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Income Tax Appellate Tribunal, JAIPUR BENCHES “B”, JAIPUR
Before: SHRI RAMESH C SHARMA, AM & SHRI VIJAY PAL RAO, JM vk;dj vihy la-@ITA No. 75/JP/2019
ORDER PER: R.C. SHARMA, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A), Kota dated 22/11/2018 for the A.Y. 2013-14 in the matter of imposition of penalty U/s 271(1)(c) of the Income Tax Act, 1961 (in short the Act).
Rival contentions have been heard and record perused. Facts in brief are that the assessee company derives income from trading of tea blended in its own factory and from windmill. During the course of scrutiny assessment, the AO has disallowed the deduction of Rs. 88,51,859 claimed
2 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT by the assessee company under section 80IA of the Act due to the reason that there was a delay of 31days in the filing of return of income. It was submitted that the tax audit report and audited financial statements were duly filed well in time. However, due to shortage of funds, the huge amount of self-assessment tax could not be deposited in time and therefore, it was not possible to furnish the return of income on or before the due date. However, the A.O. did not agree with the assessee’s contention and disallowed assessee’s claim of deduction U/s 80IA of the Act merely on the ground that the return so filed was delayed by 31 days. The A.O. also levied penalty with respect to disallowance of deduction U/s 80IA of the Act which was confirmed by the ld. CIT(A), against which the assessee is in further appeal before us.
The ld AR appearing on behalf of the assessee has contended that the tax audit report was originally filed well in time, on 30/09/2013 itself, alongwith the audited financial statements. The deduction of Rs. 88,51,859/- admissible to the assessee company under Section 80IA was duly mentioned in the Tax Audit Report under Section 44AB, in Clause 26 of Form No. 3CD. Thus, the company has made substantial compliance of the provisions of Section 80IA, r.w.s 80AC by filing the tax audit report and audited financial statements in time. Thus, the assessee company did not intend to contravene the legal provisions. As per the ld AR the provisions
3 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT of Section 80AC are directory in nature and not mandatory. Therefore, a substantial claim or benefit to the company should not be denied on the ground that the provisions of Section 80AC, 80IA(7) or other similar sections which are procedural and directory in nature, are not met with due to genuine reasons beyond the control of the company. For this purpose, reliance was placed on the decision in the case of CIT Vs M/s Unitech Ltd. in of 2015 (Delhi HC). As per the ld AR in the case of CIT Vs Gujarat Oil & Allied Industries (1993) 201 ITR 325 (Guj), the provisions of Section 80J(6A) were considered. The wording of Section 80J(6A) is similar to that of Section 80AC which is in issue in the present case. The Hon’ble Gujarat High Court took the view that the word “shall” which occurs in Section 80J(6A) be read as “may” and that the requirement of filing of an audit report alongwith the return was only to be taken as directory in nature and in case the audit report is submitted at any time before the framing of the assessment, it will be sufficient compliance of provisions. It was also argued by the ld AR that it is well settled rule of interpretation in income tax law that a beneficial section has to be construed liberally, having due regard to the object which it intends to serve. When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred so that injustice is not done because of non-deliberate delay. As 4 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT per the ld AR, it is an established law that penalty proceedings are distinct from assessment proceedings. Levy of penalty is not a necessary concomitant of assessment proceedings. Mere fact that disallowance has been made and upheld in appeal, does not justify the imposition of penalty under section 271(1)(c) of the Act. In Laxmi Jewellery vs. CIT (1988) 171 ITR 649 (AP), it was held that the finding given in assessment proceedings for determining or computing the tax is not conclusive, and the assessee may establish his case during penalty proceedings even though addition made in assessment has been accepted. They referred to CIT v. Abdul Bakshi & Bros. (1986) 160 ITR 94 (AP) that penalty proceedings are entirely distinct from assessment proceedings.
The ld AR has further contended that since all material and facts relevant to the computation of total income were duly furnished by assessee and no deficiencies in furnishing of such facts were pointed out by the department, deeming fiction of Explanation 1 to section 271(1)(c) was not applicable to the assessee's case. Merely on account of disallowance of certain claim, penalty cannot be imposed u/s 271(1)(c). For this purpose, reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158 (SC), wherein the Hon'ble Supreme Court explained the meaning of the term 'furnishing of inaccurate particulars'. It was observed that 'inaccurate particulars' means the details supplied in the return which are not 5 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT accurate, not exact or correct, not according to truth, or erroneous. It was held that making a claim which is not sustainable in law, cannot, by itself, amount to furnishing of inaccurate particulars. It was further held that by no stretch of imagination can it be held that making an incorrect claim in law would tantamount to furnishing of inaccurate particulars.
In support of the above contention, reliance was also placed on the decision of the Chandigarh bench of the Tribunal in the case of ACIT Vs Perfect Forgings (2011) 11 ITR (Trib) 166 (Chd) wherein it was held that there is no merit in imposition of penalty with respect to disallowance of deduction U/s 80-IB and 80HHC of the Act in so far as the assessee had disclosed material facts for its computation of income in its return. In respect of such claims, there was no justification for levy of penalty. Reliance was also placed on the decision of Coordinate Bench of Chandigarh Bench of Tribunal in the case of DCIT Vs Parabolic Drugs Ltd. (2015) 58 taxmann.com 319 (Chd Trib) has held as under:
“Section 271(1)(c), read with section 80-IB, of the Income-tax Act, 1961 - Penalty For concealment of income (Disallowance of claim, effect of) - Assessment year 2005-06 - Assessee-company was engaged in manufacture of bulk drugs and fine chemicals - It claimed deduction under section 80-IB - Assessing Officer held that assessee did not qualify as small-scale industry as investment in plant and machinery was more than monetary limit prescribed by Ministry of industries for small-scale industries - Consequently, Assessing Officer levied penalty under section 271(1)(c) on ground that assessee had made a wrong claim of deduction under section 80-IB(3) - It was found
6 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT that assessee was small scale unit and was entitled for deduction under section 80-IB earlier and it was only because of some additions made in relevant year, that assessee would not have qualified for said deduction - Further, assessee had disclosed complete particulars in its return which was accompanied by audit report - Whether imposition of penalty was not justified Held, yes [Paras 9 and 10] [In favour of assessee] IT : Where assessee had disclosed complete particulars in respect of its claim for deduction under section 80-lB in its return which were accompanied by audit report, there was neither any concealment of income nor furnishing of inaccurate particulars of income so as to attract penalty under section 271(1)(c).”
Reliance was also placed on the decision of Karp Impex Ltd. Vs DCIT 2015 TaxPub (DT) 1730 (Mum-Trib) wherein it was held that merely decline of claim of assessee U/s 80JJA would not automatically make the assessee liable for penalty U/s 271(1)(c) of the Act in so far as the assessee has not furnished inaccurate particulars and the explanation given by the assessee with regard to its belief for the claim of deduction could not be said to be malafide.
Our attention was invited to the penalty order passed by the A.O. wherein the AO has observed that the reply of the assessee is not acceptable as the same was submitted during the course of assessment proceedings and was duly considered by the A.O. The AO is under an erroneous impression that levy of penalty u/s 271(1)(c) is an automatic action of the AO in every case of difference in returned and assessed income and that levy of penalty in such cases is mandatory. It is a trite law that the levy of penalty is not a 7 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT consequential action by the AO in every case of difference in returned and assessed income and that levy of penalty in such cases is discretionary, which has to be exercised judiciously. Vide Para 3.3 of the reply, dated 19.02.2018 (supra), it was submitted as under :
"It is an established law that penalty proceedings are distinct from assessment proceedings, Levy of penalty is not a necessary concomitant of assessment proceedings. Mere fact that disallowance has been made and upheld in appeal, does not justify the imposition of penalty under section 271(1)(c). The findings recorded in the assessment order only lays down the foundation for levy of penalty. It was pointed out in ACIT v. Rawalpindi Flour Mills (P) Ltd.. (1980) 125 ITR 243 (All), that material collected during assessment proceedings and finding arrived at therein can be relied upon in penalty proceedings but on this basis alone the imposition of penalty cannot be sustained.
Ld. AR also placed reliance on the decision of Chandigarh Bench of the Tribunal in the case of Symbiosis Pharmaceuticals (P) Ltd. Vs. DCIT (2017) 190 TTJ 518 (Chd-Trib) wherein the Tribunal has observed as under:
“Deduction under section 80-IC--Allowability of Belated filing of return under section 139(4)--Reasonable cause--Where assessee filed return within extended period of section 139(4) and delay was caused by reason beyond the control of assessee, liberal interpretation was to be given to procedural requirement of section 80AC and denial of deduction under section 80-IC was not, therefore, justified.--Assessee claimed deduction under section 80-IC. AO disallowed the deduction on the ground that assessee did not file its return within the due date specified under sub-section 139(1) and filed it only in the extended period as set out in section 139(4). Assessee's case was that its tax consultant
8 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT colluded with rival parties and resultantly the return was filed late. Held: Literal interpretation is to be given to the procedural requirements of section 80AC, as much as these provisions being machinery provisions and thus being directory, did not stand as a bar in the facts of instant case as filing of the return was delayed for reasons not attributable to the assessee and all other supporting evidences in the form of audit report under section 80-IC, balance sheet prepared for the purpose of income tax and the requirements of various regulatory authorities were prepared and filed well within time. Accordingly, considering the peculiar facts and circumstances of the case, denial of deduction under section 80-IC was not justified.
In view of the above contentions, the ld AR has submitted that the A.O. was not justified in levying the penalty.
On the other hand, the ld DR has relied on the orders of the authorities below and contended that the disallowance of assessee’s claim of deduction was confirmed by the ITAT, therefore, the A.O. was justified in imposing penalty U/s 271(1)(c) of the Act for furnishing inaccurate particulars of income.
We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by the lower authorities in their respective orders while levying the penalty as well as cited by the ld. AR during the course of hearing before us in support of its contention that it was not a fit case for levy of penalty. From the record we found that the assessee company derives income from trading of tea blended in its own factory and form
9 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT windmill. During the year under consideration, the assessee claimed deduction U/s 80IA of the Act. The assessee’s claim for deduction was declined only on the plea that there was delay of 31 days in filing return of income. By referring the provisions of Section 80AC, the A.O. declined claim of deduction as there was delay in filing return. We found that not only tax audit report but also audited financial statements were filed well within the time and only due to the shortage of fund, the assessee could not pay self-assessment tax, therefore, return could not be filed before due date. While declining claim of deduction U/s 80IA of the Act, no defect was pointed out by the A.O. with regard to assessee’s eligibility save and except there was delay in filing return of income. We also found that eligible amount of deduction U/s 80IA of the Act amounting to Rs. 88,51,859/- was mentioned in the tax audit report and clause (26) of Form 3CD. Thus, there was a substantial compliance of the provisions of Section 80IA read with Section 80AC of the Act by filing tax audit report with audited financial statement well in time. Under these facts and circumstances when there was full disclosure by the assessee and there was no failure on the part of the assessee to fully disclosed all the material facts with regard to claim of deduction U/s 80IA of the Act, we do not find any justification in levying of penalty merely on the ground that due to delay in filing return, the assessee’s claim was declined. The Hon’ble
10 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT Supreme Court in the case of CIT v. Reliance Petro Products Ltd. [2010] 322 ITR 158/189 Taxman 322 (SC) has observed as under: "A glance of provision of section 271(1)(c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars. [Para 7]. Therefore, it must be shown that the conditions under section 271(1)(c) exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed, because that is the only document, where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. [Para 8] The word 'particulars' must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In the instant case, there was no finding that any details supplied by the assesses in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c). A mere making of the claim, which is not sustainable in law by itself
11 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. [Para 9] The revenue contended that since the assesses had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. Such contention could not be accepted as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. [Para 10] " 4.7 In Reliance Petro Products Ltd. (supra), the Hon'ble Supreme Court emphasized that mere making of a claim of deduction which was not allowable by itself would not amount to furnishing inaccurate particulars of income. In fact, every legal disallowance under the provisions of the Act could not lead to the conclusion that there was furnishing of inaccurate particulars of income on the part of the assessee. We also find in the case of CIT v. Dharampal Premchand Ltd. [2010] 329 ITR 572/202 Taxman 94 (Mag.)/11 taxmann.com 437 (Delhi), it was held that merely because the assessee had 12 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT claimed deduction u/s.80IA and 80IB of the Act which claim was not acceptable to the Revenue, that by itself would not attract the penalty proceedings as the same could not be construed as furnishing inaccurate particulars of income u/s.271(1)(c) of the Act. In view of above factual and legal discussion, the penalty levied by the Assessing Officer was rightly deleted by the CIT(A), which needs no interference from our side. We uphold the same.”
As per our considered opinion, the penalty can be imposed only where the conditions laid down u/s.271(1)(c) of the Act are satisfied, and the penalty is not an automatic consequence for every addition to returned income. Merely because an addition is made to the income declared by the assessee, penalty u/s.271(1)(c) could not be imposed. Raising a bona fide legal claim in the return of income, even if it is ultimately found to be legally not acceptable, could not amount to concealing particulars of income or furnishing of inaccurate particulars of income. The assessee could not be saddled with penal consequences merely because a bona fide legal claim was made in the return of income and the same has not been accepted by the tax authorities or appellate authorities so far. Thus, the case of assessee could not be said to be a case of 'concealing particulars of income' or 'furnishing of inaccurate particulars of income' as contemplated under section 271(1)(c) of the Act.
13 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT 12. In the case of Pr. CIT v. Sundaram Fasteners Ltd. [2018] 92 taxmann.com 356 (Madras) the Hon’ble Madras High Court has held as under: Section 271(1)(c), read with section 80-IB, of the Income-tax Act, 1961 - Penalty - For concealment of income (Disallowance of claim, effect of) - Assessment year 2004-05 - Assessee was a manufacturer of automobiles components like fastners, radiator caps, gear shifters etc. - For relevant year, assessee filed its return claiming deduction under section 80-IB - Assessing Officer rejected assessee's claim on ground that out of four units belonging to assessee, only two units had made profits but other two units had incurred losses and putting all four units together there was loss - Tribunal confirmed order passed by Assessing Officer denying deduction claimed under section 80-IB - Thereupon, the Assessing officer passed a penalty order under section 271(1)(c) - Tribunal found that assessee had a reasonable basis to stake a claim for deduction under section 80-IB, which had been disallowed upon interpretation of said provision of Act - Tribunal thus held that there was no ground for levy of penalty for furnishing inaccurate particulars of income - Whether since Tribunal had arrived at factual finding that disallowance was made due to interpretation of applicable provision of Act, are there was no concealment, impugned order deleting penalty was to be upheld - Held, yes [Para 24][In favour of assessee] HELD The Explanation to section 271 makes it clear that, if in case of concealment of particulars of income or furnishing of inaccurate particulars of income, the assessee fails to offer an explanation or offers an explanation which is found by the ITO or the AAC to be false or offers an explanation which he is not able to substantiate, the amount added or disallowed in computing the total income of such person shall for the purpose of clause (c), i.e., for the purpose of concealment, be deemed to represent the income in respect of which particulars
14 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT have been concealed. Proviso to Explanation makes it clear that the Explanation is not to apply to a case in respect of any amount added or disallowed as a result of the rejection of any explanation offered by such person, if such explanation is bona fide and all the facts relating to the same and material to the computation of his total income have been disclosed by him. [Para 22]
In the case of CIT v. Petals Engineers (P.) Ltd. [2014] 42 taxmann.com 433 (Bombay), the Hon’ble Bombay High Court has held as under: “Section 271(1)(c), read with section 80-IA, of the Income-tax Act, 1961 - Penalty - For concealment of income (Disallowance of claim, effect of) - Assessment year 1994-95 - Assessee shifted its unit from one place to another - More than 80 per cent of cost at new factory was by installing new plant and machinery and only less than 20 per cent of cost was towards transferring plant and machinery - Assessee was under impression that it was entitled to benefit under section 80-IA and, thus, claimed said deduction - Said claim was held as not allowable - Whether since assessee was under a bona fide belief, penalty under section 271(1)(c) was not sustainable - Held, yes [Para 7].”
In the case of CIT v. Dharampal Premchand Ltd. [2011] 11 taxmann.com 437 (Delhi), the Hon’ble Delhi High Court has held as under: “Section 271(1)(c), read with sections 80-IA and 80-IB of the Income-tax Act, 1961 - Penalty - For Concealment of Income - Assessment year 2001-02 - Assessee was engaged in manufacture of flavoured chewing tobacco and kimam - For relevant assessment year, assessee filed its return wherein deductions under sections 80- IA and 80-IB were claimed - Assessing Officer rejected assessee's claim for deduction - He also levied penalty under section 271(1)(c) on ground that assessee had wrongly claimed deduction in its return of income - On appeal, assessee contended that it had disclosed all material facts pertaining to 15 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT computation of deduction admissible under sections 80-IA and 80-IB - Assessee further contended that it was of opinion that interest earned on banks and interest paid to others had a direct nexus to business activities and, therefore, deduction of said amount would be admissible - It was also put forth that there was no deliberate attempt on part of assessee to conceal particulars of income - Commissioner (Appeals) accepted assessee's explanation and set aside penalty order - Tribunal upheld order passed by Commissioner (Appeals) - Whether on facts, no substantial question of law arose from Tribunal's order - Held, yes.”
In the case of Sharda Construction and Investment Company (2015) 152 ITD 574 (Pune-Trib), the observation of the Tribunal was as under: “Section 271(1)(c), read with section 80-IA, of the Income-tax Act, 1961 - Penalty - For concealment of income (Disallowance of claim, effect of) - Assessment year 2004-05 - Assessee, engaged in production of power from windmill, claimed deduction under section 80-IA - Assessing Officer noticed that sales tax benefit were included in said deduction though they were not derived from eligible business - Assessee submitted that it was part of trading receipt - Assessing Officer disallowed deduction to that extent and initiated penalty proceedings - Whether since assessee had made disclosure by way of furnishing facts and material in computation of income and no information or statement given in return or during assessment proceedings was found to be factually incorrect or inaccurate, case of assessee could not be said to be a case of concealing particulars of income' or 'furnishing of inaccurate particulars of income' as contemplated under section 271(1)(c) - Held, yes [Para 10].”
From the record we found that in this case, all the material facts relevant to the computation of total income was duly furnished by the assessee and no deficiency in furnishing of such facts was pointed out either by the A.O. or by the ld. CIT(A). Deeming fiction of Explanation 1 to 16 ITA 75/JP/2019_ M/s Shiv Kr. Sushil Kr. Tea Enterprises P Ltd. Vs ACIT Section 271(1)(c) was not applicable to the assessee's case and merely on account of disallowance of certain claim, penalty cannot be imposed u/s 271(1)(c) of the Act. Considering the facts and circumstances of the case and applying the proposition of law laid down in the above judicial pronouncements, we do not find that it is a fit case for levy of penalty, accordingly, the A.O. is directed to delete the penalty of Rs. 27,35,224/- so imposed U/s 271(1)(c) of the Act. We direct accordingly.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 05th August, 2019.
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