CIT, FARIDABAD vs. M/S OLYMPIA ELECTRONICS PVT. LTD.

The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 30.11.2007, Annexure A.VI passed by the Income Tax Appellate Tribunal, Delhi Bench 'H' New Delhi (in short, “the Tribunal”) in ITA No.1748/DEL/2006 for the assessment year 1993-

The appeal was admitted on 21.7.2009 to consider the question formulated in the order dated 24.2.2009, which reads thus: “Learned counsel for the appellant vehemently contends that the respondent assessee earned the interest income to the tune of ` 58,55,570/- from fixed deposit. He however claimed exemption under Section 10B of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). This stance of the respondent-assessee, according to the learned counsel for the appellant was preposterous, and Singh Gurbax 2013.09.11 10:34 integrity of this document High Court Chandigarh as such, even though the respondent-assessee had disclosed the aforesaid income, he was liable to be levied penalty under Section 271(1) (c) of the Act, and that, explanation 1 under Section 271(1) of the Act would not be applicable in the facts and circumstances of this case on account of the fact that the explanation tendered by the respondent-assessee cannot be considered as bonafide in view of the explicit and clear mandate of Section 10B of the Act.”

A few facts relevant for the decision of the controversy involved, as available on record, may be noticed. The assessee is a company engaged in the business of manufacturing kids toys and electronic goods. The Tribunal vide its order dated 8.12.2003 in ITA No.2988/Del/98 and ITA No.2922/Del/98 set aside the issue of interest on FDRs in the hands of the assessee, which is a 100% Export Oriented Unit (EOU), as business income in respect of Income from other sources and restored the case to the Assessing Officer for fresh adjudication. In pursuance of this order, assessment in this case was completed under Section 143(3) of the Act on 31.3.2005 at an Income of ` 58,55,570/- treating the interest on FDRs as income from other sources as against business income as claimed by the assessee. Therefore, the assessee had furnished inaccurate particulars of its income. Accordingly, the Assessing Officer imposed a penalty of ` 33,66,953/- under Section 271(1)(c) of the Act vide order dated 23.9.2005, Annexure A.III. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] against the order of penalty. Vide order dated dated 2.3.2006, Annexure A-IV, the CIT(A) Singh Gurbax 2013.09.11 10:34 integrity of this document High Court Chandigarh dismissed the appeal observing that as per the assessment order interest earned by the assessee company on account of FDRs, kids stuff and service centre was not entitled to the exemption under Section 10B of the Act. Feeling aggrieved, the assessee filed appeal before the Tribunal. Vide order dated 30.11.2007, Annexure A-VI, impugned herein, the Tribunal allowed the appeal and cancelled the penalty levied under Section 271(1) (c) of the Act, holding that the claim of the assessee was bonafide and was in line with the judicial thinking on the issue at the relevant point of time when it filed its return of Income. The assessee had disclosed all facts relating to the interest income. Aggrieved by the order, the revenue is before this court through the instant appeal.

Learned counsel for the appellant submitted that the Tribunal had erred in setting aside the penalty imposed by the Assessing Officer and upheld by the CIT(A). According to the learned counsel, the assessee had made wrong claim with regard to interest received on fixed deposits. It was urged that in view of the provisions of Section 10B of the Act, interest on fixed deposits was not admissible deduction from the income and the claim made by the assessee was, thus, inaccurate.

We have heard learned counsel for the appellant and do not find any merit in the appeal.

The Tribunal while cancelling the penalty in para 9 of its order dated 30.11.2007, had recorded as under:- “9. We have considered these rival submissions. At the outset we have to mention that the facts with regard to Singh Gurbax 2013.09.11 10:34 integrity of this document High Court Chandigarh the interest income have been duly disclosed by the assessee in the notes to the computation of income filed alongwith the return of income. We have already extracted the note in this regard. The assessee has filed the return of income on 30.12.1993. It is therefore necessary to examine the position of law as it prevailed when the assessee filed its return of income. The Hon'ble Delhi High Court in the case of Snam Progetti (supra) has taken a view that interest on FDs will also be considered as business income. There were also several judicial controversies regarding the question as to whether interest income should be considered as income derived from industrial undertaking or income from other sources. This was one position as on the date when the assessee filed its return of income. The legal position however became clear after the pronouncements of the Hon'ble Supreme Court in the case of Pandian Chemicals Limited (supra). This decision of the Hon'ble Supreme Court was rendered in the year 2003. In the circumstances we have to accept the submissions of the learned counsel for the assessee that the question whether interest Income should be considered as business Income or not was a debatable issue as on the date when the assessee filed its return of income.

We have already noticed that the assessee has made a true and fair disclosure of all facts regarding its interest income. The mere fact that the Assessing Officer does not accept the claim of the assessee cannot lead to the conclusion that the assessee furnished inaccurate particulars of income. The Assessing Officer had to merely apply the law which in his opinion was applicable to the facts of the given case. The Assessing Officer was not required to make any further inquiries to find out if there was any inaccurate particulars furnished Singh Gurbax 2013.09.11 10:34 integrity of this document High Court Chandigarh by the assessee. In such circumstances the decision of the Hon'ble Delhi High Court in the case of Nath Brothers (supra) and the Rajasthan State High Court in the case of Harshvardhan Chemicals and Minerals (supra) will squarely apply. In the circumstances the charge of concealment of income levied on the assessee in our view is without any basis. We are also of the view that the burden that lay on the assessee in terms of explanation 1 to Section 271(1) is duly discharged. The assessee has offered an explanation as to why interest income was considered as business income. We have already noticed that the claim of the assessee in this regard was bonafide and was in line with the Judicial thinking on the issue at the relevant point of time when the assessee filed its return of income. The assessee had disclosed all facts relating to the interest income.

Furthermore, the Hon'ble Apex Court in Commissioner of Income Tax v. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 had held that mere making of a claim which was ultimately found to be unsustainable may not by itself amount to furnishing of inaccurate particulars regarding the income. It was recorded as under:- “We have already seen the meaning of the word “particulars” in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee 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) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars.”

In view of the above, the substantial question of law is answered against the revenue and in favour of the assessee. Accordingly, the appeal stands dismissed. (Ajay Kumar Mittal) Judge August 21, 2013