Ita v. Ita

1961 (for shoit, 'the Act').The appellant, however, succeededbefore the Commissionerof Income Tax (Appeals) who deletedthe penalty observing as under: "10.In the facts and circumstancesof thiscase, it is noted that the appellant made aclaim that certain receipts were capital innature,andtherefore,notliabletotax.Plowever, probably realizing the contentiousnature of the claim, full taxes were paid onthe 'capital'receipt before filing of thereturn.The return was accompanied by adetailed note on the claim and, with a claimfor refund.It is the appellant's case thatthere has been no concealment, as all factswere disclosedin the return of income itself.It is also argued that the explanation offeredby him was on the basis of bona fide belief,and even if such claim was not accepted bythe Assessing Officer, the explanation wasneither false, nor unsubstantiated,nor malafide.The bona fides of the appellant areprovenby the disclosurein the return andthepaymentoftaxes.Aftercarefulconsideration, I am inclined to agree withthis contention.The penalty order mainlyrelies on the provisions of section 273B, tohold that there was no 'reasonablecause' forfailure to comply with the requirement oflaw. To my mind, the protection of section273B i.e. of reasonable cause, is only to beappliedto such assesseswho havein thefirstplace,concealedtheirincome,orfurnished inaccurate particularsof theirincome.I find the element of concealmentmissing in this case. The Assessing Officerhas also considered the 'potential' revenue ' lossif thecaseliadnot beenscrutinized.Against, this seems far-fetched, consideringthe detailed not annexed to the return,andthe refund claimed of Rs. 1,45,19, 285/- atthat time.The fact that the appellantsucceededpartlyin its claimat thefirstappeal stage, indicates that two views werepossibleontheissue.Theactoftheappellantin makingthe claimdoes notwarrant imposition of penalty u/s 271(l)(c).Thus,thepenaltyorderdeservestobecancelled on merits as well.However,asthe penalty order has been cancelled, as heldabove, on grounds of being barred by timethe above discussion is academic only."4.The Tribunal reversed the said findings after referring toSection 17(3) Clauses (i) & (iii) of the Act and held that the saidprovisions were clear that profits in lieu of salary includes theamount of compensation due and or received by the assessee fromhis employeror former employerat or in connectionwithtermination of his employment or modification of the terms andconditions relating thereto or any amount due to or received aftercessation of employment.After referring to the said sections, theTribunal restored the order of the assessing officer imposingpenalty stating: "Inthe appealspreferredby the partiesbeforeraising the issue on the taxability ofthe receipt the Tribunal vide its order dated31.3.2009inITAnos.3365&2629/Del/2004 has held that the amount paidto the assesseewas becauseof terminationof employmentin termsof letter dated "Inthe appealspreferredby the partiesbeforeraising the issue on the taxability ofthe receipt the Tribunal vide its order dated31.3.2009inITAnos.3365&2629/Del/2004 has held that the amount paidto the assesseewas becauseof terminationof employmentin termsof letter dated 6.4.1991,therefore,the payment of USD 10lac receivedby the assesseeis chargeabletotax as profit in lieu of salary u/s 17(3) (i) ofthe Act. The Tribunalhas discussedtheissue in detail and decided it in view ofseveral decisions relied upon by the Partiesbefore it. The assessee had placed relianceon several decisions like CIT v. ShyamSunder Chhapria 305FFR181(MP);Rohitasav Chand v. CIT306 ITR 242 andSourabh Srivastavav. DCIT (2008) 111 ITD287(Del)(SB).TheTribunalhasdistinguished ihese decisions on facts withthisobservationthatin thesecasestheassessee was paid non-complete fee whereasin the case of the present assessee thepaymenthas been made for terminationofservices,We are thus of the view that whenprovisions u/s 17(3) of the Act were clearand the amount whatever nomenclaturecanbe attached to it was admittedlypaid to theasessee due to termination of employer- there was no ofemployee relating, scopeany debate that the amount received was notprofits in lien of salary within the meaningof the said provisionsof u/s 17(3)of the Act.We are thus of the view that there was noany reasonavailablewith the assesseefornurturing a belief that the amount received isa capital receipt not chargeable to tax.Merely by depositing the due tax on theamountreceivedthebonafideoftheassessee in not declaring the receipt asincomeinitsreturnofincomeisnotestablished. The benefitof Explanation1 tosection271 (1) (C) of theAct for theexemption of levy of penalty is available toanassesseewhenassesseeisableto establish that the explanationfLirnished byhim for non-disclosureof payment of thereceipt as income in his retmm of income isbona fide. The requirementfor availingthebenefit u/s 271(1) (C) Explanation lof theAct for exemption from penal action underthe said provisionsare availableonly if theassesseeisabletoprovethatsuchexplanation is bona fide and that all the factsrelating to the income and material to thecomputationof his total incomehave beendisclosed by him." 5.Tribunalhas accepted that the assessee had filed a note withthe return disclosingof tacts but observed that the dispute beforethem was whether the claim made by the assessee was bona fideand whether the assessee, in fact, nurtured the belief that thereceipt was not chargeable to tax. Reference was made to thedecision of the Delhi High Court in CIT vs. Zoom CommunicationPrivateLimited; [2010] 327 ITR 510(Del)and the SupremeCourtin CIT V, ReliancePetroproductsP. Ltd. [2010] 322 ITR 158(SC).It was held that the assesseeerred in not declaringthe receipt inquestion asrevenue receipt and, therefore, had furnishedinaccurateparticularsof income, attracting penalty action underSection 27 l(l)(c) of the Act. 6.The two undisputedfactualpositionsare; (1)that the assessee had paid advance tax on USD 10 lacsequivalentto INR 4,34,36,250/-. In the return of income filed bytheappellanton27.6.2000,hehadclaimedrefundof Rs.1,45,19,285/-. The total taxes paid by the appellant wereRs. 1,65,44,631/-. (2) Along with the return of income the appellanthad'enclosedthe following note: 01.The assessee, Shri Ravinder Bahl, is anindividual.He was employed by ITCL-DELUXE, N.V.("HDX"),acompanyincorporatedunder the laws of Netherland.MCL-DELUXE,N.V.("HDX")hasasubsidiary company in India laiown as HCL-DELUXE,(INDIA), incorporated under theIndianlaws.ShriRavinderBahlwasrequired to attend to Internationalbusiness of"HDX",includingthat of HCL-DELUXEINC USA. In addition he was also requiredtoadministerandattendtobusinessoperations of HCL-DELUXE (INDIA) inIndia.The appointment of Shri RavinderBahl and payment of remunerationto himwas governedby termsand conditionsasstated in letter dated 22.06.98, a copy ofwhich is filed here with these papers. 02. "HDX" restructured its organizational set upin March 99.in March 99. (2) Along with the return of income the appellanthad'enclosedthe following note: 01.The assessee, Shri Ravinder Bahl, is anindividual.He was employed by ITCL-DELUXE, N.V.("HDX"),acompanyincorporatedunder the laws of Netherland.MCL-DELUXE,N.V.("HDX")hasasubsidiary company in India laiown as HCL-DELUXE,(INDIA), incorporated under theIndianlaws.ShriRavinderBahlwasrequired to attend to Internationalbusiness of"HDX",includingthat of HCL-DELUXEINC USA. In addition he was also requiredtoadministerandattendtobusinessoperations of HCL-DELUXE (INDIA) inIndia.The appointment of Shri RavinderBahl and payment of remunerationto himwas governedby termsand conditionsasstated in letter dated 22.06.98, a copy ofwhich is filed here with these papers. 02. "HDX" restructured its organizational set upin March 99.in March 99. 03."HDX"offered continuedemploymenttoShri RavinderBahl on terms and conditionsas laid out in letter dated April,6, 1999. Acopy of this letteris filed here with thesepapers.Thislettercarriedseveralpreconditions.It offered renewed employmentto Shri Ravinder Bahlfor a period of 4months only, i.e. for the period 06.04.99 to01.08.99.For this period of four months."HDX" offered to pay Shri Ravinder BahlShri RavinderBahl on terms and conditionsas laid out in letter dated April,6, 1999. Acopy of this letteris filed here with thesepapers.Thislettercarriedseveralpreconditions.It offered renewed employmentto Shri Ravinder Bahlfor a period of 4months only, i.e. for the period 06.04.99 to01.08.99.For this period of four months."HDX" offered to pay Shri Ravinder Bahl ^ remunerationon the same terms,conditionsand scale, as was previouslypaid to himunder letter dated 22.06.98.Refer para 2 ofletterdid. 06.04.99).In addition,"HDX"offered to pay Shri R. Bahl a further sum ofUS $ 10,00,000.00 styled "Extra Ordinarycompensation,"uponShriRavinderBahlagreeing to sign in advance and return letterdated06.04.99and to canyout and alsoagreeing to refrain from carrying out certainacts specifiedunder variousparagraphsofthe letter dated 06.04.99.This amount of US$ 10,00,000.00 was paid in two instalmentsas under:- a) US $ 5,00,000 upon prior signature andreturn of letter dated 06.04.99 by Shri R.Bahl to "HDX".(Refer para 3 of letterdtd, 06.04.99).return of letter dated 06.04.99 by Shri R.Bahl to "HDX".(Refer para 3 of letterdtd, 06.04.99).b) The balance of US $ 50,00,00 on the finalday as an employeeof "HDX"(Refersame para of letter dtd 06.04.99.day as an employeeof "HDX"(Refersame para of letter dtd 06.04.99.04.Shri Ravinder Bahl agreed and accepted.05. "HDX" paid US $ 10,00,000to Shri R. Bahlin U.S.A.Subsequentlythis amountwasremittedto India,and creditedto assesse'sSaving account with CITI Bank.05. "HDX" paid US $ 10,00,000to Shri R. Bahlin U.S.A.Subsequentlythis amountwasremittedto India,and creditedto assesse'sSaving account with CITI Bank. 06.Remunerationpaid each monthin India inIndian Rupees by "HDX" to Shri R. Bahl forthe period 06,04.99 to 01.08.99 under para 2of letter dated 06.04.99 has been included bythe assesseein his return of income filed forthe Ass.Year 2000-2001and offeredto betaxed.Indian Rupees by "HDX" to Shri R. Bahl forthe period 06,04.99 to 01.08.99 under para 2of letter dated 06.04.99 has been included bythe assesseein his return of income filed forthe Ass.Year 2000-2001and offeredto betaxed. •J 06.Remunerationpaid each monthin India inIndian Rupees by "HDX" to Shri R. Bahl forthe period 06,04.99 to 01.08.99 under para 2of letter dated 06.04.99 has been included bythe assesseein his return of income filed forthe Ass.Year 2000-2001and offeredto betaxed.Indian Rupees by "HDX" to Shri R. Bahl forthe period 06,04.99 to 01.08.99 under para 2of letter dated 06.04.99 has been included bythe assesseein his return of income filed forthe Ass.Year 2000-2001and offeredto betaxed. •J 07.Servicesof Shri Ravinder Bahl with "HDX"came to an end on 01.08,99.came to an end on 01.08,99.08.The assessee credited the proceeds of US $10,00,000(equivalentINR4,34,36,250/-)directly to his capital account.The assesseeis of the view that this receipt is a capitalreceipt, not subject to Indian Tax laws.Hehas accordingly not included this receipt inhisreturnofIncomeabove,andhasexplainedfacts by way of this note.Theassesseesubmitsthatthisreceiptis nottaxable for reasons made as below:-8.01 US $ 5,00,000 paid to the assessee atthe tinie of signingand returninginadvanceletterdtd06.04.99isnotareceipt against any services rendered byShriR.Bahlto "HDX"eitherasanemployee, of "HDX"or in any othercapacity.There was no legal or moralobligation on the part of "HDX" to payto Shri R. Bahl, OR, on the part of theassesseetoclaimfrom"HDX"thisamount under any circumstances.Theearlier"Employer",Employee"relationshipbetweenthe assesseeand"HDX" governed by the terms of letterdatd 22.06.99 had apparentlycome toanendon31.03.99withnocommitments or obligation on the partof "HDX" to pay Shri R. Bahl, OR, onthe part of Shri R. Bahl to receive anymonetaryconsiderationfrom "HDX".Ason06.04.99,the"Employer","Employee"relationshipbetweentheassesseeand "HDX"and Shri R. Bahlhad not been set up.The renewed10,00,000(equivalentINR4,34,36,250/-)directly to his capital account.The assesseeis of the view that this receipt is a capitalreceipt, not subject to Indian Tax laws.Hehas accordingly not included this receipt inhisreturnofIncomeabove,andhasexplainedfacts by way of this note.Theassesseesubmitsthatthisreceiptis nottaxable for reasons made as below:-8.01 US $ 5,00,000 paid to the assessee atthe tinie of signingand returninginadvanceletterdtd06.04.99isnotareceipt against any services rendered byShriR.Bahlto "HDX"eitherasanemployee, of "HDX"or in any othercapacity.There was no legal or moralobligation on the part of "HDX" to payto Shri R. Bahl, OR, on the part of theassesseetoclaimfrom"HDX"thisamount under any circumstances.Theearlier"Employer",Employee"relationshipbetweenthe assesseeand"HDX" governed by the terms of letterdatd 22.06.99 had apparentlycome toanendon31.03.99withnocommitments or obligation on the partof "HDX" to pay Shri R. Bahl, OR, onthe part of Shri R. Bahl to receive anymonetaryconsiderationfrom "HDX".Ason06.04.99,the"Employer","Employee"relationshipbetweentheassesseeand "HDX"and Shri R. Bahlhad not been set up.The renewed relationship between them and paymentof US $ 10,00,000 by "HDX" to Sliri R.Bahl depended solely upon Shri R. Bahlsigning or refusing to sign the letterdated 06.04.99, and agreeing to abideby the terms laid down in the said letter."HDX"offer to pay Shri R. Bahl isborne out of commercial expediencyand prudent business pohcy to ward offbusiness competitionand to safeguardandprotectitsbusinessoperations/interestin India. relationship between them and paymentof US $ 10,00,000 by "HDX" to Sliri R.Bahl depended solely upon Shri R. Bahlsigning or refusing to sign the letterdated 06.04.99, and agreeing to abideby the terms laid down in the said letter."HDX"offer to pay Shri R. Bahl isborne out of commercial expediencyand prudent business pohcy to ward offbusiness competitionand to safeguardandprotectitsbusinessoperations/interestin India. 8.02 ShriR.Bahlwasrequiredtoperform/refrainfromperformingthefollowing:-perform/refrainfromperformingthefollowing:-8.03 During the period 06.04.99 to 01.08.99,orsuchearlierdateaswastobeestabhshedby "HDX",to cooperatefully with the Deluxe Management, atitsdirection,initsselection,appointment,orientationand transitionto a successorchief executiveofficer,including personallyintroducingsuchperson to personnel of "HDX" and allsignificantsuppliersandcustomersknow to Shri R. Bahl. (Refer para 4 ofletter dtd., 06.04.99).orsuchearlierdateaswastobeestabhshedby "HDX",to cooperatefully with the Deluxe Management, atitsdirection,initsselection,appointment,orientationand transitionto a successorchief executiveofficer,including personallyintroducingsuchperson to personnel of "HDX" and allsignificantsuppliersandcustomersknow to Shri R. Bahl. (Refer para 4 ofletter dtd., 06.04.99).8.04 For a period of three years and fourmonthsfrom 06.04.99,Shri R. Bahl isnot to divulge, communicate or pass onany confidential information of HDX orDELUXEor any of theirrespectivesubsidiaries of any person who is not intheemploymentof"HDX"or"DELUXE" or any of their respectivesubsidiariesand whodoesnot haveaneedtoknowsuchinformationtomonthsfrom 06.04.99,Shri R. Bahl isnot to divulge, communicate or pass onany confidential information of HDX orDELUXEor any of theirrespectivesubsidiaries of any person who is not intheemploymentof"HDX"or"DELUXE" or any of their respectivesubsidiariesand whodoesnot haveaneedtoknowsuchinformationto perform the duties of his or her position.Refer para 6 of letter dtd. 06.04.99). 8.05 For a period of one year and fourmonthsfrom 06.04.99,Shri R.Bahlisnot to, directly or indirectly,(whichshallincludeanyactionstakenonbehalf of any third party), to recruit,hire or discuss employment with anyperson who is, or at any time on or afterJanuary 1, 1999 has been an employeeof HDX or any of its subsidiariesorotherwiseengagedin anyactivitiesdesigned to recruit or induce personnelof HDXanditssubsidiariestoleavetheiremploymentwithI-TDX or itssubsidiaries. (Refer para 7 of letter dtd.06.04.99).monthsfrom 06.04.99,Shri R.Bahlisnot to, directly or indirectly,(whichshallincludeanyactionstakenonbehalf of any third party), to recruit,hire or discuss employment with anyperson who is, or at any time on or afterJanuary 1, 1999 has been an employeeof HDX or any of its subsidiariesorotherwiseengagedin anyactivitiesdesigned to recruit or induce personnelof HDXanditssubsidiariestoleavetheiremploymentwithI-TDX or itssubsidiaries. (Refer para 7 of letter dtd.06.04.99).8.06 For a period of one year and fourmonthsfrom 06.04.99,Shri R.Bahlisnot to, directly or indirectly, accept anyinterestinanyproject,programorventure, or any commission, finder's feeor other compensationin connectionwith any project,programor ventureinvolving "HDX"or its subsidiaries inwhich Shri R. Bahl was engaged in theplanning or implementation during hisemployment with HDX. (Refer para 8of letter dtd 06.04.99).monthsfrom 06.04.99,Shri R.Bahlisnot to, directly or indirectly, accept anyinterestinanyproject,programorventure, or any commission, finder's feeor other compensationin connectionwith any project,programor ventureinvolving "HDX"or its subsidiaries inwhich Shri R. Bahl was engaged in theplanning or implementation during hisemployment with HDX. (Refer para 8of letter dtd 06.04.99). 8.07 For a period of one year and fourmonthsfrom 06.04.99,Shri R. Bahl isnot to, except as an employee of "FIDX,directly or indirectly, take advantage ofa coiporate opportunity unless Shri R.BahlfirstofferedtheopportunitytoHDX,andmakedisclosureofthemonthsfrom 06.04.99,Shri R. Bahl isnot to, except as an employee of "FIDX,directly or indirectly, take advantage ofa coiporate opportunity unless Shri R.BahlfirstofferedtheopportunitytoHDX,andmakedisclosureofthe materialfacts,and HDXrejectstheopportunity.A"corporateopportunity"hasbeen defined to be anopportunitytoengagein a businessactivity which is closely related to thebusinessin which"HDX"orone of itssubsidiaries is or expects to be engaged,and which is brought to the attention ofShriR.Bahlinconnectionv/iththeperformance of his duties for "HDX",orisonethatinthecourseof theperformance of his duties for "HDX"isreasonable expected to be of interest to"HDX"or its subsidiaries.(Refer para 9of letter dtd 06.04.99).8.08 FurdierShri R. Bahl was to assign to"HDX"oran"HDX"subsidiaiydesignated by "HDX", all rights, titleandinterest(collectivelyinthisparagraph, "right") in and to any and allinventions, discoveries and ideas and allotherworkproductsrelatedtothebusinessof "HDX"andits subsidiarieswhichShriRavinderBahlconceived,reduced to practice, reduced to writingor other storagemedia,or otherwisecreatedduringhisemploymentwith"HDX"or at any time within one yearthereafter.ShriR.Bahlwasalsotoexecute, with out delay, such additionalassignmentsandotherdocumentsas"HDX"determinedto be necessaryordesirabletosell,assign,transfer,confirm or otherwise perfect such rightsinandto"HDX"oritssubsidiaries.(Refer para 10 of letter dtd 06.04.99). •a. -j 7.The "facts" stated in the note are not undisputed. It is not thecase of the revenue that the facts sated in the note are incorrectorinaccurately record relevant clauses of the settlement between the 8. appellant and the HDX. The quantum of receipt or the moneyreceivedby the appellantis not debated and has been acceptedbythe revenue. r At this stage, it would be importantto reproduce Section271.(l)(c) of the Act and ExplanationI thereto:- "271. (1) If the Assessing Officer or theCommissioner(Appeals)][ortheCommissionerinthecourseofanyproceedingsunder this Act, is satisfiedthatany person— (a) (b) (c) has concealed the particulars of hisincome or furnished inaccurate particulars ofsuch income, or Explanation 7—Where in respect of anyfacts material to the computationof the totalincomeof any personunder this Act,— (A) such person fails to offer an explanationor offers an explanationwhich is found by•the AssessingOfficeror the [Commissioner(Appeals)or the Commissionerto be false,or (B) such person offers an explanationwhichhe is not able to substantiateand fails to that suchis bonafideandprove explanationthat all the facts relating to the same andmaterial to the computation of his totalincome have been disclosed by him, then, the amount added or disallowed incomputing the total income of such personas a result thereof shall, for the purposes ofclause (c) of this sub-section,be deemed to represent the income in respect of whichparticulars have been concealed." 9.The penalty under Section 271(l)(c)is imposed when anassessee conceals his income or furnishes inaccurate particulars. Intemis of the explanation, we have to examine and decide whetherthe case falls within Sub-clause'A' or 'B' and the effect thereof.Sub-clause A applies when the assessee fails to furnish anyexplanation or the explanation is found to be false. Sub-clause 'B'applieswhenexplanationis offeredby an assesseebut notsubstantiated. then, the amount added or disallowed incomputing the total income of such personas a result thereof shall, for the purposes ofclause (c) of this sub-section,be deemed to represent the income in respect of whichparticulars have been concealed." 9.The penalty under Section 271(l)(c)is imposed when anassessee conceals his income or furnishes inaccurate particulars. Intemis of the explanation, we have to examine and decide whetherthe case falls within Sub-clause'A' or 'B' and the effect thereof.Sub-clause A applies when the assessee fails to furnish anyexplanation or the explanation is found to be false. Sub-clause 'B'applieswhenexplanationis offeredby an assesseebut notsubstantiated. 10.In the present case as noted above, the assessee had furnishedhis explanationand the same was not found to be "factually"incorrect or false. The legal inference drawn from the "facts", i.e.,the receipt was revenue in nature, was found to be untenable. Sub-clause 'B'to Explanation is, therefore, applicable and we have toexamine whether the twin requirements mentioned in Sub-clause'B'aresatisfied.Thefirstconditionof Sub-clause'B'toExplanation1 is that the assessee shouldhave furnished facts andmaterialrelatingto computationof hisincome.Quantumofpayment and the terms and conditions on which the payment hadbeen received were clearly disclosed in the note. In our opinion,therefore, the appellant assessee had stated full and correct factsand nothing was concealed or withheld from the revenue. The firstrequirement is therefore satisfied. --_v' 11.The second requh-ementof Sub-clause'B' to the Explanation1is that the claim or grounds for making the claim should be bonafide i.e. the claim should have been made in good faith. This issuehas been decidedtheas the was revenue against appellant receiptin natureandthe contest/claimmadewasnotbona fide orplausible. The explanationgivenby the appellantassesseethat thewashas not beenonreceipt capital receipt accepted legal groundsrelying upon Section 17 (3) sub-clauses(i) & (iii). 12.The note quoted above elucidates and highlights that thepayment received included several promises and obligationsaccepted by the appellantpost terminationof the employment.These obligations have been highlighted in paragraphs 8.03 to8.09. The contention of the appellant was that in view of the saidclauses, the payment received was capital in nature and should notbe taxed as a revenue receipt.The payment received was notcovered by Section 17(3) Sub-clause (i) and (iii).Havingconsidered and examined the note, submission and contentionsraised, it cannot be said that the pleas raised by the appellantweredevoid of substance and deserved unceremonious or outrightrejection.Pleasandissuesraisedmeritedexaminationandconsideration. They were plausible. The pleas have to be read and. noticed,along with the fectual positionthat the appellanthad paidfull amount of advance tax after including Rs.4,34,36,250/. Hehad asked for refond of Rs.1,45,11,285/-. The assessing officer,therefore,had occasionand cause to examinethe return, before Page 15 ofi J I sanctioningand issuing refund of Rs.1,45,11,285/-.The claimmadeandthecontentionwouldnothaveescapednoticeorignored. It would have attractedattentionof the assessingofficerand indeed the assessing officer took notice. The appellanthadensured that the assessing officer fully applies his mind to thecontentions and issues raised.Good faith is apparent. These arerelevantfactorswhenweexaminewhethertheconduct/explanationwas bona fide or not.Commissioner(Appeals)had in the quantumproceedingshad partlyacceptedtheclaim of the assessee and had observedthat 50% of the amountreceived was capital in nature, while the balance amount wastaxable as a revenue receipt. Page 15 ofi J I sanctioningand issuing refund of Rs.1,45,11,285/-.The claimmadeandthecontentionwouldnothaveescapednoticeorignored. It would have attractedattentionof the assessingofficerand indeed the assessing officer took notice. The appellanthadensured that the assessing officer fully applies his mind to thecontentions and issues raised.Good faith is apparent. These arerelevantfactorswhenweexaminewhethertheconduct/explanationwas bona fide or not.Commissioner(Appeals)had in the quantumproceedingshad partlyacceptedtheclaim of the assessee and had observedthat 50% of the amountreceived was capital in nature, while the balance amount wastaxable as a revenue receipt. 13.Taxationprovisionscan be complex, debatableand capable ofdifferent interpretation. ¥/hen an assessee discloses true andcoiTect facts; takes a positionin law and the positionwas plausibleand arguable,penaltyshould not be imposed. It is not unusualforan assessee to fie or make a claim but not succeeded for legal ortechnical reasons. But additionor disallov/ancemade does everynot justifyor mandatelevy ofpenalty. Penaltyis not an automaticor mandatoryconsequence,when additionis made, an expense isdisallowedor a receipt is taxed as a revenue receipt. In ShervaniHospitalitiesv. CIT; (2013) 5 AD Delhi 601 it has been obsei-vedas under: "14. Thus penalty under Section 271(l)(c) isimposed when an assessee conceals his Page 16 of] j, ,J ' income or llirnishes inaccurateparticulars.In terms of the Explanation^ we have toexaminewhetherthe casefallswithinthetwo limbs viz. sub-clause (A) or (B) and theeffect thereof. Clause A applieswhen anassessee fails to furnish any explanation orwhen an explanation is found to be false. Inrespect of the two additions being examined,the assesseehad furnishedan explanationand the explanation has not been found to befactually incorrect or false. The fact that theexpenditure was incurred and spent by theassessee is not disputed or denied but theclaim of the assesee that it should be treatedas revenue expense has been held to be awrong claim. It is a case where the assesseewas not been able to substantiacethe claim.The explanation given by him has not beenaccepted on legal grounds. Sub-clause (B) tothe Explanation is applicable and we have toexaminewhethertwoconditions;(i)theassesseehasbeenabletoshowhisexplanation was bona fide and (ii) he hadilirnished facts and material relating to thecomputationofhisincomehadbeendisclosed.Onuson establishingthattheassesseesatisfiesthe two conditionsis onhimi.e.the assessee.We will examinethesecond conditionfirst.^-sWr ;V 'k'k'kWehaveextensivelyreferredtothesejudgments, only to show that the issue raisedby the assessee was debatable and capableof two views. The assessee had an arguablecaseorhadtakena bonafideplea.Theassesseehad givenhisexplanationandcategorically and clearly stated the true and. full facts in the return itself He did not try ^ IJ ^ IJ to camouflageor cover up the expensesclaimed.It is not uncommonand unusualforan assessee to bonafidely claim a particularexpenditureas a revenuedeductionandexpense but not succeed. Every addition ordisallowancemadedoesnot justifyandmandatelevy of penaltyfor concealmentunder Section 271(l)(c) of the Act. Levy ofpenaltyis not an automaticconsequencewhen an addition is made by disallowing anexpenseandbynotacceptingtheinterpretation given by the assesse. As statedabove, (he plea and contention raised by theassesseehastobe examinedbeforeitisdecided whether or not the assessee has beenable to bring his case within the four cornersof the Explanation. 20. Explanation 1 clearlystipulates that the penalty can be imposedwhen the details furnishedby the assesseearefoundto be incorrect,erroneousandfalse. Merely making a claim which is heldas not sustainableunder law should not leadto penalization, when the assessee hadfurnishedfull detailsin the return itself andtheclaimisadebatable, reasonablyplausible or may well have been accepted.(See CITReliance Peiro Product Pvt.Ltd.2010322ITR158(SC),CITvs.Dharampal Premchand Ltd. 2011 329 ITR572(Del.),CITvs.SocieiexITANo.1190/2011decided on 19.07.2012,by thisCourt), In Karan Raghav ExportsCIT(2012)349ITR112(Del.),ithasbeenobservedas under:-"14. On the second aspect, we recordthat a wrong deductionclaimedcanamounttofurnishingofincorrectparticulars. However, that is not the - ^ ( ! issueinquestion.Theissueinquestion is whether the appellant hasbeen able to discharge the onus under•Explanation1 toSection271andshow that the claim made by them orthe explanation offered with regard tothe claim made was bona fide and thatthe facts relating to the sameandmaterial for computation of the totalincome had been disclosed.These aretwofacetsofclause(B)toExplanationi. As far as disclosure offacts is concerned,this is clear fromthe note, which was attached with thereturnitself.We havequotedtherelevant portion, of the note above.Full and correct facts have been statedin the said note. The other question iswhether the claim made was palpablywrongandlegallyuntenableoradebatableandplausibleclaimonwhich the assesseedid not succeed onlegalinterpretation.Wehaveexaminedthenatureoftheclaimmade and the findings recorded by theHigh Court in their order dated 1stNovember, 2010. The claim made bythe appellant may have been rejected,but it cannot be said that the same wasnot plausible or legally tenable. Thisaspect has been discussed above andit has beenheldthat the claimmadewasbona fide.Regardingthe legalopinion in writing, it is not mandatoryfor a person to obtain legal opinion inwriting.Assesseesdotakelegalopinion and in the present case thereturn of income was duly audited. Claim for depreciation is a technicalclaim based on interpretation of legalprovision.Legalopinion,insuchcases,isfrequentlygivenbyCharteredAccountantsto helpthecompanytoprepareitsreturnoftaxable income. In the present case,there is no allegation that the quantumof depreciation claim was incorrectlycomputed.Thenoteitselfindicatesthat it is written by a professional,"of Income IncomeTax v.Zoom v.Zoom ITR510 (Del), it was observed: (Del), it was observed:"Thepropositionof lawwhichemergesfronithiscase,whenconsideredinthebackdrop of the facts of the case before thecourt, is that so long as the assessee has notconcealedany materialfact or the factualinformationgivenby himhasnot beenfound to be incorrect,he will not be liable toimposition of penalty under section 271(1)(c) of the Act, even if the claim made byhim is unsustainable in law, provided that heeither substantiatesthe explanation offeredby himor the explanation,evenif notsubstantiated,is foundto be bona fide.Ifthe explanationis neither substantiatednorshown to the bona fide, Explanation1 tosection 271(l)(c) would come in to play andtheassesseewillbeliabletofortheprescribed penalty.The assessee before us is a company •whichdeclaredanincomeofRs. 1,21,49,861/-and accountsof which aremandatorilysubjected to audit.It is not thecase of the assesseethat it was advisedthat 14.In Commissionerof Income IncomeTax v.Zoom v.ZoomCommunicationP.Ltd.; [2010] 327 ITR510 (Del), it was observed: (Del), it was observed: the amount of income tax paid by it could beclaimed as a revenue expenditure.It is alsonot the case of the assessee that deduction ofincome-tax paid by it was a debatable issue.In fact, in view of the specific provisionscontained in section 40(a)(ii) of the Act, nosuch advice could be given by an auditor orother tax expert.No such advice has beenclaimed by the assessee even with respect tothe amount claimedas deductionon accountof certain equipment having become uselessand having been written offAs noticedearlier, the Tribunal was entirely wrong insaying that section 32(])(iii)of the Actapplies to such a deduction. It was not thecontentionbefore us that claiming of such adeductionundersection32(l)(iii)wasadebatableissueon whichthereweretwoopinions prevailing at the relevant time. Infact, the assessee did not claim, either beforetheAssessingOfficerorbeforetheCommissioner of Income-tax (Appeals) thatsucha deductionwaspermissibleundersection32(l)(iii)of the Act.No suchcontentionon behalf of the assesseefindsnoted in the order of the Tribunal,Thus, itwas the Tribunalwhich took the view thatsection 32(l)(iii)could be attracted to thededuction claimed by the assessee. It is alsonot the case of the assessee that it was underabonafidebelief thatthesetwoamounts'Could be claimedas revenueexpenditure.The assessee,in fact, outrightlyconcededbeforetheAssessingOfficerthattheseamountscouldnothavebeenclaimedasrevenue deductions.The only plea taken bytheassesseebeforetheincome-taxauthoritieswas that it was due to oversight that the amount of income -tax paid b}/ theasesseeas wellastheamountclaimedasdeductionon account of certain equipmentbeing written off could not be added back inthe computation of income." 15.In Devsons P. Ltd.v, CIT [2010] 329 ITR 483 (Del.), it hasbeen held that when a legal issue arises for consideration, which isdebatable but the claim made by the assessee is not fully accepted,there is no justificationto invoke the penalty provisionsunderSection271(l)(c)of the Act.Divergentlegal views on legalinterpretation of a Statute are not Icnown, and it is not necessarythere that should be uniformityor consensus of opinion on theaspects of law and the assessee must accept adverse interpretationin absence of a favourable decision.Penalty cannot be imposedwhen an assessee has taken a legal stand, unless the assessee hasnot disclosed facts before the department/authority and is unable toestablish his bona fides on legal interpretations putforward. 16.InCommissionerof IncomeTax,Ahmedabadv. ReliancePetroproducts Pvt. Ltd; [2010] 322 ITR 158 (SC) it was observedas under:"A glance at this provisionwould suggestthat in order to be covered,there has to beconcealment of the particulars of the incomeof the assessee.Secondly, the assessee musthave furnishedinaccurate paiticularsof hisincome.Thepresentisnotacaseofconcealmentof the income.That is not thecase of the Revenueeither.Mowever,the 16.InCommissionerof IncomeTax,Ahmedabadv. ReliancePetroproducts Pvt. Ltd; [2010] 322 ITR 158 (SC) it was observedas under:"A glance at this provisionwould suggestthat in order to be covered,there has to beconcealment of the particulars of the incomeof the assessee.Secondly, the assessee musthave furnishedinaccurate paiticularsof hisincome.Thepresentisnotacaseofconcealmentof the income.That is not thecase of the Revenueeither.Mowever,the learned counsel for Revenue suggested thatbymakingincorrectclaimfortheexpenditureon interest, the assesseehasfurnishedinaccurateparticularsoftheincome.As per Law Lexicon, the meaningof the word "particular" is a detail or details(in plural sense; the details of a claim, or theseparate item of an account. Therefore, theword"particulars"usedinthesection271 (l)(c) would embrace the meaning of thedetails of the claim made.It is an admittedpositioninthepresentcasethatnoinformation given in the return was found tobe incorrect or inaccurate.It is not as if anystatement made or any detail supplied wasfound io be factually incon-ect.Hence, atleast, prima facie, the assessee cannot beheldguiltyoffurnishinginaccurateparticulars. The learned counsel argued that"submitting an incorrect claim in law for theexpenditure on interest would amount togivinginaccurateparticularsofsuchincome".We do not think that such can bethe interpretation of the concerned words.The words are plain and simple. In order toexpose the assessee to the penalty unless thecase is strictly covered by the provision, thepenalty provision cannot be invoked.Byany stretch of imagination, making anincorrectclaimin law cannot tantamounttofurnishing maccurate particulars.In CIT v.Atul MohanBindal;[2009]9 SCC589,where this court was consideringthe sameprovision; thecourt observed thattheAssessing Officer has to be satisfied that aperson has concealed the particulars of hisincome or furnished inaccurate particulars ofsuch income. This court referred to another ( decisionof this courtin Union of India v.DharamendraTextile Processors;[2008]13see 369 as also, the decisionin Union ofIndia v. Rajasthan Spt. & Wvg. Mills [2009^13 see 448 and reiterated in paragraph 13that:'•'13.Itgoeswithoutsayingthatforapplicability of section 271(l)(c), conditionsstated therein must exist.Therefore,itisobviousthatitmustbeshownthattheconditionsundersection271(l)(c)must exist before the penalty isimposed.There can be no dispute thateverything would depend upon the returnfiledbecausethatis theonlydocument,wheretheassesseecanfurnishtheparticulars of his income.When suchparticulars are found to be inaccurate, theliability would arise. In Dilip N. Shroff v.Joint eiT:[2007] 6 See 329, this courtexplained theterms"concealment ofincome"and"furnishinginaccurateparticulars".The court went on to holdtherein that in order to attract the penaltyundersection,271(l)(c),mensreawasnecessary, as according to the court, theword "inaccurate"signified a deliberate actor omissionon behalf of the assessee.Itwent on to hold that clause (iii) of section271(1) (c) provided for a discretionaryjurisdiction upon the assessing authority,inasmuch as the amount of penalty could notbe less than the amount of tax sought to beevaded by reason of such concealment ofparticularsof income, but it may not exceedthree times thereofIt was pointed out thatthe term "inaccurateparticulars"was notdefined anywhere in the Act and, therefore. it was held ihat furnishing of an assessmentof the value of the property may not by itselfbe furnishing inaccurate particulars.It wasfurther held that the Assessing Officer mustbe found to have failed to prove that hisexplanation is not only not bona fide but allthe facts relating to the same and material tothe computationof his incomewerenotdisclosedby him.It was heldthat theexplanation must be preceded by a findingas to how and in what manner, the assesseehad furnished the particulars of his income.The court ultimately went on to hold that theelementof mens rea was essential.-It wasonly on the point of menrea thatthejudgment in Dilip N.Shroff v. Joint CIT wasupset.In Union of Inida v. DharamendraTextileProcessors,afterquotingfromsection 271 extensively and also consideringsection 27I(l)(c), the court came to theconclusionthatsincesection271(l)(c)indicated the element of strict liability on theassessee for the concealmentor for givinginaccurate particulars while filing return,there was no necessity of mens rea.Thecourtwenton to holdthattheobjectivebehind the enactmentof section271(l)(c)read with Explanations indicated wiih thesaid section was for providing remedy forloss of revenue and such a penalty was acivilliabilityand,therefore,'wilfulconcealmentis not an essentialingredientfor atti'acting civil liability as was the case inthematterof prosecutionundersection276Cof theAct. Thebasicreasonwhydecision in Dilip N. Shroff v. Joint CIT wasoverruled by this court in Union of India v.DharamendraTextilePocessors,wasthat accordingtothiscourttheeffectanddifferencebetweensection271(l)(c)andsection 276C of the Act was lost sight of inthe case of Union of India v. DharamendraTextile Processors2,no fault was found withthe reasoningin the decisionin Dilip N.ShroffV.JointCIT,wherethecourtexplainedthemeaningoftheterms"concea]"and"inaccurate".It was only theultimate inference in Dilip N. Shroff v. JointCITtotheeffectthatmensreawasanessential ingredient for the penalty undersection 271(1) (c) that the decision in DilipN. Shroff V. Joint CIT was overruled.We are not concernedin the presentcasewith the mensrea. However,we have toonly see as to whether in this case, as amatteroffact,theassesseehasgiveninaccurateparticulars.InWebster'sDictionary, the word "inaccurate" has beendefinedas:Not accurate,not exact or correct;notaccordingtotruth;eiToneous;asaninaccurate statement, copy or transcript.We have already seen the meaning of theword "particulars" in the earlier part of thisjudgment.Readingthewordsinconjunction, they must mean the detailssuppliedin thereturn,whicharenotaccurate, not exact or correct, according totruth or erroneous.We must hasten to addhere that in this case, there is no finding thatany details supplied by the assesseein itsreturnwerefoundtobeincorrectoreiToneous or false. Such not being the case,there would be no question of inviting thepenalty under section 271(l)(c) of the Act.A mere making of the claim, which is not i. J V sustainable in law, by itself, will not amounttofurnishinginaccurateparticularsregarding the income of the assessee.Suchclaimmadein the return cannot amount tothe inaccurate particulars. 17.In view of the aforesaid discussion, we are satisfied that this isa fit case wherein the explanation offered by the assesseeestablishesand proves his bona fides.The same should beaccepted especially when he had filed a detailed note and had alsopaid tax and had asked for reflmd of tax. The question of law isaccordingly, answered in favour of the appellant and against therevenue. Penalty under Section 271 (I) (c) is directed to deleted. 18.Appeal is disposed of with no orders as to costs. SANJIVKHANNA,,J a SANJEEV SACHDEVA, J OCTOBER 07, 2013/sv