RAM KISHORE MEENA, ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-2,, KOTA vs. MANGALAM CEMENT LTD, MORAK, KOTA

During the course of hearing, the ld. DR supported the order of the AO. The ld. DR also filed the written submission vide his letter dated 13-06-2024 attaching the ACIT vs. Mangalam Cement Limited. letter dated 22-03-2024 issued from the office of ACIT,Circle-2, Kota which carry following main contents. ‘’Sub:-Appeal before Hon'ble ITAT Bench in CIT(A), Kota/10066/2018-19 & 25.01.2024 in the case of Mangalam Cement Ltd, PAN-AABCM6602Q) for the AY 2013-14- in grounds of appeal :-

The Ld. CIT(A) after relying on the findings of his predecessor for AY 2010- 11 and his own decision for AY 2012-13, directed the AO to allow the expenditure equally in 20 years including the current year, thereby allowing the expenditure of Rs.19,60,160/- out of Rs.3,92,03,205/- in the year under consideration and thus, confirmed the disallowance of Rs.3,72,43,045 which was to be allowed as an expenditure in balance 19 years. This finding of Ld. CIT(A) was upheld by the Hon'ble ITAT. Penalty not leviable as stand of granting deduction over 20 years was taken by the Ld AO himself for AY 2008-09. Also, penalty was not initiated in AY 2008-09.

It is submitted that the stand of allowing expenditure over 20 years by taken by the Ld AO himself for AY 2008-09 wherein the Ld AO held expenditure incurred is a capital expenditure because it has been incurred to protect a long-term exploitation right over huge area of mining land which falls in Reserved Forest. The Ld. AO held that it can at the best be allowed on prorate basis i.e. on the basis of exploitation which has already been made if any or otherwise on amortization basis for future exploitation. Considering the above the expenditure was allowed on the basis of assets already exploited and on the basis of prospective utilization.

Thus, when the Ld AO has himself held that the expenditure is a genuine expenditure and is for long-term exploitation right over huge area of mining ACIT vs. Mangalam Cement Limited. land and is allowable on a pro-rata basis, it cannot be said that the Respondent has furnished any inaccurate particulars of income. Also, for AY 2008-09 no penalty proceedings were initiated by the Ld AO. The Respondent has not furnished any inaccurate particulars of income 9. Section 271(1)(c) of the Act reads as follows: “271. Failure to furnish returns, comply with notices, concealment of income, etc. (1)If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person - (a) … (b) …, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, or (d) … He my direct that such person shall pay by way of penalty: (i) … (ii) … (iii) In the cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of income of his income or fringe benefits or the furnishing of inaccurate particulars of such income or fringe benefits. ……” (emphasis supplied) 10. A plain reading of the provisions of section 271(1)(c) makes it amply clear that so far as scheme of penalty under this section is concerned, it is a sine qua non for imposition of penalty that the designated authorities during the course of any proceedings before them, should be satisfied that an assessee has:  concealed the particulars of his income; or  furnished inaccurate particulars of his income.

Only when the aforesaid conditions exists, the designated authorities may direct levy of penalty on the assessee. The expressions ‘concealed the particulars of income’and ‘furnishing inaccurate particulars of income’have not been defined in the section or elsewhere in the Act. Therefore, reliance is placed on the principles arising out of judicial precedents for ascertaining their connotation. Since, the Ld. AO has levied penalty for furnishing inaccurate particulars of income, the same is analyzed as under: 12. Meaning of ‘inaccurate’  The general meaning of the term ‘inaccurate’ is “not accurate; not correct”.  Kind attention of your honour in this regard is invited to the decision of the Supreme Court of India in the case of CIT vs Reliance Petroproducts (P) Ltd [2010] 322 ITR 158/189 Taxman 322 (SC) wherein it was observed that merely because the disallowance made by the assessing officer is upheld by the appellate authorities, that in itself will not make the assessee liable to penalty under section 271(1)(c) of the Act. Further, the apex court held that the word used is ‘inaccurate particulars’ which is clearly different from ‘inaccurate claim’. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. Since the assessee had furnished all the details of its expenditure as well as income in its return of income, which in themselves were not found to be inaccurate, it could not be viewed as the concealment of income on part of the assessee. It was up to the authorities to accept its claim in the return or not. The relevant observations of the Apex Court in the said case are reproduced below for the ready reference of your goodself as below: “7. As against this, Learned Counsel appearing on behalf of the respondent pointed out that the language of Section 271(1)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Section 271(1)(c) is as under:- 271(1) If the Assessing Officer or the Commissioner (Appeals) or the ACIT vs. Mangalam Cement Limited. Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income." A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars……………………..” (emphasis supplied)  Reliance in this regard is also placed on the decision of the Gujarat High Court in the case of Nayan C. Shah vs Income-tax Officer [2016] 69 taxmann.com 256 (Gujarat), relevant extracts are produced below: “…it appears that the assessee has made a claim of expenditure in relation to the payments made, which he may not have been entitled to claim in view of the provisions of section 40(a)(ia), as tax on part of such amount had not been deducted at source and deposited in the ACIT vs. Mangalam Cement Limited. Government account before the due date for filing return income. However, as held by the Supreme Court in the above decision, merely submitting an incorrect claim in law for the expenditure would not amount to furnishing inaccurate particulars of income. The impugned order passed by the Tribunal, therefore, cannot be sustained.”

Meaning of ‘particulars’  General meaning of ‘particulars’ is “details”.  The Hon’ble Supreme Court in the case of CIT vs Reliance Petro products Pvt Ltd (supra), inter-alia, stated as follows: “As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in the Section 271(1)(c) would embrace the meaning of the details of the claim made.”

In the instant case, penalty for furnishing inaccurate particulars of income is not attracted as the Respondent has not furnished any inaccurate details in its return of income, tax audit report, and audited financial statements. The Respondent had claimed deduction of Rs 3,72,43,045 as revenue expenditure entirely which the appellate authorities allowed it over a period of 20 years stating that the benefit of expenditure will accrue over 20 years. The Hon’ble Supreme Court of India in the case of CIT vs Reliance Petroproducts (P) Ltd [2010] 322 ITR 158/189 Taxman 322 (SC) held that the word used is ‘inaccurate particulars’ which is clearly different from ‘inaccurate claim’. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. The NFApC has also by placing reliance on the decision of the Hon’ble Supreme Court of India in the case of CIT vs Reliance Petroproducts (P) Ltd(supra) held that penalty under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income is not leviable. Thus, the order of the NFApC be directed to be upheld. Expenditure incurred is revenue in nature 15. It is submitted that the amount so paid is for extraction of limestone and not for acquiring any ownership right over the land. Hence, the expenditure incurred by Respondentis a revenue expenditure allowable u/s 37(1). The AO however, held it to be capital expenditure but the Ld. CIT(A) and the Hon'ble ITAT accepted that the expenditure is revenue in nature but ACIT vs. Mangalam Cement Limited. considering that mineral would be extracted over a period of 20 years, directed to allow the above expenditure over 20 years and thereby, allowing deduction of Rs.19,60,160/-. Thus, the appellate authorities have also held that the expenditure is revenue in nature but since its benefit may accrue over 20 years, the expenditure was allowed to be claimed over this period. This itself establishes that the explanation furnished by the Respondent for claim of expenditure was bonafide and all material facts for computation of total income are disclosed and no inaccurate particulars were furnished. It is not the case of the AO that the explanation so furnished by the Respondent is false or malafide or the particulars furnished by it is inaccurate. Penalty levied for AY 2010-11 to 2012-13 was deleted by the CIT(A) and appeal filed to ITAT was dismissed due to low tax effect 16. It is further submitted that similar penalty imposed by the AO for AY 2010-11 to 2012-13 was deleted by Ld. CIT(A) vide order dt. 11.03.2019 & 12.03.2019. Further, the appeal filed by the revenue against the favourable order of the CIT(A) was dismissed by the ITAT on account of low tax effect. Thus, when on the same issue, penalty has been deleted by Ld. CIT(A) and the ITAT, no penalty is leviable. Penalty under section 271(1)(c) cannot be levied on deferred revenue expenditure or capital expenditure vs revenue expenditure 17. Reliance in this regard is placed on the following decisions wherein it has been held that penalty under section 271(1)(c) of the Act is not leviable on an expenditure which is treated either as a capital expenditure or as a deferred revenue expenditure  Simplex Pharma (P) Ltd. vs. DCIT (2011) 11 ITR 576: In the instant case, the assessee had paid an amount of Rs. 5,22,591 as feesand drug registration charges. The details whereof were placed before AO. The expenses have beenheld to be genuine. Allthe details of registration were filed before AO, who held that the Revenue expenditure of Rs. 52,000pertains to this year and balance amount of Rs. 4,70,591 was treated as deferred expenditure qua whichpenalty proceedings under s. 271(1)(c) were initiated. The ITAT deleting the penalty held as under: “6. We have heard the rival contentions and perused the material on ACIT vs. Mangalam Cement Limited. record. The drug registration fee paid by the assessee for sale in foreign market has been held to be genuinely incurred. AO held only part of it allowable as revenue expenditure. In our view, penalty should not be levied merely because it is lawful to do so, as held by Hon’ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC). Looking at entirety of facts and circumstances, in our view, a clear and bona fide debate existed vis-a-vis assessee incurring expenses on drug registration fees being capital or revenue. With this bona fide debate, it cannot be held that assessee furnished inaccurate particulars or concealed the particulars in respect of these expenses. In our view, the assessee’s case by no means calls for imposition of penalty under s. 271(1)(c) which is deleted.“  Onicra Credit Rating Agency of India Ltd. [TS-320-ITAT-2013(DEL)] In the instant case, the assessee claimed expenditure on website development of Rs 84,76,603 as revenue expenditure while filing the income tax return which was treated as a deferred revenue expenditure in the books of accounts. The AO did not allow the claim of the assessee and made addition of the said amount. Against the assessment order, the assessee did not file an appeal. The AO levied penalty under section 271(1)(c) of the Act. The ITAT deleting the penalty held as under: “7.2 Thus, assessee had itself treated the expenditure having enduring benefit but did not capitalize on the ground that website did not construe to be an intangible asset. Therefore, the whole amount was charged to profit and loss account. Thus, assessee had given detailed reasons for claiming the whole amount as revenue expenditure. The same has not been found to be wrong. The assessee had disclosed in the audited balance sheet accompanying its return of income, details pertaining to the claim of this expenditure. Therefore, it cannot be inferred that assessee had furnished inaccurate particulars of income.” In view of the above detailed submission, it is submitted that the order of the NFAC deleting penalty levied under section 271(1)(c) of the Act be upheld.”

We have heard both the parties and perused the materials available on record. The AO has levied penalty of Rs. 1,26,58,910/- u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income. In the return of income, the Assessee claimed deduction of Rs 3,92,03,205 on account of compensation paid to farmers for acquiring mining rights of the land. In the assessment proceedings, the AO allowed the expenditure over 20 years and therefore made addition of Rs 3,72,43,045. Thus, the undisputed fact is that the expenditure claimed by the Assessee is allowable expenditure. The details of the expenditure were furnished by the assessee in the return of income as well as during the course of assessment proceedings. The ld. CIT(A) allowed the appeal of the assesee by placing reliance on the order the Hon’ble Supreme Court of India in the case of M/s Reliance Petro products Pvt. Ltd (supra) holding that the it is not a case of furnishing inaccurate particulars of income and penalty u/s 271(1)(c) of the Income Tax Act is not leviable. The Hon’ble Supreme Court of India in the case of M/s Reliance Petro products Pvt. Ltd has held that furnishing inaccurate particulars of income means furnishing wrong details of income and further held that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. The Assessee has not furnished any inaccurate particulars in return of income and the claim of revenue expenditure was allowed in 20 years as against in the year itself. Thus, expenditure was allowed on a deferred basis. Also, the Delhi Bench of ITAT in case of Simplex Pharma (P) Ltd. vs. DCIT (2011) 11 ITR 576 and Onicra Credit Rating Agency of India Ltd. [TS-320-ITAT-2013 (DEL)] had deleted the penalty levied under section 271(1)(c) of the Act on deferred revenue expenditure. In view of the above facts and circumstances of the case and the case In the result, the appeal of revenue is dismissed. Order pronounced in the open Court on 27/09/2024.