2015 (10) TMI 1081 - AT - Income Tax

Penalty u/s.271(1)(c) - non receipt of export proceeds (i.e., in convertible foreign exchange) within six months from the end of the relevant previous year. No instruction from Reserve Bank of India (RBI) had in fact been applied for - Held that - No post facto approval had been allowed to the assessee, which gets established as fact by the tribunal, the final fact finding authority, we are unable to see as to how any such contention could at all be raised in penalty proceedings. This is as the said finding, which is one of fact, and even otherwise not challenged before the hon ble high court, has attained finality. Repeating the same argument in the penalty proceedings, without brining any further material or fact/s or circumstances on record would therefore be to no effect or purpose. Why, no approval, as afore-noted, stands sought, so that there is no basis or scope for the assessee to even consider itself as being entitled for approval. The assessee, by making a claim of having been allowed extended time, or an approval up to the time the export proceeds have been received, from the competent authority, thus, makes a false claim, i.e., misleads. The assessee s argument, consequently, fails. As nobody can be presumed to be bestowed with prescience so as to know in advance if the payment, not received by the date of filing the return of income, shall be received in future and when, or not, the law prescribes a procedure for claiming deduction in its respect in cases of delay in payment. That is, the claim for deduction is made conditional to the allowance of the extended time for receipt. It may be that the assessee delays seeking the extension of time, i.e., by the expiry of the six month period, but surely unless the same has been obtained, there is no basis to make a claim for deduction. In the instant case, the approval having not been sought, there is no basis to even expect an approval a condition precedent, much less having received it by the date of filing the return, whereby the assessee lodges the claim for deduction. It is the return as furnished, and the facts, as well as law, as obtaining at the relevant time, that is relevant for the purpose of imposition of penalty (See CIT v. Onkar Saran & Sons 1992 (3) TMI 1 - SUPREME Court ). We, in view of the foregoing, are in full agreement with the findings of the authorities below that the assessee s explanation is both false and not bona fide and is guilty of a dishonest conduct, as noted by both the authorities below.The penalty, levied at ₹ 2,50,000/-, i.e., at 120% of tax sought to be evaded, as against a minimum of 100% and a maximum of 300% thereof, is accordingly upheld. We decide accordingly. - Decided against assessee.

Summary

Issues Involved:
1. Legitimacy of the penalty under Section 271(1)(c) of the Income Tax Act, 1961.
2. Validity of post facto approval from RBI for export proceeds.
3. Relevance of the quantum proceedings appeal admitted by the High Court in penalty proceedings.

Detailed Analysis:

1. Legitimacy of the Penalty under Section 271(1)(c) of the Income Tax Act, 1961:
The assessee filed its return of income claiming a deduction under Section 80-HHC of Rs. 13,78,338, restricted to Rs. 6,00,162. The Assessing Officer (A.O.) found the claim deficient due to two reasons:
- The assessee could not substantiate its claim of export concerning two invoices amounting to Rs. 24,21,160, which actually belonged to another firm.
- Non-receipt of export proceeds within six months from the end of the relevant previous year without any instruction from the Reserve Bank of India (RBI).

The Tribunal upheld the assessee's claim on the first issue, leaving only the second issue for penalty consideration under Section 271(1)(c).

2. Validity of Post Facto Approval from RBI for Export Proceeds:
The assessee argued that post facto approval was obtained from RBI on 20.06.2008. However, the Tribunal found that no application for an extension of time for receipt of export proceeds was made to RBI. The communication from RBI merely noted the receipt of export proceeds without granting any extension or approval. The Tribunal emphasized that the letter from RBI did not constitute a 'post facto approval' and highlighted the difference in language between the letter to the assessee and another letter that explicitly provided post facto approval.

The Tribunal concluded that the assessee's claim was false and misleading, as no approval was sought or granted. The penalty was justified because the assessee made a false claim by including the impugned turnover as export turnover without any basis or approval from the competent authority.

3. Relevance of the Quantum Proceedings Appeal Admitted by the High Court in Penalty Proceedings:
The assessee contended that since the quantum appeal was admitted by the High Court, following the decision in CIT vs. Nayan Builders & Developers, no penalty under Section 271(1)(c) could be levied. The Tribunal examined this argument and found it unconvincing. The decision in Nayan Builders & Developers was interpreted as indicating that the issue was debatable and arguable, thus not raising any substantial question of law.

The Tribunal noted that the Hon'ble High Court had not expressed any view on the issue being debatable. The admission of the quantum appeal did not automatically preclude the levy of penalty. The Tribunal referred to other decisions, such as CIT vs. Dharmshi B. Shah and CIT vs. Splender Construction, which held that mere admission of an appeal by the High Court does not render the issue debatable for penalty purposes.

The Tribunal further emphasized that penalty proceedings are separate and distinct from quantum proceedings. The burden of explanation under Section 271(1)(c) lies with the assessee, and the absence of a plausible explanation coupled with proper disclosure justifies the penalty.

Conclusion:
The Tribunal upheld the penalty of Rs. 2,50,000 levied under Section 271(1)(c) of the Income Tax Act, 1961. The assessee's explanations were found to be false and not bona fide, and the conduct was deemed dishonest. The appeal was dismissed, and the penalty was confirmed.