IN THE ITAT AGRA BENCH
Sarv Prakash Kapoor
Deputy Commissioner of Income-tax-4(1), Agra
IT APPEAL NO. 95 (AGRA) OF 2012
[ASSESSMENT YEAR 2007-08]
SEPTEMBER 7, 2012
A.L. Gehlot, Accountant Member
This is an appeal filed by the assessee against the order dated 30.01.2012 passed by the ld. CIT(A)-II, Agra for the A.Y. 2007-08.
2. The effective ground raised in the appeal is in respect of penalty of Rs. 2,78,000/- levied under section 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter).
3. The brief facts of the case are that during the assessment proceedings the A.O. noticed that the assessee has sold a property worth Rs. 82,53,000/- and earned Long Term Capital Gain of Rs. 71,79,363/-. The assessee invested in residential house Rs. 70,00,000/- and claimed exemption under section 54F of the Act. The assessee offered balance amount of Rs. 1,79,363/- for taxes. The A.O. further noticed that the assessee has claimed deduction under section 54F of the Act whereas the assessee has invested in residential house a part amount, Rs. 70,00,000/-. The A.O. was of the view that the assessee is entitled for only proportionate amount of deduction under section 54F of the Act. The A.O. accordingly found that the assessee has made excess claim of deduction under section 54F for Rs. 9,10,634/-. During the assessment proceedings the A.O. pointed out to the assessee about the said excess deduction of Rs.9,10,634/-. The assessee filed a revised return and submitted that the assessee has wrongly claimed exemption on the basis of section 54 of the Act which exemption was to be claimed under section 54F of the Act. The aforesaid mistake was on account of misunderstanding on the part of the clerical staff of the Counsel and was not at all intentional. It was submitted that when the mistake came to the notice, the assessee has voluntarily filed revised return of income. The A.O. levied penalty of Rs. 2,78,660/- by invoking provisions of section 271(1)(c) read with explanation-1 of the Act on the ground that the assessee is aware of the exemption under section 54F and claiming the same in his return of income as the primary onus lies with the assessee to fulfill all the requisite conditions for availing the benefit of the said exemption. The assessee has deliberately and knowingly filed the inaccurate particulars and thereby concealed the income. Supposedly, the case would not have been selected under scrutiny assessment and in that situation the Department could not have detected wrong claim of the assessee and the assessee could have easily taken extra benefit for which he was not entitled to receive. The A.O. held that it is clearly established that the assessee has deliberately claimed wrong deduction without any reasonable cause. The A.O. also rejected the assessee’s contention regarding revised return on the ground that the revised return was filed after being detected by the office and that too barred by limitation under section 139(5) of the Act.
4. The CIT(A) confirmed the order of the A.O. following the judgement of Hon’ble Gujarat High Court in the case of CIT v. Vidyagauri Natverlal  238 ITR 91 and the judgement of the Hon’ble Supreme Court in the case of Union of India v. Dharamendra Textile Processors  306 ITR 277/174 Taxman 571.
5. The ld. Authorised Representative submitted that due to mistake of clerical staff of the Advocate the deduction was claimed on the basis of section 54 instead of section 54F of the Act. The assessee was to invest entire sale consideration for taking deduction under section 54F. Ld. Authorised Representative submitted that however when the mistake came to the notice of the assessee, the assessee filed revised return voluntarily and extra deduction which was wrongly claimed was offered to tax. Ld. Authorised Representative submitted that there is distinction between furnishing of wrong particulars and making wrong calculation on the basis of wrong particulars furnished. If the particulars are furnished and there is a mistake in calculation that does not amount to concealment. Ld. Authorised Representative in support of his contention relied upon the judgement of Hon’ble High Court of Calcutta in the case of Udayan Mukherjee v. CIT  291 ITR 318. Ld. Authorised Representative further submitted that there are various other decisions wherein it has been held that a revised return can be filed by an assessee where there is omission or wrong statement or any inadvertent mistake. Ld. Authorised Representative submitted that in the case under consideration a bonafide mistake has happened in the matter of deduction under section 54F or under section 54 of the Act. This is a case of bona fide misconception and belief, therefore, penalty under section 271(1)(c) is not livable. Ld. Authorised Representative in support of his contention relied upon the following decisions:-
(ii) Chandra Pal Bagga v. ITAT  261 ITR 67/128 Taxman 632 (Raj)
(iii) CIT v. Sumerpur Truck Operators Union [IT Appeal No. 27 of 2006, dated 13-4-2006]
(iv) Veejay Service Station v. Asstt. CIT  122 TTJ 824 (Delhi)
(v) Zycus Infotech (P.) Ltd. v. ITO/Asstt. CIT  17 SOT 310 (Mum.)
(vi) Udayan Mukherjee (supra)
(vii) Devi Dass Sukhani v. ITO  101 TTJ 551 (Jodh.)
(viii) Kamal Kishore Swami v. ITO  85 TTJ 206 (Jodh.).
6. Ld. Authorised Representative submitted that the explanation given by the assessee was a bonafide explanation and under that circumstances the question of failing to discharge the burden under explanation-1 to section 271(1)(c) would not arise. Ld. Authorised Representative in support of his contention relied upon the judgement of the Apex Court in the case of T (or P kindly see) T. Ashok Pai v. CIT  292 ITR 11/161 Taxman 340.
7. It is also submission of the ld. Authorised Representative that the CIT(A) has wrongly relied upon the judgement of Hon’ble Gujarat High Court in the case of Vidyagauri Natverlal (supra) and the judgement of the Hon’ble Supreme Court in the case of Dharamendra Textile Processors (supra). The facts of those cases and facts of the case under consideration are different.
8. Ld. Departmental Representative, on the other hand, relied upon the orders of the Revenue Authorities and submitted that the assessee is not correct in making submission that the assessee has filed revised return voluntarily. She further submitted that revised return was filed beyond the period prescribed under section 139(5) of the Act and that too after detected by the A.O. She submitted that section 54F is very clear, therefore, there is no question of omission or mistake by the clerk of the Counsel of the assessee.
9. We have heard the ld. Representatives of the parties and records perused. The proceedings under section 271(1)(c) can be initiated only if the A.O. is satisfied in the course of any proceedings under the Act that the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. The expression used in clause (c) of section 271(1) is ‘has concealed the particular of income’ or ‘furnished inaccurate particulars of such income’. The expression ‘has concealed the particulars of income’ and ‘has furnished inaccurate particular of such income’ have not been defined either in section 271(1)(c) of the Act or elsewhere in the Act. Under the circumstances, such cases are required to be decided considering the facts of the respective cases.
10. In the case under consideration, the CIT(A) heavily relied upon the judgement of Apex Court in the case of Dharamendra Textile Processors (supra). However, subsequent to this judgment, the Hon’ble Apex Court in the case of Reliance Petroproducts (P.) Ltd. (supra) has considered the judgment in the case of Dharamendra Textiles Processors (supra). The fallout of the decision in Dharamendra Textile Processors (supra) questioning the correctness of the decision in Dilip N. Shroff v. Jt. CIT  291 ITR 519/161 Taxman 218 (SC) has caused great uncertainty as to the penalty law for direct taxes. The decision in Dharamendra Textile Processors’ case (supra) has been explained by the Supreme Court itself in Union of India v. Rajasthan Spg. & Wvg. Mills  180 Taxman 609, wherein the Supreme Court understood Dharamendra Textile Processors’ case (supra) to be not applicable, where section 11AC of the Central Excise Act is not applicable, especially since that was not even the stand of the Revenue in this case. The Supreme Court had further explained the decision in CIT v. Atul Mohan Bindal  317 ITR 1/183 Taxman 444 pointing out that Dharamendra Textile Processors’ case (supra) has been explained in Rajasthan Spg. & Wvg. Mills’ case (supra) and concluded in line with this decision that penalty under section 11AC of the Central Excise Act could not be levied in every case of non-payment or short payment of duty and that penalty in respect of section 271(1)(c) of the Income-tax Act would be leviable, subject only to the conditions thereunder. It required the matter to be considered not solely with reference to Dharamendra Textile Processors’ case (supra) but along with the decision of Rajasthan Spg. & Wvg. Mills’ case (supra). In the case of Reliance Petroproducts (P.) Ltd. (supra) the Supreme Court further explained the matter and finally settled the controversy created in Dharamendra Textile Processors’ case (supra). The Supreme Court in this case has analysed the facts in Dilip N. Shroff’s case (supra) and found from the facts, that the explanation given by the assessee was bona fide nor did not assessee furnish any inaccurate particulars. It no doubt went on to observe that the element of mens rea was essential. The Supreme Court in Dharamendra Textile Processors’ case (supra) had pointed out only to this aspect of the decision in that, there was no necessity to prove mens rea on a plain reading of the provisions of section 271(1)(c) in the context of a penalty being a compensation for loss of revenue likely to have been occasioned by the acceptance of the return. It was further pointed out by the Supreme Court, that the reasoning in the conclusion on the merits in Dilip N. Shroff’s case (supra) had not been questioned. It was only the inference that mens rea was an essential ingredient for penalty, that was overruled. Applying this understanding of law, the Supreme Court found that in the case of Reliance Petroproducts (P.) Ltd. (supra), the Assessing Officer had found that the assessee’s claim for deduction of the entire interest on a borrowing, which had been partly utilised for earning exempt income required disallowance of the proportionate part under section 14A. The claim of the assessee was that, being an investment company, the claim of interest need not be proportionately apportioned to exempt income from dividend, cannot justify penalty even if the disallowance itself was justified. This concurrent view of the Commissioner (Appeals), Tribunal and the High Court was upheld by the Supreme Court.
11. In view of the development of law at the stage of the Supreme Court in Reliance Petroproducts (P.) Ltd.’s case (supra), one need not take the trouble of distinguishing Dilip N. Shroff’s case (supra), since it has not been overruled except for its mention of mens rea therein. Notwithstanding the ripple created by Dharamendra Textile Processors’ case (supra), the High Courts have followed the long-established law, that a bona fide omission cannot justify penalty in a number of decisions. Where an addition to an income was adjusted against the value of closing stock and explanation therefore was also found to be bona fide, penalty was found to have been rightly deleted in CIT v. Hindustan Computers Ltd.  322 ITR 88 (All.).
12. Cancellation of penalty for a wrong claim of deduction in computation of non-agricultural income bona fide made and for a wrong claim of relief under section 80P were found to be decisions on the facts on which no question of law would arise as held in CIT v. Shahabad Co-op. Sugar Mills Ltd.  322 ITR 73 (Punj. & Har.). In the case of CIT v. Sidhartha Enterprises  322 ITR 80/ 184 Taxman 460 (Punj. & Har.) it was held that “a wrong claim as business income of what should be treated as short term capital gains on the advice of the assessee’s Counsel, could not be treated as an instance of deliberate default. In the case of Chandra Pal Bagga (supra) the Hon’ble Rajasthan High Court has held that when the assessee has disclosed the transaction which is the basis for capital gains tax and though wrongly claimed exemption from the capital gains tax, but that cannot be a case of penalty under section 271(1)(c) of the Act. It if has claimed any exemption after disclosing the relevant basic facts and under ignorance of the provisions of the Act, and not offered that amount for tax, in such cases, penalty should not be imposed. In such cases rather it is the duty of the A.O. to ask for further details and tax the income if it is liable to tax. In the case under consideration, we noticed that during the assessment proceedings, the assessee has offered the tax as and when the mistake has come to the notice of the assessee. Similarly, in the case of Sumerpur Truck Operators Union (supra) wherein it has been held that merely because assessee’s claim of exemption under section 10(24) was not found to be tenable, penalty under section 271(1)(c) of the Act could not be levied. Similar view has been taken by the Hon’ble High Court of Calcutta in the case of Udayan Mukherjee (supra). The Apex Court while dismissing the Departmental S.L.P. against the judgement of Madras High Court has held as under :- (313 ITR (statute) page no. 30)
“Mere addition not sufficient unless concealment established
20-4-2009 : Their Lordships S.H. Kapadia and Aftab Alam JJ. dismissed the Department’s special leave petition against the judgement dated September 12, 2008 of the Madras High Court in T.C. No 1409 of 2008, whereby the High Court, following 291 ITR 519, dismissed the Department’s appeal against the order of the Tribunal which had confirmed the order of the Commissioner (Appeals) who had directed that the penalty imposed under section 271(1)(c) of the Income-tax Act be cancelled and held that an addition would not automatically lead to levy of penalty unless concealment was established. : CIT v. Spencer & Co. : S.L.P. (C) No. 10283 of 2009.”
13. The A.O. has also invoked explanation 1 to section 271(1)(c) of the Act. Explanation 1 to section 271(1)(c) of the Act have two parts, Part-A of the Explanation to section 271(1)(c) provides that if the assessee fails to offer an explanation or offers an explanation which is found by the A.O. to be false, penalty under section 271(1)(c) will apply. This Explanation can, therefore, be applied only where the assessee has either not offered any explanation or where he has offered any explanation, the same found to be false by A.O. In other words, where the assessee offers some explanation, it is only the proving by the A.O. that the explanation was false explanation, that part- A of the Explanation may be attracted. Mere non-existence of explanation offered by the assessee cannot form a basis for the satisfaction of the A.O. to the effect that the assessee has concealed particulars of his income. The A.O. must have some definite evidence for refusing the assessee’s claim or evidence or explanation.
14. The essence of part-B of the explanation is that the person must provide an explanation which is bonafide and he should substantiate that explanation by some evidence with him. If he fails to do so, his explanation may be treated as untenable. But when the assessee is able to offer a reasonable explanation based on some evidence, the A.O. cannot invoke Part-B of the explanation unless he has given finding based on some contrary evidence to disapprove that explanation offered by the assessee which the assessee is not able to substantiate and fails 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.
15. In the light of above discussion, if we consider the facts of the case under consideration, we find that the assessee has furnished complete facts regarding computation of capital gain, total sale consideration, calculation of long term capital gain, investment in residential house and others. The mistake on the part of the assessee is that the assessee invested a part amount of sale consideration/ capital gain in residential house instead of gross sale consideration and claimed deduction under section 54F. It is relevant to note that for claiming deduction under section 54 of the Act investment of capital gain is the requirement whereas for claiming dedication under section 54F investment of sale consideration is the condition. From the facts of the case it is a clear cut case of bona fide calculation mistake. Such mistakes are rectifiable during the course of assessment proceedings. Rectifications of such mistakes are not concealment of particulars of income or furnishing of inaccurate particulars of income. The assessee explained that there is a bona fide mistake in calculation of deduction under section 54F of the Act. The A.O. though has invoked explanation-1 to section 271(1)(c) but he did not find that the explanation furnished by the assessee was a false explanation. Contrary to that the assessee has substantiated his explanation by submitting complete facts regarding calculation of capital gain misunderstanding of deduction under section 54 and 54 F of the Ac. Thus, the explanation of the assessee was bonafide and under that facts and circumstances, section of 271(1)(c) is not applicable. We are, therefore, of the considered view that under the facts and circumstances of the case, and in the light of the above discussion, the A.O. is not justified in levying penalty of Rs. 2,78,660/- under section 271(1)(c) of the Act. Therefore, the same is cancelled. As one of the grounds has been decided in favour of the assessee, as discussed above, therefore, other ground whether the return filed by the assessee was a voluntary return or not, we are not expressing any opinion on that ground/ issue.
16. In the result, appeal of the assessee is allowed.