TaxTMI 
TaxTMI 
2010 (12) TMI 242
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....9,32,52,383 2. The learned CIT(A) erred in confirming the penalty on the ground that your appellant had furnished inaccurate particulars of income to evade its tax liability by not submitting information before the DCIT or the CIT(A), which amounted to concealment of income under section 271(l)(c) of the Act. He further erred in holding that your appellant's case fell within the purview of Explanation 1(A) and 1(B) to section 271(l)(c) of the Act. He erred in not considering, in their proper perspective, the submissions made by your appellant. 3. Without prejudice to the above grounds of appeal, the CIT(A) erred in not directing the DCIT to delete the penalty on the aforesaid items in the absence of any findings for concealment or suppression of income in these cases. 3. As all these grounds of appeal pertain to the same grievance, i.e., against CIT(A)'s confirming penalty under section 271(1)(c) amounting to Rs. 10,34,56,092, it is not really necessary to separately adjudicate on the above grounds of appeal. We will take up all these grounds of appeal together. 4. As regards the penalty in respect of quantum disallowance of Rs. 23,45,000 on account of bad debts, it is ....
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....f asset, depreciation allowable on the assets sold on slump sale basis, was to be taken into account. As a corollary to this stand, the Assessing Officer further held that in computation of profit on slump sale of the unit, the assessee was required to take into account written down value, after providing the depreciation allowable to the assessee. When, accordingly, the profit on slump sale of the unit was reworked on that basis, as against loss of Rs. 6,53,72,000 computed by the assessee, the gain worked out to Rs. 12,78,80,383. On the other hand, stand of the assessee was that after the introduction of block of assets concept w.e.f. 1st April, 2000, the written down value, on which depreciation can be claimed, has to be computed, in terms of the provisions of section 43(6)(c)(i), by, inter alia, reducing the notional written down value in respect of assets sold, discarded, demolished or destroyed. It was pointed out that section provides for reduction in written down value "by the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if the asset was the only asset in the relevant block ....
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..... 4.2. In the assessment order, the AO has also stated that the asessee had not been claiming depreciation allowable as per Section 32(1) in respect of its assets in earlier years prior to A.Y.2002-03, though for this year, the assessee has claimed the depreciation as per IT Act at Rs.2,10,671/- which is due to the fact that one of the divisions has been transferred during the year to M/s. Cadbury India Ltd. If the eligible depreciation of the earlier years are considered, then the value of the opening WDV will be entirely different and consequently, there is substantial change in the extent of eligible depreciation. On giving opportunity to the assessee to explain why the eligible depreciation allowable in the earlier should not be considered, the assessee company has stated that the provision of section 32 being beneficial provision allows an assessee to claim depreciation on capital assets used for the purpose of its business. However, such depreciation cannot be allowed until a claim is made for allowance thereof and necessary particulars are submitted along with the return of income and also placed reliance on the decision of the Supreme Court in the case of CIT v. M/s. Mah....
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....For working out the eligible depreciation allowable as per Income tax Act, 196I,the AO has provided an opportunity to the assessee to explain as to since the assets had practically been utilized for the entire financial year and why the depreciation should not be allowed and has categorically asked as to why it should not be considered that such non-claim was only to increase the net worth of the unit transferred and thereby decreasing the capital gain liability. However, the assessee company has not furnished any explanation either in the course of assessment proceeding or in the appellate proceedings. Even now, the assessee company has chosen to be silent. 4.6 Thus ,it is clear that the assessee company, which was on the process of merger with M/s. Pfizer Limited, a profit making company, with a deliberate intention did not claim depreciation so as to keep the WDV of the assets at higher side in the in the books, to get the benefit of higher set off on merger with Pfizer Ltd. The assessee company has not even furnished the supporting evidences in respect of purchase of certain assets and excluded the same while calculating the eligible depreciation for the A.Y.2002-03 as well ....
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....t Rs. 37,20,98,133/- and worked out the long term capital gain as under: Long Term capital loss Net sale consideration 327072000 Inventories 29475000 Loans and advances 12317000 Current liabilities (21446000) Fixed Assets 178845617 199191617 1278803383 5.3. Aggrieved by the action of the AO, the assessee went on appeal before the CIT (A). While deciding the appeal of the assessce. the learned C1T(A) has dismissed the plea of the assessee in view of the fact that the action of the AO in allowing depreciation on the assets owned and used by the appellant till 30.3.2003 has been upheld by him and this issue being consequential to the same he has observed that it needs no adjudication. 5.4. On asking to show cause as to why penalty should not be imposed, vide letter dated 18.3.2008, the assessee remained silent on this issue also. 5.5 Thus, it is clear from the above that the assessee company, not considered claim of depreciation so as to keep the value of the assets at higher side and has worked the profit on the slump ....
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....here it was held that the provisions of section 32(1) cannot be used as a device to save tax, which means that the depreciation being a statutory allowance cannot be used at the sweet will of the assessee by whenever it is beneficial to it, the same is claimed and never it is not, the same is not claimed. The Explanation (5) to section 32 a judicial decisions establishes that it is not the sweet will of the assessee to claim or not to claim depreciation to avoid tax. Keeping in view the facts and circumstances, the AO has rightly allowed depreciation as per these provisions of the I.TAct. The Hon'ble Allahabad ITAT 'B' Bench in the case of ITO v. Geep Industrial Syndicate Ltd., 23 ITR 448 held that the assessee was liable to imposition of penalty u/s.271(l)(c) on account of wrong claim of depreciation. The facts of the case that the appellant has not submitted any information before the AO or the CIT(A) or even during the penalty proceedings is covered under Explanation 1(A) & 1(B) to section 271(l)(c) and the wrong claim of depreciation is covered by the decision of the Allahabad ITAT. Thus, the totality of facts proves that the appellant has finished inaccurate particulars which ....
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....introduction of the concept of block of assets. He takes us through section 43(6)(c) and points out that in computation of written down value in respect of a block of assets, the assessee has to take the opening written down value of all the assets falling in that block of assets, increase the same by actual cost of any asset, falling within that block, acquired during the year, and reduce the same by monies payable in respect of any assets and the scrap value, if any, falling within that block, which is sold, discarded, demolished or destroyed during that previous year - subject of course to the rider that such reduction is restricted to the written down value so increased. In respect of the assets sold on slump sale, as an integral part of the above exercise under section 43(6)(c), the actual cost of the asset falling within the block period is to be reduced by (a) the amount of depreciation actually allowed to him in respect of any previous year relevant to the assessment year commencing before the 1st day of April, 1988 (b) the amount of depreciation that would have been allowable to the assessee for any assessment year commencing on or after the 1st day of April, 1988 as if th....
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...., and, therefore, such a higher depreciation being held to be admissible cannot be visited with penalty under section 271(l)(c). Learned counsel further submits that in computation of 'written down value' under section 43(6), it is not open to the Assessing Officer to take into account the depreciation which would have been allowable to the assessee but for the claim made by the assessee. It is submitted that we cannot read a part of the sub-section and ignore the other part. According to the learned counsel, the emphasis of this scheme of section 43(6) is on working out the depreciation on standalone basis in respect of the assets sold, on slump sale basis, and what is contemplated by the word "depreciation that would have been allowable to the assessee" is the depreciation allowable to the assessee "as if the asset was the only asset in the relevant block of assets". It does not, according to the learned counsel, mean the depreciation which was legally permissible to the assessee but not claimed by the assessee. Learned counsel further submits that it is not a case in which any deduction under chapter VI-A is claimed, and therefore, Hon'ble Bombay High Court's judgment in the cas....
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....refore, not claiming the depreciation would have been tax neutral. In view of the legal position as it prevailed at the relevant point of time, i.e., when related income tax returns were filed, the assessee would not have derived any tax advantage from not claiming the depreciation. The assessee cannot thus be held to have acted mala fide in not claiming the depreciation, and this decision of the assessee could not have been influenced by tax considerations. The CIT(A) is thus not justified in holding that not claiming the depreciation was with a view to reduce tax liability. In any event, according to the learned counsel, it is only a legal claim which has not been approved. Learned counsel also points out that while penalty has been levied for furnishing of inaccurate particulars, there is not even a whisper about as to which particulars have been inaccurately furnished, and all the discussions are only about the reasons for which this legal claim is not acceptable. However, as the law is well settled by Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts Ltd. (322 ITR 158) , merely because the assessee has made a legal claim, even if inadmissible, the assessee can....
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....ut strongly relied upon the orders of the authorities below. In his brief rejoinder, learned counsel for the assessee reiterated that the penalty has been imposed for furnishing inaccurate particulars but no specific inaccuracy of particulars have been pointed out and that the CIT(A) is factually incorrect in referring to merger with Pfizer inasmuch as there is only a change of name of the company and that there has been no merger at all. It is also pointed out that slump sale of unit is to a third party and thus higher written down value of the asset does not affect the depreciation in subsequent years. As regards penalty on capital gains issue, is also pointed out that while depreciation is being thrust in the earlier years, the penalty has been imposed in the current year and that nothing is done in the present year so as to invite penalty proceedings. As regards depreciation issue, it is once again pointed out that there has been a reduction in the income rather than enhancement of income, as a result of alleged lapse of the assesse, and as such, there is no question of penalty being imposed in respect of the same. We are thus once again urged to delete the impugned penalty. ....
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....ve to the fact that this interpretation canvassed by the assessee has been rejected by a co-ordinate bench, we are also of the considered view that this interpretation cannot be said to be totally devoid of any reasonable basis. As a co-ordinate bench has dealt with the same on merits and eventually rejected the same, we do not want to conduct an exercise which is parallel to, or contrary to, the exercise conducted by the said co-ordinate bench, but we may add that whether the legal interpretation adopted by the assessee may or may not finally be accepted by the appellate authorities, but then merely because the interpretation canvassed by the assessee is rejected, it cannot be inferred that the claim made by the assessee is not bona fide and is habile to be visited with penal consequences set out in section 271(l)(c) of the Act. We have also noted that the claim has been made in a transparent manner without concealing any material facts and by giving all the necessary disclosures and details in the documents accompanying the income tax return. It is not even the Assessing Officer's case that any material facts have been withheld or concealed by the assessee. On these facts, reject....
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....s been taken by the Assessing Officer and the CIT(A), that not charging the depreciation on assets was mala fide and influenced solely by ulterior motives to avoid legitimate tax liability. There is thus no basis for CIT(A)'s holding that it was a case of furnishing of inaccurate particulars and mala fide action on the part of the assessee. No doubt not only that the penalty provisions cover the situations in which the assessee has concealed income or furnished the inaccurate particulars, in certain situation, even without there being anything to indicate so, statutory deeming fiction for income in respect of which 'particulars have been concealed'. In addition to normal connotations of 'concealment' thus, a deeming fiction is also implicit in the scheme of penalty provisions. This deeming fiction, by way of Explanation 1 to section 271(l)(c) envisages two situations - (a) first, where in respect of any facts material to the computation of total income under the provisions of the Act, the assessee fails to offers an explanation or the explanation offered by the assessee is found to be false by the Assessing Officer or the CIT(A); and, (b) second, where in respect of any facts mater....
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....s not constitute a wholly impossible view or clearly illegal stand. As for depreciation being thrust on the assessee, though there is one Hon'ble jurisdictional High Court decision in favour of the Assessing Officer, it is a view taken by the Hon'ble High Court on 16th October, 2009 i.e. much after the related income tax returns were filed, and that too in the context in which assessee had claimed deduction under chapter VI-A. Broadly, the stand of the Assessing Officer, which has now been approved by a co-ordinate bench of this Tribunal, is that in computation of written down value under section 43(6)(c)(i)(C), which is taken into account for computing capital gain on slump sale, is "depreciation that would have been allowable to the assessee for any assessment year commencing on or after 1st April, 1998 ( i.e., when the concept of 'block of assets' was introduced in the Act) as if the asset was the only asset in the relevant block of assets." It is thus contended that the admissible depreciation, whether claimed or not, is to be taken into account for computation of this written down value. This provision has been, on the other hand, construed by the assessee to mean that notiona....