Vinod Kumar Jain vs. CIT (2010) 46 DTR 253
S. 2(14), 2(29A), 2(42A) : The assessee was allotted the flat on 27/02/1982 by issuance of an allotment letter and he had been making instalment payments in terms thereof. However, the specific number of flat was allotted to the assessee and possession was delivered on 15/05/1986. It was held that the right of the assessee prior to 15-5-1986 was a right in the property and it cannot be held that prior to the said date the assessee was not holding the flat. Thus the gain arising out of sale of flat, allotted to assessee vide allotment letter dated 27/02/1982 and sold on 6/01/1989 is a long term capital gain even though possession was granted on 15/05/1986.
CIT vs. Salitho Ores Limited (2010) 46 DTR (Bom) 377
S. 37(1) : The assessee is the best judge in the matter of commercial expediency. Assessee incurs expenditure in pursuit of a business opportunity. But sometimes judgement as to the existence of a business opportunity turns sour. Expenditure incurred for pursuit of the business or exploitation of business opportunity cannot be denied by tax authorities on the ground that the decision was imprudent. Accordingly it was held that lease rent of 4 dozers is allowed as deduction even if 3 out of 4 dozers were not used at all.
CIT vs. Glaxosmithkline Asia (P) Ltd (2010) 47 DTR (SC) 65
Sec. 40(A)(2): In the case of domestic transactions, the under-invoicing of sales and over-invoicing of expenses ordinarily will be revenue neutral in nature, except in two circumstances having tax arbitrage—
[i] If one of the related Companies is loss making and the other is profit making and profit is shifted to the loss making concern; and
[ii] If there are different rates for two related units [on account of different status, area based incentives, nature of activity, etc.] and if profit is diverted towards the unit on the lower side of tax arbitrage. For example, sale of goods or services from non-SEZ area [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less profit taxable and non-taxable division will have a higher profit exemption.
All these complications arise in cases where fair market value is required to be assigned to the transactions between related parties in terms of Section 40A(2). In order to reduce litigation, we are of the view that certain provisions of the Act, like Section 40A(2) and Section 80IA(10), need to be amended empowering the Assessing Officer to make adjustments to the income declared by the assessee having regard to the fair market value of the transactions between the related parties. The Assessing Officer may thereafter apply any of the generally accepted methods of determination of arm’s length price, including the methods provided under Transfer Pricing Regulations.
The Court further suggestions the law should be amended to make it compulsory for the taxpayer to maintain Books of Accounts and other documents on the lines prescribed under Rule 10D
CIT vs. Vijay Kumar Goel (2010) 235 CTR (Chattisgarh) 516
Sec. 40(A)(3) read with Rule 6DD(d)(iv): Payment made through bankers cheque/ pay order / CDR, are bills of exchange and payments made through these instruments cannot be disallowed u/s 40A(3) read with Rule 6DD(d)(iv).
CIT vs. Maruti Employees Co-Op Hous. Soc. Limited (2010) 235 CTR (P&H) 407
57(iii) : Interest was derived on deposits made by the members as to so requiring the assessee to discharge the liability of maintaining their house. As a matter of executing the obligations of the deposits made, the assesse was incurring expenses. Accordingly expenses incurred towards maintenance of houses by the assessee were allowed as a deduction against such income.
CIT vs. Smt Alka Bhonsale (2010) 46 DTR (Bom) 253
Sec. 94 : Mutual fund unit striping - the conditions prescribed in clause (a),(b) and (c) of sub-section (7) of Section 94 are intended to be cumulative in nature.
Sakthi Textile Limited vs. JCIT (2010) 46 DTR (Mad) 191
Sec. 147 , 148 AY: 1991-92, 1992-93, 1993-94 : Having entertained an writ petition, if the same is dismissed after several years on the ground of availability of alternative remedy it would not be in the interest of justice.
CIT vs. Bhagwati Steels (2010) 47 DTR (P&H) 75
S. 194C: On the facts of case it was held that where whole of the distribution agreement was considered as transaction of goods per se, it cannot be segregated for the purpose of payment of expenses viz. freight charges and accordingly amount of freight charged separately in the invoice cannot be held liable for deduction of tax at source u/s 194C
Brij Lal vs. CIT [2010] 194 Taxman 566 (SC)
Settlement Commission: Provisions dealing with a regular assessment, self assessment and levy & computation of interest for default in payment of advance tax, etc are engrafted under chapter XIXA pertaining to settlement of cases. Interest u/s 234B is levied up to the date of order u/s 245D(1) and not upto the date of order u/s 245D(4). The Settlement Commission cannot reopen its concluded proceedings by invoking S. 154 so as to levy interest u/s 234B particularly in view of S. 245-I
Tribunal
Inter Gold (I)(P) Ltd vs. JCIT 2010 47 DTR (Mumbai) (Tribunal) 150
S. 4, 28(i): If the receipt is to make good actual or prospective loss in a particular trading transaction or set of transactions, it is a revenue receipt liable to tax. Any receipt towards loss of source income is capital receipt. Loss on source of income does not necessarily mean that it must absolutely extinguish. If the source of income has been severely beaten thereby causing serious damage to the income earning apparatus itself, it will also be construed as the loss of source of income. So if goodwill of the business is damaged and later on some compensation is awarded in lieu of that, it will also fall in the same category of loss of source of income. It is imperative that the receipt should be in fact towards the loss of goodwill in general and no part of it should relate to make good loss of a particular trading transaction or set of transactions.
Zylog Systems Limited vs. ITO - ITA No. 1138 & 1141/Mds/2007 Order dt 2-11-2010 (Chennai Sp. Bench)
S. 10A, AY 2003-04: The appellant receiving the export proceeds in foreign exchange abroad (as per the guidelines of RBI) within due dates and utilizing the same for the purpose of business is considered as deemed receipts in India. Accordingly such receipts cannot be excluded from the exports proceeds while computing deduction u/s 10B.
DCIT vs. Shree Laxmi Tractors 2010-TIOL-572-ITAT-BANG
S.40A(3): Assessee granting discount from actual sale price of tractor to a customer at the time of purchase is cannot be categorised as a expenditure. It is merely an deduction from sale price and there is no actual cash payment. Hence disount is not liable for disallowance u/s 40A(3)
DCIT vs. SMK Shares & Stock Broking P. Ltd ITA No. 799/Mum./2009 ‘E’ Bench, Mumbai Order dt. 24/11/2010
S.45 A.Y. 2005-06 : The assessee, a broker, disclosed gains on sale of shares as a short-term capital gains and long-term capital gains. During the assessment proceeding AO treated short term gain as business income on the ground that there was large volume and frequency of transaction. A prudent investor always keeps a watch on the market trends and, therefore, is not barred under law from liquidating his investments in shares. The law itself has recognised this fact by taxing these transactions under the head “Short Term Capital Gains”. If the Assessing Officer’s reasoning is accepted, then it would be against the legislative intent itself. It was held that if the modus operandi of the assessee remained the same in regard to other shares purchased during the year, then the assessee’s claim could not be negated only on the basis of frequency of the transaction.
Godrej Agrovet Ltd. vs. ACIT, ITA 1629/M/09 ‘G’ Bench, Mumbai Order Dt 17-09-2010
S. 14A AY 2005-06 : In view of decision of Godrej Boyce Mfg. Co. Ltd. 328 ITR 81 (Bom), Rule 8D is applicable only prospectively i.e. from A.Y. 2008-09. Where the investment in shares was made out of own funds & not out of borrowed funds, relying on decision of CIT vs. Hero Cycles Ltd 323 ITR 518 (P&H) it was held that disallowance of interest u/s 14A is not sustainable. Further disallowance out of common administrative expenses was restricted to 2% of the total exempt income.
Sulzer India Ltd vs. JCIT AIT-2010-503-ITAT- I.T.A. No.2944/MUM/2007 (Mum Sp. Bench)
S.41(1)(a): Difference between the discounted value paid towards the future sales tax liability cannot be termed as remission/ cessation of liability because the Sate Government has neither waived any of the liability nor tax payer has enjoyed any benefit S.41(1) (a)
DCIT vs. Mayavati (2010) 42 SOT 59 (Del)
Sec. 56(2)(v) : In absence of any quid pro quo and any duties or obligations on the part of the assessee to render any services political or otherwise, gifts could not be held to be received from exercise of vocation of politics. However gifts upto and above specified amount i.e. 25000 to be considered u/s 56(2)(v).
DCM Engineering Ltd vs. ACIT (201) 46 DTR (Del) (Trib) 505
Sec. 115JB : In order to determine book profits liable for MAT, profit as per the Profit and Loss A/c for the relevant previous year is to reduced by an amounts, lower of brought forward loss or unabsorbed depreciation as per books of accounts and not by the business loss or depreciation as per tax audit report. Further no adjustment can be made on account of provision of gratuity and leave encashment arrived as per actuarial valuation
JSW Steel Limited vs. ACIT 2010 133 TTJ 742 (Bom)
Sec115JB : Debenture Redemption Reserve created even though is created towards ascertained liability is on capital account. Accordingly same cannot be deductible while computing Book Profits.
N.G. Roa vs. DCIT (2010) 133 TTJ (Del.) 797
Sec. 271(1)(c) : By no stretch of imagination an making an incorrect claim tantamount to furnishing of inaccurate particulars. The claim of HRA in respect of 2 accommodations by furnishing all particulars in the return is a case of a claim of exemption made by the assessee, which in the eyes of the department is a claim not sustainable in the law is not subject to levy of concealment penalty.
(Published in WIRC December 2010 News Letter; CA. Paras K. Savla, CA. Lalchand Chaudhary )
Monday, January 17, 2011
Wednesday, January 12, 2011
Talk by Shri Deepak Parekh Chairman HDFC and Shri Yashwant Sinha, MP, Chairman Standing Committee of Finance & Former Finance Minister
Tax has a significant effect on actions of the people, which determines the economic growth of the Country. The Chamber of Tax Consultants and D.M.Harish Foundation organised 3rd D.M. Harish Memorial lecture on the topic of “Economic Growth, Equity and Taxation” addressed by Hon’ble Shri Yashwant Sinha, MP, Chairman of Parliament’s Standing Committee on Finance. Shri Deepak Parekh, Chairman HDFC was the Guest Speaker who spoke on the subject “Governance”
While delivering the Guest Speech, Shri Deepak Parekh, placed emphasis on the Education and systematic efforts to be made to fix corruption in the economy. He emphasised need to have in place mission 2020 on Governance with immediate focus on governance at National, local and, corporate and self levels. E-Governance should be encourage which would reduce corruption and increase transparency in system. In coming days large number of people would live in urban India. Persons like City Manager can be appointed to manage the City. In the days to come hand of the professionals would be full due to introduction of DTC, GST, IFRS, and new Companies Bill.
Shri Yashwant Sinha lauded the efforts of The Chamber of Tax Consultants for representations, since it is not a institution of vested interest. He mentioned that this will help for better tax policy and administration. Growth without equity is like a jungle and growth with equity is garden. Growth should be an inclusive growth. What is required in current period is better quality of living of the people but within predetermined time frame. He compared ideal tax policy with the quote from Raghuvams by Kalidasa. Wherein learned poet mentions “King receives taxes from his subjects only for the promotion of their welfare; for the sun sucks up water simply to give it back a thousand-fold (in the shape of rain)”.
Upcoming proposed tax legislations viz DTC,GST are path breaking legislation in the years to come. He also promised that his committee (Standing Committee on Finance) would take every effort to ensure that DTC law is better law then what is currently presented before the Parliament and which would withstand the test of time for next atleast half a decade. To over come the weakness in present form of DTC representation from the institution like Chamber has a greater weight than others, since it is neutral body. On the functioning of the parliamentary committees his view was that it in need of time to move from opaqueness to openness.
Monday, January 3, 2011
Eight tax saving secrets you should know
The Income Tax Act 1961 is a voluminous piece of legislation. Taxmann Publications’ latest edition of the Act runs into 1,125 pages. It’s enough to intimidate even the most diligent law student and tax expert, leave alone ordinary taxpayers. But hidden away in the 300-odd sections and 14 schedules are clauses that can benefit ordinary taxpayers-provided they know how to claim those benefit.
ET Wealth spoke to a range of tax experts to glean information on little-known tax benefits you may be entitled to. Here are eight deductions that can help you save tax over and above the tax saving investments you make during the year.
Some of my comments has been captured in this write up published in The Economic Times Wealth January 3, 2011 Page 2, 3 & 4. Link to the article : http://economictimes.indiatimes.com/articleshow/7201334.cms
ET Wealth spoke to a range of tax experts to glean information on little-known tax benefits you may be entitled to. Here are eight deductions that can help you save tax over and above the tax saving investments you make during the year.
Some of my comments has been captured in this write up published in The Economic Times Wealth January 3, 2011 Page 2, 3 & 4. Link to the article : http://economictimes.indiatimes.com/articleshow/7201334.cms
Sunday, January 2, 2011
Can you defer the payment of Capital Gains Tax on sale of immovable property?
Capital Gains Tax Planning on conversion of capital asset into stock in trade
In view of decision of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT [2003] 129 TAXMAN 497 (BOM.) difficulty is faced by the property owners who sell there property for development / redevelopment, where payment is staggered over number of years, but tax on such sale is required to be paid in the year of transfer itself, even though he has not received ay consideration. Difficulty is further exaggerated where consideration is in kind eg in the form of constructed flats/shops.
Tax Idea:
The Section 45(2) provide in case capital asset is converted into stock in trade it would be considered as transfer on the date of such conversion but the actual chargeability to tax would arises only when the stock-n-trade (erstwhile capital asset) is sold. The value of consideration is taken to be market value of the asset on date of the conversion.
Accordingly in case a property owner converts capital assets into stock in trade, his tax liability shall be deferred to future date. This provision is applicable to all assets, movable or immovable, considering the huge appreciation of properties it assumes a special importance in regard to immovable properties.
(This was originally Published in CVO News & Views December 2010 issue)
In view of decision of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT [2003] 129 TAXMAN 497 (BOM.) difficulty is faced by the property owners who sell there property for development / redevelopment, where payment is staggered over number of years, but tax on such sale is required to be paid in the year of transfer itself, even though he has not received ay consideration. Difficulty is further exaggerated where consideration is in kind eg in the form of constructed flats/shops.
Tax Idea:
The Section 45(2) provide in case capital asset is converted into stock in trade it would be considered as transfer on the date of such conversion but the actual chargeability to tax would arises only when the stock-n-trade (erstwhile capital asset) is sold. The value of consideration is taken to be market value of the asset on date of the conversion.
Accordingly in case a property owner converts capital assets into stock in trade, his tax liability shall be deferred to future date. This provision is applicable to all assets, movable or immovable, considering the huge appreciation of properties it assumes a special importance in regard to immovable properties.
(This was originally Published in CVO News & Views December 2010 issue)
Saturday, November 13, 2010
Disallowance of expenditure on account of non-compliance with TDS provisions*
While computing profits and gains of business or profession, S. 40(a)(ia) restricts / disallows deduction of certain specified sums/expenditure paid to the resident, in case provisions of Chapter XVII-B (TDS) are not complied.
Legislative history
2004 Amendment
In order to augment compliance of TDS provision, S.40(a)(ia) was introduced by Finance (No.2) Act, 2004 w.e.f. 1-4-2005 i.e. from AY 2005-06. It provided that any interest, commission or brokerage, fees for professional services or fees for technical services, contract charges payable to any resident person would not be allowed as deducted while computing profits and gains of business or profession of assessee if tax required to be deducted on these payment under Chapter XVII-B is either not deducted or after deduction has not paid. Further deduction would be allowed during the financial year in which tax is deducted or tax has been deposited.
2006 Amendment
Taxation (Amendment) Act, 2006 w.r.e.f. 1-4-2006 has added “rent and royalty” to the list of specified expenditure.
2008 Amendment
In view of the said provision, failure to pay the tax deducted at source, whole of the expenditure is disallowed which is otherwise allowable.
To mitigate hardship caused to the assessee, Finance Act 2008 has amended said section retrospectively from 1-4-2004 i.e. AY 2005-06. It granted relief in respect of the expenditure pertaining to the month of March (last month of financial year) by allowing additional time for depositing TDS on such payment till due date of filing return of income u/s 139(1) ie 31st July (non corporate assessee not liable for audit) and 30th September (corporate and other assessee liable for audit).
This additional period has been allowed only for the purposes of escaping disallowance of expenditure. Additional period does not extends the time limit of payment of TDS. Though expenditure is not disallowed in case tax is deposited late but within additional allowed time, other penal provisions would continue to apply.
2010 amendment
Amendment made in 2008 is further sought to be relaxed by the Finance Act 2010 by substituting the earlier proviso. It states that now disallowance of any specified expenditure (liable for TDS) under section 40(a)(ia) would be attracted only if, tax is not deducted or after deduction not paid, on or before, due date of filing return of income u/s 139(1).
It is also provided that in respect of such expenditure where tax has been deducted in subsequent year or deducted tax has been paid on or after due date of filing return of income, deduction would be allowed in the previous year in which tax has been deducted or paid. This amendment is applicable retrospectively from 1-4-2010 ie AY 2010-11. Thus, this amendment brings the provisions of this section in line with S. 43B.
Impact of the Amendment
Amendment would provide immense relief to the assessee’s who are unable to deposit tax deducted at source within the specified time limit. They would be entitle for additional time up till due date of filing of return of income to deposit the tax deducted at source in order to escape disallowance of expenditure. With this amendment gives away the distinction for allowance of expenditure for first 11 months and last month of the previous year. However it may be noted that such a asseesee may not escape other penal consequences for late deduction and late payment.
Can amendment apply from AY 2005-06?
It is interesting to note that earlier, in order to mitigate the hardship caused to taxpayer, amendment in 2008 was made effective retrospectively from AY 2005-06 where as current relaxation is made effective from the AY 2010-11. The law to be applied in income tax assessments is the law in force in the assessment year unless otherwise provided expressly or by necessary implication . The circumstances under which the amendment is brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment is clarificatory or substantive in nature and, whether it will have retrospective effect or not .
Supreme Court in Zile Singh v. State of Haryana and Ors. (2004 (8) SCC 1) relying on the Principles of Statutory Interpretation by Justice G.P. Singh, Statute Law by Craies has observed that - it is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant:
(i) general scope and purview of the statute;
(ii) the remedy sought to be applied;
(iii) the former state of the law; and
(iv) what it was the legislature contemplated.
Further Supreme Court in CIT V. J.H. Gotla,(1985) 156 I.T.R. 323 has observed that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.
Recently Supreme Court in certain cases had read the amendment retrospective even though such amendment were not made retrospectively, refer CIT v Gold Coin Health Foods P. Ltd (2008) 304 ITR 308 (SC)and CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC). Further relieance can also be placed on Supreme Court decision in Allied Motors (P.) Ltd. v CIT [1997] 224 ITR 677 (SC).
There cannot be two views that proposed amendment is sought to provide relief to the taxpayer. Though amendment is stated to be effective from 1-4-2010, considering, judicial proceedings, it may be possible to argue that said amendment to be operative from 1-4-2005.
* Originally this article was published in the Chamber of Tax Consultants popular monthly journal ‘Income Tax Review’ March 2010 issue on "Finance Bill 2010"
Recently similar view has been held in Kanubhai Ramjibhai vs. ITO [2011] 10 taxmann.com 25 (Ahd. - ITAT)/ [2011] 135 TTJ 364 (Ahd)
Legislative history
2004 Amendment
In order to augment compliance of TDS provision, S.40(a)(ia) was introduced by Finance (No.2) Act, 2004 w.e.f. 1-4-2005 i.e. from AY 2005-06. It provided that any interest, commission or brokerage, fees for professional services or fees for technical services, contract charges payable to any resident person would not be allowed as deducted while computing profits and gains of business or profession of assessee if tax required to be deducted on these payment under Chapter XVII-B is either not deducted or after deduction has not paid. Further deduction would be allowed during the financial year in which tax is deducted or tax has been deposited.
2006 Amendment
Taxation (Amendment) Act, 2006 w.r.e.f. 1-4-2006 has added “rent and royalty” to the list of specified expenditure.
2008 Amendment
In view of the said provision, failure to pay the tax deducted at source, whole of the expenditure is disallowed which is otherwise allowable.
To mitigate hardship caused to the assessee, Finance Act 2008 has amended said section retrospectively from 1-4-2004 i.e. AY 2005-06. It granted relief in respect of the expenditure pertaining to the month of March (last month of financial year) by allowing additional time for depositing TDS on such payment till due date of filing return of income u/s 139(1) ie 31st July (non corporate assessee not liable for audit) and 30th September (corporate and other assessee liable for audit).
This additional period has been allowed only for the purposes of escaping disallowance of expenditure. Additional period does not extends the time limit of payment of TDS. Though expenditure is not disallowed in case tax is deposited late but within additional allowed time, other penal provisions would continue to apply.
2010 amendment
Amendment made in 2008 is further sought to be relaxed by the Finance Act 2010 by substituting the earlier proviso. It states that now disallowance of any specified expenditure (liable for TDS) under section 40(a)(ia) would be attracted only if, tax is not deducted or after deduction not paid, on or before, due date of filing return of income u/s 139(1).
It is also provided that in respect of such expenditure where tax has been deducted in subsequent year or deducted tax has been paid on or after due date of filing return of income, deduction would be allowed in the previous year in which tax has been deducted or paid. This amendment is applicable retrospectively from 1-4-2010 ie AY 2010-11. Thus, this amendment brings the provisions of this section in line with S. 43B.
Impact of the Amendment
Amendment would provide immense relief to the assessee’s who are unable to deposit tax deducted at source within the specified time limit. They would be entitle for additional time up till due date of filing of return of income to deposit the tax deducted at source in order to escape disallowance of expenditure. With this amendment gives away the distinction for allowance of expenditure for first 11 months and last month of the previous year. However it may be noted that such a asseesee may not escape other penal consequences for late deduction and late payment.
Can amendment apply from AY 2005-06?
It is interesting to note that earlier, in order to mitigate the hardship caused to taxpayer, amendment in 2008 was made effective retrospectively from AY 2005-06 where as current relaxation is made effective from the AY 2010-11. The law to be applied in income tax assessments is the law in force in the assessment year unless otherwise provided expressly or by necessary implication . The circumstances under which the amendment is brought in existence and the consequences of the amendment will have to be taken care of while deciding the issue as to whether the amendment is clarificatory or substantive in nature and, whether it will have retrospective effect or not .
Supreme Court in Zile Singh v. State of Haryana and Ors. (2004 (8) SCC 1) relying on the Principles of Statutory Interpretation by Justice G.P. Singh, Statute Law by Craies has observed that - it is not necessary that an express provision be made to make a statute retrospective and the presumption against retrospectivity may be rebutted by necessary implication especially in a case where the new law is made to cure an acknowledged evil for the benefit of the community as a whole. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. In the absence of a retrospective operation having been expressly given, the courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant:
(i) general scope and purview of the statute;
(ii) the remedy sought to be applied;
(iii) the former state of the law; and
(iv) what it was the legislature contemplated.
Further Supreme Court in CIT V. J.H. Gotla,(1985) 156 I.T.R. 323 has observed that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.
Recently Supreme Court in certain cases had read the amendment retrospective even though such amendment were not made retrospectively, refer CIT v Gold Coin Health Foods P. Ltd (2008) 304 ITR 308 (SC)and CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306 (SC). Further relieance can also be placed on Supreme Court decision in Allied Motors (P.) Ltd. v CIT [1997] 224 ITR 677 (SC).
There cannot be two views that proposed amendment is sought to provide relief to the taxpayer. Though amendment is stated to be effective from 1-4-2010, considering, judicial proceedings, it may be possible to argue that said amendment to be operative from 1-4-2005.
* Originally this article was published in the Chamber of Tax Consultants popular monthly journal ‘Income Tax Review’ March 2010 issue on "Finance Bill 2010"
Recently similar view has been held in Kanubhai Ramjibhai vs. ITO [2011] 10 taxmann.com 25 (Ahd. - ITAT)/ [2011] 135 TTJ 364 (Ahd)
Tuesday, August 17, 2010
Not following the decision of higher appellant authority amounts to contempt of Court
I am sure everyone who is associated with the tax practice would have some time confrontation with the tax officer with respect to the allowance of the certain claims in line with judicial precedence. Tax authority usually states that we are not following said respective judgement, since it is not acceptable by the tax department.
There is a DOCTRINE OF STARE DECIS, which means “abide by the former precedents”. The doctrine stare decisis is one of policy grounded on theory that security and certainty require that accepted and established legal principle, under which rights may accrue, be recognised and followed, though later found to be not legally sound, but whether a previous holding of the Court shall be adhered to, modified, or overruled is within the Court's discretion under the circumstances of case before it. Ref Peirce Leslie & Co. v. Commissioner of Income-tax 86 Taxman 554 (Mad.)
The ITO would be bound by a decision of the Supreme Court as also by that of the High Court within whose jurisdiction he is, irrespective of the pendency of any appeal or special leave application against that judgment. He would equally be bound by a decision of another High Court on the point, because not to do so would cause grave prejudice to the assessee. Ref Siemens India Ltd. v. K. Subramanian, ITO 13 Taxman 146 (Bom)
Recently an writ petition came before Bombay High Court (Garware Polyester Ltd & Ars v The Sate of Maharashtra & Ors Writ Petition No 1085 of 2010 order dated 1-7-2010) where in tax assessing officer (Dy. Commissioner, Large Tax Unit) while passing assessment recorded that the judgment of High Court is not accepted by the sales tax department and legal proceeding is initiated against the said judgment. High court observed that in the event where order of High Court is not stayed, refusal to follow and implement the judgment of High Court by the tax assessing officer prima facie amounts to contempt of court.
The judge may impose fines and or jail upon any person committing contempt of court. The judge will make use of warnings in most any situation that may lead to a person being charged with contempt. It is relatively rare that a person is charged for contempt without first receiving at least one warning from the judge.
However now the issue may arise what would be would be the remedy available with the tax payer when placed with similar issue? Whether to file a writ or to follow normal appeal procedure? Filing of writ is always a costly affair both in terms of money & time. But still at times, in order to inculcate the judicial discipline amongst the tax officers’ payers would be required to exercise writ jurisdiction.
There is a DOCTRINE OF STARE DECIS, which means “abide by the former precedents”. The doctrine stare decisis is one of policy grounded on theory that security and certainty require that accepted and established legal principle, under which rights may accrue, be recognised and followed, though later found to be not legally sound, but whether a previous holding of the Court shall be adhered to, modified, or overruled is within the Court's discretion under the circumstances of case before it. Ref Peirce Leslie & Co. v. Commissioner of Income-tax 86 Taxman 554 (Mad.)
The ITO would be bound by a decision of the Supreme Court as also by that of the High Court within whose jurisdiction he is, irrespective of the pendency of any appeal or special leave application against that judgment. He would equally be bound by a decision of another High Court on the point, because not to do so would cause grave prejudice to the assessee. Ref Siemens India Ltd. v. K. Subramanian, ITO 13 Taxman 146 (Bom)
Recently an writ petition came before Bombay High Court (Garware Polyester Ltd & Ars v The Sate of Maharashtra & Ors Writ Petition No 1085 of 2010 order dated 1-7-2010) where in tax assessing officer (Dy. Commissioner, Large Tax Unit) while passing assessment recorded that the judgment of High Court is not accepted by the sales tax department and legal proceeding is initiated against the said judgment. High court observed that in the event where order of High Court is not stayed, refusal to follow and implement the judgment of High Court by the tax assessing officer prima facie amounts to contempt of court.
The judge may impose fines and or jail upon any person committing contempt of court. The judge will make use of warnings in most any situation that may lead to a person being charged with contempt. It is relatively rare that a person is charged for contempt without first receiving at least one warning from the judge.
However now the issue may arise what would be would be the remedy available with the tax payer when placed with similar issue? Whether to file a writ or to follow normal appeal procedure? Filing of writ is always a costly affair both in terms of money & time. But still at times, in order to inculcate the judicial discipline amongst the tax officers’ payers would be required to exercise writ jurisdiction.
Thursday, July 15, 2010
Post decision in case of Dharmendra Textile is levy of Penalty u/s 271(1)(c) Automatic?
1.1 In fiscal Statutes, the import of the words – “tax”, “interest”, “penalty”, etc. are well known. They are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty — which is penal in character .
1.2 It is implicit in the word “concealed” that there has been a deliberate act on the part of the assessee. The meaning of the word “concealment” as found in Shorter Oxford English Dictionary, 3rd Edition, Volume I, is as follows :- “In law, the intentional suppression of truth or fact known, to the injury or prejudice of another.” The word “concealment”” inherently carried with it the element of mens rea. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. The omission of the word “deliberate”, thus, may or may not be of much significance but what is material is its application. Section 271 (1) (c) remains a penal statute. Rule of Ingredients of imposing penalty remains the same. The purpose of the Legislature that it is meant to be deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20 per cent under the 1922 Act to 300 per cent in 1985 .
1.3 In Webster's Dictionary, "inaccurate" has been defined as: "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript."
It signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars. The term 'inaccurate particulars' is not defined.
1.4 'Concealment of income' and 'furnishing of inaccurate particulars' are different. Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Although it may not be very accurate or apt but suppressio veri would amount to concealment, suggestio falsi would amount to furnishing of inaccurate particulars.
1.5 It is now a well-settled principle of law that more stringent the law, more strict construction thereof would be necessary. Even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution . A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is different from the penalty for a crime .
2.1 Recently controversy has been arisen after the decision of Supreme Court in case of Dharmendra Textile . The Court observed that it is settled law that penalty under section 271(1)(c) is a civil liability and the revenue is not required to prove willful concealment. Revenue has started interpreting the decisions that penalty u/s 271(1)(c) is automatic and in every case of non payment of duty (tax) would lead to levy of penalty.
2.2 In view of the said decision revenue started believing that entire income which remained undisclosed, “with or without” any conscious act of the assessee, was liable to penal action. Further, the concept of law, with regard to levy of penalty has drastically changed in view of the said judgment, in as much as, now penalty can be levied even when an assessee claims deduction or exemption by disclosing the correct particulars of its income. Accordingly revenue started levy of penalty virtually in each and every case where there is disallowance of any claim whether it is an expenditure or any deduction irrespective of the fact that assessee had bona fied belief or genuine mistake.
2.3 Such an attempt had lead tremendous hardship to the various assessee. In light of this background let us understand whether now levy of penalty is automatic or still it depends upon facts and circumstances of each?
2.4 It is to be remembered that, in the case Dharmendra Textile, issue before the court was the penalty under section 11A of Central excise and rules thereunder and it primarily was not dealing with concealment penalty under income-tax. The said judgement is under a different legislative enactment need to bore in mind before considering its application under Income-tax.
2.5 Concealment of particulars of income, or furnishing incorrect particulars of income, should not be confused with, an unacceptable plea for exemption of tax – liability. They are two distinct and separate.
2.6 Each and every addition made in the assessment cannot automatically lead to levy of penalty for concealment of income. A case for imposition of penalty has to be examined in terms of the provisions of Explanation 1 to section 271(1)(c). Further, it is a settled legal position that penalty proceedings are different from assessment proceedings. The finding given in the assessment though is a good evidence but the same is not conclusive in penalty proceedings. It is, therefore, necessary to re-appreciate and reconsider the matter so as to find out as to whether the addition made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in sec. 271(1 )(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions. Explanation 1 to sect ion 271(1) (c) in respect of any fact relating to the computation of total income states that the amount added or disallowed in computing the total income of an assessee shall be deemed to be the income in respect of which particulars have been concealed. This deeming provision for concealment is not absolute one. The presumption under the explanation 1 is rebut table and not conclusive. The assessee can submit the explanation as the onus shifts on to the assessee to prove that he has not concealed the particulars of the income.
2.7 It is well established that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under Section 271(1)(c) of the Act, even if the claim made by him is not sustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bonafide. If the explanation is neither substantiated nor shown to be bonafide, explanation 1 to Section 271(1)(c) would come in to play and the assessee will be liable to for the prescribed penalty. It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bonafide .
3.1 Recently Supreme Court again in UOI vs. Rajasthan Spinning & Weaving Mills has elucidate its intention in the Dharmendra Textile as under:
“In our view the reason assigned by the Tribunal to strike down the levy of penalty against the assessees is as misconceived as the interpretation of Dharamendra Textile is misconstrued by the Revenue. In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non – payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam, J.) was a party to the decision in Dharamendra Textile and we see no reason to understand or read that decision in that manner. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that section 11AC would apply to every case of non – payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application. There is another very strong reason for holding that Dharamendra Textile could not have interpreted section 11AC in the manner as suggested because in that case that was not even the stand of the revenue. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharamendra Textile decides. It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only in so far as section 11AC is concerned. We make no observations (as a matter of fact there is no occasion for it!) with regard to the several other statutory provisions that came up for consideration in that decision.” (emphasis supplied)
3.2 High Court of Punjab & Haryana In Siddhartha Enterprises has held that the judgment of the Hon’ble Supreme Court in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under section 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake.
3.3 Court in case of Haryana Warehousing has observed that revenue’s thought process that the concept of levy of penalty has undergone drastic change with the decision in case Dharmendra Textile and in every case where there is addition of income to returned income, penalty is levied, in not tenable. Further if revenues view is accepted then the assessee who canvasses a claim on the basis of its (assessee' s) interpretation of the law, would be liable to penal action, in case, the Revenue finds that the claim raised by the assessee is not acceptable. Such a determination would place curbs on the rights of an assessee to raise claims it believes to be genuine under the law. It further observed that said decision has not placed any fetters on the rights of the assessee to raise genuine claims in its return.
3.4 Recently Mumbai ITAT in case of ITO v. Parikh Investment & Development P. Ltd. ITA No. 4760/Mum/2009 order dtd 7-5-2010 has reiterated the observations of a recent judgment of the Hon’ble Apex Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC) as under :
“.....In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income tax, Delhi vs. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India vs. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that (page 13 of 317 ITR):
13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist.” Their Lordships, after considering various decisions including Dilip N. Shroff vs. JCIT (2007) 291 ITR 519(SC) and Union of India vs. Dharamendra Textile Processors (2008) 306 ITR 277(SC) have observed and held (page 158 headnotes) as under :
“A glance at the provisions of section 271(1)(c) of the Income- tax Act, 1961, suggests 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 income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”
Tribunal subsequently held as under:
“Respectfully following the above decision of Hon’ble Apex Court and keeping in view that it is not the case of the revenue that the assessee has not filed complete particulars of his income or it is not the case of bonafide belief or the explanation offered by the assessee was found to be false or untrue, we are of the view that making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty u/s. 271(1)(c) of the Act. This view also finds support from the recent decisions in CIT vs. Sidhartha Enterprises (2010) 322 ITR 80 (P&H) and CIT vs. Shahabad Co-op. Sugar Mills Ltd. (2010) 322 ITR 73(P&H). Accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the penalty imposed by the AO. The ground taken by the revenue is therefore, rejected.” (Emphasis Supplied)
3.5 An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi – criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute .
Even after the decision of Dharmendra Textiles, levy of concealment penalty is not automatic even in case where additions have been confirmed by appellate authorities. In order to levy penalty the assessing officer is yet required to give finding based on some contradictory evidence to disprove that explanation offered by the assessee false.
1.2 It is implicit in the word “concealed” that there has been a deliberate act on the part of the assessee. The meaning of the word “concealment” as found in Shorter Oxford English Dictionary, 3rd Edition, Volume I, is as follows :- “In law, the intentional suppression of truth or fact known, to the injury or prejudice of another.” The word “concealment”” inherently carried with it the element of mens rea. Mere omission from the return of an item of receipt does neither amount to concealment nor deliberate furnishing of inaccurate particulars of income unless and until there is some evidence to show or some circumstances found from which it can be gathered that the omission was attributable to an intention or desire on the part of the assessee to hide or conceal the income so as to avoid the imposition of tax thereon. In order that a penalty under Section 271(1)(c) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income. The omission of the word “deliberate”, thus, may or may not be of much significance but what is material is its application. Section 271 (1) (c) remains a penal statute. Rule of Ingredients of imposing penalty remains the same. The purpose of the Legislature that it is meant to be deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20 per cent under the 1922 Act to 300 per cent in 1985 .
1.3 In Webster's Dictionary, "inaccurate" has been defined as: "not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript."
It signifies a deliberate act or omission on the part of the assessee. Such deliberate act must be either for the purpose of concealment of income or furnishing of inaccurate particulars. The term 'inaccurate particulars' is not defined.
1.4 'Concealment of income' and 'furnishing of inaccurate particulars' are different. Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Although it may not be very accurate or apt but suppressio veri would amount to concealment, suggestio falsi would amount to furnishing of inaccurate particulars.
1.5 It is now a well-settled principle of law that more stringent the law, more strict construction thereof would be necessary. Even when the burden is required to be discharged by an assessee, it would not be as heavy as the prosecution . A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is different from the penalty for a crime .
2.1 Recently controversy has been arisen after the decision of Supreme Court in case of Dharmendra Textile . The Court observed that it is settled law that penalty under section 271(1)(c) is a civil liability and the revenue is not required to prove willful concealment. Revenue has started interpreting the decisions that penalty u/s 271(1)(c) is automatic and in every case of non payment of duty (tax) would lead to levy of penalty.
2.2 In view of the said decision revenue started believing that entire income which remained undisclosed, “with or without” any conscious act of the assessee, was liable to penal action. Further, the concept of law, with regard to levy of penalty has drastically changed in view of the said judgment, in as much as, now penalty can be levied even when an assessee claims deduction or exemption by disclosing the correct particulars of its income. Accordingly revenue started levy of penalty virtually in each and every case where there is disallowance of any claim whether it is an expenditure or any deduction irrespective of the fact that assessee had bona fied belief or genuine mistake.
2.3 Such an attempt had lead tremendous hardship to the various assessee. In light of this background let us understand whether now levy of penalty is automatic or still it depends upon facts and circumstances of each?
2.4 It is to be remembered that, in the case Dharmendra Textile, issue before the court was the penalty under section 11A of Central excise and rules thereunder and it primarily was not dealing with concealment penalty under income-tax. The said judgement is under a different legislative enactment need to bore in mind before considering its application under Income-tax.
2.5 Concealment of particulars of income, or furnishing incorrect particulars of income, should not be confused with, an unacceptable plea for exemption of tax – liability. They are two distinct and separate.
2.6 Each and every addition made in the assessment cannot automatically lead to levy of penalty for concealment of income. A case for imposition of penalty has to be examined in terms of the provisions of Explanation 1 to section 271(1)(c). Further, it is a settled legal position that penalty proceedings are different from assessment proceedings. The finding given in the assessment though is a good evidence but the same is not conclusive in penalty proceedings. It is, therefore, necessary to re-appreciate and reconsider the matter so as to find out as to whether the addition made in the quantum proceedings actually represents the concealment on the part of the assessee as envisaged in sec. 271(1 )(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions. Explanation 1 to sect ion 271(1) (c) in respect of any fact relating to the computation of total income states that the amount added or disallowed in computing the total income of an assessee shall be deemed to be the income in respect of which particulars have been concealed. This deeming provision for concealment is not absolute one. The presumption under the explanation 1 is rebut table and not conclusive. The assessee can submit the explanation as the onus shifts on to the assessee to prove that he has not concealed the particulars of the income.
2.7 It is well established that so long as the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under Section 271(1)(c) of the Act, even if the claim made by him is not sustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bonafide. If the explanation is neither substantiated nor shown to be bonafide, explanation 1 to Section 271(1)(c) would come in to play and the assessee will be liable to for the prescribed penalty. It is true that mere submitting a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of the assessee, but it cannot be disputed that the claim made by the assessee needs to be bonafide .
3.1 Recently Supreme Court again in UOI vs. Rajasthan Spinning & Weaving Mills has elucidate its intention in the Dharmendra Textile as under:
“In our view the reason assigned by the Tribunal to strike down the levy of penalty against the assessees is as misconceived as the interpretation of Dharamendra Textile is misconstrued by the Revenue. In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non – payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam, J.) was a party to the decision in Dharamendra Textile and we see no reason to understand or read that decision in that manner. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that section 11AC would apply to every case of non – payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application. There is another very strong reason for holding that Dharamendra Textile could not have interpreted section 11AC in the manner as suggested because in that case that was not even the stand of the revenue. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharamendra Textile decides. It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only in so far as section 11AC is concerned. We make no observations (as a matter of fact there is no occasion for it!) with regard to the several other statutory provisions that came up for consideration in that decision.” (emphasis supplied)
3.2 High Court of Punjab & Haryana In Siddhartha Enterprises has held that the judgment of the Hon’ble Supreme Court in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under section 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake.
3.3 Court in case of Haryana Warehousing has observed that revenue’s thought process that the concept of levy of penalty has undergone drastic change with the decision in case Dharmendra Textile and in every case where there is addition of income to returned income, penalty is levied, in not tenable. Further if revenues view is accepted then the assessee who canvasses a claim on the basis of its (assessee' s) interpretation of the law, would be liable to penal action, in case, the Revenue finds that the claim raised by the assessee is not acceptable. Such a determination would place curbs on the rights of an assessee to raise claims it believes to be genuine under the law. It further observed that said decision has not placed any fetters on the rights of the assessee to raise genuine claims in its return.
3.4 Recently Mumbai ITAT in case of ITO v. Parikh Investment & Development P. Ltd. ITA No. 4760/Mum/2009 order dtd 7-5-2010 has reiterated the observations of a recent judgment of the Hon’ble Apex Court in CIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158(SC) as under :
“.....In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income tax, Delhi vs. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India vs. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India vs. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that (page 13 of 317 ITR):
13. It goes without saying that for applicability of Section 271(1)(c), conditions stated therein must exist.” Their Lordships, after considering various decisions including Dilip N. Shroff vs. JCIT (2007) 291 ITR 519(SC) and Union of India vs. Dharamendra Textile Processors (2008) 306 ITR 277(SC) have observed and held (page 158 headnotes) as under :
“A glance at the provisions of section 271(1)(c) of the Income- tax Act, 1961, suggests 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 income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”
Tribunal subsequently held as under:
“Respectfully following the above decision of Hon’ble Apex Court and keeping in view that it is not the case of the revenue that the assessee has not filed complete particulars of his income or it is not the case of bonafide belief or the explanation offered by the assessee was found to be false or untrue, we are of the view that making a wrong claim is not at par with concealment or giving of inaccurate information, which may call for levy of penalty u/s. 271(1)(c) of the Act. This view also finds support from the recent decisions in CIT vs. Sidhartha Enterprises (2010) 322 ITR 80 (P&H) and CIT vs. Shahabad Co-op. Sugar Mills Ltd. (2010) 322 ITR 73(P&H). Accordingly we are inclined to uphold the order of the ld. CIT(A) in deleting the penalty imposed by the AO. The ground taken by the revenue is therefore, rejected.” (Emphasis Supplied)
3.5 An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi – criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute .
Even after the decision of Dharmendra Textiles, levy of concealment penalty is not automatic even in case where additions have been confirmed by appellate authorities. In order to levy penalty the assessing officer is yet required to give finding based on some contradictory evidence to disprove that explanation offered by the assessee false.
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