Konkan Railway Corporation Ltd, Mumbai vs Department Of Income Tax

आयकर अपील य अ धकरण, एच खंडपीठ मंुबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH सव ी आई पी बंसल , या यक सद य एवं राजे , लेखा सद य Before S/Sh. I P Bansal,Judicial Member & Rajendra,Accountant Member आयकर अपील सं/.ITA No.5367, 5368,5369/Mum/2013 and ITA No.5370/Mum/2013, नधारण वष/Assessment Years- 2004-05, 2005-06, 2006-07 and 2007-08 The DCIT-10(3) M/s. Konkan Railway Corporation Room No.451, 4th Floor Ltd.

Aayakar Bhavan Vs Belapur Bhavan, Sector-11, CBD Maharshi Karve Road Belapur, Mumbai-400 020. Navi Mumbai-400 614. PAN: AAACK 3725 H (अपीलाथ /Appellant) ( यथ / Respondent) नधा रती ओर से/Assessee by : Shri Jitendra Singh & Ms. Neha Paranjpe राज व क ओर से/ Revenue by :Ms. Vidisha Kalra सुनवाई क तार ख/ Date of Hearing : 06 - 05 -2015 घोषणा क तार ख / Date of Pronouncement : 13-05-2015 आयकर अ ध नयम,1961 क धारा 254(1)के अ तगत आदे श Order u/s.254(1)of the Income-tax Act,1961(Act)

Challenging the orders dated 03/06/2013of the CIT(A)-22,Mumbai, for above mentioned four Assessment Years(AY.s),the Assessing Officer(AO)has filed identical Grounds of appeals against the deletion of penalty levied u/s.271(1)(c)of the Act.Grounds for AY.04-05 read as under :-

"1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting penalty of Rs. 1l,07,97,349/-levied u/s 217(1)(c).

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the ratio contained in the judgment of CIT Vs Zoom Communication P. Ltd. (327 ITR

510), ITAT Mumbai bench in the case of Ultra Marine & Pegments Ltd. (2010) TIOL-2160- ITAT-

Mumbai wherein it was held that when the assessee is aware of the incorrectness of the claim, it becomes vulnerable for penalty to the extent that taxable income get reduced."

3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has ignored to take into account that the assessee has claimed incorrect depreciation and deduction in the account which is vulnerable for penalty."

As stated earlier,in the other years also identical grounds have been filed-the only difference is of penalty amount involved.Details of dates of filing of returns,incomes returned,dates of assessment,assessed incomes, dates of orders of the CIT(A)can be summarised as under :

Return filed on Returned Income Assessed income Date of penalty Penalty levied (Rs.) (Rs.) order (Rs.)

2004-05 29.10.2004 (-)545,69,50,845/- (-)495,50,53,512/- 28.03.2012 Rs.11,07,97,349/-

ITA/5638& Ors./Mum/20 ,AY.s.04-05-07-08-Konkan

2005-06 29.10.2005 (-)462,08,87,813/- (-)407,16,42,297/- 28.03.2012 Rs.16,64,85,732/-

2006-07 30.11.2006 (-)327,75,38,678/- (-)282,86,44,115/- 28.03.2012 Rs.6,44,83,352/-

2007-08 29.10.2007 (-)241,20,87,391/- (-)293,51,23,940/- 28.03.2012 Rs.10,11,53,988/-

Assessee-company is running railway services and railway construction line.Considering the nature and complexity of the accounts a special auditor was appointed to conduct audit u/s. 142(2)(A) of the Act.The special auditor identified various issues and after examining the comments of the special auditor and submission of the assessee,the AO made various additions/ disallowances. It was found that OWK Tunnel project was awarded to the assessee on cost plus 10% basis.As per the AO,during the year under consideration the assessee failed to account for tem percent income of the cost incurred, amounting to RS.71.18 lacs.In respect of other project ,as per the AO,similar,amounting to Rs.72.22 lacs,same was not accounted for.He found that in respect of certain fixed assets,costing less than Rs.1.00 lac, aggregating to Rs.98.45 lacs,the assessee had claimed 100% depreciation.AO held that depreciation claimed by it was against the provision of 32 of the Act.He capitalised the amount in question and after allowing depreciation made a disallowance of Rs.68.07 lacs.The AO further mentioned that from the remarks of the Controller and Auditor General(C&AG) and the report of the special auditor it was clear that the assessee had wrongly claimed deduction in respect of capital expenditure of 33.24 crores,that it had treated the repair expenses as revenue expenses.The AO capitalised the said expenses and disallowed an amount of Rs.28.74 crores ,after allowing depreciation of 4.49 crores.

The AO issued a notice u/s.274 r.w.s.271(1)(c)of the Act for furnishing inaccurate particulars.In response to the notice,the assessee made various submissions.In respect of the OWK Tunnel Project it was submitted that revenue was recognized when the requirements as to performance set out in the accounting standards were satisfied and it was reasonable to expect ultimate collection, that due to price variation bill of 45.54 lacs,amount payable to the sub contractor increased for which payment was to be claimed from Govt. of Andhra Pradesh and was to be released to the sub-contractor.In respect of other project division item it was claimed that the assessee had already accounted for the income pertaining to that item for the year under appeal in schedule 10. It was further argued that the assessee had taken opinion from Institute of Chartered Accountants of India (ICAI) on treating expenditure incurred on plant and machinery upto 1 lacs as revenue expenditure,that it was opined that there was no violation in compliance in AS-6 and AS-10. About repair/maintenance expenses the assessee argued that most of the items were components and parts of machinery having life span of only one year,that major portion of the assessee's asset was unique in nature, that the assessee had not concealed nay particular of income or had furnished any inaccurate particulars of income, that the additions were based on some ambiguous method of accounting. After considering the submission of the assessee,that AO held that in the quantum appeal proceedings the First Appellate Authority (FAA) had confirmed the additions/disallowances made by the AO, that the assessee had failed to recognise accrued income on its cost plus project while claiming the cost of deduction, that the practice followed by the were against the principles of accounting and taxation, that assessee's claim of deduction of capital expenditure on items costing upto Rs.1.00 lac was untenable,that the rate of depreciation, allowable u/s. 32 of the Act were prescribed in the 2 ITA/5638& Ors./Mum/20 ,AY.s.04-05-07-08-Konkan

Income tax Rules, that the assessee had no authority or discretion to claim 100% depreciation in total contravention of the relevant provisions, that the remarks of C&AG about expenditure of Rs.33 crores proved that expenditure was rightly capitalised,that income to the extent to the excess claim of depreciation/deduction and non-recognition of project income of Rs.30.88 crores was concealed by the assessee.The AO referred to explanation to sec. 271(1)(c) and relied upon the case of KPMadhusudan(251ITR99),Raghuvir Soni(250ITR239),and Dharmend - ra Textiles and held that the assessee had concealed its income by making excess claim of depreciation.Finally,he levied a penalty of Rs. 11.07 lacs

3.Aggrieved by the order of the AO,the assessee preferred an appeal before the FAA.Before him, it was contented that the Govt. of AP had awarded a project for construction of Tunnel on 22/6/2000, that the project was awarded on cost plus basis i.e. 10% of the total cost incurred for the project, that it was the management fee due to the assessee, that the work was carried out by the sub-contractor,the project was carried out during the FY 2002-03 by the sub contractor, the project was over by the FY 2002-03, that it had regularly offered the management fee for tax as per the execution of the project, that there was difference of opinion between the assessee and the Govt.of Andhra Pradesh, that the management fee to be quantified on the basis of the additional claim made to the AP Govt.,that income was offered for taxation in the AYs 2005-06, as the claim was quantified in the subsequent AY.after a lot of negotiation,that the cost of the project was never claimed in the books of account of the assessee, that out of Rs.71.18 lacs an amount of RS.45.54 lacs was an amount raised by the sub-contractor on account of variation, that balance amount i.e.25.64 lacs was the management fee and same was offered for taxation, that the amount claimed on account of price-variation was paid to sub-contractor and that was reimbursed by the Govt.of AP, that the same could not be treated as income of the assessee, that AO had not given any finding about the explanation of the assessee in that regard.With regard to claim of deduction of capital expenditure on items costing up to Rs.1.0 lacs the assessee submitted that the issue was raised by it before the expert committee of ICAI,that the addition was made merely on the basis of observation of the special auditor who relied on the comments of C&AG,that the comments of the C&AG about the expenditure of 33 crores were also dropped.

It was also contended that while passing the assessing order,the AO had not recorded the finding that the assessee had furnished inaccurate particulars of income,that all details/ evidences were and explanations were duly furnished during the course of assessment and penalty proceedings, that additions/disallowances made in the assessment order were merely change of opinion and did not constitute a basis for levying concealment penalty. The assessee relied upon the case of Reliance Petroproducts Ltd(322ITR128) and Aditya Birla ( 2012-TIOL- 692-HC-MUM-IT).

After going through the submissions of the assessee and the penalty order of the AO, the FAA held that the additions/disallowances made in the assessment order and confirmed by the FAA in quantum proceedings did not suo moto attracted levy of penalty u/s. 271(1)(c) of the Act, that the assessee was a public limited company formed in pursuance of the agreement entered into Ministry of Railway and States of Maharashtra,Goa,Karnataka and Kerala,that the assessee had offered the managerial fee in the subsequent years when it was received, that assessee was not knowing as to how much funds would be given by the AP Govt. to the sub contractor and the year in which it would accrue, that treatment given to the assessee to the amount in question did not attract penal provisions, that the ICAI had given opinion to the assessee about the plants and 3 ITA/5638& Ors./Mum/20 ,AY.s.04-05-07-08-Konkan

equipments valued up to Rs.1.00 lacs, that the C&AG vide their letter 13/8/04 had accepted the assessee's submission and had dropped its comments on the basis of which additions were made,that there was difference of opinion between the AO and the assessee and the auditors. Regarding the addition of Rs.33Crores the FAA held that the disputed amount was capitalised on the basis of findings of the audit report of C&AG, that C&AG dropped its comments, that the bonafie of the assessee could not be questioned.Finally,the FAA held that confirmation of addition by the FAA in itself did not prove that the assessee had furnished inaccurate particulars of its income or had furnished an explanation that was not bonafide/tenable. FAA referred to the cases of Reliance Petro products Pvt. Ltd. (supra ) and PriceWater House Cooper Pvt. Ltd.(253 CTR1) and deleted the penalty levied by AO u/s. 271(1)(c) of the Act.

4.Before us, Departmental Representative(DR)argued that assessee had not disclosed correct income in respect of OKK Tunnel, that details filed about the assets less than Rs.1.00 lacs were inaccurate in the sense that depreciation was not available to the assessee, that assessee had claimed capital expenditure as revenue exp, that Spl. auditor and the C&AG had pointed short comings in the system followed by the assessee, that opinion of ICAI could not govern the provisions of the Act. The DR relied upon the case of Dharmendra Textile. Authorised Representative (AR)supported the order of the FAA and stated that C&AG had dropped the comments made about the depreciation claimed and capital expenditure.

5.We have heard the rival submissions and perused the material before us.The undisputed facts of the case are that the AO had make certain additions/disallowances while completing the assessment order based on the comments/observation made by the special auditor and C&AG, that the FAA confirmed the additions/disallowances,that the AO levied the penalty invoking the provisions of section 271(1)(c)of the Act based on the order of the FAA,that the C&AG later on dropped the comments by it about the assessee,that the FAA,in penalty proceedings,held that the assessee had not concealed its particulars of income or had furnished inaccurate particulars of income.We find that the AO had made additions/disallowances on four counts and first among them is about income accrued to the assessee on account of OWK Tunnel Project.The FAA found that because of the dispute going with the Govt.of AP the assessee was not sure as to how much additional compensation would be given to the sub contractor or when it would be paid.In these circumstances,if the assessee had showed the income in the year of receipt,it cannot be said that it had concealed its particulars of income.It is not the case of the AO that the assessee had not disclosed the fact of ongoing dispute with the AP Govt.or the fact that amount was to be paid to sub -contractor.Income arising from the other projects had been shown by the assessee in the return,so,there was no justification of invoking the provisions of section 271(1)(c)of the Act.As far as the disallowance of certain item and capitalization of those expenses is concerned,we are of the opinion that no concealment was involved in those transactions.The assessee had furnished all the details and claimed 100% depreciation as per the advice of the ICAI.The difference of opinion between the assessee and the AO about the allowability of the depreciation cannot and should not lead to levy of concealment penalty. Penalty could not be imposed, as a matter of course.The assessee was truthful in submitting its return and making a claim for depreciation on its understanding of law.This was not a case of claim of depreciation on machinery which was not purchased.Courts are of the view that where basic information has been provided by the assessee then for a claim,made by the assessee and

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disallowed by the AO,penalty u/s.271(1) (c)cannot be levied.Here,one more thing is to be remembered that the C&AG had dropped the comments made by it about the disputed amounts. Similarly,on the issue of as to whether an expenditure is capital or revenue no concealment penalty can be levied.No authority is required to support the view.Making additions or disallowing certain expenses during the assessment proceedings is totally different from invoking penal provisions.There is no provision in the Act of automatic levy of penalty for the additions/disallowances made.Penalty can be levied if it is established that the assessee had not disclosed necessary facts or that the explanation filed by it is not bona fide or plausible.We find that the FAA has given a clear finding of fact that there was no furnishing of inaccurate particulars,that the explanation given by the assessee was bonafide.Hon'ble Apex Court in the matter of Reliance Petroproducts Ltd.(322ITR158)has held as under:

A glance at the provisions of section 271(1)(c) of the Income-tax Act, 1961,suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars" used in section 271(1)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty,unless the case is strictly covered by the provision, the penalty provision cannot be invoked.By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee,because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.

Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c) A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.

We do not find any legal or factual infirmity in the order of the FAA.Therefore,confirming the order of the FAA,we decide effective ground of appeal against the AO.

ITA Nos. 5368 & 5369/Mum/2013 and ITA No.5370/Mum/2013/ AY.s.2005-06 to 2007- 08(3 years):

6.The facts and circumstances of the cases are identical to the facts of the assessment year 2004-

05. As stated earlier, following our order for the assessment year 2004-05, we decide the effective Ground of Appeal in favour of the assessee for the assessment years 2005-06, 2006-07 and 2007-08.

As a result,appeal filed by the AO for all the four AY.s.stand dismissed.

फलतः नधा रती वारा दा खल क गई अपील मंजरू क जाती है .

Order pronounced in the open court on 13th ,May,2015.

आदे श क घोषणा खुले यायालय म दनांक 13 May, 2015 को क गई ।

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Sd/- Sd/- (आई पी बंसल/I P Bansal) (राजे / RAJENDRA) या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER मुंबई/Mumbai, दनांक/Date: 13.05.2015 Jv.Sr.PS. आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1.Appellant /अपीलाथ 2. Respondent / यथ

3.The concerned CIT(A)/संब ध अपील य आयकर आयु त, 4.The concerned CIT /संब ध आयकर आयु त

5.DR "A" Bench, ITAT, Mumbai / वभागीय त न ध, ए खंडपीठ,आ.अ. याया.मुंबई

6.Guard File/गाड फाईल स या पत त //True Copy// आदे शानस ु ार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai.

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