DCIT 3(2), MUMBAI vs. INDIAN RAYON & INDS. LTD ( NOW KNOWN AS ADIOTYA BIRLA NUVO LTD), MUMBAI

This appeal filed by the Revenue and Cross Objection (C.O.) filed by assessee against the order of CIT(A)-7, Mumbai dated 10.11.2009 for Assessment Year 2 ITA.No.796/Mum/2010 & C.O.43/M/14-M/s Aditya Birla Nuvo Ltd.

Brief facts of the case are that the assessee in the had claimed depreciation on Power Plant Install Rajshree Cement Ltd. and on the boiler it had claimed depreciation for full year at normal rate of 100% amounting to Rs. 6,52,24,546/-. AO disallowed the claim of depreciation for full year on the ground that boiler was not use for more than 180 days, accordingly allowed only 50% of the claim. The order of AO was confirmed by CIT(A) and subsequently by ITAT observing that boiler was not ready to use on that date.

After dismissal of the appeal of the assessee by ITAT, the assessee was served notice dated 25.03.1996 u/s. 274 r.w.s. 271(1)(c) for initiation of penalty. The assessee submitted its reply dated 19.08.2008 wherein the penalty was opposed and explained the background of the case. The explanation of assessee was not accepted by AO and the AO levied penalty of Rs. 33753700/- u/s. 271(1)(c) of the Act @ 100% of the amount of the tax sought to be evaded. Aggrieved by the order of AO assessee filed appeal before CIT(A), wherein it was contended that Hon’ble High Court has admitted the substantial question of law in respect of order passed by Tribunal pertaining to the ground related with the depreciation of boiler and also made submission on the merit of the case. The ld. CIT(A) after considering the contention of assessee hold as under: “I hold that the appellant had not made conscious efforts to conceal the particulars of its income and as such no malafide is involved on the part of the appellant in claiming full normal depreciation on the boiler. Hence, in given circumstances though the disallowance on the part of deprecation claimed by appellant is justified, but the penal action for concealment of income is held to be not justified. Accordingly, the penalty imposed for concealment u/s. 271(1)(c) is deleted.”

Aggrieved by the order of CIT(A), the Revenue has filed the present appeal and the assessee filed C.O. We have heard ld. DR for Revenue and AR for assessee and perused the material available on record. Ld. DR for Revenue argued that assessee was conscious since filing of return of income that depreciation on the boiler is not allowable and concealed the material date when the same was put to use. Ld. DR further argued that the disallowance was confirmed by CIT(A) as well as Co-ordinate Bench of ITAT. Ld. DR 3 ITA.No.796/Mum/2010 & C.O.43/M/14-M/s Aditya Birla Nuvo Ltd.

We have considered the rival contentions of the parties and gone through the record of the case and the law cited by ld. representative of the parties. The law cited by ld. DR in ACIT vs. Khanna & Annandhanam is not applicable as the fact of this case is in difference from the case in hand. “In Khanna & Annandhanam the receipt of compensation was a revenue receipt and the assessee instead of crediting the amount in its P&L A/c credited the amount directly in the account of partners, therefore, the assessee tried to evade taxes by treating patent revenue receipt as capital receipt by crediting to partners’ account.”

The Hon’ble Bombay High Court while considering the almost identical ratio(grounds) held as under: “Having heard Mr Ahuja, learned counsel appearing on behalf of the Appellant, we find that this Appeal cannot be entertained as it does not raise any substantial question of law. The imposition of penalty was found not to be justified and the Appeal was allowed. As a proof that the penalty was debatable and arguable issue, the Tribunal referred to the order on Assessee’s Appeal in Quantum proceedings and the substantial questions of law which have been framed therein. We have also perused that order dated 27th September 2010 admitting Income Tax Appeal No.2368 of 2009. In our view, there was no case made out for imposition of penalty and the same was rightly set aside. The Appeal raises no substantial question of law, it is dismissed, No costs.” Further, the Hon’ble Delhi High Court while discussing the issue of penalty wherein substantial question of law framed has been admitted for consideration held as under: “Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment where under deduction under Section 14A of the Act was 4 ITA.No.796/Mum/2010 & C.O.43/M/14-M/s Aditya Birla Nuvo Ltd.

Now coming to the facts of the present case. It is not in dispute in the plea of assessee that a substantial question of law has been admitted by Hon’ble jurisdictional High Court on quantum appeal. In view of the judgments of Hon’ble jurisdictional High Court and Delhi High Court no penalty can be levied on the debatable and arguable issue. Admittedly, substantial question of law had been admitted by the Hon’ble High Court on the assessee’s appeal.

In view of the above legal discussion, the penalty order u/s 271(1)(c) of the Act was not justified when debatable and arguable issue on substantial question of law has been admitted by the Hon’ble High Court. Thus, the appeal of Revenue is dismissed.

As we have already dismissed the appeal of Revenue, hence, discussion on the C.O. of assessee has become academic and the same are dismissed as infructuous.