Anita Kumar,, New Delhi vs Assessee

Smt. Anita Kumar, vs Income Tax Officer, Prop. Of Omex Industries, Ward-33(3), 1/7, West Patel Nagar, New Delhi. New Delhi. (PAN: AAIPK9784B)) (Appellant) (Respondent) Appellant by: Shri S.R. Wadhwa, Adv. Respondent by : Ms Y. Kakkar, DR

Date of Hearing: 23.2.2015

Date of pronouncement: 04.03.2015

ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

The above appeal has been preferred by the assessee against the order of

CIT(A)-XXVI, New Delhi dated 17.12.2012 pertaining to AY 2008-09 by

which penalty order dated 20.12.2010 passed u/s 271(1)( c) of the Income Tax

Act, 1961 has been upheld and penalty has been confirmed.

2. The sole ground raised by the assessee in this appeal reads as under:- 1 ITA No.1081/Del/2013 Asstt.Year: 2008-09

"1. That the Hon.CIT(A) has erred on facts and in law in confirming the order of the AO of levying penalty of Rs.4,69,125/- u/s 271(1)( c) of the Income Tax Act."

3. Briefly stated the facts giving rise to this appeal as recorded by the

CIT(A) are that the assessee is engaged in the business of manufacturing and

trading of electrical home appliances. Since the business is being carried on in

the backward state of Himachal Pradesh in Baddi, District Solan, the assessee is

claiming deduction u/s 80IC of the Act equal to the net 100% of the profit.

During the course of assessment proceedings, the AO found that in the

miscellaneous income, the assessee had shown a sum of Rs.16,28,174/- on

account of sale of scrap and a sum of Rs. 33,674/- on account of interest. The

AO asked the assessee to produce the bills in respect of scrap sales but the

assessee failed to produce the same to support his claim. Therefore, the AO

held that the assessee had routed her undisclosed income in the garb of scrap

sales and had also made incorrect claim of deduction in respect of the amount of

alleged scrap sales. The AO therefore treated the amount of scrap sale as

undisclosed income of the assessee and added the same to the returned income

of the assessee for the year under consideration. The AO also restricted the

deduction u/s 80IC of the Act deducting the aforesaid two amounts pertaining to

sale of scrap and interest.

4. Subsequently, the AO initiated penalty proceedings and after affording

due opportunity of hearing for the assessee, the AO concluded that the

2 ITA No.1081/Del/2013 Asstt.Year: 2008-09

explanation and citations relied by the assessee are not acceptable and he is

satisfied that the assessee has concealed true particulars of her income and has

furnished inaccurate particulars of her income and, therefore, the assessee is

liable to penalty u/s 271(1)( c) of the Act r/w Explanation (1) thereto.

5. Being aggrieved by the above penalty order, the assessee carried the

matter to the first appellate authority i.e. CIT(A) but remained empty handed as

the CIT(A) also dismissed the appeal of the assessee upholding and confirming

the penalty order. Now the assessee is before this Tribunal in this second

appeal before the sole ground as reproduced hereinabove.

6. We have heard arguments of both the sides and carefully perused the

relevant material placed on record. Ld. counsel of the assessee submitted that

as per decision of Hon'ble High Court of Madras in the case of Fenner

(India) Ltd. vs CIT (2000) 241 ITR 803 (Mad), the profit from sale of scrap

is eligible for deduction u/s 80HH of the Act, therefore, in the similar set of

facts and circumstances of the present case, the amount earned from sale of

scrap should have been allowed as deduction u/s 80IC of the Act which is

similar to the provisions of section 80HH of the Act. Ld. Counsel further

placed reliance on the decision of Hon'ble Supreme Court in the case of CIT

vs Reliance Petroproducts Pvt. Ltd. (2010) 189 Taxman 322 and submitted

that if the claim of the assessee was not accepted or was not found to be

acceptable by the revenue, then penalty is not leviable only because the claim of

3 ITA No.1081/Del/2013 Asstt.Year: 2008-09

the assessee was rejected by the department. Ld. Counsel further submitted that

where two views are possible and the issue is debatable, even if claim of

assessee for deduction is disallowed, then also penalty is not leviable u/s

271(1)(c) of the Act. Ld. counsel further pointed out that in the preceding

assessment year i.e. AY 2007-08 in the assessment order dated 143(3) of the

Act dated 11.12.2009, the AO accepted and allowed amount of sale of scrap

which is incidental having direct nexus with the activities of the industrial

undertaking.

7. Ld. Counsel has further drawn our attention towards assessee's Paper

Book page no. 47 to 53 and submitted that during the quantum proceedings, the

AO observed that as the assessee failed to produce the scrap bills in support of

his claim and concluded that the assessee had routed his income from

undisclosed sources in the garb of scrap sale and has claimed the deduction u/s

80IC of the Act on that amount which is not leviable. Ld. Counsel pointed out

that these observations of the AO are factually incorrect as the assessee was not

afforded due opportunity of hearing during assessment proceedings and

therefore during first appellate proceedings before the CIT(A), the assessee

submitted an application under Rule 46Aof the Income Tax Rules 1962 with

additional evidence wherein the assessee submitted written submissions along

with ledger account of miscellaneous income and bills of scrap sale to M/s Atul

Casting Pvt. Ltd., Nalagarh. Ld. Counsel has further drawn our attention

4 ITA No.1081/Del/2013 Asstt.Year: 2008-09

towards Paper Book page no. 55 and submitted that this additional evidence was

also confronted to the AO who did not raise any serious objection or adverse

material, therefore, it cannot be held that the assessee did not submit relevant

details, bills and vouchers supporting the sale of scrap by the assessee during

the financial year under consideration. Ld. Counsel finally submitted that the

penalty imposed without any justified and cogent reason and upheld by the

CIT(A) does not survive and therefore, the same may be directed to be deleted.

8. Replying to the above, ld. DR supported the orders of the authorities

below and submitted that since despite sufficient opportunity, the assessee could

not produce relevant bills and vouchers supporting the amount of sale of scrap,

therefore, the AO was justified in holding that the assessee has routed her own

income from undisclosed sources in the garb of sale of scrap and, therefore,

penalty is leviable on the assessee. Ld. DR further contended that even during

the first appellate proceedings, the assessee could not get exemption u/s 80IC of

the Act on the amount of sale of scrap, therefore, it can safely be presumed that

the assessee had furnished inaccurate particulars of her income and has

concealed true particulars of her income and, therefore, under Explanation 1 to

Section 271(1)(c) of the Act, the penalty was rightly imposed by the AO and the

CIT(A) was quite justified in confirming the same.

9. On careful consideration of above submissions, at the very outset, we

note that although the assessee could not produce bills and vouchers pertaining

5 ITA No.1081/Del/2013 Asstt.Year: 2008-09

to the sale of scrap but the same details was submitted by the assessee before

the CIT(A) which was also confronted to the AO and the AO in his remand

report dated 23.10.2012 objected to the admission of additional evidence but

could not bring any adverse material to controvert or to demolish the evidence

submitted by the assessee in support of genuineness of the amount received

from sale of scrap. We also note that similar kind of amount received by the

assessee during AY 2007-08 which was of Rs. 5 lakh was also accepted by the

AO in the order dated 11.12.2009 passed u/s 143(3) of the Act, therefore,

similar kind of claim which could not be supported by way of bills and vouchers

during the subsequent year cannot be held as concealment of particulars of

income or furnishing of inaccurate particulars of income of the assessee,

specially when the required explanation/bills and vouchers were submitted

subsequently before the CIT(A) during first appellate proceedings.

10. We also note that the Hon'ble High Court of Madras in the case of Fenner

India Ltd. has held that the profit from sale of scrap is eligible for deduction u/s

80HH of the Act as the sale of scrap has no direct link or nexus with the

activities of industrial undertaking which is eligible for deduction u/s 80HH of

the Act. In the present case we are not dealing with the allowability of

deduction of Section 80IC of the Act towards the profits from sale of scrap

earned by the assessee during the year under consideration, therefore, this issue

is academic to the present case. At the same time, from the assessment order

6 ITA No.1081/Del/2013 Asstt.Year: 2008-09

for AY 2007-08, we note that the AO has not disputed the amount of Rs. 5 lakh

which was earned by the assessee from sale of scrap and although the AO has

denied deduction u/s 80IC of the Act to the assessee for this amount for AY

2007-08 for the year under consideration, it cannot be said that the assessee

furnished either inaccurate particulars of its income or has concealed particulars

of its true income. At this juncture, we respectfully take cognizance of decision

of Hon'ble Apex Court in the case of Reliance Petroproducts Ltd. where their

Lordships held that merely because the claim of the assessee was not accepted

or was not found to be acceptable by the revenue authorities, only on this basis

penalty u/s 271(1)(c) is not leviable. The facts and circumstances of the present

case are squarely covered in favour of the assessee as in the present case also,

the assessee submitted supportive bills and vouchers to justify the receipt of

amount from sale of scrap before the CIT(A) although the claim of the assessee

for deduction u/s 80IC of the Act has been declined by the revenue authority but

rejection of the claim does not automatically attract penalty. Therefore, we

reach to a logical conclusion that the AO levied penalty in a hasty manner

without assigning any justified and reasonable cause which was upheld by the

CIT(A) in a mechanical manner without going into the facts and circumstances

of the case and ignoring this important fact that the assessee submitted details of

ledger account, bills and vouchers during quantum appellate proceedings which

cannot be ignored. Therefore, conclusion of the AO that the assessee routed her

own money earned from undisclosed sources in the garb of sale of scrap for 7 ITA No.1081/Del/2013 Asstt.Year: 2008-09

levy of penalty u/s 271(1)(c) is not sustainable. Finally, we hold that the

penalty was imposed on the assessee without any justified reason and the same

is not sustainable in view of our foregoing discussion and, therefore we direct

the AO to delete the penalty. Accordingly, sole ground of the aassessee is

allowed.

11. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 04.03.2015.

Sd/- Sd/-

(N.K. SAINI) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 04th MARCH 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR

By Order

Asstt.Registrar

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