Penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation

The law laid down in the Dilip Sheroff case as to the meaning of word ‘concealment’ and ‘inaccurate’ continues to be a good law because what was overruled in the Dharmender Textile case was only that part in Dilip Sheroff case where it was held that mensrea was a essential requirement of penalty u/s 271(1)(c). The Hon’ble Apex Court also observed that if the contention of the revenue is accepted then in case of every return where the claim is not accepted by the AO for any reason, the assessee will invite the penalty u/s 271(1)(c). This is clearly not the intendment of legislature

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : C : NEW DELHI

BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

ITA No. 3617/Del./2010
(Assessment Year : 2003- 04)

 Assessee by : Shri Ashutosh Jain, CA
Revenue by : Smt. Mona Mohanty, Sr.DR

Date of Judgment: 29/09/2010.

ORDER

PER SHAMIM YAHYA, AM

This appeal by the revenue is directed against the order of CIT(A) dated 19.5.2010 and pertains to A.Y. 2003-04. The issue raised is that CIT(A) has erred in deleting the penalty u/s 271(1)(c).

2. In this case, the Assessing Officer’s findings are as under:

“During the year under consideration, assessee company has shown gross profit of Rs.2,65,85,318. Against this the assessee company has claimed deduction u/s 80HHC amounting to Rs.93,47,205 and claimed/set off brought forward losses amounting to Rs.1,72,83,113 and declared nil income after adjusting the losses. Vide order sheet entry dated 6.2.2006, the assessee was asked to explain why the claim for deduction u/s 80HHC in view of the decision of the Hon’ble Supreme Court in the matter of IPCA Laboratories Limited vs. DCIT reported in 266 ITR 521 should not be disallowed.

In response the assessee vide letter dated 20.2.2006 has submitted that it has claimed deduction u/s 80HHC before setting off the unabsorbed depreciation and brought forward losses of the previous years, in view of the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Shirke Construction Equipments Limited reported in 246 ITR 429. Further, the assessee has submitted a revised computation of income during the course of assessment proceedings declaring a NIL income after setting off brought forward business losses in view of the decision in the matter of IPCA Laboratories Limited; supra. The assessee has further claimed that the aforesaid judgment was announced much after the filing of return of income for the relevant assessment year. The assessee could have suo moto revised its return after the judgment of the IPCA Laboratories. The assessee has filed revised return only after pointing out vide questionnaire issued by this office. Hence, penalty proceedings u/s 271(1)(c) are initiated for claiming/furnishing wrong particulars of income.”

2. In the penalty proceedings, the Assessing Officer repeated the same argument that the assessee could have suo moto revise its return after the judgment of Hon’ble Apex Court of IPCA Laboratories Ltd. vs. DCIT, 266 ITR 521. He levied the penalty of Rs.34,35,09. On the assessee’s appeal, the CIT(A) considered the issue elaborately and held as under:

“After going through the appellant’s submissions, penalty order and judicial case laws following points are noticed:-

(i) Appellant claimed deduction u/s 80HHHC before set off loss as per Bombay H.C. decision available at that point of time in the case of Shirke Construction Equipments Ltd. (246 ITR 429).

(ii) Meanwhile during assessment proceedings the above decision was overrules by the Supreme Court in the case of IPCA Laboratories vs. DCIT (266 ITR 521).

(iii) During the assessment proceedings the appellate filed a revised working of 80HHC working following the IPCA decision of S.C.

(iv) The denial of deduction was on account of subsequent supreme Court decision should not constitute concealment or furnishing of inaccurate particulars within the meaning of 271(1)(c).

(v) The appellant has placed all the fact before the Assessing Officer with which the AO did not agree. This does not amount to furnishing of any inaccurate particulars of income nor can it be said that the appellant has concealed his income.

Therefore, in view of above facts and Delhi High Court decisions in cases of Whirlpool vs. JCIT (114 TTJ 221), CIT vs. Bacardi Martini (206 CTR 250 (Delhi), I am convinced that in the instant case appellant had placed all the facts before the Assessing Officer and denial of deduction was on account of subsequent supreme court decision, therefore, there was no case for concealment of income or filing inaccurate particulars of income.”

3. We have heard both the parties and perused the records. As per the admitted facts of the assessee, the assessee company claimed deduction u/s 80HHC and the assessee has shown gross profit of Rs. 2,65,85,318. Against this, assessee company had claimed deduction u/s 80HHC amounting to Rs. 9347,205 and claimed set off of brought losses amounting of Rs.1,72,83,113 and declared NIL income after adjusting the losses. In making such claim, assessee has relied on the judgment of Hon’ble in the case of CIT vs.Shirke Construction Equipments Limited, 246 ITR 429. Later on, the Hon’ble Apex court in the case IPCA Laboratories vs. CIT of 266 ITR 521 reversed the decision of the Shirke Construction Equipments Limited and held that deduction u/s 80HHC cannot be allowed before setting off of the unabsorbed depreciation and brought forward losses of the previous years. This decision of the Hon’ble Apex Court came much later than the return filed by the assessee. So, it cannot be said that assessee was aware of the order of the Hon’ble Apex Court as it was not at all available at that time.

4. In these circumstances, the ground of the revenue is that the assessee could have suo moto filed revised computation after judgment in the case of IPCA Laboratories was pronounced and on this premise, penalty u/s 271(1)(c) has been allowed. Section 271(1)(c) prostulates levy of penalty if the assessee has concealed particulars of his income or furnished inaccurate particulars of such income. In this case, assessee has duly claimed the deduction u/s 80HHC. The method of arriving at was clearly mentioned. So it cannot be said that there was any concealment of particulars of his income or furnishing inaccurate particulars. Moreover, the computation was made in accordance with the decision of the Hon’ble Mumbai High Court in the case of CIT vs. Shirke Construction Equipments Limited (supra) and no Apex court decision was there at that time. In these circumstances, in our considered opinion, assessee conduct cannot be said to be contumacious so as to attract the rigor of penalty u/s 271(1)(c). The revenue’s plea is that the assessee should have suo moto revise return is de void of any merit for being a ground of levy of penalty u/s 271(1)(c).

5. In this regard we place reliance from the Apex Court decision rendered by a larger Bench comprising of three of their Lordships in the case of Hindustan Steel vs. State of Orissa in 83 ITR 26 wherein it was held that –

“An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute.”

6. We would also like to refer to the Hon’ble Apex Court decision in the case of CIT vs. Reliance Petro Products Ltd. in Civil Appeal No. 2463 of 2010. In this case vide order dated 17.3.2010 it has been held that the law laid down in the Dilip Sheroff case 291 ITR 519 (SC) as to the meaning of word ‘concealment’ and ‘inaccurate’ continues to be a good law because what was overruled in the Dharmender Textile case was only that part in Dilip Sheroff case where it was held that mensrea was a essential requirement of penalty u/s 271(1)(c). The Hon’ble Apex Court also observed that if the contention of the revenue is accepted then in case of every return where the claim is not accepted by the AO for any reason, the assessee will invite the penalty u/s 271(1)(c). This is clearly not the intendment of legislature.

7. In the background of the aforesaid discussion and precedents, we do not find any infirmity in the order or the Ld. CIT(A) and accordingly we affirm the same.

8. In the result, the appeal filed by the revenue stands dismissed.

Order pronounced in open court on 29/09/2010.