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Income Tax Appellate Tribunal, SURAT
Before: SHRI C.M.GARG & SHRI O.P.MEENA
आयकर अपीलीय अिधकरण सूरत �ायपीठ, सूरत IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT �ी सी एम गग�, �ाियक सद� एवं �ी ओ पी मीना, लेखा सद� के सम� BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No’s.2658 to 2660/Ahd/2014/SRT िनधा�रण वष� / Assessment Years: 2006-07 to 2008-09 Gujarat Chemical Port Terminal Vs. The Deputy Commissioner of Company Ltd., Income Tax, P.o.Lakhigam, Via Dahej, Tal. Circle-1(1), Vadodara – 390 007. Vagra, Bharuch – 392 130. [PAN: AAACG 6861 A] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Assessee by : Shri Bhavin J.Marfatia – CA ��यथ� क� ओर से /Revenue by : Mrs. Smitha V.Nair – Sr.DR सुनवाई क� तारीख/Date of Hearing : 20-08-2018 घोषणा क� तारीख /Date of : 23-08-2018 Pronouncement आदेश /ORDER PER Shri C.M.GARG, JM: These three appeals filed by the Assessee against the separate orders of learned Commissioner of Income Tax(Appeals)-I, Baroda (‘CIT(A)’ for short) all dated 15.04.2013 for the assessment years 2006- 07 to 2008-09.
2 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. ITA No.2658/Ahd/2014/SRT for A.Y.2006-07 2. Grounds Raised by the assessee read as under : “1. The learned Commissioner of Income tax (Appeals)-I, Baroda [“the CT(A)”] erred in fact and in law in confirming the action of the Deputy Commissioner of Income Tax, Circle 1(1), Baroda (“the AO”) in levying penalty of Rs.38,95,000/- u/s.271(1)(c) of the Income Tax Act, 1961 on following additions :- (i) Disallowance of repairs to plant & machinery amounting to Rs.67,50,558/- treating it as capital expense. (ii) Prior period expenses of Rs.10,89,135/- (iii) Depreciation on foreign exchange loss of Rs.2,22,282/- (iv) Restructuring expenses of Rs.35,00,000/- 2. The penalty order passed by AO u/s.271(1)(c) is ultra virus, void and bad in law for the following reasons “ a. The penalty is levied without reaching satisfaction in the course of assessment proceeding. b. There is neither any concealment of income nor furnishing of any inaccurate particulars of such income. c. The Appellant has discharged his onus by furnishing explanation concerning addition / disallowance made by the Assessing Officer. d. The DCIT has erred in discharging the primary onus of proving the concealment of income or furnishing of an inaccurate particular of such income.” 3. We have heard arguments of both the sides and carefully perused the material placed on the record of the Tribunal.
The learned Authorised Representative (AR) submitted that the penalty has been imposed on the assessee on 4 counts, viz., i) addition
3 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. made by treating expenses of repairs to plant and machinery as capital instead of revenue expenditure ; ii) on account of prior period expenses; iii) on account of disallowance of depreciation or foreign exchange loss on capital asset and iv) on account of disallowance of restructuring expenses. 5. The learned Authorised Representative submitted that as per order of the ITAT Ahmedabad, ‘D’ Bench in assessee’s own quantum appeal for A.Y. 2004-05 to 2006-07 dated 13.11.2017 paras 20 & 22 it is clear that the addition that the first addition made on account of disallowance of expenses on repairs to plant and machinery treating the same as capital expenditure instead of revenue expenditure has been deleted by the Tribunal Order. Therefore, penalty on the first addition is not sustainable. On being asked by the Bench, the ld.Departmental Representative (DR), in all fairness, accepted that the Tribunal has deleted first addition and to the best of his knowledge there is no further appeal by the Department. Therefore, we hold that when the quantum addition has been deleted by the Tribunal, then penalty on this first addition cannot be held as sustainable and we direct the Assessing Officer to delete the same.
4 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. 6. On the addition, on account of prior period expenses the ld.Authorised Representative submitted that in the Tribunal order for A.Y. 2006-07 (supra) as per para 24 on page 12 the issue has been restored to the file of the AO. Therefore, penalty on this count is not sustainable. Alternatively, the ld.AR submitted that this that the issue of imposing penalty on this count may be restored to the file of AO for fresh adjudication as per outcome of the appeal effect order passed in pursuant to the Tribunal directions in para 24 of the Tribunal Order (supra).
The ld.Departmental Representative (DR) strongly opposed to the deletion of penalty and submitted that even if the issue has been restored to the file of AO for fresh adjudication, but in case, if addition is again sustained wholly or partly, then the AO may not be prevented from imposing penalty again.
On careful consideration of above submissions, we are of the view that since the addition, on the strength of which, the penalty was imposed on account of disallowance of prior period expenses has been restored to the file of AO and there is no addition in existence, thus, penalty of second count cannot be held as sustainable and we direct the AO to delete the same. However, we make it clear that in case after
5 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. passing appeal effect order in pursuant to the Tribunal order for A.Y.2006-07 (supra) then, the AO would be entitled and at liberty to initiate and impose penalty u/s.271(1)(c) of the Act, if it is found necessary, as per relevant provisions of the Act and facts and circumstances of the case.
The ld.Authorised Representative (AR) on the penalty on account of addition of Rs.2,28,282/- by disallowing depreciation on foreign exchange loss submitted that the provisions of section 43A is not applicable to the present case as for applicability of the same provisions the asset has to be acquired from outside of India. In the present case, the assets were constructed in India under indigenous conditions thus requirement of section 43A are not fulfilled. The ld.AR vehemently pointed out that during the course of assessment proceedings, it was submitted before the AO that section 43A does not apply to the present case as the assets were constructed in India and the AO made addition by rejecting the said contention of the assessee. The ld.AR submitted that there is no dispute with regard to the claim of depreciation. It was only the timing which has been altered from accrual to the actual payment and it is not the case of the AO reliance on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Amtek
6 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. Auto Ltd. 352 ITR 394 (P & H) the ld.AR submitted that the penalty cannot be levied on the addition made on difference of opinion.
Replying to the above, the ld.DR supported the penalty as well as first appellate order and submitted that after amendment in the section 43A with effect from 01.04.2003, decrease or increase in allowability on notional basis as per AS-11 cannot be added to the cost of underlying assets in violation of section 43A of the Act. He further submitted that the claim of assessee that section 43A of the Act and such unsustainable claim is nothing but furnishing of inaccurate particulars of income and penalty was rightly imposed. The ld.DR vehemently pointed out that the claim of assessee was clearly not tenable and same was not debatable in nature as the law position of this issue is very clear.
On careful consideration above rival submissions, we are of the view that the provision of section 43A has been amended with effect from 013.04.2003, therefore decrease or increase in allowability of notional basis cannot be added to the cost of underlying asset and the assessee claimed depreciation in violation of section 43A of the Act which was not found to be sustainable during quantum proceedings. In our humble understanding, such a claim of assessee is clearly a act
7 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. furnishing inaccurate particulars of income which attracts penalty u/s.271(1)(c) of the Act. Therefore, we hold the ld.CIT(A) was right in imposing penalty u/s.271(1)(c) on this count and thus be uphold the first appellate order of this count.
The ld.AR submitted that the fourth addition in quantum proceedings has been deleted by the ITAT Order for A.Y. 2006-07 (supra), therefore, penalty may kindly be deleted. On being asked by the Bench, the ld.DR in all fairness, submitted that the addition made by the AO and confirmed by the ld.CIT(A) has been deleted by the Tribunal by passing order dated 13.11.2017 (supra) for A.Y. 2006-07.
In view of the above submissions, we hold that when the addition on account of restructuring expenses has been deleted by the Tribunal in allowing quantum appeal then the penalty imposed on the strength of such addition, which it is not in existence, now, cannot be held as sustainable and thus we direct the AO to delete the same.
In the result, appeal of the assessee is partly allowed for A.Y. 2006-07.
ITA No.2659/Ahd/2014/SRT for A.Y.2007-08 15. Grounds raised by the assessee read as under :
8 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd.
“1. The learned Commissioner of the Income Tax (Appeals)-I, Baroda [“the CIT(A)”] erred in fact and in law in confirming the action of the Deputy Commissioner of Income Tax, Circle 1(1), Baroda (“the AO”) in levying penalty of Rs.25,40,000/- u/s.271(1)(c) of the Income Tax Act, 1961 on following additions :- (i) Disallowance of repairs to plant and machinery amounting to Rs.73,42,870/- treating it as capital expenditure. (ii) Disallowance of provision for fringe benefit taxes of Rs.1,99,545/-. 2. The penalty order passed by AO u/s.271(1)(c) is ultra virus, void and bad in law for the following reasons : a. The penalty is levied without reaching satisfaction in the course of assessment proceeding. b. There is neither any concealment of income nor furnishing of any inaccurate particulars of such income. c. The Appellant has discharged his onus by furnishing explanation concerning addition / disallowance made by the Assessing Officer. d. The DCIT has erred in discharging the primary onus of proving the concealment of income or furnishing of an inaccurate particular of such income.” 16. We have heard arguments of both the parties and perused the material available on record of the Tribunal. The ld.DR in all fairness agreed to the submission of the ld.AR that on the addition made by the AO and confirmed by the ld.CIT(A) has been deleted by the Tribunal Order (supra). In this situation, we are compelled to hold that the penalty u/s.271(1)(c) of the Act on the addition, which is not in existence, after order of the Tribunal allowing the quantum appeal of
9 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. assessee on this count. Therefore, we direct the AO to delete the penalty imposed on the basis of addition made by the AO treating repairs to plant and machinery as capital in nature instead of revenue expenditure.
On the last and second issue of penalty imposed on the addition made by the AO by disallowing provision for Fringe Benefit Tax (FBT) of Rs.1,88,545/-. The ld.AR submitted that inadvertently the provision of FBT was not disallowed while computing the total income and this mistake was accepted by the assessee immediately when the same was pointed during the course of assessment proceedings. Placing reliance on the Hon'ble Supreme Court in the case of Price Water House Coopers Vs. CIT 253 CTR 1 (SC). The ld.AR submitted that the assessee has shown in the return of income huge loss of Rs.596 crores, therefore, there was no intention of making such mistake for negligible amount, therefore, penalty may kindly be deleted.
Replying to the above, the ld.DR supported the penalty as well as first appellate order by contending that the wrong claim of deduction of provision of FBT was detected by the AO in the scrutiny proceedings. The ld.DR further submitted that if the case of the appellant was not scrutinized the wrong claim of deduction of FBT amount would have
10 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. gone undetected. Therefore, the AO was right in imposing penalty and the same was correctly confirmed by the ld.CIT(A).
On careful consideration of above rival submissions, first of all, we may point out that the assessee made a claim for provision of FBT which was not tenable and sustainable as per provisions of the Act. The factum of wrong claim was detected by the AO during scrutiny assessment proceedings and the AO imposed penalty by observing that the disallowance of provision for FBT is an conscious act of inaccurate particulars of income and thus concealment of income within the meaning of Explanation 1 to 271(1)(c) of the Act. The penalty was confirmed by the ld.CIT(A). In our humble understanding if the assessee is making a claim which is not sustainable and allowable as per provisions of the Act and then it can safely be presumed that the assessee has furnished inaccurate particulars of its income and thus concealed the particulars of income within the meaning of section 271(1)(c) of the Act and penalty is inevitable.
So far as benefit of ration of decision of Hon'ble Supreme Court in the case of Price Water House Cooper (supra) is concerned. In the present case the assessee has made provisions for FBT it was not allowable. Therefore, it is not a case of making wrong claim under
11 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. inadvertent mistake, but it is a clear case of making a claim which was not allowable tenable as per provisions of the Act. Therefore, the wrong claim fact could not be detected if the case was not selected for scrutiny. Finally on consideration of entire facts and circumstances of the case, we are of the view that the penalty was rightly imposed by the AO and the same was confirmed by the ld.CIT(A) on justified and reasonable grounds. Therefore, we respectfully find that the benefit of the ratio of the decision of Hon'ble Supreme Court in the case of PWC(supra) is not available for the assessee. 21. In the result, appeal of the assessee is partly allowed.
ITA No.2660/Ahd/2014/SRT for A.Y.2008-09 22. Grounds raised by the assessee read as under : “1. The learned Commissioner of Income Tax (Appeals)-I, Baroda [“the CIT(A)”] erred in fact and in law in confirming the action of the Deputy Commissioner of Income Tax, Circle 1(1), Baroda (“the AO”) in levying penalty u/s.271(1)(c) of the Income Tax Act, 1961 on disallowance of tank insulation charges amounting to Rs.10,49,024/- treating it as capital expenditure. 2. The penalty order passed by AO u/s.271(1)(c) is ultra virus, void and bad in law for the following reasons: a. The penalty is levied without reaching satisfaction in the course of assessment proceedings . b. There is neither any concealment of income nor furnishing of any inaccurate particulars of such income.
12 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. c. The Appellant has discharged his onus by furnishing explanation concerning addition / disallowance made by the Assessing Officer. d. The DCIT has erred in discharging the primary onus of proving the concealment of income or furnishing of an inaccurate particular of such income.” 23. We have heard arguments of both the sides and carefully perused the material placed on record of the Tribunal. The ld.DR in all fairness, agreed to the contention of the ld.AR that the addition on account of treating the tank installation charges as capital in nature instead of revenue expenditure has been deleted by the ITAT, Ahmedabad ‘D’ Bench order dated 19.01.2018 in assessee’s appeal for A.Y. 2008-09 in ITA No.3081/Ahd/2011. Therefore, penalty imposed on this count is also not sustainable.
On careful consideration of above submissions from appellate of the Tribunal order dated 19.01.20185 in ITA No.3081/Ahd/2011 for A.Y. 2008-09 it is apparent that the Tribunal has accepted the stand/contention of the assessee that the expenditure on tank installation expenses etc., is business expenditure of revenue in nature and the addition has been deleted. When the addition, on the strength on which penalty was imposed, has been deleted by the Tribunal then the penalty on the same ground cannot be held as sustainable. Hence,
13 ITA No’s.2658 to 2660/Ahd/2014/SRT (A.Y’s: 2006-07 to 2008-09) Gujarat Chemical Port Terminal Co.Ltd. sole ground of assessee is allowed and AO is directed to delete the penalty.
In the result, appeal for A.Y. 2006-07 and A.Y. 2007-08 are partly allowed and appeal for the A.Y. 2008-09 is allowed.
Order pronounced in the open court on this day of 23rd August, 2018.
Sd/- Sd/- (ओ पी मीना) (सी एम गग�) (O.P.MEENA) (C.M.GARG) �ाियक सद�/Judicial Member लेखा सद�/Accountant Member सूरत / Surat; �दनांक Dated : 23rd August, 2018/ S.Gangadhara Rao, Sr.PS आदेश क� �ितिलिप अ�ेिषत/Copy of the Order is forwarded to : 1. अपीलाथ�/The Appellant; 2.��थ� /The Respondent; 3.आयकर आयु�(अपील) /The CIT(A)-1, Surat; 4. Prl. CIT, Surat; 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, सूरत / DR, ITAT, Surat; 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�यािपत �ित //True Copy// सहायक प�जीकर / Assistant Registrar आयकर अपीलीय अिधकरण, सूरत / ITAT, Surat