2005-VIL-369-ITAT-
Equivalent Citation: ITD 100, 387, TTJ 103, 139,
Income Tax Appellate Tribunal CALCUTTA
ITA No. 1162/Kol/2005
Date: 07.11.2005
INOCME-TAX OFFICER, WARD-1 (1).
Vs
BUDGE BUDGE COMPANY LIMITED.
BENCH
Member(s) : DINESH K. AGARWAL., R. K. PANDA.
JUDGMENT
Per Dinesh K. Agarwal, Judicial Member. - This appeal preferred by the revenue is directed against the order passed by the Ld. CIT(A) dated 21-3-2005 for the assessment year 1992-93.
2. Briefly stated facts of the case are that the assessee is a sick company, declared by the BIFR. It was running a jute mill, chemical division etc. As the accumulated loss of the assessee-company as on 31-3-1992 exceeded the net worth as on that date, and Industrial Finance Corporation of India (IFCI), the operating agency appointed by BIFR has considered the company un viable, therefore, BIFR declared the assessee-company a sick industrial company. The return showing a loss of Rs. 46,95,467 was filed on 31-12-1992. However, the assessment was completed under section 144 on 22-3-1995 at 'Nil' income. On first appeal, the Ld. CIT(A) set aside the assessment for reconsideration. During the second round of the assessment, it was found by the Assessing Officer that the assessee claimed depreciation of Rs. 32,77,267 despite the fact that in the year under consideration the company suspended its operation and no manufacturing activity necessitating the use of plant and machinery was undertaken. It was stated by the assessee that the mill was under suspension due to labour unrest. There were untiring efforts on the part of the directors of the company to resume the work and negotiations were going on throughout but due to differences in the stand taken by the labour unions among themselves, the work could not be resumed. However, the company was always ready to start the mill and kept ready the infrastructure including the Plant & Machinery for use. There was, therefore, not actual but passive use of the Plant & Machinery. During the year even though there was suspension of work by the labourers the company had to spend various establishment and other expenses to keep the mill ready for use, as and when the need arises. The reliance was placed on the decisions in CIT v. India Tea & Timber Trading Co. [1996] 221 ITR 857 (Gauhati) and Capital Bus Services (P.) Ltd. v. CIT [1980] 123 ITR 404 (Delhi). However, the Assessing Officer was of the view that since the assets have not been used by the assessee-company for the business purposes because the company had suspended its operation during the entire year, the depreciation allowance cannot be granted in view of ratio of decision in CIT v. Oriental Coal Co. Ltd. [1994] 206 ITR 682 (Cal.), Hindustan Chemical Works Ltd. v. CIT [1980] 124 ITR 561 (Bom.) and Hyderabad Construction Co. Ltd. v. CIT [1981] 129 ITR 813 (AP). It was also found by the Assessing Officer that the assessee claimed a sum of Rs. 15,69,383 as revenue expenditure incurred in connection with filling up of pond and levelling of low land etc., which has now started yielding rental income for the assessee. The Assessing Officer was of the view that the expenditure claimed by the assessee is capital in nature and hence, he disallowed the same. Further, it was also found that the assessee claimed travelling expenses in excess of Rule 6D, therefore, he disallowed Rs. 18,599 and added the same in the income of the assessee. Accordingly, the assessment was completed at an income of Rs. 1,69,782 vide order dated 25-2-1998 passed under section 143(3)/251 of the Income-tax Act. The assessee preferred first appeal before the Ld. CIT(A). The Ld. CIT(A) while upholding the disallowance made by the Assessing Officer directed the Assessing Officer to allow correct unabsorbed depreciation under section 32 as also the business loss for carry forward as per law and passed a speaking order in respect of levy of interest charged under section 234B of the Income-tax Act and accordingly, partly allowed the assessee's appeal. The assessee preferred second appeal before the Tribunal. The Tribunal while upholding the addition/disallowance made by the Assessing Officer dismissed the assessee's appeal vide order dated 31-12-2004 passed in ITA No. 2384/K/2003. In the mean while, the Assessing Officer vide order dated 28-7-1999 revised the assessment under section 154 and computed the assessee's income at 'nil' as under:
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Assessed income as per order Rs. 1,69,782
dated 25-2-1998
Less: Unabsorbed depreciation
for assessment year 1978-79
Adjusted to the extent of Rs. 1,69,782
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Nil
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3. In penalty proceedings initiated under section 271(1)(c) it was submitted by the assessee that in this case since no tax is payable, therefore, following the decision in CIT v. Prithipal Singh & Co. [2001] 249 ITR 670 (SC), the penalty is not leviable. It was further submitted by the assessee that the assessee was under the bona fide belief that the depreciation was allowable and the facts of depreciation were duly mentioned in the auditor's report and the depreciation was claimed in view of the decisions referred in the assessment order. It was further submitted by the assessee that filling up of pond was considered to be a revenue expenditure in view of the decision of Hon'ble Bombay High Court in Teksons (P.) Ltd v. CIT [1979] 120 ITR 745. It was also claimed by the assessee that the travelling expenditure had been legitimately claimed, therefore, there is no concealment on the part of the assessee. However, the Assessing Officer did not accept the assessee's explanation and was of the view that the claim of depreciation on the assets which was not used by the assessee due to suspension of work in the mill and the claim of pond filling expenditure is clearly capital in nature and also the assessee had knowledge that the amount of travelling expenses is in excess of Rule 6D, therefore, the assessee has concealed his particulars of income and accordingly liable to penalty under section 271(1)(c) and, therefore, he levied a penalty at Rs. 27,97,517 being 100 per cent of the tax sought to be evaded. The assessee preferred first appeal before the Ld. CIT(A). The Ld. CIT(A) after examining the facts of the case held that the claim made by the assessee remains a claim and cannot be equated with supplying inaccurate particulars of income or concealing particulars of income, therefore, the provisions of section 271(1)(c) is not applicable and accordingly, deleted the penalty imposed by the Assessing Officer.
4. Being aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before us taking following grounds of appeal:
"1. Whether under the facts of the case and in law CIT (Appeals) erred in deleting penalty levied for claim of depreciation allowance.
2. Whether under the facts of the case and in law CIT (Appeals) erred in deleting penalty levied for claim of revenue expenditure whereas the expenditure was of capital nature.
3. Whether under the facts of the case and in law CIT (Appeals) erred in deleting penalty levied for claim of travelling expenses whereas the assessee-company was not eligible for such expenditure."
5. The Ld. Departmental Representative submits that there is no dispute that the mill was under suspension since 18-3-1989, therefore, to say that plant and machinery were used for purpose of business during the entire period of suspension of work for five and half years does not seem to be justified or possible. He further submits that since during the year there was a lockout it cannot be imagined as to how the machineries were kept "ready throughout the year. With regard to the disallowance of pond filling expenses and travelling expenses, the Ld. Departmental Representative submits that by no stretch of imagination said expenses can be termed as repairs and maintenance expenses or allowable business expenses, therefore, the assessee has concealed the particulars of its income and liable to penalty under section 271(1)(c). He further submits that the Ld. CIT(A) has erred in deleting the penalty when the disallowance of depreciation, pond filling expenses and travelling expenses have been upheld even by the Tribunal. The Ld. Departmental Representative after relying on the decision cited in the order of the penalty and in the order of the Tribunal in quantum appeal also relied on the decision in CIT v. Bijay Iron Stores [2001] 252 ITR 408 (Cal), CIT v. Sree Krishna Trading Co. [2002] 253 ITR 645 (Ker.) and the decision of the Tribunal in Dy. CIT v. EIH Ltd. [IT Appeal No. 283 (Kol.) of 2005, dated 8-8-2005] for the assessment year 1998-99. He, therefore, submits that the penalty imposed by the Assessing Officer be restored.
6. On the other hand, the Ld. Counsel for the assessee while reiterating the same submissions as submitted before the Assessing Officer and the Ld. CIT(A) further submits that the depreciation was claimed as the assessee kept itself always ready to start the operation of the mill and for that purpose, the infrastructure including the plant and machinery had to be maintained and kept ready. He further submits that although the functioning of the mill was temporarily suspended but the company had to meet up various establishments and other expenses to keep the mill ready for the use and hence, it cannot be said that the mill was closed, more so, when it restarted after a few years. The Ld. Counsel for F the assessee on the proposition that in such situation the depreciation is allowable on plant and machinery relied on the decisions in CIT v. Vayithri Plantations Ltd. [1981] 128 ITR 675 (Mad.), CIT v. India Tea & Timber Trading Co. [1996] 221 ITR 857 (Gauhati), CIT v. Geo Tech Construction Corpn. [2000] 244 ITR A 452 (Ker.) and Capital Bus Service (P.) Ltd. v. CIT [1980] 123 ITR 404 (Delhi) and further submits that the decision of Hon'ble jurisdictional High Court in CIT v. Oriental Coal Co. Ltd. [1994] 206 ITR 682 (Cal.) holding that where the factory of the assessee remained under lockout throughout two previous years relevant to assessment years 1983-84 and 1984-85 and during the lock out period, the plant and machinery had not been actually used for g the purpose of the business, the depreciation under section 32 of the Act was not allowable on such plant and machinery, is dated 4-1-1994, i.e., after furnishing of the return which was filed on 31-12-1992, therefore, the depreciation was claimed on the passive use of the plant and machinery following the ratio of the decisions as referred hereinabove. He further submits that the pond filling expenses were claimed as a revenue expenditure in view of the decision of Hon'ble Bombay High Court in Teksons (P.) Ltd. v. CIT [1979] 120 ITR 745. He further submits that the amount of travelling expenses has duly mentioned in the audit report and the assessee has provided the details of travelling during the course of assessment proceedings. He further submits that since the assessee has disclosed all the particulars of income and filed auditor's report, therefore, there is no concealment on the part of the assessee. He further submits that in any case the assessee was under the bona fide belief that such claim is allowable, therefore, the assessee did not furnish any inaccurate particulars of income. He further submits that since the income returned is loss and finally assessed income is nil, therefore, following the decision of Hon'ble Supreme Court in Prithipal Singh & Co.'s case and the order of the Special Bench of the Tribunal in Asstt. CIT v. Apsara Processors (P.) Ltd. [2005] 92 TTJ (Ahd.) 645, orders of the Tribunal in General Fibres Dealers (P.) Ltd. v. Asstt. CIT [2005] 95 TTJ (Cal.) 1030, Jt. CIT v. Rakesh Fuel (P.) Ltd. [IT Appeal No. 3611 (Delhi) of 2000, dated May 11, 2004] for the assessment year 1996-67, Jt. CIT v. Aroh Trading (P.) Ltd. [2005] 96 ITD 79 (Mum.) the penalty is not leviable. He further submits that the Assessing Officer has not recorded any satisfaction in the assessment order, therefore, on this ground p also the penalty is not leviable. The reliance was placed on the decisions in CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568 (Delhi), Diwan Enterprises v. CIT [2000] 246 ITR 571 (Delhi) and Jt. CIT v. Rakesh Fuel (P.) Ltd. [2005] 147 Taxman 109 (Delhi) (Mag.). The reliance was also placed on the decisions in CIT v. Onkar Saran & Sons [1992] 195 ITR 1 (SC), Brij Mohan v. CIT [1979] 120 ITR 1 (SC) and CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). He, therefore, submits that the order passed by the Ld. CIT(A) in deleting the penalty be upheld.
7. We have carefully considered the rival submissions of the parties and perused the material available on record. We find that the facts are not in dispute. We further find that the assessee has filed annual report of the company disclosing complete facts including the financial statement of the company for the year ended 31-3-1992. We further find that the depreciation was claimed by the assessee-company on the passive use of the plant and machinery on the ground that the assessee-company kept itself always ready to start the operation of the mill and in order to keep the mill ready the assessee-company has incurred expenses including establishment, repairs and maintenance expenses. It is not the case of the revenue that the expenses claimed by the assessee are bogus or have not been incurred on the maintenance and repair of plant and machinery. We further find that the pond filling expenses were also claimed by the assessee keeping in view of the ratio of the decision of Hon'ble Bombay High Court in Teksons (P.) Ltd v. CIT [1979] 120 ITR 745. We further find that the travelling expenses were claimed by the assessee as per books of account and the assessee has also furnished the details of such expenses. We further find that the Ld. CIT(A) after considering the facts and circumstances of the case has deleted the penalty vide finding recorded in para 3 of his order which is reproduced as under:
"3. The suspension of work in the Mill of the appellant was with effect from 18-3-1989. This fact was disclosed in the Notes to the Accounts of the appellant. The claim to depreciation and the information to the same are also available in the same notes. As the facts and figures on depreciation are noticeable from the Balance Sheet, Notes on accounts and claim made in the computation of income, such claim cannot be said to be an act of providing inaccurate particulars of income. The rulings of the Honourable Courts cited by the appellant such as Capital Bus Service (P.) Ltd. v. CIT 123 ITR 404 (Delhi) and CIT v. A Vayithri Plantations Ltd. 129 ITR 657 (Mad.) allows depreciation on machineries kept ready for use and on machineries on forced idleness. Such rulings could give a bona fide belief to any assessee that under similar circumstances, depreciation could be claimed. Similarly, the ruling of the Honourable Bombay High Court as reported in 120 ITR 745 which allows levelling of land to be revenue expenditure could also give the same bona fide belief that filling up of a pond could be claimed as a revenue expenditure. In addition, irrespective of any rule, since travelling expenditure had actually been incurred, it would give the bona fide belief that a claim of deduction can be claimed. The submission that the claims of deductions on account of depreciation, filling up pond as revenue expenditure and travelling expenses were made under a bona fide belief that the same were allowable deductions therefore cannot be q discounted. In any event, all the details of the claim on account of depreciation are available and noticeable in para 12 to the Notes on Accounts and the computation of income, and in respect to filling up of the pond in para 11 to the Notes on Account. The figures relating to disallowance under rule 6D is also available on record in the Auditor's Report. As all the claims and figures are noticeable and available on record, it cannot be said that the appellant had falsely supplied or given inaccurate particulars of income or that it had concealed particulars of income. As claim of deductions may be allowable or disallowable. However, such claim cannot be said to be giving inaccurate particulars of income or concealing the particulars of income as it remains a claim only, to be allowed or disallowed depending on the facts of the case. In addition, a debatable issue cannot lead to a conclusion that inaccurate particulars of income or concealment had taken place. The Honourable Kerala High Court in the case of CIT v. Santhosh Financiers [2001] 247 ITR 742 had held that a wrong claim by itself does not warranty penalty. After carefully considering the facts and circumstances of the case and the ruling of the Honourable Kerala High Court, I am of the firm view that a claim remains a claim and cannot be equated with supplying inaccurate particulars of income or concealing particulars of income. In this view of the matter, the provision of section 271(1)(c) is not applicable and the penalty levied by the Assessing Officer is accordingly vacated."
8. In CIT v. Bijay Iron Stores [2001] 252 ITR 408 (Cal.) relied on by the Ld. Departmental Representative, the addition had been made on account of concealed income and it had been finally sustained by the Tribunal, when there was evidence for such concealed income and admission by the author of the papers t hat addition had been challenged by the assessee. It has been held by their Lordships that the Tribunal was wrong in cancelling the levy of penalty.
9. In CIT v. Sree Krishna Trading Co. [2002] 253 ITR 645 (Ker.), it has been held that the assessee's explanation that it had reduced the price of liquor to enhance the sales was disbelieved by all the assessing authorities when an addition was made to the income returned by the assessee. Therefore, the provision of Explanation 1 to section 271(1)(c) had application and the penalty levied against the assessee was justified.
10. In Dy. CIT v. EIH Ltd. [IT Appeal No. 283 (Kol.) of 2005, dated 8-8-2005] for the assessment year 1998-99, we find that deduction under section 80HHC was claimed by the assessee on the basis of the decision of the ITAT, Mumbai Bench in the case of India Hotels Ltd. in which the ITAT has quashed the order of the CIT under section 263 treating the allowance of similar deduction as an order erroneous and prejudicial to the interest of the revenue. This order of the ITAT was the basis of claiming deduction under section 80HHC on flight catering profit. The Assessing Officer rejected the claim of the assessee and the order of the Assessing Officer was confirmed by the ld. CIT(A) and also by the Tribunal. Since the deduction claimed under section 80HHC was denied in the quantum proceedings, the Assessing Officer imposed penalty under section 271(1)(c) which was cancelled by the ld. CIT(A). On second appeal before the Tribunal, the Tribunal held that it is a fit case for imposing penalty under section 271(1)(c) of the Income-tax Act but reduced to the minimum.
11. In the case before us, there is no material on record to show that the assessee has not disclosed all the particulars of his income or there is any admission by the assessee for concealing such income or there is no basis for the claim of depreciation, pond filling expenses and traveling expenses or the assessee's explanation was not found to be false, therefore, all the decisions relied on by the ld. Departmental Representative are distinguishable and not acceptable to the facts of the present case.
12. In the absence of any centrary material brought on record by the revenue against the finding of the ld. CIT(A) and keeping in view that the assessee was under the bona fide belief that depreciation, pond filling expenses and traveling expenses are allowable and such bona fide belief of the assessee was not found to be false at any stage, we are of the view that the assessee has not concealed the particulars of his income or furnished inaccurate particulars of such income.
13. We further find that there is no dispute that the assessee had filed its return of income showing loss at Rs. 46,95,467 and the assessing authority has finally assessed the assessee's income at nil, therefore, following the decision of Hon'ble Supreme Court in Prithipal Singh & Co.'s case, the penalty is not leviable. This view also finds support from the recent decision of Hon'ble Allahabad High Court in CIT v. Zam Zam Tanners [2005] 279 ITR 197 in which it has been held that clause (iii) of Explanation 4 to section 271(1)(c) as amended by Finance Act, 2002, are applicable prospectively and do not apply the relevant assessment year 1985-86 and, therefore, in the absence of positive assessed income penalty under section 271(1)(c) was not leviable. Even otherwise it is settled law that one has to adopt that interpretation which favours the assessee as held by the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. Therefore, on this ground also penalty is not sustainable.
14. We also find that from the last para of the impugned assessment order that the Assessing Officer has merely stated that "penalty under section 271(1)(c) of the Income-tax Act is initiated for furnishing inaccurate particulars". A similar note recorded by the Assessing Officer was held to be insufficient to indicate the satisfaction of the Assessing Officer by the Hon'ble Delhi High Court in the case of Diwan Enterprises v. CIT [2000] 246 ITR 571. In CIT v. Ram Commercial Enterprises Ltd. [2000] 246 ITR 568, the Hon'ble Delhi High Court held that merely because penalty proceedings have been initiated, it cannot be assumed that the requisite satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Though section 271(1)(c) does not prescribe any particular form or language in which the requisite satisfaction is to be recorded, the bare minimum is that the language must clearly spelt out the p reasons as to why the Assessing Officer feels satisfied about the guilt of the assessee. In Rakesh Fuel (P.) Ltd.'s case the Tribunal has followed the law laid down by the Hon'ble Delhi High Court and after applying the same deleted the penalty.
15. In Conco Engineers Cooperative Society Ltd. v. Dy. CIT [IT Appeal No. 1113 (Kol.) of 2005, dated 4-10-2005] for the assessment year 1999-2000, this Bench following the decision of Hon'ble Delhi High Court in Ram Commercial Enterprise Ltd.'s case, Diwan Enterprises' case and in CIT v. B.R. Sharma [2005] 275 ITR 303 (Delhi) has deleted the penalty since no satisfaction has been recorded by the Assessing Officer.
16. For the reasons as discussed above and keeping in view the consistency, we are of the view that the penalty imposed by the Assessing Officer under section 271(1)(c) is not sustainable in law and accordingly, we are inclined to uphold the finding of the ld. CIT(A) in deleting the penalty of Rs. 27,97,517 imposed under section 271(1)(c) and accordingly, the grounds taken by the revenue are rejected.
17. In the result, the appeal stands dismissed.
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