COMMISSIONER OF INCOME TAX-I, LUDHIANA vs. M/S EASTMAN INTERNATIONAL, LUDHIANA

ITA No. 121 of 2012 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No. 121 of 2012 (O&M) Date of Decision: 17.9.2012 Commissioner of Income Tax-I, Ludhiana ....Appellant. Versus M/s Eastman International ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MR. JUSTICE RAKESH KUMAR GARG. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1. 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 17.11.2011 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal) in ITA No. 419/CHD/2011, for the assessment year 2005-06, claiming the following substantial question of law:- “Whether on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal is justified in deleting the penalty u/s 271(1)(c) amounting to Rs.31,16,226/- ignoring the fact that the assessee has not followed the method of accounting consistently as

ITA No. 121 of 2012 -2- far as booking losses on forward contract is concerned which tantamounts to “furnishing of inaccurate particulars of income?” 2. The facts necessary for adjudication of the present appeal as narrated therein are that the assessee filed its return of income on 31.10.2005 for the assessment year 2005-06 declaring an income of ` 3,33,49,930/-. The assessment in this case was framed under Section 143(3) of the Act by the Assessing Officer vide order dated 26.12.2007 (Annexure A-I) at an income of ` 2,62,19,490/-. During the course of assessment proceedings an amount of ` 85,16,025/- was disallowed by the Assessing Officer being prior period expenses claimed by the assessee during the year in question. Accordingly, the Assessing Officer vide order dated 29.3.2010 (Annexure A-1I) imposed penalty amounting to ` 31,16,226/- under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income. Feeling aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”]. The CIT(A) vide order dated 30.3.2011 (Annexure A-III) confirmed the penalty imposed by the Assessing Officer and dismissed the appeal. Still dissatisfied, the assessee filed an appeal before the Tribunal. The Tribunal vide order dated 17.11.2011 (Annexure A-IV) allowed the appeal and deleted the penalty imposed under Section 271(1)(c) of the Act by the Assessing Officer. Hence, the present appeal by the revenue. 3. We have heard learned counsel for the revenue. 4. Learned counsel for the revenue submitted that the quantum

ITA No. 121 of 2012 -3- addition in the case of the assessee had been sustained by the CIT(A) as well as by the Tribunal and in such a situation cancellation of penalty by the Tribunal was arbitrary and bad in law. 5. Examining the legal position, it may be noticed that the Hon'ble Supreme Court in Commissioner of Income Tax v. Reliance Petro Products Pvt. Ltd. (2010) 322 ITR 158 (SC) 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. The revenue was required to show that the deduction claimed was against the statutory provision. 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 bring 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

ITA No. 121 of 2012 -4- particulars.” 6. Adverting to the factual matrix in the present case, the assessee had credited a sum of ` 50,27,064/- under the head “Foreign Exchange Fluctuation” and had claimed gross debit amount of ` 97,58,615/- and credit amount of ` 12,43,625/- resulting in loss of ` 85,16,025/- on account of forward contracts. The said forward contracts had expired during the financial year 2003-04 but were booked in the financial year 2004-05 relating to the assessment year in question, i.e. 2005-06. The quantum of loss was, however, not disputed by the revenue. The rejection of claim was held not to be intentionally furnishing of inaccurate particulars of the income. 7. The Tribunal while holding that the assessee was not liable for penalty had recorded as under:- “5. We have heard the rival contentions and perused the records. Penalty u/s 271(1)(c) of the Act is leviable where the assessee has either concealed its income or furnished inaccurate particulars of income. Before imposing the penalty under the provisions of section 271(1)(c) of the Act, it is to be established that the assessee has violated either of the above two conditions. In the above said background, the facts of the case are to be looked into. The assessee before us had suffered losses on account of certain forward contracts. The plea of the assessee in this regard is that the aforesaid loans on account of forward

ITA No. 121 of 2012 -5- contracts were intimated by the bank during the financial year 2004-05. The requisite details of the said contracts are tabulated at page 5 of the assessment order and the perusal of the same reveals that the bank advice is dated falling within the previous year 2004- 05. On the basis of the said advice of the bank, the assessee had booked the losses/income arising on account of forward contracts. All the above said contracts admittedly had expired during the financial year 2003-04 as is evident from the perusal of the details. Merely because the claim of the assessee is rejected in a particular year does not establish the assessee to have concealed its income or furnished inaccurate particulars of income. The Hon'ble Supreme Court in CIT v. Reliance Petro Products Ltd (supra) had held that an incorrect claim cannot tantamount to furnishing of inaccurate particulars of income. The Court further held that “a mere making of a claim, which is not sustainable in law, by itself, will not amount of furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.” 6. The assessee had made a claim of loss on account of losses arising on a maturity of the forward

ITA No. 121 of 2012 -6- contract, which in fact matured during the preceding year i.e. assessment year 2004-05 but were booked as expenditure during the year under consideration on the bank advice received for the aforesaid forward contracts. The said claim being rejected by the Assessing Officer as being not relating to the year under consideration cannot tantamount to furnishing of inaccurate particulars of income, in view of the ratio laid down by the Hon'ble Supreme Court in CIT v. Reliance Petro Products [322/ITR/158 (SC)]. Accordingly, we direct the Assessing Officer to delete the penalty levied u/s 271(1)(c) of the Act. The ground of appeal raised by the assessee is thus allowed.” 8. In view of the above findings which have not been shown to be perverse or erroneous in any manner, no question of law arises in the present appeal as the revenue was unable to show that the assessee had intentionally not furnished correct particulars or the claim made was bad in law. Accordingly, the present appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE September 17, 2012 (RAKESH KUMAR GARG) gbs JUDGE