M/s R.N.Gupta & Co.Ltd, Ludhiana V. Asstt. Commissioner of Income Tax, Ludhiana

ITA 859/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8925 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Depreciation; Additional depreciation; Capital expenditure

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 859/CHD/2016 ASSESSMENT YEAR: 2007-08 M/S R.N. GUPTA & CO. LTD., VS. THE ACIT, CIRCLE-1 , LUDHIANA LUDHIANA PAN NO. AABCR9636F (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SUBHASH AGGARWAL DEPARTMENT BY : SH. MANJIT SINGH DATE OF HEARING : 28.11.2016 DATE OF PRONOUNCEMENT : 09.12.2016 ORDER PER ANNAPURNA GUPTA, A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)1 LUDHIANA DAT ED 23.05.16 CONFIRMING THE LEVY OF PENALTY U/S SECTION 271 (1) (C) OF THE INCOME TAX ACT, 1961. 2. THE PENALTY IN THE PRESENT CASE WAS INITIALLY L EVIED ON TWO COUNTS BUT WAS UPHELD BY THE CIT(A) ONLY ON ONE COU NT , RELATING TO 2 THE DISALLOWANCE MADE OF ADDITIONAL DEPRECIATION CL AIMED BY THE ASSESSEE. THEREFORE FACTS RELEVANT TO THAT ISSUE AL ONE ARE BEING DISCUSSED HEREUNDER. 3. BRIEFLY STATED DURING ASSESSMENT PROCEEDINGS, AD DITIONAL DEPRECIATION CLAIMED ON TOOLS AND DIES, AMOUNTING T O RS. 1,63,842/- WAS DISALLOWED, SINCE IT WAS FOUND THAT THE ASSESS EE WAS CLAIMING ADDITIONAL DEPRECIATION ON THE ENTIRE AMOUNT OF TOO LS AND DIES PURCHASED THROUGH IT WAS BEING REIMBURSED A CERTAIN AMOUNT FROM THE BUYERS. IT WAS NOTICED THAT THE ASSESSEE WAS REDUCI NG THE REIMBURSEMENT FROM THE OPENING BALANCE OF TOOLS AND DIES WHILE CLAIMING ADDITIONAL DEPRECIATION ON THE ENTIRE AMOU NT EXPENDED ON TOOLS AND DIES WITHOUT REDUCING THE AMOUNT OF REIMB URSEMENT. THEREFORE, THE ADDITIONAL DEPRECIATION CLAIMED ON T HE ENTIRE AMOUNT OF REIMBURSEMENT DURING THE YEAR, WAS DISALLOWED, AMO UNTING TO RS. 1,63,842/-. PENALTY PROCEEDINGS UNDER SECTION 2 71(1)(C) OF THE ACT, WERE INITIATED. DURING THE COURSE OF PENALTY P ROCEEDINGS, THE AO NOTICED THAT THE LD. CIT (APPEAL) LUDHIANA, HAD PAR TLY ALLOWED THE SAID ADDITION WHICH WAS FURTHER CONFIRMED BY THE ITAT, CHANDIGARH BENCH. THE AO ASKED THE ASSESSEE TO SHOW CAUSE AS T O WHY PENALTY UNDER SECTION 271(1) (C) FOR CONCEALMENT AS WELL AS FURNISHING INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF D ISALLOWANCE UPHELD, MAY NOT BE IMPOSED. THE ASSESSEE FILED ITS REPLY STATING THAT IT HAD NOT CONCEALED ANYTHING NOR FURNISHED INACCUR ATE PARTICULARS OF INCOME. THE ASSESSING OFFICER WAS N OT SATISFIED, AND 3 THEREFORE, HE IMPOSED PENALTY ON THE SAME UNDER SEC TION 271(1)(C ) OF THE INCOME TAX ACT. THE CIT (A) CONFIRMED THE SAME. 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE ARGUED TH AT THE ASSESSEE HAD DISCLOSED ALL PARTICULARS RELATING TO THE CLAIM OF ADDITIONAL DEPRECIATION IN THE RETURN OF INCOME AND THAT THE V IEW TAKEN FOR DISALLOWING ADDITIONAL DEPRECIATION WAS DEBATABLE. THEREFORE, LD. COUNSEL STATED, THAT THE PENALTY COULD NOT BE LEVIE D. 5. LD. DR, ON THE OTHER HAND, ARGUED THAT THE ITAT WHILE CONFIRMING THE DISALLOWANCE HAD GIVEN A CATEGORICAL FINDING OF FACT THAT REIMBURSEMENTS RELATED TO THE TOOLS AND DIES P URCHASED DURING THE YEAR AND HAD TO BE NECESSARILY REDUCED FROM THE COS T OF THIS EXPENSE DURING THE YEAR AND THEREAFTER THE CLAIM OF ADDITIO NAL DEPRECIATION WAS TO BE CALCULATED. THE ASSESSEE HAD TO THAT EXTENT I NCORRECTLY CLAIMED ADDITIONAL DEPRECIATION. LD. DR STATED THAT THERE WAS NO DEBATE AT ALL RELATING TO THIS FACT AND THE ASSESSEE HAD CONCEALE D PARTICULARS OF HIS INCOME TO THIS EXTENT. LD. DR RELIED UPON THE DECIS ION OF THE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATIONS (2010 ) 327 ITR 510(DEL) IN THIS REGARD AND STATED THAT IT WAS A FI T CASE FOR THE LEVY OF PENALTY. 6. HAVING HEARD THE CONTENTIONS OF BOTH THE PARTIES , WE FIND THAT THE FACTS WHICH EMERGE IN THE PRESENT CASE AFTER GOING THROUGH THE VARIOUS ORDERS BEFORE US IS THAT DURING THE YEAR THE ASSESS EE HAD PURCHASED 4 TOOLS AND DIES. FURTHER AN AMOUNT OF RS.8,19,210/- WAS REIMBURSED TO THE ASSESSEE ON ACCOUNT OF PURCHASES OF TOOLS AND D IES MADE. THE ITAT IN THE ORDER PASSED IN QUANTUM PROCEEDINGS HAS GIVEN A FINDING THAT REIMBURSEMENT TO THE EXTENT OF RS 6,33,090/- W AS ON ACCOUNT OF TOOLS AND DIES PURCHASED DURING THE YEAR. THE RELEV ANT FINDINGS OF THE ITAT AT PARA 26-29 OF ITS ORDER IS AS FOLLOWS:- 26. THE GROUND NO.2 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION IS AGAINST THE RESTRICTION IN THE C LAIM OF DEPRECIATION ON TOOLS AND DYES. 27. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON TOOLS AND DYES AND HAD ALSO CLAIMED ADDITIONAL DEPRECIATION ON THE SAME. HOWEVER, THE ASSESSEE WAS GETTING SOME OF TH E AMOUNT OF TOOLS AND DYES REIMBURSED FROM THE BUYERS . THE ASSESSEE WAS DEBITING THE REIMBURSEMENT OF SAID TOOLS AND DYES AS CAPITAL EXPENDITURE IN THE BOOKS OF ACCOUNT AND AS AND WHEN IT RECEIVES THE SAME, IT WA S REDUCED FROM THE OPENING BALANCE. THE ASSESSING OFFICER HELD THE ACCOUNTING TREATMENT TO BE INCORRE CT AND HELD THAT THE AMOUNT REIMBURSED SHOULD HAVE BEE N REDUCED FROM THE ADDITIONS MADE TO TOOLS AND DYES DURING THE YEAR AND ACCORDINGLY, NO DEPRECIATION ON THE SAID TOOLS AND DYES TO THE EXTENT OF REIMBURSEM ENT RECEIVED WAS ALLOWABLE. THE ASSESSEE DURING THE YE AR UNDER CONSIDERATION HAD RECEIVED SUM OF RS.8,19,210/- ON ACCOUNT OF SALE/TRANSFER OF TOOLS AND DYES. THE ASSESSING OFFICER THUS DISALLOWED ADDITIONAL DEPRECIATION ON THE SAID TOOLS AND DYES OF RS.8,19,210/- @ 20% AMOUNTING TO RS.1,63,842/-. 5 28. THE ASSESSEE BEFORE THE CIT (APPEALS) CLAIMED THAT THE REIMBURSEMENT WAS ON ACCOUNT OF OLD CLAIMS RECOVERED FROM THE BUYERS ON OLD SUPPLY AND HAD NO LINKAGE WITH THE SUPPLY MADE DURING THE YEAR. THE CIT (APPEALS) ACCEPTED THE PLEA IN RESPECT OF RECOVERY OF RS.1,86,120/- AND HELD THAT THE ASSESSE E WAS JUSTIFIED IN REDUCING THE SAID SUM OF RS.1,86,1 20/- FROM THE WRITTEN DOWN VALUE OF TOOLS AND DYES AS SUPPLIES TO THE SAID PARTIES WERE MADE IN THE PRECEDING YEAR. HOWEVER, WITH REGARD TO THE RECOVE RY OF RS.6,33,090/- THE CIT (APPEALS) OBSERVED AS UNDE R: AS REGARDS THE RECOVERY OF RS.6,33,090/- FROM AGRYMIN COMPONENT S.A., IT IS SEEN FROM THE DETAILS SUBMITTED BY THE APPELLANT THAT DURING THE YEAR THE APPELLANT HAD CARRIED OUT WORK OF THIS CUSTOMER AND THE TOTAL AMOUNT OF DEBIT ENTRIES IN THE ACCOUNT AMOUNT TO RS.2,21,74,194/-. IT INCLUDED THE TOOLING COST OF RS.1,69,580/-DEBITED ON 13.06.2006 AND TOOLING COST OF RS.4,63,510/- DEBITED ON 8.02.007. FROM THE DETAILS SUBMITTED BY THE APPELLANT IT IS PRIMA FACIE EVIDENT THAT THE TOOLS AND DIES WERE MANUFACTURED BY THE APPELLANT DURING THE YEAR FOR THE WORK TO BE DONE FOR THIS CUSTOMER DURING YEAR. THE APPELLANT HAS FAILED TO SHOW THAT THESE TOOLS AND PERTAIN U THE WORK DONE DURING THE LAST YEAR AND WERE MANUFACTURED DURING LAST YEAR ON WHICH ADDITIONAL DEPRECIATION HAD ALREADY BEEN CLAIMED. IN THESE STANCES, THE REIMBURSEMENT OF RS. 6,33,090/- RECEIVED FROM AGRYMIN IT S.A. SHOULD HAVE BEEN REDUCED FROM THE EXPENDITURE OF RS.54,28,508/- TOOLS AND DIES DURING YEAR AND NO ADDITIONAL DEPRECIATION ON THIS AMOUNT SHOULD HAVE BEEN CLAIMED. THE AO WAS THEREFORE JUSTIFIED IN DISALLOWING DEPRECIATION CLAIMED ON THIS AMOUNT OF RS.6,33, 090/- 6 @20%. THIS GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. 29. THE ASSESSEE HAS FAILED TO MEET THE FINDINGS OF THE CIT (APPEALS) AND IN THE ABSENCE OF THE SAME WE FIND NO MERIT IN GROUND NO.2 RAISED BY THE ASSESSEE IN CROSS OBJECTION AND THE SAME IS REJECTED. 7. IT IS EVIDENT FROM THE ABOVE THAT THE ITAT HAD GIVEN A CLEAR AND CATEGORICAL FINDING OF FACT THAT THE REIMBURSEMENTS OF RS.6,33,090/- PERTAINED TO TOOLS AND DIES MANUFACTURED DURING THE YEAR. THERE IS A CLEAR FINDING IN THE ORDER THAT REIMBURSEMENT OF TO OLING COST OF RS. 6,33,090/- WERE RECEIVED FROM M/S AGRYMIN COMPONE NT S.A. WHOSE WORK THE ASSESSEE HAD CARRIED OUT DURING THE YEAR TOTALING RS. 2,21,74,194/- WHICH INCLUDED TOOLING COST OF RS. 1, 69,580/- AND RS. 4,63,510/- DEBITED DURING THE YEAR. THUS IT WAS FOU ND THAT THE REIMBURSEMENT PERTAINED TO THE TOTAL COST RECEIVED DURING THE YEAR AND FURTHER IT WAS NOTED THAT THE ASSESSEE FAILED TO PR OVE OTHERWISE. WE FIND THAT NO SUCH EVIDENCE HAS BEEN ADDUCED EVEN DU RING PENALTY PROCEEDINGS OR EVEN BEFORE US. LOGICALLY, THEREFORE , THE COST OF TOOLS AND DIES PURCHASED DURING THE YEAR HAD TO BE REDUCE D FROM THE REIMBURSEMENT RELATING TO THE SAME AND AS A CONSEQU ENCE THE ASSESSEE WAS ELIGIBLE TO CLAIM ADDITIONAL DEPRECIATION ONLY ON THE REDUCED COST AS HELD BY THE ITAT ALSO IN ITS ORDER. THE ASSESSE E CLAIM OF ADDITIONAL DEPRECIATION TO THE EXTENT OF REIMBURSEMENTS PERTAI NING TO THE TOOLS 7 AND DIES MANUFACTURED DURING THE YEAR IS THEREFORE WHOLLY UNTENABLE IN LAW. 8. THERE IS ABSOLUTELY NO DEBATE ON THIS POINT AS R IGHTLY POINTED OUT BY THE LD. DR. IT IS A FACTUAL ISSUE WHICH HAS BEEN SETTLED IN QUANTUM PROCEEDINGS AGAINST THE ASSESSEE AND THERE CAN BE N O DEBATE ON A FACTUAL ISSUE. WHEN THE REIMBURSEMENTS HAVE BEEN FO UND TO BE RELATING TO PURCHASES OF TOOLS AND DIES MADE DURING THE YEAR , THE STAND OF THE ASSESSEE BY REDUCING THEM FROM THE OPENING BALANCE OF TOOLS AND DIES IS CONTRARY TO THE FACTS. THE ASSESSEE HAS OFFERED NO EXPLANATION FOR THE SAME ALSO .THE CLAIM OF THE ASSESSEE THAT THE I SSUE IS DEBATABLE IS ALSO BASELESS. THERE IS NO BONAFIDE EXPLANATION WIT H THE ASSESSEE FOR CLAIMING ADDITIONAL DEPRECIATION TO THE EXTENT OF R EIMBURSEMENTS RECEIVED. 9. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT T HE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME TO THE EXTENT OF ADDITIONAL DEPRECIATION CLAIMED ON REIMBURSEMENTS OF COST OF T OOLS AND DIES MANUFACTURED DURING THE YEAR, AND THE LD. CIT (APPE AL) HAS RIGHTLY UPHELD THE LEVY OF PENALTY ON THE SAME. RELIANCE PL ACED BY THE LD. DR ON THE DECISION OF THE DELHI HIGH COURT IN THE CAS E OF CIT VS. ZOOM COMMUNICATIONS (2010) 327 ITR 510 IN THIS REGARD IS APT WHEREIN IT WAS LAID DOWN THAT A CLAIM WHICH IS WHOLLY UNTENABL E IN LAW AND HAS NO FOUNDATION AT ALL WOULD ATTRACT PENALTY U/S 271( 1) (C ). THE HONBLE HIGH COURT HELD AT PARA 19 & 20 OF ITS ORDER AS FOL LOWS:- 8 19. IT IS TRUE THAT MERE SUBMITTING A CLAIM WHICH IS INCORRECT IN LAW WOULD NOT AMOUNT TO GIVING INACCURATE PARTICULARS OF THE INCOME OF THE ASSESSE E, BUT IT CANNOT BE DISPUTED THAT THE CLAIM MADE BY TH E ASSESSEE NEEDS TO BE BONA FIDE. IF THE CLAIM BESIDE S BEING INCORRECT IN LAW IS MALA FIDE, EXPLANATION 1 TO SECTION 271(1)(C) WOULD COME INTO PLAY AND WORK TO THE DISADVANTAGE OF THE ASSESSEE. 20. THE COURT CANNOT OVERLOOK THE FACT THAT ONLY A SMALL PERCENTAGE OF THE INCOME-TAX RETURNS ARE PICK ED UP FOR SCRUTINY. IF THE ASSESSEE MAKES A CLAIM WHIC H IS NOT ONLY INCORRECT IN LAW BUT IS ALSO WHOLLY WITHOU T ANY BASIS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOUND TO BE BONA FIDE, I T WOULD BE DIFFICULT TO SAY THAT HE WOULD STILL NOT B E LIABLE TO PENALTY UNDER SECTION 271(1)(C) OF THE AC T. IF WE TAKE THE VIEW THAT A CLAIM WHICH IS WHOLLY UNTENABLE IN LAW AND HAS ABSOLUTELY NO FOUNDATION O N WHICH IT COULD BE MADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENALTY, EVEN IF HE WAS NOT ACTING BONA FIDE WHILE MAKING A CLAIM OF THIS NATUR E, THAT WOULD GIVE A LICENCE TO UNSCRUPULOUS ASSESSEES TO MAKE WHOLLY UNTENABLE AND UNSUSTAINABLE CLAIMS WITHOUT THERE BEING ANY BASIS FOR MAKING THEM, IN T HE HOPE THAT THEIR RETURN WOULD NOT BE PICKED UP FOR SCRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF-ASSESSMENT UNDER SECTION 143(1) OF THE ACT AND EVEN IF THEIR CASE IS SELECTED FOR SCRUTINY, THEY C AN GET AWAY MERELY BY PAYING THE TAX, WHICH IN ANY CASE, W AS PAYABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE 9 PERSONS WHO MAKE CLAIMS OF THIS NATURE, ACTUATED BY A MALA FIDE INTENTION TO EVADE TAX OTHERWISE PAYABLE BY THEM WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM, IF THEIR CASES ARE NOT PICKED UP F OR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT , WHICH THESE PENALTY PROVISIONS IN THE ACT HAVE. 10. IN VIEW OF THE ABOVE WE DISMISS THE GROUNDS RAISED BY THE ASSESSEE AND UPHOLD THE ORDER OF THE CIT(A) CONFIRM ING THE LEVY OF PENALTY. 11. THE APPEAL FILED BY THE ASSESSEE IS, THEREFORE, DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 9 TH DECEMBER, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR