High Court Of Bombay
Jayant Vegoils & Chemicals (P) Ltd. vs. CIT
Section 271(1)(c)
Asst. Year 1980-81
F.I. Rebello & R.S. Mohite, JJ.
IT Ref. No. 39 of 1992
5th February, 2009
JUDGMENT
R.S. Mohite, J. :
The question which has been referred to us under s. 256 of the IT Act is as follows :
“Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee’s case clearly attracted the application of s. 271(1)(c) of the IT Act, 1961 and as a sequel thereto confirming the penalty and further giving directions to the ITO that the quantum be worked out as per the tax ultimately fixed by the Tribunal in assessee’s quantum appeal ?”
The assessment year to which the question pertains is 1980-81. The penalty under s. 271(1)(c) was imposed on 3 items which are as under :
(i) Disallowance of claim of liability on account of L/C opened with Andhra Bank Rs. 9,75,876;
(ii) Disallowance of claim of liability on account of L/C opened with Union Bank of India Rs. 28,89,093;
(iii) Disallowance of fine in lieu of confiscation of goods paid Rs. 14,25,000.As far as item No. (i) which pertains to disallowance of claim of a liability on account of L/C opened with Andhra Bank to the tune of Rs. 9,75,876, our attention is drawn to the fact that this Court in IT Ref. No. 38 of 1989, in respect of the same assessee and same assessment year, has come to a categorical finding in its judgment and order dt. 25th July, 2005 and held that the liability of Rs. 9,75,876 had in fact been incurred.
In viewof this finding, in our view, no penalty under s. 271(1)(c) could be leviable in respect of this item. Insofar as item No. (ii) is concerned, though this was also initially an issue in IT Ref. No. 38 of 1989, in view of the Union Bank of India relieving the assessee from its obligation to pay Rs. 28,89,093, by a Chamber summons which came to be allowed, the assessee prayed for reduction of the income by Rs. 28,89,093. However, the liability in this regard must also be said to have been incurred by the assessee on the same reasoning and grounds as mentioned in the judgment of this Court in IT Ref. No. 38 of 1989. In the circumstances, in our view, no penalty can be imposed in respect of this item under s. 271(1)(c) of the IT Act. Insofar as item No. (iii) is concerned, it appears that the disallowance of fine was made by an order passed by Government of India on 20th March, 1980. It is a factually accepted position that this order was received by the assessee in April 1980 after the assessment year in question had ended. When the returns were filed sometime later in 1980, the assessee was thus in the know of the fact that the fine in lieu of confiscation had been cancelled. It is however, contended before us that the assessee had followed the mercantile system and within the assessment year in question they already had made book entries when the liability to pay the fine had accrued. Counsel further contended that these book entries are reversed only in the subsequent year and the amount was offered to tax in the next year. He contended that at the highest, there would be only an inadvertent error of judgment. On behalf of Revenue, it is accepted that the amount was offered to tax in the next year. In our view, therefore, accepting the contention of the assessee that the lapse was not deliberate and at the highest it could be said to be an inadvertent error of judgment, no penalty ought to have been imposed.
7. In the net result, the question is answered in the negative, in favour of the assessee and against the Revenue. The reference stands disposed of accordingly with no order as to costs.
[Citation : 323 ITR 641]
