TMI Blog2014 (3) TMI 1037X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not tantamount to furnishing of inaccurate particulars of income by the assessee. Accordingly, we direct the Assessing Officer to delete penalty levied under section 271 (1) (c) of the Act on the said non allowance of set off of brought forward losses/depreciation in the hands of the assessee Assessability of sales tax subsidy - Held that:- No merit in holding the assessee to have furnished inaccurate particulars of income in respect of such debatable issue. The assessee is not exigible to levy of penalty under section 271(1)(c) of the Act on the aforesaid treatment of sales tax subsidy as revenue in the hands of the assessee and we uphold the order of the CIT (Appeals) in directing the Assessing Officer to delete the same Disallowance made under section 36 (1) (iii) of the Act on account of disallowance of interest paid on secured loans being relatable to interest free advances made by the assessee - Held that:- Following the parity of reasoning in respect of the treatment to sales tax subsidy and the question of law pending adjudication before the Hon'ble Supreme Court of India, we confirm the order of the CIT (Appeals) in holding that in view of the debatable issue r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as being derived from the industrial undertaking was the insurance claim - eligible for the deduction under section 80IA - Held that:- treatment of the receipts from insurance claim being includible or not being includible in the profits of business, while computing deduction under section 80IA of the Act i.e. whether the same is derived or not derived from the industrial undertaking, makes the issue debatable issue and additions on such debatable issue can not tantamount to furnishing of inaccurate particulars of income as held by us in paras hereinabove. The claim of the assessee at best could be said to be debatable claim which does not make the assessee exigible to levy of penalty under section 271 (1) (c) of the Act. Deduction allowable under section 80HHC - Held that:- Where the assessee has furnished complete particulars in respect of its items of income as detailed above merely because the said items of income were held to be not eligible for deduction under section 80HHC of the Act and the said deduction was recomputed by excluding 90% of the said income from the eligible profits, the said recomputation would not tantamount to furnishing of inaccurate particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case for AY 1993-94 in 286 ITR 1 and without appreciating that the Hon'ble High Court in the same case had also held the order of ITAT to be perverse it was made without application of judicial mind. 5. The issues raised in the present appeals are that during the year under consideration certain additions/disallowances were made by the Assessing Officer while completing assessment in the hands of the assessee, which are as under: 1. Disallowance of set off of brought forward losses and depreciation amounting to ₹ 22,45,85,291/-. 2. Prior period expenses amounting to ₹ 45,44,69 1/- disallowed. 3. Sales tax subsidy amounting to ₹ 6,80,61,977/- treated as revenue receipt. 4. Disallowance of interest amounting to ₹ 54,40,720/- as interest pertaining to interest free advances for non business purposes. 5. Disallowance of excess depreciation on generator amounting to ₹ 5,54,391/-. 6. Deduction u/s 801 A disallowed on interest income, insurance claim, Misc. income amounting to ₹ 2,69,96,242/-. 7. Deduction u/s 80HHC on scrap sales disallowed by excluding scrap sales of ₹ 1,33,19,595/- from profit of business for compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a (P) Ltd. (2013) 95 DTR (Kar) 9]. 10. The second disallowance was made on account of prior period expenses and it was pointed out by the learned A.R. for the assessee that a note to the effect of claim was appended as note No.2 to the computation of income which is placed at pages 16 to 18 of the Paper Book. The learned A.R. for the assessee further pointed out that the said issue of prior period expenses has been remitted back to the file of Assessing Officer by the Tribunal vide its order dated 27.9.2011 and in all fairness it was further pointed out by him that the issue of levy of penalty may be set aside to the file of the Assessing Officer. 11. The next addition made by the Assessing Officer was on account of disallowance of depreciation on generator wherein the assessee had claimed depreciation @ 25% and additional depreciation @ 20%. The Assessing Officer however, allowed the depreciation @ 10% and in effect @ 5% as the asset was purchased after 30.9.2003. It was stressed by the learned A.R. for the assessee such claim of depreciation at higher rate could not be said to be furnishing of inaccurate particulars of income. 12. The next item of disallowance was workin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales tax subsidy received by the assessee which has been decided in favour of the assessee vide para 24 of the order of the Tribunal. The next claim was misc. income being excluded from the profits of business eligible for deduction under section 80HHC of the Act at ₹ 1.27 lacs, which issue was not pressed before the Tribunal. 14. The next item of income was insurance claim which was also not allowed in the hands of the assessee. Further deduction under section 80HHC of the Act was recomputed on account of DEPB receipts and interest income being treated as income from other sources and not being eligible for the said deduction. The learned A.R. for the assessee placed reliance on the under-mentioned case laws: i) CIT Vs. Amar Nath [16 DTR 326 (P H)] ii) S.D.Rice Mills [275 ITR 206](P H) iii) Reliance Petro Chemicals Ltd. [322 ITR 58 (SC)] iv) CIT Vs. PHI Seeds India Ltd. [301 ITR 13(Del)] v) ACIT Vs. Perfect Forging 11 ITR (Trib) 166 (Chd)] 15. The learned D.R. for the Revenue placed reliance on the order of the CIT (Appeals) in respect of the additions on which penalty under section 271 (1) (c) of the Act has been confirmed. The learned D.R. for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iles Ltd. Vs DCIT 91 ITD 237 (TM)(Ahd). Further it was pointed out by the learned A.R. for the assessee that similar issue of penalty under section 271 (1) (c) of the Act on additions made on account of sales tax subsidy arose before the Tribunal in case of DCIT Vs. M/s Bhushan Power Steel Ltd. in ITA Nos.70 71/Chd/2012 relating to assessment years 2005-06 and 2006- 07, order dated 25.9.2013 and the said penalty has been deleted in the hands of the assessee. 18. We have heard the rival contentions and perused the record. The assessee company had furnished the return of income for the year under consideration declaring income of ₹ 82,47,513/-, the Assessing Officer assessed the income in the hands of the assessee at ₹ 32,80,54,210/- vide order passed under section 143(3) of the Act dated 28.12.2006. The major additions made in the hands of the assessee were as under: 1. Disallowance of set off of brought forward losses and depreciation amounting to ₹ 22,45,85,291/-. 3. Prior period expenses amounting to ₹ 45,44,69 1/- disallowed. 3. Sales tax subsidy amounting to ₹ 6,80,61,977/- treated as revenue receipt. 4. Disallowance of interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is able to prove the bonafides of his claim, with regard to the particulars of income furnished in the return of income, in such circumstances no penalty is leviable for concealment of income or for furnishing inaccurate particulars of income under section 271 (1) (c) of the Act. The expressions concealment and inaccurate particulars under section 271 (1)(c) of the Act has been deliberated upon in plethora of judgments by various Courts. The Hon'ble Supreme Court in Dharmendra Textiles Processors case (supra), observed that the penalty under section 271 (1) (c) of the Act is a civil liability. However, the liability is penal in nature though being civil liability and there is no requirement of establishing the mens rea of the intention of the assessee in cases where the assessee is found to have concealed the particulars of his income or furnished inaccurate particulars of income. Where, the information furnished by the assessee in the return of income to the best of knowledge of the assessee is correct and complete, it cannot be said that the onus on the assessee has not been discharged to prove its bonafides. Where any addition to, or disallowance from, had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf would not, attract penalty under section 271 (1)(c) of the Act. It was also laid down by the Court that the intendment of the Legislature is not to levy penalty under section 271 (1)(c) of the Act in case of every non acceptance of claim made by the assessee in the return of income. 24. The Hon'ble Supreme Court in CIT Vs Reliance Petroproducts P.Ltd. (supra) further held as under : Reading the words inaccurate and particulars in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. In this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under s. 271(l)(c). A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the return cannot amount to the inaccurate particulars. The assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of section 271 (1)(c) of the Act. 27. The Hon'ble Punjab Haryana High Court in CIT Vs. Sidhartha Enterprises [(2010) 228 CTR (P H) 579 ] held that the judgment of the Hon'ble Supreme Court in Dharmendra Textile (supra) cannot be read as laying down that every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under section 276C and penalty under s. 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of 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. This being the position, the finding having been recorded on facts that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse. 28. The Hon'ble Himachal Pradesh High Court in CIT Vs H.P. State Forest Corporation Ltd. (2012) 340 ITR 204 (HP) held as under : We are of the considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appear to be falsehood in the accounts though the system of calculating the depreciation may have been improper. We also cannot lose sight of the fact that assessee is a Government Corporation. Its accounts are duly audited and even the CAG has gone through and approved the accounts of the Corporation. In such circumstances, we are of the view that merely because the assessee had claimed depreciation which claim was not accepted by the Revenue that by itself would not, in our opinion, attract penalty under s. 271(l)(c) of the Act. 29. Another aspect to be considered while levying penalty under section 271(1)(c) of the Act is the Explanation-I to section 271(1) of the Act. Clause (a) of Explanation-I to section 271(1) of the Act provides that where any person under the Act fails to offer an explanation or offers an explanation which is found to be false by the Assessing Officer, CIT (Appeals) or Commissioner of Income Tax, then the amount added or disallowed while computing total income of such person, is deemed to represent the income in respect of which particulars of income have been concealed. 30. Further clause (b) of Explanation-I to section 271 (1) of the Act provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Punjab Haryana High Court in CIT Vs Raj Overseas (2011) 306 ITR 261 (P H) also adjudicating the issue of levy of penalty under section 271(1)(c) of the Act on disallowance of claim of deduction under section 80IB of the Act in respect of income from Duty Drawback held as under : The assessee is manufacturer and derived income from exports. The assessee claimed deduction under s. 80-IB of the Act in respect of income from duty draw back. The AO disallowed the said claim on the ground that the income derived from duty draw back was not income derived from industrial undertaking, as held by the Hon'ble Supreme Court in CIT vs. Sterling Foods India (1999) 153 CTR (SC) 439 : (1999) 237 ITR 579 (SC). Penalty was also levied. The CIT(A) upheld the view of the AO but the Tribunal deleted the penalty with the following observations : Thus, prima facie, it indicates that this issue was a debatable one. 4. In view of factual finding of the Tribunal, it cannot be disputed that the issue was debatable and deduction claimed by the assessee did not lack bona fides. In such a situation, penalty under s. 71(c) of the Act was not attracted. In recent judgment of the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on the Division Bench judgment is misconceived. 5. In view of the above, we do not find any error in the findings recorded by the Tribunal while setting aside the penalty. Consequently, we do not find that the order of the Tribunal gives rise to any substantial question of law for the opinion of this court. 36. Now coming to the facts of the present case, penalty under section 271 (1) (c) of the Act had been levied on various additions and we proceed to address the same. During the course of assessment proceedings, the Assessing Officer noted the assessee to have claimed deduction on prior period expenses amounting to ₹ 54,56,428/-. The assessee was requisitioned to give the details of liability which had arisen during the year to pay said expenses. The assessee failed to furnish any details in respect thereof and the said amount pertaining to earlier year was added back to the income of the assessee. 37. The Tribunal (supra) in the quantum appeal in ITA No.321/Chd/2009 relating to assessment year 2004-05 vide order dated 27.9.2011 vide para 6 at page 3 of the order has remitted the issue of prior period expenses back to the file of the Assessing Officer. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curate particulars of income making it exigible to the levy of penalty under section 271 (1) (c) of the Act. Penalty for concealment under section 271 (1) (c) of the Act is attracted where the assessee has concealed its income or furnished inaccurate particulars of income. The claim of set off of brought forward losses was made by the assessee in its return of income by considering the losses returned in the earlier years. However, under the provisions of the Act the said set off of brought forward losses are to be allowed by the Assessing Officer as assessed in the hands of the assessee from year to year and not as claimed by the assessee from year to year. The said exercise is to be carried out by the Assessing Officer while computing income of the assessee for the captioned assessment year in which such set off is to be allowed and after considering the assessed income/losses in the earlier years and setting off of the brought forward losses both on account of business losses and/or depreciation. The assessee while furnishing return of income is entitled to make claim of the set off of brought forward losses on the basis of its returns of income filed for respective years, as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42. Similar view has been laid down by Allahabad Bench of the Tribunal in ACIT Vs. A.H.Wheelers Co.(P) Ltd. (supra). Following the above said ratio we find no merit in the order of the CIT (Appeals) in upholding the penalty leviable on such non allowance set off of brought forward losses and depreciation in the case of the assessee and the penalty relatable to such disallowance is deleted. 43. The next item of addition is the assessability of sales tax subsidy of ₹ 6,80,61,977/- received by the assessee during the year under consideration. The assessee had treated the said subsidy as capital receipt in its return of income, but the same was assessed as revenue receipt in the hands of the assessee following the ratio laid down by the Hon'ble Punjab Haryana High Court in assessee s own case reported in 286 ITR 1 (P H). The Tribunal (supra) for the instant assessment year also held the said subsidy to be revenue in nature. However, the assessee had preferred SLP against the order of the Hon'ble Punjab Haryana High Court and the question of law has been admitted and the SLP is pending before the Hon'ble Supreme Court of India. The issue raised vide the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Calcutta High Court. In view thereof, the issue raised before us is where addition has been made in relation to such debatable issue, the assessee could be said to have furnished inaccurate particulars of income making it exigible to levy of penalty u/s 271(1)(c) of the Act. 19. The Hon'ble Punjab Haryana High Court in CIT Vs. M/s Gurdaspur Cooperative Sugar Mills (supra) on the issue whether the amount of grant-in-aid was capital receipt or revenue receipt being debatable issue held that the penalty u/s 271(1)(c) of the Act was not imposable. The relevant findings of the Hon'ble Punjab Haryana High Court in CIT Vs. M/s Gurdaspur Cooperative Sugar Mills (supra) are as under: 3. We find that the reliance on the abovesaid judgment is not tenable, as in the aforesaid case, the deductions under section 80-O of the Act was declined for the reason that the assessee has not produced any details of the expenses allegedly incurred by it. The Delhi High Court observed (page 170): The assessee, for claiming deduction under section 80-O of the Act, wanted the same at 50 per cent of the gross income received in convertible foreign exchange in India provided by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected and the receipts were held to be revenue in nature and hence taxable. Upholding he order of the CIT (Appeals) we dismiss the grounds of appeal raised by the Revenue in ITA No.70/Chd/2012. 46. Following the same finding, we find no merit in holding the assessee to have furnished inaccurate particulars of income in respect of such debatable issue. The assessee is not exigible to levy of penalty under section 271(1)(c) of the Act on the aforesaid treatment of sales tax subsidy as revenue in the hands of the assessee and we uphold the order of the CIT (Appeals) in directing the Assessing Officer to delete the same. 47. The next item of disallowance is the disallowance made under section 36 (1) (iii) of the Act on account of disallowance of interest paid on secured loans being relatable to interest free advances made by the assessee. The said issue of disallowance under section 36 (1) (iii) of the Act was made in the case of the assessee following the observation made in the earlier years which has been confirmed by the Hon'ble Punjab Haryana High Court in assessee s own case reported in 286 ITR 1. The assessee has preferred SLP before the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of ₹ 2,32,124/-. In the quantum appeal filed by the assessee, the Tribunal (supra) vide para 9 at pages 4 and 5 of the order held that the misc. income claimed by the assessee was not derived from any industrial undertaking. The assessee was held not entitled to claim deduction under section 80IA of the Act in respect of such misc. income following the ratio laid down by the Hon'ble Supreme Court in Liberty India Vs. CIT [317 ITR 218 (SC)]. The assessee having claimed deduction under section 80IA of the Act on the aforesaid misc. income by including the same in the eligible profits of business and its denial being debatable does not tantamount to furnishing of inaccurate particulars of income by the assessee and making it exigible to levy of penalty under section 271(1)(c) of the Act. 50. The second item of income included by the assessee in the profits of business while computing the deduction under section 80IA of the Act was interest income of ₹ 67,03,027/-. The Hon'ble Supreme Court in Pandian Chemicals Ltd. (supra) held that the interest income earned by the assessee could not be held to be derived from the industrial undertaking entitled to deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting deduction under section 80IA of the Act. However, the Tribunal has also noted the fact that the Hon'ble Delhi High Court in CIT vs. Sportking India Ltd. (2010) [324 ITR 283 (Del)] had decided the issue in favour of the assessee. In view of the above said diversion in views on the said issue of treatment of the receipts from insurance claim being includible or not being includible in the profits of business, while computing deduction under section 80IA of the Act i.e. whether the same is derived or not derived from the industrial undertaking, makes the issue debatable issue and additions on such debatable issue can not tantamount to furnishing of inaccurate particulars of income as held by us in paras hereinabove. The claim of the assessee at best could be said to be debatable claim which does not make the assessee exigible to levy of penalty under section 271 (1) (c) of the Act. 52. The next item of dispute is the deduction allowable under section 80HHC of the Act. The assessee had shown total income of ₹ 6.22 crores which included the net interest income of ₹ 46,21,181/- as against gross income of ₹ 1.66 crores, which increases the other income by &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Vs. Kalapatru Chemicals [328 ITR 451 (Bom)]. Accordingly deduction @ 90% on such receipts was denied to the assessee. 54. From the perusal of the order levying penalty under section 271 (1) (c) of the Act by the Assessing Officer and the consequent appellate order by the CIT (Appeals), we find that though the recomputation of deduction under section 80HHC of the Act was made on various accounts but the reference is only made to the scrap sale disallowed i.e. sum of ₹ 1.33 crores from the profits of business for computing deduction under section 80HHC of the Act while holding the assessee to have furnished inaccurate particulars of income making it exigible to levy of penalty under section 271 (1) (c) of the Act. Similarly, the CIT (Appeals) has also adjudicated the said issue. However, the learned A.R. for the assessee has furnished a chart in which it has tabulated particulars of addition on which penalty was levied and item-5 deals with the deduction under section 80HHC of the Act by excluding 90% of receipts sales tax subsidy, insurance claim, misc. income, DEPB entitlement and scrap sale from the profits of business. We proceed to adjudicate all the items of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making such a claim vide disclosure in its return of income and accompanying documents and also its bonafides of claiming such deduction in the year under appeal after installation of the machinery. In the facts and circumstances of the case where the assessee had acquired new plant machinery over a period of years, though the unit was started in the year 1995, the appellant could claim the deduction in assessment year 2002-03 only after the value of machinery installed reached 80%, merely because the claim of deduction under section 80IB of the Act was disallowed, being a debatable issue, there is no merit in the levy of penalty u/s 271(1)(c) of the Act. 16. We find support from the ratio laid down by the Chandigarh Bench of the Tribunal in ACIT Vs. Arisudana Spinning Mills Ltd. (supra). The Tribunal vide para-8 of the order held as under : 8. Now, the question is as to whether the denial of the claim made in the return of income can lead to an automatic imposition of penalty under s. 271 (1)(c) of the Act. It is sufficient to say that the assessment proceedings and the subsequent penalty proceedings are independent proceedings. The findings and conclusions drawn by the a ..... 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