M/s. Megatech Control Limited, CHENNAI v. ACIT, CHENNAI

ITA 2008/CHNY/2010 | 2006-2007
Pronouncement Date: 28-07-2011 | Result: Allowed

Appeal Details

RSA Number 200821714 RSA 2010
Assessee PAN AABCM9888N
Bench Chennai
Appeal Number ITA 2008/CHNY/2010
Duration Of Justice 8 month(s) 3 day(s)
Appellant M/s. Megatech Control Limited, CHENNAI
Respondent ACIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 28-07-2011
Date Of Final Hearing 20-07-2011
Next Hearing Date 20-07-2011
Assessment Year 2006-2007
Appeal Filed On 25-11-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI BEFORE SHRI N.S. SAINI AM AND SHRI GEORGE MATHAN J.M. .. I.T.A. NO. 2008/MDS/2010 [ASSESSMENT YEAR 2006-07] M/S MEGATECH CONTROL LIMITED NO. 51 FIRST MAIN ROAD GANDHI NAGAR ADYAR CHENNAI 600 020. PAN : AABCM 9888 N VS. ASSISTANT COMMISSIONER OF INCOME-TAX OFFICER COMPANY CIRCLE IV(2) CHENNAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI N. DEVANATHAN ADVOCATE DEPARTMENT BY : SHRI K.E.B. RENGARAJAN JR. STANDING COUNSEL O R D E R PER N.S. SAINI A.M :- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A)- V CHENNAI DATED 22.10.2010 F OR ASSESSMENT YEAR 2006-07. PAGE 2 OF 11 I.T.A. NO. 2008/MDS/2010 2. SOLE GRIEVANCE OF THE REVENUE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE LEVY OF PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT 1961 [IN SHORT THE ACT]. 3. BRIEF FACTS OF THE CASE ARE THAT ON PERUSAL OF T HE DETAILS FILED AT THE TIME OF ASSESSMENT THE THEN ASSESSING OFFIC ER HAD NOTICED THAT THERE WAS AN EXCESSIVE CLAIM OF DEPRECIATION B Y THE ASSESSEE. THE ASSESSEE COMPANY HAD NOT CORRECTLY ADOPTED THE OPENING WDV IN RESPECT OF COMPUTERS IN THEIR DEPRECIATION STATE MENT WHILE CLAIMING DEPRECIATION. THE OPENING WDV OF COMPUTERS WAS ADOPTED AT RS. 47 12 432/- INSTEAD OF THE CORRECT AMOUNT OF RS. 27 29 662/-. WHEN POINTED OUT AT THE TIME OF COMPLETION OF ASSES SMENT THE ASSESSEE COMPANY ACCEPTED THE SAME AND FILED A REVI SED DEPRECIATION STATEMENT VIDE THEIR LETTER DATED 18.1 2.2008. THE ASSESSING OFFICER HAD THUS DISALLOWED THE EXCESS DE PRECIATION CLAIMED OF RS. 11 89 662/- AND ADDED BACK TO THE IN COME RETURNED. FROM PERUSAL OF THE DETAILS FILLED BY THE ASSESSEE COMPANY FOR THE LEASE RENT RECEIVED THE ASSESSING OFFICER HAD NOTI CED THAT THE ASSESSEE COMPANY HAS ENTERED INTO A LEASE AGREEMENT DATED PAGE 3 OF 11 I.T.A. NO. 2008/MDS/2010 24.12.2005 WITH MIS SHRI RANGA INDUSTRIES CHENNAI FOR LEASING OUT THEIR LAND OF THIRU-VI-KA INDUSTRIAL ESTATE CHENNA I. THE SAID AGREEMENT IS ENTERED FOR 11 MONTHS COMMENCING FROM 1. 1.2006 AT A MONTHLY RENT OF RS. 37 500/- PER MONTH. THE ASSESSE E COMPANY HAS NOT OFFERED ANY RENTAL INCOME ON THIS PROPERTY FOR TAXATION PURPOSES. WHEN POINTED OUT IT WAS STATED THAT EVE N THOUGH THE AGREEMENT WAS ENTERED IN JANUARY 2006 THE ACTUAL OC CUPATION TOOK PLACE ONLY IN APRIL 2006. NO DOCUMENTARY EVIDENCES WERE SUBMITTED BY THE ASSESSEE COMPANY IN SUPPORT OF THEIR CLAIM. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE THE LEASE RENT FOR THE PE RIOD FROM JANUARY 2006 TO MARCH 2006 AT RS. 37 500/- PM WAS A DDED TO THE TOTAL INCOME. THE ASSESSING OFFICER HAD BESIDES DIS ALLOWANCE OF THE ABOVE BY ADDING IT TO THE INCOME RETURNED ALSO LEVI ED PENALTY OF RS. 4 38 294/- U/S 271(1)(C) OF THE ACT FOR CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. 4. IN REPLY TO THE SHOW CAUSE NOTICE THE ASSESSEE HAS EXPLAINED THE DEFAULT AS FOLLOWS: WRONG APPLICATION OF OPENING BALANCES FOR INCOME T AX PURPOSES: PAGE 4 OF 11 I.T.A. NO. 2008/MDS/2010 A PERUSAL OF THE DEPRECIATION SCHEDULE SUBMITTED BY THE APPELLANT (COPY ENCLOSED) WOULD SHOW THAT THE APPELL ANT COMPANY HAD NOT CHECKED THE OPENING BALANCES FOR TH E PURPOSES OF INCOME TAX WITH PREVIOUS YEAR'S STATEMENT . THE CALCULATIONS OF DEPRECIATION FOR INCOME TAX PURPOSES CANNOT BE CROSS CHECKED WITH ANY BOOKS OF ACCOUNTS A S THEY ARE CALCULATED SEPARATELY. THE ONLY VERIFICATION THA T COULD HAVE BEEN DONE WAS TO PHYSICALLY CHECK THE OPENING BALANCES WITH THE PREVIOUS YEARS CALCULATIONS. THIS HAS NOT BEEN DONE. THIS IS CLEARLY A CLERICAL ERROR. 5. THE ASSESSEE ALSO SUBMITTED THAT THE CALCULATION OF INCOME TAX DEPRECIATION FOR THE PREVIOUS YEAR WAS AVAILABL E WITH THE ASSESSING OFFICER AND IT COULD NOT HAVE BEEN THE IN TENTION OF THE ASSESSEE COMPANY TO CONCEAL ANY PARTICULARS. THIS W AS CLEARLY A MISTAKE APPARENT FROM RECORD WHICH WAS SUBJECT TO R ECTIFICATION U/S 154. THE MISTAKE WAS NOT NOTICED BY THE ASSESSE E COMPANY OTHERWISE IT COULD HAVE FILED A RECTIFICATION PETIT ION. IT WAS HUMBLY SUBMITTED THAT IN RESPECT OF A MATTER WHICH WAS SUB JECT TO PAGE 5 OF 11 I.T.A. NO. 2008/MDS/2010 RECTIFICATION U/S 154 IT COULD NOT BE HELD THAT TH E ASSESSEE HAD CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTIC ULARS THEREOF. SINCE THE ASSESSEE COMPANY WAS NOT DOING WELL FINAN CIALLY IT HAD LET OUT ITS FACTORY PREMISES THE TENANT HAD ONLY GI VEN AN ADVANCE AND NOT OCCUPIED THE PREMISES DURING THE RELEVANT F INANCIAL YEAR. THIS COULD NOT BE CONFIRMED BY THE ASSESSEE COMPANY AS THE TENANT HAD VACATED THE PREMISES AT TIME OF ASSESSMENT PROC EEDINGS AND THERE WAS A DISPUTE BETWEEN THE TENANT AND THE ASSE SSEE COMPANY. IN FACT THE TENANT HAD NOT PAID THE TDS DEDUCTED FR OM THE RENTS PAID TO THE ASSESSEE COMPANY. THE ASSESSEE COMPANY HAD ALREADY BEEN PENALIZED BY WAY OF ADDITIONS TO INCOME WHICH IT HAD NOT RECEIVED. 7. ON APPEAL THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD AS UNDER: THE ASSESSEE OBJECTS TO THE IMPOSITION OF THE PENA LTY ON THE GROUND THAT THE INACCURATE PARTICULARS FILED BY IT CA NNOT SAID TO BE INTENTIONAL. THERE IS NO MENS REA INVOLVED AND I T IS AN HONEST BONAFIDE MISTAKE WHEREIN EXCESS DEPRECIATIO N HAS BEEN PAGE 6 OF 11 I.T.A. NO. 2008/MDS/2010 CLAIMED. I AM UNABLE TO AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE MISTAKE IS HONEST AND BONAFIDE I N RESPECT OF THE EXCESS DEPRECIATION CLAIM. IT IS WELL KNOWN THA T THE INCOME TAX DEPARTMENT SELECTS ONLY ABOUT THREE PERCENT OF T HE CASE FOR SCRUTINY. THERE IS ALWAYS A GOOD PROBABILITY THAT TH E CASE MAY NOT BE PICKED UP FOR SCRUTINY AT ALL AND IN SUCH A EVENTUALITY THE ASSESSEE WOULD HAVE ESCAPED WITH THE EXCESS DEPR ECIATION CLAIM OF RS. 11 89 6621- WHICH CANNOT BE SAID TO BE AN INSIGNIFICANT AMOUNT. THE APPELLANT HAS TAKEN A PLE A THAT THEY HAD NOT CHECKED THE OPENING BALANCE FOR THE PURPOSE OF INCOME TAX WITH THE PREVIOUS YEAR'S STATEMENT AND ARE TRYIN G TO CANVASS THE VIEW THAT THIS IS A CLERICAL ERROR. I AM UNABLE TO AGREE WITH THIS VIEW OF THE APPELLANT. EVEN IN REGARD TO THE A DDITION ON ACCOUNT OF RENT THE TRANSACTION SEEMS TO BE MIRED I N A MIST OF HAZINESS. THE LEASE WAS FOR THE PERIOD OF 11 MONTHS BEGINNING FROM JANUARY 2006 AND CLEARLY THE LEASE RENT FOR 3 MONTHS HAS NOT BEEN OFFERED FOR TAXATION. THE ASSESSEE STATES THAT THE ACTUAL OCCUPATION TOOK PLACE ONLY IN APRIL 2006. FOR THIS NO DOCUMENTARY EVIDENCE WAS SUBMITTED BY THE APPELLANT EITHER BEFORE THE ASSESSING OFFICER OF DURING APPELLATE PRO CEEDINGS. PAGE 7 OF 11 I.T.A. NO. 2008/MDS/2010 8. THE LD. D.R. SUPPORTED THE ORDER OF THE ASSESSIN G OFFICER WHEREAS THE LD. A.R. RELIED ON THE ORDER OF THE LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE PENALTY U/S 271(1)(C) OF THE ACT OF R S. 4 38 294/- WAS LEVIED IN RESPECT OF TWO ADDITIONS. FIRSTLY RS. 1 1 89 662/- WAS DISALLOWED OUT OF DEPRECIATION CLAIMED BY THE ASSES SEE AND SECONDLY RS. 1 12 500/- WAS ADDED AS RENTAL INCOM E OF THE ASSESSEE. IN RESPECT OF THE FIRST ISSUE RELATING T O DEPRECIATION WE FIND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 41 59 791/- WHEREAS THE ACTUAL DEPRECIATION ALLOWABLE WAS DEBIT ED AT RS. 29 70 129/-. THE ASSESSEE EXPLAINED THAT WHILE CAL CULATING DEPRECIATION ALLOWABLE UNDER THE I.T. ACT INSTEAD OF TAKING CLOSING BALANCE OF THE WDV OF THE ASSETS OF THE LAST YEAR B Y BONAFIDE ERROR OF THE ACCOUNTANT OPENING BALANCE OF WDV OF ASSETS OF LAST YEAR WAS TAKEN. IT WAS EXPLAINED THAT FULL PARTICULARS OF F IXED ASSETS WERE FURNISHED IN THE RETURN OF INCOME AND IN THE SCHEDU LE OF FIXED PAGE 8 OF 11 I.T.A. NO. 2008/MDS/2010 ASSETS ALONG WITH BALANCE SHEET FILED BY THE ASSESS EE. IT WAS ONLY BECAUSE OF AN INADVERTENT AND BONAFIDE ERROR THE OP ENING BALANCE WAS TAKEN AS OPENING BALANCE OF THE WDV OF LAST YEA R IN PLACE OF CLOSING BALANCE. WE FIND THAT NO ERROR IN THE ABOV E EXPLANATION OF THE ASSESSEE COULD BE POINTED OUT BY EITHER OF THE LOWER AUTHORITIES. THE LOWER AUTHORITIES REJECTED THE EX PLANATION ONLY ON THE GROUND THAT HAD THE CASE WOULD NOT HAVE BEEN SE LECTED FOR SCRUTINY THE EXCESS CLAIM OF DEPRECIATION WOULD NO T HAVE BEEN DETECTED BY THE DEPARTMENT. IN OUR CONSIDERED OPIN ION THE ABOVE CANNOT BE A REASON TO TREAT A BONAFIDE ERROR OR MIS TAKE AS DELIBERATE AND TO LEVY PENALTY IN RESPECT THEREOF. MOREOVER THE CLOSING WDV OF THE ASSETS WERE FURNISHED IN THE RET URN OF LAST YEAR AND OPENING WDV OF THE ASSETS WAS FURNISHED IN THE RETURN OF THE CURRENT YEAR AND THEREFORE ON VERIFICATION OF THE TWO RETURNS A PERSON COULD HAVE FOUND THIS MISTAKE AND FOR FINDIN G THIS MISTAKE SCRUTINY OF BOOKS OF ACCOUNT WERE NOT REQUIRED. FU RTHER WE DO NOT FIND ANY MATERIAL ON THE BASIS OF WHICH IT CAN BE C ONCLUDED THAT ASSESSEES EXPLANATION THAT IT WAS A BONAFIDE ERROR CANNOT BE ACCEPTED. IT IS WELL SETTLED POSITION OF LAW THAT PENALTY U/S 271(1)(C) OF THE ACT IS NOT EXIGIBLE ONLY BECAUSE O F ANY BONAFIDE PAGE 9 OF 11 I.T.A. NO. 2008/MDS/2010 ERROR OF THE ASSESSEE UNLESS IT IS OBSERVED THAT TH E ASSESSEE WAS GUILTY OF CONTUMACIOUS CONDUCT. 10. IN RESPECT OF THE SECOND ISSUE RELATING TO RENT WE FIND THAT THE ASSESSEE HAS CLAIMED THAT IT ENTERED INTO AGREE MENT TO RENT OUT THE PROPERTY FOR ELEVEN MONTHS COMMENCING FROM 1.1. 2006. THE ASSESSEE FURTHER EXPLAINED THAT AS THE PROPERTY WAS NOT OCCUPIED BY THE TENANT FROM JANUARY TO MARCH 2006 AND AS NO REN T WAS ACTUALLY RECEIVED BY IT BEFORE MARCH 2006 THE RENT RELATING TO THE SAID THREE MONTHS DUE TO MISTAKE WAS OMITTED FROM BEING ACCOUN TED FOR. WE FIND THAT THE DEPARTMENT HAS BROUGHT NO MATERIAL TO SHOW THAT THE ABOVE EXPLANATION OF THE ASSESSEE WAS FALSE OR ERRO NEOUS. FURTHER WE FIND THAT THE ASSESSING OFFICER FOUND ABOUT THE ABOVE OMISSION ONLY ON THE BASIS OF THE DOCUMENTS I.E. AGREEMENT SUBMITTED BY THE ASSESSEE ITSELF DURING THE COURSE OF ASSESSMENT HEARING. THE ABOVE CONDUCT OF THE ASSESSEE SHOWS THAT EXPLANATIO N OF THE ASSESSEE WAS GENUINE OR BONAFIDE. IN THE ABOVE CIR CUMSTANCES IN OUR CONSIDERED VIEW PENALTY U/S 271(1)(C) OF THE A CT IS NOT EXIGIBLE IN THE INSTANT CASE. THE HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN STEEL LTD VS. STATE OF ORISSA 83 ITR 26 [ SC] HELD AS UNDER: PAGE 10 OF 11 I.T.A. NO. 2008/MDS/2010 AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF QUASI CRIMINAL P ROCEEDING AND PENALTY WILL NOT ORDINARILY BE IMPOSED UNLESS TH E PARTY OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LA W OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL ALSO NOT BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHE R PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A ST ATUTORY OBLIGATION IS A MATTER OF DISCRETION OF THE AUTHORIT Y TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL T HE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCRI BED THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JU STIFIED IN THE PROVISIONS OF THE ACT WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. 11. WE THEREFORE DELETE THE PENALTY OF RS. 4 38 2 94/- LEVIED U/S 271(1)(C) OF THE ACT AND ALLOW THE APPEAL OF THE AS SESSEE. PAGE 11 OF 11 I.T.A. NO. 2008/MDS/2010 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 28 TH JULY 2011. SD/- SD/- ((GEORGE MATHAN ) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI DATED THE 28 TH JULY 2011. VL COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE