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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: HON’BLE SHRI SANDEEP GOSAINvk;dj vihy la-@ITA No. 402/JP/2022
vkns'k@ ORDER PER: SANDEEP GOSAIN, J.M.
This appeal by the assessee is directed against the order of ld. CIT (Appeals), National Faceless Appeal Centre, Delhi dated 09.09.2022 for the assessment year 2014-15. The assessee has raised the following grounds of appeal :-
1. On the facts and in the circumstances of the case and in the law the Commissioner of Income Tax (Appeals), NFAC, Delhi, has erred in confirming the penalty u/s 271(1)(c) of Rs. 7,81,660/-, without considering the fact that income assessed u/s 143(3) is Nil and assessed u/s 143(3) w.r.s. 263 is also Nil. The difference in carry forward losses due to Addition in income of subsidy received from Government, however, the same has already being offered for taxation in the next assessment year i.e. 2015-16 in the income tax return filed on 25.09.2015 when the subsidy was actually received. The DCIT had issued notice u/s 263 on 02.07.2019 for addition of subsidy received from Government as income for AY 2014-15. The appellant prays that the said penalty be deleted.
2. On the facts and in the circumstances of the case and in law the Commissioner of Income Tax (Appeals), NFAC, Delhi, has erred in confirming the penalty on the basis of “no appeal was filed by the appellant against the assessment order from which the penalty proceedings originated. The appellant has not contested the assessment order and has accepted the assessment order”
The assessee has not file an appeal due to Not Tax Demand and appellant has rectified the losses for AY 2015-16 as per updated assessment order which has no impact of income or losses of the appellant and hence appellant has not file an appeal against order u/s 143(3) r.w.s. 263.
The appellant craves leave to add/alter any of the grounds of appeal before or at the time of hearing.
2. The brief facts of the case are that penalty under section 271(1)(c) of the Income Tax Act, 1961 was initiated against the assessee on the ground that the assessee had received an amount of Rs. 30,05,184/- from Rajasthan State Government under the Scheme of Rajasthan Investment Promotion Scheme 2010 as Investment and Employment subsidy, which according to the revenue was found added in Capital Reserve Account instead of being credited it in Profit and Loss account. Apart from this, revenue also noticed that an amount of Rs. 6,07,524/- was also taken by the assessee to the Capital Reserve Account being subsidy received under CLSS (Credit Linked Capital Subsidy Scheme) which was also to be deducted from the value of asset on which the subsidy received and depreciation on such asset were to be allowed accordingly, and on these grounds penalty of Rs. 7,81,660/- was levied vide order dated 01.02.2022. Aggrieved by the said order, assessee preferred appeal before the ld. CIT (A) and the ld. CIT (A) dismissed the appeal of the assessee by holding that since the assessee had not contested the assessment order and has accepted the assessment order, therefore, the act of not contesting the assessment order goes to prove that the ‘mens rea’ on the part of the assessee. Consequently the appeal of the assessee was dismissed.
3. Now before us, the ld. A/R of the assessee has reiterated the same arguments as were raised by him before the ld. CIT (A) and also before the A.O. and has also relied upon a detailed written submissions, the same are reproduced below :- “ 1.The Appellant, proprietorship firm M/s G. R. Industries was amanufacturer of MS Sariya, MS Angel, MS Bar etc. He had started the business in 2010 and closed the factory in 2014 due to continuous losses in the factory. 2. The Appellant had filed his return of income for the Assessment Year 2014-15 on 30th November2014 declaring total Loss of Rs. 40,37,084/-. The Assessment under section 143(3) of Income Tax Act 1961 for the said Assessment Yearhad been completed on 15.12.2016 by the ACIT, Circle 4 by assessingLoss of Rs. 40,37,084/-. 3. The Notice u/s 142(1) read with section 263were issued to the Appellant by the DCIT, Circle 4 on 02.07.2019 and the said assessment u/s 143(3)/263 had been completed by assessing loss ofRs. 9,40,770/-.
4. The Appellant has received Show cause notice for penalty under section 271(1)(C) of the Income Tax Act, 1961 from National E assessment Centre – Delhi on 11.03.2021. The Appellant has submittedsuitable reply mentioning that the subsidy received from government has already offered for Taxation in the next assessment year when all the conditions were satisfied related to subsidy and hence intention of the assesse was not to conceal any income or to furnish any inaccurate particulars of income. 5. The Ld. DCIT had issued order u/s 270(1)(c) and imposed penalty of Rs.7,18,660. The Ld. DCIT has erred to impose penalty u/s 271(1)(c) despite the following facts: (i) The Appellant has already offered the Subsidy received from government as Income in the next assessment year i.e. 2015-16 when conditions of subsidy were satisfied.We were showing the subsidy received from the government under the head “RIPS Capital Investment Subsidy” under reserve and surplus in the Balance Sheet.We have 4 Shri Aman Goyal, Jaipur. recognized the Subsidy Income as per Accounting Standard 12, “Accounting for Government Grants”. HenceIt cannot be said thatthe appellant has not furnished any inaccurate particulars of income or concealany income.
(ii) Intention of the assesse was not malafied, reason being there were Loss in both the assessment years and no tax liability. The details of losses are as under:
AY 2014-15 AY 2015-16 Income assessed u/s Income Assessed Income Assessed Income as per 143(3) Dt U/s 143(3)/263 Dt. (Original) (Income rectification (If 15.12.2016 24.10.2019 considered in income Current Year) considered in Previous AY) When subsidy Subsidy Income Subsidy Income Subsidy income income effect not effect for Rs. effect taken. effect not taken given in this year. 30,96,314 Given Loss of Rs. Loss of Rs. Loss of Rs. Loss of Rs. 40,37,084/- 9,40,770/- 55,57,269/- 86,83,582/- Difference Rs. 30,96,314/- Difference Rs. 30,96,314/- Tax = Nil Tax = Nil Tax= Nil Tax= Nil
6. Aggrieved by this order,the Company preferred an appeal with CIT Appeal (NATIONAL FACELESS APPEAL CENTRE) and filed required documents for the same. The appeal was dismissed with reasons that no appeal was filed by the Appellant against the assessment order form which the penalty proceedings originated.therefore, it is clear that there has been an intention of the Appellant to defraud revenue and evade tax.
The Appellant had not preferred to file an appeal before Commissioner of Income Tax (Appeal) for order passed u/s 143(3)/263 to avoid cost of legal expenditure, to avoid multiplicity of litigation and peace of mind.
As mentioned in Point 5, since there is not tax liability due to heavy losses and there would not be any tax difference by offering any income in difference assessment years as the appellant can get benefit of setting of the loss which would result in no tax liability and hence it cannot be said that the intention of the appellant was to evade any taxes.
5 Shri Aman Goyal, Jaipur.
As also mentioned in Point 5, the Appellant has recognized the subsidy Income as per AS-12 “Accounting for Government Grant” issued by Institute of Chartered Accountants of India. The Appellant has recognized the subsidy as capital received in the Books of Account shown the same under the head “RIPS Capital Investment Subsidy” in reserve and surplus in the Balance Sheet. The Appellant cannot recognised the subsidy as Income in the Assessment Year 2014-15 as the condition for availing the subsidy benefit was not completed. In the Assessment Year all conditions for availing the subsidy benefits had been fulfilled therefore we had recognized the subsidy as Income in the next assessment year i.e. 2015-16. Hence It cannot be said that the Appellant has hided anything or furnished inaccurate particulars as the Income had already been offered before opening of any assessment and disclosed in the financial statement of the Appellant.
Supreme Court in case of Sir Shadilal Sugar Mills (168 ITR 705) held that there may be a hundred and one reasons for not protesting and agreeing to an addition but that does not follow to the conclusion that the amount agreed to be added was concealed income. Indeed, there may be numerous reasons with the tax payer for not approaching the first appellate authority for justice, for example the following:
(i) To avoid the pains of further litigations, numerous hearings and mental tensionsborne in it; (ii) The risk of enhancement at the first appellate authority on various technical issues; (iii) Nowadays commonly seen attitude of assessment in Appellate proceedings; (iv) Heavy litigation cost of Representatives; (v) Withdrawn of appeal at instance of Appellant is the discretion of Appellate authority.
The Appellant has incurred losses and after disallowance of the loss the result is also loss hence it cannot be said that the assessee has evaded tax and a. Jaipur Bench in the case of Indo German Electricals v. ITO had held that where total income is assessed at a loss, no penalty under Section 271(1)(c) is leviable.
b. The Hon'ble Allahabad High Court in the case of Indo-Gulf Fertilizers & Chemicals Corporation Ltd. v. Union of India and Anr. had laid down a ratio that income means positive income and it does not mean a case of overall loss. No doubt it was a question of levy of additional income-tax under Section 143(1A), yet the point involved was the same as to whether even after certain additions the overall result was loss. c. Bombay Bench of the Tribunal in the case of Star Galvanizers v. Asstt. CIT (1990) 38 TTJ (Bom) 12 held that where the assessee was assessed at a loss even often the addition of concealed income provisions of Section 271(1)(c) were not attracted. d. Likewise again the Bombay Bench in the case of Mutual Plastics v. ITO (1989) 35 TTJ (Bom) 467 had held that the Expln. 4 (a) to Section 271(1)(c) deals with cases of positive income only and it does not specifically provide for levy of any penalty in case of assessed loss. Accordingly, in the said case, penalty imposed was deleted. e. Again Ahmedabad Bench in the case of H.T. Power Structures (P) Ltd. v. Asstt. CIT (1993) 47 TTJ (Ahd) 146 : (1993) 45 ITD 571 (Ahd) had held that where the assessment had resulted in a loss, penalty under Section 271(1)(c) would not be leviable even on the basis of Expln. 4 to Section 271(1)(c) as inserted w.e.f. 1st April, 1976.”
On the other hand, the ld. D/R relied upon the orders passed by the Revenue Authorities.
After having heard the ld. Counsels of both the parties at length and after perusal of the material placed on record and orders passed by the revenue authorities, we noticed that as far as the amount of subsidy of Rs. 6,07,524/- is concerned, in this regard the ld. A/R has categorically submitted that the assessee has not received the said subsidy till date and in this regard the ld. A/R placed on record duly signed and attested affidavit of the assessee wherein it is specifically submitted that assessee has not received the subsidy of Rs. 6,07,524/-. The said affidavit was un-rebutted and no counter affidavit has been filed by the revenue.
Therefore, in these circumstances, we are of the view that no penalty proceedings could have been initiated against the assessee once it is established that assessee has not even received the subsidy of Rs. 6,07,524/-. However, as far as the second issue of receipt of subsidy of Rs. 30,05,184/- is concerned, in this regard it has been specifically submitted by the ld. A/R that the assessee has already offered the said subsidy received from the Government of Rajasthan as Income in the next assessment year i.e. 2015-16, when conditions of subsidy were satisfied. As per the ld. A/R, the assessee was showing the subsidy received from the Government under the head “RIPS Capital Investment Subsidy” under reserve and surplus in the Balance Sheet and since the assessee has recognized the subsidy income as per Accounting Standard 12, therefore, it cannot be said that assessee has furnished any inaccurate particulars of income or concealed any income. It was submitted that since the assessee could not recognize the subsidy as Income in the assessment year 2014-15 as the condition for availing the subsidy benefit was not completed and as soon as the condition for availing the subsidy benefit was fulfilled in the subsequent assessment year, the assessee has recognized the said subsidy as Income in the next assessment year 2015-16. Therefore, in any eventuality it cannot be held that assessee had hidden anything or furnished inaccurate particulars of income as the income had already been offered before opening of any assessment and disclosed in the financial statement of the assessee. The ld. A/R submitted that the intention of the assessee was not malafide as there were losses in both the assessment years and no tax liability had accrued. The details of losses have already been placed on record in both the assessment years and the same are also reproduced below :-
A.Y. 2014-15 A.Y. 2015-16 Income assessed Income Assessed Income Assessed Income as per u/s 143(3) dt. u/s 143(3)/263 dt. (original)(Income rectification (If 15.12.2016 24.10.2019. considered in income considered Current Year) in Previous AY)
When subsidy Subsidy Income Subsidy Income Subsidy income income effect not effect for Rs. effect taken. effect not taken given in this year. 30,96,314 Given Loss of Rs. Loss of Rs. Loss of Rs. Loss of Rs. 40,37,084/- 9,40,770/- 55,57,269/- 86,83,582/- Difference Rs. 30,96,314/- Difference Rs. 30,96,314/- Tax = Nil Tax = Nil Tax = Nil Tax = Nil
After having gone through the contention of both the parties and after meticulously going through the documents placed on record, we find that the first Appellate Authority has dismissed the appeal of the assessee merely by holding that no appeal was filed by the assessee against the assessment order from which the penalty proceedings originated, therefore, it is clear that there has been an intention of the assessee to defraud and evade tax. In our view, the said finding recorded by the first appellate authority is not in accordance with law as there may be hundred and one reasons for not protesting and agreeing to an addition but that does not leads to the conclusion that the amount agreed to be added was concealed income.
Indeed, there may be numerous reasons with the tax payer for not approaching the first Appellate Authority for justice. While reaching to the said conclusion, we drew strength from the decision of Hon’ble Supreme Court in the case of Sir Shadilal Sugar Mills, 168 ITR 705 (SC) wherein it was held that there may be a hundred and one reasons for not protesting and agreeing to an addition but that does not follow to the conclusion that the amount agreed to be added was concealed income.
Indeed, there may be numerous reasons with the tax payer for not approaching the first appellate authority for justice, for example the following :
(i) To avoid the pains of further litigations, numerous hearings and mental tensions borne in it ; (ii) The risk of enhancement at the first appellate authority on various technical issues ; (iii) Now a days commonly seen attitude of assessment in Appellate proceedings; (iv) Heavy litigation cost of Representatives; (v) Withdrawn of appeal at instance of Appellant is the discretion of Appellate Authority.
From the records, we also appreciate that assessee had incurred losses and after disallowance of loss the result is also loss. Therefore, in such circumstances, it cannot be said that the assessee had evaded tax and concealed any income. In this regard various courts and the coordinate benches of the ITAT under the similar set of facts had reached to the conclusion that no penalty under section 271(1)(c) is leviable and in this regard we rely on the decision of –
(a) Jaipur Bench in the case of Indo German Electricals v. ITO had held that where total income is assessed at a loss, no penalty under section 271(1)(c) is leviable.
(b) The Hon’ble Allahabad High Court in the case of Indo-Gulf Fertilizers &
Chemicals Corporation Ltd. v. Union of India and Anr. Had laid down a ratio that income means positive income and it does not mean a case of overall loss. No doubt it was a question of levy of additional income-tax under section 143(1A), yet the point involved was the same as to whether even after certain additions the overall result was loss.
(c) Bombay Bench of the Tribunal in the case of Star Galvanizers v. Asstt. CIT
(1990) 38 TTJ (Bom.) held that where the assessee was assessed at a loss even often the addition of concealed income provisions of section 271(1)(c) were not attracted.
(d) Likewise again the Bombay Bench in the case of Mutual Plastics v. ITO
(1989) 35 TTJ (Bom.) 467 had held that the Expln. 4(a) to Section 271(1)(c) deals with cases of positive income only and it does not specifically provide for levy of any penalty in case of assessed loss.
Accordingly, in the said case, penalty imposed was deleted. (e) Again Ahmedabad Bench in the case of H.T. Power Structures (P) Ltd. v. Asstt. CIT (1993) 47 TTJ (Ahd) 146 : (1993) 45 ITD 571 (Ahd) had held
11 Shri Aman Goyal, Jaipur. that where the assessment had resulted in a loss, penalty under section 271(1)(c) would not be leviable even on the basis of Expln. 4 to Section 271(1)(c) as inserted w.e.f. 1st April, 1976.”
Therefore, considering the decisions of Hon’ble High Court and also of the coordinate benches of the Tribunal, we are of the view that no penalty is leviable on the assessee. We delete the penalty. 7. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 2/03/2023.
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सहायक पंजीकार@Aेेज. त्महपेजतंत