JSL Industries Ltd, v. The ACIT., Anand Circle,, Anand

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI MUKUL SHRAWAT JM & SHRI A N PAHUJA AM ITA NO.1173/AHD/2008 (ASSESSMENT YEAR:-2001-02) JSL INDUSTRIES LIMITED N.H.NO.8 MOGAR TALUKA & DISTRICT: ANAND V/S ASSISTANT COMMISSIONER OF INCOME-TAX ANAND CIRCLE ANAND PAN: AAACJ 4986 F [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI J P SHAH AR REVENUE BY:- SHRI RAJDEEP SINGH DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATE D 07-12-2007 OF THE LD. CIT(APPEALS)-IV BARODA FOR THE ASSESSMENT YEAR (AY) 2001-02 RAISES THE FOLLOWING GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN C ONFIRMING THE PENALTY IMPOSED FOR CLAIM OF INTEREST PAID UNDER PR OVISIONS OF SECTION 234B AND 234C OF THE ACT. THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) HAS FURTHER ERRED IN CONFIRMING PENALTY L EVIED IN RESPECT OF DISALLOWANCE OF COMMISSION PAYMENT. 2 FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.80 91 420/- FILED ON 31-10-2001 BY THE ASSESSEE STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SWITCHGEARS INSTRUMENT TRANSFORMERS AIR CIRCUIT B REAKERS LT SWITCHBOARDS ETC. AFTER BEING PROCESSED ON 18.3.20 02 U/S 143(1) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO A S THE ACT] WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 28.6.2002.DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE AS SSESSE DEBITED INTEREST U/S 234B & 234C UNDER THE HEAD INTEREST P AID TO OTHERS IN THEIR PROFIT AND LOSS ACCOUNT. TO A QUERY BY THE AO THE ASSESSEE DID NOT FURNISH ANY REPLY RESULTING IN DISALLOWANCE OF RS. 2 98 239(173250+124989). ITA NO.1173/AHD/2008 2 2.1. THE AO ALSO FOUND THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.16 85 340/- ON ACCOUNT OF COMMISSION PAID TO M/S M V MARKETING PVT. LTD. PURPORTEDLY IN RESPECT OF SUPPLY OF THE A CBS TO DELHI VIDYUT BOARD. ON ENQUIRY THROUGH THE ADDL. DIRECTOR OF IN COME TAX (INV) NEW DELHI IT TRANSPIRED THAT ONE OF THE DIRECTORS OF M.V. MARKETING PVT. LTD NAMELY SHRI SURINDER PAL SINGH IN HIS STA TEMENTS RECORDED ON 24.12.2003 & 30/12/2003 ADMITTED THAT THE SAID C OMPANY FACILITATED ADJUSTMENT ENTRIES TO VARIOUS PARTIES A ND THE MODUS OPERANDI WAS THAT THEIR COMPANY RETAINED 0.25% TO 4% OF THE COMMISSION AND THE BALANCE USED TO BE SENT BACK IN CASH TO THE BENEFICIARY COMPANIES. THE ASSESSEE COMPANY WAS NAM ED AS ONE OF SUCH BENEFICIARY. IN THE LIGHT OF THESE STATEMENTS A SHOW CAUSE WAS ISSUED TO THE ASSESSEE ON 17/03/2004 ALONG WIT H COPY OF STATEMENTS OF SHRI SURINDER PAL SINGH. IN RESPONSE THE ASSESSEE IN THEIR WRITTEN SUBMISSIONS FILED ON 22/03/2004 STAT ED THAT SERVICES OF M.V. MARKETING PVT. LTD. NEW DELHI WERE FOR LIAISO N AND INTERMEDIARY WORK FOR THE ORDER RECEIVED BY THEM FR OM DELHI VIDYUT BOARD FOR SUPPLY OF MATERIALS. SINCE THE ASSESSEE C OULD NOT SPARE SERVICES OF THEIR EMPLOYEES M/S. M.V. MARKETING P. LTD. REPRESENTED THE ASSESSEE . IT WAS MENTIONED THAT THE ASSESSEE W AS NOT AWARE OF OTHER ACTIVITIES OF M/S. M.V. MARKETING P. LTD. SIN CE THE PAYMENT WAS MADE FOR SERVICES RENDERED AND THROUGH CROSSED CHEQUE/DEMAND DRAFT AND THE AMOUNT HAD NOT BEEN REF UNDED THE ASSESSEE SOUGHT DEDUCTION FOR COMMISSION OF RS.16 8 5 340/-. INTER ALIA THE ASSESSEE SOUGHT CROSS-EXAMINATION OF THE AFORESAID DIRECTOR OF M/S. M.V. MARKETING P. LTD. HOWEVER TH E AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND WHILE RE FERRING TO STATEMENT OF SHRI SURINDER PAL SINGH AND REJECTING THE REQUEST FOR CROSS-EXAMINATION DISALLOWED THE CLAIM FOR DEDUCTI ON OF RS.16 85 340/- .INTER ALIA PENALTY PROCEEDINGS U/S . 271(1)(C.) WERE INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME DUE TO AFORESAID TWO DISALLOWANCES. ITA NO.1173/AHD/2008 3 2.2 ON APPEAL THE LD. CIT(A) VIDE ORDER DATED 03/02/2005 UPHELD THE AFORESAID TWO DISALLOWANCES. ON FURTHER APPEAL THE ITAT ALSO UPHELD THE AFORESAID TWO DISALLOWANCES VIDE THEIR O RDER DATED 29.1.2010 IN ITA NO.951/AHD./2005 IN THE FOLLOWING TERMS: 4. WE HAVE HEARD BOTH SIDES.THE HONBLE SUPREM E COURT IN THE CASE OF BHARAT COMMERCE & INDSTRY LIMITED VS. CIT 2 30 ITR 733(SC) HELD THAT INTEREST PAID UNDER SECTION 215 FOR FAILU RE TO PAY ADVANCE TAX UP TO THE STATUTORY PERCENTAGE WOULD NOT BE ALL OWABLE AS BUSINESS EXPENDITURE.THE HONBLE GUJRAT HIGH COURT IN THECASE OF CIT VS. ASHOKA MILLS LIMITED 218 ITR 526(GUJ) AND CIT VS. RAIPUR MANUFACTURING CO. LIMITED 135 CTR(GUJ)248 HELD THAT INTEREST FOR LATE PAYMENT OF INCOME-TAX IS NOT DEDUCTIBLE AS REV ENUE EXPENDITURE. THE INTEREST PAID BY THE ASSESSEE UNDE R THESE TWO SECTIONS IS NOTHING BUT INCOME-TAX. THEREFORE THE SAME IS NOT ALLOWABLE. WE THEREFORE DECLINE TO INTERFERE. THI S GROUND OF APPEAL IS REJECTED. ... 12. WE HAVE HEARD THE PARTIES. IN OUR CONSIDERED VI EW THE CLAIM OF COMMISSION OF RS.16 84 340/- TO M/S. M.V. MARKET ING P. LTD. NEW DELHI COULD NOT BE ALLOWED FOR THE REASON THAT THE ASSESSEE HAS FAILED TO PROVE AS TO WHAT SERVICES M/S. M.V. MARKE TING P. LTD. HAS RENDERED TO THE ASSESSEE. IT IS UNDISPUTED POSITION OF LAW THAT IT IS FOR THE ASSESSEE TO PRODUCE NECESSARY EVIDENCE IF I T HAS MADE A CLAIM OF EXPENDITURE. IN THE CASE OF CLAIM OF COMMI SSION THE ASSESSEE HAS TO PRIMARILY SHOW THE EXISTENCE OF THE PARTY TO WHOM PAYMENT OF COMMISSION IS SHOWN TO HAVE BEEN MADE S ECONDLY THAT PAYMENT HAS BEEN ACTUALLY MADE AND THIRDLY PAYMENT HAS BEEN MADE FOR THE SERVICES RENDERED. IF ALL THE THREE IN GREDIENTS ARE NOT SATISFIED CUMULATIVELY AND SIMULTANEOUSLY THEN DED UCTION CANNOT BE ALLOWED. IN THE PRESENT CASE FIRSTLY SO FAR AS TH E IDENTITY OF THE PAYEE WAS CONCERNED IT WAS PRIMARILY ESTABLISHED T HAT M/S. M.V. MARKETING P. LTD. IS REGISTERED WITH REGISTRAR OF C OMPANIES HAVING PROPER IDENTIFICATION WITH INCOME TAX DEPARTMENT. S ECONDLY REGARDING PAYMENT OF MONEY TO THAT PARTY IS CONCERN ED THE SAME IS ALSO APPARENTLY ESTABLISHED AS PAYMENTS WERE MADE B Y ACCOUNT PAYEE-CHEQUES WHICH WERE ADMITTED BY THE DIRECTOR OF THAT COMPANY NAMELY SHRI SURENDER PAL SINGH TO HAVE BEE N RECEIVED BY THE ASSESSEE-COMPANY HOWEVER THE THIRD MOST IMPORT ANT INGREDIENT REMAINED UNSATISFIED RATHER WENT CONTRARY TO THE CL AIM OF THE ASSESSEE. THE STATEMENT OF SHRI SURENDER PAL SINGH DIRECTOR OF M.V. MARKETING P. LTD. WAS RECORDED BY INCOME TAX A UTHORITIES ON 24-12-2003 AND 30-12-2003 WHEREIN IT WAS ASSERTED BY HIM THAT HE IS ONLY RECEIVING CHEQUES FROM THE PARTIES FOR DOIN G ADJUSTMENT BUSINESS AND RETURNING CASH TO THEM AFTER DEDUCTING THE COMMISSION OF 0.25%. HE STATED TO HAVE FLOATED 12 COMPANIES/ C ONCERNS THROUGH WHICH HE HAS BEEN CARRYING ON THE ADJUSTMENT BUSINE SS. ITA NO.1173/AHD/2008 4 SUBSEQUENTLY ON 05-01-2005. HIS STATEMENT WAS FURT HER RECORDED WHEREIN HE REITERATED THE STATEMENT GIVEN BY HIM ON EARLIER OCCASIONS THAT HE HAS NOT BEEN DOING ANY REAL BUSIN ESS BUT ONLY RECEIVING CHEQUES/ DEMAND DRAFTS ETC. DEPOSITING T HE SAME IN THE BANK A/C. WITHDRAWING CASH AND PAYING BACK TO THE P ARTIES WHO HAVE PAID THE CHEQUES / DDS TO HIM. HE CLEARLY STA TED IN RESPONSE TO THE QUESTION NO. 4 THAT HE HAS NOT DONE ANY REAL BUSINESS WITH M/S. JSL INDUSTRIES LTD. IT WAS IN FACT ONLY AN E NTRY BUSINESS. THE DEMAND DRAFT WAS PAID TO HIM AND. CASH WAS RETURNED . IN ADDITION TO THIS SHRI SURINDER PAL SINGH ALSO GAVE A LETTER ON 11-05-2004 TO THE DEPARTMENT THAT HE HAS BEEN DOING ENTRY BUSINESS ON LY. IN VIEW OF THIS CONSISTENT STAND TAKEN BY SHRI SURINDER PAL SI NGH. DIRECTOR OF M/S. M.V. MARKETING P. LTD. DELHI ONUS NOW SHIFTE D HEAVILY BACK ON THE ASSESSEE TO FURNISH THE EVIDENCE IN SUPPORT OF THE CLAIM OF EXPENDITURE OF COMMISSION HAVING BEEN INCURRED FOR BUSINESS PURPOSES. IN DEFENCE IT WAS STRESSED BY THE ID. A. R. THAT THE ASSESSEE HAS NOT BEEN ALLOWED TO CROSS EXAMINE SHRI SURINDER PAL SINGH. IN OUR CONSIDERED VIEW THIS IS NOT NECESSAR Y UNLESS IT IS BROUGHT ON RECORD THAT WHATEVER IS STATED BY SHRI S URINDER PAL SINGH WAS PRIMA FACIE INCORRECT IN VIEW OF ASSESSEE HAVIN G CONCLUSIVE EVIDENCE OF SHRI SURINDER PAL SINGH OR M/S. M.V. MA RKETING P. LTD. RENDERING SERVICES TO THE ASSESSEE FOR PROCURING AN Y BUSINESS FROM DELHI VIDYUT BOARD. IN FACT M/S. M.V. MARKETING LT D. OR SHRI SURINDER PAL SINGH OR ANY OTHER DIRECTOR OF THAT COMPANY WOU LD BE ASSESSEES WITNESS AND ONUS IS ON THE ASSESSEE TO P RODUCE THEM BEFORE THE A.O. IN SUPPORT OF ITS CLAIM. 13. THE CLAIM OF THE ASSESSEE FOR COMMISSION P AYMENT IS PRIMARILY BASED ON THE THREE INGREDIENTS AS STATED BY US ABOVE. IF ONE INGREDIENT IS NOT SATISFIED LIKE IN THE PRESENT CASE THEN IT IS FOR THE ASSESSEE TO SUPPORT THIS INGREDIENT WITH OTHER EVIDENCE. SINCE THE ASSESSEE HAS NOT DONE SO THE ONUS FALLING BACK ON THE ASSESSEE REMAINED UN-DISCHARGED. THERE IS ABSOLUTELY 'NO EV IDENCE OF SERVICES HAVING BEEN RENDERED BY THAT COMPANY TO TH E ASSESSEE. IN FACT ID. AR FOR THE ASSESSEE DURING THE COURSE OF HEARING SOUGHT TO DRAW OUR ATTENTION TO CERTAIN DOCUMENTS FILED BY IT IN SUPPORT OF THE CLAIM THAT THERE ARE EVIDENCES OF M.V. MARKETING P. LTD. HAVING RENDERED SERVICES TO HIM. FOR THE SAKE OF CONVENIEN CE WE DESCRIBE SUMMARILY AS TO WHAT WAS THERE IN THE PAPER BOOK. T HE DOCUMENT AT PAGE 1 IS A LETTER DATED 24-01-2001 FROM M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN.. NEW DELHI TO THE ASSESSEE WHEREIN IT IS MENTIONED THAT DELHI VIDYUT BOARD HAS PLACED ORDER OF 2400 NO. OF ACBS ON YOU WITH OUR BEST EFFORTS FOR THIS ORDER. KINDLY CONFIRM T HE RECEIPT OF P.O. FROM DVB AND OUR COMMISSION OF 4.5% WHICH HAS BEEN AGREED BY YOU ON PHONE'. THE DOCUMENT AT PAGE 3 IS A LETTER FROM M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN.. NEW DELHI DATED 11-02-2000 WHEREIN M/S. M.V. MARKETING PVT. LTD. INTRODUCED ITSELF AS DOING LIAISONING OF WORK WITH DVB NSS NDMC. DESEB AND OTHER GOVERNMENT ORGANIZATIONS. IT SAYS THAT ITA NO.1173/AHD/2008 5 DVB HAS FLOATED TENDERS FOR ACBS AND IT CAN OFFER SERVICES FOR GETTING ORDERS AND SUBSTANTIALLY FOLLOW UP OF EXECUTION AND PAYMENTS. THE DOCUMENT AT PAGE 2 OF THE PAPER BOOK IS WRITTEN ON 08-06-2000 FROM ASSESSEE TO M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN. NEW DELHI WHEREIN THE ASSESSEE SAYS THAT IT CONFIRMS HIS SERVICES AGAINST ACBS TENDER AND WILL GIVE THE COMMISSION -@ 4%. THEN THERE IS A LETTER DATED 24-01-2000 FROM_M/S. M.V. MARKETING PVT. LTD. A-32 TAGORE GARDEN EXTN. NEW DELHI SAYING THAT DVB HAS PLACED AN ORDER FOR 2400 NO. OF ACBS. THERE ARE NO OTHER LETTERS AS TO WHAT M/S. M.V. MARKETING P. LTD. HAS DONE EXCEPT THESE DOCUMENTS REGARDING PAYMENT BY CH EQUES. THERE IS NO AGREEMENT BETWEEN M/S. M.V. MARKETING PVT. LTD. AND THE ASSESSEE AS TO WHAT SERVICES M/S. M.V. MARKETING PVT. LTD. WILL DO FOR THE ASSESSEE. FROM THE READING OF THE THREE LETTERS AS ABOVE IT TRANSPIRES THAT THERE IS NOTHING ON RECORD AS TO WHETHER M/S. M.V. MARKETING P. LTD. HAS FILLED THE TENDER FOR THE ASSESSEE OR IT HAS DEPOSITED THE SAME WITH DELHI VIDYUT BOARD OR IT HAS FILED ANY CORRESPONDENCE WITH DVB OR INTRODUCED ITSELF TO THE DVB AS LIAISON AGENT FOR THE ASSESSEE COMPANY OR COLLECTED CHEQUES ISSUED BY DVB TO ASSESSEE-COMPANY OR IT HAS INCURRED ANY EXPENDITURE FOR CARRYING OUT TENDERING WORK OR ON RECEIVING PAYMENT OR FOR ANY OTHER CORRESPONDENCE WITH THE ASSESSEE-COMPANY OR WHETHER DVB IS ENTERTAINING ANY LIAISON AGENT FOR PROCURING OR EXECUTING ITS CONTRACT OR ANY TYPE OF OTHER WORK FROM THE STAGE OF FLOATING OF TENDER EXECUTION OF CONTRACT AND FINALLY RECEIVING AND TRANSFERRING PAYMENT TO THE ASSESSEE-COMPANY. IN FACT DVD LIKE ANY OTHER GOVERNMENT ORGANIZATION FLOATS OPEN TENDERS INVITING ALL COMPETENT SUPPLIER S EXAMINE THE TECHNICAL FEASIBILITY AND FINANCIAL FEASIBILITIES OF THE APPLICANT SUPPLIERS AND OTHER CAPABILITIES OF FUL FILLING THE CONTRACT WITHIN THE TIME SCHEDULE. IN FACT TENDERS ARE ACCEP TED AT LOWEST RATES AS SUGGESTED BY LD. AR. THERE IS NOTHING ON R ECORD TO SUGGEST THAT M/S. M V MARKETING P. LTD. HAS DONE ANY WORK D URING THE WHOLE PROCESS. THE ENTIRE WORK RELATING TO FILLING OF THE TENDERS FURNISHING OF THE TENDERS FINANCIAL AND TECHNICAL FEASIBILITY EXAMINATION EXECUTION OF THE CONTRACT AND FINAL RECEIPT OF MON EY HAS BEEN DONE BY THE ASSESSEE-COMPANY OR ITS EMPLOYEES. WHATEVER DOCUMENTS HAVE BEEN FURNISHED BY THE ASSESSEE-COMPANY ARE ONL Y SUPERFICIAL PAPER WORK CREATING APPARENT FORMAT BY INSERTING A MIDDLEMAN FOR SIPHONING OF PART OF THE PROFIT WITHOUT PAYING TAXES. IF THE ENTIRE PROCEDURE OF INSERTING MIDDLEMAN LIKE M.V. MARKETIN G PVT. LTD. AND PAYING CHEQUE TO IT RECEIVING CASH BACK FROM THEM A S STATED BY SURENDER PAL SINGH THE DIRECTOR OF M.V. MARKETIN G CO. WAS WITH THE INTENTION TO PAY GRATIFICATION TO AUTHORITIES A ND DVB AS ARGUED BY ID. D.R. THE SAME CANNOT ALSO BE ALLOWED IN VIEW O F SECTION 37. IT CANNOT ALSO BE ALLOWED INDIRECTLY BY CREATING A FOR MAT OF MIDDLEMAN AND SHOWING SEMBLANCE OF GENUINE EXPENDITURE THOUGH IN FACT IT WAS NOT SO. IF INSERTION OF MIDDLEMAN WAS FOR INTEN TION OF GRATIFICATION TO DVB THE SAME IS CLEARLY HIT BY EX PLANATION TO SECTION 37 OF THE INCOME TAX ACT AND HENCE DISALLOW ABLE. ITA NO.1173/AHD/2008 6 NOTWITHSTANDING THE STATEMENT OF SHRI SURINDER PAL SINGH CANNOT BE BRUSHED ASIDE LIGHTLY WHEN EVEN AFTER KNOWING AS TO WHAT SHRI SURINDER PAL SINGH HAS STATED NOT ONCE BUT FOUR TIM ES I.E. FIRSTLY ON 24-12-2003 SECONDLY ON 30-12-2003 THIRDLY BY LETT ER DATED 11-04- 2005 AND FOURTHLY IN STATEMENT DATED 05-01-2005 TH E ASSESSEE- COMPANY HAS NOT TAKEN ANY ACTION IN THE COURT OF LA W AGAINST HIM OR AGAINST M.V. MARKETING CO. FOR GIVING FALSE STATEME NT IF IT WAS SO IN THE EYES OF THE ASSESSEE. THE FACT THAT THE ASSESSE E-COMPANY HAS CHOSEN NOT TO TAKE ANY LEGAL ACTION FOR ALLEGEDLY FALSELY IMPLICATING THE ASSESSEE-COMPANY BUT ONLY TO HARP ON THE PROCED URAL NON- COOPERATION IN INCOME-TAX ASSESSMENT SUCH AS NOT AL LOWING CROSS EXAMINATION SHOWS THAT THE CLAIM OF THE ASSESSEE W AS CLEARLY WRONG AND THEREFORE NOT ALLOWABLE. THIS GROUND OF APPEA L IS ALSO REJECTED. 2.3. ON RECEIPT OF ORDER OF THE LD. CIT(A) I N RESPONSE TO A SHOWCAUSE NOTICE ISSUED BEFORE LEVY OF PENALTY THE ASSESSEE REPLIED VIDE LETTER DATED 18/02/2006 AS UNDER: '1. YOUR ASSESSEE IS A PUBLIC LIMITED COMPANY; HAS FILED RETURN OF INCOME ON 30/10/2001 DECLARING INCOME OF RS.80.911.420/-. ALONG WITH THE RETURN OF INCOME YOUR ASSESSEE HAD ALSO FILED COPIES OF TH E AUDITED BALANCE SHEET PROFIT & LOSS ACCOUNT AND TAX AUDIT REPORT. YOUR ASSESSEE HAD DURING THE YEAR PAID INTEREST U/S. 234B AND 234C FO R LATE PAYMENT OF INCOME TAX AND HAD CLAIMED IT TO BE ALLOWABLE EXPEN DITURE. THE EXPENDITURE WAS CLAIMED AS ALLOWABLE WITH THE UNDER STANDING THAT SINCE YOUR ASSESSEE HAD BORROWED MONEY AND WAS PAYING INT EREST ON THE BORROWING DEFERMENT AND DELAY IN PAYMENT OF ADVANCE TAX WOULD RESULT IN SAVING INTEREST SINCE BORROWING WOULD BE LESS TO TH AT EXTENT. HOWEVER ADDITIONAL INCOME TAX BY WAY OF INTEREST WOULD BE P AYABLE TOGETHER WITH REGULAR INCOME TAX. IN A WAY IN OUR OPINION ONE INT EREST WAS REPLACED BY OTHER. THERE ARE JUDGMENTS WHICH DEARLY HOLD THAT INTEREST PAID ON MONEYS BORROWED TO PAY TAX IS ALLOWABLE EXPENDITURE . YOUR ASSESSEE THEREFORE THOUGHT OF DEFERRING PAYMENT OF TAX AND C LAIM INTEREST TO BE ALLOWABLE. FURTHER THIS EXERCISE WAS TAX NEUTRAL SI NCE INTEREST PAYMENT TO OUTSIDE PARTY HAD REDUCED. THE PROFIT THEREFORE INC REASED; AND SO THE TAX PAYMENT THEREFORE INCREASED AND HENCE INTEREST ON S HORTFALL OF ADVANCE TAX INCREASED. YOUR ASSESSEE THEREFORE WAS UNDER GE NUINE IMPRESSION THAT SINCE INTEREST PAYMENT ON SHORTFALL OF ADVANCE HAS A CHARACTERISTIC SIMILAR TO OTHER INTEREST PAYMENT THE SAME WOULD BE ALLOWABLE AND CLAIMED AS SUCH. THE FACT THAT SUCH INTEREST HAS BEEN CLAIM ED WAS AVAILABLE ON RECORD AND COULD BE NOTICED EASILY. YOUR ASSESSEE H AD CLAIMED THE EXPENDITURE TO BE ALLOWABLE WITH STRONG BELIEF AND WITHOUT MALAFIDE INTENTION THAT SINCE LATE PAYMENT OF INCOME TAX IN A WAY AMOUNTED TO FUNDING OF THE ACTIVITY FOR SHORT PERIOD; AND HENCE INTEREST PAYABLE ON FUNDED AMOUNT WOULD BE ALLOWABLE INTEREST AND HENCE CLAIM THE SAME TO BE ALLOWABLE. YOUR ASSESSEE IN NO WAY TRIED TO CAMO UFLAGE THE ITA NO.1173/AHD/2008 7 EXPENDITURE OR TRIED TO GIVE DIFFERENT CHARACTER AN D COLOUR TO IT SO AS THE SAME IS NOT EASILY NOTED. THE INTENTION THEREFORE W AS CLEAR AND NEVER TO DEFRAUD THE REVENUE. YOUR ASSESSEE THEREFORE SUBMITS THAT SINCE BELIEF W AS BONAFIDE AND THERE WAS NO MALAFIDE INTENTION TO CLAIM ANY OTHERWISE DI SALLOWANCE EXPENDITURE; CANNOT RESULT IN INITIATION AND IMPOSI TION OF PENALTY. IT IS THEREFORE SUBMITTED PENALTY INITIATED ON THIS GROUN D BE WITHDRAWN. 2 YOUR ASSESSEE HAD DURING THE YEAR PAID A COMMISSI ON OF RS.16 85 340/- TO M/S. M.V. MARKETING PVT. LTD. THE COMMISSION WAS PAID TO M/S. M.V. MARKETING PVT. LTD. IN CONNECTION WIT H THE SERVICES RENDERED BY THE PARTY IN RESPECT OF ORDER RECEIVED BY YOUR A SSESSEE FROM DELHI VIDYUT BOARD FOR THE SUPPLY OF ACB'S TO THEM. THE T HEN LEARNED ASSESSING OFFICER HAD MADE INQUIRY AS REGARD THE GENUINENESS OF M/S. M.V. MARKETING PVT. LTD. THE LEARNED ASSESSING OFFICER T HEN HAD REFERRED THE MATTER FOR INVESTIGATION AND THAT INQUIRE THROUGH A DDITIONAL DIRECTOR OF INCOME TAX INVESTIGATION NEW DELHI HAD BEEN MADE. DURING THE ASSESSMENT PROCEEDINGS ADDITIONS WERE MADE MAINLY O N THE BASIS OF STATEMENT RECORDED OF SHRI SURENDRA PAL SINGH DIRE CTOR OF M.V. MARKETING PVT. LTD. SHRI SURENDRA PAL SINGH DIRECTOR OF M/S. M.V. MARKETING PVT LTD HAD ADMITTED BEFORE AUTHORITY OF THE INCOME TAX NE W DELHI THAT M/S. M.V. MARKETING PVT. LTD. IS IN NO REAL BUSINESS AND IS ENGAGED IN BUSINESS OF GIVING ADJUSTING ENTRIES ONLY. YOUR ASSESSEE HAD THEN CONTESTED THE ABOVE STATEMENT AND HAD SUBMITTED THAT YOUR ASSESSE E HAS REAL BUSINESS TRANSACTION WITH THE PARTY AND THAT NO POINT OF TIM E THE COMMISSION PAID WAS EVER RECEIVED BACK BY OUR ASSESSEE. TO PROVE TH E GENUINENESS OF THE CLAIM YOUR ASSESSEE FILED COPIES OF BILLS RAISED BY PARTY STATEMENT OF ACCOUNT RECEIVED FROM THE PARTY AND ALSO OTHER CORR ESPONDENCE WITH PARTY. THESE SUPPORTING CONCLUSIVELY PROVED THAT TRANSACTI ONS WERE GENUINE AND PAYMENT WAS FOR BUSINESS PURPOSE. THE LEARNED ASSES SING OFFICER HOWEVER DID NOT ACCEPT THE SAME AND PROCEEDED ONLY BY THE STATEMENT OF THE DIRECTOR OF M/S. M.V. MARKETING PVT. LTD. YOUR ASSESSEE HAD THEREFORE REQUESTED FOR CROSS EXAMINATION OF THE DIRECTOR OF M/S. M.V. MARKETING PVT. LTD. THE CROSS-EXAMINATION WAS REQUESTED SINCE YOUR ASSESSEE KNEW FOR SURE THAT THE PAYMENT IS GENUINE GIVEN TO AN EXISTI NG PERSON FOR SERVICES RENDERED. THE CROSS EXAMINATION WAS HOWEVER WAS NOT ARRANGED. YOUR ASSESSEE HOWEVER ON HIS PART REITERATED THE PAYMENT S WAS GENUINE THROUGH A/C PAYEE DEMAND DRAFT/ CHEQUE AND WAS FOR BUSINESS PURPOSE. ALL NECESSARY EVIDENCE WAS PRODUCED BEFORE THE LEAR NED ASSESSING OFFICER HOWEVER HE DID NOT AGREE WITH THE SUBMISSIO NS GIVEN AND ULTIMATELY DISALLOWED THE AMOUNT. NOW AT THIS STAGE YOUR ASSESSEE HAS IN HIS POSSESSI ON A LETTER RECEIVED FROM M/S.M. V .MARKETING PVT. LTD. DENYING ALL THAT WAS RECORDED BY THE INVESTIGATION WING'OF INCOME TAX DEPARTMENT NEW DE LHI. THE LETTER (COPY ENCLOSED) CLEARLY MENTIONS THAT COMMISSION WAS RECE IVED AND OFFERED TO AS INCOME BY M/S. M.V. MARKETING PVT. LTD. AND THA T THE STATEMENT WAS RECORDED UNDER PRESSURE. THIS LETTER CLEARLY BRINGS OUT THAT COMMISSION ITA NO.1173/AHD/2008 8 WAS PAID BY YOUR ASSESSEE FOR BUSINESS PURPOSE AND WAS RECEIVED BY M/S. M. V. MARKETING PVT. LTD. AND OFFERED TO TAX AND TH AT TRANSACTION IS GENUINE. IT IS HUMBLY SUBMITTED THAT BASIC DISALLOW ANCE IS THEREFORE WRONG. IT IS AGAIN WITH RESPECT SUBMITTED THAT CROSS- EXAM INATION WAS REQUESTED ONLY TO BRING THIS CORRECT FACTS ON RECORD. IT IS NOW SUBMITTED THAT IN THE CLAIM OF THE EXPEND ITURE THERE WAS NEITHER MALAFIDE INTENTION NOR ANY ATTEMPT TO CLAIM ANY WRO NG EXPENDITURE. THE ABOVE LETTER PROVES GENUINENESS OF EXPENDITURE BEYO ND DOUBT. IN THE LIGHT OF THESE FACTS THERE IS THEREFORE NO CASE OF THE LE VYING OF PENALTY WHEN THE EXPENDITURE HAS BEEN PROVED. YOUR ASSESSEE HAS THER EFORE NEITHER FILED INACCURATE PARTICULARS NOR HAS CONCEALED ANY INCOME . IT IS THEREFORE MOST RESPECTFULLY SUBMITTED THAT PENALTY INITIATED BE DR OPPED AND FOR THIS AD OF YOURS YOUR ASSESSEE WOULD EVER REMAIN OBLIGED.' 2.4 HOWEVER THE AO REJECTED THE SUBMISSIONS OF TH E ASSESSEE AND IMPOSED A PENALTY OF RS.7 84 465/- @100% OF THE TAX SOUGHT TO BE EVADED ON THE INCOME OF RS. 19 83 479/- ON THE G ROUND THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF ITS IN COME AND THE EXPLANATION OF THE ASSESSEE WHILE CLAIMING DEDUCTION ON ACCOUNT OF INTEREST U/S 234B & 234C OF THE ACT WAS NOT BONAFIDE AS ALSO THE CLAUSE-B OF T HE EXPLANATION TO SECTION 271(1)(C) OF THE ACT WAS ATTRACTED. LIKE WISE IN RESPECT OF COMMISSION OF RS.16 85 340/- PAID TO M/S M.V. MARKETING PVT. LTD. THE AO CONCLUDED THAT THE ASSESSEE DID NOT SUBSTANTIATE THE GENUINENESS OF TH E SAID TRANSACTION AND THE EVIDENCE COLLECTED BY THE AO THROUGH THE ADDL. DIT( LNV) NEW DELHI STARED IN THE FACE OF THE ASSESSEE AND EVEN THEN THE ASSESSEE DID NOT DISCHARGE THE ONUS PLACED UPON THE ASSESSEE . THEREFORE PENALTY U/S. 271(1)(C) OF THE IT ACT WAS LEVIED IN RELATION TO THIS AMOUNT ALSO FOR FURNISHI NG INACCURATE PARTICULARS OF INCOME. 3. ON APPEAL THE LEARNED CIT(A) UPHELD THE LEVY OF PENALTY IN THE FOLLOWING TERMS:- 3.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVE AND THE PENALTY ORDER OF THE ASSESSI NG OFFICER. THE A.R. APPEARS TO HAVE FAILED TO DISTINGUISH BETWEEN PENAL INTEREST CHARGED UNDER THE INCOME TAX ACT UNDER SECTION 234A 234B AND 234 C AND INTEREST PAYABLE ON MONEYS BORROWED FOR BUSINESS PURPOSES. T O CLAIM IGNORANCE OF LAW BY A PUBIC LIMITED COMPANY IS DIFFICULT TO T HE SWALLOW. THE FACT THAT INTEREST CHARGEABLE UNDER SECTION 234 WAS PENAL IN NATURE WAS KNOWN FROM ITS VERY INCEPTION H 1989. TO CLAIM IGNORANCE AT THIS STAGE IN A.Y.2001-02 AND ATTEMPT TO DEBIT THE ACCOUNTS FOR THE CLAIM OF DEDUCTION ITA NO.1173/AHD/2008 9 DOES NOT POINT TO THE APPELLANT'S ACTION BEING BONA FIDE. THE LEVY OF PENALTY U/S. 271(1)(C) BY THE ASSESSING OFFICER ON THIS GRO UND IS JUSTIFIED AND THEREFORE SAME IS CONFIRMED. 4.3. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MA DE BY THE AUTHORIZED REPRESENTATIVE AND DO NOT FIND MERIT IN THE SAME. MERELY FILING A LETTER STATING THAT THE COMMISSION INCOME HAS BEE N DECLARED BY M/S. M. V. MARKETING PVT. LTD. IN ITS RETURN OF INCOME CANN OT CONSTITUTE ADEQUATE EVIDENCE. THERE ARE NO DETAILS OF PERMANENT ACCOUNT NO. COPY OF RETURN OF INCOME OR EVEN ANY EVIDENCE THAT THE COMMISSION WAS GENUINELY EARNED BY M/S. M. V. MARKETING PVT. LTD. SINCE THE APPELLANT FAILED TO SUBSTANTIATE ITS CLAIM OF PAYMENT OF COMMISSION TH E ASSESSING OFFICER WAS CORRECT IN CONCLUDING THAT THE APPELLANT HAD SO UGHT TO EVADE TAX AND THEREFORE THE PENALTY U/S.271(1)(C) LEVIED BY THE ASSESSING OFFICER ON THIS GROUND ALSO JUSTIFIED AND IS THEREFORE CONFIRMED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). AS REGARDS LEVY OF PENALTY U/S 271(1)(C) OF THE ACT IN RELATION TO CLAIM FOR DEDUC TION OF INTEREST U/S 234B & 234C OF THE ACT THE LD. AR ON BEHALF OF THE ASSE SSEE MERELY RELIED UPON DECISION OF THE HONBLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RELIANCE PETRO PRODUCTS PVT. LTD. (2010) 322 IT R 158 (SC).IN RESPECT OF LEVY OF PENALTY ON THE AMOUNT OF COMMISSION THE LD. A R WHILE CARRYING US THROUGH THE FINDINGS OF THE ITAT AND THE RELEVANT PAGES IN THE PAPER BOOK CONTENDED THAT WRITTEN AGREEMENT IS NOT NECESSARY FOR PAYMENT OF C OMMISSION. IN THIS CONNECTION THE LD. AR RELIED UPON DECISION REPORTE D IN 52 TTJ 388(CHANDIGARH). AS REGARDS UTILITY OF ORAL STATEMENT AND CROSS-EXAM INATION THE LD. AR RELIED UPON DECISION IN ADDL. CIT VS. LATA MANGESHKAR (MISS) ( 1974) 97 ITR 696 (BOM). IT WAS MENTIONED THAT DISALLOWANCE HAS BEEN MADE ONLY BECAUSE OF STATEMENT OF SHRI S P SINGH AND THE ASSE SSEE HAS NOT BEEN ALLOWED HIS CROSS-EXAMINATION . THE LD. AR AR GUED THAT LEVY OF PENALTY WAS NOT JUSTIFIED SINCE THERE IS NOTHING TO SUGGEST THAT THE AMOUNT PAID BY THE ASSESSEE TO M/S MV MARKETING PV T. LTD. BY ACCOUNT PAYEE CHEQUE HAD BEEN RETURNED. INTER ALIA THE LD. AR RELIED UPON DECISIONS IN THE CASE OF DHIRAJLAL GIRD HARILAL VS. CIT (1954)26 ITR 736 (SC) BOMIN P. LTD. VS. CIT (1986) 160 ITR 477 ITA NO.1173/AHD/2008 10 (GUJ) AND KISHINCHAND CHELLARAM VS. CIT (1980) 125 ITR 713 (SC). ON THE OTHER HAND THE LD. DR SUPPORTED THE FINDIN GS IN THE IMPUGNED ORDER IN THE LIGHT OF DECISION OF THE ITAT IN QUANTUM APPEAL. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE AS ALSO THE DECISIONS RELIED UPON ON BEHALF OF THE ASSESSEE. AT THE OUTSET WE MAY HAVE A LOOK AT THE RELEVANT PROVISIONS OF SECTI ON 271(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 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 ITA NO.1173/AHD/2008 11 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 APPARENT FROM A MERE GLANCE AT THE AF ORESAID PROVISIONS THE PENALTY U/S 271(1)(C) OF THE ACT IS LEVIABLE IF THE AO IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT THAT ANY PERSON H AS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. IT IS WELL SETTLED THAT ASSESSMENT PROCEEDI NGS 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 4 57 THE FINDINGS IN THE ASSESSMENT PROCEEDINGS CANNOT BE REGARDED AS CONCLU SIVE FOR THE PURPOSES OF THE PENALTY PROCEEDINGS. IT IS ALSO WELL SETTLED THAT T HE CRITERION AND YARDSTICKS FOR THE PURPOSE OF IMPOSING PENALTY U/S 271(1)(C) OF THE A CT ARE DIFFERENT THAN THOSE APPLIED FOR MAKING OR CONFIRMING THE ADDITIONS. IT IS THEREFOR E NECESSARY 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 CONCEALMENT 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. THE PROVISIONS OF SECTION 271(1)( C ) OF THE ACT STIPULATE THAT IF THE ASSESSING OFFICER OR THE CIT(APPEALS) O R THE COMMISSIONER IN THE COURSE OF PROCEEDINGS UNDER THIS ACT IS SATISFIED THAT ANY P ERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS THER EOF HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY A SUM WHICH SHALL NOT BE LESS THAN BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE E VADED BY A REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME. EXPLANATI ON 1 TO SECTION 271(1)( C ) OF THE ACT ITA NO.1173/AHD/2008 12 MENTIONS THAT WHERE IN RESPECT OF ANY FACTS MATERIA L TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THE ACT SUCH PERSON FAI LS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE AO OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE OR SUCH PERSON OFFERS AN EXPLANATION WHIC H HE IS NOT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL I NCOME HAVE BEEN DISCLOSED BY HIM THEN THE AMOUNT ADDED OR DISALLOWED IN COMPUTING TH E TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL FOR THE PURPOSE OF CLAUSE ( C ) OF SECTION 271(1) BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. IN OTHER WORDS THE NECESSARY INGREDIENTS FOR ATTRACTING EXPLANATION 1 TO SECTION 271(1)( C ) ARE THAT ( I ) THE PERSON FAILS TO OFFER THE EXPLANATION OR ( II ) HE OFFERS THE EXPLANATION WHICH IS FOUND BY THE A O OR THE CIT (APPEALS) OR THE COMMISSIONER TO BE FALSE OR ( III ) THE PERSON OFFERS EXPLANATION WHICH HE IS NOT ABL E TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED BY HIM. 5.3 IF THE CASE OF ANY ASSESSEE FALLS IN ANY OF THESE T HREE CATEGORIES THEN THE DEEMING PROVISION PROVIDED IN EXPLANATION 1 TO SECTION 271(1)( C ) COMES INTO PLAY AND THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME SHALL BE CONSIDERED AS THE INCOME IN RESPECT OF WHICH PARTIC ULARS HAVE BEEN CONCEALED FOR THE PURPOSES OF CLAUSE ( C ) OF SECTION 271(1) AND THE PENALTY FOLLOWS. ON TH E OTHER HAND IF THE ASSESSEE IS ABLE TO OFFER AN EX PLANATION WHICH IS NOT FOUND BY THE AUTHORITIES TO BE FALSE AND ASSESSEE HAS BEEN ABLE TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT ALL THE FACTS REL ATING TO THE SAME HAVE BEEN DISCLOSED BY HIM THE ASSESSEE SHALL BE OUT OF THE CLUTCHES OF EXPLANATION 1 TO SECTION 271(1)( C ) OF THE ACT AND IN THAT CASE THE PENALTY SHALL N OT BE IMPOSED. AS IS APPARENT FROM THE IMPUGNED ORDER IN THE INS TANT CASE THE LD. CIT(A) WHILE UPHOLDING LEVY OF PENALTY DID NOT ANALYSE TH E ISSUES RAISED BY THE ASSESSEE IN THEIR EXPLANATION NOR EXAMINED AS T O WHETHER OR NOT CLAUSE B OF THE EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT INVOKED BY THE AO WAS APPLICABLE IN THIS CASE NOR EVEN BROUGHT OUT AS TO HOW ITA NO.1173/AHD/2008 13 THE PENALTY IS LEVIABLE FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND WHICH SPECIFIC PARTICULARS WERE FURNISHE D INACCURATE. MOREOVER THE LD. CIT(A) DID NOT HAVE BENEFIT OF FI NDINGS OF THE ITAT IN THE QUANTUM APPEAL. A MERE GLANCE AT THE IMPUGNE D ORDER REVEALS THAT THE ORDER PASSED BY THE LD. CIT(A) IS CRYPTIC AND GROSSLY VIOLATIVE OF ONE OF THE FACETS OF THE RULES OF NATURAL JUSTICE NAMELY THAT EVERY JUDICIAL/QUASI-JUDICIAL BODY/AUTHORITY MUST PASS REASONED ORDER WHICH SHOU LD REFLECT APPLICATION OF MIND BY THE CONCERNED AUTHORITY TO THE ISSUES/POINTS RAI SED BEFORE IT. THE APPLICATION OF MIND TO THE MATERIAL FACTS AND THE ARGUMENTS SHOULD MANIFEST ITSELF IN THE ORDER. SECTION 250(6) OF THE INCOME TAX ACT 1961 MANDATES THAT THE ORDER OF THE CIT(A) WHILE DISPOSING OF THE APPEAL SHALL BE IN WR ITING AND SHALL STATE THE POINTS FOR DETERMINATION THE DECISION THEREON AND THE REA SON FOR THE DECISION. THE REQUIREMENT OF RECORDING OF REASONS AND COMMUNICATI ON THEREOF HAS BEEN READ AS AN INTEGRAL PART OF THE CONCEPT OF FAIR PROCEDUR E. THE REQUIREMENT OF RECORDING OF REASONS BY THE QUASI-JUDICIAL AUTHORITIES IS AN IMPORTANT SAFEGUARD TO ENSURE OBSERVANCE OF THE RULE OF LAW. IT INTRODUCES CLARIT Y CHECKS THE INTRODUCTION OF EXTRANEOUS OR IRRELEVANT CONSIDERATIONS AND MINIMIZ ES ARBITRARINESS IN THE DECISION-MAKING PROCESS. WE MAY REITERATE THAT A D ECISION DOES NOT MERELY MEAN THE CONCLUSION. IT EMBRACES WITHIN ITS FOLD THE REASONS FORMING BASIS FOR THE CONCLUSION.[MUKHTIAR SINGH VS. STATE OF PUNJAB (1995)1SCC 760(SC)]. AS IS APPARENT THE IMPUGNED ORDER SUFFERS FROM LACK OF R EASONING AND IS NOT A SPEAKING ORDER. IN VIEW OF THE FOREGOING ESPECIA LLY WHEN THE LD. CIT(A) HAS NOT PASSED A SPEAKING ORDER ON THE ISSUES RAISED IN T HIS APPEAL WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. C IT(A) AND RESTORE THE MATTER TO HIS FILE FOR DECIDING THE VARIOUS ISSUES IN RELATI ON TO LEVY OF PENALTY AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPO RTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL T HE LEARNED CIT(A) SHALL PASS A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MA NDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT AND VARIOUS JUDICIAL PRONOUNCEMEN TS ON THE ISSUE. WITH THESE OBSERVATIONS GROUND NO. 1 IN THE APPEAL IS DISPOS ED OF. ITA NO.1173/AHD/2008 14 6. IN THE RESULT APPEAL IS ALLOWED BUT FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 25-02-2011 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 25 -02-2011 COPY OF THE ORDER FORWARDED TO: 1. JSL INDUSTRIES LIMITED N.H.NO.8 MOGAR TALUKA & DISTRICT: ANAND 2. THE ACIT ANAND CIRCLE ANAND 3. CIT CONCERNED 4. CIT(A)-IV BARODA 5. DR ITAT AHMEDABAD BENCH-C AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD