HIGH COURT OF DELHI Imposition of penalty under section 271(1)(c) of IT Act, 1961 for making false claim

Imposition of penalty under section 271(1)(c) of IT Act, 1961 for making false claim



Even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim, which is made, is ex facie bogus, it may still attract penalty provision.



HIGH COURT OF DELHI

CIT

v.

Escorts Finance Ltd.

ITA No. 1005/2008

August 24, 2009

RELEVANT EXTRACTS:

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8. It is repeatedly held by the Courts that the penalty on the ground of concealment of particulars or non-disclosure of full particulars can be levied only when in the accounts/return an item has been suppressed dishonestly or the item has been claimed fraudulently or a bogus claim has been made. When the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed to income, as it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Further, conscious concealment is necessary. Even if some deduction or benefit is claimed by the assessee wrongly but bona fide and no mala fide can be attributed, the penalty would not be levied. A fortiorari, if there is a deliberate concealment and false/inaccurate return was filed, which was revised after the assessee was exposed of the falsehood, it would be treated as concealment of income in the original return and would attract penalty even if revised return was filed before the assessment is completed. Likewise, where claim made in the return appears to be ex facie bogus, it would be treated as case of concealment or inaccurate particulars and penalty proceedings would be justified.

11. We find that action for penalty proceedings was initiated by the First ground was predicated on the claim made by the assessee for entertainment expenses. As against 50% amount claimed by the assessee on account of the the Assessing Officer reduced the same to We of the opinion that the CIT(A) as well as the Tribunal rightly observed that there was no concealment of income or furnishing of The addition was only on account of difference in estimate made by the assessee and the other estimate made by the Therefore, in so far as this claim is concerned, even if the Assessing Officer reduced the same from 50% to 35%, that cannot attract the penalty.

12. A sum of Rs.21,02,228/- under Section 35D of the Act was disallowed by the Assessing Officer. This, according to the assessee, was made on the basis of the opinion given by the Chartered Accountants, which is clear from the prospectus for public issue of shares in which it was clearly mentioned that the assessee company would be entitled to relief under Section 35D of the Act. Expenses were incurred in connection with the public issue of shares such as underwriting commission, brokerage and other charges etc. which, as per the opinion of the Chartered Accountants, qualify for amortization over a period of 10 years under Section 35D of the Act. Submission of the learned counsel for the Revenue was that merely because information in this behalf was made available in the tax audit report, would not absolve the assessee of the penalty proceedings when such a claim was ex facie bogus. She submitted that hardly 5% returns are taken up for scrutiny under Section 143(2) of the Act and assessment is made under sub-section (3) of Section 143 of the Act. Therefore, with the hope that his/her return may not come under scrutiny and may be assessed on the basis of ‘self -assessment ’, an assessee can venture to give wrong information. Therefore, merely because information was available in the tax audit report would not absolve the assessee. What was to be seen was that whether the claim made was bogus.

13. We are inclined to agree with the aforesaid submission of learned counsel for the Revenue. Even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which is made is ex facie bogus, it may still attract penalty provision. Cases of bogus hundi loans or bogus sales or purchases have been treated as that of concealment or inaccuracy in particulars of income by the judicial pronouncements (See Krishna v. CIT, 217 ITR 645, Rajaram v. CIT, 193 ITR 614 and Beena Metals, 240 ITR 222).

14. In the present case, we have to examine as to whether the claim made under Section 35D of the Act was bogus or it was a bona fide claim. The assessee pleaded bona fide, as according to it, it was based on the opinion of the Chartered Accountant. Learned counsel for the Revenue, however, submitted that a bare reading of Section 35D would reveal even to a layman that there was no scope for getting benefit of those provisions in respect of expenses incurred in connection with the public issue of shares such as underwriting commission, brokerage and other charges etc. inasmuch as certain expenses are allowable only when they are incurred with the expansion of assessee ’s industrial undertakings or in connection with his setting up of a new industrial undertaking or industrial unit whereas the assessee is a finance company.

15. We are in agreement with the aforesaid submission of learned counsel for the Revenue. We fail to understand as to how the Chartered Accountants who are supposed to be expert in tax laws, could give such an opinion having regard to the plain language of Section 35D of the Act. It would be important to note that assessee has nowhere pleaded that return was filed claiming benefit of Section 35D of the Act on the basis of the said opinion. What was stated was that in the prospectus it was mentioned that as per the opinion given by the Chartered Accountants, the company would be entitled for relief under Section 35D of the Act. Therefore, it is not the case of the assessee that while filing the return it got assistance from the Chartered Accountants who opined that the aforesaid expenses qualify for amortization over a period of 10 years under Section 35D of the Act. That apart, when we find that it is not a case where two opinions about the applicability of Section 35D were possible. Therefore, it cannot be a case of a bona fide error on the part of the assessee. As has been pointed out above, the relief available under Section 35D of the Act to a finance company is ex facie inadmissible as that is confined only to the existing industrial undertaking for their extension or for setting up a new industrial unit. It was, thus, not a ‘wrong claim ’ preferred by the assessee, but is a clear case of ‘false claim ’.In Commissioner of Income-Tax v. Vidyagauri Natverlal and others, [1999] 238 ITR 91, Gujarat High Court made a distinction between wrong claim as opposed to false claim and held that if the claim is found to be false, the same would attract penalty. We may also take note of the following observations of the Supreme Court in the case of Union of India and Others v. Dharmendra Textile Processors and Others, (2008) 13 SCC 369=306 ITR 277 (SC). In such a case it is difficult to accept the plea that error was bona fide.

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