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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Date of Hearing – 25.05.2016 Date of Order – 29.06.2016 2 M/s. Dhadda Diamonds Pvt. Ltd. O R D E R PER SAKTIJIT DEY, J.M.
Instant appeals by the Department are directed against the order dated 27th August 2014, passed by the learned Commissioner (Appeals)–9, Mumbai, deleting the penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2003–04 and 2005–06.
Since both these appeals pertain to the same assessee involving common issue and arising out of identical set of facts and circumstances, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. Facts involved being more or less common in both the appeals, we will deal with facts for assessment year 2003– 04.
Brief facts are, assessee a company is engaged in the business of import and export of cut and polished diamond. For the assessment year under dispute, the assessee filed its return of income on 20th October 2003, declaring a loss of ` 16,18,555. The assessment in assessee’s case was originally completed under section 143(3) of the Act vide order dated 23rd January 2006. Subsequently, during the assessment proceedings for the 3 M/s. Dhadda Diamonds Pvt. Ltd.
assessment year 2007–08, it came to the notice of the Assessing Officer that a partnership firm in the name and style of “Dhanraj Dhadda Exports” was occupying three out of four premises owned by the assessee on which the assessee had claimed depreciation. He found that the assessee was utilising only one premise for the purpose of its business. He, therefore, concluded the assessment for assessment year 2007–08 restricting the claim of depreciation to only one property utilised for the purpose of assessee’s business while disallowing depreciation in respect of three other properties. On the basis of the assessment order passed for the assessment year 2007–08, the Assessing Officer re–opened the assessment for the impugned assessment year alleging excess claim of depreciation. As observed by the Assessing Officer, during the re–assessment proceeding, the assessee accepted that out of four premises on which the assessee had claimed depreciation three of the premises was used by a partnership firm Dhanraj Dhadda Exports towards its business activities. He, therefore, disallowed depreciation claimed by the assessee on three properties while restricting the claim of depreciation to one property used for the purpose of its business. Against the assessment order passed disallowing claim of depreciation assessee preferred appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals)
4 M/s. Dhadda Diamonds Pvt. Ltd. having confirmed the disallowance, assessee went in further appeal before the Tribunal. As it appears from the facts placed on record, when the appeal filed by the assessee was fixed for hearing before the Tribunal, assessee vide letter dated 3rd October 2012, sought withdrawal of the appeals and accordingly the Tribunal dismissed the appeals as withdrawn. On the basis of addition made on account of disallowance of depreciation, the Assessing Officer initiated proceedings for imposition of penalty under section 271(1)(c) by issuing notice under section 274 r/w section 271(1)(c) on 30th November 2010. Though, the assessee objected to the initiation of penalty proceedings by stating that claim of depreciation was under a bonafide belief since such as the claim was being made by the assessee from the past several years and all along Department has accepted such claim. It was submitted, not only assessee has disclosed all facts relating to claim of depreciation but the claim of depreciation was duly certified by the tax auditor. It was further explained that the issue of claim of depreciation was a debatable issue, hence, no penalty can be imposed. The Assessing Officer, however, did not find merit in the explanation submitted by the assessee. He observed, out of the brought forward losses of ` 2.18 crore an amount of ` 1.42 crore is on account of depreciation claimed by the assessee for earlier assessment year. The Assessing
5 M/s. Dhadda Diamonds Pvt. Ltd.
Officer further observed only after the learned Commissioner (Appeals) confirmed the disallowance of depreciation for assessment year 2007–08, vide order dated 8th December 2010, the assessee filed revised return of income for assessment year 2010–11 and assessment year 2011–12, withdrawing the claim of depreciation thereby admitting that it was not entitled to claim depreciation on the premises used by the firm. The Assessing Officer was of the view that the claim of the assessee that the depreciation was claimed under a bonafide belief is not acceptable because even after accepting that depreciation is not allowable, assessee still wanted to take benefit of brought forward depreciation. The Assessing Officer also did not find merit in the submissions of the assessee that the claim of depreciation is a debatable issue. He observed, the disallowance of depreciation was on the basis of facts and also on the inability of the assessee to furnish evidence to prove that the premises were utilised for the purpose of its business. Thus, on the basis of the aforesaid reasoning, the Assessing Officer concluded that assessee has not only furnished inaccurate particulars of income but also concealed his true income thereby exposing itself to imposition of penalty. Accordingly, the Assessing Officer passed an order imposing penalty of ` 10.50 lakh under section 271(1)(c) of 6 M/s. Dhadda Diamonds Pvt. Ltd. the Act. Being aggrieved by the penalty order so passed, assessee preferred an appeal before the learned Commissioner (Appeals).
Learned Commissioner (Appeals) after considering the elaborate submissions of the assessee vis–a–vis the facts and material on record deleted the penalty observing as under:–
“5. DECISION: 5.1 I have carefully considered the facts and circumstances of the case, statement of facts, relevant assessment order, written submission, relied upon case laws and the arguments made by the LAR before the undersigned. After considering the rival submission, it is noted that the issue of claim of depreciation of properties of the appellant on which penalty has been levied by the AO appears to be a highly debateable issue, because in the original assessment of current year i.e. 2003-04, which was completed after scrutiny u/ s. 143(3) of the I.T. Act, the AO has accepted the claim of the appellant that it is entitled for depreciation. It is further noted that only in assessment year i.e. A.Y. 2007-08, the A.O. disallowed the deduction of depreciation claimed by the appellant. Therefore, under these circumstances I agree with the contention of the appellant that it was under the bonafide belief that it is entitled for deduction of depreciation which was consistently claimed and earlier allowed by the A.O. Therefore, under these circumstances it is quite apparent that on the issue in question two opinion existed, therefore, it is not a fit case for attracting the provisions of sec. 271(1)(c). Otherwise, also the appellant has furnished all material facts regarding the claim of deduction and it is not a case of furnishing of any wrong, false or incorrect particulars of income. Therefore, under these circumstances I agree with the Ld.AR that in the light of the decision of Hon’ble Apex Court in the case of M/s. Reliance Petro Products Pvt. Ltd. (supra) penalty u/s 271(1)(c) is not justified Hence the same is directed to be deleted.”
Learned Department Representative submitted, in spite of the fact that the assessee was not using three out of four premises for 7 M/s. Dhadda Diamonds Pvt. Ltd.
the purpose of its business, still it claimed depreciation on them. He submitted, had the Assessing Officer not verified this fact in the assessment year 2007–08, the assessee would have been allowed excess depreciation, though, legally it was not entitled to claim the same. Learned Department Representative submitted, when the assessee was confronted the fact of excess claim made by it, the assessee accepted it and withdrew its excess claim of depreciation in assessment years 2010–11 and 2011–12 by filing revised return of income. The learned Department Representative submitted, the assessee knowing fully well that depreciation is not allowable in respect of premises not used by it for the purpose of its business still claimed depreciation on it, therefore, it amounts to furnishing of inaccurate particulars of income resulting in concealment of income. Therefore, the assessee is liable to be visited with penalty under section 271(1)(c). Learned Departmental Representative submitted, learned Commissioner (Appeals) was not justified in deleting the penalty by holding that claim of depreciation was made under bonafide belief. In support of such contention, he relied upon the following decisions. i) Union of India v/s Dharmendra Textile Processors and Others, (2008) 306 ITR 277 (SC); and ii) MAK Data (P) Ltd v. CIT (2013) 358 ITR 593 (SC)
8 M/s. Dhadda Diamonds Pvt. Ltd.
Learned Authorised Representative on the other hand supporting the order of the learned Commissioner (Appeals) submitted, the assessee is carrying on business in cutting and polishing of diamond. For the purpose of its business the assessee had acquired certain premises in the year 1994–95, however, since the assessee did not need all the premises for its business activities, it permitted a partnership firm to utilise three out of four premises owned by it assessee for the purpose of its business.
Learned Authorised Representative submitted, the partnership firm is not only in the same line of business, but the assessee is also a partner in the partnership firm. The learned Authorised Representative submitted, the assessee had been claiming depreciation on all the four premises since long from the year 1994– 95 onwards and the Department had all along been accepting assessee’s claim of depreciation even in scrutiny assessments made in some assessment year including the impugned assessment year. He submitted, not only the assessee has declared full particulars about the assets on which it has claimed depreciation, but also the fact of utilisation of the properties towards assessee’s business. He submitted, the fact that some of the premises were utilised for the purpose of business of partnership firm was not-unknown to the 9 M/s. Dhadda Diamonds Pvt. Ltd.
Department. In spite of such facts, since the Department had been allowing assessee’s claim of depreciation, the assessee being under a bonafide belief that it is eligible to claim depreciation on all the premises owned by it, claimed depreciation. Learned Authorised Representative submitted, even as per certain judicial precedents, depreciation and other expenses incurred by a partner are eligible for deduction. For such proposition, he relied upon the decision of the Tribunal, Mumbai Bench, in case of Mohan Sunder Rajan v/s ACIT, ITA no.2018/Mum./2005, dated 24th August 2012 and the decision of the Tribunal, Ahmedabad Bench, in Rajshree Keyur Gandhi v/s CIT, ITA no.923/Ahd./2010 dated 6th July 2012. He submitted, even after amendment to the Act, making share of profit of a partner exempt thereby triggering disallowance of expenses under section 14A, still no disallowance of depreciation could have been made as depreciation is not an expenditure but allowance. He submitted, that being the case, allowability of depreciation being a debatable issue, imposition of penalty under section 271(1)(c) was not proper. Learned Authorised Representative submitted, though, the assessee had been consistently claiming depreciation on the premises but the Department never disputed the claim of the assessee and all along had been allowing assessee’s claim even under scrutiny assessments, therefore, the claim of depreciation in 10 M/s. Dhadda Diamonds Pvt. Ltd. the impugned assessment year is under a bonafide belief. Hence, no penalty under section 271(1)(c) is imposable. Finally, the learned Authorised Representative submitted, the notice issued under section 274 r/w section 271(1)(c) is not specific as to whether the proposed penalty is for concealment of income or for furnishing inaccurate particulars of income. In the absence of such information, levy of penalty under section 271(1)(c) is bad–in–law. For such proposition, he relied upon the decision of Hon'ble Karnataka High Court in CIT v/s Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Kar.) and a number of other decisions. Contesting the claim of Department that assessee’s claim of depreciation was not bonafide, the learned Authorised Representative submitted, since the department never disputed assessee’s claim of depreciation, the assessee continued to claim depreciation under a bonafide belief that depreciation is allowable. However, once the Assessing Officer in assessment proceedings for assessment year 2007–08, concluded that depreciation on the premises used by partnership firm is not allowable and on that basis re–opened the assessment for the assessment year 2003–04 and 2004–05 to disallow assessee’s claim of depreciation, the assessee for avoiding protracted litigation not only filed revised return of income for assessment year 2010–11 and 2011–12, withdrawing its claim of depreciation, but also withdrew its 11 M/s. Dhadda Diamonds Pvt. Ltd. appeals filed before the Tribunal for the assessment year 2003–04 and 2004–05, challenging the disallowance of depreciation. He, therefore, submitted that the assessee cannot be imputed with any malafide intention as far as claim of depreciation is concerned. He submitted, as the Department in the past several years accepted assessee’s claim of depreciation, assessee was under a bonafide belief that it was entitled for claiming depreciation. He, therefore, submitted that the learned Commissioner (Appeals) was justified in deleting the penalty.
We have considered the submissions of the parties and perused the material available on record in the light of case laws cited by both the parties. As per the facts emerging from the record, it is not disputed that the assessee is the owner of four premises on which depreciation was claimed. It is also not in dispute that out of the four premises, assessee was using one premise for its own business, whereas the other three premises were used by a partnership firm, wherein assessee is a partner, for its business purposes. It is also a fact on record that the partnership firm is also in the same line of business. Further, as it appears, in spite of the fact that the three premises were utilised by the partnership firm for its business purpose, the assessee being the owner of the property
12 M/s. Dhadda Diamonds Pvt. Ltd. had been claiming depreciation from the date of acquisition of properties in the year 1994–95. It is also not disputed that the Department had been accepting assessee’s claim for depreciation on the four premises over the years even under scrutiny assessment. In fact, in the impugned assessment year also in the original assessment, completed under section 143(3) of the Act, the Assessing Officer had accepted assessee’s claim of depreciation. Therefore, the issue arising for consideration is whether assessee’s claim of depreciation is under a bonafide belief or not. In our view, when the Department had been accepting assessee’s claim of depreciation on the four premises under identical facts and circumstances since the year 1994–95, even under scrutiny assessments, which continued till the assessment year 2007–08, in our view, claim of depreciation by the assessee on the four premises is under a bonafide belief that it is entitled to claim deprecation on all the premises being owner of them. It is not the case of the Department that the partnership firm has also claimed depreciation on these premises. Further, it is also not the claim of the Department that the subject premises were not utilised for the purpose of business, though, may be the business of the partnership firm. That being the case, in our view, when a particular claim made by the assessee under similar facts and circumstances was accepted
13 M/s. Dhadda Diamonds Pvt. Ltd. by the Assessing Officer in number of assessment years, it has to be accepted that the claim of the assessee was under a bonafide belief. In fact, in the impugned assessment year also, the Assessing Officer in the original assessment proceeding under section 143(3), had accepted assessee’s claim of depreciation. Only when the Assessing Officer took a different view in assessment year 2007–08, on that basis assessments for the impugned assessment years were re– opened and claim of depreciation on three premises utilised by the partnership firm was disallowed. Further, it is not disputed that the assessee is a partner in the partnership firm which was utilising the three premises for the purpose of business. Therefore, may be under the impression that expenditure incurred by a partner is eligible for deduction assessee might have claimed it. Moreover, it is a fact on record that the assessee has disclosed full particulars about the claim of depreciation to the Department at the time of filing of return of income as well as in the course of original assessment proceedings. That being the case, the assessee cannot be accused of furnishing of inaccurate particulars of income resulting in concealment of income. As far as allegation of the Department that only because the Department in the assessment year 2007–08, the Department found assessee’s claim of depreciation ineligible the assessee came forward to withdraw its claim of depreciation, we are 14 M/s. Dhadda Diamonds Pvt. Ltd. not convinced with the same. As could be seen from the materials on record, in the impugned assessment year assessment in the case of assessee was completed under section 143(3) on 23rd January 2006, allowing assessee’s claim of depreciation. Subsequently, assessment for the assessment year 2007–08, was completed under section 143(3) on 24th December 2009, disallowing assessee’s claim of depreciation for the first time. On the basis of assessment order passed for the assessment year 2007–08, the Assessing Officer re– opened the assessment for the assessment year 2003–04 on 29th March 2010 and completed the re–assessment on 30th November 2010 disallowing assessee’s claim of depreciation. Against the assessment order so passed, assessee preferred appeal before the learned Commissioner (Appeals) and being unsuccessful there, preferred further appeal before the Tribunal. During the pendency of appeal before the Tribunal, assessee on 30th March 2012, filed revised return of income for the assessment year 2010–11 and 2011–12, withdrawing its claim of depreciation in respect of three premises occupied by the partnership firm. The assessee also filed a letter before the Tribunal on 3rd October 2012, seeking withdrawal of its appeal challenging disallowance of depreciation. On a perusal of the said letter, it is noticed that the assessee did not withdraw the appeal giving up its claim of depreciation, but for the reason that the 15 M/s. Dhadda Diamonds Pvt. Ltd. tax effect even after disallowance of depreciation is nil or negligible. Thus, as could be seen, there is nothing on record to even remotely indicate that the claim of depreciation by the assessee was a deliberate attempt to evade tax. On the contrary, it is very much evident that since the Department had been accepting assessee’s claim of depreciation on all the premises from the past several years, even under scrutiny assessment, the assessee under a bonafide impression that it is eligible to claim depreciation had been claiming it. However, once the Department disputed assessee’s claim in assessment year 2007–08 and on that basis also disallowed assessee’s claim of depreciation for the past years by re–opening the assessment, the assessee, though, had initially challenged the disallowance but subsequently, may be, for avoiding protracted litigation has voluntarily accepted the disallowance of depreciation by filing revised return of income for assessment year 2010–11 and 2011–12. These facts prove bonafide of the assessee. The decisions relied upon by the learned Department Representative being factually distinguishable will not apply to the facts of the present case. Therefore, for the aforesaid reasons, we hold that the learned Commissioner (Appeals) was justified in deleting the penalty imposed. Accordingly, upholding the order of the learned
16 M/s. Dhadda Diamonds Pvt. Ltd.
Commissioner (Appeals), we dismiss the grounds raised by the Department.
In the result, Department’s appeal is dismissed. ./2014 – A.Y. 2004–05
Before us, the learned Authorised Counsels appearing for both the parties admitted that the facts and circumstances of the issue arising out of the grounds raised in the present appeal are identical to the facts and circumstances relating to the issue arising out of the grounds raised by the Revenue in its appeal being ITA no.6555/Mum./2014, for the assessment year 2003–04, wherein the said issue is decided against the Revenue and in favour of the assessee vide Para–8 of this order. Consistent with the view taken therein, we dismiss these grounds also.
In the result, Department’s appeal for the assessment years 2003–04 and 2004–05 are dismissed. Order pronounced in the open Court on 29.06.2016