Making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty under section 271(1)(c)

 

 

[2010] 5 taxmann.com 100 (Mum. - ITAT)

ITAT, BENCH ‘C’, MUMBAI

ITO

v.

Parikh Investment & Development P. Ltd.

ITA No. 4760/Mum/2009

May 7, 2010

FACTS

The assessee company is engaged in the business of development and construction. It filed return declaring total income of Rs.8,36,510/- after claiming deduction u/s.80IB (10) of the Income tax, 1961 (the Act) Rs.57,67,289/-.  During the course of assessment proceeding it was interalia observed by the AO that there is net miscellaneous income amounting to Rs.7,31,419/- being income from other than housing development activities, does not qualify for the deduction u/s.80IB(10) and accordingly the AO after disallowing the deduction to the extent of Rs.7,31,419/- completed the assessment at an income of Rs.15,67,930/- vide order dated 30.11.2007 passed u/s.143(3) of the Act. The AO while completing the assessment also initiated penalty proceeding u/s. 271(1)(c) of the Act. In response to notice to show cause as to why penalty u/s. 271(1)(c) should not be imposed, it was submitted that the penalty proceedings have been initiated because of disallowance of claim u/s.80IB . It was further submitted that the assessee neither concealed any income not furnished any incorrect particulars so as to warrant the levy of penalty u/s. 271(1)(c) of the Act. The assessee after relying on various decisions mentioned in the impugned penalty order dated 26.5.2008 requested to drop the penalty. However, the AO while observing that it was only through scrutiny proceedings that it came out that the assessee has claimed excess deduction u/s. 80IB(10) of the Act, relied on certain decisions was of the view that the assessee has furnished inaccurate particulars of income within the meaning of sec.271(1)(c) of the Act and accordingly imposed penalty of Rs.2,67,644/- vide order dated 26.5.2008 passed u/s.271(1)(c) of the Act. On appeal, the ld. CIT(A) while observing that the assessee company was under a bonafide impression that the income in question was eligible for deduction u/s.80IB, hence, there is no concealment or furnishing of inaccurate particulars of his income, held that the AO was not correct in levying penalty u/s. 271(1)(c) and accordingly, deleted the penalty imposed by the AO.

 

HELD

It is settled law that penalty under section 271(1)(c) is a civil liability and the revenue is not required to prove willful concealment as held by the Hon’ble Supreme Court in case the of Union of India vs. Dharamendra Textiles and Processors (2008) 306 ITR 277(SC). However, each and every addition made in the assessment cannot automatically lead to levy of penalty for concealment of income. A case for imposition of penalty has to be examined in terms of the provisions of Explanation 1 to section 271(1)(c). Secondly, it is also a settled legal position that penalty proceedings are different from assessment proceedings. The finding given in the assessment though is a good evidence but the same is not conclusive in penalty proceedings.

 

In order to apply the provisions of section 271(1)(c), there has to be concealment of particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. In the present case it is not the case of the AO that the assessee has concealed the particulars of his income. The AO has imposed penalty on the ground that the assessee has furnished inaccurate particulars of his income.

 

In a recent judgment of the Hon’ble Apex Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC) it has been observed as under ( page 164 of the report): “.....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 inaccurate particulars. In Commissioner of Income tax, Delhi vs. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India vs. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that (page 13 of 317 ITR):

 

In a recent judgment of the Hon’ble Apex Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC) it has been observed as under ( page 164 of the report):

“.....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 inaccurate particulars. In Commissioner of Income tax, Delhi vs. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India vs. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that (page 13 of 317 ITR):

 

13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist.” Their Lordships, after considering various decisions including Dilip N. Shroff vs. JCIT (2007) 291 ITR 519(SC) and Union of India vs. Dharamendra Textile Processors (2008) 306 ITR 277(SC) have observed and held (page 158 headnotes) as under :

 

“A glance at the provisions of section 271(1)(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(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.”

Respectfully following the above decision of Hon’ble Apex Court and keeping in view that it is not the case of the revenue that the assessee has not filed complete particulars of his income or it is not the case of bonafide belief or the explanation offered by the assessee was found to be false or untrue, we are of the view that making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty u/s. 271(1)(c) of the Act. This view also finds support from the recent decisions in CIT vs. Sidhartha Enterprises (2010) 322 ITR 80 (P&H) and CIT vs. Shahabad Co-op. Sugar Mills Ltd. (2010) 322 ITR 73(P&H). Accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the penalty imposed by the AO. The ground taken by the revenue is therefore, rejected.

 

_______ORDER_______

Per D.K. AGARWAL (JM).

 

This appeal preferred by the revenue is directed against the order dated 11.6.2009 passed by the ld. CIT(A) for the Assessment Year 2005-06.

 

2. Briefly stated facts of the case are that the assessee company is engaged in the business of development and construction. It filed return declaring total income of Rs.8,36,510/- after claiming deduction u/s.80IB (10) of the Income tax, 1961 (the Act) Rs.57,67,289/-.  During the course of assessment proceeding it was interalia observed by the AO that there is net miscellaneous income amounting to Rs.7,31,419/- being income from other than housing development activities, does not qualify for the deduction u/s.80IB(10) and accordingly the AO after disallowing the deduction to the extent of Rs.7,31,419/- completed the assessment at an income of Rs.15,67,930/- vide order dated 30.11.2007 passed u/s.143(3) of the Act. The AO while completing the assessment also initiated penalty proceeding u/s. 271(1)(c) of the Act. In response to notice to show cause as to why penalty u/s. 271(1)(c) should not be imposed, it was submitted that the penalty proceedings have been initiated because of disallowance of claim u/s.80IB . It was further submitted that the assessee neither concealed any income not furnished any incorrect particulars so as to warrant the levy of penalty u/s. 271(1)(c) of the Act. The assessee after relying on various decisions mentioned in the impugned penalty order dated 26.5.2008 requested to drop the penalty. However, the AO while observing that it was only through scrutiny proceedings that it came out that the assessee has claimed excess deduction u/s. 80IB(10) of the Act, relied on certain decisions was of the view that the assessee has furnished inaccurate particulars of income within the meaning of sec.271(1)(c) of the Act and accordingly imposed penalty of Rs.2,67,644/- vide order dated 26.5.2008 passed u/s.271(1)(c) of the Act. On appeal, the ld. CIT(A) while observing that the assessee company was under a bonafide impression that the income in question was eligible for deduction u/s.80IB, hence, there is no concealment or furnishing of inaccurate particulars of his income, held that the AO was not correct in levying penalty u/s. 271(1)(c) and accordingly, deleted the penalty imposed by the AO.

 

 3. Being aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us taking following effective ground of appeal: “On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred holding that the Assessing Officer was not correct in levying penalty u/s.271(1)(c) of the Income-tax Act, 1961 on deduction claimed by assessee u/s.80IB(10) of the Income tax Act, 1961 on miscellaneous income amounting to Rs.7,31,419/- without appreciating the fact that the assessee furnished inaccurate particulars of income by claiming wrong deduction u/s.80IB(10) and it failed to substantiate its explanation and also failed to prove that explanation offered before the Assessing Officer was bonafide.

 

4. At the time of hearing the ld. DR submits that for the reasons as discussed in the assessment order, penalty order and the decisions relied on by the AO in the penalty order, the ld. CIT(A) was not justified in deleting the penalty imposed by the AO. The reliance was also placed on the decision in Union of India vs. Dharamendra Textile Processors (2008) 306 ITR 277 (SC).

 

5. On the other hand the ld. Counsel for the assessee while reiterating the same submissions as submitted before the AO and the ld. CIT(A) further submits that the assessee has filed complete details of his income and the assessee was under the bonafide belief that the deduction claimed by the assessee is fully allowable. He further submits that there was no malafide intention of the assessee to conceal its income or to furnish inaccurate particulars of income. The ld. Counsel for the assessee while relying on the order of the ld. CIT(A) also relied on the recent decision of the Hon’ble Supreme Court in CIT vs. Reliance Petroproducts wherein it has been held that a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. He therefore, submits that the order passed by the ld. CIT(A) in deleting the penalty imposed by the AO be upheld.

 

6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the AO has imposed penalty on the disallowance of deduction u/s. 80IB(10) of the Act on the amount of miscellaneous income Rs.7,31,491/- as the same is not eligible for the said deduction. However, the ld. CIT(A) deleted the penalty on the ground that the assessee was under the bonafide impression that the income in question was eligible for deduction u/s.80IB(10), hence, there is no concealment or furnishing of inaccurate particulars of income.

 

7. It is settled law that penalty under section 271(1)(c) is a civil liability and the revenue is not required to prove willful concealment as held by the Hon’ble Supreme Court in case the of Union of India vs. Dharamendra Textiles and Processors (2008) 306 ITR 277(SC). However, each and every addition made in the assessment cannot automatically lead to levy of penalty for concealment of income. A case for imposition of penalty has to be examined in terms of the provisions of Explanation 1 to section 271(1)(c). Secondly, it is also a settled legal position that penalty proceedings are different from assessment proceedings. The finding given in the assessment though is a good evidence but the same is not conclusive in penalty proceedings.

 

8. In order to apply the provisions of section 271(1)(c), there has to be concealment of particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. In the present case it is not the case of the AO that the assessee has concealed the particulars of his income. The AO has imposed penalty on the ground that the assessee has furnished inaccurate particulars of his income.

 

9. In a recent judgment of the Hon’ble Apex Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC) it has been observed as under ( page 164 of the report):

“.....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 inaccurate particulars. In Commissioner of Income tax, Delhi vs. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India vs. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that (page 13 of 317 ITR):

 

13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist.” Their Lordships, after considering various decisions including Dilip N. Shroff vs. JCIT (2007) 291 ITR 519(SC) and Union of India vs. Dharamendra Textile Processors (2008) 306 ITR 277(SC) have observed and held (page 158 headnotes) as under :

 

“A glance at the provisions of section 271(1)(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(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.” Respectfully following the above decision of Hon’ble Apex Court and keeping in view that it is not the case of the revenue that the assessee has not filed complete particulars of his income or it is not the case of bonafide belief or the explanation offered by the assessee was found to be false or untrue, we are of the view that making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty u/s. 271(1)(c) of the Act. This view also finds support from the recent decisions in CIT vs. Sidhartha Enterprises (2010) 322 ITR 80 (P&H) and CIT vs. Shahabad Co-op. Sugar Mills Ltd. (2010) 322 ITR 73(P&H). Accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the penalty imposed by the AO. The ground taken by the revenue is therefore, rejected.

 

10. In the result, revenue’s appeal stands dismissed. Order pronounced in the open court on 7.5.2010.

 

Sd/- Sd/-

(T.R. SOOD) ( D.K. AGARWAL )

ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 7.5.2010.