TMI Blog2009 (9) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... ing local sales of scrap as part of profit of business, which is in contravention of the provisions of the Act. On the other hand, the learned counsel for assessee defended the impugned order by contending that the chartered accountant of the assessee duly gave a note below the return that since the assessee is exporting 100 per cent of its products manufactured, hence, scrap sales has neither been included in total turnover nor in export turnover and the same view was approved in three assessment years for which our attention was invited to various pages of the paper book. It was pointed out that the AO took scrap sales as part of total turnover by excluding entire sales. Shri Sehgal further contended that the Tribunal in para 3 of the order directed the AO while disposing of the miscellaneous application. However, the penalty was levied before the order was passed in miscellaneous application. Therefore, the order of the Tribunal against miscellaneous application was not considered by the AO. Further, it was argued that the assessee furnished complete particulars of income that too on the basis of advice/certificate of the chartered accountant and consequent claim of deduction. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above said year, the assessee firm has claimed deduction under s. 80HHC on the exports made during the above said year. However, there is sale of scrap also during the above said year under consideration but while calculating the deduction under s. 80HHC the amount of scrap sale has neither been included in the total turnover and nor as Indian turnover. For this the submission of the assessee is that the assessee firm is dealing in trading and manufacturing of cycle parts and the scrap is bio-products of manufacturing and is not a turnover because very meaning of the work turnover is something which comes in and then sold out but in the instant case it is not there. Now coming to the accounting principle, the sale of scrap either to be shown on the credit side or should be reduced from the purchases because it is simply reduces the cost of purchases and not anything else. So the business of the assessee is 100 per cent export and not even a piece of goods have been sold in India, so scrap is not turnover of the assessee firm. Even in the instruction issued by the ICAI for the purpose of audit it has been clarified that the unit who is selling scrap in India will be deemed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to ₹ 79,25,489 is to be excluded from the turnover as well as from the profit of business for computing deduction under s. 80HHC. As per the AO, since it was a mistake apparent from record, he vide order dt. 28th Nov., 2006 under s. 154 computed the total income of ₹ 79,25,489. A penalty notice under s. 274 r/w s. 271(1(c) was issued to the assessee to which it was explained that the deduction under s. 80HHC, claimed by the assessee, has been disallowed due to difference of opinion whereas the said claim was made on the basis of the certificate of the chartered accountant and also in view of the ratio laid down in various decisions, it was rightly claimed. This explanation of the assessee was not accepted by the learned AO because he was of the view that there is no provision under s. 80HHC where scrap sale would be eligible for deduction as the same is based on profit earned and brought into India in foreign exchange and further the assessee has claimed higher deduction by considering the local sale of scrap as part of profit of business which is contrary to the provisions of the Act. The AO was of the view that the assessee deliberately suppressed its taxable inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent appeal, since the claim was made on the advice of an outside expert (being the auditor/chartered accountant) and there being no mala fides, the same would not result in invoking of s. 271(1)(c) of the Act. Our view is fortified by the decision in the case of Little Bee Impacts vs. Addl. CIT (ITA No. 414/Chd/2009), wherein both of us are signatory to the order. Relevant portion of the order is reproduced herewith : This appeal by the assessee is directed against the order of the Commissioner of Income-tax-II, Ludhiana (in short 'the CIT') dt. 20th Feb., 2009, wherein penalty under s. 271(1)(c) of the IT Act, 1961 (in short 'the Act') amounting to ₹ 2,17,662 has been imposed for the asst. yr. 2004-05. 2. The only issue agitated by the assessee in this appeal is against the action of the CIT in imposing penalty under s. 271(1)(c) of the Act with respect to the denial of claim of additional depreciation under s. 32(1)(iia) of the Act. 3. In brief the facts are that the assessee filed a return of income declaring income of ₹ 1,48,646. This return was subject to scrutiny assessment under s. 143(3) of the Act wherein the total income was determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndra Textile Processors (2007) 212 CTR (SC) 432: (2007) 295 ITR 244(SC), the learned counsel submitted that the said decision is not applicable to the situations like the present case. According to him, in the present case the claim of the assessee cannot be termed as patently erroneous or bereft of bona fides and it was a mistake and therefore, it does not lead to imposition of penalty automatically. In support, attention was also invited to the following decisions of the Tribunal : (i) Asstt. CIT vs. VIP Industries Ltd. (ITA No. 4524 and 4383/Mum/2056 dt. 20th March, 2009) [reported at (2009) 122 TTJ (Mumbai) 289: (2009) 21 DTR (Mumbai) 153'Ed.]. (ii) Kanbay Software India (P) Ltd. vs. Dy. CIT (2009) 122 TTJ (Pune) 721: (2009) 22 DTR (Pune) 481. 5. On the other hand, learned Departmental Representative appearing for the Revenue has defended the order of the CIT imposing penalty under s. 271(1)(c) of the Act. According to the learned Departmental Representative, the CIT has observed that while claiming the additional depreciation under s. 32(1)(iia) of the Act, the requisite report of an accountant as required in Form No. 3AA was also not filed along with the return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) is enacted to provide for a remedy for loss of revenue and therefore, it creates strict liability on the assessee for concealment of for giving inaccurate particulars of income while filing the return of income. Apart from referring to the decision of the Supreme Court in the case of Dharamendra Textile Processors (supra), the CIT has observed that the impugned disallowance cannot be termed as a technical or venial breach as made out by the assessee. 8. We have perused the judgment of the Hon'ble Supreme Court in the case of Dharamendra Textile Processors (supra) and find, it cannot be understood to mean that because s. 271(1)(c) creates civil liability, in every case of addition made in the assessment, necessarily penalty under s. 271(1)(c) is to be imposed. In fact the Hon'ble jurisdictional High Court in a decision in the case of CIT vs. Haryana Warehousing Corporation (IT Appeal No. 871 of 2008 dt. 1st July, 2009) [reported at (2009) 226 CTR (P H) 124 : (2009) 25 DTR (P H) 194'Ed.] has considered a similar argument put forth by the Revenue based on the judgment of the Hon'ble Supreme Court in the case of Dharamendra Textile Processors (supra). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid judgment. Penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake.' 9. In view of the aforesaid observations of the Hon'ble High Court, we are unable to appreciate the point made out by the Revenue that where an addition has become final, penalty under s. 271(1)(c) has to necessarily follow because the same is for loss of revenue or that it is a mere civil liability. 10. On the contrary, the Hon'ble jurisdictional High Court in the case of Haryana Warehousing Corporation (supra) held that the essential prerequisites contained in s. 271(1)(c) have to be complied with before penalty can be imposed. It is observed that the assessee should have either concealed the particulars of his income or should have furnished inaccurate particulars of his income so as to require imposition of penalty under s. 271(1)(c) of the Act. 11. Considered in this light, in the instant case we find that insofar as the claim of the assessee for additional depreciation made in the return of income is concerned, the same was based on a report of the auditor. Notably, such a claim wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 DTR (SC) 158 is concerned, that is under s. 11AC of the Central Excise Act wherein notice under s. 11A(1) of the Act was considered and the end result was conscious and deliberatly wrong, therefore, may not be applicable to the facts of present appeal. In Kanbay Software India (P) Ltd. vs. Dy. CIT (supra), the Bench has already considered various judicial pronouncements including from the Hon'ble apex Court/High Courts. For imposing penalty under s. 271(1)(c), the facts have to be examined in the light of the scheme of things envisaged by s. 271(1)(c) read with Explanation thereto. 6. The Hon'ble jurisdictional High Court in the case of CIT vs. Lakhani India Ltd. (supra), wherein the deduction was claimed on the basis of certificate issued by the chartered accountant and there was difference of opinion on the issue on which deduction was claimed at the time of filing of return, which was though changed by a subsequent decision, the penalty under s. 271(1)(c) was held to be not justified. While deleting the penalty, there is a finding in the impugned order that there were divergent opinion on the issue of deduction under s. 80HHC in respect of sale of scrap, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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