Sportking India Ltd,, New Delhi v. ITO, New Delhi

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI A. D. JAIN JM & SHRI K. D. R ANJAN AM I. T. APPEAL NO. 2016 (DEL) OF 2009. ASSESSMENT YEAR : 200102. M/S. SPORTKING INDIA LTD. THE INCOME-TAX OFFICER C/O. RAWLA & COMPANY C. AS.; VS. C I R C L E : 9 (1) 504SURYA KIRAN BLDG. K. G. MARG N E W D E L H I. N E W D E L H I 110 001. P A N / G I R NO. AAA CS 3037 Q. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI KAANAN KAPUR ADV.; DEPARTMENT BY : SHRI RAVI RAMACHANDRAN SR. D.R.; O R D E R. PER K. D. RANJAN AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 01-02 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XII NEW DELHI. 2. THE ONLY ISSUE FOR CONSIDERATION RELATES TO LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT 1961 [HEREINAFTER REFERRED TO THE A CT]. THE RELEVANT GROUNDS OF APPEAL ARE REPRODUCED AS UNDER :- 1. THAT THE LD. CIT (APPEALS) HAS ERRED IN PA RTLY CONSIDERING THAT THE IMPUGNED ORDER OF THE ASSESSMENT MADE BY DCIT CIR CLE : 9 (1) NEW DELHI WHICH WAS HIGHLY IRONIES AND UNATTAINABLE. THE PRE SENT ORDER IS BAD IN LAW AND FACTS; 2 I. T. APPEAL NO. 2016 (DEL) OF 2009. 2. THAT THE LD. CIT (APPEALS) HAS ERRED IN PASSING NON-SPEAKING ORDER AND HAS OVER-LOOKED TO THE SPECIFIC GROUNDS OF APPEAL. SHE HAS NEITHER DISCUSSED NOR DEALT WITH GROUNDS OF APPEAL OF ASSESSEE; 3. THAT THE LD. CIT (APPEALS) HAS ERRED IN NOT CONSIDERING THAT THE LEGAL ISSUE IN THE AFORESAID CIRCUMSTANCES WAS A DEBATABLE MATT ER ON THE DAY OF FILING OF RETURN OF INCOME-TAX FOR THE ASSESSMENT YEAR 2001-0 2 [REFER CASE OF CIT VS. VISHKHA INDUSTRIES LTD. 251 ITR PAGE 471 PRONOUNCED ON 2 ND AUGUST 2001 WHICH WAS ON THE SAME LINES OF ASSESSEE COMPANY]; 4. THAT THE LD. CIT (APPEALS) HAS ERRED IN NOT CONSIDERING THE FACTS THAT COMPANY MADE FULL DISCLOSURE OF FACTS IN THE RETURN OF INCOME TAX AND WAS OF BONAFIDE BELIEF THAT CLAIM IS ALLOWABLE UNDER THE P ROVISION OF INCOME-TAX; 5. THAT THE LD. CIT (APPEALS) HAS ERRED IN NOT MAKING VERIFICATION OF LEGAL ISSUE THAT THE PENALTY ORDER APPEARS TO BE BARRED B Y TIME LIMITATION IN VIEW OF SECTION 275 OF INCOME-TAX ACT; 6. THAT THE APPELLANT PRAYS THAT HE MAY BE ALLOWED TO ADD FURTHER GROUNDS OF APPEAL AT THE TIME OF HEARING; 7. THAT THE ASSESSEE COMPANY PRAYS FOR RELI EF OF PENALTY IMPOSED UNDER SECTION 271(1)(C) OF INCOME-TAX ACT. IT IS RS.10 5 0 540/- ONLY. 3. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80-IA OF THE ACT ON THE PROFITS OF THE RELE VANT FINANCIAL YEAR BEFORE THE ADJUSTMENT OF UNABSORBED DEPRECIATION. THE AO DISALLOWED THE CLA IM OF THE ASSESSEE ON THE GROUND THAT DEDUCTION UNDER SECTION 80-IA COULD BE ALLOWED AFTE R ADJUSTMENT OF UNABSORBED DEPRECIATION AND BROUGHT FORWARD LOSSES AGAINST THE INCOME AVAILABLE FOR THE YEAR UNDER CONSIDERATION. THE AO HAD SET OFF THE UNABSORBED DEPRECIATION AND LOSSES BEFORE COMPUTING DEDUCTION UNDER SECTION 80IA. ACCORDINGLY THE CLAIM OF DEDUCTION OF RS.26 56 240/- WAS DISALLOWED. ON APPEAL BEFORE THE LD. CIT (APPEALS) THE ORDER PASSED BY THE AO WA S CONFIRMED. THE DECISION OF THE LD. CIT (A) WAS ALSO CONFIRMED BY THE ITAT. 4. DURING THE COURSE OF PENALTY PROCEEDINGS IT WAS EXPLAINED BY THE ASSESSEE THAT CLAIM FOR DEDUCTION UNDER SECTION 80-IA WAS DULY CERTIFIED BY THE CHARTERED ACCOUNTANT IN THE PRESCRIBED FORM. THE ASSESSEE HAD NOT CONCEALED PARTICULARS O F INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THEREFORE IT COULD BE CONCLUDED THAT IT WAS A DEBATABLE ISSUE THAT IF 3 I. T. APPEAL NO. 2016 (DEL) OF 2009. THE CLAIM IS COVERED UNDER SECTION 80-AB OF THE I. T. ACT OR NOT. THIS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE AO ON THE GROUND THAT NO LOGICA L EXPLANATION HAS BEEN GIVEN BY THE ASSESSEE. THE ASSESSEES CASE WAS NOT A CASE WHERE AD-HOC DIS ALLOWANCE WAS MADE IN THE ASSESSMENT ORDER. RATHER THE ASSESSEE HAD MADE A WRONG CLAIM WHICH W AS NOT ALLOWABLE UNDER THE PROVISIONS OF LAW. THE CLAIM OF THE ASSESSEE WAS EXAMINED AT DIF FERENT STAGES AND HAD BEEN DECIDED AGAINST THE ASSESSEE BY THE TWO APPELLATE AUTHORITIES. HE ALSO OBSERVED THAT WHILE MAKING DEDUCTION UNDER SECTION 80-IA THE PROVISIONS OF SECTION 80-A 80-AB AND 80-B(5) HAS TO BE TAKEN INTO ACCOUNT SINCE THE ASSESSEE HAD MADE A DELIBERATE WR ONG CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT THE SAME WAS NOT ALLOWABLE. HE ACCORDI NGLY IMPOSED THE PENALTY OF RS.10 50 540/- BEING HUNDRED PER CENT TAX SOUGHT TO BE EVADED ON W RONG CLAIM OF RS.26 56 240/-. 5. ON APPEAL THE LD. CIT (APPEALS) UPHELD THE CONTE NTION OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD MADE A WRONG CLAIM UNDER SECTION 80-IA OF THE ACT. SHE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UN ION OF INDIA VS. DHARMENDRA TEXTILES PROCESSORS 166 TAXMAN 65 (SC) WHEREIN IT HAS BEEN H ELD THAT WILLFUL CONCEALMENT IS NOT ESSENTIAL INGREDIENT FOR LEVYING PENALTY UNDER SECT ION 271(1)(C) OF THE ACT. 6.1 BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE WAS DEBATABLE THAT WHETHER THE DEDUCTION UNDER SECTION 80-IA WAS AVAILABLE ON GROSS PROFITS OF BUSINESS OR AFTER DEDUCTING THE CARRY FORWARD OF DEPRECIATION ALLOWANCE AND BUS INESS LOSS. THEREFORE PENALTY UNDER SECTION 271(1)(C) WAS NOT LEVIABLE. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS:- (I) CIT VS. GOGINAINI TOBACCO LTD. 238 ITR 970 (AP ); (II) CIT VS. VISAKHA INDUSTRIES LTD. 251 ITR 471 ( AP); (III) CIT VS. SIRKE CONSTRUCTIONS EQUIPMENT CAPITAL LTD. 253 ITR 77 (SC); (IV) CIT VS. FLAX INDUSTRIES 125 TAXMAN 591 (DEL.); 6.2 HE DISTINGUISHED THE CASE OF DHARMENDRA TEXTILE S & OTHERS RELYING ON THE FOLLOWING DECISIONS :- 4 I. T. APPEAL NO. 2016 (DEL) OF 2009. (I) RAJASTHAN SPG. WVG. MILLS (SC) 180 TAXMAN 609 (II) KANBEY SOFTWARE INDIA LTD. VS. DCIT 122 TTJ 72 1 PUNE; & (III) ACIT VS. VIP INDUSTRIES LTD. 122 TTJ 289 (MUM BAI); 6.3 HE ALSO PLACED RELIANCE ON THE DECISION OF DELH I HIGH COURT IN THE CASE OF CIT VS. NALWA SONS INVESTMENTS LTD. [DATED 26-08-2010] IN I TA. NO. 1420 (DEL) OF 2009 (2010) 235 CTR (DEL) 209 WHICH HAS BEEN FOLLOWED BY MUMBAI BE NCH IN THE CASE OF AVENTIS PHARMA LTD. VS. DCIT IN ITA. NO. 1087 (MUM.) OF 2009 [DATED 3-1 2-2010]; AND OF ITAT MUMBAI BENCH IN THE CASE OF BRT LTD. VS. ITO [DATED 3-12-2010] IN I TA. 432 (MUM.) OF 2010. SINCE THE CLAIM WAS BONAFIDE AND THERE BEING NO CONCEALMENT OF INCO ME AS ALL FACTS RELATING TO COMPUTATION OF INCOME WERE ON RECORD PENALTY UNDER SECTION 271(1) (C) OF THE ACT IS NOT LEVIABLE. 6.4 ON THE OTHER HAND THE LD. SR. DR SUBMITTED THA T THERE WAS NO DEBATABLE ISSUE AT THE TIME WHEN THE RETURN WAS FILED. HE PLACED RELIANCE ON T HE FOLLOWING DECISIONS :- (1) CIT VS. KOTA GIRI INDUSTRIAL CO-OP. TIN FACTORY LTD . 224 ITR 604 (SC); (2) H. H. SIR RAMA VARMA (DECD. BY LEG AL REPRESENTATIVE) VS. CIT (1994) 205 ITR 433 (SC); HE ALSO PLACED RELIANCE ON THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATIONS 327 ITR 44 (DEL.) FOR THE PROPOSITIO N THAT INADMISSIBLE CLAIM DOES NOT AMOUNT TO A BONAFIDE CLAIM OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL PLACED ON RECORD. FROM THE COPY OF ACKNOWLEDGEMENT FOR THE YEAR UNDER CONSIDER ATION WE FIND THAT THE PROFITS FROM BUSINESS / PROFESSION HAS BEEN SHOWN AT RS.3 58 16 427/-. OUT OF THIS AMOUNT THE ASSESSEE HAS 5 I. T. APPEAL NO. 2016 (DEL) OF 2009. SET OFF UN-ABSORBED DEPRECIATION OF RS.3 31 60 187/ - AS SHOWN IN COLUMN 11(D) OF THE RETURN FORM AGAINST GROSS TOTAL INCOME SHOWN AT COLUMN 15. THE AMOUNT SHOWN OF RS.26 56 240/- WHICH HAS BEEN CLAIMED AS DEDUCTION UNDER SECTION 80-IA OF TH E ACT. IN COLUMN 20 THE ASSESSEE HAS ADMITTED BOOK PROFITS UNDER SECTION 115-JB AT RS.3 39 73 260/- AND PAID TAX ACCORDINGLY WHEREAS FROM COMPUTATION OF INCOME ATTACHED WITH THE RETURN OF INCOME FROM GROSS TOTAL INCOME OF RS.3 58 16 437/- DEDUCTION UNDER SECTION 80-IA IN R ESPECT OF MEHARBAAN UNIT AT RS.26 56 240/- HAD BEEN CLAIMED LEAVING THE BALANCE CURRENT INCOM E AT RS.3 31 60 187/- WHICH HAS BEEN SET OFF AGAINST UN-ABSORBED DEPRECIATION BROUGHT FORWARD FR OM ASSESSMENT YEAR 1999-2000. IT IS NECESSARY TO MENTION THAT BROUGHT FORWARD UNABSORBE D DEPRECIATION FOR 1999-2000 WAS AT RS.4 08 70 832/- OUT OF WHICH RS.77 10 645/- HAVE B EEN CARRIED FORWARD FOR NEXT YEAR. APART FROM THE BROUGHT FORWARD DEPRECIATION THERE IS CAR RY FORWARD LOSS OF RS.98 06 053/-. THE ASSESSING OFFICER HAS DETERMINED PROFITS OF BUSINES S AFTER SETTING OFF DEPRECIATION AT NIL. HOWEVER SHE HAS NOT DETERMINED BOOK PROFIT UNDER S ECTION 115-JB OF THE ACT. HONBLE SUPREME COURT IN THE CASE OF CIT VS. KOTAGIRI INDUSTRIAL CO -OP. TIN FACTORY LTD. 224 ITR 604 (SC) IN THEIR ORDER DATED 05 TH MARCH 1977 HAVE HELD THAT IN VIEW OF EXPRESS PROV ISIONS DEFINING EXPRESSION GROSS TOTAL INCOME IN CLAUSE 5 OF SECT ION 80-B OF THE INCOME-TAX ACT 1961 FOR THE PURPOSE OF CHAPTER VI-A OF THE ACT IT IS NECESSARY FOR THE PURPOSE OF MAKING DEDUCTION UNDER SECTION 80-P OF THE ACT TO DETERMINE THE GROSS TOTA L INCOME IN ACCORDANCE WITH THE OTHER PROVISIONS OF THE ACT. THIS MEANS THAT GROSS TOTAL INCOME MUST BE DETERMINED BY SETTING OFF AGAINST THE INCOME THE BUSINESS LOSSES OF EARLIER Y EARS AS REQUIRED UNDER SECTION 72 OF THE ACT BEFORE ALLOWING DEDUCTION UNDER SECTION 80-P OF THE ACT. FURTHER IN THE CASE OF H.H. SIR RAMA VERMA (DECEASED) BY LEGAL REPRESENTATIVES VS. CIT ( 1994) 205 ITR 433 HONBLE SUPREME COURT HAS HELD THAT LONG TERM CAPITAL LOSSES BROUGH T FORWARD FROM EARLIER ASSESSMENT YEARS HAVE TO BE FIRST SET OFF AGAINST THE LONG TERM CAPITAL G AINS OF THE CURRENT ASSESSMENT YEAR BEFORE THE DEDUCTION CONTEMPLATED UNDER SECTION 80-T OF THE AC T IS ALLOWED. THEREFORE IN VIEW OF THE DECISIONS OF HONBLE SUPREME COURT THE ASSESSEE WAS REQUIRED TO SET OFF BROUGHT FORWARD DEPRECIATION AGAINST THE INCOME OF THE CURRENT YEAR . THE ASSESSEE FOR ASSESSMENT YEAR 1999-2000 HAD BROUGHT FORWARD UN-ABSORBED DEPRECIATION OF RS. 4 03 40 681/-. THE ASSESSING OFFICER HAD SET OFF THE UNABSORBED DEPRECIATION CARRIED FORWARD FRO M AY 1999-2000 TO THE EXTENT OF INCOME OF CURRENT YEAR AMOUNTING TO RS.3 58 16 428/- TO ARRIV E AT NIL INCOME WHEREAS IN THE RETURN OF INCOME THE ASSESSEE HAD CARRIED FORWARD DEPRECIATIO N OF RS.77 10 645/- AS AGAINST DETERMINED BY 6 I. T. APPEAL NO. 2016 (DEL) OF 2009. THE AO AT RS.45 23 253/-. THEREFORE THE ASSESSE E WANTED TO CARRY FORWARD MORE DEPRECIATION BY CLAIMING DEDUCTION UNDER SECTION 80-IA OF THE AC T TO THE EXTENT OF RS.26 56 240/- UNDER SECTION 80-IA OF THE ACT. THE REASON IS SIMPLE THA T DEDUCTION UNDER SECTION 80-IA IS ALLOWABLE TO THE EXTENT OF 30 PER CENT OF BUSINESS PROFITS OF EL IGIBLE UNITS. IF THERE IS NO PROFIT FROM ELIGIBLE BUSINESS DEDUCTION WOULD NOT BE ALLOWABLE. THEREFO RE THE CLAIM OF THE ASSESSEE UNDER SECTION 80-IA OF THE ACT WAS WRONG WHICH HAS BEEN UPHELD U PTO THE ITAT. 8. HOWEVER THE ASSESSEE HAD PAID INCOME-TAX ON BO OK PROFITS OF RS.3 39 73 260/- TO THE EXTENT OF RS.28 79 230/-. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS NOT DETERMINED BOOK PROFITS UNDER SECTION 115-JB OF THE ACT AS SHE OUGH T TO HAVE DETERMINED BOOK PROFIT UNDER SECTION 115JB WHEN GROSS TOTAL INCOME AFTER SET OFF OF UNABSORBED DEPRECIATION TO THE EXTENT OF RS.3 58 16 428/- WAS DETERMINED AT NIL. IN THE RET URN OF INCOME THE ASSESSEE HAD PAID TAX ON BOOK PROFIT UNDER SECTION 115-JB OF THE ACT AND THE ASSESSEE HAD PAID TAX ACCORDINGLY. IT IS A FACT THAT THE ASSESSEE HAD TAKEN THE INCOME UNDER SECTION 115-JB FOR PAYMENT OF INCOME-TAX AND NO CONCEALMENT OR FURNISHING OF INACCURATE PART ICULARS HAVE BEEN FOUND BY THE AO IN COMPUTATION OF BOOK PROFITS UNDER SECTION 115-JB. IN FACT SHE HAS NOT DETERMINED PROFITS UNDER SECTION 115-JB OF THE ACT. SHE HAS ASSESSED NIL IN COME UNDER SECTION 143(3) OF THE ACT AFTER REDUCING THE CARRY FORWARD DEPRECIATION ALLOWANCE F ROM ASSESSMENT YEAR 1999-2000. THEREFORE IF ANY CONCEALMENT OR FURNISHING OF INACCURATE PART ICULARS WOULD HAVE BEEN IT SHOULD RELATE TO COMPUTATION OF BOOK PROFIT ON WHICH THE ASSESSEE HA S PAID TAX AND NOT IN RESPECT OF NORMAL COMPUTATION AS THE TAX SOUGHT TO BE EVADED HAS BEE N DEFINED IN EXPLANATION 4. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NALWA SONS INVEST MENTS LTD. (SUPRA) HAS HELD THAT WHEN COMPUTATION WAS MADE UNDER SECTION 115-JB OF THE AC T THE CONCEALMENT DETERMINED UNDER SECTION 143(3) UNDER NORMAL PROVISIONS OF THE ACT H AD NO ROLE TO PLAY AND LEVY OF PENALTY WAS TOTALLY IRRELEVANT. THEREFORE CONCEALMENT DID NOT LEAD TO TAX EVASION AT ALL. THIS DECISION OF HONBLE DELHI HIGH COURT HAS BEEN FOLLOWED BY THE M UMBAI BENCH IN THE CASE OF BRT LTD. (SUPRA) AND AVENTIS PHARMA (SUPRA). RESPECTFULLY F OLLOWING THE PRECEDENT IT IS HELD THAT PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS NOT IMPOSABLE IN THE CASE OF THE ASSESSEE. WE ACCORDINGLY DELETE THE PENALTY IMPOSED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT (APPEALS). 7 I. T. APPEAL NO. 2016 (DEL) OF 2009. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODA Y ON: 18 TH FEBRUARY 2011. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18 TH FEBRUARY 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT (APPEALS) 5. DR ITAT NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR ITAT.