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Income Tax Appellate Tribunal, ‘C’ BENCH : CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER
In this appeal filed by the Department, it is aggrieved that the ld. Commissioner of Income Tax (Appeals)-8, Chennai through his order dated 21.10.2016 deleted a penalty of Rs.71,50,089/- levied by the ld. Assessing Officer u/s.271 (1) ( c) of the Income Tax Act, 1961 (herein after referred to as ‘the Act’).
ITA No.14/Mds/2017 :- 2 -:
Facts apropos are that assessee engaged in the business of design, development and implementation of technologies used in Train Control Systems had filed its return of income for the impugned assessment year declaring a loss of Rs.3,33,64,487/-. During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had incurred an expenditure of Rs.1,81,35,161/- for development of base designs for a project called “McSigCD Editor/ viewer, SIGMA, CD Verifier tool, Remote Point Cotnroller, Centralized Freight Traffic Controller, i-Lock gate- level crossing controller’’. As per the ld. Assessing Officer, assessee had claimed 100% depreciation treating the above expenditure as creating an intangible asset.
Assessee was put on notice on how the claim could be allowed.
Reply of the assessee was that expenditure was basically revenue in nature and required to be allowed even if it could not be considered for 100% depreciation. However, ld. Assessing Officer was of the opinion that assessee had in its books of accounts rightly treated the expenditure to result in ‘’intangible asset’’ considering Accounting Standard 26 of Institute of Chartered Accountants of India. However, according to him, such expenditure was eligible for depreciation at the rate of 25% only. Ld. Assessing Officer also noted that assessee could not produce any bills in support of the claim such expenditure as well as the expenditure on certain other assets aggregating to �5,01,389/-.
ITA No.14/Mds/2017 :- 3 -:
He recomputed the depreciation claimed by the assessee, on these lines and such recomputation, resulted in an effective disallowance of Rs.1,85,67,205/-. It seems assessee did not prefer any appeal before the ld. Commissioner of Income Tax (Appeals).
Ld. Assessing Officer thereafter initiated penalty 3. proceedings u/s.271(1) (c) of the Act, for making a wrong claim of expenditure. As per the ld. Assessing Officer such wrong claim was equivalent to furnishing inaccurate particulars of income. Reply of the assessee to such notice was as under:-
“Due to the above reasons of suspension of operations and change of office, the company had lost come of its important documents in transit, and the said fixed assets bills are part of such lost documents. The bills were misplaced and the company present management had tired to locate them for submission during the course of assessment. As the mangement was not able to find the bills, it was accepted during the assessment for the disallowance of respective depreciation in order to buy peace with the depreciation’’.
However, ld. Assessing Officer was not impressed by the above reply.
According to him, acceptance of an addition to avoid litigation would not absolve the assessee from penalty proceedings. Ld. Assessing Officer held that assessee was guilty of furnishing inaccurate particulars, with regard to the claim of depreciation. Penalty of Rs.71,50,089/- was levied under section 271(1) (c) of the Act.
ITA No.14/Mds/2017 :- 4 -:
Assessee’s appeal before ld. Commissioner of Income Tax (Appeals) was successful. Ld. Commissioner of Income Tax (Appeals) relying on the judgment of Hon’ble Apex Court in the case of CIT vs. Reliance Petro Products Ltd, 322 ITR 158, held that preferring an incorrect claim by itself would not tantamount to furnishing of inaccurate particulars. Ld. Commissioner of Income Tax (Appeals) also relied on the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Cholamandalam Investment & Finance Co. Ltd, 364 ITR 680.
Now before us, the ld. Departmental Representative strongly 5. assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that if the ld. Assessing Officer had failed to detect the unlawful claim during the course of assessment proceeding, assessee would have been enriched by the higher claim of depreciation.
As per the ld. Authorised Representative, assessee could not produce bills for acquiring the assets. Thus, according to the ld. Departmental Representative claim of the assessee was not bonafide. Relying on the judgment of Hon’ble Apex Court in the case of Union of India vs. Dharmendra Textile Processors, 306 ITR 277, ld. Departmental Representative submitted that ld. Commissioner of Income Tax (Appeals) fell in error in deleting the penalty.
ITA No.14/Mds/2017 :- 5 -:
Per contra, ld. Authorised Representative strongly supported the order of the ld. Commissioner of Income Tax (Appeals).
We have considered the rival contentions and perused the 7. orders of the authorities below. It might be true that assessee had claimed expenditure incurred in relation to development of basic designs for its train control systems as Revenue outgo before the ld. Assessing Officer. However, assessee had preferred such claim only when it found that ld. Assessing Officer was not accepting its claim regarding such expenditure to result in intangible assets. Ld. Assessing Officer has clearly specified in para 3.1 of the assessment order that the expenditure of Rs.1,81,35,161/- resulted in intangible assets. It may be true the intangible asset might have been eligible for depreciation only at the rate of 25% if it was considered in the same class as of patents. However, we cannot say that any inaccurate particulars were filed by the assessee. Assessee had also given reasonable explanation for its failure to produce the bills in support of its explanation. Inability to produce the bills in support of expenditure would not by itself mean that claim was not an unlawful one. There is no adverse comment of the Statutory Auditors of the assessee company, pointed out by the ld. Assessing Officer. Just because assessee preferred a claim which was not found acceptable by the ld. Assessing Officer, would not mean that claim was not a ITA No.14/Mds/2017 :- 6 -: bonafide or was based on inaccurate particulars. Ld. Commissioner of Income Tax (Appeals) in our opinion had rightly relied on the judgment of Hon’ble Apex Court judgment in the case of Reliance Petro Products Ltd (supra) and also that of Hon’ble Jurisdictional High Court in the case of Cholamandalam Investment & Finance Co. Ltd (supra). The effect of the judgment of Hon’ble Apex Court in the case of Dharmendra Textile Processors (supra) were discussed and distinguished in these cases. In the circumstances, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in deleting the penalty. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).
In the result, the appeal of the Revenue stands dismissed.
Order pronounced in the open court at the time of hearing on 11th January, 2018, at Chennai.