Income Tax Appellate Tribunal - Delhi
Jay Bharat Maruti Ltd. vs Deputy Commissioner Of Income Tax on 13 January, 2006
Equivalent citations: (2006)100TTJ(DELHI)400
ORDER
N.S. Saini, A.M.
1. This is an appeal filed by the assessee taking the following grounds of appeal :
(1) On the facts and in the circumstances of the case, the authorities below have erred both on facts and in law in imposing and sustaining the illegal levy of penalty of Rs. 7,00,000 under Section 271(1)(c),of the IT Act when there can be no allegation of concealment whatsoever against the appellant and hence the penalty is liable to be set aside and quashed and declared as unsustainable in law.
(2) On the facts and in the circumstances of the case, the authorities below have erred in drawing adverse inferences against the assessee ignoring the bona fide nature of the conduct of the assessee and the fact that all legitimate taxes have been duly paid and any point of doubt or debate in regard to the interpretation of the statutory provision and the possibilities of divergence of opinion between the assessee and the Revenue cannot by themselves justify any allegation of mala fide conduct against the assessee nor can the factual and legal submissions placed by the assessee be disregarded to take negative view and hence the orders and observations/findings of the authorities below must be set aside and quashed by allowing appeal of the appellant.
(3) The authorities below have erred in taking one sided biased, incomplete and incorrect view of the factual and legal aspects and had misled themselves in justifying the imposition of penalty and hence the orders of the lower authority must be set aside, and quashed.
(4) The imposition of penalty on the appellant in the facts and the circumstances of the case cannot at all be justified and must therefore be declared unsustainable in law.
2. At the time of hearing, the learned Counsel for the assessee made an application requesting for permission to adjudicate two additional grounds of appeal which read as under :
(1) On the facts and in the circumstances of the case, the AO did not record satisfaction in the assessment order, as mandatorily required by the statute, being proceeding to issue notice mechanically and levy penalty on the appellant.
(2) The orders passed by the authorities below are clearly unwarranted, both on facts and in law, besides being vitiated by non-application of mind, fairly and objectively, to the correct factual and legal position and the bona fide conduct of the appellant and hence, the imposition of penalty on the appellant is totally unsustainable.
3. The learned Authorised Representative for the assessee submitted that both the additional grounds are purely legal grounds and should be admitted. The learned Departmental Representative opposed this application for admitting the additional grounds of appeal filed by the assessee.
4. After hearing both the parties the Bench admitted ground No. 1 of the additional ground of appeal as the ground involves a pure question of law and its adjudication is essential in the ends of justice. The additional, ground No. 2 taken by the assessee was rejected. The parties were then permitted to make submission on the additional ground raised by the assessee in this appeal.
5. The learned Authorised Representative of the assessee submitted that the AO has made addition of Rs. 1,49,640 by disallowing out of the foreign travel expenses of Rs. 6,58,921 spent on the tour to Mauritius for the period 20th June, 1993 to 28th June, 1993 of Shri S.K. Arya on the ground that the assessee has no business contacts in Mauritius and it was not importing any raw material from Mauritius and that the total sales made by the assessee was to Maruti Ltd. The AO further noted that it has not been stated that the trip to Mauritius was for any conference or meeting, etc. No export or import orders were procured on the basis of the visit. The learned Counsel for the assessee argued and submitted that the assessee had incurred the expenses for the purposes of its business. The AO has not found the expenses to be not genuine or false. It was only the opinion of the AO that as the sales of the assessee was to Maruti Ltd. and the assessee was not importing or exporting any goods to Mauritius and as the journey undertaken was not for any conference or seminar, therefore, the expenses were not allowable as deduction as business expenditure of the assessee. He submitted that this cannot be a case for imposing penalty under Section 271(1)(c) for the reason that the assessee has concealed its income or had filed inaccurate particulars of its income as the disallowance of expenses was due to difference of opinion between the assessee and the AO.
6. The learned Authorised Representative for the assessee further argued and submitted that the AO has disallowed deduction under Section 80-I on Rs. 74,85,677 claimed by the assessee @ 25 per cent of the profit of unit No. 1. The AO observed that from the P&L a/c it is seen that the assessee had interest income and miscellaneous income of Rs. 74,85,677. These incomes were not derived directly from the industrial undertaking. It has been held by the Hon'ble Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT that the term "derived from" in the relevant provisions of the IT Act indicate the restricted meaning given by the legislature to cover only the profits and amounts directly accruing from the conduct of the industrial undertaking. Hence he excluded Rs. 74,85,677 while determining the deduction allowable under Section 80-I, The learned Counsel for the assessee submitted that in the earlier asst. yrs. 1989-90, 1990-91 and 1992-93 and 1993-94 the interest and miscellaneous income of the assessee was assessed to tax under the head 'Business profits and gains'. So the assessee was under a bona fide belief on the basis of past history that the interest and miscellaneous income earned during the year under appeal was business income of the assessee, the deduction under Section 80-I was claimed on the said income. It was the submission of the counsel of the assessee that it is the first year in which the interest and miscellaneous income has been assessed to tax by the learned AO under the head income from other sources. Thus it was his submission that there was no concealment of income or filing of inaccurate particulars of income by the assessee which' will make the assessee liable to penalty under Section 271(1)(c). Hence it was prayed that the penalty levied was not justified and the same should be deleted.
7. The learned Departmental Representative relied on the order of the CIT(A).
8. We have heard the rival submissions and perused the orders of both the lower authorities and materials available on record. We find that the learned AO had made disallowance of Rs, 1,49,640 out of foreign travelling expenses incurred for trip to Mauritius on the ground that the assessee's sales are to M/s Maruti Ltd. and no export or import orders were procured by the assessee on its visit to Mauritius and that the trip to Mauritius was not to attend any conference or meeting. The AO while making the addition has not drawn any satisfaction to the effect that the assessee has concealed its income or it filed inaccurate particulars of its income. Similarly, while disallowing the claim for deduction under Section 80-I on the interest and miscellaneous income of Rs, 74,85,677 the AO has followed the decision of the Hon'ble Supreme Court in (supra) and had disallowed the claim for the reason that the said interest and miscellaneous income was not derived from the conduct of the industrial undertaking. We find that the learned Counsel for the assessee has submitted that in the earlier years' assessment namely, asst. yrs. 1989-90, 1990-91, 1991-92, 1992-93 and 1993-94 the said interest and miscellaneous income has all along been subject to tax under the head 'Business income'. This was the first year when the AO has assessed the interest and miscellaneous income as income from other sources. Thus the assessee was under a bona fide belief that the interest and miscellaneous income was assessed to tax as business income of the assessee, the same was out of the conduct of the industrial undertaking and, therefore, eligible for deduction under Section 80-I of the Act. Moreover, we find that while disallowing the claim of the assessee under Section 80-I. on the interest and miscellaneous income the AO has not recorded any satisfaction in the assessment order to the effect that there was filing of inaccurate particulars of income by the assessee or concealment of income. At the end of the assessment order, the learned AO has simply noted that "penalty proceedings under Section 271(1)(c) have been initiated separately." The Hon'ble Delhi High Court in the case of CIT v. Vikas Promoters (P) Ltd. (2005) 194 CTR (Del) 384 held that "their Lordships of the Supreme court have repeatedly emphasized the word "satisfaction" and the satisfaction is not to be in the mind of the AO but must be reflected from the record. It is a settled rule of law that the authority performing quasi-judicial or judicial function must give reasons in support of its order so as to provide in the order itself the ground which weigh with the authority concerned for passing an order adverse to the interest of the assessee. Furthermore, the provisions of Section 271(1)(c) are penal in nature thus must be strictly construed; the element of satisfaction should be apparent from the order itself. It is not for the Courts to go into the minds of the authorities or towards the reasons from the file of such authorities. The order ex facie suffers from the vice of non-application of mind. We are further of the opinion that the judgment of this Court in the case of CIT v. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 is squarely applicable to the case." In the instant case also we find that no satisfaction has been recorded by the AO in the assessment order before initiating penalty proceedings against the assessee. Hence, the order of penalty passed by the AO is not a valid order and consequently the penalty levied by the AO was invalid. In that view of the matter, the appeal of the assessee is allowed.
9. Before parting with the order we would like to mention that since we have held that the penalty proceedings were not validly initiated by the AO the other grounds of appeal raised by the assessee in this appeal have become merely academic in nature and hence are not being adjudicated upon.
10. In the result, the appeal of the assessee is allowed.