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TMI Blog2010 (7) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the AO 3. It is, therefore, prayed that the order of the Ld.CIT(A) may be cancelled and that of the AO may be restored to the above effect. Since similar issues were involved, these three appeals were heard simultaneously for the sake of convenience and are being disposed of through this common order . 2. Facts, in brief, as per relevant orders are that during the course of reassessment proceedings for the AY 1996-97 1998-99 as also in the assessment proceedings for the AY 1999-2000, the Assessing Officer[AO in short] noticed that the assessee, an engineering company engaged in manufacturing various process control equipments, did not deduct tax at source while claiming deduction of royalty payable to their non-resident foreign collaborator. To a query by the AO in the assessment proceedings for the AY 1997-98, the assessee explained that after providing for royalty in the accounts on accrual basis in various assessment years, the assessee had approached RBI for remittance of the same and consequently, tax was not deducted at source before the receipt of permission of the RBI. Accordingly, assessments for the AYs 1996-97 and 1998-99 were reopened u/s 147 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ani vs. ITO(ITA no.387 of 2005 )(Jodhpur Bench),Maheswara Maris vs. CIT,144 ITR 127(Karnataka),CIT vs. Best Supply Agency,241 ITR 208(Madras),Cement Marketing Co. of India Ltd. vs. AC Sales Tax,124 ITR 15(SC),CIT vs. Dhoole Tea Co. Ltd.,231 ITR 65(Calcutta) cancelled the penalty in the impugned common order in the following terms: 6. I have considered the above submissions. The facts of nondeduction of tax came to the notice of the AO in course of assessment proceedings for A.Y.1997-98 from assessee s letter dated 8.3.2000. In this letter the appellant has stated that it had not deducted tax at source as the company awaiting clearance from RBI. This information has been subsequently used for reopening assessment for A.Y.96-97 and 98-99 and has also been used in assessment proceedings for A.Y.99-2000. As has been mentioned earlier, after debiting the P L account with royalty amount, the assessee company has applied for clearance from SAI and RBI for remitting the same and once such permission was granted it had deducted tax at source and paid the amount to government account within 7 days, after which it had remitted the amount abroad. The deduction of such TDS was made on 24.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case as also the decision relied upon. Undisputedly, the claim for deduction of royalty was disallowed in terms of provisions of sec.40a(ia) of the Act, the tax having not been deducted at source. As pointed out by the ld. CIT(A),the fact of non-deduction of tax at source from royalty payments came to the notice of the AO in course of assessment proceedings for A.Y.1997-98 from the assessee s letter dated 8.3.2000. In this letter, the assessee stated that they had not deducted tax at source as they were awaiting clearance from the RBI. On the basis of this information, assessments for the A.Ys.96-97 and 98-99 were reopened. Admittedly, only after debiting the P L account on accrual basis and crediting the foreign collaborator namely M/s Croll Reynolds Co.Inc.,USA with royalty amount, the assessee company applied for clearance from SAI and RBI for remitting the same and once such permission was granted, the assessee remitted the amount after deducting tax at source and paying to the account of the Government. The relevant details of remittance reveal as under: AY Royalty Amount Date of Permission of the RBI T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars thereof , he may direct that such person shall pay by way of penalty a sum which shall not be less than but 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 or 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 facts 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), be deemed to represent the income in respect of which particulars have been concealed. In other words, the necessary ingredients for attracting Explanation 1 to section 271(1)(c) are that (i) the person fails to offer the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the decisions of this court, inheres on the face of the 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 the facts which was material to the computation of his income. Section 271(1)(c) remains a penal statute. The rule of strict construction shall apply thereto. The ingredi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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.40a(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),cancelling the penalty was upheld. 5.4 We have also gone through the two decisions relied upon by the Revenue in their grounds of appeals namely. AM Shah Co. vs. CIT,238 ITR 415(Guj) CIT vs. Gates Foam Rubber Co.,91 ITR 467(Kerala). These decisions were rendered on totally different facts. In the first case serious discrepancies by way of manipulation of stocks, omission of sales, inflation of purchases, making out of bogus bills, etc. were noticed in the books of accounts. As a result additions were made and penalty u/s 271(1)(c) was impos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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