TMI Blog2019 (7) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... n the aforesaid synopsis filed from the assessee s side during the appellate proceedings in ITAT. In the facts and circumstances of this case, therefore, and having regard to the synopsis filed from assessee s side, we reject the contention of the Ld.DR that every addition made in assessment order should invariably lead to penalty u/s 271(1)(c). For this purpose, we take guidance from the order of the Hon ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt.ltd. [ 2010 (3) TMI 19 - SUPREME COURT] held that a mere making of claim, which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee. No interference from our side is warranted in the order of the Ld. CIT(A) deleting the penalty u/s 271(1)(c) in respect of the aforesaid addition u/s 14A r.w. Rule 8D. Accordingly, the order of Ld.CIT(A) on this issue is also upheld. - Decided in favour of assessee. - ITA No:- 1531/Del/2017 - - - Dated:- 18-7-2019 - SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER For The Revenue : Shri Surender Pal, Sr. DR For The Assessee : Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 in assessee s aforesaid appeal in ITA No.6600/Del/2014 for AY 2008-09 was placed on record on behalf of the assessee during the appellate proceedings in the present appeal before us. Vide order dated 09.12.2016, the CIT(A) deleted the entire amount of penalty u/s 271(1)(c) of the Act and allowed the assessee s appeal. The relevant portion of the order of CIT(A) is reproduced hereunder:- 4.1. On these grounds, the Ld. AR submitted as under: During the year under consideration the assessee company was engaged in the business of - extraction, processing and sale of minerals products, exploration at Nueqeon in Kheonijhar district and Mayutbhanj district of Orissa and export of iron ore fines. Further while preparing the tinenciels, the assessee has followed various accounting policies consistently and the same is duly disclosed in and procedures as prescribed by the various laws. Assessee is consistently following uniform accounting policies since years and the same and the same is being duly disclosed by the assessee company in its balance sheet. During the assessment proceedings the Id. AO asked assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be avoided. Your honour in the present case of the assessee no claim made in the return of income has been regarded as unlawful. The additions made by the AO are mere on the basis of difference of opinion and not account of violation of any provision of the act. The power to impose penalty cannot be exercised if the AO is not satisfied about the existence of conditions specified in clause (a), (b), (c) of Section 271(1), before the proceedings are concluded. In the assessee's case, the penalty proceedings have been sustained not on the basis of any defects in the books of accounts but for difference in the opinion in the AO and the assessee. As the penalty proceedings are independent proceedings, though the finding in assessment proceedings are independent proceedings, these cannot be taken as res adjudicata. Penalty on difference in value of stock applying FIFO as against weighted adopted by the assessee On going through the reply of the assessee filed during the course of assessment proceedings your honour will agree that the assessee has no where concealed any partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of Revenue and the basis of levy of penalty gets summarised in the frame of the question. However, in light of the facts found by the Tribunal, and in absence of any evidence to show that such findings are incorrect in any manner whatsoever, it is not possible to accept the contention raised on behalf of the applicant Revenue. It is not possible to state that the method of accounting adopted by the assessee was such that it did not reflect the position correctly considering the fact that for three years the same had been accepted by the Department. Once this was the position, the bona fides of the assessee could not be doubted. In the case of Rajiv Kumar Garg Vs.ITO (ITAT Delhi), ITA No. 519/Del/2014 it was held as under: 2 . Mere fact that the addition has been accepted or is confirmed in quantum proceedings cannot be conclusive of penalty imposition. 3. The Hon'ble Calcutta High Court in case of Durga Kamal Rice Mills Vs. CIT (2004) 265 ITR 25 (Cal.) has held that quantum proceedings are different from penal proceedings. The Hon'ble Kerala High Court in CIT Vs. P.K. Narayanan (1999) 238 ITR 905 (Ker.) has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected. In the case of Lakshmi Jewellery vs CIT, 1988 (2) TMI59 - Hon'ble ANDHRA PRADESH High Court held as under There is force in the submission of Mr. Satyanarayana that while valuing the closing stock for ascertaining the profits, the assessee went by his usual method adopted in the past years and did not think that the Income-tax Officer would act in a manner different from what he did in the past years. As long as an inconsistent behaviour on the part of the assessee is not shown in the method of valuation of closing stock adopted for 1973-74 assessment, the Revenue would not be justified in attaching any blame on the assessee or for the matter of that of having concealed income by undervaluing the closing stock. We need not reiterate the principles governing the levy of penalty under section 271(1)(c) of the Act as these are too well-settled. If we may refer to the most celebrated judgment of the Supreme Court in this matter in C!T v. Anwar AIi[1970] 76 ITR 696, the requirement tor levying a penalty under section 271 (1)(c) is that the Revenue must straightaway discharge its obligation to prove concealment positivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re penal in character what would be the nature of the burden upon the department for establishing that the assessee is liable to payment of penalty. As has been rightly observed by Chagla C. J. in Commissioner of Income-tax v. Gokuldas Harivallabhdas, the gist of the offence under section 28(1)(c) is that the assessee has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and therefore, the department must establish that the receipt of the amount in dispute constitutes income of the assessee. If there is no evidence on the record except the explanation given by the assessee, which explanation has been found to be false, it does not follow that the receipt constitutes his taxable income. Their Lordships proceeded to state: Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the explanation given by the assessee as false would, prima facie, be sufficient for establishing, in proceedings under section 28, that the disputed amount was the assessee's income. It must be remembered that the proceedings under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be noted that every addition/disallowance must not give rise to imposition of penalty. If that be so penalty would have been made compulsory on all additions/ disallowances made in the assessment proceedings without looking into the facts of the case. But this is not the case. Penalty proceedings are separate from assessment proceedings and are quasi criminal. Penalty cannot be blindly imposed. Assessing officer has to prove the malice intention of the assessee or furnishing of some inaccurate particulars. Here in the case of the appellant the Id. AO has failed to do so. In the case of CIT vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 the honorable Supreme Court of India held as under: 10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect to the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation of disallowance was made u/s 14A as no disallowance was made in the return of income. However, the accounts have been audited and the return was accompanied by the tax audit report. The latter did not suggest any disallowance u/s 14A. Therefore, it can be inferred that all expenses were claimed in full as the auditors did not suggest disallowance of any part of the expenditure relating it to the dividend income. Thus, it can be concluded that the claim was made on the basis of tax audit report. There is no allegation by the AO that there was any collusion between the auditor and the assessee to enhance the loss in' the return of income by ignoring the provision contained in section 14A. Therefore, it can be said that the assessee has furnished an explanation which is bona fide. In regard to proposition at (c) above, the finding of the Id. CIT(A) is that the disallowance is disputable. The section, as it existed at the time of filing the return, does contain a provision for disallowance of expenditure which is related to non-taxable income. Therefore, it is expected of any assessee to attempt at segregating expenditure which is related to such a claim. No attempt has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/02/2012 held as under: 6. The CIT (Appeals) and the tribunal have considered the aforesaid explanation given by the assessee to justify their claim why no disallowance was mandated under Section 14A in the present case. They have accepted that the explanation given by the assessee was genuine and bona fide. The contention of the respondent assessee may have been rejected in the quantum proceedings but when deciding whether or not penalty for concealment should be imposed, the justification and explanation why the assessee had made the claim, is to be examined. Disallowance under the said section have been subject matter of debate and different views have been expressed. A legal contention which was plausible and merited consideration was raised. Accordingly, the appellate authorities have applied the explanation to Section 271(1)(c) of the Act. Looking at the nature of explanation offered and the provision in question i.e. Section 14A, which was incorporated by the Finance Act, 2001 with retrospective effect from 1st April, 1962, we do not think in the present case any substantial question of law arises in view of the factual matrix involved. Accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings are as under:- 15. In view of above, we observe that the authorities below have not recorded any finding that the explanation offered by the assessee before the Assessing Officer was found to be false and in this situation, the decision of Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (surpa) comes into play to rescue the assessee from penalty. Respectfully following the above decision, we hold that if the contention of the revenue is accepted, then in the case of Shri Manish Jain where the claim is not accepted by the Assessing Officer for any reason, the assessee will invite the penalty u/s 271 (l)(c) of the Act which is not the intention of the legislature. Accordingly, sole ground of the assessee is allowed and penalty order as well as impugned order is set aside by deleting the penalty. In view of the above judgment, it is can be concluded that the stand taken by the Id. AO is totally incorrect and same is liable to be deleted. Mere rejection of claim does not mean concealment Your honour will endorse that the Id. AD has taken all the details, on the basis of which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) CIT vs. Inden Bislers (1999) 240 ITR 943, 946, 947 (Madras)[tribunal was held - justified in canceling the penalty where it has recorded a finding that the additions . have' been made because a particular expenditure was not justifiable from a commercial point of view and that there was no evidence of concealment of income). Thus the action of the assessing officer in levying the penalty is bad in law and the penalty is liable to be deleted otherwise same will create undue hardship on the assessee. Penalty and assessment proceedings are two different things The power to impose penalty cannot be exercised if the AO is not satisfied about the existence of conditions specified in clause (a), (b), (c) of Section 271(1), before the proceedings are concluded. In the assessee's case, the penalty proceedings have been sustained not on the basis of any defects in the books of accounts but for some error which has been accepted by the assessee. As the penalty proceedings are independent proceedings, though the finding in assessment proceedings are independent proceedings, these cannot be taken as res adjudicata. Reliance is placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he detail$ supplied in the Return are not accurate, not exact or correct, not according to truth or erroneous. In the absence of a finding by the AO that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false, there would be no question of inviting penalty u/s 271 (1)(c). ( ii) The argument of theO revenue that submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such income is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making ot the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. If the contention of the Revenue is accepted then in case of every Return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(1)(c). That is clearly not the intendment of the Legislature. ( iii) The law laid down in Dilip Shroff 291 ITR 519 (SC) as to the meanings of the words conceal and inaccurate continues to be good law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 71223/-. The above additions made by the Id. AO are not tenable in law and on the facts of the case. Valuation of stock; Your honour the assessee is into the business of extraction, processing and sale of Iron ore. The main product of the assessee company is Calibrated Lump Ore(CLO). The other products are lump ore and size ore. The CLO is processed out of the Run of Mine(ROM) which extracted out of the big rock using the explosives. The said Run of Mine is passed through series of crushers and processed until the particles are smaller than 19mm. The said particles of 19mm are termed as CLO which is the ultimate product of the assessee company. The ROM, Calibrated Lump Ore(CLO) and other products is measured in tons/ metric tons. Accordingly, the assessee adopted weighted average method for valuation of the same. The Id. Ao during the course of assessment proceedings doubted the methodology adopted by the assessee and proposed to value the ROM using FIFO method of valuation. Accordingly, he worked out the value of stock on the basis of FIFO method and added differential amount of ₹ 1,69,57,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence accordingly. Accordingly, we pray before your honour that the addition of under valuation of stock worked out by the AO is itself not tenable in law and accordingly the same cannot in any away form basis for levying the penalty for concealment or furnishing of inaccurate particulars. Disallowance under section 14A: Your honour the Id. AO has computed a disallowance of ₹ 1,00,343/- under 14A as against the suo moto disallowance of ₹ 29,120/- done by the assessee itself. The Id. AO has rejected the disallowance done by the assessee without giving any reason for the same. Your honor as per the provisions of section 14A r.w.r. 8D of the I. T.Rules, that the having regard to the books of accounts maintained by the assessee if the assessing officer is not satisfied with the any of the following claims of the assessee: a) Expenses incurred in relation to income which does not form part of the total income or, b) No expenses incurred in relation to income which does not form par to the total income. Then the assessing officer being not satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -condition and stipulation as noticed below is also mandated in sub Rule (1) to Rule 80 of the Rules. The above judgment of Delhi High Court clearly interprets the provisions of law given in section 14A(2) and Rule 80(1), as to mandatory recording of satisfaction by the assessing officer before exercising/adopting the methodology given in sub rule (2) of the Rule 80. Your honour in the present case of the assessee the Id. AO in his assessment order has no where discussed as to why the claim of the assessee of suo moto disallowance of ₹ 29,120/- is not satisfactory having regard to its books of accounts. Moreover, while calculating the value of investment in the working as per Rule 80(2) he has wrongly taken the value of investments in subsidiary companies of ₹ 1904.5 lacs. Your honor, it must be noted here that the amount of investment made by the appellant company in its subsidiary was not made for the purpose of earning exempt income but to exercise control and ownership over it. The said investment has been duly disclosed in the audited balance sheet of the appellant company for the year under co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition resulting out of rejection of method of valuation of closing stock. The appellant had been consistently following weighted average method for valuation of stock. The AO however, substituted the FIFO method of valuation in place of the weighted average method and rejected the books of accounts of the appellant to this extent Consequential addition due to the substitution of the valuation method resulted in the impugned addition of ₹ 1,69,57,108/-. The impugned addition arose only because the AO was of the opinion that the valuation method adopted by the appellant was not acceptable. All the facts were available in the return of income and in the submissions filed before the AO. Weighted average method is also an accepted method of valuation of stock and the appellant had been following the same consistently over the years. It is not the case of the AO that there is any suppression of information or furnishing of inaccurate particulars with the intent to conceal income. These are critical prerequisites for invocation of penal proceedings within the meaning of section 271 (1 )(c) of the Act. 4.4. Further, it is for consideration whether penalty for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails 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 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 of inaccurate particulars regarding the income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be said to be contumacious so as to warrant levy of penalty. Hence, we hold that there is no infirmity in the order of the Ld. Commissioner of Income Tax (A) and the same deserves to be upheld. 10. While coming to the aforesaid conclusion, we place reliance from the Apex Court decision rendered by a larger Bench comprising of three of their Lordships in the case of Hindustan Steel vs. State of Orissa in 83 ITR 26 wherein it was held that An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions made by the AO on which penalty of ₹ 57,88,000/- was levied. First addition was made on account of valuation of stock amounting to ₹ 1,69,57,108/- and second addition is of ₹ 71,223/- u/s 14A read with rule 80 of IT rules. 3. The addition of ₹ 1,69,57,108/- made by the AO on account of valuation of stock is deleted by Hon'ble ITAT in the order passed dt. 22.12.2017 bearing ITA No. 6600/De1l2014. Relevant finding of Hon'ble tribunal is at Page No.6 Para 6 of the ITAT Order. 4. The addition of ₹ 71,223/- on account of section 14A was not dealt in the order due to smallness of the amount (Page No. 4 Para 3 of IT AT Order). However assessee had a good case on merits and the addition made by the AO is untenable in law. 5. In the present case, assessee had made suo-motto disallowance of ₹ 29,120/- under section 14A of the Income Tax Act whereas AO computed the total disallowance of ₹ 1,00,343/- (Rule 80(iii) of ₹ 22,798/- and Rule 80(ii) of ₹ 77,545/-) and thus difference of ₹ 71,223/- was added in the hands of the assessee. 6. The AO, while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yana in the case of CIT v. Max India Ltd. in ITA No. 186 of 2013 dated 06.09.2016 Merely because the interest free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized for the purpose of investing in assets yielding exempt income. If even after the decrease the assessee has interest free funds sufficient to make the investment in assets yielding the exempt income, the presumption that it was such funds that were utilized for the said investment remains. There is no reason for it not to. The basis of the presumption as we will elaborate later is that an assessee would invest its funds to its advantage. It gains nothing by investing interest free funds towards other assets merely on account of the interest free funds having decreased. In that event so long as even after the decrease thereof there are sufficient interest free funds the presumption that they would be first used to invest in assets yielding exempt income applies with equal force. Reliance in this regard is placed on the following catena of judgements: i. CIT versus HDFC Bank Ltd in IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CLE-14 (1), NEW DELHI VERSUS PTC INDIA L TD.- 2019 (1) TMI 674 - ITAT DELHI iv. MIS. MOHAIR INVESTMENT AND TRADING COMPANY (P) LIMITED VERSUS DCIT, CIRCLE 5 (1) , NEW DELHI- 2015 (12) TMI 299 -ITAT DELHI 11. Thus, in view of the above penalty levied by the AO is unsustainable and is to be deleted. 4. At the time of hearing before us, Ld. Counsel for the assessee reiterated the submissions made in the aforesaid synopsis. The Ld. Departmental Representative (in short DR ) did not dispute the facts, submissions and contentions contained in this synopsis. However, Ld. DR contended that the penalty levied in respect of aforesaid addition amounting to ₹ 71,223/- towards disallowance u/s 14A r.w. Rule 8D should be confirmed. For this purpose, he submitted that any addition made in the assessment order should invariably lead to imposition of penalty u/s 271(1)(c) of the Act. Regarding penalty levied in respect of the aforesaid addition of ₹ 1,69,57,108/-, Ld.DR relied on the order of the AO. 5. We have heard both sides. We have considered materials on record carefully. As far as the penalty levied in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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