TRIGYN TECHNOLOGIES LTD, MUMBAI V. ITO 8(3)(3), MUMBAI

ITA 6858/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4074 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 14-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 11-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Capital asset; Depreciation; Transfer pricing; Unabsorbed depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) M/S. TRIGYN TECHNOLOGIES LIMITED, C/O. M/S. RAVI & DEV, CHARTERED ACCOUNTANTS, 601, AWING, AURUS CHAMBERS, BEHIND MAHINDRA TOWERS, S.S. AMRUTWAR MARG, WORLI, MUMBAI 400013 PAN:AAACL2065K ... APPELLANT VS. THE INCOME TAX OFFICER 8(3)(3) MUMBAI. .... RESPONDENT ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI N.K.CHAND DATE OF HEARING : 10/03/2016 DATE OF PRONOUNCEMENT : 22/04/2016 ORDER PER G.S. PANNU,AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTA INING TO A.Y. 2007-08 IS DIRECTED AGAINST AN ORDER PASSED BY LD. CIT(A)-15, MUMBAI 2 ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) DATED 30/09/2014, WHICH IN TURN ARISES OUT OF AN O RDER PASSED BY ASSESSING OFFICER UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 20/03/2013. 2. IN THIS APPEAL, THE SOLITARY GRIEVANCE OF THE AS SESSEE IS AGAINST THE ACTION OF THE INCOME-TAX AUTHORITIES IN LEVYING PEN ALTY OF RS.5,38,20,422/- UNDER SECTION 271(1)(C) OF THE ACT . IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND RENDERING TECHNICAL SERVIC ES OUTSIDE INDIA IN THE FIELD OF COMPUTER SOFTWARE. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE COMPANY FILED A RETURN OF I NCOME ON 31.10.2007 DECLARING NET TAXABLE INCOME OF NIL UN DER THE NORMAL PROVISIONS OF THE ACT. THE RETURN OF INCOME FILED B Y THE ASSESSEE WAS SUBJECT TO A SCRUTINY ASSESSMENT UNDER SECTION 143( 3) OF THE ACT DATED 05.01.2011 WHEREBY THE TOTAL INCOME WAS DETERMINED UNDER THE NORMAL PROVISIONS OF THE ACT AT RS.31,17,15,420/- A FTER ALLOWING SET OFF OF BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION. SUBSEQUENTLY, THE ASSESSING OFFICER HELD THE ASSESSEE GUILTY OF FURNI SHING INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) R.W. EXPLANATION (1), (4) AND (7) THEREOF QUA THE FOLLOW ING ITEMS OF ADDITIONS MADE TO THE RETURNED INCOME: (I) TRANSFER PRICING A DJUSTMENT UNDER SECTION 92CA(4) OF THE ACT RS.90,42,380/-; AND, ( II) ADDITION UNDER SECTION 28(IV) OF THE ACT RS.15,35,03,849/-. IN S O FAR AS THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS CONCERNE D, THE CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE IN THE QUANTUM PROCE EDINGS AND SCALED IT DOWN TO RS.63,21,983/-. IN THIS MANNER, THE ASSESSI NG OFFICER LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT OF RS. 5, 38,20,422/-, BEING 100% OF THE TAX SOUGHT TO BE EVADED ON THE INCOME O F 3 ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) RS.15,98,94,302/-, BEING ADDITIONS ON ACCOUNT OF TR ANSFER PRICING ADJUSTMENT AND SECTION 28(IV) OF THE ACT. THE SAID ORDER OF THE ASSESSING OFFICER WAS CARRIED IN APPEAL BEFORE THE CIT (A), WHO HAS SINCE AFFIRMED THE SAME. IN THIS BACKGROUND, ASSESSEE IS IN FURT HER APPEAL BEFORE US. 3. BEFORE US, THE FIRST AND FOREMOST PLEA RAISED BY THE ASSESSEE IS THAT THERE IS NO JUSTIFICATION FOR LEVY OF PENALTY ON EITHER OF THE TWO ISSUES, HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE. IN SO FAR AS THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS CONCERNED IT IS NOTICEABLE THAT VIDE ORDER DATED 20 /04/2016 IN ITA NOS. 1986 & 3012/MUM/2012, THE ISSUE HAS BEEN SET ASIDE BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL FOR THE EARLIER ASSESSME NT YEARS OF 2004-05 TO 2006-07 VIDE ORDER DATED 21/08/2013 & 3/12/2014 RES PECTIVELY. AS A CONSEQUENCE, THE ADDITION ON THE BASIS OF WHICH PEN ALTY HAS BEEN LEVIED DOES NOT SURVIVE AS THE SAME HAS BEEN REMAND ED BACK TO THE FILE OF THE ASSESSING OFFICER. SINCE THE BASIS OF PENAL TY ITSELF DOES NOT SURVIVE, THE PENALTY LEVIED WITH RESPECT TO THE ADD ITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IS ALSO LIABLE TO BE SE T ASIDE. WE HOLD SO. 4. COMING TO THE ADDITION UNDER SECTION 28(IV) OF T HE ACT OF RS.15,35,03,849/-,THE SAME REPRESENTS WAIVER OF THE OUTSTANDING PRINCIPAL AMOUNT OF LOAN. NOTABLY, DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD ENTERED INTO ONE TIME SETTLEMENT (OTS) WITH ITS BANK WHEREBY AFTER MAKING A PARTIAL REPAYMENT OF THE OUT STANDING BALANCE, THE BANK WAIVED RECOVERY OF RS.15,35,03,849/- ON AC COUNT OF PRINCIPAL AMOUNT OF LOAN AND RS.19.26 CRORES ON ACCOUNT OF OU TSTANDING INTEREST THEREOF. IN THE RETURN OF INCOME, ASSESSEE CLAIMED THAT THE SAID SUM OF 4 ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) RS.15,35,03,849/- WAS CAPITAL IN NATURE NOT CHARG EABLE TO TAX AS INCOME. THE ASSESSING OFFICER, HOWEVER, HELD THAT T HE SAME REPRESENTED CESSATION OF LIABILITY TOWARDS THE BANK AND THEREFORE IT WAS A BENEFIT TAXABLE WITHIN THE SCOPE OF SECTION 28(IV ) OF THE ACT. THIS DIFFERENCE BETWEEN THE REPORTED AND ASSESSED INCOME HAS BEEN HELD BY THE ASSESSING OFFICER TO BE FURNISHING OF INACCURA TE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF T HE ACT. IN SO FAR AS THE FINALITY OF SUCH ADDITION IN THE QUANTUM PROCEE DING IS CONCERNED, IN TERMS OF THE DECISION OF THE TRIBUNAL DATED 20/04/ 2016 (SUPRA) THE SAME HAS BEEN REDUCED TO RS.1.57 CRORES AND THEREFO RE THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT GETS RED UCED TO THAT EXTENT. BE THAT AS IT MAY, THE RIVAL PARTIES HAVE BEEN HEAR D ON THE ASPECT OF LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT IN RE LATION TO SUCH ADDITION. IN THIS REGARD, THE LEARNED LD. REPRESENT ATIVE FOR THE ASSESSEE CONTENDED THAT COMPLETE PARTICULARS OF THE CLAIM WE RE EXPLAINED IN THE NOTES ATTACHED TO THE COMPUTATION OF INCOME AND REF ERENCE WAS MADE TO PAGE 15 OF THE PAPER BOOK IN THIS REGARD. THE LE ARNED AR EXPLAINED THAT THE ASSESSEE HAD CONTENDED IN THE NOTE THAT T HE IMPUGNED SUM WAS NOT IN THE NATURE OF A TRADING LIABILITY AND T HEREFORE FOLLOWING THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF MAHINDRA & MAHINDRA LTD. VS. CIT, 261 ITR 501(BOM) THE IMPUG NED SUM WAS NOT LIABLE TO BE TAXED AS INCOME. IT WAS POINTED OUT TH AT THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE BY MERE LY APPLYING A SUBSEQUENT JUDGEMENT OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF SOLID CONTAINERS LTD. VS. CIT, 308 ITR 417(BOM) WIT HOUT APPRECIATING THAT THE SAID JUDGEMENT WAS INAPPLICABLE TO THE FAC TS OF THE CASE. BE THAT AS IT MAY, THE LEARNED AR POINTED OUT THAT THE CLAIM OF THE ASSESSEE 5 ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) MADE IN THE RETURN OF INCOME WAS BASED ON A JUDGEME NT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD. (SUPRA) WHICH WAS AVAILABLE AT THAT POINT OF TIME AND THERE FORE IT WAS A BONA FIDE CLAIM. THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD.(SUPRA) IS DATED 29.08.2008 WHICH IS SUBSEQUENT TO THE FILING OF RETURN OF INCOME BY THE ASSESSEE ON 31.10 .2007 AND THEREFORE EVEN IF THE STAND OF THE ASSESSING OFFICER IS TO B E UPHELD IN QUANTUM ASSESSMENT PROCEEDINGS, THE BONA FIDES OF ASSESSEE S CLAIM MADE IN THE RETURN OF INCOME CANNOT BE DOUBTED, AS IT WAS BASED ON THE THEN PREVAILING JUDGEMENT OF THE HONBLE BOMBAY HIGH COU RT. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE FOR THE REVENUE ASSERTED THAT THE ADDITION TO THE RETURNED INCOME ITSELF RAISES A PRESUMPTION OF CONCEALMENT/FURNISHING INACCURATE PARTICULARS OF INCOME AND THUS THE ONUS IS ON THE ASSESSEE TO ESTA BLISH THAT SUCH PRESUMPTION IS NOT JUSTIFIED. THE LEVY OF PENALTY U NDER SECTION 271(1)(C) OF THE ACT IS SOUGHT TO DEFENDED ACCORDINGLY. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. SECTION 271(1)(C) OF THE ACT PERMITS THE ASSESSING OFFICER TO LEVY PENALTY, ON BEING SATISFIED THAT ASSESSEE HAS CONCEALED THE PAR TICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. IN THE PRESENT CASE, AS IS EVIDENT FROM A READING OF PARA-40 OF ORDER O F THE ASSESSING OFFICER LEVYING PENALTY, THE CHARGE MADE AGAINST THE ASSESS EE IS OF FILING INACCURATE PARTICULARS OF INCOME WITHIN THE MEANIN G OF SECTION 271(1)(C) OF THE ACT . THE HONBLE SUPREME COURT I N THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT. LTD., 322 ITR 158 (SC) HAS EXPLAINED THE MEANING OF THE EXPRESSION PARTICULARS USED IN SEC TION 271(1)(C) OF THE 6 ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) ACT. ACCORDING TO THE HONBLE SUPREME COURT, THE WORD PARTICULARS IN SECTION 271(1)(C) OF THE ACT EMBRACES THE DETAILS OF THE CLAIM MADE IN THE RETURN OF INCOME. WHERE NO INFORMATION GIVEN I N THE RETURN OF INCOME IS FOUND TO BE INACCURATE OR INCORRECT, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. THE HONBLE SUPREME COURT HAS FURTHER EXPLAINED THAT MAKING OF INCORREC T CLAIM DOES NOT TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME. THE HONBLE SUPREME COURT HAS FURTHER EMPHASIZED THAT IN ORDER TO ATTRACT PENALTY UNDER SECTION 271(1)(C) OF THE ACT, THE DETAILS S UPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACC ORDING TO THE TRUTH OR ERRONEOUS . IN OUR CONSIDERED OPINION, THE CHARGE MADE BY T HE ASSESSING OFFICER IN THE PRESENT CASE DESERVES TO B E TESTED IN THE LIGHT OF THE AFORESAID RATIO OF THE JUDGMENT OF HON'BLE S UPREME COURT IN THE CASE OF M/S. RELIANCE PETROPRODUCTS LTD. (SUPRA), I NASMUCH AS WHAT IS SOUGHT TO BE HELD AGAINST THE ASSESSEE IS FURNISHIN G OF INACCURATE PARTICULARS OF INCOME. 6.1 IN THE RETURN OF INCOME, THE ASSESSEE COMPANY C LAIMED THAT THE WAIVER OF PRINCIPAL AMOUNT OF LOAN OUTSTANDING IS N OT IN THE NATURE OF TRADING LIABILITY AND, THEREFORE, IT WAS NOT BEING OFFERED FOR TAXATION. THE NOTE ACCOMPANYING THE RETURN OF INCOME ALSO ASS ERTED THAT RELIANCE WAS BEING PLACED ON THE JUDGMENT OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDRA LTD. (SUPR A). OSTENSIBLY, THE CASE SET UP BY THE ASSESSEE WAS THAT SINCE THE LOAN FUNDS WERE USED FOR ACQUIRING THE SHARES IN APPLISOFT INC., WHICH WAS A CAPITAL ASSET, THE WAIVER OF SUCH LOAN WAS TO BE REGARDED AS CAPITAL I N NATURE. THE ASSESSING OFFICER, HOWEVER, DIFFERED WITH THE ASSES SEE AND TREATED THE SAME AS A BENEFIT ASSESSABLE UNDER SECTION 28(IV) O F THE ACT AND IN 7 ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) SUPPORT RELIED UPON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD.(SUPRA). BE THAT AS I T MAY, FOR THE PRESENT WE ARE NOT ON MERITS OF THE RIVAL SUBMISSIONS BUT O NLY ON THE ISSUE OF ASCERTAINING AS TO WHETHER THE CLAIM MADE BY THE A SSESSEE IN THE RETURN OF INCOME CONSTITUTED FILING OF INACCURATE P ARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT OR NOT. QUITE CLEARLY, IN THE ASSESSMENT ORDER AND EVEN UNDER THE ORDER PA SSED BY THE ASSESSING OFFICER LEVYING PENALTY UNDER SECTION 271 (1)(C) OF THE ACT, THERE IS NO DISCUSSION WHICH WOULD SHOW THAT ANY O F THE PARTICULARS REGARDING THE CLAIM WERE FOUND TO BE FALSE OR ERRON EOUS. A MERE MAKING OF A CLAIM , WHICH IS NOT FOUND BY THE ASSES SING OFFICER TO BE IN ACCORDANCE WITH LAW, BY ITSELF DOES NOT CONSTITUTE FURNISHING OF INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. THE AFORESAID PROPOSITION IS QUITE WEL L SETTLED AND DOES NOT REQUIRE ANY FURTHER ELABORATION. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, APART FROM ASSERTING THAT THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME , THE ASSESSING OFFICER HAS NOT PROVIDED ANY COGENT MATERIAL TO JUSTIFY THE SAME. THEREFORE, IN OUR CONSIDERED OPINION, THE CHARGE MADE AGAINST THE ASSESSEE OF HA VING FURNISHED INACCURATE PARTICULARS OF INCOME QUA THE CLAIM OF W AIVER OF PRINCIPAL AMOUNT OF LOAN, IS DEVOID OF FACTUAL SUPPORT. EV EN OTHERWISE, WE FIND THAT THE CLAIM MADE IN THE RETURN OF INCOME WAS ON BONAFIDE CONSIDERATION INASMUCH AS IT WAS BASED ON THE JUDGM ENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MAHINDRA & MAHINDR A LTD.(SUPRA). THE HONBLE BOMBAY HIGH COURT HAS HELD THAT WAIVER OF LOAN WOULD NOT GIVE RISE TO BENEFIT UNDER SECTION 28(IV) OF THE AC T IN A SITUATION, WHERE THE LOAN PROCEEDS WERE USED FOR ACQUIRING CAPITAL A SSET. THIS IS THE 8 ITA NO. 6858/MUM/2014 (ASSESSMENT YEAR : 2007-08) PRECISE CASE, WHICH WAS BEING SET-UP BY THE ASSESSE E IN THE QUANTUM PROCEEDINGS, INASMUCH AS IT WAS CANVASSED THAT THE LOAN FUNDS WERE UTILIZED FOR ACQUISITION OF SHARES IN APPLISOFT IN C., WHICH WAS TREATED AS A CAPITAL ASSET. ON THE CONTRARY, THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONTAINERS LTD.(SUP RA) RELIED UPON BY THE ASSESSING OFFICER, IS APPLICABLE IN A SITUATION WHE RE THE WAIVER RELATES TO A LOAN WHICH WAS USED FOR TRADING ACTIVITY. CONSID ERED IN THE AFORESAID LIGHT, IN OUR VIEW, THE CLAIM MADE BY THE ASSESSEE IN THE RETURN OF INCOME CANNOT BE SAID TO BE LACKING IN BONAFIDES OR CONSTITUTING FURNISHING OF INACCURATE PARTICULARS OF INCOME WITH IN THE MEANING OF SECTION 271(1)(C) OF THE ACT. THUS, THE PENALTY L EVIED UNDER SECTION 271(1)(C) OF THE ACT DESERVES TO BE DELETED. WE H OLD SO. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 22ND APRIL , 2016. SD/- SD/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 22 /04/2016 VM , 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. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI