2016 (4) TMI 212 - AT - Income Tax

Penalty levied under section 271(1)(c) - sales tax exemption/ subsidy undisclosed - Held that - Assessee has made sufficient disclosure of the fact of claim of sales tax exemption/ subsidy before the Assessing Officer. In the same set of facts, the assessee is interpreting, benefit of sales tax as subsidy or incentive of capital nature, whereas the Revenue and the appellate authorities including Tribunal has held the benefit of sales tax as revenue in nature. But, we don t find that the assessee has concealed or furnished inaccurate particulars of income on the issue of claim of sales-tax exemption/subsidy. In the case of CIT versus Zoom communication (p) Ltd (2010 (5) TMI 34 - DELHI HIGH COURT ) it is held that if the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable for penalty under section 271(1)(c) of the Act , but in the facts of the case the claim is on the basis of certain notifications and the assessee has furnished explanations which cannot be said to malafide . In the case of CIT versus HCIL Kalindee Arsspl (2013 (8) TMI 245 - DELHI HIGH COURT ) also the Hon ble court has held that merely because the assessee complied with the statutory procedural requirement of filing the prescribed form and certificate of the chartered accountant, cannot absolve the assessee of its liability if the actor attempt in claiming the deduction was not bonafide. The facts of the case in hand are different from the facts of the case of CIT versus HCIL Kalindee Arsspl( supra). In the circumstances, we are of considered opinion, that no penalty for concealment or furnishing of inaccurate particulars of income on the issue in dispute can be levied under section 271 (1)(c) of the Act. - Decided in favour of assessee. Levy of penalty on disallowances on account of provision for gratuity - Held that - As regards the addition on account of provision for gratuity it is an admitted position that this sum was not added back in the original computation of income. It is also apparent that the aforesaid mistake was detected only in the revision proceedings u/s 263 of the Act; when assessee was directed to reconcile the difference of ₹ 1.81 crores under the head provision for gratuity between outstanding as per balance sheet and audit report. It is also matter of record that the notice u/s 263 of the Act was dated 3.1.2013 and omission to make the aforesaid addition was admitted only finally on 15.10.2013 u/s 143(3)/263 of the Act. Thus it s not a case of voluntary and suo moto disclosure of income. It is also not a case where the mistake can be said to be bonafide, as relevant evidences in the shape of ledger accounts were not furnished in the revision proceedings or reassessment proceedings. In such circumstances we cannot regard the mistake to be an inadvertent mistake or simple case of oversight. We therefore find justification in the imposition of penalty u/s 271(1)(c) of the Act - Decided against assessee. Levy of penalty u/s 271(1)(c) - additional deprecation claimed by the appellant u/s 32(1)(iia) in respect of computer software Primevera - Held that - On consideration of the facts we hold adequate and necessary disclosure in accordance with law were made by the appellant company in respect of claim of additional depreciation in the audited financial statement, tax audit report and return of income. Thus in the above back ground denial of claim of depreciation tantamount to an legal inference adopted on the facts by the assessee but that cannot be a ground to hold that assessee has either concealed income or furnished inaccurate particulars of income. As in the case of CIT v Rubber Udyog Vikas (P) Ltd. 2011 (2) TMI 858 - PUNJAB AND HARYANA HIGH COURT has held that making an incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assessee had acted with a mala fide intention or had claimed deductions being aware of the well settled legal position - - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of penalty levied under section 271(1)(c) of the Income-tax Act, 1961.
2. Penalty on addition of ?81.59 crores on account of sales tax incentive/subsidy.
3. Penalty on addition of ?88,00,001/- on account of provision for gratuity.
4. Penalty on addition of ?49,41,849/- on account of provision for gratuity under section 40A(7) of the Act.
5. Penalty on disallowance of ?5,91,106/- on account of additional depreciation claimed under section 32(1)(iia) of the Act.

Detailed Analysis:

1. Legality of Penalty Levied Under Section 271(1)(c):
The appellant contended that the penalty order was passed in undue haste without affording reasonable opportunity of being heard and without independent application of mind. The Tribunal noted that there is no bar in law to await the decision of quantum appeal to levy the penalty. The judgments cited by the appellant did not support the proposition that the penalty order was invalid due to the timing of its issuance. The Tribunal dismissed the grounds 1 to 1.3, agreeing with the lower authorities that the penalty order was validly passed.

2. Penalty on Addition of ?81.59 Crores on Account of Sales Tax Incentive/Subsidy:
The appellant argued that the addition made by the Assessing Officer was not sustainable and that appropriate disclosures were made in the financial statements. The Tribunal found that the issue of taxability of sales tax incentive/subsidy is a highly debatable legal issue, as evidenced by the admission of appeals on this issue by the High Court. The Tribunal referenced the judgments of the Delhi High Court in CIT v. Basti Sugar Mills Co. Ltd. and CIT v. HB Leasing and Finance Co. Ltd., which held that no penalty is leviable on debatable issues. The Tribunal concluded that no penalty for concealment or furnishing of inaccurate particulars of income on the issue of sales tax subsidy was warranted and allowed the relevant grounds of appeal.

3. Penalty on Addition of ?88,00,001/- on Account of Provision for Gratuity:
The appellant claimed that the omission to add back the reversal of provision for gratuity was a bonafide mistake. The Tribunal noted that the mistake was detected only in the revision proceedings under section 263 and was not voluntarily disclosed by the appellant. The Tribunal found that the mistake was not bonafide and upheld the imposition of penalty under section 271(1)(c) of the Act. The grounds No. 3 to 3.2 of the appeal were dismissed.

4. Penalty on Addition of ?49,41,849/- on Account of Provision for Gratuity Under Section 40A(7):
The Tribunal noted that the addition of ?49,41,849/- on account of provision for gratuity was already added back in the computation of income, and the penalty was imposed erroneously. The Tribunal deleted the addition and consequently, the penalty levied on this sum. The grounds No. 4 to 4.2 of the appeal were allowed.

5. Penalty on Disallowance of ?5,91,106/- on Account of Additional Depreciation Claimed Under Section 32(1)(iia):
The appellant argued that the additional depreciation was claimed based on tax audit report and was duly disclosed in the financial statements. The Tribunal found that adequate and necessary disclosures were made by the appellant in accordance with law. The Tribunal referenced the judgments of the Bombay High Court in CIT v. Somany Evergreen Knits Ltd. and the Punjab and Haryana High Court in CIT v. Rubber Udyog Vikas (P) Ltd., which held that no penalty is leviable for incorrect claims made on a bonafide basis. The Tribunal concluded that no penalty was warranted for the disallowance of additional depreciation and allowed the relevant grounds of appeal.

Conclusion:
The appeal of the assessee was partly allowed. The Tribunal upheld the penalty on the addition of ?88,00,001/- on account of provision for gratuity but deleted the penalties on the other contested additions. The decision was pronounced in the open court on 31st March, 2016.