The ACIT, Circle-4,, Ahmedabad v. Gujarat State Financial Services Ltd.,, Ahmedabad

ITA 2526/AHD/2006 | 2001-2002
Pronouncement Date: 31-05-2010 | Result: Dismissed

Appeal Details

RSA Number 252620514 RSA 2006
Assessee PAN AAACG5581B
Bench Ahmedabad
Appeal Number ITA 2526/AHD/2006
Duration Of Justice 3 year(s) 6 month(s) 6 day(s)
Appellant The ACIT, Circle-4,, Ahmedabad
Respondent Gujarat State Financial Services Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 31-05-2010
Date Of Final Hearing 13-05-2010
Next Hearing Date 13-05-2010
Assessment Year 2001-2002
Appeal Filed On 24-11-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'B' [BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM] ITA NO.2078/AHD/2006 (ASSESSMENT YEAR:-2001-02) GUJARAT STATE FINANCIAL SERVICES LTD. WING B 3 RD FLOOR KHANIJ BHAVAN NR. UNIVERSITY GROUND VASTRAPUR AHMEDABAD [PAN: AAACG 5581 B] V/S THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-4 AHMEDABAD [APPELLANT] [RESPONDENT] ITA NO.2526/AHD/2006 (ASSESSMENT YEAR:-2001-02) THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-4 AHMEDABAD V/S GUJARAT STATE FINANCIAL SERVICES LTD. WING B 3 RD FLOOR KHANIJ BHAVAN NR. UNIVERSITY GROUND VASTRAPUR AHMEDABAD [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI SANJAY R SHAH AR REVENUE BY:- SMT. NEETA SHAH DR O R D E R A N PAHUJA: THESE CROSS APPEALS FILED AGAINST AN ORDER DATE D 04-09-2006 OF THE LD. CIT(APPEALS)-VIII AHMEDABAD RAISE THE FOL LOWING GROUNDS : ITA NO.2078/AHD/2006[ASSESSEE] 1 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT PENALTY U/S 271(1)(C) IS LEVIABLE. IT IS SUBMI TTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THERE IS NEITHER CONCEALM ENT OF INCOME NOR FURNISHING OF ANY INACCURATE PARTICULARS AND HENCE PROVISIONS OF SECTION 271(1)(C) IS NOT APPLICABLE. IT IS SUBMITTED THAT I T BE SO HELD NOW. 1.1 THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) ERRED IN NOT APPRECIATING THE FACT THAT THERE WAS NO SATISFACTIO N AS REGARDS CONCEALMENT OF INCOME OR FURNISHING OF ANY INACCURA TE PARTICULARS WHILE PASSING THE ASSESSMENT ORDER. IT IS SUBMITTED THAT IN ABSENCE OF SUCH SATISFACTION PENALTY U/S 271(1)(C) CAN NOT BE LEVIE D. IT IS SUBMITTED THAT IT BE SO HELD NOW. ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 2 1.2 THE LEARNED COMMISSIONER OF INCOME-TAX (A PPEALS) ERRED IN CONFIRMING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT ON THE DISALLOWANCE MADE FOR PROVISION MADE FOR BAD AND DOUBTFUL DEBTS FOR RS.1 62 81 557/- AND PROVISION MADE FOR DIMINUTION IN VALUE OF THE INVES TMENTS FOR RS.21 98 638/- AS PER THE NORMS OF RESERVE BANK OF INDIA. IT IS SUBMITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE PEN ALTY U/S 271(1)(C) IS NOT LEVIABLE. IT IS SUBMITTED THAT IT BE SO HELD NOW. YOUR APPELLANT CRAVES LEAVE TO ADD ALTER AND/OR AM END ALL OR ANY OF THE GROUNDS BEFORE FINAL HEARING OF THE APPEAL. ITA NO.2526/AHD/2006[ REVENUE] 1 THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN CANCELING THE PART OF THE PENALTY LEVIED U/S 271(1)(C) OF THE I.T. ACT 1961 WHICH WAS ATTRIBUTABLE TO THE DISALLOWANCE OF RS.9.91 LAC S U/S 14A OF THE I.T. ACT ON THE GROUND THAT THE ADDITION SUSTAINED WAS M ADE ON ESTIMATE BASIS. 2 THE LD. CIT(A) HAS FURTHER ERRED IN APPRECIATING THE FACT THAT THE SAID ADDITION WAS CONFIRMED BY THE LD. CIT(A) IN QUANTUM APPEAL. 3 THE LD. CIT(A) HAS ALSO ERRED IN APPRECIATING THE FACT THAT THE CONCEALMENT PENALTY IS LEVIABLE EVEN WHERE THE ADDI TIONS ARE MADE ON THE ESTIMATED BASIS AS HELD IN THE CASES OF CIT VS. WARASAT HUSSIAN 171 ITR 405 (PAT) DR. K.D. ARORA VS. CIT 162 ITR 481 (PAT) CIT VS. SWARUP COLD STORAGE & GENERAL MILLS 136 ITR 435 (AL L) CIT VS. KEDARNATH RAMNATH 106 ITR 172 (ALL) CIT VS. E V RA JAN 151 ITR 189 (MAD) & ADDL. CIT VS. LAKSHMI IND. & COLD STORA GE CO. LTD. 146 ITR 492 (ALL). 4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 5 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . CIT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. 2 FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT R ETURN DECLARING INCOME OF RS.16 17 56 630/- FILED ON 11-10-2001 BY THE ASSESSEE- COMPANY CARRYING ON THE BUSINESS OF PROVIDING LOAN S/FINANCE & LEASING/HIRE PURCHASE BESIDES PROVIDING FINANCIAL S ERVICES AFTER BEING PROCESSED ON 30.9.2002 U/S 143(1) OF THE INCO ME-TAX ACT 1961[HEREINAFTER REFERRED TO AS THE ACT] WAS SELECTED FOR ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 3 SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 29.10.2002. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT VIDE ORDER DATED 26-2-2004 DETERMINING TOTAL INCOME OF RS.29 05 15 132/-. INTER ALIA FOLLOWING DISALLOWANCES WERE MADE: (1) U/S 14A RS.6 98 72 062/- (2) BAD DEBTS RS.1 62 81 557/- (3) PROVISION FOR DIMINUTION RS. 21 98 638/- IN VALUE OF INVESTMENTS (4) INCOME REVERSAL RS. 38 211/- AND PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT WERE ALSO INITIATED . IN RESPONSE NEITHER ANYBODY ATTEN DED NOR ANY REPLY WAS FURNISHED .ON APPEAL THE LD. CIT(A) VIDE HIS O RDER DATED 29.11.2004 UPHELD THE FOLLOWING DISALLOWANCES: (1) U/S 14A RS. 9 91 000/- (2) BAD DEBTS RS.1 62 81 557/- (3) PROVISION FOR DIMINUTION RS. 21 98 638/- IN VALUE OF INVESTMENTS HERE IT MAY BE WORTH MENTIONING THAT THE ASSESSEE S APPEAL ON THE AFORESAID DISALLOWANCES WAS ALSO DISMISSED BY THE I TAT VIDE ORDER DATED 10.7.2009 IN ITA NO.229/AHD./2005. 2.1. AFTER RECEIPT OF ORDER OF THE LD. CIT(A) IN RESPONSE TO A SHOW CAUSE NOTICED DATED 8.2.2006 ISSUED BEFORE LEVY OF PENALTY THE ASSESSEE REPLIED ON 15.2.2006 THAT THEY HAVE NEIT HER CONCEALED ANY INCOME NOR FURNISHED ANY INACCURATE PARTICULARS THE REOF AND THEREFORE THE PROVISIONS OF SECTION 271(1)(C) WOULD NOT BE APPLIC ABLE . IT WAS ARGUED THAT OUT OF ADDITIONS OF RS.12.87 CRORES ADDITIONS / DISALLOWA NCES OF RS.1.87 CRORES WERE CONFIRMED IN RESPECT OF PROVISION FOR DOUBTFUL DEBT S AND PROVISION FOR DIMINUTION IN VALUE OF THE INVESTMENT BESIDES DISALLOWANCE U/S 14 A OF THE ACT. IT WAS POINTED OUT THAT THE PROVISION FOR DOUBTFUL DEBTS AND DIMI NUTION IN INVESTMENTS HAVING ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 4 BEEN MADE IN VIEW OF THE RBI DIRECTIONSAND IN COMP LIANCE WITH THE ACCOUNTING STANDARD AND SEPARATELY DISCLOSED IN THE AUDITED A CCOUNTS IT WAS NOT A CASE OF ANY CONCEALMENT OF INCOME. WHILE RELYING UPON DECI SIONS IN THE CASE OF CIT V. CALCUTTA TRADING CORPORATION 166 ITR 29 (CAL.) J. K . JAJU V. CIT 181 ITR 410 (MP) CIT V. INDEN BISLERS 240 ITR 943(MAD) CIT V. GUJARAT MACHINERIES 67 TTJ 466 (AHD) SHIVAM R. PROCESSORS LTD. V. ACIT 69 TT J 600 (AHD) ITO V. RAJKOT RICE AND GENERAL MILL 110 TAXMAN 102 (CHGANDIGARH S MC) DCIT V. SMT. PANNABEN C.DESAI 112 TAXMAN 84) (AHD) THE ASSESSEE PLEADED THAT MERE ADDITION ITSELF WOULD NOT ATTRACT PENALTY U/S. 271( 1)(C) OF THE ACT PARTICULARLY WHEN THERE WAS A TRUE AND COMPLETE DISCLOSURE IN THE RET URN OF INCOME FILED. HOWEVER THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESS EE ON THE GROUND THAT I) DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E COMPANY CLAIMED EXEMPTED INCOME ON ACCOUNT OF DIVIDENDS OF RS.4 81 45 543/ - U/S. 10(33) OF THE ACT. THE DISALLOWANCE ON ACCOUNT OF INTEREST ON FUNDS INVEST ED IN EXEMPTED ASSETS AND ADMINISTRATIVE & OTHER EXPENSES OF RS.6 98 72 062/- MADE BY THE AO WAS RESTRICTED BY THE LD. CIT(A) TO RS.9 91 000/-. II) THE ASSESSEE CLAIMED DEDUCTION FOR PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.1 61 81 556/- EVEN WHEN THE EXPLANATION TO THE RELEVANT PROVISIONS OF SEC. 36(1)(VII) OF THE ACT CLEARLY MENTIONED THAT FOR T HE PURPOSE OF THE SAID CLAUSE ANY BAD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERAB LE IN THE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AN D DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE. MOREOVER ASSESSEES CLAI M WAS NOT MAINTAINABLE EVEN U/S.28 OF THE ACT ; III) THE CLAIM FOR DEDUCTION OF A SUM OF RS.21 98 638/- ON ACCOUNT OF DIMINUTION IN THE VALUE OF THE INVESTMENTS WAS NOT ADMISSIBLE THESE INVESTMENTS BEING NOT STOCK-IN-TRADE ; AND IV) THE ACTIONS OF THE ASSESSEE IN CLAIMING THE DED UCTIONS WERE DELIBERATE AND WITH WILLFUL INTENTION TO EVADE TAX. ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 5 2.2 ACCORDINGLY RELYING UPON DECISION OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF JAMNADAS & CO VS CIT (1994) 210 ITR 218 AND EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT THE AO IMPOSED A PENA LTY OF RS.77 00 857/- FOR FURNISHING INACCURATE PARTICULARS OF INCOME LEADING TO CONCEALMENT OF INCOME OF RS.1 94 71 195/- .ACCORDING TO THE AO THE ASSESSEE COMMITTED THE DEFAULT OF CONCEALMENT OF ITS INCOME DUE TO FURNISHING INACCUR ATE PARTICULARS THEREOF. 3. ON APPEAL IT WAS CONTENDED ON BEHALF O F THE ASSESSEE THAT NO JUSTIFICATION WAS GIVEN IN THE ASSESSMENT ORDER REGARDING CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS NOR ANY SATISFACTION WAS RECORDED BY THE AO . THE AO HAD NOT STATED WHETHER PENALTY P ROCEEDINGS WERE INITIATED FOR CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS. WHILE RELYING UPON THE DECISIONS OF HON'BLE DELHI HIGH COURT IN DIWAN ENTERPRISES V. CIT 246 ITR 571 CIT V. RAM CORNMERCIAL ENTERPRISES LTD. 246 ITR 568 CIT V. AUTO LAMPS LTD. 278 ITR 32 AND CIT V. B.R. SHARMA 275 ITR 303 THE ASSESSEE CONTENDED THAT IN THE ABSENCE OF ANY SUCH SATISFACTION BEING RECORDED IN THE ASSESSMENT PROCEEDINGS THE JURISDICTION TO INITIATE THE PENAL TY PROCEEDINGS COULD NOT HAVE BEEN EXERCISED. RELYING UPON THE DECISIONS IN THE C ASE OF DAHOD SAHKARI KHARID VECHAN SANGH LTD. V. CIT 149 TAXMAN 456(GUJ) DC1T V. RURAL ELECTRICAL CO- OPERATIVE SOCIETY LIMITED 279 ITR 319(MP) AND DENA BANK LTD. 25 ITD 104(BOMBAY) IT WAS FURTHER CONTENDED THAT BEING A GOVERNMENT COMPANY THERE WAS NO MALA FIDE INTENTION IN CLAIMING THE DE DUCTION. RELYING ON THE DECISIONS IN THE CASE OF ITO V. C. CHHOTALAL TEXTIL ES (P) LTD. 95 TTJ 436 (MUMBAI ITAT) CIT V. RAJ BANS SINGH 276 ITR 351 (ALLAHABAD &ITO V SMT. PURNIMA DEVI GUPTA 3 SOT 753 (JODHPUR ITAT) THE ASSESSEE FURTHER PLEADED THAT PENALTY CAN NOT BE LEVIED FOR ESTIMATED DISALLOWANCE U/S 14A OF THE ACT. IT WAS SUBMITTED THAT PROVISION MADE FOR BAD AND DOUBTFUL DEBTS AND PROVI SION FOR DIMINUTION IN VALUE OF INVESTMENTS WERE IN ACCORDANCE WITH THE PRUDENTIAL NORMS OF THE RESERVE BANK OF INDIA AND WERE SHOWN ON THE FACE OF PROFIT AND L OSS ACCOUNT THE ASSESSEE BEING A NON-BANKING FINANCE COMPANY. IT WAS ARGUED THAT THE RBI ACT OVERRIDES THE PROVISIONS OF INCOME-TAX ACT AND THER EFORE THE PROVISIONS MADE IN ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 6 THE PROFIT AND LOSS ACCOUNT WERE ALLOWABLE AS DEDUC TION U/S. 28/37(1) OF THE ACT IN VIEW OF DECISION OF DELHI TRIBUNAL IN THE CASE OF T EDCO INVESTMENT AND FINANCIAL SERVICES PVT. LTD. REPORTED AT 82 TTJ 259. AND DECI SION OF CHENNAI TRIBUNAL IN THE CASE OF OVERSEAS SANMAR LTD. REPORTED AT 86 ITD 6 02. SINCE THE ASSESSEE WAS UNDER A BONAFIDE BELIEF THAT THESE PROVISIONS WERE ALLOWABLE DEDUCTIONS PENALTY U/S. 271(L)(C) WAS NOT APPLICABLE. WITHOUT PREJUDIC E TO THESE CONTENTIONS IT WAS PLEADED THAT THE DISALLOWANCE ON ACCOUNT OF PROVIS IONS FOR BAD DEBTS WAS MADE IN VIEW OF THE AMENDMENT TO SECTION 36(1)(VI) RETRO SPECTIVELY BY THE FINANCE ACT 2001 EFFECTIVE FROM 01-04-1989 AND THE ASSESSEE WAS NOT AWARE OF THIS AS IT WAS NOT PUBLICLY KNOWN. RELYING FURTHER UPON DECISIONS IN THE CASE OF CIT V. CALCUTTA TRADING CORPORATION 166 ITR 29 CIT V. INDEN BISLER S 249 ITR 942 (MAD) DCIT V. GUJARAT MACHINERIES 47 TTJ 466 (AHMEDABAD}AND S HIVRAM R PROCESORS LIMITED V. ACIT 69 TTJ 600 (AHMEDABAD) THE ASSESSE E ADDED THAT MERE ADDITION SUSTAINED BY CIT(A) CANNOT BE THE BASE FOR LEVY OF CONCEALMENT PENALTY. IN THE LIGHT OF THESE SUBMISSIONS THE LD. CIT(A) U PHELD THE LEVY OF PENALTY IN RELATION TO DISALLOWANCE ON ACCOUNT OF PROVISION F OR BAD AND DOUBTFUL DEBTS- RS.1 62 81 557/- AND PROVISION FOR DIMINUTIO N IN VALUE OF INVESTMENTS- RS.21 98 638/- WHILE CANCELLING THE PE NALTY ATTRIBUTABLE TO DISALLOWANCE OF RS.9.91 LACS SUSTAINED ON ESTIM ATED BASIS IN THE FOLLOWING TERMS:- 5 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND ALSO PERUSED THE VARIOUS JUDICIAL PRONOUNCEMENTS FI LED IN SUPPORT OF ARGUMENTS OF THE APPELLANT. I HAVE ALSO GONE THROUG H THE RELEVANT ASSESSMENT ORDER AND THE PENALTY ORDER PASSED BY TH E AO. IT IS QUITE PERTINENT TO REFER TO THE COMPUTATION STATEMENT OF THE APPELLANT FILED ALONG WITH THE RETURN OF INCOME WHICH IS EXTRACTED AS UND ER FOR THE SAKE OF FACILITY. PARTICULARS RS. RS. RS. 1. BUSINESS INCOME NET PROFIT AS PER P&L A/C ADD:(1) DEPRECIATION AS PER BOOKS 123227452 64000000 72833695 ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 7 (2) PROVISION FOR TAXATION LESS: PRIOR PERIOD ADJUSTMENT A/C LESS: EXCESS PROVISION OF I.T. ------------- 187227452 --------------- 260061147 186567 -------------- 259874580 1391745 -------------- 258482835 ADD: DISALLOWABLES 1) OUT OF MISC. EXP. TDS PENALTY OF AY 97-98 2) OUT OF OFFICE EXP. PF PENALTY LESS: ITEMS TREATED SEPARATELY PROFIT ON SALE OF INVESTMENTS PROFIT ON SALE OF ASSETS (NET) DIVIDEND INCOME LESS: INTEREST ON INFRASTRUCTURE BONDS / DEBENTURES EXEMPT U/S 10(23G) SSNL BONDS GIPCL-97 11% DEBENTURES ADD: AMOUNT OF LEASE EQUALIZATION DEBITED TO PROFIT AND LOSS A/C. LESS: DEPRECIATION AS PER INCOME TAX 40900 12563 3006551 19178 48145543 3575000 2193972 43463 258536298 51171272 207365026 5768072 201596054 16330460 217926514 59176435 158750079 5.1 THE APPELLANT HAD PROVIDED FOR BAD AND DOUBTFUL DEBTS AND DIMINUTION IN VALUE OF INVESTMENTS IN THE PROFIT AN D LOSS ACCOUNT WITH THE FOLLOWING NARRATIONS: PROFIT BEFORE PROVISIONS AGAINST NON PERFORMING ASSETS AS PER RBI DIRECTIONS 2780 91(000) LESS: PROVISION FOR LEAVE ENCASHMENT 1089(000) LESS: PROVISION FOR BAD & DOUBTFUL DEBTS AS PER RBI DIRECTIONS 16282(000) PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS AS PER RBI DIRECTIONS 2199(000) INCOME REVERSAL AS PER RBI ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 8 DIRECTIONS DATED 12 TH MAY 1998 38(000) 19608(000) PROFIT BEFORE DEPRECIATION AND TAX 258483(000) 5.1.1 THUS AS SEEN FROM THE COMPUTATION STATEMENT AND THE PROFIT AND LOSS ACCOUNT THE APPELLANT HAD ADDED BACK PROVISIO N FOR TAXATION AND REDUCED EXCESS PROVISION FOR INCOME-TAX BUT DID NOT ADD BACK THE PROVISIONS MADE IN THE PROFIT AND LOSS ACCOUNT FOR PROVISION FOR BAD DEBTS AND PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT S. THERE ARE ALSO NO NOTES FORMING PART OF COMPUTATION STATEMENT THAT TH E ABOVE PROVISIONS WERE CLAIMED IN VIEW OF SECTION 45Q OF THE RBI ACT. THERE IS NO MENTION AS TO THE RELIANCE ON ANY OF THE JUDICIAL PRONOUNCEMEN TS THAT THE SAID PROVISIONS WERE CLAIMED AS DEDUCTION U/S. 26 OR U/S . 37. IN FACT THERE IS NO MENTION IN THE COMPUTATION STATEMENT AS TO THE CLAI M U/S. 36(L)(VII) AS REGARDS PROVISIONS FOR BAD AND DOUBTFUL DEBTS OR AS REGARDS DIMINUTION IN VALUE OF INVESTMENTS. THE APPELLANT HAD STARTED OF FROM THE PROFIT FIGURE BEFORE APPROPRIATIONS AS PER PROFIT ARID LOSS ACCOU NT AND COMPUTED THE INCOME UNDER HEAD 'BUSINESS' AS EXTRACTED SUPRA. IT IS AN ADMITTED FACT THAT THE AMENDED PROVISIONS OF SECTION 36(1)(VIII) WAS ON THE STATUTE AS ON THE DATE OF FILING OF RETURN. THE APPELLANT ALSO AD MITS THAT THEY WERE NOT AWARE OF THE SAID AMENDMENT AS IT WAS NOT PUBLICLY KNOWN. THUS IT LEADS TO THE INEVITABLE CONCLUSION THAT THE PROVISION OF THE ACT AS REGARDS BAD DEBT CLAIM WAS GIVEN A GO BY. IT IS NOT DISPUTED BY THE APPELLANT THAT WHAT THEY HAD DEBITED IN THE PROFIT AND TOSS ACCOUNT WAS MERE PROVISION AND NOT BAD DEBT WRITTEN OFF. IT IS TO BE STATED WITH EMPHA SIS THAT THE PROVISIONS OF SECTION 36(1)(VII) WAS EFFECTIVE FROM 01-04-1989 WH ICH NECESSITATES WRITE OFF OF BAD DEBTS AS IRRECOVERABLE IN THE ACCOUNTS O F THE APPELLANT. ONLY THE EXPLANATION BELOW CLARIFYING THAT PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS WOULD NOT QUALIFY AS BAD DEBT OR PA RT THEREOF WRITTEN OFF AS IRRECOVERABLE WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 01-04-1989. THUS WRITE OFF OF BAD DEBT S IN THE ACCOUNTS IS A MUST FOR CLAIMING DEDUCTION U/S. 36(L)(VII). THE AP PELLANT IS AN ESTABLISHED CONCERN ASSISTED BY REPUTED PROFESSIONAL FIRMS. IT CANNOT BE THEIR CASE THAT THEY WERE IGNORANT OF EVEN THE BASE REQUIREMENTS OF LAW WHILE MAKING HUGE CLAIMS FOR DEDUCTION. AS ALREADY STATED THERE IS NO SPECIFIC MENTION IN THE COMPUTATION STATEMENT AS TO WHICH OF THE PROVIS ION WAS APPLICABLE IN MAKING THE CLAIM FOR DEDUCTIONS ON ACCOUNT OF PROVI SION FOR BAD AND DOUBTFUL DEBTS AND DIMINUTION IN VALUE OF INVESTMEN TS. IN OTHER WORDS THE COMPUTATION OF INCOME UNDER THE HEAD 'BUSINESS' WAS INCORRECT ON FACTS AS WELL AS IN THE EYE OF LAW. IT WAS ONLY DURING TH E ASSESSMENT PROCEEDINGS THAT THE AO SCRUTINIZED THE ACCOUNTS AN D REJECTED THE APPELLANT'S CLAIM IN THIS REGARD. NOTHING WAS MADE APPARENT ON THE RECORDS AS TO THE BONAFIDE BASIS FOR MAKING THE ABO VE CLAIM AS DEDUCTION OR FOR NOT ADDING BACK THE PROVISIONS DEBITED TO P ROFIT AND LOSS ACCOUNT ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 9 WHILE PREPARING THE STATEMENT OF TOTAL INCOME. THIS IS A CLEAR DEFAULT DESERVING PROPER EXPLANATION FROM THE APPELLANT. 5.1.2 BEFORE THE AO VIDE LETTER DATED 17-02-2004 THE APPELLANT CLAIMED THAT THE PROVISION FOR BAD AND DOUBTFUL DEB TS AND PROVISION FOR DIMINUTION IN THE VALUE OF INVESTMENTS HAVING BEEN MADE AS PER THE RBI DIRECTIONS THEY ARE ALLOWABLE AS DEDUCTION IN THE COMPUTATION OF TOTAL INCOME. AS SEEN FROM THE ASSESSMENT ORDER THE SAID CLAIM WAS NEGATIVED BY THE AO AND SUSTAINED BY CIT(A) IF IT WERE THE C ASE OF THE APPELLANT THAT THE RETROSPECTIVE AMENDMENT BY WAY OF EXPLANATION T O SECTION 36(1)(VII) WAS UNKNOWN TO THEM THEN DURING THE COURSE OF ASSE SSMENT PROCEEDINGS WHEN THE AO SPECIFICALLY CALLED FOR THE DETAILS THE Y SHOULD HAVE REVISED THE COMPUTATION STATEMENT ADMITTING THEIR MISTAKES. THI S WAS NOT DONE. INSTEAD THEY RESORTED TO THE NEW CLAIM OF THE PROV ISIONS OF THE RBI ACT OVERRIDING THE PROVISIONS OF INCOME-TAX ACT WHICH NEVER FORMED PART OF THE COMPUTATION STATEMENT AS DISCUSSED ABOVE. THIS CLEA RLY SHOWS THE AFTER THOUGHT OR AS THE CASE MAY BE SHIFTING STANCE OF TH E APPELLANT. THERE IS NO CONSISTENCY AS REGARDS THEIR HAVING ANY BONAFIDE BE LIEF THAT THE PROVISION MADEIN THE ACCOUNTS FOR BAD AND DOUBTFUL DEBTS AND DIMINUTION IN VALUE OF INVESTMENTS WERE INDEED AN ALLOWABLE DEDUCTION. AS ALREADY POINTED OUT THE PROVISION AS TO THE ALLOWANCE OF BAD AND DOUBTF UL DEBTS IS ALREADY THERE IN THE STATUTE AND NOT APPLICABLE FOR THE FIR ST TIME TO THE A.Y. 2001- 02. EXPLANATION THEREIN WAS ONLY FOR THE REMOVAL OF DOUBTS THAT MERE PROVISION WILL NOT TANTAMOUNT TO WRITE OFF. IT WAS NOT THE CASE OF THE APPELLANT THAT MERE PROVISION WAS AND HAD BEEN ALLO WED UPTO A.Y. 2000- O1. THIS BEING THE CASE THERE IS NO BASIS FOR THE APPELLANT TO FORM ANY BONAFIDE BELIEF IN NOT ADJUSTING THE SAID PROVISION IN THE COMPUTATION STATEMENT. 5.1.3 BE THAT AS IT MAY NOW I SHALL ADVERT TO THE ARGUMENTS ON THE LEGAL ASPECTS AS PUT FORTH BY THE APPELLANT: 5.1.4 (I) NON RECORDING OF REASONS BY TH E AO IN THE ASSESSMENT ORDER : THE APPELLANT EXTENSIVELY RELIED ON VARIOUS DECIS IONS OF THE HONBLE DELHI HIGH COURT AS DISCUSSED IN THE PRECEDING PARA GRAPHS. FOR THE SAKE OF BREVITY IT IS PERTINENT TO REFER TO THE DECISIO N OF THE HON'BLE MADRAS HIGH COURT SQUARELY COVERING THE ABOVE ASPECT IN THE CAS E OF M. SAJJANRAJ NAHAR V. CIT 283 ITR 230. IN THE SAID DECISION THE HON'BLE HIGH COURT HELD THAT THE INDICATION IN THE ASSESSMENT ORDER BY THE AO THAT PENALTY PROCEEDINGS ARE INITIATED SEPARATELY IS SUFFICIENT TO PROVE THAT THE AO HAD SATISFIED HIMSELF IN THE COURSE OF ASSESSMENT PROCE EDINGS THAT THE ASSESSEE HAD CONCEALED HIS INCOME. IN COMING TO THE ABOVE DECISION THE HON'BLE HIGH COURT EXTENSIVELY QUOTED THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. S.V. ANGIDI CHETTIAR 44 ITR 7 39 VIDE PARA 27 28 29 & 30 WHICH IS NS UNDER: ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 10 THE QUESTION OF INITIATING PENALTY PROCEEDINGS UND ER SECTION 28(1) OF THE INDIAN INCOME-TAX ACT. 1922 CAME UP FOR CONS IDERATION OF THE APEX COURT IN CIT V. S.V. ANGIDI CHETTIAR (1962) 44 ITR 739. WHICH IS ALSO RELIED UPON IN THE DELHI HIGH COURT IN (A) CIT V. RAM COMMERCIAL ENTERPRISES LTD. (2000) 246 ITR 568; AND (B) DIWAN ENTERPRISES V. CIT (2000) 246 ITR 571. THE APEX COU RT IN CIT V. S.V. ANGIDI CHETTIAR (1362) 44 ITR 739 HELD AS FOL LOWS (PAGE 745) : 'THE POWER TO IMPOSE PENALTY UNDER SECTION 28 DEPEN DS UPON THE SATISFACTION OF THE INCOME-LAX OFFICER IN THE COURSE OF PROCEEDINGS UNDER THE ACT; IT CANNOT BE EXERCISED IF HE IS NOT SATISFIED ABOUT THE EXISTENC E OF CONDITIONS SPECIFIED IN CLAUSES (A) (B) AND (C) BE FORE THE PROCEEDINGS ARE CONCLUDED. THE PROCEEDING TO LEVY PENALTY HAS HOWEVER NOT TO BE COMMENCED BY THE INCOME-TAX OFFICER BEFORE THE COMPLETION OF THE ASSESSMENT PROCEEDINGS BY THE INCOME-TAX OFFICER. SATISFACTION BEFORE CONCLUSION OF THE PROCEEDING UN DER THE ACT AND NOT THE ISSUE OF A NOTICE OR INITIATIO N OF ANY STEP FOR IMPOSING PENALTY IS A CONDITION FOR THE EX ERCISE OF THE JURISDICTION.' BY PLACING RELIANCE ON THE SAID DECISION IN CIT V. S.V. ANGIDI CHETTIAR (1962) 44 ITR 739 (SC) THE DELHI HIGH COU RT IN DIWAN ENTERPRISES V. CIT (2000) 246 ITR 571 HELD THAT SA TISFACTION HAS TO BE BEFORE THE ISSUE OF NOTICE OR INITIATION OF ANY STEP FOR IMPOSING PENALTY AND SUCH REQUISITE SATISFACTION HAS TO BE R ECORDED IN THE PROCEEDINGS OR OTHERWISE THE PENALTY PROCEEDINGS I NITIATED WOULD SUFFER A JURISDICTIONAL DEFECT WHICH CANNOT BE CURE D; AND THAT INITIATION OF PENALTY PROCEEDINGS IS ITSELF BAD AND CONSEQUENTLY ALL THE SUBSEQUENT PROCEEDINGS LEADING UP TO THE PASSIN G OF PENALTY ORDER MUST FAIL. THE RATIO LAID DOWN BY THE APEX CO URT IN CIT V. S.V. ANGIDI CHETTIAR (1962) 44 ITR 739 IS ALSO FOLLOWED IN CIT V. VIKAS PROMOTERS P. LTD. (2005) 277 ITR 337 BY THE DELHI H IGH COURT. BUT WITH RESPECT WE ARE UNABLE TO AGREE WITH THE VIEW EXPRESSED BY THE DELHI HIGH COURT IN (A) CIT V. RAM COMMERCIA L ENTERPRISES LTD. (2000) 246 ITR 568; (B) DIWAN ENTERPRISES V. C IT (2000) 248 ITR 571; AND (C) CIT V. VLKAS PROMOTERS P. LTD. (20 05) 277 ITR 337 WITH REGARD TO THE RELIANCE PLACED ON THE RATI O LAID DOWN BY THE APEX COURT IN CIT V. S.V. ANGIDI CHETTIAR (1952) 44 STR 739 ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 11 BECAUSE IN THE SAID DECISION THE SUPREME COURT ALS O OBSERVED THAT (PAGE 745) : 'THERE IS NO EVIDENCE ON THE RECORD THAT THE INCOME -TAX OFFICER WAS NOT SATISFIED IN THE COURSE OF THE ASSE SSMENT PROCEEDING THAT THE FIRMS HAD CONCEALED ITS INCOME. THE ASSESSMENT ORDER IS DATED NOVEMBER 10 1951 AND TH ERE IS AN ENDORSEMENT AT THE FOOT OF THE ASSESSMENT ORD ER BY THE ITO THAT ACTION U/S 28 HAD BEEN TAKEN FOR CONCEALMENT OF INCOME INDICATING CLEARLY THAT THE I TO WAS SATISFIED IN THE COURSE OF THE ASSESSMENT PROCE EDINGS THAT THE FIRM HAD CONCEALED ITS INCOME (EMPHASIS SUPPLIED) . THE ABOVE OBSERVATION OF THE APEX COURT IN CIT V. S .V. ANGIDI CHETTIAR (1962) 44 ITR 739 DEALING WITH THE INDICA TION OF THE ASSESSING OFFICER AS TO THE PROPOSED PENALTY PROCEE DINGS WITH REGARD TO THE CONCEALMENT OF INCOME IN THE COURSE O F THE ASSESSMENT PROCEEDINGS BY THE ASSESSEE. IN OUR CONS IDERED OPINION WAS NOT BROUGHT TO THE NOTICE OF THE DELHI HIGH COURT IN (A) CIT V. RAM COMMERCIAL ENTERPRISES LTD. (2000) 246 I TR 568; (B) DIWAN ENTERPRISES V. CIT (2000) 246 ITR 571 (DELHI) ; AND (C) CIT V. VLKAS PROMOTERS P. LTD. (2005) 277 ITR 337 (DELHI). THEREFORE THE INDICATION IN THE ASSESSMENT ORDER BY THE ASSESSING OFFICER THAT PENALTY PROCEEDINGS ARE INITIATED SEPARATELY IS SUF FICE TO PROVE THAT THE ASSESSING OFFICER HAD SATISFIED HIMSELF IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE HAD CONCEA LED HIS INCOME AS IN THE INSTANCE CASE. 5.1.4.1 THUS THE RELIANCE PLACED BY THE APPELLANT ON THE DECISION OF HON'BLE DELHI HIGH COURT SQUARELY FAILS IN VIEW OF THE DISSENTING JUDGEMENT OF HON'BLE MADRAS HIGH COURT AND THE APPELLANT'S CO NTENTIONS H THIS REGARD ARE REJECTED. 5.1.5 SECTION 43Q OF R.B.I ACT TO OVERRIDE THE PR OVISIONS OF I.T. ACT : THOUGH THE APPELLANT MADE AN ATTEMPT TO EXPLAIN T HEIR CLAIM AS PER THE PROVISIONS OF THE R BJ. ACT OVERRIDING THE I.T. ACT THE SAID CLAIM DOES NOT SURVIVE IN VIEW OF THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF T.N. TOWER FINANCE INFRASTRUCTURE DEVELOPME NT CORPORATION LIMITED V. JCIT 280 ITR 491 (MAD). IN THE SAID DECI SION IT WAS CLEARLY HELD THAT THE RBI DIRECTIONS COULD NOT OVERRIDE THE MAND ATORY PROVISIONS OF THE I.T. ACT. THE SAID DECISION SQUARELY COVERS THE ISS UE AND THE SAME IS EXTRACTED AS BELOW: ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 12 'HELD THAT MERELY BECAUSE THE RESERVE BANK OF INDI A HAD DIRECTED THE ASSESSEE TO PROVIDE FOR NON-PERFORMING ASSETS THAT DIRECTION COULD NOT OVERRIDE THE MANDATORY PROVISIONS OF THE INCOME-TAX ACT CONTAINED IN SECTION 36(1)(VIIA) WHICH STIPULATE A DEDUCTION NOT EXCEEDING 5 PER CENT OF THE TOTAL INCOME ONLY IN RE SPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH ARE PRED OMINATELY REVENUE IN NATURE OR TRADE RELATED AND NOT FOR PROV ISION FOR NON- PERFORMING ASSETS WHICH ARE OF PREDOMINATELY CAPITA L NATURE. THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION IN VIEW OF THE EXPLANATION TO SECTION 36(1)(VII) WHICH SAYS THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE IS NOT AN ALLOWABLE DEDUCTION.' 5.1.5.1 THUS THE CLAIM OF THE APPELLANT THAT THEIR CLAIM IS ALLOWABLE IN VIEW OF THEIR COMPLIANCE TO RBI DIRECTIONS OF PR UDENTIAL NORMS IS OF NO AVAIL. IT IS TO BE STATED AT THIS JUNCTURE EVEN THI S CLAIM WAS NOT MADE OBVIOUS IN THE COMPUTATION STATEMENT AND WAS MADE O NLY AS AN AFTER THOUGHT. 5.1.6 THE NEXT LEGAL ASPECT TO BE CONSIDERED IS TH E EXISTENCE OF MALAFIDE INTENTION IN THE LIGHT OF JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF DAHOD SAHAKARI KHARID VECHAN S ANGH LIMITED REFERRED TO IN THE PRECEDING PARAGRAPHS. THE SAID DECISION W AS RENDERED IN THE CONTEXT OF A CO-OPERATIVE SOCIETY WHICH RECEIVED A SUM FROM THE INSURANCE COMPANY ON WITHDRAWAL FROM GROUP INSURANC E SCHEME BEING PREMIUM PAID IN EARLIER YEARS AND THE SAME WAS CRED ITED TO THE GRATUITY FUND ACCOUNT DIRECTLY INSTEAD OF ROUTING THE SAID R ECEIPT THROUGH THE PROFIT AND LOSS ACCOUNT. IN THE SAID SITUATION IT WAS HEL D TO BE A BONAFIDE MISTAKE WHILE PREPARING RETURN OF INCOME AND THAT THE OMISS ION HAD OCCURRED NOT WITH AN INTENTION BUT DUE TO OVERSIGHT AND THAT THE RE WAS NOTHING ON RECORD TO SHOW THAT ANY PARTICULAR INDIVIDUAL MEMBER OF TH E ASSESSEE SOCIETY HAD ANY PERSONAL INTEREST IN COMMITTING ACT OF OMISSION AND HENCE NO PENALTY WAS EXIGIBLE. THE FACTS OF THE CASE ON HAND AS DISC USSED IN DETAIL ABOVE ARE QUITE DIFFERENT AND THAT IT IS NOT A MERE RECEI PT THAT WAS ROUTED THROUGH THE ACCOUNT WHICH WAS OMITTED TO BE ADJUSTED H THE COMPUTATION STATEMENT. BUT THE PRESENT CASE IS A SHEER DEFAULT OF MAKING A CLAIM WITHOUT CARRYING OUT THE REQUISITE WRITE OFF IN THE ACCOUNTS OF THE RESPECTIVE PARTIES. IN FACT IT IS A CLEAR VIOLATION OF THE PR OVISIONS OF SECTION 36(1)(VII). THE ONLY PROVISION UNDER WHICH THE SAID CLAIM COULD HAVE BEEN ALLOWED. ALL OTHER SUBSEQUENT CLAIMS ARE ONLY AFTERTHOUGHT AND F URTHER REJECTED AS UNTENABLE IN VIEW OF THE ABOVE DISCUSSION. THE AO H AD RIGHTLY REJECTED THE CLAIM OF THE APPELLANT AS REGARDS THE PROVISION FOR DOUBTFUL DEBTS AND THE PROVISION FOR DIMINUTION IN VALUE OF ASSETS AS LEGA LLY WRONG CLAIMS AND NOT IN ACCORDANCE WITH SECTION 36(1)(VII) AND FURTHER T HAT THE APPELLANT DID NOT ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 13 FURNISH FULL AND COMPLETE PARTICULARS OF THEIR CLAI M EITHER IN THE COMPUTATION STATEMENT OR DURING THE COURSE OF ASSESSMENT. THE F ACT THAT THE BAD DEBTS WERE NOT WRITTEN OFF IN THE ACCOUNTS REMAINED UNDIS CLOSED. 5.1.6.1 WHY THE APPELLANT DID NOT SATISFY THIS SECT ION 36(1)(VII) ALSO REMAINS UNEXPLAINED. THEIR CLAIM THAT THE RBI ACT O VERRIDES THE I.T. PROVISIONS REMAIN OVER RULED IN THE LIGHT OF THE HO N'BLE MADRAS HIGH COURT DECISION CITED ABOVE. AS REGARDS THE PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS THE SAME IS RIGHTLY HELD BY THE AO AS TEMPORARY FLUCTUATION IN ANY CASE NOT ALLOWABLE DEDUCTION UNDER THE I.T. ACT . THE APPELLANT HAS FAILED TO SATISFACTORILY EXPLAIN AS TO THE BASIS AN D BONAFIDE ON WHICH THEY MADE THE ABOVE CLAIM. THE APPELLANT ALSO FAILED TO EXPLAIN HOW THEY WERE IGNORANT OF AN IMPORTANT PROVISION OF THE I.T. ACT. EVEN IF IT WERE SO THEN THEY SHOULD HAVE REVISED THEIR COMPUTATION STATEMEN T IN ACCORDANCE WITH THE SAID PROVISIONS DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH THEY DID NOT DO. INSTEAD OF AN AFTERTHOUGHT THEY RE LIED ON THE PROVISIONS OF RBI ACT WHICH IS OF NO AVAIL IN VIEW OF THE HON'BLE MADRAS HIGH COURT DECISION CITED ABOVE (280 ITR 491). IT IS ALSO TO B E NOTED THAT WHENEVER THE LEGISLATURE THOUGHT IT FIT TO GIVE DUE WEIGHTAG E TO THE PROVISIONS OF THE RBI ACT THEY HAVE REFERRED TO THE SAME IN THE I.T. ACT ITSELF. AS FOR EXAMPLE SECTION 36(1)(VIA) PROVISO. THUS WHEN A S PECIFIC PROVISION IS THERE TO GOVERN THE ISSUE THE APPELLANT SHOULD SAT ISFY THE REQUISITE CONDITIONS TO AVAIL THE SAME AND CANNOT HOVER AROUN D CITING INAPPLICABLE PROVISIONS OF LAW WHICH COULD NOT FORM ANY BASIS AT ALL. IN SHORT THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE AC COUNTS IS ONLY FOR BOOK PURPOSE AND FOR INCOME-TAX COMPUTATION IT SHOULD HA VE BEEN ADDED BACK THERE BEING NO WRITE OFF IN THE BOOKS OF THE APPELL ANT. THE SAME WAS NOT DONE AND THE REASON FOR NOT DOING SO IS NOT EXPLAIN ED BY THE APPELLANT. THERE IS ALSO NO LEGAL BASIS FOR FORMING A BELIEF T HAT THE SAME IS AN ALLOWABLE DEDUCTION IN VIEW OF THE SPECIFIC PROVIS ION NAMELY SECTION 36(L)(VII) BEING NOT SATISFIED. THE SAME ARGUMENT HOLDS GOOD AS REGARDS THE DIMINUTION IN VALUE OF INVESTMENTS WHICH IS PUR ELY NOTIONAL. THE FAILURE TO ADJUST THE ABOVE ENTRIES IN THE COMPUTATION OF S TATEMENT CANNOT BE CLAIMED TO BE EITHER OF IGNORANCE OF LAW OR ON ANY SOUND FACTUAL OR LEGAL BASIS. IN FACT THERE IS NO CASE FOR ANY BONAFIDE B ELIEF ON THE DATE OF FILING OF THE RETURN ALONG WITH COMPUTATION STATEMENT. HAD THE RETURN BEEN ACCEPTED ON THE BASIS OF THE COMPUTATION STATEMENT SUCH INADMISSIBLE CLAIM LEADING TO UNDER ASSESSMENT WOULD HAVE ESCAPE D THE DUE TREATMENT UNDER THE TAW. IN THAT VIEW OF THE MATTER I AM CON VINCED THAT THE ACTION OF THE AO IN LEVYING PENALTY HOLDING THAT THE APPELLAN T FURNISHED INACCURATE PARTICULARS BY WAY OF INCORRECT COMPUTATION OF INCO ME LEADING TO UNDER STATEMENT OF TAXABLE INCOME IS JUSTIFIED CALLING FO R LEVY OF PENALTY U/S. 271(L)(C). HOWEVER AS REGARDS THE DISALLOWANCE OF RS.9.91 LACS SUSTAINED ON AN ESTIMATE BASIS IN VIEW OF THE LEGAL PRONOUNCE MENTS SUPPORTING THE CLAIM OF THE APPELLANT NO PENALTY U/S. 271(L)(C) I S LEVIABLE THERE BEING NO ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 14 FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF INFORMATION H THIS REGARD. IN EFFECT THE PENALTY U/S. 271(L)(C) ATTRI BUTABLE TO PROVISION FOR BAD AND DOUBTFUL DEBTS AT RS.1 62 81 557/- AND PROVISIO N FOR DIMINUTION IN VALUE OF INVESTMENTS AT RS.21 98 638/- IS CONFIRMED . 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AG AINST FINDINGS OF THE LD. CIT(A) IN CONFIRMING THE LEVY OF PENALTY O N THE DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS- RS.1 62 8 1 557/- AND PROVISION MADE FOR DIMINUTION IN VALUE OF THE INVES TMENTS- RS.21 98 638/- WHILE THE REVENUE IS IN APPEAL AGAIN ST CANCELLATION OF PENALTY IN RELATION TO ESTIMATED DISALLOWANCE OF RS.9.91 LACS. THE LEARNED AR ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE AO DID NOT RECORD THE REQUISITE SATISFACTION WHILE INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT AND THE DISALLOWANCES HAVE BEEN MADE ON ESTIMATED BASIS.. THE LEARNED AR FURTHER RELIED UP ON THE DECISIONS IN THE CASE OF OVERSEAS SANMAR FINANCIAL LTD. VS. JCIT (2003) 86 ITD 602 (CHENNAI) TEDCO INVESTMENT & FINANCIAL SER VICES (P) LTD. VS. DCIT (2004) 82 TTJ (DEL) 259 CIT VS. RAJ B ANS SINGH (2005) 276 ITR 351 (ALL) ) ITO VS. C CHHOTALAL TEXT ILES (P) LTD. (2005) 95 TTJ (MUMBAI) 436 T N POWER FINANCE AND IN FRASTRUCTURE DEVELOPMENT CORPORATION LTD. VS. JCIT (2006) 280 IT R 491 (MAD) CIT VS. LAKHANI INDIA LTD. (2009) 17 DTR 304 (P&H) M/S WEST COAST INDUSTRIES VS. ACIT 2009 TIOL 446 CIT VS. HARYANA WAREHOUSING CORPORATION (2009) 314 ITR 215 (P&H) CIT VS. HARSHVARDHAN CHEMICALS AND MINERALS LTD. (2003) 259 ITR 213 (RAJ) DAHOD SAHAKARI KHARID VECHAN SANGH LTD. VS. C IT (2005) 149 TAXMAN 456 (GUJ) CIT VS. NATH BROS. EXIM INTERNATIO NAL (2007) 288 ITR 670 (DELHI) CIT VS. INTERNATIONAL AUDIO VISUAL (2007) 288 ITR 570 (DELHI) J K JAJOO VS. CIT (1990) 181 ITR 410 ( MP) CIT VS. NEPANI BIRI COMPANY TRUST (1991) 190 ITR 402 (ALL) SAHYOG SAHKARI SHRAM SAMVIDA SAMITI LTD. VS. ACIT (2007) 111 TTJ ( LUCKNOW) 540 AND COMMISSIONER OF INCOME TAX VS. RELIANCE PETRO P RODUCTS PVT. LTD.: (2010) ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 15 322 ITR 158 (SC) AND SUBMITTED THAT THE AO HAD NOT BEEN ABLE TO SHOW ANY DELIBERATE ATTEMPT OR MENSREA FOR CONCEALI NG INCOME BY THE ASSESSEE. THE LD. DR ON THE OTHER HAND SUPPOR TED THE ORDER OF THE AO AND SUBMITTED THAT THE ASSESSEE COMMITTED TH E DEFAULT OF CONCEALMENT OF ITS INCOME BY FURNISHING INACCURATE PARTICULARS THEREOF IN RELATION TO THEIR CLAIM FOR DEDUCTION O F PROVISION FOR BAD AND DOUBTFUL DEBTS- RS.1 62 81 557/- AND PROVISION MADE FOR DIMINUTION IN VALUE OF THE INVESTMENTS- RS.21 98 63 8/-. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THR OUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON ON BEHALF OF THE ASS ESSEE. AT THE OUTSET WE MAY HAVE A LOOK AT THE RELEVANT PROVISIONS OF SECTION 2 71(1)(C) OF THE ACT WHICH READ AS UNDER: 271. FAILURE TO FURNISH RETURNS COMPLY WITH NOTICES CO NCEALMENT OF INCOME ETC. (1) IF THE ASSESSING OFFICER OR THE COMMISSIONER (A PPEALS) OR THE COMMISSIONER IN THE COURSE OF ANY PROCEEDINGS UNDE R THIS ACT IS SATISFIED THAT ANY PERSON- .. (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY - (III) IN THE CASES REFERRED TO IN CLAUSE (C) IN ADDITION TO ANY TAX 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 INC OME OR THE FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME EXPLANATION 1.-WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT - (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 16 DEPUTY COMMISSIONER (APPEALS) OR THE COMMISSIONER (APPEALS) TO BE FALSE OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONAFIDE AND THAT ALL THE FACTS RELATING TO THE SAM E AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAV E BEEN DISCLOSED BY HIM THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE P URPOSES OF CLAUSE (C) OF THIS SUB-SECTION BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. 5.1 IN SECTION 271 OF THE INCOME-TAX ACT AFTER SUB-SECTION (1A) THE FOLLOWING SUB-SECTION HAS BEEN INSERTED BY FINANCE ACT 2008 W ITH EFFECT FROM THE 1ST DAY OF APRIL 1989 :- '(1B) WHERE ANY AMOUNT IS ADDED OR DISALLOWED IN CO MPUTING THE TOTAL INCOME OR LOSS OF AN ASSESSEE IN ANY ORDER OF ASSESSMENT OR R EASSESSMENT AND THE SAID ORDER CONTAINS A DIRECTION FOR INITIATION OF PENALT Y PROCEEDINGS UNDER CLAUSE (C) OF SUB-SECTION (1) SUCH AN ORDER OF ASSESSMENT OR REA SSESSMENT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATION OF THE PENALTY PROCEEDINGS UNDER THE SAID CLAUSE (C).'. 5.2 AS IS EVIDENT FROM THE AFORESAID CL. (C) OF S. 271(1) OF THE ACT THE WORDS USED ARE 'HAS CONCEALED THE PARTICULARS OF HIS INCO ME' OR FURNISHED 'INACCURATE PARTICULARS OF SUCH INCOME'. THUS BOTH IN CASE OF CONCEALMENT AND INACCURACY THE PHRASE 'PARTICULARS OF INCOME' HAS BEEN USED. T HE LEGISLATURE HAS NOT USED THE WORDS 'CONCEALED HIS INCOME'. FROM THIS IT WOUL D BE APPARENT THAT PENAL PROVISION WOULD OPERATE WHEN THERE IS A FAILURE TO DISCLOSE FULLY OR TRULY ALL THE PARTICULARS. THE WORDS 'PARTICULARS OF INCOME' REFE R TO THE FACTS WHICH LEAD TO THE CORRECT COMPUTATION OF INCOME IN ACCORDANCE WITH TH E PROVISIONS OF THE ACT. SO WHEN ANY FACT MATERIAL TO THE DETERMINATION OF AN I TEM AS INCOME OR MATERIAL TO THE CORRECT COMPUTATION IS NOT FILED OR THAT WHICH IS FILED IS NOT ACCURATE THEN THE ASSESSEE WOULD BE LIABLE TO PENALTY UNDER S. 271(1) (C) OF THE ACT. IN THE INSTANT CASE THE LD. CIT(A) UPHELD THE LEVY OF PENALTY 271 (1)(C) OF THE ACT SINCE THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF THE IN COME BY CLAIMING PROVISION FOR ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 17 BAD DEBTS AND PROVISION FOR DIMINUTION OF INVESTMEN TS IN VIOLATION OF PROVISIONS OF THE ACT. RATHER THE PROVISIONS OF THE ACT EXPRESSLY DEBAR DEDUCTION OF SUCH PROVISION FOR BAD DEBTS AND PROVISION FOR DIMINUTIO N OF INVESTMENTS. THE EXPRESSION 'HAS CONCEALED THE PARTICULARS OF INCOME ' AND 'HAS FURNISHED INACCURATE PARTICULARS OF INCOME' HAVE NOT BEEN DEF INED EITHER IN SECTION 271 OR ELSEWHERE IN THE ACT. HOWEVER NOTWITHSTANDING THE DIFFERENCE IN THE TWO CIRCUMSTANCES IT IS NOW WELL ESTABLISHED THAT THEY LEAD TO THE SAME EFFECT NAMELY KEEPING OFF A CERTAIN PORTION OF THE INCOME FROM THE RETURN. ACCORDING TO LAW LEXICON THE WORD 'CONCEAL' MEANS: 'TO HIDE OR KEEP SECRET. THE WORD 'CONCEAL' IS C ON+CELARE WHICH IMPLIES TO HIDE. IT MEANS TO HIDE OR WITHDRAW FROM OBSERVATION; TO C OVER OR KEEP FROM SIGHT; TO PREVENT THE DISCOVERY OF ; TO WITHHOLD KNOWLEDGE OF . THE OFFENCE OF CONCEALMENT IS THUS A DIRECT ATTEMPT TO HIDE AN ITEM OF INCOM E OR A PORTION THEREOF FROM THE KNOWLEDGE OF THE INCOME-TAX AUTHORITIES.' IN WEBSTER'S DICTIONARY 'INACCURATE' HAS BEEN DEFI NED AS : 'NOT ACCURATE NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS ; AS AN INACCURATE STATEMENT COPY OR TRANSCRIPT.' 5.3 IF THE DISCLOSURE OF FACTS IS INCORRECT OR FA LSE TO THE KNOWLEDGE OF THE ASSESSEE AND IT IS ESTABLISHED THEN SUCH DISCLOSUR E CANNOT TAKE IT OUT FROM THE PURVIEW OF THE ACT OF CONCEALMENT OF PARTICULARS OR FURNISHING INACCURATE PARTICULARS THEREOF FOR THE PURPOSE OF LEVY OF PENA LTY. THE PENALTY U/S 271(1)(C) OF THE ACT IS LEVIABLE IF THE AO IS SATIS FIED IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. HERE WE MAY POINT OUT THAT THE DECISIONS RE LIED UPON BY THE ASSESSEE ON THE ISSUE OF RECORDING OF SATISFACTION BY THE AO BEFORE INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ARE NO LONGER RELEVANT IN VIEW OF SUB-SECTION 1B INSERTED IN SECTION 271 OF THE ACT BY ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 18 FINANCE ACT 2008. THE SAID PROVISION PURPORTS TO C REATE A FICTION BY WHICH SATISFACTION OF THE AO IS DEEMED TO HAVE BEEN RECOR DED IN CASES WHERE AN ADDITION OR DISALLOWANCE IS MADE BY THE ASSESSING O FFICER AND A DIRECTION FOR INITIATION OF PENALTY PROCEEDINGS IS ISSUED. THE SA ID PROVISION IS MADE EFFECTIVE RETROSPECTIVELY WITH EFFECT FROM 1ST APRIL 1989. T HE LD. AR ON BEHALF OF THE ASSESSEE HAS NOT EXPLAINED AS TO HOW THE DECISIONS RELIED UPON BY HIM REGARDING RECORDING OF SATISFACTION WERE RELEVANT I N VIEW OF THE SAID PROVISIONS OF SEC. 271(1B) OF THE ACT. 5.4 IT IS WELL SETTLED THAT ASSESSMENT PROCEEDIN GS AND PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT AND AS HELD BY HON'BLE SUPREM E COURT IN THE CASE OF ANANTHRAMAN VEERASINGHAIAH & CO. VS. CIT - 123 ITR 457; THE FINDING IN THE ASSESSMENT PROCEEDINGS CANNOT BE REGARDED AS CONCLU SIVE FOR THE PURPOSES OF THE PENALTY PROCEEDINGS. IT IS THEREFORE NECESSAR Y TO REAPPRECIATE AND RECONSIDER THE MATTER SO AS TO FIND OUT AS TO WHETH ER THE ADDITION MADE IN THE QUANTUM PROCEEDINGS ACTUALLY REPRESENTS THE CONCEAL MENT ON THE PART OF THE ASSESSEE AS ENVISAGED IN SEC. 271(1 )(C) OF THE ACT AND WHETHER IT IS A FIT CASE TO IMPOSE THE PENALTY BY INVOKING THE SAID PROVISIONS. EXPLANATION 1 TO SECTION 271(1)(C) IN RESPECT OF ANY FACT RELATING TO THE CO MPUTATION OF TOTAL INCOME STATES THAT THE AMOUNT ADDED OR DISALLOWED I N COMPUTING THE TOTAL INCOME OF AN ASSESSEE SHALL BE DEEMED TO BE T HE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. T HIS DEEMING PROVISION FOR CONCEALMENT IS NOT ABSOLUTE ONE. THE PRESUMPTION UNDER THE EXPLANATION 1 IS REBUTTABLE AND NOT CONCL USIVE. THE ASSESSEE CAN SUBMIT THE EXPLANATION AS THE ONUS SHI FTS ON TO THE ASSESSEE TO PROVE THAT HE HAS NOT CONCEALED THE PAR TICULARS OF THE INCOME. THE ASSESSEE IN THE INSTANT CASE SUBMITTED AN EXPLANATION WHEREIN IN RELATION TO THEIR CLAIM FOR PROVISION FO R BAD AND DOUBTFUL DEBTS IT WAS POINTED OUT ON BEHALF OF THE ASSESSEE THAT THEY WER E NOT AWARE OF THE AMENDMENT INTRODUCED BY THE FINANCE ACT 2001 WITH R ETROSPECTIVE EFFECT FROM 01- 04-1989 AS IT WAS NOT PUBLICLY KNOWN AND THAT RBI D IRECTIONS OVERRIDE THE ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 19 PROVISIONS OF THE ACT. THE LD. CIT(A) FOUND THAT THERE WAS NO MENTION IN THE COMPUTATION STATEMENT AS TO THE CLAIM U/S. 36(L)(VI I) AS REGARDS PROVISIONS FOR BAD AND DOUBTFUL DEBTS OR AS REGARDS DIMINUTION IN VALU E OF INVESTMENTS. UNDISPUTEDLY WHAT THE ASSESSEE HAD DEBITED IN THE PROFIT AND TOSS ACCOUNT WAS MERE PROVISION AND NOT BAD DEBTS WRITTEN OFF. THE R ELEVANT PROVISIONS OF SECTION 36(1)(VII) OF THE ACT EFFECTIVE FROM 01-04-1989 STI PULATE THAT BAD DEBTS WRITTEN OFF OF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE ALONE WERE DEDUCTIBLE. THE EXPLANATION INTRODUCED BY THE FINANCE ACT 2001 WITH RETROSPECTIVE EFFECT FROM 01- 04-1989 CLARIFIES THAT PROVISION FOR BAD AND DOUBTF UL DEBTS WERE NOT DEDUCTIBLE. AS POINTED OUT BY THE LD. CIT(A) THE ASSESSEE IS A N ESTABLISHED COMPANY ASSISTED BY A NUMBER OF REPUTED PROFESSIONALS. THE EXPLANATION THAT THEY WERE NOT AWARE OF THE PROVISIONS OF LAW WHILE MAKING HUG E CLAIMS FOR DEDUCTIONS IS NOT TENABLE THEREBEING NO MATERIAL IN SUPPORT OF SUC H CLAIM. APPARENTLY IN THE COMPUTATION OF INCOME UNDER THE HEAD 'BUSINESS' TH E ASSESSEE MADE INCORRECT CLAIMS NOT SUPPORTED BY ANY PROVISION OF LAW. RATH ER THE RELEVANT PROVISIONS DID NOT PROVIDE FOR THE DEDUCTION CLAIMED EITHER ON FA CTS OR THE EYE OF LAW SINCE BAD DEBTS WERE NEVER WRITTEN OFF . THERE IS NOTHING TO SUGGEST THAT THE CLAIM REGARDING DEDUCTION FOR EITHER PROVISION FOR BAD AN D DOUBTFUL DEBTS OR DIMINUTION IN VALUE OF INVESTMENTS WAS BONAFIDE OR SUPPORTED B Y ANY PROVISIONS UNDER THE ACT. IT IS WELL ESTABLISHED THAT SO LONG AS THE A SSESSEE HAS NOT CONCEALED ANY MATERIAL FACT OR THE FACTUAL INFORMATION GIVEN BY H IM HAS NOT BEEN FOUND TO BE INCORRECT HE WILL NOT BE LIABLE TO IMPOSITION OF P ENALTY UNDER SECTION 271(1)(C) OF THE ACT EVEN IF THE CLAIM MADE BY HIM IS NOT SUSTA INABLE IN LAW PROVIDED THAT HE EITHER SUBSTANTIATES THE EXPLANATION OFFERED BY HIM OR THE EXPLANATION EVEN IF NOT SUBSTANTIATED IS FOUND TO BE BONAFIDE. IF THE EXPL ANATION IS NEITHER SUBSTANTIATED NOR SHOWN TO BE BONAFIDE EXPLANATION 1 TO SECTION 271(1)(C) WOULD COME IN TO PLAY AND THE ASSESSEE WILL BE LIABLE TO FOR THE PRE SCRIBED PENALTY. IT IS TRUE THAT MERE SUBMITTING A CLAIM WHICH IS INCORRECT IN LAW W OULD NOT AMOUNT TO GIVING INACCURATE PARTICULARS OF THE INCOME OF THE ASSESSE E BUT IT CANNOT BE DISPUTED THAT THE CLAIM MADE BY THE ASSESSEE NEEDS TO BE BON AFIDE. IF THE CLAIM BESIDES BEING INCORRECT IN LAW IS MALAFIDE EXPLANATION 1 T O SECTION 271(1) COMES INTO ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 20 PLAY AND WORK TO THE DISADVANTAGE OF THE ASSESSEE. IN THE PRESENT CASE DESPITE THE FACT THAT PROVISION FOR BAD AND DOUBTFUL DEBTS WAS EXPRESSLY MADE NOT DEDUCTIBLE IN TERMS OF THE RELEVANT PROVISIONS OF S EC. 36(1)(VII) OF THE ACT THE ASSESSEE CLAIMED THE DEDUCTION EVEN WHEN THE AMOUN T HAD NOT BEEN WRITTEN OFF. WE CANNOT OVERLOOK THE FACT THAT ONLY A SMALL PERC ENTAGE 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 AN Y BASIS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOU ND TO BE BONAFIDE 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 M ADE THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENALTY EVEN IF HE WAS NOT ACTING BONAFIDE WHILE MAKING A CLAIM OF THIS NATURE THAT WOULD GIVE A LICENSE T O UNSCRUPULOUS ASSESSEES TO MAKE WHOLLY UNTENABLE AND UNSUSTAINABLE CLAIMS WITH OUT THERE BEING ANY BASIS FOR MAKING THEM IN THE HOPE THAT THEIR RETURN WOUL D NOT BE PICKED UP FOR SCRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF ASS ESSMENT UNDER SECTION 143(1) OF THE ACT AND EVEN IF THEIR CASE IS SELECTE D FOR SCRUTINY THEY CAN GET AWAY MERELY BY PAYING THE TAX WHICH IN ANY CASE WAS PA YABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE PERSONS WHO MAKE CLAI MS OF THIS NATURE ACTUATED BY AN INTENTION TO EVADE TAX OTHERWISE PAYABLE BY T HEM WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM IF THEIR CA SES ARE NOT PICKED UP FOR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT WHICH THESE PENALTY PROVISIONS IN THE ACT HAVE. WE FIND THAT THE ASSES SEE BEFORE US DID NOT EXPLAIN EITHER TO THE AO/LD. CIT(A) AND EVEN TO US AS TO IN WHAT CIRCUMSTANCES AND ON ACCOUNT OF WHOSE MISTAKE THE AMOUNTS CLAIMED AS DE DUCTIONS IN THIS CASE WERE NOT ADDED BACK WHILE COMPUTING THE INCOME OF THE A SSESSEE COMPANY. WE CANNOT IGNORE THE FACT THAT THE ASSESSEE IS A COMPA NY WHICH IS HAVING PROFESSIONAL ASSISTANCE IN COMPUTATION OF ITS INCOM E AND ITS ACCOUNTS ARE COMPULSORILY SUBJECTED TO AUDIT. IN THE ABSENCE OF ANY DETAILS/EXPLANATION FROM THE ASSESSEE WE FAIL TO APPRECIATE HOW SUCH DEDUCT IONS COULD HAVE BEEN LEFT OUT WHILE COMPUTING THE INCOME OF THE ASSESSEE COMPANY AND HOW IT COULD ALSO HAVE ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 21 ESCAPED THE ATTENTION OF THE AUDITORS OF ESPECIAL LY WHEN THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTFUL DEBTS AND PROVISIONS FOR DIMINUTION IN VALUE IF INVESTMENTS WERE CLAIMED IN FLAGRANT VIOLATION OF P ROVISIONS OF LAW. IN THESE CIRCUMSTANCES ESPECIALLY WHEN EXPLANATION GIVEN BY THE ASSESSEE DURING THE PENALTY PROCEEDINGS HAS NOT BEEN SUBSTANTIATED NO R FOUND TO BE BONAFIDE AND THERE IS NO MATERIAL BEFORE US TO TAKE A DIFFERENT VIEW IN THE MATTER WE ARE OF THE OPINION THAT THE LD. CIT(A) WAS JUSTIFIED IN UPHOLD ING THE LEVY OF PENALTY ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME IN RELATION TO PROVISION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR DIMINU TION IN THE VALUE OF INVESTMENTS. IN TERMS OF PROVISIONS OF SEC. 271(1) (C) OF THE ACT READ WITH EXPLANATION 1 THERETO AND THE JUDICIAL PRONOUNCEMEN TS IN THE CASE OF B.A. BALASUBRAMANIAM & BROS. CO. V. CIT [1999] 157 CTR 5 56(SC) CIT V. B.A. BALASUBRAMANIAM & BROS. [1984] 40 CTR (MAD.)/[1985] 152 ITR 529 (MAD.) CIT V. MUSSADILAL RAM BHAROSE [1987] 60 CTR (SC) 34/[ 1 987] 165 ITR 14 (SC); TC 50 R. 474; CIT V. K.R. SADAYAPPAN [1990] 86 CTR (SC ) 120; [1990] 185 ITR 49 (SC); TC 50 R. 795 ADDL. CIT V. JEEVAN LAL SAH [19 94] 117 CTR (SC) 130; [1994] 205 ITR 244 (SC); TC 50 R. 973 AND K.P.MADHUSUDANAN VS. CIT 251 ITR 99(SC) IT IS WELL ESTABLISHED THAT WHENEVER TH ERE IS DIFFERENCE BETWEEN THE RETURNED AND ASSESSED INCOME THERE IS INFERENCE OF CONCEALMENT. THE EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT RAISES A PRESUMPTION THAT CAN BE REBUTTED BY THE ASSESSEE WITH REFERENCE TO FACTS OF THE CASE. THUS THE ONUS IS ON THE ASSESSEE TO REBUT THE INFERENCE OF CONCEALMENT. THE ABSENCE OF EXPLANATION ITSELF WOULD ATTRACT PENALTY. THE EXPLANATION OFFER ED BY THE ASSESSEE SHOULD NOT BE FALSE. THE ONUS LAID DOWN UPON THE ASSESSEE TO REBUT THE PRESUMPTION RAISED UNDER EXPLANATION 1 WOULD NOT BE DISCHARGED BY ANY FANTASTIC OR FANCIFUL EXPLANATION. IT IS NOT THE LAW THAT ANY AND EVERY E XPLANATION HAS TO BE ACCEPTED . SINCE THE ASSESSEE FAILED TO SUBSTANTIATE THEIR EXP LANATION IN RESPECT OF AMOUNT IN RELATION TO DISALLOWANCE ON ACCOUNT OF PROVISION F OR BAD AND DOUBTFUL DEBTS- RS.1 62 81 557/- AND PROVISION FOR DIMINUTIO N IN VALUE OF INVESTMENTS- RS.21 98 638/- THE ONUS LAID DOWN UP ON THE ASSESSEE IN TERMS OF EXPLANATION 1(B) TO SEC. 271(1)(C) OF THE ACT REMAINS UNDISCHARGED. THE ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 22 ASSESSEE HAS NEITHER SUBSTANTIATED HIS EXPLANATION NOR PROVED THAT SUCH AN EXPLANATION IS BONAFIDE BEFORE THE LOWER AUTHORITIE S . THUS IT CANNOT BE SAID THAT IN SUCH A CASE THERE COULD BE NO SCOPE FOR SAYING THAT THE ASSESSEE IS GUILTY OF FURNISHING OF INACCURATE PARTICULARS OF INCOME . W ARRANTING PENALTY UNDER SECTION 271(1)(C) OF THE ACT. EVEN IF THE AO/CIT(A) HAVE NO T SPECIFICALLY INVOKED THE EXPLANATION 1 TO SEC. 271(1)(C) IT HAD TO BE CONSI DERED AT THE APPELLATE STAGE IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT IN CI T VS. SMJ BUILDERS 262 ITR 60(BOM.) AND OF HONBLE APEX COURT IN K.P.MADHUSUD ANAN 251 ITR 99(SC). THERE IS NO DISCRETION ON THE ASSESSING OFFICER AS TO WHETHER HE CAN INVOKE THE EXPLANATION OR NOT. WE AGREE WITH THE FINDINGS OF THE LD. CIT(A) THAT THERE IS NO MATERIAL IN SUPPORT OF THE CLAIM FOR DEDUCTION OF THE AFORESAID PROVISIONS OR FOR NOT ADDING BACK THE PROVISIONS DEBITED TO PROFIT A ND LOSS ACCOUNT WHILE PREPARING THE STATEMENT OF TOTAL INCOME. 5.5 HONBLE SUPREME COURT IN THE CASE OF K.P.M ADHUSUDANAN(SUPRA) HELD THAT WE FIND IT DIFFICULT TO ACCEPT AS CORRECT THE TWO JUDGMENTS AFOREMENTIONED. THE EXPLANATION TO SECTION 271(1)(C) IS A PART OF SECTI ON 271. WHEN THE INCOME-TAX OFFICER OR THE APPELLATE ASSISTANT COMMISSIONER ISS UES TO AN ASSESSEE A NOTICE UNDER SECTION 271 HE MAKES THE ASSESSEE AWARE THAT THE PROVISIONS THEREOF ARE TO BE USED AGAINST HIM. THESE PROVISIONS INCLUDE TH E EXPLANATION. BY REASON OF THE EXPLANATION WHERE THE TOTAL INCOME RETURNED BY THE ASSESSEE IS LESS THAN 80 PER CENT. OF THE TOTAL INCOME ASSESSED UNDER SECTIO N 143 OR 144 OR 147 REDUCED TO THE EXTENT THEREIN PROVIDED THE ASSESSEE IS DEE MED TO HAVE CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS THEREOF UNLESS HE PROVES THAT THE FAILURE TO RETURN THE CORRECT INCOM E DID NOT ARISE FROM ANY FRAUD OR NEGLECT ON HIS PART. THE ASSESSEE IS THEREFORE BY VIRTUE OF THE NOTICE UNDER SECTION 271 PUT TO NOTICE THAT IF HE DOES NOT PROVE IN THE CIRCUMSTANCES STATED IN THE EXPLANATION THAT HIS FAILURE TO RETURN HIS CO RRECT INCOME WAS NOT DUE TO FRAUD OR NEGLECT HE SHALL BE DEEMED TO HAVE CONCEALED TH E PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF AND CONSE QUENTLY BE LIABLE TO THE PENALTY PROVIDED BY THAT SECTION. NO EXPRESS INVOCA TION OF THE EXPLANATION TO SECTION 271 IN THE NOTICE UNDER SECTION 271 IS IN OUR VIEW NECESSARY BEFORE THE PROVISIONS OF THE EXPLANATION THEREIN ARE APPLIED. THE HIGH COURT AT BOMBAY WAS THEREFORE IN ERROR IN THE VIEW THAT IT TOOK AND TH E DIVISION BENCH IN THE IMPUGNED JUDGMENT WAS RIGHT. ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 23 5.6. SIMILARLY IN THE CASE OF CIT V. SHAMA MAGAZ INE [1995] 213 ITR 64 /82 TAXMAN 614 IT WAS HELD BY THE HON'BLE DELHI HIGH C OURT THAT WHENEVER THERE WAS A FAILURE ON THE PART OF THE ASSESSEE IN THE CI RCUMSTANCES REFERRED TO IN EXPLANATION TO SECTION 271(1)(C) THE STATUTORY PRE SUMPTION AUTOMATICALLY FOLLOWED AND IT HAD TO BE DEEMED THAT THE ASSESSEE HAD CONCE ALED THE PARTICULARS OF HIS INCOME. THOUGH THE SAID DECISION OF THE DELHI HIGH COURT RELATES TO THE ASSESSMENT YEAR 1964-65 THE PROPOSITION OF LAW AND THE RATIO LAID DOWN IN THAT CASE IS EQUALLY APPLICABLE TO EXPLANATION 1 TO SECT ION 271(1)(C) INSERTED BY TAXATION LAWS (AMENDMENT) ACT 1975 W.E.F. 1-4-197 6. 5.7 THE RELIANCE ON THE DECISIONS ON BEHA LF OF THE ASSESSEE IN SUPPORT OF THEIR ASSERTION THAT MERE DISALLOWANCE OF A CLAIM F OR DEDUCTION OF AFORESAID PROVISIONS WOULD NOT ATTRACT PENALTY IS TOTALLY MI SPLACED SINCE THE ASSESSEE DID NOT PLACE ANY EVIDENCE BEFORE US REGARDING BONAFID E OF THEIR CLAIM FOR DEDUCTION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS NOR REFERRED US TO ANY PROVISI ON IN THE ACT IN SUPPORT OF SUCH CLAIM. IT MAY BE POINTED OUT THAT IN QUANTUM APPEA L THE ITAT UPHELD THE DISALLOWANCE OF PROVISIONS FOR BAD AND DOUBTFUL DEB TS AS ALSO PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS RELYING UPON THE DECISION IN THE CASE OF GUJRAT GAS FINANCIAL SERVICES LTD. VS. ACIT 115 ITD 218(AH MEDABAD). EVEN THE RELIANCE ON THE DECISIONS IN THE CASE OF OVERSEAS S ANMAR FINANCIAL LTD. VS. JCIT (2003) 86 ITD 602 (CHENNAI) AND TEDCO INVE STMENT & FINANCIAL SERVICES (P) LTD. VS. DCIT (2004) 82 TTJ (DEL) 259 IS ALSO MISPLACED IN VIEW OF DECISION OF THE HONBLE APEX COURT IN SOUTHERN TECHNOLOGIES LTD. VS. JCIT IN CIVIL APPEAL NO. 133 7/2003 IN THEIR DECISION DATED 11.1.2010 WHEREIN IT WAS POINTED OUT THAT THE ESSE NCE OF RBI DIRECTIONS UNDER CHAPTER IIIB OF THE RBI ACT 1934 DEAL ESSENTIALL Y WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT 'TRUE AND CORRECT' PROFITS. BY VIRTUE OF SECTION 45Q AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTION S 1998 VIS-A-VIS 'INCOME RECOGNITION' PRINCIPLES IN THE COMPANIES ACT 1956. THESE DIRECTIONS CONSTITUTE A ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 24 CODE BY ITSELF. HOWEVER THESE DIRECTIONS 1998 AND THE IT ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTHING TO DO WI TH COMPUTATION OF TAXABLE INCOME. THESE DIRECTIONS CANNOT OVERRULE THE 'PERM ISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' UNDER THE IT ACT. THE INCONSISTENCY BET WEEN THESE DIRECTIONS AND COMPANIES ACT WAS ONLY IN THE MATTER OF INCOME REC OGNITION AND PRESENTATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOP TED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME THE HONBLE APEX COU RT OBSERVED. IT WAS FURTHER HELD THAT AS STATED ABOVE SECTION 36(1)(VII) AFTER 1.4.1989 D RAWS A DISTINCTION BETWEEN WRITE OFF AND PROVISION FOR DOUBTFUL DEBT. THE IT ACT DEALS ONLY WITH DOUBTFUL DEBT. IT IS FOR THE ASSESSEE TO ESTABLI SH THAT THE PROVISION IS MADE AS THE LOAN IS IRRECOVERABLE. HOWEVER IN VIEW OF EXPLANATION WHICH KEEPS SUCH A PROVISION OUTSIDE THE SCOPE OF 'WRITTEN OFF' BAD DEBT SECTION 37 CANNOT COME IN. IF AN ITEM FALLS UNDER SECTIONS 30 T O 36 BUT IS EXCLUDED BY AN EXPLANATION TO SECTION 36(1)(VII) THEN SECTION 37 CANNOT COME IN. SECTION 37 APPLIES ONLY TO ITEMS WHICH DO NOT FALL IN S ECTIONS 30 TO 36. IF A PROVISION FOR DOUBTFUL DEBT IS EXPRESSLY EXCLUDED FRO M SECTION 36(1)(VII) THEN SUCH A PROVISION CANNOT CLAIM DEDUCTION UNDER S ECTION 37 OF THE IT ACT EVEN ON THE BASIS OF 'REAL INCOME THEORY' AS EXPLAINED AB OVE. 5.8 THOUGH THE ASSESSEE MADE AN ATTEMPT TO EXPLAI N THEIR CLAIM AS PER THE PROVISIONS OF THE R BI. ACT OVERRIDING THE I.T. ACT THE SAID CLAIM DOES NOT SURVIVE IN VIEW OF THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF T.N. TOWER FINANCE INFRASTRUCTURE DEVELOPMENT CORPORATIO N LIMITED V. JCIT 280 ITR 491 (MAD) AND AFORESAID DECISION OF THE HONBLE APE X COURT. MOREOVER AS ALREADY POINTED OUT HONBLE SUPREME COURT IN THEI R DECISION IN THE CASE OF K.P.MADHUSDANAN 251 ITR 99 HELD THAT THE EXPLANATIO N TO SECTION 271(1)(C) IS A PART OF SECTION 271. WHEN THE AO OR THE CIT(A) ISSU ES TO AN ASSESSEE A NOTICE UNDER SECTION 271 HE MAKES THE ASSESSEE AWARE THAT THE PROVISIONS THEREOF ARE TO BE USED AGAINST HIM. THESE PROVISIONS INCLUDE TH E EXPLANATION. BY REASON OF THE EXPLANATION THE ASSESSEE IS DEEMED TO HAVE CO NCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF UNLESS HE PROVES THAT THE FAILURE TO RETURN THE CORRECT INCOME DID NOT ARISE FROM ANY FRAUD OR NEGLECT ON HIS ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 25 PART. THE ASSESSEE IS THEREFORE BY VIRTUE OF THE NOTICE UNDER SECTION 271 PUT TO NOTICE THAT IF HE DOES NOT PROVE IN THE CIRCUMSTAN CES STATED IN THE EXPLANATION THAT HIS FAILURE TO RETURN HIS CORRECT INCOME WAS N OT DUE TO FRAUD OR NEGLECT HE SHALL BE DEEMED TO HAVE CONCEALED THE PARTICULARS O F HIS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF AND CONSEQUENTLY B E LIABLE TO THE PENALTY PROVIDED BY THAT SECTION.. 5.9 IN THEIR DECISION IN THE CASE OF USHA FERTILI SERS VS. CIT 269 ITR 591(GUJ) THE HONBLE JURISDICTIONAL HIGH COURT WHILE UPHOLDING THE LEVY OF PENALTY OBSERVED THAT THE SUPREME COURT IN THE CASE OF MUSSADILAL RAM BHA ROSE [1987] 165 ITR 14 HAS SPECIFICALLY LAID DOWN THE SCOPE OF THE EXPLANA TION IN THE FOLLOWING WORDS: 'THE POSITION THEREFORE IN LAW IS CLEAR. IF THE R ETURNED INCOME IS LESS THAN 80 PER CENT OF THE ASSESSED INCOME THE PRESUMPTION IS RA ISED AGAINST THE ASSESSEE THAT THE ASSESSEE IS GUILTY OF FRAUD OR GROSS OR WI LLFUL NEGLECT AS A RESULT OF WHICH HE HAS CONCEALED THE INCOME BUT THIS PRESUMPTION CA N BE REBUTTED. THE REBUTTAL MUST BE ON MATERIALS RELEVANT AND COGENT.' AS TO WHAT COULD BE THE EXPLANATION BY WHICH THE AS SESSEE CAN REBUT THE PRESUMPTION RAISED AGAINST IT IS STATED BY THE APE X COURT IN THE SAME DECISION IN THE FOLLOWING WORDS WHILE CONFIRMING THE VIEW EXPRE SSED BY THE FULL BENCH OF THE PATNA HIGH COURT IN THE CASE OF CIT V. NATHULAL AGA RWALA AND SONS [1985] 153 ITR 292 : 'THE PATNA HIGH COURT EMPHASISED THAT AS TO THE NAT URE OF THE EXPLANATION TO BE RENDERED BY THE ASSESSEE IT WAS PLAIN ON PRINCIPLE THAT IT WAS NOT THE LAW THAT THE MOMENT ANY FANTASTIC OR UNACCEPTABLE EXPLANATION WA S GIVEN THE BURDEN PLACED UPON HIM WOULD BE DISCHARGED AND THE PRESUMPTION RE BUTTED WE AGREE. WE FURTHER AGREE THAT IT IS NOT THE LAW THAT ANY AND E VERY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. IT MUST BE AN ACCEPTABLE EXPLANAT ION ACCEPTABLE TO A FACT- FINDING BODY. WE ARE AWARE THAT IT WOULD NOT BE POSSIBLE FOR THE HIGH COURT TO ENTER INTO A FACT- FINDING EXERCISE OR REAPPRECIATE THE EVIDENCE AND W E DO NOT PROPOSE TO DO SO. HOWEVER AT THE SAME TIME IT IS APPARENT THAT THE BURDEN WHICH IS CAST ON THE ASSESSEE REMAINS UNDISCHARGED WHEN ONE APPLIES THE PRINCIPLES LAID DOWN BY THE APEX COURT. AS OBSERVED THE EXPLANATION HAS TO BE ONE WHICH IS NOT FANTASTIC OR UNACCEPTABLE. IT IS NOT THE LAW THAT ANY AND EVERY EXPLANATION BY THE ASSESSEE MUST BE ACCEPTED. .' ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 26 5.10 THE ASSESSEE BEFORE US FAILED TO SUBSTAN TIATE THEIR EXPLANATION THAT THEY WERE NOT AWARE OF PROVISIONS OF EXPLANATION IN TRODUCED BY THE FINANCE ACT 2001 W.E.F 1.4.1989 OR THAT THE RBI GUIDELINES OVE RRIDE THE PROVISIONS OF THE ACT OR THAT THEIR EXPLANATION WAS BONAFIDE. EVEN IT HA S NOT BEEN STATED AS TO ON ACCOUNT OF WHOSE MISTAKE THESE DEDUCTIONS WERE CLA IMED AND CONSEQUENTLY THE AMOUNTS WERE LEFT TO BE ADDED BACK. RELIANCE ON CER TAIN DECISIONS OF THE ITAT WHILE MAKING SUCH A CLAIM IS MISPLACED IN VIEW OF AFORESAID DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD.(SUPRA). NEEDLESS TO S AY THAT DECISION OF AN APEX COURT ONLY CLARIFIES THE LAW AND NO NEW LAW IS LAID DOWN. IT IS ONLY THE LEGISLATURE WHICH CAN CREATE A LAW AND NOT THE COURT. THE COURT S DO NOT LEGISLATE. SINCE THE ASSESSEE FAILED TO ESTABLISH THE BONAFIDE OF THEIR CLAIM THEREFORE IN TERMS OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT THE ONUS IS NOT DISCHARGED BY THE ASSESSEER DESPITE SUFFICIENT OPPORTUNITY ALLOWED B Y THE AO. THUS LEVY OF PENALTY IS JUSTIFIED.[CIT VS. ALTRON ELECTRONICS INDIA LTD. 301 ITR 66(KAR)]. 5.11 MOREOVER IT IS A SETTLED LAW THAT IN ECONO MIC OFFENCES THE STATUTORY LIABILITY TO PAY EITHER DUTY OR TAX IS NOTHING BUT A STRICT L IABILITY WHERE THE QUESTION OF PROVING BEYOND THE SHADOW OF DOUBT ONE'S EXISTENCE OF BONA FIDE BELIEF THAT AMOUNT IS NOT TAXABLE DOES NOT ARISE. IT GOES WITHO UT SAYING THAT ANY VIOLATION OF THE LAW OR RULES RELATING TO ECONOMIC OFFENCES EIT HER RELATING TO THE PAYMENT OF DUTY OR TAX AS THE CASE MAY BE THE THEORY OF MENSR EA IS NOT ATTRACTED. IN SUCH MATTERS THE RULES OF INTERPRETATION CONTEMPLATE A STRICT INTERPRETATION RATHER THAN A LIBERAL AND WIDER INTERPRETATION. THE BREACH OF CI VIL OBLIGATION WHICH ATTRACTS A PENALTY UNDER THE PROVISIONS OF AN ACT WOULD IMMEDI ATELY ATTRACT THE LEVY OF PENALTY IRRESPECTIVE OF THE FACT WHETHER THE CONTRA VENTION WAS MADE BY THE DEFAULTER WITH ANY GUILTY INTENTION OR NOT VIDE CH AIRMAN SEBI V. SHRIRAM MUTUAL FUND [2006] 131 COMP CASES 591 (SC) ; [2006] 5 SCC 361. THIS VIEW HAS BEEN REITERATED BY THE HONBLE SUPREME COURT IN THEIR DE CISION DATED 29.9.2008 IN THE CASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA T EXTILE PROCESSORS AND OTHERS IN CIVIL APPEAL NOS.10289 -10303 OF 2003 N OW REPORTED IN 306 ITR 227 (SC). IN THE LIGHT OF THE SAID DECISION RELIANCE ON THE DECISION IN THE CASE OF ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 27 DAHOD SAHAKARI KHARID VECHAN SANGH LTD.(SUPRA) IS T OTALLY MISPLACED. WE ARE OF THE OPINION THAT NO DISTINCTION CAN BE MADE WHILE C ONSIDERING APPLICABILITY OF EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT BETWEEN A GOVERNMENT COMPANY AND OTHER COMPANIES SINCE THERE IS NO SUCH PROVISION I N THE ACT 5.12 AS REGARDS RELIANCE ON BEHALF OF THE ASSES SEEE ON THE DECISION OF HONBLE SUPREME COURT IN COMMISSIONER OF INCOME TAX VS. RELIANCE PETRO PRODUCTS PVT. LTD.: (2010) 322 ITR 158 (SC) IS CONCERNED IN THAT CASE THE ASSESSEE HAD CLAIMED INTEREST UNDER SECTION 36(1)(I II) OF THE ACT. THE INTEREST WAS PAID ON THE LOAN WHICH THE ASSESSEE HAD UTILIZE D FOR PURCHASING SOME IPL SHARES BY WAY OF ITS BUSINESS POLICIES. HOWEVER TH E ASSESSEE DID NOT EARN ANY INCOME BY WAY OF DIVIDEND FROM THOSE SHARES. IT WAS SUBMITTED BEFORE THE SUPREME COURT THAT THE ASSESSEE COMPANY WAS AN INVE STMENT COMPANY AND THAT IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2000-01 THE COMMISSIONER (APPEALS) HAD DELETED THE DISALLOWANCE OF INTEREST MADE BY TH E ASSESSMENT OFFICER AND THE TRIBUNAL HAD ALSO CONFIRMED THE STAND OF THE COMMIS SIONER (APPEALS) FOR THAT YEAR AND IT WAS ON THE BASIS OF THIS THAT THE EXPEN DITURE WAS CLAIMED. THE INCOME TAX APPELLATE TRIBUNAL HAD HOWEVER RESTORED THE I SSUE BACK TO THE ASSESSING OFFICER. IN THE APPEAL ARISING OUT OF PENALTY PROCE EDINGS THE TRIBUNAL IN THESE CIRCUMSTANCES WAS OF THE VIEW THAT THE CONFIRMATIO N OF DISALLOWANCE BY THE TRIBUNAL DID NOT MEAN THAT THE ASSESSEE HAD CONCEAL ED THE INCOME OR HAD FILED INACCURATE PARTICULARS THEREOF. THE TRIBUNAL FELT T HAT THE BONA FIDES OF THE EXPLANATION WERE CLEARLY PROVED FROM THE FACT THAT THE HIGH COURT ADMITTED THE APPEAL OF THE ASSESSEE ABOUT THE DISALLOWANCE OF TH E INTEREST. THE TRIBUNAL HELD THAT IF THERE COULD BE TWO VIEWS ABOUT THE CLAIMS O F THE ASSESSEE THE EXPLANATION OFFERED BY IT CANNOT BE SAID TO BE FALSE. THE PENAL TY WAS ACCORDINGLY DELETED BY THE TRIBUNAL. THE ORDER OF THE TRIBUNAL WAS MAINTAI NED BY THE HIGH COURT. THE SUPREME COURT WAS OF THE VIEW THAT UNDER SECTION 27 1(1)(C) THERE HAS TO BE CONCEALMENT OF INCOME OF THE ASSESSEE OR HE MUST HA VE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE CONTENTION OF THE RE VENUE THAT IT WAS A CASE OF FURNISHING OF INACCURATE BY MAKING INCORRECT CLAIM FOR THE EXPENDITURE ON INTEREST ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 28 WAS REJECTED NOTICING THAT THE WORDS PARTICULARS USED IN SECTION 271(1)(C) WOULD EMBRACE THE MEANING OF THE DETAILS OF THE CLAIM MAD E BY THE ASSESSEE AND THAT THE ASSESSEE BEFORE THE COURT HAD NOT GIVEN ANY SUC H INFORMATION WHICH WAS FOUND TO BE INCORRECT OR INACCURATE. AFTER CONSID ERING THE MEANING OF INACCURATE GIVEN IN WEBSTERS DICTIONARY THE COU RT WAS OF THE VIEW THAT INACCURATE PARTICULARS WOULD MEAN THE DETAILS SUPPL IED IN THE RETURN WHICH ARE NOT ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO TR UTH OR ERRONEOUS. IN THE CASE BEFORE US THE ASSESSEE CLAIMED DEDUCTION FOR PROVI SION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR DIMINUTION IN VALUE OF INVE STMENTS IN VIOLATION OF PROVISIONS OF THE ACT AND NOT AN IOTA OF EVIDENCE W AS PLACED BEFORE THE AO./ CIT(A) OR EVEN BEFORE US IN RELATION TO THE BONAF IDE OF THE CLAIM. AS IS APPARENT FROM THE FINDINGS OF THE LD. CIT(A) THE CLAIM MAD E IN THE RETURN WAS NOT SUPPORTED EITHER ON FACTS OR IN LAW. THUS THE AS SESSEE WHILE CLAIMING DEDUCTION OF THE AFORESAID PROVISIONS FURNISHE INACCURATE PAR TICULARS.THUS RELIANCE ON THE SAID DECISION IN OUR OPINION IS TOTALLY MISPLACED . 5.13 THE LD. AR ON BEHALF OF THE ASSESSEE HAS NOT DEMONSTRATED AS TO HOW THE FACTS IN THE DECISIONS IN THE CASE OF LAKHANI I NDIA LTD.(SUPRA) WEST COAST INDUSTRIES(SUPRA) NATH BROS. EXIM INTERNATIO NAL(SUPRA) HARSHVARDHAN CHEMICALS AND MINERALS LTD.(SUPRA) NEP ANI BIRI COMPANY TRUST(SUPRA) INTERNATIONAL AUDIO VISUAL(SUP RA) J K JAJOO(SUPRA) AND HARYANA WAREHOUSING CORPORATION ( SUPRA) ARE PARALLEL TO THE FACTS OF THE CASE UNDER CONSIDERATI ON ESPECIALLY WHEN IN NONE OF THESE DECISIONS ISSUE OF CLAIM OF DEDUCT ION ON ACCOUNT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS OR PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS WAS INVOLVED. IN THE INSTANT C ASE DEDUCTIONS HAVE BEEN CLAIMED ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR DIMINUTION IN VALUE OF INVE STMENTS IN EXPRESS VIOLATION OF PROVISIONS OF LAW AND THE ISS UE IS NOT AT ALL DEBATABLE WHILE THE ASSESSEE FAILED TO DISCHARGE THE ONUS LAID DOWN UPON THEM IN TERMS OF EXPLANATION 1B TO SEC. 2 71(1)(C) OF THE ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 29 ACT. WE FIND FROM THE IMPUGNED ORDERS THAT THE PE NALTY HAS BEEN LEVIED FOR CONCEALING INCOME BY FURNISHING INACCURA TE PARTICULARS IN RELATION TO CLAIMS FOR DEDUCTION ON ACCOUNT OF PRO VISION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR DIMINUTION IN VALU E OF INVESTMENTS . THERE IS NO SUCH FINDING EITHER BY THE AO OR THE LD . CIT(A) THAT PENALTY HAS BEEN LEVIED FOR CONCEALMENT OF PARTICUL ARS OF INCOME ALSO AS CONTENDED ON BEHALF OF THE ASSESSEE. 5.14 HONBLE ALLAHABAD HIGH COURT HELD IN THE CASE OF SANGAM ENTERPRISES VS. CIT 288 ITR 396(ALL) THAT HAVING GIVEN OUR ANXIOUS CONSIDERATION TO THE CONT ENTION RAISED BY SHRI MAHAJAN WE FIND THAT AFTER THE INSERTION OF EXPLAN ATION 1 TO SECTION 271(1)(C) OF THE ACT BY THE TAXATION LAWS (AMENDMENT) ACT 1975 IF THE EXPLANATION OFFERED BY THE ASSESSEE REGARDING THE ADDITIONS IS EITHER F OUND TO BE FALSE AND REMAINED UNSUBSTANTIATED THE ADDITIONS SO MADE ARE DEEMED T O BE THE CONCEALED INCOME AND THEREFORE THE PENALTY PROVISIONS ARE ATTRACTED . THE DECISION RELIED UPON BY THE TRIBUNAL RELATES TO THE ASSESSMENT YEARS PRIOR TO APRIL 1 1976 WHEN THE PRESENT EXPLANATION WAS NOT IN THE STATUTE BOOK AN D THEREFORE THEY ARE NOT APPLICABLE IN THE PRESENT CASE. WE ARE THEREFORE O F THE CONSIDERED OPINION THAT THE TRIBUNAL HAS COMPLETELY MISDIRECTED ITSELF IN C ANCELLING THE PENALTY. 5.15 IN THE CASE UNDER CONSIDERATION THE EXPL ANATION GIVEN BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS AND REITERATED I N PENALTY PROCEEDINGS HAS NOT BEEN SUBSTANTIATED NOR HAS BEEN FOUND TO BE BONAFIDE ESPECIALLY WHEN THE ASSESSEE BEFORE US DID NOT EXPLAIN EITHER TO THE AO /CIT(A)OR TO US AS TO IN WHAT CIRCUMSTANCES AND ON ACCOUNT OF WHOSE MISTAKE THE AMOUNTS CLAIMED AS DEDUCTIONS IN THIS CASE WERE NOT ADDED BACK WHILE C OMPUTING THE INCOME OF THE ASSESSEE COMPANY IN TERMS OF THE RELEVANT PROVISION S OF THE ACT. THE ASSESSEE IS A GOVERNMENT COMPANY HAVING PROFESSIONAL ASSISTANC E IN COMPUTATION OF ITS INCOME AND ITS ACCOUNTS ARE COMPULSORILY SUBJECTED TO AUDIT. IN THE ABSENCE OF ANY DETAILS/EVIDENCE FROM THE ASSESSEE WE FAIL TO APPRECIATE HOW SUCH DEDUCTIONS COULD HAVE BEEN LEFT OUT WHILE COMPUTING THE INCOME OF THE ASSESSEE COMPANY AND HOW THESE ESCAPED THE ATTENTION OF THE AUDITORS OF THE COMPANY. SINCE THE ONUS PLACED UPON THE ASSESSEE TO EXPLAIN THE DIFFERENCE IN THE ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 30 RETURNED INCOME AND FINALLY ASSESSED INCOME HAS NOT BEEN DISCHARGED IN TERMS OF EXPLANATION 1(B) TO SEC. 271(1)(C) OF THE ACT T HE AMOUNT ADDED IN COMPUTING THE TOTAL INCOME IS DEEMED TO REPRESENT INCOME IN R ESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THE LD. AR ON BEHALF OF THE AS SESSEE HAS NOT REFERRED US TO ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFE RENT VIEW IN THE MATTER. 5.16 IN THE LIGHT OF AFORESAID DECISIONS OF HON BLE APEX COURT AND JURISDICTIONAL HIGH COURT AS ALSO OF OTHER HIGH COURTS THE BURDEN WHICH LIES ON THE ASSESSEE IS NOT DISCHARGED BY CONVINCING EXPLANATION AND EVIDEN CE NOR IT IS LAW THAT ANY EXPLANATION OFFERED BY THE ASSESSEE MUST BE ACCEPTE D. WE THEREFORE HAVE NO ALTERNATIVE BUT TO UPHOLD THE ORDER OF THE LD. CIT (APPEALS) INSOFAR AS LEVY OF PENALTY ON THE AMOUNT IN RELATION TO CLAIM FOR DED UCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR DIMINUTION IN VAL UE OF INVESTMENTS IS CONCERNED. 6. AS REGARDS APPEAL OF THE REVENUE ON ACCOUNT CAN CELLATION OF PENALTY ON ESTIMATED DISALLOWANCE OF 1% OF ADMINISTRATIVE EXP ENSES WE ARE OF THE OPINION THAT LEVY OF PENALTY OF THE AFORESAID DISALLOWANCE MADE BY THE AO @ 10% OF THE TOTAL EXPENSES AND REDUCED TO 1% BY THE LD. CIT(A) IS NOT JUSTIFIED. THE PROVISIONS OF SEC. 271(1)(C) OF THE ACT ARE NOT ATTRACTED IN C ASES WHERE THE INCOME OF AN ASSESSEE IS ASSESSED ON ESTIMATE BASIS AND ADDITION S ARE MADE THEREIN.[CIT VS. SANGRUR VANASPATI LTD. 303 ITR 53(PUNJAB & HARYANA] . THE DECISIONS IN THE CASE OF SAHYOG SAHKARI SHRAM SAMVIDA SAMITI LTD.(SUPRA) AND RAJ BANS SINGH(SUPRA) SUPPORT THIS VIEW THEREFORE WE UPHOL D THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY GROUND NOS. 1 T O 3 IN THE APPEAL OF THE REVENUE ARE REJECTED. 7. GROUND NOS. 4 & 5 IN THE APPEAL OF THE REVEN UE BEING GENERAL IN NATURE DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF TH E RESIDUARY GROUND IN THE APPEAL OF THE ASSESSEE ALL THESE GRO UNDS ARE DISMISSED. ITA NO.2078/AHD/2006 & ITA NO.2526/AHD/2006 FOR AY 2001-02 GUJARAT STATE FINANCIAL SERVICES LTD. 31 8. IN THE RESULT BOTH THESE APPEALS ARE DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 31 -05- 2010 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 31-05-2010 COPY OF THE ORDER FORWARDED TO : 1. GUJARAT STATE FINANCIAL SERVICES LTD. WING B 3 RD FLOOR KHANIJ BHAVAN NEAR UNIVERSITY GROUND VASTRAPUR AHMEDABAD 2. THE ACIT CIRCLE-4 AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-VIII AHMEDABAD 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD