M/S NICOTRA INDIA PVT. LTD.,,NEW DELHI vs. ACIT, NEW DELHI

O R D E R PER ANADI N MISHRA, A.M.

1. These appeals filed by the assessee are directed against the orders of the Ld. CIT(A)-XVI, Delhi dated 19.3.2013 for A.Y 2005-06, 2006-07 passed by the Ld. CIT(A) upholding levy of penalty u/s 271(1) (c) of the Income Tax Act 1961 (hereinafter referred to ‘the Act’). The following grounds have been raised in for asstt. year 2005-06 :- 1 Fit for Publication (AM) Sd/- (JM) Sd/- 1. “That on the facts and circumstances of the case, CIT(A) was not justified in confirming penalty of Rs. 10,35,008/- on the alleged ground of furnishing of inaccurate particulars of income in the context of statutory claim u/s 80-1B.

2. That in any case, mistake if any was on account of bona fide causes and assessee having filed the revised return /revised statement of income, there could be no case of any penalty for concealment u/s 271(1)(c) of Income-tax Act, 1961.

3. That all the facts relating to statutory deduction was on record and claim of statutory deduction was only in the computation and as such there is no case of furnishing of inaccurate particular of income and imposition of penalty.

4. The order of lower authority are not justified on facts and same are bad in law.”

1.1 In for asstt. year 2006-07 the following grounds have been raised :-

1. “That on the facts and circumstances of the case, CIT(A) was not justified in confirming penalty of Rs. 15,20,262/- on the alleged ground of furnishing of inaccurate particulars of income in the context of statutory claim u/s 80-1B.

2. That in any case, mistake if any was on account of bona fide causes and assessee having filed the revised return /revised statement of income, there could be no case of any penalty for concealment u/s 271(1)(c) of Income-tax Act, 1961. 3. That all the facts relating to statutory deduction was on record and claim of statutory deduction was only in the computation and as such there is no case of furnishing of inaccurate particular of income and imposition of penalty. 4. The order of lower authority are not justified on facts and same are bad in law.”

However the Ld. AO treated the revised return as not filed since the revised return was submitted beyond the statutory time limit prescribed u/s 139(5) of I.T. Act. In the assessment concluded, the deduction claimed u/s 80IA of I.T. Act in the original return, amounting to Rs. 28,28,472/- was disallowed. Simultaneously penalty proceedings u/s 271(1)(c) of Income Tax Act were also initiated for asstt. year 2005- 06 by the Ld. AO. For asstt. year 2006-07 also, the assessee revised the original return and filed the revised return u/s 139(5) of I.T. Act on 31.10.2007 withdrawing the deduction claimed u/s 80IB amounting to Rs. 45,16,523/-. Though the revised return was filed for asstt. year 2006-07 within the time limit for asstt. year 2006-07 permissible u/s 139 (5) to I.T. Act, the Ld. AO held that the revised return was not filed suo moto but was filed on the instance of department i.e. when the issue relating to allowability of deduction u/s 80IA of Act was confronted with the assesee in the course of assessment proceedings for asstt. year 2005-06 vide questionnaire 3 Fit for Publication (AM) Sd/- (JM) Sd/- dated 4.7.2007 and in view of that, the Ld. AO held that the revision of return for asstt. year 2006-07 will not absolve the assessee of the purview of penalty proceedings under the provisions of section 271(1)(c) of Income Tax Act. Penalty proceedings were initiated by Ld. AO for asstt. year 2006-07 also u/s 271(1)(c) of I.T. Act. 2.1. During penalty proceedings u/s 271(1)(c) for asstt. year for asstt. year 2005- 06 the assessee neither appeared before the Ld. AO nor filed any reply to the show cause notice issued by Ld. AO to the assessee company. The AO levied penalty amounting to Rs. 10,35,008/- u/s 271(1)(c) of I.T. Act with the following observations :-

“4.1 From the above discussions it is clear that the assessee company was itself aware that it did not fulfilling the conditions specified in section 8018 of the I.Tax Act and filing the revised return was also not correct. Further in the event of penalty proceedings, it did not offer any explanation, regarding disallowances of deduction u/s 8018 and imposition of penalty. The case of the assessee, therefore, squarely falls under explanation 1 & 4 to section 271(1)(c) of Income tax Act, 1961. Reference can also be made to the case law of CIT vs. Escorts Finance Ltd. (2009) 226 CTR 105 (Del), where the jurisdictional High Court held that in case of false claim penalty for concealment is leviable even though the said claim is declared in the return of income. The above decision was rendered in view of the fact that each year, the Revenue hardly takes up three to five percent of returns under scrutiny u/s 143(2) of the Act after which assessment is framed under sub-section (3) of section 143 of the Act. Therefore, with the hope that its return may not come under scrutiny and may be assessed on the basis of 'self assessment.', as assessee can venture to give wrong information. Therefore, it was held that merely because information was available in the Tax Audit Report, would not absolve it from the penalty. In another case Gujarat High Court in the case of CIT vs. Vidyagauri Natwarlal and Ors. (1999) 238 ITR (Guj) had held that in the case of false claim, penalty for concealment is attracted.

4.2 After considering the Apex Court decision in the case of M/s Reliance Petroproducts, The Hon'ble High Court of Delhi in the case of M/s Zoom Communication Pvt. Ltd., in 0 dated 24.05.2010 has held that- "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 which is not only incorrect in laws but is also wholly without any basis and the 4 Fit for Publication (AM) Sd/- (JM) Sd/- explanation furnished by him for making such a claim is not found to be bonafide, it would be difficult to say that he would still not be liable to penalty u/s 271 (1)(c) of the Act. The Hon'ble High Court observed that the a claim which is wholly untenable in law and has absolutely no foundation on which it could be mean, the assessee would not be liable to imposition of penalty, even if he was not acting bonafide while making a claim of this nature, that would give a licence to 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) of the Act 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 the. The consequence would be that the persons who make claims of this nature, actuated by a malafide intention to evade tax otherwise payable by scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have".

2.1.1. The assessee filed appeal before Ld. CIT(A) against levy of penalty u/s 271(1)(c) of I.T. Act amounting to Rs. 10,35,008/- for asstt. Year 2005-06. The assessee submitted before Ld. CIT(A) that at the time of preparing the income tax return for asstt. year 2007-08 it came in the knowledge of the assessee company that such deduction was not available to the assessee. The assessee claimed before the Ld. CIT(A) that withdrawal of claim u/s 80IB of I.T. Act was a conscious disclosure from the assessee company itself. However the assessee company failed to provide any explanation or information / particulars about eligibility criteria on the basis of which deduction u/s 80IB of IT Act was claimed and how or on what basis it was realised (at the time of filing of return for asstt. year 2007-08) that such deduction was not available. Ld. CIT(A) held in his order dated 19.3.2013 that the assessee has furnished inaccurate particulars of income on account of ineligible deduction claimed u/s 80IB of I.T. Act and confirmed the levy of penalty u/s 271(1)(c) of I.T. Act by relying on the following decisions :

Fit for Publication (AM) Sd/- (JM) Sd/-

1. K.P. Madhusudhanan v. CIT (2001) 118 TAXMAN 324 (SC)

2. Ravi & Co. v. ACIT (2005) 143 TAXMAN 287 (MAD.)

3. M. Sajjanraj Nahar v. CIT (2006) 155 TAXMAN 536 (MAD.)

4. CIT, Delhi-IV v. Escorts Finance Ltd. *(2009) 183 TAXMAN 453 (DELHI)

5. CIT v. Zoom Communication (P.) Ltd. (2010) 191 TAXMAN 179 (Delhi) 2.1.2. During penalty proceedings for asstt. year 2006-07 the AO issued show cause notice to assessee on 11.1.2012.The assessee filed its reply and submitted that all the details given in the return were correct, there was no concealment of income, nor there were any inaccurate particulars of such income furnished.The assessee company also submitted that it claimed deduction u/s 80IB as it was of opinion that it is available to them, but while preparing return for asstt. year 2007-08, it came to the knowledge of the management that this deduction was not available to the assessee company, and the company immediately revised the return of income for all the earlier years thereby paying tax due alongwith interest. It was also submitted by assessee before Ld. AO that the questionnaire issued for A.Y. 2005-06 was general in nature and there was no show cause to withdraw the deduction u/s 80IB of the I.T. Act. It was further submitted by assessee before Ld. AO that the withdrawal of claim by assessee was well before passing any order u/s 143(3) in the assessment proceedings and that such withdrawal did not amount to furnishing of inaccurate particulars of income in its original return of income filed on 1.11.2006.

However, the Ld. AO rejected the submissions made by the assesee, and levied penalty amounting to Rs. 15,20,262/- u/s 271(1)(c) of I.T. Act. The assessee filed appeal against levy of penalty u/s 271(1)(C) before the Ld. CIT(A). Before the Ld. CIT(A) the assessee submitted that no show cause was issued to the assessee to disallow 6 Fit for Publication (AM) Sd/- (JM) Sd/- the deduction claimed u/s 80IB of the IT Act ; that the assessee company claimed deduction u/s 80IB as it was of the view that such deduction is available to them but while preparing return for AY 2007-08, it came to the knowledge of the management that this deduction is not available to the assessee company, and the assessee company immediately revised the returns of income for all the earlier years thereby paying tax due along with interest. The assessee submitted before Ld. CIT(A) that it was a conscious disclosure from the assessee company itself and that such withdrawal did not amount to furnishing of inaccurate particulars of income in its original return of income filed on 01.11.2006. The assesee submitted before the Ld. CIT(A) that withdrawal of claim made by the Assessee Company was solely on account of different views taken on the same set of facts and therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income. The Ld. CIT(A), vide separate order dated 19.3.2013 for asstt. year 2006-07, upheld the levy of penalty u/s 271(1)(c) and dismissed assessee’s appeal relying on the following decisions :-

2. Ravi & Co. v. ACIT (2005) 143 TAXMAN 287 (MAD.)

3. M. Sajjanraj Nahar v. CIT (2006) 155 TAXMAN 536 (MAD.)

5. CIT v. Zoom Communication (P.) Ltd. (2010) 191 TAXMAN 179 (Delhi)

159 Taxman 155 (SC) for the proposition that section 271 of Income Tax Act has to be construed strictly and narrowly and not widely or with the object of advancing the object and intention of the legislature. She also contended that the view favourable to the assessee should be adopted when two reasonable views are possible. She further relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd. 322 ITR 158 (SC) for the proposition that mere making of a claim, which is not sustainable in law, by itself, does not amount to furnishing inaccurate particulars regarding the income of the assessee. She contended that withdrawal of the claim u/s 80IB of I.T. Act was a voluntary and bonafide act on realising that this deduction was not available to the assessee. She also contended that this realisation came to the assessee at the time of filing return for asstt. year 2007-08. She further highlighted the fact that no show cause notice was issued to the assessee either to withdraw or to disallow the deduction claimed u/s 80IB of I.T.

Act for either asstt. year 2005-06 or asstt. year 2006-07. On the other hand the Ld. DR strongly supported the orders of the Ld. AO and the Ld. CIT(A). 3.1. We find that the withdrawal of claim u/s 80IB of I.T. Act was made by the assessee only after the questionnaire was issued to the assessee for asstt. year 2005-06 by the AO, in the course of asstt. proceedings for asstt. year 2005-06 asking the assessee to furnish the details of all exemptions and deductions claimed by it in the return of income and to clarify as to why the deduction / exemption claimed by it should be accepted by the Department. Further we have also noticed 8 Fit for Publication (AM) Sd/- (JM) Sd/- that at no stage, either before the lower authorities or before us the assessee offered any explanation or information / particulars about the eligibility criteria on the basis of which the deduction was claimed in the original return filed by the assessee. Similarly though the assesee claimed that it came to the knowledge of assessee at the time of filing return for asstt year 2007-08 that deduction u/s 80IB was not available to the assessee ; the assessee has also not provided any explanation or information / particulars as to on what basis it realised at the time of filing income tax return for asstt. year 2007-08 that deduction u/s 80IB of I.T. Act was not available to the assessee. The assesee submitted that claim was earlier made and later withdrawn on account of difference of opinion. However, at no stage has the assessee provided any explanation or information/ particulars about what was the difference of opinion. In these facts and circumstances we hold that the assesee has not been able to substantiate the explanation furnished by it ; and has failed to prove that the explanation is bonafide. In these facts and circumstances we also hold that facts relating to the explanation furnished by the assessee and material to the computation of assessee’s total income have not been disclosed by the assessee. Thus, the assesee is clearly hit by explanation 1(B) of S. 271(1)(c) of I.T. Act, even on strict and narrow construction of S. 271(1)(c) of I.T. Act and two reasonable views are not possible. Hence the case of Virtual Soft System Ltd. vs. CIT (supra) does not help the assessee. The assessee withdrew deduction u/s 80IB of I.T. Act by filing revised return only when it was faced with query raised by Revenue during assessment proceedings for asstt. year 2005-06, to justify its claim u/s 80IB of I.T. Act. The assessee could have withdrawn the claim before the case was selected for scrutiny by issue of notice u/s 143(2) of I.T. Act, which the assessee 9 Fit for Publication (AM) Sd/- (JM) Sd/- ITA Nos. 3953,3954/Del/2013 failed to do. In fact the assessee did not withdraw the claim even after the case was selected for scrutiny by issue of notice u/s 143(2) of I.T. Act ; and waited till the AO issued the questionnaire specifically requiring the assessee to justify its claim. Under these facts and circumstances it reasonably can also be concluded that the assessee already knew at the time of filing original returns of income for asstt. year 2005-06 and for asstt. year 2006-07 that the deduction u/s 80IB of I.T. Act was not available to it and further that despite this knowledge, the assessee made claim u/s 80IB of I.T. Act, though it was not admissible, with the motive to avail of deduction u/s 80IB of I.T. Act in case the returns for asstt. year 2005-06 and 2006-07 were not selected for scrutiny. 3.2. The Ld. AR of the asseessee drew our attention to apex court decision in the case of CIT vs. Reliance Petroproducts (P) Ltd. 189 Taxman 322 (SC) and contended that merely because claim u/s 80IB of I.T. Act was not acceptable to Revenue, that by itself would not attract penalty u/s 271(1)(c) of I.T. Act. However, facts of this case are quite distinguishable from facts of the Reliance Petroproducts (P) Ltd. (supra). In that case, no information given in the returns was found to be incorrect or inaccurate. In the cases before us, however, the claim made by assessee u/s 80IB of I.T. Act in original returns of income for asstt. year 2005-06 and 2006-07 were incorrect by assessee’s own admission. In fact, the case of the assessee is directly covered against the assessee by decision of Hon’ble Jurisdictional High court in the case of CIT vs. Zoom Communication Pvt. Ltd. 191 Taxman 179 (Delhi). In CIT vs. Zoom Communication Pvt. Ltd. (supra) , which is binding on us ; the Hon’ble Jurisdictional High Court held, after considering CIT vs. Reliance Petroproducts (supra) as under :- 10 Fit for Publication (AM) Sd/- (JM) Sd/- “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 which is not only incorrect in law, but is also wholly without any basis and the explanation furnished by him 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 (1)( 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 fide 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 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. “(Para20)”

3.2.1. Further, perusal of the binding order of Hon’ble Jurisdictional High Court in the case of CIT vs. Zoom Communication Pvt. Ltd. (supra), relevant portion of which has been reproduced in the preceding paragraph 3.2, shows that the Hon’ble High Court has taken judicial notice of the fact that only a small percentage of income-tax returns are picked up for scrutiny and has held that provisions for levy of penalty u/s 271(1)(c) of I.T. Act are meant to have deterrent effect against those persons who make claims, actuated by a malafide intention to evade tax otherwise payable by them legally, if their cases are not picked up for scrutiny. Viewed in this background, we are of the view that filing of revised return for asstt. year 2005-06 and 2006-07 Fit for Publication (AM) Sd/- (JM) Sd/- by the assesee withdrawing the claim u/s 80IB of I.T. Act ; well after the case was selected for scrutiny for asstt. year 2005-06 and after the assessee was issued questionnaire by the Ld. Assessing Officer requiring the assessee to clarify as to why the same should be accepted ; was done at too late a stage. There is a critical stage after which it is too late, and withdrawal of claims made by the assessee can not save the assessee from penal provisions u/s 271(1)(c) of I.T. Act. One can appreciate the matter with the help of illustrative example of a ticketless traveller who is confronted by the Ticket Collector when he is leaving the destination station, and is asked to show ticket. This illustrative example is for analogy only and for no other purpose. The Ticket Collector at the exit gate of a railway station may ask only a small percentage of travellers to show ticket (just as Income Tax Department picks up a small percentage of income-tax returns for scrutiny) and large numbers in the crowd of travellers leaving the station may not be asked by the Ticket Collector to show the ticket. But once a ticketless passenger is confronted by the Ticket Collector and asked to show ticket, (just as in the cases before us, the Ld. AO vide questionnaire dated 04.7.2007 asked the assessee to clarify why exemptions and deductions claimed by it should be accepted) the ticketless passenger cannot get away merely by paying the normal fare. He has to also pay penalty in addition to the normal fare unless he can show that he had a legitimate basis to begin the journey without a valid ticket. In the cases before us, the assessee has not furnished any satisfactory explanation regarding what legitimate basis it had to claim deduction u/s 80IB of I.T. Act at the time of filing of original returns of income for asstt. year 2005-06 and asstt. year 2006-07. Also, the assessee did not withdraw the claims u/s 80IB of I.T. Act for asstt. year 2005-06 and asstt. year 2006-07 12 Fit for Publication (AM) Sd/- (JM) Sd/- ITA Nos. 3953,3954/Del/2013 immediately after the case was selected for scrutiny for asstt. year 2005-06. Claims u/s 80IB of I.T. Act were withdrawn by the assessee much after the Ld. AO issued questionnaire dated 4.7.2007 asking the assessee to clarify why exemptions and deductions claimed by it should be accepted. By that time it is too late and the assessee has missed the boat. At that late a stage, well past the critical stage, the assesee cannot get away by merely paying taxes and the assessee must, in addition, also pay penalty u/s 271(1)(c) of I.T. Act. 3.2.2. The assessee has claimed that revised returns for both asstt. years 2005-06 and 2006-07 were filed, withdrawing claim u/s 80IB of I.T. Act at the time when return for asstt. year 2007-08 was being filed. The assessee claims that the realisation that the assessee was not eligible for deduction u/s 80IB of I.T. Act was arrived at the time of filing return for asstt. year 2007-08 impliedly claiming thereby that the assessee decided to withdraw the claims u/s 80IB of I.T. Act for asstt. year 2005-06 and asstt. year 2006-07 (by filing revised returns of income) not because of the questionnaire dated 4.7.2007 issued by the Ld. AO) but because subsequently at the time of filing return for asstt. year 2007-08 the assessee on its own realised that deduction u/s 80IB was not admissible. This is a self-serving claim without any credible proof. Self-serving claims without credible proof do not merit serious consideration, and in the facts and circumstances of the cases before us, it does not advance the cause of the assessee. Had the revised returns been filed (withdrawing claim made u/s 80IB of I.T. Act for asstt. year 2005-06 and 2006-07) well before the time of filing return for asstt. year 2007-08 i.e. well before 31.10.2007, but after questionnaire dated 4.7.2007 was issued by Ld. AO, would the assessee be justified in claiming a favourable consideration ? No. In view of the reasoning earlier given in 13 Fit for Publication (AM) Sd/- (JM) Sd/- this order, the assessee would still be hit by Explanation 1(B) to S. 271(1)(c) of I.T.

Act and would be still liable to pay penalty u/s 271(1)(c) of I.T. Act. Merely because the assessee delayed the filing of revised return of income (for asstt. year 2005-06 and 2006-07) till 31.10.2007, i.e. till the time of filing of return for asstt. year 2007- 08 even after receiving questionnaire dated 4.7.2007 ; the assesee cannot claim favourable consideration. One’s own mistake or delay can’t be used to advance one’s cause. In law, nobody can claim the benefit of delays or mistakes on his own part; though it may advance the cause of the other side.

4. In view of the above, penalties levied u/s 271(1)(c) of I.T. Act by the Ld. AO for both asstt. years 2005-06 and 2006-07 ; and upheld by the Ld. CIT(A) for both these years are hereby confirmed. We uphold the orders of the lower authorities for both asstt. years 2005-06 and 2006-07 and dismiss the appeals filed by the assessee for both asstt. year 2005-06 and 2006-07.

Order pronounced in the open court on 11th August, 2016.