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TMI Blog2013 (10) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... asi-criminal in nature and hence, any addition/disallowance/surrender of any claim will not automatically follow concealment proceedings. 5. The ld CIT (A) ought to have followed the ratio laid down by the Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158 wherein it has been held very clearly that incorrect claim will not amount to concealment of particulars. 6. The ld. CIT (A) failed to appreciate while confirming penalty that the addition made by the ld. A. O. was on estimate basis only in quantum appeal and the same was sustained by the Hon'ble ITAT on estimate basis only and hence, no penalty was leviable on the addition/disallowances made on estimate basis. 7. The appellant relies on the ratio laid down by the various Hon'ble High Court's as well as Hon'ble Tribunal in the following cases for the above proposition. 1. CIT v. Devendas Puranmal Co. [1983] 140 ITR 943 (Bom.) 2. Eagle Synthetics (P.) Ltd. v. ITO [2011] 8 ITR (Trib.) 211 (Ahd.) 8. The ld. CIT (A) failed to appreciate that in subsequent assessment yrs. the ld. A.O. did not initiate penalty proceedings inspite of addition made on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, that the view of disallowability of illegal expenditure u/s. 37 of the Act was uphold by the FAA and the ITAT. Finally, AO levied the penalty of ₹ 3.70 lacs. 4. Assessee preferred an appeal before the FAA and relied upon the decision of Hon'ble High Court in the case of Devendas Puranmal Co. After considering the submissions of the assessee and order of the AO he held that assessee had debited expenses relating to the payment made to Dock workers, Union Leaders and Government Employees, that the said payments were illegal as per the explanation to section 37(1) of the Act, that during the assessment proceedings, AO had confronted the assessee about the provisions of said section that FAA and the Tribunal had confirmed the contention of the AO. Referring to the orders of the Tribunal he held that assessee had claimed illegal expenditure that were not allowable, that assessee had deliberately debited the expenditure in question to deferred revenue, that it had made a wrong claim by debiting expenditure to P L Account, that the decision relied upon by the assessee-firm was distinguishable on facts as the facts of the case under consideration were not the same, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not lay their hands on any decision that directly deals with the Sec.271(1)(c) r.w. explanation to Section 37(1)of the Act, though there are plethora of cases dealing with the section 271(1)(c)and Sec.37. We are of the opinion that it would be useful to discuss the explanation to section 37 that has been made retrospectively effective from 01.04.1962. Explanation provides that any expenditure incurred for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and will not be allowed as deduction in respect of such expenditure. Explanation has been extensively deliberated upon by the Hon'ble Supreme Court, Andhra Pradesh High Court Court, Bombay High Court and Madras High Court respectively in the cases of French Dyes Chemicals (P.) Ltd. [1993] 201 ITR 253, Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101 (SC) and CIT v. Gill Co. (P.) Ltd. [2001] 248 ITR 362, CIT v. Taraporvala Sons Co. (P) Ltd. [1999] 239 ITR 319, Pranam Foundations v. Asstt. CIT [2009] 313 ITR 286. Hon'ble courts are unanimous that payments made for the purpose of offences or payments made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 271(1)(c) comes to rescue of an assessee in case he offers an explanation, but, if he is unable to establish that the explanation offered by him is correct, penalty can be levied. iii. Furnishing of inaccurate particulars of income can have different connotations and may arise when income is enhanced, deduction is denied or in similar circumstances that results in a higher rate of tax or increase in income. In such matters the real question is application of Explanation 1. iv. Correct way of applying Expl.1 is to take into consideration the explanation and the justification given by the assessee, but it cannot be accepted as bona fide and true on mere asking. Onus under Explanation 1 is on the assessee to prove the reason as to why a particular claim/deduction was made. The justification and cause shown of him should be bona fide and acceptable. Penalty cannot be deleted by merely recording the explanation, though not proved and established. It is not for the Revenue to show that the explanation offered is not false or bogus. v. Penalty u/s.271(1)(c) cannot be imposed because an assessee has taken a particular legal stand. But, this does not mean that the assessees ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of income is scrutinised by the AO and he finds some more items of income or additional income over and above what is declared in the return. In other words, if no addition or disallowance is made by the AO, while computing total income of an assessee, then there will not be any income which can be deemed as income in respect of which particulars have been concealed or inaccurate particulars have been filed. So, it can safely be held 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 officers of the income-tax 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 disallowed in computing the total income of such person as a result thereof shall, for the purposes of section, be deemed to represent the income in respect of which particulars have been concealed. xv. Whether or not the assessee makes loss is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the provisions of the Act, such behaviour cannot be taken lightly. Assessee firm before us, is not operating from some obscure place of the country it is having more than 25 branches all over the India and three branches outside the country. It is assisted by the best of the tax professionals and is in business for last 95 years or so. In spite of all these factors, if the assessee-firm claimed the expenditure that was not allowable at all, it had to be visited by penal provisions. Proportionate allowance of the payments-in-question by the Tribunal prove that payments to that extent were not allowable at all in light of the provisions of expl.1 to the section 37 of the Act. Everyone is aware of the fact that now-a-days income tax returns are mostly accepted without scrutiny or regular assessment. Considering the said fact Hon'ble Courts have also held that self and due compliance of tax provisions is required. In our opinion, while doing so, assessee should disclose their true income and not claim deduction that are absolutely prohibited by law. A return of income is not a just piece of paper it gives details of income of an assessee. It is considered an admissible evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that assessee had furnished inaccurate particular of income and had concealed income. Proportionate disallowance confirmed by the Tribunal was not challenged by the assessee before the Hon'ble High Court and as stated earlier, disallowance was about the payments expressly covered by the expl. to section 37 (1) of the Act. Secondly, in the case under consideration provisions of explanation 1 to section 271 are clearly applicable.AO and the FAA had given a categorical finding that submission made by the assessee were not bona fide. Clearly, facts of both the cases are materially different. In the case of Harnish. B. Shah (supra), question before the Tribunal was not about penalty to be levied u/s.271(1)(c) of the Act, where contravention of the provisions of section 37(1) Expl. was found. The matter was about penalty to be levied on estimated income. In the matter of Sunil Kumar Singhania (supra) it was held that ad hoc estimation of income by applying flat net profit ratio could not be treated inaccurate particulars of income or concealment of income. In the case before us, assessee had claimed expenditure that was not allowable under the provisions of the Act. It had reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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