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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 ..... appeal before the ld. First Appellate Authority who vide order dated 22/03/2004 uphold the addition made by the AO and dismissed the appeal filed by the assessee. The assessee filed the second appeal before the ITAT against the order dated 22/03/2004 passed by the ld. First Appellate Authority and the ITAT dismissed the appeal filed by the assessee vide its order dated 31/07/2009. 4. The AO initiated the penalty proceedings u/s 271(1)(c) of the Act in the case of assessee and fixed the case of assessee for 26/04/2010 and on the request of assessee the case was adjourned for 28/04/2010. The assessee filed written submission and stated that all the facts relevant to the return of income were duly disclosed by the assessee and there was no malafide intention on part of the assessee and under these circumstances there cannot be any allegation for concealment of income or furnishing of any inaccurate particulars thereof. 5. After explaining the facts of the case and the relevant provisions of law as well as the case law the AO rejected the explanation given by the assessee and finally imposed the penalty of Rs. 39,09,662/- u/s 271(1)(c) of the Act for furnishing of inaccurate particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory reported in 359 ITR 565, CIT vs. Auto Lamps Ltd., reported in 278 ITR 32 (Del.)., CIT vs. MWP Ltd. 264 CTR 502 (Karnataka). 7.2 He has also argued the case of assessee on merit and stated that the AO has imposed the penalty in dispute in respect of an expenditure incurred of Rs. 1,11,70,464/- which had been upheld by the ld. First Appellate Authority. He further stated that the AO in his order has held that the assessee has not furnished inaccurate particulars of its income, whereas the ld. CIT(A) has held at page 13 of his order that in the present case, the assessee has furnished inaccurate particulars of income that, it had provided self contradictory explanation in its Notes to Accounts by claiming that the profit and loss account and business activity pertained to the period 25/09/1997 to 31/03/1998 and on the other hand also claimed expenses prior to this period. The aforesaid observation, it appears have been made on the basis of para 2 of significant accounting policy and not as observed by him as stated above. He also draw our attention towards para 2 & 3 at page 14 of assessee's paper book and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee on 25/09/1997 vide a certificate of registration which the assessee has placed at page no. 188-189 of paper book and the application at page 187 of the assessee's paper book. He stated that in fact when the assessee had furnished its balance sheet, in the Notes to Accounts, it had clearly stated that, the business had commenced w.e.f. 25/09/1997 and thus, it cannot be held that there was either any contradictory claim made or that it had furnished any inaccurate particulars of income and the claim made was not bonafidely claim. Therefore, under the circumstances, the penalty in dispute deserves to be cancelled. In support of his argument he cited the decision of the Hon'ble Delhi High Court in the cases of CIT vs. Hughes Escorts Communications (2009) 311 ITR 253 (Del.), Western India Vegetable Products Ltd. vs. CIT (1954) reported in 26 ITR 151 (Bom.), CIT vs. Reliance Petro Products (P) Ltd. (2010) reported in 11 SCC 762 and CIT vs. M/s Deekasha Holding Ltd. reported in 186 Taxman 183 (Del.). Lastly he stated that merely because the addition has been sustained upto the ITAT does not means that the penalty in dispute is sustainable because the assessee has disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submission which is as under: "All the facts relevant to the return of income were duly disclosed by the assessee and there was no malafide intention on the part of the assessee. It is vehemently submitted that in such circumstances, there cannot be any allegation for concealment of income or furnishing of any inaccurate particulars thereof." 11. The assessee has not raised any objection regarding recording the satisfaction by the AO before imposing the penalty in dispute for furnishing any inaccurate particulars of assessee's income. Similarly we have also seen the grounds of appeal raised by the assessee before the ld. First Appellate Authority as well as the other documentary evidence filed by the assessee before the ld. First Appellate Authority. We found that assessee has not raised this objection regarding imposing of penalty u/s 271(1)(c) without jurisdiction in absence of any satisfaction having been recorded by the AO having furnishing inaccurate particulars of income. It is pertinent to mention that at the time of hearing the assessee's counsel has filed one historical backgrounds which is just like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; "The assessee is engaged in the business of acting as financiers and agents. Attention is drawn to Note 3 in schedule 17 of the final accounts wherein it has been stated that the business of the assessee was setup in June, 1997and the NBFC registration with the Reserve Bank of India was received on 25th September, 1997. The expenses incurred during the period June 1997 to September 1997 amounting to Rs. 1,11,70,464/- (excluding depreciation) are for the purpose of the business of the assessee after the business was actually setup and is therefore, allowable as revenue expenditure in the year in which it is so incurred. Accordingly, the same is claimed as allowable business." 13. The assessee has also filed its reply dated 02/01/2001 before the AO in which the assessee has stated these facts in the assessment proceeding. But the AO completed the assessment on 28/02/2000 by disallowing the claim of this expenditure to the assessee, wherein he disallowed the claim of expenditure on the following grounds: i. "Appellant was given license to work as NBFC w.e.f. 25/09/1997; &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .......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 established is whether such expenses were incurred wholly and exclusively for the business profession carried on by the assessee......" 16. It is a matter of record that expenditure incurred prior to 25/09/1997 has been amortized in the books of the assessee, however, in the revised return, assessee claimed the expenditure incurred of Rs. 1,11,70,464/- during the period of 17/06/1997 to 25/09/1997 at Revenue expenditure. In the return of income, assessee also gave a note to this effect and also supported its return on the basis of various judicial pronouncements that after the business was setup, the expenditure incurred has to be allowed. Therefore, in our view the assessee has furnished complete particulars of its income and it is not a case, wherein the assessee has made an apparently wrong claim or claim of the assessee was false it is bonafide. Therefore, the penalty in dispute is not leviable in the case of assessee. 17. After perusing the paper books filed by the assessee, we find that assessee has attached various judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 332 ITR 334 (Del) CIT vs. Usha Marketing Pvt. Ltd. "If on the basis of furnishing necessary particulars, adverse view is drawn i.e. to disallow the same, it does not result into penal action for levy of penalty for concealment of particulars of income. As per Explanation 1 to section 271(1)(c), penalty is leviable only in a case where (a) such person fails to offer an explanation; or (b) offers an explanation which is found to be false or (c) 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 have been disclosed by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on the part of the assessee and in these circumstances penalty could not be imposed." 330 ITR 547 (Del) CIT vs. Krishna Maruti Ltd. "Certain expenditure claimed by the assessee as revenue expenditure was disallowed by the Tribunal holding the expenditure to be of capital nature. On the basis penalty proceedings were also initiated by the Assessing Officer u/s 271(1)(c). The Commissioner (Appeals) as well as the Tribunal, however, set aside the penalty holding that the claim made by the assessee that expenses incurred were revenue in nature, was debatable and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; [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 issue and there were two views possible on same - Assessee's claim was based on one of such possible views - However, assessee's claim was rejected and penalty was imposed upon it u/s 271(1)(c) - Tribunal held that making of such claim bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 levy of penalty. Where the assessee has disclosed all material facts in regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 19. In the result, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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