PIK PEN P.LTD, MUMBAI V. ITO 8(2)(4), MUMBAI

ITA 997/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2685 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 13-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MOHANDA S
• Assessee Lawyers: JIGER MEHTA
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Wrong claim; Valuation report
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH , MUMBAI BEFORE SRI MAHAVIR SINGH, J UDICIAL MEMBER AND SRI MANOJ KUMAR AGGAR WAL , A CCOUNTANT M EMBER ITA NO . 9 97 & 998 /MUM/2014 (A Y : 2003 - 04 & 2004 - 05 ) M/S. PIK PEN PVT. LTD., 7, PARSIAN BUILDING, V. P. ROA D, NDHERI (W), MUMBAI 400058 VS. THE INCOME TAX OFFICER - 8(2)(4), AAYAKAR BHAVAN, MUMBAI PAN:AABCP 0512A APPELLANT .. RESPONDENT APPELLANT BY .. SHRI JIGER MEHTA, AR RESPONDENT BY .. SHRI K. MOHANDAS, DR DATE OF HEARING .. 26 - 07 - 2016 DATE OF PRONOUNCEMENT 26 - 07 - 2016 O R D E R PER MAN OJ KUMAR AGGARWAL , A M : THESE ARE SET OF TWO APPEALS FILED BY THE ASSESSEE FOR ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 RESPECTIVELY ASSAILING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 6, MUMBAI (FOR SHORT THE CIT (A)) CONFIRMING THE LEVY OF PENALTY U/S 271 (1) (C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). SINCE THE COMMONS ISSUES ARE INVOLVED, BOTH THE APPEALS ARE BEING DISPOSED OFF BY THIS COMMON ORDER. FOR THE PURPOSE OF AD JUDICATION, WE TAKE UP GROUNDS OF APPEAL RAISED IN ITA NO.997/MUM/2014 FOR ASSESSMENT YEAR 2003 - 04 WHICH ARE AS FOLLOWS: - 1. THE LD. CIT (A) ERRED IN FACTS AND LAW IN CONFIRMING THE ACTION OF THE A. O. IN LEVYING PENALTY U/S 271 (1) (C) OF THE INCOME TAX ACT AMOUNTING TO RS.42,12,469/ - ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON BRAND. 2. THE LD. CIT (A) ERRED IN FACTS AND IN LAW IN APPRECIATING THAT, THE APPELLANT HAD NOT FURNISHED INACCURATE PARTICULARS OF INCOME WHICH WOULD WARRANT THE LEVY OF PENALT Y U/S 271 (1) (C), MERELY ON THE GROUNDS THAT THE SAID CLAIM OF DEPRECIATION WAS REJECTED BY THE ASSESSING OFFICER AND THE SAME WAS CONFIRMED BY THE LD. CIT (A). 3. THE LD. CIT (A) ERRED IN APPRECIATING THAT DISALLOWANCE OF DEPRECIATION IS SUSTAINED ON G ROUNDS OTHER THAN THE GROUNDS ON WHICH THE HONBLE ITAT HAD SET ASIDE THE MATTER AND THAT WHEN THE ADDITION IS SUSTAINED ON A DEBATABLE ISSUE OF LAW, THE QUESTION OF LEVY OF PENALTY ON GROUND OF FURNISHING INACCURATE PARTICULARS OF INCOME DOES NOT ARISE. ITA NO. 9 97 & 998 /MUM/20 1 4 2 4. THE LD. CIT (A) ERRED IN FACTS AND LAW IN UPHOLDING THE PENALTY U/S 271 (1) (C) LEVIED BY THE LD. ASSESSING OFFICER BY PLACING RELIANCE ON THE JUDGMENTS RELATED TO CONCEALMENT OF PARTICULARS OF INCOME, WHEREAS THE PENALTY IN THE INSTANT CASE WAS INIT IATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A RESIDENT PRIVATE COMPANY WHO CAME INTO EXISTENCE DURING 1998 TO SUCCEED THE BUSINESS OF A PARTNERSHIP FIRM M/S . V. K. INDUSTRIES (FIRM). THE ERSTWHI LE FIRM WAS ASSIGNEE OF A TRADEMARK AND IMMEDIATELY PRIOR TO TRANSFER OF ITS BUSINESS TO THE ASSESSEE, IT REVALUED THE TRADEMARK IN ITS BOOKS OF ACCOUNT BASED UPON THE VALUATION REPORT OF REGISTERED VALUER. THE TRADEMARK WAS TAKEN OVER BY THE ASSESSEE AT R EVALUED FIGURES AND DEPRECIATION THEREUPON WAS CLAIMED BY THE ASSESSEE. THE AO REFUSED TO ALLOW THE SAME ON THE REVALUED FIGURES AND ALLOWED DEPRECIATION ONLY ON THE WDV OF THE TRADEMARK AS ORIGINALLY STANDING IN THE BOOKS OF THE FIRM. DURING ASSESSMENT YE AR IN QUESTION, THE RETURN OF INCOME WAS FILED BY THE ASSESSEE DURING NOVEMBER, 2003 AND ASSESSMENT THEREOF WAS COMPLETED U/S 143 (3) OF THE ACT VIDE ASSESSMENT ORDER DATED 30 - 12 - 2005. CERTAIN ADJUSTMENTS AND DISALLOWANCES INCLUDING DEPRECIATION DISALLOWAN CE AS AFORESAID WERE MADE IN THE ASSESSMENT BY THE AO. PENALTY PROCEEDINGS WERE INITIATED U/S 271 (1) (C) OF THE ACT AGAINST THE ASSESSEE FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND AN AMOUNT OF RS.42,12,469/ - WAS IMPOSED AS PENALTY VIDE ORDER DATE D 31 - 03 - 2008. THE PENALTY WAS AFFIRMED BY THE CIT (A) VIDE HIS ORDER DATED 29 - 11 - 2013. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. AT THE OUTSET, THE LEARNED AR HAS SUBMITTED THAT THE ISSUE IN DISPUTE, BEING CONTINUOUS IN NATURE, HAS ARISEN FOR OT HER ASSESSMENT YEAR S ALSO AND SIMILAR PENALTIES HAS BEEN IMPOSED ON THE ASSESSEE FOR THOSE ASSESSMENT YEAR ALSO. THE PENALTY ORDER STAND ADJUDICATED BY ITAT ON SIMILAR ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000 - 01 AND 2007 - 08 IN ITA NO.4437 & 44 38/MUM/2013 VIDE ORDER DATED 19 - 05 - 2016 . IN SUPPORT, THE COPY OF THE SAID ORDER HAS BEEN PRODUCED BEFORE US. 4 . UPON PERUSAL OF THE SAID ORDER, WE FIND THAT THE PENALTY HAS BEEN DELETED BY ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2000 - 01 AND 2007 - 08 ON SIMILAR ISSUES. THE OBSERVATIONS OF ITAT MADE IN PARA 3 OF THE SAID ORDER ARE REPRODUCED BELOW: - 3. NOW, WE SHALL TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2000 - 01 (ITA NO.4437/MUM/2013), WITH RESPECT TO LEVYING PENALTY OF RS.8,08,500/ - ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON BRAND. THE LD. COUNSEL CONTENDED THAT THE ASSESSEE DID NOT FURNISH INACCURATE PARTICULARS OF ITA NO. 9 97 & 998 /MUM/20 1 4 3 INCOME WARRANTING PENALTY U/S 271(1)(C) MERELY ON THE GROUND THAT THE SAID CLAIM OF DEPRECIATION WAS REJECTED BY THE ASSESSING OFF ICER . 3.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE TRIBUNAL FOR ASSESSMENT YEAR 2001 - 02 (VIDE ITA NO.7232/MUM/2012) ORDER DATED 11/12/2015 SET - ASIDE THE ISSUE TO THE FILE OF THE LD. COMMISSIO NER OF INCOME TAX (APPEAL) AS HAS BEEN REPRODUCED ABOVE WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08. IN THE AFORESAID ORDER, FOLLOWING OBSERVATION WAS MADE: - 10. ON HEARING LD REPRESENTATIVES OF BOTH THE PARTIES ON THE ISSUE S RAISED BEFORE US FOR T HE AY 1999 - 2000, WE FIND THE CIT (A) IN THE SECOND ROUND HAS LEFT SO MANY GAPS WITH REGARD TO THE FACT OF AOS FAILURE TO OBTAIN PRIOR APPROVAL OF THE JCIT AND THE CONSEQUENCES OF NOT OBTAINING SUCH APPROVAL ON THE CLAIM OF THE ASSESSEE. THE CIT (A) DID NO T CONSIDER THE FACT WHETHER THE PROVISIONS OF EXPLANATION - 3 TO SECTION 43(1) OF THE ACT ACTUALLY APPLY TO THE FACTS OF THE PRESENT CASE; WHETHER AO MERELY IGNORED THE CLAIM OF DEPRECIATION ON THE REVALUED COST OF THE TRADEMARK. FURTHER, CIT (A) HAS ALSO NO T CONSIDERED WHETHER THERE IS ANY SUBSTITUTION OF VALUATION AT ALL WHEN THE AO CONSIDERED THE VALUE OF THE TRADEMARK AT ZERO. CIT (A) IS DIRECTED TO PASS A SPEAKING ORDER AS TO HOW THE EXPLANATION - 3 TO SECTION 43(1) OF THE ACT APPLIES TO THE FACTS OF THE PRESENT CASE FROM ALL ANGLES IF THE CONDITIONS SPECIFIED IN THE SAID EXPLANTION - 3 ARE FULLY SATISFIED OR NOT. HE IS ALSO DIRECTED TO PASS AN ORDER ON HOW THE AO IS PERMITTED TO REJECT THE VALUATION REPORT FURNISHED BY THE ASSESSEE WHEN THE AO DOES NOT HAV E ANY OTHER REPORT ON HAND FROM THE DVO OR OTHERWISE. FURTHER, CIT (A) IS ALSO DIRECTED TO EXAMINE THE APPLICABILITY OF THE CITED JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ASHWIN VANASPATI INDUSTRIES (SUPRA) AND OTHERS. FURTHER ALSO, CIT (A ) SHOULD EXAMINE THE APPLICABILITY OF THE 5TH PROVISO TO SECTION 32(1) OF THE ACT AND GIVE REASONS IN WRITING ON HOW THE AMENDED PROVISIONS APPLY TO THE FACTS OF THE PRESENT CASE. THUS, WE REMAND THE WHOLE OF THE ISSUE RELATING TO THE CLAIM OF DEPRECIATION ON THE TRADEMARK TO THE FILE OF THE CIT (A) FOR THIRD ROUND OF THE PROCEEDINGS BEFORE HIM. THIS TIME, THE CIT (A) IS DIRECTED TO EXAMINE EACH OF THE ISSUES DISCUSSED ABOVE IN A TIME BOUND MANNER ATTENDING TO ALL THE ARGUMENTS RAISED BY THE LD COUNSEL FOR THE ASSESSEE BEFORE HIM IN THE SET ASIDE PROCEEDINGS. IT IS NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE GRANTED REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, ALL THE ISSUES RAISED IN THE ORIGINAL GROUNDS AS WELL AS ADDITIONAL GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. CONSIDERING THE AFORESAID OBSERVATION MADE BY THE TRIBUNAL. DIRECTION WAS ISSUED AS TO HOW THE ASSESSING OFFICER PERMITTED TO REJECT THE VALUATION REPORT FURNISHED BY T HE ASSESSEE WHEN THE ASSESSING OFFICER DOES NOT HAVE ANY OTHER REPORT IN HAND FROM THE DVO OR OTHERWISE. IN VIEW, OF THE AFOREMENTIONED OBSERVATION, WE ARE OF THE VIEW THAT AT LEAST PENALTY U/S 271(1)(C) WILL NOT SURVIVE, BECAUSE, THE REVENUE HAS NOT SUBS TANTIATED THAT THE ASSESSEE EITHER FURNISHED THE INACCURATE PARTICULARS OF CONCEALED ITS INCOME, WHICH ARE NECESSARY INGREDIENTS FOR IMPOSING PENALTY U/S 271(1)(C) OF THE ACT. EVEN, IF A WRONG CLAIM IS MADE, IT IS THE DUTY OF THE ASSESSING OFFICER EITHER T O REJECTED OR TO GUIDE THE ASSESSEE. THE DECISION IN RELIANCE PETRO PRODUCTS PVT. LTD. AND CIT VS AJAYB SINGH & COMPANY 253 ITR 630 ITA NO. 9 97 & 998 /MUM/20 1 4 4 (P & H) SUPPORTS THE CASE OF THE ASSESSEE. THE HONBLE APEX COURT IN RELIANCE PETRO PRODUCTS LTD. OBSERVED AS UNDER: - 10. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF THE ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED O UT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE, REITERATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING THAT T HEY ARE INCORRECT; IT AMOUNTED TO CONCEALMENT OF INCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS; (I) AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF ONE'S INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN T HE RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING OFFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. IN THE LIGHT OF THE A FORESAID OBSERVATION FROM HONBLE APEX COURT AND THE FACTUAL MATRIX THAT THE TRIBUNAL EVEN REMANDED THE MATTER BACK TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL) EVEN FOR THE THIRD ROUND OF THE PROCEEDINGS, THE PENALTY IS DIRECTED TO BE DELETE D. THUS, THIS APPEAL OF THE ASSESSEE IS ALLOWED . 4. THUS, A VIEW HAS BEEN TAKEN BY ITAT IN ASSESSEES OWN CASE AND UNDER SIMILAR CIRCUMSTANCE AND WE FIND NO REASON TO DEVIATE FROM THE SAME IN ANY MANNER . ACCORDINGLY, THE PENALTY IS DELETED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 5. AS THE ISSUE IN ITAT NO.998/MUM/2014 FOR ASSESSMENT YEAR IS IDENTICAL WITH THE ABOVE, OUR DECISION AND STAND APPLIES TO SAME MUTATIS MUT A NDIS. 6. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. O RDER PRONOUN CED IN THE OPEN COURT ON 26 - 07 - 2016 - SD/ - - SD/ - (MAHAVIR SINGH ) (MANOJ KUMAR AGGARWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI , DATED 26 /07/2016 LAKSHMIKANTA DEKA/SR.PS ITA NO. 9 97 & 998 /MUM/20 1 4 5 C OPY OF THE ORDER FORWARDED TO : BY ORDER, ASSIS TANT REGISTRAR ITAT, MUMBAI DATE INITIAL DICTATION PAD ATTACHED WITH THE DRAFT ORDER NO(HAND - WRITTEN SCRIPT) 1. DRAFT DICTATED ON 2 6 /07/16 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 2 6 /07/16 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE S ECOND MEMBER A M 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. J M 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHIC H FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT ( A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//