IN INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA.No. 327/Ahd/2014 Asstt. Year: 2003-2004 Farmson Pharmaceutical Gujarat Ltd. DCIT, Cir.1(2) 28-35, GIDC Industrial Estate Vs Baroda. Nandesari Dist. Baroda 391 340. PAN : AAACF 3358 B (Appellant) (Respondent) Assessee by : None Revenue by : Shri James Kurian, Sr.DR Date of Hearing : 30/09/2016 Date of Pronouncement: 05/10/2016 ORDER PER RAJPAL YADAV, JUDICIAL MEMBER Assessee is in appeal against order of ld.CIT(A)-I, Baroda dated 24.12.2013 for Astt.Year 2003-04. 2. Solitary grievance of assessee is that ld.CIT(A) has erred in confirming penalty of Rs.26,98,800/- imposed under section 271(1)(c) of Income Tax Act, 1961 by AO. 3. In response to notice of hearing, Shri Bhavin Marfatia, ld. Chartered Accountant filed adjournment application. However, after going through record, we did not grant adjournment, and heard appeal ex parte qua assessee-appellant. ITA No.327/Ahd/2014 2 4. Brief facts of case are that assessee has filed its return of income on 20.10.2003 declaring total loss at Rs.14,64,777/-. assessment order was passed on 31.1.2006 under section 143(3) of Act. AO has determined income of assessee at Rs.1,12,49,357/-. One of additions made by AO is of Rs.73,43,678/-. assessee has claimed this amount as loss on account of sale/write off fixed assets. This loss was disallowed to assessee, and this amount was considered for visiting assessee with penalty under section 271(1)(c) of Act. 5. It emerges out from record that assessee has challenged disallowance of this loss in appeal before Tribunal in ITA No.667/Ahd/2011. Tribunal has decided appeal of assessee vide order dated 19.2.2015. Tribunal has set aside issue to file of AO for re-adjudication. relevant finding of Tribunal on this issue reads as under: 18. ground no.1 of appeal reads as under: 1. learned CIT(A) erred in fact and in law in holding that loss of Rs. 73,43,678/-being loss on account of discarded assets is not revenue loss and also not capital loss and therefore not allowable under Act at all. 1.1 learned CIT(A) erred in fact and in law in rejecting claim of Appellant that loss arising on account of discarding of capital work-in-progress is revenue loss. 1.2 learned CIT(A) erred in fact and in law in holding that loss is not capital loss and therefore no set off or carry forward can be allowed. 19. Brief facts of case are that AO observed that assessee has claimed Rs.73,43,678/- for loss on sale/write off of fixed assets of capital work-in-progress. AO did not accept assessee s explanation that assets were never put ITA No.327/Ahd/2014 3 to use but these were put to use only for test purpose for some time and due to problem of pollution entire technology had to be changed and as alternative use was not possible, machineries were scraped. According to AO, there were deductions in capital work in progress and under head laboratory equipments, but additions were noticed under head plant & machinery and pollution control equipments. assessee has not furnished any evidence/documents to justify change in manufacturing process. Therefore, AO concluded that written off of fixed assets were of capital nature and amount of Rs.73,43,678/- were added to total income. .. 25. We find that details of purchase of machinery, which was claimed to have been discarded, were not brought on record. From records before us, it is not clear as to when machinery in question was purchased and what was actual cost of machinery. Further, from material before us, it is also not clear whether said machine was actually sold out during year as scrap by assessee or not. In our considered view, if machinery has not formed part of block of assets, and was actually sold out during year, then loss so suffered being incidental to business of assessee, and as no capital asset of enduring nature has been acquired by assessee, because of said loss, same is allowable as business deduction to assessee. 26. However, if machine purchased for business was not used for business, but found to be unsuitable, and thereafter sold out by assessee during relevant year, then actual loss accrued to assessee during relevant year, and even though, notional loss has been provided in books of accounts, but till actual loss takes place, same is not allowable to assessee. actual loss will accrue to assessee in year in which such unused machines were actually sold out by assessee. In our considered view, it shall be in interest of justice to restore this issue back to file of AO for proper verification, and thereafter, adjudication afresh in light of discussion made hereinabove. AO shall allow reasonable opportunity of hearing to assessee, and assessee is also directed to cooperate with AO and furnish necessary ITA No.327/Ahd/2014 4 details to AO as and when called upon to do so by AO. Thus, this ground of appeal is allowed for statistical purpose. 6. With assistance of ld.DR, we have gone through record carefully. Sub-clause (iii) of section 271(1)(c) provides mechanism for quantification of penalty. It contemplates that assessee would be directed to pay sum in addition to taxes, if any, payable him, which shall not be less than , but which shall not exceed three times amount of tax sought to be evaded by reason of concealment of income and furnishing of inaccurate particulars of income. In other words, quantification of penalty is depended upon additions made to income of assessee. Upto and until, issue regarding determination of taxable income is finalized, penalty under section 271(1)(c) of Act cannot be imposed upon assessee. determination of taxable income of assessee is subjudiced before ld.AO. After adjudication issue of quantum, it will be in discretion of ld.AO to initiate or not to initiate penalty proceedings on this issue against assessee. Therefore, we set aside impugned order and allow appeal of assessee for statistical purpose. 7. In result, appeal of assessee is allowed for statistical purpose. Order pronounced in Court on 5th October, 2016 at Ahmedabad. Sd/- Sd/- (MANISH BORAD) (RAJPAL YADAV) ACCOUNTANTN MEMBER JUDICIAL MEMBER Ahmedabad; Dated 05/10/2016 Farmson Pharmaceutical Gujarat Ltd. v. DCIT, Cir.1(2) Baroda