DCIT CEN CIR 37, MUMBAI V. MIRC ELECTRONICS LTD, MUMBAI

ITA 9176/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70983 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 30-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Bonafide belief

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , ,, , , ! ! ! ! '# $% '# $% '# $% '# $% , ,, , & & & & ' ' ' ' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 9175/MUM./2010 ( &) * !+* / ASSESSMENT YEAR : 200203 ) . / ITA NO. 9176/MUM./2010 ( &) * !+* / ASSESSMENT YEAR : 200304 ) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE37, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. ,- / APPELLANT ) V/S M/S. MIRC ELECTRONICS LTD. ONIDA HOUSE, G1, MIDC MAHAKALI CAVES ROAD ANDHERI (E), MUMBAI 400 093 .... ./,- / RESPONDENT , ./ PERMANENT ACCOUNT NUMBER AAACM8055A ! 1 2 / REVENUE BY : MR. O.P. SINGH &) *3# 1 2 / ASSESSEE BY : MR. VIJAY MEHTA )! 1 # / DATE OF HEARING 30.07.2013 $ 4+ 1 # / DATE OF ORDER 28.08.2013 $ $ $ $ / ORDER '# $ '# $ '# $ '# $ % % % %, ,, , & & & & 5 5 5 5 / PER AMIT SHUKLA, J.M. THE PRESENT APPEALS HAVE BEEN PREFERRED BY THE REVE NUE, CHALLENGING THE IMPUGNED COMMON ORDER OF EVEN DATE 6 TH OCTOBER 2012, PASSED BY THE COMMISSIONER (APPEALS)-41, MUMBAI, IN THE MATTER OF PENALTY LEVIED BY THE M/S. MIRC ELECTRONICS LTD. 2 ASSESSING OFFICER U/S 271(1)(C) OF THE INCOME TAX A CT, 1961 (FOR SHORT THE ACT ) FOR ` 1,14,95,048 IN THE ASSESSMENT YEARS 200203 AND ` 1,39,53,918 IN THE ASSESSMENT YEAR 200304, RESPECTIVELY WHICH HAS ALSO BEEN CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). WE FIRST TAKE UP APPEAL IN ITA NO.9175/MUM./2010, FOR ASSESSMENT YEAR 200203. 2. INSOFAR AS GROUND NO.1 IS CONCERNED, WHICH RELATES TO LEVY OF PENALTY UNDER SECTION 271(1)(C) ON ACCOUNT OF DEPRECIATION OF ASSETS, THE TRIBUNAL HAS DELETED THE SAID DISALLOWANCE IN THE QUANTUM PR OCEEDINGS FOR BOTH THE YEARS, VIDE ORDER DATED 20 TH OCTOBER 2009, IN ITA NO.4363/MUM./2007, FOR THE ASSESSMENT YEAR 200203 AND ITA NO.4364/MUM./20 07, FOR THE ASSESSMENT YEAR 200304. IN VIEW OF THESE ADMITTED FACTS, LEVY OF PENALTY ON ACCOUNT OF DISALLOWANCE ON DEPRECIATION AS RAISE D IN FIRST GROUND HAS NO LEGS TO STAND, ACCORDINGLY, THE SAME IS DELETED. TH US, THE GROUND RAISED BY THE REVENUE ON THIS SCORE IS TREATED AS DISMISSED. 3. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE DELE TION OF PENALTY ON ACCOUNT OF ALLOCATION OF 10% OF PERSONNEL EXPENSES TO THE ELIGIBLE UNITS AS MADE BY THE ASSESSING OFFICER FOR THE PURPOSE OF DE DUCTION UNDER SECTION 80IA. 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING TV SETS, VCR, AUDIO AND VIDEO CASSETTES AND COMPACT DI SK PLAYER. IT HAS SEVEN DIVISIONS UNDER WHICH IT OPERATES. THE ASSESSEE HAS ITS HEAD OFFICE AT ANDHERI (E), MUMBAI, AND A MANUFACTURING UNIT AT WA DA. THE WADA UNIT IS AN ELIGIBLE UNIT FROM WHICH THE ASSESSEE HAS BEEN C LAIMING DEDUCTION UNDER SECTION 80IA. IT HAS BEEN OBSERVED BY THE ASSESSING OFFICER THAT THE EXPENSES PERTAINING TO FINANCE EXPENSES, TOP MANAGE MENT SALARY, RESEARCH AND DEVELOPMENT, ETC., HAVE BEEN DEBITED TO THE HEA D OFFICE UNIT WHICH IS BASICALLY A TRADING UNIT AND IN THIS MANNER, THE AS SESSEE HAS ARTIFICIALLY INFLATED THE PROFIT OF THE ELIGIBLE MANUFACTURING U NIT AT WADA AND THEREBY CLAIMING EXCESSIVE DEDUCTION U/S. 80IA. ON THE ISSU E OF PERSONNEL EXPENSES, M/S. MIRC ELECTRONICS LTD. 3 WHICH IS THE SUBJECT MATTER OF LEVY OF PENALTY IN G ROUND NO.1, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS INCU RRED EXPENDITURE OF ` 36,16,61,666, TOWARDS PERSONNEL EXPENSES OUT OF WHI CH AMOUNT OF ` 18,13,85,525, HAS BEEN CHARGED TO PROFIT & LOSS ACC OUNT AGAINST ANDHERI HEAD OFFICE. THESE PERSONNEL EXPENSES INCLUDE SALAR Y OF CHIEF EXECUTIVES AND THE TOP MANAGEMENT OF THE COMPANY. HE WAS OF TH E OPINION THAT THESE TOP MANAGEMENT LOOKS AFTER THE AFFAIR OF THE ENTIRE COMPANY AND NOT EXCLUSIVELY FOR HEAD OFFICE AND, THEREFORE, THERE I S NO RATIONALE FOR BOOKING OF SALARY OF TOP EXECUTIVES IN THE HEAD OFFICE ONLY. A FTER CALLING FOR THE DETAIL EXPLANATION, HE REJECTED THE ASSESSEES CONTENTION AND ALLOCATED SUM OF ` 1,92,63,319 OF THE EXPENSES RELATING TO REMUNERATIO N OF TOP MANAGEMENT PERSONNEL AND ALSO SOME PART EXPENDITURE ON ACCOUNT OF SUPPORT STAFF OFFICE IN THE FOLLOWING MANNER: EXPENSES OF REMUNERATION TO TOP MANAGEMENT PERSONNEL BASED ON STATEMENTS AS PROVIDED BY THE COMPANY ` 4,55,91,497 ADD: EXPENDITURE ON SUPPORT STAFF TO ABOVE AT 5% THEREOF ` 22,79,575 TOTAL ` 4,78,71,072 PERCENTAGE OF UNITS SOLD IN DIVISION 7 40.24% AMOUNT ALLOCATED AT ABOVE PERCENTAGE TO DIVISION 7 ` 1,92,63,319 3. IN THE QUANTUM PROCEEDINGS, UPTO THE SECOND APPELLA TE STAGE, THE TRIBUNAL CONFIRMED 10% OF ALLOCATION OF PERSONNEL EXPENSES DEBITED TO THE HEAD OFFICE FOR THE ELIGIBLE UNIT. THE TRIBUNAL, WH ILE DOING SO, HAS RELIED UPON THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 199 899 TO 200102 AND 200405. THE ASSESSING OFFICER, IN THE PENALTY PROC EEDINGS, HAS LEVIED THE PENALTY ON ACCOUNT OF DISALLOWANCE AS WORKED OUT BY THE ASSESSING OFFICER. THE LEARNED COMMISSIONER (APPEALS) DELETED THE SAID PENALTY AFTER FOLLOWING THE EARLIER YEARS ORDER PASSED BY THE LEARNED COMM ISSIONER (APPEALS) FOR THE ASSESSMENT YEAR 200102 WHEREIN, ON SIMILAR ISS UE THE LEARNED COMMISSIONER (APPEALS) HAS DELETED THE PENALTY. M/S. MIRC ELECTRONICS LTD. 4 4. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE IS NOT ALLOCATI NG ANY PERSONNEL EXPENSES TO THE ELIGIBLE UNIT AND BY THIS MANNER IT HAS INFL ATED PROFITS OF THE SAID ELIGIBLE UNIT. INSOFAR AS ALLOCATION OF THESE EXPEN SES IS CONCERNED, THERE IS NO DEBATE THAT IT HAS TO BE ALLOCATED TO THE ELIGIBLE UNIT ALSO. THEREFORE, THE ASSESSEE HAS NOT ONLY FURNISHED THE INACCURATE PART ICULARS BUT HAS ALSO CONCEALED THE PARTICULARS OF INCOME AND TO THIS EXT ENT THE PENALTY SHOULD BE CONFIRMED. 5. ON THE OTHER HAND, THE LEARNED COUNSEL, MR. VIJAY M EHTA, SUBMITTED THAT THE SIMILAR ISSUES WERE INVOLVED IN THE EARLIE R YEARS ALSO AND FROM THE ASSESSMENT YEAR 199899 TO 200001, ON SIMILAR DISA LLOWANCE, NO PENALTY WAS INITIATED BY THE ASSESSING OFFICER. IN THE ASSE SSMENT YEAR 200102, THE PENALTY HAS BEEN DELETED BY THE LEARNED COMMISSIONE R (APPEALS) AGAINST WHICH THE REVENUE DID NOT PREFER ANY GROUND ON THIS ISSUE THOUGH IT HAD COME IN APPEAL ON THE OTHER ISSUES. SIMILARLY, IN A SSESSMENT YEAR 200405 ALSO, THE REVENUE HAS NOT RAISED THIS GROUND IN THE APPEAL FILED BEFORE THE TRIBUNAL. THUS, ONCE THE REVENUE HAS ACCEPTED THAT NO PENALTY SHOULD BE LEVIED ON SUCH KIND OF DISALLOWANCE, THEN IN THIS Y EAR, LEVY OF PENALTY IS NOT WARRANTED. FURTHER, HE SUBMITTED THAT THE ASSESSING OFFICER HAS ALLOCATED ONLY TOP MANAGEMENT SALARY WHICH IS THE BASIS ON WH ICH PENALTY HAS BEEN INITIATED. HOWEVER, THE TRIBUNAL HAS TAKEN A VIEW T HAT 10% OF THE ENTIRE SALARY PAID TO THE STAFF HAS TO BE ALLOCATED AND ON THIS BASIS, NO PENALTY HAS BEEN INITIATED AND, THEREFORE, THE PENALTY LEVIED B Y THE ASSESSING OFFICER CANNOT BE JUSTIFIED IN LAW. OTHERWISE ALSO, HE SUBM ITTED THAT THE ASSESSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR ALL THE UNITS INCLUDING THAT OF THE ELIGIBLE UNITS AND IN THE COMPUTATION O F INCOME AS WELL AS IN THE AUDIT REPORT, COMPLETE DISCLOSURE OF THE EXPENSES H AVE BEEN MADE. ONCE, THE ASSESSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT AND WITHOUT REJECTION OF SUCH BOOKS OF ACCOUNT, NO ALLOCATION O F EXPENSES CAN BE MADE. HE ALSO POINTED OUT THAT IT IS NOT A CASE THAT NO P ERSONNEL EXPENDITURE HAS BEEN DEBITED TO THE ELIGIBLE UNIT, IN FACT A SUM OF ` 9 CRORES HAS ALREADY BEEN DEBITED ON ACCOUNT OF PERSONNEL EXPENSES. LASTLY, A LLOCATION OF 10% OF M/S. MIRC ELECTRONICS LTD. 5 PERSONNEL EXPENSES ARE PURELY ON ADHOC BASIS AND, THEREFORE, NO PENALTY CAN BE LEVIED ON SUCH ADHOCISM. ALLOCATION OF PERSO NNEL EXPENSES AND OTHER EXPENSES ARE NOT CONCEALED FACT AS THE ASSESSING OF FICER WAS WELL AWARE OF THE SUBSISTING CONTROVERSY FOR THE ALLOCATION OF TH E SAME. IT IS ALSO NOT A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME A S ALL THE PARTICULARS HAVE BEEN DISCLOSED IN THE BOOKS OF ACCOUNT. IT WAS PURE LY ON ADHOC BASIS THAT FURTHER ALLOCATION HAS BEEN DONE. WHAT SHOULD BE TH E QUANTUM OF ALLOCATION IS A SUBJECT MATTER OF THE OPINION AND, THEREFORE, THERE COULD NOT BE ANY FURNISHING OF INACCURATE PARTICULARS OR CONCEALMENT OF INCOME AND, THEREFORE, NO PENALTY SHOULD BE LEVIED. HE STRONGLY RELIED UPO N THE DECISION OF THE TRIBUNAL, DELHI BENCH, IN AVON CRANES PVT. LTD. V/S DCIT, [2004] 89 TTJ (DEL.) 1101, WHEREIN ON SIMILAR ISSUE OF ALLOCATION OF EXPENSES WAS INVOLVED AND IT WAS HELD THAT NO PENALTY IS LEVIABLE. HE FUR THER PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN CIT V/S DHA RAMPAL PREMCHAND LTD., [2010] 329 ITR 572 (DEL.), WHEREIN IT WAS HELD THAT DISALLOWANCE ON ACCOUNT OF CLAIM OF DEDUCTION UNDER SECTION 80IA, PENALTY U NDER SECTION 271(1)(C) CANNOT BE LEVIED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE PERUSE D THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) AS WELL THE ASSE SSING OFFICER. IN ASSESSEES CASE, INSOFAR AS ALLOCATION OF PERSONNEL EXPENSES TO THE ELIGIBLE UNIT IS CONCERNED, THERE HAS BEEN A CHECKERED HISTO RY, WHEREIN THE TRIBUNAL CONSISTENTLY HAS BEEN CONSISTENTLY HOLDING THAT 10% OF THE ENTIRE SALARY UNDER THE HEAD PERSONNEL EXPENSES SHOULD BE ALLOCATED TO THE ELIGIBLE UNIT. THIS ALLOCATION OF 10% IS PURELY ON ADHOC BASIS. O N SIMILAR SET OF FACTS AND CIRCUMSTANCES WHICH ARE PERMEATING THROUGH ALL THE ASSESSMENT YEARS, IT IS SEEN THAT IN SOME OF THE ASSESSMENT YEARS, THE DEPA RTMENT HAS NOT LEVIED ANY PENALTY ON SUCH ALLOCATION OF EXPENSES AND IN S OME OF THE YEARS, THE PENALTY HAS BEEN DELETED BY THE LEARNED COMMISSIONE R (APPEALS) AGAINST WHICH THE DEPARTMENT HAS NOT PREFERRED ANY GROUND B EFORE THE TRIBUNAL. THESE FACTS ARE VERIFIABLE FROM THE RECORDS SUBMITT ED IN THE PAPER BOOK BY THE LEARNED COUNSEL. ON THESE FACTS AND ON PRINCIPL E OF CONSISTENCY, PRIMA FACIE, WE HOLD THAT THERE IS NO CASE FOR CONFIRMING OF PENALTY IN THIS YEAR. M/S. MIRC ELECTRONICS LTD. 6 MOREOVER, THERE IS A SUBSTANCE IN THE ARGUMENTS RAI SED BY THE LEARNED COUNSEL THAT ONCE THE ASSESSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNT FOR EACH UNIT, INCLUDING THAT OF THE ELIGIB LE UNIT AND THE EXPENSES HAS BEEN DEBITED TO SUCH BOOKS OF ACCOUNT MAINTAINED SE PARATELY AND WITHOUT FINDING ANY DEFECT IN SUCH BOOKS OF ACCOUNT AND OR IN THE MATTER OF ALLOCATION OF EXPENSES, NO PENALTY CAN BE LEVIED, WHICH IS MOR E ON ACCOUNT OF ARTIFICIAL AND ADHOC ALLOCATION OF HEAD OFFICE EXPENSES TO TH E ELIGIBLE UNITS. THE REASON BEING THAT SUCH AN ARTIFICIAL ALLOCATION IS ALWAYS SUBJECT MATTER OF OPINION AS TO WHAT COULD HAVE BEEN THE ALLOCATION O F THE EXPENSES. THE QUANTIFICATION OF 10% ON ADHOC BASIS IS MERELY AN OPINION EXPRESSED BY THE TRIBUNAL AS TO WHAT SHOULD BE THE QUANTUM OF ALLOCA TION IN THIS CASE. THIS MAY HAVE SOME RELEVANCE IN THE CONTEXT OF QUANTUM P ROCEEDINGS, HOWEVER, IN THE PENALTY PROCEEDINGS, WHICH ARE DISTINCT AND SEPARATE PROCEEDINGS, THIS HAS TO BE VIEWED FROM THE ANGLE, WHETHER THE ASSESS EE HAS ACTUALLY FURNISHED ANY KIND OF INACCURATE PARTICULARS OR CON CEALED ANY PARTICULARS OF INCOME. SUCH A CONCEALMENT OR FURNISHING OF INACCUR ATE PARTICULARS HAS TO BE BASED ON DEFINITE MATERIAL. IN THE PENALTY PROCEEDI NGS THE ASSESSEE, BY WAY OF SOME EXPLANATION AND EVIDENCE CAN DEMONSTRATE TH AT IT HAD BONAFIDE BELIEF AND REASON FOR CLAIMING SUCH EXPENSES AT THE TIME OF FILING OF RETURN OF INCOME. IF SUCH AN EXPLANATION HAS NOT BEEN FOUND T O BE FALSE ON THE BASIS OF ANY EVIDENCE OR MATERIAL BROUGHT ON RECORD, SUCH AN EXPLANATION CANNOT BE REJECTED. THERE IS ALWAYS A PREPONDERANCE OF PROBAB ILITIES IN SUCH SITUATIONS AND IF THERE IS ANY PROBABLE EXPLANATION, PENALTY C ANNOT BE LEVIED. IN THE PRESENT CASE, THE EXPLANATION OF THE ASSESSEE HAS N OT BEEN FOUND TO BE FALSE OR THE ALLOCATION OF EXPENSES HAS NOT BEEN FOUND TO BE NOT BONAFIDE AND THE ALLOCATION OF PERSONNEL EXPENSES @ 10% IS PURELY AN ARTIFICIAL AND ON ADHOC BASIS AND, THEREFORE, NO PENALTY UNDER SECTION 271( 1)(C) CAN BE LEVIED OR CONFIRMED. THUS, WE AGREE WITH THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS) FOR DELETION OF PENALTY ON THIS SCORE. AC CORDINGLY, GROUND NO.2, IS TREATED AS DISMISSED. 7. 3 #6 ! 1 7 3 ) # 89 : 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. M/S. MIRC ELECTRONICS LTD. 7 8. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.9176/MUM. /2010, FOR THE ASSESSMENT YEAR 200304, VIDE WHICH, THE REVENUE HA S DISPUTED THE PENALTY IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 271( 1)(C) FOR ` 1,39,53,918. 9. THE RIVAL PARTIES AGREE BEFORE US THAT THE ISSUE AR ISING IN THIS APPEAL IS MUTATIS MUTANDIS TO THE ISSUES RAISED BY THE REVENUE IN THE ASSESSM ENT YEAR 200203, WHEREIN, VIDE PARA6 ABOVE, WE HAVE D ELETED THE PENALTY FOR THE REASONS SET OUT THEREIN. IN VIEW OF THIS, WE CO NFIRM THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) DELETI NG THE PENALTY UNDER SECTION 271(1)(C). ACCORDINGLY, THE GROUND RAISED B Y THE REVENUE IS TREATED AS DISMISSED. 10. 3 #6 ! 1 7 3 ) # 89 : 10. IN THE RESULT, REVENUES APPEAL IS TREATED AS D ISMISSED. 11. &) *; $!<, ! 1 &) * !+* 200203 ! 200304 1 7 3 ) # 89: 11. TO SUM UP, REVENUES APPEAL FOR THE A.Y. 20020 3 AND 200304 ARE TREATED AS DISMISSED. $ 1 + 7 A)6 28 TH AUGUST 2013 1 B : ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST 2013 SD/- SANJAY ARORA ACCOUNTANT MEMBER SD/- '# '# '# '# $% $% $% $% & & & & AMIT SHUKLA JUDICIAL MEMBER MUMBAI, A) A) A) A) DATED: 28 TH AUGUST 2013 M/S. MIRC ELECTRONICS LTD. 8 $ 1 .&#'C DC+# / COPY OF THE ORDER FORWARDED TO : (1) &) *3# / THE ASSESSEE; (2) ! / THE REVENUE; (3) E () / THE CIT(A); (4) E / THE CIT, MUMBAI CITY CONCERNED; (5) C!HB .&#&) , , / THE DR, ITAT, MUMBAI; (6) BI* J / GUARD FILE. /C# .&# / TRUE COPY $) / BY ORDER . . KL / PRADEEP J. CHOWDHURY !3M &) K! / SR. PRIVATE SECRETARY N / 8 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI