bonafide claim and there is no concealment of income or furnishing inaccurate particulars by assessee. In the circumstances, we delete the penalty levied u/s. 271(1)(c) of the Act.

Order pronounced in the open court on the 28th May, 2018. Sd/- Sd/- (RAMIT KOCHAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 28/05/2018 Giridhar, Sr.PS

10 ITA.NO.1529 & 1531/MUM/2016 (A.Ys. 2003-04 & 1989 – 99) Prabodhan Prakashan. Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER,

(Asstt. Registrar) ITAT, Mum