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TMI Blog2009 (5) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... ve gone through the provisions of s. 271(1)(c) read with Expln. 1 thereto. Sec. 271(1)(c) provides that if the AO or the CIT(A) or the CIT, in the course of the proceedings in this Act is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, 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 reason of the concealment of particulars of his income. Explanation 1 states that where in respect of any facts material to the computation of the total income of any person under this Act, such person fails to offer an explanation or offers an explanation which is found by the AO or the CIT(A) or the CIT 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 cl. (c) of this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. (iv) If the assessee offers the explanation but is found to be false by the AO or the learned CIT(A) or the CIT, the penalty under s. 271(1)(c) would be attracted. (v) If the assessee offers explanation, which he has not been able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the computation of assessee's income have been disclosed by him, then the penalty under s. 271(1)(c) shall be attracted. (vi) Though the penalty provision contained in s. 271(1)(c) is civil liability and wilful concealment is not an essential ingredient for attracting this liability, but still the penalty under s. 271(1)(c) shall not be imposed if the assessee has been able to discharge his burden that lay upon him under Expln. 1 to s. 271(1)(c) of the Act. (vii) Whether an explanation offered by the assessee is false or bona fide depends on the cumulative effect of all the facts and circumstances of a given case, and no uniform or strait-jacket formula can be laid down for determining whether or not the explanation offered by the assessee is false or bona fide and whether the assessee has disclosed all the facts relating to the matter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that long duration of such abroad cannot be justified by explanation provided by the assessee against each foreign trip, and the disallowance of foreign travelling expenses in the asst. yr. 1998-99 has been upheld by the learned CIT(A). On an appeal against the assessment, the disallowance was reduced to 10 per cent by the learned CIT(A) on the basis that exact nature of services provided by the assessee's employees outside India were not clearly specified and no evidences were furnished by way of confirmations from the overseas Nokia entities in relation to work done by Nokia employees. However, on an appeal before the Tribunal, the disallowance of foreign travelling expenditure sustained to the extent of 10 per cent by the learned CIT(A) was deleted. Hence, basis for imposing the penalty under s. 271(1)(c) does not survive any more. We, therefore, hold that no penalty under s. 271(1)(c) is imposable in respect of foreign travelling expenditure. 12. Next addition in respect of which penalty has been levied by the AO is the disallowance on account of provision for warranty amounting to Rs. 2,60,56,659. This disallowance was made by the AO by treating the warranty liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and report. The learned CIT(A) further observed that once the assessee states that it has given gifts to its employees and dealers, it cannot be said that these were for official use. The learned CIT(A) further observed that a gift is given without any expectation of return from the receiver. 13.6 In the light of the aforesaid findings in the quantum appeal recorded by the learned CIT(A), it is clear that the learned CIT(A) has confirmed the disallowance in the absence of full and proper evidences in support of the claim and for the reason that the gift given to employees and dealers cannot be considered for official use. The fact that assessee had given cellular phone handsets to dealers and employees by way of gift is not in dispute. The assessee has a business relation with the employees as well as the dealers, and the handsets were given in the course of business carried on by the assessee. Since the handsets were given to employees and dealers and not to any other person unconnected to the business of the assessee, the assessee could have bona fide belief that the amount representing the handsets given to dealers and employees are allowable as business deduction. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the claim but at the same time allowed the depreciation at the rate of 25 per cent thereupon. 14.2 On an appeal against the assessment, the learned CIT(A) upheld the order of AO. The learned CIT(A) observed that these handsets cannot allow to be written off in the present assessment year merely because the assessee has treated the same as such in its books of accounts. The learned CIT(A) further observed that the arguments advanced by the assessee that the handsets were given to AMCs as "swap handsets" were to be given by AMCs to customers, whose defective handsets could not be repaired, and sample of cellular handsets were provided to the dealers for display and promotional purpose either on concessional basis or on a free of charge basis cannot be accepted for the reason that (i) for receipt of defective handsets, the company has a separate provision and the amount over and above the provision are claimed as current repairs, and (ii) by giving the sample handsets for display and promotional purposes, it increased its market share and established the company's brand name and, thus, they are certainly on capital account. The learned CIT(A), therefore confirmed the AO's action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,46,656 as provision for obsolescence of inventory. In the absence of documentary evidence to justify the claim, the AO disallowed the sum of Rs. 12,36,664 being 25 per cent of the total claim, and added the same to the total income of the assessee. On an appeal, the learned CIT(A) upheld the AO's action by observing that merely providing a list of the names of items sought to be treated as obsolete and the names of the model which had gone out of market, is not sufficient to allow the assessee's claim in full, and the assessee could not justify the claim supported by any market survey report and quality control report suggesting phasing out the model from time to time. On further appeal before the Tribunal, the Tribunal upheld the learned CIT(A)'s order by giving identical reasons as given by the AO and by the learned CIT(A). 15.2 Since the 25 per cent of the total claim stood disallowed, the AO levied the penalty in respect of aforesaid disallowance on account of provision for obsolescence of inventory. In the penalty order, the AO has stated that the assessee failed to produce any new evidences in support of its claim and since every year two or three new mobile models are lau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Disallowance out of foreign travelling expenses; (ii) Disallowance of provisions for warranty; (iii) Disallowance of deduction on account of mobile sets given to dealers, employees and AMCs by treating the same to be a capital in nature, and then allowing the depreciation at the rate of 25 per cent; (iv) Disallowance of claim on account of handsets given to the dealers, employees and AMCs as swap handsets; (v) Disallowance on account of provision for obsolescence of inventory. 18. We have heard both the parties and have carefully gone through the orders of the authorities below. 19. The penalty levied by the AO has been deleted by the learned CIT(A), and the Department is now in appeal before us. 20. The items on which penalty has been levied by the AO are based on facts identical to the facts of the asst. yr. 2000-01. We have already deliberated upon these items in asst. yr. 2000-01 as above, and have come to conclusion that no penalty under s. 271(1)(c) was leviable for the reasons discussed therein. 21. In terms of our order in the appeal for the asst. yr. 2000-01, which has been decided above by this common order, we are inclined to confirm the order of learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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