HEALTH BIOTECH LIMITED,CHANDIGARH vs. DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE 1(1), CHANDIGARH

6. That the appellant craves for any addition, deletion or amendment in the grounds of appeal

on or before the disposal of the same.

3. Briefly, the facts of the case are that the assessee company filed its return of income declaring loss. The assessment was completed under section 143(3) of the Act, wherein additions were made, inter alia, on account of disallowance of expenditure under section 40(a)(ia) due to non-deposit of tax deducted at source within the prescribed time and disallowance of excess depreciation claimed on assets funded by capital subsidy. Consequent to these additions, the Assessing Officer initiated penalty proceedings under section 271(1)(c) and levied penalty holding that the assessee had furnished inaccurate particulars of income.

4. Against the order of the AO the assessee went in appeal before the Ld. CIT(A).

5. The Ld. CIT(A), after considering the submissions of the assessee, confirmed the levy of penalty by holding that the assessee had failed to furnish true and correct particulars of income and that the claims made were not bona fide. The Ld. CIT(A) further observed that the Assessing Officer had clearly levied penalty for furnishing inaccurate particulars of income and that the penalty proceedings were validly initiated.

9.1 The decisions relied upon by the assessee in Manjunatha Cotton & Ginning Factory and SSA’s Emerald Meadows are distinguishable on facts. In those cases, there was complete ambiguity regarding the charge and the Assessing Officer had failed to record satisfaction in the assessment order itself. In the present case, however, the satisfaction has been clearly recorded and the penalty has been levied under a specific limb of section 271(1)(c). The Hon’ble Bombay High Court in Sheikh Mohammad also does not come to the rescue of the assessee, as in the present case the assessee was fully aware of the charge and had effectively participated in the penalty proceedings without any demonstrated prejudice. Therefore, we find no merit in the assessee's legal grounds that the penalty proceedings are vitiated by an invalid notice. Therefore, the legal grounds raised by the assessee are dismissed.

9.2 The penalty in the present case has been levied on account of (i) disallowance under section 40(a)(ia) for delayed deposit of TDS and (ii) excess depreciation claimed on assets funded by capital subsidy. It is not in dispute that all particulars relating to the expenditure, TDS deduction and subsidy were duly disclosed in the books of account as well as in the return of income. The additions have arisen only because of legal disallowances under the provisions of the Act and not because any income was found to be concealed or any factual detail was found to be false.

9.3 An important factual aspect emerging from the record is that the assessee is an eligible industrial undertaking claiming deduction under section 80IC, and during the year under consideration, it was incurring substantial losses and was governed by the provisions of Minimum Alternate Tax (MAT). Even after the impugned additions were made, on account of disallowances, the tax liability of the assessee remained the same. Thus, the additions did not result in any tax advantage or a reduction in the tax payable. The Revenue has also not disputed that the assessee continued to be taxed under MAT at the same amount.

9.4 Penalty under section 271(1)(c) is a civil liability, but it is nevertheless attracted only where the conduct of the assessee shows an attempt to conceal income or furnish inaccurate particulars so as to evade tax. In our considered view, where the returned income and assessed income ultimately lead to identical tax liability, the element of tax evasion, which is the foundation and reason for imposing the penalty, is conspicuously missing. In the present case, the disallowance merely altered the computation under normal provisions but did not create any additional tax burden under MAT regime.

9.5 The disallowance under section 40(a)(ia) arose because of the delayed deposit of TDS owing to financial constraints. The expenditure itself has not been doubted, and the payments are genuine. Similarly, the depreciation claim was made on the basis of the accounting treatment of the subsidy and represents, at best, a legal claim not accepted by the department. These circumstances clearly demonstrate that the case is one of an incorrect claim and not of furnishing inaccurate particulars of income.

9.6 It is settled law that a penalty cannot be imposed merely because a claim made by the assessee is not accepted in assessment proceedings. The distinction between “incorrect claim” and “false claim” has to be maintained. In the present case, there is no finding that the particulars furnished were factually incorrect. All material facts were fully disclosed, and the additions were made on the interpretation of statutory provisions.

9.7 Further, when the assessee is a loss-making company taxable under MAT and no additional tax becomes payable even after the additions, the allegation of intention to evade tax loses significance. The conduct of the assessee cannot be said to be contumacious or mala fide. The very basis for invoking section 271(1)(c), namely tax sought to be evaded, becomes academic in such a situation.

9.8 Considering the totality of facts, we hold that the impugned additions represent legal disallowances arising from statutory provisions and accounting interpretation and do not amount to concealment of income or furnishing of inaccurate particulars. Therefore, the penalty levied under section 271(1)(c) is not sustainable.

9.9 In view of the above discussion, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the penalty of Rs. 69,68,581/-.