Income Tax Appellate Tribunal - Mumbai
Santosh Synthetics, Ulhasnagar vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "E", MUMBAI
BEFORE SHRI P.M. JAGTAP (A.M.) AND Dr. S.T.M. PAVALAN, J.M.
ITA No. 377/Mum/2012
Assessment Year : 2005-06
M/s Santosh Synthetics, Income Tax Officer,
Plot No. 48, Ward 2(3), Kalyan,
Industrial Area, 2nd Floor, Rani Mansion,
Ulhasnagar - 421 004. Vs. Murbad Road,
PAN AATFS 1302 A Kalyan (W),
Mumbai.
(Appellant) (Respondent)
Shri K. Gopal
Assessee by: Shri Jitendra Singh &
Shri Satendra Pandey
Department by : Shri Mohit Jain
Date of hearing 14-01-2013
Date of pronouncement 15-03-2013
ORDER
PER P.M. JAGTAP, A.M.
This appeal filed by the assessee is directed against the order of ld.
CIT(A) -II, Thane dtd. 14-10-2011 whereby he confirmed the penalty of Rs. 7,26,784/- imposed by the A.O. u/s 271(1)(c) of the Income Tax Act, 1961 (the Act).
2. The assessee in the present case is a partnership firm which is engaged in the business of manufacturing of cloth. The return of income for the year under consideration was filed by the assessee on 31-10-2005 declaring total income of Rs. Nil. In the assessment completed u/s 2 ITA No. 377/Mum/2012 143(3) of the Act vide an order dtd. 27-8-2007, the following additions inter alia were made by the A.O. to the total income of the assessee:-
i) Capitalisation of the cost of machinery Rs. 36,577/-
ii) Disallowance additional depreciation claimed
u/s 32(1)(iia) Rs. 17,52,893/-
(iii) Disallowance of foreign travelling & domestic Travelling expenses relating to the purchase of machinery Rs. 1,46,308/-
(iv) Disallowance of depreciation on machinery Rs. 50,375/-
Penalty proceedings in respect of the above additions made to the total income of the assessee were also initiated by the A.O. and since the explanation offered by the assessee in response to the show cause notices issued during the course of the said proceedings was not found acceptable by the A.O., he imposed a penalty of Rs. 7,26,784/- u/s 271(1)(c) of the Act being 100% of the tax sought to be evaded by the assessee in respect of the additions made to the total income of the assessee.
3. The penalty imposed by the A.O. u/s 271(1)(c) was challenged by the assessee in an appeal filed before the ld. CIT(A) and a detailed submission was made on behalf of the assessee before the ld. CIT(A) in respect of each and every addition in support of its stand that penalty u/s 271(1)(c) of the Act was not attracted in respect of the said addition.
The said submissions as reproduced by the ld. CIT(A) on page No. 6 to 9 of his impugned order are extracted below:-
3 ITA No. 377/Mum/2012"The amount of expenditure on foreign travel of Rs. 1,04,128/- and local travelling expenses of Rs.42, 180/- totalling in all Rs. 1,46,308/- has been disallowed as a revenue expenditure and, the Assessing Officer has treated it as a capital expenditure, capitalizing the machinery amount and allowed depreciation there on at Rs. 36,375/-.
Your appellant states that the expenses on foreign travel and local travel amounting to Rs. 1,46,308/- were correct and accurate and they were accepted by the officer as expenses but according to him these were capital expenditure and not a revenue expenditure. It is not the case of Assessing Officer that the expenses shown were inaccurate as he had no any other in formation to the contrary. The disallowance made by assessing officer in the assessment order u/s. 143(3) of the Income Tax Act, were solely on account of a mere bona fide mistake and does not involve any concealment or furnishing of inaccurate particulars of Income. "Section 271 (1) (c) applies where the assessee 'has concealed the particulars of his income or furnished inaccurate particulars of such income' The present was not a case of concealment of the Income. As regards the furnishing of inaccurate particulars, no In formation given In the return was found to be Incorrect or inaccurate. The words 'Inaccurate particulars' mean that the details supplied In the return are not accurate, not exact or correct, not according to truth or erroneous. In the absence of a finding by the Assessing Officer that any details supplied by the assessee in Its return were found to be Incorrect or erroneous or false, there would be no question of inviting penalty under section 271(1)(c).
The argument of the revenue that 'submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such Income' is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the Income of the assessee. If the contention of the Revenue is accepted then in case of every return where the claim made Is not accepted by the Assessing Officer for any reason, the assessee will Invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature."
Reliance is placed on the Landmark Judgement of the Hon'ble Supreme Court of India, in the case of CIT. Ahemdabad v/s. Reliance Petro Products Pvt. Ltd decided on l7th March, 2010.
2) Disallowance of claim of depreciation 4 ITA No. 377/Mum/2012 Second hand machinery of Rs.4,03,000/- was put to use on 1-10- 2004 and the claim of depreciation was made by your appellant for whole of the year. The Assessing Officer disallowed the depreciation for half the year since the machinery was put to use on 1-10-2004 (less than 180 days as admitted by the Assessing Officer in the Assessment Order and the penalty order) and disallowed sum of Rs.50,375/-. The penalty u/s. 271(1)(c) was levied on the alleged premises of furnishing inaccurate particulars of income.
Infact the Assessing Officer has grossly erred in calculating number of days for which machinery was put to use as being less than 180 days where as if we calculate the number of days from 1-10-2004 to 31-3-2005 it comes to 182 days as under :
October 2004 - 31 days
November 2004 - 30 days
December 2004 - 31 days
January 2005 - 31 days
February 2005 - 28 days
March 2005 - 31 days
Total - 182 days
Thus there was no question of allowing depreciation only for half
year as the said machinery was put to use for more than 180 days as worked out above and as such the penalty on this account deserves to be deleted.
Without prejudice to the above, Reliance is also placed on the decision of ITA T, Chandigarh B. Bench in the case of Dy. CIT v/s. Shahabad Co-op Sugar Mills, wherein the assessee claimed full year's depreciation instead of half year depreciation and it was held to be a bona fide mistake and does not involve any concealment or furnishing of inaccurate particulars of income.
3) Disallowance of claim of depreciation Additional Depreciation of Rs. 17,52,893/-
The additional depreciation of Rs. 17,52,893/- is as per books of accounts and verified by Assessing Officer from time to time. The particulars of additional depreciation were accurate and can not be termed as inaccurate and the additions made on this account by the Assessing Officer were on the above amount of Rs. 17,52,893/- and not any other figure that he gathered from the books of accounts and not from any other external source. At the most it was a case of inaccurate claim and was not in tune with the provision of section 32(1)(iia). Since the accountant who had calculated the additional depreciation on machinery had wrongly worked out and was not able to get the certificate in form 3AA from Chartered Accountant u/s. 32(1)(iia) r.w.r. 5A, at the time of 5 ITA No. 377/Mum/2012 assessment and such the appellant had vide letter dated 27-8- 2007, in the course of assessment proceedings, accepted the bona fide mistake and thus self surrendered the claim of additional depreciation for disallowance. This is also the case of disallowance of claim and can not be considered as concealment.
Where excessive claim of depreciation was made because of mistake of accountant and the assessee agreed to disallowance, it was to be treated as case of bona fide mistake so as to justify deletion of penalty -- Deena Kak v. ITO (200l) 70 TTJ (Jodh.) 375, Likewise, if somebody has wrongly claimed some deduction under some bona fide mistake, disallowance of such claim cannot'be a ground of penalty under section 271(1) (c) -- CIT v. Manibhai & Bros. (2007) 294 ITR 501 (Gui.).
Further It is clear that this case gives a strong Indication that the error done by the assessee was genuine, bona fide and also relied upon Accountant. The assessee's Income was already In a loss even without claiming Additional depreciation. Therefore such excess claim of depreciation was not at all advantageous to the assessee. Such a additional claim of depreciation has In fact resulted into a further loss In the total income of the assessee and as such there was no evasion of Tax at all in claiming such additional depreciation, it clearly indicates that such excess claim of depreciation was not a device, rather it was an inadvertent error."
4. The submissions made on behalf of the assessee as above did not find favour with the ld. CIT(A) who rejected the same and confirmed the penalty imposed by the A.O. u/s 271(1)(c) of the Act for the following reasons given in para No. 4.1 to 4.4 of his order:-
"4.1 I have gone through the penalty order of the AO and also the written submissions made by the appellant. The AO has proceeded to impose the penalty mainly on account of wrong claim of additional depreciation by the appellant for the period under consideration. The contention of the appellant is that the claim of depreciation was based on a bona fide belief that he was fully and truly entitled to the said depreciation and as and when he came to know about this bonafide mistake, he agreed to pay the tax on this income. Regarding the other disallowances on account of foreign travel and depreciation on machinery, it is contended that the appellant had in its return of income submitted all the information! details I evidences in respect of the said claim and no fact or information in respect of the claim was withheld in any 6 ITA No. 377/Mum/2012 manner and there is no intentional concealment of income or filing of the inaccurate particulars of income.
4.2. The AR of the appellant during the course of appellate proceedings further contended that the penalty proceedings u/s. 271(1 )(c) of the I.T. Act, 1961, cannot be initiated and imposed for rejection of bona fide explanation of the assessee and even if there is a rejection of the bona fide explanation, it cannot be treated as concealment of income and avoidance of tax. All the facts have been disclosed by the appellant to the department and merely because the appellant's claim was not acceptable to the revenue, cannot lead to the imposition of penalty. To penalize for concealment, there must be a failure on the part of the assessee to disclose the full particulars of his income or particular concealed must be as a result of the assessee's failure to offer an explanation. The AR of the appellant has further argued that any claim mistakenly taken by the auditors cannot be taken as a base for penalizing the appellant. Moreover, making an incorrect claim in law or disallowance of expenditure cannot tantamount to furnishing inaccurate particulars as held in many judicial pronouncements by the courts.
4.3. The above arguments of the A.R. of the appellant have been considered and in my opinion, there is no merit in the above arguments of the appellant and the AC has correctly imposed the penalty in this case. From the perusal of the facts of the case, it can be observed that the appellant had acted dishonestly initially and filed the inaccurate particulars of income in respect of the claim of additional depreciation for which he was never entitled to. I agree with the arguments of the AC that had there been no survey uls.133A and consequential scrutiny, the appellant would have succeeded in getting a bogus claim for additional depreciation. In order to claim the benefit of additional depreciation u/s. 32(1)(iia), the first and foremost condition is that the machinery should be a new machinery and the appellant knew right from the beginning that the machinery is not 'new' and despite that the claim of additional depreciation was made by him. Further, the appellant also did not file the requisite certificate in the prescribed form 3AA from a chartered accountant for claiming the additional depreciation. There is a logic in the arguments of the AO that the certificate from the chartered accountant, which is a legal requirement, was not obtained by the appellant knowing fully well that no chartered accountant would agree to certify an old machinery as new and this very conduct of the appellant proves that the appellant did this with malafide intention to claim the deduction for which he was not entitled to.
4.4. The AR of the appellant has further contended that the error done by the assessee was genuine, bona fide and he also relied upon Accountant. The assessee's income was already in a loss 7 ITA No. 377/Mum/2012 even without claiming additional depreciation. Therefore, such• excess claim of depreciation was not at all advantageous to the assessee. The above contention of the appellant has no basis. The AC during the course of assessment proceedings has proved that the appellant was trying to take the benefit of deduction on a totally wrong claim and when detected, he came forward to surrender the claim of deduction. The surrendering of the above claim of deduction is not voluntary and same has been done only after detection by the department. This act of the appellant proved the Mensrea and further it clearly amounts to accepting the concealment and furnishing of inaccurate particulars of income on the part of the appellant. Had the survey uls.133A not been carried out by the AC, the appellant would have never came out with the surrender of this claim of deduction. The argument of the appellant that the above mistakes have occurred due to the accounting error on the part of the accountant, is not supported by any evidence and therefore cannot take the appellant out of the purview of the penal provisions u/s. 271(1)(c).
Aggrieved by the order of the ld. CIT(A) confirming the penalty imposed by the A.O. u/s 271(1)(c), the assessee has preferred this appeal before the Tribunal.
5. The ld. Counsel for the assessee submitted that the penalty in question as imposed by the A.O. and confirmed by the ld. CIT(A) is mainly in respect of addition of Rs. 17,52,893/- made on account of disallowance of additional depreciation claimed by the assessee u/s 32(1)(iia) of the Act. He submitted that there is no dispute about the purchase of machinery on which the additional depreciation was claimed or even about the use of this machinery for the purpose of its business. He submitted that normal depreciation of the said machinery in fact was allowed by the A.O. and claim of the assessee for additional depreciation u/s 32(1)(iia) of the Act was disallowed on the ground that it was a used machinery and not the new one and that the required certificate in Form 8 ITA No. 377/Mum/2012 3AA was also not filed by the assessee along with the return of income as required for claiming the additional depreciation. He contended that what thus has been disallowed is only the additional depreciation in the year under consideration which the assessee is bound to get finally in one year or other. He contended that the question thus is merely relating to the year of allowability of the depreciation and since there was a loss offered by the assessee in the year under consideration as well as in the immediately succeeding year, the assessee cannot be held guilty of furnishing of inaccurate particulars of its income to avoid or evade any tax. He contended that there was thus a mistake committed by the assessee in claiming the additional depreciation u/s 32(1)(iia) of the Act for which no malafide could be attributed to the assessee in the facts and circumstances of the case. He contended that it was a bonafide mistake committed by the assessee inadvertently for which penalty u/s 271(1)(c) cannot be imposed as held by the Hon'ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. v. CIT (2012) 348 ITR 306 (SC). He also contended that although the assessee accepted the disallowance of additional depreciation keeping in view that it was bound to get such depreciation finally in one year or the other, there is nothing brought on record by the A.O. to show that the concerned machinery was not new and it was second hand machinery.
6. As regards the penalty imposed by the A.O. and confirmed by the ld. CIT(A) in respect of other small additions by way of disallowance of 9 ITA No. 377/Mum/2012 expenses etc., the ld. Counsel for the assessee relied on the detailed submission made on behalf of the assessee before the ld. CIT(A) in support of his case that the said routine disallowances made in the assessment cannot be regarded as concealment of particulars of its income by the assessee or furnishing of inaccurate particulars thereof so as to attract penalty u/s 271(1)(c) of the Act.
7. The ld. D.R., on the other hand, strongly relied on the orders of the authorities below in support of the Revenue's case that the present case of the assessee is a fit case to impose penalty u/s 271(1)(c) of the Act. He submitted that the wrong claim of additional depreciation on machinery was detected out by the A.O. during the course of assessment proceedings and since the assessee had no explanation whatsoever to offer in this regard, he had no option but to accept the disallowance on this issue. He submitted that the required certificate in Form 3AA for claiming the additional depreciation was not filed by the assessee along with the return of income as required by the statute and even the fact that the concerned machinery was old had not indicated by the assessee anywhere in the return of income. He contended that the relevant provisions of the statute in this regard are very clear and the failure of the assessee to indicate anywhere in the return of income the fact that the machinery on which additional depreciation was claimed was not new one but the same was a old machinery clearly shows that it is a case of furnishing inaccurate particulars of its income by the assessee. He 10 ITA No. 377/Mum/2012 contended that there is nothing to show that the wrong claim of additional depreciation made by the assessee was bonafide and therefore the reliance in the case of Price Waterhouse Coopers Pvt. Ltd. (supra) by the ld. Counsel for the assessee which involved different facts is clearly misplaced. The ld. D.R. therefore strongly supported the impugned order of the ld. CIT(A) confirming the penalty imposed by the A.O. u/s 271(1)(c) of the Act and urged that the same may be upheld.
7. We have considered the rival submissions and also perused the relevant material placed on record. As regards the addition of Rs. 36,577/- on account of capitalisation of the cost of machinery, it is observed that there is no such addition made in the total income of the assessee by the A.O. in the assessment order. The computation of total income given in the assessment order, on the other hand, shows that this amount was allowed as depreciation on the travelling expenses of Rs. 1,46,308/- capitalised by the A.O. and although submission to this effect was made by the assessee before the ld. CIT(A), it appears that no finding whatsoever has been given by the ld. CIT(A) on this aspect. In our opinion, there was thus no justification in imposing the penalty in respect of the amount of Rs. 36,577/- which did not represent any addition made to the total income of the assessee.
8. As regards the disallowance of depreciation on machinery amounting to Rs. 50,375/- made by the A.O. on the ground that the 11 ITA No. 377/Mum/2012 concerned machinery having been installed on 1-10-04 was used by the assessee only for 180 days, it is observed that specific submission was made on behalf of the assessee before the ld. CIT(A) on the basis of working given that the said machinery was actually used for 182 days. Here again no finding whatsoever has been given by the ld. CIT(A) on the submissions specifically made by the assessee inspite of the fact that the working furnished by the assessee was reproduced by him in para No. 7 of his order which clearly shows that the machinery was used for 182 days making the assessee entitled for depreciation at full rate. The claim of the assessee for depreciation at full rate thus was a bonafide claim and although the assessee accepted the disallowance made by the A.O. on this issue by restricting to only half, we are of the view that no penalty u/s 271(1)(c) of the Act in respect of addition of Rs. 55,375/- could be imposed.
9. As regards the disallowance made on account of foreign/inland travelling expenses amounting to Rs. 1,46,308/-, it is observed that the same was made by the A.O. on the ground that the said expenses being incurred by the assessee in relation to purchase of machinery was capital in nature. The genuineness of the said expenses, however, was neither disputed nor doubted by the A.O. On the other hand, after capitalising the said expenses to machinery account, depreciation thereon was also allowed by the A.O. Having regard to all these facts of the case, we are of the view that the assessee cannot be held guilty of 12 ITA No. 377/Mum/2012 concealment in respect of addition made by way of disallowance of travelling expenses treating the same as capital in nature so as to impose penalty u/s 271(1)(c) of the act.
10. In so far as the claim of the assessee for additional depreciation on machinery amounting to Rs.17,52,892/- is concerned, it is observed that the said claim was made by the assessee as per the provisions of section 32(1)(iia) of the Act. In this regard, it is observed that the provisions of section 32(1)(iia) are very plain and clear which provide that additional depreciation is allowable in the case of any new machinery or plant which has been acquired and installed after 31st March, 2005. The proviso to section 32(1)(iia) makes it further clear that no deduction on account of additional depreciation shall be allowed in respect of any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person. In the present case, additional depreciation u/s 32(1)(iia) was claimed by the assessee on the old machinery which was already used by other person and this relevant fact was not disclosed by the assessee in any form in the return of income filed for the year under consideration. The same was revealed as a result of survey followed by scrutiny assessment done by the A.O. and when it was confronted by the A.O. to the assessee, the later had no option but to surrender its claim for additional depreciation. Before the authorities below as well as before us, the explanations offered on behalf of the assessee in this regard is that the mistake in claiming additional 13 ITA No. 377/Mum/2012 depreciation was a bonafide mistake committed by the Accountant inadvertently. However, there is nothing brought on record to support and substantiate the said explanation. As already observed, nothing whatsoever was disclosed by the assessee in the return of income even to indicate that the machinery on which additional depreciation was claimed u/s 32(1)(iia) was old machinery already having used by some other person. Keeping in view all these facts borne out from record, we find it difficult to agree with the stand of the assessee that all the material particulars relating to its claim for additional depreciation were accurately and correctly furnished by it.
11. It is also observed that the reliance placed on by the ld. Counsel for the assessee on the decision of Hon'ble Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. (supra) in support of the assessee's case is clearly misplaced as the facts involved in that case are found to be different from the facts of the assessee's case. In the said case, computation error made in its return of income was explained by the assessee by way of an affidavit and on the basis of assertion made in the said affidavit, the computation error made by the assessee was found to be bonafide. Moreover, in the tax audit report filed along with the return of income, it was unequivocally stated that the relevant provision made for payment of gratuity was not allowable u/s 40A(8) of the Act and on the basis of these contents of the tax audit, report the Hon'ble Supreme Court held that there was no question of concealing the particulars of 14 ITA No. 377/Mum/2012 income attracting levy of penalty u/s 271(1)(c) of the Act. In the present case, the material fact that the machinery on which the additional depreciation was claimed being old, was not disclosed by the assessee anywhere in the return of income and the same was detected by the A.O. only during the course of assessment proceedings after which the assessee surrendered its claim for additional depreciation in the absence of any explanation whatsoever to offer in this regard.
12. Keeping in view the reasons given above, we sustain the penalty imposed by the A.O. and confirm4ed by the ld. CIT(A) to the extent it is in respect of addition made by way of additional depreciation. The A.O. is accordingly directed to recompute the penalty u/s 271(1)(c) of the Act.
13. In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 15-03-2013.
Sd/- Sd/-
(Dr. S.T.M. PAVALAN ) (P.M. JAGTAP)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated : 15-03-2013.
RK
15 ITA No. 377/Mum/2012
Copy to:
1. The Appellant
2. The Respondent
3. Commissioner of Income Tax (Appeals)- II, Thane
4. CIT - III, Thane.
5. Departmental Representative, Bench 'E', Mumbai //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI