ACIT, CHENNAI v. M/s. M M Forings Limited, CHENNAI

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI (BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER) ..... I.T.A. NO. 1554 / MDS/2010 ASSESSMENT YEAR : 2005-06 THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE IV(3) CHENNAI - 600 034. (APPELLANT) V. M/S M.M. FORGINGS GUINDY HOUSE 95 ANNA SALAI CHENNAI - 600 032. PAN : AAACM2164L (RESPONDENT) APPELLANT BY : SHRI P.B. SEKARAN RESPONDENT BY : SHRI PHILIP GEORGE O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE ASSAILS THE ORDER OF THE CIT(APPEALS) DELETING A PENALTY OF ` 75 99 942/- LEVIED ON THE ASSESSEE UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT 1961 (HEREINAFTER CALLED AS THE ACT). ACCORDING TO RE VENUE ASSESSEE HAD MADE A CLAIM WHICH WAS WHOLLY UNTENABLE IN LAW AND WHICH HAD ABSOLUTELY NO FOUNDATION AND THEREFORE IN VIEW OF THE DECISION OF I.T.A. NO. 1554/MDS/10 2 HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. ZOOM COMMUNICATION (P.) LTD. (191 TAXMANN 179) THE PENALTY WAS RIGHTLY LEVIED. 2. SHORT FACTS APROPOS ARE THAT ASSESSEE HAD CLAIME D ADDITIONAL DEPRECIATION AT THE RATE OF 15% UNDER SECTION 32(1) (IIA) OF THE ACT ON ASSETS ACQUIRED AFTER 30.09.2004 DURING THE RELEVAN T PREVIOUS YEAR. SUCH ADDITIONAL DEPRECIATION WAS CLAIMED BY THE ASS ESSEE BASED ON A DETAILED STATEMENT OF MACHINERY ADDITION MADE BY IT DURING THE RELEVANT PREVIOUS YEAR AND CERTIFICATE GIVEN BY ITS AUDITORS IN FORM 3AA AS PRESCRIBED IN RULE 5A OF THE INCOME-TAX RULE S 1962. ASSESSING OFFICER WAS OF THE VIEW THAT THE CLAIM OF THE ASSESSEE FOR ADDITIONAL DEPRECIATION AT FULL RATE OF 15% ON ASSE TS INSTALLED AFTER 30.09.2004 WAS NOT IN ORDER SINCE SECOND PROVISO TO SECTION 32(1)(I) CLEARLY SPECIFIED THAT DEPRECIATION HAD TO BE RESTR ICTED TO 50% OF THE PRESCRIBED PERCENTAGE WHERE AN ASSET WAS USED FOR A PERIOD OF LESS THAN 180 DAYS IN A PREVIOUS YEAR. RESULT WAS THAT THE CLAIM OF ADDITIONAL DEPRECIATION AT 15% WAS NOT ALLOWED BUT RESTRICTED TO 7.5%. 3. THOUGH THE ASSESSEE MOVED IN APPEAL AGAINST THE ABOVE ORDER OF CIT(APPEALS) AND LATER BEFORE THIS TRIBUNAL IT WAS UNSUCCESSFUL IN THIS REGARD. IT WAS HELD BY THIS TRIBUNAL THAT SEC OND PROVISO TO SECTION 32(1)(I) OF THE ACT WAS CLEAR IN THAT ADDITIONAL DE PRECIATION COULD BE I.T.A. NO. 1554/MDS/10 3 CLAIMED IN FULL AS PER SECTION 32(1)(IIA) ONLY IF T HE ASSET WAS USED FOR NOT LESS THAN 180 DAYS. THE TRIBUNAL DID NOT FAVOU R THE ARGUMENT OF THE ASSESSEE THAT SECOND PROVISO WAS NOT APPLICABLE TO CLAIM OF ADDITIONAL DEPRECIATION UNDER CLAUSE (IIA). 4. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF T HE ACT WAS INITIATED BY THE A.O. ON THE ABOVE DISALLOWANCE. W HEN PUT ON NOTICE ASSESSEE RESPONDED BY CONTENDING THAT IT HAD NOT FA ILED TO OFFER PROPER EXPLANATION REGARDING THE CLAIM MADE NOR WAS ITS EXPLANATION FOUND TO BE FALSE. FURTHER AS PER THE ASSESSEE T HE CLAIM WAS BONAFIDE AND ALL THE FACTS RELATING TO CLAIM WAS DI SCLOSED BY THE ASSESSEE IN ITS RETURN ITSELF. HOWEVER THE A.O. W AS NOT IMPRESSED. ACCORDING TO HIM EXPLANATION OFFERED BY THE ASSESS EE WAS FALSE. IN HIS OPINION EVEN A CURSORY LOOK AT SECTION 32(1)(I IA) WOULD SHOW THAT IT WAS SUBJECT TO THE PROVISO OF SECTION 32(1)(II) AND THE ASSESSEE HAVING BEEN ASSISTED BY A BATTERY OF CHARTERED ACCO UNTANT AND LEGAL ADVISERS COULD NOT SAY THAT CLAIM WAS LEGITIMATELY MADE BY IT. THEREAFTER RELYING ON THE DECISION OF HON'BLE APEX C OURT IN THE CASE OF UNION OF INDIA AND OTHERS V. DHARAMENDRA TEXTILE PROCESSORS AND OTHERS (2008) 306 ITR 277 (SC) THE A.O. HELD THAT ASSESSEE WAS I.T.A. NO. 1554/MDS/10 4 LIABLE FOR PENALTY. PENALTY WAS LEVIED AT 300% OF THE TAX SOUGHT TO BE EVADED AND THIS WORKED OUT TO ` 75 99 942/-. 5. IN ITS APPEAL BEFORE LD. CIT(APPEALS) ASSESSEE REITERATED THE CONTENTIONS TAKEN BY IT BEFORE THE A.O. ACCORDING TO ASSESSEE ALL THE DETAILS REGARDING MACHINERY ACQUIRED PRIOR TO 30.09 .2004 AND AFTER 30.09.2004 WERE GIVEN BY IT AND THEREFORE THERE WA S NO CONCEALMENT WHATSOEVER. FURTHER AS PER THE ASSESSEE JUST BECA USE ITS CLAIM WAS REJECTED AND SUCH REJECTION BY THE ASSESSING OFFICE R WAS CONFIRMED BY THE APPELLATE AUTHORITY LEVY OF PENALTY WOULD N OT BE JUSTIFIED. LD. CIT(APPEALS) APPRECIATED THIS CONTENTION. ACCORDIN G TO HIM THERE WAS NO CLAIM WHICH WAS NOT BONAFIDE NOR WAS THERE A NY FURNISHING OF INACCURATE PARTICULARS. RELYING ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF CIT V. RELIANCE PETRO PRODUCTS P. LT D. (2010) 322 ITR 158 (SC) LD. CIT(APPEALS) DELETED THE LEVY OF PENA LTY. 6. NOW BEFORE US LEARNED D.R. STRONGLY ASSAILING T HE ORDER OF CIT(APPEALS) SUBMITTED THAT RELEVANT SECTION 32(1)( II) AS WELL AS SECTION 32(1)(IIA) WERE VERY CLEAR AND LUCID. ASSE SSEE HAD IGNORED THE SECOND PROVISO TO SECTION 32(1)(II) AND WAS TRY ING TO MAKE OUT A CASE LAW THAT ITS CLAIM WAS BONAFIDE. HE THEREFOR E SUBMITTED THAT DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF ZOOM I.T.A. NO. 1554/MDS/10 5 COMMUNICATION (P.) LTD. (SUPRA) CLEARLY APPLIED AND LEVY OF PENALTY WAS JUSTIFIED. 7. PER CONTRA THE LEARNED A.R. SUPPORTED THE ORDER OF THE CIT(APPEALS). 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL C ONTENTIONS. WHAT WE NOTE AT THE FIRST INSTANCE IS THAT ASSESSEE HAD FILED FORM NO.3AA WHICH IS A CERTIFICATE THAT HAS TO BE GIVEN BY A CHARTERED ACCOUNTANT FOR ANY CLAIM OF ADDITIONAL DEPRECIATION . RULE 5A OF INCOME-TAX RULES 1962 HAS PRESCRIBED THIS FORM NO. 3AA. 9. THIRD PROVISO TO CLAUSE (IIA) OF SECTION 32(1) I S REPRODUCED HEREUNDER:- PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UNDER CLAUSE (A) OR AS THE CASE MAY BE CLAUSE (B) OF T HE FIRST PROVISO UNLESS THE ASSESSEE FURNISHES THE DETAILS O F MACHINERY OR PLANT AND INCREASE IN THE INSTALLED CA PACITY OF PRODUCTION IN SUCH FORM AS MAY BE PRESCRIBED AL ONG WITH THE RETURN OF INCOME AND THE REPORT OF AN ACCOUNTANT AS DEFINED IN EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 CERTIFYING THAT THE DEDUCTION HA S BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS CLAUSE. I.T.A. NO. 1554/MDS/10 6 RULE 5A OF INCOME-TAX RULES 1962 HAS PRESCRIBED F ORM NO.3AA AS THE FORM IN WHICH THE REPORT HAS TO BE FU RNISHED BY AN ASSESSEE. IF WE HAVE A LOOK AT FORM NO.3AA IT RAN AS FOLLOWS:- FORM NO. 3AA [SEE RULE 5A] REPORT UNDER SECTION 32(1)(IIA) OF THE INCOME-TAX A CT 1961 1. I/WE HAVE EXAMINED THE ACCOUNTS AND RECORDS OF [NAME AND ADDRESS OF THE AS SESSEE WITH PERMANENT ACCOUNT NUMBER] RELATING TO THE BUSINESS OF MANUFACTURE OR PRODUCTION OFDURING THE YEAR ENDED ON 31ST DAY OF MARCH .. 2. I/WE HAVE OBTAINED ALL THE INFORMATION AND EXPLA NATIONS WHICH TO THE BEST OF MY/OUR KNOWLEDGE AND BELIEF WERE NECESSARY FOR THE PURPOSE OF ASCERTAINING THE AMOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE FOR ACQUIRING AND INSTALLING NEW PLANT AND MACHINERY IN THE NEW INDUSTRIAL UNDERTAKING/EXISTING INDUSTRIAL UNDERTAKING. 3. (A) I/WE CERTIFY THAT THE DEDUCTION TO BE CLAIME D BY ASSESSEE UNDER THE PROVISIONS OF CLAUSE (A) OF THE FIRST PROVISO TO CL AUSE (IIA) OF SUB-SECTION (1) OF SECTION 32 OF THE INCOME-TAX ACT 1961 IN RESPE CT OF THE ASSESSMENT YEAR.IS RS..WHICH HAS BEEN DETER MINED ON THE BASIS OF NEW PLANT AND MACHINERY ACQUIRED AND INSTA LLED AFTER THE 31ST DAY OF MARCH 2002 BY THE ASSESSEE IN THE NEW INDUSTRIAL U NDERTAKING. THE SAID AMOUNT HAS BEEN WORKED OUT ON THE BASIS OF THE DETA ILS GIVEN IN ANNEXURE A TO THIS FORM. (B) I/WE CERTIFY THAT THE DEDUCTION TO BE CLAIMED B Y THE ASSESSEE UNDER THE PROVISIONS OF CLAUSE (B) OF THE FIRST PROVISO TO CL AUSE (IIA) OF SUB-SECTION (1) OF SECTION 32 OF THE INCOME-TAX ACT 1961 IN RESPE CT OF THE ASSESSMENT YEAR.IS RSWHICH HAS BEEN DETE RMINED ON THE BASIS OF NEW MACHINERY AND PLANT ACQUIRED AND INSTA LLED BY THE ASSESSEE DURING THE COURSE OF SUBSTANTIAL EXPANSION BY WAY O F INCREASE IN INSTALLED CAPACITY OF THE INDUSTRIAL UNDERTAKING EXISTING BEF ORE THE 1ST DAY OF APRIL 2002. THE SAID AMOUNT HAS BEEN WORKED OUT ON THE BA SIS OF THE DETAILS IN THE ANNEXURE B TO THIS FORM. I.T.A. NO. 1554/MDS/10 7 4. I/WE THEREFORE CERTIFY THAT THE TOTAL DEDUCTIO N TO BE CLAIMED BY THE ASSESSEE UNDER CLAUSE (IIA) OF SUB-SECTION (1) OF S ECTION 32 IN RESPECT OF THE ASSESSMENT YEARIS RS IN MY/OUR OPINION AND TO THE BEST OF MY/OUR INFORMA TION AND ACCORDING TO THE INFORMATION GIVEN TO ME/US THE PARTICULARS GIV EN ABOVE ARE TRUE AND CORRECT. . SIGNED ACCOUNTANT IF WE LOOK AT THIRD PROVISO TO CLAUSE (IIA) AS IT S TOOD AT THE RELEVANT POINT OF TIME IT CLEARLY STIPULATED THAT FURTHER D EPRECIATION OF 15% WAS TO BE ALLOWED TO AN ASSESSEE ONLY IF THERE WAS REPO RT OF A CHARTERED ACCOUNTANT IN THE PRESCRIBED FORM FURNISHED BY IT A LONG WITH RETURN OF INCOME. THE PRESCRIBED FORM AS MENTIONED BY US ABO VE WAS FORM NO.3AA AND THE RELEVANT PORTION REPRODUCED ABOVE. ASSESSEE HERE HAD FILED SUCH FORM NO.3AA AND THE CLAIM OF ADDITIO NAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT WAS BASED ON CE RTIFICATE IN FORM NO.3AA GIVEN BY A CHARTERED ACCOUNTANT AND THIS HAS NOT BEEN REBUTTED BY THE REVENUE. NO DOUBT ASSESSEE MIGHT HAVE MADE A WRONG INTERPRETATION OF SECOND PROVISO TO SECTION 3 2(1)(II) OF THE ACT AND CLAIMED ADDITIONAL DEPRECIATION TO FULL 15% UND ER CLAUSE (IIA) OF THE ACT. BUT NEVERTHELESS IT REMAINS A FACT THAT CLAIM OF ADDITIONAL DEPRECIATION WAS MADE BY IT BASED ON A CERTIFICATE ISSUED BY A CHARTERED ACCOUNTANT IN PRESCRIBED FORMAT. THAT BE ING SO WE CANNOT I.T.A. NO. 1554/MDS/10 8 SAY THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT BON AFIDE. NO DOUBT APPELLATE AUTHORITY WOULD HAVE FOUND THAT TH E CLAIM MADE BY THE ASSESSEE FOR FULL ADDITIONAL DEPRECIATION FOR A SSETS USED FOR LESS THAN 180 DAYS COULD NOT BE ALLOWED AND HAD UPHELD ALLOWANCE AT 7.5%. BUT THE FACTS AND CIRCUMSTANCES OF THE CASE AS MENTIONED ABOVE BY US CLEARLY SHOW THAT THE CLAIM WAS WORKED OUT BY THE ASSESSEE BASED ON CERTIFICATE GIVEN BY A CHARTERED ACCOUNTANT UNDER FORM NO.3AA OF THE ACT. WE ARE OF THE OPINION THAT IN THESE CIRCUMSTANCES CONCEALMENT COULD NOT HAVE BEEN FAST ENED TO ASSESSEE. MAKING A CLAIM FOR ALLOWANCE UNDER BONAF IDE BELIEF WHICH WAS LATER FOUND NOT SUSTAINABLE IN LAW WOULD NOT A MOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. NO INFORMATION PROVIDED BY THE ASSESSEE IN RETURN WAS FOUND TO BE INACCURATE. IN TAKING THIS VIEW WE ARE FORTIFIED BY THE DECISION OF HON'BLE APEX COURT IN THE CASE OF RELIANCE PETRO PRO DUCTS P. LTD. (SUPRA). ASSESSEE COULD NOT HAVE BEEN HELD GUILTY FOR FURNISHING INACCURATE PARTICULARS OR FOR CONCEALMENT OF INCOME . LD. CIT(APPEALS) HAS RIGHTLY DELETED THE LEVY OF PENALT Y. 10. BEFORE PARTING IT WILL BE INAPPROPRIATE IF WE D O NOT MENTION THE CASE OF ZOOM COMMUNICATION (P.) LTD. (SUPRA) RELIED ON BY THE I.T.A. NO. 1554/MDS/10 9 LEARNED D.R. THERE THE CLAIM OF THE ASSESSEE ITSEL F HAD NO FOUNDATION. HERE ON THE OTHER HAND THE CLAIM OF THE ASSESSEE COULD NOT BE CONSIDERED AS ONE MADE WITHOUT ANY FOUNDATIO N SINCE ASSESSEE HAD ATTACHED FORM NO.3AA AS PRESCRIBED UND ER RULE 5A OF INCOME-TAX RULES 1962 AND BASED ON SUCH CERTIFICAT E CLAIMED THE ALLOWANCE. THUS WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT(APPEALS). 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 4 TH FEBRUARY 2011. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. G EORGE) JUDICIAL MEMBER ACCOUNTANT MEMB ER CHENNAI DATED THE 4 TH FEBRUARY 2011. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V CHENNAI/CIT -III CHENNAI D.R./GUARD FILE