Case Law Details
Tecnotree Convergence Ltd. [now Tecnotree Convergence Private Limited] Vs DCIT (ITAT Bangalore)
Conclusion: Penalty under section 271(1)(c) was not leviable as mere making of a claim which was not sustainable in law, by itself, would not amount to furnishing inaccurate particulars regarding the income of assessee.
Held: Assessee wrongly claimed the short term capital loss on certain shares which attracted provisions of section 94 and penalty levied on the amount of Rs.87,048 As such, penalty levied on the amount of Rs.12,86,23,096 to the extent of 100% of tax sought to be evaded. Assessee company submitted that it had disclosed these transactions and from the details furnished by assessee, AO had come to the conclusion that capital loss to the extent of dividend income claimed exempt could not be allowed. He submitted that there was no furnishing of any inaccurate particulars or concealment of income of the assessee. It was under a bonafide belief that it was not covered u/s. 94(7). It was held that merely because 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). Where there was no finding that any details supplied by assessee in its return were found to be incorrect or erroneous or false there was no question of inviting the penalty under section 271(1) ( c ). A mere making of a claim which was not sustainable in law, by itself, would not amount to furnishing inaccurate particulars regarding the income of assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by the assessee is directed against the order of CIT(Appeals)-15, Delhi dated 13.3.2017 for the assessment year 2009-10.
2. The assessee has raised the following grounds of appeal :-
“1. On the facts and circumstances of the case and in law, the Deputy Commissioner of Income Tax, Circle 16(1), New Delhi (hereinafter referred to as `Ld. AO’) erred in passing the order under section 271(1)(c) of the Income Tax Act, 1961 (`Act’) (`Penalty order’) levying penalty of INR 4,37,47,660 and the Commissioner of Income-tax (Appeals)-15 [‘Ld.CIT(A)’] erred in upholding the said order.
2. On the facts and circumstances of the case and in law, the Ld. AO and the Ld. CIT(A) erred in not appreciating the fact that penalty proceedings are separate and distinct from the assessment proceedings, and any additions/ disallowances made in the assessment order could not mechanically lead to a levy of penalty, unless it is proved that the Appellant has deliberately furnished any inaccurate particulars / concealed particulars of its income.
3. The Ld. AO and the Ld. CIT(A) have erred on facts and in law in holding that the Appellant has furnished inaccurate particulars of income without appreciating the fact that adequate disclosures were made in the return of income and/or submissions filed during the course of assessment/ penalty proceedings.
4. Without prejudice to the above, the Ld. AO erred in not appreciating that penalty under section 271(1)(c) is leviable with respect to the “amount of tax sought to be evaded” (i.e. tax on assessed income less tax on returned income).
5. Without prejudice to the above, the Ld. AO erred in computing the penalty on the total amount of reduction in section 10A claim without appreciating that in the Penalty order, concealment of income has been alleged only in relation to the non-realisation of export proceeds.
Relief
On the facts and circumstances of the case and in law, the Appellant prays that the Ld. AO be directed to delete the levy of penalty under section 271(1)(c) of the Act.
The Appellant submits that the above grounds are independent of and without prejudice to one another.”
3. The assessee has also filed additional grounds of appeal as follows:-
“1. In the light of the binding judgement of the jurisdictional High Court of Karnataka in CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Kar.), the learned CIT(A) erred in upholding the levy of penalty as the notice under section 274 issued by the learned AO did not indicate whether the impugned proceedings were initiated on the ground that the Appellant has concealed particulars of its income or on the ground that it furnished inaccurate particulars of its income.
2. The Appellant craves leave to add to, amend, alter, vary and/ or withdraw any or all of these grounds of appeal. For these grounds (both those originally urged and those urged herein) and others that may be adduced at the time of hearing, the impugned order of the learned CIT(A) may be quashed and the appeal allowed.”
4. At the time of hearing, the additional grounds of appeal were not pressed and as such, the same are dismissed as not pressed.
5. Regarding the levy of penalty u/s. 271(1)(c) of the Income-tax Act, 1961 [the Act], the ld. AR submitted that penalty in this case was levied on the following issues:-
(i) Export proceeds were not realized within the time prescribed u/s. 10A of the Act. As such, penalty levied on the amount of Rs.12,86,23,096 to the extent of 100% of tax sought to be evaded.
(ii) The assessee wrongly claimed the short term capital loss on certain shares which attracted provisions of section 94 and penalty levied on the amount of Rs.87,048 As such, penalty levied on the amount of Rs.12,86,23,096 to the extent of 100% of tax sought to be evaded.
6. We have heard both the parties and perused the material on record. The ld. AR submitted that the issue relating to claim of deduction u/s. 10A on the quantum addition was subject matter of appeal before this Tribunal and vide order dated 03.06.2020 the Tribunal in ITA Nos.2815/Del/2013 held as follows:-
“3. We have considered the rival submissions. We find that as per the grounds raised by the Revenue as reproduced above, this is the grievance of the Revenue that learned CIT(A) has erred in directing the AO to exclude the expenses incurred in foreign currency outside India from the total turnover of the assessee for computing deduction allowable u/s 10A. On this issue, it was held by Hon’ble Karnataka High Court that total turnover is sum total of domestic turnover and export turnover. Therefore, if an amount is reduced from export turnover, then total turnover also goes down by the same amount automatically. In view of this, we find that the direction of the learned CIT(A) is in line with this judgment of Hon’ble Karnataka High Court and respectfully following the same, we decline to interfere in the order of CIT(A) on this issue.”
7. As such, there was no sustenance of addition on account of claim of deduction u/s. 10A of the Act. Being so, there is no question of levying penalty u/s. 271(1)(c) of the Act on this issue.
8. Further, regarding the levy of penalty for claim of short term capital loss by invoking the provisions of section 94(7) of the Act, the ld. AR submitted that the assessee company had disclosed these transactions and from the details furnished by the assessee, the AO has come to the conclusion that capital loss to the extent of dividend income claimed exempt cannot be allowed. He submitted that there was no furnishing of any inaccurate particulars or concealment of income of the assessee. It was submitted that the assessee was under a bonafide belief that it was not covered u/s. 94(7) and submitted that similar issue was considered by this Tribunal in the case of Administrator of the Estate of late Mr. E.F. Dinshaw in ITA No.350/MUM/2010 dated 28.09.2012 wherein it was held as under:-
“9. We have carefully considered the orders of the authorities below and the submissions of the representatives of the parties. We have also considered the cases relied upon by the learned representatives before us (supra) and have also considered the cases as mentioned by the authorities below in their respective orders.
10. There is no dispute to the fact that the assessee purchased 35,60,228,461 units of SUN F & C Money Value Fund for Rs. 4,70,00,000/- on 21st March, 2002 and received dividend of Rs.97,90,628/- on 22nd March, 2002. The said dividend income is exempt under Section 10(33) of the Act. Further, the assessee also sold the said units on 16th April, 2002 at a loss of `.1,06,03,428/-. There is no dispute to the fact that in the return filed, the assessee did not adjust the dividend income against the short term capital gain as per provisions of Section 94(7) of the Act. However, during the course of the assessment proceedings, the assessee firstly submitted that the said units were not sold or transferred but were redeemed and as such the same were not covered by the provisions of Section 94(7) of the Act. We agree with the authorities below that the said contention of the assessee has no merits as the Tribunal has held in the case of Mrs. Parviz Wang Chuk Basi (supra), that redemption of bonds/units after maturity is a transfer within the meaning of the Section 2(47) of the Act. Not only this, in the appeal filed by the assessee, the Tribunal vide its order dated 27th October, 2010, in ITA No.347/M/2007 also held that the units which have been redeemed would constitute transfer for the purpose of Section 94(7) of the Act. Hence, the said plea of the assessee has rightly been rejected by the authorities below. Now, the question arises as to whether it was a bonafide claim of the assessee or the assessee has deliberately/intentionally furnished inaccurate particulars of income. If the assessee has consciously furnished the inaccurate particulars of income or concealed the particulars of income, there is no dispute to the fact that the penalty under Section 271(10(c) of the Act is attracted. However, if the claim for deduction made is bonafide claim and there is no intention to hide particulars of income, we are of the considered view that the provision of Section 271(1)(c) of the Act are not attracted.
11. We observe that the assessee has furnished requisite details of the purchase and sale of the said units as well as receipt of dividend income and also the short term capital loss incurred thereon. The Hon’ble Supreme Court has held in the case of Union of India & Ors Vs. Dharamendra Textile Processors & Ors. (supra), that penalty under Section 271(1)(c) is only a civil liability to compensate for loss of revenue. The Hon’ble Apex Court in the said case has also held that nexus of wilful concealment is not required to be proved by the revenue. Thus, the case of penalty is to be evaluated under the provision of Explanation 1 to Section 271(1)(c) of the Act, and in case, in respect of additions, the assessee offers an explanation, which he is able to substantiate and is able to prove that the explanation is bonafide and all necessary details in relation to the claim have been given, penalty is not leviable. In the context of the above decision, we observe that in the case before us, the assessee has not concealed any facts of making the investment in purchase of units of SUN F & C Money Value Fund nor there is any concealment of receipt of dividend income thereon and also the loss incurred on redemption of the said bonds. We find merit in the contention of the learned AR that if the assessee has raised a legal issue on interpretation the assessee’s belief that income was not taxable and even if the said explanation is not found to be acceptable, the penalty under Section 271(1)(c) could not be levied as observed by the Hon’ble Apex Court in the case of Cement Marketing Co. of India Ltd. (supra). We also observe that the assessee has not hidden or wrongly mentioned any facts in respect of said transaction. Therefore, on consideration of facts of the case, we are of the considered view, that it could not be said that there was a desire on the part of the assessee to conceal or hide the income so as to avoid to pay the tax. Further in the case of Walter Saldhana (supra), the ITAT Mumbai Bench has also held that if the Assessing Officer has made the addition only on the basis of material and information furnished by the assessee, the levy of penalty under Section271(1)(c) of the Act is not justified. In this regard, we consider it’s prudent to reproduce para 16 of the said case, which reads as under :-
“16…. On perusal of the orders of revenue authorities, we find that the penalty under section 271(1)(c) was levied on the ground that the assessee violated of provisions of section 94(7) of the Act by not ignoring losses while computing short-term capital gains on transactions related to section 94(7) of the Act. It is important to state here that the Assessing Officer made the addition only on the basis of material and informations furnished by the assessee. The Apex Court in the case of Reliance Petroproducts (P.) Ltd. (supra) regarding the word ‘particulars’ used in section 271(1)(c) has held that 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. But in the case under consideration we find that the assessee has furnished full detail and has not concealed any particulars of income or has furnished any inaccurate particular of income. Further, we noticed that there were no such specific requirements in the return form applicable to the year under consideration. Such requirement of the column in the return has been inserted by amendment in return form, ITR-6, at page 17, “Schedule CG capital gain” S.N.3(d) which is applicable from assessment year 2007-08. In the case of Reliance Pretroproducts Ltd. (supra) the Hon’ble Supreme Court held that 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(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. The case of the assessee under consideration is squarely covered by the above judgment of the Apex Court The assessee demonstrated that their claim was bona fide claim. In the light of above discussion, we don’t find that the case under consideration is a fit case for levy penalty under section 271(1)(c) of the Act we therefore cancelled the penalty levied.”
12. Similarly, in the case of Hindalco Industries Ltd. (supra), the Tribunal has held that a mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. In the said case, the assessee claimed short-term capital loss on sale of securities in terms of Section 94(7) of the Act. The Assessing Officer disallowed the claim of the assessee and levied penalty under Section 271(1)(c) of the Act. The assessee had demonstrated that its claims were bonafide claim after making full disclosure. It was also noticed that there were no specific requirements in the return form applicable to the year under consideration. Regarding to furnish details of capital gain/loss, such claim in the return has been inserted by amendment in the return Form, ITR 6, which is applicable for the assessment year 2007-08. The Tribunal considered the decision of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd., reported in 322 ITR 158, wherein it was held that 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. But in the case when it was found that the assessee had furnished full detail and had not concealed any particulars of income and when 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(1)(c) of the Act. It was also observed that a mere making of a claim, which was not sustainable in law, by itself, would not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. The Tribunal also held that the assessee had demonstrated that its claims were bonafide claims and accordingly the penalty levied was cancelled. Not only this, we also observe that the Hon’ble jurisdictional High Court in ITA No.3899/2010 (CIT Vs. M/s Aditya Birla Nova Limited), vide order dated 14th August, 2012, after considering the decision of the Hon’ble Apex Court in the case of Union of India & Ors. Vs. Dharamendra Textile Processors & Ors. (supra) and the decision of CIT Vs. Reliance Petroproducts Pvt. Ltd. (supra), has held that the levy of penalty even where a claim for deduction is not upheld, even though the assessee has disclosed all material facts and has not suppressed any material facts, the levy of penalty is not justified. In the said case, the assessee claimed deduction of `.9,94,399/- on account of diminution in the value of shares held by it. The same were disallowed on the ground that the shares were held as investments, and profits and losses on the sale thereof were to be considered under the head “capital gains”. Therefore, the quantum proceeding was concluded against the assessee. The Assessing Officer levied penalty under Section 271(1)(c) of the Act. The Hon’ble jurisdictional High Court held that it was not the case of the department that the assessee withheld any information or furnished any false information. The facts necessary for carrying out the assessment proceedings were admittedly disclosed in the return filed by the assessee. It was held that the assessee had wrongly claimed deduction and it was not entitled to the same as it is a pure question of law. In that context, the Hon’ble jurisdictional High Court held that by making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars.
13. If we apply the above decision as well as the decisions discussed hereinabove to the facts of the case before us, we are of the considered view that the levy of penalty in the case of the assessee is not justified merely because the claim of the assessee has been rejected by the department. We are of the considered view that the assessee has stated all the details of the loss claimed and the assessee has made only an incorrect claim bonafide and this cannot tantamount to furnishing any particulars of income by the assessee. Therefore, the levy of penalty under Section 271(1)(c) of the Act is not justified. Accordingly, we cancel the levy of penalty by allowing the grounds of appeal raised by the assessee.”
9. The ld. AR submitted that in view of the above decision of the Tribunal, penalty cannot be levied on this issue also.
10. The ld. DR relied on the orders of lower authorities.
11. In our opinion, in similar facts and circumstances of the case, the Tribunal deleted the penalty in the case of Administrator of the Estate of late Mr. E.F. Dinshaw cited supra. As such, penalty cannot be levied on this count also. More so, the Hon’ble Supreme Court in CIT Ahmedabad v. Reliance Petroproducts Pvt. Ltd., 322 ITR 158 (SC) held as follows:-
“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]
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]”
12. The Tribunal in the case of DCIT v. Mastek Ltd. in ITA No.118/Ahd/2007 vide order dated 16.04.2010 held as under:-
“5. We have considered the rival submissions and the material available on record. It is admitted fact that assessee disclosed all the particulars of the above disallowances in the return of income. The AO made part of the disallowances out of the above expenditure which has been substantially reduced by the learned CIT(A). It would, therefore, show that the assessee disclosed all the relevant facts and materials in the return of income as well as before the authorities below on merit. It is not a case of the AO that the assessee has made false claim or suppressed the facts relating to the above claims of the expenditure. The disallowances have been made on the question of interpretation of law as to whether the assessee would be entitled for deduction and whether the income of the assessee false under the category of business income. Since the assessee disclosed all the facts before the authorities below at proper level, the part disallowances of the expenditure would not par-se lead to an inference that the assessee concealed the particulars of Mastek Limited income or filed inaccurate particulars of income. On disallowance of the expenditure imposition of penalty is not automatic.
6. The Hon’ble Supreme Court in the case of CIT Vs Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) held that “A glance at the provisions of section 271(1) (c ) of the Income-tax Act, 1961, suggest that in order to be covered by it, there has to be concealment of 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(1) ( 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(1) ( c ). A mere making of a claim which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. Decision of the Gujarat High Court affirmed.”
7. The Hon’ble Punjab and Haryana High Court in the cases of CIT Vs Dhillon Rice Mills [2002] 256 ITR 447 (P. & H.) and in the case of Harigopal Singh Vs CIT [2002] 258 ITR 85 (PH) held that “no penalty for concealment leviable where income assessed is a mater of estimate”. Hon’ble Supreme Court in the case of M/s. Rajasthan Spinning & Weaving Mills 2009 – PIOL – 63 – SC held that “on every demand penalty is not automatic”.
8. Considering the facts of the case as noted above in the light of the above decisions and in the light of the findings of the learned CIT(A), it is clear that additions have been sustained partly by disallowing the expenditure on interpretation of the provisions of law and even the disallowance of Rs.2,00,000/- u/s 14A has been restored to the file of the AO for re-consideration. Therefore, it is not a fit case for levy of penalty. The AO has not brought any material on record to prove that the assessee has furnished inaccurate particulars of income or concealed particulars of income. We accordingly do not find any justification to interfere with the order of the learned CIT(A). We accordingly confirm his findings and dismiss the appeal of the Revenue.”
13. In light of the above, in our opinion, this is not a fit case for levy of penalty u/s. 271(1)(c) of the Act on both the counts. Accordingly, we delete the penalty.
14. In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 11th day of August, 2021.
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