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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD, JUDICIAL MEMEBR & SHRI WASEEM AHMED, ACCOUNTANT MEMEBR
PER WASEEM AHMED - AM:
Both captioned appeals have been filed at the instance of the assessee and Revenue against the order of the Commissioner of Income Tax (Appeals)-2,
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 2 -
Vadodara (CIT(A) in short) dated 30/01/2017 relevant to Assessment Year (AY) 2008-09.
The necessary facts as emerging from the order of authorities below are that the assessee is a limited company and engaged in the business of manufacturing and trading of pharmaceuticals products, bulks drugs and trading activity. During the assessment proceeding the AO/TPO made various additions under normal computation of income as well as under book profit in pursuance to the provisions of section 115JB of the Act. The AO also initiated penalty proceeding under section 271(1)(c) of the Act for the addition of income/ disallowance of expense/ exemption/ deduction and TP adjustment with respect to which the particulars of income were concealed or inaccurate particular of income were furnished.
2.1 Thereafter, several of the additions made by the AO/TPO came to be confirmed by the learned CIT (A) in quantum proceedings. Accordingly, the AO levied the penalty under section 271(1)(c) of the Act on the additions confirmed by the learned CIT(A) which are detailed as under:
Amount of quantum S. No. Nature of addition addition (in Rs.) TP upward adjustment on sale of drug 1 Pantoprazole 3,825,237,167 Disallowances of reduction of partner 2 remuneration received from book profit 401,276,441 3 TP upward adjustment on loan to AE 78,382,483 4 TP upward adjustment on investment in OFCD 210,842,301 5 TP upward adjustment on corporate guarantee 2,388,000 Disallowances of weighted deduction on 6 Trademark and overseas product registration 10,658,244 Disallowances of weighted deduction on 7 corporate advertisement 14,433 Disallowances of weighted deduction on 8 expenses not approved by DSIR 163,725,000 9 Addition on account sale to sister concern 27,507,069
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Disallowances of selling and Distribution 10 expenses 621,578,070 11 Disallowances of deduction u/s 10B 504 12 Disallowances of repair expenses 1,017,500 13 Disallowances of leave encashment 3,998,673 14 Disallowances under section 14A 36,066,172
2.2 The amount of penalty was levied by the AO under section 271(1)(c) of the Act amounting to Rs. 171,85,00,000/- under different charges i.e. concealment of income/ furnishing inaccurate particulars of income being 100% of tax sought to be evaded.
2.3 On appeal, the learned CIT (A) confirmed the penalty with respect to following addition confirmed by him during the quantum proceedings:
Amount of S. No. Nature of addition addition (in Rs.) TP upward adjustment on sale of drug 1 Pantoprazole 3,825,237,167 Disallowances of reduction of partner 2 remuneration received from book profit 401,276,441
2.4 However, the ld. CIT-A was pleased to delete the penalty levied by the AO with regard to the following additions:
Amount of S. No. Nature of addition addition (in Rs.) 1 TP upward adjustment on loan to AE 78,382,483 2 TP upward adjustment on investment in OFCD 210,842,301 3 TP upward adjustment on corporate guarantee 2,388,000 Disallowances of weighted deduction on 4 Trademark and overseas product registration 10,658,244 Disallowances of weighted deduction on 5 corporate advertisement 14,433 Disallowances of weighted deduction on 6 expenses not approved by DSIR 163,725,000
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7 Addition on account sale to sister concern 27,507,069 Disallowances of selling and Distribution 8 expenses 621,578,070 9 Disallowances of deduction u/s 10B 504 10 Disallowances of repair expenses 1,017,500 11 Disallowances of leave encashment 3,998,673 12 Disallowances under section 14A 36,066,172
Against the order of the learned CIT(A), both the assessee and Revenue are in appeal before us in their respective appeals. The grounds of appeal of the assessee and Revenue read as under:
Assessee’s grounds of appeal in ITA No. 928/AHD/2017 read as under:
“The Appellant raises the following grounds, which are mutually exclusive, independent of and without prejudice to one another:
On the facts and in the circumstances of the case, the order passed by the learned Commissioner of Income-tax (Appeals) [hereinafter referred to as 'the Ld. CIT(A)] is bad in law and void ab initio and consequently, needs to be quashed.
Re: Levy of Penalty u/s 271(l)(c) of Rs. 1.71.85.00.000/-: 2.1 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 passed by the Assessing Officer without appreciating that the Assessing Officer had failed to record proper satisfaction at the time of initiation of penalty and that even after insertion of section 271 (IB), recording of satisfaction is must for initiation of penalty.
2.2 Under the facts and in the circumstances of the case and in law, the Ld. CIT(A) has acted in a grossly erroneous manner by overlooking the infirmity in the penalty show cause notice which was issued in a stereotype manner and hence was bad in law in as much as it did not mention the specific ground for levy of penalty i.e concealment or furnishing inaccurate particulars of income.
2.3 The Ld. CIT(A) grossly erred in not appreciating that the grounds were legal and debatable issues and that the Appellant had furnished complete disclosure in the return of income, tax audit report in Form 3CD, transfer pricing report in Form 3CEB and notes to computation, hence no penalty ought to have been levied.
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 5 -
Re: Levy of penalty on alleged addition for the profit on supply of Pantoprazole drug to Associated Enterprises amounting to Rs. 3,82,52,37,167/-: 3.1 On the facts and circumstances of the case and in law, the learned CIT- (A) has grossly erred in upholding the action of the Assessing Officer (AO) in levying the penalty u/s, 271(1)(c) of the Act on the contested addition on account of alleged profit attributed to the appellant without appreciating the fact that mere addition to the taxable income cannot automatically lead to levy of penalty without establishing that the Appellant had deliberately furnished inaccurate particulars of income.
3.2 The learned CIT(A) failed to appreciate that the Appellant had fully and truly disclosed all the relevant details in its return of income, Form 3CEB and Rule 10D documentation and the submissions made to the TPO/AO; however the rationale for levying penalty is based on future events & incorrect understanding of the facts.
3.3 The learned CIT(A) erred in confirming the penalty levied by the AO without appreciating the fact that the price charged in the international transaction was computed in accordance; with the provisions contained in Section 92C of the Income-tax Act,1961 (the Act) and in the manner pre-scribed under that section and the relevant Rules in good faith and with due diligence as per Explanation 7 to Section 271(1) of the Act.
3.4 The learned CIT(A) grossly erred in confirming the penalty levied by the AO without appreciating that:
.1 The addition made to the transfer price by adopting a diverse method (Profit split method) as against the one adopted by the Appellant (Transactional Net Margin Method) resulted due to difference of opinion on the fully and truly disclosed particulars wherein random profit ratio was applied by the AO/TPO, which was further modified by the CIT(A) by applying another notional arbitrary basis of profit split. .2 The addition made by the AO/TPO and the learned CIT(A) was made on their whims & fancies without bringing on record "any reliable external market data which indicates how such contribution would be evaluated" as prescribed under Rule 10B(1)(d)(ii) of the Income-tax, Rules 1962 which was the fundamental prerequisite and hence penalty on such estimated additions needed to be dropped.
3.5 The learned CIT(A) erred in relying on the decision of the Hon'ble ITAT, Mumbai in the matter of Clestra Life Science (P) ltd v/s ITO (2016) 75 taxmann.com 112 which was distinguishable as facts of the case were different and not applicable to the present case of the Appellant.
Re: Levy of penalty for reduction of remuneration received from M/s Sun Pharmaceutical Industries ('SPI’) while calculating book profits u/s 115JB of Rs. 40.12.76.441/-:
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On the facts and in the circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the levy of penalty pertaining to reduction of remuneration received from SPI of Rs. 40,12,76,441/- while determining book profits u/s 115JB on the basis of the enhancement carried out under normal provisions in the order passed by the incumbent without appreciating that the relevant order could not be the basis for justification of penalty initiated by the Assessing Officer. The CIT(A) could not have upheld the penalty on any basis other than the basis on which the penalty has been initiated by the Assessing Officer.
4.2 Without Prejudice to the above, the Ld. 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.
4.3 The Ld. CIT(A) failed to appreciate that no material facts were withheld or any inaccurate particulars were furnished and that the Appellant's claim was based on a bonafide belief.
The Appellant craves leave to add, alter, amend or delete all or any of the grounds of appeal before or during the course of the hearing.”
Revenue’s ground of appeal in ITA No. 921/AHD/2017 read as under:
“1. "On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in delete penalty levied on TP issues account of addition made on interest on loan to associated Enterprises, ignoring the facts that order of the Hon'ble ITAT in ITA No. 1589 & 1592 /Ahd/ 2011 dated 10-05-2016 has not received till date by the Revenue and therefore decision of further filing of appeal before the Hon'ble High Court is pending".
"On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in delete penalty levied on TP issues account of addition made on interest on investments in Associated Enterprises, ignoring the facts that order of the Hon'ble ITAT in ITA No. 1589 & 1592 Ahd/ 2011 dated 10-05- 2016 has not received till date by the Revenue and therefore decision of further filing of appeal before the Hon'ble High Court is pending".
"On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts to delete penalty levied on account of addition of service fees on account of Corporate Guarantee provided to Associated Enterprises. Since, the assessee company could not offer any plausible or satisfactory explanation in this regard during assessment proceedings as well as appellate proceedings".
"On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied on account of disallowance of weighted deduction on Trade Mark Registration & Overseas Product Registration expenses u/35 (2AB). Order of Hon'ble ITAT, Ahmedabad in ITA. No.3025 & 3069/Ahd/2010 dated 03.05.2016 in AY 2005-06, has not
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 7 -
been decided on account of non-receipt of ITAT order till date. Further, the assessee company was fully aware of Law at the time of claiming excess deduction u/s.35(2AB)".
"On the fads and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied on account of disallowance of expenditure on corporate advertising u/s. 35(2AB) ignoring the fact that The expenditure incurred for Corporate advertisement like quarterly results etc. has not direct nexus with the activity of R & D and the assessee was fully aware of the Law at the time of claiming excess deduction u/s.35(2AB). Mere disclosure in Tax audit Report could not contention of the assessee is not mala fide and the issue is debatable".
"On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in deleting the penalty levied on account of Disallowance of R&D expenses not approved by DSIR in Form 3CL ignoring the fact that the assessee company was fully aware of the Law at the time of claiming deduction u/s. 35(2AB) and also aware about issuance of Form no 3CL by the prescribed authority and the difference of amount of R & D expenditure as per claim as per return of income and certified in the said Form 3CL. Satisfaction was also recorded by the A.O. for levy penalty on this issue for furnishing inaccurate particulars of income by claiming excess deduction us/ 35(2AB)".
"On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied on account of disallowance of Sale of product to sister concern (Sun Pharmaceutical Industries {SPI}), Order of Hon'ble ITAT, Ahmedabad in IT A. No,3025 & 3069/Ahd/2010 dated 03.05.2016 in AY 2005-06, has not received till date by the Revenue and therefore decision of further filing of appeal before the Hon'ble High Court is pending".
"On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied on account of Disallowance of Selling and Distribution expenses/ Salary and allowances to Field staff. Order of Hon'ble ITAT, Ahmedabad in ITA. No.3025 & 3069/Ahd/2010 dated 03.05.2016 in AY 2005-06, has not received till date by the Revenue and therefore decision of further filing of appeal before the Hon'ble High Court is pending".
"On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied on account of deduction u/s. 10B on account of unrealized export proceeds since the assessee had made disclosure of non-receipt of export proceeds in Form No.56G, the deduction u/s.10B was worked out ignoring the non-receipt and made the wrong claim accordingly".
"On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied addition on account of Disallowance of Repairing expenses It was a new asset and cannot be equated with routine repairs and spares and held that it was a new asset purchased by assessee company and accordingly treated the same as capital expenditure".
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 8 - 11. "On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied addition on account of disallowance of provision for Leave Encashment, ignoring the fact that it is obligatory on the part of the assessee to pay the leave encashment to its employees, the allowbility of the expenditure would base on the actual payment and not on making provision. The provision of leave encashment is not an accrued/ascertained liability".
"On the facts and in the circumstances of the case, the learned CIT(A) erred in the law and facts in deleting the penalty levied addition on account of Disallowance u/s. 14A While assessing income under normal Income Tax ignoring the fact that the assessee company has earned huge non taxable income as share of profit from partnership firm and for earning such income huge expenses would have been incurred by the assessee company, which also held by the Ld.CIT(A) in quantum appeal".
The appellant crave leave to add to, amend or alter the above grounds as may be deemed necessary.
Relief claimed in appeal
It is prayed that the order of CIT(Appeals) be set aside and that of the Assessing officer be restored.”
The learned AR before us submitted that several of the quantum additions in respect of which the penalties were levied have been deleted by the ITAT vide order dated 16-06-2017 in ITA Nos. 3297 & 3420/AHD/2014 vide order dated 16-06-2017. Therefore, once the quantum additions came to be deleted, the penalties levied on the same for concealment or furnishing inaccurate particular of income do not survive. The ground numbers 3 of the assessee’s appeal in ITA No. 928/Ahd/2017 and the ground No. 1, 2, and 4 to 8 of Revenue’s appeal in ITA No. 921/Ahd/2017 are covered under this fold of argument.
6.1 The learned AR further submitted that there were also different quantum additions against which the penalties were levied by the AO, but the same were deleted by the learned CIT(A) which were challenged in the appeal filed by the Revenue. But in the quantum proceeding the same have been set aside to the file of the AO/ ld. CIT-A for fresh adjudication by the ITAT vide order dated 16- 06-2017 in ITA Nos. 3297 & 3420/AHD/2014. Hence, the outcome of these quantum additions is still pending. Accordingly, it was prayed by the learned AR to restore the issue of the penalty levied on such quantum additions to the file
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of the AO for fresh adjudication after considering the outcome of the quantum addition. The ground numbers 3, 9 and 11 to 12 of the Revenue’s appeal are covered under this fold of argument.
On the other hand, the ld. DR vehemently supported the order of the authorities as favourable to him.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that the assessee and the Revenue against the quantum additions/ confirmation were in appeal before this tribunal in ITA No. 3297 & 3420/Ahd/2014 where the quantum additions as highlighted the by the learned AR in ground number 3 of assessee’s appeal and ground Nos. 1-2 and 4-8 of the revenue’s appeal have been deleted by the coordinate bench of this tribunal vide order dated 16-6-2017. The relevant details of the deletion of the quantum additions by the ITAT stand as under:
Nature of quantum Paragraph Amount of addition on which G. quantum No. of ITAT Appellant penalty levied by the No addition (in AO order Rs.) Assessee 3 TP upward adjustment on 34 to 94 sale of drug Pantoprazole 3,825,237,167/- Department 1 TP upward adjustment on 20 to 26 loan to AE 78,382,483/- Department 2 TP upward adjustment on 6 to 15 investment in OFCD 210,842,301/- Department 4 Disallowances of weighted 95 to 97 deduction on Trademark and overseas product 10,658,244/- registration Department 5 Disallowances of weighted 98 to 99 deduction on corporate 14,433/- advertisement Department 6 Disallowances of weighted 100 to 101 deduction on expenses not 163,725,000/- approved by DSIR Department 7 Addition on account sale 122 to 124 to sister concern 27,507,069/- Department 8 Disallowances of selling 125 to 126 and Distribution expenses 621,578,070/-
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 10 -
From the above, there remains no ambiguity that the additions on the basis of which the penalty was levied upon the assessee by the AO has ceased to exist. In other words, the quantum additions made by the AO and confirmed by the learned CIT(A) were deleted by the ITAT with respect to the items as detailed above. Thus, the question of concealment of income or furnishing inaccurate particular of income does not arise and therefore the penalty cannot be sustained. Under the provisions of section 271(1)(c) of the Act, the amount of penalty has been specified which shall not be less than hundred percent of the amount of tax sought to be evaded subject to the maximum limit of 300% of such amount. Under explanation 4 to section 271(1)(c) of the Act, the manner for quantifying the amount of tax sought to be evaded has been specified which has direct nexus with the additions/ disallowances made during the quantum proceedings. Therefore, where the quantum additions/ disallowances have been deleted, then the manner of quantifying the amount of penalty under explanation 4 to section 271(1)(c) of the Act as discussed above fails. Accordingly, we are of the view that that there cannot be any penalty with respect to the quantum additions which have been deleted by the authorities whether on merit or on technical grounds. Thus, the ground no. 3 of the assessee’s appeal is hereby allowed whereas ground Nos. 1, 2 and 4 to 8 of the Revenue’s appeal are hereby dismissed.
Similarly, the ITAT in quantum appeal as discussed above has set aside certain issues to the file of the AO/ ld. CIT-A for fresh adjudication with some direction. The relevant details of the additions in the quantum proceedings which have been set aside to the respective lower authorities stand as under:
Nature of quantum Paragraph Amount of addition on which G. quantum No. of ITAT Appellant penalty levied by the AO No addition (in order Rs.) Department 3 TP upward adjustment on 16 to 19 corporate guarantee 2,388,000/- Department 9 Disallowances of deduction 129 to 130 u/s 10B 504/- Department 11 Disallowances of provision 150 to 151 for leave encashment 3,998,673/-
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 11 - Department 12 Disallowances under section 152 to 154 14A 36,066,172/-
10.1 In view of the above, there remains no ambiguity to the fact that the determination of income with respect to the above items is itself in dispute which is pending for adjudication before the respective authorities below. Accordingly, in such facts and circumstances, the amount of penalty cannot be determined. Consequently, in the interest of justice and fair play, we are setting aside the issue of the penalty to the file of the respective authorities for fresh adjudication after considering the outcome of the quantum additions pending before them. Thus the ground of appeal of the Revenue bearing Nos. 3, 9, 11 and 12 are hereby allowed for statistical purposes.
Now we proceed to adjudicate the remaining issue of the assessee’s appeal in ITA No 928/Ahd/2017
The issue raised by the assessee in ground no. 1 and 2 of its appeal are general in nature and don’t require any separate adjudication. Hence the same are dismissed as infructuous.
The issue raised by the assessee in ground no. 3 of its appeal has been dealt above in paragraph number 8 to 9 of this order and has been allowed in favour of assessee.
The issue raised by the assessee in ground no. 4 of its appeal is that the learned CIT(A) erred in confirming the penalty levied by the AO on account of addition of Rs. 40,12,76,441/- made in book profit u/s 115JB representing the remuneration received from the partnership firms.
The assessee in the year under consideration has shown remuneration received from the partnership firms amounting to Rs. 40,12,76,441/- but the assessee claimed the same as not chargeable to tax in its hands under normal computation of income on the reasoning that the remuneration received from
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 12 - the partnership firm has not been claimed as deduction in the hands of the partnership firm.
14.1 The assessee on the same reasoning has also reduced the amount of remuneration from the book profit while working out the MAT liability under the provisions of section 115JB of the Act. However, the AO found that the assessee is not eligible for such deduction while calculating the book profit under section 115JB of the Act. Thus the AO disallowed the same and added to the book profit of the assessee. The AO further initiated the penalty proceedings on account of furnishing inaccurate particulars of income under the provisions of section 271(1)(c) of the Act. The AO finally levied the penalty on the addition made for ₹ 40,12,76,441/- while calculating the book profit under section 115JB of the Act.
On appeal, the learned CIT(A) also confirmed the penalty levied by the AO.
Being aggrieved by the order of learned CIT(A) the assessee is in appeal before us.
The learned AR before us contended that the assessee has disclosed full particulars of income in the return filed by it. As such, there was the disclosure made by the assessee in the income tax return while calculating the book profit. As such, the claim not allowed as deduction cannot be treated as inaccurate particular of income. According to the learned AR there cannot any penalty upon the assessee for the addition made by the revenue authorities which was subsequently confirmed by the learned CIT(A).
On the other hand the learner DR vehemently supported the order of the authorities below.
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 13 - 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 of 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 115JB of the Act. We note that there was no finding of the
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 14 - 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.
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 15 - 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.
In the result appeal of the assessee is allowed.
Now we proceed to adjudicate the remaining issue of the Revenue’s appeal in ITA No. 921/Ahd/2017
The issue raised by the Revenue in ground Nos. 1, 2, and 4 to 8 of its appeal has been dealt above vide paragraph number 8 to 9 of this order where we have decided the issue against the Revenue. Hence grounds of the Revenue’s appeal are hereby dismissed.
The issue raised by the Revenue in ground Nos. 3, 9, 11, and 12 of its appeal have been dealt above vide paragraph number 10 to 10.1 of this order where we have decided the issue in favour of the Revenue for statistical purposes. Hence, the grounds of appeal of Revenue’s appeal are allowed for statistical purposes.
The issue raised by the Revenue in ground no. 10 of its appeal is that the learned CIT(A) erred in deleting the penalty levied on disallowances of repair expenses of Rs. 10,17,500/ only.
The assessee during the year has purchased certain item for Rs. 10,17,500/- and claimed the same as repair & maintenance expenses in profit loss account. The AO found that item purchased by the assessee were in nature capital assets, thus the AO disallowed the same which was subsequently came
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 16 - to confirmed by the learned CIT(A). Thereafter the AO levied penalty under explanation 1 to section 271(1)(c) of the Act.
The aggrieved assessee agitated the issue before the learned CIT(A) and contended that the purchases were made on account of replacement of worn out item and treated the same as revenue expenditure. However, its claim was not accepted. But it does no ipso-facto empower the AO to levy penalty under section 271(1)(c) merely on the basis of claim of the assessee not accepted in the assessment proceeding. The assessee further submitted that the impugned issue of nature of expense is debatable one. Therefore in such facts and circumstances, the same should be considered as bona-fide difference of opinion.
The learned CIT (A) after considering the facts in totality deleted the penalty levied by the AO on account of disallowances of repair and maintenance expenses of Rs. 10,17,500/- by observing as under:
“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.”
Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal of the assessee.
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.
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 17 - 29. On the other hand, the learned AR before us submitted that the claim made by the assessee was genuine and no infirmity was pointed out therein by the AO. Simply, a claim of the assessee not admitted as revenue in nature cannot give the authority to hold that the assessee has furnished inaccurate particulars of income. Both the learned DR and the AR before us vehemently supported the order of the authorities below to the extent favourable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case have been elaborated in the previous paragraph. Therefore, for the sake of brevity, we are not inclined to repeat the same. 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 additions or disallowances in computation income by the AO are 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.
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
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 18 -
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: (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. 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)(c). 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.
ITA No. 928 & 921/Ahd/2017 [Sun Pharma Laboratories Ltd.] A.Y. 2008-09 - 19 - 31. In the result, the appeal of the Revenue is hereby partially allowed for statistical purposes.
In the combined result, appeal of the assessee in ITA No.928/Ahd/2017 is allowed whereas Revenue’s appeal in ITA No.921/Ahd/2017 is partly allowed for statistical purposes.
This Order pronounced in Open Court on 24/08/2022
Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 24/08/2022 True Copy S.K.SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।