M/s. Steadfast Corporation Ltd., Hyderabad V. ACIT, Hyderabad

ITA 1225/HYD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6053 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-12-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 23-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: C P RAMASWAMY
• Keywords: Depreciation; Transfer pricing; Difference of opinion; Change of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.1225/HYD/2013 : ASSESSMENT YEARS 2002- 03 M/S. STEADFAST CORPORATION LTD. (FORMERLY KNOWN AS M/S. INFOBAHN TECHNOLOGIES LTD.), HYDERABAD (PAN AAACI 6015 Q ) V/S ASST. COMMISSIONER OF INCOME- TAX CIRCLE 2(1), HYDERABAD (APPELLANT) (RESPONDENT) A PPELLANT BY : SHRI C.P.RAMASWAMY RESPONDENT BY : SHRI M.SITARAM DR DATE OF HEARING : 3 - 1 2 - 201 5 DATE OF PRONOUNCEMENT : 01.03.2016 O R D E R PER D.MANMOHAN, VICE PRESIDENT : THIS APPEAL FILED AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) III, HYDERABAD DATED 1 ST NOVEMBER, 2012, AND THE ISSUE INVOLVED IN THIS APPEAL IS WITH REFERENCE TO LEVY OF PENALTY UNDER S .271(1)(C) OF THE ACT 2. THIS APPEAL IS ORIGINALLY DISPOSED OF BY THE OR DER OF THIS TRIBUNAL DATED 1.4.2014. CONSEQUENT TO THE MISCELLA NEOUS APPLICATION FILED BY THE REVENUE, BEING MA NO.168/HYD/2014, THE TRIBUNAL, VIDE ITS ORDER DATED 17.4.2015, RECALLED THE SAID EARLIE R ORDER DATED 1.4.2014 INSOFAR AS IT RELATED TO CANCELLATION OF P ENALTY UNDER S.271(1)(C) RELATABLE TO DISALLOWANCE OF DEPRECIATI ON ON SOLAR PACKS, FOR DISPOSAL AFRESH. THUS, THE LIMITED ISSUE THAT SURVIVES FOR ADJUDICATION NOW IS CONFINED TO VALIDITY OF PENALTY IMPOSED WITH REFERENCE TO DISALLOWANCE OF DEPRECIATION ON SOLAR PACKS. ITA NO.1225/HYD/2013 M/S. STEADFAST CORPORATION LTD. HYDERABAD 2 3. BRIEFLY STATED, FACTS ARE THAT THE PENALTY UND ER S.271(1)(C) WAS IMPOSED BY THE ASSESSING OFFICER IN RELATION TO TWO ADDITIONS MADE, VIZ. (A) ADDITION OF RS.1,03,13,520 ON ACCOUN T OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF PAYMENTS MADE TO A SSOCIATED ENTERPRISES, MADE BY THE ASSESSING OFFICER, WHICH W AS PARTLY CONFIRMED BY THE CIT(A); AND (B) DISALLOWANCE OF DE PRECIATION OF RS.60,63,000 ON SOLAR POWER PACKS CLAIMED AT 100% F OR THE REASON THAT THE TRANSACTIONS WERE IN THE NATURE OF SALE AN D NOT LEASE, WHICH WAS NOT APPEALED AGAINST BY THE ASSESSEE. CONSEQUEN T UPON THE ORDER OF THE CIT(A), PENALTY UNDER S.271(1)(C) HAS BEEN LEVIED IN RESPECT OF THE ABOVE TWO ISSUES, I.E. ADDITION ON ACCOUNT OF D IFFERENCE IN ARMS LENGTH PRICE AND DISALLOWANCE OF DEPRECIATION. 4. AS FAR AS PENALTY WITH REFERENCE TO ADDITION B Y WAY OF TRANSFER PRICING ADJUSTMENT IS CONCERNED, IT WAS FA IRLY ADMITTED THAT THE SAID ADDITION DOES NOT SURVIVE IN VIEW OF THE O RDER OF THE TRIBUNAL DATED 6.8.2013 IN ITA NO.962/HYD/2013, READ WITH OR DER OF THE ASSESSING OFFICER PASSED UNDER S.154 READ WITH S.25 4 OF THE INCOME TAX ACT,1961, DATED 28.2.2014. CONSIDERING THIS POS ITION, THIS TRIBUNAL IN ITS ORDER DATED 1.4.2014, DELETED THE SAID PENAL TY, AND HENCE THAT ASPECT OF THE MATTER IS NOT SUBJECT MATTER OF ADJUD ICATION BEFORE US. 5. THE OTHER AND ONLY ISSUE THAT SURVIVES FOR CON SIDERATION IN THIS APPEAL IS THE LEGALITY AND VALIDITY OF PENALTY ON DISALLOWANCE OF DEPRECIATION. FACTS LEADING TO THE PENALTY ON THIS ISSUE ARE THAT ASSESSEE HAS PURCHASED FORTY SOLAR POWER PACKS IN T HE EARLIER ASSESSMENT YEAR, AND DEPRECIATION WAS CLAIMED IS AT 50% OF THE ELIGIBLE DEPRECIATION IN THAT YEAR AND CARRIED THE BALANCE OF DEPRECIATION FOR CLAIMING IN THIS YEAR. THERE IS NO DISPUTE WITH REFERENCE TO PURCHASE OF FORTY SOLAR PACKS FROM MS. PHOTON ENERGY SYSTEMS LTD. ON 22.3.2001. THE ASSESSEE HAS GIVEN THEM ON LEASE ITA NO.1225/HYD/2013 M/S. STEADFAST CORPORATION LTD. HYDERABAD 3 AND CORRESPONDING LEASE RENTS WERE ACCOUNTED FOR AS OTHER INCOME IN ASSESSMENT YEAR 2001-02 FOR THE PERIOD FROM 22.3.20 01 TO 31.3.2001. THE BALANCE OF THE DEPRECIATION OF 50% HAS BEEN CLA IMED IN THIS YEAR TO AN EXTENT OF RS.60,63,000 OFFERING LEASE RENTALS . HOWEVER, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSES SEE HAS IN FACT SOLD THESE ITEMS IN THE GUISE OF LEASE, AND ACCORDINGLY, HE MODIFIED THE NATURE OF THE TRANSACTION FROM THAT OF LEASE TO SALE. HE ACCORDINGLY HAS TAKEN THE W.D.V. AS VALUE OF THE ASSET AND TH E LEASE AMOUNT RECEIVABLE OF RS.52 LAKHS AS SALE VALUE OF THE ASSE T SOLD AND ARRIVED AT SHORT TERM CAPITAL LOSS OF RS.8,63,000 AND THUS HA S MODIFIED THE CLAIM OF DEPRECIATION TO THAT OF SHORT TERM CAPI TAL LOSS, AND RECOMPUTED THE TOTAL INCOME. PENALTY WAS LEVIED ON THE ABOVE AMOUNT, AS ASSESSEE DID NOT CONTEST THE ISSUE. IN THE APPEAL AGAINST PENALTY IMPOSED, THE LEARNED CIT(A) CONFIRMED THE P ENALTY LEVIED, IN RELATION TO THIS ITEM. 6. LEARNED COUNSEL SUBMITTED THAT THE TRANSACTION IS REVENUE NEUTRAL, AND THEREFORE, THE ASSESSEE HAS NOT CONTES TED THE SAME. HE HAS SUBMITTED THAT THE ASSESSEE HAS NOT RECEIVED TH E FULL LEASE RENTALS, BUT THE ASSESSING OFFICER HAS CONSIDERED THE RECEI VABLE AS SALE CONSIDERATION AND SET OFF THE W.D.V., TAKING IT AS COST OF THE ASSET. IT WAS SUBMITTED THAT ASSESSEE HAS CLAIMED DEPRECIATIO N IN THE EARLIER YEAR AND ALSO OFFERED LEASE INCOME AS INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER IN THE YEAR UNDER APPEAL MODIFIED THE LEASE TRANSACTION TO THAT OF SALE TRANSACTION AND ACCORDI NGLY RECOMPUTED THE INCOME. IT WAS THE SUBMISSION THAT THE ACTION OF THE ASSESSING OFFICER RELATING TO LEVY OF PENALTY IS NOT VALID, AS THE AS SESSEE HAS NEITHER CONCEALED INCOME NOR FURNISHED INACCURATE PARTICULA RS. JUST BECAUSE THE ASSESSEE DID NOT PURSUE THE REMEDY AVAILABLE AG AINST THE ACTION OF THE ASSESSING OFFICER IN TREATING THE LEASE TRANSAC TION AS THAT OF SALE, ON ACCOUNT OF TAX NEUTRALITY, IT CANNOT BE STATED T HAT THE ASSESSEE HAS ITA NO.1225/HYD/2013 M/S. STEADFAST CORPORATION LTD. HYDERABAD 4 DELIBERATELY OR MALA FIDELY MADE THE CLAIM. LEARNED COUNSEL REITERATED THAT THE REVENUE HAS ALLOWED 50% DEPRECIATION IN EA RLIER YEAR, AND TAXED LEASE RENTALS RECEIVED, AS OFFERED BY THE ASS ESSEE, WITHOUT ANY DISTURBANCE. IN THIS YEAR ALSO, HE SUBMITTED THAT ASSESSEE MADE A BONA FIDE CLAIM WHICH THE ASSESSING OFFICER HAS MOD IFIED ON HIS OWN. IT WAS SUBMITTED THAT IN THE CIRCUMSTANCES THE CLAI M OF THE ASSESSEE DOES NOT LEAD TO ANY PENALTY UNDER S.271(1)(C). 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEV ER, RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT( A) CONFIRMING THE PENALTY, AS THE ASSESSEE HAS MADE A MALA FIDE CLAIM . 8. AFTER CONSIDERING THE RIVAL SUBMISSION AND PE RUSING THE EVIDENCE ON RECORD, WE ARE OF THE OPINION THAT IT IS A MERE CHANGE OF OPINION BY THE ASSESSING OFFICER IN CONSIDERING TH E LEASE TRANSACTION AS A SALE TRANSACTION, WHICH LED TO THE MODIFICATIO N OF COMPUTATION OF INCOME. IN FACT, IF THE ASSESSING OFFICER WANTED T O MODIFY THE LEASE TRANSACTION INTO SALE TRANSACTION, NECESSARY PROCEE DINGS SHOULD HAVE BEEN UNDERTAKEN IN THE VERY FIRST YEAR, I.E. WHEN T HE ASSESSEE HAS PURCHASED 40 SOLAR PACKS AND GAVE THEM ON LEASE. FO R ASSESSMENT YEAR 2001-02, LEASE RENTALS FOR PART OF THE YEAR WE RE OFFERED AS INCOME WHICH WAS ALSO ACCEPTED AND DEPRECIATION AT THE RA TE OF 50% OF THE COST, WAS ALSO ALLOWED TO THE ASSESSEE. AS SEEN F ROM THE ORDER OF THE ASSESSING OFFICER ALSO, EVEN THOUGH HE HAS MADE ENQ UIRIES INTO THE LEASE TRANSACTION, IN HIS COMPUTATION HE HAS TAKEN THE COST OF THE ASSET AS THE W.D.V. ONLY AND NOT THE ORIGINAL COST. THAT APART, ASSESSEE HAS BONA FIDELY CLAIMED DEPRECIATION AND OFFERED THE LE ASE RENTALS IN THE RENTALS IN THE BOOKS OF ACCOUNT. FURTHER, AS SEEN FROM THE COMPUTATION, THE TOTAL LEASE RENTALS RECEIVABLE OVE R THE PERIOD OF LEASE WAS TAKEN AS THE SALE RECEIPT AND CONSEQUENTIAL SHO RT TERM CAPITAL LOSS WAS ALSO ALLOWED. WE WERE INFORMED THAT THE SHORT TERM CAPITAL LOSS ITA NO.1225/HYD/2013 M/S. STEADFAST CORPORATION LTD. HYDERABAD 5 WAS SET OFF IN LATER YEARS ALSO AND LEASE RENTALS O FFERED WERE SUITABLY ADJUSTED. IN VIEW OF THIS, WE ARE OF THE OPINION T HAT MODIFICATION OF THE TRANSACTION FROM THAT OF LEASE TO A SALE BY THE ASSESSING OFFICER CANNOT BE ATTRIBUTED TO ANY MALA FIDE, CONSIDERING THE FACT THAT DEPARTMENT ALLOWED THE DEPRECIATION IN EARLIER YEA R ON THE SAME ASSET. IN VIEW OF THIS, WE ARE OF THE OPINION THAT MERE DISALLOWANCE OF A CLAIM OR MODIFICATION OF THE CLAIM FROM ONE NATUR E TO ANOTHER, DOES NOT ATTRACT PENALTY UNDER S.271(1)(C). WE RELY ON THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CI T V/S. RELIANCE PETRO PRODUCTS LTD. (322 ITR 158), WHEREIN IT HAS B EEN HELD AS FOLLOWS- A GLANCE OF SECTION 271(1)(C) WOULD SUGGEST THAT I N ORDER TO BE COVERED, THERE HAS TO BE CONCEALMENT OF THE PARTICU LARS OF INCOME. SECONDLY, ASSESSEE MUST HAVE FURNISHED INACCURATE P ARTICULARS OF INCOME. THE WORD PARTICULARS USED IN SECTION 271( 1)(C) WOULD EMBRACE THE MEANING OF THE DETAILS OF THE CLAIM MAD E. ADDITION ON ACCOUNT OF GROSS PROFIT IS AN ESTIMATION MADE BY AS SESSING OFFICER. IN ORDER TO EXPOSE ASSESSEE TO PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE I NVOKED. BY NO STRETCH OF IMAGINATION CAN THE MAKING OF AN INCORRE CT CLAIM IN LAW TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. IT HAS BEEN OBSERVED THAT IF THE CONTENTION OF THE REVENUE IS ACCEPTED T HEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY U/S 271(1) (C) & THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. MERELY BECAUSE THE GROSS PROFIT AS CLAIMED BY ASSES SEE HAS NOT BEEN ACCEPTED BY REVENUE, PENALTY U/S 271(1)(C) OF THE A CT IS NOT ATTRACTED. MERE MAKING OF CLAIM, WHICH IS NOT SUSTA INABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PA RTICULARS REGARDING THE INCOME OF ASSESSEE. IN THE LIGHT OF THE ABOVE, WE CANCEL THE PENALTY IM POSED EVEN WITH REFERENCE TO THE DEPRECIATION ON POLAR PACKS DISALL OWED BY THE ASSESSING OFFICER. ITA NO.1225/HYD/2013 M/S. STEADFAST CORPORATION LTD. HYDERABAD 6 7. IN THE RESULT, READ WITH THE EARLIER ORDER OF T HIS TRIBUNAL DATED 1.4.2014, THIS APPEAL OF THE ASSESSEES IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 01.03.2016 SD/- SD/- (B.RAMAKOTAIAH) ( D.MANMOHAN) ACCOUNTANT MEMBER. VICE PRESIDENT DT/- 01 MARCH, 2016 COPY FORWARDED TO: 1. M/S. STEADFAST CORPORATION LTD. (FORMERLY KNOWN AS M/S. INFOBAHN TECHNOLOGIES LTD.), C/O. DR.C.P.RAMAS WAMY, ADVOCATE, FLAT NO.303, GITANJALI APTS., PLOT NO.108, SRINAGAR COLONY, HYDERABAD-500 072. 2. ASST COMMISSIONER OF INCOME TAX, CIRCLE - 2(1) , HYDERABAD. 3. COMMISSIONER OF INCOME TAX (APPEALS) III, HYDERABAD 4. COMMISSIONER OF INCOME - TAX II HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.