IN THE INCOME TAX APPELLATE TRIBUNAL
"A" Bench, Mumbai
Before Shri D. Manmohan, Vice President
and Shri Rajendra, Accountant Member
ITA No. 5949/Mum/2012
(Assessment Year: 2008-09)
D C I T - 9(2) Khanna Industrial Pipes P. Ltd.
Room No. 218, 2nd Floor 11, Satyam, 318, Linking Road
Vs.
Aayakar Bhavan, M.K. Road Khar (W), Mumbai 400052
Mumbai 400020
PAN - AAACK2240D
Appellant Respondent
Appellant by: Shri Pradeep S. Arya
Respondent by: Shri K. Gopal
Date of Hearing: 02.09.2014
Date of Pronouncement: 02.09.2014
ORDER
Per D. Manmohan, V.P.
This appeal by the Revenue is directed against the order passed by the
CIT(A)-20, Mumbai and it pertains to AY 2008-09.
2. Penalty of `58,03,923/- levied by the AO under section 271(1)(c) but
cancelled by the learned CIT(A) is the subject matter of dispute before us.
3. Assessee company is engaged in the business of manufacture of M.S.
Pipes. In respect of previous year relevant to AY 2008-09 assessee declared
total income of `1,58,48,748/-. The return was originally processed under
section 143(1) but thereafter selected for scrutiny on 05.08.2009. e-return
was filed on 29th September, 2008 wherein the assessee debited a sum of
`83,79,859/- under the head `Profit and loss of Windmill Undertaking'. The
AO noticed, from Schedule 16, that a sum of `1,70,75,385/- was charged as
depreciation on Windmill under Companies Act and upon taking into
consideration the depreciation, the net profit/loss was shown for income tax
purposes. It is also noticed that the assessee deducted `4.21 crores as
depreciation on Windmill as per I.T. Act but depreciation charged as per
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Khanna Industrial Pipes P. Ltd.
Companies Act was not added back in the final computation of income. It
deserves to be noticed that though the e-return was filed on 29th September,
2008, the return was processed under section 143(1) of the Act, statutory
notice under section 143(2) was issued on 05.08.2009 after selecting the
case for scrutiny, assessee never botherd to verify as to what is the amount
of depreciation claimed in the return of income. In other words, double
deduction claimed was not looked into. Only when the assessee was asked
to explain the discrepancy as to why depreciation on Companies Act should
not be added back to the total income, vide letter dated 15.11.2010 the
assessee conceded the double claim made and accordingly offered to tax the
entire sum of `1,70,75,385/- whereas only the differential figure ought to
have been offered. Since the assessee accepted the disallowance of
`1,70,75,385/- assessment was made under section 143(3) of the Act but
subsequently when the assessee filed a petition under section 154 of the Act
the AO rectified the mistake vide order dated 22nd February, 2012 wherein
the excess returned income of `83,79,859/- was set aside. In the order
passed under section 154 of the Act the book profit was taken at
`5,03,54,791/- and disallowance of depreciation on Windmill was worked
out at `1,70,75,385/-.
4. Consequent to the disallowance made in the assessment order the AO
initiated penalty proceedings under section 271(1)(c) of the Act read with
Explanation (1) on the ground that the assessee filed incorrect particulars of
income. Vide letter dated 19.05.2011 the assessee submitted that it had
furnished all facts. Additions/disallowances are made on the basis of the
details furnished either in the return of income or financial statements and
thereby submitted that no additional information has been unearthed on the
basis of which any disallowance or addition has been made. It was therefore
submitted that it is not a case of furnishing inaccurate particulars of
income.
5. The AO observed that the assessee made a conscious attempt to evade
taxes by furnishing inaccurate particulars of income and hence provisions of
section 271(1)(c) read with Explanation (1) thereto are applicable to the
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Khanna Industrial Pipes P. Ltd.
instant case. In this regard he observed that Explanation (1) to section
271(1)(c) automatically comes into operation in such cases and the onus to
establish that it was not a case of furnishing inaccurate particulars, and not
concealed income, is on the assessee. Assessee company is covered by the
provisions of section 44AB of the Act and has got its accounts audited by a
Chartered Accountant. The depreciation in respect of assets other than
Windmill is claimed as per Companies Act and was added back in the
computation and depreciation as per I.T. Rules was claimed in the
computation. However, in the same computation the assessee failed to add
back depreciation on windmill as claimed under Companies Act but has
gone ahead and claimed depreciation thereon as per I.T. Rules. In the
opinion of the AO this cannot be construed as an act of unintended
omission but it is clearly a deliberate act of wilful omission with the intent to
reduce the taxable income. Having regard to the circumstances of the case
he levied penalty equivalent to 100% of the tax sought to be evaded.
6. Aggrieved, assessee contended before the CIT(A) that some clerical
mistake has crept in inadvertently while filing the return of income for the
year under consideration and assessee filed a revised computation of
income, vide letter dated 15th November, 2010, declaring total income at
`2.35 crores under the normal provisions of the Act and book profit of `5.03
crores under section 115JB of the Act. It was also contended that the AO
added back the depreciation on Windmill undertaking at `1.70 crores
without giving due credit for depreciation of `83,79 lakhs on Windmill
undertaking which had already been added by the assessee from the
beginning, in the return of income. The order passed by the AO under
section 154 of the Act was also placed before the learned CIT(A) to submit
that the assessee was granted relief to the extent of `83,79,859/- and hence
penalty cannot be levied at least in respect of the said amount. It was thus
contended that the effective disallowance on depreciation of Windmill works
out to `86,95,526/-. It was contended that it was an unintended, bonafide
and inadvertent mistake which had crept in while filing the return of income
and it cannot be treated to be with an intention to defraud the Revenue. To
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Khanna Industrial Pipes P. Ltd.
buttress the contention it was stated that the assessee had not only added
back the depreciation on other assets as per Companies Act, 1956
aggregating to `77,09,695/- but also added back the depreciation on
Windmill to the extent of `83,79,859/-; the moment the inadvertent mistake
was noticed the assessee immediately informed the AO, vide letter dated 15th
November, 2010, which establishes that the assessee made complete
disclosure of all the facts relevant for computing its taxable income for the
year under consideration. Reliance was placed upon the following decisions
in support of its contention that when the assessee voluntarily rectified the
mistake of short addition of depreciation it cannot be equated to furnishing
of inaccurate particulars of income: -
i) CIT vs. Reliance Petroproducts Pvt. Ltd (322 ITR 158) (SC)
ii) Canbay Software India Pvt. Ltd. (122 TTJ 721)
iii) Dilip N. Shroff vs. JCIT (291 ITR 519) (SC)
7. The learned CIT(A) has not considered the submission of the assessee
and, in a rather cryptic order, assumed that the mistake of adding less
amount is `just a reporting error committed by the Tax Consultant'. He
observed in this regard as under: -
"4.1 However, inadvertently `83,79,859/- was added by picking up
wrong line item pertaining to profit/loss of windmill undertaking. The
appellant during the assessment proceedings informed the Assessing
Officer about this mistake which had crept in while filing return of
income and also submitted the revised computation of income accepting
the same. Thus, the mistake of adding less amount towards
depreciation on windmill undertaking as per the Companies Act, 1956
to the extent of `86,95,526/- was just a reporting error committed by
the Tax Consultant while computing the taxable income."
8. He further observed that depreciation on Windmill undertaking is
worked out under Companies Act as well as under the Income Tax Act
which is evident from Schedule V, Annexure B of the Tax Audit Report. He
assumed that the disallowance is made in the financial statement of the
assessee on this issue and therefore mere short addition on depreciation on
Windmill undertaking as per Companies Act, 1956 has all the hallmarks of a
human bonafide clerical mistake and cannot lead to a conclusion that the
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Khanna Industrial Pipes P. Ltd.
assessee had furnished inaccurate particulars of income. He thus cancelled
the penalty. Aggrieved Revenue is in appeal before us.
9. The learned D.R. adverted our attention to Paras 4.1 and 4.2 of the
order of the learned CIT(A) to highlight that the decision was rendered by the
learned CIT(A) on a wrong assumption of facts and therefore the same
deserves to be set aside.
10. On the other hand, the learned counsel for the assessee adverted our
attention to pages 7, 18, 42, 83, 37, 88, 90 and 98 of the paper book to
submit that it was an error on the part of the assessee company and not of
the Tax Consultant in claiming double deduction. It was also contended that
it was a bonafide error and soon after it was brought to the notice the
assessee accepted the mistake. He also placed reliance upon the decision of
the Apex Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT 348
ITR 306 in support of his contention that when there is complete disclosure
of facts merely because there is a wrong claim it cannot be termed as
furnishing of inaccurate particulars of income.
11. We have carefully considered the rival submissions and perused the
record. The assessee filed e-return on 29th September, 2008 and the return
was processed under section 143(1) of the Act. Within one year from the
date of filing of the return the assessee can revise its return whereas the
assessee did not choose to revise the return. By 2010 the assessee must
have filed returns for subsequent years but it claims that it has not noticed
this so called defect. Though the learned CIT(A) recorded in para 3.2.1 that
the assessee voluntarily informed the AO about the inadvertent mistake and
filed a revised return the fact remains that it cannot be considered as a
revised return. It was only upon examination of the return and the AO
having called upon the assessee to explain the discrepancy, the assessee
came forward to accept the default on its part. Thus, it could be noticed that
the order passed by the learned CIT(A) was not only cryptic but also based
on incorrect facts. In para 4.1 he observed that claiming double depreciation
was a reporting error committed by the Tax Consultant whereas the learned
counsel for the assessee submitted before us that it was not an error on the
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Khanna Industrial Pipes P. Ltd.
part of the Tax Consultant but it was a bonafide error on the part of the
assessee company. There are many other aspects which need to be
considered and appreciated properly before appreciating as to whether it can
be termed as bonafide error or it amounts to furnishing of inaccurate
particulars of income. Since the learned CIT(A) prima facie committed an
error in basing his conclusions on wrong assumption of facts, we refrain
from making any observation on the other aspects of the case. Suffice to say
that the order passed by the learned CIT(A) deserves to be set aside because
of incorrect appreciation of facts. We hereby direct the learned CIT(A) to
reconsider the matter afresh by taking into consideration the facts on
record.
12. In this context we may refer to the decision of the Hon'ble Supreme
Court in the case of CIT vs. Daulat Ram Rawatmull 87 ITR 349 wherein the
Hon'ble court observed that "when a Court of fact acts on material partly
relevant and partly irrelevant, it is impossible to say to what extent the mind
of the Court was affected by the irrelevant material used by it in arriving at
its finding. Such a finding is vitiated because of the use of inadmissible
material ........". In the instant case also the learned CIT(A) not only passed a
cryptic order but had also taken into consideration certain facts which were
not addressed by the assessee, as admitted by the learned counsel for the
assessee. With these observations the order passed by the learned CIT(A) is
set aside and he is directed to reconsider the matter in accordance with law.
13. In the result, appeal filed by the Revenue is treated as allowed for
statistical purposes.
Order pronounced in the open court on 2nd September, 2014.
Sd/- Sd/-
(Rajendra) (D. Manmohan)
Accountant Member Vice President
Mumbai, Dated: 2nd September, 2014
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Khanna Industrial Pipes P. Ltd.
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) 20, Mumbai
4. The CIT 9, Mumbai City
5. The DR, "A" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.
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