Penalty under section 271 can be imposed only on guilty of concealment and furnishing inaccurate particulars of income

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI ‘C’ BENCH

BEFORE SHRI I.C. SUDHIR , JM & SHRI A.N. PAHUJA, AM

ITA No.2645/Del/2012

Assessment year: 2007-08

D.C. I .T. ,Circle 11(1), Room

no.312,C.R. Bui lding, IP

Estate, New Delhi

(Appellant)

V/s.

Integrated Master

Securi t ies Pvt . Ltd. , 303,

304, 3rd Floor, House-27,

Barakhamba Road,

New Delhi

[PAN:AAACI 2074 F ]

(Respondent)

Assessee by Shri Sat ish Aggarwal,AR

Revenue by Shri Neeraj Kumar, DR

Date of hearing 01-08-2012

Date of pronouncement 24-08-2012

O R D E R

A.N. PAHUJA:-

This appeal filed on 31.05.2012 by the Revenue against an order dated 06-03-2012 of the ld. CIT(A)-XV, New Delhi, raises the following grounds:-

1. “On the facts and circumstances of the case and in law, the learned CIT(A) has erred in deleting the penalty of ``6,02,514/- imposed u/s 271(1)(c) of the Income-tax Act, 1961.

2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”

2. Facts, in brief, as per relevant orders are that assessment in this case was completed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act) vide order dated 09.10.2009,determining income of ``4,45,81,010/- , in pursuance to return filed on 06.11.2007 declaring income of ``4,27,91,010/-. Inter alia, an amount of ``17,90,000/- was disallowed in relation to amortization claim written off on account of membership fee paid to stock exchanges. The Assessing Officer[AO in short] also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income Subsequently, after considering the reply dated 21st April, 2010 in response to a showcause notice before levy of penalty, the AO imposed a penalty of ``6,02,514/- u/s 271(1)(c) of the Act @100% of the tax sought to be evaded on the income of ``17,90,000/-. Inter alia, the AO invoked explanation 1 to 271(1)(c) of the Act and relied upon the decisions in CIT Vs. Gates Foam & Rubber Co. (1973) 91 ITR 467 (Kerala); CIT Vs. Anwar Ali (1970) 76 ITR 696 (SC) and CIT Vs. Lal Chand Tirath Ram (1997) 225 ITR 675 (P&H).

3. On appeal, the ld. CIT(A) cancelled the penalty in the following terms:-

“5 I have gone through the submissions of the appellant, the facts on records and have also perused the penalty order and considered the decision relied upon both by the appellant and the AO.

5.1 As per the scheme of Section 271(l)(c), penalty is leviable in case the Assessing Officer, in the course of any proceeding under Act, is 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(l)(c), the onus is on the assessee to show that there was no intention of concealment and not on the revenue.

5.2. However, in a dispute under Central Excise Law the Apex Court in the case of UOI Vs Dharamendra Textile Processors (200S) (306 ITR 277) (SC) held that “default merited penalty without having to consider any intend of the assessee to evade tax. The Mens rea is essential only for matters of prosecution & not penalty.”

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.”

5.3. But with the recent decision of the Supreme Court in the case of ClT Vs Reliance Petro Products Pvt. ltd (2010) (322 ITR 158) (SC), it is clear that the Supreme Court by giving the ruling in Dharmendra Textile Processor's Case (Supra) has not overruled their decision given earlier in Dilip N. Shroff's Vs. CIT (209 ITR 519) except for its mention of Mens rea therein but Supreme Court have again re-iterated their finding given in the case of ClT Vs Atul Mohan Bindal (2009) (317 ITR1) and UOI Vs Rajasthan Spinning & Weaving Mills (2010) (1GSTR66) (SC) that" that for applicability of Section 271(l)(c} the conditions stated therein must exist."

Even in the recent decision in the case of CIT(LTU} Vs. MTNL, ITA NO.626/2011 dated 10.10.2011, the jurisdictional Delhi High Court has upheld the same view.

5.4 Thus from above, it is very clear that for imposing penalty under Section 271(l}(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.

5.5 In view of the above discussion and in view of the Hon'ble Supreme Court 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 not making of an untenable claim.

5.6 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).

5.7 In the appellant's case is seen that the appellant has been treating the cost of membership card of the stock exchange as an amortised assets and this fact has been disclosed in their return of income also. It is admitted fact that for quite a long, treatment of cost of membership asset, have been a subject matter of litigation and various benches of ITAT have given ruling in favour of the assessee. It was only in the month of September 2010, that Supreme Court gave a ruling in the case of Techno Shares and Stock Ltd. Vs. ITO (Civil appeal 7780/7781 of 2010 dated 09.09.2010) that this issue is settled. Further it is also a settled preposition that where different views are possible on an issue, in those cases penalty is not leviable.

5.8. Hence in the facts of the appellant's case, their claim of amortization which was disclosed in the return of income but was not accepted by the AO, at assessment stage doesn't mean that there has been failure on the part of the appellant to furnish inaccurate particulars in view of the Supreme Court's ruling in the case of Reliance Petro Products Pvt. Ltd. (Supra).

Accordingly, I hold that in the facts and circumstances of the appellant's case no penalty under Section 271(1)(c) is warranted, hence penalty levied by the AO deserves to be deleted.”

4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee supported the findings of learned CIT(A) and contended further that disallowance of expense could not mean that the assessee furnished inaccurate particulars of income. Inter alia, the ld. AR relied upon the decision in CIT Vs. Reliance Petro Products Pvt. Ltd., (2010) 322 ITR 158 (SC).

5. We have heard both the part ies and gone through the facts of the case as well as the aforesaid decision rel ied upon on behalf of the assessee. The AO levied penalty u/s 271(1) (c) of the Act for furnishing inaccurate part iculars of income on account of amount of ``17,90,000/- disallowed on account of amortization claim written off in relation to membership fee paid to stock exchanges, ignor ing the decisions relied upon on behalf of the assesseee, holding that the membership card is an intangible asset within the meaning of section 32(1)(ii) of the Act and thus, entitled for depreciation thereof. Some of these decisions relied upon by the assessee are Kaynet Capital Ltd. Vs. DCIT in I.T.A. nos.3870, 3871 and 4871/Mum/2005 (BCAJ);Kotak Securities Ltd. Vs. Addl. CIT (2009) 24 DTR 214 (Mum.)(Trib.);Peninsular Capital Market Vs. ACIT (2008) 19 SOT 421;R.M. Valippan Vs. ACIT (2006 103 ITD 63 (CH) and Techno Shares & Stock Ltd. s Vs. Income-tax Officer in I.T.A. Nos.778, 779 & 1951/Mum./2004.The ld. CIT(A) while referring to decision in Reliance Petro Products Pvt. Ltd. (Supra) cancelled the penalty. We find that Hon’ble Apex Court in their decision dated 9.9.2010 in Techno Shares & Stock Ltd. vs. CIT,193 Taxman 248(SC) finally settled the issue holding that depreciation was allowable on the cost of the membership card of stock exchange under section 32(1)(ii) of the Act. As is apparent from the aforesaid facts and circumstances, it is not a case where the assessee has not disclosed full details at the time of filing of return or during the course of assessment proceedings. The assessee, in the instant case, merely made a bonafide claim for the deduct ion of depreciat ion on the cost of membership card stock exchange u/s 32(1)(ii) of the Act. Not even a whisper has been made in the penalty order as to which specif ic par t iculars were furnished inaccurate or were concealed. The expression 'has concealed the part iculars of income' and 'has furnished inaccurate part iculars of income' have not been def ined either in sect ion 271 or elsewhere in the Act . However, notwithstanding the dif ference in the two circumstances, it is now wel l establ ished that they lead to the same ef fect namely, keeping of f a certain port ion of the income f rom the return. According to Law Lexicon, the word "conceal" means:

"to hide or keep secret . The word 'conceal' is con+celare which implies to hide. I t means to hide or wi thdraw from observation; to cover or keep from sight; to prevent the discovery of ; to withhold knowledge of . The offence of concealment is, thus, a direct attempt to hide an item of

income or a port ion thereof f rom the knowledge of the incometax authorities."

In Webster's Dict ionary, "inaccurate" has been defined as :

"not accurate, not exact or cor rect ; not according to truth; erroneous ; as an inaccurate statement , copy or transcript .". 5.1. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is well set t led that assessment proceedings and penalty proceedings are separate and distinct and as held by Hon'ble Supreme Court in the case of Ananthraman Veerasinghaiah & Co. Vs. CIT, 123 ITR 457, the f indings in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. I t is also wel l set t led that the cr iter ion and yardst icks for the purpose of imposing penalty u/s 271(1) (c) of the Act are dif ferent than those applied for making or conf irming the addit ions. I t is, therefore, necessary to reappreciate and reconsider the mat ter so as to f ind out as to whether the addit ion or disal lowance made in the quantum proceedings actual ly represents the concealment on the part of the assessee as envisaged in sec. 271(1 ) (c) of the Act and whether it is a f it case to impose the penalty by invoking the said provisions. The provisions of sect ion 271(1)(c) of the Act st ipulate that if the Assessing Officer or the CIT(Appeals) or the Commissioner, in the course of proceedings under this Act , is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars thereof , he may direct that such person shall pay by way of penalty a sum which shall not be less than but which shall not exceed three times the amount of tax sought to be evaded by a reason of the concealment of particulars of his income. Explanation 1 to sect ion 271(1) (c) of the Act ment ions that where in respect of any facts material to the computation of the total income of any person under the Act , such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT (Appeals) or the Commissioner to be false, or such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall for the purpose of clause (c) of sect ion 271(1), be deemed to represent the income in respect of which particulars have been concealed. In other words, the necessary ingredients for attracting Explanation 1 to sect ion 271(1) (c) are that

(i) the person fails to of fer the explanat ion, or (ii) he offers the explanat ion which is found by the AO or the CIT (Appeals) or the Commissioner to be false, or (iii) the person offers explanat ion which he is not able to substantiate and fails to prove that such explanat ion is bona fide and that all the facts relat ing to the same have been disclosed by him.

5.2 I f the case of any assessee falls in any of these three categories, then the deeming provision provided in Explanat ion 1 to sect ion 271(1) (c) come into play, and the amount added or disal lowed in comput ing the total income shall be considered as the income in respect of which part iculars have been concealed, for the purposes of clause (c) of sect ion 271(1), and the penalty follows. On the other hand, if the assessee is able to of fer an explanat ion, which is not found by the authorities to be false, and assessee has been able to prove that such explanat ion is bona f ide and that all the facts relat ing to the same have been disclosed by him, the assessee shal l be out of the clutches of explanat ion 1 to sect ion 271(1) (c) of the Act , and in that case, the penalty shall not be imposed. In the instant case, as is apparent f rom the aforesaid facts, the assessee discharged the onus cast on it in terms of explanat ion 1 to sec. 271(1) (c) of the Act . Hon’ble Supreme Court in the case of Dilip N. Shrof f v. Jt . CIT [2007] 210 CTR (SC) 228 :[2007] 291  ITR 519 (SC) while consider ing the scope of these provisions u/s 271(1) ( c) of the Act observed in the following terms:

“The legal history of sect ion 271(1) (c) of the Act t raced from the 1922 Act prima facie shows that the Explanat ions were applicable to both the parts. However, each case must be considered on its own facts. The role of the Explanat ion having regard to the principle of statutory interpretat ion must be borne in mind before interpret ing the aforementioned provisions. Clause (c) of sub-sect ion (1) of sect ion 271 categorical ly states that the penalty would be leviable if the assessee conceals the part iculars of his income or furnishes inaccurate particulars thereof . By reason of such concealment or furnishing of inaccurate part iculars alone, the assessee does not ipso facto become liable for penalty. Imposi t ion of penalty is not automatic. Levy of penalty is not only discret ionary in nature but such discret ion is requi red to be exercised on the part of the Assessing Of f icer keeping the relevant factors in mind. Some of those factors apart from being inherent in the nature of penalty proceedings as has been not iced in some of the decisions of this court , inheres on the face of the statutory provisions. Penalty proceedings are not to be initiated, as has been not iced by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective.

……………………………………………………………………………

The term " inaccurate part iculars" is not def ined. Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate part iculars. Even if the Explanat ions are taken recourse to, a f inding has to be arrived at having regard to clause (A) of Explanat ion 1 that the Assessing Of f icer is required to arrive at a finding that the explanat ion offered by an assessee, in the event he of fers one, was false. He must be found to have failed to prove that such explanat ion is not only not bona f ide but al l the facts relat ing to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed al l the facts which was material to the computat ion of his income. ”

5.3 In the l ight of aforesaid observat ions of the Hon’ble Apex Court, what is to be seen in the instant case, is whether the claim for deduct ion of depreciation u/s 32 of the Act , made by the assessee was bona-f ide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty u/s 271(l) (c) of the Act . The assessee, in the light of certain decisions, claimed that it is ent it led to depreciat ion on the membership fee of stock exchange u/s 32 of the Act. The claim was ,subsequently, upheld by the Hon’ble Apex Court in their decision dated 9.9.2010 in Techno Shares & Stock Ltd. vs. CIT,193 Taxman 248(SC). The AO has not been able to establ ish that the claim of the assessee for deduct ion of depreciat ion u/s 32 of the Act was not bona f ide or that any specif ic part iculars were concealed or furnished inaccurate. We are of the opinion that a mere disallowance of a claim of deduction does not necessarily imply concealment or furnishing of inaccurate particulars because the issue regarding allowability of deduction of depreciation on membership fee of stock exchange u/s 32 of the Act was debatable issue. A mere reject ion of the claim of the assessee by relying on dif ferent interpretat ions does not amount to concealment of the part iculars of income or furnishing inaccurate part iculars thereof by the assessee. Hon'ble Apex Court in CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/ 189 Taxman 322, after considering various decisions including Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/ 161 Taxman 218 (SC) and Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 / 174 Taxman 571 (SC) concluded that 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. In the case under considerat ion, there is nothing to suggest that the assessee furnished any inaccurate par t iculars or concealed the part iculars.

Admit tedly, the claim for deduct ion of depreciation on membership fee of stock exchange u/s 32 was debatable issue and finally settled by Hon’ble Apex Court in their aforesaid decision dated 9.9.2010 in Techno Shares & stock Ltd.(supra). Mere disallowance of a claim will not amount to filing of inaccurate particulars of income. It can at best be a “wrong claim” not “a false claim”. In such circumstances, Hon’ble Delhi High Court held in the case of Commissioner Of Income-Tax.vs Bacardi Martini India Limited.,288 ITR 585(Del) that no penalty was leviable. In CIT vs. Harshvardhan Chemicals & Minerals Ltd. ,259 ITR 212 (Raj),Hon’ble Rajasthan High Court upheld the finding of the Tribunal that when the assessee has claimed some amount though that is debatable, in such cases, it cannot be said that the assessee has concealed any income or furnished inaccurate particulars for evasion of the tax. In this view of the mat ter, no fault can be found with the claim of the assessee that it had claimed the deduct ion in a bona f ide manner. In the case under consideration, as pointed out by the ld. CIT(A), the assessee had given all the particulars of income and had disclosed all facts to the AO in relation to claim for deduction of depreciation on membership fee of stock exchange u/s 32 of the Act. The ld. CIT(A) ,accordingly, concluded that penalty cannot be imposed merely on such disallowance.

6. In view of the foregoing, we are of the opinion that mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especially when there is nothing on record to show that the explanation offered by the assessee was not bona fide or any material particulars were concealed or furnished inaccurate . In these circumstances, we have no hesitation in upholding the conclusion of the ld. CIT(A) ,cancell ing the penalty in relation to claim for deduct ion of depreciation on membership fee of stock exchange u/s 32 of the Act. Consequent ly, ground no. 1 in the appeal is dismissed.

7. No additional ground having been raised before us in terms of residuary ground no.2 in the appeal, accordingly this ground is dismissed.

8. No other plea or argument was made before us.

9. In the result, appeal is dismissed.

Order pronounced in open Court

                                                             Sd/-              Sd/-

                                                (I.C. SUDHIR) (A.N. PAHUJA)

                                            (Judicial Member) (Accountant Member)

NS

Copy of the Order forwarded to:-

1 Assessee

2. D.C. I .T., Circle 11(1), Room no.312,C.R. Building, IP Estate, New Delhi

3. CIT concerned

4. CIT (A)-XV, New Delhi

5. DR, ITAT,’C’ Bench, New Delhi

6. Guard File.

BY ORDER,

Deputy/Asstt.Registrar

ITAT, Delhi