ASHISH FERRO MET P. LTD, AHEMEDABAD V. ITO 5(1)(3), MUMBAI

ITA 2877/MUM/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5457 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 12-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAV
• Keywords: Business income; Depreciation; Bonafide belief; Tax effect
• Section: 143(3); 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 2877/MUM/2013 (ASSESSMENT YEAR: 2004-05) M/S. ASHISH FERRO - MET P. LTD. 11/J, BHOOMI APARTMENT OPP. PUNJAB HALL NAVARANGPURAAHMEDABAD VS. INCOME TAX OFFICER - 5(1)(3) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AAACA9868P APPELLANT RESPONDENT APPELLANT BY: SHRI KALPESH SHAH RESPONDENT BY: SHRI RAJESH KUMAR YADAV DATE OF HEARING: 17.07.2018 DATE OF PRONOUNCEMENT: 23.07.2018 O R D E R PER PAWAN SINGH, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-9, MUMBAI DATED 29.01.2013 AND IT RELATES TO A.Y. 2004-05, WHICH IN TURN ARISES FROM PENALTY LEVIED UNDER SECT ION 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER 'THE ACT' VID E ORDER DATED 26 TH MARCH, 2009. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR ON 16 TH JULY, 2004 DECLARING LOSS OF `1,09,33,010/-. ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 15 TH DECEMBER, 2006. THE AO, WHILE PASSING THE ASSESSMENT ORDER, BESIDES OTHER ADDITIO NS AND DISALLOWANCES, DISALLOWED DEPRECIATION OF ` 11,79,970/- AS THE ASSESSEE HAS NOT SHOWN ANY BUSINESS DURING THE YEAR . AND DISALLOWANCE OF PENALTY LEVIED BY EXCISE DEPARTMENT OF ` 60,000/-. ITA NO. 2877/MUM/2013 M/S. ASHISH FERRO-MET P. LTD 2 ON APPEAL BEFORE THE CIT(A) THE ADDITION/DISALLOWAN CE WAS UPHELD. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE APPEAL O F THE ASSESSEE WAS DISMISSED DUE TO NON-APPEARANCE OF ASSESSEE ON 9 TH OCTOBER 2009, VIDE ITA NO. 2544/MUM/2008. THE AO INITIATED PENALTY UNDER SECTION 271(1)(C). NOTICE UNDER SECTION 274 R .W.S 271 WAS SERVED UPON THE ASSESSEE. IN RESPONSE TO THE NOTICE UNDER SECTION 274 THE ASSESSEE FILED ITS REPLY ON 28 TH JANUARY, 2007. IN THE REPLY THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS NEITHE R CONCEALED ANY PARTICULARS OF INCOME NOR FURNISHED ANY INCORRE CT PARTICULARS OF INCOME. THE ADDITION IS APPARENTLY A MISTAKE IN THE ASSESSMENT ORDER AND THE ASSESSEE HAS FILED AN APPLICATION FOR RECTIFICATION UNDER SECTION 154 OF THE ACT. AFTER DISPOSAL OF APP EAL IN QUANTUM ASSESSMENT BY CIT(A), THE AO VIDE ORDER DATED 03.03 .2008 ISSUED A FRESH SHOW CAUSE NOTICE ON THE ASSESSEE ON 11 TH JULY, 2008. THE ASSESSEE FILED ITS REPLY VIDE LETTER DATED 25 TH JULY, 2008 WHEREIN THE ASSESSEE CONTENDED THAT PENALTY MAY BE DROPPED AS T HE ASSESSEE HAS NEITHER CONCEALED INCOME NOR FURNISHED ANY INAC CURATE PARTICULARS OF INCOME. IT WAS FURTHER CONTENDED THA T THERE WAS NO TAX EVASION AS THE ASSESSEE WAS SUFFERING HUGE LOSS . THEREFORE, THE ASSESSEE HAS NO INTENTION OF EVADING TAX BY REDUCIN G TAX LIABILITY. THE ASSESSEE ALSO CONTENDED THAT IT HAS TEMPORARIL Y SUSPENDED ITS PRODUCTION DUE TO FINANCIAL CRISIS AND COULD NOT R UN ITS BUSINESS DUE TO PRESSURE CREATED BY FINANCIAL INSTITUTIONS A ND BANK OF BARODA. THE ASSESSEE SPECIFICALLY CONTENDED THAT TH E CLAIM OF DEPRECIATION WAS MADE ON BONAFIDE LEGAL ADVICE. TH E CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO HOLDING THA T THE ASSESSEE WAS DISALLOWED DEPRECIATION AS THE ASSESSEE HAS NOT CONDUCTED ANY BUSINESS DURING THE YEAR. THE ASSETS WERE NOT PUT T O USE, THEREFORE, THE CLAIM OF DEPRECIATION OF UNUSED ASSETS IS NOT A S PER THE PROVISIONS OF THE ACT. THEREFORE THE ASSESSEE DELIB ERATELY CLAIMED INADMISSIBLE EXPENSES, HENCE WILFULLY TIRED TO REDU CE ITS INCOME AND TAX THEREOF. THE AO LEVIED PENALTY @ 100% OF TAX SO UGHT TO BE EVADED ON THE DISALLOWANCE OF DEPRECIATION OF ` 11,79,970/-. THE AO ITA NO. 2877/MUM/2013 M/S. ASHISH FERRO-MET P. LTD 3 CALCULATED THE PENALTY AT ` 4,23,314/-. ON APPEAL BEFORE THE CIT(A) THE ACTION OF THE AO WAS CONFIRMED. THEREFORE, FURT HER AGGRIEVED BY THE ORDER OF THE CIT(A) ASSESSEE HAS FILED THE PRES ENT APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE LEARNED A.R. SUBMITS THAT THE ASSESSEE HAS NEITHER CONCEALED ANY INCOME NOR FURNISHED INACCURA TE PARTICULARS OF INCOME. THE ASSESSEE CLAIMED OF DEPRECIATION ON FACTORY BUILDING, PLANT & MACHINERY, AIR CONDITIONERS, ETC. THE CLAIM OF DEPRECIATION WAS DISALLOWED DUE TO NO BUSINESS ACTIVITY. THE ASS ESSEES BUSINESS WAS TEMPORARILY CLOSED DUE TO THE PROCEEDINGS BEFOR E THE BOARD OF INDUSTRIAL FINANCE AND RECONSTRUCTION AS THE ASSESS EE WAS DECLARED AS SICK COMPANY. THE ASSESSEE SUBSEQUENTLY REVIVED ITS BUSINESS. THE ASSESSEE CLAIMED DEPRECIATION ON THE BASIS OF LEGAL ADVICE. IN SUBSEQUENT ASSESSMENT YEARS THE BUSINESS OF THE ASSESSEE WAS REVIVED AND THE ASSESSEE WAS ALLOWED D EPRECIATION ON THE SAME ASSETS. THE LEARNED A.R. FURTHER SUBMITS T HAT MERE DISALLOWANCE OF CLAIM, WHICH IS NOT ACCEPTED BY REV ENUE AUTHORITIES WOULD NOT TANTAMOUNT TO FURNISHING INACCURATE PARTI CULARS OF INCOME OR CONCEALMENT OF INCOME. THE ASSESSEE HAS F URNISHED ALL THE DETAILS IN ITS RETURN OF INCOME. IN SUPPORT OF HIS SUBMISSION THE LEARNED A.R. RELIED UPON THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158. 4. ON THE OTHER HAND, THE LEARNED D.R. FOR REVENUE SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW. THE LEARNED D. R. FURTHER SUBMITS THAT THE ASSESSEE HAS INTENTIONALLY AND DEL IBERATELY FILED INACCURATE PARTICULARS OF INCOME. HAD THE ASSESSMEN T NOT BEEN SELECTED FOR SCRUTINY THE ASSESSEE WOULD HAVE SUCCE SSFULLY EVADED TAX. IN SUPPORT OF HIS SUBMISSION THE LEARNED A.R. RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF SAMSON MARITIME LTD. VS. CIT IN ITA NO. 1718 OF 201 4 AND THE ITA NO. 2877/MUM/2013 M/S. ASHISH FERRO-MET P. LTD 4 DECISION OF THE TRIBUNAL IN THE CASE OF SANSUI STEE L PVT. LTD. VS. ITO IN ITA NO. 1403/MUM/2015. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GONE T HROUGH THE ORDERS OF THE AUTHORITIES BELOW. DURING THE ASS ESSMENT PROCEEDINGS THE AO MADE DISALLOWANCE OF DEPRECIATIO N ON PLANT & MACHINERY AS THERE WAS NO BUSINESS INCOME. THE ADDITION/DISALLOWANCE WAS CONFIRMED BY THE LEARNED CIT(A) IN THE QUANTUM ASSESSMENT. HOWEVER, ON FURTHER APPEAL BEFO RE THE TRIBUNAL, THE APPEAL OF THE ASSESSEE WAS DISMISSED DUE TO NON- APPEARANCE OF THE ASSESSEE. THE AO LEVIED PENALTY O N THE DISALLOWANCE OF DEPRECIATION @100% OF TAX SOUGHT TO BE EVADED. WE HAVE NOTED THAT IN REPLY TO THE SHOW CAUSE NOTICE U NDER SECTION 271(1)(C) R.W.S. 274 THE ASSESSEE SPECIFICALLY CONT ENDED THAT THE ASSESSEE COMPANY HAS TEMPORARILY SUSPENDED ITS PROJ ECT DUE TO FINANCIAL CRISIS AND COULD NOT RUN ITS BUSINESS DUE TO PRESSURE CREATED BY FINANCIAL INSTITUTIONS AND BANK OF BAROD A. THE ASSESSEE SPECIFICALLY CONTENDED THAT THE CLAIM OF DEPRECIATI ON WAS MADE ON BONAFIDE LEGAL ADVICE. THE ASSESSEE ALSO CONTENDED THAT THERE WAS NO POSITIVE INCOME OF THE ASSESSEE AND THEREFORE TH ERE WAS NO LIABILITY OF TAX. HENCE REQUESTED TO DROP THE PENAL TY PROCEEDINGS. 6. WE HAVE NOTED THAT THE ASSESSEE HAS GIVEN REASONABL E EXPLANATION FOR DROPPING OF PENALTY PROCEEDINGS. EV EN THE TAX EFFECT ON DISALLOWANCE OF DEPRECIATION WAS NEUTRAL. THE AO , WHILE PASSING THE ASSESSMENT ORDER, MADE DISALLOWANCE SOLELY ON T HE GROUND THAT DURING THE RELEVANT PERIOD THERE WAS NO BUSINESS IN COME. THE LD DR HAS NOT DISPUTED THAT IN SUBSEQUENT YEARS THE BUSIN ESS OF THE ASSESSEE WAS REVIVED AND THE ASSESSEE WAS ALLOWED D EPRECIATION ON THE SAME ASSET. THERE IS NO FINDING OF THE AO THAT THERE IS ANY ACTIVE CONCEALMENT OF INCOME OR FURNISHING OF INACC URATE PARTICULARS OF INCOME. THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA) HELD THAT MERE DISALLOWANCE OF CLAIM WOULD NOT ATTRACT PENALTY UNL ESS THE REVENUE ITA NO. 2877/MUM/2013 M/S. ASHISH FERRO-MET P. LTD 5 AUTHORITIES CLEARLY ESTABLISH THAT THE ASSESSEE INT ENTIONALLY AND DELIBERATELY CONCEALED INCOME OR FURNISHED INACCURA TE PARTICULARS OF INCOME. IN OUR VIEW, THE ASSESSEE UNDER BONAFIDE BELIEF CLAIMED DEPRECIATION, WHICH WAS DISALLOWED BY THE AO. MOREO VER, THERE WAS NO EVASION OF TAX AS THE ASSESSEE HAS DECLARED BUSI NESS LOW OF ` 1,09,33,010/-. 7. THE CASE LAWS RELIED UPON BY THE LEARNED D.R. FOR R EVENUE ARE NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN THE CASE OF SAMSON MARITIME LTD. (SUPRA) THE ASSESSEE INCORRECT LY DEBITED FOREIGN EXCHANGE LOSS WHILE COMPUTING NON-TONNAGE I NCOME AND THE AO HAS RECORDED THAT IT WAS DONE AFTER IT WAS FOUND ON VERIFICATION THAT NO FOREIGN EXCHANGE LOSS WAS INCURRED IN RESPE CT OF NON- TONNAGE INCOME. MOREOVER, THE AO HAS SPECIFICALLY R ECORDED THE FACT THAT THERE WAS NO TRANSACTION IN FOREIGN CURRENCY R ESULTING IN FOREIGN EXCHANGE LOSS, IN THE CASE OF NON-TONNAGE I NCOME YET THE ASSESSEE HAS DEBITED THE EXCHANGE LOSS ONLY TO REDU CE THE NON- TONNAGE INCOME BEING OFFERED TO TAX. HOWEVER, IN TH E PRESENT CASE THE THERE IS NO TAX EVASION. IN ANY CASE THE ASSESS EE HAS OFFERED A NEGATIVE INCOME AS REFERRED ABOVE. IN THE CASE OF S ANSUI STEEL PVT. LTD. (SUPRA) THE ASSESSEE IN THAT CASE WAS FOUND TO INDULGE IN AVAILING FILING BOGUS ENTRIES AND WHEN THE BOGUS EN TRY WAS DETECTED THE ASSESSEE OFFERED THE SAID TRANSACTION TO TAX BY FILING AFFIDAVIT BEFORE THE AO. THEREFORE, THE FACT OF THIS CASE IS ALSO NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 8. IN VIEW OF THE FACTUAL AND LEGAL DISCUSSION WE ARE OF THE VIEW THAT THE ASSESSEE HAS OFFERED EXPLANATION IN REPLY TO SHOW CAUSE NOTICE UNDER SECTION 274 R.W.S. 271(1)(C), WHICH IS REASONABLE AND BONAFIDE EXPLANATION IN ACCORDANCE WITH EXPLANATION (1) TO SECTION 271. THEREFORE THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 2877/MUM/2013 M/S. ASHISH FERRO-MET P. LTD 6 ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY, 2018. SD/ - SD/ - (N.K. PRADHAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 23 RD JULY, 2018 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -9, MUMBAI 4. THE CIT - 5, MUMBAI 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.