SPECIALLITY GRAGRANCES (INDIA) P. LTD ( CURRENTLY KNOWN AS INTERNATIONAL FLAVOURS & FRAGRANCES INDIA P. LTD), MUMBAI V. DCIT RG 8(3), MUMBAI

ITA 1687/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3642 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 24-11-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: SHITAL BANDEKAR
• Keywords: Capital asset; Depreciation
• Section: 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI. BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO.1687/MUM/2009 (ASSESSMENT YEAR : 2003-04) M/S. INTERNATIONAL FLAVOURS & FRAGRANCES INDIA PVT. LTD. (ERSTWHILE SPECIALITY FRANGRANCES (INDIA) PVT. LTD., 501-503 DELPHI C WING, HIRANANDANI BUSINESS PARK, POWAI, MUMBAI-400 076 PAN AAAC14975P VS. DY. COMMISSIONER OF INCOME TAX, RANGE 8(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DHANESH BAFNA & MS. SHITAL BAND EKAR. RESPONDENT BY : SHRI D. SONGATE. O R D E R PER V. DURGA RAO : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XXIX, MUMBAI DT.5.12.2008. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY FILED ITS RETURN OF INCOME ON 1.12.2003 DECLARING TOTAL LOSS AT ` .55,37,680. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF TH E INCOME TAX ACT, 1961 (THE ACT) BY THE ASSESSING OFFICER AND TOTAL I NCOME ;WAS ASSESSED AT ` 6,05,425. THE ASSESSING OFFICER HAS MADE ADDITION ON ACCOUNT OF INCOME FROM HIRING OF ASSETS OF ` 4,76,000 AND DEPRECIATION OF ` 10,31,567 AND SHORT TERM CAPITAL LOSS OF ` 41,20,749. THE ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE CIT(A). THE CIT(A) HAS DELETED THE ADDI TION MADE BY THE A.O. IN RESPECT OF HIRING OF ASSETS OF ` 4,76,00. IN SO FAR AS DEPRECIATION IS CONCERNED, THE LD. CIT(A) HAS ALLOWED THE ADDITION AS DELETED THE ADDITION ITA NO.1687/MUM/09 2 MADE BY THE A.O. DEPRECIATION ON ACCOUNT OF FURNITU RE AND FIXTURES AND CONFIRMED THE DEPRECIATION ON OFFICE EQUIPMENT. ON APPEAL, THE TRIBUNAL IN ITA NO.2379/MUM/07 VIDE ORDER DT.27.8.2010 ALLOWED THE DEPRECIATION ON OFFICE EQUIPMENT ALSO. THE PRESENT PENALTY APPEAL IS U/S. 271(1)(C) ONLY ON SUSTAINED ADDITION ON ACCOUNT OF SHORT TERM CAPITAL LOSS OF ` 41,20,749. THE FACTS IN BRIEF RELATING TO THIS ISSUE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY INCORPORATED FOR THE BUSINESS OF MANUFACTUR ING OF PERFUMES. THE ASSESSEE COMPANY HAD HIRED CERTAIN PREMISES TO CARR Y ON ITS BUSINESS OF MANUFACTURE OF FRAGRANCES AND PERFUMES FOR INDUSTRI AL USE. THE ASSESSEE MADE SUCH INVESTMENT IN THE HIRED PREMISES BY WAY O F DOING INTERIOR AND CERTAIN STRUCTURAL CHANGES. HOWEVER, THE ASSESSEE WA S NEVER ABLE TO COMMENCE ITS BUSINESS. FOR SOMETIME IT LEASED OUT ITS ASSETS TEMPORARILY AND ULTIMATELY THE ASSESSEE COMPANY GOT MERGED WITH THE GROUP CONCERN. THE ASSESSEE HAS CLAIMED EXPENDITURE INCURRED ON IM PROVEMENT OF LEASED PREMISES AS A SHORT TERM CAPITAL LOSS UNDER SECTION 50(2) OF THE INCOME TAX ACT, 1961 (THE ACT). HOWEVER, THE ASSESSING OFFICER AND CIT(A) HAD DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE IS NO TRANSFER OF CAPITAL ASSETS AND THE ASSESSEE NOT RECEIVED ANY CONSIDERAT ION. IT WAS EXPLAINED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF P ENALTY PROCEEDINGS THAT THE CLAIM OF THE ASSESSEE IS BONA FIDE AND ALL THE DETAILS IN RESPECT OF CLAIM WAS DISCLOSED BY HIM. THE ASSESSEE NEITHER CONCEALE D THE INCOME NOR FILED INACCURATE PARTICULARS AND NO PENALTY CAN BE IMPOSE D UNDER SECTION 271(1)(C). HOWEVER, THE ASSESSING OFFICER HAS IMPOSE D THE PENALTY ON THE GROUND THAT THE ONUS LIES ON THE ASSESSEE TO PROVE GENUINENESS OF THE CLAIM ITA NO.1687/MUM/09 3 OF SHORT TERM CAPITAL LOSS. THE ASSESSEE CARRIED T HE MATTER IN APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) HAS OBSERVE D THAT THE ASSESSEE KNOWING VERY WELL THAT THE SHORT TERM CAPITAL LOSS IS NOT ALLOWABLE AND CLAIMED THE SAME AND IT IS AMOUNTING TO FILING OF I NACCURATE PARTICULARS AND THE ASSESSEES CLAIM IS NOT BONA FIDE AND CONFIRMED THE PENALTY IMPOSED BY THE ASSESSING OFFICER. ON BEING AGGRIEVED BY THE O RDER OF CIT(A), THE ASSESSEE CARRIED THE MATTER BEFORE THE TRIBUNAL. 3. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT IT IS BONA FIDE CLAIM OF THE ASSESSEE AND SECTION 271(1)(C) CANNOT BE APPLICABLE. HE FURTHER SUBMITTED THAT IN THE COMPUTATION OF INCOME FILED A LONG WITH THE RETURN OF INCOME DISCLOSED ALL THE DETAILS IN RESPECT OF SHOR T TERM CAPITAL LOSS OF ` 41,20,749 AND ALSO FILED ANNEXURE 1 WITH A NOTE STA TING THAT ALL THE DETAILS IN RESPECT OF THE CLAIM. 4. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE COMP ANY HIRED PREMISES TO CARRY ON ITS BUSINESS OF MANUFACTURING OF FRAGRANCE S AND PERFUMES FOR INDUSTRIAL USE. ON A HIRE OF LEASEHOLD PREMISES, T HE ASSESSEE HAS INCURRED CERTAIN EXPENDITURE BY WAY OF DOING CERTAIN STRUCTU RAL CHANGES. HOWEVER, THE ASSESSEE WAS NOT ABLE TO COMMENCE THE BUSINESS. THE LEASED PREMISES GOT MERGED WITH THE GROUP CONCERN. THE ASSESSEE HA S CLAIMED EXPENSES INCURRED FOR INTERIOR AND STRUCTURAL CHANGES AS A S HORT TERM CAPITAL LOSS UNDER SECTION 50(2) OF THE ACT. HOWEVER, THE AUTHORITIES NOT ACCEPTED THE CLAIM ON ITA NO.1687/MUM/09 4 THE GROUND THAT THERE IS NO TRANSFER OF THE CAPITAL ASSET AND NO CONSIDERATION HAS BEEN RECEIVED BY THE ASSESSEE. ACCORDING TO TH E ASSESSEE, HE HAS SURRENDERED THE LEASED PREMISES, HE ALSO RELINQUISH ED THE IMPROVEMENTS MADE IN THE LEASED PREMISES AND THEREFORE IT IS AMO UNTING TO TRANSFER AND THE LOSS INCURRED BY THE ASSESSEE IS A SHORT TERM C APITAL LOSS. THE ASSESSEE HAS DISCLOSED ALL THE FACTS BEFORE THE ASSESSING OF FICER DURING THE ASSESSMENT PROCEEDINGS ALONG WITH THE COMPUTATION AND ALSO SUB MITTED THE NOTE (PAGE NO.3 OF THE PAPER BOOK) STATING THAT THE LEASEHOLD IMPROVEMENT HAS BEEN DONE BY THE COMPANY AND THEREFORE THE ENTIRE BLOCK OF LEASEHOLD IMPROVEMENT CEASED TO EXIST DURING THE YEAR. ACCORD INGLY, THE BLOCK OF ASSETS AMOUNTING TO ` 41,20,749 HAS BEEN TREATED AS SHORT TERM CAPITAL L OSS INCURRED DURING THE YEAR AS PER THE PROVISIONS OF S ECTION 50(2) OF THE ACT. THE ASSESSEE HAS DISCLOSED ALL THE FACTS BEFORE TH E ASSESSING OFFICER AND ACCORDING TO THE ASSESSING OFFICER AND LEARNED CIT( A), THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE BECAUSE THERE IS NO TRANS FER OF ASSETS. THE CASE OF THE ASSESSEE IS THAT WHEN THE ASSESSEE HAS RELINQUI SHED HIS RIGHTS ON LEASED ASSETS WHICH IS ACCORDING TO HIM AMOUNTING TO TRANS FER AND IS ELIGIBLE FOR SHORT TERM CAPITAL LOSS AS PER SECTION 50(2). AFTE R CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND TH AT THE ASSESSEE HAS DISCLOSED ALL THE DETAILS IN RESPECT OF CLAIM WITH REGARD TO SHORT TERM CAPITAL LOSS. ACCORDING TO THE ASSESSEE, IT IS A TRANSFER WHICH IS ALLOWABLE UNDER SECTION 50(2) OF THE ACT. THEREFORE IT IS A LEGAL CLAIM MADE BY HIM WHICH IS ALLOWABLE CLAIM ACCORDING TO THE ASSESSEE AND IT IS ALSO A BONA FIDE CLAIM. IT IS NOT THE CASE OF REVENUE THAT THE CLAIM OF ASSESS EE IS BOGUS AND NO DETAILS ITA NO.1687/MUM/09 5 WERE FILED. IN THIS CONTEXT, IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS P. LTD. (322 ITR 158) (SC), IT WAS OBSERVED BY THE HON' BLE SUPREME COURT THAT A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINED I N LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDI NG THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AM OUNT TO FURNISHING INACCURATE PARTICULARS. WE, THEREFORE, RESPECTFULL Y FOLLOWING THE HON'BLE SUPREME COURT JUDGEMENT AND ALSO TAKING INTO CONSID ERATION OF TOTAL FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE NEITHER FILED INACCURATE PARTICULARS NOR CONCEALED ANY INCOME. WE, THEREFOR E, CANCEL THE PENALTY CONFIRMED BY THE LEARNED CIT(A) AND THE GROUND RAIS ED BY THE ASSESSEE IS ALLOWED. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT ON 10.12.2010. SD/- SD/- (P.M. JAGTAP) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT.10-12-2010. GPR, COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT, MUMBAI (4) CIT(A), MUMBAI (5) DR, (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES ITA NO.1687/MUM/09 6 DATE INIT IALS 1. DRAFT DICTATED ON 6/12/2010 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE SECOND MEMBER 4. DRAFT DISCUSSED & APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER.