Income Tax Appellate Tribunal - Ahmedabad
Deepak Nitrite Ltd., Baroda vs Department Of Income Tax on 6 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH - AHMEDABAD
(BEFORE SHRI G. C. GUPTA, VP AND SHRI A. MOHAN ALANKAMONY, AM)
ITA No.2675/Ahd/2010
A. Y.: 2004-05
The D. C. I. T., Circle-1 (1), Vs M/s. Deepak Nitrate Ltd.,
Aayakar Bhavan, 9-10, Kunj Society, Alkapuri,
Race Course Circle, Baroda
Baroda P. A. No. AAACD 7868 A
(Appellant) (Respondent)
Appellant by Shri M. Mathivanan, Sr. DR
Respondent by Shri Sunil Bhandari, AR
Date of hearing: 06-08-2012
Date of pronouncement:14-09-2012
ORDER
PER A. MOHAN ALANKAMONY: This appeal is filed by the revenue aggrieved by the order of the learned CIT(A) dated 25-06- 2010 in appeal No.CAB-I/17/10-11 passed u/s 271 (1) (c) of the IT Act for the assessment year 2004-05.
2. The revenue has raised two effective grounds of appeal which are reproduced herein below:
"1. On the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) erred in deleting the penalty levied u/s. 271 (1) ( c ) of the Act on the addition of Rs.1,06,25,557/- made on account of disallowance u/s. 10(33) of the Act of loss on conversion of units of UTI.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(Appeals) erred in deleting the penalty ITA No.2675/Ahd/2010 (AY: 2004-05) 2 DCIT, Cir-1(1), Baroda Vs M/s. Deepak Nitrate Ltd.
levied u/s. 271 (1) ( c ) of the Act on the addition on account of disallowance of claim of penal interest for non- payment of sales tax and interest for belated payment of taxes amounting to Rs.13,02,592/- due to failure on the part of the assessee to add back the same of int4rest on arrears of sales tax which was pointed out during the assessment proceedings.
3. The assessee is a Limited Company engaged in the business of manufacturing and trading of organic and non-organic heavy chemicals filed its return of income on 27-10-2004 declaring total income at nil. However, the return of income was computed u/s 115JB of the Act. Subsequently, assessment was completed on u/s 143(3) of the Act on 29-12-2006 wherein tax was recomputed u/s 115JB of the Act wherein book profit was increased due to (i) on account of wrong claim of penal interest of Rs.13,02,592/- and (ii) wrong claim of loss on conversion of units of UTI amounting to Rs.1,06,25,567/- along with various other disallowances. Thereafter, penalty proceedings were initiated and penalty was confirmed on account of these two issues cited supra. The assessee carried the matter before the learned CIT(A). The learned CIT(A) considering the facts of the case and the submissions of the assessee observed as under:
"4.(page 11) Loss on Conversion of Units of UTI (Rs.10625567/-) The assessee incurred loss on conversion of units of UTI and claimed carry forward of such loss. The AO noted that income from units was exempt u/s 10(33) and such income did not form part of the total income of the assessee. It was held that the loss would also not form part of the total income, and therefore the carry forward of the same was not allowable. In first appeal ITA No.2675/Ahd/2010 (AY: 2004-05) 3 DCIT, Cir-1(1), Baroda Vs M/s. Deepak Nitrate Ltd.
the assessee relied on the decision of the Calcutta High Court in Royal Calcutta Turf Club v CIT, 144 ITR 709. However, the ld. CIT(A), relying on the Madras High Court's decision in CIT v S. S. Thyagarajan, 129 ITR 115, confirmed the action of the AO. In second appeal, the ITAT, Ahmedabad Bench confirmed the view of the CIT(A).
4.1 In appeal before me, it was argued that since contrary decisions on the same issue had been considered by the AO, CIT(A) and Tribunal, it clearly showed that the issue was a highly debatable and contentious one. No facts had been concealed or inaccurately furnished. The Supreme Court in Reliance Petroproducts (P) Ltd. (supra) has laid down the proposition that "A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the furnishing of inaccurate particulars. Merely because of the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract penalty u/s 271(1) ( c)." In view of the judicial pronouncement as above, it is held that the disallowance of the claim for carry-forward of the loss did not amount to the furnishing of inaccurate particulars of income and hence the penalty in respect of Rs.1,06,25,567/- was not justified, and is, accordingly, cancelled.
4.(page 12)Disallowance of Penal Interest (Rs.13,02,592/-) The facts are that the assessee debited to the profit and loss account penalty for non-payment of sales-tax and also interest for the belated payment of taxes. In the computation of income, the assessee had itself disallowed the penalty but did not disallow interest on the delayed payment of taxes, on the reasoning that the interest was a compensatory payment and not penal in nature. However, the AO disallowed the interest portion also. It has been submitted before me that through over- sight the assessee omitted to include this as one of the grounds taken in appeal before my ld. predecessor in the quantum appeal. However, it was argued that whether the interest ITA No.2675/Ahd/2010 (AY: 2004-05) 4 DCIT, Cir-1(1), Baroda Vs M/s. Deepak Nitrate Ltd.
portion was compensatory or penal in nature is a debatable and contentious issue and the disallowance made upon one of the possible views would not amount to an offence deserving penalty u/s 271 (1) ( c).
4.1 In Lachmandas Maturadas v CIT, 254 ITR 799, the Supreme Court had an occasion to decide this very issue. The earlier judgement of Allahabad High Court in CIT V Lachmandas Mathuradas, 124 ITR 411 was overruled and it was held that the interest on arrears of sales-tax was compensatory in nature and not penal. In the instant case, the facts are on all fours with the decision of the Supreme Court as above. Moreover, in the instant case, the sales tax authorities had separately imposed penalty, in addition to interest. Where only interest is chargeable perhaps a case cold be made out that it contained a penal element also. However, where in addition to the interest, penalty had been specifically imposed, it cannot be said that the interest was penal and not compensatory. Clearly, the issue is contentious. In this view of the matter, it is held that the penalty imposed in respect of Rs.13,02,592/- was not justified and is, accordingly, cancelled."
4. The learned DR supported the order of the learned AO and prayed that penalty may be confirmed. On the other hand, the learned AR supported the order of the learned CIT(A).
5. We have heard the rival submissions and carefully perused the material on record. With respect to the issue of loss on conversion of units of UTI, the assessee had claimed long term capital loss on conversion of UTI units into bonds. It was opined by the assessee that section 10(33) of the Act is applicable in case of capital gain arising from transfer of units and not applicable in case of conversion of the same into bonds. However, the learned AO was of the view that section 10(33) of the Act was specifically introduced to take care ITA No.2675/Ahd/2010 (AY: 2004-05) 5 DCIT, Cir-1(1), Baroda Vs M/s. Deepak Nitrate Ltd.
of such situation with effect from 01-04-2003 and hence there was no scope of ambiguity. Therefore, penalty was levied. However, the learned CIT(A) following the ratio of the decision in the case of Reliance Petroproducts (P) Ltd., 230 CTR 320 deleted the penalty wherein it was held that that "A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the furnishing of inaccurate particulars. Merely because of the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not attract penalty u/s 271(1) ( c)."
6. Considering the above discussions and the facts and circumstances of the case, we concur with the view of the learned CIT(A) and hence confirm his order. Accordingly, this ground raised by the revenue is dismissed.
7. On the issue of penal interest of Rs.13,02,592/- the assessee claimed deduction of the interest paid for belated payment of tax. The learned AR had stated that they were under the impression that such failure to pay tax is not penal in nature and the same could be compensated by payment of interest. However, the learned AO levied penalty on this issue since the tax auditor had clearly and categorically stated in his audit report that this payment is penal in nature amounting to any other penalty. Further the assessee had not pressed this ground before the learned CIT(A) or come out with any ITA No.2675/Ahd/2010 (AY: 2004-05) 6 DCIT, Cir-1(1), Baroda Vs M/s. Deepak Nitrate Ltd.
material that this payment is not penal in nature. The assessee carried the matter before the learned CIT(A). The learned CIT(A) following the decision of the Hon'ble Supreme Court in the case of Lachmandas Maturadas Vs CIT, 254 ITR 799 and the decision of the Hon'ble Allahabad High Court in CIT Vs Lachmandas Mathuradas, 124 ITR 411 observed that interest of arrears of sales tax is compensatory and not penal in nature. The learned DR could not controvert the finding of the learned CIT(A) with any cogent material. Accordingly, we concur with the view of the learned CIT(A) and dismiss the ground of appeal raised by the revenue.
8. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open Court on 14-09-2012 Sd/- Sd/-
(G. C. GUPTA) (A. MOHAN ALANKAMONY)
VICE PRESIDENT ACCOUNTANT MEMBER
Deka/--
Lakshmikant Deka/
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Dy. Registrar, ITAT, Ahmedabad
1. Date of dictation: 06-09-2012
2. Date on which the typed draft is placed before the Dictating Member: 07-09-2012 other Member:
ITA No.2675/Ahd/2010 (AY: 2004-05) 7DCIT, Cir-1(1), Baroda Vs M/s. Deepak Nitrate Ltd.
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement:
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: