Monica Gold Pipes Pvt. Ltd. earlier known Shreee Ghantakaran Pipes Pvt. Ltd. vs ITO

“1.1

The Appellant Company is a private limited company engaged in the manufacturing business. Initially, it operated under the name Manmohan Pipes Private Limited, which was changed to Shree Ghantakaran Pipes Private Limited on 15/05/2017. Subsequently, on 28/06/2022, the name was again changed to Monica Gold Pipes Private Limited.

1.2

The case of the Appellant was selected for scrutiny and an assessment order dated 31/03/2016 was passed u/s 143(3) of the Income Tax Act, 1961 after making various additions/disallowances. Subsequent to this, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) and ultimately passed a penalty order dated 07/01/2022 imposing penalty of Rs. 20,84,517/-on alleged concealment of Rs. 67,46,010/-, being the sum of the following disallowances:

1.3

At the outset, it is respectfully submitted that the present appeal against the penalty order dated 07/01/2022 has been filed with a delay of 689 days. In this connection, it may kindly be appreciated that the delay occurred on account of the fact that the impugned order of the CIT(A) was uploaded only on the e-filing portal and was never physically served upon the Appellant.

1.4

Unfortunately, the Chartered Accountant handling the matter at that time failed to inform the management about the disposal of the appeal and the consequential penalty proceedings. It was only on 02/12/2023, when the Appellant received an intimation from the Income Tax Department regarding outstanding demand, that the management became aware of the penalty order. Immediately thereafter, fresh professional advice was sought, and the present appeal was filed without any further delay.

1.5

It may be noted that in the connected quantum proceedings, the Hon'ble ITAT [ITA No. 3791/DEL/2023] [Dt.21/08/2024] has already condoned a much longer delay of 1944 days in filing the appeal, after recording that the circumstances were bona fide and attributable to professional lapse rather than deliberate or negligent conduct on the part of the Appellant. The relevant portion of the ITAT judgment is extracted as under:

2.

These two appeals are filed with the delay of 1944 and 1596 days respectively. Ld. Counsel for the assessee referring to the affidavit of the Director of the assessee company submits that the Ld. CIT(A) disposed of the appeal filed by the assessee for the AY 2013-14 and 2014-15 by orders dated 28/06/2018 and 11/06/2019 respectively which were uploaded on ITBA portal. Ld. Counsel submits that the e-filing portal was earlier handled by Sh. Amit Gupta, CA who did not inform the assessee about the disposal of appeals by the Ld. CIT(A). Ld. Counsel submits that physical copy of appellate order was also not served on the assessee company. Ld. Counsel submits that the assessee came to know about the orders of the Ld. CIT(A) only on 02/12/2023 through an e-mail intimating about the outstanding demand and thereafter the assessee immediately took steps for preparing appeals and filed the appeals on 22/12/2023 with a delay of 1944 and 1596 days respectively for the assessment years 2013-14 & 2014-15.

6.

On careful perusal of the affidavit filed by the Director of the assessee company it is noticed that the e-filing portal of the assessee company was handled by one Shri Amit Gupta, CA and the assessee was not aware of the fact that the disposal of the appeal by the Ld. CIT(A) and no further appeal has been filed against the Ld. CIT(A) orders. The appellant came to now of the fact of disposal of appeals by Ld. CIT(A) only on 02/12/2023 when it was intimated about the outstanding tax demand. It is also noticed that the physical copy of the orders of the Ld. CIT(A)-28, New Delhi dated 28/06/2018 and the order of the Ld. CIT(A)-6, Delhi dated 11/06/2019 was physically not served on the assessee.

7.

I find that there is reasonable cause in filing the appeals for the assessment years 2013-14 and 2014-15 with delay by the assessee. In the circumstances, the delay in filing the appeals by the assessee is condoned. Thus, the delay in filing of appeal by the assesse is condoned for the assessment years 2017-18 and 2014-15.

1.6

On the same reasoning, it is prayed that the present delay of 689 days may kindly be condoned in the interest of justice.

Further, on merits of the case, we may submit as under:

2.1

It is also pertinent to mention that the quantum disallowance of Rs. 37,46,010/ made under section 36(1)(iii) of the Income-tax Act, 1961 has already been deleted by the Hon'ble Tribunal in the aforesaid judgment, thereby granting complete relief to the Appellant Company. Once the very foundation of the addition stands quashed, the corresponding penalty cannot survive. Accordingly, it is most humbly prayed that Your Honor may be pleased to delete the penalty levied on this account. The relevant findings of the Tribunal are reproduced below for ready reference:

8.

Coming to merits of the case the Ld. Counsel for the assessee submits that in these two assessment years the AO disallowed interest of Rs. 37,46,010/- and Rs. 5,43,927/-u/s 36(1)(iii) of the Act on the loans and advances given by the assessee during these two assessment years.

18.

Similar view has been taken by the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities (313 ITR 340), wherein the Hon'ble High Court held that where the assessee has his own funds as well as borrowed funds the presumption can be made that the advances for non business purposes have been made out of the own funds and that he borrowed funds have not been used for this purpose, accordingly. the disallowance of interest on the borrowed funds is not justified.

19.

The ratios of the above decisions applies squarely to the facts of the assessee's case. Thus, respectfully following the said decisions grounds raised by the assessee are allowed and the AO is directed to delete the disallowance made u/s 36(1) (va) of the Act for the assessment years 2013-14 and 2014-15.

3.1

With regard to the penalty levied on account of reclassification of subsidy reversal amounting to Rs. 30,00,000/-, it is respectfully submitted that the dispute essentially revolves around the characterization of the subsidy whether it is to be regarded as a capital receipt or a revenue receipt. This issue has consistently been recognized in judicial pronouncements as a highly contentious and debatable matter, turning on the purpose, conditions, and surrounding circumstances of the grant. The Appellant, in its bona fide belief and based on its understanding of the prevailing legal and accounting position, had treated the subsidy reversal as revenue expenditure.

3.2

However, the Assessing Officer's subsequent view that the same should be regarded as capital in nature represents merely a difference of opinion. Importantly, there has never been any doubt regarding the genuineness of the transaction or the accounting treatment adopted by the Appellant. Thus, the mere adoption of an alternative interpretation by the Assessing Officer cannot, by itself, be a valid ground for levy of penalty under section 271(1)(c).

3.3

The Hon'ble Supreme Court in the case of CIT vs. Gurdaspur Cooperative Sugar Mills (P.) Ltd. [2024] 159 taxmann.com 7 (SC) has affirmed that where the issue whether an amount of grant-in-aid was capital receipt or revenue receipt is a debatable one, no penalty under section 271(1)(c) can be imposed. In the present case also, the treatment of subsidy reversal involves precisely such a debatable characterization. The Appellant accepted the treatment of the same as capital in nature during the assessment, but such acceptance was to buy peace and avoid protracted litigation. This voluntary acceptance cannot be equated with either concealment of income or furnishing of inaccurate particulars,

3.3

It is a well-settled principle of law that where two views are possible and the assessee has adopted one such view in good faith, penalty provisions cannot be invoked merely because the Department adopts a different interpretation. The existence of a genuine difference of opinion itself rules out the element of concealment. Hence, in view of the debatable nature of the issue and the authoritative pronouncement of the Hon'ble Supreme Court, the levy of penalty on this ground deserves to be deleted.

3.4

In any case, penalty proceedings are quasi-judicial in nature and merely because some additions have been made, there can be no inference that same is in the nature of underreporting or misreporting of income. Further, in the case of Dilip N Sharoff 291 ITR 519(SC) the Hon'ble Supreme Court has held that mere disallowance or non-acceptance of claim in itself may not be sufficient for arriving at conclusion that assessee has concealed or furnished inaccurate particulars. Furthermore, there being no dispute with regard to genuineness of details submitted by the Assessee Company, the second limb of section 270A which is Misreporting of Income is also not relevant in the present case.

3.5

It is settled law that merely because a claim has been disallowed on technical ground, there cannot be any presumption about concealment or furnishing of inaccurate particulars. Reference may be made to following decisions:

i.

CIT Vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC)

A glance at the provisions of section 271(1)(c) of the Income Tax Act, 1961, suggests that in order to be covered by it, 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. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false, there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.

ii.

CIT Vs. Arctic Investment Pvt. Ltd. 39 DTR 243 (DEL.)

Held, even though finding in the assessment proceedings have some significance, but same is not decisive or conclusive. If the explanation of the assessee is bonafide, there can be no case of any penalty for concealment or furnishing of inaccurate particulars.

3.6

In light of the foregoing factual and legal position, it is respectfully submitted that the Appellant Company had made full and true disclosure regarding the nature of the subsidy reversal. Since the matter is admittedly debatable and turns only on a difference of interpretation, the penalty levied by the Assessing Officer is wholly unsustainable in law and deserves to be deleted.

Further, we may request for an opportunity of Virtual hearing for submitting oral arguments.”