Commissioner Of Income Taxfaridabad v. M/S. Rubber Udyog Vikas (P) Ltd.faridabad

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 779 of 2010 Date of decision: 8.2.2011 Commissioner of Income TaxFaridabad --- Appellant Versus M/s. Rubber Udyog Vikas (P) Ltd.Faridabad --- Respondent --- CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Urvashi Dhugga, Senior Standing Counselfor the appellant-revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the Revenue against theorder dated 31.3.2010, passed by the Income Tax Appellate TribunalDelhi Bench ‘F’, New Delhi (in short “the Tribunal”) in ITA No.4435/Del/2009, relating to the assessment year 1994-95. 2.The following substantial questions of law have beenclaimed for determination by this Court: (1)Whether on the facts and in the circumstances of the case,the learned ITAT was right in law in deleting the penalty ofRs. 6,30,930/- levied by the Assessing Officer, underSection 271(1)(c) of the Income Tax Act, 1961, eventhough the assessee had failed to discharge the onus toexplain satisfactorily inaccurate furnishing of incomethrough wilful attempt of setting off of brought forwardbusiness losses against the capital gains of the currentyear by deliberate violation of the specific provisions ofSection 72 and 71(2) of the Income Tax Act, 1961?the learned ITAT was right in law in deleting the penalty ofRs. 6,30,930/- levied by the Assessing Officer, underSection 271(1)(c) of the Income Tax Act, 1961, eventhough the assessee had failed to discharge the onus toexplain satisfactorily inaccurate furnishing of incomethrough wilful attempt of setting off of brought forwardbusiness losses against the capital gains of the currentyear by deliberate violation of the specific provisions ofSection 72 and 71(2) of the Income Tax Act, 1961?(2)Whether on the facts and in the circumstances of the case,the learned ITAT was right in law in deleting the penalty ofRs. 6,30,930/- levied by the Assessing Officer underSection 271(1)(c) of the Income Tax Act, 1961 by holdingthat it was not a fit case for levy of penalty merely bydeclining assessee’s claim for set off of business lossagainst other heads of income even though the penalty ofleviable on contravention of the provisions of a civil statute,like Income Tax Act and it is settled law that breach of acivil obligation attracts levy of penalty and is contrary to thedecision of Hon’ble Supreme Court in the case of Union ofIndia and others vs. Dharmendra Textiles Processors andothers (2008) 306 ITR 277 (SC)?”the learned ITAT was right in law in deleting the penalty ofRs. 6,30,930/- levied by the Assessing Officer underSection 271(1)(c) of the Income Tax Act, 1961 by holdingthat it was not a fit case for levy of penalty merely bydeclining assessee’s claim for set off of business lossagainst other heads of income even though the penalty ofleviable on contravention of the provisions of a civil statute,like Income Tax Act and it is settled law that breach of acivil obligation attracts levy of penalty and is contrary to thedecision of Hon’ble Supreme Court in the case of Union ofIndia and others vs. Dharmendra Textiles Processors andothers (2008) 306 ITR 277 (SC)?” 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the assessee filed its return for the assessmentyear in question, on 23.8.1994 declaring a loss of Rs. 2,51,500/- and 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the assessee filed its return for the assessmentyear in question, on 23.8.1994 declaring a loss of Rs. 2,51,500/- and thereafter revised return on 30.11.1995 declaring loss of Rs.8,51,615/-. In the proceedings that were initiated under Section 143(3) of the Act, the assessing officer under the provisions of Sections71(2) and 72 of the Act made various disallowances, particularly, theclaim of the assessee for setting off of the brought forward businesslosses of the assessment years 1991-92 to 1993-94 against thecapital gains during the current year, vide order dated 27.3.1997. Theappellate authority i.e. Commissioner of Income-tax (Appeals) {in short“the CIT(A)”} also did not agree to the submission made on behalf ofthe assessee in regard to not allowing the setting off of the assessedbusiness loss for the assessment years 1991-92 to 1993-94 againstthe capital gains during the current year, in the appeal carried by it.The appeal was consequently dismissed on 16.7.1997. In furtherappeal at the instance of the assessee, the order of the CIT(A) wasupheld by the Tribunal. 4.In view of the aforesaid, the assessing officer levied apenalty of Rs. 6,30,930/- under Section 271(1)(c) of the Act on theassessee, vide order dated 23.3.2004. The CIT(A) in appeal againstthat order drew support from a decision of this Court in M/s. ManishIron Stores vs. CIT (2003) 263 ITR484 and observed that since nosatisfaction had been recorded by the assessing officer either duringthe assessment proceedings or in the assessment order for initiatingpenalty proceedings under Section 271(1)(c) of the Act and, thus,ordered that the penalty imposed under that provision stood cancelled.The Tribunal, on appeal by the Revenue against the order of the CIT(A) in the matter of penalty, vide order dated 25.9.2009 remitted the case to the CIT(A) with a direction to decide the question of levy ofpenalty under Section 271(1)(c) of the Act on merits. Thereafter theCIT(A) dismissed the appeal of the assessee and confirmed thepenalty. However, the assessee succeeded before the Tribunal andthe appeal carried by it against the order of the CIT(A), dated29.10.2009 was allowed vide order dated 31.3.2010. 5.We have heard learned counsel for the Revenue and haveperused the record. 6.The point in issue in this appeal is, whether the Tribunalwas justified in deleting the penalty by holding that the claim of theassessee with regard to set off of unabsorbed business losses againstcapital gains did not amount to deliberate concealment or furnishing ofinadequate particulars. 7. The Tribunal, while deleing the penalty had held as under: “We have considered the rival contentions, carefully gonethrough the orders of the authorities below and alsodeliberated upon the various case laws cited by thelearned AR and discussed by lower authorities in theirrespective orders. From the record, we found thatassessee has claimed set off of unabsorbed business lossagainst the capital gains earned during the year. As aresult of AO’s action for declining of such set off, penaltywas imposed under Section 271(1)(c). Contention of theassessee was that claim was made in bona fide way forsetting off carry forward business loss against the incomearising on sale of business assets. Along with the return of 7. The Tribunal, while deleing the penalty had held as under: “We have considered the rival contentions, carefully gonethrough the orders of the authorities below and alsodeliberated upon the various case laws cited by thelearned AR and discussed by lower authorities in theirrespective orders. From the record, we found thatassessee has claimed set off of unabsorbed business lossagainst the capital gains earned during the year. As aresult of AO’s action for declining of such set off, penaltywas imposed under Section 271(1)(c). Contention of theassessee was that claim was made in bona fide way forsetting off carry forward business loss against the incomearising on sale of business assets. Along with the return of income, the assessee has also submitted director’s reportduly disclosing the fact of sale of building and utilisation ofthe amount for the purpose of business. Thus, we foundthat assessee has furnished all the particulars of incomewhich is evident from the computation of income, director’sreport etc. filed along with return of income. In thequantum order, the AO declined assessee’s claim of setoff. Nowhere AO has alleged that assessee’s claim ismala fide. Thus, it was a simple case of denial ofassessee’s claim of set off of business loss against thecapital gain. In this regard, Hon’ble Supreme Court in thecase of Reliance Petro Products (P) Ltd. (supra) whileconfirming the order of Hon’ble High Court deleting thepenalty imposed u/s 271(1)(c) for denial of assessee’sclaim of deduction of interest expenditure, hascategorically observed that “By any stretch of imagination,making an incorrect claim in law cannot tantamount tofurnishing inaccurate particulars.” Accordingly, it was heldthat decline of assessee’s claim of interest against the loanutilised for making investment in tax free securities, will notamount to furnishing of inaccurate particulars so as toattract penalty under Section 271(1)(c) of the Act. Hon’bleSupreme Court in this case after considering theproposition of law laid down in the case of Dilip N. Shoroff-291 ITR 519 (SC) and Dharmender Textile Processors –306 ITR 277 (SC), held as under: “A mere making of the claim, which is not sustainablein law, by itself will not amount to furnishing inaccurateparticulars regarding the income of the assessee. Suchclaim made in the return cannot amount to the inaccurateparticulars. Merely because the assessee had claimed theexpenditure, which claim was not accepted or was notacceptable to the Revenue, that by itself would not, in ouropinion, attract the penalty under Section 271(1)(c). If weaccept the contention of the Revenue then in case of everyreturn where the claim made is not accepted by AssessingOfficer for any reason, the assessee will invite penaltyunder Section 271(1)(c). That is clearly not the intendmentof the Legislature.” 8. The Tribunal held that making incorrect claim would not tantamountto furnishing of inaccurate particulars unless it was established thatthe assessee had acted with mala fide intention or had claimeddeductions being aware of the well settled legal position. Further, aperusal of the findings recorded by the Tribunal shows that theassessee had claimed deductions on account of set off of unabsorbedbusiness losses against the income from the capital gains, which washeld not to be mala fide. The Tribunal had observed in plain words thatthe assessee had disclosed all the particulars along with the return ofincome and, it was not a fit case for levy of penalty. 9. Learned coursed for the appellant could not show that theabove findings of the Tribunal are illegal or perverse in any manner soas to persuade this Court to interfere therewith. 10.Accordingly, finding no merit in the appeal the same is dismissed. (AJAY KUMAR MITTAL) JUDGE February 8, 2011*rkmalik* (ADARSH KUMAR GOEL) JUDGE