TMI Blog2004 (12) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) CIT vs. Super Metal Re-rollers (P) Ltd. (2003) 185 CTR (Del) 349 : (2004) 265 ITR 82 (Del); and (iii) Ram Commercial Enterprises Ltd. vs. Asstt. CIT (1995) 52 ITD 147 (Del) 3.1 The learned senior Departmental Representative, on the other hand, pointed out that in the assessment order, the AO has communicated his satisfaction and, therefore, it cannot be said that the AO has not recorded satisfaction for initiating penalty proceedings. In support of this submission, he placed reliance in the case of K.P. Madhusudanan vs. CIT (2001) 169 CTR (SC) 489 : (2001) 251 ITR 99 (SC). 3.2 We have carefully considered the issue raised by the learned counsel for the assessee. As it is preliminary issue, we want to dispose of this issue first. On perusal of the assessment order, it is found that the AO has recorded following findings for initiating penalty proceedings: "Show-cause penalty notice under s. 274 r/w s. 271(1)(c) for making excessive claim under s. 80P(2)(a)(iii) of the IT Act has separately been issued." 3.3 The above observation of the AO indicates that he had applied his mind and came to conclusion that assessee had made excessive claim under s. 80P(2)(a)(iii) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just after the order of the learned CIT(A). He informed that upto asst yr. 1991-92, the assessee filed return declaring taxable income and it changed the stand only after getting the order of the learned CIT(A) for the asst. yr. 1992-93. According to him, at that stage the appeals for the asst. yrs. 1992-93, 1993-94 and 1994-95 were pending and the dispute regarding allowability of deduction under s. 80P(2)(a)(iii) was finally decided by the Tribunal in the appeals for the years vide order dt. 23rd Feb, 1998, and the issue was partly decided against the assessee. In this return, the assessee declared income at nil after claiming the entire income exempt under s. 80P(2)(a)(iii), but subsequently, during the assessment proceedings when it was learnt that proportionate income to the extent of sugarcane purchased from non-members was liable to be taxed, the return was accordingly revised reducing the claim under s. 80P(2)(a)(iii) of the IT Act. 6. The learned counsel further contended that full facts were disclosed by the assessee and in the revised return total income declared was shown at Rs. 4,11,46,299 and the assessment was completed at Rs. 4,14,58,340 by disallowing the entire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 271(1)(c), in support of this argument, the learned counsel placed reliance on the following decisions: 1. CIT vs. Harshvardhan Chemical Minerals Ltd. (2004) 186 CTR (Raj) 552 : (2003) 259 ITR 212 (Raj) 2. Dr. C. Balakrishnan Nair Anr. vs. CIT Anr. (1999) 154 CTR (Ker) 523 :(1999) 237 ITR 70 (Ker) 3. ITO Ors. vs. Mahadeo Lal Tulsian Ors. (1997) 110 ITR 786 (Cal) 4. CIT vs. Rajiv Udyog (1997) 227 ITR 209 (MP) 5. CIT vs. Best Supply Agency (2000) 241 ITR 208 (Mad) 9. In reply, the submission of the learned senior Departmental Representative was that on perusal of order of the learned CIT(A) dt. 23rd July, 1995, for the asst. yr. 1992-93, it will be clear that before him the facts relating to purchase of sugarcane by the assessee from non-member was not put and took the impression that entire cane was purchased by the assessee-society from its members only. In support of this submission, he made reference to paras 5 to 7 of the order of the learned CIT(A) and argued that in view of the observations of the learned CIT(A), before him, there was no dispute that the assessee was earning income on account of sugarcane purchased from nonmembers. He also made referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and the case laws relied upon by the learned counsel, I hold that the entire business income of the assessee from manufacturing and sale of sugar is exempt under s. 80P(2)(a)(iii) of the IT Act." 12. In the asst. yrs 1992-93, 1993-94, 1994-95 and 1995-96, the matter travelled upto Tribunal and vide order dt. 23rd Dec., 1998, the claim was decided by the Tribunal against the assessee. The relevant observations of the Tribunal are as under: "We have heard both parties and also considered the facts involved. We find that the assessee originally filed a return declaring nil income. Subsequently, the assessee was asked to furnish details of sugarcane purchased and ultimately the assessee filed a revised return declaring income at Rs. 1,00,29,880. This revision was due to the facts that the assessee had withdrawn its claim for deduction under s. 80P(2)(a)(iii) of the IT Act proportionately in respect of sugarcane purchased from non-members. The AO ultimately rejected the claim under s. 80P(2)(a)(iii) of the IT Act, fully and a result thereof the interest under ss. 234B and 234C came to be levied. We also find that s. 80P was inserted w.e.f. 1st April, 1968, in place of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, submissions on this have already been made. The assessee had claimed in the return filed that its entire income is exempt under s. 80P(2)(a)(iii) of the IT Act, under the bona fide belief that entire sugarcane has been purchased from members. Later on it found that some quantity of sugarcane was purchased from non-members also and accordingly, revised return was filed declaring proportionate income on sugarcane purchased from non-members as taxable. According to Supreme Court judgment, Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC) relied upon in reply dt. 24th July, 1998, no penalty is leviable because there was no deliberate defiance of law nor the assessee acted in conscious disregard of its obligation. Similar view has been taken by Supreme Court in Cement Marketing Co. of India Ltd. vs. Asstt. CST Ors. (1980) 124 ITR 15 (SC), wherein it held that 'A return cannot be said to be false' unless there is an element of deliberateness in it. Where the assessee does not include a particular item in the taxable income under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting impositi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Cement Marketing Co. of India Ltd. vs. Asstt. CST Ors. that where the assessee did not include in its return of turnover, the amount of freight included in the price of sugar under the bona fide belief that it was not liable to be included in the taxable turnover the assessee could not be said to have filed a 'false return' and penalty could not be imposed on the assessee. The Hon'ble Supreme Court also relied upon their earlier decision in the case of Hindustan Steel Ltd. vs. State of Orissa where they have held that even if the minimum penalty is prescribed, the authority competent to impose the penalty will be justified in reducing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. The Hon'ble jurisdictional High Court in the case of CWT vs. Suraj Parkash Modi (1982) 31 CTR (P H) 234 : (1983) 144 ITR 259 (P H). CWT vs. Smt. Devinder Kaur (1984) 146 ITR 234 (P H) and the Hon'ble Delhi High Court in the case of S. Harnam Singh Suri vs. CBDT Ors. (1984) 145 ITR 159 (Del) have all followed the principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held not entitled to exemption under s. 81(i)(c) of the IT Act. The above referred decision was re-considered by the Hon'ble Supreme Court and the Hon'ble Court impliedly overruled the same in the case of Kerala State Co-operative Marketing Federation Ors., Etc. vs. CIT. The relevant observations of the Hon'ble Court are as under: "The attention of this Court does not seem to have been drawn to the aforesaid decisions while deciding Assam Co-operative Apex Marketing Society Ltd. vs. Addl. CIT (1993) 113 CTR (SC) 58 : (1993) 201 ITR 338 (SC). With respect, we, therefore, hold that the view taken therein requires reconsideration as stated earlier by us. In the result, the order of the Kerala High Court following the decision of this Court in Assam Co-operative Apex Marketing Society is reversed. We hold that the society engaged in the marketing of agricultural produce of its members would mean not only such societies which deal with the produce raised by the members who are individuals or societies which are members thereof who may have purchased such goods from the agriculturists. Thus, we allow the civil appeal by setting aside the order made by the High Court and answering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hindustan Steel vs. State of Orissa and the decision in the case of Hindustan Sugar Mills Ltd. vs. State of Rajasthan AIR 1978 SC 1496 observed as under: "A return cannot be 'false' unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, the Court may in a given case, infer deliberation and the return may be liable to be branded as a false return. But where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting imposition of penalty." 21. In the case of CIT vs. Pradeep Kumar (2000) 246 ITR 94 (J K), the assessee failed to disclose commission income in the original return and due to this omission, penalty of Rs. 9.000 was imposed under s. 271(1)(c) of the IT Act. which was deleted by the Tribunal by holding that the omission to disclose, commission income was not intentional. The Hon'ble J K High Court upheld the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise it would become impossible for any assessee to raise any claims or deductions which might be debatable, and it was not the intention of the legislature to make punishable such claims, if they were not accepted.' The Hon'ble High Court upheld the view taken by the Tribunal by observing as under: "Held, affirming the decision of the Tribunal, that no penalty was leviable in view of the finding of the Tribunal that when the assessee had claimed deduction of an amount that was debatable it could not be said that the assessee had concealed any income or furnished inaccurate particulars for evasion of tax, and in view of the findings of the Tribunal, no case was made out for interference." 25. In view of the above referred decisions, it is clear that if a debatable claim is made then it cannot be treated to be a false claim or mala fide claim. In the case of the present assessee, in view of the facts stated above, it is clear that the intention of the assessee was bona fide in preferring the claim. The plea of bona fide belief will also be taken by the assessee during the penalty proceedings, as mentioned above, but the AO had not properly appreciated the plea. The learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's claim was not bona fide. Further, it could not be concluded that the assessee had concealed either particulars of income or furnished inaccurate particulars of income. If after furnishing all necessary particulars of income, the assessee claimed benefit of certain provisions of the Act and raised contention but it did not find favour with the authorities, it might be on account of difference of opinion on particular set of facts but it did not imply that there had been a concealment of particulars of income. In view of the above, it had to be held that penalty levied in the given facts and circumstances was illegal and invalid." 28. It may be pointed out that it is not the case of the Department that the assessee has furnished inaccurate particulars or gave false particulars. Rather the assessee had given full material facts relating to computation of income. The income of the assessee as per the revised return was also based on the same figures except giving up the proportionate claim on account of income earned on the basis of the sugarcane purchased from non-members. The assessment was framed on the basis of the revised return. Thus, it cannot be said that the assessee de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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