M/S.JAYANT VEGOILS AND CHEMICALS PVT.LTD. vs. C.I.T. CIRCLE, BOMBAY.

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ITR/39/1992HC Bombay05 February 2009Bench: HON'BLE SHRI JUSTICE F.I. REBELLO, HON'BLE SHRI JUSTICE R.S. MOHITE4 pages
AI SummaryAllowed

What did the High Court hold?

The High Court answered the reference in the negative, in favour of the assessee and against the revenue. Regarding item (i), the Court noted that this Court in ITR No. 38 of 1989 had already held that the liability of Rs. 9,75,876/- had been incurred. Therefore, no penalty under Section 271(1)(c) could be levied for this item. For item (ii), although initially an issue in ITR No. 38/89, the Union Bank of India relieved the assessee from the obligation. The Court held that the liability must be considered incurred on the same reasoning as in ITR No. 38/89, thus no penalty could be imposed. For item (iii), the Court accepted the assessee's contention that the lapse was not deliberate and was at most an inadvertent error of judgment, as the amount was offered to tax in the subsequent year. Therefore, no penalty ought to have been imposed. The question referred to the Court was answered in favour of the assessee.

What were the facts?

The assessee, M/s. Jayant Vegoils & Chemicals Pvt. Ltd., is challenging a penalty imposed under Section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 1980-81. The penalty was levied on three items: disallowance of a claimed liability on account of a Letter of Credit (L/C) opened with Andhra Bank (Rs. 9,75,876), disallowance of a claimed liability on account of an L/C opened with UBI (Rs. 28,89,093), and disallowance of a fine paid in lieu of confiscation of goods (Rs. 14,25,000). The High Court is hearing a reference from the Income Tax Appellate Tribunal (ITAT) regarding the correctness of the penalty confirmation.

What were the issues?

1. Whether, on the facts and in the circumstances, the Income Tax Appellate Tribunal was correct in law in holding that the assessee's case clearly attracted the application of Section 271(1)(c) of the Income Tax Act, 1961, and consequently confirming the penalty. 2. Whether the Tribunal was correct in giving directions to the Income Tax Officer to work out the quantum of penalty based on the tax ultimately fixed by the ITAT in the assessee's quantum appeal. Assessee's Contentions: For item (i) and (ii), the assessee relies on this Court's previous judgment in ITR No. 38 of 1989, which held that the liabilities were indeed incurred. For item (iii), the assessee contends that the fine was cancelled before the assessment year ended, and the order was received in April 1980. They followed the mercantile system, made book entries when the liability accrued, reversed them in the subsequent year, and offered the amount to tax in the next year. They argue that at most, it was an inadvertent error of judgment, not a deliberate lapse. Revenue's Contentions: The revenue accepted that the amount for item (iii) was offered to tax in the next year.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 256

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.39 OF 1992 M/s.Jayant Vegoils & Chemicals ) Pvt.Ltd., 13, Sitafalwadi, ) Mazgaon, Mumbai-10 )..Applicants V/s. The Commissioner of Income-tax ) Bombay. )..Respondents ---- Coram : F.I.Rebello & R.S.Mohite,JJ Date : 5.2.2009. Judgment :- ( Per : R.S.Mohite,J) 1. The question which has been referred to us under Section 256 of the Income-tax Act is as follows :- . "Whether on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was correct in law in holding that the assessee’s case clearly attracted the application of section 271(1) (c) of the Income tax Act, 1961 and as a sequel thereto confirming the penalty and further giving directions to the Income tax Officer that the quantum be worked out at per the tax ultimately fixed by the ITAT in assessee’s quantum appeal ?" 2. The assessment year to which the question pertains is 1980-81. 3. The penalty under Section 271 (1) (c) was imposed on 3 items which are as under :- (i) Disallowance of claim of liability on account of L/C opened with Andhra Bank Rs.9,75,876/- CNR No : HCBM020003571992 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:50:05

: 2 : (ii) Disallowance of claim of liability on account of L/C opened with UBI Rs.28,89,093/- (iii) Disallowance of fine in lieu of confiscation of goods paid Rs.14,25,000/- 4. As far as item no.(i) which pertains to disallowance of claim of a liability on account of L/C opened with Andhra Bank to the tune of Rs.9,75,876/-, our attention is drawn to the fact that this Court in ITR No.38 of 1989, in respect of the same assessee and same assessment year, has come to a categorical finding in its judgment and order dated 25.7.2005 and held that the liability of Rs.9,75,876/- had infact being incurred. In view of this finding, in our view, no penalty under Section 271 (1) (c) could be leviable in respect of this item. 5. In so far as item no.(ii) is concerned, though this was also initially an issue in ITR No.38/89, in view of the Union Bank of India relieving the assessee from its obligation to pay Rs.28,89,093/-, by a Chamber summons which came to be allowed, the assessee prayed for reduction of the income by Rs.28,89,093/-. However, the liability in this regard must also be said to have been incurred by the assessee on the same reasoning and grounds as mentioned in the judgment of this Court in ITR No.38/89. In the circumstances, in our view, no Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:50:05

: 3 : penalty can be imposed in respect of this item under Section 271 (1) (c) of the Income-tax Act. 6. In so far as item no.(iii) is concerned, it appears that the disallowance of fine was made by an order passed by Govt. of India on 20.3.1980. It is a factually accepted position that this order was received by the assessee in April-1980 after the assessment year in question had ended. When the returns were filed sometime later in 1980, the assessee was thus in the know of the fact that the fine in lieu of confiscation had been cancelled. It is however, contended before us that the assessee had followed the mercantile system and within the assessment year in question they already had made book entries when the liability to pay the fine had accrued. Counsel further contended that these book entries are reversed only in the subsequent year and the amount was offerred to tax in the next year. He contended that at the highest, there would be only an inadvertant error of judgment. On behalf of revenue, it is accepted that the amount was offerred to tax in the next year. In our view, therefore, accepting the contention of the assessee that the lapse was not deliberate and at the highest it could be said to an inadvertant error of judgment, no penalty ought to have been imposed. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:50:05

: 4 : 7. In the net result, the question is answered in the negative, in favour of the assessee and against the revenue. The reference stands disposed off accordingly with no order as to costs. (R.S.Mohite,J) (F.I.Rebello,J) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 05:50:05 Powered by TCPDF (www.tcpdf.org)

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