Income Tax Appellate Tribunal - Panji
Chambal Fertilisers And Chemicals ... vs Acit, Kota on 25 September, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ ITA. No. 621/JP/16
fu/kZkj.k o"kZ@Assessment Year : 2009-10
M/s Chambal Fertilisers & cuke The ACIT,
Chemicals Limited Gadepan, Vs. Circle-2,
District-Kota. Kota.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAACC9762A
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri M.L. Patodi &
Shri P.J. Pardiwalla
jktLo dh vksj ls@ Revenue by : Shri Varinder Mehta
lquokbZ dh rkjh[k@ Date of Hearing : 30/06/2017
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 25/09/2017
vkns'k@ORDER
PER SHRI VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the assessee against the order of ld. CIT(A), Kota dated 15.03.2016 confirming the levy of penalty u/s 271(1)(c) of the Act wherein the assessee has taken the following sole ground of appeal:
"That the Ld. Assistant Commissioner of Income Tax, Circle 2, Kota erred in imposing the penalty u/s 271(1)(c) of the Income Tax Act and that the Ld CIT (Appeals) Kota erred in maintaining the penalty of Rs. 31,84,461/- under the facts and circumstances of the case. Hence the penalty of Rs. 31,84,461/- imposed u/s 271(1)(c) of the Income Tax Act should be set aside."ITA No. 621/JP/16
M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota
2. Briefly the facts of the case are that the assessment proceedings in this case was completed u/s 143(3) of the Act wherein the AO made addition in relation to previous year expenses (prior period expenses) amounting to Rs. 25,00,816/- and reduced the depreciation claim amounting to Rs. 68,68,000/- among other additions/disallowances. Separately, the penalty proceedings u/s 271(1)(c) of the Act were initiated separately for furnishing inaccurate particulars of income. Subsequently, the assessee carried the matter in appeal before the ld. CIT(A) who sustained the aforesaid additions. Thereafter, the AO issued a fresh show cause on 06.01.2014. During the course of penalty proceedings, in respect of prior period expenses, the assessee submitted the breakup of the expenses which are duly recorded in the books of account and submitted that under no stretch of imagination, the same can be considered as furnishing inaccurate particulars of income. The AO didn't accept the said explanation of the assessee and has held that expenses should have been charged on accrual basis of accounting and charging expenses of one financial year in another financial year is nothing but furnishing inaccurate particulars of income. Regarding depreciation claim, the AO noted that the main argument of the assessee is that this addition has been made at their own request and therefore, no penalty should imposed u/s 271(1)(c) of the Act. The AO, however, didn't accept the said explanation as the assessee could have revised its return of income which it has failed to do so. Further, as per AO, if the return of income for this year was not selected for scrutiny, then the assessee may not have corrected this faulty claim of depreciation at all. It was accordingly held that the assessee has furnished inaccurate particulars of income in relation to excess claim of depreciation. After considering the reply of the assessee but not accepting the explanation so offered, the AO levied penalty of Rs. 31,84,461/- in relation to aforesaid additions so sustained by the ld. CIT(A).
2 ITA No. 621/JP/16M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota
3. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and has submitted the following explanation regarding previous year expenses as well as reduction in depreciation claim. During the course of hearing, the ld. AR drawn our attention to the explanation so offered of the assessee furnished before the ld. CIT(A). It would therefore be relevant to refer to the explanation of the assessee which is reproduced as under:-
"a) previous year expenses-addition sustained of Rs. 25,00,816/-:
The assessee had contended that the expenses were finally settled and crystallized during the year under consideration. The details of previous years expenses are as under:
Income of co-marketer arrangement excess booked in AY 2008-09 reversed in AY 2009-10 Rs 9,43,693/-
Warehousing penalty paid to NAFED not waived
despite request Rs 11,50,279/-
Travel bill final adjustment Rs 2,67,780/-
Expenses relating to rent & salary of earlier years Rs 1,39,064/-
Rs 25,00,816/-
Further particulars relating to the major expenses are as under:
1. Rs. 9,43,693:- the Income of co-marketer arrangement was by oversight, booked in excess vide document no. 100247242 dt. 31.03.2008 in the financial year 2007-08 and the error was noticed by us in next financial year i.e. FY 2008-09 and the same was corrected through document no.
100105008 dt. 30.09.2008. This was nothing but a reversal of excess income 3 ITA No. 621/JP/16 M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota credited in the earlier year (having suffered tax thereon in the previous year) and is not really an "expense" relating to the earlier year.
2. Rs. 11,50,279:- Due to some quality issues, the assessee did not lift the material from the warehouse of National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) and sent a request to NAFED to waive off the penal godown rent for such period. The assessee was hopeful of such waiver. However, NAFED did not accept the request and the same was known to the assessee only after closure of the financial year, hence the expenses were accounted for in FY 2008-09 through document no. 100107966 dt. 15.10.2008.
3. Rs. 2,67,780:- During the financial year 2007-08 the assessee arranged a tour for its business associates through M/s Lionel Holdings. Initially an advance of Rs. 8,71,600/- was given to M/s Lionel Holidays and the balance amount was to be settled after receipt of final bill. But the final bill was misplaced and was finally traced in December 2008 and the same was processed through document no. 100135535 dt. 31.12.2008.
As can be seen from the nature of expenses/reversal of incomes, all the "expenses" were routine ones have a perfectly reasonable explanation. Further, in the larger scheme of things, the expense only forms 0.013% of the total expenditure (excluding purchases & raw material) of the assessee and deserves to be excused on the basis of materiality alone. It may be pointed out that at no point has there been any doubt that the expenditure was bogus or not an allowable one. The only point of dispute is that belonged to earlier years.
b) Reduction in depreciation claim addition sustained at Rs. 68,68,000/-
The assessee's intermediate product is an excisable one. Assessee pays excise duty on its intermediate product viz Ammonia, which is generally paid through 4 ITA No. 621/JP/16 M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota CENVAT credit. As per rule 4(2) of the CENVAT credit rules, 2004, CENVAT credit of excise duty paid on Capital goods can be availed for an amount not exceeding 50% of the duty paid on such capital goods in the financial year in which the capital goods are received in the plant and the balance of CENVAT credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the plant.
In view of above provision, the assessee wanted to avail CENVAT credit of Rs. 3,92,45,717/- of excise duty paid on Capital goods received at the plant in the financial year 2008-09 (Assessment year 2009-10). Such excise duty formed part of the capital cost of the assets capitalized in the books of accounts. The assessee had not availed CENVAT credit on such Capital goods in the year of receipt in the plant or thereafter. However, looking to the likely excise liability on the intermediate product, the assessee decided to avail such credit. Naturally, the benefit of depreciation could not also be taken on such excise duty component.
Thus the assessee, made a reduction in claim of depreciation by Rs. 68,68,000/- being depreciation (including additional depreciation) on the amount of CENVAT credit being availed of excise duty paid on Capital goods.
The following points may kindly be noted.
• There was never any dispute about the payment made in respect of Central Excise.
• The withdrawal of claim of depreciation on Central Excise component was voluntary and before the completion of assessment. • The two legally correct options were available to the assessee and there was merely a change in the option opted for by the assessee. • There was no concealment of income or provision of inaccurate particulars by the appellant.
5 ITA No. 621/JP/16M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota From the above it is evident that the addition does not warrant the levy of penalty.
We place reliance on the following cases:-
C.I.T Vs. Reliance Petroproducts (p) Ltd. (2010) 322 ITR 158 (SC) In this case it was concluded that merely because the assessee claimed deduction of interest expenditure, which has not been accepted by the Revenue, penalty u/s 271(c) is not attracted. Mere making a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.
CIT Vs Durr India Private Ltd (2014) 97 DTR 160 (Mad) It was held that where there was nothing on record to show that the assessee had concealed income with a dishonest intention or furnished inaccurate particulars either deliberately or as a result of gross negligence which was not capable of being regarded as an innocent act, levy of penalty u/s 271(1)(c) was not justified.
CIT Vs. Ajaib Singh & Co. 253 ITR 630 ( Puj. & Har.) Disallowance of expenses per se cannot mean that the assessee has furnished incorrect particulars of its income.
CIT Vs. Inden Bislers 240 ITR 943 (Mad.) Mere disallowance of expenditure does not warrant levy of penalty.
Kiran Electricals V/s State of Tamil Nadu- 11 VAT Reporter 159 Where transaction disclosed in the books of Accounts and claimed exemption- penalty not leviable.6 ITA No. 621/JP/16
M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota Ramlakshmi Spinners (P) Ltd Vs Income Tax Officer Disallowance of claim of depreciation, investment allowance and erection charges in a particular year (which is allowed in another year) would not automatically lead to the conclusion that the assessee had furnished inaccurate particulars with regard to such claim to attract penalty under section 271(1)(c).
Considering the above submissions and facts on record, it is submitted that the Assessee Company is not covered under the penalty provisions of Section 271(1)(c) of the Income-tax Act, 1961."
4. The ld. CIT(A) however didn't accept the said explanation of the assessee and has confirmed the levy of penalty. The ld. CIT(A) has referred to the decision of Hon'ble Supreme Court in the case of Mak Data (P.) Ltd. and decision of Coordinate Bench in case of Asia Pacific Performance SICAV and has given the following finding while confirming the levy of penalty which is reproduced as under:-
"What has not been done by the A.O. is reaching automatic conclusion based on appellate order, but he has examined the issue independently and reasoned why the claims were inadmissible. The use of words like "oversight", "misplaced" bills, "quality issues" later on leading to penal amount being imposed in the assessee's submissions show that these were intentional wrong claims in the accounts which the assessee has tried to justify by stating that these formed merely 0.13% of the total expenses and should be excluded from penalty on the basis of "materiality" alone. Further the wrong claim of depreciation even if made at assessee's own request gets squarely covered by the judgment of Apex Court in Mak Data referred above. The assessee offered the wrong claim of depreciation to be reversed only after the matter was being examined in the scrutiny proceedings u/s 143(2). Hence the explanation would not fall under the category of a "bonafide"
one.
7 ITA No. 621/JP/16M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota Thus in a totality of circumstances in view of the facts and the legal precedents as replied upon above, I am of the opinion that the action of the assessee in making certain claims which were not allowable with full knowledge and later offering some of them for taxation in the course of assessment proceedings were malafide and therefore sufficient for attracting penal proceedings. The penalty of Rs. 31,84,461/- levied u/s 271(1)(c) is accordingly sustained."
5. The ld. DR has vehemently argued the matter and supported the order of the lower authorities.
6. We have heard the rival contentions and perused the material available on record. Firstly, regarding prior period expenses on which penalty has been levied, it is noted that it comprises of reversal of prior period income of Rs 9,43,693 relating to income under the co-marketer arrangement which was booked in excess in the previous financial year and now been reversed during the current financial year. It is thus not an expense but a reversal of income excess booked earlier and now been rectified during the year under consideration. The other expense relates to godown rent of Rs 11,50,279 for which a request was made by the assessee to NAFED for waive off in the previous financial year however, the final decision of NAFED was received by the assessee during the subject financial year wherein NAFED refused to waive off the rent. Since the assessee didn't lift the material from the godown of NAFED during the previous financial year, it was contesting its liability to pay the godown rent which was finally crystallised during the year under consideration and accordingly, the same was claimed. Regarding travel bill of Rs 267,780, the same was finally traced and processed in December 2008. Regarding each of these claims/reversals, the assessee has offered the necessary explanation which is not proved to be false and all the facts relating to the same including appropriate documentation has been disclosed by it. In view of the same, we are of the view that the additions so made by the AO 8 ITA No. 621/JP/16 M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota during the quantum proceedings doesn't lead to furnishing of inaccurate particulars of income and consequent levy of penalty.
7. Now coming to the issue of levy of penalty on reduction in depreciation claim of Rs 68,68,000. During the course of assessment proceedings, the assessee has submitted vide its letter dated 24.11.2011 that it had paid excise duty on capital goods which has been capitalised as part of cost of capital assets and a decision has been taken now (during the pendency of the assessment proceedings) to avail CENVAT credit of excise goods so paid on the capital assets. Accordingly, the actual cost of the asset so capitalised was reduced and a reduction in total depreciation claim of Rs 68,68,000 was submitted during the course of assessment proceedings.
Here, it's relevant to note the findings of the AO where he says, "as requested by the assessee, claim of depreciation made by the assessee will be reduced by Rs 68.68 lakhs."
As per provisions of Section 43 read with Explanation 9, it is provided that where an asset has been acquired by the assessee, the actual cost of the asset shall be reduced by the amount of duty of excise in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944.
8. In light of above, it is clear that a decision to avail cenvat credit was made during the course of assessment proceedings itself and there was no occasion for the assessee to revise its return of income at any earlier occasion. Secondly, from the perusal of assessment order, it nowhere appears that the AO has raised any specific query and in response, the assessee has revised its claim of depreciation, rather it is a case where the AO has accepted the request so made by the assessee where the assessee has submitted a reduction in its depreciation claim. The AO has not disputed the 9 ITA No. 621/JP/16 M/s Chambal Fertilisers & Chemicals Ltd. Vs. ACIT, C-2, Kota explanation so offered by the assessee during the course of assessment proceedings. Rather, it shows the bonafide on part of the assessee who has come forward and submitted a reduction in its depreciation claim in view of its decision to avail CENVAT credit on excise duty so paid and in due compliance to the provisions of section 43 read with explanation 9 thereto. Further, the necessary facts and figures and related documentation relating to CENVAT credit has been submitted and duly disclosed by the assessee. In view of the same, we are of the view that the reduction in the depreciation claim so made by the AO during the quantum proceedings doesn't lead to furnishing of inaccurate particulars of income and consequent levy of penalty.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 25/09/2017.
Sd/- Sd/-
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(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Jaipur
Dated:- 25/09/2017
Santosh*
vkns'k dh izfrfyfi vxzsf"kr@Copy of the order forwarded to:
1. vihykFkhZ@ The Appellant- M/s Chambal Fertilisers & Chemicals Limited Gadepan, District-Kota.
2. izR;FkhZ@ The Respondent- ACIT, Circle-2, Kota.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT,
6. xkMZ QkbZy@ Guard File (ITA No.621/JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant Registrar.10