Bayer Vapi Pvt. Ltd., (Formerly Known as Bilag Industries Pvt.Ltd.,), Vapi V. The A CIT., Vapi Circle, Vapi

ITA 1688/AHD/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2108 (ITAT-SURAT)
• Duration Of Justice: 5 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-07-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 30-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRASENJIT SINGH
• Assessee Lawyers: MEHUL K PATEL; A GOPALAKRISHNAN
• Keywords: Depreciation; Wrong claim; Difference of opinion; Revenue expenditure; Capital expenditure; Set aside; Capital Gains
• Section: 271(1)(c)

Judgement Text

BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 1 OF 20 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ I.T.A. NO.1688/AHD/2014 / ASSESSMENT YEAR : 2005-06 BAYER VAPI PRIVATE LIMITED, (FORMERLY KNOWN AS BILAG INDUSTRIES PRIVATE LIMITED), PLOT NO.306/3, PHASE-II, VAPI 396 195, GUJARAT. [PAN: AABCB 2100 L] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI. APPELLANT /RESPONDENT /ASSESSEE BY SHRI MEHUL K PATEL, ADVOCATE & SHRI A. GOPALAKRISHNAN, CA /REVENUE BY SHRI PRASENJIT SINGH CIT(DR) / DATE OF HEARING: 18.07.2019 /PRONOUNCEMENT ON: 27 .08.2019 /O R D E R PER O.P.MEENA, AM: 1. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)- VALSAD, VALSAD(IN SHORT THE CIT(A)) DATED 31.03.2014 PERTAINING TO ASSESSMENT YEAR 2005-06. 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITA NO.1688/AHD/2014 READ AS UNDER : 01. THE APPELLANT COMPANY HAS NEITHER CONCEALED ITS INCOME NOR SUBMITTED ANY INACCURATE PARTICULARS OF INCOME AND THE ADJUSTMENTS/ ADDITIONS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS OF THE CASE AND LAW AND DESERVES TO BE DELETED. 02. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 2 OF 20 CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IMPOSING PENALTY U/S.271(1)(C) ON THE ADDITION / DISALLOWANCE TO THE TUNE OF RS.7,95,27,784/- ON DEPRECIATION CLAIMED BY THE APPELLANT COMPANY ON INTANGIBLE ASSETS. 03. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IMPOSING PENALTY U/S.271(1)(C) ON THE ADDITION / DISALLOWANCE TO THE TUNE OF RS.2,02,31,841/- ON LEGAL AND PROFESSIONAL FEES CLAIMED BY THE APPELLANT COMPANY DISREGARDING THE DETAILS THEREOF SUBMITTED DURING THE COURSE OF PENALTY PROCEEDINGS AS WELL. 04. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IMPOSING PENALTY U/S.271(1)(C) ON THE ADDITION / DISALLOWANCE TO THE TUNE OF RS.40,12,124/- ON TRADING LOSS INCURRED BY THE APPELLANT COMPANY. 05. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IMPOSING PENALTY U/S.271(1)(C) ON THE ADDITIONS BY WAY OF REALLOCATION OF PERSONAL EXPENSES AMOUNTING TO RS.1,18,78,668/- BETWEEN BILAG UNIT AND BEOU. 06. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IMPOSING PENALTY U/S.271(1)(C) ON THE ADDITIONS BY WAY OF REALLOCATION OF INTEREST EXPENSES AMOUNTING TO RS.3,24,00,950/- BETWEEN BILAG UNIT AND BEOU. 07. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER IMPOSING PENALTY U/S.271(1)(C) ON THE ADDITIONS BY WAY OF REALLOCATION OF OTHER EXPENSES AMOUNTING TO RS.80,75,132/- BETWEEN BILAG UNIT AND BEOU. 08. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY OR ALTER THE ABOVE GROUNDS OF APPEAL AT ANY STAGE OF APPELLATE PROCEEDINGS. 3. SINCE THE ABOVE GROUND NO.1 TO 7 RELATES TO LEVY OF PENALTY U/S.271(1)(C) AND CONFIRMATION OF SAME BY THE CIT(A) ON VARIOUS ISSUES / DISALLOWANCES, ADDITIONS, THEREFORE THE SAME ARE BEING CONSIDERED IN CONSOLIDATED MANNER. BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 3 OF 20 4. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PESTICIDES AND ITS INTERMEDIARIES. THE ASSESSEE HAS FILED ITS RETURN OF INCOME ON 29.10.2005 DECLARING TOTAL INCOME OF RS.93,23,86,304/- UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT AND BOOK PROFIT OF RS.90,33,60,626/- U/S.115JB OF THE ACT. THE ASSESSMENT WAS COMPLETED U/S.143(3) ON 30.12.2008 DETERMINING THE TOTAL INCOME AT RS.1,18,81,64,210/-. IN ADDITION TO OTHER ADDITIONS, FOLLOWING ADDITIONS WERE MADE TO THE TOTAL INCOME OF THE ASSESSEE ON WHICH THE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 WERE INITIATED AS UNDER : 1. LOSS ON SALE OF DEPB LICENSE - RS.1,07,15,174/- 2. WRITE OFF OF QBAL RS. 8,37,36,015/- 3. UPWARD ADJUSTMENT MADE ON ACCOUNT TPO ORDER : RS.34,68,000/- 4. REALLOCATION OF STAFF WELFARE EXPENSES BETWEEN BILAG UNIT AND BEOU UNIT RS.72,846/-. 5. REALLOCATION OF OIL & PETROL EXPENSES BETWEEN BILAG UNIT AND BEOU UNIT : - RS.41,632/- 6. DEPRECIATION ON EXCESS PAYMENT MADE TOWARDS PURCHASE OF INTANGIBLE ASSET RS.7,95,27,784/- 7. LEGAL & PROFESSIONAL FEES RS.2,02,31,841/- BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 4 OF 20 8. TRADING LOSS RS.40,12,124/- 9. REALLOCATION OF PERSONAL EXPENSES BETWEEN BILAG UNIT AND BEOU UNIT RS.1,18,78,668/-, 10. REALLOCATION OF INTEREST EXPENSES BETWEEN BILAG UNIT AND BEOU UNIT. RS. 3,24,00,950/-, 11. REALLOCATION OF OTHER EXPENSES BETWEEN BILAG UNIT AND BEOU UNIT- RS.80,75,132/- 5. THE AO OBSERVED THAT LD.CIT(A) HAS ALLOWED RELIEF IN RESPECT OF DISALLOWANCE ADDITION MENTIONED FROM SL.NO.1 TO 5 AND CONFIRMED DISALLOWANCE FROM SL.NO.6 TO 11. AS REGARDS DEPRECIATION OF EXCESS PAYMENT MADE TOWARDS PURCHASE OF INTANGIBLE ASSETS AT RS.7,95,27,784/-, THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE COMPANY HAS ACQUIRED BUSINESS DIVISION MANUFACTURING IMIDACLOPRID FROM MITSU LTD., ON SLUMP SALE BASIS FOR A TOTAL CONSIDERATION OF RS.27.33 CRORES. HOWEVER, THE AO ON THE BASIS OF VALUE OF ASSETS IN THE BOOKS OF ACCOUNTS WAS OF THE OPINION THAT THE BUSINESS WORTH OF RS.7.19 CRORES ONLY WHICH WAS PURCHASED BY THE ASSESSEE FOR RS.27.50 CRORES. SINCE THE ASSESSEE COULD NOT JUSTIFY ANY LOGICAL NOR CONVINCING WAY FOR PAYMENT OF SUCH HUGE PAYMENT FOR INTANGIBLE ASSETS, HENCE DEPRECIATION CLAIMED THEREON OF RS.7.95 CRORES WAS DISALLOWED WHICH WAS BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 5 OF 20 ALSO CONFIRMED BY THE LD.CIT(A), HENCE FOR CLAIMING WRONG CLAIM OF DEPRECIATION, THE AO LEVIED A PENALTY ON THE SAID AMOUNT. SIMILARLY, THE ASSESSEE HAS CLAIMED LEGAL AND PROFESSIONAL FEES EXPENDITURE OF RS.2.02 CRORES FOR WHICH EXPLANATION FURNISHED BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO AND ADDITION THERETO WAS ALSO CONFIRMED BY THE LD.CIT(A), ACCORDINGLY THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS DELIBERATELY CLAIMED THIS EXPENDITURE AS REVENUE EXPENDITURE WITH THE INTENTION TO REDUCE LEGITIMATE TAX LIABILITY AND THEREBY FURNISHING INACCURATE PARTICULARS OF INCOME. SIMILARLY, THE ASSESSEE HAS CLAIMED TRADING LOSS OF RS.40,12,124/- WHICH WAS FOUND TO BE WITHOUT ANY BASIS AND SAME WAS ALSO CONFIRMED BY THE LD.CIT(A). THEREFORE, THE AO WAS OF THE VIEW THAT THE LOSS CLAIMED IN RESPECT OF SALES TO THE RELATED PARTIES, HENCE SAME WAS NOT GENUINE. THEREFORE, THIS ACT OF CLAIMING NON-GENUINE LOSS AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE AO FURTHER NOTED THAT THE ASSESSEE HAS CLAIMED REALLOCATION OF COMMON PERSONAL, ALLOCATING BETWEEN BILAG UNIT AND BEOU IN THE RATIO OF 79.11 OUT OF WHICH COMMON EXPENSES OF RS.1.18 CRORES WERE ALLOCATED TO BEOU UNIT BY THE AO, HENCE, SAME DISALLOWED. SIMILARLY, INTEREST EXPENSES ALLOCATION FROM BILAG UNIT TO BEOU BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 6 OF 20 WERE ALLOTTED AT RS.3,24,00,950/- WAS ALSO DISALLOWED AND REALLOCATION OF OTHER EXPENSES OF RS.80,75,132/- WAS ALSO DISALLOWED BY ALLOCATING SAME TO BEOU UNIT. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS BOOKED EXPENSES ON VERY SMALL BASIS IN THE BEOU UNIT WHEREAS THE HIGHER AMOUNT WAS ALLOCATED TO THE BILAG UNIT WITH A VIEW TO REDUCE THE TAX LIABILITY. THUS, THE ASSESSEE REDUCED THE LEGITIMATE TAX LIABILITY BY NOT DEBITING THE ACTUAL EXPENSES IN THE PRIORITY UNITS AND SHIFTING THEM INTO NONPRIORITY UNIT AND THEREFORE BY FURNISHING INACCURATE PARTICULARS OF ITS INCOME FOR THE YEAR UNDER CONSIDERATION. 6. IN VIEW OF THE ABOVE, THE AO LEVIED A PENALTY OF RS.5,71,30,589/- @10% OF TAX ON THE AFORESAID DISALLOWANCE / ADDITIONS BY TREATING THE SAME AS FURNISHING OF INACCURATE PARTICULARS OF INCOME CONSIDERING THE SAID AMOUNT AS TAX SOUGHT TO BE EVADED. 7. BEING AGGRIEVED, THE ASSESSEE HAS CARRIED THE MATTER BEFORE THE LD.CIT(A). WITH REGARD TO CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS AT RS.7,95,27,784/- THE ASSESSEE CONTENDED THAT THE ITA NO.1672/AHD/2007 FOR A.Y. 2004-05 IN THE CASE OF MITSU LTD., HAS GIVEN A FINDING THAT TRANSACTION BETWEEN THE BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 7 OF 20 APPELLANT COMPANY AND M/S.MITSU LTD., ARE GENUINE BUSINESS TRANSACTION. HOWEVER, THE LD.CIT(A) WAS OF THE OPINION THAT THE FINDING OF ITAT WAS RELATED TO THE SLUMP SALE BEING EXIGIBLE TO LONG TERM CAPITAL GAINS OR NOT. THE SALE OF THE BUSINESS WAS UPHELD AS GENUINE BUSINESS TRANSACTION. HOWEVER, THE AO HAS NEVER DOUBTED THE GENUINENESS OF THE SLUMP SALE BUT RAISED THE ISSUE OF VALUATION AND PAYMENT MADE TOWARDS THE PURCHASE OF INTANGIBLE ASSETS IN FORM OF MANUFACTURING AND PROCESS KNOW-HOW ETC., THEREFORE, THE ASSESSEE HAS NOT JUSTIFIED AS HOW THE ASSETS WORTH RS.7.19 CRORES BEING BOOK VALUE WERE PURCHASED FOR TOTAL CONSIDERATION OF RS.27.50 CRORES. IT WAS FURTHER OBSERVED THAT THERE IS NO BASIS FOR VALUATION FOR EXPERT OPINION SUBMITTED, HENCE LD.CIT(A) HELD THAT THE AO HAS RIGHTLY LEVIED PENALTY ON SUCH CLAIM OF DEPRECIATION. 8. WITH REGARD TO PENALTY ON ADDITION / DISALLOWANCE TO THE TUNE OF RS.2,02,31,841/- BEING LEGAL AND PROFESSIONAL FEE EXPENSES CLAIMED FOR RESTRUCTURING OF THE SHARE CAPITAL WERE IN THE CAPITAL IN NATURE, HENCE THE APPELLANT WAS AWARE THAT EXPENSES INCURRED UNDER THIS HEAD WAS FOR ENDURING AND LONG LASTING BENEFIT AND BY CLAIMING IT AS REVENUE EXPENDITURE, THE APPELLANT HAS TRIED TO FILE INACCURATE PARTICULARS. WITH REGARD BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 8 OF 20 TO PENALTY OF ADDITION OF DISALLOWANCE TO THE TUNE OF RS.40,12,124/- MADE ON ACCOUNT OF TRADING LOSS, THE LD.CIT(A) WAS OF THE VIEW THAT THE APPELLANT WAS NOT ABLE PROVIDE THE BASIS FOR SALE OF ITS PRODUCTS AT A LOSS TO RELATED PARTIES AND SIMILAR ADDITIONS WERE CONFIRMED IN EARLIER YEARS. THEREFORE, FOR MAKING SALES AT LOSS TO RELATED PARTIES THE APPELLANT HAS FILED INACCURATE PARTICULARS WITH THE INTENTION TO EVADE TAX. 9. WITH REGARD TO LEVYING OF PENALTY ON THE ADDITION BY WAY OF REALLOCATION OF COMMON PERSONAL EXPENSES AMOUNTING TO RS.1,18,78,668/-; INTEREST EXPENSES AMOUNTING TO RS.3,24,00,950/- AND OTHER EXPENSES AMOUNTING TO RS.80,75,132/- THE LD.CIT(A) OF THE VIEW THAT THE EXPENSES WERE APPORTIONED BY THE ASSESSEE BETWEEN BILAG UNIT AND BEOU WITH A VIEW TO INCREASE THE PROFIT OF THE NON-PRIORITY UNIT AND DECREASING THE PROFIT IN PRIORITY UNIT WITH A VIEW TO REDUCE ITS LEGITIMATE TAX LIABILITY BY NOT DEBITING THE ACTUAL EXPENSES IN THE PRIORITY UNITS AND SHIFTING THEM INTO NONPRIORITY UNITS AND THEREBY FURNISHED INACCURATE PARTICULARS OF ITS INCOME FOR THE YEAR UNDER CONSIDERATION. THE LD.CIT(A) AFTER DISCUSSING VARIOUS CASE LAWS OBSERVED THAT EXPLANATION 1 TO SECTION 271(1)(C) RAISES A PRESUMPTION THAT AS AND WHEN ANY AMOUNT BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 9 OF 20 IS ADDED AS DISALLOWED IN COMPUTING THE TOTAL INCOME THE SAME SHALL BE DEEMED OR REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THE ENTIRE ONUS IS ON THE ASSESSEE TO NOT TO OFFER AN EXPLANATION BUT ALSO TO SUBSTANTIATE IT AND TO PROVE THAT THE PRESUMPTION WAS BONAFIDE. THEREFORE, AFTER CITING THE NUMBER OF CASE LAWS OF VARIOUS HON'BLE HIGH COURTS AND HON'BLE SUPREME COURTS AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS LTD., 306 ITR 277 HELD THAT PENALTY IS CIVIL LIABILITY AND WILLFUL CONCEALMENT IS NOT ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY, CONFIRMED THE PENALTY IMPOSED BY THE AO. 10. BEING AGGRIEVED, THE ASSESSEE FILED THIS APPEAL BEFORE THIS TRIBUNAL. THE LD.COUNSEL SUBMITTED THAT THE CLAIM OF INTANGIBLE ASSETS HAS BEEN ACCEPTED BY THE TRIBUNAL DURING A.Y. 2004-05 WHEREIN DISALLOWANCE OF DEPRECIATION CLAIMED MADE ON INTANGIBLE ASSETS ACQUIRED FOR PURCHASE OF IMIDACLOPRID BUSINESS WAS DELETED VIDE ORDER IN THE CASE OF ACIT VS. BAYER VAPI PVT. LTD., IN ITA NO.2446 & 2584/AHD/2007 FOR A.Y. 2004-05. IN THE CASE OF MITSU LTD., THE ITAT HAS ALLOWED THE APPEAL OF THE ASSESSEE ACCEPTING THE BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 10 OF 20 SAME AS BUSINESS TRANSACTION, THEREFORE, ON SAME BASIS THE CLAIM OF DEPRECIATION HAS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF THIS, NO PENALTY IS LEVIABLE IN RESPECT OF CLAIM OF DEPRECIATION OF RS.7,95,27,784/-. 11. WITH REGARD TO ADDITION DISALLOWANCE TO THE TUNE OF RS.2,02,31,841/- BEING LEGAL AND PROFESSIONAL FEES CLAIM BY THE ASSESSEE WHICH WERE TREATED AS CAPITAL EXPENDITURE BY THE AO. THE LD.COUNSEL SUBMITTED THAT THE SAID ISSUE WAS ALSO AROSED IN A.Y.2004-05 WHICH HAS BEEN ALLOWED BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO.2446 & 2584/AHD/2007 FOR A.Y. 2004- 05 DATED 28.06.2018. ON THE BASIS OF SAID DECISION, THE CLAIM FOR THIS YEAR IS ALSO ALLOWABLE AND HENCE, NO PENALTY IS LEVIABLE IN RESPECT OF THE SAID ADDITION. 12. WITH REGARD TO ADDITION DISALLOWANCE TO THE TUNE OF RS.40,12,124/- BEING TRADING LOSS INCURRED BY THE ASSESSEE, THE LD.COUNSEL SUBMITTED THAT SIMILAR LOSS HAS BEEN CONFIRMED BY THE TRIBUNAL FOR A.Y. 2004-05, HOWEVER, THE LOSS CLAIMED IS GENUINE AND IT IS THE DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE AO THAT LOSS WITH THE ASSESSEE HAS MADE SALES TO RELATED PARTIES AT LOWER RATE. HOWEVER, SUCH LOSS WAS BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 11 OF 20 ALLOWED IN EARLIER YEARS BY THE TRIBUNAL. THE LD.COUNSEL CONTENDED THAT IT HAS NEITHER CONCEALED ANY INCOME NOR SUBMITTED ANY INACCURATE PARTICULARS OF INCOME AS THE LOSS INCURRED BY THE ASSESSEE WAS DURING THE NORMAL COURSE OF BUSINESS AND SAME HAS BEEN DISCLOSED IN THE BOOKS OF ACCOUNTS AND IN THE RETURN OF INCOME. 13. WITH REGARD TO REALLOCATION OF COMMON PERSONAL EXPENSES, REALLOCATION OF INTEREST EXPENSES AND REALLOCATION OF OTHER COMMON EXPENSES, THE ASSESSEE HAS BOOKED THE EXPENSES IN BOTH THE UNITS I.E. PRIORITY AND NONPRIORITY ON AN ACTUAL BASIS. HOWEVER, THE CONTENTION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER AND SAME HAS BEEN REALLOCATED ON THE BASIS OF TURNOVER RATIO OF EACH UNIT. THEREFORE, SUCH DISALLOWANCES ARE MADE ON THE BASIS OF DIFFERENCE OF OPINION BETWEEN THE AO AND THE ASSESSEE WHICH DOES NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. 14. WITH REGARD TO CLAIM OF INTEREST EXPENSES THE LD.COUNSEL CLAIMED THAT THE OUT OF TOTAL INTEREST EXPENSES OF RS.10.49 CRORE, THESE BEEN APPORTIONED BETWEEN THE TWO UNITS OF BILAG UNIT AND BEOU AS RS.10.06 CRORE AND RS.43.29 LAKHS BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 12 OF 20 RESPECTIVELY BY THE ASSESSEE. FURTHER, NO SUCH DISALLOWANCES OUT OF INTEREST EXPENSES MADE IN EARLIER OR SUBSEQUENT YEARS. THEREFORE, IT DOES NOT AMOUNT TO BE FURNISHING OF INACCURATE PARTICULARS OF INCOME. 15. FURTHER, THE REALLOCATION OF COMMON PERSONAL EXPENSES ARE MADE BY THE ASSESSEE @5% OF THE TURNOVER DURING THE ASSESSMENT YEAR UNDER CONSIDERATION WHEREAS TRIBUNAL FOR A.Y. 2004-05 HAS RESTRICTED THE ALLOCATION OF DISALLOWANCES TO 10% CONFIRMED BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2004-05 IN THE CASE OF THE ASSESSEE AND SIMILARLY IN THE CASE OF IN RESPECT OF OTHER PERSONAL EXPENSES. THEREFORE, THERE IS CONCEALMENT OF INCOME. THE LD.COUNSEL FURTHER PLACED RELIANCE ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE FINANCIAL SERVICES LIMITED IN TAX APPEAL NO.2393 & 601 OF 2013 DATED 12.08.2016 (COPY PLACED AT PAPER BOOK, PAGE NO.1 TO 23) WHEREIN THE GUJARAT HIGH COURT AFTER ANALYZING THE RATIO OF VARIOUS CASE LAWS OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD., [2010] 322 ITR 158 SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAS CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE BY THE REVENUE, PENALTY UNDER SECTION 271(1) BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 13 OF 20 (C) OF THE ACT CANNOT BE ATTRACTED. THE LD.COUNSEL ALSO RELIED IN THE CASE OF T.ASHOK PAI VS. CIT [2007] 292 ITR 11 (SC), GITA PRINTS PVT. LTD., VS. CIT [2013] 39 TAXMANN.COM 393 (GUJ) AND DAHOD SAHAKARI KHARID VECHAN VS. CIT [2006] 282 ITR 321 (GUJ) OBSERVED THAT WE ARE OF THE VIEW THAT THE CONTENTIONS RAISED BY THE ASSESSEE IS REQUIRED TO BE ACCEPTED. THE REVENUE IS NOT IN A POSITION TO SHOW THE MENS REA IN THE PRESENT CASES. DISALLOWANCES OF CERTAIN CLAIMS NEITHER AMOUNTS TO CONCEALMENT NOR DELIBERATE FURNISHING OF INACCURATE PARTICULARS OF INCOME AS LAID DOWN BY THE APEX COURT UNLESS AND UNTIL THERE IS SOME EVIDENCE FOR MERE CIRCUMSTANCES TO SHOW THAT THE AMOUNT WAS ATTRIBUTABLE TO AN INTENTION OR DESIRE ON THE PART OF THE ASSESSEE TO CONCEAL THE INCOME, SO AS TO AVOID IMPOSITION OF TAX THEREON, THUS, JURISDICTION U/S.271(1)(C) OF THE ACT CANNOT ASSUMED. 16. THE LD.COUNSEL FURTHER PLACED RELIANCE ON THE DECISION OF ITAT DELHI IN THE CASE OF DCIT VS. CANON INDIA PVT. LTD., IN ITA NO.182/DEL/2013 FOR A.Y. 2002-03 DATED 29.10.2014 WHEREIN THE PENALTY DELETED BY THE CIT(A) IN RESPECT OF PROCEEDINGS AND CLAIM OF DEDUCTION U/S.10A AT HIGHER AMOUNT THAN THE ACTUAL EXPENSES. THEREFORE, THE REALLOCATION OF EXPENSES ON BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 14 OF 20 ACCOUNT OF COMMON PERSONAL EXPENSES, INTEREST EXPENSES AND OTHER COMMON EXPENSES, THE PENALTY IS NOT LEVIABLE IN THE LIGHT OF FINDINGS OF HON'BLE ITAT IN THE AFORESAID CASE. SIMILARLY, THE LD.COUNSEL FURTHER PLACED RELIANCE ON THE DECISION OF CO- ORDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DCIT VS. ALLIED INSTRUMENTS PVT. LTD., IN ITA NO.759/MUM/2013 FOR A.Y. 2002-03 DATED 31.05.2017 WHEREIN PENALTY LEVIED ON ACCOUNT OF WRONG CLAIM OF EXCESS DEDUCTION U/S.80IB WAS DELETED. 17. PER CONTRA, THE LD.DEPARTMENTAL REPRESENTATIVE HAS ASSAILED THE ORDER OF LD.CIT(A) BY POINTING OUT THAT THE ALLOCATION OF EXPENSES BETWEEN BILAG UNIT AND BEOU UNITS MADE BY THE ASSESSEE WAS NOT ACCEPTABLE WHICH HAS LED TO INCREASE PROFIT FROM THE ELIGIBLE UNITS AND THUS, IT HAS SHOWED INCORRECT CLAIM DEDUCTION ON ACCOUNT OF ALLOCATION OF COMMON PERSONAL EXPENSES, INTEREST EXPENSES AND COMMON OTHER EXPENSES. FURTHER, THE LOSS CLAIMED BY ASSESSEE ON ACCOUNT SELLING THE PRODUCT AT LOWER RATE TO RELATED PARTY IS ALSO AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. 18. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT DISALLOWANCES TO THE TUNE OF RS.7,95,27,784/- MADE ON ACCOUNT OF DEPRECIATION BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 15 OF 20 CLAIM ON INTANGIBLE ASSETS BY THE ASSESSEE WAS DELETED BY THE ITAT IN ITA NO.2584 & 2446/AHD/2007 FOR A.Y. 2004-05 DATED 28.06.2018. THIS ORDER OF THE ITAT HAS ALSO BEEN CONFIRMED BY THE HON'BLE GUJARAT HIGH COURT IN TAX APPEAL NO.166 OF 2019 DATED 22.04.2019. SIMILARLY, FOLLOWING THE SAME ORDER OF ITAT IN HON'BLE HIGH COURT THIS TRIBUNAL HAS DELETED THESE DISALLOWANCE MADE BY THE AO FOR A.Y. 2005-06 IN ITA NO.1486 & 1366/AHD/2010 IN THE QUANTUM APPEAL. THEREFORE, PENALTY LEVIED ON THIS ACCOUNT DOES NOT SURVIVE, ACCORDINGLY THE PENALTY IN RESPECT OF THIS ADDITION IS THEREFORE, DELETED. 19. WITH REGARD TO DISALLOWANCE OF RS.2,02,31,841/- BEING LEGAL AND PROFESSIONAL EXPENSES, WE FIND THAT SUCH DISALLOWANCES WERE DELETED BY THE ITAT IN ITA NO.2584 & 2446/AHD/2007 FOR A.Y. 2004-05 DATED 28.06.2018. THIS ORDER OF THE ITAT HAS ALSO BEEN CONFIRMED BY THE HON'BLE GUJARAT HIGH COURT IN TAX APPEAL NO.166 OF 2019 DATED 22.04.2019. SIMILARLY, FOLLOWING THE SAME ORDER OF ITAT IN HON'BLE HIGH COURT THIS TRIBUNAL HAS DELETED THESE DISALLOWANCE MADE BY THE AO FOR A.Y. 2005-06 IN ITA NO.1486 & 1366/AHD/2010 IN THE QUANTUM APPEAL. THEREFORE, PENALTY BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 16 OF 20 LEVIED ON THIS ACCOUNT DOES NOT SURVIVE, ACCORDINGLY THE PENALTY IN RESPECT OF THIS ADDITION IS THEREFORE, DELETED. 20. IN VIEW OF THE ABOVE, THE PENALTY IS NOT LEVIABLE ON THIS ACCOUNT ALSO, THEREFORE, PENALTY IS DIRECTED TO BE DELETED IN THIS ACCOUNT. 21. WITH REGARD TO DISALLOWANCE OF RS.40,12,124/- BEING TRADING LOSS INCURRED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS SUBMITTED COMPLETE DETAILS OF PURCHASE AND SALES AND CARRIED OUT THE BUSINESS IN ORDINARY COURSE OF BUSINESS. FURTHER, THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND JUST BECAUSE THE AO DISALLOWED THE LOSS BY NOT ACCEPTING THE CLAIM THAT THE ASSESSEE HAS SOLD SUCH RAW MATERIAL AT LOWER PRICE DOES NOT MEAN THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. THE DISALLOWANCE OF LOSS IS MADE ON DIFFERENCE OF OPINION, HENCE PENALTY FOR CONCEALMENT IS NOT LEVIABLE IN THE LIGHT OF DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE FINANCIAL SERVICES LIMITED (SUPRA). 22. SIMILARLY, REALLOCATION OF EXPENSES ON ACCOUNT OF COMMON PERSONAL EXPENSES AMOUNTING TO RS.1,18,78,668/- BETWEEN BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 17 OF 20 BILAG UNIT AND BEOU UNIT THIS TRIBUNAL HAS FOUND THAT THE ASSESSEE HAS ALLOCATED 11% OF THE TURNOVER WHEREAS SUCH DISALLOWANCE WERE RESTRICTED TO 10% OF THE TURNOVER IN A.Y. 2004-05 BY THE TRIBUNAL FOR THE ASSESSMENT YEAR UNDER CONSIDERATION BY THE ORDER IN ITA NO.1486 & 1366/AHD/2010 OF EVEN DATE. THE SAME STANDS DELETED BY THIS TRIBUNAL IN FOR A.Y. 2005-06 IN ITA NO.1486 & 1366/AHD/2010. THEREFORE, PENALTY LEVIED ON THESE DISALLOWANCE IS DELETED. 23. WITH REGARD TO PENALTY IN RESPECT OF REALLOCATION OF INTEREST EXPENSES AMOUNTING TO RS.3,24,00,950/- BETWEEN BILAG UNIT AND BEOU UNIT, WE FIND THAT THIS ISSUE HAS BEEN SET- ASIDE TO THE FILE OF THE AO FOR RECONSIDERATION OF THE ISSUE. THEREFORE, PENALTY IN RESPECT OF THIS IS ALSO NOT LEVIABLE. SIMILARLY, THE ALLOCATION OF OTHER COMMON EXPENSES DONE BY THE AO AT 35% OF THE TURNOVER HAS BEEN REDUCED TO 10% OF THE TURNOVER BY THE TRIBUNAL FOR A.Y. 2005-06, HENCE THE REALLOCATION OF OTHER COMMON EXPENSES IS BASED ON DIFFERENCE OF OPINION, THEREFORE PENALTY U/S.271(1)(C) IS NOT LEVIABLE. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF CO-ORDINATE BENCH ON TRIBUNAL IN THE CASE OF DCIT VS. ALLIED INSTRUMENTS PRIVATE LIMITED (SUPRA) OF MUMBAI BENCH IN WHICH IT WAS HELD BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 18 OF 20 THAT ITS PENALTY LEVIED U/S.271(1)(C) WAS CANCELLED BY HOLDING THAT THE ALLOCATION OF EXPENSES BETWEEN ELIGIBLE AND NOT ELIGIBLE UNITS MADE BY THE ASSESSEE FOR CLAIMING OF DEDUCTION U/S.80IB WHICH WAS NOT FOUND ACCEPTED BY THE AO CANNOT BE TREATED AS CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME. SIMILARLY, RELIANCE ALSO PLACED IN THE CASE OF DCIT VS. CANON INDIA PRIVATE LIMITED (SUPRA) WHEREIN THE TRIBUNAL UPHELD THE DELETION OF PENALTY BY OBSERVING THAT MERELY BECAUSE THE EXPENDITURE CLAIMED BY THE ASSESSEE HAS BEEN DISALLOWED BY THE REVENUE AUTHORITIES DOES NOT LEAD TO AN INFERENCE THAT IT IS A CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME. FURTHER, THE AFORESAID FACTS, DISALLOWANCE ARE ADHOC IN NATURE AND THERE IS NO POSITIVE CONCEALMENT HAS BEEN ESTABLISHED BY THE AO. THEREFORE, PENALTY LEVIED BY THE AO AND CONFIRMED BY THE LD.CIT(A) IN RESPECT OF AFORESAID ADDITIONS IS NOT EXIGIBLE IN THE LIGHT OF DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE FINANCIAL SERVICES IN TAX APPEAL NO.233 AND 601 OF 2013 DATED 12.08.2016 FINDINGS ARE REPRODUCED AS UNDER: 7.2 THUS, WE ARE OF THE VIEW THAT THE CONTENTION RAISED BY THE ASSESSEE IS REQUIRED TO BE ACCEPTED. THE REVENUE IS NOT IN A POSITION TO SHOW THE MENS REA IN THE PRESENT CASES. DISALLOWANCE OF CERTAIN CLAIMS NEITHER AMOUNTS TO CONCEALMENT NOR DELIBERATE FURNISHING OF INACCURATE PARTICULARS OF INCOME AS LAID DOWN BY THE APEX COURT UNLESS AND UNTIL THERE IS SOME EVIDENCE OR SOME CIRCUMSTANCE TO SHOW BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 19 OF 20 THAT THE OMISSION WAS ATTRIBUTABLE TO AN INTENTION OR DESIRE ON THE PART OF THE ASSESSEE TO CONCEAL THE INCOME SO AS TO AVOID IMPOSITION OF TAX THEREON. THUS, JURISDICTION U/S 271(1)(C) OF THE ACT CANNOT BE SUSTAINED. 7.3 IN THE CASE OF GEETA PRINTS (P.) LTD (SUPRA), THIS COURT HAS OBSERVED THAT WHEN NO INFORMATION AS GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT, PENALTY COULD NOT BE IMPOSED. IN THE PRESENT CASE, THE CLAIMS MADE WERE NOT GRANTED BY THE ASSESSING OFFICER ON MERITS. THIS DID NOT MEAN THAT THE ASSESSEE HAD TRIED TO CONCEAL THE INCOME. 8. WE HAVE ALSO GIVEN OUR THOUGHTFUL CONSIDERATION TO THE DECISION OF THE APEX COURT IN THE CASE OF T. ASHOK PAI (SUPRA) AND WE FEEL THAT THE SAID DECISION IS VERY MUCH APPLICABLE ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IT IS SETTLED LAW NOW THAT MERELY BECAUSE SOME OMISSION OR WRONG STATEMENT WAS MADE IN THE ORIGINAL RETURN, PENALTY PROCEEDINGS FOR CONCEALMENT AS CONTEMPLATED BY SECTION 271(1)(C) MIGHT NOT BE ATTRACTED. IN THE PENALTY PROCEEDINGS, WHEN IT IS FOUND AS A FACT THAT THE ASSESSEE HAD ACTED ON THE BASIS OF WRONG LEGAL ADVICE OR MISINTERPRETATION, THE QUESTION OF HIS FAILURE TO DISCHARGE HIS BURDEN IN TERMS OF EXPLANATION TO SECTION 271(1)(C) OF THE ACT WOULD NOT ARISE. 9. IN THE PRESENT CASE, WE ARE OF THE VIEW THAT THE IMPUGNED ORDERS PASSED BY THE TRIBUNAL AS WELL AS CIT(A) ARE ERRONEOUS WITH REGARD TO LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. WE THEREFORE FIND THAT THE TRIBUNAL WAS NOT RIGHT IN LAW IN UPHOLDING THE PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 AND THE QUESTION IS REQUIRED TO BE ANSWERED ACCORDINGLY. 10. IN THE PREMISES AFORESAID, THE QUESTIONS RAISED IN THE PRESENT APPEALS ARE ANSWERED IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. THE IMPUGNED ORDERS PASSED BY THE TRIBUNAL AS WELL AS CIT(A) WITH REGARD TO LEVY OF PENALTY U/S.271(1)(C) OF THE ACT ARE HEREBY QUASHED AND SET ASIDE. APPEALS ARE ACCORDINGLY ALLOWED. 24. IN THE LIGHT OF ABOVE FACTS, WE ARE OF THE CONSIDERED OPINION THAT THE LOWER AUTHORITIES ARE NOT JUSTIFIED IN LEVYING AND CONFIRMING PENALTY IN RESPECT OF AFORESAID ADDITIONS, ACCORDINGLY THE PENALTY LEVIED U/S.271(1)(C) IN THE CASE OF ASSESSEE IS DELETED. BAYER VAPI PVT. LTD.,(FORMERLY KNOWN AS BILAG INDUSTRIES PVT. LTD., VS.ACIT-VAPI/ITA NO.1688/AHD/2014: A.Y.2005-06 PAGE 20 OF 20 25. IN THE RESULT, APPEAL OF THE ASSESSEE FOR A.Y. 2005-06 IS ALLOWED. 26. THE ORDER IS PRONOUNCED BY LISTING THE CASE ON THE NOTICE BOARD UNDER RULE 34(4) OF INCOME TAX APPELLATE TRIBUNAL RULES 1963. SD/- SD/- (H.S.SIDHU) (O.P.MEENA) ( /JUDICIAL MEMBER) ( /ACCOUNTANT MEMBER) / SURAT, DATED : 27 TH AUGUST , 2019/ S.GANGADHARA RAO, SR.PS COPY OF ORDER SENT TO- ASSESSEE/AO/PR. CIT/ CIT (A)/ ITAT (DR)/GUARD FILE OF ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT