ITO (E) 2(2), MUMBAI vs. PRABHODHAN PRAKASHAN, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “J” MUMBAI

BEFORE SHRI C. N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER)

ITA Nos. 3831/MUM/2015 Assessment Year 2007-08 & ITA Nos. 3833/MUM/2015 Assessment Year 2008-09

ITO-(E)2(2) Vs. Prabodhan Prakashan Room No.502, 5th Floor, Sadguru Darshan, Nagu Piramal Chambers, Lal Sayaji Wadi, Dainik Baug, Parel, Saamna Marg, Mumbai-400 012 Mumbai 400025

PANNo. : AAATP 3410F Appellant .. Respondent

Appellant by: Shri Rajesh Ojha, DR Respondent by: Shri Anil Sathe, AR

Date of Hearing: 20.10.2016 Date of Pronouncement: 18.01.2017 ORDER PER N.K. PRADHAN, AM The captioned appeals are filed by the revenue against the order of Commissioner (Appeals) – 7, Mumbai and arise out of penalty u/s 271(1)(c) of the Income Tax Act, 1961 (the ‘Act’). The assessment years are 2007-08 and 2008-09. Regard being had to the similitude of the issues in these appeals, they were heard together and disposed of by a common order. 2. The 1st ground raised by the revenue in these appeals is that the learned CIT(A) erred in deleting penalty of Rs. 19,32,354/- for the A.Y. 2007-08 and Rs. 18,62,354/- for the A.Y. 2008-09 imposed by the AO

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u/s 271(1)(c) of the Act on the ground that there is no concealment of any fact. It is further stated that the learned CIT(A) erred in not accepting that it was a concealment, when it was proved that the assessee was not in charitable activity but in commercial / business activity and the same was upheld in appeal. Also it is stated that the learned CIT(A) erred in not accepting that the assessee is deliberately claiming exemption u/s 11, even though the judicial authorities have decided that the assessee was not doing a charitable activity.

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trust was denied exemption u/s 11 of the Act on the ground that income from running of newspaper had not been applied for charitable purposes. Instead, the income earned had been spent towards acquisition of assets. The learned CIT(A) has mentioned that the assessee did not furnish any evidence to prove that it was engaged in the activity of giving relief to the poor, or education, or medical relief. Also the learned CIT(A) has mentioned that since the onus cast on the assessee that it had used its income for charitable purposes, i.e. relief to the poor, education or medical relief etc. was not discharged, the AO has denied to the assessee grant of exemption u/s 11 of the Act even though the registration of the trust u/s 12A was subsisting. The learned CIT(A) has mentioned that the quantum appeal of the assessee for the A.Y. 2007-08 and 2008-09 have also been dismissed by both the CIT(A) and ITAT.

4.1 The learned CIT(A) has also mentioned that in the assessment year prior to the impugned assessment years, the exemption u/s 11 was similarly denied by the AO which was later on upheld by the CIT(A) and ITAT. However, in the A.Y. 1989-90, 1992-93, 1995-96, 1996-97, 1998- 99 & 2003-04, the decision of the ITAT in the case of the assessee was not exactly the same. The learned CIT(A) observed that the issue of claim of exemption in the case of the assessee has been a debatable one, as far as its appellate history goes. Relying on the decision of the Hon'ble Supreme Court in the case of ACIT vs Thanthi Trust (2001) 247 ITR 785 (SC), the CIT(A) has stated that the claim of the assessee is debatable. He also noted that as far as the facts and figures of income and expenditure statements are concerned, there is not dispute that the assessee had not concealed any such facts and figures. But the assessee had presumed that in its opinion, it had made a bonafide claim of exemption u/s 11 of the Act, which has been denied to it by the AO and the appellate

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authorities in the years under consideration. Therefore, it cannot be said that the assessee had concealed the particulars of its income or had furnished inaccurate particulars of such income.

4.2 The learned CIT(A) has also mentioned that the ITAT in the case of the assessee for the A.Y. 1989-90, 1992-93, 1995-96, 1996-97, 1998- 99 and 2003-04 has explicitly recorded a finding of fact and held that the objects of trust, as a whole, are for charitable purpose falling within the meaning of section 2(15) of the Act. For the A.Y. 1998-99, 2000-01, 2003-04, 2007-08 and 2008-09, the decision has been reversed by the ITAT. Once, this proposition is accepted, the issue of grant of exemption in the case of the assessee can at best be described as a debatable issue. The learned CIT(A) relied on the judgement of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P.) Ltd [2010] 189 Taxman 322 (SC), wherein it has been held that penalty cannot be levied merely because the AO and the assessee hold a divergent view on allowablity of a claim for deduction. He also relied on the decision in the case of Dilip N. Shroff 210 CTR 228 (SC) and deleted the penalty imposed by the AO.

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In the case of the assessee for the A.Y. 1989-90 (1997) 50 ITD 135, the Tribunal has held that the donations collected in boxes marked as ‘donation towards corpus’ are not eligible for exemption u/s 11(1)(d); only the donations received with confirmatory letters stating that the donation was towards corpus is exempt. Also it is held therein that donations received by charitable trust without any direction whether it was towards corpus of trust is not exempt u/s 11(1)(d) and the same is assessable as income from other sources. Regarding set off loss u/s 71, the Tribunal held that the loss incurred in the said activity is a business loss and the same cannot be set off against income from other sources comprising voluntary contribution.

7.1 In the case of the assessee for the A.Y. 1992-93 (ITA No. 340/Mum/1998), A.Y. 1995-96 (ITA No. 1492/Mum/2000) and A.Y. 1996-97 (ITA No. 5722/Mum/1999), the Tribunal held as under:

‘’We have heard both the sides and considered the facts and materials on record including the case laws relied upon by the parties. May be it is true that the Tribunal in its earlier order cited supra has given a finding that the running of newspaper Dainik Samna was for charitable purpose within the meaning of section 2(15) as it stood from 01.04.1984. However, in view of the interest decision of the Hon'ble Supreme Court reported in 247 ITR 785 (SC), what is to be seen is, whether the income of the newspaper has been utilised for the purpose of the trust, even though, the objects may be charitable and this aspect of the matter, as rightly been contended by the learned Departmental Representative, were not put to test either by the assessing office or by the Commissioner of Income Tax (Appeal). In view of this, we are inclined to restore the matter back to the file of the assessing officer with a direction to record a finding as to whether the income from the newspaper has been utilised for the objects of the trust during the relevant assessment years and if so to follow the decision of Hon'ble Supreme Court (cited supra) if the

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income is so utilised and otherwise to decide according to law. Thus, these appeals of the assessee are allowed for statistical purpose only’’. 7.2 In the case of the assessee for the A.Y. 1996-97, 1998-99 and 2003-04 (ITA No. 291, 292 & 293/Mum/2007), the issue before the Tribunal was whether the surplus funds utilised for acquisition of assets for business purposes would amount to application of income or not for charitable purpose. The Tribunal held that the expenditure in respect of those fixed assets in respect of which depreciation has been claimed and allowed to the assessee cannot be treated as application of income. However, the balance amount spent for acquisition of fixed assets, on which no depreciation has been allowed, is to be treated as application of income as per the test laid down by the Tribunal in assessee’s own case for A.Y. 1989-90. Accordingly the Tribunal restored the issue to the file of the AO to decide the same in the light of their decision for the A.Y. 1989-90 and to determine the application of income accordingly.

7.3 Now we come to the judgement of the Hon'ble Supreme Court in the case of Thanthi Trust (supra). In that case, it has been held that requirement of section 13(1)(bb) is that the exemption u/s 11 will not be available to such a trust that carries on any business unless the business is carried on ‘’in the course of the actual carrying out of the primary purpose of the trust’’, since the business of running a newspaper though held by the assessee- trust as a part of its corpus was not carried on in the course of actual accomplishment of the charitable objects of the trust, bar of section 13(1)(bb) was applicable and the assessee-trust was not entitled to exemption u/s 11 for assessment year 1979-80 to 1983-84. Further it has been held that as the assessee-trust was existing not only for public religious purposes and it is a trust and not an institution the newspaper business carried on by assessee did not fall within sub-section (4A) of section 11 and assessee was not

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entitled to exemption u/s 11 for the A.Y. 1984-85 to 1991-92 in respect of income of its newspaper. Finally it has been held therein that in view of substituted sub-section (4A) of section 11 w.e.f. 1st April, 1992, assessee-trust was entitled to exemption u/s 11 for the A.Y. 1992-93 and thereafter in respect of its income of newspaper business which was employed to achieve its charitable objects.

7.4 Now we come to the order of the ITAT ‘’C’’ Bench, Mumbai in the case of the assessee for the impugned assessment years (ITA No. 8490/M/2010 & 1880/M/2012). The principal grounds of appeal raised by the assessee for the impugned assessment years as mentioned at para 3.1 of the order of the Tribunal are as under:

“a. The learned Commissioner of Income Tax (Appeals) erred in confirming the treatment of publication of Dainik Samana as a business activity not eligible for exemption u/s 11 of the I.T. Act.

b. The learned Commissioner of Income Tax (Appeals) failed to appreciate that Rs. Xxxx incurred towards purchase of fixed assets was in the nature of application of income for objects of the trust and not for expansion of business as treated by the Assessing Officer.

C The learned Commissioner of Income Tax (Appeals) erred in not appreciating that while considering application of income, deficits of the earlier years had to be considered and a holistic view had to be taken.’’

7.5 The Tribunal concluded that the assessee’s case was wholly un- maintainable and dismissed the appeal.

7.6 Let us now go back to the background on which the AO has imposed penalty u/s 271(1)(1) of the Act. In the assessment order for the A.Y. 2007-08, the AO has made the following additions:

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Contribution of Provident fund 2. Non-payment/late payment of ESIC contribution Rs. 3,21,183/- 3. Penalty for contravention of law Rs. 5,910/- 4. Non-deduction of TDS on payments attracting Rs. 21,30,302/- Provisions of section 40(a)(ia) 5. Prior Period Expenses disallowed u/s 43B Rs. 23,92,292/- 6. Disallowance u/s 40A(2b) Rs. 2,97,527/- Total Rs. 74,04,640/-

7.7 However, the learned CIT(A), considering the facts of the case, allowed certain expenses to the assessee and confirmed the following additions:

7.8 The AO has imposed a minimum penalty of Rs. 19,32,534/- u/s 271(1)(c) on the above additions / disallowances of Rs. 59,08,002/-.

7.9 It is found that for the A.Y. 2008-09 the following additions made by the AO have been sustained by the learned CIT(A) :

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7.10 The A.O. has imposed a minimum penalty of Rs. 18,62,354/- u/s 271(1)(c) of the Act on the above additions / disallowances of Rs. 54,79,122/-.

7.11 In the scheme of the Act, the proceedings for imposition of penalty, though emanating from proceedings of assessment, are essentially independent and a separate aspect of the proceedings. Whether a penalty can be imposed in a given case, the entirety of the circumstances must be taken into account.

7.12 The question arises whether penalty u/s 271(1)(c) is leviable on the additions / disallowances made by the A.O. as narrated at para 7.7 and 7.9 here-in-above. We may gainfully refer to the judgement of the Hon'ble Supreme Court in Reliance Petroproducts (P.) (supra) wherein it has held: “A glance of provision of section 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. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. 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 of inaccurate particulars. [Para 7]

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Therefore, it must be shown that the conditions under section 271(1)(c ) 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. When such particulars are found to be inaccurate, the liability would arise. [Para 8] The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was 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). A mere making of the claim, which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9] The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was 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. Such contention could not be accepted 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 attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10] Therefore, the appeal filed by the revenue had no merits and was to be dismissed.”

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7.13 The present factual matrix is to be tested on the anvil of the above enunciation of law. In the light of the decision referred here-in-above, we uphold the order of the learned CIT(A).

Order pronounced in the open court on 18/01/2017

Sd/- Sd/- (C. N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai; Dated: 18/01/2017 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- CIT 4. 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai