Income Tax Appellate Tribunal - Ahmedabad
Transpek Silco Industry Ltd, Baroda vs Assessee on 29 July, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH 'D', AHMEDABAD
BEFORE SHRI MAHAVIR SINGH, JM AND SHRI DC AGARWAL, AM
I.T.A. No.1503/A/2009 - 2003-04
I.T.A. No.1504/A/2009 - 2004-05
M/s Transpek Silox Industry Ltd vs Asst.Commissioner of Income-tax
Kalali Road, Atladra Cir.4, Baroda
Baroda
PAN : AAACT3739J
(Appellant) (Respondent)
I.T.A. No.1768/A/2009 - 2003-04
I.T.A. No.1769/A/2009 - 2004-05
ACIT, Cir.4 vs M/s Transpek Silox Industry Ltd
Baroda Baroda
(Appellant) (Respondent)
Assessee by : Shri DK Parikh
Revenue by : Shri CK Mishra
ORDER
D.C. Agarwal : These four appeals two by the assessee and two by the revenue are cross appeals for the assessment years 2003-04 and 2004-05 and are directed against the independent but identical orders of the Learned Commissioner of Income Tax (Appeals)-III, Baroda whereby he has partially confirmed the penalty levied u/s 271(1)(c) of the Act.
2. There is a preliminary objection raised by the registry with regard to the appeals filed by the assessee. The assessee paid appeal fees of Rs.500 each for the appeals filed by it whereas it is the objection of the registry that the assessee should pay appeal fee of Rs.10,000 each for both the appeals filed by it.
3. We have heard the parties on this preliminary objection raised by the registry. The learned counsel for the assessee submitted that as per the decision of the Hon'ble Patna High Court in the case of Dr Ajitkumar Paney vs ITAT (2009) 310 ITR 195 (Pat) and the judgement of the Hon'ble Bombay 2 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09 High Court in the case of Gilbs Computers Ltd vs ITAT in Writ Petition No. 1021 of 2009 dated July 29, 2009 the assessee is required to pay a fees of Rs.500 only in cases where the appeal is filed in respect of penalty levied under the Income-tax Act. After hearing the parties we hold that the fee paid by the assessee is in accordance with the provisions of section 253(6) of the Income-tax Act, 1961 and therefore, there is no short payment of appeal fees in these appeals. Accordingly we proceed to decide the appeals on merit.
4. We first take up the cross appeals for the assessment year 2003-04. The assessee, in its appeal, has raised the following grounds:
"Your appellant being dissatisfied with the order passed by the Honorable Commissioner of Income Tax (Appeals) III, Baroda dated 10-03-2009 represents its appeal against the said order on the following amongst other grounds:-
Ground No.1:
The order passed by the Honorable Commissioner of Income Tax (Appeals) is bad in law, contrary to legal pronou8ncements and same be quashed.
Ground No.2 The Ld.CIT(A)-II, Baorda has erred in confirming the penalty leviable on depreciation on technical know how of Rs.706589 without appreciating the facts submitted during the course of assessment proceedings. It is therefore, submitted that the penalty confirmed by the Hon'ble Learned Commissioner of Income Tax (Appeals) is unjust and uncalled for. It be held so now and penalty be deleted.
Ground No.3:
3. Your appellant submits that the provisions of section 271(1)(c) are not applicable in the case of your appellant since your appellant has neither concealed any particulars of income nor furnished any inaccurate particulars of income. Your appellant submits that the penalty confirmed by the CIT(A be deleted."
The revenue in its cross appeal has raised the following effective ground of appeal:
3 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09 "1. On the facts and in the circumstances of the case, the Learned Commissioner of Income Tax (Appeals) erred in deleting the penalty levied u/s 271(1)(c) on disallowance of deduction u/s 80IB of Rs.3,27,954/- and deduction u/s 80HHC of Rs.1,05,09,298/- overlooking the ratio laid down by the apex court in the case of Dharmendra Textile Processors 306 ITR 277 (SC) wherein it was laid down that penalty u/s 271(1)(c) was civil wrong & mens rea is not required to be established."
5. The facts of the case are that the assessee company is engaged in the business of manufacturing zinc dust, zinc oxide, sodium hydro sulphate and sodium formaldehyde. For the assessment year 2003-04 the return of income was filed on 22-10-2003 declaring total income at Rs.9,41,83,843. The assessing officer made the following additions / disallowances:
1. Miscellaneous expenses - Rs. 4,89,443
2. Depreciation on technical know how - Rs. 7,06,589
3. Deduction u/s 80IB - Rs. 3,44,917
4. Deduction u/s 80HHC - Rs.1,21,69,750 On appeal, the Learned Commissioner of Income Tax (Appeals) granted the following reliefs to the assessee:
:
1. Miscellaneous expenses - Rs. 1,00,000
2. Deduction u/s 80IB - Rs. 16,963
3. Deduction u/s 80HHC - Rs.16,60,452 The revenue carried the matter to the Tribunal and the Tribunal vide their order dated 26-03-2008 set aside the issue to the file of the assessing officer in respect of miscellaneous expenses. The addition pertaining to depreciation and technical know how had become final at the first appellate stage itself as the assessee did not press the same before the first appellate authority. In respect of deduction u/s 80IB the assessing officer allowed a deduction of Rs.7,50,20,647 as against a claim of Rs.7,53,48,601. In respect of deduction u/s 80HHC the original claim was Rs.2,30,14,603 and it was 4 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09 finally allowed at Rs. 1,25,05,305. The total income of the assessee company was accordingly revised to Rs.10,58,27,684 as against declared income of Rs.9,41,83,843.
6. In response to show cause notice u/s 274 r.w.s. 271(1)(c) the assessee furnished the following explanation:
"We request you to kindly drop the penalty proceedings since we have neither concealed any income nor we have filed any inaccurate particulars of income. Mere not accepting the facts submitted during the assessment proceedings does not attract the penalty. The addition made during the assessment proceedings can not be treated as filing of inaccurate particulars or concealing income as held in the case of National Textiles v/s CIT (Guj). We request you to kindly take a sympathetic view in the matter and drop the penalty proceedings."
7. The assessing officer was however not satisfied. He held that addition has been confirmed by the Tribunal. There is a deemed concealment under Explanation 1 to section 271(1)(c). Therefore, he imposed a penalty of Rs.42,79,111.
8. On appeal, the first appellate authority noted that while filing return of income the assessee had claimed deduction u/s 35AB at Rs.6,28,029 being 1/6th of Rs.37,68,486 and also claimed depreciation on technical know how at Rs.7,06,589. Thus, the first appellate authority held that to the extent of the claim of depreciation the assessee has concealed the income. Therefore, the imposition of penalty on this account was confirmed.
8.1 With regard to the variation in income in respect of deductions u/s 80IB and 80HHC, the first appellate authority noted that the difference was on account of foreign exchange fluctuation and interest amount taken as business income. In quantum proceedings, the Learned Commissioner of Income Tax (Appeals) had directed to consider the interest receipt as net of payment but while giving effect the assessing officer did not consider the same for calculation of deduction u/s 80IB. The Learned Commissioner of 5 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09 Income Tax (Appeals) accordingly held that the claim of the assessee was a bona fide claim which was supported by tax audit reports and other relevant material. The assessing officer had disallowed a part of the claim after working out the same from such details furnished by the assessee. The working done by the assessee was a matter of dispute and there are conflicting decisions on the same. Therefore, no penalty can be imposed on the same, 8.2 The Learned Commissioner of Income Tax (Appeals) has also noted that the addition in respect of miscellaneous expenses has been set aside by the Tribunal and it was only an adhoc disallowance, therefore, no penalty is leviable.
9. The assessee is in appeal before us in respect of the penalty sustained by the Learned Commissioner of Income Tax (Appeals) whereas the revenue is in appeal before us in respect of the penalty cancelled by the Learned Commissioner of Income Tax (Appeals).
10. Before us, the learned AR for the assessee submitted that there has been a bona fide mistake on the part of the auditor who had not actually checked up whether deduction u/s 35AB has already been allowed or not and therefore, there is no case for claiming depreciation on technical know how. Since the Chartered Accountant had certified, the principal officer of the company had signed the return believing on what the auditor had said and such there is no mala fide act on the part of the assessee. In fact, the mistake is bona fide for which the penalty should not be levied. He relied on the decision of the ITAT Delhi Bench in the case of Mahavir Irrigation Pvt Ltd vs CIT (2009) 314 ITR (AT) 150 (Del); CIT vs Haryana Warehousing (2009) 314 ITR 215 (P&H); CIT vs Deep Tools Pvt Ltd (2005) 274 ITR 603 (P&H).
11. On the other hand, the learned departmental representative submitted that it is incorrect to rely on the order of the Learned Commissioner of Income Tax (Appeals).
6 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09
12. After considering the rival submissions and carefully perusing the material on record, we are of the considered view that penalty in respect of miscellaneous income has been rightly deleted by the Learned Commissioner of Income Tax (Appeals) as the addition was made on estimate basis and the same was also set aside by the Tribunal to the file of the assessing officer. Regarding penalty on depreciation on technical know how, we are of the view that the assessee had actual bona fide in believing on the report of the statutory auditors and therefore, it cannot be said that the assessee did not act bona fide. The Hon'ble Punjab & Haryana High Court in CIT vs Deep Tools Pvt Ltd (supra) held that there should be something to show that the mistake by the Chartered Accountant or auditor was not bona fide and mere fact that certificate issued by the auditors or the chartered accountant was not in accordance with the statutory provisions is not enough to hold that mistake was not bona fide. In any case, so far as the assessee is concerned, no mala fide can be attributed to it as the claim for deduction was based on the certificate issued by the auditors with whom no collusion has been proved. ITAT, Ahmedabad bench in Indian Petrochemicals Corporation Ltd vs JCIT (2009) 315 ITR (AT) 40 also held that where assessee acted under bona fide belief the penalty was not exigible. As a result, we cancel the penalty upheld by the Learned Commissioner of Income Tax (Appeals). In respect of deduction u/s 80IB & 80HHC we are of the considered view that there are divergent views on the issue whether deduction u/s 80HHC and 80IB would be available in respect of sales-tax, excise duty, interest or not and as to whether they should be included in the total turnover or not. The issue has been only subsequently settled but for that matter it cannot be said that the claim of the assessee was not bona fide. For the authorities referred to above by us, we hold that once the claim is made by the assessee under a belief either because of a certificate from the auditors or because of judicial pronouncements or because of other legal advice then on disallowance of such claim penalty cannot be levied.
7 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09 12.1 In the case of CIT vs Caplin Point Laboratories Ltd (2007) 293 ITR 524 (Mad), the Hon'ble Mara High Court upheld the cancellation of penalty levied on excess claim of deduction u/s 80HHC and 80I by holding that assessing officer was not able to prove that the claim of the assessee for deduction under these sections was not bona fide. Thus, merely rejecting the claim of the assessee by relying on different interpretation did not amount to concealment of particulars of income or furnishing of inaccurate particulars of income by the assessee.
12.2 The learned departmental representative basically relied on the decision of the Hon'ble Supreme Court in the case of Dharmendra Textile Processors 306 ITR 277 (SC) wherein it is held that penalty u/s 271(1)(c) is not a civil wrong and mens rea is not required to be established. This judgment was considered by the Hon'ble Punjab & Haryana High Court in the case of Haryana Warehousing Corporation (2009) (supra) wherein it is held that the issue arose before the Apex Court was u/s 11C inserted in the Central Excise Act, 1944 by the Finance Act, 1996 where penalty for evasion of payment of tax had to be mandatorily levied irrespective of the fact whether it was an intentional or innocent omission. Thus, the Apex Court was examining a proposition whether mens rea was an essential ingredient before levy of penalty u/s 11AC of the Central Excise Act, 1944. We, therefore, are of the considered view that the ratio of the decision of the Hon'ble Apex Court in Dharmendra Textile Processors (supra) cannot be imported in general in the case where penalty is sought to be levied u/s 271(1)(c) of the Act. It is to be seen strictly within the parameters of provisions of section 271(1)(c) including explanations. Explanation to section 271(1)(c) has in fact thrown back the onus on the assessee provided conditions laid down in clauses (A) and (B) to Explanation 1 are satisfied. The onus for them is also on the revenue to show that conditions laid down in those clauses are satisfied. Once the revenue discharges the onus then it raises a presumption of deemed concealment which has to be rebutted by the assessee. Where there is no such rebuttal penalty is required to be levied. Thus, as such mens rea has no active role to play except strengthening the inference drawn in the 8 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09 main provision or in the Explanations. In the present set of facts deduction has been claimed by the assessee under statutory interpretations held by various courts which was also upheld partly by appellate authorities. Therefore, the question of holding that assessee's case will fall in the Explanation and accordingly would be a case of deemed concealment would also not arise. In fact, no case is made out that either the condition laid down in clause (A) or clause (B) of Explanation 1 are satisfied. The assessing officer had in fact after referring to clauses (A) & (B) of Explanation 1 immediately switched over to main provisions of section 271(1)(c) of Act and gave a finding that assessee has furnished inaccurate particulars without there being any material on record to support such conclusion. In fact the Hon'ble Gujarat High Court has held that in National Textiles Ltd vs CIT (2001) 249 ITR 125 (Guj) that there should be something on record to show that addition proposed by the assessing officer was income of the assessee. It was held therein that in order to justify levy of penalty two factors must co- exist; one is there must be some matter or circumstances leading to the reasonable conclusion that amount did represent assessed income. It is not enough for the purposes of penalty that amount has been assessed as income and consequently there should be circumstances to show that there was animous conscious concealment. Explanation 1 only concerns with second factor, i.e. it creates a case of deemed concealment or deemed animous. No penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that amount does not represent concealed income with the hypothesis that it does.
13. In view of the above discussion, we are of the view that the assessing officer has not made out a case of levy of penalty either under the main provision of the section or under the Explanation provided therein. Accordingly, the penalty sustained by the Learned Commissioner of Income Tax (Appeals) is cancelled and the cancellation of the penalty by the Learned Commissioner of Income Tax (Appeals) is upheld. As a result, the appeal filed by the assessee for assessment year 2003-04 is allowed and that filed by the revenue is dismissed.
9 ITA1503 & 1504/A/09 ITA 1768 & 1769/A/09
14. Now we take up the cross appeals for the assessment year 2004-05. The facts and the circumstances for assessment year 2003-04 are undisputedly identical to this assessment year also. Therefore, the reasons and the decision given therein are squarely applies to the appeals for assessment year 2004-05 also. Respectfully following the same, we allow the appeal filed by the assessee and dismiss the appeal filed by the revenue.
15. In the result, the appeals filed by the assessee are allowed and the appeals filed by the revenue are dismissed.
16. Order pronounced on 13th day of November, 2009.
Sd/- sd/-
(Mahavir Singh) (D.C. Agarwal)
Judicial Member Accountant Member
Ahmedabad, Dt : 13th November, 2009
pk/-
Copy to:
1. the appellant
2. the respondent
3. the CIT-(A)
4. the CIT
5. the DR, "D" Bench
/True copy/ Dy. Registrar / Asst.Registrar
ITAT, Ahmedabad Benches