SAI ENTERPRISE,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-3(1)(5),, BARODA

Present three appeals are directed at the instance of the assessee against orders of the ld.CIT(A) dated 27.2.2014, 12.4.2016 and 12.4.2016 passed in the Asstt.Year 2008-09, 2009- 10 and 2010-11 respectively.

Sole grievance of the assessee is that the ld.CIT(A) has erred in confirming the penalty of Rs.4,25,030/-, Rs.18,30,060/- and Rs.12,74,580/- in the Asstt.Years 2008-09 to 2010-11 2 respectively, which were imposed by the AO under section 271(1)(c) of the Income Tax Act.

Facts on all vital points are common in all these assessment years. For the facility of reference, we take up the facts from the Asstt.Year 2009-10, because on the basis of finding of the Asstt.Year 2009-10, assessment was reopened in the Asstt.Year 2008-09, and the assessment order was passed on 30.8.2013 under section 143(3) r.w.s. 147 of the Act, whereas assessment in the Asstt.Year 2009-10 was framed under section 143(3) on 19.12.2011.

Before adverting to the facts leading to imposition of penalty in all these three years, it has been brought to our notice that the appeal in the Asstt.Year 2008-09 is time barred by 10 days. In order to explain the delay, the assessee has filed an application for condonation of delay. It has also filed affidavit of Shri Alpesh Gunvantrai Shah who is partner of M/s.Sai Enterprises. According to the assessee, the ld.CIT(A) has decided the appeal on 25.1.2016 and order was received on 12.2.2016. The appeal was to be filed by 22.4.2016, but somehow the Chief Accountant of the assessee-firm was out of town on social-cum-religious function, and he has put the relevant papers in drawer. Thereafter, there were 5 days vacation and the office was closed. On account of this, appeal became time barred by 10 days. After considering the explanation of the assessee, with the assistance of the ld.representatives, we are the opinion that the assessee has been prevented by sufficient reasons for not presenting the appeal before the Tribunal. Therefore, we condone the minor delay of 10 days in filing the appeal. Now, we take the appeal on merit. 3 5. Brief facts of the case are that according to the assessee it was engaged in development of industrial park and claimed deduction under section 80IA of the Act in respect of income from development of Industrial Park Scheme 2008 notified under section 80IA(4)(iii) by the Department of Revenue, CBDT vide notification no.SO.50(E) dated 8.1.2008. Subsequently, amended vide notification No.S.O.1605(E) dated 2.7.2008. According to the AO, the assessee has only made an application to the CBDT, but its proposal for development of industrial park was not accepted and notified by the CBDT. Hence, the assessee was not entitled for claiming deduction under section 80IA(4). It has claimed deduction of Rs.16,99,120/- in the Asstt.Year 2008-09, Rs.59,22,530/- in the Asstt.Year 2009-10 and Rs.41,25,775/- in the Asstt.Year 2010-11. The ld.counsel for the assessee during the course of hearing submitted a list of events which read as under: “1) Industrial Park Scheme Started on 16-8-2007 2) Appl. To C B D T for Notification of Scheme 27-12-2007 by C B D T. 3) I.T. Return filed stating claim and other Basic Details for 27-9-2009 order u/s. 143( 1) was passed 4) Notice u/s. 143(2) was issued dated 18-8-2010 & further details furnished for claim of Exemption u/s.80IA (4)(iii) & further details were submitted 9-11-2011 5) Assessment Order dated u/s. 143(3) passed dated 19-12-2011 Computing Total Income of Rs.59,22,530 6) Show Cause Notice of Penalty u/s.271(l)(c ) for Both offence ie. 19-12-2011 "have furnished inaccurate particulars of income and thereby concealed the income.” 18-3-2014 7) Penalty u/s.271(l)(c) passed on 20-3-2015 Penalty Levied for "furnishing Inaccurate Particulars of Income" Rs. 18,30,062 8) Appeal to CIT(A)-3, Baroda 7-4-2015 9) Proceeding with C B D T Continued & Final 13-5-2014 Rejection order of C B D T is of 10) Order of CIT(A) confirming Penalty dated 12-4-2016 11) Order of CIT(A) received on 13-5-2016 12) Appeal to Hon.Tribunal against Penalty filed on 17-6-2016 ITA No.1013/Ahd/2016 4 13) Order of Hon. Tribunal in Quantum Appeal 6-9-2016 in the case of Sai Enterprise vs. ITO; ward 5(2) Baroda for A.Y.2009-10 'D' Bench, Ahmedabad 14) Copy of order of Hon.High Court in the case of 11-9-2017 Sai Enterprise vs. Union of India & 4 in Sp.Civil Application No. 18098 of 2016 is dated Setting aside Rejection Order of CBDT of 13-5-2014”

According to the assessee the scheme was started in August,2008. The assessee filed an application on 27.12.2007. It has filed return on 27.9.2008 in the Asstt.Year 2009-10. According to the assessee, when return under section 139(1) was filed for the Asstt.Year 008-09, i.e. 12.9.2008 its application for sanction of claim for development of industrial park was pending with CBDT and it was hopeful of getting approval. Therefore, it has claimed deduction under section 80IA(4) of the Act. It has not furnished inaccurate particulars, rather it has disclosed all the details. The deduction could not be granted to the assessee because ultimately its proposal was not approved by the CBDT. Had the assessee not made claim and its scheme was got approved, then it would be prohibited to make such claim. He also pointed out that order of the CBDT was set aside by the Hon’ble Gujarat High Court in Special Civil Application No.18098 of 2016. The Board has ultimately rejected its application on 13.5.2014. It is a subsequent development i.e. after assessment order passed in these assessment years. On the strength of the above, the ld.counsel for the assessee submitted that there is no deliberate attempt at the end of the assessee to furnish any inaccurate particulars of income or conceal the income.

On the other hand, the ld.DR relied upon the order of the ld.CIT(A). He submitted that the assessee was well aware about its illegibility for making such claim. It was very specific that 5 unless CBDT approves its claim it cannot make a claim under section 80IA(4)(iii) of the Act. He also emphasised that in the return of income the assessee has not made disclosure to this effect that its application for approval of the scheme is pending with the CBDT.

Section 271(1)(c) of the Income Tax Act, 1961 has direct bearing on the controversy. Therefore, it is pertinent to take note of the section.

A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT(Appeals) during the course of any proceedings before them should be satisfied, that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important features of this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by giving a categorical finding to the effect that 7 explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

In the light of the above, let us examine the facts of the present case. Computation of income for the Asstt.Year 2009-10 has been placed on page no.2 of the paper book. In this computation, the assessee has claimed deduction under Chapter VIA by observing that industrial undertaking started on 16.8.2007. Now this deduction was disallowed to the assessee on the ground that its industrial undertaking was not approved by the CBDT. This proposal appears to have been still pending because the assessee pursued the matter with the CBDT. Its proposal was rejected on 13.5.2014, but the assessee has challenged such rejection before the Hon’ble Gujarat High Court by way of SCA. Its application was allowed on 11.9.2017. The ld.counsel for the assessee was unable to point out the status of the assessee’s proposal before the CBDT after the decision of the Hon’ble Gujarat High Court. It appears that the assessee was prima facie of the view that its scheme would be approved and it will be entitled for deduction under section 80IA(4) of the Act. When the assessment 8 proceedings were going on, its proposal was pending before the CBDT. This fact was in the knowledge of the department. As far as disallowance of the deduction claimed by the assessee in the quantum proceeding is concerned, since the assessee failed to fulfill the requisite condition that deduction has to be disallowed, but for the purpose of penalty, we have to ascertain whether a deliberate effort was made by the assessee for withholding such information or furnishing inaccurate particulars, which would lead to concealment of income. To our mind, the assessee has made a claim anticipating sanction of scheme by the CBDT and it has disclosed this fact during the course of assessment proceedings. It does not deserve to be visited with penalty in the above facts and circumstances. Therefore, we allow all three appeals of the assessee and delete the impugned penalty.

In the result, all three appeals of the assessee are allowed. Order pronounced in the Court on 9th July, 2019.