Arcotech Ltd. (Formerly SKS Ltd.), New Delhi V. ACIT, New Delhi

ITA 3890/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61751 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-04-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 17-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Capital receipt; Revised return; Reassessment proceedings
• Section: 43B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.G. BANSAL ITA NO. 3890/DEL/10 A.Y. 2002-03 ARCOTECH LTD., VS. ACIT CIR. 8(1), [FORMERLY SKS LTD.] NEW DELHI. 253-A/2, 4 TH FLOOR, SHAHPUR JAT, OPP. PANCHSHEEL COMMERCIAL COMPLEX, NEW DELHI-110049. PAN/ GIR NO.AAACS2437G ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI SANJAY JOSHI CA. RESPONDENT : MRS. GEETMALA MOHANANY CIT DR O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 9-6-2010, ASSAILING THE SUSTENANCE OF PENALTY OF RS. 2,13,75, 229/-, RELATING TO ASSESSMENT YEAR 2002-03, LEVIED BY THE ASSESSING OF FICER U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961. 2. BRIEF FACTS ARE: ASSESSEE, FORMERLY KNOWN AS M/ S SKS LTD., FILED ITS RETURN OF INCOME DECLARING LOSS OF RS. 13,65,54,483 /-, SUPPORTED BY AUDITED STATEMENT OF ACCOUNTS WHICH WAS PROCESSED U/S 143(1 ). THEREAFTER ASSESSING 2 OFFICER ISSUED NOTICE U/S 148 AND CONSEQUENT TO TH E ASSESSMENT, THE ASSESSEES LOSS WAS REDUCED TO RS. 7,66,79,891/-. T HE REDUCTION IN LOSS WAS ON ACCOUNT OF FOLLOWING ADDITIONS/ DISALLOWANCES: 1. DEPRECIATION ON PLANT & MACHINERY RS. 89,95,173 /- 2. LOSS ON SALE OF INVESTMENTS RS. 59,15,000/- 3. LOSS ON SALE OF VEHICLE RS. 1,27,900/- 4. DISALLOWANCE U/S 43B RS. 17,325/- 5. DISALLOWANCE U/S 43B RS. 4,48,19,194/- RS. 5,98,74,592/- 2.1. ASSESSING OFFICER ALSO INITIATED PENALTY PROC EEDINGS U/S 271(1)(C) IN RESPECT OF ABOVE ITEMS OF ADDITIONS/ DISALLOWANCES. 2.2. AGAINST ASSESSMENT ORDER, ASSESSEE PREFERRED APPEAL IN RESPECT OF ITEM 2 ABOVE I.E. LOSS ON SALE OF INVESTMENTS. IN R ESPECT OF OTHER ITEMS, NO APPEAL WAS FILED. AS AGAINST THE APPEALED ITEM CIT (A) VIDE ORDER DATED 21- 4-2008 DISMISSED THE SAME AND ASSESSEE DID NOT CARR Y THE MATTER FURTHER. 2.3. DURING PENALTY PROCEEDINGS ASSESSEE PLEADED TH AT IT WAS DOING VERY BADLY ON FINANCIAL FRONT DUE TO WHICH IT COULD NOT DEPOSIT THE PF AND ESI DUES. AUDITORS REPORTED THIS FACT IN THE DISCLOSURE THAT THE COMPANY WAS SIC WITHIN THE MEANING OF SIC INDUSTRIAL COMPANIES (SPE CIAL PROVISIONS), ACT, 1985. THE ASSESSEE HAS NOT FILED ANY INACCURATE PAR TICULARS OR CONCEALED ANY INCOME, THEREFORE, IT WAS NOT LIABLE FOR ANY PENALT Y. RELIANCE WAS PLACED ON HONBLE SUPREME COURTS JUDGMENT IN THE CASE OF REL IANCE PETROPRODUCTS 322 ITR 158(SC). ASSESSING OFFICER , HOWEVER, HELD THAT THOUGH THE ASSESSED INCOME WAS IN LOSS, NEVERTHELESS THERE WAS DIFFERENCE BETWEEN THE RETURNED AND ASSESSED LOSS OF THE ASSESSEE AND NOTI ONAL TAX SOUGHT TO BE EVADED DUE TO DIFFERENCE IN ASSESSED AND RETURNED L OSS WAS SUBJECTED TO PENALTY. 3 2.4. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL, WH ERE THE SAME WAS CONFIRMED. AGGRIEVED, ASSESSEE IS BEFORE US. 3. LEARNED COUNSEL FOR THE ASSESSEE CONTENDS THAT CIT(A) HAS MAINLY DWELT ON THE LEGAL ISSUES ABOUT THE LEVY OF PENALTY ON ACCOUNT OF DIFFERENCE IN RETURNED AND ASSESSED LOSS AND THE INITIATION AS PECTS, BUT ON MERITS THE ASSESSEES EXPLANATION HAS NOT BEEN PROPERLY CONSID ERED. IT HAS NOT BEEN DISPUTED THAT THE ASSESSEE WAS FACING HUGE LOSSES A ND AS PER AUDITORS REPORT, FOLLOWING DISCLOSURES HAVE BEEN MADE BY THE AUDITOR S OF THE COMPANY: XIV) ACCORDING TO THE RECORDS OF THE COMPANY PROVI DENT FUND AND EMPLOYEES STATE INSURANCE DUES AMOUNTING TO RS. 46,74,283/- HAVE NOT BEEN DEPOSITED WITH THE APPROP RIATE AUTHORITIES. XVI) THE COMPANY IS A SIC INDUSTRIAL COMPANY WITHIN THE MEANING OF THE SIC INDUSTRIAL COMPANIES (SPECIAL PR OVISIONS) ACT, 1985 (1 OF 1986). 3.1. THE FACT THAT ASSESSEE WAS A SIC COMPANY HAS N OT BEEN DISPUTED BY THE DEPARTMENT. 3.2. COMING TO THE ITEM-WISE DISALLOWANCE, FOLLOWIN G IS SUBMITTED: (1) DEPRECIATION ON PLANT & MACHINERY: IN ASSESSMEN T YEAR 2000-01, SIMILAR TYPE OF DEPRECIATION CLAIMED BY THE ASSESS EE WAS DISALLOWED; IN ASSESSEES FIRST APPEAL BEFORE CIT(A) SAME WAS UPHELD; ASSESSEE DID NOT CARRY THE MATTER FURTHER. PENALTY PROCEEDIN GS WERE ALSO INITIATED, ASSESSEE EXPLAINED THAT ALL RELEVANT FAC TS WERE FILED ALONG WITH THE RETURN OF INCOME. PENALTY WAS HOWEVER IMPO SED BY ASSESSING OFFICER; CIT(A) DELETED THE SAME. ITAT DELHI BENCH C 4 VIDE ORDER DATED 17-7-2009 IN ITA NO. 3674/DEL/2008 , DISMISSED REVENUES APPEAL AGAINST DELETION OF PENALTY, OBSER VING AS UNDER: 5. WE HAVE HEARD THE LD. SR. DR. FROM THE FACTS NO TED ABOVE, IT IS CLEAR THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON PLANT AND MACHINERY, WHICH WAS READ Y FOR USE. HONBLE DELHI HIGH COURT IN THE CASE OF CI T VS. REFRIGERATION AND ALLIED INDUSTRIES (SUPRA) HAS HEL D THAT THE PHRASE USED FOR THE PURPOSE OF THE BUSINESS I NCLUDES PASSIVE USER OF THE ASSETS. FOR CLAIM OF DEPRECIATI ON, TWO INGREDIENTS SHOULD BE SATISFIED I.E. THE DEPRECIABL E ASSET SHOULD BE OWNED BY THE ASSESSEE AND IT SHOULD BE U SED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THE WO RDS USED FOR THE PURPOSES OF BUSINESS ARE CAPABLE OF A LARGER AND NARROWER INTERPRETATION. IF THE EXPRESSION USE D IS CONSTRUED STRICTLY IT COULD BE TAKEN AS CONNOTING O R REQUIRING THE ACTIVE EMPLOYMENT OR ACTUAL WORKING O F THE MACHINERY, PLANT AND BUILDING IN THE BUSINESS. ON T HE OTHER HAND, THE WIDER MEANING WOULD INCLUDE NOT ON LY CASES WHERE MACHINERY OR PLANT ARE ACTIVELY EMPLOYE D, BUT ALSO CASES WHERE THERE IS PASSIVE USER OF THE S AME IN BUSINESS. AN ASSET COULD BE SAID TO BE IN USE WHEN IT IS KEPT READY FOR USE. IN THE CASE BEFORE US THE RETUR NED LOSS OF RS. 11,25,5490/- WAS ASSESSED AT LOSS OF RS. 8,02,40,150/- MEANING THEREBY THAT THE ASSESSING OF FICER HAD ALLOWED CERTAIN EXPENSES WHILE COMPLETING THE L OSS RETURNED BY THE ASSESSEE. THE ASSESSEE HAD DISCLOSE D ALL ASSETS IN THE RETURN OF INCOME. UNDER LIBERAL INTERPRETATION OF WORD USED, THE DEPRECIATION IS ALLOWABLE WHERE MACHINERY IS KEPT READY WHEREAS UND ER THE STRICT INTERPRETATION THE ACTUAL USE OF THE MAC HINERY IS NECESSARY FOR CLAIM OF DEPRECIATION. THEREFORE, THE CLAIM OF DEPRECIATION BEING A DEBATABLE ISSUE, PENALTY UN DER SECTION 271(1)(C) OF THE ACT CANNOT BE IMPOSED THOU GH THE ADDITION ON ACCOUNT OF DISALLOWANCE OF DEPRECIA TION HAS NOT BEEN AGITATED BY THE ASSESSEE BEFORE THE AP PELLATE AUTHORITIES. ACCORDINGLY, IN OUR CONSIDERED OPINIO N, THE LD. CIT(APPEALS) WAS JUSTIFIED IN DELETING THE PE NALTY. 5 3.3. IN THIS YEAR ALSO, SIMILAR FACTS AND CIRCUMSTA NCES THIS CLAIM OF DEPRECIATION WAS MADE ON THE BASIS OF PLANT & MACHI NERY BEING READY FOR USE AS THE ASSESSEE WAS LOOKING FOR REVIVAL. IT WAS NOT WORTHWHILE FOR THE ASSESSEE TO AGITATE THE MATTER ABOUT CLAIM OF DEPRE CIATION, MORE SO, WHEN THE ASSESSEE WAS INCURRING HUGE LOSSES AND THE CLAIM OF DEPRECIATION AT THE MOST WOULD HAVE RESULTED IN CARRY OVER UNABSORBED DEPREC IATION. ALL THESE FACTS ABOUT CLAIM OF DEPRECIATION WERE ON THE RECORD FILE D ALONG WITH THE RETURNS OF INCOME AND WERE WITHIN THE KNOWLEDGE OF THE ASSESSI NG OFFICER. THEREFORE, THE PENALTY SHOULD NOT HAVE BEEN LEVIED ON THIS ASP ECT, AS THERE WAS PROPER DISCLOSURE OF RELEVANT FACTS. . 3.4. (2) & (3) -LOSS ON SALE OF INVESTMENTS; & LOS S ON SALE OF VEHICLE: IT IS PLEADED THAT IN THE ORIGINAL RETURN OF INCOME LOSS WAS CLAIMED AS BUSINESS LOSS. DURING THE COURSE OF REASSESSMENT PROCEEDINGS IT WAS REALIZED AND ACCEPTED THAT THE LOSS ON ACCOUNT OF SALE OF SUCH INVESTMENTS AND VEHICLE, WERE ALLOWABLE AS LONG TERM CAPITAL LOSS AND NOT AS BUSINESS LOSS. THE ORIGINAL RETURN WAS FILED ACCORDINGLY ON THE BASIS OF PROFESSIONAL ADVICE AND DURING THE COURSE OF REASSESSMENT PROCEEDINGS WHEN FACTS WERE PROPERLY APPRECIATED. THE CLAIM WAS CONSEQUENTLY REVISED FRO M BUSINESS LOSS TO LONG TERM CAPITAL LOSS. MERE CHANGE OF HEAD OF LOSS FROM BUSINESS TO LONG TERM CAPITAL GAIN CANNOT BE HELD AS CONCEALMENT OF PARTI CULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME, MORE SO WHEN ALL THE RELEVANT DETAILS WERE ON THE RECORD. 3.5. APROPOS CLAIM OF PF AND ESI, IT IS PLEADED THA T IN THE AUDIT REPORT ITSELF, ASSESSEE HADE VOLUNTARILY DISCLOSED THAT AL L THESE PAYMENTS WERE NOT PAID IN THE GOVT. TREASURY DUE TO THE PAUCITY OF FU NDS. THEREFORE, THE CLAIM IN 6 P&L A/C CANNOT BE CONSIDERED EXCLUDING ALL OTHER DI SCLOSURES. IT HAS NOT BEEN DISPUTED THAT DUE TO NON PAYMENT OF FEE, ASSES SEE HAD TO CHANGE THE CHARTERED ACCOUNTANT, WHICH BECAME A REASON FOR SO ME OF THE DISALLOWANCES. THE FACTS BEING ON RECORD, THE SAME CANNOT BE SUBJECTED TO PENALTY. 3.6. APROPOS 43B CLAIM, THE ASSESSEE PRODUCED A COP Y OF THE REVISED RETURN PREPARED BY ITS CHARTERED ACCOUNTANT MR. TUL ISAN WHO HAD PREPARED THE REVISED RETURN. DUE TO THE DISPUTE IN RESPECT O F PROFESSIONAL FEE, REVISED RETURN WAS NOT FILED AND THESE FACTS WERE BROUGHT T O THE NOTICE OF ASSESSING OFFICER AT THE TIME OF REASSESSMENT. 3.7. IT IS PLEADED THAT ASSESSEE HAD NO INTENTION WHAT SO EVADE TO EVADE OR AVOID ANY TAX. THE ASSESSEE WAS A SIC COMPANY AND A LL THESE CLAIMS COULD AT THE BEST REDUCE THE AMOUNT OF ASSESSED LOSS WITH NO IMMEDIATE REVENUE IMPLICATIONS. PROPER DISCLOSURES HAVING BEEN MADE I N THE RETURN OF INCOME AND BEING ON RECORD, IT IS PLEADED THAT THE CONCEAL MENT PENALTY CANNOT BE IMPOSED IN THE CASE OF THE ASSESSEE. RELIANCE IS PL ACED ON SUPREME COURT JUDGMENT IN THE CASE OF RELIANCE PETROPRODUCTS (SUP RA). 4. LD. DR, ON THE OTHER HAND, CONTENDS THAT THOUGH THE ASSESSEE WAS CLAIMING TO BE WITHIN THE MEANING OF SIC INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, DURING THE YEAR THE ASSESSEE COMPA NY WAS UNDER REHABILITATION AS IT HAD TO CLOSE ITS MANUFACTURING UNIT BEING POLLUTED INDUSTRY, AS PER THE DIRECTIONS OF HONBLE SUPREME COURT. THE ASSESSEE, WAS THEREFORE, NOT ELIGIBLE FOR ANY CLAIM OF DEPRECATI ON. THE CLAIM OF SALE OF 7 INVESTMENT AND VEHICLE, WERE CLEARLY CAPITAL LOSS W HICH WERE WRONGLY CLAIMED AS BUSINESS LOSSES IN THE RETURN OF INCOME. 4.1. SIMILARLY, PRIMA FACIE DISALLOWABLE CLAIMS I.E . IN RESPECT OF PF, ESI AND 43B ITEMS HAVE BEEN CLAIMED. THE ASSESSEES CAS E FALLS WITHIN THE RATIO OF DECISIONS IN THE CASES OF CIT VS. ESCORT FINANCE LTD. 328 ITR 44 (DEL.); AND CIT VS. ZOOM COMMUNICATION PVT. LTD. 327 ITR 5 10 (DEL.). 4.2. LD. DR FURTHER RELIED ON ITAT DELHI BENCH A JUDGMENT DATED 31-8- 2010 IN THE CASE OF M/S ANAND & ANAND VS. ACIT IN WHICH THE MISTAKEN LEGAL ADVICE WAS HELD TO BE NOT A DEFENCE FOR THE A SSESSEE IN PENALTY. 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. APROPOS THE ISSUE OF CLAIM OF DEPRECIATION, PENALTY IMPOSED UNDER SIMILAR FACTS AND CIRCUMSTANC ES HAS BEEN DELETED BY THE ITAT IN PRECEDING YEAR, AS REPRODUCED ABOVE. RE SPECTFULLY FOLLOWING THE SAME, THE PENALTY QUA THE CLAIM OF DEPRECIATION IS DELETED. 5.1. APROPOS LONG TERM CAPITAL GAIN ON SALE OF INVE STMENTS AND SALE OF VEHICLES, THE FAT THAT THE ASSESSEE WAS ALLOWED THE CLAIM OF LOSS IS NOT DISPUTED. THE ONLY DIFFERENCE BETWEEN ASSESSEES CL AIM AND THE ASSESSED LOSS IS THE HEAD OF ALLOWABILITY OF LOSS I.E. CAPITAL LO SS AS AGAINST ASSESSEES CLAIM OF BUSINESS LOSS. IN OUR VIEW ALL THE RELEVANT DETA ILS WERE FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME AND A CHAN GE IN CLAIM OF HEAD OF INCOME CANNOT BE CONSIDERED AS CONCEALMENT OF PARTI CULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF SUCH INCOME. T HE ASSESSEE MADE A LEGAL CLAIM WHICH WAS NOT FOUND TO BE ALLOWABLE BY THE AS SESSING OFFICER UNDER 8 THE HEAD BUSINESS LOSS BUT THE SAME WAS ALLOWED AS LONG TERM CAPITAL LOSS. IN THESE FACTS AND CIRCUMSTANCES WE ARE NOT INCLINED T O HOLD THAT THE ASSESSEE CONCEALED ANY PARTICULARS OR FURNISHED INACCURATE P ARTICULARS IN THIS BEHALF. 5.2. IN RESPECT OF PF AND ESI ALSO THE ASSESSEE HAD DISCLOSED IN ITS CHARTERED ACCOUNTANTS REPORT THAT THESE AMOUNTS WE RE NOT DEPOSITED, THEREFORE, ASSESSEE ITSELF CLAIMED THEM TO BE EXFAC IE NOT ALLOWABLE. THE ONLY MISTAKE COMMITTED BY THE ASSESSEE IS IN NOT GIVING PROPER EFFECT TO P&L A/C. WITH THESE DISCLOSURE ON RECORD, THE MISTAKE CAN BE HELD TO BE OF TECHNICAL OR VENIAL IN NATURE AND CANNOT BE TERMED AS AMOUNTING TO CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PAR TICULARS OF SUCH INCOME. 5.3. APROPOS 43B DISALLOWANCE, ASSESSEE HAS GIVEN SATISFACTORY EXPLANATION THAT REVISED RETURN WAS PREPARED WHICH WAS NOT FILED BY THE CHARTERED ACCOUNTANT DUE TO DISPUTE ON PAYMENT OF PROFESSIONAL FEES WITH THE C.A ARE THE SAME IS INDICATED BY THE RECORD. IN OUR CONSIDERED VIEW THE DETAILS HAVING BEEN FURNISHED ALONG WITH THE RETURN OF INCOME, THE ASSESSEES CASE IS NOT LIABLE TO BE VISITED WITH PENALTY U/S 2 71(1)(C). 5.4. APROPOS LD. DRS RELIANCE OF ITAT ORDER IN THE CASE OF M/S ANAND & ANAND (SUPRA), THE FACTS AND CIRCUMSTANCES IN THAT CASE ARE PECULIARLY DIFFERENT INASMUCH AS IN THIS CASE ASSESSEE HAD EAR LIER PAID ADVANCE TAX ON A PARTICULAR ITEM OF INCOME AND LATER ON, IN THE GUIS E OF LEGAL OPINION, THE SAME WAS CLAIMED TO BE A CAPITAL RECEIPT, IT HAD NO EARL IER HISTORY AND WAS A PROFIT MAKING ORGANIZATION. IN THE PRESENT CASE, THE FACTS ARE PECULIARLY DIFFERENT AND IT IS A CASE OF CONTINUOUS LOSS MAKING CONCERN SINCE PAST MANY YEARS. 9 THEREFORE, FACTS BEING DISTINGUISHABLE THE DECISION IN THE CASE OF M/S ANAND & ANAND CANNOT BE APPLIED TO THE FACTS OF THE PRESE NT CASE. 5.5. IN CASE OF REDUCTION OF ASSESSED LOSS, THOUGH TECHNICALLY PENALTY U/S 271(1)(C) IS LEVIABLE, BUT ONE CANNOT BE OBLIVIOUS OF THE EXPLANATION AND JUSTIFICATION GIVEN BY THE ASSESSEE. IN OUR VIEW, A SSESSEES EXPLANATION DEMONSTRATES JUSTIFICATION FOR THE STAND TAKEN IN THE RETURN OF INCOME AND REASSESSMENT PROCEEDINGS. THE EXPLANATION CANNOT BE CALLED TO BE FALSE OR BOGUS , THEREFORE, WE DELETE THE PENALTY, KEEPING I N VIEW THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (SUPRA) AND IN THE CASE OF HINDUSTAN STEELS 83 ITR 26(SC). 6. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29-6-2012. SD/- SD/- ( K.G. BANSAL ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29-6-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 10