Jindal Steel & Power Limited New Delhi

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IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: ‘D’: NEW DELH

BEFORE SH. C.M. GARG, JUDICIAL MEMBER
AND
SH. O.P. KANT, ACCOUNTANT MEMBER

ITA Nos. 3052/Del/2014
Assessment Year: 2008-09
M/s. Jindal Steel Power Ltd., Vs. ACIT, Hisar
Jindal Centre, 12, Bhikaji Cama
Place, New Delhi
(PAN: AAACJ7097D)
(Appellant) (Respondent)

Appellant by Sh. Ajay Vohra, Sr. Advocate, Sh. Rohit
Jain & Sh. Deepesh, Advocates
Respondent by Sh. Ashok Manchanda, Standing Counsel
and Sh. A.K. Arora, CIT(DR)

Date of hearing concluded on 07.03.2016
Date of pronouncement 31.03.2016

ORDER
PER O.P. KANT, A.M.:

This appeal of the assessee is directed against order dated 13/03/2014 of
passed by the learned Commissioner of Income-tax(Appeals), Rohtak, sustaining
the penalty levied under section 271(1)(c) of the Income-tax Act, 1961 (for short
“the Act”) by the Assessing Officer. The grounds of appeal raised by the assessee
are as under:
“1 That on the facts and in the circumstances of the case and in law, the
CIT(A) erred in upholding the action of the Assessing Officer in
levying penalty of Rs. 28,24,94,177/- u/s 271(1)I(c) of the Income Tax
Act’ 1961 (“the Act”), which is illegal and bad in and law.
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1.1 That on the facts and in the circumstances of the case and in law, the
CIT(A) erred in upholding the aforesaid action of the Assessing
Officer, without appreciating that the penalty order was passed in
undue haste resulting in avoidable multiplicity of proceedings, which
is unwarranted in law
1.2 That on the facts and in the circumstances of the case and in law, the
CIT(A) erred in upholding the aforesaid action of the Assessing
Officer, without appreciating that the penalty order was passed
without affording reasonable opportunity of being heard to the
appellant.
1.3 That on the facts and in the circumstances of the case and in law, the
CIT(A) erred in upholding the aforesaid action of the Assessing
Officer, without appreciating that the penalty order was passed solely
on the basis of findings recorded in assessment order, without any
independent application of mind.
Without prejudice
2 That the CIT(A) erred on facts and in law in upholding the action of
the Assessing Officer in levying penalty under section 271(1)(c) of the
Act in respect of the addition of Rs. 81.59 crores made on account of
sales tax incentive/subsidy holding the same to be merely notional
and/or revenue in nature, as against the same being claimed as
capital receipt by the appellant
2.1 That the CIT(A) erred on facts and in law in upholding the penalty
imposed, without appreciation that the above addition was, itself, in
the first place, erroneous and therefore, there was no warrant to levy
any penalty in respect of the same under section 271(1)(c) of the Act.
2.2 That the CIT(A) erred on facts and in law in upholding the penalty
imposed, without appreciating that: (i) there was no concealment or
furnishing of inaccurate particulars of income qua the aforesaid
addition; and (ii) the said addition was made only on account of
difference of opinion between he appellant and the Assessing Officer.
2.3 That the CIT(A) erred on facts and in law in upholding the penalty
imposed by alleging that: (a) the appellant give inadequate
explanations; (b) the action of the appellant in changing the method
of accounting in respect of subsidy was not bona fide.
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2.4 That the CIT(A) erred on facts and in law in upholding the penalty
imposed solely on the basis of observations of the Assessing Officer in
penalty order, without judiciously considering the detailed
submissions filed by the appellant.
2.5 That the CIT(A) erred on facts and in law in upholding the penalty
imposed without considering the binding decisions wherein in the
context of similar addition made it has been held that penalty is not
leviable.
3 That the CIT(A) erred on facts and in law in upholding the action of
the Assessing Officer in levying penalty under section 271(1)(c) of the
Act in respect of the addition of Rs. 88,00,001/- on account of
provision for gratuity, which was inadvertently not added back in the
computation of taxable income for the relevant assessment year.
3.1 That the CIT(A) erred on facts and in law in upholding the penalty
imposed, without appreciating that the above addition was made on
account of a bonafide/clerical mistake, which was suo motu accepted
by appellant in quantum as well as penalty proceedings, and no
appeal in respect of such disallowance was filed by appellant.
3.2 That the CIT(A) erred on facts and in law in upholding the aforesaid
action of the Assessing Officer, without appreciating that there was no
concealment or furnishing of inaccurate particulars of income qua the
aforesaid disallowance.
4 That the CIT(A) erred on facts and in law in upholding the action of
the Assessing Officer in levying penalty under section 271(1)(c) in
respect of the addition of Rs. 49,41,849/- on account of provision for
gratuity under section 40A(7) of the Act
4.1 That the CIT(A) erred on facts and in law in upholding the penalty
imposed by the Assessing Officer, without appreciating that the
aforesaid addition was itself legally unsustainable in as much as the
aforesaid amount was already added back in the computation of
income and therefore, there was no warrant to levy any penalty in
respect of the same under section 271(1)(c) of the Act.
4.2 That on the facts and in the circumstances of the case, the CIT(A)
erred in law in upholding the aforesaid action of the Assessing
Officer, without appreciating that there was, in any case, no
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concealment or furnishing of inaccurate particulars of income qua
aforesaid addition and, therefore, there was no warrant to levy any
penalty under section 271(1)(c) of the Act.
5 That the CIT(A) erred on facts and in law in upholding the action of
the Assessing Officer in levying penalty under section 271(1)(c) in
respect of disallowance of Rs. 5,91,106/- on account of additional
depreciation claimed by the appellant under section 32(1)(iia) of the
Act, in respect of computer software ‘Primeavera’.
5.1 That the CIT(A) erred on facts and in law upholding the aforesaid
penalty, without appreciating that the disallowance of additional
depreciation in respect of computer software ‘Primavera’ was itself,
in the first place, erroneous and therefore, there was no warrant to
levy any penalty in respect of the said disallowance under section 271
(1)(c) of the Act.
5.2 That the CIT(A) erred on facts and in law in upholding the aforesaid
action of the Assessing Officer, without appreciating that (u) there
was no concealment or furnishing of inaccurate particulars of income
qua appellant’s claim of additional depreciation in respect of
computer software ‘Primavera’; and (ii) the disallowance was made
only on account of bonafide difference of opinion between the
appellant and the Assessing Officer, and, therefore, there was no
warrant to levy any penalty under section 271(1)(c) of the Act.
5.3 That the CIT(A) erred on facts and in law in upholding the aforesaid
action of the Assessing Officer without appreciating that the above
claim of depreciation was made by appellant on the basis of a
professional advise and, therefore, there was no warrant to levy any
penalty under section 271(1)(c) of the Act.”

2. The relevant facts are that in an order of assessment dated 19.9.2013 u/s
143(3) read with section 263 of the Act, the income of the appellant company was
determined at Rs. 909,65,19,961/- by making following additions:
a) Rs. 81,58,94,102/-; addition on account of sales tax ‘Subsidy’;
b) Rs. 1,37,41,850/-; addition on account of disallowance u/s 43B of the
Act; which according to the assessee consist of Rs. 88,00,001 gratuity
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transferred to reserve account and Rs. 49,41,849 gratuity disallowed
under section 40A(7) of the Act and
c) Rs. 5,91,106/-; addition on account of disallowance of additional
depreciation on computer software

3. Simultaneously, penalty proceeding u/s 271(1)(c) of the Act were initiated
on account of concealment of income as well as for furnishing of inaccurate
particulars of income by the assessee company. A detailed show cause notice
dated 19.9.2013 was issued and served on the assessee company. The assessee
vide reply dated 24.10.2013 prayed for keeping the proceedings in abeyance, by
making a reference to provisions u/s 275(1A) of the Act. The AO however
intimated that it would not be possible to keep the penalty proceedings in abeyance
till the disposal of appeal against quantum additions, pending before the CIT(A).
Further in the written reply dated 24.10.2013 and 15.11.2013 assessee contended
that notice is defective as it does not indicate the additions for which the notice is
issued and what are the defaults and what are the inaccurate particulars with details
of such particulars of concealment of income; submissions were made to the effect
that there was no justification for imposition of penalty. Subsequently in an order
dated 28.11.2013, the AO levied penalty of Rs. 28,21,94,177/- u/s 271(1)(c) of the
Act in respect of additions made in the order of assessment, which was confirmed
in an order dated 13.3.2014 by ld. CIT(A), Rohtak. Hence, this appeal before us.
4. At the time of hearing, the Ld AR of the assessee referring to the application
of the assessee for admission of additional evidence containing a certificate dated
6th
May 2015 issued by the Tax Auditor of the assessee, certifying that provision of
gratuity amounting to Rs. 88,00,000/- , which was credited to the general reserve
during the previous year relevant to the assessment year 2008-09 , was
inadvertently, not separately reported in the Tax Audit Report of the year,
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submitted that the additional evidence may be admitted as same could not be
produced before the lower authorities. The ld AR further submitted that said
document / certificate filed was only in support of the repeated averment of the
assessee before the lower authorities. The learned AR also relied on the judgement
of the Hon’ble Delhi Court in the case of CIT Vs Text Hundreds India Pvt Ltd 239
ITR 263 . The ld. counsel of the Revenue on the other hand opposed admission of
the certificate as additional evidence. We have heard the rival submission of the
parties on the issue and perused the material on record. We are of the opinion that
certificate is directly related to the issue of gratuity amount of Rs. 88.00 lakhs,
which is included in amount of gratuity of Rs. 1,37,41,850/- on which penalty is
levied and the assessee has taken the same as one of the ground before us. We hold
that document is necessary for proper adjudication of the matter, therefore we
admit the same.
5. The Grounds No. 1 to 1.3 challenge the action of the AO in levying penalty
u/s 271(1)(c) of the Act on the ground that penalty order was passed in undue haste
resulting in avoidable multiplicity of proceedings which is unwarranted in law. It
has been contended that penalty order was passed without affording reasonable
opportunity of being heard to the assessee and without any independent application
of mind.
5.1 Before us the learned AR for the assessee submitted that the assessee vide
letters dated 4.10.2013, 24.10.2013 and 8.11.2013 had requested the Assessing
Officer to keep the penalty proceedings in abeyance till disposal of assessee’s
appeal against section 263 proceedings by the Tribunal. It was submitted that in the
said letters, it was also informed to the Assessing Officer that the appellant was in
process of filing an appeal against fresh assessment order passed u/s 143(3)/263 of
the Act before the CIT(A). It was submitted on merits that the Assessing Officer
for reasons best known to him, rejected the aforesaid application filed by assessee
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and directed the assessee to furnish submissions on merit. It was also submitted
that the aforesaid action of the Assessing Officer in hastily proceeding to pass the
penalty order, without waiting for adjudication of quantum proceedings was
unjustified and erroneous in terms of proviso to clause (a) to sub section (1) of
section 275 of the Act. Reliance was placed on the judgments in the cases of CIT
v Surendra Gulabchand Modi 140 ITR 517 (Guj) and CIT v Wander (P) Ltd. 358
ITR 408 (Bom). It was submitted that since the penalty order was passed by the
Assessing Officer on the basis of findings given in the fresh assessment order,
which in turn is based on the order passed under section 263 of the Act, without
any independent application of mind and without considering that the penalty
proceedings are separate and independent from assessment proceedings, the said
penalty order is bad in law. It was, therefore, submitted that upholding by the
CIT(A) of the validity of penalty order passed by the Assessing Officer u/s
271(1)(c) of the Act, is without jurisdiction, illegal and bad in law and,
consequentially, the penalty levied therein is deleted.
5.2 The learned counsel for the Revenue supported the action of the Assessing
Officer and CIT(A) on the ground that there was nothing in law which prevented
the Assessing Officer from passing the order u/s 271(1)(c) of the Act till the
disposal of appeal by the CIT(A). It was further submitted that there was no merit
in the submission of the appellant that the order imposing penalty has been framed
without application of mind by the Assessing Officer.
5.3 Having considered the rival submissions, we are in agreement with the
conclusion of the authorities below that there is no bar in law to await the decision
of quantum appeal to levy the penalty. None of the judgments support the
proposition canvassed by the assessee. The judgments in the case of CIT v
Surendra Gulabchand Modi (supra) and CIT v Wander (P) Ltd. (supra) were
rendered in the context of pendency of appeal proceedings arising from orders
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imposing penalty, so as to await the disposal of the quantum proceedings which is
not the contention raised in this appeal. So far as the arguments on merits of the
levy of penalty, those have been considered independently while disposing the
remaining grounds in this appeal. With these observations, we dismiss grounds 1 to
1.3 of the appeal.
6. The Grounds No. 2 to 2.5 challenge the conclusion of the CIT(A) in
upholding the action of the Assessing Officer in levying penalty u/s 271(1)(c) of
the Act in respect of the addition of Rs. 81.59 crores made on account of sales tax
incentive/subsidy holding the same to be merely notional and/or revenue in nature,
as against the same being claimed as capital receipt by the appellant.
6.1 The relevant portion of the show cause notice u/s 271(1)(c) of the Act dated
19.9.2013 in respect of the above issue of sales tax subsidy is as under:
“13.2 For the sake of convenience, the relevant portion of show-cause
notice dated 19.09.2013, in relation to the Issue of keeping sales proceeds
amounting to Rs.81.59 crore out of tax net in the garb of hypothetical Sales
Tax ‘Subsidy is reproduced below :-
“2.1 It was noticed that Rs.81.59 Cr. was shown as ‘Sales Tax Subsidy’ –
‘Capital Reserve’ under the head ‘Reserves and Surplus’ in Schedule-2 of the
Balance-Sheet as on 31.03.2008. It was also noticed that this was the first
year of such practice (of taking ‘Sales Tax Subsidy’ to the reserve).
2.2 The close scrutiny revealed that this money was not received from the
State Govt. In fact, one industrial unit of the assessee company has been
.granted exemption, from levy of sales tax. The assessee, therefore, raised
invoices on purchasers of the material (manufactured by the said industrial
unit) without any component of sales tax In it. During the year, in normal
course, the entire amount of sales proceeds were credited as revenue to the
Profit & Loss account. However, at the financial year end (taxable) profit
has been reduced by passing Journal entry for appropriation (Rs.81.50
crore) as ‘Sales Tax Subsidy’.
2.3.1 It was seen that this Sales Tax exemption has been available to
assessee in earlier years also, but there was.-no practice to take a part of
sales (treating it, in the year end, as ‘Sales tax Subsidy’) to the Balance
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Sheet. Instead, a deduction of equivalent was being claimed as deduction at
the time of computation of income (which was being disallowed by the
revenue).
2.3.2 Although, there was clear deviation from the practice being followed
earlier and the case was under scrutiny, however, assesses made no explicit
attempt to &Taw attention of the department that a different treatment has
been given to this issue, for the first time. Therefore, Issue escaped attention
of the ‘department at the time of (regular) assessment u/s 143(3) dated
27.12.2010. Later on, through the process of proceedings u/s 263, the issue
was restored back to the file of AO by CIT, Hisar vide his order Ws 263
(dated 25.03.2013) for fresh examination / assessment.
2.4 In the (re-) assessment u/s 143(3) r.w.s. 263; the issue has been
considered in detail and as discussed in the assessment order dated
17.09.2013, the amount under consideration (Rs. 81.53 Cr.) was found to be
taxable.
2.5.1 It is seen during the (re) assessment proceedings (u/s 143 r.w.s. 263)
that in earlier years, in order to avoid payment of due taxes, assessee
stretched its imagination and came out with innovative device in form of
assuming (non-existent) ‘subsidy’ & claiming a deduction at the stage of
computation (deduction at the stage of computation of Income is not
envisaged in the scheme of the Income Tax Act). Noticing that the device has
caught attention of the department (department disallowed the claim of the
deduction, year after year), this year, the ‘assessee came out with the
amendment in the tax avoiding device, In form of the practice to take the
(imaginary) part of the sales proceeds to the Balance sheet(reserve) and
treated it as non-taxable: As a result, the purpose of avoiding tax payment is
served without making a claim at the stage of computation of Income.
2.5.2 It was only due to departmental proceedings (u/s 263 and subsequent
proceedings u/s 143(3) r.w.s. 263) that all the facts relating to the said
income and material to the computation of total income of the assessee were
brought on record/noted/discovered. {For instance, the facts that (I) this
money was not received from the State Govt., It is actually part of the price
(sales proceed) received In lieu of transfer of property In goods, (ii) during
the year the entire sales proceeds are credited to the (credit side of) profit
and loss account a revenue / trade receipts and (Iii) the notification granting
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exemption from the sales tax to the assessee is not linked to any ‘scheme’ of
giving money (subsidy), directly or indirectly).
2.6 During the assessment proceedings (u/s 143 r.w.s. 263), the explanations
offered by the assesses in this regard were found to be without any basis/ un-
convincing/ un-acceptable/ un-substantiated and hence, were rejected.
2.7.1 In view of the above, it is clear that the assessee not only furnished
inaccurate particulars of the income to the above extent of 81,58,94,102/-
but also concealed particulars of income to the said extent
2.7.2 The assesses has failed to substantiate the explanations offered by it.
The assessee also, failed to discharge the onus, cast upon It by the law, to
prove that the explanations were bona-fide. Also, assessee did not discharge
the onus, cast upon it by the law, to prove that all the facts relating to the
said income an material to the computation of total income of the assessee
have been disclosed by the assessee, On the contrary, as may be seen from
the above, assessee did not specifically point out the deviation, in the
practice, made for the first time. It is also clear that all the facts relating to
the said income and material to the computation of total income of the
assessee were not disclosed by the assessee but the department had to
discover them by way of proceedings u/s 263 and 143(3) r.w.s. 263.
2.7.3 Therefore, assessee is liable for penalty under the (general)
provisions of section 271(1)(c) of the Income Tax Act, 1961 as well as by it,
mischief of (deeming) provisions under Explanation 1 to the said section?”
6.2 The assessee during the penalty proceedings contended in reply that change
of accounting treatment was disclosed (during the original assessment
proceedings), vide letter dated 8.2.2010 because alongwith the said letter, a copy of
balance sheet was filed which makes a mention of accounting treatment of the said
‘sales tax subsidy’. Reference was to Point No. F of Schedule 2 and Point NO. 5
of Schedule 20 of the balance sheet and point (d) of the audit report. The AO held
that it was only about 1% of the cases which were required to pass through the
process of the scrutiny; and even under the scrutiny the principle was basically test
check and it was neither possible nor expected to examine each and every aspect in
scrutiny, specially, in the cases like that of present assessee who had turnover of
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about Rs. 50 thousand crores. He held that such assessee have full-fledged
taxation department and luxury of services of well qualified professionals and
therefore, it was expected of the assessee to file accurate particulars of income and
expressly disclose each and every issue which has even smallest possibility of
dispute in/alongwith the return of income. Apart from the above it has been
highlighted that sales tax exemption has been available to the assessee in earlier
years also but upto assessment year 2007-08, there was no practice to transfer a
part of sales (treating it, in the year end, as ‘sales tax subsidy’) to the balance sheet.
Instead (upto assessment year2007-08) equivalent amount was being disallowed by
the revenue. The AO held that ITAT in its judgment dated 22.2.2013 in the
assessment year 2004-05 approved the stand of the department regarding taxability
of so called ‘sales tax subsidy’ as revenue receipt and there has been no change in
the nature of receipt in the year under consideration as compared to the earlier
years where the deduction on account of said hypothetical ‘sales tax subsidy’ was
being claimed by the assessee in the computation of income. It was thus concluded
that reasons behind the mentioning of above receipt in the schedule attached to the
balance sheet are self speaking and had the conduct of the assessee been honest, it
was quite expected of the assessee that such an important deviation in the practice
adopted in earlier years should have been mentioned as a note accompanying the
computation of income. Further the AO held that letter dated 12.11.2010 in the
original assessment proceedings was only in respect of amount of Rs.
48,39,36,937/- which comprised of two figures (i) Rs. 17,28,48,148/- for entry tax
subsidy and (ii) 31,10,88,789/- for electricity duty subsidy. The AO thus has held
that;
“a) The preposition that the sales proceeds contain (hypothetical) sales
tax ‘Subsidy’ is a stretch of imagination apparently to evade tax.
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b) The assessee changed its method of accounting for sales – tax
‘Subsidy’, in the year under consideration apparently with the malifide
intention of escaping the issue from the notice of the revenue.

c) There was a calculated attempt though unsuccessful, to evade the
payment of tax on the amount which was part of sales proceeds but termed
as ‘sales tax subsidy’ and reduced from taxable profit by passing journal
entry having effect of taking amount of Rs. 81.59 crores out of tax net.”

6.3 The Assessing Officer observed that above route was adopted by the
assessee to escape the detection of the issue of taxability of part of sale proceeds by
the department and assessee and in fact succeeded in its attempt in the first stage
i.e. original assessment proceedings. It was only at the subsequent stage that the
matter came to the notice of the department and proceedings u/s 263 were initiated.
He has thus held that assessee made futile attempts but failed to pinpoint any
cogent material which could indicate that the sales tax exemption was granted by
the state government as alternative method of providing money and case of the
appellant was clearly covered by provisions of (A) and (B) part of above said
Explanation 1 to the section 271(1)(c) of the Act.
6.4 The CIT(A) has upheld the penalty by holding as under:

“This issue has been discussed at length by the AO in order levying penalty.
He has also shown how the case laws relied upon by the appellant have no
bearing of the case. I, too agree that the assessee has tried to shield itself, as
far as the issue of Sales Tax Subsidy is concerned, by trying to take shelter
under the plea that the audit report had mentioned the change in
“Accounting Principle” for Sales Tax Subsidy. The appellant has stated that
the change in the accounting standard was explained to the AO. However,
the AO in para 17.4 of his order has pointed out that this explanation was
not a disclosure on treatment of Sales Tax Subsidy adopted in the year under
consideration but was an explanation of the deduction claimed in the
computation of income in respect of Entry Tax Subsidy and Electricity Duty
Subsidy.
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To say, therefore, that the assessee had made a material disclosure is not a
correct presentation of facts. It is a fact, that this issue came up only after an
examination of record by the Ld. CIT, Hisar in the proceeding u/s 263 of the
IT Act. But, for this fact, this entire amount would have escaped being taxed.
The assessee is merely engaging in a play on semantics to absolve itself of
the fact that it was covering of its act in having deviated from its previous
method of accounting. Paras 14.1 to 14.6.2 of the penalty order has dealt
with how the assessee’s attempts at seeking to evade payment of tax on the
amount which was part of sales proceeds but termed as “Sales Tax Subsidy”
by reducing it from taxable profit through passing of a general entry having
an overall effect of taking Rs. 81.59 Crores out of the tax net. Therefore, in
the entire proceedings, the appellant has been trying to cloud the issue by
taking recourse to inadequate explanation. Mens rea has been proved in this
case without doubt. Hence, this ground of appeal is dismissed.”

6.5 Before us, the learned Authorized Representative submitted as under:

“a) Addition made by the Assessing Officer in the assessment order on
account of treatment of sales tax incentive is not sustainable in the first
place;
b) No concealment/furnishing of inaccurate particulars of income in the
present case, since appropriate disclosures of the accounting treatment in
respect of sales tax incentive were given in the notes forming integral part of
the audited financial statements as well as by the statutory auditor in the
audit report;
c) Non inclusion of the amount of sales tax subsidy was specifically
mentioned by the tax auditor in point no. 13(e) in Form No. 3CD for the
year under consideration;
d) Elaborate reply/submissions were filed by the appellant during the
quantum proceeding, not only setting out complete facts with regard to the
claim made and the accounting treatment followed in respect of the sales tax
incentive/subsidy, the non taxability of the same was duly supported by
elaborate reasoning/justification;
e) The claim of the appellant is duly supported by various judicial
precedents wherein the various courts and the Special Bench of the Tribunal
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have upheld the appellant’ claim of incentive/subsidy received in the form of
exemption from sales tax to be in the nature of capital receipt, not liable to
tax under the provisions of the Act;
f) The issue of taxability of sales tax incentive/subsidy is, in any case, a
highly debatable/contentious legal issue, giving rise to substantial question
of law on which no penalty is leviable in view of the decision of
jurisdictional High Court in the case of Gurdaspur Cooperative Sugar Mills
(supra)”

6.6 Before us, the learned counsel for the assessee further submitted that appeal
filed by the assessee against the ITAT order for AY 2004-05 stands admitted
before the Hon’ble High Court of Punjab and Haryana on 28.7.2014 evidencing
that the said issue involves determination of a substantial question of law. Likewise
appeal filed by assessee for assessment years 2002-03 and 2005-06 stands admitted
vide order dated 16.12.2014. It was thus contended that issue of sales tax subsidy
is a vexed legal issue giving rise to substantial question of law and therefore once
appeal on a particular issue is admitted by High Court, it demonstrates that the said
issue was debatable and accordingly, no penalty is leviable for disallowance made
in respect of such issue. Reliance was placed on the judgment of Delhi High Court
in the case of CIT vs. Basti Sugar Mills Co. Ltd. ITA No. 232/2005 (Del), CIT vs.
Liquid Investments Ltd. ITA No. 240/2009 and CIT v HB Leasing and Finance
Co. Ltd. 334 ITR 367. It was further submitted that even otherwise since the issue
is highly debatable legal issue therefore no penalty is leviable in view of the
judgment of Apex Court in the case of CIT v Reliance Petrporducts (P) Ltd. Ltd.
322 ITR 158. It was also contended that the aforesaid claim made by the appellant
was very much within the knowledge of the Assessing Officer, since the same was
specifically disclosed and discussed by assessee before the Assessing Officer
during the course of assessment proceedings in the manner hereunder:
a) In the audited accounts for the relevant assessment year, the incentive
availed by the applicant on account of sales tax exemption, being in the
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
nature of capital receipt, was separately shown as under the sub-head “Sales
Tax Subsidy/ Capital Reserve” in Schedule 2 ” Reserve and Surplus”. The
aforesaid accounting treatment, it is submitted, was done strictly in
compliance with the AS-12 dealing with ‘Accounting for Government
Grants” issued by the ICAI read along with the opinions on the subject of the
Expert Advisory Committee and reported in the compendium of opinions.
b) The aforesaid accounting treatment was duly explained vide note No.5
of Notes to Account in Schedule- 20, forming part of audited financial
statements, as under:
“5 One of the Company’s expansion units is eligible or sales tax
exemption owing to the investment in capital assets under the State
Industrial Policy which aim towards the objective of industrialization of the
state and development of backward areas. The period of exemption is linked
to the quantum of investment. The company has been advised that the
element of sales tax included in the sales price of products sold out of this
unit is in the nature of sales tax subsidy granted by the State Government.
Accordingly, the same amounting to Rs.81.59 crore has been accounted for
during the year under sales tax subsidy Reserve account.”
c) Further, specific reference of the accounting treatment for sales tax
incentive was also made by the statutory auditor vide point No. (d) of the
Audit Report:
“(d) In our opinion and read with note 5 of Schedule 20 regarding
accounting, for tax included in sales price of product sold out of sales tax
exempted unit tinder Sales Tax Subsidy Reserve account, the Balance Sheet,
Profit & Loss Account and Cash Flow Statement, dealt with by this report,
comply with the Accounting .Standard referred to in sub-section (3C) of
section 211 of The Companies Act., 1956.
d) In Tax Audit Report also there is a complete and full disclosure vide
point No. 13(e) of Form 3CD wherein against the particulars of amount not
credited to Profit & Loss Account being capital receipt, if any, it is clearly
mentioned that “Sale Tax Subsidy Rs.81,58,94,102.34 (refer note no.5 of
schedule 20(B) of Final Accounts)”.

6.7 Reliance was also placed on the judgment of Hon’ble Delhi High Court in
the case of Sak Industries Ltd. v DCIT 363 ITR 378 to contend that disclosure
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
made in the schedule/notes to accounts forming part of the audited financial
statements, amounted to full and true disclosure, in the context of applicability of
proviso to section 147 of the Act. It was submitted that no penalty is imposable in
respect of an incorrect claim of deduction, provided all facts in respect of such
claim were disclosed before the Assessing Officer. Reliance in support was drawn
from the judgement in the case of CIT v Nath Brothers Exim International Ltd. 288
ITR 670 (Del) and the list of case as noted in the written submission. The assessee
further contended as under:
“It is also pertinent to note that the aforesaid claim of sales tax incentive/
subsidy received by the appellant is not a claim made for the first time
during the relevant assessment year, but, the same was made and also duly
considered by Assessing Officer in the earlier assessment years, as
demonstrated hereunder:
a) The aforesaid claim was, for the first time, made in the assessment
years 2002-03 to 2004-05. In fact, in the said assessment years, exemption of
sales tax incentive was claimed as capital receipt by way of additional
ground of appeal before the CIT(A), since the time limit for filing revised
return had expired.

The application so filed by the appellant for admission of additional grounds
was forwarded to the Assessing Officer for comments and separate remand
reports were received for the said assessment years.

Thereafter, on receipt of the remand reports, the CIT(A) did not adjudicate
the issue of taxability of sales tax incentive on the ground that the claim was
not made by way of filing revised return within the time stipulated under the
provisions of the Act.

b) During the assessment proceedings for assessment year 2004-05, the
claim was made before the Assessing Officer by filing revised computation
of income, since the time for filing the revised return had expired, by relying
on the decision of the Special Bench of the Tribunal in the case of DCIT v.
Reliance Industries Limited: 88 ITD 273.
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
The Assessing Officer, however, did not accept the claim of the appellant on
the ground that the decision of the Special Bench of the Tribunal is not
applicable, since the same was rendered in the context of different scheme.

c) Revised return of income under section 139(5) of the Act was filed by
the appellant for the assessment years 2005-06 and 2006-07 for specifically
making the aforesaid claim, which was not taken in the original return.

The Assessing Officer, in the assessment order, for the said years, however,
did not agree with the claim of the appellant and held that the sales tax
incentive to be in the nature of revenue receipt and not capital receipt, as
claimed by the appellant.

d) In the original return of income for the assessment year 2007-08, the
sales tax incentive was, in the computation of income, separately claimed to
be excludible from the taxable income.

On a bare perusal of the computation of income for the said assessment
year, the claim made by the appellant is patently noticeable.

In fact, in the assessment order for the assessment year 2007-08, the
Assessing Officer, following his order in the earlier year, did not agree with
the claim of the appellant and held sales tax incentive to be in the nature of
revenue receipt.”

6.8 The assessee thus prayed that penalty u/s 271(1)(c) of the Act was not
leviable for the following reasons:
“(a) Addition made by the Assessing Officer in the assessment order on
account of treatment of sales tax incentive is not sustainable in the first
place;

(b) No concealment/ furnishing of inaccurate particulars of income in the
present case, since appropriate disclosures of the accounting treatment in
respect of sales tax incentive were given in the notes forming integral part of
the audited financial statements as well as by the statutory auditor in the
audit report;
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
(c) Non-inclusion of the amount of sales tax subsidy was specifically
mentioned by the Tax Auditor in point No.13(e) in Form No.3CD for the
year under consideration;

(d) Elaborate reply/ submissions were filed by the appellant during
quantum proceeding, not only setting out complete facts with regard to the
claim made and the accounting treatment followed in respect of the sales tax
incentive/subsidy, the non-taxability of the same was duly supported by
elaborate reasoning/ justification;

(e) The claim of the appellant is duly supported by various judicial
precedents wherein the various Courts and the Special Bench of the
Tribunal have upheld the appellant’s claim of incentive/ subsidy received in
the form of exemption from sales tax to be in the nature of capital receipt,
not liable to tax under the provisions of the Act;

(f) The issue of taxability of sales tax incentive/subsidy is, in any case, a
highly debatable/ contentious legal issue, giving rise to substantial question
of law on which no penalty is leviable in view of the decision of
jurisdictional High Court in the case of Gurdaspur Co-operative Sugar
Mills (supra).”

6.9 It was thus submitted that penalty levied on addition of incentive on account
of sales tax exemption is erroneous and calls for being deleted.
6.10 The learned counsel of the Revenue relied upon the order imposing penalty
and order of CIT(A) upholding the penalty to contend that levied was in
accordance with law. He further submitted that since 01-06-2006, the provision of
section 139 has under gone change and from AY 2008-09 onward, the assessee
was not required to enclose the balance sheet and other financial statement
alongwith the return as the return of income was filed electronically, and therefore,
the disclosure of the sales tax exemption, was to be made fully in relevant columns
of the return of income and the disclosure by the assessee in Notes to Account,
which were part of Annul Report of the assessee company and not part of the
return of income filed by the assessee, was not sufficient for true and full
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
disclosure. He also submitted that the assessee on one hand treated the sales tax
exemption as incentive given to the assessee for capital investment of more than
Rs. 1,000 crores but the assessee did not reduce the said exemption out of the
written down value (WDV) of the assets and thus claimed excess depreciation and
on the other hand also claimed the entire sales-tax exemption amount as capital
subsidy not taxable, and thus the assessee availed double benefit. The ld Counsel
also submitted that the assessee has claimed benefit of deduction under section
80IA/ 80IB of the Act on Electricity Duty and Entry Tax fraudulently despite the
claim of the same as capital receipts. The ld Counsel further relied on judgment of
the Hon’ble Delhi Court in the case of CIT Vs. Zoom Communications P Ltd
(Delhi) 327 ITR 510 , CIT Vs HCIL Kalindee (2013) 37 Taxmann.com 347 and
other judgments, list of which is mentioned in written submission.

6.11 We have heard the rival submissions and perused the material on record. In
the instant case a sum of Rs. 81.59 crores was shown as ‘Sales Tax Subsidy’
‘Capital Reserve’ under the head reserves and surplus in schedule-2 of the balance
sheet as on 31.3.2008. The non inclusion of amount of subsidy was also
mentioned by the Tax Auditor in point No. 13(e) in Form no. 3CD for the year
under consideration. Thus, it cannot be said that there was an absence of disclosure
in respect of the amount of subsidy on the part of the assessee. The contention of
the counsel of the Revenue that the assessee did not reduce the amount of subsidy
from the written down value of the assets in the relevant columns to the return of
income , which amounted to nondisclosure, is also is not acceptable, because the
assessee is treating the subsidy granted for promotion of industry in backward area
of the state as capital receipt and not specifically to meet the cost of the asset.
Further the assessee, is making this claim of capital subsidy not taxable in the
hands of the assessee, for past many years. It is also observed that there is no
change in method of accounting followed by the assessee except change in
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
treatment of the said amount of the subsidy, which too has been claimed as in
compliance of accounting standards . It is well settled law that merely accounting
entries on a particular item cannot determine the nature of the income as per
provisions of income tax act. Further the appeals filed by the assessee against the
order of the Tribunal for AY 2004-05, 2002-03, 2005-06 have been admitted
before the Hon’ble High Court of Punjab and Haryana. In the case of CIT versus
Basti sugar Mills company limited ITA No. 232/2009 and CIT versus HB leasing
and finance Co Ltd 334 ITR 367, the Hon’ble Delhi High Court has held that once
appeal on a particular issue is admitted by the High Court, it demonstrates that the
said issue was debatable and accordingly no penalty is leviable for disallowance
made in respect of such issue. The Ld. counsel of the Revenue, however relied on
the finding of the Delhi High Court in the case of Roger Enterprises P Ltd V/s CIT,
Delhi in ITA No. 439/2003 delivered on 4 th
February, 2016 and submitted that in
para 38 of the judgement it is held that mere pendency of the quantum appeal could
not have led the ITAT to conclude that the issue was debatable.. However, the Ld.
AR of the assessee submitted that the question of law before the Hon’ble High
Court , in the case of Roger Enterprises P Ltd V/s CIT, Delhi (supra) was as
under:
“was the ITAT correct in confirming the order of the CIT (A) deleting
the penalty levied on the Respondent Assessee under section 271 (1)
(c) of the Act”
6.12 The ld. AR accordingly submitted that no question of law has been decided
by the Hon’ble court on the issue whether the pendency of appeal render the issue
debatable and therefore it cannot be followed as question of law decided by the
High Court. We are agreed with the Ld.AR on the issue that in the case of Roger
Enterprises P Ltd V/s CIT, Delhi (supra) ,Hon’ble High Court has not decided the
question of law that admission of an appeal on particular issue does not make the
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M/s. Jindal Steel and Power Ltd.
issue debatable, and hence the ratio laid down in the judgement in the case of CIT
versus Basti sugar Mills company limited (supra) and CIT versus HB leasing and
finance Co Ltd (supra) is still valid. In the case of Basti Sugar Mills Co Ltd
(supra), Hon’ble Court decided a question of law that pendency of appeal before
the High Court rendered the issue debatable. The relevant findings of the Hon’ble
court are as under:
The following questions were framed on 18th October, 2005:-

“(a) Whether the ITAT was correct in law in holding that the issue regarding allowability
of interest payable on late deposit of provident fund was a debatable issue and,
therefore, could not be disallowed in the intimation issued order Section 143(1)(a) of the
Income Tax Act?
(b) Whether the ITAT was correct in law in holding that deleting the addition made by
the Assessing Officer of an amount of Rs 18,02,026/- being interest payable on late
deposit of provident fund under ITA 232/2005 Page 2 of 2 Section 43-B of the Income Tax
Act as the same was not paid during the year?”

Insofar as question (a) above is concerned, we find that the issue regarding allowability
of interest payable on late deposit of provident fund is a debatable issue. This conclusion
of ours is fortified by the fact that the very issue is before us in ITA No.958/2007 in
respect of the very year in question namely assessment year 1998-99. ITA No.958/2007
arises out of the regular assessment completed under Section 143(3) of the Income Tax
Act, 1961 (in short „the said Act). The said question has travelled all the way upto the
Tribunal and is now before us in the said ITA No.958/2007 as well as other connected
appeals being ITA Nos.965/2007, 1248/2007, 646/2009 and 652/2009. It is, therefore,
clear that the issue was debatable and, therefore, could not be disallowed while
considering the intimation under Section 143(1)(a) of the said Act.”

6.13 In the case of CIT versus HB leasing and finance Co Ltd (supra), while
deciding the issue of levy of penalty, the Hon’ble Delhi High Court held as under:

“3. In so far as the claim of deduction under s. 80M of the Act is concerned,
the Tribunal has opined that it was a debatable issue. No doubt, as per the
judgment of the Supreme Court in Punjab Distilling Industries Ltd. (supra),
the claim could not be made unless the amount actually disbursed on the
interpretation of the word “distribution” given by the Supreme Court
therein, the question in the present case was as to whether the conditions
stipulated under s. 80M of the Act stood fulfilled when the amount in
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
question, which was to be distributed as dividend, was kept aside in a
separate bank account. In the facts of this case, we are of the opinion that
this issue is debatable. We say so because of the reason that not only in the
quantum proceedings the CIT(A) had deleted the additions, even when the
Tribunal reversed the order of the CIT(A) and this Court also dismissed the
appeal of the assessee, the Supreme Court has remitted the case back to this
Court and the issue stands admitted. Once the appeal, i.e., IT Appeal No.
612 of 2004 preferred by the assessee has been admitted that would show
that substantial question of law on the interpretation is involved. The issue
is thus clearly debatable.” ( emphasis supplied)

6.14 Thus, respectfully following, the law laid down in the above judgments of
the Hon’ble Delhi High Court, as appeal on the issue of whether the sales tax
incentive in the case of the assessee is in the nature of Capital or Revenue subsidy
has been admitted by the Hon’ble High Court of Punjab and Haryana, the issue
became debatable, no penalty can be levied on the issue. Further, the assessee has
made sufficient disclosure of the fact of claim of sales tax exemption/ subsidy
before the Assessing Officer. In the same set of facts, the assessee is interpreting,
benefit of sales tax as subsidy or incentive of capital nature, whereas the Revenue
and the appellate authorities including Tribunal has held the benefit of sales tax as
revenue in nature. But, we don’t find that the assessee has concealed or furnished
inaccurate particulars of income on the issue of claim of sales-tax
exemption/subsidy. In the case of CIT versus Zoom communication (p) Ltd (supra)
it is held that if the assessee makes a claim which is not only incorrect in law but is
also wholly without any basis and the explanation furnished by him for making
such a claim is not found to be bona fide, it would be difficult to say that he would
still not be liable for penalty under section 271(1)(c) of the Act , but in the facts of
the case the claim is on the basis of certain notifications and the assessee has
furnished explanations which cannot be said to malafide . In the case of CIT versus
HCIL Kalindee Arsspl (supra) also the Hon’ble court has held that merely because
the assessee complied with the statutory procedural requirement of filing the
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
prescribed form and certificate of the chartered accountant, cannot absolve the
assessee of its liability if the actor attempt in claiming the deduction was not
bonafide. The facts of the case in hand are different from the facts of the case of
CIT versus HCIL Kalindee Arsspl( supra). In the circumstances, we are of
considered opinion, that no penalty for concealment or furnishing of inaccurate
particulars of income on the issue in dispute can be levied under section 271 (1)(c)
of the Act. Accordingly, the relevant grounds of the appeal are allowed.
7. The Grounds No. 3 to 3.2 and 4 to 4.2 relate to levy of penalty on
disallowances of Rs. 88,00,001/- and Rs. 49,41,849/- on account of provision for
gratuity.
7.1 The relevant facts in brief are that pursuant to the order of assessment u/s
263 of the Act disallowance was made of Rs. 1,37,41,850/- on account of provision
for gratuity. The basis of the disallowance was that the Assessing Officer on
perusal of the annual report and tax audit report noted that out of liability (of
gratuity) debited to profit and loss account for the year under consideration (F.Y.
2007-08) Rs. 2.95 crore is outstanding as on 31.3.2008, whereas only Rs. 1.55
crore has been disallowed. Hence the balance is liable for disallowance and
therefore he made disallowance of Rs. 1,37,41,850/- in the order u/s 143(3) of the
Act The AO has held that assessee failed to provide copies of requisite ledger
accounts during the proceedings u/s 263(1) of the Act as well as during
reassessment proceedings and the same were also not furnished during penalty
proceedings u/s 271(1)(c) of the Act. It was also held that during the penalty
proceedings the assessee admitted that amount credited to general reserve of Rs.
0.88 crore had not been added back in computation. It was further held that sum
mentioned in the balance sheet does not automatically bring the same to surface;
and that’s why the issue escaped attention of the AO at the time of (original)
assessment proceedings and claim that amount of Rs. 0.88 crores was inadvertently
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ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
credited to general reserve has not been added back in computation of income and
the mistake was bonafide was rejected. The AO therefore imposed penalty by
observing as under
“15.6 Under the Tax-audit report, there is specific requirement of reporting
the amount of disallowance u/s 43B. However, the incorrect amount has
been reported in this respect (disallowance out of outstanding gratuity). It is
presumed that the figures of outstanding liability are same as per Balance
Sheet as well as Tax audit report. The assessee has advantages of having
full- fledged team of qualified professionals, who are duty bound to
reconcile the two figures. Therefore, in case of discrepancy (between the two
figures). There should have been, not only, reconciliation but also the
reporting of the same (to the revenue). On the contrary, it was noticed that
in –spite of specifically asking for, the assessee not only changed versions
but also, refrained from supplying the copy of ledger account of the liability.
During the proceedings u/s 263 vide order sheet entries dated 17.01.2013
and 08.03.2013,the CIT, Hisar requested the assessee to furnish copy of the
ledger account regarding gratuity but the assessee did not furnish the same.
Also, the assessee refrained from furnishing the same, even before the
undersigned (during proceeding u/s 143(3) r.w.s. 263).

15.7 From the above, it is clear that with regard to the issue of
disallowance of claimed deduction, u/s 43B, on account of provision for
gratuity, the assessee has not only furnished inaccurate particulars of
income but also concealed the particulars of income to the extent of said
addition. The provision of Explanation 1 to the section 271(1)(c), as
reproduced in para 14.6.1, above, are also attracted because the assessee
not only offered false explanation but also offered explanation which the
assessee could not substantiate. The assessee failed to discharge the onus
that explanation was bonafide. The assessee also failed to discharge the
onus that all the facts relating to the same and material to the computation
of its total income has been disclosed.”
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Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) v v v v v Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c) Jindal Steel & Power Limited, tribunal delhi, penallty under sec 271(1)(c)

7.2 Before the CIT(A), the assessee submitted that during the relevant
assessment year pursuant to mandatory actuarial valuation of provision for gratuity
as per revised Accounting Standard-15 issued by the Institute of Chartered
———————Page 25———————

25
ITA No. 3052/Del/2014, AY:2008-06
M/s. Jindal Steel and Power Ltd.
Accountants of India (‘ICAI’) transferred the excess amount of provision of Rs. 88
lacs to general reserve. The said accounting treatment was duly evident from
clause (B) of schedule 2 of audited financial statements. Further detailed note on
accounting treatment accorded by appellant to gratuity during the relevant
assessment year has also been provided in schedule 20(A)(vii)(b) of audited
financial statements. The aforesaid amount of reversal was stated to be
inadvertently on account of clerical mistake, omitted to be added back in the
computation of taxable income for the relevant assessment year. The appellant
during the course of assessment proceedings, vide submission dated 7.5.2013 and
during

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Ashni Shah is pursuing Chartered Accountancy and is currently engaged as Article Assistant at Rasesh Shah and Associates and can be reached at ashnishah2017@gmail.com. She loves Dancing and Gyming.

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