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Income Tax Appellate Tribunal, DELHI BENCH “C”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
Date of Hearing : Date of Hearing : 23 Date of Hearing : Date of Hearing : 23 23-12-201 23 201 2015 201 Date of Order : Date of Order : 08 Date of Order : Date of Order : 08 08-01-201 08 201 2016 201
ORDER ORDER ORDER ORDER PER PER H.S. SIDHU PER PER H.S. SIDHU H.S. SIDHU : : : : JM H.S. SIDHU Revenue has filed these three Appeals against the separate impugned orders passed by the Ld. CIT(A)-III, New Delhi relevant to different assessment years. Since the issues involved in these appeals are common and identical, hence, these were heard together and are being disposed of by this common order for the sake of convenience.
ITA NO. 3924/DEL/2012 (AY 2007-08) (AY 2007 08) ITA NO. 3924/DEL/2012 (AY 2007 ITA NO. 3924/DEL/2012 (AY 2007 08) 08)
First we deal with (AY 2007-08) wherein the following grounds have been raised:-
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1,99,09,856/- made by the AO u/s. 14A read with Rule 8D of the Income Tax Rules, 1962.
2. The order of the CIT(A) is erroneous and is not tenable on facts and in law.
3. The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal.”
3. The brief facts of the case are that the Assessee filed return of income declaring income of Rs. 6,00,53,100/- through e-filing on 25.10.2007, which was processed u/s. 143(1). In scrutiny assessment, the first notice u/s. 143(2) of the I.T. Act was issued on 1.5.2008. In compliance thereto notice u/s. 143(2)/142(1) dated 18.9.2009 issued alongwith questionnaire and A.R., of the Assessee attended the assessment proceedings from time to time, filed necessary details. The assessee is a closely held domestic company incorporated in India on 27.3.1980 with the primary objective of carrying on business of Investment company and to inter alia buy, invest, underwrite, acquire share / other securities. The main source of income of the assessee company are, profit on disposal of current / long term investments, dividend income, interest income on advances, interest income on securities etc. For the relevant assessment year 2007-08, the assessee had earned exempt income of Rs. 328,53,07,960/-. The AO, directed the assessee to furnish details of financial and administrative expenses along with reasons as to why the same should not be disallowed under section 14A of the I.T. Act, 1961. In response thereof, the assessee, during the assessment proceedings submitted that dividend was received primarily on shares which were acquired way back in the earlier years, i.e. more than 15 to 25 years. The assessee claimed that out of total expenditure of Rs. 27..57 crores, expenditure of Rs. 22.43 crores has already been disallowed in the return of income. Further, out of balance expenditure of Rs. 5,32,48,929/-, the assessee has further disallowed a sum of Rs. 15,66,528/- as expenditure incurred in relation to exempt income. Assessee further clamed before the AO that in view of suo moto disallowance so made, no further disallowance under section 14A(2) of the I.T. Act is called for, but the AO has not agreed with the above contention of the assessee and is of the view that the provisions of section 14A of the I.T. Act have been inserted by the Finance Act, 2001, w.e.f. 1.4.1962 and is, therefore, clearly applicable to the assessment year under consideration. The AO further observed that Rule 8D has been incorporated in the I.T. Rules for computing the amount of expenditure incurred in relation to exempt income and in view of decision of Mumbai Bench of the Tribunal in the case of ACIT vs. Citycorp Finance India Limited reported in 108 ITD 457 and the Special Bench of the Tribunal in the case of Dagga Investment Company Private Limited, that Rule 8D of the Rules is also applicable retrospectively to all pending cases. In view of the aforesaid findings, AO proceeded to compute the amount of disallowance as per formula prescribed in Rule 8D of the I.T. Rules. The AO proceeded to make a further disallowance of Rs. 1,99,09,857/- after taking into account the amount already disallowed by the assessee vide order dated 18.12.2009 passed u/s. 143(3) of the I.T. Act, 1961 and assessed the income at Rs. 7,99,72,960/-.
Aggrieved by the aforesaid order of the Assessing Officer dated 18.12.2009 passed u/s. 143(3), assessee filed an appeal before the Ld. First Appellate Authority, who vide impugned order dated 03.5.2012 had decided the issue in dispute in favor of the assessee by allowing the appeal of the Assessee.
Aggrieved with the aforesaid finding of the Ld. CIT(A), Revenue is in appeal before the Tribunal.
Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal by the Revenue.
7. On the other hand, Ld. Counsel of the Assessee relied upon the order of the Ld. CIT(A) and stated that Ld. CIT(A) has passed a well reasoned order which does not need any interference and the same may l be upheld.
We have heard both the parties and perused the records, especially the orders of the revenue authorities and precedent relied upon by the Ld. CIT(A) in his impugned order. Ld. CIT(A) has given his findings vide para no. 5 at Pages 4 to 6 of the impugned order which are reproduced as under:-
“5. I have considered the submissions filed by the appellant and have also gone through the assessment order. On a careful perusal of the record, it is noticed that the disallowance made in the assessment order is based on the formula prescribed in Rule 8D of the IT Rules for making disallowance under section 14A of the I.T. Act.
In this connection the legal position with regard to the applicability of Rule 8D of the IT Rules and also the provision of section 14A of the IT Act is now well crystallized by the later decisions of the Supreme Court In the case of Walfort Share & Stock Brokers, which has been followed and applied by the Bombay High Court in the case of Godrej Boyce and the Jurisdictional High Court in the case of Maxopp Investment, as relied upon by the AR for the appellant, Reference may be made to certain observations of the Bombay High Court and the Delhi High Court in the said judgments which are as under: The Bombay High Court in the case of Godrej Boyce has held as under: " ..... In order to determine the quantum of the disallowance. there must be a proximate relationship between the expenditure and the income which does not form part of the total income. Once such a proximate relationship exists. the disallowance has to be effected. All expenditure incurred in the earning of income which does not form part of the total income has to be disallowed subject to compliance with the test adopted by the Supreme Court in Walfort and it would not be permissible to restrict the provisions of Section 14A by an artificial method of interpretation. …….. Hence, the intention of section 14A is clearly to disallow all expenses relating to the non taxable income, and to curb the practice of claiming allowances for expenditures on exempt income. All that is required is to show that there is a 'proximate cause' between the expenditure incurred and the exempt income, A 'proximate cause' connotes a relationship between the expense and the exempt income (Walfort) .... ". The Delhi High Court in the case of Maxopp Investment held as under: ~ "26. It was contended by the learned counsel for the assessees that the words "expenditure incurred" as appearing in section 14A(1) clearly mean that there must be actual expenditure. Of course, the actual expenditure must be for earning the exempt income. We have already pointed out above, that we do not subscribe to the narrow interpretation sought to given to the words "in relation to" which the learned counsel for the assessees are espousing. Thus, we will have to consider the argument of the asssessees in respect of the expression "expenditure incurred" in the context of the ITA 687/09 & Ors Page 25 of 38 expenditure being. in connection with or pertaining to income which does not form part of the total income under the said Act.
It was contended that unless and until there was actual expenditure for earning the exempted income, there could not be any disallowance under section 14A. While we agree that the expression "expenditure incurred" refers to actual expenditure and not to some imagined expenditure we would like to make it clear that the 'actual' expenditure that is in contemplation under section 14A(1) of the said Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income. no disallowance can be made under section 14A of the said Act. " The Bombay High Court and the Delhi High Court in the above mentioned cases have also held that Rule 8D of the I.T. Rules is applicable only from assessment year 2008-09and is not applicable to the earlier assessment years. Now applying the aforesaid legal position to the facts of the appellant's case, it is noticed that the appellant has, as stated above, claimed expenditure of only Rs.5,32,48,929 out of the total expenditure of more than Rs.27 crores. The composition of the said administrative expenses of Rs.5,32,48,929 is found in Schedule 13 of the Audited Accounts. It is noticed that the said amount comprises of various expenses which are normally incurred by a company during the course of it's regular business activities. Moreover the appellant has additionally himself disallowed a sum of Rs.15,66,528 by proportionately disallowing expenses of some of the employees. There is nothing on record to controvert the submissions made on behalf of the appellant. The expenses claimed are also in the nature of day to day administrative expenses and cannot be held to be relatable to the exempt income'. It is also noticed that more if the total dividend received has been received from various HCL Group of Companies which the appellant is a promoter investor and has been stated to be holding shares in the said companies for more 15 to 25 years. Dividend income is also stated to be received directly by way of dividend warrant which gets credited to the bank of the appellant.
In view of the aforesaid facts, I have no reason to disagree with the claim of the appellant that no further expenditure over and above the expenses already disallowed in the return of income is required to be disallowed under section 14A of the IT Act. Accordingly, it is held that the disallowance of Rs.l,99,09,856 made by the assessing officer under section 14A of the IT Act by application of Rule 8D of the IT Rules is directed to be deleted.”
8.1 We find that Ld. CIT(A) has rightly observed that that provisions of section 14A of the I.T. Act is now well crystallized by the later decisions of the Supreme Court in the case of CIT vs. Walfort Share & Stock Brokers : 326 ITR 1 (SC), which has been followed and applied by the Bombay High Court in the case of Gordrej Boyce & Mfg. Co. Ltd. vs. DCIT : 328 ITR 81 (Bombay) and the Jurisdictional High Court in the case of Maxopp Investment Ltd : 203 Taxman 364 (Del.). We also find that in both the case the Hon’ble High Courts have held that rule 8D of the I.T. rules is applicable only from the assessment year 2008-09 and is not applicable to the earlier assessment year. Applying the aforesaid legal position to the facts of the assessee’s case, it is noticed that the assessee has, as stated above, claimed expenditure of only Rs.5,32,48,929 out of the total expenditure of more than Rs.27 crores. The composition of the said administrative expenses of Rs.5,32,48,929 is found in Schedule 13 of the Audited Accounts. The said amount comprises of various expenses which are normally incurred by a company during the course of it's regular business activities. Further, the assessee has additionally itself disallowed a sum of Rs.15,66,528 by proportionately disallowing expenses of some of the employees. There is nothing on record to controvert the submissions made on behalf of the assessee. The expenses claimed are also in the nature of day to day administrative expenses and cannot be held to be relatable to the exempt 8 income. It was also find that that more than 80% of the total dividend received has been received from various HCL Group of Companies which the assessee is a promoter investor and has been stated to be holding shares in the said companies for more 15 to 25 years. Dividend income is also stated to be received directly by way of dividend warrant which gets credited to the bank of the assessee. In the background of the aforesaid discussions and precedents, we are in agreement with the finding of the Ld. CIT(A) in directing the AO to delete the disallowance of Rs. 1,99,09,856/- made u/s. 14A of the I.T. Act and by holding that Rule 8D is not applicable in this case. Therefore, we do not see any infirmity in the well reasoned order passed by the Ld. CIT(A) on the issue in dispute, hence, we uphold the same and dismiss the Appeal filed by the Revenue on this issue.
ITA NO. 6 (2008 ITA NO. 6419 DEL/2012 (2008 DEL/2012 (2008-09) DEL/2012 (2008 09) 09) 09)
The following grounds have been raised in (AY
2008-09):-
“1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the penalty of Rs. 52,29,007/- imposed by the AO u/s. 271(1)(c) of the Income Tax Act, 1961.
2. The order of the CIT(A) is erroneous and is not tenable on facts in law.
3. The appellant craves leave to add, alter or amend any / all of the grounds of appeal
before or during the course of the hearing of the appeal.” 10. The following grounds have been raised in (AY 2008-09):-
“1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the penalty of Rs. 72,56,457/- imposed by the AO u/s. 271(1)(c) of the Income Tax Act, 1961.
2. The order of the CIT(A) is erroneous and is not tenable on facts in law.
The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal.”
Since the issue involved in both these appeals is common and identical, for the sake convenience, we are dealing with (AY 2008-09).
The brief facts of the case are during the course of assessment proceedings AO noticed that the assessee has earned a dividend income of Rs. 326.49 Crores which is an exempt income. The AO noticed that out of the total expenditure of Rs. 20.84 Crores, the assessee had disallowed expenses of Rs. 18.73 Crore in its return of income and out of the balance administrative expenses of Rs. 2.11 Crore, the assessee had disallowed a sum of Rs. 82,15,899/- under section 14A. However, AO was of the view that in the assessee’s case disallowance under section 14A has to be worked out as per Rule 8D, therefore, the disallowance under section 14a should have been to the tune of Rs. 2,55,99,862/-. Accordingly, the AO made an addition of Rs. 1,53,83,963/- (Rs. 2,55,99,862 minus Rs. 82,15,899) and later levied a penalty by relying upon the decision of the Hon’ble Supreme Court of India in the case of UOI vs. Dharmendra Textile Processor 306 ITR 277 (SC), holding that the assessee has filed inaccurate particulars of income, hence, the penalty is leviable u/s. 271(1(c) of the Act.
Aggrieved with the penalty order, assessee appealed before the Ld. CIT(A), who vide impugned order dated 18.10.2012 deleted the penalty in dispute by allowing the appeal filed by the assessee.
Now aggrieved with the impugned order, Revenue filed the present Appeal before the Tribunal.
At the time of hearing, Ld. DR relied upon the order of the AO and reiterated the contention raised by the Revenue in the grounds of appeal as well as the citations cited by the AO in the assessment order and the penalty order.
16. On the contrary, Ld. Counsel of the assessee relied upon the order passed by the Ld. First Appellate Authority and documentary evidence filed by him in the shape of Paper Book containing pages 1 to 295 in which he has attached various documentary evidences and copies of case laws to support the impugned order. He also filed a copy of the Tribunal’s order dated 24.4.2015 of the Coordinate Bench (in which one of the Judicial Member was the party) in the case of ACIT vs. M/s Mehrotra Invofin India Pvt. Ltd. passed in (AY 2009-10) and stated that the issue of penalty involved in the present appeal is also squarely covered by the aforesaid decision dated 24.4.2015. Therefore, he requested the Bench that the Appeal of the Revenue may accordingly be dismissed.
We have heard both the parties and perused the relevant records available with us, especially the order passed by the Revenue Authority. We are of the considered that the Ld. CIT(A) has deleted the penalty in dispute by thoroughly examining the written statement filed by the asseessee and the order of the lower authorities as well as the various decisions rendered by the Hon’ble Supreme Court of India and the Hon’ble High Court of Delhi.
17.1 After going through the submissions filed by the assessee alongwith the case law as well as the orders of the revenue authorities, it is very relevant to go through the relevant provisions of section 271(1)(c), which provides for imposition of penalty where the AO has to be satisfied that:- i) any person had concealed particulars of his income or ii) had furnished inaccurate particulars of such income.
Further, after insertion of Explanation 1 to Section 271(1)(c), the onus is on the assessee to show that there was no intention of concealment and not on the revenue.
17.2 We note that in this context two landmark judgments were given by Apex Court in Dilip N. Shroff Vs Joint CIT (2007) 2911TR 519 (SC) and T. Ashok Pai Vs CIT (2007) 292 ITR 11 (SC), which spell out mainly the following rules for the purpose of penalty imposable:
(i) Both the expressions "concealment of income" and "furnishing of inaccurate particulars" indicate some deliberation on the part of the assessee, though the word "deliberately" and the word “willfully”are no longer part of the statue.
(ii) Mere omission or negligence would not constitute a deliberate act of suppressiio veri or suggestio falsi.
(iii) Primary burden of proof is on the revenue. The statute requires satisfaction on the part of the Assessing Officer. He is' required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the department.
(iv) The Assessing officer while considering levy of penalty should consider whether the assessee has been able to discharge his part of the burden. He should not begin with the presumption that the assessee is guilty.
(v) Though penalty proceedings under the income-tax law may not be criminal in nature, they are still quasi-criminal requiring the Department to establish that the asessee has concealed his income.
(vi) It has to be understood that the Explanation to section 271(l)(c) is an exception to the general rule raising a legal fiction by which the burden which is ordinarily with the Department is sought to be placed on the assessee. This burden on the assessee is subject to "conditions precedent", which are required to be satisfied before the Explanation could be applied.
It was also pointed out as held by Hon’ble Supreme Court in K. C. Builders Vs AC/T {2004} {265 ITR 562} {SC} that "deliberateness" is implied in the concept of concealment.
17.3 However after the decision laid down in Dilip N. Shroff (Supra), T. Ashok Pai (Supra) in a dispute under Central Excise Law the Apex Court in the case of UOI Vs Dharamendra Textile Processors (2008) (306 ITR 277) (SC) held that "default merited penalty without having to consider an intend of the assessee to evade tax. The Mens rea is essential only for matters of prosecutor and not penalty."
17.4 Thus after the decision in the case of Dharamendra Textile Processor (Supra) "Mens rea is not necessary to be proved by revenue for civil penalties."
17.5 However with the decision of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd (2010) (322 ITR 158) (SC), it is clear that the Hon’ble Supreme Court by giving the ruling in Dharmendra Textile Processor's Case (Supra) has not overruled their decision in Dilip N. Shroff's case except for its mention of Mens rea therein.
17.6 It is also pertinent to mention here that after the ruling of Dharamendra Textile Processor, the Hon’ble Supreme Court has come out with the ruling in 2 different cases namely CIT Vs Atul Mohan Bindal (2009) (317 ITR1) and UOI Vs Rajasthan Spinning & Weaving Mills (2010) (lGSTR66) (SC), and where they have re-iterated again that "that for applicability of Section 271(l)(c} the condition stated therein must exist."
17.7 Even in the decision in the case of (IT (LTU) Vs. MTNL, dated 10.10.2011, the Hon’ble Jurisdictional Delhi High Court has upheld the same view.
17.8 We note from the above, it is very clear that for imposing penalty under Section 271(1)(c), the AO have to be satisfied that:
(a) assessee has concealed the particulars of income or (b) assessee has furnished inaccurate particulars of such income.
17.9 Thus, in view of the Hon'ble Supreme Court's decision in Reliance Petroproducts (Supra) it is clear that the legislature did not intend to impose penalty on every assessee whose claim was rejected by the assessing officer. What is sought to be covered under Section 271(l)(c) is concealment of "particulars of income" or furnishing of "inaccurate particulars of income" and making of an untenable claim.
17.10 From the various judicial precedents it is seen that the facts and circumstances in each case has to be seen in the context and then penalty provision should be applied to see whether there was the concealment of particulars of income or the appellant has furnished inaccurate particulars so as to call for the penal action under Section 271(1)(c).
17.11 We find that assessee on its own calculation or estimation disallowed the expenses of Rs. 82,15,899/- under section 14A, however, in the opinion of the AO, the Rule 8D(ii) was applicable accordingly by invoking the same he made a further disallowance of Rs. 1,53,83,963/-. It is not the case, where the assessee has not made any disallowance under section 14A, the assessee admits that the provisions of section 14A are applicable to him, but as per his estimate the disallowance should be to the extent of Rs. 82.15 lacs, whereas in AO’s opinion, the disallowance should have been worked as per Rule 8D. It is a trite law when two views are possible, there can be no case for imposition of penalty.
17.12 It is also an established proposition that the assessment proceedings a penalty proceedings are two different proceedings. An issue may call for a addition to income under section 143(3) of the I.T. Act, but in order to invoke a penalty, the AO has to walk little extra mile to prove that there is failure on the part of the assessee to "conceal the particulars of income" or "furnishing of inaccurate particulars.” The mere non acceptance of appellant's submissions and without any positive evidence from the AO that assessee has “concealed” or “furnishing of inaccurate particular" didn't ipso facto warrant penalty under Section 271(1)(c).
17.13 Keeping in view of the above facts and circumstances of the case, we find considerable force in the finding of the Ld. CIT(A) that in the present case the conditions laid down in Section 271(1)(c) are not being fulfilled, because "inaccurate particulars" means the details filed in the return of income are "not accurate or exact or correct according to truth or erroneous.”
17.14 In this regard, Ld. CIT(A) has rightly placed reliance upon the decision of the of the Hon’ble Supreme Court of India in the case of Reliance Petro Products (Supra) wherein it was held that when assessee furnished all the material in the return which was not found to be incorrect, it is upto the authorities to accept the claim in the return or not, but the same couldn't be considered as concealment or furnishing of inaccurate particulars.
17.15 Keeping in view of the facts and circumstances as explained above, we are of the view that Ld. CIT(A) has rightly held that there is no concealment or inaccurate particulars of income where the addition and/or disallowance is based on bona-fide claims, debatable claims and difference of opinion as held inter-alia by the Hon'ble Supreme Court in a recent judgment in the case of Commissioner of Income tax Vs. Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 (SC) the head notes of the said case reads as under:
"A glance at the provisions of Section 271(l)(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. The meaning of the word "particulars" used in Section 271(l)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, 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. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.
Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under Section 271 (l)(c). A mere making of a claim, which is not sustainable in law by itself will not amount to furnishing in accurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
17.16 We find that the above view of the Apex court in the case of Reliance Petroproduct has been followed by jurisdictional Delhi High Court and also Delhi Tribunal in numerous subsequent cases.
17.17 Accordingly, in view of the above facts and circumstances, we are of the considered opinion that in the present case, the penalty under section 271(l)(c) is not leviable and it deserves to be deleted, hence, Ld. CIT(A) has rightly deleted the penalty made by the Assessing Officer. We also find considerable cogency in the assessee’s submissions that the issue in dispute in the present appeal is also squarely covered by the decision dated 24.4.2015 of the Coordinate Bench (in which one of the Judicial Member was the party) in the case of ACIT vs. M/s Mehrotra Invofin India Pvt. Ltd. passed in (AY 2009-10). Therefore, we do not see any reason to interfere with the order of the Ld.CIT(A), accordingly, we uphold the same and decide the issue against the Revenue by dismissing the Appeal filed by the Revenue and dismiss the Appeal raised by the Revenue.
ITA NO. 6420 20 /DEL/2012 (2008 DEL/2012 (2008-09) 09) ITA NO. 64 ITA NO. 64 20 20 DEL/2012 (2008 DEL/2012 (2008 09) 09)
Following the consistent view in Ld. CIT(A) on the issue of penalty raised by the Revenue and dismiss the Appeal filed by the Revenue.
In the result, all the three Appeals filed by the Revenue stand dismissed.
Order pronounced in the Open Court on 08/1/2016.