Matrix Infra P.Ltd., Secunderabad V. ACIT, Hyderabad

ITA 71/HYD/2007

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82246 (ITAT-HYDERABAD)
• Duration Of Justice: 7 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-07-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 18-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Depreciation; Additional depreciation; Deemed to accrue or arise in india; Wrong claim; Corroborative evidences; Revised return
• Section: 133A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.71/HYD/2007 ASSESSMENT YEAR 2003-2004 M/S. MATRIX LABORATORIES LTD., HYDERABAD PAN AADCM-3491-M VS. ACIT, CIRCLE 16(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE: MR. K.A. SAI PRASAD FOR REVENUE: MR. D. SUDHAKAR RAO DATE OF HEARING: 09.07.2014 DATE OF PRONOUNCEMENT: 13.08.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-V, HYDERABAD DATED 30.10.20 06, CONFIRMING THE PENALTY UNDER SECTION 271(1)(C) OF T HE I.T. ACT, 1961. 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE MANUFACTURE OF DRUGS. ASSESSEE FOR THE A.Y. 2003-20 04 FILED RETURN OF INCOME ON 28.11.2003 DECLARING INCOME OF RS.6,33,87,472 UNDER NORMAL PROVISIONS AND BOOK PRO FIT OF RS.22,81,22,386 UNDER 115JB OF THE I.T. ACT. IN THE SAID RETURN, ASSESSEE HAS CLAIMED DEPRECIATION OF RS.92, 47,719 ON AN EFFLUENT TREATMENT PLANT (ETP IN SHORT) SITUAT ED AT KAZHEPALLY AND DEPRECIATION OF RS.85,42,220/- ON PO 3 UNIT SITUATED AT PASHMYLARAM. IT ALSO CLAIMED ADDITIONAL DEPRECIATION OF RS.50,27,873 UNDER SECTION 32(1)(II A) OF THE ACT 2 ITA.NO.71/HYD/2007 MATRIX LABORATORIES LTD., HYDERABAD. ON THE ABOVE PO3 UNIT. A SURVEY OPERATION UNDER SEC TION 133A OF THE ACT WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE ON 28.07.2004. DURING THE SURVEY OPERATION , A.O. NOTICED THAT THE ABOVE UNITS ON WHICH DEPRECIATION WAS CLAIMED EVEN THOUGH READY WERE NOT PUT TO USE. SINC E DEPRECIATION WAS CLAIMED, ASSESSEE FILED A REVISED RETURN ON 06.08.2004 WITHDRAWING THE CLAIM OF DEPRECIATION MA DE ON THE ABOVE UNITS. A.O. COMPLETED THE SCRUTINY ASSESSMENT UNDER SECTION 143 DETERMINING THE TOTAL INCOME AT RS.13,5 3,06,064 UNDER NORMAL PROVISIONS AND BOOK PROFIT UNDER SECTI ON 115JB AT RS.78,04,31,034. AS SEEN FROM THE ASSESSMENT ORD ER, A.O. ALSO MADE ADJUSTMENTS TO THE COMPUTATION OF BOOK PR OFITS, DETERMINED THE BOOK PROFIT AT RS.78,04,31,034/-. HE VIDE PAGE 23 OF THE ORDER HAS NOTED THAT THE TAX LIABILITY ON TOTAL INCOME COMPUTED UNDER THE REGULAR PROVISIONS OF THE I.T. A CT WAS LESS THAN THAT OF BOOK PROFITS COMPUTED UNDER SECTION 11 5JB, THE LATER WAS ADOPTED FOR COMPUTING THE TAX PAYABLE BY THE ASSESSEE. SINCE THE ASSESSEE WITHDREW THE CLAIM CON SEQUENT TO THE SURVEY PROCEEDINGS, A.O. INITIATED PROCEEDINGS UNDER SECTION 271(1)(C) AND LEVIED PENALTY ON THE ABOVE A MOUNT FOR MAKING A FALSE CLAIM. 3. BEFORE THE LD. CIT(A), ASSESSEE CONTENDED THAT THE CLAIM WAS MADE BONAFIDE, AS PART OF THE UNITS WERE READY FOR USE AND GAVE DETAILED SUBMISSIONS AS EXTRACTED IN P ARAS 4.1, 4.2 AND 4.3 OF THE IMPUGNED ORDER. IT WAS FURTHER C LAIMED THAT ASSESSEE HAS NOT CONCEALED ANY PARTICULARS OF INCOM E BY CLAIMING DEPRECIATION WHICH WAS A BONAFIDE CLAIM. M ERE WITHDRAWAL CLAIM OF DEPRECIATION IN REVISED RETURN DOES NOT WARRANT LEVY OF PENALTY, SINCE THE ASSESSEE HAS EXP LAINED FULL PARTICULARS WITH REGARD TO CLAIM THERETO. FURTHER, ASSESSEE ALSO 3 ITA.NO.71/HYD/2007 MATRIX LABORATORIES LTD., HYDERABAD. RAISED A CONTENTION THAT SINCE INCOME WAS ASSESSED UNDER SECTION 115JB AND THAT TAX LIABILITY BEING HIGHER O N ACCOUNT OF PROVISIONS UNDER SECTION 115JB, WHICH WAS LATER ADO PTED AS TAX PAYABLE, THERE IS NO TAX SOUGHT TO BE EVADED RE QUIRING LEVY OF PENALTY. LD. CIT(A) VIDE HIS ORDER IN PARA 5.4 T O 7 ELABORATELY DISCUSSED THE ISSUE AND REJECTED ASSESSEES CONTENT IONS AND CONFIRMED THE PENALTY. 4. LD. COUNSEL EXPLAINING THE REASONS FOR CLAIMING DEPRECIATION AND WHY THE CLAIMS WERE MADE AS SUBMIT TED BEFORE THE LD. CIT(A), SUBMITTED THAT INCOMES WERE ASSESSED UNDER SECTION 115JB. AS CAN BE SEEN FROM THE ASSESS MENT ORDER EVEN WITH REFERENCE TO CLAIMS OF DEPRECIATION , IT WAS SUBMITTED THAT THE ABOVE ARE BONAFIDE CLAIMS, AS TH E UNITS ARE READY FOR OPERATION AND OPERATIONS ARE STARTED IMME DIATELY IN THE NEXT MONTH ITSELF. JUST BECAUSE THE CLAIM WAS W ITHDRAWN WHICH WAS HOWEVER WAS ALLOWED IN THE LATER YEAR, IT CANNOT BECOME A BOGUS CLAIM. HE ALSO SUBMITTED THAT WITHDR AWAL OF CLAIM IN THE SURVEY PROCEEDINGS DOES NOT LEAD TO CO NCEALMENT OF INCOME, SO AS TO ATTRACT PENALTY UNDER SECTION 2 71(1)(C). 5. LEARNED D.R. HOWEVER SUBMITTED THAT ASSESSEE ADMITTED THAT THE DEPRECIATION WAS NOT ALLOWABLE AN D WITHDRAW THE CLAIM. THEREFORE, THE CLAIMS BECOMES BOGUS AND RELIED ON VARIOUS DECISIONS. (I) DAYABHAI GIRDHARBHAI VS. CIT (1957) 32 ITR 677 (BOM.) (HC) (II) RAVI & CO. VS. ACIT (2004) 271 ITR 286 (MAD.) (HC) 4 ITA.NO.71/HYD/2007 MATRIX LABORATORIES LTD., HYDERABAD. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS ON RECORD. AS SEEN FROM THE ASSESSMENT ORDER, EVEN THOUGH THERE WAS WITHDRAWAL OF DEPRECIATION CLAIMED , IT HAS NO EFFECT ON THE TAX COMPUTATION AS THE A.O. DETERMINE D THE TAX UNDER THE PROVISIONS OF SECTION 115JB. EVEN THOUGH THERE ARE MANY ADDITIONS AND DELETIONS IN THE COMPUTATION UND ER THE NORMAL PROVISIONS AS WELL AS 115JB, SUBSEQUENTLY DU E TO APPEAL PROCEEDINGS, THE FACT THAT A.O. AT THE TIME OF ASSESSMENT HAS DETERMINED THE INCOME UNDER SECTION 115JB ITSELF SHOWS THAT THE ASSESSEES CLAIM UNDER DEPREC IATION HAS NO EFFECT ON ULTIMATE TAX COMPUTATION MADE AT THE T IME OF FILING RETURN. IN FACT, ASSESSEE ADMITTED INCOMES UNDER SE CTION 115JB. HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. NALWA SONS INVESTMENT LTD., VIDE APPEAL (CIVIL) NO. 18564 OF 2011 BY ORDER DATED 4.5.2012 DISMISSED THE SPECIAL LEAVE PETITION WHICH ARISES OUT OF THE ORDER OF DELHI HIG H COURT IN THE CASE OF CIT VS. M/S. NALWA SONS INV. LTD., 235 CTR 209. THE HONBLE DELHI HIGH COURT CONSIDERED SIMILAR FAC TS AND HELD THAT PENALTY UNDER SECTION 271(1)(C) IS NOT WARRANT ED WHEN INCOMES WERE ACCEPTED UNDER 115JB WHILE ADDITIONS A RE MADE IN THE REGULAR COMPUTATION. THE RELEVANT OBSERVATI ONS OF THE HONBLE DELHI HIGH COURT ARE AS UNDER : THE REASON WHICH PROMPTED THE AO TO TAKE STEPS TO IMPOSE PENALTY AGAINST THE ASSESSEE WAS THAT THOUGH THE AS SESSEE HAD BOUGHT THE CONCERNED MACHINERY ONLY ON THE LAST DAY OF THE YEAR IN RESPECT OF WHICH BOOK ENTRY WAS MADE ON 31ST MARCH, 2001, IT STILL CLAIMED THE DEPRECIATION WHIC H COULD BE CLAIMED ONLY IF THE MACHINERY WAS PUT TO USE FOR TH E PURPOSE OF BUSINESS DURING THE YEAR UNDER CONSIDERATION. EV EN WHEN THE ASSESSEE WAS SPECIFICALLY ASKED TO PRODUCE THE SUPPORTING EVIDENCE INCLUDING RECORDS TO PROVE THAT IT HAD USED THE MACHINERY IN THE RELEVANT YEAR, THE ASSESS EE COULD NOT GIVE ANY EVIDENCE. CLAIM FOR DEPRECIATION QUA T HAT MACHINERY WAS REJECTED ON THIS GROUND. IT THUS BECO MES 5 ITA.NO.71/HYD/2007 MATRIX LABORATORIES LTD., HYDERABAD. CLEAR THAT THE ASSESSEE HAD CLAIMED THE DEPRECIATIO N ON THE SAID MACHINERY PROJECTING THAT IT HAD USED THE MACH INERY WHICH, TURNED OUT TO BE FALSE. NEITHER THE CIT(A) N OR TRIBUNAL LOOKED INTO THE MATTER FROM THE PROPER PERSPECTIVE AND RATHER SCUTTLED THE REAL ISSUE BY DELETING THE PENALTY. AS PER S. 271(1)(C), THE PENALTY CAN BE IMPOSED WHE N ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INCORRECT PARTICULARS OF THE INCOME. ONCE THIS CONDITION IS SATISFIED, QUANTUM OF PENALTY IS TO BE LEVIED AS PER CL. (III) OF S. 271(1)(C) WHICH STIPULATES THAT THE PENALTY SHALL NOT EXCEED THREE TIMES ' THE AMOUNT OF TAX SO UGHT TO BE EVADED'. THE QUESTION WOULD BE, AS TO WHETHER FURNI SHING 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 PROVISIONS OF THE ACT AND TAX PAYABLE ON SUCH TOTAL INCOME IS COMPARED WITH THE PRESCRIBED PERCENTAGE OF THE BOO K PROFITS COMPUTED UNDER S. 115JB. THE HIGHER OF THE TWO AMOUNTS IS REGARDED AS TOTAL INCOME AND TAX IS PAYA BLE WITH REFERENCE TO SUCH TOTAL INCOME. IF THE TAX PAYABLE UNDER THE NORMAL PROVISIONS IS HIGHER, SUCH AMOUNT IS THE TOT AL INCOME OF THE ASSESSEE, OTHERWISE, BOOK PROFITS ARE DEEM ED AS THE TOTAL INCOME OF THE APPELLANT IN TERMS OF S. 115JB. IN THE PRESENT CASE, THE INCOME COMPUTED AS PER THE NORMAL PROCEDURE WAS LESS THAN THE INCOME DETERMINED BY LE GAL FICTION NAMELY BOOK PROFITS UNDER S. 115JB. ON TH E BASIS OF NORMAL PROVISION, THE INCOME WAS ASSESSED IN THE NE GATIVE I.E. AT A LOSS OF RS. 36,95,21,018. ON THE OTHER HA ND, ASSESSMENT UNDER S. 115JB RESULTED IN CALCULATION O F PROFITS AT RS. 4,01,63,180. THE INCOME OF THE ASSESSEE WAS THUS ASSESSED UNDER S. 115JB AND NOT UNDER THE NORMAL PROVISIONS. NO DOUBT, THERE WAS CONCEALMENT BUT THA T HAD ITS REPERCUSSIONS ONLY WHEN THE ASSESSMENT WAS DONE UND ER THE NORMAL PROCEDURE. THE ASSESSMENT AS PER THE NOR MAL PROCEDURE WAS, HOWEVER, NOT ACTED UPON. ON THE CONT RARY, IT IS THE DEEMED INCOME ASSESSED UNDER S. 115JB WHICH HAS BECOME THE BASIS OF ASSESSMENT AS IT WAS HIGHER OF THE TWO. TAX IS THUS PAID ON THE INCOME ASSESSED UNDER S. 11 5JB. HENCE, WHEN THE COMPUTATION WAS MADE UNDER S. 115JB , THE CONCEALMENT HAD NO ROLE TO PLAY AND WAS TOTALLY IRRELEVANT. THEREFORE, THE CONCEALMENT DID NOT LEAD TO TAX EVASION AT ALL. THE UPSHOT OF THE AFORESAID DISCUSS ION WOULD BE TO SUSTAIN THE ORDER OF THE TRIBUNAL, THOUGH ON DIFFERENT GROUNDS. THEREFORE, WHILE THE REASONING AND APPROAC H OF THE TRIBUNAL IS NOT TENABLE, FOR THE REASONS DISCLOSED ABOVE, 6 ITA.NO.71/HYD/2007 MATRIX LABORATORIES LTD., HYDERABAD. PENALTY COULD NOT HAVE BEEN IMPOSED EVEN IN RESPECT OF THE FALSE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE. WHEN COMPUTATION OF INCOME WAS MADE UNDER S. 115JB, AND THERE WAS LOSS UNDER THE NORMAL PROVISIONS, CONCEAL MENT, IF ANY, DID NOT LEAD TO TAX EVASION AT ALL AND, THEREF ORE, PENALTY UNDER S. 271(1)(C) COULD NOT BE IMPOSED. THE FACTS OF THE ABOVE CASE ARE SIMILAR TO THAT OF ASSESSEE. THEREFORE THE PRINCIPLES LAID DOWN THEREIN, EQUALLY APPLIES TO THE CASE ON HAND. 6.1. NOT ONLY THAT, THE COORDINATE BENCH IN THE CA SE OF DCIT VS. BHANWAR LAL MAHENDRA KUMAR SONI (2011) 1 38 TTJ (JD) 381 CONSIDERED SIMILAR SITUATION AND HELD THAT EXPL ANATION OFFERED BY THE ASSESSEE REGARDING ADDITIONAL INCOME SURRENDERED DURING SURVEY PROCEEDINGS HAVING NOT BE EN FOUND FALSE BY THE A.O., PENALTY IMPOSED UPON ASSESSEE FO R CONCEALMENT OF INCOME WAS NOT JUSTIFIED. THE COORDI NATE BENCH IN THE CASE OF GODAVARI TOWNSHIPS P. LTD. VS. DCIT, CIRCLE-3(1), VISAKHAPATNAM IN ITA.NO.54/VIZAG/2012 29.01.2014 HAS ALSO CONSIDERED SIMILAR SITUATION AND HELD THAT DECLARATION OF ADDITIONAL INCOME IN THE COURSE OF SURVEY DOES N OT ATTRACT PENALTY PROCEEDINGS UNLESS A.O. ESTABLISHES CONCEAL MENT OF INCOME. 6.2 THE PRINCIPLES ESTABLISHED ABOVE INDICATE T HAT THE WITHDRAWAL OF A CLAIM IN SURVEY PROCEEDINGS DOES NO T ATTRACT PENALTY UNDER 271(1)(C). CONSIDERING THAT ASSESSEE HAS BONAFIDE EXPLANATION AND ALSO ON FACTS THAT ASSESSE E TAX COMPUTATION WAS DETERMINED BY THE A.O. UNDER 115JB, THERE IS NO SCOPE FOR LEVY OF PENALTY UNDER SECTION 271(1 )(C). ACCORDINGLY, THE SAME IS CANCELLED. 7 ITA.NO.71/HYD/2007 MATRIX LABORATORIES LTD., HYDERABAD. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 13.08.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 13 TH AUGUST, 2014 VBP/- COPY TO 1. MATRIX LABORATORIES LTD., 1-1-151/1, 4 TH FLOOR, SAIRAM TOWERS, ALEXANDER ROAD, SECUNDERABAD. 2. ACIT, CIRCLE 16(2), AAYAKAR BHAVAN, HYDERABAD. 3. CIT(A)-V, HYDERABAD 4. CIT-IV, HYDERABAD 5. D.R. B BENCH, ITAT, HYDERABAD.