ASHISH FERRO MET P. LTD,AHEMEDABAD vs. ITO 5(1)(3), MUMBAI

The brief facts of the case are that the assessee filed its return of income for the relevant assessment year on 16th July, 2004 declaring loss of `1,09,33,010/-. Assessment was completed under Section 143(3) of the Act on 15th December, 2006. The AO, while passing the assessment order, besides other additions and disallowances, disallowed depreciation of `11,79,970/- as the assessee has not shown any business during the year. and disallowance of penalty levied by Excise Department of `60,000/-.

We have heard the rival contentions and perused the material available on record. The learned A.R. submits that the assessee has neither concealed any income nor furnished inaccurate particulars of income. The assessee claimed of depreciation on factory building, plant & machinery, air conditioners, etc. The claim of depreciation was disallowed due to no business activity. The assessee’s business was temporarily closed due to the proceedings before the Board of Industrial Finance and Reconstruction as the assessee was declared as sick company. The assessee subsequently revived its business. The assessee claimed depreciation on the basis of legal advice. In subsequent assessment years the business of the assessee was revived and the assessee was allowed depreciation on the same assets. The learned A.R. further submits that mere disallowance of claim, which is not accepted by Revenue authorities would not tantamount to furnishing inaccurate particulars of income or concealment of income. The assessee has furnished all the details in its return of income. In support of his submission the learned A.R. relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. 322 ITR 158.

On the other hand, the learned D.R. for Revenue supported the orders of the Authorities below. The learned D.R. further submits that the assessee has intentionally and deliberately filed inaccurate particulars of income. Had the assessment not been selected for scrutiny the assessee would have successfully evaded tax. In support of his submission the learned A.R. relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Samson Maritime Ltd. vs. CIT in of 2014 and the M/s. Ashish Ferro-Met P. Ltd decision of the Tribunal in the case of Sansui Steel Pvt. Ltd. vs. ITO in ITA No. 1403/Mum/2015.

We have heard the rival contentions and have gone through the orders of the Authorities below. During the assessment proceedings the AO made disallowance of depreciation on plant & machinery as there was no business income. The addition/disallowance was confirmed by the learned CIT(A) in the quantum assessment. However, on further appeal before the Tribunal, the appeal of the assessee was dismissed due to non- appearance of the assessee. The AO levied penalty on the disallowance of depreciation @100% of tax sought to be evaded. We have noted that in reply to the show cause notice under Section 271(1)(c) r.w.s. 274 the assessee specifically contended that the assessee company has temporarily suspended its project due to financial crisis and could not run its business due to pressure created by financial institutions and Bank of Baroda. The assessee specifically contended that the claim of depreciation was made on bonafide legal advice. The assessee also contended that there was no positive income of the assessee and therefore there was no liability of tax. Hence requested to drop the penalty proceedings.

We have noted that the assessee has given reasonable explanation for dropping of penalty proceedings. Even the tax effect on disallowance of depreciation was neutral. The AO, while passing the assessment order, made disallowance solely on the ground that during the relevant period there was no business income. the ld DR has not disputed that in subsequent years the business of the assessee was revived and the assessee was allowed depreciation on the same asset. There is no finding of the AO that there is any active concealment of income or furnishing of inaccurate particulars of income. The Hon'ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. (supra) held that mere disallowance of claim would not attract penalty unless the Revenue

The case laws relied upon by the learned D.R. for Revenue are not applicable on the facts of the present case. In the case of Samson Maritime Ltd. (supra) the assessee incorrectly debited foreign exchange loss while computing non-tonnage income and the AO has recorded that it was done after it was found on verification that no foreign exchange loss was incurred in respect of non- tonnage income. Moreover, the AO has specifically recorded the fact that there was no transaction in foreign currency resulting in foreign exchange loss, in the case of non-tonnage income yet the assessee has debited the exchange loss only to reduce the non- tonnage income being offered to tax. However, in the present case the there is no tax evasion. In any case the assessee has offered a negative income as referred above. In the case of Sansui Steel Pvt. Ltd. (supra) the assessee in that case was found to indulge in availing filing bogus entries and when the bogus entry was detected the assessee offered the said transaction to tax by filing affidavit before the AO. Therefore, the fact of this case is also not applicable on the facts of the present case.

In view of the factual and legal discussion we are of the view that the assessee has offered explanation in reply to show cause notice under Section 274 r.w.s. 271(1)(c), which is reasonable and bonafide explanation in accordance with Explanation (1) to Section 271. Therefore the grounds of appeal raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed.