M/s. MERCK LTD., MUMBAI V. ACIT CIR. -6(3), MUMBAI

ITA 916/MUM/2008

• Counselvise Citation: 91619914 RSA 2008
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-03-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 08-02-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARESH KUMAR BALODIA
• Assessee Lawyers: ARATI VISSANJI
• Keywords: Depreciation; Wrong claim; Revised return; Revenue expenditure; Capital expenditure
• Section: 32; 143(3); 80HHC; 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI R.S. SYAL R.S. SYAL R.S. SYAL R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 916/MUM/2008 ASSESSMENT YEAR- 2002-03 M/S. MERCK LTD., FORMERLY E. MERCK (I) LTD., LLOYD CENTRE POINT, UNIT NL. 21 & 22 FLOOR-A, APPASAHEB MARATHE MARG, PRABHADEVI, MUMBAI-400 025 PAN-AAACE 2616F VS. THE ACIT, CIR-6(3), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ARATI VISSANJI RESPONDENT BY: SHRI NARESH KUMAR BALODIA O R D E R O R D E R O R D E R O R D E R PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23.11.2007 PASSED BY THE LD. CIT(A)-XXVI FOR THE ASSESSMENT YEAR2002-03. 2. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 28 TH OCTOBER, 2002 DECLARING TOTAL INCOME OF RS 55,08,96,440/- AND THER EAFTER REVISED THE RETURN OF INCOME ON 5 TH DECEMBER, 2002 DECLARING TOTAL INCOME OF RS. 55,21,49,160/-. THE ASSESSMENT WAS COMPLETED THEREAFTER U/S 143(3) OF THE ACT, MAKING CERTAIN ADDITIONS. 3. AGGRIEVED BY THE VARIOUS ADDITIONS/ DISALLOWANCES M ADE BY THE AO, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) PASSED THE APPELLATE ORDER AND ALLOWED THE RELIEFS IN RESPECT OF CERTAIN ITA NO. 916/M/2008 2 ITEMS OF ADDITIONS AND DISALLOWANCES AND UPHELD THE ASSE SSMENT ORDER IN RESPECT OF CERTAIN OTHER ITEMS. 4. THE ASSESSEE FILED AN APPEAL BEFORE THE ITAT AGA INST THE ORDER OF THE LD. CIT(A) AND TRIBUNAL HAS DISPOSED OFF THE SAME V IDE ORDER DATED 6.10.2009. 5. THE AO HAS LEVIED PENALTY AT THE RATE OF 100% ON INCOME SOUGHT TO BE EVADED BY THE ASSESSEE IN RESPECT OF THE FOLLOWING ITEMS: ___________________________________________________ _____________________ SL. NO. PARTICUL ARS AMOUNT (RS) (A) SHORT TERM CAPITAL LOSS INCURRED ON SALE OF MUTUAL FUND UNITS AS DISALLOWED U/S 94( 7) OF THE ACT. 99 ,396/- (B) SAP EXPENSES 40,55,864/- (C) EXPENSES RELATABLE TO INVESTMENTS U/S 1 4A OF THE ACT 4,44, 600/- (D) DEDUCTION U/S 80G OF THE ACT NOT ALLOWED ON ACCOUNT OF NON PRODUCTION OF RECEIPTS 1,42,002/- (E) DEDUCTION U/S 80HHC OF THE ACT HAS BEEN RECOMPUTED AT RS 86,64,947/- AS AGAINST THE CLAIM OF RS 90,20,718/- 2,76,147/- 5. ON APPEAL BEFORE THE CIT(A) THE ASSESSEE SUBMITTED AS FOLLOWS: THE APPELLANT SUBMITTED THAT, AS REGARDS THE CAPITAL LOSS OF RS. 99,396/- IS CONCERNED, THE SAME HAS ARISEN ON ACC OUNT OF THE APPLICATION OF PROVISIONS OF SEC 94. THE ASSESSEE SUBMI TTED THAT THE PROVISIONS OF SEC 94 OF THE ACT ARE NOT APP LICABLE IN RESPECT OF UNIT SOLD BY THE APPELLANT COMPANY FOR THE REASONS THAT THE INVESTMENTS IN UNIT WAS MADE NOT WITH A VIEW TO INCUR LOSS AND AVOID TAX. THE PROVISIONS OF SEC 94 ARE ATTRA CTED ONLY WHEN ANY PERSON INDULGES IN SYSTEMATIC AND ORGANIZED MA NNER TO ENTER INTO TRANSACTIONS. THE APPELLANT HAS SET OFF SUCH LOSS AGAINST PROFIT ON SHORT TERM INVESTMENTS AND THEREFORE , THE SAME WAS NOT CLAIMED AS DEDUCTION FROM TOTAL INCOME AND W HAT WAS ITA NO. 916/M/2008 3 OFFERED TO TAX WAS ONLY NET SHORT TERM CAPITAL GAIN. THEREFORE, NO PENALTY CAN BE LEVIED. 6. THE CIT(A) REJECTED THE ASSESSEES PLEA OBSERVING AS UN DER: I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION S OF THE AR/APPELLANT. THE ABOVE EXPLANATION OF THE APPELLA NT IS NOT TENABLE PROVISIONS OF SEC. 94 ARE VERY MUCH CLEAR AND IT CANNOT BE SAID THAT THERE IS ANY AMBIGUITY IN THE PROVISIONS A ND THEREFORE, APPELLANT SHOULD NOT HAVE CLAIMED THE AFO RESAID LOSS KNOWING FULLY WELL THAT THE PROVISIONS OF SEC. 94 ARE APPLICABLE TO SUCH TRANSACTIONS. APPELLANT HAS ADJUSTED THE AFORESAID L OSS AGAINST THE PROFIT ON SALE OF SHORT TERM CAPITAL GAIN S WHICH IS ILLEGAL. APPELLANT BEING A REPUTED COMPANY, ADVISED BY REPUTED AND LEARNED COUNSELS FOR THE PAST MANY YEARS CANNOT BE SAID TO BE NOT AWARE OF THE SAID PROVISIONS OF THE ACT. FOR T HE ABOVE REASONS, APPELLANTS SUBMISSIONS ON THIS ISSUE ARE REJECTED AND IT IS HELD THAT AO IS RIGHT IN LEVYING PENALTY U/S 271(1 ) AND HOLDING THAT THE APPELLANT HAS FURNISHED INACCURATE P ARTICULARS OF ITS INCOME. ACCORDINGLY, LEVY OF PENALTY IS JUSTIFIED . 7. THE LEARNED COUNSEL FOR THE ASSESSEE MS. ARATI VISSANJ I REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A).T HE LEARNED COUNSEL ARGUED THAT THE VERY HEADING OF SEC. 94(7) IS AVOIDANCE. IN THIS CASE THE COUNSEL SUBMITTED THAT THE A.O. CANNOT PI CK IT UP ON STAND ALONE BASIS. THE LEARNED COUNSEL ALSO POINTED OUT THAT THE RETURNED INCOME OF THE COMPANY BEING LARGE I.E. MOR E THAN RS. 55 CRORES AN AMOUNT OF RS 99,000/- IS TO BE TREATED LENIE NTLY. 8. THE LD. DR ON THE OTHER HAND POINTED OUT THAT PR OVISIONS OF SEC 94 ARE ATTRACTED WHEN ANY PERSON ENTERS INTO A PURCHA SE AND SALE OF SECURITIES, WHOSE INCOME IS EXEMPT, WITHOUT COMPLYING W ITH THE PERIOD OF HOLDING STIPULATED IN THE SECTION. HENCE TH E LEVY OF PENALTY FOR SUCH A WRONG CLAIM HAS BEEN RIGHTLY LEVIED. 9. WE HEARD BOTH THE PARTIES. WE ARE OF THE OPINION THAT ASSESSEE HAS WRONGLY CLAIMED THE LOSS WHEN HE WAS AWARE THAT PRO VISIONS OF ITA NO. 916/M/2008 4 SEC. 94 ARE APPLICABLE TO SUCH TRANSACTIONS. WE CONF IRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 10. THE SECOND ISSUE ON WHICH PENALTY HAS BEEN CONFI RMED BY AO IS W.R.T SAP EXPENSES. BEFORE THE LD. CIT(A) THE ASSESSE E SUBMITTED THAT THOUGH THE SAP PROJECT WAS IMPLEMENTED IN THE SUBSEQUENT YEAR, THE CONSULTANCY FEES PROFESSIONAL CHARGES AND OTHER INCI DENTAL COST ETC., SHOULD NOT BE DISALLOWED AS CAPITAL EXPENDITURE AS THE APPELLANT COMPANY HAS BEEN CARRYING ON BUSINESS FOR NUMBER OF YE ARS AND IT HAS BEEN ACQUIRING AND IMPLEMENTING VARIOUS HARDWARE AND SOFTWARE SYSTEMS FROM TIME TO TIME, THE SAID HARDWARE AND SOFTWA RE REQUIRE CONTINUOUS UPGRADATION AND MODIFICATION. THESE EXPENSE S ARE INCURRED IN RESPECT OF SAP IMPLEMENTATION AND IS OF REVENUE NA TURE. AO HAS IGNORED THE ALTERNATIVE PLEA OF THE APPELLANT THAT IF IT IS HELD AS CAPITAL EXPENDITURE, THE SAME SHOULD BE CONSIDERED IN ALLOWIN G DEPRECIATION U/S 32 OF THE ACT. THEREFORE, PENALTY SHOULD NOT BE LEVIED ON THE SAME. 11. ON APPEAL AGAINST THE LEVY OF PENALTY THE CIT(A) HELD AS FOLLOWS: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMI SSIONS MADE BY THE AR/APPELLANT AND THE SAME ARE NOT ACCEP TABLE, APPELLANT HAS EXPENSES OF ON SAP RELATED PROJECT WHICH HAS BEEN CAPITALIZED BY THE APPELLANT COMPANY ITSELF AS NOTED IN THE ASSESSMENT ORDER. APPELLANT HAS INCURRED TOTAL COST OF R S 217,23,586/- ON SAP RELATED PROJECT OUT OF WHICH AN AMOUNT OF RS. 1,76,67,722/- HAS BEEN RECOVERED FROM THE VARIOUS OVERSEAS BRANCHES BY THE ASSESSEE AND NET EXPENSES OF RS 40,55,864/- HAVE BEEN CLAIMED AS LEGAL AND PROFESSIONAL EXPENSES IN THE CURRENT YEAR, WHICH IN MY OPINION IS NOT IN ORDER. I N FACT IN THE COURSE OF APPEAL PROCEEDINGS AGAINST THE ASSESSMENT ORDER , WHILE UPHOLDING THE AFORESAID DISALLOWANCES CIT(A) ASKE D THE APPELLANT TO CLARIFY TO WHICH SPECIFIC ASSET THE AFORE SAID EXPENSES RELATED TO. HOWEVER, APPELLANT COULD NOT OFF ER ANY SATISFACTORY EXPLANATION AND STATED THAT SUCH CAPITALIZ ED EXPENSES SHOULD BE TREATED AS RELATED TO COMPUTER/ SOFTW ARE EXPENSES. HOWEVER CIT(A) WAS NO SATISFIED WITH THE ABOVE EXPLANATION OF THE APPELLANT. CIT(A) FOR THE FOLLO WING REASONS DISMISSED THE APPELLANTS APPEAL. ITA NO. 916/M/2008 5 I DO NOT FIND ANY IRREGULARITY IN THE AOS ACTION I N DISALLOWING THESE EXPENSES DURING THIS YEAR AS THE SAP PROJECT COMMENCED ONLY NEXT YEAR. SINCE LEGAL/PROFESSIONAL EXPENSES WERE NOT RELATED TO ANY SPECIFIC DEPRECIABLE ASSET WHICH WAS PUT ON OPERATION DURING THIS CURRENT ASSESSMENT YEAR, NO DEPRECIATION CA N BE ALLOWED DURING THE CURRENT YEAR. ALLOWING THE CL AIM AS REVENUE EXPENDITURE IN NEXT YEAR IS ALSO REJECTED AS T HE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THAT THIS IS REVENUE IN NATURE. HOWEVER, THE AO WILL HAVE TO ESTA BLISH DURING THE NEXT ASSESSMENT YEAR WHETHER THE AMOUNT DISALLOWED ARE CONNECTED WITH ANY SPECIFIC DEPRECIAB LE ASSET AND IF IT IS SO, ONLY THEN THE QUESTION OF ALLOWI NG DEPRECIATION DURING THE NEXT ASSESSMENT YEAR WHEN THE SAP PROJECT BECOMES OPERATIONAL, CAN BE CONSIDERED. RIGHT NOW DURING THE CURRENT ASSESSMENT YEAR THERE IS NO SUCH ISSUE UNDER CONSIDERATION AND THEREFORE ALL THE ALTERN ATE CONTENTIONS TAKEN BY THE APPELLANT, ARE REJECTED. THEREFORE, THE ALTERNATE GROUNDS ARE ALSO DISMISSED. IT IS THUS NOTED THAT THE APPELLANTS ABOVE CLAIM IN T HE COURSE OF APPEAL PROCEEDINGS AGAINST THE ASSESSMENT ORDER FOR A Y 2002- 03 HAS BEEN DISMISSED BY THE CIT(A) VIDE ORDER NO. CIT (A)XXVI/ DC-6(3) /95/2005-06 DATED 27.2.2006. FOR THE ABOV E REASONS, APPELLANTS ABOVE CONTENTIONS ARE REJECTED. THEREFO RE, IT IS HELD THAT THE ACTION OF THE AO IS RIGHT IN LEVYING PENALT Y U/S 271(1)(C) ON THE SAID AMOUNT HOLDING THAT THE APPELLANT HAS FUR NISHED INACCURATE PARTICULARS OF ITS INCOME AND ACCORDINGLY PENALTY LEVIED ON THE SAME IS UPHELD. 12. AGGRIEVED, ASSESSEE IS ON APPEAL BEFORE US. THE LD. C OUNSEL FOR THE ASSESSEE MS. AARTI VISANJI SUBMITTED BEFORE US AS FOLLOW S: THE ITAT VIDE ORDER NO. 2954/MUM/2006 DT. 6 TH OCTOBER 2009 HAS DIRECTED THE ASSESSING OFFICER TO DECIDE THE ISSU E AFRESH RECORDING THE CLEAR FINDING OF THE EXACT NATU RE OF EXPENSES CLAIMED BY THE ASSESSEE COMPANY AND ALLOWING THE SAME IN CASE THE EXPENSES WERE INCURRED FOR STUDY THE MA RKET IN CONNECTION WITH ACQUIRING AND IMPLEMENTING VARIOUS H ARDWARE AND SOFTWARE SYSTEMS DURING THE YEAR AND IN CASE THE PRO DUCT FOR PURCHASE BY THE ASSESSEE HAS ALREADY BEEN IDENTIFIED AND THE EXPENDITURE CLAIMED BY THE ASSESSEE RELATES TO ACTIVITIE S WHICH ARE AFTER THE IDENTIFICATION OF THE PRODUCT TO BE P URCHASED BY THE ITA NO. 916/M/2008 6 ASSESSEE COMPANY, THE SAME SHALL BE CAPITAL IN NATURE AND NOT ALLOWABLE. FURTHER THE APPEAL EFFECT IS PENDING. HOWEVER, THE NECESSARY DETAILS HAVE ALREADY BEEN SUBMITTED TO THE A SSESSING OFFICER. 13. IN THE QUANTUM APPEAL SINCE THE ISSUE HAS BEEN SET A SIDE, WE SET ASIDE THE PENALTY LEVIED IN THIS REGARD. 14. THE NEXT ISSUE IS AGAINST THE CONFIRMATION OF THE L EVY OF PENALTY U/S 271(1)(C) IN RESPECT OF DISALLOWANCE U/S 14A. AS TH IS ISSUE HAS BEEN SET ASIDE IN THE QUANTUM APPEAL AND THE ADDITION NO L ONGER STANDS, WE SET ASIDE THE LEVY OF PENALTY ALSO. 15. THE NEXT ISSUE IS WITH RESPECT TO PENALTY W.R.T. DO NATION OF RS 291502/- DISALLOWED U/S 80G OF THE ACT. 16. THE ASSESSEE HAS CLAIMED DEDUCTION OF RS 2,91,502/- U/S 80G OF THE ACT. IN THE ABSENCE OF RECEIPTS AO HAS DISALLOWED A SUM OF RS. 42,002/- AND SUBSEQUENTLY LEVIED PENALTY ON THE SAME. THE LD.CIT(A) HAS CONFIRMED THE LEVY OF PENALTY ON THE GROUND THAT THE ONUS IS ON THE ASSESSEE TO PROVE THE CLAIM FOR DEDUCTION. 17. THE LD. CIT(A) HELD AS FOLLOWS: ON LEVY OF PENALTY ON THE SAME, APPELLANT HAS SUBMIT TED THAT DISALLOWANCE OF DEDUCTION ON ACCOUNT OF NON PRO DUCTION OF RECEIPTS CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HOWE VER, THE CONTENTIONS ARE NOT ACCEPTABLE. APPELLANT HAS MADE A CLAIM OF DEDUCTION AND THE ONUS IS ON THE APPEALLANT TO FURNISH NECESSARY EVIDENCE TO SUBSTANTIATE THAT THE AFORESAID CLAIM IS GE NUINE. IN THE ABSENCE OF PROPER RECEIPTS, ASSESSING OFFICER RIGHTLY DISALLOWED THE SAME. THEREFORE, IN MY OPINION, ASSESSING OFFICER IS RIGHT IN LEVYING PENALTY U/S. 271(1)(C) ON THE SAME . ACCORDINGLY, THE PENALTY LEVIED IS UPHELD. ITA NO. 916/M/2008 7 18. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CI T(A). THE RECEIPT HAS NOT BEEN MADE AVAILABLE BEFORE MORE THAN ONE AUT HORITY I.E. BEFORE THE ASSESSING OFFICER, CIT(A) AND BEFORE US AND A LSO BEFORE THE AUTHORITIES IN THE PENALTY PROCEEDINGS. THIS ONLY SHO WS THAT THERE IS A CLEAR VIOLATION OF THE SECTION. SECTION 80G READS AS FOLLOWS: SEC. 80G IN COMPUTING THE TOTAL INCOME OF AN ASSESSE E, THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJE CT TO THE PROVISIONS OF THIS SECTION HENCE WE CONFIRM THE PENALTY ON THIS ISSUE. 19. THE NEXT ISSUE PERTAINS TO ITEMS OF RS.90,20,718/- E XCLUDED FROM BUSINESS PROFITS FOR COMPUTING DEDUCTION U/S.80HHC OF TH E ACT. 20. THE FACTS ARE AS FOLLOWS: ASSESSEE HAS CLAIMED DEDUCTION OF `.90,04,210/- U/S. 80HHC IN THE ORIGINAL RETURN OF INCOME, WHICH HAS BE EN REVISED TO `.90,20,718/- IN THE REVISED RETURN. THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAS CLAIMED AFORESAID DEDUCTIO N ON DEPB BENEFITS WHICH WAS NOT ALLOWABLE. ACCORDINGLY, A SSESSING OFFICER DISALLOWED DEDUCTION U/S.80HHC ON DEPB BENEFI TS OF `.58,09,284/-. ASSESSING OFFICER ALSO ADDED `.59,82,15,3 98/- ON ACCOUNT OF EXCISE DUTY AND SALES TAX TO THE TOTAL TUR NOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC. AS REGARDS DI RECT EXPENSES ATTRIBUTABLE TO THE TRADING EXPORT BUSINESS. A SSESSING OFFICER FOUND THAT APPELLANT HAS DEDUCTED ESTIMATED I NDIRECT COST OF `.50,000/-. HOWEVER, ASSESSING OFFICER ESTIMATED THE INDIRECT COST AT `.3,88,912/- AND RECOMPUTED THE DEDUCTION U/ S. 80HHC. ASSESSING OFFICER HAS ALSO NOTICED THAT THE ASSESSEE HAS EARNE D OTHER INCOME INCLUDING THE FOLLOWING, WHICH WERE NO T EXCLUDED FROM THE PROFITS OF BUSINESS FOR COMPUTING DEDUCTION U/ S.80HHC. 1. INTEREST ON DEPOSITS & OTHERS 11,66,338 2. INSURANCE CLAIM 34,92,986 3. MISCELLANEOUS INCOME 1,15,40,294 THE ASSESSING OFFICER HAS EXCLUDED FROM THE PROFIT OF BUSINESS 90% OF THE ABOVE INCOME FOR THE PURPOSE OF COM PUTING ITA NO. 916/M/2008 8 DEDUCTION U/S.80HHC OF THE ACT. IN VIEW OF THE ABOVE , THE ASSESSING OFFICER RECOMPUTED AND ALLOWED THE DEDUCTION OF `.73,83,585/- U/S. 80HHC AS AGAINST `.90,20,718/- CLA IMED BY THE ASSESSEE IN THE REVISED RETURN OF INCOME. ASSESSEE FILED APP EAL AGAINST THE AFORESAID ASSESSING OFFICERS ACTION OF REDUC ING THE DEDUCTION U/S.80HHC. ASSESSING OFFICER HAS ALSO OBSERVED IN PARA 10.6 OF THE ASSESSMENT ORDER THAT ASSESSEE COMPANY HA S ITSELF EXCLUDED 90% OF THE FOLLOWING ITEMS FOR COMPUT ING DEDUCTION U/S. 80HHC. 1 INDENTING COMMISSION 2,10,42,865 2 EXPORT INCENTIVES 58,09,284 3 CONSULTING FEE 73,78,327 4 SERVICE CHARGES 81,37,342 5 INTEREST ON INCOME TAX REFUND 1,20,61,323 HOWEVER, FROM THE ORDER OF CIT(A), IT IS SEEN THAT T HE SAME HAS BEEN CONTESTED BY THE APPELLANT BEFORE THE CIT(A) . IN ANY CASE, ASSESSEE FILED APPEAL BEFORE THE CIT(A), WHO HAS PA RTLY ALLOWED THE APPEAL ON THIS ISSUE. ASSESSING OFFICER HAS LE VIED PENALTY ON THE EXCESS DEDUCTION CLAIMED U/S.80HHC OF T HE ACT. OBJECTING TO THE LEVY OF PENALTY, APPELLANT HAD SUB MITTED THAT INDIRECT COST OF TRADING EXPORT HAS BEEN COMPUTED BY THE APPELLANT ON ESTIMATE BASIS AND AVAILABLE DATA. ASSESSING OFFICER H AS COMPUTED INDIRECT COST TAKING INTO CONSIDERATION THE ENTIRE DIRECT COSTS. SIMILARLY, ITEMS OF OTHER INCOME WHICH HAVE BEE N CLAIMED AS PART OF BUSINESS PROFITS AND EXCLUDED BY THE ASSESSING OFFI CER ARE NOT TO BE EXCLUDED BASED ON VARIOUS JUDICIAL PRONOUNC EMENTS INCLUDING THOSE INT EH CASE OF APPELLANTS OWN CASE. AS REGARDS EXCLUDING OTHER INCOME FROM THE PROFIT OF BUSINESS APP ELLANT HAS FURTHER, STATED THAT IF ANY PARTICULAR ITEM IS TAXED AS PART OF THE BUSINESS PROFITS AND ARISES OUT OF BUSINESS, THE NOMENCLATU RE SHALL NOT DECIDE WHETHER IT HAS TO BE EXCLUDED FROM THE BU SINESS PROFIT OR NOT OR BUSINESS U/S. 80HHC. APPELLANT HAD ALSO RELIED UP ON THE DECISIONS IN THE FOLLOWING CASES: I) COMMISSIONER OF INCOME TAX VS. BANGALORE CLOTHING CO. (260 ITR 371) II) ALFA LEVEL INDIA LTD. VS. DCIT (266 ITR 418) APPELLANT ALSO RELIED UPON THE DECISIONS OF HON'BLE. I TAT IN THE APPELLANTS OWN CASE FOR A.Y. 1997-98 AND 1998-99. A PPELLANT HAS ALSO STATED THAT ASSESSING OFFICER HAS OT RECORDED SATISFA CTION FOR INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) WHETHER THE ASESSEE ITA NO. 916/M/2008 9 HAS CONCEALED INCOME OR FURNISHED INACCURATE PARTICUL ARS OF SUCH INCOME. THEREFORE, THE PENALTY PROCEEDINGS INITATED ARE ILLEGAL AND BAD IN LAW. IN VIEW OF THE ABOVE, AR/APPELLANT CONT ENDED THAT NO PENALTY CAN BE LEVIED ON THE SAME. 21. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) CONFIRMED THE LEVY OF PENALTY IN RESP ECT OF THE FOLLOWING ITEMS U/S. 271(1)(C) OF THE ACT. (I) INDIRECT COST COMPUTED AT `. 3,88,912 INSTEAD OF `. 50,000/- RELATING TO TRADING GOODS AMOUNTING TO `. 3,88,912/- (II) INTEREST RECEIVED INCLUDING INTEREST ON INCOME-TAX REFUND TO BE EXCLUDED FROM BUSINESS PROFITS AMOUNTING TO `. 1,32,27,661/-. 22. AGGRIEVED, ASSESSEE HAS PREFERRED AN APPEAL BEFORE US. 23. WE HEARD BOTH THE PARTIES. SEC 80HHC HAS UNDERGON E NUMEROUS AMENDMENTS AND HAS BEEN SUBJECT MATTER OF LITIGATION A ND THEREFORE THE COMPUTATION OF RELIEF U/S 80HHC IS A VERY CONTROV ERSIAL ONE. IN THE INSTANT CASE THE ASSESSEE HAS FURNISHED ALL THE PARTICULARS OF THE INDIVIDUAL COMPONENTS IN COMPUTING RELIEF U/S 80HHC. THEY HAVE NOT FURNISHED ANY INACCURATE PARTICULARS IN THE RETURN. A LSO THE CLAIM OF RELIEF U/S 80HHC IS SUPPORTED BY A CERTIFICATE BY THE CHARTERED ACCOUNTANT. THE APEX COURT IN THE CASE OF CIT VS RELI ANCE PETROPRODUCTS PVT. LTD (322 ITR 158 SC),HELD THAT A S LONG AS THE ASSESSEE HAD NOT GIVEN ANY INFORMATION IN THE RETURN WH ICH IS INCORRECT, MAKING AN INCORRECT CLAIM IN LAW WILL NO T TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS AND PENALTY U/S 271( 1)(C IS NOT ATTRACTED. FURTHER AS CONTENDED BY THE ASSESSEE THAT THE CLAIM OF DEDUCTION U/S 80HHC IS SUPPORTED BY A CERTIFICATE BY T HE CHARTERED ACCOUNTANT ABOUT THE CORRECTNESS OF THE CLAIM. IN THE CASE OF CIT V ITA NO. 916/M/2008 10 S.DHANABAL (309 ITR 268 DEL) THE ASSESSEE INADVERTEN TLY CLAIMED 100% DEDUCTION OF 80HHE INSTEAD OF 80%. THIS WAS DONE ON THE BASIS OF THE ADVISE OF A CHARTERED ACCOUNTANT. THE DELHI H IGH COURT HELD THAT EXPLANATION WAS BONAFIDE AND ALL THE MATERIAL FOR CO MPUTATION WAS DISCLOSED IN THE RETURN. HENCE PENALTY WAS NOT LEVIABL E. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF THE APEX COURT AND T HE DELHI HIGH COURT WE DELETE THE PENALTY LEVIED IN RESPECT OF DISA LLOWANCE U/S 80HHC. 23. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2011 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH APRIL, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 916/M/2008 11 DATE INITIALS 1 DRAFT DICTATED ON: 20 .0 4. 2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 25 .0 4 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______