RAJENDRA V. SHAH, MUMBAI V. DCIT 8(2), MUMBAI

ITA 1005/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49165 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 04-03-2010
• Assessment Year: 1989-1990
• Appeal Filed On: 13-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Assessee Lawyers: AJAY C GOSALIA
• Keywords: Depreciation; Date of conversion
• Section: 143(3); 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1005/MUM/2009 (ASSESSMENT YEAR: 1989-90) SHRI RAJENDRA V. SHAH DCIT - 8(2) C/O. S. SHAH & ASSOCIATES AAYAKAR BHAVAN G-5,SNOW WHITE SOCIETY, AZAD RD. VS. MUMBAI 400020 VILE PARLE (E), MUMBAI 400057 PAN - AKRPS 6891 E APPELLANT RESPONDENT APPELLANT BY: SHRI AJAY C. GOSALIA RESPONDENT BY: SHRI T.T. JACOB O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- VII, MUMBAI DATED 112.12.2008 CONFIRMING THE PENALTY OF RS.10,38,777/- LEVIED BY THE A.O. UNDER SECTION 271(1)(C). 2. THE BRIEF FACTS LEADING TO THE PRESENT ISSUE IS THA T THE ASSESSEE, AN INDIVIDUAL, FILED RETURN OF INCOME ON 30.10.1989 DE CLARING TOTAL LOSS OF RS.97,258/-. DURING THE RELEVANT ACCOUNTING PERIOD THE ASSESSEE WAS HAVING A PROPRIETARY BUSINESS IN THE NAME AND STYLE OF M/S . PAINTEX CHEMICAL CORPORATION. THE SAID PROPRIETARY BUSINESS WAS CONV ERTED INTO PARTNERSHIP FIRM IN FEBRUARY 1989 AND THEREAFTER INTO A COMPANY , M/S. PAINTEX CHEMICAL (BOMBAY) PVT. LTD. BY DISSOLVING THE PARTNERSHIP FI RM W.E.F 01.04.1989. DURING THE YEAR THE ASSESSEE HAD DERIVED INCOME FRO M PROPRIETARY BUSINESS AS WELL AS BY WAY OF SHARE OF PROFIT FROM THE PARTN ERSHIP FIRM. HE DISCLOSED INCOME FROM OTHER SOURCES ALSO. THE MAIN ISSUE PERT AINS TO THE CLAIM OF DEPRECIATION ON THE ASSETS TRANSFERRED TO THE PARTN ERSHIP FIRM UP TO THE DATE OF CONVERSION INTO A PARTNERSHIP FIRM DURING THE YE AR. IT WAS THE CONTENTION OF THE A.O. THAT SINCE THE ASSETS WERE NOT OWNED BY TH E ASSESSEE AT THE END OF THE YEAR THE DEPRECIATION IN HIS INDIVIDUAL CAPACIT Y CANNOT BE ALLOWED AS THE SAID FIRM ALSO CLAIMED DEPRECIATION ON THE SAME MAC HINERY FOR THE BALANCE ITA NO. 1005/MUM/2009 SHRI RAJENDRA V. SHAH 2 SHORT PERIOD IN THEIR RETURN. FURTHER THE A.O. WAS OF THE OPINION THAT PROVISIONS OF SECTION 50 WERE NOT CORRECTLY INVOKED AND HE RECOMPUTED THE INCOME FROM TRANSFER OF THE PROPRIETARY CONCERN AND ARRIVED AT A SHORT TERM CAPITAL GAIN OF RS.13.4 LAKHS AS TAXABLE IN THE CAS E OF THE ASSESSEE AS SHORT TERM CAPITAL ARISING FROM THE TRANSFER OF DEPRECIAB LE ASSETS. A PENALTY WAS LEVIED ON THE ABOVE TWO AMOUNTS HOLDING THAT THE AS SESSEE HAS FURNISHED INCORRECT PARTICULARS OF INCOME WHICH TANTAMOUNT TO CONCEALMENT OF INCOME. THE CIT(A) CONFIRMED THE SAME. 3. THE LEARNED COUNSEL, DRAWING OUR ATTENTION TO THE O RIGINAL ORDER UNDER SECTION 143(3)WHERE IN THE CLAIM WAS ALLOWED AND SU BSEQUENT ORDER UNDER SECTION 263 ON THE SAME ISSUE, SUBMITTED THAT THE A SSESSEE HAS DISCLOSED ALL THE INFORMATION AND ON THE BASIS OF THE RECORD, THE CIT REVISED THE ORDER UNDER SECTION 263. HE REFERRED TO PAGE 29 OF THE PA PER BOOK TO SUBMIT THAT THE ENTIRE INFORMATION WAS AVAILABLE ON RECORD AND REFERRED TO THE FIRST PARA OF THE SHOW CAUSE NOTICE WHERE THE CIT HAS CONFIRME D THAT THE INFORMATION WAS OBTAINED FROM THE RECORD ITSELF. IT WAS FURTHER SUBMITTED THAT THE CONSEQUENTIAL ORDERS AFTER PROCEEDINGS UNDER SECTIO N 263 WERE PASSED BY THE AO AND ON FURTHER CONTEST THE CIT(A) HAS ALLOW ED ASSESSEES CLAIM OF DEPRECIATION AND ENHANCED THE SHORT TERM CAPITAL GA INS. ON REVENUES APPEAL, THE MATTER WAS SET ASIDE BY THE ITAT AND IN THE REVISED PROCEEDINGS THE CIT(A) HAS AGAIN UPHELD THE ORDER OF THE A.O. O N BOTH THE ISSUES WHICH IN TURN WERE UPHELD BY THE ITAT VIDE ITA NO. 8968/M UM/2004. THEN HE REFERRED TO THE FINDINGS OF THE ITAT IN THE SAID O RDER TO SUBMIT THAT THE CLAIM OF THE ASSESSEE WAS CONSIDERED AS DISALLOWANC E MADE BY THE A.O. AND DISALLOWANCES MADE BY THE A.O. IN ASSESSMENT DOES W ARRANT ANY PENALTY. IT WAS HIS SUBMISSION THAT IT IS ONLY THE RE-COMPUTATI ON MADE ON THE FACTS AVAILABLE WITH THE A.O., THAT TOO AFTER ACCEPTING T HE SAME UNDER SECTION 143(3) ORIGINALLY, CANNOT LEAD TO PENALTY UNDER SEC TION 271(1)(C). IN ADDITION TO THE ISSUE ON MERITS, THE COUNSEL ALSO SUBMITTED THAT THE ORDER WAS BARRED BY LIMITATION AS THE SECOND PROVISO TO SECTION 275( 1)(A) WILL APPLY WHEREIN THE A.O. SHOULD HAVE FINALISED THE PENALTY WITHIN 1 YEAR FROM THE END OF THE FINANCIAL YEAR IN WHICH THE ORDER OF THE CIT(A) IS RECEIVED BY THE CHIEF COMMISSIONER. THEN HE REFERRED TO THE FACTS AS STAT ED IN CIT(A)S ORDER IN ITA NO. 1005/MUM/2009 SHRI RAJENDRA V. SHAH 3 PAGE 2 TO SUBMIT THAT THE CIT(A) HAS PASSED THE ORD ER ON 28.10.2004 AND ACCORDINGLY PENALTY SHOULD HAVE BEEN FINALISED ON O R BEFORE 31.03.2006 AND SINCE THE IMPUGNED ORDER WAS PASSED ON 30.04.2008 T HE ORDER IS BARRED BY LIMITATION AND THE CIT(A) HAS WRONGLY CONSIDERED TH E DATE OF ORDER OF THE ITAT WHILE REJECTING ASSESSEES GROUND. ACCORDINGLY THE ALTERNATE GROUND IS ON LIMITATION ISSUE. 4. THE LEARNED D.R., HOWEVER, SUBMITTED THAT THE ASSES SEE HAS CLAIMED DEPRECIATION IN INDIVIDUAL CAPACITY AS WELL AS PROP RIETARY CONCERN AND THERE WAS AN ATTEMPT TO REDUCE THE INCOME AND THE CIT(A) HAS CORRECTLY ANALYSED ALL THE ISSUES AND RELIED ON THE ORDER OF THE CIT(A ). 5. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S THE ASSESSEES CLAIM OF DEPRECIATION AND OFFER OF SHORT TERM CAPIT AL GAIN ON LAND WAS ORIGINALLY ACCEPTED BY THE A.O. UNDER SECTION 143(3 ). SUBSEQUENTLY AN ORDER UNDER SECTION 263 WAS PASSED BY THE CIT HOLDING THA T THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. THE BASIS FOR ISSUING THE SHOW CAUSE NOTICE IS THE INFORMATION AV AILABLE ON RECORD ITSELF, WHICH INDICATES THAT THE ASSESSEE HAS DISCLOSED ALL THE NECESSARY PARTICULARS WHICH RESULTED IN INITIATION OF PROCEEDINGS UNDER S ECTION 263. CONSEQUENT TO THE ORDERS U/S 263 THE ASSESSMENT WAS REDONE AND IT WAS SUBJECT MATTER OF APPEAL BEFORE THE CIT(A) AND VIDE ORDER DATED 19.11 .1996, THE CIT(A) VIDE PARA 10 OF THE ORDER, ALLOWED ASSESSEES CLAIM OF D EPRECIATION UNDER SECTION 32 READ WITH SECTION 170. HOWEVER, WITH REFERENCE T O SHORT TERM CAPITAL GAIN HE HAS CONFIRMED THE SHORT TERM CAPITAL GAIN BUT EN HANCED IT TO RS.19,78,623/- IN VIEW OF THE ALLOWANCE OF DEPRECIA TION. THIS ORDER WAS SUBJECT MATTER OF FURTHER APPEAL TO THE ITAT WHEREI N THE ISSUES WERE SET ASIDE TO THE A.O. AND IN THE REASSESSMENT THE A.O. DISALLOWED THE DEPRECIATION AND COMPUTED THE SHORT TERM CAPITAL GA IN AGAIN AS WAS DONE EARLIER. THIS ORDER WAS, HOWEVER, UPHELD BY THE ITA T. THE ENTIRE SEQUENCE OF EVENTS INDICATES THAT THE ASSESSEE HAS FURNISHED FU LL DETAILS AND THE CLAIMS WERE CONSIDERED/RECONSIDERED ON THE BASIS OF INTERP RETATION OF PROVISIONS OF LAW. IN VIEW OF THE ABOVE FACTS AVAILABLE ON RECORD , WE ARE OF THE OPINION THAT NO PENALTY IS WARRANTED. IN CASES WHERE CERTAIN CLA IMS OF THE ASSESSEE BONAFIDELY MADE BUT NOT ACCEPTED IN THE ASSESSMENT PROCEDURE, IT WAS ITA NO. 1005/MUM/2009 SHRI RAJENDRA V. SHAH 4 ALREADY JUDICIOUSLY DECIDED THAT THE SAID DISALLOWA NCES CANNOT LEAD TO LEVY OF PENALTY UNDER SECTION 271(1)(C). AS FACTS INDICATE IT IS ONLY THE DECISION OF CIT WHICH LEAD TO PROCEEDINGS UNDER SECTION 263 AFT ER ASSESSEES CLAIMS HAVE BEEN ORIGINALLY ACCEPTED. THE CONSEQUENTIAL OR DER PASSED BY THE A.O. WAS ALSO REINTERPRETED BY THE CIT(A) BY ALLOWING DE PRECIATION AND ENHANCING THE AMOUNT OF SHORT TERM CAPITAL GAIN. THE REASSESS MENT CONSEQUENT TO SET ASIDE BY THE ITAT ALSO INDICATES THAT THERE WAS CHA NGE OF OPINION VIS--VIS INTERPRETATION OF LAW AND APPLICATION OF PROVISIONS OF ACT ON THE GIVEN SET OF FACTS. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THERE IS NO NEED TO LEVY ANY PENALTY, MORE SO FOR CONCEALMENT OF INCOME. IT IS A LSO AN ESTABLISHED LAW THAT THERE CAN BE DISALLOWANCES IN THE ASSESSMENT O F VARIOUS CLAIM MADE BY THE ASSESSEE BUT MERE DISALLOWANCE OF CLAIMS CANNOT LEAD TO LEVY OF PENALTY. THERE WAS NO INDICATION IN THE ORDER OF THE AO OR C IT THAT THE ASSESSEE HAS MADE ANY MALAFIDE CLAIMS. MOREOVER, AS SEEN FROM TH E RECORD IT IS THE FIRST YEAR OF NEW CONCEPT OF BLOCK OF ASSETS AND THERE WE RE GENERAL PROBLEMS IN INTERPRETING THE TREATMENT TO BE GIVEN TO CONCEPT O F BLOCK OF ASSETS. THIS CONCEPT WAS INTRODUCED W.E.F. A.Y. 1989-90 AND CONS IDERING ASSESSEES CASE IN THE LIGHT OF NEW PROVISIONS OF ASSESSMENT AS WEL L AS BLOCK OF ASSETS, WE ARE OF THE OPINION THAT THERE IS NO NEED TO LEVY AN Y PENALTY UNDER SECTION 271(1)(C). AS THERE IS NO CASE FOR CONSIDERING THE LEVY OF PENALTY ON MERITS WE REFRAIN FROM GOING INTO THE ALTERNATE GROUNDS RA ISED BY THE ASSESSEE WHICH REQUIRES INTERPRETATION OF LAW AND EXAMINATIO N OF FACTS IN DETAIL. SINCE IT BECOMES AN ACADEMIC EXERCISE HAVING CONSIDERED T HE ISSUE ON MERITS, WE DO NOT EXPRESS ANY OPINION ON THE ALTERNATE GROUND OR CONTENTIONS RAISED BY THE ASSESSEE ON THE ISSUE OF ORDER BEING TIME BARRE D. SUFFICE TO SAY THAT THERE IS NO NEED FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) ON THE FACTS OF THE CASE. ACCORDINGLY GROUND NO. 1 IS ALLOWED. 6. IN THE RESULT, APPEAL IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH 2010. SD/- SD/- (R.K. GUPTA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 12 TH MARCH 2010 ITA NO. 1005/MUM/2009 SHRI RAJENDRA V. SHAH 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII, MUMBAI 4. THE CIT VIII, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.