GRUH FINANCE LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2008-LL-0516-5]

Citation 2008-LL-0516-5
Appellant Name GRUH FINANCE LTD.
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 16/05/2008
Assessment Year 1998-99
Judgment View Judgment
Keyword Tags development of infrastructure • infrastructure development • infrastructure facility • industrial undertaking • computation of income • concealment of income • imposition of penalty • legislative intention • income from business • business of a hotel • computing deduction • business of export • gross total income • deeming provision • long-term finance • source of income • concealed income • interest on fdrs • original return • reserve account • export turnover • business profit • interest earned • interest income • total turnover
Bot Summary: The proportionate income not eligible for deduction under s. 36(1)(viii) was calculated at Rs. 47.02 lacs in the following manner : Rs. 295.82 Total business income taken for calculation lacs Gross business income taken for calculation of Rs. 3,481.98 deduction lacs Rs. 553.57 Amount of income not eligible for deduction lacs Income to be excluded for deduction Rs. 47.02 295.82 x 553.57 lacs 3,481.98 The AO on the basis of the total business income from business o f providing long-term housing finance computed the deduction under s. 36(1)(viii) at Rs. 84,24,228 in the following manner : Income as per order under s. 250 dt. 3-6-2003 1,10,334 Rs. Total business income 2,95,82,570 Less : Income from business of other than providing long-term housing loan As per working filed along with the Rs. return 38,20,000 Income by way of EMI, discounting charges, bank interest, fees and other Rs. Rs. charges, etc; 47,02,000 85,22,000 Income from providing long-term Rs. housing loan 2,10,60,570 Thus, the excess deduction of Rs. 68,66,728 was withdrawn Rs. 1,55,75,000 as claimed and allowed in original assessment Rs. 84,24,228. The CIT(A) allowed the deduction to the assessee under s. 36(1)(viii) in respect of the income earned by the assessee as Pre-EMI and fees and other charges for processing the loan applications for housing finance but the CIT(A) did not agree with the contention of the assessee so far as the income received by the assessee by way of discounting charges on the activities of discounting facilities to various customers amounting to Rs. 52.92 lacs and interest receipts amounting to Rs. 290.42 lacs received by the assessee on the bank deposits and other inter-corporate deposits, is concerned. The income derived by way of interest is the income from the business of housing finance as the immediate source of s u c h income is the business of providing the long-term housing finance. From the reading of the said circular also it is clear that the intention of the Government is not to allow the deduction under s. 36(1)(viii) in respect of the income derived from activities other than specified under s. 36(1)(viii) and with that intention s. 36(1)(viii) was amended by the Finance Act, 1995 and accordingly the deduction under s. 36(1)(viii) was restricted to not exceeding 40 per cent only in respect of the income derived from providing long-term finance for the activities specified in s. 36(1)(viii). Explanation 1 to s. 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. In view of this, we are of the view that it is not a fit case where penalty under s. 271(1)(c) can be imposed, as the assessee has not concealed the particulars of income or furnished inaccurate particulars of income.


P.K. BANSAL, A.M. ORDER appeal (ITA No. 3031/Ahd/2004) is filed by assessee against order passed by Commissioner of Income-tax (Appeals)-VIII, Ahmedabad ["the CIT(A)" for short] dt. 12th Aug., 2004 for asst. yr. 1998-99. 2. appeal (ITA No. 2867/Ahd/2007) is filed by Revenue against order passed by CIT(A) dt. 25th April, 2007 for asst. yr. 1998-99, whereby CIT(A) has cancelled penalty levied under s. 271(1)(c) of IT Act, 1961 ("the Act" hereinafter). ITA No. 3031/Ahd/2004 : 3 . only issue involved in this appeal is claim of deduction by assessee under s. 36(1)(viii) amounting to Rs. 155.75 lacs being 40 per cent of profits derived from discounting charges Rs. 52.92 lacs and interest on bank deposit + ICD of Rs. 290.42 lacs. brief facts of case are that AO noted that following incomes earned by assessee are not in nature of housing finance : (i) Pre-EMI amount Rs. 7.89 lacs (ii) Discounting charges Rs. 52.92 lacs (iii) Interest on bank deposit + ICD Rs. 290.42 lacs (iv) Fees and other charges Rs. 202.34 lacs Rs. 553.57 lacs He accordingly initiated proceedings under s. 147 by issuing notice under s. 148 dt. 3rd Oct., 2002. AO ultimately held that aforesaid sum of Rs. 553.57 lacs is not income derived by assessee from its business of providing long-term finance for purchase/construction of residential house, though not eligible for computation of deduction under s. 36(1)(viii) has not been considered as eligible income and such deduction has been wrongly claimed and allowed in excess than what was admissible. proportionate income not eligible for deduction under s. 36(1)(viii) was calculated at Rs. 47.02 lacs in following manner : Rs. 295.82 Total business income taken for calculation lacs Gross business income taken for calculation of Rs. 3,481.98 deduction lacs Rs. 553.57 Amount of income not eligible for deduction lacs Income to be excluded for deduction = Rs. 47.02 295.82 x 553.57 lacs 3,481.98 AO, therefore, on basis of total business income from business o f providing long-term housing finance computed deduction under s. 36(1)(viii) at Rs. 84,24,228 in following manner : Income as per order under s. 250 dt. Rs. 30-6-2003 1,84,76,820 Add : Deduction allowed under s. 36(1)(viii) as per original order under s. Rs. 143(3) dt. 11-8-2000 1,55,75,000 Rs. 3,40,51,820 Rs. Less : Capital gain 45,79,584 Rs. 2,94,72,236 Add : Excess deduction allowed in Rs. order under s. 250 dt. 3-6-2003 1,10,334 Rs. Total business income 2,95,82,570 Less : Income from business of other than providing long-term housing loan (1) As per working filed along with Rs. return 38,20,000 (2) Income by way of EMI, discounting charges, bank interest, fees and other Rs. Rs. charges, etc; 47,02,000 85,22,000 Income from providing long-term Rs. housing loan 2,10,60,570 Thus, excess deduction of Rs. 68,66,728 was withdrawn [Rs. 1,55,75,000 as claimed and allowed in original assessment Rs. 84,24,228]. 4 . assessee being aggrieved, went in appeal before CIT(A). CIT(A) allowed deduction to assessee under s. 36(1)(viii) in respect of income earned by assessee as Pre-EMI and fees and other charges for processing loan applications for housing finance but CIT(A) did not agree with contention of assessee so far as income received by assessee by way of discounting charges on activities of discounting facilities to various customers amounting to Rs. 52.92 lacs and interest receipts amounting to Rs. 290.42 lacs received by assessee on bank deposits and other inter-corporate deposits, is concerned. CIT(A) took view that in view of decision of Hon ble Supreme Court in case of CIT vs. Sterling Foods (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC) this income cannot be said to have been derived from business of providing long-term housing finance. 5 . Before us, learned Authorised Representative vehemently contended that assessee has received funds from National Housing Bank and other financial institutions. When funds were not temporarily required, same are deposited by assessee in bank deposits or advances as inter-corporate deposits. income derived by way of interest is income from business of housing finance as immediate source of s u c h income is business of providing long-term housing finance. Reliance was also placed on following case law : Rajeev Enterprises vs. AO (2003) 78 TTJ (Jp)(SB) 330; Asstt. CIT vs. Gallium Equipment (P) Ltd. (2001) 73 TTJ (Del)(TM) 130 : (2001) 79 ITD 41 (Del)(TM); Honda Siel Power Products Ltd. vs. Dy. CIT (2000) 69 TTJ (Del) 97 : (2001) 77 ITD 123 (Del). 6 . learned Departmental Representative, on other hand, contended that provisions of s. 36(1)(viii) are very clear. assessee is entitled for deduction only on profits derived from business of providing long-term finance for construction or purchase of houses in India for residential purposes. discounting charges of Rs. 52.92 lacs earned by assessee for providing discounting facilities to various customers, immediate source of amount, is discounting facilities made available by assessee company to various parties and not business of providing housing finance. Similarly in respect of interest of Rs. 290.42 lacs received by assessee company on deposits and inter-corporate deposits made out of funds received from National Housing Bank and other financial institutions which were not immediately required for purpose of business, immediate source of this interest is therefore deposits with bank or deposits with other corporate body. immediate source is not providing long- term finance for construction or purchase of houses in India. Reliance was placed on decision of Hon ble Supreme Court in case of CIT vs. Sterling Foods (supra). 7 . We have carefully considered rival submissions and perused material on record along with order of tax authorities below. We have also gone through provisions of s. 36(1)(viii). relevant portion of this section stipulates as under : "36. (1) deductions provided for in following clauses shall be allowed in respect of matters dealt with therein, in computing income referred to in s. 28 .............. (viii) in respect of any special reserve created (and maintained) by financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or by public company formed and registered in India with main object of carrying on business of providing long-term finance for construction or purchase of houses in India for residential purposes, amount not exceeding forty per cent of profits derived from such business of providing long-term finance computed under head "Profits and gains of business or profession" (before making any deduction under this clause), carried to such reserve account :......... Provided............ that where aggregate of amounts carried to such reserve account from time to time exceeds (twice amount of) paid-up share capital (and of general reserves) of corporation (or, as case may be, company), no allowance under this clause shall be made in respect of such excess. Explanation In this clause, (a) "financial corporation" shall include public company and Government company; (b) "public company" shall have meaning assigned to it in s. 3 of Companies Act, 1956 (1 of 1956); (c) "Government company" shall have meaning assigned to it in s. 617 of Companies Act, 1956 (1 of 1956); (d) "infrastructure facility" shall have meaning assigned to it in cl. (23G) of s. 10; (e) "long-term finance" means any loan or advance where terms under which moneys are loaned or advanced provide for repayment along with interest thereof during period of not less than five years;" words "industrial or agricultural development or development of infrastructure facility in India" ending with words "to such reserve account" were substituted by Finance Act, 1995 w.e.f. 1st April, 1996. Prior to its substitution quoted portion is amended by Finance Act, 1979 w.e.f. 1st April, 1980 and Finance Act, 1985, w.e.f. 1st April, 1985, reads as under : "industrial or agricultural development in India or by public company formed and registered in India with main object of carrying on business of providing long-term finance for construction or purchase of houses in India for residential purposes, amount not exceeding forty per cent of total income (computed before making any deduction under this clause and Chapter VI-A) carried to such reserve account." From plain reading of this section it is apparently clear that prior to amendment being made by Finance Act, 1997, assessee was entitled for deduction in respect of any special reserves created and maintained by financial corporation which is engaged in providing long-term finance for industrial or agricultural development or development of infrastructure facility in India or by public company formed and registered in India with main object of carrying on business of providing long-term finance for construction or purchase of houses in India for residential purposes amount not exceeding forty per cent of total income computed before making any deduction under this clause and Chapter VI-A carried to such reserve account, Finance Act, 1995 restricted deduction not exceeding forty per cent only on profits derived from such business of providing long-term finance. intention of bringing this amendment was also mentioned in Finance Bill, 1995 and subsequently Circular No. 717, dt. 14th Aug., 1995 [(1995) 127 CTR (St) 21] was issued. relevant portion of said circular reads as under : "Deduction in respect of income from long-term finance for development of infrastructure facilities 26.1 Under cl. (viii) of sub-s. (1) of s. 36 of IT Act, 1961, prior to its amendment by Finance Act, 1995, approved financial corporation engaged in providing long-term finance for industrial or agricultural development in India, or approved public company formed and registered in India with main object of carrying on business of providing long-term finance for construction or purchase of residential houses, was entitled to deduction of amount not exceeding 40 per cent of its total income carried to special reserve. deduction was allowed on total income and not with reference to income from activities specified in s. 36(1)(viii). 26.2 It was noticed that many of these approved financial corporations/ approved public companies had diversified their activities and were claiming deduction under this section even in respect of their income derived from activities other than those specified in this section. As there was no justification for allowing deduction with reference to income from other activities or from sources other than business, Finance Act, 1995, has amended s. 36(1)(viii) to limit deduction to 40 per cent only in respect of income derived from providing long-term finance for activities specified in s. 36(1)(viii). Now, income arising from other business activities or from sources other than business will not be taken into account for computing deduction under s. 36(1 )(viii)." From reading of said circular also it is clear that intention of Government is not to allow deduction under s. 36(1)(viii) in respect of income derived from activities other than specified under s. 36(1)(viii) and with that intention s. 36(1)(viii) was amended by Finance Act, 1995 and accordingly deduction under s. 36(1)(viii) was restricted to not exceeding 40 per cent only in respect of income derived from providing long-term finance for activities specified in s. 36(1)(viii). Notes on Clauses explaining scope of amended s. 36(1)(viii) as appearing in (1995) 124 CTR (St) 204 : (1995) 212 ITR (St) 298 reads as under : "Clause 10 seeks to amend s. 36 of IT Act relating to other deductions. Sub-cl. (a) seeks to amend cl. (viii) of sub-s. (1) of s. 36 which provides that approved financial corporation engaged in providing long-term finance for industrial or agricultural development in India, or approved public company formed and registered in India with main object of carrying on business of providing long-term finance for construction or purchase of residential houses, is entitled for deduction of amount not exceeding 40 per cent of total income. It is proposed, with view to promoting infrastructure development to amend aforesaid clause so as to allow deduction to approved financial corporation which provide long-term finance for development of infrastructure facility. It is further proposed to restrict deduction only to 40 per cent of profits derived from business of long-term financing only from activities specified in said clause. Thus, it will take outside scope of this section income arising from other business or falling under other heads of income." Memorandum Explaining Provisions dealing with s. 36(1)(viii) as contained in cl. 10 of Finance Bill, 1995 by which s. 36(1)(viii) is proposed to be amended appearing at (1995) 124 CTR (St) 233 : (1995) 212 ITR (St) at p. 337 clarifying legislative intention of brining this amendment reads as under : "Deduction in respect of income from long-term finance for development of infrastructure facilities Under cl. (viii) of sub-s. (1) of s. 36 of IT Act, 1961, approved financial corporation engaged in providing long-term finance for industrial or agricultural development in India, or approved public company formed and registered in India with main object of carrying on business of providing long- term finance for construction or purchase of residential houses, is entitled for deduction of amount not exceeding 40 per cent of its total income carried to special reserve. deduction is allowed on "total income" and not with reference to income from activities specified in s. 36(1)(viii). These organizations have diversified their activities and are claiming deduction under this section even in respect of their income from activities other than those specified in this section. There is no justification for allowing deduction with reference to income from other activities or from sources other than business. It is, therefore, proposed to limit deduction of 40 per cent only to income derived from providing long-term finance for activities specified in s. 36(1)(viii). It will thus be outside purview of deduction, income arising from other business or from sources other than business. Development of infrastructure is important area requiring fiscal support for encouraging private sector participation. Bill proposes to amend s. 36(1)(viii) of IT Act to extend benefit of deduction upto 40 per cent of income credited to special reserve account to approved financial corporations providing long-term finance for development of infrastructure facilities in India. proposed amendments will take effect from 1st April, 1996, and will, accordingly, apply in relation to asst. yr. 1996-97 and subsequent years. (Clause 10)" 8. We have also gone through case law as relied upon by learned Authorised Representative. In case of Rajeev Enterprises vs. AO (supra), question before Special Bench was : "Whether, on facts and circumstances of case, earning of interest on its idle and surplus funds temporarily invested by assessee constitutes business so as to be eligible for deduction under s. 80HHC of IT Act or such income is to be treated as income from other sources." facts of this case are that assessee firm was 100 per cent exporter in asst. yr. 1990-91. It disclosed net profit at Rs. 28,73,275 including interest income of Rs. 59,544. assessee claimed deduction under s. 80HHC on total income returned. AO held that interest income of Rs. 59,544 was liable to be assessed. under head "Income from other sources" and, therefore, was not entitled for deduction under s. 80HHC. matter travelled to Tribunal. Special Bench was constituted as different Tribunals have taken different views. Special Bench of Tribunal under para 40 has held as under : "40. In our considered opinion, case of present assessee falls under categories (i) and (iii), mentioned above. From record of assessee, i t is seen that as matter of accommodation, which is mutually beneficial, advances are given or taken for short duration by assessee or its sister concerns. assessee is giving or taking loans as reciprocal arrangement to facilitate its business operation. accounts maintained with above parties are like current accounts. Sometimes, there is credit balance and other times, there is debit balance. interest is paid or received as compensatory measure. loan given or taken in above circumstances cannot be treated as investment. It is only incident of business. As transaction or activity, it does not have sufficient weight to qualify as source of income for taxation. activity cannot be taken as money-lending business. It is neither regular, nor continued, nor would satisfy test of business if its volume is taken into account. Last year, above referred to two parties had advanced loans to assessee and there were closing credit balances of Rs. 4,14,051 and Rs. 2,36,382 in accounts of Jaipur Trading Co. and M/s S.K. Gems, respectively. Last year, interest was paid and allowed as deduction and treated as business transaction. This year, interest is received on account of credit given. interest earned like interest paid is act of business prudency. This earning of interest cannot be looked into in isolation and taken as source of income. It is part and parcel of main business and interest earned is incidental receipt generated in manner business of export is carried with gaps of time. payment and receipt of interest are two sides of same coin. They cannot be looked at differently and given different treatment for purposes of taxation. We are, therefore, of view that as expenditure of interest has been treated part of business, receipt has also to be held business receipt . Having held that interest is business receipt, there is no need to examine whether it would fall under residuary head of Income from other sources . above receipt of income was liable to be included in business profit and taken for computation of rebate under s. 80HHC of IT Act." Ultimately it was held that interest income will be income from business. This judgment, in our opinion, will not help assessee as deduction under s. 80HHC has to be computed in manner laid down under s. 80HHC on basis of profit derived from business. Sec. 80HHC as was applicable during year lays down that profit derived from export of goods or merchandise shall be amount which bears to profits of assessee as computed under head "Profits and gains of business or profession", same proportion as export turnover bears to total turnover of business carried on by assessee. Therefore, for purpose of computing deduction under s. 80HHC it is head of income which was to be determined. There was no question before Special Bench whether interest was derived from export of goods. head of income is wider than source of income. This judgment therefore is not applicable as s. 36(1)(viii) as was existing during year allows deduction, profits derived from such business of providing long-term finance computed under head "Profits and gains of business or profession". Thus, s. 36(1)(viii) refers to specific source which is eligible for deduction. 9 . In case of Asstt. CIT vs. Gallium Equipment (P) Ltd. (supra), question before Tribunal, Third Member was whether on facts and circumstances of case assessee is entitled to deduction under s. 80-I of Act on interest income earned on FDR. brief facts in that case were that assessee company was engaged in manufacture and sale of tube-mill plant equipments. For asst. yr. 1989-90, assessee filed return in which claim under s. 80-I was made in respect of interest on FDRs deposited with bank, along with other miscellaneous receipts and chit dividends. AO was of opinion that assessee was not entitled for deduction under s. 80-I of Rs. 2,82,970. matter travelled to Tribunal. Both learned AM and learned JM were having different views in respect of interest received on FDRs from bank and kept with banker as guarantee. These FDRs were deposited by assessee out of cash credit limit taken from bank. learned Third Member after looking to language of s. 80-I(1) which was in existence during relevant year noted that words used in section "where gross total income of assessee includes any profits and gains derived from industrial undertaking or ship or business of hotel or business there shall, in accordance with and subject to provisions of this section, be allowed, in computing total income of assessee, deduction from such profits and gains of amount equal to twenty per cent thereof". learned Third Member held that when FDRs were integral part of business activities of assessee then interest earned on such FDRs cannot be e x c l u d e d from scope of industrial undertaking; phrase "industrial undertaking" is name given to combined business activities being carried out by assessee. If FDRs were essential part of business activities, earning of interest on such FDRs was having direct nexus and such interest was in connection with industrial undertaking of assessee and interest is to be treated as derived from said undertaking and assessee is entitled to claim deduction under s. 80-I of Act. This case also, in our opinion, will not assist assessee as language of s. 80-I(1) is different from language of s. 36(1)(iii). deduction under s. 80-I is available on profits and gains derived from industrial undertaking. "profits and gains" is wider term than "profits derived from particular business activity". intention of legislature is very clear while bringing amendment in s. 36(1)(viii) by Finance Act, 1995 that deduction under s. 36(1)(viii) was only limited to profits derived from business of providing long-term finance for construction or purchase of houses. 10. We have also gone through case law as relied upon by learned Authorised Representative in case of Honda Siel Power Products Ltd. vs. Dy. CIT (supra). In that case also question relates to whether net interest income earned by assessee would be included for computing deduction under ss. 80HHC, 80HH and 80-I. Whether, such interest has to be taxed as income from other sources. This case also, in our opinion, will not assist assessee as in case before us there is no dispute so far as charging of interest under head "Business" is concerned. We have already distinguished judgment in case of Rajeev Enterprises vs. AO (supra) relating to deduction available under s. 80HHC and also that of Asstt. CIT vs. Gallium Equipment (P) Ltd. (supra) relating to deduction under s. 80-I. deduction under s. 80HH is also available on any profits and gains derived from industrial undertaking. Therefore, language under s. 80HH is synonymous to language used under s. 80-I and "profits and gains derived from industrial undertaking" is wider term than "profits and gains from business of providing long-term finance for construction or purchase of houses in India for residential purposes". This judgment also, in our opinion, will not assist assessee. 11. Now coming to provisions of s. 36(1)(viii) read with Notes and Memorandum for Notes and Clauses in Finance Bill, 1995, we find that purpose of amending s. 36(1)(viii) was to restrict deduction available to assessee in respect of any special reserves created not exceeding 40 per cent of profits derived from business of providing long-term finance for construction or purchase of houses in India. Therefore, immediate source of income which is eligible for deduction under s. 36(1)(viii) must be business of providing long-term finance for construction or purchase of houses in India for residential purposes. There is no dispute that assessee has earned discounting charges from business of discounting investments and not from business of providing long-term finance. Similarly interest on bank deposits and inter-corporate deposits was earned from deposits being made with bank and corporate entity, immediate source of such income is interest earned on deposits made by assessee. immediate source is not providing long-term finance for construction or purchase of residential houses. Hon ble Supreme Court has held in case of CIT vs. Sterling Foods (supra) that words "derived from used in s. 80HH would meet direct nexus between profits and gains of industrial undertaking. It has been pointed out by Hon ble Supreme Court that for availing deduction, industrial undertaking should be immediate source of profits and that mere commercial connection between two was just not sufficient. In view of principle laid down by Hon ble Supreme Court in case of CIT vs. Sterling Foods (supra), immediate source of this income on which assessee has claimed deduction under s. 36(1)(viii) must be providing long-term finance for construction or purchase of houses in India for residential purposes. 12. In view of aforesaid discussion, ground taken by assessee stands dismissed. Therefore, appeal filed by assessee is dismissed. ITA No. 2867/Ahd/2007; By Revenue : 1 3 . In this appeal filed by Revenue, only issue relates to cancellation of penalty of Rs. 4,85,097 levied by AO under s. 271(1)(c) of Act. brief facts of case are that AO held following income as not in nature of income from housing finance : (i) Pre-EMI amount 7.89 lacs (ii) Discounting charges 52.92 lacs (iii) Interest on bank deposit + ICD 290.42 lacs (iv) Fees and other charges 202.34 lacs 553.57 lacs AO accordingly recomputed deduction under s. 36(1)(viii) and in place of claim of deduction of Rs. 1,55,75,000, allowed deduction at Rs. 84,24,228. AO observed that by claiming wrongful deduction under s. 36(1)(viii) assessee has committed default of concealment of income to tune of Rs. 13,85,992. According to AO, assessee has understated its correct income to tune of Rs. 13,85,992 and by that means concealed its income to that extent. AO accordingly levied penalty of Rs. 4,85,097 under s. 271(1)(c) of Act. 1 4 . Before CIT(A), assessee submitted that AO has not recorded satisfaction to effect that assessee company has concealed particulars of income or has furnished inaccurate particulars of income. assessee also relied on following decisions : CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del); Diwan Enterprises vs. CIT (2001) 167 CTR (Del) 324 : (2000) 246 ITR 571 (Del); CIT vs. B.R. Sharma (2005) 196 CTR (Del) 454 : (2005) 275 ITR 303 (Del); CIT vs. Rajan & Co. (2005) 197 CTR (Del) 199 : (2005) 146 Taxman 271 (Del). According to assessee, all facts were disclosed by assessee in computation of income along with original return of income and since no inaccurate particulars were furnished, penalty is not leviable. CIT(A) after considering above submissions cancelled penalty by observing as under : "4. I have considered above submission of appellant and facts stated by AO in his penalty order. As mentioned earlier, this is case where appellant s claim of deduction under s. 36(1)(viii) amounting to Rs. 68,66,728 has been disallowed and finally confirmed by CIT(A) to extent of Rs. 13,85,992. While making this claim in original return of income, appellant has filed detailed computation by giving all facts along with computation of income. In this computation of income, appellant has shown calculation of deduction under s. 36(1)(viii). In this calculation, following income has been shown as income from long-term housing : (i) Pre-EMI amount 7.89 lacs (ii) Discounting charges 52.92 lacs (iii) Interest on bank deposit + ICD 290.42 lacs (iv) Fees and other charges 202.34 lacs 553.57 lacs 4.1 Taking above income as income from long-term housing finance, appellant has computed deduction under s. 36(1)(viii) at Rs. 155.75 lakhs. AO in order under s. 143(3) r/w s. 147 has restricted above claim to Rs. 84,24,228. For doing so, he has relied on statement filed by appellant with original return of income where above items of income were shown as income from long-term housing finance. AO has not relied on any other documents collected in course of reassessment proceedings. In fact, assessment was reopened on basis of above statement. This means, appellant has disclosed all material facts necessary for computation of income. It has neither filed inaccurate particulars nor suppressed any material fact. fact that claim of appellant was rejected by AO by holding different view will not amount to concealment of income. This is case where two opinions are possible as to treatment of above four items of income for purpose of deduction under s. 36(1)(viii). In view of this, penalty is not leviable. Reliance is placed on following decisions : (i) CIT vs. Harshvardhan Chemicals & Mineral Ltd. (2004) 186 CTR (Raj) 552 : (2003) 259 ITR 212 (Raj); (ii) Dy. CIT vs. Rahoul Siemssen Engg. (P) Ltd. (2004) 91 TTJ (Del) 62 : (2004) 140 Taxman 100 (Del)(Mag); (iii) Devidas Sukhani vs. ITO (ITA No. 387 of 2005); (iv) CIT vs. Inden Bislers (2000) 158 CTR (Mad) 323 : (1999) 240 ITR 943 (Mad). 4.2 In view of above and taking into consideration facts (a) that appellant has disclosed all material facts and (b) on claim of deduction two opinions are possible, I hold that there is no case of concealment in respect of disallowance of claim to extent of Rs. 13,85,992. I hold that AO is not justified in levying minimum penalty. penalty levied under s. 271(1)(c) amounting to Rs. 4,85,097 is hereby cancelled." 15. Before us, learned Departmental Representative strongly supported order of AO. While learned Authorised Representative vehemently contended that all facts were disclosed by assessee in computation of income along with original return of income and since no inaccurate particulars were furnished, penalty is not leviable. He reiterated submissions which were made before CIT(A). 16. We have carefully considered rival submissions and perused material on record along with order of tax authorities below. We have also gone through case laws as relied on before us. As per provisions of s. 271(1)(c) penalty under this section is leviable if AO is satisfied in course of any proceeding under this Act that any person has concealed course of any proceeding under this Act that any person has concealed particulars of his income or furnished inaccurate particulars of such income. In assessment order, AO has not recorded such satisfaction to effect that assessee has concealed particulars of income or has furnished inaccurate particulars of income, as contended by assessee before CIT(A). penalty proceedings and assessment proceedings both are different. assessee has given detailed computation of deduction under s. 36(1)(viii) of Act. Explanation 1 to s. 271(1)(c) in respect of any fact relating to computation of total income states that amount added or disallowed in computing total income of assessee shall be deemed to be income in respect of which particulars have been concealed. This deeming provision for concealment is not absolute one. presumption under Expln. 1 is rebuttable and not conclusive. assessee can submit explanation as onus shifted on assessee to prove that he has not concealed particulars of income. assessee in this case has duly submitted explanation. No cogent material or evidence was brought to our knowledge which may prove that Revenue has detected concealment or explanation submitted by assessee was false one. Even there is no material which may prove that assessee was not able to substantiate its explanation. Merely addition has been made in assessment on estimate basis; in our opinion assessee cannot be entrusted (saddled) with penalty by simply invoking Expln. 1. assessee in this case, we feel, has duly discharged its onus and has rebutted presumption available to Revenue under Expln. 1 to s. 271(1)(c). 17. In case of National Textiles vs. CIT (2000) 164 CTR (Guj) 209 : (2001) 249 ITR 125 (Guj) question before Hon ble Gujarat High Court was about levy of penalty under s. 271(1)(c) in respect of addition made under s. 68 by recourse to Expln. 1 below s. 271(1)(c). In this case Hon ble Gujarat High Court while holding imposition of penalty was not justified observed : "In order to justify levy of penalty, two factors must co-exist, (i) there must be some material or circumstances leading to reasonable conclusion that amount does represent assessee s income. It is not enough for purpose of penalty that amount has been assessed as income, and (ii) circumstances must show that there was animus, i.e., conscious concealment or act of furnishing of inaccurate particulars on part of assessee. Explanation 1 to s. 271(1)(c) has no bearing on factor No. 1 but has bearing only on factor No. 2. Explanation does not make assessment order conclusive evidence that amount assessed was in fact income of assessee. No penalty can be imposed if facts and circumstances are equally consistent with hypothesis that amount does not represent concealed income with hypothesis that it does. If assessee gives explanation which is unproved but not disproved, i.e., it is not accepted but circumstances do not lead to reasonable and positive inference that assessee s case is false, Explanation cannot help Department because there will be no material to show that amount in question was income of assessee. Alternatively, treating Explanation as dealing with both ingredients (i) and (ii) above, where circumstances do not lead to reasonable and positive inference that assessee s explanation is false, assessee must be held to have proved that there was no mens rea or guilty mind on his part. Even in this view of matter Explanation alone cannot justify levy of penalty. Absence of proof acceptable to Department cannot be equated with fraud or wilful default." 18. Therefore, we are of view that aforesaid decision is equally applicable to facts of case before us and support contentions of assessee. assessee, in our opinion, has duly discharged its onus and explanation given by assessee is plausible explanation which cannot be regarded not (sic) to be mala fide one. In view of this, we are of view that it is not fit case where penalty under s. 271(1)(c) can be imposed, as assessee has not concealed particulars of income or furnished inaccurate particulars of income. We, therefore, do not find any illegality or infirmity in order of CIT(A) in cancelling penalty. We confirm order of CIT(A). 19. In result, both appeals are dismissed. *** GRUH FINANCE LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX
Report Error