Income Tax Appellate Tribunal - Mumbai
Mahindra Intertrade Ltd , Mumbai vs Assessee on 30 April, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH, MUMBAI
BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND
SHRI VIJAY PAL RAO, JUDICIAL MEMBER
ITA no. 5178/Mum./2010
(Assessment Year : 2000-01)
Mahindra Intertrade Ltd.
Mahindra Towers, Worli
Mumbai 400 018
PAN - AAACM4745P ....................... Appellant
v/s
Dy. Commissioner of Income Tax
Circle-2(2), Aayakar Bhavan
101, M.K. Road, Mumbai 400 020 ................... Respondent
Revenue by : Mr. Pradeep Sharma
Assessee by : Mr. H.P. Mahajani
Date of Hearing - 26.08.2011 Date of Order - 30.09.2011
ORDER
PER J. SUDHAKAR REDDY, A.M.
This appeal preferred by the assessee, is directed against impugned order dated 30th April 2010, passed by the Commissioner (Appeals)-V, Mumbai, for assessment year 2000-01, wherein the Commissioner (Appeals) confirmed the penalty under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") imposed by the Assessing Officer vide his order dated 30th January 2009.
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2. Brief facts of the case are that, the assessee is a public limited company and its business is stated to be agency representation, export trading, export agency services, management services and processing & marketing of steel material through Mahindra Steel Service Centre Ltd. It filed its return of income on 29th October 2000, declaring a loss of ` 5,92,34,407. The Assessing Officer completed the assessment under section 143(3) on 12th March 2003, assessing the income at ` 7,10,09,070. The additions on which the penalty under section 271(1)(c) is levied and which are relevant for adjudicating the case are as follows:-
(i) disallowance of provisions for doubtful debts;
(ii) disallowance of provisions for diminution in the value of investment;
(iii) disallowance of provisions for premium on redemption of debenture;
(iv) depreciation on intangible assets (goodwill).
The Commissioner-II, Mumbai, vide his order dated 26th August 2004, confirmed these additions/disallowances in the quantum proceedings.
3. On further appeal, Mumbai "H" Bench of the Tribunal, vide its order dated 9th May 2008, had upheld these additions/disallowances and dismissed the appeal of the assessee. Thereafter, the Assessing Officer issued notice vide letter dated 13th January 2009, asking the assessee to show cause as to why, penalty should not be levied under section 271(1)(c) of the Act on the additions confirmed by the appellate authorities. It has to be mentioned that a notice initiating penalty proceedings under section 271(1)(c) was on a earlier date issued and served on the assessee and the assessee requested for dropping the penalty proceedings and alternatively to keep the penalty proceedings in abeyance till the decision of the first appellate authority. Hence, the levy was kept in abeyance. The Assessing Officer, after considering various explanations given by the assessee, came to a conclusion that the explanation is not bona-fide and that the issues in question are not debatable issues. He concluded that the assessee has filed 3 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 incorrect particulars of income and levied a minimum penalty of 100% of the tax sought to be evaded on the income.
4. Aggrieved, the assessee carried the matter before the first appellate authority, wherein the Commissioner (Appeals) rejected various contentions made by the assessee and confirmed the penalty. Further aggrieved, the assessee is in appeal before the Tribunal, on the following grounds:-
"1. On the facts and in the circumstances of the case and in law, the order passed by the Learned CIT(A), in so far as it holds that the order passed by the learned AO levying penalty u/s 271(1 )(c) is within period of limitation, is bad in law, as it is contrary to the provisions of the Proviso to section 275(1)(a) and the Circular issued by CBDT which circular was binding on the learned CIT(A).
2. On the facts and in the circumstances of the case and in law and without prejudice to the merits of the matter, the learned CIT(A) ought to have cancelled the order passed by the learned Assessing Officer levying penalty of ` 3,63,09,319/- u/s 271(1)(c) of the Income tax Act 1961 as bad in law being barred by limitation.
3. Without prejudice to the above, on the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the penalty of ` 3,63,09,319 u/s 271(l)(c) of the Income tax Act 1961 rejecting the contention of the Appellant that it had neither concealed its income nor furnished inaccurate particulars thereof and accordingly ought to have cancelled the order levying the penalty."
5. Learned Counsel, Mr. H.P. Mahajani, on behalf of the assessee, listed out various dates and submitted that the order imposing penalty under section 271(1)(c) was passed on 30th January 2009, and whereas the Commissioner (Appeals) had passed the order in quantum proceedings on 31st August 2004 and, hence, the order is barred by limitation in terms of proviso to section 275(1)(a), inserted by Finance Act, 2003, for the reason that the first appellate authority had passed order after 1st June 2003. He took this Bench through the wordings of this section and the proviso and submitted that the issue is now covered in favour of the assessee by the decision of Amritsar Bench of the Tribunal in the case of Tarlochan Singh & Sons (HUF) v/s ITO, (2008) 114 TTJ 82 (Amrit.) as well as the decision of Lucknow Bench of the Tribunal in ITO v/s Bloosom Floriculture, (2010) 134 4 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 TTJ 05 (Luck.). On the provisions of section 271(1)(c), learned Counsel submitted that the same does not apply as it presupposes passing of an order by the Commissioner (Appeals).
6. On merits, learned Counsel submitted that they are four items of disallowance on which the penalty is levied. He submitted that the provisions made were disallowed and such disallowance was confirmed by the Tribunal and that the assessee has carried the matter in appeal and the Hon'ble High Court has admitted the questions by accepting the contentions of the assessee that there is a substantial question of law. He submitted that, on the issue of provisions for doubtful debt and on the issue of depreciation on intangible assets, the High Court admitted the questions. In view of the decision of the Tribunal in M/s. Nayan Builders & Developers Pvt. Ltd. v/s ITO, ITA no.2379/Mum./ 2009, order dated 18th March 2011,it was submitted that once the High Court admits substantial question of law on an addition, it becomes apparent that the addition is certainly debatable and in such circumstances, no penalty is leviable. He further submitted that in case of claim for provision of doubt debts, the issue that is debatable, is the year of grant of deduction. He submitted that in the assessment year 2003-04, certain deductions were granted and similarly deductions were granted in other years also. He pointed out that the entire claim of more than ` 7,87,95,496, was allowed in subsequent years and hence the allowability is not in question . He argued that the assessee furnished full details, of this amount of provision for doubtful debts and that it has also demonstrated the factum of loss and the irrecoverable nature of the balance. He claimed that the issue is debatable and that the assessee was entitled to claim a deduction, even in cases where a simple provision is made in the accounts, instead of writing-off the same. For this proposition, he relied on the judgments of Hon'ble Calcutta High Court High Court in Hongkong and Shanghai Banking Corporation v/s CIT, (1955) 028 ITR 199 (Cal.) and Hon'ble Jurisdictional High Court in CIT v/s Jwala Prasad Tiwari, (1953) 024 ITR 537 (Bom.). He further relied on certain decisions to buttress his argument that in the process of writing-off of trade advance, it is not 5 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 necessary that the credit should be to the account of the individual parties. He submitted that what is important is a debit to the Profit & Loss account and that this constitutes write-off. He relied on the following case laws. Sarangpur Cotton Manufacturing Co. Ltd. v/s CIT, (1983) 143 ITR 166 (Guj.), Devi Films Ltd. v/s CIT, (1963) 49 ITR 874 (Mad.) and, Vithaldas H. Dhanjibhai Bardanwala v/s CIT, (1981) 130 ITR 95 (Guj.). He further argued that, even otherwise, trading losses are allowable and for this proposition, he relied on certain case laws. He further relied on Accounting Standard-1, notified by the CBDT under section 145 and submitted that prudence required that the assessee should provide for all known liabilities. He further pointed out that in the return of income, in respect of provisions for doubtful debts, an amount of ` 10,36,07,753, was originally claimed and in view of the amendment to section 36(1)(vii) by the Finance Act, 2001, w.e.f. 1st April 1989, a portion of the claim of ` 2,48,11,807, was withdrawn voluntarily by way of a letter. He claimed that this proves the bonafide conduct of the assessee. On a query from the Bench, the learned Counsel admitted that the requirements of section 36(2), have not been satisfied by the assessee in this case and that this issue is not in debate. Nevertheless, he submitted that the claim should be allowed either under section 28 or 37(1) of the Act. He submitted that there is nothing inherently wrong in the claim made by the assessee and it is a debatable issue and that mere disallowance cannot result in a penalty.
7. On the issue of diminution in the value of investment, learned Counsel submitted that these are trade investment. He submitted that investments were made in the shares of "M/s. Seeka Fashion" and the intention of the assessee was not to hold the shares, but to have better control on the business operations of "M/s. Seeka Fashion" as it would have resulted in the direct benefit for the assessee in export business. He pointed out that the amount advanced to "M/s. Seeka Fashion" was also written-off and under these circumstances, as the net-worth of "M/s. Seeka Fashion" was negative, the assessee wrote-off the investments. He submitted that the claim was made on the basis of prudence. On a query from the Bench, he submitted 6 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 that this issue was not carried before the High Court. He argued that this is also a debatable issue and relied on the following case laws in support of his claim for deduction. Patnaik & Co. Ltd. v/s CIT, (1986) 161 ITR 365 (SC); and Indian Commerce and Industries Co. P. Ltd. v/s CIT, (1995) 213 ITR 533 (Mad.).
8. On the provisions made for premium on debenture, he submitted that the limited issue is the year of allowability. He submitted that this is also a debatable issue as the Department had taken a view that the liability has not crystallised in the year. Such disallowance, as per the assessee, does not result in furnishing inaccurate particulars of income.
9. On 4th issue on the claim for depreciation on intangible assets, the learned Counsel submitted that various intangible assets could not be identified as the transfer took place by way of a slump sale. He submitted that the amount paid for the transfer in excess of net asset value, was treated as payment for intangible assets. On a query from the Bench with reference to Schedule-XIII to the annual accounts audited on 31st March 2000, under the head "Significant Accounting Policy" followed by the company read with Schedule-IV - "Fixed Assets" - the learned Counsel agreed that the company has treated the amount as "Goodwill" and had amortized the same over a period of ten years. Nevertheless, he relied on the decision of Delhi Bench of the Tribunal in DCIT v/s Tel-Abridge International Ltd., (2009) 126 TTJ 672, for the proposition that the claim in question is debatable and no penalty can be levied. He further relied on the decision of Mumbai Bench of the Tribunal in Koch Chemical Technology Group India Pvt. Ltd. v/s DCIT, ITA no.2680/ Mum./2009, order dated 28th January 2011, for the proposition that depreciation is allowable on intangible assets. He concluded his submissions by distinguishing the case laws relied upon by the Commissioner (Appeals) and submitted that no penalty can be levied when the addition on disallowance is made on a debatable issue. He relied on the following case laws - (i) CIT v/s Reliance Petroproducts Pvt. Ltd., (2010) 322 ITR 0158 (SC) and (ii) IDBI Ltd., 42 SOT 325 (Bom.).
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10. The learned Departmental Representative, Mr. Pradeep Sharma, arguing on behalf of the Revenue, strongly opposed the contentions of the assessee. He submitted that the assessee company is a subsidiary of "Mahindra & Mahindra" and is controlled by Mahindra & Mahindra Ltd. He pointed out that Mr. R.R. Krishnan and Mr. Zhooben Bhiwandiwala, who are in-charge of the assessee company, were formerly employees of Mahindra & Mahindra. He submitted that the assessee is advised by best of counsels and have experienced and capable management and a good legal team. He relied on the decision of Allahabad Bench of the Tribunal in ITO v/s Geep Industrial Syndicate Ltd., (1987) 23 ITD 448 (All.), and submitted that when advised by best of brains, the assessee cannot make such blatantly inadmissible claims. He pointed out that out of four additions sustained by the Tribunal, the assessee has not gone on appeal on two additions and only in the case of two additions, an appeal has been filed before the High Court.
11. On the issue of limitation, the learned Departmental Representative referred to Circular no.7/2003, reported in 263 ITR 62 (Stat.), and after reading the section and the proviso inserted, he submitted that the proviso only applies to the orders passed by the Commissioner (Appeals), which have not been appealed against before the Tribunal and that proviso does not apply to appeals which were pending before the Tribunal. He submitted that the proviso only expands the time of limitation from six months to twelve months, in cases where an order is passed by the Commissioner (Appeals). He relied upon the judgment of Hon'ble Madras High Court in Rayala Corporation P. Ltd. v/s Union of India, (2007) 288 ITR 452 (Mad.) and submitted that the section has been interpreted in this judgment and the same should be applied. On the case laws relied upon by the learned Counsel, the learned Departmental Representative submitted that in both the judgments i.e., Tarlochan Singh & Sons (HUF) (supra) and Bloosom Floriculture (supra), the judgment of Hon'ble Madras High Court in Rayala Corporation P. Ltd. (supra) was not considered. He submitted that the finding of the Commissioner (Appeals), that the order under section 8 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 271(1)(c) was passed by the Assessing Officer was within the period of limitation, has to be upheld.
12. On merits, the learned Departmental Representative submitted that the claims of the assessee are prima-facie not admissible and were not bonafide. Referring to the provisions of doubtful debts, he submitted that the preponderance of probability of the claim of the assessee being rejected was very high right from the beginning. He argued that the decision was taken consciously by the company though the claim is an abnormal claim. He pointed out that the provisions for doubtful debt, for advances to the tune of ` 10,36,07,303 was debited to the Profit & Loss account and claimed as deduction under sections 28, 36 or 37 of the Act as the case may be. The learned Departmental Representative contended that such vague claims show the intention of the assessee to reduce its tax liability. He submitted that just because a part of the claim has been allowed in subsequent years, genuineness of the claim cannot be accepted. He relied on the judgment of Hon'ble Madras High Court in CIT v/s Indian Overseas Bank, (1985) 151 ITR 446 (Mad.), for the proposition that only actual loss has to be allowed and not notional loss or anticipated loss. He submitted that the issue is not a debatable issue and merely because the High Court entertained the appeal, the issue does not become debatable. He further relied on the decision in CIT v/s K.A.R.K. Firm, (1934) 2 ITR 0183 (Rang.), for the proposition that the estimated diminution in the value of assets, based on re-valuation, cannot be allowed as a trading loss. He further submitted that the assessee has not given any break-up of the claim and in the light of the law, as it existed then, the same cannot be, prima-facie allowable under section 28 of the Act. He pointed out that provisions of section 36(2) has not been complied with and, hence, the claim under section 36(1)(iii) is not pressed by the assessee. He further submitted that the loss if any was in the capital field.
13. On the diminution in the value of investment as well as the provisions on premium on debenture, he submitted that the claims were prima-facie premature and findings of the Tribunal in the quantum proceedings show that the same are vague and inadmissible.
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14. On the depreciation claimed on intangible assets, the learned Departmental Representative pointed out that the understanding of the company and its auditors, as evident from its annual account, is that the amount was paid as goodwill. He submitted that the assessee made a blatantly false claim by stating that the payments were made for acquisition of intangible assets. He pointed out that no particulars were submitted till date and in the absence of such particulars, depreciation could not be allowed. He emphasized that if the assessee wanted to make a genuine claim, which is debatable, it should have paid the taxes and then made the claim but in this case, the assessee has not divulged any details and simply reduced its taxable income by making vague and inadmissible deductions from the income. Thus, he prayed that the order passed by the Commissioner (Appeals), be upheld. He relied on certain case laws which we would be dealing in due course.
15. In reply, the learned Counsel for the assessee submitted that the learned Departmental Representative is traveling beyond the penalty order which is not permissible. On intangible assets, he submitted that the entries or descriptions in the annual accounts, does not define the exact nature of the assets and the claim of the assessee cannot be said to be wrong. He submitted that paying taxes and then making a claim is not a relevant consideration for the purpose of levy of penalty. He submitted that the details were furnished in the annexure to the rejoinder and it is wrong to say that the details were not furnished by the assessee. He pointed out that the assessee was entitled to refund the taxes and in such circumstances, payment of taxes is not called for. He contended that making of alternative claim is not prohibited. He prayed for relief.
16. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, as well as the case laws cited before us, we hold as follows:-
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17. The first issue that has to be adjudicated is, whether the penalty order passed under section 271(1)(c) on 30th January 2009, is barred by limitation. The case of the assessee is that the Commissioner (Appeals), in the quantum proceedings, passed his order on 31st August 2004 and in view of the proviso to section 275(1)(a), the order of penalty dated 30-01-2009 is barred by limitation. An appeal in ITA no.8276/Mum./2004, against the quantum i.e order dated 30-08-2004 of C.I.T. (Appeals), was filed by the assessee before the Tribunal and the same was disposed off vide order dated 09-05-2008. The penalty order under section 271(1)(c) was passed by the Assessing Officer within a period of six months from the end of the month in which the order of the Tribunal was received by the Chief Commissioner / Commissioner in the quantum proceedings. To examine this issue we first refer to Section 275(1)(a) and the proviso which reads as follows:-
"SECTION 275 - Bar of limitation for imposing penalties (1) No order imposing a penalty under this Chapter shall be passed--
(a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later;
Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later."
18. A plain reading of this section shows that under section 275(1)(a), the requirement of the main section is that, when an assessment order is a 11 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 subject matter of appeal before the Commissioner (Appeals), then the penalty order should be passed, within a period of six months from the end of the month in which the order of the Commissioner (Appeals) is received by the Chief Commissioner / Commissioner. The proviso to this section was inserted w.e.f 1-06-2003, to expand this time period of six months to one year, in cases wherein the Commissioner (Appeals) passes an order on/after 1st June 2003 and no appeal is filed before the tribunal. The proviso does not deal with cases where the appeals are pending before the ITAT under section 253 of the Act. That limb of section 275(1)(a), which fixes the time limit of six months from the date of receipt of order of the ITAT by the Commissioner / Chief Commissioner, for passing an order of penalty is not disturbed in any manner by the insertion of the proviso. This is the interpretation of the Hon'ble Madras High Court in the case of Rayala Corporation Pvt. Ltd. v/s Union of India & Ors, (2007) 288 ITR 452 (Mad.), wherein it has held as follows:-
"A reading of the above said provision makes it clear that the interpretation placed by learned counsel for the petitioner on the said provision is acceptable. There is no dispute in this case that the petitioner has filed an appeal before the Tribunal and the same is pending. In such a case, the limitation period for the levy of penalty will be as provided for under s. 275(1)(a), i.e., six months from the end of the month in which the order of the Tribunal is received by the Chief CIT. There cannot be any doubt on this aspect. Accordingly, this Court is of the view that the proviso to s. 275 (1)(a) of the Act, does not nullify the availability to the third respondent of the period of limitation of six months from the end of the month when the order of the Tribunal, Chennai, is received by the third respondent herein."
19. Coming to the decision of Amritsar Bench of the Tribunal in Tarlochan Singh & Sons (HUF) as well as the decision of Lucknow Bench of the Tribunal in Bloosom Floriculture (supra), we find that the Benches did not have the benefit of the judgment of Hon'ble Madras High Court in Rayala Corporation P. Ltd. (supra). This case was not cited or considered. As the issue of interpretation of proviso to section 275(1)(a) has been considered and adjudicated upon by the Hon'ble Madras High Court and as this is the sole judgment on this issue from a High Court, we prefer to follow the same.
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20. In view of the aforesaid discussion, we uphold the findings of the first appellate authority and dismiss the ground raised by the assessee.
21. Coming to the merits of the case, the first issue is claim for "provisions for doubtful debts". The assessee had initially claimed deduction of "provisions for doubtful debts and advances" of ` 10,36,07,303, under section 36(1)(vii). During the course of assessment proceedings, the assessee partly withdrew his claim to the tune of ` 2,48,11,807. In the submissions made before the Commissioner (Appeals), on 6th November 2009, the company, vide Para-9/Page-6 of the paper book, states as follows:-
"9. It may not be out of place to mention that where the claim in the return of income in respect of "Provision for Doubtful Debts" was to the extent of ` 10,36,07,753, a sum of ` 2,48,11,807 forming part thereof was voluntarily offered to tax vide letter ref. no.TAX:MIL dt. 2.1.2003 in view of the amendment to section 36(1)(vii) by the Finance Act, 2001, with retrospective effect from 1.4.1989 (A.Y. 1989-
90). This also establishes the bona fide conduct of the assessee."
22. From the above, it is clear that the assessee has made a conscious claim under section 36(1)(vii), despite the retrospective amendment by Finance Act, 2001, w.e.f. 1st April 1989, wherein an explanation has been inserted clarifying that a provision for bad and doubtful debts made in the accounts of the assessee shall not be a part of any bad debt or part thereof written-off as irrecoverable in the books of account of the assessee. We do not understand as to why the assessee has withdrawn only the claim for ` 2,48,11,807 and still continue to claim the balance amount of ` 7,10,09,070. No explanation is forthcoming. A provision is made and claimed as a deduction.
23. The undisputed fact in this case is that the provisions of section 36(2) are not satisfied. The Tribunal, in its order in quantum proceedings, in ITA no.8276/Mum./2004, vide Para-3.2, noted this findings of the Assessing Officer. When the assessee admits that the provisions of section 36(2) are not satisfied, then how can it say that its claim under section 36(1)(vii) is 13 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 prima-facie correct. Thus, the claim under this section is not genuine and is made without any basis.
24. Coming to the alternative claim made under section 28 or 37(1), the Tribunal, vide Para-6.2 of its order in the quantum proceedings, observed that the assessee is hopeful of recovery of the amounts from various parties because, the assessee itself is making provisions in the Profit & Loss account and has not written-off the dues.. It also observed that without actual incurring the loss in this year, the loss cannot be allowed on the basis of provisions made in the books of account. The Commissioner (Appeals), in the quantum proceedings, has observed that the assessee has not treated this advance as loss assets by writing-off in the books of account, but has shown them under the head "provisions for bad and doubtful debts". He drew a clear distinction between the "provision" and actual "write-off" and held that the assessee itself is of the view that it is doubtful but not actual loss.He distinguished various case laws relied upon by the learned Counsel which were relied on before us also on the ground that these were pre amendment case laws. We agree that these case laws are not applicable anymore. The assessee has not demonstrated that the loss has crystallized in this year and that this is a loss in the revenue field and not in the capital field as admittedly, the amounts have not been taken into account as required under section 36(2).
25. Before us, the learned Counsel cited a number of case laws to demonstrate his point that the claim was a possible legal claim and that the issue is a debatable issue. We do not think so. In the case of Hongkong and Shanghai Banking Corporation v/s CIT, (1955) 028 ITR 199 (Cal.) and Hon'ble Jurisdictional High Court in CIT v/s Jwala Prasad Tiwari, (1953) 024 ITR 537 (Bom.) the courts were dealing with pre amended law. Actual loss verses probable estimated reduction in value was not the issue. The Hon'ble Supreme Court, in Patnaik & Co. Ltd. (supra), was considering the claim of a loss sustained on disposing of the assessee's subscription to the Orissa Govt. floated loan. This is a case where there was a sale and the question was whether the loss was in the capital field or in the revenue field. In the case 14 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 on hand, it is a mere provision. The Hon'ble Madras High Court, in Indian Commerce and Industries Co. P. Ltd. (supra), was considering a case where the company has sold the shares acquired by it and incurred a loss. Here also, it is not a case of a provision. On the other hand, we find that the Commissioner (Appeals) has rightly relied on the judgment of Hon'ble Jurisdictional High Court in Salem Mangnesite Pvt. Ltd. v/s CIT, (2009) 180 Taxman 545 (Bom.) which considered the case of write-off of a part of loan given to a subsidiary company, wherein the assessee was not in a money lending / finance business and, hence held that the loss was not allowable.
26. Though, the first appellate authority relied on certain other judgments, it would not be suffice to say that this claim was not prima-facie admissible for the reason that - (i) the conditions under section 36(2) were not satisfied and, hence, no allowance can be made under section 36(1)(vii) irrespective of the insertion of the proviso to Sec. 36(1)(vii); (ii) as admittedly, the loss has not crystallized during the year, the claim could not have been made either under section 28 or 37 of the Act; and (iii) It is not proved that the loss is in the revenue field.
27. As rightly pointed out by the learned Departmental Representative, the company is managed by experienced persons and it has the assistance of well reputed legal advisors. In those circumstances, it cannot be held that the claim was inadvertently made. In our opinion, the claim was not bonafide and was made without any basis. The assessee in its explanation was not able to substantiate its case and has failed to prove that such explanation is bonafide.
28. We now take up the issue of "provisions for diminution in the value of investments". The undisputed facts are that, the assessee has not sold the shares in question and has claimed a notional loss. This claim of loss is made on a mere diminution in the value of investments. Reliance placed on the judgment in the case of Patnaik & Co. Ltd. (supra) and Indian Commerce and Industries Co. P. Ltd. (supra), are distinguishable, as in those cases, there was actual sale of the assets. In the case on hand, the loss was 15 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 claimed on re-valuation of an asset. There is no transfer of any asset. This is prima-facie not allowable and is not made on any provision of law. This is the reason that the assessee has chosen not to carry the issue in further appeal. By no stretch of imagination, this can be called as a debatable issue. The assessee has attempted to make out a case that this investment was for operational reasons. Such an explanation is devoid of merit.
29. Coming to the claim of "provisions for premium on debenture", though the assessee has cited a number of case laws, the fact remains that the liability arises only on happening of an event i.e., the debenture holder not opting to convert the debenture held into equity shares of the company at par, at any time after six months from the date of issue. The company also had such an option. When the option to redeem the debenture is not exercised, the question of liability to pay premium does not arise. When an event has not occurred, there is no crystallization of liability and no loss can be allowed under the Act. In our opinion, this claim is also prima-facie wrong. It is premature. The assessee has accepted the same and has not carried the matter in further appeal.
30. The last issue is the disallowance of claim for depreciation on what the assessee calls intangible assets. The assessee entered into agreement with Mahindra & Mahindra on 1st September 1999, for the purchase of intertrade division of Mahindra & Mahindra as a going concern basis. The purchase consideration was over and above the net asset's value of the concern. The assessee, in its annual accounts, treated this amount as goodwill. In Schedule-XIII, under the head "Significant accounting policy followed by the company" under the sub-head "fixed asset", it is stated as follows:-
"Goodwill arising on acquisition of business is being amortized over a period of 10 year"
31. In Schedule-IV, which gives fixed assets, the entire value has been shown as intangible and 10% claimed as amortized expenditure. No details on intangible assets have been given at any stage of the proceeding. The assessee in the submissions and explanations states that the intangible 16 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 assets in question consists of technical knowhow (technical and commercial information, trademark, brand name, franchise, patient, etc.). These submissions are contrary to the understanding of the management of the assessee company, as well as the understanding of its auditors, as evident from the annual accounts, wherein this amount was considered as goodwill. Thus, in our considered opinion, the assessee has deliberately furnished inaccurate particulars by trying to show goodwill, as certain other intangible assets with a view to claim depreciation. Such false claim cannot be considered as a debatable or a possible claim. The Tribunal, in quantum proceedings, has rightly observed that, merely saying that there are certain intangible assets does not warrant grant of depreciation. The term "goodwill" has not been mentioned anywhere in the claim for deduction. It could be culled out only from the annual accounts.
32. In view of the above discussion, we have no hesitation in holding that, in the case of all these additions / disallowance, the issues cannot be considered as debatable and it is a case where the assessee has consciously furnished inaccurate particulars of income.
33. Thus, the case laws relied upon by the assessee i.e., the decision of the Hon'ble Supreme Court in Reliance Petroproducts Pvt. Ltd. (supra) and other case laws do not apply as the facts of the case is different. On the other hand, we are of the considered opinion that the judgment of the Hon'ble Delhi High Court in CIT v/s Zoom Communication Pvt. Ltd., 327 ITR 510 (DELHI) is applicable to the facts of this case. In this case of the Honourable Delhi High Court after considering the judgment of the honourable supreme court in the case of Reliance Utilities (supra), has 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 bonafide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) of the Act.
34. Coming to the decision of M/s. Nayan Builders and Developers P. Ltd. (supra), we find that the Delhi Bench of the Tribunal in ACIT v/s Khanna 17 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 Annadhanam, ITA no.1395/Del./2005, order dated 22nd July 2011, held that the admission of substantial question of law by the High Court, does not necessarily mean that no penalty can be leived under section 271(1)(c), as there is no such general proposition of law and that the issue should be decided on facts of the case. We prefer to follow the ratio of the decision of the Delhi Bench of the Tribunal in Khanna Amnadhanam (supra) for the following reason. The term, 'substantial question of law' as seen under section 100 Code of Civil Procedure in respect of filing of second appeal came to be explained by the Supreme Court in Santosh Hazari v/s Purushottam Tiwari (2001) (251 ITR 84) and the relevant portion is as follows:
"The word "substantial" as qualifying "question of law", means having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contra distinction with technical, of no substance or consequence, or academic merely. The expression "substantial question of law"
has not been suffixed by the words "of general importance" as has been done in other provisions such as section 109 of the Code of Civil Procedure or article 133(1)(a) of the Constitution of India. The substantial question of law, on which a second appeal shall be heard, need not necessarily be a substantial question of law of general importance."
The term substantial question of law does not necessarily mean that the issue is debatable. The issue may be an important issue but not necessarily debatable. In this case, on facts, we have come to a conclusion that the claims are speculative, untenable, wholly without basis and legally incorrect. The Hon'ble Delhi High Court in CIT v/s Splender Construction, Income Tax Appeal no.1977 of 2010, judgment dated 14th January 2011, vide Para-9 of its judgment, has held as follows:-
"The Tribunal has side tracked the main issue. It was obvious that conversion of the land into investment just before the sale of the property was made to avoid payment of full taxes. Though the AO accepted the conversion, the assessee's claim that the gains was a LTCG amounted to furnishing inaccurate particulars of income. The issue was not debatable as held by the Tribunal. Though the appeal was admitted by the High Court, the Tribunal glossed over a very important and fundamental fact that the appeal was admitted and dismissed on the same date. Accordingly, when the order of the AO in quantum proceedings was sustained by all successive authorities and
18 Mahindra Intertrade Ltd.
ITA no.5178/M/2010 the High Court also dismissed the appeal at the admission stage, albeit after admitting the same, it cannot be said that the issue was debatable."
Respectfully following the aforesaid judgment of the Hon'ble Delhi High Court, we reject the contentions of the assessee.
35. In view of the above discussion, we confirm the order of the Commissioner (Appeals) and dismiss the grounds of the assessee.
36. In the result, assessee's appeal is dismissed.
Order pronounced in the open Court on 30th September 2011 Sd/- Sd/-
VIJAY PAL RAO J. SUDHAKAR REDDY
JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 30th September 2011
Copy to:
(1) The Assessee;
(2) The Respondent;
(3) The CIT(A), Mumbai, concerned;
(4) The CIT, Mumbai City concerned;
(5) The DR, "B" Bench, ITAT, Mumbai.
TRUE COPY
BY ORDER
Pradeep J . Chowdhu ry ASSISTANT REGISTRAR
Sr. Private Secretary ITAT, MUMBAI BENCHES, MUMBAI