GUJARAT ORGANICS LTD, MUMBAI V. ACIT 6(3), MUMBAI

ITA 6382/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48922 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 10-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K SAMPATKUMAR
• Keywords: Depreciation; Charitable institution; Deemed to accrue or arise in india; Unabsorbed depreciation
• Section: 234B; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.6382/ MUM/2009 ASSESSMENT YEAR: 2003-04 GUJARAT ORGANICS LTD., .. APPELLANT 3-A, BARODWALA MANSION, 81, DR.A.B.ROAD, WORLI, MUMBAI-18 PA NO.AAACR 2060G VS ACIT 6(3) ,. RESPONDEN T MUMBAI. APPEARANCES: SHRUTI A.P., FOR THE APPELLANT K. SAMPAT KUMAR, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF CIT(A)S ORDER DATED 12.8.2010, IN THE MATTER OF PE NALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR ON THE FOLLOWING GROUNDS: 1. ACCORDING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WHILE COMPUTING THE BOOK PROFIT FOR THE PURPOSE OF MAT, APPELLANT HAD R EDUCED THE DIVIDEND WHICH IS EXEMPTED U/S.10(33) WHICH THE LEARNED AO H AS NOT ACCEPTED AND RECOMPUTED THE BOOK PROFIT AND LEVIED PENALTY. 1.2 YOUR APPELLANT RESPECTFULLY SUBMITS THAT THE SA ID STAND OF THE APPELLATE GOT SUPPORTED BY THE CERTIFICATE IN THE FORM 29B CE RTIFYING THE CORRECTNESS OF COMPUTATION OF BOOK PROFIT UNDER MAT PROVISIONS BY CHARTERED ACCOUNTANTS M/S. DEEPAK SHAH & CO. AND AS SUCH YOUR APPELLANT R ELIED ON THE CERTIFIED I.T.A NO.6382/ MUM/2009 GUJARAT ORGANICS LTD., 2 GIVEN BY THEM. IT MAY BE MENTIONED THAT IN THE FOL LOWING JUDGMENTS IT HAS BEEN HELD THAT IF RELIANCE IS PLACED ON EXPERTS OP INION THEN, PENALTY CANNOT BE LEVIED: * CONCORD OF INDIA INSURANCE CO. PVT.LTD VS, NIRMAL A DEVI, 118 ITR 507(SC) * SHYAM GOPAL CHARITABLE TRUST VS DIRECTOR OF INCOM E TAX(EXP.), 290 ITR 99(DEL) * T.ASHOK PAI VS CIT, 292 ITR 11 (SC) * CIT VS. S.D.RICEMILLS, 275 ITR 206(P&H) * CIT VS. SHRI S.DHANABAL(ITA NO.1150/2007) 1.3 THE COMPLETE DISCLOSURE OF 115JB WORKING WAS FI LED WITH THE RETURN OF INCOME VIDE AUDIT REPORT IN FORM 29B FOR A.Y. 2003- 04 PROVES THAT THERE WAS NO CONCEALMENT ON THE PART OF YOUR APPELLANT. 1.4 YOUR APPELLANT RESPECTFULLY SUBMITS THAT EVEN I N THE APPELLATE ORDER AND GROUNDS OF DECISION IT IS STATED THAT THE INCOME WA S FINALLY ASSESSED UNDER THE NORMAL PROVISIONS OF THE ACT AND ACCORDINGLY TH ERE WAS NO LOSS TO THE REVENUE. 1.5 FURTHER, YOUR APPELLANT PRAYED THAT BEFORE PENA LTY UNDER SECTION 271(1)(C) IS LEVIED, THE AO MUST RECORD THE FINDING S THAT THE APPELLANT HAS BEEN GUILTY OF CONCEALMENT OR OF FURNISHING INADEQU ATE PARTICULARS OF INCOME. THE AO HAS FAILED TO RECORD THE SAME. THE AO SHOUL D ALSO FORM AN OPINION AND RECORD HIS SATISFACTION THAT THE INCOME HAS BEE N CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED. 1.6 IN VIEW OF THE ABOVE, YOUR APPELLANT HUMBLY PRA YS THE PENALTY LEVIED U/S.271(1)(C) OF THE INCOME TAX ACT BY THE AO IS NO T APPLICABLE. HENCE, THE PENALTY PROCEEDINGS SHOULD BE DELETED FOR A.Y. 2003 -04. 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER, INTER ALIA, NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION IN RE SPECT OF DIVIDEND INCOME, IN COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB. TH E ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID ADJUSTMENT IN THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB WAS NOT PERMISSIBLE. HE, ACCORDINGLY, DISALLOWED T HE SAME. HOWEVER, HE FINALLY COMPUTED THE TAXABLE INCOME AND, ACCORDINGLY, PROCE EDED TO DETERMINE THE INCOME AS PER REGULAR COMPUTATION SINCE TAX PAYABLE ON INC OME UNDER SECTION 115JB WAS LESS THAN THE TAX PAYABLE ON THE INCOME DETERMINED AS PER REGULAR COMPUTATION. SO I.T.A NO.6382/ MUM/2009 GUJARAT ORGANICS LTD., 3 FAR AS THE ADJUSTMENT IN BOOK PROFIT COMPUTED U/S.1 15JB WAS CONCERNED, THE MATTER, HOWEVER, DID NOT REST THERE. WITH REGARD TO THIS A DJUSTMENT, THE AO ALSO PROCEEDED TO IMPOSE PENALTY UNDER SECTION 271(1)(C) ON THE GR OUND THAT THE ADJUSTMENT SOUGHT BY THE ASSESSEE, IN COMPUTATION OF BOOK PROF IT, WAS UNSUSTAINABLE IN LAW AND DEVOID OF ANY LOGIC OR RATIONALE. WHILE DOING SO, THE AO, INTER ALIA, OBSERVED AS FOLLOWS: THE SECOND ISSUE WAS REGARDING THE DETERMINATION O F BOOK PROFIT. ASSESSEE BY HYPOTHETICALLY SUBTRACTING DIVIDEND FROM THE PRO FIT AND LOSS HAS CALCULATED PROFIT AND LOSS BEFORE DEPRECIATION AND BEFORE DIVI DEND AND COMPARED WITH IT DEPRECIATION (UNABSORBED BEFORE DIVIDEND) TO ARRIVE AT HYPOTHETICALLY WRONG FIGURE OF UNABSORBED DEPRECIATION OR LOSS WHICHEVER IS LESS. AS PER THE INCOME TAX ACT, THERE IS NO PROVISION FOR REDUCING THE DIVIDEND FROM P&L ACCOUNT FOR ARRIVING AT THE FIGURE UNABSORBED DEPRE CIATION OF LOSS, THEREFORE, ASSESSEES ACT OF REDUCING THE HYPOTHETICAL FIGURE ON SOME ILLOGICAL EXTENSION OF THE ARGUMENTS BY THE ASSESSEE WITHOUT HAVING SUP PORTING EVIDENCES OR JUSTIFICATION IS CLEARLY AN ACT OF FURNISHING INACC URATE PARTICULARS OF INCOME. ESPECIALLY IN THE SCENARIO WHEN LESS THAN 2% OF CAS ES ARE SELECTED FOR SCRUTINY, THUS, IF ASSESSEE WOULD HAVE BENEFITED FO R THE SAME, AS THE CASE FOR ASSESSEE FOR A.Y. 2002-03 (ALTHOUGH SAME WAS ALSO R EOPENED AFTER BEING FOUND THAT SIMILAR ISSUE WAS THERE IN THAT YEAR ALS O). THEREFORE, I HEREBY HELD THAT THIS IS AN ISSUE WHERE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME THUS, I HEREBY HELD THAT PENALTY U/S.271(1) (C) OF THE ACT IS BEING LEVIED. IT IS FURTHER CLARIFIED THAT AFTER CHANGE I N AMENDMENT (INSERTION OF THE EXPLANATION 4) TO SECTION 271 OF THE I.T. ACT, WHER E TAX SOUGHT TO BE LEVIED HAS BEEN DEFINED, I AM OF THE VIEW THAT PENALTY HAS TO BE LEVIED ON THE 115JB AND NORMAL ADDITIONS SIMULTANEOUSLY, EVEN THOUGH TAX HA S BEEN LEVIED ONLY UNDER ONE OF THE PROVISIONS (EITHER NORMAL OR 115JB). 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A) BUT WITHOUT SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT IT IS NOT IN DISPUTE THAT EVE N THOUGH THE IMPUGNED PENALTY IS IN RESPECT OF ADJUSTMENT CARRIED OUT IN COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB, THE AO DID NOT LEVY TAX ON THE BOOK PROFIT U NDER SECTION 115JB. WE HAVE ALSO NOTICED THAT VIDE ORDER DATED 18.2.2010, TO GIVE EF FECT TO THE TRIBUNALS ORDER IN QUANTUM PROCEEDINGS, THE AO HAS TAXED THE INCOME UN DER THE NORMAL PROVISIONS OF THE ACT ON THE GROUND THAT TAX PAYABLE UNDER SECTIO N 115JB IS LESS THAN THE TAX I.T.A NO.6382/ MUM/2009 GUJARAT ORGANICS LTD., 4 PAYABLE UNDER THE NORMAL PROVISIONS OF THE ACT. IT IS THUS CLEAR THAT ADJUSTMENT IN RESPECT OF WHICH CONCEALMENT OF PENALTY IS IMPOSED DID NOT HAVE ANY IMPACT ON THE TAX LEVIED ON THE ASSESSEE. IN THIS BACKGROUND, IT IS USEFUL TO REFER TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. NALWA SONS INVESTMENTS LTD, 327 ITR 543 (DEL) , WHEREIN, THEIR LORDSHIPS WERE INSEISIN OF A SITUATION THAT PENALTY WAS LEVIED IN RESPECT O F ADDITION MADE BY THE AO WHILE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT BUT EVENTUALLY TAX WAS LEVIED ON THE ASSESSEE UNDER THE PROVISIONS OF SECT ION 115JB ON BOOK PROFITS. IN OTHER WORDS, THE ADDITIONS IN RESPECT OF WHICH PENA LTY WAS LEVIED HAD NO IMPACT ON THE INCOME WHICH WAS FINALLY ASSESSED TO TAX. ON T HESE FACTS, THEIR LORDSHIPS WERE OF THE CONSIDERED VIEW THAT SINCE CONCEALMENT, EVEN IF ANY, HAD NO ROLE AT ALL ON THE INCOME FINALLY DETERMINED AND CONCEALMENT DID NOT H AVE LEAD TO TAX EVASION AT ALL, PENALTY UNDER SECTION 271(1)(C) COULD NOT BE LEVIED . IT WAS THUS HELD THAT WHEN TAX FINALLY LEVIED ON THE ASSESSEE ON THE BASIS OF COMP UTATION OF BOOK PROFIT UNDER SECTION 115JB, NO CONCEALMENT OF PENALTY CAN BE IMP OSED ON THE ASSESSEE IN RESPECT OF ADDITIONS MADE UNDER THE NORMAL PROVISIONS OF TH E ACT SINCE SUCH ADDITIONS DID NOT HAVE ANY IMPACT ON THE TAX FINALLY LEVIED ON TH E ASSESSEE. THE HONBLE HIGH COURT HAS OBSERVED AS FOLLOWS: THE QUESTION, HOWEVER, IN THE PRESENT CASE, WOULD BE, AS TO WHETHER FURNISHING OF SUCH WRONG PARTICULARS HAD ANY EFFECT ON THE AMOUNT OF TAX SOUGHT TO BE EVADED. UNDER THE SCHEME OF THE ACT, T HE TOTAL INCOME OF THE ASSESSEE IS FIRST COMPUTED UNDER THE NORMAL PROVISI ONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARED WITH THE P RESCRIBED PERCENTAGE OF THE 'BOOK PROFITS' COMPUTED UNDER SECTION 115JB OF THE ACT. THE HIGHER OF THE TWO AMOUNTS IS REGARDED AS TOTAL INCOME AND TAX IS PAYABLE WITH REFERENCE TO SUCH TOTAL INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER, SUCH AMOUNT IS THE TOTAL INCO ME OF THE ASSESSEE, OTHERWISE, 'BOOK PROFITS' ARE DEEMED AS THE TOTAL I NCOME OF THE APPELLANT IN TERMS OF SECTION 115JB OF THE ACT. IN THE PRESENT C ASE, THE INCOME COMPUTED AS PER THE NORMAL PROCEDURE WAS LESS THAN THE INCO ME DETERMINED BY THE LEGAL FICTION, NAMELY, 'BOOK PROFITS' UNDER SECTION 115JB OF THE ACT. ON THE BASIS OF NORMAL PROVISION, THE INCOME WAS ASSESSE D IN THE NEGATIVE, I.E., AT A LOSS OF RS. 36,95,21,018. ON THE OTHER HAND, ASSE SSMENT UNDER SECTION 115JB OF THE ACT RESULTED IN CALCULATION OF PROFITS AT RS. 4,01,63,180. IN VIEW THEREOF, IN CONCLUSION, THE ASSESSMENT ORDER RECORD S AS FOLLOWS : 'ASSESSED AT RS. 4,01,63,180 UNDER SECTION 115JB, BEING HIGHER O F TWO. INTEREST UNDER SECTIONS 234B AND 234C HAS BEEN CHARGED AS PER TH E PROVISIONS OF THE I.T.A NO.6382/ MUM/2009 GUJARAT ORGANICS LTD., 5 INCOME-TAX ACT, 1961. PENALTY PROCEEDINGS UNDER S ECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961 HAVE BEEN INITIATED. ISSUE N ECESSARY FORMS.' THE INCOME OF THE ASSESSEE WAS THUS ASSESSED UNDER SECT ION 115JB AND NOT UNDER THE NORMAL PROVISIONS. IT IS IN THIS CONTEXT THAT WE HAVE TO SEE AND EXAMINE THE APPLICATION OF EXPLANATION 4. THE JU DGMENT IN THE CASE OF GOLD COIN [2008] 304 ITR 308, OBVIOUSLY, DOES NOT DEAL WITH SUCH A SITUATION. WHAT IS HELD BY THE SUPREME COURT IN THAT CASE IS THAT EVEN IF IN THE INCOME- TAX RETURN FILED BY THE ASSESSEE LOSSES ARE SHOWN , PENALTY CAN STILL BE IMPOSED IN A CASE WHERE ON SETTING OFF THE CONCEA LED INCOME AGAINST ANY LOSS INCURRED BY THE ASSESSEE UNDER OTHER HEADS O F INCOME OR BROUGHT FORWARD FROM EARLIER YEARS, THE TOTAL INCOME IS R EDUCED TO A FIGURE LOWER THAN THE CONCEALED INCOME OR EVEN A MINUS FIGURE. THE COURT WAS OF THE OPINION THAT 'THE TAX SOUGHT TO BE EVADED' WILL MEA N THE TAX CHARGEABLE ON THE CONCEALED INCOME AS IF IT WERE THE TOTAL INCOME . ONCE, WE APPLY THIS RATIONALE TO EXPLANATION 4 GIVEN BY THE SUPREME COU RT, IN THE PRESENT CASE, IT WILL BE DIFFICULT TO SUSTAIN THE PENALTY PROCEED INGS. REA- SON IS SIMPLE. NO DOUBT, THERE WAS CONCEALMENT BUT THAT HAD ITS REPER CUS- SIONS ONLY WHEN THE ASSESSMENT WAS DONE UNDER THE NORMAL PROCEDURE. THE ASSESSMENT AS PER THE NORMAL PROCEDURE WAS, HOWEVER, NOT ACTED UPON. ON THE CONTRARY, IT IS THE DEEMED INCOME ASSESSED UNDER SECTION 115JB OF T HE ACT WHICH HAS BECOME THE BASIS OF ASSESSMENT AS IT WAS HIGHER OF THE TWO. TAX IS THUS PAID ON THE INCOME ASSESSED UNDER SECTION 115JB OF THE A CT. HENCE, WHEN THE COMPUTATION WAS MADE UNDER SECTION 115JB OF THE ACT , THE AFORE- SAID CONCEALMENT HAD NO ROLE TO PLAY AND WAS TOTALLY IRR ELEVANT. THEREFORE, THE CONCEALMENT DID NOT LEAD TO TAX EVASION AT ALL. 5. BY THE SAME LOGIC, IN A SITUATION IN WHICH TAXE S ARE LEVIED ON THE BASIS OF COMPUTATION UNDER THE NORMAL PROVISIONS OF THE ACT, IN OUR CONSIDERED OPINION, NO CONCEALMENT PENALTY BE IMPOSED IN RESPECT OF ANY AD JUSTMENT IN THE COMPUTATION OF BOOK PROFITS. WHAT IS NECESSARY IS THAT THE CONCEAL MENT OF INCOME SHOULD BE OF INCOME ASSSSED TO TAX. IN THE PRESENT CASE, CONCEA LMENT IS OF INCOME, ON ACCOUNT OF BOOK PROFITS LIABLE TO BE TAXED UNDER SECTION 115JB , BUT THEN NO TAX WAS EVENTUALLY LEVIED ON BOOK PROFITS, AND IT DID NOT THEREFORE CO NSTITUTE INCOME ASSESSED TO TAX. UNDER THESE CIRCUMSTANCES, CONCEALMENT PENALTY COUL D NOT HAVE BEEN LEVIED IN RESPECT OF ADJUSTMENTS MADE TO BOOK PROFITS. FOR TH IS SHORT REASON, WE DELETE THE IMPUGNED PENALTY. THE ASSESSEE GETS RELIEF ACCORDI NGLY. I.T.A NO.6382/ MUM/2009 GUJARAT ORGANICS LTD., 6 6 IN VIEW OF OUR ABOVE FINDINGS, IT IS NOT NECESSAR Y TO ADDRESS OURSELVES TO THE MERITS OF THE ADJUSTMENT MADE BY THE AO IN THE COMP UTATION OF BOOK PROFITS, AND WHETHER OR NOT SUCH ADJUSTMENT COULD BE VISITED, ON MERITS, PENAL CONSEQUENCE UNDER SECTION 271(1)(C). 7. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERM S INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 31 ST MAY 2011. SD/- (D.MANMOHAN) VICE PRESIDENT SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 31 ST MAY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),VI, MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY-6 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI