Farmson Pharmaceuticals Gujarat Ltd., Baroda V. The Dy.CIT.,Circle-1(2), Baroda

ITA 327/AHD/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0307 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 30-09-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 03-02-2014
• Court: TRIBUNAL
• Keywords: Capital asset
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.327/AHD/2014 / ASSTT. YEAR: 2003-2004 FARMSON PHARMACEUTICAL GUJARAT LTD. 28-35, GIDC INDUSTRIAL ESTATE NANDESARI DIST. BARODA 391 340. PAN : AAACF 3358 B VS DCIT, CIR.1(2) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI JAMES KURIAN, SR.DR / DATE OF HEARING : 30/09/2016 / DATE OF PRONOUNCEMENT: 05/10/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD.C IT(A)-I, BARODA DATED 24.12.2013 FOR THE ASTT.YEAR 2003-04. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING PENALTY OF RS.26,98,800/- IMPOSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 BY THE AO. 3. IN RESPONSE TO THE NOTICE OF HEARING, SHRI BHAVI N MARFATIA, LD. CHARTERED ACCOUNTANT FILED AN ADJOURNMENT APPLICATI ON. HOWEVER, AFTER GOING THROUGH THE RECORD, WE DID NOT GRANT ADJOURNMENT, A ND HEARD THE APPEAL EX PARTE QUA THE ASSESSEE-APPELLANT. ITA NO.327/AHD/2014 2 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ON 20.10.2003 DECLARING TOTAL LOSS AT RS.14,64,777/ -. AN ASSESSMENT ORDER WAS PASSED ON 31.1.2006 UNDER SECTION 143(3) OF THE ACT. THE AO HAS DETERMINED THE INCOME OF THE ASSESSEE AT RS.1,12,49 ,357/-. ONE OF THE ADDITIONS MADE BY THE AO IS OF RS.73,43,678/-. THE ASSESSEE HAS CLAIMED THIS AMOUNT AS LOSS ON ACCOUNT OF SALE/WRITE OFF FIXED A SSETS. THIS LOSS WAS DISALLOWED TO THE ASSESSEE, AND THIS AMOUNT WAS CON SIDERED FOR VISITING THE ASSESSEE WITH PENALTY UNDER SECTION 271(1)(C) OF TH E ACT. 5. IT EMERGES OUT FROM THE RECORD THAT THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF THIS LOSS IN AN APPEAL BEFORE THE T RIBUNAL IN ITA NO.667/AHD/2011. THE TRIBUNAL HAS DECIDED THE APPE AL OF THE ASSESSEE VIDE ORDER DATED 19.2.2015. THE TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION. THE RELEVANT FINDING OF TH E TRIBUNAL ON THIS ISSUE READS AS UNDER: 18. THE GROUND NO.1 OF THE APPEAL READS AS UNDER: 1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN HOLDING THAT LOSS OF RS. 73,43,678/-BEING LOSS ON ACCOUNT OF DIS CARDED ASSETS IS NOT A REVENUE LOSS AND ALSO NOT A CAPITAL LOSS AND THEREFORE NOT ALLOWABLE UNDER THE ACT AT ALL. 1.1 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN REJECTING THE CLAIM OF THE APPELLANT THAT THE LOSS ARISING ON ACC OUNT OF DISCARDING OF CAPITAL WORK-IN-PROGRESS IS REVENUE L OSS. 1.2 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN HOLDING THAT THE LOSS IS NOT A CAPITAL LOSS AND THEREFORE NO SET OFF OR CARRY FORWARD CAN BE ALLOWED. 19. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS CLAIMED RS.73,43,678/- FOR LOSS ON SAL E/WRITE OFF OF THE FIXED ASSETS OF CAPITAL WORK-IN-PROGRESS. THE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION THAT THE ASSETS W ERE NEVER PUT ITA NO.327/AHD/2014 3 TO USE BUT THESE WERE PUT TO USE ONLY FOR TEST PURP OSE FOR SOME TIME AND DUE TO THE PROBLEM OF POLLUTION THE ENTIRE TECHNOLOGY HAD TO BE CHANGED AND AS THE ALTERNATIVE USE WAS NO T POSSIBLE, THE MACHINERIES WERE SCRAPED. ACCORDING TO THE AO , THERE WERE DEDUCTIONS IN THE CAPITAL WORK IN PROGRESS AND UNDE R THE HEAD LABORATORY EQUIPMENTS, BUT ADDITIONS WERE NOTICED U NDER THE HEAD PLANT & MACHINERY AND POLLUTION CONTROL EQUIPMENTS. THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE/DOCUMENTS T O JUSTIFY THE CHANGE IN THE MANUFACTURING PROCESS. THEREFORE, TH E AO CONCLUDED THAT THE WRITTEN OFF OF FIXED ASSETS WERE OF CAPITAL NATURE AND THE AMOUNT OF RS.73,43,678/- WERE ADDED TO THE TOTAL INCOME. .. 25. WE FIND THAT DETAILS OF PURCHASE OF MACHINERY, WHICH WAS CLAIMED TO HAVE BEEN DISCARDED, WERE NOT BROUGHT ON RECORD. FROM THE RECORDS BEFORE US, IT IS NOT CLEAR AS TO W HEN THE MACHINERY IN QUESTION WAS PURCHASED AND WHAT WAS TH E ACTUAL COST OF MACHINERY. FURTHER, FROM THE MATERIAL BEFO RE US, IT IS ALSO NOT CLEAR WHETHER THE SAID MACHINE WAS ACTUALLY SOL D OUT DURING THE YEAR AS SCRAP BY THE ASSESSEE OR NOT. IN OUR C ONSIDERED VIEW, IF THE MACHINERY HAS NOT FORMED PART OF THE BLOCK O F ASSETS, AND WAS ACTUALLY SOLD OUT DURING THE YEAR, THEN THE LOS S SO SUFFERED BEING INCIDENTAL TO THE BUSINESS OF THE ASSESSEE, A ND AS NO CAPITAL ASSET OF ENDURING NATURE HAS BEEN ACQUIRED BY THE A SSESSEE, BECAUSE OF THE SAID LOSS, THE SAME IS ALLOWABLE AS BUSINESS DEDUCTION TO THE ASSESSEE. 26. HOWEVER, IF THE MACHINE PURCHASED FOR THE BUSIN ESS WAS NOT USED FOR BUSINESS, BUT FOUND TO BE UNSUITABLE, AND THEREAFTER SOLD OUT BY THE ASSESSEE DURING THE RELEVANT YEAR, THEN THE ACTUAL LOSS ACCRUED TO THE ASSESSEE DURING THE RELEVANT YEAR, A ND EVEN THOUGH, THE NOTIONAL LOSS HAS BEEN PROVIDED IN THE BOOKS OF ACCOUNTS, BUT TILL THE ACTUAL LOSS TAKES PLACE, THE SAME IS NOT ALLOWABLE TO THE ASSESSEE. THE ACTUAL LOSS WILL A CCRUE TO THE ASSESSEE IN THE YEAR IN WHICH SUCH UNUSED MACHINES WERE ACTUALLY SOLD OUT BY THE ASSESSEE. IN OUR CONSIDERED VIEW, IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF AO FOR PROPER VERIFICATION, AND THEREAFTER, ADJUDICATI ON AFRESH IN THE LIGHT OF THE DISCUSSION MADE HEREINABOVE. THE AO SHALL ALLOW REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, AND ASSESSEE IS ALSO DIRECTED TO COOPERATE WITH THE AO AND FURNI SH NECESSARY ITA NO.327/AHD/2014 4 DETAILS TO THE AO AS AND WHEN CALLED UPON TO DO SO BY THE AO. THUS, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTI CAL PURPOSE. 6. WITH THE ASSISTANCE OF THE LD.DR, WE HAVE GONE T HROUGH THE RECORD CAREFULLY. SUB-CLAUSE (III) OF SECTION 271(1)(C) PROVIDES MECH ANISM FOR QUANTIFICATION OF PENALTY. IT CONTEMPLATES THAT TH E ASSESSEE WOULD BE DIRECTED TO PAY A SUM IN ADDITION TO TAXES, IF ANY, PAYABLE HIM, WHICH SHALL NOT BE LESS THAN , BUT WHICH SHALL NOT EXCEED THREE TIMES THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN OTHER WORDS, THE QUANTIFICATION OF THE PENALTY IS DEPENDED UPON THE ADDITIONS MADE TO THE INCOME OF THE ASSESSEE. UPTO AND UNTIL, THE ISSUE REGARDING DETERMINATION OF THE TAXABLE INCOME IS FINALIZED, P ENALTY UNDER SECTION 271(1)(C) OF THE ACT CANNOT BE IMPOSED UPON THE ASS ESSEE. THE DETERMINATION OF TAXABLE INCOME OF THE ASSESSEE IS SUBJUDICED BEFORE THE LD.AO. AFTER ADJUDICATION THE ISSUE OF QUANTUM, IT WILL BE IN THE DISCRETION OF THE LD.AO TO INITIATE OR NOT TO INITI ATE PENALTY PROCEEDINGS ON THIS ISSUE AGAINST THE ASSESSEE. THEREFORE, WE SET ASIDE THE IMPUGNED ORDER AND ALLOW THE APPEAL OF THE ASSESSEE FOR STAT ISTICAL PURPOSE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 5 TH OCTOBER, 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANTN MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 05/10/2016