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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 ..... e view that this claim was erroneous inasmuch as the assessee was entitled to the deduction, under section 35DDA of the Act, of only one fifth of the expenses incurred on voluntary retirement scheme. The Assessing Officer further noted that in the immediately preceding year, the assessee had claimed only one fifth of the expenses on voluntary retirement scheme, and, it could not, therefore, be said that the assessee was unaware of the provisions of Section 35DDA of the Act. It was in this backdrop that the Assessing Officer reopened the assessment by issuance of notice under section 148. In the return filed by the assessee, in response to the reassessment notice, the assessee disallowed the VRS payment of Rs. 23,25,000, and, thereafter, allowed Rs. 4,65,000, being one fifth of Rs. 23,25,000, ending up, vis-à-vis the original return, with a disallowance of Rs. 18,60,000. The matter did not rest there. The Assessing Officer also imposed the penalty under section 271(1)(c) for concealment of income to the extent of Rs. 18,60,000 i.e. the expenditure, on voluntary retirement scheme, which was claimed as deduction in the original income tax return even though the same was not adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipt of the reassessment notice, the assessee consulted Shri Damle, a senior chartered accountant and was told that the legal position explained to the assessee held good only till the assessment year 2001-02 i.e. till Section 35DDA was brought to the statute. The assessee then immediately rectified the error and filed the correct return. The stand of the assessee, in claiming deduction of entire VRS expenditure, was thus bonafide - even if incorrect. The CIT(A) rejected this plea as well, particularly as, in the immediately preceding assessment year, the assessee himself has applied Section 35 DDA to the VRS payments and claimed deduction in respect of only one fifth of such expenditure. The CIT(A) rejected the assessee's claim of bonafide conduct as well. In addition to the above, learned CIT(A) discussed the factual matrix of the case in detail, referred to certain judicial precedents in support of the proposition that even making a false claim will also amount to concealment of income, and concluded that the penalty deserves to be confirmed. Aggrieved also by the stand taken by the learned CIT(A), assessee carried the matter in appeal before this Tribunal, but this appeal resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice was far from justified. It was also pointed out that the so called expert advice did not even refer to the provisions of Section 35DDA. Learned Accountant Member also expressed the view that the assessee has obtained the expert advice only to support the assessee's stand. Learned Accountant Member also observed that the law laid down in the case of Bhor Industries Limited (supra) was with respect to the provisions of the statute in the assessment year 1996-97 and it had no application in the present assessment year. As regards the references to Hon'ble Supreme Court's judgment in the case of CIT v. Reliance Petroproducts Ltd (322 ITR 158) and of Hon'ble Chattisgarh High Court in the case of CIT v. Vijay Kumar Jain (235 ITR 378), learned Accountant Member was of the view that these judicial precedents are not applicable on the facts of this case. To sum up, learned Accountant Member was of the view that there was no need for interference in the matter and that the CIT(A) was justified in upholding the impugned penalty. As a result of this split verdict by the Division Bench, the matter is now before me for expressing my view as a Third Member. 5. I have heard the rival contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by the Hon'ble Supreme Court in the case of CIT v. Mussadilal Ram Bharose (165 ITR 14). Referring the judgment of Hon'ble Patna High Court, Their Lordships have observed as follows : "The Patna High Court emphasized that as to the nature of explanation to be rendered by the assessee, it was 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. We agree. We further agree that it is not the law that each and every explanation by the assessee must be accepted. It must be acceptable explanation, acceptable to a fact finding body." 10. Viewed in this perspective, just because assessee has an explanation- whatever be its worth and credibility, it does not cease to be a case in which concealment penalty can be levied. The explanation of the assessee has to be considered on merits and one has to take the call as to whether the explanation so given by the assessee can be treated as an acceptable explanation or not. 11. A plain look at the legal opinion obtained from Vakharia & Associates, which learned Accountant Member has reproduced in his order, shows t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion of the Chartered Accountant. Learned counsel for the revenue, however, submitted that a bare reading of section 35D would reveal even to a layman that there was no scope for getting benefit of those provisions in respect of expenses incurred in connection with the public issue of shares such as underwriting commission, brokerage and other charges etc., inasmuch as certain expenses are allowable only when they are incurred with the expansion of assessee's industrial undertakings or in connection with his setting up of a new industrial undertaking or industrial unit whereas the assessee is a finance company. 15. We are in agreement with the aforesaid submission of learned counsel for the revenue. We fail to understand as to how the Chartered Accountants who are supposed to be expert in tax laws, could give such an opinion having regard to the plain language of section 35D of the Act. It would be important to note that assessee has nowhere pleaded that return was filed claiming benefit of section 35D of the Act on the basis of the said opinion. What was stated was that in the prospectus it was mentioned that as per the opinion given by the Chartered Accountants, the company wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not amount to furnishing inaccurate particulars regarding income of the assessee". 9. That, however, is not the end of the matter. Not only that the penalty provisions cover the situations in which the assessee has concealed income or furnished the inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for income in respect of which 'particulars have been concealed'. In addition to normal connotations of 'concealment' thus, a deeming fiction is also implicit in the scheme of penalty provisions. This deeming fiction, by way of Explanation 1 to section 271(1)(c) envisages two situations - (a) first, where in respect of any facts material to the computation of total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or the CIT(A); and, (b) second, where in respect of any facts material to the computation of total income under the provisions of this Act, the assessee is not able to substantiate the explanation and the assessee fails to prove that such explanation is bona fide and that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no ambiguity. The assessee does not, therefore, derive any help from Hon'ble Supreme Court's judgment in the case of Reliance Petroproducts (supra) either. I reject the same. 14. Learned counsel for the assessee has also laid a lot of emphasis on the fact that the assessee's explanation has not been found 'false' but then this plea overlooks the fact that when an assessee's explanation is found 'false', this case falls in category (A) of Explanation 1 to Section 271(1)(c) whereas the present case is in category (B) thereof and it covers a situation when assessee offers an explanation and not able to prove its bonafides. These two situations are mutually exclusive situation and just because conditions in part (A) of Explanation 1 are not satisfied, the revenue's case in (B) also does not come to an end. The plea of the assessee does not, therefore, merit acceptance. 15. Learned counsel then submits that there is nothing on record to suggest that the expenditure is bogus or not genuine. That is not the case of the revenue either. The impugned penalty is not in respect of a bogus claim but in respect of making a claim which is patently inadmissible. In such a situation, it is diffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was aware about these reasons of reopening the assessment. The assessee does not, therefore, derive any support from the judicial precedent. 19. As for the question about the view taken by the learned Accountant Member and the propriety, or lack of propriety, thereof, it is important to understand that as a Third Member, under the scheme of Section 255(4), I cannot be sitting in judgment about what my esteemed colleagues have decided. Section 255(4) provides that, "If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it". The scheme thus provides for a mechanism to ensure that majority view is possible even when members on a bench are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench for a decision in accordance with the majority view. ORDER C.D. Rao, Accountant Member.- 8. I have carefully gone through the draft order authored by my learned colleague and have also had the opportunity of discussing the matter with him in detail. Much as I persuade myself to agree with the findings and conclusion arrived at by my learned colleague, I am unable to concur with him and my learned colleague is also not inclined to yield to my suggestions. Accordingly, to come out of this cul de sac and with the leave and consent of my Brother colleague, I proceed to write this separate and dissenting order. 9. The only issue raised by assessee is relating to confirmation of penalty levied by Assessing Officer u/s 271(1)(c) of the IT Act. 10. The brief facts of the issue are that Assessing Officer levied penalty of Rs. 6,51,000/- after taking into consideration the written submissions filed by assessee by observing that "From the assessee's above submission it is evident that the assessee confined its argument on the assessment order passed u/s. 147/143(3) and Explanation 3 of the Sec.271. In the instant case the provision of that explanation is not applicable. It is a set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one through the submissions of the appellant and also the order of the A.O. The remand report of AC 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 AC has clearly recorded the reasons to reach the satisfaction that assessee had furnished inaccurate particulars of income. The satisfaction of the A.O. is apparent from the assessment order. The interpretation given by the appellant to explanation 3 to section 271(1)(c) is contrary to the legal meaning intended by the legislature. I fully agree with the remand report submitted by the A.O. In response to remand report the appellant filed the submissions on 29.12.2009 to counter the argument of the AC that for the earlier A.Y., the assessee added back the total amount of VRS debited to Profit & Loss Account and there after deducted 1/5th of it. This treatment of the assessee clearly indicates that the assessee was ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly 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 the return filed in original assessment proceedings for that year, not withstanding that the assessee had submitted a correct return in compliance with the notice for reassessment. In view of the above discussion, the penalty order of A.O. is confirmed and grounds of appeal are dismissed." 10.2. Aggrieved by this assessee is in appeal before us. 11. At the time of hearing the ld Counsel appearing on behalf of assessee has reiterated the submissions made before the revenue authorities which are recorded by the ld. CIT(A) at pages 4 to 7 of his order. the main contention of assessee is that the error was neither willf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks over a period of 5 years. In the light of latest decision of the Bombay High Court I am of the view that the CBDT Circular does not lay down correct principle of law. In fact the Bombay High Court has clearly held that the VRS expenditure is fully allowable in the year in which liability to pay VRS has accrued and the liability is not to be spread over the number of years." 13.1. On careful perusal of the said letter it is observed that they have given the opinion based on Bombay High Court judgement which was relevant to A.Yr. 1996-97 and on the principles of CBDT Circulars the said opinion has never stated that assessee is entitled to 100% VRS expenditure for A.Yr. 2003-04. Neither the said letter discussed with the provisions of section 35DDA of the Act and the applicability for A.Yr. 2003-04. The Chartered Accountant who signed the above has not even mentioned his Membership Number which is one of mandatory requirement as per the Chartered Account Regulations. When once already the provisions of section 35DDA are in existence in the IT Act and assessee is availing the same continuously for the two preceding assessment years I failed to understand the need for assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) was unjustified in upholding the order of penalty passed u/s. 271(1)(c) of the Act. 2. For that on the facts and in the circumstances of the case, the authorities below were not justified in not appreciating the facts of the assessee's case in proper perspective and erred in holding the assessee guilty of furnishing inaccurate particulars even though in the return of income filed u/s. 148 the appellant had declared correct income. 3. For that on the facts and in the circumstances of the case, the order of penalty u/s. 271(1)(c) of the Act be cancelled as the assessee had not concealed particulars of income." 3. The assessee filed its original return of income on 25.11.2003 for the relevant Assessment Year 2003-04 disclosing an income of Rs. 26.950/- and claiming refund of Rs. 4,44,698/-. The return was processed u/s. 143(1) of the Act and refund was issued. In the relevant assessment year assessee in its P&L Account debited towards VRS amounting to Rs. 23,25,000/-. As per provision of sec. 35DDA of the Act, assessee was eligible to deduct from total income only 1/5th of the said amount and 4/5th of the same required to be offered for taxation. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) is contrary to the legal meaning intended by the legislature. I fully agree with the remand report submitted by the A.O. In response to remand report the appellant filed the submissions on 29.12.2009 to counter the argument of the AO that for the earlier AY., the assessee added back the total amount of VRS debited to Profit & Loss Account and there after deducted 1/5th of it. This treatment of the assessee clearly indicates that the assessee was fully aware of the provisions of Act in this respect. In the year under appeal, the appellant debited the entire sum of VRS amount to Profit & Loss Account, which clearly proves the intention of the appellant. The appellant neither in the proceedings u/s 271(1)(c) nor in the submissions made on 18.9.2007 before the undersigned brought out the fact regarding advise of M/s Vakharia & Associates and decision of the Bombay High Court in the case of CIT v. Bhor Industries Ltd. delivered in February 2003. The CBDT circular dated 23.01.2001 was clearly understood by the appellant and the appellant company filed the return for the A.Y. 2002-03 as per CBDT circular. It is surprising that for the AY 2003-04, the Director, Mr. Dastur referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice for reassessment. In view of the above discussion, the penalty order of A.O. is confirmed and grounds of appeal are dismissed." Aggrieved, assessee is now in appeal before us. 4. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee company in order to rationalize its operation offered voluntary retirement scheme (VRS) to its employees during FY 2002-03 and made payment amounting to Rs. 23.25 lacs. One of the directors of assessee company Mr. Dastur, who was looking after taxation matters was informed that CBDT vide circular dated 23.01.2001 expressed an opinion that VRS payments were to be considered as capital expenditure and accordingly, CA firm M/s. Vakharia & Associates, who was advising on accounting, company law and taxation matters, clarified vide letter dated 11.07.2003 that the CBDT Instructions were contrary to the decision of Hon'ble Bombay High Court in the case of CIT v. Bhor Industries Ltd.[2003] 128 Taxman 626 (Bom) dated Feb. 2003. According to the decision of Hon'ble Bombay High Court in the case of Bhor Industries Ltd., VRS expenditure was allowable in its entirety and the same was allowable in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure was allowable but after assessment year 2002-03, VRS expenditure was allowable in five equal annual installments. We find, in view of the above arguments, that the assessee was under mistaken belief claimed deduction of VRS expenditure in entirety in AY 2003-04 in view of specialist advice from a CA firm and the decision of Hon'ble Bombay High Court in the case of Bhor Industries Ltd. (supra). We are of the view that the assessee in the P&L Account filed with the original return of income disclosed the fact that it had incurred VRS expenditure amounting to Rs.23.25 lacs and claimed deduction during the relevant AY in entirety. In our view, the information filed in the return of income was correct and voluntarily furnished but the claim was in excess of the amount under the provisions of section 35DDA of the Act. Accordingly, we are of the view that as such, the assessee cannot be held guilty to be concealing or furnishing inaccurate particulars of income because it has voluntarily furnished information with regard to VRS in the original return and further filed the return in response to notice u/s. 148 of the Act after obtaining opinion of another export and claimed deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnishing inaccurate particulars refer to a deliberate act or omission on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Another Division Bench of the Supreme Court, doubting the correctness of the above view expressed in Dilip N. Shroff referred the controversy involved in the appeals to a larger Bench. In Union of India v. Dharamendra Textile Processors [2008] 306 ITR 277 (SC), it was held by the three-judge Bench of the Supreme Court in paragraph-20 that Dilip N. Shroff case was not correctly decided but Chairman, SEBI's case has analyzed the legal position in the correct perspective and accordingly answered the reference. In Atul Mohan Bindal [2009] 317 ITR 1 (SC), it has been observed that if the Assessing Officer is satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income, such person may be directed to pay penalty. In paragraph 13, it has been further observed that for applicability of section 271(1)(c), conditions stated therein must exist. The Supreme Court in its latest decision in the matter of CIT v. Reliance Petroproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for imposition of penalty be separately drawn against the assessee for concealment of income by not producing proper evidence of expenditure. To impose penalty under section 271(1)(c), conditions stated therein must exist meaning thereby the assessee must have concealed the particulars of his income or furnished inaccurate particulars of such income. In the instant case, it is not the case of the Revenue that the assessee concealed the particulars of his income or any particulars of income furnished by him was found to be inaccurate by the Assessing Officer. The assessee declared the net profit by estimating it at the rate of 6.36 per cent. of his gross receipt as the Assessing Officer in similarly situated cases had accepted lower net profit than 6.36 per cent. declared by the assessee. Considering the aforesaid facts, the Tribunal held that the order of the Commissioner of Income-tax (Appeals) in cancelling penalty cannot be faulted with and accordingly upheld the order. In our considered opinion, in view of the undisputed facts that particulars furnished by the assessee regarding receipt in the relevant financial year have not been found inaccurate ; it is also not the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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