The ITO, Ward-8(3), Ahmedabad V. Shree Krishnakeshav Laboratories Ltd., Ahmedabad

ITA 3879/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 9078 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 16-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 17-10-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: N O N E
• Keywords: Difference of opinion; Bonafide mistake; Change of opinion; Revenue expenditure; Capital expenditure; Set aside
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : A HMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONBLE SH RI D.C. AGRAWAL, A.M.) I.T.A. NO. 3879/AHD./2007 ASSESSMENT YEAR : 2003-2004 INCOME TAX OFFICER, WARD-8(3), AHMEDABAD VS.- SHRE E KRISHNA KESHAV LABORATORIES LTD. AHMEDABAD (PAN : AADCS 0519 G) (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. NEETA SHAH, SR. D.R. RESPONDENT BY : N O N E O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 21.08.2007 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XIV, AHMEDABAD FOR THE ASSESSMENT YEAR 2003-04 CANCELLING THE PENALTY OF RS.47,18,757/- LEVIED BY THE A.O. UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. DESPITE THE SERVICE OF NOTICE THROUGH REGISTERED POST, ON THE DATE FIXED FOR HEARING I.E. ON 16.02.2010, NEITHER ANYBODY APPEARED FROM THE SIDE OF THE ASSESSEE NOR AN APPLICATION FOR ADJOURNMENT IS RECEIVED. THE ACKNOWLEDGMENT CARD IN DICATING SERVICE OF NOTICE OF HEARING TO THE ASSESSEE IS PLACED ON RECORD. IN THESE CIRCUMSTANCE S, WE PROCEED TO DECIDE THIS APPEAL ON THE BASIS OF SUBMISSION MADE BY THE LD. DEPARTMENTAL RE PRESENTATIVE AND MATERIAL AVAILABLE ON RECORD. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME SHOWING LOSS OF RS.1,42,91,510/-. THE A.O. COMPUTED THE TOTAL LOSS OF RS.4,24,070/-. IN THE ASSESSMENT ORDE R, THE A.O. DISALLOWED RS.1,33,35,818/- BEING ADVANCES WRITTEN OFF AND THE LOANS WRITTEN OFF AMO UNTING TO RS.1,46,345/- AND ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2 ITA NO. 3879/AHD/2007 4. SUBSEQUENTLY, VIDE ORDER DATED 07.02.2007 THE A. O. LEVIED THE PENALTY UNDER SECTION 271(1)(C) AMOUNTING TO RS.47,18,757/- BEING 100% OF TAX SOUGHT TO BE EVADED ON CONCEALMENT OF INCOME IN RESPECT OF FOLLOWING TWO ITEMS :- ADVANCES WRITTEN OFF RS.1,33,35,818/- LOANS WRITTEN OFF (GIVEN TO EMPLOYEES) . RS. 1,46,345/- THE MAIN REASON GIVEN BY THE A.O. FOR LEVYING PENAL TY IS THAT THE ASSESSEE ITSELF OUGHT TO HAVE DISALLOWED BOTH THE AFORESAID ITEMS BECAUSE THE AUD ITORS HAVE CLEARLY REMARKED IN COLUMN NO. 17(A) OF AUDIT REPORT IN FORM NO. 3CD AS UNDER :- 17. AMOUNTS DEBITED TO PROFIT & LOSS ACCOUNT BEING : (A) EXPENDITURE OF CAPITAL NATURE : LOANS & ADVANC ES WRITTEN OFF (OUT OF TOTAL AMOUNT WRITTEN OFF OF RS.1,34,82, 163/- LOANS OF RS.1,46,345/- GIVEN TO EMPLOYEES OF THE COMPANY HAV E NOT BEEN CONSIDERED ON CAPITAL ACCOUNT). 5. IN THE PENALTY ORDER, THE A.O. HAS ALSO MENTIONE D THAT THOUGH THERE IS A SPECIFIC DISCLOSURE IN THE AUDIT REPORT, THE ASSESSEE HAS NOT DISALLOWE D THE AMOUNT IN THE COMPUTATION. A CAPITAL EXPENDITURE IS NOT AN ALLOWABLE EXPENDITURE. THE AS SESSEE CANNOT CLAIM ANY CAPITAL LOSS AS A REVENUE EXPENDITURE. BY DISCLOSING THE FACT IN THE AUDIT REPORT DOES NOT RELIEVE THE ASSESSEE FROM ITS DUTY TO ADD BACK THE SAME TO ITS INCOME IN ITS COMPUTATION. 6. ON APPEAL, IN THE IMPUGNED ORDER THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) CANCELLED THE PENALTY FOR THE DETAILED REASONS GIVE N IN PARA 2.3, WHICH READS AS UNDER :- 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE SUBMISSIONS PUT FORTH BY THE APPELLANT ALONG WITH VARIOUS CASE LAWS AS RE LIED UPON. IT IS SEEN THAT NO PENALTY CAN BE LEVIED FOR A BONAFIDE MISTAKE AND IN THIS CASE IT IS NOT A CASE THAT THE APPELLANT HAS NOT DISCLOSED FULL DETA ILS AT THE TIME OF ASST. PROCEEDINGS AND IT IS A MERE CHANGE OF OPINION. HEN CE, THERE IS NO JUSTIFICATION IN HOLDING THAT THERE IS CONCEALMENT OF INCOME AND/OR FILING OF INACCURATE PARTICULARS OF INCOME. FURTHER, THE ISSU E IS DISPUTABLE AND DEBATABLE AND MERELY THE FACT THAT THE ADDITIONS ST OOD CONFIRMED AT THE FIRST APPELLATE STAGE WOULD NOT RESULT INTO LEVY OF PENAL TY U/S. 271(1)(C), AS THE PENALTY PROCEEDINGS ARE ENTIRELY DIFFERENT THAN THE ASST. PROCEEDINGS AND NO PENALTY CAN BE LEVIED, UNLESS IT IS ESTABLISHED THA T THERE IS CLEAR CONCEALMENT OF INCOME AND/OR FILING OF INACCURATE P ARTICULARS. IN LIGHT OF THE ABOVE FACTS AND RELYING UPON VARIOUS JUDICIAL P RONOUNCEMENTS AS RELIED 3 ITA NO. 3879/AHD/2007 UPON, SUPRA, I HOLD THAT THE ADDITION OF THE A.O. I N LEVYING PENALTY U/S. 271(1)(C) IN THIS CASE WAS NOT JUSTIFIED AND THE SA ME IS DIRECTED TO BE DELETED. 7. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 8. AT THE TIME OF HEARING, SMT. NEETA SHAH APPEARIN G ON BEHALF OF REVENUE CONTENDED THAT BY CLAIMING THE CAPITAL EXPENDITURE AS REVENUE EXPE NDITURE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. SHE FURTHER CONTENDED THAT ANY EXPENDITURE OF CAPITAL N ATURE IS NOT AN ALLOWABLE EXPENDITURE, THE A.O. RIGHTLY DISALLOWED THE SAME AND DISALLOWANCE HAS BE EN CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). BY CLAIMING UNALLOWABLE EXP ENDITURE, THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME/ CONCEALMENT OF ITS INCOME. T HEREFORE, PENALTY IS RIGHTLY LEVIED. SHE FURTHER SUBMITTED THAT BEFORE THE A.O. THE ASSESSEE HAS NOT GIVEN ANY BONAFIDE EXPLANATION FOR CLAIMING THE CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CANCELLED THE P ENALTY ON THE GROUND THAT THE ISSUE IS DISPUTABLE AND DEBATABLE. SHE SUBMITTED THAT THERE IS NO DISPUTE OR DEBATE ON ALLOWABILITY OF CAPITAL EXPENDITURE AS REVENUE EXPENDITURE. CAPITAL EXPENDITURE IS NEVER ALLOWABLE AS REVENUE EXPENDITURE. THEREFORE, THE ORDER OF LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) BE SET ASIDE AND THE ORDER OF A.O. LEVYING THE PENALTY UNDER SEC TION 271(1)(C) BE RESTORED. 9. AS ALREADY STATED, ON THE DATE FIXED FOR HEARING , NONE WAS PRESENT FROM THE SIDE OF THE ASSESSEE. IN THE IMPUGNED ORDER, THERE IS NO REFERE NCE TO EXPLANATION 1 TO SECTION 271(1)(C) OF THE I.T. ACT. IT IS WELL SETTLED LAW THAT CAPITAL EXPEN DITURE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THIS ASPECT WAS NOT CONSIDERED BY THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS) WHILE PASSING THE IMPUGNED ORDER. IN OUR CONSIDERED OPINI ON, PENALTY ON DISALLOWANCE OF RS.1,33,35,818/- CANNOT BE DELETED WITHOUT ADDRESSI NG HOW THE CAPITAL EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE AND EXPLANATION OF THE ASSES SEE WAS BONAFIDE AS PER CLAUSE (B) OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE INCOME TA X ACT, 1961. IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CLEARLY ERRED IN CANCELLING THE PENALTY ON DISALLOWANCE OF CAPITAL EXPENDITURE TO THE EXTENT O F RS.1,33,35,818/- WITHOUT EXAMING HOW THE 4 ITA NO. 3879/AHD/2007 EXPLANATION OF THE ASSESSEE WAS BONAFIDE. THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) TO THIS EXTENT IS SET ASIDE AND THE MA TTER IS RESTORED TO HIS FILE WITH THE DIRECTION THA T HE WILL RE-DECIDE THE LEVY OF PENALTY IN RESPECT OF DISALLOWANCE OF CAPITAL EXPENDITURE WRITTEN OFF AMOUNTING TO RS.1,33,35,818/- AFTER PROVIDING OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. 10. WITH REGARD TO CANCELLATION OF PENALTY IN RESPE CT OF LOANS GIVEN TO EMPLOYEES WRITTEN OFF AMOUNTING TO RS.1,46,345/-, WE ARE OF THE VIEW THAT THESE LOANS WERE GIVEN IN THE COURSE OF NORMAL BUSINESS OF THE ASSESSEE-COMPANY, THEREFORE, PENALTY UNDER SECTION 271(1)(C) IN RESPECT OF THIS ADDITION/ DISALLOWANCE IS NOT LEVIABLE. THEREF ORE, IN OUR OPINION, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS JUSTIFIED IN CANCELLING T HE PENALTY IN RESPECT OF THIS ADDITION. 11. IN THE RESULT, FOR STATISTICAL PURPOSES, THE AP PEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 18.02.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 18 / 02 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.