Income Tax Appellate Tribunal - Chandigarh
Perfect Forgings,, Ludhiana vs Department Of Income Tax
1
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'B' CHANDIGARH
BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER
AND MS SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No. 777/Chd/2009
Assessment Year: 2002-03
The AC IT, Vs. M/s Perfect Forgings,
Circle-V, Ludhiana
Ludhiana
PAN No. AABFP3268J
&
ITA No. 778/Chd/2009
Assessment Year: 2003-04
The AC IT, Circle V, Vs. M/s Perfect Forgings,
Ludhiana Ludhiana
PAN No. AABFP3268J
(Appellant) (Respondent)
Appellant By : Smt.J aishree Sharma
Respondent By: Shri Sudhir Sehgal
ORDER
PER SUSHMA CHOWLA, JM
These two appeals by the Revenue are against the separate orders of CIT(A)-II Ludhiana dated 8.5.2009 and 15.5.2009 relating to assessment years 2002-03 & 2004-05 respectivel y against the penalt y levied under section 271 (1)(c) of the I.T. Act, 1961. 2
2. The Revenue has raised the following common grounds of appeal-
1. That the Ld. CIT(A)-II has erred in law and on facts in deleting the penalty amounting to Rs. 31,97,405/- (for assessment year 2002-03 and Rs. 60,72,832/-
(assessment year 2003-04) imposed u/s 271 (1)(c) on account of wrong claim of deduction u/s 80IB made by the Assessing Officer.
2. That the order of CIT(A)-II be set aside and that of Assessing Officer be restored.
3. Both the appeals relating to the Revenue on same issue were heard together and are being disposed of by this consolidated order for the sake of convenience.
4. In both the appeals filed by the Revenue the onl y issue raised is against the deletion of penalt y levied u/s 271 (1)(c) of the Act. Penalt y of Rs. 31,97,405/- was levied relating to assessment year 2002-03 and penalt y of Rs. 60,76,832/- was levied relating to assessment year 2003-04 u/s 271 (1)(c) of the Act on account of wrong claim of deduction u/s 80IB of the Act.
5. The brief facts of the case are that the assessee had filed return of income at nil after claiming deduction u/s 80IB of the Act at Rs. 89,56,312/- for assessment year 2002-03. The claim of deduction u/s 80IB of the Act was disallowed by the Assessing Officer, which disallowance was deleted by the CIT(A). However, the Tribunal confirmed the disallowance by reversing the order of CIT(A). The Assessing Officer in the penalt y proceedings u/s 271 (1)(c) of the Act observed that deduction claimed u/s 80IB of the Act was held to be not admissible on two counts. 3 The first ground was that the assessee had claimed the aforesaid deduction on the export incentive which was not allowable in view of the ratio laid down by the Hon'ble Supreme Court in Sterling Foods Ltd., 237 ITR 579 (SC) The second ground was that the assessee had in addition to the already existing business of manufacturing of hand tools, had started manufacturing of scaffolding for which proposed machinery of Rs. 3,23,151/- was installed during the year in addition to the machinery already installed. The assessee was found to be involved in manufacturing activit y from the year 1990 and had onl y added to its activities by starting manufacturing of scaffolding. In the absence of the assessee substantiating that a new industrial undertaking was in fact established between eligible period i.e. 1.4.95 to 31.3.2002, the deduction claimed u/s 80IB was disallowed. The Assessing Officer thus levied penalt y u/s 271 (1)(c) of the Act amounting to Rs. 31,97,405/- relating to assessment year 2002-03. The CIT(A) in respect of disallowance on account of exclusion of export incentive while computing deduction u/s 80IB of the Act observed that the issue was debatable as before the ratio laid down by the Hon'ble Supreme Court in Sterling Foods Ltd (supra) there were varying ratios laid down by the various High Courts and as such the claim made by the assessee was a bonafide claim and negate of such claim does not attract levy of penalt y u/s 271 (1)(c) of the Act. In respect of the second ground on which deduction u/s 80IB of the Act was disallowed by the Assessing Officer it was observed by the CIT(A) that the assessee was engaged in the business of manufacturing of hand tools since the year 1990 and in the year 1995 the business activities were switched over to manufacturing of scaffolding for which new machinery was purchased from the year 1995-96 to 2001-02 totaling Rs. 89,66,944/-. The value of old machinery as on 31.3.1995 was Rs. 21,91,932/- resulting in value of total plant and machinery amounting 4 to Rs. 1,11,58,876/-. The ratio of old machinery worked to 19.64% and of the new machinery 80.36%. The C IT(A) during the penalty proceedings vide para 5.4 at page 9 of the appellate order thus observed that the assessee had in view of the same contended that the conditions laid down in section 80IB of the Act of installation of new machinery being in excess of 80%, was fulfilled for the first time in financial year 2001-02 i.e the year under appeal. The claim of the assessee was that in view of the various decisions on the point, it was entitled to claim of deduction u/s 80IB of the Act. The CIT(A) noted that though the Tribunal had upheld the findings of the Assessing Officer with regard to the disallowance of deduction u/s 80IB of the Act, in view of the acquisition of the new machinery for the proposed industrial undertaking, the appellant was not justified in claiming deduction but however, in view of the ratio laid down by the Hon'ble Kerala High Court in the case of CIT Vs. Seeyan Pl ywoods [56 Taxman 296 (Kerala)] and by Hon'ble Madras High Court in C IT Vs. Gopal Plastics (P) Ltd [215 ITR 136 (Madras)] at best was a debatable issue for which penalt y u/s 271 (1)(c) of the Act was not attracted. The Revenue is in appeal against the aforesaid findings / observations of the CIT(A).
6. The learned D.R. for the Revenue pointed out that the C IT(A) while deciding the issue of penalt y levied u/s 271(1)(c) of the Act held that in the quantum proceedings, the Tribunal had held the assessee not to have established new industrial undertaking and hence not entitled to the claim of deduction under section 80IB of the Act, but had deleted the penalt y levied u/s 271(1)(c) of the Act. The learned D.R. pointed out that as the assessee had not fulfilled the conditions under section 80IB of the Act, the said deduction was not allowed to the assessee and the present case was 5 not a case where there was difference in the calculation of deduction allowable under section 80IB of the Act.
7 The learned A.R. for the assessee pointed out that penalty u/s 271(1)(c) of the Act was levied on two accounts i.e. a) export incentive/DEPB being not eligible for deduction under section 80IB of the Act and; b) incorrect claim of deduction under section 80IB of the Act and non-fulfillment of the conditions laid down under the section. The learned A.R. for the assessee fairl y conceded that the Tribunal had confirmed the additions on both the accounts. It was further pointed out by the learned A.R. that the issue being debatable does not warrant levy of penalt y u/s 271(1)(c) of the Act. It was further pointed out that the assessee was first engaged in the manufacturing of hand tools. Later the unit was established for manufacturing of scaffolding on which deduction under section 80IB was claimed. The learned A.R. pointed out that such deduction was claimed on the basis of the report of C.A. and all particulars in connection with the same were filed before the Assessing Officer and noting was concealed. The learned A.R. further submitted that the Assessing Officer while levying of penalt y u/s 271(1)(c) of the Act has raised new points, which were not considered while passing the assessment order. Reliance was placed on the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT Vs. Deep Tools Pvt. Ltd., 274 ITR 603 (P&H) that no penalt y is leviable where deduction is claimed on the basis of C.A.'s report. Further reliance was placed on the ratio laid in Telebuild Construction Co. Pvt. Ltd. Vs. AC IT, 13 SOT 218 (Mum), M/s Supreme Yarns Ltd. Vs. AC IT, I.T.A.No. 649/CHD/2007, cit Vs. S.Dhanabal, 309 ITR 268 (Del) and ACIT Vs. Arisudana Spinning Mills Ltd., 19 DTR (Chd-Trib) 1. The learned A.R. for the assessee also pointed 6 out that the addition in assessment year 2003-04 was made on different facts i.e. the computation of deduction under sections 80IB and 80HHC of the Act. It was pointed out that CBDT vide its circular has directed that no penalt y u/s 271(1)(c) of the Act is leviable where there is reduction in claim of deduction under section 80IB/80HHC of the Act in view of the DEPB.
8. The learned D.R. for the Revenue in rejoinder pointed out that complete particulars in respect of its claim of deduction under section 80IB of the Act were not furnished in Form No.10CCB. Further reliance was placed on the ratio laid down in CIT Vs. Zoom Communication P. Ltd., 327 ITR 510 that where there are express provisions of the Act which are not complied with, then there is justification for levy of penalt y u/s 271(1)(c) of the Act.
9. We have heard the rival contentions and perused the record. The assessee in the return of income filed for assessment year 2002-03 had claimed deduction under section 80IA of the Act at Rs.89,56,318/-. The said claim of the assessee was rejected by the Assessing Officer as according to him, the assessee had not fulfilled the conditions under section 80IB of the Act. The Assessing Officer noted that the assessee was already engaged in the manufacturing activities from the year 1990 and onl y added to its activities by starting manufacturing of scaffolding in addition to hand tools and made addition to the extent of Rs.3,23,351/- in the machinery account. As the assessee had failed to substantiate its claim of establishment of new industrial undertaking which was in fact established between eligible period i.e. from 1.4.1995 to 31.3.2002, the assessee was held not eligible for deduction u/s 80IB of the Act. The 7 Tribunal held that in view of the abovesaid facts of the assessee utilizing its old machinery and making a small addition to the machinery account, could not be said to have established a new industrial undertaking that was eligible for deduction under section 80IB of the Act, in the light of sub- section(2) of section 80IB of the Act. Further the deduction claimed under section 80IB of the Act was denied on the export incentives/DEPB. In the penalt y proceedings the plea of the assessee was that deduction was claimed on the basis of report of the C.A. and further the issue being debatable, no penalty was leviable on the difference of opinion. The Assessing Officer observed in the penalt y order passed u/s 271(1)(c) of the Act that the assessee's reliance on the report of C.A. is misplaced as the said report was totall y incomplete; the particulars as required in Form No.10CCB had not been given. The Assessing Officer further observes that the said report contains no computation of deduction and other particulars had not been referred. Even the figure of deduction worked out was not given and as such no reliance could be placed on the said report. With regard to the second plea of the assessee being debatable, it was observed by the Assessing Officer that the assessee's unit was not a new industrial undertaking and the addition in the machinery being very small, the assessee was not entitled to the said deduction.
10. With regard to the claim of deduction in respect of export incentives/DEPB the Assessing Officer observed that at the time of filing of the return of income the ratio laid down by the Hon'ble Supreme Court in Sterling Foods Ltd. (supra) was applicable and as such the issue was not debatable. The assessee was held to have furnished inaccurate particulars of income by claiming wrong claim for deduction and penalt y was levied. 8
11. The CIT(A) vide para-5 observed as under :-
"5. I have carefully considered the contention of the Ld. Counsel for the appellant and perused the relevant record. As already discussed penalty u/s 271(1)(c) of the Act has been levied in this case mainly on account of the fact that deduction of Rs.89,56,318/- claimed by the appellant u/s 80IB of the Act was disallowed by the A.O. and that the findings of the A.O. had been further confirmed by the Hon'ble ITAT in their order dated 19.6.2008. As discussed in the penalty order also one of the issues involved for disallowance of deduction u/s 80IB was with regard to deduction under the provisions of this Section in respect of export incentives. Though the disallowance was made keeping in view the decision of the Hon'ble Supreme Court in the case of Sterling Foods Ltd., as rightly pointed out by the Ld. Counsel in the written submissions, at the time of filing the relevant return by the appellant there were a number of decisions in favour of the appellant also. These decisions were rendered by different Benches of ITAT and different High Courts distinguishing the case of Sterling Foods Ltd.
Though subsequently the decision of the Hon'ble Jurisdictional High Court of Punjab & Haryana in the case of Liberty India vs. CIT Karnal was pronounced and which is against the assessee on this issue, the fact remains that at the time of filing the return of income by the appellant there was no such decision of the Hon'ble Jurisdictional High Court against it. Even in his order dated 16.2.2006 passed by my predecessor in appeal No.205/IT/CIT(A)-II/Ldh/04-05, disallowance made by the AO on this ground was not upheld keeping in view such decisions including the decision of the Hon'ble Gujarat High Court in the case of CIT vs. India Gelatine & Chemicals Ltd. 145 Taxman 303. In his order dated 16.2.2006 my predecessor has duly brought out these decisions in support of the appellant. Decision of the ITAT Delhi in the case of Mentha & Allied Products Pvt. Ltd. vs. ITO 45 TTJ 333 (Delhi) and in the case of ACIT vs. Vipin 9 Sardana as reported in 148 Taxman (2005) 41 have further been referred to by my predecessor in this regard.
12. In view of the issue being debatable the CIT(A) held that no penalt y u/s 271(1)(c) of the Act was leviable if the addition was confirmed in a case on account of such debatable issue and difference of opinion. We are in conformit y with the order of the CIT(A) that with regard to the claim of deduction on account of export incentives/DEPB under section 80IB of the Act at the relevant time of making the aforesaid claim, there was diversit y of opinion between various Courts and the Tribunal even in view of the ratio laid down by the Hon'ble Supreme Court in Sterling Foods Ltd. (supra) and the Hon'ble Punjab & Haryana High Court in Libert y India Vs. CIT had decided the issue against the assessee. However, there is no merit in holding the assessee to have furnished inaccurate particulars of income in respect of such claim, which was debatable. The assessee has disclosed the material facts relevant for the computation of its income in its return of income and had also furnished a report of C.A., though incomplete. In respect of such a claim, we find no justification in the levy of penalt y where the claim of the assessee is being denied being a debatable issue.
13. The other ground on which deduction under section 80IB was disallowed by the Assessing Officer was non-fulfillment of the conditions prescribed under section 80IB of the Act. The assessee claims that the company was incorporated in 1990 and was engaged in the business of manufacturing of hand tools. In the year 1995 the business activities were switched over by the assessee and had started its unit for the manufacture of scaffolding i.e. the equipment used in the shuttering in construction 10 activities. The yearwise details of addition to machinery & misc fixed assets w.e.f. 1.4.1995 are as under :
"Value as on 1.4.1995 Machinery Misc.fixed assets 1995-96 323351.00 0.00 1996-97 2326286.00 47269.00 1997-98 648320.50 27723.00 1998-99 550557.00 22625.50 1999-00 12111427.00 0.00 2000-01 1985800.00 0.00 2001-02 1823585.00 0.00 (1182140 + 641445) 8869326.90 97617.50 8966944.40 11158876.40"
14. The claim of the assessee vis-à-vis its unit of manufacturing of scaffolding was rejected as the assessee was found to have made small addition to the plant & machinery during the year under consideration as compared to the earlier addition made to the unit. The CIT(A) vide para 5.4 observed as under :
"5.4 As per these details new machinery was introduced from year to year. Though the appellant started this manufacturing activity in the year 1995, as clarified in the details of machinery account given above, it was only in the year 2001-02 that the value of new machinery installed had touched to the tune of Rs. 1,11,58,876/-. The value of old machinery as on 31.3.2002 was of Rs. 21,91,932/- and the value of new machinery as on that date was of Rs. 89,66,944/-. The percentage ratio of this machinery worked out to Rs. 19.64% and of new machinery 80.36%. It was on this account that the appellant has contended that the condition laid down in section 80IB that the new installed 11 machinery should have been in excess of 80% was fulfilled first time in year 2001-02. therefore, though the manufacturing activity in the unit started in the year 1995, the appellant could claim deduction u/s 80IB only first time in the assessment year 2002-03 which is under appeal. In view of the ratio of number of decisions the appellant was entitled to claim such deduction under the circumstances explained above. Decision of Hon'ble Kerala High Court in the case of CIT v Seeyan Plywoods 56 Taxman 296, relied upon by the Ld. counsel is in favour of the appellant as far as this issue is considered. Similarly the case of CIT v Gopal Plastics (P) Ltd 215 ITR 136 (Madras High Court ) also covers the case of the appellant in its favour. Therefore, though ultimately the Hon'ble ITAT upheld the findings of the Assessing Officer with regard to the disallowance of deduction u/s 80IB, in view of the ratio of the above decisions, in the facts & circumstances with regard to the acquisition of new machinery for the industrial undertaking of the appellant, the appellant was not unjustified in claiming the deduction. My predecessor accordingly allowed the claim of the appellant. In his order dated 16.2.2006, my Ld. predecessor has referred to a number of decisions to bring home the point that an assessee could also use the same premises / building for installing the plant and machinery of new unit. In view of the above factual position and the ratio of the decision of the Hon'ble Kerala High Court and the Hon'ble Madras High Court mentioned above, though the Hon'ble ITAT did not agree with the findings best debatable issue. In view of the ratio of the various decisions mentioned in the preceding paragraphs while dealing with the issue of deduction u/s 80IB on export incentives and which have been relied upon by the Ld. counsel in the written submissions reproduced above, again penalty u/s 271 (1)(c) of the Act cannot be held to be justified in respect of the disallowance of claim of deduction u/s 80IB in this case which was a debatable issue and on which more than one opinions were possible. "12
15. In view of the above facts where the assessee had disclosed complete particulars vis-à-vis its claim of deduction under section 80IB of the Act in the return of income filed by it, which was accompanied by audited balance sheet, Profit & Loss Account and also audit report in Form No.10CCB, though incomplete as per the Assessing Officer, there is no merit in levy of penalt y u/s 271(1)(c) of the Act, where claim of assessee is rejected. In the assessment order also there is no charge against the assessee not to have disclosed complete particulars or information required to compute the income for the year under consideration. The question which arises in the present case was whether the claim made by the assessee for deduction under section 80IB of the Act in the above said facts and circumstances was a bonafide claim and whether the rejection of such a claim would attract penalt y leviable u/s 271(1)(c) of the Act. We find that the assessee had discharged its onus in respect of its claim of deduction under section 80IB of the Act. Firstl y by making such a claim vide disclosure in its return of income and accompanying documents and also its bonafides of claiming such deduction in the year under appeal after installation of the machinery. In the facts and circumstances of the case where the assessee had acquired new plant & machinery over a period of years, though the unit was started in the year 1995, the appellant could claim the deduction in assessment year 2002-03 onl y after the value of machinery installed reached 80%, merel y because the claim of deduction under section 80IB of the Act was disallowed, being a debatable issue, there is no merit in the levy of penalt y u/s 271(1)(c) of the Act.
13
16. We find support from the ratio laid down by the Chandigarh Bench of the Tribunal in ACIT Vs. Arisudana Spinning Mills Ltd. (supra). The Tribunal vide para-8 of the order held as under :
8. Now, the question is as to whether the denial of the claim made in the return of income can lead to an automatic imposition of penalty under s. 271 (1)(c) of the Act. It is sufficient to say that the assessment proceedings and the subsequent penalty proceedings are independent proceedings. The findings and conclusions drawn by the authorities in the assessment proceedings are relevant but cannot be construed as conclusive so as to fasten the assessee with the charge of concealment of income and furnishing of inaccurate particulars thereof. A similar situation was before the Hon'ble Punjab & Haryana High Court in the case of Deep Tools (P) Ltd (supra). In the said case too, the assessee had staked claim for deduction u/s 80HHC of the Act, which was declined. The Assessing Officer levied penalty under s. 271 (1)(c) of the Act. The stand of the assessee was that the claim was mistaken but was based on bona fide considerations. The Hon'ble High Court observed that the claim, though untenable, was based on the report of a chartered accountant in terms of s. 80HHC and the said fact led to the conclusion that it was a bona fide mistake. In our view, the said parity of reasoning is applicable in the present case too. In the case of T. Ashok Pal v CIT (2007) 210 CTR (SC) 259: (2007) 292 ITR 11 (SC), Hon'ble Supreme Court also observed that the penalty under section 271 (1)(c) was not exigible where the claim of the assessee was based on the report of an expert. In the present case too, as observed earlier, the accounts of the assessee are duly audited. The return of income was accompanied by the audit report required under s. 80IA and there is nothing to suggest, rather there is no charge against the assessee, that the report of the auditor was collusive.14
17. In view of the above, we confirm the order of the CIT(A) in deleting the penalt y levied under section 80IB of the Act on both counts of denial of deduction under section 80IB of the Act on export incentive and also on account of non-fulfillment of conditions under section 80IB of the Act.
18. Now coming to the facts in I.T.A.No. 778/Chd/2009 relating to assessment year 2003-04, wherein penalty of Rs.60,76,832/- was imposed u/s 271(1)(c) of the Act. The said penalt y was levied by the Assessing Officer on the reduction of claim of deduction under sections 80HHC and 80IB of the Act. The assessee had claimed deduction under section 80HHC of the Act by including DEPB receipts and export incentive as profits of the business. The assessee was held to be not eligible for reduction on said export incentive and as such deduction claimed under section 80HHC of the Act was reduced. Similarl y the income from interest, rebate and discount and excise dut y refund was excluded from the eligible profits of business and the deduction claimed under section 80HHC was recomputed. However, the assessee was held to have furnished inaccurate particulars of income in respect of such claim of deduction and penalty proceedings u/s 271(1)(c) of the Act were initiated and the assessee was held to have furnished inaccurate particulars of income by wrongl y claiming excessive deduction of Rs.77,46,455/-. Further deduction claimed by the assessee under section 80IB of the Act was also disallowed both on export incentive and also because of non- fulfillment of the conditions prescribed under section 80IB of the Act. The assessee was held to have concealed the particulars of income to the 15 extent of Rs.87,89,144/-. The Assessing Officer accordingl y levied penalt y u/s 271(1)(c) of the Act amounting to Rs.60,76,832/-.
19. The learned A.R. for the assessee placed reliance on the circular No.2 of 2006 dated 17.1.2006 wherein it has been provided that where the claim of the assessee for deduction under section 80HHC in DEPB credits has not been allowed, penalt y relating to such disallowance shall not be initiated, if levied, shall be waived by the Chief Commissioner.
20. On the perusal of the record and the order of the Assessing Officer against the order levying penalt y u/s 271(1)(c) of the Act , we find no merit in levy of penalt y u/s 271(1)(c) of the Act on denial of deduction under section 80IB of the Act, in view of our observations in paras hereinabove in respect of penalt y levied u/s 271(1)(c) of the Act relating to assessment year 2002-03. We uphold the order of the CIT(A) in directing the Assessing Officer to delete the penalt y levied u/s 271(1)(c) of the Act in respect of non-allowance of the claim of deduction under section 80IB of the Act.
21. The second aspect of the penalt y levied u/s 271(1)(c) of the Act is the disallowance of deduction under section 80HHC of the Act which was made on the subsequent amendment to the provisions of section 80HHC of the Act in respect of DEPB. The said deduction was disallowed by appl ying provisions introduced by the Taxation Laws (Amendment) Act, 2005. The said amendment being not there at the time of filing of the return, the assessee cannot be held to have furnished inaccurate particulars of income in respect of its claim of deduction under section 80HHC of the Act. Even otherwise where the assessee has made claim 16 bonafidel y, there is no basis for levy of penalt y u/s 271(1)(c) of the Act, where said claim of the assessee has been rejected. We uphold the order of the C IT(A) in this regard in deleting the penalt y levied u/s 271(1)(c) of the Act of non-allowance of deduction under section 80HHC of the Act on export incentives/DEPB. The grounds of appeal raised by the Revenue are dismissed.
22. In the result, appeals of the Revenue for assessment year 2002-03 and 2003-04 are dismissed.
Order Pronounced in the Open Court on this 21 s t day of June, 2011.
Sd/- Sd/-
(D.K.SRIVASTAVA) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 21 s t June, 2011
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
True Copy
By Order
Assistant Registrar, ITAT, Chandigarh
17