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TMI Blog2010 (6) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation and evidence nor it is law that any explanation offered by the assessee must be accepted - Decided against the assessee - ITA No.1595/Ahd/2007, C.O. No.132/Ahd/2007 - - - Dated:- 25-6-2010 - D.T. GARASIA, JUDICIAL MEMBER J. AND A.N. PAHUJA, ACCOUNTANT MEMBER J. K.M. Mahesh for the Appellant. Sakar Sharma for the Respondent. ORDER A.N. Pahuja: This appeal by the Revenue and the corresponding cross objection(CO) by the assessee against an order dated 08-01-2007 of the Ld. CIT(Appeals)-VII, Ahmedabad, for the assessment years 2001-02 .raises the following grounds: 1. The Ld. CIT (A) erred in Law and on the facts of the case in directing the AO to recalculate the penalty u/s 271(1)(c) of the Income-tax Act, 1961 (earlier levied at Rs.4,16,660 after excluding the disallowance of Rs. 10,46,098 being the bank guarantee commission from concealed income and holding that no penalty was leviable in respect of disallowance made on account of bank guarantee commission of Rs. 10,46,098 ignoring the fact that the assessee company had claimed wrong deduction of expenditure and the disallowance was confirmed in quantum appeal. 2. On the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pared, M/s Unitech Ltd., however, made accounting entry for the value of machinery and equipments in the subsequent year due to which depreciation was disallowed in their hands. The AO disallowed the depreciation merely on the basis of the confirmation of claim of depreciation on the said equipment by M/s Unitech Ltd. in the year under consideration. The AO did not consider the argument advanced by them as to how Unitech Ltd., remained owner of the machinery and equipments, already transferred to the other party by way of debit note, remained their asset, making them eligible for the depreciation. The AO has given benefit of default of non-making of accounting entry in respect of value of machinery and equipments by M/s Unitech Ltd. in favour of the said company, without appreciating the factual position. In these circumstances, when the assessee did not prefer any appeal against the action of the AO, considering the smallness of the quantum of the addition made, there was no ground for levy of penalty. 2.2 As regards disallowance of Rs. 10,46,098 in respect of bank guarantee commission paid on the basis of interpretation of method of accounting employed by the assessee company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of time i.e. for a period of one year, the assessee ought to have restricted their claim in proportion to the period and the remaining amount should have been treated as prepaid expenses and not at all claimed as expenditure for the year under consideration. Therefore, out of the total claim of Rs.21,36810. actual eligible commission amount allowable worked out to Rs.10,90,712 and the remaining amount of Rs.10,46,098 was disallowed, being the commission attributable to (he later period . In the light of these facts, relying upon decisions in the case of Banaras Textorium vs CIT (1988) 169 ITR 782 (All.) and Zeekoo Shoe Factory vs. CIT {1981) 127 ITR 837(All), Motor General Finance Ltd vs CIT 254 ITR 449(Delhi) and Jamnacas Co. vs. CIT (1994) 210 ITR 218(Guj.) and invoking the explanation 1 to section 271(1)(c) of the Act, the AO imposed a penalty of Rs.4,61,660 u/s. 271(1)(c) of the Act @ 100% of the tax sought to evaded on the income of Rs.11,67,283 on the ground that the assessee furnished inaccurate particulars of income leading to concealment of income. 4. On appeal, the assessee contended that they were justified in claiming deduction for the entire amount of bank guarante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conclusion of the AO on the ground that the assessee claimed depreciation without being owner of the assets and without using these assets for its business and therefore, disallowance of depreciation on the basis of facts established by the AO amounted to filing of inaccurate particulars of income. 6. The Revenue is now in appeal before us against the findings of the Ld. CIT(A) canceling levy of penalty in relation to disallowance of bank guarantee commission while the assessee in their CO challenged the confirmation of penalty on account of disallowance of depreciation. The learned DR supported the order of the AO. On the other hand, the Ld. AR on behalf of the assessee while supporting the findings of the Ld CIT(A) in respect of cancellation of penalty in relation to disallowance of bank guarantee commission, contended that the Ld. CIT(A) was not justified in upholding penalty on the amount of depreciation disallowed by the AO. 7. We have heard both the parties and gone through the facts of the case. We find that penalty u/s 271(1)(c) had been levied by the AO on the ground that the assessee furnished inaccurate particulars of an amount attributable to disallowance of ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions. The issue as to whether or not the assessee is entitled to claim deduction of bank guarantee commission in the year under consideration is highly debatable. In the case under consideration, it is apparent that all the relevant facts have been disclosed by the assessee in respect of their claim towards bank guarantee commission. The explanation given by the assessee in support of their claim for deduction of bank guarantee commission, having been allowed in the preceding assessment years, was not found to be false. It is well settled that the criterion and yardsticks for the purpose of imposing penalty u/s 271(1)(c) are different than those applied for making or confirming the additions. When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim cannot automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing of inaccurate particulars thereof. What is to be seen is whether the said claim made by the assessee was bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties to accept its claim in the Return or not. 7.2. In view of the foregoing, especially when no material has been brought to our notice by the Revenue, controverting the findings of the Ld. CIT(A) while cancelling the penalty in relation to amount disallowed on account of bank guarantee commission nor any contrary decision has been brought to our notice in this connection, we have no alternative but to uphold the findings of the Ld. CIT(A), cancelling the penalty levied under section 271(1)(c) of the Act in respect of amount disallowed towards bank guarantee commission. Therefore, ground No.1 in the appeal of the Revenue is dismissed. 8. Now adverting to penalty upheld by the Ld. CIT(A) on the amount of depreciation disallowed by the AO, we find that undisputedly, the assessee claimed depreciation on lab equipments-Rs.7,61,068 office equipment-Rs.2.08,417 on the strength of a JV entry dated 31.3.2001. The assessee claimed that entry was made and machines were used, on the basis of the delivery note cum debit note issued by M/s Unitech Ltd. and also on the basis of the provisional statement of account issued by them. However, on enquiries with M/s Unitech Ltd., the AO obtaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he act of concealment of particulars or furnishing inaccurate particulars thereof for the purpose of levy of penalty. The penalty u/s 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. Explanation 1 to section 271(1)(c) in respect of any fact relating to the computation of total income states that the amount added or disallowed in computing the total income of an assessee shall be deemed to be the income in respect of which particulars have been concealed. This deeming provision for concealment is not absolute one. The presumption under the Explanation 1 is rebuttable and 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 about their claim of depreciation on the strength of a JV entry dated 31.3.2001 while on enquiries it was found by the AO that no such corresponding entry appeared in the books of M/s Unitech Ltd. and instead it was revealed that they alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot only incorrect in law but is also wholly without any basis and the explanation furnished by 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 u/s 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 u/s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. 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. As already stated, the assessee has not placed before us any material in order to controvert the findings of the ld. CIT(A) that the assessee made claim of depreciation without being owner of assets and without using these assets for his business. 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 AO/CIT(A) have not specifically invoked the Explanation 1 to sec. 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,262 ITR 60 (Bom.) and of Hon'ble Apex Court in K.P.Madhusudanan,25l ITR 99(SC). There is no discretion on the Assessing Officer as to whether he can invoke the explanation or not. 8.1. In their decision in the case of Usha Fertilisers v. CIT.269 ITR 591 (Guj.), the Hon'ble jurisdictional High Court, while upholding the levy of penalty observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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