M/S Karnataka Jewels Ltd, Ahmedabad V. The Jt Cit (Asstt) Sr-2, Ahmedabad

ITA 2056/AHD/2000

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9190 (ITAT-AHMEDABAD)
• Duration Of Justice: 16 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Ahmedabad
• Next Hearing Date: 13-01-2017
• Assessment Year: 1991-1992
• Appeal Filed On: 29-09-2000
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Wrong claim; Difference of opinion; Unabsorbed depreciation; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 271(1)(c); 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER ./ ITA NO. 2056/AHD/2000 / ASSESSMENT YEAR : 1991-92 M/S. KARNATAKA JEWELS LIMITED, 3, NIKETAN, SUDARSHAN SOCIETY NO.2, NARANPURA, AHMEDABAD VS JCIT, SPL. RANGE 2, AHMEDABAD / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SMT. URVASHI SHODHAN, AR REVENUE BY : SHRI ASHISH POPHARE, DR DATE OF HEARING : 13 /01/2017 DATE OF PRONOUNCEMENT IN COURT : 23/02/20 17 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-IV, AH MEDABAD DATED 26.07.2000 CONFIRMING THE PENALTY OF RS.8,48,860/- IMPOSED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961 F OR THE ASSESSMENT YEAR 1991-92. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAS FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 31.12.19 91 DISCLOSING NIL INCOME AFTER CLAIMING UNABSORBED DEPRECIATION OF RS.49,41, 931/-. THE ASSESSING OFFICER VIDE HIS ORDER DATED 05.01.1994 FRAMED ASSE SSMENT U/S 143(3) OF THE ACT, DETERMINING THE TOTAL INCOME OF THE ASSESSEE A T RS.30,37,640/- INTER ALIA AFTER DISALLOWING A SUM OF RS.19,68,370/- BEING THE DEDUCTION CLAIMED ON ACCOUNT OF FOREIGN EXCHANGE RATE FLUCTUATION. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD IMPORTED PLANT AND MACHINERY UNDER FOREIGN CURRENCY LOAN SCHEME AND FINANCING THEREOF WAS TAKEN FROM INDUSTRIAL FINANCE CORPORATION AND ICICI BANK. AS PER THE METHOD FOLLOWED BY THE ASSESSEE, T HE OUTSTANDING LOAN AMOUNT REPAYABLE TO FINANCIAL INSTITUTIONS WAS CONV ERTED AT A PREVAILING PURCHASE RATE OF FOREIGN CURRENCY. THE ASSESSEE AC CORDINGLY CLAIMED THE SMC-ITA NO. 2056/AHD/2000 KARNATAK JEWELS LTD VS. JCIT AY :1991-92 2 IMPUGNED DEDUCTION AS THE LOSS ARISING ON ACCOUNT O F RATE FLUCTUATION IN ITS P&L ACCOUNT. HOWEVER, ACCORDING TO ASSESSING OFFICE R, THE FOREIGN EXCHANGE FLUCTUATION AMOUNT WAS REQUIRED TO BE ADJU STED VIS--VIS THE WRITTEN DOWN VALUE OF THE ASSET FOR THE PURPOSE OF ALLOWANCE OF DEPRECIATION IN ACCORDANCE WITH THE DECISION OF THE SUPREME COUR T IN THE CASE OF CIT VS. ARVIND MILLS LTD. (193 ITR 255). THE ASSESSING OFF ICER WAS OF THE VIEW THAT THE ASSESSEE HAD CLAIMED FOREIGN FLUCTUATION OF THE YEAR AS A REVENUE EXPENSES WHEREAS IT WAS CLEARLY IN NATURE OF CAPITA L EXPENDITURE. THE CLAIM WAS ACCORDINGLY DISALLOWED AND PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WERE INITIATED. 2.1 THEREAFTER, THE ASSESSING OFFICER ISSUED PENALT Y NOTICE U/S 271(1)(C) OF THE ACT AND, AFTER REJECTING ASSESSEES EXPLANAT ION, IMPOSED A PENALTY OF RS.8,48,860/- U/S 271(1)(C) OF THE ACT VIDE ORDER D ATED 28.09.1995 ON THE DISALLOWED CLAIM OF RS.14,74,277/-. 3. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE PREFERRED FIRST APPEAL WHERE THE LD. CIT(A) CONFIRMED THE PEN ALTY IN QUESTION. 4. THE ASSESSEE, BEING AGGRIEVED, IS IN SECOND APPE AL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT T HE DISALLOWANCE OF CLAIM IS BASED PURELY ON ASSESSEES VIEW OF TREATIN G IT AS REVENUE EXPENDITURE AND ASSESSING OFFICERS VIEW AS CAPITAL EXPENDITURE. ALL THE RELEVANT FACTS WERE FILED ALONG WITH THE RETURN OF INCOME. IT IS NOT THE CLAIM OF THE DEPARTMENT EITHER THAT ANY PARTICULAR WAS IN ACCURATELY FURNISHED OR CONCEALED FROM THE RETURN OF INCOME. IT IS A WELL SETTLED LAW THAT IF THE RELEVANT DETAILS ARE FILED ALONG WITH THE RETURN OF INCOME, A MERE CHANGE OF OPINION BY THE ASSESSING OFFICER ABOUT ALLOWABILITY THEREOF AS CLAIMED BY THE ASSESSEE CANNOT MAKE IT PENALIZABLE U/S 271(1) (C) OF THE ACT. RELIANCE IS SMC-ITA NO. 2056/AHD/2000 KARNATAK JEWELS LTD VS. JCIT AY :1991-92 3 PLACED ON HONBLE SUPREME COURT JUDGMENT IN THE CAS ES OF (1) CIT VS. RELIANCE PETROPRODUCTS PVT. LTD, REPORTED IN [2010] 322 ITR 158 (SC) AND (2) PRICE WATERHOUSE COOPERS (P.) LTD VS. CIT, REPORTED IN 348 ITR 306 (SC). RELIANCE IS ALSO PLACED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NATIONAL TEXTILES VS. CIT, REPORTED IN (2001) 249 ITR 125 (GUJ), WHEREIN IT WAS HELD THAT IF A BONA FIDE EXPLANATION IS GIVEN BY THE ASSESSEE IN RESPECT OF THE DISALLOWANCE OF CLAIM, THE SAME I S NOT EXIGIBLE TO SAID PENALTY. 6. THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND RELIED ON T HE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASES OF (1) CIT VS. ZOOM C OMMUNICATION PRIVATE LIMITED, REPORTED IN 327 ITR 510 (DEL) AND (2) NARE SH KUMAR VERMA VS. CIT (2012) 89 CCH 0155 (DELHI), HOLDING THAT THE JUDGME NT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA) WILL NOT B E APPLICABLE WHERE THE ASSESSEE MAKES PATENTLY WRONG CLAIM. 7. THE LD. COUNSEL FOR THE ASSESSEE IN REJOINDER CO NTENDS THAT THE JUDGMENT IN THE CASE OF ZOOM COMMUNICATION PRIVATE LIMITED (SUPRA) HAS BEEN LATER ON HELD TO BE NOT A GOOD LAW AND IN THIS CASE, IT WAS NOT A PATENTLY WRONG CLAIM BUT A DIFFERENCE OF OPINION ON THE LEGA L PROPOSITION ABOUT CAPITAL AND REVENUE. BESIDES, THE LIABILITY HAS BEE N INCURRED IN THE REALM OF TRADING LIABILITY; IT IS A PRIMA FACIE CASE OF REVE NUE EXPENDITURE. THEREFORE, THERE IS NO CASE FOR IMPOSITION OF IMPUGNED PENALTY WHICH MAY BE DELETED. 8. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THERE IS NO DISPUTE THAT THE RELEVANT PARTICULARS WERE FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME. THE DEPARTMENT CLAIMS THAT I T IS A PATENTLY WRONG CLAIM; WHEREAS, THE ASSESSEE CLAIMS IT IS NOT A PAT ENTLY WRONG CLAIM BUT ONLY SMC-ITA NO. 2056/AHD/2000 KARNATAK JEWELS LTD VS. JCIT AY :1991-92 4 A CHANGE IN LEGAL PROPOSITION. THE ASSESSEE HAS BE EN FOLLOWING SIMILAR PRACTICE OF ACCOUNTING IN EARLIER YEARS WHICH WAS A CCEPTED BY THE DEPARTMENT WHICH HAS BEEN REPRODUCED BY LD. CIT(A) IN HIS ORDER AS UNDER:- I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND I DO N OT FIND MERITS IN APPELLANT'S CONTENTION. THE ISSUE IS NOT WHETHER TH E SUPREME COURT DECISION WAS DELIVERED BEFORE OR AFTER THE COMPLETION OF THE ACCOUNTS. THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE SAID SUPREME COURT DECISION IS TO HIGHLIGHT THE PROVISIONS OF SECTION 43A WHICH WERE ALREADY IN EXISTENCE SINCE 1/4/1967. ONCE THE PROVISION IS THERE AND ITS TERMS APPLY, IT SHOULD BE APPLIED. THEREFORE, THE APPELLANT'S CONTENTION THAT IT WAS REGULARLY FOLLOWING CERTAIN PRACTICE OF ACCOUNTING AND THAT IN THE EARL IER YEARS IT WAS NOT QUESTIONED DOES NOT CARRY WEIGHT. AS THE SAID PRACT ICE IS NOT IN ACCORDANCE WITH PROVISIONS OF LAW AND FURTHER IF IT (PRACTICE OF ACCOUNTING) WAS ACCEPTED BY THE DEPARTMENT IN THE PAST DOES NOT RENDER IT AS A LEGAL PRACTICE AND ALSO DOES NOT DEBAR THE ASSESSING OFFICER FROM INQUIRING AND ASSESSING THE TRUE NATURE OF THE TRANSACTION IN THE SUBSEQUENT ASSESSM ENT YEAR. THEREFORE, CONSIDERING THE VARIOUS OBSERVATIONS MADE BY THE AS SESSING OFFICER IN THE PENALTY ORDER AND ALSO THE FACTS OF THE CASE I AM U NABLE TO ACCEPT APPELLANT'S CONTENTIONS. THE PENALTY IN QUESTION IS CONFIRMED. IT IS, THEREFORE, CLEAR THAT THE ASSESSEE IN PAST WAS FOLLOWING THE SAME SYSTEM CLAIMING THE EXPENDITURE AS REVENUE WHICH WA S ALLOWED BY THE DEPARTMENT. IN THE IMPUGNED YEAR, THE VIEW HAS BEE N CHANGED BY THE DEPARTMENT WHICH DOES NOT INDICATE THAT THE ASSESSE E MADE A PATENTLY WRONG CLAIM. THEREFORE, RESPECTFULLY, FOLLOWING TH E JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA), IN MY CONSIDERED VIEW, THIS IS NOT A FIT CASE FOR IMPO SING PENALTY U/S 271(1)(C) OF THE ACT, WHICH IS DELETED AND THE ASSESSEES APP EAL IS ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. SD/- R.P. TOLANI (JUDICIAL MEMBER) AHMEDABAD; DATED 23/02/2017 *BIJU T., SR. PS SMC-ITA NO. 2056/AHD/2000 KARNATAK JEWELS LTD VS. JCIT AY :1991-92 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD