DCIT, NEW DELHI vs. M/S. CONTROL & SWITCHGEAR CONTRACTORS LTD., NEW DELHI

Assessee by : Sh. Anil Bhalla, CA Revenue by: Sh. Umesh Chand Dubey, Sr. DR Date of Hearing 08/11/2016 Date of pronouncement 30/01/2017 O R D E R PER PRASHANT MAHARISHI, A. M. These are appeals filed by the revenue and cross objection filed by the 1. assessee against the order dated 20.09.2013 of the ld CIT(A)-VI, New Delhi for the Assessment Year 2007-08. The revenue has raised the following grounds of appeal: 2.

1. The ld CIT(A) has erred in law and on the facts in holding that the depreciation on building is allowable to the assessee ignoring that:- i. Depreciation is allowable w.r.t as asset only when it is put to use during the relevant period and in the case under consideration, there has been no business activity during the year or in the subsequent year and as such the asset cannot be said to have put to use during the period. ii. The case laws relied by the assessee including Bharat Alunimum co. Ltd., Ganga Properties Ltd are not applicable, as these cases, the assets which were not put to business use were part of block of assets which in the case under consideration, the whole block itself has not been put to business use.”

Page 2 of 5 The assessee has raised the following grounds of appeal:- 3.

1. The learned Commissioner of Income Tax (Appeals) was not justified in confirming the levy of penalty u/s 271(1)© of the Act in respect of claim of repairs and maintenance expenses of Rs. 186745/- which was added back by the Assessing Officer.”

4. The assessee is a company engaged in the business of manufacturing of control gear and switch gear products. For AY 2007-08 it filed its return of income on 15.1.2007 declaring income of Rs. 90690210/- and assessment was made u/ 143(3) of the Act on 30.12.2009 at a total income of Rs. 125328740/- . The additions were contested up to the level of tribunal vide order dated 20.04.2010 the issue was decided by coordinate bench. Meanwhile, the ld Assessing Officer initiated penalty proceedings and passed penalty order with respect to disallowance of Rs. 25173015/- sustained. The various expenditure on which the penalty is initiated and levied are as under:-

Disallowed renovation/ additional Decision by the Hon’ble ITAT against the construction expenses amounting to Rs. appellant in IT Appeal No. 511/Del/2011 (AY 186745/- 2007-08) dated 20.04.2012 (page 17-20) Disallowed foreign travelling expenses Decided by the CIT(A)-VI, new Delhi in favour amounting to Rs. 1964672/- of the assessee in quantum appeal in Appeal No. 306/096-10 dated 08.12.2010 (page 06- 08) Disallowed additional deprecation The matter has been restored back to the file amounting to Rs. 3570062/- claimed by the of AO by the Hon’ble ITAT in IT Appeal No. assessee 511/Del/2011 (AY 2007-08) dated 20.04.2012 Disallowed deprecation on goodwill Depreciation on goodwill is allowable in view amounting to Rs. 713672/- of the decisions of Hon’ble Delhi High Court in Areva T&D India Ltd. Vs. DCIT (2012 TIOL- 234 HD-Del-IT) and Hon'ble Supreme Court in Cit Vs. Smiffs Securities Ltd. (2012-TIOL-53- HON'BLE SUPREME COURT –IT) Disallowed the claimed of the assessee u/s The matter has been restored back to the file 10B of Rs. 20702536/- of AO, by the Hon’ble ITAT in IT Appeal No. 511/Del./2011 (AY 2007-08) dated 20.04.2012.

before us whereas, the assessee has contested the confirmation of the penalty on disallowance of claim of repairs and maintenance expenses of Rs. 186745/- confirmed by the ld CIT(A). We first take up the appeal of the assessee.

6. A sum of Rs. 186745/- is disallowed by the ld Assessing Officer holding that the expenses are in the nature of major renovation or additional construction Page 3 of 5 expenses and therefore, it was disallowed holding as capital expenditure. On appeal before the Tribunal, the disallowance was confirmed therefore, penalty was levied on the same. The disallowance confirmed by the ld CIT(A) was for the reason that expenditure are relates to flooring, grow cutting etc and assessee could not produce any evidence to substantiate that amount is incurred for revenue expenditure as current repairs. On appeal before the ITAT, the disallowance was confirmed as raw material purchased and labour expenditure incurred shows that it was not the change in the identity of the existing asset but it is the new asset coming into existence therefore penalty was levied. The ld CIT(A) also confirmed penalty on same relying upon the decision of Hon'ble Supreme Court UOI Vs. Dharmendra Textile Processors 306 ITR 277 (S.C.). Therefore the assessee is in appeal before us.

7. The ld AR submitted that in the case of the assessee for AY 2006-07 in identical circumstances penalty u/s 271(1)(c) levied by the AO is deleted by coordinate bench in dated 04.03.2015, therefore the issue is squarely covered in favour of the assessee.

8. The ld DR relied upon the order of the lower authorities and submitted that as the authorities have upheld the disallowance the penalty is correctly levied.

9. We have carefully considered the rival contentions and also perused the order of the coordinate bench in the case of the assessee which was also levied on disallowance of renovation expenses, foreign travel expense, additional deprecation and claim of exemption u/s 10B of the Act. almost all the issues of penalty in these two appeals were also there in the order cited before us. Vide para No of that order the penalty levied u/s 271(1)(c) of the Act was deleted as under:-

4. We have considered the rival submissions and have perused the order of the AO. With regard to the disallowance of Additional Depreciation and of Exemption u/s 10B of the Act, the matter has been restored to the file of the AO to determine the same afresh in accordance with law as per the directions of the Tribunal and the matter is still pending before the AO. In these facts, we cancel the penalty levied u/s 271(1)(c) of the Act on these two items of disallowance. However, the AO while framing the assessment as per the directions of the Tribunal, may if so warranted initiate the penalty u/s 271(1)(c) of the Act afresh in accordance with law. With regard to the disallowance of Guarantee Commission of Directors, the Tribunal Page 4 of 5 has already allowed the miscellaneous application preferred by the assessee and following the decision of the Hon’ble Delhi High Court has allowed deduction of Guarantee Commission paid to the Directors and their remain no basis for levy of penalty u/s 271(1)(c) of the Act on this issue and the same is accordingly cancelled. With regard to the other two items of disallowance of Repair and Maintenance Expenses and disallowance out of Foreign Travelling Expenses, we find that part of disallowance has been confirmed in appeal by the appellate authority. However, the disallowance was made on the basis of information and facts made available to the AO by the assessee itself. The fact that assessee has in fact spent the amounts in question, is not in doubt. Moreover, it is a clear case of difference of opinion with regard to the allowability of certain claim of expenditure made by the assessee. The issue that whether Repairs and Maintenance in respect of leased buildings was revenue or capital in nature or whether the part of the Foreign Travelling Expenses were for the business purposes of the assessee is clearly debatable in nature. This is a case where the assessee has disclosed all the material facts necessary for assessment at the time of filing of the return itself. The conduct of the assessee in this case was bonafide. In these facts of the case, we are of the view that it is not a fit case for levy of penalty u/s 271(1)(c) of the Act on these two items of disallowances made by the AO and accordingly the penalty levied u/s 271(1)(c) of the Act on disallowance of Repair and Maintenance Expenses and out of Foreign Travelling Expenses is cancelled.”