ORIENTAL BANK OF COMMERCE,GURGAON vs. ACIT, NEW DELHI

Per L.P. Sahu, Accountant Member:

This is an appeal filed by the assessee, M/s. Oriental Bank of Commerce

(in the case of erstwhile M/s. Global Trust Bank Ltd. amalgamated with OBC on

14.08.2004) against the order of ld. CIT(A)-XVI, Delhi dated 16.08.2013 for the

assessment year 2005-06 on the following grounds :

“1. The Ld CIT(A) has erred in law and on facts in confirming the penalty u/s 271(1)(c) on claim of depreciation on Temporary Wooden structures like interiors, glow signs etc. taken over from Erstwhile GTB upon amalgamation pursuant to GOl notification, of Rs. 7,13,13,797/- @ 100%. The penalty levied is wrong and bad in law and has to be deleted.

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Ltd. was amalgamated into the appellant Bank, i.e., Oriental Bank of

Commerce (OBC) on 14.8.2004 by the Govt. of India u/s 45(7) of the Banking

Regulation Act. In the previous years falling before amalgamation, the

erstwhile bank had been consistently claiming and allowed depreciation on

“Furniture & Fixture” @ 15%. However, for the year under consideration, the

assessee claimed depreciation on the block of “Furniture & Fixture” @ 100%

treating them as temporary wooden structure. The assessee was asked to

explain as to why the depreciation on ‘Furniture and Fixture’ should not be

restricted to 15% as prescribed in the IT Act and as per the practice

consistently followed by the erstwhile bank. In response, the assessee

explained that 100% depreciation was claimed in respect of interiors which is

purely temporary wooden structure which are considered under the block of

100% depreciable items. It was explained that the classification of such

temporary wooden structure should have been made under “building” instead

of “furniture & fixtures”. The AO did not accept the explanation of the assessee

and depreciation claimed @ 100% on “Furniture & Fixture” was disallowed

restricting the same to 15%, being part of the block “Furniture & Fixture”. The

assessee had apportioned the claim of depreciation with M/s. Oriental Bank of

Commerce being amalgamated on 14.08.2004. Therefore, the AO disallowed

4 ITA No.5865/Del./2013

proportionate sum of Rs.7,13,13,797/- as excess depreciation claimed by the

assessee and added the same to the total income of the assessee. This addition

made by the AO stood confirmed by the ld. CIT(A) and Tribunal.

and show cause notice was issued to the assessee on 13.01.2012. In response,

it was explained that complete disclosure was made in the returns along with

the enclosures filed by the assessee and therefore, there is no case for penalty

u/s. 271(1)(c) of the Act. It was explained that it was the depreciation chart

filed by the assessee that the AO noticed that assessee has claimed 100%

depreciation in respect of one of the items under ‘furniture & fixtures’. It was

also stated that claim of 100% was available to the assessee because of the

fact that these items are temporary wooden structures in the bank premises.

The contention of the assessee was also that though the items were

mentioned under the head ‘furniture & fixture’ but in brackets it was also

mentioned as “interiors”. It was explained that mere classification under

furniture and fixtures, would not change the real character of the asset, i.e.,

‘temporary wooden structures’ eligible for depreciation @ 100%. The claim of

depreciation of 100% was clearly stated in the depreciation schedule duly

verified by the auditors in the tax audit report. Therefore, there was no case

5 ITA No.5865/Del./2013

for labeling the charge of concealment of income or furnishing of inaccurate

particulars of income. The AO was not satisfied by the explanation of the

assessee and after relying on various decisions and invoking the provisions of

Explanation (1) to section 271(1)(c) imposed a penalty of Rs.2,60,95,501/-

for furnishing inaccurate particulars of income. The assessee carried the

matter before the ld. CIT(A) who confirmed the penalty order vide impugned

order. Aggrieved, the assessee is in appeal before the Tribunal.

explanations giving before the authorities below, submitted that this was a

debatable issue. He also relied on the detailed submission made before the ld.

CIT(A). He placed reliance on the decision in the case of Reliance

Petroproducts, 322 ITR 138. The ld. AR also relied on the order in case of

assessee itself for A.Y. 2005 decided by ITAT, New Delhi in ITA No.

5866/Del./2013. He has also relied on the decision of Hon’ble Delhi High

Court in Shervani Hospitalities Ltd. vs. CIT, (2013) 85 CCH 76 and of ITAT,

Delhi Bench in Hewitt Associates (India) Pvt. Ltd. vs. DCIT in ITA No.

789/Del./2013 for A.Y. 2003-04.

6 ITA No.5865/Del./2013

authorities and specifically pointed out that once, the Hon’ble ITAT has

confirmed the addition in quantum appeal of the assessee, the issue no more

remains to be debatable. Therefore, the ld. Authorities below are quite

justified to impose and sustain the penalty u/s. 271(1)(c) of the IT Act.

material available on record and we find that the ld. CIT(A) while deciding the

appeal has made an elaborate discussion on the issue, which could not be

properly rebutted on behalf of the appellant before us. For the sake of

convenience, we reproduce the relevant portion of the impugned order as

under :

4.1 T have carefully consideredJheJactS-of the-eas^-the findings jof the Adas well-as the submissions of the A/R of the appellant. All the grounds of appeal are directed against penalty of Rs. 2,60,95,501/- imposed upon the appellant by the AO u/s 271(l)(c) of the IT Act. The background of the case is that appellant company Erstwhile Global Trust Bank (EGTB) has been amalgamated with OBC by the Government of India vide notification dated 13.08.2004. Consequently the GTB ceased to exist and all its branches etc. became a part of OBC w.e.f. 13/08/2004. For the period up to ) 3.08.2004 the return of income Jar. the Asst. Year 2005-06 was fiied on 29.10.2005 declaring a loss of Rs. 111,45,95,0507-. The said return was pertaining to the transactions of Erstwhile Global Trust Bank from 01.04.2004 to 13.08.2004. In the AY 3

7 ITA No.5865/Del./2013

2005-06 as per the depreciation chart, the assessee has claimed depreciation on the block of "Furniture & Fixture" @ 100% by treating them temporary wooden structure. However, in the earlier years up to the AY 2004-05 the assessee has been consistently claiming depreciation @ 15% on these assets under the block "Furniture & Fixture". In view of the above, the depreciation claimed @ 100% on "Furniture & Fixture" is disallowed and the same is allowed @ 15% being part of the block "Furniture & Fixture" and the disallowance of the depreciation has been worked out as under: Written Addition Addition less Rate of Rate of Excess Down Value more than than 1 80 depreciation depreciation Depreciation Disallowed of Furniture 180 days days (claimed @ (allowed @ (Rs.) & Fixture as 100%) 15%) on 01.04.2004

22,50,52,444 h 4,87,399 4,26,185 22,67,:<2,93 3,40,12,940 19,27,39,993 3

The assessee had apportioned the claim of depreciation with M/s Oriental Bank of Commerce being amalgamated on 14.08.2004. Therefore, a disallowance of Rs. 7,13,13,797/- is made by the AO to the taxable income of the assessee. The balance disallowance to the extent of Rs. 12,14,26,1967- is made in the case of M/s Oriental Bank of Commerce for AY 2005-Oo^X Penalty proceedings u/s 271(l)(c) of the IT Act has also been initiated separately. In the appeal *~1 , filed by the assessee before CIT(A) the addition made by AO was confirmed with observation 1 that assets had been consistently shown by GTB under the block "Furniture & Fixture" on \ which depreciation had been claimed @ 15% in all earMer years. Ld. CIT(A) observed that the \ -i \ above classification as "Furniture & Fixture" and the ciiim of depreciation @15% in hands of \ j GTB in earlier years were also duly supported by Auditor's Report. On further appeal by the \ / appellant before the ITAT, Hon'blc ITAT has also confirmed the additions made by AO with the following observation :

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"The first question before us is whether, the block of assets of "Furniture & Fixture" of the GTB can now be broken up into interiors and "Furniture & Fixture". With the introduction of the concept of block of assets, an individual asset losses the identity as it gets subsumed once and for ail in the block of assets having same rate of depreciation. Therefore, we pre of the view tha the assessee could not have taken out certain assets from this bloc1' and reclassify them as interiors or temporary wooden structures, so as to claim 100% depreciation theron. Further, we find that there is no conclusive evidence on record that the erstwhile block of furniture and fixtures confined sssets which could be termed as temporary wooden structures. The assessee has relied on its auditor's report and the Id. CIT(A) has mentioned that against this there is also the auditor's report of earstwhile GTB under which depreciation was claimed @ 15%. Looking to these facts, we tend to agree with the Id. CIT(A) that the block of assets could not have reopened now with the change of management. Thus, it is held that the assets continued to remain a part of block of furniture and fixtures, entitled to depreciation @15% of the w.d.v." - ----- --.._._-_... In the light of the above as the assessee has furnished inaccurate particulars of income to the extent of Rs. 7,13,13,797^, therefore, the penalty of Rs. 2,60,95,501/- u/s 271(l)(c) oi the Act @ 100% of the tax sought to be evaded was imposed by the AO. The present appeal is filed against the above penalty imposed by the AO. In the appellate proceedings the A/R of the appellant explained that since the ^ as over by OBC, the exercise was undertaken J:o_j_dei)tify_ the as_sets.a_nd as :.a_cgnsequence.pf the examination it was subject to the scrutiny of the auditors and was considered appropriate to reclassify the assets under furniture & fixtures ^mteriors) like glow signs, temporary wooden partitions etc. which could have been written off as revenue __e_xp.enditure and/or claimed as 100% depreciable. All the above assets were reclassified by OBC un^er^^inppj^J^opden_ Structures? The rate of depreciation of 100% in the depreciation schedule of the IT Rules is available in respect of the temporary wooden structures. Therefore, the claim of depreciation @ 100% in respect of Furniture & fixtures (Interiors) has been made which is also disclosed in the Tax Audit report and^Ihe JQ&ejjEeciation schedule annexed to the Tax Audit report where in the claim of the assesses was duly certified by the Tax Auditors. The basis for claiming 100% depreciation is the assets which came into the fold of 03C as a result of amalgamation, the opening WDV in the hands of EGTB becomes the actual cost of assets in the hands of OBC in terms of provisions of sec. 43(i) read with

9 ITA No.5865/Del./2013

sec. 43(6) read with Explanation 2 to clause (c). It is submitted that the claim of depreciation at 100% has been clearly stated in the depreciation schedule duly verified by the auditors in the Tax Audit report; therefore, there is no case for alleging furnishing of inaccurate particulars of such income. 4,3 In view of the above submission of the appellant, the issue to be decided in this appeal is whether appellant has concealed any particulars of income or furnisned inaccurate particulars of income and whether penalty is leviable u/s 271(l)(c) of the IT Act. The expression'has concealed the particulars of income and has furnished inaccurate particulars of income' have not been defined either in section 271 or elsewhere in the Act. However, not withstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from the return. According to Law Lexicon, the word "conceal" means: "to hide or keep secret . It means to hide or withdraw from observation; to cover or keep from sight; to prevent Ihe discovery of; to withhold knowledge of. The offence of concealment is, thus, a direct atlumpl to hide an item of income or a portion thereof from the knowledge of the income-tax authorities." In Webster's Dictionary," inaccurate " has been defined as : "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript.". The return of income has been filed by the appellant for the period upto 13.08.2004 for the AY 2005-06 pertaining to the transactions of Erstwhile Global Trust Bank from 01.04.2004 to 13.08.2004. In the depreciation schedule in the return filed for AY 2004-05 depreciation on •'Furniture & Fixture" was claimed @ 15% and W.D.V. was shown at Rs. 25,02,51,2941- as on 31/03/2004. The auditors of Erstwhile Global Trust Bank have classified the assets as \ "Furniture & Fixture" on which the Erstwhile Global Trust Bank has been consistently claiming depreciation @15% in all the earlier years. However, while filing the return for AY 2005-06, pertaining to transaction from 01/04/2004 to 13/08/2004 above asset of "Furniture & Fixture" were reclassified in to "Furniture & Fixture" with W.D.V. of Rs. 2,51,98,8507- as on 31/03/04 to claim depreciation @ 15% and W.D.V. of Rs. 22,50,52,444/- as on 31/03/04 to claim depreciation @ 100%. Sub-clause (ii) sec 32(1) clearly provides that depreciation shall be allowed in the case of block of assets as per the prescribed percentage on written down v?l-s ^ec 43(6) clearly provides ihst W.D.V. in the case of cny block of assets means W.D.V. of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect of that block of assets in the said

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preceding the previous year. The above assets were shown in the blocks of assets "Furniture & Fixture" with WDV of Rs. 25,02,51,2947- as on 31/03/2004 after depreciation allowed at the prescribed rale of 15%. Therefore, in view of clear provision of sec 32(1) and sec 43(6), by taking out certain assets of Rs. 22,50,52,444/- from the block and reclassifying them as temporary wooden structure so as the claim 100% depreciation therein in the return of income tiled for AY 2005-06, the-appellant has clearly furnished inaccurate particulars of income to the extent of Rs. 7,13,13,7977-. The provisions of section 271(l)(c) of the Act stipulate that if the Assessing Officer or the CIT(Appeals) or the Commissioner, in the course of proceedings underJhis Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars thereof, he may direct that such person shall pay by way of penalty a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by a reason of the concealment of particulars of his income. In view of the above, since the appellant has furnished inaccurate particulars of income, therefore, penalty u/s 271(1) is clearly leviable. 4.4 Further, explanation 1 to section 271(l)(c) of the Act mentions that where in respect of any facts material to the computation of the total income of any person under the Act, such person fails to offer an explanation or offers an explanation which is found by the AO or the C1T (Appeals) or the Commissiomr to be false, or such person offers an explanation which he is not able to substantiate -and-fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his totai income have been disclosed by him, then the amount added or disallowed in computing the totai income of such person as a result thereof shall for the purpose of clause (c) of section 271(1), be deemed to represent the income in respect of which particulars have been concealed. 4.5 In this regard the appellant explained that since the amalgamation of erstwhile GTB took place vide Govt. of India Notification dated 14th Aug. 2004 with OBC, the written down value of the block of furniture and fixtures as on 3ist March 2004 was considered as the actual t—~—— — ^ costji/s 43(6) read with explanation 2. Jfoerefore, at the time of amalgamation, the written down valise of U*e assets of erstwhile GTP u/:ve become the actua! cost of assets of OBC and thereafter OBC has claimed depreciation by putting it in the block of the assets which it is regularly considering as entitled for 100% depreciation. In other words, the assets

11 ITA No.5865/Del./2013

which have been amalgamated are considered as that year's addition so far as OBC is concerned and the corresponding categorization is done by OBC according to the classification followed by OBC in respect of those assets. 4.6 Therefore, in order to examine whether the abov^ explanation is able to substantiate the claim and whether the explanation of the appellant is bonafide, it is necessary to look into the provisions of explanation 2 to sec 43(6) which is as under: 43(6) "written down value" means- (c) in the case of any block of assets,— = (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,— . -,- (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset failing within that block as reduced — (6)................................................ (//) in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1989, the written down value of that block of assets in the immediately preceding previous year as reduced by the depreciation actually allowed in respect cf thst block of assets in relation to the said preceding previous year and as further adjusted a *3 i v -• by the increase or the reduction referred to in item (/).] Explanation 1. — ....................................................................... Explanation 2. — Where in any previous year, any block of assets is transferred, — (a)... .............................. ...................................... (b) by the amalgamating company to the amalgamated company in a scheme of amalgamation, and the amalgamated company is an Indian company, then, notwithstanding anything contained in clause (!}, the : actual_cpst.G_f the block of assets jn the case of the transferee-company or the amalgamated company, as the case may be, shall be the written down value of the block of assets as in the case of the transferor-company or the amalgamating company

12 ITA No.5865/Del./2013

for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. From the above provisions of sec 43(6) read with explanation (2) it is clear that where in any previous year, any block^o£ assets is transferred by the amalgama|:in^company to the amalgamated company, the actual costjrf the _biock_p_f assets in_.the case of the_ amalgamated company shall be the written down value of the block of assets as in the case of the amalgamating company for the immediately preceding previous year as reduced by the amount of depreciation actually allowed in relation to the said preceding previous year. Therefore, the Y—————~-~- benefits of treatment ofWDV of furniture and fixtures as on 31/03/2004 to be considered as actual cost u/s 43(6) read with explanation (2)_Js^ available after the amalgamation on 13/08/2004only to the amalgamated company which is OBC in the instant case. Theappellant, Erstwhile GTB in the return filed' for AY 2005-06 pertaining to transaction before the amalgamation cannot claim the benefit of W.D.V. to be considered as cost of asset. The benefit is not available to the amalgamating ^e^-iny but onl) to the amalgamated company after the amalgamation. Therefore, claim of depreciation by the appellant on the basis of explanation^^ to sec 43(6) is clearly contrary to the provisions of the Act and as such the explanation^of tht appellant is neither bonafide nor able to substantiate the claim. i 4.7 Further sec 32(1) and 5th proviso below section 32(l)(ii) says: 32.(t) In respect of depreciation of — (0 buildings, machinery, plant or furniture, being tangible assets; PO ....................................................................... owned, wholly or partly, by the assessee and vsed for the purposes of the business or profession, the following deductions shall be ahowed — (i) (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed Provided ....................................................................... Provided further that ....................................................................... Provided also that where an asset being commercial vehicle Provided also that. …………………….. Provided also that the aggregate deduction, in respect of depreciation of

13 ITA No.5865/Del./2013

buildings, machinery, plant or furniture, being tangible assets or know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets allowable to the predecessor and the successor in the case of succession referred to in clause (xiii) and clause (x/v) of section 47 or section 170 or to the amalgamating company and the amalgamated company in the case of amalgamation, or to the demerged company and the resulting company in the case of demerger, as the case may be, shall not exceed in any previous yea- the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor, or the amalgamating company and the amalgamated company, or the demerged company and the resulting company, as the case may be, in the ratio of the number of days for which the assets were used by them. Explanation 2.—For the purposes of this sub-section "written down value of the block of assets" shall have the same meaning as in clause (c) of sub-section (6) of section 43. From the above it is clear that the aggregate deduction, in respect of depreciation allowable to the amalgamating company and the amalgamated company in the case of amalgamatioi^sjiaiiv not exceed in any previous year the deduction calculated at the pr^scnbed_j3tes_._as J£ the amalgamation had not taken place, and such deduction shall be apportioned between the amalgamating company and the amalgamated company, in the ratio of the number of days for which the assets were used by them. From the above also, it is clear that while allowing deduction of depreciation to the amalgamating company and the amalgamated company, the deduction shall not exceed the deduction calculated at the prescribed rates as if the amalgamation had not taken place. In view of the above clear provisions, the depreciation on the furniture and fixtures is allowable @15% on which appellant was consistently claiming the \depreciation @ 15% before amalgation. In view of the above, it is clear that the explanation provided by the appellant is not able to substantiate the claim and fails to prove that it is bonafide. 4.8 Further, the claim of the appellant that it made complete disclosure in the depreciation schedule which was duly verified by auditors in the Tax Audit Report, is also of no merit. A bare reading of sec 32(1) and sec 43(6) would reveal even to a layman that there was no scope for getting the benefit of those provision in respect of depreciation as claimed by the appellant. It could not be understood as to how the auditors who are supposed to be experts in

14 ITA No.5865/Del./2013

lax laws, could give such an opinion, having regard to the plain language of section 32(1) and 43(6). Further, it v*-. -ot a case where two opimons about the allowabiiitv ^f depreciation claim were possible/JJiereiore, it could not be a case of a bona fide error on the part of the assessee. The excess deduction of depreciation claimed u/s 32(1) is ex facie inadmissible. Merely because the assessee complies with the statutory procedural requirement of filing the prescribed form and certificate of the Chartered Accountant, cannot absolve the assessee of its liability if the act or attempt in claiming the deduction was not bonafide. : 4.9 Moreover, the claim of the appellant that it made complete disclosure in the depreciation schedule is also without any basis. During the appellate proceeding the appellant was asked to furnish detail break up of "Furniture & Fixture" where depreciation was claimed @ 15% and the "Furniture &. Fixture" treated as "temporary wooden structure'1 where WDV was shown at Rs. 22,50,52,4447- as on 31/03/2004 to claim depreciation @ 100%. Appellant submitted the detail of "Furniture & Fixture". However, the appellant could not explain o what basis the figure of WDV of Rs. 22,50,52,444/- was arrived at in respect of which th depreciation was claimed @ 100%. Therefore, it is clear that the appellant has failed to prove that all the facts relating to the claim and material to the computation of total income have been disclosed. 4.10 On identical issue of exfacie in admissible claim made u/s 35D on the basis of certificate of auditors Hon'ble HIGH COURT OF DELHI in CIT vs. Escorts Finance Ltd. [2009] 183 TAXMAN 453 (DELHI) while upholding the penalty levied by the AO u/s 27 Kl)(c) held thai: In the present case, we have to examine as to whether the claim made under section 35D of the Act was bogus or it was a bona fide claim. The assessee pleaded bona fide, as according to it, it was based on the opinion of the Chartered Accountant. Learned counsel for the revenue, however, submitted that a bare reading of section 35D would reveal even to a layman that there was no scope for getting benefit of those provisions in respect of expenses incurred in connection with the public issue of shares such as underwriting commission, b'okerage and other charges etc., inasmuch as certain expenses are allowable only when they are incurred with the expansion of assessee's industrial undertakings or in connection with his setting up of a new industrial undertaking or infc-j . J :mit whereas the assessee k> a finance company. We are in agreement with the aforesaid submission of learned counsel for the revenue. That apart, when we find that it is not a case where two opinions

15 ITA No.5865/Del./2013

about the applicability of section 35D were possible. Therefore, it cannot be a case of a bona fide error on the part of the assessee. The relief available under section 35D of the Act to a finance company is ex facie inadmissible. In such a case it is difficult to accept the plea that error was bona fide. 4,11 Uon'ble IT AT Delhi in Chadha Sugars (P.) Ltd. v. ACIT [2012] 18 taxmann.com 244 (Delhi) upheld the penalty levied u/s 27 U.l)(c) where patently disallowable claim was made on the basis of opinion of auditor. In that decision it was held that: It is the admitted position of law that the expenditure in question is not revenue in nature and, therefore, it is not deductible in computing the total income. It is also the admitted fact that two decisions of the Supreme Court, adverse to the assessee, held filed when the return was filed. This means that the claim is patently disa'Sowable. The assessee's explanation is that it had taken an expert opinion from chartered accountants who opined that the expenditure is revenue in nature. The claim was pursued even up to the level of first appellate authority in gross disregard for the decision of the Supreme Court, which the assessee came to know at least after receiving the assessment order. Therefore, it can be held that the claim was not only wrong but also false and it was persisted with for some time. The assessee has not even sought explanation from tax auditor or chartered accountant which gives the impression that whole thing is a sham. The assessee has not furnished any satisfactory explanation as to why a prima facie inadmissible claim was mace in the return, and, therefore, the assessee has made itself liable for levy of penalty. 4.12 Hoivbie Gujrat High Court in the case of A.M. Shah & Co. v.CIT [1999] 238 ITR 415/[2000] 108 Taxman 137 (Guj) observed that there cannot be a straight jacket formula for detection of these defaults of concealment or of furnishing inaccurate particulars of income. In terms of provisions of sec. 271(l)(c) of the Act read with explanation 1 thereto and the judicial pronouncements in the case of B.A. BaSasubramaniam & Bros. Co. v. C1T [2001] i 16 Taxman 842 (SC);C1T v. B.A. Balasubramaniam & Bros. Co. [1985] 152 ITR 529 / 20 Taxman 2i5(Mad.), CIT v. Mussadilal Ram Bharose [1987] 165 ITR 14 /30 Taxman 546H; C1T v.K.R. Sadayappan [1990] 185 ITR 49 / 51 Taxman 304 , Addl. CIT v. Jeevan Lal Sah[!994] 205 ITR 244 / 73 Taxman 182 (SC) and K.P. Madhusudanan v. CIT [2001] 251 ITR 997 118 Taxman 324 (SC), H i- .-.-ell established that whenever there is difference be*-.-;:;^ the returned and assessed income, there is inference of concealment. The Explanation 1 to sec. 271(l)(c) of the Act raises a presumption that can be rebutted by the assessee with reference to facts of the case. Thus, the onus is on the assessee to rebut

16 ITA No.5865/Del./2013

the inference of concealment. The onus laid down upon the assessee to rebut the presumption raised under Explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted, in CIT v. K.P. Madhusudanan [2000]246 ITR 2i8/[2002] 125 Taxman 265, Hon'ble Kerala High Court came to the conclusion that penalty was liable to be imposed in a case where the assessee could offer no acceptable explanation for the income not disclosed or the inaccurate particulars he had furnished in his return. 4.13 Hon'ble Apex Court in Union of India vs. Dharmendra Textile processors (SC) 306 ITR 277, Guljag Industries Ltd. vs. CTO (SC) 293 ITC 584 and CIT vs. Atul Mohan Bindai (SC) 317 ITR 1 have held that 'mens rea' not essential lor civil liability of penalty - Penalties under fiscal statutes are for breach of civil liabilities - Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 276C. 4.14 After distinguishing the decision in CIT vs. Reliance Petroproducts Pvt Ltd. (2010) 322 ITR 158 where Hon'ble Apex Court decision was rendered because two views were possible in that case, Hon'ble Delhi High Court in CIT v. Zoom Communication (P.) Ltd [2010] 191 TAXMAN 179 (Delhi), have held: " It is true that mere submitting a claim which is incorrect, in law, would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bona fide. If the claim besides being incorrect, in law. is mala fide the Explanation 1 to section 271(1) would come into play and work to the disadvantage of the assessee. [Para 19] The Court cannot overlook, the fact that only a small percentage of the income-tax returns are picked up for scrutiny. If the assessee makes a claim of the appellant which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by the appellant for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(l)(c ). If one takes the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona t•.<*? while making a claim of this nature, that would give a licence to the unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) and even if their case is selected for scrutiny, they can get away merely by paying the tax, which, in any case, was payable by them. The consequence would be that the persons, who make claims of this nature, actuated by a mala fide intention to

17 ITA No.5865/Del./2013

evade tax otherwise payable by them, would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have." [Para 20]" 4.15 In a-recent decision dt. 29/07/2013 in the case of CIT vs. HCIL Kalindee ARSSPL in ITA Nos.480/2012 and in the case of CIT vs. HCIL ARSSPL Triveni (JV) in ITA Nos. 481/2012 Hon'ble Delhi High Court has upheld the penalty u/s 271(l)(c) imposed by the AO where inadmissible deduction claimed u/s 80IA was disallowed and added to the income of the assessee. In these cases also the appellant claimed that the deduction u/s 801A of the Act were claimed on the basis of certificate of Charted Accountant. While upholding the penalty imposed by the AO, the Hon'ble Jurisdictional High Court have held as under: "Penalty provisions are not criminal and do not require culpable ntens tea. Whether or not the assessee had acted malafidely is not the relevant question to be asked and answered. The relevant question to be asked and answered is whether the assessee has discharged the onus and satisfied the conditions mentioned in Explanation 1 to Section 271 (1 )(c) of the Act. Penalty under Section 271(l)(c) of the Act is imposed when an assessee has concealed his income or-.furnished, inaccurate particulars. In terms of the explanation quoted above, we haVe^tp'-exaaVvne whether the case falls within sub-clause,.(AV-cy (B) and the effect thereof. Sub-clause (A) applies when the assessee fails to furnish any explanation or when an explanation is found to be false. In the present case, sub-clause (A) would not be applicable as assessee has furnished an explanation, and the explanation has not been found to be "factually" false. The assessee had made a wrong claim for deduction under Section SOJA and, therefore, had furnished inaccurate particulars as the claim was not admissible. Sub-clause (B) of the explanation is. therefore, applicable and we have to examine the two conditions whether: (1) The assessee has been able to show that the explanation was bonafide; and (2) Facts and material relating to computation of his income had been disclosed. 9. Onus of establishing that the assessee satisfied the two conditions is on him i.e. the assessee. We shall examine the first condition i.e. whether the explanation of the assessee was bonafide. The second condition is satisfied. 10. In the present case, we note that fribunal has proceeded on the premise that the claim for deduction under Section 80IA of the Act was duly supported by the Chartered Accountant's Certificate and prescribed forms signed by the Chartered Accountant. For claiming deduction under Section 80IA of the Act, filing of certificate and forms signed by the Chartered Accountant is

18 ITA No.5865/Del./2013

mandatory and a requirement of law. Ail returns, where deduction under Section SOIA is claimed, must have such certificates and forms. Mere filing of the said forms/certificate cannot absolve and protect an assessee who furnishes in-accurate particulars. If the explanation and the reasoning of the Tribunal is accepted, then in all cases where a form/certificate is furnished by the Chartered Accountant but a wrong claim of deduction is made, no penalty under Section 271(!)(c) can be imposed. Merely because the assessee complies with the statutory procedural requirement of filing the prescribed form and certificate *;f the Chartered Accountant cannot absolve the assessee of its liability if the act cr attempt in claiming the deduction was not honafide. 11. Two reasons were given by the Assessing Officer why the claim for deduction under Section SOiA of the Act was rejected and should be denied. The first reason was that the respondent assessees were involved in works contracts and Explanation to Section SOIA (13) stipulates that benefit under the said Section was/is not available to a contractor carrying on works contract. The said "clarificatory" explanation was inserted by the Finance Act, 2007 with retrospective effect from 01.04.2000. The CIT (Appeals) in the first appellate order has specifically mentioned that the^Finance Act, 2007 received the Presidential assent on 11.05.2007 [(2007) 291 ITR (St.) 1]. The returns of income were filed by M/s. HCIL Kalindee ARSSPL (JV) and M/s. HCIL ARSSPL Triveni (JV) on 01.11.2007. An amendment of this nature invariably attracts attention and is seldom missed. Such amendments become topic of discussion and conversation in the professional circles. To show and establish bonafides, the assessees had to show some more "tangible material" or basis as to why a clear statutory provision which excludes works contracts was ignored. 12. Penalty of concealment cannot be imposed because the assessee has taken a particular stand or had preferred an interpretation which was plausible and reasonable, but has not been accepted, unless the assessee had not displosoj- facts before the have to be distinguished from cases where the claim of the or farfetched. Dubious and fanciful claims under the garb of T a mere pretence and not bonafide. :3L ft is MX the case of the respondent assesses that there were conflicting decisions of Cam or there was a recent decision of the Supreme Court which had escaped or was not understood or an appeal or review etc. was pending before the Court. The explanation added was clear and categorical. The Tribunal has not referred to the Explanation tc. Section 80IA as to why and on what basis divergent interpretations were possible. Absurd or illogical interpretations cannot be pleaded and become pretence and excuses to escape penalty. "Bonafides" have to be shown and cannot be assumed. In the present

19 ITA No.5865/Del./2013

case, the respondents have not been able to discharge the said onus and establish that they had acted bonafidely." 4.] 6 In view of the above, it is clear that the explanation of the appellant is neither bonafide nor it is able to substantiate the claim. Further, the claim that it made complete disclosure in the depreciation schedule is also not true and without any basis. One cannot forget that the State depends upon the revenue out of the tax collected by the department. Tax exemption, tax concession and tax deduction have to be for bona fide reason. Section 271(l)(c) has to be strictly applied in the larger interest of discipline in filing correct returns by the assessee. View has to be kept on the fact that penalty provisions are not criminal and do not require culpable mens rea. 4.17 Further, the decisions relied on by the: A/R are not applicable in the instant case. In the case of CIT v. Reliance Pertoproducts Pvt. Ltd. [2010] 322 ITR 158 (SC) it was held that penalty was not imposable because two views were possible in that case. In the case of CIT v. IFCI Ltd. [2010] 328 ITR 611 (Del)(HC) it was held that there was no inaccurate furnishing of particulars of income because merely a capital loss claimed as revenue loss was not allowed in that case. In the case of CIT v. Mahanagar Telephone Nigam Ltd. [2011] 63 DTR 87 (Del)(HC) it was held that penalty was not imposable because there was no finding that the assessee has furnished inaccurate particulars of income. In the case of CIT v. Saraya Industries ltd. [2008] 1 DTR 434 (Del)(HC) and Hero Honda Motors ltd. v. DCIT [2012] 014 ITR (Trib) 161 (Del) penalty was held not imposable because view taken by the assessee was a plausible view which the A0:fdid^^agree with. In the case of Metal Rolling Works ltd. v. CIT [2011] mot impost ble because the AO himself was not iacoine was to be taxed. Therefore, it was held that it concealed the income or furnished inaccurate particulars of f• mi i "^T- M e p:-J~ ~"J Sonspvt. ltd. [2011] 336 ITR 125 (Del)(HC), fa-** aoc agin riill because the issue was debatable. In the case of CIT v. Rubber fcL [2011] 335 ITR 558 (P&H) (HC) penalty was held not imposable dam was made in a bona fide way for setting off carry forward business loss f^r~=- --^ :^-^rne arising on sale of business assets. In the instant appeal it is clearly . . -ai ;he appellant has furnished inaccurate particulars of income, the explanation of 1*,^ appellant was not bonafV. ird the claim of complete disclosure is false. Further, h '^HS not a case where two opinions about the allowability of depreciation claim were possible. Neither the view taken by the appellant was a plausible view nor the issue is debatable. 4.18 In view of the above factual and legal position, since the claim of the appellant is not only incorrect in law, but is also wholly without any basis and

20 ITA No.5865/Del./2013

the explanation furnished by the appellant for making such a claim is not found to be bona fide, therefore, the AO is fully justified in imposing the penalty of Rs. 2,60,95:501/- u/s 271(l)(c) of the IT Act. The appeal fails in these grounds. . - 5. In the result, the appeal is dismissed.”

the first appellate authority has dealt with the case from each and every angle

and the assessee could not be able to adduce any cogent material on record to

discard the conclusions reached by the ld. CIT(A) in the impugned order. In

support, the ld. CIT(A) has relied upon plenty of decisions of Hon’ble High

Courts and Hon’ble Supreme Courts and has also distinguished the decisions

relied on by the assessee. The ld. CIT(A) has rightly found that in the instant

case, it stood established that assessee had furnished inaccurate particulars of

income, the explanation of the assessee was not found a bona fide explanation

and hence, the claim of assessee that he made full and complete disclosure of

facts necessary for assessment, was found false. The ld. CIT(A) after

considering all the aspects of the case has rightly concluded that it was not a

case where two opinions about the allowability of depreciation were possible.

Therefore, in view of the peculiar facts and circumstances of the case, we find

no material on record to interfere with the order of the ld. CIT(A) and the

same deserves to be upheld. As a result, the appeal of the assessee has to fail.

21 ITA No.5865/Del./2013

Order pronounced in the open court on 21.04.2017.

Sd/- Sd/-

(I.C. SUDHIR) (L.P. SAHU) Judicial Member Accountant Member

Dated : 21.04.2017 *aks/-

Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant. Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi