AVIK PHARMACEUTICALS P. LTD, MUMBAI V. ACIT RG 8(1), MUMBAI

ITA 737/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6378 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 01-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Wrong claim; Non compliance
• Section: 43B; 28

Judgement Text

1 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI MUMBAI MUMBAI MUMBAI G GG G BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFOR BEFOR BEFOR BEFORE SHRI R K PANDA, AM & SHRI VIJ E SHRI R K PANDA, AM & SHRI VIJ E SHRI R K PANDA, AM & SHRI VIJ E SHRI R K PANDA, AM & SHRI VIJA AA AY YY Y PAL RAO, JM PAL RAO, JM PAL RAO, JM PAL RAO, JM ITA NO. 737/MUM/2010 ITA NO. 737/MUM/2010 ITA NO. 737/MUM/2010 ITA NO. 737/MUM/2010 (ASST YEAR 2003 (ASST YEAR 2003 (ASST YEAR 2003 (ASST YEAR 2003- -- -04) 04) 04) 04) AVIK PHARMACEUTICALS P LTD 194 ARVIND CHAMBERS, GAURI STUDIO COMPOUND WESTERN EXPRESS HIGHWAY ANDHERI (E), MUMBAI 69 VS THE ASST COMMR OF INCOME TAX RANGE 8(1), MUMBAI (APPELANT) (APPELANT) (APPELANT) (APPELANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO.AAACA5490R PAN NO.AAACA5490R PAN NO.AAACA5490R PAN NO.AAACA5490R ASSESSEE BY SHRI JITENDRA JAIN REVENUE BY SHRI A K NAYAK PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 11.11.2009 OF THE CIT(A)-16, MUMBAI RELATING TO ASS ESSMENT YEAR 2003-04. 2 THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALLEN GED THE ACTION OF THE CIT(A) IN CONFIRMING THE PENALTY OF RS.41,60,050/ - LEVIED BY THE ASSESSING OFFICER 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DRUGS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED FOR THE D ETAILS OF INTEREST EXPENDITURE CLAIMED AT RS. 1,57,46,550/- TO VERIFY AS TO WHETHE R THE INTEREST WAS PAID TO THE BANKS WITHIN THE DUE DATE AS PER SEC. 45B OF THE I T ACT. THE ASSESSEE IN ITS REPLY SUBMITTED THAT AN AMOUNT OF RS. 1,12,79,976/- WAS NOT PAID TO THE BANKS BUT DEBITED IN THE ACCOUNTS. THE ASSESSING OFFICER , A CCORDINGLY MADE AN ADDITION OF 2 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) RS. 1,12,79,976/- TO THE TOTAL INCOME OF THE ASSESS EE. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS NOT FILED ANY E VIDENCE IN RESPECT OF PAYMENTS OF RS. 44,66,575/-. THE AUDITORS IN THE TA X AUDIT REPORT HAS NOT STATED ANYTHING IN THIS REGARD. THEREFORE, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ABOVE INTEREST IS NOT PAID WITHIN THE DUE DATE. IN VIEW OF THE NON COMPLIANCE ON THE PART OF THE ASSESSEE AND IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME IN THE CASE OF CIT VS CALCUTTA AGE NCY LTD REPORTED IN 19 ITR 191 DISALLOWED THE ENTIRE INTEREST AMOUNTING TO RS. 1,57,46,550/-. 2.2 THE ASSESSING OFFICER SIMILARLY NOTED THAT THE ASSESSEE COMPANY HAS CLAIMED DEPRECIATION @ 20% ON THE BUILDING. ON BEI NG CONFRONTED, THE ASSESSEE ADMITTED THAT THERE WAS AN ERROR IN CALCULATION OF DEPRECIATION ON BUILDING @ 20% INSTEAD OF 10%. IT WAS SUBMITTED THAT EXCESS DEPRECIATION SO CLAIMED MAY BE DISALLOWED. 2.3 IN APPEAL, THE CIT(A) DELETED THE DISALLOWANCE OF INTEREST OF RS. 44,66,574/- BUT SUSTAINED THE DISALLOWANCE OF I NTEREST OF RS. 1,12,79,976/- DISALLOWED BY THE ASSESSING OFFICER U/S 43B OF THE ACT. THE ASSESSING OFFICER, THEREAFTER INITIATED PENALTY PROCEEDINGS U/S 271(1) (C ) OF THE I T ACT. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND RELYING ON A COUPLE OF DECISIONS THE ASSESSING OFFICER LEVIED PENALTY OF RS. 41,60,050/- U/S 271(1)( C) OF THE ACT BEING 100% OF TAX SOUGHT TO BE EVADED O N ACCOUNT OF CLAIM OF INTEREST OF RS. 1,12,79,976/- AND WRONG CLAIM OF DEPRECIATIO N OF RS. 40,703/-. 2.4 BEFORE THE CIT(A), THE BREAK UP OF INTEREST OF RS. 1,12,79,976/- WAS FURNISHED AS UNDER: 3 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) I) CASH CREDIT ACCOUNT RS. 51,90,123/- II) ADVANCE AGAINST BILLS RS. 55,52,471/- III) EXPORT PACKING CREDIT RS. 5,37,382/- 2.5 IT WAS SUBMITTED THAT AS THE INTEREST WAS NOT O N TERM LOAN, BUT ON CASH CREDIT AND OTHER FACILITIES PROVIDED BY THE BANKS ; THEREFORE, NO DISALLOWANCE WAS CALLED FOR U/S 43B(E) IN RESPECT OF THE INTERES T OF RS. 1,12,79,976/- FOR ASSESSMENT YEAR 2003-04. IT WAS SUBMITTED THAT F OR THE IMPUGNED ASSESSMENT YEAR, ONLY INTEREST ON TERM LOAN WAS COVERED U/S 43 B(E) OF THE ACT; THEREFORE, NO PENALTY IS LEVYABLE U/S 271(1)( C) ON ACCOUNT OF DI SALLOWANCE OF INTEREST OF RS. 1,12,79,976/-. 2.6 AS REGARDS TO THE CLAIM OF DEPRECIATION @ 20% A S AGAINST 10% ON BUILDING, IT WAS SUBMITTED THAT IT WAS PURELY A CLERICAL ERR OR AS THE DEPRECIATION RATE APPLICABLE TO ASSESSMENT YEAR 2002-03 GOT INADVERT ENTLY CARRIED FORWARD WHILE COMPUTING THE DEPRECIATION FOR ASSESSMENT YEAR 200 3-04. 3 HOWEVER, THE CIT(A) WAS NOT SATISFIED WITH THE EX PLANATION GIVEN BY THE ASSESSEE. WHILE DOING SO, HE HELD THAT ON THE FACTS OF THE CASE, IT IS CRYSTAL CLEAR THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION OF RS. 1,12,79,976/- WHICH IS NOT ALLOWABLE AS PER PROVISIONS OF SEC. 43B OF THE ACT. ACCORDING TO HIM, THE WORD TERM LOAN HAS BEEN SUBSTITUTED BY THE WORD LOANS OR ADVANCES BY THE FINANCE ACT, 2003. HE NOTED THAT THE ISSUE HAS ALR EADY BEEN DECIDED AGAINST THE ASSESSEE IN FIRST APPEAL AND THE ASSESSEE HAS A LSO ACCEPTED THIS POINT THAT INTEREST WAS PAYABLE AND DEBITED TO P&L ACCOUNT. TH EREFORE, THE ASSESSEE COMPANY HAS CLAIMED WRONG DEDUCTION BY DEBITING THE INTEREST PAYABLE TO THE P&L ACCOUNT WHICH IS IN VIOLATION OF SECT. 43B(E). THEREFORE, HE TREATED THE SAME 4 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) AS SUBMISSION OF INACCURATE PARTICULARS OF INCOME R ESULTING INTO CONCEALMENT OF INCOME U/S 271(1)( C) OF THE ACT. SO FAR AS THE IS SUE REGARDING THE CLAIM OF EXCESS DEPRECIATION OF RS. 40,703/-, IS CONCERNED, HE HELD THAT BY MERELY ADMITTING THE FAULT, ONE CANNOT ESCAPE FROM THE PRO VISIONS OF SEC. 271(1)(C ) OF THE I T ACT. RELYING ON A COUPLE OF DECISIONS, TH E CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN LEVYING THE PENALTY OF ` 41,60,050/- U/S 271(1 ) (C) OF THE ACT. 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL HERE BEFORE US. 5 THE LD COUNSEL FOR THE ASSESSEE REFERRING TO THE SUBMISSIONS MADE BEFORE THE CIT(A), COPY OF WHICH IS PLACED IN THE PAPER B OOK AT PAGES 18 TO 20, DREW THE ATTENTION OF THE BENCH TO THE SAME AND SUBMITT ED THAT THE ASSESSEE COMPANY HAD CONVERTED THE INTEREST OF RS. 1,12,79,7 96/- INTO LOAN ACCOUNT AND ACCORDINGLY, THE SAME HAS TO BE CONSTRUED AS CONSTR UCTIVE PAYMENT. REFERRING TO THE SAID SUBMISSIONS, HE SUBMITTED THAT SCHEDULE 3 OF THE BALANCE SHEET SHOWS THE TOTAL INTEREST, WHICH HAS NOT BEEN PAID AND RELATING TO THE ASSESSMENT YEAR UNDER CONSIDERATION, AMOUNTING TO RS. 1,12,79 ,976/-. 5.1 REFERRING TO THE PROVISIONS OF SEC. 43B(E), HE SUBMITTED THAT THE WORD TERM LOAN WAS SUBSTITUTED BY LOANS OR ADVANCES BY FINANCE ACT, 2003 W.E.F 1.4.2004 AND ACCORDINGLY ARE APPLICABLE FROM AY 20 04-05. THEREFORE, PRIOR TO THIS AMENDMENT, THE INTEREST THAT CAN BE DISALLOWED U/S 43B RELATES TO ONLY TERM LOAN. 5 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) 5.2 REFERRING TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GOKULDAS & HARIVALLABHA DAS REPORTED IN 34 I TR 98 HE SUBMITTED THAT PENALTY PROCEEDINGS ARE SEPARATE AND INDEPENDENT OF THE QUANTUM PROCEEDINGS AND THE ASSESSEE IS ALWAYS FREE TO FURNISH FRESH EVIDENCE/MATERIALS FOR ARGUING ITS CLAIM AFRESH IN THE PENALTY PROCEEDINGS. HE S UBMITTED THAT CONVERSION OF INTEREST INTO LOAN HAS TO BE CONSTRUED AS CONSTRUCT IVE PAYMENT. HE SUBMITTED THAT CLARIFICATION REGARDING DEDUCTION OF INTEREST U/S 43B IN VIEW OF THE CLARIFICATORY AMENDMENT TO SEC. 43B THROUGH FINANCE ACT 2006 WAS ISSUED BY CBDT CIRCULAR NO. 7/2006 DATED 17.7.2006. HE SUBMI TTED THAT THE ISSUE REGARDING CONVERSION OF INTEREST INTO TERM LOAN A ND SUBSEQUENT TREATMENT OF THE SAME AS CONSTRUCTIVE PAYMENT IS A DEBATABLE ISS UE AND THEREFORE, THE PROVISIONS OF SEC.271(1)( C) ARE NOT APPLICABLE. 5.3 REFERRING TO THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS P LTD REPORTED IN 322 ITR 158(SC) HE SUBMITTED THAT A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISH ING OF INACCURATE PARTICULARS AND ACCORDINGLY PROVISIONS OF SEC. 271( 1)( C) ARE NOT APPLICABLE. 5.4 AS REGARDS TO THE DISALLOWANCE ON ACCOUNT OF EX CESS CLAIM OF DEPRECIATION, HE SUBMITTED THAT THE SAME IS A CLERICAL ERROR AND THERE WAS NO INTENTION ON THE PART OF THE ASSESSEE TO CLAIM EXCESS DEDUCTION SINC E IT IS ALSO A LOSS MAKING CONCERN. 6 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) 5.5 THE LD DR, ON THE OTHER HAND, WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT THERE WAS A MALAFIDE INTENTION ON TH E PART OF THE ASSESSEE TO CLAIM INTEREST DELIBERATELY AS DEDUCTION; ALTHOUGH THE SAME HAS NOT BEEN PAID. THEREFORE, THE DECISION IN THE CASE OF RELIANCE PET ROPRODUCTS P LTD (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 5.6 AS REGARDS THE EXCESS CLAIM OF DEPRECIATION, H E SUBMITTED THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF SUCH A WRONG CLAIM; THEREFORE, PENALTY AS CONFIRMED BY THE CIT(A) SHOULD BE UPHELD . 6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS D ECISIONS RELIED UPON BY BOTH THE PARTIES. THERE IS NO DISPUTE TO THE FACT THAT AN AMOUNT OF RS. 1,12,79,976/- HAS BEEN ADDED BY THE ASSESSING OFFICER U/S 43B(E) AND AN AMOUNT OF RS. 40,703/- HAS BEEN ADDED ON ACCOUNT OF EXCESS C LAIM OF DEPRECIATION, WHICH HAVE BEEN UPHELD BY THE CIT(A) FOR WHICH THE ASSESS ING OFFICER HAS INITIATED PENALTY PROCEEDINGS U/S 271(1)( C) OF THE I T ACT A ND LEVIED AN AMOUNT OF RS..41,60,050/- AS PENALTY. FROM THE DETAILS OF IN TEREST DISALLOWED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A), WE FI ND SUCH INTEREST IS ON ACCOUNT OF CASH CREDIT ACCOUNT, ADVANCE AGAINST BILLS AND E XPORT PACKING CREDIT, THE DETAILS OF WHICH ARE ALREADY INCORPORATED IN PARA 2.4 OF THIS ORDER. THE ABOVE DETAILS ARE BEFORE THE ASSESSING OFFICER AND CIT(A) AND AT NO POINT OF TIME HAS BEEN CONTROVERTED BY THE REVENUE AS FALSE OR UNTRUE . WE FIND, ACCORDING TO THE PROVISIONS OF SEC. 43B(E) ANY SUM PAYABLE BY THE AS SESSEE AS INTEREST ON ACCOUNT OF ANY LOAN OR ADVANCE FROM A SCHEDULED BAN K IN ACCORDANCE WITH THE 7 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) TERMS AND CONDITIONS OF THE AGREEMENT, GOVERNING S UCH LOAN OR ADVANCES SHALL BE ALLOWED IN COMPUTING INCOME REFERRED TO IN SEC. 28 OF THAT PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM. 6.1 WE FIND THE WORD TERM LOAN WAS SUBSTITUTED BY LOAN OR ADVANCES BY FINANCE ACT, 2003 W.E.F 1.4.2004. WE, THEREFORE, F IND FORCE IN THE SUBMISSIONS OF THE LD COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANC E SHOULD HAVE BEEN MADE ON ACCOUNT OF NON-PAYMENT OF SUCH INTEREST ON ACCOUNT OF CASH CREDIT ACCOUNT, ADVANCE AGAINST BILLS AND EXPORT PACKING CREDIT ACC OUNT SINCE THE SAME DOES NOT AMOUNT TO INTEREST OR ANY TERM LOAN. MERELY BE CAUSE AN ADDITION HAS BEEN MADE IN THE QUANTUM PROCEEDINGS DOES NOT AUTOMATICA LLY ATTRACT PENALTY U/S 271(1)( C) OF THE ACT. IT HAS BEEN HELD BY VARIOUS JUDICIAL PRONOUNCEMENTS THAT ASSESSMENT PROCEEDINGS ARE TAXING PROCEEDINGS AND P ENALTY PROCEEDINGS ARE CRIMINAL IN THEIR VERY NATURE AND THE ASSESSEE CAN ALWAYS PRODUCE FRESH EVIDENCE OR MATERIALS DURING THE COURSE OF PENALTY PROCEEDINGS. SINCE ADMITTEDLY, THE INTEREST HAS BEEN PAID ON ACCOUNT O F CASH CREDIT ACCOUNT, ADVANCE AGAINST BILLS AND EXPORT PACKING CREDIT ACC OUNTS AND NOT RELATED TO ANY TERM LOAN; THEREFORE, ALTHOUGH THE DISALLOWANCE HAS BEEN MADE, HOWEVER, IN OUR OPINION THE SAME DOES NOT ATTRACT LEVY OF PENALTY U /S 271(1) (C ) OF THE I T ACT. 7 IN THE CASE OF RELIANCE PETROPRODUCTS P LTD (SUPR A), IT HAS BEEN HELD THAT A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISH ING INACCURATE PARTICULARS. IN VIEW OF THE ABOVE DECISION ALTHOUGH THE ADDITION HAS BEEN MADE ON ACCOUNT OF 8 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) DISALLOWANCE OF INTEREST U/S 43B(E), THE SAME, IN O UR CONSIDERED OPINION WILL NOT ATTRACT LEVY OF PENALTY U/S 271(1) (C ) OF THE ACT. 8 AS REGARDS THE DISALLOWANCE ON ACCOUNT OF EXCESS CLAIM MADE BY THE ASSESSEE @ 20%, WE FIND SOME FORCE IN THE SUBMISSIO NS OF THE LD COUNSEL FOR THE ASSESSEE THAT THE SAME WAS DUE TO CLERICAL ERROR W HICH EVEN ESCAPED THE NOTICE OF THE STATUTORY AUDITORS. FURTHER THE AMOUNT OF ` . 40,703/- IS VERY NEGLIGIBLE CONSIDERING THE DECLARED LOSS AT ` 2,29,36,000/-. WE, THEREFORE, FIND SUFFICIENT FORCE IN THE ARGUMENTS OF THE LD COUNSEL FOR THE AS SESSEE THAT THE SAME IS A CLERICAL ERROR. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT PENALTY U/S 271(1) (C ) IS NOT LEVIABLE ON THIS AMOUNT OF RS. 40,703/- DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION . 9 IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ORDE R OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO CANCEL THE PENALTY. WE H OLD AND DIRECTLY ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 10 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 26TH DAY OF NOV 2010. SD/- SD/- ( (( (VIJ VIJVIJ VIJA AA AY YY Y PAL RAO PAL RAO PAL RAO PAL RAO ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 26 TH , NOV 2010 RAJ* 9 ITA NO. 737/MUM/2010 (ASST YEAR 2003-04) COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI