TMI Blog2010 (1) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... see's appeals are allowed. - ITA Nos. 7283 and 7284/Mum/2008, - - - Dated:- 13-1-2010 - P.M. Jagtap, P. Madhavi Devi, JJ. Arvind Sonde for the Appellant Aparna Agarwal for the Respondent ORDER P. Madhavi Devi:- 1. These appeals by the assessee are directed against the CIT[A]'s order dated 24/10/2008 and 17/11/2008 for the assessment years 2003-04 and 2004-05 respectively. In both these appeals the assessee is aggrieved by the order of the CIT[A] in confirming the penalty levied by the AO u/s.271[1][c] of the Income Tax Act, on the ground that the assessee has furnished inaccurate particulars of its income and by falsely claiming deduction u/s.33AC of the Act has concealed the particulars of its income and tried to evade tax on interest income. 2. As facts are similar for both the assessment years and the issues are common, both the appeals are heard together and are decided by this common and consolidated order. The appeal for the A.Y 2003-04 is taken up first. 3. Brief facts of the case are that the assessee is in the business of operation ships. Most of the vessels are held by the assessee on ownership basis while the others are used on a Bare Boat Charte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold it back to the owner at market value and this purchase and sale has resulted in reduction of net Block of fixed assets resulting into claim for depreciation on lower value of net block. It was further submitted that in the books of accounts VIPL has shown profit of Rs.488.96 crores on sale of ship and this profit was then reduced from the profit while computing the income by the assessee as the same is considered in block of assets and consequential depreciation and the treatment given is proper and as per law. However, in the alternative and without prejudice to its claim of depreciation, the assessee submitted that even if it is treated as a transfer of a capital asset, then as the right had accrued to the assessee in 1998, the capital gain arising out of the relinquishment of the rights should be assessed as long term capital gain. After considering assessee's submissions, AO rejected the first limb of the assessee's argument that there was purchase and sale of vessel and that net block of assets has to be reduced. However, he accepted the second limb of the argument that the relinquishment of the right has resulted in long term capital gains and taxed the capital gains ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atment given to the interest income as income from other sources, he observed that the profit derived by the assessee from its shipping business comes to Rs.6,15,12,647/- and he restricted the deduction to that extent. 6. Aggrieved by both the additions, assessee filed an appeal before the CIT[A] reiterating the submissions made before the AO. As regards the issue of depreciation, it was submitted that the purchase of a ship resulted into addition to the block of assets and the sale accordingly reduced the block of assets. The CIT[A] observed that during the period of financial lease, the asset was not owned by the assessee and it was for this reason that in 1998 , when the agreement of lease was entered into, the value of the ship was never added to the block of assets and consequently no depreciation was claimed by the assessee on the value of the ship. He therefore held that what is to be considered is whether on 31-12-2002 when the ship was purchased consequent to demise agreement and was simultaneously sold, the resultant profit can at all be considered for reduction of block of assets. He held that the purchase of ship cannot be considered to be independent of its simultane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 stating that the vessel 'NEEL AKASH' was not considered as part of fixed assets in the year 1998 onwards and no depreciation was claimed on it because ownership of the same was not with the assessee and it is only on the settlement of the demise price that the transaction has been treated as purchase of ship and simultaneous sale on the payment of the market value of the ship and therefore the difference of the amount has been reduced from the block of assets and claim of depreciation was made on net block of assets. It was submitted that the details relating to profit on sale of ship has been disclosed in the audited accounts of the assessee for the year under consideration and the addition/deduction on account of such purchase and then sale of ship 'NEEL AKASH' has been fully disclosed in the depreciation calculation filed along with the tax audit report and the assessment of the said income as long term capital gains by both the AO as well as the CIT[A] is only a difference of opinion and certainly not concealment of income or furnishing of inaccurate particulars of income and therefore the levy of penalty u/s.271[1][c] is not justified. AO however was not satisfied with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Rs.40,61,029/- for both the assessment years 03-04 and 04-05 taken together. Thus, according to him, claim of depreciation on the block of assets was made bonafidely and there is no case for levy of penalty u/s.271[1][c] of the Income Tax Act. 13. The ld. DR, on the other hand, supported the orders of the authorities below and submitted that the assessee has not offered the long term capital gains and has claimed deduction u/s.33AC on interest income also which clearly shows the intention of the assessee to evade tax and, therefore, levy of penalty is justifiable. 14. Having heard both the parties and having considered their rival contentions, we find that the levy of penalty is on two grounds:- (i) long term capital gains, and (ii) interest income claimed as deduction u/s.33AC. The Tribunal has already deleted the addition on account of interest income and as a consequence, levy of penalty on this count is to be deleted. As regards the levy of penalty on non offering of income as long term capital gains, we find that the stand of the AO is that the assessee has furnished inaccurate particulars of its income. From perusal of pages 65 and 66 of the paper book filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. The Hon'ble Supreme Court in the case of Rajasthan Spinning and Weaving Mills, explained the decision of the Hon'ble Supreme Court in the case of Dharmendra Textile Processors and has held that penalty is not to be levied automatically in every case of non-payment or short payment of tax but the conditions expressly mentioned in the section for its application should be satisfied. In view of the above decision, we find that the assessee has furnished all the particulars relevant for the computation of its income and there is no furnishing of any inaccurate particulars of income justifying the penalty u/s.271[1][c] of the Income Tax Act. The penalty is accordingly deleted. 15. For the A.Y 2004-05, the levy of penalty u/s.271[1][c] is on account of addition of long term capital gains on purchase and sale of the vessel 'Neel Kamal', where except for the quantum facts and circumstances are similar. The other grounds for levy of penalty are:- (i) the disallowance of excess claim made u/s.33AC on interest income, (ii) profit on recruitment of personnel, and (iii) agency division profit. 16. As regards treatment of interest income as income from other sources, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X
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