DIGITAL ELECTRONICS LTD, MUMBAI V. JCIT (OSD) RG 8(1), MUMBAI

ITA 5451/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1872 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: NITESH JOSHIAR
• Keywords: Depreciation; Difference of opinion; Capital receipt
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI SAKTIJIT DEY(JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5451/MUM/2013 ASSESSMENT YEAR: 2007-08 DIGITAL ELECTRONICS LTD. VS. JCIT(OSD)8-1, AAY AKAR BHAVAN 86, JOLLY MAKER CHAMBERS NO.II, 225, MUMBAI.-4000 20 NARIMAN POINT, MUMBAI-400021 PAN NO. AAACD1798F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI,AR RESPONDENT BY : SHRI B. S. BIST, SR. DR DATE OF HEARING : 25.08. 2016 DATE OF PRONOUNCEMENT : 18.11.2016 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDE R OF THE COMMISSIONER (APPEALS) -16, MUMBAI AND ARISES OUT OF THE PENALTY IMPOSED U/S 271(1)(C) OF THE INCOME TAX ACT 1961 (THE ACT). 2. THE SOLE GROUND OF APPEAL BY THE ASSESSEE IS THA T THE LD. CIT(A) ERRED IN CONFIRMING THE PENALTY OF RS.70,93,850/- IMPOSED BY THE ASSESSING OFFICER (AO) U/S 271(1)(C) OF THE ACT WITHOUT APPRE CIATING THE FACT THAT THE ASSESSEE-COMPANY HAD MADE FULL AND TRUE DISCLOSURE OF RELEVANT FACTS IN THE FINANCIAL STATEMENT SUBMITTED ALONG WITH RETURN OF INCOME AND HAD NEITHER CONCEALED INCOME NOR FURNISHED INACCURATE PARTICULA RS OF SUCH INCOME. 3. IN A NUTSHELL, THE FACTS ARE THAT THE ASSESSEE F ILED ITS RETURN OF INCOME FOR THE A.Y. 2007-08 ON 30.10.2007 DECLARING TOTAL INCOME AT RS.5,33,93,427/-. THE AO COMPLETED THE ASSESSMENT U /S 143(3) ON ITA NO. 5451/MUM/2013 2 1.12.2009 ASSESSING THE TOTAL INCOME AT RS.7,48,17, 884/- AFTER MAKING DISALLOWANCE OF RS.3,49,457/- U/S 14A AND A FURTHER ADDITION OF RS.2,10,75,000/- UNDER THE HEAD SHORT TERM CAPITAL GAINS . THE AO HAS IMPOSED PENALTY U/S 271(1)(C ) ON THE ADDITION OF R S.2,10,75,000/- .THE UNDISPUTED FACT IS THAT THE ASSESSEE-COMPANY HAS CR EDITED RS.2,10,75,000/- BEING CAPITAL RECEIPT UNDER CAPITAL RESERVES. IT H AD ENTERED INTO JOINT VENTURE AGREEMENT (JVA) WITH LAND INSTRUMENTS INT ERNATIONAL LIMITED, UK ( LIIL OR JV PARTNER) IN MAY 27, 2005, PURSUANT T O WHICH THE ASSESSEE- COMPANY ALONG WITH THE JOINT VENTURE, PARTNER INCOR PORATED A VENTURE COMPANY NAMELY LAND DEL INFRARED PRIVATE LIMITED ( LAND DEL OR JV COMPANY). SUBSEQUENTLY, LIIL WAS TAKEN OVER BY AME TEK INC, USA AND ACCORDINGLY AS PER THE TERMS OF JVA THE ASSESSEE-CO MPANY DECIDED TO EXERCISE ITS OPTION TO SELL ALL THE SHARES OF THE J V COMPANY TO JV PARTNER. HOWEVER, PURSUANT TO DISCUSSION AND NEGOTIATION, TH E ASSESSEE-COMPANY WAIVED AND GAVE UP ALL ITS RIGHTS AND ENTITLEMENT T O SELL ITS SHARES AS PER THE TERMS OF THE JVA AND FOR WAIVING THIS RIGHT, THE AS SESSEE-COMPANY RECEIVED A SUM OF RS.2,10,75,000/-. 4. THE LD. CIT(A) CONFIRMED THE PENALTY IMPOSED BY THE AO ON THE FOLLOWING REASONS: IN THE INSTANT CASE, THE CLAIM OF THE RECEIPT AS BEING A CAPITAL RECEIPT WAS FOUND TO BE PATENTLY INCORRECT, AFTER EXAMINATION OF THE AGR EEMENT AND THE PROVISIONS OF LAW AND HENCE THE CLAIM OF THE APPELLANT CANNOT BE HELD TO BE A BONAFIDE CLAIM. THE FACTS ON RECORD CLEARLY SHOW THAT THE CLAIM WAS NOT ALLOWABL E AS HAS BEEN BROUGHT OUT IN THE ASSESSMENT ORDER AS ALSO UPHELD IN FIRST APPEAL, BR IEFLY MENTIONED IN THE FOREGOING PARAGRAPHS. THE APPELLANT MADE A CLAIM OF RECEIPT A S NOT TAXABLE WHEN IT IS NOT ALLOWABLE TO IT. IT IS NOT A CLAIM WHERE THERE IS A DEBATABLE ISSUE INVOLVED AND WHERE TWO VIEWS ARE POSSIBLE. ITA NO. 5451/MUM/2013 3 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TS THAT PURSUANT TO DISCUSSION AND NEGOTIATION, THE ASSESSEE-COMPANY WA IVED AND GAVE UP ALL ITS RIGHTS AND ENTITLEMENT TO SELL ITS SHARES AS PE R THE TERMS OF THE JVA AND FOR WAIVING THIS RIGHT, IT RECEIVED A SUM OF RS.2,1 0,75,000/-. FURTHER, IT IS STATED THAT THE ASSESSEE-COMPANY HAS CREDITED THE S AID RECEIPT OF RS.2,10,75,000/- TO CAPITAL RESERVE BEING CAPITAL P ROFIT. THE LD. COUNSEL FURTHER SUBMITS THAT THE ASSESSEE-COMPANY HAD ALL T IMES MADE DUE AND APPROPRIATE DISCLOSURE WHETHER IN ITS RETURN OF INC OME, FINANCIAL STATEMENTS DURING THE COURSE OF ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS. ALSO IT IS STATED BY HIM THAT THE ASSE SSEE-COMPANY HAD PRODUCED ALL THE RELEVANT DOCUMENTS PERTAINING TO I TS CLAIM ABOUT THE CONSIDERATION RECEIVED FOR WAIVER OF RIGHTS. THUS I T IS STATED THAT THERE IS NO ATTEMPT FROM THE SIDE OF THE ASSESSEE-COMPANY TO FU RNISH INACCURATE PARTICULARS. RELIANCE WAS PLACED BY HIM ON THE DEC ISION IN THE CASES OF CITVS. RELIANCE PETROPRODUCTS (P) LTD [2010] 189 TAXMAN 322 (SC) ; CIT VS. HARSHVARDHAN CHEMICALS AND MINERAL LTD . [2003] 133 TAXMAN 320 (RAJ.), ACIT VS. VIP INDUSTRIES [2009] 30 SOT 254 (MUM.); INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD. VS. DCIT [2010] 42 SOT 325 (MUM.). 6. THE LD. DR SUPPORTS THE ORDER OF THE LD. CIT(A) CONFIRMING THE PENALTY OF RS. 70,93,850/- IMPOSED BY THE AO U/S 271(1)(C) OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED T HE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE-COMP ANY HAS CREDITED RS.2,10,75,000/- BEING CAPITAL RECEIPT UNDER CAPITA L RESERVES. WE ALSO FIND THAT DOCUMENTS RELATING TO JVA WERE FILED BEFORE TH E AO AND THE LD. CIT(A) (P. 1-13 OF THE PAPERBOOK). ALSO THE LETTER OF CH ANGE IN CONTROLLING INTEREST IN LAND GROUP UK WAS FILED BY THE ASSESSEE-COMPAN Y BEFORE THE AO AS WELL AS THE LD. CIT(A) (P. 14 OF PAPERBOOK). WE ALS O FIND THAT THE WAIVER ITA NO. 5451/MUM/2013 4 AGREEMENT WAS FILED BEFORE THE AO AND THE LD. CIT( A)(P.16-22 OF THE PAPERBOOK). THUS ALL THE DETAILS RELEVANT TO THE RE CEIPT OF RS.2,10, 75,000/- WERE FILED BY THE ASSESSEE-COMPANY BEFORE THE AO AN D LD. CIT(A). THE DISPUTE IS WHETHER THE SAME IS A CAPITAL RECEIPT OR REVENUE RECEIPT OR CAPITAL GAINS. 7.1 NOW WE SHALL DISCUSS THE DECISIONS RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE. IN RELIANCE PETROPRODUCTS (P) LTD.(SUPRA) , THE HONBLE SUPREME COURT HELD THE FOLLOWING: THE WORD 'PARTICULARS' MUST MEAN THE DETAILS SUPPLI ED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDI NG TO TRUTH OR ERRONEOUS. IN THE INSTANT CASE, THERE WAS NO FINDING THAT ANY DET AILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCORRECT O R ERRONEOUS OR FALSE. SUCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF I NVITING THE PENALTY UNDER SECTION 271(1)(C). A MERE MAKING OF THE CLAIM, WHIC H IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING OF INAC CURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. [PARA 9]. 7.2 IN HARSHVARDHAN CHEMICALS AND MINERAL LTD.(SUPRA), THE HONBLE RAJASTHAN HIGH COURT HELD THAT WHERE ASSESSEE HAS CLAIMED CERTAIN AMOUNT AS DEDUCTION WHICH IS DEBATABLE BUT HAS NOT BEEN ALLOWED, IT CANNOT BE SAID THAT ASSESSEE HAS CONCEALED ANY INCOME OR F URNISHED INACCURATE PARTICULARS FOR EVASION OF TAX SO AS TO ATTRACT PEN ALTY UNDER SECTION 271(1)(C) 7.3 IN VIP INDUSTRIES(SUPRA) , THE TRIBUNAL HAS HELD : IN THE INSTANT CASE, THE ASSESSEE HAD BONA FIDEL Y MADE A CLAIM FOR DEDUCTION UNDER SECTION 35 IN RESPECT OF COST OF CAR PURCHASE D FOR THE PURPOSE OF R&D ACTIVITY BY DISCLOSING ALL THE NECESSARY PARTICULAR S IN THE AUDIT REPORT. THE FACTS THAT THE CAR WAS PURCHASED BY THE ASSESSEE AN D ALSO USED FOR THE PURPOSE OF THE BUSINESS HAD NOT BEEN CONTROVERTED B Y THE ASSESSING OFFICER. FURTHER, THE GRANTING OF DEPRECIATION AT 20 PER CEN T INSTEAD OF HUNDRED PER CENT DEDUCTION CLAIMED BY THE ASSESSEE SHOWED THAT THERE WAS A GENUINE DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER ON THIS ITA NO. 5451/MUM/2013 5 ASPECT OF THE MATTER. IT COULD NOT BE SAID THAT THE ASSESSEE, UNDER SUCH CIRCUMSTANCES, HAD CONCEALED ITS INCOME AND WAS CAU GHT WITHIN THE FOUR CORNERS OF SECTION 271(1)(C). THEREFORE, THE COMMIS SIONER (APPEALS) HAD RIGHTLY DELETED THE IMPUGNED PENALTY LEVIED UPON TH E ASSESSEE. [PARA 12]. 7.4 IN INDUSTRIAL DEVELOPMENT BANK OF INDIA LTD.(SUPRA), THE TRIBUNAL HAS HELD: IN THE INSTANT CASE, THE ASSESSEE HAD MADE A CLAIM WHICH WAS NOT ONLY IN ACCORDANCE WITH SEVERAL DECISIONS OF THE CO-ORDINAT E BENCHES BUT ALSO ENTIRELY BASED ON A POSSIBLE CONSTRUCTION OF CERTAI N LEASE AGREEMENTS. IT WAS NOT A FRIVOLOUS, ABSURD OR PATENTLY INADMISSIBLE CL AIM THAT HAD BEEN MADE BY THE ASSESSEE. THEREFORE, THE EXPLANATION FOR THE LE GAL CLAIM OF DEPRECIATION MADE BY THE ASSESSEE COULD NOT BE SAID TO BE A WHOL LY FANTASTIC OR UNACCEPTABLE EXPLANATION. [PARA 9] FOR ALL THESE REASONS, AND IN THE LIGHT OF THE SETT LED LEGAL POSITION DISCUSSED ABOVE, IT WAS INDEED NOT A FIT CASE FOR CONFIRMATIO N OF IMPUGNED PENALTY. THEREFORE, THE ASSESSING OFFICER WAS TO BE DIRECTED TO DELETE THE IMPUGNED PENALTIES IN RESPECT OF DEPRECIATION ON LEASED ASSE TS. [PARA 10] 7.5 WE CONCLUDE THAT IN THE INSTANT CASE, THE DETAI LS RELATING TO JVA WERE DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME A ND FINANCIAL STATEMENTS. A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF I NCOME. EXAMINED ON THE TOUCHSTONE OF THE LEGAL PRINCIPLES DELINEATED HERE- IN-ABOVE, THE ORDER OF THE LD. CIT(A) SUSTAINING THE PENALTY OF RS. 70,93,850/ - IMPOSED BY THE AO U/S 271 (1) (C ) OF THE ACT IS CANCELLED. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/11/2016. SD/- SD/- (SAKTIJIT DEY) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMB ER MUMBAI; DATED: 18 /11/2016 AKS/ ON TOUR (DOC) ITA NO. 5451/MUM/2013 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY O RDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI