ACIT, NEW DELHI vs. M/S. SRF LTD., GURGAON

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘G’ NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA No. 2853/Del/2012 Assessment Year: 1995-96 Vs. M/s. SRF Ltd., Block-C, Sector - ACIT, Circle-9(1), Room No. 163, C.R. Building, New Delhi 45, Gurgaon PAN : AAACS0206P (Appellant) (Respondent) Appellant by Sh. Satyen Sethi, Adv. Respondent by Sh. Satpal Gulati, CIT (DR) Date of hearing 20.09.2016 Date of pronouncement 18.11.2016 ORDER PER O.P. KANT, A.M.: This appeal by the Revenue is directed against order dated 06/03/2012 passed by the learned Commissioner of Income-tax (Appeals)-XII, New Delhi for assessment year 1995-96, in respect of penalty under section 271(1)(c) of the Income-tax Act, 1961 (for short “the Act”), levied by the Assessing Officer. The grounds of appeal raised by the Revenue are as under: 1. The learned Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in deleting the penalty of Rs.3,43,70,911/- imposed by the Assessing Officer u/s 271(1)(c) of the Act. 2. The appellant craves to amend modify, alter, add or forego any ground of appeal at any tiem before or during the hearing of this appeal.

2 ITA No. 2853/Del/2012 AY: 1995-96 2. The facts in brief of the case are that the assessee filed return of income on 30/11/1995 declaring loss of Rs.4,95,32,400/-. In the assessment completed under section 143(3) of the Act on 25/03/1998 the Assessing Officer made various additions and assessed the total income at Rs.3,13,97,343/-. The assessing officer also initiated penalty proceedings under section 271(1)(c) of the Act. 2.1 The assessee filed appeal before the first appellate authority. Against the decision of the first appellate authority, both the assessee and the Revenue approached the Tribunal. The Tribunal restored certain issues for verification by the Assessing Officer. In compliance of the order of the Tribunal, the Assessing Officer passed order under section 254/143(3) of the Act 20/05/2010. The Revenue also filed appeal before the Hon’ble High Court against the order of the Tribunal. 2.2 A final show cause notice was issued and sent by the Assessing Officer to the assessee on 07/05/2010, proposing to levy penalty under section 271(1)(c) of the Act on the issues of additions/disallowances. After considering submission of the assessee, the Assessing Officer levied penalty of Rs. 3,43,70,911/-being 100% of tax sought to be evaded, in respect of following additions/disallowances:

S.No. Additions/disallowances Amount in Rs. 1. Guest house expenses 24,93,925 2. Prior period expenses 29,60,806 3. Expenditure on VRS 4,44,02,424 4. Expenditure on overhauling 1,67,62,362 5 System studies/modification 2,74,410 6. Management consultancy 27,12,816 7. Provision for bad and doubtful debts 51,08,629

3 ITA No. 2853/Del/2012 AY: 1995-96 Total 7,47,15,372

2.3 Aggrieved, the assessee filed appeal before the first appellate authority, who after considering the submission of the assessee, deleted the penalty levied by the Assessing Officer. 2.4 Aggrieved with the action of the first appellate authority, the Revenue is in appeal before the Tribunal raising the grounds against deleting the penalty. 3. The learned Commissioner of Income Tax (Departmental Representative) relying on the order of the Assessing Officer submitted that the assessee furnished inaccurate particulars of income in respect of the additions/disallowances and therefore the Assessing Officer has rightly levied the penalty under section 271(1)(c) of the Act and the action of learned Commissioner of Income-tax (Appeals) in deleting the penalty was not justified, accordingly it was prayed to sustain the penalty levied by the Assessing Officer. 4 On the other hand, the learned Authorized Representative of the assessee referring to the paper book containing 1 to 21 pages submitted that complete information was duly filed in the return of income as well as in assessment proceeding in respect of additions/disallowances made by the Assessing Officer. 5. In respect of penalty levied on guest house expenses disallowed of Rs.24,93,225/- the learned Authorized Representative submitted that in the computation of income, the guest house expenses were added back with full disclosure, however, by way of a note, the Assessing Officer was requested to allow expenditure under section 30 to 37 of the Act. It was submitted that this claim was made in the return of income filed on 30/11/1995 based on the decision in the case of CIT Vs. Chase Bright Steel Limited (1989) 177 ITR 124 ( Bom). The controversy was settled by

4 ITA No. 2853/Del/2012 AY: 1995-96 the judgment dated 05/10/2005 in the case of Britannia Industries Ltd. Vs. CIT (2005) 278 ITR 546 (SC).Thus, it was not a case of furnishing of inaccurate particulars of income and at the time of filing of return, the issue was debatable, therefore, in view of the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Private Limited (2010) 322 ITR 158 (SC), no penalty under section 271(1)(c) of the Act could be levied in the case of the assessee. 6. In respect of penalty on disallowance of prior period expenses of Rs.29,60,806/- it was submitted that details of prior expenses were filed with the tax audit report, however, due to time lag, the assessee could not provide the evidence that the liability became known to the assessee for the first time during the year. It was submitted that neither the quantum not the fact of expenditure actually incurred was in doubt and only issue was that after expiry of 15 years, the assessee was unable to show that the liability was crystallized during the year and it was not a case of furnishing of inaccurate particulars of income. 7. In respect of penalty on disallowance of VRS expenditure of Rs. 4,44,02,424/-, the learned Authorized Representative submitted that claim of deduction was allowable in view of CIT vs. Assam Oil Company Limited (1985), 154 ITR 647 (Cal.) and CIT Vs. Simpson and Company Limited (1998) 230 ITR 794 (Mad.), however, the learned Commissioner of Income Tax (Appeals) relying on the provisions of section 35 DDA, which was inserted w.e.f. 01/04/2001, allowed 1/5th of the expenditure. The learned Authorized Representative submitted that the applicability of section 35DDA in the year in question was debatable as the Tribunal in the case of DCIT vs. Whirlpool of India Ltd. (ITA No. 2049/Del/2008, dated 21/02/2014) held that section 35DDA is not applicable prior to 01/04/2001. It was submitted that in any case the ratio of judgment in the case of Reliance Petroproducts Private Limited (supra) was fully

5 ITA No. 2853/Del/2012 AY: 1995-96 applicable because the claim was legal and no incorrect statement/information was furnished by the assessee. 8. In respect of penalty on disallowance of expenses on overhaul of machinery, the learned Authorized Representative submitted that no new asset of enduring nature was brought and only the existing plant and machinery was overhauled/repaired, however, the learned Commissioner of Income Tax (Appeals) directed the Assessing Officer to allow the depreciation on claims of Rs.191.57 lakhs. It was submitted that question involved was whether the expenditure was capital or revenue in nature which being a debatable issue, it cannot be said that the assessee had furnished inaccurate particulars of income and it was not a false claim, hence, the ratio of the judgment in the case of Reliance Petroproducts Private Limited (supra) was fully applicable on this issue. 9. Similarly, in respect of penalty on disallowance of system study and Management Consultancy also the issue involved was whether the expenses were capital in nature, which being a debatable issue, then no penalty was leviable in view of the ratio in the case of Reliance Petroproducts Private Limited (supra) 10. In respect of penalty for disallowance of provision for bad and doubtful debts, the learned Authorized Representative submitted that the provision for bad and doubtful debts was added back in the computation with full disclosure, however, the same was claimed on the basis of a note appended to the computation relying on the decision in 130 ITR 95 (Guj). He further submitted that that the Assessing Officer disallowed the deduction without any discussion. The learned Commissioner of Income Tax (Appeals) in order dated 02/09/2002 allowed the claim of the assessee, relying upon the decision of the Gujarat High Court in 130 ITR 95 and 143 ITR 166 held that debtor’s account need not to be squared off by credit entry in the bad debt Ledger account was sufficient

6 ITA No. 2853/Del/2012 AY: 1995-96 compliance of the section. The Tribunal reversed the order of the learned Commissioner of Income Tax (Appeals) on the issue in view of a new Explanation to section 36(1)(vii) which was added by Finance Act, 2001, with retrospective effect from 01/04/1989 to provide that the bad debts written off shall not include any provision for bad and doubtful debts made in accounts of the assessee. The learned Authorized Representative submitted that issue of allowance or deduction on account of provision for bad and doubtful debts debited to P&L account was legal issue and it was not a false claim and did not warrant levy of penalty and the ratio of judgment in the case of Reliance Petroproducts Private Limited (supra) was fully applicable on the issue in dispute. 11. In view of submission, he submitted that the learned Commissioner of Income Tax (Appeals) has rightly deleted the penalty levied by the Assessing Officer. 12. We have heard the rival submissions and perused the relevant material on record. The learned Commissioner of Income-tax (Appeals) has deleted the penalty after considering the detailed submission of the assessee on each issue of addition/disallowance. The findings of the learned Commissioner of Income-tax (Appeals) are reproduced as under:

“I have carefully considered the submissions of the AR of the appellant order passed by the AO imposing the penalty u/s 271(1)(c) and assessment order passed by assessing officer, also gone through the order of my predecessor as well as order passed by the Hon’ble ITAT and other details like Computation of taxable income for the relevant assessment year of the assessee. I find that Guest house expenses, prior period expenses and Provision for bad and doubtful debts were disallowed by the assessee himself with foil discloser and requested for deduction through foot note in the tax computation sheet which was merely denied by the assessing officer. The assessee has claimed expenses for VRS, overhauling expenses and management consultancy with discloser as “Deferred revenue expenditure in the nature...... expenses allowable in the

7 ITA No. 2853/Del/2012 AY: 1995-96 year when incurred” which was partly/ folly disallowed by the assessing officer. On appeal part of disallowances were allowed by the CIT (A)/ ITAT and some of expenses were sent back to the assessing officer for reconsideration. The assessing officer has not discussed about the disallowance of expenses of Rs. 2,74,410/- and Rs. Rs.27,12,816/-. I find that in this case there is no finding by the assessing officer that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. A mere making the claims through foot note of the computation or claims in the computation sheet which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. Every item on which the assessing officer has imposed penalty is clearly disclosed in the Return of the assessee, therefore, mere disallowing the expenses, penalty cannot be imposed. Therefore penalty imposed by the assessing officer stands deleted.”

“9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. 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". We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they

8 ITA No. 2853/Del/2012 AY: 1995-96 must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars. 10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be 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. We do not agree, 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, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature. 11. In this behalf the observations of this Court made in Sree Krishna Electricals v. State of Tamil Nadu & Anr. [(2009) 23VST 249 (SC)] as regards the penalty are apposite. In the aforementioned decision which pertained to the penalty proceedings in Tamil Nadu

9 ITA No. 2853/Del/2012 AY: 1995-96 General Sales Tax Act, the Court had found that the authorities below had found that there were some incorrect statements made in the Return. However, the said transactions were reflected in the accounts of the assessee. This Court, therefore, observed: "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty cannot be imposed. The penalty levied stands set aside." The situation in the present case is still better as no fault has been found with the particulars submitted by the assessee in its Return. 12. The Tribunal, as well as, the Commissioner of Income Tax (Appeals) and the High Court have correctly reached this conclusion and, therefore, the appeal filed by the Revenue has no merits and is dismissed.” 14. Similarly, in respect of prior period expenses/expenditure and VRS, full information was submitted by the assessee in the return of income or in the assessment proceedings and therefore in view of bona fide explanation and all the facts related to the disallowance and material to the computation of total income were fully disclosed by the assessee, the Part - B of Explanation - 1 to section 271 is not attracted and accordingly no penalty could be leviable in respect of disallowance/addition. 15. The issue involved in expenditure on overhauling, system study/modification and Management Consultancy was whether the expenditure was capital or revenue, which being a issue of debatable nature, the claim made by the assessee cannot be termed as a false claim and, therefore, following the ratio of the Hon’ble Supreme Court in the case of Reliance Petroproducts Private Limited, no penalty is leviable on the issue in dispute. 16. In our considered opinion, the order of the learned Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no

10 ITA No. 2853/Del/2012 AY: 1995-96 interference on our part is required, accordingly, we uphold the order of learned Commissioner of Income-tax (Appeals). The ground no. 1 of the appeal is accordingly dismissed. 17. The second ground of the appeal being general in nature we are not required to adjudicate upon. 18. In the result, appeal of the Revenue is dismissed.

The decision is pronounced in the open court on 18th Nov., 2016.

Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18th November, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi