GARWARE WALL ROPES LTD, MUMBAI v. DCIT RG 5(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR A.M. AND SHRI V. DURGA RA O J.M. ITA NOS. 2092 & 2093/MUM/2010 ASSESSMENT YEARS: 2004-05 & 2005-06 M/S GARWARE-WALL ROPES LTD. APPELLANT CHOWPATTY CHAMBERS SANDHURST BRIDGE MUMBAI 400 020 VS. DY. COMMISSIONER OF INCOME RESPONDENT MUMBAI. APPELLANT BY : MR. H.N. SHAH RESPONDENT BY : MR. PAVAN VED ORDER PER V. DURGA RAO J.M.: BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE ORDERS OF CIT(A)-9 MUMBAI FOR THE ASSESSMENT YEAR S 2004-05 AND 2005-06. SINCE IDENTICAL ISSUES ARE INVOLVED IN THE SE APPEALS THEY WERE HEARD TOGETHER AND THEREFORE WE FIND IT CONV ENIENT TO DISPOSE OF THESE APPEALS BY WAY OF THIS CONSOLIDATED ORDER. ITA NO. 2092/MUM/2010 2. GROUND NO.1 IS IN RESPECT OF PENALTY U/S 271(1)( C) OF THE ACT ON DEPRECIATION CLAIM. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE FILED ITS RETURN OF INCOME ON 30/10/2004 DECLARING TOTAL INCO ME OF RS. 2 00 65 460/- WHICH WAS PROCESSED U/S 143(3) OF TH E ACT AND THE AO COMPLETED THE ASSESSMENT DETERMINING THE TOTAL INCO ME OF RS. ITA NOS. 2092 & 2093/MUM/2010 M/S GARWARE WALL ROPES LTD. 2 5 15 87 650/- BY MAKING CERTAIN ADDITIONS. THE ASSE SSEE HAD CLAIMED DEPRECIATION OF RS. 9 01 73 495/- WHICH WAS RESTRI CTED BY THE AO TO RS. 7 09 82 818/- THEREBY DISALLOWING RS. 1 91 90 677/-. ON APPEAL CIT(A) CONFIRMED THE ACTION OF THE AO. THEREAFTER THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE THE GENUINENESS OF THE EXP ENSES OR JUSTIFICATION OF THE CLAIM AND ALSO THE ASSESSEE HA D NOT PRODUCED ANY EVIDENCE THEREFORE NON FURNISHING OF EVIDENCES AN D JUSTIFICATION TO THE EXPENSES CLAIMED IN THE RETURN OF INCOME AMOUNT S TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE AO LEVIED PEN ALTY ON THE SAID DISALLOWANCE. ON APPEAL THE CIT(A) CONFIRMED THE P ENALTY LEVIED BY THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A) THE A SSESSEE IS IN APPEAL BEFORE THE ITAT. 4. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE CIT(A) HAS NOT APPRECIATED THE DIFFERENCE IN THE COMPUTATION OF DEPRECIATION ON ASSETS CLAIMED BY THE ASSESSEE A ND THAT ALLOWED BY THE AO WAS DUE TO THE FACT THAT THE AO HAD CALCULAT ED OPENING WDV OF BLOCK OF ASSETS BY DEDUCTING NOTIONAL AMOUNT OF DEP RECIATION WHICH WAS NOT ALLOWED IN THE EARLIER YEARS AND HE ASSESSE E HAD CALCULATED SUCH WDV BY DEDUCTING DEPRECIATION ACTUALLY ALLOWED . THE LEARNED COUNSEL FOR THE ASSESSEE HAS FURTHER SUBMITTED THAT THE CONTENTION OF THE ASSESSEE HAS BEEN ACCEPTED BY THE ASSESEE IN QU ANTUM APPEAL FOR EARLIER YEARS AS WELL AS IN THE YEAR UNDER APPEAL A ND DELETED THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES VIDE I TA NOS. 1836 & 6564/MUM/2007 ORDER DATED 20/11/2009. THEREFORE THE LEARNED COUNSEL HAS CONTENDED THAT THERE IS NO CONCEALMENT OF ANY INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME AND NO PENALTY COULD BE LEVIED U/S 271(1)(C) MERELY ON THE GROUND THAT S OME AMOUNT IS DISALLOWABLE ON ARTHIMETICAL CALCULATION WHICH MAY BE FINALLY MADE. THE LEARNED COUNSEL FOR THE ASSEESSEE HAS SUBMITTED THAT SINCE THE QUANTUM DISALLOWANCE ITSELF HAS BEEN DELETED BY THE ITAT PENALTY LEVIED ON SUCH NON EXISTENT DISALLOWANCE CANNOT WIT HSTAND IN THE EYE ITA NOS. 2092 & 2093/MUM/2010 M/S GARWARE WALL ROPES LTD. 3 OF LAW. THE LEARNED COUNSEL HAS RELIED UPON THE FOL LOWING PRECEDENTS IN SUPPORT OF HIS SUBMISSIONS:- 1. CIT VS. RELIANCE PETROPRDUCTS PVT. LTD. [2010] 322 ITR 158(SC). 2. CIT VS. INTERNATIONAL AUDIO VISUAL CO.[2007] 288 ITR 570 (DELHI). 5. ON THE OTHER HAND THE LEARNED DR HAS RELIED UPO N THE ORDERS OF THE REVENUE AUTHORITIES. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ITAT IN THE QU ANTUM APPEAL CITED SUPRA DELETED THE DISALLOWANCE OF DEPRECIATION MADE BY THE AO THEREFORE PENALTY LEVIED ON SUCH NON EXISTENCE DIS ALLOWANCE CANNOT HAVE LEGS TO STAND. THE HONBLE SUPREME COURT IN TH E CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA) HELD THAT WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RE TURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTIO N OF INVITING THE PENALTY U/S 271(1)(C). A MERE MAKING OF A CLAIM WH ICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO F URNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. S UCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE P ARTICULARS. IN VIEW OF THE ABOVE DISCUSSION WE HEREBY DELETE THE PENAL TY LEVIED U/S 271(1)(C) ON THIS COUNT. 7. GROUND NO.2 IS IN RESPECT OF LEVY OF PENALTY U/S 271(1)(C) ON COMPUTATION OF DEDUCTION U/S 80 HHC OF THE ACT. 8. THE AO NOTICED THAT THE ASSESSEE HAD NOT INCLUDE D SCRAP SALE IN THE TOTAL TURNOVER AND HAD ALSO NOT EXCLUDED 90% OF HOUSE RENT RECOVERY FROM THE BUSINESS INCOME TO COMPUTE PROFIT OF BUSINESS. THE CLAIM OF THE ASSESSEE BEFORE THE AO WAS THAT SCRAP GENERATED IS INCIDENTAL TO ITS BUSINESS AND HENCE IT CANNOT BE INCLUDED IN THE TOTAL TURN OVER. AS REGARDS HOUSE RENT RECOVERY THE ASSE SSEE CLAIMED THAT THIS RECOVERY WAS FROM EMPLOYEES THEREFORE THE SA ME IS PART OF ITS BUSINESS. THE AO HAD INCLUDED SCRAP SALE AS PART OF THE TOTAL TURN ITA NOS. 2092 & 2093/MUM/2010 M/S GARWARE WALL ROPES LTD. 4 OVER AND ALSO EXCLUDED 90% OF HOUSE RENT RECOVERY T O COMPUTE PROFIT OF BUSINESS. THE CIT(A) DIRECTED THE AO TO COMPUTE THE EXCESSIVE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80 HHC ON THE SE TWO ISSUES AND RECOMPUTE THE PENALTY LEVIABLE ON THE ASSESSEE. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE IT AT. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. IN SO FAR AS THE SCRAP SALE IS CONCERNED THE TRIBUNAL HAS REMITTED THE ISSUE BACK TO THE FILE OF THE AO TO DECIDE AFRESH. IN VIEW OF THE ABOVE DIRECTION OF THE TRIBU NAL THE PENALTY IMPOSED ON THIS COUNT HAS NO LEGS TO STAND THEREFO RE WE DELETE THE PENALTY IN THIS REGARD. IN SO FAR AS THE HOUSE RENT RECOVERY IS CONCERNED THE ASSESSEE HAS NOT PRESSED THE ISSUE B EFORE THE TRIBUNAL. HOWEVER IT WAS SUBMITTED BEFORE THE TRIB UNAL THAT ALL THE DETAILS IN RESPECT OF HOUSE RENT RECOVERY FROM THE EMPLOYEES WERE SUBMITTED BEFORE THE AUTHORITIES BELOW AND A DETAIL S EXPLANATION WAS ALSO OFFERED IN THIS REGARD. WE FIND FROM THE ORDER S OF THE AUTHORITIES BELOW THAT THE FACTS IN RESPECT OF THE CLAIM SUBMIT TED BEFORE THE AUTHORITIES BELOW ARE CORRECT AND THE CLAIM WAS NOT ALLOWABLE AS PER THE SECTION 80HHC OF THE ACT. THE CLAIM OF THE ASSE SSEE IS A LEGAL CLAIM AND ACCORDING TO THE AO AND CIT(A) THE SAME I S NOT ALLOWABLE AS PER LAW. AFTER CONSIDERING THE ENTIRE FACTS AND EXP LANATION OFFERED BY THE ASSESSEE WE FIND THAT THE ASSESSEE NEITHER CONC EALED INCOME NOR FILED INACCURATE PARTICULARS OF INCOME AND IT WAS A LSO EXPLAINED THAT THE HOUSE RENT RECOVERY WAS MADE FROM THE EMPLOYEES AS ACCORDING TO THE ASSESSEE IT IS ELIGIBLE FOR DEDUCTION U/S 80 H HC. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE TO LEVY PENALTY U/S 271(1)(C) OF THE ACT. THEREFORE THE PENALTY LEVIED IS HEREBY CANCELLED ON THESE COUNTS. ITA NO. 2093/MUM/10 10. THE ONLY GROUND RAISED IN THIS APPEAL IS IN RE SPECT OF PENALTY U/S 271(1)(C) OF THE ACT ON THE DEPRECIATION CLAIM. ITA NOS. 2092 & 2093/MUM/2010 M/S GARWARE WALL ROPES LTD. 5 11. SINCE THIS GROUND IS MATERIALLY IDENTICAL TO TH AT OF THE GROUND NO.1 RAISED IN ITA NO. 2092/MUM/10 FOLLOWING THE C ONCLUSIONS DRAWN THEREIN WE DELETE THE PENALTY LEVIED ON THE DEPRECIATION CLAIM. 12. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF FEBRUARY 2011. SD/- SD/- (PRAMOD KUMAR) (V. DURG A RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI DATED: 25 TH FEBRUARY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE G BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV ITA NOS. 2092 & 2093/MUM/2010 M/S GARWARE WALL ROPES LTD. 6 S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 14/02/11 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 21/02/11 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER