S.D.S. ELECTRONICS PRIVATE LIMITED,CHANDIGARH vs. DCIT, CHANDIGARH

आदेश/Order PER ANNAPURNA GUPTA, A.M. : The present appeal has been filed by the assessee against the order passed by the Commissioner of Income Tax,(Appeals)-1(in short CIT(A) ,u/s 250(6) of the Income Tax Act,1961,(hereinafter referred to as “Act’) confirming the penalty levied u/s 271(1)(c) of the Act. 2 The assessee has raised the following effective ground of appeal:

between the eligible and non eligible unit amounting to

Rs.5,56,656/-. It was pointed out that the assessee was

engaged in the business of manufacturing and trading of

safety and security equipment and was carrying on its

business at Panchkula and Parwanoo. The income of

Parwanoo unit was claimed exempt u/s 80IC of the Act.

During assessment proceedings, the Assessing Officer found

that the assessee had not allocated depreciation pertaining

to office and infrastructures of the head office at Panchkula

to the Parwanoo unit. He, therefore, allocated the same in

the sale ratio thus resulting in disallowance of depreciation

to the extent of Rs.5,56,656/- in the non exempt unit i.e.

Panchkula Unit. Before the CIT(Appeals), the assessee

withdrew the appeal filed on this issue. The Assessing

Officer thereafter proceeded to levy penalty on the

disallowance so made, holding that the biased allocation of

depreciation on the common asset, made by the assessee was

clearly motivated towards increasing benefit u/s 80IC and

that the assessee had no explanation for the same. The

Ld.CIT(A) upheld the order of the AO.

the Panchkula unit was the existing unit and the Parwanoo

had been set up later on. The Ld. counsel for assessee stated

that the Parwanoo unit also had its office and staff to

execute the sale. It was contended that the Panchkula unit

being the existing unit on which depreciation on the

impugned assets was being claimed over the years, in the

opinion of the assessee company, the said unit had to bear

the fixed asset cost and, therefore, depreciation on the said

assets was continued to be claimed. The Ld. counsel for

assessee contended that the Assessing Officer did not agree

with the view of the assessee and had allocated depreciation

to the Parwano unit. It was contended that the mere

disallowance of an expense per se did not mean that the

assessee had concealed particulars of income and had

furnished inaccurate particulars of income and hence

penalty could not be levied. Reliance was placed on the

following case laws:

1) CIT Vs. Ajaib Singh & Co., 253 ITR 630 (P&H) 2) CIT Vs. Ravail Singh& Co., 254 ITR 191 (P&H) 3) CIT Vs. Reliance Petroproduct (2010) 322 ITR 158 (SC). 5. Ld. DR, on the other hand, relied upon the orders of the

lower authorities stating that the Panchkula unit was

admittedly the head office of the assessee’s business and

depreciation on office and furniture equipment had to be

allocated to the non-exempt unit also since the benefit was

being derived by the said unit also from the activities being

carried out at the head office and the biased allocation was

made by the assessee deliberately to increase the benefit u/s

80IC and had the said attempt of the assessee not been

unearthed by the Assessing Officer, it would have gone

unnoticed. The Ld. DR further stated that the assessee had

not been able to explain why excess depreciation had been

claimed in the non exempt unit.

the contention of the Ld. counsel for assessee. Mere

disallowance of claim of depreciation in the present case, we

hold does not warrant and justify the levy of penalty. We

find that the assessee had proferred a bonafide explanation

for the claim of depreciation that its non exempt unit at

Panchkula was an existing unit on which it had been

claiming depreciation on the impugned assets over the years

and that that it had wherewithal in the exempt unit set up

later on ,i.e Parwanoo unit, to carry out sales operation.

That in view of the said facts ,it was contended ,that even

after the exempt unit came into existence the assessee was

of the belief that the depreciation on these assets was to be

claimed in the non exempt unit only. The Revenue has not

controverted the aforesaid facts stated by the assessee nor

has the explanation been found to be false. Further the

disallowance had been made by mere allocation of the

depreciation in the sale ratio of the two units. It is not the

case of the Revenue that any particulars relating to the

claim of depreciation had been concealed or any wrong

particulars relating to the same had been furnished by the

assessee. Therefore, with the assessee having disclosed all

particulars relating to its claim of depreciation on the

impugned assets and having given a bonafide explanation for

the claim so made, the mere disallowance of the claim of

depreciation by allocating a part of it to the exempt unit in

the sales ratio, does not, we hold, tantamount to concealing

or furnishing any particulars of income so as to attract the

levy of penalty u/s 271(1)(c) of the Act. Reliance placed by the Ld. counsel for assessee on the decision of the Hon'ble Apex Court in the case of Reliance Petroproducts in this regard is apt, wherein it has been held that mere disallowance of claim made by assessee is not sufficient for levy of penalty.

In view of the above the penalty levied in the present case therefore, is directed to be deleted.

Order pronounced in the Open Court.

Sd/- Sd/- संजय गग� अ�नपणा� ग�ता (ANNAPURNA GUPTA) (SANJAY GARG ) �याय�क सद�य/ Judicial Member लेखा सद�य/ Accountant Member �दनांक /Dated: 18th October, 2018 *रती* आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :

आदेशानसार / By order, सहायक पंजीकार/ Assistant Registrar