CHERRY LABORATORIES P. LTD, MUMBAI v. ITO 5(1)(3), MUMBAI

ITA 2086/MUM/2009 | 2005-2006
Pronouncement Date: 19-01-2011 | Result: Allowed

Appeal Details

RSA Number 208619914 RSA 2009
Assessee PAN AAACC4638H
Bench Mumbai
Appeal Number ITA 2086/MUM/2009
Duration Of Justice 1 year(s) 9 month(s) 15 day(s)
Appellant CHERRY LABORATORIES P. LTD, MUMBAI
Respondent ITO 5(1)(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 19-01-2011
Date Of Final Hearing 04-01-2011
Next Hearing Date 04-01-2011
Assessment Year 2005-2006
Appeal Filed On 03-04-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 2086/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S. CHERYL LABORATORIES P. LTD. INCOME TAX OFFICER - 5(1)(3) PERSIAN APTS GROUND FLOOR AAYAKAR BHAVAN M.K. ROA D PLOT NO. 434 V.P. ROAD VS. MUMBAI 400020 ANDHERI (W) MUMBAI 400053 PAN - AAACC 4638 H APPELLANT RESPONDENT APPELLANT BY: SHRI RAJIV KHANDELWAL & SHRI MADHUSUDAN SARAT RESPONDENT BY: SHRI S.K. SINGH O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-V MUMBAI DATED 22.01.2009. THIS APPEAL WAS ORIGINALLY DISMISSED AS NOT ADMITTED AND BY THE MA DATED 17-09-2010 THE APPEAL WAS RECALLED AND POSTED FOR HEARING. 2. THE ISSUE IN THE APPEAL IS WITH REFERENCE TO LEVY O F PENALTY OF ` 19 19 100/- UNDER SECTION 271(1)(C) OF THE I.T. ACT . 3. BRIEFLY STATED THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF MANUFACTURE OF PHARMACEUTICAL FORMULATIONS. ASSESSEE FILED RETU RN OF INCOME ON 31.01.2005 DECLARING INCOME AT NIL IN THE NORMAL CO MPUTATION AND INCOME OF ` 5 02 036/- AS BOOK PROFIT UNDER SECTION 115JB BEING ADVANCE TAX OF ` 2 50 000/- + TDS UNDER SELF ASSESSMENT TAX OF ` 37 654/-. THE A.O. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) NOTI CED THAT THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION OF ` 1 08 89 316/- AS PER PROVISIONS OF SECTION 32(IIA) ON THE INVESTMENT MADE IN THE ASSET S TO THE TUNE OF ` 725.95 LAKHS. THE ASSESSEE CLAIMED 100% OF THE ADDITIONAL DEPRECIATION STATED TO BE ON LEGAL ADVICE BY THE COUNSEL WHEREAS THE A.O. WAS OF THE OPINION THAT ITA NO. 2086/MUM/2009 M/S. CHERYL LABORATORIES P. LTD. 2 PROVISO TO SECTION 32(1) IS APPLICABLE WHERE THE AS SETS ARE USED FOR A PERIOD OF LESS THAN 180 DAYS IN THE PREVIOUS YEARS WHICH R ESTRICTS THE DEDUCTION UNDER THIS SUB-SECTION IN RESPECT OF SUCH ASSET TO 50% OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR UNDER C LAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) AS THE CASE MAY BE. SINCE THE ADDITION AL DEPRECIATION WAS ALLOWED UNDER CLAUSE (IIA) THE A.O. RESTRICTED THE CLAIM TO AN AMOUNT OF ` 55 13 859/- AND DISALLOWED ADDITIONAL DEPRECIATION OF ` 53 75 457/-. SINCE THE ASSESSEE WAS HAVING LARGE AMOUNT OF CARRY FORWA RD LOSSES AND EVEN AFTER DISALLOWING THE ABOVE AMOUNT THE TOTAL INCOME WAS D ETERMINED AT NIL ASSESSEE HAS NOT PREFERRED ANY APPEAL. THE PROCEEDI NGS INITIATED FOR FURNISHING INACCURATE CLAIM OF ADDITIONAL DEPRECIAT ION HAVE BEEN FINALISED BY THE A.O. VIDE ORDER DATED 26.06.2008 LEVYING PENALT Y OF ` 19 19 100/- WHICH IS EQUAL TO 100% OF THE TAX SOUGHT TO EVADED BY INV OKING EXPLANATION 4 TO SECTION 271. THE CIT(A) AFTER CONSIDERING ASSESSEE S SUBMISSIONS FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COU RT IN THE CASE OF CIT VS. GOLD COIN HEALTH FOOD (P) LTD. 304 ITR 308 CONFIRME D THE PENALTY. HENCE THE ASSESSEE IS AGGRIEVED. 4. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE HAS CLAIMED THE ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) ON THE ADVICE OF THE LEGAL OPINION OF THE COUNSEL THAT ASSESSEES CLAIM OF ADD ITIONAL DEPRECIATION NEED NOT BE RESTRICTED TO 50% AS PER SECOND PROVISO. HE SUBMITTED THAT ASSESSEES TOTAL INCOME WAS DETERMINED AT NIL BECAUSE OF CARRY FORWARD DEPRECIATION AND WHETHER THE DEPRECIATION IS CLAIMED OF 100% OR 50% IT DOES NOT MAKE ANY DIFFERENCE AS THE ASSESSEE HAS STILL UNABSORBED DEPRECIATION TO BE SET OFF THEREFORE THE CLAIM IS A BONAFIDE CLAIM AND N OT A MALAFIDE CLAIM TO EVADE TAX. IT IS FURTHER SUBMITTED THAT THE ASSESSE E HAS NEITHER CONCEALED ANY PARTICULARS OF INCOME NOR FURNISHED ANY INACCUR ATE PARTICULARS AND PROCEEDINGS UNDER SECTION 271(1)(C) WERE INITIATED FOR INACCURATE CLAIM OF DEPRECIATION. FOLLOWING THE PRINCIPLES ESTABLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD . 322 ITR 158 MAKING A CLAIM WHICH WAS NOT ALLOWED DOES NOT LEAD TO LEVY O F PENALTY. THE LEARNED COUNSEL ALSO REFERRED TO THE JUDGEMENT OF THE HON'B LE SUPREME COURT IN THE CASE OF DILLIP N SHROFF VS. JCIT 191 ITR 179 WHICH IS ALSO CONSIDERED BY THE ITA NO. 2086/MUM/2009 M/S. CHERYL LABORATORIES P. LTD. 3 HON'BLE SUPREME COURT IN THE ABOVE SAID CASE OF REL IANCE PETROPRODUCTS (P) LTD. TO SUBMIT THAT IT IS ONLY A BONA FIDE CLAIM MA DE WHICH DOES NOT CALL FOR LEVY OF PENALTY. IT IS FURTHER SUBMITTED THAT THE C ASE BEFORE THE CIT(A) COULD NOT BE REPRESENTED PROPERLY AS THE COUNSEL SHRI P. D. SARAF PASSED AWAY JUST BEFORE THE CIT(A) TOOK UP THE APPEAL. THEREFORE TH E ORDER OF THE CIT(A) WAS EXPARTE AND ASSESSEE HAD NO OCCASION TO CONTEST THE ISSUE ON MERITS. THE LEARNED COUNSEL PLACED ON RECORD THE DEATH CERTIFIC ATE OF SHRI P.D. SARAF WHICH INDICATES THE DATE OF DEATH AS 13.01.2009 WHE REAS THE ORDER OF THE CIT(A) WAS 21.01.2009. THE PRESENT PARTNER OF THE FIRM OF M/S. P.D. SAFAR & CO. FILED AN AFFIDAVIT INDICATING THAT ON THE ADVIC E OF LATE P.D. SARAF NOT ONLY THE ASSESSEE BUT ALSO OTHER ASSESSEES REPRESENTED B Y HIM HAVE CLAIMED ADDITIONAL DEPRECIATION FULLY WITHOUT RESTRICTING I T TO 50%. IT WAS LEARNED COUNSELS SUBMISSION THAT IN OTHER COMPANYS CASES THE DEPRECIATION WAS RESTRICTED WHERE PENALTY PROCEEDINGS WERE NOT INITI ATED OR DROPPED. IT WAS SUBMITTED THAT THE CLAIM WAS MADE BONAFIDE WHICH DO ES NOT WARRANT LEVY OF PENALTY. 5. THE LEARNED D.R. HOWEVER VEHEMENTLY ARGUED THAT T HE ASSESSEE MADE A BOGUS CLAIM OF ADDITIONAL DEPRECIATION OF 100% WH EREAS IT WAS ENTITLED FOR 50% OF THE NORMAL RATE AND ACCORDINGLY PENALTY WAS CORRECTLY LEVIED. 6. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE FACT S OF THE CASE THE ASSESSEE FILED NIL RETURN OF INCOME AFTER SET OFF O F CARRIED FORWARD UNABSORBED DEPRECIATION AND THE ASSESSMENT ALSO RES ULTED IN NIL INCOME EVENTHOUGH ADDITIONAL DEPRECIATION TO THE EXTENT OF ` 53 75 457/- WAS DISALLOWED. THE ORDER ITSELF INDICATES THAT THE BAL ANCE AMOUNT OF DEPRECIATION TO BE CARRIED FORWARD WAS TO THE TUNE OF ` 82 60 889/- AND ADDITIONAL DEPRECIATION OF THE YEAR OF ` 55 13 859/- WAS ALSO ALLOWED TO BE CARRIED FORWARD. THE ASSESSEE HAS OFFERED INCOME UN DER SECTION 115JB ON THE BOOK PROFIT OF ` 66 93 816/- AND THE TAX AT 7.5% OF THE ABOVE CALCUL ATED INCLUDING SURCHARGE AND EDUCATION TAX PAYABLE WAS ` 5 24 897/- AND THE A.O. GAVE CREDIT OF PREPAID TAXES AND THE BALANCE W AS DETERMINED AT NIL IN THE ASSESSMENT UNDER SECTION 143(3) AND THE INCOME RETURNED AND ALSO DETERMINED INVOKING PROVISIONS OF SECTION 115JB WER E SAME. CONSEQUENTLY ITA NO. 2086/MUM/2009 M/S. CHERYL LABORATORIES P. LTD. 4 WE ARE OF THE OPINION THAT EXPLANATION 4 OF SECTION 271(1)(C) IS NOT APPLICABLE TO THE FACTS OF THE CASE. EXPLANATION 4 TO SECTION 271(1) IS AS UNDER: - 271. (1) .. EXPLANATION 4 FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB-SECTION THE EXPRESSION THE AMOUNT OF TAX SOUGHT TO BE EVADED (A) IN ANY CASE WHERE THE AMOUNT OF INCOME IN RESP ECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PART ICULARS HAVE BEEN FURNISHED HAS THE EFFECT OF REDUCING THE LOSS DECLARED IN THE RETURN OR CONVERTING THAT LOSS INTO INCOME MEA NS THE TAX THAT WOULD HAVE BEEN CHARGEABLE ON THE INCOME IN RE SPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED HAD SUCH INCOME BEE N THE TOTAL INCOME; (B) IN ANY CASE TO WHICH EXPLANATION 3 APPLIES MEA NS THE TAX ON THE TOTAL INCOME ASSESSED [AS REDUCED BY THE AMOUNT OF ADVANCE TAX TAX DEDUCTED AT SOURCE TAX COLLECTED AT SOURCE AND SELF-ASSESSMENT TAX PAID BEFORE THE ISSUE OF NO TICE UNDER SECTION 148; (C) IN ANY OTHER CASE MEANS THE DIFFERENCE BETWEEN THE TAX ON THE TOTAL INCOME ASSESSED AND THE TAX THAT WOULD HAVE B EEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY TH E AMOUNT OF INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED OR INACCURATE PARTICULARS HAVE BEEN FURNISHED. SINCE THE INCOMES ARE DETERMINED UNDER SECTION 115J B AND RETURN INCOME AND ASSESSED INCOME UNDER THAT PROVISION BEING SAME NONE OF THE CLAUSES OF EXPLANATION 4 CAN BE INVOKED IN LEVYING PENALTY ON DETERMINING TAX SOUGHT TO BE EVADE. 7. BE THAT AS IT MAY AS SEEN FROM THE ORDER OF THE A. O. UNDER SECTION 143(3) THE PROCEEDINGS UNDER SECTION 271(1)(C) WER E SEPARATELY INITIATED ON THE ISSUE OF INACCURATE CLAIM OF ADDITIONAL DEPRECI ATION. THIS CANNOT BE A REASON FOR INITIATING PENALTY PROCEEDINGS. SECTION 271(1)(C) WARRANTS PENALTY WHERE THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS. MAKING A CLAIM WHICH IS NOT ALLOWED BY THE A.O. DOES NOT WARRANT ANY PENALTY UNDER SECTION 271(1)(C) AS DETE RMINED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. 322 ITR 158. THERE IS NEITHER CONCEALMENT OF INCOME NOR FUR NISHING INACCURATE PARTICULARS IN THE PRESENT FACTS OF THE CASE. THE C LAIM IS MADE FOR 100% OF ITA NO. 2086/MUM/2009 M/S. CHERYL LABORATORIES P. LTD. 5 ADDITIONAL DEPRECIATION WHEREAS THE ALLOWABLE AMOUN T IS ONLY 50% OF THE AMOUNT AND THAT CANNOT BE CONSIDERED AS FURNISHING INACCURATE PARTICULARS. AS SEEN FROM THE FACTS OF THE CASE THE ASSESSEE HAD LARGE AMOUNT OF CARRIED FORWARD DEPRECIATION AS WELL AS A DDITIONAL DEPRECIATION OF THIS YEAR WHICH WERE ALLOWED TO BE CARRIED FORWARD WHICH DO INDICATE THAT THE ASSESSEE HAS MADE THE CLAIM BONAFIDELY. IF THE DEPRECIATION IS NOT ALLOWABLE IN THIS YEAR THE SAME IS ALLOWABLE IN TH E LATER YEAR AND CERTAINLY THERE IS NO TAX PLANNING INVOLVED IN THIS CLAIM AS THE ASSESSEE HAS PAID SEPARATE TAX UNDER SECTION 115JB. THE AFFIDAVIT FIL ED BY THE PARTNER OF M/S. P.D. SARAF & CO. DO INDICATE THE LATE P.D. SARAF AD VISED THE CLIENTS STATING THAT THE SECOND PROVISO IS NOT APPLICABLE FOR THE C LAIM OF ADDITIONAL DEPRECIATION WHEREAS NORMAL DEPRECIATION WAS ALREAD Y DISTRICTED TO 50%. THE CIRCUMSTANCES DO INDICATE THAT THE CLAIM IS A B ONAFIDE CLAIM REJECTION OF WHICH DOES NOT WARRANT ANY PENALTY UNDER SECTION 27 1(1)(C). ACCORDINGLY WE CANCEL THE PENALTY AND ALLOW THE GROUND RAISED BY T HE ASSESSEE. 8. IN THE RESULT APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JANUARY 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 19 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) V MUMBAI 4. THE CIT V MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.