ITO 20(1)(1), MUMBAI vs. ATUL SHAMJI BHARANI (HUF), MUMBAI

The captioned appeal by the Revenue is directed against the order of the CIT(A)-31, Mumbai dated 28.8.2013, pertaining to the Assessment Year 2007-08, which in turn has arisen from the order passed by the Assessing Officer dated 12.3.2012 under section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’).

“5. I have carefully considered the facts relating to the levy of penalty as they emerge from the impugned order.

5.1 In the case of M/s Hindustan Steel Ltd Vs State of Orissa reported at 83 ITR 26 (SC), the Hon'ble Supreme Court held that penalty is to be applied on careful consideration of all facts and circumstances and not in a mechanical manner. The Apex Court stated as under:

"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.”

5.2 In the decision rendered in the case of CIT vs Atul Mohan Bindal reported at 317 ITR 1 (S.C.), the Apex Court once again held that for applicability of section 271(1)(c), the conditions stated therein must exist. These conditions are that the assessee should have concealed the particulars of income or furnished inaccurate particulars of such income before the penalty u/s 271(1)(c) can be levied.

5.3 In the case of Reliance Petroproducts P. Ltd. reported at 322 ITR 158, it has been held by the Hon'ble Supreme Court that 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. In this regard, the Hon'ble Court held as follows:

“A glance at the provision of s. 271(1)(c) would suggest that in order to be covered, 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 Lexicon, the meaning of the word “particular” is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the sec. 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 sec.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."

5.4 In the case of VIP Industries Ltd reported at 21 DTR (MUM TRIB) 153, it has been held that in order for the deeming provision of Explanation 1 to section 271(1)(c) to apply it must be shown either that (a) the assessee fails to offer an explanation, or (b) he offers an explanation which is found to be false, or (c) he offers an explanation which cannot be substantiated or shown to be bona fide. Hence, what needs to be established by AO was whether there is contumacious conduct of assessee in concealing a particular fact for claiming a deduction for which it was not eligible or whether there is furnishing inaccurate particulars of income for which the assessee has a bonafide explanation or not? Mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee.

5.5 In the case of AT & T Communication Services India (P) Ltd reported at 18 Taxman 144, the Hon'ble Delhi High Court upheld the deletion of penalty u/s 271(1)(c) by the Tribunal. It was held that invoking provisions of section 40(a)(ia) should not be ground to levy penalty u/s 271(1)(c) of the Act.

5.6 In the case of ACIT vs. Seaways Shipping Ltd. vide appeal order No. 80/H/2011 Hyderabad bench of ITAT held as follows :-

“In this case, penalty is levied for disallowance of expenditure under section 40(a) (ia) of the Income Tax Act. Non deduction of TDS by the assessee was resulted in disallowance of expenditure under section 40(a)(ia), that itself cannot be construed as furnishing inaccurate particulars of income or concealment of income. The assessee has failed to deduct TDS which resulted in disallowance of expenditure. In our opinion, the mistake committed by the assessee was compensated by disallowing the expenditure. Further, the revenue cannot penalize the assessee by levying penalty under section 271(1)(c) of the Act. In order to levy penalty under section 271 (1) (c) of the Act, there has to be concealment of particulars of income of the assessee or the assessee must have furnished inaccurate particulars of its income. Present is not the case of concealment of income or it is not the case of revenue that the assessee has furnished inaccurate particulars of income. The department has not found out that the assessee has furnished any factual incorrect information and the assessee is not guilty of furnishing of inaccurate particulars of income. In our opinion, the conditions laid down in section 271(1) (c) of the Act is not complied with. Being so, levy of penalty is not justified merely because the assessee has claimed certain expenditure that expenditure is not eligible in view of the provisions of section 40(a)(ia) of the Act and for that reason, expenditure is disallowed. Penalty cannot be levied for mere making of a claim of the expenditure which is not sustainable and deletion of penalty by the CIT(A) is justified. We place reliance on the judgement of the Hon'ble Supreme

Court in the case of CIT Vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 (SC). Accordingly the ground raised by the revenue holds no merit."

5.7 In the case of M/s Global Associates Vs ACIT in vide order dated 28-06-2013, the Hon'ble Delhi Tribunal upheld the deletion of penalty u/s 271(1)(c) on technical/legal disallowances u/s 14A or 40(a)(ia) of the Act.

5.8 I have considered the facts and circumstances of the case as they have emerged from the assessment and penalty orders, as well as the submissions made by the appellant during the course of these proceedings. In this case, it is clear that the fact of payment interest were neither concealed nor inaccurately presented by the appellant. The particulars of all the payments were reflected in the return filed by the appellant. The totaling error by which the amount of interest paid was taken as Rs. 47,62,630/- as against the actual amount of Rs. 42,62,630/- stood reconciled before the CIT(A) during the appellate proceedings pertaining to the quantum appeal. The disallowance of Rs. 42,62,630/- has been sustained since the appellant did not deduct TDS as stipulated in section 194A of the Act. Thus the appellant has not complied with legal requirements but the details of payment of interest have been duly reflected in the return filed. In such a situation it cannot be said that the particulars furnished by the appellant were inaccurate. The making of an erroneous claim, by itself, does not provide sufficient ground for levy of penalty of concealment, particularly when viewed in light of the fact that the details of interest payments were never withheld from the Revenue. In this instance, there is no case made out by the A.O. that the amount debited to the P&L A/c under this head was false or that the entire exercise was concocted or executed to conceal income. It is thus only a case of a claim made by the appellant being denied by the Assessing Officer and that too on account of non-compliance with the provisions of section 194A. Once all particulars relating to the income and expenditure have been disclosed before the Assessing Officer, the disallowance of the claim will by itself not be sufficient to attract penalty u/s 271(1)(c).

5.9 Therefore, in light of the above judgments and considering to the fact that all the material facts with regard to the disallowance made u/s 40(a)(ia) are duly disclosed by the appellant in his return of income filed, I find that the AO is not justified in the levy of penalty u/s.271(1)(c) of the Act. Accordingly, this ground of appeal is allowed.”

Against the aforesaid decision of the CIT(A), Revenue is in appeal before us.

Order pronounced in the open court on 12th April, 2017.