Shashi International (P) Ltd.,, New Delhi v. ITO, New Delhi

ITA NO. 4008/DEL/09 A.Y. 2004-05 1 IN THE INCOMETAX APPELATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER & SHRI SHAMIM YAHYA ACCOUNTANT MEMBER ITA NO. 4008/DEL/2009 A.Y. : 2004-05 M/S SHASHI INTERNATIONAL (P) LTD. VS. ASSESSING O FFICER WARD-8(1) B-8 MAGNUM HOUSE-I CR BUILDING NEW DELHI COMMERCIAL COMPLEX KARAMPURA NEW DELHI 110 015 [PAN : AAACS1703M] (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PAWAN KUMAR MAHESHWARI CA DEPARTMENT BY : SHRI KISHORE B. SR. DR O R D E R PER SHAMIM YAHYA : AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDERS OF THE LD. CIT(A) DATED 28.05.2009 PERTAINING TO ASSES SMENT YEAR 2004-05. 2. THE ISSUE PERTAINS TO LEVY OF PENALTY AMOUNTING TO RS. 513180/- UNDER SECTION 271(1)(C) OF THE IT ACT. 3. IN THIS CASE THE ASSESSEE CLAIMED DEDUCTION UNDE R SECTION 80HHC OF THE IT ACT AMOUNTING TO RS. 14 57 311/-. AO OPINED THAT THE DEDUCTION CLAIM UNDER SECTION 80HHC WAS NOT COR RECT. AO ITA NO. 4008/DEL/09 A.Y. 2004-05 2 RECOMPUTED THE DEDUCTION UNDER SECTION 80HHC ON THE FOLLOWING COUNTS:- A) DEDUCTION UNDER SECTION 80HHC IN THIS REGARD WAS CALCULATED UNDER THE SPECIFIC PROVISIONS CONTAINED IN SUB-SECTION 3(A) AND NOT UNDER THE PROVISIONS OF SE CTION 80HHC(3)(B) WHICH DEALS EXPORT ON TRADING GOODS AS HAS BEEN DONE BY THE ASSESSEE. B) LOSSES HAVE BEEN IGNORED AND NOT ADJUSTED AGAIN ST THE BUSINESS PROFITS. C) BANK INTEREST ON FDR WOULD NOT QUALIFY FOR DEDUC TION UNDER SECTION 80HHC. 3.1 PENALTY PROCEEDINGS WERE ALSO INITIATED. IN T HE PENALTY ORDER IT WAS NOTED THAT ASSESSEE HAD CLAIMED BANK INTERES T ON FDR AND OTHER INTEREST AS BUSINESS INCOME WHEREAS IT SHOUL D HAVE BEEN TREATED AS INCOME FROM OTHER SOURCES AND THIS WAS TO BE REDUCED FROM BUSINESS PROFITS WHILE CALCULATING THE PROFIT ON BUSINESS AS PER THE PROVISIONS OF SECTION 80HHC. IN THE PENALTY ORD ER IT WAS FURTHER NOTED THAT THE LD. CIT(A) HAD FURTHER REDUCED THE C LAIM OF DEDUCTION UNDER SECTION 80HHC. THE ASSESSEE PLEADED THAT HE HAD FILED AN APPEAL BEFORE THE ITAT. THE AO DID NOT FIND THIS COGENT REASON TO KEEP THE PENALTY PROCEEDINGS IN ABEYANCE AND HENCE PENALTY UNDER SECTION 271(1)(C) AMOUNTING TO RS. 513180/- WAS LEV IED. IN ASSESSEES APPEAL AGAINST THE PENALTY LD. CIT(A) OB SERVED AS UNDER:- I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE O N BEHALF OF APPELLANT. I HAVE SEEN THE ORDER OF ITAT IN QUANTUM APPEAL. IT IS NOTED THAT THE HONBLE ITAT HAS CONFIRMED THE ST AND OF THE CIT(A) AND AO TO THE EFFECT THAT THE INTEREST INCOM E FROM FDRS WAS TO BE TREATED AS INCOME FROM OTHER SOURCES AND WAS NOT TO BE CONSIDERED FOR THE PURPOSE OF DEDUCTION U/S 80HH C. THE ITA NO. 4008/DEL/09 A.Y. 2004-05 3 ONLY RELIEF ALLOWED WAS THAT EVEN THOUGH THE APPELL ANT HAD NOT BEEN ABLE TO SHOW THAT ANY EXPENDITURE WAS INCURRE D FOR EARNING INCOME ON FDR THE HONBLE ITAT CONSIDERED 10% OF THE GROSS INTEREST AS INDIRECT EXPENSE TOWARDS INTEREST INCOME. THEREFORE ONLY THE QUANTUM OF INTEREST INCOME TO B E EXCLUDED FOR THE PURPOSE OF DEDUCTION U/S 80HHC WAS REDUCED BY 10%. 3.2 CIT(A) PROCEEDED TO CONFIRM THE PENALTY ON THE GROUND THAT ASSESSEE COMPANY HAD DELIBERATELY INCLUDED THE INTE REST INCOME FOR COMPUTATION OF INCOME UNDER SECTION 80HHC TO ENHAN CE THE CLAIM UNDER THAT SECTION. 4. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. 5. WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. WE FIND SECTION 271(1)(C) OF THE ACT POSTULATES IMPOSI TION OF PENALTY FOR FURNISHING OF INACCURATE PARTICULARS AND CONCEALME NT OF INCOME. 5.1 WE FIND THAT IT IS ONE OF THE CLAIMS OF THE ASSESSEE THAT DEDUCTION UNDER SECTION 80HHC WAS BASED UPON AUDITO RS CERTIFICATE. MOREOVER WE FIND THAT THE ISSUE OF INCLUSION OF INTEREST INCOME IN THE BUSINESS PROFIT FOR COMPUTATION OF DEDUCTION U/S 80HHC HAS BEEN A MATTER OF LITIGATION BEFORE THE CO URTS. FURTHER THE ADJUSTMENT OF LOSSES FROM THE BUSINESS PROFITS FOR COMPUTATION OF DEDUCTION UNDER SECTION 80HHC HAS ALSO BEEN THE SUBJECT MATTER OF LITIGATION. MOREOVER ALL THE FACTS PE RTAINING TO THE CLAIM OF DEDUCTION UNDER SECTION 80HHC WERE ON RECORD. HE NCE THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING FALSE PARTICULARS. 5.2 LD. DR IN THIS REGARD REFER TO DECISION OF HON BLE JURISDICTIONAL HIGH COURT FOR THE PROPOSITION THAT WHEN THE ASSESS EE HAS CLAIMED ITA NO. 4008/DEL/09 A.Y. 2004-05 4 PALPABLY WRONG DEDUCTION ON THE GROUND THAT IT WAS BASED UPON CHARTERED ACCOUNTANTS CERTIFICATE THE PENALTY WA S LEVIABLE. IN OUR CONSIDERED OPINION THIS CASE LAW IS NOT APPLI CABLE IN THE PRESENT CASE AS ASSESSEES CLAIM CANNOT BE SAID TO BE PALPABLY WRONG. AS ALREADY POINTED OUT THE INCLUSION OF INT EREST INCOME IN BUSINESS PROFITS AND ADJUSTMENT OF LOSS FROM THE BU SINESS PROFITS FOR COMPUTATION OF DEDUCTION UNDER SECTION 80HHC HA S BEEN A SUBJECT MATTER OF LITIGATION IN COURTS. MOREOVER HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. S . DHANABAL 309 ITR 268 HAS UPHELD THE DELETION OF PENALTY ON THE E XPLANATION OF THE ASSESSEE THAT THE CLAIM HAD BEEN DULY CERTIFIED BY THE CHARTERED ACCOUNTANT AND THEREFORE THE PLEA OF THE ASSESSEE T HAT THE CLAIM WAS UNDER A BONAFIDE MISTAKE DESERVES TO BE ACCEPTE D AND IT COULD NOT BE SAID THAT THE ASSESSEE HAD FURNISHED INACCUR ATE PARTICULARS. 5.3 UNDER THE CIRCUMSTANCES IN OUR OPINION THE AS SESSEES CONDUCT CANNOT BE SAID TO BE CONTUMACIOUS SO AS TO ENTAIL LEVY OF PENALTY UNDER SECTION 271(1)(C). IN THIS REGARD W E ALSO DRAW SUPPORT FROM THE APEX COURT DECISION RENDERED BY A LARGER BENCH COMPRISING OF THREE OF THEIR LORDSHIPS IN THE CASE OF HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 26 WHEREIN IT WAS HELD THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A S TATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDINGS AND PEN ALTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITH ER ACTED DELIBERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CO NDUCT CONTUMACIOUS OR DISHONEST OR ACTED IN CONSCIOUS DISREGARD OF IT S OBLIGATION. ITA NO. 4008/DEL/09 A.Y. 2004-05 5 PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PE RFORM A STATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORI TY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVA NT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCRIBED THE AUTHOR ITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE P ROVISIONS OF THE ACT OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF TH AT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE S TATUTE. 6. IN THE BACKGROUND OF THE AFORESAID DISCUSSIONS A ND PRECEDENT WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AN D DELETE THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE IT AC T. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/01/2010. SD/- SD/- [R.P. TOLANI] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 29/01/ 2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES