DCIT, New Delhi V. M/s. GE India Industrial Pvt. Ltd., New Delhi

ITA 2576/DEL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5472 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 06-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: SIDHARTH JOSHI
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 2576/DEL./2016 ASSESSMENT YEAR: 2007-08 D.C.I.T., CIRCLE 10(1), NEW DELHI. (APPELLANT) VS. M/S. GE INDIA INDUSTRIAL PVT. LTD., 401, 402, 4 TH FLOOR, AGGARWAL MILLENNIUM TOWER, E-1, 2, 3, NETAJI SUBHASH PLACE, PITAMPURA, NEW DELHI. PAN-AAACG4901D (RESPONDENT) C.O. NO.238/DEL./2016 (IN ITA NO. 2576/DEL./2016) ASSESSMENT YEAR: 2007-08 M/S. GE INDIA INDUSTRIAL PVT. LTD., 401, 402, 4 TH FLOOR, AGGARWAL MILLENNIUM TOWER, E-1, 2, 3, NETAJI SUBHASH PLACE, PITAMPURA, NEW DELHI. (APPELLANT) VS. D.C.I.T., CIRCLE 10(1), NEW DELHI. (RESPONDENT) ASSESSEE BY SH. SACHIT JOLLY, ADVOCATE & SH. SIDHARTH JOSHI, ADVOCATE REVENUE BY SH. S.R. SENAPATI, SR. DR ORDER PER L.P. SAHU, A.M.: THE APPEAL BY THE REVENUE AND CROSS-OBJECTION BY A SSESSEE ARISE OUT OF THE ORDER OF LD. CIT(A)-16, NEW DELHI DATED 26.02.2016 FOR THE ASSESSMENT YEAR 2007-08. THE SOLITARY GROUND RAISED BY THE REVENUE IS AS UNDER : DATE OF HEARING 14.03.2018 DATE OF PRONOUNCEMENT 04 .04.2018 ITA NO. 2576 AND CO 238/DEL./2016 2 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) IS CORRECT IN DELETING THE PENALTY OF RS.2,81 ,85,841/- IMPOSED BY THE A.O. U/S. 271(1)(C) OF THE ACT ON ACCOUNT OF CAPITA LIZATION OF EXPENSES IGNORING THE FACT THAT THE ASSESSEE HAD MADE CLAIM WHICH IS NOT ONLY INCORRECT IN LAW BUT IS ALSO WITHOUT ANY BASIS AND CLAIM OF THE ASSESSEE WAS NOT BONAFIDE. ON THE OTHER HAND, THE ASSESSEE HAS RAISED FOLLOWIN G CROSS OBJECTIONS : GROUND NO. 1 THAT, THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING ON THE GROUND THAT PENALTY UNDER SECTION 271(1)(C) OF THE ACT CANNOT BE LEVIED IN CASE OF A DEBATABLE ISSUE.' GROUND NO. 2 THAT, THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING ON THE GROUND THAT THE LD. AO ERRED IN LEVYING PENALTY IN RESPECT OF DISALLOWA NCE ON ACCOUNT OF EXPENSES INCURRED ON PURCHASE OF BUSINESS RIGHTS IN THE ABSE NCE OF ANY DIRECTIONS BY THE HON'BLE ITAT ON SUCH DISALLOWANCE. GROUND NO. 3 THAT, THE LD. CIT(A) HAS ERRED IN NOT ADJUDICATING ON THE GROUND THAT RELIANCE PLACED BY THE LD. AO IN THE PENALTY ORDER ON VARIOU S JUDICIAL PRECEDENTS IN SUPPORT OF HIS ACTIONS WAS MISPLACED SINCE THE RESP ONDENT'S CASE IS DISTINGUISHABLE ON FACTS. 2. THE BRIEF FACTS OF THE CASE ARE THAT IN THE COMPUTA TION OF INCOME FILED WITH THE RETURN, THE ASSESSEE CLAIMED EXPENDITURE OF RS. 11,16,49,202/- AS REVENUE EXPENDITURE U/S. 37(1) OF THE ACT. THIS AMOUNT WAS ADMITTED BY THE ASSESSEE TO HAVE BEEN INCURRED FOR ACQUIRING THE EXCLUSIVE RIGH TS TO PURCHASE NDT (NON DESTRUCTIVE TESTING) FROM GEIT, GERMANY. THE ASSESS EE ITSELF HAD CAPITALIZED THESE EXPENDITURE IN THE BOOKS OF ACCOUNTS UNDER IN TANGIBLES AS EXCLUSIVE PURCHASE RIGHTS IN SCHEDULE VI OF THE FINANCIAL ST ATEMENTS. BUT AT THE SAME TIME, THE ASSESSEE STATED THAT THESE EXPENDITURE ARE ALLO WABLE AS REVENUE EXPENDITURE U/S. 37(1) OF THE ACT. THE ASSESSING OFFICER DISALL OWED THESE EXPENDITURE, ITA NO. 2576 AND CO 238/DEL./2016 3 OBSERVING THAT CAPITAL EXPENDITURE IS KEPT OUT OF T HE PURVIEW OF SECTION 37(1) OF THE ACT. IT WAS ALSO OBSERVED THAT THESE EXPENDITUR E WERE ADMITTEDLY INCURRED FOR ACQUISITION OF THE BUSINESS AND WERE ADMITTEDLY ENT ERED BY THE ASSESSEE ITSELF AS CAPITAL EXPENDITURE IN THE BOOKS OF ACCOUNT. THE AC TION OF THE ASSESSING OFFICER WAS AFFIRMED BY THE LD. DRP IN QUANTUM PROCEEDINGS AS ALSO BY THE TRIBUNAL IN SECOND APPEAL. THEREFORE, THE ASSESSING OFFICER AFT ER GIVING DEPRECIATION @ 25% ON THE ABOVE INTANGIBLE ASSET OF RS.11,16,49,202/-, ADDED THE BALANCE AMOUNT OF RS.8,37,36,902/- BACK TO THE TOTAL INCOME OF THE AS SESSEE. BASED ON THIS ADDITION, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE IT ACT FOR CONCEALMENT OF INCOME OBSERVING THAT THE ASSESS EE FAILED TO OFFER ANY BONAFIDE EXPLANATION AS TO WHY HE CLAIMED THIS AMO UNT AS REVENUE EXPENDITURE ONE THE ASSESSEE ITSELF TREATED AS CAPITAL EXPENDIT URE IN ITS BOOKS OF ACCOUNT. HE, THEREFORE, INVOKING EXPLANATION 1(B) TO SECTION 271 (1)(C), IMPOSED PENALTY TO THE TUNE OF RS.2,81,85,841/- AGAINST THE ASSESSEE AFTER RELYING ON VARIOUS DECISIONS OF HONBLE SUPREME COURT AND HIGH COURTS, AS MENTIONED IN THE PENALTY ORDER. 3. THE LD. CIT(A) DELETED THE PENALTY IMPOSED BY AS SESSING OFFICER ON THE PREMISE THAT THE ASSESSEE HAD DISCLOSED FULL PARTIC ULARS OF TRANSACTION OF PURCHASE OF BUSINESS RIGHTS AND IT IS A DIFFERENT M ATTER THAT THE ASSESSING OFFICER DID NOT ACCEPT THE CLAIM OF ASSESSEE. IT WAS FURTHE R OBSERVED BY THE LD. CIT(A) THAT AT NO STAGE, IT WAS ESTABLISHED THAT THE CLAIM WAS MALA FIDE AND MERELY BECAUSE DISALLOWANCE WAS MADE WOULD NOT ATTRACT PENALTY. HE HAS ALSO RELIED ON VARIOUS DECISIONS AS MENTIONED IN THE IMPUGNED ORDER. 4. THE LEARNED DR APPEARING ON BEHALF OF THE REVENU E, SUBMITTED THAT THE LD. CIT(A) WHILE CANCELING THE PENALTY DID NOT CONSIDER THE FACT THAT NO BONA FIDE ITA NO. 2576 AND CO 238/DEL./2016 4 EXPLANATION WAS OFFERED BY THE ASSESSEE TO CLAIM DE DUCTION OF THE EXPENDITURE AS REVENUE EXPENDITURE ONCE HE HIMSELF TREATED THIS AM OUNT AS CAPITAL EXPENDITURE IN ITS BOOKS OF ACCOUNT. IT WAS SUBMITTED THAT ONCE , THE CAPITAL EXPENDITURE INCURRED ARE KEPT OUT OF THE AMBIT OF SECTION 37(1) , THERE REMAINS NO DEBATE TO CLAIM A CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. HE, THEREFORE, RELIED ON THE ORDER OF THE ASSESSING OFFICER AND URGED FOR ITS SU STENANCE. 5. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SU PPORTED THE IMPUGNED ORDER ON THE PREMISE THAT ONCE ALL THE DETAILS OF I MPUGNED EXPENDITURE WERE DECLARED BEFORE THE ASSESSING OFFICER, THERE IS NO REASON TO OBSERVE ANY CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME RELEVANT TO IMPOSITION OF PENALTY. HOWEVER, THE ASSESSEE IN ITS CROSS OBJECTION, ASSAILED THE IMPUGNED ORDER ON THE PREMISE THAT THE LD. CIT( A) WHILE CANCELING THE PENALTY DID NOT ADJUDICATE UPON GROUNDS NOS. 2 TO 6 RAISED BY ASSESSEE IN THE MEMORANDUM OF APPEAL BEFORE HIM. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. WE FIRST DECID E THE APPEAL OF THE REVENUE. IN THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THE I MPUGNED EXPENDITURE WERE GIVEN THE TREATMENT OF CAPITAL EXPENDITURE WHILE RECORDIN G THE SAME IN THE BOOKS OF ACCOUNT BY THE ASSESSEE, BUT IN THE COMPUTATION OF INCOME, THE SAME EXPENDITURE WERE CLAIMED AS REVENUE EXPENDITURE. FOR THIS, THE ASSESSEE IS REQUIRED TO OFFER AN EXPLANATION AS TO WHY AND HOW HE CLAIMED THE SAI D EXPENDITURE AS REVENUE IN NATURE ONCE HE HIMSELF HAS TREATED THEM AS CAPITAL EXPENDITURE IN ITS BOOKS OF ACCOUNT. IT IS ALSO NOT DISPUTED THAT THE IMPUGNED EXPENDITURE WERE TREATED BY THE LD. DRP AS CAPITAL EXPENDITURE AND THEIR DISALL OWANCE STOOD CONFIRMED. THE ITA NO. 2576 AND CO 238/DEL./2016 5 ASSESSING OFFICER HAS MENTIONED THAT THE ITAT HAS A FFIRMED THE SAID DISALLOWANCE WHEREAS THE LD. CIT(A) HAS MENTIONED IN THE IMPUGNE D ORDER THAT THE TRIBUNAL DID NOT ADJUDICATE UPON THIS ISSUE. THE COPY OF TRI BUNAL ORDER IS NOT PLACED ON RECORD BEFORE US BY EITHER PARTY TO EXAMINE THESE C ONTRADICTORY FACTS. HOWEVER, EXPLANATION 1 (A) & (B) TO SECTION 271(1)(C) OF THE ACT PROVIDE THAT IF A PERSON FAILS TO OFFER AN EXPLANATION OR ANY EXPLANATION O FFERED IS FOUND FALSE OR THE ASSESSEE FAILS TO PROVE THAT SUCH EXPLANATION IS BO NA FIDE, THE AMOUNT ADDED TO THE TOTAL INCOME OF SUCH PERSON FOR THE PURPOSE OF SECTION 271(1)(C) SHALL BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. AS PER EXPLANATION 1(B), IN OUR CONSIDER ED OPINION, THE ONUS LIES ON THE ASSESSEE TO PROVE THE BANA FIDE OF EXPLANATION SO OFFERED BY THE ASSESSEE. BUT, IN THE INSTANT CASE, THE LD. CIT(A) HAS MENTIONED T HAT AT NO STAGE THE EXPLANATION OF ASSESSEE WAS NOT PROVED AS MALA FIDE. IN OUR OPI NION, AS PER EXPLANATIONS TO SECTION 271(1)(C), THE DEPARTMENT IS NOT REQUIRED T O PROVE THE EXPLANATION OF ASSESSEE AS MALA FIDE, BUT THE BURDEN IS CAST ON TH E ASSESSEE TO PROVE ITS EXPLANATION AS BONA FIDE. THE LD. CIT(A) HAS NOT RE CORDED ANY FINDING AS TO THE BONA FIDE OF ASSESSEES EXPLANATION AND HAS UTTERLY FAILED TO CONSIDER THIS ASPECT OF THE CASE WHILE DELETING THE PENALTY. IN FACT, TH E DEPARTMENT IS NOT EXPECTED TO PROVE THE NEGATIVE FACTS ONCE THE ONUS IS ON THE AS SESSEE TO PROVE THE BONA FIDE OF ITS EXPLANATION. FURTHER, THE LD. CIT(A) HAS ALSO N OT GIVEN ANY DISTINGUISHING FEATURES OF THE DECISIONS RELIED BY THE ASSESSING O FFICER IN THE ASSESSMENT ORDER NOR HAS VIEWED THE MATTER IN TERMS OF EXPLANATIONS APPENDED TO SECTION 271(1)(C) OF THE ACT. IN VIEW OF ALL THESE FACTS, W E THINK IT APPROPRIATE TO REMIT THE CASE BACK TO THE FILE OF LD. CIT(A) TO DECIDE THE I SSUE AFRESH BY ADDRESSING THE RELEVANT PROVISIONS OF THE ACT AND RECORDING HIS FI NDINGS IN SPEAKING TERMS ON THE BONA FIDE OF ASSESSEES EXPLANATION, IF OFFERED IN SUPPORT OF ITS CLAIM. NEEDLESS TO SAY, BOTH THE PARTIES SHALL BE GIVEN REASONABLE OPP ORTUNITY OF BEING HEARD. ITA NO. 2576 AND CO 238/DEL./2016 6 ACCORDINGLY, THE APPEAL OF THE REVENUE DESERVES TO BE ALLOWED FOR STATISTICAL PURPOSES. 7. ADVERTING TO THE CROSS OBJECTION OF THE ASSESSEE , WE FIND SUBSTANCE IN THE CONTENTION OF ASSESSEE THAT THE LD. CIT(A) HAS NOT ADJUDICATED UPON GROUNDS NO. 2 TO 6, RAISING THE ISSUES THAT PENALTY IS NOT LEVIAB LE IN CASE OF A DEBATABLE ISSUE; THAT THERE WAS NO DIRECTION OF ITAT ON SUCH DISALLO WANCE; AND THAT THE CASE LAWS RELIED BY THE ASSESSING OFFICER WERE MISPLACED. WE, THEREFORE, FIND IT APPROPRIATE TO REMIT THE CROSS OBJECTIONS OF THE ASSESSEE ALSO TO THE FILE OF LD. CIT(A) TO DECIDE THE APPEAL DE NOVO AFTER ADJUDICATING UPON THE ABOV E ISSUES RAISED BY THE ASSESSEE IN ITS CROSS OBJECTIONS. ACCORDINGLY, THE CROSS-OBJECTION OF THE ASSESSEE IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AN D CROSS-OBJECTION OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH APRIL, 2018. SD/- SD/- (BHAVNESH SAINI) ( L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 4 TH APRIL, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI