2023 (10) TMI 89 - HC - Income Tax

Penalty u/s 271(1) (c) - sale tax exemptions were held to be a revenue receipt of the assessee company and addition was made to the total income of the assessee - HELD THAT - In the present case, the issue was, whether the sales tax exemption availed during the relevant year as capital receipt, was to be held as revenue in nature. Appellate Authority observed that the penalty for the assessment year 2005-2006 and 2006-2007 has been deleted by the CIT (Appeals). Reference was made to the judgment passed in CIT vs. Reliance Petroproducts Pvt. Ltd. 2010 (3) TMI 80 - SUPREME COURT wherein it was held that mere making of a claim, which is not sustainable in law, by itself, would not amount to furnishing inaccurate particulars of income. The penalty levied under Section 271 (1) (c) in the case of M/s Abhishek Industries Ltd. s case 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT on the identical issue has already been deleted by the CIT (A)-1, Ludhiana - In this backdrop, the appeal filed by the assessee (respondent herein) was allowed. Against the said order, the revenue preferred an appeal before the Income Tax Appellate Tribunal, Chandigarh, which was dismissed vide impugned order dated 28.01.2014 (Annexure A-4). In the present case, learned counsel for the respondent has referred to the judgment passed by this Court in M/s Amtek Auto Ltd. 2013 (6) TMI 133 - PUNJAB AND HARYANA HIGH COURT wherein it has been held that merely for the reason that the assessee had claimed the expenditure to be revenue would not render the assessee liable to penalty proceedings. In Commissioner of Income Tax vs. Gurdaspur Co-operative Sugar Mills Ltd. 2013 (3) TMI 175 - PUNJAB AND HARYANA HIGH COURT there was no dispute about the quantum of receipt of grant-in-aid from the State Government. The assessee had reflected the same as capital receipt, whereas it had been treated to be a revenue receipt. The Court observed that the issue, whether the amount of grant-in-aid was a capital receipt or a revenue receipt, was a debatable issue. In this backdrop, the penalty could not be imposed u/s 271 (1) (c) of the Act. No substantial question of law arises for consideration in this appeal, as the main issue was only with respect to the interpretation, as to whether the subsidy taken by the respondent-assessee was to be treated as revenue or capital and this would not amount to non disclosure of any source of income, which would be liable for imposition of penalty.

Summary

Issues Involved:
The judgment involves the interpretation of whether a sales tax exemption availed by the respondent-assessee should be treated as revenue or capital, leading to penalty proceedings under Section 271 (1) (c) of the Income Tax Act, 1961.

Issue 1 - Eligibility of Sales Tax Exemption:
The respondent-assessee, M/s Bhushan Power & Steel Ltd., set up a new unit in Hoogly, District Kolkata, and was granted sales tax remission under the West Bengal Incentive Scheme, 1993. The eligibility certificate issued by the Government of West Bengal entitled the company to sales tax remission for 12 years up to 100% of fixed capital investment.

Issue 2 - Assessment Year 2007-2008:
The respondent-assessee filed its income tax return for the assessment year 2007-2008, declaring total income and claiming a deduction for "Sales Tax exemption in the nature of capital subsidy." The Deputy Commissioner of Income Tax held that the sales tax exemption was a revenue receipt, resulting in an addition to the total income of the assessee and imposition of a penalty under Section 271 (1) (c) of the Income Tax Act.

Issue 3 - Appeal and Penalties:
The assessee appealed before the Commissioner of Income Tax (Central), Gurgaon, who allowed the appeal based on the nature of the sales tax exemption as a capital receipt. The Appellate Authority referred to relevant case law and deleted the penalty imposed under Section 271 (1) (c). The revenue appealed to the Income Tax Appellate Tribunal, Chandigarh, which dismissed the appeal citing similar decisions in previous years.

Issue 4 - Legal Precedents and Interpretation:
The Tribunal considered previous decisions related to sales tax subsidies and penalties, highlighting the importance of distinguishing between revenue and capital receipts. The counsel for the respondent referred to judgments emphasizing that claiming an expenditure as revenue does not automatically lead to penalty proceedings. The issue of whether a grant-in-aid is a capital or revenue receipt was deemed debatable, preventing the imposition of penalties under Section 271 (1) (c).

Issue 5 - Final Decision and Dismissal of Appeals:
The High Court upheld the Tribunal's decision, stating that as no appeal had been filed against the previous order on similar grounds, the matter had attained finality. It was concluded that no substantial question of law arose in the present appeals, as the main issue revolved around the interpretation of the subsidy as revenue or capital, not constituting non-disclosure of income sources warranting penalties.

In conclusion, the High Court dismissed the appeals (ITA Nos. 283, 270, and 276 of 2014) after considering the nature of the sales tax exemption, the application of penalties under the Income Tax Act, relevant legal precedents, and the distinction between revenue and capital receipts in the context of taxation.