Paramaount Minerals And Chemicals Ltd, ... vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'C' MUMBAI सव ौी आय.पी. बंसल, याियक सदःय एवं ौी चं पुजारी, लेखा सदःय के सम । BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER

ITA NO.5992/Mum/2013 (A.Y.2008-09)

Paramount Minerals and Chemicals The ACIT-46, Ltd. Mumbai.. 33, Old hanuman 1st Cross Lane, Vs. (Respondent) Kalbadevi Road Mumbai-400 002. GIR No./PAN : AAACP 2721 Q (Appellant )

Appellant by : None Respondent by : Shri Neil Philip - DR

Date of hearing : 25/02/2015 Date of pronouncement : 25/02/2015

ORDER

PER CHANDRA POOJARI, A.M:

This appeal is filed by the assessee. It is directed against the order passed by ld. CIT(A) dated 23/08/2013 for the assessment year 2008-09. The assessee has raised the following grounds :-

"1. (a) The Learned CIT (A) erred in confirming the imposition of penalty of Rs.2,80,000/- u/s. 271 (1)(c ) of the Income tax Act, 1961.

(b) The A.O. and The Learned CIT (A) erred in not appreciating the fact that the alleged concealed income at Rs.8,12,540/- which represents the difference in foreign exchange fluctuations and has the effect of reducing the cost of fixed assets entitled for depreciation.

2 ITA No.5992/M/13 (c) The A.O. and the Learned CIT (A) failed to appreciate that the appellant was assessed u/s. 143 (3) of the Act to the income disclosed in the return which proves ipso facto that the appellant had neither concealed the particulars of its income nor furnished inaccurate particulars of its income in the return filed u/s. 139 (1) of the Act.

(d) The A.O. and the Learned CIT (A) erred in not appreciating the fact that no penalty can be levied when there was no initiation of the penalty proceeding in the order framed u/s.154 of the Act."

2. None appeared for the assessee. We have taken up the case to adjudicate the issue in dispute after hearing the ld. DR.

3. The facts of the case are that, the assessee is carrying on the business activity of manufacturing of optical whitening chemical. The assessee filed its return of income on 27.9.2008 declaring taxable income at Rs. 1,76,81,326/-. The assessment u/s. 143(3) the Act was completed on 31.12.2010 accepting the returned income of Rs.1,76,81,326/-. During the course of assessment, the assessee was asked to explain the effect given by the company for the foreign exchange rate on foreign currency term loan. The assesee replied that no effect has been given in the books of account on repayment of foreign currency loan due to fluctuation in exchange rate u/s 43A. Further, difference due to exchange rate was worked out to Rs.8,12,540/- by the company and revised depreciation working alongwith revised computation was filed during the assessment proceedings. Penalty proceedings u/s.271(1)(c) of the Act were also initiated. The assessment order was rectified by passing order u/s 154 of the I. T. Act on 18.1.2011 determining total income at Rs.1,78,49,610/-.

3 ITA No.5992/M/13 Subsequently, the penalty proceedings were initiated for concealment of income. During the penalty proceedings, the assessee contended that it is the duty of the assessing officer to check and verify the depreciation working filed by the assessee company and to allow the correct quantum of depreciation as per law. It was also contended that the reworking of depreciation cannot be treated as concealment.

3.1 The A.O did not accept the contentions of the assessee on the ground that the admission of wrong claim of deprecation is due to enquiries carried out during the scrutiny assessment. The assessee did not file revised depreciation on his own prior to scrutiny assessment. Had there been no scrutiny, the assesee would have concealed the false claim of deprecation. The assessee also accepted the order passed u/s 143(3) & 154 of the I. T. Act and no appeal has been filed against the said orders. The assessee had concealed particulars of deprecation and acceptance of the same cannot avoid penalty proceedings u/s 271(1)(c) of the Act. The A.O levied concealment penalty u/s. 271(1)(c) of the Act amounting to Rs.2,80,000/- @100% of the tax sought to be evaded.

4. On appeal the ld. CIT(A) observed as under :-

"7.2 The appellant has taken a clear position as per the audit report not to give effect exchange rate fluctuation on account of repayment of foreign currency loan at the time of filing the return of income. The appellant came forward to accept the wrong claim during the course of scrutiny proceedings and accepted the additions made on this ground. As stated by the assessing officer the assessee could not have come forward to accept the wrong claim but for the enquiry conducted at the time of scrutiny proceedings. The appellants argument that it is the duty of the assessing officer to work out the correct depreciation on the basis of the details available on record is true only if the case has been selected for the scrutiny 4 ITA No.5992/M/13

and only a few percentages of the return are selected for the scrutiny and most of the returns are accepted without any verification. While on the one hand the appellant demands that it is the duty of the assessing officer to allow the right claim on the basis of the auditor's report while on the other hand the appellant conveniently omitted to make the correct claim in the return of income filed.

7.3 The appellant also claims that the remarks made in the auditor's report would not have been lost sight off as there are in built mechanisms such as audit by internal audit party, audit by CAG, Inspection, review by higher authorities etc. This claim of the appellant is also not true and the audit and inspections are usually carried out only in respect of scrutiny cases and very rarely audit or inspection is carried out in respect of non scrutiny cases. There are high probabilities of not noticing such wrong claims in the present mechanism except perhaps under the scrutiny. The appellant also argues that the initiation of penalty proceedings in the assessment order is over taken by the non initiation of penalty proceedings in the order u/s 154 thereby coming to the conclusion that the assessing officer suo moto dropped the initiation of penalty proceedings is not acceptable for the reason that the initiation of penalty in the original order will live through the subsequent orders until otherwise it was specifically dropped and if the initiation has been suo moto dropped by the assessing officer he could not have proceeded to levy the penalty for the same ground for which the penalty proceedings were initiated by him. Further appellant's argument that the mens rea is required to levy penalty is not any more good law in view of the decision of Supreme Court in the case of Dharmendra Textiles Processors 306 ITR 277 by holding that the penalty is a civil liability and therefore willful concealment is not an essential ingredient for attracting the civil liability. It was pointed out that the division bench in the case of Dilip N. Shroff failed to notice a conceptual and contextual difference between section 271(1)(c) and section 271C. The case laws cited by the assessee are distinguishable and do not apply to the facts of the case of the appellant.

7.4 The appellants ground that the quantum of penalty has to be on the quantum of depreciation and not on the quantum of difference in foreign exchange fluctuation is also not correct. The difference in foreign exchange fluctuation on account of reduction of repayment of foreign exchange loan will go to reduce the cost of the fixed asset as per the provisions of sec.43A of the Act which will in turn have inherent benefit in the capital account such as reduced capital gain on the difference in value of an asset at the time of transfer. The gain or loss will be attributable to the cost of the asset. Any change in the cost of the asset will have a bearing on the gain at the time of transfer. Therefore, furnishing of inaccurate 5 ITA No.5992/M/13

particulars actually relates to the difference in the cost of the asset and not restricted to the claim of eligible depreciation. In view of the above, the penalty of Rs.2,80,000/- levied u/s 271(1)(c) of the Act by the assessing officer is hereby confirmed."

4.1 Against this, the assessee is in appeal before us.

5. We have heard the ld. DR and perused the material available on record. In this case the assessee failed to give effect to change in the rate of exchange on account of repayment of foreign exchange currency loan u/s. 43A of the Act. In the return of income filed by the assessee, this fact was reported by the auditors in the audit report. When this was enquired into by the AO during the course of scrutiny proceedings, the assessee came forward to admit the wrong claim and accordingly submitted revised depreciation claim. The AO levied penalty u/s. 271(1)(c) of the Act on the ground that provisions regarding claim of depreciation has been concealed. The assessee's claim was that this will not amount to concealment of income or false claim. A glance at the provisions of section 271(1)(c) suggest that in order to be covered, there has to be concealment of particulars of income of the assessee . Secondly, the assessee must have furnished inaccurate particulars of income. In the present case it is not the case of concealment of income. It is also to be noted that no information given in the return was found to be incorrect or inaccurate. It is not as if any statement made or any details supplied were found to be incorrect. Hence, at least, prima facie the assessee cannot be held guilty of furnishing inaccurate particulars or concealing income so as to invoke provisions of section 271(1)(c) of the Act.

6 ITA No.5992/M/13 5.1 In order to impose penalty on the assessee, the case is to be strongly covered by the provision of section 271(1)(c) of the Act. It cannot be said that making an incorrect claim in law cannot be tantamount to furnishing inaccurate particulars. Therefore, it is obvious that it must be shown that the condition u/s. 271(1)(c) of the Act must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document where the assessee can furnish the particulars of his income. Merely because, the assessee claimed excessive depreciation, failing to consider the change in the rate of exchange on account of repayment of foreign currency loan u/s. 43A of the Act, in return of income which has not been accepted by the AO, penalty u/s. 271(1)(c) cannot be imposed. Otherwise, mere making of a wrong claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars of income or concealing of income of the assessee. Accordingly, we are inclined to delete the penalty levied by lower authorities u/s.271(1)(c) of the Act.

6. In the result, appeal of the assessee in ITA No.5992/Mum/2013 is allowed.

Order pronounced in the open court on 25/ 02/ 2015 आदे श क घोषणा खुले यायालय म# $दनांकः 25/02/2015 को क गई ।

Sd/- Sd/- (आय.पी. बंसल / I.P. BANSAL) (चं पुजारी /CHANDRA POOJARI ) याियक सदःय / JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; $दनांक Dated 25/02/2015 व.िन.स./Jv, Sr. PS 7 ITA No.5992/M/13

आदे श क ूितिल*प अमे*षत/Copy षत of the Order forwarded to : 1. अपीलाथ- / The Appellant 2. ू.यथ- / The Respondent. 3. आयकर आयु/(अपील) / The CIT(A)- 4. आयकर आयु/ / CIT

5. *वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स.या*पत ूित //True Copy//

उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai