Income Tax Appellate Tribunal - Mumbai
Tea Estate India Pvt.Ltd.(Now Merged ... vs Assessee on 8 August, 2014
आयकर अपीलीय अिधकरण "जे" Ûयायपीठ मुंबई मɅ।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "J", MUMBAI
सव[ौी नरे Ûि कुमार ǒबãलैáया, लेखा सदःय एवं , ǒववेक वमा[, Ûयाियक सदःय के सम¢
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER,
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
आयकर अपील सं. : 5496/
5496/मुम/2007
िनधा[रणवष[ 1989-90
ITA No. : 5496/Mum/2007
(Assessment year: 1989-90)
Hindustan Unilever, Vs Deputy Commissioner of Income-
6th floor, AMJ House, Orchard tax -11,
Avenue, Hiranandani Gardens, Mumbai, Room No. 804,
Powai, Old CGO building (Annex),
Mumbai -400 076 M K Road,
ःथयी लेखा सं.:PAN: AAACH 1004 N Mumbai -400 020
अपीलाथȸ(Appellant) ू×यथȸ(Respondent)
Appellant by : Shri P J Pardiwalla &
Shri Nishant Thakkar
Respondent by : Shri S D Shrivastava
सुनवाईकȧतारȣख /Date of Hearing : 22-07-2014
घोषणाकȧतारȣख/Date of Pronouncement : 08-08-2014
आ दे श
ORDER
ौी ǒववेक वमा[, Ûया.
Ûया. स.
PER VIVEK VARMA, J.M.:
The instant appeal is filed by the assessee against the order of CIT(A) 1, Mumbai, dated 15.06.2007, wherein the CIT(A) had sustained the levy of penalty of Rs. 25,31,304/- under section 271(1)(c) of the Income Tax Act, 1961.
2. The facts are that the assessee is in the business of growing, manufacturing and selling tea from its tea gardens located in Nilgiri, Tamil Nadu. It is also growing, manufacturing and selling of coffee and cardamom.
2 Hindustan Unilever ITA No. 5496/Mum/2007
3. Instant assessment year is the transitional assessment year having 21 months.
4. The assessee filed its return of income on 27.12.1989, declaring an income of Rs. 3,58,14,589/-. In the return, the assessee claimed deduction under section 80HH at Rs. 62,20,057/- and further claimed deduction under section 80HHC at Rs. 2,00,740/-.
5. The assessee had various units located at various locations where tea plantation was being done, in particular from Venniar factory and from Manalaar factory. As a practice, produce of Manalaar was sold under the brand of produce of Venniar factory.
6. In the return that was filed, the assessee claimed the deduction under section 80HH at Rs. 62,20,057/-, being 20% of Rs. 3,11,00,284/-. Accordingly, the net profit was worked out at 42.06%. The AO called for an explanation with regard to highly inflated net profit of 42% of Venniar Tea Gardens, in whose comparisons, the other tea gardens were showing the net profit at 20.43%.
7. On the above query, as raised by the AO, the assessee sought clarifications internally for all units where there were tea gardens and production facilities were located, along with HO, as the accounts of each unit was maintained separately. It was also noticed by the management, that profit & loss account of various unit, though the same had been prepared but was not yet audited. For that reason, there was no authentication of correctness of the accounts of Venniar tea garden facility.
8. At this juncture, the assessee recast its Profit & Loss Account of Venniar unit.
3 Hindustan Unilever ITA No. 5496/Mum/2007
9. Vide its letter dated 27.12.1991, the assessee explained to the AO that due to some confusion in figures along with certain clerical mistakes, inadvertently entered in the accounts. To rectify the mistakes, the Secretary of the assessee company presented himself before the AO and explained the mistakes that had been committed, caused by presentation of unaudited accounts and he, therefore, recast and reconciled the profit of Venniar unit and also correctly claimed the profit at Rs. 1,95,28,540/-, as against Rs. 3,15,64,748/-, shown earlier.
9. This explanation and exercise by the assessee company did not impress the AO, who pointed out, that the issue of mistake was taken up by the assessee company only when confronted with. It was not the case where the assessee voluntarily came forward to rectify its mistake. The AO also observed that the fresh computation of the deduction claimed under section 80HH was to be in accordance with the method as illustrated in Circular No. 600, issued by the CBDT. The AO, while observing this, also observed in the body of the order that since there was a major lapse on the part of the assessee, it amounted to furnishing inaccurate particulars of income for which penalty under section 271(1)(c) has to be initiated.
10. The AO, in consequence of this observation in the body of order under section 143(3), initiated and levied penalty under section 271(1)(c) vide order dated 28.09.2005, which included excess claim of deduction under section 80HH and 80HHC respectively.
11. The assessee took the issue of penalty before the CIT(A), before whom the assessee reiterated its explanation with regard to the committing of the mistake, with regard to the claim of deduction under 4 Hindustan Unilever ITA No. 5496/Mum/2007 section 80HH and 80HHC. The CIT(A), after considering the detailed reply and submissions made before him, observed, "6 I have carefully considered the material on record. The brief facts of the case are that the appellant filed its original return on 27.12.1989 declaring total income at Rs. 3,5814,589/- 7 During the assessment proceedings, the AO noticed that the appellant claimed deduction under section. 80HH of I.T. Act, 1961 in respect of the profit derived from veniyar factory located in backward area in Tamil Nadu for the last several assessment years. In the year under reference, the appellant claimed deduction of Rs. 62,20,057/- under section 80HH of the I. T. Act, 1961. In support of the above claim, the appellant Enclosed annexure V-12 with the return as a statement showing deduction under section. 80HH at 20% of Rs. 3,11,00,284/- and in Annexure VI(14) enclosing the profit & loss account for 21 months of the accounting period deriving net profit of Rs. 3,15,64,748 against the total sale of Rs.7,50,30,922/- such that the net profit rate worked out at 42.06% of gross turnover. The appellant was requested to explain the basis for computation of highly inflated net profit of 42% over gross turnover for the Venniar factory whereas for all the garden taken together the net profit was 9,16,96,434 on the total turnover of Rs. 44,86,98,935/- giving the rate of 20.43%.
8 The AO noticed that the auditors of the appellant namely M/s. Price Water Houses audited accounts of each tea garden and the head office from the regular books of accounts maintained at the head office and the gardens. However, the profit & loss account for the Venniar factory was prepared by the officials of the appellant company and was not audited by the auditors regarding the correctness of receipts shown in the P&L account. When the appellant was confronted with the above facts, it filed a letter dtd. 27.12.1991 for revising the claim in P&L A/c; of the Venniar factory & submitted an entirely new recasted profit and loss account for the Venniar factory. It disclosed the net profit of Rs. 1,95,28,540/- against the already declared profit of Rs. 3,15,64,748/-.The appellant claimed that due to some confusion in some figures there were some clerical mistake in the computation of profit for the Vennair factory which was not at all audited by the auditors and was prepared by the official of the appellant company on their own and it was found during the assessment proceedings to be totally wrong. The AO recorded his satisfaction for such wrong claim as under :
"It is more so because of throughout the assessment proceedings right from the date of filing of the return on 27.12.1991, the assessee company on its own never came forward to rectify the clerical mistake that resulted in apparently under statement of profit of tea business to the extent of 40% of Rs. 1.2 crs. In the totality of the facts and the circumstances of the case, the excessive claim of deduction under section. 80HH of the I. T. Act, 1961 made in the original return of income than what is totally admissible can only be considered as an attempt on the part of the assessee in furnishing inaccurate particulars with the 5 Hindustan Unilever ITA No. 5496/Mum/2007 objective of reducing the quantum of total assessable profit and thereby facilitating the avoidance of tax payment. For such act of commission on the part of the assessee company, a separate penalty proceedings under section. 271(1)(c) of I. T. Act, 1961 has to be initiated".
10 After recording the above satisfaction to furnish inaccurate particulars of income for concealment, the AO initiated penalty proceedings under section. 271(1)(c). The AO recomputed the admissible deduction under section. 80HH in accordance with the CBDT circular No. 310 dtd.29.7.1981 @ 20% ( 40% of net profit of Venniar Factory) of Rs. 1,90,64,076/- amounting to Rs. 15,25,926/-. Against the claimed deduction @ 20% of Rs. 3,11,00,204/- amounting to Rs. 62,20,057/-, thereby determining the excessive claim at Rs. 46,94,131/- (62,20,057/- - 15,25,926/-). For such false claim of deduction made under section.8OHH at Rs. 46,94,131/- the AO initiated penalty proceedings under section. 271(1)(c) read with Expl. 4 and also for making wrong claim of deduction under section. 80HHC in the original return of income.
11 The ARs argument that the AO recorded the satisfaction for initiation of penalty proceedings under section. 271(1)(c) w.r.t. Deduction under section. 80HH while in the last but one Para of the assessment orders he actually initiated penalty proceedings under section. 80HHC for wrong claim of deduction under section. 8OHHC is not correct as the entire order is to be read in totality. It confirms that the addition of letter 'c' with 80HH in the last but one para of the assessment order is a typographical error in the order due to abundantly clear satisfaction recorded in para 8(pg 12) of the assessment order. The AO correctly recorded his satisfaction for initiation of penalty proceedings under section 271(1)(c) for wrong claim under section 80HH. English language is not the mother tongue of the AO and therefore any such mistake does bring illegality in the facts and circumstances. Similarly, the recorded satisfaction confirms the evasion of tax and the word 'avoidance' is only because of English being a foreign language. The recording of satisfaction by the A.O is legally correct to initiate penalty proceedings under section. 271(1)(c) in accordance with the judgments of the Hon'ble Supreme Court in the case of Dilep N. Shroff Vs JCIT, Mumbai(SC) dtd. 18.5.2007, Varkey Chacko Vs CIT, 203 ITR 885 (SC), D.M. Manasvi Vs CIT.86 ITR 557(SC). Accordingly, the AO issued show cause notice dtd 30.3.1992 under section. 271(1)(c) to the appellant for being heard and the same was duly served on the appellant.
12 The matter travelled to the CIT(A) and then to ITAT. After the order of the ITAT, the income of the appellant was computed at Rs. 3,98,86,389/-.
13 After the receipt of the ITAT order, the appellant was given another opportunity which was responded by the appellant by filing a letter dtd. 21.9.2005. It was considered by the AO before levy of penalty under section. 271(1)(c) on 28.9.2005. In view of the aforesaid facts, the AO considered the penalty proceedings as independent proceedings other than the assessment.
6 Hindustan Unilever ITA No. 5496/Mum/2007 proceedings. Accordingly ground nos. 1.1, 1.2, 2, 3.1 & 3.2 are rejected.
14. The filing of letter dtd. 27.12.2991 for revising the net profit of Vennair factory does not amount filing of revised return as held by the Hon'ble Supreme Court in the case of M/s. Goetz (India) Ltd Vs CIT, 284 ITR 323. Further the letter dtd. 27.12.1991 was not filed voluntarily rather it was filed when the appellant was confronted with the facts during the assessment proceedings after issue of notice under section. 143(2) and 142(1). The Hon'ble M.P High Court in the case of Addl.CIT Vs Cnandrakant, 205 ITR 607, Hon'ble Kerala High Court in the case of CIT Vs Mahim, 149 ITR 737 and CIT Vs A. Sriniwasa, 242 Taxman 29(Ker,) held that penalty under section. 271(1)(c) even after revised return is legally correct as disclosure was not voluntary.
15. I have carefully gone through the assessment order and I find that the appellant's claim for deduction under section. 8OHHC was reduced by Rs. 1,27,401/- (200740 - 73339). The reduction of the claim of deduction under section. 80HHC was consequential to the reduction of deduction under section. 8OHH at Rs. 46,94,131/-. In the computation of income, the AO allowed deduction under section. 80HHC in accordance with CBDT circular no. 600 and did not record his satisfaction for initiation of penalty proceedings in the assessment order. In my considered view, the AO wrongly included Rs. 1,27,401/- to levy penalty for furnishing inaccurate particulars of income is this deduction was consequential to the deduction admissible under section 80HHC.
16. The deduction under section 80HH is allowable under rule 8 of I T Rules,1962 and therefore the appellant was having full knowledge of admissible deduction to it in AY 1989-90, The facts of the case simply prove that the appellant, with deliberate motive to evade tax, claimed wrong deduction under section. 8OHH by furnishing inaccurate particulars of income. The levied penalty under section. 271(1)(c) is legally correct in view of the judgments in the cases of Padam Kumar Jain Vs CIT, 230 ITR 766 (Pat.), Hukumchand Premchand Vs CIT, 143 ITR (ST) 40 (SC), Suneel Kumar Malhotra Vs CIT, 249 ITR 125(Guj.), Beena Metals Vs CIT, 240 ITR 222 (Ker.) and Jain Brothers Vs CIT, 251 ITR 302 (Del)".
12. The CIT(A), thus sustained the levy of penalty under section 271(1)(c), by the AO.
13. Against this order of the CIT(A), the assessee is now before the ITAT.
13. Before us, the AR once again raised a technical ground with regard to the initiation of penalty, that the AO in the body of the 7 Hindustan Unilever ITA No. 5496/Mum/2007 assessment order mentioned that penalty "has" to be initiated, but while ordering to initiate the penalty, he decided against the initiation of penalty with regard to the excess claim of deduction under section 80HH in its original return. On this technical ground, the AR pleaded that no penalty is leviable. The AR further submitted that the basis of computation of quantum was based on the decision of Hon'ble Calcutta High Court in the case of Warren Tea Ltd, reported in 236 ITR
492. The AR in any case submitted that this was a decision, rendered by single judge and this was later on reversed by the division Bench of Hon'ble Calcutta High Court reported in 266 ITR 226. Since the quantum was computed in accordance with decision of Hon'ble Calcutta High Court, which later on got reversed, brings into the reasonableness of a correct belief to make a claim for deduction. The AR submitted that the assessee lost its case on quantum in the ITAT, on the basis of the subsequent decision of the Hon'ble Calcutta High Court, which reversed the earlier decision rendered by the single judge, which was in favour of the assessee.
14. The AR once again delved on the issue of voluntary rectification and submitted that the once the assessee was made known the discrepancy that had been committed by it, it not only rectified the accounting mistake and computation mistake for the current year, it rectified the similar mistake, that had been committed in the subsequent year. The AR relying on the case of Price WaterHouse Coopers vs CIT, reported in 348 ITR 306, wherein, the Hon'ble Supreme Court accepted the "silly mistake" committed by the multinational accounting firm, deleted the penalty levied on it. The AR submitted in the same way, the assessee also committed the first mistake by including the sales of Manallar unit, whose produce was being sold under the brand of Venniar, which, incidentally was based on unaudited accounts. The AR, therefore, submitted that though the addition may have got confirmed in quantum proceedings, but, in penalty proceedings, the assessee 8 Hindustan Unilever ITA No. 5496/Mum/2007 had shown the reasonable grounds, as to how, the mistake had crept in and how the assessee had immediately removed the mistakes. He, therefore, submitted that in such circumstances, penalty, should not be sustained.
15. The DR on the other hand vehemently supported the orders of the revenue authorities and delved on the basic point that the assessee did not show the correct picture. He submitted that not only the assessee be charged with concealment of income, but should also be charged with furnishing of inaccurate particulars of income, as the AO had cornered the assessee on both the fronts. The DR also countered the arguments of the AR for illegal penal proceedings, as there was no order, for initiating penalty under section 80HH. He, submitted that the AO's remark in the body of the assessment order, where it says "separate penalty proceedings under section 271(1)(c) of the IT Act, 1961 has to be initiated". The DR submitted that whether the mistake was due to omission or commission, under both situations, the error on the part of the assessee was culpable. He further submitted that sales of Manallar unit entering into the sales of Venniar unit was not an error which could be said to be clerical error, rather it was a major error, which, if not detected by the AO, would have gone a long way and benefitted the assessee year to year. Since, the AO detected the inaccurate particulars both on sales and quantum of deduction, the assessee's claim was rejected. The DR, submitted that as the facts are emerging from the assessment order, at this point in time, the theory of inadvertent mistake cannot be accepted.
16. The DR further submitted that in legality as well, the decision of the Hon'ble Calcutta High Court has been sustained by the Hon'ble Supreme Court and, therefore, the theory of the assessee that it had acted as per the decision of the Single Judge decision of Hon'ble Calcutta High Court, would not hold water.
17. The DR, therefore, submitted that the orders of the revenue authorities are correct and deserve to be sustained.
9 Hindustan Unilever ITA No. 5496/Mum/2007
18. We have heard the arguments of both the sides at length and have perused the orders of the revenue authorities and the order of the coordinate Bench of the ITAT on quantum. The fact that the issue of deduction reached the Hon'ble Calcutta High Court and its decision rendered by the Hon'ble single judge, which was in favour of the assessee, cannot be brushed aside. This placed the assessee in the zone of reasonable cause for claiming the deduction. But the basis got reversed is also a fact. In this circumstance, the impugned issue on quantum goes into the precinct of two reasonable and acceptable views, which ousts the jurisdiction of levy of penalty.
19. Besides this fact of two reasonable and acceptable views, the fact that the claim of deduction was based on unaudited accounts, because of which the claim of deduction at Venniar facility was unduly high, in its accounts, is also to be addressed. The issue, which is common with both the parties is, once the unduly high profit and deduction was brought to the notice of the assessee, was rectified immediately and rightful claim was made. This, as per the AR, was a mistake and as per the revenue authorities and DR, it was a major mistake. It gets ironed out, when we find that the claim was as per unaudited accounts of Venniar facility, which allowed the infirmity to creep in. We accept the submission of the AR that even a multi national accounting firm, having presence across the globe could end up in making silly mistake, as held by the Hon'ble Supreme Court of India in the case of Price WaterHouse Coopers (supra). We further hold that undesired and unwanted human anomaly cannot push the assessee into the field of penal mens rea. Hence the penalty, as levied by the revenue authorities merit to be deleted.
20. While holding that the assessee cannot be charged with penal proceedings, we reject the vehement argument of the AR that there 10 Hindustan Unilever ITA No. 5496/Mum/2007 was no order, as such, to initiate penal proceedings in the assessment order. Where we accept the assessee's pleading that there was an undesired mistake committed by the assessee and we have absolved the assessee of the impugned penalty, we, likewise, hold that the AO committed mistake in not writing the words "80HH", while ordering initiation of penalty proceedings. This decision is not quid-pro-quo, but is based on the fact that the entire assessment order is based on denial of deduction under section 80HH. Simply to accept the lapse committed by the AO, in the facts of this case, cannot comprehend that the AO did not initiate penal proceedings. We, therefore, reject the argument of the assessee that the penal proceedings are not exigible in this case, as the AO did not initiate the proceedings.
21. Since we have held in para 19 that the impugned penalty is to be deleted, we, therefore, set aside the order of the CIT(A) and direct the AO to delete the penalty, as levied by him. Consequently, the appeal, as filed by the assessee is allowed.
22. In the result, the appeal is allowed.
Order pronounced in the open Court on 8th August, 2014.
Sd/- Sd/-
(नरे Ûि कुमार ǒबãलैáया) (ǒववेक वमा[)
लेखा सदःय Ûयाियक सदःय
(N.K. BILLAIYA) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 8th August, 2014
ूित/Copy to:-
11 Hindustan Unilever
ITA No. 5496/Mum/2007
1) अपीलाथȸ/TheAppellant.
2) ू×यथȸ/The Respondent.
3) The CIT (A)-3, Mumbai.
4) आयकरआयुƠ -11, Mumbai/The CIT-11, Mumbai.
5) ǒवभागीयूितिनिध "D" आयकरअपीलीयअिधकरण,मुंबई The D.R. "D" Bench, Mumbai.
6) गाड[ फाईल Copy to Guard File.
आदे शानुसार/By Order / / True Copy / / [ उप/सहायकपंजीकार आयकरअपीलीयअिधकरण,मुंबई Dy./Asstt. Registrar I.T.A.T., Mumbai *चåहानव.िन.स *Chavan, Sr. PS