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Income Tax Appellate Tribunal, DELHI BENCHES “D”: DELHI
Before: SHRI BHAVNESH SAINI & SHRI PRASHANT MAHARISHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES “D”: DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA.No.437/Del./2014 Assessment Year 2006-2007 The Ballabgarh Cooperative Milk The ACIT, Circle-1, Producers Union Ltd., Milk vs., Faridabad. Plant, Balabgarh. PAN AAATT7465N (Appellant) (Respondent) For Assessee : Shri Sunil Mathur, A.R. For Revenue : Smt. Naina Soin Kapil, Sr. D.R. Date of Hearing : 02.04.2019 Date of Pronouncement : 03.04.2019 ORDER PER BHAVNESH SAINI, J.M.
This appeal by assessee has been directed against the order of the Ld. CIT(A)-2, Faridabad, Dated 26th November, 2013, for the A.Y. 2006-2007, challenging the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961.
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1.1. Earlier, the Appeal was dismissed for default vide order dated 24th October 2016. However, the assessee moved a miscellaneous application for recalling of the ex- parte order which is allowed. Appeal was, therefore, fixed for hearing on merits.
The facts of the case are that the Assessing Officer made addition on two grounds in the assessment order under section 143(3) of the I.T. Act, as under :
(i) “Disallowance of carry forward and set-off of brought forward losses by holding that there is no provision under the Income Tax Act as per which the loss at the time of splitting the society can be carried forward to the newly formed society. (ii) Disallowance of excess depreciation, since full depreciation on the applicable rates had been claimed in case of assets put to use for less than 180 days during the year.
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2.1. The Ld. CIT(A) while confirming the action of the Assessing Officer in not allowing carry forward and set-off of brought forward losses in such cases, stated as follows :
"When there is no specific provision/rule/law under the Income-tax Act as the A.O. has correctly argued regarding the adjustment of losses after the bifurcation of the societies, neither there is any precedent set up either by courts on this issue, one cannot interpolate or import into the Act what is not specifically inserted there for the persons of thus nature, even though the appellant is assessed u/s 2(31) of the I.T. Act, 1961 as an assessment unit,"
2.2. The assessee accepted the order of the Ld. CIT(A) and did not file further appeal.
2.3. As regards excess depreciation claimed by assessee, Assessing Officer, during the course of assessment proceedings noticed that assessee had claimed full depreciation at the applicable rates even in case of
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assets which were put to use for less than 180 days. The Assessing Officer, therefore, allowed 50% depreciation as is admissible as a result of the additions made. Returned income of NIL was assessed at Rs.25,16,460/-.
During the course of penalty proceedings the assessee submitted that mere making of a claim, which is not sustainable in Law, will not amount to furnishing of inaccurate particulars regarding the income of assessee. As such claim made in the return cannot amount to inaccurate particulars. Merely because the assessee had claimed the set-off of losses, which claim was not accepted or was not acceptable to the Revenue, that by itself, should not attract penalty under section 271(1)(c)of the Income Tax Act. The assessee relied upon the decision of the Hon’ble Supreme Court in the case of CIT vs Reliance Petro Products Private Limited [2010] 322 ITR 158 (SC). It was further submitted that Section 72A and Section 72AA deals with carry forward and set-off of losses in case of merger and demerger i.e., reorganisation of the corporate legal entities. On believing that the Cooperative-Society is also an incorporated
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organisation, having separate legal entity, just like a Company, the provisions of Section 72A and Section 72AA are also applicable in the case of Cooperative-Society, the assessee-society claimed the set-off of losses of the parent Cooperative-Society. The intention of the Legislature was also to extend the benefit of Section 72A and Section 72AA to all the incorporated legal entities in case of merger and demerger. Therefore, by adopting a liberal construction and interpretation of the above provision, assessee had a bonafide reason to believe that such provisions also extends to Cooperative-Societies. The Assessing Officer, however, levied the penalty because quantum have been upheld by the Ld. CIT(A).
The assessee-society challenged the penalty order before Ld. CIT(A) and same submissions were reiterated, which is reproduced in the appellate order, in which the assessee explained that the loss sought to be carried forward by the assessee cooperative-society are the losses incurred by the parent cooperative-society, in the course of its business. The assets and liabilities as well as employees
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of the old cooperative-society were divided amongst the new co-operative-societies. Since the business of the assessee cooperative-society remain the same, it was nothing but a reorganisation of a business under different name and nothing changed as far as the working of the Co-operative Society was concerned. Therefore, for all practical purposes, the loss suffered by the earlier cooperative-society, is loss of the assessee-society after bifurcation. The assessee relied upon several decisions in support of the contention that penalty is not available.
The Ld. CIT(A), however, did not accept the contention of the assessee-society and noted that as per Income Tax Act, such carry forward and set-off of losses in case of amalgamation, demerger are applicable only in case of Companies and not in case of other entities. The assessee is a Cooperative-Society which is different from the Company, therefore, Cooperative-Society cannot make a claim of carry forward and set-off of the losses. It was also noted that penalty was imposed because it claimed depreciation in case of assets acquired and put to use for
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the purpose of business or profession for a period of less than 180 days. The Appeal of assessee-society was accordingly dismissed.
Learned Counsel for the Assessee reiterated the submissions made before the authorities below. He has submitted that assessee cooperative-society has came into existence by splitting of a parent society namely Gurgaon- Rohtak Cooperative Milk Producers Union Ltd., into two societies and one of them is the assessee-society. The assessee-society consists of Farmers and Milk Sellers who are mostly illiterate. The losses of parent company were shared by two newly formed societies as the same business was carried forward by new societies and moreover Members of the newly formed societies were Members of the parent society. The assessee-society has claimed set-off of brought forward losses to the extent of Rs.18,23,012/- pertaining to assessment year 2002-2003 of the parent cooperative-society. The assessee-society bonafidely claimed the said set-off in view of provisions of Section 72A and Section 72AA of the Income Tax Act, which are applicable to
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corporate legal entities. Assessee was under bonafide belief that just like a Company, it is a Corporate entity having separate legal entity and as such entitled for relief under the above provisions. Excessive depreciation was claimed inadvertently mainly on the part of the Counsel for Assessee, thus, the assessee-society has not furnished any inaccurate particulars of income as well as did not conceal any income. All the facts regarding above claims were before the authorities below and assessee has not concealed any information or fact from the authorities below. It is not in dispute that there was brought forward losses of the parent cooperative-society. It is well settled Law that both the assessment and penalty proceedings are independent proceedings. Since, it was a mistake/bonafide error on the part of the Counsel for Assessee, penalty need not be imposed. Learned Counsel for the Assessee relied upon Judgments of the Hon’ble Supreme Court in the case of Price Water Coopers Pvt. Ltd., vs. CIT 348 ITR 306 (SC) and in the case of CIT vs., Reliance Petro Products Pvt. Ltd., 322 ITR 158 (SC).
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On the other hand, Ld. D.R. relied upon the orders of the authorities below and submitted that in case the return would not have been selected for scrutiny assessment, the above facts would not have come to the notice of the Revenue Authorities. Therefore, penalty is rightly imposed in the matter. The Ld. D.R. relied upon Judgment of the Delhi High Court in the case of Zoom Communication 327 ITR 510 (Del.)
We have considered the rival submissions. It is not in dispute that the assessee cooperative-society has come into existence by splitting-up of a parent society viz., Gurgaon-Rohtak Cooperative Milk Producers Union Ltd., into two Societies and one of them is assessee-society. It is also not in dispute that there was brought forward losses of parent cooperative-society. It is also not in dispute that the losses of parent society were shared by two newly formed societies as the same business was carried forward by the new societies and further Members of the newly formed societies were the Members of the parent society. It is also not in dispute that the assessee-society had claimed set-off
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of the brought forward losses to the extent of Rs.18,23,012/- pertaining to assessment year 2002-2003 of the parent cooperative-society and such fact is also mentioned in the penalty order. Thus, there is no dispute that the parent cooperative-society had in fact suffered losses in earlier year and on splitting of the parent society, the assessee-society was created, who took the liability including the brought forward losses of the earlier years. The genuineness of the claim of the assessee-society have not been doubted by the authorities below. The assessee- society, thus, has disclosed all material facts to the Income Tax Authorities and have also disclosed the same facts in the return of income. There was thus no attempt on the part of the assessee-society to withhold or conceal any fact or information. According to explanation of Learned Counsel for the Assessee, the assessee-society is having its Members who were mostly Farmers and Milk Sellers and that assessee-society bonafidely believed that it can claim the set-off of brought forward losses as are entitled in the case of Corporate entities because assessee-society is also a
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separate legal entity. It is also well settled Law that both assessment and penalty proceedings are distinct and independent proceedings. Though the findings in the assessment order have a probative value, but, the same alone is not a conclusive proof that assessee-society has concealed the income or furnished inaccurate particulars of income. The assessee-society still can explain that it did not conceal the income or furnish inaccurate particulars of income. It is well settled Law “In Order that a penalty under section 271(1)(c) may be imnposed, it has to be proved that the assessee has consciously made the concealment or furnished inaccurate particulars of his income”. We rely upon Judgment of the Hon’ble Supreme Court in the case of K.C. Builders vs., ACIT 256 ITR 562 (SC) and Judgment of Hon’ble Delhi High Court in the case of PCIT vs., Neeraj Jindal 393 ITR 1 (Del.). The assessee explained that claim of set-off of brought forward losses pertaining to earlier year of parent company were claimed as per the legal advice and that when assessee realized it is a mistake that depreciation is allowable only to the extent of 50% for use of the assets
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for half of the year then assessee surrendered the amount for taxation, therefore, in such circumstances, it cannot be believed that the assessee-society has concealed the particulars of income or furnished inaccurate particulars of income. The Hon’ble Supreme Court in the case of CIT vs., Reliance Petro Products Pvt. Ltd., 322 ITR 158 (SC) held as under :
“Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”
8.1. The Ld. CIT(A) while confirming the levy of penalty observed in the impugned order that cooperative society is a different entity as compared to the company, therefore, such carry forward and set-off of the losses could
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not be granted to the Co-operative Society. Similarly, for claim of depreciation, it was found that the assets acquired have been put to use for a period of less than 180 days for business and profession of assessee, therefore, there is no finding that the details furnished by the assessee-society in its return are found to be incorrect or erroneous or false. Therefore, there is no question of inviting penalty under section 271(1)(c) of Income Tax Act, 1961. As noted above, the assessee-society bonafidely made a claim of set-off of the brought forward losses and excessive depreciation because of the legal advice. Therefore, the circumstances explained clearly show that penalty need not be imposed in the facts and circumstances of the case. We may also add here that the Assessing Officer in the penalty proceedings noted that notice dated 28th November, 2008 was issued to the assessee before levy of the penalty, copy of which is at Page 66A of the Paper Book, in which the Assessing Officer has mentioned as under :
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(iii) “have concealed the particulars of your income or _______furnished inaccurate particulars of such income.” [ 8.2. The Assessing Officer in this notice was thus not sure or definite whether assessee has concealed the particulars of income or furnished inaccurate particulars of income. Therefore, on such issue, no penalty is leviable against the assessee-society. The show cause notice issued before levy of the penalty is invalid because it did not contain under which limb of Section 271(1)(c) of the Income Tax, penalty was to be imposed against the assessee- society. Therefore, penalty proceedings itself are vitiated. We rely upon Judgment of the Hon’ble Karnataka High Court in the case of CIT vs. M/s. SSAs Emerald Meadows 73 taxmann.com 241. This decision is confirmed by the Hon’ble Supreme Court reported in 73 taxmann.com 248. We, accordingly, set aside the orders of the authorities below and cancel the penalty.
In the result, appeal of Assessee allowed.
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Order pronounced in the open Court.
Sd/- Sd/- (PRASHANT MAHARISHI) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Delhi, Dated 03rd April, 2019 VBP/- Copy to 1. The appellant 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT “D” Bench 6. Guard File //By Order//
Asst. Registrar : ITAT : Delhi Benches : DELHI.