RENFRO INDIA (I) P. LTD, MUMBAI V. ACIT 10(3), MUMBAI

ITA 7085/MUM/2011

• Counselvise Citation: 708519914 RSA 2011
• Duration Of Justice: 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2005-2006
• Appeal Filed On: 19-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR SR
• Assessee Lawyers: NARESH JAIN; BIKASH KUMAR BOGI
• Keywords: Reasonable cause
• Section: 27; 273B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 7085/MUM/2011 ASSESSMENT YEAR 2005-06 M/S. RENFRO INDIA (I) P. LTD., 609, MAHALAXMI CHAMBERS, 22, BHULABHAI DESAI ROAD, MUMBAI 400 026 PAN: AAACK 2518C VS. ASST. COMMISSIONER OF INCOME TAX, 10(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NARESH JAIN & SHRI BIKASH KUMAR BOGI RESPONDENT BY : SHRI C.G.K. NAIR (SR.AR) DATE OF HEARING : 16-04-2012 DATE OF PRONOUNCEMENT : 25-04-2012 ORDER PER RAJENDRA, A.M. THE FOLLOWING GROUNDS OF APPEAL WERE FILED BY THE A PPELLANT: I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE PENALTY IMPOSED BY AO BY APPLYING EXPLANATION 1 TO SECTION 271(C) THEREBY, COMPLETING IGNORING THE FACT THAT T HE APPELLANT HAD DISCLOSED ALL THE DETAILS WITH RESPEC T TO CLAIM U/S. 10B IN THE COMPUTATION OF INCOME AND NOT ES THEREON AND THE SAID CLAIM WAS AS PER FORM 56G ISSU ED BY THE CHARTERED ACCOUNTANT . II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT (A) HAD GROSSLY ERRED IN CONFIRMING THE PENALTY OF 2 RS. 50,92,791/- U/S. 271(1)( C ) LEVIED BY ASSESSIN G OFFICER IGNORING RELATED LEGAL DECISION CITED BY AP PELLANT. 2. THIS APPEAL IS DIRECTED AGAINST THE PENALTY ORDE R FOR THE A.Y. 2005-06 PASSED U/S. 271(1)( C ) OF THE INCOME TAX A CT, 1961 (ACT), ON 25-03-2011 BY ACIT-10(3), MUMBAI AND CONFIRMED BY T HE CIT(A) 22, MUMBAI VIDE HIS ORDER DT. 05-08-2011. IN THIS CASE, RETURN OF INCOME WAS FILED ON 31-10- 2005 DECLARING LOSS OF RS. 3,40,89,011/-. THE ASSESSMENT U/S. 143 (3) WAS COMPLETED ON 28-11-2008 DETERMINING LOSS AT RS. 1,83,72,750/- . THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 10B WITHOUT SETTING OFF OF THE LOSS OF PUNE UNIT AGAINST THE INCOME OF THE NASHIK UNIT. DEDUC TION CLAIMED U/S. 10B WAS DISALLOWED BY THE ASSESSING OFFICER (AO), A ND WAS SUSTAINED BY CIT(A). THE A.O. INITIATED PENALTY PROCEEDINGS U/S. 271(1) ( C ) AND IMPOSED PENALTY OF RS. 50,92,791/- THEREON. 3. AO AFTER CONSIDERING THE REPLY FILED BY THE APPE LLANT IN RESPONSE TO NOTICE ISSUED FOR LEVYING PENALTY CONCLUDED AS U NDER: WHEN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE ARE EXAMINED AGAINST THE BACKGROUND OF ABOVE LEGAL POSITION AND PRINCIPLES, IT IS SEEN THAT THE ASSESSEE HAS FAILED TO JUSTIFY ITS CLAIM OF DEDUCTION U/S. 10B IN RESPECT OF ITS PUNE UNIT BEFORE SETTING OFF THE SAME AGAINST THE LOSS OF ANOTHER 10 B UNIT DURING THE YEAR AND THUS IT HAD FURNISHED INACCURATE PARTI CULARS OF ITS INCOME AND CONCEALED THE PARTICULARS OF ITS INCOME TO THE EXTENT OF CLAIM OF ABOVE DEDUCTION. THUS, THE ASSESSEES CASE IS SQUARELY COVERED BY THE EXPLANATION-1 TO SECTION 27 1(1)( C ) AS ALSO PLAIN AND CLEAR CONCEALMENT OF INCOME AND FURN ISHING INACCURATE PARTICULARS OF INCOME. SECTION 273B OF THE ACT PROVIDES THAT NO PENALTY I S TO BE LEVIED IN THE CASE OF AN ASSESSEE UNDER THE VARIOUS SECTIONS SPECIFIED THEREIN IF HE PROVES THAT THERE WAS REASO NABLE CAUSE FOR THE SAID FAILURE. IN THE INSTANT CASE, THE ASSESSE E COMPANY HAS FAILED TO PROVE EXISTENCE OF ANY REASONABLE CAUSE F OR THE FAILURE ON ITS PART TO DECLARE ITS TRUE AND CORRECT INCOME. HENCE, THE ASSESSEE IS NOT ENTITLED TO ANY RELIEF U/S. 273B OF THE ACT. HENCE, ALL THE PRECONDITIONS REQUIRED FOR LEVYING THE PENA LTY U/S. 271(1)( C ) ARE SATISFIED IN ASSESSEES CASE. HENCE, THIS IS A FIT CASE FOR LEVY OF PENALTY U/S. 271(1)( C ). UPON CAREFULLY CONSIDERING THE SUBMISSIONS MADE AN D AFTER EXAMINING THE ASSESSEES CASE IN THE LIGHT OF VARIOUS JUDICIAL PARAMETERS AS DISCUSSED ABOVE, I HOLD THAT IN TERMS OF EXPLANATION-1 TO SECTION 271(1)( C ) OF THE ACT, TH E ASSESSEE 3 COMPANY HAS FURNISHED INACCURATE PARTICULARS OF INC OME AND CONCEALED ITS INCOME TO THE EXTENT OF RS. 1,39,17,5 82/-. HENCE, THIS IS A FIT CASE FOR LEVY OF PENALTY U/S. 271(1)( C ) OF THE ACT. 4. CIT(A) VIDE PARA 6 OF HIS ORDER CONFIRMED THE SA ID PENALTY ORDER IN THE FOLLOWING WORDS: AS PER EXPLANATION (1) TO SECTION 271(1)( C ) WHER E ANY DISALLOWANCES OR ADDITIONS ARE MADE BY THE A.O. AND ASSESSEE OFFERS EXPLANATION BUT FAILS TO PROVE THAT SUCH EXP LANATION IS BONAFIDE, THEN THE AMOUNT DISALLOWED/ADDED IS DEEME D TO REPRESENT CONCEALED INCOME AND PENALTY IS IMPOSABLE . IN THIS CASE, THE APPELLANT FAILED TO FURNISH EVIDENCE TO S UPPORT ITS VIEW THAT THE CLAIM WAS BONAFIDE AND WAS BASED ON ANY JU DICIAL PRONOUNCEMENTS EXISTING AS ON THE DATE OF FILING OF RETURN I.E., 31- 10-2005. ALL THE DECISIONS QUOTED BY IT RELATE TO SUBSEQUENT DATES AND HENCE IN MY OPINION THE APPELLANTS CLAIM OF DEDUCTION U/S. 10A WITHOUT SETTING OFF THE LOSS OF THE ORDER UNIT WAS NOT BONAFIDE. 5. AUTHORISED REPRESENTATIVE (AR) OF THE APPELLANT SUBMITTED THAT THE APPELLANT WAS MAINTAINING SEPARATE BOOKS OF ACC OUNTS FOR ALL THE UNITS, THAT IT HAD FILED SEPARATE AUDIT REPORTS FOR EACH OF THE UNITS, THAT APPELLANT HAD NOT FILED INACCURATE PARTICULARS OF INCOME OR HAD CONCEALED PARTICULARS OF INCOME. HE RELIED UPON THE CASE OF HINDUSTAN UNILEVER LTD. , 325 ITR 102 (BOMBAY). DRAWING OVER ATTENTION TO PAGE 24 OF THE SAID ORDER HE SUBMITTED THAT LOSS SUSTAINED BY THE PUNE UNIT WAS ELIGIBLE FOR SET OFF AGAINST THE PROFIT OF OTHER UNITS. HE ALSO RELIED UPON THE CASES OF FCI TECHNOLOGY SERVICES LTD., 48 SOT 460 (COCHIN) . CAPGEMINI INDIA (P) LTD., (C BENCH, MUMBAI) AND GALAXY SURFACTANTS LTD. , (69 DTR (BOM) 42 ). FINALLY, RELYING UPON THE MATTER OF RELIANCE PE TRO PRODUCTS (P) LTD., [322 ITR 15(P) SC] HE SUBMITTED THAT PENALTY SHOULD NOT HAVE BEEN LEVIED. 6. DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE AO AND THE CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PRODUCED BEFORE US. CIT(A) DISMISSED THE APPEAL FI LED BY THE APPELLANT BECAUSE ON 31-10-2005 ON THE DATE OF FILING OF RETU RN NO JUDICIAL PRONOUNCEMENT WAS AVAILABLE IN HIS FAVOUR. HE HAS STATED ALL THE DECISIONS QUOTED BY IT RELATE TO SUBSEQUENT DATES A ND HENCE IN MY OPINION .. . IN THIS REGARD, WE WILL LIKE TO OBSERVE THAT AVAILABILITY/NON-AVAILABILITY OF A PAR TICULAR PRONOUNCEMENT ON A PARTICULAR DATE CANNOT BE THE BA SIS FOR IMPOSING 4 PENALTY U/S. 271(1)(C). PRONOUNCEMENT OF A DECISIO N AFTER A PARTICULAR DATE DOES NOT AFFECT THE LEGAL POSITION EXISTING ON OR BEFORE THE DATE OF PRONOUNCEMENT. COURTS ONLY INTERPRET LAW. SO, IF I NTERPRETATION IS ON A LATER DATE, IT DOES NOT MEAN THAT PRIOR TO THAT L AW WAS SOMEWHAT DIFFERENT. IF A NEW SECTION IS INTRODUCED, IT TAKE S TIME FOR JUDICIAL FORUMS TO DECIDE ISSUES RELATED WITH IT. INTERPRET ATION OF SUCH SECTION AND JUDICIAL PRONOUNCEMENTS NATURALLY TAKE PLACE IN DUE COURSE OF TIME. TILL THE ISSUES ARISING OUT OF CONTROVERSIES OF A PARTICULAR SECTION DOES NOT REACH TO ITAT OR HC CERTAINTY, TO SOME EXT ENT, WILL NOT EMERGE. IN THESE CIRCUMSTANCES STAND TAKEN BY THE CIT(A) FOR CONFIRMING THE PENALTY CANNOT BE ENDORSED. 8. SECONDLY, CLAIM MADE BY THE APPELLANT WITH REGAR D TO SECTION 10-A WAS BASED ON THE ADVICE OF A PROFESSIONAL PERS ON I.E., C.A. SETTING OFF THE LOSS OF A UNIT AGAINST THE INCOME O F THE ANOTHER UNIT CAN HARDLY BE TERMED FILING OF INACCURATE PARTICULA RS OR CONCEALMENT OF INCOME. THE SAID ISSUE HAS BEEN LOGICALLY DELI BERATED UPON IN THE CASE OF CAPGEMINI INDIA (P) LTD., IN PARA 22 OF THE SAID ORDER C BENCH OF ITAT, MUMBAI HAS HELD AS UNDER: WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIV AL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING SE T OFF OF LOSS OF A 10A UNIT AGAINST THE TAXABLE PROFIT OF OTHER UNITS. TH E ASSESSEE HAD FOUR 10A UNITS IN RESPECT OF WHICH DEDUCTION UNDER SECTI ON 10A WAS ALLOWABLE AND ONE NON 10-A UNIT. THE ASSESSEE HAD INCURRED LOSS FROM ONE 10A UNIT WHICH HAD BEEN SET OFF AGAINST THE TAX ABLE PROFIT OF OTHER 10A UNITS. THE ASSESSING OFFICER HOWEVER TOOK THE VIEW THAT SINCE INCOME FROM 10A UNIT WAS EXEMPT, LOSS FROM 10A UNIT HAS TO BE IGNORED OR ALTERNATIVELY THE LOSS HAS TO BE ADJUSTED AGAINS T THE PROFIT OF ANOTHER 10A UNIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10 A. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 10A AND FIND THAT AS PER THE PROVISIONS IN FORCE PRIOR TO ASSESSMENT YEAR 2001-0 2, THE PROFIT AND GAIN FROM THE ELIGIBLE UNDERTAKING WAS NOT TO BE IN CLUDED IN THE TOTAL INCOME WHICH MEANT THAT THE INCOME FROM THE ELIGIBL E UNIT WAS EXEMPT FROM TAX. HOWEVER, PROVISIONS WERE AMENDED WITH EF FECT FROM ASSESSMENT YEAR 2001-02 AND AS PER THE AMENDED PROV ISIONS, THE PROFIT AND GAIN DERIVED BY AN ELIGIBLE UNDERTAKING IS REQUIRED TO BE DEDUCTED FROM THE TOTAL INCOME. THUS, FROM A.Y. 20 01-02, SECTION 10A IS NO LONGER AN EXEMPTION PROVISION AND IT ALLOWS O NLY DEDUCTION FROM TOTAL INCOME. THE DEDUCTION IS TO BE ALLOWED IN RE SPECT OF EACH ELIGIBLE UNDERTAKING SEPARATELY WHICH HAS ALSO BEEN CLARIFI ED BY THE CBDT. WE ALSO NOTE THAT PRIOR TO ASSESSMENT YEAR 2001-02 WHE N SECTION 10A WAS AN EXEMPTION PROVISION, SECTION 10(6) PROVIDED REST RICTION ON SET OFF AND CARRIED FORWARD OF BUSINESS LOSS AND UNABSORBED DEP RECIATION. HOWEVER SUBSEQUENTLY, SECTION 10(6) WAS AMENDED BY FINANCE ACT 2003 WITH EFFECT FROM ASSESSMENT YEAR 2001-02 AND S UCH RESTRICTION WAS WITHDRAWN WHICH WAS CONSISTENT WITH THE NEW SCH EME OF SECTION 10A WHICH IS A DEDUCTION PROVISION AND NOT EXEMPTIO N PROVISION FROM 5 ASSESSMENT YEAR 2001-02. THEREFORE, THE LOSS FROM 10A UNIT HAS TO BE ADJUSTED AGAINST TAXABLE PROFITS OF OTHER UNITS AFT ER DEDUCTION UNDER SECTION 10A HAS BEEN ALLOWED IN RESPECT OF EACH ELI GIBLE UNIT. SAME VIEW HAS BEEN TAKEN BY THE HONBLE HIGH COURT OF MU MBAI IN CASE OF HINDUSTAN UNILEVER LTD., (SUPRA) IN WHICH IT WAS HE LD THAT DEDUCTION HAS TO BE ALLOWED IN RESPECT OF THREE ELIGIBLE UNIT S AND LOSS OF THE FOURTH 10A UNIT HAS TO BE SET OFF AGAINST THE NORMAL BUSIN ESS INCOME. THE TRIBUNAL IN CASE OF HONEYWELL INTERNATIONAL INDIA ( P) LTD., (SUPRA) HAS ALSO FOLLOWED THE SAME VIEW. THEREFORE, RESPECTFUL LY FOLLOWING THE ABOVE JUDGMENTS, THE ORDER OF THE ADDITIONAL CIT CA NNOT BE SUSTAINED. WE ACCORDINGLY SET ASIDE THE ORDER OF THE ADDITIONA L CIT AND ALLOW THE CLAIM OF THE ASSESSEE. 9. IN THE CASE OF RELIANCE, PETRO APEX COURT HAS LAID DOWN GUIDELINE FOR IMPOSING PENALTY U/S. 271(1)( C ). RELEVANT PORTION OF THE ORDER IS REPRODUCED HERE: A GLANCE AT THE PROVISION OF S. 271(1)( C ) WOULD SUGGEST THAT IN ORDER TO BE COVERED, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUS T HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. PRESENT IS N OT THE CASE OF CONCEALMENT OF THE INCOME. THAT IS NOT THE CASE OF THE REVENUE EITHER. AS PER LAW LEXICON, THE MEANING OF THE WORD PARTIC ULAR IS A DETAIL OR DETAILS (IN PLURAL SENSE); THE DETAILS OF A CLAIM, OR THE SEPARATE ITEMS OF AN ACCOUNT. THEREFORE, THE WORD PARTICULARS USED IN THE S. 271(1)( C ) WOULD EMBRACE THE MEANING OF THE DETAILS OF THE CLA IM MADE. IT IS AN ADMITTED POSITION IN THE PRESENT CASE THAT NO INFOR MATION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR INACCURATE. IT IS NOT AS IF ANY STATEMENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUALLY INCORRECT. HENCE, AT LEAST, PRIMA FACIE, THE ASSES SEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. THE W ORDS ARE PLAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE TO THE PEN ALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY P ROVISION CANNOT BE INVOKED. BY ANY STRETCH OF IMAGINATION, MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCURATE PART ICULARS. THEREFORE, IT IS OBVIOUS THAT IT MUST BE SHOWN THAT THE CONDIT IONS UNDER S. 271(1) ( C ) MUST EXIST BEFORE THE PENALTY IS IMPOSED. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BECAUSE THAT IS THE ONLY DOCUMENT, WHERE THE ASSESSEE CAN FURNISH THE P ARTICULARS OF HIS INCOME CIT VS. ATUL MOHAN BINDAL (2009) 225 CTR(S C) 248; (2009) 28 DTR (SC) 1; (2009) 9 SCC 589 FOLLOWED. 6 10. RESPECTFULLY FOLLOWING THE ABOVE ORDERS, WE ALL OW THE APPEAL FILED BY THE APPELLANT AND REVERSE THE ORDER OF THE CIT(A ). ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH APRIL, 2012. SD/- SD/- (D.K. AGARWAL) (RAJENDRA) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI, DATE: 25-04-2012 TNMM COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR D BENCH, ITAT, MUMBAI 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI