TMI Blog2016 (4) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has furnished explanations which cannot be said to malafide . In the case of CIT versus HCIL Kalindee Arsspl (2013 (8) TMI 245 - DELHI HIGH COURT ) also the Hon’ble court has held that merely because the assessee complied with the statutory procedural requirement of filing the prescribed form and certificate of the chartered accountant, cannot absolve the assessee of its liability if the actor attempt in claiming the deduction was not bonafide. The facts of the case in hand are different from the facts of the case of CIT versus HCIL Kalindee Arsspl( supra). In the circumstances, we are of considered opinion, that no penalty for concealment or furnishing of inaccurate particulars of income on the issue in dispute can be levied under section 271 (1)(c) of the Act. - Decided in favour of assessee. Levy of penalty on disallowances on account of provision for gratuity - Held that:- As regards the addition on account of provision for gratuity it is an admitted position that this sum was not added back in the original computation of income. It is also apparent that the aforesaid mistake was detected only in the revision proceedings u/s 263 of the Act; when assessee was dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 (for short the Act ) by the Assessing Officer. The grounds of appeal raised by the assessee are as under: 1 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer in levying penalty of ₹ 28,24,94,177/- u/s 271(1)I(c) of the Income Tax Act 1961 ( the Act ), which is illegal and bad in and law. 1.1 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, without appreciating that the penalty order was passed in undue haste resulting in avoidable multiplicity of proceedings, which is unwarranted in law 1.2 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, without appreciating that the penalty order was passed without affording reasonable opportunity of being heard to the appellant. 1.3 That on the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the aforesaid action of the Assessing Officer, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above addition was made on account of a bonafide/clerical mistake, which was suo motu accepted by appellant in quantum as well as penalty proceedings, and no appeal in respect of such disallowance was filed by appellant. 3.2 That the CIT(A) erred on facts and in law in upholding the aforesaid action of the Assessing Officer, without appreciating that there was no concealment or furnishing of inaccurate particulars of income qua the aforesaid disallowance. 4 That the CIT(A) erred on facts and in law in upholding the action of the Assessing Officer in levying penalty under section 271(1)(c) in respect of the addition of ₹ 49,41,849/- on account of provision for gratuity under section 40A(7) of the Act 4.1 That the CIT(A) erred on facts and in law in upholding the penalty imposed by the Assessing Officer, without appreciating that the aforesaid addition was itself legally unsustainable in as much as the aforesaid amount was already added back in the computation of income and therefore, there was no warrant to levy any penalty in respect of the same under section 271(1)(c) of the Act. 4.2 That on the facts and in the circumstances of the case, the CIT(A) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed under section 40A(7) of the Act and c) ₹ 5,91,106/-; addition on account of disallowance of additional depreciation on computer software 3. Simultaneously, penalty proceeding u/s 271(1)(c) of the Act were initiated on account of concealment of income as well as for furnishing of inaccurate particulars of income by the assessee company. A detailed show cause notice dated 19.9.2013 was issued and served on the assessee company. The assessee vide reply dated 24.10.2013 prayed for keeping the proceedings in abeyance, by making a reference to provisions u/s 275(1A) of the Act. The AO however intimated that it would not be possible to keep the penalty proceedings in abeyance till the disposal of appeal against quantum additions, pending before the CIT(A). Further in the written reply dated 24.10.2013 and 15.11.2013 assessee contended that notice is defective as it does not indicate the additions for which the notice is issued and what are the defaults and what are the inaccurate particulars with details of such particulars of concealment of income; submissions were made to the effect that there was no justification for imposition of penalty. Subsequently in an order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263 proceedings by the Tribunal. It was submitted that in the said letters, it was also informed to the Assessing Officer that the appellant was in process of filing an appeal against fresh assessment order passed u/s 143(3)/263 of the Act before the CIT(A). It was submitted on merits that the Assessing Officer for reasons best known to him, rejected the aforesaid application filed by assessee and directed the assessee to furnish submissions on merit. It was also submitted that the aforesaid action of the Assessing Officer in hastily proceeding to pass the penalty order, without waiting for adjudication of quantum proceedings was unjustified and erroneous in terms of proviso to clause (a) to sub section (1) of section 275 of the Act. Reliance was placed on the judgments in the cases of CIT v Surendra Gulabchand Modi 140 ITR 517 (Guj) and CIT v Wander (P) Ltd. 358 ITR 408 (Bom). It was submitted that since the penalty order was passed by the Assessing Officer on the basis of findings given in the fresh assessment order, which in turn is based on the order passed under section 263 of the Act, without any independent application of mind and without considering that the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ypothetical Sales Tax 'Subsidy is reproduced below :- 2.1 It was noticed that ₹ 81.59 Cr. was shown as 'Sales Tax Subsidy' - 'Capital Reserve' under the head 'Reserves and Surplus' in Schedule-2 of the Balance-Sheet as on 31.03.2008. It was also noticed that this was the first year of such practice (of taking 'Sales Tax Subsidy' to the reserve). 2.2 The close scrutiny revealed that this money was not received from the State Govt. In fact, one industrial unit of the assessee company has been .granted exemption, from levy of sales tax. The assessee, therefore, raised invoices on purchasers of the material (manufactured by the said industrial unit) without any component of sales tax In it. During the year, in normal course, the entire amount of sales proceeds were credited as revenue to the Profit Loss account. However, at the financial year end (taxable) profit has been reduced by passing Journal entry for appropriation (Rs.81.50 crore) as 'Sales Tax Subsidy'. 2.3.1 It was seen that this Sales Tax exemption has been available to assessee in earlier years also, but there was.-no practice to take a part of sales (tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) during the year the entire sales proceeds are credited to the (credit side of) profit and loss account a revenue / trade receipts and (Iii) the notification granting exemption from the sales tax to the assessee is not linked to any 'scheme' of giving money (subsidy), directly or indirectly). 2.6 During the assessment proceedings (u/s 143 r.w.s. 263), the explanations offered by the assesses in this regard were found to be without any basis/ unconvincing/ un-acceptable/ un-substantiated and hence, were rejected. 2.7.1 In view of the above, it is clear that the assessee not only furnished inaccurate particulars of the income to the above extent of 81,58,94,102/- but also concealed particulars of income to the said extent 2.7.2 The assesses has failed to substantiate the explanations offered by it. The assessee also, failed to discharge the onus, cast upon It by the law, to prove that the explanations were bona-fide. Also, assessee did not discharge the onus, cast upon it by the law, to prove that all the facts relating to the said income an material to the computation of total income of the assessee have been disclosed by the assessee, On the contrary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of receipt in the year under consideration as compared to the earlier years where the deduction on account of said hypothetical sales tax subsidy was being claimed by the assessee in the computation of income. It was thus concluded that reasons behind the mentioning of above receipt in the schedule attached to the balance sheet are self speaking and had the conduct of the assessee been honest, it was quite expected of the assessee that such an important deviation in the practice adopted in earlier years should have been mentioned as a note accompanying the computation of income. Further the AO held that letter dated 12.11.2010 in the original assessment proceedings was only in respect of amount of ₹ 48,39,36,937/- which comprised of two figures (i) ₹ 17,28,48,148/- for entry tax subsidy and (ii) 31,10,88,789/- for electricity duty subsidy. The AO thus has held that; a) The preposition that the sales proceeds contain (hypothetical) sales tax Subsidy is a stretch of imagination apparently to evade tax. b) The assessee changed its method of accounting for sales tax Subsidy , in the year under consideration apparently with the malifide intent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lay on semantics to absolve itself of the fact that it was covering of its act in having deviated from its previous method of accounting. Paras 14.1 to 14.6.2 of the penalty order has dealt with how the assessee s attempts at seeking to evade payment of tax on the amount which was part of sales proceeds but termed as Sales Tax Subsidy by reducing it from taxable profit through passing of a general entry having an overall effect of taking ₹ 81.59 Crores out of the tax net. Therefore, in the entire proceedings, the appellant has been trying to cloud the issue by taking recourse to inadequate explanation. Mens rea has been proved in this case without doubt. Hence, this ground of appeal is dismissed. 6.5 Before us, the learned Authorized Representative submitted as under: a) Addition made by the Assessing Officer in the assessment order on account of treatment of sales tax incentive is not sustainable in the first place; b) No concealment/furnishing of inaccurate particulars of income in the present case, since appropriate disclosures of the accounting treatment in respect of sales tax incentive were given in the notes forming integral part of the audited finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of CIT v Reliance Petrporducts (P) Ltd. Ltd. 322 ITR 158. It was also contended that the aforesaid claim made by the appellant was very much within the knowledge of the Assessing Officer, since the same was specifically disclosed and discussed by assessee before the Assessing Officer during the course of assessment proceedings in the manner hereunder: a) In the audited accounts for the relevant assessment year, the incentive availed by the applicant on account of sales tax exemption, being in the nature of capital receipt, was separately shown as under the sub-head Sales Tax Subsidy/ Capital Reserve in Schedule 2 Reserve and Surplus . The aforesaid accounting treatment, it is submitted, was done strictly in compliance with the AS-12 dealing with 'Accounting for Government Grants issued by the ICAI read along with the opinions on the subject of the Expert Advisory Committee and reported in the compendium of opinions. b) The aforesaid accounting treatment was duly explained vide note No.5 of Notes to Account in Schedule- 20, forming part of audited financial statements, as under: 5 One of the Company's expansion units is eligible or sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for the first time during the relevant assessment year, but, the same was made and also duly considered by Assessing Officer in the earlier assessment years, as demonstrated hereunder: a) The aforesaid claim was, for the first time, made in the assessment years 2002-03 to 2004-05. In fact, in the said assessment years, exemption of sales tax incentive was claimed as capital receipt by way of additional ground of appeal before the CIT(A), since the time limit for filing revised return had expired. The application so filed by the appellant for admission of additional grounds was forwarded to the Assessing Officer for comments and separate remand reports were received for the said assessment years. Thereafter, on receipt of the remand reports, the CIT(A) did not adjudicate the issue of taxability of sales tax incentive on the ground that the claim was not made by way of filing revised return within the time stipulated under the provisions of the Act. b) During the assessment proceedings for assessment year 2004-05, the claim was made before the Assessing Officer by filing revised computation of income, since the time for filing the revised return had expi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed in respect of the sales tax incentive/subsidy, the non-taxability of the same was duly supported by elaborate reasoning/ justification; (e) The claim of the appellant is duly supported by various judicial precedents wherein the various Courts and the Special Bench of the Tribunal have upheld the appellant's claim of incentive/ subsidy received in the form of exemption from sales tax to be in the nature of capital receipt, not liable to tax under the provisions of the Act; (f) The issue of taxability of sales tax incentive/subsidy is, in any case, a highly debatable/ contentious legal issue, giving rise to substantial question of law on which no penalty is leviable in view of the decision of jurisdictional High Court in the case of Gurdaspur Co-operative Sugar Mills (supra). 6.9 It was thus submitted that penalty levied on addition of incentive on account of sales tax exemption is erroneous and calls for being deleted. 6.10 The learned counsel of the Revenue relied upon the order imposing penalty and order of CIT(A) upholding the penalty to contend that levied was in accordance with law. He further submitted that since 01-06-2006, the provision of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as capital receipt and not specifically to meet the cost of the asset. Further the assessee, is making this claim of capital subsidy not taxable in the hands of the assessee, for past many years. It is also observed that there is no change in method of accounting followed by the assessee except change in treatment of the said amount of the subsidy, which too has been claimed as in compliance of accounting standards . It is well settled law that merely accounting entries on a particular item cannot determine the nature of the income as per provisions of income tax act. Further the appeals filed by the assessee against the order of the Tribunal for AY 2004-05, 2002-03, 2005-06 have been admitted before the Hon ble High Court of Punjab and Haryana. In the case of CIT versus Basti sugar Mills company limited ITA No. 232/2009 and CIT versus HB leasing and finance Co Ltd 334 ITR 367, the Hon ble Delhi High Court has held that once appeal on a particular issue is admitted by the High Court, it demonstrates that the said issue was debatable and accordingly no penalty is leviable for disallowance made in respect of such issue. The Ld. counsel of the Revenue, however relied on the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ours is fortified by the fact that the very issue is before us in ITA No.958/2007 in respect of the very year in question namely assessment year 1998-99. ITA No.958/2007 arises out of the regular assessment completed under Section 143(3) of the Income Tax Act, 1961 (in short the said Act). The said question has travelled all the way upto the Tribunal and is now before us in the said ITA No.958/2007 as well as other connected appeals being ITA Nos.965/2007, 1248/2007, 646/2009 and 652/2009. It is, therefore, clear that the issue was debatable and, therefore, could not be disallowed while considering the intimation under Section 143(1)(a) of the said Act. 6.13 In the case of CIT versus HB leasing and finance Co Ltd (supra), while deciding the issue of levy of penalty, the Hon ble Delhi High Court held as under: 3. In so far as the claim of deduction under s. 80M of the Act is concerned, the Tribunal has opined that it was a debatable issue. No doubt, as per the judgment of the Supreme Court in Punjab Distilling Industries Ltd. (supra), the claim could not be made unless the amount actually disbursed on the interpretation of the word distribution given by the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court has held that merely because the assessee complied with the statutory procedural requirement of filing the prescribed form and certificate of the chartered accountant, cannot absolve the assessee of its liability if the actor attempt in claiming the deduction was not bonafide. The facts of the case in hand are different from the facts of the case of CIT versus HCIL Kalindee Arsspl( supra). In the circumstances, we are of considered opinion, that no penalty for concealment or furnishing of inaccurate particulars of income on the issue in dispute can be levied under section 271 (1)(c) of the Act. Accordingly, the relevant grounds of the appeal are allowed. 7. The Grounds No. 3 to 3.2 and 4 to 4.2 relate to levy of penalty on disallowances of ₹ 88,00,001/- and ₹ 49,41,849/- on account of provision for gratuity. 7.1 The relevant facts in brief are that pursuant to the order of assessment u/s 263 of the Act disallowance was made of ₹ 1,37,41,850/- on account of provision for gratuity. The basis of the disallowance was that the Assessing Officer on perusal of the annual report and tax audit report noted that out of liability (of gratuity) debited to profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above, it is clear that with regard to the issue of disallowance of claimed deduction, u/s 43B, on account of provision for gratuity, the assessee has not only furnished inaccurate particulars of income but also concealed the particulars of income to the extent of said addition. The provision of Explanation 1 to the section 271(1)(c), as reproduced in para 14.6.1, above, are also attracted because the assessee not only offered false explanation but also offered explanation which the assessee could not substantiate. The assessee failed to discharge the onus that explanation was bonafide. The assessee also failed to discharge the onus that all the facts relating to the same and material to the computation of its total income has been disclosed. 7.2 Before the CIT(A), the assessee submitted that during the relevant assessment year pursuant to mandatory actuarial valuation of provision for gratuity as per revised Accounting Standard-15 issued by the Institute of Chartered Accountants of India ( ICAI ) transferred the excess amount of provision of ₹ 88 lacs to general reserve. The said accounting treatment was duly evident from clause (B) of schedule 2 of audited financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The issue has been discussed in detail in the assessment order and relates to liabilities in previous year. The appellant was not able to prove the discrepancies in the figures shown in the balance sheet viz-a-viz the TAR. The appellant did not produce the copy of the ledger account of this liability either before the CIT, Hisar or the AO. This is the deliberate attempt by the appellant to obfuscate the issue. Hence, the penalty has been correctly levied on this account. 7.5 Before us the learned counsel for the assessee contended that appellant inadvertently out of bonafide mistake omitted to add back reversal of provision for gratuity to computation of income for relevant assessment year and in respect of such inadvertent error, there was no concealment of income or furnishing of inaccurate particulars of income on the following reasons: a) The details in respect of provision for gratuity were duly disclosed in audited financial statements for relevant assessment year vide schedule 12 in respect of provisions and schedule 17 in respect of personnel expenses; b) The fact that provision for gratuity amounting to ₹ 88 lacs was transferred to general reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions and perused the material on record. As regards the addition of ₹ 49,41,850/- on account of provision for gratuity, we have while disposing off the appeal in ITA No. 3128/DEL/2014 deleted the said addition, thus consequently even the penalty levied on the said sum stands deleted. So far as the addition of ₹ 88,00,001/- is concerned that it is an admitted position that this sum was not added back in the original computation of income. It is also apparent that the aforesaid mistake was detected only in the revision proceedings u/s 263 of the Act; when assessee was directed to reconcile the difference of ₹ 1.81 crores under the head provision for gratuity between outstanding as per balance sheet and audit report. It is also matter of record that the notice u/s 263 of the Act was dated 3.1.2013 and omission to make the aforesaid addition was admitted only finally on 15.10.2013 u/s 143(3)/263 of the Act. Thus it s not a case of voluntary and suo moto disclosure of income. It is also not a case where the mistake can be said to be bonafide, as relevant evidences in the shape of ledger accounts were not furnished in the revision proceedings or reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant concealed/ furnished inaccurate particulars in respect of aforesaid disallowance. The aforesaid list of disclosures duly established that there was no concealment of income or furnishing of inaccurate particulars of income by the appellant qua the aforesaid amount of additional depreciation claimed in respect of computer software primavera . Accordingly, penalty under section 271(1) (c) of the Act cannot be levied in respect thereof. In any case, since the aforesaid disallowance was made on account of difference of opinion between the Assessing Officer and the appellant in appreciating the provision of section 32(1)(iia) of the Act, the same cannot, in view of the prevalent legal position, be visited with penalty under section 271(1)(c) of the Act. 8.2 The CIT(A) has however imposed the penalty on additional deprecation of ₹ 5,91,106/- under the provision of section 32(1)(ii)(a) of the Act n respect of computer software Primavera by holding as under: The issue of additional depreciation involves a claim in respect of a computer software which the appellant claimed was part of plant machinery and thereby a part of the production process. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome for relevant assessment year disclosed and claimed aforesaid amount of additional depreciation. It is pertinent to point out here that specific details are required to be filled in the return of income for claiming additional depreciation; and d) The Assessing Officer, made disallowance in respect of aforesaid only on the basis of bona fide disclosures made by the appellant in various documents submitted. Therefore, it cannot be alleged that the appellant concealed/ furnished inaccurate particulars in respect of aforesaid disallowance. 8.4 The learned counsel of the Revenue relied upon the order imposing penalty and order of CIT(A) upholding the penalty to contend that levied was in accordance with law 8.5 We have heard the rival submissions and perused the material on record. On consideration of the facts we hold adequate and necessary disclosure in accordance with law were made by the appellant company in respect of claim of additional depreciation in the audited financial statement, tax audit report and return of income. Thus in the above back ground denial of claim of depreciation tantamount to an legal inference adopted on the facts by the assessee but tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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