I.t.a. Nos.410 To 412 Of 2009 -2 v. I.t.a. Nos.410 To 412 Of 2009 -3

I.T.A. Nos.410 to 412 of 2009 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.A. Nos.410 to 412 of 2009 DATE OF DECISION: NOVEMBER 19, 2009 Commissioner of Income Tax-II, Ludhiana .....APPELLANTVersus M/s Arisudana Spinning Mills Ltd.,Ludhiana ....RESPONDENT CORAM: HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE MEHINDER SINGH SULLAR --- Present:Mr. Rajesh Sethi, Advocate,for the appellant... SATISH KUMAR MITTAL, J. This order shall dispose of three appeals bearing ITA Nos.410,411 and 412 of 2009, filed by the revenue under Section 260-A of theIncome Tax Act, 1961 (hereinafter referred to as `the Act'), which arearising from the common order dated 28.11.2008 passed by the Income TaxAppellate Tribunal (hereinafter referred to as `the ITAT') in case of theassessee pertaining to three Assessment Years i.e. 2000-01, 1998-99 and1997-98, respectively, whereby three appeals preferred by the revenueagainst the common order of the CIT(A) deleting the levy of penaltyimposed upon the assessee under Section 271(1)(c) of the Act, have beendismissed. In the present case, the assessee is engaged in the business ofmanufacturing of yarn and trading in wool. In its return of income, the I.T.A. Nos.410 to 412 of 2009 -2- assessee claimed deduction under Section 80 IA of the Act in respect ofprofits derived from trading turnover i.e. trading in the raw wool and knittedcloth. The return of income filed by the assessee was accompanied byAudited Balance Sheet, Profit & Loss Account and an Audit Report in FormNo.10CCB relating to the claim of deduction under Section 80 IA of theAct. The Assessing Officer denied the said deduction to the assessee whilecoming to the conclusion that deduction under Section 80 IA was allowableonly in respect of income derived from manufacturing of goods and notfrom trading in the raw wool and knitted cloth. The Assessing Officer alsoinitiated the penalty proceedings under Section 271(1)(c) of the Act forfurnishing inaccurate particulars of income in its return with an intention toevade tax. The order of the Assessing Officer for not allowing theaforesaid deduction was set aside by the CIT(A), but the ITAT while settingaside the order of the CIT(A) confirmed the order of the Assessing Officerby relying upon the decision dated 17.8.2006 given by this Court in M/s.Liberty India v. Commissioner of Income-Tax, (2007) 293 ITR 520. Afterthe decision of the ITAT, the penalty proceedings were finalized andpenalties (Rs.1,50,000/-, Rs.5,50,000/- and Rs.8,00,000/-) under Section271(1)(c) of the Act were imposed upon the assessee. Aggrieved against theorders of penalties, the assessee preferred appeals before the CIT(A), whovide consolidated order dated 3.4.2008 deleted the penalties imposed underSection 271(1)(c) of the Act. Against the orders of the CIT(A), the revenuepreferred appeals, which have been dismissed by the ITAT by a commonorder dated 28.11.2008 while confirming the order of deletion of penaltypassed by the CIT(A). Against the said order, the revenue filed the instant I.T.A. Nos.410 to 412 of 2009 -3- appeals raising the following substantial questions of law:- “(i)Whether on the facts and in law the ITAT was justifiedin deleting the penalty u/s 271(1(c) amounting toRs.1.50 lakhs imposed by the Assessing Officerignoring the fact that the assessee violated theprovisions of Section 80 IA of the Income-tax Act,1961 which attracted penalty under section 271(1)(c)of the Income-tax Act, 1961?in deleting the penalty u/s 271(1(c) amounting toRs.1.50 lakhs imposed by the Assessing Officerignoring the fact that the assessee violated theprovisions of Section 80 IA of the Income-tax Act,1961 which attracted penalty under section 271(1)(c)of the Income-tax Act, 1961? I.T.A. Nos.410 to 412 of 2009 -3- appeals raising the following substantial questions of law:- “(i)Whether on the facts and in law the ITAT was justifiedin deleting the penalty u/s 271(1(c) amounting toRs.1.50 lakhs imposed by the Assessing Officerignoring the fact that the assessee violated theprovisions of Section 80 IA of the Income-tax Act,1961 which attracted penalty under section 271(1)(c)of the Income-tax Act, 1961?in deleting the penalty u/s 271(1(c) amounting toRs.1.50 lakhs imposed by the Assessing Officerignoring the fact that the assessee violated theprovisions of Section 80 IA of the Income-tax Act,1961 which attracted penalty under section 271(1)(c)of the Income-tax Act, 1961? (ii)Whether on the facts and in law the ITAT was justifiedin deleting the penalty u/s 271(1(c) amounting toRs.5.50 lakhs imposed by the Assessing Officerignoring the fact that the assessee violated theprovisions of Section 80 IA of the Income-tax Act,1961 which attracted penalty under section 271(1)(c)of the Income-tax Act, 1961?in deleting the penalty u/s 271(1(c) amounting toRs.5.50 lakhs imposed by the Assessing Officerignoring the fact that the assessee violated theprovisions of Section 80 IA of the Income-tax Act,1961 which attracted penalty under section 271(1)(c)of the Income-tax Act, 1961? (iii)Whether on the facts and in law the ITAT was justifiedin deleting the penalty u/s 271(1(c) amounting to Rs.8lakhs imposed by the Assessing Officer ignoring thefact that the assessee violated the provisions of Section80 IA of the Income-tax Act, 1961 which attractedpenalty under section 271(1)(c) of the Income-tax Act,1961?in deleting the penalty u/s 271(1(c) amounting to Rs.8lakhs imposed by the Assessing Officer ignoring thefact that the assessee violated the provisions of Section80 IA of the Income-tax Act, 1961 which attractedpenalty under section 271(1)(c) of the Income-tax Act,1961? We have heard the counsel for the appellant and gone throughthe orders of the ITAT. Learned counsel for the appellant argued that the assesseepatently made a wrong claim of deduction of profits earned from tradingactivities under Section 80 IA of the Act, whereas it was not entitled for thesaid benefit as per the law laid down by this Court in M/s Liberty India'scase (supra) which has been upheld by the Supreme Court in M/s LibertyIndiavs. Commissioner of Income-Tax, (2009) 317 ITR 218. In these facts,the assessee could not justify the bona-fideness of the claim of deduction I.T.A. Nos.410 to 412 of 2009 -4- under Section 80 IA in its return of income. Learned counsel further arguedthat the burden was on the assessee to prove that failure to return the correctincome was for bona fide consideration, but the said burden was notdischarged by the assessee. Learned counsel argued that the observationsmade by the CIT(A) that mens rea is required to be proved for levy of suchpenalty, is contrary to the recent decision of the Supreme Court in Union ofIndia & Ors. vs. Dharamendra Textile Processors & Ors., (2008) 306 ITR277. Therefore, the ITA was not justified in confirming the order ofpayment of penalty imposed under Section 271(1)(c) of the Act. After considering the submissions made by the learned counselfor the appellant, we do not find any merit in these appeals. In our opinion,the ITAT has deleted the penalty imposed under Section 271(1)(c) on theassessee after recording a finding of fact that the assessee in its return ofincome adequately disclosed all the relevant facts by accompanying therelevant documents. In this regard, the following finding has been recordedby the ITAT:- After considering the submissions made by the learned counselfor the appellant, we do not find any merit in these appeals. In our opinion,the ITAT has deleted the penalty imposed under Section 271(1)(c) on theassessee after recording a finding of fact that the assessee in its return ofincome adequately disclosed all the relevant facts by accompanying therelevant documents. In this regard, the following finding has been recordedby the ITAT:- “.....In this connection, a salient feature which is evidentfrom the record is that the claim of the assessee made in thereturn of income, though not found acceptable, did notsuffer from the vice of non disclosure. We find that thereturn of income filed by the assessee was accompanied byaudited Balance-sheet, Profit and Loss Account and also anAudit Report in Form No.10CCB relating to the claim ofdeduction u/s 80IA of the Act. Though the AssessingOfficer has noted in the assessment order that the assesseehad not filed separate trading, profit and loss account for themanufacturing and trading activities, yet the factum of theassessee having claimed deduction u/s 80 IA was evidentfrom the audit report in form No.10CCB filed along with I.T.A. Nos.410 to 412 of 2009 -5- the return of income. In the assessment order there is nocharge against the assessee that it had not disclosed anyinformation or material required to compute the income forthe year under consideration. Therefore, it would not bewrong to deduce that so far as the claim of the assessee fordeduction u/s 80 IA was concerned, the same wasadequately disclosed in the return of income and theaccompanying documents.” In view of the aforesaid finding, the ITAT while relying uponthe decision of the Supreme Court in T.Ashok Pal vs. CIT, 292 ITR 11(S.C.), held that the penalty under Section 271(1)(c) was not allowablewhere the claim of the assessee was based on the report of the expert. Sincethe return of income was accompanied by the duly audit report requiredunder Section 80 IA, the penalty cannot be imposed, particularly when thereis nothing on record to suggest that the report of the auditor was collusive. The ITAT has further recorded a finding that the assessee bonafidely claimed the deduction under Section 80 IA with regard to the profitsfrom trading in the raw wool and knitted cloth. In this regard, the followingfinding has been recorded by the ITAT:- “....Firstly, as noticed earlier, the claim of the assessee wasadequately disclosed in the return of income and theaccompanying documents. Secondly, the assessee whencalled upon to justify the claim during the assessmentproceedings, referred to the judgment of Madras HighCourt in the case of CIT v. Ashok Leyland Ltd., 130 ITR900 to contend that even with regard to the profit on sale ofraw wool and knitted cloth, it was eligible for deduction u/s80 IA. In the case before the Hon'ble Madras High Court,the issue related to an assessee which was manufacturingautomobile trucks, the profits from sale of imported spare I.T.A. Nos.410 to 412 of 2009 -6- parts to the purchasers of trucks for servicing the vehicleswas sought to be claimed as eligible for 80I benefits. TheHon'ble High Court accepted the stand of the assessee inthat case. On the strength of the reasoning adopted by theHon'ble Madras High Court as above, the assesseecanvassed before the Assessing Officer that the profits inquestion were eligible for 80 IA benefits. Though thesubsequent development in the case of the assessee showthat the said view has not found favour with the Income-taxauthorities. However, to say that the claim of the assesseemade in the return of income was fanciful or wascompletely untenable, would be a misnomer. Therefore, inour considered opinion, the claim of the assessee made inthe return of income could be said to have rested on a bonafide consideration.” The aforesaid finding of fact arrived at by the ITAT cannot besaid to be perverse or against the material available on the record. When thereturns of income were filed, the issue with regard to entitlement ofdeduction under Section 80 IA on the profits derived from trading turnoveri.e. trading in the raw wool and knitted cloth, was debatable, and this issuewas settled with the judgment of this Court in M/s Liberty India Ltd. (supra)which has been upheld by the Supreme Court in M/s Liberty India (supra).Therefore, the ITAT has rightly come to the conclusion that the assessee didnot deliberately or consciously concealed the true particulars of income orfurnished inaccurate particulars of income. The judgment cited by thecounsel for the appellant is not applicable in the facts and circumstances ofthe case, where the penalty has been deleted on the basis of aforesaidfinding of fact. In view of the aforesaid finding of fact, in our opinion, no I.T.A. Nos.410 to 412 of 2009 -7- substantial question of law is arising out of the order of the ITAT. Hence,these appeals are dismissed. (SATISH KUMAR MITTAL)JUDGE November 19, 2009vkg (MEHINDER SINGH SULLAR) JUDGE