Case: Commissioner of Income Tax Vs. Rucha Engineers Private Limited

2. Case of the Revenue in brief is ase Company is manufacturer of automobile parts. It filed return of income declaring total income of Rs.t claimed deduction of Rs.1,11,66,935/on account of waiver of sales tax deferral loan from Government of Maharashtra being capital receipt. In the earlier assessment proceedings, the A.O. noticed that the assessee has collected sales tax from customers and claimed deduction in the said amount for profit and loss. The amount of sales tax collected was retained by the assessee under the deferral scheme. However, the assessee claimed deduction under Sectionof the Act considering sales tax collected as deemed payment for the purpose of Sectione Government of Maharashtra formulated scheme of premature repayment of sales tax deferral loan. Assessee availed the said scheme and paid Rs.51.55 Lakhs towards final payment of sales tax deferral loan of Rs.163.22 Lakhs. Thus, liability of Rs.111.67 Lakhs got extinguished. This gain of Rs.111.67 Lakhs was claimed by assessee as capital receipt.The A.O. rejected the claim of assessee as assessee attempted to take double benefit, as the amount had already been allowed under sectionThe A.O. referred to decision in the matter of C.I.T. Vs. Thirumaliaswamy Naidu (1998 230 ITR 534  ) of Honble Supreme Court and assessment order under Section 143(3) of the Act was passed on 30.12.2005 (Exhibit A), making addition of Rs.111.67 Lakhs to the total income of assessee. A.O. also initiated penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. In the appeal filed by assessee in earlier proceeding before Commissioner of Income Tax (Appeals), Aurangabad, the order of A.O. was confirmed on 24.3.2006.After the earlier First Appeal proceedings were disposed, the A.O. levied penalty under Section 271(1)(c) at the rate of 150%, amounting to Rs.61,55,775/on 27.3.2007, relying on the decision of Honble Supreme Court in the case of Shane Steel and Press Works Ltd.. Vs. C.I.T. (228 ITR 253)   and Thirumalaiswamy Naidu (supra). A.O. held that, there was blatant disregard or contempt to the provisions of law taking advantage of faith reposed by Government and the impugned order dated 27.3.2007 (Exhibit B) was passed. This order of A.O. was cancelled by C.I.T. (A) vide order dated 17.3.2008 mentioned above, holding that the conduct of assessee did not show intention was there to hide the facts or furnish inaccurate particulars and that there was no scope to levy penalty. Reliance was placed on the case of Deelip N. Shroff Vs. CIT [291 ITR 519   (SC)]. The order dated 17.3.2008 is at Exhibit C. The appeal of the revenue was rejected by the appellate Tribunal vide order dated 28.7.2010 (Exhibit D), interalia holding that, even if the assessees contention was not found correct on subsequent judicial scrutiny, it did not make the explanation unacceptable and the claim of the assessee that it was capital receipt, was not baseless.3. In present appeal, it has been argued on behalf of the revenue, and grounds have been raised that the assessee had made wrong claim of deduction considering extinguished liability of sales tax deferral loan as a capital receipt. On the amount, assessee also claimed deduction under SectionMerely because detailed note along with return of income was filed making wrong claim of deduction, it cannot be said that the act of the assessee was bonafide. The addition made by the A.O. holding the amount as revenue receipt has been upheld in appeal. Mere submitting the claim, which is inaccurate in law, may not amount to inaccurate particulars of income, but it is necessary that the claim should be bonafide. If the claim is incorrect in law, and also malafide, explanation (1) of Section 271(1)(c) gets attracted to the disadvantage of the assessee. It has been argued that, the assessee was taking chance that only small percentage of income tax returns are picked up for scrutiny. As the claim was wholly without basis, the explanation furnished was found to be not bonafide. For such reasons, the revenue claims setting aside of the orders of the appellate Tribunal.

Court's reasoning:
13. It is quite clear that the respondent had not concealed the particulars of its income. The necessary particulars had been furnished in more than one way. The issue whether the concerned amount was revenue receipt or capital receipt is clearly debatable and separate proceedings in that regard are already pending in this High Court, which is not disputed fact. In this judgment, we are not deciding if the said amount was capital receipt or revenue receipt. Material here is only if there was a debatable issue. The respondentassessee submitted necessary particulars by way of audited accounts and also statement of total income and even added necessary notes with the returns and took a stand. We find that, there is no substance in the arguments of the appellantRevenue that explanation (1) of Section 271 is attracted. It will be necessary to first show that, either the particulars were "concealed" or that the particulars were "inaccurate". Unless this requirement of section 271(1)(c) gets attracted, the question of going to the explanation will not arise.14. Apart from this, even if the explanation is perused, it cannot be said that, explanation offered by thewas false. The respondentassessee did put up an explanation along with necessary notes. Only because the stand taken was not accepted by the A.O., relying on reasonings from different rulings does not make the explanation false. Both the courts in appeal below have found the explanation of the respondentassessee as bonafide. In such situation, in the present appeal, we would not like to enter into that question which must be said to be question of fact. The particulars furnished by the assessee cannot be labelled as inaccurate merely because the revenue on strenuous reasonings accepted the same as capital receipt, rejecting the claim of the respondentassessee that the same was capital receipt. The facts of the matter show that, the A.O., after he passed the earlier order dated 30.12.2005, waited till the order in appeal was passed on 24.3.2006, and only thereafter on 27.3.2007, passed present impugned order (Exhibit B), imposing penalty in the proceedings, which had been started earlier. Thus, even the A.O. appears to have harboured doubts whether his order would be interfered with. We agree with the orders in the first appeal as well as the orders of the tribunal that the amount claimed by the assessee was debatable and when the assessee had given all the necessary particulars, it could not be construed as concealing the income or furnishing inaccurate particulars for evasion of tax. The issue whether prepayment of loan at a discounted value constitutes taxable event or not, is debatable and we agree with the judgment in the first appeal and the judgment of the Tribunal that the facts of the case of "Thirumaliaswamy", there was scope to distinguish.A legal contention raised bonafide by the respondentassessee claiming the amounts to be capital receipt, only because the same was not accepted, by itself cannot be said to be act of fraud or gross or willful negligence. Record shows that, the respondentassessee was relying on decisions of various Courts to support its claim. Merely because the claim was rejected, the same cannot be branded as concealment. Before proceeding to the explanation below Section 271 and putting the responsibility on the assessee, it is necessary for the A.O. to first demonstrate that the explanation of the assessee or the conduct of the assessee was not reasonable on human probabilities, or that it was in the nature of violating settled legal positions. It cannot be said that, the explanations given by the respondentassessee were fanciful, baseless or unacceptable.15. With reference to Section 271(1)(c) reproduced above, it would be appropriate to refer to observations of the Honble the Supreme Court in the matter of Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., reported in [(2010) 11 Supreme Court Cases 762] . In this regard, in para Nos.10 and 11, the observations were as under:"10. . . . . .A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the learned counsel for the revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars.""11. The learned counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the words concerned. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars."In para Nos.17 and 20, the Honble Supreme Court observed as follows :"17. We are not concerned in the present case with mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Websters Dictionary, the word "inaccurate" has been defined as :"not accurate, not exact or correct: not according to truth; erroneous, as an inaccurate statement, copy of transcript.""We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous.""20. . . . . Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the assessing officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the legislature."16. For reasons mentioned above, we do not find any error in the orders passed by the appellate Tribunal maintaining deletion of the penalty as was imposed by the A.O. The two courts of appeal below rightly held that the act of the assessee was bonafide even though the assessee may have failed to substantiate its claim that the amount was capital receipt. The assessee had not concealed and had disclosed necessary particulars in the form of notes to the statement of8909364905 _ 97f179e3d5 _ o income and it could not be said that, the assessee made wrong claims which could be branded as inaccurate particulars. The substantial questions of law raised on the basis of facts of the present matter are answered against the revenue.17. There is no substance in the Appeal.