The ACIT, Circle-2(1), Baroda V. Shri Amit Chitranjan SDhruv, Dist.Baroda

ITA 881/AHD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1930 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-12-2009
• Assessment Year: 2000-2001
• Appeal Filed On: 10-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINOD TANWARI
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Bonafide mistake
• Section: 271(1)(c); 143(3); 148

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, D-BENCH, AHMEDABAD. BEFORE: SHRI T.K. SHARMA, JUDICIAL MEMBER , AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER. ITA NO.881/AHD/2008 ASSESSMENT YEAR : 2005-2006 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), 2 ND FLOOR, AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA. SHRI AMIT CHITARANJAN DHRUV, 128-29/30, GIDC NANDESARI, DIST-BARODA. (APPELLANT) VERSUS (RESPONDENT) PAN: ABOPD 1802 E FOR THE APPELLANT: VINOD TANWARI, SR.DR FOR THE RESPONDENT SHRI. S.N.SOPARKAR A.R. ORDER PER T K SHARMA (JUDICIAL MEMBER): THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 04.12.2007 PASSED BY LD. COMMISSION ER OF INCOME TAX(APPEALS)-II, BARODA, CANCELING THE PENALTY OF R S.15,86,952/- LEVIED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) OF THE IN COME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2000-2001. 2. THE BRIEF FACTS OF THE CASE ARE THAT AS PER PENA LTY ORDER ARE THAT THE PRIORITY CONCERNED OF THE ASSESSEE M/S. ESTER INDIA WAS CONVERTED INTO A FIRM IN THE SAME NAME ON 01.04.1999 RELEVANT TO ASSESSME NT YEAR 2000-2001. AS A RESULT OF THIS CONVERSION, THE REVALUATION RESERV E OF RS.29,19,975/- WAS TRANSFERRED TO THE PROPRIETORS CAPITAL ACCOUNT IN THE BOOKS OF ACCOUNT OF ACCOUNT OF THE NEWLY CONSTITUTED FIRM. OWING TO THI S CONVERSION, THE LIABILITY OF THE ASSESSEE RELATING TO CAPITA GAINS TAX AROSE IN TERMS OF PROVISIONS OF SECTION 45(3) READ WITH SECTION 48 READ WITH SECTIO N 50 OF THE INCOME TAX ACT, 1961 BY FINALIZING THE ASSESSMENT IN THE CASE OF M/ S. ESTER INDIA FOR A.Y.2000-01, IT WAS FOUND THAT THE REVALUATION RESE RVE OF RS.29,19,975/- WAS TRANSFERRED TO ASSESSEES CAPITAL ACCOUNT AND THIS FACT WAS NOT DISCLOSED IN THE ORIGINAL RETURN OF THE ASSESSEE FILED ON 10.11. 2000 IN WHICH RETURNED INCOME WAS DECLARED AT RS.8,35,642/-. THEREAFTER, A SSESSING OFFICER ISSUED NOTICE UNDER SECTION 148. IN RESPONSE TO THIS NOTIC E, ASSESSEE FILED RETURN OF 2 ITA NO.881/AHD/2008 INCOME ON 28.04.2004 DECLARING INCOME OF RS.58,82,0 00/-. ASSESSING OFFICER FRAMED ASSESSMENT UNDER SECTION 143(3) HAD RETURN O F INCOME OF RS.58,82,000/- AND INITIATED PENALTY PROCEEDING UND ER SECTION 271(1)(C). 3. IN RESPONSE TO SHOW CAUSE NOTICE ISSUED BEFORE L EVYING THE PENALTY, ASSESSEE SUBMITTED AS UNDER:- UNDER SECTION 271(1)(C), IT WAS CONTENDED THAT THE ASSESSEE HAD NOT CONCEALED THE PARTICULARS OF INCOME IS PURE LY ON ACCOUNT OF WRONG COMPUTATION OF INCOME OR FURNISHED INACCUR ATE PARTICULARS. BY FOLLOWING ORIGINAL RETURN, ASSESSEE S CHARTERED ACCOUNTANT COMMITTED BONAFIDE MISTAKE. TO CORROBORA TE BONAFIDE INTENTION, IT WAS CLARIFIED THAT THOUGH PA RTNERSHIP FIRM WHICH WAS SUBSTANTIALLY OWNED BY THE ASSESSEE, IT W AS ENTITLED TO CLAIM DEPRECIATION ON THE REVALUED COST AND THAT SUCH DEPRECIATION ON REVALUED COST WAS ALSO NOT CLAIMED AND IN THE APPELLATE PROCEEDING FOR THAT YEAR, THE ASSESSEE MA DE THE CLAIM FOR ALLOWANCE OF SUCH DEPRECIATION WHICH WAS GRANTE D BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) VIDE O RDER DATED 25.02.2009. 4. THE ASSESSING OFFICER FOUND THE AFORESAID EXPLAN ATION OF THE ASSESSEE UNSATISFACTORY. HE LEVIED THE PENALTY OF RS.15,86,9 52/- HOLDING THAT ASSESSEES EXPLANATION IS NOT BONAFIDE. 5. ON APPEAL, BEFORE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND ASSESSEE RELIED ON THE VARIOUS DECISIONS WHICH ARE LISTED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNE D ORDER. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS STATED THA T FROM VARIOUS DECISION, THE FOLLOWING FACTS EMERGES: 1. APPELLANT DISCLOSED IN THE BALANCE SHEET AND SCH EDULE AS ON 31.03.1999, THE FACT OF REVALUATION OF ASSET. 2. IN THE FIRMS ACCOUNT THE FACTS OF REVALUATION O F ASSET AND CONVERSION OF PROPRIETARY CONCERN TO THE PARTNERSHI P WERE DISCLOSED. 3. IN THE FIRMS CASE, DEPRECIATION IS NOT CLAIMED ON REVALUED ASSET TREATING THE SAME AS NOTIONAL. 4. APPELLANT DID NOT OFFER CAPITAL GAIN ON SUCH REV ALUATION, AT THE SAME TIME THE FIRM DID NOT CLAIM DEPRECIATION ON SU CH REVALUED ASSETS WHICH MEANS THE BELIEF OF THE APPELLANT WAS THAT THE 3 ITA NO.881/AHD/2008 CONVERSION OF PROPRIETOR CONCERN TO THE PARTNERSHIP FIRM DID NOT RESULT IN ANY REAL GAIN BUT A NOTIONAL INCREASE IN VALUE OF ASSET. 5. THE FACT OF TAXABILITY OF CAPITAL GAIN IN THE HA NDS OF THE APPELLANT COULD BE KNOWN ONLY FROM THE DISCLOSURE MADE IN THE CASE OF THE FIRM. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER ALSO OBSERVED THAT THE MOVEMENT, ASSESSEE WAS INFORMED ABOUT THE APPLICABILITY OF SPECIFIC PROVISIONS OF SECTION 45( 3) OF THE INCOME TAX ACT, 1961. THE ASSESSEE DISCLOSED THE CAPITAL GAIN AND S AME WAS TAXED WITHOUT ANY FURTHER ADDITION. HE ACCORDINGLY HELD THAT THE OMISSION OF INCOME BY WAY OF CAPITAL GAIN WAS UNINTENTIONAL. THE EXPLANATION OFFERED BY THE ASSESSEE WAS BONAFIDE AND HE ACCORDINGLY CANCELLED THE PENAL TY OF RS.5,86,952/- BY THE ASSESSING OFFICER. AGGRIEVED BY THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US. 7. AT THE TIME OF HEARING, ON BEHALF OF THE REVENUE SHRI S.N.SOPARKAR APPEARED AND CONTENDED THAT WHILE DELETING THE PENA LTY UNDER SECTION 271(1)(C), THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE FILED HIS RE TURN OF INCOME IN RESPONSE TO NOTICE UNDER SECTION 148 AND NOT FILED VOLUNTARI LY. FURTHER, THE ASSESSEE HAS NOT FURNISHED THE BALANCE SHEET ETC. ALONG WITH HIS RETURN OF INCOME. THE ASSESSEE CLEARLY CONCEALED PARTICULARS OF INCOME FO R WHICH PENALTY UNDER SECTION 271(1)(C) RETURN WAS RIGHTLY LEVIED BY A.O. AND LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN DELETIN G THE SAME. ON THE OTHER HAND, THE COUNSEL OF THE ASSESSEE SUBMITTED THAT TH E ASSESSEES CASE IS NOT HIT BY EXPLANATION-I TO SECTION 271(1)(C). THE ASSE SSEE HAS FURNISHED AN EXPLANATION BEFORE THE AUTHORITY BELOW WHICH ACCORD ING TO ASSESSING OFFICER WAS NOT BONAFIDE, WHEREAS IN THE IMPUGNED ORDER LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IT WAS BONAFIDE. THE EXPLANATION OF THE ASSESSEE IS BONAFIDE WHICH IS EVIDENT FROM THE FACT S THAT THE PARTNERSHIP FIRM WHICH WAS SUBSTANTIALLY OWNED BY THE ASSESSEE, THOU GH WAS ENTITLED TO CLAIM DEPRECIATION ON REVALUED COST, INITIALLY HAD NOT CL AIMED THE DEPRECIATION AT REVALUED COST. IT IS ONLY IN APPELLATE PROCEEDINGS FOR THAT YEAR, THE FIRM IN WHICH THE ASSESSEE IS A PARTNER MADE AN CLAIM FOR A LLOWANCE OF DEPRECIATION 4 ITA NO.881/AHD/2008 AT REVALUED COST WHICH WAS ALLOWED BY THE LEARNED C OMMISSIONER OF INCOME TAX (APPEALS). THIS CLEARLY ESTABLISHES THAT THERE WAS A BONAFIDE MISTAKE IN FILING THE RETURN OF INCOME OF THE ASSESSEE AS WELL AS OF THE PARTNERSHIP FIRM FOR THE ASSESSMENT YEAR 2000-01. IN VIEW OF THIS, T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE UPHELD. 9. HAVING HEARD BOTH SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT TH E AO LEVIED THE PENALTY AS PER EXPLANATION .1 TO SECTION 271(1)(C) OF I.T.ACT, 196 1. AS PER THIS EXPLANATION, THE AMOUNT ADDED OR DISALLOWED SHALL BE DEEMED TO R EPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED IF IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION, PERSONS EITHER FAILS T O OFFER AN EXPLANATION OR SUCH EXPLANATION IS FOUND TO BE FALSE OR IS NOT ABL E TO SUBSTANTIATE SUCH EXPLANATION AS BONAFIDE. IN THE PRESENT CASE, THE F ACTS RELATING TO REVALUATION OF ASSET AND CONVERSION OF PROPRIETARY CONCERNED IN TO PARTNERSHIP HAVE BEEN DISCLOSED AND ONLY ON THE BASIS OF SUCH FACTS NOTIC E UNDER SECTION 148 WAS ISSUED. THIS CLEARLY ESTABLISHED THAT EXPLANATION O FFERED BY THE ASSESSES IS BONAFIDE AND CANNOT BE TREATED AS MALAFIDE RESULTIN G IN CONCEALMENT. IT IS ALSO WELL SETTLED LAW THAT IN CASE OF BONAFIDE MISTAKES, NO PENALTY UNDER SECTION 271(1)(C) IS LEVIABLE. SINCE, THE OMISSION OF INCOM E BY WAY OF CAPITAL GAIN WAS UNINTENTIONAL. THE EXPLANATION OFFERED BY THE ASSES SEE WAS BONAFIDE WHICH IS EVIDENT FROM THE FACT THAT THE PARTNERSHIP FIRM WHI CH WAS SUBSTANTIALLY OWNED BY THE ASSESSEE, THOUGH WAS ENTITLED TO CLAIM DEPRE CIATION AT REVALUED COST, INITIALLY HAD NOT CLAIMED THE DEPRECIATION AT REVAL UED COST. IT IS ONLY APPELLATE PROCEEDINGS FOR THAT YEAR, THE SAID FIRM MADE A CLA IM FOR ALLOWANCE OF DEPRECIATION AT RELVALUED COST WHICH WAS ALLOWED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS). WE THEREFORE, INCLINED TO UPHELD THE ORDER OF THE CIT(A), CANCELING THE PENALTY OF RS.15,86,952/- LEV IED BY AO UNDER SECTION 271(1)(C) OF THE I.T. ACT , 1961. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 31 ST DECEMBER, 2009. 5 ITA NO.881/AHD/2008 SD/- SD/- (D.C. AGRAWAL) ( T.K. SHARMA) ACCOUNTANT MEMBER JUD ICIAL MEMBER AHMEDABAD; DATED: 31/12/2009 PARAS# COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.