SARLA PERFOMANCE FIBERS LTD ( FORMERLY KNOWN AS SARLA POLYESTER LTD), MUMBAI V. DCIT RG 3(3), MUMBAI

ITA 1384/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5863 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 29-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 15-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK KUMAR SURI
• Keywords: Tangible material; Wrong claim; Bonafide mistake
• Section: 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 1384/MUM/2011 ASSESSMENT YEAR: 2003-04 M/S. SARLA PERFORMANCE FIBERS LTD.(FORMERLY KNOWN AS SARLA POLYESTER LTD.), 304, ARCADIA, 195 NCPA ROAD, NARIMAN POINT, MUMBAI-21 PAN NO.: AABCS 1332 B VS. DCIT, RANGE 3(3), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : SHRI ASHOK KUMAR SURI DATE OF HEARING : 29.01.2014 DATE OF PRONOUNCEMENT : 28.03.2014 O R D E R PER DR. S.T.M. PAVALAN, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-7, MUMBAI DATED 31.12.2010 CONFIRMING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE INCOME TAX ACT FOR THE ASSESSMENT YEAR 2003-04. 2. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURER AND EXPORTER OF POLYESTER FILAMENT/TEX TURISING/NYLON/COVERED/TWISTED AND DYEING OF YARN, HAD TWO 100% EXPORT ORIENTED UN IT PLANTS AT SILVASSA & VAPI. THE ASSESSEE, WHILE FILING THE RETURN OF INCOME HAD DECLARED A TOTAL INCOME OF RS.2,62,33,257/- AFTER CLAIMING DEDUCTION OF RS.2,2 1,68,998/- OF SILVASSA UNIT AND RS.75,10,991/- OF VAPI UNIT UNDER SECTION 10B OF TH E I.T ACT AND DEDUCTION UNDER SECTION 80HHC OF RS.8,49,258/-. DURING THE ASSESSME NT PROCEEDING, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED EXCESS DEDUCTION UND ER SECTION 10B AND THE DEDUCTION IN RESPECT OF SILVASSA UNIT WAS COMPUTED AT RS.1,64,64,282/- AND IN RESPECT OF VAPI UNIT, IT WAS COMPUTED AT RS.64,32,8 29/-. ACCORDING TO THE AO, THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 10B ON NON-MANUFACTURING RECEIPTS ITA NO. 1384/MUM/2011 M/S SARLA PERFORMANCE FIBERS LTD. ASSESSMENT YEAR: 2003-04 2 (INTEREST RECEIPTS) AND THE ASSESSEE HAS REDUCED IN ELIGIBLE EXPENSES FOR ARRIVING AT EXPORT TURNOVER. IN THE QUANTUM APPEAL, LD.CIT(A) U PHELD THE ACTION OF THE AO IN COMPUTING THE DEDUCTION UNDER SECTION 10B IN RESPEC T OF SILVASSA UNIT AT RS.1,69,01,993/- AND IN RESPECT OF VAPI UNIT AT RS. 65,82,332/-. THUS, THE ASSESSEE MADE EXCESS CLAIM AMOUNTING TO RS.61,95,664/-. CONS EQUENTLY, IN THE PENALTY PROCEEDINGS, A PENALTY OF RS.22,76,906/- HAS BEEN L EVIED BY THE AO BEING 100% TAX OUGHT TO BE EVADED ON ACCOUNT OF THE EXCESS CLAIM. 3. ON APPEAL AGAINST THE SAID PENALTY ORDER, THE L D.CIT(A) JUSTIFIED THAT THE CASE IS FIT FOR PENALTY TO BE LEVIED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT. HOWEVER, THE LD.CIT(A) DIRECTED THE AO TO VERIFY TH E CLAIM OF DEDUCTION UNDER SECTION 10B OF THE ACT AS RS.2,67,11,919/- ONLY AND NOT RS.2,96,79,989/-, WHICH HAS BEEN ADOPTED BY THE AO AND THEREBY MODIFIED THE QUA NTUM OF PENALTY. AGGRIEVED BY THE IMPUGNED ORDER, THE ASSESSEE IS IN APPEAL BEFOR E US. 4. BEFORE US, THE LD.AR OF THE ASSESSEE HAS STATED THAT THE ENTIRE ADDITION IN THE QUANTUM PROCEEDING IS BASED ON EXCESS CLAIM MADE UN DER SECTION 10B, WHICH INCLUDES THE INTEREST INCOME AND INSURANCE AND FREI GHT CHARGES. AS REGARDS THE INCLUSION OF INTEREST INCOME AND THE CLAIM OF DEDUC TION, IT IS THE CONTENTION OF THE LD.AR THAT THERE ARE JUDICIAL PRONOUNCEMENTS TO THE EFFECT THAT THE INTEREST INCOME CAN BE INCLUDED FOR THE PURPOSE OF CLAIMING DEDUCTI ON UNDER SECTION 10B BY VIRTUE OF SUB SECTION 4 OF SECTION 10B. THE SAID CLAIM OF THE ASSESSEE IS SUPPORTED BY THE DECISION OF THE TRIBUNAL IN THE CASES OF M/S GREYTRIX (INDIA) PVT. LTD ., IN ITA NO.5787/MUM/2009 FOR A.Y.2006-07 AND M/S JEWELEX INTERNATIONAL PVT. LTD., IN ITA NO.3302/MUM/2009 FOR A.Y.2006-07. THEREFORE, THE C LAIM OF THE ASSESSEE INCLUDING THE INTEREST INCOME FOR THE PURPOSE OF CLAIMING DED UCTION UNDER SECTION 10B IS JUSTIFIED AND THE SAME HAS A LEGAL BASIS. AS REGARD S THE SECOND ISSUE OF INCLUSION OF THE INSURANCE AND FREIGHT CHARGES WITHIN THE EXCESS CLAIM, IT IS THE CONTENTION OF THE LD.AR THAT THE SAME IS OUT OF A BONAFIDE MISTAKE AN D, HENCE, THE CONFIRMATION OF THE LEVY OF PENALTY IS NOT JUSTIFIED. 4.1 ON THE OTHER HAND, THE LD.DR HAS FILED THE WRIT TEN SUBMISSION AND DRAWN OUR ATTENTION TO THE FACT THAT THE ASSESSEE CLAIMED EXC ESS DEDUCTION AGAINST THE CLEAR CUT PROVISION OF LAW AND THE SAME CANNOT BE SAID TO BE A BONAFIDE MISTAKE ON THE PART ITA NO. 1384/MUM/2011 M/S SARLA PERFORMANCE FIBERS LTD. ASSESSMENT YEAR: 2003-04 3 OF THE ASSESSEE. THE LD.DR FURTHER CONTENDED THAT W HILE FILING THE RETURN OF INCOME, THE ASSESSEE HAS INTENTIONALLY NOT GIVEN THE BREAKU P OF THE FIGURES OF THE EXPORT TURNOVER, TOTAL TURNOVER ETC. WHILE CLAIMING THE HI GHER DEDUCTION UNDER SECTION 10B. THE ASSESSEE HAS SURRENDERED THE EXCESS CLAIM OF RS .14,03,584/- IN THE REVISED COMPUTATION VIDE ITS LETTER DATED 22-2-2006 ONLY IN VIEW OF THE PERSISTENT QUERIES MADE BY THE AO REGARDING THE CLAIM OF DEDUCTION UND ER SECTION 10B. FURTHER, THE REVISED COMPUTATION HAS BEEN FILED BY THE ASSESSEE ONLY AFTER THE AO HAS SPECIFICALLY TOLD THE ASSESSEE TO FILE A REVISED COMPUTATION OF EXEMPTION UNDER SECTION 10B. THEREFORE, A HIGHER CLAIM OF DEDUCTION UNDER SECTIO N 10B HAS BEEN DELIBERATELY MADE BY THE ASSESSEE AND THE SAME CANNOT BE TREATED TO BE A BONAFIDE MISTAKE ON THE PART OF THE ASSESSEE IN CLAIMING EXCESS DEDUCTI ON. THE LD.DR HAS STATED THAT THE DECISION OF THE LD.CIT(A) IN CONFIRMING THAT IT IS A FIT CASE FOR PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS ACCORDINGLY JUSTIFIED. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. FIRSTLY, AS REGARDS THE ISSUE OF LEVY OF PENALTY ON EXCESS CLAI M MADE UNDER SECTION 10B, WHICH INCLUDES THE INTEREST INCOME, IT IS PERTINENT TO ME NTION THAT THE TRIBUNAL IN THE CASES OF M/S GREYTRIX (INDIA) PVT. LTD ., AND M/S JEWELEX INTERNATIONAL PVT. LTD., (SUPRA), HAS HELD THAT ONCE A CONCLUSION IS REACHED THAT THE INTEREST INCOME FORMS PART OF TOTAL INCOME, SUB SECTION 4 OF SECTION 10B TAKES OV ER AND THE INTEREST INCOME CAN BE INCLUDED IN THE PROFITS FOR THE PURPOSES OF CLAIMIN G DEDUCTION UNDER SECTION 10B OF THE ACT. SIMILAR VIEW HAS BEEN EXPRESSED BY THE TRI BUNAL IN THE CASE OF LIVING STONES JEWELLERY (P) LTD VS DCIT [(2009) 31 SOT 323 (MUM)] IN THE CONTEXT OF SECTIO N 10A OF THE ACT. CONSIDERING THE DECISIONS OF THE TRIBUN AL IN THE SAID CASES, WE ARE OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE I N INCLUDING THE INTEREST INCOME IN THE CLAIM MADE UNDER SECTION 10B IS A DEBATABLE ONE WHERE TWO VIEWS ARE POSSIBLE. THERE ARE PLETHORA OF DECISIONS TO SUPPORT THE PROP OSITION THAT WHERE THE WRONG CLAIM HAS BEEN MADE BY THE ASSESSEE BUT THE ISSUE I S DEBATABLE, IT CANNOT NOT BE SAID THAT THERE IS CONCEALMENT OF INCOME. THEREFORE , THE IMPUGNED LEVY OF PENALTY ON EXCESS CLAIM MADE UNDER SECTION 10B FOR INCLUSIO N OF THE INTEREST INCOME IS NOT SUSTAINABLE IN LAW AND HENCE THE SAME TO BE DELETED . SECONDLY, ON THE ISSUE OF LEVY OF PENALTY FOR INCLUSION OF THE INSURANCE AND FREIG HT CHARGES WITHIN THE EXCESS CLAIM, ITA NO. 1384/MUM/2011 M/S SARLA PERFORMANCE FIBERS LTD. ASSESSMENT YEAR: 2003-04 4 IT IS PERTINENT TO MENTION THAT SECTION 10B OF THE ACT SPECIFICALLY EXCLUDES THE INSURANCE AND FREIGHT CHARGES FROM THE EXPORT TURNO VER. IN THIS CONNECTION, IT IS RELEVANT TO STATE THAT THE ASSESSEE HAS NOT SHOWN A NY TANGIBLE MATERIAL OR BASIS AS TO WHY THE CLEAR STATUTORY PROVISION WHICH EXCLUDES THE INSURANCE AND FREIGHT CHARGES HAS BEEN INCLUDED BY THE ASSESSEE IN THE CL AIM. IN THE ABSENCE OF WHICH, WE ARE NOT INCLINED TO ACCEPT THE CONTENTION OF THE AS SESSEE THAT THE CLAIM IS OUT OF BONA FIDE ACT OR OMISSION OF THE ASSESSEE. MOREOVER , IT IS TRITE LAW THAT THE VOLUNTARY DISCLOSURE DOES NOT RELEASE THE ASSESSEE FROM THE M ISCHIEF OF PENAL PROCEEDINGS. THE LAW DOES NOT PROVIDE THAT WHEN AN ASSESSEE MAKE S A VOLUNTARY DISCLOSURE OF HIS CONCEALED INCOME, HE HAS TO BE ABSOLVED FROM PENALT Y. THIS PROPOSITION IS SUPPORTED BY THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF MAC DATA PVT LTD. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E IMPUGNED LEVY OF PENALTY FOR INCLUSION OF THE INSURANCE AND FREIGHT CHARGES WITH IN THE EXCESS CLAIM IS JUSTIFIABLE ON FACTS AND IN LAW. 5.1 IN VIEW OF THE AFOREMENTIONED DISCUSSION, WHILE WE HOLD THAT THE LEVY OF PENALTY ON EXCESS CLAIM MADE UNDER SECTION 10B FOR INCLUSION OF THE INTEREST INCOME IS NOT SUSTAINABLE IN LAW AND LEVY OF PENALTY FOR I NCLUSION OF THE INSURANCE AND FREIGHT CHARGES IS JUSTIFIABLE ON FACTS AND IN LAW, DIRECT THE AO TO QUANTIFY THE PENALTY IN ACCORDANCE WITH THE SAID FINDINGS. WE DIRECT AND OR DER ACCORDINGLY. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF FEBRUARY, 2014. SD/- SD/- (P.M.JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.03.2014. P.K.MISHRA,P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.