Appeal details
Counselvise Citation
7424114 RSA 2014
Assessee PAN
Bench
Appeal Number
Duration Of Justice
10 month(s) 22 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-01-2015
Appeal Filed By
Department
Bench Allotted
DB
Next Hearing Date
20-01-2015
Assessment Year
2007-2008
Appeal Filed On
28-02-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL ,PANAJI BENCH, PANAJI [BEFORE SHRI P. K. BANSAL, AM & SHRI D.T GARASIA, JM ] I.T . A NO S . 74 & 75 /PNJ /2014 A.Y S 2007 - 08 AND 2008 - 09 A.C.I.T, CIR - 1, MARGAO VS. M/S. COLORCON ASIA PVT.LTD PAN: AAACC2281Q ( APPELLANT) ( RESPONDENT ) FOR THE APPELLANT / ASSESEE : SHRI R. DURAI PANDIAN, LD.DR FOR THE RESPONDENT/DEPARTMENT : SHRI KIRIT R.KAMDAR, CA, LD.AR DATE OF HEARING: 20 - 01 - 2015 DATE OF PRONOUNCEMENT: 20 - 01 - 2015 ORDER PER SHRI D.T GARASIA, J M: BOTH THE APPEAL S HAVE BEEN FILED BY THE DEPARTMENT AGAINST THE SEPARATE ORDER OF THE LD. CIT (A) , PANAJI DATED 2 6 - 11 - 2013 FOR THE ASSESSMENT YEARS 20 07 - 08. 12 - 13 AND 2013 - 14 RESPECTIVELY . 2. B OTH THE APPEALS PERTAIN TO COMMON ISSUES , THEREFORE, THESE ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. THE FOLLOWING COMMON GROUNDS ARE RAISED BY THE DEPARTMENT IN ITA NOS. 74 & 75/PNJ /2014 FOR THE ASSESSMENT YEARS 20 07 - 08 AND 2008 - 09 RESPECTIVELY : - 1. THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY LEVIED BY A.O U/S271(10( C) OF THE I.T ACT AMOUNTING TO RS.22,82,907/ - & RS. 23,74,360/ - 2. THE LD.CIT(A) HAS ERRED IN DELETING THE PENALTY LEVIE D BY AO ON INACCURATE PARTICULARS OF INCOME FURNISH BY THE ASSESSEE BY WAY OF CLAIMING EXCESSIVE DEDUCTION UNDER SECTION. 80IB AMOUNTING TO RS.67,82,258/ - & RS.69,85,466/ - 3. RELYING ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF IN DIA VS. DHARMENDRA TEXTILE PROCESSORS 2007 295 ITR 244, PENALTY U/S271(1)( C) IS LEVIABLE IN THIS CASE. 4. THE COMMON S HORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PVT. LTD CO ENGAGED IN MANUFACTURE AND SALE OF DRY DISPERSION CELLULOSE ETHER, FILM COATING MATERIAL AND CLAIMED DEDUCTION U/S80IB OF THE I.T ACT OF RS.26,15,61,571 / - & RS. 9,98,07,749/ - . THE ASSESSEE HAS 2 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD INCLUDED THE FOLLOWING ITEMS WHILE COMPUTING THE DEDUCTION U/S80IB OF THE I.T ACT AND THE SAME WAS DISALLOWED IN THE ASSESSMENT : - A.Y 2007 - 08 SR NO. PARTICULARS INCOME DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB 1 PROVISION FOR DOUBTFUL DEBTS WRITTEN OFF 10,32,980 3,09,894 2. INTEREST INCOME 62,49,244 18,74,773 3. INCOME FROM INSURANCE CLAIM 4,29,167 1,28,750 4. INCOME FROM SALE OF SCRAP 1,03,847 31,154 TOTAL 78,15,238* 23,44,571 *THE ASSESSEE HAS CLAIMED 100% DEDUCTION A.Y 2008 - 09 SR NO. PARTICULARS INCOME DISALLOWANCE OF DEDUCTION UNDER SECTION 80IB 1 INTEREST INCOME 73,69,337 22,10,801 2. INCOME FROM INSURANCE CLAIM 3 ,87,482 1,16,245 3. INCOME FROM SALE OF SCRAP 1,24,139 37,241 TOTAL 78, 80,958 23,64,287 4.1 HOWEVER, THE ASSESSEE HAS CLAIMED 100% DEDUCTION ON THE ABOVE INCOME, THE ENTIRE DEDUCTION UNDER SECTION. 80IB OF THE I.T ACT ON THE ABOVE INCOME HA S BEEN DISALLOWED . IN VIEW OF THE ABOVE DISALLOWANCE OF DEDUCTION U/S80IB ON THE ABOVE INCOME THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS INCOME OR FILE D INACCURATE PARTICULARS OF INCOME. ACCORDINGLY, PENALTY PROCEEDINGS FOR BOTH THE ASSESSMENT YEARS U NDER CONSIDERATIONS U/S271(1)( C) OF THE ACT WERE INITIATED BY ISSUING NOTICE ON THE ASSESSEE WHY PENALT IES U /S . 271(1) ( C ) FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION SHOULD NOT BE LEVIED. THE ASSESSEE SUBMITTED ITS EXPLANATION REQUESTING TO DROP THE PENALT Y PROCEEDINGS INITIATED U/S271(1)(C ) OF THE I.T ACT . IT IS STATED THAT THE COMPANY UNDER GENUINE BELIEF THAT THE INTEREST EARNED FROM THE INVESTMENT OF PROFIT EARNED FROM MANUFACTURING ACTIVITY HAS CLAIMED DEDUCTION U/S80IB OF THE I.T ACT . SIM ILARLY, THE INCOME FROM SALE OF SCRAP AND ALSO INSURANCE CLAIM IS ALSO HAS BEEN TREATED AS PART OF THE INCOME EARNED FROM MANUFACTURING ACTIVITY . THE COMPANY HAD APPROPRIATELY DISCLOSED ALL THE RELEVANT MATERIAL AND FACTS IN RELATION TO THE ABOVE INCOME IN THE RETURN OF INCOME. FURTHER, WHETHER THE ABOVE INCOME IS TO BE INCLUDED FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB OR NOT IS A DEBATABLE ISSUE. NUMBER OF JUDGMENTS ARE IN FAVOUR OF THE ASSESSEE . THEREFORE, T HE PENALTY UNDER S ECTION.2 71(1) ( C) MAY BE DROPPED. THE AO DID NOT 3 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD ACCEPT THE ABOVE EXPLANATION OF THE ASSESSEE AND HE LEVIED THE PENALTIES UNDER S ECTION.271(1)( C) OF THE ACT FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. 5 . MATTER CARRIED TO LD. CIT(A) AND CIT(A) HAS DIS POSED OF THE APPEALS BY HIS ORDER BY OBSERVING AS UNDER: - PARA 7 7. I HAVE GONE THROUGH THE ORDER IMPOSING PENALTY U /S . 271(1) ( C) AND CONTENTS OF THE SUBMISSION OF THE APPELLANT. THE APPELLANT FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS. 21,03,31,420/ - & RS. 49,98,43,929/ - AFTER CLAIMING DEDUCTION U/S80IB AMOUNTING TO RS.26,15,61,571/ - & RS.9,98,07,749/ - . THE ASSESSMENT WAS COMPLETED BY DETERMINING TOTAL INCOME AT RS.21,26,75,991/ - & RS.50,68,29,400/ - AFTER REDUCING DEDUCTION U/S80IB BY RS.23,44,571/ - & 69,85,466/ - . THIS REDUCTION IN CLAIM OF DEDUCTION U/S80IB WAS DONE BECAUSE THE ASSESSEE HAD CLAIMED DEDUCTION ON ITEMS LIKE INTEREST, INCOME FROM INSURANCE CLAIM FROM SALE OF SCRAP AND INCORRECT OF ALLOCATION OF EXCISE DUTY . DURING THE C OURSE OF PENAL PROCEEDINGS, THE ASSESSEE STATED THAT DEDUCTION U/S80IB ON INTEREST, INSURANCE CLAIM AND SALE OF SCRAP WAS CLAIMED UNDER BONAFIDE BELIEF THAT DEDUCTION IS AVAILABLE ON THEM AS THEY RELATE TO THE ACTIVITIES CARRIED ON FOR EXPORT AND INCORRECT ALLOCATION OF EXCISE DUTY WAS A GENUINE BONAFIDE ACCOUNTING MISTAKE. THE AO DID NOT FIND THE EXPLANATION OF THE APPELLANT SATISFACTORY, AND LEVIED THE PENALTY. ON THE OTHER HAND, THE APPELLANT STATED THAT IT HAD NOT DONE ANY DELIBERATE OR WILLFUL DEFAUL T AND THAT IT HAD NO INTENTIONS OF EVADING ANY PAYMENT OF TAX. TO PROVE HIS BONAFIDES, THE APPELLANT FILED A REVISED COMPUTATION OF INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF AND WITHDREW CLAIM OF DEDUCTION ON INTEREST INCOME, INSURANCE CLAI M AND SALE OF SCRAP. HE FURTHER STATED THAT ONCE THE MISTAKE IN INCORRECT ALLOCATION OF EXCISE DUTY WAS POINTED OUT THE ASSESSEE DID NOT TAKE OBJECTION TO THE CONSEQUENT DISALLOWANCE. TO FURTHER SHOW ITS BONAFIDES THE APPELLANT SUO - MOTO FILED REVISED COMP UTATION OF INCOME FOR SUBSEQUENT YEARS I.E. A.YRS 2009 - 10 AND 2010 - 11. THUS, LOOKING AT THE TOTALITY OF FACTS, CONDUCT OF THE APPELLANT IN SUO - MOTU FILING REVISED COMPUTATION OF INCOME FOR SUBSEQUENT ASSESSMENT YEARS, I HAVE NO DOUBT ABOUT THE BONAFIDE INTENTIONS OF THE APPELLANT. IN THE ASSESSMENT OR DURING THE COURSE OF PENALTY PROCEEDINGS AS WELL, THE A.O HAS NOT FOUND ANY DELIBERATE ATTEMPT ON PART OF THE APPELLANT , TO HIDE ANY FACTS FROM THE DEPARTMENT. UNDER THESE CIRCUMSTANCES IN MY OPINION, LEVY OF PENALTY U/S271(1)( C) WAS NOT WARRANTED. THE ISSUE OF CLAIMING A DEDUCTION, WHEREIN THE ASSESSEE TAKES UMBRAGE OF VARIOUS JUDGEMENTS IN ITS FAVOUR AND ACCORDINGLY COMPUTES ITS TAXABLE INCOME, BY ITSELF DOES NOT TANTAMOUNT TO SUPPRESSION, MISREPRESENTAT ION, EVASION OR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THE INSTANT CASE, THE A.O HAS MADE DISALLOWANCE ON THE BASIS OF DETAILS READILY AVAILABLE ON RECORD, AND NOTHING WAS CONCEALED BY THE APPELLANT. THE A.O IS DIRECTED TO DELETE THE PENALTY LEVIED U/S271(1)(C ) AMOUNTING TO RS.22,82,907/ - & RS. 23,74,360/ - ACCORDINGLY. THE APPEAL OF THE APPELLANT IS ALLOWED. 4 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD 6 . THEREFORE, THE DEPARTMENT IS IN APPEAL AGAINST THE DECISION OF THE LD.CIT(A). 7 . DURING T HE COURSE OF HEARING BEFORE US T HE LD. DR SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S80IB ON THE INCOME FOR PROVISIONS FOR DOUBTFUL DEBT S WRITTEN OFF , INTEREST INCOME, INCOME FROM INSURANCE CLAIM AND SALE OF SCRAP . T HIS INCOME DOES NOT RELATE T O MANUFACTURING ACTIVITIES. THEREFORE, THE ASSESSEE ITSELF HAS DISALLOWED THE SAME U/S80IB OF THE ACT . TH EREFORE , THE AO IS JUSTIFIED IN IMPOSING THE PENALTIES U/S271(1)( C) OF THE ACT. 8 . THE LD. AR FOR THE ASSESSEE HAS FILED DETAILED WRITTEN SUBMISSION BEFORE US , WHICH READS AS UNDER: - 1. PENALTY IS NOT LEVIABLE WHERE THE CLAIM IS BONAFIDE AND THERE IS FULL DISCLOSURE OF FACTS IT IS SUBMITTED THAT THE AFORESAID CLAIM FOR DEDUCTION UNDER SECTION 80IB OF THE ACT WAS MADE ON THE BASIS OF THE SIMILAR CLAI M MADE IN THE PAST ASSESSMENT YEARS. THE DETAILS OF THE CLAIM FOR DEDUCTION MADE UNDER SECTION 80IB IS AS UNDER: - (A) AY 2003 - 04 THE UNIT FOR MANUFACTURE OF COATING MATERIAL FOR PHARMACEUTICAL PRODUCTS WAS SET UP IN THE FINANCIAL YEAR 2002 - 03 AND THE COMMERCIAL PRODUCTION COMMENCED ON 27 MARCH 2003. NO DEDUCTION UNDER SECTION 80IB WAS CLAIMED SINCE THERE WERE NO ELIGIBLE PROFITS IN THE SAID YEAR. (REFER NOTES TO COMPUTATION OF INCOME ON PAGE NO.71 OF THE COMPILATION). (B) AY2004 - 05 NO CLAIM FOR DEDUCTION UNDER SECTION 80IB WAS NOT MADE SINCE THERE WERE NO ELIGIBLE PROFITS IN THE SAID YEAR. (REFER NOTES TO COMPUTATION OF INCOME ON PAGE NO.73) ( C) AY2005 - 06 IN THE RETURN OF INCOME FOR AY2005 - 06, AN AMOUNT OF RS.6,00,65,023/ - WAS CLAIMED AS A DEDUCTION UNDER SECTION 80IB WHEREIN THE AFORESAID ITEMS OF INCOME WERE INCLUDED FOR THE PURPOSE OF COMPUTING THE PROFITS OF THE BUSINESS(REFER COMPILATION PAGE NO.74) IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT, THE AMOUNT OF RS.6,00, 65,023/ - CLAIMED AS DEDUCTION UNDER SECTION 80IB IN THE RETURN OF INCOME WAS ALLOWED AS A DEDUCTION (REFER COMPILATION PAGE NOS.100 - 101). (D) AY2006 - 07 5 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD IN THE RETURN OF INCOME FOR A Y 2006 - 07, AN AMOUNT OF RS.1,70,00,617/ - WAS CLAIMED AS A DEDUCTION UN DER SECTION 80IB WHEREIN THE AFORESAID ITEMS OF INCOME WERE INCLUDED FOR THE PURPOSE OF COMPUTING THE PROFITS OF THE BUSINESS (REFER COMPILATION PAGE NO.102) IN THE INTIMATION PASSED UNDER SECTION 143(1) OF THE ACT, THE AMOUNT OF RS. C LAIMED AS DEDUCTION UNDER SECTION 80IB IN THE RETURN OF INCOME WAS ALLOWED AS A DEDUCTION (REFER COMPILATION PAGE NO.132). ( E ) AY200 7 - 08 THE SAID CLAIM WAS DISALLOWED FOR THE FIRST TIME IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) FOR AY2007 - 08 (REFER COMPILATION PAGE NO.53 - 58) ON APPEAL AGAINST THE ASSESSMENT ORDER FOR AY2007 - 08, THE CIT(A) VIDE ORDER DATED 29 AUGUST 2011 HELD THE ISSUE UNDER CONSIDERATION AGAINST THE APPELLANT (REFER COMPILATION PAGE NO.61 - 68). THE APPELLANT HAS ACCEPTED THE ORDER OF THE CIT(A) AND NOT CONTESTED THE SAID DISALLOWANCE IN AN APPEAL BEFORE THE HON'BLE INCOME - TAX APPELLATE TRIBUNAL. ACCORDINGLY, THE APPELLANT WITHDREW ITS CLAIM FOR AY2008 - 09 AND FILED THE REVISED COMPUTATION OF INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR AY2008 - 09. FURTHER, THE APPELLANT HA S ALSO WITHDRAWN THE CLAIM FOR AYS2009 - 10 AND 2010 - 11 IN THE REVISED RETURN OF INCOME FILED FOR THE SAID YEARS. IT IS SUBMITTED THAT CAPL WAS UNDER A BONAFIDE BELIEF THAT THE AFORESAID ITEMS OF INCOME WERE TO BE CONSI DERED AS PROFITS OF THE UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80IB OF THE ACT. THE APPELLANT HAD FURNISHED COMPLETE DETAILS OF THE SAID EXPENDITURE ALONG WITH JUSTIFICATIONS FOR THE SAME DURING THE COURSE OF ASSESSMENT PROCEEDI NGS. FURTHER, THE SCRUTINY PROCEEDINGS UNDER SECTION 143(3) OF THE ACT WERE COMPLETED ON THE BASIS OF THE INFORMATION/DETAILS PROVIDED BY THE APPELLANT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THE ITEMS OF THE OTHER INCOME ON WHICH THE DEDUCTION H AS NOT BEEN GRANTED WERE DISCLOSED IN THE AUDIT REPORT IN FORM NO.10CCB . ACCORDINGLY, THE APPELLANT HAD NOT FURNISHED ANY INACCURATE PARTICULARS OR CONCEALED ANY INCOME IN RESPECT OF THE CLAIM OF DEDUCTION UNDER SECTION 80IB . THUS, THE APPELLANTS INTEN TIONS WERE TO HONESTLY COMPLY WITH THE LAW. FURTHER, THE AO HAD DISALLOWED 30% OF THE GROSS AMOUNTS INSTEAD OF DISALLOWING 100% AS THE YEAR UNDER CONSIDERATION WAS THE FIFTH YEAR AND THEREFORE, THE APPELLANT WAS ENTITLED TO CLAIM 100% DEDUCTION UNDER S ECTION 80IA . THE SAME WAS BROUGHT TO THE NOTICE OF THE AO AND THE APPELLANT WAS FORTH RIGHT IN MAKING PAYMENT OF THE AMOUNT OF TAXES ALTHOUGH THE SAME WERE ON THE HIGHER SIDE AS COMPARED TO THE TAX COMPUTED BY THE AO. THIS FURTHER GOES TO PROVE THE HONEST INTENTIONS OF THE APPELLANT. IN VIEW OF THE ABOVE FACTS, IT WILL BE APPRECIATED THAT THE APPELLANT HAS AT NO TIME VIOLATED ANY OF THE PROVISIONS OF SECTION 271(1) ( C) THE ACT THAT WOULD LEAD TO IMPOSITION OF PENALTY. AT NO POINT IN TIME THERE WAS AN ATTE MPT TO CONCEAL OR FURNISH INACCURATE PARTICULARS OF INCOME. ALL THE FACTS WHICH WERE MATERIAL TO THE COMPUTATION OF TOTAL INCOME WERE PRESENT ON RECORD AND WERE DISCLOSED IN THE RETURN OF INCOME FILED FOR THE YEAR AND ALSO DILIGENTLY PROVIDED DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. IT HAS BEEN HELD IN VARIOUS JUDICIAL PRECEDENTS THAT WHERE CLAIM MADE BY THE APPELLANT WAS BONA FIDE SAME WOULD NOT AMOUNT TO CONCEALMENT FOR THE PURPOSE OF PENALTY UNDER SECTION 271(1)(C ) OF THE INCOME - TAX ACT , 1961. IN THIS CONNECTION, RELIANCE IS PLACED ON THE FOLLOWING JUDICIAL PRECEDENTS. 6 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD (A) CIT VS. RELIANCE PETROPRODUCTS P.LTD (322 ITR 158)(S.C) (B) ACIT VS. GRAND ORGANICS P.LTD (24 TAXMAN N .COM 20)(I.T.A.T. PANAJI) (C ) CIT VS. DHARAMPAL PREMCHAND LTD (11 TAXMAN .COM 437)(H.C DEL) 2. PENALTY IS NOT LEVIABLE ON BONAFIDE CLAIM MADE ON THE BASIS OF CAS CERTIFICATE/AUDITORS REPORT THE AFORESAID CLAIM HAS BEEN MADE ON THE BASIS OF THE AUDITORS REPORT UNDER SECTION 80IB IN FORM 10CCB . ACCORDINGLY, IT IS SUBMITTE D THAT THE SAID CLAIM FOR DEDUCTION IS A BONAFIDE CLAIM ON WHICH PENALTY IS NOT LEVIABLE. IN DOING SO, RELIANCE IS PLACED IN THE FOLLOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT PENALTY IS NOT LEVIABLE ON A BONAFIDE CLAIM MADE ON THE BASIS OF AUDITORS R EPORT. IN THIS CONNECTION, RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: (A) CIT VS. DHANABAI (178 TAXMAN 242)(DEL) (B) CIT VS. DEEP TOOLS P.LTD (274 ITR 603)(H C P & H) (C ) HP STATE FOREST CORPORATION LTD VS. DCIT (94 TTJ 792)(I.T.A.T. CHD) 3. NO PENALTY OUGHT TO BE LEVIED WHEREIN TWO VIEW ARE POSSIBLE IT IS RESPECTFULLY SUBMITTED THAT WHETHER THE ITEMS OF OTHER INCOME VIZ. INTEREST, INSURANCE CLAIMS AND SCRAP SALE ARE ELIGIBLE FOR DEDUCTION UNDER SECTION80IA IS A MATTER ON WHICH TWO ALTERNATIVE VIEWS COULD HAVE BEEN TAKEN. IT IS BEEN HELD TIME AND AGAIN BY VARIOUS COURTS THAT A BONA - FIDE CLAIM WHICH IS MADE BASED ON JUDICIAL PRECEDENTS INDICATES THAT THE ISSUE IS SUCH ON WHICH TWO OPINIONS EXIST AND THAT DIFFERENCE OF OPINION BETWEEN THE A.O AN D THE ASSESSEE IN RESPECT OF ALLOWABILITY OF A CLAIM CANNOT BE REGARDED AS SUFFICIENT TO SUBJECT AN ASSESSEE TO PENALTY ON THE GROUND THAT PARTICULARS GIVEN BY THE ASSESSEE WERE INCORRECT. FURTHER, COURTS HAVE ALSO HELD THAT WHERE AN ARGUABLE, CONTROVERSI AL OR DEBATABLE DEDUCTION IS CLAIMED, THE CLAIM COULD NOT BE SAID TO BE FALSE, OTHERWISE IT WOULD BECOME IMPOSSIBLE FOR ANY ASSESSEE TO RAISE ANY CLAIMS OR DEDUCTION WHICH MIGHT BE DEBATABLE, AND IT WAS NOT THE INTENTION OF THE LEGISLATURE TO MAKE PUNISHAB LE SUCH CLAIMS, IF THEY WERE NOT ACCEPTED. IT IS SUBMITTED THAT THE ABOVE GROUND ON WHICH PENALTY HAS BEEN LEVIED BY THE ASSESSING OFFICER AND DISALLOWANCE SUSTAINED BY THE HON'BLE CIT(A) IS ON ACCOUNT OF LEGAL ISSUES AND ACCORDINGLY, CANNOT BE CONSTRUE D AS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN THIS CONNECTION, RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: (A) CIT VS. RELIANCE PETROPRODUCTS P.LTD (322 ITR 158)(SC) (B) CIT VS. ARVIND FOOTWEAR LTD (72 DTR 294)(HCALL ) (C ) ACIT VS. PERFECT FORGINGS (15 TAXMANN.COM 54) (I.T.A.T. CHANDIGARH) 4. MERE REJECTION OF THE CLAIM DOES NOT ATTRACT PENALTY IT IS SUBMITTED THAT IT IS A SETTLED PROPOSITION IN LAW THAT PENALTY UNDER SECTION 271(1) ( C) IS NOT LEVIABLE MERELY B ECAUSE DISALLOWANCE OF A PARTICULAR CLAIM MADE BY THE APPELLANT IS UPHELD. WE FURTHER SUBMIT THAT THE ACT OF RAISING A LEGAL CONTENTION WHICH ACCORDING TO THE ASSESSEE IS SOUND AND TENABLE CANNOT CONSTITUTE FRAUD OR GROSS OR WILLFUL NEGLECT ON THE PART OF THE ASSESSEE. IT HAS BEEN HELD BY THE COURTS THAT A LEGAL CONTENTION RAISED BONAFIDE, WHETHER IT IS ULTIMATELY ACCEPTED OR REJECTED, WILL NOT GENERALLY BE AN ACT OF FRAUD OR GROSS OR WILLFUL NEGLIGENCE. IN THIS CONNECTION RELIANCE IS PLACED ON THE FOLLOWI NG DECISIONS: 7 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD A) CIT VS. REL;IANCE PETROPRODUCTS P.LTD (322 ITR 158)(SC) B) IT O VS PARIKH INVESTMENTS & DEVELOPMENTS P.LTD (43 SOT 537)(I.T.A.T. MUM) 5. ACCEPTANCE OF ADDITION TO AVOID LITIGATION DOES NOT ATTRACT PENALTY CAPL DID NOT CONTEST THE AFORESAID ISSUES IN THE APPEAL BEFORE THE INCOME - TAX APPELLATE TRIBUNAL IN VIEW OF THE DECISION OF THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT(317 ITR 218) WHEREIN IT WAS HELD THAT DEDUCTION UNDER SECTION 80IB OUGHT TO BE ALLOWED ONLY IN RESP ECT OF INCOME HAVING FIRST DEGREE OF NEXUS WITH THE BUSINESS OF THE UNDERTAKING. ACCORDINGLY, IN ORDER TO AVOID LITIGATION AND BUY PEACE NO APPEAL WAS FILED BEFORE THE INCOME - TAX APPELLATE TRIBUNAL. IN THIS CONNECTION, RELIANCE IS PLACED ON THE FOLLOWIN G DECISIONS: (A) ITOVS RAKESH KUMAR GUPTA (21 TAXMAN N .COM 323)(I.T.A.T. DEL) (B) DCIT VS. BOSTON CONSULTING GROUP(INDIA) P.LTD (12 TAXMANN.COM 278) (I.T.A.T. MUM) 6. LEVY OF PENALTY UNDER SECTION 271(1)( C) IS NOT AUTOMATIC IN THIS CONNECTION, RE LIANCE IS PLACED ON THE FOLLOWING DECISIONS: (A) UOI VS. RAJASTHAN SPINNING AND WEAVING MILLS(224 CTR 1)(S C) (B) CIT VS. SIDHARTHA ENTERPRISES (322 ITR 80)(HCP&H) 7. ON MERITS: ITEMS OF OTHER INCOME VIZ. INTEREST, INSURANCE CLAIMS AND SALE OF SCRA P REPRESENT PART OF THE BUSINESS INCOME AND OUGHT NOT TO BE REDUCED FROM PROFITS OF THE BUSINESS. IN THIS CONNECTION, RELIANCE IS PLACED ON THE FOLLOWING DECISION: ACIT VS. MAXCARE LABORATORIES LTD (92 ITD 11)(I.T.A.T. CUTTACK) (I) INTEREST DECISIO N IN FAVOUR: ACIT VS. MAXCARE LABORATORIES LTD (92 ITD 11)(I.T.A.T. CUTTACK) (II) INSURANCE CLAIMS INSURANCE CLAIMS ARE RECEIVED TOWARDS DAMAGED GOODS. THE COMPANY MAINTAINS RECORDS TOWARDS INSURANCE CLAIMS PUT UP AND RECEIVED, AND ACCOUNTS SEPARATEL Y TOWARDS INSURANCE CLAIMS ON TRADING ACTIVITY AND MANUFACTURING ACTIVITY. THE RECEIPT OF CLAIM AMOUNT FOR RAW MATERIALS AND FINISHED GOODS FOR THE MANUFACTURING ACTIVITIES ARE RECORDED AND TRACKED SEPARATELY. THUS, THE AMOUNT ADDED IN PROFITS UNDER SECT ION 80IB IS DERIVED FROM MANUFACTURING ACTIVITY. THESE CLAIMS ARE IN DIRECT RELATION TO AND HAVE A DIRECT CONNECTION TO THE MANUFACTURING ACTIVITY. DECISION IN FAVOUR: CIT VS. PFIZER LTD (233 CTR 521)(HCBOM) (III) SALE OF SCRAP 8 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD SCRAP MAINLY COM PRISES OF DRUMS, METAL PATTY, CORRUGATED BOXES, WOODEN/PLASTIC, PALLETS, PLASTIC BUCKETS ETC. USED IN PACKING OF RAW MATERIAL CONSUMED BY THE COMPANY IN THE PROCESS OF MANUFACTURE. TRADING ACTIVITY DOES NOT GENERATE ANY SCRAP AS THE MATERIAL TRADED IS NE ITHER RE - PACKED NOR OPENED AND IS SOLD ON AS - IS BASIS. CONSEQUENTLY , NO SCRAP IS GENERATED FROM THE TRADING ACTIVITY. IT IS SUBMITTED THAT THE GENERATION OF SCRAP HAS A DIRECT NEXUS WITH THE PRODUCTION ACTIVITY AND THE SAME OUGHT TO CONSIDERED IN COMPUTIN G ELIGIBLE PROFITS UNDER SECTION 80IB. DECISION IN FAVOUR: A) CIT VS. TTG INDUSTRIES LTD (209 TAXMAN 14)(HCMAD) B) CIT VS. SADHU FORGINS LTD (242 CTR 158)(HCDEL) C) ACIT VS. MAXCAFE LABORATORIES LTD (92 ITD 11)(I.T.A.T. CUTTACK) D) CIT VS. SPORTKING INDIA LTD (324 ITR 283)(DEL) IN VIEW OF THE ABOVE, HE SUBMITTED AS UNDER: - THE PROVISIONS BEING OF A PENAL NATURE, SOME AMOUNT OF CULPABLE NEGLIGENCE OR WILLFUL OMISSION ON THE PART OF THE TAXPAYER MUST BE ESTABLISHED BEFORE PENALTY IS IMPOSED. - IF THE DEFAULT FLOWS FROM A BONA FIDE BELIEF AND IS NOT THE RESULT OF A DELIBERATE ACT OF DEFIANCE OF LAW, NO PENALTY IS LEVIABLE. - PENALTY CANNOT BE LEVIED MERELY ON THE FACT THAT THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT ACCEPTED. - MERELY BECAUSE A N ADDITION IS CONFIRMED DOES NOT AUTOMATICALLY ATTRACT PENALTY AND THE ONUS TO PROVE THAT THERE WAS CONCEALMENT OF INCOME WITH A VIEW TO EVADE TAX IS ON THE DEPARTMENT. - A DIFFERENCE OF OPINION EXISTING BETWEEN THE ASSESSING OFFICER AND THE ASSESSEE IN R ESPECT OF ALLOWABILITY OF A CLAIM CANNOT BE RFEGARDED AS SUFFICIENT TO SUBJECT AN ASSESSEE TO PENALTY ON THE GROUND THA CLAIM MADE BY THE ASSESSEE IS DISALLOWED. IN VIEW OF THE ABOVE SUBMISSIONS, THE ASSESSEE RESPECTFULLY SUBMITS THAT THERE WAS NEITHER ANY WILLFUL ACT RESULTING IN CONCEALMENT OF INCOME NOR WERE ANY INACCURATE PARTICULARS OF INCOME FURNISHED BY THE APPELLANT. THE BONA FIDE CLAIM OF DISALLOWANCE MADE DOES NOT TANTAMOUNT TO CONCEALMENT OF INCOME BY FURNISHING INACCURATE PARTICULARS OF IN COME.HENCE, THE LD.AR OF THE ASSESSEE PRAYED BEFORE US TO PLEASE CONFIRM THE ORDERS OF THE LD.CIT(A) IN DELETING THE PENALTIES LEVIED U/S271(1)(C ) OF THE ACT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMS TANCES OF THE CASE, W E FIND THAT THE ASSESSEE COMPANY IS MANUFACTUR E OF COATING MATERIAL FOR PHARMACEUTICAL PRODUCTS WAS SET UP IN FINANCIAL YEAR 2002 - 03 AND THE COMMERCIAL PRODUCTION WAS COMMENCED ON MARCH 27, 2003 . I N ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 , THE ASSESSEE DID NOT CLAIM ANY DEDUCTION U/S80IB OF THE ACT, AS THERE WAS NO ELIGIBLE PROFIT IN THE SAID ASSESSMENT YEARS. IN THE ASSESSMENT YEAR 2005 - 06, THE ASSESSEE CLAIMED THE DEDUCTION 9 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD U/S80IB OF THE ACT, WHICH WAS ALLOWED BY THE AO IN HIS ASSESSMENT ORDER PASSED U/S143(3) OF THE ACT. IN ASSESSMENT YEAR 2006 - 07, THE DEDUCTION U/S80IB WAS ALLOWED U/S143(1) OF THE I.T ACT 1961. IN ASSESSMENT YEAR 2007 - 08, THE ASSESSEES CLAIM OF DEDUCTION U /S 80IB OF THE ACT WAS DISALLOWED ON THE GROUND THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S80IB OF THE ACT BECAUSE THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF PROVISIONS FOR DOUBTFUL DEBTS WRITTEN BACK, INTEREST INCOME, INCOME FROM INSURANCE CLAIM AND INCOME FROM SALE OF SCRAP . THE ASSESSEE HAS CLAIMED THIS DEDUCTION ON THE GROUND THAT THESE ARE THE BUSINESS INCOME, BUT THIS INCOME HAD NO NEXUS WITH MANUFACTURING ACTIVITIES OF THE ASSESSEE . THE AO IN THE SAID ASSESSMENT YEAR FOLLOWED THE DECISION OF HON'BLE MADRAS HIGH CO URT IN THE CASE OF M/S. PANDIAN CHEMICALS VS. CIT REPORTED IN 254 ITR 562(MAD). THE AO HELD THAT THE ASSESSEE HAS ALSO CLAIMED THE DEDUCTION IN RESPECT OF INCOME, WHICH IS NOT GENERATED FROM MANUFACTURING ACTIVITIES OF THE ASSESSEE. THE ASSESSEE WENT IN APPEAL BEFORE THE LD.CIT(A) . THE LD. CIT(A) DID NOT ALLOW THE CLAIM OF THE ASSESSEE IN ASSESSMENT YEAR 2007 - 08 . THE ASSESSEE HAS ACCEPTED THE ORDER OF THE LD.CIT(A). THE ASSESSEE HAS NOT FILED BEFORE THE HON'BLE TRIBUNAL AND THE DEDUCTION FOR ASSESSMENT Y EAR 2007 - 08 WAS NOT CLAIMED. THE LD.AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS MADE THE CLAIM ON THE BASIS OF AUDITORS REPORT IN FORM NO. 10 CCB . IN THE SAID ASSESSMENT YEAR, THE ASSESSEES CLAIM FOR DEDUCTION IS A BONAFIDE CLAIM. THE ASSESSEE HA S MADE A BONAFIDE CLAIM ON THE BASIS OF AUDITORS REPORT. THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DHANBAI REPORTED IN 178 TAXMAN 242(DEL) . THE LD.AR SUBMITTED THAT WHEN THE ASSESSEE HAS MADE A BONAF IDE CLAIM, NO PENALTY U /S 271(1)( C) OF THE ACT CAN BE LEVIED. THE ASSESSEE HAS SUBMITTED THAT IN RESPECT OF INTEREST INCOME, THE SAME IS ELIGIBLE FOR DEDUCTION U/S80IB AS HELD BY THE DECISION IN THE CASE OF A CIT VS. MAX CARE LABORTORIES LTD REPORTED IN 92 ITD 11 (I. T.A.T. CUTTACK) . IN RESPECT OF INSURANCE CLAIM, THE SAME IS ELIGIBLE FOR DEDUCTION U/S80IB OF THE ACT . INSURANCE CLAIM IS DERIVED FROM MANUFACTURING ACTIVITIES AS HELD BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE C A SE OF CIT VS. PFIZER LTD REPORTED IN ( 233 CTR 521 ) (BOM) . IN RESPECT OF SALE OF SCRAP THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. TTJ INDUSTRIES LTD REPORTED IN 209 TAXMAN 14 (MAD) , WHEREIN IT IS HELD THE SCRAP OF SALE IS ELIGIBLE FOR PROFIT U/S80IB OF THE ACT THE ASSESSEE HAS MADE A BONAFIDE CLAIM , WHICH THE CLAIM IS ALLOWABLE OR NOT BECOMES DEBATABLE POINT. WE FIND THAT THE ASSESSEES CLAIM WAS REJECTED ON THE BASIS OF DECISION OF THE HON'BLE SUPREME COURT . WE FIND THAT AFTER THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF PANDAIN CHEMICALS (SUPRA), THE ASSESSEE DID NOT PURSUE THE CLAIM IN FURTHER ASSESSMENT YEARS 2008 - 09 AND 2009 - 10. THE ASSESSEE HAS FILED REVISED RETURN OF INCOME. 10 ITA NO S. 74& 75/PNJ/2014 - JM M/S. COLORCON ASIA PVT.LTD THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION U/S80IB . WE FIND THAT THE PENALTY U/S271(1)( C) IS NOT LEVIABLE MERELY BECAUSE THE DISALLOWANCE OF PARTICULAR CLAIM MADE BY THE ASSESSEE WAS UPHELD. WE FIND THAT THE ASSESSEE HAS RAISED A BONAFIDE CLAIM, WHICH WAS ULTIMATELY ACCEPTED IN ASSESSMENT YEAR 2005 - 06. THEREFORE, WHEN THE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER BONAFIDE AND ALL THE FACTS WERE DISCLOSED BEFORE THE DEPARTMENT, IT CANNOT BE SAID THAT THE ASSESSEE HAD CONCEALED ITS PARTICULARS OF INCOME AND NO PENALTY CAN BE LEVIED. THEREFORE, WE FIND THAT THE ASSESSEE HA S MADE A BONAFIDE CLAIM AND THE ISSUE WAS IN FAVOUR OF THE ASSESSEE BY THE AFORESAID JUDGMENTS . THEREFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS TAKEN A VIEW THAT ASSESSEE HAS BONAFIDE CLAIM , WHICH WAS DISALLOWED AND NO PENALTY CAN BE LEVIED. THEREFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A) IS JUSTIFIED IN DELETING THE PENALTIES LEVIED U/S271(1) (C ) OF THE ACT FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 . WE U PHOLD THE SAME . 1 0 . IN THE RESULT, BOTH THE APPEAL S OF THE DEPARTMENT FILED FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09 ARE DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 20 - 01 - 2015 SD / - SD/ - ( P. K. BANSAL ) ( D.T GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20 - 01 - 2015 **PRADIP (SR.P.S.) COPY OF TH E ORDER FORWARDED TO: 1. A PPELLANT 2 RESPONDENT 3. THE CIT(A) CONCERNED 4. 5. THE CIT CONCERNED THE D . R 6. GUARD FILE TRUE COPY, BY ORDER ASSTT. REGISTRAR
