The Pr. Commissioner Of Income Tax-I, Chandigarh v. M/S Rana Sugar Ltd., Chandigarh

ITA No. 390 of 2015 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 390 of 2015 (O&M) Date of Decision: 29.3.2016 The Pr. Commissioner of Income Tax-I, Chandigarh ....Appellant. Versus M/s Rana Sugar Ltd., Chandigarh ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? YES 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MRS. JUSTICE RAJ RAHUL GARG. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 6.2.2015 (Annexure A-5) passed by the Income TaxAppellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 964/CHD/2014, for theassessment year 2007-08, claiming the following substantial questionsof law:- i)Whether the Hon'ble ITAT is right in law inupholding the decision of the CIT(A) deletingthe penalty levied by relying upon the decisionof Reliance Petro Products, when the issue was clearly covered by the decision of the Hon'bleDelhi High Court in the case of CIT vs. ZoomCommunication (P) Ltd. (2010) 327 ITR 510? ii) Whether the Hon'ble ITAT is right in law indeleting the penalty without considering thatnon furnishing of documentary evidencesregarding any expenditure claimed tantamountsto furnishing of inaccurate particulars ofincome? iii)Whether on the facts and in the circumstancesof the case and in law, the Hon'ble ITAT wasright in law in deleting the penalty levied by theAO u/s 271(1)(c) without considering that anincorrect claim in law was made in reducing thedeferred tax liability from the books profits andtax liability u/s 115JB was maliciously reducedwhen such amount was never credited in theP&L Account? 2.Put shortly, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assessee filedits return of income on 30.10.2007 declaring nil income. The case wasselected in scrutiny and the Assessing Officer vide assessment orderdated 13.11.2009 (Annexure P-1) under Section 143(3) of the Act madethe following additions:- (i)` 57,64,059/- on account of diversion of fundsto sister concern; (ii)` 2,38,74,691/- on account of capitalization ofinterest on capital work in progress;interest on capital work in progress; (iii)` 27,562/- on account of disallowance ofproportionate interest under Section 14-A of theAct;proportionate interest under Section 14-A of theAct; (iv)` 3,01,940/- on account of disallowance underSection 40(a)(ia) of the Act; and Section 40(a)(ia) of the Act; and (v)` 16,14,610/- on account of capitalization ofexpenditure on account of building repair andmaintenance.expenditure on account of building repair andmaintenance. Besides charging interest under Sections 234B, 234C and234D of the Act, proceedings for levy of penalty under Section 271(1)(c)of the Act were also initiated. (i)` 57,64,059/- on account of diversion of fundsto sister concern; (ii)` 2,38,74,691/- on account of capitalization ofinterest on capital work in progress;interest on capital work in progress; (iii)` 27,562/- on account of disallowance ofproportionate interest under Section 14-A of theAct;proportionate interest under Section 14-A of theAct; (iv)` 3,01,940/- on account of disallowance underSection 40(a)(ia) of the Act; and Section 40(a)(ia) of the Act; and (v)` 16,14,610/- on account of capitalization ofexpenditure on account of building repair andmaintenance.expenditure on account of building repair andmaintenance. Besides charging interest under Sections 234B, 234C and234D of the Act, proceedings for levy of penalty under Section 271(1)(c)of the Act were also initiated. 3.Feeling aggrieved by the aforesaid assessment order,Annexure A-1, the assessee filed an appeal before the Commissioner ofIncome Tax (Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide orderdated 1.3.2011 confirmed the additions mentioned at Sr. No. (ii) to (v)and deleted the addition mentioned at Sr. No.(i) above. Against theorder dated 1.3.2011, the assessee filed an appeal challenging theadditions at Sr. No. (ii) to (v) confirmed by the CIT(A) whereas therevenue challenged the addition at Sr. No. (i) deleted by the CIT(A)before the Tribunal. The Tribunal vide order dated 28.1.2015 (AnnexureA-2) set aside the order of the CIT(A) and directed the Assessing Officerto make disallowance on pro-rata basis. However, the appeal of therevenue was allowed for statistical purposes. The Assessing Officer videorder dated 28.3.2013 (Annexure A-3) imposed penalty amounting to ` 1,10,78,245/- under Section 271(1)(c) of the Act on the issuesconfirmed by the CIT(A). The assessee assailed the order, Annexure A-3, passed by the Assessing Officer before the CIT(A) who vide orderdated 13.8.2014 (Annexure A-4) deleted the said penalty imposed underSection 271(1)(c) of the Act. The order, Annexure A-4, was challengedby the revenue in appeal before the Tribunal. The Tribunal vide orderdated 6.2.2015 (Annexure A-5) confirmed the order of the CIT(A) anddismissed the appeal. Hence, the present appeal. 4.We have heard learned counsel for the revenue. 5.The primary issue that arises for consideration in this appealis whether the CIT(A) had rightly deleted the penalty under Section 271(1)(c) of the Act which has been upheld by the Tribunal. The penalty hadbeen levied in respect of disallowance made in the quantum proceedingson account of (i) capitalization of interest related to capital work inprogress under Section 36(1)(iii) amounting to ` 2,38,74,691/-; (ii)disallowance under Section 14A of the Act amounting to ` 27,562/-; (iii)addition on account of building repair and maintenance expensesamounting to ` 16,14,610/-; (iv) addition on account of deferred taxamounting to ` 2,21,86,000/- to the book profit under Section 115JB ofthe Act. 6.It would be apposite to refer to the findings recorded by theCIT(A) while cancelling the penalty under Section 271(1)(c) of the Act.Taking up the first issue of disallowance on account of capitalization ofinterest related to capital work in progress under Section 36(i)(iii) of theAct, while deleting the penalty, the CIT(A) had noticed as under:- “3.3. I have considered the facts of the issue. The 6.It would be apposite to refer to the findings recorded by theCIT(A) while cancelling the penalty under Section 271(1)(c) of the Act.Taking up the first issue of disallowance on account of capitalization ofinterest related to capital work in progress under Section 36(i)(iii) of theAct, while deleting the penalty, the CIT(A) had noticed as under:- “3.3. I have considered the facts of the issue. The concealment penalty has been levied on account ofproportionate disallowance of interest on capital workin progress. The disallowance was made due to nonfurnishing of details of utilization of various securedand unsecured loans and cash flow statement andalso that the manner in which the interest wascapitalized had not been provided. The disallowancehas been made by the Assessing Officer onproportionate/estimated basis and for non furnishingof certain details. The appellant had not concealedany particulars of its income or had not furnishedinaccurate particulars and so the concealment penaltyon such disallowance could not be levied in view ofthe judgment of the Hon'ble Supreme Court inCommissioner of Income Tax v. ReliancePetroproducts Ltd. (2010) 322 ITR 158 (SC).Hence, the concealment penalty levied on this issue iscancelled.” 7.The penalty for disallowance of proportionate interest underSection 14-A of the Act was cancelled by the CIT(A) with the followingobservations:- “4.3. I have considered the facts of the issue.Penalty for concealment can be levied when theassessee has concealed particulars of income orfurnished inaccurate particulars. The disallowancehas been made u/s 14A of the Act. The appellant had not concealed particulars of its income or had notfurnished inaccurate particulars and so penalty forconcealment cannot be levied on such disallowancein view of the judgment of the Hon'ble Supreme Court in Commissioner of Income Tax v. ReliancePetroproducts Ltd. (2010) 322 ITR 158 (SC).Concealment penalty levied on this issue isaccordingly cancelled. Ground of appeal No.3 isallowed.” 8.Regarding levy of penalty on the disallowance on account ofrepair and maintenance under Section 40(a)(ia) of the Act, the CIT(A)holding the penalty to be unsustainable on this count had recorded asunder:- “5.3. I have considered the facts of the issue. Theappellant explains that the disallowance was made onestimated basis without making any specificdisallowance out of the expenses claimed under thehead 'building repairs and maintenance'. I am entirelyin agreement with the explanation of the appellant,since disallowance @ 1% of total investment inbuilding was made on estimated basis to restrict theexpenses on current repairs of the building and thiswas done as per the directions of Hon'ble ITAT in A.Y.2004-05. The disallowance is purely an estimate andso penalty for concealment cannot be levied in view ofthe judgment of Hon'ble Punjab and Haryana High Court in the case of Harigopal Singh (258 ITR 85).The penalty for concealment levied on this issue isaccordingly cancelled. Ground of appeal No.4 isallowed.” 9.Examining the levy of penalty on the addition made onaccount of deferred tax amounting to ` 2,21,86,000/- computed on thebook profits under Section 115JB of the Act, the CIT(A) held that penaltywas not exigible as clause (viii) was inserted in Explanation -1 belowSection 115JB of the Act by Finance Act, 2008 retrospectively from1.4.2001. The relevant conclusions are quoted as under:- Court in the case of Harigopal Singh (258 ITR 85).The penalty for concealment levied on this issue isaccordingly cancelled. Ground of appeal No.4 isallowed.” 9.Examining the levy of penalty on the addition made onaccount of deferred tax amounting to ` 2,21,86,000/- computed on thebook profits under Section 115JB of the Act, the CIT(A) held that penaltywas not exigible as clause (viii) was inserted in Explanation -1 belowSection 115JB of the Act by Finance Act, 2008 retrospectively from1.4.2001. The relevant conclusions are quoted as under:- “6.3. I have considered the facts of the issue. Clause(viii) was inserted in Explanation-1 below Section115JB(1) by Finance Act, 2008, but with retrospectiveeffect from 01.04.2001 and so the appellant could nothave known before filing the return of income of theyear in question i.e. A.Y. 2007-08 that deferred taxliability was not to be reduced for the purposes ofcalculation of book profit, if it was not credited to theprofit and loss account. Therefore, the AssessingOfficer was not right in levying the penalty underSection 271(1)(c) on this disallowance made incalculation of book profit and so the penalty levied onthis issue is also cancelled. Ground of appeal No.5 isallowed.”(viii) was inserted in Explanation-1 below Section115JB(1) by Finance Act, 2008, but with retrospectiveeffect from 01.04.2001 and so the appellant could nothave known before filing the return of income of theyear in question i.e. A.Y. 2007-08 that deferred taxliability was not to be reduced for the purposes ofcalculation of book profit, if it was not credited to theprofit and loss account. Therefore, the AssessingOfficer was not right in levying the penalty underSection 271(1)(c) on this disallowance made incalculation of book profit and so the penalty levied onthis issue is also cancelled. Ground of appeal No.5 isallowed.” 10.On appeal by the revenue, the Tribunal had affirmed thesaid findings of the CIT(A) by holding that the assessee had neither concealed particulars of income nor furnished inaccurate particulars ofincome. Further, the Tribunal held that the disallowance on account ofcapitalization of interest related to capital work in progress under Section36(1)(iii) of the Act, the Distillery Division of the assessee had alreadystarted functioning and since the details of funds utilized for individualprojects were not reconcilable, the assessee had agreed fordisallowance of proportionate interest for which the assessee cannot beheld liable for either concealing particulars of income or furnishinginaccurate particulars of income. Similarly, though the issue ofdisallowance of proportionate interest under Section 14A of the Act wasnot agitated before the Tribunal due to smallness of amount of ` 27,562/-but due to the factum that interpretation of this provision had not beensettled finally, therefore, no penalty under Section 271(1)(c) of the Actwas exigible. Equally the disallowance on account of repair andmaintenance under Section 40(a)(ia) of the Act was made on estimatebasis and finally the disallowance had been restricted by the Tribunal at` 1 lac during quantum proceedings in ITA No. 429/CHD/2011.Regarding deletion of penalty by the CIT(A) on addition made onaccount of deferred tax computed on book profits under Section 115JBof the Act, the Tribunal had observed that clause (viii) was inserted toExplanation 1 below Section 115JB(1) by Finance Act, 2008 but wasmade retrospective. Since the present case pertained to the assessmentyear 2007-08, the assessee would not know that retrospectiveamendment was likely to come later. No illegality or perversity could bedemonstrated by learned counsel for the revenue that the findings of theCIT(A) and the Tribunal were erroneous or perverse in any manner. 11.In CIT v. Reliance Petroproducts (P) Limited (2010) 322ITR 158, the Apex Court had held that under Section 271(1)(c) of theAct, there has to be concealment of income of the assessee or theassessee must have furnished inaccurate particulars of his income. Inthe present case, the claim made by the assessee has not been shownto be suffering from any of these conditions. In the absence of anyfinding recorded by the CIT(A) or the Tribunal with regard to the claim ofthe assessee that it was malafide, there is no error in cancelling thepenalty imposed by the Assessing Officer. 12.Further, reliance of the revenue on the judgment ofthe Delhi High Court in Commissioner of Income Tax v. ZoomCommunication Pvt. (2010) 327 ITR 510 is of no help to them astherein the High Court was considering the question of levy of penaltyunder Section 271(1)(c) of the Act wherein it had concluded to be a caseof furnishing of inaccurate particulars of income with malafide intentionwhich is not the case herein. 13.No scope for interference by this Court is made out so as totake a different view expressed by the CIT(A) and affirmed by theTribunal. Thus, no substantial question of law arises. The appeal standsdismissed. (AJAY KUMAR MITTAL)JUDGE March 29, 2016gbs (RAJ RAHUL GARG)JUDGE