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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI I.C.SUDHIR & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld CIT(A)-XXVIII, new Delhi dated 27.12.2013 for the Assessment Year 2006-07 wherein, penalty under section 271 (1) (C) of the act was sustained on disallowance of interest u/s 234 and 234C of the act applying provisions of section 40a (ii) of the income tax act. 2. The assessee has raised the following grounds of appeal:- “The appellant objects to the order dated
27. December 2013 passed by the Commissioner of Income Tax (appeals) XXVIII, New Delhi on the following grounds: The Learned Assistant Commissioner of Income-tax erred in law well as on facts in levying penalty u/s 271(1)(c) on Rs. 3752043/-. The Commissioner (appeals) erred in confirming the same.”
Appellant is a firm of chartered accountants. It filed its return of income on 31st of October 3. 2006 declaring total loss of Rs. 53853703/–. The Ld. assessing officer passed assessment order under section 143 (3) of the act on 31st. December 2008 whereby disallowance of Rs. 3752043/– was made on account of interest on income tax. The assessment history of the disallowance was that assessee has debited to profit and loss account a sum of Rs. 3752043/– Page 2 of 13 being interest paid on income tax. During the course of assessment proceedings, the Ld. assessing officer asked assessee to explain that why such interest paid on income tax shall not be disallowed. In response to this assessee submitted reply dated 22/10/2008 that it is an allowable expenditure contesting that provisions of section 40 a(ii) does not provide for the disallowance of interest paid on income tax and accordingly interest paid on income tax is an allowable expenditure. A further reply dated 12/12/2008 was made wherein it was submitted that on consideration of totality of facts and with a view to buy peace, avoid litigation and cooperate with the Department, it withdrew its claim for the deduction of the sum of Rs. 3752043/- suo motto. Thereafter, the Ld. assessing officer made the above disallowance. However, while disallowing the claim, the Ld. assessing officer initiated penalty proceedings under section 271 (1) (c ) of the income tax act. The Ld. assessing officer issued show cause notice under section 274 of the act rws 271 of the income tax act along with the assessment order dated 31st. December 2008. As in the assessment order some other disallowances were also made the assessee challenged the same before the first appellate authority who vide order dated 08/12/2010 partly allowed the appeal of the assessee. However in the appellant proceedings the issue on which the penalties contested before us was not there as assessee has accepted that addition on its own in assessment proceedings. Therefore penalty proceedings were revived by issue of notice dated 11/03/2011, 06/03/2012, 28/03/2012.
In penalty proceedings before the Ld. assessing officer with respect to the disallowance on account of interest on income tax of Rs. 3752043/- It was submitted that the above interest expenditure is consisting of interest payable under section 234B and 234C of the income tax act. It was further submitted that the assessee considered the same as an allowable expenses as the „tax” in section 2 (43) of the income tax act, does not include interest charged under the act. It was further contested that section 40a(ii) only disallows ‟Tax” and interest paid on the income tax is nothing to do with the profit of the assessee and therefore the provisions of section 40a(ii) does not provide for the disallowance of interest paid on the income tax. Accordingly it was contested that interest paid was claimed as an allowable expenditure. It was further contested that the during the assessment proceedings itself the claim of deduction was withdrawn to buy peace of mind, to avoid litigation and cooperate with the Department, t that adequate disclosures in the return of income was made as it was specifically debited to the profit and loss account and further during the course of assessment proceedings full disclosure regarding making the claim of the interest on income tax was made, penalty is not leviable. It was further contested that mere making of a claim, which is not sustainable in law by itself, will not amount to furnishing of inaccurate particulars of concealment of income. The reliance was placed on the decision of the Hon‟ble Supreme Court in case of CIT versus Reliance Petro products (p) Ltd [322 ITR 158. In view of this, it was stated that assessee has Page 3 of 13 neither furnished inaccurate particulars of income nor concealed income and hence, no penalty should be levied under section 271 (1) ( c) of the income tax act.
The Ld. assessing officer in penalty order stated that the first assessee tried to explain that the said expenditure is allowable, latter on retracted from its own statement when asked to show cause, and then offered the sum in question with a view to buy peace, avoid litigation and cooperate with the Department. Therefore he held that the assessee firm realizes that they have made a claim, which is not sustainable in law and therefore proposed for withdrawing the same when the act provides that the income tax is not an allowable expenses and therefore interest on such is not an allowable expenses. Therefore he held that the assessee firm had made a wrong claim in return thinking that it would not be caught. He also held that it is not correct that the assessee has surrendered the amount suo motto. According to him had the assessing officer not raised is objection assessee firm would not have surrendered the above sum. He further held that the assessee is a firm of chartered accountants, which advises people on taxation matter, and how such a firm having expertise over taxation matter can commit this kind of blunder. Therefore, according to the Ld. assessing officer, all these facts show that the intention of the firm was mala fide. He further rejected the contention of the assessee that the surrender was on condition that no penalty proceedings be initiated on this against the firm. The reason for rejection of the claim of the assessee is that that such a concession cannot be given as it would take away the deterrent effect which this penalty provisions in the act have. Consequently he levied the penalty on the above said disallowance at 100% of tax shought to be evaded.
Aggrieved by the order of the Ld. assessing officer, the assessee preferred an appeal before the Ld. first appellate authority contesting penalty on the above disallowance vide ground No. 1 before him. Before the Ld. first appellate authority , Assessee contested that in view of the definition of “Tax” under section 2 (43) of the income tax act interest on income tax does not fall in „Tax‟ and therefore it is not disallowable under section 40a(ii) of the income tax act. Therefore it cannot be said that the claim made by the assessee was prima facie untenable in law, attracting penalty for furnishing inaccurate particulars of income. It was further stated that the above amount was reflected on the face of the profit and loss account as a separate line item, therefore, there was full disclosure. Assessee further contested before the Ld. first appellate authority that mere making of the claim which cannot be sustainable in law, by itself would not amount to furnishing of inaccurate particulars or concealment of income. It was further submitted that the act of surrendering in the course of assessment proceedings to buy mental peace could not be made basis for levy of penalty. It further contended that in view of huge loss no mala fide intention can be attributed to the appellant and further the issue involved is debatable and therefore the penalty cannot be levied by the Page 4 of 13 assessing officer on this disallowance. The Ld. first appellate authority vide order dated 27. 12 .2013 has held that the claim of the appellant for deduction of interest on income tax, which is not deductible as an expenditure under section 40 a (ii) is not bonafide. Therefore he held that the information furnished by the appellant in the return of income was factually incorrect and the appellant cannot escape the rigours of the provisions of section 271 (1) ( c) of the income tax act, 1961. He further quoted the decision of the Hon‟ble Delhi High Court in the case of CIT versus Escort finance Ltd 328 ITR 44 wherein it has been held that even if there is no concealment of income or furnishing of inaccurate particulars, but if the claim which is ex- facie bogus the same will still attract penalty provisions. He further relied upon the decision of the Hon‟ble Delhi High Court in the case of CIT versus Zoom Communications private limited that non sustainable claims cannot be said to be bona fide and therefore prima facie unsustainable claim made in the return of income shall definitely invite penalty. He further relied on the decision of the Hon‟ble Delhi High Court in the case of CIT versus MaK data Ltd and confirmed the penalty under section 271 (1)( c) of the income tax act on disallowance of interest on income tax of Rs. 3752043/- . The assessee being aggrieved with the order of the Ld. CIT appeal has preferred an appeal before us raising the solitary ground of appeal
that the Ld. assistant Commissioner of income tax erred in law as well as on facts and levying penalty under section 271 (1) (C) on Rs. 3752043 and the Commissioner of appeals erred in confirming the same.
7. The Ld. authorized representative vehemently contested before us that the penalty levied by the Ld. assessing officer and confirmed by the 1st appellate authority is incorrect for the following reasons:- a. Firstly, he referred to page No. 7 of the paper book, which is the profit and loss account of the assessee for the year ended on 31st of March 2006 wherein the assessee has debited a sum of Rs. 3752043/– titled as interest paid on income tax. The above sum has been shown on the face of the profit and loss account as a separate line item and thereafter the profit was carried down. He further referred to the decision of the coordinate bench in case of M/s Akshar Buildell private limited versus CIT in for assessment year 2008 – 09 dated 13/05/2016 wherein the claim of the expenditure on account of fees paid to the registrar of companies for increasing share capital was disallowed and on which the penalty was levied, was deleted holding that detail supplied by the assessee in its return of income are not found to be incorrect or erroneous or false. b. He further referred to decision of coordinate bench in ITA No. 5758/del/2012 for assessment year 2006 – 07 in ACIT versus M/s overseas Courier service India private Page 5 of 13 limited wherein the disallowance of interest paid on late payment of TDS and charity and donation, penalty under section 271 (1) © was also held to be not leviable. c. He further referred to the provisions of section 2 (43), 40(ii) and section 179 of the income tax act to submit that „tax‟ does not include interest is a plausible explanation of the assessee. He submitted that the provisions of section 179 related to the liability of directors of a private company in liquidation wherein the amount of tax due did not include penalty and interest or any other sum payable under the act, prior to the amendment inserted by the finance act 2013 w.e.f. 01/06/2013 and therefore, his submission was that wherever the amount of interest on tax required to be included, the law has made provision. According to him the provisions of section 2(43) refers to only the “tax” and therefore it implies that it does not include interest payable on such tax. He further referred to the provisions of section 40a(ii) which also refers to the tax levied on the profits and gains of the assessee. Therefore, his contention was that in the disallowance also there is no specific mention of the interest payable on the income tax. He further referred to the circular of the Central board of direct taxes of 2015 which provides that no appeal shall be filed by the revenue before the higher forum is unless the “tax” involved in that particular appeal is lower than a specified sum, in that circular also the amount of interest is to be separately considered. He relied upon the decision of the Hon‟ble high court of Allahbad in Pratima Garg versus CIT 264 CTR 520 which was rendered with respect to the provisions of section 179 wherein it has been held that any tax due for the purpose of section 179, would not include penalty and interest for the period prior to insertion of the explanation in section 179 by the finance act 2013. He also relied on the decision of the Hon‟ble Delhi High Court in 352 ITR 468 wherein it has been held that the tax due does not include the amount of interest on such tax. He further referred to the provisions of section 249 (4) wherein it is provided that no appeal under this chapter shall be admitted unless at the time of filing of the appeal the assessee has paid tax due on the income returned by him. He further referred to the decision of the Hon‟ble Delhi high court with this contention in 316 ITR 218 in case of CIT versus manojkumar beriwal with the court held that with respect to the provisions of section 249 (4) the amount of interest is not included in the tax dues. He further referred to the decision of the Hon‟ble High Court of Punjab and Haryana in CIT versus Great value food 228 taxman 133 wherein it has been held that where assessee was in default in making payment of interest no penalty under section 221 (1) could be levied wherein the provisions of section 221 of the income tax act were interpreted that penalties exigible only when tax is in default. He thereafter referred to the decision of the Page 6 of 13 Hon‟ble Bombay high court‟s in CIT versus PB Hathiramani 207 ITR 483. He further relied on the decision of the Hon‟ble Supreme Court in case of Harshad Shantilal Mehta versus custodian 231 ITR 817 with reference to the tax dues. Therefore, his main thrust was that that in several provisions of the act, it was not clear whether the provisions of the income tax includes interest thereon or not , which was decide by juical precedents only, and therefore the claim made by the assessee is though unsustainable cannot be said to be false or wrong claim. d. He further submitted that tax auditor of the assessee also certified that amount inadmissible under section 40 (a) is nil. Therefore the assessee was further guided by the certificate of the tax auditor also that interest on income tax is not disallowable. e. He further referred to page No. 46 of the paper book submitted before us, which shows that though in assessment proceeding the assessee might have contested the allowance of the above sum, However, in penalty proceedings, it cannot be proved that assessee has furnished inaccurate particulars of income or concealed income. He stated that penalty proceedings and assessment proceedings are two different proceedings. f. He further referred that in the show cause notice issued by the Ld. assessing officer. He has framed twin charges that are that assessee has concealed income or furnished inaccurate particulars of such income and none of the alternatives has been struck off. He further referred to page No. 86 of the paper book, which is the copy of the assessment order under section 143 (3) of the income tax act where the assessing officer has mentioned that he is satisfied that the assessee has furnished inaccurate particulars of income thereby concealing its income and rendering itself liable for initiation of penalty proceedings. He further referred to the penalty order wherein the Ld. assessing officer in Para number 5.1.2 of his order has confirmed the penalty for furnishing inaccurate particulars of income. For this proposition he relied upon the order of the coordinate bench in Navinbhai M Patel 27 ITD 411 and decision of the Hon‟ble Gujarat High Court in News Soarthia Engg V CIT to 82 ITR 642. He vehemently relied upon the decision of the Karnataka High Court in Manjunath cotton Mills versus CIT 359 ITR 565. Therefore, his contention was that in the show cause notice issued by the Ld. assessing officer has not cancelled twin charges and assessee in its reply to the show cause notices relied upon the six decisions of the various courts and tribunals on the issue. Therefore, he was submitting that when the charge of the Ld. assessing officer on the assessee was not clear, the penalty levied by the Ld. assessing officer for the disallowance is also not valid.
Page 7 of 13 g. He further referred to the page No. 35 of the paper book wherein the approval was granted by the joint Commissioner of income tax vide letter dated 28/03/2012 to the Ld. assessing officer on the draft penalty order submitted. that it is non application of mind by the approving authority ia the order of approval granted by the joint Commissioner of income tax is nonspeaking. He relied on the decision of coordinate bench in Smt. Shree lekha Damani versus DCIT 173 TTJ 332. h. In the end, he relied upon the decision of the Hon‟ble Bombay high court in case of CIT versus Dalmia Dye Chem industries Ltd wherein the penalty was deleted on interest disallowance for the reason that interpretation placed by the assessee on the provisions of law, while staking the claim further cannot be considered to be dishonest, malafide and amounting to concealment of facts. i. Regarding the applicability of the decision of CIT versus Zoom Communications limited 327 ITR 510 it was submitted that same is distinguishable on facts in that case the assessee conceded before the assessing officer that its claim of revenue expenditure was not correct. It it is not the case of the assessee. Therefore the ratio laid down by the Hon‟ble Delhi High Court in CIT versus June, negations limited cannot be applied to the facts of the present case. He submitted that the decision of the Hon‟ble Delhi High Court in case of CIT versus Mak data Ltd cannot be applied mechanically and in case where the assessee offers cogent and reliable explanation than burden is discharged. He submitted that in that particular case the claim of the assessee was based on the interpretation of the various provisions of the income tax act. Therefore it cannot be said that it is neither cogent not reliable. He further stated that in that particular case the assessee did not offer any explanation and therefore the penalty was upheld by the Hon‟ble high court. He submitted that in the present case the appellant has offered the explanation as to how and why interest paid on income tax, shall be allowed.
Ld. departmental representative vehemently countered the argument placed by the Ld. authorized representative and submitted that the show cause notice issued by the Ld. and assessing officer is part of a legal form and therefore the argument of the Ld. Authorized representative about striking of the any of the alternative is not proper. He further submitted that the red assessing officer has stated in the assessment order that unquestioned by the Ld. assessing officer the assessee has come out with the surrender of the above amount. Therefore, the claim of the assessee that it has surrendered this above amount voluntarily is devoid of any merit. He further submitted that it is, patently wrong claim made by the assessee and therefore it is not a claim, which is unsustainable in law, or which, is having 2 interpretation. He therefore relied upon the order of the lower authorities and submitted that Page 8 of 13 the assessee‟s claim is patently illegal and wrong and lower authorities have correctly dealt with the issue.
We have carefully considered the rival contentions. Firstly we come to the arguments of the assessee on the technical points raised before us, such as issue of the notice between charge and approval given by the higher authorities of the penalty order.
10. With respect to the show cause notice issued by the Ld. assessing officer the assessee has contended that show cause notice contained the twin charges and none of them was cancelled and therefore the penalty levied is invalid at the stage of initiation itself. It was further submitted that in the assessment order itself at the Ld. assessing officer was not sure whether the assessee has furnished inaccurate particulars of income or concealed income. On this point it is important to note that though the assessing officer has not cancelled one of the charges in the show cause notice, the assessee himself has replied to both the twin charges raised in the show cause notice. It is not the case that the penalty has been initiated both the charges and assessee has replied to one of the charges. The meaning of the issue of the show cause notices that that the assessee must be aware about the charges made against him. In the present case the Ld. assessing officer has inadvertently or otherwise has not cancelled one of the options and therefore these so-called notice issued by the Ld. red assessing officer is no doubt on twin charges. But the assessee has also replied to both the twin charges stating that it is neither concealed the income not furnished inaccurate particulars of total income. The reason for the issuing of the show cause notices that the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(l)(c) do not exist as such he is not liable to pay penalty. The Hon‟ble Karnataka High Court in Sri Manjunath thecourt and engineering works Ltd versus CIT (supra) has dealt with the identical situation and held that:- “60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law.” In view of this we reject the contention of the Ld. authorised representative regarding the issue of the show cause notice on the twin charges.
Page 9 of 13 11. Coming to the issue of this approval granted by the Ld. at joint Commissioner of income tax. Wide letter dated 28/03/2012. It was the contention of the Ld. that they are that the order granting approval is not a speaking order and therefore it cannot be considered as an approval and it is a non-application of the mind of the approving authority. We have carefully considered the contention of the Ld. that they are and also perused the letter dated 28/03/2012 issued by the joint Commissioner of income tax, range – 37, New Delhi to the assessing officer approving the penalty order. On reading of the above letter, it is apparent that the assessee has sent the penalty order for approval which was received on 27th of March 2012 by the Ld. at joint Commissioner of income tax and who has granted approval. It is also apparent from reading of the letter that the Ld. assessing officer has sent the draft assessment order along with the assessment records to the Ld. at joint Commissioner of income tax, who approved the same as well as also instructed the assessing offer officer. Regarding timely services of the order returning the assessment records and is also directed him to submit a copy of the order to his office. The approval means confirmation, ratification, or assent to some action or thing done by another, which is submitted to. It may not be said in so many words, but it can also be inferred by the conduct of the higher authorities. Therefore it cannot be said that the deponent granted by the higher authorities without application of mind and is a nonspeaking order when same as been granted after perusal of the order as well as on verification of the records. Hence, we also reject the contention of the Ld. AR that the approval granted by the higher authority is by a nonspeaking order and without application of mind.
Now coming to the merits of the claim of the assessee we proceed to examine the same.The claim of the assessee during the course of assessment proceedings is that it has paid interest under section 234A and 234B of the income tax act, which was shown on the face of the profit and loss account was claimed as deduction is it was not hit by the provisions of section 40 a(ii) of the income tax act According to the assessee. Though assessee contested before the Ld. assessing officer initially that such sum is deductible as business expenditure But later on during the course of assessment proceedings, on being questioned, it surrendered the above amount and paid the due tax thereon. On this disallowance penalty is levied under section 271 (1) (C) of the income tax act. The assessee submitted before the Ld. assessing officer that section 40 a (ii) disallows any sum paid on account of any rate or tax is levied on the profits and gains of any business or profession, or assistant proportion of or otherwise on the basis of any such profit or gains. Hon‟ble Allahabad High Court in case of Pratibha Garg versus Commissioner of income tax 42 Taxmann.com 284 has considered the provisions of section 2 (43 of the income tax act in para No. 13 and 14 and has held as under:-
Page 10 of 13 “13. The words "tax due" has not been defined under the Act. However, we find that the word "tax" has been defined under Section 2 (43) of the Act as under : '"tax" in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date and in relation to the assessment year commencing on the 1st day of April, 2006, and any subsequent assessment year includes the fringe benefit tax payable under Section 115 WA.' 14. From a reading of Section 2(43) of the Act it is clear that tax under the Act does not include penalty and interest. For the purposes of notice of demand, Section 156 specifically authorises the Assessing Officer to issue it for any tax, interest, penalty, fine or any other sum payable in consequence of any order passed under the Act. The explanation added to section 179 of the Act by Finance Act 2013 w.e.f. 1.6.2013 also clearly indicates that for the purposes of Section 179 penalty and interest has been included w.e.f. 1.6.2013 within the expression "tax due". Prior to 1.6.2013 there was no provision under the Act to include penalty and interest within the expression "tax due" used in Section 179 of the Act. Thus prior to insertion of the explanation by the Finance Act, 2013, only the "tax" as defined under Section 2(43) of the Act and found to be due could be recovered under Section 179 of the Act.
The view taken by us as above is also fortified by the decision of Hon'ble Supreme Court in the case of Harshad Shantilal Mehta (supra) in which the definition of "tax" under Section 2(43) of the Act was considered with reference to the provisions of section 11(2) (a) and it was held as under: 'Question No.5- One other connected question remains : Whether "taxes" under Section 11(2) (a) would include interest or penalty as well? We are concerned in the present case with penalty and interest under the Income - tax Act. Tax, penalty and interest are different concepts under the Income-tax Act. The definition of "tax" under Section 2(43) does not include penalty or interest. Similarly, under Section 156, it is provided that when any tax, interest, penalty, fine or any of other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax. The learned Special Court Judge, after examining various authorities in paragraphs 51 to 70 of his judgment, has come to the conclusion that neither penalty nor interest can be considered as tax under Section 11(2)(a). We agree with the reasoning and conclusion drawn by the Special Court in this connection." (Emphasis supplied) 16. In view of the above discussions we hold that any "tax due" for the purposes of Section 179 of the Act would not include penalty and interest for the period prior to insertion of the explanation in Section 179 by Finance Act, 2013. [Extracted from Taxmann.com, underline supplied by us] 13. in the above case though the Hon‟ble high court was dealing with the provisions of section 179 of the income tax act but has also held while interpreting the provisions of section 2 (43) of the income tax act and has held that from a reading of Section 2(43) of the Act it is clear that tax under the Act does not include penalty and interest. Therefore it can be a plausible argument that the provisions of section 40a(ii) do not include the payment of interest under Page 11 of 13 section 234B and 234C of the income tax act. Furthermore identical situation prevails under section 249 (4) (a) as well as provisions of section 221 of the income tax act. However, the courts have held that „tax dues‟ does not include interest and penalty. Therefore it can be possibly argued that if the „tax dues‟ does not include interest and penalty then how the word „tax‟ can include the interest and penalty. The above, you can also be examined with respect to the provisions of section 209 of the income tax act. It provides for the payment of advance tax and after that there are other specific provisions that if the advance tax is not paid in accordance with the scheme of the act then assessee are liable for payment of interest under the provisions of section 234A, 234B, 234C of the income tax act. In the tax audit report also the tax auditor has also mentioned the amount is allowable as Rs. nil though the claim of the assessee was on the face of the profit and loss account. Hon‟ble Supreme Court in has held in case of CIT versus Reliance Petro products private limited 322 ITR 158 as under:- “9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as :— "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript." We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is 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) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.
It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be 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. We do not agree, 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 Page 12 of 13 would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.
In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu[2009] 23 VST 249 as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed : "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.”