Login
  • Bookmark
  • PDF
  • Share
  • CaseIQ

V. M. Salgaocar & Brothers P. Ltd., Goa v. Asstt. Comm. Of Income Tax Circle 2,,

Income Tax Appellate Tribunal
Nov 8, 2013
Smart Summary (Beta)

Structured Summary of the Opinion: ITA No. 118/PNJ/2013 (AY 1997-98)

Factual and Procedural Background

The assessee, M/s V.M. Salgaocar & Brothers Pvt. Ltd., filed its return of income for Assessment Year 1997-98 on 29.11.1997 declaring total income of Rs. 2,82,42,861 after claiming deduction under section 80HHC of Rs. 22,62,94,648 and declaring book profits under section 115JA of Rs. 6,05,34,680. The assessment under section 143(3) was completed on 09.03.2000 determining total income at Rs. 14,27,55,184 after allowing deduction u/s 80HHC of Rs. 7,51,96,065. That assessment was rectified to determine total income at Rs. 8,02,82,316 allowing deduction u/s 80HHC of Rs. 13,71,83,740. Subsequently the assessment was reopened under section 147 and an assessment under section 143(3) read with section 147 was completed on 27.03.2002 determining total income at Rs. 13,32,11,626 after allowing deduction u/s 80HHC of Rs. 8,42,54,430.

The Assessing Officer initiated penalty proceedings under section 271(1)(c) for claiming the deduction u/s 80HHC and levied a penalty of Rs. 1,09,03,616 (100% of tax on excess claim). The assessee appealed to the CIT(A), who deleted the penalty. The Revenue appealed to the Income Tax Appellate Tribunal (Panaji Bench). The assessee filed a Cross Objection (CO) contending the penalty order was barred by limitation.

Legal Issues Presented

  1. Whether the CIT(A) was correct in deleting the penalty imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act in respect of the excess claim of deduction under section 80HHC.
  2. Whether the penalty order passed under section 271(1)(c) was barred by limitation (as raised in the assessee's Cross Objection).

Arguments of the Parties

Appellant (Revenue) / Represented by Learned DR

  • The Revenue's effective ground: CIT(A) erred in deleting the penalty under section 271(1)(c) though the assessee had violated provisions of law and claimed deductions wrongly, furnishing inaccurate particulars of income.
  • Learned DR relied on the Assessing Officer's order and contended that Explanation 4 would apply in the assessee's case (i.e., supporting the application of the penal provision).
  • On limitation, Learned DR contended that the proviso to section 275(1)(a) cannot supersede the main provision and argued that the Assessing Officer imposed the penalty within the period permitted by the main provision (i.e., within six months from the date when the order of the Appellate Tribunal is received by the Chief Commissioner/Commissioner).

Respondent (Assessee) / Represented by Learned AR

  • The assessee relied heavily on the decision of the Hon'ble Delhi High Court in CIT vs. Nalwa Sons Investments Ltd. (327 ITR 543) and pointed out that since the book profits under section 115JA were determined at the same amount as returned by the assessee and tax was paid thereon, there could be no "tax sought to be evaded".
  • The assessee contended that Explanation 4 could not be applied in its case and that the claim was bona fide; it did not furnish inaccurate particulars. The particulars were disclosed in the return and audited accounts, and different authorities treated figures differently.
  • Additional reliance was placed on decisions including: Jurisdictional Mumbai High Court in CIT vs. M/s. Aditya Birla Nova Ltd. (ITA No. 3899 of 2010) and Reliance Petroproducts Private Ltd. (322 ITR 158) to support the contention that mere non-acceptance of a claim by Revenue does not make it a case of furnishing inaccurate particulars.
  • On limitation, the assessee argued the penalty order should have been passed within six months from the end of the month in which the order of the CIT(A) was received by the Chief Commissioner/Commissioner; the penalty order dated 27.09.2010 was contended to be time-barred.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT vs. Nalwa Sons Investments Ltd., 327 ITR 543 (Delhi High Court) Where assessment is made on deemed income under a specific provision (section 115JB in that case) and tax is paid on that deemed income, concealment in the normal assessment computations may become irrelevant for purposes of penalising under section 271(1)(c); penalty could not be sustained in that factual matrix. The Tribunal considered this decision controlling on facts: since the assessee's book profits under section 115JA were the same as returned and tax was paid on that basis, the Tribunal held Explanation 4 could not be applied and therefore tax "sought to be evaded" could not be computed for imposing penalty; accordingly confirmed deletion of penalty.
Supreme Court — SLP dismissal against Nalwa Sons (order dated 4 May 2012; 21 Taxman.com 184 (SC)) Dismissal of SLP left the Delhi High Court's view in Nalwa Sons intact. The Tribunal noted the SLP dismissal and treated the Delhi High Court's view as having finality for its purposes in this case, supporting deletion of penalty.
CIT vs. Central Housing Corporation, 80 CCH 055 (Delhi High Court) Delhi High Court took a similar view to Nalwa Sons on a comparable issue. The Tribunal observed this decision as supportive of the position that penalty could not be sustained under the facts, reinforcing its decision to confirm deletion of penalty.
Reliance Petroproducts Private Ltd., 322 ITR 158 Authority cited for the proposition that non-acceptance of an assessee's claim by Revenue alone does not necessarily amount to furnishing inaccurate particulars attracting penalty. Relied upon by the assessee in argument; Tribunal stated the assessee's case was covered by such decisions but found further adjudication unnecessary after confirming deletion of penalty on other grounds.
CIT vs. M/s. Aditya Birla Nova Ltd. (ITA No. 3899 of 2010, Mumbai High Court) Used by the assessee as support for its position (exact principle as cited in the opinion: alignment with authorities holding similar view). Cited by the assessee in support; the Tribunal did not rely on it as its primary basis but noted it among supporting authorities advanced by the assessee.
CIT vs. Mohair Investments & Trading Co. Pvt. Ltd., 345 ITR 51 (Delhi) Authority relied upon to support the proposition that the proviso cannot supersede the main provision and to address the limitation point (period for passing penalty). The Tribunal relied on this decision (together with Rayala Corporation) to hold that the penalty order was not barred by limitation and confirmed the CIT's view on limitation.
Rayala Corporation Pvt. Ltd. vs. Union of India, 288 ITR 452 (Madras) Authority relied upon to support the Tribunal's conclusion on the limitation point (provisions governing the time for imposing penalty). Used along with Mohair Investments to support the view that the penalty order was not time-barred; Tribunal relied on these authorities to dismiss the assessee's limitation argument.
Gold Coin Health Food (P.) Ltd. (as discussed in Delhi High Court's judgment quoted) Supreme Court's reasoning in that case concerned situations where concealed income is set off against losses and how "tax sought to be evaded" is to be construed; the Delhi High Court found that case did not deal with assessment under deemed income provisions like section 115JB. Quoted in the Delhi High Court's decision (Nalwa Sons) which the Tribunal relied upon; used to explain why the reasoning in Gold Coin Health Food does not sustain penalty where the deemed income provision produced higher tax and was acted upon.

Court's Reasoning and Analysis

The Tribunal proceeded in two strands: (A) whether penalty under section 271(1)(c) was sustainable on facts; and (B) whether the penalty order was time-barred.

A. On the penalty substance: The Tribunal noted that section 115JA applied in the assessee's case and that the assessee had returned book profits under that provision at Rs. 6,05,34,680 and had ultimately paid tax on that amount after giving effect to the Tribunal's order. The Tribunal examined the Delhi High Court decision in CIT vs. Nalwa Sons Investments Ltd. which held that when assessment is concluded on the basis of deemed income (section 115JB in that case) and tax is paid on that basis, concealment in normal assessment computations becomes irrelevant for the purpose of imposing penalty under section 271(1)(c). The Tribunal reproduced and relied on the Delhi High Court's reasoning that Explanation 4 cannot be applied to such a factual situation because the concealment did not lead to tax evasion once the deemed income route was acted upon and tax paid. Applying that reasoning to the present facts, the Tribunal concluded that Explanation 4 would not apply to the assessee, tax "sought to be evaded" could not be computed, and consequently the charging provision for imposing penalty became ineffective. Therefore, the Tribunal confirmed the CIT(A)'s deletion of the penalty, albeit on the basis that Explanation 4 did not apply rather than solely on the CIT(A)'s original reasoning.

B. On limitation (Cross Objection): The assessee argued the penalty order passed on 27.09.2010 was time-barred. The Tribunal considered competing views and accepted the Revenue's submission that the proviso to section 275(1)(a) cannot supersede the main provision governing limitation. The Tribunal relied on precedents (CIT vs. Mohair Investments & Trading Co. Pvt. Ltd. and Rayala Corporation Pvt. Ltd. vs. Union of India) to hold that the penalty order was not barred by limitation. On that point the Tribunal confirmed the CIT's position that the penalty could be validly imposed within the statutory period as interpreted in those authorities.

Because the Tribunal confirmed deletion of penalty on the ground that Explanation 4 did not apply and tax sought to be evaded could not be computed, the Tribunal observed that other submissions by the assessee's counsel were academic and did not require further adjudication.

Holding and Implications

Holding:
The Tribunal rendered the following operative outcomes:
- On the Revenue's appeal challenging deletion of penalty under section 271(1)(c), the Tribunal CONFIRMED THE ORDER OF THE CIT(A) DELETING THE PENALTY (penalty of Rs. 1,09,03,616).
- On the assessee's Cross Objection contesting limitation, the Tribunal HELD THAT THE PENALTY ORDER WAS NOT BARRED BY LIMITATION and accordingly dismissed the Cross Objection.

Implications:
- Direct effect on the parties: The penalty of Rs. 1,09,03,616 levied under section 271(1)(c) was confirmed deleted; consequently the assessee is not liable to pay that penalty. The Revenue's appeal was dismissed. The assessee's contention that the penalty was time-barred was rejected.
- The Tribunal based its decision on existing High Court and other precedents (notably the Delhi High Court in Nalwa Sons) and did not purport to lay down a novel legal principle. The opinion therefore resolves the dispute on the facts and by reference to established authorities rather than by creating a new precedent.

Disposition: In the result, both the Revenue's appeal and the assessee's Cross Objection were dismissed and the order of the CIT(A) deleting penalty under section 271(1)(c) was confirmed.


Source: Order of the Income Tax Appellate Tribunal, Panaji Bench dated 08.11.2013 (ITA No. 118/PNJ/2013; Assessment Year 1997-98).

Show all summary ...

IN THE INCOME TAX APPELLATE TRIBUNAL

PANAJI BENCH, PANAJI

BEFORE SHRI P. K. BANSAL, HON'BLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HON'BLE JUDICIAL MEMBER ITA No. 118/PNJ/2013

(Assessment Year-1997-98)

The Assistant Commissioner of Income Tax, Circle-2, Margao, Goa.

(Appellant)

Vs. M/s. V.M. Salgaocar & Brothers Pvt. Ltd.

Salgaocar House, F.L. Gomes Road, Vasco-da-Gama, Goa.

PAN:AAACV5950B

(Respondent) Cross Objection No. 19/PNJ/2013 Out of ITA No. 118/PNJ/2013 (Assessment Year- 1997-98)

M/s. V.M. Salgaocar & Brothers The Assistant Commissioner of Pvt. Ltd. Income Tax, Circle-2, Panaji

Salgaocar House, F.L. Gomes Road, Goa.

Vasco-da-Gama, Goa (Respondent)

PAN: AAACV5950B

(Objector)

Appellant by : Smt. Asha Desai, DR Respondent by : Nitesh Joshi, Adv. Date of Hearing : 30/10/2013

Date of Order : 08/11/2013

O R D E R

PER P.K. BANSAL

This appeal has been filed by the Revenue against the order of CIT(A) dated 25.03.2013 for the Assessment Year 1997-98.

2. The Revenue has taken following effective ground of appeal :

1

"The Ld. CIT(A) has erred in deleting the penalty levied u/s 271 (1) (c) of the IT Act by the Assessing Officer of Rs. 1,09,03,616/- even when the assessee has violated the clear cut provision of law and has claimed deductions wrongly leading to furnishing inaccurate particulars of income."

while the assessee in CO has taken following effective ground of appeal.

"The learned CIT(A) erred in holding that the penalty order passed after receipt of the Hon"ble Tribunal"s order does not suffer from any infirmity as far as time- barring is concerned."

3. The only issue involved in the appeal filed by the Revenue relates to deletion of the penalty imposed by the Assessing Officer u/s 271(1)(c) of the Income Tax Act.

4. The brief facts of the case are that the assessee filed the return of income for Assessment Year 1997-98 on 29.11.1997 declaring a total income of Rs. 2,82,42,861/- under normal provisions of Income Tax Act after claiming deduction u/s 80HHC of the IT Act to the extent of Rs. 22,62,94,648/-. The assessee declared the book profits u/s 115JA of the IT Act of Rs. 6,05,34,680/-. The assessment was completed u/s 143 (3) on 09.03.2000 determining the total income at Rs.14,27,55,184/- after allowing deduction u/s 80HHC amounting to Rs. 7,51,96,065/-. This assessment was rectified determining the total income at Rs. 8,02,82,316/- allowing the deduction u/s 80HHC of the IT Act to the extent of Rs. 13,71,83,740/-. Subsequently, assessment was reopened u/s 147 and the assessment u/s 143(3) read with section 147 was completed vide order dated 27.03.2002 determining the total income at Rs. 13,32,11,626/- after allowing the deduction u/s 80HHC amounting to Rs. 8,42,54,430/-. In the original assessment the Assessing Officer has not initiated a penalty u/s 271(1)(c). The difference in the claim of the deduction u/s 80HHC was due to the depreciation not claimed by the assessee but allowed by the Assessing Officer while computing deduction u/s 80HHC during the assessment passed u/s

2

143(3) read with section 147. The Assessing Officer initiated the penalty proceeding u/s 271(1)(c) for claiming the deduction u/s 80HHC. The assessee went in appeal against the order dated 27.3.2002. Ultimately matter travelled to the Income Tax Tribunal. After giving the effect to the Income Tax Appellate Tribunal order, the assessed income was determined at Rs. 1,65,28,657/- against the return of income of Rs. 2,82,42,861/- while the deduction u/s 80HHC was allowed to the extent of Rs. 20,09,37,399/- against the claim of Rs.22,62,94,648/-. The book profit on which the tax was paid by the assessee was determined at Rs. 6,05,34,680/- u/s 115JA. The Assessing Officer due to the excess claim of deduction u/s 80HCC levied the penalty u/s 271(1)(c) for furnishing inaccurate particulars of income amounting to Rs. 1,09,03,616/- @ 100% on the tax on the excess claim of deduction u/s 80HHC treating it to be tax sought to be evaded.

5. The assessee went in appeal before the CIT(A), and CIT(A) deleted the penalty by observing as under:

"Thus, it can be seen that many authorities have reduced or increased the claim of deduction u/s 80HHC of the appellant during the course of assessment, reassessment and various appellate proceedings. This is because of different opinions of different authorities. All the figures were available in the Return of Income and audited accounts, and the same have been treated differently by different authorities at different points of time. Therefore, in my opinion, the appellant has neither concealed his income nor furnished any inaccurate particulars. It was only a matter of opinion and the same has been debated at the level of AO, CIT(A) and Hon"ble ITAT. In view of these facts, I find that, penalty under section 271(1)(c) was not liveable on the facts of this case and in law, and the AO is directed to delete the penalty levied u/s 271(1)(c) for an amount at Rs. 1,09,03,616/-."

6. The Learned AR before us relying upon the order of Hon'ble Delhi High Court in the case of CIT vs. Nalwa Sons Investments Ltd. 327 ITR 543 contended that since in the case of assessee the book profits u/s 115JA has been determined at the same amount as has been returned by the assessee, therefore, in this case, there cannot be any tax sought to be evaded. Referring to the order

3

of Assessing Officer, assessee contended that the penalty has been imposed by the Assessing Officer by applying explanation-4 while explanation-4 in the case of assessee cannot be applied. It was pointed out that the Hon'ble Supreme Court has dismissed the SLP against the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Nalwa Sons Investment Ltd. Even otherwise the claim of the assessee was bona fide. It is not a case where Assessee has furnished inaccurate particulars of the income. The assessee duly disclosed particulars of the income. Reliance was also placed on the decision of Jurisdictional Mumbai High Court in the case of CIT vs. M/s. Aditya Birla Nova Ltd. in ITA No. 3899 of 2010. It was contended that the case of the assessee is duly covered by the decision of Hon'ble High Court in the case of Reliance Petroproducts Private Ltd. 322 ITR 158. Merely the claim of the assessee u/s 80HHC was not accepted by the Revenue will not make the claim made by the assessee liable for penalty holding that the assessee has failed to furnish accurate particulars in respect of the said claim. It was also contended that in the original assessment order the Assessing Officer has not initiated penalty proceedings. Even though while computing the claim u/s 80HHC the assessee has computed the book profit for the purpose of 80HHC on the basis of not claiming the depreciation u/s 32, the Assessing Officer while computing the claim u/s 80HHC allowed the depreciation to the assessee. On the same very basis, the claim u/s 80HHC has been reduced in assessment framed u/s 143(3) read with section 147 while computing normal taxable income.

7. Learned DR, on the other hand, relying on the order of the Assessing Officer vehemently contended that the explanation in the case of assessee will apply.

8. We have heard the rival submissions and carefully considered the same. We noted that in the case of the assessee, the provision of section 115JA was applicable. The assessee has returned income as per the provision of Section 115JA at Rs. 6,05,34,680/-. Ultimately the assessee has paid tax on the same

4

income after giving effect to the order of the Tribunal. We have gone through the order of the Hon'ble Delhi High Court in the case of CIT vs. Nalwa Sons Investment Ltd. (supra) in which the Assessing Officer imposed penalty u/s 271(1)(c) wherein the income was determined u/s 115JB. When the matter went to the Hon'ble Delhi High Court, the Hon'ble Delhi High has held as under.

"23. In view thereof, in conclusion, the assessment order records as follows:-

"Assessed at Rs. 4,01,63,180 under section 115JB, being higher of two. Interest under section 234B and 234C has been charged as per the provisions of Income-tax Act, 1961. Penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 have been initiated. Issue necessary forms."

24. The income of the assessee was thus assessed under section 115B and not under the normal provisions. It is in this context that we have to see and examine the application of Explanation 4.

25. Judgment in the case of Gold Coin Health Food (P.)Ltd.(supra), obviously, does not deal with such a situation. What is held by the Supreme Court in that case is that even if in the Income-tax return filed by the assessee losses are shown, penalty can still be imposed in a case where on setting off the concealed income against any loss incurred by the assessee under other head of income of brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even a minus figure. The court was of the opinion that „the tax sought to be evaded" will mean the tax chargeable not as if it were the total income. Once, we apply this rationale to Explanation 4 given by the Supreme Court, in the present case, it will be difficult to sustain the penalty proceedings. Reason is simple. No doubt, there was concealment but that had its repercussions only when the assessment was done under the normal procedure. The assessment as per the normal procedure was, however, not acted upon. On the contrary, it is the deemed income assessed under section 115JB of the Act which has become the basis of assessment as it was higher of the two. Tax is thus, paid on the income assessed under section 115JB of the Act. Hence, when the computation was made under section 115JB of the Act, the aforesaid concealment had no role to play and was totally irrelevant. Therefore, the concealment did not lead to tax evasion at all.

26. The upshot of the aforesaid discussion would be to sustain the order of the Tribunal, though on different grounds. Therefore, while we do not agree with the reasoning and approach of the Tribunal, for our reasons disclosed above, we are of the opinion that penalty could not have been imposed even in respect of claim of depreciation made by the assessee. This appeal is accordingly dismissed."

5

The SLP against the said order of the Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court vide the order 4thMay, 2012, 21 Taxman.com 184(SC). The Hon'ble Delhi High Court has taken a similar view in the case of CIT vs. Central Housing Corporation, 80CCH 055 (Delhi). No contrary decision was brought to our knowledge by the Learned DR. Under the facts and circumstances, since the case of the assessee is duly covered by the decision in the case of Nalwa Sons Investment Ltd. (supra), we confirm the order of the CIT(A) deleting the penalty imposed u/s 271(1)(c), though on a different basis that the explanation-4 in the case of the Assessee will not apply and in the absence of non-application of explanation-4, tax sought to be evaded could not be computed and in the absence of non-computation of tax sought to be evaded u/s 271(1)(c), there cannot be any penalty as the charging provision for imposing penalty will become ineffective. Since the other submissions made by the Learned AR are purely academic and we have already confirmed the order of the CIT(A) deleting the penalty against the u/s 271(1)(c), in our opinion, other submissions made by the learned AR does not require any adjudication.

9. Coming to the CO filed by the Assessee, the only issue involved in the CO relates to the fact that the order passed u/s 271(1)(c) was barred by limitation. Learned AR before us, vehemently contended that the order u/s 143(3) read with section 147 was passed on 12thAugust 2004 and therefore, the penalty order must have been passed by the Assessing Officer within 6 months from the end of the month in which the order of CIT(A) is received by the Chief Commissioner or Commissioner. The order of CIT(A) was received on 21.09.2004 and therefore, the due date for passing the penalty order was 31st March 2005. In this case, the Assessing Officer imposed the penalty on the assessee by passing the penalty order on 27.09.2010 after the Penalty order was barred by limitation. The Learned DR on the other hand contended that the proviso to Sec. 275(1)(a) cannot supersede the main provision of sec. 275(1)(a).

6

The Assessing Officer can impose the penalty within 6 months from the date when the order of the Appellant Tribunal is received by the Chief Commissioner or Commissioner. Penalty has been imposed within the six months from the date of the order of the Tribunal received by the CIT.

10. We have heard the rival submissions and carefully considered the same. We agree with the Learned DR that the proviso cannot supersede the main provision. Our aforesaid view is duly supported by the following decision:

CIT vs. Mohair Investments & Trading Co. Pvt. Ltd. 345 ITR 51 (Delhi) Rayala Corporation Pvt. Ltd. vs. Union of India 288 ITR 452 (Mad) No contrary decision was brought to our knowledge by the Learned AR. In view of aforesaid two decisions, we confirm the order of the CIT on the issue that the penalty order was not barred by limitation.

11. In the result the appeal filed by the Revenue as well as CO filed by the assessee stand dismissed.

Order pronounced in the open court on 8.11.2013.

Sd/- Sd/-

(D.T. GARASIA) (P.K. BANSAL)

Judicial Member Accountant Member

Place : PANAJI / GOA Dated : 8.11.2013 P.S.- *PK*

Copy to :

(1) Appellant

(2) Respondent

(3) CIT concerned

(4) CIT(A)

(5) D.R

(6) Guard file True copy, By order

Private Secretary, ITAT, Panaji, Goa

7