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Hindustan Organic Chemical Ltd. Versus Assistant Commissioner of Income-Tax (And Vice Versa)

2016 (7) TMI 314 - ITAT MUMBAI

Penalty levied under section 271(1)(c) - addition of depreciation relating to "decapitalised" value of assets - Held that:- We notice that the assessee has voluntarily decapitalised the assets by examining its liabilities position in the assessment year 2003-04. The undisputed fact remains that the Assessing Officer has added the liabilities reversed by the assessee to the total income of the assessee in the assessment year 2003-04. The amount of ₹ 44.34 lakhs is already included in the am .....

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in concealment of particulars of income or furnishing of inaccurate particulars of income. - Decided in favour of assessee - Addition on account of valuation of eutectic oil - Held that:- We find merit in the submissions of the assessee that the amount realised by the assessee after the expiry of four years cannot be a ground to disturb the closing stock value estimated by the assessee, particularly when the assessee is valuing the eutectic oil stock as nil for the past several years. It is .....

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r section 271(1)(c) of the Act - Decided in favour of assessee - Disallowance of depreciation on plant not put to use - Held that:- There is merit in the contentions of the assessee that the assets shall lose their individual identity once it enters the block. Otherwise also, we notice that the assessee has offered explanations as to why it was constrained to claim depreciation on these assets. Thus, we notice that the disallowance of depreciation claimed on assets, which had already lost th .....

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The learned Commissioner of Income-tax (Appeals) has also taken note of the submissions made by the assessee that these expenses got crystallised during the year under consideration. Hence, there is merit in the view taken by the learned Commissioner of Income- tax (Appeals) that it is a case of mere change of accounting year in which expenses should be claimed and, hence, this issue becomes a debatable issue. It is well-settled proposition of law that penalty under section 271(1)(c) of the Act .....

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Accordingly, we are of the view that the penalty cannot be levied on the capital portion of the reversed liability and the same should be restricted to the depreciation portion alone. Accordingly, we modify the order of learned Commissioner of Income-tax (Appeals) on this issue and direct the Assessing Officer to restrict the penalty on the addition relating to depreciation portion alone, which was claimed by the assessee over the years.- Decided in favour of assessee in part - Addition rela .....

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justified in confirming the penalty levied on this addition. - Decided against assessee - Disallowance of loans and advances written off - Held that:- The question as to whether debt has become bad or not, is a debatable issue. The learned authorised representative also contended that there is no requirement of proving that the debt has become bad, after the amendment made in section 36(1)(vii) of the Act. Hence, we are of the view that the penalty could not be levied on a debatable issue. .....

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f Income-tax (Appeals) directed the Assessing Officer to verify the contention of the assessee and delete the penalty, if the assessee's claim is found to be correct. Since the issue is restored back to the Assessing Officer to verify the claim of the assessee, we do not find any infirmity in it. - Decided in favour of assessee by remand - Disallowance of depreciation on stores and spares - Held that:- The assessee has capitalised certain stores and spares and, accordingly, claimed depreciat .....

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e one and, hence, the penalty cannot be levied on this addition.- Decided in favour of assessee - Addition made under section 145A - Held that:- As the learned Commissioner of Income-tax (Appeals) deleted the identical additions made in the earlier years. Since the facts are identical and since the Assessing Officer has made the addition on estimated basis, we are of the view that the learned Commissioner of Income-tax (Appeals) was justified in deleting the penalty levied on this addition, .....

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-05 and all of them relate to the penalty levied under section 271(1)(c) of the Income-tax Act, 1961. The penalty levied by the Assessing Officer, having been deleted by the learned Commissioner of Income-tax (Appeals) partly, both the parties have filed these appeals before us. 2. The assessee is a Government of India undertaking and is engaged in the business of manufacturing of basic chemicals and chemical intermediates. 3. We shall now take up the appeals filed for the assessment year 1999- .....

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ed Commissioner of Income-tax (Appeals) deleted the penalty levied on the disallowance of prior period expenses and confirmed the penalty levied on the remaining three items. The assessee is in appeal challenging the confirmation of penalty and the Revenue is in appeal challenging the deletion of penalty. 5. The first item on which the penalty was levied relates to the addition of depreciation relating to "decapitalised" value of assets. The facts relating to the same are stated in bri .....

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the assessee reviewed its outstanding liabilities and the management decided that the liabilities to the tune of ₹ 543.50 crores have become time barred. The management took that view since it found that there are no dues remaining to be paid on account of assets capitalised and there are no known creditors to whom these liabilities can be associated. Since these liabilities have been created towards the assets capitalised in the earlier years, the assessee decided to decapitalise the same .....

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adjustments were made in the financial year 2002-03 relevant to the assessment year 2003-04. It is pertinent to note that the assessee did not make corresponding adjustments to the depreciation schedule in its Income-tax computation. 6. The Assessing Officer ordered for a special audit under section 142(2A) of the Act during the course of assessment proceedings relating to the assessment year 2003-04. The special auditor expressed the view that the aggregate amount of depreciation of ₹ 44. .....

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ition. Hence, the Assessing Officer added the abovesaid amount of ₹ 44.34 lakhs on protective basis in the assessment year 1999- 2000. In the appellate proceedings relating to the assessment year 1999- 2000, the learned Commissioner of Income-tax (Appeals), however, confirmed the addition of depreciation of ₹ 44.34 lakhs on substantive basis with the observation that deduction of corresponding amount may be given in the assessment year 2003-04. 7. In the penalty proceedings, the asse .....

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rned counsel appearing for the assessee submitted that the assessee has furnished all the particulars relating to decapitalisation in its books of account relating to the financial year 2002-03. He submitted that the assessee has passed due accounting entries in that year. However, the Assessing Officer has decided to add a sum of ₹ 44.34 lakhs, being the amount of depreciation relating to the period from 1991 to 1998 on protective basis in the assessment year 1999-2000 but the learned Com .....

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cessive depreciation by inflating the value of its capital assets. 10. Having heard the rival submissions, we are of the view that there is merit in the contentions of the assessee. We notice that the assessee has voluntarily decapitalised the assets by examining its liabilities position in the assessment year 2003-04. The undisputed fact remains that the Assessing Officer has added the liabilities reversed by the assessee to the total income of the assessee in the assessment year 2003-04. The a .....

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ade by changing the assessment year will not result either in concealment of particulars of income or furnishing of inaccurate particulars of income. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue and direct the Assessing Officer to delete the penalty levied on the abovesaid amount. 11. The next issue on which the penalty under section 271(1)(c) of the Act was levied relates to the addition on account of valuation of eutectic oil. The assess .....

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at nil was not correct and, accordingly, he estimated the value of eutectic oil as on March 31, 1999, at ₹ 2,000 per metric tonne. Accordingly, he valued the closing stock of oil at ₹ 13 lakhs and added the same to the income of the assessee. The Assessing Officer also levied penalty on the abovesaid addition and the learned Commissioner of Income-tax (Appeals) also confirmed the same. 12. The learned counsel submitted that the assessee has duly disclosed the availability of eutectic .....

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authorised representative submitted that the assessee has consistently taken the market value of oil as nil over several years. The learned counsel submitted that the Assessing Officer, having decided to attribute certain value to the closing stock of oil, should have also valued the opening stock of oil at the same value, in which case, the addition would have been neutral. He submitted that the assessee had furnished proper explanations for taking the closing stock value of oil as nil and furt .....

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ue of eutectic oil and has made the addition of ₹ 13 lakhs. As pointed out by the learned authorised representative, he did not estimate the value of opening stock of oil, even though the oil stock was available as opening stock also. We also find merit in the submissions of the assessee that the amount realised by the assessee after the expiry of four years cannot be a ground to disturb the closing stock value estimated by the assessee, particularly when the assessee is valuing the eutect .....

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n estimated basis would not give rise to penalty under section 271(1)(c) of the Act. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) passed on this issue and direct the Assessing Officer to delete the penalty levied thereon. 14. The next issue relates to penalty levied on disallowance of depreciation on plant not put to use. The learned counsel submitted that the Assessing Officer has listed out certain plants and disallowed depreciation claimed thereon by .....

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d that the assessee has furnished all relevant details relating to the depreciation claimed by the assessee and it has neither concealed any particulars of income nor furnished any inaccurate particulars of income. Accordingly, he contended that the penalty levied on the disallowance of depreciation was not justified. 15. We have heard the learned Departmental representative on this issue and perused the record. From the orders passed by the tax authorities we notice that the Assessing Officer h .....

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ce that the disallowance of depreciation claimed on assets, which had already lost their individual identity by entering into the block, is a debatable issue. Hence, we are of the view that the assessee cannot be levied with the charge of concealment of particulars of income or furnishing any inaccurate particulars of income in respect of this addition. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue and direct the Assessing Officer to delete .....

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as only changed. On the contrary the Assessing Officer had disallowed the same as he took the view that these expenses do not relate to year under consideration. 17. We have heard the parties on this issue. We noticed that the learned Commissioner of Income-tax (Appeals) has given a finding that the claim made by the assessee was not an ingenuine claim and it is a case of postponement of claim only. The learned Commissioner of Income-tax (Appeals) has also taken note of the submissions made by t .....

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the learned Commissioner of Income-tax (Appeals) in deleting the penalty levied on this addition. 18. We shall now take up the appeals relating to the assessment year 2003- 04. The Assessing Officer levied penalty on the following additions made by him : "(i) reversal of excess liabilities of ₹ 4,87,38,201 (ii) prior period expenses of ₹ 1,10,19,632 (iii) stock of eutectic oil of ₹ 12,70,000 (iv) disallowance under section 43B-Rs. 76,17,656 (v) loan and advances written o .....

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ssioner of Income-tax (Appeals). 19. The first issue relates to the penalty levied on the addition relating to reversal of excess liabilities. This addition relates to the decapitalisation of assets, which was discussed in the preceding paragraphs while dealing with the appeal of the assessee relating to the assessment year 1999-2000. It is pertinent to note that the assessee has carried out necessary adjustments in its books of account only. It did not make any disclosure in the Income-tax comp .....

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of ₹ 543 lakhs were not created at all by the assessee and the said fact was found by it only in the financial year 2002-03. This situation occurred since it has been accounting for the assets on estimated basis. The principle of individual assets losing their identity, in our view, shall apply only to the existing assets, whether tangible or intangible. Here is a case, where the value of assets have been inflated and, in our view, the abovesaid principle cannot be applied to the inflated .....

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e learned Commissioner of Income-tax (Appeals) has given a further relief to the extent of ₹ 44.34 lakhs directed by him to be assessed in the assessment year 1999-2000. Since the liabilities relate to the capital assets, the question as to whether such kind of liabilities can be assessed as income of the assessee under section 41(1) shall become a debatable one. Accordingly, we are of the view that the penalty cannot be levied on the capital portion of the reversed liability and the same .....

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d in the preceding paragraph while dealing with the appeal of the assessee relating to the assessment year 1999-2000. In this year, the assessee has sold a portion of the oil at ₹ 4,000 per metric tonne. Thus, the claim of the assessee, that it did not have any market value has been disproved in this year. However, the assessee has chosen to declare the market value as nil. Hence, the explanation of the assessee stands disproved by the facts available in its records itself. Accordingly, we .....

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me with the reasoning that the assessee has not produced any evidence to show that the debt has actually become bad. The learned Commissioner of Income-tax (Appeals) also confirmed the same. We heard the parties on this issue. The question as to whether debt has become bad or not, is a debatable issue. The learned authorised representative also contended that there is no requirement of proving that the debt has become bad, after the amendment made in section 36(1)(vii) of the Act. Hence, we are .....

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as deduction under section 35(1)(iv) of the Act. Accordingly he disallowed the depreciation amount relatable to research and development equipment and levied penalty thereon. Before the learned Commissioner of Income-tax (Appeals), the assessee submitted that it had included the value of research and development equipment as part of block but did not claim depreciation at all. Accordingly, the learned Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the contention of .....

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the assessee has capitalised certain stores and spares and, accordingly, claimed depreciation thereon. The question as to whether the assessee could capitalise its stores and spares is a debatable issue and, hence, the disallowance of depreciation claimed thereon also becomes debatable one. Accordingly, we set aside the order of the learned Commissioner of Income-tax (Appeals) passed on this issue and direct the Assessing Officer to delete the penalty levied on this addition. 26. We shall now t .....

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e made under section 43B of the Act. The Assessing Officer disallowed the payments made towards provident fund, employees' State insurance, etc., beyond the due date prescribed in the respective Acts but within the grace period specified therein. It is the case of the assessee that the payment made within the grace period should also be considered as the payment made within the statutory period. We are of the view that this issue is debatable one and, hence, the penalty cannot be levied on t .....

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he learned Commissioner of Income-tax (Appeals). In this year, the assessee has inadvertently omitted to contest this addition before the learned Commissioner of Income-tax (Appeals) and, accordingly, it came to be confirmed. The Assessing Officer examined the value of the closing stock and took the view that the assessee has not loaded direct expenses to the value of raw materials. Accordingly, he estimated the value of direct expenses at 2 per cent. of the cost of raw materials and, accordingl .....

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tax (Appeals) was justified in deleting the penalty levied on this addition, even though the assessee has accepted the addition by not contesting the same. 29. We shall now take up the appeals filed by both the parties for the assessment year 2004-05. The penalty was levied on the following additions : (i) depreciation allowance on account of decapitalisation of assets of ₹ 10,52,291 (ii) prior period expenses of ₹ 1,10,49,240 (iii) valuation of eutectic oil at ₹ 10,87,068 (iv) .....

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