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Income Tax Appellate Tribunal, “L”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These are the appeals filed by the Revenue against the order of CIT(A) for the A.Y.1998-99 and 1999-2000 in the matter of penalty imposed u/s.271 (1)(c) of the IT Act. 2. Rival contentions have been heard and record perused. 3. Penalty imposed u/s.271(1)(c) with respect to income from inbound consignment, was deleted by CIT(A) after having the following observation:- 7'.1 I have gone through the penalty order passed by the AO and also the submissions made by the Appellant before me.
2 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands 7.2 The Assessment order was passed on 3l.0l.200l. A Perusal of the assessment order reveals that the A.O. had considered the note below the computation of income and investigated. However, there is no allegation or observation of the A.O. in the assessment order that any fact material to the computation of income was either not disclosed or was found to be wrong. The assessment has been made on the basis of facts disclosed by the appellant in the return of income and also during the course of assessment proceedings as and when demanded by the A.O. Assessment has been made by the A.O having different opinion from the point of view of the appellant. Penalty order dated 23.3.2007 has been passed by the A.O. A perusal of the penalty order reveals that the A.O. has nowhere observed that either the full facts were not disclosed or the disclosed facts were found to be wrong and that the A.O. had discovered certain facts which were concealed or whose particulars were filed inaccurate. In fact in the penalty order the AO has not discussed any default of the Appellant. A.O. has simply summarily rejected the contentions of the appellant without discussing the basis or causes of such rejection. 7.3 Sec.271(1)( c) read as under: "C) If the [Assessing} Officer or the [***} [Commissioner (Appeals) [or the Commissioner} in the course of any proceedings under this Act, is satisfied that any person - (a) …… (b) …….. (c) has concealed the particulars of his income or [***] furnished inaccurate particulars of [such income], He may direct that such person shall pay by way of penalty- (i)…. (ii) In the cases referred to in clause (b), [in addition to tax, if any, payable] by him [ a sum of ten thousand rupees} for each such failure} (iii) In the case referred to in clause ( c) [ or clause (d)} [in addition to tax, if any, payable} by him, a sum which shall not be less then, but which shall not exceed [three times], the amount of tax sought to be evaded by reason of the concealment of particulars of his income for fringe benefits} Explanation 1 - Where in respect of any facts materials to the computation of total income of any person under this Act- 3 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands (A) such person falls to offer an explanation or offers an explanation which is found by the [Assessing} Officer or the [Commissioner (Appeals] [or the Commissioner} to be false, or (B) such person offers an explanation which he is not able to substantiate [ and falls to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him.]" 7.4 As is evident from the return filed by the appellant full disclosure of the claim of the PE not being in existence was made. During the assessment proceedings various agreements etc. had been filed to support the claim of the appellant. The A.O. has, however, taken a different view that the amount is taxable. It is trite law that penalty proceedings are distinct and separate proceedings from assessment, proceedings. The finding recorded in the assessment order is not conclusive for deciding the imposition of penalty. It only has a persuasive value. The A.O. has referred to the decision of Hon'ble Kerala High Court in the case of P.K. Narayanan, 238 ITR 905 wherein it is held that a resumption arises of concealment of income, if any addition made by the A.O. is sustained by the appellate authority. This is correct but the presumption is rebutable. Any finding recorded in the assessment order does not mean that the penalty 'has to be imposed automatically. Explanation 1 to sec.271(1) (c) provides that the penalty would be deemed to attract where in respect of a fact material to the computation of income either no explanation is offered. or explanation offered is found to be false. Appellant has offered explanation which was not found to be false and accordingly its case is not covered by Clause .(A) of Explanation 1. Clause (B) of Explanation 1 provides that where the assessee is not able to substantiate its explanation and fails to prove that such explanation is bonafide and all the {acts relating to the same have been disclosed. I find that the appellant had made disclosure first in the computation of income. Thereafter during assessment proceedings copies of agreements, judicial rulings relied upon, etc have all been disclosed. Just because appellant's explanation was not found acceptable by the A.O and CIT(A), it does not follow that that the appellant was unable to substantiate his explanation by providing various evidences and judicial opinions. I am, therefore, of the view that the assessment has been made on the basis of difference of opinion on the same set of facts which have been fully disclosed by the appellant. The case of the appellant is, therefore, not covered by Explanation 1. Based on the facts of the case, I note that the Appellant had made all the necessary disclosures by way of notes to the return of income and submitted required information, documents and explanations to the AO during the assessment proceedings. Further, the AO himself has not recorded any such finding either in 4 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands the assessment order or the penalty order which leads to a conclusion that certain income was concealed by the Appellant or any inaccurate particulars were furnished by the Appellant. The AO ought to have recorded findings, positive proof of conscious attempt of concealment of income, before proceeding to levy penalty. Based on the material on record, there is nothing to show that there was a conscious attempt at concealing income or furnishing inaccurate particulars. 7.5. The Hon'ble Supreme Court in the case of K.C. Builders, 265 ITR 562 (SC) has held that even after the introduction of Explanation 1 to Sec. 271(1) (c) and deletion of the word 'deliberately' in sec.271(1)(c), mensrea is still an important part since the word 'conceal' is used in sec.271(1) (c). The Hon'ble Supreme Court has observed as under: "One of the amendments made to the abovementioned provisions is the omission of the word 'deliberately' from the expression 'deliberately furnished inaccurate particulars of such income". It is implicit in the word 'concealed' that there has been a deliberate act on the part of the assessee. The meaning of the word 'concealment' as found in Shorter Oxford English Dictionsry, third edition, Volume 1, is as follows: "In law, the intentional suppression of truth or fact known, to the injury or prejudice of another': The word 'concealment' inherently carried with it the element of mensrea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if it takes out the case from "the purview of non -disclosure, it cannot by itself take out the case from the purview of furnishing inaccurate particulars. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars o fincome unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under section 271(1){iii) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income': 7.6. The Hon'ble ITAT Mumbai Bench in the case of Roborant Investments (P) Ltd. 7 SOT 181 has held that the cases involving genuine difference of opinion on matters of law between the assessee and the AO are clearly outside the scope of Explanation 1 to Sec. 271(1)(c). The Hon'ble Supreme Court in the case of K.C.
5 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands Builders, 265 ITR 562 (SC), has held that mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income, unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid imposition of tax thereon. No such finding has been recorded by the AO in this case. On the contrary all facts have been disclosed by the appellant and the assessment has been made merely on difference of opinion. 7.7. The Hon'ble Punjab & Haryana High Court in the case of Ajaib Singh & Co. 253 ITR 630 ( Punjab & Harya na) has held that disallowance of an expense per se cannot mean that the assessee has furnished inaccurate particulars of its income. Concealment involves penai action and has to be proved as a conscious act. The claim made by the assessee may have been under erroneous understanding of law but it cannot be lead to the conclusion of concealment on the part of the assessee. Where a plausible explanation is .. offered and the explanation is not found to be false, penalty cannot be imposed. 7.8 The Hon'ble Delhi High Court in the case of CIT Vs. Sencma SA, France 288 ITR 76 (Delhi) has held that penalty u/s.271C cannot be imposed where the tax was not deducted at source on salary paid to expatriate employees since assessee was under bonafide belief that he was not liable to deduct tax at source. The Hon'ble Delhi High Court in the case of Bacardi Martin India Ltd.,288 ITR 585 (Delhi) has held that penalty u/s.271(I)( c) cannot be levied in a case where in the revised return filed subsequently on the basis of appellate order claim of loss was reduced and only the claim of expenditure was disallowed. The Hon'ble Delhi High Court held that concealment inherently carried with it the element of mens rea. To attract penalty u/s.271(I)(c ), it has to be proved that the assessee has consciously made concealment or furnished inaccurate particulars of income. From merely a difference of opinion for allowing or disallowing the expenditure, it cannot be said that the assessee had intention to conceal of income. 7.9. The Hon'ble Delhi High Court III the case of CIT vs. Nath Bros. Exim International, 288 ITR 670 has recently decided a similar issue. In this case assessee had claimed dividend income as part of business income and had. therefore claimed that it was to be included in the profit for purpose of Sec.80HHC. The A.O. disallowed the claim and imposed penalty. The Tribunal found that all the facts were disclosed and only the claim was made under erroneous claim which could not be justified in law. The Hon'ble Delhi High Court had that when there was full disclosure of material 6 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands it could not be said that the conduct of assessee attracted provisions of sec.271(1)(c). Penalty was held unjustified. The Hon'ble Delhi High Court has discussed the case of CIT vs. Vidyagauri Natvarlal 238 ITR 91 (Guj) and has held as under: “What is required to be considered is whether there was any enquiry that was required to be made by the Assessing Officer before concluding that the assessee had furnished inaccurate or false particulars. In this case we are of the view that no such enquiry was required to be made but there was only the need for application of the law. On the legal position, the Assessing Officer was not satisfied and did not agree with the assessee but that by itself is not a ground to invoke the penalty provision of the statute. Learned counsel for the Revenue relied upon CIT v Vidyagauri Natvarlal (1999) 238 ITR 91 (GUJ) In that case the question that arose was of unexplained cash credit, The Gujarat High Court made a distinction between a wrong claim as opposed to a false claim. in' that case, the Assessing Officer needed to make an enquiry as to whether t/le claim of the assessee was right or not. In so far as the present case is concerned, the decision cited by learned counsel for the Revenue is clearly distinguishable. We find that there was full disclosure of all relevant material. It cannot be said that the conduct of the assessee attracted the provision of section 271 (1)(c ) of the Act." 7.10 The Hon'ble Delhi High Court has accordingly held that where no facts are required to be investigated and no enquiry was required to be conducted about the claim, assessment made on the difference of opinion does not attract concealment penalty. 7.11 In view of the above, I am of the view that the Appellant has made its claims under a bonafide belief and the additions made in the assessment are purely due to different interpretation of law. This can be noticed from the fact that the question of taxability of the Appellant for earlier years has been admitted by the Hon'ble Mumbai High Court. When there are two views possible and the Appellant has taken one view based on a bonafide belief, which is not agreeable to the AO / higher appellate authorities it will not automatically lead to a case for penalty under section 271(1)(c) of the IT Act, 1961. 7.12. I have examined various decisions quoted by the appellant. There is no need to discuss each of the decision as the position of law is well established. As observed in the case of the appellant, assessment has been made on the basis of difference of opinion regarding the interpretation of law on the question of PE and 7 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands existence of Agency PE. There is no concealment of any fact nor have any additional facts been discovered proving the earlier disclosure in the return to be false or wrong. I am, therefore, satisfied that the A.O. has wrongly imposed penalty. Penalty imposed by the A.O. is deleted. Appeal on Ground of Appeal
No.2,3 &4 is allowed. Accordingly, the AO is directed to delete the entire penalty of Rs.76,08,583/-.
4. Against the above order of CIT(A), Revenue is in further appeal before us.
5. Learned AR placed on record the order of the Tribunal in assessee’s own case for the A.Y.2000-01 to 2006-07, wherein under similar facts and circumstances vide order dated 08/05/2015, the Tribunal have confirmed the action of CIT(A) for deleting the penalty. He also placed on record the order of the Tribunal in assessee’s own case for the A.Y.1989-90 & 1990- 91 dated 25/06/2010 wherein similar penalty so imposed was deleted by the Tribunal.
6. Learned AR also placed on record the order of the Bombay High Court dated 06/07/2011 wherein appeal filed by Revenue against the order of the Tribunal was dismissed by the High Court.
7. We have carefully gone through the orders of the authorities below as well as the order of the Tribunal dated 08/05/2015 wherein similar penalty imposed was deleted by CIT(A) and the order of CIT(A) was confirmed by the Tribunal after having the following observation:-
We have considered rival contentions and carefully perused the record. We have also gone through the order of the Tribunal in assessee's own case for the assessment years 1989-90 & 1990-91. The relevant observation of the Tribunal in this regard are as under :- 6. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record and the orders of the authorities below as well as the case law cited, we hold as follows.
8 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands 7. The assessee has furnished full particulars in his return of income. In fact, in the notes to the return of income, the claim has been made amply clear. The very fact that the issue has been referred to a Special Bench for adjudication, demonstrates that it is a debatable legal issue. The claim of the assessee, in our humble opinion, is a bonafide claim. The Hon'ble Bombay High Court has also admitted the appeal of the assessee on the ground that a substantial question of law arises. On this factual matrix, we are of the considered opinion that no penalty can be levied on the facts and circumstances of the case. The facts have already been brought out on page 1 to 6 of this order.
The Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Ltd. held as follows : " A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. As per Law Lexion, the meaning of the word "particular" is a details (in plural sense); the details of the claim, or the separate items of an account. Therefore, the word "particulars" used in the s. 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The words are plain and simple. In order to expose the assessee to the penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the conditions under s. 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document, where the assessee can furnish the particulars of his income. - CIT vs. Atul Mohan Bindal (2009) 225 CTR (SC) 248 : 28 DTR (SC) 1 : (2009) 9 SSC 589 followed. (Paras 7 & 8) Reading the words "inaccurate" and "particulars" 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. In this case, there I 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 s. 271(1)(c). 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. 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 attract the penalty under s. 271(1)(c). If the contention of the Revenue is accepted then in case of every return where 9 & 3458/Mum/2008 M/s.DHL Operations BV Netherlands the claim made is not accepted by the AO for any reason, the assessee will invite penalty under s. 271(1)(c). That is clearly not the intendment of the legislature. The Tribunal, as well as, the CIT(A) and the High Court have correctly reached this conclusion.- Sree Krishna Electricals vs. State of Tamil Nadu & Anr. (2009) 23 VST 249 (SC), applied, Reliance Petroproducts (P) Ltd. (judgment dt, 23rd Oct., 2007 of the Gujarat High court in Tax Appeal No. 1149 of 2007) affirmed."
Applying the propositions laid down to the facts of this case, we have to necessarily hold that merely because the assessee has made a bonafide claim, and the Revenue has rejected the claim on a different legal interpretation, a penalty u/s 271(1)(c) cannot be levied. Thus we uphold the contention of the assessee that there is no furnishing of inaccurate particulars of income in this case. There is no finding in the return of income that any details supplied by the assessee in the return of income were found to be incorrect or erroneous or false. Hence we delete the penalties for both the assessment years.
In the result, the appeals of the assessee are allowed. We have also gone through the order of the Hon'ble jurisdictional High Court, wherein the appeal preferred by the department against the above order of the Tribunal was dismissed. The relevant observation of the Hon'ble High Court in this regard is as under :"- "2. The Income Tax Appellate Tribunal in para 7 of the judgment has recorded a finding of fact that the assessee in its return of income had furnished full particulars and that the issue being debatable the matter was referred to the Special Bench. The Tribunal relying upon the judgment of the Apex Court in the case of CIT Vs. Reliance Petroproducts Ltd., reported in 189 Taxman 322 (SC) has held that the claim made by the assessee was under a bonafide belief that the claim was allowable and therefore penalty under section 271(1)(c) was not justified.
In view of the finding of fact recorded by the Tribunal, we see no merit in the appeal. Accordingly, the appeal is dismissed. No order as to costs." We also found from the order of the CIT(A) that the assessment has been made on the basis of difference of opinion regarding the interpretation of law on the question of PE, existence of agency PE, royalty and FTS. There is no concealment of any fact nor have any additional facts been discovered proving the earlier disclosure in the return to be false or wrong. The findings recorded by the CIT(A) are just and proper and after consideration of various judicial pronouncements. Respectfully following the order of the Tribunal in assessee's own case, which has been upheld by the Hon'ble Bombay High Court as well as the judgment of the Hon'ble Supreme Court in the case of Reliance Petroproducts Ltd. (supra), we see no reason to interfere in the findings of the CIT(A) deleting the penalty so levied by the AO.