M/S. ELPRO INTERNATIONAL LTD, MUMBAI v. THE DCIT CIR 3(1), MUMBAI

ITA 29/MUM/2008 | 2002-2003
Pronouncement Date: 23-03-2011 | Result: Allowed

Appeal Details

RSA Number 2919914 RSA 2008
Assessee PAN AAACE2506L
Bench Mumbai
Appeal Number ITA 29/MUM/2008
Duration Of Justice 3 year(s) 2 month(s) 21 day(s)
Appellant M/S. ELPRO INTERNATIONAL LTD, MUMBAI
Respondent THE DCIT CIR 3(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 23-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted J
Tribunal Order Date 23-03-2011
Date Of Final Hearing 28-02-2011
Next Hearing Date 28-02-2011
Assessment Year 2002-2003
Appeal Filed On 02-01-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH: MUMBAI BEFORE SHRI T.R. SOOD ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.28 AND 29/MUM/2008 (ASSESSMENT YEARS: 2001-02 AND 2002-03) M/S. ELPRO INTERNATIONAL LIMITED NIRMAL 17TH FLOOR NRIMAN POINT MUMBAI -400 021 ASSESSEE VS DCIT CIR 3(1) 6TH FLOOR AAYAKAR BHAVAN MUMBAI-400 020 REVENUE ITA NO.312 AND 313/MUM/2008 (ASSESSMENT YEARS: 2001-02 AND 2002-03) DCIT CIR 3(1) 6TH FLOOR AAYAKAR BHAVAN MUMBAI-400 020 REVENUE VS M/S. ELPRO INTERNATIONAL LIMITED NIRMAL 17TH FLOOR NRIMAN POINT MUMBAI -400 021 ASSESSEE PAN: AAACE 2506 L ASSESSEE BY: SHRI H.P. MAHAJANI REVENUE BY: SHRI SURENDRA KUMAR ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 2 O R D E R PER R.S. PADVEKAR JM IN THIS BATCH OF FOUR APPEALS TWO APPEALS ARE FILE D BY THE ASSESSEE AND TWO APPEALS BY THE REVENUE PERTAIN TO THE A.YS . 2001-02 AND 2002- 03 AND THESE APPEALS ARE ARISING OUT OF THE PENALTY LEVIED BY THE A.O. U/S.271(1)(C) OF THE ACT WHICH IS PARTLY SUSTAINED BY THE LD. CIT(A). WE FIRST TAKE THE ASSESSEES APPEAL FOR THE A.Y. 2001- 02 BEING ITA NO.28/M/2008 AS WELL AS REVENUES APPEAL BEING ITA NO.312/M/2008. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN THE APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED CIT (A) ERRED IN CONFIRMING LEVY OF PEN ALTY U/S.271(1)(C) OF THE INCOME TAX ACT 1961 WITH REFER ENCE TO PROVISION FOR LIQUIDATED DAMAGES ` 8 76 759 AND EXPENSES OF ` 30 33 000 DISALLOWED IN ASSESSMENT. 2. THE LEARNED CIT (A) ERRED IN REJECTING THE CONTE NTION OF THE APPELLANT THAT ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE AND IN LAW THIS WAS NOT A FIT CASE FOR LEVY OF PENALTY U/S. 271(1)(C) AS THE ASSESSEE HAS NEITHER CONCEALED THE PARTICULARS OF ITS INCOME NOR FURNISHED INACCURATE PARTICULARS THEREOF. 2. THE FACTS GIVING RISE TO THE CONTROVERSY BEFORE US WHICH ARE REVEALED FORM THE RECORD AS UNDER. THE ASSESSEE IS A MANUFACTURER OF THE ELECTRICAL ELECTRO-MEDICAL AND ELECTRONICS PRO DUCTS. THE ASSESSEE FILED THE RETURN FOR A. Y. 2001-02 WHICH WAS SELECT ED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT. TH E A.O. MADE THE FOLLOWING DISALLOWANCES WHICH ARE SUBJECTED TO THE PENALTY CONSEQUENCES U/S.271(1)(C):- ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 3 I) PROVISION FOR LIQUIDATED DAMAGES ` 8 77 759/- II) PROVISION FOR GRATUITY ` 12 37 292/- III) EXPENDITURE TREATED AS CAPITAL IN NATURE ` 30 33 000/- 3. SO FAR AS PROVISION FOR LIQUIDATED DAMAGES ARE C ONCERNED THE ASSESSEE CONTENDED BEFORE THE A.O. THAT AT THE TIME OF ASSESSMENT THE ASSESSEE MADE PROVISION OF ` 10 25 491/- AS PENALTY/LIQUIDATED DAMAGES FOR LATE DELIVERIES. THE ASSESSEE RETAINED THE PRO VISIONS TO THE EXTENT OF ` 8 77 756/- AND BALANCE AMOUNT WAS WRITTEN OFF. THE ASSESSEE CONTENDED THAT THERE WAS CLEAR STIPULATION TERM WITH THE CONT RACTS WITH THE CUSTOMER AND IN CASE THERE IS A DELAY IN THE DELIVE RY THE ASSESSEE IS LIABLE TO PAY THE LIQUIDATED DAMAGES. AS PER THE T ERMS OF THE CONTRACT THE ASSESSEE MADE THE PROVISION AS PER THE ACCOUNTI NG STANDARDS PRESCRIBED BY THE ICAI. THE A.O. OBSERVED IN THE A SSESSMENT ORDER THAT MERELY BECAUSE THERE IS A TERM OR CLAUSE IN THE AGR EEMENT THOSE CLAUSES ARE NOT AUTOMATICALLY ENFORCEABLE. THE A.O. MADE T HE DISALLOWANCE AND MADE THE ADDITION TO THE INCOME OF THE ASSESSEE AND INITIATED THE PENALTY PROCEEDINGS ON THE SAID DISALLOWANCE. 4. SO FAR AS THE ADDITION OF THE GRATUITY IS CONCER NED THE ASSESSEE RELIED ON THE DECISION OF THE ITAT JAIPUR BENCH IN THE CASE OF MEWAR SUGAR MILLS CO. LTD. VS. DCIT 61 TTJ 633 (JP) (T.M. ) BUT THE CLAIM WAS REJECTED. IN RESPECT OF THE THIRD ADDITION WHICH WAS SUBJECTED TO THE PENALTY OF ` 30 33 000/- IT WAS NOTICED BY THE A.O. THAT THE AS SESSEE HAS CLAIMED THE EXPENDITURE ON THE FOLLOWING TWO ACCOUN TS WHICH WAS RELATING TO THE EOU PROJECT - (I) FOREIGN TRAVELING ` 20 23 000/ (II) TRAINING TO THE EMPLOYEES ` 10 10 000/- ----------------- TOTAL ` 30 33 000/- ============ ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 4 IN THE OPINION OF THE A.O. SAID IS IN THE NATURE OF THE CAPITAL EXPENDITURE AND CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. TH E ASSESSEE CONTENDED THAT IT WAS SETTING-UP THE EOU AND AS THE ASSESSEE WAS IN THE MANUFACTURING OF ELECTRICAL EQUIPMENTS INCLUDING LI GHTNING ARRESTORS ZNO DISCS MAGNETS VARISTORS ISOLATORS. IN THE EOU M ANUFACTURING OF ZNO DISCS & SURGE ARRESTORS WERE TO BE MANUFACTURED FOR THE EXPORT PURPOSE ONLY AND THE SAID PRODUCTS WERE ALREADY MANUFACTURE D BY THE ASSESSEE. THE ASSESSEE ALSO CONTENDED THAT ALL THE EXPENDITUR E WHICH HAS INCURRED WITH THE CAPITAL ASSETS FOR THE EOU HAS ALREADY BEE N CAPITALIZED AND FORM PART OF CAPITAL WORK-IN-PROGRESS. THE ASSESSEE TRE ATED FOREIGN TRAVELING EXPENDITURE AND EXPENDITURE ON THE TRAINING OF THE EMPLOYEES AS A DEFERRED REVENUE EXPENSES THOUGH IT WAS IN THE NATU RE OF THE REVENUE EXPENDITURE. THE A.O. DID NOT ACCEPT THE CONTENTIO N OF THE ASSESSEE AND DISALLOWED THE SAID EXPENDITURE AND ALSO INITIATED PENALTY PROCEEDINGS ON THE SAME. THE A.O. LEVIED THE TOTAL PENALTY OF ` 18 37 497/- ON THE REASON THAT THE ASSESSEE HAS CONCEALED THE PARTICUL ARS OF INCOME TO THE EXTENT OF ABOVE THREE DISALLOWANCES. THE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE THE LD. CIT (A) AND LD. CIT (A) CONFIR MED THE PENALTY TO THE EXTENT OF THE DISALLOWANCE MADE BY THE A.O. TOWARDS PROVISION FOR LIQUIDATED DAMAGES ARE EXPENDITURE INCURRED IN SETT ING-UP THE EOU BUT DELETED THE PENALTY ON THE DISALLOWANCE OF THE PROV ISION FOR THE GRATUITY. NOW THE ASSESSEE HAS CHALLENGED THE ORDER OF THE L D. CIT (A) PARTLY SUSTAINING THE PENALTY AND REVENUE FILED AND APPEAL AGAINST THE RELIEF GIVEN BY THE LD. CIT (A) ON THE DISALLOWANCE OF THE GRATUITY PROVISION. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE RECORD. THESE ARE THE CROSS APPEALS FILED BY T HE ASSESSEE AS WELL AS THE REVENUE. LET US FIRST DEAL WITH THE APPEAL OF THE ASSESSEE. ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 5 6. THE LD. COUNSEL ARGUED THAT THERE IS NO DISPUTE IN RESPECT OF THE CLAUSE IN THE AGREEMENT THAT IF THERE IS DELAY IN S UPPLY OF THE MATERIAL THEN THE ASSESSEE IS LIABLE TO COMPENSATE THE SAME BY PAYMENT OF THE LIQUIDATED DAMAGES/PENALTY. HE THEREFORE PLEADED THAT IT IS NOT THE CASE OF CONCEALING ANY PARTICULARS OF INCOME. HE P LACED HEAVY RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS CO. LTD. (322 ITR 158) AND SUBMITS T HAT THE HONBLE SUPREME COURT HAS EXPLAINED THE EXPRESSION FURNISH ING OF INACCURATE PARTICULARS. SAME WAY HE ARGUED THAT IN RESPECT OF THE EXPENDITURE ON THE FOREIGN TRAVELS AND EXPENDITURE ON THE TRAINING OF THE EMPLOYEES FOR SETTING-UP OF THE EOU THERE IS NO CONCEALMENT OF A NY PARTICULARS OF INCOME. AS ADMITTEDLY THE ASSESSEE IS IN THE EXPO RT OF THE ELECTRONIC AND ELECTRICAL PRODUCTS AND EOU WAS THE EXTENSION O F THE ASSESSEES BUSINESS HENCE AS PER SETTLED JUDICIAL PRINCIPLES SAID EXPENDITURE IS REVENUE IN NATURE THOUGH IT IS NOT ACCEPTED BY THE A.O. HE ARGUES THAT IT IS ONLY CASE OF CHANGE OF THE OPINION OF THE A.O. A ND HENCE DISALLOWANCE IS MADE. IN RESPECT OF THE PROVISION FOR THE GRATU ITY AGAINST WHICH THE REVENUE IS IN APPEAL HE SUBMITS THAT THE ASSESSEE M ADE CLAIM BASED ON THE DECISION OF THE HIGH COURT AND CERTAINLY THE CL AIM HAS BASIC LEGAL FOOTING AND BY NO STRETCH OF IMAGINATION IT CAN BE SAID THAT THE ASSESSEE HAS FILED ANY INACCURATE PARTICULARS OF INCOME. HE FURTHER SUBMITS THAT IN THE CASE OF RELIANCE PETRO PRODUCTS COMPANY LTD. (SUPRA) IT IS HELD BY THE HONBLE SUPREME COURT THAT MERELY BECAUSE THE W RONG CLAIM MADE WHICH IS OTHERWISE BONA FIDE CLAIM NO PENALTY IS LEVIABLE. PER CONTRA THE LD. D.R. SUBMITTED THAT THE ASSESSEE DELIBERATELY M ADE THE WRONG CLAIMS AND NO SHELTER OF RELIANCE PETRO PRODUCTS LTD. (SUP RA) CAN BE TAKEN. 7. AS PER THE FACTS ON RECORD WE FIND THAT THAT NO WHERE IT IS A CASE OF THE A.O. THAT ANY NEW FACT OR ANY MATERIAL EVIDENCE ARE BROUGHT ON RECORD TO MAKE THE DISALLOWANCE. SO FAR AS LIQUIDA TED DAMAGES ARE CONCERNED THE A.O. HIMSELF ADMITTED IN THE ASSESSM ENT ORDER THAT THERE ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 6 IS A CLAUSE IN THE AGREEMENT. ONCE THERE IS A CONT RACTUAL OBLIGATION ON THE ASSESSEE AND IN THE CONTEXT OF THE TERMS OF THE AGREEMENT IF THE PROVISION IS MADE THEN IT CANNOT BE SAID THAT THE C LAIM OF THE ASSESSEE IS NOT BONA FIDE . SAME WAY MAJORITY OF THE EXPENDITURE RELATING T O THE CAPITAL ASSETS IS CAPITALIZED AND SHOWN AS A CAPITA L WORK-IN-PROGRESS. THE A.O. HIMSELF HAS MENTIONED THAT THE ASSESSEE IS IN MANUFACTURING OF ELECTRICAL AND ELECTRONIC PRODUCTS AND THE EOU WAS SET-UP FOR MANUFACTURING OF SOME OF THE ELECTRONIC PRODUCTS W HICH WERE ALREADY EXPORTED BY THE ASSESSEE. IN OUR OPINION THE CLAI M OF THE ASSESSEE IS ALSO BONA FIDE . IN THE CASE OF THE RELIANCE PETRO PRODUCTS LTD. (SUPRA) THE HONBLE SUPREME COURT HAS HELD THAT MERELY BECAUSE THE WRONG CLAIM IS MADE WHICH IS OTHERWISE BONA FIDE NO PENALTY CAN BE LEVIED. NOTHING IS THERE ON RECORD TO SUGGEST THAT ASSESSEE HAS MADE A NY MALA FIDE CLAIM. WE THEREFORE FIND NO REASON TO SUSTAIN PENALTY LE VIED ON THE AMOUNT OF THE LIQUIDATED DAMAGES AS WELL AS IN THE TRAVELING EXPENDITURE AND ON THE TRAINING OF THE EMPLOYEES FOR EOU PROJECT. WE THE REFORE DELETE THE PENALTY SUSTAINED BY THE LD. CIT (A) ON THOSE TWO A MOUNTS AND ACCORDINGLY ASSESSEES APPEAL IS ALLOWED. 8. NOW COMING TO THE APPEAL OF THE REVENUE IN ITA 312 OF 2008 THE ASSESSEE MADE THE PROVISION BASED ON THE DECISION O F THE ITAT JAIPUR BENCH IN THE CASE OF MEWAR SUGAR MILLS CO. LTD. (SU PRA). THE SAID CLAIM IS ALSO BASED ON THE SOME JUDICIAL PRONOUNCEMENT. NOTHING IS THERE TO SUGGEST THAT IT WAS A MALA FIDE CLAIM. NOTHING IS ON RECORD TO SHOW THAT THERE IS CONSCIOUS CONCEALMENT ON THE PART OF THE A SSESSEE. WE THEREFORE UPHOLD THE ORDER OF THE LD. CIT (A) ON T HE SAME REASONS ON WHICH WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE FO R THE A.Y. 2001-02. ACCORDINGLY GROUNDS TAKEN BY THE REVENUE IS DISMIS SED. ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 7 9. NOW WE TAKE-UP THE APPEALS OF THE ASSESSEE AS W ELL AS REVENUE IN ITA 29/MUM/2008 AND ITA 313/MUM/2008 RESPECTIVELY F OR THE A.Y. 2002-03. IN THIS YEAR ALSO THE A.O. MADE THE FOLLO WING DISALLOWANCES WHICH WERE SUBJECTED TO THE LEVY OF THE PENALTY U/S .271(1)(C). IN THIS YEAR ALSO THE ASSESSMENT WAS COMPLETED U/S.143(3) V IDE ORDER DATED 28.2.2005. THE FOLLOWING ADDITIONS WERE MADE BY TH E A.O. BY DISALLOWING CERTAIN EXPENDITURE CLAIMED BY THE ASSESSEE:- I) PROVISION FOR LIQUIDATED DAMAGES ` 10 69 595/- II) PROVISION FOR GRATUITY ` 6 96 790/- III) EXPENDITURE RELATING TO EOU WHICH WAS NEWLY SET-UP BY THE ASSESSEE ` 27 45 036/- IV) DEVELOPMENT OF COMPUTER SOFTWARE ` 5 00 000/- V) INTEREST ON THE DISALLOWANCE U/S.36(1)(III) WHICH ACCORDING TO THE A.O. WAS USED FOR CERTAIN CAPITAL WORK-IN-PROGRESS ` 30 44 420/- ------------------ TOTAL ` 80 55 841/- --------------------- 10. THE A.O. LEVIED ` 23 419 365/- WHICH WAS COMPUTED ON THE ABOVE AMOUNTS BY GIVING THE REASON THAT THE ASSESSEE CONC EALED PARTICULARS OF ITS INCOME TO THAT EXTENT. THE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE THE LD. CIT (A) AND LD. CIT (A) PARTLY ALLOW ED THE APPEAL FILED BY THE ASSESSEE BY SUSTAINING THE PENALTY ON THE DISAL LOWANCE PERTAIN TO -(I) PROVISIONS FOR LIQUIDATED DAMAGES ` 10 69 595/- (II) EXPENDITURE RELATING TO EOU ` 27 45 036/- (III) INTEREST DISALLOWANCE ` 30 44 420/- AND DELETED PENALTY ON THE DISALLOWANCE OF THE PROVISIO N FOR THE GRATUITY OF ` 6 96 790/- AND EXPENDITURE ON THE SOFTWARE DEVELOPM ENT OF ` 5 00 000/- . NOW BOTH THE REVENUE AS WELL AS ASSESSEE AND REV ENUE ARE IN APPEAL FOR THE A.Y. 2002-03 CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) TO THE EXTENT OF THE PENALTY SUSTAINED AS WELL AS RELI EF GIVEN BY THE LD. CIT (A). ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 8 11. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE RECORD. SO FAR AS ASSESSEES APPEAL IS CONCERN ED ONLY ADDITIONAL DISALLOWANCE IS IN RESPECT OF THE INTEREST EXPENDIT URE TO THE EXTENT OF ` 30 44 420/-. SO FAR OTHER TWO DISALLOWANCES ARE CO NCERNED I.E. PROVISION FOR LIQUIDATED DAMAGES AS WELL AS EXPENDITURE ON TH E EOU WHICH ARE IDENTICAL AS IN THE PRECEDING YEAR I.E. A.Y. 2001-0 2. EVEN FROM THE ASSESSMENT ORDER WE FIND THAT THE FACTS ARE IDENTIC AL FOR BOTH THE ASSESSMENT YEARS WHEREIN WE HAVE HELD THAT MERELY B ECAUSE THE ASSESSEE HAS MADE THE WRONG CLAIM WHICH IS OTHERWIS E BONA FIDE NO PENALTY CAN BE LEVIED. FOLLOWING THE PRINCIPLES LAID DOWN IN RELIANCE PETRO PRODUCTS LTD. (SUPRA) WE THEREFORE IN THIS YEAR ALSO HOLD THAT THERE IS NO JUSTIFICATION TO LEVY THE PENALTY ON TH E AMOUNTS OF THE DISALLOWANCE LIQUIDATE DAMAGES TO THE EXTENT OF ` 10 69 595/- AND EXPENDITURE ON THE EOU OF ` 30 44 420/- WHICH THE ASSESSEE HAS CLAIMED AS DEFERRED REVENUE EXPENDITURE. WE THERE FORE DELETE THE PENALTY LEVIED ON THE ABOVE TWO ITEMS AS IT IS ONLY ON THE BASIS OF THE VIEW OF THE A.O. WHETHER THE SAME EXPENDITURE IS ALLOWAB LE OR NOT. MOREOVER THE A.O. HAS ALSO RELIED ON HIS ASSESSMENT ORDER FO R A.Y. 2001-02 FOR MAKING THE SAID DISALLOWANCE. WE THEREFORE DELET E THE PENALTY LEVIED BY THE A.O. ON THE ABOVE TWO DISALLOWANCES KEEPING CON SISTENCY IN OUR DECISION WITH PRECEDING YEAR. 12. NOW THE NEXT DISALLOWANCE ON WHICH THE PENALTY IS LEVIED THE INTEREST OF ` 30 44 420/- THAT INCLUDES THE INTEREST OF ` 26 94 942 PLUS OTHER PROCESSING CHARGES OF ` 3 49 478/-. THE A.O. HAS NOTED THAT THE ASSESSEE HAS USED THE BORROWED FUNDS FOR ACQUISITIO N OF THE ASSETS FOR THE HARRIS PROJECTS WHICH IS 100% EOU DIVISION. IN THE BOOKS OF ACCOUNTS THE ASSESSEE CAPITALIZED THE EXPENDITURE BUT IN THE COMPUTATION ATTACHED WITH THE RETURN OF INCOME SAM E WAS CLAIMED U/S.36(1)(III) OF THE ACT. THE ASSESSEE CONTENDED T HAT THE HARRIS PROJECT ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 9 WAS SET UP FOR MANUFACTURING OF LIGHTNING ARRESTORS ETC WHICH WERE IN SAME LINE OF THE EXISTING BUSINESS OF THE ASSESSEE. THE A.O. WAS NOT CONVINCED WITH THE EXPLANATION OF THE ASSESSEE IN H IS OPINION IF EXTENT IS RELATING FOR ACQUIRING THE CAPITAL ASSET THEN IT CA NNOT BE TREATED AS A REVENUE EXPENDITURE. MOREOVER IN THE OPINION OF T HE A.O. IT HAS TO BE ESTABLISHED THAT THE BORROWED FUNDS ARE USED FOR TH E PURPOSE OF THE BUSINESS OF THE ASSESSEE THEN ONLY DEDUCTION U/S.36 (1)(III) IS AVAILABLE. THE A.O. ALSO OBSERVED THAT THE ASSESSEE HAS UTILIZ ED BORROWED MONEY FOR SETTING-UP A NEW COMPANY AND HENCE THE INTEREST CA NNOT BE ALLOWED. THE ASSESSEE ALSO CONTENDED THAT FINANCE ACT 2003 HAS ADDED A PROVISO TO SECTION 36(1)(III) W.E.F. 2004-05 AND FROM THAT YEAR ONLY AT THE MOST THE INTEREST PERTAINING TO THE CAPITAL ASSET HAS TO BE ALLOWED U/S.36(1)(III). THE A.O. REJECTED ALL THE CONTENTIONS OF THE ASSESS EE AND MADE DISALLOWANCE AND MADE ADDITION TO THE INCOME OF THE ASSESSEE AND ALSO LEVIED THE PENALTY ON THE SAID AMOUNT ON THE REASON THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITS INCOME. THE A SSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A) BUT WITHOUT SUCCESS. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 13. ON THE PERUSAL OF THE RECORD WE FIND THAT NOWH ERE IT IS CONTROVERTED THAT NEW EOU UNIT WAS IN THE SAME LINE WHICH THE ASSESSEE WAS ALREADY MANUFACTURING THE ITEMS. MOREOVER THE ASSESSEE IS IN THE EXPORT OF THE ELECTRONIC GOODS AND THE PROJECT I.E. HARRIS PROJECT WHICH IS 100% EOU DIVISION IS ONLY IN THE CONTINUATION OF TH E EXISTING BUSINESS OF THE ASSESSEE. MERELY BECAUSE THE ASSESSEE CAPITAL IZED INTEREST IN HIS BOOKS OF ACCOUNT THAT WILL NOT BARRED THE ASSESSEE FROM MAKING THE CLAIMING IN THE RETURN OF INCOME. THERE ARE DECISI ONS ON THIS ISSUE WHICH ARE ALSO IN FAVOUR OF THE ASSESSEE. NOTHING IS THERE ON RECORD TO SUGGEST THAT THE ASSESSEE HAS MADE IN MALA FIDE CLAIM. IN OUR OPINION THE PRINCIPLES LAID DOWN BY THE HONBLE SUPREME COU RT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. (SUPRA) ARE SQUARELY A PPLICABLE AND HENCE ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 10 IN OUR OPINION THE A.O. WAS NOT JUSTIFIED IN LEVYI NG THE PENALTY U/S.271(1)(C) ON THE AMOUNT OF THE DISALLOWANCE OF THE INTEREST. WE THEREFORE DELETE THE PENALTY LEVIED BY THE A.O. AN D SUSTAINED BY THE CIT (A) AND ACCORDINGLY THE APPEAL OF THE ASSESSEE IS A LLOWED. 14. NOW WE TAKE-UP REVENUES APPEAL BEING ITA 313/ MUM/2008. IN THIS APPEAL THE REVENUE HAS QUESTIONED THE DECISION OF THE LD. CIT (A) FOR DELETING THE PENALTY WHICH WAS LEVIED ON THE DISALL OWANCE MADE TOWARDS PROVISION FOR GRATUITY AS WELL AS DISALLOWANCE OF T HE SOFTWARE DEVELOPMENT EXPENSES. SO FAR AS PROVISION FOR GRATUITY AMOUNT IS CONCERNED THE IDENTICAL DISALLOWANCE WAS MADE BY THE A.O. IN THE A.Y. 2001-02 AND THAT WAS SUBJECTED TO THE PENAL CONSEQUENCES U/S.27 1(1)(C). WHILE DECIDING THE REVENUES APPEAL IN 2001-02 WE HAVE U PHOLD THE ORDER OF THE LD. CIT (A) DELETING THE PENALTY ON THE SAID AM OUNT. AS THE FACTS ARE IDENTICAL IN THIS YEAR FOLLOWING OUR REASONS GIVEN IN THE A.Y. 2001-02 IN REVENUES APPEAL WE CONFIRM THE ORDER OF THE LD. C IT (A) DELETING THE PENALTY ON THE DISALLOWANCE MADE BY THE A.O. TOWARD S PROVISION FOR GRATUITY. ACCORDINGLY GROUND NO.1 STANDS DISMISSE D. 15. THE NEXT GROUND IS REGARDING DELETING THE PENAL TY ON THE SOFTWARE DEVELOPMENT EXPENDITURE OF ` 5 LAKHS. ON THE PERUSAL OF THE ASSESSMENT ORDER WE FIND THAT THE ASSESSEE HAS INCURRED EXPEND ITURE FOR THE SOFTWARE DEVELOPMENT WHICH WAS USED FOR VARIOUS MANUFACTURI NG PROCESSES. THE A.O. WAS OF THE OPINION THAT THE EXPENDITURE ON THE SOFTWARE DEVELOPMENT IS A CAPITAL EXPENDITURE AND HENCE THE SAME CANNOT BE ALLOWED. WE FURTHER FIND THAT THE A.OS OBSERVATIO NS ARE GENERAL IN NATURE. THERE ARE DIFFERENT VIEWS ON THIS ISSUE AN D IT IS A DEBATABLE ALSO. MOREOVER THE ALLOWANCE OR DISALLOWANCE OF THE SOFT WARE EXPENDITURE DEPENDS ON DIFFERENT PARAMETERS OF THE FACTS. NOTH ING IS CONCEALED BY THE ASSESSEE NOR IT CAN BE SAID THAT THE ASSESSEE H AS FURNISHED ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 11 INACCURATE PARTICULARS OF INCOME AS ALL FACTS ARE O N RECORD. NOTHING IS THERE ON RECORD TO SUGGEST THAT IT IS NOT A BONA FIDE CLAIM OF THE ASSESSEE. HERE AGAIN WE RESPECTFULLY APPLY THE RATIO IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. (SUPRA) AND HOLD THAT MERELY BECAUSE WRONG CLAIM WAS MADE WHICH IS OTHERWISE BONA FIDE NO PENALTY CAN BE LEVIED. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT (A) O N THIS ISSUE AND DISMISS GROUND NO.2 16. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED AND BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY O F 23RD MARCH 2011. SD/- SD/- ( T.R. SOOD ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE: 23RD MARCH 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) XXVIII MUMBAI. 4) THE CIT -3 MUMBAI. 5) THE D.R. J BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR *CHAVAN I.T.A.T. MUMBAI ` ITA 28 AND 29/M/2008 ITA 312 AND 313/M/2008 M/S. ELPRO INTERNATIONAL LIMITED 12 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 16.03.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 16.03.2011 SR.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.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER