Income Tax Appellate Tribunal - Mumbai
Dai Ichi Karkaria Ltd, Mumbai vs Assessee on 6 November, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D", MUMBAI
Before Shri B.R. Mittal, Judicial Member
and Shri P.M.Jagtap, Accountant Member
I.T.A. No.2101/Mum/2011.
Assessment Year : 2000-01.
Dai-Ichi Karkaria Ltd., Dy. Commissioner of
Liberty Building, Vs. Income-tax,
Sir Vithaldas Thakarasey Marg, Range-1(1),
Mumbai - 400 028. Mumbai.
PAN AAACD 0548F
Appellant. Respondent.
Appellant by : Shri H.P. Mahajan.
Respondent by : Shri Parthasarthy Naik.
Date of hearing : 06-11-2012
Date of pronouncement : 11-01-2013.
ORDER
Per P.M. Jagtap, A.M.
This appeal filed by the assessee is directed against the order of learned CIT(Appeals)-I, Mumbai dated 07-10-2010 whereby he confirmed the penalty of Rs.88,48,499/- imposed by the AO u/s 271(1)(c) of the Act.
2. The assessee in the present case is a company which is engaged in the business of manufacturing of speciality chemicals, oil field chemicals, pharmaceuticals etc. The return of income for the year under consideration was originally filed by it on 29-11-2000 declaring a loss of Rs.1,45,55,234/- which was accepted u/s 143(1). Subsequently, a search was conducted in the case of the assessee on 25-06-2004 and pursuant to the said search, assessment was completed 2 ITA No.2101/Mum/2011 u/s 153A assessing the total income of the assessee at Rs.80,38,610/- after making addition, inter alia, on account of compensation award of Rs.2,29,83,115/- received by the assessee from ONGC. The said addition was disputed by the assessee in an appeal filed before the learned CIT(Appeals). However, request was made by the assessee to the learned CIT(Appeals) for granting permission to withdraw the said appeal and acceding to the said request, the learned CIT(Appeals) dismissed the appeal of the assessee as withdrawn vide his appellate order dated 03-05-2007. Thereafter a notice was issued by the AO to the assessee on 24-03-2009 requiring it to show cause as to why penalty u/s 271(1)(c) should not be imposed in respect of addition made to its total income on account of compensation award received from ONGC. In reply, it was submitted on behalf of the assessee that the award from ONGC had not become final during the year under consideration as the matter was disputed by the ONGC and it was pending before the Hon'ble Bombay High Court. It was contended that the award was finally decided in faovur of the assessee by the Hon'ble Bombay High Court in the previous year relevant to assessment year 2007-08 and although the same was taxable in assessment year 2007-08, the assessee accepted the addition made in assessment year 2000-01 by withdrawing its appeal filed before the learned CIT(Appeals) to avoid any further litigation. It was also contended that all the facts relevant to its claim in respect of compensation award from ONGC in any case were fully disclosed by the assessee in its return of income filed originally and it was not a case of concealment of particulars of its income by the assessee or furnishing of inaccurate particulars of such income so as to attract penalty u/s 271(1)(c). The AO did not find merit in this submission made on behalf of the assessee. According to him, the order of arbitration award was not only confirmed in favour of the assessee but even the amount of such award was released to the assessee by the Hon'ble Bombay High Court on furnishing of bank guarantee in the year under consideration. He held that 3 ITA No.2101/Mum/2011 the said amount, therefore, was taxable in the hands of the assessee in the year under consideration and by not offering the same to tax, the assessee had furnished inaccurate particulars of its income leading to the concealment of the particulars of such income. He, therefore, imposed the penalty of Rs.88,48,499/- u/s 271(1)(c) being 100% of the tax sought to be evaded by the assessee in respect of addition made on account of compensation award received from ONGC.
3. The penalty imposed by the AO u/s 271(1)(c) was challenged by the assessee in an appeal filed before the learned CIT(Appeals) and the following facts in relation to the issue of compensation award were brought to the notice of the learned CIT(Appeals) by the assessee :
"1. The Appellant Company has supplied material 'pour point depressant' in the year 1988-89 under a contract with ONGC.
2. ONGC had withheld amount of Rs.92.30 lacs towards 'dosage variance' and liquidated damages. Both parties referred the matter to Arbitration as epr terms of contract.
3. The sole Arbitrator Justice B.J. Diwan passed an award with interest in favour of the appellant company on 14th January, 1997.
4. Award was challenged by ONGC in Bombay High Court. Single Judge Bench of Bombay High Court confirmed arbitration award vide order dated 1st October, 1997.
5. Petition filed by ONGC before Division Bench of Bombay High Court against the above order and admitted on 13th February, 1998.
6. Interim order of Division Bench dated 13th February, 1998 with a direction to ONGC to deposit Rs.2.30 crores with Court. Dai Ichi can withdraw amount by furnishing bank guarantee.
7. The company furnished Bank Guarantee to the Court and received amount of Rs.2.30 crores on 24th August 1999.4 ITA No.2101/Mum/2011
8. Final Order of Division Bench of Bombay High Court on 22nd February, 2007.
9. SLP filed by ONGC in supreme Court and the same was dismissed by Supreme Court vide order dated 3rd August, 2007.
The compensation was accounted in the books when the Appellant furnished bank guarantee and received the amount in the year 1999-00 relevant to AY 2000-01. In view of the pending appeal before the Bombay High Court, the said amount cannot be treated as due and accrued to the appellant. Therefore, it was claimed as deduction in the return of income. The claim was supported by decision of Supreme Court in the case of Hindustan Housing Land Development Company Limited reported in 161 ITR 524 and also the legal opinion of Retired Chief Justice of India Shri P.N. Bhagwati.
We may submit here that finality reached to the compensation amount in the financial year 2006-07 when the Division Bench of the Bombay High Court passed an order in favour of the appellant company and later on the Supreme Court dismissed SLP filed by ONGC. Therefore, income was due and accrued in the AY 2007-08 and not in AY 2000-01. Since the rate of tax for AY 2007-08 and 2000-01 are same and in order to avoid further litigation, the appellant company decided to withdraw appeal for AR 2000-01 filed before CIT(A) and offered the said amount to tax in that year."
In the light of the above facts, the assessee submitted before the learned CIT(Appeals) that its action in not offering the compensation award received from ONGC to tax in the year under consideration was duly supported by law as well as on facts and all the material particulars relating to the claim made on this issue having been fully disclosed by it in the return of income, there was no case of concealment of particulars of income or furnishing of inaccurate particulars of such income to attract penalty u/s 271(1)(c).
4. The submissions made on behalf of the assessee as above did not find favour with the learned CIT(Appeals). According to him, the compensation amount 5 ITA No.2101/Mum/2011 awarded by the sole arbitrator to the assessee was not only confirmed by the Single Judge Bench of the Hon'ble Bombay High Court but even the amount of such compensation was released to the assessee on furnishing of bank guarantee by the High Court on 24-08-1999. He held that the income on account of compensation award thus had accrued to the assessee in the year under consideration and by not offering the same to tax, the assessee had concealed particulars of its income attracting levy of penalty u/s 271(1)(c). Accordingly, the penalty imposed by the AO u/s 271(1)(c) was confirmed by the learned CIT(Appeals). Aggrieved by the order of the learned CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
5. The learned counsel for the assessee at the outset, invited our attention to the sequence of events narrated by the assessee before the learned CIT(Appeals) as reproduced in paragraph No. 4.1 of the impugned order to show that the decision of Single Judge Bench of Hon'ble Bombay High Court confirming the arbitration award granted by the sole arbitrator was challenged by the ONGC by filing a petition before the Division Bench of Hon'ble Bombay High Court. He submitted that although the Division Bench of Hon'ble Bombay High Court vide an interim order dated 13th February, 1998 gave a direction to the ONGC to deposit the amount of compensation and allowed the assessee to withdraw the same on furnishing the bank guarantee, the final order confirming the compensation award was passed by the Division Bench only on 22nd February, 2007. He submitted that ONGC even filed SLP against the said order of Division Bench which was dismissed by the Hon'ble Supreme Court on 3rd September, 2007. He contended that the award thus had become final only in the year 2007-08 and as per the decision of Hon'ble Supreme Court in the case of Hindustan Housing Land Development Co. Ltd. reported in 161 ITR 524, the same was taxable only on its 6 ITA No.2101/Mum/2011 finality and not in the year under consideration. He submitted that since the amount of compensation was already brought to tax in the hands of the assessee in the year under consideration, the assessee did not offer the same in the subsequent years and accepted the assessment for the year under consideration by withdrawing its appeal filed before the learned CIT(Appeals) to avoid any further litigation in the matter. He contended that the claim of the assessee that the compensation award was not taxable in the year under consideration, however, was a bonafide claim duly supported by the decision of Hon'ble Supreme Court in the case of Hindustan Housing Land Development Co. Ltd. (supra) as well as the legal opinion obtained fom Justice P.N. Bhagwati, Retired Chief Justice of India and the assessee having disclosed all the material facts relating to the said claim, it is not a fit case to impose penalty u/s 271(1)(c).
6. The learned DR strongly relied on the orders of the authorities below in support of the Revenue's case that it is a fit case to impose penalty u/s 271(1)(c). He contended that the return originally filed by the assessee was initially accepted u/s 143(1) and the aspect relating to taxability of compensation award received from ONGC came to light only as a result of search action followed by the assessment made u/s 153A. He contended that the compensation awarded by the sole arbitrator was not only confirmed by the Single Judge Bench of Hon'ble Bombay High Court but even the amount of such compensation was released to the assessee by the Division Bench of the Hon'ble Bombay High Court in the year under consideration although on furnishing bank guarantee. He contended that the income on account of such compensation thus had accrued to the assessee in the year under consideration and by not offering the same to tax, the assessee was guilty of furnishing inaccurate particulars of its income clearly attracting penalty u/s 271(1)(c).
7 ITA No.2101/Mum/20117. We have considered the rival submissions and also perused the relevant material on record. It is observed from the sequence of events given by the assessee and narrated by the learned CIT(Appeals) in his impugned order that although the compensation awarded by the sole arbitrator in favour of the assessee on 14th January, 1997 was confirmed by the Single Judge Bench of Hon'ble Bombay High Court vide its order dated 1st October, 1997, the ONGC had filed a petition before the Division Bench of Hon'ble Bombay High Court against the said order of Single Judge Bench which was admitted on 13th February, 1998. While admitting the said petition, the Division Bench of Hon'ble Bombay High Court directed the ONGC to deposit the compensation amount with the Court and allowed the assessee to withdraw the amount so deposited on furnishing a bank guarantee on 24th August, 1999 which by itself shows that the compensation was still in dispute and the award had not become final. The award became final only when the Division Bench of Hon'ble Bombay High Court upheld the order of Single Judge Bench vide its order dated 22nd February, 2007 and the SLP filed by ONGC against the said order was dismissed by the Hon'ble Supreme Court on 3rd August, 2007. According to the assessee, the compensation amount thus was taxable in the year when the award had become final and not in the year under consideration and this claim of the assessee was duly supported by the decision of Hon'ble Supreme Court in the case of Hindustan Housing Land Development Co. Ltd. (supra) and also the legal opinion of Justice P.N. Bhagwati, retired Chief Justice of India. The assessee, however, accepted the taxability of the compensation amount in the year under consideration in order to avoid further litigation which, in our opinion, cannot go against the assessee in the matter relating to penalty u/s 271(1)(c) keeping in view that its claim that the compensation amount was not taxable in the year under consideration was a bonafide claim duly supported by law as well as on the facts. Moreover, as pointed 8 ITA No.2101/Mum/2011 out by the learned counsel for the assessee, all the material particulars relevant to this claim were fully disclosed by the assessee in its return of income by filing a Note which is extracted below from page No. 9 and 10 of the assessee's paper book :
"Receipt of Arbitration Award - Rs.229.83 lacs
-------------------------------------------------------- During the relevant previous year, the company has taken credit for a sum of Rs.2,29,83,115/- in the Profit & Loss account being receipt of Arbitration Award in a dispute with ONGC.
We invite your attention to Note No. 10 of Schedule 19 of the Notes to Balance Sheet and for the sake of ready reference the same is being reproduced hereinbelow :-
Quote:
10. "In a dispute with a customer under arbitration, the Award was in favour of the Company directing the customer to pay Rs.2,29,83,115/-
The award has been challenged before the Bombay High Court and the Hon'ble Court in the interim order directed the customer to deposit the above amount in the Court, which was complied". Pending final disposal, the Company appealed to the Bombay High Court for release of monies deposited which was considered favourably subject to the Company furnishing a Bank Guarantee for the amount. The Company furnished the Bank Guarantee. The Bank Guarantee was obtained by pledge of Company's investment in Equity Share of Colour chem. Ltd. and counter guarantee of the Chairman of the Company."
Unquote The Company has been legally advised that since the Arbitration Award has not been accepted by ONGC and same is challenged before the Division Bench of Bombay High Court, the advance so received will have no character of income in view of the Hon'ble Supreme Court Decision in the case of CIT West Bengal vs. Hindustan Housing and Development Ltd. (161 ITR 524).
9 ITA No.2101/Mum/2011Since there is no income, the above amount is required from the taxable profits and also from the Book Profits for computation of income u/s 115JA. The assessee craves leave to file detailed written submissions if so required on the subject in the course of assessment proceedings."
8. A perusal of the above note furnished by the assessee along with its return of income shows that all the material facts relevant to its claim that the amount of compensation received from ONGC was not taxable in the year under consideration were duly declared by the assessee in the return of income itself and there is no allegation by the AO that any such particulars furnished by the assessee were found to be incorrect or inaccurate. In the case of CIT vs. Reliance Petro Products P. Ltd. 322 ITR 158, the Hon'ble Supreme Court has held that a mere making of a claim which is not found to be sustainable by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee and just because the assessee's claim has not been accepted, penalty u/s 271(1)(c) cannot be attracted especially when there is no allegation that any particulars filed by the assessee in relation to such claim were found to be incorrect or inaccurate.
9. For the reasons given above, we hold that the claim made by the assessee that the compensation amount received from ONGC is not taxable in the year under consideration was a bonafide claim supported by law and on facts and merely because the same was not accepted, penalty u/s 271(1)(c) should not be imposed especially when all the material particulars relating to the said claim were fully and truly furnished by the assessee. In our opinion, the case of the assessee 10 ITA No.2101/Mum/2011 thus is not a fit case to impose penalty u/s 271(1)(c) and cancelling the same, we allow this appeal of the assessee.
10. In the result, the appeal of the assessee is allowed.
Order pronounced Court on this 11th day of January, 2013.
Sd/- Sd/-
(B.R. Mittal) (P.M. Jagtap)
Judicial Member Accountant Member
Mumbai,
Dated : 11th January, 2013.
Wakode
Copy to :
1. Appellant.
2. Respondent
3. C.I.T.
4. CIT(A)
5. D.R., D-Bench.
(True copy)
By Order
Assistant Registrar,
ITAT, Mumbai.