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2017 (1) TMI 390 - ITAT AHMEDABAD

2017 (1) TMI 390 - ITAT AHMEDABAD - TMI - Penalty u/s 271(1)(c) - disallowance of depreciation of show room building - Held that:- From going through the judgment of Price Waterhouse Coopers Pvt. Ltd. vs. CIT [2012 (9) TMI 775 - SUPREME COURT] we find that it is squarely covered in favour of assessee by the above judgment as the assessee which is a limited company declaring total income of ₹ 11.43 crores (approx.) and having no mens rea of claiming excess depreciation of just ₹ 7,80, .....

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(c) of the Act as the assessee had only committed an undoubtful bona fide error and it certainly had no intention of concealing any income or furnishing inaccurate particulars of income. We are, therefore, of the view that assessee should not be visited with penalty u/s 271(1)(c) - Decided in favour of assessee - ITA No. 59/Ahd/2014 - Dated:- 4-1-2017 - Shri S. S. Godara, JM and Shri Manish Borad, AM. For The Appellant : Smt. Urvashi Sodhan, AR For The Respondent : Shri James Kurien, Sr. DR ORDE .....

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sed various grounds which are not in consonance with Rule-8 of ITAT Rules, 1963. However, sole grievance of the assessee is confined to a single issue against the order of ld. CIT(A) confirming penalty u/s 271(1)(c) of the Act on disallowance of depreciation of ₹ 7,80,826/-. 3. Briefly stated facts are that the assessee is a limited company engaged in the business of manufacturing and trading of ceramics. Return of income for Asst. Year 2007-08 was filed on 29.10.2007 declaring total incom .....

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#8377; 7,80,826/-. 4. Brief facts relating to this disallowance of depreciation of ₹ 7,80,826/- are that assessee purchased a show room building at Mumbai on 5.3.2007 for a sum of ₹ 1,51,18,160/-. Assessee started construction of Bath Studio in this showroom which was completed and put to use on 31.05.2007. For Asst. Year 2007-08 assessee claimed depreciation of ₹ 7,80,826/- on the cost of show room building of ₹ 1,51,18,160/-. However, during the course of assessment pro .....

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of inaccurate particulars of income by making wrong claim of depreciation of ₹ 7,80,826/-. In appeal before ld. CIT(A) assessee could not succeed as ld. CIT(A) confirmed the penalty u/s 271(1)(c) of the Act . Relevant para reads as under:- 13. When the present case is examined in view of this legal position, it is found that in this case appellant claimed depreciation of ₹ 7,80,8267- in respect of show room at Mumbai. However, it was found by AO during the course of assessment procee .....

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alty u/s. 271(l)(c) is fully justified in this case in view of decision of Hon'ble Supreme Court in the case of Dharmendra Textile. It would be a travesty of truth and justice to express a view to the contrary. Now a days only a microscopic minority of returns are selected for detailed scrutiny. The taxpayers are aware of this and many of them try to take undue advantage of this by filing incorrect income. This tendency needs to be strongly discouraged. It is therefore necessary that conceal .....

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f different Court decisions the issue is highly debatable and two opinions are possible on the same. Another addition of ₹ 1,61,000/- is in respect of disallowance of preliminary expenses u/s. 35D. This addition is also of technical nature in respect of which levy of penalty is not justified. Ground no. 1 of appeal is thus partly allowed. 6. Aggrieved, assessee is now in appeal before the Tribunal. 7. Ld. AR submitted that assessee company is having a huge turnover and has declared income .....

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ose of business and as the building was purchased and its use was started by way of starting construction of Bath Studio , depreciation was claimed on the cost of the building. This claim was duly supported by the audit report of the Chartered Accountant and it was a valid and bona fide claim. Ld. AR further submitted that there was no concealment of income or furnishing of inaccurate particulars of income because all the necessary information were very well available on record and it was merely .....

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g of ₹ 7,80,826/-. We observe that assessee is a limited company and has declared income of ₹ 11,43,52,419/-. Books of accounts are audited. Issue in this appeal revolves round the disallowance of depreciation of ₹ 7,80,826/- claimed by assessee on show room building at Mumbai purchased by assessee on 5.3.2007 at ₹ 1,51,18,160/-. Assessee started construction for making a Bath Studio in the show room building which was completed on 31.5.2007. Claim of assessee of deprecia .....

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dinate Bench by observing as follows :- 4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The undisputed facts are that the assessee had purchased the premises on 05/03/2007 and for the purpose of "Bath Studio" the furnishing and other work were carried out from March-07 to 31st May-2007. The contention of the assessee is that the premises were put to use for business purpose as the furnishing of the p .....

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the building during the year under consideration and carried out certain furnishing work for the purpose of establishing the "Bath Studio". The contention of the assessee is that the premises were put to use for business purpose as the work of furnishing was being carried out for the purpose of establishing a ''Bath Studio''. Therefore, the depreciation on the premises cannot be denied as per provisions of section 32 of the I.T. Act, 1961. In support of this contention, .....

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T vs. Refrigeration & Allied Industries Ltd. 113 Tax man 103(Dei)" 4.1. We find that the Hon'ble Gauhati High Court in the case of CIT vs. India Tea and Timber Trading Co. reported at (1996) 251 ITR 857(Gauh) concurred the view of other High Courts that the word "used" for business purpose should have a wider import including active as well as passive usage of the asset. Further, we find that the Hon'ble Gauhati High Court in the said judgement has observed that the Ho .....

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be claimed for the building for a period: (1) before the completion of the installation of machinery in the said building; (2) before it starts functioning effectively; (3) before the production (even trial run) is commenced and the business of the company of manufacturing an article with the aid of the said machinery has commenced? Can depreciation be allowed in these facts and circumstances when it is allowable upon the property being used for or in the bus/ness of the said unit of the company .....

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elevant is the date on which the machinery was installed in the building. Now, provisions on which reliance is placed for claiming depreciation allowance, namely s. 32(1) r/w r. 5 as they stood at the relevant time (relevant for the assessment in question, i.e., 1965-66) may be quoted. Sec. 32(1), so far as it is material for our purposes, reads as under: "32(1) In respect of depreciation of building, machinery, plant or furniture owned by the assessee and used for the purposes of the busin .....

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owance under cl. (i) or cl. (ii) or sub-s. (1) of s. 32 in respect of depreciation of building, machinery, plant or furniture shall be at a percentage of the actual cost or the written down value, as the case may be, equal to (i) 100 per cent, (ii) fifty per cent, or (Hi) nil per cent of the number shown in the corresponding entry in the second column of the statement in Part I Appendix I to these Rules according as the building, machinery, plant or furniture, have been used by the assessee in h .....

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came functional only on 7th March, 1965. The business of the company was to manufacture dyestuffs etc., The production of dyestuffs could not have commenced before 7th March, 1965, the date on which the machines became operative. Under the circumstances, can it be said that the building was used by the assessee for the purposes of his business at a point of time when the machines, had not become functional, merely because the machines had already been installed? In order to succeed, the assessee .....

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effective and real user in the commercial sense. And the user must be so linked with the business that it can be said that there is an immediate nexus between the user and the business, i.e., the real business of the assessee. The business of the assessee was to produce the dyestuffs etc. The building was used for the purpose of business of production of dyestuffs only after the machines became operative w.e.f. 7th March, 1965. Counsel for the assessee has argued that the machines had first to b .....

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f a building which was completed, say in 1970, and the installation of the machinery was commenced in 1971, but could not be completed, for say five years thereafter, till 1974. Could it then be contended that the building was "used" for the purposes of the "business" of the assessee and could the assessee have claimed depreciation for these five years? Five years even before the machinery became functional and the plant was commissioned? In other words, even before it could .....

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h diminution in life span and value. It is claimable only on account of its user for business which can result in profits or gains. This can happen only when production commences. Another illustration may also make the position abundantly clear. Take the case of a factory which has totally dosed down its business operations for five years during which it does not operate the factory or work for profits or gain. Can depreciation be claimed for this period notwithstanding this factor? In our opini .....

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8. (Addl. CIT vs. Speciality Paper Ltd.) Depreciation was claimed by the assessee with effect form the date on which trail production was commenced. It appears that there was a time lag between the date when the trial production commenced and the date when the actual production commenced. The Court took the view that the date on which the trial production commenced was irrelevant for the purposes of claiming depreciation and that it cannot be said that the company had set up its business at the .....

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ferred to us, as under: Question : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the "Azo" building was used for the purposes of business for more than one month in the relevant accounting year for the assessment year 1965-66 and was entitled to depreciation in the said assessment year?" Answer : In the negative, i.e., in favour of the Revenue and against the assessee. There will be no order regarding costs.&quo .....

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. From going through the decision of the Co-ordinate Bench we observe that the issue relating to use of asset has been discussed. The contention of the assessee is that the depreciation claimed is justified as the show room building was purchased on 5.3.2007 and it was started for business purposes by way of starting the interior work relating to Bath Studio and, therefore, depreciation was claimed only to the extent of cost spent for show room building and the amount spent for Bath Studio was s .....

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nce of depreciation we observe that assessee has furnished all necessary particulars relating to its claim of depreciation and there is no mistake detected by the lower authorities with regard to the cost of the asset, depreciation amount, work in progress of Bath Studio and date of completion of Bath Studio. Assessee s claim of depreciation is duly supported by the auditors report which further strengthens the claim of assessee that it was having some valid basis. It was only the other view tak .....

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is only a dispute about the claim of assessee which was made with some justification but was not accepted by the Revenue authorities? . We find that answer to the above question can be found in the judgment of Hon. Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. vs. CIT in Civil Appeal No.6924 of 2012 wherein the Hon. Court observed as follows:- 17. Having heard learned counsel for the parties, we arc of the view that the facts of the case are rather peculiar and somewhat unique. .....

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tation error in its return of income. Apart from the fact that the assessee did not notice the error, it was not even noticed even by the Assessing Officer who framed the assessment order. In that sense, even the Assessing Officer seems to have made a mistake in overlooking the contents of the Tax Audit Report. 19. The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate parti .....

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