Income Tax Appellate Tribunal - Chennai
Shriram Investments Ltd., Chennai vs Department Of Income Tax on 25 March, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCH 'B' : CHENNAI
[BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND
SHRI HARI OM MARATHA, JUDICIAL MEMBER]
I.T.A No. 998/Mds/2010
Assessment year : 2003-04
The ACIT vs M/s Shriram Investments Ltd
Company Circle VI(2) No.4, Mookambiga Complex
Chennai Lady Desika Charry Road
Mylapore
Chennai 600 004
[PAN - AAECS4041G]
(Appellant) (Respondent)
I.T.A No. 1000/Mds/2010
Assessment year : 2003-04
The ACIT vs M/s Shriram Transport
Company Circle VI(2) Finance Co. Ltd
Chennai No.4, Mookambiga Complex
Lady Desika Road
Mylapore
Chennai 600 004
[PAN - AAACS7018R]
(Appellant) (Respondent)
Appellant by : Shri P.B. Sekaran
Respondent by : Shri V.D. Gopal
ORDER
PER HARI OM MARATHA, JUDICIAL MEMBER:
In these appeals of the Revenue, filed against different assessees of the same group, for assessment year 2003-04, identical :- 2 -: ITA 998 & 1000/10 issues are involved, therefore, for the sake of convenience and brevity, we proceed to decide them by a common order.
I.T.A.No. 998/Mds/2010
2. This appeal of the Revenue is directed against the order of the ld. CIT(A)-V, Chennai, dated 25.3.2010 and emanates from a penalty order dated 16.9.2009 passed u/s 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act' for short).
3. Briefly stated, the facts of the case are that the assessee- company is engaged in the business of conducting hire purchase finance, leasing and investment. The assessee filed return of income for assessment year 2003-04 admitting total income of `14,34,72,481/-. The assessee also declared book profit u/s 115JB of the Act of ` 38,47,41,000/-. In the assessment completed u/s 143(3) on 13.3.2006, some additions were made and the total income was computed at `57,82,84,080/-. The assessee had made a claim for deduction of `4,75,00,000/- which stood transferred to statutory reserve in the income-tax adjustment statement, alongwith a note -
"Amount transferred to statutory reserve as per section 45 IC of the RBI Act. It is claimed as deduction since it is a statutory diversion and in view of the overriding provision of section 45Q of the RBI Act."
In quantum, this addition stood confirmed upto the stage of ITAT. In the penalty proceedings initiated u/s 271(1)(c) of the Act, the :- 3 -: ITA 998 & 1000/10 Assessing Officer, after giving due notice to assessee u/s 274 of the Act and after giving opportunity of hearing to the assessee, levied the impugned penalty presumably on account of furnishing inaccurate particulars of income. In first appeal, however, the assessee was successful in getting the impugned penalty cancelled and the ld. CIT(A) has held that this is neither a case of concealment of income nor a case of furnishing inaccurate particulars of income. Now, the Revenue is aggrieved and has raised the following grounds:
"1. The order of the ld. CIT(A) is contrary to law and facts of the case.
2.1 The learned CIT(A) failed to note that the facts of this case is distinguishable form the case of M/s Reliance Petroproducts( 322 ITR158) 2.3 The issue under consideration in the case of M/s Petropoducts was that any deduction claimed which is not sustained does not lead to concealment. The CIT(A) failed to observe that in the assessee's case, the deduction claimed was not under the IT Act.
2.4 Having regard the decision of the Madras HC in the case of Aries Advertising(255 ITR 510) the CIT(A) should have appreciated that by whatever name a reserve is called, it is the income of the assessee.
2.5. The learned CIT(A) failed to appreciate that the deduction claimed is under RBI Act and it is well settled that the provisions of the IT Act prevails over other acts. (T.N Power Finance And Infrastructure Development Corporation(280ITR491) .
2.6 Having regard to the decision in the case of Dharmendra Textile Processors (306 ITR 277) which decision has not been overruled, the CIT(A) ought to have upheld the action of the A.O.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing :- 4 -: ITA 998 & 1000/10 Officer restored."
4. We have considered the rival submissions and have carefully perused the entire records. Before we consider the factual matrix of this case to ascertain as to whether in the eyes of the provisions of the Act as explained by numerous judicial pronouncements, penalty can be levied in this case or not, we would like to discuss in nut shell the relevant legal position regarding levy of penalty u/s 271(1)(c) of the Act and as to how and when such penalty can be levied under this section. There are no two opinions about the settled position of law that regular assessment proceedings and penalty proceedings are two entirely different subjects which operate in distinct and separate spheres so much so that entirely different parameters are applicable for making quantum addition and for levying penalty under section 271(1)(c) of the Act. There can be no dispute with regard to the position of law that under section 271(1)(c) penalty can be levied only if either the act of "concealment of particulars of income" or "furnishing of inaccurate particulars of income" is found to have been committed by the assessee. These are two different omissions or defaults albeit they refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of either suppressio veri or suggestio falsy. By the mere reason of such :- 5 -: ITA 998 & 1000/10 concealment or of furnishing of inaccurate particulars alone, the assessee does not, ipso facto, become liable to a penalty. Imposition of penalty is not at all automatic. Meaning thereby, any addition in quantum would not lead to automatic levy of penalty and this is also true in respect of furnishing of inaccurate particulars of income. Not only is the levy of penalty discretionary in nature but the discretion has to be exercised keeping the relevant factors in mind and the approach of the taxman must be fair and objective. This subject has been a matter of great controversy. Finally, after referring to the decisions in the case of Dilip N. Shroff vs JCIT & Another, 291 ITR 519, Union of India vs. Dharmendra Textile Processors [2008] 13 SCC 369, as well as Union of India vs Rajasthan Spg. & Wvg. Mills [2009] 13 SCC 448, the Hon'ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt. Ltd, 322 ITR 158, has recently held as under:
"A glance at the provisions of section 271(1)(c) of the Income- tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate parti- culars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim :- 6 -: ITA 998 & 1000/10 tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271 (1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
5. Adverting to the facts of this case, we find that the assessee has neither concealed the particulars of income nor has furnished inaccurate particulars of income warranting levy of penalty u/s 271(1)(c) of the Act in respect of this amount of ` 4,75,00,000/- because in the Profit & Loss Account filed alongwith the return for assessment year 2003-04 the profit shown at ` 80 crores plus also includes the sum of ` 4,75,00,000/- transferred to statutory reserves as per the provisions of RBI Act. This transfer has been disclosed under the head "apportioned" in the Profit & Loss Account. In the adjustment statement for income-tax, taxable income has been computed from the Profit & Loss Account. The assessee has clearly :- 7 -: ITA 998 & 1000/10 made a claim for deduction of the amount of ` 4,75,00,000/- in the adjustment statement with a 'note' extracted above. It is true that this claim has not been accepted even upto the Tribunal level and the assessee is in appeal against the sustained quantum additions but whatever is the case, the penalty proceedings operate in a different sphere because different parameters apply for levy or non-levy of penalty in contrast to the quantum additions which operate in an entirely different sphere. In case any legal or valid claim is made, which is not found to be correct by the authorities, it would not automatically lead to levy of penalty as discussed above. It is not a case where the assessee has not disclosed full and final facts rather it is the assessee who has disclosed this impugned amount but has claimed deduction thereof in the adjustment statement with the above 'note'. The ld.AR has relied on numerous decisions in support of his contention. The case of the Revenue is that this is a clear case of furnishing inaccurate particulars of income which the assessee has done with the aim to evade payment of tax. Before we discuss the cases relied on by the parties, we would like to mention that the assessee has made a full and true disclosure of income and has made a claim for deduction of `4,75,00,000/- transferred to statutory reserves as per the Statutory requirement of RBI Act. Hence, the assessee has made a bonafide legal claim which cannot be said to be :- 8 -: ITA 998 & 1000/10 fallacious or flippant and malafide. The impugned amount was transferred to the reserve fund as per the statutory requirement of RBI Act. This fact has not been disputed by the Revenue. The appeal against quantum sustained addition has been admitted by the Hon'ble Jurisdictional High Court by treating a substantial legal issue having been involved in the appeal. This factum in itself may not be a good guidance for coming to a conclusion but definitely this may be a arguable point from the side of the assessee. Be that as it may, we are of the considered opinion that in case a valid claim based on law is made by the assessee after disclosing full and true facts, and the same is rejected and addition is made qua that amount, it would not tantamount to either concealment of income or furnishing of inaccurate particulars of income automatically. The Revenue is bound to establish its case which falls under either of the two conditions laid in section 271(1)(c) of the Act. The Revenue has relied on the following decisions:
The first decision of the Hon'ble Supreme Court relied on by the ld.DR in the case of CIT vs Reliance Petroproducts, has already been discussed by us which, in our opinion, supports the case of the assessee because it has been held therein that making an incorrect claim cannot by any stretch of imagination tantamount to furnishing inaccurate particulars of income. There is no finding by the Revenue :- 9 -: ITA 998 & 1000/10 that the details supplied by the assessee in its return are incorrect or erroneous or false. The assessee has made a claim which was not found to be sustainable in law and quantum addition has been made. So, it would not amount to furnishing of inaccurate particulars of income. The Court specifically rejected the Revenue's contention that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. The other decision relied on by the ld.DR is of Hon'ble Madras High Court rendered in the case of Aries Advertising, 255 ITR 510. In fact, this case does not relate to penalty proceedings and the ratio of the decision is that unclaimed balances written off and transferred to general reserves are assessable as income of the assessee chargeable to income-tax. Therefore, this case does not help the case of the Revenue in so far as penalty proceedings are concerned. The other decision relied on is in the case of Union of India & Others vs Dharmendra Textiles Processors and Others, 306 ITR 277(SC). This case is also not relevant for the present appeal because there is no issue regarding proof of mens rea. Moreover, this case was rendered in the case of Central Excise Act, 1944 and thereafter many other decisions have come whereby this decision has been diluted [UOI vs Rajasthan Spinning & Weaving Mills, 13 SCC 448, CIT vs Atul mohan Bindal, 317 ITR 1 (SC)]. The decision of Hon'ble Madras High Court in :- 10 -: ITA 998 & 1000/10 the case of T.N. Power Finance & Infrastructure Development Corporation vs JCIT, 280 ITR 491, relied on by the ld.DR is also on quantum additions whereby it has been held that merely because the RBI had directed the assessee to provide for non-performing assets that direction could not override the mandatory provisions of Income- tax Act contained in section 36(1)(viia) of the Act which stipulate a deduction not exceeding 5% of the total income only in respect of the provision for bad and doubtful debts which are predominately revenue in nature or trade related and not for provision for non-performing assets which are of predominately capital nature. In such cases, the assessee is not entitled for deduction and as a matter of fact, the quantum addition has been confirmed even upto the Tribunal. But here we are concerned with different provision i.e section 271(1)(c) of the Act, which operates in an entirely different sphere and therefore, entirely different parameters are applicable to this penalty provision as discussed in the earlier part of the order.
6. In this case, the facts are simple. While computing the total income, the assessee being a non-banking finance company, registered with the RBI and therefore, bound by Chapter III of the RBI Act, it made a claim for deduction of the amount which it transferred, out of its profits chargeable to tax, to a reserve fund as mandated by section 45IC of the RBI Act and which could be utilized only for the :- 11 -: ITA 998 & 1000/10 purposes which the RBI may specify. Denial of claim for such a deduction can not ipso facto lead to levy of penalty. The Assessing Officer has summarily rejected the detailed submissions made by the assessee in reply to the penalty notice and proceeded to levy penalty stating that "by claiming deduction of the amount transferred to statutory reserve though not deductible, the assessee furnished inaccurate particulars of income and has deliberately reduced its tax liability." The assessee has neither concealed the income nor has furnished any inaccurate/false particulars for the purpose of claiming the deduction. There was no false statement of facts. The claim was not even disguised such as with a wrong description or a misleading or false label which the Assessing Officer had to unravel for making disallowance. As held by the Hon'ble Orissa High Court in the case of CIT vs Indian Metals & Ferro Alloys Ltd, 211 ITR 35, "The word conceal is derived from the latin concelare which implies to hide. Webster in his New International Dictionary equates its meaning to hide or withdraw from observation, to cover or keep from sight; to prevent the discovery of; to withhold knowledge of. The offence of concealment is thus a direct attempt to hide an income or a portion thereof from the knowledge of the income-tax authorities. In furnishing its return of income, an assessee is required to furnish particulars and accounts on which such return income has been arrived :- 12 -: ITA 998 & 1000/10 at. These may be particulars as per its books of account, if it has maintained them, or any other basis upon which it had arrived at the returned figure of income. Any inaccuracy made in such books of account or otherwise which resulted in keeping off or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income." In this case, the assessee has disclosed all the facts and they are neither false nor inaccurate. The amount transferred u/s 45IC to reserve fund appears in the accounts filed. The assessee has given reasons for claiming the deduction. The claim made is on a particular understanding and interpretation of the relevant statutory provisions and Tribunal and court decisions. Whether the deduction claimed is allowable or not is a pure question of law and in fact the High Court has entertained the assessee's appeal u/s 260A of the Act on the ground that substantial questions of law are involved for its decision. Such a claim made in the case before us cannot amount to furnishing inaccurate particulars of income. After cogitating the entire facts of the case and basing them on the text of the penalty provisions with reference to the relevant precedents relied on by both the parties, we cannot allow Revenue's appeal.
7. For the foregoing reasons, we dismiss the appeal of the Revenue and confirm the cancellation of the impugned penalty levied u/s 271(1)(c) of the Act .
:- 13 -: ITA 998 & 1000/10
8. In the result, the appeal filed by the Revenue in the case of M/s Shriram Investments Ltd, stands dismissed.
I.T.A.No. 1000/Mds/2010
9. The position of facts in this case is exactly identical to the case in I.T.A.No. 998/Mds/2010 except for the figure of penalty and alleged concealed income. In this case, the amount transferred to statutory reserve is stated to be `4,77,00,000/- and penalty levied u/s 271(1)(c) of the Act is `1,75,29,750/-, for the same assessment year 2003-04. In this appeal following grounds have been raised by the Revenue:
"1. The order of the ld. CIT(A) is contrary to law and facts of the case.
2.1 The ld. CIT(A) erred in deleting the penalty levied u/s 271(1)(c).
2.2 The learned CIT(A) failed to note that the facts of this case is distinguishable form the case of M/s Reliance Petroproducts( 322 ITR158) 2.3 The issue under consideration in the case of M/s Reliance Petropoducts was that any deduction claimed which is not sustained does not lead to concealment. The CIT(A) failed to observe that in the assessee's case, the deduction claimed was not under the IT Act.
2.4 Having regard the decision of the Madras HC in the case of Aries Advertising(255 ITR 510) the CIT(A) should have appreciated that by whatever name a reserve is called, it is the income of the assessee. 2.5. The learned CIT(A) failed to appreciate that the deduction claimed is under RBI Act and it is well settled that the provisions of the IT Act prevails over other acts. (T.N Power Finance And Infrastructure Development Corporation(280ITR491) .:- 14 -: ITA 998 & 1000/10
2.6 Having regard to the decision in the case of Dharmendra Textile Processors (306 ITR 277) which decision has not been overruled, the CIT(A) ought to have upheld the action of the A.O.
3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the ld. CIT(A) may be set aside and that of the Assessing Officer restored."
10. A perusal of the above grounds shows that they are in substance identical to the grounds raised in earlier appeal except the amount involved therein.
11. After hearing both sides and on the basis of similar reasoning as we have given in the above appeal, we cannot allow this appeal of the Revenue as well.
12. To summarize the result, both the appeals of the Revenue stand dismissed.
Order pronounced in the open court on 20.1.2011
Sd/- Sd/-
(DR. O.K. NARAYANAN) (HARI OM MARATHA)
VICE-PRESIDENT JUDICIAL MEMBER
Dated: 20th January, 2011
RD
Copy to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR