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TMI Blog2010 (8) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... se the assessee's claim is not so accepted. 3. Brief facts are that the AO observed that assessee had debited a sum of ₹ 56,79,040/- under the head assets written off in the profit and loss account for the year under consideration. During the course of assessment proceedings, it was observed that the assets which have been claimed to the written off pertain to Gurgaon office premises. In the preceding years, the assessee was claiming 10% depreciation on the same. It was further observed that the block of assets in question, i.e. office premises, has not ceased to exist during the year under consideration and there are assets under the same class of assets under the head 'Building' in the schedule of fixed assets for the year under consideration on which the assessee firm is claiming same rate of depreciation i.e. 10%. In view of this position, the AR of the assessee was asked vide order sheet entry dated 26.12.2006 to furnish explanation as to why the Gurgaon office premises may not be treated as a part of the block of assets as a whole under the head office premises and accordingly why write off amount should not be disallowed and instead only depreciation be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of depreciation allowable as per Income Tax Rules, 1962 and not whether it is acquired on ownership basis or leasehold basis. In the present case, a perusal of the balance sheet and its annexures shows that after the Gurgaon Office structure is discarded by the assessee, the same class of asset under the head 'Building' in the Schedule of Fixed Assets continues to exist as per last balance sheet on which same rate of depreciation, i.e., 10% is applicable. During the year, the assessee has claimed depreciation of ₹ 10,63,367/- in respect of this asset under the head 'Building' @ 10% on the WDV of ₹ 1,06,33,669/-. It is evident, therefore, that the block of asset which comprises of 'Office Premises'/'Building' has not ceased to exist as argued by the counsel of the assessee. c) Since the block of assets under the head 'Office Premises'/'Building' has not ceased to exist, provisions of Section 50(2) of the Income Tax Act are not applicable and the claim of the assessee that the sum of ₹ 56,79,0407/- may allowed as short term capital loss is not tenable. d) In view of the above discussion, the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Rules. As a natural corollary, the percentage of depreciation to be applied in respect of the structure or work affected by assessee by way of renovation and improvement in or in relation to a leased Barren Hall will be the percentage applicable to the barren hall used for office purposes in or in relation to which the renovation or improvement has been affected. The clarification in aforesaid Note 3 of Appendix-I is made only with a view to determine the percentage to be applied in respect of any structure or work affected by way of renovation or improvement in or in relation to a building referred to in Explanation 1 of sub-section (1) of section 32. For the purpose of identifying the class of assets comprising different asset of similar nature, the way or manner through or by which the assessee has been considered to be owner thereof is not material, but what is material is the nature and class of asset. We, therefore, don't find any conflict between the clarification given under Note 3 of Appendix I and the definition of block of asset given u/s 2(11) read with Explanation 1 and of section 32(1) of the Act. The interpretation given to the Note 3 of Appendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n office structure and recovery made in respect thereof is justified. The A.O. was further justified in computing the depreciation on the opening written down value of block of assets described as Block A comprising both building owned by assessee as well as Gurgaon office structure, which is deemed building owned by assessee, as adjusted by the additions and reductions provided in section 43(6)(c). In this view of the matter, the order of the ld. CIT(A) confirming the order of the A.O. is upheld. 6. The AO issued penalty notice u/s 271(1)(c) where assessee pleaded that there was difference of opinion in respect of (i) claim of write off of assets made by the assessee and (ii) the Gurgaon office structure was a distinct block of assets and since it ceased to exist, the same was claimed as a loss as per the definition of block of assets u/s 2(11). The AO, however, imposed the penalty by following observations:- Section 2(ii) of the Income tax Act definers block of assets as a group of assets falling within a class of assets comprising tangible and intangible assets in respect of which the same percentage is prescribed. Thus the acid test for an asset to fall in a block o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urate particulars and concealed its income thereof as pointed out therein above and liable for penalty within the meaning of section 271 (1)(c) of the IT. Act. Thus the assessee has committed default within the meaning of section u/s 271(1)(c) of the IT Act, 1961 and deliberately filed inaccurate particulars of his income in his return of income. Hence, I impose penalty of ₹ 15,71,672/- which is 100% of the tax sought to be evaded. 7. The CIT(A) confirmed the imposition of penalty by following observations:- (i) The extent of disclosure by the assessee is that in their P and L a/c, they have debited ₹ 56,79,040/-towards Asset written off . This does not amount to a full disclosure and articulation of a claim. It would have been a different matter if the assessee had made a claim and disclosed the full facts, and left it open to the AO to determine whether the claim is acceptable or not. For example, an assessee can make a claim under say section 80IB, and specify that he has a certain number of permanent and casual employees, and then leave it open to the Revenue to determine whether the claim for deduction u/s 80IB should be allowed or not. This may amount t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aware of the law. Moreover, the law on this issue is well settled and no contrary opinion has any credence. In view of these facts, the arguments of the appellant regarding penalty not being imposable, are not acceptable. (iii) Recently, a similar question arose before the Hon'ble Delhi High Court in CIT v. Escort Finance Ltd. (2009) 183 Taxman 453. The Hon'ble High Court upheld the penalty in respect of the claim u/s 350 with the following observations: Even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which is made is ex facie bogus, it may still attract penalty provision. Cases of bogus hundi loans or bogus sales or purchases have been treated as that of concealment or inaccuracy in particulars of income by the judicial pronouncements (See Krishna Kumari Chamanlal v. CIT [1996J 217 ITR 645 (Bom.), Rajaram and Co. v. CIT [1992J 193 ITR 614 (Guj.) and Beena Metals v. CIT [1999J 240 ITR 222 (Ker.). 14. In the present case, we have to examine as to whether the claim made under section 35D of the Act was bogus or it was a bona fide claim. The assessee pleaded bona fide, as according to it, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of India v, Dharamendra Textile Processors [2008] 306 ITR 277. In such a case it is difficult to accept the plea that error was bona fide . (iv) The decisions relied upon by the appellant are distinguishable from the facts of the present case, in Mukand Global Finance Ltd. vs. DCIT [2009] 117 ITD 20 (MUM), the assessee had undisputedly sold its flat, which was the only block of assets under the head 'building' and its sale resulted into a loss. However, in the present case, there remain other assets in the Block of assets. In CIT v. Harshvardhan Chemicals and Mineral Ltd.(259 ITR 212), it was held that in view of the finding of the Tribunal that when the assessee has claimed some amount though that is debatable, in such cases, it cannot be said that the assessee has concealed any income or furnished inaccurate particulars for the evasion of tax, therefore, no case was made out for interference by the High Court. However, in the present case, the claim made by the assessee was not a debatable issue at all. The law on this issue is well settled and there can be no two credible opinions on this issue. 9. Considering the facts, it is clear that the claim mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I) and (ii) the applicability of definition of block of assets u/s 2(1)) and depreciation u/s 50(ii). It amounts to a bona fide mistake inasmuch as instead of reducing the amount from block of assets it was debited to profit and loss a/c. In the case of Mukand Global Finance vs. DCIT, ITAT, Mumbai has held a view that if a loss is suffered on the transfer of assets, in that case provisions of section 32(1)(iii) by way of terminal allowance is to be applied and not the concept of block of assets which will apply only in case of profit on transfer of asset. In quantum appeal for this year assessee filed an additional ground to the following effect:- That the ld authorities below erred in not considering thai the loss incurred on the transfer of Gurgaon Office Structure could be determined only u/s 32(1)(iii) of the Act, and further erred in disallowing the claim rightly mad by the assessee in the return of income filed. This additional ground was accepted as a question of law by the ITAT though not allowed but the admission of ground indicates that a question about interpretation of law was involved. It was pleaded that in view of all these facts the penalty is not leviable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block of assets in case of any asset being discarded, demolished or destroyed, a clear provision is provided by which the loss on account of such destruction and demolition will be reduced from the WDV of the same block of assets. This is clear cut scheme of the Act well recognized and understood. Assessee himself having treated both the assets in same block, reduction in value because of discarding one asset cannot be written off by the assessee and the only way prescribed by law to reduce it from the remaining WDV of the block which exists in assessee's case. ITAT has clearly held in its order dated 17.7.2009 that no loss on account of such shortfall because of demolition of Gurgaon office was allowable to the assessee either u/s 50(ii) or as business deduction u/s 32(1)(iii) and AO was justified in disallowing the claim of write off and adjusting it towards the depreciation. 12. Ld. D.R. makes a point that Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) has held that everything would depend upon the return filed by the assessee as only document where assessee can furnish the particulars of its return of income. In this return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to disclose fully and truly all materials relating to that claim in the return of income. 15. Further, reliance is placed on the decision of the ITAT in the case of M/s Microsoft Corporation (India) Pvt. Ltd. vs. DCIT, Circle 6(1), New Delhi in I.T.A.No.106/Del/2009 dated 16.4.2010 wherein it has been held as under: 6.3 In this case, the details of foreign exchange loss were not furnished in the return of income. In the tax audit report, it was shown as increase in liability of the loan. The loss was not debited in Schedule K of the audited accounts. The particulars of expenditure were ascertained by the ld. CIT(A) in quantum-appeal proceedings, which have been furnished by us in paragraph 3.4 of this order. Thus, it can be said that the assessee made a claim in respect of which full particulars were not furnished in the return The claim not warranted as per the tenor of Schedule-XI of the tax audit report and Schedule-K of the audited account. Nonetheless, we have already held that there could be bona fide belief as to whether increase In liability on account of purchase of assets and security deposit was revenue or capital liability. There could have been no such belie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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