Itta/277/2011 Of The Commissioner Of Income Tax Iv v. M/S. P.m. Telelinks Ltd

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR INCOME TAX TRIBUNAL APPEAL No.277 of 2011 November 15, 2011 Between: The Commissioner of Income Tax-IV, Hyderabad And ... Appellant M/s.P.M.Telelinks Ltd., Secunderabad ...Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR INCOME TAX TRIBUNAL APPEAL No.277 of 2011 JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) This appeal under Section 260A of the Income Tax Act,1961 (the Act), is against the order dated 29.6.2007 of the IncomeTax Appellate Tribunal, Hyderabad Bench-B in ITA No.7/H/2007. The respondent (assessee) is engaged in the business ofmanufacturing and marketing steel products like CRCA coils, MStubes, GI pipes etc. For the assessment year 2003-04 theassessee filed return of income declaring a loss ofRs.27,26,17,484/-. The return was taken up for scrutiny underSection 143(1) of the Act. Having noticed that the assesseeclaimed 100% depreciation to the tune of Rs.14,31,195/- on “workrolls” and made a provision for bad and doubtful debts to the tuneof Rs.12,84,12,700/-, the assessing officer issued statutorynotice. After obtaining explanation, the assessing officer added anamount of Rs.11,50,413/- towards 25% depreciation, treating thework rolls as plant and machinery and also added the amount of bad debts and recomputed the income vide assessment orderdated 30.11.2005. In related penalty proceedings under Section271(1)(c) of the Act, the assessing officer vide order dated31.5.2006 levied penalty of Rs.4,76,14,442/-. Aggrieved by thesaid order, the assessee filed an appeal before the Commissionerof Income Tax (Appeals) who, by order dated 29.11.2006,confirmed the penalty. In its appeal before the Tribunal, theassessee was successful. The Senior Standing Counsel for Income Tax would submitthat the claim of bad debts and excess depreciation would amountto concealment and therefore penalty is exigible under Section271(1)(c) of the Act. He would contend that the Tribunal was inerror in ignoring the fact that the assessee did not furnish accurateparticulars of income and claimed excess deductions which itselfwould amount to concealment. The assessing officer noticed that in the profit & lossaccount attached to the return of income, an amount ofRs.12,84,12,700/- was claimed as provision for bad and doubtfuldebts but corresponding addition in the computation income wasnot made. As per the Explanation to Section 36(1)(vii) of the Act,any bad debt written off as irrecoverable in the accounts of theassessee shall not include any provision for bad and doubtfuldebts made in the account of the assessee. In view of this, thesaid amount was added back to the income. Before the appellateauthority, the assessee contended that it was an inadvertentmistake. This submission, however, did not find favour with theCommissioner. Even with regard to the claim of 100%depreciation on the work rolls, the assessee’s contention was thatthe work rolls were in the nature of consumables and were notassets; that the amount incurred thereon was revenue expenditureand because of this difference of opinion, it claimed 100%depreciation and it had no intention to conceal the income. This contention also did not find favour with the Commissioner. Thefact, however, remains that the assessee without further disputeaccepted the assessment order and went in appeal only againstthe penalty order. contention also did not find favour with the Commissioner. Thefact, however, remains that the assessee without further disputeaccepted the assessment order and went in appeal only againstthe penalty order. The Tribunal was therefore concerned with the questionwhether the assessee had concealed part of its income orfurnished inaccurate particulars. Relying on the decision of DelhiHigh Court in Commissioner of Income Tax v International AudiovisualCompany[[1]], the Tribunal recorded a finding that there was nothingon record to suggest that the assessee had concealed any part ofits income or furnished inaccurate particulars of income. Merelybecause the assessing officer did not agree with the assesseewith regard to the rate of depreciation, it cannot be said that therewas concealment of income or furnishing of inaccurate particularsof income and, therefore, there cannot be levy of any penaltyunder Section 271(1)(c) of the Act in respect of the claim fordepreciation of work rolls. Even with regard to bad debts, theTribunal came to the conclusion that by mere non-adding back ofthe provision of bad debts in the total income, it cannot be saidthat the assessee had concealed any part of income or furnishedinaccurate particulars. The question therefore is whether theTribunal applied the correct principle of law. Section 271 of the Act empowers the assessing officer orthe Commissioner (Appeals) to direct that the assessee shall paypenalty if the authority is satisfied inter alia that the assesseeconcealed the particulars of his income or furnished inaccurateparticulars of such income (Section 271(1)(c) of the Act). Explanation (1) thereto, however, makes it clear that if theassessee offers explanation and the amount added as disallowedhas been claimed bona fide there would not be any necessity tolevy penalty. In Commissioner of Income Tax v Eli Lilly and Company (India) Ltd[[2]], the Supreme Court inter alia considered the scope ofSection 271-C read with Section 273-B of the Act and held asfollows. Section 271-C inter alia states that if any person failsto deduct the whole or any part of the tax as required by theprovisions of Chapter XVII-B then such person shall be liableto pay, by way of penalty, a sum equal to the amount of taxwhich such person failed to deduct. In these cases we areconcerned with Section 271-C(1)(a). Thus Section 271-C(1)(a) makes it clear that the penalty leviable shall be equal to theamount of tax which such person failed to deduct. We cannothold this provision to be mandatory or compensatory orautomatic because under Section 273-B Parliament hasenacted that penalty shall not be imposed in cases fallingthereunder. Section 271-C falls in the category of suchcases. … … Section 273-B states that notwithstandinganything contained in Section 271-C, no penalty shall beimposed on the person or the assessee for failure to deducttax at source if such person or the assessee proves thatthere was a reasonable cause for the said failure. Therefore,the liability to levy of penalty can be fastened only on theperson who does not have good and sufficient reason for notdeducting tax at source. Only those persons will be liable topenalty who do not have good and sufficient reason for notdeducting the tax. The burden, of course, is on the person toprove such good and sufficient reason. On the same analogy if the conditions in Explanation (1) toSection 271(1)(c) of the Act are satisfied by the assessee that thedeductions claimed were bona fide, the exercise of power to levypenalty under Section 271(1)(c) of the Act cannot be held valid. In Union of India v Dharmendra Textile Processors[[3]]and Commissioner of Income Tax v Atul Mohan Bindal[[4]], the SupremeCourt held that penalty provision cannot be invoked for making aninaccurate claim in law nor does the same amount to furnishinginaccurate particulars of income. The same view was reiterated inCommissioner of Income Tax v Reliance Petroproducts[[5]]wherein itwas held as follows. On the same analogy if the conditions in Explanation (1) toSection 271(1)(c) of the Act are satisfied by the assessee that thedeductions claimed were bona fide, the exercise of power to levypenalty under Section 271(1)(c) of the Act cannot be held valid. In Union of India v Dharmendra Textile Processors[[3]]and Commissioner of Income Tax v Atul Mohan Bindal[[4]], the SupremeCourt held that penalty provision cannot be invoked for making aninaccurate claim in law nor does the same amount to furnishinginaccurate particulars of income. The same view was reiterated inCommissioner of Income Tax v Reliance Petroproducts[[5]]wherein itwas held as follows. We are not concerned in the present case with the mens rea.However, we have to only see as to whether in this case, as amatter of fact, the assessee has given inaccurate particulars.In Webster's Dictionary, the word "inaccurate" has been defined as: not accurate, not exact or correct; not according to truth;erroneous; as an inaccurate statement, copy or transcript.We have already seen the meaning of the word "particulars" inthe earlier part of this judgment. Reading the words inconjunction, they must mean the details supplied in theReturn, which are not accurate, not exact or correct, notaccording to truth or erroneous. We must hasten to add herethat in this case, there is no finding that any details suppliedby the assessee in its Return were found to be incorrect orerroneous or false. Such not being the case, there would beno question of inviting the penalty under Section 271(1)(c) ofthe Act. 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. Such claimmade in the Return cannot amount to the inaccurateparticulars. In this case the Tribunal found that the claim of 100%depreciation of work rolls and the claim of bad debts and notadding back the provision of bad debts to the total income do notamount to concealment of income or furnishing inaccurateparticulars of income. This finding was based on the examinationof the factual background and no question of law is involved. The appeal is therefore dismissed. No costs. ________________ (V.V.S. RAO, J) November 15, 2011YS[1](2006) 280 ITR 570[2](2009) 15 SCC 1[3](2008) 13 SCC 369 : (2008) 306 ITR 277 (SC)[4](2009) 9 SCC 589 : (2009) 317 ITR 1 (SC)[5](2010) 11 SCC 762 : (2010) 322 ITR 158 (SC) _____________________ (SANJAY KUMAR, J)