Principal Commissioner of Income Tax
Vs
Dhariwal Industries Limited
4th September, 2018
Admission of appeal by High Court indicates existence of debatable issue and thus penalty under section 271(1)(c) should not be levied.
The assessee is a company engaged in the business of manufacturing of pan masala as well as manufacturing and sale of rawa, atta, maida and salt. Disallowance on three issues, viz. disallowance related to Section 80IA was made restricting it to gross total income, disallowance on the issue of a claim that sales tax incentive is in nature of capital receipt, disallowance account of items not considered to be eligible for 100% depreciation. A penalty of Rs. 3.68 crores was levied by the AO in relation to these disallowances. The CIT(A) deleted the penalty with respect to disallowance under section 80IA and related to claim of sales tax incentive as tax capital receipt. However, CIT(A) confirmed penalty with respect to the addition on account of items not considered to be eligible for 100% depreciation. ITAT confirmed the deletion of penalty with respect to all the three disallowances. Aggrieved, the Revenue filed an appeal before the Bombay High Court.
High Court observed that the assessee had claimed deduction under Section 80IA was on the basis of judicial decisions prevailing at the time of making such a claim and all particulars relating thereto were disclosed in the return of income. Further, in relation to claim that sales tax incentive was in nature of a capital receipt, assessee had relied on Special bench ruling in Reliance Industries Ltd. whereas the High Court relied on the Supreme Court ruling in Reliance Petro Products Pvt. Ltd., wherein it was held that merely because the claimed expenditure was not accepted or was not acceptable to the Revenue, the same would not attract penalty under section 271(1)(c).
High Court held that CIT(A) and ITAT were not wrong in setting aside the order of the AO levying penalty with respect to disallowance under section 80IA restricted to gross total income and rejection of assessee’s claim that sales tax incentive is in nature of capital receipt. High Court also stated that with reference to above claims the quantum proceedings have already been admitted clearly indicating that there are debatable and arguable questions raised, which would certainly be another factor to be taken into consideration whilst imposing penalty under section 271(1)(c).
On the issue of penalty imposed on 100% depreciation claimed on items not eligible for AY 2003-04, High Court stated that ITAT set aside CIT(A)’s order on the basis that in the preceding AY on a similar disallowance, no penalty was levied by the AO and therefore on identical facts, the penalty could not be levied in the succeeding AY.
High Court, thus rules in favour of the assessee.
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