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TMI Blog2012 (7) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... ,800/- levied U/s. 271(1)(c) of the Act. 2. The Ld. CIT(A) has erred in law and on facts in not appreciating the fact that the assessee was not able to substantiate its wrong claim of technical know-how and failed to prove that the explanation offered in this respect was bonafide and therefore penalty U/s. 271(1)(c) was correctly levied by the A.O as per Explanation 11 to Section 271(1)(c) of the Act. 3. The Ld. CIT(A) has further erred in law and on facts in not taking cognizance of the decision of Hon'le Supreme Court in the case of Dharmendra Textiles 306 ITR 277, wherein it is clearly held by the Hopn'ble Apex Court that a wilfull default by the assessee is not on essential ingredient for levy of penalty U/s. 271(1)(c). 4. The Ld. CIT has erred in law and on facts in canceling the said penalty, without appreciating the ratio of the decision of the Hon'ble Delhi High Court in the case of case of CIT vs. Sohon Singh reported in 244 ITR 177, in which the Ho'ble Court has held that the assessee must offer an explanation to show that there was no fraud, gross or willful negligence involved in not returning the correct income in his return and it is not sufficient if any fanciful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard the rival submissions, perused the material available on record and the judgment cited by the parties. We find that Ld. CIT(A) has considered the submission of the came to the conclusion that the penalty levied by Assessing Officer in respect of disallowance of deduction u/s. 35AB of the Act cannot be sustained. The finding of Ld. CIT(A) in para 4.5 to 4.16. reads as under:- "4.5 I have considered the facts and submissions of the Ld. A.R carefully. It is seen that the A.O has levied the penalty in respect of the amount which has been finally confirmed by the Hon'ble ITAT as referred to above. It may be pointed out that the appellant credited technical know how goes to the collaborator to the tune of Rs.52,80,000/- without deducting tax at source and same was capitalized. The appellant claimed 1/6th of the expenditure for Rs.52,80,000/- i.e. Rs.8,80,000/- under the provisions of sec. 35AB of the Act. When the appellant was questioned during the assessment proceedings that as to why the TDS was not made, the appellant contended that when an asset is created by way of amalgamation in which all assets of amalgamating company i.e. MCR became the asset of the amalgamated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder his Act, such person fails to offer an explanation or offers an explanation which is found by the AO false or such person offer an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of the total income have been disclosed by him, the, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of Clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed. The effect of this Explanation is that if the necessary ingredients as stated herein are satisfied then the amount disallowed in computing total income shall for the purposes of clause (c) of this section, be deemed to represent the income in respect of which particulars have been concealed. The necessary elements for attracting this Explanation are three fold:- a) the person fails to offer his explanation, or b) he offers the explanation which is found by the AO to be false, or c) the person offers explanation which he is not able to substantiate and fails to prove that such expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrect and interpretation of law can never be a factual aspect. Just because an Assessing Officer does not accept an interpretation, such an interpretation is not rendered incorrect. In any event, as noted above, the connotations of expression 'particulars of income' do not extend to the issues of interpretation of law and as such making a claim, which is found to be unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income. In this view of the matter, the case of the appellant cannot be said to be a case of 'furnishing of inaccurate particulars of income', in its natural sense, either. In this regard reliance is placed on the decision of Hon'ble ITAT, Pune 'A' Bench in the case of Kanbay Software India Pvt. Ltd. Vs. DCIT in ITA No.300/PN/07 - A.Y 2002-03. 4.13 With this background in mind, if we test the facts of the case on the touchstone of the above referred three ingredients of Explanation 1 to Sec. 271(1)(c) of the Act, we find that the additions made by the AO do not hit by any one of them. The AO while making the disallowance has held that same is not allowable in the given set of circumstances, however, there is nothing in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(c) , it is for the department to prove that the assessee had concealed the particulars of his income or furnished inaccurate particulars thereof to bring the case of the assessee within the mischief of the main provisions of section 271(1)(c) . Mere rejection of assessee's claim would not be sufficient to hold that assessee to be guilty of concealment. If there is no evidence on record except the explanation of the assessee which explanation is either found to be false or is unacceptable, it does not follow that concealment has been established. It is by virtue of Explanation only tat the Assessing Officer has been given a right to raise a presumption to deem certain sum added to income or disallowed in computing the income of a person, to represent the income in respect of which particulars have been concealed, if the assessee did not furnish an explanation or when explanation furnished was found false; and also when such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of proceedings under this Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars thereof, he may direct that such person shall pay by way of penalty a sum which shall not be less than out which shall not exceed three times the amount of tax sought to be evaded by a reason of the concealment of particulars of his income. Explanation 1 to Section 271(1)(c) of the Act mentions that where in respect of any facts material to the computation of the total income of any person under the Act, such person fails to offer an explanation or offers an explanation which is found by the AO on the CIT(Appeals) or the Commissioner to be false, or such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the acts relating to the same and material to the computation of his total income have been disclosed by him, then the amount added or disallowed in computing the total income of such person as a result thereof shall for the purpose of clause (c) of section 271(1)(c), be deemed to represent the income in respect of which particulars have been concealed. In ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those factors apart from being inherent in the nature of penalty proceedings as has been noticed in some of the decisions of this court, inheres on the fact of the statutory provisions. Penalty proceedings are not be initiated, as has been statutory provisions. Penalty proceedings are not to be initiated as has been noticed by the Wanchoo Committee, only to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective. The term "inaccurate particulars" is not defined. Furnishing of an assessment of value of the property may not by itself be furnishing of inaccurate particulars. Even if the Explanations are taken recourse to, a finding has to be arrived at having regard to clause (A) of Explanation 1 that the Assessing Officer is required to arrive at a finding that the explanation offered by an assessee, in the event he offers one, was false. He must be found to have failed to prove that such explanation is not only not bona fide but all the facts relating to the same and material to the income were not disclosed by him. Thus, apart from his explanation being not bona fide, it should have been found as of fact that he has not disclosed all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim made in the Return cannot amount to the inaccurate particulars, Hon'ble Apex Court concluded. Thus, merely beaus eth assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, attract the penalty u/s. 271(1)(c) of the Act. In the present case, we are of the opinion that the disallowance of claim for deduction of royalty, by merely having recourse to provisions of sec. 40(a)(ia) of the Act cannot be considered as concealment of income or furnishing inaccurate particulars thereof. 5.3 The aforesaid view taken by us is also supported by the decision dated 19.6.2009 in the assessee's own case in the AY 1997-98 in ITA No.4236/Ahd/2007, wherein on similar facts and circumstances, order of the Ld. CIT(A), canceling the penalty was upheld." The Hon'ble Apex Court in the case of Reliance Petroproduct Pvt. Ltd. (supra) has held a mere making of the claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars of income In the present case, admittedly the assessee made a claim in respect of technical know-how u/s. 35AB of the Act, however, same was rejected by Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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