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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: Shri B R Baskaran, AM & Shri Amit Shukla, JM
O R D E R Per Amit Shukla, Judicial Member
The aforesaid appeal has been filed by the assessee against the impugned order dated 28.09.2015, passed by the CIT(A)-Mumbai, in relation to the penalty proceedings u/s. 271(1)(c) for the A.Y. 2005-06.
The assessee is mainly aggrieved by the levy of penalty of Rs.12,05,963/- on account of disallowance of claim of deduction u/s. 80IB on processing charges, miscellaneous income and on interest on employee loans.
The facts in brief are that the assessee is a limited company engaged in the business of manufacturing and trading of agro chemical products and seeds. The return of income was filed on 31.10.2005 declaring total income of Rs.63,58,97,030/-. In the said return, assessee has claimed deduction u/s. 80 IB for an amount of Rs.26,09,60,584/- in respect of following units:
Rs.11,65,42,214 (6th year) Topic Unit – 30% Rs.13,47,78,640 (4th year) Multipurpose Formulation unit – 100% Rs. 96,39,730 (5th year) TMX Unit – 100% In Form 10CCB, the assessee had given following note in respect of “other income”:
Other income represents the income of the manufacturing unit and the Sector Headquarter mainly comprising of scrap sales, processing charges, cash discount, interest on employee loans, but excludes dividend, interest on investments and rental income, which is allocated on the following basis: Related to the manufacturing unit – allocated in the same proportion as the quantity of formulation of the Topik Unit bears to the quantity of formulation of the entire manufacturing unit for the year. Sector Headquarter other income is allocated to the Topik Unit in the proportion of the turnover of the unit compared to the total turnover of the Crop Protection Segment of the Company.
Before the AO, the assessee in response to show cause notice with regard to claim of deduction u/s. 80IB has given following details with respect to “other income” :
Particulars Topik Unit Multipurpose TMX unit 30% Formulation 100% unit 100% Sale of waste material 6,75,896 6,19,365 3,47,840 Exchange Difference 70,67,788 50,610 59,10,888 Processing charges recovered 24,05,286 Miscellaneous Income (Misc. interest, 5,71,214 5,01,254 2,63,327 Insurance Claim, Lease rent Cash Discounts -1,93,583 94,919 2,76,476 Interest on Employee Loan 1,60,954 1,17,168 40,951 Total 82,82,269 37,88,602 68,39,481 The learned AO, reduced the claim of deduction at Rs.24,78,47,820/- i.e. disallowance of Rs.1,31,12,764/- on the various miscellaneous income shown by the assessee on the ground that it cannot be said to be derived from industrial undertaking. Up to the second appellate stage, the claim of disallowance of deduction was reduced to Rs.40,19,878/- on the following three items: i. Processing charges Rs.24,05,286/- ii. Misc. Income Rs.12,95,519/- iii. Interest on employees loan Rs. 3,19,073/-
Now on these three items of disallowance, the AO has levied the penalty u/s. 271(1)(c) for furnishing of inaccurate particulars and, accordingly, levied penalty of Rs.12,05,963/-. The assessee’s detailed explanation before the AO about the bona fide claim of deduction u/s. 80IB has been incorporated by the AO in his penalty order from pages 2 to 5. The sum and substance of assessee’s explanation has been that firstly, the aforesaid income had direct and proximate connection with the business of the industrial undertaking; secondly, these claims were based on certain decisions available as on date of filing of return of income. For the first time the disallowance was confirmed by the Tribunal in A.Y. 2001-02, which was on 05.11.2012. Before the CIT(A) also, the assessee reiterated its explanation and submitted that claim of deduction was based on following judicial precedents: i) CIT vs. India Gelatine & Chemicals Ltd. 275 ITR 284, judgment dated 08.04.2004 ii) ITAT Chandigarh Bench in the case of ITO vs. Kiran Enterprises 92 TTJ 104 iii) ITAT Pune Bench in the case of ACIT vs. Kripa Chemicals Private Ltd. 82 ITD 449 Besides these it was submitted that it was only after the decision of Hon’ble Supreme Court in the case of Liberty India Ltd. vs. CIT 317 ITR 218, which was rendered on 31.08.2009 these matters were decided against the assessee by the Tribunal. The decision of the Tribunal in the assessee’s own case for the first time came on 09.11.2012. Thus, at the time of filing of return of income the assessee’s claim was bona fide. The detailed submissions and explanations of the assessee before the CIT(A) has been dealt with and incorporated at pages 4 to 14 of the appellate order. However, the learned CIT(A) too confirmed the penalty after detailed discussion, which was purely on philosophical and conceptual concept behind levy of penalty de hors the substance and merits. In the entire order the learned CIT(A) has merely discussed the concept of penalty rather than deciding the appeal on merits. He has again gone by the fact that Tribunal has confirmed the said disallowance.
Before us, learned counsel after explaining the entire facts, submitted that so far as the ‘miscellaneous income’ forming part of ‘other income’ is concerned the same comprised of interest, insurance claim and lease rent. On insurance claim he submitted that, now there is decision of Hon’ble Bombay High Court in the case of Pfizer Ltd. 330 ITR 62 (Bom) in favour. Regarding interest and lease rent also there were various decisions, which have been cited before the CIT(A) in the penalty proceedings. He further pointed out in the earlier years also, no penalty was levied on similar disallowance u/s. 80 IB. In support of this contention he also pointed out to the relevant order of the AO for A.Y. 2004-05 in the penalty proceedings. He also placed strong reliance on the decision of Allahabad High Court in CIT vs. Arvind Footwear Private Ltd, wherein on disallowance of claim u/s. 80IB, on the account of incentive by way of duty drawback, the High Court had held that, no penalty should be levied because the decision of Hon’ble Supreme Court in Liberty India Ltd., came subsequent to the filing of return of income. High Court also referred and relied upon the decision of Supreme Court in the case of Reliance Petroproducts Private Ltd., 322 ITR 158 (SC). Lastly, he submitted that all the particulars were disclosed by the assessee not only in the return of income but also in the audit report, therefore there was no furnishing of inaccurate particulars.
7. On the other hand, learned DR submitted that the very nature of the income which has been claimed as deduction u/s. 80IB shows that they are not derived from the industrial undertaking. He submitted that interest from employee loans cannot be said to be derived from the industrial undertaking.
Even if the decision of Supreme Court in Liberty India Ltd. and Tribunal order in the case of assessee came on a subsequent date, but on the date of filing of return of income, the law was quite clear that such income cannot be allowed as deduction and in all the earlier years, assessee’s claim have been disallowed.
Thus, he strongly relied upon the order of the CIT(A).
6. We have heard the rival submissions, perused the relevant findings given in the impugned orders and the material placed before us. The penalty has been levied on account of disallowance of claim of deduction on processing charges; miscellaneous income, consisting of interest, insurance claim and lease rent; and interest on employee loan. There were other items of income also which were disallowed by the AO however, from the stage of the Tribunal most of these deductions have been allowed, which is evident from the fact that out of the total disallowance of Rs.1,31,12,764/- the disallowance has now been restricted to Rs.40,19,878/- only. As discussed above, the assessee has duly disclosed the entire particulars of “other income” not only in the audited balance sheet but also in the audit report in Form 10CCB. At the time of making the claim of deduction u/s. 80 IB, the assessee has relied upon certain decisions, which were available at that time in support of the claim of similar nature of income which were held to be derived from industrial undertaking for deduction u/s. 80 IA & 80 IB. Some of such decisions have been relied by the assessee before the CIT(A) and also before us by the learned counsel. At the outset, assessee did have some basis for claiming the deduction on “other income.
Further disallowance of deduction on similar income made in the earlier years were upheld by the Hon’ble Tribunal only on 05.11.2012, in wake of Hon’ble Supreme Court decision in the case of CIT vs. Liberty India Ltd. (supra). Before us, it has also been pointed that similar penalty proceedings were initiated on disallowance made u/s. 80 IB however, the learned AO did not levy any penalty.
Thus, in this year there cannot be any plausible justification to levy penalty, especially when matter had not been decided against the assessee by the Tribunal then. The disallowance may have been confirmed in the quantum proceedings, however, such a finding may not be a final word so far as penalty proceedings are concerned, because the considerations, which arise in penalty proceedings are separate and distinct from the assessment proceedings. In the penalty proceedings, the assessee can point out the factors which had lead to a bona fide belief for making the claim at the time of filing the return of income.
Here in this case, the assessee not only by way of notes in the audited accounts but also before the authorities below have relied upon the decisions wherein similar nature of income were held to be allowable for deduction u/s. 80 IA.
Thus, the claim of the assessee was genuinely bona fide at the time of filing the return of income. Not only that, some of the items of “other income” like processing charges, insurance claim there are still decisions which are in favour of the assessee post the judgment of Liberty India Ltd. Thus, it cannot be held that the assessee had made any false claim for which any penalty u/s. 271(1)(c) is warranted. Accordingly, on the facts and circumstances of the case, we are of the opinion that no penalty for furnishing of inaccurate particulars u/s. 271(1)(c) can be levied. We, accordingly, direct to delete the penalty.
In the result, the assessee’s appeal is allowed
Order pronounced in the open court on this day of 10th June 2016.