Income Tax Appellate Tribunal - Delhi
Penta Software Pvt. Ltd., New Delhi vs Assessee on 24 January, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "F" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA
ITA No. 1054/Del/11
Asstt. Yr: 2007-08
M/s Penta Software Pvt. Ltd. Vs. Income-tax Officer,
J-10, Green Park Main, Ward 14(2), New Delhi
New Delhi-110048.
PAN/ GIR No.AACCP5669H
( Appellant ) ( Respondent )
Appellant by : Shri T.R. Talwar Adv.
Assessee by : Shri Surjan Mohanty Sr.DR
ORDER
PER R.P. TOLANI, J.M::
This is assessee's appeal against CIT(A)'s order dated 24-01-2011 relating to A.Y. 2007-08. Sole effective ground raised is as under:
"On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred:
(i) in confirming the penalty of Rs. 50,000/- u/s 271(1)(c) of the Income Tax Act ignoring the assessee's explanation."
2. Brief facts are: The assessee company is a 100% export oriented unit and is engaged in the business of rendering information technology enabled service out side India. It filed its return of income for A.Y. 2007-08 at Nil on 31-10-2007 claiming exemption u/s 10B of the Act besides setting of unabsorbed depreciation of Rs. 94,495/- of earlier assessment year against income from other sources of Rs. 94,495/- comprising of bank interest of Rs.
213,330/- interest on income tax refund of Rs. 75,583/- and misc. expenses of Rs. 5,582/-.
2.1. The AO while finalizing the assessment u/s 143(3) did not allow the set off of unabsorbed depreciation as claimed by the assessee in view of the explanation of sub-clause (iv) of clause 6 of Sec. 10B after rejecting the assessee's explanation that it is not applicable to the assessee's case and assessed the company at an income of Rs. 94,495/-. He also initiated penalty proceedings u/s 271(1)(c) of the I.T. Act.
2.2. During penalty proceedings the assessee company pleaded its bona fide in claiming the set off of unabsorbed depreciation also stating that it has fully disclosed the facts relating to the same and material to the computation of its income and the difference of opinion on a claim bona fidely made by itself does not warrant penalty if the facts relating to the same are disclosed.
2.3. The AO did not agree with the assessee's explanation and levied a penalty of Rs. 50,000/- u/s 271(1)(c) as against the alleged tax sought to be avoided of Rs. 31,807/-.
2.4. Aggrieved, assessee preferred first appeal, where assessee contended as under:
(i) The assessee had claimed set off of unabsorbed depreciation of Rs.
94,495/- of A.Y. 2003-04 for which no exemption was claimed u/s 10B of the I.T. Act, 1961 by the assessee. The AO did not allow 3 the set off as claimed by the assessee in its computation of income against the income from other sources during the year on the ground that the unabsorbed depreciation is not allowable against the income under the head "Income from other sources" viz interest and other miscellaneous income. The same is allowable u/s 32(2) as held by the Delhi High Court in Escorts Electronics Ltd. Vs. CIT (2002) 258 ITR 23 (Del.). It has been held that t he unabsorbed depreciation carried forward from earlier years could be set off against the income assessed u/s 56 as income from other sources. The Hon'ble High Court in its judgment followed the Apex Courts decision in CIT Vs. Jaipuria China Clay Mines (P) Ltd. (1966) 59 ITR 555(SC), Rajapalayam Mills Ltd. Vs. CIT (1978) 115 ITR 777 (SC) and CIT Vs. Virmani Industries (P) Ltd. (1995) 216 ITR 607 (SC).
(ii) The AO has wrongly inferred that this set off is not allowable in view of sub clause (iv) of clause 6 of section 10B of the Act, which only lays down the method of determining the WDV of any asset used for the purposes of the business of the assessee undertaking for the year under consideration. Hence, it is not applicable to assessee's claim under consideration. As per sub clause (i) of clause 6 of section 10B of the Act, the provisions of section 32(2), so far the claim of depreciation prior to 1-4-2001 is concerned, shall not apply. In assessee's case the claim of unabsorbed depreciation pertains to the A.Y. 2003-04.
(iii) The assessee has disclosed all the material facts relating to the claim of the assessee. Unabsorbed claims were already assessed and after furnishing all the relevant particulars, facts and material, 4 assessee made a bona fide claim which was supported by Hon'ble Delhi High Court in the case of Escorts Electronics Ltd. (supra). Though there were contrary views by Hon'ble Karnataka High Court in the case of CIT Vs. Himmatasingike Seide Ltd. (2006) 286 ITR 255 (Kar.), Delhi High Court being jurisdictional High Court, assessee made a claim in accordance with the ratio of decision of Jurisdictional High Court. The issue has been later settled by the Hon'ble Supreme Court in the case of Liberty India __ 317 ITR 218. The bona fide claim made by the assessee, which may be subject matter of legal opinion, can be made by it more particularly when assessee's view is supported by the decision of Jurisdictional High Court. AO may have a different view consequent to subsequent Supreme Court judgment, but it cannot be held that at the time of filing of return assessee wanted to avoid or evade the tax. Making a legal claim, based on one of the possible views, which is accepted by Jurisdictional High Court, cannot be held to be ex facie inadmissible claim.
(iv) Learned CIT(A) has confirmed the penalty relying on Delhi High Court in the case of Escorts Electronics Ltd. (supra). It is pleaded that the CIT(A) imposed the penalty on a wrong premise. While making a claim there can be two exigencies:
(a) An ex facie inadmissible claim is made which was the issue in the case of CIT Vs. Zoom Communication (P) Ltd. 327 ITR 510 (Del.); and CIT Vs. Escorts Finance Ltd. 188 Taxman 87 (Del.);
(b) There is a bona fide though debatable legal claim and the assessee's view is supported by another High Court and 5 accepting assessee's case particularly by Delhi High Court. This type of case cannot be termed as ex facie inadmissible claim. This is so because the assessee's claim is based on the interpretation of a High Court judgment and the same cannot be said ex facie inadmissible, therefore CIT(A) without looking at the facts of the case, in a summary manner, in the last two lines of his order has mechanically applied above judgments, ignoring catena of judgments cited by the assessee, as mentioned below:
- CIT vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 158(SC)
- CIT Vs. Kerala Spinners Ltd. (2001) 247 ITR 541 (Ker.)
- CIT Vs. KR Chinni Krishna Chetty (2000) 246 ITR 121 (Mad.)
- K.C. Builders & Another Vs. ACIT (2004) 265 ITR 562(SC)
- CIT Vs. Bacardi Martini India Ltd. (2007) 288 ITR 585(Del.)
- CIT Vs. Harshwardhan Chemicals & Mineral Ltd. (2003) 259 ITR 212(Raj.).
Therefore, penalty may be deleted.
3. Learned DR, on the other hand, relies on the orders of lower authorities and further contends that the assessee in the course of assessment proceedings has accepted the additions and did not file the appeal. If its return of income had not been picked up for scrutiny u/s 143(3), the assessee's claim would have been accepted causing loss to revenue.
64. We have heard rival submissions and have gone through the relevant material available on record. Apropos, the last argument of learned DR, since the return has been scrutinized we cannot visualize the hypothetical situation. Besides, if the assessee has made a wrong claim and is accepted u/s 143(1), AO has adequate ways to deal with the situation by issuing notice u/s 143(2) in stipulated time or u/s 148 in time, therefore, there this argument does not reflect any substantial issue.
4.1. Coming to the merits of the case, the assessee's claim seems to be based on bona fide basis. Hon'ble Delhi High Court in the case of Escorts Electronics Ltd. (supra), has held that unabsorbed depreciation carried forward from earlier year can be set off against income under the head "Income from other sources". This being so, even if assessee's interest income was assessable under the head "income from other sources", it could be set off with unabsorbed depreciation. Thus, the plea that assessee's claim is supported by a Delhi High Court judgment, cannot be ruled out. If the assessee does not make a claim in the return of income, it can never be allowed to it as held by Hon'ble Supreme Court in the case of Goetze (India) Ltd. 284 ITR 323. In view thereof, the only way for the assessee was to make a claim in return of income which is subject to examination by AO under I.T. Act.
74.2. The Hon'ble Delhi High Court in the case of Zoom Communication (P) Ltd. (supra); and Escorts Finance Ltd. (supra) has held that if the assessee makes ex facie (on face of it) inadmissible claim, the same is liable for penalty. In the instant case, there is a Delhi High Court judgment which in one way or the other supports assessee's claim. Under these circumstances, we are unable to hold that the assessee's claim was ex facie inadmissible. Hence, ratio of decisions in the cases of Zoom Communication (P) Ltd. (supra); and Escorts Finance Ltd. (supra) are not applicable to assessee's case. The assessee's claim having an element of debate and having element of support of Hon'ble Delhi High Court Judgment, cannot be held liable for concealment penalty. Our finding is supported by the ratio of decisions cited by the assessee, which are mentioned above. In view thereof, we delete the penalty in question.
5. In the result, assessee's appeal is allowed.
Order pronounced in open court on 29-04-2011.
Sd/- Sd/-
( B.C. MEENA ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 29-04-2011.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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