The ACIT,(OSD),Range-1, Ahmedabad V. CLP Power India Pvt. Ltd., Ahmedabad

ITA 1128/AHD/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9180 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-09-2019
• Assessment Year: 2007-2008
• Appeal Filed On: 01-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Keywords: Depreciation; Question of law; Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 143(3)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 1128/AHD/2015 ( ASSESSMENT YEAR : 2007-08) DCIT CIRCLE-1(1)(2), AHMEDABAD / VS. CLP POWER INDIA PVT. LTD. 6 TH FLOOR, CHANAKYA BUILDING, OFF. ASHRAM ROAD, AHMEDABAD 380009 ./ ./ PAN/GIR NO. : AAACP6900B ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI L. P. JAIN, SR.D.R. / RESPONDENT BY : SHRI S. N. SOPARKAR, SR. ADVOCATE WITH SHRI NISHIT SHAH, A.R. DATE OF HEARING 26/09/2019 !'# / DATE OF PRONOUNCEMENT 04/10/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, AHMEDABAD (CIT(A) IN SHORT), DATED 15.01.2015 ARIS ING IN THE PENALTY ORDER DATED 30.12.2012 PASSED BY THE ASSESSING OFFI CER (AO) UNDER S. ITA NO.1128/AHD/15 [DCIT VS. CLP POWER INDIA PVT. LTD.] A.Y. 2007-08 - 2 - 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT) CON CERNING AY 2007- 08. 2. AS PER ITS GROUNDS OF APPEAL, THE REVENUE SEEKS TO CHALLENGE THE ACTION OF THE CIT(A) WHEREBY THE PENALTY OF RS.1,59 ,91,080/- IMPOSED BY THE AO WAS REVERSED. 3. WHEN THE MATTER WAS CALLED FOR HEARING, THE LE ARNED DR FOR THE REVENUE RELIED UPON THE PENALTY ORDER PASSED BY THE AO AND SUBMITTED IN FURTHERANCE THAT THE CLAIM OF THE ASSESSEE TOWAR DS CERTAIN EXPENDITURE ON ACCOUNT OF PROFESSIONAL FEES, TRAVELLING EXPENSE S AND TENDER EXPENSES AGGREGATING TO RS.4,75,07,667/- CONCERNING NEW POWE R PROJECTS WERE WRONGFULLY CLAIMED AS REVENUE EXPENDITURE BY THE AS SESSEE. IT WAS SUBMITTED THAT THE EXPENDITURE SO CLAIMED WAS DISAL LOWED BY THE AO IN QUANTUM PROCEEDINGS AND HELD THE SAME TO BE CAPITAL EXPENDITURE. QUANTUM ADDITIONS HAVE BEEN UPHELD BY THE CONCURREN T FINDINGS OF THE CIT(A) AS WELL AS OF ITAT. THE LEARNED DR REFERRED TO THE DECISION OF THE TRIBUNAL IN QUANTUM PROCEEDINGS AGAINST THE ASS ESSEE IN ITA NO. 531 & 3214/AHD/2011 ORDER DATED 21.02.2014 IN THIS REGA RD. THE LEARNED DR THUS SUBMITTED THAT THE OBSERVATION OF THE TRIBUNAL IN QUANTUM PROCEEDINGS WOULD ESTABLISH THAT ASSESSEE HAS WRONG LY CLAIMED EXPENDITURE OF CAPITAL NATURE AS REVENUE ITEM. IT WAS CONTENDED THAT THE ACTION OF THE ASSESSEE LACKS BONAFIDE AND IS THUS C OVERED BY EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT. 4. THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER HA ND, SUBMITTED THAT THE CIT(A) HAS EXAMINED THE ISSUE IN PERSPECTIVE AN D RIGHTLY HELD THAT THE ISSUE IS HIGHLY DEBATABLE AND NOT FREE FROM DOU BT. IT WAS POINTED OUT THAT APPELLATE ORDER OF THE ITAT IN QUANTUM PROCEED INGS HAS BEEN DULY ADMITTED BY THE HONBLE GUJARAT HIGH COURT VIDE ORD ER DATED 15.07.2014 (COPY PLACED IN FILE) FOR APPRAISAL OF SUBSTANTIAL QUESTION OF LAW AMENDING ON THE ISSUE. THE LEARNED COUNSEL THEREAF TER REFERRED TO THE ITA NO.1128/AHD/15 [DCIT VS. CLP POWER INDIA PVT. LTD.] A.Y. 2007-08 - 3 - DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS. ELECTROLUX KELVINATRO LTD. (2013) 357 ITR 665 (DELHI) FOR THE PROPOSITION THAT WHERE THE ISSUE OF ALLOWANCE OF EXPENDITURE AS REVE NUE EXPENDITURE OR CAPITAL NATURE IS DEBATABLE, MERE DISALLOWANCE OF A SSESSEES CLAIM COULD NOT BE A GROUND TO IMPOSE PENALTY UNDER S.271(1)(C) OF THE ACT. ANOTHER REFERENCE WAS MADE TO THE DECISION RENDERED IN CIT VS. AMTEK AUTO LTD. [2013] 352 ITR 394 (PUNJAB & HARYANA) WHEREIN THE AFORESAID POSITION HAS BEEN REAFFIRMED THAT WHERE THE ASSESSEE HAS CLA IMED EXPENDITURE AS REVENUE, WHICH WAS HELD AS CAPITAL BY AO, COULD NOT BE THE REASON FOR IMPOSITION OF PENALTY. 4.1 ADVERTING TO THE FACTS, THE LEARNED COUNSEL SUB MITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF POWER PROJECTS AND OPERATIONS AND MAINTENANCE OF POWER PROJECTS. THE DEVELOPMENT OF POWER PROJECTS BEING THE BUSINESS OF ASSESSEE, THE ASSESSEE INITIATED SEVERAL PROJECTS. A DETAILED NOTE OF EACH PROJECT WAS PLACED BEFORE THE AO SHOWING ITS STATUS AND REASON FOR CREATING THE P ROJECT AS RECORDED IN PARA 6 OF THE ASSESSMENT ORDER. IT WAS POINTED OUT THAT VARIOUS PROJECTS COULD NOT BE PERSUADED FOR FEASIBILITY REASONS RANG ING FROM STIFF TIMELINE AND BID CONDITIONS, UNSUCCESSFUL BIDING, BID PROCES S COORDINATION EXTENSION OF TIME NOT AGREED AND SO ON AND SO FORTH . 4.2 THE LEARNED COUNSEL SUBMITTED THAT AFTER THE DE CISION IN THE QUANTUM PROCEEDINGS IN FEBRUARY 2014, THE HONBLE G UJARAT HIGH COURT IN DY. CIT(ASSTT) VS. GUJARAT NARMADA VALLEY FERTILIZE RS CO. LTD. IN TAX APPEAL NO. 447 OF 2000 & ORS. HAS COME OUT WITH FAVOURABLE OBSERVATIONS IN ITS JUDGMENT RENDERED FEW MONTHS LA TER IN DECEMBER 2014. 4.3 THE LEARNED COUNSEL THUS SUBMITTED THAT THE DIS ALLOWANCE OF EXPENDITURE IN QUANTUM PROCEEDINGS ITSELF IS HIGHLY VULNERABLE AND DEBATABLE AND THEREFORE THERE IS NO WARRANT TO QUES TION THE BONAFIDES OF ITA NO.1128/AHD/15 [DCIT VS. CLP POWER INDIA PVT. LTD.] A.Y. 2007-08 - 4 - THE ASSESSEE INCURRING THE EXPENDITURE AND DISCLOSI NG THE PARTICULARS THEREOF CORRECTLY. IT WAS SUBMITTED THAT MERE CHAN GE OF COMPLEXION OF EXPENDITURE FROM REVENUE TO CAPITAL WOULD NOT TANTA MOUNT TO FURNISH INACCURATE PARTICULARS OF INCOME CONTEMPLATED UNDER S.271(1)(C) OF THE ACT. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE CONTROVERSY RAISED ON BEHALF OF THE REVENUE IS ON M AINTAINABILITY OF PENALTY ON DISALLOWANCE OF EXPENDITURE CLAIMED AS R EVENUE EXPENDITURE WHICH WAS HELD TO BE CAPITAL EXPENDITURE BY THE AO. ON PERUSAL OF THE ORDER OF THE CIT(A), WE OBSERVE THAT THE CIT(A) HAS TAKEN NOTE OF VARIOUS CONTENTIONS RAISED ON BEHALF OF THE ASSESSE E AND HAS RECORDED HIS FINDINGS IN FAVOUR OF THE ASSESSEE AS UNDER: 5. I HAVE PERUSED THE FACTS OF THE CASE AS ENUMERA TED BY A.O. I HAVE PERUSED THE CASE LAWS RELIED ON BY A.O.. AFTER CARE FUL CONSIDERATION OF FACTS, SUBMISSION AND CONTENTION OF A.O. GROUND WIS E ADJUDICATION IS AS FOLLOWS: ALL THE GROUNDS ARE INTERLINKED AND AGAINST THE IMP OSITION/LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT. THE APPELLANT RA ISED GROUNDS BOTH ON TECHNICAL ISSUE AS WELL AS ON MERIT. THERE ARE CERT AIN UNDISPUTED FACTS, WHICH REQUIRES CONSIDERATION BEFORE ADJUDICATION, T HESE ARE AS FOLLOWS: (I) THE APPELLANT DURING PREVIOUS YEAR DEBITED IN P ROFIT & LOSS ACCOUNT AND CLAIMED EXPENSES OF RS, 4,75,07,667/- AS REVENU E EXPENSES. THE A.O. AFTER OBSERVING TAX AUDIT REPORT IN FORM NO. 3 CD AT CL. 8(A) THAT APPELLANT'S BUSINESS IS ' THE ASSESSEE IS ENGAGED I N INTER ALIA IN THE BUSINESS OF DEVELOPMENT OF POWER PROJECT AND OPERAT ION AND MAINTENANCE OF POWER PROJECTS' BUT REFLECTED INCOME FROM 'OPERATION & MAINTENANCE FEES & OTHER INCOME' CALLED FOR DETAILS OF SUCH EXPENSES. AS PER PARA 6 OF ASST. ORDER DT. 27/11/2008 U/S. 14 3(3) OF THE ACT, THE COMPLETE DETAIL ABOUT SUCH EXPLANATION IN THE FORM OF PROFESSIONAL FEES, TRAVELLING EXPENSES, TENDER EXPENSES IN RESPECT OF FIVE PROJECTS WAS MADE AVAILABLE. THE APPELLANT WAS QUESTIONED ABOUT ITS ALLOW-ABILITY. THE APPELLANT FILED DETAILED (PROJECT WISE) EXPLANA TION BEFORE A.O. VIDE ORDER DT. 14/11/2009 (PARA 7 OF THE IMPUGNED ASST. ORDER DT. 27/11/2009). THE A.O. REJECTED APPELLANT'S EXPLANAT ION WITH PLACING RELIANCE ON HON'BLE GUJARAT HIGH COURT ORDER IN THE CASE OF AMBICA MILLS LTD. 236 ITR 921, SHRI DIGVIJAY CEMENT CO. LT D. 153 ITR 253, SLM MANEKLAL INDUSTRIES LTD. 107 ITR 133 AND HON'BL E MADRASS HIGH COURT ORDER IN THE CASE OF CID PARRY (INDIA) LTD. 2 57 ITR 253 AND HELD THAT 'ALTHOUGH THE AUDITORS MAY HAVE MENTIONED IN THE 3C D REPORT, OR THAT MEMORANDUM OF ASSOCIATION MAY SPEAK OF THE ACTIVITY AS ONE OF THE ITA NO.1128/AHD/15 [DCIT VS. CLP POWER INDIA PVT. LTD.] A.Y. 2007-08 - 5 - OBJECTS NONE THE LESS THE FACT REMAINS THAT THE PRO POSED NEW PLANT WAS NOT BUSINESS ACTIVITY BEING CARRIED ON BY THE ASSES SEE'. THE A.O. DISALLOWED CLAIM OF REVENUE OF RS. 47507667 AS CAPI TAL EXPENSES AND INITIATED PENALTY U/S. 271(1)(C)OF THE ACT FOR FURN ISHING INACCURATE PARTICULARS OF INCOME. (II) LD. CIT(A)-VI AHMEDABAD VIDE ORDER DT. 16/12/2 010 AGAINST SUCH ORDER DT. 27/11/2009 U/S. 143(3) OF THE ACT CONSIDE RED APPELLANT'S EXPLANATION THAT (A) AS PER TAX AUDIT REPORT THERE IS NO CHANGE IN T HE NATURE OF BUSINESS OF THE ASSESSEE AS COMPARED TO EARLIER YEA RS. A COPY OF OBJECTIVE AND MEMORANDUM OF ASSOCIATION (OCMA) WAS SUBMITTED. (B) HON'BLE GUJARAT HIGH COURT IN THE CASE OF GMDC LTD. 314 ITR 322 AND HON'BLE GAUHATI HIGH COURT IN THE CASE OF A SSAM AESBESTOS LTD. 263 ITR 357 HELD SUCH EXPENSES AS REVENUE EXPE NSES. (C) THE APPELLANT RELIED ON (I) KESORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT [1992] 196 ITR 845 (CAT) (II) CIT VS. PRIYA VILLAGE ROADSHOWS LTD. [2009] 1 85 TAXMAN 44 (DELHI) (III) INDO RAMA SYNTHETICS (I) LTD. VS. CIT[2009] 185 TAXMAN 27(DELHI) (IV) CIT VS. ESCORTS AUTO COMPONENTS LTD. [2010] 323 ITR 11 (PUNJ & HAR.) (D) THE A.O. HAS NOT GRANTED DEPRECIATION AN SUCH C APITAL EXPENDITURE. (E) THE SAID EXPENDITURE HAD A DIRECT AND PERMANEN T NEXUS WITH THE EXISTING BUSINESS OPERATION AND THIS LOSS IS INHERE NT IN THE CARRYING ON OF THE BUSINESS AND IS DIRECTLY CONNECTED WITH AND INCIDENTAL TO IT. THE LD. CIT(A) THEREFORE HELD AGAINST APPELLANT. THE OPERATION PART HAD ALREADY BEEN DISCUSSED AT PA RA 4D ABOVE. (III) HON'BLE ITAT AHMEDABAD ALSO DECIDED THE MATTE R AS DISCUSSED AT PARA 4E ABOVE. (IV) THE APPELLANT SUBMITTED A DETAILED REPLY DURIN G PENALTY PROCEEDINGS AS DISCUSSED ABOVE AT PARA 4A. (V) THE APPELLANT SUBMITTED A COPY OF HON'BLE GUJAR AT HIGH COURT ORDER DT. 09/12/2014 IN THE CASE OF DY.CIT VS. GUJA RAT NARMADA VELLOY FERTILIZERS CO. LTD. (TAX APPEAL NO. 447 OF 2000 WI TH APPEAL NO. 522 OF 2009 WITH TAX APPEAL NO. 2033 OF 2009) WHERE ON THE SIMILAR FACTS AS THAT OF APPELLANT, HON'BLE GUJARAT HIGH COURT HELD THAT SUCH EXPENDITURE FOR EXPANSION OF BUSINESS, PROJECTS WHI CH WERE NOT MATERIALIZED ARE REVENUE EXPENSES. IT WAS CONTENDED THAT THIS ORDER OF HON'BLE GUJARAT HIGH COURT CONSIDERED RATIO OF VARI OUS CASE LAWS AS CONSIDERED BY A.O. IT WAS EMPHASIZED THAT THERE ARE TWO DIFFERENT OPINIONS ON THE SAME ISSUE, HENCE ON THIS ISSUE PEN ALTY IS NOT EXIGIBLE. I AM INCLINED WITH APPELLANT THAT ON THE FACTS & CI RCUMSTANCES AS THAT OF APPELLANTS, THE PENALTY U/S. 271(1)(C) OF T HE ACT IS NOT EXIGIBLE ON MANY ACCOUNTS DULY SUPPORTED BY LEGAL PREPOSITIO N. THESE ARE AS FOLLOWS: (I) THE APPELLANT CLAIMED SUCH EXPENSES ON THE BASI S OF AUDITED ACCOUNTS AND TAX AUDIT REPORT WHICH HAS NOT BROUGHT OUT THESE EXPENDITURE AS CAPITAL IN NATURE. IT IS THEREFORE T HE BONAFIDE FOR THE CLAIM OF SUCH EXPENDITURE CANNOT BE DOUBTED OR QUES TIONED. ITA NO.1128/AHD/15 [DCIT VS. CLP POWER INDIA PVT. LTD.] A.Y. 2007-08 - 6 - (II) ALL THE DETAILS & MATERIAL FACTS WERE EITHE R DISCLOSED OR SUBMITTED BEFORE A.O. AS AND WHEN ASKED FOR. NONE O F THESE EXPENSES WERE FOUND BOGUS OR EXCESSIVE. THESE GENUINE EXPENS ES WERE DISALLOWED BEING HELD AS CAPITAL IN NATURE. THIS PREPOSITION C ANNOT LEAD TO SATISFACTION THAT APPELLANT HAS FURNISHED INACCURAT E PARTICULARS OF INCOME. (III) THERE ARE TWO OPINIONS ON THIS ISSUE, EVEN HO N'BLE GUJARAT HIGH COURT'S LATEST ORDER IN THE CASE OF GNFC (SUPRA) AS RELIED ON IS IN FAVOUR OF APPELLANT. THIS REFLECTS THAT ISSUE IS CO NTENTIOUS IN NATURE AND DEBATABLE. IN VIEW OF LATEST ORDER OF HON'BLE GUJAR AT HIGH COURT, THE RATIO IS BINDING ON LOWER APPEAL AUTHORITIES. IT IS THEREFORE DESPITE HON'BLE ITAT CONSIDERED THE ISSUE AGAINST APPELLANT , THE PENALTY IS NOT EXIGIBLE. (IV) APART FROM RATIO OF HON'BLE SUPREME COURT ORDE R IN THE CASE OF RELIANCE PETRO PRODUCT LTD. (SUPRA), THERE ARE PLET HORA OF JUDGEMENT WHICH DIRECTLY DEALT WITH THE ISSUE THAT IF ANY OF THE REVENUE EXPENSES CLAIMED IS TREATED AS CAPITAL EXPENDITURE THEN PENA LTY U/S. 271(1)(C) OF THE ACT IS NOT EXIGIBLE ON SUCH AMOUNT. IT IS THEREFORE, THE SATISFACTION SO DRAWN BY A.O. AND PENALTY SO LEVIED OF RS. 1,59,91,080 IS NEITHER JUSTIFIED NOR SUSTAINABLE. THE A.O IS DIRECTED TO DELETE THE PENALTY SO IMPOSED. THE APPE LLANT GETS RELIEF ACCORDINGLY. ALL THE GROUNDS ARE TREATS AS ALLOWED. 6. AS NOTED ABOVE, THE CIT(A) HAS OBSERVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAS A DIRECT AND PROXIMATE NEXUS WITH THE EXISTING BUSINESS OPERATIONS AND THE LOSS INCURRED WAS INHERENT IN CARRYING ON OF THE BUSINESS. THE GENUINENESS OF EX PENSES INCURRED HAS NOT BEEN DOUBTED PER SE. WHAT IS THE SUBJECT MATTER OF CONTROVERSY IS THE NATURE OF EXPENDITURE THAT IS WHETHER THE EXPENDITU RE INCURRED WOULD ACQUIRE THE CHARACTER OF CAPITAL EXPENDITURE OR A R EVENUE EXPENDITURE. THE CIT(A) HAS DEMONSTRATED IN ITS ORDER THAT THE I SSUE IS SUFFICIENTLY DEBATABLE AND THERE IS SUFFICIENT ROOM FOR ENTERTAI NING A DIFFERENT VIEW. NEEDLESS TO SAY, THE CONCLUSION DRAWN IN THE QUANTU M PROCEEDINGS WOULD NOT AUTOMATICALLY APPLY TO THE PENALTY PROCEEDINGS WHICH ARE DISTINCT IN CHARACTER. THE ASSESSEE IS ENTITLED TO DEMONSTRATE ITS BONAFIDE TOWARDS CLAIM OF EXPENDITURE IN PENALTY PROCEEDINGS. IT IS TRITE THAT EVERY DISALLOWANCE OF CLAIM CANNOT LEAD TO AS AN AUTOMATI C CONSEQUENCE IN THE FORM OF PENALTY. THE CONFIRMATION OF ADDITION/DISA LLOWANCE IN QUANTUM PROCEEDINGS IS NOT CONCLUSIVE ON STANDALONE BASIS. IN THE ABSENCE OF ANY MALAFIDE IN THE ACTION OF THE ASSESSEE, WE SEE NO R EASON TO INTERFERE WITH ITA NO.1128/AHD/15 [DCIT VS. CLP POWER INDIA PVT. LTD.] A.Y. 2007-08 - 7 - THE ORDER OF THE CIT(A). IN THE INSTANT CASE, IN O UR VIEW, THE CIT(A) HAS CORRECTLY APPLIED LAW AND DELETED THE PENALTY. WE TOTALLY CONCUR WITH THE VIEW EXPRESSED BY THE CIT(A). THE REVENUE COUL D NOT DEMONSTRATE THE LACK OF BONAFIDE IN THE ACTION OF THE ASSESSEE. THE ASSESSEE WITH REFERENCE TO SEVERAL JUDICIAL PRECEDENTS HAS DEMONS TRATED BEFORE US THAT THE ISSUE AS TO WHETHER EXPENDITURE IN QUESTION IS CAPITAL OR REVENUE IS HIGHLY DEBATABLE. COUPLED WITH THIS, THE SUBSTANTI AL QUESTION OF LAW IN THE QUANTUM PROCEEDINGS HAS ALSO BEEN ADMITTED FOR ADJUDICATION BY THE HONBLE HIGH COURT IN APPEAL UNDER S.260A OF THE AC T. IN THIS BACKGROUND, WE SEE NOT ERROR IN THE ORDER OF THE CI T(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. SD/- SD/- (MAHAVIR PRASAD) (PRADIP KUMA R KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 04/10/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 04/ 10/201 9