THE COMMISSIONER OF INCOME TAX V. M/S INDUS FILA LTD

ITA/1081/2008

AI Insights

The case involves an appeal by the Commissioner of Income Tax and the Assistant Commissioner of Income Tax against M/s. Indus Fila Ltd. concerning a penalty imposed for allegedly furnishing inaccurate particulars to claim higher depreciation. The assessing authority had initiated penalty proceedings and imposed a penalty of Rs. 11,68,686. However, the Commissioner of Income Tax set aside this penalty, and the Tribunal upheld this decision, leading to the present appeal by the revenue. The main legal contention was whether the initiation of penalty proceedings was justified without a specific direction in the assessment order.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728949 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 13-10-2014
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX AND ANOTHER vs MANJUNATHA COTTON AND GINNING FACTORY [(2013) 359 ITR 565]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI
• Assessee Lawyers: K V ARAVIND
• Keywords: Depreciation; Inaccurate particulars; Mala fide; Penalty; TUF scheme; IDBI; Subsidy on interest
• Section: 271(1)(c); 260-A

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 13th day of October, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR AND THE HON’BLE MR. JUSTICE B MANOHAR ITA No.1081 of 2008 BETWEEN: 1. The Commissioner of Income Tax C. R. Building Queens Road Bangalore 2. The Asst. Commissioner of Income Tax Circle-11(3) C. R. Building Queens Road Bangalore …Appellants (By Sri K. V. Aravind, Advocate) AND: M/s. Indus Fila Ltd., No.107, Industrial Suburb II Stage, Yeshwanthpur Bangalore …Respondent 2 (By Sri S. Parthasarathi, Advocate) This ITA filed under Section 260-A of I.T. Act, 1961 arising out of order dated 31-07-2008 passed in ITA No.1194/Bang/2007, for the Assessment year 2003-04, praying to (i) formulate the substantial question of law stated therein; (ii) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1194/Bang/2007, dated 31-07-2008 confirm the orders of the Appellate Commissioner of Income Tax, Circle-11(3), Bangalore. This ITA coming on for hearing this day, N. KUMAR J delivered the following: J U D G M E N T This appeal is preferred against the order passed by the Tribunal dismissing the appeal filed against the order of the first appellate authority who has set aside the penalty imposed by the assessing authority. 2. The assessing authority after framing the assessment order has observed in the said order that penalty proceedings under Section 271 (1) (c) of the Income Tax Act, 1961 be initiated separately on the above issue. There was no specific direction. However, penalty proceedings were initiated and a sum of Rs.11,68,686/- was imposed for 3 furnishing inaccurate particulars. In appeal, the Commissioner of Income Tax set aside the penalty proceedings on the ground that it would not be justified to say that the assessee deliberately furnished inaccurate particulars to claim higher depreciation and thereby reduce its income. It is also recorded that there is no mala fide intention on the part of the assessee in making the claim for higher depreciation when it has in fact purchased plant and machinery under the TUF Scheme, which is supported by the letter of the IDBI and consequent sanction of subsidy on interest. 3. Aggrieved by the said order, the revenue preferred an appeal to the Tribunal. The Tribunal was of the view an erroneous claim which was to become erroneous later cannot be subjected to penalty and, therefore, it dismissed the appeal. It is against the said order, the present appeal is filed. 4 4. When two fact finding authorities have recorded that there is no mala fide on the part of the assessee in putting forth claim for depreciation and it would not constitute furnishing of inaccurate particulars, we do not see any justification to interfere with the said material finding of fact. Moreover as is clear from the assessment order which is on record, no direction was issued to initiate penalty proceedings. This Court had an occasion to consider the effect of such observation without specific direction in the case of COMMISSIONER OF INCOME TAX AND ANOTHER vs MANJUNATHA COTTON AND GINNING FACTORY [(2013) 359 ITR 565] where it was held as under: “53. From these discussion, it is clear that the condition precedent for initiation of penalty proceedings under section 271(1)(c) is existence of condition referred to in the said section. The person initiating penalty proceedings should be satisfied about the existence of the said conditions which should be reflected in the assessment orders passed by them. In a given case, after appreciating the entire records, the 5 officer passing the order may categorically state that he is satisfied that the assessee has concealed income. Once such a finding is recorded that is sufficient to initiate penalty proceedings. Assuming such a categorical finding is not recorded in the order, at least, he has to record facts as contemplated in Explanation 1. If these facts are discernible from the assessment order, the deeming clause in Explanation 1 is attracted and the income is deemed to have been concealed. That gives the jurisdiction to the officer passing the order to initiate the penalty proceedings. If the officer passing the assessment order is the Assessing Officer, in the said order, the aforesaid facts are not discernible, at least he must direct initiation of proceedings under Section 271(1)(c). The Section (1B) is attracted and these conditions deemed to exist which confers jurisdiction on him to initiate penalty proceedings. Sub-section (1B) has no application to an order passed by the Commissioner of Income-tax (Appeals) or the Commissioner.” 6 5. Therefore, in view of the aforesaid judgment, in the absence of a specific direction to initiate penalty proceedings, the very initiation of the proceedings is bad. 6. For the aforesaid reasons, we do not see any merit in this appeal. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, the appeal is dismissed. Sd/- JUDGE Sd/- JUDGE ckl/- "