Bombay High Court
M/S Carona Limited vs Deputy Commissioner Of Income Tax,Spl. … on 20 June, 2025
2025:BHC-OS:9055-DB
Neeta Sawant IXTA-512-2003-FC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 512 OF 2003
M/s. Carona Limited,
A Public Limited Company,
Incorporated under The Companies Act, 1956
Having its registered Office at
New Udyaog Mandir Compound,
Mogal Lain, Mahim (W.)
Mumbai - 400 016. ....Appellant
: Versus :
1. Deputy Commissioner of Income Tax
Special range, 29, Mumbai
Having his office at Aaykar Bhavan,
M.K.Marg, Mumbai - 400 020.
2. Commissioner of Income Tax V,
Having his office at Aayakar Bhavan,
M. K. Marg, Mumbai - 400 020.
3. The Union of India Law Ministry,
Aayakar Bhavan, 2nd Floor,
M.K.Marg, Mumbai - 400 020. ....Respondents
Ms. Aarti Sathe with Ms. Aasavari Kadam, for the Appellant.
Ms. Shilpa Goel, for the Respondent.
CORAM : ALOK ARADHE, CJ. &
SANDEEP V. MARNE, J.
Judgment Reserved On : 12 June 2025.
Judgment Pronounced On : 20 June 2025.
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JUDGMENT :
(Per Sandeep V. Marne, J.)
1) This Appeal under Section 260A of the Income Tax Act,
1961 (hereinafter referred to as the I.T. Act) has been filed by the
Assessee which pertains to the Assessment Year 1984-85. The Appeal is
directed against the order dated 23 December 2002 passed by the
Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal)
by which an order passed by the Commissioner of Income Tax
(Appeals) has been set aside and the order passed by the Assessing
Officer imposing penalty of Rs.12,82,700/- on the Assessee under
Section 271C of the I.T. Act has been restored.
2) The facts giving rise to filing of the Appeal, briefly stated,
are that the Assessee is engaged in the business of manufacture and sale
of footwear. The Assessee had filed the return of income for the
Assessment Year 1984-85.
3) The Appeal was admitted on the following substantial
question of law :-
Whether on the facts and circumstances of the case, the ITAT was
right in law in reversing CIT (A)’s orders and upholding the Income
Tax Officer’s order in imposing penalty on the Appellant u/s. 271 (1)
(c) of the Income Tax Act, 1961?”
4) A demand was raised by its employees’ union for increase
in the bonus on 26 August 1983. A joint meeting of the representatives
of the Trade Union and Assessee’s Management was held with the
Labour Minister on 25 October 1983. In pursuance of the said demand
and meetings, it was decided on 2 November 1983 that till finalisation
of quantum of bonus, the Assessee shall pay additional 2% bonus to the
employees before Diwali. The final settlement with regard to bonus wasPage No.2 of 20
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Neeta Sawant IXTA-512-2003-FCreached with the Union on 16 March 1984 and accordingly, additional
bonus was paid to the employees. On 30 September 1985, the Assessee
filed return of income declaring loss of Rs.77,92,340/-. On 31 July 1986,
Assessee filed revised return of income marking it as ‘Amnesty Return’
thereby declaring positive income of Rs.60,93,750/-. The loss declared
in the original return was converted into positive income by adding
back unpaid sales tax liability of Rs.43,99,601/- and incremental
gratuity liability of Rs.88,15,722/-. The Assessee however did not add
back the amount of ad-hoc bonus and continued to claim exemption in
respect of amount of Rs.22,21,123/- even under the Amnesty Return.
The Assessing Officer issued noticed under Section 143(3) of the I.T. Act
and accordingly, Assessee appeared before the Assessing Officer. The
Assessing Officer passed order dated 23 February 1987 by adding back
inter-alia the amount of ad-hoc bonus of Rs.22,21,123/- which was not
offered by the Assessee for taxation in the Amnesty Return. In his order
dated 23 February 1987, the Assessing Officer recorded a finding that
the case was fit for attracting the provisions of Section 271(1)(c) of the
I.T. Act for imposition of penalty on account of explanation of the
Assessee in respect of the bonus amount not being found bonafide.
5) On the basis of the findings recorded by the Assessing
Officer, Deputy Commissioner of Income Tax initiated proceedings
against the Assessee under Section 271(1)(c) of the I.T. Act. The
Assessee appeared before the Assessing Officer and submitted its
response. By order dated 25 October 1993, the Assessing Officer
imposed penalty of Rs.12,82,700/- on the Assessee under the provisions
of Section 271(1)(c) of the I.T. Act.
6) The Assessee preferred Appeal before the Commissioner of
Income Tax (Appeals) [CIT(A)] which came to be allowed by order
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Neeta Sawant IXTA-512-2003-FC
dated 28 June 1994, inter-alia, holding that the explanation offered by the
Assessee for not offering ad-hoc bonus amount for taxation was
plausible and the case did not fit into the purview of Section 271(1)(c) of
the I.T. Act. The CIT (A) then accordingly set aside the penalty by
allowing the Appeal vide order dated 28 June 1994. The Revenue
preferred Appeal before the Income Tax Appellate Tribunal challenging
the order of CIT (A). By judgment and order dated 23 December 2002,
the Tribunal has proceeded to allow the Appeal preferred by the
Revenue and has set aside the order of CIT (A) by upholding the order
of the Assessing Officer. Aggrieved by the order dated 23 December
2002 passed by the Tribunal, the Assessee has preferred the present
Appeal.
7) We have heard Ms. Sathe, the learned counsel appearing for
the Appellant/Assessee in support of the Appeal. She would submit
that the Tribunal has grossly erred in setting aside well-reasoned order
passed by the CIT(A). That the case clearly falls outside the purview of
Section 271(1)(c) of the I.T. Act. That the essential ingredients for
maintaining a penalty order under Section 271(1)(c) of the I.T. Act are (i)
concealment of particulars of income or (ii) furnishing of inaccurate
particulars. That mere making of claim by an Assessee, which is
ultimately found to be unacceptable, cannot ipso-facto amount to either
concealment of income or furnishing of inaccurate particulars. That
Assessee made bonafide claim and there is no finding in the orders
passed by the Assessing Officer or the Tribunal that the claim was made
by the Asssessee with malafide intentions.
8) Ms. Sathe, would further submit that Assessee bonafidely
believed that under the mercantile accounting system, a business
liability can be allowed for deduction for the year in which it has arisen
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and accrued; and not when it is actually paid by the Assessee. That the
liability for bonus in the present case had arisen on 26 August 1983
during the Accounting Year 1982-83 and that therefore the Assessee
bonafidely believed that it was entitled to claim the said liability which
had crystallised in the relevant Accounting Year. That mere actual
payment towards such liability in subsequent Accounting Year does not
disentitle the Assessee from claiming such liability in the year in which
the same had got crystalized. In support of her contention, she would
rely upon judgment of the Apex Court in Bharat Earth Movers Versus.
Commissioner of Income Tax, Karnataka1.
9) In any case, according to Ms. Sathe, penalty under Section
271(1)(c) cannot be imposed unless the Assessing Officer arrives at a
conclusion that there is concealment of income or particulars of income
with malafide intention. In support, she would rely upon judgment of
Punjab and Haryana High Court in The Principal Commissioner of
Income Tax I, Chandigarh Versus. M/s. Torque Pharmaceuticals Pvt.
Limited2. In support of her contention that in absence of fulfillment of
strict requirement under Section 271(1)(c) of the I.T. Act, penalty cannot
be imposed, Mr. Sathe would rely upon judgment of the Apex Court in
Commissioner of Income Tax, Ahmedabad Versus. Reliance
Petroproducts Private Limited3. She would accordingly pray for
setting aside the order of the Tribunal and for restoration of order
passed by the CIT(A).
10) The Appeal is opposed by Ms. Goel, the learned counsel
appearing for the Respondent-Revenue. She would submit that the
Tribunal has rightly set aside erroneous order passed by the CIT. That
1
(2000) 6 SCC 645
2
2016 SCC OnLine P&H 7150
3
(2010) 11 SCC 762
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the Assessing Officer had recorded findings of deliberate concealment
of income in order passed under Section 143(3) of the I.T. Act. She
would rely upon provisions of Section 43B of the I.T. Act in support of
her contention that deductions are admissible only in case of actual
payment. That in the present case, the bonus was actually not paid in
the relevant Accounting Year, but still the Assessee claimed deduction
of amount of Rs.22,21,123/- towards unpaid bonus. That the
concealment came to light only after proceedings were initiated under
Section 143(3) of the I.T. Act. If such proceedings were not to be
initiated, the Assessee would have continued with its malafide claim of
deduction towards unpaid amount of bonus, which was never actually
paid during the relevant accounting year. That therefore the Assessing
Officer had rightly invoked the provisions of Section 271(1)(c) of the I.T.
Act. Ms. Goel would also rely upon judgment of the Apex Court in CIT
Versus. Reliance Petroproducts Pvt. Ltd. (supra) in support of her
contention that the words ‘inaccurate’ and ‘particulars’ used in Section
271(1)(c) of the I.T. Act, when read in conjunction, would mean details
supplied in Income Tax Return which are not accurate, exact, correct,
truthful and are erroneous. That the claim of the Assessee about
liability being crystalised in Assessment Year 1983-84 is totally baseless
in the light of provisions of Section 43B of the I.T. Act, which provides
for deduction only in the event of actual payment. She would rely upon
judgment of Delhi High Court in Commissioner of Income-tax Versus.
Zoom Communication P. Ltd.4 in support of her contention that
incorrect claim without having any basis would attract penalty under
Section 271(1)(c) of the I.T. Act. Ms. Goel would submit that all the
ingredients of Section 271(1)(c) of the I.T. Act are fulfilled in the present
case and that therefore the order passed by the Tribunal does not
4
2010 SCC OnLine Del 2088
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Neeta Sawant IXTA-512-2003-FC
warrant any interference in exercise of appellate jurisdiction of this
Court.
11) Rival contentions of the parties now fall for our
consideration.
12) The case arises out of Assessee’s claim of deduction
towards bonus for the Accounting Year 1982-83. According to the
Assessee, liability for Rs.22,21,123/- towards payment of additional
bonus got crystalised on 26 August 1983 when employees’ union made
demands and in any case on 25 October 1983 when demands were
discussed in the meetings held with the Labour Minister and the
liability got crystalized. That the settlement ultimately took place on
16 March 1984 and even though the actual payment of bonus was made
in the subsequent Accounting Year, Assessee claimed deduction in
respect of the amount of Rs.22,21,123/- in the Assessment Year 1984-85.
13) There is no dispute to the position that actual payment of
Rs.22,21,123/- was not made by the Assessee-Company to its employees
towards additional bonus in the relevant Accounting Year, which ended
on 31 October 1983. The actual payment was made towards the
additional bonus in the subsequent Accounting Year. The Revenue has
relied on provisions of Section 43-B of the I.T. Act dealing with certain
deductions only on actual payments. Section 43B provides thus :-
43B. Certain deductions to be only on actual payment.
Notwithstanding anything contained in any other provision of this
Act, a deduction otherwise allowable under this Act in respect of–
(a) any sum payable by the assessee by way of tax or duty under any
law for the time being in force, or
(b) any sum payable by the assessee as an employer by way of
contribution to any provident fund or superannuation fund or
gratuity fund or any other fund for the welfare of employees, orPage No.7 of 20
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Neeta Sawant IXTA-512-2003-FCshall be allowed (irrespective of the previous year in which the
liability to pay such sum was incurred by the assessee according to the
method of accounting regularly employed by him) only in computing
the income referred to in section 28 of that previous year in which
such sum is actually paid by him.
Explanation.–For the removal of doubts, it is hereby declared that
where a deduction in respect of any sum referred to in clause (a) or
clause (b) of this section is allowed in computing the income referred
to in section 28 of the previous year (being a previous year relevant to
the assessment year commencing on the 1st day of April, 1983, or any
earlier assessment year) in which the liability to pay such sum was
incurred by the assessee, the assessee shall not be entitled to any
deduction under this section in respect of such sum in computing the
income of the previous year in which the sum is actually paid by him,
14) It is by relying on provisions of Section 43B of the I.T. Act
that the Assessing Officer proceeded to disallow the bonus claim of the
Assessee and added the same in computation of its income. While
passing the assessment order under Section 143(3) of the I.T. Act, the
Assessing Officer made following observations against the Assessee :-
The claim was made without giving any necessary particulars of the
nature and date of accrual of the liability. The particulars have been
discovered only after making necessary enquiries from the assessee. I
further hold that but for making such enquiries the item of
expenditure would have been wrongly claimed by the assessee and
allowed as such. I therefore hold that the assessee had furnished
inaccurate particulars of its income by claiming an item of
expenditure which was not permissible as deduction under the
provisions of the I.T. Act. As the assessee has not offered any
explanation in writing it would be very difficult to comment whether
the explanation if offered by the assessee would be bonafide. I further
hold that the provisions of sec 271(1) (c) are attracted and proceedings
are separately initiated in terms of explanation to sec. 271(1) (c) and
the additional bonus claimed at Rs.22,21,123/- is disallowed and the
same is added in the computation of income of the assessee.
15) Thereafter, the Assessing Officer initiated proceedings
under Section 271(1)(c) of the I.T. Act for imposition of penalty against
the Assessee. It would be relevant to refer to the provisions of Section
271(1)(c) of the I.T. Act dealing with failure to furnish returns, comply
with notices, concealment of income etc. Under Section 271, if thePage No.8 of 20
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Neeta Sawant IXTA-512-2003-FCAssessing Officer is satisfied that the Assessee has committed any of the
acts stipulated in Clauses-(b), (c) and (d) of sub-section (1) of Section
271, he is empowered to direct the Assessee to pay by way of penalty
the amounts indicated in Clauses-(i) and (ii) of that sub-section. It
would be apposite to reproduce relevant portion of Section 271(1)
which reads thus :-
271. Failure to furnish returns, comply with notices, concealment of
income, etc.
(1) If the Assessing Officer or the [Joint Commissioner (Appeals) or
the] Commissioner (Appeals) or the Principal Commissioner or
Commissioner in the course of any proceedings under this Act, is
satisfied that any person–
(a) [***]
(b) ….
(c) has concealed the particulars of his income or furnished
inaccurate particulars of such income, or
(d) has concealed the particulars of the fringe benefits or
furnished inaccurate particulars of such fringe benefits,
he may direct that such person shall pay by way of penalty,–
(i) [***]
(ii) in the cases referred to in clause (b), in addition to tax, if
any, payable by him, a sum of ten thousand rupees for each
such failure ;
(iii) in the cases referred to in clause (c) or clause (d), in
addition to tax, if any, payable by him, a sum which shall
not be less than, but which shall not exceed three times, the
amount of tax sought to be evaded by reason of the
concealment of particulars of his income or fringe benefits
or the furnishing of inaccurate particulars of such income
or fringe benefits.
(emphasis added)
16) For the purpose of the present Appeal, provisions of
Section 271(1)(c) are relevant which deal with concealment of
particulars of income or furnishing inaccurate particulars of such
income. Thus, sine qua non for invoking penalty provisions under
Section 271(1)(c) is recording of satisfaction by the Assessing Officer
that the Assessee has either –
(i) concealed the particulars of his income; or
(ii) there were inaccurate particulars of such income.
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17) The Apex Court in Commissioner of Income Tax Versus.
Reliance Petroproducts Private Limited (supra) has considered and
interpreted the provisions of Section 271(1)(c) of the I.T. Act and has
held as under :-
10. Section 271(1)(c) is as under:
“271. Failure to furnish returns, comply with notices, concealment of
income, etc.–(1) If the Assessing Officer or the Commissioner
(Appeals) in the course of any proceedings under this Act, is satisfied
that any person–
* * *
(c) has concealed the particulars of his income or
furnished inaccurate particulars of such income.”
A glance at this provision would suggest that in order to be covered,
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. Present is not the case of concealment of
the income. That is not the case of the Revenue either. However, the
learned counsel for the Revenue suggested that by making incorrect
claim for the expenditure on interest, the assessee has furnished
inaccurate particulars of the income. As per Law Lexicon, the meaning
of the word “particular” is a detail or details (in plural sense); the
details of a claim, or the separate items of an account. Therefore, the
word “particulars” used in Section 271(1)(c) would embrace the
meaning of the details of the claim made. It is an admitted position in
the present case that no information given in the return was found to
be incorrect or inaccurate. It is not as if any statement made or any
detail supplied was found to be factually incorrect. Hence, at least,
prima facie, the assessee cannot be held guilty of furnishing inaccurate
particulars.
11. The learned counsel argued that “submitting an incorrect claim
in law for the expenditure on interest would amount to giving
inaccurate particulars of such income”. We do not think that such
can be the interpretation of the words concerned. The words are
plain and simple. In order to expose the assessee to the penalty
unless the case is strictly covered by the provision, the penalty
provision cannot be invoked. By any stretch of imagination, making
an incorrect claim in law cannot tantamount to furnishing
inaccurate particulars. In CIT v. Atul Mohan Bindal [(2009) 9 SCC 589]
where this Court was considering the same provision, the Court
observed that the assessing officer has to be satisfied that a person has
concealed the particulars of his income or furnished inaccurate
particulars of such income. This Court referred to another decision of
this Court in Union of India v. Dharamendra Textile Processors [(2008) 13
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SCC 369] as also the decision in Union of India v. Rajasthan Spg. & Wvg.
Mills [(2009) 13 SCC 448] and reiterated in para 13 that: (Atul Mohan
Bindal case [(2009) 9 SCC 589] , SCC p. 597, para 13)
“13. It goes without saying that for applicability of Section
271(1)(c), conditions stated therein must exist.”
12. Therefore, it is obvious that it must be shown that the conditions
under Section 271(1)(c) must exist before the penalty is imposed.
There can be no dispute that everything would depend upon the
return filed 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.
13. In Dilip N. Shroff v. CIT [(2007) 6 SCC 329] this Court explained the
terms “concealment of income” and “furnishing inaccurate
particulars”. The Court went on to hold therein that in order to attract
the penalty under Section 271(1)(c), mens rea was necessary, as
according to the Court, the word “inaccurate” signified a deliberate act
or omission on behalf of the assessee. It went on to hold that clause
(iii) of Section 271(1) provided for a discretionary jurisdiction upon
the assessing authority, inasmuch as the amount of penalty could not
be less than the amount of tax sought to be evaded by reason of such
concealment of particulars of income, but it may not exceed three
times thereof. It was pointed out that the term “inaccurate particulars”
was not defined anywhere in the Act and, therefore, it was held that
furnishing of an assessment of the value of the property may not by
itself be furnishing inaccurate particulars.
14. It was further held in Dilip N. Shroff [(2007) 6 SCC 329] that the
assessee must be found to have failed to prove that his explanation is
not only not bona fide but all the facts relating to the same and
material to the computation of his income were not disclosed by him.
It was then held that the explanation must be preceded by a finding as
to how and in what manner, the assessee had furnished the
particulars of his income. The Court ultimately went on to hold that
the element of mens rea was essential.
15. It was only on the point of mens rea that the judgment in Dilip N.
Shroff v. CIT [(2007) 6 SCC 329] was upset. In Union of
India v. Dharamendra Textile Processors [(2008) 13 SCC 369] after quoting
from Section 271 extensively and also considering Section 271(1)(c),
the Court came to the conclusion that since Section 271(1)(c) indicated
the element of strict liability on the assessee for the concealment or for
giving inaccurate particulars while filing return, there was no
necessity of mens rea. The Court went on to hold that the objective
behind enactment of Section 271(1)(c) read with the Explanations
indicated with the said section was for providing remedy for loss of
revenue and such a penalty was a civil liability and, therefore, wilful
concealment is not an essential ingredient for attracting civil liability
as was the case in the matter of prosecution under Section 276-C of
the Act. The basic reason why the decision in Dilip N.
Shroff v. CIT [(2007) 6 SCC 329] was overruled by this Court in Union of
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India v. Dharamendra Textile Processors [(2008) 13 SCC 369] was that
according to this Court the effect and difference between Section
271(1)(c) and Section 276-C of the Act was lost sight of in Dilip N.
Shroff v. CIT [(2007) 6 SCC 329] .
(emphasis and underlining supplied)
18) The Apex Court has thus held that in order to expose the
Assessee to the penalty unless the case is strictly covered by the
provision, the penalty provision cannot be invoked. It is further held all
the conditions under Section 271(1)(c) must exist before the penalty is
imposed. It further held that the word ‘particulars’ used in Section
271(1)(c) would mean details of the claim made by the Assessee in the
Return. The Apex Court held that in cases where a statement is made by
the Assessee in the return is found to be incorrect, it can be held that the
Assessee has furnished inaccurate particulars of the income. It is
further held that making an incorrect claim in law cannot tantamount to
furnishing inaccurate particulars. It is also held that the element of mens
rea is essential.
19) The issue for consideration here is whether the two
ingredients of (i) concealment of particulars of income, or (ii) furnishing
inaccurate particulars of income are made out for the purpose of
attracting the provisions of Section 271(1)(c) of the I.T. Act. There is
nothing on record to indicate that the Assessee made a wrongful claim
of having actually paid any amount towards additional bonus to the
employees in the relevant Accounting Year. On the contrary, the claim
of the Assessee for deduction of amount of Rs. 22,21,123/- towards
additional bonus was premised on statement that it was a future
liability crystalised in the relevant year. Thus, the case does not involve
making of any false statement by the Assessee. What is ultimately found
to be incorrect is entitlement of the Assessee to claim deductions in
respect of the amount which are yet to be actually paid in view of
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provisions of Section 43B of the I.T. Act. The claim for additional bonus
is disallowed on the ground that the amount was actually paid in the
subsequent Accounting Year. In our view, the case does not involve
making of any false statement by the Assessee and therefore the ratio of
the Apex Court judgment in Commissioner of Income Tax Versus.
Reliance Petroproducts Private Limited would squarely apply to the
present case.
20) Ms. Goel has strenuously relied upon judgment of the
Delhi High Court in Commissioner of Income-tax Versus. Zoom
Communication P. Ltd. (supra) in support of her contention that even
making of incorrect claim would be covered by the provisions of
Section 271(1)(c) of the I.T. Act. The Division Bench of the Delhi High
Court has held in para-20 of the judgment as under :-
20. The court cannot overlook the fact that only a small percentage of
the Income-tax returns are picked up for scrutiny. If the assessee
makes a claim which is not only incorrect in law but is also wholly
without any basis and the explanation furnished by him for making
such a claim is not found to be bona fide, it would be difficult to say
that he would still not be liable to penalty under section 271(1)(c) of
the Act. If we take the view that a claim which is wholly untenable in
law and has absolutely no foundation on which it could be made, the
assessee would not be liable to imposition of penalty, even if he was
not acting bona fide while making a claim of this nature, that would
give a licence to unscrupulous assessees to make wholly untenable
and unsustainable claims without there being any basis for making
them, in the hope that their return would not be picked up for
scrutiny and they would be assessed on the basis of self-assessment
under section 143(1) of the Act and even if their case is selected for
scrutiny, they can get away merely by paying the tax, which in any
case, was payable by them. The consequence would be that the
persons who make claims of this nature, actuated by a mala fide
intention to evade tax otherwise payable by them would get away
without paying the tax legally payable by them, if their cases are
not picked up for scrutiny. This would take away the deterrent effect,
which these penalty provisions in the Act have.
(emphasis and underlining supplied)
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21) The judgment of Co-ordinate Bench of Delhi High Court
would not bind us but would have persuasive value while deciding the
issue at hand. However, we find that the judgment has been rendered in
the light of facts of that case. In case before the Delhi High Court, it was
noticed during the course of scrutiny assessment, that a sum of
Rs.1,21,49,861/- was wrongfully deducted by the Assessee under the
head ‘equipment written off’ and the Assessee claimed during the course
of scrutiny of assessment that the same happened due to oversight and
that the amount ought to have been actually adjusted in the block of
assets. The amount was accordingly added back to the income of the
Assessee in the scrutiny assessment. During the scrutiny assessment it
was also noticed that another amount of Rs.1,00,000/- was wrongfully
debited under the head ‘Income-tax paid’ and again pretext of oversight
was cited by the Assessee during scrutiny assessment. Upon initiation
of penalty proceedings, Assessee took defence of bonafide mistake
whereas the Assessing Officer arrived at the conclusion that there was
no room for such mistake by a big company assisted by a team of tax
auditors and that the case clearly involved concealment of income as
well as of furnishing wrong particulars for computation of income. It is
in the light of the above facts, that Division Bench of the Delhi High
Court held that the Assessee made incorrect claim with malafide
intention to evade tax. In our view, therefore the judgment of the Delhi
High Court in Zoom Communication P. Ltd. would have no application
to the facts of the present case, which does not involve making of any
false statement, but involves the issue of only disallowance on account
of interpretation of provisions of the I.T. Act.
22) The judgment of the Delhi High Court has also been
considered by the Division Bench of Punjab and Haryana High Court in
The Principal Commissioner of Income Tax I, Chandigarh Versus. M/s.
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Torque Pharmaceuticals Pvt. Ltd. (supra) in which it is held in paras-5,
6 and 7 of the judgment as under :-
5. The primary challenge in this appeal is to the cancellation of penalty on
addition made on account of disallowance of expenditure under section 40(a)
(ia) of the Act. The assessee had made a claim of deduction in the return of
income. No finding has been recorded by the authorities below that the claim
made by the assessee is mala fide. It has been categorically recorded by the
Tribunal after examining the entire material on record that the Commissioner
of Income-tax (Appeals) had rightly cancelled the penalty against the
assessee. It was further recorded that the assessee made a bona fide claim of
deduction of the expenditure and even though it was not acceptable to the
Revenue would not lead to the conclusion that the assessee had concealed the
particulars of income or filed inaccurate particulars of income. The relevant
findings recorded by the Tribunal read thus:
“8. We have considered the rival submissions and material available
on record. The issue involved in the appeal is regarding cancellation of
penalty on addition made on account of disallowance of expenditure
under section 40(a)(ia) of the Act. The assessee has disclosed the entire
facts before the authorities below without concealing any income. The
assessee made a claim of deduction in the return of income and
explained the facts but the same were not accepted by the authorities
below and additions have been confirmed. Therefore, it is a case of
mere disallowance of expenditure without bringing any adequate
material against the assessee to prove that the assessee has concealed
the particulars of income or has furnished inaccurate particulars of
income. The appeal of the assessee on substantial question of law with
regard to disallowance under the provision had been admitted by the
hon’ble Punjab and Haryana High Court. The hon’ble Punjab and
Haryana High Court in the case of CIT v. Haryana Warehousing
Corporation (2009) 314 ITR 215 (P&H) held as under (headnote):
“Held, dismissing the appeal, that the deduction claimed by
the assessee was legitimate and bona fide in terms of the
conflicting determination of law on the proposition in
question. The categorical finding at the hands of the Tribunal
in its order was that the assessee had disclosed the entire facts
without having concealed any income. There was no allegation
against the assessee that it had furnished inaccurate particulars
of its income. The determination of the Tribunal had not been
controverted even in the grounds raised in the appeal. The
assessee was guilty of neither of the two conditions. Therefore,
in the absence of two pre-requisites postulated under section
271(1)(c) it was not open to the Revenue to inflict any penalty
on the assessee.”
The learned Commissioner of Income-tax (Appeals) considering the
material on record correctly followed the decision of the Delhi Bench
in the case of AT and T Communications Services (India) Pvt. Limited
(supra) for cancelling the penalty against the assessee. The assessee
made a bona fide claim of deduction of the expenditure even though
it was not acceptable to the Revenue, would not lead to inference that
the assessee has concealed the particulars of income or filed inaccurate
particulars of income. Nothing is brought on record if claim of
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assessee was incorrect in law or was mala fide. Therefore, decision
relied upon by learned Departmental representative is not applicable
to the facts of the case.”
6. In CIT v. Reliance Petroproducts P. Ltd. (2010) 322 ITR 158 (SC) the apex
court was of the view that under section 271(1)(c) of the Act, there has to be
concealment of income of the assessee or the assessee must have furnished
inaccurate particulars of his income. In the present case, the claim made by
the assessee has not been shown to be suffering from any of these
conditions. In the absence of any finding recorded by the Commissioner of
Income-tax (Appeals) or the Tribunal with regard to the claim of the
assessee that it was mala fide, there is no error in cancelling the penalty
imposed by the Assessing Officer.
7. Further, reliance of the Revenue on the judgment of the Delhi High
Court in CIT v. Zoom Communication P. Ltd. (2010) 327 ITR 510 (Delhi) is
of no help to them as therein the High Court was considering the question
of levy of penalty under section 271(1)(c) of the Act wherein it had
concluded to be a case of furnishing of inaccurate particulars of income
with mala fide intention which is not the case herein.
(emphasis supplied)
23) The Punjab and Haryana High Court has distinguished the
judgment in CIT Versus. Zoom Communication Ltd. holding that the
case before the Delhi High Court involved furnishing of inaccurate
particulars of income with a malafide intention. In the present case there
is no finding of concealment of income with malafide intention.
24) The CIT(A) in his order dated 28 June 1994 had held that
the explanation offered by the Assessee for claiming deduction towards
additional amount of bonus was plausible one and could not be treated
as false for the purpose of attracting provisions of Section 271(1)(c) of
the I.T. Act. The CIT(A) held in para-6 of his order as under :-
6. I have carefully considered the facts of the case. The point to be
decided in whether the appellant’s claim towards additional bonus in
its return amounted to either concealment of income or furnishing of
inaccurate particulars. It is true that the claim of the appellant was
disallowed by the A./O. and the said disallowance was upheld by the
appellant authorities. However, it cannot also be said that the
explanation of the appellant was not plausible and at any rate the
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Neeta Sawant IXTA-512-2003-FCalso not a case that the appellant had furnished all the particulars in
support of its claim, which was evident from the relevant notes in its
Annual report. The claim was based on the understanding that the
appellate had as to the admissibility of the said claim but it cannot be
said at the same time that the appellant had no bonafide in
entertaining such a claim. It is well settled that before a penalty can be
imposed the entirity of circumstances must reasonably point to the
conclusion that the appellant had consciously concealed the
particulars of its income or furnished inaccurate particulars of its
income. In view of this, I am inclined to delete the penalty.
(emphasis supplied)
25) We are in agreement with the above findings recorded by
the CIT(A) as the case involves raising of a bonafide claim by the
Assessee that the crystallised liability towards additional bonus could
have been claimed as deduction during the relevant year. Whether such
claim is tenable in law or not is an altogether different issue. However
by no stretch of imagination it can be held that the claim was raised
with malafide intention of concealing the income.
26) Ms. Sathe has in fact attempted to justify that the claim
towards unpaid additional bonus ought to have been allowed as
deduction is law by relying on judgment of the Apex Court in Bharat
Earth Movers (supra) in which it has held that the liability incurred by
the assessee under the Leave Encashment Scheme could have been
claimed as deduction in the Accounting Year in which the provision
was made for liability. The Apex Court held in paras-4 and 7 as under :-
4. The law is settled: if a business liability has definitely arisen in the
accounting year, the deduction should be allowed although the
liability may have to be quantified and discharged at a future date.
What should be certain is the incurring of the liability. It should also
be capable of being estimated with reasonable certainty though the
actual quantification may not be possible. If these requirements are
satisfied the liability is not a contingent one. The liability is in
praesenti though it will be discharged at a future date. It does not
make any difference if the future date on which the liability shall have
to be discharged is not certain.
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7. Applying the abovesaid settled principles to the facts of the case
at hand we are satisfied that the provision made by the appellant
Company for meeting the liability incurred by it under the leave
encashment scheme proportionate with the entitlement earned by
employees of the Company, inclusive of the officers and the staff,
subject to the ceiling on accumulation as applicable on the relevant
date, is entitled to deduction out of the gross receipts for the
accounting year during which the provision is made for the
liability. The liability is not a contingent liability. The High Court
was not right in taking the view to the contrary.
(emphasis supplied)
27) Though the view expressed by the Apex Court in Bharat
Earth Movers may have been relevant for the purpose of challenging
the Assessment Order passed by the Assessing Officer disallowing the
bonus claimed by the Assessee of Rs.22,21,123/-, it appears that the
Assessee has not assailed the said order and has apparently paid tax on
the disallowed amount of Rs. 22,21,123/- towards bonus claim. What is
however relevant to note is that the claim raised by the Assessee for
claiming deduction in respect of the crystalised liability towards
additional bonus was a plausible claim. Whether it could be sustained
or not in the light of judgment of the Apex Court in Bharat Earth
Movers is an altogether different issue. What is relevant to note is the
position that the claim made by the Assessee can, by no stretch of
imagination, be treated as malafide act of concealment of income so as to
attract the provisions of Section 271(1)(c) of the I.T. Act.
28) In our view, therefore the ingredients of Section 271(1)(c) of
the I.T. Act are not satisfied in the present case. The Tribunal has
grossly erred in setting aside order passed by the CIT(A) by recording
an unsustainable finding that the claim made by the Assessee was
‘baseless’. It would be relevant to reproduce the findings recorded by the
Tribunal in para-9 of its order :-
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9. We have carefully considered the submission and perused the
record. During the course of hearing, we have repeatedly asked the
learned Counsel on behalf of assessee to furnish the statement of total
income and any other information furnished before the Assessing
Officer along with the return of income in connection with the claim
of additional bonus. However, the learned Counsel did not furnish
any details and merely submitted that the description as given in page
3 of the Assessment order mentioned in the statement of total income.
A careful perusal of the claim made by the assessee showed that the
assessee has not given the date of settlement of the date of payment or
the reason why the liability was claimed as deduction in this year, in
spite of the fact that neither settlement nor the payment took place in
this year. Thus, it is a clear case of furnishing of inaccurate
particulars of income. Merely because the amount disallowed in this
year was allowed in the next year it would not prove that in so far as
this year is concerned there was no conscious effort to conceal the
income of furnishing of inaccurate particulars of income. The legal
position that an additional bonus cannot be claimed as liability in
an year in which neither settlement took place nor payment was
made, is beyond dispute particularly when the additional bonus
pertains to the earlier assessment years. Thus based on the well
recognized principles of law, the assessee’s claim of deduction in
this year is completely baseless and in fact the claim was disallowed
in the quantum proceedings and the said order was upheld by the
ITAT.
(emphasis supplied)
29) Thus, the Tribunal itself has gone into the merits of the
claim raised by the Assessee and laid down ‘legal position’ that
additional bonus cannot be claimed as a liability as the bonus was not
actually paid to the employees in the relevant year. The Tribunal found
the claim of the Assessee to be ‘baseless’. Mere raising of claim which
has no basis, would not attract penalty provisions under Section 271(1)
(c) of the I.T. Act. The Tribunal has recorded a finding that the case
involves furnishing of inaccurate particulars of income. However for
recording this findings, there ought to have been some material to
indicate that any statement made in the return was false. It is not the
case of the Revenue that the Assessee made claim of having actually
paid the additional bonus during the relevant year. Assessee only raised
the claim that the crystalized liability towards additional bonus could
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be claimed towards deduction, which is later found to be inadmissible
in law. Thus, the case does not involve making of any false statement in
the return and therefore the finding of the Tribunal that there is
inaccurate furnishing of particulars cannot be sustained.
30) The Assessee cannot be penalised for having raised a
plausible claim. The essential ingredients of Section 271(1)(c) of the I.T.
Act are not met with in the present case. The CIT (A) had rightly set
aside the order of the Assessing Officer. The Tribunal has grossly erred
in reversing the order of the CIT (A). For the aforementioned reasons,
the substantial question of law is answered in the negative and in
favour of the Assessee. In our view therefore, the order passed by the
Tribunal is indefensible and liable to be set aside.
31) The Appeal accordingly succeeds. The order dated
23 December 2002 passed by the Tribunal is accordingly set aside and
the order passed by CIT(A) on 28 June 1994 is confirmed. The Appeal is
allowed in the above terms. There shall be no order as to costs.
[SANDEEP V. MARNE, J.] [CHIEF JUSTICE]
Digitally
signed by
NEETA
NEETA SHAILESH
SHAILESH SAWANT
SAWANT Date:
2025.06.20
16:32:16
+0530
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