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TMI Blog2010 (2) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... ers by the Assessing Officer (AO) in all the three assessment years are recapitulated below : The respondent-assessee is a company engaged in the business of providing consultancy services. Consultancy services were provided to some foreign clients from whom the appellant earned foreign exchange. To the extent, any expense is incurred in foreign currency, the same is reduced from the foreign consultancy income and deduction under section 80-O of the Act claimed at 50 per cent. of the net foreign consultancy income. No expenses incurred in India are allocated/apportioned to earning of foreign consultancy income. Section 80-O of the Act, as it stood at material time reads as under : "80-O. Deduction in respect of royalties, etc., from certain foreign enterprises.-Where the gross total income of an assessee, being an Indian company, or a person (other than a company) who is resident in India, includes any income received by the assessee from the Government of a foreign State or foreign enterprise in consideration for the use outside India of any patent, invention, design or registered trade mark, and such income is received in convertible foreign exchange in India, or having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under section 80-O of the Act, the Assessing Officer imposed penalty in respect of all these three assessment years. The appeal preferred by the assessee against the penalty orders was dismissed by the Commissioner of Income-tax (Appeals), who confirmed the imposition of penalty. On further appeal to the Tribunal, the assessee contended that penalty under section 271(1)(c) of the Act was not exigible in respect of short allowance of deduction under section 80-O of the Act, inter alia, on the following grounds : (a) The issue whether Indian expenses were to be taken into account for purposes of calculation of deduction, at the time of the filing of the return of income, was debatable. (b) No satisfaction was recorded in the assessment order while initiating proceedings under section 271(1)(c) of the Act. (c) The Assessing Officer having allocated/apportioned Indian expenses on estimate basis, the same could not constitute ground for levying penalty. 5. The Tribunal by a combined order deleted the penalty levied for the assessment years 1994-95 to 1996-97 on the grounds that (a) no satisfaction for initiation of penalty proceedings was discernible from the read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madhushree Gupta and British Airways PLC v. Union of India [2009] 317 ITR 107 while upholding the validity of the aforesaid amendment, the Division Bench was of the opinion that the provisions are to be read down and held that even after the amendment if the satisfaction is not discernible from the assessment order, penalty cannot be imposed. This would be clear from the reading of paras. 19 and 20 of the said judgment, wherein the conclusions are summarized by the court in the following manner pages 155-156) : "In the result, our conclusions are as follows : (i) Section 271(1B) of the Act is not violative of article 14 of the Constitution. (ii) The position of law both pre and post amendment is similar, inasmuch as, the Assessing Officer will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings. (iii) 'Prima facie' satisfaction of the Assessing Officer that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated separately." 10. Admittedly, the Assessing Officer has not stated, in so many words, that he was satisfied that the assessee had concealed the particulars of income or furnished inaccurate particulars. However, it shows that during the assessment proceedings, the Assessing Officer found that the assessee had claimed deduction under section 80-O of the Act at 50 per cent. of its gross income earned in foreign exchange and not at 50 per cent. of the net income earned in foreign exchange. In these circumstances, the Assessing Officer asked the assessee to furnish details of expenditure incurred to earn the income in foreign exchange by giving specific notice. The assessee, however, refused to do the needful even when the case was adjourned repeatedly. Under such circumstances, the Assessing Officer asked the assessee to explain as to why the expenditure relatable to the assessee's earning in convertible foreign exchange should not be estimated. In response to such show-cause notice, the assessee came out with the plea that the expenditure incurred in India to earn foreign exchange was not to be deducted. In this behalf, the Assessing Officer noted as under : "I have cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned counsel for the assessee in this behalf was that the Assessing Officer while computing the assessment under section 80-O of the Act allocated/apportioned Indian expenses debited in the profit and loss account in the proportion of foreign income to the total income. The very expenditure which was disclosed in the books of account was allocated and apportioned by the Assessing Officer to arrive at the net foreign consultancy income on the basis of which reduction under section 80-O of the Act was made at 50 per cent. The Assessing Officer was not able to pinpoint any specific expenditure incurred in India, which was incurred in relation to the foreign consultancy income. The Assessing Officer merely resorted to an estimate to disallow part of the deduction under section 80-O as claimed by the assessee. He thus argued that in these circumstances, it was rightly held by the Tribunal that the estimated disallowance made by the Assessing Officer out of the claim of deduction under section 80-O of the Act was not on account of any expenditure, which was found to be bogus or excessive. We may also note that going by the aforesaid circumstance, the Tribunal has held that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 80-O on the gross income or the net income was a debatable issue at that time, as there were conflicting judicial opinions of different courts/Benches of Tribunal. The Tribunal, however, has opined that there was no cleavage of judicial opinion on the question of availability of deduction under section 80-O of the Act on gross or net income. The Tribunal has relied upon the decision of the Supreme Court in the case of Distributors (Baroda) Pvt. Ltd. v. Union of India [1985] 155 ITR 120 (SC) and the decision of this court in the case of CIT v. Marketing Research Corporation [1987] 61 CTR (Delhi) 204 in support of its conclusion that on the date of filing of return, the controversy was wellsettled, viz., the deduction under section 80-O of the Act had to be allowed on the net income. In the cross-objections filed by the assessee, this finding of the Tribunal is assailed. The argument advanced by the assessee, in this behalf, has two limbs. In the first place, it is argued that the Tribunal has completely missed the import/merit of the appellant's arguments. The controversy raised by the appellant was not whether the deduction under section 80-O had to be allowed on gross or net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authoritative pronouncement. This contention based on artificial distinction made between expenditure incurred abroad and in India does not appeal to us. Way back in the year 1985, the Supreme Court had interpreted these provisions in the case of Distributors (Baroda) Pvt. Ltd. [1985] 155 ITR 120 (SC). The categorical view of the Supreme Court was that the deduction required to be allowed was available only with respect to the net amount as computed for the purpose of assessment to tax and not actual amount received. The court was concerned, in that case, with the provision of section 80M of the Act relating to the deduction in respect of income from dividend. The legislative history of this provision along with sections 80A(2) and 80AA was taken note of along with various earlier pronouncements. Relying upon this judgment, this court in Marketing Research Corporation [1987] 61 CTR 204, which pertains to section 80-O of the Act reiterated that the deduction had to be computed not on the basis of the gross income, but on the basis of the net income. This judgment of the jurisdictional court was binding on all the authorities including the Assessing Officer, the Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant has proved its guilty mind of deliberately furnishing inaccurate particulars of income to claim higher deduction and thus escaping the correct imposition of taxes. It is settled now that claiming excessive deductions also amounts to concealment of income. Falsehood in accounts can take either of two forms : either an item of receipt may be suppressed fraudulently, or an item of expenditure may be falsely claimed. Both types attempt to reduce the taxable income. Both types amount to concealment of par- ticulars of one's income as well as furnishing of inaccurate particulars of income. Penalty may be imposed for either or both such attempts (CIT v. India Sea Foods [1976] 105 ITR 708 (Ker) ; Nagin Chand Shiv Sahai v. CIT [1938] 6 ITR 534 (Lahore) ; CIT v. Gates Foam and Rub- ber Co. [1973] 91 ITR 467 (Ker)). It is not right to say on the part of the appellant that the Assessing Officer has to record the satisfaction before initiating the penalty proceedings under section 271(1)(c) for the reason that the factum of concealment on account of furnishing inaccurate particulars of one's income clearly emanates from the assessment order and I consider the same as recording of sati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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