SUBMITTED BY; PRAKASH JOTWANI
In the case of Reliance Petroproducts Ltd., (supra), the Hon’ble
Supreme Court held that in order to be covered by the provisions of section
271(1)(c), there has to be concealment of particulars of income by the
assessee or furnishing of in-accurate particulars of his income. Explaining
further, the Hon’ble Supreme Court observed that when no information given
in the return is found to be in-correct or in-accurate, the assessee cannot be
held guilty of furnishing in-accurate particulars of its income and unless the
case is strictly covered by the provision, the penalty cannot be imposed. It is
further held that where there is no finding that the particulars furnished by
the assessee in its return are in-accurate or erroneous or false, there is no
question of imposing penalty u/s 271(1)(c) of the act merely because the claim
of the assessee for deduction is disallowed in the quantum proceedings.
Keeping in view the ratio of the decision of Hon’ble Supreme Court in the case
of Reliance Petroproducts Ltd. (supra) and having regard to all the facts of the
case as discussed above, we are of the view that the present case is not a fit
case to impose penalty u/s 271(1)(c) of the Act and the ld. CIT(A) is not
justified in confirming the penalties imposed by the A.O. for both the years
under consideration.
IN THE INCOME TAX APPELLATE TRIBUNAL “E”
BENCH,
MUMBAI
BEFORE S/SHRI H.L. KARWA, HON’BLE PRESIDENT AND P.M. JAGTAP, AM
I.T.A. No.2559 /Mum/2013
Assessment Year : 2003-2004
Salman Khan,
3, Galaxy Apts.,
Vs.
B.J. Road, Band Stand,
Bandra (W),
Mumbai – 400 050.
Date of Pronouncement : 30-7-2014
O R D E R
PER BENCH.
These two appeals filed by the assessees are directed against two
separate orders of the ld. CIT(A)- 3, Mumbai dated 4-2-2013 whereby he
confirmed the penalties of Rs. 3,68,550/- and Rs. 10,24,650/- imposed by
the A.O. u/s 271(1)(c) of the Income Tax Act, 1961 for assessment years
2003-04 and 2004-05 respectively.
2.
The relevant facts of the case giving rise to these appeals are as follows.
The assessee in the present case is a leading film actor who derives income
from profession of acting and advertisement assignments. The returns of
income for both the years under consideration i.e assessment years 2003-04
& 2004-05 were filed by him on 28-11-2003 and 29-10-2004 declaring total
income of Rs. 3,74,10,421/- and Rs. 4,32,19,821/- respectively. During the
course of assessment proceedings, it was noticed by the A.O. that the
assessee has claimed legal expenses of Rs. 12,90,000/- and Rs. 33,75,000/-
in assessment years 2003-04 and 2004-05 respectively. He also found that
the said expenses were incurred by the assessee for defending himself in
various criminal proceedings pending in the court. According to the A.O., the
said expenses incurred by the assessee to defend himself in criminal
proceedings were personal expenses and the same therefore could not be
allowed as business expenditure. Accordingly, he disallowed the legal
expenses claimed by the assessee in both the years under consideration. On
appeal, the ld. CIT(A) deleted the disallowance made by the A.O. on account of
legal expenses for both the years under consideration observing that the said
expenses were incurred by the assessee for the preservation and protection of
his profession from any legal process or proceedings which might have
resulted in reduction of his income. In support of this conclusion, the ld.
CIT(A) relied on the decisions of Hon’ble Supreme Court in the case of CIT vs.
Birla Cotton Spinning & Wvg. Mills, 82 ITR 166 and CIT vs. Dharajgiri Raja
Narasingirji, 91 ITR 544. On further appeal, the Tribunal, however, reversed
the decision of the ld. CIT(A) on this issue and confirmed the disallowance
made by the A.O. on account of legal expenses for both the years under
consideration holding that the legal expenses incurred by the assessee to
defend himself in the criminal proceedings had nothing to do with his
professional activities and the same therefore were rightly disallowed by the
A.O. being expenditure of personal nature.
3.
As a result of sustenance by the Tribunal of additions made to the total
income of the assessee on account of disallowance of legal expenses in both
the years under consideration, notices were issued by the A.O. requiring the
assessee to show cause as to why penalty u/s 271(1)(c) of the Act should not
be imposed in respect of the said additions. In reply, it was explained by the
assessee that the disallowance made on account of legal expenses was deleted
by the ld. CIT(A) in both the years under consideration and the decision of the
ld. CIT(A) on this issue was reversed by the Tribunal in the quantum
proceedings purely on interpretation of law. It was contended that the
confirmation by the Tribunal of the addition made on this issue not accepting
the legal claim of the assessee thus did not represent concealment of
particulars of his income by the assessee or furnishing of in-accurate
particulars of such income to attract penalty u/s 271(1)(c) of the Act. The
A.O. did not accept this explanation of the assessee and held that by claiming
deduction on account of personal expenses in the garb of professional
expenditure, there was concealment of particulars of his income by the
assessee. He therefore imposed penalty of Rs. 3,68,550/- and Rs. 10,24,650/-
u/s 271(1)(c) of the act for assessment years 2003-04 and 2004-05
respectively being 100% of the tax sought to be evaded by the assessee in
respect of addition made to the total income of the assessee on account of
disallowance of legal expenses. On appeal, the ld. CIT(A) confirmed the
penalties imposed by the A.O. for both the years under consideration holding
that the claim of the assessee for deduction on account of legal expenses,
which represented personal expenses, was not permissible as per law as held
by the Tribunal in the quantum proceedings and the assessee was unable to
offer any satisfactory explanation to substantiate his claim for deduction on
account of legal expenses. Aggrieved by the orders of the ld. CIT(A), the
assessee has preferred these appeals before the Tribunal.
4.
The ld. Counsel for the assessee submitted that the assessee had gone
to Jodhpur for shooting Hindi movie “Ham Sath Sath Hain”. He submitted
that the assessee during his stay at Jodhpur was implicated in false criminal
proceedings by leveling an allegation that he has shot a black buck, which is
an endangered specie and religious in nature. He submitted that the assessee
was arrested by the local police and in order to get himself released, he had to
engage some lawyers. He submitted that the criminal proceedings as a result
of this case have continued thereafter and the assessee has been regularly
incurring legal expenses to defend himself and obtain exemptions from the
personal hearings from this case. He contended that if the assessee had not
defended himself in the criminal proceedings and asked for personal
exemptions,
it
would
have
resulted
in
his
absence
from
all
the
movies/projects undertaken by him causing loss of revenue to him as well as
to the producers of his films. He contended that it was thus necessary for
him to incur the legal expenses during the years under consideration to
preserve and protect his profession and the said expenses therefore were
claimed by the assessee as deduction. He contended that the ld. CIT(A) in the
quantum proceedings accepted the stand of the assessee while allowing the
deduction on account of legal expenses and although the Tribunal has
reversed the decision of the ld. CIT(A), it is sufficient to show that the claim of
the assessee for deduction on account of legal expenses was a legal claim on
which two views were clearly possible. He contended that this also shows that
the claim made by the assessee for deduction on account of legal expenses
was a bonafide claim and since all the particulars relevant to the said claim
were duly furnished by the assessee, there was no case for imposition of
penalty u/s 271(1)(c) of the Act. In support of this contention, he relied on
the decision of Hon’ble Supreme Court in the case of Reliance Petroproducts
Ltd., 322 ITR158. He also contended that the claim of the assessee for legal
expenses was not found to be bogus or false and the same was disallowed
finally by the Tribunal treating the legal expenses as in the nature of personal
expenses as against the claim of the assessee that the same were in the
nature of professional expenses which was accepted by the ld. CIT(A) in the
quantum proceedings. He contended that the claim made by the assessee on
account of legal expenses thus is a legal claim on which two views are
possible and since there is no allegation made by the A.O. even in the penalty
order alleging any concealment of particulars of his income furnished by the
assessee in respect of such legal claim, penalties imposed by the A.O. and
confirmed by the ld. CIT(A) are liable to be cancelled.
5.
The ld. D.R., on the other hand, strongly relied on the impugned orders
of the ld. CIT(A) in support of the Revenue’s case that penalties u/s 271(1)(c)
of the Act for both the years are rightly imposed by the A.O. He submitted
that the disallowance made by the A.O. on account of legal expenses has been
finally confirmed by the Tribunal in the quantum proceedings holding that
the said expenses claimed by the assessee representing his personal
expenditure were not allowable in accordance with law. He contended that
the claim made by the assessee on account of legal expenses thus was a
wrong claim and by making such wrong claim, the assessee was guilty of
furnishing of inaccurate particulars of his income clearly attracting penalty
u/s 271(1)(c) of the Act.
6.
We have considered the rival submissions and also perused the relevant
material available on record. It is observed that the deduction claimed by the
assessee on account of legal expenses was disallowed by the A.O. in both the
years under consideration by treating the said expenses as of personal
nature.
A perusal of the orders passed by the A.O. in this regard clearly
shows that the relevant aspects of the matter such as the nature of complaint
filed against the assessee, the nature of legal proceedings initiated against the
assessee, the nature of expenses incurred by the assesse etc. were not gone
into by the A.O. and a very cryptic order was passed by him on this issue
making the disallowance on account legal expenses treating the same as
personal in nature without giving any sound or convincing reasons. On
appeal, the ld. CIT(A) allowed the claim of the assessee for deduction on
account of legal expenses observing that the same were incurred by the
assessee for preservation and protection of his profession from any legal
process or proceedings which might have resulted in loss of income of the
assessee as well as the producers of his films. Although the Tribunal has
reversed the decision of the ld. CIT(A) on this issue, the fact that the claim of
the assessee was accepted by the ld. CIT(A) on merit clearly shows that the
said claim made by the assessee was based on a possible view of the matter.
It also shows that the claim made by the assessee for deduction on account of
legal expenses was a bonafide claim and as submitted by the ld. Counsel for
the assessee at the time of hearing before us, the assessee has capitalized the
similar legal expenses incurred in the subsequent years after having come to
know about the disallowance made in the years under consideration which
again goes to show the bonafide of the assessee. As further submitted by the
ld. Counsel for the assessee, all the material particulars relevant to the claim
made by the assessee were fully and truly furnished by the assessee and
there is no allegation made by the A.O. in the penalty order that any in-
accurate particulars were furnished by the assessee while making the claim
on account of deduction of legal expenses. It is also not in dispute that the
legal expenses claimed by the assessee were actually incurred by him and it is
not the case of the Revenue at any stage that the expenses so claimed by the
assessee were bogus.
7.
In the case of Reliance Petroproducts Ltd., (supra), the Hon’ble
Supreme Court held that in order to be covered by the provisions of section
271(1)(c), there has to be concealment of particulars of income by the
assessee or furnishing of in-accurate particulars of his income. Explaining
further, the Hon’ble Supreme Court observed that when no information given
in the return is found to be in-correct or in-accurate, the assessee cannot be
held guilty of furnishing in-accurate particulars of its income and unless the
case is strictly covered by the provision, the penalty cannot be imposed. It is
further held that where there is no finding that the particulars furnished by
the assessee in its return are in-accurate or erroneous or false, there is no
question of imposing penalty u/s 271(1)(c) of the act merely because the claim
of the assessee for deduction is disallowed in the quantum proceedings.
Keeping in view the ratio of the decision of Hon’ble Supreme Court in the case
of Reliance Petroproducts Ltd. (supra) and having regard to all the facts of the
case as discussed above, we are of the view that the present case is not a fit
case to impose penalty u/s 271(1)(c) of the Act and the ld. CIT(A) is not
justified in confirming the penalties imposed by the A.O. for both the years
under consideration.
In that view of the matter, we cancel the penalties
imposed by the A.O. and confirmed by the ld. CIT(A) for both years under
consideration and allow these appeals of the assessee.
8.
In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on 30th July, 2014.
(H.L. KARWA)
(P.M. JAGTAP)
Print Page
Supreme Court held that in order to be covered by the provisions of section
271(1)(c), there has to be concealment of particulars of income by the
assessee or furnishing of in-accurate particulars of his income. Explaining
further, the Hon’ble Supreme Court observed that when no information given
in the return is found to be in-correct or in-accurate, the assessee cannot be
held guilty of furnishing in-accurate particulars of its income and unless the
case is strictly covered by the provision, the penalty cannot be imposed. It is
further held that where there is no finding that the particulars furnished by
the assessee in its return are in-accurate or erroneous or false, there is no
question of imposing penalty u/s 271(1)(c) of the act merely because the claim
of the assessee for deduction is disallowed in the quantum proceedings.
Keeping in view the ratio of the decision of Hon’ble Supreme Court in the case
of Reliance Petroproducts Ltd. (supra) and having regard to all the facts of the
case as discussed above, we are of the view that the present case is not a fit
case to impose penalty u/s 271(1)(c) of the Act and the ld. CIT(A) is not
justified in confirming the penalties imposed by the A.O. for both the years
under consideration.
IN THE INCOME TAX APPELLATE TRIBUNAL “E”
BENCH,
MUMBAI
BEFORE S/SHRI H.L. KARWA, HON’BLE PRESIDENT AND P.M. JAGTAP, AM
I.T.A. No.2559 /Mum/2013
Assessment Year : 2003-2004
Salman Khan,
3, Galaxy Apts.,
Vs.
B.J. Road, Band Stand,
Bandra (W),
Mumbai – 400 050.
Date of Pronouncement : 30-7-2014
O R D E R
PER BENCH.
These two appeals filed by the assessees are directed against two
separate orders of the ld. CIT(A)- 3, Mumbai dated 4-2-2013 whereby he
confirmed the penalties of Rs. 3,68,550/- and Rs. 10,24,650/- imposed by
the A.O. u/s 271(1)(c) of the Income Tax Act, 1961 for assessment years
2003-04 and 2004-05 respectively.
2.
The relevant facts of the case giving rise to these appeals are as follows.
The assessee in the present case is a leading film actor who derives income
from profession of acting and advertisement assignments. The returns of
income for both the years under consideration i.e assessment years 2003-04
& 2004-05 were filed by him on 28-11-2003 and 29-10-2004 declaring total
income of Rs. 3,74,10,421/- and Rs. 4,32,19,821/- respectively. During the
course of assessment proceedings, it was noticed by the A.O. that the
assessee has claimed legal expenses of Rs. 12,90,000/- and Rs. 33,75,000/-
in assessment years 2003-04 and 2004-05 respectively. He also found that
the said expenses were incurred by the assessee for defending himself in
various criminal proceedings pending in the court. According to the A.O., the
said expenses incurred by the assessee to defend himself in criminal
proceedings were personal expenses and the same therefore could not be
allowed as business expenditure. Accordingly, he disallowed the legal
expenses claimed by the assessee in both the years under consideration. On
appeal, the ld. CIT(A) deleted the disallowance made by the A.O. on account of
legal expenses for both the years under consideration observing that the said
expenses were incurred by the assessee for the preservation and protection of
his profession from any legal process or proceedings which might have
resulted in reduction of his income. In support of this conclusion, the ld.
CIT(A) relied on the decisions of Hon’ble Supreme Court in the case of CIT vs.
Birla Cotton Spinning & Wvg. Mills, 82 ITR 166 and CIT vs. Dharajgiri Raja
Narasingirji, 91 ITR 544. On further appeal, the Tribunal, however, reversed
the decision of the ld. CIT(A) on this issue and confirmed the disallowance
made by the A.O. on account of legal expenses for both the years under
consideration holding that the legal expenses incurred by the assessee to
defend himself in the criminal proceedings had nothing to do with his
professional activities and the same therefore were rightly disallowed by the
A.O. being expenditure of personal nature.
3.
As a result of sustenance by the Tribunal of additions made to the total
income of the assessee on account of disallowance of legal expenses in both
the years under consideration, notices were issued by the A.O. requiring the
assessee to show cause as to why penalty u/s 271(1)(c) of the Act should not
be imposed in respect of the said additions. In reply, it was explained by the
assessee that the disallowance made on account of legal expenses was deleted
by the ld. CIT(A) in both the years under consideration and the decision of the
ld. CIT(A) on this issue was reversed by the Tribunal in the quantum
proceedings purely on interpretation of law. It was contended that the
confirmation by the Tribunal of the addition made on this issue not accepting
the legal claim of the assessee thus did not represent concealment of
particulars of his income by the assessee or furnishing of in-accurate
particulars of such income to attract penalty u/s 271(1)(c) of the Act. The
A.O. did not accept this explanation of the assessee and held that by claiming
deduction on account of personal expenses in the garb of professional
expenditure, there was concealment of particulars of his income by the
assessee. He therefore imposed penalty of Rs. 3,68,550/- and Rs. 10,24,650/-
u/s 271(1)(c) of the act for assessment years 2003-04 and 2004-05
respectively being 100% of the tax sought to be evaded by the assessee in
respect of addition made to the total income of the assessee on account of
disallowance of legal expenses. On appeal, the ld. CIT(A) confirmed the
penalties imposed by the A.O. for both the years under consideration holding
that the claim of the assessee for deduction on account of legal expenses,
which represented personal expenses, was not permissible as per law as held
by the Tribunal in the quantum proceedings and the assessee was unable to
offer any satisfactory explanation to substantiate his claim for deduction on
account of legal expenses. Aggrieved by the orders of the ld. CIT(A), the
assessee has preferred these appeals before the Tribunal.
4.
The ld. Counsel for the assessee submitted that the assessee had gone
to Jodhpur for shooting Hindi movie “Ham Sath Sath Hain”. He submitted
that the assessee during his stay at Jodhpur was implicated in false criminal
proceedings by leveling an allegation that he has shot a black buck, which is
an endangered specie and religious in nature. He submitted that the assessee
was arrested by the local police and in order to get himself released, he had to
engage some lawyers. He submitted that the criminal proceedings as a result
of this case have continued thereafter and the assessee has been regularly
incurring legal expenses to defend himself and obtain exemptions from the
personal hearings from this case. He contended that if the assessee had not
defended himself in the criminal proceedings and asked for personal
exemptions,
it
would
have
resulted
in
his
absence
from
all
the
movies/projects undertaken by him causing loss of revenue to him as well as
to the producers of his films. He contended that it was thus necessary for
him to incur the legal expenses during the years under consideration to
preserve and protect his profession and the said expenses therefore were
claimed by the assessee as deduction. He contended that the ld. CIT(A) in the
quantum proceedings accepted the stand of the assessee while allowing the
deduction on account of legal expenses and although the Tribunal has
reversed the decision of the ld. CIT(A), it is sufficient to show that the claim of
the assessee for deduction on account of legal expenses was a legal claim on
which two views were clearly possible. He contended that this also shows that
the claim made by the assessee for deduction on account of legal expenses
was a bonafide claim and since all the particulars relevant to the said claim
were duly furnished by the assessee, there was no case for imposition of
penalty u/s 271(1)(c) of the Act. In support of this contention, he relied on
the decision of Hon’ble Supreme Court in the case of Reliance Petroproducts
Ltd., 322 ITR158. He also contended that the claim of the assessee for legal
expenses was not found to be bogus or false and the same was disallowed
finally by the Tribunal treating the legal expenses as in the nature of personal
expenses as against the claim of the assessee that the same were in the
nature of professional expenses which was accepted by the ld. CIT(A) in the
quantum proceedings. He contended that the claim made by the assessee on
account of legal expenses thus is a legal claim on which two views are
possible and since there is no allegation made by the A.O. even in the penalty
order alleging any concealment of particulars of his income furnished by the
assessee in respect of such legal claim, penalties imposed by the A.O. and
confirmed by the ld. CIT(A) are liable to be cancelled.
5.
The ld. D.R., on the other hand, strongly relied on the impugned orders
of the ld. CIT(A) in support of the Revenue’s case that penalties u/s 271(1)(c)
of the Act for both the years are rightly imposed by the A.O. He submitted
that the disallowance made by the A.O. on account of legal expenses has been
finally confirmed by the Tribunal in the quantum proceedings holding that
the said expenses claimed by the assessee representing his personal
expenditure were not allowable in accordance with law. He contended that
the claim made by the assessee on account of legal expenses thus was a
wrong claim and by making such wrong claim, the assessee was guilty of
furnishing of inaccurate particulars of his income clearly attracting penalty
u/s 271(1)(c) of the Act.
6.
We have considered the rival submissions and also perused the relevant
material available on record. It is observed that the deduction claimed by the
assessee on account of legal expenses was disallowed by the A.O. in both the
years under consideration by treating the said expenses as of personal
nature.
A perusal of the orders passed by the A.O. in this regard clearly
shows that the relevant aspects of the matter such as the nature of complaint
filed against the assessee, the nature of legal proceedings initiated against the
assessee, the nature of expenses incurred by the assesse etc. were not gone
into by the A.O. and a very cryptic order was passed by him on this issue
making the disallowance on account legal expenses treating the same as
personal in nature without giving any sound or convincing reasons. On
appeal, the ld. CIT(A) allowed the claim of the assessee for deduction on
account of legal expenses observing that the same were incurred by the
assessee for preservation and protection of his profession from any legal
process or proceedings which might have resulted in loss of income of the
assessee as well as the producers of his films. Although the Tribunal has
reversed the decision of the ld. CIT(A) on this issue, the fact that the claim of
the assessee was accepted by the ld. CIT(A) on merit clearly shows that the
said claim made by the assessee was based on a possible view of the matter.
It also shows that the claim made by the assessee for deduction on account of
legal expenses was a bonafide claim and as submitted by the ld. Counsel for
the assessee at the time of hearing before us, the assessee has capitalized the
similar legal expenses incurred in the subsequent years after having come to
know about the disallowance made in the years under consideration which
again goes to show the bonafide of the assessee. As further submitted by the
ld. Counsel for the assessee, all the material particulars relevant to the claim
made by the assessee were fully and truly furnished by the assessee and
there is no allegation made by the A.O. in the penalty order that any in-
accurate particulars were furnished by the assessee while making the claim
on account of deduction of legal expenses. It is also not in dispute that the
legal expenses claimed by the assessee were actually incurred by him and it is
not the case of the Revenue at any stage that the expenses so claimed by the
assessee were bogus.
7.
In the case of Reliance Petroproducts Ltd., (supra), the Hon’ble
Supreme Court held that in order to be covered by the provisions of section
271(1)(c), there has to be concealment of particulars of income by the
assessee or furnishing of in-accurate particulars of his income. Explaining
further, the Hon’ble Supreme Court observed that when no information given
in the return is found to be in-correct or in-accurate, the assessee cannot be
held guilty of furnishing in-accurate particulars of its income and unless the
case is strictly covered by the provision, the penalty cannot be imposed. It is
further held that where there is no finding that the particulars furnished by
the assessee in its return are in-accurate or erroneous or false, there is no
question of imposing penalty u/s 271(1)(c) of the act merely because the claim
of the assessee for deduction is disallowed in the quantum proceedings.
Keeping in view the ratio of the decision of Hon’ble Supreme Court in the case
of Reliance Petroproducts Ltd. (supra) and having regard to all the facts of the
case as discussed above, we are of the view that the present case is not a fit
case to impose penalty u/s 271(1)(c) of the Act and the ld. CIT(A) is not
justified in confirming the penalties imposed by the A.O. for both the years
under consideration.
In that view of the matter, we cancel the penalties
imposed by the A.O. and confirmed by the ld. CIT(A) for both years under
consideration and allow these appeals of the assessee.
8.
In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on 30th July, 2014.
(H.L. KARWA)
(P.M. JAGTAP)
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