Johnson Matthey Chemicals [ I ] P.Ltd., Raigad V. Dy. CIT, Panvel

ITA 2276/PUN/2012

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9473 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-01-2018
• Assessment Year: 2004-2005
• Appeal Filed On: 16-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Bonafide belief; Valuation report
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 2276 /P U N/201 2 / ASSESSMENT YEAR : 20 04 - 05 JOHNSON MATTHEY CHEMICALS INDIA PVT. LTD., PLOT NO.6 A , MIDC INDUSTRIAL ESTATE, TALOJA, DIST. RAIGAD, MAHARASHTRA 410208 . / APPELLANT PAN: AABCJ1620M VS. THE DY. COM MISSIONER OF INCOME TAX, PANVEL CIRCLE, PANVEL . / RESPONDENT A PPELLANT BY : S HRI PERCY J. PARDIW ALA & MS. VASANTI PATEL RESPONDENT BY : SHRI RAJEEV KUMAR, CIT / DATE OF HEARING : 0 4 . 0 1 . 201 8 / DATE OF PRONOUNCEMENT: 12 . 0 1 .201 8 / ORDER PER SUSHMA CHOWLA, J M : T H E APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - I , THANE , DATED 03.09.2012 RELATING TO ASSESSMENT YEAR 2004 - 05 AGAINST LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - ITA NO. 2276 /P U N/20 1 2 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS: - 1 . ERRED IN HOLDING THAT THE APPELLANT HAS SUBMITTED INACCURA TE PARTICULARS OF INCOME. 2 . ERRED IN LEVYING PENALTY OF RS.8,90,97,652/ - UNDER SECTION 271(1)(C) OF THE ACT. WITHOUT PREJUDICE TO GROUND 1 3 . ERRED IN CONSIDERING THE ENHANCED INCOME, ON WHICH PENALTY IS LEVIED UNDER SECTION 271(1)(C) OF THE ACT, AS RS.24,83, 55,826/ - INSTEAD OF RS.23,83,55,826/ - . 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FILED THE RETURN OF INCOME SHOWING TOTAL LOSS OF RS.16, 93,18,730/ - . THE ASSESSMENT IN THE CASE OF ASSESSEE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON TOTAL LOSS OF RS.14,56,63,230/ - AFTER MAKING FOLLOWING DISALLOWANCES: - (A) DISALLOWANCE OF DEPRECIATION ON GOODWILL RS.2,49,06,459/ - (B) DISALLOWANCE OF DEPRECIATION ON NON - COMPETE PAYMENT RS. 81,45,129/ - (C) DISALLOWANCE OF CLAIM OF DEDUCTION U/S.35D RS. 6,03,900/ - 5. THE ASSESSING OFFICER DID NOT INITIATE ANY PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF ABOVE SAID DIS ALLOWANCES. 6. THE CIT(A) CONFIRMED THE ABOVE SAID DISALLOWANCES BUT ALSO ENHANCED THE ASSESSMENT BY SUM OF RS.24,83,55,826/ - . THE CIT(A) ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOM E IN RESPECT OF INCOME ENHANCED, BY ISSUANCE OF NOTICE UNDER SECTION 274 R.W.S. 271(1)(C) OF THE ACT, DATED 21.03.2012. THE ASSESSEE BEFORE THE CIT(A) FURNISHED EXPLANATION AS TO WHY PENALTY UNDER SECTION 271(1)(C) OF THE ACT SHOULD NOT BE LEVIED. THE SA ID SUBMISSIONS OF ASSESSEE ARE REPRODUCED BY THE CIT(A). AFTER REFERRING TO THE FACTS OF THE ITA NO. 2276 /P U N/20 1 2 3 CASE AT PAGES 8 TO 26 OF THE APPELLATE ORDER, THE CIT(A) VIDE PARA 5 AT PAGE 26 DEALS WITH FIRST ENHANCEMENT NOTICE UNDER SECTION 251 OF THE ACT REGARDING INACCUR ATE CLAIM OF DEPRECIATION ON KNOW - HOW, ETC. THE CIT(A) IN THE QUANTUM APPEAL HAD REVERSED THE ORDER OF ASSESSING OFFICER IN ALLOWING DEPRECIATION ON KNOW - HOW. THE CIT(A) HAD CONCLUDED THAT IN CASE THE VALUE IS ATTRIBUTED TO THE LAND AT TALOJA AND PANKI, NO FURTHER SLUM PRICE CONSIDERATION IS AVAILABLE FOR ATTRIBUTING TO THE KNOW - HOW AND HENCE, NO DEPRECIATION IS TO BE ALLOWED. FURTHER, THE CIT(A) ALSO HELD THAT WHERE NO KNOW - HOW WAS PURCHASED NOR OWNED BY THE ASSESSEE, THERE WAS NO QUESTION OF ALLOWING A NY DEPRECIATION. IN THIS REGARD, THE CIT(A) REFERRED TO THE TERMS AND CONDITIONS OF BUSINESS TRANSFER AGREEMENT AND TOLL CONVERSION AGREEMENT AND CONCLUDED THAT THE ASSESSEE IS NOT ENTITLED TO ANY CLAIM OF DEPRECIATION ON KNOW - HOW. HE FURTHER HELD THAT T HERE WAS NO EVIDENCE TO SHOW THAT KNOW - HOW, PATENTS AND TRADEMARK WERE USED FOR THE PURPOSE OF BUSINESS AND HENCE, THE ASSESSEE WAS NOT ENTITLED TO THE AFORESAID CLAIM. THE CIT(A) ALSO DID NOT ACCEPT THE VALUATION REPORT OF ERNST & YOUNG PVT. LTD. FOR THE PURPOSE OF DETERMINING THE TOTAL VALUE OF INTANGIBLES. THE CIT(A) ALSO DISMISSED THE PLEA OF ASSESSEE THAT ONCE DEPRECIATION HAS BEEN ALLOWED BY THE ASSESSING OFFICER IN THE PRECEDING YEAR AND THE ASSE T HA D BECOME PART OF BLOCK OF ASSETS, THEN THE OPEN ING WDV OF THE SAME COULD NOT BE DISTURBED. THE ASSESSEE HAD CLAIMED DEPRECIATION ON KNOW - HOW, PATENTS, AND TRADEMARKS IN ASSESSMENT YEAR 2003 - 04 WHICH WAS ALLOWED IN THE HANDS OF ASSESSEE AND DURING THE YEAR, IT HAD CLAIMED DEPRECIATION ON THE OPENING WD V ; THE CIT(A) DID NOT ACCEPT THE CLAIM OF ASSESSEE IN THIS REGARD. ANOTHER NOTICE OF ENHANCEMENT WAS ISSUED UNDER SECTION 251(2) OF THE ACT, DATED 15.02.2012 BY THE CIT(A) ON THE GROUND THAT PURCHASE PRICE HAD BEEN PAID TO ACQUIRE A GOING CONCERN I.E. AN UNDERTAKING AND NO COST COULD BE ATTRIBUTED TO THE INDIVIDUAL ASSETS. THE CIT(A) DENIED DEPRECIATION ON THE SAME ALSO. IN ITA NO. 2276 /P U N/20 1 2 4 THE PENALTY ORDER PASSED UNDER SECTION 271(1)(C) OF THE ACT VIDE PARA 7 AT PAGE 69 ONWARDS, THE CIT(A) TAKES NOTE OF THE QUANTUM ORD ER IN THIS RESPECT AND HELD THAT THE VALUE ASSIGNED TO THE ASSETS WAS MERELY ON GUESS WORK AND AT MOST AN ESTIMATED COST OF PARTICULAR ASSET, WHICH COULD NOT BE EQUATED AT ALL WITH THE TERM ACTUAL COST AS MENTIONED IN THE IT ACT AND HENCE, THE ASSESSEE W AS NOT ENTITLED TO CLAIM DEPRECIATION UNDER SECTION 32 OF THE ACT ON THE SAID VALUE ASSIGNED TO INDIVIDUAL ASSETS BY THE ASSESSEE ON THE BASIS OF VALUATION REPORT. THE CIT(A) REFERS TO THE DIRECTIONS TO THE ASSESSING OFFICER IN THIS REGARD IN THE QUANTUM APPEAL VIDE PARA 8.8 OF THE PENALTY ORDER, WHEREIN ENHANCEMENT WAS MADE TO THE EXTENT OF RS.24,83,55,826/ - . THE CIT(A) FURTHER OBSERVED THAT FOR THESE ELABORATED REASONS, I AM ALSO SATISFIED THAT THE ASSESSEE HAD COMMITTED DEFAULT BY FURNISHING INACCURATE PARTICULARS OF INCOME BY CLAIMING DEPRECIATION ON INDETERMINABLE COST OF ASSETS ON THE BASIS OF A VALUATION REPORT WHICH WAS BIASED, HYPOTHETICAL, DICTATED BY THE MANAGEMENT, NOT BASED ON ACTUAL FACTS & FIGURES AND UNTRUE AS IT EXCLUDED THE MOST VALUABL E ASSETS I.E. LANDS WORTH RS.187.36 CRORES. THE PLEA OF ASSESSEE THAT IT HAD DISCLOSED ALL FACTS AND INFORMATION IN THE RETURN OF INCOME AND ANNUAL ACCOUNTS ETC. REGARDING CLAIM OF DEPRECIATION ON VARIOUS ASSETS FOR WHICH IT WAS UNDER BONAFIDE BELIEF THAT THE SAME WAS ALLOWA BLE AS PER LAW AND HENCE, NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT WAS TO BE LEVIED, WAS REJECTED BY THE CIT(A). THE CIT(A) HELD AS UNDER: - 11. IN VIEW OF THE ABOVE DETAILED DISCUSSION FACTUAL AS WELL AS LEGAL, I AM FULLY SATISFI ED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME TO THE EXTENT OF RS.24,83,55,826/ - AND HENCE RENDERED ITSELF LIABLE FOR PENAL CONSEQUENCES U/S. 271(1)(C) OF THE ACT. THE TAX SOUGHT TO BE EVADED ON INCOME OF RS.24,83,55,826/ - WORKS OUT TO RS.8,90,97,652/ - KEEPING IN VIEW THE PROVISIONS OF EXPLANATION 4 AND ACCORDINGLY THE MINIMUM AND MAXIMUM PENALTY @ 100% AND 300% OF THE TAX SOUGHT TO BE EVADED COME TO RS.8,90,97,652/ - AND RS.26,72,92,956/ - , RESPECTIVELY. HOWEVER, CONSIDERING THE I N THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, OF FACTS AND CIRCUMSTANCES OF THE CASE, I IMPOSE A MINIMUM PENALTY OF 100% AMOUNTING RS.8,90,97,652/ - . THE A.O IS DIRECTED TO ISSUE THE NOTICE OF DEMAND AND CHALLAN FOR THE PENALTY OF RS.8,90,97,65 2/ - AND SERVE THE SAME ALONG WITH THIS PENALTY ORDER ON THE ASSESSEE IMMEDIATELY. ITA NO. 2276 /P U N/20 1 2 5 7. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ORDER OF CIT(A) IN LEVYING PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON THE ENHANCED INCOME. 8. THE LEARNED AUTHORIZED REPRE SENTATIVE FOR THE ASSESSEE POINTED OUT THAT NO PENALTY PROCEEDINGS WERE INITIATED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCES MADE ON ACCOUNT OF DEPRECIATION ON GOODWILL AND NON - COMPETE FEES. HOWEVER, THE CIT(A) ENHANCED THE INCOME ASSESSED IN THE HANDS OF ASSESSEE BY DISALLOWING CLAIM OF DEPRECIATION ON KNOW - HOW, PATENTS AND TRADEMARKS AND INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE LEARN ED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER STATED THAT THE ISSUE ON MERITS HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE AND CLAIM OF ASSESSEE HAS BEEN ALLOWED IN ENTIRETY AND HENCE, THERE IS NO MERIT IN PENALTY PROCEEDINGS INITIATED A ND LEVIED UNDER SECTION 271(1)(C) OF THE ACT. 9. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NOS.1507/PUN/2012 AND 2036/PUN/2012, RELATING TO ASSESSMENT YEARS 2004 - 05 AND 2005 - 06, VIDE ORDER DATED 12.12.2017 CONSIDERED VARIOUS ISSUES RAISED IN THE CASE OF ASSESSEE. AFTER CONSIDERING THE TERMS OF AGREEMENTS ENTERED INTO BETWEEN T HE PARTIES, THE TRIBUNAL WAS OF THE VIEW THAT SLUMP PRICE HA D TO BE BIFURCATED OVER THE COST OF TANGIBLE ASSETS AND BALANCE CONSIDERATION HAS TO BE ATTRIBUTED TO GOODWILL, KNOW - HOW, PATENTS AND TRADEMARKS. THE TRIBUNAL AFTER TAKING INTO CONSIDERATION THE FACTUAL AND LEGAL ASPECTS OF THE CASE AND THE CLAIM OF ITA NO. 2276 /P U N/20 1 2 6 ASSESSEE, HELD THE ASSESSEE TO BE ENTITLED TO CLAIM DEPRECIATION BOTH ON TANGIBLE AND INTANGIBLE ASSETS , INCLUDING DEPRECIATION ON NON - COMPETE FEES . THE CLAIM OF ASSESSEE WAS ALLOWED IN ENTIRETY. CON SEQUENT THERETO, ENHANCEMENT MADE BY THE CIT(A) IN THE QUANTUM PROCEEDINGS HAS BEEN REDUCED TO NIL IN THE HANDS OF ASSESSEE. CONSEQUENT THERETO, THERE IS NO BASIS FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSIN G OFFICER TO DELETE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT FOR THE ALLEGED FURNISHING OF INACCURATE PARTICULARS OF INCOME. ONCE THE CLAIM OF ASSESSEE HAS BEEN ALLOWED IN ENTIRETY, THERE IS NO MERIT IN HOLDING THE ASSESSEE LIABLE FOR LEVY OF PEN ALTY UNDER SECTION 271(1)(C) OF THE ACT. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 11 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 12 TH DAY OF JANUARY , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 12 TH JANUARY , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) - I, THANE ; 4. THE CIT - II, THANE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE