CIT Indore v. S Kumars Tyres Manufacturing Co Ltd (Madhya Pradesh High Court)

Case snapshot

Sections / provisions: Ramesh Patodia

Questions before the Court / Tribunal

• CIT Indore Vs S Kumars Tyres Manufacturing Co Ltd (Madhya Pradesh High court) Date-4th November,2022 Sub-Whether there can be any penalty u/s 271(1)(c) in respect of a debatable issue? The Division bench of Madhya Pradesh High Court was considering department’s appeal when ITAT had given relief to the assessee by holding that there could not have been penalty u/s 271(1)(c) in respect of an amount of Rs 5.18 crores which was claimed as capital receipt while filing return of income but was not accepted till high court level and was adjudicated to be revenue receipt. The High court accepting arguments of the…
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

BETWEEN:- THE COMMISSIONER INCOME TAX – 1, AAYKAR BHAWAN, INDORE (MADHYA PRADESH) .....APPELLANT (BY MS. VEENA MANDLIK, ADVOCATE)

AND M/S S.KUMAR TYRES MANUFACTURING CO. LTD., PITHAMPUR, DISTRICT – DHAR (MADHYA PRADESH) .....RESPONDENTS (BY SHRI P.M. CHOUDHARY, SENIOR ADVOCATE ASSISTED BY SHRI D.S. KALE, ADVOCATE) ___________________________________________________ Reserved on: 7th September 2022 Delivered on: 04th November, 2022 ___________________________________________________ This appeal coming on for final hearing this day, JUSTICE VIVEK RUSIA passed the following: ORDER The appellant / Commissioner of Income Tax – I has filed

the present appeal under Section 260-A of the Income Tax Act, 1961 being aggrieved by the order dated 30.04.2003 passed by the Income Tax Appellate Tribunal in ITA Nos.284/IND/02 and 339/IND/02 for the Assessment Year, 1992-93. 02. The facts of the case in short are as under:- 2.1. Respondent / Company was established in the year 1985 and thereafter entered into the manufacturing of tyers and trading of fabrics. The respondent filed an IT return on 31/12/1992 showing the loss of Rs. 1,02,86,772/- with a Tax Audit Report both for the Tyer Division and Fabric Division. During the assessment proceedings, it was noticed that the respondent started its commercial production on 4/5/1988 with business losses claimed in the AY 1989-90. Letter on the respondent claimed that commercial production was started on 1/31992 but the Assessment Officer did not accept the claim of the petitioner in respect of capitalizing the amount of Rs.6,00,91,886/- in respect of expenses and loss incurred up to 01.03.1992. The assessment was completed on 28.02.1995 determining total income of Rs.2,42,17,558/- with following conditions: - 1 Disallowance of depreciation Rs.0,67,58,503/- 2 Disallowance of expenses…

2.2. Being aggrieved by the aforesaid assessment order, respondent/assessee preferred an appeal before the Commissioner of Income Tax (A) and vide order dated 08.12.1995, the appellate authority confirmed the same with additions to the following extent:- 1 Disallowance of depreciation Rs.0,42,89,325/- 2 Disallowance of expenses under the head Rs.0,05,37,512/- (verification & valuation) 3 Wrong claim of exps. Under the head Rs.0,08,50,512/- Publicity 4 Addition towards shrinkage of cloth Rs.0,00,71,808/- 5 Compensation recd-from michelin- Rs.5,18,02,396/- 6 Additional on account of receipt of power Rs.0,04,66,116/- subsidy 2.3. Thereafter the respondent / assessee approached the Income Tax Appellate Tribunal and vide order dated 03.01.1997, the aforesaid assessment has been confirmed to the extent indicated below:- 1 Disallowance of depreciation Rs.0,42,89,325/- 2 Disallowance of expenses under the head Rs.0,02,88,500/- (verification & valuation) 3 Wrong claim of exps. Under the head Rs.0,08,50,530/- Publicity 4 Addition towards shrinkage of cloth Rs.0,00,35,904/- 5 Compensation recd-from michelin- Rs.5,18,02,396/- 6 Additional on account of receipt of power Rs.0,04,66,116/- subsidy

2.4. Later on, vide notice dated 13.07.1997 issued under Section 148 of the Income Tax Act certain income was found to escape from assessment. During the assessment proceedings, the respondent/assessee offered an income of Rs.4,64,164/- on account

Appellant / assessee submissions

of power subsidy and addition of Rs.12,33,469/- on account of interest payable to the financial institution. The assessment Officer finalized the assessment vide order dated 28.02.1995. During this assessment proceeding, the Assessment Officer considered the disclosure made by the respondent/assessee about the receipt of the amount of US $ 11,18,000/- in two instalments paid due to the termination of the agreement. Since the respondent/assessee was maintaining the book of account on the mercantile basis in the Tax Audit report, hence, the first instalment of US $ 11,18,000/- received on 05.12.1991 was disclosed in the return of the Assessment Year, 1992 – 93 and the second instalment of US $ 8,00,000/- received on 13.11.1992 was disclosed in Assessment Year, 1993 – 94. That the entire receipts amount of compensation of Rs.5,18,02,396/- has been taxed as an income of Assessment Year, 1992 – 93. 2.5. Being aggrieved by the aforesaid order of the Assessment Officer, an appeal was filed before the Commissioner of Income Tax. In this appeal, the respondent/assessee contended that the amount received on termination of the agreement was not an account of the surrender of any right or…

Rs.3,53,38,900/- is made out ?” 03. Ms Veena Mandlik, learned counsel for the appellant argued that penalty proceedings were rightly initiated against the respondent/assessee as there was a concealment of particular income as well as furnishing inaccurate particulars. The First Appellate Authority has rightly imposed the penalty @ 100%. Merely the issue that was debatable in the appeal cannot be a ground for avoiding the penalty under Section 271(1)(2) of the Income Tax Act. In support of the aforesaid contention, she placed reliance upon the judgment delivered in the cases of Commissioner of Income Tax v/s Prakash S. Vyas reported in (2014) 272 CTR (Guj) 353 and Commissioner of Income Tax v/s Dharamshi B. Shah reported in (2014) 366 ITR 140 (Guj). 04. Per contra, Shri P. M. Choudhary, learned Senior Counsel appearing for the respondent/assessee contended that once this Court has given a finding that on a question referred by the Income Tax Department that Rs.5,18,02,396/- was revenue receipt and the respondent/assessee has been subjected to the tax, the High Court itself found that there is a debatable issue and adjudicated it, therefore, it cannot be held that the assessee…

We have heard the learned counsel for the parties at length and perused the record of the case. 05. The primary question of law which requires consideration in this ITA is whether a case for imposition of penalty on the facts disclosed and found under section 271 (1) (c) of the Income Tax Act for the Assessment year 1992-93 to the extent of the Rs. 3,53,38,900/- is made out? 06. Undisputedly the respondent received US$.1118000 equivalent to Rs. 2,88,51,613/- in AY 1992-1993 and thereafter further received Rs.2,29,50,782/- in the AY 1993-94 thus in total received of Rs.5,18,02,396/- from Michelin Foreign Collaborator. According to the assessee the amount was received on extinguishment of rights and claims from a foreign collaborator and hence declared in ITR as capital receipt. According to the appellant, the respondent deliberately shown these receiving of the amount of Rs.5,18,02,396/- as capital receipt. It is further submitted by the learned counsel for the appellant the respondent was having knowledge of the real nature of the transaction i.e. nature of such damage and the receipt, therefore ought to have correctly shown in the returns, thus the assessee furnished inaccurate…

Revenue / respondent submissions

Rs.3,53,38,900/- is made out ?” 03. Ms Veena Mandlik, learned counsel for the appellant argued that penalty proceedings were rightly initiated against the respondent/assessee as there was a concealment of particular income as well as furnishing inaccurate particulars. The First Appellate Authority has rightly imposed the penalty @ 100%. Merely the issue that was debatable in the appeal cannot be a ground for avoiding the penalty under Section 271(1)(2) of the Income Tax Act. In support of the aforesaid contention, she placed reliance upon the judgment delivered in the cases of Commissioner of Income Tax v/s Prakash S. Vyas reported in (2014) 272 CTR (Guj) 353 and Commissioner of Income Tax v/s Dharamshi B. Shah reported in (2014) 366 ITR 140 (Guj). 04. Per contra, Shri P. M. Choudhary, learned Senior Counsel appearing for the respondent/assessee contended that once this Court has given a finding that on a question referred by the Income Tax Department that Rs.5,18,02,396/- was revenue receipt and the respondent/assessee has been subjected to the tax, the High Court itself found that there is a debatable issue and adjudicated it, therefore, it cannot be held that the assessee…

We have heard the learned counsel for the parties at length and perused the record of the case. 05. The primary question of law which requires consideration in this ITA is whether a case for imposition of penalty on the facts disclosed and found under section 271 (1) (c) of the Income Tax Act for the Assessment year 1992-93 to the extent of the Rs. 3,53,38,900/- is made out? 06. Undisputedly the respondent received US$.1118000 equivalent to Rs. 2,88,51,613/- in AY 1992-1993 and thereafter further received Rs.2,29,50,782/- in the AY 1993-94 thus in total received of Rs.5,18,02,396/- from Michelin Foreign Collaborator. According to the assessee the amount was received on extinguishment of rights and claims from a foreign collaborator and hence declared in ITR as capital receipt. According to the appellant, the respondent deliberately shown these receiving of the amount of Rs.5,18,02,396/- as capital receipt. It is further submitted by the learned counsel for the appellant the respondent was having knowledge of the real nature of the transaction i.e. nature of such damage and the receipt, therefore ought to have correctly shown in the returns, thus the assessee furnished inaccurate…

Court / Tribunal analysis and reasoning

We have heard the learned counsel for the parties at length and perused the record of the case. 05. The primary question of law which requires consideration in this ITA is whether a case for imposition of penalty on the facts disclosed and found under section 271 (1) (c) of the Income Tax Act for the Assessment year 1992-93 to the extent of the Rs. 3,53,38,900/- is made out? 06. Undisputedly the respondent received US$.1118000 equivalent to Rs. 2,88,51,613/- in AY 1992-1993 and thereafter further received Rs.2,29,50,782/- in the AY 1993-94 thus in total received of Rs.5,18,02,396/- from Michelin Foreign Collaborator. According to the assessee the amount was received on extinguishment of rights and claims from a foreign collaborator and hence declared in ITR as capital receipt. According to the appellant, the respondent deliberately shown these receiving of the amount of Rs.5,18,02,396/- as capital receipt. It is further submitted by the learned counsel for the appellant the respondent was having knowledge of the real nature of the transaction i.e. nature of such damage and the receipt, therefore ought to have correctly shown in the returns, thus the assessee furnished inaccurate…

Operative decision and relief

Rs.3,53,38,900/- has been imposed. 2.8. Being aggrieved aforesaid order, an appeal i.e. Appeal No.IT – 316/2001 – 02/343 was filed before the CIT which was partly allowed vide order dated 15.03.2002. Being aggrieved by the aforesaid, the appeal filed by the respondent/assessee i.e. ITA No. 284/IND/02 has been partly allowed by giving a finding that basic information about the claim had been disclosed by the assessee and since the matter was debatable, it cannot be termed as concealment on the part of the assessee with its deliberate action for evasion of demand of tax. So far as the appeal filed by the appellant i.e. ITA No.339/IND/02 is concerned, the same has been rejected. 2.9. Being aggrieved by the aforesaid order, the appellant's IT department has preferred the present appeal. Vide order dated 28.04.2004, this appeal was admitted on the following substantial question of law:- “1. Whether the ITAT was justified in setting aside the penalty imposed upon the assessee U/s 271(1)(c) by holding that since the assessee had disclosed the basic information necessary for adjudicating the claim of the assessee and since the matter in question had become debatable no case of concealment…

Ratio and legal principle

• The packaged judgment addresses CIT Indore Vs S Kumars Tyres Manufacturing Co Ltd (Madhya Pradesh High court) Date-4th November,2022 Sub-Whether there can be any penalty u/s 271(1)(c) in respect of a debatable issue? The Division bench of Madhya Pradesh High Court was considering department’s appeal when ITAT had given relief to the assessee by holding that there could not have been penalty u/s 271(1)(c) in respect of an amount of Rs 5.18 crores which was claimed as capital receipt while filing return of income but was not accepted till high court level and was adjudicated to be revenue receipt. The High court accepting arguments of the…. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with cit indore vs s kumars tyres manufacturing co ltd (madhya pradesh high court) date-4th november,2022 sub-whether there can be any penalty u/s 271(1)(c) in respect of a debatable issue? the division bench of madhya pradesh high court was considering department’s appeal when itat had given relief to the assessee by holding that there could not have been penalty u/s 271(1)(c) in respect of an amount of rs 5.18 crores which was claimed as capital receipt while filing return of income but was not accepted till high court level and was adjudicated to be revenue receipt. the high court accepting arguments of the… Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
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Case network

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