ITO 25(1)(4), MUMBAI vs. BIO VET INDUSTRIES, MUMBAI

This appeal has been filed by the revenue against the order of the Commissioner of Income-tax (Appeals)-35, Mumbai [hereinafter called CIT(A)] dated 20-06-2011 passed against the penalty order u/s 271(1)(c) date 25-03-2010 for AY 2005-06 on the following grounds :

During the course of hearing, none appeared on behalf of the assessee. Ld. DR relied upon the order of the AO.

The brief background of the case is that the assessee is having manufacturing facility at Daman comprising of 2 units, i.e. Unit I and Unit II. Assessee had shown loss in respect of Unit I whereas claimed deduction u/s 80IB in respect of Unit II. During the assessment proceedings, the AO found that expenses of the units are not proportionate to the production or turnover achieved by each unit. The AO, therefore, re-allocated the total expenses of both the units and re- worked the profit of both the units and also re-worked the deduction available u/s 80IB. In this manner, claim of deduction u/s 80IB was reduced from Rs.57,55,175/- to Rs.7,90,631/-. Assessee contested the quantum upto the Tribunal, but no relief was granted. Subsequently, AO initiated penalty proceedings and submitted that there was no concealment or furnishing of inaccurate particulars of income by assessee. The expenses were claimed in bona fide manner and nothing in-genuine or wrong was detected by the AO. Re-working of the deduction has been done by the AO on the basis of his understanding of law and facts without pointing out anything bogus or false therefore, no penalty should be levied. But the AO did not agree with the assessee and levied the penalty of Rs.19,73,160/- on the disallowance made by the AO by reducing the claim of deduction u/s 80IB. In the appeal before the Ld. CIT(A), the assessee reiterated its 4. submission in detail. It was submitted that bifurcation of expenses was re-worked by the AO on the basis of an honest and genuine difference of opinion between the assessee and the AO which cannot be said to be concealment of income or furnishing of inaccurate particulars of income. It was further submitted that the AO did not doubt the genuineness of the expenses incurred and the difference of opinion was restricted to allocation of expenses. It was also submitted that all the material facts required for computation of total income including bifurcation of expenses were submitted truly and correctly. The re-working was done by the AO only on the ground that the assessee had shown higher turnover of the eligible unit. It was also submitted that the claim of expenses was based upon the allocation done on the basis of certificate obtained from a professional expert i.e. Shri PM Joshi, Chartered Accountant in form 10CCB. Under these circumstances, it can be said that the claim was based upon genuine and bonafide belief of the assessee, more so, when nothing false or bogus has been detected by the revenue. Ld. CIT(A) considered the submissions of the assessee and held that in this case no penalty should have been levied as there was no concealment of income or furnishing of inaccurate particulars of income. The observations made by Ld. CIT(A) are reproduced below:- “5. I have considered the submissions of the representative and the stand taken by the A.O. After considering the order of the Hon'ble Tribunal, it is seen that the variation with reference to the admitted income is only in respect of bifurcation of expenses between the two units in respect of administrative expenses and selling expenses and assessment of interest income under the head other sources. Regarding bifurcation of expenses, it is seen that the same was claimed on the basis of certificate issued by C.A. in Form No.10CCB. The A.O. did not dispute the fact that the claim was made in accordance with the certificate issued by C.A. As contended by the representative, there was honest and bonafide difference of opinion regarding the apportionment of expenses which cannot he said to be concealment of income. In any case, the appellant had bonafide belief that it was entitled to deduction u/s.801B as quantified by the C.A. and accordingly the deduction was claimed in the return filed, I accept the plea of the representative that when the claim is made based on the certificate issued by the CA., no concealment penalty could be levied because the appellant had bonafide belief that the certificate issued by the C.A. was correct. Even if explanation 1 is invoked, there is only a rebuttable presumption of concealment in law and the same can be said to be rebutted by the assessee C.A. and this would constitute bonafide belief and reasonable cause for not imposing penalty. As contented by the representative, Hon'ble Supreme court in the case of CIT vs. Reliance Petro Products Pvt Ltd (322 ITR 158) has recently held that mere making of a claim which is not sustainable in law would not amount to furnishing inaccurate particulars. As contended by the representative, the Hon'ble Chandigarh Bench Tribunal in the case of ACIT vs Arisudana Spinning Mills Ltd (19 DTR 1) held as under: 'Now, the question is as to whether the denial of the claim made in the return of income can lead to an automatic imposition of penalty under section 271(1)(c) of the Act. It is sufficient to say that the assessment proceedings and the subsequent penalty proceedings are independent proceedings. The findings and conclusions drawn the authorities in the assessment proceedings are relevant but cannot be construed as conclusive so as to fasten the assessee with the charge of concealment of income and furnishing of inaccurate particulars thereof. A similar situation was before the Hon'ble Punjab & Haryana High Court in the case of Deep Tools (P) Ltd. 'supra). In the said case too, the assessee had staked claim for deduction under section 80HHC of the Act, which was declined. The AO levied penalty u/s 271(1)(c) of the Act. The stand of the assessee was that the claim was mistaken but was based on bona fide considerations. The Hon'ble High Court observed that the claim though untenable was based on the report of a chartered accountant in terms of Section 80HHC and the said fact led to the conclusion that it was a bonafide mistake. In our view, the said parity of reasoning is applicable in the present case too. In the case of T.AshokPai vs. CIT2007)210CTR(SC) 259: (2007)292 ITR 11, Hon'ble Supreme Court also observed that the penalty under section 271(1)(c) was not exigible where the claim of the assessee was based on the report of an expert. In the present case too, as observed earlier, the accounts of the assessee are duly audited. The return of income was accompanied by the audit report required under section 80IA and there is nothing to suggest, rather there is no charge against the assessee that the report of the auditor was collusive". From the above, it is clear that when the claim of the assessee is based on the opinion of the technical expert No including report of C.A. in Form No.1OCCB, concealment penalty could be imposed. I, therefore, hold that there is no ground for levying penalty regarding apportionment of expenses relating to Unit-I& Unit-H. Regarding interest income, it is true that the appellant did riot press the ground before the Hon'ble Tribunal but the necessary and relevant facts were submitted before the A.O. and the appellant was under the bonafide belief that the interest is assessable under the head business as the receipt of interest was closely linked with the business of the industrial undertaking and in any case the same was certified by the qualified Chartered Accountant in Form 1OCCB. Thus, there is no case for levy of concealment penalty even in respect of interest income even though the appellant did not press this ground before the Hon'ble Tribunal. In view of the above, I hold that there is no justification for levy of concealment penalty and the same is cancelled.”

We have carefully gone through the detailed and well reasoned findings of the Ld. CIT(A). It is noted that nothing has been brought before us to show whether any of the expenses were found to be bogus or false. The claim of the assessee made u/s 80-IB was reduced only because of re-allocation of expenses done by the AO. The exercise of reallocation was done by the AO on the basis of his information and understanding disregarding the claim of the assessee, which was based upon a certificate in form 10CCB issued by a professional expert. Nothing has been brought on record by the AO to show if the certificate was based upon any erroneous premises or wrong facts supplied by the assessee. During the course of penalty proceedings, the assessee furnished detailed explanation in this regard and again took help of his argument that the claim u/s 80IB was made relying upon the certificate wherein bifurcation of expenses was made by a professional expert. The AO did not examine the concerned Chartered Accountant during the course of penalty proceedings before rejecting the explanation of the assessee. Nothing was brought on record by the AO to negate the assertion of the assessee that the claim u/s 80-IB was based upon his bona fide belief for making apportionment of expenses in the manner as was done by the assessee.

Even otherwise, the re-allocation exercise done by the AO would also involve some kind of guess work which cannot be said to be purely scientific or devoid of any flaws. If the allocation done by the assessee was not precise and correct as per facts of the case, then, it can also not be said that the re-allocation exercise done by the AO was free from any doubts or ifs and buts. Thus, it is a case where the hypothesis of there being a concealment of income and there not being concealment of income are equal. Under these circumstances, in our considered opinion, it cannot be said that there was any kind of concealment or furnishing of inaccurate particulars of income by the assessee.

Further, it is noted by us that while deleting the penalty, the Ld. CIT(A) has relied upon the judgment of Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt Ltd (supra) wherein it was held that mere making of a claim which is not sustainable in law would not amount to furnishing of inaccurate particulars. Further, the Ld. CIT(A) has rightly relied upon the judgment of the Chandigarh Bench of the Tribunal in the case of ACIT vs Arisudana Spinning Mills Ltd (supra) wherein it was held that if the claim of the assessee is based on an information of technical expert, then, it cannot be categorized as a case of concealment of income unless something bogus or fictitious is detected. It is noted by us that the aforesaid judgment of the Chandigarh Bench has been confirmed by Hon’ble Punjab & Haryana High Court vide its order dated 19-11-2009 reported at 326 ITR 429 (P & H). This judgment was subsequently followed by Punjab & Haryana High Court in the case of CIT vs Tudor Knitting Works Pvt Ltd in of 2012 wherein it was found that penalty was not leviable on the disallowance made by reducing the claim of deduction u/s 80IB. It was held that mere making of the claim, which was not sustainable in law, by itself would not amount to furnishing of inaccurate particulars regarding income of the assessee, unless any finding is recorded with the help of supporting material that details filed by the assessee in its return were found to be erroneous or false.

Thus, taking into account the totality of facts and circumstances of the case brought before us and legal position as discussed above, we find that Ld.CIT(A) was justified in deleting the penalty. No interference is called for in his order. Therefore, same is confirmed.

As a result, appeal of the Revenue is dismissed.