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TMI Blog2024 (12) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of the agreement. Thus, the penalty in respect of this issue is hereby deleted. Penalty in respect of three additions i.e. Addition on account of Insurance claim received during the year, Disallowance of deduction u/s 35(2AB) and u/s 35(1)(iv) in respect of Chennai unit and Disallowance of depreciation on capital expenses of R D unit is hereby deleted as above three issues, have already been restored back to the file of the Assessing Officer. - Shri Om Prakash Kant (Accountant Member) And Shri Raj Kumar Chauhan (Judicial Member) For the Assessee : Mr. Ronak Doshi a/w Mr. Priyank Gala For the Revenue : Ms. Madhu Malati Ghosh, CIT-DR ORDER PER OM PRAKASH KANT, AM The captioned appeal and cross-objection filed by the Revenue and the assessee respectively are directed against order dated 15.05.2024 passed by the Ld. Commissioner of Income-tax (Appeals) 57, Mumbai [in short the Ld. CIT(A) ] for assessment year 2005-06 in relation to penalty u/s 271(1)(c) of the Income-tax Act, 1961 (in short the Act ). 2. The Revenue has raised following ground in its appeal: 1. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in not appreciating the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 27.12.2007. 5. On further appeal, the Ld. First Appellate Authority granted partial relief in respect of quantum of disallowance/additions made by the Assessing Officer. 6. Aggrieved, the assessee filed appeal filed before the Income-tax Appellate Tribunal (ITAT) in respect of quantum of disallowance/addition. During the pendency of the said appeal before the ITAT, the Assessing Officer issued show cause notice for levy of the penalty on the ground of furnishing inaccurate particulars of the income by the assessee with regard to following disallowance/additions: 1. Compensation received on Termination of Distributor agreement being assessed as Business Income amounting to Rs. 92,76,62,688/- instead of Capital Gain as returned by the assessee. 2. Addition on account of Insurance Claim received during the year amounting to Rs. 2,75,00,000/-. 3. Disallowance of Research and Development Expenditure u/s. 35(2AB) 35(i)(iv) of the Act amounting to Rs. 3,19,78,297/-. 4. Disallowance of Depreciation on Excess Capital Expenditure of R D Unit amounting to Rs. 38,62,993/-. 7. The Assessing Officer after considering submission of the assessee levied penalty of Rs. 25,47,52,538/- i.e. equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee submitted that as far as issue of penalty for addition on account of insurance claimed is concerned, the ITAT(supra) has restored the issue back to the file of the Assessing Officer. The relevant finding of the ITAT is reproduced as under: 64. During the year under consideration the assessee has made a claim of Rs. 12.22 crore with the insurance company on the basis of insurance cover purchased by it in respect of its corporate office where fire took place. The assessee company has received interim claim of Rs. 2.75 crores on adhoc basis. The assessee has incurred a loss of Rs. 7.95 crores approximately due to the fire accident. The AO has treated the payment of Rs. 2.75 crores received by the assessee as insurance claim on adhoc basis and taxed the same under the head business or profession. The Ld. CIT(A) observed that the amount received by the assessee was windfall and as such the same is the revenue receipt taxable under the head business or profession. 65. The Ld. A.R. for the assessee contended that since the assessee has ultimately incurred a loss it cannot be taxed in its hand as revenue receipt. During the course of argument the assessee was called up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm No. 3CM before the AO as well as the Ld. CIT(A). It is fact on record that only R D expenditure incurred at Ennore for which approval has been given by the Ministry on 29-3-2005 can be allowed only if form No. 3CM is brought on record. The Ld. A.R. for the assessee contended that despite filing form 3CL by the assessee with DSIR it has not received form 3CL, since it is an old data even copy of reminders filed by the assessee are not readily available with the assessee and it cannot be penalized for inaction on the part of the DSIR and pressed for deduction under section 35(2AB) to at least from the date of application i.e. June 25, 2004. It is also contended that identical issue in 2008-09 was restored to the AO to allow at least weighted deduction till form 3CM is given. 57. We have perused the order for A.Y. 2008-09 which is qua the identical issue of the co-ordinate Bench of the Tribunal restored the issue back to AO by returning following findings: 27. We have considered rival submissions and perused materials on record. It is an undisputed fact that there is no approval by the competent authority in Form no. 3CM in respect of the expenditure incurred towards the R D facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of which penalty has been levied on the assessee has itself been finally set aside or cancelled by the Tribunal or otherwise, the penalty cannot stand by itself and the same is liable to be cancelled as in the instant case ordered by the Tribunal and later cancellation of penalty by the authorities. 30. It is a well-established principle that the matter which has been adjudicated and settled by the Tribunal need not be dragged into the criminal courts unless and until the act of the appellants could have been described as culpable. 9.5 Respectfully following the above decision, we set aside the finding of the Ld. CIT(A), however, the Assessing Officer is it liberty to initiate penalty proceedings in the order, which will be passed consequent to the direction of the ITAT. Accordingly, the penalty in respect of three additions i.e. (i) Addition on account of Insurance claim received during the year Rs. 2,75,00,000/-; (ii) Disallowance of deduction u/s 35(2AB) and u/s 35(1)(iv) of the Act respect of Chennai unit and (iii) Disallowance of depreciation on capital expenses of R D unit - Rs. 38,62,993/-, is hereby deleted. 10. Now, the only issue where the quantum addition has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of the said agreement compensation for termination of the agreement was income assessable to tax under section 10(va) of the Income-tax Act, 1922, which is akin to section 28(ii) of the Act. Ratio of the case law discussed by the Ld. CIT(A) is : any compensation received by a party on termination of the earlier agency agreement is a revenue receipt to be assessed as business income. 34. The contention raised by the Ld. A.R. for the assessee that agreement between the parties is to be read as intended by the parties and it is not open to AO to give another interpretation is also not sustainable because agreement in ADMA (supra) is categoric in all respects which has been further clarified by the settlement agreement (supra) and as such reliance placed on the decision rendered by Hon'ble Calcutta High Court in case of CIT v. Arun Dua [1989] 45 Taxman 246/[1990] 186 ITR 494 is misplaced. 35. Furthermore, the provisions contained under section 28(ii)(c) are very categoric in giving the treatment of compensation received from the termination of any agency business which has been further clarified from the new provisions contained under section 28(va)(a) w.e.f. 1-4-2003, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim does not attract penalty as held by the Hon ble Supreme Court in the case of CIT v. Reliance Petroproudcts Pvt. Ltd. (SC) 322 ITR 158 (SC). Further, the Ld. counsel for the assessee submitted that all information in respect of the compensation for termination of agreement were duly filed before the Assessing Officer. He referred to computation of the total income available on paper book page 39. He further referred to note-7, which is part of notes to computation of income available on page 48 of the Paper Book. The relevant note is reproduced as under: 7. During the previous year, the assessee company had to discontinue its marketing and distribution arrangement with Roche Diagnostics Gmbh vide the Settlement Agreement dated 20.10.2004. Under the said Settlement Agreement the assessee company has received an amount of Rs. 98,45,50,688/-consisting of Rs. 5,68,88,000/- being amount received for instruments and Rs. 92,76,62,688/- for termination of the agreement. Accordingly, Rs. 5,68,88,000/- has been reduced from the block of plant machinery for the purpose of calculating Depreciation as per IT Act / Rules. As regards Rs. 92,76,62,688/-, received in lieu of termination of righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The learned Counsel argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income . We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In CIT v. Atul Mohan Bindal [2009] 9 SCC 589, where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. This Court referred to another decision of this Court in Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f strict liability on the assessee for the concealment or for giving inaccurate particulars while filing Return, there was no necessity of mens rea. The Court went on to hold that the objective behind enactment of section 271(1)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff's case (supra) was overruled by this Court in Dharamendra Textile Processors' case (supra), was that according to this Court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight of in case of Dilip N. Shroff (supra). However, it must be pointed out that in Dharamendra Textile Processors' case (supra), no fault was found with the reasoning in the decision in Dilip N. Shroff's case (supra), where the Court explained the meaning of the terms conceal and inaccurate . It was only the ultimate inference in Dilip N. Shroff's case (supra) to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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