COMMISSIONER OF INCOME TAX-II vs. M/S NATIONAL INSTITUTE OF TECHNICAL TEACHER TRAINING OF RESEARCH CHD

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 2.8.2013, Annexure A.4, passed by the Income Tax Appellate Tribunal, Chandigarh Bench, ‘B’ (in short, “the Tribunal”) in ITA No.386/Chd/2013 for the assessment year 2008-09, claiming following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is right in deleting the penalty levied under section 271(1)(c) on a patently wrong claim of the assessee which was in contravention of provisions of section 43B of the Income Tax Act, 1961? ii) Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT is right in deleting the penalty levied under Section 271(1)(c) while under similar GURBAX SINGH 2014.08.06 13:32 integrity of this document High Court Chandigarh circumstances the Hon’ble Delhi Court vide its decision dated 12.9.2013 in the case of Commissioner of Income Tax III vs. Arotech Limited (Formerly SKS Limited) in ITA No.71/2013 has upheld the levy of penalty under Section 271(1) (c) on amounts not paid in accordance with provisions of section 43B of the Act 1961?”

Briefly, the facts necessary for adjudication of the controversy involved as narrated in the appeal may be noticed. The assessee is a society registered under the Societies Registration Act, 1860 with the Registrar of Societies, Delhi. It is engaged in imparting training to teachers and also undertook systemic research to provide research inputs for development of technical education training systems and its management. During the course of assessment proceedings for the assessment year in question, the Assessing officer observed that the assessee had claimed ` 35,72,000/- (leave encashment at ` 12,05,000/- and gratuity at 23,67,000/-) declared as liability as on 31.3.2008 and was found to be actually unpaid. By not making payment for leave encashment and gratuity, the assessee violated the provisions of section 43B of the Act. Penalty proceedings under section 271 (1) (c) of the Act were also initiated. The assessee did not go in appeal against the assessment framed thereby accepting the fact that wrong claim had been made by it knowingly. The Assessing Officer imposed a penalty amounting to ` 14,59,398/- vide order dated 27.6.2011 in respect of addition made under section 43B on account of unpaid leave encashment and gratuity. Not satisfied with the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 24.1.2013, Annexure A.3, the CIT(A) deleted the penalty by observing that the assessee society was functioning under the overall control of Ministry of GURBAX SINGH 2014.08.06 13:32 integrity of this document High Court Chandigarh Human Resource development, Government of India and officials were reappointed by the Government of India; the society had incurred a loss during the year and disallowance was made under Section 43B of the Act; Products Private Limited's case (supra) which was not applicable to the facts of the case and placed reliance on order dated 12.9.2013 passed by Delhi High Court in Arcotech Limited's case (supra), Annexure A.5 to submit that since the expenditure relating to payment on account of leave encashment and gratuity had actually not been paid before the close of the year under consideration, therefore, the same was disallowed under section 43B of the Act. The assessee had wrongly claimed deduction to which it was not entitled to and therefore the Assessing officer had rightly imposed penalty under Section 271(1) (c) of the Act.

After hearing learned counsel for the appellant-revenue, we do not find any merit in the appeal.

The CIT (A) while deleting the penalty noticed in its order dated 24.1.2013, Annexure A.3 as under:- “I have considered the submission of the learned counsel and have gone through the facts of the case. The appellant society is GURBAX SINGH 2014.08.06 13:32 integrity of this document High Court Chandigarh functioning under overall control of Ministry of Human Resource Development and major decisions are taken under the supervision of Government of India or officials appointed by the Government of India. The appellant society had filed a return declaring loss of more than ` 1.91 crores. The amounts relating to leave encashment and gratuity had been claimed as deduction by the appellant whereas these were not paid and so these were disallowed under section 43B of the Act. Concealment penalty has also been levied. As the appellant was a Government organization, running into huge losses, there must not have been certainly any intention to claim higher deduction. Hence, it cannot be said that appellant had deliberately claimed wrong deduction and furnished inaccurate particulars of income. The concealment penalty levied in this case is accordingly cancelled. All the grounds taken by the appellant are allowed.”

The above finding was affirmed on appeal by the Tribunal in its order dated 2.8.2013, Annexure A.

It was recorded as under:- “The above clearly shows that once particulars have been given in the return which are not found to be incorrect then it cannot be said that the assessee has filed inaccurate particulars. In case before us, only claim in respect of leave encashment and gratuity was disallowed but all the particulars were disclosed. We also have to keep in our mind that the assessee is a society functioning under the overall control of Ministry of Human Resource Development, Government of India and which is a non commercial enterprise. Therefore, a lenient view needs to be taken. Accordingly we are of the opinion that it was not a fit case for levy of penalty and accordingly confirm the order of the learned CIT(A).”

The Apex Court in Reliance Petro Products Pvt. Limited's case (supra) had held as under:- GURBAX SINGH 2014.08.06 13:32 integrity of this document High Court Chandigarh “A glance at the provisions of section 271(1) (c) of the Income Tax Act, 1961 suggests that in order to be covered by it, 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 meaning of the words ‘particulars’ used in Section 271(1) (c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee 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. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.”

A perusal of the findings recorded by the CIT(A) and the Tribunal shows that the assessee-society was functioning under the control of Ministry of Human Resource Development. It had filed a return declaring loss of more than ` 1.91 crores. The amounts relating to leave encashment and gratuity being claimed as deduction were not paid before the closing of the financial year and therefore, the same were disallowed under Section 43B of the Act. The liability to pay, however, was not in dispute. After examining the matter, it was noticed by the CIT(A) that the assessee had not deliberately claimed wrong deduction and furnished inaccurate particulars of income. The Tribunal also observed that once full particulars had been GURBAX SINGH 2014.08.06 13:32 integrity of this document High Court Chandigarh given in the return which were not found to be incorrect, it could not be said that the assessee had filed inaccurate particulars. The said findings have not been shown to be illegal or perverse in any manner. Consequently, we do not find any merit in the appeal.

Referring to the judgment of the Delhi High Court in Arcotech Limited's case (supra), it may be noticed that therein the finding came to be recorded against the assessee that the deduction claimed was not bonafide and justified. The onus to establish the genuineness of the expenses was on the assessee which the assessee had failed to discharge. The Tribunal while dismissing the appeal had noticed that the assessee cannot claim wrong deductions without any basis or foundation to justify the claim. Consequently, the position in the present case being different, no advantage can be derived by the revenue from the said judgment.

In view of the above, no substantial question of law arises and consequently, the appeal stands dismissed. (Ajay Kumar Mittal) Judge July 07, 2014 (Jaspal Singh) ‘gs’ Judge GURBAX SINGH 2014.08.06 13:32 integrity of this document High Court Chandigarh