THE PR. COMMISSIONER OF INCOME TAX-1, AURANGABAD vs. M/S LOMBARDINI INDIA PVT. LTD, AURANGABAD

I.T.A.25/2017 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY, BENCH AT AURANGABAD INCOME TAX APPEAL NO.25 OF 2017 The Pr. Commissioner of Income Tax-1, Aaykar Bhavan, Near Holy Cross School, Cantonment, Aurangabad ..Appellant Versus M/s Lombardini India Private Limited, Plot No.J 2/1, MIDC, Chikalthana, Aurangabad (PAN – AAACL6740M) ..Respondent Mr Alok Sharma, Sr.Standing Counsel for appellant Mr Nishant Thakkar Senior Counsel i/b Mr R.R. Chandak, Advocate for respondent

CORAM : S.V. GANGAPURWALA & A.M. DHAVALE, JJ

DATE : 23rd March 2018 PER COURT 1. The present appeal pertains to assessment year 2007-08. The respondent was imposed penalty under Section 271 (1) (c) of the Income Tax Act, 1961 (hereinafter referred to as 'IT Act' for brevity). The respondent preferred appeal before the Commissioner of Income Tax (Appeals), Aurangabad. The appeal came to be allowed. The Revenue filed appeal before the Income Tax Appellate Tribunal, Bench at Pune. The Tribunal dismissed the appeal. Aggrieved thereby, the Revenue is before this Court. 2. Mr Sharma, learned Counsel for the appellant submits that the Tribunal, on erroneous ground dismissed the appeal filed by the appellant. The scope of Section 271 (1) (c) of the IT Act and explanation thereto has not been considered by the Tribunal.

I.T.A.25/2017 2 3. The learned Counsel submits that there is error in the finding of the Tribunal, more particularly para 4.2 of the order, the Tribunal has observed that the assessee reversed the claim in the subsequent assessment year 2008-09 that the assessee corrected its mistake and, therefore, no penalty should be imposed. The finding of the Tribunal is erroneous because Rs.2.40 Crores was wrongly reversed in succeeding assessment year only after the case for assessment year 2007-08 was selected for scrutiny before filing of income tax returns for assessment year 2008-09. Merely by reversing the entry later on in the subsequent assessment year 2008-09, the assessee cannot be exonerated. Learned Counsel further submits that the Tribunal had erred on facts and in law like observing that the Auditor has not made disclosure in respect of the provision of retrofit expenses in the tax audit report, however, the same is disclosed in statutory audit report. This shows that the assessee did not disclose the material fact truly and fully and it was left to the Assessing Officer to deduce this during the scrutiny proceedings. In view of this, the Assessing Officer was fully justified in imposing penalty under Section 271 (1) (c) of the IT Act. The learned Counsel further submits that the provision of retrofit expenses of Rs.2.40 Crores claimed by the assessee was without any legal basis. It was disallowable, both in accounts and in law. The assessee has furnished the incorrect particulars of income. Learned Counsel further submits that it ought to have considered that only small part of income tax returns are taken up for scrutiny and in such circumstances, if assessee makes wrong claim, which is incorrect and without any basis, the assessee cannot be exonerated from impositon of penalty under Section 271 (1) (c) of the IT Act. The learned

I.T.A.25/2017 3 Counsel, to substantiate his contentions relied upon the judgment of Delhi High Court in a case of PR. Commissioner of Income Tax-21 Vs. Dr. Vandana Gupta, in Income Tax Appeal No.219/2017 dated 20.2.2018 and the judgment of the Delhi High Court in a case of Commissioner of Income Tax Vs. Zoom Communication (P) Ltd., reported in (2010) 327 ITR 510. According to learned Counsel, the judgment of the Tribunal is perverse on facts and in law. 4. Mr Thakkar, learned Senior Counsel for the respondent supports the judgment of the Tribunal and submits that the Tribunal has considered threadbare, all the facts, circumstances and the position of law. Learned Senior Counsel relied on the judgment of the Bombay High Court in case of Jayant Vegoils & Chemicals (P) Ltd., Vs. Commissioner of Income Tax, reported in (2010) 323 ITR 0641. It is further submitted that the assessee was not to gain anything. The report was of loss of about 18.37 Crores and even if the amount of Rs.240 lakhs is audited, still the assessee would have sustained loss. The amount was offered in the next year. In such circumstances, penalty could not have been imposed. According to learned Senior Counsel, the assessee had mentioned about retrofitment expenses in profit and loss account and provision for retrofitment expenses under the head 'current liabilities' in the balance sheet. This would show that the assessee had not conceded the particulars of income. 5. According to learned Senior Counsel, the amount, which was to be received, a dispute was raised by the other party and a suit was filed. As such, the same could not have been shown as an income.

I.T.A.25/2017 4 After the suit was withdrawn, the amount was reversed and was shown in the next assessment year. This would also show the bona fides of the assessee. 6. With the assistance of the learned Counsel for the respective parties, we have gone through the judgment. 7. The order levying penalty demonstrates that the assessee has offered explanation for making provisions of retrofitment expenses. The Civil Suit was filed by M/s Atul Auto Ltd. against the assessee and others in the Civil Court claiming retrofitment and fixatin of additional charges of engines/weapons. This would show that the expenditure furnished by the assessee was bona fide. It was observed by the Commissioner (Appeals) and the Tribunal that in the assessment year 2008-09 provision of Rs.240 lakhs has been reversed. The penalty has been levied on the ground of concealment of particulars of income. However, it has been observed by the authorities below that assesssee had clearly mentioned about the retrofitment expenses in profit and loss accounts for the year ended 31.3.2007 and the provisions for retrofitment expenses under the head, 'current liabilities' in the balance sheet as on 31.3.2007. In view of this, the Tribunal and the Commissioner (Appeals) have observed that the observation of the Assessing Officer that assessee has concealed particulars of income is erroneous. 8. It has been observed that the explanation furnished by the assessee does not lead to reasonable and positive inference that the

I.T.A.25/2017 5 assessee's case is false. The assessee was able to show that there was dispute between assessee and M/s Atul Auto Ltd. one of the customers of the assessee. The assessee has created provision for retrofitment charges in anticipation of expenditure and upon the suit being withdrawn, the assessee had offered the amount in the immediately succeeding year i.e. assessment year 2008-09. All these facts would show that the observations of the Assessing Officer that the assessee concealed the fact is not justified. 9. In view of above, no error is committed by the Commissioner (Appeals) and the Tribunal. 10. In light of that no substantial question of law is involved in the appeal. As such appeal is dismissed. No costs. ( A.M. DHAVALE, J.) ( S.V. GANGAPURWALA, J.) vvr