M/S. JINDAL STEEL & POWER LIMITED,NEW DELHI vs. ACIT, HISAR

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’: NEW DELH BEFORE SH. C.M. GARG, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA Nos. 3052/Del/2014 Assessment Year: 2008-09 M/s. Jindal Steel Power Ltd., Vs. ACIT, Hisar Jindal Centre, 12, Bhikaji Cama Place, New Delhi (PAN: AAACJ7097D) (Appellant) (Respondent)

Appellant by Sh. Ajay Vohra, Sr. Advocate, Sh. Rohit Jain & Sh. Deepesh, Advocates Respondent by Sh. Ashok Manchanda, Standing Counsel and Sh. A.K. Arora, CIT(DR)

Date of hearing concluded on 07.03.2016 Date of pronouncement 31.03.2016

ORDER PER O.P. KANT, A.M.: This appeal of the assessee is directed against order dated 13/03/2014 of passed by the learned Commissioner of Income-tax(Appeals), Rohtak, sustaining the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 (for short “the Act”) by the Assessing Officer. The grounds of appeal raised by the assessee are as under: “1 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer in levying penalty of Rs. 28,24,94,177/- u/s 271(1)I(c) of the Income Tax Act’ 1961 (“the Act”), which is illegal and bad in and law.

2 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. 1.1 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, without appreciating that the penalty order was passed in undue haste resulting in avoidable multiplicity of proceedings, which is unwarranted in law 1.2 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, without appreciating that the penalty order was passed without affording reasonable opportunity of being heard to the appellant. 1.3 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, without appreciating that the penalty order was passed solely on the basis of findings recorded in assessment order, without any independent application of mind. Without prejudice 2 That the CIT(A) erred on facts and in law in upholding the action of the Assessing Officer in levying penalty under section 271(1)(c) of the Act in respect of the addition of Rs. 81.59 crores made on account of sales tax incentive/subsidy holding the same to be merely notional and/or revenue in nature, as against the same being claimed as capital receipt by the appellant 2.1 That the CIT(A) erred on facts and in law in upholding the penalty imposed, without appreciation that the above addition was, itself, in the first place, erroneous and therefore, there was no warrant to levy any penalty in respect of the same under section 271(1)(c) of the Act. 2.2 That the CIT(A) erred on facts and in law in upholding the penalty imposed, without appreciating that: (i) there was no concealment or furnishing of inaccurate particulars of income qua the aforesaid addition; and (ii) the said addition was made only on account of difference of opinion between he appellant and the Assessing Officer. 2.3 That the CIT(A) erred on facts and in law in upholding the penalty imposed by alleging that: (a) the appellant give inadequate explanations; (b) the action of the appellant in changing the method of accounting in respect of subsidy was not bona fide.

3 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. 2.4 That the CIT(A) erred on facts and in law in upholding the penalty imposed solely on the basis of observations of the Assessing Officer in penalty order, without judiciously considering the detailed submissions filed by the appellant. 2.5 That the CIT(A) erred on facts and in law in upholding the penalty imposed without considering the binding decisions wherein in the context of similar addition made it has been held that penalty is not leviable. 3 That the CIT(A) erred on facts and in law in upholding the action of the Assessing Officer in levying penalty under section 271(1)(c) of the Act in respect of the addition of Rs. 88,00,001/- on account of provision for gratuity, which was inadvertently not added back in the computation of taxable income for the relevant assessment year. 3.1 That the CIT(A) erred on facts and in law in upholding the penalty imposed, without appreciating that the above addition was made on account of a bonafide/clerical mistake, which was suo motu accepted by appellant in quantum as well as penalty proceedings, and no appeal in respect of such disallowance was filed by appellant. 3.2 That the CIT(A) erred on facts and in law in upholding the aforesaid action of the Assessing Officer, without appreciating that there was no concealment or furnishing of inaccurate particulars of income qua the aforesaid disallowance. 4 That the CIT(A) erred on facts and in law in upholding the action of the Assessing Officer in levying penalty under section 271(1)(c) in respect of the addition of Rs. 49,41,849/- on account of provision for gratuity under section 40A(7) of the Act 4.1 That the CIT(A) erred on facts and in law in upholding the penalty imposed by the Assessing Officer, without appreciating that the aforesaid addition was itself legally unsustainable in as much as the aforesaid amount was already added back in the computation of income and therefore, there was no warrant to levy any penalty in respect of the same under section 271(1)(c) of the Act. 4.2 That on the facts and in the circumstances of the case, the CIT(A) erred in law in upholding the aforesaid action of the Assessing Officer, without appreciating that there was, in any case, no

4 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. concealment or furnishing of inaccurate particulars of income qua aforesaid addition and, therefore, there was no warrant to levy any penalty under section 271(1)(c) of the Act. 5 That the CIT(A) erred on facts and in law in upholding the action of the Assessing Officer in levying penalty under section 271(1)(c) in respect of disallowance of Rs. 5,91,106/- on account of additional depreciation claimed by the appellant under section 32(1)(iia) of the Act, in respect of computer software ‘Primeavera’. 5.1 That the CIT(A) erred on facts and in law upholding the aforesaid penalty, without appreciating that the disallowance of additional depreciation in respect of computer software ‘Primavera’ was itself, in the first place, erroneous and therefore, there was no warrant to levy any penalty in respect of the said disallowance under section 271 (1)(c) of the Act. 5.2 That the CIT(A) erred on facts and in law in upholding the aforesaid action of the Assessing Officer, without appreciating that (u) there was no concealment or furnishing of inaccurate particulars of income qua appellant’s claim of additional depreciation in respect of computer software ‘Primavera’; and (ii) the disallowance was made only on account of bonafide difference of opinion between the appellant and the Assessing Officer, and, therefore, there was no warrant to levy any penalty under section 271(1)(c) of the Act. 5.3 That the CIT(A) erred on facts and in law in upholding the aforesaid action of the Assessing Officer without appreciating that the above claim of depreciation was made by appellant on the basis of a professional advise and, therefore, there was no warrant to levy any penalty under section 271(1)(c) of the Act.”

5 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. transferred to reserve account and Rs. 49,41,849 gratuity disallowed under section 40A(7) of the Act and c) Rs. 5,91,106/-; addition on account of disallowance of additional depreciation on computer software

6 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. submitted that the additional evidence may be admitted as same could not be produced before the lower authorities. The ld AR further submitted that said document / certificate filed was only in support of the repeated averment of the assessee before the lower authorities. The learned AR also relied on the judgement of the Hon’ble Delhi Court in the case of CIT Vs Text Hundreds India Pvt Ltd 239 ITR 263 . The ld. counsel of the Revenue on the other hand opposed admission of the certificate as additional evidence. We have heard the rival submission of the parties on the issue and perused the material on record. We are of the opinion that certificate is directly related to the issue of gratuity amount of Rs. 88.00 lakhs, which is included in amount of gratuity of Rs. 1,37,41,850/- on which penalty is levied and the assessee has taken the same as one of the ground before us. We hold that document is necessary for proper adjudication of the matter, therefore we admit the same. 5. The Grounds No. 1 to 1.3 challenge the action of the AO in levying penalty u/s 271(1)(c) of the Act on the ground that penalty order was passed in undue haste resulting in avoidable multiplicity of proceedings which is unwarranted in law. It has been contended that penalty order was passed without affording reasonable opportunity of being heard to the assessee and without any independent application of mind. 5.1 Before us the learned AR for the assessee submitted that the assessee vide letters dated 4.10.2013, 24.10.2013 and 8.11.2013 had requested the Assessing Officer to keep the penalty proceedings in abeyance till disposal of assessee’s appeal against section 263 proceedings by the Tribunal. It was submitted that in the said letters, it was also informed to the Assessing Officer that the appellant was in process of filing an appeal against fresh assessment order passed u/s 143(3)/263 of the Act before the CIT(A). It was submitted on merits that the Assessing Officer for reasons best known to him, rejected the aforesaid application filed by assessee

7 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. and directed the assessee to furnish submissions on merit. It was also submitted that the aforesaid action of the Assessing Officer in hastily proceeding to pass the penalty order, without waiting for adjudication of quantum proceedings was unjustified and erroneous in terms of proviso to clause (a) to sub section (1) of section 275 of the Act. Reliance was placed on the judgments in the cases of CIT v Surendra Gulabchand Modi 140 ITR 517 (Guj) and CIT v Wander (P) Ltd. 358 ITR 408 (Bom). It was submitted that since the penalty order was passed by the Assessing Officer on the basis of findings given in the fresh assessment order, which in turn is based on the order passed under section 263 of the Act, without any independent application of mind and without considering that the penalty proceedings are separate and independent from assessment proceedings, the said penalty order is bad in law. It was, therefore, submitted that upholding by the CIT(A) of the validity of penalty order passed by the Assessing Officer u/s 271(1)(c) of the Act, is without jurisdiction, illegal and bad in law and, consequentially, the penalty levied therein is deleted. 5.2 The learned counsel for the Revenue supported the action of the Assessing Officer and CIT(A) on the ground that there was nothing in law which prevented the Assessing Officer from passing the order u/s 271(1)(c) of the Act till the disposal of appeal by the CIT(A). It was further submitted that there was no merit in the submission of the appellant that the order imposing penalty has been framed without application of mind by the Assessing Officer. 5.3 Having considered the rival submissions, we are in agreement with the conclusion of the authorities below that there is no bar in law to await the decision of quantum appeal to levy the penalty. None of the judgments support the proposition canvassed by the assessee. The judgments in the case of CIT v Surendra Gulabchand Modi (supra) and CIT v Wander (P) Ltd. (supra) were rendered in the context of pendency of appeal proceedings arising from orders

8 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. imposing penalty, so as to await the disposal of the quantum proceedings which is not the contention raised in this appeal. So far as the arguments on merits of the levy of penalty, those have been considered independently while disposing the remaining grounds in this appeal. With these observations, we dismiss grounds 1 to 1.3 of the appeal. 6. The Grounds No. 2 to 2.5 challenge the conclusion of the CIT(A) in upholding the action of the Assessing Officer in levying penalty u/s 271(1)(c) of the Act in respect of the addition of Rs. 81.59 crores made on account of sales tax incentive/subsidy holding the same to be merely notional and/or revenue in nature, as against the same being claimed as capital receipt by the appellant. 6.1 The relevant portion of the show cause notice u/s 271(1)(c) of the Act dated 19.9.2013 in respect of the above issue of sales tax subsidy is as under: “13.2 For the sake of convenience, the relevant portion of show-cause notice dated 19.09.2013, in relation to the Issue of keeping sales proceeds amounting to Rs.81.59 crore out of tax net in the garb of hypothetical Sales Tax 'Subsidy is reproduced below :- “2.1 It was noticed that Rs.81.59 Cr. was shown as 'Sales Tax Subsidy' - 'Capital Reserve' under the head 'Reserves and Surplus' in Schedule-2 of the Balance-Sheet as on 31.03.2008. It was also noticed that this was the first year of such practice (of taking 'Sales Tax Subsidy' to the reserve). 2.2 The close scrutiny revealed that this money was not received from the State Govt. In fact, one industrial unit of the assessee company has been .granted exemption, from levy of sales tax. The assessee, therefore, raised invoices on purchasers of the material (manufactured by the said industrial unit) without any component of sales tax In it. During the year, in normal course, the entire amount of sales proceeds were credited as revenue to the Profit & Loss account. However, at the financial year end (taxable) profit has been reduced by passing Journal entry for appropriation (Rs.81.50 crore) as 'Sales Tax Subsidy'. 2.3.1 It was seen that this Sales Tax exemption has been available to assessee in earlier years also, but there was.-no practice to take a part of sales (treating it, in the year end, as 'Sales tax Subsidy') to the Balance

9 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. Sheet. Instead, a deduction of equivalent was being claimed as deduction at the time of computation of income (which was being disallowed by the revenue). 2.3.2 Although, there was clear deviation from the practice being followed earlier and the case was under scrutiny, however, assesses made no explicit attempt to &Taw attention of the department that a different treatment has been given to this issue, for the first time. Therefore, Issue escaped attention of the 'department at the time of (regular) assessment u/s 143(3) dated 27.12.2010. Later on, through the process of proceedings u/s 263, the issue was restored back to the file of AO by CIT, Hisar vide his order Ws 263 (dated 25.03.2013) for fresh examination / assessment. 2.4 In the (re-) assessment u/s 143(3) r.w.s. 263; the issue has been considered in detail and as discussed in the assessment order dated 17.09.2013, the amount under consideration (Rs. 81.53 Cr.) was found to be taxable. 2.5.1 It is seen during the (re) assessment proceedings (u/s 143 r.w.s. 263) that in earlier years, in order to avoid payment of due taxes, assessee stretched its imagination and came out with innovative device in form of assuming (non-existent) 'subsidy' & claiming a deduction at the stage of computation (deduction at the stage of computation of Income is not envisaged in the scheme of the Income Tax Act). Noticing that the device has caught attention of the department (department disallowed the claim of the deduction, year after year), this year, the 'assessee came out with the amendment in the tax avoiding device, In form of the practice to take the (imaginary) part of the sales proceeds to the Balance sheet(reserve) and treated it as non-taxable: As a result, the purpose of avoiding tax payment is served without making a claim at the stage of computation of Income. 2.5.2 It was only due to departmental proceedings (u/s 263 and subsequent proceedings u/s 143(3) r.w.s. 263) that all the facts relating to the said income and material to the computation of total income of the assessee were brought on record/noted/discovered. {For instance, the facts that (I) this money was not received from the State Govt., It is actually part of the price (sales proceed) received In lieu of transfer of property In goods, (ii) during the year the entire sales proceeds are credited to the (credit side of) profit and loss account a revenue / trade receipts and (Iii) the notification granting

10 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. exemption from the sales tax to the assessee is not linked to any 'scheme' of giving money (subsidy), directly or indirectly). 2.6 During the assessment proceedings (u/s 143 r.w.s. 263), the explanations offered by the assesses in this regard were found to be without any basis/ un- convincing/ un-acceptable/ un-substantiated and hence, were rejected. 2.7.1 In view of the above, it is clear that the assessee not only furnished inaccurate particulars of the income to the above extent of 81,58,94,102/- but also concealed particulars of income to the said extent 2.7.2 The assesses has failed to substantiate the explanations offered by it. The assessee also, failed to discharge the onus, cast upon It by the law, to prove that the explanations were bona-fide. Also, assessee did not discharge the onus, cast upon it by the law, to prove that all the facts relating to the said income an material to the computation of total income of the assessee have been disclosed by the assessee, On the contrary, as may be seen from the above, assessee did not specifically point out the deviation, in the practice, made for the first time. It is also clear that all the facts relating to the said income and material to the computation of total income of the assessee were not disclosed by the assessee but the department had to discover them by way of proceedings u/s 263 and 143(3) r.w.s. 263. 2.7.3 Therefore, assessee is liable for penalty under the (general) provisions of section 271(1)(c) of the Income Tax Act, 1961 as well as by it, mischief of (deeming) provisions under Explanation 1 to the said section?” 6.2 The assessee during the penalty proceedings contended in reply that change of accounting treatment was disclosed (during the original assessment proceedings), vide letter dated 8.2.2010 because alongwith the said letter, a copy of balance sheet was filed which makes a mention of accounting treatment of the said ‘sales tax subsidy’. Reference was to Point No. F of Schedule 2 and Point NO. 5 of Schedule 20 of the balance sheet and point (d) of the audit report. The AO held that it was only about 1% of the cases which were required to pass through the process of the scrutiny; and even under the scrutiny the principle was basically test check and it was neither possible nor expected to examine each and every aspect in scrutiny, specially, in the cases like that of present assessee who had turnover of

11 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. about Rs. 50 thousand crores. He held that such assessee have full-fledged taxation department and luxury of services of well qualified professionals and therefore, it was expected of the assessee to file accurate particulars of income and expressly disclose each and every issue which has even smallest possibility of dispute in/alongwith the return of income. Apart from the above it has been highlighted that sales tax exemption has been available to the assessee in earlier years also but upto assessment year 2007-08, there was no practice to transfer a part of sales (treating it, in the year end, as ‘sales tax subsidy’) to the balance sheet. Instead (upto assessment year2007-08) equivalent amount was being disallowed by the revenue. The AO held that ITAT in its judgment dated 22.2.2013 in the assessment year 2004-05 approved the stand of the department regarding taxability of so called ‘sales tax subsidy’ as revenue receipt and there has been no change in the nature of receipt in the year under consideration as compared to the earlier years where the deduction on account of said hypothetical ‘sales tax subsidy’ was being claimed by the assessee in the computation of income. It was thus concluded that reasons behind the mentioning of above receipt in the schedule attached to the balance sheet are self speaking and had the conduct of the assessee been honest, it was quite expected of the assessee that such an important deviation in the practice adopted in earlier years should have been mentioned as a note accompanying the computation of income. Further the AO held that letter dated 12.11.2010 in the original assessment proceedings was only in respect of amount of Rs. 48,39,36,937/- which comprised of two figures (i) Rs. 17,28,48,148/- for entry tax subsidy and (ii) 31,10,88,789/- for electricity duty subsidy. The AO thus has held that; “a) The preposition that the sales proceeds contain (hypothetical) sales tax ‘Subsidy’ is a stretch of imagination apparently to evade tax.

12 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. b) The assessee changed its method of accounting for sales – tax ‘Subsidy’, in the year under consideration apparently with the malifide intention of escaping the issue from the notice of the revenue. c) There was a calculated attempt though unsuccessful, to evade the payment of tax on the amount which was part of sales proceeds but termed as ‘sales tax subsidy’ and reduced from taxable profit by passing journal entry having effect of taking amount of Rs. 81.59 crores out of tax net.” 6.3 The Assessing Officer observed that above route was adopted by the assessee to escape the detection of the issue of taxability of part of sale proceeds by the department and assessee and in fact succeeded in its attempt in the first stage i.e. original assessment proceedings. It was only at the subsequent stage that the matter came to the notice of the department and proceedings u/s 263 were initiated. He has thus held that assessee made futile attempts but failed to pinpoint any cogent material which could indicate that the sales tax exemption was granted by the state government as alternative method of providing money and case of the appellant was clearly covered by provisions of (A) and (B) part of above said Explanation 1 to the section 271(1)(c) of the Act. 6.4 The CIT(A) has upheld the penalty by holding as under:

“This issue has been discussed at length by the AO in order levying penalty. He has also shown how the case laws relied upon by the appellant have no bearing of the case. I, too agree that the assessee has tried to shield itself, as far as the issue of Sales Tax Subsidy is concerned, by trying to take shelter under the plea that the audit report had mentioned the change in “Accounting Principle” for Sales Tax Subsidy. The appellant has stated that the change in the accounting standard was explained to the AO. However, the AO in para 17.4 of his order has pointed out that this explanation was not a disclosure on treatment of Sales Tax Subsidy adopted in the year under consideration but was an explanation of the deduction claimed in the computation of income in respect of Entry Tax Subsidy and Electricity Duty Subsidy.

13 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. To say, therefore, that the assessee had made a material disclosure is not a correct presentation of facts. It is a fact, that this issue came up only after an examination of record by the Ld. CIT, Hisar in the proceeding u/s 263 of the IT Act. But, for this fact, this entire amount would have escaped being taxed. The assessee is merely engaging in a play on semantics to absolve itself of the fact that it was covering of its act in having deviated from its previous method of accounting. Paras 14.1 to 14.6.2 of the penalty order has dealt with how the assessee’s attempts at seeking to evade payment of tax on the amount which was part of sales proceeds but termed as “Sales Tax Subsidy” by reducing it from taxable profit through passing of a general entry having an overall effect of taking Rs. 81.59 Crores out of the tax net. Therefore, in the entire proceedings, the appellant has been trying to cloud the issue by taking recourse to inadequate explanation. Mens rea has been proved in this case without doubt. Hence, this ground of appeal is dismissed.”

6.5 Before us, the learned Authorized Representative submitted as under:

“a) Addition made by the Assessing Officer in the assessment order on account of treatment of sales tax incentive is not sustainable in the first place; b) No concealment/furnishing of inaccurate particulars of income in the present case, since appropriate disclosures of the accounting treatment in respect of sales tax incentive were given in the notes forming integral part of the audited financial statements as well as by the statutory auditor in the audit report; c) Non inclusion of the amount of sales tax subsidy was specifically mentioned by the tax auditor in point no. 13(e) in Form No. 3CD for the year under consideration; d) Elaborate reply/submissions were filed by the appellant during the quantum proceeding, not only setting out complete facts with regard to the claim made and the accounting treatment followed in respect of the sales tax incentive/subsidy, the non taxability of the same was duly supported by elaborate reasoning/justification; e) The claim of the appellant is duly supported by various judicial precedents wherein the various courts and the Special Bench of the Tribunal

14 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. have upheld the appellant’ claim of incentive/subsidy received in the form of exemption from sales tax to be in the nature of capital receipt, not liable to tax under the provisions of the Act; f) The issue of taxability of sales tax incentive/subsidy is, in any case, a highly debatable/contentious legal issue, giving rise to substantial question of law on which no penalty is leviable in view of the decision of jurisdictional High Court in the case of Gurdaspur Cooperative Sugar Mills (supra)”

6.6 Before us, the learned counsel for the assessee further submitted that appeal filed by the assessee against the ITAT order for AY 2004-05 stands admitted before the Hon’ble High Court of Punjab and Haryana on 28.7.2014 evidencing that the said issue involves determination of a substantial question of law. Likewise appeal filed by assessee for assessment years 2002-03 and 2005-06 stands admitted vide order dated 16.12.2014. It was thus contended that issue of sales tax subsidy is a vexed legal issue giving rise to substantial question of law and therefore once appeal on a particular issue is admitted by High Court, it demonstrates that the said issue was debatable and accordingly, no penalty is leviable for disallowance made in respect of such issue. Reliance was placed on the judgment of Delhi High Court in the case of CIT vs. Basti Sugar Mills Co. Ltd. ITA No. 232/2005 (Del), CIT vs. Liquid Investments Ltd. ITA No. 240/2009 and CIT v HB Leasing and Finance Co. Ltd. 334 ITR 367. It was further submitted that even otherwise since the issue is highly debatable legal issue therefore no penalty is leviable in view of the judgment of Apex Court in the case of CIT v Reliance Petrporducts (P) Ltd. Ltd. 322 ITR 158. It was also contended that the aforesaid claim made by the appellant was very much within the knowledge of the Assessing Officer, since the same was specifically disclosed and discussed by assessee before the Assessing Officer during the course of assessment proceedings in the manner hereunder: a) In the audited accounts for the relevant assessment year, the incentive availed by the applicant on account of sales tax exemption, being in the

15 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. nature of capital receipt, was separately shown as under the sub-head "Sales Tax Subsidy/ Capital Reserve" in Schedule 2 " Reserve and Surplus". The aforesaid accounting treatment, it is submitted, was done strictly in compliance with the AS-12 dealing with 'Accounting for Government Grants" issued by the ICAI read along with the opinions on the subject of the Expert Advisory Committee and reported in the compendium of opinions. b) The aforesaid accounting treatment was duly explained vide note No.5 of Notes to Account in Schedule- 20, forming part of audited financial statements, as under: "5 One of the Company's expansion units is eligible or sales tax exemption owing to the investment in capital assets under the State Industrial Policy which aim towards the objective of industrialization of the state and development of backward areas. The period of exemption is linked to the quantum of investment. The company has been advised that the element of sales tax included in the sales price of products sold out of this unit is in the nature of sales tax subsidy granted by the State Government. Accordingly, the same amounting to Rs.81.59 crore has been accounted for during the year under sales tax subsidy Reserve account.” c) Further, specific reference of the accounting treatment for sales tax incentive was also made by the statutory auditor vide point No. (d) of the Audit Report: “(d) In our opinion and read with note 5 of Schedule 20 regarding accounting, for tax included in sales price of product sold out of sales tax exempted unit tinder Sales Tax Subsidy Reserve account, the Balance Sheet, Profit & Loss Account and Cash Flow Statement, dealt with by this report, comply with the Accounting .Standard referred to in sub-section (3C) of section 211 of The Companies Act., 1956. d) In Tax Audit Report also there is a complete and full disclosure vide point No. 13(e) of Form 3CD wherein against the particulars of amount not credited to Profit & Loss Account being capital receipt, if any, it is clearly mentioned that "Sale Tax Subsidy Rs.81,58,94,102.34 (refer note no.5 of schedule 20(B) of Final Accounts)".

6.7 Reliance was also placed on the judgment of Hon’ble Delhi High Court in the case of Sak Industries Ltd. v DCIT 363 ITR 378 to contend that disclosure

16 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. made in the schedule/notes to accounts forming part of the audited financial statements, amounted to full and true disclosure, in the context of applicability of proviso to section 147 of the Act. It was submitted that no penalty is imposable in respect of an incorrect claim of deduction, provided all facts in respect of such claim were disclosed before the Assessing Officer. Reliance in support was drawn from the judgement in the case of CIT v Nath Brothers Exim International Ltd. 288 ITR 670 (Del) and the list of case as noted in the written submission. The assessee further contended as under: “It is also pertinent to note that the aforesaid claim of sales tax incentive/ subsidy received by the appellant is not a claim made for the first time during the relevant assessment year, but, the same was made and also duly considered by Assessing Officer in the earlier assessment years, as demonstrated hereunder: a) The aforesaid claim was, for the first time, made in the assessment years 2002-03 to 2004-05. In fact, in the said assessment years, exemption of sales tax incentive was claimed as capital receipt by way of additional ground of appeal before the CIT(A), since the time limit for filing revised return had expired. The application so filed by the appellant for admission of additional grounds was forwarded to the Assessing Officer for comments and separate remand reports were received for the said assessment years. Thereafter, on receipt of the remand reports, the CIT(A) did not adjudicate the issue of taxability of sales tax incentive on the ground that the claim was not made by way of filing revised return within the time stipulated under the provisions of the Act. b) During the assessment proceedings for assessment year 2004-05, the claim was made before the Assessing Officer by filing revised computation of income, since the time for filing the revised return had expired, by relying on the decision of the Special Bench of the Tribunal in the case of DCIT v. Reliance Industries Limited: 88 ITD 273.

17 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. The Assessing Officer, however, did not accept the claim of the appellant on the ground that the decision of the Special Bench of the Tribunal is not applicable, since the same was rendered in the context of different scheme. c) Revised return of income under section 139(5) of the Act was filed by the appellant for the assessment years 2005-06 and 2006-07 for specifically making the aforesaid claim, which was not taken in the original return. The Assessing Officer, in the assessment order, for the said years, however, did not agree with the claim of the appellant and held that the sales tax incentive to be in the nature of revenue receipt and not capital receipt, as claimed by the appellant. d) In the original return of income for the assessment year 2007-08, the sales tax incentive was, in the computation of income, separately claimed to be excludible from the taxable income. On a bare perusal of the computation of income for the said assessment year, the claim made by the appellant is patently noticeable. In fact, in the assessment order for the assessment year 2007-08, the Assessing Officer, following his order in the earlier year, did not agree with the claim of the appellant and held sales tax incentive to be in the nature of revenue receipt.” 6.8 The assessee thus prayed that penalty u/s 271(1)(c) of the Act was not leviable for the following reasons: “(a) Addition made by the Assessing Officer in the assessment order on account of treatment of sales tax incentive is not sustainable in the first place; (b) No concealment/ furnishing of inaccurate particulars of income in the present case, since appropriate disclosures of the accounting treatment in respect of sales tax incentive were given in the notes forming integral part of the audited financial statements as well as by the statutory auditor in the audit report;

18 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. (c) Non-inclusion of the amount of sales tax subsidy was specifically mentioned by the Tax Auditor in point No.13(e) in Form No.3CD for the year under consideration; (d) Elaborate reply/ submissions were filed by the appellant during quantum proceeding, not only setting out complete facts with regard to the claim made and the accounting treatment followed in respect of the sales tax incentive/subsidy, the non-taxability of the same was duly supported by elaborate reasoning/ justification; (e) The claim of the appellant is duly supported by various judicial precedents wherein the various Courts and the Special Bench of the Tribunal have upheld the appellant's claim of incentive/ subsidy received in the form of exemption from sales tax to be in the nature of capital receipt, not liable to tax under the provisions of the Act; (f) The issue of taxability of sales tax incentive/subsidy is, in any case, a highly debatable/ contentious legal issue, giving rise to substantial question of law on which no penalty is leviable in view of the decision of jurisdictional High Court in the case of Gurdaspur Co-operative Sugar Mills (supra).” 6.9 It was thus submitted that penalty levied on addition of incentive on account of sales tax exemption is erroneous and calls for being deleted. 6.10 The learned counsel of the Revenue relied upon the order imposing penalty and order of CIT(A) upholding the penalty to contend that levied was in accordance with law. He further submitted that since 01-06-2006, the provision of section 139 has under gone change and from AY 2008-09 onward, the assessee was not required to enclose the balance sheet and other financial statement alongwith the return as the return of income was filed electronically, and therefore, the disclosure of the sales tax exemption, was to be made fully in relevant columns of the return of income and the disclosure by the assessee in Notes to Account, which were part of Annul Report of the assessee company and not part of the return of income filed by the assessee, was not sufficient for true and full

19 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. disclosure. He also submitted that the assessee on one hand treated the sales tax exemption as incentive given to the assessee for capital investment of more than Rs. 1,000 crores but the assessee did not reduce the said exemption out of the written down value (WDV) of the assets and thus claimed excess depreciation and on the other hand also claimed the entire sales-tax exemption amount as capital subsidy not taxable, and thus the assessee availed double benefit. The ld Counsel also submitted that the assessee has claimed benefit of deduction under section 80IA/ 80IB of the Act on Electricity Duty and Entry Tax fraudulently despite the claim of the same as capital receipts. The ld Counsel further relied on judgment of the Hon’ble Delhi Court in the case of CIT Vs. Zoom Communications P Ltd (Delhi) 327 ITR 510 , CIT Vs HCIL Kalindee (2013) 37 Taxmann.com 347 and other judgments, list of which is mentioned in written submission. 6.11 We have heard the rival submissions and perused the material on record. In the instant case a sum of Rs. 81.59 crores was shown as ‘Sales Tax Subsidy’ ‘Capital Reserve’ under the head reserves and surplus in schedule-2 of the balance sheet as on 31.3.2008. The non inclusion of amount of subsidy was also mentioned by the Tax Auditor in point No. 13(e) in Form no. 3CD for the year under consideration. Thus, it cannot be said that there was an absence of disclosure in respect of the amount of subsidy on the part of the assessee. The contention of the counsel of the Revenue that the assessee did not reduce the amount of subsidy from the written down value of the assets in the relevant columns to the return of income , which amounted to nondisclosure, is also is not acceptable, because the assessee is treating the subsidy granted for promotion of industry in backward area of the state as capital receipt and not specifically to meet the cost of the asset. Further the assessee, is making this claim of capital subsidy not taxable in the hands of the assessee, for past many years. It is also observed that there is no change in method of accounting followed by the assessee except change in

20 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. treatment of the said amount of the subsidy, which too has been claimed as in compliance of accounting standards . It is well settled law that merely accounting entries on a particular item cannot determine the nature of the income as per provisions of income tax act. Further the appeals filed by the assessee against the order of the Tribunal for AY 2004-05, 2002-03, 2005-06 have been admitted before the Hon’ble High Court of Punjab and Haryana. In the case of CIT versus Basti sugar Mills company limited ITA No. 232/2009 and CIT versus HB leasing and finance Co Ltd 334 ITR 367, the Hon’ble Delhi High Court has held that once appeal on a particular issue is admitted by the High Court, it demonstrates that the said issue was debatable and accordingly no penalty is leviable for disallowance made in respect of such issue. The Ld. counsel of the Revenue, however relied on the finding of the Delhi High Court in the case of Roger Enterprises P Ltd V/s CIT, Delhi in ITA No. 439/2003 delivered on 4th February, 2016 and submitted that in para 38 of the judgement it is held that mere pendency of the quantum appeal could not have led the ITAT to conclude that the issue was debatable.. However, the Ld. AR of the assessee submitted that the question of law before the Hon’ble High Court , in the case of Roger Enterprises P Ltd V/s CIT, Delhi (supra) was as under: “was the ITAT correct in confirming the order of the CIT (A) deleting the penalty levied on the Respondent Assessee under section 271 (1) (c) of the Act” 6.12 The ld. AR accordingly submitted that no question of law has been decided by the Hon’ble court on the issue whether the pendency of appeal render the issue debatable and therefore it cannot be followed as question of law decided by the High Court. We are agreed with the Ld.AR on the issue that in the case of Roger Enterprises P Ltd V/s CIT, Delhi (supra) ,Hon’ble High Court has not decided the question of law that admission of an appeal on particular issue does not make the

21 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. issue debatable, and hence the ratio laid down in the judgement in the case of CIT versus Basti sugar Mills company limited (supra) and CIT versus HB leasing and finance Co Ltd (supra) is still valid. In the case of Basti Sugar Mills Co Ltd (supra), Hon’ble Court decided a question of law that pendency of appeal before the High Court rendered the issue debatable. The relevant findings of the Hon’ble court are as under: The following questions were framed on 18th October, 2005:- “(a) Whether the ITAT was correct in law in holding that the issue regarding allowability of interest payable on late deposit of provident fund was a debatable issue and, therefore, could not be disallowed in the intimation issued order Section 143(1)(a) of the Income Tax Act? (b) Whether the ITAT was correct in law in holding that deleting the addition made by the Assessing Officer of an amount of Rs 18,02,026/- being interest payable on late deposit of provident fund under ITA 232/2005 Page 2 of 2 Section 43-B of the Income Tax Act as the same was not paid during the year?” Insofar as question (a) above is concerned, we find that the issue regarding allowability of interest payable on late deposit of provident fund is a debatable issue. This conclusion of ours is fortified by the fact that the very issue is before us in ITA No.958/2007 in respect of the very year in question namely assessment year 1998-99. ITA No.958/2007 arises out of the regular assessment completed under Section 143(3) of the Income Tax Act, 1961 (in short „the said Act). The said question has travelled all the way upto the Tribunal and is now before us in the said ITA No.958/2007 as well as other connected appeals being ITA Nos.965/2007, 1248/2007, 646/2009 and 652/2009. It is, therefore, clear that the issue was debatable and, therefore, could not be disallowed while considering the intimation under Section 143(1)(a) of the said Act.”

6.13 In the case of CIT versus HB leasing and finance Co Ltd (supra), while deciding the issue of levy of penalty, the Hon’ble Delhi High Court held as under:

“3. In so far as the claim of deduction under s. 80M of the Act is concerned, the Tribunal has opined that it was a debatable issue. No doubt, as per the judgment of the Supreme Court in Punjab Distilling Industries Ltd. (supra), the claim could not be made unless the amount actually disbursed on the interpretation of the word "distribution" given by the Supreme Court therein, the question in the present case was as to whether the conditions stipulated under s. 80M of the Act stood fulfilled when the amount in

22 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. question, which was to be distributed as dividend, was kept aside in a separate bank account. In the facts of this case, we are of the opinion that this issue is debatable. We say so because of the reason that not only in the quantum proceedings the CIT(A) had deleted the additions, even when the Tribunal reversed the order of the CIT(A) and this Court also dismissed the appeal of the assessee, the Supreme Court has remitted the case back to this Court and the issue stands admitted. Once the appeal, i.e., IT Appeal No. 612 of 2004 preferred by the assessee has been admitted that would show that substantial question of law on the interpretation is involved. The issue is thus clearly debatable.” ( emphasis supplied) 6.14 Thus, respectfully following, the law laid down in the above judgments of the Hon’ble Delhi High Court, as appeal on the issue of whether the sales tax incentive in the case of the assessee is in the nature of Capital or Revenue subsidy has been admitted by the Hon’ble High Court of Punjab and Haryana, the issue became debatable, no penalty can be levied on the issue. Further, the assessee has made sufficient disclosure of the fact of claim of sales tax exemption/ subsidy before the Assessing Officer. In the same set of facts, the assessee is interpreting, benefit of sales tax as subsidy or incentive of capital nature, whereas the Revenue and the appellate authorities including Tribunal has held the benefit of sales tax as revenue in nature. But, we don’t find that the assessee has concealed or furnished inaccurate particulars of income on the issue of claim of sales-tax exemption/subsidy. In the case of CIT versus Zoom communication (p) Ltd (supra) it is held that if the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable for penalty under section 271(1)(c) of the Act , but in the facts of the case the claim is on the basis of certain notifications and the assessee has furnished explanations which cannot be said to malafide . In the case of CIT versus HCIL Kalindee Arsspl (supra) also the Hon’ble court has held that merely because the assessee complied with the statutory procedural requirement of filing the

23 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. prescribed form and certificate of the chartered accountant, cannot absolve the assessee of its liability if the actor attempt in claiming the deduction was not bonafide. The facts of the case in hand are different from the facts of the case of CIT versus HCIL Kalindee Arsspl( supra). In the circumstances, we are of considered opinion, that no penalty for concealment or furnishing of inaccurate particulars of income on the issue in dispute can be levied under section 271 (1)(c) of the Act. Accordingly, the relevant grounds of the appeal are allowed. 7. The Grounds No. 3 to 3.2 and 4 to 4.2 relate to levy of penalty on disallowances of Rs. 88,00,001/- and Rs. 49,41,849/- on account of provision for gratuity. 7.1 The relevant facts in brief are that pursuant to the order of assessment u/s 263 of the Act disallowance was made of Rs. 1,37,41,850/- on account of provision for gratuity. The basis of the disallowance was that the Assessing Officer on perusal of the annual report and tax audit report noted that out of liability (of gratuity) debited to profit and loss account for the year under consideration (F.Y. 2007-08) Rs. 2.95 crore is outstanding as on 31.3.2008, whereas only Rs. 1.55 crore has been disallowed. Hence the balance is liable for disallowance and therefore he made disallowance of Rs. 1,37,41,850/- in the order u/s 143(3) of the Act The AO has held that assessee failed to provide copies of requisite ledger accounts during the proceedings u/s 263(1) of the Act as well as during reassessment proceedings and the same were also not furnished during penalty proceedings u/s 271(1)(c) of the Act. It was also held that during the penalty proceedings the assessee admitted that amount credited to general reserve of Rs. 0.88 crore had not been added back in computation. It was further held that sum mentioned in the balance sheet does not automatically bring the same to surface; and that’s why the issue escaped attention of the AO at the time of (original) assessment proceedings and claim that amount of Rs. 0.88 crores was inadvertently

24 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. credited to general reserve has not been added back in computation of income and the mistake was bonafide was rejected. The AO therefore imposed penalty by observing as under “15.6 Under the Tax-audit report, there is specific requirement of reporting the amount of disallowance u/s 43B. However, the incorrect amount has been reported in this respect (disallowance out of outstanding gratuity). It is presumed that the figures of outstanding liability are same as per Balance Sheet as well as Tax audit report. The assessee has advantages of having full- fledged team of qualified professionals, who are duty bound to reconcile the two figures. Therefore, in case of discrepancy (between the two figures). There should have been, not only, reconciliation but also the reporting of the same (to the revenue). On the contrary, it was noticed that in –spite of specifically asking for, the assessee not only changed versions but also, refrained from supplying the copy of ledger account of the liability. During the proceedings u/s 263 vide order sheet entries dated 17.01.2013 and 08.03.2013,the CIT, Hisar requested the assessee to furnish copy of the ledger account regarding gratuity but the assessee did not furnish the same. Also, the assessee refrained from furnishing the same, even before the undersigned (during proceeding u/s 143(3) r.w.s. 263). 15.7 From the above, it is clear that with regard to the issue of disallowance of claimed deduction, u/s 43B, on account of provision for gratuity, the assessee has not only furnished inaccurate particulars of income but also concealed the particulars of income to the extent of said addition. The provision of Explanation 1 to the section 271(1)(c), as reproduced in para 14.6.1, above, are also attracted because the assessee not only offered false explanation but also offered explanation which the assessee could not substantiate. The assessee failed to discharge the onus that explanation was bonafide. The assessee also failed to discharge the onus that all the facts relating to the same and material to the computation of its total income has been disclosed.” 7.2 Before the CIT(A), the assessee submitted that during the relevant assessment year pursuant to mandatory actuarial valuation of provision for gratuity as per revised Accounting Standard-15 issued by the Institute of Chartered

25 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. Accountants of India (‘ICAI’) transferred the excess amount of provision of Rs. 88 lacs to general reserve. The said accounting treatment was duly evident from clause (B) of schedule 2 of audited financial statements. Further detailed note on accounting treatment accorded by appellant to gratuity during the relevant assessment year has also been provided in schedule 20(A)(vii)(b) of audited financial statements. The aforesaid amount of reversal was stated to be inadvertently on account of clerical mistake, omitted to be added back in the computation of taxable income for the relevant assessment year. The appellant during the course of assessment proceedings, vide submission dated 7.5.2013 and during penalty proceedings, vide submission dated 15.11.2013 has suo motu before the Assessing Officer offered the amount in respect thereof for taxation. As regards Rs. 49.42 lacs, it was submitted that the aforesaid sum was suo motu added back by the appellant in the return of income in view of the provisions of section 40A(7) of the Act. The Assessing Officer erroneously and incorrectly brought the aforesaid amount to tax, without appreciating that the aforesaid amount was already added back in the computation of income for relevant assessment year and also levied penalty u/s 271(1)(c) of the Act, without appreciating that such addition was made erroneously and totally on incorrect basis. 7.3 The CIT(A) has upheld the levy of penalty in respect of Rs. 88,00,001/- on the following reasons: “A perusal of the facts of the case reveals that (as discussed in paras 15.1 to 15.6 of the impugned penalty order) that this so called ‘bonafide’ mistake was not admitted before the Ld. CIT, Hisar in the proceeding u/s 263 nor before the AO. Hence, this explanation putforth later is an after though and clearly shows that his is a case squarely covered under the expression “furnishing of inaccurate particulars”. The relevance of the observations of the Hon’ble Pujab & Haryana High Court in CIT vs. Abhishek Industries 286 ITR 1 on the issue of avoidance of tax coincides perfectly with the

26 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. scheme of the appellant in devising means and methods to avoid taxation. Hence, this ground of appeal is dismissed.” 7.4 Further; the addition of Rs. 49.42 lacs, the CIT(A) has upheld the levy of penalty by holding as under: “This ground of addition has been discussed at length by the AO who has proved why it was not a simple case of oversight in not considering the addition made by the appellant of Rs. 49.2 lacs as provisions for gratuity in its computation of income. The issue has been discussed in detail in the assessment order and relates to liabilities in previous year. The appellant was not able to prove the discrepancies in the figures shown in the balance sheet viz-a-viz the TAR. The appellant did not produce the copy of the ledger account of this liability either before the CIT, Hisar or the AO. This is the deliberate attempt by the appellant to obfuscate the issue. Hence, the penalty has been correctly levied on this account.” 7.5 Before us the learned counsel for the assessee contended that appellant inadvertently out of bonafide mistake omitted to add back reversal of provision for gratuity to computation of income for relevant assessment year and in respect of such inadvertent error, there was no concealment of income or furnishing of inaccurate particulars of income on the following reasons: “a) The details in respect of provision for gratuity were duly disclosed in audited financial statements for relevant assessment year vide schedule 12 in respect of provisions and schedule 17 in respect of personnel expenses; b) The fact that provision for gratuity amounting to Rs.88 lacs was transferred to general reserve was disclosed vide clause (B) of schedule 2 of audited financial statements; c) Detailed note on accounting treatment accorded by appellant to gratuity during the relevant assessment year was disclosed vide schedule 20(A)(vii)(b) of audited financial statements; d) The provision for gratuity was specifically dealt by the tax auditor in tax audit report for relevant assessment year;

27 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. e) The appellant, in the return of income and computation of income for relevant assessment year, had specifically disclosed and dealt with the provision for gratuity; f) The appellant did not file appeal against the said disallowance in order under section 143(3)/ 263 of the Act. During the penalty proceedings, the appellant had suo motu offered the amount of reversal of provision for gratuity to income-tax vide letter dated 15.11.2013; and g) The Assessing Officer, made addition in respect of reversal of provision for gratuity only on the basis of bona fide disclosures made by the appellant in various documents submitted including the report of the Tax Auditor certifying the amount. Therefore, it cannot be alleged that the appellant concealed/ furnished inaccurate particulars in respect of aforesaid addition.”

7.6 Reliance was placed on the judgment of Apex Court in the case of Price Waterhouse Coopers (P) Ltd. v CIT 348 ITR 306 and jurisdictional High court of Punjab and Haryana in the case of CIT v Siddharta Enterprsies 322 ITR 80. Reliance in support was also drawn on the judgment of jurisdictional High Court of Punjab and Haryana in the case of CIT v Punjab Kesari Hosiery Factory 304 ITR 247 to contend that penalty is not leviable in case of bonafide commission in not accounting for certain stocks. 7.7 The learned counsel of the Revenue and the CIT DR relied upon the order imposing penalty and order of CIT(A) upholding the penalty to contend that same was levied in accordance with law. He further submitted that the Tax Auditor acted in collusion with the assessee and a certificate in the form of additional evidence was a merely self serving evidence and yet the assessee could not be absolved of his responsibility of returning the income correctly in view of the decision of the Chennai bench of the Tribunal in the case of DCIT,CC-5(1), Chennai Vs Rattha Citadines Boulevard Chennai P Ltd dated 15th July,2015.

28 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. 7.8 We have heard the rival submissions and perused the material on record. As regards the addition of Rs. 49,41,850/- on account of provision for gratuity, we have while disposing off the appeal in ITA No. 3128/DEL/2014 deleted the said addition, thus consequently even the penalty levied on the said sum stands deleted. So far as the addition of Rs. 88,00,001/- is concerned that it is an admitted position that this sum was not added back in the original computation of income. It is also apparent that the aforesaid mistake was detected only in the revision proceedings u/s 263 of the Act; when assessee was directed to reconcile the difference of Rs. 1.81 crores under the head provision for “gratuity” between outstanding as per balance sheet and audit report. It is also matter of record that the notice u/s 263 of the Act was dated 3.1.2013 and omission to make the aforesaid addition was admitted only finally on 15.10.2013 u/s 143(3)/263 of the Act. Thus it s not a case of voluntary and suo moto disclosure of income. It is also not a case where the mistake can be said to be bonafide, as relevant evidences in the shape of ledger accounts were not furnished in the revision proceedings or reassessment proceedings. In such circumstances we cannot regard the mistake to be an inadvertent mistake or simple case of oversight. We therefore find justification in the imposition of penalty u/s 271(1)(c) of the Act. As a result the grounds No. 3 to 3.2 of the appeal are dismissed and grounds No. 4 to 4.2 of the appeal are allowed. 8. The Grounds 5 to 5.3 of the appeal relate to levy of penalty of Rs. 5,91,106/- u/s 271(1)(c) of the Act on account of additional deprecation claimed by the appellant u/s 32(1)(iia) of the Act in respect of computer software ‘Primevera’. 8.1 The AO has held that from the details furnished in the tax audit report it was not possible to make out as to on which specific asset, the additional depreciation of Rs. 5,91,106/- had been claimed. It has been held that it does not indicates as to in respect of which fixed asset, the said additional deprecation has been claimed and no inference is possible as to whether the said additional depreciation is in

29 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. respect of ‘Software’ or ‘Hardware’. He has also held that explanation was unsubstantiated because the assessee could not substantiate the argument that the said software was under category of plant and machinery which is used for manufacturing on the shop floor. He therefore imposed penalty u/s 271(1)(c) of the Act. On appeal the appellant pleaded that no penalty is leviable for the following reasons: “a) The amount spent for purchase of computer software “Primavera” was added in the amount of fixed assets disclosed vide schedule 5 of audited financial statements for relevant assessment year; b) The additional depreciation in respect of computer software ‘Primavera’ was claimed by appellant on the basis of tax audit report wherein such additional depreciation was duly certified by tax auditors assessee held allowable in the annexure – DI thereof; c) The appellant, in the return of income and computation of income for relevant assessment year disclosed and claimed aforesaid amount of additional depreciation. It is pertinent to point out here that specific details are required to be filled in the return of income for claimed additional depreciation; and d) The Assessing Officer, made disallowance in respect of aforesaid only on the basis of bona fide disclosure made by the appellant in various documents submitted. Therefore, it cannot be alleged that the appellant concealed/ furnished inaccurate particulars in respect of aforesaid disallowance. The aforesaid list of disclosures duly established that there was no concealment of income or furnishing of inaccurate particulars of income by the appellant qua the aforesaid amount of additional depreciation claimed in respect of computer software ‘primavera’. Accordingly, penalty under section 271(1) (c) of the Act cannot be levied in respect thereof. In any case, since the aforesaid disallowance was made on account of difference of opinion between the Assessing Officer and the appellant in appreciating the provision of section 32(1)(iia) of the Act, the same cannot,

30 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. in view of the prevalent legal position, be visited with penalty under section 271(1)(c) of the Act.”

8.2 The CIT(A) has however imposed the penalty on additional deprecation of Rs. 5,91,106/- under the provision of section 32(1)(ii)(a) of the Act n respect of computer software ‘Primavera’ by holding as under: “The issue of additional depreciation involves a claim in respect of a computer software which the appellant claimed was part of plant & machinery and thereby a part of the production process. The AO has clearly brought on record the nature of the software which is merely an office automation tool and, by no stretch of imagination can it be construed to be part and parcel of that Plant & Machinery engaged in the production process. Hence, this is fairly a case of furnished of inaccurate particulars for which penalty has been rightly imposed. After examining all the submission in respect of various grounds of disallowance on which penalty has been imposed, I am of the opinion that the appellant has not been able to discharge its onus in proving that its action which led to the levy of penalty were bonafide. At the stage of proceedings u/s 263 and also before the AO, they have tried to skirt the issue that this is squarely a case of furnishing of inaccurate particulars/ concealment of income as amply demonstrated in the issue of Sales Tax Subsidy, provision of gratuity as well as that of Computer Software. Even before me, no material fact has been placed which would indicate that all their actions were not malafide. In view of the facts and circumstances, as outlined above, I confirm the levy of penalty @ 100% amounting to Rs. 28,21,94,177/-.” 8.3 Thus the learned counsel of the assessee contended that additions worth Rs.3.57 crores were made on account of `computers'; and out of the said additions, additional depreciation was claimed only in respect of additions on account of 'primavera software' worth Rs.49 lacs in terms of section 32(1)(iia) of the Act, as it was case of new machinery or plant, acquired and installed after 31.03.2005 by an

31 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. assessee engaged in the business of manufacture or production of any article or thing. It was therefore submitted that complete disclosures were made by the appellant in the return of income and the accompanying documents and therefore, no penalty was leviable for the following reasons: “a) The amount spent for purchase of computer software primavera' was added in the amount of fixed assets disclosed vide schedule 5 of audited financial statements for relevant assessment year; b) The additional depreciation in respect of computer software `primavera' was claimed by appellant on the basis of tax audit report wherein such additional depreciation was duly certified by tax auditors assessee held allowable c) The appellant, in the return of income and computation of income for relevant assessment year disclosed and claimed aforesaid amount of additional depreciation. It is pertinent to point out here that specific details are required to be filled in the return of income for claiming additional depreciation; and d) The Assessing Officer, made disallowance in respect of aforesaid only on the basis of bona fide disclosures made by the appellant in various documents submitted. Therefore, it cannot be alleged that the appellant concealed/ furnished inaccurate particulars in respect of aforesaid disallowance.” 8.4 The learned counsel of the Revenue relied upon the order imposing penalty and order of CIT(A) upholding the penalty to contend that levied was in accordance with law 8.5 We have heard the rival submissions and perused the material on record. On consideration of the facts we hold adequate and necessary disclosure in accordance with law were made by the appellant company in respect of claim of additional depreciation in the audited financial statement, tax audit report and return of income. Thus in the above back ground denial of claim of depreciation

32 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. tantamount to an legal inference adopted on the facts by the assessee but that cannot be a ground to hold that assessee has either concealed income or furnished inaccurate particulars of income. The Hon’ble Bombay High Court in the case of CIT v Somany Evergreen Knits Ltd. 352 ITR 592 has held as under: “The assessee-company had wrongly claimed excess depreciation and loss on sale of machine as revenue expenditure in return. During assessment proceedings, assessee itself pointed out mistake, which was claimed to be bonafide and inadvertent. Assessing Officer levied penalty under section 271(1)(c) for concealment of income, which was upheld by Commissioner (Appeals). Tribunal deleted penalty, holding that excess claim was on account of bonafide mistake and time to file revised return for correction of mistake had expired and aforesaid order of the Tribunal was also upheld by the High Court.” 8.6 Also Jurisdictional High Court in the case of CIT v Rubber Udyog Vikas (P) Ltd. 335 ITR 558 (P&H) has held that making an incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assessee had acted with a mala fide intention or had claimed deductions being aware of the well settled legal position 8.7 Applying the above judicial position, we are of the considered opinion that no penalty is leviable in respect of disallowance of Rs. 5,91,106/- representing additional depreciation u/s 32(1)(iia) of the Act. The grounds raised are therefore allowed. 9. In the result the appeal of the assessee is partly allowed. 10. As, we part with the appeal, we would like to place on record the appreciation for illuminating arguments put forth by both side, which assisted us in disposing the issue. We also would like to clear that though all the cases relied

33 ITA No. 3052/Del/2014, AY:2008-06 M/s. Jindal Steel and Power Ltd. upon by the parties have been taken into consideration, reference of some of the cases have not been made either due to repetition or irrelevance.

The decision is pronounced in the open court on 31st March, 2016.

Sd/- Sd/- (C.M. GARG) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 31st March, 2016. Rk/Computer Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi