ACIT, NEW DELHI vs. M/S. SPL INDUSTRIES LTD.,, NEW DELHI

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER This appeal filed by the Revenue is directed against the order of the CIT(A)-XII, New Delhi, dated 18/06/2012 in appeal No. 59/11-12 for A.Y 2006-07.

3. Briefly stated, the facts of the case are that the ld. CIT(A) confirmed the additions on account f excess claim of depreciation under TUF Scheme and disallowance out of capital subsidy. The AO initiated penalty proceedings u/s 271(1)(c) of the Income-tax Act, 1961 [‘the Act’ for short] and imposed penalty on both the said issues. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who deleted the entire penalty and thus the aggrieved Revenue is before this Tribunal in this second appeal.

4. We have heard the rival submissions and have perused the relevant material on record. The ld. DR contended that wrong claims were made by the assessee in quantum proceedings and therefore, the AO made disallowances/additions on account of excess claim of depreciation and on account of disallowance out of capital subsidy. The ld. DR further contended that the stand

Financial Express News Paper under bonafide belief and hence penalty is not leviable but its auditors are well qualified and experienced therefore, this excuse is not tenable and sustainable and the AO rightly levied penalty. The ld. DR vehemently contended that the ld. CIT(A) deleted the penalty without any reasonable cause or basis. Hence the impugned order may be set aside by restoring that of the AO.

5. Per contra, the ld. AR strongly supported the first appellate order and contended that the AO imposed penalty on wrong premise and the ld. CIT(A) was quite justified in deleting the same. He has drawn our attention towards the operative para 8 of the impugned order and submitted that the assessee disclosed all relevant facts during the assessment proceedings. Hence he cannot be held responsible for guilty of concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. AR contended that the issue of disallowance of capital subsidy was a debatable issue and in the light of the preposition laid down by the ITAT Chandigarh Bench in vide order dated 15.07.2014 the penalty on debatable sales subsidy issue received by the assessee was capital in nature. The ld. AR further contended that the penalty on excess claim of depreciation under TUF Scheme is also not leviable because this is only a dispute of deprecation rate which does not reveal any facts or concealment or furnishing of inaccurate particulars of income. The ld. Counsel placed reliance on the orders of the ITAT, Ahmedabad ‘D’ Bench in the case of ITO Vs. M/s Deshraj Texturised Pvt. Ltd for A.Y 2005-06 dated 7.9.2012 and Bench ‘B’ in the case of Piparia Syntex Pvt. Ltd Vs. ITO ITA No. 2084/Ahd/2011 for A.Y 2007-08 order dated 30.05.2014 and submitted that the issue of penalty is squarely covered in favour of the assessee by these orders of the Tribunal.

“I have perused the facts stated by the Assessing Officer in assessment order as well as submission filed by the assessee and 1 am of the opinion that depreciation under Income Tax Act is to be allowed by the Assessing Officer as per the correct rates

Rule. In this case, the assessee under bonafide belief based on report in the Financial Express “...The Finance Ministry has decided to retain the special depreciation benefits for textile machinery installation under the Technology Upgradation Fund Scheme(TUFS) Fresh investments under TUFS—an interest subsidy scheme to promote capacity building in the textile industry—will continue to benefit from 50% depreciation in the first year. Further, the eligibility criteria for the extra depreciation benefit would be benchmarked on the TUFS norms with regard to the sophistication levels of the machine installed. The special dispensation will be co-terminus with TUFS, which has been extended to 2006-07... ” had claimed higher depreciation. There was no concealment involved nor this is a case of filing of inaccurate particulars as everything was disclosed in the deprecation chart attached with the Income-tax Return. Furthermore, this case is also not covered under Zoom Communication, Delhi High Court, as in this case, the scrutiny u/s 143(3) was done and not simple processing u/s 143(1), as the income returned in this case is Rs.4.72 crores. Similarly with regard to subsidy of Rs. 25,50,000/-, the assessee had also claimed depreciation. There was no concealment nor a case of furnishing inaccurate particulars. This case is covered by case of CIT Vs. Reliance Petro Produdcted Pvt. Ltd. (2010) 322 ITR 158 and CIT Vs. Brahmputra Consortium Ltd. (Delhi High Court) ITA 1582 OF 2010 wherein it is held that:-

40% on tippers and excavators by mistake and since it had itself revised the computation, it was a bonafide error. The AO did not agree with the argument on the ground that the assessee revised only after it was pointed out and that certain expenditure was claimed without necessary documents

12. Thus by making claim of depreciation at higher rate in this year, where the income tax return was at loss, the assessee did not gain any mileage. On the contrary, it was better for him to claim depreciation @25% in this year resulting into higher written down value in the next year for claim of depreciation of a higher amount on higher written down value thereby reducing the tax liability.

In view of the facts stated above, the penalty of Rs. 1,91,33,400/- u/s 271(1)( c) imposed by the AO on two addition i.e of Rs. 5,42,93,162 on account of depreciation claimed and for amount of Rs. 25,50,000/- on account of subsidy is hereby cancelled and the assessee’s appeal is allowed.”

“8. We have heard the rival contentions and perused the record. The issue of levy of penalty under section 271(l)(c) of the Act on the treatment of sales tax subsidy as revenue receipt arose before the Tribunal in assessee's own case relating to assessment year 2004-05. The Tribunal in consolidated order passed in ITA No.

1445/Chd/2010 in appeal filed by the assessee and in the appeal filed by the revenue, vide order dated 06.03.2014 deleted the penalty levied under section 271(l)(c) of the Act on the said issue of sales tax subsidy observing as under : 43. The next item of addition is the assessability of sales tax subsidy o\ Rs. 6,80,61,977/- received by the assessee during the year under consideration. The assessee had treated the said subsidy as capital receipt in its return of income, but the same was assessed as revenue receipt in the hands of the assessee following the ratio laid down by the Hon'ble Punjab & Haryana High Court in assessee's own case reported in 286 ITR 1 (P&H). The Tribunal (supra) for the instant assessment year also held the said subsidy to be revenue in nature. However, the assessee has preferred SLP against the order of the Hon'ble Punjab & Haryana High Court and the question of law has been admitted and the SLP is pending before the Hon'ble Supreme Court of India. The issue raised vide the present appeal is in relation to levy of penalty under section 271(1)(c) of the Act on such debatable issue. In case where the assessee had claimed the expenditure as revenue in nature but the same held to be capital expenditure in the hands of the assessee, the issue relatable to such disallowance of expenditure is a debatable issue and addition made on the basis of such debatable issue cannot tantamount to furnishing of inaccurate particulars of income. The claim of the assessee being rejected in the instant case i.e. the debate being whether the sales tax subsidy received by the assessee was capital in nature or not was a debatable issue.

"18. The issue arising vide present appeal is in relation to levy of penalty u/s 271(1, (c) of the Act on such debatable issue. The plea of the assessee in the present case was admitted for adjudication before the Higher Forums, makes the issue debatable, issue. The addition in the present case has been made on the basis of such debatable issue that whether the sales tax subsidy received by the assessee was capital in nature or not. We further find that similar issue of receipt of subsidy under the West Bengal Incentive Scheme has been held to be capital receipt in the case of CIT Vs. Rasoi Ltd.(supra) by the Hon'ble Calcutta High Court. The unit of the assessee has been established in the State of West Bengal and the case of the assessee is that it is governed by the said scheme as before the Hon'ble Calcutta High Court. In view thereof, the issue raised before us is where addition has been made in relation to such debatable issue, the assessee could be said to have furnished inaccurate particulars of income making it exigible to levy of penalty u/s 271(l)(c) of the Act.

The assessee, for claiming deduction under section 80-0 of the Act, wanted the same at 50 per cent of the gross income received in convertible foreign exchange in India provided by it to its foreign clients. The Assessing Officer, however, was of the view that on correct interpretation under section 80-0, deduction is restricted to the net income and, therefore, expenditure incurred in India for earning the foreign exchange had to be deducted. The Assessing Officer, therefore, wanted the assessee to furnish the details of expenses. As the assessee failed to do the needful in respect of various particulars demanded, the Assessing Officer was left with no alternative but to estimate such expenditure in the ratio of proportion of foreign income to the total income.

5. In view of the above, we do not find any error in the findings recorded by the Tribunal while setting aside the penalty. Consequently, we do not find that the order of the Tribunal gives rise to any substantial question of law for the opinion of this court. 20. Similar proposition has also been laid down by the Hon'ble Punjab & Haryana High Court in CIT s. Tek Ram (HUF) (supra).

46. Following the same finding, we find no merit in holding the assessee to have furnished inaccurate particulars of income in respect of such debatable issue. The assessee is not exigible to levy of penalty under section 271(1)(c) of the Act on the aforesaid treatment of sales tax subsidy as revenue in the hands of the ass .see and we uphold the order of the CIT (Appeals) in directing the Assessing Off's r to delete the same.”

8. In view of the above penalty is not imposable where the issue is debatable and the assessee has lost its ground in quantum proceedings as the issue is debatable in the present case penalty with regard to capital subsidy cannot be held as sustainable and the ld. CIT(A) was right in deleting the same. 13

9. In the case of ITO Vs. M/s Deshraj [supra] the Tribunal upheld the first appellate order which deleted the penalty on excess claim of depreciation on TUF scheme with the following findings:

“7. Before us the Ld. D.R. submitted that the assessee has claimed higher depreciation on the machinery purchased for texturizing of yarn. Though it was not entitled to the higher rate of depreciation the assessee has claimed higher depreciation for which the assessee has furnished inaccurate particulars of income and therefore, the penalty was rightly levied by the A.O. He urged that the penalty levied by the A.O. be upheld.

“5. We have considered the material placed on record. As far as the Revenue’s appeal in respect of excess claim of depreciation on machinery is concerned, the A.O. had made a disallowance of depreciation of Rs. 18,04,688/- primarily on the ground that the depreciation on (TUF Scheme) was allowable @ 25%, however, the assessee had claimed the depreciation at 50%. According to A.O., the eligible depreciation as per the Income tax Rules was only 25%, hence, the same was restricted to that extent only. The excess claim of depreciation was affirmed by the Ld. CIT (A) in first appeal. Consequent thereupon the A.O. has though it proper to levy the penalty. However, when the question of levy of penalty was challenged, Ld. CIT (A) has noted, as per the paragraph reproduced above, that the machineries were only purchased out of the loan given by the Bank under a TUF Scheme floated by Ministry of Textile. The assessee was under an impression that the claim of depreciation was as per the specific rates prescribed, however, it was found by the A.O. that that specific rate of depreciation was not admissible as per the Income Tax Rules, 1962.

5.1. On due examination of the circumstances, once the claim of depreciation was not altogether bogus or malafides but the dispute was in respect of the correct rate of depreciation, then in our considered view that though the rate of depreciation as per A.O. was correct but assessee’s action should not be held as concealment of income or furnishing of inaccurate particulars. It is also evident that still the assessee is harping upon the interpretation of Appendix Annexure to I.T. Rules, 1962 for the purpose of higher depreciation allowance, therefore, this fact itself proves that the correct entitlement of depreciation was a debatable issue. To buttress this view, we place reliance on a latest decision of Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts (P) Ltd., reported at (2010) 322 ITR 158 (SC), wherein it was laid down that no penalty could be levied merely on disallowance of a deduction, which was made by taking a different view. Following this decision, we find no force in this ground of the Revenue and affirm the findings of the Ld. CIT (A).

11. Since the facts in the present case are identical to that of Eagle Synthetics Private Limited (supra) and since nothing has been brought on record, to the contrary by the Revenue and relying on the decision of Hon’ble Apex Court in the case of Reliance Petroproducts (supra) we do find any reason to interfere in the order of the CIT (A).”

10. Furthermore, in the case of Piparia Syntex Pvt. Ltd Vs. ITO, the ITAT Ahmedabad ‘B’ Bench deleted the penalty on similar issue of excess claim of deprecation on TUF Scheme with the following findings:

4. Aggrieved by this order of Ld. CIT(A) now the assessee is before us.

“6.1. The penalty u/s. 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is well settled that assessment proceedings and penalty proceedings are separate and distinct and as held by Hon’ble Supreme Court in the case of Ananthraman & Co. Vs. CIT- 123 ITR 457, the finding in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is, therefore, necessary to re-appreciate and reconsider the matter also as to find out as to whether the addition made in the quantum proceedings actually represents the concealment on the part of the assessee as engaged in sec. 271(1)(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions. The issue as to whether or not the assessee is entitled to higher rate of depreciation is highly debatable. In the case under consideration, it is apparent that all the relevant facts have been disclosed by the assessee. The only dispute is on interpretation of item 111(6) of Appendix 1 of the IT Rules, 1962. It is well settled that the criterion and yardsticks for the purpose of imposing penalty u/s. 271(1)(c) are different than those applied for making or confirming the additions. When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing of accurate particulars of such income. What is to be seen is whether the said claim made by the assessee was bon-fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty u/s. 271(1 )(c) of the Act. Since all the material facts relevant to the said claim had been furnished by the assessee, in our opinion it is not a fit case to attract the levy of penalty u/s. 271 (1)(c) of the Act. A mere rejection of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars of income, by the assessee. When two views, are possible, no penalty can be imposed, is a principle that has been enunciated in the decision in the case of CIT v. P.K. Narayanan [1999] 238 ITR 905 (Ker) Hon’ble Punjab & Haryana High Court in the case of CIT vs. Ajaib Singh & Co. (2001) 170 CTR (P & H) 489: (2002) 253 ITR 630 (P & H) have observed that merely because certain expenses claimed by the assessee are disallowed by an authority, it cannot mean that particulars furnished by the assessee were wrong. It was held that mere disallowance of expenses per- se cannot be meant that assessee has furnished inaccurate particulars of its income. In the case under consideration, we find that the assessee had given all the particulars of income and had disclosed all facts to the AO. It is not the case of the AO or the assessee that in reply to the query of the AO, some new facts were discovered or the AO had dug out some information which was not furnished by the assessee. In such circumstances, Hon’ble Delhi High Court held in the case of CIT vs. Bacardi Martini India Ltd, 288 ITR 585 (Del) that no penalty was leviable. No cogent material or evidence was brought to our notice which may prove that the Revenue detected the concealment. In CIT vs. Harshvardhan Chemicals & Minerals Ltd (259 ITR 212) Hon’ble Rajasthan High Court upheld the finding of the Tribunal that when the assessee has claimed some amount though that is debatable in such cases, it cannot be said that the assessee has concealed any income or furnished inaccurate particulars for evasion of the tax. ”

In view of the above and since no contrary binding decision was cited by the revenue, penalty imposed by AO and sustained by Ld. CIT(A) is hereby deleted.”

11. In view of the above propositions and since no contrary binding decisions have been cited by the ld. DR to support the case of the Revenue, penalty imposed by the AO cannot be held as sustainable and the first appellate authority rightly deleted the same. Our conclusion also gets support from the landmark judgment of the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd [supra] and judgment of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. Brahmaputra Consortium Ltd. In wherein it was held that merely because claim of the assessee was not accepted or not found to be acceptable by the Revenue does not amount o concealment of particulars of income or furnishing of inaccurate particulars of income. Thus, we are unable to see any valid reason to interfere with the impugned order and accordingly uphold the same.

The order is pronounced in the open court on 01.02.2016.