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TMI Blog2015 (11) TMI 991X X X X Extracts X X X X X X X X Extracts X X X X ..... gnorance about a legal provision, 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 provision. Such an action on the part of the assessee, in our considered opinion, cannot be said to be bonafide. In our humble understanding, the explanation of the assessee is not acceptable and we reject the same. In any case, Auditors report obtained by the assessee cannot override Income Tax provisions 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). Claim of the assessee towards administrative expenditure and finance charges as business expenditure is not at all admissible as the assessee has not commenced business during the relevant financial year under consideration. The Assessing Officer is of the view that the expenditure is not based on any sound reason as the assessee was fully aware of the facts that it is not revenue expenditure when it had filed its original return of income. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at the said conclusion on the reason that the assessee has not commenced any business activity during the year under consideration. Subsequently, notice under Section 274 read with Section 271(1)(c) was issued by the Assessing Officer showcausing the assessee as to why penalty under section 271(1)(c) of the Act cannot be levied for furnishing inaccurate particulars of income. The Assessing Officer has not considered the submission of the assessee and levied a penalty of C39,63,854/- which was 100% of the tax sought to be evaded, had the expenditure claimed by the assessee in the revised Return of Income been allowed. Aggrieved by the order of the Assessing Officer made u/s.271(1)(c) of the Act dated 26.09.2013. Against this, the assessee carried the appeal before the Commissioner of Income Tax (Appeals). 4. The Commissioner of Income Tax (Appeals) placing reliance on the order of the Supreme Court in the case of CIT vs. Reliance Petro Products Pvt. Ltd 322 ITR 158 (SC), deleted the penalty. Against this, the assessee is in appeal before us. 5. The ld. Departmental Representative pointed out that the assessee had filed a revised return of income and it was obviously as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee within the time allowed due date for filing return of income under section 139(1) of the Act. By that time, the accounts have been finalized and audit of the accounts was also over. Therefore, there could be no change in the facts and figures, be it the profit and loss account, the balance sheet or the audit report or the Director's report. The original return of income has been filed based on these figures and facts. By signing the verification column in the return of income, the assessee had declared that the information in the return and the schedules thereto are correct and complete and the amount of total income and other particulars shown therein are truly stated and are in accordance with the provisions of the Income tax Act 1961. Therefore, at the time of filing of original return of income, the assessee was fully aware of the correctness and completeness of the information furnished in the return of income. The assessee chose to file a revised return of income based on the same set of facts and figures, profit and loss account and the balance sheet as declared in the original return of income, but claiming loss, on account of expenditure. The very act of filin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor could be viewed as concealment of income on its part. It was upto the Assessing Officer to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted that by itself would not attract penalty under Section 271(1)(c) of the Act. The Assessee had filed the Return of Income claiming loss on account of expenditure incurred during the year as revenue expenditure allowable under Section 30 to 37 of the Income Tax Act, as the assessee has already taken steps to commence its activities and also the expenses are mainly comprising of interest payment to the bank of C1,25,30,730/- on the loan borrowed and other regular administrative expenses of C2,97,275/- which was disallowed by the Assessing Officer under the contention that the assessee has not commenced its business operations holds good in assessing the income of the assessee but not for levy of penalty under section 271(1)(c) of the Act. It was held by various courts that levy of penalty was not a necessary concomitant of assessment proceedings. Both the proceedings are different in nature and findings in assessment proceedings are not conclusive in penalty proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of CIT vs. Reliance Petroproducts (P.) Ltd. (cited supra), wherein it was observed as under (page 164 of the report): In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income-tax, Delhi v. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India v. Rajasthan Spg. Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that (page 13 of 317 ITR ): 13. It goes without saying that for applicability of section 271 (1)(c), conditions stated therein must exist. ' Their Lordships, after considering various decisions including Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 51 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H). In the instant case, the assessee has claimed expenditure incurred during the period of pre-commencement of business as revenue expenditure based on the Audited Statements of Account under bona fide belief, hence treating the said claim as 'furnishing inaccurate particulars' and invoking the provisions of Section 271 (1 )(c) of the Act, is against the provisions of the Act. The ld. Authorised Representative for assessee Has also pleaded during the course of appellate proceedings that the penalty proceedings are independent of the assessment proceedings. He has also relied on the decision of the Supreme Court in the case of Ananthraman Veerasinghaiah Co. vs. CIT (cited supra) wherein it was held that the findings in the assessment proceedings cannot be regarded as conclusive for the purpose of the penalty proceedings. Just because a claim of deduction has been disallowed and the assessee has not preferred any appeal against the Assessment Order would not mean that the assessee has intended to evade the taxes. It is the duty of the Assessing Officer to consider the facts of the case and the submissions afresh and make a determination as whether an assessee has concealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee and assessed the income of the assessee by assessing the notional income under the head 'Income from Other Sources' and disallowed the resultant loss claimed. The assessee with a view not to have protracted litigation with the Income Tax Authorities has accepted the income assessed and paid the tax due thereon even without disputing the disallowance of claim of expenditure. The AO has disallowed the assessee's claim of loss for the assessment year under consideration and invoked the provisions of Section 271(1)(c) alleging that the assessee had furnished inaccurate particulars for claim of loss and computed the quantum of penalty on the basis of tax sought to be evaded. 13. We have heard both the sides and perused the material on record. We consider it appropriate to reproduce Explanation 1 to Section 271(1)(c), which deals with penalty for concealment of income and for furnishing of inaccurate particulars, as follows Where in respect of any facts material to the computation of the total income of any person under this Act, ' (A)such person fails to offer an explanation or offers an explanation which is found by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat each and every explanation by the assessee must be accepted. It must be acceptable explanation, acceptable to a fact finding body. 17. 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 no penalty can be levied. The explanation of the assessee has to be considered on merits and one has to examine as to whether the explanation so given by the assessee can be treated as an acceptable explanation or not. 18. A plain look at the profit and loss account shows that statutory auditor has opined that the assessee has incurred loss for the year ended on 31.03.2010. There cannot indeed be any quarrel with this proposition, but then this Auditors Report does not deal with the provisions of Income Tax Act. As per Income Tax Act expenditure incurred during pre-commencement period cannot be allowed as deduction while computing the income of the assessee. There was thus no reason for assessee to deviate from the provisions of Income Tax Act, when admittedly the assessee has not commenced its business activities in the assessment year under consideration. The onus is on the assessee to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uations (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 assessee had disclosed all the facts relating to the same and material to the computation of total income. In the first situation, the deeming fiction is triggered by the inaction of the assessee by his not giving the explanation with respect to any fact material to the computation of total income, or by action of the Assessing Officer by giving categorical finding to the effect that the explanation given by the assessee is false. In the second situation, the deeming fiction is triggered by the failure of the assessee leading to satisfaction of conditions laid down in Clause B of Explanation 1 to section 271(1)(c), viz the assessee is not able to substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually 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, acceptable. 23. Further, we also place reliance on the judgment of Supreme Court in the case of Mak Data (Pvt) Ltd. vs. CIT 358 ITR 593, wherein it was held that the assessee had only stated that it had surrendered the additional sum of ₹ 40,74,000 to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the Income-tax Department. The statute did not recognize those types of defences under Explanation 1 to section 271(1)(c) of the Act. The surrender of income in this case was not voluntary in the sense that the offer of surrender was made in view of detection by the Assessing Officer in the search conducted in the sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive ..... 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