CREST ANIMATION STUDIOS LTD, MUMBAI V. ACIT CIR 11(1), MUMBAI

ITA 6039/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75225 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-01-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 04-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Bad and doubtful debts; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ./I.T.A. NO.6276/M/2010 (AY: 2003 - 2004 ) ACIT - 11(1), MUMBAI. / VS. M/S. CREST ANIMATION STUDIOS LTD., 501, RAHEJA PLAZA, L.B.S. MARG, GHATKOPAR (W), MUMBAI 400 086. ./I.T.A. NO.6039/M/2010 (AY: 2003 - 2004 ) M/S. CREST ANIMATION STUDIOS LTD., 501, RAHEJA PLAZA, L.B.S. MARG, GHATKOPAR (W), MUMBAI 400 086. / VS. ACIT - 11(1), MUMBAI. ./ PAN : AAACC 6134 C ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI VIJAY MEHTA / REVENUE BY : SHRI RAVI PRAKASH, DR / DATE OF HEARING : 7.1.2014 / DATE OF PRONOUNCEMENT : 7.1.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. ITA NO.6276/M/2010 IS FILED BY THE REVENUE AND APPEAL ITA NO.6039/M/2010 IS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2003 - 2004. THESE TWO APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A) - 3, MUMBAI DATED 28.5.2010. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN I N THE FOLLOWING PARAGRAPHS. 2. FIRSTLY, WE SHALL TAKE THE APPEAL ITA NO. 6039/M/2010 FILED BY THE ASSESSEE AND THE GROUNDS RAISED WITH REGARD TO THIS APPEAL READ AS UNDER: 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN LEVYING PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCE OF BAD DEBTS AMOUNTING TO RS. 1,15,974/ - . THE ASSESSEE PRAYS THAT THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT MAY PLEASE BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN LEVYING PENALTY U/S 271(1)(C) OF THE ACT IN RESPECT OF ADDITION MADE ON ACCOUNT OF NOTIONAL INTEREST AMOUNTING TO RS. 2,46,324/ - IN RES PECT OF THE FUNDS ADVANCED BY THE APPELLANT TO ITS SUBSIDIARIES FOR BUSINESS PURPOSES. THE ASSESSEE PRAYS THAT PENALTY LEVIED U/S 271(1)(C) OF THE ACT MAY PLEASE BE DELETED. 3. AT THE OUTSET, SHRI VIJAY MEHTA, LD COUNSEL FOR THE ASSESSEE FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE ON THE QUANTUM APPEAL FOR THE AY 2003 - 2004 VIDE ITA NO.5212/MUM/2007 AND MENTIONED THAT THE TRIBUNAL HAS DELETED THE QUANTUM ADDITION IN THE SAID APPEAL (SUPRA) AND THEREFORE, THE PENALTIES ARE NOT SUSTAINAB LE. IN THIS REGARD, BRINGING OUR ATTENTION TO THE GROUND NO.1 OF THE ASSESSEES APPEAL, LD COUNSEL MENTIONED THAT THE PENALTY RELATES TO THE ADDITION OF BAD DEBTS AND THE A SSESSEE GOT RELIEF IN THE TRIBUNAL ON QUANTUM ADDITION. IN ORDER TO SUBSTANTIATE THE SAME, LD COUNSEL BROUGHT OUR ATTENTION TO THE PARA 2.1.3 OF THE SAID ORDER OF THE TRIBUNAL DATED 4.10.2013 AND READ OUT THE RELEVANT CONTENTS WHICH READ AS UNDER: 2.1.3. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAR EFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF CLAIM OF BAD DEBTS ON ACCOUNT OF TDS. THE ASESSEE HAD RECEIVED AMOUNT SHORT TO THE EXTENT OF TDS FROM THE CLIENTS. HOWEVER, THE ENTIRE AMOUNT HAD BEEN SHOWN AS INCOME IN THE EARLIER YEARS. IT HAS BEEN SU BMITTED THAT THE PARTY DID NOT SUBMIT ANY TDS CERTIFICATE. THEREFORE, IT WAS NOT KNOWN WHETHER THE TAX WAS ACTUALLY DEDUCTED AND PAID TO THE CENTRAL GOVERNMENT. THE ASSESSEE, THEREFORE, COULD NOT CLAIM DEDUCTION ON ACCOUNT OF TDS. THE AMOUNT HAD, THEREFO RE, BEEN WRITTEN OFF AS A BAD DEBT. NO MATERIAL HAS BEEN PRODUCE BY THE REVENUE BEFORE US TO CONTROVERT THE CLAIM OF THE ASSESSEE THAT THERE WAS NO EVIDENCE OF ANY TAX DEDUCTED AND PAID TO THE CENTRAL GOVERNMENT. THE AMOUNT CLAIMED AS BAD DEBT HAD BEEN S HOWN AS INCOME IN THE EARLIER YEAR AND IT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND, THEREFORE, CONDITIONS REGARDING ALLOWABILITY OF BAD DEBT CLAIM ARE SATISFIED. THEREFORE, IN OUR VIEW, THE CLAIM OF THE ASSESSEE HAS TO BE ALLOWED ON THE FACTS OF THE CASE. WE THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) AND ALLOW THE CLAIM OF THE ASSESSEE. 4. FURTHER, LD COUNSEL ALSO BROUGHT OUR ATTENTION TO GROUND NO.2, WHERE THE PENALTY WAS LEVIED ON ACCOUNT OF ADDITION MADE BY WAY OF NOTIONAL INTEREST . IN THIS REGARD, HE BROUGHT OUR ATTENTION TO THE CONTENTS OF PARA 2.4.4 IN GENERAL AND FINDINGS GIVEN IN PAGE 11 OF THE TRIBUNALS ORDER IN PARTICULAR. THE RELEVANT PORTION FROM THE SAID PARA 2.4.4 READ AS UNDER: 2.4.4. ..THEREFORE, THE ADJUSTMENT MADE BY THE AO WHICH IS NOT AS EPR THE METHOD PRESCRIBED, CANNOT BE UPHELD. WE ARE ALSO UNABLE TO ACCEDE TO THE REQUEST OF THE LD CIT - DR TO SEND BACK THE MATTER TO AO CONSIDERING THAT THE MATTER VERY OLD 3 INVOLVING ASSESSMENT YEAR 2003 - 04 AND NO COMPARABL E HAS BEEN PLACED ON RECORD EVEN AT THIS STAGE. WE THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, SET ASIDE THE ORDER OF THE CIT (A) AND DELETE THE ADDITIONS MADE BY THE AO. 5. THUS, THE CONCEALMENT PENALTIES LEVIED ON ACCOUNT OF (I) BA D DEBTS AND (II) NOTIONAL INTEREST ARE FOUND DELETED BY THE TRIBUNAL IN QUANTUM APPEALS. THEREFORE, THE LEVY OF CONCEALMENT PENALTIES U/S 271(1)(C) OF THE ACT IS NOT SUSTAINABLE. ACCORDINGLY, THE PENALTIES ARE DELETED. THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . I.T.A. NO.6276/M/2010 (AY: 2003 - 2004) (BY REVENUE) 7. THIS APPEAL FILED BY THE REVENUE ON 20.8.2010 IS AGAINST THE ORDER OF THE CIT (A) - 3, MUMBAI DATED 28.5.2010. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT AMOUNTING TO RS. 37,26,540/ - . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE QUANTUM ADDITION IN RESPECT OF DEPRECIATION HAS BEEN CONFIRMED BY THE CIT (A) WHICH IS ONE OF THE ADDITION FOR CONSIDERATION OF THE PENALTY. 3. ON THE FACT S AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) FAILED TO OBSERVE THAT THE ASSESSEE HAD WRONGLY CLAIMED THE DEDUCTION OF DEFERRED TAX ADJUSTMENT OF RS. 17,47,985/ - BUT GIVEN UP THE CLAIM ONLY AFTER THE AO POINTED OUT THE SAME. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. 8. GROUND NO.1 IS GENERAL IN NATURE AND THE SAME IS DISMISSED AS GENERAL. 9. IN CONNECTION WITH GROUND NO.2 , LD COUNSEL MENTIONED THAT THE PENA LTY U/S 271(1)(C) IS N O T LEVYABLE IN RESPECT OF THE CLAIM OF DEPRECIATION WHICH WAS UPHELD BY THE CIT (A) IN QUANTUM ADDITIONS. IN THIS REGARD, LD COUNSEL BROUGHT OUT ATTENTION TO PARA 2.3.4 OF THE ORDER OF THE ORDER OF THE TRIBUNAL (SUPRA) DATED 4.10.2013, WH EREIN THE TRIBUNAL SET ASIDE THE ORDER OF THE CIT (A) AND DIRECTED THE AO TO ALLOW THE DEPRECIATION IN RELATION TO THE ADDITIONAL CUSTOM DUTY AND THE READ OUT THE RELEVANT PORTION FROM THE SAID PARA WHICH READ AS UNDER: 2.3.4. ..IN OUR VIEW THE ADDITION AL DUTY PAID BY THE ASSESSEE WILL BE ADDED TO COST OF ASSET EVEN IF THE PAYMENT HAD BEEN MADE LATER AND THE ASSESSEE WILL BE ENTITLED FOR DEPRECIATION IN RESPECT OF SUCH ADDITIONAL DUTY. WE DO NOT AGREE WITH THE FINDINGS OF 4 AUTHORITIES BELOW THAT THERE IS SOME PENAL ELEMENT INVOLVED. THE CUSTOM DUTY PAID BY THE ASSESSEE IS NORMAL DUTY PAYABLE FOR IMPORT OF MACHINERY WHICH HAD NOT BEEN PAID EARLIER AS THE ASSESSEE HAD AVAILED THE INCENTIVE SCHEME BUT IT HAD TO PAY LATER DUE TO NON - FULFILLMENT OF CONDITIONS OF INCENTIVE SCHEME. THIS IN OUR VIEW IS NOT A PENALTY AND HAS TO BE ADDED TO THE COST OF ASSETS. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF MARUTI UDYOG LTD (SUPRA). THE ORDER OF THE CIT (A) CANNOT BE UPHELD. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT (A) AND DIRECT THE AO TO ALLOW THE DEPRECIATION IN RELATION TO ADDITIONAL CUSTOM DUTY. 10. CONSIDERING THE ABOVE FACTS AND DECISION OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE , WHEREBY THE ORDER OF THE CIT (A) WAS REVERSED, WE ARE OF THE OPINION THAT THE GROUND NO.2 RAISED BY THE REVENUE IS REQUIRED TO BE DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GROUND NO.2 IS DISMISSED. 11. GROUND NO.3 RELATES TO THE CLAIM OF DEDUCTION OF DEFERRED TAX ADJUSTMENTS. IN THIS REGARD, LD COUNSEL MENTIONED THAT THOUGH THE SAID AMOUNT WAS DEBITED TO THE P&L ACCOUNT, THE SAME WAS INITIALLY FORGOTTEN TO BE ADDED DURING THE COMPUTATION OF INCOME. AO TREATED THE SAME AS FURNISHING OF INACCURATE PARTICULARS AND LEVIED THE PENALTY WITHOUT APPRECIATING THE FACT THAT THE PARTICULARS WERE FULLY DISCLOSED IN THE RETURN. THE DISALLOWANCES, IF ANY, ARE BASED ON THE PARTICULARS ALREADY FURNISHED IN THE RETURN. IN THIS REGARD, LD COUNSEL MENTIONED THAT S UCH OVERSIGHT MISTAKES SHOULD NOT BE TREATED AS FURNISHING OF INACCURATE PARTICULARS AND RELIED ON VARIOUS PRECEDENTS TO SUPPORT HIS ARGUMENT. FURTHER, LD COUNSEL BROUGHT OUR ATTENTION TO THE ORDER OF THE CIT (A) AND MENTIONED THAT THE CIT (A) FAIRLY DELE TED THE PENALTY APPRECIATING THE ABOVE FACTS. 12. ON THE OTHER HAND, LD DR FAIRLY RELIED ON THE ORDER OF THE REVENUE AUTHORITIES WITHOUT MAKING ANY SUSTAINABLE ARGUMENTS BEFORE US. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE A UTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US IN THIS REGARD. ON HEARING BOTH THE PARTIES AND CONSIDERING THE ABOVE FACTS OF THIS CASE, WE ARE OF THE OPINION THAT THE PENALTY SHOULD NOT BE LEVIED ON THE FACTUAL MATRI X OF THE ADDITIONS AS TH E SAID AMOUNT WAS DEBITED TO THE P&L ACCOUNT, WHICH IS THE SUBJECT MATTER OF THE ADDITION, IS EMANATING FROM THE PARTICULARS DISCLOSED BY THE ASSESSEE IN THE RETURN ITSELF. THEREFORE, THE DECISION GIVEN BY THE CIT (A) IS FAIR AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 5 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JANUARY, 2014. S D / - S D / - (VIJAY PAL RAO) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 07 .1 .2014 . . ./ OKK , SR. PS / 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 . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI