JCIT (OSD), New Delhi V. M/s. Super Cassettes Industries Ltd., Noida

ITA 4893/DEL/2011

• Counselvise Citation: 489320114 RSA 2011
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 1997-1998
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG
• Assessee Lawyers: HIRAM MEHTA
• Keywords: Depreciation; Cost of acquisition; Wrong claim; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER & SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NOS. 4893 & 4894/DEL/2011 ASSESSMENT YEARS: 1997-98 JCIT(OSD) , VS. SUPER CASSETTES INDUSTRIES LTD., CIRCLE 9(1), PLOT NO. 3 & 3A, FILM CITY, ROOM NO. 163, SECTOR-16A, C.R.BLDG., NEW DELHI. NOIDA. AABCS4712P (APPELLANT) (RESPONDENT) APPELLANT BY: SH. ROHIT GARG, DR RESPONDENT BY : HIRAM MEHTA, CA ORDER PER SMT. DIVA SING, J.M. : THESE APPEALS FILED BY THE REVENUE PERTAINING TO 1 997-98 & 1998- 99 A.Y. AGAINST THE SEPARATE ORDERS DATED 11.07.201 1 OF CIT(A)-XII, NEW DELHI AGITATING AGAINST THE ACTION OF THE CIT(A) I N CANCELING THE PENALTY IMPOSED BY THE AO U/S 271(1)(C) OF RS. 5,36,723/- A ND RS. 5,74,419/- VIDE THE GROUND RAISED IN THE RESPECTIVE APPEALS. 2. THE RELEVANT FACTS AS AVAILABLE ON RECORD AS PER PARA 1.2 OF THE PENALTY ORDER IN ITA 4893/DEL/11 ARE THAT THE ASSE SSEE RETURNED THE INCOME OF RS. 1,16,09,336/- WHICH WAS CONCLUDED ON AN INCO ME OF RS. 77,39,53,980/-. PARTIAL RELIEF WAS ALLOWED TO THE ASSESSEE BY THE O RDER OF THE CIT(A) DATED 28.03.2001 IN THE QUANTUM PROCEEDINGS AGAINST WHICH THE REVENUE FILED AN APPEAL BEFORE THE ITAT. IN THE MEANTIME THE AO DEC IDING THE ISSUES WHICH ITA NOS. 4893 & 4894/D/2011 2 WERE SET ASIDE BY THE CIT(A) PASSED THE ORDER DATED 16.05.2002 U/S 250/143(3). AS A RESULT OF WHICH THE TOTAL INCOME ASSESSED WAS DETERMINED AT RS. 1,72,15,647/- AGAINST THIS THE ASSESSEE CAME IN APPEAL BEFORE THE CIT(A) WHO PASSED THE ORDER DT. 5.12.2003. AGAINST THIS O RDER ALSO THE REVENUE CAME IN APPEAL BEFORE THE ITAT WHO PASSED THE CONSO LIDATED ORDER DATED 17.7.2009 IN ITA 2346/DEL/01 AND ITA 1180/DEL/04. CONSEQUENT TO THE SAID ORDER THE A.O. ISSUED PENALTY NOTICE AND AFTER HEAR ING THE ASSESSEE PENALTY WAS IMPOSED ON ACCOUNT OF FOUR DIFFERENT REASONS. THE ASSESSEE CARRIED THE ISSUE BEFORE THE CIT(A) WHO UPHELD THE PENALTY ORDE R TO THE EXTENT OF UPHOLDING THE ACTION TO IMPOSE PENALTY ON ACCOUNT O F INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF RS.3,65,107/- PERTAINING TO DISALLOWANCE OF EXPENSES, HOWEVER PENAL ACTION WAS QUASHED ON THE REMAINING T HREE REASONS. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFORE T HE TRIBUNAL. 3. THE RELEVANT FACTS QUA THE ISSUE AGITATED IN THE DEPARTMENTAL APPEAL AS PER THE PENALTY ORDER ARE SET OUT IN PARAS 3.1, 3.2 AND 3.4. THE SAME READ AS UNDER. 3.1 UNDER VALUATION OF CLOSING STOCK OF RAW MATERIAL IN RESPECT OF POLYSTER FILM AT C-27 : DURING EXAMINATION OF THE CASE, IT WAS NOTICED BY T HE AO FROM THE VALUATION OF THE CLOSING STOCK OF RAW MATERIAL THAT THE ASSESSEE HAD UNDER VALUED ITS CLOSING STOCK IN RESPECT OF POLYESTER FI LM IMPORTED FROM KOREA. THE CLOSING STOCK AS PER THE ASSESSEE HAS TO BE VAL UED AT THE LOWER OF COST OR NET REALIZABLE VALUE WHICH IN THIS CASE CANNOT BE L ESS THAN THE COST SINCE THE SAID STOCK HAS BEEN BONA-FIDELY CONSUME FRO PRODUCT ION IN THE NEXT YEAR ALSO. AFTER HAVING CONSIDERED THE FACTS OF THE CASE IT WA S HELD BY THE AO THAT THE ASSESSEE HAD INVARIABLY UNDER VALUED ITS CLOSING ST OCK OF 625 ROLLS TO THE EXTENT OF RS. 1200 PER ROLL AND ADDITION OF RS. 7,5 0,000/- WAS MADE ON ACCOUNT OF UNDER VALUATION OF THE STOCK OF IMPORTED RAW POLYESTER FILM. ON APPEAL OF THE ASSESSEE, STAND OF THE AO WAS CONFIRM ED BY THE CIT(A), HOWEVER, HE CONFIRMED THE ADDITION AT RS. 2,47,732/ -. A 2 ND APPEAL FILED BY THE DEPARTMENT ON THIS ISSUE HAS BEEN DISMISSED. ON CO NSIDERATION OF ENTIRE FACTS IT IS NOTICED THAT THE ASSESSEE HAD UNDER VALUED IT S CLOSING STOCK BY AN AMOUNT OF RS. 2,47,732/- AND BY DOING SO REDUCED ITS TAX L IABILITY. NO PLAUSIBLE EXPLANATION HAS BEEN OFFERED BY THE ASSESSEE ON THE PROPOSED PENALTY ON THIS ISSUE. ACCORDINGLY, IT IS HELD THAT THE ASSESSEE H AS FURNISHED INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF RS. 2,47,732 /-. ITA NOS. 4893 & 4894/D/2011 3 THE SECOND, THIRD AND FORTH REASONS PREVAIL THE AO ARE SET OUT IN PARAS 3.2 & 3.4 FOR READ REFERENCE IT REPRODUCED HEREUNDER: - 3.2 UNDER VALUATION OF STOCK LYING IN WIP : THE ASSESSEE HAD DECLARED CLOSING WORK IN PROGRESS (WIP) AT RS. 2,50,33,880/- . IT WAS ADMITTED BY THE ASSESSEE THAT THIS VALUATION OF WIP DID NOT INCLUDE A CHARGE FOR PRODUCTION, ADMINISTRATIVE AND SELLING AND DISTRIBUTION OVERHEA DS WHICH WERE TO BE MENDATORILY INCLUDED IN THE VALUATION OF WIP. IT W AS OBSERVED BY THE AO IN HIS ASSESSMENT ORDER THAT ADDITION OF 20% IN THE VA LUATION OF WIP IN THE CAE OF GROUP COMPANY, NAMELY TONY ELECTRONICS LTD. FOR A.Y. 1995-96 WAS SUSTAINED IN APPEAL. HENCE, BY RELYING UPON THE SA ME AN ADDITION OF RS. 50,06,776/- (20% OF RS. 2,50,33,880/-) WAS MADE TO THE TOTAL INCOME. IN THE FIRST ROUND, THIS ADDITION WAS SET-ASIDE BY THE LD. CIT(A). THE AO DECIDED THE ISSUE AFRESH VIDE HIS ORDER DATED 16/05/2002 AND TH IS TIME MADE AN ADDITION OF RS. 7,07,358/- ON THIS ISSUE. ON APPEAL OF THE ASSESSEE AGAINST THE ORDER DATED 16/05/2002 OF THE AO, THIS ISSUE WAS NOT PRES SED BY THE ASSESSEE AND HENCE THE ADDITION WAS CONFIRMED BY THE CIT(A). AP PEAL OF THE DEPARTMENT ON THIS ISSUE FILED AGAINST THE ORDER OF THE CIT(A) DELIVERED IN FIRST ROUND HAS BEEN DISMISSED BY THE HONBLE ITAT. IN THIS WAY, AD DITION ON THIS ISSUE AS ON DATE HAS BECOME FINAL AT RS. 7,07,358/-. THE ISSUE REGARDING IMPOSITION OF PENALTY ON THIS ISSUE HAS BEEN CONSIDERED. IN ITS REPLY DATED 06/04/2010 THE ASSESSEE HAS SUBMITTED THAT THE CONFIRMATION OF ADD ITION DID NOT MEAN THAT THE ASSESSEES CLAIM WAS SURREPTITIOUS OR FALSE AND IT DOES NOT LEAD TO IMPOSING ANY PENALTY ON THE ASSESSEE. THERE IS NO FORCE IN THIS CONTENTION OF THE ASSESSEE. ON THE FACTS OF THE CASE THERE IS NO DOU BT THAT THE ASSESSEE HAS UNDER VALUED THE CLOSING WIP TO THE EXTENT OF RS. 7 ,07,358/- TO REDUCE ITS TAX LIABILITY AND HENCE FURNISHED INACCURATE PARTICULAR S OF INCOME. 3.4 DEPRECIATION IN RESPECT OF C-90, NOIDA UNIT : DURING THE YEAR, THE ASSESSEE HAD CLAIMED THE FOLLOWING DEPRECIATION IN RESPECT OF C-90, NOIDA UNIT: - BUILDING RS. 88,256/- PLANT & MACHINERY RS. 2,75,201/- FURNITURE & FIXTURES RS. 29,965/- MOTOR VEHICLES RS. 14,071/- DYES & MOULDS RS. 17,903/- OFFICE EQUIPMENTS RS. 4,645 /- TOTAL RS. 4,30,041/- DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND TH AT THE PLANT & MACHINERY AND DYES AND MOULDS WERE NOT USED FOR THE BUSINESS PURPOSES DURING THE YEAR AND HENCE DEPRECIATION ON THESE ASS ETS WAS NOT ALLOWABLE. ITA NOS. 4893 & 4894/D/2011 4 ACCORDINGLY, DEPRECIATION ON PLANT & MACHINERY AT R S. 2,75,201/- AND ON DYES AND MOULDS AT RS. 7,903/- TOTALING RS. 2,93,104/- W AS DISALLOWED. ON APPEAL OF THE ASSESSEE THIS ADDITION WAS CONFIRMED BY THE CIT(A). NO FURTHER RELIEF HAS BEEN GRANTED BY THE HONBLE ITAT. IN THIS WAY AS ON DATE THIS ISSUE HAS BECOME FINAL. NO PLAUSIBLE EXPLANATION HAS BEEN OF FERED IN ITS REPLY ON THIS PROPOSED PENALTY ON THIS ISSUE. ON CONSIDERATION O F ALL RELEVANT AND ENTIRE FACTS IT IS OBSERVED THE ASSESSEE HAS MADE WRONG CL AIM OF DEPRECIATION OF RS. 2,93,104/- WHICH WAS NOT ALLOWABLE TO IT. IN THIS WAY THE ASSESSEE ATTEMPTED TO REDUCE ITS TAX LIABILITY AND FURNISHED INACCURAT E PARTICULARS OF INCOME TO THE EXTENT OF SAME AMOUNT. 4. IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY I N REGARD TO THE PENAL ACTION CONSEQUENT TO ADDITION MADE ON ACCOUNT OF UN DERVALUATION OF CLOSING STOCK OF RAW MATERIAL IN RESPECT OF POLYSTER FILM I N ITS C-27 UNIT, IT WAS URGED THAT THE AO HAD MADE THE ADDITION OF RS. 7.50 LACS IN RESPECT OF UNDERVALUATION OF CLOSING STOCK OF RAW MATERIAL COM PRISING OF 5200 MTRS. OF POLYESTER FILM ROLLS. IN THE QUANTUM PROCEEDINGS, THE AO HELD THAT THE CLOSING STOCK OF POLYESTER FILM ROLLS HAD BEEN VALUED AT RS . 3100/- PER ROLL, WHEREAS THE AVERAGE COST PRICE OF THE SAME WAS RS. 4300/- P ER ROLL. HENCE, THE AO DETERMINED THE EXTENT OF UNDERVALUATION BY MULTIPLY ING THE DIFFERENCE OF RS. 1200/- (RS. 4300 MINUS RS. 3100) WITH 625 ROLLS AND DERIVED A FIGURE OF RS. 7.50 LACS. 4.1 REFERRING TO THE QUANTUM PROCEEDINGS, IT WAS A RGUED THE CIT(A) VIDE ITS ORDER DATED 28.03.2001 IN APPEAL NO. 16/20 00-01 HAS HELD IN PARA 15.5 (PAGE 45) THAT 625 ROLLS OF POLYESTER FILMS HA D BEEN CORRECTLY VALUED @ RS. 3100/- PER ROLL AS MODVAT CREDIT HAD TO BE REDU CED FROM THE PURCHASE COST FOR DETERMINING THE VALUE OF CLOSING STOCK. HOWEVE R, WHILE ADJUDICATING THE SAID ISSUE, HE DIRECTED THAT 275 POLYESTER FILM ROL LS ACQUIRED ON 18.03.1997 WERE TO BE VALUED @ RS. 4091/- PER ROLL BY APPLYING FIFO METHOD BEING USED BY THE ASSESSEE. IN VIEW OF THE SAME, ADDITION OF RS. 2,47,732/- GOT SUSTAINED WHILE THE REMAINING ADDITION WAS DELETED. 4.2. ON ACCOUNT OF THESE REASONS IT WAS ARGUED THAT A PERUSAL OF THE PENALTY ORDER WHICH SHOWED THAT APART FROM STATING THAT ADDITION HAS BEEN ITA NOS. 4893 & 4894/D/2011 5 SUSTAINED IN THE QUANTUM PROCEEDINGS THERE IS NO FR ESH ARGUMENT BROUGHT OUT NOR ANY OTHER MATERIAL HAS BEEN DISCUSSED ADDRESSIN G ANY ACT OF CONCEALMENT OR FILING OF INACCURATE PARTICULARS BY THE ASSESSEE. IT WAS SUBMITTED THAT MERE SUSTENANCE OF ADDITION TOWARDS VALUATION OF CLOSING STOCK WOULD NOT AUTOMATICALLY LEAD TO LEVY OF PENALTY. I T WAS ALSO SUBMITTED THAT IT IS NOT THE CASE OF THE AO THAT ANY PHYSICAL QUANTITY O F CLOSING STOCK WAS NOT INCLUDED IN THE PROFIT & LOSS A/C. THE ADDITION IT WAS ARGUED HAS RESULTED MERELY ON ACCOUNT OF DIFFERENT VALUE OF RATE APPLIE D FOR DETERMINING THE CLOSING STOCK. THIS ISSUE IT WAS URGED AS SUCH CAN BE SAID TO BE CONTENTIOUS AND DEBATABLE AND WOULD TANTAMOUNT TO TWO DIFFERENT OPI NIONS REGARDING THE RATE AT WHICH CLOSING STOCK IS TO BE VALUED. IT WAS ALSO S UBMITTED THAT THERE IS NO REAL BENEFIT TO THE ASSESSEE SINCE THE CLOSING STOCK OF A PARTICULAR YEAR AUTOMATICALLY BECOMES THE OPENING STOCK OF THE SUBS EQUENT YEAR. 4.3. RELIANCE WAS ALSO PLACED UPON THE ORDER OF TH E TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-02 IN ITA NO. 991 /DEL/2008, WHEREIN WHILE ADJUDICATING ON A SIMILAR ISSUE PERTAINING TO ALLEG ED UNDERVALUATION OF WIP IT WAS HELD THAT THE VALUE OF CLOSING WIP IS DETERMIN ED ON ESTIMATE BASIS. THUS, IT WAS ARGUED WHERE THE QUANTITY WAS NOT FOU ND TO BE IN EXCESS, THE ADDITION MADE TO WIP ON ESTIMATE BASIS IT WAS HELD WOULD NOT LEAD TO LEVY OF PENALTY. 4.4. RELIANCE WAS ALSO PLACED UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD., 3 22 ITR 154 (SC). THE SAID SUBMISSIONS ARE FOUND DISCUSSED IN PARAS 6.1 TO 9 O F THE IMPUGNED ORDER. 4.5. CONSIDERING THE SAME, THE CIT(A) RELYING UPON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETRO PR ODUCTS LTD. CANCELLED THE PENALTY ON THIS GROUND HOLDING THAT THE ADOPTION OF RATE OF VALUATION CAN BE AN ACT OF GENUINE ERROR IN THE PECULIAR FACTS OF THE C ASE AND WAS DEBATABLE. MOREOVER THERE WAS NO CONCEIVABLE BENEFIT TO THE ASSESSEE AS THIS YEARS CLOSING STOCK OF RAW MATERIAL WOULD AUTOMATICALLY B ECOME THE OPENING STOCK OF ITA NOS. 4893 & 4894/D/2011 6 THE SUBSEQUENT YEAR AND IN FACTS AS AVAILABLE ON RE CORD THERE WAS NO UNDER DECLARATION OF PHYSICAL QUANTITY OF STOCK. 5. SIMILARLY IN REGARD TO THE NEXT ISSUE WHEREIN ON ACCOUNT OF THE ADDITIONS SUSTAINED ON ACCOUNT OF UNDERVALUATION OF STOCK LYING IN WORK IN PROGRESS. THE RELEVANT FACTS AND ARGUMENTS ARE FOU ND DISCUSSED IN PARAS 12 AND 13 OF THE IMPUGNED ORDER WHICH READ AS UNDER: - 12. THE RELEVANT FACTS IN THIS REGARD ARE THAT C LOSING WIP OF RS. 2,50,33,880/- WAS DECLARED IN THE BALANCE SHEET AS ON 31.03.1997. IT WAS HOWEVER, STATED IN THE BALANCE SHEET THAT THE CLOSI NG WIP HAS BEEN VALUED AT COST OF RAW MATERIAL PLUS CONVERSION COST, WHERE VER APPLICABLE. THE AO IN THE QUANTUM PROCEEDINGS ENHANCED THE VALUE OF CL OSING WIP BY 20% ON AN AD HOC BASIS ON ACCOUNT OF UNDER VALUATION OF CL OSING WIP. THUS, THE ADDITION MADE WAS OF RS. 50,06,776/-. IN THE APPEL LATE PROCEEDINGS, IT WAS HELD BY CIT(A) THAT THE ENTIRE AD HOC ADDITION WAS NOT JUSTIFIED AND THERE WERE ONLY TWO UNITS WHERE REASONABLE INDIRECT COSTS INCURRED WERE REQUIRED TO BE ADDED TO THE VALUE OF CLOSING WIP DE CLARED IN THE AUDITED BALANCE SHEET. THUS, AS PER THE APPELLATE DIRECTIO NS IN CIT(A) ORDER, A RELIEF OF RS. 42,99,418/- WAS GRANTED AND AN ADDITI ON OF RS. 7.07,358/- GOT SUSTAINED. IN THE APPEAL FILED BY THE REVENUE BEFO RE THE ITAT, THE ORDER OF CIT(A) WAS UPHELD, RATHER THE QUANTUM SUSTAINED IN APPELLATE PROCEEDINGS GOT FURTHER REDUCED MARGINALLY, IN THE CROSS APPEAL OF THE ASSESSEE. 13. AT THE OUTSET IT IS THE SUBMISSION OF THE APPEL LANT THAT IDENTICAL ISSUE CONCERNING UNDER VALUATION OF CLOSING STOCK OF WIP FOR WHICH CONCEALMENT PENALTY WAS LEVIED DURING AY 2001-02 HAS BEEN ADJUD ICATED BY ITAT, NEW DELHI IN ITA NO. 991/D/2008. IN PARA 6.2 OF THE SA ID ORDER, THE ACTION OF THE CIT(A) IN DELETING THE IMPUGNED PENALTY IN RESP ECT OF THE ABOVE DISCUSSED ISSUE HAS BEEN CONFIRMED. 5.1. CONSIDERING THE SAME THE CIT(A) RELYING UPON T HE ORDER OF THE TRIBUNAL QUASHED THE PENALTY ORDER ON THIS COUNT. THE FACTS WERE FOUND TO BE SIMILAR AS IN THE SAID ORDER IN ASSESSEES OWN CAS E THAT ADDITION MADE ON THE BASIS OF ENHANCING THE VALUE OF CLOSING WIP ON AN E STIMATE BASIS WHEREIN THERE WAS NO DIFFERENCE ON ACCOUNT OF QUANTITY FOUN D NOR RATE DIFFERENCE THE ADDITION HAVING BEEN MADE PURELY ON AN ESTIMATE BAS IS PENAL ACTION WAS HELD TO BE NOT MAINTAINABLE. ITA NOS. 4893 & 4894/D/2011 7 6. ON THE NEXT ISSUE WHICH LEAD TO THE IMPOSITION O F PENALTY IT WAS ARGUED THAT THE ADDITION BY WAY OF DISALLOWANCE OF DEPRECIATION IN REGARD TO UNIT C-90, NOIDA WAS SO SMALL NAMELY RS.2,93,104/- THAT THE ASSESSEE DID NOT CHALLENGE IT IN APPEAL BEFORE THE CIT(A). HOWEVER IT WAS ARGUED THAT IT WAS NOT A CASE OF FURNISHING OF INACCURATE PARTICULARS AS DEPRECIATION ON PLANT AND MACHINERY AND DYES AND MOULD HAD BEEN CLAIMED UNDER THE CONCEPT OF BLOCK OF ASSETS IT WAS SUBMITTED THAT IN THIS CONCEPT TH E INDIVIDUAL ASSETS LOOSE THEIR IDENTITY AND DEPRECIATION IS ALLOWABLE ON THE ENTIR E BLOCK. IT WAS SUBMITTED THAT IT IS AN UNDISPUTED FACT THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS ACTIVITY DURING A.Y. 1997-98 AND WAS ELIGIBLE TO CL AIM DEPRECIATION ON ITS ENTIRE BLOCK OF PLANT AND MACHINERY. IT WAS SUBMITTED THA T SIMPLY BECAUSE THE AMOUNT WAS CONSIDERED TO BE TOO SMALL AND WAS NOT P RESSED IN THE APPELLATE PROCEEDINGS WOULD NOT TANTAMOUNT TO CONCEALMENT. R ELIANCE WAS PLACED UPON CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158 & CIT VS. IFCI LTD. 328 ITR 611. 6.1. CONSIDERING THE ARGUMENTS THE CIT(A) WAS OF T HE VIEW THAT THE CLAIM OF DEPRECIATION BASED ON THE CONCEPT OF BLOCK OF ASSETS WAS BACKED BY THE FOLLOWING CASE LAWS: - I) PACKWELL PRINTER VS. ACIT 59 ITD 34 (JABALPUR) II)NATCO EXPORTS VS. DCIT 86 ITD 445 (HYD.) III)SOUTH EASTERN COALFIELDS LTD. VS. JT. CIT 85 IT D 608 (NAG.) IV)DCIT VS. UDAIPUR DISTILLERY CO. LTD. 74 TTJ 193 (JODH.) 6.2. CONSIDERING THE SAME HE WAS OF THE VIEW THAT T HESE CASE LAWS HOLD THAT EVEN IF SOME PART OF BLOCK OF ASSETS IS NOT US ED, DEPRECIATION ON THE SAME CANNOT BE DENIED. HE ALSO TOOK INTO CONSIDERATION T HAT THERE WAS A DIVERGENT VIEW ALSO WHEREIN IT HAS BEEN HELD THAT DEPRECIATIO N CANNOT BE ALLOWED ON THE PORTION OF THE BLOCK OF ASSETS WHICH HAD NOT BEEN U SED BY THE ASSESSEE. RELEVANT CITATIONS BACKING THIS PROPOSITION WERE A S UNDER: - I) ACIT VS. JAGDISH C. SETH 101 ITD 360 (MUM.) ITA NOS. 4893 & 4894/D/2011 8 II)NATHANI STEELS LTD. VS. DCIT 57 ITD 584 (MUM.) 6.3. ON ACCOUNT OF THESE REASONS HE HELD THAT THE I SSUE IS DEBATABLE AS SUCH HE WAS OF THE VIEW THAT THE ASSESSEE COULD NOT BE SADDLED WITH A PENALTY FOR CONCEALMENT. RELIANCE WAS ALSO PLACED UPON CI T VS. RELIANCE PETRO PRODUCTS PVT. LTD. 32 ITR 158 (S.C.) & CIT VS. IFCI LTD. 328 ITR 611 (DELHI). 7. AGGRIEVED BY THESE ACTIONS THE REVENUE IS IN AP PEAL BEFORE THE TRIBUNAL. 7.1. LD. DR RELYING UPON THE PENALTY ORDER CONTENDE D THAT THE IMPUGNED ORDER DESERVES TO BE SET ASIDE AND THE PENALTY ORDE R UPHELD. IT WAS ARGUED THAT IN THE QUANTUM PROCEEDINGS THERE WAS UNDER VAL UATION OF CLOSING STOCK OF RAW MATERIAL IN RESPECT OF POLYSTER FILM C-27AND CALCULATIONS OF THE ASSESSEE WERE NOT CORRECT. IT WAS VEHEMENTLY CONTENDED THAT THE ASSESSEE COULD NOT ADDRESS THE ASPECT AS TO HOW RATE OF A DIFFERENT DA TE WAS BEING APPLIED. 7.2. ON THE SECOND ISSUE OF VALUATION OF WORK-IN- PROGRESS IT WAS HIS CONTENTION THAT THE ENHANCEMENT WAS DONE BASED ON P AST HISTORY. RELYING UPON THE FINDING IN THE QUANTUM ORDER PLACED ON PAG E 19 OF THE PAPER BOOK IT WAS HIS CONTENTION THAT ENHANCEMENT OF CLOSING WIP OF THE UNITS ON ACCOUNT OF LOADING OF PROPORTION OVERHEAD COSTS HAS BEEN THE B ASIS FOR THE ADDITION AS THAT ELEMENT IT HAS BEEN HELD CANNOT BE RULED OUT. 7.3. REFERRING TO THE THIRD ISSUE PERTAINING TO DE PRECIATION IN RESPECT OF C-90, NOIDA UNIT IT WAS HIS CONTENTION THAT THERE I S NO MENTION IN THE RETURN THAT THESE ASSETS WERE NOT USED. ADMITTEDLY IT HAS BEEN CORRECTLY HELD IN THE QUANTUM PROCEEDINGS THAT THIS CLAIM OF THE ASSESSEE COULD NOT BE ALLOWED. 8. LD. AR PLACED HEAVY RELIANCE ON THE IMPUGNED ORD ER. APART FROM THE FACTS AND ARGUMENTS ADDRESSED IN THE IMPUGNED O RDER AND THE JUDICIAL PRECEDENTS RELIED UPON THEREIN HEAVY RELIANCE WAS PLACED ON THE JUDGEMENT DATED 10.10.2011 IN ITA 626/DEL/2011 IN CIT VS M/S MAHANAGAR TELEPHONE NIGAM LTD. COPY OF THE SAME WAS FILED. ITA NOS. 4893 & 4894/D/2011 9 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDE RATION OF THE SAME WE ARE OF THE VIEW THAT THE IMPUGNED ORDER DESERVES TO BE UPHELD. BEING SATISFIED BY THE REASONING AND THE FINDING AR RIVED AT THEREIN ON EACH OF THE ISSUE IN THE FACTS AS THEY STAND WHIC H HAVE BEEN DISCUSSED AT LENGTH IN THE EARLIER PART OF THIS OR DER ON EACH OF THE ISSUES WE FIND OURSELVES UNABLE TO COME TO ANY CONT RARY FINDING. THE JUDGEMENT OF APEX COURT IN THE CASE OF RELIANCE PET RO PRODUCTS RELIED UPON BY THE CIT(A) AND THE PAST HISTORY OF THE ASSESSEE QUA THE ISSUES ADDRESSED ON THE FIRST TWO REASONS PREVA ILING WITH THE A.O. WHEREIN THE ORDER OF THE COORDINATE BENCH HAVE BEE N RELIED UPON BY THE CIT(A) ON FACTS CANNOT BE FAULTED WITH. WE FURTHER FIND SUPPORT FROM THE JUDGEMENT OF THE JURSIDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MAHANAGAR TELEPHONE NIGAM LTD. ON THE THIRD IS SUE ALSO THE VIEW ENTERTAINED ON FACTS HAD JUDICIAL SUPPORT AND THE IMPUGNED ORDER HAS CORRECTLY ON FACTS RELIED UPON THE JUDGEMENT OF THE APEX COURT IN THE CASE OF RELIANCE PETRO PRODUCTS. 10. ACCORDINGLY FOR THE REASONS GIVEN HEREINABOVE THE DEPARTMENT GROUND IS DISMISSED. 11. IN THE RESULT ITA 4893/DEL/2011 IS DISMISSED. ITA NOS. 4893 & 4894/D/2011 10 12. THE FACTS IN ITA 4894/DEL/11 FOR 1998-99 A.Y. A RE THAT THE ASSESSEE RETURNED AN INCOME OF RS.33,11,67,660/-. AS PER THE A.O. U/S 143(3) THE INCOME WAS DETERMINED AT RS.70,34,48 ,350/-. AGAINST THIS THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO VIDE ORDER DT. 18.6.2001 ALLOWED PARTIAL RELIEF. AGAINST THIS THE REVENUE CAME IN APPEAL BEFORE THE TRIBUNAL WHEREIN THE ORDER WAS PA SSED ON 17.7.2009. 12.1. CONSEQUENT TO THIS, SHOW CAUSE NOTICE WAS IS SUED TO THE ASSESSEE TO FINALISE THE PENDING PENALTY PROCEEDING S. AFTER CONSIDERING THE REPLY OF THE ASSESSEE PENAL ACTION WAS TAKEN ON ACCOUNT OF THE ADDITION SUSTAINED ON THE GROUND OF : A) UNDER VALUATION OF STOCK LYING IN WIP (RS.3,45,2 61); B) ADDITION SUSTAINED PERTAINING TO MAGNUM UNIT GRO UP HOUSING SOCIETY, ANDHERI (W), MUMBAI (RS.3,72,401); C) PROVISION FOR FOREIGN EXCHANGE FLUCTUATIONS (RS. 2,82,581); AND D) ADDITION MADE BY WAY OF DISALLOWANCE OF EXCESS D EDUCTION CLAIMED U/S 80-1A (RS.10,13,3561) 12.2. IN APPEAL AGAINST THE SAID ACTION BEFORE THE CIT(A) THE CIT(A) UPHELD THE PENAL ACTION QUA THE EXPENSES PERTAININ G TO THE FLAT AT MUMBAI, HOWEVER ON THE OTHER ISSUES HE CANCELLED TH E PENALTY IMPOSED. AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NOS. 4893 & 4894/D/2011 11 12.3. ON THE ISSUE OF UNDERVALUATION OF CLOSING STO CK LYING IN WIP HE QUASHED THE PENALTY FOLLOWING THE ORDER IN ITA 991 /DEL/2008 OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2000-2001. 12.4. CONSIDERING THE IMPOSITION OF PENALTY ON ACCO UNT OF EXCESS CLAIM OF DEDUCTION U/S 80-IA ON THE PROFITS OF THE ELIGIBLE UNIT C-26 THE CIT(A) ACCEPTED THE ARGUMENTS ON BEHALF OF THE ASSE SSEE IN HOLDING THAT THE REDUCTION IN THE QUANTUM OF DEDUCTION IS O N ACCOUNT OF CERTAIN OVERHEAD EXPENSES WHICH WAS HELD TO BE EVIDENT FROM THE CIT(A)S ORDER IN THE QUANTUM PROCEEDINGS WHICH CONCLUSION W AS FOUND SUPPORTED BY THE JUDGEMENT OF THE JURISDICTIONAL HI GH COURT IN THE CASE OF CIT VS DHARAM PAL PREM CHAND LAL 329 ITR 5 72 (DELHI) WHICH ITSELF HAD RELIED UPON CIT VS. RELIANCE PETRO PRODUCTS P.LTD. 322 ITR 158 (SC). THE FACTS WERE FOUND TO BE PARI MATERIAL. 12.5. ON THE REMAINING ISSUE OF PENAL ACTION ON ACC OUNT OF FOREIGN EXCHANGE FLUCTUATION LOSS HE OBSERVED THAT IN THE Q UANTUM PROCEEDINGS AO HAD MADE A DISALLOWANCE OF RS.3,85, 485/-. THE CIT(A) IN APPEAL IN THE QUANTUM PROCEEDINGS HE OBSE RVED HAD DELETED ALL ITEMS OF FOREIGN EXCHANGE LOSS EXCEPT R S.2,70,676/- WHICH WERE HELD TO BE CAPITAL IN NATURE; APART FROM THIS AN AMOUNT OF RS.11,905/- WAS SUSTAINED AS NECESSARY DETAILS WERE FOUND TO BE NOT AVAILABLE WITH THE ASSESSEE AT THE TIME OF HEARING. IT WAS URGED THAT IN THE PENALTY PROCEEDINGS THE AO HAS MERELY RELIED UPON THE FACT ITA NOS. 4893 & 4894/D/2011 12 THAT DISALLOWANCE HAS BEEN SUSTAINED IN PART. NOTH ING ELSE HAS BEEN BROUGHT ON RECORD TO ESTABLISH CONCEALMENT. CONSID ERING THESE ARGUMENTS CIT(A) CAME TO THE FOLLOWING CONCLUSION. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLAN T AND THE PENALTY ORDER. IT IS A SETTLED PROPOSITION OF LAW THAT THE ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT AS HELD IN THE CASE OF DHARAMCHAND L SHAH 204 ITR 46. IT HAS BEEN HELD BY THE SUPREME COURT IN CIT VS. RELIANCE PETRO PORUDCT S P.LTD. 322 ITR 158 THAT THERE IS A DIFFERENCE BETWE EN A WRONG CLAIM AND A FALSE CLAIM. IT WAS UP TO THE RE VENUE AUTHORITIES TO ACCEPT THE CLAIM IN THE RETURN OR NO T. MERELY BECAUSE THE ASSESSEE HAD CLAIMED EXPENDITURE WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT TOO BY ITSELF, WOULD NOT ATTRACT PENALTY U/S 271(A)(C ). IF THE CONTENTION OF THE REVENUE W AS ACCEPTED, THEN IN THE CASE OF EVERY RETURN WHERE TH E CLAIM WAS MADE AND NOT ACCEPTED BY THE A.O. FOR ANY REASON, THE ISSUE WOULD INVITE PENALTY U/S 271(A)( C ). THAT IS CLEARLY NOTE THE INTENDMENT OF THE LEGISLAT URE. FROM THE FACTS DISCUSSED ABOVE, OUT OF THE TOTAL DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS M ADE, A PART DISALLOWANCE FOR AN AMOUNT OF RS.2,70,676/- WAS UPHELD BEING OF CAPITAL NATURE AND AN AMOUNT OF RS.11,905/- WAS UPHELD FOR WANT OF RELEVANT DETAILS . THE DEBATE BETWEEN THE REVENUE AND CAPITAL EXPENDITURE IS A CONTENTIONS ISSUE HAVING MORE THAN ONE VIEW. IF TH E VIEW OF THE ASSESSEE WAS NOT ACCEPTED IN QUANTUM PROCEEDINGS THAT BY ITSELF CANNOT LEAD TO LEVY OF P ENALTY FOR CONCEALMENT. FURTHER, IF THE ASSESSEE AT THE T IME OF HEARING COULD NOT PRODUCE DETAILS FOR AN AMOUNT OF RS.11,905/-, THE SAME CANNOT LEAD TO A CONCLUSION REGARDING FILING OF INACCURATE PARTICULARS. IN VIE W OF THE SAME AND THE LEGAL POSITION DISCUSSED ABOVE, THE PENALTY ON DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUA TION LOSS AGGREGATING RS.2,82,581/- IS HEREBY DELETED. 13. AGGRIEVED BY THE ABOVE ACTION THE REVENUE IS IN APPEAL BEFORE US. ITA NOS. 4893 & 4894/D/2011 13 14. LD.D.R. PLACED HEAVY RELIANCE UPON THE PENALTY ORDER. IN REGARD TO THE FIRST ISSUE OF UNDERVALUATION OF STOC K LYING IN WORK-IN- PROGRESS IT WAS SUBMITTED THAT ARGUMENTS QUA THE SA ME ISSUE IN THE EARLIER YEAR WOULD APPLY HERE ALSO. IN REGARD TO T HE EXCESS CLAIM OF DEDUCTION CLAIMED IT WAS HIS ARGUMENT THAT SINCE THE ASSESSEE IS RELYING UPON A BENEFICIAL PROVISIONS HE OUGHT TO HA VE BEEN DOUBLY SURE WHILE MAKING ITS CLAIM. IN REGARD TO THE NEXT ISSUE OF FOREIGN EXCHANGE FLUCTUATION WHICH HAS LED TO THE PENAL ACT ION BEING QUASHED IT WAS HIS ARGUMENT THAT THE SAID CLAIM HAD 2 LIMBS; FIRST IN REGARD TO THE CLAIM OF AN AMOUNT WHICH WAS HELD TO BE CAPITAL IN NATURE THE CLAIM WAS ADMITTEDLY AND PATENTLY WRONG AS THE EXPENSES NECESSARILY HAD TO BE CAPITALIZED AND IN R EGARD TO THE OTHER LIMB THE RELEVANT DETAILS WERE NOT AVAILABLE . ACCORDINGLY RELYING ON THE PENALTY ORDER IT WAS SUBMITTED THAT THE IMPUGNED ORDER BE SET ASIDE AND THE PENALTY ORDER BE UPHELD. 15. THE LD.A.R. ON THE OTHER HAND RELYING UPON THE IMPUGNED ORDER STATED THAT THE FACTS AND ARGUMENTS QUA THE P ENAL ACTION ON ACCOUNT OF ESTIMATED ADDITION IN REGARD TO VALUATIO N OF CLOSING STOCK LYING IN WIP AS ARGUED IN THE EARLIER YEAR MAY BE CONSIDERED HERE AS RELIANCE IS BEING PLACED ON ASSESSEES OWN ORDER RENDERED BY THE TRIBUNAL. THE JUDGEMENTS RELIED UPON THEREIN O N THE APPELLATE ITA NOS. 4893 & 4894/D/2011 14 ORDER AND IN THE COURSE OF THE HEARING IN THE FIRST APPEAL ARE BEING RELIED UPON HEREIN ALSO. 15.1. ON THE PENAL ACTION ON ACCOUNT OF EXCESS DE DUCTION CLAIMED U/S 80 IA RELYING UPON THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT RELIED UPON BY THE CIT(A) IT WAS STATED THE SAID ORDER DESERVES TO BE UPHELD. HEAVY RELIANCE WAS PLACED O N THE JUDGEMENT OF THE APEX COURT IN RELIANCE PETRO PRODU CTS AND THE FINE DISTINCTION DRAWN BY THEIR LORDSHIPS THEREIN B ETWEEN WRONG CLAIM AND A FALSE CLAIM. RELIANCE WAS ALSO PLACED ON CIT VS. MAHANAGAR TELEPHONE NIGAM LTD. CITED SUPRA. 15.2. SIMILARLY IN REGARD TO THE PENAL ACTION ON ACCOUNT OF THE ADDITION MADE BY WAY OF DISALLOWANCE OF FOREIGN EXC HANGE LOSS IT WAS ARGUED THAT APART FROM RELYING UPON THE IMPUGNE D ORDER AND THE JUDGEMENTS RELIED UPON THEREIN THE ASSESSEE WOULD A LSO RELY UPON CIT VS. MAHANAGAR TELEPHONE NIGAM LTD. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME WE FIND OURSELVES UNABLE TO COME TO A CONTRARY VIEW. QUA T HE PENAL ACTION ON ACCOUNT OF ESTIMATED ADDITION OF CLOSING STOCK L YING IN WIP THE IMPUGNED ORDER IS SUPPORTED BY THE ORDER OF THE COO RDINATE BENCH. THE FACTS AND CIRCUMSTANCES HAVE NOT BEEN SHOWN TO BE DIFFERENT IN THE YEAR UNDER CONSIDERATION AS SUCH NO INFIRMITY I N THE SAID ISSUE ITA NOS. 4893 & 4894/D/2011 15 CAN BE FOUND IN THE IMPUGNED ORDER. QUA THE ISSUE OF 80-IA DEDUCTION THE VIEW OF THE ASSESSEE HAD LEGAL BACKIN G AS IS EVIDENT FROM THE JUDGEMENTS REFERRED IN THE IMPUGNED ORDER. NO DOUBT THE ADDITION WAS SUSTAINED BUT THE ASSESSEES CLAIM CAN NOT BE SAID TO BE FALSE AS HELD BY THE APEX COURT IN RELIANCE PETR O PRODUCTS AND BY THE JURSIDICTIONAL HIGH COURT IN CIT VS. MAHANAG AR TELEPHONE NIGAM LTD. SIMILARLY THE VIEW OF THE CIT(A) IN REGA RD TO FOREIGN EXCHANGE FLUCTUATION LOSS ALSO FINDS SUPPORT FROM T HE ABOVE TWO DECISIONS. AS SUCH BEING SATISFIED BY THE REASONIN G AND FINDING OF THE CIT(A) THE DEPARTMENTAL GROUNDS ARE DISMISSED. 17. IN THE RESULT BOTH THE APPEALS FILED BY THE DEP ARTMENT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MARCH, 2012. SD/- SD/- (K.D.RANJAN) (DI VA SINGH) ACCOUNTANT MEMBER JUDICIAL ME MBER DT. THE 23 RD MARCH, 2012 *MANGA ITA NOS. 4893 & 4894/D/2011 16 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT (A); 5.DR 6.GUARD FILE BY ORDER DY. REGISTRAR // C O P Y //