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TMI Blog2010 (2) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Year 2003-04 wherein the revenue has raised the following ground. "On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the penalty amounting to Rs.6,50,281/- levied by the AO u/s.271(1)(c)." 2. The brief facts of the case are that the AO levied penalty on account of following additions made in total income. Software Expenses: Rs. 4,88,176/- Provision of liability for cash award: Rs. 4,40,226/- Depreciation on technical knowhow: Rs.12,60,375/- Excess deduction u/s. 80HHC: Rs. 1,41,049/- 3. The CIT(A) cancelled the penalty after a detailed discussion on each item. The CIT(A) while cancelling the penalty observed that merely addition sustained on merit penalty u/s.271(1)(c) is not applicable unless it is found that assessee has furnished inaccurate particulars of income or has concealed particulars of his income. He further observed that the AO has only gone by the fact that addition has been sustained by the first appellate authority, however, confirmation of addition in itself does not suggest concealment of income. The CIT(A) has also observed that the treatment given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.271(1)(c) has been examined by the ITAT by various angles in ITA No.1985/M/09 dated 18.2.10 where AM is a party to the above decision the relevant discussion of the ITAT in para-5 to 5.5 is reproduced as under:- 5. We have heard the learned representatives of the parties and perused the record as well as gone through the decisions cited. Income tax is collected from tax payers, who are having taxable income for the welfare of the State. The citizens are bound to pay such income tax as it is a part of their duty to the Nation. The income tax is payable yearly on the annual taxable income, that means, this duty towards the nation is yearly duty of the taxpayers. Under the circumstances some time taxpayers agree to certain additions during assessment proceedings not always because they are convinced that such addition is warranted or otherwise justified, but with a view to bring finality to the whole matter to purchase peace and avoid litigation. The general view has always been that mere admission by itself need not offer immunity to the taxpayer, where the admission has been extorted from him after concealment had been brought home. But there are a number of cases where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for the Department to consider the explanation offered by the assessee in respect of an amount which was offered as tax. It is not automatic that whenever an amount was offered by the assessee, penalty is to be levied. Therefore, in the penal proceedings which conceptually differ from assessment proceedings, the assessee can file an explanation justifying its action in not including a particular item of income in its return, though it may have offered the amount to be taxed subsequently, that if such an explanation is offered, the Department has to examine its acceptability and record a finding as to whether the explanation is acceptable or not. Only if the explanation is not found acceptable, the question of penalty will arise. In other words, the explanation of the assessee has to be considered on the merits. During assessment proceedings, if the AO accept the surrender amount, in other words, it can be said that whatever explanation submitted by the assessee in respect of surrender of amount, have been accepted by the AO unless finding is given by the AO that explanation furnished by the assessee was false explanation. 5.2 The issue relating to "bonafide" and "false" ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice" in section 2(o) of the Madhya Pradesh General Sales Tax Act, 1958, and section 2(h) of the Central Sales Tax Act, 1956, the amount of freight did not fall within the def inition and was not liable to be included in the taxable turnover. This was the reason why the assessee did not include the amount of freight in the taxable turnover in the returns filed by it. Now, it cannot be said that this was a frivolous contention taken up merely for the purpose of avoiding liability to pay tax. It was a highly arguable contention which required serious consideration by the court and the belief entertained by the assessee that it was not liable to include the amount of freight in the taxable turnover, could not be said to be mala fide or unreasonable. What section 43 of the Madhya Pradesh General Sales Tax Act, 1958, requires is that the assessee should have filed a "false" return and a return cannot be said to be"false" unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions relied upon by the learned AR which are as under:- a) The Punjab and Haryana High Court in the case of CIT vs. Rajiv Garg and ors., 313 ITR 256 held as under:- "Purusant to the notice u/s 148 the assessee filed the revised return of income showing higher income. The said return of income was accompanied by a note in which the assessee submitted that he surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action. Later on, on the basis of revised return, the assessment was framed and the return submitted by the assessee was regularized as it is. During the course of assessment, the aforesaid explanation given by the assessee was neither rejected nor was it held to be mala f ide. The Tribunal has recorded a pure f inding of fact to the effect that the Revenue has not placed on record any material or evidence to discharge its burden of proving concealment. In the assessment order no such f inding was recorded. The Department has simply rested its conclusion on the act of the assessee of having offered additional income in the return f iled in response to the notice issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of his income or has furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty the sum mentioned in sub-clause (iii) of clause (c). The expression used in clause (c) is 'has concealed the particulars of his income' or 'furnished inaccurate particulars of such income'. Therefore, both in cases of concealment and inaccuracy the phrase 'particulars of income' are used. It will be noted that as regards concealment, the expression in clause (c) is 'has concealed the particulars of his income' and not 'has concealed his income'. The expressions "has concealed the particulars of income" and "has furnished inaccurate particulars of income" have not been def ined either in section 271(1)(c) or elsewhere in the Act. There cannot be a straight jacket formula for detection of these defaults of concealment of particulars or of furnishing inaccurate particulars of income. It depends upon the facts of the each case. There was concealment or not is, ordinarily, a question of fact. Once bearing in mind the correct principles comes to the conclusion that the assessee has discharged the onus, it becomes a conclusion of fact. Similarly, whether t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income declared by the assessee, that case cannot be said to be a case of furnishing inaccurate particulars or concealing of particulars of income." 5.4 In the case under consideration, the CIT(A) has heavily relied upon the latest judgment of Dharmendra Textiles (supra).The applicability of this judgment has been discussed in an another judgment by the Supreme Court in the case of Union of India v. Rajasthan Spg. and Wvg. Mills 224 CTR 1(SC). The relevant discussion of the Apex Court is reproduced as under:- 20. At this stage, we need to examine the recent decision of this Court in Dharamendra Textile case (supra). In almost every case relating to penalty, the decision is referred to on behalf of the revenue as if it laid down that in every case of non-payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam, J.) was a party to the 2009] UOI vs. Rajasthan Spg. and Wvg. Mills (SC) 621 decision in Dharamendra Textile case (supra) and we see no reason to understand or read that decision in that manner. In Dharamendra Textile case (supra) the court framed the issues before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dilip N. case [2007] 8 SCALE 304 (SC) was not correctly decided but Chairman, case [2006] 5 SCC 361 has analysed the legal position in the correct perspectives. The reference is answered...." (p. 302) 21. From the above, we fail to see how the decision in Dharamendra Textile case (supra) can be said to hold that section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application. 22. There is another very strong reason for holding that Dharamendra Textile case (supra) could not have interpreted section 11AC in the manner as suggested because in that case that was not even the stand of the revenue. The court noted the submission made on behalf of the revenue as follows: 622 Taxman Tax Reports [Vol. 180 "5. Mr. Chandrashekharan, Additional Solicitor General submitted that in rules 96ZQ and 96ZO there is no reference to any mens rea as in section 11AC where mens rea is prescribed statutorily. This is clear from the extended period of limitation permissible under section 11A of the Act. It is in essence submitted that the penalty is for statutory offence. It is pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Apex court. 8. In the light of the above discussion we find that the first item on which AO levied penalty, software expenses treated as capital in quantum matter, this issue has been sent back to the file of the AO since basis on which AO levied penalty has not become final. Under the circumstances penalty levied on the basis of original finding of the AO cannot be sustained. We find that the CIT(A) has rightly cancelled the penalty on this issue. As regards other items on which AO levied penalty we notice that the AO has failed to point out any specific particular which have either been concealed or inaccurate. In the light of our discussion we notice that assessee's claim for provision of cash, depreciation on know-how without calculation of deduction these are the bonafide claims of the assessee which does not amount to furnishing of inaccurate particulars, therefore, conditions laid down u/s.271(1)(c) does not satisfy. In the light of the above we are inclined to uphold the order of the CIT(A). The ground taken by revenue is dismissed. 9. In the result, revenue's appeal stands dismissed. Order pronounced on 24.2.2010. - - TaxTMI - TMITax - Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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