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TMI Blog2012 (7) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee does not, therefore, merit acceptance. Penalty confirmed. - IT Appeal NO. 695 (KOL.) of 2010 - - - Dated:- 31-5-2012 - PRAMOD KUMAR, Mahavir Singh, C.D. Rao, JJ. ORDER 1. On a difference of opinion between the Members constituting the Division Bench when this appeal originally came up for hearing, following point of difference has been referred to me by Hon'ble President under section 255(4) of the Income-tax Act, 1961: Whether, in the given facts and circumstances of the case, the CIT(A) is justified in upholding the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961 or not ? 2. The material facts giving rise to this dispute before me are as follows. The assessee is engaged in the stevedoring business. The assessee had filed the original return of income on 25.11.2003 disclosing income of Rs. 26,950, and this return was processed under section 143(1) of the Act. In the assessment so finalized, the assessee has claimed a deduction of Rs 23,25,000 in respect of expenses incurred on voluntary retirement scheme. The Assessing Officer was of the view that this claim was erroneous inasmuch as the assessee was entitled to the deduction, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to penalty under section 271(1)(c) when the assessee had not filed the return under section 139(1) and when the return has been filed for the first time in response to notice under section 148. Learned CIT(A) rejected this plea as "contrary to the legal meaning intended by the legislature". The next plea was that the assessee was informed that, vide circular dated 23rd January 2001, the CBDT had taken a stand that the VRS payments are in the nature of capital expenditure, and the assessee sought legal advice on the same from Vakharia Associates, a firm of chartered accountants handling the assessee's accounting and taxation matters. This CA firm, according to the assessee, advised the assessee, vide their letter dated 11th July 2003, that in view of Hon'ble Bombay High Court's judgment in the case of CIT v. Bhor Industries Limited (264 ITR 180), the VRS expenditure was allowable in entirety and in the year in which the said expenditure was incurred. It was for this reason, according to the assessee, that the assessee claimed deduction of the entire VRS expenditure. However, upon receipt of the reassessment notice, the assessee consulted Shri Damle, a senior chartered accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Member was of the view that the assessee had acted in a bonafide manner and on the first available opportunity rectified the error committed in the original return. He then referred to Hon'ble Chattisgarh High Court's judgment in the case of CIT v. Vijay Kumar Jain (325 ITR 378) and analysed the same to support the stand so taken. He also observed that the assessee has filed full particulars, that the assessee has relied upon the expert advice, that the expenses incurred are genuine, the explanation of the assessee has not been found false, and that the explanation of the assessee is bonafide. The impugned penalty was thus ordered to be deleted. Learned Accountant Member, however, did not share the approach so adopted by the learned Judicial Member. Learned Accountant Member was of the view that the mandate of Section 35DDA was clear and unambiguous. Referring to the expert opinion relied upon by the assessee, learned Accountant Member was of the view that once the specific provisions of Section 35 DDA were enacted and the assessee himself had followed the same, the need of obtaining a legal advice was far from justified. It was also pointed out that the so called expert advic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the assessee's explanation for that making this claim for deduction, in respect of entire amount paid to the employees for voluntary retirement scheme, is that this admittedly erroneous claim was made because of the expert advice received from their tax consultant, and as such it was a bonafide mistake on the part of the assessee to have claimed the deduction. 8. In the case of CIT v. Nathulal Agarwala Sons (145 ITR 292), Full Bench of Hon'ble Patna High Court has observed as follows: "As to the nature of explanation offered by the assessee, it seems plain on principle that it is not the law that the moment any fantastic or unacceptable explanation is given, the burden placed on him will be discharged and presumption rebutted. It is not the law, and perhaps hardly can be, that any and every explanation of the assessee must be accepted. In my view, the explanation of the assessee for avoidance of penalty must be an acceptable explanation. He may not prove what he asserts to the hilt positively, but at least material brought on record must show that what he says is reasonably valid." 9. The above views were approved by the Hon'ble Supreme Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not deal with this aspect at all. One can perhaps even understand ignorance about a legal provision, such as of Section 35DDA, but once the assessee is on record not only being aware about this provision but also preparing the income tax return in the light of the said provision, there cannot be any justification about assessee ignoring the clear mandate of the same provision in the subsequent assessment years. Such an action on the part of the assessee, in my considered opinion, cannot be said to be bonafide. In my humble understanding, the explanation of the assessee is not acceptable and I reject the same. In any case, expert advice obtained by the assessee from Vakharia Associates lacks credibility and just because the assessee's claim is supported by a chartered accountant's opinion, this fact per se cannot absolve the assessee from penalty under section 271(1)(c). In the case of CIT v. Escort Finance Limited (328 ITR 44), Hon'ble Delhi High Court has rejected assessee's reliance on expert advice to avoid the penalty and has inter alia observed as follows: ..The assessee pleaded bona fide, as according to it, it was based on the opinion of the Chartered Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false" and add that "such being the case, there would be no question of inviting the penalty under section 271(1)( c ) of the Act" and that "a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee". Explaining this position, a division bench of this Tribunal, in the case of Samsonite India Pvt Ltd v. ACIT [(2011) 9 taxman.com 322], observed as follows: Hon'ble Supreme Court, in the case of Reliance Petroproducts, was a case in which Their Lordships were only concerned with the question whether "in this case, as a matter of fact, the assessee has given inaccurate particulars". Their Lordships noted that "in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false" and add that "such being the case, there would be no question of inviting the penalty under section 271(1)( c ) of the Act" and that "a mere making of the claim, which is not sustainable in law, by itself, will not amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of which inaccurate particulars have been furnished, but then the levy of penalty hinges on assessee's substantiating the explanation, proving that it is bona fides and that all the material facts are disclosed. 13. On the facts of the present case, we are dealing with not only an inadmissible claim of deduction but a claim of deduction which is contrary to the plain words of the statute and on which no two opinions are possible. This situation cannot be equated with a claim of deduction under section 14 A in respect of which, as Hon'ble Supreme Court had observed in the case of Reliance Petroproducts ( supra ), the assessee's plea was that "that the disallowance made by the Assessing Authority in the assessment order under section 143(3) of the Act were solely on account of different views taken on the same set of facts and, therefore, they could, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of such income". In the present case, related quantum addition is not on account of different views being taken on the same set of facts but on account of plain words of the statute whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the same are the facts of the present case inasmuch as reassessment notice does not mention that the reassessment is made to disallow the claim of deduction for entire expenditure on voluntary retirement scheme, and yet the assessee has voluntarily offered the disallowance in the return filed in response to the reassessment notice. Learned counsel, however, fairly admits that the reasons for reopening clearly indicate the excessive deduction having been allowed in the assessment, but hastens to add that similar were the facts in Tapan Bhattacharya's case inasmuch as the reasons of reopening the assessment were only to tax the interest income, and the bench was persuaded by the fact that no such reasons were set out on the reassessment notice. He then adds that the order is Tapan Bhattacharya's case was authored by the same learned Accountant Member who has now taken the contrary view, and that, on the grounds of propriety, he cannot take a different stand in this case - even if the stand so taken is incorrect. 18. I am not persuaded by this argument either. There is nothing in the order to even remotely suggest that the reassessment proceedings were initiated to bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird member are on the same pedestal as views of the members in the original coram of the bench. It is very tempting to sit in judgment over the what our colleagues decide, and take a magnified view of one's powers as a third member, but then, irrespective of how senior or how junior these colleagues could be to the Third Member, yielding to such a temptation is not only wholly improper but also plainly contrary to the scheme of Section 255(4). It is improper because all the Members in the Tribunal are at the same level of judicial hierarchy with the same judicial powers, and it is contrary to the scheme of Section 255(4) because all that this section provides for is an additional judicial opinion so as to form majority and not an appeal against the orders passed by the Members in the original coram of the bench. 20. With greatest respect to my esteemed colleagues, I must remain confined within these limits of the scheme of Section 255(4) which does not require, or permit, me to do anything more than expressing judicial opinion on the point of difference referred to me. In my view, for the detailed reasons set out above, the impugned penalty deserved to be confirmed. I hold so. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice u/s. 148, the assessee filed a return including that escaped income of Rs. 18,60,000/-. On receipt of the return u/s. 148 the then A.O. passed order u/s. 147/143(3) and penalty proceedings u/s. 271(1)(c) had been initiated for furnishing inaccurate particulars of income or suppression of income in the original return filed u/s. 139(1). It is a fact that assessee had not come up voluntarily with the increased income. It is the Department who detected the escaped income and proceedings u/s. 147 started. Had the Department not detected the escapement, since the assessment completed u/s. 143(1), the entire amount of Rs. 18,60,000/- would never be assessed to Tax. Therefore, it is a clear case of concealment or submission of inaccurate particulars of income. Accordingly, it is a fit case for imposition of penalty u/s. 271(1)(c) and minimum penalty @ 100% of Tax sought to be evaded amounting to Rs. 6,51,000/- is imposed upon the assessee." 10.1 . On appeal the ld. CIT(A) has forwarded the written submissions filed by assessee and after taking into consideration the facts mentioned in the Remand Report as well as comments made by assessee on the Remand Report confirmed the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the facts of the case and submissions of the appellant are considered, it becomes very clear that the appellant cannot be under mistaken belief of applicability of the Bombay High Court decision for AY. 2003-04. The appellant has claimed expenditure which was not deductible under law knowingly to reduce tax liability. Proceedings for the imposition of penalty are initiated only after the assessment order was made finding default of the assessee. It was held in several decisions like CIT v. Vidyagauri 238 ITR 91, CIT v. Indian Metals 211 ITR 35, CIT v. Harshvardan 259 ITR 212 etc. that if an assessee falsely claims a deduction, it would amount to concealing the particulars of his income or deliberately furnishing inaccurate particulars of such income within the meaning of this clause and he can be penalized u/s 271(1)(c). Penalty can be imposed for concealment where, after detection made by the A.O., the assessee filed the return in response to notice under section 148 [ PC Joseph v. CIT 243 ITR 818], [ CIT v. Sunder Shaw 253 ITR 145]. In this case the appellants submission that under bonafide belief he claimed deduction of VRS expenses is not acceptable. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder :- Sub: Allowability of V R S payments "This is with reference to my discussion with your Director, Mr. Dastur on 7th of July 2003 in connection with allowability of VRS Payments as revenue expenditure. Mr. Dastur had shown me CBDT Circular dated 23.01.2001 in which a view has been expressed that the payments under Voluntary Retirement Scheme are to be considered as Capital Expenditure. In the past 2 days, I have done my research on the subject and I am bringing to your notice a very recent judgment of the Bombay High Court in the case of CIT v. Bhor Industries Ltd dated 26.02.2003. In this judgment the Bombay High Court was concerned with A.Y. 1996-97 in which the assessee claimed deduction for Rs. 10,02,23,735/- being VRS payments. The AO partially disallowed such expenditure and CIT(A) confirmed the disallowance. On appeal Tribunal held that VRS expenditure was incurred to reduce operating cost and the expenditure was fully allowable in the year in which the liability had ascertained and accrued. On further appeal, the Bombay High Court held that expenditure was incurred to save the expenses and it was to be allowed in its entirety in the year in which it was incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 35DDA of the Act is not a bona fide act. Under this set of facts I am of the considered view that neither the ratio laid down by the decision of Hon'ble Chattisgarh High Court in the case of CIT v. Vijay Kumar Jain [2010] 235 ITR 378 (Chattisgarh) nor the Apex Court's decision in the case of CIT v. Reliance Petroproducts P. Ltd . [2010] 322 ITR 158 is not applicable to the facts of the case. Therefore in my opinion the revenue is justified in levying penalty imposed u/s 271(1)(c) of the IT Act. 13.2. In the result I dismiss the appeal of assessee. ORDER Mahavir Singh, Judicial Member - This appeal by assessee is arising out of order of CIT(A)-VI, Kolkata in Appeal No. CIT(A)-VI/KOL/130/Wd.6(1)/2006-07 dated 18.01.2000. Assessment was framed by ITO, Ward-6(1), Kolkata u/s. 143(3)/147 of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2003-04 vide dated 07.06.2006. The penalty in dispute was levied by ITO, Ward-6(1), Kolkata u/s 271(1)(c) of the Act vide his order dated 29.12.2006. 2. The only issue involved in this appeal of assessee is against the order of CIT(A) upholding levy of penalty u/s. 271(1)(c) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increased income and it was detected by department as escaped income and proceedings u/s. 147 of the Act started. Had the department not detected the escapement, since return was processed u/s 143(1) of the Act, the entire amount of Rs. 18,60,000/- would never be assessed to tax. Therefore, according to Assessing Officer, it is a clear case of concealment or submission of inaccurate particulars of income and imposed minimum penalty u/s. 271(1)(c) of the Act @ 100% of tax sought to be evaded. In appeal, the CIT(A) confirmed the action of Assessing Officer by observing as under: "I have gone through the submissions of the appellant and also the order of the A.O. The remand report of AO and subsequent submissions of appellant are also perused. The submission of the appellant that AO has not spelt out what was the default for which the penalty was initiated is not acceptable. The AO proved in the order u/s 271(1)(c), that this case is a clear case of submission of inaccurate particulars of income or concealment. In the assessment order u/s 147/143(3) the AO has clearly recorded the reasons to reach the satisfaction that assessee had furnished inaccurate particulars of income. The sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he particulars of his income or deliberately furnishing inaccurate particulars of such income within the meaning of this clause and he can be penalized u/s 271(1)(c). Penalty can be imposed for concealment where, after detection made by the A.O., the assessee filed the return in response to notice under section 148 [ PC Joseph v. CIT 243 ITR 818], [ CIT v. Sunder Shaw 253 ITR 145]. In this case the appellants submission that under bonafide belief he claimed deduction of VRS expenses is not acceptable. For the previous year the appellant correctly followed the CBDT circular and for this assessment year initially referred the matter to Tax Consultant on CBDT Circular. These facts do not prove the bonafide intention of the appellant. Return furnished u/s 148 considering the income that was not added back in the original computation does not replace the original computation, rather it confirms that particulars furnished in the original return filed u/s 139 was inaccurate . The appellant claimed excessive deduction in the original return filed u/s 139. The assessing officer has jurisdiction in reassessment proceedings for any year to impose penalty for concealment of income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 148 of the Act and in the return filed in response to notice u/s. 148 of the Act, assessee after consulting Shri D. S. Damle, FCA, who clarified that a deduction in view of decision of Bhor Industries Ltd . ( supra ) is allowable upto AY 2001-02 and after that with insertion of the provisions of section 35DDA of the Act, allowability of VRS expenditure was governed by section 35DDA of the Act as per which deduction was to be allowed in five annual installments. In the light of the advice received from Shri D. S. Damle, FCA, the assessee claimed deduction of VRS payment in conformity with the provisions of section 35DDA of the Act in response to notice u/s. 148 of the Act and paid taxes thereon. Ld. Counsel for the assessee here argued that the amount disallowed in AY 2003-04, however, was allowable as deduction in subsequent four years and ultimately the deduction has been allowed for the entire expenditure but in subsequent four years as against AY 2003-04 as originally claimed. The Ld. Counsel before us also argued that even revenue has not doubted the genuineness of VRS expenditure and particulars of VRS expenses were furnished before AO, who did not find any inaccuracy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is conclusively established that a mutual fund has violated the terms of certificate of registration and statutory regulations, the imposition of penalty becomes a sine qua non of the violation. Answering in the affirmative and allowing the appeals, the Supreme Court held that mens rea is not an essential ingredient for contravention of the provisions of a civil Act. Unless the language of the statute indicates the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred and it is wholly unnecessary to ascertain whether such a violation was intentional or not. The breach of a civil obligation which attracts a penalty under the provisions of an Act would immediately attract the levy of penalty irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not. In Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519, the Supreme Court, while considering the nature and applicability of section 271(1)(c) and Explanation 1 thereto, held that even if the statute says that one is liable for penalty if one furnishes inaccurate particulars, the same may not by itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. If we examine the facts of the present case in the light of the principles of law laid down by the Supreme Court in the aforesaid judgments, we find that the assessee furnished accurate particulars of the entire receipt of Rs. 21,76,274. After deduction towards expenditure and addition of net profit through other sources, taxable net income was shown at Rs. 70,818. However, since the assessee did not produce any evidence and books of account including the balance-sheet for the assessment year, net profit was estimated at the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t M/s. Vakharia Associates, a CA firm. It is not the case of the revenue that the payments are not genuine and for this it is a fact that this claim was allowed in five equal annual installments in five assessment years that means that the payments are genuine and not doubted by revenue. Even the explanation furnished by assessee is not found to be false and assessee furnished bonafide explanation for the error occurred while filing original return of income in the present case and subsequently also the assessee while filing return in response to notice u/s. 148 claimed deduction in conformity with the provisions of section 35DDA of the Act and which was allowed. In view of these facts, we delete the penalty levied u/s. 271(1)(c) of the Act and allow this appeal of assessee. 6. In the result, appeal of assessee is allowed. 7. Order pronounced in open court on. ORDER Mahavir Singh, Judicial Member - Since there was a difference of opinion between the ld. Members constituting the Division Bench of ITAT, Kolkata with regard to the following question, the matter was referred to Third Member under section. 255(4) of the I.T. Act, 1961 for his opinion :- "Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X
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