INJECT CARE PARENTERALS PVT. LTD.,VAPI vs. DCIT, CIRCLE-2(1)(1),, AHMEDABAD

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals)-6, Ahmedabad dated 17/01/2018 (in short “Ld.CIT(A)”) arising in the matter of penalty order passed under s.271(1)(c) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.15/03/2013 relevant to the Assessment Year 2010-2011.

The interconnected issue raised by the assessee in all the grounds of appeal is that the learned CIT (A) erred in confirming the penalty levied by the AO under section 271(1)(c) of the Act on addition of Rs. 4,05,328/-.

The facts in brief are that the assessee in the present case is a private limited company and engaged Manufacturing of Pharma Products. The assessment for the year under consideration was completed under section 143(3) of the Act order dated 15-03-2013 after inter-alia making certain additions to the total income of the assessee as detailed under: (a) Disallowances of consolidated tax of Rs. 91,726/- under section 43B (b) Disallowances of Rs. 2,97,572/- under section 36(1)(v) on account of delayed payment of PF/ESI (c) Disallowances of interest expenses of Rs. 1,530/- being capital in nature (d) Disallowances of Rs. 14,500/- on account of penalty to Sales Tax and Excise Department 3.1 The AO during the assessment proceedings initiated the penalty proceedings under section 271(1)(c) of the Act on account of furnishing in accurate particular of income/ concealment of income with respect to the above additions. Accordingly, the AO subsequently issued notice under section 274 read with section 271(1)(c) of the Act, dated 15-03-2013 proposing the penalty for the additions as discussed above.

The assessee in response to such notice made its submission as elaborated below: a. Regarding the disallowance of consolidated tax of Rs. 91,726.00 under section 43B of the Act. i. It has claimed an expenditure of Rs. 10,99,789/- towards the consolidated tax in its profit and loss account which was paid before filing the income tax return within the due date as specified under section 139(1) of the Act except for the sum of Rs. 91,726/- which was paid after the due date of filing the Income Tax Return. The assessee further submitted that the tax auditor in its tax audit report has not made any disallowance qua the consolidated expenses paid after the due date. Accordingly the assessee inadvertently claimed the deduction of Rs. 91,726/- in the year under consideration. ii. The assessee also claimed that the AO has not allowed the deduction of Rs. 91,726/- in the subsequent assessment year in which the payment was made as per the provisions of section 43B of the Act. iii. Accordingly, the assessee argued that it has claimed the deduction for the consolidated tax expenses under the bona fides believe. b. Regarding the disallowance of Rs. 2,97,572.00 under section 36(1)(v) of the Act on account of delayed payment of ESI and PF i. The assessee submitted that the deduction was claimed under the bona fides believe after placing reliance on the judgment of Hon’ble Delhi High Court in the case of AIMIL ltd reported in 188 taxman 265. Therefore, the assessee should not be visited with the penalty. c. Regarding the disallowance of interest expenses of Rs. 1530.00 being capital in nature i. The assessee under the bona fides believe claimed the interest expenses incurred on the money borrowed for the acquisition of capital asset as revenue expenditure. As such, all the details of the interest expenses were duly disclosed in the financial statements. Therefore there cannot be any penalty on account of concealment of income. d. Regarding the disallowance of Rs. 14,500.00 on account of penalty payment to Sales tax and Excise department i. The assessee claimed that it has incurred the impugned expenses in the course of the business which were wrongly classified as penalty under the accounting head. Therefore it claimed that the demand raised by the sales tax and excise department for the amount of tax has been treated as penalty inadvertently. Accordingly the assessee claimed that there cannot be any penalty on such amount on account of concealment of income.

However, the AO disagreed with the contention of the assessee and levied the penalty being 100% of the amount of tax sought to be evaded on above addition of Rs. 4,05,328/- only.

The assessee before the learned CIT (A) submitted as under: a. Regarding the disallowance of consolidated tax of Rs. 91,726.00 under section 43B of the Act i. The assessee before the learned CIT (A) submitted that it has claimed the deduction for the consolidated tax paid after the due date of filing the income tax return under the bona fides believe. Moreover, it has not claimed any deduction for such expenses in the subsequent year. ii. However, the learned CIT (A) disregarded the contention of the assessee by observing that the assessee has concealed the particular of income by claiming the deduction for the consolidated amount of tax which was not eligible for deduction as per the provisions of section 43B of the Act. b. Regarding the disallowance of Rs. 2,97,572.00 under section 36(1)(v) of the Act on account of delayed payment of ESI and PF i. The assessee before the learned CIT (A) claimed that the deductibility of employee’s contribution towards the ESI/PF is debatable issue. As such certain Hon’ble High Courts have decided the issue in favour of the assessee. Therefore, the assessee should not be visited with the penalty on account of concealment of income. ii. However the learned CIT(A) disregarded with the contention of the assessee by observing that the jurisdictional High Court has decided the issue against the assessee in the case of CIT vs. Gujarat State Road Transport Corporation reported in 41 Taxman.com 100. Accordingly, he confirmed the order of the AO. c. Regarding the disallowance of interest expenses of Rs. 1530.00 being capital in nature i. The assessee submitted that there is nothing on record suggesting that the assessee has concealed the income/furnished inaccurate particular of income by claiming the interest expenses as revenue in nature. ii. However the learned CIT (A) disregarded the contention of the assessee by observing that such interest expenses being capital nature cannot be claimed as deduction in the profit and loss account. Accordingly, the learned CIT (A) upheld the order of the AO. d. Regarding the disallowance of Rs. 14,500.00 on account of penalty payment to Sales tax and Excise department i. The assessee before the ld. CIT-A submitted that it has incurred the impugned expenses in the course of the business which were wrongly classified as penalty under the accounting head. The assessee further submitted that the contrary view taken by the AO for making the addition does attract the penalty. ii. However, the learned CIT (A) disregarded the contention of the assessee by observing that the penalties claimed by the assessee are not allowable deduction. Thus the assessee by claiming the deduction has furnished inaccurate particular of income/concealed particular of income. Accordingly the learned CIT (A) upheld the order of the AO.

The learned AR before us reiterated the submissions as made before the authorities below whereas the learned DR before us vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. Now, we proceed to adjudicate each addition/items with respect to which the penalty was levied. a. Regarding the disallowance of consolidated tax of Rs. 91,726.00 under section 43B of the Act. i. Admittedly, the amount of consolidated tax was not eligible for deduction as per the provisions of section 43B of the Act. But, the same was eligible for deduction on payment basis in the subsequent assessment year as the payment made by the assessee falls in the subsequent assessment year. However, neither the assessee nor the AO has claimed/allowed the deduction in the subsequent assessment year. ii. Undisputedly, the claim made by the assessee in the profit and loss account was not the false claim. As such, the claim made by the assessee was disallowed by the operation of law i.e. under the provision of section 43B of the Act. Therefore, we are of the considered view that such claim of the assessee can be regarded as a wrong claim but the same cannot be equated with the concealment of income or furnishing inaccurate particular of income. Therefore, we are of the view that the assessee cannot be visited with the penalty on account of concealment of income. b. Regarding the disallowance of Rs. 2,97,572.00 under section 36(1)(v) of the Act on account of delayed payment of ESI and PF i. The assessee in the present case has filed his revised return of income dated 18-04-2011 claiming the deduction of the aforesaid amount whereas the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Gujarat State Road Transport Corporation (supra) was rendered dated 26-12-2013. Thus it is evident that, the assessee was not aware of the judgment relied by the learned CIT (A) while imposing the penalty on account of concealment of income. We also note that the judgment of Hon’ble Delhi High Court in the case of AIMIL Ltd was in favour of the assessee which was rendered dated 23-12-2009 i.e. before filing the return of income by the assessee. Accordingly, we find that the assessee has claimed the deduction under the bona fides believe. Hence, we hold that the assessee cannot be visited with the penalty in the given facts and circumstances on account of concealment of income.

In the result, the appeal of the assessee is allowed.