2016 (7) TMI 314 - AT - Income Tax

Penalty levied under section 271(1)(c) - addition of depreciation relating to decapitalised value of assets - Held that - We notice that the assessee has voluntarily decapitalised the assets by examining its liabilities position in the assessment year 2003-04. The undisputed fact remains that the Assessing Officer has added the liabilities reversed by the assessee to the total income of the assessee in the assessment year 2003-04. The amount of ₹ 44.34 lakhs is already included in the amount assessed in the assessment year 2003-04, meaning thereby the tax authorities have only changed the year of assessment in respect of the amount of ₹ 44.34 lakhs. Even though the assessee has not carried out the necessary adjustments in the Income-tax depreciation schedule in the assessment year 2003-04, in our view, the concealment, if any, has to be examined only in that year. Accordingly, we are of the view that the addition made by changing the assessment year will not result either in concealment of particulars of income or furnishing of inaccurate particulars of income. - Decided in favour of assessee Addition on account of valuation of eutectic oil - Held that - We find merit in the submissions of the assessee that the amount realised by the assessee after the expiry of four years cannot be a ground to disturb the closing stock value estimated by the assessee, particularly when the assessee is valuing the eutectic oil stock as nil for the past several years. It is not shown by the Assessing Officer that the assessee did not have any basis for valuing the oil stock at nil value. Even otherwise, we notice that the assessee has offered proper explanations in this regard and it is not the case of the Assessing Officer that the assessee has concealed the particulars relating to eutectic oil stock. Accordingly, we find merit in the contentions of the assessee that the addition made by the Assessing Officer on estimated basis would not give rise to penalty under section 271(1)(c) of the Act - Decided in favour of assessee Disallowance of depreciation on plant not put to use - Held that - There is merit in the contentions of the assessee that the assets shall lose their individual identity once it enters the block. Otherwise also, we notice that the assessee has offered explanations as to why it was constrained to claim depreciation on these assets. Thus, we notice that the disallowance of depreciation claimed on assets, which had already lost their individual identity by entering into the block, is a debatable issue. Hence, we are of the view that the assessee cannot be levied with the charge of concealment of particulars of income or furnishing any inaccurate particulars of income in respect of this addition.- Decided in favour of assessee Penalty on prior period expenses - Held that - CIT (Appeals) has given a finding that the claim made by the assessee was not an ingenuine claim and it is a case of postponement of claim only. The learned Commissioner of Income-tax (Appeals) has also taken note of the submissions made by the assessee that these expenses got crystallised during the year under consideration. Hence, there is merit in the view taken by the learned Commissioner of Income- tax (Appeals) that it is a case of mere change of accounting year in which expenses should be claimed and, hence, this issue becomes a debatable issue. It is well-settled proposition of law that penalty under section 271(1)(c) of the Act cannot be levied on debatable issue. Accordingly, we do not find any infirmity in the decision of the learned Commissioner of Income-tax (Appeals) in deleting the penalty levied - Decided in favour of assessee Penalty levied on the addition relating to reversal of excess liabilities - Held that - Since the liabilities relate to the capital assets, the question as to whether such kind of liabilities can be assessed as income of the assessee under section 41(1) shall become a debatable one. Accordingly, we are of the view that the penalty cannot be levied on the capital portion of the reversed liability and the same should be restricted to the depreciation portion alone. Accordingly, we modify the order of learned Commissioner of Income-tax (Appeals) on this issue and direct the Assessing Officer to restrict the penalty on the addition relating to depreciation portion alone, which was claimed by the assessee over the years.- Decided in favour of assessee in part Addition relating to closing stock value of eutectic oil - Held that - The assessee has sold a portion of the oil at ₹ 4,000 per metric tonne. Thus, the claim of the assessee, that it did not have any market value has been disproved in this year. However, the assessee has chosen to declare the market value as nil. Hence, the explanation of the assessee stands disproved by the facts available in its records itself. Accordingly, we are of the view that the learned Commissioner of Income-tax (Appeals) was justified in confirming the penalty levied on this addition. - Decided against assessee Disallowance of loans and advances written off - Held that - The question as to whether debt has become bad or not, is a debatable issue. The learned authorised representative also contended that there is no requirement of proving that the debt has become bad, after the amendment made in section 36(1)(vii) of the Act. Hence, we are of the view that the penalty could not be levied on a debatable issue. Accordingly, we set aside the order passed by the learned Commissioner of Income-tax (Appeals) on this issue and direct the Assessing Officer to delete the penalty levied thereon.- Decided in favour of assessee Disallowance of depreciation claimed on the research and development equipment - Held that - As the assessee submitted that it had included the value of research and development equipment as part of block but did not claim depreciation at all. Accordingly, the learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the contention of the assessee and delete the penalty, if the assessee s claim is found to be correct. Since the issue is restored back to the Assessing Officer to verify the claim of the assessee, we do not find any infirmity in it. - Decided in favour of assessee by remand Disallowance of depreciation on stores and spares - Held that - The assessee has capitalised certain stores and spares and, accordingly, claimed depreciation thereon. The question as to whether the assessee could capitalise its stores and spares is a debatable issue and, hence, the disallowance of depreciation claimed thereon also becomes debatable one. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) passed on this issue and direct the Assessing Officer to delete the penalty levied on this addition.- Decided in favour of assessee Disallowance made under section 43B - Held that - This issue is debatable one and, hence, the penalty cannot be levied on this addition.- Decided in favour of assessee Addition made under section 145A - Held that - As the learned Commissioner of Income-tax (Appeals) deleted the identical additions made in the earlier years. Since the facts are identical and since the Assessing Officer has made the addition on estimated basis, we are of the view that the learned Commissioner of Income-tax (Appeals) was justified in deleting the penalty levied on this addition, even though the assessee has accepted the addition by not contesting the same.- Decided in favour of assessee

Summary

Issues Involved:
1. Addition of depreciation relating to decapitalised value of assets.
2. Disallowance of depreciation on plants not in active use.
3. Addition relating to valuation of closing stock of eutectic oil.
4. Disallowance of prior period expenses.
5. Reversal of excess liabilities.
6. Disallowance under section 43B.
7. Loan and advances written off.
8. Depreciation on research and development equipment.
9. Depreciation on stores and spares.
10. Addition under section 145A.

Detailed Analysis:

1. Addition of Depreciation Relating to Decapitalised Value of Assets:
The assessee had decapitalised assets worth ?543.50 crores in FY 2002-03, which included depreciation of ?209.31 lakhs. The Assessing Officer (AO) added ?44.34 lakhs on a protective basis for AY 1999-2000, which was confirmed substantively by the Commissioner of Income-tax (Appeals) (CIT(A)). The Tribunal found that the addition was already included in the income for AY 2003-04 and that changing the assessment year did not amount to concealment or furnishing inaccurate particulars. Therefore, the penalty was deleted.

2. Disallowance of Depreciation on Plants Not in Active Use:
The AO disallowed depreciation on certain plants not in use, which was upheld by CIT(A). The Tribunal noted that under the block concept of depreciation, individual assets lose their identity. Since the assessee had provided all relevant details and the issue was debatable, the penalty was deleted.

3. Addition Relating to Valuation of Closing Stock of Eutectic Oil:
The AO added ?13 lakhs to the income for AY 1999-2000 by valuing eutectic oil at ?2,000 per metric tonne, which was confirmed by CIT(A). The Tribunal found that the assessee had consistently valued the oil at nil and had disclosed all relevant details. Since the addition was made on an estimated basis, the penalty was deleted.

4. Disallowance of Prior Period Expenses:
For AY 1999-2000, CIT(A) deleted the penalty on prior period expenses, finding that the claim was not ingenuine and was a case of mere change in the accounting year. The Tribunal upheld this view, noting that the issue was debatable and penalty could not be levied on such issues.

5. Reversal of Excess Liabilities:
For AY 2003-04, the AO added ?487.38 lakhs for reversed liabilities, which was partly confirmed by CIT(A). The Tribunal noted that the issue of whether such liabilities could be assessed as income under section 41(1) was debatable. Therefore, the penalty was restricted to the depreciation portion alone.

6. Disallowance under Section 43B:
For AY 2003-04, the AO disallowed payments made towards provident fund and other dues beyond the due date but within the grace period. CIT(A) deleted the penalty, and the Tribunal upheld this decision, noting that the issue was debatable and the addition was made on account of statutory fiction.

7. Loan and Advances Written Off:
For AY 2003-04, the AO disallowed ?6.35 lakhs written off as bad debts, which was confirmed by CIT(A). The Tribunal found that the issue was debatable and set aside the penalty.

8. Depreciation on Research and Development Equipment:
For AY 2003-04, the AO disallowed depreciation on research and development equipment, claiming the entire expenditure was deducted under section 35(1)(iv). CIT(A) directed the AO to verify the claim and delete the penalty if found correct. The Tribunal found no infirmity in this direction.

9. Depreciation on Stores and Spares:
For AY 2003-04, the AO disallowed depreciation on capitalised stores and spares, which was confirmed by CIT(A). The Tribunal noted that the issue was debatable and set aside the penalty.

10. Addition under Section 145A:
For AY 2003-04, the AO added ?87.83 lakhs for not including direct expenses in the valuation of raw materials. CIT(A) deleted the penalty, and the Tribunal upheld this decision, noting that the addition was made on an estimated basis and the issue was debatable.

Conclusion:
The appeals of the Revenue were dismissed, and the appeals of the assessee for AY 2003-04 and 2004-05 were partly allowed. The appeal of the assessee for AY 1999-2000 was allowed. The Tribunal consistently found that penalties under section 271(1)(c) could not be levied on debatable issues or where the assessee had provided all relevant details and explanations.