THE ACIT, CIRCLE -5, AHMEDABAD vs. PARLE INTERNATIONAL PVT. LTD., AHMEDABAD

The relevant facts as culled out from the materials on record are as under:- In this case, the Hon'ble ITAT in ITA No.980/Ahd/2007 has restored back this issue to the file of AO with the following observations:- "

On claim of depreciation, it is admitted that the A.O. and the learned CIT(A) maintained addition and when the matter went to the ITAT Ahmedabad on quantum, the appeal of the assesses on this issue was dismissed vide order dated 29-08-2000. The parties have referred to Para-14 of the Tribunal order in which the Tribunal has specifically noted that the conclusion of the learned CIT(A) through which the assessee commenced trial production is 360 Kgs. only which was not found sufficient to even start trial production. The Tribunal, therefore, opined that the departmental authorities were justified in incoming to the conclusion that the assessee has failed to satisfactorily prove that the trial production has in fact started. It was also held that there is no evidence like production report indicating the quality of raw material consumed and production of noodles and the names of the dealers to whom the alleged noodles were distributed for marketing. The Tribunal ultimately held that the assessee is not entitled to depreciation as well as the claim of expenses in relation to the alleged trial production which is not supported by any evidence. The finding fact recorded by the Tribunal in the case of the assessee thus proves that the claim of the assessee was in fact wrong. It is settled law that the findings given in the assessment order are relevant and have probative value. When the assessee produce no fresh evidence or presents any additional or fresh circumstances in the penalty proceedings, he would be deemed to have failed to discharge the onus placed on him and levy of penalty would be justified. We rely upon the recent decision of the Hon'ble Delhi High Court in the case of CIT vs Harprasad & Co. Act because the Commissioner (Appeals) are required to give reasons for decision in the appellate order while disposing of the appeals. Even, the noting of the learned CIT(A) that the issue of depreciation is debatable is factually incorrect because the finding of fact given by the Tribunal in the case of the assessee in which it was specifically noted that the claim of the assessee is not based on any positive evidence. In the light of the finding of the fact recorded by the Tribunal vide order dated 29-08-2000 confirming the addition on this issue, the leaned CIT(A) was not justified in cancelling the penalty by passing a non- speaking order. Considering the facts and circumstances, it would be appropriate to restore the matter to the file of the learned CIT with direction to re-decide the issue afresh by passing reasoned order in writing giving point for determination and reasons decision in the applicable order. The learned CIT(A) shall give reasonable sufficient opportunity of being heard to the assessee. In the result, part of this ground of appeal of the revenue is allowed for statistical purpose."

2 In compliance to the Hon’ble ITAT’s hearing were issued during the appellate proceedings. In response to the notice assessee submitted as under: “(2) We would like to draw your attention to the original assessment order dtd. 27.03.1991 (Copy enclosed vide Annexure - '1') wherein the Assessing Officer on page - 5 of his order has rejected the claim of the Assessee regarding Depreciation during Trial run Production on following observations: (i)

We are enclosing Debit Note No. 6, dtd. 06.04.1988 of M/s. B.E. Bilimoria & Co., which is an independent, Govt. approved and reputed supplier of Diesel (Annexue-'2') (i) If your Honour would look at the said Debit Note, wherein it is clearly mentioned that it is raised on the Appellant Company. The delivery address is also mentioned as factory at Palghar. (ii) In the description, it is mentioned "as cost of H Oil and Diesel utilized for the generator installed near the Water Tank and for the month of March, 1988. (iii) The subsequent confirmation from the supplier was also date 02.05.1991 filed before the Appellant authority (Annexure-'3') wherein the supplier has confirmed that it is their premises till to date. (iv) The bill, when it is raised whose description on the Debit Note clearly specify that the period was related to March, 1988. The said supplier has also confirmed that it was purchased locally by their Senior engineer at Palghar and only bills and Debit Note are raised from Head Office – Mumbai. Needless to say that the said supplier is Class-I Registered Contractor of Government having very high repute and long standing. (v) The fact of production have not been disputed nor challenged by the Ld. Assessing Officer. He has also not challenged the bills of M/s. B.E. Billimoria & Co., which provided “Diesel and oil”.

Electricity Connection is not condition precedent but use of Plant and machinery even Use of Generator is permissible: (i) We are enclosing the bill of M/s. Marco Engineering & Marine Works (Annexure-'4') which provided Diesel Power Inspection Office letter dtd. 26.07.1988 passing provisional order for Boiler No.MR/11430 for the period from 17.03.1988 to 16.09.1988 (Annexure-'5'). (iii) We would also like to submit that Maharashtra State Electricity Board office at Kalyan. Dist. Thane vide its letter dtd. 24.03.1988 (Annexure -'6/A') had sanctioned power for the Palghar Unit for manufacturing of extruded food products (including Spagetti and Noodles) and for informed the Company to deposit Rs.4,80,000/-. Maharashtra State Sales Tax Reqn. (vide Annexure -'6/B'). Copy of registration with Maharastra State Pollution control board vide Annexure - 6C (iv) The reliance of the A.O. on non-availability of power connection is not condition precedent for use of Plant & Machinery since the Assessee furnished all the evidence which are sufficient to carry out the production with the help of DG set which is required for Trial Run production. (v) Under the circumstances a view taken by the Assessing Officer that the debit note of furnace oil is dated 08/04/1988 and therefore, generator was not put to use is fallacious as in normal practice the material are always received first and the bills follow therefore. It is the concept of “Accrual” i.e. material and not the bill. The depreciation of the debit note is abundantly clear that it pertains to supply of diesel for the month of March at Palghar unit. If the bill is of April, 1988, he ought not to have allowed the expense. He cannot blow ‘hot & cold’ at the same time.

The necessary ingredients like Bills of Raw material, Packing material, permitted food Chemicals required for the manufacture of Noodles are received from the following parties and accepted by the assessing officer: (i) Paper Cups - Bill dated 20.3.88 of CP Plastic Pvt. Ltd. (Annexure-‘7’) (ii) Raw materials in the form of Maida, Oil etc. from M/s. Shah Premji Kanubhai dated 26.03.88 Annexure- ‘8' Transport Bill of Bombay - Tarapore Transport Co. Dated 26.03.88 for the materials dispatched by Shah Premji Kanubhai & co. to Palghar factory Annexure-'9'. (iv) Certificate of the Project Manager certifying The fact "That Boiler was installed at Palghar Unit on 17.3.88.(Annexure-'10') (v) Certificate from the Project Manager Confirming the Fact that the diesel generator of 110 KVA capacity Hired at Palghar was Sufficient to run the plant. (Annexure -'11') (vi) Bill of Crown Chemical Co. for the purchase Of Preservative on 24.03.1988 Annexure -'12' (vii) Market Survey Report of Radius Advt. also says that goods are delivered before 31st March, 1988 vide their report Annexure- ‘13/A’. (viii) Details of Raw material consumption, production, Cl. Stock vide Annexure 13/B. (ix) The Audited Balance Sheet substantiated the fact that Appellant Company had supplied certain cups to outside parties and the balance cups of the Noodles were lying in stock and are shown as stock in the Balance Sheet. Such accounting entries and Closing Stock and other details passed through four different audits viz. a. Internal Control by the Co.’s Dept. b. Tax Auditor. c. Internal Auditor & d. Statutory Auditor. And none of them have pointed out any discrepancy in the accounts maintained and have certified the same as “Time and Fair”. On the above facts as filed herewith; the Appellant respectfully submits that it did carry-out trial production.

It is submitted with respects that all the above referred documentary evidences required for the production of the Noodles furnished by separate parted have neither been challenged nor stated as In genuine and the expense thereof have been allowed in full by the same assessing officer which supports the stand of the appellant that the production did take place.

Against the said order assessee preferred first statutory appeal before the ld.CIT(A) who allowed the appeal of the assessee and deleted the penalty levied u/s.271(1)(c).

Now matter is before us.

We have gone through the relevant record and impugned order. Learned AR stated that the purchase and installation of plant and machinery were accepted by the AO. The AO contended that appellant was not having any electricity connection to run the plant. On the other hand appellant contented that the plant was run on power generated by the generators. To run the generator, diesel was purchased from M/s. B.E. Billimoria & Co. In the debit note raised by this concern, it is clearly mentioned that the diesel was supplied to the appellant in the Month of March, 1988. The appellant has purchased Raw Material like Paper cups, maida, oil preservatives etc to run the plant. These materials were purchased in the Month of March, 1988. There are evidences on record that 110 KVA generator was hired at Palghar unit to run the plant. The project manager has also certified that the boiler was installed at Palghar unit on 17/08/1988. The raw material consumption and production and the fact of closing stock is duly recorded in the books of accounts. The tax auditor, internal auditor and statutory auditor had opined that the P&M were used for the purposes of business during the year under consideration.

2 The ld. DR cited a judgment of Hon’ble Delhi High Court, in the matter of CIT vs. Zoom Communication Pvt. Ltd. [2010] 327 ITR 510 (Del), in this case it is held as under: “Penalty – Concealment of Income – Claim for deduction not bona fide – Amounts to concealment of Income – Accounts showing deduction of Income tax and equipment written off – Not allowable deductions – Assessee a company with professional Assistance in computing income – Assessee had concealed its income – liable to pay penalty – Income Tax Act, 1961, Section 271(1)(c)”

3 On the other hand ld. AR stated that the facts of the Zoom Communication are totally different. In the said case, the issue is regarding “claiming loss on asset Written Off as the expenditure” which was found by the AO during the Assessment and assessee has accepted the bonafide mistake during the penalty proceedings. Ld. AR vehemently contended that this citation is not applicable in the present case.

4 Ld. A.R. further stated that in the assessee’s case there is no such false claim and the assessee company has furnished all the detail of additions to assets, purchase of raw-materials, and use of DG set etc., which were quite essential for purpose of carrying out Trail Run Ld. AR cited a judgment of Hon’ble Gujarat High Court in the case Dahod Sahakari Kharid Vechan Sangh Ltd. 282 ITR 321, held as under: "Once there is absence of mens rea mere omissions from the return of income of an item of receipt neither amounts to concealment, nor deliberate furnishing of inaccurate particulars of income, unless and until there is some evidence or some circumstances to show that the omission was attributable to an intention or desire on the part of the assessee to conceal the income so as to avoid imposition of tax thereon. Absence of proof acceptable to the Department cannot be equated with fraud or willful default. The circumstances must show that there was a conscious act of concealment or furnishing of inaccurate particulars on the part of the Assessee.”

6 Ld. AR further cited a judgment of Juri ictional High Court in the case of National Textile vs. CIT [2001] – 249 ITR 125 (Guj) has held as under: “In order to justify the levy of penalty, two factors must co-exist, (i) There must be some material or circumstances leading to the reasonable conclusion that the amount does represent the assessee’s income. It is not enough for the purpose of penalty that the amount has been assessed as income and (ii) The circumstances must show that there was animus, i.e. conscious concealment or act of furnishing of inaccurate particulars on the part of the Assessee. The Explanation has no bearing on factor no.1, but it has a bearing only on factor no.

The explanation does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the Assessee. Absence of proof not acceptance to the Department cannot be equated with fraud or wilful default”.

7 Ld. AR further cited a judgment of Rajasthan High Court in the case of CIT vs. Nakoda Metals [2006] 204 CTR (Raj.), it was held: “Whether commercial production has commenced is not relevant - Commencement of commercial production by the assessee during the relevant previous year is not a condition for allowing deduction as investment allowance or depreciation. What is needed is that the machines must be used for the assessee's business. Whether the assessee is able to successfully commence commercial production or commercial production is delayed on account of defect in trial production does not affect the allowability of deduction on account of depreciation and investment allowance if from the material on record, it can reasonably be inferred that machines were used for the assessee's business during the relevant previous year. The user of machines for trial production, before giving full throttle is as much use of machines for the purpose of business”.

In our considered opinion, for laving of penalty u/s.271(1)(c), department has to prove its case beyond any reasonable doubt and department should have to prove that depreciation claim was false. Therefore, we decline to interfere in the order passed by the ld. CIT(A). Therefore, we dismiss the appeal of the department.

In the result, appeal filed by the department is dismissed. This Order pronounced in Open Court on 31/10/2017 एन.के. "ब"लैया महावीर "साद (लेखा सद"य) ("या"यक सद"य) Ahmedabad; Dated 31/10/2017 आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant

""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त(अपील) / The CIT(A)-XI, Ahmedabad. "वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER, स"या"पत ""त ////