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TMI Blog2010 (12) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the memorandum of appeal, are as follows: 1. The CIT(A) erred in confirming the penalty levied by the learned Deputy Commissioner of Income Tax, Circle 8(2), Mumbai ( DCIT ) amounting to Rs. 10,34,56,092 under section 271(l)(c) in respect of the following items: Particulars Amount (Rs.) (a) Bad debts written off 23,45,000 (b) Allowance of depreciation 8,61,26,465 (c) Capital Gains on slump sale of unit 19,32,52,383 2. The learned CIT(A) erred in confirming the penalty on the ground that your appellant had furnished inaccurate particulars of income to evade its tax liability by not submitting information before the DCIT or the CIT(A), which amounted to concealment of income under section 271(l)(c) of the Act. He further erred in holding that your appellant s case fell within the purview of Explanation 1(A) and 1(B) to section 271(l)(c) of the Act. He erred in not considering, in their proper perspective, the submissions made by your appellant. 3. Without prejudice to the above grounds of appeal, the CIT(A) erred in not directing the DCIT to delete the penalty on the aforesaid items in the absence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther observed that the assessee had excluded the assets of the division transferred to Cadbury India Limited, but since this transfer took place only at the end of the year i.e,. on 30th March, and in view of the provisions of section 32, including Explanation 5 thereto, the assessee had to be allowed depreciation on assets used during the year for its business. It was also noted that, in terms of the provisions of section 43(6)(c)(i)(C), while computing written down value of the block of asset, depreciation allowable on the assets sold on slump sale basis, was to be taken into account. As a corollary to this stand, the Assessing Officer further held that in computation of profit on slump sale of the unit, the assessee was required to take into account written down value, after providing the depreciation allowable to the assessee. When, accordingly, the profit on slump sale of the unit was reworked on that basis, as against loss of Rs. 6,53,72,000 computed by the assessee, the gain worked out to Rs. 12,78,80,383. On the other hand, stand of the assessee was that after the introduction of block of assets concept w.e.f. 1st April, 2000, the written down value, on which deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following line of reasoning: 4.1. In the assessment order, the AO has worked out the eligible depreciation at Rs. 8,61,26,465/- against the claim of the assessee made of Rs. 2,10,671/- only. During the course of assessment the AO held that the depreciation has to be worked out on all the assets which had been utilized for the purpose of its business during the year, only on account of assets being transferred on 30th March, 2003 cannot qualify the same for not being eligible for depreciation. 4.2. In the assessment order, the AO has also stated that the asessee had not been claiming depreciation allowable as per Section 32(1) in respect of its assets in earlier years prior to A.Y.2002-03, though for this year, the assessee has claimed the depreciation as per IT Act at Rs.2,10,671/- which is due to the fact that one of the divisions has been transferred during the year to M/s. Cadbury India Ltd. If the eligible depreciation of the earlier years are considered, then the value of the opening WDV will be entirely different and consequently, there is substantial change in the extent of eligible depreciation. On giving opportunity to the assessee to explain why the eligible dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty should not be imposed, the assessee remained silent on this issue. 4.5 From the findings of the AO given in the assessment order and also the decision of the CIT (A), it is clear that the assessee company does not want to claim depreciation in order to reduce its losses for the current year, so that the WDV of the assets remain higher in the books of account and get the benefit of higher set off when subsequently this company merged with the company M/s. Pfizer Limited, which is a profit making concern. For working out the eligible depreciation allowable as per Income tax Act, 196I,the AO has provided an opportunity to the assessee to explain as to since the assets had practically been utilized for the entire financial year and why the depreciation should not be allowed and has categorically asked as to why it should not be considered that such non-claim was only to increase the net worth of the unit transferred and thereby decreasing the capital gain liability. However, the assessee company has not furnished any explanation either in the course of assessment proceeding or in the appellate proceedings. Even now, the assessee company has chosen to be silent. 4.6 Thus ,i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtisement expenses and sale promotion expenses over the year, as capital expenditure and after allowing eligible depreciation thereon, the AO worked out the WDV of fixed assets at Rs. 36.77 crores, as against the assessee s claim at Rs. 40.38 crores. Since the entire block of building, furniture and fixtures, plant and machinery and computer and motor vehicles have been transferred to M/s. Cadbury India, pursuant to slump sale, the AO after taking into consideration the depreciation allowable till the date of transfer has worked out the value of asset at Rs. 17,88,45,617/- as against the assessee s claim at Rs. 37,20,98,133/- and worked out the long term capital gain as under: Long Term capital loss Net sale consideration 327072000 Inventories 29475000 Loans and advances 12317000 Current liabilities (21446000) Fixed Assets 178845617 199191617 1278803383 5.3. Aggrieved by the action of the AO, the assessee went on appeal before the CIT (A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(B) to section 271(1)(c) which is explained as supra . Regarding the allowability of depreciation u/s.32 of the IT Act, the case of the appellant is covered under the Explanation 5 to section 32 of the IT. Act which reads as under: For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. 2.16 Moreover, the Ld. CIT(A) has relied on the decision of Hon ble Delhi High Court in the case of CIT v. Refrigeration and Allied Industries Ltd. 115 Taxman 103(Delhi) and in the case of Mittal Welding and Machinery Stores v. CIT 253 ITR 341 (P H), where it was held that the provisions of section 32(1) cannot be used as a device to save tax, which means that the depreciation being a statutory allowance cannot be used at the sweet will of the assessee by whenever it is beneficial to it, the same is claimed and never it is not, the same is not claimed. The Explanation (5) to section 32 a judicial decisions establishes that it is not the sweet will of the assessee to claim or not to claim depreciation to avoid tax. Keeping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and even before the AO during the penalty proceedings by showing its inability to produce the required information. Therefore, the judicial decisions relied upon by the appellant company will not help as the facts of the case are distinguishable because no information has been filed before the AO or CIT (A). Moreover, the decision of Hon ble Supreme Court in the case of Union of India v. Dharmendra Textiles Processors 174 Taxman 571, it is held that penalty u/s.271(1)(c) is a civil offence, therefore, mens rea and mala fide intention is not to be proved by the department. 7. The assessee is not satisfied and is in further appeal before us. 8. Learned counsel begins by highlighting the scheme of depreciation after introduction of the concept of block of assets. He takes us through section 43(6)(c) and points out that in computation of written down value in respect of a block of assets, the assessee has to take the opening written down value of all the assets falling in that block of assets, increase the same by actual cost of any asset, falling within that block, acquired during the year, and reduce the same by monies payable in respect of any assets and the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the Annexure 3.1 to the Tax Audit Report, which is filed along with the income tax return, to show that all the necessary facts have been duly disclosed to the Assessing Officer, and that nothing has been concealed. It is submitted that whether the Assessing Officer accepts the claim of the assessee or not, a mere rejection of legal claim cannot be visited with penal consequences under section 271(l)(c) of the Act. Learned counsel then also submits that so far as the question of higher depreciation being granted to the assessee is concerned, there cannot be, by any stretch of logic, any question of concealment of income. It is only elementary that a higher depreciation being granted to the assessee results in a lower taxable income, and, therefore, such a higher depreciation being held to be admissible cannot be visited with penalty under section 271(l)(c). Learned counsel further submits that in computation of written down value under section 43(6), it is not open to the Assessing Officer to take into account the depreciation which would have been allowable to the assessee but for the claim made by the assessee. It is submitted that we cannot read a part of the sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Bombay High Court have held that depreciation cannot be thrust on the assessee. It is contended that in such a situation, the assessee cannot be imposed penalty for not claiming depreciation which has been found to be admissible to the assessee. Learned counsel further submits that not charging depreciation would not have anyway made any difference to the tax position of the assessee, but for the decision of Special Bench in the case of DCIT v. Times Guarantee Limited (131 TTJ 257) which is rendered only on 30 June, 2010 i.e. , much after even the assessment was finalized. It is submitted that until this Special Bench decision was delivered, the legal position was that capital gains could have been set off against unabsorbed depreciation and, therefore, not claiming the depreciation would have been tax neutral. In view of the legal position as it prevailed at the relevant point of time, i.e. , when related income tax returns were filed, the assessee would not have derived any tax advantage from not claiming the depreciation. The assessee cannot thus be held to have acted mala fide in not claiming the depreciation, and this decision of the assessee could not have been in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was contemplating merger with Pfizer Limited, the assessee wanted to show a higher book value of the assets. As regards assessee s reliance on Tribunal decision in the case of Maersk India Pvt. Ltd . (supra), learned Departmental Representative finds it wholly misplaced because the assessee has relied upon obiter dicta made by the bench in the said order. It is also contended that concealment of income and furnishing of inaccurate particulars are generally intermingled and must be seen in conjunction with, and taking colour from, each other. Therefore, as long as there is suppression or concealment of income, it is de facto the same as furnishing of inaccurate particulars. Beyond these submissions, learned Departmental Representative did not make any other specific submissions but strongly relied upon the orders of the authorities below. In his brief rejoinder, learned counsel for the assessee reiterated that the penalty has been imposed for furnishing inaccurate particulars but no specific inaccuracy of particulars have been pointed out and that the CIT(A) is factually incorrect in referring to merger with Pfizer inasmuch as there is only a change of name of the company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the depreciation issue is concerned, the main plea of the assessee is that for the purpose of computing depreciation on block of assets , it is necessary to first make adjustments as contemplated under section 43(6) and thus reduce the written down value of the assets sold on slump sale basis, and it is only on the written down value so computed that depreciation can be allowed under section 32. Viewed in this perspective, the written down value of the assets in respect of the unit sold on slump sale basis is to be reduced first from the aggregate of (a) opening balance of that block of assets, and (b) the assets acquired during the year falling in that block of assets, and it is only the net amount, which constitutes written down value, that depreciation is to be computed. Even as we are alive to the fact that this interpretation canvassed by the assessee has been rejected by a co-ordinate bench, we are also of the considered view that this interpretation cannot be said to be totally devoid of any reasonable basis. As a co-ordinate bench has dealt with the same on merits and eventually rejected the same, we do not want to conduct an exercise which is parallel to, or contrary to, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, cannot be said to be furnishing of inaccurate particulars by any standard. It is purely a legal claim, and merely because a legal claim is found to be inadmissible, it cannot be inferred that there is any furnishing of inaccurate particulars. We have also noted that until the time Special Bench decision was delivered in the case of DCIT v. Times Guarantee Limited (supra), i.e., on 30th June, 2010 and much after even the assessment was finalized, a view was indeed possible that not charging depreciation would not have anyway made any difference to the tax position of the assessee because position was that capital gains could have been set off against unabsorbed depreciation and, therefore, not claiming the depreciation would have been tax neutral. It is therefore incorrect to take a stand, as has been taken by the Assessing Officer and the CIT(A), that not charging the depreciation on assets was mala fide and influenced solely by ulterior motives to avoid legitimate tax liability. There is thus no basis for CIT(A) s holding that it was a case of furnishing of inaccurate particulars and mala fide action on the part of the assessee. No doubt not only that the penalty pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is bona fides and that all the material facts are disclosed. Viewed in this perspective also, however, we find that the Assessing Officer does not have a legally sustainable case. We have noted the assessee has a reasonable explanation for having made this claim in the income tax return, and all the necessary details are filed by the assessee and the claim is made in a fair and transparent manner. The claim made by the assessee may not have been approved in quantum assessment proceedings, but, as we have noted earlier, it is a reasonable claim which was not clearly contrary to the legal provisions and settled law - at least at the point of time when the claim was made by the assessee. The depreciation being granted on the written down value, after reducing the value of w.d.v. of assets sold on lump sum basis, does not constitute a wholly impossible view or clearly illegal stand. As for depreciation being thrust on the assessee, though there is one Hon ble jurisdictional High Court decision in favour of the Assessing Officer, it is a view taken by the Hon ble High Court on 16th October, 2009 i.e. much after the related income tax returns were filed, and that too in the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer in preceding previous years and not the year that we are dealing with and in respect of which penalty is imposed. Concealment or furnishing of inaccurate particulars, if at all it can be said to be concealment or furnishing of inaccurate particulars, took place in the previous years other than the previous year relating to the assessment year before us, and, therefore, the assessee cannot be imposed penalty under section 271(1) (c). It is not a case that the assessee has made a claim which is clearly inadmissible a claim or clearly contrary to the prevailing legal position. We have also noted that the conduct of the assessee cannot be said to be lacking bona fides in any manner, and that the assessee had also made the claim in a fair and transparent manner, without withholding any material information . The legal position is relevant for the purpose of deciding the matter on merits, but when we are examining the conduct of the assessee vis-a-vis explanation of the assessee for making the claim, we cannot reject the assessee s explanation on the ground that the legal position, as understood by the assessee, turned out to be unacceptable on merits. As at thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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