IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO.5496/MUM/2012 ( / ASSESSMENT YEAR: 2007-08) UNILAKH CONCRETE 504, DHAWAL APARTMENT, FACTORY LANE, BORIVALI (W), MUMBAI-400 092 / VS. INCOME TAX OFFICER-15(3)(2), 1 ST FLOOR, MATRU MANDIR, INCOME TAX OFFICE, GRANT ROAD, MUMBAI ./! ./PAN/GIR NO. AABFU 3891 Q ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ' % & / APPELLANT BY : SHRI HITESH M. SHAH #$ ' % & / RESPONDENT BY : SHRI PAVAN KUMAR VERMA ' ()* % +, / DATE OF HEARING : 23.09.2014 -./ % +, / DATE OF PRONOUNCEMENT : 19.11.2014 0 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-26, MUMBAI (CIT(A) FOR SH ORT) DATED 03.07.2012, CONFIRMING THE LEVY OF PENALTY U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2007-08 VIDE ORDER DATED 29.06.2010. 2. THE FACTS OF THE CASE, WHICH ARE SIMPLE AND UNDI SPUTED, IN BRIEF ARE THAT THE ASSESSEE, A FIRM ENGAGED AS GOVERNMENT CIVIL CONTRA CTORS AND BUILDING MATERIAL SUPPLIERS, WAS DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , INITIATED BY THE ISSUE OF NOTICE U/S. 143(2) ON 09.07.2002, FOUND TO HAVE CLAIMED A LOSS OF RS.33,97,808/-, WHICH WAS A 2 ITA NO. 5496/MUM/2012 (A.Y. 2007-08) UNILAKH CONCRETE VS. ITO CAPITAL LOSS, HAVING BEEN SUSTAINED ON THE SALE OF MACHINERY TO ITS SISTER CONCERN, M/S. CHIRAG CONSTRUCTIONS. THE REASON FOR THE SALE WAS E XPLAINED TO BE THE NON-USER OF THE SAID MACHINERY AS THE RELEVANT PROJECT WAS NOT COMPLETE. THE SAID CLAIM, CLEARLY INADMISSIBLE U/S.28 OR U/S. 37(1), WAS ACCORDINGLY DISALLOWED, A ND PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT INITIATED ALONG WITH, I.E., VIDE ASSESSM ENT U/S.143(3) DATED 24.12.2009. IT IS ON THIS SUM THAT THE PENALTY STANDS LEVIED, AND HAVING BEEN CONFIRMED BY THE FIRST APPELLATE AUTHORITY, FORMS THE SUBJECT MATTER OF APPEAL BEFOR E US AT THE INSTANCE OF THE ASSESSEE. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE AUTHORITIES BELOW HAVE IMPOSED AND SUSTAINED TH E PENALTY ON THE GROUND THAT THERE WAS, IN-AS-MUCH THE LOSS WAS UNDENIABLY A CAP ITAL LOSS, NO BASIS TO THE ASSESSEES CLAIM OF THE SAME AS BEING EITHER A BUSINESS EXPEND ITURE U/S.37(1) OR EVEN A BUSINESS LOSS, I.E., A LOSS SUFFERED IN THE ORDINARY COURSE OF BUS INESS (I.E., U/S.28). THE MACHINERY TRANSIT MIXER WAS A CAPITAL ASSET, ON WHICH DEPRE CIATION, A CAPITAL ALLOWANCE, HAD BEEN CLAIMED BY THE ASSESSEE FROM TIME TO TIME AND, ACCO RDINGLY, ALLOWED. IN THE VIEW OF THE REVENUE, THE ASSESSEE HAD DELIBERATELY MADE AND PUR SUED AN ABSOLUTELY WRONG CLAIM, WHICH WOULD NOT HAVE COME TO LIGHT BUT FOR THE ASSE SSEES RETURN FOR THE RELEVANT YEAR BEING SUBJECT TO VERIFICATION PROCEEDINGS UNDER THE ACT. THE ASSESSEES CLAIM, MADE PER ITS AUDITED ACCOUNTS, WAS ONLY INTENTIONAL AND, IN ANY CASE, NOT BONA FIDE . THE ASSESSEES CASE, ON THE OTHER HAND, IS THAT A MERE WRONG CLAIM WOULD NOT BY ITSELF RENDER THE ADJUSTMENT TO THE INCOME AS RETURNED LIABLE TO PENA LTY. DIFFERENCE OF OPINION IN RESPECT OF CAPITAL AND REVENUE EXPENDITURE HAS, IN FACT, B EEN AN ABIDING SOURCE OF CONFLICT OF OPINION. NO FALSITY, THUS, COULD BE ASCRIBED TO ITS CLAIM. THE DEFICIENCY OF THE TRANSFER VALUE (RS.15.73 LACS ), I.E., WITH REFERENCE TO ITS WRITTEN DOWN VALUE (RS.49.71 LACS), WOULD ONLY IMPL Y A POSITIVE WDV OF THE RELEVANT BLOCK OF ASSETS, I.E., TO THAT EXTENT (S. 43(6)(C)) . EVEN IF THE ASSET SOLD OR TRANSFERRED WERE TO BE THE ONLY ASSET IN THE RELEVANT BLOCK OF ASSET S, THE ENTIRE SURPLUS ON SUCH TRANSFER IS TO BE CONSIDERED AS SHORT-TERM CAPITAL GAIN U/S.50. A DEFICIENCY, ON THE OTHER HAND, WOULD CONTINUE TO FORM PART OF THE WDV OF THE RELEVANT BL OCK OF ASSETS, EXIGIBLE TO 3 ITA NO. 5496/MUM/2012 (A.Y. 2007-08) UNILAKH CONCRETE VS. ITO DEPRECIATION. WHAT, THEREFORE, WE WONDER, IS THE BASIS OF THE ASS ESSEES CLAIM OF THE SAID DEFICIENCY AS BEING EITHER A BUSINESS LOSS OR EXPEN DITURE ? THE ASSESSEES CASE IS, THUS, SANS ANY EXPLANATION. THIS BECOMES ALL THE MORE SO AS I TS ACCOUNTS ARE DULY AUDITED, SO THAT IT HAD ACCESS TO LEGAL COUNSEL, CLAIMING RATHE R DEPRECIATION ON THE SAID CAPITAL ASSET FROM YEAR TO YEAR. THE LAW ON PENALTY FOR CONCEALMENT AND/OR FURNISHIN G OF INACCURATE PARTICULARS OF INCOME U/S. 271(1)(C) OF THE ACT HAS BEEN THE SUBJE CT MATTER OF SEVERAL DECISIONS BY THE APEX COURT, CRYSTALLIZING INTO A DICTUM THAT A PLAU SIBLE EXPLANATION SAVES PENALTY. WHERE, THEREFORE, THE ASSESSEE FURNISHES AN EXPLANATION, I .E., FOR MAKING THE CLAIM, WHICH IS BORNE OUT BY THE MATERIAL ON RECORD, SO THAT ALL THE MATE RIAL FACTS HAVE BEEN DISCLOSED, NO PENALTY COULD BE LEVIED. THIS IS AS THE ASSESSEE IS SQUARELY WITHIN HIS RIGHT TO MAKE A CLAIM WHICH COULD ARISE, GIVEN THE POSITION OF LAW, IN THE FACTS AND CIRCUMSTANCES OF ITS CASE. ALL, THEREFORE, DEPENDS ON THE RETURN OF INCO ME, AND THE DISCLOSURE/S MADE THEREBY, EVEN AS CLARIFIED BY THE APEX COURT IN CIT V. RELIANCE PETROPRODUCTS (P.) LTD . [2010] 322 ITR 158 (SC), RELIED UPON BY THE ASSESSEE. IT IS IN THIS CONTEXT THAT ITS OBSERVATION THEREIN THAT A MERE WRONG CLAIM WOULD NOT ATTRACT PENALTY I S TO BE READ AND UNDERSTOOD. THE SAID DECISION DOES NOT DETRACT FROM, AND IS TO BE READ I N CONFORMITY AND HARMONY WITH A CATENA OF DECISIONS BY THE APEX COURT IN THE MATTER, VIZ. CIT V. ATUL MOHAN BINDAL [2009] 317 ITR 1 (SC); UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277 (SC); GULJAG INDUSTRIES V. CTO [2007] 293 ITR 584 (SC); K.P. MADHUSUDHANAN VS. CIT [2001] 251 ITR 99 (SC); B.A. BALASUBRAMANIAM AND BROS V. CIT [1999] 236 ITR 977 (SC); ADDL. CIT VS. JEEVAN LAL SHAH [1994] 205 ITR 244 (SC); CIT VS. K. R. SADAYAPPAN [1990] 185 ITR 49 (SC); AND CIT VS. MUSSADILAL RAM BHAROSE [1987] 165 ITR 14 (SC). IT IS IN FACT FOR THIS REASON, I.E., THE ASSESSEES RETURN (OF WHICH ITS ACCOUNTS ARE ALSO A PART), THAT THE REVENUE IN THE INSTANT CASE CONSIDERS THE IMPUGNED CLAIM AS INTENTIONAL AND NOT BONA FIDE . THERE IS IN FACT NO REQUIREMENT IN LAW TO TRAVEL TO THIS ASPECT; MENS REA BEING NOT AN ESSENTIAL INGREDIENT OF PENALTY. THE C LAIM BY THE ASSESSEE BEING ONLY A RESULT OF A DELIBERATE ACTION ON HIS P ART, THE LAW PLACES THE ONUS FOR A REASONABLE EXPLANATION, AS WELL AS TO ESTABLISH THE BONA FIDES THEREOF, ON HIM. PROPER 4 ITA NO. 5496/MUM/2012 (A.Y. 2007-08) UNILAKH CONCRETE VS. ITO DISCLOSURE OF ALL THE MATERIAL FACTS, WHICH IS IN F ACT MANDATED BY LAW AS A CONDITION PRECEDENT FOR ESCHEWING PENALTY, BECOMES A NECESSAR Y ADJUNCT TO ESTABLISH BONA FIDES . QUA DISCLOSURE, WE OBSERVE THE ASSESSEE TO HAVE CLAIMED THE IMPUGNED LOSS PER ITS PROFIT AND LOSS ACCOUNT; THE DEBIT ENTRY IN ITS RESPECT RE ADING AS: TO T.M. LOSS. THE SAME DOES NOT CONVEY ANYTHING; RATHER, GIVES AN IMPRESSION OF A LOSS INCURRED ON TRADING ACCOUNT THE SAME HAVING BEEN DEDUCTED IN COMPUTING THE GROS S PROFIT. IT IS ONLY UPON ENQUIRY IN THE ASSESSMENT PROCEEDINGS THAT IT WAS FOUND TO BE IN FACT QUA A LOSS SUSTAINED ON SALE OF MACHINERY, DESCRIBED AS TRANSIT MIXER, NO LONGER REQUIRED FOR ITS PURPOSES BY THE ASSESSEE. CLEARLY, THEREFORE, THERE HAS BEEN NO DIS CLOSURE, MUCH LESS PROPER AND, IN FACT, ONE WHICH COULD BE SAID TO BE MISLEADING. EVEN THE AUDIT REPORT BY ITS AUDITORS, AS OBSERVED BY THE REVENUE, OMITTED TO REPORT THE SAME , I.E., PER THE MAIN AUDIT REPORT; THE NOTES TO THE ACCOUNTS; OR EVEN THE SPECIFIC AUDIT R EPORT IN FORM 3CD. AS OBSERVED DURING HEARING ITSELF, THE CORRECT STATEMENT OF SALE VALUE , WHICH IS WRONGLY STATED AS AT THE WDV OF THE MACHINERY ITSELF, RESULTING IN NO SURPLUS OR DEFICIENCY, WOULD HAVE REVEALED THE CORRECT STATE OF AFFAIRS (REFER: SCHEDULE 5 TO THE BALANCE SHEET/PB PGS. 11-17). THE AUDITORS WERE, THUS, EITHER COMPLICIT OR NEGLIGENT IN DISCHARGE OF THEIR ATTEST FUNCTION. THE REQUIREMENT OF CLAUSE (B) OF EXPLANATION 1 TO SECTION 271(1)(C) REMAINS UNSATISFIED. RATHER, AS WE SEE IT, THE ASSESSEE HAS NOT FURNISHE D ANY EXPLANATION WITH REGARD TO ITS CLAIM FOR DEDUCTION OF THE LOSS (ON THE SALE OF A C APITAL ASSET) IN COMPUTING ITS BUSINESS INCOME, SO THAT ITS CASE WOULD EQUALLY FALL UNDER EXPLANATION 1(A) TO THE PROVISION. WE, ACCORDINGLY, HAVE NO HESITATION IN UPHOLDING THE IM PUGNED ORDER IN PRINCIPLE. WE OBSERVE, HOWEVER, THAT THE IMPUGNED SUM, WHICH R EPRESENTS ONLY A DEFICIENCY, WITH REFERENCE TO THE WDV, OF THE SUM REALIZED ON T HE SALE OF MACHINERY, SHALL FORM PART OF THE WDV OF THE RELEVANT BLOCK OF ASSETS AND SUBJ ECT TO DEPRECIATION AT THE PRESCRIBED RATE. THE EXTANT RATE, SPECIFIED IN ANNEXURE A TO FORM 3CD (PB PG.29), IS 15%, SO THAT THE ASSESSEES CLAIM OF DEPRECIATION THEREON WOULD BE VALID. THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE LY FURNISHED, WOULD THUS BE 85% OF THE SAID DEFICIENCY, OR RS.28,88,130/-, I.E., EXCLU DING THE AMOUNT OF DEPRECIATION 5 ITA NO. 5496/MUM/2012 (A.Y. 2007-08) UNILAKH CONCRETE VS. ITO (RS.5,09,670/-) TO WHICH THE ASSESSEE IS ENTITLED I N LAW (REFER EXPLANATION 4(A) TO S. 271(1)(C)). WE DECIDE ACCORDINGLY, AND THE ASSESSEE GETS PART RELIEF. FINALLY, BEFORE PARTING, WE MAY ADDRESS THE ASSESSE ES RELIANCE ON OTHER CASE LAW. THE SAME WOULD BE OF NO CONSEQUENCE IN-AS-MUCH AS W E HAVE DECIDED THE ISSUE ARISING IN THIS APPEAL ON THE BASIS OF SETTLED LAW, ISSUING DE FINITE FINDINGS OF FACT. FURTHER, THE RECENT DECISION BY THE APEX COURT IN MAK DATA (P.) LTD. VS. CIT [2013] 358 ITR 593 (SC), AS WELL AS THAT BY THE HONBLE HIGH COURTS, AS IN CIT VS. USHA INTERNATIONAL LIMITED [2013] 214 TAXMANN.COM 519 (DEL); CIT VS. ESCORTS FINANCE LTD . [2010] 328 ITR 44 (DEL); AND CIT VS. ZOOM COMMUNICATION (P.) LTD . [2010] 327 ITR 510 (DEL.), APPLYING THE LAW IN DIFFERENT FACT SITUATIONS, CONFIRM THE CONTINUING P OSITION OF THE LAW IN THE MATTER. 4. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 1/+2 (341+ % 0 ) 5 + % + 6 ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 19, 2014 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' 7* MUMBAI; 8( DATED : 19.11.2014 ).(. ./ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' 9+ ( ) / THE CIT(A) 4. ' 9+ / CIT - CONCERNED 5. <)= #+(3 , , 3/ , ' 7* / DR, ITAT, MUMBAI 6. ?4 @* / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ' 7* / ITAT, MUMBAI