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TMI Blog2019 (7) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A r.w. Rule 8D - DR has not disputed the facts, submissions and contentions contained in the aforesaid synopsis filed from the assessee s side during the appellate proceedings in ITAT. In the facts and circumstances of this case, therefore, and having regard to the synopsis filed from assessee s side, we reject the contention of the Ld.DR that every addition made in assessment order should invariably lead to penalty u/s 271(1)(c). For this purpose, we take guidance from the order of the Hon ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt.ltd. [ 2010 (3) TMI 19 - SUPREME COURT] held that a mere making of claim, which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding income of the assessee. No interference from our side is warranted in the order of the Ld. CIT(A) deleting the penalty u/s 271(1)(c) in respect of the aforesaid addition u/s 14A r.w. Rule 8D. Accordingly, the order of Ld.CIT(A) on this issue is also upheld. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate proceedings in the present appeal before us. Vide order dated 09.12.2016, the CIT(A) deleted the entire amount of penalty u/s 271(1)(c) of the Act and allowed the assessee's appeal. The relevant portion of the order of CIT(A) is reproduced hereunder:- 4.1. On these grounds, the Ld. AR submitted as under: "During the year under consideration the assessee company was engaged in the business of - extraction, processing and sale of minerals products, exploration at Nueqeon in Kheonijhar district and Mayutbhanj district of Orissa and export of iron ore fines. Further while preparing the tinenciels, the assessee has followed various accounting policies consistently and the same is duly disclosed in and procedures as prescribed by the various laws. Assessee is consistently following uniform accounting policies since years and the same and the same is being duly disclosed by the assessee company in its balance sheet. During the assessment proceedings the Id. AO asked assessee to furnish valuation of closing stock. Assessee vide its reply dated 6.12.2010 submitted the valuation of stock. On Perusal of the said reply the Ld AO noticed that the assessee company is following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to impose penalty cannot be exercised if the AO is not satisfied about the existence of conditions specified in clause (a), (b), (c) of Section 271(1), before the proceedings are concluded. In the assessee's case, the penalty proceedings have been sustained not on the basis of any defects in the books of accounts but for difference in the opinion in the AO and the assessee. As the penalty proceedings are independent proceedings, though the finding in assessment proceedings are independent proceedings, these cannot be taken as res adjudicata. Penalty on difference in value of stock applying FIFO as against weighted adopted by the assessee On going through the reply of the assessee filed during the course of assessment proceedings your honour will agree that the assessee has no where concealed any particular of income and neither has furnished any inaccurate particulars of the income. Infact there arises only a difference of opinion between the two. The assessee has bonafidely followed the weighted average method of valuation of stock for years. Your honor according to the Income Tax Act 1961, the penalty under section 271(1)(c) can be levied when the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not reflect the position correctly considering the fact that for three years the same had been accepted by the Department. Once this was the position, the bona fides of the assessee could not be doubted. In the case of Rajiv Kumar Garg Vs.ITO (ITAT Delhi), ITA No. 519/Del/2014 it was held as under: 2. Mere fact that the addition has been accepted or is confirmed in quantum proceedings cannot be conclusive of penalty imposition. 3. The Hon'ble Calcutta High Court in case of Durga Kamal Rice Mills Vs. CIT (2004) 265 ITR 25 (Cal.) has held that quantum proceedings are different from penal proceedings. The Hon'ble Kerala High Court in CIT Vs. P.K. Narayanan (1999) 238 ITR 905 (Ker.) has held that despite the addition being confirmed by Tribunal in quantum proceedings, the penalty can still be deleted by the Tribunal, if the facts justify. 4. The addition has been made only on the basis of estimate made by the A.O. It is settled legal position that when income is estimated, then there can be no question of imposing penalty u/s 271 (l)(c) of the Act. 5. The Hon'ble Delhi High Court in CIT Vs. Aero Traders Pvt. Ltd. (2010) 322 ITR 316 (Del.) has held that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, the Revenue would not be justified in attaching any blame on the assessee or for the matter of that of having concealed income by undervaluing the closing stock. We need not reiterate the principles governing the levy of penalty under section 271(1)(c) of the Act as these are too well-settled. If we may refer to the most celebrated judgment of the Supreme Court in this matter in C!T v. Anwar AIi[1970] 76 ITR 696, the requirement tor levying a penalty under section 271 (1)(c) is that the Revenue must straightaway discharge its obligation to prove concealment positively. If there is no evidence on the record except the explanation given by the assessee which explanation is either found to be false or is unacceptable to the Revenue, it does not follow that escapement has been established. The finding given in the assessment proceedings for determining or computing the tax is not conclusive. It may be good evidence and it is open to the assessee to establish his case during the course of penalty proceedings even though the assessment as such has been accepted. In the case of R Madhavan Nair Versus Commissioner Of Income- Tax, Kerala. 1972 (1) TMI 22 - KERALA High Court held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the receipt constitutes his taxable income. " Their Lordships proceeded to state: " Another point is whether a finding given in the assessment proceedings that a particular receipt is income after rejecting the explanation given by the assessee as false would, prima facie, be sufficient for establishing, in proceedings under section 28, that the disputed amount was the assessee's income. It must be remembered that the proceedings under section 28 are of a penal nature and the burden is on the department to prove that a particular amount is a revenue receipt. It would be perfectly legitimate to say that the mere fact that the explanation of the assessee is false does not necessarily give rise to the inference that the disputed amount represents income. It cannot be said that the finding given in the assessment proceedings for determining or computing the tax is conclusive. However, it is good evidence. Before penalty can be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment 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 income as 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, as it existed at the time of filing the return, does contain a provision for disallowance of expenditure which is related to non-taxable income. Therefore, it is expected of any assessee to attempt at segregating expenditure which is related to such a claim. No attempt has been made in this behalf. However, it is also a fact that such segregation is beset with lot of problems as the issue has finally been laid to rest by introduction of Rule 80 in the Income-tax Rules in the year 2008. The assessee did not have benefit of this rule when it filed the return of income. Therefore, even in absence of any attempt on the part of the assessee, it can be said that questions of disallowance and its quantification are quite disputable and can lead to bona fide difference in opinion between the assessee and the authorities. In such a situation, the levy of penalty will not be justified. " In the case of ACIT vs. Jindal Equipment Leasing and Consultancy Services Ltd. 2012 51 SOT 133 (Delhi) (URO) the honorable ITAT (Delhi Bench) following the above judgments held as under: 6. We have considered the facts of the case and rival submissions. We find that the assessee had claimed expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act, 2001 with retrospective effect from 1st April, 1962, we do not think in the present case any substantial question of law arises in view of the factual matrix involved. Accordingly, the appeal is dismissed." In the case of CIT vs. Liquid Investment and Trading Co. ITA No. 240/2009 the Honorable High Court of Delhi vide its order dated 05/10/2010 held as under: "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 where under deduction under Section 14A of the Act was prescribed to the assessee, the assessee 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 of the opinion that no question of law arises in the present case. " In the case of ACIT vs. AT Invofin India Pvt. Ltd. ITA no. 4479/Del/2013, the Honorable ITAT Delhi Bench held as under: 11. In the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of which the disallowances have been made, either from the return of income filed by the assessee or from the Balance Sheet and the Profit and Loss Account attached with that. It is thus beyond the rarest stretch of imagination of the assessee that if every detail has been taken from the papers filed by the assessee then how can the Id. AD reach a conclusion that the assessee has concealed the particulars of its income. It is just that while making the addition the Id. AO has grossly ignored the facts of the case and material brought on record by the assessee. Your honour will appreciate that when called upon the assessee has given the explanation and that explanation was a bona fide one. Accordingly the case is not covered by Explanation 1 to section 271 (1)(c) of the Act. Your honour will endorse that on going through the assessment order it is clearly evident that the Id. AO has made the addition on the basis of not being satisfied by the explanation filed by the assessee. Now, by every chance this cannot be a ground for initiating the penalty under section 271(1)(c) of the Act. The Id. AO has failed to bring out the fact that the assessee willfully concealed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings. a. 169 ITR 782 (All) Banaras Textiles b. CIT vs Govind Gokhale 178 ITR 509 (Ker). c. Hotels a Allied Traders vs CIT 221 ITR 619 (Kar) (ii) Finding recorded in Asstt. Order constitute good evidence but cannot be reported in conclusion. a. Anantharam Veerasinghani a Co. vs err 123 ITR 457 b. CIT vs Ishtiaq Hussain 232 tm 673 (All). (iii)Finding contained in the Asstt. Order would not be of any use. AO is required to record its own findings in penalty order. a. CIT vs Ratnam (1995) Tax LR 504,506 b. CIT vs Chetan Dass Lachman Dass 214 ITR 726 (Del) c. CIT vs J K Synthetics Ltd 219 tm 267 (Del). Thus the levy of penalty is bad in law specifically with respect to the fact that the assessing officer has been unable to depict that the appellant has failed to disclose certain particulars. Your honour assessee is innocent and has always co-operated with the department in all legal proceedings. Merely if some disallowances are made on the basis of various assumptions drawn by the Id. AO the assessee could not be asked to be held liable for penalty. Your honor in the case of CIT vs Reliance Petro Products 322 ITR 158 (SC) it was held that S. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g deduction for contribution to a 'staff welfare fund' despite the bar in s. 40A(9) and the qualification of the auditors and (ii) claiming depreciation on vehicles at 25% though the prescribed rate was 20%. The assessee argued that despite s. 40A(9), the payment to the fund was allowable as "business expenditure" and that the higher depreciation was claimed on the basis that the vehicles were "plant & machinery" despite the lower rate prescribed for vehicles in the Rules. The CIT (A) & Tribunal deleted the penalty. On appeal by the department, HELD dismissing the appeal: "There is no finding by the AO that the assessee furnished inaccurate particulars and that its explanation was not bonafide. Accordingly, the imposition of penalty u/s 271(1.)(c) was a "complete non-starter". A mere erroneous claim made by an assessee, though under a bonafide belief that, it was a claim which was maintainable in law cannot lead to an imposition of penalty. The claim for deduction was made in a bona fide manner and the information with respect to the claims was provided in the return and documents appended thereto. Accordingly, there is no furnishing of "inaccurate particulars". Making o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here that the difference worked out by the AO is only for the closing stock. He has not done the similar calculation for the opening stock. Accordingly, the gross profit of the company is substantially effected by the by the modified value of closing stock. The method of valuation has to be applied for both closing and opening stock otherwise the profit and loss a/c will not give the true picture. Accordingly, the under valuation of stock worked out by the AO is fundamentally incorrect and against the facts of the case. Even otherwise the undervaluation depicted by the AO is incorrect as the Id. AO has picked up stock at a single point of time and valued it using other valuation method. The working as done by the AO if done at a particular point of time will always show a difference in the value of stock. Your honour the Id. AO has easily ignored the fact that the weighted average method of valuation has been adopted by the since its incorporation i.e. 24/03/1987. Accordingly, the impact of change in method of valuation (under/over valuation), if any, is to be worked out then it has to be done from the very beginning. The AO cannot select a particular point of time from where i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the relevance the statutory requirement of recording of satisfaction by the assessing officer. The court held as under: "Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing OOfficer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the Rules (quoted and elucidated below). Therefore, the Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income'. If arid only if the Assessing Officer is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed i.e. Rule 80 of the Rules. Thus, Rule BDis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income. In view of the above the addition made by the AO is otherwise not tenable in law and accordingly, the same cannot be basis of levying of penalty under section 271 (1)(c). " 4.2. I have carefully considered the penalty order and written submissions filed by the Ld. AR. The AO levied penalty u/s 271 (1 )(c) on quantum addition of ₹ 1,69,57, 108/- on account of rejection of books of accounts u/s 145 of the Act to the extent of method of valuation of closing stock adopted by the appellant. The AO rejected the weighted average value method adopted by the appellant and adopted the FIFO method resulting in difference in valuation at ₹ 1,69,57,108/- which was added to the total income. Further, penalty u/s 271(1)(c) was also 1evied on additional disallowance of ₹ 71,223/- u/s 14A read with Rule BD. The impugned additions were confirmed by the Ld. CIT(Appeals) vide her order dated 23.07.2011. Pursuant thereto the AO issued a show cause notice dated 10.03.2014 but no reply was filed by the appellant Penalty was levied by the AO relying on the judgement of the Hon'ble Delhi Court in the case of CIT vs. Zoom Communication Ltd. 327 ITR 510. The AO held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4.5. In the case of Commissioner of Income-tax v. Inden Bislers (1990) 240 ITR 943, 947 (Mad), it was observed: "A finding of fraud is a serious matter in any context against any person and should not be lightly recorded in the absence of proper evidence in support of that finding. The mere fact that certain amounts claimed by the assessee had been disallowed and treated as income does not necessarily lead to the conclusion that the assessee was guilty of fraud or willful neglect. The fact that the Explanation to section 271(1)(c) of the Income-tax Act, 1961, requires the assessee to show that there was no fraud or willful neglect does not in any way enable the Revenue to contend that there is a presumption of fraud or neglect without adducing any evidence, whatever to substantiate such assertion. " 4.6. The Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts (P) Ltd. observed as under: "A glance at the provisions of section 271(1)(c) of the Income-tax Act, suggest that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment where deduction under Section 14A of the Act was prescribed to the assessee, the assesseee has preferred an appeal in the Court under Section 260A of the Act which has also been admitted and substantial question of law has framed This itself shows that the issue is debatable. 4.9. The Hon'ble Tribunal in the case of Manish Jain Prop., New Delhi vs. ACIT in ITA No. 5999/Del/2012 & C.O. 4/0/2013 had held: 9. Even on merits, we find that Ld. Commissioner of Income Tax (A) has passed a reasonable order. The penalty in this case has been levied on account of disallowance made in accordance with Rule 8D read with section 14A. There has been no concealment or furnishing of inaccurate particulars by the assessee in this case. The disallowance has been made by computing the sums which were duly disclosed in the return and accounts of the assessee. We find that Section 271(l)(c) postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. Hence, in our considered opinion on the facts and circumstances of this case the assessee& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Ld. Commissioner of Income Tax (A), accordingly, we uphold the same. 4.10. The bonafides of the appellant can be seen from the fact that all details were furnished. There was no concealment of material facts. There was no intention of the appellant to conceal income and evade tax and mislead the revenue. 4.11. In view of the judicial pronouncement referred above and the totality of facts and circumstances, the appellant had furnished an explanation, which is bonafide. Therefore, there is no furnishing of inaccurate particulars of income or deliberate attempt to conceal income. The rigors of the provisions of section 271 (1 )(c) are clearly not attracted in this case. In view thereof, penalty levied u/s 271(1)(c) of the Act of ₹ 57,88,000/- is deleted." 3. The present appeal before us is filed by Revenue against the aforesaid impugned order dated 09.12.2016 of the CIT(A). In the course of appellate proceedings in the present appeal, a synopsis was filed from the assessee's side; the relevant portion of which is reproduced as under:- 2. "In the present case, there were two additions made by the AO on which penalty of ₹ 57,88,000/- was levied. First additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that "Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question. Insofar as the second question is concerned, the issue, it is common ground, is governed by the decision of this Court in Plasti blends India Limited Vs. Additional Commissioner of Income Tax, Mumbai and Another (2017) 9 SCC 685." 9. Reliance is also placed in the case of Hon'ble High Court of Punjab and Haryana in the case of CIT v. Max India Ltd. in ITA No. 186 of 2013 dated 06.09.2016 "Merely because the interest free funds with the assessee have decreased during any period, it does not follow that the funds borrowed on interest were utilized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of debate and different views have been expressed. A legal contention which was plausible and merited consideration was raised. Accordingly, the appellate authorities have applied the explanation to Section 271(1)(c) of the Act. Looking at the nature of explanation offered and the provision in question i.e. Section 14A, which was incorporated by the Finance Act, 2001 with retrospective effect from 1st April, 1962, we do not think in the present case any substantial question of law arises in view of the factual matrix involved. Accordingly, the appeal is dismissed." ii. CIT v. Liquid Investments Ltd. ITA No. 240112009 (Del) (HC) iii. PTC INDIA LTD VERSUS ACIT, CIRCLE-14 (1) , NEW DELHI, DCIT, CIRCLE-14 (1) , NEW DELHI AND DCIT, CIRCLE-14 (1), NEW DELHI VERSUS PTC INDIA L TD.- 2019 (1) TMI 674 - ITAT DELHI iv. MIS. MOHAIR INVESTMENT AND TRADING COMPANY (P) LIMITED VERSUS DCIT, CIRCLE 5 (1) , NEW DELHI- 2015 (12) TMI 299 -ITAT DELHI 11. Thus, in view of the above penalty levied by the AO is unsustainable and is to be deleted." 4. At the time of hearing before us, Ld. Counsel for the assessee reiterated the submissions made in the aforesaid synopsis. The Ld. Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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