SHARSH FINANCE & INVESTMENT CO. PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

PER H.S. SIDHU, JM

The Assessee has filed the present appeal against

the impugned order dated 19/12/2011 passed by the Ld.

Commissioner of Income Tax (Appeals)-XI, New Delhi on the

following grounds:-

order passed by the Ld. CIT(A) is illegal being against the

principles of natural justice and against the provisions of

I.T. Act, 1961.

in confirming the penalty u/s. 271(1)(c) in respect of

additions of Rs. 5,15,176/- on account of foreign travel

expenses and Rs. 1,50,000/- on account of addition u/s. 68.

withdraw any ground of appeal before or during the

appellate proceedings.

31.10.2005 declaring total income of Rs. 3,51,13,855/-. The case

was selected for scrutiny and notice u/s. 143(2) of the Act was

issued. In response to the same the A.R. of the assessee attended

the assessment proceedings from time to time and filed the details.

2.1 The assessee company is engaged in the business of dealing

in shares and mutual funds. It has also shown income from

brokerage and commission.

2.2 The assessment was completed u/s. 143(3) of the Act vided

order dated 24.12.2007 at an income of Rs. 3,92,91,360/- making

various additions. Aggrieved with the order of the AO, the assessee

went in appeal before the Ld. CIT(A), whereby the additions /

disallowances on account of foreign travelling expenses,

disallowance u/s. 14A being 2% of dividend income and income

from undisclosed sources were confirmed. The addition on account

of interest expense on account of diversion of borrowed funds was

restricted to Rs. 15,43,526/-. The AO observed that the assesee

had incurred an expenditure of Rs. 5,15,176/- on foreign travel of

one of its Directors. The AO held that the assessee was engaged in

the business of purchase and sale of shares and there was no

relevance for travel to Singapore, Bangkok, Rome, London etc. by

one of its Directors. The expenditure on foreign travel can by no

means be considered as business expenditure. Further, no evidence

has been furnished to prove the purpose of foreign travel to justify

expenses. AO further observed that as far as income from

undisclosed sources is concerned, the Assessee had shown

unsecured loan of Rs. 1,50,000/- received from one Sh. S. Maitra.

During assessment proceedings, the assessee was asked to prove

the identity and creditworthiness of the party and genuineness of

the transactions. However, the assessee only filed a confirmation

letter purportedly signed by that person and no other evidence or

material was filed to prove the genuineness either at the

assessment stage, appellate stage and now during penalty

proceedings. In view of the above, AO has observed that assessee

has furnished inaccurate particulars of his income with a view to

evade taxes and made a penalty of Rs. 3,777,546/- vide his order

dated 31.3.2010 passed u/s. 271(1)© of the Act.

the Ld. First Appellate Authority who vide his impugned order dated

19.12.2012 partly allowed the appeal filed by the Assessee by

holding that the assessee is a share trader and his visits to foreign

countries are not related to business, hence, he observed that

assessee has made a wrong claim and furnished inaccurate

particulars of income with a view to concealment of income and

accordingly the explanation of the assesse is not bonafide and

penalty was confirmed by the Ld. CIT(A) on account of additions of

Rs. 5,15,176/- for foreign travel and penalty on account of addition

u/s. 68 of the Act of Rs. 1,50,000/-, Ld. CIT(A) observed that it was

nowhere submitted that the three basic requirements of proving the

identity, creditworthiness and genuineness of the transactions were

duly fulfilled. Ld. CIT(A) held that the assessee has furnished

inaccurate particulars with a view to concealment of income and

explanation given by the assessee is not bonafide. Hence, the

penalty was confirmed on additions of Rs. 5,15,176/- on account of

foreign travel and Rs. 1,50,000/- on account of addition u/s. 68 of

the Act vide impugned order dated 19.12.2011 passed u/s.

271(1)(c) of the Act.

by the Ld. CIT(A), Assessee is in appeal before the Tribunal.

the Synopsis of submissions (revised) and reiterated the contents

thereof, which read as under:-

“1. Penalty u/s 271(1)(c) has been levied in respect of additions of Rs. 5,15,176/- on account of foreign travel expenses, Rs. 1,50,000/- on account of addition u/s 68 and disallowance of Rs. 3,66,654/- u/s 14A (Pg. 2 of the penalty order). Penalty was confirmed by the Ld. C!T(A) except on disallowance u/s 14A.

Penalty notice u/s 271(1)(c) is bad in law

- CIT vs. V S Lad & Sons, 2013-TIOL-536-HC-KAR-IT

"61 Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 = (2007-TIOL-98-SC-IT) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non- application of mind." (SLP Dismissed)

- CIT vs. V S Lad & Sons, TS-807-SC-2014

"We find no reason to entertain these Special Leave Petitions, which are, accordingly, dismissed.

- Veerbhadrappa Sangappa & Co. [TS-381-SC-2016]

"Conclusion:

SC dismisses Revenue's SLP against Karnataka HC judgement laying down law on 'penalty levy' for AY 2003- 04; HC had held that notice uls 274 must specifically state ground for initiation of proceedings (whether concealment or filing inaccurate particulars); HC had clarified that "mere sending of printed form with all grounds mentioned not sufficient compliance of law"; Dismissing SLP, SC holds that "We do not find any merit in these petitions."

- Nayan C Shah Vs. ITO, 2016-TIOL-739-HC-AHM

" ... Whether submitting an incorrect claim while filing return, would amount to giving inaccurate particulars of such income, warranting initiation of penalty proceedings - NO: HC

Whether the AO while issuing a notice u/s 271 (1) (c), is required to specify as to what is the default on the part of assessee, as to whether the case is one of concealment of income, or whether it is case of furnishing inaccurate particulars - YES: HC"

- SANGHAVI SAVLA COMMODITY BROKERS PVT LTD Vs. ACIT, 2016-TIOL-170-ITAT-MUM

" ... Whether Notice under section 274 of the Act should specifically state the ground mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income - YES: ITAT" 7

- M/s Sajan Kumar Bansal and Sons (HUF) vs. DCIT, 2016-TIOL-114-ITAT-KOL

"++ the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Karnataka High Court, the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled; (para 7.3)"

Penalty cannot be levied merely because the explanation of the assessee is not acceptable

- CIT vs. Bharat Hiralal Popat, 2015-TIOL-232-HC- AHM-IT

"++ Further, it is the case ofthe Revenue that the explanation given by the assessee in connection with his income is not acceptable and it is not the case that the assessee has offered no explanation or false explanation, at all. Instead the case of the revenue is that the explanation given by the assessee cannot be accepted. In similar circumstances, this Court in the case of AMRUT TUBEWELL COMPANY VS. ACIT rendered in Tax Appeal Nos. 128 & 129 of 2001, it has observed that the Tribunal has recorded that the CIT(A) confirmed the penalty imposed by the AO under this section on the ground that the difference between the earned income and the assessed income of the assessee was more and that the assessee, himself, had declared income of Rs.75,000/- by filing revised return. The Tribunal, further, observed that the CIT(A) had found that the assessee was not able to prove the source of cash credit, and therefore, CIT(A) upheld the penalty levied by the AO, which is confirmed by the Tribunal. However, while doing so, here again, the Tribunal failed to appreciate the fact that the assessee had not furnished any details pertaining to advance tax which was untrue. On the contrary, the additions were of such nature that the assessee could not have foreseen. We are, therefore, of the opinion that the order of the Tribunal cannot be sustained and deserves to be quashed and set aside. In above view of the matter, the decision of the Apex Court in CIT VS. KHODAY ESWARSA & SONS and of this Court in AMRUT TUBEWELL OMPANY VS. ASST. CIT, would

apply to the facts of the present case. Hence, the appeal deserves to be allowed.

Foreign Travelling Expenses

b) The AO has completely ignored the fact that the appellant is a share broker also (Pg.16, PB). It has declared brokerage income at Rs. 22,23,372/- during the year. Foreign travelling expenses are duly declared at Rs. 5,15,176/- in the profit and loss account of the assessee company (Pg. 16, PB). The accounts are duly audited. Details of expenses filed before the AO (Pg. 6, PB] clearly indicate that the foreign tours were undertaken through Global E Travel Solution Pvt. Ltd. which is an outside party. The AO has not brought any new fact on record than what is declared in the accounts.

c) The foreign tours were undertaken by the director in connection with the share broking business of the assessee company because the assessee company intended to have NRIs, FIIs as its client. Therefore, it was purely business expenditure. In fact, the AO neither found the explanation given by the assessee (Pg. 8, PB) as false..nor unsubstantiated nor being not bonafide and hence the penalty could not be levied. The Ld. AO has not found any fault with the genuineness of the expenditure claimed by the appellant. It is not his case 10

that the expenditure was not incurred and the claim is bogus. It is also not his case that the expenditure is not verifiable. Therefore, it is an admitted fact that the expenditure is genuine and was actually incurred. Had the appellant been successful in getting any client from the countries, the director visited, even the expenditure would have been allowed as business expenditure. Unfortunately, the director was not successful in getting clients from foreign countries. However, the fact remains that the expenditure was incurred for the purpose of share broking business. The disallowance was only on account of difference of opinion. Hence the appellant claimed the expenditure under the bonafide belief that the same is allowable as it has been incurred wholly and exclusively for the purpose of business only. The Ld. AO has not pointed out any information given in the return as incorrect and inaccurate and therefore, it cannot be said that the appellant furnished inaccurate particulars. By now it is judicially settled that penalty u/s 271(1)(c) cannot be levied on account of disallowance of foreign travelling expenditure or for that matter any expenditure. Reliance is placed on the following: -

i) ACIT vs. T.R.B. Exports (P.) Ltd., (2010) 134 TTJ (Chd)(UO) 49

"6. Penalty under s. 271(1)(c) of the Act is attracted in case the assessee has concealed its income or furnished inaccurate particulars of income. In the facts of the present case before us, the assessee had claimed foreign

travel expenses of wife of the director who had accompanied her husband on foreign travel. The said expenditure was disallowed being not relatable to the business of the assessee company. Merely because an expenditure has been disallowed in the hands of the assessee does not automatically make the assessee exigible to levy of penalty under s. 271(1)(c) of the Act. In any case, mere disallowance of expenditure does not attract the levy of penalty under s. 271(1)(c) of the Act. We are in conformity with the order of the CIT(A) that there is no merit in the levy of penalty on disallowance of expenses holding the same to be non-business expenses

ii) ACIT vs. Vijay Kiran Hotels (p) Ltd., (2008) 10, DTR (Chd) (Trib) 225 "Penalty under s. 271(1) (c)- Concealment-Disallowance of expenditure-Director of the assessee company travelled abroad to explore avenues of studies for his son-Expenditure on foreign travel disallowed on the ground that the same was incurred for non-business consideration-No case is made out by the AO that the claim for expenditure reflected any falsity-In fact, the purpose of the travel was fully explained and the same has not been rejected as, false or lacking bona fides-Merely because there is difference of opinion as regards the allowability of the claim for deduction, it could not be said that there was concealment or furnishing of inaccurate particulars within the meaning of s. 271(1)(c)-Penalty rightly deleted"

iii) Shri Kamal Sahdev vs. ACIT, 2014-TIOL-49-ITAT- DEL

"3. We have heard both the sides and perused the material placed before us. The penalty has been levied on account of disallowance of expenses amounting to Rs.5,22,996/- under various heads i.e. foreign traveling expenses, repair and maintenance expenses, electricity expenses, business promotion expenses and car expenses. Out of these expenses, part of the expenses has been disallowed on ad-hoc basis. In our opinion, on such ad-hoc disallowance out of expenses, no penalty under Section 271(1)(c) is leviable….”

Penalty cannot be levied on alleged incorrect claim

i) CIT vs. Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 158 (SC)

"Penalty under s. 271(1)(c)-Concealment-Disallowance of claim for deduction-In order to attract the provisions ofs. 271(1)(c), there has to be concealment of income or furnishing of inaccurate particulars of his income by the assessee-In the instant case, assessee claimed deduction of interest on loans taken by it for purchase of shares-AO disallowed such interest-Admittedly. no information given in the return was found to be incorrect or inaccurate- Hence. The assessee cannot be held guilty of furnishing

inaccurate particulars-Making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars-Merely because the assessee claimed deduction which has not been accepted by the Revenue, penalty under s. 271(1)(c) is not attracted-If the contention of the Revenue is accepted, the assessee would be liable for penalty under s. 271(1)(c) in every case where the claim made by the assessee is not accepted by the AO for any reason-That is clearly not the intendment of the legislature."

ii) CIT vs. Udaipur Hotels Ltd, 2013-TIOL-16-HC-DEL-IT

"Income Tax - Section 271(1)(C) - Whether mere submission of a claim which is incorrect in law would amount to giving inaccurate particulars of the income, hence penalty for concealment can be levied on the same.

Appeal is dismissed."

iii) BIJLI INVESTMENTS (P) LTD. vs. ITO , [2007] 13 SOT 725 (Del) "Penalty under s. 271 (l)(c) - Concealment / furnishing inaccurate particulars of income - Fee paid to ROC disallowed as capital expenditure - Assessee claimed fee paid to ROC as revenue expenditure - AO disallowed the same as capital expenditure and made addition - Penalty under s. 271 (l)(c) imposed - Not justified."

iv) DCIT vs. RAHOUL SIEMESSEN ENGG. (P) LTD., [2004] 91 TTJ (Del) 62 "Assessee having claimed debatable deductions , towards interest paid to

Department under ss. 201(lA),217, 220(2),220(3) and 234 B out of taxable income, there was no concealment attracting penalty under s. 271 (l)(c)."

v) NUCHEM LIMITED vs. DCIT, [1992] 49 TTJ (DEL) 177 "Penalty under s. 271 (l)(c), Explanation - concealment - Where certain additions and disallowances were made which were confirmed up to the stage of the Tribunal, unless there is a finding that the explanation given by the assessee was false, the claim of assessee cannot be treated as mala fide and it would be covered by the proviso to Expln. 1 - If after furnishing necessary particulars of income assessee's claim for certain deductions are disallowed, it may be on account of difference of opinion on particular set of facts but it does not amount to concealment - Assessee having disclosed in return all material facts relating to computation of income, therefore not liable to penalty through certain items claimed as deduction were disallowed, holding as capital expenditure or not relating to relevant previous year.

Cash Credit

to filing of inaccurate particulars. The Ld. AO has not brought any material on record to establish that the confirmation filed was false or the credit represents appellant's income. All the facts were disclosed by the appellant and the Ld. AO has not found any falsity in them. Under the circumstances, it cannot be said that the appellant filed inaccurate particulars of income. Reliance is placed on the following: -

i) National Textiles vs. CIT, (2001) 249 ITR 125 (Guj)

"Conclusion

In order to justify levy of penalty for addition of cash credits, there must be some material or circumstances leading to reasonable conclusion that the amount does represent assessee's income and the circumstances must show that there was conscious concealment or act of furnishing of inaccurate particulars; Expln. 1 does not make the assessment order conclusive evidence that the amount assessed was in fact the income he assessee"

ii) Bhartesh Jain vs. ITO, (2011) 137 TTJ (Delhi) 200

Assessee having produced confirmation for both the alleged loans, it cannot be said that the explanation of the assessee was not bona fide or that material facts were not disclosed merely because additions under s. 68 have been confirmed for the reason that the first creditor denied that the amount was given to the assessee as a loan and there was serious doubt about the genuineness of the source of source of second loan and, therefore,

Expln. 1 to s. 271(1)(c) is not applicable and penalty is not leviable."

Concealment can be of facts but not of conclusion from facts

i) HimatVellanji Karia vs. ITO (1991) 40 TTJ (Ahd.) 446

"Where the assessee had disclosed all material facts to enable to ITO to come to the correct conclusion, it cannot be said that he is guilty of concealment - Concealment can only be of facts and not of the conclusion- Assessee had claimed himself to be a non-resident but had furnished all supporting details- It was for the ITO to derive the correct status."

ii) Impulse India (P) Ltd. vs. ITO (1992) 40 ITD (DEL) 36 "Claim made overtly and openly was rejected finally, penalty for concealment of income cannot be levied."

iii) ITO vs. Budge Budge Co. Ltd., (2006) 100 ITD 387 (kol)

"7 As all the claims and figures and figures are noticeable and available on records, it cannot be said that the appellant had falsely supplied or given inaccurate particulars of income or that it has concealed particulars of income. A claim of deduction may be allowable or disallowable. However, such cannot be said to be giving inaccurate particulars of income or concealing the particulars of income as it remains a claim only, to be allowed or disallowed depending on the facts of the case."

Penalty not automatic if additions confirmed

- CIT vs. Transceivers India Ltd., 2015-TIOL-338-HC- DEL

"7 That ultimately such expenditure was disallowed on merits could not automatically result in the imposition of a penalty, akin to the AO's approach. Having regard to the materials placed on the record, which were analysed in detail and discussed, this Court is of the opinion that the reasoning and conclusions of the courts below being

entirely facts based, do not involve determination of any substantial question of law. The appeal is, therefore, dismissed.

- Sona Somic Lemforder Components Ltd. vs. DCIT, 2015-TIOL-464-ITAT- DEL-IT

"8 We note that no doubt the claim put forth by the assessee was not allowed however it cannot be said considering the judicial precedent cited that there was any filing of inaccurate particulars or non-disclosure on the part of the assessee. It is merely a case of claim not allowed. It is also seen that in the peculiar facts and circumstances of the case, the penalty has been imposed and upheld purely on account of the findings arrived at in the quantum proceedings which is not the mandate of law. The explanation offered by the assessee in the penalty proceedings has to be considered independently and judiciously and only thereafter a finding has to be recorded .

In the result the appeal of the assessee is allowed."

- DCIT vs. PEC Ltd., 2010-TIOL-50-ITAT-DEL. A. Y. 2004-05

"6 ... .It is by now settled law that only because addition is sustained, the penalty is not automatic ...."

- CIT vs. Haryana Warehousing Corporation, (2009) 314 ITR 215 (P&H) 20

"24. The second contention advanced by the learned counsel for the appellant- Revenue was, that the impugned order passed by the Tribunal deleting the penalty imposed on the respondent assessee under s. 271(1)(c) of the Act, was not sustainable in law because of the clear judgment rendered by the Supreme Court in Union of India vs. Dharamendra Textile Processors & Ors, (2008) 219 CTR (SC) 617 : (2008) 306 ITR 277 (SC). According to the learned counsel for the appellant-

Revenue the entire income which remained undisclosed, "with or without" any conscious act of the assessee, was liable to penal action. It is submitted by the learned counsel for the appellant Revenue, that the concept of law, with regard to levy of penalty has drastically changed in view of the said judgment, inasmuch as, now penalty can be levied even when an assessee claims deduction or exemption by disclosing the correct particulars of its income. According to the learned counsel, if an addition is made in quantum proceedings by the Revenue authorities, which addition attains finality, an assessee per se becomes liable for penal action under s. 271(1)(c) of the Act. It is the vehement contention of the learned counsel for the appellant- Revenue, that a penalty automatically became leviable against the respondent-assessee under s. 271(1)(c) of the Act, after the finalisation of quantum proceedings. In this behalf, it is also pointed out, that in view of the judgment of the Supreme Court referred to above, the

dichotomy between penalty proceedings and assessment proceedings stands completely obliterated.

- CIT vs. MIs Sidhartha Enterprises, 2009-TIOL-349-HC- P&H-IT

"5 ... The judgment of the Hon'ble Supreme Court in Dharmendra Textile (supra) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under section 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake .... "

lower authorities. 22

especially the orders of the authorities below as well as the Synopsis

filed by the Ld. AR of the Assessee, we find that the assessment was

completed u/s. 143(3) of the Act vide order dated 24.12.2007 at an

income of Rs. 3,92,91,360/- making various additions. Aggrieved

with the order of the AO, the assessee went in appeal before the Ld.

CIT(A), whereby the additions / disallowances on account of foreign

travelling expenses, disallowance u/s. 14A being 2% of dividend

income and income from undisclosed sources were confirmed. We

further find that the addition on account of interest expense on

account of diversion of borrowed funds was restricted to Rs.

15,43,526/-. We note that the AO observed that the assesee had

incurred an expenditure of Rs. 5,15,176/- on foreign travel of one of

its Directors. The AO held that the assessee was engaged in the

business of purchase and sale of shares and there was no relevance

for travel to Singapore, Bangkok, Rome, London etc. by one of its

Directors. The expenditure on foreign travel can by no means be

considered as business expenditure. Further, no evidence has been

furnished to prove the purpose of foreign travel to justify expenses.

AO further observed that as far as income from undisclosed

sources is concerned, the Assessee had shown unsecured loan of

Rs. 1,50,000/- received from one Sh. S. Maitra. During assessment

proceedings, the assessee was asked to prove the identity and

creditworthiness of the party and genuineness of the transactions.

However, the assessee only filed a confirmation letter purportedly

signed by that person and no other evidence or material was filed

to prove the genuineness either at the assessment stage, appellate

stage and now during penalty proceedings. In view of the above, AO

has observed that assessee has furnished inaccurate particulars of

his income with a view to evade taxes and made a penalty of Rs.

3,777,546/- vide his order dated 31.3.2010 passed u/s. 271(1)© of

the Act. Against the penalty order, assessee filed appeal before the

Ld. First Appellate Authority who vide his impugned order dated

19.12.2012 partly allowed the appeal filed by the Assessee by

holding that the assessee is a share trader and his visits to foreign

countries are not related to business, hence, he observed that

assessee has made a wrong claim and furnished inaccurate

particulars of income with a view to concealment of income and

accordingly the explanation of the assesse is not bonafide and

penalty was confirmed by the Ld. CIT(A) on account of additions of

Rs. 5,15,176/- for foreign travel and penalty on account of addition

u/s. 68 of the Act of Rs. 1,50,000/-. In view of the above, we find

that Ld. CIT(A) has rightly observed that it was nowhere submitted

that the three basic requirements of proving the identity,

creditworthiness and genuineness of the transactions were duly

fulfilled. Ld. CIT(A) held that the assessee has furnished inaccurate

particulars with a view to concealment of income and explanation

given by the assessee is not bonafide. Hence, the penalty was

rightly confirmed by the Ld. CIT(A) on additions of Rs. 5,15,176/-

on account of foreign travel and Rs. 1,50,000/- on account of

addition u/s. 68 of the Act, which does not need any interference on

our part, hence, we uphold the same and accordingly dismiss the

Assessee’s Appeal.

Order pronounced in the Open Court on 05/05/2017.

Sd/- Sd/-

(PRASHANT MAHARISHI) [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date 05/05/2017

“SRBHATNAGAR” Copy forwarded to: - 1. Appellant - 2. Respondent - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order,

Assistant Registrar, ITAT, Delhi Benches