TMI Blog2017 (6) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... nd machinery, i.e., for ₹ 140.56 lacs, i.e., including the claim to the extent stated as withdrawn. - Decided against assessee. Disallowance of deduction under section 80-IB - Held that:- The assessee in our view had a reasonable basis to stake a claim for deduction u/s. 80IB in the manner it does, i.e., at ₹ 277.66 lacs. No ground for levy of penalty for furnishing inaccurate particulars of income is in our view therefore made out. We decide accordingly, confirming its deletion.- Decided against revenue. - ITA No. 590/Mds/2012, And ITA No. 676/Mds/2012 - - - Dated:- 26-4-2017 - SHRI SANJAY ARORA, ACCOUNTANT MEMBER, AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For The Assessee : Shri R.Vijayaraghavan, Advocate For The Department : Shri Muruga Bhoobathy, Jt. CIT ORDER Per Sanjay Arora, AM: These are cross Appeals, by the Assessee and the Revenue, arising out of the order by the Commissioner of Income Tax (Appeals)-VI, Chennai ( CIT(A) for short) dated 23/12/2011, partly allowing the assessee s appeal contesting the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 ( the Act hereinafter) by the Assessing Officer (AO) for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er u/s. 143(3) dated 29.12.2006). Though the assessee carried the matter in the appeal, it did not press the same before the first appellate authority, leading to its dismissal by him (vide order dated 08.10.2007 / copy on record). It appears that the same was reagitated in appeal before the Tribunal which, vide its order dated 17.12.2008 (in ITA No.205/Mds/2008/copy on record) restored the matter to the file back to the AO, who though confirmed the disallowance. The penalty proceedings, initiated earlier, were commenced. The assessee s explanation was that the asset having come to be owned, i.e., acquired by the assessee during the relevant previous year, enters the block of assets as at the year-end and, as such, depreciation is allowable in respect of the Written Down Value (WDV) of the relevant block of assets, adverting to sections 2(11), 32(1)(ii) and 43(6)(c). The assessee, claiming the machinery to be in a ready-touse state, had not shown it s commissioning by 31.03.2004, so that there was no factual basis to it s claim. Penalty was accordingly levied at the minimum amount of 100% of the tax sought to be evaded qua the claimed amount. The same was confirmed in appeal as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided on the basis of evidence. It is only thereafter, i.e., receipt, that it could be installed and, further, commissioned, entitling the assessee for depreciation in its respect. The question of a passive user, i.e., as against an active user, as where the machinery is in ready-to-use state, but could not be, as for example, for want of raw material, or other accentuating circumstances, resulting in forced idleness, to which effect case law stand cited, and which is the purport of the decision in Chennai Petroleum Corporation Ltd . (supra), comes only thereafter. In the facts of the case, the furnace having not been delivered at site, much less installed or commissioned, the question of it s user does not arise. Similarly, the decisions with regard to the trial production as constituting user, also do not arise for consideration in the facts and circumstances of the case. Trial production or trial run, as it is variously called, signifies the stage where the plant/machinery is being commissioned. During this phase, the same is subject to tests under different conditions, to see if the plant is working properly and is capable of production in terms of acceptable, standard and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC); Dharmendra Textile Processors (supra); K . P . Madhusudhanan vs . CIT [2001] 251 ITR 99 (SC); B . A . Balasubramaniam and Bros v . CIT (1999) 236 ITR 977 (SC); Addl . CIT vs . Jeevan Lal Shah [1994] 205 ITR 244 (SC); CIT vs . K . R . Sadayappan [1990] 185 ITR 49 (SC); and CIT vs . Mussadilal Ram Bharose [1987] 165 ITR 14 (SC). In fact, most of the decisions cited infra, in the context of various arguments raised, are again based on this principle or edifice, as applied to the facts and circumstances of the case, and there is no ambivalence in the position of law in the matter. In the cited case, Sharma Alloys ( India ) Ltd . (supra), which considers the decision in CIT v . Reliance Pteroproducts ( P .) Ltd . [2010] 322 ITR 158 (SC), it stands held by the Hon'ble jurisdictional High Court that where the assessee s claim for deduction is not sustainable, it could not escape penalty u/s. 271(1)(c). In fact, the case, as projected before us, is an after thought, and does not represent the assessee s explanation before the AO, which must be regarded, in law and on facts, as the assessee s case, and on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause ( i ) or clause ( ii ) or clause ( iia ), as the case may be: (emphasis, ours) User, therefore, continues to be a determinative test for depreciation. How, one wonders, could a block ( of assets ) be used ? An asset shall therefore enter a block of assets on satisfying the condition of user , which is a condition precedent for the claim of depreciation, and there is no question of it having entered the block of assets without being put to use. It is only as the value of different assets merge in the WDV of the block of assets once an asset enters the block, that it is stated that the user test is not applicable for the years subsequent to its first put-to-use. It is only when the user condition is satisfied for less than 180 days during the year of acquisition that depreciation is to be, as claimed , allowed at 50 per cent of the depreciation otherwise allowable. Now, the question of it being used or even ready-to-use could only be subsequent to it s receipt at the assessee s premises, its installation and, in fact, commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and machinery. On the contrary, the assessee itself states the claim for depreciation on the same plant for the following year as having been made at the base rate of 25%, applicable to general plant and machinery, further underscoring the impugned claim to be without basis. The withdrawal of the claim cannot under the circumstances be regarded as voluntary. The assessee, accordingly, is liable for penalty u/s. 271(1)(c) on the entire claim for depreciation on the relevant plant and machinery, i.e., for ₹ 140.56 lacs, i.e., including the claim to the extent stated as withdrawn. With regard to this, i.e., the additional claim, we observe that the assessee has relied on the decision in CIT v . Sri Saradha Textile Processors ( P .) Ltd . [2006] 286 ITR 499 (Mad), wherein, in ratio, it stands held that an erroneous claim by the assessee, made bona fide ; it withdrawing the same, filing a revised return as soon as the error was pointed out to it, would save penalty. Bona fide belief, coupled with a honest conduct, as borne out by the furnishing of all the facts material to the computation of income, would exclude penalty. There is no doubt on this position of law, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our decision qua the claim for depreciation on this plant (to the extent of ₹ 112.45 lacs) shall be equally applicable to the claim for the additional amount as well. When the assessee is not entitled to claim depreciation on the furnace, the question of extent of depreciation or additional depreciation does not arise . The levy of penalty u/s. 271(1)(c) on the entire claim of depreciation for ₹ 140.56 lacs is thus sustainable in law. We decide accordingly. 6. The second issue in these appeals, arising in the Revenue s appeal, is qua the disallowance of deduction u/s. 80-IB, made in the sum of Rs.. 2,77,65,509/-. Out of the assessee s four units eligible for deduction u/s. 80-IB, two sustained losses for the current year while the other two had profits. It claimed deduction on the profits of the profit making units i.e., Sockets Heads Screw Caps Unit and Fasteners Unit, on a stand-alone basis, i.e., without setting them off against the losses from the other two units, at Rs.. 277.66 lacs. As the cumulative income from the four eligible undertakings worked to a loss, the assessee s claim was disallowed in assessment, and which came to be confirmed by the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any subsequent assessment year, be computed as if such eligible business were the only source of income of . the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. True, we observe the tribunal to have disallowed the assessee s claim in quantum proceedings (in ITA No.205/Mds/2008 dated 17.12.2008) following Synco Industries Ltd . v . AO [2002] 254 ITR 608 (Bom) (affirmed in [2008] 299 ITR 444 (SC)); IPCA Laboratory Ltd . v . Dy . CIT [2004] 266 ITR 521 (SC) and Asvin Cold Storage Pvt . Ltd . v . CIT [2007] 290 ITR 183 (Mad), the Hon ble High court in Sona Koyo Steering Systems Ltd (supra) has considered the decision in Synco Industries Ltd . (supra), which is also in context of s. 80I, a pari materia provision. Again, it is notable that the assessee has an overall positive (business) income. In view of the foregoing, the assessee in our view had a reasonable basis to stake a claim for deduction u/s. 80IB in the manner it does, i.e., at ₹ 277.66 lacs. No ground for levy of penalty for f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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