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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri N. V. Vasudevan, JM & Dr. A. L. Saini, AM]
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri N. V. Vasudevan, JM & Dr. A. L. Saini, AM] I.T.A No.1927/Kol/2012 Assessment Year: 1990-91
Deputy Commissioner of Income-tax, Vs. Paharpur Cooling Towers Ltd. Central Circle-XX, Kolkata. (PAN: AABCP8017C) (Appellant) (Respondent)
Date of hearing: 08.02.2017 Date of pronouncement: 08.03.2017 For the Appellant:N o n e For the Respondent:Shri NavinVerma, ACA ORDER Per Dr. A. L. Saini, AM: The captioned appeal filed by the Revenue pertaining to Assessment Year 1990-91, isdirected against the order passed by the Ld. CIT(A), Central-III, Kolkata in Appeal No. 32/CC-XX/CIT(A)C-III/11-12/Koldated 20.09.2012, which in turn arises out of penalty order passed by the DCIT, CC-XX,Kolkata u/s.271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) for AY 1990-91, dated 19.07.2011.
The brief facts of the case qua the assessee are that the assessee filed its return of income disclosing total income of Rs.5,04,23,300/-. The assessee’s case was selected for scrutiny u/s. 143(3) of the Act and the AO completed the assessment by making certain additions. Since certain additions were made in the assessment order u/s. 143(3) of the Act, therefore, penalty proceedings u/s. 271(1)(c) of the Act was initiated by the AO.
3.Aggrieved with the penalty order of the AO, the assessee preferred appeal before the Ld. CIT(A). Till the time the matter was pending before the Ld. CIT(A), penal proceedings initiated u/s. 271(1)(c) of the Act were kept in abeyance. Later on, the Ld. CIT(A) passed his order on 14.11.2006. Against the order of the Ld. CIT(A), the assessee filed further appeal before the ITAT. Till the time the matter was pending before the ITAT, penalty proceedings initiated u/s. 271(1)(c) of the Act were kept abeyance. Subsequently, the matter was heard in its entirety by the Hon’ble ITAT and an appropriate order was passed on 25.03.2011. The Income Tax Appellate Tribunal confirmed some of the issues on which penalty proceedings u/s. 271(1)(c)_of the Act was initiated by the AO. Therefore, based on the order of the ITAT, the AO re-fixed the case for hearing in the matter of penalty u/s.
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271(1)(c) of the Act. Finally, based on the order of the ITAT the AO passed the penalty order observing the following:
“Evidently, the issue got settled long before the assessee had filed its return for the current year. It is, thus, a clear case of intentional distortion of the provisions of the Act for claim of ineligible deduction. Hence, the case appears to be fit for imposition of penalty u/s 271(1)(c) of the Act on the concealed income of Rs. 24,62,300/- and the same is imposed @ 100% of tax sought to be evaded.” 4. Aggrieved from the order of the AO, the Assessee filed an appeal before the Ld. CIT(A), who has deleted the penalty imposed by the AO observing the following:
“From perusal of the assessment order it is observed that in last para of page 12 of the impugned assessment order the A.O. himself has noted that Ex-Gratia payment of Rs.5,11,293/- has been made by the appellant to its employees. From this it is clear that the A.O. had no doubt that the impugned payment of Rs.5,11,293/- was indeed paid as Ex-Gratia to its employees by the appellant. The only reason why he disallowed the same was that in the preceding Assessment Year such expenditure had been disallowed. No other infirmity or error was pointed or noticed by the A.O. The disallowance of Ex-Gratia payment made in the immediately preceding assessment year has been deleted by the CIT(A) and such deletion has been confirmed by the ITAT. In the instant year the Appellate Authorities confirmed the impugned disallowance only for the reason that the appellant was not able to furnish details of the same. I find merit in the appellant's submissions that the assessee can't be reasonably expected to furnish details in respect of an expenditure after sixteen years from the end of the relevant financial year. The disallowance was made by the A.O. only for the reason that in the preceding assessment year also such expenditure had been disallowed and not for the reason of any incorrect or false claim been made by the appellant. On the facts of the case, there cannot be said to be any concealment or furnishing of inaccurateparticulars of income by the appellant. As regards disallowance of interest expenditure of Rs.7,232/-, it is observed that this amount was actually charged by American Express Bank for the period of one day on account of placement of order for purchase of certain securities on a particular day and cancellation of the same on the very next day without the transaction having materialized. The appellant claimed the same as an expenditure whereas the A.O. was of the view that since the said interest was incurred on account of intended purchase of certain tax-free securities, the same was not allowable as an expenditure. From the facts it is observed that there was no concealment of facts or furnishing of inaccurate particulars by the appellant in this regard. As regards reduction in the quantum of deduction u/s.80M, it is observed that the appellant had computed the deduction on the basis of gross amount of dividend income whereas the A.O. computed the same on the net amount of dividend after deduction of proportionate interest attributed to funds invested in shares and securities. The appellant has pointed out that at the time of filing of return for the relevant assessment year the issue whether deduction u/s.80M was to be allowed on gross income or net income was a debatable one. Hon'ble Calcutta High Court in CIT Vs. National &Grindlays Bank Ltd. (supra) had held that deduction u/s.80M was admissible on gross dividend and not on net dividend. That being the position laid down by the jurisdictional High Court, at that time, and the appellant having claimed the deduction under that section on gross basis, it cannot be said that the appellant
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had concealed or furnished inaccurate particulars in respect of its claim u/s.80M. 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 Courts have consistently held that mere disallowance of a claim of the assesseedoes not automatically lead to imposition of penalty u/s.271(1)(c). In this regard Hon'ble Supreme Court in CIT Vs. Reliance Petroproducts (P) Ltd. (supra) has held as follows: "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………. 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 u/s 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 the assessing officer for any reasons, the assessee will invite penalty u/s 271(1)(c). This is clearly not the intendment of the Legislature. " In CIT Vs. DharampalPremchand Ltd. (2010) 329 ITR 572 the Hon'ble Delhi High Court had held that merely because the assessee had claimed deduction u/s.80IA and 80IB, which was not acceptable to the revenue, that by itself would not attract penalty u/s.271(1)(c) as the same cannot be construed as furnishing inaccurate particulars of income. In Balaji Vegetable Products (P) Ltd. Vs. CIT (2007) 290 ITR 172 the Hon'ble Karnataka High Court has held that merely because the revenue refuses to accept the claim of the assessee and treated the same the same as assessee's income, it cannot be said that the assessee hasconcealed or had furnished inaccurate particulars of his income. The Hon'ble Court further observed that in order to justify the levy of penalty the circumstances must show that the assessee was having an intention to conceal the income and to evade the payment of tax. In the case of Durga Kamal Rice Mills Vs. CIT (2004) 265 ITR 25 the Hon’blejurisdictional High Court has been held that when two views are possible and when no clear and definite inference can be drawn, in a penalty proceedings, penalty cannot be imposed. In the said case it was also held that, in quantum proceedings, a particular provision might be attracted for addition to the income of the assessee. But, when it comes to the question of imposition of penalty, then independent of the findings arrived at in the quantum proceedings, the authority has to find conclusively that the assessee owns the concealed amount. In the instant case though the various claim has been disallowed by the Ld. Addl. CIT, it cannot be said that the assessee has concealed income or filed any inaccurate particulars of income. The Hon'ble Delhi Tribunal in the case of ITO Vs. Wimco Seedlings Limited (2008) 114 TTJ 986 (Del) has held that there was no material on record to show that, the AO had unearthed new facts or dug out some information which was not furnished by the assessee. Thus, it could not be said that the assessee had concealed the income or furnished inaccurate particulars thereof to attract penalty U/S 271(1)(c). In Quadricon Private Limited Vs. ITO (ITA No.2243/Mum/2010) briefly stated the facts of the case were that the assessee filed return declaring Nil income after claiming deduction u/s.80IA. The assessment was completed by determining total income at Rs.10,85,412 reducing the amount of deduction u/s.80-IA on the ground that the assessee claimed excessive
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deduction of expenditure against the units whose income was taxablethereby enhancing the income of the units in respect of which deduction u/s.80-IA was available. Penalty was accordingly imposed which came to be approved in the first appeal. The Tribunal noticed that the assessee's claim for deduction u/s.80-IA had been reduced on the ground that certain expenses ought to have been booked against the income of the unit on which deduction was available. The fact remained that the assessee claimed deduction on the basis of the audit report. The Tribunal was of the view that when in the opinion of the auditor the amount of deduction was available to that extent at which the assessee had claimed deduction, it could not be said that there was concealment of income or furnishing of inaccurate particulars of income simply on the ground that the Assessing Officer reduced the eligible income by diverting some expenditure to the eligible unit. Therefore, the Hon'ble ITAT ordered the penalty to be deleted. The Hon'ble Delhi High Court in CIT Vs. S. Dhanabal (2009)309 ITR 268 had ordered for the deletion of penalty u/s.271(1)(c) levied when the amount of deduction u/s.80HHC claimed was reduced by the AO. Similar view has been taken by the Hon'ble Punjab & Haryana High Court in CIT VS. Deep Tools (P) Ltd. [(2005) 274 ITR 603 (P&H)] deleting the penalty on the reduction in the amount of deduction which was based on the report of the auditor. It is further noticed that the assessee made this claim by furnishing full details of the expenses etc. Simply for the reason that the Assessing Officer did not find the claim of the assessee to be sustainable in law up to a certain extent, it cannot be a case for penalty U/s.271(1)(c) more so when the particulars furnished by the assessee were not inaccurate. The Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd. [(2010) 322 ITR 158 (SC)] has ordered for the deletion of penalty in such circumstances. From the above discussion it becomes abundantly clear that penalty u/s.271(1)(c) cannot be levied on mere disallowance by the A.O. of a claim made by the assessee. In order to justify the levy of penalty the circumstances must show that the assessee was having an intention to conceal the income and to evade the payment of tax. In the instant case the facts do not suggest that the assessee had any intention to conceal any income and to evade the payment of taxes. As discussed above, the A.O. had disallowed the claim of expenditure on account of ex- gratia payment for the only reason that in the preceding year also similar payment had been disallowed and not for the reason that the claim of the appellant was incorrect or bogus. As regards the disallowance the interest of Rs.7,232/-, such interest had actually been charged by the bank from the assessee. Further, the transaction of purchase of units of UTI, on account of which such interest was charged by the bank, did not materialize as the appellant had cancelled the order immediately. When no tax-free investment was made by the appellant, such interest could not be treated to have been incurred for earning tax-free icome. In respect of thisissue also it cannot be said that the assessee had concealed any income or had furnished inaccurate particulars of its income. As regards disallowance of the claim u/s.80M, I have already held in preceding paras that since, at the relevant time, the jurisdictional High Court had laid down that deduction u/s.80M was admissible on gross dividend and appellant having claimed the deduction under that section on gross basis, it cannot be said that the appellant had concealed its income or a furnished inaccurate particulars in respect of its claim. As discussed above, the appellant had not concealed any income nor had furnished any inaccurate particulars of his income. Further, as has been held in judicial precedence discussed above, mere disallowance of the assessee's claim does not warrant levy of penalty u/s.271(1)(c). For the reasons discussed above it is held that penalty u/s.271(1)(c) is not leviable in this case, hence, the same is deleted.”
5 ITA No.1927/Kol/2012 Paharpur Cooling Towers Ltd.AY. 1990-91 5. Not being satisfied with the order of the Ld. CIT(A), the Revenue is now in appeal before us and has taken the following grounds:
“1. That the Ld. CIT(A) erred both in facts as well as in law in allowing the assessee’s appeal and consequently deleting the penalty imposed u/s 271(1)(c) without considering the materials brought on record by the AO during the course of passing penalty order u/s. 271(1)(c).” 5.1. The Ld. AR for the assessee has submitted before us that the assessee has already preferred an appeal before the Hon’ble Calcutta High Court. The additions sustained by the Tribunal in quantum proceedings in the sum of Rs.1,45,000/- has been admitted by the Hon’ble Calcutta High Court as involving substantial question of law. Therefore, penalty should not be levied in respect of issues involving substantial question of law, as no allegation could be raised on the assessee with regard to concealment of income or furnishing inaccurate particulars of income,as the issue involved is highly debatable in nature. The assessee also relied on the decision of the Mumbai Tribunal in the case of Aditia State Development Pvt. Ltd. Vs. ITO (2013) 27 ITR 112 wherein it was held as follows:
“when the substantial question of law admitted by High court in quantum proceedings against the concealment penalty had been levied, it became apparent that the issue regarding addition was certainly debatable and, therefore, order of the CIT(A) was set side and impugned penalty was deleted.” 5.2. The Ld. A.R. for the Assessee has submitted before us that the order of Hon’ble Calcutta High Court inassessee`s case has admitted substantial question of law dated 19.08.2011 against the order of the ITAT dated 25.03.2011. In addition to this, the Ld. AR for the assessee submitted that assessee under consideration has claimed the deduction u/s. 80M of the I. T. Act and the assessee was entitled to claim deduction u/s. 80M of the Act. Therefore, the deduction claimed u/s. 80M of the Act with bona fide belief and later on disallowed by the AO cannot be a reason to initiate the penalty proceedings. There should not be any concealment of income in this case.
5.3. On the other hand, the Ld. DR for the revenue has primarily reiterated the stand taken by the AO, which we have already noted in our earlier para and is not repeated for the sake of brevity.
6 ITA No.1927/Kol/2012 Paharpur Cooling Towers Ltd.AY. 1990-91 5.4. Having heard the submissions of the Ld. AR for the assesseeand perused the material available on record, we are of the view that there is a merit in the submissions of the assessee, as the proposition canvassed by the Ld. AR for the assessee are supported by the facts narrated by him. As the Ld. AR for the assessee submitted before us that in case of a debatable issue, penalty u/s. 271(1)(c) of the Act cannot be levied. The assessee under consideration had filed an appeal before the Hon’ble High Court and the Hon’ble High Court has admitted the appeal of the assessee having substantial question of law, therefore, since the assessee’s appeal is admitted by the Hon’ble Calcutta High Court on merits, the AO cannot impose penalty u/s. 271(1)(c) of the Act and since it is a highly debatable issue also. Therefore, considering the factual position, we confirm the order passed by the Ld. CIT(A).
5.5. In the result, the appeal of the Revenue, is dismissed. Order pronounced in the open court on 08.03.2017 Sd/- Sd/- (N. V. Vasudevan) (Dr. A. L. Saini) Judicial Member Accountant Member 8th March, 2017 Dated : Jd. Sr. P.S Copy of the order forwarded to: 1. Appellant – DCIT, C.C.XX, Kolkata. 2. Respondent – M/s. Paharpur Cooling Towers Ltd., 8/1/B, D. H. Road, Kolkata-700 027. 3. CIT(A), Kolkata 4. CIT, Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar.