OSHO FORGE LTD.,LUDHIANA vs. DCIT, LUDHIANA

Though the Assessee has taken 06 grounds of appeal wherein it has challenged number of issues namely (a) service of penalty notice

1. 523 -Chd-2024- Osho Forge Ltd., Ludhiana 2 was not as per the procedure, (b) CIT(A) failed to provide adequate opportunity of hearing to the Assessee, (c) CIT(A) failed to serve the order passed u/s 250 on the Assessee, and (d) CIT(A) has erred in confirming the penalty levied u/s Section 271 (1) (c) of the Act by the Assessing Officer.

The Assessing Officer has imposed a penalty of Rs. 1,44,923/-

The appeal to the ld. CIT(A) did not bring any relief to the Assessee.

A perusal of the assessment order would reveal that addition of Rs. 2,66,629/- was made by the A.O. on the ground that during the period of establishment of industry, Assessee has capitalized the interest expenditure at Rs. 38,99,089/-. The dispute arose on account of interest capitalized for the loan taken from PNB amounting to Rs. 15 lacs. The Assessee has capitalized interest expenditure at Rs. 1,61,249/- whereas, Assessing Officer held that such interest ought to have been capitalized at Rs. 2,66,629/-.

The second item of addition in the assessment relates to an issue namely non-deduction of closing stock of the spares by the value of scrap arising out of old spares and stock. The A.O. has estimated such value at Rs. 2 lacs and made the addition.

With the assistance of the ld. Representatives, we have gone through the record carefully. Section 271(1)(c) of the Income Tax Act, 1961 has direct bearing on the controversy. Therefore, it is pertinent to take note of the section.

A bare perusal of this section would reveal that for visiting any assessee with the penalty, the Assessing Officer or the Learned CIT (Appeals) during the course of any proceedings before them should be satisfied that the assessee has; (i) concealed his income or furnished inaccurate particulars of income. As far as the quantification of the 523 -Chd-2024- Osho Forge Ltd., Ludhiana 5 penalty is concerned, the penalty imposed under this section can range in between 100% to 300% of the tax sought to be evaded by the assessee, as a result of such concealment of income or furnishing inaccurate particulars. The other most important featuresof this section is deeming provisions regarding concealment of income. The section not only covered the situation in which the assessee has concealed the income or furnished inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for concealment of income comes into play. This deeming fiction, by way of Explanation I to section 271(1)(c) postulates two situations; (a) first whether in respect of any facts material to the computation of the total income under the provisions of the Act, the assessee fails to offer an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or Learned CIT(Appeal); and, (b) where in respect of any fact, material to the computation of total income under the provisions of the Act, the assessee is not able to substantiate the explanation and the assessee fails, to prove that such explanation is bona fide and that the assessee had disclosed all the facts relating to the same and material to the computation of the total income. Under first situation, the deeming fiction would come to play if the assessee failed to give any explanation with respect to any fact material to the computation of total income or by action of the Assessing Officer or the Learned CIT(Appeals) by 523 -Chd-2024- Osho Forge Ltd., Ludhiana 6 giving a categorical finding to the effect that explanation given by the assessee is false. In the second situation, the deeming fiction would come to play by the failure of the assessee to substantiate his explanation in respect of any fact material to the computation of total income and in addition to this the assessee is not able to prove that such explanation was given bona fide and all the facts relating to the same and material to the computation of the total income have been disclosed by the assessee. These two situations provided in Explanation 1 appended to section 271(1)(c) makes it clear that that when this deeming fiction comes into play in the above two situations then the related addition or disallowance in computing the total income of the assessee for the purpose of section 271(1)(c) would be deemed to be representing the income in respect of which inaccurate particulars have been furnished.

In the light of the above, if we examine the facts then it would reveal that first addition is on account of difference in opinion between the Assessing Officer as well as the Assessee. The Assessee has neither furnished inaccurate particulars nor concealed the material. The Assessee was of the view that interest on the loan from PNB should be capitalized at Rs. 1,61,000/- whereas, the Assessing Officer was of the view that it should be Rs. 2.66 lacs. We are of the view that 523 -Chd-2024- Osho Forge Ltd., Ludhiana 7 for such a calculation, Assessee does not deserves to be visited with penalty.

As far as second item is concerned, it would reveal that Assessee has claimed expenditure of Rs. 2,30,01,423/- and Rs. 1,35,63,514/- under the head ‘stock, spares and machinery requirement’. The Assessing Officer did not dispute about the incurrence of this expenditure. His area of dispute is that the scrap value has not been reduced in the closing stock. The ld. Counsel for the Assessee at the time of hearing pointed out that this addition was made in the original assessment dated 24.12.2010 and the A.O. has not recommended of initiation of penalty on this item. According to him, this aspect was not revised by CIT revisional order u/s 263. We are of the view that though in the fresh assessment order penalty has been initiated on this item also but this is not an item for which the penalty is to be visited upon the Assessee because it was an estimated addition made by the A.O. He has not pinpointed as to how, which error has been committed by the Assessee. Therefore, in our mind the Assessee does not deserve to be visited with penalty. Since we have arrived at the conclusion that penalty on merit is not imposed upon the Assessee, therefore, we are not examining the other peripheral issues, namely the ld. A.O. erred in issuance of notice u/s 274 r.w.s. 271 (1)(c) or non-service of the order passed by the CIT(A).

Appeal of the Assessee is allowed and penalty is deleted.