MANALAM DRUGS & ORGANICS LTD, MUMBAI V. DCIT 4(2), MUMBAI

ITA 5454/MUM/2011

• Counselvise Citation: 545419914 RSA 2011
• Duration Of Justice: 4 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 24-02-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 22-07-2011
• Court: TRIBUNAL
• Department Lawyers: MRS J K GARG DR
• Assessee Lawyers: M SUBRAMANAIN
• Keywords: Wrong claim
• Section: 80HHC; 80IB

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.5454/MUM/2011 ASSESSMENT YEAR: 2004-05 MANGALAM DRUGS & ORGANICS LTD., 292, PRINCESS STREET, SECOND FLOOR, NEAR FLYOVER MUMBAI -400002 / VS. DCIT 4(2), AAYAKAR BHAVAN MUMBAI-400020 ( '#$ /ASSESSEE) ( / REVENUE) P.A. NO.AAACM7880P '#$ / ASSESSEE BY SHRI M. SUBRAMANAIN (AR) / REVENUE BY MRS. J. K. GARG ( DR ) % & ' ( / DATE OF HEARING : 25/08/2015 ! ' ( / DATE OF ORDER: 24/09/2015 ! / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST ORDER DATED 04.05.2011, PASSED BY THE LD. COMMISSIO NER OF INCOME TAX (APPEALS)-8, MUMBAI FOR THE ASSESSMENT Y EAR MANGALAM DRUGS & ORGANICS LTD 2 2004-05. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. GROUNDS MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER. 2. THE LEARNED C.I.T.(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE PENALTY OF RS.22,08,681/- U/S 271(I)(C) OF THE INCOME TAX ACT WITHOUT APPRECIATING THE FOLLOWING; (A) THAT THE SUM OF RS.53, 16,657/ - BEING THE AMOUNT OF DISALLOWANCES OF DEDUCTION U/S 80IB WAS DONE CONTRARY TO THE FULL DISCLOSURE AND ON THE BAS IS OF REPORT OF AUDITORS IN FORM NO.10CCB WHICH WAS ATTACHED WITH THE RETURN OF INCOME (B) THAT THE SUM OF RS.3,44,238/- BEING THE AMOUNT OF DISALLOWANCE OF DEDUCTIONS U/S 80 HHC WAS ALSO DONE CONTRARY TO THE FULL DISCLOSURE ON THE BASIS O F DECLARATION BY AUDITORS WHICH TOO WAS ATTACHED TO THE RETURN OF INCOME. THIS AMOUNT WAS NOT CONSIDERED FOR LEVY OF 271(1)(1) IN THE ASSESSMENT ORDER. (C) PENALTY ON WRONG CLAIM OF RS.76,1L3/- HAS BEEN LEVIED WITHOUT CONSIDERING THE FACT THAT HERE AGAIN THE AMOUNT WAS WORKED OUT BY THE AUDITORS IN THE TAX AUDIT REPORT WHICH TOO WAS ATTACHED WITH THE RETURN OF INCOME. (D) PENALTY ON RS.3,75,OOO/- FOR DISALLOWANCE ON ACCOUNT OF WHICH INTEREST HAS BEEN LEVIED THOUGH IN THE ORIGINAL ASSESSMENT THIS AMOUNT WAS NOT CONSIDERED FOR LEVY OF PENALTY U/S 271(1)(C). 2. DURING THE COURSE OF HEARING, IT WAS BROUGHT TO OU R NOTICE BY THE LD COUNSEL THAT THE QUANTUM APPEAL HA S ALREADY BEEN DECIDED BY THE ITAT AND COPY OF ITATS ORDER H AS BEEN PLACED ON RECORD. AFTER HEARING BOTH THE SIDES, GROUNDS RAISED BY THE ASSESSEE ARE ADJUDICATED AS UNDER: MANGALAM DRUGS & ORGANICS LTD 3 3. GROUND NO.2(A): THE ASSESSEE HAS AGITATED THE ACTION OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) {(HERE INAFTER CALLED AS LD CIT(A)} IN CONFIRMING THE ACTION OF AO (HEREINAFTER CALLED AS AO) IN LEVY OF PENALTY ON THE AMOUNT OF DISALLOWANCE OF RS.53,16,657/- WITH RESPECT TO DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IB. 3.1 DURING THE COURSE OF HEARING, IT WAS BROUGHT TO OU R NOTICE THAT THIS ISSUE HAS BEEN SENT BACK TO THE FILE OF A O BY THE HONBLE ITAT. 3.2 WE HAVE GONE THROUGH THE ORDER OF ITAT, IN WHICH H AS BEEN NOTICED BY US THAT THE ISSUE WITH REGARD TO DE DUCTION U/S 80IB HAS BEEN SENT TO THE FILE OF AO BY ITAT. IN VI EW OF THESE FACTS, THE LEVY OF PENALTY WITH RESPECT TO THIS DIS ALLOWANCE IS HEREBY CANCELLED. THE AO IS AT HIS LIBERTY TO INITI ATE THE PENALTY ON THIS ISSUE, AFTER RE-DECIDING THIS ISSUE , AS MAY CONSIDERED APPROPRIATE BY HIM, AT THAT STAGE, AS PE R LAW AND FACTS. THUS, GROUND NO.2(A) IS ALLOWED FOR STATISTI CAL PURPOSES. 4. GROUND NO.2(C) IS: WITH REGARD TO LEVY OF PENALTY ON WRONG CLAIM OF RS.76,113/-. THIS GROUND HAS NOT BEEN PRES SED BY THE LD. COUNSEL AND THEREFORE, GROUND NO.2(C) IS DI SMISSED AND LEVY OF PENALTY ON THIS AMOUNT IS CONFIRMED. 5. GROUND NO.2(D), IS WITH REGARD TO LEVY OF PENALTY OF RS.3,75,000/- FOR DISALLOWANCE ON ACCOUNT OF INTER EST. IT IS SEEN BY US FROM THE ORDER OF ITAT THAT THIS DISALLO WANCE HAS BEEN DELETED. THUS, THE WHOLE PREMISE OF LEVY OF PE NALTY ON MANGALAM DRUGS & ORGANICS LTD 4 THIS ISSUE CEASES TO EXIST. THE VERY BASIS OF LEVY OF PENALTY IS NO MORE IN EXISTENCE, THUS PENALTY CANNOT REMAIN AL IVE ANY MORE. THUS, LEVY OF PENALTY WITH RESPECT OF DISALLO WANCE OF RS.3,75,000/- ON ACCOUNT OF INTEREST IS HEREBY DELE TED. 6. GROUND NO.2(B) IS WITH REGARD TO LEVY OF PENALTY ON THE DISALLOWANCE OF RS.3,44,238/- BEING THE AMOUNT OF DISALLOWANCE OF DEDUCTION U/S 80 HHC IN THE QUANTUM APPEAL. THE ASSESSEE DID NOT PRESS THIS GROUND BEFO RE THE ITAT AND IT WAS DISMISSED BY THE ITAT WITHOUT GIVING ANY DECISION OF ANY MERITS OF DISALLOWANCE. 6.1. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE AND FIN D THAT PENALTY WOULD NOT BE LEVIABLE WITH RESPECT TO THE D ISALLOWANCE MADE BY THE AO U/S 80HHC FOR THE FOLLOWING REASONS: (I) SIMILAR DISALLOWANCE WAS MADE BY THE AO U/S 80H HC IN ASSESSMENT YEAR 2003-04 I.E. IMMEDIATELY PRECEDING YEAR. IT HAS BEEN SHOWN TO US, ON THE BASIS OF PENALTY ORDER OF ASSESSMENT YEAR 2003-04 PASSED BY THE AO U/S 271(1) (C) DATED 28 TH MARCH 2008, THAT NO PENALTY WAS INITIATED OR LEVIE D BY THE AO WITH RESPECT TO DISALLOWANCE MADE U/S 80H HC IN ASSESSMENT YEAR 2003-04. IN OUR CONSIDERED VIEW, WH EN THE AO HAS FOUND THAT PENALTY WAS NOT LEVIABLE WITH RES PECT TO SIMILAR DISALLOWANCE MADE FOR DEDUCTION U/S 80HHC I N A.Y. 2003-04, THEN FOLLOWING THE SAME YARDSTICKS, HE SHO ULD NOT TAKE A DIFFERENT STAND IN THIS YEAR AND BURDEN THE ASSESSE WITH RIGOROUS PROVISIONS OF PENALTY. THE REVENUE IS EXPE CTED TO FOLLOW SOME CONSISTENCY WITH REGARD TO PENAL PROVIS IONS. WE MANGALAM DRUGS & ORGANICS LTD 5 DERIVE OUR SUPPORT FROM THE JUDGMENT OF HONBLE SUP REME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. 358 ITR 298(SC) FOR THE PROPOSITION THAT CONSISTENCY SHOULD BE FOLLOWED BY THE REVENUE ON YEAR TO YEAR BASIS FOR D ECIDING VARIOUS ISSUES OF THE TAXPAYERS. IN ABSENCE OF CONS ISTENT APPROACH, IT MAY GIVE RISE TO A CHAOTIC SITUATION A ND AVOIDABLE LITIGATION, WHICH MAY IN TURN HAMPER VOLUNTARY COMP LIANCE BY THE TAXPAYERS. (II) IT HAS BEEN NOTED BY US THAT THE AO HAS MADE D ISALLOWANCE ON THE BASIS OF RETURN OF INCOME FILED BY THE ASSES SEE AND AUDIT REPORT OF THE ASSESSEE. THE ASSESSEE HAS MADE ITS CLAIM IN THE PROFIT AND LOSS ACCOUNTS AND COMPUTATION SHE ET GIVING COMPLETE FACTS AND PARTICULARS. THUS, IT CANNOT BE SAID THAT THERE WAS CONCEALMENT OF FACTS. THE ASSESSEE HAD MA DE A CLAIM, DULY SUPPORTED WITH THE AUDIT REPORT FROM TH E QUALIFIED ACCOUNTANT. THE CLAIM WAS NOT FOUND ALLOWABLE BY TH E AO, IN HIS OPINION. UNDER THESE FACTS AND CIRCUMSTANCES, H ONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT LTD 322 ITR 158(SC), HAS HELD THAT IT WOULD NOT BE A FI T CASE FOR LEVY OF PENALTY. (III) IT IS FURTHER SEEN BY US THAT IT IS A WELL KN OWN FACT THAT THERE HAS BEEN ENORMOUS LITIGATION ON ACCOUNT OF INTERPRETATION OF SECTION 80HHC, THROUGHOUT THE COU NTRY, VARIOUS TAX EXPERTS AND COURTS ARE STILL GRAPPLING WITH THE COMPLEXITIES IN APPRECIATION AND INTERPRETATION OF PROVISIONS OF SECTION 80HHC. THESE PROVISIONS ARE FULL OF CONTROV ERSIES. UNDER THESE CIRCUMSTANCES, THE ASSESSEE HAS TAKEN S TAND AND MANGALAM DRUGS & ORGANICS LTD 6 MADE A CLAIM ACCORDINGLY. MERELY BECAUSE THE CLAIM OF THE ASSESSEE WAS NOT FOUND ALLOWABLE BY THE AO IN ITS O PINION, IT SHOULD NOT IPSO FACTO GIVE RISE TO AN INFERENCE THAT THERE WAS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULAR OF INCOME BY THE ASSESSEE. THE ASSESSEE HAD MADE A BONFIDE CLAIM AS PER THE ADVICE RECEIVED BY IT, UNDER THESE CIRCUMSTANCES IT CANNOT BE SAID THAT THE ASSESSEES CLAIM WAS BOGUS OR WHOLLY ERRONEOUS. UNDER THESE CIRCUMSTANCE S, IT CANNOT BE SAID TO BE A FIT CASE FOR LEVY OF PENALTY . (IV) IT IS FURTHER NOTED, FROM THE PERUSAL OF PENAL TY ORDER, THAT THE PENALTY HAS BEEN LEVIED, ON ALL THE ADDITIONS/DISALLOWANCES, IN A WHOLE SOLE MANNER. THE AO HAS NOT GIVEN HIS FINDINGS, FOR LEVYING THE PENALTY , FOR EACH ISSUE SEPARATELY, WITH RESPECT TO THE SATISFACTION OF THE AO FOR EACH OF THE ISSUE RESPECTIVELY, NOR HAS HE GIVEN A FINDING FOR EACH ISSUE SEPARATELY AS TO WHETHER THERE WAS A CON CEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME. THE AO HAS HELD IN THE PENALTY ORDER THAT VARIOUS DISALLOWANCE MADE BY THE AO HAVE BEEN CONFIRMED BY THE LD CIT(A) AND THEREFORE, IT IS AUTOMATICALLY ESTABLISH ED THAT THE ASSESSEE HAS CONCEALED ITS INCOME AND FURNISHED INA CCURATE PARTICULARS, WHICH HAS LED INTO CONCEALMENT OF INCO ME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. IN OUR CONSIDERED VIEW, THIS APPROACH OF THE AO FOR LEVY OF PENALTY I S NOT CORRECT AS PER LAW. PENAL PROVISIONS ARE QUITE HARSH, THESE CAN MAKE THE ASSESSEE LIABLE FOR PROSECUTION, AS WELL. THERE FORE, THE AO IS OBLIGED, UNDER THE LAW, TO MAKE APPLICATION OF H IS MIND MANGALAM DRUGS & ORGANICS LTD 7 METICULOUSLY AND CAREFULLY FOR EACH ISSUE SEPARATEL Y AND TO SHOW AND ESTABLISH PRECISELY AND SPECIFICALLY WHETH ER THERE WAS CONCEALMENT OF INCOME OR THERE WAS FURNISHING O F INACCURATE PARTICULARS OF INCOME ON THE PART OF THE ASSESSEE, AT THE STAGE OF FILING OF RETURN OF INCOME. THE ASS ESSEE CANNOT BE FASTENED WITH THE LIABILITY OF PENALTY WITHOUT T HERE BEING A CLEAR OR SPECIFIC CHARGE. FIXING A CHARGE IN A VAGU E AND CASUAL MANNER IS NOT PERMITTED UNDER THE LAW. FIXING THE T WIN CHARGES IS ALSO NOT PERMITTED UNDER THE LAW. WE DRI VE SUPPORT FROM THE JUDGMENT OF HONBLE GUJRAT HIGH COURT IN T HE CASE OF NEW SORATHIA ENGINEERING CO VS CIT 282 ITR 642 (GUJ ). IT IS FURTHER NOTED BY US THAT THE AO HAS HELD THAT SINCE THE DISALLOWANCES HAVE BEEN CONFIRMED, IT IS ESTABLISHE D THAT THE ASSESSEE HAS CONCEALED ITS INCOME AND PENALTY IS AUTOMATICALLY LEVIABLE. IN OUR VIEW, THIS APPROACH IS ALSO NOT ACCEPTABLE AS PER LAW. IT IS NOW A WELL SETTLED LAW , THAT THE ASSESSMENT PROCEEDINGS ARE INDEPENDENT PROCEEDING S. IN A GIVEN SITUATION, THE ASSESSEE MAY BE LIABLE FOR ASS ESSMENT OF HIS TAXABLE INCOME, BUT THAT WOULD NOT, NECESSARILY AND AUTOMATICALLY, MAKE THE ASSESSEE LIABLE FOR LEVY OF PENALTY AS WELL, ON THE INCOME ASSESSED. THE PARAMETERS FOR IM POSITION TO TAX AND FOR LEVY OF PENALTY ARE DIFFERENT UNDER THE LAW. GRAVE ERRORS ARE DONE BY THE AOS, UNDER THE LAW, WHEN BOT H ARE MIXED UP. THE ASSESSEE MAY BE LIABLE TO BE TAXED FO R WANT OF SUBSTANTIATION OF THE CLAIM MADE BY THE ASSESSEE, B UT FOR LEVY OF PENALTY, THE AO MAY BE REQUIRED TO DISPROVE THE CLAIM OR TO SHOW THAT THE CLAIM MADE BY THE ASSESSEE WAS BOGUS. IN THE MANGALAM DRUGS & ORGANICS LTD 8 PRESENT CASE, NO SUCH EXERCISE HAS BEEN DONE AT ALL BY THE AO WHILE LEVYING THE PENALTY AND THE PENALTY HAS BEEN LEVIED IN A HIGHLY AUTOMATIC, MECHANISED AND CASUAL MANNER. THI S KIND OF APPROACH GIVES RISE TO AVOIDABLE HARDSHIPS TO TH E TAXPAYERS AND SHOULD BE AVOIDED. THEREFORE, KEEPING IN VIEW T HE AFORESAID DISCUSSION, WE FIND THAT LEVY OF PENALTY ON THE DISALLOWANCE OF DEDUCTION U/S 80HHC WAS NOT JUSTIFI ED AND THEREFORE, SAME IS DELETED AND GROUND NO.2 (B) IS A LLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH SEPTEMBER 2015. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) ' # / JUDICIAL MEMBER $ # / ACCOUNTANT MEMBER % & MUMBAI; ) DATED : 24/09/2015 CTX? P.S/. .. ! %'&'( )(*& / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1 ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1 / CIT(A)- , MUMBAI 5. 34 .' , 0 +( ' 5 , % & / DR, ITAT, MUMBAI 6. 6# 7& / GUARD FILE. ! / BY ORDER, /3+ . //TRUE COPY// +/, - (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI