M/s. Torque Pharmaceuticals (P) ltd, Chandigarh V. Asstt.Commissioner of Income Tax, Chandigarh

CO 4/CHANDI/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0498 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 16-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Depreciation; Earning of tax free income; Proportionate interest; Wrong claim; Difference of opinion; Tax effect; Onus to prove; Change of opinion; Revenue expenditure
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 1131/CHD/2013 ASSESSMENT YEAR: 2007-08 THE ACIT, VS M/S TORQUE PHARMACEUTICALS CIRCLE 1(1), (P) LTD., CHANDIGARH. 693, INDL. AREA, PHASE II, CHANDIGARH. PAN: AABCT1244P & CO NO. 4/CHD/2014 IN ITA NO. 1131/CHD/2013 M/S TORQUE PHARMACEUTICALS VS THE ACIT, (P) LTD., CIRCLED (1) 693, INDL. AREA, CHANDIGARH. PHASE II, CHANDIGARH. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PARIKSHIT AGGARWAL DEPARTMENT BY : SHRI MANJIT SINGH, DR DATE OF HEARING : 07.05.2015 DATE OF PRONOUNCEMENT : 19.05.2015 O R D E R PER BHAVNESH SAINI,JM THE DEPARTMENTAL APPEAL AS WELL AS CROSS OBJECTION BY ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT( APPEALS), CHANDIGARH DATED 10.09.2013 FOR ASSESSMENT YEAR 200 7-08, CHALLENGING THE DELETION OF PART PENALTY UNDER SECT ION 271(1)(C) 2 OF THE INCOME TAX ACT AND PART PENALTY MAINTAINED U NDER SECTION 271(1)(C) OF THE ACT. 2. THE DEPARTMENTAL APPEAL IS FILED ON THE FOLLOWIN G GROUNDS : 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2. THE LD. CIT (A) HAS ERRED IN DELETING PENALTY AMOUNTING TO RS.31,06,069/- ON THE ISSUE OF DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT IGNORING THE FACT THAT. 2.1 THE QUANTUM OF DISALLOWANCE HAD TO BE ESTIMA TED AS THERE WAS VARIATION IN BALANCE OUTSTANDING DURING T HE YEAR BUT THAT DOES NOT ALTER THE FACT THAT THE ASSESSEE HAD DELIBERATELY DIVERTED THE CHARGING OF INTEREST FROM NON TAXABLE INCOME TO TAXABLE INCOME TO REDUCE ITS TAXABLE INCO ME AND THEREBY EVADE PAYMENT OF DUE TAXES. 2.2 THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARIGOPAL SINGH [258 ITR 85) IS NOT APP LICABLE AS THE SAME IS DISTINGUISHABLE ON FACTS. 3. THE LD. CIT (A) HAS ERRED IN DELETING PENALTY AMOUNTING TO RS.5,84,188/- ON ACCOUNT OF CAPITALIZATION OF WEB & SOFTWARE DEVELOPMENT EXPENS ES IGNORING THE FACT THAT THERE IS NO AMBIGUITY ON THE ISSUE AN D FURTHER IN VIEW OF THE DECISION OF HON'BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS ZOOM COMMUNICATION PVT. LTD. (2010) 327 ITR 510 PENALTY IS LEVIABLE IN SUCH CASES WHERE THE PROVISI ON OF THE ACT HAVE NOT BEEN DELIBERATELY FOLLOWED. 4. THE LD. CIT (A) HAS ERRED IN DELETING PENALTY AM OUNTING TO RS. 89,81,947/- IGNORING THE FACT THAT THE ASSES SEE HAS MISERABLY FAILED TO SUBSTANTIATE THE ALLOCATION OF EXPENSES MADE BY IT AS THE SAME WAS MADE WITH AN INTENT TO D IVERT INCOME TO A NON TAXABLE SOURCE AND EVADE TAXES. 5. THE LD. CIT (A) HAS ERRED IN DELETING PENALTY AMOUNTING TO RS.1,20,88,016/- ON THE ISSUE OF REDUC TION OF DEDUCTION U/S 80IC ON ACCOUNT OF REALLOCATION OF EXPENSES ON THE BASIS THAT THE ADDITION HAS BEEN MA DE TWICE BUT IGNORING THE FACT THAT DOUBLE ADDITION ON THIS ISSUE IS CERTAINLY CALLED FOR AS THE ASSESSEE HAD TAKEN DOUB LE BENEFIT BY INFLATING THE EXPENSES AGAINST NON-EXEMPT INCOME AND SIMULTANEOUSLY INFLATING INCOME EXEMPT UNDER SECTIO N 80IC. 3 6. THE LD. CIT(APPEALS) HAS ERRED IN DELETING PENAL TY AMOUNTING TO RS. 78,83,071/- ON THE ISSUE OF DISALL OWANCE OF CARRY FORWARD OF DEPRECIATION LOSS IGNORING THE FAC TS THAT THE ASSESSEE HAS DELIBERATELY CLAIMED DEPRECIATION AFTE R DEDUCTION UNDER SECTION 80IC WHICH IS NOT PERMISSIB LE UNDER THE INCOME TAX ACT,1961. 3. THE CROSS OBJECTION BY ASSESSEE IS FILED ON THE FOLLOWING GROUND : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. LD. CIT(APPEALS) HAS ERRED IN CONFIRMI NG THE PENALTY ON RS. 62,44,417/- BEING THE AMOUNT OF EXCE SS DEDUCTION, UNDER SECTION 80IC CLAIMED BY THE ASSESS EE INADVERTENTLY. 4. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER LEVIED THE PENA LTY UNDER SECTION 271(1)(C) OF THE ACT FOR A SUM OF RS. 1,30, 60,745/- BY MAKING VARIOUS DISALLOWANCES/ADDITIONS. 5. THE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE LD. CIT(APPEALS) AND VARIOUS ADDITIONS/DISALLOWANCES OF THE EXPENSES ON WHICH PENALTY WAS LEVIED BY THE ASSESSI NG OFFICER HAVE BEEN DISCUSSED BY LD. CIT(APPEALS) IN THE APPE LLATE ORDER FOR CANCELING SUBSTANTIAL PENALTY AGAINST ASSESSEE AND MAINTAINED PART PENALTY AGAINST THE ASSESSEE. BOTH THE PARTIES ARE, THEREFORE, UNDER APPEAL/CROSS OBJECTION BEFORE US. THE FINDINGS OF LD. CIT(APPEALS) DISCUSSING VARIOUS ISS UES FOR CANCELING THE PENALTY OR SUSTAINING THE PENALTY IN PARA 5 TO 5 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER : 5. AS PER THE PROVISIONS OF SECTION 271(L)(C), PEN ALTY CAN BE LEVIED, IF THE ASSESSEE HAS CONCEALED PARTICULARS O F ITS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. FO R THE SAKE OF 4 READY REFERENCE, EXPLANATION-1 BELOW SECTION 271(1) IS REPRODUCED BELOW: 'EXPLANATION 1.-WHERE IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT,- (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN , EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER TO BE FA LSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONAFIDE AND THAT ALL THE FACTS RELATING TO THE SAM E AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAV E BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING T HE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE P URPOSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INC OME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED.' 5.1 THUS, WHEN THE ASSESSEE HAS CONCEALED PARTICULA RS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS, APPLICABILITY OF CONDITIONS LAID DOWN IN EXPLANATION-1 (SUPRA) HAVE TO BE EXAMINED. THE VARIOUS ISSUES ON WHICH PENALTY HAVE BEEN LEVIED, EXPLANATI ON OF THE APPELLANT AND MY FINDINGS ON THESE ISSUES ARE AS UNDER: (A) PENALTY LEVIED ON DISALLOWANCE OF INTEREST DEBI TED IN THE DERA BASSI UNIT ON ACCOUNT OF DIVERSION OF FUNDS BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSING OFF ICER HAD NOTICED THAT 'BADDI MANUFACTURING ACCOUNT' IN THE BOOKS OF DERA BASSI UNIT HAD HUGE DEBIT BALANCES THROUGHOUT THE YEAR. THE AP PELLANT HAD DEBITED INTEREST OF RS. 31,06,069/- TO THE PROF IT AND LOSS ACCOUNT IN THE DERA BASSI UNIT. AS PER THE ASSESSMENT ORDER , THE FUNDS HAD BEEN DIVERTED TO THE BADDI MANUFACTURING UNIT WHERE AS INTEREST ON THESE FUNDS WAS DEBITED TO THE DERA BASSI UNIT. THE ASSESSING OFFICER COMPUTED THE INTEREST ON ACCOUNT OF DIVERSI ON OF FUNDS AT RS. 43,45,928/-, THE INTEREST DISALLOWANCE WAS REST RICTED TO RS. 31,06,069/-, EQUAL TO THE AMOUNT DEBITED IN DERA BA SSI UNIT. THE REALLOCATION OF INTEREST EXPENDITURE RESULTED INTO REDUCTION OF DEDUCTION U/S 80IC TO THE SAME EXTENT. THE ASSESSIN G OFFICER HAS LEVIED PENALTY FOR CONCEALMENT ON ACCOUNT OF THIS D ISALLOWANCE DURING THE COURSE OF APPELLATE PROCEEDINGS, IT HAS BEEN SUBMITTED THAT THE FUNDS TRANSFERRED BY DERA BASSI UNIT TO BA DDI MANUFACTURING UNIT IN THE BEGINNING OF THE YEAR WER E PAID BACK AND THE CREDIT BALANCE WAS ON ACCOUNT OF ENTRIES PASSED IN PROFIT TRANSFERRED TO DERA BASSI UNIT. THE APPELLANT HAD DEBITED INTEREST TO THE PROFIT AN D LOSS ACCOUNT OF DERA BASSI UNIT WHEREAS THE FUNDS, IN RE SPECT OF WHICH THE INTEREST WAS CLAIMED, WERE USED BY BADDI MANUFA CTURING UNIT. 5 THE ASSESSING OFFICER ESTIMATED THE INTEREST ON DEB IT BALANCES AND NOTICED THAT THE ESTIMATED INTEREST WAS WORKING OUT TO MORE THAN THE INTEREST IN THE DERA BASSI UNIT AND SO HE DISAL LOWED THE ENTIRE INTEREST CLAIMED, WHICH, IPSO-FACTO, RESULTE D INTO REDUCTION OF DEDUCTION U/S 80IC OF THE ACT. IN MY C ONSIDERED VIEW, THE PROPORTIONATE DISALLOWANCE OF INTEREST U/ S 36(1) (III) IS ESTIMATED AND NOTIONAL AND SUCH A DISALLOWANCE DOES NOT CALL FOR LEVY OF PENALTY U/S 271(L)(C) IN VIEW OF THE DECISI ON OF HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF HARIGO PAL SINGH (258 ITR 85), IN WHICH IT HAS BEEN HELD: 'ADDITIONS IN HIS INCOME WERE MADE, AS ALREADY OBSE RVED, ON ESTIMATE BASIS AND THAT BY ITSELF DOES NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE EITHER CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THERE HAS TO BE A POSITIVE ACT OF CONCEALMENT ON HIS PART AND TH E ONUS TO PROVE THIS IS ON THE DEPARTMENT.' MOREOVER, THE APPELLANT HAD NOT CONCEALED ANY PARTI CULARS OF ITS INCOME. HENCE, THE PENALTY LEVIED ON THIS ISSU E IS CANCELLED. (B) PENALTY LEVIED ON WEB/ SOFTWARE DEVELOPMENT EXP ENSES BRIEF FACTS OF THE ISSUE ARE THAT THE APPELLANT HAD CLAIMED AN AMOUNT OF RS. 12,41,796/- ON ACCOUNT OF WEB AND SOF TWARE DEVELOPMENT EXPENSES IN THE BOOKS OF DERA BASSI UNI T. THE ASSESSING OFFICER TREATED THIS EXPENDITURE AS CAPIT AL EXPENDITURE AND ALLOWED DEPRECIATION AT THE RATE OF 60%. THE DI SALLOWANCE WORKED OUT TO RS. 5,84,188/-. THE PENALTY FOR CONCE ALMENT HAS BEEN LEVIED ON THIS ADDITION. DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE LD, COUNSEL FOR THE APPELLANT HAS SUBMITTED THAT THE EXPENDITUR E WAS MAINLY ON ACCOUNT OF UPGRADATION OF THE WEBSITE AND PROPER IMPLEMENTATION OF ERP AND INCLUDED TRAVELING EXPENS ES OF CONSULTANCY FIRM'S EMPLOYEES. THE EXPENDITURE WAS CAPITALISED BY THE ASSESSING OF FICER IN VIEW OF THE NEW APPENDIX-I AND THE ARGUMENT OF THE APPELLAN T THAT SOFTWARE BECOME OBSOLETE IN VIEW OF THE RAPID TECHN OLOGY ADVANCEMENT WAS NOT ACCEPTED ON THE GROUND THAT FOR THIS REASON ONLY, A VERY HIGH OF DEPRECIATION RATE OF 60 % WAS ALLOWED. THE APPELLANT HAD CLAIMED THIS EXPENDITURE AS REVENUE EXPENDITURE BECAUSE IN ITS OPINION, IT WAS AN ALLOW ABLE EXPENDITURE BEING ON ACCOUNT OF UPGRADATION OF THE WEBSITE. BE AS IT MAY, AS IT WAS ON ACCOUNT OF DIFFERENCE OF OPINI ON THAT THE APPELLANT HAD CLAIMED THIS EXPENDITURE AS REVENUE E XPENDITURE AND SO PENALTY FOR CONCEALMENT WAS NOT LEVIABLE ON THE ISSUE. THE PENALTY LEVIED ON THIS ISSUE IS ACCORDINGLY CAN CELLED. (C) PENALTY FOR DISALLOWANCE OF EXPENSES ON ACCOUNT OF REALLOCATION OF EXPENSES BRIEF FACTS OF THE ISSUE ARE THAT THE APPELLANT HAD THREE UNITS VIZ DERA BASSI UNIT, BADDI MANUFACTURING UNIT AND BADDI TRADING UNIT DURING THE YEAR UNDER CONSIDERATION AND HAD CL AIMED DEDUCTION U/S 80IC ON THE PROFITS OF BADDI MANUFACT URING UNIT. THE 6 ASSESSING OFFICER NOTICED THAT THE APPELLANT HAD DE CLARED LOSS IN DERA BASSI UNIT, WHEREAS THERE WAS SUBSTANTIAL PROFIT IN BADDI UNIT. HE EXAMINED THE TRADING RESULTS OF ALL THE THREE UNI TS AND CONCLUDED THAT THE APPELLANT HAD CLAIMED EXCESS EXPENDITURE OF RS. 89,81,947/- IN THE PROFIT AND LOSS ACCOUNT OF DERA BASSI UNIT. HE ACCORDINGLY REALLOCATED THESE EXPENSES AMONG THE UN ITS ON TURNOVER BASIS, WHICH RESULTED INTO REDUCTION OF DEDUCTION U /S 80IC TO THE TUNE OF RS. 89,81,947/-. PENALTY PROCEEDINGS U/S 271(L)( C) WERE ALSO INITIATED. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL FOR THE APPELLANT HAS SUBMITTED THAT THE APPORTIONMENT OF C OMMON EXPENSES WAS MADE BY THE APPELLANT ITSELF, ALTHOUGH NOT ON T URNOVER BASIS. IT HAS ALSO BEEN SUBMITTED THAT NO PENALTY WAS LEVIED ON SIMILAR ADDITION MADE IN A.Y. 2006-07. I HAVE CONSIDERED THE FACTS OF THE ISSUE. THE REALL OCATION OF EXPENSES WAS MADE IN RESPECT OF RESEARCH AND DEVELOPMENT EXP ENSES, SALARY, DIRECTORS' REMUNERATION, LEGAL AND PROFESSIONAL CHA RGES, DIRECTORS' EXPENSES, AUDIT FEES, SALES PROMOTION AND ADVERTISE MENTS ETC. THE EXPLANATION OF THE APPELLANT IN THE ASSESSMENT PROC EEDINGS AND BEFORE MY PREDECESSOR WAS THAT THE EXPENSES WERE DE BITED ON THE BASIS OF ACTUAL EXPENSES INCURRED IN THE RESPECTIVE UNITS. IT WAS SUBMITTED THAT RESCHEDULING OF EXPENSES ON TURNOVER BASIS WAS NOT CORRECT. IN NUTSHELL, THE APPELLANT HAD MADE ALLOCA TION OF EXPENSES ON ACTUAL BASIS, WHEREAS IN THE OPINION OF THE ASSESSI NG OFFICER, IT WAS DONE ONLY TO REDUCE THE TAXABLE PROFITS. IN OTHER W ORDS, THERE WAS DIFFERENCE OF OPINION ON THE ISSUE AND 'SO SUCH REA LLOCATION OF EXPENSES CERTAINLY DOES NOT CALL FOR LEVY OF PENALT Y FOR CONCEALMENT, SINCE THE APPELLANT HAD NOT CONCEALED ANY PARTICULA RS OF ITS INCOME. PENALTY FOR CONCEALMENT LEVIED UNDER SIMILAR CIRCUM STANCES WAS CANCELLED BY HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF RAJ OVERSEAS (336 ITR 261) AND BY HONBLE ITAT, CHA NDIGARH IN THE CASE OF PERFECT FORGINGS (143 TTJ 117). HENCE, THE PENALTY FOR CONCEALMENT LEVIED ON THIS ISSUE IS ALSO CANCELLED. D) PENALTY LEVIED ON REDUCTION OF DEDUCTION U/ S 80IC BRIEF FACTS OF THE ISSUE ARE THAT THE APPELLANT HAD CLAIMED DEDUCTION U/S 80IC TO THE TUNE OF RS. 3,43,67,266/- IN THE CO MPUTATION OF INCOME. THE ASSESSING OFFICER NOTICED THAT THE ALLO WABLE DEDUCTION U/S 80IC AS CERTIFIED IN FORM NO. 10CCB WAS OF RS. 2,81,22,849/- AND SO THE EXCESS DEDUCTION OF RS. 62,44,417/- (3,43,67 ,266 - 2,81,22,849) HAD BEEN CLAIMED BY THE APPELLANT. THE ASSESSING OF FICER WORKED OUT THE DEDUCTION U/S 80IC IN THE ASSESSMENT ORDER AT R S. 1,61,20, 563/- BY REDUCING RS, 31,06,069/- ON ACCOUNT OF REALLOCAT ION OF INTEREST EXPENSES AND RS. 89,81,947/- ON ACCOUNT OF REALLOCA TION OF COMMON EXPENSES. THE ASSESSING OFFICER HAS ALSO LEVIED PEN ALTY FOR CONCEALMENT ON DIFFERENCE OF DEDUCTION U/S 80IC AS CLAIMED IN THE COMPUTATION OF INCOME AND AS PER FORM NO. 10CCB. IN NUTSHELL, THE DEDUCTION U/S 80IC HAD BEEN REDUCED BY THE ASSESSI NG OFFICER BY THE FOLLOWING AMOUNTS I) REALLOCATION OF INTEREST EXPENSES RS. 31,06, 069/- II) REALLOCATION OF COMMON EXPENSES RS. 89,81,9 47/- 7 III) EXCESS CLAIM DUE TO DIFFERENCE RS. 62,44,41 7/- BETWEEN CLAIM IN THE COMPUTATION OF INCOME AND AS PER FORM NO. 10CCB ------------------- TOTAL : RS.1,83,32,433/- ------------------- REGARDING THE DISALLOWANCE ON ACCOUNT OF REALLOCATI ON OF INTEREST EXPENSES AND COMMON EXPENSES, THE LD. COUN SEL HAS SUBMITTED THAT ADDITION HAD ALREADY BEEN MADE AND S O DEDUCTION U/ S 80IC SHOULD NOT HAVE BEEN REDUCED BY THESE AMOUNTS. REGARDING DIFFERENCE BETWEEN CLAIM IN COMPUTATION AND AS PER FORM NO.1OCCB, THE EXPLANATION IS THAT IT WAS A TECHNICAL MISTAKE DUE TO OVERSIGHT. IT IS SEEN THAT ADDITION ON ACCOUNT OF REALL OCATION OF INTEREST EXPENSES AND COMMON EXPENSES HAD ALREADY BEEN MADE AND SO REDUCTION OF DEDUCTION U/S 80IC TO THE EXTENT OF TH ESE DISALLOWANCES WOULD TANTAMOUNT TO DOUBLE ADDITION AND THE ARGUMEN T OF THE LD. COUNSEL IN THIS REGARD IS CORRECT. IN ANY CASE, I H AVE ALREADY HELD THAT PENALTY FOR CONCEALMENT ON ACCOUNT OF SUCH REA LLOCATION OF EXPENSES IS NOT LEVIABLE AND SO NOTWITHSTANDING THE FACT THAT THE ADDITION HAS BEEN MADE TWICE, IT IS HELD THAT PENA LTY FOR CONCEALMENT IS NOT LEVIABLE ON ACCOUNT OF REDUCTION OF DEDUCTION U /S 80IC BY REALLOCATION OF INTEREST EXPENSES AND COMMON EXPENS ES THE ARGUMENT OF THE LD. COUNSEL THAT DEDUCTION U/S 80IC WAS CLAIMED MORE THAN WHAT THE AUDITORS HAD CERTIFIED IN FORM N O. 10CCB, BY OVERSIGHT IS, HOWEVER, NOT ACCEPTABLE, SINCE THE AU DITORS HAVE DULY CERTIFIED CLAIM OF DEDUCTION U/S 80IC IN FORM NO. 1 0CCB AND IT CANNOT BE SAID THAT IT WAS NOT DELIBERATE ON THE PART OF T HE APPELLANT TO CLAIM HIGHER DEDUCTION. THE RATIO OF JUDGEMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF M/S ZOOM COMMUNICATION (P) LTD. (327 ITR 510) IS SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CAS E. THE HON'BLE HIGH COURT HAD HELD AS UNDER IN THIS CASE: 'IT IS TRUE THAT MERE SUBMITTING A CLAIM WHICH IS I NCORRECT IN LAW WOULD NOT AMOUNT TO GIVING INACCURATE PARTICULA RS OF THE INCOME OF THE ASSESSEE, BUT IT CANNOT BE DISPUTED T HAT THE CLAIM MADE BY THE ASSESSEE NEEDS TO BE BONA FIDE. I F THE CLAIM BESIDES BEING INCORRECT IN LAW IS MALA FIDE, EXPLAN ATION 1 TO SECTION 271 (1) WOULD COME INTO PLAY AND WORK TO TH E DISADVANTAGE OF THE ASSESSEE. 20. THE COURT CANNOT OVERLOOK THE FACT THAT ONLY A SMALL PERCENTAGE OF THE INCOME-TAX RETURNS ARE PICKED UP FOR SCRUTINY. IF THE ASSESSEE MAKES A CLAIM WHICH IS NO T ONLY INCORRECT IN LAW BUT IS ALSO WHOLLY WITHOUT ANY BAS IS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAI M IS NOT FOUND TO BE BONA FIDE, IT WOULD BE DIFFICULT TO SAY THAT HE WOULD STILL NOT BE LIABLE TO PENALTY-UNDER SECTION 271(L) (C) OF THE ACT. IF WE TAKE THE VIEW THAT A CLAIM WHICH IS WHOLLY UNTENABLE IN 8 LAW AND HAS ABSOLUTELY NO FOUNDATION ON WHICH IT CO ULD BE MADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITIO N OF PENALTY, EVEN IF HE WAS NOT ACTING BONA FIDE WHILE MAKING A CLAIM OF THIS NATURE, THAT WOULD GIVE A LICENCE TO UNSCRUPULOUS ASSESSEES TO MAKE WHOLLY UNTENABLE AND UNSUSTAINABLE CLAIMS WITHOUT THERE BEING ANY BASIS FOR MAKING THEM, IN THE HOPE THAT THEIR RETURN WOULD NO T BE PICKED UP FOR SCRUTINY AND THEY WOULD BE ASSESSED O N THE BASIS OF SELF-ASSESSMENT UNDER SECTION 143(1) OF TH E ACT AND EVEN IF THEIR CASE IS SELECTED FOR SCRUTINY, THEY C AN GET AWAY MERELY BY PAYING THE TAX, WHICH IN ANY CASE, WAS PA YABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE PERSONS WHO MAKE CLAIMS OF THIS NATURE, ACTUATED BY A MALA FIDE INTE NTION TO EVADE TAX OTHERWISE PAYABLE BY THEM WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM, IF THEIR CA SES ARE NOT PICKED UP FOR SCRUTINY. THIS WOULD TAKE AWAY TH E DETERRENT EFFECT, WHICH THESE PENALTY PROVISIONS IN THE ACT HAVE.' IN FACT, IF THE CASE OF THE APPELLANT WAS NOT UNDER SCRUTINY, THE SAID MISTAKE WOULD HAVE NEVER COME TO THE LIGHT. THE EXPLANATION FURNISHED FOR CLAIMING HIG HER DEDUCTION U/S 80IC TO THE TUNE OF RS. 62,44,417/- I N THE RETURN OF INCOME IS NOT BONAFIDE AND SO IT IS HELD THAT THE ASSESSING OFFICER WAS RIGHT IN LEVYING PENALTY FOR CONCEALMENT ON THIS DISALLOWANCE. HENCE, THE PENALT Y FOR CONCEALMENT LEVIED ON ACCOUNT OF CLAIMING HIGHE R DEDUCTION U/S 80IC TO THE TUNE OF RS. 62,44,417/-, IS CONFIRMED AND IT IS CANCELLED ON THE REDUCTION OF DEDUCTION U/S 80IC BY REALLOCATION OF INTEREST EXPE NSES AND COMMON EXPENSES TO THE TUNE OF RS. 1, 20,88, 01 6/- (31,06,069 + 89,81,947). (E) PENALTY LEVIED ON DISALLOWANCE OF CARRY FORWARD OF DEPRECIATION LOSS BRIEF FACTS OF THE ISSUE ARE THAT AS PER THE COMPUT ATION OF TOTAL INCOME FILED BY THE APPELLANT, CURRENT YEAR'S DEPR ECIATION LOSS OF RS. 78,33,071/- HAD BEEN CLAIMED TO BE CARRIED FORWARD. **** IT IS SEEN THAT A NUMBER OF ADDITIONS HAD BEEN MADE IN THE SCR UTINY ASSESSMENT, AS A RESULT OF WHICH THE INCOME OF THE APPELLANT HA D INCREASED AND THE ENTIRE CURRENT YEAR'S DEPRECIATION HAD BEEN ABS ORBED AND SO NO DEPRECIATION LOSS WAS LEFT TO BE CARRIED FORWARD. T HE ASSESSING OFFICER HAD ACCORDINGLY HELD IN THE ASSESSMENT ORDE R THAT THE APPELLANT WAS NOT ELIGIBLE TO CARRY FORWARD THE DEP RECIATION LOSS OF RS. 78,83,071/- AND HAD INITIATED PENALTY PROCEEDIN GS ALSO. THE ASSESSING OFFICER HAS LEVIED PENALTY FOR CONCEALMEN T ON THIS DISALLOWANCE ALSO. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL FOR THE APPELLANT HAS SUBMITTED THAT WHILE FILING THE RETUR N, THE DEPRECIATION 9 LOSS SHOULD HAVE BEEN DEDUCTED BEFORE DEDUCTING THE CLAIM U/S 80IC, WHEREAS THE DEDUCTION U/S 80IC WAS TO BE DEDUCTED B EFORE DEDUCTING THE AMOUNT OF DEPRECIATION. ACCORDING TO HIM, THIS RESULTED INTO INCORRECT CLAIM OF CARRY FORWARD OF CURRENT YEAR'S DEPRECIATION. I HAVE CONSIDERED THE SUBMISSION OF THE LD., COUNSE L. IT IS CORRECT THAT THE APPELLANT HAD CLAIMED BROUGHT FORWARD OF CURRENT YEAR'S DEPRECIATION DUE TO WRONG APPLICATION OF LAW , SINCE THE DEPRECIATION WAS TO BE DEDUCTED BEFORE DEDUCTING TH E CLAIM OF DEDUCTION U/S 80IC. HOWEVER, AS DISCUSSED HEREIN ABOVE, THE I NCOME OF THE APPELLANT HAD INCREASED DUE TO VARIOUS DISALLOWANCE S BECAUSE OF WHICH THE ENTIRE CURRENT YEAR'S DEPRECIATION WAS ABSORBED IN THE CURRENT YEAR ITSELF AND THE APPELLANT WAS NOT ENTITLED TO ANY CL AIM OF CARRY FORWARD OF DEPRECIATION. THUS, THE MISTAKE COMMITTED BY THE APPELLANT IN THE COMPUTATION OF INCOME WAS WIPED OUT BECAUSE OF THE ADDITIONS. MOREOVER, PENALTY FOR CONCEALMENT HAD ALREADY BEEN LEVIED BY THE ASSESSING OFFICER IN RESPECT OF VARIOUS ADDITIONS A ND SO THE SAME WOULD HAVE TAKEN CARE OF THE DEPRECIATION LOSS ALSO. IN V IEW OF THIS DISCUSSION, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT RIGHT IN IMPOSING PENALTY FOR CONCEALMENT ON ACCOUNT OF IMPUGNED WRONG CLAIM OF CURRENT YEAR'S DEPRECIATION AND THE PENALTY LEVIED ON THIS ACCOUNT IS CANCELLED . 4.1 IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO RECOMPUTE THE PENALTY FOR CONCEALMENT. THE GROUNDS OF APPEAL TAKEN BY THE APPELLANT ARE PARTLY ALLOWED. 5. IN THE RESULT, THE APPEAL IS PARTLY ALLOWE D. 6. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT F IND ANY MERIT IN THE DEPARTMENTAL APPEAL AND ALSO DO NOT FI ND ANY JUSTIFICATION FOR LD. CIT(APPEALS) TO SUSTAIN PART PENALTY AGAINST THE ASSESSEE. THE LD. CIT(APPEALS) DISCUSSED VARIO US ISSUES IN THE APPELLATE ORDER FOR CANCELING THE PENALTY. 7. THE FIRST ADDITION ON WHICH PENALTY HAS BEEN DEL ETED IS ON ACCOUNT OF DISALLOWANCE OF INTEREST. THE ASSESSEE HAS DEBITED INTEREST TO THE PROFIT & LOSS ACCOUNT OF DERA BASSI UNIT WHEREAS THE FUNDS, IN RESPECT OF WHICH THE INTEREST WAS CLA IMED, WERE USED BY BADDI MANUFACTURING UNIT. THE ASSESSING OF FICER ESTIMATED THE INTEREST ON DEBIT BALANCES AND NOTICE D THAT THE ESTIMATED INTEREST WAS WORKING OUT TO MORE THAN INT EREST IN DERA 10 BASSI UNIT AND SO HE DISALLOWED THE INTEREST CLAIME D IP-SO-FACTO RESULTED INTO RETENTION OF DEDUCTION UNDER SECTION 80IC OF THE ACT. IT WAS, THEREFORE, AN ISSUE OF PROPORTIONATE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT. SINC E ALL THE PARTICULARS OF CLAIM OF INTEREST WERE DISCLOSED TO THE REVENUE AND ONLY PROPORTIONATE INTEREST HAVE BEEN DISALLOWED, T HEREFORE, ON MERE DISALLOWANCE OF INTEREST ON ESTIMATE BASIS, LD . CIT(APPEALS) WAS JUSTIFIED IN CANCELING THE PENALTY. 8. THE LD. CIT(APPEALS) ALSO CANCELLED THE PENALTY WITH REGARD TO ADDITION MADE ON ACCOUNT OF WEB SOFTWARE DEVELOP MENT EXPENSES. THE ASSESSING OFFICER TREATED THE EXPENDI TURE TO BE CAPITAL IN NATURE AND ALLOWED HEAVY DEPRECIATION WH ICH RESULTED INTO PART ADDITION. THE ASSESSEE CLAIMED THE EXPE NDITURE TO BE REVENUE IN NATURE, HOWEVER ASSESSING OFFICER TOOK I T TO BE CAPITAL IN NATURE. THEREFORE, IT WAS MERE CASE OF CHANGE OF OPINION AND AS SUCH WOULD NOT WARRANT LEVY OF PENAL TY. THE LD. CIT(APPEALS), THEREFORE, CORRECTLY DELETED THE PENA LTY ON THAT ADDITION. 9. THE OTHER ISSUE FOR LEVY OF PENALTY IS DISALLOWA NCE OF EXPENSES ON ACCOUNT OF RE-ALLOCATION OF EXPENSES. T HE ASSESSEE MADE ALLOCATION OF EXPENSES ON ACTUAL BASIS WHEREAS IN THE OPINION OF THE ASSESSING OFFICER, IT WAS DONE ONLY TO REDUCE TAXABLE PROFIT. WITH REGARD TO THE RE-ALLOCATION O F EXPENSES OF VARIOUS UNITS, THERE MAY BE A DIFFERENCE OF OPINION AS THE ASSESSING OFFICER DID NOT ACCEPT OPINION OF THE ASS ESSEE WITH REGARD TO ONE UNIT BUT CERTAINLY IT WOULD NOT GIVE RISE FOR LEVY OF THE PENALTY AGAINST THE ASSESSEE. THE LD. CIT(APPE ALS) BY FOLLOWING THE DECISION OF THE HON'BLE PUNJAB & HARY ANA HIGH 11 COURT, IN THE CASE OF RAJ OVERSEAS (336 ITR 261) AN D ORDER OF ITAT CHANDIGARH BENCH IN THE CASE OF PERFECT FORGIN GS (143 TTJ 117 )CANCELLED THE PENALTY ON THIS ISSUE. 10. THE OTHER ISSUE IS WITH REGARD TO LEVY OF PENAL TY LEVIED ON REDUCTION OF DEDUCTION UNDER SECTION 80IC OF THE AC T. THE LD. CIT(APPEALS) NOTED THAT HE HAS ALREADY CANCELLED TH E PENALTY ON ACCOUNT OF RE-ALLOCATION OF THE EXPENSES. THEREFOR E, FOR RE- ALLOCATION OF INTEREST EXPENSES UNDER SECTION 80IC, HE HAS CANCELLED THE PENALTY, HOWEVER, NOTED THAT ASSESSEE HAS CLAIMED MORE THAN THE DEDUCTION UNDER SECTION 80IC OF THE A CT AS PER THE REPORT OF THE AUDITOR, THEREFORE ON THE AMOUNT OF RS. 62,44,417/-, PENALTY WAS CONFIRMED ON WHICH ASSESSE E IS IN CROSS OBJECTION. 11. THE LD. COUNSEL FOR THE ASSESSEE FILED THE COPY OF THE COMPUTATION OF INCOME ALONGWITH CALCULATION AFTER G IVING APPEAL EFFECT ON QUANTUM BY THE LD. CIT(APPEALS) AS WELL A S BY THE ITAT. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, SAME CAL CULATION SHEET FILED ON RECORD, THE INCOME ASSESSED BY THE A SSESSING OFFICER UNDER SECTION 143(3) WAS RS. 3,42,84,619/- AFTER MAKING SEVERAL ADDITIONS ON WHICH PENALTY WAS IMPOSED BY T HE ASSESSING OFFICER. AFTER GIVING PART RELIEF BY THE LD. CIT(APPEALS) ON QUANTUM TOTALLY IN A SUM OF RS. 1,15,41,049/-, T HE BALANCE ASSESSED INCOME AFTER THE ORDER OF LD. CIT(APPEALS) , COMES TO RS. 2,27,43,570/-. THE ITAT, CHANDIGARH BENCH FURTHER ALLOWED RELIEF TO THE ASSESSEE ON VARIOUS HEADS IN A SUM OF RS. 1,56,62,264/- AND THUS, THE BALANCE ASSESSED INCOME CAME TO RS. 70,81,306/-. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEEMED TOTAL INCOME UNDER SECTION 115JB OF THE ACT ON 12 WHICH TAX PAID WHILE FILING THE RETURN WAS AT RS. 3 ,47,64,718/- AS WAS ALSO NOTED BY THE ASSESSING OFFICER IN THE C OMPUTATION OF INCOME AND THUS, TAX IS PAID ON THE HIGHER INCOME A S DECLARED BY THE ASSESSEE UNDER DEEMING PROVISION. THE GROSS TAX PAYABLE ON MAT I.E. 115JB OF THE ACT, INCOME IS HIGHER AND THE TAX COMES TO RS. 34,76,470/-. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT EVEN AFTER MAKING SOME AD DITIONS, THERE IS NO TAX EFFECT AGAINST THE ASSESSEE FOR LEV Y OF THE PENALTY AND RELIED UPON DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS NALWA SONS INVESTMENTS LTD. 327 ITR 543, IN WHICH IT WAS HELD THAT IN SUCH CIRCUMSTANCES, PENAL TY CANNOT BE LEVIED UNDER SECTION 271(1)(C) OF THE ACT. THE FIN DINGS OF THE HON'BLE HIGH COURT READ AS UNDER : UNDER THE SCHEME OF THE INCOME-TAX ACT, 1961, THE TOTAL INCOME OF THE ASSESSEE IS FIRST COMPUTED UNDER THE NORMAL PRO VISIONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARE D WITH THE PRESCRIBED PERCENTAGE OF THE BOOK PROFITS COMPUTED UNDER SECTION 115JB OF THE ACT. THE HIGHER OF THE TWO AMOUNTS IS REGARDED AS TOTAL INCOME AND TAX IS PAYABLE WITH REFERENCE TO SUCH TO TAL INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER, SUCH AMOUNT IS THE TOTAL INCOME OF THE ASSESSEE, OTHERWISE, THE BO OK PROFITS ARE DEEMED AS THE TOTAL INCOME OF THE ASSESSEE IN TERMS OF SECTION 115JB OF THE ACT. WHERE THE INCOME COMPUTED IN ACCO RDANCE WITH THE NORMAL PROCEDURE IS LESS THAN THE INCOME DETERM INED BY LEGAL FICTION, NAMELY, THE BOOK PROFITS UNDER ON 115JB OF THE ACT AND THE INCOME OF THE ASSESSEE IS ASSESSED UNDER SECTION 11 5JB AND NOT UNDER THE NORMAL PROVISIONS, THE TAX IS PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE ACT. CONCEALMENT OF INCO ME WOULD HAVE NO ROLE TO PLAY AND WOULD NOT LEAD TO TAX EVASION. THEREFORE, PENALTY CANNOT BE IMPOSED ON THE BASIS OF DISALLOWA NCES OR ADDITIONS MADE UNDER THE REGULAR PROVISIONS. 12. HE HAS FURTHER SUBMITTED THAT HON'BLE PUNJAB & HARYANA HIGH COURT IN UNREPORTED DECISION IN THE CASE OF CI T VS M/S VARDHMAN ACRYLICS LTD., LUDHIANA ITA 346 OF 2013 VI DE ORDER DATED 04.08.2014 BY FOLLOWING THE SAME JUDGEMENT IN THE CASE OF 13 NALWA SONS INVESTMENT LTD. (SUPRA) DISMISSED THE DE PARTMENTAL APPEAL, COPY OF THE ORDER IS PLACED ON RECORD. THE LD. COUNSEL FOR THE ASSESSEE, THEREFORE, SUBMITTED THAT ON THIS REA SON ALONE, THE ENTIRE PENALTY MAY BE DELETED. HOWEVER, LD. DR REL IED UPON ORDER OF THE ASSESSING OFFICER. 13. CONSIDERING THE FACTS OF THE CASE AND CALCULATI ON SHEET FILED BY THE LD. COUNSEL FOR THE ASSESSEE, WHICH IS NOT I N DISPUTE, WE FIND THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY JUDGEMENT OF HON'BLE DELHI HIGH COURT IN THE CASE O F NALWA SONS INVESTMENT LTD. (SUPRA) WHICH IS ALSO FOLLOWED BY H ON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS M/S VARD HMAN ACRYLICS LTD., LUDHIANA (SUPRA). THEREFORE, PENALT Y CANNOT BE LEVIED AGAINST THE ASSESSEE ON ALL THE ADDITIONS MA INTAINED EVEN AFTER GIVING APPEAL EFFECT OF THE ORDER OF LD. CIT( APPEALS) AND THE TRIBUNAL. WE, ACCORDINGLY SET ASIDE THE ORDER OF L D. CIT(APPEALS) AND DELETE PENALTY EVEN ON THE ADDITION MAINTAINED IN A SUM OF RS. 62,44,417/-. THIS GROUND OF APPEAL OF THE REVEN UE IS DISMISSED, HOWEVER, CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 14. THE LAST ITEM IN THE DEPARTMENTAL APPEAL ON WHI CH PENALTY HAS BEEN CANCELLED IS DISALLOWANCE OF CARRY FORWARD OF DEPRECIATION. THE LD. CIT(APPEALS) CONSIDERED THIS ISSUE IN DETAIL AND NOTED THAT THE ASSESSEE HAD INCREASED TH E CLAIM OF DEPRECIATION DUE TO VARIOUS DISALLOWANCES BECAUSE O F WHICH ENTIRE CURRENT YEARS DEPRECIATION WAS ABSORBED IN THE CURRENT YEAR ITSELF. THEREFORE, IT MAY BE A MISTAKE COMMIT TED BY ASSESSEE IN COMPUTING THE INCOME. THEREFORE, PENAL TY WAS CORRECTLY CANCELLED IN THE MATTER ON CLAIM OF DEPRE CIATION. EVEN OTHERWISE, ON THE BASIS OF COMPUTATION OF INCOME AS PER MAT 14 PROVISIONS, NO PENALTY WOULD BE LEVIED AGAINST THE ASSESSEE. THEREFORE, THIS GROUND OF APPEAL OF DEPARTMENTAL AP PEAL IS ALSO DISMISSED. 15. CONSIDERING THE ABOVE DISCUSSION IN THE LIGHT O F DECISION OF THE DELHI HIGH COURT IN THE CASE OF NALWA SONS INVE STMENT LTD. (SUPRA), WE DO NOT FIND ANY MERIT IN THE DEPARTMENT AL APPEAL AND THE SAME IS, THEREFORE, DISMISSED. HOWEVER, THE CR OSS OBJECTION OF THE ASSESSEE IS ALLOWED BY SETTING ASIDE PART OF THE FINDING OF THE LD. CIT(APPEALS) AND PENALTY IS ALSO CANCELLED ON THE AMOUNT ON WHICH LD. CIT(APPEALS) SUSTAINED THE PENALTY. 16. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MAY,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 TH MAY,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH