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Larsen & Toubro Limited, Taxation Department Versus Dy. Commissioner of Income Tax

2015 (12) TMI 138 - ITAT MUMBAI

Penalty under section 271(1)(c) - addition made on account of disallowance of commission payment on contract receipt from Government / PSU, addition relating to expenditure on issuance of convertible debenture and expenditure on project which did not materialize - Held that:- Additions on the basis of which penalty has been imposed under section 271(1)(c) of the Act, the issues can be considered to be debatable, hence, in the particular circumstances of the case, penalty under section 271(1)(c) .....

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Mumbai, confirming the imposition of penalty under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 1990-91. 2. Brief facts of the case are assessee is a company. For the assessment year under consideration, assessee filed its return of income declaring total income of Rs. nil under the normal provisions and book profit of ₹ 13,88,82,280 under section 115J. The assessment in case of the assessee was completed under section 143(3) of the .....

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aforesaid additions made by the Assessing Officer were confirmed not only by the first appellate authority but also by the Tribunal. However, the question of law proposed by the assessee challenging the aforesaid three additions has been admitted by the Hon'ble Jurisdictional High Court in an appeal preferred under section 260A of the Act by the assessee and pending adjudication. Be that as it may, on the basis of aforesaid addition, the Assessing Officer issued a notice to the assessee cal .....

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ture issue expenses. As far as expenses relating to project not materialized, it was submitted by the assessee that similar expenses were allowed by the Tribunal in assessee's own case for the assessment year 1989-90, whereas, in the impugned assessment year, the Tribunal relying upon certain judicial pronouncements decided the issue against the assessee. Thus it was submitted by the assessee, issues relating to all the three additions are very contentious and on which more than one view is .....

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sition of penalty. 4. The learned Counsel for the assessee contesting the imposition of penalty submitted before us, as far as commission payment is concerned, the reason for disallowance was, the contracts since were from the Government Department/PSU, there was no need / necessity to make commission payment. He submitted, only because commission payment was disallowed it will not lead to the conclusion that assessee has furnished inaccurate particulars of income. He submitted for the assessmen .....

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se for the assessment year 1994-95, deleted the penalty imposed under section 271(1)(c) in its order passed in ITA no.1941/Mum./2011 dated 5th February 2015. He, therefore, submitted that as far as commission payment is concerned, there cannot be any imposition of penalty under section 271(1)(c). 5. As far as second addition relating to expenditure on issuance of convertible debenture the finding of learned Commissioner (Appeals) that it was for increasing the capital base of the company, hence, .....

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ch & Chemicals Ltd., [2010] 326 ITR 29 (P&H); iii) CIT v/s Havells India Ltd., [2012] 352 ITR 376 (P&H); iv) CIT v/s ITC Hotels Ltd., [2010] 334 ITR 109 (Kar.); v) CIT v/s Ranbaxy Laboratories Ltd., [2013] ITA no.93 of 2000 (Del.) Thus, he submitted that in view of the fact that different High Courts have held the expenditure on issuance of convertible debenture as revenue in nature, the issue is highly contentious hence will not come within the purview of section 271(1)(c) as it is .....

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s not at all give any finding as to whether a case of furnishing inaccurate particulars of income has been made out by Assessing Officer. Finally, the learned Counsel for the assessee submitted that question of law proposed by the assessee on all the three issues on which the additions have been made has been admitted by the Hon'ble Jurisdictional High Court while entertaining assessee's appeal under section 260A of the Act and pending adjudication. He submitted, once an issue has been a .....

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the Department. Thus, it was submitted the penalty imposed should be deleted. 7. The learned Departmental Representative, on the other hand, relied upon the order of the authorities below. 8. We have heard Shri J.D. Mistry, learned Counsel for the assessee and Shri G.S. Rao, learned Departmental Representative. We have also perused the orders of the Departmental Authorities as well as other material placed on record. We have also carefully applied our mind to the decisions relied upon by the le .....

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rticulars of income. As far as the commission payment is concerned, it is seen from record that the Tribunal has taken contrary view regarding allowability of commission payment. While in assessment year 1988-89, commission payment was allowed in the assessment year 1989-90 and 1990-91 they have been disallowed. It is further relevant to observe that in the assessment year 1991-92 to 1993-94, penalty was imposed under section 271(1)(c) on the basis of addition made on account of commission payme .....

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ssion payment was disallowed only for the reason that contracts were received from Government / PSU, hence, there was no need / necessity to make such commission payment. However, on considering identical fact, the Tribunal in assessment year 1991-92 to 1993-94, have deleted penalty imposed under section 271(1)(c). The same view was again reiterated by the Tribunal in assessee's own case for the assessment year 1994-95 cited supra. In view of the above, we hold that disallowance of commissio .....

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ted by the learned Counsel for the assessee different High Courts have held expenses relating to issuance of debenture as revenue expenditure. Therefore, just because the assessee claimed the expenditure being of the view that it is allowable as revenue expenditure and which cannot be considered to be totally unacceptable view, in our opinion, there cannot be imposition of penalty under section 271(1)(c) for furnishing inaccurate particulars of income. As far as the expenditure on project which .....

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has to be decided by the Assessing Officer in an assessment proceedings. By simply making a claim, the assessee does not automatically get entitled for the expenses. Having already held that in the particular facts and circumstances of the case, penalty is not imposable us 271(1)(c) on the basis of additions made, it will be pertinent to observe that questioning of law framed by the assessee relating to all the three additions on the basis of which penalty has been imposed, are admitted by the H .....

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in respect of which penalty was confirmed have been accepted by the Hon'ble Bombay High Court leading to substantial question of law. When the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable. In such circumstances penalty cannot be levied u/s 271(1)© as has been held in several cases including Rupam Mercantile Vs. DCIT [(2004) 91 ITD 237 (Ahd) (TM)] and Smt.Ramila Ratilal Shah Vs. ACIT [(1998) 60 TTJ (Ahd) 171]. .....

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