S. 271(1)(c): Professional’s opinion in support of claim does not per se make it bona fide. Third Member cannot sit in judgment over dissenting Members’ views
The assessee filed a ROI claiming deduction for the entire VRS liability despite s. 35DDA providing that VRS payments would be allowed in 5 installments. The AO allowed the claim in s. 143(1) and then issued a s. 148 notice (on some other issue; the s. 148 notice did not refer to the VRS claim). In the ROI filed pursuant to the s. 148 notice, the assessee itself disallowed the VRS payment and claimed only 1/5th thereof as was allowable u/s 35DDA. The AO accepted the ROI but imposed s. 271(1)(c) penalty on the ground that there was suppression of income in the original ROI and the s. 148 ROI was not “voluntary”. The CIT (A) confirmed the penalty. Before the Tribunal, the assessee argued that s. 271(1)(c) penalty was not leviable because (a) under Explanation 3 to s. 271(1)(c), income declared in a s. 148 ROI cannot be subjected to penalty if a s. 139(1) ROI had been filed, (b) at the stage of filing the original ROI, the assessee was advised by his CA that in view of Bhor Industries 264 ITR 180 (Bom), VRS was revenue expenditure & allowable in the year it was incurred, (c) after receipt of the s. 148 notice, the assessee was advised by its CA that in view of s. 35DDA, VRS was allowable only in installments and it surrendered the claim and (d) the s. 148 notice did not refer to the VRS claim and the assessee had voluntarily disallowed it. The JM accepted the assessee’s plea that it had acted in a “bona fide manner” based on a mistaken belief of the law and penalty was not leviable. However, the AM took a converse view. On reference to the Third Member, HELD:
(i) Under Explanation 1 to s. 271(1)(c), the onus is on the assessee to prove that the explanation given by him (for not offering the correct income to tax) is bona fide. The explanation must be an “acceptable explanation”. While, the assessee is not required to prove what he asserts to the hilt positively, he must bring material on record to show that what he says is reasonably valid. On facts, the assessee’s conduct cannot be regarded as “bona fide”. Though the assessee claimed to have relied on the CA’s opinion, the opinion lacked credibility because while he referred to Bhor Industries, he did not deal with s. 35DDA which was in effect as of 1.4.2001. Further, in the immediately preceding year, the assessee itself applied s. 35DDA and so it cannot claim ignorance of that provision and there was no reason for it to deviate from the tax treatment given to the VRS payments in the earlier assessment years. Just because a claim is supported by a CA’s opinion, this fact per se cannot absolve the assessee from penalty u/s 271(1)(c). The assessee’s claim was contrary to s. 35DDA and such that no two opinions were possible thereon;
(ii) The assessee’s claim, relying on Tapan Bhattacharya v/s ITO, that if the s. 148 reopening reasons do not refer to an issue and the assessee voluntarily surrenders it, s. 271(1)(c) penalty is not leviable is not acceptable. The claim that the AM was a party to that judgement and so could not have taken a contrary view in the assessee’s claim is also not acceptable. U/s 255(4), a Third Member has to merely expressly an opinion on the difference and he does not hear an appeal against the orders passed by the dissenting members. He cannot decide which dissenting member is right and which one is wrong. The practice usually followed in Third Member proceedings of advancing arguments in support of or against the views adopted by the dissenting Members, proceeds on the fallacious assumption that the job of the Third Member is to approve or disapprove the views of the dissenting embers. While it is very tempting to sit in judgment over the what one’s colleagues decide, and take a magnified view of one’s powers as a third member, yielding to such temptation, irrespective of how senior or how junior these colleagues could be to the Third Member, is not only wholly improper but also plainly contrary to the scheme of s. 255(4). It is improper because all the Members in the Tribunal are at the same level of judicial hierarchy with the same judicial powers, and it is contrary to the scheme of s. 255(4) because all that this section provides for is an additional judicial opinion so as to form majority and not an appeal against the orders passed by the Members in the original coram of the bench.