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Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI
Before: Shri Jason P Boaz & Shri Sandeep Gosain
Per Jason P Boaz, Accountant Member
These appeals by the assessee are directed against the consolidated order of the CIT(A)- 38, Mumbai, dated 07.04.2014 dismissing the assessee’s appeals for A.Ys. 2001-02 to 2003-04, thereby confirming the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’). Since common issues are involved, these appeals were heard together and are being disposed off by way of this common order.
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The grounds of appeal raised by the assessee are as under:
2.1 Assessment Year 2001-02
“1. The learned CIT (Appeal) erred in confirming the penalty levied u/s 271(1)(c) by the AO at Rs. 1,94,91,444/- on following addition/disallowances:-
I)Deferment of Income on account of AMC charges of Rs. 42, 67,660/- II) Disallowance of Depreciation on IPR Rs.4,50,15,385/-
The learned CIT (Appeal) erred in holding that in grounds of appeal before him the appellant has not raised any ground relating to levy of concealment penalty on issue of Deferment of Income oil of AMC charges of Rs. 42,67,660/- ignoring the ground no. 1, 2,6,7,8 and 9 which were common ground covering both the issues and also failed to appreciate the detailed submission made in this regard.
The learned CIT (Appeal) failed to appreciate that the appellant has either concealed any income nor submitted any inaccurate particular of Income.
The learned CIT (Appeal) failed to appreciate that in the quantum order the hon'ble ITAT held that it cannot be said that the assessee derives any advantage by following the method of accounting which is in dispute in this appeal in respect of deferment of income on account of AMC charges. Accordingly the appellant neither concealed any income nor submitted any inaccurate particulars of Income in this respect.
The Learned CIT(Appeal) failed to appreciate that the appellant have made full disclosure of fact in respect of AMC charges.
The learned CIT(A) failed to appreciate that the additions oil of AMC charges were made due to difference of opinion, the issue was debatable one as various judgments relied by the appellant were in favour, accordingly no penalty u/s 271(1)(c ) should have been levied.
The learned CIT (Appeal) erred in holding that the withdrawal of claim of depreciation on IPR was not voluntary.
The learned CIT (Appeal) erred in holding that depreciation IPR was not a bonafide claim and further erred in holding the existence of IPR was itself in question.
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The learned CIT (Appeal) erred in conveniently ignoring the fact that in the quantum order then CIT (Appeal) has already allowed the deprecation claim on IPR relying on submission made by the appellant, thus the issue was debatable one on which no penalty can be imposed.
The CIT (Appeal) failed to appreciate that appellant has made full disclosure about the claim of depreciation on IPR accordingly no concealment penalty is levyble. 11. The Learned CIT(Appeal) erred in invoking the provision of explanation 5A of section 271(1) and also failed to appreciate that the AO has not invoked the provision of explanation 5A of section 271(1) and no separate notice was given by him for invoking the provision of Explanation 5A to the appellant. 12. The Learned CIT(A) failed to appreciate that the penalty u/s 271 (1)(c) was initiated in the order passed u/s 143(3) read with section 147 and no order u/s 153A was passed and as such application of explanation 5A of section 271(l) was bad in law.
The Appellant craves leave to add, delete, amend, alter, modify or substitute any of the above ground as an when advised 2.2 Assessment Year 2002-03
“On the facts and circumstances of the case and in Law: - 1. The learned CIT (Appeal) erred in confirming the penalty levied u/s 271(1)(c) by the AU at Rs. 20,14,673- oil addition made for Deferment of Income on account of AMC charges of Rs.60,44,673/- 2. The learned CIT (Appeal) erred in holding that in grounds of appeal before him the appellant has not raised any ground relating to levy of concealment penalty on issue of Deferment of Income on account of AMC charges of Rs. 60,44,673/- ignoring the ground no 1, 2,3, 6,7,8 ,9 and 10 and also failed to appreciate the detailed submission made in this regard. 3. The learned CIT (Appeal) failed to appreciate that the appellant has neither concealed any income nor submitted any inaccurate particular of Income. 4. The learned CIT (Appeal) failed to appreciate that in the quantum order the hon'ble ITAT held that it cannot be said that the assessee derives any advantage by following the method of accounting which is in dispute in this appeal in respect of deferment of income on account of AMC charges. Accordingly the appellant neither
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concealed any income nor submitted any inaccurate particulars of Income in this respect. 5. The Learned CIT(Appeal) failed to appreciate that the appellant have made full disclosure of fact in respect of AMC charges. 6. The learned CIT(A) failed to appreciate that the additions on account of AMC charges were made due to difference of opinion, the issue was debatable one as various judgments relied by the appellant were in favour, accordingly no penalty u/s 271(1)(c ) should have been levied. 7. The Appellant craves leave to add, delete, amend, alter, modify or substitute any of the above ground as an when advised.” 2.3 Assessment Year 2003-04
“1. The learned CIT (Appeal) erred in confirming the penalty levied u/s 271(1)(c) by the AO at Rs. 93,31,784/- on following addition/disallowances:- I Deferment of Income on account of AMC charges of Rs. 71,458/- II. Disallowance of Depreciation on IPR Rs. 2,53,21,154/- 2. The learned CIT (Appeal) erred in holding that in grounds of appeal before him the appellant has not raised any ground relating to levy of concealment penalty on issue of Deferment of Income on account of AMC charges of Rs. 71,458/- ignoring the ground no. 1, 2,6,7.8 and 9 which were common ground covering both the issues and also failed to appreciate the detailed submission made in this regard. 3. The learned CIT (Appeal) failed to appreciate that the appellant has neither concealed any income nor submitted any inaccurate particular of Income. 4. The learned CIT (Appeal) failed to appreciate that in the quantum order the hon'ble ITAT held that it cannot be said that the assessee derives any advantage by following the method of accounting which is in dispute in this appeal in respect of deferment of income on account of AMC charges. Accordingly the appellant neither concealed any income nor submitted any inaccurate particulars of Income in this respect. 5. The Learned CIT(Appeal) failed to appreciate that the appellant have made full disclosure of fact in respect of AMC charges. 6. The learned CIT(A) failed to appreciate that the additions on account of AMC charges were made due to difference of opinion, the issue was debatable one as various judgments relied by the
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appellant were in favour, accordingly no penalty u/s 271 (1)(c ) should have been levied. 7. The learned CIT (Appeal) erred in holding that the withdrawal of claim of depreciation on IPR was not voluntary. 8. The learned CIT (Appeal) erred in holding that depreciation IPR was not a bona fide claim and further erred in holding the existence of IPR was itself in question. 9. The learned CIT (Appeal) erred in conveniently ignoring the fact that in the quantum order then CIT (Appeal) has already allowed the deprecation claim on IPR relying on submission made by the appellant, thus the issue was debatable one on which no penalty can be imposed. 10. The CIT (Appeal) failed to appreciate that appellant has made full disclosure about the claim of depreciation on IPR accordingly no concealment penalty should have been levied. 11. The Learned CIT(Appeal) erred in invoking the provision of explanation 5A of section 271(1) and also failed to appreciate that the AO has not invoked the provision of explanation 5A of section 271(1) and no separate notice was given by him for invoking the provision of Explanation 5A to the appellant. 12. The Appellant craves leave to add, delete, amend, alter, modify or substitute any of the above ground as an when advised.”
At the outset, the learned AR for the assessee submitted that the assessee is
only pressing grounds at serial nos. 1 and 2 in all the three appeals. In these
circumstances, all the other grounds, at Sr.Nos. 3 to 15 for A.Y. 2001-02, grounds
at Sr. Nos. 3 to 7 for A.Y. 2002-03 and grounds at Sr. Nos. 3 to 12 for A.Ys. 2003-
04 , not being pressed or urged in these appeals, the same are rendered infructuous
and accordingly dismissed.
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Ground No.1(II) for A.Ys 2001-02 and 2003-04: Disallowance of
depreciation on IPR.
4.1 In this ground, the assessee has assailed the action of the learned CIT(A) in
confirming the levy of penalty u/s. 271(1)(c) of the Act by the AO on the assessee’s
claim for depreciation on IPR’s u/s. 32(1)(ii) of the Act as intangible assets for both
the assessment years 2001-02 and 2003-04. At the outset, the learned AR for the
assessee submitted that this issue of levy of penalty u/s. 271(1)(c) of the Aat in
respect of the assessee’s claim of depreciation of IPR’s u/s. 32(1)(ii) of the Act is
covered in favour of the assessee by the decision of the co-ordinate Bench of the
Tribunal in the assessee’s own case in ITA No. 7015 to 7018/Mum/2011 dated
04.03.2015 for A.Ys. 2002-03 and 2004-05 to 2006-07, wherein the co-ordinate
Bench has cancelled the levy of penalty u/s. 271(1)(c) of the Act on this issue. The
learned AR contends that in view of the aforesaid order of the co-ordinate Bench
(supra), the penalty levied u/s. 271(1)(c) of the Act for A.Y. 2001-02 and 2003-04
are to be cancelled.
4.2 Per contra, the learned DR supported the orders of the authorities below, but
fairly conceded that the issue in question i.e., the levy of penalty u/s. 271(1)(c) of
the Act is covered in favour of the assessee by the aforesaid decision of the co-
ordinate Bench of the Tribunal in the assesee’s own case (supra).
4.3.1 We have heard both parties and have carefully considered the material on
record; including the judicial pronouncements cited. As agreed by both the learned
AR for the assessee and the learned DR for the revenue, we find that the issue of
levy of penalty u/s. 271(1)(c) of the Act on the assessee’s claim for depreciation on
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IPR’s u/s. 32(1)(ii) of the Act has been considered and held in favour of the
assessee in the decision of the co-ordinate Bench in the assessee’s own case for
A.Ys 2002-03 and 2004-05 to 2006-07 in its order in ITA Nos. 7015 to
7018/Mum/2011 dated 04.03.2015 (supra). At paras 17 to 31 thereof, the co-
ordinate Bench has held as under:
We have heard the arguments and have pursued the orders of the revenue authorities and the plethora of case laws cited before us. The following are the undisputed facts: The assessee claimed the IPRs as one of the benefits of the award of Arbitration, sustained by the Hon’ble Madras High Court and Hon’ble Bombay High Court within the scheme of amalgamation. The assessee claimed depreciation on the IPRs as per the provisions of section 32(1)(ii), IPRs being intangible assets. The disallowance of depreciation on IPRs by the AO in regular assessment proceedings was allowed by the CIT(A). The Director Mr. Jignesh Shah withdrew the claim of depreciation in the statement under section 132(4) during the course of search and seizure operations undertaken on the assessee. In 153A proceedings, the AO once again added the same but in these proceedings, the CIT(A) sustained the order of the AO. The AO as a consequence of the orders in 153A proceedings initiated and levied the penalty under section 271(1)(c). 18. On the above facts, we have to ascertain, as to whether at all penalty is leviable on the assessee, on the undisputed and undisturbed facts and figures, already within the knowledge of the revenue authorities. 19. We find that on the date of search, when Mr. Jingnesh Shah director of the assessee company withdrew the claim of depreciation on IPRs, the claim was already allowed by the CIT(A), but was sub judice before the ITAT in regular assessment proceedings. 20. In such a situation, the issue could not have been made the subject matter of assessment under section 153A read with section 143(3), because that provision contemplates, assessment of material found during the course of search along with the original ingredients of the original return. The important qualification is that the material must be
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incriminating and found during the search, and which may have the character of increasing the income declared in original ROI. 21. In the instant case, it is not the case of department that there was something which was concealed by the assessee, while filing its original return or the return in response to section 153A. In such a case incidence of penalty at all cannot be comprehended. 22. Reverting our attention towards the applicability of Explanation 5A of section 271(1)(c). As mentioned earlier in the order, the Explanation uses the expressions, “Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of— (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and,— (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income”. 23. When we analyze the expressions used in clause (i) to Explanation 5A, we find that the expressions used are definite to use the words “any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year”. In the instant cases, no addition/disallowance had been made on any money, bullion, jewellery or other article or thing found in the search. Factually, is not the case of the revenue as well, because none of the above expressions was a result of the search or have been pointed out by the revenue authorities.
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Even when we analyze expressions used in clause (ii) to Explanation, “any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year” ..., we find that even this shall not apply for the following reasons, (a) IPRs were acquired as a scheme awarded by the two Hon’ble High Courts & (b) the withdrawal of the charge of depreciation was a suo moto decision to avoid litigation. (c) the impugned issue is does not pertain to income but, it was a legal charge on the intangible assets, as acquired by the assessee. 25. In so far as depreciation is concerned, it is an allowable legal charge, which had been accepted and allowed by the CIT(A) in regular round of proceedings. Since it has been disallowed now, it falls within the precinct of (i) change of opinion, and (ii) in case of a legal claim of a legal charge. 26. A legal claim and change of opinion by the revenue authorities on a given subject, cannot partake the character of concealment and/or furnishing of inaccurate particulars of income, hence penalty is not exigible. 27. Even when we try to examine the correctness of levy of penalty through the window of quantum, the instant case of levy of penalty is a result of suo moto withdrawal of depreciation of an intangible asset, which are, patents, copyrights, trademarks etc., which already find place in the intangible asset portion of section 32 on which the depreciation would have been allowed. 28. In any case depreciation is not based on book entry but on the basis of provision of the Act. 29. Coming to the correctness of addition, based on statement under section 132(4), we are in agreement with the submissions of the AR, that addition itself cannot be sustained simply on the basis of statement under section 132(4), as held in the case of Raj Pal Bhatia (supra). 30. We also agree that the ratio laid down by the Hon’ble Madras High Court in the case of SMJ Housing (supra) that Explanation 5 cannot be invoked, as no incriminating material is found from the search. All the facts were on record, which has not been disproved by the revenue authorities or otherwise proved to be illegal, even if the claim was non
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allowable. Non-allowable claim cannot, by itself invite penalty, as held by the Hon’ble Supreme Court in the case of CIT vs Reliance Petro Products Pvt. Ltd., reported in 322 ITR 158 (SC). 31. Under these circumstances, we set aside the orders of the CIT(A), sustaining the penalties under section 271(1)(c) in assessment years 2002-03, 2004-05, 2005-06 and 2006-07 and direct the AO to cancel the following penalties, as levied.”
4.3.2 Following the aforesaid decision of the co-ordinate bench in the assessee’s
own case for A.Y. 2002-03 and 2004-05 to 2006-07, we set aside and cancel the
impugned order of the learned CIT(A) upholding the penalty levied u/s. 271(1)(c) of
the Act for the assessment years 2001-02 and 2003-04 on the issue of the
assessee’s claim for depreciation on IPR’s u/s. 32(1)(ii) of the Act. We hold and
direct accordingly.
Ground no. 1(I) and 2 for A.Ys. 2001-02 and 2003-04 – Deferment of income on account of AMC charges 5.1.1 In these grounds the assessee assails the decision of the learned CIT(A) in
holding that the assessee has not raised any specific grounds relating to the levy of
penalty u/s. 271(1)(c) of the Act on the issue of deferment of income on account of
AMC charges, ignoring the fact that the grounds raised before him at
Sr. no. 1, 2, 6, 7, 8 and 9 were common grounds covering both the issues on which
penalty was levied. It was further submitted that at para 3.2 of the impugned order
it is evident that the learned CIT(A) admittedly brushed aside and did not consider
the submissions made by the assessee on this issue by refusing to adjudicate
thereon since no specific ground was raised by the assessee before him.
5.1.2 The learned AR submits that even though a specific ground may not have
been raised on this issue, the issue was specifically raised and urged in
arguments/submissions admittedly made before the learned CIT(A). In this context,
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the learned AR submitted that the Hon’ble Bombay High Court in the case of Baby
Samuel vs. ACIT (2003) 262 ITR 385 (Bom) had considered a similar issue. In this
case, the facts were that at the time of final hearing before the Tribunal, the
assessee had filed a chart elaborating various grounds taken, and additionally made
submissions/objections with regard to the addition made in respect of unsecured
advances for which no specific ground was raised. Their Lordship held that the
assessee cannot be denied right to claim adjudication on an issue or merits when
the issue was specifically raised by the assessee at the time of appeal. The learned
AR prays that in the light of the decision of the Hon’ble Bombay High Court, the
issue of levy of penalty u/s. 271(1)(c) of the Act on deferment of income on account
of AMC charges be restored to the file of the learned CIT(A) for adjudication of this
issue on merits.
5.2 In contra, the learned DR for the revenue relied on the decision of the
learned CIT(A) in the impugned order.
5.3.1 We have heard the rival contentions and perused and carefully considered
the material on record. Admittedly, the assessee had not raised a specific ground
against the levy of penalty u/s. 271(1)(c) of the Act. However, as noted by the
learned CIT(A), at para 3.2 of the impugned order, the assessee had in fact filed
written submissions for all the three assessment years 2001-02 to 2003-04 on the
issue of levy of penalty on deferment of income on account of AMC charges and on
which the learned CIT(A) refused to adjudicate on the merits of the issue since no
specific ground was raised by the assessee in this regard. On a careful perusal
thereof, we find that the Hon’ble Bombay High Court in the case of Baby Samuel vs.
ACIT (2203) 262 ITR 385 (Bom) had, while considering a similar issue of refusal to
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adjudicate an issue by the Tribunal where submissions were made by the assessee
on the grounds that no specific ground was raised, held that the assessee cannot be
denied the right to claim adjudication on an issue on merits when the issue was
specifically raised/urged by the assessee at the time of the appeal. We are of the
view that the aforesaid decision of the Hon’ble Bombay High Court (supra), would
apply squarely to the case on hand. In this view of the matter, we restore the issue
of levy of penalty u/s. 271(1)(c) of the Act in respect of the deferment of income on
account of AMC charges to the file of the learned CIT(A) for consideration and
adjudication thereon, for all the three A.Ys 2001-02 to 2003-04, after affording the
assessee adequate opportunity of being heard and to file details/submissions in this
regard. We hold and direct accordingly.
In the result, the assessee’s appeals for A.Ys 2001-02 and 2003-04 are partly
allowed and the appeal for A.Y. 2002-03 is partly allowed for statistical purposes.
Order pronounced in the open court on this day of 19th August 2016.
Sd/- Sd/-
(Sandeep Gosain) (Jason P Boaz) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated : 19th August, 2016. SA
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Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT(A), Mumbai. 4. The CIT 5. The DR, ‘F’ Bench, ITAT, Mumbai BY ORDER
//True Copy// (Assistant Registrar) Income Tax Appellate Tribunal, Mumbai