The Principal Commissioner Of Income Tax 1 v. Intas Pharma Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 248 of 2021 =====================================================THE PRINCIPAL COMMISSIONER OF INCOME TAX 1 Versus INTAS PHARMA LTD. =====================================================Appearance: MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 =====================================================CORAM: HONOURABLE MS. JUSTICE SONIA GOKANI andHONOURABLE MR. JUSTICE RAJENDRA M. SAREEN Date : 11/10/2021 ORAL ORDER (PER : HONOURABLE MS. JUSTICE SONIA GOKANI ) 1)The revenue is before this Court aggrieved anddissatisfied by an order dated 02/03/2021 passed by theIncome Tax Appellate Tribunal, Ahmedabad (“ the ITAT” forshort) with the following substantial questions of law; (A) “Whether the Appellate Tribunal has erred in lawand on facts in deleting the the penalty under Section271(1)(c) of the At of Rs.6,13,84,278/- despite thefact that the assesses had made incorrect claim ofadditional depreciation and further erred incompletely ignoring the Explanation I to Section271(1)(c) of the Act?” (B)“Whether the Appellate Tribunal has erred inlaw and on facts in not appreciating the ratio laiddown by the Hon’ble Supreme Court in the case ofUnion of India vs. Dharmendra Textile Processorsreported in [2008] 166 Taxman 65 (SC)?” 2)The brief facts leading to the present appeal are asfollow; 2.1 The return of income for the assessment year 2011-12was filed by the respondent. The assessee had claimedthe carry forward of current year losses and current yearunabsorbed depreciation. The return was processed underSection 143(1) of the Income-Tax Act, 1961 ( “the Act”for short). It was also selected for scrutiny and a noticeunder Section 143(2) of the Act was issued. 3)The Assessing Officer had noticed that assessee hadclaimed the additional depreciation amounting toRs.18,47,95,000/- under Section 32(1)(iia) of Act. Onexamination of the eligibility, it was noticed that the assessee,during the year under consideration, had commenced theproduction and prior to the said year, he was not engaged inthe business of manufacturing. After analyzing Section 32(1)(iia) of the Act, the Assessing Officer held them not eligible forthe additional depreciation, and accordingly, the claim ofadditional amount of Rs.18,47,95,000/- (rounded off into) hadnot been sustained. 4)The penalty was levied under Section 271(1)(c) for a sumof Rs.6,13,84,278/- and this was initiated for furnishinginaccurate particulars of income, eventually, while passing anorder on the ground of concealment of the income, the penalty order came to be passed in light of the Explanation 1 toSection 271(1)(c) of the Act. 5)An assessee had preferred an appeal before the CITAppeals, Revenue, which allowed the appeal of the assesseeand deleted the penalty levied by the Assessing Officer. 6)A challenged was made by the Revenue to the said orderof the CIT Appeals before the Appellate Tribunal, which wasdismissed by the ITAT, on the ground that the AssessingOfficer had initiated the penalty for furnishing inaccurateparticulars of income but ultimately levied the penalty forconcealment of the income and also on the ground of that itwas the case of disallowance, and therefore, also it is not thequestion of concealment of income. More particularly, whenthere was a full disclosure of the claim on the part of theassessee, penalty was not justified,when rejecting of the claimwas on merit. 5)An assessee had preferred an appeal before the CITAppeals, Revenue, which allowed the appeal of the assesseeand deleted the penalty levied by the Assessing Officer. 6)A challenged was made by the Revenue to the said orderof the CIT Appeals before the Appellate Tribunal, which wasdismissed by the ITAT, on the ground that the AssessingOfficer had initiated the penalty for furnishing inaccurateparticulars of income but ultimately levied the penalty forconcealment of the income and also on the ground of that itwas the case of disallowance, and therefore, also it is not thequestion of concealment of income. More particularly, whenthere was a full disclosure of the claim on the part of theassessee, penalty was not justified,when rejecting of the claimwas on merit. 7)Aggrieved Revenue is before this Court. We have heardthe learned Senior Advocate Mr. Manish Bhatt assisted byMr.Munjal Bhatt has taken us through the orders of theAssessing Officer, CIT Appeals and that of the ITAT with anemphasis that the order of the ITAT is on a wrong premise asthe word used in the proceedings under Section 271(1)(c) ofthe Act is of “concealment of the income” or “furnishing ofthe inaccurate particulars”, the initiation on the part of the Assessing Officer keep his own and results into its arriving at aconclusion for levying the penalty for other, that may not inany manner of its order under Section 271(1)(c). It is furtherurged that the reasoning given by the ITAT, holding that, if itis a case of disallowance of the claim of depreciation, therecannot be any question of concealment of income is also toobroader. Principles laid down, which requires seriousconsideration on the part of the Court. It has further urgedthat the respondent when had been made aware and wasconscious of the additional depreciation, which he was notentitled to claim, his wrong claim, has rightly held by theAssessing Officer, has resulted into the penalty under Section271(1)(c) of the Act, and the appeal deserves consideration. 8)We have considered the orders of the Assessing Officer,CIT Appeals and ITAT. We have also noticed that respondenthad claimed the additional depreciation of Rs.18,47,95,000/-for plant and machinery under Section 32(1)(iia) of the Act,which has been disallowed by them on the ground that theproduction has been started in the current year by therespondent, and therefore, it cannot be said to have beenalready engaged in the business of manufacturing. This wasconstrued as furnishing the inaccurate particulars and hence,the Assessing Officer had started the penalty proceedings. Itwould be to refer to Section 271(1)(c) of the Act at this stage. Section 271. (1) If the Assessing Officer or the Commissioner(Appeals) or the Commissioner in the course of anyproceedings under this Act, is satisfied that any person- (c)has concealed the particulars of his income or furnishedinaccurate particulars of such income.” 9)We may direct that the person shall pay by way ofpenalty, as provided under this clause. 10)We could notice that the CIT Appeals and ITAT haveconsidered the disallowance of the claim of depreciation on thepart of the authority to hold that the same is not a ground tohold that it is a concealment of income. While so holding, itnoticed that the respondent had made a claim of depreciationon the strength of Tax Audit Report, and furthermore, therewas a complete disclosure about its claim under Section80HHC SUPPORTED BY THE CERTIFICATION ISSUED BYCHARTERED ACCOUNTANT. Therefore, it reached to theconclusion that merely because the claim on merit was notgranted, the penalty could not be levied. 9)We may direct that the person shall pay by way ofpenalty, as provided under this clause. 10)We could notice that the CIT Appeals and ITAT haveconsidered the disallowance of the claim of depreciation on thepart of the authority to hold that the same is not a ground tohold that it is a concealment of income. While so holding, itnoticed that the respondent had made a claim of depreciationon the strength of Tax Audit Report, and furthermore, therewas a complete disclosure about its claim under Section80HHC SUPPORTED BY THE CERTIFICATION ISSUED BYCHARTERED ACCOUNTANT. Therefore, it reached to theconclusion that merely because the claim on merit was notgranted, the penalty could not be levied. 11)Its quite clear from the detailed discussion on the issuethat assessee had not been alleged of not having disclosed anyparticulars, which it was required to do under the law. It hadmade a complete disclosure of the claim, which was alsocertified by the Chartered Accountant. Necessary declarationsas required in the prescribed form were also made, therefore,both CIT Appeals and the ITAT were absolutely right inholding that non-allowance of any claim of the assessee would not make the penalty proceedings sustainable under the law.While so holding, ITAT relied upon the decision of the ApexCourt rendered in the case of CIT v. Reliance Petroproducts (P)Ltd. [2010] 322 ITR 158 Taxman 322 (SC), wherein, the ApexCourt held that making of incorrect claim would not amountto concealment of particulars. Here also, in absence of anyfurnishing of inaccurate particulars on the part of therespondent of any concealment on his part while making aclaim, no proceedings could be initiated of penalty. It fails tounderstand that additional depreciation was not available to itunder the law if claims before the authority concerned, bydisclosing all particulars which, it was require to do and if theclaim is disallowed, how could it become either theconcealment or furnishing of inaccurate particulars. 12)The Apex Court in the case of Reliance Petroproducts(supra) has clearly held that there has to be a concealment ofparticulars of the income of the assessee or matter to becovered under Section 271(1)(C). Secondly, it must havefurnished inaccurate particulars of his income. In the matterbefore Apex Court it was an admitted position that noinformation given in the written was found to be incorrect orinaccurate. It was not that any statement made or any detailssupplied it was found to be factually incorrect. The revenuehad argued that submitting an incorrect claim in law for theexpenditure or interest would amount to be inaccurateparticulars of such income. The Court said that such cannot be the interpretation of the concerned words, the words are cleanand simple and in order to expose the assessee to the penalty,unless the case is strictly covered by the Proviso, the penaltyprovision cannot be invoked and by no stage of imaginationthe incorrect claim in law can tantamount to furnishing ofinaccurate particulars. “ 7. As against this, Learned Counsel appearing on behalfof the respondent pointed out that the language of Section271(1)(c) had to be strictly construed, this being a taxingstatute and more particularly the one providing for penalty.It was pointed out that unless the wording directly coveredthe assessee and the fact situation herein, there could not beany penalty under the Act. It was pointed out that there wasno concealment or any inaccurate particulars regarding theincome were submitted in the Return. Section 271(1)(c) isas under:- "271(1) If the Assessing Officer or the Commissioner(Appeals) or the Commissioner in the course of anyproceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnishedinaccurate particulars of such income." “ 7. As against this, Learned Counsel appearing on behalfof the respondent pointed out that the language of Section271(1)(c) had to be strictly construed, this being a taxingstatute and more particularly the one providing for penalty.It was pointed out that unless the wording directly coveredthe assessee and the fact situation herein, there could not beany penalty under the Act. It was pointed out that there wasno concealment or any inaccurate particulars regarding theincome were submitted in the Return. Section 271(1)(c) isas under:- "271(1) If the Assessing Officer or the Commissioner(Appeals) or the Commissioner in the course of anyproceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnishedinaccurate particulars of such income." A glance at this provision would suggest that in order to becovered, there has to be concealment of the particulars ofthe income of the assessee. Secondly, the assessee musthave furnished inaccurate particulars of his income. Presentis not the case of concealment of the income. That is not thecase of the Revenue either. However, the Learned Counselfor Revenue suggested that by making incorrect claim forthe expenditure on interest, the assessee has furnishedinaccurate particulars of the income. As per Law Lexicon,the meaning of the word "particular" is a detail or details (inplural sense); the details of a claim, or the separate items ofan account. Therefore, the word "particulars" used in theSection 271(1)(c) would embrace the meaning of the detailsof the claim made. It is an admitted position in the presentcase that no information given in the Return was found tobe incorrect or inaccurate. It is not as if any statement madeor any detail supplied was found to be factually incorrect.Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The LearnedCounsel argued that "submitting an incorrect claim in lawfor the expenditure on interest would amount to givinginaccurate particulars of such income". We do not think thatsuch can be the interpretation of the concerned words. Thewords are plain and simple. In order to expose the assesseeto the penalty unless the case is strictly covered by theprovision, the penalty provision cannot be invoked. By anystretch of imagination, making an incorrect claim in lawcannot tantamount to furnishing inaccurate particulars. InCommissioner of Income Tax, Delhi Vs. Atul MohanBindal [2009(9) SCC 589], where this Court wasconsidering the same provision, the Court observed that theAssessing Officer has to be satisfied that a person hasconcealed the particulars of his income or furnishedinaccurate particulars of such income. This Court referredto another decision of this Court in Union of India Vs.Dharamendra Textile Processors [2008(13) SCC 369], asalso, the decision in Union of India Vs.Rajasthan Spg. &Wvg. Mills [2009(13) SCC 448] and reiterated in para 13that:- "13. It goes without saying that for applicability ofSection 271(1)(c), conditions stated therein must exist." 8. Therefore, it is obvious that it must be shown that theconditions under Section 271(1)(c) must exist before thepenalty is imposed. There can be no dispute that everythingwould depend upon the Return filed because that is the onlydocument, where the assessee can furnish the particulars ofhis income. When such particulars are found to beinaccurate, the liability would arise. In Dilip N. Shroff Vs.Joint Commissioner of Income Tax, Mumbai & Anr.[2007(6) SCC 329], this Court explained the terms"concealment of income" and "furnishing inaccurateparticulars". The Court went on to hold therein that in orderto attract the penalty under Section 271(1)(c), mens rea wasnecessary, as according to the Court, the word "inaccurate"signified a deliberate act or omission on behalf of theassessee. It went on to hold that Clause (iii) of Section271(1) provided for a discretionary jurisdiction upon theAssessing Authority, inasmuch as the amount of penaltycould not be less than the amount of tax sought to beevaded by reason of such concealment of particulars ofincome, but it may not exceed three times thereof. It waspointed out that the term "inaccurate particulars" was notdefined anywhere in the Act and, therefore, it was held thatfurnishing of an assessment of the value of the propertymay not by itself be furnishing inaccurate particulars. It wasfurther held that the assessee must be found to have failedto prove that his explanation is not only not bona fide but all the facts relating to the same and material to thecomputation of his income were not disclosed by him. Itwas then held that the explanation must be preceded by afinding as to how and in what manner, the assessee hadfurnished the particulars of his income. The Courtultimately went on to hold that the element of mens rea wasessential. It was only on the point of mens rea that thejudgment in Dilip N. Shroff Vs. Joint Commissioner ofIncome Tax, Mumbai & Anr. was upset. In Union of IndiaVs. Dharamendra Textile Processors (cited supra), afterquoting from Section 271 extensively and also consideringSection 271(1)(c), the Court came to the conclusion thatsince Section 271(1)(c) indicated the element of strictliability on the assessee for the concealment or for givinginaccurate particulars while filing Return, there was nonecessity of mens rea. The Court went on to hold that theobjective behind enactment of Section 271(1)(c) read withExplanations indicated with the said Section was forproviding remedy for loss of revenue and such a penaltywas a civil liability and, therefore, willful concealment isnot an essential ingredient for attracting civil liability aswas the case in the matter of prosecution under Section276-C of the Act. The basic reason why decision in Dilip N.Shroff Vs. Joint Commissioner of Income Tax, Mumbai &Anr. (cited supra) was overruled by this Court in Union ofIndia Vs. Dharamendra Textile Processors (cited supra),was that according to this Court the effect and differencebetween Section 271(1)(c) and Section 276-C of the Actwas lost sight of in case of Dilip N. Shroff Vs. JointCommissioner of Income Tax, Mumbai & Anr. (citedsupra). However, it must be pointed out that in Union ofIndia Vs. Dharamendra Textile Processors (cited supra), nofault was found with the reasoning in the decision in DilipN. Shroff Vs. Joint Commissioner of Income Tax, Mumbai& Anr. (cited supra), where the Court explained themeaning of the terms "conceal" and inaccurate". It was onlythe ultimate inference in Dilip N. Shroff Vs. JointCommissioner of Income Tax, Mumbai & Anr. (citedsupra) to the effect that mens rea was an essential ingredientfor the penalty under Section 271(1)(c) that the decision inDilip N. Shroff Vs. Joint Commissioner of Income Tax,Mumbai & Anr. (cited supra) was overruled. 9. We are not concerned in the present case with the mensrea. However, we have to only see as to whether in thiscase, as a matter of fact, the assessee has given inaccurateparticulars. 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". 13)Appeal, in view of the discussion above deserves to bedismissed. While not entertaining the appeal of the revenue forthe aforementioned reasons, we choose to clarify, at this stagethat, we do not endorse the version of the ITAT, which seeksto lay down as a broad principle that the case of disallowanceof the claim of depreciation cannot give rise to any question ofconcealment of income since a lot would depend on the factsand circumstances of even case and at the best, it can be saidthat in the given set of facts in the present matter, the ITATwas right in so holding. 14)With this, Appeal is dismissed and disposed of. (SONIA GOKANI, J) VISHAL MISHRA (RAJENDRA M. SAREEN,J)