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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ NEW DLEHI
Before: SHRI G.S. PANNU & SHRI K. NARASIMHA CHARY
PER K. NARASIMHA CHARY, J.M.
All these 3 appeals are preferred by the Revenue and cross objections by the assessee, challenging the orders of the learned Commissioner of Income Tax (Appeals)-III, Delhi (“Ld. CIT(A)”) for the
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assessment years 2004-05 to 2006-07. Since the facts, questions of law and the grounds of appeal in all these matters are similar, we deem it just and convenient to dispose of these appeals by way of this common order, with reference to the facts involved for the assessment year 2004-05 in ITA No. 4883 /Del/ 2011 and CO No. 03/Del/2019.
Brief facts of the case are that the assessee is a company engaged in the business of manufacturing of plastic film used in packaging industries, printed article in pouch form and is a diaphragm, having started a new manufacturing unit at Baddi (HP). For the assessment year 2004-05 they have filed their return of income on 31/10/2004 declaring nil income after claiming deduction under section 80 IC of the Income Tax Act, 1961 (for short “the Act”) to the tune of Rs. 9,13,69,859/-. There was a search and seizure operation in the M/s Flex group of cases on 23/02/2006 and the case of the assessee was also covered under section 132(1) of the Act. According to the assessee, on 31/3/2006 they have filed a revised return declaring income at Rs. 7,67,16,085/- wherein the deduction under section 80 IC of the Act was claimed at Rs. 1, 46, 53, 774/-. The revised income was computed by the assessee after excluding the income of Rs. 8, 44, 18, 0 24/- received by the assessee on account of license fee, from the direction earlier claimed under section 80 IC of the Act.
Pursuant to the search in section 132(1) of the Act, notice under section 153A of the Act was issued to the assessee and in response thereto, assessee filed the return of income on 6/10/2006 declaring income of Rs. 6, 76, 43, 647/-wherein the deduction under section 80 IC
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of the Act was claimed at Rs. 2, 37, 26, to 11/-. Assessment under section 153A of the Act read with section 143(3) of the Act was passed on 31/12/2007 at the income of the assessee of Rs. 8, 20, 90, 020/-, allowing the claim of the assessee for deduction under section 80 IC of the Act to the extent of Rs. 1, 06, 31, 753/-and the excessive claim was disallowed.
Learned Assessing Officer recorded in the order dated 31/12/2007 that the assessee has increased the amount of deduction claimed in section 80 IC of the Act over the earlier figure of Rs. 1,46,53,774/- implying manipulation in the accounts of the assessee, and but for the notice under section 153A of the Act the assessee could not have filed any written rectifying the claim for deduction under section 80 IC of the Act showing it at a lower figure, and therefore, the assessee having revised the figure of claim of deduction under section 80 IC of the Act as a result of search has committed the Act of furnishing inaccurate particulars, inviting penalty proceedings under section 271(1)( c ) of the Act.
Learned Assessing Officer issued notice under section 271(1)( c ) of the Act to which the assessee had issued a reply dated 18/3/2010 stating that the reduction in the brought forward losses and brought forward unabsorbed depreciation was on the basis of assessed figures of earlier assessment years and therefore, penalty was not to be levied on account of these additions in the current year; that the claim for deduction under section 80 IC of the Act was made by the assessee on the basis of audit report in form No. 10 CCB, as per which the deduction allowable was more than that claimed by the assessee; that the claim for deduction
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under section 80 IC on account of interest income was justified as it was an income earned from the business of undertaking; that the loss from the corporate unit was adjusted against the income from the eligible unit at Baddi and the claim for deduction under section 80 IC was after this adjustment; that the depreciation on technical know-how pertained to the corporate unit and not to the eligible unit at Baddi; that part of the administrative expenses pertaining to the corporate unit and therefore, were rightly not deducted from the income of the eligible unit at Baddi; that the proceedings for penalty are different from proceedings for assessment and every addition disallowance does not warrant the imposition of the penalty; that the penalty cannot be levied for mere claiming any deduction when there is no concealment of income or information from the learned Assessing Officer; and that all the material facts for computation of income were brought on record by the assessee and none of such particulars amounted to concealment or furnishing of inaccurate particulars thereof. Assessee also placed reliance on a catena of decisions in support of their submissions.
Learned Assessing Officer, however, by order dated 30/3/2010 passed in section 271(1)( c ) of the Act, did not agree with the assessee on several of these submissions and held that this is not a case of simple mistake committed by the counsel of the assessee and a heavy claims for deduction under section 80 IC was made without any sound legal basis and therefore, the reliance placed by the assessee on the judgement of the Hon’ble Delhi High Court in the case of M/s Comet Leasing and Finance Ltd vs. ACIT 2010-TIOL-134-ITAT-Delhi has no application to the facts of the case. Learned Assessing Officer distinguished the decisions
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relied upon the assessee and reached a conclusion that by inaccurately claiming excessive deduction under section 80 IC in the original return of income than what the assessee was entitled to without any sound basis, the assessee had concealed the particulars of its income/furnished inaccurate particulars of income and consequently levied the penalty of Rs. 2.90 crores.
Assessee preferred appeal before the Ld. CIT(A), and contended that the return of income filed in response to section 153A of the Act was the only written to be considered for the purpose of levying the penalty under section 271(1)( c ) of the Act and as there were no inaccurate particulars furnished in such return, no penalty for concealment is leviable. Assessee further contended that there is no concealment or submission of inaccurate particulars by the assessee even in the original return, as all the information relating to the claim of deduction under section 80 IC of the Act was clearly given in the return and the appended documents.
Ld. CIT(A) however did not agree with the assessee. According to the Ld. CIT(A) the doctrine of eclipse is applicable to the facts of the case and the original return gets eclipsed and could, therefore, not be acted upon for assessment purpose, due to legal embargo, but it does not get annulled.
Insofar as the merits of the case are concerned, on a careful consideration of the material available before him, Ld. CIT(A) recorded the fact that in the return of income filed on 31/10/2005, the assessee had in the 1st instance claimed 80 IC of the Act also on the license fee
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received for Rs. 7, 18, 92, 000/-, and it had claimed 80IC of the Act deduction in the returnwith which audited profit and loss account and balance sheet of Baddi unit as well as the company as a whole were submitted. Further, Ld. CIT(A) recorded that, the certificate in form No. 10 CCB for claiming deduction under section 80 IC of the Act from a Chartered Accountant was also filed by the assessee and that all the particulars of income including the income from the sublicensing were also disclosed in the return of income and none of the particulars furnished and so were found by the learned Assessing Officer to be inaccurate or concealment of income by the assessee.
Ld. CIT(A) further observed that the understanding of law on this issue by the assessee that they did not necessarily be a direct nexus between the activity of industrial undertaking and the profit and gains, was in accordance with the addition of the Hon’ble jurisdictional High Court in the case of CIT vs. Eltec SGS (P) Ltd 2008-TIOL-156-HC-Delhi-IT. He observed that the fact that the assessee, consequent upon the search, withdrew its claim of 80IC of the Act of the Act direction on the license fee, vide return of income filed in response to section 153A of the Act, does not take away the fact that the issue as to the income on which 80IC of the Act could be claimed, remained debatable as confirmed by the decision of the Hon’ble judicial High Court in the case of Eltec SGS (supra), and such a debate has been settled finally by the Hon’ble Supreme Court in the case of Liberty India Private Limited 317 ITR 218.
As a matter of fact, Ld. CIT(A) found that the disclosure was made in the return of income itself, and it cannot be said that the assessee had
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concealed or submitted any inaccurate particulars of income and therefore the case of the assessee is squarely covered by the decision of the Hon’ble Punjab and Arianna High Court in the case of CIT vs. ArsudanaSpinning Mills Ltd 326 ITR 429 and the decision of the Hon’ble Apex Court in the case of CIT vs. Reliance Petro Products Private Limited (2010) 230 CTR 320. While following the said additions, Ld. CIT(A) reached a conclusion that the assessee had furnished all the details of income and expenditure in its return, which details in themselves were not found to be inaccurate,the same cannot be viewed as concealment on the part of the assessee nor as the case of filing inaccurate particulars and, therefore, could not attract penalty in section 271(1)( c ) of the Act, even if the claim of expenditure/deduction is not acceptable to the Revenue. Since all the particulars relating to such a claim were furnished by the assessee and in none of such particulars were found to be inaccurate by the learned Assessing Officer, merely non-acceptance of the claim of the assessee by the learned Assessing Officer and allowing a reduced direction under section 80 IC of the Act cannot amount to concealment or inaccurate particulars and on this premise Ld. CIT(A) directed the assessing officer to delete the penalty levied under section 271(1)( c ) of the Act of the Act.
Aggrieved by the impugned order, Revenue preferred this appeal. Assessee also prefer across objections, however, with a delay stating that they realised the legal right at a belated stage after the jurisdictional High Court rendered the judgement in the case of Neeraj Jindal 393 ITR 1.
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It is the argument of the Ld. DR in justification of the assessment order, that making a claim which is non-sustainable in law itself amounts to furnishing of inaccurate particulars of income and the Ld. CIT(A) failed to notice the fact that the assessee was really intended to conceal its real income by filing inaccurate particulars of claim of deduction under section 80 IC and it revised its claim of deduction under section 80 IC of the Act only after search was conducted on it and therefore, the assessing officer was justified in levying the penalty and the Ld. CIT(A) committed an error in deleting the same.
Per contra, it is the argument of the Ld. AR that the factual findings of the Ld. CIT(A) areundisputable and merely because a claim preferred by the assessee was not accepted by the learned Assessing Officer, that does not ipso facto mean that there is either concealment of income or furnishing of inaccurate particulars thereof. He placed reliance on the decision of the Hon’ble Apex Court in the case of Reliance Petroproducts (supra). He reiterated the argument that after search under section 132 of the Act, in the case of abated proceedings, penalty under section 271(1)( c ) of the Act cannot be levied with reference to the return filed under section 139 of the Act, and also finding fault with the form of notice issued under section 271(1)( c ) of the Act read with section 274 of the Act.
We have gone through the record in the light of the submissions made on either side. In the assessment order dated 31/12/2007, learned Assessing Officer proposed to levy the penalty because the assessee had increasing the amount of deduction claimed under section 80 IC of theAct
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over the earlier figure of Rs. 1, 46, 53, 774/- implying manipulation in the accounts of the assessee, because, but for the notice under section 153A of the Act, the assessee would not have had any chance of filing a revised return showing a lesser figure of income than that was shown in the earlier return. Ultimately the fact remains that, the entire dispute in this matter revolves around the fact that the claim of the assessee under section 80 IC of the Act was for some higher amount than the entitlement of the assessee. Nonetheless, the fact remains that the assessee had furnished all the details of income and expenditure in its return, which details in themselves were not found to be inaccurate by the learned Assessing Officer and therefore the Ld. CIT(A) held that the same cannot be viewed as concealment on the part of the assessee nor is a case of filing of inaccurate particulars. Insofar as this factual observation of the Ld. CIT(A) is concerned, the Revenue cannot dispute the same. Alongwith the original return of income the assessee had furnished all the details of income which includes the audited P&L Account, balance sheet of but the unit as well as the company as a whole, certificate in form No. 10 CCB issued by a Chartered Accountant which includes the particulars of income from sublicensing. There is no dispute that the assessee furnished all these material particulars along with the original return of income. When the facts remain like this, the question is whether it is permissible for the assessing officer to draw an inference that the assessee tried to conceal the income by showing higher amount of deduction under section 80 IC of the Act.
In this context we deem it proper to refer to the decision of the jurisdictional High Court in CIT vs. DCM Limited(2013) 359 ITR 0101
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(Delhi), for the observations and findings of the Hon’ble High Court of Delhito the effect that law does not bar or prohibit an assessee from making a claim, which he believes may be accepted or is plausible; that when such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken, as necessarily the claim is bound to be carefully scrutinized both on facts and in law; that full probe and appraisal is natural and normal; that threat of penalty cannot become a gag and/or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings; and that normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual concealment has been made or inaccurate particulars on facts were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer.
We are inclined to approve the approach of the Ld. CIT(A) in analysing the facts of the case in the light of the decisions reported in the cases of Arsudana Spinning Mills Ltd 326 ITR 429 of Hon’ble Delhi High Court and CIT v. Reliance Petroproducts (P.) Ltd. reported in 322 ITR 158 of the Hon’ble Apex Court. In the case of CIT v. Reliance Petroproducts (P.) Ltd. reported in 322 ITR 158 the Hon’ble Apex Court, while interpreting the provisions of section 271(1)(c) of the Act, held that a glance at the said provision would suggest that in order to be covered by it, 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. In the facts of that case, the court found that it
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was not a case of concealment of the particulars of the income, nor was it the case of the revenue either. However, the counsel for the revenue suggested that by making an incorrect claim for the expenditure on interest, the assessee had furnished inaccurate particulars of income. The Hon’ble Apex Court observed that it had to only see as to whether in that case, as a matter of fact, the assessee had given inaccurate particulars. The Hon’ble Apex Court noted that as per Law Lexicon, the meaning of the word “particular” is a detail or details (in the plural sense); the details of a claim, or the separate items of an account. Therefore, the word “particular” used in section 271(1)(c) would embrace the meaning of the details of the claim made. The Hon’ble Apex Court further observed that in Webster’s Dictionary, the word “inaccurate” has been defined as: “not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript.” The Hon’ble Supreme Court observed that by reading the words “inaccurate” and “particulars” 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. The Hon’ble Supreme Court further noted that it was an admitted position that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect and, accordingly, held that, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The Hon’ble Apex Court also rejected the contention raised by the counsel for the revenue that “submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income”. The Hon’ble Apex Court held that in order to
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expose the assessee to the penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. It was the Hon’ble Apex Court’s observation that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars and that it must be shown that the conditions under section 271(1)(c) must exist before the penalty is imposed. The Hon’ble Apex Court further observed that 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.
With this view of the matter, while respectfully following the decisions referred to supra, we hold that the impugned order passed by the Ld. CIT(A) does not suffer any illegality or irregularity so that there could be interference by as to correct the mistake, if any. We are of the considered opinion that the reasoning adopted and conclusions reached by the Ld. CIT(A) legally justifiable and consequently we uphold the same. Assessee is entitled to relief on merits, which they have got rightly in the hands of the Ld. CIT(A).
Coming to the cross objection, inasmuch as no prejudice is caused to the Revenue because of the delay in filing the cross objection, taking a view that when the technical aspects are pitted against the possibility of rendering substantial Justice, the former must give way to the letter, we allow the request for condonation of delay. However in view of our finding that the assessee is entitled to the relief on merits, in a discussion as to the legality or otherwise of the notice issued under section 271(1)(c) of the Act read with section 274 of the Act or based on the contention of
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the assessee that when once the return of income under section 153A of the Act is filed, return filed under section 139 of the Act becomes nonest in the eye of law - are purely academic in nature and the cross objection filed by the assessee becomes infructuous. We therefore refrain from discussing such issues and dismiss the same as infructuous.
20 In the result, ITA No 4883/Del 2011 and CO No. 3/Del/2019 are dismissed.
ITA No. 4884/Del/2011 & ITA No. 472/Del/2013 and CO No. 4 /Del/ 2019& C.O. No 120 /Del/ 2019 21. On a perusal of the impugned order for the assessment year 2004- 04, we find that facts and circumstances, reasoning adopted and conclusions reached by the Ld. CIT(A) for these two years are identical to the ones involved for the assessment year 2004-05 and, therefore,these appealsaresquarely covered by our order for the assessment year 2004- 05. We, therefore, while taking a similar view, find the appeals of Revenue as devoid of merits and at the same time the cross objections as infructuous. Consequently we dismiss these appeals and cross objections.
In the result, all the three appeals preferred by the Revenue and the cross objection is preferred by the assessee are dismissed. Pronounced in open court on this 31st of November 2019. Sd/- Sd/- (G.S. PANNU) (K. NARSIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER
Dated:31/12/2019 ‘VJ’