KASVICOL POLYMERS P. LTD, PUNE V. ITO 10(3)-4, MUMBAI

ITA 1669/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6312 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 04-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K PAHWA
• Assessee Lawyers: RITIKA GARG
• Keywords: Depreciation; Difference of opinion

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1669/MUM/2010 (ASSESSMENT YEAR: 2004-05) M/S. KASVICOL POLYMERS PVT. LTD. INCOME TAX OFFICER - 10(3)-4 PLOT NO. A/660, TTC MUMBAI MIDC, MAHAPE VILLAGE VS. NAVI MUMBAI 4000071 PAN - AAACK 6497 N APPELLANT RESPONDENT APPELLANT BY: SMT. RITIKA GARG RESPONDENT BY: SHRI S.K. PAHWA O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-XXI, MUMBAI DATED 01.12.2009 CONFIRMING THE PENALTY LEVI ED BY THE A.O. UNDER SECTION 271(1)(C). 2. BRIEFLY STATED, THE ASSESSEE, A PRIVATE LIMITED COM PANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF ADHESIVES AND DUE TO ADVERSE MARKET CONDITIONS HAS LET OUT ITS FACTORY BUILDING AND MAC HINERY AND RECEIVED AN AMOUNT OF ` 10,22,780/- AS RENT. AS AGAINST THIS THE ASSESSEE C LAIMED TOTAL EXPENDITURE OF ` 6,60,377/- INTER ALIA INCLUDING DEPRECIATION OF ` 2,05,575/-. THE ASSESSEE HAS RETURNED THE NET PROFIT AND AFTER SETTING OFF CARRIED FORWARD LOSS OF DEPRECIATION HAS FILED A NIL RETURN. IN THE COURSE OF SCRUTINY PROCEEDINGS THE A.O. NOTICED THAT THE NATURE OF PAY MENT WAS MENTIONED AS RENT IN THE TDS CERTIFICATE FROM M/S. JEENA & COMPA NY AND ANALYSED THE RENT RECEIVED FROM OTHER THREE COMPANIES AND CAME T O THE CONCLUSION THAT THE ASSESSEE HAS NO INTENTION OF RESTARTING IT BUSI NESS, THEREFORE, IT HAS RENTED OUT ITS ENTIRE PREMISES ALONGWITH MACHINERY IN THE CURRENT A.Y. 2004- 05. IN SUCH A CASE THE INCOME RECEIVED CANNOT BE ST ATED AS INCOME FROM BUSINESS BUT IT SHOULD BE CLASSIFIED AS INCOME FROM OTHER SOURCES. THUS THE ITA NO. 1669/MUM/2010 M/S. KASVICOL POLYMERS PVT. LTD. 2 ENTIRE RENTAL INCOME HAS BEEN TREATED AS INCOME FRO M OTHER SOURCES AND AFTER SETTING OFF THE CARRIED FORWARD BUSINESS DEPR ECIATION OF EARLIER YEARS DETERMINED THE TOTAL INCOME AT NIL. THIS ORDER OF T HE A.O. WAS ACCEPTED BY THE ASSESSEE. A.O. INITIATED 271(1)(C) PENALTY HOLD ING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND LEVI ED PENALTY THEREOF ` 3,36,922/-. THE SAME WAS CONFIRMED BY THE CIT(A). 3. REFERRING TO THE FACTS OF THE CASE, IT WAS THE SUBM ISSION OF THE LEARNED COUNSEL THAT THE A.O. HAS CHANGED THE HEAD FROM BUS INESS TO OTHER SOURCES. SINCE THE ASSESSEE HAS ADMITTEDLY LET OUT THE ENTIR E BUSINESS PREMISES INCLUDING THE MACHINERY IT WAS UNDER THE IMPRESSION THAT THE INCOME WAS CORRECTLY OFFERED UNDER THE HEAD BUSINESS CLAIMING DEPRECIATION AND OTHER EXPENSES INCLUDING THE CORPORATE EXPENDITURE LIKE F ILING FEES, SALARIES, POWER AND ELECTRICITY, AUDIT FEES, ETC. SHE ALSO REFERRED TO THE CLAIM OF REPAIRS, RENT AND TAXES, WHICH SHOULD HAVE BEEN ALLOWED ALONGWITH DEPRECATION WHEN THE INCOME WAS SHIFTED FROM BUSINESS HEAD TO INCOME FRO M OTHER SOURCES. IT WAS HER CONTENTION THAT THE A.O. HAS NOT CORRECTLY DETE RMINED THE INCOME WHILE SHIFTING THE HEAD AND THE GROSS RECEIPTS WERE TAKEN AS INCOME INSTEAD OF NET INCOME. WHILE ADMITTING THAT THE ASSESSEE HAS ADMIT TED THE COMPUTATION MADE BY THE AO, IT WAS HER SUBMISSION THAT THERE WA S NEITHER CONCEALMENT NOR FURNISHING OF INACCURATE PARTICULARS AND THE TO TAL INCOME DETERMINED AT NIL CONTINUED TO BE AT NIL EVEN AFTER SHIFTING THE HEAD FROM BUSINESS TO OTHER SOURCE. SHE RELIED ON THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS P. LTD. 36 DTR 449 (322 ITR 158) AND ALSO THE DECISION OF THE ITAT IN THE C ASE OF ITO VS. ROBORANT INVESTMENTS (P.) LTD. 7 SOT 181 (MUM), WHICH WAS AP PLICABLE TO THE FACTS OF THE CASE. 4. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDERS OF THE A.O. AND THE CIT(A). 5. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S THE ASSESSEE HAS LET OUT THE BUSINESS PREMISES AND MACHINERY TO THRE E PARTIES AND TO ONE PARTY IT IS ONLY THE BUILDING, WHICH WAS LET OUT. S INCE THIS IS THE FIRST YEAR OF LETTING OUT OF THE ENTIRE BUSINESS PREMISES AND MAC HINERY THE ASSESSEE ITA NO. 1669/MUM/2010 M/S. KASVICOL POLYMERS PVT. LTD. 3 OFFERED THE INCOME UNDER THE HEAD BUSINESS. HOWEVER , THE A.O., AFTER EXAMINING THE FACTS CONSIDERED THE INCOME UNDER THE HEAD OTHER SOURCES BUT WHILE BRINGING THE RENT TO TAX HE HAS NOT ALLOW ED THE DEPRECIATION CLAIMED ON THE MACHINERY AND OTHER EXPENDITURE ALLO WABLE TO THE ASSESSEE INCLUDING THE RATES AND TAXES, ETC. BE THAT AS IT M AY, THE FACT IS THAT THE A.O. HAS REJECTED THE CLAIM OF ASSESSABILITY OF INCOME U NDER A PARTICULAR HEAD OF INCOME AND TAXED IT UNDER ANOTHER HEAD OF INCOME WH ICH IN OUR VIEW DOES NOT WARRANT IMPOSITION OF PENALTY UNDER SECTION 271 (1)(C). IT IS A CASE OF INVOLVING GENUINE DIFFERENCE OF OPINION ON MATTERS OF LAW BETWEEN THE ASSESSEE AND THE A.O. AND IS CLEARLY OUTSIDE THE SC OPE OF EXPLANATION TO SECTION 271(1)(C). THE ASSESSEE HAS GIVEN BONAFIDE EXPLANATION ABOUT OFFERING THE INCOME UNDER THE HEAD BUSINESS AND IN OUR VIEW THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO OFFER RENTAL INCOMES. S INCE THE ASSESSEE HAD MADE FULL AND COMPLETE DISCLOSURE OF ALL FACTS RELA TING TO COMPUTATION OF TOTAL INCOME, THE MERE CHANGE OF HEAD FROM BUSINESS TO OT HER SOURCE IN OUR VIEW, DOES NOT ATTRACT PENALTY UNDER SECTION 271(1)(C). 6. OUR VIEW GETS SUPPORT FORM THE CASE OF ITO VS. ROBO RANT INVESTMENTS (P.) LTD. WHEREIN THE COORDINATE BENCH OF THE ITAT IN 7 SOT 181 (MUM) CONSIDERED THE GAMUT OF CASE LAW AVAILABLE AND HELD THAT MERE REJECTION OF A LEGAL CLAIM OF THE ASSESSEE FOR TAXABILITY OF INCOM E UNDER A PARTICULAR HEAD OF INCOME IS NOT BY ITSELF SUFFICIENT TO WARRANT IMPOS ITION OF PENALTY. CASES INVOLVING GENUINE DIFFERENCE OF OPINION ON MATTERS OF LAW BETWEEN ASSESSEE AND THE A.O. ARE CLEARLY OUTSIDE THE SCOPE OF EXPLA NATION (1) TO SECTION 271(1)(C) PROVIDED THE ASSESSEE HAS MADE FULL DISCL OSURE OF ALL THE RELEVANT FACTS AND ALSO ACTED BONAFIDELY. THE PRINCIPLES EST ABLISHED IN THE ABOVE CASE CLEARLY APPLICABLE TO THE FACTS OF ASSESSEES CASE. 7. NOT ONLY THAT THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS P. LTD. (SUPRA) ALSO CONSIDE RED THE PROVISIONS OF SECTION 271(1)(C) AND HAS HELD THAT MERELY MAKING U P THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FUR NISHING INACCURATE PARTICULARS OF INCOME OF THE ASSESSEE. FOLLOWING TH E PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT, WE ARE OF THE VIEW THAT THE FACTS IN THE PRESENT ITA NO. 1669/MUM/2010 M/S. KASVICOL POLYMERS PVT. LTD. 4 CASE DOES NOT WARRANT ANY PENALTY AS THE ASSESSEE H AS MADE COMPLETE DISCLOSURE OF ITS INCOME AND THERE IS NO CONCEALMEN T OF INCOME AS SUCH. MOREOVER, EVEN THE COMPUTATION MADE BY THE A.O. IS NOT CORRECT, THOUGH THE ASSESSEE ACCEPTED AS IT INVOLVED ONLY SET OFF OF LO SS/ DEPRECIATION. THE ENTIRE GROSS RECEIPT WAS BROUGHT TO TAX AND THE SAME AMOUN T WAS CONSIDERED FOR LEVY OF PENALTY U/S 271(1)(C) WHICH IN FACT WAS DIS CLOSED. IN VIEW OF THE FACTS OF THE CASE, THERE IS NO SCOPE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C). ACCORDINGLY ASSESSEES GROUNDS ARE ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER 2010. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH NOVEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXII, MUMBAI 4. THE CIT X, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.