Income Tax Appellate Tribunal - Amritsar
Gurdaspur Coop. Sugar Mills Ltd. , ... vs Department Of Income Tax on 13 December, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL: AMRITSAR BENCH: AMRITSAR
BEFORE SHRI H L KARWA, VP AND SHRI D K SRIVASTAVA, AM
ITA No. 245/ASR/2010
AY: 2003-04
DCIT Circle, Pathankot v The Gurdaspur
Cooperative
Sugar Mills Ltd,
Panniar, Gurdaspur
PAN: AAAAT 0586 H
ITA No. 242/ASR/2010
AY: 2003-04
A.C.I.T. Circle II, Amritsar v The Batala Cooperative
Sugar
Mills Ltd, G.T. Road,
Batala
PAN: AAAAT 0925 E
Appellant by: Shri Rakesh Goel
Respondents by: Shri Padam Bahl
Date of hearing: 13.12.2011
Date of pronouncement: 16.12.2011
ORDER
D K Srivastava: While appeal bearing ITA No.245/ASR/2010 filed by the Department in the case of The Gurdaspur Co-op Sugar Mills Ltd. is directed against the order passed by the ld. CIT(A) on 26.3.2010, the other appeal bearing ITA No. 242/ASR/2010 filed by the Department in the case of The Batala Co-op Sugar Mills Ltd. is directed against the order passed by the ld. CIT(A) on 25.3.2010. At the time of hearing, it was submitted by both the parties that the factual matrix of the case and the grounds of appeal taken by the Department in both the cases are identical and therefore they should be disposed off by a consolidated order. In this view of the matter, both the appeals are being disposed off by a consolidated order.
2. In ITA No. 245/ASR/2010, the Department has taken the following grounds of appeal:-
"i) The ld. CIT(A) under the law and circumstances has erred in canceling the penalty amounting to Rs.10,50,00,000/- levied u/s 2 ACIT v.The Batala Coop Sugar Mills DCIT v. The Gurdaspur Coop Sugar Mills ITAs No. 242 & 245/ASR/2010 271(1)(c) of the Income-tax Act, 1961 by holding that since the quantification of claims of earlier years has not yet attained finality, the appellant cannot be held to furnish inaccurate particulars of income by claiming set off of brought forward losses and unabsorbed depreciation of earlier years and this cannot be held to be false claim inviting penalty u/s 271(1)(c) of the Act.
ii) The ld. CIT(A) has erred in law and on facts by not appreciating that penalty has been based on addition made by the AO of Rs.
25,15,00,000/- on account of Grant-in-aid, Rs. 29,07,740/- on account of Distillery expenses and Rs. 3,87,637/- on account of depreciation of distillery unit and not on account of quantification of the brought forward losses and unabsorved depreciation.
iii) The ld. CIT(A) has erred in law and on facts by not appreciating that additions made by the AO on the basis of which the penalty of Rs. 10,50,00,000/- was levied was in fact confirmed by the Hon'ble ITAT, Amritsar Bench, Amritsar.
iv) Appellant craves leave to amend or add any or more grounds of appeal."
3. In ITA No. 242/ASR/2010, the Department has taken the following grounds of appeal:-
"1 Whether on the facts and in circumstances of the case, the ld. CIT(A), Amritsar was justified in law and on the facts in deleting the penalty of Rs. 6,46,34,850/- imposed u/s 271(1)(c) read with explanation 4(a) of the Income-tax Act, 1961.
2 Whether on the facts and in circumstances of the case, the ld. CIT(A), Amritsar was correct in deleting the penalty without appreciating the facts that the addition made in the assessment on which the penalty was levied were upheld both by the ld. CIT(A) , Amritsar and ITAT, Amritsar Bench, Amritsar.
3 Whether on the facts and in circumstances of the case, the ld. CIT(A), Amritsar was correct in deleting the penalty by following the 3 ACIT v.The Batala Coop Sugar Mills DCIT v. The Gurdaspur Coop Sugar Mills ITAs No. 242 & 245/ASR/2010 decision of Hon'ble Supreme Court given in the case of CIT, Ahemedabad v. Reliance Petro Products Pvt Ltd delivered on March 17, 2010.
4 Whether on the facts and in circumstances of the case, the ld. CIT(A), Amritsar was correct in following the Full Bench decision of Hon'ble Punjab & Haryana High Court given in the case of Budhewal Coop Sugar Mills Ltd v. CIT dated 22.5.2009 for deleting the penalty of Rs. 6,46,34,850/- to conclude that since the income is totally exempt us 80P(2)(a)(iii) of the Income-tax Act, 1961 penalty is not leviable.
5 The appellant craves leave to amend or add any more ground(s) of appeal."
4. For the sake of convenience, the facts are being extracted from the record of The Batala Co-operative Sugar Mills Ltd. Briefly stated, the facts of the case are that the assessee, namely, The Batala Co-operative Sugar Mills Ltd. is a cooperative-society registered under the Punjab Cooperative Societies Act. The assessee filed its return of income for the assessment year under appeal on 6.9.2003 declaring income at Rs.49,98,204/- for the year under appeal which was set off against the losses/unabsorbed depreciation brought forward from earlier years. Resultantly, the income declared by the assessee was nil. During the previous year relevant to the assessment year under appeal, the RDF loan was converted by the Government into grant-in-aid amounting to Rs. 31,76,19,858/- out of which a sum of Rs.11,24,19,858/- was offered as income on account of cessation of interest liabilities and the remaining amount of Rs. 20,52,00,000/- was treated as capital receipt and taken to the General Reserve Account. The AO observed that the amount of grant-in-aid taken to the General Reserve Account was in the nature of revenue receipt and consequently added the same to the income declared by the assessee for the year under appeal. After setting off all the business losses and unabsorbed depreciation brought forwarded from earlier years, the total income of the assessee was determined at Rs.2,32,53,690/- in the assessment order passed by the AO u/s 143(3) of the Act on 10.3.2006. While completing the assessment, the AO also initiated penalty proceedings u/s 271(1)(c) of the Act for furnishing inaccurate particulars of income in respect of grant-in-aid, which was not offered to tax by the assessee. The addition of Rs.
4 ACIT v.The Batala Coop Sugar Mills DCIT v. The Gurdaspur Coop Sugar Mills ITAs No. 242 & 245/ASR/2010 20,52,00,000/- made by the AO in the assessment order was subject matter of challenge firstly before the ld. CIT(A) and therefore before this Tribunal. However the aforesaid additions made by the AO were confirmed both by the ld. CIT(A) as also by this Tribunal by its order dated 31.12.2008 in ITA No. 431/ASR/2008.
5. During the course of penalty proceedings before the AO, the assessee namely, The Batala Co-operative Sugar Mills Ltd., contended that the interest accrued on RDF loan pertaining to earlier years amounting to Rs.11,24,19,858/- was offered as income while the principal amount of RDF loan amounting to Rs.20,52,00,000/- converted into grant-in-aid was treated as capital receipt and taken to General Reserve Account. It was further stated that this fact was duly disclosed in Note No. 5 of the statement of income annexed with the return. It was further submitted that such accounting treatment was done on the advice of Shri S.K. Jain, Advocate that the conversion of RDF loan into grant-in-aid was a receipt of capital nature. It was contended by the assessee before the AO that the assessee had acted in a bona fide manner and filed return on the basis of advice from his counsel. It was also contended that all the facts material to the computation of total income were duly disclosed by the assessee in its return of income. The AO did not accept the submissions of the assessee and accordingly levied the impugned penalty for the reasons given in the order of penalty passed by the AO on 29.6.2009.
6. Aggrieved by the order of penalty passed by the AO the assessee filed appeal before the ld. CIT(A) upon which the ld. CIT(A) cancelled the impugned penalty levied by the AO. The ld. CIT(A) has given five main reasons for canceling the penalty. One, the assessee has disclosed all the facts material to the computation of total income in the return of income and other documents accompanying the return of income as also in the course of assessment proceedings and therefore the assessee could not be said to have furnished inaccurate particulars of his income. Two, the assessee has taken the legal advice of Shri S.K.Jain, Advocate according to which the amount of RDF loan converted into grant-in-aid was in the nature of capital receipt and therefore not liable to tax. Three, since the assessee acted in conformity with the legal advice, the assessee can safely be said to have acted bona-fide. Four, the issue as to whether the amount of RDF loan converted into grant-in-aid 5 ACIT v.The Batala Coop Sugar Mills DCIT v. The Gurdaspur Coop Sugar Mills ITAs No. 242 & 245/ASR/2010 was revenue or capital in nature was highly debatable and hence the penalty was not leviable. Five, if the decision of the Full Bench of the Hon'ble jurisdictional High Court in Buddhewal Cooperative Sugar Mills Ltd., 315 ITR 351 (P &H) is applied then entire income of the assessee would be liable to deduction u/s 80P(2(a)(iii) of the Act and in that event the impugned income will not be exigible to be treated as concealed income.
7. In support of appeal, the ld. DR invited our attention to the factual aspects of the case as also to the order of penalty passed by the AO. It was submitted that the amount added or disallowed in computing the total income of the assessee is deemed to represent the income in respect of which the particulars have been concealed, in terms of Explanation 1 to Section 271(1)(c) of the Act. It was further submitted that the amount of RDF loan converted by the Government into grant-in-aid has been held to be in the nature of revenue receipt not only by the AO but also by the ld. CIT(A) and this Tribunal and therefore the said addition would be deemed to represent the income in respect of which the particulars have been concealed by the assessee in terms of Explanation 1 to section 271(1)(c) and therefore the impugned penalty should be sustained. It was also submitted that mere advice obtained from Shri S.K. Jain, Advocate for treating the amount of loan converted by the Government into grant-in-aid as capital receipt cannot exonerate the assessee from its liability to penalty. For the reasons given in the assessment/penalty order, it was submitted that there was no full and true disclosure of facts material to the computation of total income, by the assessee.
8. In reply, the ld. authorised representative for the assessee supported the order passed by the ld. CIT(A) .
9. We have heard both the parties and carefully considered their submissions. The assessee is a cooperative society. Its accounts are duly audited. The assessee has placed before us a copy of statement of taxable income for the assessment year under appeal as filed along with the return of income before the AO and submitted that the assessee has stated in the said statement that a sum of Rs.22,52,00,000/- being RDF loan was converted by the Government as grant-in-aid and taken to the General Reserve Account. The aforesaid factual position is quite apparent on bare perusal of the statement of 6 ACIT v.The Batala Coop Sugar Mills DCIT v. The Gurdaspur Coop Sugar Mills ITAs No. 242 & 245/ASR/2010 income filed by the assessee along with the return of income before the AO. As stated earlier, the assessee is a cooperative society. Its accounts are duly audited in which the said sum has been duly reflected. It was by way of caution that the assessee chose to specifically indicate in the statement of income that a sum of Rs.22,52,00,000/- being RDF loan has been converted by the Government into grant-in-aid and taken to the General Reserve Account. On the facts of the case, we are unable to hold that the assessee has not made full and true disclosure of all the relevant facts in the return of income and the statements accompanying the return. We confirm the findings of the ld. CIT(A) in this behalf.
10. We also find that the assessee has sought the advice of Shri S.K.Jain, Advocate in the matter by its letter dated 30.10.2003. It is on the advice of its counsel that the assessee has treated the impugned receipt as capital receipt. Copy of advice given by Shri SK Jain has been placed by the assessee before us. As held by the ld. CIT(A), the assessee has not only sought legal advice but also acted on the same while filing the return of income. The fact that the assessee sought the legal advice in the matter also indicates that it acted bona fide in the matter. The ld. CIT(A) has given detailed reasons in his appellate order in this behalf. We are in agreement with them.
11. Explanation 1 to Section 271(1)(c) of the Act reads as under:-
"Explanation 1 - Where in respect of any facts material to the computation of the total income of any person under this Act:-
(A) such person fails to offer an explanation or offers an explanation which is found by the (Assessing) Officer or the (Commissioner (Appeals) (or the Commissioner) to be false, or (B) such person offers an explanation which he is not able to substantiate (and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him).
then, the amount added or disallowed in computing the total income of such person as a result thereof shall, for the purposes of clause (c) of this sub-section, be deemed to represent the income in respect of which particulars have been concealed."
12. The case of the assessee is fully covered by clause (B) of Explanation 1 to Section 271(1)(c) of the Act. It is a fact that the assessee has offered 7 ACIT v.The Batala Coop Sugar Mills DCIT v. The Gurdaspur Coop Sugar Mills ITAs No. 242 & 245/ASR/2010 explanation for treating the impugned receipt as capital receipt but that explanation has not been accepted by the AO. In such a situation, what has to be seen is whether the assessee has acted bona-fide and disclosed all the facts material to the computation of total income. We have already held above that the assessee has made full and true disclosure of all the facts material to the computation of its total income and that the assessee has also acted bona-fide in as much as it has acted on the advice of Shri S.K. Jain, Advocate, who was competent to give advice in the matter. In such a situation the mere fact that the explanation given by the assessee has been rejected by the AO and resultantly the amount has been added/disallowed in computing the total income of the assessee cannot be deemed to represent the income in respect of which the particulars have been concealed.
13. In view of the foregoing, the order of the ld. CIT(A) is confirmed. Appeal filed by the Department is dismissed.
14. As stated earlier, the facts and grounds of appeal in the case of The Gurdaspur Coop Sugar Mills Ltd. are identical with those in The Batala Coop Sugar Mills Ltd. We have already confirmed the order of ld. CIT(A) in the case of the Batala Coop Sugar Mills Ltd. Following the same, the order passed by the ld. CIT(A) in the case of the Gurdaspur Coop Sugar Mills Ltd. is also confirmed. Appeal filed by the Department is dismissed.
Order pronounced on 16.12.2011
Sd/- Sd/-
(H L KARWA) (D K
SRIVASTAVA)
VICE PRESIDENT ACCOUNTANT
MEMBER
Amritsar, 16.12.2011
SURESH
Copy to:-
1. The Appellant, The Gurdaspur Coop Sugar Mills Ltd./The Batala Coop Sugar Mills Ltd.
2. The Respondent, DCIT/ACIT
3. The CIT(A), Amritsar
4. The Ld. CIT, Amritsar
5. The D.R., Income Tax Department, Amritsar 8 ACIT v.The Batala Coop Sugar Mills DCIT v. The Gurdaspur Coop Sugar Mills ITAs No. 242 & 245/ASR/2010