DCIT 8(3), MUMBAI V. RAMANI HOTELS LTD, MUMBAI

ITA 1642/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49337 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 03-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VANDANA SAGAR
• Assessee Lawyers: SUBHASH S SHETTY
• Keywords: Depreciation; Earning of tax free income; Wrong claim; Bad and doubtful debts; Revised return
• Section: 27; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI P.M. JAGTAP(AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NO. 1642/MUM/2010 ASSESSMENT YEAR-2003-04 THE DCIT 8(3), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. RAMANI HOTELS LTD., 462, A.B. NAIR ROAD, JUHU, MUMBAI-400 049 PAN-AAACR 5513J (APPELLANT) (RESPONDENT) APPELLANT BY: MS VANDANA SAGAR RESPONDENT BY: SHRI SUBHASH S. SHETTY O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 24.12.2009 PASSED BY THE LD. CIT(A)-18 FOR TH E ASSESSMENT YEAR 2003-04. 2. THE GROUNDS RAISED BY THE REVENUE READ AS FOLLOW S: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) ON ACCOUNT OF WRONG CLAIM OF DEPRECIATION WITHOUT APPR ECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED AO FAILED TO CONSIDER THE FACTS THAT CLAIM OF DEPRECIATION OF RS 52,64,358/- AND INTEREST OF RS 33,000/- NOT CREDITED IN THE P & L A CCOUNT WAS AN INADVERTENT ERROR AND NOT INTENTIONAL TO PENALIZE U/S 271(1) OF THE IT ACT. ITA NO. 1642/M/2010 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) ON ACCOUNT OF DISALLOWANCE OF INTEREST AND BAD DEBTS W ITHOUT APPRECIATING THE FACTS OF THE CASE. ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) ON ACCOUNT OF REDU CTION IN THE RETURNED LOSS WITHOUT APPRECIATING THE FACTS OF THE CASE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED AO FAILED TO APPRECIATED THAT FACT THAT APPELLANT SUO MOTTO FILE D REVISED RETURN REDUCING THE LOSS FROM RS 472,82,268/- TO RS 2,33,1 2,744/- AND REVISED RETURN WAS CONSIDERED FOR THE PURPOSE OF AS SESSMENT U/S 143(3) OF THE IT ACT, HENCE SAME CANNOT BE CONSIDER ED AS FURNISHING OF INACCURATE PARTICULARS LIABLE FOR PENALTY U/S 27 1(2) OF THE IT ACT . 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEAR NED AO ERRED IN CONCLUDING THAT FILING REVISED RETURN DECLARING LOS S FROM RS 472,82,268/- TO RS 2,33,12,744/- RESULT IN ADDITION OF RS 239.70 LACS. THE LEARNED AO FAILED TO APPRECIATE THE FACT THAT FILING OF REVISED RETURN RESULTED IN REDUCTION OF LOSS OF RS 239.70 LACS. 3. THE FACTS ARE AS FOLLOWS: REGARDING THE ISSUE OF DEPRECIATION UP TO THE ASSE SSMENT YEAR 2002-03 THE DEPRECIATION ON THE BUILDINGS WAS 20%. FROM ASSESSMENT YEAR 2003-04 THE DEPRECIATION IS 10%. HO WEVER THE ASSESSEE CLAIMED DEPRECIATION AS IN THE EARLIER YEA R AT 20% INADVERTENTLY. DURING THE COURSE OF ASSESSMENT PROC EEDINGS HE ADMITTED HIS MISTAKE THAT EXCESS CLAIM OF DEPRECIAT ION CLAIMED WAS DISALLOWED AND NO APPEAL WAS FILED. 4. THE LD. CIT(A) DELETED THE PENALTY HOLDING AS UNDER: IT IS FAIRLY SETTLED ISSUE THAT NO PENALTY CAN BE LEVIED ON BONAFIDE ERRORS INADVERTENT MISTAKES, IT IS ALSO PE RTINENT TO MENTION THAT SIMILAR MISTAKE WAS COMMITTED IN ASSESSMENT YE AR 2004-05 ALSO AND NO PENALTY PROCEEDINGS WERE INITIATED UNDE R SECTION 271(1). THE FACTS OF THE CASE WERE SQUARELY COVER ED BY THE DECISION OF CIT VS SRI SARADA TEXTILES PROCESSORS P . LTD (2006) 286 ITR 499(MAD). THE FACTS OF THIS CASE ARE, WRONG CL AIM OF ITA NO. 1642/M/2010 3 DEPRECIATION WAS MADE, WHEN THE ERROR WAS DISCOVERE D THE CLAIM WAS WITH DRAWN AND REVISED RETURN WAS FILED. LEVY OF PENALTY UNDER SECTION 271(1)(C) WAS HELD NOT JUSTIFIED. SIN CE THIS APPEARS TO BE AN INADVERTENT MISTAKE THE APPELLANT CONTINUED T O CLAIM THE DEPRECIATION AT 20% AS IN EARLIER YEARS WITHOUT NOT ICING CHANGE IN PERCENTAGE OF DEPRECIATION ALLOWABLE. AND ALSO IN V IEW OF THE FACT THAT ON SIMILAR FACTS, NO PENALTY WAS INITIATED IN THE ASSESSMENT YEAR 2004-05, I CONSIDER THERE IS NO CASE FOR LEVY OF PENALTY UNDER SECTION 271(1) AND THE PENALTY LEVIED IS DELETED. 5. REGARDING INTEREST OF RS 33,000/- THIS AMOUNT WA S SHOWN AS ACCRUED IN THE BALANCE SHEET. THE ADDITION WAS MADE BY THE ASSESSING OFFICER BASED ON THE OBSERVATION MADE IN THE AUDIT REPORT. THE ASSESSEE ADMITTED HIS MISTAKE AND NO APPEAL WAS FILED. IT I S A MERE IN ADVERTISEMENT MISTAKE THAT THE AMOUNT OF RS 33,000/ - IS NOT ADDED TO THE PROFIT AND LOSS ACCOUNT. THE CIT(A) DELETED THE PENALTY ON THE GROUND THAT NO PENALTY UNDER SECTION 271(1)(C) CAN BE LEV IED IN CASE OF BONAFIDE AND INADVERTENT MISTAKE. 6. REGARDING BAD DEBTS THE LD. CIT(A) HAS HELD THAT , NO PENALTY U/S 271(1)(C) HAS BEEN LEVIED BY THE AO. 7. AS FAR AS THE NEXT ISSUE IS CONCERNED, THE ASSESSEE FILED ORIGINAL RETURN OF LOSS OF RS. 4,72,82,268/- ON 1.12.2003. R EVISED RETURN OF LOSS OF RS 2,33,12,744/- WAS FILED ON 30.11.2004. THE AO LEVIED PENALTY UNDER SECTION 271(1) ON THE DIFFERENCE OF LOSS OF RS 239.70 LACS. 8. BEFORE THE LD. CIT(A) IT WAS SUBMITTED AS FOLLOW S: THE FACTS ARE, THE ASSESSEE HIMSELF FILED THE REVIS ED RETURN. NO NOTICE WHATSOEVER WAS ISSUED BY THE AO. THE RET URN FILED WAS PURELY VOLUNTARY. IT IS LEGALLY SETTLED THAT NO PEN ALTY CAN BE LEVIED WHERE THE REVISED RETURN IS PURELY VOLUNTARY. RELI ANCE IS PLACED ON CIT VS RAMDAS PHARMACY TC 50R 587 CIT VS RAJARAM CLOTH STORES TC 50R 534 ITA NO. 1642/M/2010 4 9. THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER IS NOT CORRECT IN LEVYING PENALTY IN SUCH CIRCUMSTANCES. ACCORDINGLY, THE PENALTY LEVIED IS DELETED. 10. AGGRIEVED THE REVENUE IS ON APPEAL BEFORE US. 11. WE HEARD BOTH THE PARTIES. REGARDING LEVY OF P ENALTY IN RESPECT OF EXCESS CLAIM OF DEPRECIATION OF RS.52,64,378/- AND NON INCLUSION OF INTEREST INCOME OF RS.33,000/- IN THE PROFIT & LOSS ACCOUNT. THE ASSESSEE EXPLAINED THAT THEY HAD CONTINUED TO CLAIM DEPRECIA TION @ 20% APPLICABLE TO THE EARLIER YEARS IGNORING THE FACT T HAT THE DEPRECIATION ALLOWABLE ON HOTEL BUILDING HAS BEEN REDUCED TO 10% FOR THE ASSESSMENT YEAR UNDER QUESTION. FURTHER, THEY HAVE ALSO SUBMI TTED THAT NON- INCLUSION OF INTEREST OF RS.33,000/- WAS A MERE OMI SSION AND AN INADVERTENT MISTAKE. THE CIT(A) ACCEPTED THE EXPLA NATION OF THE ASSESSEE AND HELD THAT INADVERTENT MISTAKE IN COMPU TING THE INCOME CANNOT LEAD TO LEVY OF PENALTY. THE ASSESSEE HAS O FFERED THE EXPLANATION FOR THE MISTAKE AND WE FIND IT REASONABLE. AS THE A SSESSEE HAS EXPLAINED THE REASON FOR THE ADDITIONS MADE IN THE ASSESSMENT AND THE FACT THAT THESE WERE DUE TO INADVERTENT MISTAKE, WE CONFIRM T HE ORDER OF CIT(A) DELETING THE PENALTY LEVIED ON THESE TWO COUNTS. 12. AS REGARDS INTEREST DISALLOWANCE OF RS.7,38,000 /- IT IS FOUND FROM THE ASSESSMENT ORDER THAT THIS DISALLOWANCE WAS MAD E ON THE BASIS OF PROPORTIONATE INVESTMENT IN SHARES I.E. THE ASSESSI NG OFFICER HAS ASSUMED THAT PART OF THE BORROWINGS HAVE BEEN FOR I NVESTMENT UNDER EXEMPT INCOME. THERE IS NO FINDING IN THE ASSESSME NT ORDER REGARDING THE ACTUAL NEXUS OF THE BORROWING WITH THE INVESTME NT. IT IS MERELY A PROPORTIONATE DISALLOWANCE. IN THE CIRCUMSTANCES WE FEEL THAT PENALTY CANNOT BE LEVIED ON SUCH PROPORTIONATE DISALLOWANCE . AS HELD BY THE APEX COURT IN THE CASE OF CIT VS RELIANCE UTILITIE S & POWER LTD. 313 ITR ITA NO. 1642/M/2010 5 304. THE MERE FACT THAT THE CLAIM OF INTEREST PAID HAS BEEN DISALLOWED CANNOT LEAD TO LEVY OF PENALTY. RESPECTFULLY FOLLO WING THE DECISION OF APEX COURT, WE HOLD THAT PENALTY CANNOT BE LEVIED IN RES PECT OF INTEREST DISALLOWANCE OF RS.7,31,000/-. 13. THE LAST ISSUE IS REGARDING FILING OF REVISED R ETURN WHEREIN THE LOSS OF RS.4,72,82,268/- INDICATED IN THE ORIGINAL RET URN WAS REDUCED TO RS.2,33,12,744/- IN THE REVISED RETURN. BEFORE THE ASSESSING OFFICER THE ASSESSEE SUBMITTED THAT AS THEY HAD FILED REVISED R ETURN ON THEIR OWN, NO PENALTY CAN BE LEVIED ON THE REVISED CLAIM OF LOSSE S. WE FIND THAT THE ASSESSING OFFICER HAS MERELY GONE ON THE PRESUMPTIO N THAT REDUCTION IN CLAIM OF LOSSES BY ITSELF IS SUFFICIENT CASE FOR LE VY OF PENALTY. THERE HAS BEEN NO DISCUSSION IN THE ORDER LEVYING PENALTY REG ARDING THE REASON FOR THE REDUCTION OF LOSS IN THE REVISED RETURN. IN TH E CIRCUMSTANCES, WE HAVE TO HOLD THAT THE REDUCTION OF LOSSES CLAIMED B Y THE ASSESSEE IN THE REVISED RETURN BEFORE ANY CONCLUSION TO THAT EFFECT HAS BEEN ARRIVED AT BY THE ASSESSING OFFICER OR THE ASSESSING OFFICER HAS NOT FOUND ANY DEFECT IN THE REVISED RETURN FILED BY THE ASSESSEE PENALTY C ANNOT BE LEVIED. WE THEREFORE, CONCUR WITH THE ORDER OF THE LD. CIT(A) DELETING THE PENALTY IN RESPECT OF REDUCTION OF LOSSES IN THE REVISED RETUR N OFFERED BY THE ASSESSEE. 14. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 24 TH DAY OF JUNE, 2011 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 24 TH JUNE , 2011 RJ ITA NO. 1642/M/2010 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1642/M/2010 7 DATE INITIALS 1 DRAFT DICTATED ON: 2. 0 6 .2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 3 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______