TaxTMI 
TaxTMI 
2016 (4) TMI 212
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....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, without appreciating that the penalty order was passed solely on the basis of findings recorded in assessment order, without any independent application of mind. Without prejudice 2 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) of the Act in respect of the addition of Rs. 81.59 crores made on account of sales tax incentive/subsidy holding the same to be merely notional and/or revenue in nature, as against the same being claimed as capital receipt by the appellant 2.1 That the CIT(A) erred on facts and i....
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.... 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) erred in law in upholding the aforesaid action of the Assessing Officer, without appreciating that there was, in any case, no concealment or furnishing of inaccurate particulars of income qua aforesaid addition and, therefore, there was no warrant to levy any penalty under section 271(1)(c) of the Act. 5 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 disallowance of Rs. 5,91,106/- on account of additional depreciation claimed by the appellant under section 32(1)(iia) of the Act, in respect of computer software 'Primeavera'. 5.1 That the CIT(A) erred on fa....
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....al 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 dated 28.11.2013, the AO levied penalty of Rs. 28,21,94,177/- u/s 271(1)(c) of the Act in respect of additions made in the order of assessment, which was confirmed in an order dated 13.3.2014 by ld. CIT(A), Rohtak. Hence, this appeal before us. 4. At the time of hearing, the Ld AR of the assessee referring to the application of the assessee for admission of additional evidence containing a certificate dated 6th May 2015 issued by the Tax Auditor of the assessee, certifying that provision of gratuity amounting to Rs. 88,00,000/- , which was credited to the general reserve during the previous year relevant to the assessment year 2008-09 , was inadvertently, not separately reported in the Tax Audit Report of the year....
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.... 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 proceedings are separate and independent from assessment proceedings, the said penalty order is bad in law. It was, therefore, submitted that upholding by the CIT(A) of the validity of penalty order passed by the Assessing Officer u/s 271(1)(c) of the Act, is without jurisdiction, illegal and bad in law and, consequentially, the penalty levied therein is deleted. 5.2 The learned counsel for the Revenue supported the action of the Assessing Officer and CIT(A) on the ground that there was nothing in law which prevented the Assessing Officer from passing the order u/s 271(1)(c) of the Act till the disposal of appeal by the CIT(A). It was further submitted that there was no merit in the submission of the appellant that the order impos....
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....rmal 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 (treating it, in the year end, as 'Sales tax Subsidy') to the Balance Sheet. Instead, a deduction of equivalent was being claimed as deduction at the time of computation of income (which was being disallowed by the revenue). 2.3.2 Although, there was clear deviation from the practice being followed earlier and the case was under scrutiny, however, assesses made no explicit attempt to &Taw attention of the department that a different treatment has been given to this issue, for the first time. Therefore, Issue escaped attention of the 'department at the time of (regular) assessment u/s 143(3) dated 27.12.2010. Later on, through the process of proceedings u/s 263, the issue was restored back to the file of AO by CIT, Hisar vide his order Ws 263 (dated 25.03.2....
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....e 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, as may be seen from the above, assessee did not specifically point out the deviation, in the practice, made for the first time. It is also clear that all the facts relating to the said income and material to the computation of total income of the assessee were not disclosed by the assessee but the department had to discover them by way of proceedings u/s 263 and 143(3) r.w.s. 263. 2.7.3 Therefore, assessee is liable for penalty under the (general) provisions of section 271(1)(c) of the Income Tax Act, 1961 as well as by it, mischief of (deeming) provisions under Explanation 1 to the said section?" 6.2 The assessee during the penalty proceedings contended in reply that change of accounting treatment was disclosed (during the original assessment proceedings), vide letter dated 8.2.2010 becau....
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....y 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 intention of escaping the issue from the notice of the revenue. c) There was a calculated attempt though unsuccessful, to evade the payment of tax on the amount which was part of sales proceeds but termed as 'sales tax subsidy' and reduced from taxable profit by passing journal entry having effect of taking amount of Rs. 81.59 crores out of tax net." 6.3 The Assessing Officer observed that above route was adopted by the assessee to escape the detection of the issue of taxability of part of sale proceeds by the department and assessee and in fact succeeded in its attempt in the first stage i.e. original assessment proceedings. It was only at the subsequent stage that the matter came to the notice of the department and proceedings u/s 263 were initiated. He has thus held that assessee made futile attempts but failed to pinp....
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....n 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 financial statements as well as by the statutory auditor in the audit report; c) Non inclusion of the amount of sales tax subsidy was specifically mentioned by the tax auditor in point no. 13(e) in Form No. 3CD for the year under consideration; d) Elaborate reply/submissions were filed by the appellant during the quantum proceeding, not only setting out complete facts with regard to the claim made and the accounting treatment followed 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' claim of incentive/subsidy received in the form of exemption from sales tax to be in the nature of capital receipt, not lia....
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....ert 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 tax exemption owing to the investment in capital assets under the State Industrial Policy which aim towards the objective of industrialization of the state and development of backward areas. The period of exemption is linked to the quantum of investment. The company has been advised that the element of sales tax included in the sales price of products sold out of this unit is in the nature of sales tax subsidy granted by the State Government. Accordingly, the same amounting to Rs. 81.59 crore has been accounted for during the year under sales tax subsidy Reserve account." c) Further, specific reference of the accounting treatment for sales tax incentive was also made by the statutory auditor vide point No. (d) of the Audit Report: "(d) In our opinion and read with note 5 of Schedule 20 regarding accounting, for tax included in sales price of product sold out of sales tax exempted un....
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....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 expired, by relying on the decision of the Special Bench of the Tribunal in the case of DCIT v. Reliance Industries Limited: 88 ITD 273. The Assessing Officer, however, did not accept the claim of the appellant on the ground that the decision of the Special Bench of the Tribunal is not applicable, since the same was rendered in the context of different scheme. c) Revised return of income under section 139(5) of the Act was filed by the appellant for the assessment years 2005-06 and 2006-07 for specifically making the aforesaid claim, which was not taken in the original return. The Assessing Officer, in the assessment order, for the said years, however, did not agree with the claim of the appellant and held that the sales tax incentive to be in the nature of revenue receipt and not capital receipt, as claimed by the appellant. d) In the original return of income for the assessment year 2007-08, the sales tax incentive was, i....
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....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 section 139 has under gone change and from AY 2008-09 onward, the assessee was not required to enclose the balance sheet and other financial statement alongwith the return as the return of income was filed electronically, and therefore, the disclosure of the sales tax exemption, was to be made fully in relevant columns of the return of income and the disclosure by the assessee in Notes to Account, which were part of Annul Report of the assessee company and not part of the return of income filed by the assessee, was not sufficient for true and full disclosure. He also submitted that the assessee on one hand treated the sales tax exemption as incentive given to the assessee for capital investment of more than Rs. 1,000 crores but the assessee did not reduce the said exemption out of the written down value (WDV) of the assets and thus claimed excess depreciation and on the other hand also claimed the entire sales-tax exemption amount as capital subsidy not taxable, and thus the assessee ....
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....monstrates 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 of the Delhi High Court in the case of Roger Enterprises P Ltd V/s CIT, Delhi in ITA No. 439/2003 delivered on 4th February, 2016 and submitted that in para 38 of the judgement it is held that mere pendency of the quantum appeal could not have led the ITAT to conclude that the issue was debatable.. However, the Ld. AR of the assessee submitted that the question of law before the Hon'ble High Court , in the case of Roger Enterprises P Ltd V/s CIT, Delhi (supra) was as under: "was the ITAT correct in confirming the order of the CIT (A) deleting the penalty levied on the Respondent Assessee under section 271 (1) (c) of the Act" 6.12 The ld. AR accordingly submitted that no question of law has been decided by the Hon'ble court on the issue whether the pendency of appeal render the issue debatable and therefore it cannot be followed as question of law decided by the High Court. We are agreed with the Ld.AR on the issue that in the case of Roger Enterprises P Ltd V/s CIT, Delhi (supra) ,Hon'ble....
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....istilling 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 Court therein, the question in the present case was as to whether the conditions stipulated under s. 80M of the Act stood fulfilled when the amount in question, which was to be distributed as dividend, was kept aside in a separate bank account. In the facts of this case, we are of the opinion that this issue is debatable. We say so because of the reason that not only in the quantum proceedings the CIT(A) had deleted the additions, even when the Tribunal reversed the order of the CIT(A) and this Court also dismissed the appeal of the assessee, the Supreme Court has remitted the case back to this Court and the issue stands admitted. Once the appeal, i.e., IT Appeal No. 612 of 2004 preferred by the assessee has been admitted that would show that substantial question of law on the interpretation is involved. The issue is thus clearly debatable." ( emphasis supplied) 6.14 Thus, respectfully following, the law laid down in the above judgments of the Hon'ble Delhi High Court, as appeal on the issue of whether the sales ....
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....owance 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 and loss account for the year under consideration (F.Y. 2007-08) Rs. 2.95 crore is outstanding as on 31.3.2008, whereas only Rs. 1.55 crore has been disallowed. Hence the balance is liable for disallowance and therefore he made disallowance of Rs. 1,37,41,850/- in the order u/s 143(3) of the Act The AO has held that assessee failed to provide copies of requisite ledger accounts during the proceedings u/s 263(1) of the Act as well as during reassessment proceedings and the same were also not furnished during penalty proceedings u/s 271(1)(c) of the Act. It was also held that during the penalty proceedings the assessee admitted that amount credited to general reserve of Rs. 0.88 crore had not been added back in computation. It was further held that sum mentioned in the balance sheet does not automatically bring the same to surface; and that's why the issue escaped attention of the AO at the time of (original) assessment proceedings and claim that amount of Rs. 0.88 crores was inadvertently credited to general reserve has not been added....
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.... to general reserve. The said accounting treatment was duly evident from clause (B) of schedule 2 of audited financial statements. Further detailed note on accounting treatment accorded by appellant to gratuity during the relevant assessment year has also been provided in schedule 20(A)(vii)(b) of audited financial statements. The aforesaid amount of reversal was stated to be inadvertently on account of clerical mistake, omitted to be added back in the computation of taxable income for the relevant assessment year. The appellant during the course of assessment proceedings, vide submission dated 7.5.2013 and during penalty proceedings, vide submission dated 15.11.2013 has suo motu before the Assessing Officer offered the amount in respect thereof for taxation. As regards Rs. 49.42 lacs, it was submitted that the aforesaid sum was suo motu added back by the appellant in the return of income in view of the provisions of section 40A(7) of the Act. The Assessing Officer erroneously and incorrectly brought the aforesaid amount to tax, without appreciating that the aforesaid amount was already added back in the computation of income for relevant assessment year and also levied penalty u/s....
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....on for gratuity amounting to Rs. 88 lacs was transferred to general reserve was disclosed vide clause (B) of schedule 2 of audited financial statements; c) Detailed note on accounting treatment accorded by appellant to gratuity during the relevant assessment year was disclosed vide schedule 20(A)(vii)(b) of audited financial statements; d) The provision for gratuity was specifically dealt by the tax auditor in tax audit report for relevant assessment year; e) The appellant, in the return of income and computation of income for relevant assessment year, had specifically disclosed and dealt with the provision for gratuity; f) The appellant did not file appeal against the said disallowance in order under section 143(3)/ 263 of the Act. During the penalty proceedings, the appellant had suo motu offered the amount of reversal of provision for gratuity to income-tax vide letter dated 15.11.2013; and g) The Assessing Officer, made addition in respect of reversal of provision for gratuity only on the basis of bona fide disclosures made by the appellant in various documents submitted including the report of the Tax Auditor certifying the amount. Therefore, it cannot be alleged tha....
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....evision proceedings or reassessment proceedings. In such circumstances we cannot regard the mistake to be an inadvertent mistake or simple case of oversight. We therefore find justification in the imposition of penalty u/s 271(1)(c) of the Act. As a result the grounds No. 3 to 3.2 of the appeal are dismissed and grounds No. 4 to 4.2 of the appeal are allowed. 8. The Grounds 5 to 5.3 of the appeal relate to levy of penalty of Rs. 5,91,106/- u/s 271(1)(c) of the Act on account of additional deprecation claimed by the appellant u/s 32(1)(iia) of the Act in respect of computer software 'Primevera'. 8.1 The AO has held that from the details furnished in the tax audit report it was not possible to make out as to on which specific asset, the additional depreciation of Rs. 5,91,106/- had been claimed. It has been held that it does not indicates as to in respect of which fixed asset, the said additional deprecation has been claimed and no inference is possible as to whether the said additional depreciation is in respect of 'Software' or 'Hardware'. He has also held that explanation was unsubstantiated because the assessee could not substantiate the argument that the said software was unde....
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....rly brought on record the nature of the software which is merely an office automation tool and, by no stretch of imagination can it be construed to be part and parcel of that Plant & Machinery engaged in the production process. Hence, this is fairly a case of furnished of inaccurate particulars for which penalty has been rightly imposed. After examining all the submission in respect of various grounds of disallowance on which penalty has been imposed, I am of the opinion that the appellant has not been able to discharge its onus in proving that its action which led to the levy of penalty were bonafide. At the stage of proceedings u/s 263 and also before the AO, they have tried to skirt the issue that this is squarely a case of furnishing of inaccurate particulars/ concealment of income as amply demonstrated in the issue of Sales Tax Subsidy, provision of gratuity as well as that of Computer Software. Even before me, no material fact has been placed which would indicate that all their actions were not malafide. In view of the facts and circumstances, as outlined above, I confirm the levy of penalty @ 100% amounting to Rs. 28,21,94,177/-." 8.3 Thus the learned counsel of the assess....