THE DCIT, CIRCLE - 3(1), Visakhapatnam V. M/s Miracle Software systems india(P) Ltd., Visakhapatnam

ITA 237/VIZ/2013

• Counselvise Citation: 23725314 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 03-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Business income; Depreciation; Difference of opinion; Agreed addition

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH , VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 237/VIZ/2013 ASSESSMENT YEAR : 2007-08 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), VISAKHAPATNAM. M/S MIRACLE SOFTWARE SYSTEMS INDIA (P) LTD., VISAKHAPATNAM (APPELLANT) (RESPONDENT) REVENUE BY SHRI K.V.N. CHARYA ASSESSEE BY SHRI C. SUBRAMANYAM DATE OF HEARING 03-07-2014 DATE OF PRONOUNCEMENT 03-07-2014 O R D E R PER J. SUDHAKAR REDDY, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A), VISAKHAPATNAM DATED 08/02/2013 FOR THE ASSE SSMENT YEAR 2007- 08 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GRO UNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS ON FACTS AND IN LAW. 2. THE LEARNED CIT(A) HAS ERRED IN DELETING THE PEN ALTY LEVIED U/S 271(1)(C) ON THE AGREED ADDITIONS IN RESPECT OF INT EREST EARNED ON FDR AND EXCESS CLAIM OF DEPRECIATION.; 3. THE LEARNED CIT(A) HAS ERRED IN OBSERVING THAT T HE ISSUE RELATING TO ASSESSABILITY OF INTEREST UNDER BUSINESS HEAD OR OTHER SOURCES IS A MATTER OF DEBATE IN VIEW OF THE FACT THAT THE SAM E IS NOT AT ALL A DEBATABLE ISSUE IN THE LINE OF THE ASSESSEES BUSIN ESS OF DEVELOPMENT AND EXPORT OF SOFTWARE, WITH REFERENCE TO THE EXPRESSION EXPORT TURNOVER. 4. THE LEARNED CIT(A) HAS ERRED IN OBSERVING THAT T HE ASSESSEES CONTENTION THAT THE CLAIM OF EXCESS DEPRECIATION MA DE WAS ON 2 ITA NO. 237/VIZ/2013 M/S MIRACLE SOFTWARE SYSTEMS INDIA(P) LTD. ACCOUNT OF MISTAKE IS NOT WITHOUT MERITS IN VIEW OF THE FACT THAT IT WAS ONLY AFTER A CLOSE VERIFICATION OF THE RELEVANT PURCHASE INVOICES THAT THE FACT OF THE ASSETS BEING PUT TO USE FOR LE SS THAN 180 DAYS TRANSPIRED. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF SOFTWA RE, FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ELECTRONICA LLY ON 31/10/2007 DECLARING TOTAL INCOME OF RS. 2,20,87,290/-, WHICH WAS PROCESSED U/S 143(1) OF THE ACT, ACCEPTING THE RETURNED INCOME. S UBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS CO MPLETED DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 2,62,11,155 /-. IN THE ASSESSMENT, THE INTEREST EARNED ON FDR OF RS. 53,96,952/- WAS E XCLUDED FROM BUSINESS INCOME AND ASSESSED UNDER INCOME FROM OTH ER SOURCES. THE AO ALSO MADE ADDITION OF RS. 15,26,043/- BEING EXCE SS DEPRECIATION CLAIMED. THE ASSESSEE HAS NOT PREFERRED ANY APPEAL ON THE SAID ADDITIONS TO AVOID PROLONGED LITIGATIONS. 3. SUBSEQUENTLY, THE AO HAD INITIATED PENALTY PROCE EDINGS U/S 271(1)(C) OF THE ACT FOR CONCEALMENT OF PARTICULARS OF INCOME. DURING THE COURSE OF PENALTY PROCEEDINGS, THE ASSESSEE SUBMITT ED THAT THE INTEREST INCOME WAS MADE OUT OF THE LOAN FUNDS AND ALSO FROM EXPORT PROCEEDS AND THERE WERE DIFFERENCE OF OPINION IN TREATING SUCH I NCOME AS EXEMPTED OR TAXABLE AS OTHER SOURCES BY VARIOUS JUDICIAL AUTHOR ITIES. FURTHER, HE SUBMITTED THAT THE EXCESS DEPRECIATION CLAIMED IS O N ACCOUNT OF CLERICAL ERROR WHICH IS UNINTENTIONAL AND AT THE TIME OF ASS ESSMENT, THE ASSESSEE HAD AGREED FOR THE ADDITION OF THE EXCESS DEPRECIAT ION CLAIMED. IN VIEW OF THE ABOVE SUBMISSIONS, THE ASSESSEE REQUESTED FOR D ROPPING OF THE PENALTY. HOWEVER, THE AO REJECTED THE SUBMISSIONS O F THE ASSESSEE AND LEVIED A PENALTY OF RS. 23,30,300/- FOR CONCEALMEN T OF INCOME. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A). BEFORE THE CIT(A) THE AR OF THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAD PLACED EXCESS FUNDS FROM THE LOAN AVAI LED AS DEPOSITS AND 3 ITA NO. 237/VIZ/2013 M/S MIRACLE SOFTWARE SYSTEMS INDIA(P) LTD. EARNED INTEREST WHICH WAS ADJUSTED AGAINST ITS INTE REST EXPENSES. IT WAS CONTENDED THAT WHETHER SUCH INTEREST INCOME IS TO B E CONSIDERED AS BUSINESS INCOME OR UNDER INCOME FROM OTHER SOURC ES IS A DEBATABLE ISSUE AND HENCE CANNOT BE GROUND FOR LEVY OF PENALT Y. THE AR POINTED OUT THAT THE ASSESSEE HAD BY MISTAKE CLAIMED DEPRECIATI ON FOR CERTAIN ITEMS FOR A PERIOD OF ONE YEAR THOUGH IT WAS PUT TO USE F OR LESS THAN ONE YEAR. THE EXCESS DEPRECIATION CLAIMED WAS SAID TO BE ON A CCOUNT OF CLERICAL ERROR AND HAD CONSENTED TO THE DISALLOWANCE IN ASSE SSMENT. THE AR RELIED UPON THE DECISION OF THE HONBLE SUPREME COU RT IN THE CASE OF RELIANCE PETRO PRODUCTS, 322 ITR 158 IN SUPPORT OF THE CONTENTION THAT PENALTY CANNOT BE LEVIED IN RESPECT OF ISSUES WHICH ARE DEBATABLE. THE AR ALSO SUBMITTED THAT IN ASSESSEES OWN CASE FOR AY 2 004-05, THE CIT(A) HELD SUCH INTEREST TO BE BUSINESS INCOME FOR THE AY 2004-05, BUT HOWEVER HELD TO BE ASSESSABLE UNDER THE INCOME FROM OTHER S OURCES IN ASSESSMENT YEARS 2003-04 AND 2005-06. IT WAS SUBMITTED THAT TH E ASSESSEE DID NOT CONTEST THIS ISSUE IN THE APPEAL BEFORE THE HONBLE ITAT, AS IN PRINCIPLE, IT AGREED TO BE ASSESSED UNDER OTHER SOURCES 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CANCELLED THE PENALTY LEVIED BY THE AO BY OBSERVING AS UNDER: 4. I HAVE CONSIDERED THE VARIOUS CONTENTIONS AND DE TAILS FILED. I FIND THAT THE ISSUE RELATING TO ASSESSABILITY OF I NTEREST UNDER BUSINESS HEAD OR OTHER SOURCES WAS A MATTER OF DEBATE EVEN IN ASSESSEES OWN CASE. SIMILARLY THE CONTENTION THAT THE CLAIM OF EXCESS DEPRECIATION MADE WAS ON ACCOUNT OF MISTAKE IS NOT WITHOUT MERITS. I FIND THAT THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS IS APPLICABLE TO TH E FACTS OF THE CASE. IN VIEW OF THESE, THE PENALTY LEVIED OF RS. 2 3,30,300/- IS CANCELLED. 6. WE HAVE HEARD THE PARTIES, PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. IN THE CASE OF THE ASSESSEE THE ADDITIONS MADE WERE ON ACCOUNT OF INTE REST INCOME FROM DEPOSITS AND EXCESS DEPRECIATION CLAIMED. THE ASSES SEE HAS CLAIMED INTEREST INCOME AS INCOME FROM BUSINESS WHICH EL IGIBLE FOR DEDUCTION U/S 10A. THIS WAS ALLOWED BY THE CIT(A) IN AY 2004- 05. THIS DISPUTE 4 ITA NO. 237/VIZ/2013 M/S MIRACLE SOFTWARE SYSTEMS INDIA(P) LTD. WHETHER TO CONSIDER THE INTEREST INCOME IS ASSESSAB LE AS INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES WAS SETTLE D BY THE COORDINATE BENCH ON 24/11/2010 IN ASSESSEES OWN CASE IN ITA N OS. 409 & 195/VIZAG/2007 AND OTHERS, FOR ASSESSMENT YEARS 200 3-04, 2004-05 AND 2005-06. TREATING OF INTEREST INCOME AS INCOME FRO M OTHER SOURCES BY THE AO IS A MERE CHANGE IN THE HEAD OF INCOME, ON WHICH PENALTY CANNOT BE IMPOSED. THE HONBLE SUPREME COURT IN THE CASE OF R ELIANCE PETRO PRODUCTS, 322 ITR 158, ON WHICH RELIANCE PLACED BY THE ASSESSEE, HELD THAT MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE CL AIM OF FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. IN THE CASE OF PRICE WATERHOUSE COOPERS (P) LTD. VS. CIT, [2012] 11 SCC 316, THE HONBLE SUPREME COURT HELD AS FOLLOWS: SECTION SS. 271(1)(C) AND 40-A(7) - PENALTY - INAD VERTENT AND BONA FIDE MISTAKE IN CLAIMING DEDUCTION IN RETURN - IMPO SITION OF PENALTY, ON FACTS, WHETHER JUSTIFIED - ASSESSEE ITSELF AN IN TERNATIONALLY REPUTED ACCOUNTANCY FIRM HAVING GREAT EXPERTISE AVA ILABLE TO IT - RELEVANCE OF - ASSESSEE FILING RETURN WITH COMPUTAT IONAL ERROR THEREBY CLAIMED DEDUCTION FOR GRATUITY INADVERTENTL Y, WHICH WAS NOT CLAIMABLE - CONTENTS OF TAX AUDIT REPORT FILED IN S UPPORT OF RETURN, SUGGESTING NEITHER CONCEALMENT OF INCOME, NOR FURNI SHING OF INACCURATE PARTICULARS - ASSESSING OFFICER ALSO FAI LED TO NOTICE SAID ERROR AND PASSED RETURN - IN THE CIRCUMSTANCES, HEL D, ASSESSEE HAD COMMITTED AN INADVERTENT AND BONA FIDE ERROR AND HA D NOT INTENDED TO OR ATTEMPTED TO EITHER CONCEAL ITS INCOME OR FUR NISH INACCURATE PARTICULARS - HENCE, HELD, IMPOSING PENALTY IS NOT JUSTIFIED, (2012) 11 SCC 316 6.1 THE INTEREST INCOME WAS ALSO DISCLOSED BY THE A SSESSEE IN ITS RETURN OF INCOME AND WAS ALSO SHOWN IN THE P& L A/C AND OT HER FINANCIAL STATEMENTS SUBMITTED BEFORE THE AO. THE AO HAS NOT BROUGHT ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAS CONCEALED IT S INCOME. THE DEPRECIATION CLAIM MADE BY THE ASSESSEE IS ON ACCOU NT OF A CLERICAL ERROR. THE ASSETS WERE USED FOR LESS THAN 180 DAYS. THE AM OUNT OF RS. 3,05,20,862/- BEING ADDITIONS TO ROAD & BUILDINGS W ERE ERRONEOUSLY ENTERED IN THE DEPRECIATION CALCULATION CHART IN TH E COLUMN USED FOR MORE THAN 180 DAYS. THIS ERROR WAS EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSEE HAS AGREED FOR THE SAI D ADDITION AND HAS 5 ITA NO. 237/VIZ/2013 M/S MIRACLE SOFTWARE SYSTEMS INDIA(P) LTD. NOT PREFERRED AN APPEAL. THERE IS NO MALAFIDE INTE NTION BEHIND CLAIMING SUCH ADDITION AS THE SAME ERROR WAS REPEATED IN TAX AUDIT REPORT. ALL THE FACTS ARE DISCLOSED BY THE ASSESSEE IN THE RETURN O F INCOME AND, THEREFORE, THIS IS NOT A FIT CASE FOR LEVY OF PENALTY U/S 271( 1)(C) OF THE ACT ON THE GROUND OF CONCEALMENT OF INCOME. ACCORDINGLY, WE UP HOLD THE ORDER OF THE CIT(A) CANCELLING THE PENALTY OF RS. 23,30,300/- LE VIED BY THE AO U/S 271(1)(C). THE GROUNDS RAISED BY THE REVENUE IN TH IS REGARD ARE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 03/07/2014. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM, DATED: 3 RD JULY, 2014 KV COPY TO:- 1) DCIT, CIRCLE 3(1), AAYAKAR BHAVAN, DABAGARDENS , , VISAKHAPATNAM 530 020 2) M/S MIRACLE SOFTWARE SYSTEM INDIA (P) LTD., MIG 4, LAWSONS BAY COLONY, VISAKHAPATNAM. 3) CIT(A), VISAKHAPATNAM 4) CIT-1, VISAKHAPATNAM. 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., V IZAG.