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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SH. H.S. SIDHU & SH. O.P. KANT
PER O.P. KANT, A.M.: This appeal by the assessee is directed against order of the learned Commissioner of Income Tax (Appeals)-XXII, New Delhi, for assessment year 2005-06, which, according to serial no. 9 of the form No. 36, was communicated to assessee on 03/04/13. In the impugned order, the learned Commissioner of Income Tax (Appeals) has sustained the penalty u/s 271(1)(c) of the Income-tax Act, 1961 levied by the Assessing Officer. The grounds raised by the assessee in the appeal are as under:
“1. That the learned Commissioner of Income Tax (Appeals)-XXII, New Delhi has erred both in law and on facts in upholding the penalty proceedings initiated u/s 271(l)(c) without appreciating that the remuneration paid to partners of Rs. 2,40,000/- is as per the Partnership Deed and since in this year there was loss from business the remuneration to partners was allowable at Rs. 50,000/- therefore, balance 1,90,000/- was disallowed which is a matter of difference of opinion and there is no concealment of income. Therefore, the penalty imposed u/s 271(l)(c) is wrong, arbitrary mid against the natural justice.
That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that as per the remuneration clause of the partnership deed assessee firm was regularly claiming the remuneration to partners of Rs. 2,40,000/- from last many years and in routine the same has been claimed this year also out of which the Ld. Assistant Commissioner has disallowed the excess remuneration of Rs. 1,90,000/- which is a matter of difference of opinion and hence there is no concealment of income. Therefore, the penalty imposed is altogether invalid, illegal, unsustainable and unsustainable and unjustified.
3. That the penalty proceeding u/s 271(1)(c) can be initiated only in case of concealment of income or inaccurate particulars furnished for income whereas in this case there is no concealment of income and disallowances made cannot be taken as concealment of income. Therefore, the contention of Learned Assistant Commissioner is not sustainable and hence, the penalty imposed is wrong in the eyes of law and does not hold good.
That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that there is no mensrea or conscious concealment on part of the assessee firm in claiming the excess remuneration paid to partners of Rs. 1,90,000/-. Hence, the penalty imposed is not valid in the eyes of law, arbitrary, wrong and illegal.
That neither there is any fraudulent intention nor any willful act on part of the assessee and the assessee has furnished true and accurate particulars of income. Hence there is no concealment of income end therefore the penalty imposed is wholly untenable and unsustainable.
That the quantum of penalty imposed at the rate, if 150% of the tax sought to be evaded is highly excessive, harsh and arbitrary. PRAYER:- The assessee most respectfully prays your honour on the aforesaid grounds which are described in brief among other detailed grounds which the assessee may take up during the course of the hearing to kindly delete the additions made along with interest and also allow the appropriate relief on the basis of aforesaid grounds.”
2. The facts in brief of the case are that the assessee filed return of income declaring total income of Rs. 8,07,546/- on 18/10/2005. In the scrutiny assessment completed, the Assessing Officer observed that the assessee had suffered a loss of Rs. 10,20,466/- from business, and it claimed remuneration to partners at Rs. 2,40,000/-, whereas looking to the loss from the business activity, the assessee was allowable remuneration to partners to the extent of Rs. 50,000 only. Therefore, he disallowed the balance amount of Rs. 1,90,000/- and initiated penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 (for short “the Act”). The said disallowance was confirmed by the learned Commissioner of Income-tax (Appeals). The Assessing Officer levied penalty under section 271(1)(c) of the Act on 18/03/2010 amounting to Rs. 1,06,035/- at the rate of 150% of the tax sought to be evaded on the ground that the assessee had knowingly, intentionally and fraudulently claimed excessive remuneration from rental income and the assessee furnished inaccurate particulars of income and thereby concealed the income. Aggrieved, the assessee filed appeal before the learned Commissioner of Income-tax (Appeals) and submitted that there was not any fraudulent intention, nor any willful Act on the part of the assessee and the assessee has furnished true and accurate particulars of income and the remuneration debited to profit and loss account was as per the clauses of the partnership deed and the assessee firm was regularly claiming the remuneration to partners in profit and loss account from last many years . The assessee also relied on the judgment of the Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs. Regency Express Builders (P) Ltd, (2008) 166 taxmann 269, where it is held that ‘on question whether rental income received by the assessee was to be assessed under head “income from house property” or under “business income”, the Commissioner of Income Tax(Appeals) held that two views were possible and since there was no clear and definite inference could be drawn, one way or another, the assessee could not be said to have concealed its income or furnished inaccurate particulars of income. However, the learned Commissioner of Income-tax (Appeals) upheld the penalty levied by the Assessing Officer with following observations:
“8.2 The Assessee has claimed that the Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. (2010) 189 Taxman 322 (SC) held that “Whether merely because Assessee had claimed expenditure, which claim was not accepted or was not acceptable to Revenue, that by itself would not attract penalty under section 271(l)(c)”. It is seen that the Income Tax Act vide section 40(b)(v)(a), very clearly provided for the year under consideration that only an amount of Rs.50,000/- can be allowed on payment of remuneration in case of a loss. However, despite the unambiguous provisions of the statute, the Appellant sought to evade the taxes by claiming excess remuneration. It was not a case where the claim was not accepted or not acceptable to Revenue, but rather it was a case for which it could not have even been thought that a claim in excess of Rs.50,000/- in case of loss could be allowed. 8.3 The Appellant has also relied upon the case of Commissioner of Income Tax vs. Regency Express Builders P. Ltd. (2008) 166 Taxman 269, where it was held by Hon’ble Delhi High Court that the Commissioner (Appeals) held that “two views were possible.” However, in the case under consideration there was no way in which any other view was possible and thus the facts of the case are entirely different and thus the finding of the Hon’ble Delhi High Court again cannot give any relief to the Appellant.”
Aggrieved, the assessee is in appeal before the Tribunal raising the grounds of appeal
, as reproduced above.
4. The effective ground of the assessee is against the penalty under 271(1)(C) of the Act levied by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals). 4.1 The learned Authorised Representative of the assessee submitted that:
(i) there was no concealment of income and no loss of revenue as the partners have considered the remuneration of Rs. 2,40,000/- in their respective income tax returns and paid tax @ of 30%, therefore, intention to evade tax was absent and there had been double taxation of the said remuneration in the hands of the assessee as well as in the hands of partners, hence, levying a penalty was not justified. (ii) As per the remuneration clause of the partnership deed, assessee was regularly claiming the remuneration to partners of Rs. 2,40,000/- for last many years and has been assessed and allowed and same has been claimed in the year under consideration also. (iii) The accounts of the assessee were audited under section 44AB of the Income-tax Act, 1961 and the Auditor did not disallow the remuneration in his tax audit report and so the assessee failed to add back the excess claim of the remuneration. (iv) No penalty can be levied in case of the bonafide mistake as held by the Hon’ble Supreme Court in the case of PWC (Private) Limited Vs. CIT Kolkata, (2012) 25 taxmann 400. (v) By no stretch of imagination, making of an incorrect claim in law tantamounts to furnishing of inaccurate particulars. Merely, because the assessee had claimed the expenditure, which claim was not Revenue, that, by itself, would not attract the penalty under section 271(1)(c) of the Act as held by the Hon’ble Apex Court in the case of CIT Vs. Reliance Petroproducts, (2010) 189 taxmann 322 (SC) 4.2 On the other hand, the learned Senior Departmental Representative relied on the orders of the lower authorities. 4.3 We have heard the rival submission and perused the material on record, including the orders of the lower authorities. We find from the profit and loss account of the assessee firm, which is available at page 4 of the assessee’s paper book, that the assessee claimed remuneration to partners of Rs. 2,40,000/-. This information was available on record before the Assessing Officer. According to profit and loss account, there was a net profit of Rs. 11,91,033/- during the year under consideration. In the return of income filed, the assessee reduced the rental income of Rs. 26,16,000/- out of the net profit and offered the same under the head ‘income from house property’, which resulted into a loss of Rs. 10,20,466/- under the head ‘profit and gains of business and profession.’ In view of loss under the head “profit and gains of business/profession”, the remuneration to partner was allowable only to the extent of Rs. 50,000/- in terms of Section 40(b)(v) of the Act during the assessment year under consideration. Before us, the learned Authorised Representative of the assessee has contended that the case of the assessee was audited under section 44AB of the Act, however, the Auditor did not disallow the excess claim of the remuneration. Due to the reason, the assessee claimed the remuneration as per the amount debited in the profit and loss account and also paid taxes in the hands of the partner on the remuneration received by them. This fact has not been disputed by the learned Senior Departmental Representative. We find that the assessee has offered explanation in respect of the facts material to the computation of income and which has not been found to be false by the Assessing Officer. The assessee has substantiated the explanation and proved that the explanation filed is bonafide and all the facts and material related to computation of total income has been disclosed by the assessee. In view of above, in our considered opinion, in the case of the assessee, the Explanation-I to the section 271(1)(c) of the Act is not attracted. Though the Assessing Officer has not allowed the claim of the assessee of the excess remuneration, but all the documents in respect of the claim were provided by the assessee in assessment proceedings and in the penalty proceedings the assessee explained his bonafide in claiming the remuneration. Before us also, learned Authorised Representative of the assessee has explained that the learned Auditor did not point out in audit reports under section 44AB of the Act allowability of the remuneration to partners to the extent of Rs. 50,000/- only and, because of which, the assessee has paid tax on the remuneration paid to the partners and the disallowance has also been sustained resulting into double taxation on the remuneration paid to the partners. This Assessing Officer. We find that in the case of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts (P) Ltd (supra), the Hon’ble Apex Court has held that when the details supplied by the assessee are not found to be incorrect or erroneous or false, there was no question of inviting penalty under section 271(1)(c) of the Act. The relevant findings of the Hon’ble Supreme Court are reproduced as under:
“9. We are not concerned in the present case with the mensrea. 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 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 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.” 4.4 Thus the Hon’ble Supreme Court has held that where the assessee has furnished all the details of its expenditure as well as income, in its return, which themselves were not found to be inaccurate nor could be viewed as concealment of income on its part and merely because the assessee had claimed the expenditure, which has not been accepted by the Revenue, cannot lead to the levy penalty under section 271(1)(c) of the Act.
4.5 In view of above discussion, respectfully following the decision in the case of Reliance Petroproducts Private Limited (supra), we hold that no penalty under section 271(1)(c) of the Act is leviable in respect of excess remuneration to partners of Rs. 1,90,000/- claimed by the assessee. The grounds of the appeal are accordingly allowed. 5. In the result, appeal of the assessee is allowed. The decision is pronounced in the open court on 19th August, 2016.