DCIT, New Delhi V. M/s. ONGC Videsh Ltd., New Delhi

ITA 3120/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81586 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 05-08-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAN MAKHIJANI
• Assessee Lawyers: GUNJAN P RASAD
• Keywords: Depreciation; Deemed to accrue or arise in india; Wholly owned subsidiary
• Section: 143(3); 234B; 115JB; 27

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SHRI B.C.MEENA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 3120 /DEL/ 2013 (ASSESSMENT YEAR: 2003 - 04 ) DCIT CIRCLE - 13(1), ROOM NO.406, C.R. BUILDING, IP ESTATE, NEW DELHI VS. ONGC VIDESH LTD. 601, 6 TH FLOOR, 26, K.G. MARG, KAILASH BUILDING NEW DELHI PAN:AAACO1230F (APPELLANT) (RESPONDENT) APPELLANT BY : GAURAN MAKHIJANI, CA RESPONDENT BY : GUNJAN PRASAD, CIT DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS APPEAL ARISES FROM AN ORDER OF THE LD CIT(A), XVI, DELHI DATED08.02.2013 1 FOR ASSESSMENT YEAR 2003 - 04 . 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 104,68,13,101/ - IMPOSED BY THE ASSESSING OFFICER FOR FURNISHING INACCURATE PARTICULARS BY THE ASSESSEE COMPANY. 2. THE LD. CIT( A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ABOVE PENALTY IGNORING THE FACT THAT THE SAID PENALTY WAS IMPOSED ONLY AFTER THE QUANTUM ADDITION CONFIRMED BY THE CIT(A), NEW DELHI. 3. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS IN NOT APPRECIATING THE FA CT THAT PROVISIONS OF THE INCOME TAX ACT 1961 ARE APPLICABLE IN THE CASE OF THE ASSESSEE AND NOT THE PROVISION OF THE COMPANIES ACT 1956 EVEN IF THE TAX PAID BY THE ASSESSEE AS PER THE BOOK PROFIT WHICH IS CALCULATED AS PER THE PROVISION OF THE COMPANIES A CT 1956; PAGE NO. 2 4. THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THE PROVISIONS OF SECTION 115JB (5) OF THE ACT, WHICH CLEARLY MENTIONS THAT 'SAVE AS OTHERWISE PROVIDED IN THIS SECTION, ALL OTHER PROVISION OF THIS ACT SHALL APPLY TO EVERY ASSESSEE, BEI NG A COMPANY, MENTIONED IN THIS SECTION.' 3. BRIEF FACTS OF THE ARE THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF M/S. O.N.G.C. AND ENGAGED IN THE BUSINESS OF OVERSEAS EXPLORATION AND PRODUCTION OF HYDROCARBON, OIL AND GAS TO SUPPLEMENT THE RESERVES OF THE PARENT COMPANY AND TO AUGMENT THE NATIONAL ENERGY SECURITY OF INDIA. 4. RETURN DECLARING LOSS OF RS.4,59,91,46,670/ - WAS FILED ON 27.11.2003. ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) WAS MADE ON 07.02.2006 AT LOSS OF RS.1,59,29,80,200/ - AFTER MAKING DISALLOWANCE ON ACCOUNT OF DEPRECIATION INADMISSIBLE AMOUNTING TO RS.2,93,79,78,401/ - AND DISALLOWANCE ON ACCOUNT OF EXPENDITURE RELATING TO PROJECT PENDING FINAL EVALUATION/ APPROVAL WRITTEN OFF AMOUNTING TO RS.6,81,88, 072/ - . 5. HOWEVER AS A RESULT OF THE ORDER OF THE CIT(A) IN QUANTUM PROCEEDINGS, ADDITION MADE BY THE AO TO THE TUNE OF RS.292,33,06,725/ - IN RESPECT SAKHALIN PROJECT, AND RS.1,46,71,676/ - IN RESPECT OF MYANMAR PROJECT HAS BEEN REDUCED TO RS.276,94,48,477 / - AND RS.1,21,65,482/ - RESPECTIVELY. THEREFORE, THE TOTAL ADDITION MADE BY THE AO ON THESE ACCOUNTS AMOUNTING TO RS.293,79,78,401/ - HAS BEEN CONFIRMED TO THE EXTENT OF RS.278,16,13,959/ - . 6. IN THE LIGHT OF THE ABOVE, THE AO HELD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF RS.284,84,71,023/ - . HE THUS LEVIED PENALTY OF RS.104,68,13,101/ - U/S 271(1)(C) OF THE ACT. PAGE NO. 3 7. IN THE APPELLATE PENALTY PROCEEDINGS, T H E LD CIT(A) HOWEVER DELETED THE SAID PENALTY. THE LD DR ASSAILED THE ORDER OF THE LD CIT(A) AND SUBMITTED THAT THE PENALTY IS LEVIABLE ON THE FACTS OF THE CASE. THE LD AR SUPPORTED THE ORDER OF THE LD CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORDS OF THE CASE. THE LD CIT(A) HAS DELETED THE PENALTY BY HOLDING AS UNDER: - 4.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE FINDINGS OF THE A.O. AS WELL AS THE SUBMISSIONS OF THE APPELLANT. ALL THE GROUNDS OF APPEAL ARE DIRECTE D AGAINST PENALTY OF RS.104,68,13,101/ - IMPOSED BY THE A.O. U/S 271(L)(C) OF THE L.T. ACT. THE APPELLANT COMPANY IS A WHOLLY OWNED SUBSIDIARY OF OIL AND NATURAL GAS CORPORATION LIMITED, A PUBLIC SECTOR UNDERTAKING ('PSU') AND THUS ITSELF IS A PSU. THE APPE LLANT IS ENGAGED IN THE BUSINESS OF EXPLORATION, DEVELOPMENT AND PRODUCTION OF HYDROCARBONS OUTSIDE INDIA. FOR THE YEAR UNDER CONSIDERATION, THE APPELLANT FILED ITS RETURN OF INCOME ON 27.11.2003 DECLARING LOSS OF RS. 4,59,91,46,671/ - UNDER THE NORMAL PROV ISIONS OF THE ACT AND BOOK PROFIT UNDER SECTION 115JB OF THE ACT AT RS.3,23,31,235/ - AND PAID TAXES ON BOOK PROFIT. THE ASSESSMENT UNDER SECTION 143 (3) OF THE ACT WAS COMPLETED BY THE A.O. ON 07/02/2006 WHEREIN VARIOUS ADDITIONS/DISALLOWANCES AMOUNTING TO RS. 3,00,61,66,473/ - WAS MADE TO THE RETURNED LOSS UNDER NORMAL PROVISIONS OF THE ACT AND THE APPELLANT COMPANY WAS ASSESSED AT LOSS OF RS. 1,59,29,80,200/ - UNDER THE NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT AT RS. 3,23,31,235/ - U/S 115JB OF THE ACT. ADDITIONS/DISALLOWANCES WERE MADE BY THE AO UNDER THE NORMAL PROVISION OF THE ACT ON THE FOLLOWING ISSUES: DISALLOWANCE OF DEPRECIATION ON PARTICIPATING INTEREST BEING AN INTANGIBLE ASSET ACQUIRED BY THE APPELLANT FOR PROSPECTING AND EXPLORATION OF OIL U NDER THE PRODUCTION SHARING AGREEMENT - RS. 2,93,79,78,401/ - , DISALLOWANCE OF EXPENDITURE IN RELATION TO PROJECTS PENDING FINAL EVALUATION/ APPROVAL WRITTEN OFF - RS. 6,81,88,072/ - . PAGE NO. 4 TOTAL DISALLOWANCE - RS. 3,00,61,66,473/ - 4.2 BEING AGGRIEVED THE APPE LLANT PREFERRED APPEAL BEFORE THE CIT (A) AGAINST THE ABOVE ASSESSMENT WHEREIN PARTIAL RELIEF WAS ALLOWED TO THE APPELLANT IN RESPECT OF THE DEPRECIATION ON PARTICIPATING INTEREST IN PRODUCTION SHARING AGREEMENT. CIT(A) CONFIRMED ADDITION ON THE ABOVE TWO ISSUES TO THE EXTENT OF RS.284,84,71,023/ - . THE APPELLANT FILED APPEAL BEFORE LTAT AGAINST THE ORDER OF LD. CIT (A) WHICH IS PENDING BEFORE ITA T AND IS YET TO ATTAIN FINALITY. CONSEQUENT TO THE ADDITIONS CONFIRMED BY ID. C!T(A) THE A.O. IMPOSED PENALTY UN DER SECTION 271(1)(C) READ WITH 274 OF THE ACT OF RS. 104,68,13,101/ - ON THE APPELLANT BASED ON THE ADDITIONS/DISALLOWANCE UPHELD BY THE LD. CIT(A) IN THE QUANTUM APPEAL BEING 100% OF TAX SOUGHT TO BE EVADED. 4.3 THERE IS NO DISPUTE IN THE PRESENT CASE, T HAT THE INCOME COMPUTED AS PER THE NORMAL PROCEDURE WAS LESS THAN THE INCOME DETERMINED BY LEGAL FICTION NAMELY 'BOOK PROFITS' UNDER SECTION 115JB OF THE ACT. ON THE BASIS OF NORMAL PROVISION, THE INCOME WAS ASSESSED IN THE NEGATIVE I.E., AT A LOSS OF RS. 59,29,80,200/ - . ON THE OTHER HAND, ASSESSMENT UNDER SECTION 115JB OF THE ACT WAS AT RS.3,23,3 I,235/ - AT THE BOOK PROFIT SHOWN BY THE APPELLANT IN THE RETURN OF INCOME FILED ON 27/11/2003. IN VIEW THEREOF, IN CONCLUSION, THE ASSESSMENT ORDER RECORDS AS FOL LOWS: - 'ASSESSED AT INCOME TAXABLE U/S 115JB AT RS.3,23,31,235/ - AS ASSESSED INCOME IS LESS THAN THE INCOME DECLARED U/S 115JB OF THE IT. ACT. CHARGE INTEREST U/S 234A, 234B AND 234C AS PER THE LT. ACT. ISSUE NECESSARY FORMS. PENALTY PROCEEDINGS UNDER SE CTION 27 (1)( C) ARE BEING INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF INCOME,' THE INCOME OF THE ASSESSEE WAS THUS ASSESSED UNDER SECTION 115JB AND NOT UNDER THE NORMAL PROVISION'. CONSIDERING THE ADDITIONS/DI SALLOWANCE CONFIRMED BY LD. CIT(A) THE A.O. HELD THAT THE APPELLANT HAD FURNISHED INACCURATE PARTICULARS OF INCOME AND, THEREFORE, IMPOSED PENALTY 100% OF PAGE NO. 5 THE TAX SOUGHT TO BE EVADED. THE QUESTION, THEREFORE, IN THE PRESENT CASE, WOULD BE, AS TO WHETHER FU RNISHING OF SUCH WRONG PARTICULARS HAD ANY THE EFFECT ON THE AMOUNT OF TAX SOUGHT TO BE EVADED. THE QUANTUM OF PENALTY U/S 271(1)(C) IS QUANTIFIED WITH REFERENCE TO THE AMOUNT OF TAX SOUGHT TO BE EVADED. THE TAX SOUGHT TO BE EVADED WOULD BE THE DIFFERENCE BETWEEN THE TAX DUE ON THE INCOME ASSESSED AND THE TAX THAT WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF CONCEALED INCOME. THUS, THE PENALTY IS LEVIED ON THE BASIS OF TAX ON THE DIFFERENCE BETWEEN THE INCOME ASSESSED AND T HE INCOME RETURNED. 4.4 ON THIS PRINCIPLE, THE PENALTY COULD NOT BE IMPOSED IN THE PRESENT CASE AS THE ASSESSEE HAD PAID THE TAX AT DEEMED INCOME UNDER SECTION 115JB OF THE ACT, WHICH INCOME WAS MORE THAN THE INCOME ASSESSED AS PER NORMAL PROCEDURE. WHER E INCOME OF AN ASSESSEE COMPANY IS FINALLY ASSESSED AT 'BOOK PROFITS' BY DEEMING THE SAME TO BE TOTAL INCOME OF THE ASSESSEE, PENALTY IMPOSABLE UNDER SECTION 271 (I )(C) OF THE ACT COULD ONLY BE LEVIED IN RESPECT OF ANY ADJUSTMENT/ADDITION/DISALLOWANCE MAD E WHILE COMPUTING SUCH 'BOOK PROFITS'. IN SUCH A SITUATION, THE A.O. CANNOT IMPOSE PENALTY WITH REFERENCE TO THE ADDITIONS/DISALLOWANCES MADE WHILE COMPUTING NORMAL INCOME SINCE SUCH INCOME PALES INTO INSIGNIFICANCE, BOTH FOR THE PURPOSE OF IMPOSITION OF T AX AND ALL LOGICAL CONSEQUENCES FOLLOWING THEREON. 4.5 WHEN THE TAX WAS IMPOSED AND CALCULATED UNDER THE ACT ON THE DEEMED INCOME UNDER SECTION 115JB OF THE ACT, FOR THE PURPOSES OF THE IMPOSITION OF PENALTY THE A.O COULD NOT REVERT BACK TO THE NORMAL IN COME AS IT WOULD LEAD TO AN ABSURD SITUATION OF TWO DIFFERENT INCOMES OF THE SAME PERSON FOR THE SAME ASSESSMENT YEAR. FURTHERMORE, WHEN THE INCOME - TAX IS PAID ON THE 'BOOK PROFITS' BY A LEGAL FICTION, SUCH LEGAL FICTION HAS TO BE TAKEN TO ITS LOGICAL CONC LUSION. 4.6 THE FURNISHING OF INACCURATE PARTICULARS HAD ITS REPERCUSSIONS ONLY WHEN THE ASSESSMENT WAS DONE UNDER THE NORMAL PROCEDURE. THE ASSESSMENT AS PER THE NORMAL PROCEDURE WAS, HOWEVER. NOT ACTED UPON. ON THE CONTRARY, IT IS THE DEEMED INCOME ASS ESSED UNDER SECTION 115JB OF THE ACT WHICH HAS BECOME THE BASIS OF ASSESSMENT AS IT WAS HIGHER OF THE TWO. PAGE NO. 6 TAX IS THUS, PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE ACT. HENCE, WHEN THE COMPUTATION WAS MADE UNDER SECTION 115JB OF THE ACT, THE AFO RESAID CONCEALMENT HAD NO ROLE TO PLAY AND WAS TOTALLY IRRELEVANT. THEREFORE, THE INACCURATE FURNISHING DID NOT LEAD TO TAX EVASION AT ALL. THE PROFITS DECLARED BY THE ASSESSEE U/S 115JB HAD BEEN ACCEPTED BY THE A.O. WHATEVER HAD BEEN DONE BY THE A.O. IN A SSESSMENT UNDER NORMAL PROCEDURE, THEREFORE, BECAME ACADEMIC. READING OF THE PROVISIONS OF SEE 115JB SHOWS THAT THE BOOK PROFITS 'SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE'. THERE COULD NOT BE ANY CONCEALMENT IN THE INSTANT CASE SINCE WHATEVER HAD BEEN DECLARED BY THE ASSESSEE AS BOOK PROFITS WAS ACCEPTED BY THE A.O. THEREFORE, THERE I COULD NOT BE ANY COMPLAINT OF CONCEALMENT. THE DEEMING PROVISIONS OF SEE 115JB DEEMING THE BOOK PROFITS AS TOTAL INCOME, WILL ALSO APPLY FOR DETERMINING IF THER E WAS ANY CONCEALMENT OR NOT RELIANCE IN THIS REGARD IS PLACED ON THE DECISIONS OF HON'BLE JURISDICTIONAL DELHI HIGH COURT IN THE CASE CIT VS. NALWA SONS INVESTMENTS LTD. 194 TAXMAN 387 (DELHI) AND HON'BLE ITAT DELHI IN THE CASE OF JINDAL POLYSTER AND STEE L LTD. IN ITA NO. 6412IDELL92 AND JOYCO INDIA PVT. LTD. VS. ITO 152 TAXMAN 14 (ITA T DELHI) AND HON'BLE IT AT, MUMBAI IN THE CASE OF BSEL INFRASTRUCTURE REALITY LTD. VS. ACIT (2012) 22 TAXMAN.COM 155(MUM). THEREFORE, I AM OF THE CONSIDERED OPINION THAT THE PENALTY U/S 27I(L)(C) IMPOSED BY THE A.O. CANNOT BE SUSTAINED AND AS SUCH THE SAME IS DELETED. 9. FROM THE AFORESAID IT IS EVIDENT THAT INCOME OF THE ASSESSEE WAS FINALLY ASSESSED U/S 115JB OF THE ACT AND NOT UNDER THE NORMAL PROVISION OF THE ACT. THE ADDITION MADE BY THE AO IN THE ORDER WERE CONFIRMED TO THE INCOME DETERMINED UNDER THE NORMAL PROVISIO N OF THE ACT AND NOT IN RESPECT OF THE BOOKS PROFITS U/S 115JB OF THE ACT. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS CONCEALED ANY PARTICULARS OR FURNISHED ANY INACCURATE PARTICULARS WHILE COMPUTING THE BOOK PROFIT U/S 115JB . IN SUCH CIRCUMST ANCES THE RATIO OF HONBLE DELHI HIGH COURT IN NALWASONS (SUPRA) HAS BEEN RIGHTLY RELIED UPON BY THE LD CIT(A) PAGE NO. 7 AND THEREFORE NO PENALTY IS LEVIABLE. MOREOVER, IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE QUANTUM APPEAL PREFERRED BY THE DEPARTMENT AGAINST THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR HAS BEEN DISMISSED AND THE APPEAL OF THE ASSESSEE HAS BEEN ALLOWED BY THE TRIBUNAL VIDE ORDER DATED 14.3.2014. THEREFORE, IN SUCH CIRCUMSTANCES WE ARE INCLINED NOT TO INTERFERE IN THE ORDER OF THE LD. CIT(A) AND W E CONFIRM THE SAME AND DISMISS THE APPEAL OF THE REVENUE. 10 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 9 . 08. 2014. - SD / - - SD / - ( B.C.MEENA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 9 / 08 / 2014 A K KEOT /A.K. VERMA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI