Allgrow Finance & Investment Pvt. Ltd., ... vs Assessee

M/s. Allgrow Finance & Investment Pvt. Ltd. vs. ITO, Ward 1 (3), 202, First Floor, Okhla Indl. Area Phase-III, New Delhi. New Delhi - 110 020.

(PAN : AADPN0250A)

(APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri Tarun Rohtagi, CA REVENUE BY : Shri Amit Jain, Senior DR

Date of Hearing : 09.06.2015 Date of Pronouncement : 12.06.2015

ORDER

PER GEORGE GEORGE K. :

This appeal, at the instance of the assessee, is directed against the

order of the Commissioner of Income-tax-IV, New Delhi dated

29.08.2013. The relevant assessment year is 1999-2000.

2. The grounds raised by the assessee read as follows :-

"l. That on the facts and in the circumstances of the case whether the Learned CIT CA) was justified in affirming the imposition of Penalty of Rs.6,56,258 u/s 271 (1)(c) of the Act?

2. That on the facts and in the circumstances of the case, the CIT (A) was not justified in upholding the levy of 2 ITA Nos.6609/Del./2013

Penalty u/s 271(1) (c ) in respect of addition of notional income of Rs.8,75,000 being unrealised interest on Inter corporate Deposit?

2.1 That on the facts and in the circumstances of the case the Learned CIT (A) has erred in law in upholding that there is furnishing of inaccurate particulars / concealment of Income within the meaning of section 271(1)(c) of the Act inspite of the addition being made on an notional! deemed basis.

3. That on the facts and in the circumstances of the case, the Learned CIT (A) was not justified in affirming the levy of penalty u/s 271(1) (c ) in respect of disallowance of Rs.10 lakhs made out of Professional expenses.

3.1 Whether the mere disallowance of expenses can amount to concealment or furnishing of inaccurate particulars of income within the meaning of section 271(1)

(c).

4. That the Learned CIT (A) has failed to appreciate that Assessment and Penalty proceedings are two different proceedings.

5. That on the facts and in the circumstances of the case the Learned CIT (A) ought to have held that the Penalty order is void ab intio in absence of recording of discernible satisfaction as to the fact of furnishing inaccurate particulars/ concealment in the Assessment order dated 16.12.2011.

6. That the appellant craves for leave to add, alter, modify any of the grounds of appeal mentioned above at the time of hearing."

3. Briefly stated, the facts of the case are as follows.

The assessee company is a Non-Banking Financial Company

(NBFC) registered with the Reserve Bank of India (RBI). The return of 3 ITA Nos.6609/Del./2013

income was filed pursuant to a notice u/s 148 of the Act declaring income

of Rs.29,16,891/-. The assessment was completed vide order dated

22.02.2006 on a total income of Rs.48,03,140/-. The Assessing Officer

made three additions, namely, (i) Rs.8,75,000/- on account of interest on

loan; (ii) Rs.10 lacs on account of disallowance of professional charges;

and (iii) Rs.11,250/- on account of disallowance of depreciation. The

Assessing Officer also initiated penalty proceedings u/s 271(1)(c) of the

Act. Aggrieved by the additions, assessee preferred an appeal to the CIT

(A). The CIT (A) vide his order dated 31.08.2010 deleted the additions of

Rs.8,75,000/- and Rs.11,250/-. The CIT (A), however, confirmed the

addition of Rs.10 lacs on account of payment of professional charges. As

against the confirmation of addition of Rs.10 lacs made by the CIT (A), the

assessee preferred an appeal. The department also filed an appeal to the

Tribunal on deletion of addition of Rs.8,75,000/-. The Tribunal vide order

dated 16.12.2011 in ITA No.4684/Del./2010 allowed the department's

appeal and dismissed the assessee's appeal, thereby confirming the

assessment order with respect to additions of both of Rs.10 lacs and

Rs.8,75,000/-. On receipt of the order of the Tribunal, the Assessing

Officer imposed a penalty of Rs.6,56,258/- on the addition of Rs.10 lacs

and Rs.8,75,000/- sustained by the Tribunal. Against the order of penalty

imposed u/s 271(1)(c), assessee preferred an appeal to the first appellate 4 ITA Nos.6609/Del./2013

authority. The CIT (A) dismissed the appeal filed by the assessee. The

relevant finding of the CIT (A) reads as follows :-

"4.3.2 Explanation 1 to Section 271(1)(c) provides that where an assessee fails to offer an explanation or offers an explanation which is found by the AO to be false or assessee offers an explanation which he is not able to substantiate and fails to prove that such an explanation is bona fide, the amount added or disallowed in computing the total income of such person shall be deemed to represent the income in respect of which particulars have been concealed. Thus, Explanation 1 to Section 271(1)(c) creates a legal fiction to treat the addition as deemed concealment. In the case under consideration, the explanation offered by the appellant in respect of the amount of Rs.18,75,000/- has not been found to be correct by the Hon'ble ITAT. Therefore, the amount of Rs.18,75,000/- is treated as concealment of income in the case of Union of India Vs. Dharmendra Textiles Processors, 306 ITR 277, it was held by the Apex Court that penalty Is a civil liability and mens rea does not apply to penalty proceedings. In view of the above discussion, I do not find any infirmity in the penalty levied by the AO. I am of the considered view that it is a fit case for the levy of penalty u/s 271 (1 )(c) of the Act. Therefore, the penalty of Rs.6,56,258/- levied by the AO is confirmed. Grounds of appeal are rejected."

4. Against the confirmation of penalty imposed u/s 271(1)(c) of the

Act, assessee is in second appeal before us.

5. On merits, the ld. Counsel for the assessee reiterated the submissions

made before the Income-tax authorities. Further, it was submitted by the

ld. Counsel that as against the Tribunal order in the quantum assessment,

assessee had preferred an appeal u/s 260A of the Act to the Hon'ble High

Court and the Hon'ble High Court had deleted the addition of 5 ITA Nos.6609/Del./2013

Rs.8,75,000/-. As against the addition of Rs.10 lacs, it was submitted that

the Hon'ble High Court has confirmed the addition stating that there is no

substantial question of law. On the issue of jurisdiction, it was contended

by the ld. Counsel that no proper recording of satisfaction is made by the

Assessing Officer for initiating penalty proceedings. It was further

submitted that notice u/s 274 read with section 271 for initiation of penalty

is vague, since the assessee was not show-caused as to whether penalty has

been initiated for concealment of income or for furnishing inaccurate

particulars of income.

6. Ld. DR relied on the orders of the income-tax authorities.

7. We have heard the rival submissions and perused the material on

record. As regards the addition of Rs.8,75,000/- on which the penalty has

been imposed, we notice that the said addition has been deleted by the

Hon'ble High Court in ITA 17/2015 vide judgment date 20.01.2015. A

copy of the Hon'ble High Court judgment is placed on record at pages 42

to 46 of the paper book filed by the assessee. The relevant finding of the

Hon'ble High Court read as under :-

"5. We have considered the submissions of the parties. The CIT(Appeals) took into account not only the additional evidence (especially the letter which was doubted by the ITAT) but also the fact that the AO did not make any enquiry. Significantly, there was a remand directed by the CIT (Appeals) in the course of which apparently, the AO made no attempt to hold further enquiries. In the absence of any concrete material, and having regard to the circumstances that the assessee in 6 ITA Nos.6609/Del./2013

fact maintained the mercantile system of account, the failure of the AO to exert himself and requisition the books of account and other material from the M/s. Escorts Ltd. if he felt that in fact such amounts were payable contractually or otherwise, in our opinion, could not have resulted in the addition which was ultimately directed. Having regard to these circumstances, this Court is of the opinion that the assessee, on the basis of the materials on record, was entitled to succeed on this question and the ITAT wrongly interfered with the CIT (Appeals)'s determination. Accordingly, the impugned order is set aside. The appeal is consequently allowed along with the pending applications."

Since the addition of Rs.8,75,000/- in the quantum assessment has been

deleted by the Hon'ble jurisdictional High Court, the penalty imposed on

the same has lost it substratum and penalty on this addition is, therefore,

deleted.

8. As regards the addition of Rs.10 lacs, it was submitted by the ld.

Counsel that these are professional charges paid to Bhaav Portfolio Private

Limited for getting RBI registration. It was further submitted that though

no agreement was produced before the Assessing Officer regarding work

assigned to Bhaav Portfolio Private Limited, the same was produced

before the CIT (A), which was not accepted. A copy of the agreement

entered by the assessee company with Bhaav Portfolio Private Limited is

placed at pages 50 - 51 of the paper book. As per the terms of agreement,

Bhaav Portfolio Private Limited was appointed from 01.04.1998 to

31.03.1999 and renewal for a further period as mutually agreed upon. As 7 ITA Nos.6609/Del./2013

per the terms of the agreement, Bhaav Portfolio Private Limited was to

render professional services and advice in the following areas :-

"i) To pursue the application with RBI, deal with the objections of RBI and ensure registration with RBI as a NBFC after complying with the conditions of RBI.

ii) After registration with RBI to manage the funds available with the Company in accordance with the rules of RBI.

iii) To ensure regular compliance as prescribed by RBI from time to time.

iv) Other areas relating to NBFC may be assigned to you by the company from time to time."

In lieu of the aforesaid services, the assessee had claimed to have paid

Rs.10 lacs for the relevant year. This payment admittedly is not to a

related party. The disallowance of Rs.10 lacs was confirmed by the

Tribunal holding that expenditure is not warranted in the facts and

circumstances of the case. The primary reasoning of Tribunal for holding

so was that RBI licence was granted to assessee company on 06.03.1998,

whereas Bhaav Portfolio Private Limited was appointed as a consultant to

assessee company only w.e.f. 01.04.1998. On perusal of the RBI letter

dated 04.09.1998 (placed at page 47 of the paper book), it is clear that RBI

granted registration to the assessee company on 04.09.1998 and not

06.03.1998 (though w.e.f. 06.03.1998). The assessment proceedings and

penalty proceedings are two separate and distinct proceedings. The fact

that certain additions were made in the assessment proceedings would not 8 ITA Nos.6609/Del./2013

automatically justify for imposition of penalty u/s 271(1)(c) of the Act.

The assessee is always at liberty to argue in penalty proceedings based on

the existing material or relying on some new evidence or documents that

the penalty is not exigible on the facts and circumstances of the case. In

the instant case, the ld. AR by relying on the RBI letter dated 04.09.1998

had clearly demonstrated that RBI registration was granted to the assessee

on 04.09.1998, so the assessee's explanation that the payments to Bhaav

Portfolio Private Limited is bonafide and genuine since they have been

authorised to obtain RBI licences, cannot be totally brushed aside as false

warranting imposition of penalty u/s 271(1)(c). The Hon'ble jurisdictional

High Court in the case of New Holland Tractors India (P) Ltd. vs. CIT in

ITA 182/2002 judgment dated 25th September, 2014 at para 26 observed as

follows :

"26. The word 'conceal' inherently and per se refers to an element of mens rea, albeit the expression furnishing of inaccurate particulars is much wider in scope. The word 'conceal' implies intention to hide an item of income or a portion thereof. It amounts to suppression of truth or a factum so as to cause injury to the other. (See CIT vs. A.Subramania Pillai (1997) 226 ITR 403 (Mad). The word 'conceal' means to hide or to keep secret. As held in Law Lexicon, the said word is derived from the latin word 'concelare' which implies 'con' and 'celare' to hide. It means to hide or withdraw from observation, to cover or keep from sight, to prevent discovery of, to withhold knowledge of. The word 'inaccurate' in Webster's Dictionary has been defined as 'not accurate, not exact or correct, not according to truth, erroneous, as inaccurate statement, copy or transcript.' The word 'particular' means detail or details of a claim or separate items of an 9 ITA Nos.6609/Del./2013

account (See CIT vs. Reliance Petroproducts Pvt.Ltd. (2010) 322 ITR 158 (SC). Thus the words - furnished inaccurate particulars is broader and would refer to inaccuracy which would cause under declaration or escapement of income. It may refer to particulars which should have been furnished or were required to be furnished or recorded in the books of accounts etc. (see CIT vs. Raj Trading Co. (1996) 217 ITR 208 (Raj.) Inaccuracy or wrong furnishing of income would be covered by the said expression, though there are decisions that adhoc addition per se without other or corroborating circumstances may not reflect - furnished inaccurate particulars. Lastly, at times and it is fairly common, the charge of concealment and - furnishing of inaccurate particulars may overlap."

In view of the above mentioned judgment of the Hon'ble jurisdictional

High Court, it cannot be stated that assessee has concealed income by

furnishing inaccurate particulars of income and explanation given by the

assessee cannot be brushed aside totally false. Therefore, the penalty

levied on the addition of Rs.10 lacs is not warranted on the facts and

circumstances of the case and we delete the same. It ordered accordingly.

9. In the result, the appeal filed by the assessee is allowed.

Order pronounced in open court on this 12th day of June, 2015.

Sd/- sd/- (N.K. SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated the 12th day of June, 2015 TS 10 ITA Nos.6609/Del./2013

Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A)-XXV, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.