DCIT CEN CIR 36, MUMBAI vs. M/S. NIRAJ CEMENT STRUCTURALS LTD., MUMBAI

आदेश / O R D E R Per Ashwani Taneja (Accountant Member):

2 Niraj Cement Structurals Ltd. dated 01.11.2010, decided against the penalty order passed by the Assessing Officer (in short ‘AO’) u/s 271(1)(c) of the Act.

The solitary ground raised by the revenue is reproduced below:

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in holding that penalty u/s. 271(1)(c) of the I.T. Act, 1961 is not leviable in the present case as the action of the assessee to claim deduction u/s. 80IA(4) of the I.T. Act at the time of filing return of income was correct in view of legal position existing at that point of time when facts of the case point out the claim made was not bonafide even if legal position at the time of filing return of income is taken into consideration.

2. The appellant prays that the order of Commissioner of Income-tax (Appeal) on the above ground be set aside and that of the Assessing Officer be restored. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”

disallowed by him. Further, the assessee itself filed a revised computation of income during the course of assessment proceedings, withdrawing the claim of deduction u/s 80IA(4) of Act. Since the A.O. had made the disallowance of deduction, penalty proceedings u/s 271(1)(c) were initiated for furnishing inaccurate of income. A show cause notice u/s. 274 r.w.s. 271(1)(c) was issued and served by the AO on the assessee. It has been stated in the penalty order that in the penalty proceedings, none had appeared on behalf of the assessee nor any written reply was submitted, and therefore it was held by the A.O. that the assessee's case is fit for imposition of penalty u/s 271(1)(c), and accordingly, the AO levied a penalty of Rs. 2,82,84,790/- i.e. 100% of tax sought to be evaded.

2.1. The assessee contested the matter in first appeal before the Ld. CIT(A), wherein detailed written submissions were filed, which are reproduced herein:

“The appellant submits that the claim of deduction under section 80-IA(4) was a subject matter of dispute/debate having contrary views and the appellant having considered that it is eligible for claiming the deduction cannot be said to have either concealed the particulars of income or filed inaccurate particulars of such income. The appellant submits that in the case of ACIT V Bharat Udyog Ltd. ( 123 ITR TTJ 689 (TMum) it was held that assessee having entered into agreement with the Government agencies for deduction for development of projects is obviously a contract but that does not derogate the 4 Niraj Cement Structurals Ltd. assessee from being a developer and claim for deduction under section 80-IA(4) cannot be denied. The appellant submits that the Explanation to section 80-IA was inserted to remove the doubts. The appellant submits that the insertion of explanation proves that there was lack of clarity on the admissibility of the deduction under section 80-IA(4) by the contractor and which was clarified subsequently with retrospective effect. The appellant submits that it was under bonafide belief and on reading of the section as on the date of filing of return of income it claimed deduction under section 80-IA. The appellant filed its return of income on 29.11.2006 whereas the finance Act, 2007 received the assent of the President only on 12.5.2007, this included retrospective amendment to section 80-IA from 01.04.2000. The amendment also provides that this is clarify the position. The amendment would not have been necessary if there was full clarity. When the matter lacks clarity and the appellant makes a possible claim, it could not be said that the appellant had concealed the particulars of its income or filed inaccurate particulars thereof. If such a view is taken, in all the cases wherein there are two possible views, and an assessee takes one possible view which is not finally upheld, penalty under section 271(1)(c) would be imposed. This could never be the intention of the legislature. The appellant submits that the Notice which was issue for scrutiny assessment, only included a general query requiring the appellant to justify its claim for 5 Niraj Cement Structurals Ltd. deduction under section 80-IA without giving any specific reason or details The appellant considering the retrospective amendment suo moto filed a revised computation of total income withdrawing its claim for deduction under section 80-IA. The appellant submits that even while completing the assessment, the only reason for disallowance of claim for deduction under section 80-IA(4) is the retrospective amendment to the said provisions and relied on the following decisions: CIT V. Hindustan Electro Graphites Ltd. [( 2000) 243 ITR 48 (SC) ] Dilip N. Shroff V. Joint Commissioner of Income-tax [ (2007) 291 ITR 519(SC)] K.C. Builders V. Assistant Commissioner of Income tax [ (2004) 265 ITR 562 (SC)] CIT V. Indian Metals & Ferro Alloys Ltd. [(1994) 117 CTR 378 (Ori.)] CIT V. Ajaib Singh & Co. [(2002) 253 ITR 630 (Punj. & Har)] CIT V. Mussadilal Ram Bharose [ (1987) 165 ITR 14 (SC)]”

2.2. In the appellate proceedings, the Ld. CIT(A) called for a remand report from the AO, which was submitted vide letter dated 26.5.2010, the gist of which is reproduced as under:

"In this case, the assessee had filed its E-return on 29.11.2006 declaring total income at Nil after claiming deduction u/s. 80IA at Rs. 8,40,30,860/-. The said return of income was accepted u/s. 143(1) dated 24.12.2007.

6 Niraj Cement Structurals Ltd.

Subsequently, the case was selected for scrutiny and notice u/s. 143(2) and 142(1) were issued and served on the assessee. During the course of assessment proceedings, the Assessing Officer has observed that the assessee was a sub-contractor for projects of road construction and hence not eligible for deduction u/s. 80- IA as per Explanation inserted by the finance Act, 2007 with retrospective effect from 01.04.2007. Subsequently, the assessee filed revised computation withdrawing the claim of deduction u/s. 80-IA. The Assessing Officer has disallowed the claim of deduction u/s. 80-IA amounting to Rs. 8,40,30,860/- and initiated penalty proceedings u/s. 271(1)(c) for furnishing retrospective effect from 01.04.2007. Subsequently, the assessee filed revised computation withdrawing the claim of deduction u/s. 80- IA. The Assessing Officer has disallowed the claim of deduction u/s. 80-IA amounting to Rs. 8,40,30,860/- and initiated penalty proceedings u/s. 271(1)(c) for furnishing inaccurate particulars of income. The assessee did not prefer any appeal against the order u/s. 143(3) dated 22.12.2008. During the course penalty proceedings u/s. 271 (1)(c), the assessee had neither attended nor furnished any written submission in response to the show cause notice / final opportunity dated 22.12.2008 and 04.06.2009. Hence, the Assessing Officer found that the assessee's case was fit for imposition of penalty of Rs.2,82,84,790/- u/s. 271(1)( c) of the Act vide his order dated 18.06.2009.

7 Niraj Cement Structurals Ltd.

The assessee has submitted vide its letter dated 19.04.2010 before your honour that the General Manager Mr. Soni Agarwal, who looks after the tax matter was suffering from actual diarrhea and was not in position to come and attend penalty proceedings before the Assessing Officer. In that case, the Representative or the assessee should have informed this fact to the Assessing Officer. But, this was not done and the reason cited by it before your honour is an afterthought. Even during the recovery proceedings also, the assessee has not informed this fact to the Assessing Officer. The assessee furnished inaccurate particulars regarding the claim of deduction u/s. 80IA and remained intentionally silent till the same was unearthed by the Assessing Officer."

2.3. Thereafter, Ld. CIT(A) provided copy of remand report to the Assessee. In response to the remand report, detailed rejoinder was filed by the assessee, wherein, inter alia, it was reiterated that the assessee has filed the return of income on 29.11.2006 i.e. much before the amendment was made by the Finance Act, 2007, and relying upon the decision of Hon'ble Mumbai bench of ITAT, in the case of Bharat Udyog Ltd., supra. The assessee also relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs Hindustan Electro Graphite Ltd. 243 ITR 48, where it was held as under:

8 Niraj Cement Structurals Ltd.

"Held, dismissing the appeal, that where a return is filed the law applicable would be the law as it stood on the date of filing of the return. In the instant case, there was not even a bona fide mistake and in fact it was not a case where under some mistaken belief the assessee did not disclose the cash compensatory support received by it. It is true that income by way of cash compensatory support became taxable retrospectively with effect from April 1, 1967, but that was by an amendment of section 28 by the Finance Act of 1990, which amendment could not have been known before the Finance Act came into force. Levy of additional tax bears all the characteristics of penalty. Additional tax was levied as the assessee did not in his return show the income by way of cash compensatory support. After the assessee has filed its return of income, which was correct as per law on the date of filing of the return, the cash compensatory support also came within the sway of section 28. When additional tax has the imprint of penalty the Revenue cannot say that levy of additional tax is automatic under section 143{1A) of the Act. If additional tax could be levied in such circumstances it will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. In the circumstances of the present case, levy of additional tax taking into account the income by way of cash compensatory support was not warranted.

9 Niraj Cement Structurals Ltd.

Decision of the Madhya Pradesh High Court in CIT v. Hindustan Electro Graphite Ltd. [1998] 299 ITR 16 affirmed."

2.4 After considering the remand report of the AO, the submissions of the assessee and judgments relied upon by both the sides, the Ld. CIT(A) deleted the penalty. It is observed by us that detailed findings have been given by the Ld. CIT(A) while deleting the penalty, and these are in accordance with law, as was applicable on the facts of this case. It is noted by us, in view of the facts of this case, that the assessee had filed its return of income on 29.11.2006, whereas Finance Act, 2007 had amended the provisions of section 80-lA with retrospective effect from 1.4.2000. The Finance Act, 2007 received the assent of the President of India, only on 12.5.2007, thus apparently, the assessee could not have visualised the retrospective amendment in the law. Moreover, the assessee had filed its return of income relying upon the decision of Mumbai bench of ITAT in the case of ACIT vs Bharat Udyog Ltd 123 TTJ 689 (Mum), wherein it was held that an assessee having entered into an agreement with the Government agency for developing of its projects is obviously a contract that does not derogate that assessee from being a developer and claim for deduction u/s 80lA(4) by the said assessee, cannot be denied. Thus, in our considered view, it can certainly be said that claim made by the assessee at the time of filing of return was a bonafide claim and based upon

10 Niraj Cement Structurals Ltd. one of the possible views, as per law prevailing at the time of filing of return. With the objective of bringing its return in line with the amended law, as per the amendment made in section 80IA(4), the assessee had filed its revised computation of income during the course of assessment proceedings, withdrawing the claim of deduction u/s. 80-IA. Under these circumstances, the A.O. had held that the assesse had furnished inaccurate particulars of income by claiming deduction u/s 80-lA(4), and thereby concealed its income, and thus penalty was levied. In our considered view, it was neither a case of furnishing of inaccurate particulars of income nor that of concealment of income. The facts of the present case are squarely covered by the decision of Hon'ble Supreme Court in the case of CIT vs Hindustan Electro Graphite Ltd, supra, because the return was filed on 29.11.2006, before the amendment was made by the Finance Act, 2007 and approved by the Hon'ble President of India on 12.5.2007, with retrospective effect from 1.4.2000. Moreover, on the basis of retrospective amendment, the assessee had revised its computation during the assessment proceedings and withdrawn the deduction claimed u/s 80IA(4). Further, the assessee had filed its return relying on the decision of the Hon'ble Mumbai Tribunal in the case of Bharat Udyog Ltd. and Patel Engineering Ltd, supra. Thus, keeping in view all these facts and circumstances, the order of Ld CIT(A) in holding that the assessee did not conceal the particulars of income nor submitted any inaccurate particulars of income, is upheld. The claim of deduction u/s. 80IA(4) was made on the 11 Niraj Cement Structurals Ltd. basis of the decision of the Hon'ble Tribunal, and assessee was not aware of the amendment which was made by the Finance Act, 2007 much later than filing the return of income. In the facts and circumstances, it is held that the facts of this case are squarely covered by the aforesaid decision of Hon'ble Supreme Court, and therefore, it was not a fit case for levying penalty u/s. 271(1)(c), thus no interference is called for in the order of Ld CIT(A) in deleting the penalty levied by the A.O. for Rs. 2,82,84,790/-. Thus, order of Ld CIT(A) is upheld. The grounds raised by the Revenue are dismissed.