COMMISSIONER OF INCOME TAX, BANGALORE AND THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 2(3) Vs. M/S. MWP LTD.

JUDGEMENT

(1.) THIS appeal is preferred by the Revenue against the order passed by the Tribunal setting aside the order imposing penalty. The assessee is a Limited Company. They are carrying on business of investment. For the assessment year 2002 -03, assessee filed returns declaring loss of Rs. 44,44,84,483 -00. The loss comprised of the provisions for diminution in the value of investment of Rs. 4,40,00,000 -00. The case was taken up for scrutiny under Section 143(3) of the Income Tax Act, 1961. After noticing the provisions for value of investment on 02.09.2003 a letter was addressed to the assessee seeking explanation for the reasons for providing for diminution in the value of investment in the profit and loss account. On 31.10.2003 a reply was sent relying on the Accounting Standard 13. However in the end the assessee made it clear that although the provision for diminution in the value of investment is under the provisions of the Income Tax Act, the said decline is not allowable. On receipt of the said explanation, the department wrote another letter on 04.11.2003 calling upon the assessee to categorically state whether he is withdrawing the said claim. By letter dated 07.11.2003 a reply was sent stating that claims regarding both the expenditure may be kindly be treated as withdrawn. Thereafter the Assessing Authority proceeded to pass assessment order disallowing the said claim of Rs. 4,40,00,000 -00. Thereafter it was observed in the end of the order that 'Penalty under u/s. 271(1)(c) initiated separately'.

(2.) THE assessee contested the said proceedings by contending that on the date of levy of penalty, the assessee ceased to exist inasmuch as the same was merged with the UB Holdings Ltd., vide Karnataka High Court order dated 31.08.2005. It was contended that the notice issued in proceedings is invalid. On merits, it was contended that the assessee had withdrawn the claim of diminution in value of investment with intention to buy peace. The assessee being an investment company, the diminution in value of investment was an allowable claim thereby establishing the bonafides of the assessee. They also pressed into service the Accounting Standard 13 issued by ICAI in support of their claim. The issue was debatable. However the Assessing Authority over -ruled the objections and imposed penalty.

(3.) IT is against the said order, the assessee preferred an appeal to the Tribunal. The Tribunal on reconsideration of the entire material on record held that the assessee had filed the return of income declaring loss. Thereafter the claim for write down of investment loss was withdrawn during the course of assessment. Ultimately the assessment resulted in positive income of Rs. 1,28,740 -00. There was a further change in the total income computed as a result of rectification under Section 154, thereby final position is that the loss returned is assessed at 'nil'. The claim of Rs. 4,40,00,000 -00 was also withdrawn by the assessee even before any meaningful query or investigation was carried out by the department. Being a company, it was mandatory that the account of the assessee is prepared in line with the Accounting Standard as, otherwise, the results declared by the assessee would not reflect true and fair view. The withdrawal was only to buy peace from the department and to avoid litigation. After referring to the statutory provisions and the judgment of the Apex Court in the case of K.C. Builders and Another Vs. The Assistant Commissioner of Income Tax, (2004) 265 ITR 562 SC , the Tribunal held that there is no case for concealment, as in this case there is no loss of revenue. Therefore the imposition of penalty was set aside.