ACIT LTU, MUMBAI V. ASIAN PAINTS LTD, MUMBAI

ITA 6002/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1060 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2003-2004
• Appeal Filed On: 12-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: H N SHAH
• Keywords: Gift; Depreciation; Transfer pricing; Bad and doubtful debts
• Section: 92C; 143(3); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, D, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI R K PANDA, ACCOUNTANT MEMBER I T A NO: 6002/MUM/2009 (ASSESSMENT YEAR: 2003-04) ASSISTANT COMMISSIONER OF INCOME TAX LTU APPELL ANT MUMBAI VS M/S ASIAN PAINTS LIMITED, MUMBAI RESPONDENT (PAN: AAACA3622K) APPELLANT BY: MR JITENDRA YADAV RESPONDENT BY: MR H N SHAH O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE REVENUE RELATES TO THE ASSESSME NT YEAR 2003-04 AND IS DIRECTED AGAINST THE ORDER DATED 20. 07.2009 PASSED BY THE CIT(A) BY WHICH HE CANCELLED THE PENALTY OF RS.6,26,354/- IMPOSED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFAC TURE OF PAINTS. WHILE COMPLETING THE ASSESSMENT UNDER SECT ION 143(3) BY ORDER DATED 30.03.2006, THE ASSESSING OFFICER DISAL LOWED THE FOLLOWING CLAIMS MADE BY THE ASSESSEE: - (1) DEPRECIATION ON COMPUTER SOFTWARE RS.3,80,361/- (2) BAD DEBTS RS.5,71,644/- (3) ADDITION ON ACCOUNT OF TRANSFER PRICING RS.2,82,755 /- (4) GIFT ARTICLES PRESENTED RS.9,39,208/- 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL UP TO THE TRIBUNAL IN ITA NO: 5092/MUM/2007, WHICH WAS DISPOSED OF BY THE TRIBUNAL BY ORDER DATED 23.03.2010 ALONG WITH THE DEPARTMENT S APPEAL IN ITA NO: 5164/MUM/2007. A PERUSAL OF THE ORDER OF T HE TRIBUNAL SHOWS THAT THE DISALLOWANCE OF GIFT ARTICLES WAS RE DUCED TO 10% OF THE TOTAL EXPENDITURE AS AGAINST THE DISALLOWANCE M ADE BY THE AO. ITA NO: 6002/MUM/2009 2 SO FAR AS THE OTHER THREE ITEMS OF DISALLOWANCES AR E CONCERNED, THERE WAS NO APPEAL TO THE TRIBUNAL. 4. SUBSEQUENTLY THE AO INITIATED PENALTY PROCEEDING S FOR CONCEALMENT OF INCOME. THE ASSESSEE MADE DETAILED SUBMISSIONS WHICH WERE REJECTED BY THE AO, WHO IMPOSED THE IMPU GNED PENALTY IN RESPECT OF THE AFORESAID FOUR ITEMS. THE PENALT Y HAVING BEEN CANCELLED BY THE CIT(A), THE REVENUE IS IN APPEAL B EFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND EXAMINED THE FACTS. SO FAR AS THE GIFT ARTICLES ARE CONCERNED, IT IS AN ESTIMATED DISALLOWANCE FOR WHICH NO PENALTY CAN BE LEVIED. T HE AO DISALLOWED THE ENTIRE EXPENSES WHEREAS THE CIT(A) R EDUCED THE SAME TO 50%, WHICH WAS FURTHER REDUCED TO 10% BY TH E TRIBUNAL. A PERUSAL OF THE ORDER OF THE TRIBUNAL DOES NOT SHOW ANY ADVERSE FACTS OR CIRCUMSTANCES JUSTIFYING THE PENALTY. SIN CE IT IS ONLY A QUESTION OF ESTIMATE, WE UPHOLD THE DECISION OF THE CIT(A) THAT NO PENALTY WAS LEVIABLE WITH REFERENCE TO THE SAME. 6. AS REGARDS THE ADDITION MADE UNDER SECTION 92C F OR TRANSFER PRICING, WE FIND THAT THE CASE OF THE AO IS THAT SE RVICES OF CERTAIN EMPLOYEES OF THE ASSESSEE WERE SECONDED TO SUBSIDIA RY COMPANIES IN THE FOREIGN COUNTRIES SUCH AS FIJI, NE PAL AND SRI LANKA FOR COMPENSATION WHICH SHOULD HAVE BEEN MUCH MORE THAN WHAT WAS CHARGED BY THE ASSESSEE. THIS IS A SUBJEC TIVE QUESTION AND CANNOT LEAD TO THE CONCLUSION THAT THE ASSESSEE CONCEALED ITS INCOME. WHATEVER HAS BEEN ACTUALLY RECEIVED BY THE ASSESSEE HAS BEEN DISCLOSED AND THE CASE OF THE AO IS ONLY THAT THE COMPENSATION CHARGED WAS NOT ADEQUATE. THIS CANNOT FORM THE ITA NO: 6002/MUM/2009 3 BASIS OF THE LEVY OF PENALTY FOR CONCEALMENT OF INC OME. THE CIT(A) WAS THEREFORE JUSTIFIED IN CANCELLING THE PE NALTY. 7. AS REGARDS THE DEPRECIATION ON THE COMPUTER SOFT WARE, A PERUSAL OF PAGE 5 OF THE ASSESSMENT ORDER SHOWS THA T THE EXPENDITURE WAS INCURRED IN THE EARLIER YEARS ON CO MPUTERIZATION AND THE AMOUNT WAS CAPITALIZED. DEPRECIATION WAS B EING CLAIMED ON THE WRITTEN DOWN VALUE AND IN DOING SO THE ASSES SEE COMMITTED A MISTAKE IN THE RESULT THAT THE WRITTEN DOWN VALUE FOR THE YEAR UNDER APPEAL WAS TAKEN AT A HIGHER FIGURE THAN AT THE FIG URE AT WHICH IT SHOULD HAVE BEEN TAKEN. THIS RESULTED IN THE EXTRA DEPRECIATION CLAIMED IN THE AMOUNT OF RS.3,80,361/-. WE DO NOT SEE ANY JUSTIFICATION FOR LEVYING THE PENALTY BECAUSE IT WA S ONLY A MISTAKE COMMITTED BY THE ASSESSEE IN CALCULATING THE DEPREC IATION AND THE WRITTEN DOWN VALUE AND IN BRINGING FORWARD THE CORR ECT AMOUNT OF WRITTEN DOWN VALUE. ALL THE FACTS HAVE BEEN DISCLO SED BY THE ASSESSEE IN ITS RETURNS FOR THE EARLIER YEAR AND TH E PRESENT YEAR AS WELL. THE FIGURES OF WRITTEN DOWN VALUE AND DEPREC IATION ARE ALSO ON THE RECORD OF THE AO. SOME MISTAKE WAS COMMITTE D BY THE ASSESSEE IN BRINGING FORWARD THE FIGURE OF WRITTEN DOWN VALUE FOR WHICH NO PENALTY WAS IMPOSABLE. WE ACCORDINGLY UPH OLD THE DECISION OF THE CIT(A) TO CANCEL THE PENALTY. 8. AS REGARDS THE BAD DEBTS CLAIMED, THE ONLY OBJEC TION OF THE AO WAS THAT THE ASSESSEE DID NOT ADJUST THE SECURIT Y DEPOSITS MADE BY THE DEALERS WHILE WRITING OFF THE BAD DEBTS AND THE GROSS FIGURE OF THE DEBTS WAS WRITTEN OFF. EVEN IN THE DETAILS FIL ED BY THE ASSESSEE, THE ASSESSEE HAS STATED THAT GENERALLY BAD DEBTS AN D SECURITY DEPOSITS WERE ADJUSTED AGAINST EACH OTHER AND THAT A FINAL DECISION ITA NO: 6002/MUM/2009 4 TO ADJUST OR NOT IS TAKEN ON CASE TO CASE BASIS CON SIDERING VARIOUS PARAMETERS. IT IS FURTHER POINTED OUT THAT THE BAD DEBTS AROSE ON ACCOUNT OF BUSINESS TRANSACTIONS WHEREAS THE DEPOSI TS WERE TAKEN AS SECURITY FOR LEASE RENTALS AND BOTH BEING DIFFER ENT, WERE NOT ADJUSTED WHILE CLAIMING THE BAD DEBTS. THE AO HAS TAKEN THE VIEW THAT THE ASSESSEE OUGHT TO HAVE ADJUSTED THE SECURI TY DEPOSITS AGAINST THE BAD DEBTS AND SHOULD HAVE CLAIMED A LES SER AMOUNT, REFUSING TO ACCEPT THE ASSESSEES EXPLANATION THAT BOTH ARE ON DIFFERENT COUNTS. THE DISALLOWANCE OF THE BAD DEBT S HAS NO DOUBT BEEN ACCEPTED BY THE ASSESSEE BUT THAT DOES NOT MEA N THAT THE ASSESSEE HAS ALSO ADMITTED CONCEALMENT OF INCOME. ALL THE FACTS HAVE BEEN PLACED BEFORE THE AO AND THE ASSESSEE HAD EVEN EXPLAINED THAT THE SECURITY DEPOSITS AND BAD DEBTS ARE ON DIFFERENT COUNTS AND THEREFORE WERE NOT ADJUSTED AGAINST EACH OTHER. THIS CONTENTION WAS NOT ACCEPTED BY THE AO. HERE AGAIN IT IS A CASE OF THE ASSESSEES CLAIM NOT BEING ACCEPTED BY THE AO E VEN THOUGH ALL THE FACTS WERE BEFORE HIM. THE CIT(A) HAS RIGHTLY TAKEN THE VIEW THAT NO PENALTY IS IMPOSABLE. 9. IN THE RESULT, WE UPHOLD THE ORDER OF THE CIT(A) CANCELLING THE PENALTY AND DISMISS THE APPEAL FILED BY THE REVENUE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD JULY 2010. SD/- SD/- (R K PANDA) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 23 RD JULY 2010 SALDANHA ITA NO: 6002/MUM/2009 5 COPY TO: 1. M/S ASIAN PAINTS LIMITED ASIAN PAINTS HOUSE, 6A, SHANTINAGAR SANTACRUZ (EAST), MUMBAI 400 055 2. ACIT - LTU 3. CIT- LTU 4. CIT(A) - LTU 5. DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI