The ITO, Ward-4(1), Ahmedabad V. Gujarat Telephone Cables Pvt. Ltd., Ahmedabad

ITA 718/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1789 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-12-2009
• Assessment Year: 1996-1997
• Appeal Filed On: 04-03-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure; Set aside; Liquidation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO.718/AHD/2005 A. Y.: 1996-97 THE INCOME TAX OFFICER, WARD -4(1) 1 ST FLOOR, NAVJIVAN TRUST BUILDING, B/H GUJARAT VIDYAPITH, ASHRAM ROAD, NAVRANGPURA, AHMEDABAD VS OFFICIAL LIQUIDATOR, (GUJARAT TELEPHONE CABLES P. LTD.) B/H. ASHRAM ROAD POST OFFICE, NAVRANGPURA, AHMEDABAD PA NO.-- (APPELLANT) (RESPONDENT) C. O. NO.111/AHD/2 005 (IN ITA NO.718/AHD/2005) OFFICIAL LIQUIDATOR, (GUJARAT TELEPHONE CABLES P LTD.) B/H. ASHRAM ROAD POST OFFICE, NAVRANGPURA, AHMEDABAD PA NO.-- VS THE INCOME TAX OFFICER, WARD -4(1) 1 ST FLOOR, NAVJIVAN TRUST BUILDING, B/H GUJARAT VIDYAPITH, ASHRAM ROAD, NAVRANGPURA, AHMEDABAD (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY NONE DEPARTMENT BY SHRI M. C. PANDIT, DR DATE OF ORDER RESERVED O R D E R PER BHAVNESH SAINI: THE DEPARTMENTAL APPEAL AS WELL AS THE CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAIN ST THE ORDER OF THE CIT(A)-VIII, AHMEDABAD DATED 22-12-2004 FOR THE ASS ESSMENT YEAR 1996-97, CHALLENGING THE CANCELLATION OF PART PENAL TY LEVIED U/S 271 (1) (C) OF THE INCOME TAX ACT AS WELL AS CONFIRMATION O F LEVY OF PENALTY U/S 271 (1) ( C ) OF THE ACT. ITA NOS.718/AHD/2005 & CO NO.111/AHD/2005 OFFICIAL LIQUIDATOR (GUJARAT TELEPHONE CABLES PVT. LTD.) 2 2. WE HAVE HEARD THE LEARNED DR AND PERUSED THE FIN DINGS OF AUTHORITIES BELOW. AS PER THE RECORD THE ASSESSEE W AS SERVED OF THE NOTICES OF THE DATE OF HEARING. NONE APPEARED ON BE HALF OF THE ASSESSEE. THE ASSESSEE INTIMATED THAT SINCE THE ASSESSEE COMP ANY HAS GONE IN LIQUIDATION, THEREFORE, OFFICIAL LIQUIDATOR MAY ALS O BE SERVED. THE OFFICE HAS, THEREFORE, ISSUED SEPARATE NOTICE TO THE OFFIC IAL LIQUIDATOR ALSO AT THE GIVEN ADDRESS BY THE ASSESSEE. DESPITE NOTIFYING TH E DATE OF HEARING TO THE ASSESSEE AS WELL AS THE OFFICIAL LIQUIDATOR, NO BODY PUT IN APPEARANCE ON BEHALF OF THE ASSESSEE IN THE AFORESAID MATTER. THE ASSESSEE IS, THEREFORE, PROCEEDED EX-PARTE. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT O RIGINAL ASSESSMENT WAS FRAMED ON 25-1-1999 DETERMINING TOTAL INCOME AT NIL. THEREAFTER, ASSESSMENT HAS BEEN RE-FRAMED U/S 147/148 OF THE IN COME TAX ACT AND RE-ASSESSMENT ORDER WAS PASSED ON 26-03-2002 DETERM INING THE TOTAL INCOME AT RS.61,37,976/- IN WHICH PENALTY PROCEEDIN GS U/ 271 (1) ( C ) OF THE INCOME TAX ACT WERE ALSO INITIATED. THE APPEAL OF THE ASSESSEE WAS DISPOSED BY THE LEARNED CIT(A), AHMEDABAD VIDE ORDE R DATED 03-02-2004. 4. IN THE RE-ASSESSMENT PROCEEDINGS, ADDITION OF RS .45,68,597/- WAS MADE ON ACCOUNT OF EXCESS DEPRECIATION CLAIM DISALL OWED. THE AO NOTED THAT THE ASSESSEE COMPANY HAS PAID INTEREST OF RS.9 1,37,197/- ON LOAN TAKEN FOR WIND MILL WHICH WAS DEBITED IN THE PROFIT & LOSS ACCOUNT AS REVENUE EXPENDITURE AS WIND MILL WAS COMMISSIONED A FTER 30 TH SEPTEMBER, 1995, THE INTEREST PAID ON LOAN TAKEN FO R PURCHASING THE WIND MILL WAS REQUIRED TO BE CAPITALIZED. THUS, AFT ER ALLOWING DEPRECIATION AT 50% OF 100% I.E. RS.46,58,598/-, TH E BALANCE OF RS.45,68,597/- WAS REQUIRED TO BE ADDED BACK TO THE TOTAL INCOME. THE AO NOTED THAT SINCE IT IS TO BE CAPITALIZED, THEREF ORE, CAPITAL EXPENDITURE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. SIMILARLY , THE ADDITION OF RS.32,57,350/- WAS MADE. THIS ADDITION RELATES TO P ENAL INTEREST PAID BY ITA NOS.718/AHD/2005 & CO NO.111/AHD/2005 OFFICIAL LIQUIDATOR (GUJARAT TELEPHONE CABLES PVT. LTD.) 3 THE ASSESSEE COMPANY OF RS.1,35,026/- TO SCICI LTD . AND RS.31,22,324/- PENAL INTEREST PAID TO IFCI LTD. THE AO HAD DISALLOWED THE SAID EXPENDITURE AS BEING CLAIMED ON ACCOUNT OF BREACH OF AGREEMENT RELYING UPON THE DECISION IN THE CASE OF CINERAMS V S CIT 110 ITR 782. THE LEARNED CIT(A) ON QUANTUM APPEAL VIDE ORDER DAT ED 03-02-2004 CONFIRMED BOTH THE ADDITIONS. VIDE SEPARATE ORDER P ENALTY WAS IMPOSED U/S 271 (1) ( C ) OF THE INCOME TAX ACT. 5. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE COMPANY HAS NOT CONCEALED ANY PARTICULARS OF INCOME IN RESPECT OF THE INTEREST PAYMENT OF RS.91,37,197/-. THE DETAILS WER E DISCUSSED IN THE ASSESSMENT ORDER. IT RELATED TO THE ASSESSEE COMPAN Y HAVING PRIVATELY PLACED DEBENTURES TO SCICI LTD. WITH AGGREGATE VALU E OF RS.5,76,00,000/- TO MEET THE COST OF WIND FARM MILL LOCATED AT RAJKO T. IT WAS SUBMITTED THAT THE SAID WIND MILL IS ONLY AN EXTENSION OF THE EXISTING MANUFACTURING PLANT OF THE ASSESSEE. IT WAS SUBMITT ED THAT ELECTRICITY PRODUCED FROM THE SAID WIND MILL IS INDIRECTLY HELP ING COST OF MANUFACTURING TO BE REDUCED FOR CABLE MANUFACTURING PLANT AT SANAND. CREDIT IS BEING GIVEN OF THE ELECTRICITY PRODUCED B Y THE WIND MILL BY THE GUJARAT ELECTRICITY BOARD. THIS ELECTRICITY PRODUCE D BY WIND MILL IS FED INTO GUJARAT ELECTRICITY BOARD AND CORRESPONDING RE BATE IS GIVEN FOR THE ELECTRICITY BILLS AT THE CABLE MANUFACTURING PLANT AT SANAND. IT WAS THEREFORE, ARGUED THAT SINCE NO ECONOMIC BENEFIT IS DERIVED AND NO INCOME IS EARNED, THE SAME SHOULD BE TREATED AS EXT ENSION OF THE CABLE MANUFACTURING PLANT. IT WAS FURTHER STATED THAT THE ASSESSEE COMPANY HAD CLAIMED INTEREST EXPENSES PAID TO SCICI LTD. AS REVENUE EXPENDITURE ON WHICH NO PENALTY SHOULD BE IMPOSED. 6. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION OF THE ASSESSEE NOTED THAT THE ASSESSEE-COMPANY WAS IN THE KNOWLEDG E OF ACTUAL COMMENCEMENT OF PRODUCTION OF ELECTRICITY FROM THE WIND MILL WHICH WAS ITA NOS.718/AHD/2005 & CO NO.111/AHD/2005 OFFICIAL LIQUIDATOR (GUJARAT TELEPHONE CABLES PVT. LTD.) 4 IN THE SECOND HALF OF THE ASSESSMENT YEAR UNDER APP EAL AND THIS FACT WAS NOT EVIDENT FROM THE RETURN OF INCOME. THE LEARNED CIT(A) RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CHALLAPALLI SUGARS LTD. 98 ITR 167 IN WHICH IT WAS HELD THAT A LL EXPENSES PRIOR TO COMMERCIAL PRODUCTION ARE TO BE CAPITALIZED, NOTED THAT THERE IS NO DEBATE ON THE ABOVE ISSUE. THE LEARNED CIT(A), THER EFORE, NOTED THAT ALL THE FACTS WERE WITHIN THE KNOWLEDGE OF THE ASSESSEE AT THE TIME OF FILING OF THE RETURN. THEREFORE, THE ASSESSEE WOULD BE ENTITL ED TO DEPRECIATION @50% FOR THE PERIOD OF LESS THAN SIX MONTHS AS PER INCOME TAX ACT. THE EXTENSION OF THE BUSINESS OF THE ASSESSEE WAS ALSO DISBELIEVED AND ULTIMATELY IT WAS HELD THAT EXPLANATION I TO SECTIO N 271 (1) ( C ) OF THE INCOME TAX ACT IS CLEARLY ATTRACTED IN THE CASE OF THE ASSESSEE BECAUSE THE ASSESSEE HAS FAILED TO EXPLAIN THE ISSUE AS WEL L AS DID NOT SUBSTANTIATE THE SUBMISSIONS MADE BEFORE THE AUTHOR ITIES BELOW. THE PENALTY LEVIED U/S 271 (1) ( C ) OF THE ACT ON DISA LLOWANCE OF RS.45,68,592/- WAS ACCORDINGLY CONFIRMED. THE ASSES SEE IS IN CROSS OBJECTIONS ON THIS ISSUE. 7. THE LEARNED CIT(A) AS REGARDS PENALTY IMPOSED ON THE ADDITION OF RS.32,57,350/- NOTED THAT THIS AMOUNT IS PAID AS PE NAL INTEREST AND THAT THE ASSESSEE DID NOT FILE ANY REPLY BEFORE THE AO A T THE PENALTY PROCEEDINGS. THE LEARNED CIT(A) HOWEVER, NOTED THAT EXPLANATION NOT OFFERED BEFORE THE AO MAY NOT BE SUFFICIENT FOR BEI NG CONSIDERED FAVORABLY FOR THE PURPOSE OF DETERMINATION OF THE INCOME. TH E LEARNED CIT(A) ALSO NOTED THAT SINCE THIS ISSUE IS NOT FINALLY SETTLED BY THE HONBLE SUPREME COURT, THEREFORE, HE WOULD BE INCLINED TO CANCEL TH E PENALTY ON THIS AMOUNT. THE REVENUE IS IN APPEAL AGAINST CANCELLATI ON OF THE PENALTY ON THE ABOVE ISSUE. 8. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT SINCE THE ASSESSEE HAS NOT FILED ANY REPLY BEFORE T HE AO AT THE PENALTY ITA NOS.718/AHD/2005 & CO NO.111/AHD/2005 OFFICIAL LIQUIDATOR (GUJARAT TELEPHONE CABLES PVT. LTD.) 5 STAGE, THEREFORE, THE LEARNED CIT(A) SHOULD NOT HAV E DELETED THE PART OF THE PENALTY. THE LEARNED DR SUBMITTED THAT THE ASSE SSEES CROSS OBJECTIONS HAS NO MERIT BECAUSE EXPLANATION I TO SE CTION 271 (1) ( C ) OF THE INCOME TAX ACT IS CLEARLY ATTRACTED IN THE CASE OF THE ASSESSEE. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D DR AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. AS R EGARDS ADDITION OF RS.45,68,597/- IS CONCERNED ON WHICH PENALTY IS CON FIRMED BY THE LEARNED CIT(A), WE ARE OF THE VIEW THAT NO INTERFER ENCE IS CALLED FOR IN THE MATTER. THE AO HAS SPECIFICALLY RECORDED IN THE PEN ALTY ORDER THAT DESPITE SERVICE OF SHOW CAUSE NOTICE UPON THE ASSESSEE, THE ASSESSEE DID NOT FILE ANY REPLY BEFORE HIM TO EXPLAIN THE ISSUE. THE AO I N THE ASSESSMENT ORDER SPECIFICALLY NOTED THAT THE INTEREST EXPENDIT URE INCURRED PRIOR TO COMMISSIONING OF THE PLANT CAPITALIZED IN THE BOOKS OF ACCOUNTS IS A CAPITAL EXPENDITURE HAS RIGHTLY SHOWN BY THE ASSESS EE IN THE BOOKS OF ACCOUNTS. THEREFORE, CAPITAL EXPENDITURE CANNOT BE ALLOWED AS REVENUE EXPENDITURE. THE AO SIMILARLY NOTED IN THE PENALTY ORDER THAT THE INTEREST WAS CAPITALIZED BY THE ASSESSEE IN THE BOOKS OF ACC OUNTS BUT IT WAS CLAIMED AS REVENUE EXPENDITURE IN THE RETURN OF INC OME. THE ABOVE FACTS, THEREFORE, CLEARLY SHOWS THAT IT WAS WITHIN THE KNO WLEDGE OF THE ASSESSEE PRIOR TO FILING OF THE RETURN THAT THE AMOUNT IN QU ESTION IS TO BE CAPITALIZED INSTEAD OF CLAIMING IT TO BE REVENUE EX PENDITURE. THE ASSESSEE HAS MADE THE SAME TREATMENT IN THE BOOKS OF ACCOUNT S BY TREATING THE SAME EXPENDITURE AS CAPITAL EXPENDITURE BECAUSE THE INTEREST EXPENDITURE WAS INCURRED PRIOR TO COMMISSIONING OF THE PLANT. THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION AS TO WHY A DIFFERENT TREATMENT WAS GIVEN TO THE ABOVE SAID CAPITALIZATION OF THE E XPENDITURE IN THE RETURN OF INCOME. THE LEARNED CIT(A), THEREFORE, RI GHTLY HELD THAT EXPLANATION I TO SECTION 271(1) ( C ) OF THE INCOME TAX ACT IS CLEARLY ATTRACTED IN THE CASE OF THE ASSESSEE BECAUSE THE A SSESSEE HAS FAILED TO OFFER ANY EXPLANATION BEFORE THE AUTHORITIES BELOW AND HAS NOT BEEN ABLE ITA NOS.718/AHD/2005 & CO NO.111/AHD/2005 OFFICIAL LIQUIDATOR (GUJARAT TELEPHONE CABLES PVT. LTD.) 6 TO SUBSTANTIATE ANY EXPLANATION WHICH COULD HAVE BE EN RAISED BEFORE THE AUTHORITIES BELOW. THE LEARNED CIT(A) WAS, THEREFOR E, JUSTIFIED IN HOLDING THAT IT IS A FIT CASE OF DEEMED CONCEALMENT OF INCO ME OR FILING OF INACCURATE PARTICULARS OF INCOME. SAME IS THE POSIT ION BEFORE THE TRIBUNAL, BECAUSE THE ASSESSEE DESPITE SERVICE OF N OTICE DID NOT PUT IN APPEARANCE ON THE DATE OF HEARING AND HAS NOT OFFER ED ANY EXPLANATION AS TO WHEN THE EXPENDITURE WAS CAPITALIZED IN THE B OOKS OF ACCOUNTS, WHY IT WAS GIVEN DIFFERENT TREATMENT IN THE RETURN OF I NCOME. WE ACCORDINGLY, CONFIRM THE FINDINGS OF THE LEARNED CIT(A) IN HOLDI NG THAT IT IS A FIT CASE FOR CONCEALMENT OF INCOME OR FILING OF INACCURATE P ARTICULARS OF INCOME. WE ACCORDINGLY, DISMISS THE CROSS OBJECTIONS OF THE ASSESSEE. 10. AS REGARDS THE DEPARTMENTAL APPEAL IS CONCERNED IN WHICH THE LEARNED CIT(A) CANCELLED THE PENALTY ON ACCOUNT OF ADDITION MADE FOR PENAL INTEREST ON RS.32,57,350/-, WE MAY NOTE THAT THE LEARNED CIT(A) WITHOUT GIVING ANY SPECIFIC REASON FOR DECISION HAS CANCELLED THE PENALTY. THE LEARNED CIT(A) NOTED THAT SINCE THE ISSUE OF PE NAL INTEREST IS NOT SETTLED BY THE HONBLE SUPREME COURT AND THE PENALT Y MAY DEPEND UPON THE FACTS OF EACH AND EVERY CASE, THEREFORE, HE WAS INCLINED TO CANCEL THE PENALTY. THE LEARNED CIT(A) FAILED TO NOTE THAT THE ASSESSEE DID NOT FILE ANY REPLY BEFORE THE AO AT THE PENALTY STAGE TO OFF ER ANY EXPLANATION ON THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LE ARNED CIT(A). IT MAY BE A CASE OF BREACH OF AGREEMENT, BUT THE ASSESSEE IS REQUIRED TO OFFER EXPLANATION AS TO WHY PENALTY SHOULD NOT BE IMPOSED . MERELY BECAUSE THE ISSUE IS NOT SETTLED, IS NOT A GROUND TO CANCEL THE PENALTY IN THE MATTER. THE FACTS AND CIRCUMSTANCES OF THE CASE SHO ULD HAVE BEEN CONSIDERED AND DISCUSSED IN THE IMPUGNED ORDER AS W ELL AS THE LEARNED CIT(A) IS REQUIRED TO PASS A REASONED ORDER AS TO W HY PENALTY IS CANCELED IN THE MATTER. THE LEARNED CIT(A) WITHOUT GIVING AN Y REASON FOR DECISION AND WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE DID NOT OFFER ANY EXPLANATION AT THE PENALTY STAGE BEFORE THE AO, HAS CANCELLED THE ITA NOS.718/AHD/2005 & CO NO.111/AHD/2005 OFFICIAL LIQUIDATOR (GUJARAT TELEPHONE CABLES PVT. LTD.) 7 PENALTY. THEREFORE, SUCH AN APPROACH OF THE LEARNED CIT(A) CANNOT BE SUSTAINED AT LAW. THERE MAY BE SO MANY REASONS FOR PAYMENT OF PENAL INTEREST, BUT THE FACTS AND CIRCUMSTANCE SHALL HAVE TO BE BROUGHT ON RECORD TO CONSIDER THE ISSUE MORE PARTICULARLY WHEN THE ADDITION ON QUANTUM HAS BEEN CONFIRMED BY THE LEARNED CIT(A). I T IS SETTLED LAW THAT THE FINDING GIVEN IN THE QUANTUM IS HAVING PROBATIV E VALUE FOR THE PURPOSE OF CONSIDERING THE PENALTY MATTER, BUT THE LEARNED CIT(A) WITHOUT GIVING ANY SPECIFIC REASON HAS CANCELLED THE PENALT Y IN THE MATTER. WE ARE, THEREFORE, OF THE OPINION THAT THE MATTER REQU IRES RE-CONSIDERATION AT THE LEVEL OF THE LEARNED CIT(A). WE ACCORDINGLY SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE ISSUE TO HIS FILE W ITH DIRECTION TO RE-DECIDE THE PENALTY MATTER ON THIS ISSUE BY GIVING REASONAB LE AND SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS WELL AS TO THE OFFICIAL LIQUIDATOR OF THE ASSESSEE. 11. AS A RESULT, THE DEPARTMENTAL APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 12. AS A RESULT, THE DEPARTMENTAL APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. THE CROSS OBJECTIONS OF THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED ON 18 TH DECEMBER 2009 SD/- SD/- (N. S. SAINI) ACOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 18-12-2009 LAKSHMIKANT/- ITA NOS.718/AHD/2005 & CO NO.111/AHD/2005 OFFICIAL LIQUIDATOR (GUJARAT TELEPHONE CABLES PVT. LTD.) 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD