Besto Tradelink Pvt. Ltd.,, Ahmedabad vs Department Of Income Tax

Income-tax Officer, Ward-1(2), Vs M/s Besto Tradelink (P) Ltd., 9th Ahmedabad. floor, B.D. Patel House, Naranpura Road, Ahmedabad. (Appellant) (Respondent) PA No.AAACB6241P

Appellant by Shri M. K. Singh, Sr. DR Respondent by Shri G. C. Pipara, AR

Date of hearing: 20/5/2015 Date of pronouncement: 9/6/15

ORDER

PER S. S. Godara, Judicial Member.

This Revenue's appeal for assessment year 2001-02 arises from order of

the CIT(A) -6 Ahmedabad dated 10.8.2011 in appeal No.CIT(A)-

VI/DCIT(OSD)R.1/16/10-11, in proceedings under section 271(1)(c) of the

Income Tax Act, 1961 (in short the Act).

2. The Revenue's pleading in the present appeal seek to restore section

271(1)(c) arising from disallowances on assessee's wind mills amounting to ITA No.2652/Ahd/2011 2 Asst. Year 2001-02 Rs.2.40 crores, interest amount of Rs.60,892/- on account of interest bearing

funds utilised in interest free advances and the one made under section 40A(3)

of Rs.1,72,780/- @ 20% of the cash payment amounting to Rs.8,63,903/-;

respectively.

The Revenue strongly argues in support of the impugned penalty arising

from the aforesaid disallowances and prays for acceptance of its appeal. The

assessee supports the CIT(A)'s order.

3. Brief facts of the case are that the assessee had claimed depreciation

relief on wind mills of Rs.2.40 crores. It would also claim deduction of interest

payment amounting to Rs.60,892/- towards unsecured loans and freight payment

in cash of Rs.8,63,903/-. The Assessing Officer found that the assessee had not

become owner of the windmills in question so as to claim depreciation relief. And

that it had advanced interest bearing loans without charging any interest. He also

found that its freight payments made in cash violated section 40A(3) of the Act.

This made him to disallow all the three claims in assessment order dated

18.3.2004. He also initiated penalty proceedings against the assessee under

section 271(1)(c) of the Act. There is no dispute that the assessee's appeal

against all these three disallowances stands rejected upto the "tribunal".

4. The Assessing Officer took up penalty proceedings. He inter alia held in

penalty order dated 29.3.2010 that the assessee had not disclosed about the ITA No.2652/Ahd/2011 3 Asst. Year 2001-02 vital fact qua its windmills in claiming depreciation, it was fully aware that the

impugned interest on unsecured loans was not allowable and that its freight

payments (supra) invited section 40A(3) of the Act. He treated the assessee's

case as that of furnishing of inaccurate particulars of income and imposed

minimum penalty of Rs.95,86,108/-. The case file reveals that this penalty also

included another disallowance of capital expenditure of Rs.4,275/-.

5. The assessee preferred an appeal. The CIT(A) has accepted the

assessee's contentions qua the three issues as under :

''2.3 I have considered the facts of the case, penalty order and appellant's submission. Assessing officer levied penalty on the additions confirmed in appeal as mentioned in the penalty order referred earlier. The major addition on which penalty was levied is claim of depreciation on windmill. The said windmill was not transferred in the name of the appellant and therefore ownership was not proved and accordingly it is held that since appellant is not the owner of windmill, depreciation cannot be claimed. However it is not in dispute that appellant purchased windmill by entering into a MOD and also made the payment of purchase consideration. The proceeds of electricity generated through this windmill were also offered as income by the appellant. All these documents along with the documents submitted by the appellant for transferring the windmill in its name were submitted. It is clear that except the transfer of windmill in the name of appellant, all other procedures and paperwork were completed. Appellant claimed depreciation on the windmill by treating itself beneficial owner of the windmill. Several decisions allowed claim of depreciation in case of beneficial ownership including apex court decision in the case of Mysore minerals Ltd. However requirement of transfer was there as per MOU in this case, the transfer could not get completed and next year it was reversed. However following documents clearly prove the bona fides of the appellant in claiming depreciation on windmill-

1- Purchase bills in respect of windmill 2- Bank statement reflecting payment in respect of windmill purchased 3- Audited accounts of the seller reflecting sale of windmill to the appellant.

ITA No.2652/Ahd/2011 4 Asst. Year 2001-02

4- Account in respect of windmill reflecting income generated from windmill. Considering the above, both appellant and the seller of windmill had given the similar treatment to the transaction. Claim of depreciation is consequential to this transaction. Since several judicial decisions supported the view of claim of depreciation in case of beneficial ownership, appellant's claim is held to be bonafide. The disallowance of depreciation is confirmed only because the windmill could not be transferred in the name of appellant. This cannot make the claim false or inaccurate. When there are decisions to support appellant's claim, such claim will not be liable for penalty of concealment of income. The decisions relied upon by the appellant and referred earlier are relevant. The same are not repeated here however these support the appellant's argument that confirmation of addition or rejection of any claim will not automatically result in levy of penalty. AO has to find out what inaccurate particulars were furnished by the appellant. Assessing officer only mentioned that the terms of MOD were not fulfilled still the depreciation was claimed by the appellant. When the matter regarding transfer of name is pending, appellant cannot reverse the transaction in its books even after ^completion of three months as mentioned in MOU. When income as a result of this transaction has been offered for taxation, payment has been made, the depreciation claimed on such transaction cannot be considered false or inaccurate. Considering the fact that several judicial decisions allowed depreciation even in case of beneficial ownership, appellant cannot be found fault with claim of depreciation on windmill for which it has made payment and received income. The recent decisions of Supreme Court relied upon by the appellant supports the view of the appellant that mere rejection of claim cannot attract penalty. In view of this the penalty levied on the rejection of claim of depreciation is not upheld.

As regards levy of penalty on disallowance under section 40A (3), appellant submitted that this ground was not pressed before ITAT in quantum appeal however the payment was genuinely made towards freight charges. The disallowance is estimated at the rate of 20% as per the provisions of section 40 A (3). Appellant claimed that the payment was covered under rule 6DD however the same was not pursued in appeal. Since this is estimated disallowance not in respect of bogus claim or disallowable claim, penalty for inaccurate particulars cannot be levied on such disallowance. ,

As regards disallowance of interest, appellant submitted that tribunal found that assessee has proved the nexus still disallowance was confirmed and therefore the ITAT's order to this extent is contradictory. The similar interest disallowance in the assessment year 2002-03 was deleted by CIT (A) which was upheld by ITAT. Considering the facts and decisions, penalty cannot be levied for interest disallowance.

ITA No.2652/Ahd/2011 5 Asst. Year 2001-02 As regards levy of penalty on claiming capital expense as revenue, appellant did not submit anything. The mobile was costing more that RS 5000 and accordingly the same should have been capitalised. By not doing so appellant claimed excess expenditure to the extent of RS 4275 for which it offered no explanation. In the penalty proceeding also appellant could not submit any reason for claiming capital expense as revenue therefore on this issue appellant is liable for penalty. Penalty levied by the assessing officer on this addition is confirmed."

6. We have heard the parties and gone through the case file. The Revenue

invites our attention to assessee's depreciation claim. It transpires that the

assessee has already placed on record sufficient evidence of payments of

Rs.2.40 crores being made to the vender entity along with copy of the purchase

deed. It also applied for State government's approval. Even the Revenue is fair

enough not to dispute these facts. The assessee acquired these windmills in

March, 2000. It also declared power generation income of Rs.9,44,146/-. The

assessee further obtained insurance cover for the said windmills. It raised

depreciation claim @ 100% in the impugned assessment year only. The same

stood declined for want of ownership transfer. It is evident that the assessee

chose to hand over the windmills back to the vender since the State government

had not accorded approval of the ownership transfer. The Revenue sought to tax

the very sum of Rs.2.40 crores received in the following assessment year as

capital gains. The tribunal in the subsequent year held that once it has not

become owner in the impugned assessment year, no capital gain had arisen to

be taxed on account of handing over the windmills back to the owner. All these

facts indicate that the assessee has not furnished any inaccurate particulars of

income. There is nothing attributable on assessee's conduct in not possessing ITA No.2652/Ahd/2011 6 Asst. Year 2001-02 fullfledged ownership. We find that the hon'ble apex court in case of Mysore

Minerals Ltd. Vs. CIT (1999) 239 ITR 775 interprets the ownership concept for

the purpose of depreciation as under :-

''An overall view of the above said authorities show that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and thereby loosing gradually investment caused by wear and tear; and would need to replace the same by having lost its value fully over a period of time.

It is well settled that there cannot be two owners of the property simultaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent. To take the case at hand it is the appellant-assessee who having paid part of the price, has been placed in possession of the houses as an owner and is using the building for the purpose of its business in its own right. Still the assessee has been denied the benefit of section 32.."

We also find that the assessee had initially disclosed loss of Rs.2,29,55,932/- in

the return. The same stands recomputed to positive income of Rs.12,82,014/-

Therefore, the present does not seem to be an instance of evasion of taxable

income. We reiterate that quantum and penalty proceedings under the Act stand

on a different footing and each and every disallowance/addition does not lead to

automatic imposition of penalty as held by hon'ble apex court in Reliance ITA No.2652/Ahd/2011 7 Asst. Year 2001-02 Petroproducts Ltd. 322 ITR 158 (SC). Therefore, we hold that the Assessing

Officer had wrongly held assessee's case as that of furnishing of inaccurate

particulars of income under section 271(1)(c) of the Act. We also find in the same

tune that the Assessing Officer has computed the other disallowances of interest

amount and the one under section 40A(3) only on the basis of assessee's

accurate particulars already submitted on record in the course of scrutiny.

Therefore, the impugned penalty qua these issues has also been rightly deleted.

The CIT(A)' finding under challenge are upheld. The Revenue's appeal is

dismissed.

Order pronounced in the open Court on 9/6/2015

Sd/- Sd/- (G. D. Agarwal) (S. S. godara) Vice President Judicial Member

Mahata/-

Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy. Registrar, ITAT, Ahmedabad ITA No.2652/Ahd/2011 8 Asst. Year 2001-02

1. Date of dictation: 22/5/2015 2. Date on which the typed draft is placed before the Dictating Member: ________other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk: 9/6/2015

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: