DCIT 2(3), MUMBAI vs. THE SEKSARIA BISWAN SUGAR FACTORY, MUMBAI

Revenue by:Shri R.K. Sahu-DR Assessee by: Shri Y.P.Trivedi & Usha Dalal सुनवाई क� तारीख/Date of Hearing: 26.07.2016 घोषणा क� तारीख / Date of Pronouncement: 05.08.2016 आयकर अिधिनयम अिधिनयम,1961 क� क� धारा धारा 254(1)केकेकेके अ�तग�त अ�तग�त आदेश आदेश आयकर आयकर आयकर अिधिनयम अिधिनयम क� क� धारा धारा अ�तग�त अ�तग�त आदेश आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM-. लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order,dated 20/04/2012,of the CIT (A)-6,Mumbai,the Assessee- company and the Assessing Officer(AO)have filed the appeal/Cross objection.The assessee,engaged in the business of manufacturing of white crystal sugar,filed its return of income on 21/11/ 2006,declaring total income of Rs.30.45 crores.The AO completed the assessment u/s.143(3)of the Act,on 18/12/2008,determining its income at Rs.30.98 crores. ITA/4428/Mum/2012: 2. Effective ground of appeal is about deleting the penalty levied by the AO u/s. 271(1)(c),amounting to Rs. 21.86 lakhs. During the assessment proceedings,the AO found that the assessee had claimed additional depreciation of Rs.43.72 lakhs u/s.32 (ii) r.w.s.32(iia) of the Act on the addition to the plant and machinery to the tune of Rs. 2.18 crores, that the new plant and machinery was put to use after 30/09/2005,that the depreciation was 4428/M/12-Seksaria BiswanSF restricted to 10% as per the second proviso to section 32 (i) of the Act. He disallowed depreciation of Rs.21.86 lakhs. He further found that the assessee had claimed expenditure of Rs.16.96 lakhs as filing fees, that the expenditure was incurred for increasing the authorised share capital.Accordingly,the said sum was disallowed while completing the assessment. He also initiated penalty proceedings u/s.271(1)(c) for filing inaccurate particulars of income.

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it did not press the ground with regard to disallowance of depreciation.He confirmed the AO’s action of disallowing the expenditure of Rs.16.85 lakhs for increasing the authorised share capital.After receiving the order of the FAA,the AO revived the penalty proceedings and directed the assessee to file its explanation.As per the AO,during the passing of the penalty order the assessee did not file any explanation before him. On the basis of the available material, the AO held that the assessee had admitted the fact that claim with regard to the depreciation was wrong, that it had concealed the particulars of income with regard to depreciation on addition to plant and machinery and had filed inaccurate particulars with a view to evade taxes, that the assessee had not filed any submission with regard to expenditure to increase authorised share capital.Invoking the provisions section 271(1)(c) of the Act,he levied a penalty of Rs.13.03 lakhs.

4.Aggrieved by the penalty order of the AO, the assessee filed an appeal before the FAA.Before him,it was argued that there was an inadvertent mistake in claiming additional depreciation that instead of claiming additional depreciation at the rate of 10% it had claimed depreciation at the rate of 20%, that the material facts were disclosed in the audit report wherein the date of addition of assets had been 2

4428/M/12-Seksaria BiswanSF mentioned, that the auditor itself had made mistake in the audit report, that during the assessment proceedings the assessee had agreed to restrict the depreciation to 10%, that during the quantum proceedings the FAA had confirmed the addition on account of expenditure relating to increase in authorised capital for right issue, that the addition was on account of difference of opinion, that penalty was not leviable for the said addition. After considering the submission of the assessee and the penalty order, the FAA held that the claim of additional depreciation at the rate of 20%, instead of 10%, was an inadvertent mistake and the fact was disclosed in the audit report, that the assessee had also agreed that there was a mistake in the course of assessment proceedings by filing letter dated 10/11/2008 before the AO, that it was a case of mistake and not a case of concealment of income. Therefore he held that penalty levied by the AO on account of disallowance of 10% of additional depreciation was not justified. With regard to expenditure pertaining to increase in authorised share capital for issue of right issue,the FAA held that it was clearly a capital expenditure. He referred to the cases of Punjab State Industrial Development Corporation Ltd. (225 ITR 792) and Brooke Bond India Ltd. (225 ITR 798) and held that the AO was justified in levying the penalty.

5.Before us,the Departmental Representative(DR) relied upon the cases of Zoom Communication(327ITR510)and Mak Data(358 ITR593) and stated that assessee had considered particulars of income, that AO had rightly levied the penalty. The Authorised Representative(AR) stated that it was an inadvertent mistake, all the details were made available in the audit report, that the tax consultant had advised to claim additional depreciation at the rate of 20%, that the assessee had reduced

4428/M/12-Seksaria BiswanSF the claim during the assessment proceedings. He referred to the pages 24-27 of the paper book.

6.We have heard the rival submissions and perused the material before us. We find that the assessee had claimed additional depreciation at the rate of 20% though the plant and machinery was used only for period of six months, that during the assessment proceedings it submitted letter to the AO to reduce the additional depreciation, that the Chartered Accountant had, in the audit report, recommended the claim of depreciation at the rate of 20%. In our opinion, considering the clear facts and circumstances of the case, it is not a case of filing inaccurate particulars of income for considering the particulars of income.It was an inadvertent mis - take.The assessee had acted on the advice of a professional and his advice was found not as per the provisions of the Act.In our opinion,both the cases,relied upon by the DR,are not applicable to the facts of the case.Therefore,we hold that the order of the FAA does not suffer from any legal infirmity.In confirming his order, we decide the effective ground of appeal against the AO.

CO/144/Mum/2013: 6.The effective ground of appeal in the CO is about confirming the penalty with regard to disallowance of expenditure incurred on account of increase in share capital.We have already discussed the facts about the issue in the earlier part of our order.

7.Before us, the AR stated that it was a debatable issue and hence penalty was not leviable. The DR supported the order of the FAA. We are of the opinion that there is no ambiguity about the nature of the expenditure incurred for increase in autho - rised share capital.The Hon’ble Supreme Court, in the year 1997, had, while

4428/M/12-Seksaria BiswanSF deciding the case of Punjab State Industrial Development Corporation Ltd. (supra) held as under: “The fees paid to the Registrar of Companies for expansion of the capital base of a company is directly related to the capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit-making, it still retains the character of capital expenditure since the expenditure is directly related to the expansion of the capital base of the company.” Thus,there is no ambiguity about the nature of the expenditue.The expenses incurred by the assessee for issuing shares on right basis cannot be treated as revenue expenditure.It is neither a debatable issue nor there are two opinions about the said expenditure.The assessee had made a patently wrong claim.There is a difference between a debatable claim and a wrong claim.In the first instance because of the divided judicial opinions the assessee can argue that it had opted for one of the opinions.But,as far as the second category is concerned nobody can argue that the claim is supported by judicial pronouncement.The claim made by the assessee, in the case under consideration,falls under the second category.We find that the assessee had not challenged the finding of fact given by the AO that it did not file any reply in response to the penalty notice.By not filing any reply to notice issued by the AO the assessee had indirectly admitted the charge leveled by him.However,considering the fact that it had agitated the issue before the FAA and he had decided the issue on merits,we want to hold that his order does not suffer from any legal infirmity.So,confirming the same,effective ground of CO is decided against the assessee.

As a result, appeal of the AO and the CO of the assessee stand dismissed. फलतः िनधा�रती अिधकारी और िनधा�रती �ारा दािखल क� गई अपील / ��या�ेप को नामंजूर �कया जाता है. Order pronounced in the open court on 5th August,2016. 2016 को क� गई । आदेश क� घोषणा खुले �यायालय म� �दनांक 5 अग�त , Sd/- Sd/- (सी. एन. �साद / C.N. Prasad ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य 5

4428/M/12-Seksaria BiswanSF