Atotech India Ltd., Gurgaon vs Assessee

This appeal by the assessee for the assessment year 2004-05 is directed against the order of learned CIT(A), Panchkula dated 16th December, 2009.

2. The only effective ground of appeal is as under:-

"The notice issued under section 271(1)(c) of the Income Tax Act, 1961 ('Act') and the penalty order passed under said section imposing penalty of Rs.62,41,758 is bad in law and liable to be quashed."

3. Learned counsel for the assessee submitted that the assessee has carried forward losses and unabsorbed depreciation prior to 2001- 2 ITA-1025/Del/2010

02 financial year. He submitted that during the period relevant to AY 2002-03, there was a change in shareholding of the assessee company. He submitted that the assessee has set off business income of `1.85 crores during the relevant assessment year 2004-05 and had set off the brought forward losses to that extent. The assessee, during the course of assessment proceedings, filed a letter dated 13th December, 2006 before the Assessing Officer that there was a change in the shareholding of the company and hence, the company could not adjust the business income against the brought forward business losses and the same could be adjusted against unabsorbed depreciation of `4.16 crores. He submitted that the assessee has filed this letter dated 13th December, 2006 voluntarily and has also given Note No.3 as a part of Form No.3CD wherein this fact of change in the shareholding of the company was specifically mentioned. This letter of the assessee dated 13th December, 2006 was accepted by the Assessing Officer and the assessed income and returned income of the assessee had remained the same at NIL. He submitted that the conduct of the assessee was bona fide as it has taken legal opinion from the esteemed M/s Bansi S. Mehta & Co., Mumbai dated 15th June, 2001 wherein they had opined regarding the allowability of the business income set off against the brought forward losses with the caution that position may however require successive appeals etc. He submitted that the Assessing Officer has already accepted the claim of the assessee in the assessment of the assessee but has wrongly levied penalty under Section 271(1)(c) of the Income-tax Act, 1961 for no fault of the assessee.

4. Learned counsel for the assessee argued that there was no satisfaction recorded in the assessment order and the issue is covered in favour of the assessee with the decision of Hon'ble Delhi High Court in the case of Ms. Madhushree Gupta, British Airways PLC Vs. Union of 3 ITA-1025/Del/2010

India and Another - [2009] 317 ITR 107 (Delhi), 155. He submitted that the charge in this case was that of furnishing of inaccurate particulars of income and the penalty was levied by invoking Explanation (1) to Section 271(1)(c) of the Act, which is a deeming provision for concealment of income and not for furnishing of any inaccurate particulars of income. He submitted that the amount in question was neither added nor disallowed in the computation of income. The learned counsel for the assessee submitted that the issue was debatable and, therefore, the assessee could definitely make a claim for set off of the business income against the brought forward losses. Moreover, the brought forward of business losses was allowed by the Assessing Officer in the earlier years. He relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Reliance Petroproducts Pvt.Ltd. - [2010] 322 ITR 158 (SC), of Hon'ble Delhi High Court in CIT Vs. Harnarain - ITA No.2072/2010, CIT Vs. Shyama A Bijapurkar - ITA No.842/2010 and of ITAT in the case of ACIT Vs. A.B. Movies Pvt.Ltd. -

ITA No.432/Del/2009. Alternatively, he argued that no tax was sought to be evaded and therefore, no penalty could be levied.

5. Learned DR vehemently opposed the submissions of the learned counsel for the assessee. She submitted that the return of income was filed by the assessee on 1st November, 2004 and the assessee could not explain why the assessee surrendered its claim of set off against the business income only after the scrutiny notice under Section 143(2) was issued to the assessee. She submitted that the conduct of the assessee was not bona fide and the assessee has to explain that from where he got advice later on to surrender its claim of set off of business income from brought forward business losses as there was only one legal opinion and that was as old as dated 15th June, 2001.She submitted that it is a case of clear violation of the provisions of Section 79 of the Income-tax Act, 1961 and, therefore, the penalty was rightly 4 ITA-1025/Del/2010

levied under Section 271(1)(c) of the Act. She relied on a series of decisions in support of the case of the Revenue as under:-

(i) CIT Vs. Smt. Santosh Sharma - [2009] 311 ITR 353 (Delhi).

(ii) CIT Vs. Pearey Lal and Sons (EP) Ltd. - [2009] 308 ITR 438 (P&H).

(iii) CIT Vs. Gold Coin Health Food P.Ltd. - [2008] 304 ITR 308 (SC).

(iv) CIT Vs. N. Nandakumar, Aji Industries - [2005] 279 ITR 80 (Ker).

(v) CIT and Another Vs. Sangmeshwara Associates - [2012] 345 ITR 396 (Karn).

(vi) CIT Vs. T. Ashok Pai - [2007] 292 ITR 5 (Karn).

(vii) CIT Vs. Dharamshi B. Shah - [2014] 366 ITR 140 (Guj).

(viii) CIT Vs. Harparshad and Company Ltd. - [2010] 328 ITR 53 (Delhi).

(ix) CIT Vs. Zoom Communication P.Ltd. - [2010] 327 ITR 510 (Delhi).

(x) ACIT Vs. Dinesh Goel - [2011] 10 ITR (Trib) 330 (Delhi).

(xi) Subhash S. Shah Vs. Income-tax Officer - Ward 11(2) - [2013] 213 Taxman 43 (Gujarat)(Mag.).

(xii) CIT Vs. Morgan Finvest (P.) Ltd. - [2013] 213 Taxman 23 (Delhi)(Mag.).

(xiii) K.P. Madhusudhanan Vs. CIT - [2001] 251 ITR 99 (SC).

(xiv) CIT Vs. R.M.P. Plasto P.Ltd. - [2009] 313 ITR 397 (SC).

(xv) 41 taxmann.com 447 (All).

(xvi) 37 taxmann.com 347 (Delhi).

6. She referred to the relevant portion of the order of the Assessing Officer and the CIT(A).

7. Learned counsel for the assessee submitted that the case law cited by the learned DR is distinguishable on facts, as, in these cases, the assessee has conceded and in some cases, it was found that the asset was never used for business on which depreciation was claimed 5 ITA-1025/Del/2010

and that the speculative profit was not disclosed in the return of income. He relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Rita Malhotra - [1985] 154 ITR 550 (Delhi).

8. We have considered the rival submissions and perused the order of the Assessing Officer and the CIT(A) and also copies of various documents filed in the compilation filed before us. We find that the assessee has claimed the set off of its business income at `1.85 crores against the brought forward business losses of the earlier years. This claim of the assessee was based on the legal opinion received by the assessee from the firm M/s Bansi S. Mehta & Co., Chartered Accountants, Mumbai dated 15th June, 2001. We find that the assessee was alert and, that is why, it has sought legal opinion from well- established firm of consultants at Mumbai. M/s Bansi S. Mehta & Co. has given the opinion with certain qualifications and with caution that it may result in successive appeals etc. but that does not mean that the assessee could not put a claim of deduction before the Assessing Officer. We have to see the overall conduct of the assessee. It is not the law that wherever there is an addition or disallowance made by the Revenue, the assessee should be held liable for penalty under Section 271(1)(c) of the Act. The issue could not be said to be non-debatable as the business loss could be adjusted against the brought forward business loss in certain conditions as detailed by the consultant in their letter dated 15th June, 2001. We find that the loss was allowed to be carried forward in the earlier assessment years in the case of the assessee. There is no material brought on record to suggest that the letter of the assessee dated 13th December, 2006 was not voluntary.

voluntary Merely because the Assessing Officer has issued notice under Section 143(2) of the Act, it does not follow that any offer made by the assessee was not voluntary. It was not the case of the Revenue that the assessee has made the surrender after being cornered by the 6 ITA-1025/Del/2010

Assessing Officer by pointing out that the claim of set off made by the assessee was not in accordance with law. The assessed income and returned income in this case was NIL. The only material change was that the business income was set off by the assessee against the brought forward business losses of the earlier years in the return of income and, thereafter, was claimed to be set off against another head of unabsorbed depreciation. The argument of the learned DR, that the assessee could not show that from which source it has received the changed legal opinion which prompted it to file letter dated 13th December, 2006 changing the head for set off of business losses, could not be sustained as the assessee is entitled to obtain advice from any source or, in some circumstances, better wisdom may prevail upon the assessee. The plethora of case law cited by the learned DR could be applied to the case of the assessee only in the peculiar facts and circumstances of the case of an assessee. The assessee has filed an explanation in this case for claiming the set off of business income against the brought forward business losses, based on legal advice received from established consultants and has withdrawn its claim before being cornered by the Revenue and in view of the fact that the claim of set off of business income was allowed by the Assessing Officer himself under a different head of unabsorbed depreciation brought forward from the earlier years instead of brought forward business losses, the conduct of the assessee was bona fide. We find that the assessee has disclosed all material facts relevant for its assessment to the Assessing Officer at the time of assessment itself. It is a case of honest difference of opinion between the assessee and the Revenue regarding allowability of business losses under a particular head of brought forward losses or the other head of brought forward losses. There being no material brought on record on behalf of the Revenue to suggest that the conduct of the assessee was not bona fide, we are of the considered view that it was not a fit case for levy of 7 ITA-1025/Del/2010

penalty for concealment of income or filing of inaccurate particulars of income under Section 271(1)(c) of the Act, which is accordingly cancelled and ground of appeal of the assessee is allowed. In view of our decision that this case is not a fit case for levy of penalty under Section 271(1)(c) of the Act on its merits, we are not adjudicating the other legal issues raised by the learned counsel for the assessee on the legality of the penalty order.

9. In the result, the appeal of the assessee is allowed.

Decision pronounced in the open Court on 18th March, 2015.

Sd/- Sd/- (B.C. B.C. MEENA) MEENA) (G.C. (G.C. GUPTA) GUPTA) ACCOUNTANT MEMBER VICE PRESIDENT

VK.

Copy forwarded to: -

1. Appellant : M/s Atotech India Limited, 66 Km Stone, NH- NH-8, Delhi-

Delhi-Jaipur Highway, Village Sidhrawali, Gurgaon.

2. Respondent : Assistant Commissioner of Income Income Tax, Gurgaon Circle, Gurgaon.

3. CIT

4. CIT(A)

5. DR, ITAT

Assistant Registrar