ACIT, CHENNAI V. M/s. Covanta Samalpatti Operating Pvt Ltd., CHENNAI

ITA 1064/CHNY/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 7859 (ITAT-CHENNAI)
• Duration Of Justice: 40 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Department
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIDHAR
• Keywords: Bonafide belief; Question of law; Wrong claim
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH A : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO.1064/MDS/2008 ASSESSMENT YEAR : 2002-03 THE ACIT COMPANY CIRCLE I(3) CHENNAI VS M/S COVANTA SAMALPATTI OPERATING PVT. LTD 101, OLD NO.42/1, 4 TH MAIN ROAD GANDHI NAGAR ADAYAR, CHENNAI 600 020 [PAN - AAACO 4905F] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.B RENGARAJAN, JR. STANDING COUNSEL RESPONDENT BY : SHRI S. SRIDHAR O R D E R PER HARI OM MARATHA, JM: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEA R 2002-03, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), CHENN AI, DATED 20.2.2008. THIS APPEAL EMANATES FROM THE PENALTY ORDER PASSED U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S 'THE ACT' FOR SHORT), DATED 22.3.2007, VIDE WHICH THE ASSESSING O FFICER HAS IMPOSED A PENALTY OF ` 2,19,46,960/- ON ACCOUNT OF CONCEALMENT OF INCOME. ITA 1064/08 :- 2 -: 2. BRIEFLY STATED, THE FACTS OF THE CASE LEADING TO LEVY OF THIS PENALTY ARE THAT THE ASSESSEE COMPANY WHICH IS ENGA GED IN THE BUSINESS OF PROVIDING SERVICE OF OPERATION AND MAI NTENANCE OF A POWER PLANT, OWNED BY M/S SAMALPATTI POWER COMPANY. IT HAD CLAIMED DEDUCTION U/S 80IA OF ` 6,14,75,981/- IN THE RETURN OF INCOME FILED FOR ASSESSMENT YEAR 2002-03 WHICH WAS DISALLO WED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE C OMPANY DID NOT SET UP ANY UNDERTAKING FOR THE GENERATION AND DISTRIBUT ION OF POWER DURING THE RELEVANT YEAR AND THAT THE ASSESSEE WAS ONLY RE NDERING SERVICES OF OPERATION AND MAINTENANCE OF THE POWER PLANT. THIS DISALLOWANCE WAS CONFIRMED EVEN BY THE TRIBUNAL. IN PENALTY PROCEED INGS, THE DEFENCE OF THE ASSESSEE HAS BEEN THAT SUCH A DEDUCTION, U/S 80IA, WAS CLAIMED UNDER THE BONAFIDE BELIEF THAT IT WAS ENTITLED TO S UCH A DEDUCTION, AND THAT THIS BELIEF WAS BASED ON THE EXPERT ADVICE OF THE STATUTORY AUDITORS/TAX AUDITORS. AS PER THE ASSESSEE, COMPLE TE INFORMATION WAS PRODUCED BEFORE THE ASSESSING OFFICER WHICH WAS C ORRECT AND TRUE AT THE TIME OF FILING OF RETURN AS WELL AS DURING ASS ESSMENT PROCEEDINGS. IT WAS ALSO PLEADED THAT THE NATURE OF BUSINESS WAS CLEARLY NARRATED TO BE OPERATION AND MAINTENANCE OF POWER PLANT AND TH E CLAIM OF DEDUCTION U/S 80IA IS PURELY A QUESTION OF LAW WHER E ALWAYS TWO OPENIONS ARE POSSIBLE AND IN THAT CASE, PENALTY FOR CONCEALMENT OF INCOME CANNOT BE IMPOSED. IN SUBSTANCE, THE CONTEN TION OF THE ITA 1064/08 :- 3 -: ASSESSEE WAS THAT WHEN A BONAFIDE CLAIM IS MADE WHI CH IS DISALLOWED AND TREATED AS INCOME, IT CAN NOT NECESSARILY LEAD TO A CONCLUSION THAT THE ASSESSEE HAS EITHER CONCEALED THE INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME. THE CASE OF TH E REVENUE IS THAT THE ASSESSEE HAS MADE A WRONG CLAIM WHICH IT IS NOT EN TITLED TO AND HAS THUS CONCEALED ITS INCOME FOR WHICH PENALTY U/S 271 (1)(C) OF THE ACT HAS TO BE LEVIED. IT WAS ALSO SUBMITTED THAT QUANT UM ADDITION HAS BEEN SUSTAINED EVEN UPTO TRIBUNAL LEVEL WHERE IT HA S BEEN HELD THAT THE ASSESSEE IS NOT ENTITLED TO SUCH A CLAIM OF DED UCTION U/S 80IA. CONSEQUENTLY, THE IMPUGNED PENALTY WAS LEVIED WHICH WAS DELETED BY THE LD. CIT(A). AGGRIEVED, THE REVENUE IS BEFORE U S. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CIRCUM SPECTED THE ENTIRE RECORD AVAILABLE BEFORE US. IT IS TRUE THAT QUANTUM ADDITION HAS BEEN SUSTAINED EVEN BY THE TRIBUNAL. THE CONFI RMATION OF AN ADDITION MADE AFTER DISALLOWANCE OF A CLAIM MADE IS NO DOUBT A CIRCUMSTANCE WHICH GOES AGAINST THE ASSESSEE. BUT THE DISALLOWANCE OF A CLAIM BY REJECTING EXPLANATION OF THE ASSESSEE SIMPLICITOR CANNOT BE TREATED AS A FINAL AND CONCLUSIVE PROOF, LEADING TO, EITHER CONCEALMENT OF INCOME OR TO FURNISHING OF INACCURAT E PARTICULARS OF INCOME FOR THE LEVY OF A PENALTY U/S 271(1)(C) OF THE ACT. THE SETTLED POSITION OF LAW IS THAT A REGULAR ASSESSM ENT PROCEEDING AND A PENALTY PROCEEDING ARE TWO ENTIRELY DIFFERENT SUBJ ECTS WHICH OPERATE ITA 1064/08 :- 4 -: IN DISTINCT AND SEPARATE SPHERES SO MUCH SO THAT E NTIRELY DIFFERENT PARAMETERS ARE APPLICABLE FOR MAKING QUANTUM ADDITI ON AND FOR LEVYING PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THERE C AN BE NO DISPUTE WITH REGARD TO THE POSITION OF LAW THAT UNDER SECTI ON 271(1)(C) PENALTY CAN BE LEVIED ONLY IF EITHER THE ACT OF 'CONCEALME NT OF PARTICULARS OF INCOME' OR 'FURNISHING OF INACCURATE PARTICULARS O F INCOME' IS FOUND TO HAVE BEEN COMMITTED BY THE ASSESSEE. THESE ARE TWO DIFFERENT OMISSIONS OR DEFAULTS, ALBEIT, THEY REFER TO DELIBE RATE ACT ON THE PART OF THE ASSESSEE. A MERE OMISSION OR NEGLIGENCE WOULD N OT CONSTITUTE A DELIBERATE ACT OF EITHER SUPPRESSIO VERI OR SUGGEST IO FALSY. BY THE MERE REASON OF SUCH CONCEALMENT OR OF FURNISHING OF INACCURATE PARTICULARS ALONE, THE ASSESSEE DOES NOT, IPSO FACT O, BECOME LIABLE TO A PENALTY. IMPOSITION OF PENALTY IS NOT AT ALL AUTOM ATIC. MEANING THEREBY, ANY ADDITION IN QUANTUM WOULD NOT LEAD TO AUTOMATIC LEVY OF PENALTY AND THIS IS ALSO TRUE IN RESPECT OF FURNISH ING OF INACCURATE PARTICULARS OF INCOME. NOT ONLY IS THE LEVY OF PENA LTY DISCRETIONARY IN NATURE BUT THE DISCRETION HAS TO BE EXERCISED KEEPI NG THE RELEVANT FACTORS IN MIND AND THE APPROACH OF THE TAXMAN MUST BE FAIR AND OBJECTIVE. THIS SUBJECT HAS BEEN A MATTER OF GREAT CONTROVERSY. FINALLY, AFTER REFERRING TO THE DECISIONS IN THE CA SE OF DILIP N. SHROFF VS JCIT & ANOTHER, 291 ITR 519, UNION OF INDIA VS. DH ARMENDRA TEXTILE PROCESSORS [2008] 13 SCC 369, AS WELL AS UNION OF I NDIA VS RAJASTHAN ITA 1064/08 :- 5 -: SPG. & WVG. MILLS [2009] 13 SCC 448, THE HON'BLE SU PREME COURT IN THE CASE OF CIT VS RELIANCE PERTOPRODUCTS PVT. LTD, 322 ITR 158, HAS RECENTLY HELD AS UNDER: A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME- TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURA TE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD 'PARTICULARS ' USED IN SECTION 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MA DE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCO RRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING IN ACCURATE PARTI- CULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY , UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY P ROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETUR N FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUC H PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOU S OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271 (1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULAR S REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RE TURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. ITA 1064/08 :- 6 -: 4. ADVERTING TO THE FACTS OF THIS CASE, WE FIND THAT T HE ASSESSEE HAD SUBMITTED BEFORE THE ASSESSING OFFICER THAT UNDER B ONAFIDE BELIEF BASED ON EXPERT ADVICE, GIVEN BY CHARTERED ACCOUNTA NT, THIS CLAIM WAS MADE. THE ASSESSEE IS STILL OF THE OPINION THAT IT IS ENTITLED TO SUCH A RELIEF AND HENCE, IT HAS PREFERRED APPEAL AGAINST T HE QUANTUM ADDITION BEFORE THE HON'BLE HIGH COURT. IT IS TRUE THAT THE REJECTION OF AN EXPLANATION RENDERED BY THE ASSESSEE AGAINST THE LE VY OF PENALTY OR IN SUPPORT OF A CLAIM OF DEDUCTION MADE WOULD NOT AUTO MATICALLY RESULT IN LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. RATHER W E FIND IN THIS CASE THAT THE ASSESSEE HAS NOT HIDDEN ANY FACT OF INCOME BUT HAS MADE A CLAIM OF DEDUCTION WHICH WAS NOT FOUND TO BE PERMIS SIBLE IN LAW, IN THE GIVEN FACTS AND THE CIRCUMSTANCES OF THE ASSESS EES CASE. THIS FACTOR IN ITSELF GOES TO SUPPORT THE CASE OF THE AS SESSEE THAT IT IS NEITHER THE CASE OF CONCEALMENT OF INCOME NOR THE CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. IT IS THE BOU NDEN DUTY OF THE REVENUE TO PROVE ON RECORD THAT THE CLAIM WAS MADE WITH THE MALAFIDE INTENTION AND IT WAS NOT AT ALL A BONAFIDE CLAIM AN D THEN AND ONLY THEN IN SUCH CASES PENALTY CAN BE IMPOSED. MAKING A C LAIM OF DEDUCTION, BASED ON AN ADVICE GIVEN BY THE CHARTERED ACCOUNTAN T, WHICH WAS FOUND TO BE NOT CORRECT BY THE ASSESSING OFFICER, T HE ASSESSEE IS NOT EXIGIBLE TO PENALTY U/S 271(1)(C) OF THE ACT. W E DO NOT SAY THAT THE ITA 1064/08 :- 7 -: REVENUE IS REQUIRED TO PROVE MENS REA OF THE ASSESSEE FOR SUCH DEFAULT BUT SHORT OF MENS REA THE REVENUE IS BOUND TO SHOW THAT THE CLAIM WAS NOT BONAFIDE AND WAS MADE ONLY TO DEFEAT THE P AYMENT OF A LEGITIMATE TAX. IN THIS CASE, THE REVENUE HAS NOT BEEN ABLE TO ESTABLISH THAT THE ASSESSEE HAS FAILED TO DISCLOSE ALL MATERIAL FACTS OR THAT A FALSE CLAIM IS MADE. 5. IN THE CASE OF MODEL FOOTWEAR P. LTD VS ITO, 319 I TR (AT) 51(DELHI), IT HAS BEEN HELD AS THUS: HELD, DISMISSING THE APPEALS (I) THAT MERELY BECAU SE THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80HHC OF THE ACT WITH REFERENCE TO THE INTEREST INCOME AND MISCELLANEOUS INCOME WITHOUT DEDUCTING 90 PER CENT THEREOF FROM THE NET PROFIT THAT WOULD BY ITSELF NO T BE A BASIS TO HOLD THAT THE ASSESSEE HAD CONCEALED INCOME OR H AD MADE INCORRECT CLAIM WITH A VIEW TO EVADE PAYMENT O F TAXES. THE DEDUCTION HAD BEEN DISALLOWED BY APPLY ING THE PROVISIONS OF EXPLANATION (BAA) TO SECTION 80HHC OF THE ACT WITHOUT GIVING ANY FINDING THAT HE ASSESSEE HAD FAILED TO DISCLOSE ALL THE MATERIAL FACTS RELATING TO THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OR THAT THE ASSESS EES CLAIM WAS FALSE. THE ASSESSEES CLAIM WAS BONA FID E BY DISCLOSING ALL MATERIAL FACTS RELATING TO THE COMPU TATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT, AND THUS THE ASSESSEE HAD BEEN ABLE TO DISCHARGE THE BURDEN THAT LAY UPON IT UNDER EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT. PENALTY COULD NOT HAVE BEEN LEVIED IN SO FAR AS THE DISALLOWANCE OF THE CLAIM OF DEDUCTION UNDER SECTIO N 80HHC OF THE ACT WAS CONCERNED. (II) THAT THE ASSESSEE HAD FAILED TO FURNISH ANY DE TAILS OR PARTICULARS IN SUPPORT OF THE CLAIM UNDER SECTION 8 0-I OF THE ACT IN THE RETURN OF INCOME SO AS TO JUSTIFY THE AS SESSEES STAND THAT THE CLAIM WAS BONA FIDE. SINCE THE ASSE SSEE HAD NOT VOLUNTARILY DISCLOSED THAT THE DEDUCTION UN DER SECTION 80-I OF THE ACT WAS NOT AVAILABLE TO IT AND HAD NOT WITHDRAWN IT IN THE COURSE OF ASSESSMENT PROCEEDIN GS, IT WAS GUILTY OF MAKING A FALSE CLAIM IN THE RETURN. THE ITA 1064/08 :- 8 -: ASSESSEE HAD NOT BEEN ABLE TO DISCHARGE ITS BURDEN UNDER EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT IN SO FAR AS THE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 80-I W AS CONCERNED. THE PROFIT AVAILABLE AFTER ALLOWING DEDU CTION UNDER SECTION 80HHC OF THE ACT IN THE ASSESSMENT W AS AMOUNTING TO ` 6,61,332 UNDER SECTION 80-I OF THE ACT. IN CASE THE DEDUCTION UNDER SECTION 80-I WAS FOUND TO BE ADMISSIBLE TO THE ASSESSEE, THE DEDUCTION TO THE EX TENT OF ` 6,61,332/- UNDER SECTION 80-I WOULD HAVE BEEN ALLOW ED AS THE PROFIT TO THAT EXTENT WAS AVAILABLE AFTER ALLOW ING DEDUCTION UNDER SECTION 80HHC AND THUS, THE ASSESSE E WOULD BE DEEMED TO HAVE MADE A CLAIM UNDER SECTION 80-I TO THE EXTENT OF ` 6,61,332, THOUGH THE AMOUNT OF PROFIT AVAILABLE UNDER THE RETURN WAS LESS THAN THE AMOUNT OF PROFIT AVAILABLE UNDER ASSESSMENT . THE ORDER OF T HE COMMISSIONER(APPEALS) WAS TO BE UPHELD. 6. THE ABOVE FINDING ALSO HELPS THE CASE OF THE ASSESS EE. WITH OUR ABOVE OBSERVATION, WE ARE LEFT WITH NO OPTION BUT T O CONFIRM THE DELETION OF THE IMPUGNED PENALTY IMPOSED U/S 271(1) (C) OF THE ACT. 7. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19. 11.10. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 19 TH NOVEMBER, 10 RD : COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR