ITALINDIA ELASTIC P.LTD, MUMBAI V. ITO WD 1(2)(4), MUMBAI

ITA 2420/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71200 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 2420/MUM/2012 ASSESSMENT YEAR : 2007-08 ITALINDIA ELASTIC PVT. LTD. 6, JAI TIRATH MANSION, BARRACK RD., BEHIND METRO CINEMA MUMBAI-400 020. PAN NO.AABCI 4052 Q VS. INCOME TAX OFFICER, WARD - 1(2)(4) MUMBAI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY C. SHAH REVENUE BY : SHRI O.P. S INGH DATE OF HEARING : 20/08/2013 DATE OF PRONOUNCEMENT : 11 / 0 9 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF PENALTY LEVIED UNDER SECTION 271(1)(C) BY THE AO DATED 21.06.2010, CONFIRMED BY CIT(A)-2, MUMBAI DATED 25.01.2012. THE ASSESSEE IS CONTESTING IN ITS GROUNDS THE LEVY OF PENALTY. 2. BRIEFLY STATED FACTS LEADING TO LEVY OF PENALTY WERE THAT ASSESSEE DID BUSINESS AND MANUFACTURED ALL TYPES OF ELASTIC AND NON-ELASTIC TAPES USED IN CONNECTION WITH ELASTIC/ FABRIC INDUSTRY. T HE ASSESSEE OBTAINED MACHINERY FROM M/S. NASTROTEX CUFRA SPA, ITALY, ITS COLLABORATOR, IN SEPTEMBER 2005, INSTALLED THE SAME IN MAY, 2006, UT ILIZED TILL NOVEMBER, ITA NO.2420/M/12 A.Y.07-08 2 2006. THE MACHINERY WAS SUPPLIED AS PART OF SHARE C APITAL CONTRIBUTION OF THE FOREIGN PARTNER. HOWEVER, SINCE MACHINERY WA S FOUND NOT WORKING PROPERLY THE ASSESSEE COMPANY RETURNED THE MACHINER Y AND ADJUSTED IN BOOKS ACCORDINGLY. THEREFORE, ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENDITURE FOR ACQUIRING MACHINERY BUT PAID CUSTO M DUTY AT THE TIME OF IMPORT OF MACHINERY, TRANSPORTATION AND INSTALLATIO N CHARGES. IN THE BOOKS OF ACCOUNT THE COST OF MACHINERY WAS SHOWN AS SHARE CAPITAL ACCOUNT CREDITED TO THE FOREIGN PARTNER AND ADDING THE OTHER EXPENDITURE OF CUSTOM DUTY, INSTALLATION CHARGES ETC. THE TOTAL COST OF MACHINERY IN FIXED ASSETS SCHEDULE WAS SHOWN AT RS.81,61,882/-. SINCE THE MACHINERY WAS RETURNED, THE ENTRIES IN THE FIXED ASSET ACCOUN T WERE REVERSED BY DEBITING THE SAME TO THE SHARE CAPITAL ACCOUNT OF F OREIGN PARTNER TO THE EXTENT OF BASIC COST AND BY DEBITING P&L ACCOUNT, T HE OTHER COSTS OF CUSTOM DUTY AND TRANSPORTATION AND INSTALLATION CHA RGES. AT THE TIME OF FILING RETURN, BY MISTAKE, IT WAS REPORTED IN THE R ETURN FILED ELECTRONICALLY, ENTIRE MACHINERY COST WAS SHOWN AS SHORT TERM CAPIT AL LOSS. HOWEVER, THE ASSESSEE NEITHER CLAIMED ANY BENEFIT IN THE YEAR OR BENEFIT OF CARRY FORWARD AND SET OFF IN A LATER YEAR. AT THE TIME OF SCRUTINY ASSESSMENT WHEN IT WAS POINTED OUT BY THE AO, THE ASSESSEE MEN TIONED THAT IT WAS A MISTAKE AND ASSESSEE HAS NOT CLAIMED ANY SHORT TERM CAPITAL LOSS BENEFIT IN THIS YEAR OR IN OTHER YEARS. THE AO IN PAGE-3 OF THE ORDER DISCUSSED AND CAME TO THE CONCLUSION THAT THERE IS NO QUESTIO N OF SHORT TERM CAPITAL GAIN ARISING IN THIS TRANSACTION, HENCE, SH ORT TERM CAPITAL LOSS CLAIMED BY THE ASSESSEE WAS DISALLOWED. AO INITIATE D PENALTY PROCEEDINGS FOR FURNISHING INACCURATE PARTICULARS. AS THE ASSES SEE DID NOT HAVE ANY ISSUE ON CLAIM OF SHORT TERM CAPITAL LOSS, IT DID N OT PREFER ANY APPEAL. THE AO CONSIDERED THE LOSS CLAIM OF SHORT TERM CAPITAL LOSS FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) AND LEVIED PENALTY OF RS.27 ,32,141/-. ASSESSEE CONTESTED BEFORE THE LD. CIT(A) THAT IT WAS AN INAD VERTENT MISTAKE WHILE FILING RETURN OF INCOME TO SHOW SHORT TERM CAPITAL LOSS BUT ASSESSEE HAS NOT CLAIMED ANY CARRY FORWARD OF LOSS NOR CLAIMED A NY SET OFF IN LATER ITA NO.2420/M/12 A.Y.07-08 3 YEAR. THEREFORE, LEVY OF PENALTY WAS NOT WARRANTED. THE LD. CIT(A) HOWEVER, CONSIDERED THE CLAIM OF THE ASSESSEE NOT B ONAFIDE AND RELYING ON THE PRINCIPLES OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATIONS P. LTD. (191 TAXMANN 179) , UPHELD THE PENALTY AND FURTHER DISTINGUISHED THAT THE HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS DOES NOT APPLY TO THE FACTS OF THE CASE. HE ACCORDINGLY CONFIRMED THE PENALTY UNDER S ECTION 271(1)(C), HENCE ASSESSEE IS AGGRIEVED. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE PAPER BOOK AND ORDERS OF AUTHORITIES. WE ARE UNABLE TO UNDERSTAND HOW PENALTY UNDER SECTION 271(1)(C), THAT TOO FOR FURNISHING INACCURA TE PARTICULARS, COULD ARISE IN THE FACTS OF THE CASE. FIRST OF ALL, THERE IS NO DISPUTE WITH RESPECT TO TRANSACTION OF RECEIPT OF MACHINERY, RETURN OF M ACHINERY, ENTRIES PASSED IN THE BOOKS OF ACCOUNT, CLAIM OF EXPENDITUR E INCURRED AND DEBITED IN THE P/L ACCOUNT. IN FACT THE AO DID DISA LLOW THE AMOUNT OF RS . 9,61,689/- ON LOSS OF SALE OF FIXED ASSET WHICH I S NOTHING BUT THE EXPENDITURE DEBITED TO THE P/L ACCOUNT ON RETURN OF MACHINERY. THEREFORE, THERE IS NO QUESTION OF FURNISHING INACC URATE PARTICULARS. THE SECOND ISSUE WHICH WAS NOTICED FROM THE ORDER OF AO WAS THAT AO IN PARA-1 OF THE ASSESSMENT ORDER STATES THAT THE ASSE SSEE DECLARED LOSS OF RS.10,22,293/-. THIS LOSS WAS REDUCED TO AN AMOUNT OF RS.30,811/- BY DISALLOWING EXPENSES OF RS. 9,61,689, THEREBY LOSS FROM BUSINESS WAS REDUCED TO THAT EXTENT. SO THE CLAIM OF SHORT TERM CAPITAL LOSS IS NOT PART OF THE LOSS RETURN FILED BY THE ASSESSEE. WHEN LOSS OF RS.10,22,293 WAS REDUCED TO RS.30,811/-, HOW PENALTY UNDER SECTION 2 71(1)(C) CAN BE LEVIED ON AMOUNT OF RS.81,61,882/- ON THE SO CALLED SHORT TERM CAPITAL LOSS CLAIM IS NOT EXPLAINED AT ALL. 4. THE THIRD ASPECT WHICH ALSO SURPRISES US IS THE COMPUTATION OF INCOME OF AO ITSELF. THE COMPUTATION MADE BY AO IS AS UNDER :- ITA NO.2420/M/12 A.Y.07-08 4 INCOME FROM BUSINESS/PROFESSION (1218550) NET PROFIT AS PER PROFIT & LOSS A/C ADD: DEPRECIATION AS PER COMPANIES ACT, 1956 EXPENSES CONSIDERED UNDER OTHER HEAD 226050 LOSS ON SALE OF FIXED ASSETS 961689 (30811) INCOME FROM CAPITAL GAINS DEEMED CAPITAL GAIN ON DEPRECIABLE ASSETS 8116882 ADD: THERE IS NO PURCHASE AND SALE PRICE OF THE TRANSACTION AS DISCUSSED ABOVE 8116882 NIL TOTAL LOSS FROM BUSINESS (30811) TOTAL LOSS FROM BUSINESS (30811) ROUNDED OFF U/S. 288A (30810) ( EMPHASIS SUPPLIED) 4.1 AS CAN BE SEEN, THE AO ARRIVES AT A DEEMED CAPI TAL GAIN ON DEPRECIABLE ASSETS AT RS.81,16,882/- AND THEREAFTER HOLDS THAT THERE IS NO CAPITAL GAIN OF THE SAME AMOUNT AND ARRIVES AT NIL FIGURE, THAT TOO BY ADDING TWO POSITIVE FIGURES. MAY BE ASSESSEE BONAFI DELY OR MALAFIDELY STATED TO HAVE MENTIONED SHORT TERM CAPITAL LOSS IN THE RETURN, BUT COMPUTATION OF ASSESSING OFFICER IS NOT AT ALL UNDE RSTANDABLE AS SEEN FROM THE ASSESSMENT ORDER. HOW THERE CAN BE DEEMED CAPITAL GAIN PERPLEXES US. THE CLAIM OF THE ASSESSEE WAS STATED TO BE MISTAKE BY COUNSEL BUT ASSESSING OFFICERS ORDER INDICATE THAT HE DID NOT UNDERSTAND THE TRANSACTION AT ALL AND DID NOT EVEN BOTHER TO C OMPUTE INCOME PROPERLY. IN THIS FACTUAL STATE OF AFFAIRS, WE ARE UNABLE TO UNDERSTAND HOW A CLAIM OF SHORT TERM CAPITAL LOSS WRONGLY STATED I N THE RETURN, BUT BEFORE ITA NO.2420/M/12 A.Y.07-08 5 SCRUTINY ASSESSMENT WAS INITIATED, ASSESSEE DID NOT CLAIM ANY CARRYING FORWARD BENEFIT IN THE RETURN FOR NEXT YEAR, NOR TH ERE IS ANY SET OFF IN LATER YEAR, CAN BE CONSIDERED FOR LEVY OF PENALTY FOR MAK ING A CLAIM MALAFIDELY. AO HIMSELF RECORDED THAT THE ASSESSEE CLAIM OF LOSS IN THE RETURN OF INCOME WAS ONLY RS.10,22,293/-. THERE SEEMS TO BE N O APPLICATION OF MIND BY REVENUE AUTHORITIES EITHER AT THE TIME OF A SSESSMENT OR AT THE TIME OF LEVY OF PENALTY. ABOUT THE CIT(A) ORDER, WE RESERVE OUR COMMENTS. THEREFORE, WITHOUT GOING INTO MERITS OR DE-MERITS O F ASSESSEES CLAIM THAT IT WAS A MISTAKE COMMITTED AT THE TIME OF FILING RE TURN ELECTRONICALLY, WE ARE OF THE OPINION THAT ON THE FACTS OF THE CASE, T HERE IS NO QUESTION OF LEVY OF PENALTY U/S. 271(1)(C) FOR FURNISHING INACC URATE PARTICULARS. THE SAME IS THEREFORE CANCELLED. 5. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2013. SD/- SD/- (SANJAY GARG) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 11/09/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.