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TMI Blog2010 (5) TMI 665X X X X Extracts X X X X X X X X Extracts X X X X ..... particulars have bean concealed. The ld. AR on behalf of the assessee has not referred us to any material so as to enable us to take a different view in the matter. We, therefore, have no alternative but to uphold the order of the ld. CIT (A) insofar as levy of penalty on the amount in relation to claim for deduction of provision for bad and doubtful debts and provision for diminution in value of investments, is concerned. Disallowance of 1 per cent of administrative expenses - We are of the opinion that levy of penalty of the aforesaid disallowance made by the AO at the rate of 10 per cent of the total expenses and reduced to 1 per cent by the ld. CIT(A) is not justified. The provisions of section 271(1)(c) are not attracted in cases where the income of an assessee is assessed on estimate basis and additions are made therein. CIT v. Sangrur Vanaspati Ltd. [ 2008 (2) TMI 285 - PUNJAB AND HARYANA HIGH COURT] . The decisions in the case of Sahyog Sahakari Shram Samvida Samiti Ltd.[ 2007 (5) TMI 281 - ITAT LUCKNOW-A] and Raj Bans Singh s case[ 2004 (8) TMI 73 - ALLAHABAD HIGH COURT] support this view. - Shri TK Sharma, JM And Shri AN Pahuja, AM For the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 405 (Pat.), Dr. K.D. Arora v. CIT 162 ITR 481 (Pat.), CIT v. Swarup Cold Storage General Mills 136 ITR 435 (All.), CIT v. Kedarnath Ramnath 106 ITR 172 (All.), CIT v. E.V. Rajan 151 ITR 189 (Mad.) and Addl. CIT v. Lakshmi Ind. Cold Storage Co. Ltd. 146 ITR 492 (All.). (4) On the facts and in the circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. (5) It is, therefore, prayed that the order of the ld. CIT(A) may be cancelled and that of the Assessing Officer may be restored to the above effect. 2. Facts, in brief as per relevant orders are that return declaring income of Rs. 16,17,56,630 filed on 11-10-2001 by the assessee-company, carrying on the business of providing loans/finance leasing/hire purchase besides providing financial services, after being processed on 30-9-2002 under section 143(1) of the Income-tax Act,1961 [hereinafter referred to as the Act ], was selected for scrutiny with the issue of notice under section 143(2) of the Act on 29-10-2002. The assessment was completed under section 143(3) of the Act vide order dated 26-2-2004, determining total income of Rs. 29,05,15,132 inter alia, following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i [2000] 112 Taxman 84 (Ahd.)(Mag.), the assessee pleaded that mere addition itself would not attract penalty under section 271(1)( c ) of the Act, particularly when there was a true and complete disclosure in the return of income filed. However, the Assessing Officer did not accept the submissions of the assessee on the ground that : ( i ) during the year under consideration, the assessee company claimed exempted income on account of dividends of Rs. 4,81,45,543 under section 10(33) of the Act. The disallowance on account of interest on funds invested in exempted assets and administrative and other expenses of Rs. 6,98,72,062 made by the Assessing Officer was restricted by the ld. CIT(A) to Rs. 9,91,000. ( ii ) the assessee claimed deduction for provision for bad and doubtful debts of Rs. 1,61,81,556, even when the Explanation to the relevant provisions of section 36(1)( vii ) of the Act clearly mentioned that for the purpose of the said clause any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Moreover, assessee s claim was not maintaina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated disallowance under section 14A of the Act. It was submitted that provision made for bad and doubtful debts and provision for diminution in value of investments were in accordance with the prudential norms of the Reserve Bank of India and were shown on the face of profit and loss account, the assessee being a Non-Banking Finance Company. It was argued that the RBI Act overrides the provisions of Income-tax Act and therefore, the provisions made in the profit and loss account were allowable as deduction under section 28/37(1) of the Act in view of decision of Delhi Tribunal in the case of Tedco Investment Financial Services (P.) Ltd. v. Dy. CIT [2004] 82 TTJ (Delhi) 259, and decision of Chennai Tribunal in the case of Overseas Sanmar Financial Ltd. v. Joint CIT [2003] 86 ITD 602 . Since the assessee was under a bona fide belief that these provisions were allowable deductions, penalty under section 271(1)( c ) was not applicable. Without prejudice to these contentions, it was pleaded that the disallowance on account of provisions for bad debts was made in view of the amendment to section 36(1)( vi ) retrospectively by the Finance Act, 2001 effective from 1-4-1989 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Items Treated Separately 258536298 Profit on sale of investments 3006551 Profit on sale of assets (net) 19178 Dividend Income 48145543 51171272 Less: Interest on infrastructure Bonds/ Debentures Exempt u/s 10(23G) SSNL Bonds 3575000 207365026 GIPCL-97 11% Debentures 2193972 5768072 Add: Amount of Lease Equalization debited to Profit and Loss A/c. 201596054 16330460 217926514 Less: Depreciation as per Income-tax 59176435 158750079 5.1 The appellant had provided for bad and doubtful debts and diminution in value of investments in the profit and loss account with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the profit and loss account was mere provision and not bad debt written off. It is to be stated with emphasis that the provisions of section 36(1)(vii) was effective from 1-4-1989 which necessitates write off of bad debts as irrecoverable in the accounts of the appellant. Only the Explanation below clarifying that provision for bad and doubtful debts made in the accounts would not qualify as bad debt or part thereof written off as irrecoverable, was introduced by the Finance Act, 2001 with retrospective effect from 1-4-1989. Thus, write off of bad debts in the accounts is a must for claiming deduction under section 36(1)(vii). The appellant is an established concern assisted by reputed professional firms. It cannot be their case that they were ignorant of even the base requirements of law while making huge claims for deduction. As already stated there is no specific mention in the computation statement as to which of the provision was applicable in making the claim for deductions on account of provision for bad and doubtful debts and diminution in value of investments. In other words, the computation of income under the head Business was incorrect on facts as well as in the ey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1-4 (i) Non-recording of reasons by the Assessing Officer in the assessment order - The appellant extensively relied on various decisions of the Hon ble Delhi High Court as discussed in the preceding paragraphs. For the sake of brevity, it is pertinent to refer to the decision of the Hon ble Madras High Court squarely covering the above aspect in the case of M. Sajjanraj Nahar v. CIT 283 ITR 230. In the said decision the Hon ble High Court held that the indication in the assessment order by the Assessing Officer that penalty proceedings are initiated separately is sufficient to prove that the Assessing Officer had satisfied himself in the course of assessment proceedings that the assessee had concealed his income. In coming to the above decision, the Hon ble High Court extensively quoted the decision of Hon ble Apex Court in the case of CIT v. S.V. Angidi Chettiar 44 ITR 739 vide paras 27, 28, 29 and 30 which is as under: The question of initiating penalty proceedings under section 28(1) of the Indian Income-tax Act, 1922 came up for consideration of the Apex Court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 , which is also relied upon in the Delhi High Court in (a) CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foot of the assessment order by the ITO that action under section 28 had been taken for concealment of income indicating clearly that the ITO was satisfied in the course of the assessment proceedings that the firm had concealed its income. [Emphasis supplied]. The above observation of the Apex Court in CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739, dealing with the indication of the Assessing Officer as to the proposed penalty proceedings with regard to the concealment of income in the course of the assessment proceedings by the assessee. In our considered opinion, was not brought to the notice of the Delhi High Court in (a) CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568; (b) Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi); and (c) CIT v. Vikas Promoters (P.) Ltd. [2005] 277 ITR 337 (Delhi). Therefore, the indication in the assessment order by the Assessing Officer that penalty proceedings are initiated separately is suffice to prove that the Assessing Officer had satisfied himself in the course of the assessment proceedings that the assessee had concealed his income, as in the instance case. 5.1-4.1 Thus, the reliance placed by the appellant on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and loss account. In the said situation, it was held to be a bona fide mistake while preparing return of income and that the omission had occurred not with an intention but due to oversight and that there was nothing on record to show that any particular individual member of the Assessee Society had any personal interest in committing act of omission and hence no penalty was exigible. The facts of the case on hand as discussed in detail above are quite different and that it is not a mere receipt that was routed through the account which was omitted to be adjusted in the computation statement. But the present case is a sheer default of making a claim without carrying out the requisite write off in the accounts of the respective parties. In fact, it is a clear violation of the provisions of section 36(1)(vii). The only provision under which the said claim could have been allowed. All other subsequent claims are only afterthought and further rejected as untenable in view of the above discussion. The Assessing Officer had rightly rejected the claim of the appellant as regards the provision for doubtful debts and the provision for diminution in value of assets as legally wrong clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above entries in the computation of statement cannot be claimed to be either of ignorance of law or on any sound factual or legal basis. In fact, there is no case for any bona fide belief on the date of filing of the return along with computation statement. Had the return been accepted on the basis of the computation statement, such inadmissible claim leading to under assessment would have escaped the due treatment under the law. In that view of the matter, I am convinced that the action of the Assessing Officer in levying penalty holding that the appellant furnished inaccurate particulars by way of incorrect computation of income leading to under statement of taxable income is justified calling for levy of penalty under section 271(1)(c). However, as regards the disallowance of Rs. 9.91 lakhs sustained on an estimate basis in view of the legal pronouncements supporting the claim of the appellant, no penalty under section 271(1)(c) is leviable there being no furnishing of inaccurate particulars or concealment of information in this regard. In effect, the penalty under section 271(1)(c) attributable to provision for bad and doubtful debts at Rs. 1,62,81,557 and provision for diminut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also the decisions relied upon on behalf of the assessee. At the outset, we may have a look at the relevant provisions of section 271(1)( c ) of the Act, which read as under: 271. Failure to furnish returns, comply with notices, concealment of income, etc.. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person ****** (c) 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, (iii)in the cases referred to in clause (c) , in addition to any tax payable by him, 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 or the furnishing of inaccurate particulars of such income. Explanation 1. Where in respect of any facts material to the computation of the total income of any person under this Act, : (A)such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Deputy Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressly debar deduction of such provision for bad debts and provision for diminution of investments. The expression has concealed the particulars of income and has furnished inaccurate particulars of income have not been defined either in section 271 or elsewhere in the Act. However, notwithstanding the difference in the two circumstances, it is now well established that they lead to the same effect namely, keeping off a certain portion of the income from 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. It means to hide or withdraw 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 portion thereof from the knowledge of the income-tax authorities. In Webster s Dictionary , inaccurate has been defined as : not accurate, not exact or correct; not according to truth; erroneous ; as an inaccurate statement, copy or transcript. 5.3 If the disclosure of facts is incorrect or false to the knowledge of the assessee and it is establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not conclusive. The assessee can submit the explanation as the onus shifts on to the assessee to prove that he has not concealed the particulars of the income. The assessee in the instant case submitted an explanation, wherein in relation to their claim for provision for bad and doubtful debts , it was pointed out on behalf of the assessee that they were not aware of the amendment introduced by the Finance Act, 2001 with retrospective effect from 1-4-1989, as it was not publicly known and that RBI directions override the provisions of the Act. The ld. CIT(A) found that there was no mention in the computation statement as to the claim under section 36(1)( vii ) as regards provisions for bad and doubtful debts or as regards diminution in value of investments. Undisputedly, what the assessee had debited in the profit and loss account was mere provision and not bad debts written off. The relevant provisions of section 36(1)( vii ) of the Act effective from 1-4-1989 stipulate that bad debts written off of as irrecoverable in the accounts of the assessee, alone were deductible. The Explanation introduced by the Finance Act, 2001 with retrospective effect from 1-4-1989 clarifies that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him for making such a claim is not found to be bona fide , it would be difficult to say that he would still not be liable to penalty under section 271(1)( c ) of the Act. If we take the view, that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a license to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by an intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn upon the assessee to rebut the presumption raised under Explanation 1 would not be discharged by any fantastic or fanciful explanation. It is not the law that any and every explanation has to be accepted. Since the assessee failed to substantiate their explanation in respect of amount in relation to disallowance on account of provision for bad and doubtful debts - Rs. 1,62,81,557 and provision for diminution in value of investments Rs. 21,98,638, the onus laid down upon the assessee in terms of Explanation 1 (B) to section 271(1)( c ) of the Act remains undischarged. The assessee has neither substantiated his explanation nor proved that such an explanation is bona fide before the lower authorities. Thus, it cannot be said that in such a case, there could be no scope for saying that the assessee is guilty of furnishing of inaccurate particulars of income, warranting penalty under section 271(1)( c ) of the Act. Even if the Assessing Officer/CIT(A) have not specifically invoked the Explanation 1 to section 271(1)( c ), it had to be considered at the appellate stage in view of decision of Hon ble Bombay High Court in CIT v. SMJ Builders [2003] 262 ITR 60 and of Hon ble A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had concealed the particulars of his income. Though the said decision of the Delhi High Court relates to the assessment year 1964-65, the proposition of law and the ratio laid down in that case is equally applicable to Explanation 1 to section 271(1)( c ) inserted by Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976. 5.7 The reliance on the decisions on behalf of the assessee in support of their assertion that mere disallowance of a claim for deduction of aforesaid provisions would not attract penalty, is totally misplaced since the assessee did not place any evidence before us regarding bona fide of their claim for deduction on account of provision for bad and doubtful debts and provision for diminution in value of investments nor referred us to any provision in the Act in support of such claim. It may be pointed out that in quantum appeal, the ITAT upheld the disallowance of provisions for bad and doubtful debts as also provision for diminution in value of investments relying upon the decision in the case of Gujarat Gas Financial Services Ltd. v. Asstt. CIT [2008] 115 ITD 218 (Ahd.) (SB). Even the reliance on the decisions in the case of Ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Infrastructure Development Corpn. Ltd. ( supra ) and aforesaid decision of the Hon ble Apex Court. Moreover, as already pointed out, Hon ble Supreme Court in their decision in the case of K.P. Madhusdanan ( supra ), held that the Explanation to section 271(1)( c ) is a part of section 271. When the Assessing Officer or the CIT(A) issues to an assessee a notice under section 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation . By reason of the Explanation , the assessee is deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, unless he proves that the failure to return the correct income did not arise from any fraud or neglect on his part. The assessee is, therefore, by virtue of the notice under section 271 put to notice that if he does not prove, in the circumstances stated in the explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose mistake, these deductions were claimed and consequently the amounts were left to be added back. Reliance on certain decisions of the ITAT while making such a claim is misplaced in view of aforesaid decision in the case of Southern Technologies Ltd. ( supra ). Needless to say that decision of an Apex Court only clarifies the law and no new law is laid down. It is only the Legislature which can create a law and not the Court. The courts do not legislate. Since the assessee failed to establish the bona fide of their claim, therefore, in terms of Explanation 1 to section 271(1)( c ) of the Act the onus is not discharged by the assessee, despite sufficient opportunity allowed by the Assessing Officer. Thus, levy of penalty is justified CIT v. Altron Electronics India Ltd. [2008] 301 ITR 66 (Kar.). 5.11 Moreover, it is a settled law that in economic offences, the statutory liability to pay either duty or tax is nothing but a strict liability where the question of proving beyond the shadow of doubt one s existence of bona fide belief that amount is not taxable does not arise. It goes without saying that any violation of the law or rules relating to economic offences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the explanation were clearly proved from the fact that the High Court admitted the appeal of the assessee about the disallowance of the interest. The Tribunal held that if there could be two views about the claims of the assessee, the explanation offered by it cannot be said to be false. The penalty was accordingly deleted by the Tribunal. The order of the Tribunal was maintained by the High Court. The Supreme Court was of the view that under section 271(1)( c ), there has to be concealment of income of the assessee or he must have furnished inaccurate particulars of his income. The contention of the revenue that it was a case of furnishing of inaccurate by making incorrect claim for the expenditure on interest was rejected noticing that the words particulars used in section 271(1)( c ) would embrace the meaning of the details of the claim made by the assessee and that the assessee before the Court had not given any such information which was found to be incorrect or inaccurate. After considering the meaning of inaccurate given in Webster s Dictionary , the Court was of the view that inaccurate particulars would mean the details supplied in the return which are not accurate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the contention raised by Shri Mahajan, we find that after the insertion of Explanation 1 to section 271(1)(c) of the Act by the Taxation Laws (Amendment) Act, 1975, if the explanation offered by the assessee regarding the additions is either found to be false and remained unsubstantiated, the additions so made are deemed to be the concealed income, and therefore, the penalty provisions are attracted. The decision relied upon by the Tribunal relates to the assessment years prior to April 1, 1976, when the present Explanation was not in the statute book, and, therefore, they are not applicable in the present case. We are therefore, of the considered opinion that Tribunal has completely misdirected itself in cancelling the penalty. 5.15 In the case under consideration, the explanation given by the assessee during the assessment proceedings and reiterated in penalty proceedings has not been substantiated nor has been found to be bona fide, especially when the assessee before us did not explain either to the Assessing Officer/CIT(A) or to us as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added back whil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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