Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 7822/DEL/2019

Disposition

dismissed

Advocates

Judges

Chandra Mohan Garg, J.M.
Pradip Kumar Kedia, A.M.

Acts

SECTION 271 A INCOME TAX ACT 1961
SECTION 80 IA INCOME TAX ACT 1961
section 271(1)(c). Commissioner of Income-tax v. NG Technologies Ltd., [2015] 57 taxmann.com 389 (Delhi), HIGH COURT OF DELHI Section 271(1)(c), read with section 28(i), of the Income-tax Act, 1961-Penalty
u/s. 14A. Section 56(2)(viib)
u/s 271(1)(c) of the Income Tax Act, 1961
Income u/s 14A read with Rule 8D
u/s 143(3) of the I.T. Act, 1961
section 80-IA

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Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

This appeal arises from an appellate order of the Commissioner of Income Tax (Appeals)-I, New Delhi (CIT(A)) dated 26.08.2019, challenging a penalty order passed by the Assessing Officer (AO) dated 19.01.2018. The AO had levied a penalty of Rs. 30,53,710/- under section 271(1)(c) of the Income-tax Act, 1961, based on quantum additions totaling Rs. 98,82,556/- sustained in assessment and appellate proceedings.

The AO's penalty was imposed on four separate counts arising from assessment additions/disallowances:

Disallowance under section 14A: Rs. 365,546/- (reduction from a higher assessment figure)
Disallowance of interest and loan processing fee for funds not used for the assessee's business: Rs. 60,72,432/- (later increased by CIT(A))
Addition under section 56(2)(viib) for excess received on issue of shares: Rs. 34,38,000/-
Interest on late deposit of TDS wrongly claimed: Rs. 6,578/-

The CIT(A) held that no penalty should be imposed for the disallowance under section 14A, but sustained penalty under section 271(1)(c) on the remaining disallowances (amounting to Rs. 95,17,010/-). The assessee appealed to the Tribunal, but the matter proceeded ex parte at the Tribunal level and before the court because the assessee did not appear on any hearing dates. The court proceeded on the record and material placed before it.

Legal Issues Presented

Whether penalty under section 271(1)(c) of the Income-tax Act, 1961, is attracted for the quantum additions/disallowances sustained in assessment and appeal (excluding the portion under section 14A).
Whether the disallowance under section 14A should attract penalty under section 271(1)(c).
Whether addition under section 56(2)(viib) (share premium received over fair market value) is an anti‑abuse provision and liable to penalty under section 271(1)(c).
Whether the assessee's valuation of shares (claimed at Rs. 71.04 per share) was acceptable so as to avoid the addition under section 56(2)(viib).
Whether the notice for imposition of penalty specified the nature of the default (an objection raised by the assessee but not decided on the record due to absence of the notice in the file).

Arguments of the Parties

Appellant's (Assessee's) Arguments — as reflected in the record

The assessee asserted (or presented) that interest and related expenses incurred on loans were business expenses — i.e., that the interest-bearing loan had been raised for business purposes and thus should be allowable.
The assessee asserted a valuation of shares at Rs. 71.04 per share to justify the amount received on allotment and oppose the section 56(2)(viib) addition.
The assessee claimed that certain amounts (for example, interest on late TDS deposit) were allowable expenses.
The assessee also contended (in its grounds) that the penalty notice did not specify the nature of default, and therefore the penalty proceedings should be quashed at the threshold. (No penalty notice was on record and this objection was not raised before lower authorities.)

Respondent's (Revenue / Lower Authorities) Positions

The AO made additions/disallowances totaling Rs. 98,82,556/- and levied penalty of Rs. 30,53,710/- under section 271(1)(c) for furnishing inaccurate particulars of income.
The AO treated: (a) disallowances under section 14A and Rule 8D; (b) disallowance of interest and loan processing fee because loans were not used for the assessee's business but diverted as interest‑free advances to sister concerns; (c) addition under section 56(2)(viib) for excess on allotment of shares; and (d) disallowance of interest on late TDS deposit.
The CIT(A) accepted that no penalty should be imposed on the section 14A disallowance, but sustained penalty under section 271(1)(c) for the remaining disallowances (finding that the assessee furnished inaccurate particulars of income to the extent of Rs. 95,17,010/-). The CIT(A) relied on precedent authority in support of levy of penalty under section 271(1)(c).
Before the court, the revenue noted that the assessee had failed to place cogent evidence to show that loans and advances to sister concerns were for business purposes, had failed to defend inapplicability of section 56(2)(viib), and had not shown plausibility for rejecting the additions — hence the court should decline to interfere with the CIT(A)'s findings.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
[2014] 51 taxmann.com 523 (Delhi), Commissioner of Income‑tax v. Kalindi Rail Nirman Engg. Ltd.	Penalty under section 271(1)(c) may be levied where there is gross or wilful negligence in failing to return correct income; authorities may estimate profits and proceed to penalty where discrepancies are not explained.	The court considered this decision as relevant and stated that it is squarely applicable to the facts, supporting the finding that section 271(1)(c) is attracted.
[2014] 52 taxmann.com 66 (Delhi), Commissioner of Income‑tax v. Global Associates	Levy of penalty under section 271(1)(c) for furnishing inaccurate particulars — disallowance of a claim can amount to furnishing inaccurate particulars.	The court relied on this authority to support the proposition that disallowance of claims may attract penalty and applied that principle to the present disallowances.
[2013] 37 taxmann.com 347 (Delhi), Commissioner of Income‑tax v. HCIL Kalindee Arsspl	Penalty under section 271(1)(c) may be sustained where a claim is not bona fide and the assessee fails to show tangible material to establish bona fides.	The court treated this decision as supporting the view that lack of substantive evidence to show bona fides can justify imposition of penalty; it applied this to the assessee's failure to justify deductions/claims.
[2013] 38 taxmann.com 448 (SC), Mak Data Private Limited v. Commissioner Of Income Tax‑II	Disclosure does not necessarily absolve an assessee from penal proceedings under section 271(1)(c).	The court cited this Supreme Court authority to underscore that disclosures alone do not prevent initiation or sustenance of penalty proceedings; it used this principle in concluding penalty applicability.
[2015] 57 taxmann.com 389 (Delhi), Commissioner Of Income v. Ng Technologies Ltd.	Where surrender of income was not voluntary (e.g., detected in search), authorities were justified in levying penalty under section 271(1)(c).	The court referenced this authority to support the position that non‑voluntary or remedial disclosures do not preclude imposition of penalty; the precedent was used to justify penalty on components detected by authorities.

Court's Reasoning and Analysis

The court proceeded on the documentary record and appellate findings in the absence of the assessee. The step‑by‑step reasoning presented in the opinion is as follows:

The AO completed assessment under section 143(3) and made additions/disallowances totaling Rs. 98,82,556/-, itemized to include Rule 8D/section 14A, interest and loan processing fees for loans not used for business, share premium addition under section 56(2)(viib), and disallowance of TDS interest.
The CIT(A) reviewed the AO's findings: he reduced the section 14A disallowance substantially (to Rs. 3,65,546/-) but sustained the disallowance/ additions on other heads, including increasing the interest/processing fee disallowance to Rs. 79,08,068/- and confirming the section 56(2)(viib) addition of Rs. 34,38,000/-. The CIT(A) concluded no penalty for the 14A portion but found that inaccurate particulars were furnished to the extent of Rs. 95,17,010/- (i.e., excluding the reduced 14A amount).
The CIT(A) analysed factual material and found that: the assessee had taken interest‑bearing loans, but these funds were not used for the assessee's business; instead, they were advanced to sister concerns interest‑free; significant processing fees were paid for obtaining the loans; and thus the expenses were not business expenses and were rightly disallowed.
The CIT(A) also treated section 56(2)(viib) as an anti‑abuse provision and concluded that the addition under that section justified penalty under section 271(1)(c).
The CIT(A) expressly relied on multiple judicial pronouncements (including Delhi High Court and Supreme Court authorities) holding that penalties under section 271(1)(c) may be sustained where inaccurate particulars are furnished, where claims are not bona fide or explained, and where disclosures or post‑detection surrenders are not voluntary in nature.
Applying these authorities, the CIT(A) held that section 271(1)(c) was attracted to the disallowance amount of Rs. 95,17,010/-, upheld penalty of Rs. 29,40,760/-, and gave the assessee relief of Rs. 1,12,950/- (reducing AO's original penalty).
On appeal to the court, the assessee did not appear. The court examined the written record and the CIT(A)'s reasoning, observed the assessee's failure to place cogent evidence to support its claims (business purpose for loans, valuation evidence for shares, or justification for late TDS interest), and found no material basis to overturn the CIT(A)'s conclusions.
The assessee had also alleged at grounds that the penalty notice did not specify the nature of default, but no penalty notice was on the record and no such objection had been raised earlier; therefore the court declined to express a view on that contention.
Consequently, the court declined to interfere with the CIT(A)'s order and dismissed the appeal ex‑parte.

Holding and Implications

Core Ruling: THE APPEAL IS DISMISSED EX‑PARTE. The court declined to interfere with the CIT(A)'s order which had upheld penalty under section 271(1)(c) on disallowances amounting to Rs. 95,17,010/-, resulting in an affirmed penalty figure (CIT(A) had upheld a penalty of Rs. 29,40,760/- while granting a relief of Rs. 1,12,950/- against the AO's penalty).

Direct consequences for the parties:

The assessee's appeal is dismissed and the CIT(A)'s decision stands as upheld by the court (in the absence of the assessee at hearing).
The penalty under section 271(1)(c) as sustained by the CIT(A) is maintained for the disallowance amount of Rs. 95,17,010/-. The AO's larger penalty figure is reduced by the relief already granted by CIT(A) (relief of Rs. 1,12,950/- as reflected in the record).
The court did not set any broader new precedent; it applied existing authorities and statutory principles to the facts of this case and declined to disturb the findings of lower authorities.

Note: A contention by the assessee regarding the sufficiency of the penalty notice could not be addressed because no penalty notice was on the record and the objection had not been raised before the lower authorities.

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Abhinav International Pvt. Ltd.,, New Delhi v. DCIT Circle-1(1), New Delhi

Pradip Kumar Kedia, A.M.:— The captioned appeal has been directed against the appellate order of the Commissioner of Income Tax (Appeals)-I, New Delhi [‘CIT(A)’ in short] dated 26.08.2019 arising from penalty order passed by the Assessing Officer dated 19.01.2018 wherein the penalty of Rs. 30,53,710/- on the quantum additions of Rs. 98,82,556/- sustained in the appellate proceedings was imposed on account of certain disallowances and additions.

2. In the first appeal, the CIT(A) noticed that penalty under Section 271(1)(c) was imposed on four counts.

(i) Disallowance of Rs. 365546/- under Section 14A

(ii) Disallowance of interest of Rs. 60,72,432/-

(iii) Addition of Rs. 34,38,000/- under Section 56(2)(viib) and;

(iv) Interest on late deposit of TDS wrongly claimed at Rs. 6,578/-

3. The CIT(A) concluded in paragraph 7.3 of its order that no penalty should be imposed for disallowances under Section 14A of the Act. On the remaining amount of Rs. 95,17,010/-, the CIT(A) sustained the penalty alleging furnishing of inaccurate particulars of income by the assessee.

4. Aggrieved by the action of the CIT(A), the assessee filed appeal before the Tribunal.

5. When the matter was called for hearing, none appeared for the assessee. It appears from the record/order sheet that no one has appeared for the assessee on any of the occasions. Having regard to the totality of the circumstances and lackadaisical conduct of the assessee, the matter is proceeded ex-parte in the absence of the assessee.

6. The CIT(A) took note of the submissions of the assessee and found complete lack of merit in the plea of the assessee except for the disallowance under Section 14A. The CIT(A) sustained the penalty on the remaining additions. The relevant operative paragraph of the order of the CIT(A) is reproduced hereunder:

“7. Decision:

7.1 In the present case, assessment u/s 143(3) of the I.T. Act, 1961 was completed on 19.02.2016 after making the following additions:

Disallowance u/s 14A: Rs. 21,33,361/- Disallowance of interest (Rs. 16,90,392) and loan processing fee (Rs. 43,82,040) for money borrowed and not used for the business of the appellant: Rs. 60,72,432/-

Addition for excess of money received as share application money over the ran-market value of shares:Rs. 34,38,000/- Ld. CIT (Appeals) passed order in the case in Appeal No. 411/15-16 on 09.11.2016 and the appeal of the appellant was partly allowed. Ld. CTT has sustained the additions made by the AO under different heads as under:

Issue Addition made in assessment order Outcome in order by Ld. CIT (Appeals) Disallowance u/s 14A Rs. 21,33,361/- Addition restricted to Rs. 3,65,546/- by reducing addition made under Rule 8D (2)(iii) Disallowance of interest (Rs. 16,90,392) and loan processing fee (Rs. 43,82,040) for money borrowed and not used for the business of the assessee: Rs. 60,72,432/- Appeal on this ground dismissed and addition increased to Rs. 79,08,068/- Addition for excess of money received as share application money over the fair market value of shares: Rs. 34,38,000/- Appeal on this ground dismissed Disallowance of interest on late deposit of TDS: Rs. 6,578/- No appeal filed on this ground

7.2 The appellant filed further appeal before the Income Tax Appellate Tribunal against the order of Ld. CIT (Appeals). Hon'ble ITAT, Delhi has upheld the appellate order passed by Ld. CIT(A). In the present case, the appellant earned dividend income of Rs. 54,84,140/- during the year from investment in shares which was claimed as exempt. The assessing officer made the addition of Rs. 21,33,361/- u/s 14A for expenses relating to exempt income as per Rule 8D. The total disallowance made under Section 14A was reduced from Rs. 21,33,361/- to Rs. 3,65,546/- by the Ld. CIT (Appeals). The assessing officer made the addition of Rs. 60,72,432/- on account of claim of interest on loan taken and processing fees on the loan taken which was utilized for loans and advances given to its sister concerns as the expense was not incurred for business purposes. Ld. CIT (Appeals) held in his order that since the disallowance for interest made under Rule 8D(ii) had already been reduced from Rs. 16,90,392/- to Rs. 67,821/-, entire amount of interest of Rs. 35,26,028/- and loan processing fee of Rs. 43,82,400/- had to be disallowed. Thus the disallowance of Rs. 60,72,432/- made by the assessing officer was increased to Rs. 79,08,068/- (Rs. 35,26,028 + Rs. 43,82,040) by Ld. CIT (Appeals). The assessing officer made addition of Rs. 34,38,000/- for the amount of share premium received, by it over the amount of fair market value of shares. The appellant issued 90,000 equity/shares of face value of Rs. 10 each at a premium of Rs. 40 per share during the year. The assessing officer did not accept the value of Rs. 71.04 submitted by the appellant and made addition of Rs. 34,38,000/- u/s. 56(2)(viib) being the excess of amount received on allotment of shares above the fair, market value. Ld. CIT (Appeals) confirmed this addition as the appellant did not submit any evidence in support of its claim of for valuation of shares at Rs. 71.04 per share. The appellant paid interest of Rs. 6,574/- on late deposit on TDS which was claimed as expense. The Assessing Officer disallowed this expense as it is not allowable. No appeal was filed by the appellant on this issue. The AO has made the following chart for the purpose of levying penalty u/s. 271(1)(c) in the instant case:

Issue Amount of income on which tax souqht to be evaded Income u/s 14A read with Rule 8D Rs. 3,65,546/- Amount of interest (Rs. 16,90,392) and processing fee (Rs. 43,82,040) for money borrowed and not used for the business of the assessee. Wrongly claimed. Rs. 60,72,432/- Income u/s. 56(2)(viib) not declared Rs. 34,38,00/- Interest on late deposit of TDS wrongly claimed Rs. 6,758/- Total Rs. 98,82,556/-

In the penalty order the AO has held that the appellant is liable for penalty u/s 271(1)(c) of the Income Tax Act, 1961 of an amount equal to the amount of tax sought to be evaded on income of Rs. 98,82,556/- about which inaccurate particulars were furnished by the appellant. The penalty of Rs. 30,53,710/- has been levied by the AO u/s. 271(1)(c) in the instant case.

7.3 Considering the facts of the case, I am of the view that no penalty should be imposed on disallowance u/s. 14A. Section 56(2)(viib) is an anti abuse provision and any addition u/s. 56(2)(viib) is liable for penalty u/s. 271(1)(c). As regards the disallowance of interest, it is found that the appellant company has taken interest bearing loan and given it as interest free loan to its sister concerns. The appellant has also paid huge processing fee for raising these loans. However, the loan taken by the appellant company was not utilized for the purpose of the business of the appellant company. These loans were diverted to sister concerns without charging any interest or fees. The appellant has incurred the expenses on account of (i) the interest of Rs. 16,90,392/- on loan and (ii) the processing fee of Rs. 43,82,040/- for raising the loans which were not never utilized for the business of the appellant. Considering the facts of the case, it is held that the appellant has furnished inaccurate particulars of income to the extent of Rs. 95,17,010/-. Accordingly, it is held that the appellant is liable for penalty u/s. 271(1)(c) of The Act. In this regard, I would like to rely on the following judicial pronouncements:

“[2014] 51 taxmann.com 523 (Delhi), HIGH COURT OF DELHI, Commissioner of Income-tax v. Kalindi Rail Nirman Engg. Ltd.

“Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of Income (In case of estimation of profit) -Assessment year 1995-96 - Assessee was a contractor and assessee declared its income at an estimated 3 per cent of contract receipts - Search took place in assessee's premises and in view of seized materials Assessing Officer gave due opportunity to assessee to justify disclosed income and explain discrepancies noticed by special auditor - Assessee was also permitted to inspect seized documents - Despite that assessee could not explain said discrepancies - Accordingly Assessing Officer resorted to estimation of profits by adopting 11 per cent on gross contract receipts and initiated penalty proceedings - Whether there was gross or wilful negligence on part of assessee in failing to return correct income, penalty would be levied under section 271(1)(c) -Held, yes [Para 12] [In favour of revenue]”

[2014] 52 taxmann.com 66 (Delhi), HIGH COURT OF DELHI, Commissioner of Income-tax v. Global Associates.

“Section 271(1)(c) of the Income-tax Act, 1961 - Penalty - For concealment of income (Disallowance of claim, effect of) -Assessment year 2008-09 - Assessee debited an amount towards liquidated damages - Assessing Officer observed that computation of liquidated damages was done on basis that 3 lakhs MT of iron ore fines were to be supplied to overseas purchasers while, in fact, as per agreement between them actual agreed quantity was 2.85 lakh MT - Explanation of assessee that figure of 3 lakh MT included moisture content, was also not borne out from record; it also did not appear to be a part of any condition agreed to between parties - Whether claim of excess liquidated damages amounted to furnishing of inaccurate particulars and, hence, levy of penalty was justified - Held, yes [Para 6] [In favour of revenue].”

[2013] 37 taxmann.com 347 (Delhi), HIGH COURT OF DELHI, Commissioner of Income-tax v. HCIL Kalindee Arsspl.

“Section 271(1)(c), read with section 80-IA, of the Income-tax Act, 1961 - Penalty - For concealment of income [Wrong claim under section 80-IA] - Assessment year 2007-08 - Assessee's claim for deduction under section 80-IA was rejected by Assessing Officer on ground that assessee was executing works contract - Assessing Officer also Imposed penalty under section 271(1)(c) - Tribunal deleted penalty holding that claim for deduction under section 80-IA was duly supported by certificate of chartered accountant in prescribed form and, hence, bona fide - Whether merely because assessee complied with statutory procedural requirement of filing prescribed form and certificate of Chartered Accountant, it could not absolve assessee of its liability, if act or attempt in claiming. deduction was not bona fide - Held, yes-Whether to show and establish bona fides, assessee had to show some more ‘tangible material’ or basis as to why a clear statutory provision which excludes works contract was ignored - Held, yes - Whether since assessee had not been able to establish that it had acted bona fidely, deletion of penalty by Tribunal was unjustified - Held, yes [Paras 10, 11 & 13] [In favour of revenue].”

[2013] 38 taxmann.com 448 (SC), Mak Data Private Limited v. Commissioner Of Income Tax-Ii . disclosure does not release assessee from mischief of penal proceedings under section 271(1)(c)

In terms of section 271(1)(c), Assessing Officer has to satisfy whether penalty proceedings be initiated or not during course of assessment proceedings and Assessing Officer is not required to record his satisfaction in a particular manner or reduce it into writing

Where offer of surrender of certain amount received as share application money was made by assessee in view of detection made by Assessing Officer in search conducted in case of assessee's sister concern, said surrender of income not being voluntary in nature, authorities below were justified in levying penalty under section 271(1)(c).”

Commissioner Of Income v. Ng Technologies Ltd., [2015] 57 taxmann.com 389 (Delhi), HIGH COURT OF DELHI

“Section 271(1)(c), read with section 28(i), of the Income-tax Act, 1961-Penalty - For concealment of income (Disallowance of claim, effect) -Assessment year 2006-07 - Whether where assessee claimed loss on sale of fixed assets in profit and loss account which was a capital loss, same was contrary to basic principles of accountancy - Held, yes-Whether since assessee did not file revised return for same voluntarily but had filed revised return after Assessing Officer confronted assessee and they were asked to explain claim of loss in question in profit and loss account penalty under section 271(1)(c) was sustainable - Held, yes [Paras 17 and 20] [In favour of revenue],”

The above decisions are squarely applicable to the facts of the present case. Considering the facts of the case, I am of the view that the provisions of section 271(1)(c) of the Act are attracted in the case of the appellant. It is already held that penalty should not be imposed on disallowance of Rs. 3,65,546/- u/s 14A. Excluding the disallowance u/s 14A, the remaining disallowance comes to Rs. 95,17,010/- of Rs. 98,82,556/- Rs. 3,65,546/-). The provisions of section 271(1)(c) are attracted to the disallowance of Rs. 95,17,010/-. In view of it, it is held that the provisions of section 271(1)(c) are attracted to the disallowance of Rs. 95,17,010/- for furnishing inaccurate particulars of income as discussed above in the instant case. Accordingly, the penalty of Rs. 29,40,760/- imposed u/s 271 (1)(c) is upheld in the instant case and the appellant gets a relief of Rs. 1,12,950/-. Ground No. 2 is partly allowed.

7.4 Ground No. 1 & 3 are general in nature and do not require any adjudication.

8. In the result, appeal of appellant bearing Appeal. No. 506/17-18 is partly allowed.

7. Before us, none appeared as noted above. On the perusal of the submissions made by the CIT(A), it is noted that the assessee has failed to place cogent evidence that interest incurred on loan and advances given to its sister concern were incurred for the business purposes. The loan and allowances were given without charging any interest which has resulted in incurring burden on account of advances given to sister concern in violation of Section 36(1)(iii) of the Act. Likewise, before the CIT(A), the assessee has failed to defend inapplicability of Section 56(2)(viib) of the Act. It is not borne out from the records as to why Section 56(2)(viib) is not applicable or the alternative provisions of Section 271(1)(b) is not attracted in the facts of the case. Same is a case in respect of late deposit on TDS. Thus, in the absence of any material on record, it is difficult to conceive plausibility in the action of the assessee. We thus decline to interfere.

8. As per its grounds, the assessee has also alleged that notice issued for imposition of penalty does not specify the nature of default and thus entire penalty proceedings is required to be quashed at the threshold. No penalty notice is available on record. No such objection was raised before lower authorities either. We thus are in no position to express our view on such contentions.

9. In the result, the appeal of the assessee is dismissed ex-parte.

Abhinav International Pvt. Ltd.,, New Delhi v. DCIT Circle-1(1), New Delhi

Structured Summary of the Provided Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's (Assessee's) Arguments — as reflected in the record

Respondent's (Revenue / Lower Authorities) Positions

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Abhinav International Pvt. Ltd.,, New Delhi v. DCIT Circle-1(1), New Delhi

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