Ita/60/2014 Of Commissioner Of Income Tax-I Chandigarh v. M/S Punjab State Warehousing Corp. Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA AT |CHANDIGARH ITA No.60 of 2014 (O&M)Date of decision: May 06, 2014 The Commissioner of Income Tax-I, Chandigarh .....-Appell Vs, M/s Punjab State Warehousing Corporation Limited ...KeSpondent CORAM: HON’BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MR. JUSTICE JASPAL SINGH Present: Ms. Urvashi Dhugga, Advocate for the appellant. Ajay Kumar Mittal,J. 1.This appeal has been preferred by the revenue under Section 260A ofthe Income Tax Act, 1961 (in short, “the Act’) against the order dated 21.6.2013,Annexure A.6 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A'(in short, “the Tribunal’) in ITA No.122/Chd/2010 for the assessment year 2004-05, proposing to raise following substantial question of law:- “Whether in the facts and circumstances of the case, the Hon'bleTribunal is correct in accepting the contention of the assessee, settingaside the order of the CIT(A) and deleting the penalty imposed underSection 271(1) (c) whereas the Hon'ble Tribunal itself, whiledeciding the appeal on quantum, had accepted the observations ofthe AO as well as the CIT(A) and sustained the addition on whichpenalty has been imposed? D. Briefly, the facts necessary for adjudication of the controversy ITA No.60 of 2014 (O&M) involved, as narrated in the appeal, may be noticed. The assessee 1s a Public SectorUndertaking of the Government of Punjab. It 1s engaged in procurement andstorage of food grains on behalf of the Central agencies and the State Government.Return declaring an income ofzy7,52,18,530/- for the assessment year 2004-05was filed by the assessee on |.11.2004. The case was selected for scrutiny as perCBDT guidelines and notice under section 143(2) of the Act was issued on9.3.2005. The assessee filed a revised return on 28.3.2006 declaring loss of422,37,96,121/-. During the course of assessment proceedings, the AssessingOfficer noticed that the assessee had debited Rs.3.50 crores in profit and lossaccount as provision for interest on loan to Punjab Government and CON WAREOn enquiry, the assessee replied that the provision for interest to PunjabGovernment and CONWARE amounting to’<3.50 crores was contra entries passedfor memorandum purposes as the same amount was shown as income as interest onloan to Punjab Government and CONWARE. Hence the provision was shown onboth sides of P&L account making no impact on the same. The Assessing officerobserved from the auditors report that the assessee was reportedly followingmercantile system of accounting and therefore the interest due from PunjabGovernment and CONWARE ought to have been declared as income. However, bymaking a contra entry of the provision for interest of Punjab Government andCONWARE, the assessee had negated the interest income in the P&L account. TheAssessing Officer vide order dated 28.12.2006, Annexure A.I made addition ofL350 lacs being interest on loans to Punjab Government and CONWARE onMercantile system of accounting. Aggrieved by then order, the assessee filedappeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide orderdated 6.2.2008, Annexure A.2, the CIT(A) observed that each and every debtcannot be written off even after the amendment of Section 36(1) (vii) and 36(2) ofthe Act. The CIT(A) confirmed the addition. The assessee filed appeal before the ITA No.60 of 2014 (O&M) ITA No.60 of 2014 (O&M) Tribunal. Vide order dated 23.9.2009, Anenxure A.3, the Tribunal dismissed theappeal holding that there was no material to show that the Government had refusedto pay any amount to the assessee. After the addition was confirmed by the CIT](A), the Assessing Officer issued show cause notice to the assessee for impositionof penalty under section 271(1) (c) of the Act on 17.3.2009 amounting toL1,25,56,250/-. Vide order dated 31.3.2009, Annexure A.4, the Assessing Officerimposed penalty ofaa1,25,56,250/- under section 271(1) (c) of the Act. Theassessee filed appeal before the CIT(A), which was dismissed vide order dated17.11.2009, Annexure A.5. Thereafter, the assessee filed appeal before theTribunal. Vide order dated 21.6.2013, Annexure A.6, the Tribunal allowed theappeal and deleted the penalty holding that the claim of the assessee seemed to bebonafide as the principal amount itself was written off in the subsequent years.Hence the present appeal by the revenue. 3]We have heard learned counsel for the appellant and perused the record.. 4 The solitary point that arises for consideration in this appeal iswhether the Tribunal was justified in deleting the penalty imposed by theAssessing Officer under Section 271(1) (c) of the Act which was upheld by theCIT(A). 4,The Tribunal while deleting the penalty had noticed vide order dated21.6.2013, Annexure A.6 as under:- “7. We have considered the rival submissions carefully and findthat assessee has credited a sum ofaan3.5 crores towards intereston advances given to Government of Punjab and CONWARE. Itseems that amounts were not recoverable and infact the amountshave been written off in the next year. Against the entry of interest,the assessee made a provision of such interest and debited thesame amount to the Profit and loss account. The addition wasconfirmed by the Tribunal by following the decision of the Hon'ble Madras High Court in the case of South India SurgicalCo. Limited 287 ITR 62. However, the undisputed fact remainsthat principal amount due from Punjab Government as well asfrom CONWARE was written off in the next year 1.e. Assessmentyear 2005-06. This fact has been noted even by the Tribunal inassessee's own case vide para 21 in ITA No.204, 311 and 292, 459and 427/Chand1/2008 relating to assessment years 2004-05 and2005-06 order dated 23.9.2009. This clearly shows that assesseewas not hoping to recover the interest and entry of interest wasmade only for memorandum purposes i.e. why correspondingdebit entry was also made. It is settled law that penaltyproceedings are not automatic in the sense that once addition ismade, the same will not be followed by penalty. Further, theassessee has furnished the explanation which seems to bebonafide before the Assessing Officer for making this entry forprovision towards interest. The penalty ‘cannot be levied unlessand until there is concealment or when the explanation which hasbeen filed before the Assessing authority and which is found notbonafide. The Hon'ble Supreme Court in the case of CementMarketing Co. of India Limited vs. ACIT, 124 ITR 16 hadobserved as under:- Tf the view canvassed on behalf of the revenue wereaccepted, the result would be that even if the assessee raises abonafide contention that a particular item is not liable to beincluded in the taxable turnover, he would have to show it asforming part of the taxable turnover in his return and pay tax uponit on pain of being held liable for penalty in case his contention 1sultimately found by the court to be not acceptable. That surelycould, ever have been intended by the legislature.' 8. The above clearly shows that wherever assessee might havemade a claim on bonafide basis and that claims is ultimately foundto be incorrect, the same will not lead to the penal consequence.Further, in the case of CIT Reliance Petro Products (P) Limited(supra) it was observed as under:- 'A glance at the provisions of section 271(1) (c) of 8. The above clearly shows that wherever assessee might havemade a claim on bonafide basis and that claims is ultimately foundto be incorrect, the same will not lead to the penal consequence.Further, in the case of CIT Reliance Petro Products (P) Limited(supra) it was observed as under:- 'A glance at the provisions of section 271(1) (c) of the Income Tax Act, 1961 suggests that in order to be covered byit, there has to be concealment of the particulars of the income ofthe assessee. Secondly, the assessee must have furnishedinaccurate particulars of his income. The meaning of the word‘particulars’ used in section 271(1) (c) would embrace the detailsof the claim made. Where no information given in the return 1sfound to be incorrect or inaccurate, the assessee cannot be heldeuilty of furnishing inaccurate particulars. In order to expose theassessee to penalty, unless the case 1s strictly covered by theprovision, the penalty provision cannot be invoked. By no stretchof imagination can making an incorrect claim tantamount tofurnishing inaccurate particulars. There can be no dispute thateverything would depend upon the return filed by the assessee,because that is the only document where the assessee can furnishthe particulars of his income. When such particulars are found tobe inaccurate, the liability would arise. To attract penalty, thedetails supplied in the return must not be accurate, not exact orcorrect, not according to the truth or erroneous.' 9. In the case before us, there 1s no finding that details provided bythe assessee are incorrect. As observed earlier, the claim of theassessee seems to be bonafide because principle amount itself waswritten off and therefore, perhaps there was no claim against theinterest. The assessee provided the interest on the accrual basis butsimultaneously made a debit entry against such interest. This 1spurely a bonafide claim based on bonafide belief. In our opinion,the penal provision cannot be attracted in such a situation andaccordingly we set aside the order of learned CIT(A) and deletethe penalty.” 6)The Tribunal noticed that the entry with regard to Ly3.5 crorestowards interest on advances given to Government of Punjab and CONWARE was ITA No.60 of 2014 (O&M) that the explanation furnished by the assessee appeared to be bonafide in makingentry for provision towards interest. The assessee provided the interest on accrualbasis but simultaneously made a debit entry against such interest which wasaccepted to be purely bonafide. In such circumstances, the order passed by theTribunal cannot be faulted| ‘|.Adverting to judgment of the Madras High Court 1n South IndiaSurgical Co. Limited v. Assistant Commissioner ofIncome Tax,(2006) 287 ITR62 (Mad) relied upon by the learned counsel for the revenue, the same is of noassistance as that was a case on individual facts involved therein and was notrelating to penalty under Section 271(1)(c) of the Act. Therefore, the said judgmentdoes not come to the rescue of the revenue. & No substantial question of law arises in this appeal. Consequently,finding no merit in the appeal, the same 1s hereby dismissed. (Ajay Kumar Mittal)Judge May 06, 2014=/%= (Jaspal Singh)Judge