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TMI Blog2015 (1) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... hes of Explanation 1 to section 271(1)(c) of the Act and in such cases no penalty shall be imposed. - Decided in favour of assessee. - ITA No.3628/Del/2013 - - - Dated:- 29-10-2014 - SHRI S.V. MEHROTRA AND SHRI H.S. SIDHU, JJ. For the Appellant : Sh. C.S. Agrawal, Sr. Adv., Sh. Ravi Pratap Mall, Adv. For the Respondent : Smt. Parwinder Kaur, Sr. DR ORDER Per: H S Sidhu: The assessee has filed the present appeal against the impugned order dated 26.03.2013 passed by the Commissioner of Income Tax (Appeals)-X, New Delhi for A.Y. 1998-99. 2. The Assessing Officer completed the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called the Act) on 28/02/2000, wherein the loss of the assessee company was computed at ₹ 2,34,24,580/- as against the returned loss of ₹ 3,82,00,780/-. While completing the assessment the AO made an addition amounting to ₹ 1,11,70,464/- on the ground that the said expenditure were incurred prior to setting up of the business and are in nature of pre-operative expenses. The AO initiated penalty proceeding u/s 271(1)(c) of the Act on this addition. 3. Against the said order of AO, the assessee filed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving furnished any inaccurate particulars of income, as it is evident from the order of assessment when he made a disallowance of the expenditure incurred of ₹ 1,11,70,464/- on the ground that such an expenditure had been incurred prior to commencement of business and was thus not an allowable deduction. Though he at the end of the order of assessment merely stated that penalty proceeding u/s 271(1)(c) have been initiated separately. He further stated that the Hon'ble Jurisdictional High Court in the case of Ms. Madhushree Gupta vs. Union of India reported in 317 ITR 107 at page 185 has held that there is no change of law when it had held that the AO 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 initiated the proceedings. He draw our attention towards para 4 of the assessment order and stated that AO has not either reached or recorded any such finding. Therefore, the imposition of penalty in dispute is without jurisdiction and deserve to be cancelled on this ground only. In support of this contention he also cite the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. The expenditure incurred between 17.06.1997 till 25.09.1997 aggregated to ₹ 1,11,70,464/- and this expenditure had been incurred after the business had been setup and before the commencement of business. It is well settled that the assessee is eligible to a claim of deduction of such expenditure which has been incurred after the setting up of the business. The expression setting up means to place on foot or to establish . The assessee's contention was that it had setup its business when it was ready to commence its business, as it has employed key personal and thus such expenditure is an allowable expenditure and thus expenditure claimed by the assessee was wholly bonafide. He stated that the assessee company had setup its business on 17/06/1997 when it had appointed employees, taken office premises on lease, purchased various fixed assets, opened bank account and received foreign remittances resulting in availability of ₹ 4.08 crores in the bank account for carrying out the financing activity. It is the first year of assessment. Thereafter, appellant made an application on 03/07/1997 to the Reserve Bank of India for registration as Non Banking Finance Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee along with documentary evidence filed by him in the shape of two paper book one containing page 1-189 and the second is also containing 1-137. The assessee has filed all the documentary evidence with support of various decisions rendered by the Hon'ble Supreme Court of India and Hon'ble High Courts including the Hon'ble Jurisdictional High Court which he has attached in these paper books. We have also thoroughly perused the orders passed by the Revenue Authorities. Ld. Counsel for the assessee has raised a preliminary objection regarding jurisdiction of the AO for levying the penalty in dispute on the ground that he has not recorded his satisfaction before initiating the penalty in dispute in the case of assessee having furnished any particular of income. We have seen the penalty order dated 28/04/2010 passed by the AO u/s 271(1)(c) of the IT Act as well as the impugned order. We have not found that the assessee has raised this objection before the AO when he issued a notice to the assessee fixing the penalty proceeding on 26/04/2010. The assessee appeared before the AO on 26/04/2010 and only requested for adjournment and the AO adjourn the case for 28/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has concealed the particulars of its income or furnished inaccurate particulars of its income. The assessee company had setup its business on 17/06/1997 which is the first year of assessment. The assessee company made an application on 03/07/1997 to the RBI for registration as Non Banking Finance Company for which registration was granted to the assessee on 25/09/1997. We have perused the paper book filed by the assessee at page 187-189. The assessee filed its return of income on 27/11/1998 declaring a loss of ₹ 382,00,780/- which was revised by the assessee u/s 139(5) of the Act on 27/12/1999 revising the computation of income at a loss of ₹ 426,50,098/- which the assessee has attached at page 17-19 of its paper book. In the return of income the assessee claimed a sum of ₹ 1,11,70,464/- being expenditure incurred during the period of 17/06/1997 to 25/09/1997 which is at page 160 of assessee's paper book. It is very pertinent to mention that assessee has also appended a note to the return of income which the assessee has attached at page 19 of the paper book with regard to the claim of expenditure of ₹ 1,11,70,464/- for the sake of convenience i.e. rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at business of the assessee was setup in the month of June, 1997 when it was ready to commence its business and it was not setup when registration with the RBI was granted. The business of the assessee was setup in the month of June, 1997 is also evident from the para 14 of the order of the Tribunal when it held as under: Therefore, though as per section 3, the previous year may commence on setting up of the business, yet the income will be chargeable to tax under the head Profits and gains of business only when the business or profession was carried on by the assessee. Therefore, for purpose of allowing any expenses u/s 37 in respect of any business or profession, such business or profession should have been carried on during the previous year. Admittedly, since the expenses were incurred prior to carrying on of business as NBFC, the expenses are not allowable as such. Taking the premise on hire will only demonstrate the intention of setting up of the business but cannot be said to be carrying on of the business In the present case there is no dispute regarding setup of the business of the assessee but for claiming expenses u/s 37, what is required to be esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Hon'ble Apex Court in the case of CIT vs. Reliance Petro Products (P) Ltd. reported in 322 ITR 158 has been held as under: 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word inaccurate has been defined as: - not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript . We have already seen the meaning of the word particulars in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here 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. Such not being the case, there would be no question of inviting the penalty u/s 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount of furnishing inac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal held that making an incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assesse had acted with a malafide intention or had claimed deductions being aware of the well settled legal position. The Tribunal had observed in plain words that the assessee had disclosed all the particulars along with the return of income and it was not a fit case for levy of penalty. The Tribunal deleted the penalty. [Emphasis supplied] 330 ITR 545 (Del) CIT vs. Mushashi Autoparts India (P) Ltd. The assessee computed pre-operative expenses after deducting interest income. However, the AO held that interest could not be adjusted against pre-operative expenses as claimed by the assessee. Therefore, penalty was imposed upon assessee u/s 271(1)(c). The Commissioner (Appeals) as well as Tribunal deleted the penalty holding that merely because assessee's claim was not accepted by the AO, that did not mean that there was any non-disclosure of material facts by assessee which could warrant levy of penalty. Held that it was clear from orders of the appellate authorities that there was no concealment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at the rate of 25 per cent in the relevant year resulting into higher written down value in the next year for claim of depreciation of a higher amount on higher written down value thereby reducing the tax liability. Therefore, the AO was not correct in holding that submitting inaccurate claim would amount to giving inaccurate particulars. [Emphasis supplied] 343 ITR 434 (Del) CIT vs. Nokia India (P) Ltd. 354 ITR 27 (P H) CIT vs. Gurdaspur Co-operative Sugar Mills Ltd. Assessee received a sum as grant-in-aid from State Government and same was disclosed as capital receipt - Assessing Officer, however, treated receipt of grant-inaid as revenue receipt and thereafter levied penalty u/s 271(1)(c) - Whether since issue whether amount of grant-in-aid was capital receipt or a revenue receipt was a debatable issue, penalty u/s 271(1)(c) was not imposable - Held, yes 2 DTONLINE 312 (Del) CIT vs. Kiranjit Foils Ltd. Assessee company had earned interest on investment made in short term deposits with bank prior to commencement of business - Issue as to whether said interest income was revenue receipt or capital receipt was debatable i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all details in the return of income, at the highest it can be said that the claim of the assessee was not sustainable in law. But as there was no furnishing of inaccurate particulars or concealment of income on the part of the assessee, penalty u/s 271(1)(c) could not be levied. 186 Taxman 183 (Del) CIT vs. M/s Deekasha Holding Ltd. In respect of first addition, explanation of the assessee was that though the assessee had excluded ₹ 2,69,680/- under the head? Profit and sale of cars?Capital gains in respect of sale of these cars was not included by inadvertence likewise in respect of claim of deduction of expenses under the head?Professional Development Expenses was that the expenses were in fact incurred for sponsoring its director for post graduation course etc. in the field of law and it was the bona fide claim made by the assessee. Same was the plea in respect of advertisement expenses. Where the assessee had disclosed all the facts before the AO and the AO, on consideration of the evidence furnished by the assessee, come to the conclusion that the claim has not been substantiated with sufficient evidence, does not automatically result in le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect or inaccurate particulars of its income. We are of the view that merely because the expenditure incurred has been disallowed does not lead to an inference that, it is a case of furnishing inaccurate particulars of income. If an assessee has been able to offer an explanation, which is not found by the Revenue Authorities to be false, and assessee has been able to prove that such explanation is bonafide and that all the facts relating to the same have been disclosed by him, the assessee shall be out of the clutches of Explanation 1 to section 271(1)(c) of the Act and in such cases no penalty shall be imposed. We are of the view that assessee has established its case with the support of various documentary evidence as well as the provision of law and the decision rendered by the Hon'ble Supreme Court of India and the Hon'ble High Courts that assessee has disclosed all the true and correct facts in its return and has not furnished any inaccurate particulars of its income. Therefore, in our view the impugned order is not sustainable in the eye of law and we cancel the impugned order dated 26/03/2011 passed by the ld. CIT(A) by accepting the appeal filed by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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