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TMI Blog2010 (4) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 153A read with section 143(3) were completed during which penalty proceedings under section 271(1)( c ) were initiated. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee formulated certain schemes for sale of farm plots ( i ) Lump sum scheme in which entire sale consideration was collected at the time of sale itself ( ii ) swift instalment monthly scheme (SIM) in which assessee collected sale consideration in monthly instalments and ( iii ) swift instalment daily scheme (SID) in which, the assessee collected sale consideration in instalments on daily basis. As per the accounting system followed by the assessee, the considerations received under lump sum scheme was shown as sale receipts in the year of receipt while the amount collected under the SIM and SID was shown as "advances" in the balance sheet. The same were shown as sale receipts after the collection of last instalment. Against such receipts/advances, the assessee debited the entire expenditure on marketing in the P L a/c of the year in which the same was incurred. Certain other expenses were partly claimed under the head Deferred revenue and carried over to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the course of assessment proceedings or penalty proceedings with any positive material on record or with any documentary evidence. The charges leveled in the show-cause notice were only wild allegations based on assumptions and surmises. The accounts of the assessee firm were duly audited by the chartered accountants and statutory auditors have certified the accounts to be true and fair and the policy of the company for revenue recognition was not adversely commented upon. It was also contended before the CIT(A) that the accounting policy for revenue recognition followed by the assessee was in accordance with the Accounting Standards issued in the case of real estate accounting and guidance notes issued by the ICAI. The Assessing Officer could not bring anything on record to show that assessee has suppressed the taxable income by following such accounting policy. In fact a team of Inspectors was deputed to the business premises of the assessee company to verify the bills and vouchers and other evidence of expenditures and no error was pointed out by the Inspectors team. The assessee s claim of debiting the entire expenditure in the P L a/c of the year in which the same was incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -made vouchers and hence not verifiable, cannot be a ground for levy of penalty under section 271(1)( c ) of the Act. There was no material on record to show that the expenditures claimed by the appellant were bogus in nature or were not allowable under section 37(1) of the Act. The Assessing Officer has not discharged the burden of establishing that by claiming the said expenditure, the appellant had concealed its income. Merely because the Assessing Officer did not agree with the appellant with regard to accounting policy and maintenance of accounts, it could not be said that there was concealment of income or furnishing of inaccurate particulars of income. This is the ratio laid down by the Hon ble Tribunal, Hyderabad in the case of Navbharat Enterprises (P.) Ltd. v. Asstt. CIT [2008] 12 DTR (Hyd.)(Trib.) 275 : [2009] 309 ITR 79 (Hyd.)(AT) which in turn followed the decisions of Hon ble Supreme Court in the cases of K.C. Builders v. Asstt. CIT [2004] 186 CTR (SC) 721 : [2004] 265 ITR 562 (SC), Virtual Soft Systems Ltd. v. CIT [2007] 207 CTR (SC) 733 : [2007] 289 ITR 83 (SC) and T. Ashok Pai v. CIT [2007] 210 CTR (SC) 259 : [2007] 292 ITR 11 (SC). The observation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( b ) he fails to prove that such explanation is bona fide and ( c ) all the facts relating to the same and material to the computation of total income have been disclosed by him. Unless the Assessing Officer gives a finding on the basis of material on record1 that all the three conditions are cumulatively and simultaneously satisfied, penalty under section 271(1)( c ) of the Act read with Explanation 1(B) cannot be levied. Once it is to be held that the particulars furnished by the assessee are inaccurate, it would require the Assessing Officer to show what should be the accurate particulars. Merely disbelieving the claim of the assessee would not be sufficient. There are two things to be compared : ( a ) what is furnished by the assessee and ( b ) what is furnished by the Assessing Officer either from the assessee or from a third party which he considers to be accurate. Further, this inaccuracy should have a material bearing on the computation of income. If the inaccuracy is such that it does not affect the computation of income it would not attract the levy of penalty. Payment of commission to villagers, artisans and uneducated persons through bearer cheques is a common p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was found by Assessing Officer nor he has given any finding that all the three conditions, mentioned in Explanation 1(B) to section 271(1)( c ), were cumulatively and simultaneously satisfied, In fact, the appellant company had offered an explanation which was bona fide and which it was able to substantiate. The facts of the appellant s case are similar to the case of CIT v. Cafco Syndicate Shipping Co. [2007] 294 ITR 134 (Mad.), where during the course of survey at the business premises of the assessee, it was noticed that some of the vouchers of expenses were self-made and were not supported by third party receipts/vouchers. Assessee filed revised return admitting higher income. The Assessing Officer held that since the expenditure was not supported by proper vouchers, the assessee should not have claimed the expenditure for deduction, especially when the amount involved was huge. He therefore, levied the penalty under section 271(1)( c ). The penalty was deleted by the CIT(A) and Tribunal. On further appeal of the Department, the Hon ble High Court held that : Dismissing the appeal, that the one and only reason for the assessee to file the revised return was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 271(1)( c ) is not leviable CIT v. Sangrur Vanaspati Mills Ltd. [2008] 216 CTR (Punj. Har.) 92 : [2008] 4 DTR (Punj. Har.) 166 [2008] 303 ITR 53 (Punj. Har.), CIT v. Smt. K. Meenakshi Kutty [2003] 180 CTR (Mad.) 190 : [2002] 258 ITR 494 (Mad.), Harigopal Singh v. CIT [2002] 177 CTR (Punj. Har.) 580 : [2002] 258 ITR 85 (Punj. Har.), CIT v. M. Pachamuthu [2008] 214 CTR (Mad.) 524 : [2007] 295 ITR 502 (Mad). It was held in the case of A.V.R. Prasad v. ITO [2006] 99 TTJ (Hyd.) 920 : [2005] 97 ITD 325 (Hyd.) that : In response to the penalty notice, the assessee submitted that the revised returns were filed in order to purchase peace and co-operate with the Department, which stand of the assessee was not found to be false by the Department. The explanation of an assessee that he has filed the revised return to buy peace with the Department is a bona fide explanation depending on the circumstances of the case and, thus, as per the proviso to Explanation (1), the onus shifted on to the Department. (Para 16) In the instant case, it could not be said that the assessee had not tendered any explanation. The issue was whether the explanation offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, leviable. Considering all the facts and circumstances of the case and various judicial pronouncements discussed above, it is held that the income of the appellant company was estimated on agreed basis and nothing has been brought on record by the Assessing Officer to show that the appellant has either concealed the particulars of its income or furnished inaccurate particulars of its income. Hence, penalty imposed under section 271(1)( c ) for all the four assessment years are deleted." 6. Aggrieved, the Revenue has preferred an appeal before the Tribunal against the consolidated order of the CIT(A) with the submission that original returns for the assessment years 2001-02 to 2005-06 were filed either showing nil income or negative income. Due to the search action, the income was assessed at Rs. 14.37 crores covering all the assessment years. Thus the income was purely concealed income in nature. The instalments collected in SID and SIM schemes by the assessee were not included in sales whereas the expenditure incurred for these two schemes were debited in the accounts, thereby defeated the matching concept between the revenue and the expenditure. It was further contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned counsel for the assessee has also placed the reliance upon various judgments in which it has been repeatedly held that for attracting the penalty provisions a strict proof is required and onus to prove the same is on the Department, and where the assessment is made on estimate basis, the penalty under section 271(1)( c ) is not imposable. The judgments referred to by the assessee are as under : (1) R.V. Rayanam v. Asstt. CIT [IT Appeal 118 (Visk) of 2005, dated 30-11-2009] (2) East Coast Insulations v. Dy. CIT [IT Appeal No. 329 (Visk.) 2005, dated 27-2-2009] (3) Reliance Petroproducts (P.) Ltd. case ( supra ) (4) Gem Granites (Karnataka) v. Dy. CIT [2009] 31 SOT 21 (Chennai)(URO) (5) CIT v. Modi Industrial Corpn. (6) Dr. Hakeem S.A. Syed Sathar v. Asstt. CIT [2009] 123 TTJ (Chennai) 573 (7) CIT v. Ram Prakash [1990] 181 ITR 29 (All.) 9. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record and the judgment referred to by the parties. Undisputedly the assessee company engaged in business of purchase and sale of agricultural lands, has formulated certain sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounting the assessee can be called to have furnished the inaccurate particulars inviting the penalty under section 271(1)( c ) of the Act more so in the light of the facts that the assessee has agreed for estimation of income at a particular percentage of the gross receipt. During the course of hearing our attention was invited by the learned Departmental Representative to the judgments of the Apex Court in the case of Dharamendra Textile Processors ( supra ) and Rajasthan Spg. Wvg. Mills ( supra ). Both these judgments were considered by the Apex Court in the case of Reliancepetro Products (P) Ltd. ( supra ) and their Lordships have categorically 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. Such claim made in the return cannot amount to inaccurate particulars. Their Lordships have also held that on the point of mens rea judgment of Dilip N. Shroff case ( supra ) was upset by the Apex Court through its judgment in the case of Dharamendra Textile Processors ( supra ) but merely because the assessee had claimed the expenditure which claim was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lip N. Shroff case ( supra ) was upset. In Dharamendra Textile Processors ( supra ), after quoting from section 271 extensively and also considering section 271(1)( c ), the Court came to the conclusion that since section 271(1)( c ) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of section 271(1)( c ) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, willful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff case ( supra ) was overruled by this Court in Dharamendra Textile Processors case ( supra ), was that according to this Court the effect and difference between section 271(1)( c ) and section 276C of the Act was lost sight of in the case of Dilip N. Shroff case ( supra ). However, it must be pointed out that in Dharamendra Textil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one s income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was upto the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)( c ). If we accept the contention of the revenue then in case of every return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)( c ). That is clearly not the intendment of the legislature. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu [2009] 23 VST 249 (SC) as regards the penalty are apposite. In the aforementioned decision which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h case ( supra ) has also held where the assessee has shown that all the facts were disclosed by him and the explanation was not found lacking bona fide, the penalty under section 271(1)( c ) is not leviable. 13. We have also examined the case laws referred to by the revenue but they all are distinguishable on facts. In all those cases there are some evidence of concealments or furnishing of inaccurate particulars. But in the instant case, the assessee has accounted for all receipts in different schemes and the expenditures relating thereto. The dispute was with regard to the excess claim of expenditure with regard to those schemes for which the receipts were not offered to tax. Assessee has furnished the proper explanations for adopting a particular system of accounting which is recognized as per the guidelines of the ICAI but that explanations was not accepted by the Assessing Officer which resulted into an agreed addition. Since the assessee has disclosed all facts before the Assessing Officer and accounted for all relevant receipts and expenditures in the books of accounts, the action of the assessee cannot be termed to be either concealment of income or furnishing of in ..... 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