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Before: Shri Duvvuru RL Reddy & Shri S. Jayaraman
आयकर अपीलीय अिधकरण, ‘‘डी” �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI �ी धु�ु� आर.एल रे�ी, �ाियक सद� एवं �ी एस जयरामन, लेखा सद� के सम� Before Shri Duvvuru RL Reddy, Judicial Member & Shri S. Jayaraman, Accountant Member आयकर अपील सं./I.T.A. No. 2654/Chny/2019 िनधा�रण वष�/Assessment Year:2014-15 The Deputy Commissioner of M/s. Standard Fireworks (P) Ltd., Income Tax, Central Circle 2, Vs. No. 1/3, Thiruthangal Road, Madurai. Sivakasi 626 123. [PAN:AACCS1480M] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Ms. R. Anita, JCIT ��थ� की ओर से/Respondent by : Shri Arjunraj, CA for Shri S. Sridhar, Advocate सुनवाई की तारीख/ Date of hearing : 31.03.2021 घोषणा की तारीख /Date of Pronouncement : 09.04.2021 आदेश /O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 19, Chennai, dated 27.06.2019 relevant to the assessment year 2014-15 passed under section 271(1)(c) of the Income Tax Act, 1961 [“Act” in short]. In the grounds of appeal, the Revenue has raised the following grounds: “1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The ld. CIT(A) failed to note that the assessee had only shifted a part of the industrial undertaking and not as whole.
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The ld. CIT(A) failed to consider that in the case of the assessee, purchase of another land in non-urban areas can also be not treated as shifting of the industrial undertaking as provided under the Act. 4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that the Assessing Officer be restored.” 2. The appeal filed by the Revenue is delayed by 3 days, for which, the Revenue has filed a petition/affidavit for condonation of the delay, to which; the ld. Counsel for the assessee has not raised any serious objection. Consequently, since the Revenue was prevented by sufficient cause, the delay of 3 days in filing of the appeal stands condoned and the appeal is admitted for adjudication.
Brief facts of the case are that the assessee has originally filed its return of income for the assessment year 2014-15 on 29.11.2014 admitting total income of ₹.85,96,22,000/-. The assessment under section 143(3) r.w. section153A of the Act was completed by assessing the total income of the assessee at ₹.138,04,13,667/- after making various additions. Subsequently, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act. After considering the submissions of the assessee and not convinced, the Assessing Officer levied penalty of ₹.11,41,32,333/- under section 271(1)(c) of the Act.
Against the quantum addition, the assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) confirmed the impugned addition towards the
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claim of deduction of ₹.50,36,72,654/- under section 54G of the Act, against which, the assessee preferred further appeal before the ITAT. Vide order in I.T.A. No. 1619/Chny/2017 dated 26.06.2018, the ITAT has held that the assessee is entitled to claim exemption of capital gains as per the provisions of section 54G of the Act.
Against the penalty order under section 271(1)(c) of the Act, the assessee preferred an appeal before the ld. CIT(A). After considering the submissions of the assessee, the ld. CIT(A) held that the penalty levied under section 271(1)(c) of the Act is not sustainable since the quantum addition was deleted by the ITAT vide its order in I.T.A. No. 1619/Chny/2017 dated 26.06.2018.
Aggrieved, the Revenue is in appeal before the Tribunal against deletion of penalty levied under section 271(1)(c) of the Act.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Against the deletion of quantum addition vide order in I.T.A. No. 1619/Chny/2017 dated 26.06.2018 by this Tribunal, the Revenue preferred further appeal and vide order in T.C.A. No. 426 of 2019 dated 09.07.2019, the Hon’ble Madras High Court confirmed the order of the ITAT by dismissing the appeal of the Revenue and the relevant portion of the order reads as under:
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“6. The Assessing Officer, while completing the assessment, vide order dated 31.12.2016, under Section 143(3) read with Section 153A of the Act, opined that the property sold by the assessee was only a godown and used for storing fireworks and that it could not be interpreted to mean an 'industrial undertaking'. Accordingly, the claim for deduction under Section 54G was disallowed and an amount of Rs.50,36,72,654/- was assessed under the head 'capital gains'. 7. As against the order of assessment dated 31.12.2016, the assessee carried the matter on appeal before the Commissioner of Income Tax (Appeals)-19, Chennai [for short, the CIT(A)], who, by order dated 04.5.2017, concurred with the findings of the Assessing Officer and while accepting the fact that the land in question was used for the purposes of the business of an industrial undertaking, denied the relief to the assessee on the ground that the sale of the store area land in Bangalore is one off transaction not specifically effected in the course of or in consequence of shifting of any industrial undertaking. 8. As against the order passed by the CIT(A) dated 04.5.2017, the assessee preferred an appeal before the Tribunal. After considering the provisions of Section 54G(1) of the Act, the Tribunal took note of the business activities of the assessee and the meaning assigned to the expression 'industrial undertaking' and held that the interpretation to be given should be in such a manner that it promotes economic growth and development and it should aid an industry. Keeping the said principle in mind, the Tribunal considered the facts of the assessee's case, noted that the assessee shifted its godown storing hazardous products to a non urban area and that the activity carried on in the godown being storage and repacking, which is severable from the other activities of the industrial establishment and held that the assessee is entitled to claim exemption of capital gains as per the provisions of Section 54G of the Act. While rendering such a finding, the Tribunal noted that the factual position was not in dispute. The Revenue is on appeal before us challenging such finding. 9. In our considered view, the Assessing Officer failed to take note of the vital factor namely that the property, which was sold by the assessee in Bangalore, was a 'magazine'. Rule 2(31) of the Explosives Rules, 2008 defines the word 'magazine' to mean a building or structure (other than an explosives manufacturing building) intended for storage of explosives, specially constructed in accordance with the specification provided under these Rules or of a design and approved by the Chief Controller. The expression 'Chief Controller' is defined under Rule 2(9) of the Explosives Rules, 2008 to mean the Chief Controller of Explosives. 10. Section 4(h) of the Explosives Act, 1884 defines the word 'manufacture' in relation to an explosive, which includes the process of (1)
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dividing the explosive into its component parts or otherwise breaking up or unmaking the explosive, or making fit for use any damaged explosive; and (2) re-making, altering or repairing the explosive. Thus, the definition of the word 'manufacture' as defined under the Explosives Act, 1884 is an inclusive definition and storing of bulk quantity of explosives and repacking for retail sale would undoubtedly fall within the meaning of the word 'manufacture'. In terms of Rule 71 of the Explosives Rules, 2008, a person holding licence for possession of explosives granted under these Rules shall store the explosives only in the premises specified in the licence. Thus, possession, usage and sale of explosives are strictly regulated under the provisions of the Explosives Act and the relevant Rules framed thereunder. 11. Unfortunately, the Assessing Officer did not take note of this vital factor, but was guided by the common parlance test given to an industrial undertaking. One more factor, which the Assessing Officer lost sight of, was the manner, in which, the first limb of Section 54G(1) of the Act is worded wherein the transfer of a capital asset includes machinery or plant or building or land or any rights in the building or land used for the purpose of business of an industrial undertaking situated in an urban area. The second limb of Section 54G(1) of the Act is what had weighed in the mind of the Assessing Officer while denying the deduction under Section 54G of the Act. However, what was important to note is that where the capital gains arising from transfer of capital asset, being machinery or plant or land or building used for the purposes of business of an industrial undertaking situated in an urban area effected in the course of or in consequence of the shifting of such industrial undertaking to any area other than an urban area, the assessee is entitled to the benefit of deduction under Section 54G of the Act. 12. The scheme of the Explosives Act and the relevant Rules framed thereunder would clearly bring a 'magazine', which was referred to by the Assessing Officer as a godown to qualify to be a place used for the purpose of business of an industrial undertaking and in fact, going by the definition of the word 'manufacture' under the Explosives Act, the activity done by the assessee namely storage and repacking would also, in our opinion, fall within the definition of the word 'manufacture'. The Tribunal, in paragraph 4.6 of its order, has specifically recorded that the facts are not in dispute. In the light of the above, we find that the interpretation given by the Tribunal to the facts of the case of the assessee is perfectly legal and valid. For the above reasons, the Revenue has not made out any ground to interfere with the order passed by the Tribunal. 13. Accordingly, the above tax case appeal is dismissed. The substantial question of law is answered against the Revenue. No costs.”
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The ld. DR could not controvert the above decision of the Hon’ble Madras High Court. In view of the confirmation of deletion of quantum addition by the Hon’ble High Court, we are of the considered opinion that the penalty levied under section 271(1)(c) of the Act cannot survive and accordingly, the appellate order passed by the ld. CIT(A) stands sustained. Thus, the ground raised by the Revenue stands dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced on the 9th April, 2021 in Chennai.
Sd/- Sd/- (S. JAYARAMAN) (DUVVURU RL REDDY) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 09.04.2021 Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.