Appeal details
Counselvise Citation
169419914 RSA 2007
Assessee PAN
Bench
Appeal Number
Duration Of Justice
6 year(s) 6 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-08-2013
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
H
Next Hearing Date
27-06-2013
Assessment Year
2001-2002
Appeal Filed On
23-02-2007
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI P. M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO .: 1933/MUM/2007 ASSESSMENT YEAR : 2001-02 ACIT , RANGE -10(3), MUMBAI M/S. AARTI INDUSTRIES LTD. 22, UDYOGKSHETRA, 2 ND FLOOR, GOREGAON MULUND LINK ROAD, MULUND WEST, MUMBAI-400 080 PAN: AABCA 2787 L (APPELLANT) VS. (RESPONDENT) ITA NO .: 1694/MUM/2007 ASSESSMENT YEAR : 2001-02 M/S. AARTI INDUSTRIES LTD. 22, UDYOGKSHETRA, 2 ND FLOOR, GOREGAON MULUND LINK ROAD, MULUND WEST, MUMBAI-400 080 PAN: AABCA 2787 L ACIT, RANGE -10(3), MUMBAI (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI VIJAY MEHTA REVENUE BY : SHRI P.K. SHUKLA DATE OF HEARING : 27.06.2013 DATE OF PRONOUNCEMENT : 28.08.2013 ORDER PER DR. S.T.M. PAVALAN, JM : THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVE NUE ARE DIRECTED AGAINST THE ORDER OF THE LD.CIT(A) -X, MUMBAI ON 21.12.2006 PARTLY CO NFIRMING THE PENALTY LEVIED BY THE AO ON VARIOUS ADDITIONS/DISALLOWANCES MADE IN THE ASSE SSMENT FOR THE ASSESSMENT YEAR 2001- 02. BOTH THESE APPEALS ARE DISPOSED OFF BY THIS COM MON ORDER. ASSESSEES APPEAL- ITA NO. 1694/MUM/2007 2. GROUNDS NO. 1 & 2 ARE NOT PRESSED BY THE ASSESSE E AND HENCE ADJUDICATION OF THE SAME IS NOT REQUIRED. ITA NO .: 1933/MUM/2007 ITA NO .: 1694/MUM/2007 M/S. AARTI INDUSTRIES LTD. ASSESSMENT YEAR : 2001-02 2 3. GROUND NO. 3 OF THE ASSESSEES APPEAL RELATES TO THE LEVY OF PENALTY ON DISALLOWANCE OF EXCESS DEPRECIATION CLAIMED ON TRUCKS. THE RELEV ANT FACTS ARE THAT THE ASSESSEE, A COMPANY WHILE DECLARING A TOTAL INCOME OF RS.2,86,8 7,904/- HAD CLAIMED A DEPRECIATION ON TRACKS AMOUNTING TO RS.1,44,57,382/-. DURING THE AS SESSMENT PROCEEDINGS, IN RESPONSE TO THE NOTICE ISSUED ON 21.10.2003, WHEN THE AO ASKED THE ASSESSEE TO EXPLAIN WHY THE EXCESS DEPRECIATION HAS BEEN CLAIMED ON TRUCKS, THE ASSESSEE SUBMITTED A REVISED WORKING FOR DEPRECIATION ON TRUCKS ADMITTING THAT THE DEPRE CIATION OF RS.22,10,867/- WAS CLAIMED EXCESSIVELY. THE AO THEREBY DISALLOWED THE EXCESS C LAIM. CONSEQUENTLY, THE AO LEVIED THE MINIMUM PENALTY ON THE TAX SOUGHT TO BE EVADED BY T HE ASSESSEE ON THIS COUNT AS THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF IN COME. ON APPEAL, THE LD.CIT(A) HAS CONFIRMED THE LEVY OF THE IMPUGNED PENALTY. AGGRIEV ED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFOR E US. 3.1 BEFORE US, THE LD.AR HAS ARGUED THAT WHILE FILI NG OF THE RETURN, THE ASSESSEE HAS FILED COMPLETE WORKING OF DEPRECIATION AND HAS ENCLOSED A LONG WITH THE AUDIT REPORT AND THE SAME WAS CERTIFIED BY THE AUDITOR. THE ANNEXURE TO TAX AUDIT REPORT RELATING TO THE DEPRECIATION DISCLOSED, DESCRIPTION OF ASSETS, RATE AT WHICH DEPRECIATION WAS CLAIMED, WDV OPENING AND CLOSING, ADDITION AND DELETION MADE DUR ING THE YEAR, AMOUNT OF DEPRECIATION CLAIMED DURING THE YEAR ON EACH ASSET HAVE ALREADY BEEN DISCLOSED. IT HAS FURTHER BEEN SUBMITTED THAT LATER ON WHEN THE MISTAKE HAS BEEN D ISCOVERED BY THE ASSESSEE THAT IT HAS CLAIMED EXCESS DEPRECIATION ON TRUCKS, THE ASSESSEE ITSELF HAS CORRECTED THE MISTAKE WITHOUT OBSERVING THE DIRECTION OF THE AO. THEREFOR E, THE LD.CIT(A) OUGHT TO HAVE DELETED THE PENALTY LEVIED BY THE AO ON THIS COUNT AS THE E XCESS CLAIM HAS BEEN DUE TO THE HONEST MISTAKE ON THE PART OF THE ASSESSEE. IN SUPPORT OF THE PROPOSITION THAT THE PENALTY OUGHT TO HAVE BEEN DELETED IN SUCH A CIRCUMSTANCE, THE LD.AR HAS RELIED ON VARIOUS DECISIONS. ON THE OTHER HAND, THE LD.DR HAS STATED THAT THE EXCES S CLAIM OF DEPRECIATION HAS BEEN NOTICED BY AO DURING THE COURSE OF ASSESSMENT PROCE EDINGS AND AFTER NOTICING BY THE AO AND ONLY WHEN THE ISSUE HAS BEEN RAISED BY THE AO V IDE NOTICE DATED 21.10.2003, THE ASSESSEE HAS WITHDRAWN THE EXCESS CLAIM OF DEPRECIA TION. HENCE THE SAME SHOULD NOT BE TREATED AS A BONAFIDE MISTAKE OF THE ASSESSEE. BUT FOR THE EXCESS CLAIM NOTICED BY THE AO, THE ASSESSEE WOULD HAVE WALKED AWAY WITH A HUGE EXC ESS DEDUCTION TO WHICH HE IS NOT ENTITLED. ITA NO .: 1933/MUM/2007 ITA NO .: 1694/MUM/2007 M/S. AARTI INDUSTRIES LTD. ASSESSMENT YEAR : 2001-02 3 3.2 WE HAVE HEARD BOTH THE PARTIES ON THIS GROUND A ND PERUSED THE MATERIAL ON RECORD. IT IS PERTINENT TO NOTE THAT THE EXCESS CLAIM OF DE PRECIATION ON TRUCKS HAS BEEN NOTICED BY AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND ONLY AFTER THE ISSUANCE OF NOTICE BY THE AO, THE ASSESSEE HAS WITHDRAWN THE EXCESS CLAIM OF DEPRECIATION. SO IT IS VERY CLEAR THAT THE ASSESSEE HAS NOT VOLUNTARILY DISCLOSED THE WRONG CLAIM SUO MOTTO. WE ALSO AGREE WITH THE VIEWS OF THE LD.CIT(A) THAT THE ASSESSEE C OMPANY IS AN OLD ASSESSEE WHICH IS ASSISTED BY CHARTERED ACCOUNTANT AND HENCE IT CANNO T BE ACCEPTED THAT THE EXCESS CLAIM OF DEPRECIATION HAS BEEN MADE THROUGH OVERSIGHT. IN VI EW OF THAT MATTER, THERE ARE SUFFICIENT REASONS TO BELIEVE THAT THE WRONG/EXCESS CLAIM OF D EPRECIATION IS NOT OUT OF BONAFIDE/INADVERTENT MISTAKE OF THE ASSESSEEE. HENC E, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF THE LD.CIT(A) CONFIRMING THE PENALTY LE VIED BY THE AO ON THIS COUNT. SINCE THE DECISIONS RELIED BY THE LD.AR ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE, DETAILED DISCUSSION ON THE DECISIONS, IN OUR VIEW IS NOT REQ UIRED. GROUND NO 3 IS DISMISSED. 4. GROUND NO. 4 RELATES TO THE LEVY OF PENALTY ON T HE DISALLOWANCE OF DEPRECIATION ON PURCHASE. 4.1 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD IT IS NOTICED THAT THE ASSESSEE HAS CHALLENGED THE ADDITION IN QUANTUM PROCEEDINGS BEFORE THE TRIBUNAL. THE TRIBUNAL IN ITA NO. 8387/MUM/2004 SET ASIDE THE ISSUE TO THE FILE OF AO. WHEN THE ADDITION HAS BEEN RESTORED TO THE FILE OF AO, IN OUR CONSIDERED OPINION, THE PENALTY ON THIS ASPECT SHOULD ALSO BE RESTORED TO T HE FILE OF AO FOR TAKING A FRESH DECISION IN ACCORDANCE WITH THE VIEW FINALLY TAKEN BY HIM IN RE SPECT OF ADDITION IN QUANTUM PROCEEDINGS. OUR VIEW IN RESTORING THE MATTER TO TH E FILE OF THE AO IS FORTIFIED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F MOHAMMED MOHATRAM FAROOQUI VS. CIT (SC) 2010-TIOL-23-SUPREME COURT-IT. WE, THEREFO RE, OVERTURN THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF AO FOR TAKING A FRESH DECISION AFTER DECIDING THE MATTER IN QUANTUM PROCEEDINGS. 5. GROUND NO. 5 RELATES TO THE LEVY OF PENALTY ON T HE DISALLOWANCE MADE U/S 14A OF THE ACT. THE RELEVANT FACTS ARE THAT IN THE ASSESSMENT FRAMED U/S 143(3) OF THE ACT, THE AO NOTICED THAT THE ASSESSEE HAD NOT DISALLOWED INTERE ST EXPENSES INCURRED FOR EARNING THE DIVIDEND INCOME AND THEREBY DISALLOWED AN AMOUNT OF RS.82,04,428/-. ON APPEAL, THE LD.CIT(A), HAD REDUCED THE SAME TO RS.54,69,088/-. CONSEQUENTLY, IN THE PENALTY ITA NO .: 1933/MUM/2007 ITA NO .: 1694/MUM/2007 M/S. AARTI INDUSTRIES LTD. ASSESSMENT YEAR : 2001-02 4 PROCEEDINGS, A PENALTY OF RS.54,69,088/- HAS BEEN L EVIED BY THE AO AND THE LD. CIT(A) CONFIRMED THE SAME ON THE BASIS OF THE AMOUNT CONFI RMED BY THE LD. CIT(A) IN THE QUANTUM PROCEEDINGS. IT IS PERTINENT TO NOTE THAT T HE ITAT IN THE QUANTUM APPEAL IN ITA NO. 8387/MUM/2004 HAD DIRECTED THE AO TO RESTRICT T HE DISALLOWANCE ATTRIBUTABLE TOWARDS EARNING OF THIS DIVIDEND INCOME U/S 14A AT 2% OF TH E EARNING OF DIVIDEND RECEIVED. HOWEVER, IT APPEARS THAT THE ORDER GIVING EFFECT TO THE SAID DIRECTION OF THE ITAT HAS NOT BEEN PASSED BY THE AO. ACCORDING TO THE ASSESSEE, T HE DISALLOWANCE AS PER THE DIRECTION OF THE ITAT WORKS OUT TO BE AT RS.80,750/-. IT IS IMPO RTANT TO NOTE THAT THE DIRECTION OF THE ITAT IN THE SAID CASE IS BASED ON BY FOLLOWING SIMI LAR DIRECTIONS OF THE ITAT IN THE EARLIER YEARS TO RESTRICT THE DISALLOWANCE ATTRIBUTABLE TOW ARDS EARNING OF THIS DIVIDEND INCOME U/S 14A AT 2% OF THE EARNING OF DIVIDEND RECEIVED AGAIN ST WHICH THE ASSESSEE HAS NOT PREFERRED ANY APPEAL TO THE HIGH COURT THEREBY THE SAME BECOMES CONCLUSIVE. THIS RESULTS IN THE PRESUMPTION THAT THE ASSESSEE WOULD HAVE KNO WN THE ELIGIBLE DISALLOWANCE ON THIS ISSUE. WHEN THE FACT IS BEING SO, WE ARE OF THE CON SIDERED OPINION THAT IT IS A FIT CASE FOR LEVY OF PENALTY. HOWEVER, IN VIEW OF THE FACT THAT THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO, AFTER DECIDING THE QUANTUM AS PER THE DIRECTION OF THE ITAT, THE AMOUNT OF PENALTY MAY ACCORDINGLY BE DECIDED BY THE AO. WE DIRECT AND ORD ER ACCORDINGLY. GROUND NO 5 IS PARTLY ALLOWED. REVENUES APPEAL ITA NO. 1933/MUM/2007 6. THE GROUND OF APPEAL RAISED BY THE REVENUE RELAT E TO THE LEVY OF PENALTY BY THE AO ON DISALLOWANCE OF COMPENSATION FOR AGREEMENT FOR E XCLUSIVE UTILISATION IN NON-COMPETE FEES AND THE SAME DELETED BY THE LD. CIT(A). 6.1 THE RELEVANT FACTS ARE THAT DURING THE PREVIOUS YEAR THE ASSESSEE HAD PAID A SUM OF RS.1,05,00,000/- TOWARDS COMPENSATION FOR AGREEMENT FOR EXCLUSIVE UTILISATION, NON- COMPETITIVE BUSINESS PRACTICE AND KEEP OUT COVENANT . THIS EXPENDITURE IN THE BOOK OF ACCOUNTS WAS TREATED AS DEFERRED REVENUE IN NATURE, THE ENTIRE SUM HAD BEEN CLAIMED AS AN ALLOWABLE EXPENDITURE IN THE YEAR IN WHICH THE S AME WAS INCURRED, THOUGH A DIFFERENT TREATMENT HAD BEEN ADOPTED IN THE BOOKS OF ACCOUNTS . DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE NON-COMPETE FEE O F RS.1,05,00,000/- WAS PAID TO ALCHEMIE PHARCHEM LTD. WHICH WAS STOPPED FROM MANUF ACTURING, OPERATING, DEVELOPING, PROVIDING TECHNICAL KNOW-HOW AND SOLICITING BUSINES S FOR THIRD PARTY FOR THE SAID PRODUCT I.E. ITA NO .: 1933/MUM/2007 ITA NO .: 1694/MUM/2007 M/S. AARTI INDUSTRIES LTD. ASSESSMENT YEAR : 2001-02 5 DYMITHYL SULPHATE. THE AGREEMENT WAS ENTERED FOR 10 YEARS AND IT WAS IRREVOCABLE BY ALCHEMIE PHARMACHEM LTD. IT WAS ALSO OBSERVED THAT ASSESSEE COMPANY HAS TREATED THIS EXPENDITURE IN THE BOOKS OF ACCOUNTS AS DEFERRED RE VENUE EXPENSES FOR 10 YEARS. SO THE AO HAD TREATED THIS EXPENDITURE AS CAPITAL EXPENDITURE RELYING ON THE DECISION OF CIT VS. COAL SHIPMENT PVT. LTD. 70 ITR 902 (SC). THE AO HAS ALS O SUPPORTED HIS CASE BY THE DECISION OF ORISSA & MADRAS HIGH COURTS IN THE CASE OF ROAD TRA NSPORT CO. LTD. VS. CIT 75 ITR 126 AND TAMIL NADU DAIRY DEVELOPMENT CORPORATION VS. CIT 23 9 ITR 142 RESPECTIVELY. ON APPEAL, THE LD.CIT (A) CONFIRMED THE ACTION OF THE AO TREAT ING THE EXPENDITURE AS CAPITAL EXPENDITURE. HOWEVER, HE ALLOWED DEPRECIATION FOR I NTANGIBLE ASSETS. CONSEQUENTLY, THE AO HAD CONSIDERED THIS AMOUNT FOR LEVY OF PENALTY U/S. 271(1)(C). ON APPEAL AGAINST THE LEVY OF PENALTY, THE LD.CIT(A) DELETED THE IMPUGNED PENALTY AS THE ISSUE OF NON-COMPETE FEE IS HIGHLY DEBATABLE AND NO PENALTY U/S 271 (1)(C) CAN BE LEVIED ON THE DEBATABLE ISSUES. 6.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS OBSERVED THAT THE FACT OF THE NON-COMPETE FEES HAS BEEN DISCLOSED BY THE ASSESSEE IN THE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME. SINCE THE ENTIRE FACTS HAVE BEEN DISCLOSED BY THE ASSESSEE BY WAY OF NOTE IN THE COMPUTATION OF I NCOME AND THERE ARE SEVERAL DECISIONS IN FAVOUR AND AGAINST THE APPELLANT ON THIS ISSUE, WE AGREE WITH THE FINDINGS OF THE LD.CIT(A) THAT THE ISSUE OF NON-COMPETE FEE IS HIGH LY DEBATABLE AND NO PENALTY U/S 271 (1)(C) CAN BE LEVIED ON THE DEBATABLE ISSUES AND TH E SAME IS UPHELD. [ 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N THIS 28 TH DAY OF AUGUST,2013 SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: 28.08.2013 *SRIVASTAVA COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T., CONCERNED MUMBAI 4. CIT (A) CONCERNED MUMBAI 5. THE DR, H - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER [ ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI
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