HANS ISPAT LTD.,AHMEDABAD vs. ACIT, NEW DELHI

ORDER Per Bench: These four appeals by the assessee are directed against the separate orders each dated 27.04.2015 of the ld. CIT(A)-23, New Delhi.

5. Facts of the case in brief are that a search and seizure operation was conducted in Jaksons Group of cases on 10.02.2010 and the assessment proceedings were initiated by issuing the notice u/s 153C of the Act on 02.06.2011. However, no return was filed in response to the notice u/s 153C of the Act. Therefore, the assessment was completed u/s 144 r.w.s. 153C of the Act on 22.12.2011 at an income of Rs.3,40,38,250/- and book profit u/s 115JB of the Act at Rs.1,00,53,935/-. Addition of Rs.1,06,72,728/- on account of unsecured loans and Rs.1,33,12,904/- on account of disallowance of expenses were made to the total income of the assessee company. However, in the first appeal, the ld. CIT(A) deleted the addition of Rs.1,06,72,728/- made by the AO on account of unsecured loans and also allowed relief of Rs.96,44,708/- out of disallowance of expenses amounting to Rs.1,33,22,580/- (wrongly mentioned as Rs.1,33,12,904/-). Thereafter, the AO initiated the penalty proceedings u/s 271(1)(c) of the Act on account of addition sustained by the ld. CIT(A) out of expenses amounting to to 3852/Del/2015 3 Hans Ispat Ltd. Rs.33,68,196/-, the AO levied the penalty of Rs.11,33,740/- u/s 271(1)(c) of the Act.

1. 1. Hon'ble Gujarat High Court in the case of BTX Chemical (P) Ltd. vs. CIT (288 ITR 196)(Guj), wherein it was held that, "assessee having claimed of loss on account of destruction of capital assets on account of fire under bona fide belief that the loss was revenue loss in view of contusing legal position prevailing at the relevant time, no case of concealment is made out and penalty u/s.271(1)(c) is not leviable.

2. Judgment of Hon'ble High Court of Punjab and Haryana in the case of CIT Vs Deep Tools 274 ITR 603 (P&H). (v) Since the expenditure has been disallowed on estimate basis, there cannot be any penalty under section 271(1)(c) of the Act. In this regard reliance is placed on the judgment of the Honble Punjab and Haryana High Court in the case of CIT Vs Sangrur Vanspati Mills Limited (303 ITR 53)(2008). (vi) The Ld. A.O. has not properly considered our written submission dated 18th November 2013. That further, proper opportunity of hearing has not been given for the levy of the penalty; though the same has been specifically asked vide the said letter. And therefore the to 3852/Del/2015 5 Hans Ispat Ltd. order passed by the learned AO is against the principle of natural justice. (vii) That In order that a penalty under section 271(l)(c) may be imposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of income K.C. Builders V.CIT [(2004) 265 ITR 562 (SC)] and CIT V Susai Kalyanamandapam Pvt. Ltd. [(2004) 271 ITR 138 (Mad.).In this case, in the profit and loss account, the. said expense has been clearly stated and full details have been furnished during the course of assessment proceedings, and it has not been found bogus or non- genuine loss. Further, in cases of levy of penalty, there should always be mens rea. "Mens rea" is evil intention or knowledge of the wrongfulness of the act that a person commits. Only when such mental attitude is present in an act, the person who commits it is said to have acted deliberately in defiance of law or is guilty of dishonest conduct. Since in this case, "mens rea" is absent penalty u/s 271(1)(c) is not imposable. (viii) In view of the above facts and legal position, the penalty levied by the learned AO is bad and therefore the learned AO should be directed to delete the penalty levied. Your good office is requested to consider the above submission while passing the order and oblige."

7. The ld. CIT(A) after considering the submissions of the assessee sustained the penalty of Rs.3,02,187/- by observing in paras 4.1 to 4.3 of the impugned order as under: “4.1 I have considered the facts of the case and the submissions made. Ld. AR has raised the argument concealment penalty is not imposable as there was no intention to evade tax. This argument is not acceptable as the law laid down in Dilip N Shroff case [291 ITR 519 (SC)], wherein it was held that mens rea was an essential requirement for imposing concealment penalty u/s 271(1)(c), was overruled in Dharmendra Textile Processors case [306 ITR 277 (SC)]. Ld. AR has also raised the argument that as the income was assessed u/s 115JB, concealment penalty was not imposable in the case. This argument also cannot be accepted as it is a case where the to 3852/Del/2015 6 Hans Ispat Ltd. returned income under the normal provisions has been altered in assessment / appeal, and although tax has been levied on the book profit computed u/s 115JB, that cannot be a reason to claim that inaccurate particulars have not been filed or that concealment penalty cannot be imposed for this reason. If this argument were to be accepted, all companies / corporate taxpayers liable to pay tax under the MAT provisions would be inclined or incentivized to manipulate their income / loss under the normal provisions of the Act. Therefore, the facts of the case need a closer examination. 4.2 I find that he disallowances sustained in appeal are of two types. The AO had made disallowance of certain expenses on an estimate basis to the extent of 10%. These expenses were examined in appeal, and only with regard to some of these expenses the disallowance made was sustained at the same estimated rate of 10%. Ld. AR has pointed out that a claim disallowed on estimate does not invite concealment penalty. I am of the view that this argument can be accepted as the factum of the expense is not in dispute and therefore it cannot be concluded that appellant concealed any particulars of income / expense. Ld. AR has also pointed out that a claim, disallowed in law does not invite concealment penalty placing reliance on the judgment in Reliance Petroproducts (P) Ltd [(2010) 322 ITR 158 (SC)]. Following the said judgment, legal disallowance of the expenses claimed will not attract penalty to the extent that the factum of these expenses are not in dispute. However, two expenses claimed by the appellant have been disallowed in fall. These are donation amounting to Rs.61,800/- and service tax amounting to Rs. 10,07,290/-. Of these two expenses, donation was claimed on actual payment basis but appellant is not in a position to substantiate the same at this late stage. In these facts of the matter, it cannot be said that appellant has made a wrong claim with regard to the donations. However, with regard to service tax amounting to Rs.10,07,290/-, the said expense was claimed on accrual basis but it appears that the said amount was not paid during the previous year or even up to the due date of filing the IT return. If the appellant had not paid the service tax up to the date of filing of IT return, it was incumbent on the appellant to disallow the said expense in the computation of income filed with the said IT return. To the extent the appellant failed to add back the said amount of unpaid service tax it has to be held that appellant filed inaccurate particulars of its income, as the ITA Nos. 3849 to 3852/Del/2015 7 Hans Ispat Ltd. fact of not having paid the said amount was well within the knowledge of the appellant at the time when the IT return was verified and tiled. I hold accordingly. 4.3 In view of the above, penalty is sustained @ 100% on the unpaid service tax amounting to Rs.10,07,290/-. On all other disallowances, the penalty imposed is canceled. Accordingly, penalty is sustained to the extent of Rs.3,02,187/- and appellant gets relief of Rs.8,31,553/-.”

ITA Nos. 3849 to 3852/Del/2015 8 Hans Ispat Ltd. on the basis of the addition made on account of disallowances out of expenses. The said addition was a subject matter of the assessee’s appeal in for the assessment year under consideration wherein vide para 11 of the order dated 25.08.2017, this issue has been set aside to the file of the ld. CIT(A) to be decided afresh by providing an opportunity of being heard to the assessee. The relevant findings given in the said order read as under: “11. Bare perusal of the highlighted expenses disallowed by the AO and sustained by the ld. CIT (A) goes to prove that apparently, the same cannot be treated as business expenses without perusing the exact nature and detail of the expenses. Ld. CIT (A) has merely sustained the addition on the basis of estimation without calling upon the detail as to the nature thereof and without providing an opportunity of being heard to the AO. So, in these circumstances, the question framed is answered in favour of the assessee and this issue is remanded to the file of the ld. CIT (A) to decide afresh by providing an opportunity of being heard to the assessee. Grounds No.1 & 2 of all the appeals are determined in favour of the assessee for statistical purposes.”