Income Tax Appellate Tribunal - Chandigarh
M/S Sab Industries Limited, Chandigarh vs Acit, Central Circle Ii, Chandigarh on 30 April, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "बी", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'B' , CHANDIGARH
ी संजय गग , याय क सद य एवं ीमती अ नपण
ू ा ग'ु ता, लेखा सद य
BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.626/Chd/2018
नधा रण वष / Assessment Year : 2007-08
M/s SAB Industies Ltd., बनाम The A.C.I.T.,
SCO 49-50, Sector 26, Central Circle-II,
Chandigarh. Chandigarh.
थायी लेखा सं./PAN NO: AACCS5078H
नधा रती क ओर से/Assessee by : Shri Rajesh Garg, Sr.Adv.
राज व क ओर से/ Revenue by : Shri Manjit Singh, CIT DR
सन
ु वाई क तार!ख/Date of Hearing : 18.03.2019
उदघोषणा क तार!ख/Date of Pronouncement: 30.04.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member The present ap peal has been fi l ed by the as sessee agai nst the order of the Commi ssi oner of I ncome Ta x ( Appeal s) -3, Gurgaon (in short 'CI T( A) ' dated 23.2.2018 agai nst the l ev y of penal t y u/s 271( 1) ( c) of the Income Ta x Act, 1961 ( herei nafter referred to as 'Act') .
2. B r i e f f a c t s r e l a t i n g t o t h e c a s e a r e t h a t a ssessment i n thi s case was compl eted vi de order u/s 143( 3) dated 29.12.2009 at a n i ncome of Rs. 5,81,83,100/- a gai nst the returned i ncome of Rs. 1,25,33,010/- after maki ng addi ti ons on vari ous poi nts. The assessee c ontested the addi ti ons 2 ITA No.626/Chd/2018 A.Y.2007-08 made before the CI T( A) and the n before the Ho n'bl e I TAT. Out of the addi ti ons made in the assessment order of Rs.456.50 l acs, the addi ti on made of Rs.11,99,660/- on account of pri or peri od e xpenses, whi ch represented wri te off of e xpendi ture i ncurred on behal f of i ts subsidi ar y M/s Lavan Chemi cal Ltd. was uph el d by the Ho n'bl e I TAT, Chandi garh vi de order dated 10.08.2016 in I TA No. 1329/Chd/2010. Penal t y proceedi ngs were i ni ti ated by i ssue of noti ce u/s 274 r. w.s. 271( l ) ( c) of the I . T. Act, 1961 dated 29.12.2009.
3. During the course of the same, the assessee submitted reply stating that the notice issued u/s 274 of the Act was bad in law as it did not specify the limb of section 271(1)(c) of the Act on which penalty proceedings has been initiated. On merits, the assessee contended that out of the total addition made of Rs.456.50 lacs only Rs.11.99 lacs i.e. 2.63 % had been upheld and the majority i.e. 98% had been deleted and further that the assessee had filed an appeal before the on High Court against the meager addition upheld also. It was further contended that while the A.O. had made the addition holding that the expenses claimed were prior period, the I.T.A.T. had upheld 2.63% of the same for the reason that the expenses did not relate to the assessee but to its subsidiary company. It was, therefore, contended that these contrary findings itself proved that the issue 3 ITA No.626/Chd/2018 A.Y.2007-08 was debatable and hence, no penalty was leviable. The assessee also contended that all material facts relating to the impugned expenses had been disclosed and merely because the explanation of the same was not believed, it could not be held that the assessee had concealed or furnished any inaccurate particulars of income. The A.O. did not accept the contention of the assessee and held that the assessee had claimed the expenses though it was not allowable as per section 36(1)(viii) of the Act, which was not a bonafide mistake and, therefore, was fit case for imposition of penalty u/s 271(1)(c) of the Act. Accordingly, penalty @ 100% of the tax sought to be evaded in respect of the concealed income of Rs.11,99,660/- was levied amounting to Rs.4,03,810/-.
4. The matter was carried in appeal before the Ld.CIT(A), who upheld the order of the A.O. stating that since the I.T.A.T. had held that the impugned expenses did not relate to the business of the assessee, the claim made by the assessee of the impugned expenses to Rs.11,99,660/- tantamounted to furnishing inaccurate particulars of income and hence, the assessee was liable to penalty u/s 271(1)(c) of the Act.
5. Aggrieved by the same, the assessee has come up in appeal before us, raising following grounds:
1. That the Ld. CIT(Appeals) has erred in law by not 4 ITA No.626/Chd/2018 A.Y.2007-08 adjudicating the issue that the notice u/s 274 as well as order u/s 271(l)(c) issued by the Ld. Assessing Officer is bad in law and on facts.
2. That on the facts and circumstances of the case, the notice issued u/s 274 dated 29.12.2009 and the penalty order passed by the Ld. Assessing Officer u/s 271(l)(c) is not tenable as the requisite reason and satisfaction, as required under the provisions of the Act has not been recorded by the Ld. Assessing Officer. Therefore, the penalty of Rs.403810/-is not leviable and the same may please be deleted.
3. That the Ld. CIT(Appeals) has erred in confirming the penalty wrongly imposed by ignoring the fact that the claim made by the assesee is a legal bonafide claim which is disallowed being debateable. Therefore, the penalty of Rs.403810/- is not leviable and the same may please be deleted."
6. During the course of hearing before us, the Ld. counsel for assessee made arguments on the merits of the case reiterating the contentions made before the lower authorities against the levy of penalty. The Ld. counsel for assessee contended that the assessee could not be charged with having concealed or furnishing any inaccurate particulars of income since undisputedly all material facts relating to the impugned expenses had been disclosed by the assessee and its claim had been disallowed on a different grounds by the A.O. and upheld by the I.T.A.T. on a totally different ground and further the I.T.A.T. had reduced the disallowance to 2.63% of that made by the A.O. It was contended that it was a case of not believing the explanation furnished by the assessee and not finding it to be false. It was contended that the above facts established the bonafides of the assessee and thus the penalty levied ought to be 5 ITA No.626/Chd/2018 A.Y.2007-08 deleted. Our attention was drawn to the contentions made before the A.O. reproduced at page 2 of the penalty order as under:
"Further submitted that the amount of Rs.11.99'Lacs written off was recoverable on account of expenses incurred by the assessee on behalf of Lavan Chemical Limited, a subsidiary company in connection with the implementation of project at Iran. The assessee has booked the expenditure as recoverable from Lavan Chemical Limited in the AY 2006-07, however since the same is not recovered from Lavan Chemical Limited, the same has been written off and debited to the P & L Account under the head previous year expenses during AY 2007-08. However, Ld. AO has disallowed the expenses holding that as the assessee is following mercantile system of accounting, the expenses should have been debited in the year when loss actually occurred, however Ld. Assessing officer has erred in considering the fact that the assessee has debited the expenses in the current assessment year since they became irrecoverable in the current year itself and loss has actually occurred in the current year.
It is an admitted fact that the revenue expenses have actually been incurred by the assessee. The Ld. AO has taxed the amount on the ground that assessee is following mercantile system of accounting, so the expenditure should have been debited in the year when loss is actually incurred. However the Hon'ble ITAT has confirmed the addition on totally different contention by holding that the expenditure has been incurred on behalf of subsidiary company. Therefore the contradictory contentions in this regard prove that the issue is debatable. At the most the expenditure claimed by the assessee may be said to be a capital loss instead of revenue loss but that too cannot penalize assessee with the concealment proceedings. The Hon'ble P & H High Court in the case of CIT vs Amtek Auto Ltd. 3218 Taxman 124 has held that merely for the reason that assessee has claimed expenditure as revenue expenditure instead of capital expenditure will not render the assessee liable to penalty proceedings.
Regarding Ld. AO' s contention that the expenses should have been claimed in earlier years it is submitted that the liability to incur expenses is not crystallized during the previous year; rather it was shown as recoverable sum from Lavan Chemical Company. The amount has already been offered to tax as credited during the AY 2006-07 by reducing the allowable revenue expenditure to that extent and the same cannot be taxed again in the AY 2007-08 at the time of writing off. The amount written off during the year has 6 ITA No.626/Chd/2018 A.Y.2007-08 been shown under the head prior period adjustment only to comply with the accounting principles prescribed for the Companies. Therefore, since the amount shown as income in earlier years has been written off in the current year as non recoverable, the same is allowable u/s 36(l)(vii) as amount of debt written off. The reliance has been placed on the following judgments in this regard:
Gujarat High Court in the case of Saurashtra Cements and Chemical Inds Ltd. vs CIT 213 ITR 523 Delhi High Court judgment dated 04.11.2015 in the case of Jet Lite (India) Ltd vs CIT 2015-(379)-ITR-0185-DEL ITAT Chandigarh in the case of Munjal Sales Corporation vs ACIT (2004) 90 TTJ 782.
Further submitted that in the present case, all the material facts were disclosed. Having disclosed all the material facts, the onus upon the assessee stood discharged. Furthermore, Penalty is leviable in the cases of concealment or inaccurate particulars of income and not for the difference in taking legal views on a given set of facts. Merely non-believing an explanation given by the assessee would not lead to levy of penalty automatically, unless the explanation is not found to be bona fide. No penalty for concealment is leviable in cases of two views being possible and the reasonable view of the assessee cannot be disregarded nor can the view taken by the revenue be adopted as the only basis for penalty. Further merely because addition had been made and claim of the assessee is disallowed, did not by itself, justify imposition of penalty. The assessee's claim has not sustained on account of legal complications, but, that does not mean that assessee is a guilty of concealment of income chargeable to tax and has furnished the inaccurate particulars."
7. The Ld. DR, on the other hand, relied upon the order of the CIT(A).
8. We have heard the rival contentions and perused the orders of the authorities below. The dispute before us relates to levy of penalty u/s 271(1)(c) of the Act on disallowance of claim of write off expenses amounting to Rs.11.99 lacs. Undisputedly, all particulars relating to the claim of write off made by the assessee had been truly disclosed and there is no allegation that any fact relating to write off was false 7 ITA No.626/Chd/2018 A.Y.2007-08 or incorrect. It is only the claim of the assessee which was found untenable, on account of which disallowance was made and penalty levied on the addition so resulting. Undeniably, the disallowance of claim made by the A.O. and upheld by the I.T.A.T. is on totally different grounds. While the A.O. had disallowed the claim for the reason that it related to earlier years, the I.T.A.T. upheld the disallowance on finding that it was not incurred for the purpose of business of the assessee. Also while the A.O. had made disallowance of the entire claim of the assessee of write off amounting to Rs.456.50 lacs, the I.T.A.T. had found most of the claim made by the assessee to be correct except for meager sum of Rs.11.99 lacs being just 2.63% of the entire claim. On account of the above facts, we agree with the Ld. counsel for assessee that the issue was not a clear case of a totally untenable claim made by the assessee but was more of a debatable issue and with the assessee having disclosed complete and true particulars relating to write off expenses and only the claim having not been found acceptable, we agree with the Ld. counsel for assessee that the assessee cannot be said to have furnished any inaccurate particulars of income or concealed any particulars of income so as to attract levy of penalty u/s 271(1)(c) of the Act. The penalty so levied is, therefore, directed to be deleted. 8 ITA No.626/Chd/2018
A.Y.2007-08 Ground of appeal No.3 raised by the assessee is, therefore, allowed.
No arguments were made vis-à-vis the legal issue raised in ground Nos.1 and 2. The same are, therefore, dismissed.
9. I n effect, the appeal of the assessee i s partl y al l o wed.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
संजय गग अ नपण
ू ा ग'ु ता
(SANJAY GARG) (ANNAPURNA GUPTA)
याय क सद य/Judicial Member लेखा सद य/Accountant Member
+दनांक /Dated: 30th April, 2019
*रती*
आदे श क ' त(ल)प अ*े)षत/ Copy of the order forwarded to :
1. अपीलाथ+/ The Appellant
2. ',यथ+/ The Respondent
3. आयकर आयु-त/ CIT
4. आयकर आयु-त (अपील)/ The CIT(A)
5. )वभागीय ' त न0ध, आयकर अपील!य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar