I.T.A. No. 617 of 2007 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH I.T.A. No. 617 of 2007 Date of decision: 01.04.2008 Commissioner of Income Tax, Ludhiana-I, Ludhiana ..... Appellant-revenue Versus The Budhewal Cooperative Sugar Mills Ltd. VPO Budhewal, District Ludhiana. ..... Respondent-assessee CORAM: HON'BLE MR. JUSTICE SATISH KUMAR MITTAL HON'BLE MR. JUSTICE RAKESH KUMAR GARG Present:- Mr. Sanjiv Bansal, Advocate for the appellant-revenue. RAKESH KUMAR GARG, J. The revenue has filed the present appeal under Section 260-A of the Income-Tax Act, 1961 ( hereinafter referred to as the “Act” ) against the order dated 30.03.2005 passed by the Income-Tax Appellate Tribunal, Chandigarh, Bench-'A' ( hereinafter called the Tribunal ) in I.T.A. No. 785/Chandi/2004 for the assessment year 1995-96,raising the following substantial question of law:- I.T.A. No. 617 of 2007 2 “Whether on the facts and law the Hon'ble Income Tax Appellate Tribunal was legally justified to hold that the penalty u/s 271(1)(c) was not justified in view of the Explanation 4(a) to Section 271(1)(c) due to inaccurate particulars of income by wrongly claiming the deduction u/s 80P(2)(a)(iii) of I.T.Act, as it was engaged in manufacturing and not in marketing business.? The respondent is a cooperative society. The return of income for the assessment year 1995-96 was filed on 31.10.1995 declaring 'NIL' income. A perusal of the computation of total income shows that the business income of Rs.6,32,07,617/- earned from the activity of manufacturing of sugar, molasses and other byproducts from sugarcane was claimed to be exempt u/s 80P(2)(a)(iii) of the Act. The return of income was processed u/s 143(1)(a) on 08.11.1995. Lateron the case was taken up for its scrutiny by issuing notice under Section 143(2) of the Act on 19.01.1996 and vide order dated 21.11.1996, assessment order u/s 143(3) of the Act was passed and the exemption of Rs.6,32,07,617/- was disallowed by the Assessing Officer. The Commissioner of Income Tax (Appeals) ( hereinafter referred to as the “CIT (A)” ) dismissed the appeal filed by the assessee against the order of the Assessing Officer. I.T.A. No. 617 of 2007 3 The Tribunal also upheld the disallowance made by the revenue authorities with regard to the deduction claimed by the assessee under Section 80P(2)(a)(iii) of the Act. While passing the assessment order u/s 143(3) of the Act, the Assessing Officer also initiated penalty proceedings under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income and subsequently a penalty of Rs.1,77,02,766/- was imposed vide order dated 28.11.2003. Being aggrieved against the aforesaid order, the respondent preferred an appeal before the Commissioner of Income Tax ( Appeals )-I, Ludhiana, who vide his order dated 08.06.2004 confirmed the penalty levied under the said section. Still dissatisfyed with the aforesaid order, the respondent filed an appeal before the Income Tax Appellate Tribunal, Chandigarh, who vide order dated 30.03.2005, cancelled the penalty levied u/s 271(1)(c) of the Act by holding that there was no attempt on the part of the respondent to defraud the revenue or conceal the facts, and also that the respondent had paid the tax in advance as also on self assessment and further that the claim made by the respondent was a bonafide claim and that all the particulars relating to computation of income were disclosed. I.T.A. No. 617 of 2007 4 Feeling aggrieved against the said findings of the Income Tax Appellate Tribunal, Chandigarh, the revenue has filed the present appeal. Shri Sanjiv Bansal, Advocate for the revenue has vehemently argued that the Income Tax Appellate Tribunal, Chandigarh was not justified in ignoring the fact that the respondent had furnished inaccurate particulars of income by claiming deduction under Section 80P(2)(a)(iii) of the Act as the respondent was engaged in manufacturing activity and not in marketing business. Therefore, the penalty u/s 271(1)(c) of the Act was rightly levied for wrong claim of deduction u/s 80P(2)(a) (iii) of the Act by furnishing inaccurate particulars of income. We have heard learned counsel for the appellant- revenue and perused the record. We find no force in the arguments raised by the learned counsel for the revenue. The issue in this case is as to whether the assessee is guilty of having concealed any particulars of its income or having furnished inaccurate particulars of income. The assessee had made a claim for exemption under Section 80P(2)(a)(iii) of the Act. As per the said provisions of the Act, any society marketing agricultural produce of its member is exempt from taxation. At the relevant time, there were several decisions to support the view that marketing includes processing I.T.A. No. 617 of 2007 5 to make the produce marketable. In the case of Karnal Co- operative Sugar Mills v. CIT 253 ITR 659 , which was decided on 04.09.2001, a contrary view was taken by this Court holding that since the society purchase sugarcane from members and manufactures sugar which involves use of power therefore it is not entitled to special deduction of income under Section 80P(2) (a)(iii) of the Act. However, at the time of filing of the return on 31.10.1995 there were various decisions such as Baroach District Cotton Sales Ginning and Pressing Society v. CIT Ahmedabad 177 ITR 418, Addl. CIT v. Ryots Agricultural Produce Co. Operative Marketing Society Ltd. 115 ITR 709 ( Ker.), M.R. Marketing & Processing Co.op. Society v. CIT 193 ITR 108 ( Ker. ) and CIT v. Karjan Co.op. Society Ltd. 129 ITR 821 ( Guj. ), on the basis of which society believed that it was entitled to deduction under Section 80P(2)(a)(iii) of the Act. Thus, the issue of entitlement to said deduction under these provisions was highly debatable. Moreover, undisputedly the society had paid advance tax as well as self assessment tax, not taking into account the deductions under Section 80P(2)(a)(iii) of the Act. The society had only made a claim of deductions in the return of income, which was not allowed by the Assessing I.T.A. No. 617 of 2007 6 Officer. It is, therefore, evident from the facts that the claim made by the assessee was a bonafide claim. The decision of this Court in case cited in Karnal Co-operative Sugar Mills case (supra), on the question of deductions under Section 80P(2)(a) (iii) of the Act, which is pending, has been referred to the larger Bench for reconsideration. Thus, it cannot be said that the explanation given by the assessee is found to be false and the assessee has established that the claim made was a bonafide claim and that all the particulars relating to the computation of income had been disclosed. In the case of Cement Marketing Co. of India v. ACST 124 ITR 15, the Hon'ble Apex Court has held that where the assessee does not include a particular item in taxable income under a bonafide belief that he is not liable so to include it, it would not be right to condemn as a “false” return inviting imposition of penalty. In view of the above facts and circumstances of the case, we are of the view that no question of law is arising for determination of this Court in this appeal and the same is hereby dismissed. ( RAKESH KUMAR GARG ) JUDGE ( SATISH KUMAR MITTAL ) JUDGE 01.04.2008 dinesh