Income Tax Appellate Tribunal - Delhi
Arcotech Ltd. (Formerly Sks Ltd.), New ... vs Assessee on 9 June, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL
ITA No. 3890/Del/10
A.Y. 2002-03
Arcotech Ltd., Vs. ACIT Cir. 8(1),
[Formerly SKS Ltd.] New Delhi.
253-A/2, 4th floor, Shahpur Jat,
Opp. Panchsheel Commercial
Complex, New Delhi-110049.
PAN/ GIR No.AAACS2437G
( Appellant ) ( Respondent )
Appellant by : Shri Sanjay Joshi CA.
Respondent : Mrs. Geetmala Mohanany CIT DR
ORDER
PER R.P. TOLANI, J.M::
This is assessee's appeal against CIT(A)'s order dated 9-6-2010, assailing the sustenance of penalty of Rs. 2,13,75,229/-, relating to assessment year 2002-03, levied by the Assessing Officer u/s 271(1)(c) of the Income-tax Act, 1961.
2. Brief facts are: Assessee, formerly known as "M/s SKS Ltd.", filed its return of income declaring loss of Rs. 13,65,54,483/-, supported by audited statement of accounts which was processed u/s 143(1). Thereafter Assessing 2 Officer issued notice u/s 148 and consequent to the assessment, the assessee's loss was reduced to Rs. 7,66,79,891/-. The reduction in loss was on account of following additions/ disallowances:
1. Depreciation on plant & machinery Rs. 89,95,173/-
2. Loss on sale of investments Rs. 59,15,000/-
3. Loss on sale of vehicle Rs. 1,27,900/-
4. Disallowance u/s 43B Rs. 17,325/-
5. Disallowance u/s 43B Rs. 4,48,19,194/-
Rs. 5,98,74,592/-
2.1. Assessing Officer also initiated penalty proceedings u/s 271(1)(c) in respect of above items of additions/ disallowances.
2.2. Against assessment order, assessee preferred appeal in respect of item 2 above i.e. loss on sale of investments. In respect of other items, no appeal was filed. As against the appealed item CIT(A) vide order dated 21-
4-2008 dismissed the same and assessee did not carry the matter further.
2.3. During penalty proceedings assessee pleaded that it was doing very badly on financial front due to which it could not deposit the PF and ESI dues. Auditors reported this fact in the disclosure that the company was sic within the meaning of Sic Industrial Companies (Special Provisions), Act, 1985. The assessee has not filed any inaccurate particulars or concealed any income, therefore, it was not liable for any penalty. Reliance was placed on Hon'ble Supreme Court's judgment in the case of Reliance Petroproducts 322 ITR 158(SC). Assessing Officer , however, held that though the assessed income was in loss, nevertheless there was difference between the returned and assessed loss of the assessee and notional tax sought to be evaded due to difference in assessed and returned loss was subjected to penalty.
32.4. Aggrieved, assessee preferred first appeal, where the same was confirmed. Aggrieved, assessee is before us.
3. Learned counsel for the assessee contends that CIT(A) has mainly dwelt on the legal issues about the levy of penalty on account of difference in returned and assessed loss and the initiation aspects, but on merits the assessee's explanation has not been properly considered. It has not been disputed that the assessee was facing huge losses and as per auditors report, following disclosures have been made by the auditors of the company:
"xiv) According to the records of the company provident fund and employees state insurance dues amounting to Rs.
46,74,283/- have not been deposited with the appropriate authorities.
...
xvi) The company is a sic industrial company within the meaning of the Sic Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)."
3.1. The fact that assessee was a sic company has not been disputed by the department.
3.2. Coming to the item-wise disallowance, following is submitted:
(1) Depreciation on plant & machinery: In assessment year 2000-01, similar type of depreciation claimed by the assessee was disallowed;
in assessee's first appeal before CIT(A) same was upheld; assessee did not carry the matter further. Penalty proceedings were also initiated, assessee explained that all relevant facts were filed along with the return of income. Penalty was however imposed by Assessing Officer; CIT(A) deleted the same. ITAT Delhi Bench 'C' 4 vide order dated 17-7-2009 in ITA no. 3674/Del/2008, dismissed revenue's appeal against deletion of penalty, observing as under:
"5. We have heard the ld. Sr. DR. From the facts noted above, it is clear that the assessee had claimed depreciation on plant and machinery, which was ready for use. Hon'ble Delhi High Court in the case of CIT Vs. Refrigeration and Allied Industries (supra) has held that the phrase "used for the purpose of the business" includes passive user of the assets. For claim of depreciation, two ingredients should be satisfied i.e. the depreciable asset should be owned by the assessee and it should be used for the purpose of business of the assessee. The words 'used for the purposes of business' are capable of a larger and narrower interpretation. If the expression 'used' is construed strictly it could be taken as connoting or requiring the active employment or actual working of the machinery, plant and building in the business. On the other hand, the wider meaning would include not only cases where machinery or plant are actively employed, but also cases where there is passive user of the same in business. An asset could be said to be in use when it is kept ready for use. In the case before us the returned loss of Rs. 11,25,5490/- was assessed at loss of Rs. 8,02,40,150/- meaning thereby that the Assessing Officer had allowed certain expenses while completing the loss returned by the assessee. The assessee had disclosed all assets in the return of income. Under liberal interpretation of word 'used', the depreciation is allowable where machinery is kept ready whereas under
the strict interpretation the actual use of the machinery is necessary for claim of depreciation. Therefore, the claim of depreciation being a debatable issue, penalty under section 271(1)(c) of the Act cannot be imposed though the addition on account of disallowance of depreciation has not been agitated by the assessee before the Appellate Authorities. Accordingly, in our considered opinion, the ld. CIT(Appeals) was justified in deleting the penalty."5
3.3. In this year also, similar facts and circumstances this claim of depreciation was made on the basis of plant & machinery being ready for use as the assessee was looking for revival. It was not worthwhile for the assessee to agitate the matter about claim of depreciation, more so, when the assessee was incurring huge losses and the claim of depreciation at the most would have resulted in carry over unabsorbed depreciation. All these facts about claim of depreciation were on the record filed along with the returns of income and were within the knowledge of the Assessing Officer. Therefore, the penalty should not have been levied on this aspect, as there was proper disclosure of relevant facts. .
3.4. (2) & (3) -loss on sale of investments; & loss on sale of vehicle: It is pleaded that in the original return of income loss was claimed as business loss. During the course of reassessment proceedings it was realized and accepted that the loss on account of sale of such investments and vehicle, were allowable as long term capital loss and not as business loss. The original return was filed accordingly on the basis of professional advice and during the course of reassessment proceedings when facts were properly appreciated. The claim was consequently revised from business loss to long term capital loss. Mere change of head of loss from business to long term capital gain cannot be held as concealment of particulars of income or furnishing inaccurate particulars of such income, more so when all the relevant details were on the record.
3.5. Apropos claim of PF and ESI, it is pleaded that in the audit report itself, assessee hade voluntarily disclosed that all these payments were not paid in the govt. treasury due to the paucity of funds. Therefore, the claim in 6 P&L A/c cannot be considered excluding all other disclosures. It has not been disputed that due to non payment of fee, assessee had to change the Chartered Accountant, which became a reason for some of the disallowances. The facts being on record, the same cannot be subjected to penalty.
3.6. Apropos 43B claim, the assessee produced a copy of the revised return prepared by its Chartered Accountant Mr. Tulisan who had prepared the revised return. Due to the dispute in respect of professional fee, revised return was not filed and these facts were brought to the notice of Assessing Officer at the time of reassessment.
3.7. It is pleaded that assessee had no intention what so evade to evade or avoid any tax. The assessee was a sic company and all these claims could at the best reduce the amount of assessed loss with no immediate revenue implications. Proper disclosures having been made in the return of income and being on record, it is pleaded that the concealment penalty cannot be imposed in the case of the assessee. Reliance is placed on Supreme Court judgment in the case of Reliance Petroproducts (supra).
4. Ld. DR, on the other hand, contends that though the assessee was claiming to be within the meaning of Sic Industrial Companies (Special Provisions) Act, during the year the assessee company was under
rehabilitation as it had to close its manufacturing unit being polluted industry, as per the directions of Hon'ble Supreme Court. The assessee, was therefore, not eligible for any claim of deprecation. The claim of sale of 7 investment and vehicle, were clearly capital loss which were wrongly claimed as business losses in the return of income.
4.1. Similarly, prima facie disallowable claims i.e. in respect of PF, ESI and 43B items have been claimed. The assessee's case falls within the ratio of decisions in the cases of CIT Vs. Escort Finance Ltd. 328 ITR 44 (Del.);
and CIT Vs. Zoom Communication Pvt. Ltd. 327 ITR 510 (Del.).
4.2. Ld. DR further relied on ITAT Delhi Bench 'A' judgment dated 31-8- 2010 in the case of M/s Anand & Anand Vs. ACIT in which the mistaken legal advice was held to be not a defence for the assessee in penalty.
5. We have heard rival contentions and gone through the relevant material available on record. Apropos the issue of claim of depreciation, penalty imposed under similar facts and circumstances has been deleted by the ITAT in preceding year, as reproduced above. Respectfully following the same, the penalty qua the claim of depreciation is deleted.
5.1. Apropos long term capital gain on sale of investments and sale of vehicles, the fat that the assessee was allowed the claim of loss is not disputed. The only difference between assessee's claim and the assessed loss is the head of allowability of loss i.e. capital loss as against assessee's claim of business loss. In our view all the relevant details were filed by the assessee along with the return of income and a change in claim of head of income cannot be considered as concealment of particulars of income or furnishing inaccurate particulars of such income. The assessee made a legal claim which was not found to be allowable by the Assessing Officer under 8 the head business loss but the same was allowed as long term capital loss. In these facts and circumstances we are not inclined to hold that the assessee concealed any particulars or furnished inaccurate particulars in this behalf.
5.2. In respect of PF and ESI also the assessee had disclosed in its Chartered Accountant's report that these amounts were not deposited, therefore, assessee itself claimed them to be exfacie not allowable. The only mistake committed by the assessee is in not giving proper effect to P&L A/c. With these disclosure on record, the mistake can be held to be of technical or venial in nature and cannot be termed as amounting to concealing particulars of income or furnishing inaccurate particulars of such income.
5.3. Apropos 43B disallowance, assessee has given satisfactory explanation that revised return was prepared which was not filed by the Chartered Accountant due to dispute on payment of professional fees with the C.A are the same is indicated by the record. In our considered view the details having been furnished along with the return of income, the assessee's case is not liable to be visited with penalty u/s 271(1)(c).
5.4. Apropos ld. DR's reliance of ITAT order in the case of M/s Anand & Anand (supra), the facts and circumstances in that case are peculiarly different inasmuch as in this case assessee had earlier paid advance tax on a particular item of income and later on, in the guise of legal opinion, the same was claimed to be a capital receipt, it had no earlier history and was a profit making organization. In the present case, the facts are peculiarly different and it is a case of continuous loss making concern since past many years.
9Therefore, facts being distinguishable the decision in the case of M/s Anand & Anand cannot be applied to the facts of the present case.
5.5. In case of reduction of assessed loss, though technically penalty u/s 271(1)(c) is leviable, but one cannot be oblivious of the explanation and justification given by the assessee. In our view, assessee's explanation demonstrates justification for the stand taken in the return of income and reassessment proceedings. The explanation cannot be called to be false or bogus , therefore, we delete the penalty, keeping in view the judgment of Hon'ble Supreme Court in the case of Reliance Petroproducts (supra) and in the case of Hindustan Steels 83 ITR 26(SC).
6. In the result, assessee's appeal stands allowed.
Order pronounced in open court on 29-6-2012.
Sd/- Sd/-
( K.G. BANSAL ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 29-6-2012.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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