VINYL CHEMICALS (INDIA) LTD,MUMBAI vs. DCIT CIR 3(3), MUMBAI

We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that assessee has claimed depreciation in respect of the above assets at the very same rate at which it has claimed depreciation in earlier years and which has also been accepted by the department. With regard to depreciation @30% on Oil Tankers, the assessee was claiming depreciation at 30% on WDV of M/s. Vinyle Chemicals (India) Ltd., Oil Tankers based on the entry D-9 in old Appendix -1 for depreciation which reads as "Motor Buses and Motor Lorries other than those used in a business of running them on hire." However in the subsequent Appendix -1, this entry is not there. These tankers were acquired before 1990 and assessee has been claiming depreciation @ 30% on oil tankers all these years, which was accepted by the Assessing Officers all these years. On the basis of earlier claims, the assessee claimed the depreciation in this year also in good faith. When the AO pointed out this to the assessee, it was accepted and no appeal was filed on this issue. The assessee simply followed the action taken in earlier years. There was no ulterior motive or intentional motive in claiming more depreciation.

With regard to depreciation @ 80% on Coal Fired boiler at Rs.4,78,423/- the assessee has been claiming the depreciation at the above rate in earlier years as well as in the subsequent years. In para 7.3 the A.O. has mentioned that " The assessee did not furnish any evidence to show that the assets purchased were coal fired boilers on which deduction @ 80% is allowable. The assessee simply furnished a letter of Asstt Manager of M/s Thermax Ltd addressed to assessee. In the said letter it is written that on boiler model CPF 100A depreciation @ 100% is allowable as it is energy saving device.”

We found that the said letter is written by the Asstt Manager of a Company who are manufacturers of the machinery used in coal fired plants and therefore an authority to say that the coal fired boiler is an M/s. Vinyle Chemicals (India) Ltd., energy saving device. In view of these facts we observe that the A.O failed to appreciate the evidence furnished before him in right spirit. The letter of Asstt Manager, Thermax Ltd is sufficient proof to establish that the boiler is an energy saving device. There is bill for purchase of machinery and bill for constructing coal bunker foundation for installing coal fired boiler. What further evidence is required? The A.O. did not ask for specific evidence in support of claim of depreciation. With regard to depreciation on effluent treatment plant @80% at Rs.12,97,418/-, we found that assessee had installed effluent treatment plant in its manufacturing facilities as required by Maharashtra Pollution Control Board in earlier years and had claimed depreciation on WDV of such assets during the year. Upon making an application to the Maharashtra Pollution Control Board and before starting manufacture of chemical products, the Maharashtra Pollution Control Board granted consent to operate u/s 26 of the Water (Prevention & Control of Pollution) Act, 1974 & u/s section 21 of the Air (Prevention & Control of Pollution) Act, 1981 and authorization/Renewal of Authorisation under Rule 5 of the Hazarduous Wastes (Management & Handling ) Rules 1989 and Amendment Rules, vide their consent letter.

It would be observed that the terms & conditions mentioned in the above letter is not a brochure containing rules and regulations but a consent letter issued to the assessee for observing the pollution control rules in a chemical factory. Again there was no addition during the year.

Thus, it is clear from the above that merely because of decline of part claim of depreciation, which was allowed by department itself in earlier year, the AO has levied the penalty. Since the assessee had huge losses in the year under consideration and in earlier year as well as in the subsequent years, no appeal was filed to the Tribunal. We found that the assessee had not concealed any facts relating to income.

For levying of penalty u/s. 271 (1) (c) there must be concealment of income. In the case of M/s Jyothy Laboratories Limited Vs DCIT (ITA No. 5447/Mum/05), the Mumbai Tribunal has held that where the assessee has claimed expenditure after putting all particulars on record and after interpreting section and using the favorable decision in support of same, the assessee cannot be said to have furnished inaccurate particulars or concealed particulars of income and hence, penalty was deleted. This decision was rendered after considering the decision of Hon’ble Supreme Court in the case of Union of India & Ors. V. Dharmendra Textile Processors & Ors. (306 ITR 277) (SC).

Hon’ble Bombay High Court in the case of Shivlal Desai & Sons 114 ITR 388 has categorically observed that merely there are certain additions / disallowance in the assessment proceedings, it will not bring in its wake the levy of penalty. Further, the Hon'ble Punjab & Haryana High Court in M/s. Vinyle Chemicals (India) Ltd., case of CIT Vs. Ajaib Singh & Co. (170 CTR 489) has held that merely because certain expenses claimed by the assessee has been disallowed it does not mean that the assessee has furnished incorrect particulars of its income.

Further, in the decision of Hon'ble Calcutta High Court in Burmah- Shell Oil Storage and Distribution Co. of India Ltd. Vs. ITO (112 ITR 592) wherein it has been held that the rejection of the contention raised by the Assessee cannot lead to the conclusion that there has been concealment of particulars of income or furnishing of inaccurate particulars thereof by the Assessee.

The Bombay High Court in the case of Sesa Resources Ltd vs ACIY(38 taxmann.com) has held as under : "The appellant had claimed a deduction u/s 10B of the Act. The appellant, however, was denied the same. The orders in this regard have attained finality. The question is, whether merely on account thereof the appellant is liable for penalty. There is no dispute that the appellant disclosed all the facts. The appellant did not conceal any facts. Based on the disclosed material, the appellant sought the deduction which was denied on the ground that it was not entitled to the same as a matter of law. The Tribunal was in error in holding that merely because the claim for deduction was denied the appellant is liable to pay the penalty.”

In the case of Reliance Petro Products 322 ITR 158 Hon’ble Supreme Court held that “submitting an incorrect claim for expenditure would amount to giving inaccurate particulars of such income" is not correct. By no stretch of imagination can the making of an incorrect claim in law tantamount to furnishing inaccurate particulars. A mere making of the claim, which is not sustainable in law, by itself, will not amount to M/s. Vinyle Chemicals (India) Ltd., furnishing inaccurate particulars regarding the income of the assessee. If the contention of the Revenue is accepted then in case of every Return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(l)(c). That is clearly not the intendment of the Legislature."

In view of the above discussion, we do not find any merit in the action of the AO for levying penalty for part disallowance of claim of depreciation.

In the result, appeal of assessee is allowed in terms indicated hereinabove.