Income Tax Appellate Tribunal - Mumbai
Uni Design Jewellery Pvt.Ltd., Mumbai vs Assessee on 14 January, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'F' : MUMBAI
BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH ,(AM)
ITA No.1372/Mum/2009
Assessment Year : 2003-04
Uni Design Jewellery Pvt. Ltd.
Plot No.4,5, & 6(part) Seepz
Andheri (E)
Mumbai-400 093. .....(Appellant)
P.A. No.(AAACU 0572 G)
Vs.
Dy. Commissioner of Income tax
Range-8(3)
Aayakar Bhavan
Mumbai. .....(Respondent)
Appellant by : Ms. Arati Vissanji
Respondent by : Ms. S. Pal
ORDER
Per D.K. AGARWAL (JM).
This appeal preferred by the assessee is directed against the order dated 14.1.2009 passed by the ld. CITA) for the Assessment Year 2003-04 sustaining penalty of Rs.4,40,750/- imposed by the Assessing Officer u/s. 271(1)(c) of the income tax Act, 1961(the Act).
2. Briefly stated facts of the case are that the assessee company is in the business of manufacturing activity of jewellery and export of the 2 ITA No.1372/M/09 A.Y: 03-04 same. It filed return declaring nil income after claiming deduction u/s.10A of the Act amounting to Rs.3,42,92,692/-. However, the Assessing Officer while partly disallowing the deduction u/s.10A on interest income, sale of residue and miscellaneous income and gain on account of exchange rate fluctuation, restricted the deduction u/s.10A Rs.3,21,11,123/-. The Assessing Officer after making some other disallowances, completed the assessment at an income of Rs.59,91,870/- vide order dated 24.3.2006 passed u/s.143(3) of the Act. On appeal, the ld. CIT(A) allowed part relief to the assessee in allowing deduction u/s.10A Rs.3,30,93,368/-. While making the assessment the Assessing Officer also initiated penalty proceeding u/s.271(1)(c) of the Act. Accordingly the assessee was asked to show cause as to why penalty should not be imposed u/s.271(1)(c) of the Act. In response, it was interalia submitted by the assessee that the difference in assessed income and returned income is mainly on account of deduction u/s.10A of the Act against which assessee's appeal is pending. It was further submitted that no inaccurate particulars have been furnished by the assessee inasmuch as the particulars regarding deduction u/s.10A with computation have already been disclosed in the audited accounts filed alongwith the return of income. It was therefore submitted that there were no inaccurate particulars filed by the assessee. However, the Assessing 3 ITA No.1372/M/09 A.Y: 03-04 Officer did not accept the assessee's explanation . The Assessing Officer while relying on certain judicial pronouncements wherein, according to the Assessing Officer, it has been held that claiming excessive deduction also amounts to concealment of income either suppression of receipts or exaggeration of expenditure. Both are attempt to reduce the taxable income and penalty u/s.271(1)(c) may be imposed for either or both such attempts, imposed the penalty on the amount of Rs.11,99,324/- being the difference between the deduction claimed and allowed u/s.10A , amounting to Rs.4,40,750/- vide order dt.25.3.08 passed u/s.271(1)(c) of the Act. On appeal, the ld. CIT(A)while relying on the decision of Hon'ble Supreme Court in Union of India vs. Dharmendra Textile Processors (2008) 306 ITR 277(SC) upheld the order of the Assessing Officer and dismissed the appeal filed by the assessee.
3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us taking following sole ground of appeal:
"The ld. CIT(A) has erred in confirming levy of penalty u/s.271(1)(c) amounting to Rs.4,40,750/-."
4. At the time of hearing the ld. Counsel for the assessee at the outset submits that the Tribunal in the quantum appeal with regard to the deduction u/s.10A, vide consolidated order in assessee's own 4 ITA No.1372/M/09 A.Y: 03-04 cases in M/s. Uni-design Jewellery Pvt. Ltd. Vs. ITO in ITA No.ITA No.69/Mum/07 for Assessment Year 2003-04, order dated 30th Oct. 2009 has observed and held vide para-20 to 31 appearing at page 9 to 13 of its order as under :
"20. Ground of appeal no.1 raised by the assessee reads as under:-
"1. F.D. interest of Rs.3,33,418/- received on amount kept as margin money in bank be treated as income from business instead of income from other sources and netting be allowed against interest payment and thus deduction u/s.10A be allowed as claimed by the appellant."
21. After hearing both sides, we find that this ground is identical to the ground of appeal No.1 raised by the assessee in ITA No.9042/Mum/2004. We have already decided the issue and the ground raised by the assessee has been restored to the file of the Assessing Officer for fresh adjudication. Following the same ratio, this ground raised by the assessee is also restored to the file of the Assessing Officer for fresh adjudication in the light of the directions given therein. This ground raised by the assessee is accordingly allowed for statistical purposes.
22. Ground of appeal no.2(a) raised by the assessee reads as under:-
"2. (a) Sale proceeds of Rs.4,05,130/- from residue being dust collected containing precious metals like gold etc. be considered as income from business and thus part of total turnover instead of income from other sources and deduction under section 10A be allowed thereon."
23. The facts of the case in brief are that the Assessing Officer during the course of assessment proceedings observed that the assessee in its return of income has shown to have received other income of Rs.9,18,088/- which is on account of sale of residue and miscellaneous income. On being questioned by the Assessing Officer it was submitted that these income are necessarily forming part of the business income. However, the Assessing Officer was of the opinion that this income from residue cannot be said to be derived from the export activity of the assessee for the purpose of claiming deduction under 5 ITA No.1372/M/09 A.Y: 03-04 section 10A of the Act and treated the same as 'income from other sources'. In appeal, the CIT(A) upheld the action of the Assessing Officer. Aggrieved with such order of the CIT(A), the assessee is in appeal before us.
24. The learned counsel for the assessee submitted that sale of dust is at par with the sale of scrap. Relying on a couple of decisions, she submitted that sale proceeds of Rs.4,05,130/- from residue being dust collected, which contains precious metals like gold etc. should be considered as income from business and accordingly should be treated as part of the total turnover instead of income from other sources. The assessee accordingly be allowed the benefit of deduction under section 10A of the I.T.Act.
25. The learned D.R., on the other hand, supported the order of the CIT(A).
26. We have considered the rival submissions made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed by the assessee. We have also considered the various decisions cited before us. There is no dispute to the fact that the assessee during the impugned assessment year has received an amount of Rs.4,05,130/- on account of sale proceeds from the dust collected which contained precious metals like gold etc. It is the contention of the learned counsel for the assessee that it contains a character of sale of scrap and it should be considered as a business income and should be treated as part of the total turnover for availing the benefit of deduction under section 10A of the I.T.Act. However, according to the Revenue, the said income is to be treated as 'income from other sources'. In our opinion the income from sale of residue amounting to Rs.4,05,130/- has to be considered at par with sale of scrap in other manufacturing industries and accordingly be treated as a part of the total turnover. However, as regards the claim of the assessee for benefit of deduction u/s.10A, the assessee has to fulfil the conditions of section 10A i.e. export of such things or articles. It is not known whether such dust containing precious metal were sold in local market or exported. We therefore deem it proper to restore the issue to the file of the Assessing Officer to verify as to whether the assessee fulfils the conditions prescribed in section 10A and then decide the issue as per law. We hold the direct accordingly. This ground by 6 ITA No.1372/M/09 A.Y: 03-04 the assessee is accordingly allowed for statistical purposes.
27. Ground No.2(b) raised by the assessee reads as under:-
2(b) Gain of Rs.5,75,958/- on account of cancellation of foreign exchange contract in the course of business treated as income from other sources, be treated as income from business and deduction u/s.10A be allowed thereon."
28. The facts of the case in brief are that miscellaneous income of Rs.9,18,088/- contained an amount of Rs.5,75,958/- which was received on account of cancellation of foreign exchange contract. The Assessing Officer treated the same as 'income from other sources' and did not allow benefit of deduction under section 10A of the I.T.Act. In appeal, the CIT(A) upheld the action of the Assessing Officer. Aggrieved with such order of the CIT(A), the assessee is in appeal before us.
29. The learned counsel for the assessee submitted that the assessee in order to hedge against any losses entered into these transactions and therefore, it cannot be treated as speculation transaction. Referring to the decision of the Tribunal in the case of ACIT Vs. Mahendra Brothers in ITA Nos.1880/Mum/05 & 948/Mum/06 vide order dated 29.4.2009 for the assessment years 2001-02 & 2003-04 respectively, she submitted that the Tribunal in the said decision, following the decision of the Hon'ble High Court of Kolkata in the case of CIT Vs. Soorajmull Nagarmull reported in 129 ITR 169(Bom) and the decision of Hon'ble Bombay High Court in the case of CIT Vs. Badridas Gauridu (I) Ltd., 261 ITR 256 (Bom) had dismissed the appeals filed by the Revenue, where it was held by the CIT(A) that exchange loss on account of cancellation of forward contract amounts to business loss. She accordingly submitted that the issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal.
30. The learned D.R., on the other hand, supported the order of the CIT(A).
31. After hearing both the sides, we find that this issue stands covered in favour of the assessee by the decision of the co-ordinate Bench of the Tribunal, where one of us was a party. In the said decision the loss on account of 7 ITA No.1372/M/09 A.Y: 03-04 cancellation of foreign exchange contract was held as business loss by the CIT(A) as against speculation loss as treated by the Assessing Officer. When the matter came up before the Tribunal, the Tribunal following the decision of the Hon'ble Kolkata High Court and Hon'ble Bombay High Court, cited above, dismissed the ground raised by the Revenue. Following the same logic as held by the decision of the co-ordinate Bench of the Tribunal, we hold that Rs.5,75,958/- on account of cancellation of foreign exchange contract in the course of business has to be treated as 'income from business' and consequently, the assessee is entitled to deduction under section 10A of the Act. In this view of the matter, the order of the CIT(A) is set aside and the ground raised by the assessee is allowed.
She further submits that there is no dispute that the assessee has disclosed all the particulars of its income including claim of deduction u/s.10A of the Act. The difference in allowing the deduction u/s.10A is on account of difference of opinion and the matter is still pending before the Assessing Officer and, hence, there is no concealment on the part of the assessee. The Hon'ble High Court and the Tribunal in many cases have held that on account of difference of opinion the penalty is not leviable. The reliance was also placed on the following decisions;
1. CIT vs. Haryana Warehousing Corporation (2009) 25 DTR 194 (P&H);
2. Kanbay Software India (P) Ltd. Vs. Dy.CIT (2009)31 SOT 153(Pune);
8 ITA No.1372/M/09
A.Y: 03-04
3. Twin Star Jupiter Co-operative Hsg. Soc. Ltd. Vs. ITO (2009) 31 SOT 474 (Mum.) and
4. ACIT vs. Mahindra Shubhlab Services Ltd. (2009) 31 SOT 361(Mum.) She, therefore, submits that the penalty imposed by the Assessing Officer and sustained by the CIT(A) be deleted.
5. On the other hand the ld. DR while relying on the order of the Assessing Officer, the order of the CIT(A) also relied on the decision cited in the order of the Assessing Officer namely CIT vs. India Sea Foods (1976)105 ITR 708(Ker.), Nagin Chand Shiv Sahai vs. CIT 61 ITR 534, CIT vs. Gates Foam And Rubber Company (1973) 91 ITR 467(Ker.), and Union of India vs. Dharmendra Textile Processors(2008) 306 ITR 277(SC). She, therefore, submits that the penalty imposed by the Assessing Officer and sustained by the CIT(A) be upheld.
6. We have carefully considered the submissions of the rival parties and perused the material available on record. Penalty under section 271(1)(c) is a civil liability and the revenue is not required to prove willful concealment as held by the Hon'ble Supreme Court in case the of Union of India vs. Dharmendra Textiles and Processors (2008) 306 ITR 277(SC). However, each and every addition made in the 9 ITA No.1372/M/09 A.Y: 03-04 assessment cannot automatically lead to levy of penalty for concealment of income. A case for imposition of penalty has to be examined in terms of the provisions of Explanation 1 to section 271(1)(c). Secondly, it is a settled legal position that penalty proceedings are different from assessment proceedings. The finding given in the assessment though is a good evidence but the same is not conclusive in penalty proceedings as held by the Hon'ble Supreme court in the case of Anantharam Veerasinghaiah & Co. vs. CIT ((1980) 123 ITR 457 (SC). In the instant case we find that there is no dispute that the assessee has filed all the details including the detail of claim of deduction u/s.10A of the Act. The penalty u/s.271(1)(c) was imposed by the Assessing Officer and confirmed by the ld. CIT(A) on the amount of Rs.11,99,324/- being the difference between the claim of deduction u/s.10A claimed by the assessee and allowed by the revenue . We further find that the Tribunal (supra) has restored back the issue to the file of the Assessing Officer with certain directions to reconsider the issue relating to deduction u/s.10A on FDR interest of Rs.3,33,418/ and sale proceeds of dust containing precious metals like gold etc. Rs.4,05,130/- and directed the Assessing Officer to treat the gain of Rs.5,75,958/- on account of cancellation of foreign exchange contact as 'income from business'.
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7. Thus it is clear that the difference between the claim made u/s.10A and allowed by the revenue is on account of difference of opinion and the same is still pending before the Assessing Officer. It is not the case of the revenue that the claim of deduction made by the assessee is found to be false or untrue or the assessee is not entitled to claim such deduction. It is repeatedly held by the Courts that when the facts are clearly disclosed in the return of income, penalty cannot be levied and merely because an amount is not allowed or taxed to income, it cannot be said that the assessee had filed inaccurate particulars or concealed any income chargeable to tax. Further, conscious concealment is necessary. Even if some deduction or benefit is claimed by the assessee wrongly but bonafide and no malafide can be attributed, the penalty would not be levied.
8. In CIT vs. India Sea Foods (supra), the facts of the case are that the assessee declared a net loss of Rs.3,29,304/- in the return filed by it. After discussion with the Department and under the settlement the partners of the firm agreed that a sum of Rs.7.00 lacs may be added as income derived from them from undisclosed sources subject to spread over between the Assessment Years 1964-65 to 1968-69 in proportionate to the turnover. The assessee also agreed under that settlement that minimum penalty prescribed under the Act may be levied against it for all those years. Pursuant to the said settlement 11 ITA No.1372/M/09 A.Y: 03-04 the Assessing Officer finalised the assessment after adding a proportionate amount of Rs.2,84,727/- and disallowance of certain expenses. The net result of these additions was that in the place of loss of Rs.3,29,304/- shown in the return the assessee was found to have made a profit of Rs.18,460/-. On penalty proceeding, Inspecting Astt. Commissioner (the IAC) after over-ruling the objections of the assessee held that the minimum penalty leviable was Rs.2,84,727/- which amount in his view, represented the concealed income and accordingly imposed the said penalty. On appeal, the Tribunal set aside the order of the IAC imposing penalty. On reference following questions were referred to the Hon'ble High Court:
"Whether, on the facts and in the circumstances of the case, the Income tax Appellate Tribunal is justified in law in holding -
(i) that the word 'income' obtaining in section 271(1)(c) of the Income tax Act, 1961, should refer to a positive figure only and not a loss;
(ii) that the total income computation circumscribes the quantum of concealment in penalty proceedings ?"
It was held that the first question cannot be said to be a question of law arising out of the order of the Tribunal and hence it was declined to answer the same. With regard to the second question it was held that on the facts of the case, the minimum penalty impossible against the assessee on the basis of a correct application of sub-clause (iii) of section 271(1)(c) was Rs.2,84,727/-. The order passed by the IAC 12 ITA No.1372/M/09 A.Y: 03-04 imposing the said penalty was valid and interference with the said order by the Tribunal was illegal and unwarranted. Whereas in the case before us there was neither the surrender of income by the assessee nor any such agreement that minimum penalty may be levied, prescribed under the Act and quantum of computation of deduction u/s.10A is still to be determined by the Assessing Officer, therefore, the decision relied on by the ld. DR is distinguishable and not applicable to the facts of the present case.
9. In Nagin Chand Shiv Sahai vs. CIT (1938) 6 ITR 534(Lah.) ( wrongly cited by the Revenue as 61 ITR 534) the question that fell to be considered by the Hon'ble Lahore High Court in that case was whether u/s.28 of the Indian Income tax Act,1922, a penalty could be imposed against an assessee who had deliberately put forward certain false claims for deductions.
Whereas in the case before us it is not the case of the Revenue that the assessee has made false claim of deduction u/s.10A of the Act and the issue under consideration is penalty imposed u/s.271(1)(c) of the IT Act, 1961 and not under the old Act, therefore the decision relied on by the ld. DR is distinguishable and not applicable to the facts of the present case.
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10. In CIT vs. Gates Foam And Rubber Company (supra), it has been held (page 468 headnote) that the placing of the bogus debit as genuine constituted furnishing of inaccurate particulars of income. It had been proved that the agent-firm was a bogus concern set up for the purpose of diverting a large portion of the income of the assessee. The presumption provided for in section 271(1)(c) applied to the facts of the case and penalty had to be imposed.
Whereas in the case before us it is not the case of the Revenue that the assessee is a bogus concern or the claim of deduction u/s.10A made by assessee was found to be false or untrue or the assessee is not entitled to such deduction, therefore, the decision relied on by the ld. DR is distinguishable and not applicable to the facts of the present case.
11. In CIT vs. Haryana Warehousing Corporation (2009) 25 DTR 194 (P&H), relied on by the ld. Counsel for the assessee, it has been held that revenue having all along accepted assessee's claim of exemption under section 10(29) in respect of its entire income, similar claim for exemption made by the assessee was legitimate and bona fide and, therefore, penalty under section 271(1)(c) cannot be levied simply because the claim for exemption under section 10(29) has been disallowed in the relevant year on the income earned by the assessee 14 ITA No.1372/M/09 A.Y: 03-04 from other sources except income derived by letting out of godowns and warehouses, more so when legal position at that time was still in flux and clear finding has been recorded by the Tribunal that the assessee has disclosed the entire facts and has not concealed any income.
12. In the case of Kanbay Software India (P) Ltd. Vs. Dy.CIT (2009) 31 SOT 153(Pune), relied on by the ld. Counsel for the assessee, the penalty u/s.271(1)(c) was imposed in connection with a claim, made by way of a revised return, claiming a carry forward of loss of Rs.5,36,27,048/- in respect of loss incurred by one of the units and not claiming deduction u/s.10A on the aggregate of profits/losses of both the units that the assessee company has, but individually for the unit in which profit was earned. The Assessing Officer rejected this claim, which was made by the assessee by way of filing the revised return, and he also proceeded to impose penalty on the assessee for assessee's having furnished inaccurate particulars of income. It has been held that the assessee's explanation regarding bonafides of the claim does not suffer from any apparent consistencies or factual errors and it is quite in tune with the human probabilities. There is no good reason to reject the same as unacceptable for the purpose of making 15 ITA No.1372/M/09 A.Y: 03-04 of the claim of deduction being covered by the deeming fiction under Explanation 1 to section 271(1)(c) and accordingly the Assessing Officer was directed to delete the impugned penalty of Rs.2.00 crores.
13. In Twin Star Jupiter Co-operative Hsg. Soc. Ltd. Vs. ITO (2009) 31 SOT 474 (Mum.), relied on by the ld. Counsel for the assessee, the facts are that the assessee company was a co-operative housing society. The Assessing Officer made certain additions to the total income of the assessee in respect of 3 items. On appeal, the Commissioner(Appeals) dismissed the assessee's appeal. Thereafter, the Assessing Officer levied penalty upon the assessee under section 271(1)(c). On appeal against penalty order, the Commissioner(Appeals) cancelled the penalty in respect of only one item and confirmed the penalty in respect of remaining two items. It has been held that when the assessee had filed all the particulars of income, the correct assessment and calculation of total income had to be done by the Assessing Officer. If in such process the Assessing Officer found different total income to be assessed, than the income offered by the assessee, in such case it was not automatically a case where penalty under section 271(1)(c) was leviable. 16 ITA No.1372/M/09
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14. In ACIT vs. Mahindra Shubhlab Services Ltd. (2009) 31 SOT 361(Mum.), relied on by the ld. Counsel for the assessee, the facts of the case are that the assessee claimed expenditures on account of project feasibility report and on account of market research. The Assessing Officer while making assessment, allowed 1/10th of such expenses by invoking section 35D as those expenses were allowable in 10 years. Thereafter, the Assessing Officer levied penalty on both of the said items on ground that the assessee had filed inaccurate particulars of its income and concealed the income. The Commissioner (Appeals) cancelled the penalty holding that the issue was highly debatable and the assessee had furnished all the relevant particulars of income. It has been held that merely on that basis or quarrel, it cannot be held that the assessee has furnished inaccurate particulars or has concealed particulars of income or explanation furnished by the assessee is false. Under the circumstances, the Commissioner(Appeals) had rightly cancelled the penalty under section 271(1)(c). The order of the Commissioner (Appeals) was to be confirmed.
15. In this view of the matter we respectfully following the ratio of the decisions relied on by the ld. Counsel for the assessee hold that there is no concealment on part of the assessee, therefore, the penalty 17 ITA No.1372/M/09 A.Y: 03-04 imposed by the AO and sustained by the ld. CIT(A) is not sustainable in law and accordingly the same is deleted. The ground taken by the assessee is therefore, allowed.
16. In the result, assessee's appeal stands allowed. Order pronounced in the open court on 02.02.2010.
Sd/- Sd/-
(RAJENDRA SINGH) ( D.K. AGARWAL )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated:02.02.2010.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "F" Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
18 ITA No.1372/M/09
A.Y: 03-04
Details Date Initials Designation
1 Draft dictated on 4.1.10 Sr.PS/PS
2 Draft Placed before author 4.1.10 Sr.PS/PS
3 Draft proposed & placed before the JM/AM
Second Member
4 Draft discussed/approved by JM/AM
Second Member
5. Approved Draft comes to the Sr.PS/PS
Sr.PS/PS
6. Kept for pronouncement on 02-02-10 Sr.PS/PS
7. File sent to the Bench Clerk 03-02-10 Sr.PS/PS
8 Date on which the file goes to the
Head clerk
9 Date of Dispatch of order