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TMI Blog2015 (12) TMI 299X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Commissioner of Income-tax (Appeals)-I, Dehradun dated 12.10.2009 for the assessment year 2001-02. 2. The solitary ground involved in this appeal is against confirmation of the penalty of ₹ 1,49,38,148/- levied under section 271(1)(c) of the Income-tax Act, 1961 (hereinafter the Act ) by the AO. 3. This is the second round of appeal before us after the Hon ble jurisdictional High Court set-aside the order of the Tribunal which was allowed in favour of the assessee on the ground that penalty proceedings are hit by limitation. The Hon ble High Court has directed the Tribunal to decide the issue on merits vide order dated 30.09.2011. The facts and circumstances which led to the penalty is as follows :- (i) The Assessee, which is a Company, operates in the business of shares and securities. (ii) The Assessee filed its return of income on 29.10.2001 declaring income of ₹ 3,84,75,860/- for the year under consideration i.e. 2001-02 and the same was assessed under section 143 (3) of the Act. (iii) During the relevant assessment year, the Assessee had received dividend income of ₹ 3,11,85,522/- from various other companies. (iv) Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be decided on merits. 4. Ld. AR submitted that the assessing officer levied penalty under section 271(1)(c) of the Act in respect of the aforesaid addition without judicially appreciating the facts of the case and the position of law and contented that if the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act is satisfied that any person, has concealed the particulars of his income or furnished inaccurate particulars of such income, then only AO may direct that such person shall pay by way of penalty. According to the ld. AR, then only in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. The ld. AR brought to our attention the Explanation I. - Where in respect of any facts material to the computation of the total income of any person under this Act - such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn of income and the documents filed by the Appellant Company and the order passed u/s. 143(3) on 28.02.2003 reveal that the above disallowances are in the nature of difference of opinion as to the taxability of income / allow ability of expenditure and no facts were concealed. The additions of ₹ 3,77,70,285 are on account of debatable claims. These disallowances, it is submitted, should not lead to the conclusion that the assessee has, in any way, concealed the particulars of its income or furnished inaccurate particulars of such income. The Ld. AR submitted that there was no warrant to levy / impose penalty under section 271(1)(c) of the Act primarily on the ground that the claim of the appellant was a legal and bona fide claim backed by adequate/ necessary disclosure in the return of income/ accompanying documents. The ld. AR submitted a written synopsis, relevant submissions of which are as follows :- On perusal of Explanation I to section 271(1)(c) of the Act it will be kindly noticed that the said Explanation has two limbs (A) and (B) as under: (A) fails to offer any explanation or offers an explanation which is found by the assessing officer to be false; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts (below), is misplaced. Reference in this regard may also be made to the following judicial precedents wherein it has been held that where disallowance / addition is made in respect of a bona fide claim, no penalty could be imposed under section 271 (1)( c) of the Act: In the case of Bunnah Shell Oil Storage and Distributing Co. of India Ltd. v. ITO: 112 ITR 592 (Cal.) the appellant after filing full and detailed particulars with all material relevant to assessment before the ITO raised the legal contention before the [TO that the appellant was entitled to the benefit of devalued loss, increased depreciation and development rebate. The above claim was not accepted by the [TO and penalty proceedings under section 271(1)(c) of the Act were initiated. The Court noticed in the aforesaid case that the appellant had made the claim after pursuing the expert legal advice and the same was clearly based on cogent, legal ground and there was no authoritative judicial pronouncement covering the said question raised by the appellant. It was observed by the Court that the claim of the appellant for necessary deduction based on legal contentions put forward by it could never amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d beyond doubt that additions made by the Assessing Officer were part of the conscious attempt on the part of the assessee to conceal his income. In this context, we would like to draw your kind attention to the decision of the Punjab Haryana High Court in Commissioner of Income Tax vs Ajaib Singh Co. (170 CTR 489). In this case, the Hon'ble High Court has held that mere disallowance of an expense per se cannot mean that the assessee has furnished incorrect particulars of its income. Concealment invokes penal action and hence it has to be proved as a conscious act on the part of the assessee to hide or conceal an element of income. The essential pre-condition for invoking Explanation I to section 27I(1)(c) is that the assessee fails to offer an explanation or offers an explanation which is found to be incorrect by the tax authorities which is not the case in the matter under consideration. We would also like to draw your kind attention to the decision of the Madhya Pradesh High Court in the case of CIT vs S.T.I. Biplus Tubing (India) Ltd. (247 ITR 426) wherein the Hon'ble Court affirmed the Tribunal's view that: Quote .... simply because a cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that if the assessee has taken a stand that expenditure incurred is a revenue expenditure and if it is held otherwise as a capital expenditure, it cannot be said that the explanation given by the assessee was not bona fide. The Tribunal observed as under: Quote .... no penalty was leviable if after furnishing all the necessary particulars of income the assessee claimed benefit of certain provisions of the Act and raised contention but did not find favour with the authorities. It might be on difference of opinion on particular set of facts but it did not imply that there had been a concealment of particulars of income. If the assessee had taken a stand that the expenditure incurred was a revenue expenditure and if it was held otherwise as a capital expenditure, it could not be said that the explanation given by the assessee was not bona fide. Unquote In this context, the assessee would also like to draw your attention to the decision of the Hon'ble Guwahati High Court in CIT vs Gurudayalram Mukhlal (190 ITR 39) wherein the Hon'ble High Court has observed as under (emphasis supplied): Quote Even in case of stipulated difference between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be false. The statements/explanations made by the assessee with regard to the basis of the deductions (in dispute) were bona fide and were fully disclosed during the assessment proceedings. The additions made during the assessment proceedings were on account of difference in opinion. Further, we also invite your honour's kind attention towards various judicial rulings which have laid down the following ratios while deciding on whether the penalty under section 271(1)(c) of the Act is leviable: Legal contention bona fide raised, whether it as ultimately accepted or rejected, will not generally be an act of fraud or willful negligence attracting the penal provision under section 271(1)(c) of the Act. No question of any liability will arise where the assessee is merely contending for a particular position contrary to the view taken by the Assessing Officer. The assessee has a right to make any claim which may or may not be allowed. Mere disallowance of a claim cannot by itself form the basis for initiating penalty proceedings in the absence of any material to show that the claim was made mala fide or deliberately under false premises wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned penalty order, being without jurisdiction, bad in law and void-ab-inito, should be quashed. Without prejudice, it is the respectful submission of the appellant that on the facts and circumstances of the case and in law, penalty under section 271(1)(c) of the Act was not leviable for the reasons stated hereunder: Section 271 (1) of the Act, as reproduced above, provides that the assessing officer may, in the course of any proceedings under this Act, direct the imposition of penalty under that section. In our respectful submission the lawmakers have deliberately used the word may in section 271(1) of the Act which shows that discretion in this regard has been conferred on the assessing officer. Merely because certain additions / adjustments are made in the assessment, it does not necessarily follow that penalty is to be levied. Based on the above, the assessee most respectfully submits that the mere disallowance of a claim of expenditure during the assessment proceedings based on difference of opinion does not tantamount to concealment of income to justify levy of penalty under section 271(1)(c) of the Act. Accordingly, no penalty should be levied on the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head business . 9. From the aforesaid facts disclosed by the assessee shows that shares classified under the category of trading asset were held as stock-in-trade with a view to deal therein, income wherefrom was taxable as business income. So according to the assessee, dividend income earned from such shares, if any, was incidental and did not constitute the dominant motive of the appellant when it filed the return of income and participated in the assessment proceedings before to AO and other authorities. We find that during the relevant assessment year, the appellant received dividend income of ₹ 3,11,25,522/- from the shares of 15 companies which were held as trading assets . In other words, the appellant did not receive any dividend from shares held as capital asset and received dividend only from share held as trading assets which fact has been taken note at page 2 of the assessment order passed under section 143(3), wherein the aforesaid undisputed facts were noted in the following words: The assessee has shown shares in the above-mentioned 15 companies from where dividend was received as trading asset .. Therefore, the portion of interest paid relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to reconcile conflicting decisions from various benches of the Tribunal, a Special Bench was also constituted in the case of IRO s. Daga Capital Management Pvt. Ltd.: 117 ITAT169 (SB). Our attention was brought in this regard to paragraph 6 of the order written by the minority view in the aforesaid decision, which has been reproduced hereunder for ready reference: 6. When the appeal came up before the Division Bench, it was notice that there was difference of opinion between the Benches on the issue involved in the appeal. The revenue had relied on the decision of the Tribunal dated 5/09/2006 in the case of Ridge investment Co. Ltd. v. Jt. CIT [ IT Appeal Nos. 4260-61 (Mum.) of 2003] as well as the decision of Delhi Bench of the Tribunal in the case of Ever Plus Securities Finance Ltd. v. Dy. CIT [2006] 101ITD 151 wherein it was held that even if the main activity of the company was to make investments in holding company for retaining control over the group companies, the disallowance under section 14A can be made irrespective of the fact that dividend earnings were only incidental in nature. On the other hand, the assessee had relied on the decision of Delhi Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A can be made in the case of a dealer in shares. Generally, in our opinion, a dealer in shares does not acquire shares and securities to earn dividend income. The dominant and immediate object behind acquisition of shares is to earn profit on the sale of shares at the earliest point of time which is chargeable to tax under the Act. Sometimes, such person by chance may also get the dividend on the shares held by him as 'stock-in-trade'. Since such dividend income is never intended at the time of purchase of shares, in our opinion, the connection between the expenditure incurred and the dividend income can be said to be incidental only since the dominant and immediate connection exists only between the expenditure incurred and profit on sale of shares. Since the existence of dominant and immediate connection is the condition precedent for invoking the provisions of section 14A of the Act, in our opinion, the mere receipt of dividend income incidentally in the case of dealer in shares would not be sufficient for invoking the provisions of section 14 A of the Act. We take note that the Majority decision expressed in Paras 23.8 and 23.9 of Special Bench order decided the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in this rule is to the 'value of investment' and not the assets 'held as investment'. A person may make investment in shares and the shares so purchased may be held either as Stock-in-trade' or 'Investment'. The word investment in this rule refers to the making of purchase of shares and not holding it as investment. 18. We also take note of the fact that the aforesaid issue was admitted by the High Court as involving substantial question of law. 19. We also take note of the fact that the appeal bearing ITA No.263 of 2010 in the appellant's own case for the assessment year 2002-03, i.e., the immediately succeeding assessment year, was admitted by the High Court on the ground of involving substantial question of law was admitted and was adjudicated vide the common order in the aforesaid decision, reported as Maxopp Investment (supra) and in this regard, it can be seen at page 296 of the aforesaid decision of the Delhi High Court reported at 347 ITR 272 though against the assessee. Further we find that the SLP filed against the aforesaid decision of the Delhi High Court in the appellant's own case for the assessment year 2002-03 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been admitted by the High Court. Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act. 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment whereunder deduction under Section 14A of the Act was prescribed to the appellant. The appellant has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itself shows that the issue is debatable. For these reasons. we are o(the opinion that no question of law arises in the present case. This appeal is accordingly dismissed... (Emphasis supplied) 21. A useful reference may also be made to the decision of Apex Court in the case of CIT v. Reliance Petro products Private Limited: 322 ITR 158, where the decision of Bombay High Court deleting the penalty imposed by the assessing officer on the ground that quantum appeal was admitted by the High Court on the ground of involving question of law, was affirmed by the Apex Court. And we take note that various other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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