JCIT, Noida V. M/s. H- One India (P) Ltd., Uttar Pradesh

ITA 3071/DEL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2685 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 15-06-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 16-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R C DANDAY
• Assessee Lawyers: D D BANSAL
• Keywords: Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : C , NEW DELHI BEFORE SH. I.C. SUDHIR, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 3071 /DE L/ 2014 ASSESSMENT YEAR : 2003 - 04 JCIT, RANGE - 3, NOIDA VS. M/S. H - ONE INDIA (P) LTD. (FORMERLY KNOWN AS M/S. HONGO INDIA PVT. LTD.) 12 - UDYOG VIHAR, SURAJPUR, GREATER NOIDA, UTTAR PRADESH. PAN : AAACH3032L (APPELLANT) (RESPONDENT) APPELLANT BY SH. R.C. DANDAY, SR.DR RESPONDENT BY SH. D.D. BANSAL, CA DATE OF HEARING 19.06.2017 DATE OF PRONOUNCEMENT 31.07.2017 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE R EVENUE IS DIRECTED AGAINST ORDER DATED 10/02/2014 OF THE COMMISSIONER OF INCOME - TAX ( APPEALS), NOIDA [IN SHORT THE CIT - (A) ] IN RELATION TO ASSESSMENT YEAR 2003 - 04 , RAISING FOLLOWING GROUNDS: 1. THAT THE CIT (A) HAS ERRED IN LAW AND ON BY DELETING THE PENALTY U/S 271(1 )(C) OF RS.38,32,300/ - LEVIED BY THE ASSESSING OFFICER. 2. THE C1T(A) HAS ERRED IN LAW AND ON FACTS BY DELETING THE PENALTY WITHOUT CONSIDERING THE FACTS THAT THE QUANTUM ADDITIONS ON WHICH PENALTY IMPOSED WERE CONFIRMED BY THE CIT (A) HIMSELF. 3. THE CIT (A) HAS ERRED IN LAW ON FACTS BY DELETING THE PENALTY WITHOUT APPRECIATING THE FACT S THAT THE ADDITION OF RS. 63,51,928/ - MADE ON ACCOUNT OF DIFFERENCE IN DIES & MANUFACTURING EXPENSES (RS. 2 ITA NO. 3071/DEL/2014 60.70,674/ - ) BEING TREATED AS PART OF CLOSING STOCK AND RS. 2,81,254/ - BEING R&D CESS THEREON), WHICH ALSO CONFIRMED BY THE CIT (A). 4. THE CIT (A) H AS ERRED IN LAW ON FACTS BY DELETING THE PENALTY WITHOUT APPRECIATING THE FACTS THAT THE ADDITION OF RS. 3,00 317/ - MADE ON ACCOUNT OF CESS ON ROYALTY & R&D, WHICH WAS ALSO CONFIRMED BY THE CIT (A). 5. THE CIT (A) HAS ERRED IN LAW ON FACTS BY DELETING THE PENALTY WITHOUT APPRECIATING THE FACTS THAT THE ADDITION OF RS. 1,63.410/ - MADE ON ACCOUNT OF SHORT/SUPPRESS SALE OF SCRAP, WHICH WAS ALSO CONFIRMED BY THE CIT (A). 6. THE CIT (A) HAS ERRED IN LAW ON FACTS BY DELETING THE PENALTY WITHOUT APPRECIATING THE F ACTS THAT THE ABOVE ADDITIONS, WHICH WERE DETECTED BY THE REVENUE AND CONFIRMED BY THE CIT (A), WAS INTENTIONALLY AND WILLFULLY CONCEALED BY THE ASSESSEE AND FALLS WITHIN THE AMBIT OF CONCEALMENT AS DESCRIBED IN SECTION 271 (L)(C). 2. B RIEFLY STATED FACT S OF THE CASE ARE THAT THE ASSESSEE, A PRIVATE LIMITED COMPANY WAS ENGAGED IN MANUFACTURING OF SHEET METAL PARTS OF MOTOR CARS AND OTHER EQUIPMENTS MAINLY FOR M/S . HONDA S IEL C AR C OMPANY INDIA LTD. THE ASSESSEE FILED RETURN OF INCOME ON 28/11/2003 , DECLARI NG NIL INCOME AFTER SET OF BROUGHT FORWARD LOSSES OF RS. 7, 44,43,006/ - . THE ASSESSMEN T UNDER SECTION 143 (3) OF THE INCOME - T AX ACT, 1961 (IN SHORT THE ACT ) WAS COMPLETED ON 17/03/2006 AFTER MAKING ADDITIONS OF RS.1,51,42,852/ - AND PENALTY PROCEEDING UNDER SECTION 271(1) (C) OF THE ACT WAS INITIATED THROUGH NOTICE UNDER SECTION 274 READ WITH SECTION 271(1) (C) OF THE ACT. AFTER CONSIDERING SUBMISSION OF THE ASSESSEE, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HA D FURNISHED INACCURATE PARTICULARS OF INCOME AND THEREFORE IT WAS LIABLE FOR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE ASSESSIN G OFFICER LEVIED PENALTY OF RS.38,32, 300/ - WIT H RESPECT TO FOLLOWING ADDITION/ DISALLOWANCES, WHICH WERE UPHELD BY THE FIRST APPELLATE AUTHORITY: 3 ITA NO. 3071/DEL/2014 1. DIES MANUFACTURING EXPENSES RS.63,51, 928/ - 2. CESS ON ROYALTY AND R&D RS.3,00, 317/ - 3. SHORT OF SCRAP RS. 1,63,410/ - 3. ON APPEAL BY THE ASSESSEE, THE LD. CIT - (A) DELE TED THE PENALTY. AGGRIEVED, THE R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. IN ALL THE GROUNDS RAISED, THE SOLE ISSUE IS PENALTY UNDER SECTION 271(1) (C) OF THE ACT. IN GROUNDS NO. 3 TO 5, THE ISSUE OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF THE THREE ADDITIONS MENTIONED ABOVE , IS RAISED. 5. LD. S ENIOR DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE ADDITIONS WERE DULY CONFIRMED BY THE FIRST APPELLATE AUTHORITY AND THEREFORE THE ASSESSEE WAS LI ABLE F OR PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 6. ON THE CONTRARY, THE LEARNED COUNSEL OF THE ASSESSEE FILED PAPER BOOK CONTAINING PAGES 1 TO 46 AND SUBMITTED THAT ADDITIONS IN RESPECT OF CESS ON ROYALTY AND R&D AMOUNTING TO RS.3,00, 317/ - AND S HOR T OF SCRAP AMOUNTING TO RS. 1,63,410/ - HAVE ALREADY BEEN DELETED BY THE ORDER OF TRIBUNAL DATED 13/11/2015 IN ITA NO. 4872/DEL/2009 AND THE ONLY ADDITION WHICH HAS BEEN SUSTAINED BY THE TRIBUNAL IS IN RESPECT OF D IES MANUFACTURING EXPENSES AMOUNTING TO RS. 63,51,928/ - . THE LD. COUNSEL SUBMITTED THAT ASSESSEE HAS FILED ALL THE INFORMATION ON THE ISSUE OF ADDITION RAISED IN GROUND NO. 3 OF THE APPEAL. THE LD. COUNSEL RELIED ON THE SUBMISSIONS FILED BEFORE THE LD. CIT - (A) AND ALSO FILED WRITTEN SUBMISSION BEFOR E US, WHICH IS REPRODUCED AS UNDER: 3.2 WE SUBMIT THAT THE ADMISSION OR REJECTION OF A CLAIM IS A SUBJECTIVE EXERCISE AND WHETHER A CLAIM IS ACCEPTED OR REJECTED HAS NOTHING TO DO WITH FURNISHING INACCURATE PARTICULARS OF INCOME. WHAT IS A CORRECT CLAIM AND WHAT IS AN INCORRECT CLAIM IS A MATTER OF OPINION. RAISING A LEGAL CLAIM EVEN IF IT IS 4 ITA NO. 3071/DEL/2014 ULTIMATELY FOUND TO BE LEGALLY UNACCEPTABLE, CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME. 3.3 A BONAFIDE CLAIM OF THE ASSESSEE BEING VISITED WITH P ENAL CONSEQUENCES, ONLY BECAUSE IT HAS NOT BEEN ACCEPTED BY THE TAX AUTHORITIES OR JUDICIAL AUTHORITIES, IS AN ABSURDITY. IN ANY EVENT, THE CONNOTATIONS OF EXPRESSION PARTICULARS OF INCOME DO NOT EXTEND TO THE ISSUES OF INTERPRETATION OF LAW AND AS SUCH MAKING A CLAIM, WHICH IS FOUND TO BE UNACCEPTABLE IN LAW CANNOT BE TREATED AS FURNISHING OF INACCURATE PARTICULARS OF INCOME - EQUEST INDIA PRIVATE LIMITED VS. ITO [2010] 41 SOT 225 (MUM), HINDALCO INDUSTRIES LTD. VS. CIT[2010] 41 SOT 254 (MUM), PFIZER PHAR MACEUTICALS INDIA (P). LTD VS. CIT [2011] 9 TAXMANN.COM 105 (MUM. ITAT), CIT VS. SSP LTD.[2010] 189 TAXMAN 282 (PUNJAB & HARYANA). 3.4 WHERE THE ASSESSEE HAS NOT FUDGED AMOUNTS, BOOKS OF ACCOUNT OR TRIED TO CREATE FALSE EVIDENCE, MERELY BECAUSE ITS CLAIM IS NOT ACCEPTED BY THE ASSESSING OFFICER, IT CANNOT BE SAID THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS TO SUCH AN EXTENT TH AT PENALTY SHOULD BE IMPOSED UPON IT. CIT VS. H.P.STATE FOREST CORPN. LTD. 3.5 A DEBATABLE CLAIM IN THE RETURN WILL NOT ATTRACT PENAL PROVISIONS UNDER SECTION 271(1) (C). CIT VS. SHIVALIK GLOBAL LIMITED [20111 8 ITR (TRIB.) 761 DELHI. A BONAFIDE CLAIM CANNOT BE SUBJECTED TO CONCEALMENT PENALTY U/S 271(1) (C). 3.6 MOST HUMBLY, WE SUBMIT THAT SINCE THE ASSESSEE HAD NO OWNERSHIP RIGHT ON THE 64 DIES BEING MANUFACTURED BY OUTSIDE AND INDEPENDENT SUPPLIERS, AS ON 31.03.2003, IT HAD NO CONTRACTUAL OR ANY OTHER RIGHT TO INCLUDE THEIR VALUE IN ITS OWN INVENTORIES, THE CONCLUSION OF THE LD. AO AND THE HON BLE CIT(A) RE. THE ADDITION IN QUESTION IS NOT CORRECT. BECAUSE THE TREATMENT GIVEN BY THE COMPANY IS MANDATED UNDER AS - 2: AND THE COMPANY HAS NO REASON OR AUTHORITY TO DEVIATE FROM THE SAME. 3.7 IT ACTUALLY OBTAINED THE OWNERSHIP RIGHT IN THE SAID 64 DIES ONLY WHEN THEY WERE SUPPLIED BY THE VENDORS IN THE SUBSEQUENT YEAR. IN ANY CASE, THESE WERE DULY SOLD IN THE SUBSEQUENT YEAR, 5 ITA NO. 3071/DEL/2014 AND THE ENTIRE PROFIT ( I NCLUDING THE AMOUNT OF RS. 63,51,928/ - WAS BOOKED AT THAT TIME. IT CAN BE SEEN THAT THERE COULD HAVE BEEN NO INACCURATE FURNISHING OF PARTICULARS IN THIS SCENARIO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDI NG THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. SINCE THE ADDITIONS IN RESPECT OF CESS ON ROYALTY AND R&D AMOUNTING TO RS.3,00, 317/ - AND S HORT OF SCRAP AMOUNTING TO RS.1, 63,410/ - HAVE ALREADY BEEN DELETED BY THE ORDER OF TRIBUNAL, T HE PENALTY UNDER SECTION 271(1)(C) OF THE ACT CORRESPONDING TO THE ADDITIONS CANNOT SURVIVE AND ACCORDINGLY , THE GROUNDS NO. 4 AND 5 OF THE APPEAL ARE DISMISSED. 8. THE FACTS IN RESPECT OF GROUND NO. 3 OF THE APPEAL ARE THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE SHOWN CLOSING STOCK OF DIES AMOUNTING TO RS.46,31,000/ - . THE ASSESSEE SUBMITTED THAT IT RECEIVED ORDER OF DI ES TO BE SUPPLIED TO M/S HONDA SI EL C AR INDIA LTD. THE DIES WERE TO BE SUPPLIED IN 67 PARTS , OUT OF WHICH THE ASSESSEE COMPANY MADE THREE CRITICAL P ARTS IN - HOUSE AND OUTSOURCED MAKING OF THE BALANCE 64 PARTS TO SMALL DIE MAKERS. THE ASSESSEE SUBMITTED THAT ACCORDING TO THE SALE PRICE, THE VAL UE OF THE DIES WAS TAKEN AT RS.46,31,000/ - THOUGH THE TOTAL EXPENSES FOR MAKING DIES IN THE FINANCIAL YEAR 2002 - 03 I.E. RELEVANT TO ASSESSMENT YEAR IN UNDER CONSIDERATION WERE OF RS.1,07, 01,674/ - WHICH INCLU DED SUPERVISION FEE COST OF RS.56,60, 991/ - . THE ASSESSING OFFICER ALSO OBSERVED R&D CESS EXPENSES OF RS.2,81, 254/ - AGAI NST DIES MANUFACTURING EXPENSES . THUS , A CCORDING TO THE ASSE SSING OFFICER THE AMOUNT OF RS.63,51, 928/ - WAS NOT ADDED BY THE ASSESSEE TO THE CLOSING STOCK OF DIES. THE SUBMISSION OF THE ASSESSEE WAS THAT THE DIES PARTS FOR WHICH THE ASSESSEE PLACED OUTSOURCING ORDERS FOR MANUFACTURING TO THE SUPPL IERS AND SUPPLY NOT RECEIVED TILL 31 ST OF MARCH, 2003, CANNOT BE INCLUDED IN THE CLOSING STOCK OF THE ASSESSEE 6 ITA NO. 3071/DEL/2014 COMPANY. THE ASSESSEE FURTHER SUBMITTED THAT THOSE 67 PARTS WERE SOLD IN THE SUBSEQUENT YEAR AND PROFIT THEREON HAS BEEN DECLARED IN THE RETURN O F THE SUBSEQUENT ASSESSMENT YEAR. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE LOWER AUTHORITIES. THE TRIBUNAL (SUPRA) ALSO REJECTED THE CONTENTION OF THE ASSESSEE WITH FOLLOWING OBSERVATIONS: 7. WE HAVE PERUSED ALL THE RELEVANT MATERIAL AND D OCUMENTS ON RECORD. WE HAVE HEARD BOTH THE PARTIES. IT IS CLEARLY STATED THAT IN THE ASSESSMENT ORDER THAT THE MANUFACTURING OF THE DIES WAS SOLD IN THE NEXT YEAR AND THERE WAS NO MENTION OF SINGLE DIE. RATHER, THE ENTIRE 67 WERE TAKING INTO ACCOUNT BY THE ASSESSEE AS WELL AS BY THE ASSESSING OFFICER AND LD. CIT(A). THE ASSESSEE GOT ORDER FROM HONDA SIEL CARS INDIA LTD. FOR SUPPLY OF DIES, WHICH WAS STATED TO BE COMPRISED 67 PARTS AND DIES WERE SUPPLIED BY THE ASSESSEE TO HONDA SIEL CARS INDIA LTD. IN SUBSEQUENT ASSESSMENT YEAR. DURING THE YEAR, ASSESSEE HAS SHOWN THE VALUE OF CLOSING STOCK OF THESE DIES AT RS. 46,31,000/ - WHILE THE ASSESSING OFFICER MENTIONED THAT THE TOTAL EXPENSE S FOR MANUFACTURING OF THESE DIES AMOUNTED TO RS. 1,09,82,928/ - . THE CONTENTION OF THE AR THAT ONLY THREE DIES WERE MANUFACTURED BY THE ASSESSEE AND FOR THE REST, THE MANUFACTURING WAS OUTSOURCED, WILL NOT CHANGE THE ACCOUNTING OF THE SAME MANUFACTURED BY OUTSIDE DIE MAKERS AND WILL EVENTUALLY GO INTO THE STOCK OF THE ASSESSEE ONLY. THUS, THE ASSESSEE WAS NOT ABLE TO ESTABLISH THAT THERE WAS SEPARATE PURCHASE ORDERS FOR THE THREE DIES AND THE REST OF 64 DIES WHICH WAS OUTSOURCED. IN FACT, THE SAID OUTSOURCE D DIES ALONG WITH THE 3 DIES MANUFACTURED BY THE ASSESSEE WAS IN ENTIRETY SUPPLIED TO HONDA SIEL CARS INDIA LIMITED ONLY, ON FUTURE DATE. THEREFORE, WE UPHOLD THE FINDING OF THE LD. CIT (A) AS WELL AS THE ASSESSING OFFICER. 9. WE FIND THAT THE ASSESSEE ITSELF DEBITED EXPENSES OF RS. 1,07, 01,674/ - ON DIES MAKING INCLUDING EXPEND ITURE OF SUPERVISION FEE OF RS.56,60, 991/ - IN RESPECT OF THE 64 PARTS OF THE DIES OUTSOURCED. E XPENSES OF RS.2,81, 254 AS R&D CESS WAS ALSO DEBITED IN THE PROFIT AND LOSS ACCOUNT IN RESPECT OF THESE PARTS OF DIES . THREE PARTS OF THE DIES WERE UNDER IN - HOUSE MANUFACTURING WHEREAS THE BALANCE 64 PARTS OF DIES WERE IN THE PROCESS OF MANUFACTURING WITH THE SUPPLIERS OF THE ASSESSEE 7 ITA NO. 3071/DEL/2014 COMPANY. THE R EVENUE FROM SALES OF THESE PARTS OF THE DI ES WAS ALSO NOT DECLARED IN THE YEAR UNDER CONSIDERATION AND IT WAS SHOWN ONLY IN THE SUBSEQUENT ASSESSMENT YEAR. IN OUR OPINION, ON MATCHING PRINCIPLES OF INCOME AND EXPENDITURE, THE ASSESSEE WAS REQUIRED TO INCLUDE THE SAID EXPENDITURE OF SUPERVISION FEE OF RS. 56, 60,991/ - IN RESPECT OF DIES PARTS UNDER MANUFACTURING WITH OUTSOURCED SUPPLIER AND OTHE R EXPENSES IN THE CLOSING STOCK , PARTICULARLY, WHEN THE ASSESSEE HAD ALREA DY INCLUDED THE EXPENSES OF RS. 46,31,000/ - ON DIES PARTS UNDER IN - HOUSE MANUFACTURING. 10. IN OUR OPINION , THE EXPLANATION FURNISHED BY THE ASSESSEE FOR NOT INCLUDING THE SUPERVISION FEE AND OTHER EXPENSES OF DIES, IN THE CLOSING STOCK OF DIES, IS NOT BONAFIDE AND THE ASSESSEE IS STILL CONTESTING THAT IT HAD NO OWNERSHIP RIGHT ON THOSE 64 DIES OR PART OF DIES WHICH WERE BEING MANUFACTURED BY OUTSIDE AND INDEPENDENT SUPPLIER AS ON 31/03/2003 AND IT HAD NO CONTRACTUAL OR ANY OTHER RIGHT TO INCLUDE THEIR VALUE IN ITS OWN INVENTORIES. THE TRIBUNAL (SUPRA) HAS ALREADY REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THAT THE EXPENDITURE WOULD EVENTUALLY GO TO THE STOCK OF THE ASSESSEE ONLY. THE TRIBUNAL HAS ALSO OBSERVED THAT THE ASSESSEE WAS NOT ABLE TO ESTABLISH THAT THERE WERE SEPARATE PURCHASE ORDER FOR THREE DIES AND THE REST OF 64 DIE S WHICH WERE OUTSOURCED. THE ORDE R OF SUPPLYING DIES IN 67 PARTS , WAS A SINGLE ORDER AND ASSESSEE WAS REQUIRED TO INCLUDE ALL THE EXPENSES INCURRED DURING THE Y EAR RELATED TO 67 PARTS OF DIES , IN CLOSING STOCK. THE CLAIM OF THE ASSESSEE THAT RELEVANT EXPEN SES WERE NOT PART OF CLOSING STOCK, IS A FALSE CLAIM, DISALLOWANCE OF WHICH HAS ALREADY BEEN UPHELD BY THE TRIBUNAL (SUPRA). 11. IN VIEW OF ABOVE DISCUSSION, FO R THE PURPOSE OF SECTION 271(1)(C) OF THE ACT, THE AMOUNT OF RS.63,51,928/ - IS DEEMED TO REPRE SENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. THE CASES RELIED UPON BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS, IN VIEW OF NO BONAFIDE EXPLANATION SUBMITTED BY THE ASSESSEE AND FALSE CLAIM OF EXPENDITURE. IN 8 ITA NO. 3071/DEL/2014 OUR OPINION , THE ASSES SEE IS LIABLE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. ACCORDINGLY , WE SET ASIDE THE ORDER OF THE LD. CIT - (A) TO THE EXTENT OF PENALTY IN RESPECT OF DISALLOWANCE OF RS. 63,51,928/ - . THE GROUND NO. 3 OF THE APPEAL IS ALLOWED. THE GROUND NO. 1, 2 AND 6 ARE CORRESPONDINGLY PARTLY ALLOWED. 12. IN THE RESULT, APPEAL OF THE R EVENUE IS PARTLY ALLOWED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 3 1 S T JULY , 201 7 . S D / - S D / - ( I.C. SUDHIR ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 1 S T JULY , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI