SHRI DATTA SHETKARI SAHAKARI SAKHAR KARKHANA LTD,SHIROL vs. DCIT, CIR-1, KOLHAPUR, KOLHAPUR

It is this order against which the assessee is in appeal before this Tribunal.

We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book & copy of case laws furnished by the assessee. In this regard, we find that it is customary in every Sahakari Sakhar Karkhana to sell to its members some quota of sugar at concessional rates. Since the assessee has sold sugar to its members on a price which is less than the cost price of the sugar resulting in loss to the assessee. Accordingly, in view of the Assessing Officer, the discount/concession is being given out of the profits earned by the cooperative society. So the expenses to 2175/PUN/2025 incurred by the society is excessive and unreasonable which is not allowable u/s 40A(2)(a) of the IT Act. The case of Revenue in this regard was that this is the appropriation of profits and accordingly the Assessing Officer made addition of Rs.2,02,97,115/- on account of disallowance for sale of sugar at concessional rates to members. Subsequently when the appeal against the quantum assessment order was dismissed by Ld. CIT(A)/NFAC and no further appeal against the order dated 29.12.2023 was filed before the Tribunal, the Assessing Officer on the basis of above addition of Rs.2,02,97,115/- imposed penalty of Rs.68,32,010/- u/s 271(1)(c) of the IT Act.

In this regard, we find that in the case of the assessee the Tribunal in first round of appeal in its order dated 01.05.2019 while deciding the appeal of Revenue remanded the matter back to the file of the Assessing Officer to decide the concerned issue afresh observed in para 5 and decided in para 24, 25 and 26 as under :- “5. It was further pointed out that the second issue was against sale of sugar at concessional rates to Members. It was explained by the learned Authorized Representative for the assessee that every Sahakari Sakhar Karkhana (in short „S.S.K‟) gives to its Members some quota of sugar at concessional rates. The case of Revenue in this regard was that this is the appropriation of profits. However, the Hon'ble Supreme Court in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. (2012) 211 TAXMANN 109 (SC) had set aside the matter to the file of CIT(A) vide judgment dated 25.09.2012. It was pointed out by the learned Departmental Representative for the Revenue that in certain cases, the matter was decided by the CIT(A) without considering the decision of the Hon'ble Supreme Court in CIT Vs. Krishna Sahakari Sakhar to 2175/PUN/2025 Karkhana Ltd. (supra) and such cases thus, need to go back to the file of Assessing Officer to decide the same. In some cases, the learned Authorized Representative for the assessee pointed out that instead of monthly concessional sugar, it is given at particular quantity, free of cost, with Government approval, which needs to be allowed. ………… 24. Now, coming to the next issue i.e. sale of sugar at concessional rate to Members. In this bunch of appeals, this is the second issue which is mostly raised and different Counsels appearing before us have pointed out that the said issue has been decided by the Hon'ble Supreme Court in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. (supra), but the appeals in the present bunch have been decided without taking into consideration the said decision, as the orders were passed by CIT(A) before the said decision.

We find that the Tribunal in Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT (supra) have remitted the issue back to the file of Assessing Officer vide its deliberations in para 11 at pages 22 to 24 of order to apply the ratio laid down in CIT Vs. Krishna Sahakari Sakhar Karkhana Ltd. (supra) and determine whether difference between average price of sugar sold in the market and that sold to the Members at concessional rate was the appropriation of profits or not. Following the same parity of reasoning, this issue is also remitted back to the Assessing Officer to decide in line with same directions.

Further in some cases, sugar is given at particular quantity, free of cost, as per Government approval, instead of monthly concessional sugar. Such cases are to be decided independent of Krishna S.S.K. Ltd. ratio. The Assessing Officer is directed to take note of the Government approval in this regard, while deciding the issue.”

From the perusal of above observation and findings of the Tribunal in first round of appeal, we are of the considered opinion that the issue of addition on account of sale of sugar at concessional rates to its members travelled upto Hon’ble Supreme Court in the cases of CIT vs. Krishna Sahakari Sakhar Karkhana (supra), which itself proves that the issue was debatable. We also find that Ld. AR relied on the judgement passed by Hon’ble Punjab & Haryana High to 2175/PUN/2025 Court in the case of CIT vs. Gurdaspur Cooperative Sugar Mills (P.) Ltd. [2013] 35 taxmann.com 395 (P&H) which was also confirmed by Hon’ble Supreme Court in CIT vs. Gurdaspur Cooperative Sugar Mills (P.) Ltd. [2024] 159 taxmann.com 7 (SC) while dismissing the SLP filed by the Revenue, wherein it was held that penalty u/s 271(1)(c) of the IT Act is not imposable if the issue was debatable. Ld. AR also relied on the judgement of Hon’ble Gujarat High Court passed in the case of CIT vs. Madhusudhan Industries Ltd., [2014] 47 taxmann.com 241 (Gujarat) wherein it was held that issue of deduction was debatable one on which two opinions were possible, penalty was not required to be imposed. Ld. AR further relied on the judgement of Hon’ble Supreme Court in the cases of CIT vs. Reliance Petroproducts (P.) Ltd., [2010] 322 ITR 158 (SC) wherein the Civil Appeal filed by the Revenue was dismissed by observing as under :- “7. As against this, learned Counsel appearing on behalf of the respondent pointed out that the language of section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under :— "271. (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person— to 2175/PUN/2025 (c )has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, 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. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned Counsel for revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of India v. Dharamendra Textile Processors [2008] 13 SCC 369, as also, the decision in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448 and reiterated in para 13 that :— "13. It goes without saying that for applicability of section 271(1)( c), conditions stated therein must exist."

Therefore, it is obvious that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the Return filed 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. In Dilip N. Shroff v. Jt. CIT [2007] 6 SCC 329, this Court explained the terms "concealment of income" and "furnishing inaccurate particulars". The Court went on to hold therein that in order to attract the penalty under section 271(1)(c), mens rea was necessary, as according to the Court, the word to 2175/PUN/2025 "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that Clause (iii) of section 271(1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff's case (supra) was upset. In Dharamendra Textile Processors' case (supra), after quoting from section 271 extensively and also considering section 271(1)(c), the Court came to the conclusion that since section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of section 271(1)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff's case (supra) was overruled by this Court in Dharamendra Textile Processors' case (supra), was that according to this Court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight of in case of Dilip N. Shroff (supra). However, it must be pointed out that in Dharamendra Textile Processors' case (supra), no fault was found with the reasoning in the decision in Dilip N. Shroff's case (supra), where the Court explained the meaning of the terms "conceal" and "inaccurate". It was only the ultimate inference in Dilip N. Shroff's case (supra) to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. Shroff's case (supra) was overruled.

It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature.

In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu[2009] 23 VST 249 as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said to 2175/PUN/2025 transactions were reflected in the accounts of the assessee. This Court, therefore, observed : "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return.

The Tribunal, as well as, the Commissioner of Income-tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the revenue has no merits and is dismissed.”

Ld. AR further relied on the judgement of Hon’ble Supreme Court in the case of Price Waterhouse Coopers (P.) Ltd. vs. CIT, 348 ITR 306 (SC) wherein the Civil Appeal filed by the assessee was allowed by observing as under :- “19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its return, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The calibre and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income.

We are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars. to 2175/PUN/2025 21. Under these circumstances, the appeal is allowed and the order passed by the Calcutta High Court is set aside. No costs.”

Respectfully following the above judgments cited supra and in the light of the fact that the issue on the basis of which the addition was made has travelled upto Hon’ble Supreme Court being debatable, we are of the considered opinion that, no penalty u/s 271(1)(c) of the IT Act should have been imposed. Accordingly, we deem it appropriate to set-aside the order passed by Ld. CIT(A)/NFAC and direct the Assessing Officer to delete the penalty of Rs.68,32,010/- imposed u/s 271(1)(c) of the IT Act. Thus, the ground no.2 raised by the assessee is allowed.

The assessee has not pressed ground no.1 raised by him accordingly the same is dismissed as not pressed.

In the result the appeal filed by the assessee in A.Y. 2007-08 is partly allowed. to 2175/PUN/2025, A.Ys. 2007-08 to 2010-11 & 2012-13 to 2014-15: 20. Since the facts and issues involved in the appeal of the assessee for the assessment year 2007-08 are identical to the facts of the case for assessment years 2007-08 to 2010-11 & 2012-13 to 2014-15, therefore, our decision in for