The assessee company is a Non-Banking Financial Company (NBFC) and filed return of income pursuant to a notice u/s 148 of the Act. The AO made few additions on assessment, which were partly deleted by the CIT (A). The tribunal on appeals, however sustained the major additions made by the AO. The Assessing Officer levied the penalty u/s 271 (1) (C), after the tribunal confirmed the additions. The Assessee went on appeal to the CIT (A) against the penalty order of the AO. The assessee thereafter, filed a second appeal to ITAT against the penalty order confirmed by the CIT(A).
Meanwhile the assessee, after the confirmation of additions by the ITAT, filed an appeal u/s 260 A to Hon’ble High Court. The Hon’ble High Court deleted one addition but, however, sustained the other one.
Assessee Contention :
The assessee submitted that:
1. No penalty should be levied u/s 271(1)(C) with respect to addition deleted by the Hon’ble High Court.
2. The assessee has produced new evidence before the ITAT, on the basis of which he claimed that, he has a bonafide and reasonable explanation with respect to addition sustained by the Hon’ble High Court. So no penalty u/s 271 (1) (C) should be levied in this case also.
Revenue Contention :
The penalty u/s 271 (1) (C) as confirmed by the CIT (A) is correctly levied.
1. Since one addition of Rs.8,75,000/- in the quantum assessment has been deleted by the Hon’ble jurisdictional High Court, the penalty imposed on the same has lost it substratum and penalty on this addition is, therefore, deleted.
2. As regards another addition of Rs.10 lacs, it was submitted by the ld. Counsel that these are professional charges paid to Bhaav Portfolio Private Limited for getting RBI registration. It was further submitted that though no agreement was produced before the Assessing Officer regarding work assigned to Bhaav Portfolio Private Limited, the same was produced before the CIT (A), which was not accepted. A copy of the agreement entered by the assessee company with Bhaav Portfolio Private Limited is placed at pages 50 – 51 of the paper book. As per the terms of agreement, Bhaav Portfolio Private Limited was appointed from 01.04.1998 to 31.03.1999 and renewal for a further period as mutually agreed upon. As per the terms of the agreement, Bhaav Portfolio Private Limited was to render professional services. In lieu of the aforesaid services, the assessee had claimed to have paid Rs.10 lacs for the relevant year.
This payment admittedly is not to a related party. The disallowance of Rs.10 lacs was confirmed by the Tribunal holding that expenditure is not warranted in the facts and circumstances of the case. The primary reasoning of Tribunal for holding so was that RBI licence was granted to assessee company on 06.03.1998, whereas Bhaav Portfolio Private Limited was appointed as a consultant to assessee company only w.e.f. 01.04.1998. On perusal of the RBI letter dated 04.09.1998 (placed at page 47 of the paper book), it is clear that RBI granted registration to the assessee company on 04.09.1998 and not 06.03.1998 (though w.e.f. 06.03.1998).
The assessment proceedings and penalty proceedings are two separate and distinct proceedings. The fact that certain additions were made in the assessment proceedings would not automatically justify for imposition of penalty u/s 271(1)(c) of the Act. The assessee is always at liberty to argue in penalty proceedings based on the existing material or relying on some new evidence or documents that the penalty is not exigible on the facts and circumstances of the case. In the instant case, the ld. AR by relying on the RBI letter dated 04.09.1998 had clearly demonstrated that RBI registration was granted to the assessee on 04.09.1998, so the assessee’s explanation that the payments to Bhaav Portfolio Private Limited is bonafide and genuine since they have been authorised to obtain RBI licences, cannot be totally brushed aside as false warranting imposition of penalty u/s 271(1)(c).
The Hon’ble jurisdictional High Court in the case of New Holland Tractors India (P) Ltd. vs. CIT in ITA 182/2002 judgment dated 25th September, 2014 at para 26 observed as follows :
“26. The word ‘conceal’ inherently and per se refers to an element of mens rea, albeit the expression furnishing of inaccurate particulars is much wider in scope. The word ‘conceal’ implies intention to hide an item of income or a portion thereof. It amounts to suppression of truth or a factum so as to cause injury to the other. (See CIT vs. A.Subramania Pillai (1997) 226 ITR 403 (Mad). The word ‘conceal’ means to hide or to keep secret. As held in Law Lexicon, the said word is derived from the latin word ‘concelare’ which implies ‘con’ and ‘celare’ to hide. It means to hide or withdraw from observation, to cover or keep from sight, to prevent discovery of, to withhold knowledge of. The word ‘inaccurate’ in Webster’s Dictionary has been defined as ‘not accurate, not exact or correct, not according to truth, erroneous, as inaccurate statement, copy or transcript.’ The word ‘particular’ means detail or details of a claim or separate items of anaccount (See CIT vs. Reliance Petroproducts Pvt.Ltd. (2010) 322 ITR 158 (SC). Thus the words – furnished inaccurate particulars is broader and would refer to inaccuracy which would cause under declaration or escapement of income. It may refer to particulars which should have been furnished or were required to be furnished or recorded in the books of accounts etc. (see CIT vs. Raj Trading Co. (1996) 217 ITR 208 (Raj.) Inaccuracy or wrong furnishing of income would be covered by the said expression, though there are decisions that adhoc addition per se without other or corroborating circumstances may not reflect – furnished inaccurate particulars. Lastly, at times and it is fairly common, the charge of concealment and – furnishing of inaccurate particulars may overlap.”
In view of the above mentioned judgment of the Hon’ble jurisdictional High Court, it cannot be stated that assessee has concealed income by furnishing inaccurate particulars of income and explanation given by the assessee cannot be brushed aside totally false. Therefore, the penalty levied on the addition of Rs.10 lacs is not warranted on the facts and circumstances of the case and the same is accordingly deleted.
Analysed by CA Amit Handa