Income Tax Appellate Tribunal - Mumbai
Cherokee India P. Ltd, Mumbai vs Assessee on 20 July, 2011
1
ITA2909/M/2010
M/s Cherokee India P. Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C"
BEFORE SHRI D.K. AGARWAL, J.M. AND SHRI R.K. PANDA, A.M.
ITA No. 2909/Mum/2010
Assessment year 2004-05
Cherokee India Pvt. Ltd., ACIT 8(1),
Unit 94/95, SDF III, CIT-VIII, Aaykar Bhawan,
SEEPZ, Andheri (E), M.K. Road,
MUMBAI -96. Vs. Mumbai.400020.
PAN AABCC5480G
Appellant Respondent
Appellant by Shri Ramesh Iyer
Respondent by Shri P.K.B. Menon
ORDER
PER R.K. PANDA A.M. This appeal filed by the assessee is directed against the order dt. 01.02.2010 of CIT(A)- 16, Mumbai relating to A.Y. 2004-05.
2. The assessee in its grounds of appeal has challenged the order of the ld. CIT(A) in confirming the penalty levied by the A.O. u/s 271(1)(c) of the Act.
3. Facts of the case, in brief, are that the assessee company is engaged in the business of manufacturing of PCB assemblies and magnetic components. The assessee company in the return of income filed had claimed deduction u/s 80HHC amounting to ` 15,40,527/-. During the course of assessment proceeding, the A.O. noted that the assessee has claimed deduction u/s 80HHC without setting off the brought forward losses of earlier years. In view of the decision of Hon'ble Supreme Court in the case of Ipca laboratories vs. DCIT reported in 266 ITR 521, the A.O. was of the opinion that the assessee is 2 ITA2909/M/2010 M/s Cherokee India P. Ltd.
not entitled to claim deduction u/s 80HHC since it was having brought forward losses of earlier years resulting in net losses. He, therefore, confronted the same to the assessee. Rejecting the various explanations given by the assessee, the A.O. disallowed the claim of deduction u/s 80HHC on the ground that after taking into account both the unabsorbed depreciation as well as brought forward loss, the assessee is not entitled to get any deduction u/s 80HHC.
3.1 The A.O. further noted that the assessee has paid employees' contribution to provident fund and ESIC after the specified due date. Rejecting the various explanations given by the assessee, the A.O. disallowed an amount of ` 3,46,083/- being the amount paid after specified due date. The A.O. also disallowed an amount of ` 9812/- being the interest on delayed payment of TDS.
3.2 Subsequently, the A.O. initiated penalty proceedings u/s 271(1)(c) of the Act . Rejecting the various explanations given by the assessee, the A.O. held that had the assessee's case not been selected for scrutiny, the assessee could have benefited by filing inaccurate particulars of income and the assessee took a chance with the Department by filing inaccurate particulars of income. Since the assessee in the instant case has claimed excess deduction which it was not entitled to claim, therefore, provisions of section 271(1)(c) are clearly attracted. He, accordingly, levied penalty of ` 5,66,390/- being the minimum penalty leviable u/s 271(1)(c). In appeal, the ld. CIT(A) upheld the action of the A.O. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before us.
4. The ld. Counsel for the assessee submitted that the decision of the Hon'ble Supreme Court in the case of Ipca Laboratories (supra) relied on by the A.O. is not applicable to the facts of the present case. The decision of the Hon'ble Supreme Court came in the month of March, 2004 and the assessee 3 ITA2909/M/2010 M/s Cherokee India P. Ltd.
filed its return in the month of October, 2004. He submitted that the Hon'ble Bombay High Court in the case of Godrej Agrovet Ltd. ACIT reported in 164 Taxman 256 after considering the decision in the case of Ipca Laboratory Ltd. (supra) has held that if there is profit from export activity, the question of adjusting any losses as enunciated by the Apex Court in the case of IPCA laboratory Ltd. (supra) does not arise at all. Thus, inspite of the order of the Hon'ble Apex Court in the case of IPCA Laboratory Ltd. (supra), the matter is not conclusive in case the assessee has profits from export activities. The same is the case with the assessee for the relevant year since it is having profits during the year. It was only in the judgment of the Hon'ble Supreme Court in the case of CIT vs. Shrike Construction Equipment Ltd. reported in 161 Taxman 212 that the Hon'ble Supreme Court held that for determining business profits u/s 80HHC, the unabsorbed business losses of the earlier years should be set off u/s 72 of the Act before claiming deduction u/s 80HHC. The above decision of the Hon'ble Apex Court came after filing of the return. Therefore, when a legal decision is not free from doubts at the time of filing of the return of income and since the assessee has taken the benefit of the decision which is in its favour, therefore, it cannot be said that the assessee has made a wrong claim and therefore no penalty u/s 271(1)(c) of the Act is attracted.
4.1 So far as the penalty levied on account of addition of delayed payment of PF and ESIC beyond the grace period, he submitted that out of the total disallowance of ` 3,46,083/- made by the A.O., an amount of ` 56,326/- was sustained by the ld. CIT(A). He submitted that there was no willful default or deliberate act on the part of the assessee to conceal the said facts since full details were filed in the tax audit report filed along with the return of income. Therefore, it cannot be said that the assessee has filed inaccurate particulars of income or concealed the particulars of income.
4ITA2909/M/2010 M/s Cherokee India P. Ltd.
4.2 As regards the penalty levied on account of disallowance of interest paid on delayed payment of TDS, he submitted that it was due to oversight that the said amount was not added to the total income. He submitted that the amount is very small and is negligible and was clearly disclosed in Schedule 'M' to the accounts which were filed along with the return of income. He also relied on the following judicial pronouncements:-
1. UOI vs. Rajasthan Spg. & Wvg. Mills (2009) 23DTR(SC)158
2. CIT vs. Haryana Warehousing Corporation(2009) 25 DTR(P&H)194
3. IPCA Laboratory Ltd. v. DCIT[2004] 135 Taxman 594(SC)
4. CIT v. Shirke Const. & Equipment Ltd. [2007] 161 Taxman 212(SC)
5. Godrej Agrovet Ltd. v. ACIT [2007] 164 Taxman 258 (Bom)
6. CIT v. Reliance Petroproducts Pvt. Ltd.
7. Pfizer v. DCIT [2011] 9 Taxmann.com 105 (Mum)-Trib)
8. UOI v. Dharmendra Textile Processors
5. The ld. D.R., on the other hand, supported the order of the ld. CIT(A). He submitted that had the assessee's case not been selected for scrutiny, the assessee would not have paid the legitimate tax due to the government. This is a clear case of filing of inaccurate particulars of income. Therefore, provisions of section 271(1)((c) of the Act are clearly attracted. He accordingly submitted that the order of the ld. CIT(A) be upheld.
6. We have considered the rival submissions made by both the sides, perused the orders of the A.O. and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the penalty has been levied u/s 271(1)(c) in the impugned case on account of three additions namely (a) disallowance of deduction u/s 80HHC of ` 15,40,527/-, (b) addition of ` 56,326/- on account of delay in 5 ITA2909/M/2010 M/s Cherokee India P. Ltd.
payment of PF and ESIC beyond the grace period and (c) disallowance of ` 9812/- on account of interest paid on delayed payment of TDS.
6.1 So far as the disallowance of deduction u/s 80HHC is concerned, it is an admitted fact that the gross total income of the assessee during the year ` 55,73,812/-. The assessee claimed deduction u/s 80HHC from the above gross total income and thereafter adjusted the brought forward losses. According to the Revenue, in view of the decision of the Hon'ble Supreme Court in the case of Ipca laboratory Ltd. (supra), the brought forward loss has to be first adjusted and if any further profit is available after adjusting the same brought forward loss then only such profit is eligible for deduction u/s 80HHC. It is the submission of the ld. Counsel for the assessee that in view of the decision of the Hon'ble Bombay High Court in the case of Godrej Agrovet Ltd. (supra) when there is profit from export activity, the question of adjusting any losses as enunciated by the Hon'ble Apex Court in the case of Ipca Laboratory Ltd. (supra) does not arise at all. Thus even after the decision of Hon'ble Supreme Court in the case of Ipca Laboratory Ltd. (supra) there was a favourable decision by the judgment of Hon'ble High Court. The matter was settled only after subsequent decision of the Hon'ble Supreme Court in the case of Shirke Construction Equipment Ltd. (supra). The above decision of the Hon'ble Apex Court came after the filing of the return of income. Therefore, the claim of deduction u/s 80HHC out of the current year profit before adjusting the brought forward loss may not be correct in view of the decision of Hon'ble Supreme Court. However, the same in our opinion, will not amount to furnishing of inaccurate particulars of income or concealment of income so as to attract levy of penalty u/s 271(1)(c). In view of the decision of the Hon'ble jurisdictional High Court after the decision in the case of Ipca Laboratory Ltd., the issue was not free from doubts and was a debatable issue. It is the settled proposition that penalty u/s 271(1)(c) cannot be levied on debatable issues. Further, full particulars were furnished by the assessee in the audit report filed 6 ITA2909/M/2010 M/s Cherokee India P. Ltd.
along with the return of income. Under these circumstances, we are of the considered opinion that this is not a fir case for levy of penalty u/s 271(1)(c) of the Act.
6.2 So far as the penalty levied on addition on account of delayed payment of PF and ESIC is concerned, we find although some of the payments have been paid after the grace period but all the payment were made before filing of return of income which is evident from para 5 of the assessment order. Merely because addition has been sustained in the appellate order which has not been challenged by the assessee in appeal, the same in our opinion, cannot automatically attract levy of penalty u/s 271(1)(c) of the Act. Full particulars were furnished by the assessee in the audit report filed. Therefore, it cannot be said that the assessee has concealed its particulars of income. In this view of the matter, we are of the considered opinion that the CIT(A) is not justified in sustaining the penalty on addition of ` 56,326/-.
6.3 As regards the levy of penalty on account of addition of ` 9812/- being interest on delayed payment, we find merit in the submission of the ld. Counsel for the assessee that this was a mistake committed by the assessee. Due to smallness of the amount, it went un-noticed and could not be added to the computation of income although full details are available in the Schedule 'M' of the audited accounts which were filed along with the return of income. Therefore, in our opinion, it is not a fit case for levy of penalty on account of addition of ` 9812/-.
6.4 Considering the totality of the facts of the case and in the light of the ratio of the various decisions relied on by the ld. Counsel for the assessee, we are of the considered opinion that this is not a fit case for levy of penalty u/s 271(1)(c) of the Act. We, therefore, set aside the order of the ld. CIT(A) and direct the A.O. to cancel the penalty.
7ITA2909/M/2010 M/s Cherokee India P. Ltd.
7. In the result, the appeal filed by the assessee is allowed.
Order pronounced on 20.7.2011.
Sd/- sd/-
(D.K. AGARWAL) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, dated 20.7.2011.
RK
Copy to...
1. The appellant
2. The Respondent
3. The CIT(A) - 16, Mumbai
4. The CIT - 8 Mumbai
5. The DR Bench, "C"
6. Master File
// Tue copy//
BY ORDER
DY/ASSTT. REGISTRAR
ITAT, MUMBAI
8
ITA2909/M/2010
M/s Cherokee India P. Ltd.
Date Initials
1 Draft dictated on 12.7.2011, Sr. PS
14.7.11
2 Draft placed before the Author 13.7.2011,14.7.11 Sr. PS
3 Draft placed before the second
Member
4 Approved draft comes to the Sr. Sr. PS
PS
5 Kept for pronouncement on Sr. PS
6 File sent to the Bench Clerk Sr. PS
7 Date on which file goes to the
Head Clerk
8 Date on which file goes to the AR
9 Date of dispatch of order