BOMBAY
HIGH COURT - PCIT VS. DHARIWAL INDUSTRIES LTD
INCOME TAX APPEAL NO. 1133 OF 2016 & INCOME TAX APPEAL NO. 1129 OF
2016, DATED- 04-09-2018
Summarised Judgement (Scroll for Complete Judgement)
If appeals with reference to the quantum
proceedings have been admitted by the Court on substantial questions of law, it
means that there were debatable and arguable questions raised and so penalty
u/s 271(1)(c) cannot be levied (PCIT v. Shree Gopal Housing 167 DTR 236
distinguished). Penalty also cannot be levied if the claim was as per judicial
precedents prevalent at the time of filing the ROI. Also, there must be a
finding that the details supplied by the assessee in its return were incorrect
or erroneous or false
The assessee (Dhariwal Industries Ltd.) is a
company engaged in the business of manufacturing of Pan Masala as well as
manufacturing and sale of rawa, atta, maida and salt. Over and above this, they
are also involved in sale of mineral water and are also doing business in the
area of power generation by wind mills. It is the case of the Revenue that for
the A.Y. 2003-04, the assessment was completed under Section 143(3) of the
Income Tax Act, 1961 (I.T.Act) on 31st March, 2006. After completion of the
assessment, the Assessing Officer (A.O.) also initiated penalty proceedings
under Section 271(1)(c) of the I.T.Act and the penalty order was passed by the
A.O. on 26th March, 2008 levying penalty of Rs.3,68,00,000/- with respect to
the following additions:-
(1) Dis-allowance u/s 80IA restricted to gross
total income computed in order u/s 143(3) ———– Rs.35,05,981/-
(2) Rejection of assessee’s claim that sales tax
incentive is in nature of capital receipt and therefore not taxable —-
Rs.7,28,71,527/-
(3) Addition to the total income on account of
items not considered to be eligible for 100 % depreciation————-Rs.2,37,05,481/-
13. Before parting we must mention that Mr
Tejveer Singh, learned counsel appearing on behalf of the Revenue, relied upon
a decision of the Division Bench of this Court in the case of Principal CIT-2
v/s Shree Gopal Housing and Plantation Corporation, Mumbai in Income Tax Appeal
No.701 of 2015* decided on 6th February, 2018 to contend that merely because an
appeal has been admitted by this Court in the quantum proceedings, would not
automatically mean that the penalty ought to be deleted.
Considering the facts that we have discussed
above and especially considering that when the claims as mentioned herein were
made by the Assessee, they were governed by judicial decisions of the Tribunal,
we do not think that this judgment would apply in the factual matrix before us.
From the facts of the present case, it is clear
that they were debatable and arguable questions which certainly did not warrant
the levy of penalty on the Assessee. This being the case, we find that the
reliance placed by Mr Tejveer Singh on the aforesaid decision in the case of
M/s Shree Gopal Housing and Plantation Corporation (supra) is wholly misplaced.
14. In view of the foregoing discussion, we find
that there is no merit in all the three Appeals and they are accordingly
dismissed. However, there shall be no order as to costs.
======================================
Complete Judgement
BOMBAY
HIGH COURT - PCIT VS. DHARIWAL INDUSTRIES LTD
INCOME TAX APPEAL NO. 1133 OF 2016 & INCOME TAX APPEAL NO. 1129 OF
2016, DATED- 04-09-2018
IN THE HIGH COURT OF
JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL
JURISDICTION
INCOME TAX APPEAL NO.
1133 OF 2016
The Pr. Commissioner of
Income Tax ]
(Central), Pune,
Swargate, Pune 411 037 ] …Appellant.
Vs.
Dhariwal Industries Ltd.
]
Manikchand House, Plot
No. 100-101 ]
D Kennedy Road, Pune 411
001 ] …Respondent.
INCOME TAX APPEAL NO.
1136 OF 2016
The Pr. Commissioner of
Income Tax ]
(Central), Pune,
Swargate, Pune 411 037 ] …Appellant.
Vs.
Dhariwal Industries Ltd.
]
Manikchand House, Plot
No. 100-101 ]
D Kennedy Road, Pune 411
001 ] …Respondent.
INCOME TAX APPEAL NO.
1129 OF 2016
The Pr. Commissioner of
Income Tax ]
(Central), Pune,
Swargate, Pune 411 037 ] …Appellant.
Vs.
Dhariwal Industries Ltd.
]
Manikchand House, Plot
No. 100-101 ]
D Kennedy Road, Pune 411
001 ] …Respondent.
Mr Tejveer Singh for the
appellant in all appeals.
Mr Nitesh Joshi a/w Mr
Atul K. Jasani for the Respondent in all
appeals.
……………
CORAM : S. C.
DHARMADHIKARI & B.P.COLABAWALLA, JJ.
Reserved On : 20th
August, 2018
Pronounced On: 4th
September, 2018
JUDGMENT [ PER B. P.
COLABAWALLA J. ]:
1. By these three appeals filed by the Revenue,
under the provisions of Section 260A of the Income Tax Act, 1961, the Revenue
assails the Judgment and Order of the Income Tax Appellate Tribunal (“ITAT”)
Pune Bench ‘B’, Pune dated 12th June, 2015. By the impugned order, the three
appeals filed by the Revenue before the ITAT for the Assessment Years (“A.Y.”)
2003-04, 2004-05 and 2005- 06 were dismissed and the appeal filed by the
assessee before the ITAT for the A.Y. 2003-04 was partly allowed. Income Tax Appeal
i.e. ITXA No. 1133 of 2016 is with reference to the A.Y. 2003-04, whereas ITXA
No. 1136 of 2016 and ITXA No. 1129 of 2016 are with reference to A.Y. 2004-05
and 2005-06 respectively. Since common questions of fact and law arise in all
the three appeals, they are being disposed of by this common order and
Judgment.
2. For the sake of convenience, we shall refer
to the facts as narrated in Income Tax Appeal No. 1133 of 2016 which is in
relation to the A.Y. 2003-04. The assessee (Dhariwal Industries Ltd.) is a
company engaged in the business of manufacturing of Pan Masala as well as
manufacturing and sale of rawa, atta, maida and salt. Over and above this, they
are also involved in sale of mineral water and are also doing business in the
area of power generation by wind mills. It is the case of the Revenue that for
the A.Y. 2003-04, the assessment was completed under Section 143(3) of the
Income Tax Act, 1961 (I.T.Act) on 31st March, 2006. After completion of the
assessment, the Assessing Officer (A.O.) also initiated penalty proceedings
under Section 271(1)(c) of the I.T.Act and the penalty order was passed by the
A.O. on 26th March, 2008 levying penalty of Rs.3,68,00,000/- with respect to
the following additions:-
(1) Dis-allowance u/s 80IA restricted to gross
total income computed in order u/s 143(3) ———– Rs.35,05,981/-
(2) Rejection of assessee’s claim that sales tax
incentive is in nature of capital receipt and therefore not taxable —-
Rs.7,28,71,527/-
(3) Addition to the total income on account of
items not considered to be eligible for 100 % depreciation————-Rs.2,37,05,481/-
3. Aggrieved with the aforesaid order of penalty
passed by the A.O., the assessee filed an appeal before the Commissioner of
Income Tax (Appeals)-I [CIT(A)], Pune. After hearing the parties, CIT(A), by
his order dated 20th February, 2009, deleted the penalty with respect to the
additions on point numbers 1 and 2 (reproduced above) and confirmed the penalty
with respect to the addition mentioned in point No.3.
4. Aggrieved by the aforesaid orders of the
CIT(A), both the assessee as well as the Revenue filed the appeals before the
Income Tax Appellate Tribunal, Pune (“ITAT”). The ITAT, by the impugned order,
confirmed the order of the CIT(A) deleting the penalty levied with respect to the
additions as mentioned in point Nos. 1 and 2 (reproduced above). In addition
thereto, the ITAT, relying upon the decision of this Court in the case of CIT
Vs M/s Nayan Builders and Developers in Income Tax Appeal No. 415 of 2012
decided on 8th July, 2014 as well as the decision of ITAT, Pune in the
assessee’s own case for the A.Y. 1999-2000 and 2000-01 deleted the penalty
imposed with respect to the addition in relation to point No.3 (reproduced
above)
It is aggrieved by this order of the ITAT that
all the present appeals have been filed. We must mention here that as far as
A.Y. 2003-04 is concerned, though six questions of law have been raised in the
memo of appeal, only one question was re-casted and placed before us by the
Revenue and which reads thus:
“Whether on the facts and circumstances of the
case and in law, the Honourable ITAT was correct in holding that since for the
earlier year for similar dis-allowance no penalty was levied, hence no penalty
can be levied for this year?”
5. As far as, Income Tax Appeal Nos. 1136 of
2016 ( for the A.Y. 2004-05) and Income Tax Appeal No. 1129 of 2016 ( for the
A.Y. 2005-06) are concerned, only one question of law was re-casted and placed
before us, as a substantial question of law and which reads as under:
“Whether on the facts and circumstances of the
case and in law, the Honourable ITAT was correct in holding that since the
appeal in quantum proceedings is admitted by the Honourable High Court, no
penalty under Section 271(1)(c) can be levied?”
6. In all these appeals, we find that the
appeals with reference to the quantum proceedings have been admitted by this
Honourable Court on a substantial question of law. That has also been recorded
by the Tribunal in the impugned order and the same is also not disputed before
us. We find that the appeals were admitted as this Court found that there were
debatable and arguable questions raised in the quantum proceedings. This being
the case, we find that the Tribunal, in the facts and circumstances of the
present case, was fully justified in confirming the order of the CIT (A) in all
the three assessment years for deleting the penalty as far point Nos. 1 and 2
(reproduced above) are concerned.
7. We are further fortified in taking this view
when one considers the findings and observations of the CIT(A) in his order
dated 20th February 2009. It is not in dispute that the penalty was imposed
under section 27(1)(c) by the Assessing Officer in respect of Point No.1
mentioned above which related to claiming deduction under section 80IA in
respect of Gutkha. It is also not in dispute that at the time of claiming the
deduction in the return of income, a favourable decision of the Ahmedabad Bench
of ITAT in the case of Kothari Products Ltd. V/s ACIT (38 ITD 285) was very
much in force which inter alia held that Pan Masala containing tobacco cannot
be regarded as a tobacco preparation covered by item No.2 of the 11th Schedule
of the Income Tax Act, 1961.
It is also on record that the Appeals filed by
the Respondent herein against the dis-allowance in respect of this deduction
for the Assessment Years 1999-2000 and 2000-2001 by the then CIT (A), relying
on the decision of the Ahmedabad Bench of the ITAT in the case of Kothari
Products Ltd. (supra), was allowed. It is true that this order of the CIT(A)
for the Assessment Years 1999-2000 and 2000-2001 that were passed in quantum
proceedings were set aside by the Tribunal in an Appeal filed by the Revenue.
Be that as it may, it is quite clear that the
deduction claimed by the Assessee as reflected in Point No.1 as reproduced
above (under section 80IA) was on the basis of judicial decisions prevailing at
the time of making such a claim and all particulars relating thereto were
disclosed in the return of income. Taking all this into account, it can hardly
be said that the Assessee has furnished inadequate particulars or had concealed
his income within the meaning of section 271(1)(c) of the Income Tax Act, 1961.
8. Similar is the case with reference to Point
No.2 reproduced above which relates to the rejection of the Assessee’s claim
that sales tax incentive is in the nature of a capital receipt and therefore
not taxable. This claim was made by the Assessee on the basis of a decision of
a Special Bench of ITAT, Mumbai in the case of DCIT v/s Reliance Industries
Ltd., reported in 88 ITD 273. Further, in the facts of the present case, in the
revised return filed by the Respondent herein for Assessment Year 2003-2004,
the facts relating to the receipt of subsidy by way of sales tax exemption /
defferal scheme and its treatment by the Respondent, have been clearly
mentioned in the computation of income accompanying such return.
Taking all these facts into consideration, we
find that CIT(A) as well as the Tribunal were not incorrect in deleting the penalty
levied on the Respondent herein in relation to Point Nos.1 and 2 reproduced
above.
9. In this regard, we would also like to refer
to a decision of the Supreme Court in the case of CIT, Ahmedabad v/s Reliance
Petro Products Pvt. Ltd, reported in (2010) 11 SCC 762 wherein it has inter
alia been held that an incorrect expenditure claimed in the return was held not
to be liable to penalty. The Supreme Court inter alia held that merely because
the claimed expenditure was not accepted or was not acceptable to the Revenue,
the same would not attract penalty under section 271(1)(c) of the Income Tax
Act, 1961.
The Supreme Court clearly held that in order to
impose penalty, there should be (i) concealment of particulars of income by the
Assessee; or (ii) the Assessee must have furnished inaccurate particulars of
his income. Submitting an incorrect claim in law would not tantamount to
furnishing inaccurate particulars of income or its concealment, was the final
finding of the Supreme Court. Paragraphs 17 to 21 of this decision and which
are relevant for our purpose read thus :-
“17. We are not concerned in the present case
with mens rea. However, we have to only see as to whether in this case, as a
matter of fact, the assessee has given inaccurate particulars. In Webster’s
Dictionary, the word “inaccurate” has been defined as:
“not accurate, not exact or correct; not
according to truth; erroneous; as an inaccurate statement, copy or transcript.”
We have already seen the meaning of the word
“particulars” in the earlier part of this judgment. Reading the words 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.
18. We must hasten to add here that 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 Section
271(1)(c) of the Act. 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
inaccurate particulars.
19. It was tried to be suggested that Section
14-A of the Act specifically excluded the deductions in respect of the
expenditure incurred by the assessee in relation to income which does not form
part of the total income under the Act. It was further pointed out that the
dividends from the shares did not form part of the total income. It was,
therefore, reiterated before us that the assessing officer had correctly
reached the conclusion that since the assessee had claimed excessive deductions
knowing that they are incorrect; it amounted to concealment of income.
It was tried to be argued that the falsehood in
accounts can take either of the two forms;
(i) an item of receipt may be suppressed
fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated
amount) claimed, and both types attempt to reduce the taxable income and,
therefore, both types amount to concealment of particulars of one’s income as
well as furnishing of inaccurate particulars of income.
20. We do not agree, as the assessee had
furnished all the details of its expenditure as well as income in its return,
which details, in themselves, were not found to be inaccurate nor could be
viewed as the concealment of income on its part. It was up to the authorities
to accept its claim in the return or not. Merely because the assessee had
claimed the expenditure, which claim was not accepted or was not acceptable to
the Revenue, that by itself would not, in our opinion, attract the penalty
under Section 271(1)(c).
If we accept the contention of the Revenue then
in case of every return where the claim made is not accepted by the assessing
officer for any reason, the assessee will invite penalty under Section
271(1)(c). That is clearly not the intendment of the legislature.
21. In this behalf the observations of this
Court made in Sree Krishna Electricals v. State of T.N. [(2009) 11 SCC 687 :
(2009) 23 VST 249] as regards the penalty are apposite. In the aforementioned
decision which pertained to the penalty proceedings in the Tamil Nadu General
Sales Tax Act, the Court had found that the authorities below had found that
there were some incorrect statements made in the return. However, the said
transactions were reflected in the accounts of the assessee.
This Court, therefore, observed: (SCC p. 688,
para 7)
“7. So far as the question of penalty is
concerned the items which were not included in the turnover were found
incorporated in the appellant’s accounts books. Where certain items which are
not included in the turnover are disclosed in the dealer’s own account books
and the assessing authorities include these items in the dealer’s turnover
disallowing the exemption penalty cannot be imposed. The penalty levied stands
set aside.”
The situation in the present case is still
better as no fault has been found with the particulars submitted by the
assessee in its return.”
10. Even in view of this authoritative
pronouncement of the Hon’ble Supreme Court, in the peculiar facts and
circumstances of the present case, we do not think that the CIT(A) or the
Tribunal was wrong in setting aside the order of the Assessing Officer levying
penalty on Point Nos.1 and 2 reproduced above.
As mentioned earlier, with reference to these
points in the quantum proceedings, the Appeals have already been admitted in
which a substantial question of law is raised. This would clearly indicate that
there are debatable and arguable questions raised which would certainly be
another factor to be taken into consideration whilst imposing penalty under
section 271(1)(c) of the Income Tax Act, 1961.
11. As far as Point No.3 is concerned, the same
is with reference to A.Y. 2003 -04. Though the CIT(A) by his order dated 20th
February 2009 upheld the levy of penalty on Point No.3, the Tribunal set aside
the order of the CIT(A). This was done on the basis that in the preceding
Assessment Year, on a similar dis-allowance, no penalty was levied by the
Assessing Officer. This being the case and in identical facts, the penalty
could not be levied in the succeeding Assessment Year for the very same
dis-allowance.
To further fortify these findings, the Tribunal
relied upon a decision of its Coordinate Bench in the case of C.P. Mohan v/s
DCIT decided on 29th May 2015 in ITA No.957/PM/2011. Apart from this, the
Tribunal also held that as far as the rate of depreciation is concerned, the
Assessee has admitted that a genuine mistake was made in adopting 100%
depreciation and which mistake was a bonafide one.
This explanation was accepted by the Tribunal.
In fact, the Tribunal recorded that it was in the impugned Assessment Year that
the rate of depreciation was reduced from 100% to 80%. Considering that it was
a bonafide mistake, the Tribunal held that penalty ought not to have been
levied even in respect of Point No.3 reproduced above and therefore deleted the
penalty levied by the A.O. and confirmed by the CIT(A).
12. Looking to this entire discussion, we do not
think that the view taken by the ITAT either suffers from any perversity or an
error of law apparent on the face of the record that would give rise to any
substantial question of law. We find that the view taken by the Tribunal is a
plausible one which does not require any interference by us in our appellate
jurisdiction.
13. Before parting we must mention that Mr
Tejveer Singh, learned counsel appearing on behalf of the Revenue, relied upon
a decision of the Division Bench of this Court in the case of Principal CIT-2
v/s Shree Gopal Housing and Plantation Corporation, Mumbai in Income Tax Appeal
No.701 of 2015* decided on 6th February, 2018 to contend that merely because an
appeal has been admitted by this Court in the quantum proceedings, would not
automatically mean that the penalty ought to be deleted.
Considering the facts that we have discussed
above and especially considering that when the claims as mentioned herein were
made by the Assessee, they were governed by judicial decisions of the Tribunal,
we do not think that this judgment would apply in the factual matrix before us.
From the facts of the present case, it is clear
that they were debatable and arguable questions which certainly did not warrant
the levy of penalty on the Assessee. This being the case, we find that the
reliance placed by Mr Tejveer Singh on the aforesaid decision in the case of
M/s Shree Gopal Housing and Plantation Corporation (supra) is wholly misplaced.
14. In view of the foregoing discussion, we find
that there is no merit in all the three Appeals and they are accordingly
dismissed. However, there shall be no order as to costs.
( B. P. COLABAWALLA J. ) ( S. C. DHARMADHIKARI
J.)
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