Income Tax Appellate Tribunal - Panji
Sigma Electric Mfg. Corp. Pvt. Ltd.,, ... vs Deputy Commissioner Of Income-Tax,, on 8 September, 2017
आयकर अऩीऱीय अधधकरण "ए" न्यायऩीठ ऩण
ु े में ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, PUNE
श्री डी. करुणाकरा राव, ऱेखा सदस्य, एवं श्री ववकास अवस्थी, न्याययक सदस्य के समक्ष ।
BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM
आयकर अऩीऱ सं. / ITA No. 190/PUN/2015
यनधाारण वषा / Assessment Year : 2006-07
Sigma Electric Mfg. Corp. Pvt. Ltd.,
Formerly known as Semco Electric Pvt. Ltd.,
Gat No. 154/1, Mahalunge, Post-Chakan,
Taluka-Khed, Pune - 510401
PAN : AADCS9493H
.......अऩीऱाथी / Appellant
बनाम / V/s.
Deputy Commissioner of Income Tax,
Circle - 10, Pune
......प्रत्यथी / Respondent
Assessee by : Shri Sharad Shah
Revenue by : Shri Mukesh Jha
सन
ु वाई की तारीख / Date of Hearing : 24-07-2017
घोषणा की तारीख / Date of Pronouncement : 08-09-2017
आदे श / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-6, Pune dated 25-11-2014 for the assessment year 2006-07, confirming levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). 2 ITA No. 190/PUN/2015, A.Y. 2006-07
2. The brief facts of the case as emanating from records are: The assessee is engaged in manufacturing and selling of electrical wiring accessories. The assessee has set up two 100% Export Oriented Units (EOUs) at Chakan. The assessee is claiming deduction u/s. 10B of the Act in respect of profits derived from aforesaid EOUs. While claiming deduction u/s. 10B, the assessee included income from sale of scrap, interest income on bank deposits and Sales Tax set off as part of income eligible for claiming deduction u/s. 10B of the Act. The Assessing Officer held that income derived by the assessee from sale of scrap, bank interest and sales tax set off cannot be considered as income derived from export of article or thing. Therefore, such incomes are not eligible for claiming deduction u/s. 10B of the Act. Further, the assessee had claimed depreciation on computer software @ 25%. The Assessing Officer observed that the assessee has claimed depreciation at lower rate i.e. 25% as against @ 60%, it has resulted in excessive claim of deduction u/s. 10B of the Act. In first appeal against assessment order, the Commissioner of Income Tax (Appeals) by following the order of Tribunal in assessee's own case for assessment year 2003-04 held that income from sale of scrap and Sales Tax set off constitutes income eligible for tax holiday u/s. 10B of the Act. The Assessing Officer initiated penalty proceedings u/s. 271(1)(c) in respect of excess deduction claimed by assessee u/s. 10B of the Act. The Assessing Officer vide order dated 28-03-2013 levied penalty of Rs.38,35,110/- in respect of disallowances of interest income from fixed deposits u/s. 10B of the Act.
Aggrieved by the order levying penalty, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of 3 ITA No. 190/PUN/2015, A.Y. 2006-07 Income Tax (Appeals) vide impugned order upheld the levy of penalty in respect of additions made u/s. 10B of the Act. Further, the Commissioner of Income Tax (Appeals) levied penalty in respect of depreciation claimed at lower rate resulting in higher tax holiday benefit u/s. 10B of the Act. Now, the assessee is in second appeal before the Tribunal against enhancing of penalty on the issue of depreciation and sustaining penalty in respect of disallowances made u/s. 10B of the Act.
3. The assessee in appeal has assailed confirming of penalty in respect of disallowances of deduction u/s. 10B of the Act in respect of income earned on fixed deposits. The assessee has filed additional grounds of appeal impugning levy of penalty in respect of depreciation. The additional grounds raised by the assessee are as under :
"Additional Ground No. -1 The Ld. CIT(A) erred in Enhancing penalty on the issue for which there was no satisfaction recorded by the Ld. AO. Additional Ground No. -2 The penalty order passed by the Ld. AO may please be treated as Void as the same was passed without being recording proper satisfaction as to what for penalty is levied, whether for concealment of income or for furnishing in accurate particulars.
Additional Ground no. 3 The Show cause notice u/s. 274 r.w.s. 271(1)(c) for levy of penalty is without specifying the charge as to whether the assessee has concealed the particulars of income or furnishing inaccurate particulars, Therefore, penalty order is void."4
ITA No. 190/PUN/2015, A.Y. 2006-07
4. Shri Sharad Shah appearing on behalf of the assessee submitted that the assessee is a 100% export oriented unit and is thus, eligible for deduction u/s. 10B of the Act. The Assessing Officer disallowed the claim of deduction u/s. 10B in respect of income from sale of scrap, interest income and sales tax set off. The ld. AR submitted that the Tribunal in assessee's own case for assessment year 2004-05 has allowed exemption u/s. 10B on income from sale of scrap and Sales Tax set off. As far as interest income on fixed deposit is concerned whether eligible for tax holiday u/s. 10B is a debatable issue. There are several decisions in favour of the assessee on this issue. Therefore, no penalty should be levied in respect of disallowances of interest income u/s. 10B of the Act. In support of his submission, the ld. AR placed reliance on following decisions:
i. Commissioner of Income Tax Vs. Reliance Petroproducts (P) Ltd., 322 ITR 158 (SC);
ii. Commissioner of Income Tax Vs. Dalmia Dyechem Industries Ltd., 279 CTR 133 (Bom.);
iii. Commissioner of Income Tax Vs. Harshvardhan Chemicals & Mineral Ltd., 259 ITR 212 (Raj.);
iv. Schrader Duncan Limited Vs. Additional Commissioner of Income Tax, 37 ITR 674 (Mumbai-Trib.).
4.1 As regards levy of penalty by Commissioner of Income Tax (Appeals) on depreciation is concerned, the ld. AR submitted that the penalty u/s. 271(1)(c) has been levied without recording satisfaction and without issuing mandatory notice u/s. 274 r.w.s. 271(1)(c) of the Act. The ld. AR contended that the Tribunal in quantum proceedings in assessee's appeal 5 ITA No. 190/PUN/2015, A.Y. 2006-07 for assessment year 2006-07 in ITA No. 718/PN/2012 has restored the issue back to the file of Assessing Officer to examine whether it is a case of purchase of computer software or license. In case the assessee has acquired computer software the depreciation @ 60% has to be computed and in case it is procurement of license for use of computer software then the assessee is entitled to claim depreciation @ 25%. Since, the findings of lower authorities on this issue have been set aside by the Tribunal, therefore, the Commissioner of Income Tax (Appeals) has erred in levying penalty in respect of lower rate of depreciation claimed by the assessee.
5. On the other hand Shri Mukesh Jha representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. DR submitted that the Assessing Officer levied penalty u/s. 271(1)(c) of the Act in respect of wrong claim of depreciation in assessment year 2004-05. In assessment year 2006-07 the Assessing Officer failed to levy penalty on same set of facts, although orders for both the assessment years were passed by the Assessing Officer on same date.
6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also examined the decisions on which the ld. AR of assessee has placed reliance. In the present case penalty u/s. 271(1)(c) of the Act has been levied by Assessing Officer in respect of only one addition i.e. in respect of disallowance of interest income on fixed deposits included as part of eligible income for claiming deduction u/s. 10B of the Act. It is an undisputed fact that the Tribunal in assessee's own case has allowed the benefit of tax holiday u/s. 10B of the Act in respect of income from sale of 6 ITA No. 190/PUN/2015, A.Y. 2006-07 scrap and Sales Tax set off in assessment year 2004-05. As far as eligibility of interest income for claiming deduction u/s. 10B is concerned, the issue is debatable as there are decisions far and against on such additions. It is a well settled law that no penalty can be levied in respect of any addition which is debatable. Accordingly, levy of penalty u/s. 271(1)(c) confirmed by Commissioner of Income Tax (Appeals) in respect of disallowances made u/s. 10B is directed to be deleted.
7. The Commissioner of Income Tax (Appeals) has levied penalty in respect of depreciation claim of the assessee. The assessee claimed depreciation on computer software @ 25%. The Assessing Officer held that the assessee should have claimed depreciation @ 60% on the computer software. The matter travelled up to the Tribunal. The Tribunal in assessee's appeal in ITA No. 718/PN/2012 (supra) restored the issue back to the file of Assessing Officer to determine the nature of asset i.e. whether it is purchase of computer software or license to use computer software. Since, the addition has been set aside by the Tribunal for de novo adjudication, no penalty can be levied on such addition.
Further, we observe that the manner in which Commissioner of Income Tax (Appeals) has levied penalty in respect of depreciation suffers from legal glitches. No satisfaction has been recorded by the Commissioner of Income Tax (Appeals) before initiating penalty. Thereafter, no notice u/s. 274 r.w.s. 271(1)(c) has been issued to the assessee. Recording of satisfaction by the officer who has initiated penalty proceedings is mandatory. Without recording satisfaction, levy of penalty is void ab initio. Further, issuance of notice u/s. 274 r.w.s. 271(1)(c) is 7 ITA No. 190/PUN/2015, A.Y. 2006-07 statutory requirement. Penalty levied without issuing such notice is bad in law. The aforesaid defects pointed are incurable defects. Therefore, the levy of penalty in respect of depreciation by the Commissioner of Income Tax (Appeals) is not sustainable on account of fatal procedural lapse, as well.
8. In the light of our above findings, we set aside the impugned order and allow the appeal of assessee.
Order pronounced on Friday, the 08th day of September, 2017.
Sd/- Sd/-
(डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy)
ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER
ऩुणे / Pune; ददनाांक / Dated : 08th September, 2017 RK आदे श की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to :
1. अऩीऱाथी / The Appellant.
2. प्रत्यथी / The Respondent.
3. आयकर आयुक्त (अऩीऱ) / The CIT(A)-6, Pune
4. आयकर आयुक्त / The CIT-5, Pune
5. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, "ए" बेंच, ऩुणे / DR, ITAT, "A" Bench, Pune.
6. गाडड फ़ाइऱ / Guard File.
//सत्यावऩत प्रयत // True Copy// आदे शानुसार / BY ORDER, यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune