• Oct
  • 03
  • 2013

Penalty applies if assessee knowingly made a false claim of deduction U/s. 80IB

Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The respondent-assessee is a company engaged in manufacture of hosiery goods at Ludhiana. A survey under Section 133A of the Act was carried out in the business premises of the assessee. It surrendered undisclosed income amounting to 1.20 crores under different heads. The said income was included in the profit and loss account and offered to tax. However, the assessee claimed deduction on the entire income under Section 80IB of the Act which included the aforesaid surrendered Income of 1.20 crores. The assessment was completed on 27.10.2004 (Annexure A.1) under section 143(3) of the Act at the total Income of 1,22,49,207/- after making disallowance on account of claim of excess deduction under section 801B of the Act on surrendered income.

The Tribunal held that making incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assessee had acted with mala fide intention or had claimed deductions being aware of the well settled legal position. Further, a perusal of the findings recorded by the Tribunal shows that the assessee had claimed deductions on account of set off of unabsorbed business losses against the income from the capital gains, which was held not to be mala fide. The Tribunal had observed in plain words that the assessee had disclosed all the particulars along with the return of income and, it was not a fit case for levy of penalty.

High Court upheld the view of the Tribunal and held the substantial questions of law are answered against the revenue and in favour of the assessee.

HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITA No.122 of 2012 (O&M) – date of decision:08.8.2013

Commissioner of Income Tax I, Ludhiana

Versus

M/s Tudor Knitting Works Pvt. Limited

ORDER

Ajay Kumar Mittal, J.

1. The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 31.10.2011, Annexure A.IV passed by the Income Tax Appellate Tribunal, Chandigarh Bench ‘B’ Chandigarh in ITA No.415(CHANDIGARH) 2011 for the assessment year 2002-03, claiming following substantial questions of law:-

1) Whether on the facts and circumstances of the case, Hon’ble Income Tax Appellate Tribunal is justified in deleting the penalty levied under Section 271(1) (c ) of the IT Act, 1961 by AO on account of excess claim of deduction under Section 801B on surrendered income  ignoring the fact that the assessee had knowingly claimed deduction under Section 801B inspite of a categorical knowledge that such a claim was patently wrong and against the law and also that it was ab initio void claim?

2) Whether on the facts and circumstances of the case, Hon’ble Income Tax Appellate Tribunal is justified in deleting the penalty levied under Section 271(1) (c) of the IT Act, 1961 by applying the decision of Hon’ble Supreme Court in the case of M/s Reliance Petro Products (P) Limited 322 ITR 158 as the facts and legal position of this case are different and the assessee knowingly made a false claim of deduction under Section 801B?”

2. Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The respondent-assessee is a company engaged in manufacture of hosiery goods at Ludhiana. A survey under Section 133A of the Act was carried out in the business premises of the assessee. It surrendered undisclosed income amounting to 1.20 crores under different heads. The said income was included in the profit and loss account and offered to tax. However, the assessee claimed deduction on the entire income under Section 80IB of the Act which included the aforesaid surrendered Income of 1.20 crores. The assessment was completed on 27.10.2004 (Annexure A.1) under section 143(3) of the Act at the total Income of 1,22,49,207/- after making disallowance on account of claim of excess deduction under section 801B of the Act on surrendered income. The assessee filed appeal before the  Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 28.1.2005, the CIT(A) partly allowed the appeal. Aggrieved thereby, the revenue filed appeal before the Tribunal. Vide order dated 16.9.2009, the Tribunal set aside the order of the CIT(A) and restored back the order of the Assessing Officer dated 27.10.2004. Thereafter, the Assessing Officer issued notice under Section 274 read with Section 271(1) (c) of the Act dated 9.12.2009. Vide order dated 15.3.2010, Annexure A.II, penalty of 12,91,583/- was levied for furnishing inaccurate particulars of income. Against the order of the Assessing Officer, the assessee filed appeal before the CIT(A). Vide order dated 17.2.2011,Annexure A.III, the appeal was allowed in view of the decision of the Apex Court in Reliance Petroproducts (P) Limited’s case (supra). It was further held that the issue was debatable. Aggrieved by the order of the CIT(A), the revenue filed appeal before the Tribunal. Vide order impugned herein, the Tribunal dismissed the appeal of the revenue on the ground that it was not a case where the assessee had made false claim and it was covered by the decision of Reliance Petroproducts (P) Limited’s case (supra). It was also held that the penalty had been levied by the Assessing Officer on debatable issue and incorrect claim made. Hence the present appeal by the revenue.

3. Learned counsel for the revenue submitted that the assessee had wrongly claimed deduction under Section 801B of the Act and therefore, the Assessing Officer was justified in levying penalty under Section 271(1) (c) of the Act. According to the learned counsel, the  CIT(A) as well as the Tribunal had erred in cancelling the penalty.

4. On the other hand, learned counsel for the assessee submitted that the claim of deduction under Section 801B of the Act on the surrendered amount was a debatable issue and there was no malafide intention on the part of the assessee in claiming the deduction. Reliance was placed upon judgments in Reliance Petroproducts (P) Limited’s case (supra), CIT v. Shahabad Cooperative Sugar Mills Limited, (2010) 322 ITR 73 (P&H), CIT v. Arisudana Spinning Mills Limited, (2010) 326 ITR 429 (P&H) and CIT v. Rubber Udyog Vikas P Limited (2011) 335 ITR 558 (P&H). The order passed by the Tribunal was also supported.

5. After hearing learned counsel for the parties and perusing the record, we do not find any merit in the appeal.

6. The Tribunal while upholding the deletion of the penalty recorded as under:-

“We have carefully perused the facts of the case and the relevant record. It is a case where penalty has been levied by the Assessing Officer on the debatable issue and incorrect claim made by the Assessing Officer. It is not a case where the assessee has made false claim, therefore, the fact situation of the case is fully covered by the decisions of Hon’ble Jurisdictional High Court in the case of CIT v. Shabad Coop Sugar Mills Limited, (2010) 322 ITR 73 (P&H) and CIT v. Reliance Petroproducts Pvt. Limited, reported at (2010) 322 ITR 158 (SC).

6.1 In the case of CIT v. Shabad Coop Sugar Mills Limited (supra) the Hon’ble Jurisdictional High Court  held as under:

“Penalty-Concealment of income – Wrong claim for deduction does not amount to concealment of income –Penalty cannot be imposed -Income Tax Act, 1961, S 271(1) (c)”.

6.2 In the case of CIT v. Reliance Petro Products Fvt. Limited (supra) the Hon’ble Supreme Court held as under:

“Penalty – concealment of particulars of income – No information given in return found to be incorrect –Making incorrect claim – Does not amount to concealment of “Particulars” – Income Tax Act 1961, S.271(1) (c ).”

6.3 The provisions of section 271(1) (c) covers the situation of false claim but not an incorrect claim. In the present case, the assessee has made claim which does not fall under the provisions of Section 271(1) (c) of the Act, as there are divergent judicial opinions, on such claim made by the assessee. Having regard to the above legal and factual discussions and respectfully following the decision of the Hon’ble Supreme Court and the Hon’ble Jurisdictional High Court reproduced above, the finding of the learned CIT(A) is upheld.”

It had been noticed by the Tribunal that there was no false claim made by the assessee though the same was found to be incorrect. There was no mens rea on the part of the assessee to claim the deduction and therefore, the case did not fall under Section 271(1) (c) of the Act as there are divergent judicial opinions on the claim made by the assessee.

7. The Hon’ble Supreme Court in Reliance Petro products Singh Gurbax (P) Limited’s case (supra) has held as under:-

“9. We are not concerned in the present case with the 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. 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 nct 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 the inaccurate particulars.

10. It was tried to be suggested that Section 14A 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 the 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. 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 nct 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 Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.”

8. Further, this Court in CIT v. Rubber Udyog Vikas (P) Limited, (2011) 335 ITR 558 recorded as under:-

“8. The Tribunal held that making incorrect claim would not tantamount to furnishing of inaccurate particulars unless it was established that the assessee had acted with mala fide intention or had claimed deductions being aware of the well settled legal position. Further, a perusal of the findings recorded by the Tribunal shows that the assessee had claimed deductions on account of set off of unabsorbed business losses against the income from the capital gains, which was held not to be mala fide. The Tribunal had observed in plain words that the assessee had disclosed all the particulars along with the return of income and, it was not a fit case for levy of penalty.”

8. In view of the above, the substantial questions of law are answered against the revenue and in favour of the assessee.

9. Consequently, the appeal is dismissed.

Sandeep Kanoi

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