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Income Tax Appellate Tribunal, PANAJI BENCH : PANAJI
Before: SHRI C.M. GARG & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH : PANAJI BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.396/PAN/2018 Assessment Year: 2004-05 Sesa Resources Limied Vs. ACIT, (Formerly V.S. Dempo & Co., Pvt. Circle-1(1), Aayakar Ltd.), Bhavan, Sesa Ghor, 20 EDC Complex, EDC Complex, Patto, Patto, Panaji, Panaji, Goa – 403 001. Goa. PAN: AAACV7160R
(Appellant) (Respondent) Assessee by : Shri Rajiv Khandelwal, CA Revenue by : Shri Ranjan Kumar, CIT, DR Date of Hearing : 16.06.2022 Date of Pronouncement : 01.09.2022 ORDER PER C.M. GARG, JM: This appeal has been filed by the assessee against the order of the CIT(A)- 2, Panaji, dated 12.07.2018 for Assessment Year 2004-05.
The grounds of appeal taken by the assessee read as under:- “1. Penalty under section 271(1) (c ):
ITA No.396/PAN/2018 The Learned Commissioner of Income Tax (Appeals) has erred in Confirming the penalty under section 271 (1) (c) of a sum of Rs.7,26,536/-. Your Appellant contends that the Assessee has neither concealed any particulars of income nor furnished any inaccurate particulars thereof. Your Petitioner prays for directions for deleting the penalty as above. 2. Your Petitioner craves leave to add, alter, amend or delete the above Ground of Appeal.”
Facts of the case, in brief, are that the assessee filed Return of Income on 30.10.2004 declaring an income of Rs. 27,02,46,493/-. The assessment was completed u/s 143(3) on 29.12.06, assessing the total income at Rs.28,32,86,241/- and making the following additions/disallowances:-
a) Long term capital loss of Rs. 1,88,00,739/- claimed by the assessee on transfer of shares in its subsidiary company Dempo Industries Pvt. Ltd., was disallowed, since the sale of shares to its subsidiary was not a transfer as defined in Sec. 47(iv) of the I.T. Act; and b) The assessee claimed deduction u/s 80HHC of Rs. 8,86,67,072/- against which the deduction allowed as per order u/s 143(3) was Rs. 7,56,27,324/-.The difference in deduction allowed u/s 80HHC was on account of exclusion of Interest income of Rs.1,66,46,940/- from profits
ITA No.396/PAN/2018 of Business & applying of explanation (baa) of Sec. 80HHC to the following receipts:- i) Sale of premises/construction receipts Rs. 2,43,05,846/- ii) Hire charges from transshipper Rs. 2,87,21,342/- iii) Barge Hire Charges Rs. 59,26,301/- iv) Other Services Rs. 72,54,918/- v) Miscellaneous Income Rs. 59,67,922/-
Penalty proceedings u/s 271(1)(c) was initiated on the above in the course of assessment proceedings u/s 143(3) and accordingly notice u/s 274 rws 271(1)(c) was issued on 29.12.06. The assessee filed appeal against the order u/s 143(3) which was decided by CIT(A) vide order in ITA No. 238/PNJ/06-07 dated 15.10.07, wherein the disallowance of long term Capital loss was confirmed. In respect of computation of deduction u/s 80HHC, the CIT(A) deleted the inclusions of Hire charges from transhipper, Barge Hire charges, other services & miscellaneous income for the purpose of explanation (baa) of Sec. 80HHC and also directed to include interest income as part of Business profit eligible for deduction u/s 80HHC. Against the order of CIT(A) the Department filed appeal before ITAT which was decided vide order in ITA No.253/PNJ/07 and the assessee’s appeal before ITAT was decided vide order in ITA No.246/PNJ/07 dated 22.12.08. The ITAT confirmed the disallowance of long term Capital loss claimed on transfer of shares of its subsidiary company. In respect of deduction
ITA No.396/PAN/2018 u/s 80HHC, the ITAT has confirmed the inclusion of construction receipts for the purpose of explanation (baa) to Sec. 80HHC.
The assessee was given an opportunity by the AO, vide letter dated 2.03.09 to file its submission as to why penalty u/s 271(1)(c) should not be levied in its case as initiated in the original assessment order dated 29.12.06. In response to the letter, the assessee filed a written submission vide its letter dated 05.03.09 which is being reproduced below as reproduced in the penalty order:- “This has reference to your letter ref. no. Penalty/ACIT(1)/PNJ/08-09 dated 2nd March 2009 fixing hearing of the subject matter on 9th March 2009. The penalty proceedings have been initiated for the following: 1. Long Term Capital Gain : The Assessee has claimed long term capital loss on sale of shares to its wholly owned subsidiary. We have to state that the assessee has neither concealed any particulars of income nor furnished inaccurate particulars of such income. Moreover there is no escapement of tax as the same has not been set off against any other income/gain either in the subject assessment year or any other subsequent assessment year. 2. Interest income: The Assessee treated interest income as business income whereas the same was assessed as income from other sources by the Assessing Authority and penalty proceedings were initiated. The issue is identical to that of the earlier assessment years and the contention of the Assessee has been upheld by the Hon’ble Income Tax Appellate Tribunal, (refer ITAT order dated 19th September 2007 in IT A 80/PNJ/2006 and 142/PNJ/2006 for A.Y.s 2002-03 and 2003-04 respectively). 3. Deduction under section 80HHC: The Assessing Authority applied the provisions of Explanation (baa) to certain receipts of income of the Assessee for the purpose of computation of deduction under section 80HHC. These receipts were as under:
ITA No.396/PAN/2018 a. Sale of premises b. Barge hire charges c. Other services d. Miscellaneous income e. Transhipper hire charges Except for sale of premises, the Assessee's contention has been upheld by the ITAT (refer ITAT order dated 19th September 2007 in IT A 80/PNJ/2006 and 142/PNJ/2006 for A.Y.s 2002-03 and 2003-04 respectively) and the claim of the Assessee has been restored, in respect of sale of premises, the issue is now before the Hon’ble High Court for disposal where it has been admitted as a question of law. The Assessee is confident of getting relief as claimed by the Assessee The issue involved is a legal question where the Assessing Authority has taken one view. In view thereof, the Assessee prays for directions to delete penalty proceedings initiated under section 271(1)(c) by the Assessing Authority.” 6. On consideration of the above submissions of the assessee, the AO accepted the contentions of the assessee in so far as the disallowance of long- term capital loss is concerned. As regards the claim of the assessee u/s 80HHC in respect of receipts from sale of premises, the AO imposed a penalty of Rs.7,26,536/-, by holding as under:-
“In respect of the receipts by way of sale of premises to be included by the A.O. in explanation (baa) to Sec. 80HHC as against the assessee’s treatment of the same as a part of export profits the assessee’s only contention is that the issue is before the Hon’ble High Court for disposal where it has been admitted as a question of law & the issue involved being a legal question, the penalty proceedings should be deleted. The assessee’s submission is considered but same is not accepted for the reasons discussed here under:-
ITA No.396/PAN/2018 Explanation (baa) to Sec. 80HHC, specifies that for the purpose of computation of deduction u/s 80HHC the profit of the business, means the profit of the business computed under the head “Profits & gains of business or profession” as reduced by 1) ninety per cent of any sum referred to in clauses (iiia) , (iiib), (iiic), (iiid) and (iiie) of section 28 or of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; The receipts from construction business amounting to Rs. 2,43,05,846/- is clearly covered under explanation (baa) to Sec. 80HHC, and is not related to the export business of the assessee. The receipts from construction business clearly falls under the category "other receipts” as specified in explanation (baa) to Sec. 80HHC. By including the construction receipts as part of the business profits from export the assessee sought to claim excess deduction u/s 80HHC by filing inaccurate particulars in the computation of deduction u/s 80HHC. The inclusion of construction receipts under explanation (baa) for purpose of computing deduction u/s 80HHC is confirmed both by the CIT(A) & ITAT & also in assessee’s own case for earlier assessment years - A.Y. 2002-03 & 2003-04. There is no requirement in law to prove mensreas as held by the 3 judge Bench of the Hon’bie Supreme Court in the case of Dharmendra Textile processors (overruling) the earlier 2 judge Bench decision in Dilip N. Shroff case, the object behind enactment of Sec.271(1)C r.w. explanation indicates that the said Sec. has been enacted to provide for a remedy for loss of revenue. The penalty under this provision is a Civil liability. Willful concealment is not an essential ingredient for attracting Civil liability as is the case of prosecution u/s 276C of the I.T. Act. Claiming of wrong or excessive deduction also amounts to concealment of income. Falsity in accounts can take either of 2 forms:
ITA No.396/PAN/2018 1) either a receipt may be suppressed fraudulently or an item of expenditure may be falsely (or in an exaggerated amount) claimed. Both types attempt to reduce the taxable income. Penalty may be imposed for either or both such attempts. In view of the above facts & circumstances, I hold that the assesses has furnished inaccurate particulars of its income by claiming excess deduction u/s 80HHC & accordingly order the levy of penalty u/s 271(1) C of the I.T. Act of a sum of Rs.7,26,536/-, being 100% of the tax sought to be evaded on the excess deduction claimed u/s 80HHC.”
In appeal, the ld.CIT(A) confirmed the penalty imposed by the AO of Rs.7,26,536/-.
Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us.
The ld. Counsel for the assessee, referring to the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd., reported in 322 ITR 158, submitted that the Hon’ble Supreme Court in the said decision has held that mere making of the claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee and, therefore, the penalty levied by the AO and sustained by the CIT(A) should be deleted. Precisely reiterating the written submissions filed by the assessee, the ld. AR also submitted that on the issue of exclusion of “sale of premises/construction receipts”, the Hon’ble High Court of Bombay admitted substantial question of law on the issue in quantum proceedings on the basis of which penalty was levied, then, penalty u/s 271(1)(c) of the Act has to be deleted
ITA No.396/PAN/2018 as per the judgement of Hon’ble jurisdictional High Court of Bombay in the case of CIT vs. Nayan Builders and Developers. He has also relied on the judgment of the Hon’ble High Court of Delhi in the case of PCIT vs. Harsh International (P) Ltd. and submitted that in the quantum appeal preferred by the assessee before the Hon’ble High Court substantial question of law was framed, thus, penalty was not leviable even if assessee lost its appeal before Hon’ble High Court vide order dated 02.04.2019 as the issue was debatable.
The ld. CIT-DR for the Revenue, on the other hand, relied on the order of the CIT(A).
We have considered the rival arguments made by both the sides and perused the material available on record. We find, the assessee while making its claim has furnished all particulars of such claim and, therefore, in view of the decision of the Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (supra), the penalty imposed by the AO on the basis of mere making of a claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee and, therefore, the penalty levied by the AO and sustained by the CIT(A) should be deleted.
Furthermore, in the present case undisputedly, the assessee preferred appeal before the Hon’ble High Court of Bombay which was admitted and substantial question of law was framed. Thus, the issue became debatable, hence,
ITA No.396/PAN/2018 as the issue become debatable, penalty on the same issue is not leviable on the assessee u/s 271(1)(c) of the Act as per judgements of Hon’ble jurisdictional High Court of Bombay in the case of CIT vs. Nayan Builders and Developers (supra) and the judgement of the Hon’ble Delhi High Court in the case of Harsh International (P) Ltd. (supra). Accordingly, we hold that the penalty was not leviable on the assessee u/s 271(1)(c) of the Act. The AO is directed to delete the penalty.
In the result, the appeal filed by the assessee is allowed. Order pronounced under Rule 34(4) of the IT(AT) Rules, 1963 on 01.09.2022 . Sd/- sd/- (GIRISH AGRAWAL) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 01st September, 2022. dk Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi