DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), VADODARA vs. M/S. SUN PHARMACEUTICALS INDUSTRIES LTD, VADODARA

PER T.R. SENTHIL KUMAR, JUDICIAL MEMBER:

2. Brief facts of the case are that the assessee is a company filed its original return of income on 29/09/2009 declaring total income under the normal provision at a loss of Rs.(-) 30,60,24,048/- and book profit u/s.115JB of the Act of Rs.2,01,98,19,080/-. Regular assessment was completed u/s.143(3) of the Act on 25/03/2013 determining the total income under normal provision at Rs.2,08,77,75,356/- and book profit u/s.115JB of the Act at Rs.2,66,69,14,229/-. The AO initiated penalty proceedings u/s.271(1)(c) of the Act by issuing notice dated 25/03/2013 u/s.274 of the Act. Penalty proceedings were kept in abeyance as the assessee had preferred appeal against the quantum assessment order before the CIT(A)-2, Vadodara and further appeal before ITAT. After disposal of the appeals by the Tribunal in & 1663/Ahd/2014 vide order dated 08/09/2017, certain additions were confirmed in favour of the Revenue. Therefore, a fresh opportunity of hearing was offered to the assessee by issuing the show-cause notice dated 13-07-2018 and assessee filed its detailed reply on 19-07-2018. On considering the same, the Assessing Officer (AO) levied the minimum penalty of Rs.8,06,00,000/- as follows:

“A. Under Normal Provisions of IT Act. Tax Tax Sr. Particulars of additions Amount sought to sought to No. made involved be evaded be evaded Rs. Rs. Rs. @100% @300% 1. Disallowance of selling 42288859 14370210 43110630 & distribution expenses incurred on behalf of M/s.Sun Pharmaceutical Industries (‘SPI’) and M/s.Sun Pharma Sikkim (‘SPS’) u/s.14A and disallowance u/s.14A read with Rule 8D 2. Disallowance of 864686 293907 881721 expenditure on repairs treating them as capital expenditure Total 14664117 43992351 A. Provisions u/s.115JB

Tax Tax sought Sr. Particulars of additions Amount sought to to be No. made involved be evaded evaded Rs. Rs. Rs. @300% @100% 1. Provisions for doubtful 9471966 1073174 3219522 debts & advances

3. Aggrieved against the penalty order, the assessee filed an appeal before the Ld.CIT(A), who has partially confirmed and partially deleted the penalty levied u/s.271(1)(c) of the Act.

“The Appellant raises the following grounds, which are mutually exclusive, independent of and without prejudice to one another:

1. The order passed by the learned Commissioner of Income Tax (Appeals) (hereinafter referred to as 'the Id. CIT-(A)'] is bad in law and on facts.

2. Re: Levy of Penalty u/s 271(1)(c) of Rs. 6,52,00,000/-:

2.1 On the facts and in circumstances of the Act, the Id. CIT(A) grossly erred in confirming the action of the Assessing Officer in levying the penalty.

2.2 On the facts and in the circumstances of the case and in law, the Id. CIT (A) has erred in upholding the validity of the penalty order without appreciating that the Assessing Officer had not recorded proper satisfaction. The Id. CIT(A) failed to appreciate that the Assessing Officer had initiated penalty proceedings under both the limbs of section 271(1)(c) of the Act i.e. 'for concealment of particulars of income' and 'furnishing inaccurate particulars of income whereas levied penalty by holding that the Assessee has 'furnished inaccurate particulars of income.

2.3 Without prejudice to above, the Id. CIT(A) failed to appreciate that the issuance of show cause notice under section 274 of the Act by the Assessing Officer in standard printed form without striking out irrelevant clause and without explicitly specifying the exact charge on which penalty is to be levied is bad in law and ought to be set aside altogether.

3. Deduction of remuneration received from partnership firm under section 115JB 3.1 The Id. CIT(A) grossly erred in confirming the penalty on disallowance of remuneration received from partnership firms, M/s. Sun Pharmaceutical Industries ('SPI') and Sun Pharma Sikkim ('SPS').

3.2 The Id. CIT(A) grossly erred in upholding the penalty u/s. 271(1)(c) of the Act imposed by the Assessing Officer without appreciating the fact that the Hon'ble Gujarat High Court has accepted the appeal of the Appellant in the quantum proceedings as a substantial question of law, thereby substantiating it as a highly legal and debatable issue.

3.3 Without Prejudice to the above, the Id. CIT(A) grossly erred in not appreciating that recharacterization of remuneration received from partnership firm as royalty is a matter of difference of opinion and therefore, is highly legal and debatable issue and accordingly, no penalty u/s 271(1)(c) of the Act ought to be levied on such issue.

3.4 Without prejudice to the above, the Id. CIT(A) failed to appreciate the fact that the Appellant had made all the relevant disclosures and that the claim was made on a reasonable and bona fide belief, therefore no penalty ought to be levied.

The Appellant craves leave to add to, alter, amend or withdraw all or any of the foregoing grounds of appeal at or before the hearing of this appeal.”

The Appellant claims the following reliefs, which are without prejudice to one another. 1. Deduction of remuneration received from partnership firm under section 115JB 1.1 The penalty levied on disallowance of deduction of remuneration received from partnership firms while calculating book profits under section 115JB ought to be deleted.

1. The learned CIT(Appeals) has erred in law and on facts in deleting the penalty of Rs. 4,22,77,759/- on account of selling & distribution expenses u/s 14A?

2 The learned CIT(Appeals)) has erred in law and on facts in deleting the penalty of Rs.8,64,686/- on account of repairing expenses.

3. The learned CIT(Appeals)) has erred in law and on facts in deleting the penalty on the issue of addition of Rs.94,71,966/- in total income as per provisions of Section 115JB on account of provision of doubtful debts & advances.

4. The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.

Relief claimed in appeal It is prayed that the order of the CIT (Appeals) be set aside on the above issues and that of the Assessing Officer be restored.”

5.1. Ground No.1 is pertaining to deletion of Rs.4,22,27,759/- on selling and distributing expenses wherein penalty u/s. 271[1][c] was levied for furnishing inaccurate particulars of income. The findings of Ld.CIT(A) are as follows:

“7. Ground No. 3.1 pertains to imposition of penalty on disallowance of Selling and Distribution expenses incurred on behalf of M/s. Sun Pharmaceutical Industries (SPI) and M/s. Sun Pharma Sikkim (SPS) u/s. 14A and (b). The Assessing Officer has made disallowance of Rs.4,22,77,759/- u/s. 14A read with Rule 8D of the income -tax Rule, 1962 and penalty proceedings u/s. 271(1)(c) had also been initiated in the assessment order. The appellant had preferred appeal against the assessment order before the CIT (A)-II, Vadodara and further the appellant and revenue preferred appeal against the order of the CIT(A) before the Hon'ble ITAT. The Hon'ble Tribunal and CIT(A) have confirmed the disallowance made on account of selling and distribution expenses incurred on behalf of M/s. SPI and M/s. SPS u/s. 14A r.w. Rule 8 D. The AO imposed penalty on confirmed addition of Rs.4,22,77,759/- and hence this appeal is filed. My predecessor the CIT(A)-II, Vadodara vide order No. CIT(A)-2/49/16-17 dated 30.01.2017 deleted the penalty levied on the similar addition made on same facts in A.Y. 2008-09, in para 4.7 of the said order the relevant assessment order in case of the appellant in following words:-

"4.7. Ground No. 8 pertains to imposition of penalty on disallowance of Selling and Distribution expenses including salary and allowances to the field staff amounting to Rs.62, 15,78,070/-. Similar addition was made in earlier year which has been deleted by the Hon'ble ITAT, Ahmedabad. Accordingly, the Hon'ble ITAT vide order dated 03.05.2016 contained in and 3069/Ahd/2010 (A.Y. 2005-06) has deleted the penalty imposed by the Assessing Officer /s. 271(1)(c). The addition made under the similar facts and circumstances has also been deleted by the Hon'ble ITAT, Ahmedabad in A.Y. 2006-07 vide order dated 10.05.2016 contained in & 1592/Ahd/2011. Thus, it is clear that issue under consideration is highly debatable since two views are existing. In view of the various decisions relied upon by the Ld. Authorized Representatives, I hold that penalty u/s. 271(1)(c) is not imposable on this account and accordingly the Assessing Officer is directed to delete the same. Thus, appellant succeeds in respect of Ground No. 8. "

7.1. In view of above facts, the penalty levied by the Assessing Officer is not sustainable. Hence it stands cancelled.”

6.1. Ld Senior Counsel further relied upon the judgement of the Jurisdictional High Court in the case of PCIT vs. Gujarat State Electricity Corporation Ltd. reported at (2022) 144 Taxmann.com 165 (Guj.), wherein it was held as follows:

INCOME TAX: Where assessee, a public sector undertaking, had made a bona fide mistake of accounting interest expense twice but on realising same had passed necessary rectification entries in subsequent year by showing said interest expense as prior period income, in view of such necessary corrections done by assessee, no mens-rea could be inferred on part of assessee so as to attract impugned penalty levied under section 271(1)(c) and, thus, same was to be deleted.

“8. Ground No. 3.2 pertains to imposition of penalty on disallowance of repairing expenses at Rs.8,64,686/- treating them as capital expenditure on which penalty has been imposed. The Assessing Officer was disallowance of revenue expenses of Rs.22,28,938/- which were considered as capital expenditure and penalty proceedings u/s. 271(1)(c) had also been initiated in the assessment order. The appellant had preferred appeal against the assessment order before the CIT(A)-II, Vadodara and further the appellant and revenue preferred appeal against the order of the CIT (A) before the Hon'ble ITAT. The Hon'ble Tribunal and CIT(A) have directed to Assessing Officer to treated Rs. 13,74,725/- as revenue expenditure and the balance is confirmed as capital expenditure. The Assessing Officer imposed penalty on confirmed addition of Rs.8,64,686/- and hence this appeal is filed. My predecessor the CIT(A)-II, Vadodara vide order No.CIT(A)-2/49/16-17 dated 30.01.2017 deleted the penalty levied on the Similar addition made on same facts in A.Y. 2008- 09, in para 4.9 of the said order the relevant assessment order in case of the appellant in following words:-

"4.9. Ground No. 10 pertains to disallowance of repairing expenses at Rs. 10,17,500/- on which penalty has been imposed. The Assessing Officer was of the view that certain expenses claimed under the head repairing were capital in nature since the items purchased resulted enduring benefits to the appellant. Undisputedly, genuineness of the expenses has not been doubted and merely because certain expenses have been considered as capital in nature, penalty u/s. 271(1)(c) cannot be imposed. This view gets support from the ratio laid down in the case of Reliance Petroproducts Pvt. Ltd. (supra). Hence the penalty imposed by the Assessing Officer on this account is directed to be deleted and appellant succeeds in respect of Ground No. 10."

8.1. In view of above facts, the penalty levied by the Assessing Officer is not sustainable. Hence it stands cancelled.”

8.1. Ld. Sr. Counsel submitted that the Co-ordinate Bench of this Tribunal in assessee’s own case relating to the Asst Year 2008-09 in deleted the levy of penalty by observing as follows:

“28. The learned DR before us contended that the assessee has furnished inaccurate particulars of income by treating the capital expenditure under the head repair and maintenance as revenue in nature. Thus the assessee to this extent has furnished the inaccurate particulars of income.

30.1 Coming to case on hand, there was no iota of evidence suggesting that the assessee failed to offer explanation or explanation offered by the assessee was false. Thus the first situation under explanation 1 to section 271(1)(c) does not survive. It is undisputed that the assessee offered explanation and submitted that the amount was incurred for replacement of worn out item and treated the same as revenue expenses but the revenue authority treated the same as capital expenditure. Thus the same is debatable issue and bona-fide difference of opinion with respect to necessary materials available on record. We note that there was no finding of the authorities below qua the fact that the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides with respect to material facts relating to the computation of total income.

30.2 Going further, we also note the Hon'ble Supreme Court in case of Reliance Petroproducts Pvt Ltd. reported in 322 ITR 158 where the Hon'ble court observed that mere claim of the assessee which is not sustainable does not tantamount to concealment of income or filing inaccurate particulars of income. The relevant observation of Hon'ble Supreme Court reads as under:

The revenue contended that since the assessee had claimed excessive deductions knowing that they were incorrect, it amounted to concealment of income. It was argued that the falsehood in accounts can take either of the two forms: (1) an item of receipt may be suppressed fraudulently; (11) 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. Such contention could not be accepted 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 attract the penalty under section 271(1)(t). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature. (Para 10] 30.3 Thus, in our considered view the provisions of explanation 1 to section 271(1)(c) of the Act cannot be attracted in the given facts and circumstances. In view of the above and after considering the facts in totality, we do not find any infirmity in the finding of the learned CIT (A) and direct the AO to delete the penalty levied by him under section 271(1)(c) of the Act. Hence, the ground of appeal of the Revenue is dismissed.

10. Ground No. 4.2 pertains to imposition of penalty u/s. 271(1)(c) on addition of Rs.94,71,966/- in the book profit u/s. 115JB on account of provision for doubtful debts & advances. The Assessing Officer was added back provision for doubtful debts and advance to book profit u/s.115JB of the Income-tax Act, 1961 of Rs.94,71,966/-and penalty proceedings u/s. 271(1)(c) had also been initiated in the assessment order. The assessing officer stated that during the survey proceedings u/s. 133A which was conducted on the assessee as well as on SPI on 14.07.2006, the appellant had made disclosure with respect to addition of provision of doubtful debts and advance of Rs.94,71,966/- in working of book profit u/s. 115JB of the Act and appellant has also accepted that the claim was not as per the provision of the Act. The appellant did not offer the same for taxation under the provision of section 115JB at the time of filing the return of income. In view of these facts, the assessee company has intentionally furnished inaccurate particulars of income by not offering claim of provision for doubtful debts and advance under the provisions of section 115JB. During the appellate proceedings the AR of the appellant has stated that the appellant has claimed deduction of provision for doubtful debt for computing book profit under section 115JB based on the decision of Supreme Court and hence, the appellant was under bona fide view that the deduction is allowable and also stated that the Finance (No.2) Act, 2009 has inserted clause (i) to explanation 1 to section 115JB with retrospective effect which states that the amount set aside as provision for diminution in the value of any asset is not allowable as deduction. Accordingly, the appellant should not be punished for provision introduced by way of retrospective amendment. The Ld. Authorized Representative of the appellant has also relied upon the decision of Hon'ble ITAT, Ahmedabad A" bench in his own case vides for A.Y. 2006-07 and also relied upon the decision of the Hon'ble High Court of Gujarat in the case of Vodafone Essar Gujarat Limited. The Hon'ble ITAT, Ahmedabad "A" bench in his own case vide dated 28.08.2017 for A.Y. 2006- 07 deleted the penalty levied on the Similar addition made on same facts in A.Y. 2006-07, in para 14 of the said order the relevant assessment order in case of the appellant in following words:-

"14 In the case of the assessment proceedings, the assessing officer observed that assessee has not added back Rs. 50.69 lacs towards provision of doubtful debt and advance while working out the book profit u/s.115JB of the Act. As per the retrospective amendment by the Finance Act, 2009 the loss set aside as provision for diminution in the value of asset is required to be added to the net profit for working the book profit u/s.115JB of the Act. Therefore, disallowance of Rs.50.69 lacs was added back to the working of book profit u/s. 115JB of the Act The CIT(A) has not granted any relief to the assessee. Thereafter, the assessing officer has levied penalty 100% of the tax sought to be evaded under this head, Ld. CIT(A) deleted this penalty by observing that the relevant provision was not on the statute on the date of filing of return of income, the assessee cannot be held liable for concealment of penalty. Since the quantum proceedings in the case of the assessee for the year under consideration has been set aside to the AO by the coordinate bench of the ITAT vide 1589/Ahd/2011 therefore, the appeal of the revenue is dismissed."

10.1. In view of above facts, the penalty levied by the Assessing Officer is not sustainable. Hence it stands cancelled.”

Section 271(1)(c), read with section 115JB. of the Income-tax Act. 1961 Penalty - For concealment of income (Income of MAT companies) - Whether where after concealment in unearthed or assessee's act of supplying inaccurate particulars comes to light, tax liability before or after concealment remains same, by virtue of clause (c) of Explanation 4 to section 271(1), no penalty would be imposed - Held, yes - Whether simply because before and after additions, assessee remained a MAT company and paid tax under section 115JB or such similar provision, that by itself does not mean that no penalty could be imposed Held, yes -Whether if effect of addition of concealed income results in higher minimum alternate tax by increasing book profit also, penalty could as well be imposed Held, yes [Paras 10 & 12] [In favour of assessee].

11.1. Thus, we do not find any infirmity in the order passed by the Ld. CIT(A) cancelling the penalty of Rs.94,71,966/- levied on the provisions for doubtful debts & advances u/s.115JB of the Act. Thus, Ground No.3 raised by the Revenue is also devoid of merit and is liable to be dismissed.

13.1. Ground No.2 is ld. CIT (A) erred in upholding the validity of the penalty order without appreciating that the AO had not recorded proper satisfaction and initiated penalty proceedings under both the limbs of section 271(1)(c) of the Act i.e. 'for concealment of particulars of income' and 'furnishing inaccurate particulars of income’. The findings of Ld.CIT(A) are as follows:

“… 6. Ground No.2, the appellant has challenged imposition of penalty on the ground that Assessing Officer had not recorded proper and specific satisfaction for initiating the penalty proceedings in the assessment proceedings which is necessary even after insertion of section 271(1B). The contentions of the Ld. Authorized Representatives that the Assessing Officer has not recorded proper and specific satisfaction while initiating penalty proceedings is found to be not correct. It is noticed from the assessment order that the Assessing Officer had recorded his specific satisfaction for initiating the penalty proceedings while making the addition/disallowances. The summary of satisfaction recorded against individual addition/disallowance is as under:-

Particulars of addition/ Satisfaction recorded for Sr.No. disallowance Disallowance of Selling & For furnishing of inaccurate 1. Distribution Expenses u/s.14A particulars of income r.w. Rule 8D. For concealment of particulars of Disallowance of Revenue 2. income and furnishing of expenses being capitalized inaccurate particulars of income.

Addition of remuneration For concealment of particulars of 3. received from firm to the Book income and furnishing of Profit u/s.115JB inaccurate particulars of income. For concealment of particulars of Addition of provision for 4. income and furnishing of doubtful debts & advances to inaccurate particulars of income. the Book Profit u/s. 115JB In the last para of the assessment order also, the Assessing Officer has issued a direction of issuance of notice u/s. 271(1(c) r.w.s. 274 of the Act.

6.1. The Ld. Authorized Representative has relied upon the decision of Hon'ble Delhi High Court in the case of Ms. Madhushree Gupta Vs. Union of India & Anr [WP(C) No. 5059 of 2008] wherein Hon'ble High Court held that position regarding the recording of satisfaction is no different post- amendment. I have gone through this decision also and I find that Hon'ble Karnataka High Court in the case of B. Damodar Vaman Baliga Jewellers Vs. JCIT (2013) 353 ITR 206 (Kar.), after considering the decision of Hon'ble Delhi High Court in the case of Ms. Madhushree Gupta Vs. Union of India (2009) reported in 317 ITR 107, held that where assessment order contains a direction for initiation of penalty proceedings u/s. 271(1)(c), such an order of assessment or reassessment shall be deemed to constitute satisfaction of Assessing Officer for initiation of penalty proceedings in term of section 271(1B). Therefore, in view of the above factual and legal position, I hold that Assessing Officer had recorded his satisfaction as mandated by the law and hence arguments of Ld. Authorized Representative on this account are rejected.

6.2. The appellant has also submitted that while initiating the penalty proceedings, the Assessing Officer has not specified as to whether penalty was initiated for furnishing of inaccurate particulars of income or concealment of particulars of such income. Therefore, in view of the decision of Hon'ble Jurisdictional High Court in the cases of Whiteford India Itd [2013] 38 taxman.com 15, Mamu Engineering Works,[1980]122 ITR 306 and New Sorathia Engineering Co. v. CIT [2006] 282 ITR 642, the penalty order passed is liable to be struck down, the Ld. Authorized Representative emphasized. I have gone through the decisions relied upon by the appellant in this regard and it is noticed that the Hon'ble Gujarat High Court in the case of CIT Vs. Whitefort India Ltd. (2013) 38 taxmann.com 15 itself, after considering the other two decisions relied upon by the Ld. Authorized Representative, has held that non-framing of specific charge may be proper in issuing a notice for initiating the penalty, but while imposing the penalty there has to be a specific charge as to whether penalty is imposed for furnishing of inaccurate particulars of income or concealment of particulars of such income. I find that the Assessing Officer while discussing all the disallowance/additions in the penalty order, has specifically mentioned that the penalty was being imposed for furnishing of inaccurate particulars of income. Moreover, the issue on which the penalty is being sustained, the A.O. has initiated same only for furnishing of inaccurate particulars of income. Thus, it is clear that the Assessing Officer has reached on final conclusion while imposing the penalty vide order dated 30.07.2018. Accordingly, I hold that the order of penalty cannot be held as invalid. Thus, Ground No. 2 is dismissed.

13.2. We have perused the assessment order and penalty order passed by the Ld AO. During the assessment proceedings the Ld AO clearly invoked and recorded his specific satisfaction for initiating the penalty proceedings while making the additions/ disallowances in the assessment order i.e. either “for concealment of particulars of income” or/and “furnishing inaccurate particulars of income”. Consequently, the ld AO while levying Penalty u/s.271[1][c] of the Act, stick to the same stand. Therefore, the question non-striking off in the statutory notice issued u/s.274 namely for “concealment of particulars of income” or “furnishing inaccurate particulars of income” does not arise. Thus, the case laws relied by the assessee on this issue are clearly distinguishable and there is no merit in the Ground No.2 raised by the assessee and the same is dismissed.

“…9.1. Ground No. 4.1 pertains to imposition of penalty u/s.271(1)(c) on addition of Rs.57,49,50,297/- in the book profit u/s. 115JB being the remuneration received from partnership firm. The Assessing Officer was added back to book profit w/s. 115JB of the Income-tax Act, 1961 of Rs.57,49,50,297/- and penalty proceedings u/s. 271(1)(c) had also been initiated in the assessment order. The appellant had preferred appeal against the assessment order before the CIT(A)-II, Vadodara and further the appellant and revenue preferred appeal against the order of the CIT(A) before the Hon'ble ITAT. The Hon'ble Tribunal and CIT(A) have confirmed the addition. The Assessing Officer imposed penalty on confirmed addition of Rs.57,49,50,297/- and hence this appeal is filed. My predecessor the CIT(A)-II, Vadodara vide order No. CIT(A)-2/49/16- 17 dated 30.01.2017 the penalty levied on the Similar addition made on same facts in A. Y. 2008-09, in para 5.2 of the said order the relevant assessment order in case of the appellant in following words:-

"5.2. Ground No. 14 pertains to imposition of penalty u/s. 271(L)(c) on addition of Rs.40,12,76,441/- in the book profit us. 115JB being the remuneration received from partnership firm. The penalty on this account has been imposed by the Assessing Officer as an alternative measure if tax payable under normal provisions turn out to be finally lower than the tax payable u/s.115JB. Undisputedly, the appellant has received a sum of Rs. 40,12,76,441/-from partnership firm M/s. Sun Pharmaceuticals Industries (SPI) and claimed the same as remuneration and hence excluded from the book profit on the ground that same was exempt us. 10(2A). However, on detailed examination during the course of appellate proceedings by the CIT(A), it was found that appellant company has permitted use Trade Mark/Brand by SPI for a token consideration of Rs. 1/-. Moreover, SPI has not paid any management fees to the appellant company although three of its Directors and key management personnel have been looking after the business of SPI also. It is also an established legal position that the company cannot receive remuneration from firm because it is not a working partner. Accordingly, it was held that so called remuneration was in fact, royalty received from the firm for permitting use of Trade Mark/Brand and technology as per Trade Mark License/user Agreement dated 10.04.2003. Thus, it was crystal clear that the appellant company has suppressed relevant and material information and camouflaged the transaction by claiming receipt as remuneration and then excluding the same from book profit. The remuneration has been also taxed under normal provisions by enhancing the income by CIT(A). Accordingly, it has been conclusively proved that the appellant has furnished inaccurate particulars in this regard and hence penalty u/s. 271(1)(c) deserves to be imposed on account of addition to the book profit. It is an established legal position that when tax is charged on the basis of book profit w/s. 115JB, the additions/disallowances made to book profit are liable for imposition of penalty u/s. 271(1)(c). In this regard, reliance is placed on the decision in the cases of SBI DFHI Ltd. Vs. ACIT (2016) 71 taxmann.com 178 (Mum-ITAT), Shri Gokulam Hotels India Pvt. Ltd. Vs. ACIT (2014) 49 taxmann.com 543 (Mad-HC) and CIT Vs. Citi Tiles Ltd. (2014) 46 taxmann.com 344 (Guj-HC). Accordingly penalty imposed by the Assessing Officer on this account is confirmed. However, it is clarified that the penalty on this account will be imposed only if income is finally assessed u/s. 115JB instead of under normal provisions. Thus, Ground No. 14 is dismissed."

9.2. In view of above facts, the penalty levied by the Assessing Officer on this account is confirmed with the same rider as underlined above. Thus, Ground No. 4.1 is dismissed”

….19. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly, the remuneration received by the assessee from the partnership firms was not taxable in its hand under normal computation of income under the Act. The assessee also reduced the same from the book profit while calculating the tax liability under section 115JB of the Act which was disallowed by the AO and penalty under explanation 1 to section 271(1)(c) of the Act was levied which was also subsequently confirmed by the learned CIT(A). At the outset we note that the AO has levied the penalty under explanation 1 to section 271(1)(c) of the Act. As per explanation 1 to section 271(1)(c) of the Act, the addition or disallowance in computation of income by the AO deemed concealment of income subject to condition provided therein. Under the explanation 1 to section 271(1)(c) of the Act, there are 2 situations. In situation (A), if the assessee failed to offer an explanation or offers an explanation which is found to be false with respect to any fact material to the computation of income, then the amount added or disallowed shall be deemed as concealment of income. In situation (B), the assessee offers an explanation but fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides and that all the facts relating such explanation and material to the computation of income have been disclosed by him, then the amount added or disallowed to the total income of the assessee shall be deemed as concealment of income. 19.1. Coming to case on hand, there was no iota of evidence suggesting that the assessee failed to offer an explanation or explanation offered by the assessee was false. Thus, the first situation under explanation 1 to section 271(1)(c) does not survive. It is also an undisputed fact that the assessee offered an explanation and submitted that the amount of remuneration received was based on percentage of profit earned by the firm, hence same is appropriation or profit and equivalent to share of profit from firm. Thus, treating the same as exempted income under section 10 of the Act it reduced the remuneration receipt from book profit under the provision of subsection 2 of section 1151B of the Act. We note that there was no finding of the authorities below qua the fact that the assessee fails to substantiate the explanation offered by him and fails to prove that such explanation is bona fides with respect to material facts relating to the computation of total income. 19.2 Going further, we find that the claim of the assessee was not allowed by the ITAT in the own case of the assessee with respect to the deduction claimed by it for the remuneration received from the partnership firm while calculating the profit under the provisions of section 115JB of the Act in the earlier years including in the year under consideration and in subsequent year. However, we note that recently, Hon'ble Calcutta High Court in the case of PCIT vs. M/s Ankit Metal & Power Ltd. reported in 416 ITR 591, held that items of receipt which are not income under the provision of section 2(24) of the Act cannot be made subject to tax under the provisions of MAT while calculating the profit under section 115 JB of the Act. The relevant extract of the judgment is reproduced as under:

27. In this case since we have already held that in relevant assessment year 2010-11 the incentives 'Interest subsidy' and 'Power subsidy' is a 'capital receipt' and does not fall within the definition of 'Income' under Section 2(24) of Income Tax Act, 1961 and when a receipt is not on in the character of income it cannot form part of the book profit under Section 115JB of the Act, 1961. In the case of Appollo Tyres Ltd. (supra) the income in question was taxable but was exempt under a specific provision of the Act as such it was to be included as a part of the book profit. But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115 JB of the Income Tax Act, 1961." 19.3 Thus following the above observation of Hon'ble Kolkata High Court, the ITAT in the own case of the assessee for the A.Y. 2011-12 has decided the issue with respect to the exclusion of remuneration received from the partnership firm while calculating the profit under the provisions of section 115JB of the Act in favour of the assessee. 19.4 Thus, in our considered view the provisions of explanation 1 to section 271(1)(c) of the Act cannot be attracted in the given facts and circumstances. In view of the above and after considering the facts in totality, we set aside the finding of the learned CIT (A) and direct the AO to delete the penalty levied by him under section 271(1)(c) of the Act. Hence the ground of appeal of the assessee is allowed. “

16. Ld. CIT-DR could not place any contrary decisions and change of facts for the present asst year 2009-10. Therefore, respectfully following the decision of the Co-ordinate Bench of this Tribunal relating to the earlier Asst. Year 2008-09 in assessee’s own case, the ground no.3 raised by the Assessee is hereby allowed.

“The Appellant raises the following grounds, which are mutually exclusive, independent of and without prejudice to one another.

2. Re: Order passed u/s. 154 is bad in law:

2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in initiating the rectification proceedings and passing the order u/s. 154 of the Act as: 2.1.1 There was no mistake apparent on record; 2.1.2 The issue involved was highly legal and debatable in nature; 2.1.3 It was merely based on change of opinion.

2.2 The Ld. CIT(A) erred in initiating rectification proceedings without considering that the penalty in the original order passed under section 250 was deleted after considering the decision of Hon'ble Gujarat High Court in the case of Vodafone Essar Gujarat Ltd [2017] 397 ITR 55.

3. Re: Levy of Penalty u/s 271(1)(c) of Rs. 11,00,000/-:

3.1 On the facts and in circumstances of the Act, the Ld. CIT(A) grossly erred in confirming the action of the Assessing Officer in levying the penalty.

3.2 On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in upholding the validity of the penalty order without appreciating that the Assessing Officer had not recorded proper satisfaction. The Ld. CIT(A) failed to appreciate that the Assessing Officer had initiated penalty proceedings under both the limbs of section 271(1)(c) of the Act i.e. 'for concealment of particulars of income' and 'furnishing inaccurate particulars of income' whereas levied penalty by bolding that the Appellant has 'furnished inaccurate particulars of income.

3.3 Without prejudice to above, the Ld. CIT(A) failed to appreciate that the issuance of show cause notice under section 274 of the Act by the Assessing Officer in standard printed form without striking out irrelevant clause and without explicitly specifying the exact charge on which penalty is to be levied is bad in law and ought to be set aside altogether.

4. Re: Levy of Penalty on addition of provision for doubtful debts and advances while calculating book profits under section 115JB:

4.1 The Ld. CIT(A) grossly erred in confirming penalty on addition of provision for doubtful debts and advances while calculating book profits u/s 115JB of the Act without appreciating that the issue was legal and debatable.

4.2 The Ld. CIT(A) erred in confirming penalty without appreciating that the case of the Appellant is covered by the decision of the Hon'ble Jurisdictional High Court of Gujarat in the case of Vodafone Essar Gujarat Ltd (supra) wherein it has been held that actual write-off of provision for bad debts would not be hit by clause (i) of the Explanation to section 115JB.

4.3 Without prejudice to the above, the Ld. CIT(A) failed to appreciate the fact that the Appellant had made all the relevant disclosures and further that the claim was made on a reasonable and bona fide belief, therefore no penalty ought to be levied.

The Appellant craves leave to add to, alter, amend or withdraw all or any of the foregoing grounds of appeal at or before the hearing of this appeal.”

“The Appellant claims the following reliefs, which are without prejudice to one another. 1. Order passed u/s. 154 is bad in law 1.1 The initiation of rectification proceedings u/s, ought to be set aside and order ought to be quashed.

2. The penalty levied u/s. 271(1)(c) of the Act ought to be deleted