Income Tax Appellate Tribunal - Chennai
Best & Crompton Engg. Limited, , Chennai vs Department Of Income Tax on 16 September, 2015
आयकर अपील
य अ धकरण, 'ए' यायपीठ, चे नई
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, CHENNAI
ी एन.आर.एस. गणेशन, या यक सद य एवं
ी चं पज
ू ार
, लेखा सद य केसम&
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No.600/Mds/2012
नधा(रण वष( / Assessment Year : 2007-08
The Assistant Commissioner M/s Best & Crompton Engg.
of Income Tax, v. Limited,
Company Circle I(3), 28/C, Industrial Estate (North),
Chennai - 600 034. Ambattur, Chennai - 600 098.
PAN : AADCB 3450 D
(अपीलाथ,/Appellant) (-.यथ,/Respondent)
अपीलाथ, क/ ओर से/Appellant by : Mrs. Jayanthi Krishnan, CIT
-.यथ, क/ ओर से/Respondent by : Sh.S. Subramanian, CA
सन
ु वाई क/ तार
ख/Date of Hearing : 03.08.2015
घोषणा क/ तार
ख/Date of Pronouncement : 16.09.2015
आदे श /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-III, Chennai, dated 28.12.2011 and pertains to assessment year 2007-08. 2 I.T.A. No.600/Mds/12
2. Smt. Jayanthi Krishnan, the Ld. Departmental Representative, submitted that the Assessing Officer levied penalty under Section 271(1)(c) of the Income-tax Act, 1961 (in short 'the Act'). Referring to the penalty order, the Ld. D.R. pointed out that addition was made on the following grounds:-
(i) Claim of ROC fees
(ii) Loss on exchange variation
(iii) Reversal of provisions of sales tax
(iv) Miscellaneous additions
(v) Disallowance under Section 14A
However, the Assessing Officer found that the assessee extended its co-operation at the time of scrutiny proceedings and the issue is also debatable nature. Therefore, the same was not considered for levy of penalty under Section 271(1)(c) of the Act. Similarly, an addition of `14,11,73,333/- was also made towards long term capital loss. Therefore, this addition of `14,11,73,333/- was also not considered for levy of penalty. However, the Assessing Officer levied penalty on the following additions made in the assessment order:-
(i) Claim of depreciation under the Block "Buildings"
(ii) Loss on sale of current assets
(iii) Claim of bad debts
(iv) Investments written off
(v) Irrecoverable project expenses written off
3 I.T.A. No.600/Mds/12
3. Referring to the first addition on which penalty was levied, regarding depreciation on the block of assets, the Ld. D.R. pointed out that the assessee converted the capital asset, namely, the land at Cenotaph Road, into stock-in-trade in financial year 1994-95.
However, the buildings erected on that land continued to be shown as fixed assets and depreciation was also claimed by the assessee. According to the Ld. D.R., the land and building were sold during the year under consideration for a sum of `95 Crores. In the sale deed executed by the assessee, the assessee showed the value of land at `60 Crores and value of the building at `35 Crores. According to the Ld. D.R., the sale proceeds of the land portion alone should be taken as business profit, since the land alone was converted into capital asset. The building standing on the said land continued to be treated as capital asset. Therefore, the sale consideration of the building cannot be considered to be a business profit. However, the assessee claimed the sum of `95 Crores as business receipt.
4. The Ld. D.R. further pointed out that the Written Down Value of the block of asset "Buildings" for the year under consideration was `20,14,05,759/- and after reducing the same from the sale value of the building, the balance taxable component comes to 4 I.T.A. No.600/Mds/12 `14,85,94,241/-. The Ld. D.R. further submitted that the Written Down Value of the block "Building" has got extinguished by absorption of the sale proceeds of the building. Therefore, the depreciation was found to be ineligible. Accordingly, the Assessing Officer disallowed the claim of `84,20,996/- treating the same as a wrong claim and added the same to the taxable income. In view of the above factual situation, according to the Ld. D.R., the assessee has furnished inaccurate particulars with regard to claim of depreciation to the extent of `84,20,996/-.
5. Referring to the issue of loss on current assets, the Ld. D.R. pointed out that the assessee has made an entry in the Profit & Loss account towards loss on sale of current assets to the extent of `2,08,14,610/-. The assessee explained before the Assessing Officer that loss on sale of current assets to the extent of `2,08,14,610/- was actually a provision made in the books of account for obsolete and irrecoverable current assets. In view of this explanation of the assessee, the Assessing Officer added the same to the taxable income. The Ld. D.R. pointed out that but because of the query raised by the Assessing Officer with regard to debit in the Profit & Loss account towards loss on sale of current assets, the assessee would not have admitted the addition. 5 I.T.A. No.600/Mds/12
6. Referring to the claim of bad debts, the Ld. D.R. submitted that the assessee has written off bad debts to the extent `5,26,59,000/- and debited the same to Profit & Loss account. According to the Ld. D.R., the total sundry debtors as on 31.03.2006 was `2.58 Crores and, as on 31.03.2007, it was `2.90 Crores. When the debts continued to exist, according to the Ld. D.R., it is not known from where these bad debts have emanated. However, the assessee claimed the same as bad debts and the Assessing Officer rejected the claim of the assessee and added the same to the taxable income.
7. Referring to the investments written off, the Ld. D.R. submitted that the assessee has written off investments to the extent of `4,09,09,000/-. The Ld. D.R. clarified that actually these are all the actual value of the shares held by the assessee-company in its wholly owned subsidiary company M/s Beacon Pumps Ltd. as on 31.3.2006. The assessee brought out 100% diminution in the value of the investments and claimed the same as expenditure. According to the Ld. D.R., the same cannot be allowed as capital loss since there was no transfer of shares took place. According to the Ld. D.R., the claim made by the assessee with regard to investments written off after bringing out 100% diminution in the 6 I.T.A. No.600/Mds/12 value of investments amounts to furnishing inaccurate particulars of income.
8. Coming to the irrecoverable project expenses written off, the Ld. D.R. pointed out that the assessee made a claim to the extent of `5,43,83,000/- towards irrecoverable project expenses written off. The Ld. D.R. pointed out that the accounting principle did not permit the assessee to claim the same as revenue loss. According to the Ld. D.R., an investment was made in the capital domain, therefore, it has to be necessarily treated as capital loss and not as revenue loss. The Ld. D.R. further pointed out that the expenditure relates to subsidiary company of the assessee. Since the project was shelved, the assessee claims that the expenditure cannot be converted into profit. The assessee claimed this expenditure as revenue loss. According to the Ld. D.R., this cannot be allowed as revenue loss. Therefore, the Assessing Officer added the same to the total income.
9. The Ld. D.R. further pointed out that the assessee has made incorrect claim of expenditure during the course of assessment proceedings. The Ld. D.R. placed her reliance on the judgment of Apex Court in Union of India v. Dharmendra Textile Processors (2008) 306 ITR 277 and submitted that Section 271(1)(c) of the Act 7 I.T.A. No.600/Mds/12 indicates claim of strict liability on the assessee for concealment or for giving inaccurate particulars of income while filing the return. According to the Ld. D.R., penalty being a civil liability, willful concealment is not an essential ingredient for attracting penalty under Section 271(1)(c) of the Act. The Ld. D.R. has also placed reliance on the judgment of Madras High Court in CIT v. B.A. Balasubramaniam And Bros. (1985) 152 ITR 529. The Ld. D.R. has also placed her reliance on an unreported decision of Delhi Bench of this Tribunal referred by the Revenue in its grounds of appeal at Ground No.2.4 in M/s Chadha Sugars P. Ltd. in ITA No.1773(Del)/2010 dated 23.12.2010. According to the Ld. D.R., the CIT(Appeals) committed an error in deleting the penalty levied by the Assessing Officer, mainly placing reliance on the decision of the judgment of Apex Court in CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158.
10. On the contrary, Shri S. Subramanian, the Ld. representative for the assessee, submitted that penalty under Section 271(1)(c) of the Act can be levied either on concealing the particulars of income or furnishing inaccurate particulars of such income. In this case, according to the Ld. representative, no part of the income was concealed by the assessee. Moreover, the assessee has not furnished any inaccurate particulars regarding its income. 8 I.T.A. No.600/Mds/12 According to the Ld. representative, after furnishing all the details of income, making a claim for deduction does not amount to furnishing inaccurate particulars. Therefore, according to the Ld. representative, the CIT(Appeals) has rightly deleted the penalty levied by the Assessing Officer placing reliance on the judgment of Apex Court in CIT v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158.
11. According to the Ld. representative for the assessee, all the particulars of income were disclosed in the return of income as well as in the audit report. The claim made by the assessee is also disclosed in the audit report by way of a separate item in the Profit & Loss account and it was also disclosed in the Notes on Accounts. The Ld. representative further submitted that Schedule 10 of audited accounts pertains to manufacturing, construction and operating cost including all the items claimed by the assessee as deduction. Referring to Note 3 of Notes on Accounts, a copy of which is available at page 58 of the paper-book, the Ld. representative submitted that investments written off to the extent of `4.09 Crores, bad debts written off to the extent of `5.27 Crores, irrecoverable project expenses to the extent of `5.44 Crores and loss on disposal of investments in subsidiaries to the extent of `9.21 9 I.T.A. No.600/Mds/12 Crores were all disclosed in the Notes on Accounts. According to the Ld. representative, the audit reports were prepared and signed on 13.08.2007, which were much before the issue of notice under Section 143(2) of the Act, i.e. on 22.07.2008. The Ld. representative further submitted that the revenue authorities could not point out any discrepancy either in the income or expenditure claimed by the assessee during the course of survey operation. The entire particulars regarding income and expenditure claim made by the assessee are available in the audited accounts which were filed along with return of income. The Ld. representative further submitted that it is not the case of the Revenue that these particulars were unearthed during the course of survey operation. In fact, the assessee voluntarily disclosed all the items, including loss on sale of current assets to the extent of `2,08,14,610/-, on account of obsolete and irrecoverability thereof. The Ld. representative submitted that the Apex Court in the case of CIT v. Hindustan Zinc Ltd. (2007) 161 Taxman 162, allowed the similar claim of the assessee. In the assessee's own case for assessment year 2008-09, the claim of the assessee was allowed by this Tribunal in I.T.A. No. 803/Mds/2012. Similarly, Pune Bench of this Tribunal in Atlas Copco (India) Ltd. and Delhi Bench of this Tribunal in LPS Bossard Pvt. Ltd. allowed the claim of the assessee in 10 I.T.A. No.600/Mds/12 respect of the loss on sale of current assets. Therefore, according to the Ld. representative, the claim of the assessee ought to have been allowed while computing total income. Merely because an addition was made disallowing the claim of the assessee, according to the Ld. representative, that cannot be a reason to levy penalty under Section 271(1)(c) of the Act. The Ld. representative further submitted that making a claim of loss on sale of current assets, after furnishing of particulars of income, does not amount to furnishing of inaccurate particulars. In other words, a claim made by the assessee for deduction from the total income computed cannot be treated as furnishing of inaccurate particulars of income. The Ld. representative placed his reliance on the judgment of Apex Court in Reliance Petroproducts Pvt. Ltd. (supra).
12. Referring to the claim of bad debts to the extent of `4,71,28,783/-, the Ld. representative submitted that this claim of bad debts was written off at erstwhile Project Division, which was earlier transferred to the wholly owned subsidiary company of the assessee. According to the Ld. representative, the erstwhile Project Division could not collect its debts. Therefore, it was transferred to the assessee. The Ld. representative further submitted that since the income from the said division was offered by the assessee, the 11 I.T.A. No.600/Mds/12 bad debts which were written off were also claimed under Section 36(2) of the Act. According to the Ld. representative, this claim of the assessee cannot be construed as furnishing of inaccurate particulars. When the erstwhile Project Division took the debts as its income, and because it could not collect the same, the same was transferred while the Project Division itself was transferred to the assessee and the assessee itself offered the income from the said Project Division as its income, according to the Ld. representative, it has to be allowed as bad debts in the hands of the assessee since the debts were actually written off. Therefore, the Ld. representative submitted that the assessee has a legally contestable case. Therefore, merely because the claim of the bad debts was disallowed, according to the Ld. representative, this cannot be treated as furnishing inaccurate particulars of income.
13. Now coming to the issue of irrecoverable project expenses written off to the extent of ` 5,43,83,000/-, the claim was made as project expenses incurred by the assessee. However, the same could not be billed on the customers on becoming irrecoverable. Therefore, the same was written off. According to the Ld. representative, the irrecoverable project expenses are cost overruns on fixed contract projects which cannot be billed. Therefore, it 12 I.T.A. No.600/Mds/12 becomes irrecoverable. According to the Ld. representative, this was included under the head "Expenses" in Schedule 10(4) of the audited accounts, a copy of which is available at page 51 of the paper-book.
14. Referring to the disallowance on investments written off to the extent of `4,09,09,000/-, the Ld. representative submitted that the investments written off were allowed by Himachal Pradesh High Court as deduction in CIT v. H.P. Mineral And Industrial Development Corporation Ltd. The Ld. representative further submitted that even this Tribunal in DCIT v. Rambal Properties in I.T.A. No.1271/Mds/2010 for the assessment year 2006-07 allowed the investments written off. Referring to the claim of depreciation under the block buildings to the extent `84,20,996/-, the Ld. representative submitted that the Assessing Officer found that the assessee's claim of long term capital loss of `14,11,73,333/- cannot be a basis for levying penalty. The fact remains that the land was converted into stock-in-trade in the financial year 1994-95 relevant to assessment year 1995-96. Once the land was converted into stock-in-trade and the building continues as capital asset in the books of account, nothing wrong in claiming depreciation on building. The Ld. representative further submitted that when a land 13 I.T.A. No.600/Mds/12 and building were sold by way of a single sale deed, the entire sale consideration has to be treated as business receipt because the land cannot be transferred without the building. In other words, the purchaser would not be willing to purchase the land unless the building is transferred. Therefore, the assessee has rightly treated the entire `95 Crores as business receipt. Admittedly, the total consideration of `95 Crores was disclosed and there is no dispute about that. Making a claim of `84,20,996/- as depreciation after disclosing the entire sale consideration will not amount to furnishing inaccurate particulars. The Ld. representative placed his reliance on the judgment of the Bombay High Court in CIT v. Dalmia Dyechem Industries Ltd. in ITA No.1396 of 2013 dated 6.7.2015, a copy of which is filed by the assessee. Referring to the claim of depreciation in respect of the very same building, the Ld. representative submitted that the same issue came before this Tribunal in assessee's own case for assessment year 2007-08 in 457/Mds/2012. This Tribunal, by order dated 19.02.2014, found that the assessee is eligible for depreciation. The Tribunal found that unabsorbed depreciation from assessment year 1997-98 upto assessment year 2001-02 was carried forward to the assessment year 2002-03 and became part thereof and were available for carry forward and set off against the profits and gains of subsequent 14 I.T.A. No.600/Mds/12 years without any limit whatsoever. In view of the above, according to the Ld. representative, making a claim of depreciation on the building cannot be construed to be furnishing inaccurate particulars of any income.
15. We have considered the rival submissions on either side and perused the relevant material on record. The Assessing Officer levied penalty in respect of five items of disallowance/expenditure, namely, (i) claim of depreciation under Block "Buildings"; (ii) loss on sale of current assets; (iii) claim of bad debts; (iv) investments written off; (v) irrecoverable project expenses written off, on the ground that the assessee has furnished inaccurate particulars of income. However, on appeal by the assessee, the CIT(Appeals) mainly placing reliance on the judgment of Apex Court in Reliance Petroproducts Pvt. Ltd. (supra) and the judgments of the Punjab & Haryana High Court in CIT v. Sidhartha Enterprises (322 ITR 80) & in CIT v. Shahabad Co-operative Sugar Mills Ltd. (322 ITR 73), deleted the penalty levied by the Assessing Officer. The CIT(Appeals) has also placed his reliance on the judgments of Madras High Court in Kamy Software Solutions P. Ltd. (214 CTR
403) & in S.V. Kalyanam v. ITO (327 ITR 477). The CIT(Appeals) further found that the details furnished by the assessee are not 15 I.T.A. No.600/Mds/12 inaccurate particulars of income, therefore, it would not attract penalty. The question now arises for consideration is when the assessee has furnished entire details of income by disclosing the same in the return of income, audit statements, etc., whether a claim with regard to depreciation on block buildings, loss on sale of current assets, claim of bad debts, investments written off and irrecoverable project expenses written off, would amount to furnishing inaccurate particulars of income. It is pertinent to note that the Assessing Officer himself at para 8.1 of the penalty order found that the addition made with regard to claim of - (i) ROC fees;
(ii) loss on exchange variation; (iii) reversal of provisions of sales tax; (iv) miscellaneous additions; and (v) disallowance under Section 14A are debatable issue and the assessee extended its co- operation at the time of scrutiny, therefore, it was not considered for levy of penalty. Therefore, the levy of penalty in respect of other disallowances made by the Assessing Officer has to be considered in the light of the observation made by the Assessing Officer at para 8.1 of the penalty order.
16. We have carefully gone through the provisions of Section 271(1)(c) of the Act, which reads as follows:-
"271. (1) If the Assessing Officer or the 16 I.T.A. No.600/Mds/12 Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person -
(a) ..... ..... ..... ..... ..... ..... .....
(b) ..... ..... ..... ..... ..... ..... .....
(c) has concealed the particulars of his
income or furnished inaccurate particulars
of such income."
The Assessing Officer is empowered to levy penalty, if he is satisfied that the assessee has concealed the particulars of its income or furnished inaccurate particulars of such income. In the case before us, it is not the case of the Revenue that the assessee concealed any particulars of its income. The specific case of the Revenue before this Tribunal is that the assessee has furnished inaccurate particulars of its income. As observed earlier, the question arises for consideration is when the assessee has furnished all the particulars/ details of its income, and claimed deduction in respect of depreciation on block of buildings, loss on sale of current assets, claim of bad debts, investments written off and irrecoverable project expenses written off, as deduction/expenditure, whether this would amount to furnishing inaccurate particulars of its income? The Apex Court in Reliance Petroproducts Pvt. Ltd. (supra) considered an identical question. In the case before Apex Court, the interest expenditure claimed by the assessee was disallowed and was added to the total income of the 17 I.T.A. No.600/Mds/12 assessee. Simultaneously, penalty proceedings under Section 271(1)(c) of the Act was also initiated on account of concealment of income/furnishing of inaccurate particulars of income. The Apex Court, after referring to the provisions of Section 271(1)(c) of the Act, found that submitting incorrect claim in law for the expenditure on interest would not amount to giving inaccurate particulars of income. The Apex Court further found that in order to expose the assessee to the penalty, the case has to be covered strictly by the provisions of Section 271(1)(c) of the Act. The Apex Court further found that by any stretch of imagination making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars of income. The Apex Court, after referring to its earlier judgments in Dilip N. Shroff v. JCIT (2007) 291 ITR 519 and in Union of India v. Dharamendra Textile Processors (2008) 306 ITR 277, found that a mere making of a claim, which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to inaccurate particulars. After referring to its earlier judgment in Sree Krishna Electricals v. State of Tamil Nadu (2009) 23 VST 249, the Apex Court found that the situation was still better as no fault has been found with the particulars submitted by the assessee in its return. In this case also, other than the claim made by the 18 I.T.A. No.600/Mds/12 assessee with regard to five items of deduction, namely, claim of depreciation under block buildings, loss on sale of current assets, claim of bad debts, investments written off and irrecoverable project expenses written off, no fault has been found by the Assessing Officer in the particulars of income submitted by the assessee in its return. Therefore, this Tribunal is of the considered opinion that merely because the claim of the assessee was found to be not sustainable in law by the Assessing Officer, that cannot be a reason to say that the assessee has furnished any inaccurate particulars regarding its income. This Tribunal is of the considered opinion that the assessee has not furnished any inaccurate particulars regarding its income. In view of the judgment of the Apex Court in Reliance Petroproducts Pvt. Ltd. (supra), the assessee cannot be by any stretch of imagination construed as if furnished any inaccurate particulars of income.
17. We have also carefully gone through the judgment of Apex Court in Dharamendra Textile Processors (supra) and the decision of Delhi Bench of this Tribunal in Chadha Sugars P. Ltd. (supra). After going through the above judgment of the Apex Court and the decision of Delhi Bench, this Tribunal is of the considered opinion that the same is not applicable to the facts of the case in view of the 19 I.T.A. No.600/Mds/12 judgment of Apex Court in Reliance Petroproducts Pvt. Ltd. (supra). In fact, the judgment of Apex Court in Reliance Petroproducts Pvt. Ltd. (supra) was not brought to the notice of the Delhi Bench of this Tribunal in Chadha Sugars P. Ltd. (supra). Therefore, by respectfully following the judgment of Apex Court in Reliance Petroproducts Pvt. Ltd. (supra) and for the reasons stated therein, the order of the CIT(Appeals) is upheld.
18. In the result, the appeal of the Revenue is dismissed.
Order pronounced on 16th September, 2015 at Chennai.
sd/- sd/-
ू ार
)
(चं पज (एन.आर.एस. गणेशन)
(Chandra Poojari) (N.R.S. Ganesan)
लेखा सद य/Accountant Member या यक सद य/Judicial Member
चे नई/Chennai,
th
6दनांक/Dated, the 16 September, 2015.
Kri.
आदे श क/ - त7ल8प अ9े8षत/Copy to:
1. अपीलाथ,/Appellant
2. -.यथ,/Respondent
3. आयकर आय:
ु त (अपील)/CIT(A)-III, Chennai
4. आयकर आय:
ु त/CIT, Chennai-I, Chennai
5. 8वभागीय - त न ध/DR
6. गाड( फाईल/GF.