M/s Penta Software Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 1054/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4106 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 26-04-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 25-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T R TALWAR
• Assessee Lawyers: SURJAN MOHANTY
• Keywords: Depreciation; Difference of opinion; Unabsorbed depreciation
• Section: 271(1)(c); 10B; 143(2); 148; 6; 56

Judgement Text

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 OFFI CER, 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 O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DATED 24-01-2011 RELATING TO A.Y. 2007-08. SOLE EFFECTIVE GROUND RAI SED IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LE ARNED 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 ASSESSEES EXPLANAT ION. 2. BRIEF FACTS ARE: THE ASSESSEE COMPANY IS A 100% EXPORT ORIENTED UNIT AND IS ENGAGED IN THE BUSINESS OF RENDERING INFORMA TION TECHNOLOGY ENABLED SERVICE OUT SIDE INDIA. IT FILED ITS RETURN OF INCO ME FOR A.Y. 2007-08 AT NIL ON 31-10-2007 CLAIMING EXEMPTION U/S 10B OF THE ACT BE SIDES SETTING OF UNABSORBED DEPRECIATION OF RS. 94,495/- OF EARLIER ASSESSMENT YEAR AGAINST INCOME FROM OTHER SOURCES OF RS. 94,495/- COMPRISIN G OF BANK INTEREST OF RS. 2 13,330/- INTEREST ON INCOME TAX REFUND OF RS. 75,58 3/- 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 TH E ASSESSEE IN VIEW OF THE EXPLANATION OF SUB-CLAUSE (IV) OF CLAUSE 6 OF SEC. 10B AFTER REJECTING THE ASSESSEES EXPLANATION THAT IT IS NOT APPLICABLE TO THE ASSESSEES 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 COMPA NY PLEADED ITS BONA FIDE IN CLAIMING THE SET OFF OF UNABSORBED DEPRECIA TION 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 CL AIM BONA FIDELY MADE BY ITSELF DOES NOT WARRANT PENALTY IF THE FACTS RELATI NG TO THE SAME ARE DISCLOSED. 2.3. THE AO DID NOT AGREE WITH THE ASSESSEES EXPLA NATION AND LEVIED A PENALTY OF RS. 50,000/- U/S 271(1)(C) AS AGAINST TH E ALLEGED TAX SOUGHT TO BE AVOIDED OF RS. 31,807/-. 2.4. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL, WH ERE ASSESSEE CONTENDED AS UNDER: (I) THE ASSESSEE HAD CLAIMED SET OFF OF UNABSORBED DEPR ECIATION 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 D ID NOT ALLOW 3 THE SET OFF AS CLAIMED BY THE ASSESSEE IN ITS COMPU TATION OF INCOME AGAINST THE INCOME FROM OTHER SOURCES DURING THE YE AR ON THE GROUND THAT THE UNABSORBED DEPRECIATION IS NOT ALLO WABLE AGAINST THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCE S VIZ INTEREST AND OTHER MISCELLANEOUS INCOME. THE SAME I S ALLOWABLE U/S 32(2) AS HELD BY THE DELHI HIGH COURT IN ESCORTS EL ECTRONICS LTD. VS. CIT (2002) 258 ITR 23 (DEL.). IT HAS BEEN HELD THAT T HE UNABSORBED DEPRECIATION CARRIED FORWARD FROM EARLIE R YEARS COULD BE SET OFF AGAINST THE INCOME ASSESSED U/S 56 AS IN COME FROM OTHER SOURCES. THE HONBLE HIGH COURT IN ITS JUDGMENT FOL LOWED 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 INDUSTR IES (P) LTD. (1995) 216 ITR 607 (SC). (II) THE AO HAS WRONGLY INFERRED THAT THIS SET OFF IS NO T 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 ASSESS EE UNDERTAKING FOR THE YEAR UNDER CONSIDERATION. HENCE, IT IS NOT APPLICABLE TO ASSESSEES CLAIM UNDER CONSIDERATION. AS PER SUB C LAUSE (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 ASSESSEES CASE THE CLAIM OF UN ABSORBED DEPRECIATION PERTAINS TO THE A.Y. 2003-04. (III) THE ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS R ELATING TO THE CLAIM OF THE ASSESSEE. UNABSORBED CLAIMS WERE ALREA DY ASSESSED AND AFTER FURNISHING ALL THE RELEVANT PARTICULARS, FACTS AND MATERIAL, 4 ASSESSEE MADE A BONA FIDE CLAIM WHICH WAS SUPPORTED BY HONBLE DELHI HIGH COURT IN THE CASE OF ESCORTS ELECTRONI CS LTD. (SUPRA). THOUGH THERE WERE CONTRARY VIEWS BY HONBLE KARNATA KA HIGH COURT IN THE CASE OF CIT VS. HIMMATASINGIKE SEIDE L TD. (2006) 286 ITR 255 (KAR.), DELHI HIGH COURT BEING JURISDIC TIONAL HIGH COURT, ASSESSEE MADE A CLAIM IN ACCORDANCE WITH THE RATIO OF DECISION OF JURISDICTIONAL HIGH COURT. THE ISSUE HA S BEEN LATER SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA __ 317 ITR 218. THE BONA FIDE CLAIM MADE BY THE AS SESSEE, WHICH MAY BE SUBJECT MATTER OF LEGAL OPINION, CAN BE MADE BY IT MORE PARTICULARLY WHEN ASSESSEES VIEW IS SUPPORTED BY T HE DECISION OF JURISDICTIONAL HIGH COURT. AO MAY HAVE A DIFFERENT VIEW CONSEQUENT TO SUBSEQUENT SUPREME COURT JUDGMENT, BU T IT CANNOT BE HELD THAT AT THE TIME OF FILING OF RETURN ASSESS EE WANTED TO AVOID OR EVADE THE TAX. MAKING A LEGAL CLAIM, BASED ON ON E 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. (SUP RA). IT IS PLEADED THAT THE CIT(A) IMPOSED THE PENALTY ON A WRONG PREM ISE. WHILE MAKING A CLAIM THERE CAN BE TWO EXIGENCIES: (A) AN EX FACIE INADMISSIBLE CLAIM IS MADE WHICH WAS TH E ISSUE IN THE CASE OF CIT VS. ZOOM COMMUNICATION (P) LTD. 327 ITR 510 (DEL.); AND CIT VS. ESCORTS FINANCE LTD. 188 TA XMAN 87 (DEL.); (B) THERE IS A BONA FIDE THOUGH DEBATABLE LEGAL CLAIM AND THE ASSESSEES VIEW IS SUPPORTED BY ANOTHER HIGH COURT AND 5 ACCEPTING ASSESSEES CASE PARTICULARLY BY DELHI HIG H COURT. THIS TYPE OF CASE CANNOT BE TERMED AS EX FACIE INA DMISSIBLE CLAIM. THIS IS SO BECAUSE THE ASSESSEES CLAIM IS BASED ON THE INTERPRETATION OF A HIGH COURT JUDGMENT AND THE SAM E CANNOT BE SAID EX FACIE INADMISSIBLE, THEREFORE CIT(A) WITHOU T LOOKING AT THE FACTS OF THE CASE, IN A SUMMARY MANNER, IN THE LAST TWO LINES OF HIS ORDER HAS MECHANICALLY APPLIED ABOVE JUDGMEN TS, 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 ORD ERS 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 SCRUTIN Y U/S 143(3), THE ASSESSEES CLAIM WOULD HAVE BEEN ACCEPTED CAUSING L OSS TO REVENUE. 6 4. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE GONE TH ROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. APROPOS, THE LAST AR GUMENT OF LEARNED DR, SINCE THE RETURN HAS BEEN SCRUTINIZED WE CANNOT VIS UALIZE THE HYPOTHETICAL SITUATION. BESIDES, IF THE ASSESSEE HAS MADE A WRON G CLAIM AND IS ACCEPTED U/S 143(1), AO HAS ADEQUATE WAYS TO DEAL WITH THE S ITUATION 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. HONBLE 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 IN COME UNDER THE HEAD INCOME FROM OTHER SOURCES. THIS BEING SO, EVEN I F ASSESSEES INTEREST INCOME WAS ASSESSABLE UNDER THE HEAD INCOME FROM O THER SOURCES, IT COULD BE SET OFF WITH UNABSORBED DEPRECIATION. THUS, THE PLEA THAT ASSESSEES 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 INC OME, IT CAN NEVER BE ALLOWED TO IT AS HELD BY HONBLE SUPREME COURT IN T HE 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 SUBJEC T TO EXAMINATION BY AO UNDER I.T. ACT. 7 4.2. THE HONBLE DELHI HIGH COURT IN THE CASE OF ZO OM COMMUNICATION (P) LTD. (SUPRA); AND ESCORTS FINANCE LTD. (SUPRA) HAS HELD THAT IF THE ASSESSEE MAKES EX FACIE (ON FACE OF IT) INADMISSIBL E 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 ASSESSEES CLAIM. UNDER THESE CIRCUMSTANCES, WE ARE UNABLE TO HOLD THAT THE ASSES SEES CLAIM WAS EX FACIE INADMISSIBLE. HENCE, RATIO OF DECISIONS IN THE CASE S OF ZOOM COMMUNICATION (P) LTD. (SUPRA); AND ESCORTS FINANCE LTD. (SUPRA) ARE NOT APPLICABLE TO ASSESSEES CASE. THE ASSESSEES CLAIM HAVING AN ELEMENT OF DEBATE AND HAVING ELEMENT OF SUPPORT OF HONBLE DEL HI HIGH COURT JUDGMENT, CANNOT BE HELD LIABLE FOR CONCEALMENT PE NALTY. OUR FINDING IS SUPPORTED BY THE RATIO OF DECISIONS CITED BY THE AS SESSEE, WHICH ARE MENTIONED ABOVE. IN VIEW THEREOF, WE DELETE THE PEN ALTY IN QUESTION. 5. IN THE RESULT, ASSESSEES 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 8