Transceiver India Pvt., Delhi v. ACIT, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NO. 196(DEL)/2007 ASSESSMENT YEAR: 2001-02 ASSISTANT COMMISSIONER OF M/S TR ANSCEIVERS INDIA LTD. INCOME-TAX CIRCLE 16(1) VS. 249 L EVEL-II OKHLA INDUSTRIAL AREA NEW DELHI. PHASE-III NEW DELHI-110020. C.O. NO.4(DEL)/2008 (ARISING OUT OF ITA NO. 196(DEL)/2007) ASSESSMENT YEAR: 2001-02 M/S TRANSCEIVERS INDIA LTD. ASSISTA NT COMMISSIONER OF INCOME 249 LEVEL-II OKHLA INDL. VS. TAX CI RCLE 16(1) NEW DELHI. AREA PHASE-III NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI N.K. CHAND & SHRI AMRENDRA KUMAR SR. DR ASSESSEE BY : SHRI RAJ KUMAR & SHRI SAURAV ROHATGI C.AS ORDER PER K.G. BANSAL: AM THE ASSESSEE HAD FILED ITS RETURN ON 19.10.200 1 DECLARING TOTAL INCOME OF RS. 1 05 53 310/-. THE RETURN WAS PROC ESSED U/S 143(1) ON 25.1.2002. SUBSEQUENTLY THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) ON 22.10.2002. ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 2 1.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS IT W AS FOUND THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEALING IN RADIO (WIRELESS) EQUIPMENTS WHICH ARE SUPPLIED TO GOV ERNMENT DEPARTMENTS STATE POLICE PARA-MILITARY FORCES RAILWAYS ET C. UNDER DGS&D RATE CONTRACT. IT WAS FURTHER FOUND THAT IT PAI D COMMISSION OF RS. 69 67 886/- AND PROFESSIONAL AND TECHNICAL FE ES OF RS. 2 65 32 114/- TO SIMOCO TELECOMMUNICATION (SOUTH ASIA) LTD. (SIM OCO FORSHORT). COMMISSION OF RS. 20 59 154/- WAS ALSO PAID TO SOME OTHER PARTIES. THUS THE TOTAL COMMISSION PAID AMOUNTED TO RS . 90 27 060/-. SIMILARLY TOTAL PROFESSIONAL AND TECHNICAL FEES PAID AMOU NTED TO RS. 2 83 42 914/-. IT WAS SUBMITTED THAT THE COMMISSION WAS PAID TO SIMOCO FOR PROCUREMENT OF ORDERS FROM THE RAILWAYS. IN THIS CONNECTION NOTICE U/S 133(6) WAS FORWARDED TO THE RAILWAYS TO ASCERTAIN WHETHER -(I) ANY OFFICIAL OF SIMOCO EVER MET THE RAILWAY OFFICERS FOR PROCUREMENT OF ORDERS; (II) ANY OFFICIAL OF SIMOCO MADE ANY DEMONSTRATION OF WIRELESS SE TS BEFORE THEM; (III) ANY CORRESPONDENCE WAS MADE WITH SIMOCO; AND (IV) A NY PERSON FROM THE ASSESSEE WAS THERE WITH THEM FOR SUPPLY OF WIR ELESS SETS AND IF YES THE NAME. SIMILAR INFORMATION WAS SOUGHT TO BE OBT AINED FROM OTHER PARTIES. HOWEVER NO RESPONSE WAS OBTAINED EXC EPT FROM CRPF AND S.P SIMLA. THE CRPF INFORMED THAT NONE VISITE D THEIR OFFICE FOR ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 3 PROCUREMENT OF ORDERS OR DEMONSTRATION OF WIREL ESS SETS. IT APPEARS THAT SUPRINTENDENT OF POLICE SIMLA AFFIRMED THAT MR . J.S. SEKHON HAD BEEN VISITING THEM FOR SALES PROMOTION AND TO ATTEN D TO THE TECHNICAL MATTERS. IN THESE CIRCUMSTANCES THE ASSESSEE WAS REQUI RED TO FURNISH DOCUMENTARY EVIDENCE AND CONFIRMATION FROM RAILWAYS THAT S IMOCO HAD BEEN INTERACTING WITH THEM FOR PROCUREMENT OF ORDERS OR DEMONSTRATION OF WIRELESS SETS. IT WAS SUBMITTED THAT THE AS SESSEE HAD BEEN CONDUCTING THE BUSINESS OF TRADING IN TELECOMMUNICATION EQ UIPMENTS. AS THE COMPETITION GREW WITH THE ENTRY OF MULTI-NATIONA LS FROM THE YEAR 1999- 00 IT BECAME DIFFICULT FOR IT TO PROCURE ORDE RS AS A TRADER. THE ASSESSEE CREATED A SMALL ASSEMBLY INFRASTRUCTURE AT CA LCUTTA TO SHOW THAT IT WAS A MANUFACTURER. HOWEVER IT WAS NOT POSSIBLE F OR THE ASSESSEE TO COMPETE WITH THE MULTI-NATIONALS IN PROCURING ORD ERS FROM THE GOVERNMENT DEPARTMENTS. IN THIS YEAR THE ASSESSEE FAILED TO SECURE ANY IMPORTANT ORDER FROM RAILWAYS FOR THE REASON OF BEING A TRADER. IN ORDER TO GET OVER THIS DIFFICULTY IT BECAME NECESSARY TO EN TER INTO TECHNICAL AND SELLING AGREEMENT WITH A PARTY WHO HAD STRONG TECHNICAL AND SALES DEPARTMENTS. THE ASSESSEE IDENTIFIED SIMOCO FOR THIS PURPOSE. AN AGREEMENT WAS ENTERED INTO WITH THEM. ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 4 1.2 COMING TO PROFESSIONAL AND TECHNICAL FEES IT WAS SUBMITTED THAT ITS BUYERS ARE LOCATED ALL OVER INDIA AND REQUIRE LIFE TIME SUPPORT AS PER PURCHASED GUIDELINES ISSUED BY GOVERNMENT OF IND IA. THE SIMOCO WAS ABLE TO PROVIDE SUCH ASSISTANCE WHICH LED TO IN CREASE IN SALES BY 50% IN ONE YEAR. 1.3 THE AO MADE DIRECT ENQUIRIES FROM SIMOCO WHO CONFIRMED THE PAYMENTS RECEIVED BY IT AND FURNISHED THE DETA ILS OF SERVICES RENDERED TO THE ASSESSEE. THE AO WAS NOT SATISFIED WITH THE AFORESAID EXPLANATION ESPECIALLY BECAUSE NO CORRESPONDEN CE BETWEEN THE ASSESSEE AND SIMOCO OR BETWEEN SIMOCO AND BU YERS COULD BE BROUGHT ON RECORD. THEREFORE HE DISALLOWED THE CLAIM OF COMMISSION AS WELL AS PROFESSIONAL AND TECHNICAL FEES PAID TO SIMO CO. THE TOTAL INCOME WAS COMPUTED AT RS. 4 79 23 280/-. PENALTY PROCEEDIN GS WERE ALSO INITIATED U/S 271(1)(C) OF THE ACT. THE ADDITIONS WERE CONFIRMED BY THE LD. CIT(APPEALS) IN QUANTUM APPEAL. THE ADDITIONS WERE ALSO CONFIRMED BY THE TRIBUNAL IN SO FAR AS THOSE RELATED TO SI MOCO. THE FINDINGS OF THE TRIBUNAL IN RESPECT OF COMMISSION ARE CONTAINE D IN PARAGRAPH NO. 3(VI) WHICH IS REPRODUCED BELOW:- (VI) WE HAVE CAREFULLY CONSIDERED THE RIVAL SUB MISSIONS. THE QUESTION FOR CONSIDERATION IS AS TO WHETHER TH E EXPENDITURE ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 5 WAS FACTUALLY EXPENDED FOR THE PURPOSE OF BUSIN ESS OF THE ASSESSEE. THE FACT THAT THERE WAS AN AGREEMENT T O PAY COMMISSION IS NOT FINAL AND CONCLUSIVE. THE QU ESTION WHETHER FACTUALLY ANY SERVICES WERE IN FACT RENDERED BY THE RECIPIENT OR NOT IS THEREFORE RELEVANT AND HAS TO BE ESTABLISHED BEFORE CLAIMING DEDUCTION AS A BUSI NESS EXPENDITURE. IT IS IN THAT CONTEXT THE TWO QUES TIONS POSED BY THE CIT(A) WERE RELEVANT AND WAS THE RIGHT LIN E OF ENQUIRY. THE ONUS TO PROVE THE NATURE OF SERVICES RENDER ED BY STSAL WAS ON THE ASSESSEE. THE ONUS WAS MUCH GREATE R ESPECIALLY WHEN THE ASSESSEE WAS AN APPROVED RATE CONTRAC TOR AND THERE WAS NO NECESSITY OR JUSTIFICATION FOR PAYMENT OF A HIGHER PERCENTAGE OF COMMISSION MERELY FOR PROCURING OR DERS WHEN THE RATE AT WHICH SUPPLIES WERE TO BE EFFECTED IS ALREADY FIXED. THE REASON FOR APPOINTING STSAL AS BUSI NESS ASSOCIATE UNDER AGREEMENT DATED 3.4.00 IS THE LETTER OF SOUTH EASTERN RAILWAYS DATED 2.9.1999. THE ISSUE RAIS ED IN THE LETTER DATED 2.9.1999 WAS THE ABSENCE OF LIFE T IME SUPPORT FROM THE MANUFACTURER OF THE EQUIPMENTS SUPPLIED BY THE ASSESSEE. THIS HAD NOTHING TO DO WITH APPOINTM ENT OF STSAL AS AGENT FOR PROCURING ORDERS FROM THE VARIOUS GOVERNMENT DEPARTMENTS ON BEHALF OF THE ASSESS EE. THERE WAS THEREFORE A CONTRADICTION IN THE CASE PLEA DED BY THE ASSESSEE. APART FROM THE ABOVE THERE WAS NO EVIDENCE PRODUCED TO SHOW THAT THE ORDERS IN RESPECT OF W HICH COMMISSION WAS PAID WERE IN FACT SECURED ONLY T HROUGH THE EFFORTS OF STSAL. THE FACT THAT THE AO CALLE D FOR INFORMATION FROM THE PERSONS WHO PLACED ORDERS AS TO WHETHER STSAL WAS INSTRUMENTAL IN PROCURING O RDERS FOR THE ASSESSEE BY ISSUE OF NOTICE U/S 133(6) AND THE FACT THAT NO NEGATIVE REPLY WAS RECEIVED BY THE AO FROM THESE PERSONS DOES NOT PROVE THAT STSAL WAS IN FAC T RESPONSIBLE FOR GETTING ORDERS FOR THE ASSESSEE. THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THE NATURE OF SERVICES RE NDERED AND THE ASSESSEE CANNOT RELY ON THESE CIRCUMSTANCES TO JUSTIFY HIS CLAIM. WHEN IT IS HELD THAT THE SERVICES RENDER ED WERE NOT PROVED THE FACT THAT THERE WERE PAYMENTS AC TUALLY MADE BY THE ASSESSEE TO STSAL WAS NOT OF MUCH SIGNIFI CANCE. WE THEREFORE UPHOLD THE CONCLUSIONS OF THE REVENUE AUTHORITIES THAT THE EXPENDITURE VIZ. PAYMENT OF COMMISSION TO STSAL ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 6 WAS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSES SEE AND THEREFORE NOT ALLOWABLE AS DEDUCTION. 1.4 THE FINDINGS OF THE TRIBUNAL IN SO FAR AS PA YMENT OF PROFESSIONAL AND TECHNICAL FEES IS CONCERNED ARE CONTAINED IN PARAGRAPH NO. 7 WHICH IS REPRODUCED BELOW:- 7. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE PLEA AS WAS MADE BEFORE THE REVENUE AUTHORITIE S. THE LD. DR RELIED ON THE ORDERS OF REVENUE AUTHORITIES. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. HERE AGAIN T HE DISCUSSION MADE WHILE DISALLOWING COMMISSION PAYMENT TO STSAL WILL EQUALLY APPLY. THOUGH THERE IS AN AGREEMENT TO RENDER TECHNICAL SERVICES A PAYMENT FOR SUCH SERVIC ES HAVING BEEN UTILIZED BY THE ASSESSEE AND ALSO A DEDUCTION O F TAX AT SOURCE ON SUCH PAYMENT YET THERE IS NO EVIDE NCE WITH REGARD TO THE NATURE OF SERVICES RENDERED. AS ALREADY DISCUSSED WHILE DEALING WITH DISALLOWANCE OF COMM ISSION THE REQUIREMENT OF THE RAILWAYS FOR TECHNICAL SUPPORT FOR LIFE WAS ONLY WITH REFERENCE TO THE SUPPORT FOR THE PRODU CT MANUFACTURED OVERSEAS FOR WHICH THE ASSESSEE WAS RATE CONTRACT SUPPLIER. THE REQUIREMENT OF A GENERAL T ECHNICAL SUPPORT IS NOT SUBSTANTIATED BY ANY EVIDENCE. O N THE OTHER HAND THE LETTER OF THE SOUTH EASTERN RAILWAY DA TED 2.9.1999 IS AGAIN SOUGHT TO BE USED AS A MANDATE TO TH E ASSESSEE TO HAVE A TECHNICAL SUPPORT WHICH WE HAVE ALREAD Y OBSERVED DOES NOT EMANATE FROM THE RECORDS. THE FACTUM OF TAKE OVER OF CONTROLLING INTEREST IN STSAL BY THE ASSESSE E AND THE FACT THAT THEY WERE LOSS MAKING UNIT AND THERE FORE THE PRESENT ARRANGEMENT BY WHICH THE CONSIDERATION FOR ACQUIRING CONTROLLING INTEREST WAS BEING PASSED ON IN TH E FORM OF COMMISSION/TECHNICAL FEE IS ONE LINE OF THOUGH T WHICH SEEMS TO HAVE AGITATED THE MINDS OF THE REVENU E AUTHORITIES. THE CASE OF THE REVENUE STANDS MORE ON THE PRE MISE THAT THERE HAS BEEN NO EVIDENCE LED IN BY THE AS SESSEE TO PROVE THE NATURE OF SERVICES IT RECEIVED FROM STSAL EXCEPT A ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 7 SELF-SERVING ASSERTION BY THE ASSESSEE WHICH IS S ECONDED BY STSAL. THE CONCLUSIONS OF THE CIT(A) IN OUR V IEW ARE JUST AND PROPER AND CALLS FOR NO INTERFERENCE. THE 5 TH AND 6 TH GROUNDS OF APPEAL OF THE ASSESSEE ARE THEREFOR E DISMISSED. 1.5 THE HONBLE HIGH COURT ALSO CONFIRMED THE FI NDINGS OF THE TRIBUNAL BY MAKING FOLLOWING OBSERVATIONS IN PARAGRAPH N OS. 11 AND 12 OF THE JUDGMENT:- 11. WE ARE UNABLE TO ACCEPT THE AFORESAID SUBMISSION. IT WAS RIGHTLY CONTENDED BY THE LEARNED COUNSEL F OR THE REVENUE THE LETTER DATED 1.2.2003 WRITTEN BY SI MOCO WAS A SELF-SERVING LETTER AS BY THAT TIME SIMOCO HAD ALREADY BEEN ACQUIRED BY THE ASSESSEE. APART FROM THIS LETTE R THERE IS NOTHING ON RECORD TO SHOW ANY SERVICES PROVIDED. IT IS A HUGE AMOUNT OF COMMISSION PAID BY THE ASSESSEE TO SIMOCO. WE FAIL TO UNDERSTAND THAT HOW THE AGREEMENT FOR PROVIDING VARIOUS SERVICES ENTAILING PAYMENT OF THIS MAGNITU DE WAS IN FACT ACTED UPON IN THE ABSENCE OF NOT EVEN A SI NGLE DOCUMENT BETWEEN THE ASSESSEE AND SIMOCO. THE ASSESSEE HAS FAILED TO PRODUCE A SINGLE BILL RAISED BY SIMOCO FOR PROV IDING THE SERVICES. ON OUR PERTINENT QUERY MR. VOHRA WAS CANDID THAT NO SUCH DOCUMENT EXISTS. FURTHER IF SIMOC O WAS REPRESENTING THE ASSESSEE BEFORE THE RAILWAYS O R OTHER AUTHORITIES THERE SHOULD HAVE BEEN AT LEAST AN AUTHORITY LETTER BY THE ASSESSEE IN FAVOUR OF SIMOCO TO REPRESEN T THE ASSESSEE. THIS COUPLED WITH THE FACT THAT NONE OF THE AFORESAID PARTIES WHO MADE SUPPLIES CAME F ORWARD AND MADE ANY POSITIVE STATEMENT TO THE EFFECT THAT SIMOCO WAS REPRESENTING THE ASSESSEE AT LEAST FOR AFTER SALE SERVICES WHICH NEGATES THE PLEA OF THE ASSESSEE. HUMAN PROBABILITIES WOULD CLEARLY SHOW THAT IN THE ABS ENCE OF EVEN AN IOTA OF DOCUMENTS SUCH VAST SERVICES C OULD NOT HAVE BEEN RENDERED AGAINST HUGE AMOUNT PAID IN THE FORM OF COMMISSION. IN THIS BEHALF WE MAY REFER TO TH E FOLLOWING OBSERVATIONS MADE IN THE CASE OF SUMATI DAYAL V. ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 8 COMMISSIONER OF INCOME-TAX BANGALORE 214 ITR 801 (PAGE 808):- 12. THIS IN OUR OPINION IS A SUPERFICIAL APP ROACH TO THE PROBLEM. THE MATTER HAS TO BE CONSIDERED IN T HE LIGHT OF HUMAN PROBABILITIES. THE CHAIRMAN OF THE SETT LEMENT COMMISSION HAS EMPHASIZED THAT THE APPELLANT DI D POSSESS THE WINNING TICKET WHICH WAS SURRENDE RED TO THE RACE CLUB AND IN RETURN A CROSSED CHEQUE WA S OBTAINED. IT IS IN OUR VIEW A NEUTRAL CIRCU MSTANCE BECAUSE IF THE APPELLANT HAD PURCHASED THE WINNI NG TICKET AFTER THE EVENT SHE WOULD BE HAVING TH E WINNING TICKET WITH HER WHICH SHE COULD SURREND ER TO THE RACE CLUB. THE OBSERVATION BY THE CHAIRMAN O F THE SETTLEMENT COMMISSION THAT FRAUDULENT SALE OF WI NNING TICKET IS NOT AN USUAL PRACTICE BUT IS VERY MU CH OF AN UNUSUAL PRACTICE IGNORES THE PREVALENT MALPR ACTICE THAT WAS NOTICED BY THE DIRECT TAXES ENQUIRY COMMITTEE AND THE RECOMMENDATIONS MADE BY THE SA ID COMMITTEE WHICH LED TO THE AMENDMENT OF THE ACT BY THE FINANCE ACT OF 1972 WHEREBY THE EXEMPTION FROM TAX THAT WAS AVAILABLE IN RESPECT OF WINNINGS FROM LOTTERIES CROSSWORD PUZZLES RACES ETC. WAS W ITHDRAWN. SIMILARLY THE OBSERVATION BY THE CHAIRMAN THAT IF IT IS ALLEGED THAT THESE TICKETS WERE OBTAINED THRO UGH FRAUDULENT MEANS IT IS UPON THE ALLEGER TO PRO VE THAT IT IS SO IGNORES THE REALITY. THE TRANSACTION ABOUT PURCHASE OF WINNING TICKET TAKES PLACE IN SE CRET AND DIRECT EVIDENCE ABOUT SUCH PURCHASE WOULD B E RARELY AVAILABLE. AN INFERENCE ABOUT SUCH A PURCHASE HAS TO BE DRAWN ON THE BASIS OF THE CIRCUMSTANCES AVAILABLE ON THE RECORD. HAVING REGARD TO THE CONDUCT OF THE APPELLANT AS DISCLOSED IN HER OWN STATEMENT A S WELL AS OTHER MATERIAL ON THE RECORD AN INFERENCE CO ULD REASONABLY BE DRAWN THAT THE WINNING TICKETS W ERE PURCHASED BY THE APPELLANT AFTER THE EVENT. WE ARE THEREFORE UNABLE TO AGREE WITH THE VIEW OF TH E CHAIRMAN IN HIS DISSENTING OPINION. IN OUR OPI NION THE MAJORITY OPINION AFTER CONSIDERING SURROUNDI NG ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 9 CIRCUMSTANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES HAS RIGHTLY CONCLUDED THAT THE AP PELLANTS CLAIM ABOUT THE AMOUNT BEING HER WINNING FROM RACES IS NOT GENUINE. IT CANNOT BE SAID THAT THE EXP LANATION OFFERED BY THE APPELLANT IN RESPECT OF THE SAID AM OUNTS HAS BEEN REJECTED UNREASONABLY AND THAT THE FINDI NG THAT THE SAID AMOUNTS ARE INCOME OF THE APPELLANT F ROM OTHER SOURCES IS NOT BASED ON EVIDENCE (EMPHASI S SUPPLIED). 12. WE ARE THUS OF THE OPINION THAT CONCURREN T FINDINGS OF FACTS RECORDED BY ALL THE AUTHORITIES BELOW D O NOT WARRANT ANY INTERFERENCE AS NO PERVERSITY THEREIN IS FOU ND. THEY ARE BASED ON COGENT REASONING AND HAVING REGARD T O THE MATERIAL AND CIRCUMSTANCES OF THE CASE BROUGHT ON RECORD . THUS NO QUESTION OF LAW MUCH LESS SUBSTANTIAL QUESTION O F LAW ARISES FOR CONSIDERATION. 1.6 AS MENTIONED EARLIER THE AO HAD INITIATED PENALTY PROCEEDINGS. THESE PROCEEDINGS WERE FINALIZED ON 29.3.2006 IN WHICH MINIMUM PENALTY OF RS. 1 32 49 250/- WAS IMPOSED. 1.7 PENALTY WAS DELETED BY THE CIT(APPEALS)-XXIX NEW DELHI IN ORDER DATED 29.9.2006 IN APPEAL NO. 51/2006-07. THE FINDINGS ARE CONTAINED IN PARAGRAPH NOS. 6 6.1 AND 6.2 OF HI S ORDER WHICH ARE REPRODUCED BELOW:- 6. I HAVE VERY CAREFULLY GONE THROUGH THE WHO LE ISSUE ALONG WITH THE SUBMISSIONS OF THE LD. AR. IT IS A CASE WHERE ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 10 PAYMENTS OF RS. 69 67 886/- AND RS. 2 65 32 114/- H AVE BEEN MADE TO STSAL FOR COMMISSION AND AS TECHNICAL FEES RESPECTIVELY. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS IN RESPECT OF COMMISSIONS CLAIMED THE APPELLANT HAD POINTED OUT THAT ON ACCOUNT OF THESE SERVICES RENDERE D BY STSAL IT COULD SUCCESSFULLY PROCURE THE ORDERS WHICH BROUG HT PROFITS TO THE COMPANY AND IT IS OUT OF SUCH PROFITS THAT THE COMMISSION HAD BEEN PARTED WITH. THE APPELLANT HAS ALSO TR IED TO EXPLAIN THE REASONS OF OBTAINING SERVICES OF STSAL AS IT WAS A BIG SUPPLIER OF ITS VARIOUS PRODUCTS TO THE RAILWAYS FOR WHICH REASON IT WAS EASY FOR THE APPELLANT TO GET TH EIR PRODUCTS ACCEPTED BY THE RAILWAYS THOUGH ON MERITS OF TH E PRODUCTS. IT HAS BEEN FURTHER SUBMITTED THAT BUT FOR THESE SERVICES THE ORDERS WOULD NOT HAVE BEEN PROCURED AND THUS THE JUSTIFICATION OF INCURRENCE OF THESE EXPENSES HAS BEEN EXPLAINED. I FURTHER FIND THAT THE APPELLANT F URNISHED LARGE NUMBER OF DOCUMENTS INCLUDING THE COPY OF APPOINTM ENT LETTER AS WELL AS THE CONFIRMATION FROM THE PAYEE I.E. STSAL. IT ALSO CANNOT BE OVER LOOKED THAT STSAL WAS A MN C AT THAT POINT OF TIME AND THIS TRANSACTION STANDS CONFI RMED BY THEM. THUS I FIND THAT THE APPELLANT HAS FURNISHED P RIMA FACIE JUSTIFIABLE EXPLANATION WHICH STANDS SUPPORTED B Y VARIOUS DOCUMENTARY EVIDENCES AS MENTIONED IN THE PENAL TY ORDER AS WELL AS IN THE SUBMISSIONS MADE BY THE LD . AR AS INCORPORATED ABOVE. ALL THESE FACTS SHOW THAT IT IS A CASE WHERE A PRIMA FACIE EXPLANATION HAS BEEN GIVEN AND ALL RELEVANT FACTS AND OTHER INFORMATION HAS BEEN BRO UGHT ON RECORD BY THE APPELLANT. THUS ALTHOUGH ADDITIONS MAY BE SUSTAINED IN QUANTUM PROCEEDINGS IT IS NOT A FI T CASE FOR INVOKING PROVISIONS OF SECTION 271(1)(C). SIMIL ARLY ON THE ISSUE OF PAYMENT OF TECHNICAL FEES OF RS. 2 65 32 114/- TO STSAL THE FACTS AND CIRCUMSTANCES ARE MORE OR L ESS SIMILAR. WHILE COMMISSION HAS BEEN CLAIMED TO HAVE BEEN PAI D FOR AVAILING THE SERVICES OF STSAL FOR PROCURING T HE ORDERS THE REASON FOR PAYING THAT TECHNICAL FEES TO STSAL IS DIFFERENT. IT IS THAT STSAL WAS A MNC BEING IN THE LINE O F MANUFACTURING OF PRODUCTS OF THE SAME FAMILY IN WHICH THE APPELLANT WAS TRADING. AS CLAIMED BY THE APPEL LANT FOR MATURING THE SALES OF THESE SOPHISTICATED ITEMS BEING TELECOMMUNICATION PRODUCTS INCLUDING WIRELESS SE TS AND OTHER ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 11 SIMILAR PRODUCTS TO PARA-MILITARY FORCES STATE POLICE GOVERNMENT OF INDIA CENTRAL WATER COMMISSION AND AUTHORIZED DEPARTMENT ETC. IT WAS NOT POSSIBLE TO CONDUCT THE BUSINESS IN THE ABSENCE OF AVAILABILITY OF THIS INF RASTRUCTURE. IT HAS ALSO BEEN EXPLAINED THAT IT IS ON ACCOUNT OF THE TIE-UP WITH STSAL THAT THE APPELLANT COULD CONDUCT HI S BUSINESS IN A BETTER WAY AND MORE EFFECTIVELY. IT HAS ALSO BEEN SUBMITTED THAT THE TURNOVER INCREASED TREMENDOUSLY AFTER T HIS TIE-UP WITH STSAL. I ALSO FIND THAT THE APPELLANT HAS SUBSTANTIATED HIS CLAIM BY FILING VARIOUS DOCUMENTARY EVIDEN CES INCLUDING AGREEMENT WITH THE PAYEE AND THE CONFIRMATION WAS SENT DIRECTLY BY THE PAYEE TO THE AO U/S 133(6) OF TH E I.T. ACT. THUS I FIND THAT FOR THIS EXPENDITURE THE AP PELLANT HAS FURNISHED ALL RELEVANT INFORMATION AND DETAILS HAS GIVEN PRIMA FACIE PLAUSIBLE EXPLANATION JUSTIFYING THE SAID CLAIM HAS DULY FURNISHED NECESSARY DOCUMENTARY EVIDEN CES TO SUPPORT HIS EXPLANATION; THEREFORE ON THESE F ACTS ALTHOUGH THE ADDITIONS MAY HAVE BEEN SUSTAINED I AM OF T HE CONSIDERED OPINION THAT THESE FACTS AND CIRCUMSTANCES DO NO T INVITE THE PROVISIONS OF SECTION 271(1)(C) OF THE I.T. ACT. 6.1 THE APPELLANT HAS PLACED RELIANCE ON THE DE CISION OF THE JURISDICTIONAL DELHI HIGH COURT IN ADDITION AL CIT VS. DELHI CLOTH & GENERAL MILLS CO. LTD. (157 ITR 822 ) WHEREIN IT HAS BEEN HELD THAT PENALTY FOR CONCEALMENT OF I NCOME CAN BE IMPOSED ONLY IF THERE IS CONSCIOUS AND DELIBERAT E CONCEALMENT ON THE PART OF THE APPELLANT. IT HAS ALSO BEEN HELD BY THE HONBLE COURT THAT THE MERE FACT THAT A CLAIM FOR EXPENDITURE STANDS DISALLOWED DOES NOT BY ITSE LF LEAD TO AN INFERENCE THAT THE APPELLANT HAD FURNISHED INACCU RATE PARTICULARS IN REGARD TO THAT ITEM AND PENAL TY CAN BE IMPOSED ONLY IF THERE IS A CONSCIOUS AND DELIBER ATE CONCEALMENT ON THE PART OF THE APPELLANT. BASED ON THE FACTS OF THE INSTANT CASE AS DISCUSSED HEREIN ABOVE I FIND SUFFICIENT MERIT IN THE CLAIM OF THE APPELLANT THAT IT IS A CASE OF MERE DISALLOWANCE OF AN EXPENDITURE CLAIMED IN THE Y EAR UNDER CONSIDERATION WHICH DOES NOT LEAD TO THE INFE RENCE THAT INACCURATE PARTICULARS IN REGARD TO THE SAID CL AIM HAD BEEN FURNISHED. THERE IS ALSO FORCE IN THE CONTENTION OF THE ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 12 APPELLANT THAT IF AN ADDITION INVOLVES A MATT ER OF DEBATE NO PENALTY U/S 271(1)(C) IS LEVIABLE; THIS VIEW FIN DS SUPPORT FROM THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. AJAIB SINGH & CO. (253 ITR 630). THE FACTS FURTHER SHOW THAT IT IS NOT THE CASE OF THE AO THAT THE CLAIM OF DEDUCTION IN RESPECT OF EXPENSES WAS MA DE IN A MALA FIDE MANNER; THE DISALLOWANCE THEREFORE OF SUCH A CLAIM MADE IN A BONA FIDE MANNER WOULD NOT AMOUNT TO CONCEALMENT FOR THE PURPOSES OF LEVY OF PENALTY U /S 271(1)(C) OF THE ACT AS IS THE VIEW EXPRESSED IN THE CAS E OF CIT VS. HARYANA EDUCATION SOCIETY (251 ITR 846). THE APPE LLANTS CASE IS ALSO SUPPORTED BY THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. INDEN BISLERS ( 240 ITR 943) WHEREIN IT WAS HELD THAT MERE DISALLOWANC E OF AN EXPENDITURE CANNOT BE VISITED WITH A PENALTY FOR CONCEALMENT. SIMILAR IS THE VIEW EXPRESSED BY THE HONBLE RAJA STHAN HIGH COURT IN THE CASE OF CIT VS. HARSHVARDHAN CHEMIC ALS & MINERAL LTD. (259 ITR 212) WHEREIN PENALTY WA S CANCELLED IN A CASE WHERE AN ARGUABLE CONTROVERSIAL OR DEBATABLE DEDUCTION WAS CLAIMED. IT WAS HELD BY THE HO NBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SIVAN ANDA STEELS LTD. (256 ITR 683) THAT THERE WAS NO JUSTIFI CATION FOR LEVY OF PENALTY U/S 271(1)(C) WHERE THE CLAIM OF DE DUCTION MADE WAS BONA FIDE. FURTHER IN THE CASE OF CIT VS. H OTEL SABAR (P) LTD. (264 ITR 381) THE HONBLE GUJARAT HIGH COURT HELD THAT WHERE THE FACTS WERE DISCLOSED TO THE AS SESSING OFFICER THERE WAS NO CONCEALMENT OF INCOME OR FUR NISHING OF INACCURATE PARTICULARS. IN THE CASE OF NATION AL TEXTILES [249 ITR 125 (GUJ)] IT HAS BEEN HELD THAT IT IS NOT E NOUGH FOR THE PURPOSE OF PENALTY THAT THE AMOUNT HAS BEEN ASSE SSED AS INCOME; THE CIRCUMSTANCES MUST SHOW THAT THERE W AS ANIMUS I.E. CONSCIOUS CONCEALMENT OR ACT OF FURNISHING IN ACCURATE PARTICULARS ON THE PART OF THE ASSESSEE. IN THE CASE OF CHETAN DASS LAXMAN DASS [214 ITR 726 (DEL)] IT HAS BE EN HELD THAT PENALTY PROCEEDINGS ARE DISTINCT FROM ASSESSM ENT PROCEEDINGS; FINDINGS IN ASSESSMENT PROCEEDINGS ARE NOT CONCLUSIVE IN PENALTY PROCEEDINGS. SIMILARLY IN THE CASE OF PAWAN KUMAR DALMIA [168 ITR 1 (KER.)] AND BAN ARAS TEXTORIUM [169 ITR 782 (ALL)] IT HAS BEEN HELD THAT FINDINGS AND CONCLUSIONS DRAWN IN DECIDING THE QUANTUM AP PEAL ARE ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 13 NEITHER CONCLUSIVE NOR BINDING FOR PENALTY PROCE EDINGS U/S 271(1)(C). 6.2 I FIND THAT IT IS A CASE WHERE THE CLAIM OF THE APPELLANT IS THAT HE HAS INCURRED BONA FIDE BUSINESS EXPE NSES WHICH CLAIM STANDS SUPPORTED AS PER THE APPELLANT BY VARIOUS DOCUMENTS FILED BY IT HOWEVER THE SAID EXPLAN ATION DID NOT FIND FAVOUR WITH THE AO. I FIND THAT IN THE PR ESENT CASE THERE IS NO CASE FOR INVOKING PROVISIONS OF SECT ION 271(1)(C). IN THE RESULT I HOLD THAT NO PENALTY U/S 271(1)( C) CAN BE LEVIED. 1.8 AGGRIEVED BY THIS ORDER THE REVENUE IS IN APPEAL BEFORE US. ONLY ONE GROUND HAS BEEN TAKEN IN APPEAL THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) HAS ERRED IN CANCELLING THE PENALTY IMPOSED U/S 271(1)(C) AMOUNTING TO RS. 1 32 49 250/-. THE ASSESSEE HAS ALSO FILED THE CROSS OBJECTION IN W HICH THREE GROUNDS HAVE BEEN TAKEN. GROUND NOS. 1 AND 2 RELATE TO NON- RECORDING OF SATISFACTION NOTE IN THE ASSESSMENT ORDER AND THE ORDER BEING PASSED AFTER EXPIRY OF LIMITATION PERIOD. THESE GROUNDS WERE NOT PRES SED BY THE LD. COUNSEL BEFORE US. GROUND NO. 3 IS IN SUPPORT OF THE OR DER OF THE LD. CIT(APPEALS) WHICH WILL GET DISPOSED OFF ON PASSING THE ORDE R ON THE APPEAL OF THE REVENUE. 2. BEFORE US THE LD. DR SUBMITTED THAT THE QUE STION BEFORE US IS REGARDING THE LEVY OF PENALTY ON DISALLOWANCE OF T WO SUMS-(I) ABOUT RS. ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 14 69.00 LAKH PAID TO SIMOCO AS COMMISSION; AND (II) ABOUT RS. 2.65 CRORE BEING PAYMENT OF TECHNICAL FEES TO SIMOCO. 2.1 IN THIS CONNECTION HE HAS DRAWN OUR ATTENTIO N TOWARDS THE FINDINGS OF THE ITAT. IN RESPECT OF COMMISSION IT HAS BEEN HELD THAT MERE PAYMENT OF COMMISSION BASED ON THE AGREEMENT IS NOT CO NCLUSIVE OF THE MATTER. WHAT IS TO BE SEEN IS WHETHER FACTUALLY ANY SERVI CE WAS RENDERED BY SIMOCO. THE ONUS OF ESTABLISHING THE RENDERING O F SERVICES IS ON THE ASSESSEE. THERE IS NO EVIDENCE ON RECORD THAT A NY SERVICE WAS RENDERED BY SIMOCO FOR PROCUREMENT OF ORDERS. THEREFORE THE DISALLOWANCE OF COMMISSION WAS UPHELD. IN REGARD TO SECOND PAYM ENT REGARDING RENDERING TECHNICAL SERVICES IT HAS BEEN HELD TH AT THE POSITION IS MORE OR LESS SIMILAR AS IN THE CASE OF PAYMENT OF COMMIS SION. THE PAYMENTS HAVE BEEN MADE IN PURSUANCE OF AN AGREEMENT FOR REND ERING TECHNICAL SERVICES TO THE ASSESSEE. TAX HAS BEEN DEDUCTED AT SOURC E FROM THE PAYMENTS. HOWEVER THERE IS NO EVIDENCE ABOUT THE ACTUAL OF SERVICES RENDERED BY SIMOCO. THE REQUIREMENT OF THE RAILWAYS FOR TECH NICAL SUPPORT DURING THE LIFE PERIOD OF THE GOODS WAS ONLY IN RESPECT O F IMPORTED GOODS. THE REQUIREMENT OF GENERAL TECHNICAL SUPPORT HAS NOT B EEN SUBSTANTIATED BY THE ASSESSEE. THE ASSESSEE HAS ALSO TAKEN OVER T HE SIMOCO WHICH WAS A ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 15 LOSS MAKING UNIT. THEREFORE THE PAYMENT WAS MA DE FOR ACQUIRING CONTROLLING INTEREST IN THE FORM OF TECHNICAL F EES OR COMMISSION. IN ANY CASE THERE IS NO EVIDENCE REGARDING RENDERING OF TECHNICAL SERVICES BY SIMOCO. THEREFORE THIS PAYMENT WAS ALSO DISA LLOWED. IT MAY BE MENTIONED HERE THAT RELEVANT PORTIONS OF THIS OR DER HAVE ALREADY BEEN REPRODUCED BY US EARLIER. THE ARGUMENT OF TH E LD. DR ON THE BASIS OF THIS ORDER IS THAT THERE WAS NO NEED OF ANY AGREEMENT AS NO SERVICE WAS RENDERED BY SIMOCO TO THE ASSESSEE. 2.2 FURTHER OUR ATTENTION HAS BEEN DRAWN TOWARDS THE DECISION OF HONBLE DELHI HIGH COURT IN WHICH IT HAS BEEN HELD THAT APART FROM LETTER DATED 1.2.2003 WRITTEN BY SIMOCO WHICH I S A SELF-SERVING LETTER AS BY THIS TIME SIMOCO WAS TAKEN OVER BY THE ASSE SSEE COMPANY THERE IS NO RECORD TO SHOW THAT IT RENDERED ANY SERVICE TO THE ASSESSEE. IT IS BEYOND COMPREHENSION THAT THERE IS NO CORRESPONDENCE I N RESPECT OF THIS MAGNITUDE OF PAYMENT. THE HONBLE COURT REFER RED TO THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN THE CASE OF SUMA TI DAYAL VS. CIT 214 ITR 801 AND MENTIONED THAT HUMAN PROBABILI TIES HAVE TO BE TAKEN INTO ACCOUNT WHILE DECIDING SUCH A CASE. ACCOR DINGLY IT HAS BEEN HELD THAT THERE WAS NO PERVERSITY IN THE ORDER OF THE TRIBUNAL WHICH IS BASED ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 16 UPON MATERIAL AND CIRCUMSTANCES BROUGHT ON RECO RD. THEREFORE IT HAS BEEN HELD THAT NO QUESTION OF LAW ARISE OUT OF T HE ORDER OF THE TRIBUNAL. 2.3 OUR ATTENTION HAS ALSO BEEN DRAWN TOWARDS THE COMMUNICATION BETWEEN SIMOCO AND THE ASSESSEE IN WHICH THE FO RMER SUBMITTED THAT IT HAD PROVIDED VARIOUS SERVICES INCLUDING THE FOLLOW UP SERVICES TO THE ASSESSEE WITH THE HELP OF EQUIPMENTS EXPERIEN CED TECHNICAL PERSONNEL EXPERTISE QUALITY ANALYSES RESEARCH AND DE VELOPMENT SOFTWARE SUPPORT DEVELOPED FOR THE LAST 25 YEARS. HE AL SO REFERRED TO PAGE NO. 66 OF THE PAPER BOOK BEING RECITAL TO THE AGREEME NT DATED 12.5.2000 WHICH SHOWS THAT SIMOCO HAS WORLD WIDE SET UP FOR R ESEARCH ETC. AND IT HAS WORLD CLASS INFRASTRUCTURE AND EXPERIENCE IN INDI A FOR LAST 25 YEARS. HE ALSO REFERRED TO PAGE NOS. 60 TO 62 OF THE PAPER BOOK WHICH SHOW THAT IN THE NEXT YEAR THE TOTAL INCOME OF SIMOCO WAS NE GATIVE FIGURE. THE OTHER EVIDENCES ARE THAT PAYMENTS OF TECHNICAL FEES W ERE MADE BY WAY OF CHEQUES ON WHICH TAX WAS DEDUCTED AT SOURCE. S IMILAR IS THE POSITION WITH RESPECT TO COMMISSION. 2.4 ON THE BASIS OF THESE EVIDENCES AND ORDERS I T HAS BEEN SUBMITTED THAT THE FACTS FOUND BY VARIOUS AUTHORITIES IN CLUDING HONBLE HIGH COURT IN QUANTUM APPEALS HAVE NOT BEEN DISPUTED OR SUP PLEMENTED BY THE ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 17 ASSESSEE. THESE ORDERS SHOW THAT THE TRANSAC TIONS WERE COLOURABLE IN NATURE. IN FACT SIMOCO WAS A COMPETITOR OF T HE ASSESSEE AND POSSIBLY COULD NOT HAVE ACTED AS AGENT FOR PROCURING OR DERS FOR IT OR RENDERED SERVICES OF TECHNICAL NATURE TO IT. 2.5 COMING TO THE LEGAL ISSUES IT IS SUBMITTED THAT THE PROVISION CONTAINED IN EXPLANATION-I TO SECTION 271(1)(C) IS APPLICABLE TO THE FACTS OF THE CASE. IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA & OTHERS VS. DHARMENDRA T EXTILE PROCESSORS & OTHERS (2008) 306 ITR 277 THE LIABILITY IS C IVIL IN NATURE AND QUESTION HAS TO BE DECIDED ON THE BASIS OF STATUTORY P ROVISIONS CONTAINED IN SECTION 271(1)(C) AND THE EXPLANATIONS THEREUNDER . FINALLY IT IS SUBMITTED THAT (I) NO BUSINESS PURPOSE HAS BEE N ESTABLISHED FOR MAKING THE PAYMENTS AND ALL THE AUTHORITIES HAVE HELD T HAT THE TRANSACTIONS ARE COLOURABLE IN NATURE; (II) THERE IS NO DEBATE POSSIBLE AGAINST DISALLOWANCE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS LTD. VS. CIT (1967) 63 ITR 57; (III ) THE CASES CITED BY THE ASSESSEE BEFORE LOWER AUTHORITIES REGARDING P ROOF OF MENS REA ARE NO LONGER APPLICABLE IN VIEW OF THE DECISION IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS & OTHERS (SUPRA) AND (IV) THE PENALTY IS LEVIABLE IN ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 18 VIEW OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ELECTRICAL AGENCIES CORPORATION VS. CIT (2001) 119 TAXMAN 369; CIT VS. HAR PRASAD & COMPANY (2010) 328 ITR 53 AND ESCORTS FINANCE LTD. (2010) 328 ITR 44. 3. IN REPLY THE LD. COUNSEL FOR THE ASSESSEE FURNISHED BRIEF BACKGROUND OF THE CASE THAT THE ASSESSEE IS A TRADER IN WIRELESS EQUIPMENTS WHICH ARE BEING SUPPLIED TO GOVERNMEN T DEPARTMENTS INCLUDING RAILWAYS. THE RAILWAYS HAD WRITTEN A LETTER DATED 2.9.1999 TO THE ASSESSEE POINTING OUT INTER-ALIA THAT THE AS SESSEE IS A TRADER AND NOT THE MANUFACTURER OF EQUIPMENTS. EQUIPMENTS ARE IMPOR TED FROM CHIEF TEK ELECTRONICS CO. IN SKD KITS THE ADDRESS ETC. OF THE FOREIGN SUPPLIER HAS NOT BEEN FURNISHED. THE COMMITMENT FROM THE SUPPL IER FOR LIFE TIME SUPPORT OF THE EQUIPMENTS IN INDIA HAS ALSO NOT B EEN FURNISHED. THIS IS IMPORTANT FOR RAILWAYS TO KNOW ON WHOM TO DE PEND FOR THE LIFE TIME SERVICES IN CASE THE ASSESSEE COMPANY IS LIQUIDAT ED. SUCH CERTIFICATES HAVE BEEN PROCURED FROM ALL OTHER SUPPLIERS INCLU DING MOTOROLLA AND SIMOCO. THE LATTER COMPANY WAS EARLIER OWNED BY THE GOVERNMENT OF WEST BENGAL AND AT THE RELEVANT POINT OF TIME W AS TAKEN OVER BY PHILIPPS GROUP OF COMPANIES U.K. HAVING OFFICE IN INDIA AT KOLKATA. SIMOCO WAS ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 19 A BIG SUPPLIER OF RAILWAYS AND HAD INFRASTRUC TURE AND TECHNICAL EXPERTISE IN THE LINE OF THE BUSINESS. THEREFORE IT WAS APPOINTED AS BUSINESS ASSOCIATES ON 3.4.2000 TO SATISFY THE NEEDS OF TH E RAILWAYS. THE LETTER DATED 3.4.2000 IN THIS REGARD HAS BEEN PLACED IN THE PAPER BOOK ON PAGE NOS. 8 TO 10. BY VIRTUE OF SERVICES RENDERED BY THIS COMPANY ORDERS WORTH RS. 5.80 CRORES WERE RECEIVED IN THIS Y EAR ON WHICH COMMISSION @ 12% WAS PAID. OUR ATTENTION WAS DRAWN TOWAR DS THE EXPLANATION REGARDING NEED TO APPOINT SIMOCO AS BUSINESS ASS OCIATES CONTAINED IN THE AGREEMENT DATED 3.4.2000. THE AO HAD MADE DIRECT ENQUIRIES WITH THE SIMOCO WHICH CONFIRMED THE RECEIPT OF COMMISSI ONS TO IT. IT WILL BE SEEN FROM THE LETTER THAT THE PAYMENT WAS MADE BY CHEQUE ON WHICH TAX WAS DEDUCTED AT SOURCE. THE TAX WAS DEPOSITED TO THE CREDIT OF THE GOVERNMENT ON 27.6.2001. THE AO ALSO VERIFIED THE PAYMENT DIRECTLY FROM THE BANK. 3.1 COMING TO THE FACTS REGARDING PAYMENT OF TEC HNICAL FEES IT IS SUBMITTED THAT THE ASSESSEE WAS EARLIER HAVING S IMILAR ARRANGEMENT WITH LINKERS TECHNOLOGY PVT. LTD. (LINKERS FOR SHORT) AN INDEPENDENT THIRD PARTY. HOWEVER IN THE YEAR UNDER CONSIDERATIO N THEY WERE NOT PROVIDING PROPER SERVICES AND THEREFORE THE ASSESSEE GRADUALLY ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 20 DISCONTINUED THEIR SERVICES AND INSTEAD APPOINT ED SIMOCO TO RENDER SIMILAR SERVICES FOR WHICH AN AGREEMENT WAS EN TERED INTO ON 12.5.2000 FOR CONSIDERATION OF PAYMENT OF RS. 25.00 LAKH PER MONTH. OUR ATTENTION IS DRAWN TO PAGE NOS. 63 TO 65 OF THE PAPER BOOK REGA RDING REQUIREMENT FOR APPOINTMENT OF TECHNICAL CONSULTANT AGREEMENT DATED 12.5.2000 WHICH ALSO SHOWS THEIR CAPACITY TO RENDER THE SERVICE S. THE AO HAD UNDERTAKEN CORRESPONDENCE WITH THIS PARTY WHO CONFIRMED THE RECEIPT OF PAYMENTS AS SEEN FROM PAGE NO. 61 OF THE PAPER BOOK. ALL THE PAYMENTS WERE MADE IN THIS VERY YEAR AND TAX WAS DEDUCTED ON 22.2.2001 WHICH WAS DEPOSITED WITH THE GOVERNMENT ON 27.6.2001. THE PAYMENTS WERE ALSO VERIFIED BY THE AO INDEPENDENTLY FROM THE BANK. 3.2 THE CASE OF THE LD. COUNSEL IS THAT THE TRIBU NAL DENIED DEDUCTION OF EXPENDITURE PRIMARILY ON THE GROUND THAT NO C ORRESPONDENCE COULD BE SHOWN FOR RENDERING OF THE SERVICES. THIS CONCLU SION WAS UPHELD BY THE HONBLE HIGH COURT WHICH MENTIONED THAT NO QUESTI ON OF LAW ARISES FOR ITS CONSIDERATION. IT IS HIS CASE THAT ASSESS MENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE TWO INDEPENDENT PROCEEDINGS WHICH STAND SEPARATE AND APART. WHILE THE ASSESSMENT CAN BE BASED ON PROBABILITIES THE LEVY OF PENALTY HAS TO BE SEEN IN THE LIGHT AND PROVI SIONS CONTAINED IN SECTION ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 21 271(1)(C) INCLUDING EXPLANATION THERETO. THE ASSESSEE HAS FURNISHED A REASONABLE PLAUSIBLE EXPLANATION FOR INCURRING BO TH THE EXPENSES. THE PAYMENTS HAVE BEEN MADE TO A TOTALLY UNRELATED P ARTY WHICH ARE BASED ON AGREEMENT CONCLUDED WITH IT. ALL THE FACTS REG ARDING BOTH THE PAYMENTS AVAILABLE WITH THE ASSESSEE HAVE BEEN DISCLOSED I N THE RETURN OF INCOME. NO FALSITY ETC. HAS BEEN FOUND IN THE EVIDENCE TEND ERED BY THE ASSESSEE. IN FACT THE PAYEE HAS INDEPENDENTLY CONFIRMED TO TH E AO THAT THE SERVICES HAD BEEN RENDERED. ALL THE PAYMENTS HAVE BEEN MA DE BY CHEQUES AND THERE IS NOT EVEN AN AVERMENT IN ANY OF THE ORDERS T HAT THE WHOLE OR PART OF THE PAYMENT WAS RETURNED TO THE ASSESSEE IN CASH. THE FACT OF THE MATTER IS THAT EARLIER THE ASSESSEE WAS AVAILING OF SIMIL AR SERVICES FROM THE LINKERS. THE AGREEMENT WITH IT WAS TERMINATED AND SIMOCO WAS TAKEN AS THE SERVICE PROVIDER. THE TURNOVER OF THE ASSE SSEE HAS SUBSTANTIALLY INCREASED FROM RS. 13.26 CRORE IN THIS YEAR TO R S. 20.61 CRORE IN THE IMMEDIATELY SUCCEEDING YEAR. IN THE YEAR UNDE R CONSIDERATION SIMOCO WAS AN INDEPENDENT PARTY AND THEREFORE ITS T AKE OVER BY THE ASSESSEE IN SUBSEQUENT YEAR CANNOT RAISE ANY DOUBT ON THE AGREEMENTS AND PAYMENTS MADE IN THIS YEAR. THEREFORE IT IS CONTENDED TH AT THE CASE IS SQUARELY COVERED BY THE DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. 322 ITR 158 (SC); CIT VS. SIDHARTHA EN TERPRISES 228 CTR ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 22 (P&H) 579. IT IS ALSO SUBMITTED THAT THE IMPORT OF THE TERM COLOURABLE DEVISE HAS NOT BEEN EXPLAINED BY THE LD. DR ON THE FACTS OF ASSESSEES CASE. 4. IN THE REJOINDER THE LD. DR SUBMITTED THAT ALL THE SUPPLIES WERE MADE UNDER DGS&D RATE CONTRACT. THE MINISTRY OF RAILWAYS HAD REQUESTED THE ASSESSEE TO FURNISH THE NAMES AND ADDRESSES OF THE FOREIGN SUPPLIERS WHICH WAS ROUTINELY REQUIRED FROM ALL OTHER PARTIES INCLUDING SIMOCO. THE ASSESSEE INFORMED THE RAILWAYS ON 29 .9.1999 THAT ASSEMBLERS OF THE EQUIPMENTS ARE TREATED AS MANUFACTURERS A ND SERVICING AND TECHNICAL SUPPORT IS THE RESPONSIBILITY OF THE ASSESSEE CO MPANY. THE TRIBUNAL CANNOT TAKE A DIAMETRICALLY OPPOSITE VIEW AS HE LD IN THE CASE OF CIT VS. PREMIER BREWERIES LTD. (2000) 110 TAXMAN 408 (K ER.). THEREFORE THE ASSESSEE HAS FAILED TO SUBSTANTIATE THE EXPLANA TION AND PENALTY IS LEVIABLE ON THE ASSESSEE. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE HAS BEEN SUPPLYING RADIO (WIRELESS) EQUIPMENTS TO VARIOUS GOVERNMENT OR GANIZATIONS UNDER DGS&D RATE CONTRACT. IN THIS YEAR THE ASSESS EE INTER-ALIA DEBITED SALE ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 23 COMMISSION OF RS. 90 27 060/- AND PROFESSIONAL AND TECHNICAL FEES OF RS. 2 83 42 914/- IN THE PROFIT AND LOSS ACCOUN T AS DIRECT COST AND OTHER EXPENSES AGGREGATING TO RS. 19 49 70 167/-. SCHE DULE 9 GIVES THE DETAILS OF THESE EXPENSES WHERE SALES COMMISSION AND PROFESSIONAL AND TECHNICAL FEES EXPENSES HAVE BEEN SHOWN SEPARATE LY. OUT OF THESE EXPENSES TWO AMOUNTS ARE IN RESPECT OF SIMOCO BEING RS. 69 67 886/- AS COMMISSION AND RS. 2 65 32 114/- AS PROFESSIO NAL AND TECHNICAL FEES. THE ASSESSEE HAS FILED AGREEMENTS WITH SIMO CO TO JUSTIFY THE DEDUCTION OF EXPENDITURE. IT HAS ALSO FILED CONFIRMED ACC OUNTS FROM SIMOCO FROM WHICH IT IS SEEN THAT THE PAYMENTS HAVE BEEN MAD E IN THIS VERY YEAR AND TAX HAS BEEN DEDUCTED AT SOURCE AND PAID T O THE CREDIT OF THE GOVERNMENT. IN THIS YEAR SIMOCO WAS A COMPANY BELONGING TO PHILLIPS GROUP U.K. THUS AT THE TIME OF INCURRING THE EXPENDITURE AND PAYMENT THEREOF THERE WAS NO CONNECTION BETWEEN THE A SSESSEE AND THE PAYEE. SIMOCO ALSO FURNISHED DETAILS OF ORDERS PROCUR ED AND SERVICES RENDERED IN RESPONSE TO THE NOTICE ISSUED BY THE AO. HOW EVER AT THE TIME OF FURNISHING THE REPLY SIMOCO HAD BEEN TAKEN O VER BY THE ASSESSEE COMPANY. SIMOCO HAD ALSO BEEN CARRYING ON THE BUSINESS SIMILAR TO THE BUSINESS OF THE ASSESSEE. BOTH THE PAYMENTS MA DE TO THE SIMOCO WERE DISALLOWED BY THE AO. THE DISALLOWANCE HAS BEEN CONFIRMED EVEN BY ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 24 HONBLE DELHI HIGH COURT. THE MAIN REASON FOR DISALLOWANCE IS THAT THE ASSESSEE COULD NOT PRODUCE ANY CORRESPONDENCE BETWEEN IT AND SIMOCO OR SIMOCO AND THE BUYERS IN REGARD TO PROCURING SALES ORDERS OR RENDERING SERVICES TO THE BUYERS. THE TEST OF HUMAN PRO BABILITIES HAS BEEN INVOKED FOR MAKING THE DISALLOWANCE. 5.1 THE AO HAS ALSO LEVIED PENALTY IN RESPECT O F THESE DISALLOWANCES. THE PENALTY HAS BEEN DELETED BY THE LD. CIT(APPE ALS). THE CASE OF THE LD. DR IS THAT NO FURTHER EVIDENCE HAS BEEN ADDUCE D BY THE ASSESSEE IN THE COURSE OF PENALTY PROCEEDINGS. THEREFORE THERE IS NO FURTHER ADVANCEMENT AFTER THE RECEIPT OF THE DECISION OF HONBLE DELHI HIGH COURT IN QUANTUM APPEAL. THE EXPLANATION FURNIS HED BY THE ASSESSEE THAT THE EXPENDITURE HAS BEEN INCURRED IN THE COURSE OF BUSINESS HAS NOT BEEN SUBSTANTIATED. THEREFORE PENALTY IS LEVIABLE O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. ON THE OTHER HAND THE CASE OF THE LD. COUNSEL IS THAT FOR DEDUCTION OF AN EXPENDITURE IN COM PUTING THE TOTAL INCOME THE ASSESSEE HAS TO PROVE THAT IT HAS BEEN INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE IS NOT REQUIRED TO SHOW THAT IT WAS NECESSARY FOR HIM TO INCUR EXPENDITURE EITHE R UNDER AN AGREEMENT OR IN LAW. NONETHELESS IN THIS CASE EXPENDITURE HAS BEEN INCURRED UNDER ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 25 THE AGREEMENT. ASSESSMENT AND PENALTY PROCEEDIN GS HAVE TO BE VIEWED DIFFERENTLY. CONFIRMATION OF THE ADDITION DOES NOT PER SE LEAD TO LEVY OF PENALTY. IN PENALTY PROCEEDINGS IT HAS TO BE SEEN AS TO WHETHER THE EXPLANATION OF THE ASSESSEE IS BONA FIDE OR NOT AND ALL FACTS RELATING TO ASSESSMENT HAVE BEEN DISCLOSED TO THE AO. THE ASSESSEE HAS DISCLOSED ALL FACTS IN THE RETURN OF INCOME WHICH WAS A CCOMPANIED BY ANNUAL ACCOUNTS IN WHICH THE EXPENDITURE HAS BEEN SHOW N CLEARLY AND SEPARATELY IN SCHEDULE-9. THE EXPENDITURE HAS BEEN INCURRED UNDER AGREEMENTS. THE SERVICES RENDERED BY SIMOCO H AVE LED TO NEARLY DOUBLING OF THE TURNOVER IN THE IMMEDIATELY SUC CEEDING YEAR. FURTHER THE EXPENDITURE WAS INCURRED IN THE COURSE OF BUSINESS BECAUSE THE RAILWAYS WANTED LIFE TIME WARRANTY OF IMPORTED GOODS. SIMILAR EXPENSES WERE INCURRED IN PAST BY ENGAGING T HE SERVICES OF LINKERS. THUS THE EXPLANATION OF THE ASSESSEE IS BONA F IDE. 5.2 WE MAY NOW EXAMINE THE CASE LAWS RELIED UPON BY THE RIVAL PARTIES. THE LD. DR RELIED ON THE DECISION IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (SUPRA) IN WHICH IT HAS BEE N HELD THAT THE LEVY OF PENALTY IS A CIVIL LIABILITY WHICH HAS TO BE DECIDED ON THE BASIS OF THE PROVISION CONTAINED IN SECTION 271(1)(C) AND EX PLANATIONS THERETO. THIS ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 26 DECISION IS A BINDING PRECEDENT. IN VIEW OF TH IS DECISION THE REVENUE IS NOT REQUIRED TO ESTABLISH MENS REA AND WHAT IS TO BE SEEN IS WHETHER THE EXPLANATION FURNISHED BY THE ASSESSEE IS BONA FIDE OR NOT. FOR THE SAKE OF READY REFERENCE THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- IT IS OF SIGNIFICANCE TO NOTE THAT THE CONCEP TUAL AND CONTEXTUAL DIFFERENCE BETWEEN SECTION 271(1)(C ) AND SECTION 276C OF THE INCOME-TAX ACT WAS LOST SIGHT OF I N DILIP N. SHROFFS CASE [2007] 8 SCALE 304 (SC). THE EXPLANATIONS APPENDED TO SECTION 271(1)(C) OF THE INCOME-TAX ACT ENTIRELY INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING THE RETURN. THE JUDGMENT IN DILIP N. SHROFFS CASE [2007] 8 SCALE 304 ( SC) HAS NOT CONSIDERED THE EFFECT AND RELEVANCE OF SECTION 276C OF THE INCOME-TAX ACT. THE OBJECT BEHIND THE ENACTMENT OF SECTION 271(1)(C) READ WITH THE EXPLANATIONS INDICATES THAT THE SAID SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE. THE PENALTY UNDER THAT PROVISION IS A CIVIL LIABILITY. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGRED IENT FOR ATTRACTING CIVIL LIABILITY AS IS THE CASE IN T HE MATTER OF PROSECUTION UNDER SECTION 276C OF THE INCOME-TAX ACT. 5.3 IN THE CASE OF ELECTRICAL AGENCIES CORPORAT ION (SUPRA) THE FACTS ARE THAT THE AO INCLUDED A SUM OF RS. 49 985/- IN THE TOTAL INCOME ON THE GROUND THAT COMMISSION PAID TO SUB-AGENTS HAS NOT BEEN SUBSTANTIATED. THE AAC REDUCED THE AMOUNT. THE TRIBUNAL CONFIRM ED THE ORDER OF THE AAC BY MENTIONING THAT IT WAS UNABLE TO ACCEPT THAT THE PAYMENT WAS ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 27 GENUINE. THEREAFTER PENALTY OF RS. 22 800/- WAS LEVIED. THE TRIBUNAL TOOK THE VIEW THAT IT COULD NOT BE SAID THAT T HE CLAIM DID NOT ARISE FROM ANY FRAUD OR WILLFUL NEGLIGENCE. CONSIDERING E XTRANEOUS CIRCUMSTANCES THE TRIBUNAL RESTRICTED THE LEVY TO THE MINIM UM PENALTY. THE HONBLE DELHI HIGH COURT MENTIONED THAT THE TRIBUNAL HAS TAKEN NOTE OF FACTUAL ASPECT THAT THE CLAIM IS UNTENABLE AND NON-GENUI NE. THEREFORE THE ASSESSEE COULD NOT BE SAID TO HAVE REBUTTED THE PRESUMPTION MADE AGAINST IT UNDER THE EXPLANATION. 5.4 IN THE CASE OF ACIT VS. TVS FINANCE & SERV ICES LTD. 2009- TIOL-710-ITAT-MAD THE FACTS ARE THAT THE ASSE SSEE CLAIMED DEPRECIATION ON THE BASIS OF FABRICATED DOCUMENT S ALTHOUGH NO MACHINE WAS INSTALLED. THE HONBLE TRIBUNAL CONFIRMED T HE LEVY OF PENALTY BY MENTIONING THAT THE ASSESSEE FURNISHED WRONG AND INACCURATE PARTICULARS OF INCOME BY CLAIMING DEPRECIATION. THEREFORE P ENALTY WAS LEVIABLE. 5.5 IN THE CASE OF ACIT VS. SMT. AARTHI A. LAD 2009-TIOL-755-ITAT- BANGALORE ADDITIONS WERE MADE TO THE TOTAL INC OME IN RESPECT OF ORE RAISING CONTRACT RECEIPTS AMOUNTS CREDITED I N THE CURRENT ACCOUNT OF THE ASSESSEE AND INTEREST ACCRUED ON FIXED DEPOSIT S. THE PENALTY WAS ALSO ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 28 LEVIED. THE HONBLE TRIBUNAL CONFIRMED THE LE VY OF PENALTY IN RESPECT OF THE SUMS OF RS. 4 48 837/- AND RS. 35 355/- BY MENTIONING THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE THE EXPLAN ATION ABOUT THE CREDITS AND NON-EXCLUSION OF INTEREST WAS NOT BONA FIDE. 5.6 IN THE CASE OF HAR PRASAD & CO. LTD. (SUPRA) THE FACTS ARE THAT A CLAIM WAS MADE REGARDING PAYMENT OF COMMISSION TO MRS. RITU NANDA WHICH WAS HELD TO BE BOGUS AND PAYMENT OF W HICH COULD NOT BE SUBSTANTIATED. THE HONBLE DELHI HIGH COURT REFE RRED TO THE DECISION IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS. IT HAS BEEN MENTIONED THAT THERE IS NO EVIDENCE OF ANY SERVICE BEING REN DERED BY HER AT ALL. THEREFORE THE TRIBUNAL ERRED IN RECORDING A FINDING THAT WHEN A PART OF THE COMMISSION HAS BEEN ALLOWED THE CLAIM CANNOT BE SAID TO BE BOGUS. THIS FINDING IS CONTRARY TO FACTS ON RECORD AS JUPITER TRADING CORPORATION HAD RENDERED SERVICES FOR WHICH P ART ALLOWANCE WAS MADE. 5.7 THE CASE OF ESCORTS FINANCE LTD. (SUPRA) THE HONBLE DELHI HIGH COURT CONFIRMED THE LEVY OF PENALTY BY MENTION ING THAT THE CLAIM OF DEDUCTION U/S 35D IS EX-FACIE BOGUS AS THE DEDU CTION IS NOT ADMISSIBLE IN ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 29 THE CASE OF A FINANCE COMPANY. THEREFORE THIS IS A CASE OF FILING INACCURATE PARTICULARS DELIBERATELY. 5.8 WE MAY NOW EXAMINE THE CASES RELIED UPON BY THE LD. COUNSEL. HE RELIED ON THE DECISION OF PUNE BENCH OF THE TRI BUNAL IN THE CASE OF COCA- COLA INDIA LTD. VS. JCIT (2010) 102 ITD 134 T O ARGUE THAT THE ASSESSEE NEED NOT PROVE THAT THE EXPENDITURE WAS NECE SSITATED AND WHAT IS TO BE PROVED IS THAT THE EXPENDITURE HAS BEEN INCURRE D IN THE COURSE OF BUSINESS. IN THAT CASE THE ASSESSEE HAD MADE CERTAIN PAYMENTS TO SUPREME INDUSTRIES LTD. MANUFACTURER AND SUPPLI ER OF PLASTIC CRATES TO THE BOTTLERS OF COCA COLA AND CLAIMED CERTAIN DAMAGES FOR NOT LIFTING THE CRATES. THE DEDUCTION WAS ALLOWED IN PART . IT HAS BEEN HELD THAT WHILE IT IS NECESSARY TO ESTABLISH THAT THE EXPE NDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINE SS THE NECESSITY OF INCURRING EXPENDITURE NEED NOT BE SHOWN. FOR THIS PURPOSE RELIANCE WAS PLACED ON A NUMBER OF DECISIONS INCLUDING SASOON J. DAVID & COMPANY (P) LTD. VS. CIT (1979) 118 ITR 261 (SC ). 5.9 IN THE CASE OF RELIANCE PETRO PRODUCTS PVT . LTD. (SUPRA) THE FACTS WERE THAT THE EXPENDITURE OF RS. 26 54 554/- WAS REDUCED TO DETERMINE ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 30 THE TOTAL INCOME AT RS. 2 22 688/-. PENALTY WA S ALSO LEVIED. THE HONBLE SUPREME COURT REFERRED TO THE MEANING OF THE WORD INACCURATE MENTIONED IN WEBSTERS DICTIONARY AS UNDER:- NOT ACCURATE NOT EXACT OR CORRECT; NOT ACCOR DING TO TRUTH; ERRONEOUS; AS AN INACCURATE STATEMENT COPY OR TRANSCRIPT. IT IS MENTIONED THAT THE ASSESSEE HAD FURNISHE D ALL DETAILS OF THE EXPENDITURE BY WAY OF INTEREST WHICH WERE NOT F OUND TO BE INACCURATE. IN SUCH CIRCUMSTANCES IT WAS UP TO THE AUTHORITIES TO ACCEPT THE CLAIM OR TO REJECT IT. MERELY BECAUSE THE ASSESSEE CLAIMED THE EXPENDITURE WHICH WAS NOT ACCEPTED THAT BY ITSELF WOULD NOT ATTR ACT PENALTY U/S 271(1)(C). 5.10 IN THE CASE OF SIDHARTHA ENTERPRISES (SUPR A) THE FACTS ARE THAT THE ASSESSEE CLAIMED SET OFF ON ACCOUNT OF CAPITAL L OSS AGAINST PROFITS OF THE BUSINESS WHICH WAS DISALLOWED AND PENALTY PROCEE DINGS WERE INITIATED. THE PENALTY WAS LEVIED FOR FURNISHING INACCU RATE PARTICULARS. THE HONBLE COURT CONSIDERED THE DECISION IN THE C ASE OF DHARMENDRA TEXTILE PROCESSORS & OTHERS (SUPRA). IT IS MENTIONED THAT THE ASSESSEE HAD INCURRED THE LOSS. THE QUESTION WHETHER IT COULD BE ADJUSTED AGAINST PROFITS OF BUSINESS HAS TO BE DETERMINED WITH REFERENCE TO THE PROVISIONS ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 31 OF THE ACT. THE ASSESSEE HAD SHOWN ALL THE F ACTS AND WHEN CONFRONTED WITH THE LEGAL POSITION ACCEPTED THE DECISIO N OF THE AO REGARDING DISALLOWANCE OF THE LOSS. IT HAS BEEN HELD THAT TH E FACTS AND CIRCUMSTANCES DO NOT JUSTIFY THE LEVY OF PENALTY. 5.11 WE MAY INITIALLY EXAMINE WHETHER THE ASSE SSEE HAS FURNISHED ANY INACCURATE PARTICULARS IN THE RETURN OF INCOME. FROM THE DISCUSSION ABOVE IT IS CLEAR THAT THE EXPENDITURE HAS BEEN SHOWN IN THE ACCOUNTS SEPARATELY THUS THERE IS NO SUPPRESSION OF F ACTS. THE ASSESSEE PROVED FACTUM OF INCURRING THE EXPENDITURE WHEN CONFIR MATIONS WERE FILED BY THE PAYEE BEFORE THE AO. ALL THE PAYMENTS HAVE BEE N MADE IN THIS VERY YEAR AND TAX HAS BEEN DEDUCTED AT SOURCE AND PAID TO THE CREDIT OF THE GOVERNMENT. IN THIS YEAR THERE WAS NO CONNECTI ON BETWEEN THE ASSESSEE AND THE SIMOCO. THEREFORE IT IS HELD THAT NO INACCURATE PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE BEFORE THE AO. 5.12 THE PAYMENTS HAVE BEEN DISALLOWED ON THE G ROUND THAT THE FACT OF RENDERING THE SERVICES HAS NOT BEEN ESTABLISH ED BY PRODUCING ANY CORRESPONDENCE BETWEEN THE ASSESSEE AND SIMOCO AND SIMOCO AND THE BUYERS. THIS FAILURE DOES NOT LEAD TO A CONCLUS ION THAT THE FACTS HAVE NOT ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 32 BEEN FULLY AND TRULY DISCLOSED IN THE RETURN OF I NCOME. FURTHER THE CLAIM IS NOT EX-FACIE BOGUS OR UNTENABLE IN LAW. THE DECISION IN THE CASE OF ELECTRICAL AGENCIES CORPORATION WAS RENDER EX- PARTE THE ASSESSEE. THE HONBLE COURT PROCEEDED ON THE BASIS OF FINDINGS FURNISHED BY THE TRIBUNAL. THE TRIBUNAL HAD GIVEN A FINDING THA T THE CLAIM WAS CLEARLY UNTENABLE AND NON-GENUINE. SUCH IS NOT THE FIN DING IN THIS CASE AS HUMAN PROBABILITIES HAVE BEEN TAKEN INTO ACCO UNT WHILE DECIDING THE CASE AGAINST THE ASSESSEE. THE FACTS OF THE CASE OF TVS FINANCE & SERVICES LTD. ARE COMPLETELY DISTINGUISHABLE AS IN THAT CASE THE ASSESSEE HAD FABRICATED DOCUMENTS REGARDING P URCHASE OF MACHINERY. THERE IS NO SUCH FABRICATION OF DOCUMENTS IN THIS CASE. THE FACTS OF SMT. AARTHI A. LAD ARE ALSO DISTINGUISHABLE. IN THAT CASE INTEREST INCOME WAS NOT SHOWN AND THERE WAS NO EXPLANA TION REGARDING CREDITS IN THE CURRENT ACCOUNT. THE PENALTY WAS SUBS TANTIATED IN RESPECT OF CREDITS BY MENTIONING THAT THERE IS NO EVIDEN CE TO SUBSTANTIATE THEM AND THE PLEA OF NON-DISCLOSURE OF INTEREST BEIN G BONA FIDE MISTAKE WAS ALSO NOT ACCEPTED AS GENUINE. IN THIS CASE THE EVIDENCE OF PAYMENT IS THERE WHICH HAS NOT BEEN REFUTED BY ANY AUTHOR ITY. THE ONLY DEFICIENCY IN THE CASE IS THAT THE ASSESSEE IS NOT IN A POSITION TO PRODUCE THE CORRESPONDENCE. THAT DOES NOT MEAN THAT THE PAY MENT HAS NOT BEEN MADE. ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 33 THERE COULD HAVE BEEN NO REASON TO MAKE A PAYM ENT TO AN UNRELATED PARTY EXCEPT IN THE COURSE OF BUSINESS. IT I S NOT FOR THE ASSESSEE TO ESTABLISH THE NECESSITY OF MAKING THE PAYMENT. T HE FACTS OF THE CASE OF ESCORTS FINANCE LTD. (SUPRA) ARE ALSO DISTINGUISH ABLE AS THAT WAS A CASE OF EX-FACIE BOGUS CLAIM. THUS WE ARE OF THE VIEW THAT THE CASES CITED BY THE LD. DR DO NOT ADVANCE THE CASE OF THE REVEN UE FOR LEVY OF PENALTY. IN THE CASE OF RELIANCE PETRO PRODUCTS THE HONB LE SUPREME COURT MENTIONED THAT ALL FACTS HAD BEEN DISCLOSED RE GARDING PAYMENT OF INTEREST. WHETHER THE WHOLE OR ANY PART WAS DI SALLOWABLE U/S 14A IS A MATTER OF LAW. ONCE ALL THE FACTS HAVE BEEN SHOWN IN THE RETURN A CHARGE OF FURNISHING INACCURATE PARTICULARS IS N OT SUSTAINABLE. WE ARE OF THE VIEW THAT THIS DECISION SUPPORTS THE CASE OF THE LD. COUNSEL. ALL FACTS HAVE BEEN DISCLOSED AND CONFIRMATIONS HAVE BEEN FILED FROM THE PAYEE. THE QUESTION WHETHER THE AMOUNT IS DEDUCTIBLE OR NOT IS AN ALTOGETHER DIFFERENT MATTER PARTICULARLY WHEN THE CLAIM IS NOT EX-FACIE BOGUS. IN THE CASE OF SIDHARDHA ENTERPRISES (SUPRA) THE ASSESSEE HAD SHOWN LOSS OCCURRING ON SALE OF FIXED ASSETS. THE HONBL E COURT HELD THAT THE QUESTION WHETHER THIS LOSS CAN BE SET-OFF AGAI NST BUSINESS PROFITS IS A MATTER OF INFERENCE OF LAW TO BE DRAWN ON THE B ASIS OF FACTS. THEREFORE THE PENALTY WAS DELETED. WE ARE OF THE VIEW TH AT THIS CASE ALSO ADVANCES ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 34 THE CASE OF THE ASSESSEE IN AS MUCH AS THE QUES TION WHETHER EXPENDITURE WAS DEDUCTIBLE OR NOT HAD TO BE DECIDED U/S 37 (1) WHILE ALL FACTS HAD BEEN CORRECTLY SUBMITTED BY THE ASSESSEE. IN THE CASE OF PREMIER BREWERIES LTD. (SUPRA) THE QUESTION BEFORE THE HONBLE HIGH COURT WAS WHETHER DIAMETRICALLY OPPOSITE VIEWS COULD BE TAKEN IN ASSESSMENT AND PENALTY PROCEEDINGS. THE COURT CAME TO THE CONCL USION THAT THIS CANNOT BE DONE IF ANY PERVERSITY IS INVOLVED. HOWEVER THE CASE BEFORE US IS NOT ONE OF TAKING DIAMETRICALLY OPPOSITE VIEW. FACT S REMAIN THE SAME AND ON THE FACTS THERE IS NO CONTRADICTION WHEN IT IS HELD THAT WHILE THE EXPENDITURE IS NOT ALLOWABLE IN COMPUTING THE TOTA L INCOME THE ASSESSEE IS NOT LIABLE TO PAY PENALTY BECAUSE OF SUCH DISAL LOWANCE. 5.13 IN A NUTSHELL IT IS HELD THAT THE ASSESSE E HAD DISCLOSED ALL FACTS CORRECTLY IN THE RETURN OF INCOME IN WHICH NO INA CCURACY HAS BEEN FOUND. THEREFORE THE CLAIM OF EXPENDITURE WHICH IS NOT EX-FACIE BOGUS DOES NOT LEAD TO INFERENCE OF PENALTY IN THE CONTEXT OF FACT THAT THE PAYEE AN INDEPENDENT PARTY CONFIRMED THE RECEIPT AND RENDERING OF SERVICES. ITA NO.196(DEL)/2007 & C.O. NO. 4(DEL)/2008 35 5.14 IN VIEW OF THE AFORESAID FINDING THE CROSS OBJECTION SUPPORTING THE ORDER OF THE LD. CIT(APPEALS) HAS BECOME INFRUCT UOUS. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS D ISMISSED AND THE CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS INFRUC TUOUS. 6.1 THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11 FEBRUARY 2011. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 11 TH FEBRUARY 2011. SP SATIA COPY OF THE ORDER FORWARDED TO:- M/S TRANSCEIVERS INDIA LTD. NEW DELHI. ACIT 16(1) NEW DELHI. CIT(A) CIT THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR.