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TMI Blog2016 (8) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... MI 80 - SUPREME COURT ] . We may here reiterate that merely because of the assessee has made certain claims, which were not accepted or was not acceptable to the Revenue, that itself would not attract the penalty under Section 271(1)(c). If that is the interpretation accepted that in every return where the claim made is not accepted for some reason, the assessee will be inviting penalty under Section 271(1)(c). - Decided in favour of assessee. - I.T.A.Nos.50, 72 & 80 of 2009 - - - Dated:- 20-6-2016 - MR. ANTONY DOMINIC AND MR. DAMA SESHADRI NAIDU, JJ. FOR THE APPELLANT : ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX FOR THE RESPONDENT : ADV. SRI.V.PHILIP MATHEW JUDGMENT Antony Dominic, J. The Revenue has filed these appeals challenging the common order passed by the Income Tax Appellate Tribunal, Cochin Bench, in I.T.A.Nos.424 to 426/05. By the impugned order, the appeals filed by the respondent assessee, challenging the orders passed by the Commissioner of Income Tax (Appeals) confirming the penalty levied on them under Section 271(1)(c) of the Income Tax Act for the assessment years 1993-1994 to 1995-1996, was allowed. 2. We heard the Senior Couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, in the absence of any written or oral evidence, penalty of ₹ 17,81,735/- was levied. On similar reasoning, for the assessment year 1995-1996, also a penalty of ₹ 17,01,651/- was levied. 7. The assessee carried the matter in appeal before the First Appellate Authority. Insofar as the assessment year 1993-1994 is concerned, the First Appellate Authority has, in paragraph 2 of its order, stated that he has verified the income tax records maintained by the Department and that in the records he saw a letter filed by the assessee on 22.4.1996 in response to the notice under Section 271(1)(c) issued by the Assessing Officer on 28.3.1996. Similarly, in the common order passed by the First Appellate Authority in the appeals arising out of the penalty levied for the assessment years 1994-1995 and 1995-1996 also, in paragraph 8(1) the First Appellate Authority has stated that it is seen that the appellant had filed the following reply on 18.10.1999 in response to the penalty notice under Section 271(1)(c) issued in the course of the assessment proceedings for the AY 1994-1995 . Again, the First Appellate Authority has stated that for the AY 1995-1996 the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sacred that every addition or disallowance made by the Assessing Officer points towards concealment of income or furnishing of inaccurate particulars by the assessee. Penalty is a penal proceeding and can be resorted to only if the guilt is established against the assessee by a reasonable standard. Suppose, if the assessee has not maintained books of accounts at all and the income is estimated and assessed, is it possible to hold that such an addition made by the Assessing Officer on estimate basis would be a reasonable basis for imposing penalty? No. In the case of an assessee, who has not maintained the books of accounts at all, the deficiency does not hold him responsible for penalty. The case of the assessee before us is far better; in the sense that he has maintained books of accounts and deficiencies have been pointed out only in respect of certain expenses claimed by way of expenditure. Penalty cannot be levied on such flexible grounds. 9. It is aggrieved by the order that is passed by the Tribunal, these appeals are filed, and the main question of law raised is whether in the facts and circumstances of the case, the Tribunal was justified in setting aside the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o account the provisions of Explanation (1) which is in two parts. This Explanation clarifies that where in respect of any facts material to the computation of the total income of any person, (A) such person fails to offer an explanation or offers an explanation and the officer concerned has found it to be false, or (B) such person offers an explanation which he is unable to substantiate and fails to prove that such explanation is bonafide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Once these provisions of Clauses (A) or (B) are satisfied, then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purpose of Section 271(c) be deemed to represent the income in respect of which particulars have been concealed. 11. In so far as these cases are concerned, admittedly, there is no finding in the impugned orders attracting clause (A) of Explanation (1). Therefore, we have to find out whether clause (B) is attracted or not. Clause B takes in three parts. First part is that an explanation has been offered and the assessee is not able to substantiate i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one s incomeas well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under Section 271 (1)(c). That is clearly not the intendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(c). That the assumption of the Assessing Officer is factually erroneous as is evident from the orders passed by the First Appellate Authority, which refers to the explanations submitted by the assessee and the contentions therein. Thus, there is absence of a finding rendered by the Assessing Officer, bringing the case within the scope of clause (B) of Explanation (1) to Section 271(1) (c). Secondly, the Assessing Officer has levied penalty ignoring the explanations submitted by the assessee. Consequently, as held by the Apex Court in Commissioner of Income Tax v Reliance Petro Products Pvt. Ltd. [(2010) 322 ITR 158] and the Gujarat High Court in New Sorathia's case (supra) , referring to its earlier judgment in CIT v. Manu Engineering Works [1980] 122 ITR 306 (Guj) , the penalty order was liable to be vacated on that ground itself. 16. We may here reiterate that merely because of the assessee has made certain claims, which were not accepted or was not acceptable to the Revenue, that itself would not attract the penalty under Section 271(1)(c). If that is the interpretation accepted that in every return where the claim made is not accepted for some reason, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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