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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: VIKAS AWASTHY
आदेश/ ORDER PER VIKAS AWASTHY, J.M:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-9, Mumbai ( in short ‘the CIT(A)’) dated 17/12/2018 for the assessment year 2004-05 confirming levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 ( in short ‘the Act’).
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Shri Yogesh Thar appearing on behalf of the assessee submitted that in assessment proceedings under section 143(3) of the Act, the Assessing Officer while computing book profit under MAT provisions disallowed assessee’s claim of brought forward unabsorbed depreciation and levied penalty under section 271(1)(c) of the Act. The ld. Authorized Representative for the assessee submitted that in the Financial Fear 2002-03, the assessee suffered loss of Rs.75,83,118/- and also had unabsorbed depreciation of Rs.33,82,891/-. The assessee claimed set off of unabsorbed depreciation, being less than the business losses of Financial Year 2002- 03, against book profits of Financial Year 2003-04, in accordance with provisions of Sec.115JB(1), Explanation 1 Clause (iii). The assessee claimed set off of unabsorbed depreciation of preceding assessment year by following year on year approach. The assessee’s working of claim was in line with the subsequent decision of Tribunal in the case of Amline Textiles Pvt. Ltd. vs. ITO reported as 27 SOT 152(Mum). In assessment proceedings the Assessing Officer rejected assessee’s claim of unabsorbed depreciation by adopting aggregation approach. The Assessing Officer held that there is no loss in the books of account for Financial Year 2002-03, therefore, the deduction claimed in computation of book profits under section 115JB of the Act was rejected. The ld. Authorized Representative for the assessee submitted that the assessee accepted the addition made by Assessing Officer in assessment proceedings. However, acceptance of said addition would not result in automatic levy of penalty under section 271(1)(c) of the Act. Whether unabsorbed depreciation /loss of preceding assessment years should be considered be on year on year basis or the cumulative balance in Profit & Loss account should be considered for computing book profits under section 115JB of the Act, is debatable.
2.1. The ld. Authorized Representative for the assessee contended that Pune Bench of the Tribunal in the case of Kirloskar Ferrous Industries Ltd. vs. Addl. CIT in ITA No.519/PUN/2009 for assessment year 2005-06 decided on 30/11/2011 has taken a view in favour of aggregation approach. On the other hand, in the case of
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Amline Textiles Pvt. Ltd. (supra) the Tribunal has approved year to year basis approach. These two divergent views taken by different benches of Tribunal makes the issue contentious.
2.2. The ld. Authorized Representative for the assessee pointed that in the case of ACIT vs. Arvind Mills Ltd. in ITA No.3440/Ahd/2010 for assessment year 2004-05 decided on 05/08/2011 the Revenue had assailed the order of CIT(A) in deleting the addition made by Assessing Officer rejecting assessee’s claim of year wise unabsorbed depreciation while calculating book profit under section 115JB of the Act. The stand of the Revenue was that unabsorbed depreciation/business loss should be considered on cumulative basis. The Tribunal rejected the plea of Revenue and concurred with the findings of CIT(A) holding that the Assessing Officer could not have carried out rectification on this issue under section 154 of the Act as the issue is debatable. Thus, the aforesaid decision by the Tribunal clearly brings out the fact that whether year to year approach is to be taken or aggregation approach is to be adopted for claiming the benefit of unabsorbed depreciation/brought forward business loss under section 115JB of the Act, is a debatable issue.
Similar view was taken in the case of Central India Polyesters vs. CIT in ITA No.210 to 212/Ngp/2013 decided on 19/12/2014. In the aforesaid case the CIT had invoked revisional jurisdiction under section 263 of the Act on the ground that the assessee has taken total brought forward unabsorbed depreciation/business loss for set off while computing book profit under section 115JB of the Act. The Tribunal held that there are orders of the Tribunal in favour of assessee as well as against the assessee. Since, two views are possible on the issue, therefore, the order passed by the Assessing Officer cannot be held as erroneous and prejudicial to the interest of Revenue. Invoking of jurisdiction under section 263 of the Act was held to be bad in law, issue being debatable.
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2.3. The ld. Authorized Representative for the assessee submitted that the above decisions of the Tribunal clearly show that the issue on which penalty under section 271(1)(c) of the Act has been levied in the instant case is debatable, hence, penal provisions under section 271(1)(c) of the Act are not attracted.
Per contra, Ms. Shreekala Pardeshi representing the Department vehemently defended the order of CIT(A) in confirming levy of penalty. The ld. Departmental Representative submitted that the assessee while computing books profit under section 115JB has wrongly claimed unabsorbed depreciation of immediately preceding assessment year. The Assessing Officer found that there was no brought forward loss/unabsorbed depreciation that could have been allowed to the assessee under section 115JB of the Act. Moreover, the assessee accepted the disallowance made by the Assessing Officer and did not contest by filing any further appeal. The ld. Departmental Representative prayed for dismissing appeal of the assessee and upholding the impugned order.
Both sides heard. Orders of authorities below examined and the decisions on which reliance has been placed considered. The assessment for the impugned assessment year was framed under section 115JB of the Act. The assessee’s claim of write off of brought forward unabsorbed depreciation was disallowed by the Assessing Officer while computing book profits under section 115JB of the Act on the premise that cumulative balance in the books of assessee for Financial Year 2002-03 show profits and Reserves & Surplus. Apart from disallowing assessee’s claim of set off of brought forward unabsorbed depreciation, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act on the said disallowance and levied penalty of Rs.12,13,612/- vide order dated 31/3/2010. The assessee was unsuccessful in contesting penalty before the CIT(A).
The assessee is seeking deletion of penalty on the ground that the issue of computation of unabsorbed depreciation/brought forward business loss under
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section 115JB of the Act is debatable. The assessee had incurred aggregate losses of Rs.109.66 lacs (including unabsorbed depreciation of Rs.33.82 lacs) during the Financial Year 2002-03. As per provisions of section 115JB of the Act, the assessee claimed unabsorbed depreciation i.e. Rs.33.82 lacs being less than the business loss as deduction under section 115JB of the Act. The assessee made claim on the premise that business loss/unabsorbed depreciation were to be considered on year to year basis. The assessee in support of its computation of claim placed reliance on the decision of Tribunal in the case of Amline Textiles Pvt. Ltd. (supra). As against this, the Assessing Officer rejected the claim of assessee following aggregation approach, as reflected in the Balance Sheet. Per approach of Assessing Officer there would be no unabsorbed depreciation/business losses available for adjustment under section 115JB of the Act. There are two school of thoughts in computing set off of unabsorbed depreciation/business losses i.e. year to year basis vs aggregation. Both views are possible as per the language of Explanation- 1 clause (iii) to section 115JB (1) of the Act. This makes the issue debatable.
The issue is debatable is also evident by the different decisions of Tribunal relied by the Authorised Representative of the assessee. The Tribunal in the case of Arvind Mills Ltd. (supra) while considering the issue in context of section 154 of the Act held that issue being debateable cannot be a subject of rectification u/s 154 of the Act. In the case of Central India Polyesters Ltd. (supra), the Tribunal while considering the validity of revisional jurisdiction u/s. 263 of the Act exercised by the CIT of similar issue held that there are two views possible. The assessment order cannot be considered as erroneous and prejudicial to the interest of Revenue where the Assessing Officer has taken one of the possible views. Therefore, there is no doubt about the issue being debatable.
Now, the question arises what was the position when the assessee had filed return of income for the impugned assessment year. The assessee filed its return of
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income on 12/10/2004. The decision earliest in time filed by the ld. Authorised Representative of the assessee is in the case of Amline Textile Pvt. Ltd. (supra). The said decision was rendered by the Tribunal on 04/11/2008 and it pertains to AY 2003-04. The said decision supports the view taken by assessee. Thus, the method adopted by the assessee at the time of filing return was one of the acceptable view. Ergo, the assessee is able to furnish reasonable explanation in making a claim of unabsorbed depreciation while computing book profits u/s 115JB of the Act. In light of the fact discussed above coupled with the fact that divergent views have been expressed by the Tribunal on the issue of treating unabsorbed depreciation/business loss of preceding assessment years while computing book profits u/s 115JB, makes the issue debatable. Hence, no penalty under section 271(1)(c) of the Act can be levied on such disallowance.
It is no more res-integra that levy of penalty is not automatic. Even if addition/disallowance made by Assessing Officer is accepted by the assessee and is not contested further, it would not result in levy of penalty. Assessment proceedings and penalty proceedings are separate and distinct. The Assessing Officer has to record satisfaction before initiating penalty proceedings and the penalty proceedings are subject to judicial scrutiny independent of additions/disallowances made under assessment proceedings. Therefore, levy of penalty for the reason that the addition/disallowance has been accepted by the assessee is not sustainable ground.
Dehors the fact that the penalty has been levied on addition/disallowance on which two views are possible, it is observed that the assessee had made full disclosure in the return of income while computing book profits under section 115JB of the Act. The manner of computation may not be in accord with the view of Assessing Officer, but that would not attract penalty provisions u/s. 271(1)(c). No penalty could have been levied on such disallowance/addition in the light of decision
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rendered in the case of CIT vs. Reliance Petroproducts (P) Ltd., 322 ITR 158 (SC). Thus, it is not a fit case for levy of penalty under section 271(1)(c) of the Act.
The impugned order is set-aside and the penalty levied under section 271(1)(c) of the Act is deleted. In the result, appeal by the assessee is allowed.
Order pronounced in the open court on Friday the 30th day of July, 2021.
Sd./- (VIKAS AWASTHY) �या�यक सद�य/JUDICIAL MEMBER मुंबई/ Mumbai, �दनांक/Dated: 30/07/2021 Vm, Sr. PS (O/S) ��त�ल�प अ�े�षतCopy of the Order forwarded to : 1. अपीलाथ�/The Appellant , 2. ��तवाद�/ The Respondent. 3. आयकर आयु�त(अ)/ The CIT(A)- 4. आयकर आयु�त CIT 5. �वभागीय ��त�न�ध, आय.अपी.अ�ध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai