COMMISSIONER OF INCOME TAX II V. GROWTH COMPUSOFT EXPORTS LTD

TAXAP/917/2013

AI Insights

The case involves two tax appeals by the Commissioner of Income Tax against Growth Compusoft Exports Ltd., concerning penalties imposed for the Assessment Years 2003-04 and 2005-06 under Section 271(1)(C) of the Income Tax Act. The ITAT had previously dismissed the revenue's appeals, confirming the CIT(A)'s decisions which deleted the penalties. The main legal question was whether the ITAT was correct in upholding the deletion of the penalties, which were based on claims of inaccurate particulars of income by the assessee. The High Court agreed with the lower authorities that the disallowances made were debatable and did not constitute concealment of income.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 728661 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-11-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: MAUNA BHATT
• Keywords: Concealment of income; Debatable claim; Inaccurate particulars of income; Penalty; Scrutiny assessment
• Section: 147; 143(3); 143(1); 271(1)(c); 43B

Judgement Text

"O/TAXAP/916/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 916 of 2013 With TAX APPEAL NO. 917 of 2013 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== COMMISSIONER OF INCOME TAX II....Appellant(s) Versus GROWTH COMPUSOFT EXPORTS LTD....Opponent(s) ====================================== Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.P.DHOLARIA Date : 26/11/2013 ORAL JUDGMENT Page 1 of 7 O/TAXAP/916/2013 JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. As common question of law and facts arise in both these appeal and with respect to the same assessee but different assessment years and they arise out of the impugned common judgment and order passed by the ITAT (hereinafter referred to as ‘ITAT’) both these appeals are decided and disposed of together by this common order. 2. Tax Appeal No. 916/2013 has been preferred by the revenue against the impugned common judgment and order passed by the ITAT dated 22/03/2013 in ITA No. 1326/Ahd/2010 for the Assessment Year 2003-04 by which the ITAT has dismissed the appeal preferred by the revenue confirming the order passed by the CIT(A) in deleting the penalty imposed under Section271(1)(C) of the Income Tax Act for the Assessment Year 2003-04 with the following proposed substantial question of law; “Whether the appellate tribunal is right in law and on facts in upholding the decision of the CIT(A) in deleting the penalty of Rs.14,71,522/- levied under Section 271(1) (C) of the Act holding that the explanation 1 to Section 271(1)(C) is not applicable in the case of the assessee?” 3. Tax Appeal No. 917/2013 has been preferred by the revenue against the impugned common judgment and order passed by the ITAT dated 22/03/2013 in ITA No. 1105/Ahd/2010 for the Assessment Year 2005-06 by which the ITAT has dismissed the appeal preferred by the revenue confirming the order passed by the CIT(A) in deleting the penalty imposed under Section271(1)(C) of the Income Tax Act Page 2 of 7 O/TAXAP/916/2013 JUDGMENT for the Assessment Year 2003-04 with the following proposed substantial question of law; “Whether the appellate tribunal is right in law and on facts in upholding the decision of the CIT(A) in deleting the penalty of Rs.5,48,433/- levied under Section 271(1) (C) of the Act holding that the explanation 1 to Section 271(1)(C) is not applicable in the case of the assessee?” TAX APPEAL No. 916/2013 4. The assessee filed the return of income for the Assessment Year 2003-04 declaring net loss of Rs.1,55,26,636/-. The case of the assessee was subsequently selected for scrutiny. The assessment was completed by passing order under Section 143(3) of the Income Tax Act assessing the income at Rs.57,45,535/-. While framing the assessment the following were added to the total income of the assessee company. 1 Disallowance of professional fees Rs. 35000 2 Disallowance of stamp duty for renewal of lease Rs. 5000 3 Donation Rs. 11000 4 Disallowance of valuation fees Rs. 2500 5 Disallowance of bank guarantee renewal fees Rs. 60100 6 Disallowance out of annual fees paid to club Rs. 10500 7 Interest under Section 37 Rs. 29287663 8 Amount of interest converted to loan Rs. 3218223 9 Disallowance on account of salary and wages Rs. 974702 Rs. 33604688 4.1. The Assessing Officer was of the opinion that the Page 3 of 7 O/TAXAP/916/2013 JUDGMENT assessee furnished the inaccurate particulars of its income to the aforesaid extent by furnishing inaccurate particulars of income thereby concealing the particulars of income by means of claiming incorrect deduction and it warranted penalty proceedings under Section 271(1)(C) of the Income Tax Act. Accordingly the penalty proceedings under Section 271(1)(C) of the Income Tax Act were initiated for furnishing inaccurate particulars of income. It appears that thereafter CIT(A) partly allowed the quantum appeal preferred by the assessee and confirmed the disallowance made by the Assessing Officer as under; 1 Donation Rs. 11000 2 Interest under Section 37 Rs. 775000 3 Amount of interest converted to loan Rs. 3218223 Rs. 4004223 4.2. Thereafter, the Assessing Officer passed the order dated 13/03/2009 imposing penalty of Rs.14,71,552/- under Section 271(1)(C) of the Income Tax Act on the ground that the assessee has furnished inaccurate particulars of his income to the tune of Rs.40,04,223/- by making incorrect claim for deduction in form of expenditure. 4.3. Being aggrieved and dissatisfied with the order passed by the Assessing Officer imposing penalty under Section 271(1)(C) of the Income Tax Act, the assessee preferred appeal before the CIT(A) and by order dated 02/02/2010 the CIT(A) has allowed the appeal deleting the penalty imposed by the Assessing Officer. By the impugned judgment and order the order passed by the CIT(A) in deleting the penalty has been confirmed by the ITAT. Hence, the revenue has preferred the Page 4 of 7 O/TAXAP/916/2013 JUDGMENT present Tax Appeal with the aforesaid proposed substantial question of law. TAX APPEAL No. 917/2013 5. The assessee filed the return of income for the Assessment Year 2005-06 declaring the loss of Rs.78,70,220/- The said return of income was processed under Section 143(1) of the Income Tax Act. It appears that thereafter it was noticed that the assessee had failed to pay the interest of Rs.14,99,750/- payable to GSFC even though the same was debited to the Profit and Loss Account attracting the provisions of Section 43B of the Income Tax Act and, therefore, proceedings under Section 147 of the Income Tax Act was initiated after recording the reasons for doing so. The reassessment order came to be passed determining the net loss at Rs.63,70,505/-. The loss of Rs.14,99,715/- was reduced due to disallowance under Section 43B of the Income Tax Act, being the interest payable to GSFC, which even though the same was debited to the Profit & Loss Account, the same was not added back to the assesse’s total income. The Assessing Officer passed the order to issue notice under Section 271(1)(c) of the Income Tax Act for furnishing incorrect particulars of income. Thereafter the penalty proceedings under Section 271(1)(c) of the Income Tax Act came to be initiated. The assessee appeared in response to the show cause notice and furnished the detailed written submissions before the Assessing Officer requesting him to drop the penalty proceedings by submitting that as such there was no concealment on the part of the assessee. It was submitted that at the relevant time and during the previous year i.e. Page 5 of 7 O/TAXAP/916/2013 JUDGMENT Assessment Year 2005-06 similar claim was made, which was accepted. It was further submitted that during the previous year i.e. Assessment Year 2005-06 and at the time of filing the return of income for the year under consideration explanation of 3(C) below Section 43B of the Income Tax Act, which provided for disallowance of interest converted into loans, was not in the statute and the said explanation was introduced by Finance Act, 2006 with retrospective effect from 01/04/2002. It was submitted that therefore at the relevant time it was a debatable claim and, therefore, it was requested to drop the proceedings. The Assessing Officer was not satisfied with the reply and, therefore, vide order dated 25/03/2010 imposed penalty of Rs.5,48,533/-. Being aggrieved and dissatisfied with the penalty order passed by the Assessing Officer, the assessee preferred appeal before the CIT(A) and by order dated 21/02/2012 CIT(A) allowed the said appeal by quashing and setting aside the order of penalty imposed under Section 271(1)(c) of the Income Tax Act. Being aggrieved and dissatisfied with the order passed by the CIT(A) deleting penalty imposed under Section 271(1)(c) of the Income Tax Act, the revenue preferred appeal before the ITAT and by impugned judgment and order ITAT has dismissed the said appeal confirming the order passed by the CIT(A) deleting the penalty imposed under Section 271(1)(c) of the Income Tax Act. 6. We have heard Ms. Mauna Bhatt, learned Counsel appearing on behalf of the appellant at length and have perused and considered the the order passed by the Assessing Officer imposing penalty, the order of the CIT(A) and ITAT deleting the penalty imposed by the Assessing Officer. It Page 6 of 7 O/TAXAP/916/2013 JUDGMENT appears that as such the Assessing Officer made the addition of Rs.3,36,04,688/-, however, in quantum appeal, CIT(A) partly allowed the appeal confirming the disallowance made by the Assessing Officer to the extent of Rs.40,04,223/- only and, therefore, considering the fact and as rightly observed by CIT(A) as well as ITAT that the claims made by the assessee were debatable and as such the assessee gave full information before the Assessing Officer in the return, there was no concealment on the part of the assessee. As stated hereinabove, even in quantum appeal, the CIT(A) gave the substantial relief to the assessee and against the additions made by the Assessing Officer of Rs.3,36,04,688/-, CIT(A) confirmed the additions to the extent of Rs.40,04,223/- only. Considering the aforesaid facts and circumstances, when the disallowance were found to be debatable and it was found that there was no concealment on the part of the assessee and when the penalty imposed by the Assessing Officer under Section 271(1)(C) of the Income Tax Act has been deleted by the CIT(A) has been confirmed by the ITAT, no interference is called for. 7. Under the circumstances, no question of law, much less substantial question of law arises in the present Tax Appeals, which deserve to be dismissed and are accordingly dismissed. (M.R.SHAH, J.) (R.P.DHOLARIA,J.) Siji Page 7 of 7 "