Income Tax Appellate Tribunal - Delhi
Income Tax Officer vs Wimco Seedlings Ltd. on 19 October, 2007
Equivalent citations: (2008)114TTJ(DELHI)986
ORDER
R.V. Easwar, Vice President
1. In this appeal by the Department, the only ground taken is that the CIT(A) erred in cancelling the penalty of Rs. 35,51,000 imposed on the assessee under Section 271(1)(c) of the IT Act.
2. The assessee is a company. In respect of the assessment year under appeal, it filed return of income declaring a loss of Rs. 51,87,733 on 28th Nov., 1997. The return was processed under Section 143(1)(a) on a loss of Rs. 49,73,323, which was revised under Section 154 to Rs. 51,60,935. Thereafter the return was picked up for scrutiny and notices under Section 143(2) were issued. Ultimately, the assessment was completed under Section 143(3) of the Act by order dt. 29th Feb., 2000. In this order, the AO computed the total income of the assessee in accordance with the normal provisions of the IT Act, which resulted in a positive income of Rs. 41,50,102 and after adjusting the losses brought forward from the earlier years, the total income was computed at nil and the net loss to be carried over to the subsequent years was determined at Rs. 1,56,43,396.
3. In the same assessment order, the AO also computed the book profit of the assessee under Section 115JA of the Act. In the course of the assessment proceedings, the assessee had filed a computation of the book profit under Section 115JA along with a covering letter and in this computation the book profit was shown at Rs. 26,29,227. The AO, in the assessment order and towards the end thereof, accepted the computation and charged tax on 30 per cent of the book profit. He observed that since 30 per cent of the book profit comes to Rs. 7,88,768, which is higher than the income computed as per the normal provisions of the Act, the same is being assessed as the income of the assessee. A footnote is also added to the assessment order that the penalty proceedings under Section 271(1)(c) have been initiated separately. A perusal of the assessment order further shows that the AO recorded the satisfaction required by Section 271(1)(c) in the following words at p. 4 of the order:
Since this revised computation of income was filed on 15th Feb., 2000, after the order sheet entry dt. 7th Feb., 2000, through which specific queries were raised leading this revision of computation of income, the penal provisions of Section 271(1)(c) are attracted which shall be initiated separately.
4. In response to the notice issued under Section 271(1)(c), the assessee submitted that the income assessed in the assessment order under the normal provisions of the Act was Rs. nil after set off of the losses brought forward from the earlier years and since no tax was payable under the normal provisions of the Act, no penalty can be levied for concealment of income. It was further submitted that the assessee did not conceal any particulars of income or furnished inaccurate particulars thereof. The reply did not find favour with the AO who imposed a penalty of Rs. 35,51,000 and in doing so has relied on the judgment of the Bombay High Court in CIT v. Chemiequip Ltd. to hold that after the insertion of Expln. 4(a) w.e.f. 1st April, 1976, it is possible to levy penalty for concealment of income even where the total income assessed is a loss or Rs. nil and no tax was payable by the assessee.
5. On appeal, the CIT(A) noted that the assessee had carried the assessment order in appeal before the CIT(A) and the Tribunal and after giving effect to the orders passed in appeal, the income of the assessee under the normal provisions of the Act was Rs. nil after adjustment of the brought forward losses of Rs. 30,70,406. He noted that the tax finally assessed in the assessment order was under Section 115JA but that cannot be taken into consideration because the penalty order was based on the normal provisions of the IT Act. He further noted that so far as the book profit assessed under Section 115JA is concerned, there is no change made by the AO to the figure declared by the assessee and, therefore, there can be no concealment of the book profit. The CIT(A) thus agreed with the assessee and thus cancelled the penalty.
6. The Revenue is in appeal. We have considered the facts and the rival submissions. The assessee declared book profit of Rs. 26,29,227 and 30 per cent thereof came to Rs. 7,88,768. This was accepted by the AO in the assessment order. Therefore, there cannot be any concealment with regard to the declaration of the book profits under Section 115JA. In the penalty order, the AO has not levied penalty for any concealment of the book profit and obviously it cannot be, for the reason stated by us earlier. The penalty has been levied only in respect of the normal computation of the total income under the other provisions of the IT Act. But even here, the brought forward losses have reduced the total income to Rs. nil as we have already shown. To repeat, the total income of the assessee for the year under appeal, computed under the normal provisions of the Act at p. 5 of the assessment order resulted in an income of Rs. 41,50,102 which was reduced to Rs. nil by adjustment of the brought forward losses to the extent of Rs. 41,50,102. The question is whether any penalty can be levied, on this fact situation, for concealment of income. In a very recent judgment dt. 17th Sept. 2007 in CIT v. Moser Baer India Ltd. reported at (2007) 213 CTR (Del) 64- Ed. (copy of the judgment filed), the Hon'ble Delhi High Court has held that before the amendment to Section 271 w.e.f. 1st April, 2003 no penalty is leviable unless some tax is payable by the assessee, following the judgment of the Supreme Court in Virtual Soft Systems Ltd. v. CIT , and has also examined the argument of the Revenue that the judgment of the Supreme Court is not applicable where the computation of income is reduced to nil by reason of the adjustment of the losses brought forward from the earlier years and has rejected the argument by holding as follows:
We are unable to agree with the learned Counsel for the Revenue that the decision of the Supreme Court in Virtual Soft Systems Ltd. is distinguishable in its application to the facts of the present case. Given the definition of 'total income' and the requirement is that it is the assessed income, computed in the manner indicated in the Act, which is to be considered for purposes of penalty; the penalty in the instant case cannot be sustained for the simple reason that the assessed income is nil. It matters little that the assessed income was nil because of adjustment of brought forward losses or for any other reason.
(underlining, italicised in print, is ours) In the present case, though there was positive income of Rs. 41,50,102 under the normal provisions of the Act, the same was reduced to nil by the adjustment of the losses brought forward from the earlier years. On these facts, the judgment of the Hon'ble Delhi High Court cited above fully applies and respectfully following the same, we hold that the penalty was rightly cancelled by the CIT(A).
7. Even otherwise, we are unable to say that the assessee concealed its income or furnished inaccurate particulars thereof. In the revised computation of income under the normal provisions of the Act filed before the AO the assessee increased its income by Rs. 82,58,439 comprising of the following:
(a) Bad debts relating to agricultural activities Rs. 58,32,358 inadvertently claimed as deduction
(b) 50 per cent of Bagwala office expenses and 50 per Rs. 24,25,781 cent of R&D expenses claimed in the original return now withdrawn The claim of bad debt as a deduction is a patent error as is clear from the fact that the assessee itself narrated the claim as "bad debt related to agricultural activity written off during the year". The words shown in bold show that the claim was not allowable under the IT Act but was still claimed by the assessee inadvertently. The assessee did not withhold the information that the claim related to the agricultural activity. While computing the income under the normal provisions of the Act, the AO did not mention anything about this claim except saying in general terms that the revised computation was filed when specific queries were raised with regard to the original computation. What those queries were is not known to us. As regards the claim of expenses in the Bagwala office and in respect of R&D, it is seen that for the asst. yr. 1994-95, the Tribunal in its order reported in Wimco Seedlings Ltd. v. Dy. CIT (2007) 109 TTJ (Del)(TM) 462 : (2007) 107 ITD 267 (Del)(TM) has held that no expenditure other than the expenditure apportioned by the assessee itself can be apportioned against the agricultural income. In the original return filed for the year under appeal, the assessee had claimed deduction against the taxable income of only 50 per cent of the Bagwala office expenses and 50 per cent of the R&D expenses and even this claim was withdrawn in the revised computation, even though such expenses as claimed in the original return were held allowable in the earlier asst. yr. 1994-95. In any case, these are bona fide claims made by the assessee in the original computation but when it realized that the claims were not allowable and were inadvertently claimed as deduction, it filed a revised computation of income withdrawing the claims. Nothing has been brought on record by the AO to show that there was an element of deliberateness or consciousness in the conduct of the assessee pointing to a guilty mind (mens red) which is necessary to be established in order to justify the levy of penalty for concealment of income, as held by the Supreme Court in K.C. Builders and Anr. v. Asstt. CIT . In CIT v. Bacardi Martini India Ltd. , the Hon'ble Delhi High Court has reiterated this position and has further held that merely because there is a difference of opinion for allowing or disallowing an expenditure, it cannot be said that the assessee intended to conceal the income and that where the assessee files a revised return withdrawing certain claims of expenditure, it does not amount to concealment or furnishing inaccurate particulars, especially where the amount has actually been spent by the assessee and the revised return was filed before discovery of some facts by the AO.
8. In the present case, there is no doubt that the expenditure on Bagwala office and R&D was actually incurred and that the bad debts were in fact suffered. There is, as already stated, no material to show that beyond raising some queries the AO had unearthed new facts or had dug out some information which was not furnished by the assessee. In such circumstances, it is difficult to sustain the charge that the assessee concealed its income or furnished inaccurate particulars thereof.
9. For the aforesaid reasons, we are of the view that the CIT(A) was justified in cancelling the penalty. We uphold his order and dismiss the appeal filed by the Revenue with no order as to costs.