Madras High Court
Commissioner Of Income Tax-I vs M/S. Icici Bank Limited on 19 July, 2022
Author: R. Mahadevan
Bench: R. Mahadevan, Mohammed Shaffiq
TCA Nos. 440 & 441 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 19.07.2022
CORAM
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
and
THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ
Tax Case Appeal Nos.440 and 441 of 2011
Commissioner of Income Tax-I
Chennai .. Appellant in both appeals
Versus
M/s. ICICI Bank Limited,
(Erstwhile Bank of Madura Ltd.)
ICICI Bank Tower,
Accounting and Reporting Group
4th Floor, East Wing, 24, South Phase,
Ambattur Industrial Estate,
Ambattur, Chennai 600 058. .. Respondent in both
appeals
Tax Case Appeals filed under Section 260 A of the Income Tax Act,
1961 against the order of the Income Tax Appellate Tribunal, 'C' Bench,
Chennai, dated 03.12.2010 in I.T.A.Nos.1500 & 1501/Mds/2010.
For Appellant : Mrs. R. Hemalatha
in both the appeals
For Respondent : Mr. Vijaya Raghavan
for Mr. Subbaraya Aiyar
in both the appeals
https://www.mhc.tn.gov.in/judis
1/12
TCA Nos. 440 & 441 of 2011
COMMON JUDGMENT
[Judgment of the Court was delivered by R. MAHADEVAN, J.] Challenging the order of the Tribunal dated 03.12.2010 relating to the assessment years 1999-2000 and 2001-02, these Tax Case Appeals have been filed by the appellant/Revenue.
2.By order dated 28.09.2011, this Court admitted these Tax Case Appeals on the following substantial questions of law:
TCA.No.440 of 2011:
"1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in cancelling the penalty of Rs.7,87,50,000/- levied under section 271(1)(c) of the Income Tax Act, 1961, even though the assessee had made a false claim of depreciation on the sale and lease back transactions relating to windmills electric generators, where the assessee itself was not the owner of lands on which the generators had been installed and hence could not be treated as owner of the windmills?
2. Whether on the facts and in the circumstances of the case the Income-Tax Appellate Tribunal was right in not holding that the penalty had been rightly levied since the assessee had made a false claim of depreciation on wind electric generators when the assessee was not recognized as the owner by the Electricity Boards?” TCA No. 441 of 2011:
https://www.mhc.tn.gov.in/judis 2/12 TCA Nos. 440 & 441 of 2011 “1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in cancelling the penalty of Rs.7,60,00,000/- levied under Explanation 1 to section 271(1)(c) of the Income Tax Act 1961, even though it had been established that the assessee had claimed depreciation on the assets which were not owned by it, but which were already owned by M/s.Indo Wind Energy Ltd., on the basis of invoices for purchase which were not genuine?”
3. Briefly stated facts are as follows:-
For the Assessment Year 1999-2000, the respondent-assessee bank filed their return of income on 24.11.1999 declaring a total income of Rs.11,19,56,750/-. The original assessment under Section 143(3) was completed on 28.02.2001 determining the total income at Rs.30,32,17,830/- which was subsequently revised to Rs.30,89,67,236/-. In the revised assessment order, the Assessee's claim on depreciation on windmills leased out to four different parties, was disallowed, along with the other claim. Aggrieved by the same, the assessee filed an appeal on 02.04.2001. When the appeal was pending, the assessment was re-opened by the Assessing Officer by issuing a notice under Section 148 of the The Income Tax Act (in short, the Act) on 27.03.2003. The re-assessment proceedings under Section 143 (3) read with Section 147 was completed on 31.03.2004. As per the re-assessment order, while retaining the disallowances made in the original assessment, further addition and disallowances were made towards broken period interest, https://www.mhc.tn.gov.in/judis 3/12 TCA Nos. 440 & 441 of 2011 depreciation securities etc. Thus, in the re-opened assessment, the total income of the assessee was determined at Rs.48,36,45,000/-. Subsequently, a notice under Section 274 was issued for initiating the penal action under Section 271 (1) (c) of the Act. As against the re-assessment order as well as the penalty proceedings, the assessee filed appeals before the Commissioner of Income Tax (Appeals) and the said appeals were disposed of, by a common order dated 15.10.2004 confirming the disallowance of depreciation of Rs.22,50,00,000/-
with a direction to provide opportunity to the assessee before completing the penalty proceedings. Accordingly, an opportunity was given and the assessee filed their detailed written submissions on 23.02.2006. Thereafter, the Assessing Officer, by an order dated 28.03.2006 concluded that the assessee had intentionally furnished inaccurate particulars of their income by making false claim and it attracts penal action under Section 271 (1) (c) of the Act. Thus, the Assessing Officer, after having held that the assessee had concealed the particulars of income to the extent of Rs.22,50,00,000/- within the meaning of Explanation I to Section 271(1)(c) and the explanation offered by the assessee was not satisfactory, levied the minimum penalty of Rs.7,87,50,000/- being 100% of the tax sought to be evaded.
4. The assessee/Bank had merged with ICICI Bank Limited with https://www.mhc.tn.gov.in/judis 4/12 TCA Nos. 440 & 441 of 2011 effect from 10.03.2001 as per the scheme of amalgamation under Section 44A of Banking Regulation Act, approved by the Reserve Bank of India. For the assessment year 2001-2002, the assessee filed their return of income on 29.10.2011 declaring a loss of Rs.27,12,68,138/- and the return was processed under Section 143 (1) of the Act on 29.11.2002. Subsequently, the case was selected for scrutiny and the assessment was completed under Section 143 (3) of the Act on 31.03.2004 determining the total income of the assessee at Rs.34,33,06,188/-. During the course of the said assessment, depreciation claimed by the assessee on wind mills amounting to Rs.7,60,00,000/- was disallowed. As the assessee filed inaccurate particulars of their income, notice under Section 274 of the Act was issued proposing to initiate penal action under Section 271 (1) (c) of the Act. Aggrieved by the same, the appellant filed appeal before the Appellate Authority and it was disposed of on 15.10.2004 confirming the disallowance of depreciation. However, a direction was issued to the Assessing Officer to complete the penalty proceedings after providing opportunity to the assessee. Accordingly, an opportunity was given to the assessee and they filed a detailed written submission on 23.02.2006. The Assessing Officer, considering the documentary evidence available on record as also the written submission filed by the assessee, passed an order dated 28.03.2006 imposing penalty of Rs.3,00,58,000/- being the 100% of the https://www.mhc.tn.gov.in/judis 5/12 TCA Nos. 440 & 441 of 2011 tax sought to be evaded.
5. Aggrieved by the orders dated 28.03.2006 passed by the Assessing Officer for the assessment years 1999-2000 and 2001-2002, the assessee filed I.T.A. Nos. 185/06-07/A.III and 186/06-07/A.III before the Commissioner of Income Tax(Appeals)-III, Chennai. By separate orders dated 28.06.2010, the Appellate Authority allowed the appeals preferred by the assessee by deleting the penalty levied by the Assessing Officer.
6. Challenging the orders of the Appellate Authority, the Revenue preferred Appeals in I.T.A.Nos.1500 & 1501/Mds/2010 before the Income Tax Appellate Tribunal. The Tribunal, by the impugned order dated 03.12.2010, confirmed the orders of the Appellate Authority and dismissed the Appeals. Therefore, these Tax Appeals filed by the Revenue.
7. The learned counsel appearing for the appellant submitted that the assessing officer, after having found that the assessee is not the owner of the asset, but has only entered into a financial agreement, which was given the colour of ownership to claim depreciation, thereby substantially reducing the taxable income of the assessee, rightly levied penalty under section 271(1)(c) of the Act, on them. However, the Tribunal erred in deleting the penalty of https://www.mhc.tn.gov.in/judis 6/12 TCA Nos. 440 & 441 of 2011 Rs.7,87,50,000/- and Rs.3,00,58,000/-, which is contrary to law. Therefore, the learned counsel sought to allow these appeals by setting aside the order of the Tribunal.
8. Per contra, the learned counsel appearing for the respondent/ assessee would submit that based on the available material, the Commissioner of Income Tax (Appeals) deleted the penalty levied by the Assessing Officer and the same was also affirmed by the Tribunal by the order impugned herein, which does not warrant any interference by this Court.
9. Heard the learned counsel appearing on either side and also perused the materials available on record.
10. It is seen that the penalty proceedings were initiated against the assessee under Section 27(1)(c) on the ground that the assessee made false claim of depreciation and deliberately furnished wrong particulars of income before the Assessing Officer. However, the appeals filed by the assessee before the Commissioner of Income Tax (Appeals), came to be allowed by deleting the penalty, with the following observations:
I.T.A. No. 185/06-07/A.III https://www.mhc.tn.gov.in/judis "I have considered the facts of the case and the submissions of the 7/12 TCA Nos. 440 & 441 of 2011 ld. AR. I have also gone through the order of Hon'ble ITAT, find that AO has levied penalty only in respect of disallowance of 50% of depreciation on windmills and 100% depreciation on windmills leased to Milton Plastics Ltd. The Hon'ble Tribunal vide para 47 of its order dated 06.06.2008 has allowed the claim of depreciation on windmills.
Therefore, I delete the penalty levied by the AO on these transactions." I.T.A. No. 186/06-07/A.III "I have considered the facts of the case and the submissions. I have also gone through the order of the Hon'ble ITAT. I find that AO has levied penalty only in respect of disallowance of depreciation on windmills leased to M/s.Indowind Energy Limited. The Hon'ble ITAT vide para 40 of its order dated 06.06.2008 has allowed the claim of depreciation on windmills. Therefore, I delete the penalty levied by the Assessing Officer on these transactions."
The aforesaid orders of the First Appellate Authority were also affirmed by the Tribunal, by the order impugned herein.
11. This court is of the opinion that when the assessee succeeded in their appeals filed against the orders of assessment relating to the assessment years in question, which formed the basis for imposing penalty under section 271(1)(c) of the Act, the Tribunal is justified in holding that the question of imposition of penalty does not arise, as the assessment orders itself were set aside.
12. In this context, it may be relevant to refer to the decision of the Hon'ble Supreme Court in the case of K.C.Builders and another v. Assistant Commissioner of Income Tax [(2004) 265 ITR 0562], wherein, in paragraph 21, it was held as follows:
https://www.mhc.tn.gov.in/judis 8/12 TCA Nos. 440 & 441 of 2011 “21.The same view as that of ours has been taken by this Court and the various other High Courts in catena of decisions.
1. CIT vs. Bahri Brothers (P) Ltd. (1987) 61 CTR (Pat) 134: (1987) 167 ITR 880 (Pat).
"Held, that the penalty was based on the earlier assessment order wherein the amount representing cash credits was included. Since that order had been set aside and the cash credits deleted from the assessment, the consequent order of penalty had been rightly cancelled."
2. CIT vs. Bhagwan Ltd. (1987) 60 CTR (Cal) 105: (1987) 168 ITR 846 (Cal).
"Held, that the orders of reassessment on the basis of which penalties were levied had been set aside by the Tribunal. Hence, the order of penalty could not stand by itself. The cancellation of penalty was justified."
3. CIT vs. Bengal Jute Mills Co. Ltd. (1988) 72 CTR (Cal) 177: (1988) 174 ITR 402 (Cal).
"Where penalty was imposed solely on the basis of an addition of Rs. 4 lakhs to the assessee's total income and the addition was deleted by the Tribunal: Held, that it was evident from the material on record that the penalty had been imposed solely on the basis of the addition of Rs. 4 lakhs to the assessee's income. If the addition was deleted, the charge of concealment of income could not be sustained. Imposition of penalty under s.271(1)(c) of the IT Act, 1961, was, therefore, not valid."
4. CIT vs. Madanlal Sohanlal (1989) 176 I.T.R. 189 (Cal).
"Penalty cannot stand on its own independently of the assessment.
Where, in an appeal against the assessment reopened under s.147 of the IT Act, 1961, the Tribunal deleted the addition on account of deemed dividend under section 12(1B) read with section 2(6A)(e) of the Indian Income-tax Act, 1922, the deemed dividend which had been deleted could not form the subject-matter of imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961, because, the basis for imposition of penalty had ceased to exist. Therefore, the Tribunal was correct in cancelling the penalty imposed on account of the addition."
5. CIT vs. Bedi and Co. (P) Ltd. (1990) 183 ITR 59 (Kar) https://www.mhc.tn.gov.in/judis 9/12 TCA Nos. 440 & 441 of 2011 "Held, that, in view of the conclusion reached by the High Court that the amount in question was not assessable, there was no basis for the imposition of penalty. The cancellation of penalty was valid. [The Supreme Court has dismissed the special leave petition filed by the Department against this judgment of the High Court in relation to penalty under section 271(1)(c) arising out of an assessment, wherein the addition of a loan has been cancelled by the High Court as reported in Bedi & Co. (P) Ltd. Vs. CIT (1983) 144 ITR 352 (Kar) : See (1990) 181 ITR (St) 19-Ed.]
6. CIT vs. Agarwalla Brothers [1990] 88 CTR (Pat) 133: (1991) 189 ITR 786 (Pat) “Held, (i) that the fact a particular construction had not been shown in the accounts of the assessee was not relevant since this circumstance had not been recorded as one of the reasons for initiating the proceedings under section 147(a);
(ii) that the Tribunal had found, after examining the entire record, that there had been no failure to disclose primary facts on the part of the assessee. The reassessment was, therefore, not valid;
(iii) that penalty had been imposed consequential to the re-assessment. Since the reassessment had been set aside, the order of the Tribunal cancelling the penalty levied under section 271(1)(c) of the Act was also legal."
7. Addl. CIT vs. Badri Prasad Kashi Prasad [1993] 200 I.T.R. 206 (All) "Held, that the levy of penalty was based on the addition to income made by the Income-tax Officer. The addition was deleted by the Tribunal. Hence,the Tribunal was justified in cancelling the penalty."
8. CIT vs. Roy Durlabhji [1995] 211 I.T.R. 470(Raj) "Held, dismissing the application for reference, that the Tribunal had set aside the penalty on the ground that the additions to income had already been deleted. Since there was no liability to tax, no penalty could be levied. The Tribunal was justified in cancelling the penalty and no question of law arose from its order.”
13. In view of the proposition laid down by the Hon'ble Supreme Court, there is no doubt that the questions of law involved in these cases are necessarily to be held against the Revenue, since there is no quantum of tax https://www.mhc.tn.gov.in/judis 10/12 TCA Nos. 440 & 441 of 2011 available for the purpose of levying penalty.
14. Accordingly, these Tax Case Appeals filed by the Revenue are dismissed. No costs.
[R.M.D,J.] [M.S.Q., J.]
19.07.2022
msr/rsh
Index : Yes / No
To
1. The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai.
2. The Commissioner of Income Tax-I Chennai.
https://www.mhc.tn.gov.in/judis 11/12 TCA Nos. 440 & 441 of 2011 R. MAHADEVAN, J and MOHAMMED SHAFFIQ, J msr/rsh TCA Nos. 440 & 441/2011 19.07.2022 https://www.mhc.tn.gov.in/judis 12/12