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Penalty levied u/s 271(1)(c) is not justifed if AO fails to establish any concealment of material facts or furnishing of inaccurate particulars by assessee: ITAT

2019-TIOL-1691-ITAT-AHM

IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD ‘B’ BENCH

ITA No. 347/Ahd/2017
Assessment Year 2001-02

DEPUTY COMMISSIONER OF INCOME TAX
CIR-2(1)(1), BARODA

Vs

M/s SUN PHARMACEUTICALS INDUSTRIES LTD
SPARC AKOTA ROAD, AKOTA, VADODARA-390020
PAN NO:AADCS3124K

Amarjit Singh, AM & Madhumita Roy, JM

Date of Hearing: June 19, 2019
Date of Decision: July 12, 2019

Appellant Rep by: Shri Mudit Nagpal, Sr. DR
Respondent Rep by:
 Shri Bandish Soparkar, AR

Income Tax – Sections 80IA, 115JB, 271(1)(c) & 274

Keywords – Furnishing inaccurate particulars of income – Penalty

THE assessee company had filed its return declaring income u/s 115JB. Subsequently, the assessee company had filed a revised return according which the assessment u/s 143(3) was completed determining income under normal provisions of the Act by disallowing the claim of the assessee u/s 80IA and by making certain additions. Thereafter, the AO initiated penalty proceedings u/s. 271(1)(c) in respect of addition made in the assessment order which were upheld before the ITAT. Thereafter according to the order of ITAT, the AO had issued notice u/s. 274 r/w 271(1)(c) to the assessee to show cause as to why an order imposing penalty u/s. 271(1)(c) may not be made. However, the AO rejecting the explainations of the assessee u/s. 80IA and in respect of deduction u/s. 115JB, held that the Rs 3.39 cr was deemed income of the asssessee in respect of which inaccurate particulars of income have been furnished. Thus, the AO had levied minimum penalty being 100% of tax sought to be evaded. On appeal, the CIT(A) allowed the appeal of the assessee.

On appeal, the Tribunal held that,

Whether penalty levied u/s 271(1)(c) is sustainable if AO fails to establish any concealment of material facts or furnishing of inaccurate particulars by assessee – NO: ITAT

++ the assessee had disclosed all relevant particulars for computation of its income. All the relevant facts were already before the AO. The issues on which additions were made were debatable and the instant case of the assessee was a case of bonafide difference of opinion on the entitlement of deduction as per provision of the Act. The assessee had also disclosed the compelete facts of merger and its claim of deduction u/s. 115JB. Thus, this Tribunal uphold the findings of the CIT(A) that the AO had not established that the assessee furnished incorrect facts after placing reliance on the decision of the Supreme Court in the case of CIT vs. Reliance Petro products Pvt. this Tribunal dismissed the appeal of the Revenue

Revenue’s appeal dismissed

Case followed:

CIT vs. Reliance Petro products Pvt. – 2010-TIOL-21-SC-IT

ORDER

Per: Amarjit Singh:

This revenue’s appeal for A.Y. 2001-02, arises from order of the CIT(A)-IV, Ahmedabad dated 30-06-2003, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

2. The solitary ground of appeal of the revenue is against the decision of ld. CIT(A) in deleting penalty levied u/s. 271(1)(c) on the disallowance of deduction u/s. 80IA on profit from DEPB and computation of book profit u/s. 115JB of the act.

3. The fact in brief is that assessee company has filed return of income declaring total income u/s. 115JB of the act to the amount of Rs. 92,81,34,716/- on 31st October, 2001. The assessee company has filed a revised return of income u/s. 115JB of the act of Rs. 92,60,12,264/- on 20th December, 2001. The assessment u/s. 143(3) of the act was completed on 28th March, 2003 determining total income at Rs. 33,62,42,071/- under normal provision of the act. The assessing officer has also initiated penalty proceedings u/s. 271(1)(c) of the act in respect of addition made in the assessment order which were upheld in the penalty proceedings before the ITAT Ahmedabad vide ITA No. 3289/Ahd/2002 and 3343/Ahd/2002.

Addition on account of profit on sale of DEPB for the purpose of deduction u/s.80IARs.11,41,480
Deduction u/s.115JB(2) in respect of book losses of Pradeep Drug Co. Ltd.Rs.3,39,12,399

Subsequently to the order of ITAT, the assessing officer has also issued notice u/s. 274 r.w.s. 271(1)(c) of the act to the assessee to show cause as to why an order imposing penalty u/s. 271(1)(c) of the act may not be made. The assesssee has responded vide letter dated 23rd December, 2015 that initiating penalty u/s. 271(1)(c) was bad in law as no satisfaction was recorded by the assessing officer at the time of assessment proceedings. It was also submitted that all the issues of addition/disallowance were made legal and debatable and there was not any wrong filing of particulars and concealment of income. The assessee has also referred various judicial pronouncements as reported in the assessment order by the assessing officer. The assessing officer has not accepted the explanation of the assessee and stated that income from sale of DEPB license on which assessee has claimed excess deduction u/s. 80IA was decided against the assessee by the ITAT therefore for the purpose of clause (c) of section 271(1), the assessee has furnished inaccurate particulars of income. In respect of deduction u/s. 115JB of the act, the assessing officer stated that the assessee has reduced the book profit by reducing of un-absorbed depreciation of Pradeep Drug Company Ltd merged with the assessee company to the amount of Rs. 3,39,12,399/-. The assessing officer was of the view that assessee has got substantial reserves on merging of the Pradeep Drug Company Ltd. and there was no brought forward losses and unabsorbed depreciation of remaining which can be reduced from the book profit. Therefore, the assessing officer has held that the said amount of Rs. 3,39,12,399/- was deemed income of the asssessee in respect of which inaccurate particulars of income have been furnished. Accordingly, the assessing officer has levied minimum penalty being 100% of tax sought to be evaded at Rs. 33,26,000/-.

4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee. Relevant part of the decision of ld. CIT(A) is reproduced as under:-

“4. I have carefully considered the facts on records and submission of the Ld. Authorized Signatory. First Ground of Appeal is general in nature and hence requires no adjudication.

4.1 Vide Ground No. 2, the appellant has challenged imposition of penalty on the ground that Assessing Officer had not recorded his satisfaction for initiating the penalty proceedings in the assessment proceedings which is necessary even after insertion of section 271(16). On perusal of the assessment order, I find that the Assessing Officer in para-15 has every clearly mentioned that penalty notice u/s. 271(l)(c) was being issued on all the issues for furnishing of inaccurate particulars of income. The Ld. Authorized Signatory has relied upon the decision of Hon’ble Delhi High Court in the case of Ms. Madhushree Gupta Vs. Union of India & Anr [WP(C) No. 5059 of 2008] = 2009-TIOL-371-HC-DEL-IT wherein Hon’ble High Court held that position and I find that Hon’ble Karnataka High Court in the case of B. Damodar Vaman Baliga Jewellers Vs. JCIT (2013) 353 ITR 206 (Kar.), after considering the decision of Hon’ble Delhi High Court in the case of Ms. Madhushree Gupta Vs. Union of India (2009) reported in 317 ITR 107 = 2009-TIOL-371-HC-DEL-IT, held that where assessment order contains a direction for initiation of penalty proceedings u/s. 271(l)(c), such an order of assessment or reassessment shall be deemed to constitute satisfaction of Assessing Officer for initiation of penalty proceedings in term of section 271(1B). Therefore, in view of the above factual and legal position, I hold that Assessing Officer had recorded his satisfaction as mandated by the law and hence arguments of Ld. Authorized Signatory on this account are rejected. Thus, Ground No. 2 is dismissed.

4.2. Ground No. 3 pertains to levy of penalty in respect of disallowance of deduction u/s. 80IA on profit from sale of import jicenses/DEPB at Rs.11,41,480/-. The submission of Ld. Authorized Signatory on this account is found to be acceptable. Undoubtedly, as to whether assessee is eligible to claim deduction u/s. 80IA on DEPB profit or not, was a highly debatable issue. The controversy has been settled by the Hon’ble Supreme Court in the case of Liberty India Ltd. Vs. CIT (2009) 317 ITR 349 = 2009-TIOL-100-SC-IT by deciding the issue against the assessee. This order of Hon’ble Supreme Court was delivered on 31.08.2009 while the Return of Income was filed on 31.10.2001. Thus, it is clear that at the time of filing of return the issue under consideration was highly debatable one. In various decisions relied upon by the Ld. Authorized Representative, it has been held that the penalty u/s. 271(l)(c) cannot be imposed in respect of additions made on debatable issues. A few of such decisions are as under:-

a) Nalwa Sons Investments Ltd. 235 CTR 209 (Del.) = 2010-TIOL-890-HC-DEL-IT

b) Karan Raghav Export Exports Pvt. Ltd. (2012) 349 ITR 112 (Del.) = 2012-TIOL-249-HC-DEL-IT

c) Sivananda Steels Ltd. 256 ITR 683 (Mad.) = 2008-TIOL-08-HC-MAD-IT

In view of the above facts and legal position, thus I hold that no penalty is imposable in respect of disallowance of deduction u/s. 80IA on profit arising from DEPB.

4.3. Ground No. 4 pertains to disallowance of claim of losses reduced from the book profit computed u/s. 115JB pertaining to Pradeep Drug Co. Ltd. which had amalgamated with the appellant company. The Ld. Authorized Signatory has claimed that unabsorbed depreciation of amalgamated company at Rs.3,39,12,399/- was considered as per para-33 of Accounting Standard-14 as also the provisions of section 72 and 72A. Moreover, the tax has been levied under normal provisions of the Act and hence no penalty can be levied for the additions made under MAT provisions, the Ld. Authorized Signatory has emphasized. I have perused the assessment order and find that the Assessing Officer has assessed the total income of assessee under normal provisions since the tax payable was more under normal provisions as compared to tax payable u/s. 115JB. Thus, the contension of appellant that addition made in the book profit u/s. 115JB has not affected quantum of tax payable is found to be acceptable. In this regard, Circular No. 25/2015 issued by the CBDT on 31.12.2015 has been also relied upon. In this circular, it has been stated that when income was assessed u/s. 115JB, no penalty could be imposed in respect of addition/disallowance made under normal provisions. Applying the same analogy, the Ld. Authorized Signatory submitted that penalty in the case of appellant cannot be imposed in respect of the addition made in the book profit when the tax was charged under normal provisions. This argument is acceptable since addition made to the book profit u/s. 115JB has not affected the quantum of tax payable. Accordingly, I hold that no penalty is imposable on this account.

4.4. In respect of both the additions/disallowances being disallowance of deduction u/s. 80IA in respect of income from DEPB at Rs.11,41,480/- and disallowance of losses deducted from book profit at Rs.3,39,12,399/-, it has been also submitted that all the particulars were disclosed by the appellant and hence merely because the claim was disallowed, penalty cannot be imposed. Undisputedly, the Assessing Officer has not established that the appellant had furnished incorrect facts or concealed the relevant material or hidden the facts. The Hon’ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 = 2010-TIOL-21-SC-IT has held that when no information given in the Return of Income was found to be incorrect or inaccurate, disallowance of a claim, by itself, will not amount to furnishing of inaccurate particulars of income. Further the Hon’Ble High Court in the case of Nalin P. Shah HUF C 2013) 40 taxmann.com 86 (Bom.) has held that where assessee had disclosed all details in the return of income, at the highest it can be said that the claim of assessee was not sustainable in law, but there was no furnishing of inaccurate particulars of income liable for penalty u/s. 271(l)(c). This view has been consistently followed by various Hon’ble High Courts/Tribunals in the cases mentioned by the appellant in para-2.18 of the written submission. Therefore, I am of the considered view that penalty is not imposable on this account also.

4.5. In view of the above discussion, thus I hold that it is not a fit case for imposition of penalty u/s. 271(1)(c) for furnishing of inaccurate particulars of income and accordingly penalty imposed by the Assessing Officer is deleted. Thus, appellant succeeds in respect of Ground Nos. 3&4.”

5. During the course of appellate proceedings before us, ld. counsel has submitted paper book containing information and document furnished before the assessing officer and ld. CIT(A) during the course of assessment proceedings and appellate proceedings. During the course of appellate proceedings, the ld. counsel has also referred judicial pronouncements (2017) 82 taxman.com 74 (Chandigarh-Trib) ACIT vs. Torque Pharmaceutical (P.) Ltd. dated 19th May, 2015 and (2015) 145 taxman 303 (Guj) CIT vs. India Galetine & Chemical Ltd dated 8th April, 2004. The ld. counsel has contended that assessee has disclosed all details in the return of income and there was no issue of furnishing of inaccurate particulars of income and he has supported the order of ld. CIT(A). On the other hand, the ld. D.R. has placed reliance on the order of assessing officer.

6. We have heard both the sides and perused the material on record. The assessing officer has levied penalty on the issue of disallowance of deduction u/s. 80IA in respect of sale on import license/DEPB and deduction of book losses of Pradip Drug Company India Ltd for computing book profit u/s. 115JB of the act. After perusal of the material on record and finding of ld. CIT(A), we consider that assessee had disclosed all relevant particulars for computation of its income. All the relevant facts were already before the assessing officer. The issues on which additions were made were debatable and the instant case of the assessee was a case of bonafide difference of opinion on the entitlement of deduction as per provision of the Act. The assessee had also disclosed the compete facts of merger and its claim of deduction u/s. 115JB of the Act. In the light of the above facts, we uphold the findings of the ld. CIT(A) that the assessing officer has not established that the assessee furnished incorrect facts after placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs. Reliance Petro products Pvt. Ltd. 322 ITR 158 = 2010-TIOL-21-SC-IT. Accordingly, the appeal of the Revenue is dismissed.

7. In the result the appeal of the revenue is dismissed.

(Order pronounced in the open court on 12.07.2019)

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