DATACRAFT INDIA LTD, MUMBAI V. ACIT CIR 2(1), MUMBAI

ITA 6571/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59734 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2002-2003
• Appeal Filed On: 08-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUPINDER BRAR
• Keywords: Depreciation; Bad and doubtful debts
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, D, MUMBAI BEFORE SHRI D.K.AGARWAL (JM) AND SHRI T.R.SOOD(AM) ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) DATACRAFT INDIA LIMITED, UNIT NO.204/206, 2 ND FLOOR, TRADE CENTRE BUILDING, KAMLA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400013. PAN:AAACD2145G ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1), MUMBAI. APPELLANT V/S RESPONDENT DATE OF HEARING : 25.1.2012 DATE OF PRONOUNCEMENT : 31.1.2012 APPELLANT BY : SHRI VIJAY MEHTA RESPONDENT BY : MS.RUPINDER BRAR O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 8.7.2010 PASSED BY THE LD . CIT(A) FOR THE ASSESSMENT YEAR 2002-03. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN DATA COMMUNICATION, DESIGN, DEVELOPMENT, PURCHASE AND SALE OF NETWORKIN G PRODUCTS, ITS MAINTENANCE AND INSTALLATION ETC. RE TURN WAS FILED DECLARING TOTAL INCOME AT RS.23,05,08,22 0/-. ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 2 HOWEVER, THE ASSESSMENT WAS COMPLETED AFTER MAKING DISALLOWANCE UNDER THE HEAD INCOME FROM BUSINESS (I) PROVISIONS FOR DOUBTFUL DEBTS RS.23,00,000/-,(II) DISALLOWANCE OF LEASE EQUALIZAT ION RS.54,24,303/-, (III) DELAYED PAYMENT OF CONTRIBU TION OF PF AND ESIC RS.7,68,234/-, (IV) U/S 14A ON DIVIDEND RS.1,09,360/- AND (V) EXCESS DEPRECIATION CLAIMED ON PLANT AND MACHINERY RS.1,39,20,939/- AGGREGATING TO RS.2,25,19,836/- AT AN INCOME OF RS.25,30,28,060/- VIDE ORDER DATED 9.3.2005 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT TH E ACT). ON APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE DISALLOWANCE OF LEASE EQUALIZATION CHARGES DIRECTED THE AO TO ALLOW DEPRECIATION OF ROUTERS, SWITCHES AT 60 % AS IN THE CASE OF COMPUTERS AND ON OTHER ISSUES HE ALLOWED PART RELIEF TO THE ASSESSEE. ON FURTHER AP PEAL BY THE REVENUE BEFORE THE TRIBUNAL, THE TRIBUNAL VIDE ORDER DATED 5.12.2008 HELD THAT ROUTERS, SWITC HES AND OTHER ANCILLARY EQUIPMENTS CANNOT BE TREATED AS COMPUTER ELIGIBLE FOR HIGHER DEPRECIATION AT 60% A ND HENCE THE ASSESSEE IS ELIGIBLE TO CLAIM OF DEPRECI ATION ONLY AT 25% ON SUCH ITEMS. AGAINST THE SAID ORDER O F THE TRIBUNAL, THE ASSESSEE FILED MISCELLANEOUS PET ITION ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 3 AND THE TRIBUNAL VIDE ITS ORDER DATED 20.7.2009 HA S RECALLED ITS EARLIER ORDER DATED 5.12.2008. THEREAF TER, THE ISSUE OF DEPRECIATION WAS REFERRED TO THE SPEC IAL BENCH OF THE TRIBUNAL AND THE SPECIAL BENCH OF T HE TRIBUNAL IN DCIT V/S DATACRAFT INDIA LIMITED 40 SOT 295 (MUM) (SB) HAS HELD THAT ROUTERS, SWITCHES ARE TO BE INCLUDED IN THE BLOCK OF COMPUTER ENTITLED TO DEPRECIATION AT THE RATE OF 60%. SINCE WHILE PASSIN G THE ASSESSMENT THE AO HAS INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY PENALTY U/S 271(1 ) (C) SHOULD NOT BE IMPOSED. IN RESPONSE, THE ASSESSE E FILED HIS REPLY INTERALIA STATING THAT THE ADDITION S MADE IN THE ASSESSMENT YEAR ARE ON ACCOUNT OF DIFFERENT INTERPRETATION OF LAW AND NOT DUE TO CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME, THEREFORE, THE PENALTY PROCEEDINGS BE DROPPED, HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION. ACCORDING TO TH E AO SINCE THE TRIBUNAL HAS UPHELD THE DISALLOWANCE OF LEASE EQUALIZATION AND HAS RESTRICTED THE CLAIM OF DEPRECIATION AT THE RATE OF 25%, THEREFORE, THERE I S A CONSCIOUS AND DELIBERATE CONCEALMENT ON THE PART O F ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 4 THE ASSESSEE AND ACCORDINGLY HE IMPOSED PENALTY O F RS.2,03,12,504/- BEING 300% OF TAX SOUGHT TO BE EVADED, VIDE ORDER DATED 16.7.2009 PASSED U/S 271(1)(C) OF THE ACT. ON APPEAL, THE LD. CIT(A) WHILE AGREEING WITH THE VIEWS OF THE AO, HOWEVER, REDUCE D THE PENALTY TO 100% OF THE TAX SOUGHT TO BE EVADED AND ACCORDINGLY REDUCED THE PENALTY TO RS.67,70,834 /- AS AGAINST RS.2,03,12,504/- LEVIED BY THE AO. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. IN GROUND NO. 1, THE ASSESSEE CONTENDED THAT THE ORDER PASSED BY THE AO IS BARRED BY LIMITATION. 5. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMIT THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND WHICH WAS NOT OBJECTED TO BY THE LD. DR. 6. THAT BEING SO AND IN THE ABSENCE OF ANY SUPPORTING MATERIAL PLACED ON RECORD BY THE LD. COUNSEL FOR THE ASSESSEE, WE REJECT THE GROUND NO. 1 TAKEN BY THE ASSESSEE BEING NOT PRESSED. ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 5 7. GROUND NO.2 IS AGAINST THE SUSTENANCE OF PENALTY ON THE DISALLOWANCE OF DEPRECIATION ON PLANT AND MACHINERY BY THE AO. 8. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE COMPANY CLAIMED DEPRECIATION OF RS.3,27,67,150/- AT THE RATE OF 60 % UNDER HEAD COMPUTERS. ON PERUSAL OF THE STATEMENT , THE AO OBSERVED THAT THE ASSESSEE HAS INCLUDED VARIOUS ITEMS SUCH AS ROUTERS, SWITCHES, CORDS, CAB LES, MODEMS, UPS, SOFTWARE AND MEMORIES OF THESE EQUIPMENTS IN THIS BLOCK OF ASSETS. ACCORDING TO T HE ASSESSEE COMPANY ROUTERS, SWITCHES AND ANCILLARY EQUIPMENT DID NOT HAVE INDEPENDENT UTILITY BUT WERE ONLY PART OF COMPUTER SYSTEM, THUS MAKING IT ELIGIB LE FOR DEPRECIATION AT THE RATE APPLICABLE FOR COMPUT ERS. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSE E SINCE ACCORDING TO HIM SUCH ITEMS WERE NOT COMPUTER S BUT ONLY PART OF GENERAL PLANT AND MACHINERY AND THEREFORE, CURTAILED THE DEPRECIATION COVER TO 25% AND DISALLOWED RS.1,39,20,939/- ON ACCOUNT OF EXCESS DEPRECIATION CLAIMED ON PLANT AND MACHINERY AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 6 ASSESSEE. ON APPEAL, THE LD. CIT(A) ACCEPTED THE ASSESSEES CONTENTION AND ALLOWED 60% DEPRECIATION AS CLAIMED BY THE ASSESSEE. ON FURTHER APPEAL TO TH E TRIBUNAL BY THE REVENUE, THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT V/S DATACRAFT INDIA LIMITED (2010) 40 SOT 295 (MUM) (SB) HAS HELD THAT THE ROUTERS, SWITCHES AND OTHER ANCILLARY EQUIPMENTS, IN THE CIRCUMSTANCES OF THE CASE ARE TO BE INCLUDED IN TH E BLOCK OF COMPUTER ENTITLED TO DEPRECIATION AT TH E RATE OF 60%. SINCE AS PER THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL, THE CLAIM OF THE DEPRECIATI ON HAS BEEN ALLOWED AS CLAIMED BY THE ASSESSEE, THEREFORE, THERE IS NO CONCEALMENT ON THE PART OF T HE ASSESSEE AND PENALTY IMPOSED ON THIS ACCOUNT IS DELETED. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, ALLOWED. 9. GROUND NO.3 IS AGAINST THE SUSTENANCE OF PENALTY ON THE ADDITION OF LEASE EQUALIZATION AMOUNT. 10. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS REDUCED THE LEASE RENTAL RECEIPT OF RS.54,24,303/- ON ACCOUNT OF LEASE EQUALIZATION. T HE ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 7 ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THIS EXPENSE. VIDE LETTER DATED 16.2.2005 THE ASSESSEE H AS FURNISHED THE METHOD OF WORKING OF LEASE EQUALIZATI ON. IT IS STATED THAT, THE LEASE TRANSACTION IS ACCOUNT ED FOR IN THE BOOKS OF ACCOUNTS AS PER THE GUIDANCE NOTE O N ACCOUNTING, ISSUED BY ICAI. ACCORDING TO THE AO AS PER THE PROVISIONS OF ACT ONLY THE ACTUAL EXPENSES OR THE EXPENSES SPECIFICALLY PROVIDED UNDER THE ACT A RE ADMISSIBLE FOR CLAIM OF DEDUCTION. IN THE CIRCUMSTANCES, THE AO HELD THAT THE LEASE EQUALIZATION OF RS.54,24,303/- CAN NOT BE ALLOWED AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF T HE ASSESSEE. ON APPEAL, THE LD. CIT(A) ALSO UPHELD THE DISALLOWANCE MADE BY THE AO. ON FURTHER APPEAL, TH E TRIBUNAL HAS ALSO UPHELD THE DISALLOWANCE MADE BY THE AO. 11. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE HAS SHOWN COMPLETE PARTICULARS IN RESPECT OF LEASE EQUALIZATI ON IN ITS PROFIT AND LOSS ACCOUNT APPEARING AT PAGES 6-1 4 OF THE ASSESSEES PAPER BOOK. THE CLAIM WAS MADE BY THE ASSESSEE BASED ON ACCOUNTING STANDARD(AS) ISSUE D BY ICAI AND THAT OVER THE YEARS OF THE LEASE PERIO D, ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 8 THE INCOME GOT EQUALIZED AND, THEREFORE, THERE IS NO CONCEALMENT ON THE PART OF THE ASSESSEE. HE, FURTH ER, SUBMITS THAT AT THE RELEVANT POINT OF TIME THIS ISS UE WAS HIGHLY DEBATABLE. THE HYDERABAD BENCH OF THE TRIBUNAL IN JCIT V/S PACT SECURITIES AND FINANCIAL LTD.(2003) 86 ITD 115 (HYD) HAD CONSIDERED THIS ISS UE OF ALLOWABILITY OF LEASE EQUALIZATION AND HELD IN F AVOUR OF THE ASSESSEE. THE DELHI BENCH OF THE TRIBUNAL IN VERTUAL SOFT SYSTEMS LTD. V/S ACIT, (2010) 38 SOT 412 (DEL) ON SIMILAR FACTS HAS HELD THAT GUIDANCE N OTE OF ICAI WOULD BE APPLICABLE. HE FURTHER SUBMIT S THAT THE TRIBUNAL IN DCIT V/S M/S APOLLO HOSPITAL ENTERPRISES LTD. IN ITA NO.1673/MDS/2010 (AY: 1998- 99) DATED 25.2.2011 UPHELD THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF LEASE EQUALIZATION CHARGES . HE FURTHER SUBMITS THAT THE TRIBUNAL IN ACIT V/S SWIFT FINLEASE(INDIA) LTD. IN ITA NO.5377/MUM/2007 (AY: 1997-98) ORDER DATED 20.5.2011 HAS DELETED THE PENALTY ON THE DISALLOWANCE OF LEASE EQUALIZATION AMOUNT AND SIMILAR VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF DCIT V/S M/S LORD KRISHNA BANK LTD. IN ITA NO.715/COCHIN/2007 (AY: 2001-02) DATED 24.6.2011. IN THE LIGHT OF THE ABOVE HE SUBMITS THA T ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 9 THERE IS NO CONCEALMENT ON THE PART OF THE ASSESSE E AND THEREFORE PENALTY IMPOSED BY THE AO AND SUSTAINED BY THE LD.CIT(A) BE DELETED. 12. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDE R OF THE AO AND THE LD. CIT(A). 13. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABL E ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE ASS ESSEE HAS CLAIMED THE AMOUNT OF LEASE EQUALIZATION CHARG ES ON THE BASIS OF GUIDANCE NOTE ISSUED BY ICAI AND HA S DISCLOSED ALL MATERIAL FACTS IN ITS PROFIT AND LOSS ACCOUNT AND BALANCE SHEET FILED ALONG WITH THE RETU RN OF INCOME. WE FURTHER FIND THAT ON THIS ISSUE THE C O- ORDINATE BENCHES OF THE TRIBUNAL (SUPRA) HAVE ALLOW ED THE SIMILAR CLAIM. WE FURTHER FIND THAT ON THE SI MILAR ISSUE THE TRIBUNAL IN THE CASE OF SWIFT FINLEASE(I NDIA) LTD.(SUPRA) AND M/S LORD KRISHNA BANK LTD.(SUPRA) H AS DELETED THE SIMILAR PENALTY. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES BROUGHT ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL (SUPRA) AND THE RATIO OF THE ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 10 DECISION OF THE HONBLE APEX COURT IN CIT V/S RELI ANCE PETROPRODUCTS PVT. LTD. (2010) 322 ITR 158(SC), WHEREIN IT HAS BEEN HELD (PLACITUM 12,PAGE 166): MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NO T ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT , IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVEN UE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE I S NOT ACCEPTED BY THE ASSESSING OFFICER FOR ANY REASO N, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT IS CLEARLY NOT THE INTENDMENT OF TH E LEGISLATURE., DELETE THE PENALTY IMPOSED BY THE A O AND SUSTAINED BY THE LD.CIT(A) ON THIS ACCOUNT AND ACCORDINGLY THE GROUND TAKEN BY THE ASSESSEE IS ALLOWED. 14. FOR THE REASONS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THERE IS NO CONCEALMENT ON THE PART O F THE ASSESSEE AND ACCORDINGLY THE PENALTY LEVIED BY THE AO AND SUSTAINED BY THE LD. CIT(A) IS DELETED. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THEREFORE, ALLOWED. ITA NO.6571/MUM/2010 (ASSESSMENT YEAR: 2002-03) 11 14. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JAN., 2012. SD SD (T.R.SOOD) (D.K.AGARW AL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, 31ST JANUARY, 2012 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI