w w w . L a w y e r S e r v i c e s . i n



Pr. Commissioner of Income Tax Vadodara 2 V/S Sun Pharmaceutical Industries

    Tax Appeal Nos. 828, 829, 830 and 852 of 2016

    Decided On, 21 March 2017

    At, High Court of Gujarat At Ahmedabad

    By, THE HONORABLE JUSTICE: M.R. SHAH AND B.N. KARIA
    By, JJ.

    For Petitioner: K.M. Parikh, Advocate And For Respondents: S.N. Soparkar, Senior Counsel and B.S. Soparkar, Advocate



Judgment Text

1. As common questions of law and facts arise in these group of Appeals and are with respect to the same assessee but for different Assessment Years, all these Appeals are disposed of by this common judgment and order.

1.1 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Income Tax Appellate Tribunal (herein after referred to as "the ITAT") in ITA No. 179/Mum/2014 for the A.Y. 2004-2005 by which the learned ITAT has dismissed the said Appeal preferred by Revenue and has confirmed the order passed by the learned C.I.T.(A) deleting the penalty imposed by the Assessing Officer imposed under Section 271(1)(c) of the Income Tax Act, Revenue has preferred Tax Appeal No. 828 of 2016 with the following proposed questions of law:

"(a) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in deleting the penalty u/s. 271(1)(c) of the Act on the issue of disallowance of deduction u/s. 80IB of the Act relating to price paid by the for purchase of raw materials at low rate

(b) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in holding that "Since the addition on account of notional selling and distribution has been deleted in quantum proceedings, the penalty order passed with respect to such addition has no legs to stand", without appreciating that the issue involved has not attained finality, since the revenue's appeal against the order of ITAT Mumbai deleting quantum addition on the issue of selling and distribution expenses in the assessee's case for A.Y. 2004-2005 is pending for adjudication before Hon'ble High Court of Mumbai

(c) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in holding that penalty is not leviable in respect of disallowance u/s. 80IB of the Act on account of raw material purchases, as it is merely a claim which is found to be not sustained in law, without appreciating that the A.O. had clearly established that the assessee had furnished inaccurate particulars of income liable for penalty u/s. 271(1)(c) of the Act"

1.2 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned ITAT in ITA No. 180/Mum/2014 for the A.Y. 2006-2007 by which the learned ITAT has dismissed the said Appeal preferred by the Revenue and has confirmed the order passed by the learned C.I.T.(A) deleting the penalty imposed under Section 271(1)(c) of the Act, Revenue has preferred Tax Appeal No. 829 of 2016 with the following proposed questions of law:

"(a) Whether on the facts and circumstances of the case and in law, the ITAT was justified in deleting the penalty u/s. 271(1)(c) of the Act on the issue of disallowance of deduction u/s. 80IB of the Act relating to price paid for purchase of raw materials at low rate

(b) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that "Penalty is not leviable in respect of disallowance u/s. 80IB of the Act on account of raw material purchases as it is merely a claim which is found to be not sustainable in law", without appreciating that the A.O. had clearly established that the assessee had furnished inaccurate particulars of income liable for penalty u/s. 271(1)(c) of the Act

(c) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that "Since the addition on account of notional selling and distribution has been deleted in quantum proceedings, the penalty order passed with respect to such addition has no legs to stand", without appreciating that the issue involved has not attained finality, since the revenue's appeal against the order of ITAT Mumbai deleting quantum addition on the issue of selling and distribution expenses in the assessee's case for A.Y. 2006-07 is pending for adjudication before Hon'ble High Court of Mumbai

(d) Whether on the facts and circumstances of the case and in law, the ITAT was justified in deleting the penalty u/s. 271(1)(c) of the Act on the issue of disallowance of deduction u/s. 80IB of the Act relating to interest income received for A.Y. 2006-07 by relying on its judgment in the assessee's case for A.Y. 2005-06

(e) Whether on the facts and circumstances of the case and in law, the ITAT was justified in deleting the penalty u/s. 271(1)(c) of the Act on the issue of disallowance of deduction u/s. 80IB of the Act relating to interest income received for A.Y. 2006-07 ignoring the finding recorded by the A.O. in the penalty order to that effect"

1.3 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned ITAT in ITA No. 181/Mum/2014 for the A.Y. 2007-2008 by which the learned ITAT has dismissed the said Appeal preferred by the Revenue and has confirmed the order passed by the learned C.I.T.(A) deleting the penalty imposed under Section 271(1)(c) of the Act, Revenue has preferred Tax Appeal No. 830 of 2016 with the following proposed questions of law:

"(a) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in deleting the penalty u/s. 271(1)(c) of the Act on the issue of disallowance of deduction u/s. 80IB of the Act relating to price paid by the for purchase of raw materials at low rate

(b) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in holding that "Since the addition on account of notional selling and distribution has been deleted in quantum proceedings, the penalty order passed with respect to such addition has no legs to stand", without appreciating that the issue involved has not attained finality, since the revenue's appeal against the order of ITAT Mumbai deleting quantum addition on the issue of selling and distribution expenses in the assessee's case for A.Y. 2004-2005 is pending for adjudication before Hon'ble High Court of Mumbai

(c) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in holding that penalty is not leviable in respect of disallowance u/s. 80IB of the Act on account of raw material purchases, as it is merely a claim which is found to be not sustained in law, without appreciating that the A.O. had clearly established that the assessee had furnished inaccurate particulars of income liable for penalty u/s. 271(1)(c) of the Act"

1.4 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned ITAT in ITA No. 182/Mum/2014 for the A.Y. 2008-2009 by which the learned ITAT has dismissed the said Appeal preferred by the Revenue and has confirmed the order passed by the learned C.I.T.(A) deleting the penalty imposed under Section 271(1)(c) of the Act, Revenue has preferred Tax Appeal No. 852 of 2016 with the following proposed questions of law:

"(a) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that "Since the addition on account of notional selling and distribution has been deleted in quantum proceedings, the penalty order passed with respect to such addition has no legs to stand", without appreciating that the issue involved has not attained finality since the Dept's appeal against the order of ITAT Mumbai deleting quantum addition on the issue of selling and distribution expenses in the assessee's case for A.Y. 2006-07 is pending for adjudication before Hon'ble High Court of Mumbai

(b) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in deleting the penalty u/s.271(1)(c) of the Act on the issue of disallowance of deduction u/s. 80IB of the Act relating to interest income received for A.Y. 2008-09 by relying on its judgment in the assessee's case for A.Y. 2005-06, wherein the ITAT deleted the penalty levied by the A.O., without appreciating that in income tax proceedings, each assessment year is distinct and the facts of the case varies from year to year

(c) Whether on the facts and circumstances of the case and in law, the ITAT was justified in law in deleting the penalty u/s. 271(1)(c) of the Act on the issue of disallowance of deduction u/s. 80IB of the Act relating to interest income received for A.Y. 2008-09 ignoring the finding recorded by the A.O. in the penalty order to the effect "Assessee was required to disclose true and correct particulars of income in the return of income and to work out the correct income for taxation purpose which it did not do. The assessee was aware of the fact that this particular does not qualify for deduction u/s. 80IB of the Act, 1961""

2. The facts leading to the present Appeals in nutshell are as under:

2.1 The Assessing Officer made addition of raw materials claimed by the assessee on account of excess expenditure incurred by SPIL on selling and distribution expenses while passing the assessment orders for the years under consideration. The Assessing Officer also made disallowance on account of interest of staff loan/bank FD. The chart showing the disallowance made by the Assessing Officer while finalizing the assessment orders for respective Assessment Years 2004-05, 2006-07, 2007-08, 2008-09 is as under:



2.2 It is not in dispute that against the aforesaid disallowances/additions made by the Assessing Officer, the assessee preferred Appeals before the learned C.I.T(A). It is not in dispute that the learned C.I.T.(A) allowed the Appeals preferred by the assessee and set aside the disallowances/additions made by the Assessing Officer. It is also not in dispute that the Appeals preferred by the Revenue before the learned ITAT, against the respective orders passed by the learned C.I.T(A), have been dismissed by the learned ITAT. However, it is required to be noted that the quantum Appeals, against the orders passed by the learned ITAT, are pending before Hon'ble the Bombay High Court.

2.3 On the disallowances/additions made by the Assessing Officer while passing the assessment orders for respective Assessment Years, the Assessing Officer imposed the penalty under Section 271(1)(c) of the Act with respect to the disallowances made by the Assessing Officer while passing/framing the original assessment. On Appeals preferred by the assessee before the learned C.I.T.(A), the learned C.I.T.(A) set aside the penalty orders passed by the Assessing Officer and allowed the Appeals preferred by the assessee. The orders passed by the learned C.I.T.(A) deleting the penalty have been confirmed by the learned ITAT by impugned judgment and order. Feeling aggrieved and dissatisfied with the impugned judgment and orders passed by the learned ITAT deleting the penalty imposed under Section 271(1)(c) of the Act imposed on the disallowances/additions made by the Assessing Officer while passing the original assessment orders, Revenue has preferred the present Appeals with the aforesaid proposed questions of law.

3. Shri K.M. Parikh, learned advocate appearing on behalf of Revenue has vehemently submitted that the learned C.I.T.(A) as well as learned ITAT have deleted the penalty solely on the ground that in the quantum proceedings the additions made on account of notional selling and distribution expenses have been deleted by the learned ITAT, and therefore, since the addition on account of notional selling and distribution have been deleted in quantum proceedings, the penalty order, passed in respect of such addition, has no legs to stand. It is submitted that against the orders passed by the learned ITAT deleting the additions made by the Assessing Officer made on account of notional selling and distribution expenses, the matter is at large before Hon'ble the Bombay High Court and the Appeals preferred by the Revenue are admitted and are pending for final disposal before the Hon'ble the High Court, the learned ITAT has materially erred in deleting the penalty, more particularly, when the quantum proceedings are at large before Hon'ble the Bombay High Court, and therefore, it is requested to admit the present Appeals, more particularly, when the learned ITAT has not discussed anything on merits with respect to the penalty imposed under Section 271(1)(c) of the Act.

4. All these appeals are opposed by Shri S.N. Soparkar, learned senior counsel with Mr. B.S. Soparkar, learned advocate appearing on behalf of the assessee.

4.1 Shri S.N. Soparkar, learned senior counsel appearing on behalf of assessee has submitted that in the present case as on today admittedly the assessee has succeeded in quantum proceedings and the learned ITAT has deleted the additions made by the Assessing Officer made on account of notional selling and distribution expenses. It is submitted that therefore when the addition of notional selling and distribution has been deleted in the quantum proceedings, the learned ITAT has rightly observed and held that penalty order passed in respect of such additions (which has been deleted by the learned ITAT) cannot be sustained. It is submitted that similarly even with respect to the disallowances under Section 80IB on account of raw material purchase has been deleted by the learned ITAT, and therefore also, the penalty imposed with respect to such disallowances also cannot be sustained. It is submitted therefore, in the facts and circumstances of the case, the learned ITAT has not committed any error in deleting the penalty imposed in respect of such additions/disallowances.

4.2 Now so far as the submissions on behalf of the Revenue that with respect to the quantum proceedings, Appeals are pending before Hon'ble the Bombay High Court, and therefore, the present Appeals be admitted and considered only after the decision of Hon'ble the Bombay High Court in the quantum proceedings is concerned, Shri Soparkar, learned senior counsel appearing on behalf of the assessee has brought the attention of the Court to the proviso to Section 275(1)(A) of the Act. It is submitted that if the Revenue succeeds before Hon'ble the Bombay High Court in quantum proceedings and the disallowances/additions made by the Assessing Officer is restored, in that case, within the period of six months from the date of the decision of the Hon'ble High Court, still it will be open for the Revenue to initiate the penalty proceedings afresh. It is submitted that in case the assessee succeeds before the Hon'ble High Court and the deletion of the additions/disallowances by the learned ITAT is confirmed, in that case, there is no question of imposing any penalty on such disallowances/additions. It is submitted that by making final observations that after the decision of the Hon'ble High Court and in case the Revenue succeeds before the High Court, in that case, it will be open for the Revenue to initiate penalty proceedings afresh and to that extent the interest of the Revenue is protected, and therefore, he has no objection if the Appeals are disposed of with such observations.

4.3 Now, so far as the penalty imposed with respect to the bank deposit/staff loan is concerned and the disallowance under Section 80IB on account of interest income of bank deposit/staff loan is concerned, it is submitted by Shri Soparkar, learned senior counsel appearing on behalf of the assessee, that the learned ITAT has deleted the penalty with respect to the above by observing that the assessee had furnished all details. It is submitted that it is rightly observed by the learned ITAT that merely a claim, which is found to be not sustainable in law, the penalty cannot be imposed under Section 271(1)(c) of the Act. It is submitted that therefore the learned ITAT has rightly deleted the penalty with respect to the interest claimed on bank deposit/staff loan i.e. with respect to the disallowances under Section 80IB on account of interest income on bank deposit/staff loan.

4.4 By making the above submissions, it is requested to dismiss the present Appeals in so far as deleting the penalty imposed with respect to the disallowance under Section 80IB on account of interest income on bank deposit/staff loan is concerned.

5. Heard the learned counsels appearing for the respective parties at length.

5.1 At the outset, it is required to be noted that the Assessing Officer made the additions on account of notional selling and distribution expenses and also on account of raw material purchase. The Assessing Officer also made the disallowances under Section 80IB on account of interest income on bank deposit/staff loan claimed by the assessee. However, it is required to be noted that in the quantum proceedings the additions made on account of notional selling and distribution expenses and also the additions made on account of raw material purchase have been deleted by the learned C.I.T.(A) in respect of Appeals preferred by the assessee and the same have been confirmed by the learned ITAT. The Assessing Officer imposed the penalty under Section 271(1)(c) of the Act with respect to the aforesaid additions. The learned C.I.T.(A) as well as the learned ITAT have deleted the penalty imposed on such additions on the ground that in the quantum proceedings the additions made on account of notional selling and distribution expenses and the addition made on account of raw material purchase have been deleted by the learned ITAT, and therefore, since the addition on account of aforesaid additions/disallowances have been deleted in quantum proceedings, the penalty order passed with respect to such additions cannot be sustained. It is true that against the order passed by the learned ITAT in quantum proceedings, the Appeals are pending before Hon'ble the Bombay High Court with respect to the additions made on account of notional selling and distribution expenses as well as addition made on account of raw material purchase. However, it is required to be noted that, as on today, in the quantum proceedings, the additions made on account of notional selling and distribution expenses as well as the additions made on account of raw material purchase have been deleted. In the Appeals before the Hon'ble High Court there can be two eventualities which may happen. Either the Hon'ble High Court may confirm the order passed by the learned ITAT deleting the aforesaid additions or the Hon'ble High Court may set aside the order passed by the learned ITAT deleting the aforesaid additions and may restore the order passed by the Assessing Officer. If the Hon'ble High Court confirms the order passed by the learned ITAT deleting the aforesaid additions, naturally, there is no question of imposing any penalty on such additions as the addition itself is ordered to be deleted. In case the Revenue succeeds before the Hon'ble High Court and the Hon'ble High Court reverses the order passed by the learned ITAT and the learned C.I.T.(A) and restores the assessment order/orders passed by the Assessing Officer making the aforesaid additions, in that case, the imposition of penalty is required to be considered in light of Section 271(1)(c) of the Act. At this stage, Section 275(1)(A) is required to be considered which reads as under:

"275(1A): In a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under Section 253 or an appeal to the High Court under section 260A or an appeal to the Supreme Court under section 261 or revision under section 263 or section 264 and an order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty is passed before the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the [Principal Chief Commissioner or] Chief Commissioner or the [Principal Commissioner or] Commissioner or the order of revision under section 263 or section 264 is passed, an order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty may be passed on the basis of assessment as revised by giving effect to such order of the Commissioner (Appeals) or, the Appellate Tribunal or the High Court, or the Supreme Court or order of revision under section 263 or section 264:

Provided that no order of imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty shall be passed-

(a) unless the assessee has been heard, or has been given a reasonable opportunity of being heard;

(b) after the expiry of six months from the end of the month in which the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the [Principal Chief Commissioner or] Chief Commissioner or the [Principal Commissioner] Commissioner or the order of revision under section 263 or section 264 is passed:

Provided further that the provisions of sub-section (2) of section 274 shall apply in respect of the order imposing or enhancing or reducing penalty under this sub-section".

5.2 Therefore, considering Section 275(1)(A), more particularly, proviso to Section 275(1)(A), after the order passed by the Hon'ble High Court subject to and on the basis of the order passed by the Hon'ble High Court, Revenue can initiate the penalty proceedings afresh within the period of six months from the date of receipt of the order passed by the Hon'ble High Court as provided in proviso to Section 275(1)(A) of the Act. Therefore, instead of admitting the present Appeals, as to keep the matters pending till the Hon'ble High Court decides the quantum proceedings/Appeals on quantum, we are of the opinion that if the present Appeals are disposed of at this stage with a liberty in favour of the Revenue to initiate the penalty proceedings afresh after the decision of the Hon'ble High Court in the pending App

Please Login To View The Full Judgment!

eals, which are against the deletion of the aforesaid additions and in case the Revenue succeeds before the Hon'ble High Court within the stipulated time, as mentioned in proviso to Section 275(1)(A) of the Act, if the aforesaid procedure is adopted, in that case, the interest of the Revenue shall also be protected. 6. Now so far as deletion of the penalty by the learned ITAT with respect to the interest income on bank deposit/staff loan in respect of disallowance under Section 80IB on account of interest income on bank deposit/staff loan is concerned, at the outset it is required to be noted that as such the amount of penalty imposed on the aforesaid would be too small. Apart from above, even there is a clear finding by the learned ITAT that with respect to the above the assessee had furnished all details. Under the circumstances, the case will not fall in any of the parameters mentioned under Section 271 (1)(c) of the Act as rightly observed by the learned ITAT. Under the circumstances, the present Appeals with respect to the deletion of the penalty in respect of the dis-allowances under Section 80IB on account of interest income on bank deposit/staff loan is not required to be interfered by this Court in exercise of the appellate jurisdiction. No substantial questions of law arise so far as deletion of the penalty in respect of disallowances under Section 80IB on account of interest income on bank deposits or staff loan. 6.1 Under the circumstances, the present Appeals with respect to the deletion of the penalty by the learned ITAT in respect of the dis-allowances under Section 80IB on account of interest income on bank deposit/staff loan is concerned are dismissed. 6.2 Now so far as the deletion of penalty by the learned ITAT on the issue of disallowance/deduction under section 80IB of the Act relating to price paid by the assessee for the purchase of raw materials at lower rate and with respect to selling and distribution expenses is concerned, the present Appeals are disposed of with the above liberty in favour of the Revenue to initiate appropriate proceedings afresh for penalty, after the decision of the Hon'ble High Court in the quantum Appeals and subject to the decision that may be taken by the Hon'ble High Court in the quantum Appeals considering section 275 (1A) of the Income Tax Act and as and when such proceedings are considered the same may be considered in accordance with law and on merits.
O R