The order of the Bench was delivered by
CHANDRA MOHAN GARG, JUDICIAL MEMBER-This appeal filed by the Revenue is directed against the order of the CIT(A)-XII, New Delhi, dated 18/06/2012 in appeal No. 59/11-12 for A.Y 2006-07.
2. The only issue involved in this appeal is in relation to the ld. CIT(A)’s order deleting the penalty of Rs. 1,91,33,400/- imposed by the AO on account of Excess claim of deprecation of Rs. 5,42,93,162/- under TUF Scheme and capital subsidy of Rs. 25,50,000/-.
3. Briefly stated, the facts of the case are that the ld. CIT(A) confirmed the additions on account f excess claim of depreciation under TUF Scheme and disallowance out of capital subsidy. The AO initiated penalty proceedings u/s 271(1)(c) of the Income-tax Act, 1961 [‘the Act’ for short] and imposed penalty on both the said issues. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) who deleted the entire penalty and thus the aggrieved Revenue is before this Tribunal in this second appeal.
4. We have heard the rival submissions and have perused the relevant material on record. The ld. DR contended that wrong claims were made by the assessee in quantum proceedings and therefore, the AO made disallowances/additions on account of excess claim of depreciation and on account of disallowance out of capital subsidy. The ld. DR further contended that the stand of the assessee is that he claimed deprecation on the basis of news published in Financial Express News Paper under bonafide belief and hence penalty is not leviable but its auditors are well qualified and experienced therefore, this excuse is not tenable and sustainable and the AO rightly levied penalty. The ld. DR vehemently contended that the ld. CIT(A) deleted the penalty without any reasonable cause or basis. Hence the impugned order may be set aside by restoring that of the AO.
5. Per contra, the ld. AR strongly supported the first appellate order and contended that the AO imposed penalty on wrong premise and the ld. CIT(A) was quite justified in deleting the same. He has drawn our attention towards the operative para 8 of the impugned order and submitted that the assessee disclosed all relevant facts during the assessment proceedings. Hence he cannot be held responsible for guilty of concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. AR contended that the issue of disallowance of capital subsidy was a debatable issue and in the light of the preposition laid down by the ITAT Chandigarh Bench in ITA No. 451/Chd/2014 vide order dated 15.07.2014 the penalty on debatable sales subsidy issue received by the assessee was capital in nature. The ld. AR further contended that the penalty on excess claim of depreciation under TUF Scheme is also not leviable because this is only a dispute of deprecation rate which does not reveal any facts or concealment or furnishing of inaccurate particulars of income. The ld. Counsel placed reliance on the orders of the ITAT, Ahmedabad ‘D’ Bench in the case of ITO Vs. M/s Deshraj Texturised Pvt. Ltd ITA No. 660/Ahd/2010 for A.Y 2005-06 dated 7.9.2012 and Bench ‘B’ in the case of Piparia Syntex Pvt. Ltd Vs. ITO ITA No. 2084/Ahd/2011 for A.Y 2007-08 order dated 30.05.2014 and submitted that the issue of penalty is squarely covered in favour of the assessee by these orders of the Tribunal.
6. On careful consideration of the above rival submissions from the order of the ld. CIT(A), we note that the ld. CIT(A) granted relief on both the issues with the following conclusions:
“I have perused the facts stated by the Assessing Officer in assessment order as well as submission filed by the assessee and 1 am of the opinion that depreciation under Income Tax Act is to be allowed by the Assessing Officer as per the correct rates stated in the Rule. In this case, the assessee under bonafide belief based on report in the Financial Express
“...The Finance Ministry has decided to retain the special depreciation benefits for textile machinery installation under the Technology Upgradation Fund Scheme(TUFS) Fresh investments under TUFS-an interest subsidy scheme to promote capacity building in the textile industry-will continue to benefit from 50% depreciation in the first year. Further, the eligibility criteria for the extra depreciation benefit would be benchmarked on the TUFS norms with regard to the sophistication levels of the machine installed. The special dispensation will be co-terminus with TUFS, which has been extended to 2006-07... ”
had claimed higher depreciation. There was no concealment involved nor this is a case of filing of inaccurate particulars as everything was disclosed in the deprecation chart attached with the Income-tax Return. Furthermore, this case is also not covered under Zoom Communication, Delhi High Court, as in this case, the scrutiny u/s 143(3) was done and not simple processing u/s 143(1), as the income returned in this case is Rs. 4.72 crores. Similarly with regard to subsidy of Rs. 25,50,000/-, the assessee had also claimed depreciation. There was no concealment nor a case of furnishing inaccurate particulars. This case is covered by case of CIT Vs. Reliance Petro Produdcted Pvt. Ltd. (2010) 322 ITR 158 and CIT Vs. Brahmputra Consortium Ltd. (Delhi High Court) ITA 1582 OF 2010 wherein it is held that:-
“The assessee argued that it had revised the computation because it claimed depreciation of 40% on tippers and excavators by mistake and since it had itself revised the computation, it was a bonafide error.
The AO did not agree with the argument on the ground that the assessee revised only after it was pointed out and that certain expenditure was claimed without necessary documents
11. That apart, other element present in this case gives a strong indication that the error was genuine and bona fide. Return for the assessment year in question was filed declaring loss of ' 93,74,724. Assessment was also completed at loss of ' 23,33,321/-. Therefore, excess claim of depreciation was not advantageous to the assessee. Had depreciation been claimed @ 25%, it would have resulted in higher depreciation in the succeeding years which would, , have consequently reduced the IT A 1582 OF 2010 Page 7 of 8 total income of succeeding years. It indicates that excess claim of depreciation was not a device, rather it was an inadvertent error.
12. Thus by making claim of depreciation at higher rate in this year, where the income tax return was at loss, the assessee did not gain any mileage. On the contrary, it was better for him to claim depreciation @25% in this year resulting into higher written down value in the next year for claim of depreciation of a higher amount on higher written down value thereby reducing the tax liability.
13. The Assessing Officer was not correct in holding that submitting inaccurate claim would amount to giving inaccurate particulars. Such a contention of the Department is specifically rejected by the Supreme Court in a recent judgment in the case of CIT Vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 1TR 158.
14. We are, thus, of the opinion that no substantial question of law arises in this appeal which is accordingly dismissed. (A.K. SIKRI) ”
In view of the facts stated above, the penalty of Rs. 1,91,33,400/- u/s 271(1)( c) imposed by the AO on two addition i.e of Rs. 5,42,93,162 on account of depreciation claimed and for amount of Rs. 25,50,000/- on account of subsidy is hereby cancelled and the assessee’s appeal is allowed.”
7. As per the order of ITAT Chandigarh in ITA No. 451/Chd/2014 on the issue of penalty on account of rejected claim of the assessee in regard to capital subsidy has been decided with the following proposition:
“8. We have heard the rival contentions and perused the record. The issue of levy of penalty under section 271(l)(c) of the Act on the treatment of sales tax subsidy as revenue receipt arose before the Tribunal in assessee's own case relating to assessment year 2004-05. The Tribunal in consolidated order passed in ITA No. 1445/Chd/2010 in appeal filed by the assessee and ITA No. 290/Chd/2011 in the appeal filed by the revenue, vide order dated 06.03.2014 deleted the penalty levied under section 271(l)(c) of the Act on the said issue of sales tax subsidy observing as under :
43. The next item of addition is the assessability of sales tax subsidy o\ Rs. 6,80,61,977/- received by the assessee during the year under consideration. The assessee had treated the said subsidy as capital receipt in its return of income, but the same was assessed as revenue receipt in the hands of the assessee following the ratio laid down by the Hon'ble Punjab & Haryana High Court in assessee's own case reported in 286 ITR 1 (P&H). The Tribunal (supra) for the instant assessment year also held the said subsidy to be revenue in nature. However, the assessee has preferred SLP against the order of the Hon'ble Punjab & Haryana High Court and the question of law has been admitted and the SLP is pending before the Hon'ble Supreme Court of India. The issue raised vide the present appeal is in relation to levy of penalty under section 271(1)(c) of the Act on such debatable issue. In case where the assessee had claimed the expenditure as revenue in nature but the same held to be capital expenditure in the hands of the assessee, the issue relatable to such disallowance of expenditure is a debatable issue and addition made on the basis of such debatable issue cannot tantamount to furnishing of inaccurate particulars of income. The claim of the assessee being rejected in the instant case i.e. the debate being whether the sales tax subsidy received by the assessee was capital in nature or not was a debatable issue.
43. The Hon'ble Punjab & Haryana High Court in CIT Vs. Tek Ram (HUF) 300 ITR 354 (P&H) had held that where the issue is highly debatable in as much as two view were possible on the said issue and where the claim of the assessee on the issue was based on one possible view, the making of such bonafide claim on the basis of c possible view could not be treated as concealment of its income by the assessee of furnishing of inaccurate particulars of income so as to attract the penal provisions of section 271 (1)(c) of the Income Tax Act.
44. Further similar issue of levy of penalty under section 271(l)(c) of the Act arose before the Chandigarh Bench of Tribunal in the case of DCIT Vs. M/s Bhushan Power & Steel Ltd. (supra) and the Tribunal vide order dated 25.9.2013 on similar issue o, levy of penalty under section 271(l)(c) of the Act on issue of holding the sales tax subsidy as capital in nature held as under:
"18. The issue arising vide present appeal is in relation to levy of penalty u/s 271(1, (c) of the Act on such debatable issue. The plea of the assessee in the present case was admitted for adjudication before the Higher Forums, makes the issue debatable, issue. The addition in the present case has been made on the basis of such debatable issue that whether the sales tax subsidy received by the assessee was capital in nature or not. We further find that similar issue of receipt of subsidy under the West Bengal Incentive Scheme has been held to be capital receipt in the case of CIT Vs. Rasoi Ltd.(supra) by the Hon'ble Calcutta High Court. The unit of the assessee has been established in the State of West Bengal and the case of the assessee is that it is governed by the said scheme as before the Hon'ble Calcutta High Court. In view thereof, the issue raised before us is where addition has been made in relation to such debatable issue, the assessee could be said to have furnished inaccurate particulars of income making it exigible to levy of penalty u/s 271(l)(c) of the Act.
19. The Hon'ble Punjab & Haryana High Court in CIT Vs. M/s Gurdaspur Cooperative Sugar Mills (supra) on the issue whether the amount of grant-in-aid was capita receipt or revenue receipt being debatable issue held that the penalty u/s 271(1)(c, of the Act was not imposable. The relevant findings of the Hon'ble Punjab & Haryana High Court in CIT Vs. M/s Gurdaspur Cooperative Sugar Mills (supra) are as under:
3. We find that the reliance on the above said judgment is not tenable, as in the aforesaid case, the deductions under section 80-0 of the Act was declined for the reason that the assessee has not produced any details of the expenses allegedly incurred by it. The Delhi High Court observed (page 170):
"The assessee, for claiming deduction under section 80-0 of the Act, wanted the same at 50 per cent of the gross income received in convertible foreign exchange in India provided by it to its foreign clients. The Assessing Officer, however, was of the view that on correct interpretation under section 80-0, deduction is restricted to the net income and, therefore, expenditure incurred in India for earning the foreign exchange had to be deducted. The Assessing Officer, therefore, wanted the assessee to furnish the details of expenses. As the assessee failed to do the needful in respect of various particulars demanded, the Assessing Officer was left with no alternative but to estimate such expenditure in the ratio of proportion of foreign income to the total income."
4. In the present case, there is no dispute about the quantum of receipt of grant-in-aid from the State Government. The assessee reflected the same as capital receipt; whereas it has been treated as to be revenue receipt. The issue whether the amount of grant-in-aid is capital receipt or a revenue receipt, is a debatable issue. The findings returned in the judgment relied upon is on feet of non-furnishing of details of expenses. The issue was not debatable as in the present case. Therefore, the reliance on the Division Bench judgment is misconceived.
5. In view of the above, we do not find any error in the findings recorded by the Tribunal while setting aside the penalty. Consequently, we do not find that the order of the Tribunal gives rise to any substantial question of law for the opinion of this court.
20. Similar proposition has also been laid down by the Hon'ble Punjab & Haryana High Court in CIT s. Tek Ram (HUF) (supra).
21. The Hon'ble Supreme Court in CIT, Ahamadabad Vs. Reliance Petroproducts Pvt Ltd (supra) have laid down the proposition that "A mere making of the claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee".
22. In the totality of the above said facts and following the ratio laid down by the Hon'ble Supreme Court in CIT, Ahemdabad l/s. Reliance Petroproducts Pvt. Ltd (supra/ and the Hon'ble Punjab & Haryana High Court in CIT l/s. M/s Gurdaspur Cooperative Sugar Mills (supra) and CIT Vs. 7e Ram (HUF) (supra) we hold that in view of the debatable issue raised, the assesses is not exigible to levy of penalty u/s 271(1 )(c) of the Act in the facts of the present case where the claim of the assessee that the receipts were capital in nature was rejected and the receipts were held to be revenue in nature and hence taxable. Upholding the order of the CIT (Appeals) we dismiss the grounds of appeal raised by the Revenue in ITA No.70/Chd/2012. "
46. Following the same finding, we find no merit in holding the assessee to have furnished inaccurate particulars of income in respect of such debatable issue. The assessee is not exigible to levy of penalty under section 271(1)(c) of the Act on the aforesaid treatment of sales tax subsidy as revenue in the hands of the ass .see and we uphold the order of the CIT (Appeals) in directing the Assessing Off's r to delete the same.”
8. In view of the above penalty is not imposable where the issue is debatable and the assessee has lost its ground in quantum proceedings as the issue is debatable in the present case penalty with regard to capital subsidy cannot be held as sustainable and the ld. CIT(A) was right in deleting the same.
9. In the case of ITO Vs. M/s Deshraj [supra] the Tribunal upheld the first appellate order which deleted the penalty on excess claim of depreciation on TUF scheme with the following findings:
“7. Before us the Ld. D.R. submitted that the assessee has claimed higher depreciation on the machinery purchased for texturizing of yarn. Though it was not entitled to the higher rate of depreciation the assessee has claimed higher depreciation for which the assessee has furnished inaccurate particulars of income and therefore, the penalty was rightly levied by the A.O. He urged that the penalty levied by the A.O. be upheld.
8. On the other hand, the Ld. A.R. submitted that it had purchased the machinery by availing Bank loan under TUF scheme. It was under the bonafide belief that since the machinery was purchased under TUF scheme it was entitled to depreciation @ 50%. It was further submitted that it was not a case of furnishing of inaccurate particulars of income and concealment of income.
9. The Ld. A.R. further placed reliance on the decision of Ahmedabad Tribunal in the case of Eagle Fibres Pvt. Ltd., in ITA No.3003/Ahd/208 & ITA No.3295/Ahd/2008 dated 23-12-2010.
10. We have heard the rival submissions and perused the material on record. The factual position on the basis of assessment orders and submissions that emerges is that assessee had availed loan from bank under TUF Scheme for purchase of machinery. As per Income Tax Rules, Appendix I, Part-Ill, itemNo.6, machinery and plant used in weaving, processing and garment sector of textile industry, which is purchased under TUFS on or after 1st April, 2001 but before 1st April, 2004 and is put to use before 1st April, 2004 are eligible for depreciation @ 50%. It is an undisputed fact that assessee is in the business of manufacturing of texturised yarn and had purchased machinery by availing loan under TUFS scheme. The assessee was under a bonafide belief that since it has purchased machinery by availing loan from Bank under TUF Scheme, it was eligible for depreciation @ 50% on the machinery purchased. The claim of depreciation was not altogether bogus. The dispute was only with respect to the rate of depreciation. The belief of the assessee is not found to be untrue or false by the A.O. On these facts it cannot be said that assessee has furnished inaccurate particulars and is therefore liable to penalty u/s.271(1)(c ). In the case of Eagle Fibres Pvt. Ltd. (supra) the Coordinate Bench, on similar facts had deleted the penalty by holding as under:-
“5. We have considered the material placed on record. As far as the Revenue’s appeal in respect of excess claim of depreciation on machinery is concerned, the A.O. had made a disallowance of depreciation of Rs. 18,04,688/- primarily on the ground that the depreciation on machinery and plant (TUF Scheme) was allowable @ 25%, however, the assessee had claimed the depreciation at 50%. According to A.O., the eligible depreciation as per the Income tax Rules was only 25%, hence, the same was restricted to that extent only. The excess claim of depreciation was affirmed by the Ld. CIT (A) in first appeal. Consequent thereupon the A.O. has though it proper to levy the penalty. However, when the question of levy of penalty was challenged, Ld. CIT (A) has noted, as per the paragraph reproduced above, that the machineries were only purchased out of the loan given by the Bank under a TUF Scheme floated by Ministry of Textile. The assessee was under an impression that the claim of depreciation was as per the specific rates prescribed, however, it was found by the A.O. that that specific rate of depreciation was not admissible as per the Income Tax Rules, 1962.
5.1. On due examination of the circumstances, once the claim of depreciation was not altogether bogus or malafides but the dispute was in respect of the correct rate of depreciation, then in our considered view that though the rate of depreciation as per A.O. was correct but assessee’s action should not be held as concealment of income or furnishing of inaccurate particulars. It is also evident that still the assessee is harping upon the interpretation of Appendix Annexure to I.T. Rules, 1962 for the purpose of higher depreciation allowance, therefore, this fact itself proves that the correct entitlement of depreciation was a debatable issue. To buttress this view, we place reliance on a latest decision of Hon’ble Apex Court in the case of CIT vs. Reliance Petroproducts (P) Ltd., reported at (2010) 322 ITR 158 (SC), wherein it was laid down that no penalty could be levied merely on disallowance of a deduction, which was made by taking a different view. Following this decision, we find no force in this ground of the Revenue and affirm the findings of the Ld. CIT (A).
11. Since the facts in the present case are identical to that of Eagle Synthetics Private Limited (supra) and since nothing has been brought on record, to the contrary by the Revenue and relying on the decision of Hon’ble Apex Court in the case of Reliance Petroproducts (supra) we do find any reason to interfere in the order of the CIT (A).”
10. Furthermore, in the case of Piparia Syntex Pvt. Ltd Vs. ITO, the ITAT Ahmedabad ‘B’ Bench deleted the penalty on similar issue of excess claim of deprecation on TUF Scheme with the following findings:
2. Brief facts of the case are that during the course of assessment proceedings AO on verification of details filed by the assessee company observed that assessee has claimed depreciation on plant and machinery used in weaving, processing and garment sector which are purchased under TUFS on or after first day of April, 2004 are eligible for 50% depreciation. The assessee did not provide any details as if the machineries claimed to have been purchased during the year under consideration is covered by TUFS. In absence of any evidences/documents it could not be ascertained as if machineries are eligible under TUFS or not. Therefore, AO was of the view that it was established that the assessee-company engaged in the field of texturising the POY which was not covered by either of the process as covered by the provision of Rule 5 of the Income Tax Rules. Hence, depreciation claimed on plant and machinery at Rs. 48,35,632/- being 50% of WDV at Rs. 96,77,264/- was restricted to the depreciation allowable at normal rate as prescribed for the block of asset under the head “Plant and Machinery” @ 15% on the WDV which comes out at 14,50,690/-. Accordingly, the excess depreciation claimed by the assessee-company which comes out at Rs. 33,84,942/- (being Rs. 48,35,632/- - Rs. 14,50,690/-) was disallowed and added to the total income of the assessee.
3. Subsequently AO initiated penalty proceedings u/s. 271(1)(c) of the Act and after giving opportunity of being heard levied penalty of Rs. 63,494/- u/s. 271(1)(c) of the Act for concealment of income. This action of AO was confirmed by Ld. CIT(A).
4. Aggrieved by this order of Ld. CIT(A) now the assessee is before us.
5. At the time of hearing at the outset learned counsel of the assessee submitted that the issue involved in this appeal is covered by the order of Hon’ble Tribunal in the case of ITO vs. Hanuman Filament P. Ltd vide ITA No. 2819/Ahd/2009 dated 17/12/2009 in which on identical facts the Hon’ble Tribunal has deleted the penalty by observing as under:-
“6.1. The penalty u/s. 271(1)(c) of the Act is leviable if the AO is satisfied in the course of any proceedings under this Act that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. It is well settled that assessment proceedings and penalty proceedings are separate and distinct and as held by Hon’ble Supreme Court in the case of Ananthraman & Co. Vs. CIT- 123 ITR 457, the finding in the assessment proceedings cannot be regarded as conclusive for the purposes of the penalty proceedings. It is, therefore, necessary to re-appreciate and reconsider the matter also as to find out as to whether the addition made in the quantum proceedings actually represents the concealment on the part of the assessee as engaged in sec. 271(1)(c) of the Act and whether it is a fit case to impose the penalty by invoking the said provisions. The issue as to whether or not the assessee is entitled to higher rate of depreciation is highly debatable. In the case under consideration, it is apparent that all the relevant facts have been disclosed by the assessee. The only dispute is on interpretation of item 111(6) of Appendix 1 of the IT Rules, 1962. It is well settled that the criterion and yardsticks for the purpose of imposing penalty u/s. 271(1)(c) are different than those applied for making or confirming the additions. When the assessee has made a particular claim in the return of income and has also furnished all the material facts relevant thereto, the disallowance of such claim automatically lead to the conclusion that there was concealment of particulars of his income by the assessee or furnishing of accurate particulars of such income. What is to be seen is whether the said claim made by the assessee was bon-fide and whether all the material facts relevant thereto have been furnished and once it is so established, the assessee cannot be held liable for concealment penalty u/s. 271(1 )(c) of the Act. Since all the material facts relevant to the said claim had been furnished by the assessee, in our opinion it is not a fit case to attract the levy of penalty u/s. 271 (1)(c) of the Act. A mere rejection of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars of income, by the assessee. When two views, are possible, no penalty can be imposed, is a principle that has been enunciated in the decision in the case of CIT v. P.K. Narayanan [1999] 238 ITR 905 (Ker) Hon’ble Punjab & Haryana High Court in the case of CIT vs. Ajaib Singh & Co. (2001) 170 CTR (P & H) 489: (2002) 253 ITR630 (P & H) have observed that merely because certain expenses claimed by the assessee are disallowed by an authority, it cannot mean that particulars furnished by the assessee were wrong. It was held that mere disallowance of expenses per- se cannot be meant that assessee has furnished inaccurate particulars of its income. In the case under consideration, we find that the assessee had given all the particulars of income and had disclosed all facts to the AO. It is not the case of the AO or the assessee that in reply to the query of the AO, some new facts were discovered or the AO had dug out some information which was not furnished by the assessee. In such circumstances, Hon’ble Delhi High Court held in the case of CIT vs. Bacardi Martini India Ltd, 288 ITR 585 (Del) that no penalty was leviable. No cogent material or evidence was brought to our notice which may prove that the Revenue detected the concealment. In CIT vs. Harshvardhan Chemicals & Minerals Ltd (259 ITR 212) Hon’ble Rajasthan High Court upheld the finding of the Tribunal that when the assessee has claimed some amount though that is debatable in such cases, it cannot be said that the assessee has concealed any income or furnished inaccurate particulars for evasion of the tax. ”
In view of the above and since no contrary binding decision was cited by the revenue, penalty imposed by AO and sustained by Ld. CIT(A) is hereby deleted.”
11. In view of the above propositions and since no contrary binding decisions have been cited by the ld. DR to support the case of the Revenue, penalty imposed by the AO cannot be held as sustainable and the first appellate authority rightly deleted the same. Our conclusion also gets support from the landmark judgment of the Hon'ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd [supra] and judgment of the Hon'ble Jurisdictional High Court of Delhi in the case of CIT Vs. Brahmaputra Consortium Ltd. In ITA No. 1582/Del/2010 wherein it was held that merely because claim of the assessee was not accepted or not found to be acceptable by the Revenue does not amount o concealment of particulars of income or furnishing of inaccurate particulars of income. Thus, we are unable to see any valid reason to interfere with the impugned order and accordingly uphold the same.
12. In the result, the appeal of the Revenue stands dismissed.
The order pronounced in the open court on 01.02.2016.