Commissioner Of Income Tax-I v. M/S. Jalan Holdings Pvt. Ltd.....opponent(S

O/TAXAP/495/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 495 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-I.....Appellant(s) Versus M/S. JALAN HOLDINGS PVT. LTD.....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 11/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as ITAT) dated 15.05.2006 in ITA No. 1729/Ahd/2001 for the Assessment Year 1996-97, the revenue has preferred the present Tax Appeal. 1.1This Court while admitting the present appeal formulated the following substantial question of law for consideration: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the CIT(A), whereby he cancelled the penalty of Rs. 7,18,730/- imposed u/s 271(1)(c)? 2. The assessee firm is an investment company and for the year under consideration, the assessee firm filed its return declaring net loss. The Assessing Officer disallowed certain deductions claimed by the assessee which included amount paid as interest to an associate concern and interest free loans to various parties and group concerns. The Assessing Officer was of the view that since the assessee had nil business income, the expenses were not allowable and levied penalty u/s 271(1)(c) of the Act. On appeal, the CIT (Appeals) allowed the appeal and cancelled the penalty levied. 3. On appeal before the ITAT by the revenue, by impugned order, ITAT dismissed the appeal and confirmed the order passed by CIT(A). Being aggrieved and dissatisfied with the impugned order passed by the ITAT, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 4.Mr. K.M. Parikh, learned advocate appearing for the revenue submitted that the order passed by ITAT is erroneous. He submitted that penlaty was imposed for furnishing inaccurate particulars of income in accordance with Explanation 1 to section 271(1)(c) but the ITAT has not at all considered the applicability of the aforesaid explanation. 3. On appeal before the ITAT by the revenue, by impugned order, ITAT dismissed the appeal and confirmed the order passed by CIT(A). Being aggrieved and dissatisfied with the impugned order passed by the ITAT, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 4.Mr. K.M. Parikh, learned advocate appearing for the revenue submitted that the order passed by ITAT is erroneous. He submitted that penlaty was imposed for furnishing inaccurate particulars of income in accordance with Explanation 1 to section 271(1)(c) but the ITAT has not at all considered the applicability of the aforesaid explanation. 5.We have heard Shri Parikh, learned Counsel appearing on behalf of the Department. It is an admitted position that the assessee had disclosed NIL business income and the assessing officer had disallowed the entire claim of expenses including payment of interest on unsecured loans. The ITAT in the impugned order has observed that it cannot be said that the assessee has concealed its income or has submitted any inaccurate particulars of income as it is not the case of the Assessing Officer that he has established the nexus between the interest bearing loans and interest free advances in which case concealment of income could have been inferred. In the present case the entire expenses including the payment of interest has been disallowed by the assessing officer because the assessee had shown NIL business income during the year under consideration. We are in complete agreement with the finding of facts recorded by the ITAT. 5.1Under such circumstances, penalty under section 271(1)(c) is not leviable. This view is also supported by the judgment of the Hon'ble Supreme Court in the case of Reliance Petro Products Pvt. Ltd. reported in [2010] 322 ITR 158 (SC), wherein the Hon'ble Supreme Court held that making incorrect claim does not amount to concealment of "particulars of income". The head-notes of the said decision reads 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 4 ITA No.3512/AHD/2007 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". 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". 6.1Explanation (1) to section 271(1)(c) is not applicable because the case of the assessee does not fall within the mischief of main provision of section 271(1)(c) of the I.T. Act, 1961. Mere rejection of assessee's claim is not sufficient to hold the assessee to be guilty of concealment. We are in complete agreement with the reasonings adopted by the Tribunal on facts also. 7. In view of the above, the question raised in the present Tax Appeal is answered in the affirmative i.e. in favour of the assessee and against the revenue. Consequently, the impugned order passed by the ITAT is confirmed. Present Tax Appeal is dismissed. (K.S.JHAVERI, J.) divya (K.J.THAKER, J)