9911796707
TMI Blog2016 (4) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohtak, sustaining the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 (for short "the Act") by the Assessing Officer. The grounds of appeal raised by the assessee are as under: "1 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer in levying penalty of ₹ 28,24,94,177/- u/s 271(1)I(c) of the Income Tax Act' 1961 ("the Act"), which is illegal and bad in and law. 1.1 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, without appreciating that the penalty order was passed in undue haste resulting in avoidable multiplicity of proceedings, which is unwarranted in law 1.2 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, without appreciating that the penalty order was passed without affording reasonable opportunity of being heard to the appellant. 1.3 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a bonafide/clerical mistake, which was suo motu accepted by appellant in quantum as well as penalty proceedings, and no appeal in respect of such disallowance was filed by appellant. 3.2 That the CIT(A) erred on facts and in law in upholding the aforesaid action of the Assessing Officer, without appreciating that there was no concealment or furnishing of inaccurate particulars of income qua the aforesaid disallowance. 4 That the CIT(A) erred on facts and in law in upholding the action of the Assessing Officer in levying penalty under section 271(1)(c) in respect of the addition of ₹ 49,41,849/- on account of provision for gratuity under section 40A(7) of the Act 4.1 That the CIT(A) erred on facts and in law in upholding the penalty imposed by the Assessing Officer, without appreciating that the aforesaid addition was itself legally unsustainable in as much as the aforesaid amount was already added back in the computation of income and therefore, there was no warrant to levy any penalty in respect of the same under section 271(1)(c) of the Act. 4.2 That on the facts and in the circumstances of the case, the CIT(A) erred in law in upholding the aforesaid action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of disallowance of additional depreciation on computer software 3. Simultaneously, penalty proceeding u/s 271(1)(c) of the Act were initiated on account of concealment of income as well as for furnishing of inaccurate particulars of income by the assessee company. A detailed show cause notice dated 19.9.2013 was issued and served on the assessee company. The assessee vide reply dated 24.10.2013 prayed for keeping the proceedings in abeyance, by making a reference to provisions u/s 275(1A) of the Act. The AO however intimated that it would not be possible to keep the penalty proceedings in abeyance till the disposal of appeal against quantum additions, pending before the CIT(A). Further in the written reply dated 24.10.2013 and 15.11.2013 assessee contended that notice is defective as it does not indicate the additions for which the notice is issued and what are the defaults and what are the inaccurate particulars with details of such particulars of concealment of income; submissions were made to the effect that there was no justification for imposition of penalty. Subsequently in an order dated 28.11.2013, the AO levied penalty of ₹ 28,21,94,177/- u/s 271(1)(c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was also informed to the Assessing Officer that the appellant was in process of filing an appeal against fresh assessment order passed u/s 143(3)/263 of the Act before the CIT(A). It was submitted on merits that the Assessing Officer for reasons best known to him, rejected the aforesaid application filed by assessee and directed the assessee to furnish submissions on merit. It was also submitted that the aforesaid action of the Assessing Officer in hastily proceeding to pass the penalty order, without waiting for adjudication of quantum proceedings was unjustified and erroneous in terms of proviso to clause (a) to sub section (1) of section 275 of the Act. Reliance was placed on the judgments in the cases of CIT v Surendra Gulabchand Modi 140 ITR 517 (Guj) and CIT v Wander (P) Ltd. 358 ITR 408 (Bom). It was submitted that since the penalty order was passed by the Assessing Officer on the basis of findings given in the fresh assessment order, which in turn is based on the order passed under section 263 of the Act, without any independent application of mind and without considering that the penalty proceedings are separate and independent from assessment proceedings, the said pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .59 Cr. was shown as 'Sales Tax Subsidy' - 'Capital Reserve' under the head 'Reserves and Surplus' in Schedule-2 of the Balance-Sheet as on 31.03.2008. It was also noticed that this was the first year of such practice (of taking 'Sales Tax Subsidy' to the reserve). 2.2 The close scrutiny revealed that this money was not received from the State Govt. In fact, one industrial unit of the assessee company has been .granted exemption, from levy of sales tax. The assessee, therefore, raised invoices on purchasers of the material (manufactured by the said industrial unit) without any component of sales tax In it. During the year, in normal course, the entire amount of sales proceeds were credited as revenue to the Profit & Loss account. However, at the financial year end (taxable) profit has been reduced by passing Journal entry for appropriation (Rs.81.50 crore) as 'Sales Tax Subsidy'. 2.3.1 It was seen that this Sales Tax exemption has been available to assessee in earlier years also, but there was.-no practice to take a part of sales (treating it, in the year end, as 'Sales tax Subsidy') to the Balance Sheet. Instead, a deduction of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade receipts and (Iii) the notification granting exemption from the sales tax to the assessee is not linked to any 'scheme' of giving money (subsidy), directly or indirectly). 2.6 During the assessment proceedings (u/s 143 r.w.s. 263), the explanations offered by the assesses in this regard were found to be without any basis/ unconvincing/ un-acceptable/ un-substantiated and hence, were rejected. 2.7.1 In view of the above, it is clear that the assessee not only furnished inaccurate particulars of the income to the above extent of 81,58,94,102/- but also concealed particulars of income to the said extent 2.7.2 The assesses has failed to substantiate the explanations offered by it. The assessee also, failed to discharge the onus, cast upon It by the law, to prove that the explanations were bona-fide. Also, assessee did not discharge the onus, cast upon it by the law, to prove that all the facts relating to the said income an material to the computation of total income of the assessee have been disclosed by the assessee, On the contrary, as may be seen from the above, assessee did not specifically point out the deviation, in the practice, made for the first time. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'sales tax subsidy' was being claimed by the assessee in the computation of income. It was thus concluded that reasons behind the mentioning of above receipt in the schedule attached to the balance sheet are self speaking and had the conduct of the assessee been honest, it was quite expected of the assessee that such an important deviation in the practice adopted in earlier years should have been mentioned as a note accompanying the computation of income. Further the AO held that letter dated 12.11.2010 in the original assessment proceedings was only in respect of amount of ₹ 48,39,36,937/- which comprised of two figures (i) ₹ 17,28,48,148/- for entry tax subsidy and (ii) 31,10,88,789/- for electricity duty subsidy. The AO thus has held that; "a) The preposition that the sales proceeds contain (hypothetical) sales tax 'Subsidy' is a stretch of imagination apparently to evade tax. b) The assessee changed its method of accounting for sales - tax 'Subsidy', in the year under consideration apparently with the malifide intention of escaping the issue from the notice of the revenue. c) There was a calculated attempt though unsuccessful, to evade the payment of tax on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty order has dealt with how the assessee's attempts at seeking to evade payment of tax on the amount which was part of sales proceeds but termed as "Sales Tax Subsidy" by reducing it from taxable profit through passing of a general entry having an overall effect of taking ₹ 81.59 Crores out of the tax net. Therefore, in the entire proceedings, the appellant has been trying to cloud the issue by taking recourse to inadequate explanation. Mens rea has been proved in this case without doubt. Hence, this ground of appeal is dismissed." 6.5 Before us, the learned Authorized Representative submitted as under: "a) Addition made by the Assessing Officer in the assessment order on account of treatment of sales tax incentive is not sustainable in the first place; b) No concealment/furnishing of inaccurate particulars of income in the present case, since appropriate disclosures of the accounting treatment in respect of sales tax incentive were given in the notes forming integral part of the audited financial statements as well as by the statutory auditor in the audit report; c) Non inclusion of the amount of sales tax subsidy was specifically mentioned by the tax auditor in poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer, since the same was specifically disclosed and discussed by assessee before the Assessing Officer during the course of assessment proceedings in the manner hereunder: a) In the audited accounts for the relevant assessment year, the incentive availed by the applicant on account of sales tax exemption, being in the nature of capital receipt, was separately shown as under the sub-head "Sales Tax Subsidy/ Capital Reserve" in Schedule 2 " Reserve and Surplus". The aforesaid accounting treatment, it is submitted, was done strictly in compliance with the AS-12 dealing with 'Accounting for Government Grants" issued by the ICAI read along with the opinions on the subject of the Expert Advisory Committee and reported in the compendium of opinions. b) The aforesaid accounting treatment was duly explained vide note No.5 of Notes to Account in Schedule- 20, forming part of audited financial statements, as under: "5 One of the Company's expansion units is eligible or sales tax exemption owing to the investment in capital assets under the State Industrial Policy which aim towards the objective of industrialization of the state and development of back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: a) The aforesaid claim was, for the first time, made in the assessment years 2002-03 to 2004-05. In fact, in the said assessment years, exemption of sales tax incentive was claimed as capital receipt by way of additional ground of appeal before the CIT(A), since the time limit for filing revised return had expired. The application so filed by the appellant for admission of additional grounds was forwarded to the Assessing Officer for comments and separate remand reports were received for the said assessment years. Thereafter, on receipt of the remand reports, the CIT(A) did not adjudicate the issue of taxability of sales tax incentive on the ground that the claim was not made by way of filing revised return within the time stipulated under the provisions of the Act. b) During the assessment proceedings for assessment year 2004-05, the claim was made before the Assessing Officer by filing revised computation of income, since the time for filing the revised return had expired, by relying on the decision of the Special Bench of the Tribunal in the case of DCIT v. Reliance Industries Limited: 88 ITD 273. The Assessing Officer, however, did not accept the claim of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Courts and the Special Bench of the Tribunal have upheld the appellant's claim of incentive/ subsidy received in the form of exemption from sales tax to be in the nature of capital receipt, not liable to tax under the provisions of the Act; (f) The issue of taxability of sales tax incentive/subsidy is, in any case, a highly debatable/ contentious legal issue, giving rise to substantial question of law on which no penalty is leviable in view of the decision of jurisdictional High Court in the case of Gurdaspur Co-operative Sugar Mills (supra)." 6.9 It was thus submitted that penalty levied on addition of incentive on account of sales tax exemption is erroneous and calls for being deleted. 6.10 The learned counsel of the Revenue relied upon the order imposing penalty and order of CIT(A) upholding the penalty to contend that levied was in accordance with law. He further submitted that since 01-06-2006, the provision of section 139 has under gone change and from AY 2008-09 onward, the assessee was not required to enclose the balance sheet and other financial statement alongwith the return as the return of income was filed electronically, and therefore, the disclosure of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting followed by the assessee except change in treatment of the said amount of the subsidy, which too has been claimed as in compliance of accounting standards . It is well settled law that merely accounting entries on a particular item cannot determine the nature of the income as per provisions of income tax act. Further the appeals filed by the assessee against the order of the Tribunal for AY 2004-05, 2002-03, 2005-06 have been admitted before the Hon'ble High Court of Punjab and Haryana. In the case of CIT versus Basti sugar Mills company limited ITA No. 232/2009 and CIT versus HB leasing and finance Co Ltd 334 ITR 367, the Hon'ble Delhi High Court has held that once appeal on a particular issue is admitted by the High Court, it demonstrates that the said issue was debatable and accordingly no penalty is leviable for disallowance made in respect of such issue. The Ld. counsel of the Revenue, however relied on the finding of the Delhi High Court in the case of Roger Enterprises P Ltd V/s CIT, Delhi in ITA No. 439/2003 delivered on 4th February, 2016 and submitted that in para 38 of the judgement it is held that mere pendency of the quantum appeal could not have led the ITAT to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bdquo;the said Act). The said question has travelled all the way upto the Tribunal and is now before us in the said ITA No.958/2007 as well as other connected appeals being ITA Nos.965/2007, 1248/2007, 646/2009 and 652/2009. It is, therefore, clear that the issue was debatable and, therefore, could not be disallowed while considering the intimation under Section 143(1)(a) of the said Act." 6.13 In the case of CIT versus HB leasing and finance Co Ltd (supra), while deciding the issue of levy of penalty, the Hon'ble Delhi High Court held as under: "3. In so far as the claim of deduction under s. 80M of the Act is concerned, the Tribunal has opined that it was a debatable issue. No doubt, as per the judgment of the Supreme Court in Punjab Distilling Industries Ltd. (supra), the claim could not be made unless the amount actually disbursed on the interpretation of the word "distribution" given by the Supreme Court therein, the question in the present case was as to whether the conditions stipulated under s. 80M of the Act stood fulfilled when the amount in question, which was to be distributed as dividend, was kept aside in a separate bank account. In the facts of this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. Accordingly, the relevant grounds of the appeal are allowed. 7. The Grounds No. 3 to 3.2 and 4 to 4.2 relate to levy of penalty on disallowances of ₹ 88,00,001/- and ₹ 49,41,849/- on account of provision for gratuity. 7.1 The relevant facts in brief are that pursuant to the order of assessment u/s 263 of the Act disallowance was made of ₹ 1,37,41,850/- on account of provision for gratuity. The basis of the disallowance was that the Assessing Officer on perusal of the annual report and tax audit report noted that out of liability (of gratuity) debited to profit and loss account for the year under consideration (F.Y. 2007-08) ₹ 2.95 crore is outstanding as on 31.3.2008, whereas only ₹ 1.55 crore has been disallowed. Hence the balance is liable for disallowance and therefore he made disallowance of ₹ 1,37,41,850/- in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provision of Explanation 1 to the section 271(1)(c), as reproduced in para 14.6.1, above, are also attracted because the assessee not only offered false explanation but also offered explanation which the assessee could not substantiate. The assessee failed to discharge the onus that explanation was bonafide. The assessee also failed to discharge the onus that all the facts relating to the same and material to the computation of its total income has been disclosed." 7.2 Before the CIT(A), the assessee submitted that during the relevant assessment year pursuant to mandatory actuarial valuation of provision for gratuity as per revised Accounting Standard-15 issued by the Institute of Chartered Accountants of India ('ICAI') transferred the excess amount of provision of ₹ 88 lacs to general reserve. The said accounting treatment was duly evident from clause (B) of schedule 2 of audited financial statements. Further detailed note on accounting treatment accorded by appellant to gratuity during the relevant assessment year has also been provided in schedule 20(A)(vii)(b) of audited financial statements. The aforesaid amount of reversal was stated to be inadvertently on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility either before the CIT, Hisar or the AO. This is the deliberate attempt by the appellant to obfuscate the issue. Hence, the penalty has been correctly levied on this account." 7.5 Before us the learned counsel for the assessee contended that appellant inadvertently out of bonafide mistake omitted to add back reversal of provision for gratuity to computation of income for relevant assessment year and in respect of such inadvertent error, there was no concealment of income or furnishing of inaccurate particulars of income on the following reasons: "a) The details in respect of provision for gratuity were duly disclosed in audited financial statements for relevant assessment year vide schedule 12 in respect of provisions and schedule 17 in respect of personnel expenses; b) The fact that provision for gratuity amounting to ₹ 88 lacs was transferred to general reserve was disclosed vide clause (B) of schedule 2 of audited financial statements; c) Detailed note on accounting treatment accorded by appellant to gratuity during the relevant assessment year was disclosed vide schedule 20(A)(vii)(b) of audited financial statements; d) The provision for gratuity was specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,00,001/- is concerned that 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. As a result the grounds No. 3 to 3.2 of the appeal are dismissed and grounds No. 4 to 4.2 of the appeal are allowed. 8. The Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, penalty under section 271(1) (c) of the Act cannot be levied in respect thereof. In any case, since the aforesaid disallowance was made on account of difference of opinion between the Assessing Officer and the appellant in appreciating the provision of section 32(1)(iia) of the Act, the same cannot, in view of the prevalent legal position, be visited with penalty under section 271(1)(c) of the Act." 8.2 The CIT(A) has however imposed the penalty on additional deprecation of ₹ 5,91,106/- under the provision of section 32(1)(ii)(a) of the Act n respect of computer software 'Primavera' by holding as under: "The issue of additional depreciation involves a claim in respect of a computer software which the appellant claimed was part of plant & machinery and thereby a part of the production process. The AO has clearly brought on record the nature of the software which is merely an office automation tool and, by no stretch of imagination can it be construed to be part and parcel of that Plant & Machinery engaged in the production process. Hence, this is fairly a case of furnished of inaccurate particulars for which penalty has been rightly imposed. After examining all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in various documents submitted. Therefore, it cannot be alleged that the appellant concealed/ furnished inaccurate particulars in respect of aforesaid disallowance." 8.4 The learned counsel of the Revenue relied upon the order imposing penalty and order of CIT(A) upholding the penalty to contend that levied was in accordance with law 8.5 We have heard the rival submissions and perused the material on record. 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. The Hon'ble Bombay High Court in the case of CIT v Somany Evergreen Knits Ltd. 352 ITR 592 has held as under: "The assessee-company had wrongly claimed excess depreciation and loss on sale of machine as revenue expenditure in return. During assessment proceedings, assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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