Income Tax Appellate Tribunal - Ahmedabad
Madhusudan Vegetable Products Co. Ltd. vs Income-Tax Officer on 29 August, 1986
Equivalent citations: [1986]19ITD707(AHD)
ORDER
R.M. Mehta, Accountant Member
1. In this appeal the assessee challenges the levy of penalty under the provisions of Section 273(a) of the Income-tax Act, 1961 ('the Act') amounting to Rs. 89,476. The alternative plea urged is that the penalty be reduced to the minimum.
2. The assessee is a company and the assessment year involved in 1978-79 with the previous year ending 31-5-1977. A notice under Section 210 of the Act demanding a sum of Rs. 16,002 as advance tax in three equal instalments was issued and served upon the company on 2-6-1977. In response, the company paid two instalments of Rs. 5,334 each on 12-6-1977 and 22-9-1977. However, before the date of the third instalment the company filed an estimate on 12-12-1977 showing nil liability on account of advance tax. This the company did by making an adjustment in respect of claim under Section 35B of the Act of Rs. 14,63,304 against an income of Rs. 11,04,071 thus arriving at a figure of loss amounting to Rs. 3,59,233.
3. The assessee-company also filed a return of loss showing an identical figure, namely Rs. 3,59,233, after claiming the aforesaid deduction under Section 35B. The assessment order was finalised by the ITO on 18-3-1981 determining net income of Rs. 10,68,058. A substantial portion of the claim under Section 35B was rejected and in fact expenses aggregating Rs. 74,104 only were found entitled for deduction under Section 35JB which was allowed at Rs. 37,062 (half).
4. The ITO also initiated penalty proceedings under Section 273(a) on account of the notable difference in the figures given in the estimate and the finally assessed figures. A reply dated 3-4-1981 was filed in which it was contended that the main difference between the income returned and income assessed was on account of the claim under Section 35B which was allowed at a figure of Rs. 37,052 as against the claim of Rs. 14,63,304. It was urged that the assessee had no reason to believe that the estimate filed by him was untrue. The ITO, however, rejected the explanation put forward and levied a penalty of Rs. 89,476 as against the minimum of Rs. 44,738 and maximum of Rs. 6,71,076. He observed as following in doing so :
The records have been seen. It indicates a crystal clear fact the assessee-company is guided by well known and well experienced senior CAs, of Naushir Marfatia & Co. As such, assessee-company, disregarding crystal clear provisions of Section 35B had put up an incorrect claim and thus reduced the tax liability payable as per provisions of law. It is pertinent to note here that as per amended proviso of Section 35B, which came into effect from 1-4-1973, i.e., assessment year 1974-75 the assessee-company had during course of assessment proceedings of assessment year 1974-75 put up such claim of substantial amount and the ITO, in his order dated 28-10-1976 had turned down the assessee's claim and even the Commissioner (Appeals), relying decision of Tribunal, Special Bench, Bombay in case of J. H. & Co. v. Second ITO [1982] 1 SOT 150 gave deductions at 50 per cent only on minor amount of Rs. 19,395 out of which the Tribunal on account of department's appeal has knocked down deduction, granted of Rs. 8,852. Thus, claim under Section 35B is considered finally an amount of Rs. 10,543 in assessment year 1974-75. Same facts existed for assessment years 1975-76, 1976-77 and 1977-78. Thus, it proves beyond a shadow of doubt that the estimate filed by assessee-company was untrue and incorrect and I am fully satisfied that the assessee-company has committed a default.
5. In appeal before the Commissioner (Appeals), the assessee reiterated as he had done before the ITO that the main difference in the estimate filed and the assessed income was entirely on account of the claim under Section 35B. It was further urged that the assessee was guided by various Tribunal judgments, wherein deduction under Section 35B had been allowed on various types of expenses incurred by exporters such as port, fees, freight, packing, salary, etc. It was also submitted that the order of the Commissioner (Appeals) in the assessee's own case for the assessment year 1974-75 wherein similar claim was considered and rejected was passed only on 10-4-1980. It was further urged that the decision of the Tribunal in the case of J. H. &Co. v. Second ITO [1982] 1 SOT 150 (Bom.) (SB) whereby the matter acquired some finality came about only on 17-6-1978, i.e., much after the last date of filing the estimate. He also drew the attention of the Commissioner (Appeals) to the fact that the IAC had waived interest levied under Section 216 of the Act to the extent of Rs. 2,16,000. The assessee also put forward the plea that there was no mala fide intention in the filing of the estimate.
6. The learned Commissioner (Appeals), however, rejected the various pleas put forward by the assessee-company and observed as follows :
I do not agree with the contentions of the learned representative of the appellant. As stated by the Income-tax Officer in his order under Section 273(c) of the Act, the Income-tax Officer had issued notice under Section 210 demanding tax payable at Rs. 16,002 on the basis of the income of the assessee for the assessment year 1976-77. The assessment of the appellant company for the assessment years 1974-75, 1975-76, 1976-77 and 1977-78 were also finalised by the ITO. The claim of the assessee for the assessment year 1974-75 in respect of weighted deduction was negatived by the Income-tax Officer. So when the assessee was aware of the department's viewpoint as the assessment order of the Income-tax Officer of the assessment year 1974-75 was available to the assessee. In spite of it, if the assessee has made higher deduction on account of export market allowance under Section 35B it must be presumed that the assessee has done it deliberately with a view to reduce its tax liabilities. The argument that because the IAC has waived interest under Section 215, penalty also should be deleted under Section 273, is not acceptable. Interest under Section 215 and penalty under Section 273, are quite independent proceedings. Various considerations come in the mind of the IAC when he reduces or waives the interest under Section 215 and penalty under Section 273 are quite independent proceedings. One of them might be that because penalty is levied under Section 273 it will be a double punishment to the assessee if interest also is charged under Section 215. The fact that the IAC has waived interest charged under Section 215, therefore, has no bearing on deciding the question of penalty under Section 273 of the Act.
5. I am, therefore, of the opinion that the Income-tax Officer was justified in levying penalty under Section 273(a) of the Act. The penalty of Rs. 89,476 levied by the Income-tax Officer under Section 273(a) of the Act is, therefore, confirmed and the appeal is dismissed.
7. The assessee-company is now in appeal and the learned counsel reiterated the arguments as had been advanced before the Commissioner (Appeals). We accordingly do not repeat them here. The learned departmental representative, on the other hand, supported the orders of the ITO and the Commissioner (Appeals) and urged that the penalty be confirmed. A reference was also made to the decision of the Hon'ble Gujarat High Court in the case of CIT v. Bharat Machinery & Hardware Mart [1982] 136 ITR 875.
8. We have weighed the arguments advanced on both sides and have also perused the paper book filed by the appellant. It is apparent that the ITO and the Commissioner (Appeals) have been swayed by the fact that the claim of the assessee under Section 3 5B for earlier assessment years had been turned down. They also considered the judgment in the case of J.H. & Co. (supra) as going against the appellant-company in respect of a substantial portion of the expenditure claimed for weighted deduction under Section 35B. However, they failed to appreciate the fact that the judgment in the case of /. //. & Co. (supra) was delivered only on 17-6-1978 which was well after the date of the filing of the estimate. As regards the assessment year 1974-75 in which the claim under Section 35B was rejected by the ITO, it is seen that the appeal before the Commissioner (Appeals) was decided only on 10-4-1980 and order received by the appellant much later. These facts show that the assessee at the time of filing the estimate on 12-12-1979 was under the bona fide belief that the claim under Section 35B as worked out by him was allowable and could be agitated in view of certain judgments of the Tribunal which he felt supported his claim. It is further observed that all these facts weighed with the IAC during the course of proceedings for waiver of interest under Section 215 of the Act. The following observations in his order lend credence to this line of thinking :
The question to be examined is to see whether the assessee-company was under the bona fide belief that it was entitled to weighted deduction in respect of the aggregate sum of Rs. 29,26,608. As already stated, the estimate was filed on 12-12-1977. Shri C.C. Shah, CA appearing for the assessee-company has cited five decisions of the Tribunals Bombay and Calcutta in support of the assessee-company's belief that the impugned expenditure was of a nature entitled to weighted deduction in terms of Section 35B. His contention is that the Tribunal's decisions cited by him are all on a date prior to 12-12-1977. As for Commissioner (Appeals)'s order in the assessee-company's own case, it is dated 10-4-1980. As for the decision of the Tribunal, Special Bench, Bombay in the case of J.H. & Co. v. Second ITO [1982] 1 SOT 150, it was delivered on 17-6-1978.
9. We also observe that in the course of assessment proceedings the ITO has nowhere opined that the claim under Section 35B was false. Even at the time of filing the estimate on 12-12-1977, the assessee had clearly indicated the claim under Section 35B which was quantified by him according to what he felt was the correct basis. Even his returned figure was the same as the figure shown in the estimate, namely, a loss of Rs. 3,59,233. It also does not appear to us to be a case where legitimate dues of the Government in the form of taxes were sought to be kept back by making a baseless claim. The company not only made the claim, but agitated for its allowability before the ITO. We do not know whether it was taken up further before the Commissioner (Appeals).
10. In the light of the above facts and nothing to the contrary brought on record by the departmental representative, we have no hesitation in reversing the order of the Commissioner (Appeals). We do hold that the assessee-company at the time of filing the estimate was under a bona fide belief that the claim under Section 35B as quantified by it merited allowance from its total income. The facts do not provide a contrary view to be taken. The decision cited by the departmental representative is of no avail to the case of the revenue inasmuch as the point involved therein was the levy of interest under Section 217(1 A) for failure to file an estimate under Section 212(3A) of the Act. The Court decided in favour of the assessee.
11. We accordingly reverse the order of the Commissioner (Appeals) and cancel the penalty of Rs. 89,476 imposed by the ITO. The appeal is allowed.