Commissioner Of Income Tax, Ludhiana-I, Ludhiana v. The Budhewal Cooperative Sugar Mills Ltd. Vpo Budhewal,District Ludhiana

I.T.A. No. 617 of 2007 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH I.T.A. No. 617 of 2007 Date of decision: 01.04.2008 Commissioner of Income Tax, Ludhiana-I, Ludhiana ..... Appellant-revenue Versus The Budhewal Cooperative Sugar Mills Ltd. VPO Budhewal,District Ludhiana. ..... Respondent-assessee CORAM: HON'BLE MR. JUSTICE SATISH KUMAR MITTALHON'BLE MR. JUSTICE RAKESH KUMAR GARG Present:-Mr. Sanjiv Bansal, Advocate for the appellant-revenue. RAKESH KUMAR GARG, J. The revenue has filed the present appeal underSection 260-A of the Income-Tax Act, 1961 ( hereinafterreferred to as the “Act” ) against the order dated 30.03.2005passed by the Income-Tax Appellate Tribunal, Chandigarh,Bench-'A' ( hereinafter called the Tribunal ) in I.T.A. No.785/Chandi/2004 for the assessment year 1995-96,raising thefollowing substantial question of law:- I.T.A. No. 617 of 2007 2 “Whether on the facts and law the Hon'ble Income TaxAppellate Tribunal was legally justified to hold that thepenalty u/s 271(1)(c) was not justified in view of theExplanation 4(a) to Section 271(1)(c) due to inaccurateparticulars of income by wrongly claiming thededuction u/s 80P(2)(a)(iii) of I.T.Act, as it wasengaged in manufacturing and not in marketingbusiness.? The respondent is a cooperative society. The returnof income for the assessment year 1995-96 was filed on31.10.1995 declaring 'NIL' income. A perusal of the computationof total income shows that the business income ofRs.6,32,07,617/- earned from the activity of manufacturing ofsugar, molasses and other byproducts from sugarcane wasclaimed to be exempt u/s 80P(2)(a)(iii) of the Act. The return ofincome was processed u/s 143(1)(a) on 08.11.1995. Lateron thecase was taken up for its scrutiny by issuing notice under Section143(2) of the Act on 19.01.1996 and vide order dated 21.11.1996,assessment order u/s 143(3) of the Act was passed and theexemption of Rs.6,32,07,617/- was disallowed by the AssessingOfficer. The Commissioner of Income Tax (Appeals)( hereinafter referred to as the “CIT (A)” ) dismissed the appealfiled by the assessee against the order of the Assessing Officer. I.T.A. No. 617 of 2007 The Tribunal also upheld the disallowance made by the revenueauthorities with regard to the deduction claimed by the assesseeunder Section 80P(2)(a)(iii) of the Act. While passing theassessment order u/s 143(3) of the Act, the Assessing Officeralso initiated penalty proceedings under Section 271(1)(c) of theAct for furnishing inaccurate particulars of income andsubsequently a penalty of Rs.1,77,02,766/- was imposed videorder dated 28.11.2003. Being aggrieved against the aforesaid order, therespondent preferred an appeal before the Commissioner ofIncome Tax ( Appeals )-I, Ludhiana, who vide his order dated08.06.2004 confirmed the penalty levied under the said section. Still dissatisfyed with the aforesaid order, the respondentfiled an appeal before the Income Tax Appellate Tribunal,Chandigarh, who vide order dated 30.03.2005, cancelled thepenalty levied u/s 271(1)(c) of the Act by holding that there wasno attempt on the part of the respondent to defraud the revenue orconceal the facts, and also that the respondent had paid the tax inadvance as also on self assessment and further that the claimmade by the respondent was a bonafide claim and that all theparticulars relating to computation of income were disclosed. I.T.A. No. 617 of 2007 4 Feeling aggrieved against the said findings of theIncome Tax Appellate Tribunal, Chandigarh, the revenue hasfiled the present appeal. Still dissatisfyed with the aforesaid order, the respondentfiled an appeal before the Income Tax Appellate Tribunal,Chandigarh, who vide order dated 30.03.2005, cancelled thepenalty levied u/s 271(1)(c) of the Act by holding that there wasno attempt on the part of the respondent to defraud the revenue orconceal the facts, and also that the respondent had paid the tax inadvance as also on self assessment and further that the claimmade by the respondent was a bonafide claim and that all theparticulars relating to computation of income were disclosed. I.T.A. No. 617 of 2007 4 Feeling aggrieved against the said findings of theIncome Tax Appellate Tribunal, Chandigarh, the revenue hasfiled the present appeal. Shri Sanjiv Bansal, Advocate for the revenue hasvehemently argued that the Income Tax Appellate Tribunal,Chandigarh was not justified in ignoring the fact that therespondent had furnished inaccurate particulars of income byclaiming deduction under Section 80P(2)(a)(iii) of the Act as therespondent was engaged in manufacturing activity and not inmarketing business. Therefore, the penalty u/s 271(1)(c) of theAct was rightly levied for wrong claim of deduction u/s 80P(2)(a)(iii) of the Act by furnishing inaccurate particulars of income. We have heard learned counsel for the appellant-revenue and perused the record. We find no force in the arguments raised by thelearned counsel for the revenue. The issue in this case is as towhether the assessee is guilty of having concealed any particularsof its income or having furnished inaccurate particulars ofincome. The assessee had made a claim for exemption underSection 80P(2)(a)(iii) of the Act. As per the said provisions of theAct, any society marketing agricultural produce of its member isexempt from taxation. At the relevant time, there were severaldecisions to support the view that marketing includes processing I.T.A. No. 617 of 2007 to make the produce marketable. In the case of Karnal Co-operative Sugar Mills v. CIT 253 ITR 659 , which was decidedon 04.09.2001, a contrary view was taken by this Court holdingthat since the society purchase sugarcane from members andmanufactures sugar which involves use of power therefore it isnot entitled to special deduction of income under Section 80P(2)(a)(iii) of the Act. However, at the time of filing of the return on31.10.1995 there were various decisions such as BaroachDistrict Cotton Sales Ginning and Pressing Society v. CITAhmedabad 177 ITR 418, Addl. CIT v. Ryots AgriculturalProduce Co. Operative Marketing Society Ltd. 115 ITR 709( Ker.), M.R. Marketing & Processing Co.op. Society v. CIT193 ITR 108 ( Ker. ) and CIT v. Karjan Co.op. Society Ltd.129 ITR 821 ( Guj. ), on the basis of which society believed thatit was entitled to deduction under Section 80P(2)(a)(iii) of theAct. Thus, the issue of entitlement to said deduction under theseprovisions was highly debatable. Moreover, undisputedly thesociety had paid advance tax as well as self assessment tax, nottaking into account the deductions under Section 80P(2)(a)(iii) ofthe Act. The society had only made a claim of deductions in thereturn of income, which was not allowed by the Assessing I.T.A. No. 617 of 2007 6 I.T.A. No. 617 of 2007 6 Officer. It is, therefore, evident from the facts that the claimmade by the assessee was a bonafide claim. The decision of thisCourt in case cited in Karnal Co-operative Sugar Mills case(supra), on the question of deductions under Section 80P(2)(a)(iii) of the Act, which is pending, has been referred to the largerBench for reconsideration. Thus, it cannot be said that theexplanation given by the assessee is found to be false and theassessee has established that the claim made was a bonafide claimand that all the particulars relating to the computation of incomehad been disclosed. In the case of Cement Marketing Co. ofIndia v. ACST 124 ITR 15, the Hon'ble Apex Court has heldthat where the assessee does not include a particular item intaxable income under a bonafide belief that he is not liable so toinclude it, it would not be right to condemn as a “false” returninviting imposition of penalty. In view of the above facts and circumstances of thecase, we are of the view that no question of law is arising fordetermination of this Court in this appeal and the same is herebydismissed. ( RAKESH KUMAR GARG )JUDGE ( SATISH KUMAR MITTAL )JUDGE