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Hycron Electronics v. Ito
Concise Analytical Summary of the Opinion: ITA No. 326/CHD/2015 (Assessment Year 2009-10)
Factual and Procedural Background
The appeal arises from an order of the learned CIT(A) Shimla dated 13.02.2015 challenging levy of penalty under section 271(1)(c) of the Income Tax Act for assessment year 2009-10. The assessee is M/s Hycron Electronics (PAN AADFH1249K), a manufacturer of assemblies and sub-assemblies for electronic energy meters.
The assessee filed its return claiming a nil income after claiming deduction under section 80IC amounting to Rs. 5.44 crore. The case was selected for scrutiny and the Assessing Officer completed assessment under section 143(3) by order dated 23.12.2011, assessing income at Rs. 4.09 crore.
The Assessing Officer observed that the assessee commenced manufacturing w.e.f. 17.01.2004 and had been claiming section 80IC deductions from AY 2004-05. For AY 2009-10 the assessee undertook substantial expansion and claimed section 80IC deduction at 100%, treating AY 2009-10 as an initial year; the AO treated that year as the 6th year and restricted deduction to 25% of profits. Penalty proceedings were initiated under section 271(1)(c) for furnishing inaccurate particulars of income; the AO levied penalty and the learned CIT(A) confirmed the penalty. The assessee appealed to the Income Tax Appellate Tribunal (Division Bench Chandigarh).
Legal Issues Presented
- Whether penalty under section 271(1)(c) can be levied on the assessee for claiming 100% deduction under section 80IC in AY 2009-10 when the revenue treated that year as the 6th year and allowed only 25%?
- Whether the assessee's claim of 100% deduction under section 80IC amounted to furnishing inaccurate particulars of income or concealment as contemplated by section 271(1)(c)?
Arguments of the Parties
Appellant's Arguments (Assessee)
- The assessee had been granted 100% deduction under section 80IC from AY 2004-05 to AY 2008-09 and was eligible for section 80IC benefits.
- In AY 2009-10 the assessee undertook substantial expansion (supported by an audit report) and therefore treated AY 2009-10 as an initial year for 100% deduction; the expansion and the claim were bona fide.
- All particulars of income were disclosed in the return; nothing was concealed. The dispute was on a debatable point of interpretation of section 80IC (100% vs 25%).
- The claim was debatable and similar claims had been allowed by other fora (e.g., ITAT Delhi in Tirupati LPG Ltd.).
- The assessee relied on the decision of the Supreme Court in CIT v. Reliance Petroproducts Ltd. (322 ITR 158) and several other authorities to contend that making an incorrect claim does not amount to furnishing inaccurate particulars for the purpose of section 271(1)(c).
Respondent's Arguments (Revenue / Departmental Representative)
- The Department contended that the assessee made an incorrect claim by claiming higher deduction (100%) under section 80IC when only 25% was permissible, and therefore penalty under section 271(1)(c) was correctly imposed.
- The Department relied upon the decision of the Delhi High Court in Zoom Communications Pvt. Ltd. (327 ITR 510) and an ITAT Delhi Bench order in Sunder Lal Chopra (ITR (TR) 790) to support the correctness of penalty imposition.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Reliance Petroproducts Ltd., 322 ITR 158 (Supreme Court) | Held that mere making of an incorrect claim does not amount to furnishing inaccurate particulars; penalty under section 271(1)(c) requires concealment or furnishing inaccurate particulars. | The Tribunal quoted this decision at length and applied its principle to hold that the assessee's bona fide and debatable claim did not attract penalty under section 271(1)(c). |
| CIT v. Bal Kishan Dhawan (HUF) [2013] 40 taxmann.com 208 | This decision was cited by the assessee to support the contention that penalty is not leviable in such circumstances. | The Tribunal noted it among decisions relied upon by the assessee supporting the contention that this was not a fit case for levy of penalty. |
| CIT v. Haiyana Warehousing Corporation [2009] 182 Taxman 107 | Listed by the assessee in support; the specific principle as cited in the record is not set out in the opinion. | The Tribunal recorded that the decision was relied upon by the assessee to show the claim was debatable. |
| CIT v. Shahabad Co-Op. Sugar Mills Ltd. [2010] 322 ITR 73 | Listed by the assessee in support; the opinion does not spell out the specific rule from this case. | Noted by the Tribunal as one of the decisions relied upon by the assessee to support non-levy of penalty. |
| CIT v. Dharampal Premchand Ltd. [2011] 11 taxmann.com 437 | Cited by the assessee; the opinion does not specify the exact principle relied upon from this case. | Recorded by the Tribunal as among the decisions relied on by the assessee. |
| CIT v. Indersons Leather (P.) Ltd. [2011] 196 Taxman 103 | Cited by the assessee; the opinion does not describe the precise principle cited. | Noted by the Tribunal as supporting the assessee's contention that penalty was not warranted. |
| CIT v. Rubber Udyog Vikas (P.) Ltd. [2012] 20 taxmann.com 610 | Cited by the assessee; the opinion does not set out the specific rule from it. | Included by the Tribunal in the list of decisions relied upon by the assessee. |
| CIT v. Eastman International [2014] 41 taxmann.com 239 | Cited by the assessee; the opinion does not state the specific principle from this decision. | Recorded as a decision relied upon by the assessee in support of its position. |
| Tirupati LPG Ltd., ITA 991/2013 (ITAT Delhi Bench) dated 29.01.2014 | ITAT Delhi Bench allowed a similar claim (favourable on quantum) as relied upon by the assessee. | The Tribunal noted this decision was not followed by the Bench on quantum in the present matter but acknowledged it as a favourable decision for the assessee's claim. |
| Zoom Communications Pvt. Ltd., 327 ITR 510 (Delhi High Court) | Relied upon by the Department to support levy of penalty for incorrect claim of exemption. | The Tribunal recorded that the Department relied on this decision, but ultimately preferred the reasoning in Reliance Petroproducts and other supporting authorities for the assessee. |
| Sunder Lal Chopra (ITAT Delhi Bench) ITR (TR) 790 | Relied upon by the Department as an order supporting penalty imposition. | Noted by the Tribunal as relied upon by the Department; the Tribunal did not adopt this authority to sustain the penalty in the present facts. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeds from undisputed factual findings: the assessee had been eligible for and had in fact been granted section 80IC deductions at 100% in earlier assessment years (AY 2004-05 to 2008-09); the assessee undertook substantial expansion relevant to AY 2009-10 which was supported by an audit report; and all particulars of income were disclosed in the return and during assessment proceedings.
The core factual dispute was the legal interpretation of section 80IC: whether AY 2009-10 (following substantial expansion) should be considered an initial year entitling the assessee to 100% deduction, or whether it was the 6th year of manufacturing activity entitling only to 25% deduction. The Tribunal emphasised that this was a debatable question of law and one involving differing opinions between the assessee and the revenue (and between different fora — e.g., an ITAT Delhi Bench decision that was favourable to the assessee on quantum which this Bench did not follow).
Applying legal principle, the Tribunal relied primarily on the Supreme Court's decision in CIT v. Reliance Petroproducts Ltd. (322 ITR 158). The Tribunal quoted the Supreme Court's articulation that section 271(1)(c) is attracted only where there is concealment of particulars of income or where the particulars furnished are inaccurate; that making an incorrect claim which is debatable or unsustainable in law does not ipso facto amount to furnishing inaccurate particulars. The Tribunal concluded that:
the assessee's claim was bona fide, supported by material (audit report), disclosed in the return, and the dispute was essentially interpretative and debatable; therefore the conditions for invoking section 271(1)(c) were not satisfied.
The Tribunal also observed that the decisions relied upon by the assessee supported the contention that this was not a fit case for levy of penalty. Although the Bench did not follow the Tirupati LPG (Delhi) decision on quantum, it recognised a genuine difference of opinion and the absence of any adjudicated judicial authority against the assessee at the time of making the claim.
Holding and Implications
Holding: The Tribunal set aside the orders of the authorities below and cancelled the penalty. The appeal filed by the assessee was ALLOWED and the penalty under section 271(1)(c) was CANCELLED.
Implications:
- Direct effect: The penalty imposed by the Assessing Officer and confirmed by the CIT(A) under section 271(1)(c) is quashed for AY 2009-10; the appeal of the assessee is allowed.
- Broader precedent: The opinion rests on application of the Supreme Court's principle in Reliance Petroproducts that a debatable or incorrect claim, bona fide and disclosed, does not automatically amount to furnishing inaccurate particulars warranting penalty. The Tribunal did not purport to lay down a new legal rule beyond applying that principle to the facts of this case. The opinion does not state that it sets any new binding precedent beyond the decision in this case.
Order pronounced in open court on 8th October, 2015. Bench: Rano Jain (Accountant Member) and Bhavnesh Saini (Judicial Member).
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH,CHANDIGARH
BEFORE SHRI BHAVNESH SAINI , JUDICIAL MEMBER
AND Ms. RANO JAIN, ACCOUNTANT MEMBER ITA No. 326/CHD/2015
Assessment Year: 2009-10
M/s Hycron Electron ics , Vs The ITO, P lo t No . 35 , EP IP- I I , Baddi . V i l lage Thana, Baddi
So lan.
PAN: AADFH1249K
(Appel lant ) (Respondent ) Appe l lant by : Shri D.C.Aggarwal Respondent by : Shr i Sushi l Verman Date of Hearing : 05.10.2015 Date of Pronouncement : 08.10.2015
O R D E R
PER BHAVNESH SAINI,JM
This appeal by assessee is d irected against the order o f ld . CIT(Appeals ) Shimla dated 13.02.2015 for assessment year 2009-10 chal leng ing the levy of penal ty under sect ion 271(1) (c ) o f the Income Tax Act .
2 . Br ie f ly the facts o f the case are that assessee f i rm f i l ed i ts return o f income dec lar ing 'n i l ' income a fter c la iming deduct ion under sect ion 80IC of the Act amounting to Rs.5.44 Cr. The assessee der ived income from manufacturing o f assembl ies and sub-assembl ies for e lectronics energy meters and al l i ed products . The case was se lected for scrut iny assessment and Assess ing Of f icer completed the assessment v ide order dated 23.12.2011 under sect ion 143(3 ) o f the Act and assessed the income of the assessee at Rs. 4 .09 Cr .
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During the course o f assessment, i t was not iced that the assessee s tarted i ts manufacturing act iv i t ies w. e . f . 17.01.2004 i . e . during the f inancial year 2003-04 and had been c la iming deduct ion under sect ion 80-IC o f the Act f rom assessment year 2004-05. The Assessee f i rm undertook substant ia l expansion dur ing A.Y . 2009-10 under appeal and star ted c la iming deduct ion u/s 80IC @ 100%, t reat ing A.Y . 2009-10 to be in i t ia l year . The deduct ion u/s 80IC c la imed @100% was reduced to 25% of the total
prof i t declared be ing the 6 th
year of manufactur ing act iv i t i es o f the Industr ia l undertaking. The Assess ing Of f icer in i t ia ted penalty proceedings for furnishing inaccurate part iculars of income. The appeal f i led by the assessee on quantum was d ismissed. The Assessing Of f icer , there fore , v ide separate order lev ied the penalty under sect ion 271(1) (c ) o f the Act for furnishing inaccurate part iculars of income.
3 . The penalty order was chal lenged before ld.
CIT(Appeals ) and ld . CIT(Appeals ) on the same reasoning that in the 6 th
year o f the assessee 's c la im under sect ion 80IC, 100% deduct ion is not permissib le , conf irmed levy of penal ty and dismissed appeal o f the assessee.
4 . We have heard ld. Representat ives o f both the part ies and perused the mater ia l on record. The ld . counse l for the assessee submitted that assessee star ted i ts manufactur ing act iv i t ies in Distr ict Solan (HP) and i t bus iness was e l ig ib le for deduct ion under sect ion 80IC of the Act which was a lso granted at 100% from assessment year 2004-05 to 2008-09.
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In the assessment year under appeal i .e . 2009-10, the assessee made substant ive expansion to the business and supported the same by the audi t report . He has submit ted that the substant ia l expansion undertook by assessee is not in d ispute and i t i s a lso not in dispute that assessee was ear l ier granted exemption under sect ion 80IC o f the Act . The only d ispute was whether assessee is ent i t led for deduct ion under sect ion 80IC @ 100% or 25%. The assessee d isclosed a l l the part iculars of income in the return o f income and has not made any wrong or fa lse c la im. The c la im under sect ion 80IC have been denied on the debatable issue and the whole issue is regarding interpretat ion o f provis ions of Sect ion 80IC o f the Act on which Tr ibunal a lso d ismissed appeal o f the assessee but appeal o f the assessee is pending before High Court for considerat ion. He has submitted that ITAT Delhi Bench in the case of T i rupat i LPG Ltd . in ITA 991/2013 dated 29.01.2014 al lowed the s imi lar c la im o f assessee . Therefore, the issue is highly debatable and dependant upon the interpretat ion of prov is ions o f Sect ion 80IC o f the Act . He has submit ted that i t i s a lso not in d ispute that assessee was ent i t led for deduct ion under sect ion 80IC. The issue was o f whether 100% deduct ion or 25%, there fore , assessee has not made any wrong c la im del iberate ly and c la im of assessee was not fa lse . The assessee made bonaf ide c la im o f deduct ion under sect ion 80IC. There fore , i t i s not a case o f furnishing inaccurate part icu lars of income. Making an incorrect c la im was not tantamount to furnishing of inaccurate part iculars of income. He has a lso re l i ed upon dec is ion of the Supreme Court in the case of Re l iance Petroproducsts Pvt . Ltd. 322
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ITR 158 and a lso re l ied upon fo l lowing dec is ions in support o f his content ions :
1. CIT vs. Bal Kishan Dhawan (HUF) [20131 40 taxmann.com 208
2. CIT vs. Haiyana Warehousing Corporation [20091 182 taxman 107
3. CIT vs. Shahabad Co-Op. Sugar Mills Ltd. J2010] 322 ITR 73
4. CIT vs. Dharampal Premchand Ltd. [20111 11 taxmann.com 437
5. CIT vs. Indersons Leather (P.) Ltd. [2011] 196 taxman 103
6. CIT vs. Rubber Udyog Vikas (P.) Ltd. J2012] 20 taxmann.com 610
7. CIT vs. Eastman International [2014] 41 taxmann.com 239 5 . On the other hand, ld . DR re l ied upon orders o f the author i t ies be low and submitted that assessee made incorrect c la im o f exemption by c la iming h igher deduct ion under sect ion 80IC. There fore , penalty was correct ly imposed on assessee and re l ied upon dec is ion o f Delhi High Court in the case of Zoom Communicat ions Pvt . Ltd. 327 ITR 510 and order o f ITAT Delhi Bench in the case of Sunder La l Chopra 2
ITR (TR) 790.
6 . We have considered the r ival submissions and mater ia l avai lable on record. The facts as noted above in the impugned orders are not in dispute . I t is not in d ispute that assessee was e l ig ib le for deduct ion under sect ion 80IC o f the Act and has been c la iming the same deduct ion f rom assessment year 2004-05 t i l l 2008-09. The assessee in assessment year under appeal i .e . 2009-10 contended that s ince i t has undertook substant ia l expansion, there fore, assessment year under appeal i .e . 2009-10 being in i t ia l year , assessee would be ent i t l ed for
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deduct ion under sect ion 80IC of the Act @ 100%. However , the authori t i es be low considered that the assessment year under appeal i .e . 2009-10 is the 6 th
year o f the manufactur ing act iv i ty o f the Industr ia l Undertaking, therefore, instead of c la im o f 100% deduct ion under sect ion 80IC, assessee would be ent i t l ed for deduct ion under sect ion 80IC @ 25% only . The c la im of assessee was supported by Audit Report and the past h is tory submit ted by assessee and cons idered by the author i t ies below. Thus, the c la im o f assessee was raised for the f i rst t ime in the 6 th
year on undertaking substant ia l expansion and i t was c la imed to be f i rst year/init ia l year for c la iming 100% deduct ion under sect ion 80IC of the Act . Thus, the c la im o f the assessee was not fa lse and was also not wrong. The assessee made c la im of 100% deduct ion under sect ion 80IC o f the Act on the basis o f substant ia l expansion carr ied out in f inancial year re levant to the assessment year under appeal . The assessee , there fore , furnished a l l part iculars o f income in the return of income as we l l as before Assess ing Of f icer at the assessment stage. Nothing was concea led to the Revenue Department. Whole issue was thus, based upon interpretat ion of provis ions o f Sect ion 80IC o f the Act for c la im of deduct ion under sect ion 80IC @ 100% on undertaking substant ia l expansion in the assessment year under appeal by c la iming i t to be in i t ia l year . Pr ior to that , there may be no history against the assessee for making such a c la im. The issue is whol ly debatable and the appeal o f the assessee is pending be fore Hon'ble High Court for considerat ion of the s imi lar i ssue.
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Though, th is Bench has not fo l lowed the decis ion of Delhi Bench in the case of T i rupat i LPG Ltd. (supra ) on quantum and dec ided the issue against the assessee on quantum, but there was favourable order for making such a c la im under sect ion 80IC of the Act . Therefore, i t i s a case where there may be a d i f ference of op in ion between the assessee f i rm and the Assessing Of f icer for c la im o f deduct ion under sect ion 80IC o f the Act in 6 th
year @ 100%. 7 . Consider ing the above d iscuss ion, i t i s c lear that assessee c la imed deduct ion under sect ion 80IC in assessment year under appeal in a bonaf ide manner and mere fact that c la im of assessee has been d isal lowed, would not prove i t to be a f i t case of levy o f penalty for f i l ing inaccurate part iculars of income. The issue of c la im o f deduct ion was debatable and bonaf ide . However, there was conf l i ct for determinat ion o f provis ion o f law. Merely making a c la im o f 100% deduct ion against 25% as per op in ion o f the Assessing Of f icer under sect ion 80IC of the Act would not be at par with concea lment o f income or furnishing inaccurate part iculars o f income. The dec is ions re l ied upon by ld. counse l for the assessee support the content ion o f ld. counsel for the assessee that i t i s not a f i t case o f l evy of penalty under sect ion 271(1 ) (c ) o f the Act . Hon'ble Supreme Court in the case of CIT V Re l iance Petroproducts Ltd . 322 ITR 158 he ld as under :
"A g lance at the prov is ions of Sec t ion 271(1) (c ) of the Income- tax Ac t , 1961 suggests that in o rder to be
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covered by i t , there has to be concealment of the par t icu lars of the income of the assessee . Secondly, the assessee must have furn ished inaccurate par t icu lars of h is income. The mean ing of the word 'par t icu lars ' used in Sec t ion 271(1) (c ) would embrace the detai ls of the c la im made. Where no inf ormat ion g iven in the return is f ound to be incorrec t o r inaccurate , the assessee cannot be he ld gu i l ty of furn ish ing inaccurate par t icu lars . In order to expose the assessee to penal ty , un less the case is s tr ic t ly covered by the provis ions , the penal ty provis ion cannot be invoked. By no s tre tch of imag inat ion can mak ing an incorrec t c la im tan tamount to furn ish ing inaccurate par t icu lars . There can be no d ispute that everyth ing would depend upon the re turn f i led by the assessee , because that is the on ly document where the assessee can furn ish the par t icu lars of h is income. When such par t icu lars are f ound to be inaccurate , the l iab i l i ty would ar ise . To at t rac t penal ty , the detai ls suppl ied in the re turn mus t no t be accurate , no t exac t o r cor rec t , no t according to the tru th or er roneous.
Where there is no f ind ing that any detai ls suppl ied by the assessee in i ts re turn are f ound to be incor rec t o r e rroneous or f alse there is no quest ion of inv i t ing the penal ty u/s 271(1) (c ) . A mere mak ing of a c la im wh ich is no t sustainab le in law, by i tse l f , wi l l no t amount to furn ish ing inaccurate par t icu lars regard ing the income of the assessee. Such a c la im made in the re turn cannot amount to f urn ish ing inaccurate par t icu lars ."
8 . Cons ider ing the above discussion, we are o f the v iew that i t is not a f i t case o f l evy o f penal ty under sect ion 271(1) (c ) o f the Act because i t i s wel l se tt led that levy o f penalty is not automatic in each and every case as i t
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depends upon facts and c ircumstances of the case. Since the assessee 's c la im of deduct ion under sect ion 80IC have been a l lowed in ear l ier years @ 100% and admit tedly assessee undertook substant ia l expansion in assessment year under appeal , there fore , assessee made bonaf ide c la im o f deduct ion under sect ion 80IC o f the Act and there were no judic ia l pronouncements aga inst the assessee on the date of making such a c la im. Therefore, i t could not be construed that assessee furnished inaccurate part iculars of income so as to levy the penalty under sect ion 271(1) (c ) o f the Act . We, accord ingly, se t aside the orders of author i t ies be low and cancel the penalty. 9 . In the resul t , the appeal f i l ed by the assessee is a l lowed.
Order pronounced in the Open Court .
Sd/- Sd/-
(RANO JAIN) (BHAVNESH SAINI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dat ed : 8 th
Oc t . , 2015 . ' Poonam '
Copy t o :
The Appe l l an t , The Respondent , The C I T (A ) , The C I T ,DR Ass i s t an t Reg i s t r a r , I TAT/CHD
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