ACIT 8(1), MUMBAI V. M/S. GODFREY PHILIPS INDIA LTD, MUMBAI

ITA 1391/MUM/2009

• Counselvise Citation: 139119914 RSA 2009
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 25-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 02-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Opportunity of being heard; Difference of opinion
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND R.K.PANDA (A.M ) ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) ASSISTANT COMMISSIONER OF INCOME TAX 8(1), ROOM NO.210, 2 ND FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 M/S GODFREY PHILIPS INDIA LTD., CHAKALA, ANDHERI (E), MUMBAI-400099 PAN: AABCG4768K APPELLANT V/S RESPONDENT APPELLANT BY : SHRI PAVAN VED. RESPONDENT BY : SHRI YOGESH T HAR O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 10.12.2008 PASSED BY THE LE ARNED COMMISSIONER OF INCOME TAX (A) FOR THE ASSESSMENT YEAR 2003-04 DELETING THE PENALTY IMPOSED BY THE AO UNDE R SECTION 271(1)(C ) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTU RING AND TRADING OF TOBACCO PRODUCTS AND TEA, FILED RETURN DECLARING TOTAL INCOME OF RS.77,87,52,790/-. HOWEVER, THE AS SESSMENT WAS COMPLETED AT AN INCOME OF RS.81,80,99,980/- VI DE ORDER DATED 20.1.2006 PASSED UNDER SECTION 143(3) OF THE ACT. ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 2 2 AGAINST THE ADDITION/DISALLOWANCES MADE IN THE ASSE SSMENT, THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (A). THE LEARNED COMMISSIONER OF INCOME TAX (A) CONFIRMED THE FOLLOW ING ADDITIONS : (A) PRODUCT DEVELOPMENT EXPENSES : RS. 8,43,527/- (B) DEPRECIATION ON UPS : RS. 2,45,908/- (C ) EDP CHARGES : RS. 6,49,600/- (D) INTEREST :RS.38,98,000/- (F) LEAVE ENCASHMENT :RS.20,00,000/- SINCE IN THE ASSESSMENT ORDER, THE AO ALSO INITIAT ED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, TH E AO ALLOWED THE OPPORTUNITY TO THE ASSESSEE TO SHOW CAU SE AS TO WHY THE PENALTY UNDER SECTION 271(1)(C) OF THE AC T SHOULD NOT BE LEVIED. IN RESPONSE, IT WAS INTERALIA SUB MITTED BY THE ASSESSEE THAT THE ASSESSEE HAS DISCLOSED COMPL ETE PARTICULARS OF THE ABOVE EXPENSES/CLAIMS, THE DISAL LOWANCE WAS MADE ON ACCOUNT OF DIFFERENCE OF OPINION AND HI GHLY DEBATABLE, THEREFORE, PENALTY IS NOT LEVIABLE. HO WEVER, THE AO DID NOT ACCEPT THE ASSESSEES SUBMISSIONS. HE WA S OF THE VIEW THAT THE ASSESSEE HAS FILED INACCURATE PARTICU LARS OF ITS INCOME BY CONCEALING PARTICULARS OF INCOME AND HEN CE LIABLE TO PENALTY UNDER SECTION 271(1)(C) AND ACCORDINGLY HE ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 3 3 IMPOSED THE PENALTY OF RS.28,02,347/- VIDE ORDER D ATED 25.3.2008 PASSED UNDER SECTION 271(1)( C) OF THE A CT. 3. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) WHILE CONFIRMING THE PENALTY ON THE DISALLOWANC E OF INTEREST OBSERVED THAT THE OTHER DISALLOWANCES MADE BY THE AO ARE HIGHLY DEBATABLE AND TWO VIEWS ARE POSSIBL E AND HENCE UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE PENALTY IS NOT LEVIABLE AND ACCORDINGLY HE DELETED THE PENA LTY IMPOSED BY THE AO ON THE DISALLOWANCES OTHER THAN DISALLOWANCE OF INTEREST. 4. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE REVENUE IS IN A PPEAL BEFORE US TAKING THE FOLLOWING EFFECTIVE GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY LEVIED BY THE AO ON THE ISSUE OF PRODUCT DEVELOPMENT EXPENSES, DEPRECIATION OF UPSC, EDP CHARGES & LEAV E ENCASHMENT WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE 5. AT THE TIME OF HEARING, THE LEARNED D.R. SUPPORT S THE ORDER OF THE AO. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS AS UNDER : ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 4 4 S.NO GROUND SUBMISSIONS 1. PRODUCT DEVELOPMENT EXP ENSES COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER FOR AY 2002-03 (ITA NO.2792-2632/M/06 (PAGE 1-3, PARA 2- 5 (QUANTUM APPEAL) COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER FOR AY 2003-04 & 2004-05 (ITA NO.1071-5569-2632/M/06(PAGE 2- 3, PARA 2.1-2.1.1) (QUANTUM APPEAL) COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER FOR A.Y.2002-03 (ITA NO.2747-2592/M/09) (PAGE 2-3, PARA 4-4.2) (PENALTY APPEAL) . 2. DEPRECIATION @ 100% ON UPS DISCLOSURE IN CLAUSE 14 OF TAX AUDIT REPORT COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER FOR AY 2002-03 (SUPRA)(PAGES 4-6, PARA 10-13) (QUANTUM APPEAL) COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER FOR AY 2003-04 & 2004-05 (SUPRA) (PAGE 3-4, PARA 2.2-2.2.1) QUANTUM APPEAL) COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER FOR A.Y.2002-03 (SUPRA) PAGE 2-3, PARA 4.1-4.2 (PENALTY APPEAL) . 3. EDP CHARGES COVERED IN FAVOUR OF THE ASSESSEE BY ITAT ORDER FOR AY 2002-03 (SUPRA) (PAGE 5-6,PARA 6-6.3)(PENALTY APPEAL) SET ASIDE BY ITAT ORDER FOR AY 2003- 04 & 2004-05 (ITA NO.1071-5569- 2632/M/06) (PAGE 3-4, PARA 2.3- 2.3.1)(QUANTUM APPEAL) ISSUE HAD TO TRAVEL UPTO THE SPECIAL BENCH IN AMWAY INDIA ENTERPRISES LTD VS DCIT(114 TTJ 476). HENCE VERY CLEARLY A DEBATABLE ISSUE. NO PENALTY CAN BE LEVIED ON A DEBATABLE ISSUE. CIT V/S LATE G.D.NAIDU AND OTHERS (165 ITR 63) (MAD) CIT V/S SIVANANDA STEELS (256 ITR ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 5 5 683) (MAD) CIT V/S CALCUTTA CREDIT CORPORATION (166 ITR 29) (CAL) CIT V/S AMARNATH (143 CTR 148)(ALL) ALPHA ASSOCIATES V/S DCIT (66 TTJ 758)(BOM) 4. LEAVE ENCASHMENT DISCLOSURE IN COMPUTATION OF INCOME NOTE IN CLAUSE 21 OF THE TAX AUDIT REPORT AS UNDER (PAGE 31 OF PAPER BOOK: REPRESENTS INCREMENTAL LIABILITY DETERMINED ACTUARIALLY ON OVERALL BASIS BUT NOT FUNDED /PAID BY THE ASSESSEE AND DOES NOT INCLUDE THE AMOUNT OF ACTUAL LEAVE ENCASHMENT INCURRED AND PAID DURING THE PREVIOUS YEAR. WE HAVE BEEN INFORMED THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR SUCH ACTUARIAL LIABILITY IN ITS RETURN OF INCOME FILED FOR THE ASSESSMENT YEARS 1996-97 TO 2001-02. THEREFORE, IN OUR VIEW, THE AMOUNT OF ACTUAL LEAVE ENCASHMENT INCURRED AND PAID DURING THE PREVIOUS YEAR MAY INCLUDE AN ELEMENT OF LIABILITY ALREADY CLAIMED AS DEDUCTION DURING THE ASSESSMENTS YEARS 1996-97 TO 2001-02 WHICH THE ASSESSEE CONTENDS, CANNOT BE DETERMINED SEPARATELY. WHEN A DISCLOSURE IS MADE BY WAY OF A NOTE IN THE RETURN OF INCOME, NO PENALTY CAN BE LEVIED U/S 271 (1) (C) EVEN IF THE CLAIM IS DISALLOWED BY APPELLATE AUTHORITY. DCIT V/S GODFREY PHILIPS INDIA LTD (ITA NO.2274/MUM/2008) (PAGE 8-7, PARA 6) CIT V/S MRS. ROSHAN D. NARIMAN (169 TAXMAN 1)(BOM) CIT V/S SOHAN PAL (HUF) 171 TAXMAN 203)(P&H) CIT V/S PREMIER PROTEINS LTD (278 ITR 252)( P&H) CIT V/S TEXTILE & GENERAL TRADING CO.(244 ITR 876)(DEL) ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 6 6 CIT V/S TEK RAM (HUF) 300 ITR 354 IN SUPPORT, THE LEARNED COUNSEL FOR THE ASSESSEE HA S ALSO FILED THE COPIES OF THE TRIBUNAL ORDERS AS REFERRE D ABOVE. 7. WE HAVE CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND MERIT IN THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SINCE IN THE QUANTUM APPEAL THE TRIBUNAL HAS DELETED THE DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENSES AND DEPRECIATION ON UPS AND HAS ALSO DELETED THE PEN ALTY IN ASSESSEES OWN CASE IN THE ACIT V/S GODFREY PHILI PS INDIA LTD. AND VICE-VERSA IN ITA NOS.2747/MUM/2009 AND I TA NO.2592/MUM/2009 (AY-2002-03) ORDER DATED 20.1.2010 PENALTY ON THESE DISALLOWANCES HAS NO LEGS TO STAND AND HENCE THE SAME HAS RIGHTLY BEEN DELETED BY THE LE ARNED COMMISSIONER OF INCOME TAX (A). WE HOLD AND ORDER ACCORDINGLY. 8. WITH REGARD TO THE DELETION OF LEVY OF PENALTY R ELATING TO THE EDP CHARGES, WE FIND THAT THE TRIBUNAL IN THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 2002-03 (SU PRA) VIDE PARAGRAPH 6.3 HAS HELD AS UNDER : ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 7 7 6.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD OF THE CASE. THE ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO BY THE TRIBUNAL IN QUANTUM APPEAL TO DECIDE THE ISSUE IN THE LIGHT OF THE DECI SION IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA). THUS, THE LIMITED ISSUE NOW BEFORE THE AO IS WHETHER THE ENTI RE EXPENDITURE INCURRED BY THE ASSESSEE IS CAPITAL OR REVENUE IN NATURE OR PART OF IT IS IN A CAPITAL AN D PART IN REVENUE FIELD. IN ANY VIEW OF THE MATTER, THE ASSES SEE HAD FURNISHED ENTIRE DETAILS THIS CANNOT BE DISPUT ED THAT IT IS A HIGHLY DEBATABLE ISSUE AND TWO VIEWS ARE PO SSIBLE AND THEREFORE, IN SUCH A CASE PENALTY IS NOT LEVIA BLE. THEREFORE, IRRESPECTIVE OF THE VIEW WHICH HAS TO BE TAKEN BY THE AO, THE PENALTY CANNOT BE LEVIED AND, THEREF ORE, IN OUR OPINION, THE MATTER DOES NOT NEED TO BE REST ORED BACK TO THE AO IN ORDER TO UNNECESSARILY MULTIPLY THE PROCEEDINGS. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE RESPECTFULLY FOLLOWING THE SAME, WE CONFIRM THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A) IN DELETING THE PENALTY ON THIS ACCOUNT. 9. WITH REGARD TO THE LEVY OF PENALTY ON THE ADDITI ON OF LEAVE ENCASHMENT, THE CLAIM OF THE ASSESSEE IS THA T SINCE THE ASSESSEE HAS DISCLOSED COMPLETE FACTS IN THE COMPUTATION OF INCOME IN THE NOTES ENCLOSED WITH TH E RETURN OF INCOME, THEREFORE, EVEN IF THE CLAIM IS DISALLOW ED NO PENALTY UNDER SECTION 271(1)(C ) IS LEVIABLE. HOWEV ER, WE FIND THAT IN THE QUANTUM APPEAL IN ASSESSEES OWN CASE I N GODFREY PHILIPS INDIA LTD V/S . THE ACIT IN ITA NO.1071/M/2007 (AY- 2003-04) AND ITA NO.5569/M/200 7 (AY- 2004-05), THE TRIBUNAL HAS SET ASIDE THE ISSU E TO THE FILE OF THE AO VIDE FINDING RECORDED IN PARAGRAPHS 2.8.1 ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 8 8 APPEARING AT PAGE 13 OF THE ORDER DATED 20.4.2011 AS UNDER : 2.8.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DI SPUTE IS REGARDING DISALLOWANCE OF PART OF THE CLAIM RELA TING TO LEAVE ENCASHMENT. THE ASSESSEE HAD BEEN MAKING THE CLAIM EARLIER ON THE BASIS OF ACTUARIAL VALUATION B UT CONSEQUENT TO THE AMENDMENT OF SECTION 43B THE CLAI M WAS BEING MADE ON PAYMENT BASIS FROM A.Y.2003-04. THE AO HAS MADE ESTIMATED DISALLOWANCE OUT OF THE CLAIM MADE ON PAYMENT BASIS ON THE GROUND THAT PART OF THE PAYMENTS MADE MAY RELATE TO EARLIER YEAR WHEN THESE WERE ALLOWED ON ACTUARIAL BASIS. THE AO HAS M ADE DISALLOWANCE ON ESTIMATE WHICH CANNOT BE SUSTAINED. ONLY THE PAYMENT WHICH HAD ACTUALLY BEEN ALLOWED EARLIER CAN BE DISALLOWED. IN OUR VIEW MATTERS REQU IRE FRESH EXAMINATION AND DISALLOWANCE HAS TO BE RESTRI CTED TO THE AMOUNTS ALLOWED IN THE EARLIER YEAR. WE THER EFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE ISSUE TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSAR Y EXAMINATION AND AFTER ALLOWING OPPORTUNITY OF HEARI NG TO THE ASSESSEE THUS IN THE QUANTUM APPEAL, THE ISSUE HAS BEEN REST ORED BACK TO THE FILE OF THE AO FOR FRESH EXAMINATION A ND DISALLOWANCE HAS TO BE RESTRICTED TO THE AMOUNT A LLOWED IN THE EARLIER YEAR. IN OTHER WORDS, THE ISSUE HAS NO T ATTAINED THE FINALITY, THEREFORE, IN THE INTERESTS OF JUSTIC E, WE CONSIDER IT FAIR AND REASONABLE THAT THE ISSUE OF PENALTY ON THE DISALLOWANCE OF LEAVE ENCASHMENT SHOULD ALSO GO BA CK TO THE FILE OF THE AO AND ACCORDINGLY, WE SET ASIDE T HE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX ( A) ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE O F THE AO WHO SHALL DECIDE THE SAME AFRESH AND IN ACCORDANCE WITH ITA NO.1391/MUM/2009 (ASSESSMENT YEAR: 2003-04) 9 9 LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE REVENUE AR E THEREFORE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH MAY, 2011. SD SD (R.K.PANDA) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH MAY, 2011 SRL:26511 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILED. TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI