C/TAXAP/109/2020 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 109 of 2020 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA 1 Whether Reporters of Local Papers may be allowed to YES see judgment ? 2 To be referred to Reporter or not ? YES 3 Whether their Lordships wish to see fair copy of NO judgment ? 4 Whether this case involves substantial question of law NO as to interpretation of Constitution of India or any order made thereunder ? PRINCIPAL COMMISSIONER OF INCOME TAX-1 Versus CLP POWER INDIA PVT. LTD. Appearance: MRS MAUNA M BHATT(174) WITH MR KARAN SANGHANI, ADVOCATE for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 25/02/2020 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) Page 1 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT 1. This tax appeal under Section 260A of Income Tax Act, 1961 [for short 'The Act, 1961'] is at instance of Revenue and is directed against order passed by Income Tax Appellate Tribunal, Ahmedabad Bench 'C', Ahmedabad dated 04th October, 2019 in ITA No.1128/AHD/2015 for A.Y 2007 08. 2. facts giving rise to this tax appeal may be summarized as under: 2.1 assessee filed its return of income declaring total income to tune of Rs.3,32,08,724/ . In course of assessment proceedings, Assessing Officer noticed that certain expenditure on account of professional fees, travelling expenses, tender expenses etc., aggregating to Rs.4,75,07,667/ with respect to new power projects were wrongfully claimed as revenue expenditure by assessee. In such circumstances, expenditure so claimed was disallowed in quantum proceedings. It was held to be capital in nature. assessment under Section 143(3) of Act came to be framed determining total income at Rs.5,60,71,852/ after disallowance of Rs.4,75,07,667/ on account of treating said expenditure as capital expenditure. In aforesaid context, penalty proceedings under section 271(1)(c) of Act came to be initiated against assessee. Assessing Officer levied penalty of Rs.1,59,91,080/ under Section 271(1)(c) on premise that assessee had furnished inaccurate particulars of income. 2.2 assessee being dissatisfied with order of penalty referred to above preferred appeal before CIT(A). CIT(A) allowed appeal preferred by assessee substantially relying on decision of Page 2 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT Supreme Court in case of Commissioner of Income tax, Ahmedabad Vs. Reliance Petro Products Private Limited : (2010) 322 ITR 158 (SC). 2.3 Revenue being dissatisfied with decision of CIT(A) preferred appeal before Appellate Tribunal. Appellate Tribunal concurred with findings recorded by CIT(A) and thereby, dismissed appeal preferred by Revenue. 2.4 In such circumstances referred to above, Revenue is here before this Court with present appeal. 3. Revenue has proposed solitary question of law for consideration of this Court. question reads thus: Whether, Appellate Tribunal has erred in law and on facts in deleting penalty amounting to Rs.1,59,91,080/ imposed under section 271(1)(c) of Act? 4. Assessing Officer in its penalty order observed as under: It is pertinent to note here that it is settled position of law that such expenditure is of capital nature and as per provisions of Section 37 of Act is not allowable as expenditure. There can be no ambiguity or difference of opinion so as to treatment of such expenditure. assessee is required to fill in particular of amounts debited to P&L A/c. To extent disallowable u/s.37 in return of income filed by assessee company duly signed and verified. However, in present case, information filed at relevant column by assessee is 'nil'. capital expenses amounting to Rs.4,75,07,667/ debited to P&L A/c., being capital in nature have not been noted there by assessee company at relevant column in return of income. It has been clearly laid down in case of A.M. Shah Vs. CIT (discussed above) that Every figure in return which is set opposite to item of income is particular income, whether figure is one which is stated independently of anything else that appears in Page 3 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT return or documents accompanying it or whether it is something derived from other figures elsewhere stated in such return or documents. False result may be produced by falsity of one or more of constituent items in return. words 'inaccurate particulars' would cover falsity in final figure as also constituent elements or items. They simply would mean inaccurate in some specific or definite respect whether in constituent or subordinate items of income or end result . It is clear and established that assessee company has filed inaccurate particulars in his return of income, as discussed in preceding paragraphs. Further, in decision of Dharmendra Textiles Processors (noted above) it has been established that 'mens rea' or deliberate attempt is not essential for levy of penalty, if it is established that assessee has furnished inaccurate particulars or concealment of particulars of income, penalty is levaible. decisions relied upon by assessee in its reply dtd.07/03/2012 have been gone through and it has been found that ratio of above decisions relied upon by assessee company is as under: a. Wrong claim does not amount to concealment. b. There should be willful/deliberate attempt on part of assessee to conceal income or to file inaccurate particulars of income. c. Penalty cannot be levied merely on basis of addition. d. Penalty cannot be levied where addition has been made on basis of difference of opinion in interpretation of Law. In present case, issue is of filing of inaccurate particulars of income and not of concealment of particulars of income. It is pertinent to note here that Hon'ble Supreme Court in case of Dharamendra Textiles Processors 306 ITR 277 (2008) (SC) has already laid down that penalty is 'civil liability' thus mens rea is not essential. Thus, cases relied by assessee on this count are not applicable. It is further noted here that penalty in present case is being levied on basis of facts of case and position of Law and not merely because there is addition or disallowance of expense. Further, in present case, there cannot be said to be difference of opinion. As far as question of findings of Hon'ble Supreme Court in case of Reliance Petro Product Ltd. is concerned, it is noted that assessee by not noting expenses on account of software development i.e. purchase of software at Point No.7 of Para OI of ITR 6 has furnished inaccurate particulars of income. Moreover, in said order, clear findings are being made for levy of penalty. Thus, Page 4 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT this order is very much in accordance with law laid down by Hon'ble Supreme Court. In light of discussion held in para above, none of cases cited by assessee are applicable to present case. Had assessee's case not been selected for scrutiny, assessee could have been benefited by filing inaccurate particulars of income. assessee took chance with department. Had revenue not detected inaccurate particulars of income of assessee, assessee could have enjoyed fruits of filing inaccurate of particulars of income and would have caused loss to revenue. In view of above facts and legal position discussed in para 3 (supra), assessee is held to have furnished inaccurate particulars of income in return of income filed by him and as per decision of Hon'ble Supreme Court in case of Reliance Petroproduct (P) Ltd. (noted above) liability of penalty arises. 5. In view of above facts, I am satisfied that assessee has furnished inaccurate particulars of its income and is liable for penalty u/s.271(1)(c) of Act. I, therefore, levy minimum penalty @ 100% of amount of tax sought to be evaded on account of filing of inaccurate particulars of income, which works out of Rs.1,59,91,080/ against maximum penalty of Rs.4,79,73,242/ on assessee. 5. CIT(A) while allowing appeal of assessee held as under: I am inclined with appellant that on facts & circumstances as that of appellants, penalty u/s.271(1)(c) of Act is not exigible on many accounts duty supported by legal preposition. These are as follows: (i) appellant claimed such expenses on basis of audited accounts and tax audit report which has not brought out these expenditure as capital in nature. It is therefore bonafide for claim of such expenditure cannot be doubted or questioned. (ii) All details & materials facts were either disclosed or submitted before A.O. as and when asked for. None of these expenses were found bogus or excessive. These genuine expenses were disallowed being held as capital in nature. This preposition cannot lead to satisfaction that appellant has furnished inaccurate particulars of income. Page 5 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT (iii) There are two opinions on this issue. Even Hon'ble Gujarat High Court's latest order in case of GNFC (Supra) as relied on is in favour of appellant. This reflects that issue is contentious in nature and debatable. In view of latest order of Hon'ble Gujarat High Court, ratio is binding on lower appeal authorities. It is therefore despite Hon'ble ITAT considered issue against appellant, penalty is not exigible. (iv) Apart from ratio of Hon'ble Supreme Court order in case of Reliance Petro Product Ltd. (Supra), there are plethora of judgment which directly dealt with issue that if any of revenue expenses claimed is treated as capital expenditure then penalty u/s.271(1)(c) of Act is not exigible on such amount. It is therefore, satisfaction so drawn by A.O. and penalty so levied of Rs.1,59,91,080/ is neither justified nor sustainable. A.O. is directed to delete penalty so imposed. appellant gets relief accordingly. All grounds are treats as allowed. 6. Tribunal while affirming aforesaid findings recorded by CIT(A) held as under: 6. As noted above, CIT(A) has observed that expenditure incurred by assessee has direct and proximate nexus with existing business operations and loss incurred was inherent in carrying on of business. genuineness of expenses incurred has not been doubled per se. What is subject matter of controversy is nature of expenditure that is whether expenditure incurred would acquire character of capital expenditure or revenue expenditure. CIT(A) has demonstrated in its order that issue is sufficiently debatable and there is sufficient room for entertaining different view. Needless to say, conclusion drawn in quantum proceedings would not automatically apply to penalty proceedings which are distinct in character. assessee is entitled to demonstrate its bonafide towards claim of expenditure in penalty proceedings. It is trite that every disallowance of claim cannot lead to as automatic consequence in form of penalty. confirmation of addition/ disallowance in quantum proceedings is not conclusive on standalone basis. In absence of any malafide in action of assessee, we see no reason to interfere with order of CIT(A). In instant case, in our view, CIT(A) has correctly applied law and deleted penalty. We totally concur with view expressed by CIT(A). Revenue could not demonstrate lack of bonafide in action of assessee. assessee with reference to several judicial precedents Page 6 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT has demonstrated before us that issue as to whether expenditure in question is capital or revenue is highly debatable. Coupled with this, substantial question of law in quantum proceedings has also been admitted for adjudication by Hon'ble High Court in appeal under s.260A of Act. In this background, we see not error in order of CIT(A). 7. Section 271(1)(c) reads thus: 271. Failure to furnish returns, comply with notices, concealment of income etc : (1) If Assessing Officer or Commissioner (Appeals) or Principal Commissioner or Commissioner in course of any proceedings under this Act, is satisfied that any person (a) [***] (b) has failed to comply with notice under sub section (2) of section 115WD or under sub section (2) of section 115WE or under sub section (1) of section 142 or sub section (2) of section 143 or fails to comply with direction issued under sub section (2A) of section 142, or (c) has concealed particulars of his income or furnished inaccurate particulars of such income, or (d) has concealed particulars of fringe benefits or furnished inaccurate particulars of such fringe benefits, he may direct that such person shall pay by way of penalty, (i) [***] (ii) in cases referred to in clause (b), in addition to tax, if any, payable by him, sum of ten thousand rupees for each such failure ; (iii) in cases referred to in clause (c) or clause (d), in addition to tax, if any, payable by him, sum which shall not be less than, but which shall not exceed three times, amount of tax sought to be evaded by reason of concealment of particulars of his income or fringe benefits or furnishing of inaccurate particulars of such income or fringe benefits. 8. bare perusal of provisions of section 271(1)(c) of Act would indicate that there has to be concealment of particulars of income or furnishing of inaccurate particulars of income of assessee. As held by Supreme Court in case of Reliance Petro Page 7 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT products Pvt. Ltd. [Supra], meaning of word "particulars" used in Section 271(1)(c) would embrace meaning of details of claim made. 9. principal argument of Ms. Bhatt, learned senior standing counsel appearing for revenue is that at time of filing of return, claim was made as revenue expenditure, while Assessing Officer treated same as capital expenditure. According to Ms. Bhatt to this extent, particulars furnished by assessee could be termed as inaccurate particulars so as to attract provisions of Section 271(1)(c) of Act. 10. We are afraid, we are not in position to accept contention as canvassed on behalf of Revenue. As held by Supreme Court in Reliance Petro products Pvt. Ltd. [Supra] unless case is strictly covered by provision, assessee cannot be exposed to penalty. In short, penalty provision cannot be invoked unless clear cut case is made out. Supreme Court held in said case that making incorrect claim by any stretch of imagination would not tantamount to furnishing inaccurate particulars. mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding income of assessee. Such claim made in return cannot amount to furnishing inaccurate particulars. Therefore, assuming for moment, claim was made as revenue expenditure, but in fact, it was found to be capital expenditure that by itself would not be sufficient to arrive at conclusion that case is one of inaccurate particulars. 11. For forgoing reason, we do not find any error much less error of law said to have been committed by appellate tribunal. Page 8 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 C/TAXAP/109/2020 JUDGMENT 12. In result, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) aruna Page 9 of 9 Downloaded on : Thu Apr 02 13:07:05 IST 2020 Principal Commissioner of Income-tax-1 v. CLP Power India Pvt. Ltd