GARWARE CHEMICALS LTD, MUMBAI V. ACIT 8(OSD), MUMBAI

ITA 13/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59694 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 15-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE APPELLATE APPELLATE APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI VIJALY PAL RAO, JUDICIAL MEMBER I.T.A.NO.13/MUM/2010 AU 2006-07 GARWARE CHEMICALS LTD., GARWARE HOUSE, WESTERN EXPRESS HIGHWAY, VILE PARLE (E), MUMBAI 400 057. PAN: AABCG 2468 G VS. ASST. COMMISSIONER OF I.T., CIRCLE 8 (OSD), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE. RESPONDENT BY : SHRI PAVAN VED. DATE OF HEARING: 15-12-2011. DATE OF PRONOUNCEMENT: 13-01-2012. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING G ROUNDS: 1. THE COMMISSIONER OF INCOME TAX (APPEALS) 16, MUM BAI, ERRED IN HOLDING THAT THE ASST. COMMISSIONER OF INCOME TAX, CIR. 8(3), MUMBAI WAS JUSTIFIED IN LEVYING PENALTY OF RS.19,24,880/- U/S 271(1)(C) ON THE GROUND THAT THE APPELLANT HAD CONCEALED INCOME AND/ OR FURNISHED INACCURATE PARTICULARS OF INCOME. 2. THE SAID CIT(A) ERRED IN NOT APPRECIATING THAT T HE DEDUCTION OF RS.57, 18,600/- BEING THE CHARGES PAID TO REGISTRAR OF COMPANIES FOR INCREASE IN SHARE CAPITAL, STAMP DUTY, FILING FEE E TC. PAID BY THE APPELLANT WAS CLAIMED IN THE RETURN OF INCOME AS TH E AUTHORIZED CAPITAL OF THE APPELLANT HAD TO BE INCREASED TO RS. 100 CRO RES IN ORDER TO ISSUE EQUITY SHARES AND OPTIONALLY CONVERTIBLE CUMULATIVE REDEEMABLE PREFERENCE SHARES TOTALING TO RS.57 CRORES IN TERMS OF RESTRUCTURING PACKAGE FOR CONVERSION OF LOANS AND ADVANCES DUE TO IDBI AS WELL AS GARWARE POLYESTER LTD., AND THERE WAS NO FRESH INFU SION OF CAPITAL. THE APPELLANT WAS ADVISED THAT IN VIEW OF THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GENERAL INSURANCE COMPANY LTD. , (254 ITR 203) AND BOMBAY BURMAH CORPORATION LTD., (145 ITR 793) T HE ABOVE EXPENDITURE WAS AN ALLOWABLE EXPENDITURE. ITA NO.13 OF 2010 2 3. THE SAID CIT(A) ERRED IN NOT APPRECIATING THAT T HE APPELLANT WAS A SICK COMPANY AND THAT THE TOTAL LOSS DURING THE YEA R AS PER THE BOOKS OF ACCOUNTS WAS RS.36.74 CRORES AND THE ASSESSED LOSS WAS RS.29.34 CRORES EXCLUDING CARRY FORWARD LOSS OF RS.225 CRORES AND T HEREFORE THE APPELLANT COULD NOT HAVE SOUGHT TO GET ANY UNDUE BE NEFIT BY CLAIMING DEDUCTION OF RS.57 LACS WHICH THE APPELLANT BELIEVE D THAT THIS WAS LEGALLY ALLOWABLE. 4. THE SAID CIT(A) ERRED IN NOT APPRECIATING THAT W HEN A LEGAL CLAIM IS MADE ON THE ADVISE GIVEN TO THE APPELLANT NO PENALT Y CAN BE LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT. 2. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS CLAIMED CERTAIN LEGAL AND PROFESSIONAL CHARGES WHICH INCLUDED A SUM OF RS.57,18,600/- PAID TO REGISTRAR OF COMPANIES AS WELL AS STAMP DUT IES FOR INCREASING THE AUTHORISED SHARE CAPITAL. THESE EXPENSES WERE N OT ALLOWED BY THE AO BECAUSE ASSESSEE ACCEPTED THE DISALLOWANCE. THE PENALTY PROCEEDINGS U/S.271(1) WERE INITIATED. IN RESPONSE TO A SHOW CAUSE NOTICE, IT WAS MAINLY CONTENDED THAT ASSESSEE HAD F ILED A RETURN DECLARING A LOSS OF RS.29,35,31,512/- PLUS ASSESSEE HAS UNABSORBED LOSS OF RS.23.5 CRORES ALSO AND UNABSORED DEPRECIAT ION AT RS.18.61 CRORES. THEREFORE, THERE WAS NO ATTEMPT TO REDUCE T HE TAX LIABILITY HENCE PENALTY COULD NOT BE LEVIED. HOWEVER, AO DID NOT AGREE AND LEVIED THE PENALTY BY RELYING ON SOME CASE LAWS. 3. BEFORE THE LD. CIT(A) IT WAS MAINLY SUBMITTED TH AT ASSESSEE OWED SOME LOANS TO IDBI WHICH WERE RESTRUCTURED. AC CORDING TO THE RESTRUCTURING PACKAGE BY THE IDBI, LOANS AND ADVANC ES AS WELL AS INTEREST THEREON TO THE COMPANY AS WELL AS GARWARE POLYESTER LTD. WAS CONVERTED INTO THE EQUITY SHARES AND OPTIONAL CONVE RTIBLE REDEEMABLE ITA NO.13 OF 2010 3 PREFERENCE SHARES. FOR ISSUING THESE SHARES THE ASS ESSEE COMPANY HAD TO INCREASE ITS AUTHORISED SHARE CAPITAL AND ASSESS EE WAS ADVISED TO TREAT THE EXPENSES AS REVENUE EXPENDITURE IN VIEW O F THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASES OF CIT V S. GENERAL INSURANCE CO. LTD. [254 ITR 203] AS WELL AS IN THE BOMBAY BURMAH TRADING CORPORATION LTD. VS. CIT [145 ITR 793]. ACC ORDINGLY, ASSESSEE CLAIMED THE EXPENSES AS REVENUE EXPENDITURE. EVEN A FTER THE DISALLOWANCE OF RS.57 LAKHS THE ASSESSED LOSS DETER MINED WAS RS.28.17 CRORES AND ACCUMULATED UNABSORED LOSS AND DEPRECIAT ION WAS RS.225 CRORES. THUS, IT WILL MAKE IT CLEAR THAT CLAIM OF R EVENUE EXPENSES ON ACCOUNT OF INCREASE IN AUTHORISED CAPITAL WAS NOT T O GAIN ANY TAX ADVANTAGE BUT BECAUSE OF GENUINE BELIEF THAT SUCH E XPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITURE. THE LD. CIT(A) AF TER EXAMINING THE SUBMISSIONS OBSERVED THAT THE HON'BLE SUPREME COURT IN THE CASES OF BROOK BOND INDIA LTD. VS. CIT [225 ITR 798] AND PUN JAB STATE INDUSTRIAL DEVELOPMENT CORPORATION VS. CIT [225 ITR 792] HAS CLEARLY HELD THAT FEES PAID TO THE REGISTRAR OF COMPANIES F OR INCREASE IN AUTHORISED SHARE CAPITAL, WAS IN THE NATURE OF CAPI TAL EXPENDITURE. THEREFORE, ASSESSEE WAS BOUND TO FOLLOW THE SAME. T HEREAFTER AFTER DISCUSSING CERTAIN OTHER CASE LAWS, HE CONFIRMED TH E LEVY OF PENALTY. 4. BEFORE US LD. COUNSEL OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORI TY. HE EMPHASISED THAT THE SHARE CAPITAL WAS INCREASED FOR ISSUANCE O F OPTIONAL CONVERTIBLE DEBENTURES TO THE IDBI TO WHOM ASSESSEE HAD AGREED TO ITA NO.13 OF 2010 4 CONVERT THE LOAN INTO SUCH OPTIONAL CONVERTIBLE DEB ENTURES IN VIEW OF THE LOAN RESTRUCTURING SCHEME. HE SUBMITTED THAT DE SPITE THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BROOK B OND INDIA LTD. VS. CIT [SUPRA] IT WAS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GENERAL INSURANCE CORPN. OF INDIA [SUPRA ] THAT EXPENDITURE INCURRED ON ISSUE OF BONUS SHARES WAS OF REVENUE NA TURE. IN FACT, THIS DECISION HAS ALREADY BEEN CONFIRMED BY THE HON'BLE SUPREME COURT ALSO. HE URGED THAT THERE IS PLETHORA OF DECISIONS AVAILABLE SAYING THAT DECISION IN THE CASE OF BROOK BOND INDIA IS NOT APP LICABLE TO THE ISSUANCE OF DEBENTURES AND WHAT HAS BEEN ISSUED BY THE COMPANY IS ONLY CONVERTIBLE DEBENTURES. IN THE LIGHT OF THIS B ACKGROUND ASSESSEE UNDER THE ADVICE CLAIMED THE AMOUNT PAID TO THE REG ISTRAR OF COMPANIES AS REVENUE EXPENDITURE. NO TAX ADVANTAGE WAS SOUGHT TO BE GAINED BECAUSE EVEN AFTER THIS ADDITION, THE ASS ESSED LOSS OF RS.28.17 CRORES IN ADDITION TO THE CARRIED FORWARD UNABSORBED LOSS AND DEPRECIATION OF RS.225 CRORES, WERE THERE. THE CLAI M WAS MADE ON THE BASIS OF THE BONA FIDE BELIEF THAT EXPENDITURE IS A LLOWABLE AS REVENUE EXPENDITURE AND, THEREFORE, NO PENALTY SHOULD HAVE BEEN LEVIED PARTICULARLY IN THE LIGHT OF THE DECISION OF THE HO N'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LT D. [322 ITR 158]. 5. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AO AS WELL AS THE CIT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. FIR STLY, IT IS NOT A ITA NO.13 OF 2010 5 SIMPLE CASE OF INCREASE OF AUTHORISED CAPITAL BECAU SE WHAT ASSESSEE HAS SOUGHT TO ISSUE TO THE IDBI IS THE OPTIONAL CON VERTIBLE DEBENTURES IN VIEW OF THE RESTRUCTURING SCHEME OF IDBI. THEREF ORE, ASSESSEE COULD POSSIBLY ENTERTAIN A BONA FIDE BELIEF THAT IN SUCH A SITUATION THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF BR OOK BOND INDIA LTD. VS. CIT [SUPRA] MAY NOT BE APPLICABLE. THIS HAS TO BE EXAMINED FROM AN ANGLE THAT ASSESSEE WAS NOT TRYING TO SEEK ANY T AX ADVANTAGE BECAUSE EVEN AFTER DISALLOWANCE OF THIS EXPENDITURE HUGE LOSS OF RS.28.17 CRORES WAS ASSESSED. FURTHER THERE IS NO F INDING BY THE AO THAT DETAILS FILED BY THE ASSESSEE IN THE RETURN WE RE INCORRECT OR ERRONEOUS. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. [SUPRA] HAS HELD AS UNDER: A GLANCE AT THE PROVISION OF S. 271(1)(C) WOULD SUG GEST THAT IN ORDER TO BE COVERED, THERE HAS TO BE CONCEALMENT OF THE PART ICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE MEANING O F THE WORD 'PARTICULARS' USED IN SECTION 271(1)(C) WOULD EMBRA CE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETUR N IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HEL D GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXPOSE THE ASSE SSEE THE PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISIO N, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGI NATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCUR ATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEN D UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOC UMENT, WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILI TY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN , MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TRUTH OR ERR ONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN, FOUND TO BE INCORRECT OR ERRONEOUS OR F ALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1). A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY I TSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AM OUNT TO FURNISHING INACCURATE PARTICULARS. ITA NO.13 OF 2010 6 FOLLOWING THE ABOVE DECISION, WE ARE OF THE OPINION , THAT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY AND ACCORDINGLY WE DEL ETE THE SAME. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3/1/2012. SD/- SD/- (VIJAY PAL RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 13/1/2012. P/-*