ITO, Ward-16(1), Hyd, Hyderabad V. Patil Rail Infrastructure Pvt.Ltd., Hyd, Hyderabad

ITA 1444/HYD/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4306 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 29-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: B SURYANARAYANA MURTHY
• Keywords: Depreciation; Revised return; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.1444/HYD/2015 ASSESSMENT YEAR 2011-2012 THE INCOME TAX OFFICER, WARD-16(1), HYDERABAD. VS. M/S. PATIL RAIL INFRASTRUCTURE PVT. LTD., HYDERABAD 500 082. PAN ADCP8340E (APPELLANT) (RESPONDENT) FOR REVENUE : MR. A. SITARAMA RAO FOR ASSESSEE : MR. B. SURYANARAYANA MURTHY DATE OF HEARING : 28.09.2016 DATE OF PRONOUNCEMENT : 28.09.2016 ORDER PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-IV, HYDERABAD AND IT PERTA INS TO THE A.Y. 2011-2012. PENALTY LEVIED UNDER SECTION 271(1)( C) OF THE ACT HAVING BEEN CANCELLED BY THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 2. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE STA TED IN BRIEF. THE ASSESSEE-COMPANY IS ENGAGED IN THE BU SINESS OF MANUFACTURING OF CONCRETE SLEEPERS. FOR THE YEAR UND ER CONSIDERATION, THE ASSESSEE DECLARED NIL INCOME, BOTH UNDER THE REGULAR PROVISIONS AS WELL AS UNDER SECTION S.115JB OF THE ACT. ASSESSMENT WAS PROCESSED UNDER SECTION 143(1) OF THE A CT. THEREAFTER, IT WAS TAKEN-UP FOR SCRUTINY. DURING THE C OURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFICER NOTICED TH AT THE 2 ITA.NO.1444/HYD/2015 M/S. PATIL RAIL INFRASTRUCTURE PVT. LTD., HYDERABAD. ASSESSEE DEBITED AN AMOUNT OF RS.55,15,000 REFERRABL E TO AMOUNT PAID TO M/S. ITALIAN THAI DEVELOPMENT PUBLIC COMPANY L TD., UNDER THE HEAD LEGAL EXPENSES. ON VERIFICATION OF TH E AGREEMENT, THE ASSESSING OFFICER WAS OF THE OPINION TH AT THE AMOUNT WAS PAYABLE FOR PROVIDING TECHNICAL KNOWHOW S UCH AS DRAWING TYPICAL DESIGNS ETC., AND THE SAID AGREEMENT W AS ENTERED INTO FOR A PERIOD OF 10 YEARS. THEREFORE, THE ASSESS ING OFFICER CALLED-UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE S AID EXPENDITURE SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE AND ALLOW DEPRECIATION ACCORDINGLY. IN RESPONSE THERETO, TH E ASSESSEE SUBMITTED THAT THE PAYMENT WAS MADE FOR SEEKING THE TECHNI CAL SERVICE ADVISE AND DATA RELATED TO THE DESIGN, MANUFAC TURING, MARKETING AND INSTALLATION OF PRECAST CONCRETE TRACK PL INTHS SUITABLE FOR RAILWAYS. HAVING NOT BEEN SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE ASSESSING OFFICER OBS ERVED THAT IT WAS AN EXPENDITURE INCURRED FOR ENTERING INTO AN AGREE MENT WHICH HAS AN ENDURING BENEFIT FOR A PERIOD OF 10 YEA RS AND THE SAME IS EXPENDED FOR ACQUIRING TECHNICAL KNOW-HOW. H ENCE, BY APPLYING THE PROVISIONS OF SECTION 32 OF THE ACT, DEPR ECIATION WAS ALLOWED ON THE SAID EXPENDITURE. 3. IT MAY BE NOTICED THAT THE TOTAL INCOME RETURNED BEING NIL, UPON PARTLY DISALLOWING THE TECHNICAL KNOW-HOW EXPENDITURE THE TOTAL INCOME ASSESSED WAS RS.46,34,207 WHICH WAS S ET-OFF AGAINST BROUGHT FORWARD LOSSES AND THUS THE TAX THEREO N WAS NIL. SINCE THE ASSESSEE IS RUNNING IN LOSSES, IT DID NOT CH OOSE TO PREFER ANY APPEAL. THEREAFTER, CONSEQUENT TO THE DISALLOWANCE OF THE CLAIM OF DEDUCTION, THE ASSESSING OFFICER INITIATED PE NALTY PROCEEDINGS ON THE GROUND THAT THE ASSESSEE MADE A WRO NG CLAIM. SINCE NONE APPEARED FOR THE ASSESSEE, THE ASSESSING O FFICER LEVIED PENALTY OF RS.15,39,368 UNDER SECTION 271(1)(C) OF TH E ACT. 3 ITA.NO.1444/HYD/2015 M/S. PATIL RAIL INFRASTRUCTURE PVT. LTD., HYDERABAD. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHEREIN IT WAS CONTENDED THAT SUBSEQUENT TO THE MER GER OF THE OTHER COMPANIES, THE COMPANY FILED A REVISED RETURN DECLARING NIL INCOME AND THE AMOUNT OF EXPENDITURE WAS CAPITALI SED IN THE BOOKS OF ACCOUNT AND IT WAS NOT CLAIMED AS REVENUE EXP ENDITURE. BUT WITHOUT APPRECIATING THIS FACT THE ASSESSING OFFICER MADE AN ADDITION OF RS.55,15,000 ON THE ALLEGED GROUND THAT THE EXPENDITURE HAS TO BE CAPITALISED. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER IGNORED THE STATEMENT OF THE ASSESSEE COMPANY THAT IT HAD ALREADY CAPITALISED THE EXPENDITURE AND PROCE EDED TO LEVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT. HOWEV ER, SINCE THE ASSESSEE COMPANY WAS REELING IN LOSSES, IT DID NOT PR EFER TO FILE AN APPEAL AGAINST THE ASSESSMENT ORDER BUT CHALLENGED THE ORDER PASSED UNDER SECTION 271(1)(C) OF THE ACT. 5. THE LD. CIT(A) VERIFIED THE LEDGER ACCOUNT AND NO TICED THAT THE ASSESSEE HAS NOT CLAIMED THE TECHNICAL KNOW-HOW FEES IN VIEW OF HUGE CARRIED FORWARD LOSSES AND THEREFORE, E VEN THE DISALLOWANCE ITSELF IS NOT IN ACCORDANCE WITH LAW. HE ALSO OBSERVED THAT THE ASSESSEE DID NOT HAVE ANY MALAFIDE IN TENTION, AS WAS POINTED OUT BY THE ASSESSING OFFICER IN THE PEN ALTY ORDER UNDER SECTION 271(1)(C) OF THE ACT, AND ACCORDINGLY D ELETED THE PENALTY LEVIED BY THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS WHICH WERE DULY AUTHORISED BY THE P R. CIT : 1. THAT THE LD. CIT(A) ERRED IN CANCELLING THE PENALT Y OF RS.15,39,368 LEVIED UNDER SECTION 271(1)(C) OF THE I.T. ACT, 1961. 2. THAT THE LD. CIT(A) ERRED IN CANCELLING THE PENALTY ADJUDICATING ON THE MERIT OF THE ADDITION MADE WHIC H IS SUBJECT MATTER OF PENALTY WHEN THE ASSESSEE HAD NOT 4 ITA.NO.1444/HYD/2015 M/S. PATIL RAIL INFRASTRUCTURE PVT. LTD., HYDERABAD. CONTESTED THE ASSESSMENT IN APPEAL WHICH HAD BECOME FINAL. 6. THE MAIN GROUND URGED BY THE REVENUE IS THAT WHE N THE ASSESSEE HAD NOT CONTESTED THE ASSESSMENT AND HAD BE COME FINAL, LEVY OF PENALTY IS VALID. DURING THE COURSE O F HEARING, LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE COMPUTATION OF TOTAL INCOME FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION AND SUBMITTED THAT ASSESSEE IN FACT DID NO T CLAIM DEDUCTION OF THE ENTIRE EXPENDITURE IN THE YEAR UNDER CONSIDERATION AND IT WAS TAKEN AS PRE-PAID EXPENSES OU T OF WHICH ONLY 11/120 TH WAS CLAIMED AS DEDUCTION. AGREEMENT WAS ENTERED INTO ON 10 TH MAY AND THE TOTAL AMOUNT HAS TO BE AMORTIZED IN 120 MONTHS AND HENCE, AN AMOUNT OF RS.5,06,291 ONLY WAS CLAIMED AS EXPENDITURE DEDUCTIBLE IN THE RETURN OF INCOME FOR THE A.Y. 2011-2012. THUS THE ASSESSMENT OF THE ASSESSING OFFI CER ON THE PRESUMPTION THAT ENTIRE EXPENDITURE IS CLAIMED AS DEDUCT ION IS BASELESS. IN FACT, THE ASSESSING OFFICER ALLOWED DEPR ECIATION OF RS.13,78,750 WHICH IS MUCH MORE THAN WHAT WAS CLAIMED AS DEDUCTION. IT WAS THEREFORE, CONTENDED THAT THE ASSESSING OFFICER, WHILE LEVYING THE PENALTY, DID NOT PROPERLY GO THRO UGH THE CLAIM MADE BY THE ASSESSEE AND PROCEEDED ON ASSUMPTIONS TO HOLD THAT THE ASSESSEE CONCEALED THE PARTICULARS OF INCOME. IT W AS FURTHER CONTENDED THAT ALL THE FACTS BEING AVAILABLE ON RECORD, IT CANNOT BE SAID TO BE EITHER FURNISHING OF INACCURATE PARTICULA RS OF INCOME OR CONCEALMENT OF INCOME. 7. THE LD. D.R. ON THE OTHER HAND, MERELY RELIED UPO N THE ORDER PASSED BY THE ASSESSING OFFICER AND COULD N OT PLACE ANY MATERIAL TO CONTRADICT THE CLAIM MADE BY THE ASSESSEE O R THE CONCLUSIONS REACHED BY THE LD. CIT(A). 5 ITA.NO.1444/HYD/2015 M/S. PATIL RAIL INFRASTRUCTURE PVT. LTD., HYDERABAD. 8. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERI T IN THE APPEAL FILED BY THE REVENUE AND THEREFORE, THE SAME IS DISMISSED IN LIMINE . ORDER PRONOUNCED IN THE OPEN COURT ON 28.09.2016. SD/- SD/- (B. RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER. VICE PRESIDENT HYDERABAD, DATED 28 TH SEPTEMBER, 2016 VBP/- COPY TO: 1. THE INCOME TAX OFFICER, WARD-16(1), ROOM NO.7, B LOCK-A, 7 TH FLOOR, AAYAKAR BHAVAN, BASHERBAGH, HYDERABAD 500 004. 2. M/S. PATIL RAIL INFRASTRUCTURE PVT. LTD., 6-3-1239/B /111, RENUKA ENCLAVE, RAJ BHAVAN ROAD, SOMAJIGUDA, HYDERABAD-500 082. 3. CIT(A)-4, 3 RD FLOOR ANNEXE, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 4. COMMISSIONER OF INCOME TAX-4, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, A BENCH, HYDERA BAD 6. GUARD FILE.