KHANNA INDUSTRIAL PIPES P. LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 1528/MUM/2010

• Counselvise Citation: 152819914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 25-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK PER R K
• Assessee Lawyers: D B SHAH
• Keywords: Business expenditure
• Section: 143(3); 80HHC

Judgement Text

1 ITA NO.1528/MUM/2010 KHANNA INDUSTRIAL PIPES P. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI D K AGRAWAL, JM & SHRI R K PANDA, AM ITA NO. 1528/MUM/2010 (ASST YEAR 2004-05) KHANNA INDUSTRIAL PIPES PVT. LTD., 11, SATYAM, 318 LINKING ROAD, KHAR W), MUMBAI 400020. PAN AAACK 2240D VS DY. COMMISSIONER OF INCOME TAX 9(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI D.B. SHAH RESPONDENT BY SHRI A.K. NAYAK PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 4.1.2010 OF THE CIT(A)- 20, MUMBAI RELATING TO ASS ESSMENT YEAR 2004-05. 2. THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALLE NGED THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE PENALTY LEVIED BY THE A.O. U/S 271(1)(C) OF THE ACT ON ACCOUNT OF ADDITION OF INSURANCE CLAIM WRITTEN O FF AT ` 53,72,000/-. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING MS OF PIPES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. MADE ADDITION OF ` 53,72,000/- CLAIMED BY THE ASSESSEE IN THE P&L ACCOUNT AS INSURANCE CLA IM WRITTEN OFF ON THE GROUND THAT THE LOSS WAS SUFFERED BY THE TRANSFEROR COMPANY AND SHOULD HAVE BEEN ACCOUNTED FOR IN THEIR HANDS LONG BACK. T HE TRANSFEROR COMPANY WAS TAKEN OVER BY THE ASSESSEE COMPANY W.E.F. I.4.2 003 AND THE CLAIM WAS WRITTEN OFF IN THE ASSESSEES BOOKS IN THE IMPUGNED ASSESSMENT YEAR WITH 2 ITA NO.1528/MUM/2010 KHANNA INDUSTRIAL PIPES P. LTD. THE SOLE INTENTION TO REDUCE ASSESSEES TAX LIABILI TY AND TO PAY HIGHER VALUE TO THE SHAREHOLDERS OF THE TRANSFEROR COMPANY WHO ARE ALL FAMILY MEMBERS OF SHAREHOLDERS OF ASSESSEE COMPANY. THEREFORE, THE SA ME CANNOT BE SAID TO BE A GENUINE BUSINESS EXPENDITURE. HE ALSO DISALLOWED TWO OTHER ITEMS NAMELY EXCISE DUTY ON CLOSING STOCK AT ` 15,28,694/- AND DEDUCTION CLAIMED U/S 80HHC AT ` 4,34,666/-. THE MATTER TRAVELLED UP TO THE TRIBUN AL IN QUANTUM APPEAL AND THE TRIBUNAL RESTORED THE ADDITION ON AC COUNT OF EXCISE DUTY ON CLOSING STOCK AND DEDUCTION CLAIMED U/S 80HHC TO TH E FILE OF THE A.O. FOR FRESH ADJUDICATION. HOWEVER THE ADDITION ON ACCOUNT OF INSURANCE CLAIM WRITTEN OFF WAS SUSTAINED BY THE TRIBUNAL. 4. IN THE PENALTY ORDER U/S 271(1)(C), THE A.O. LEV IED PENALTY ON ACCOUNT OF ADDITION OF INSURANCE CLAIM WRITTEN OFF AT ` 53,72,000/-, EXCISE DUTY ON CLOSING STOCK AT ` 15,28,694 AND DEDUCTION CLAIMED U/S 80HHC AT ` 4,34,666/- . THUS HE LEVIED PENALTY OF ` 2695745/- BEING MINIMUM PENALTY LEVIABLE @ 100% OF THE TAX SOUGHT TO BE EVADED ON T HE ABOVE THREE ADDITIONS. 5. IN APPEAL, THE LD. CIT(A) DELETED THE PENALTY LE VIED BY THE A.O. ON ACCOUNT OF ADDITION OF EXCISE DUTY ON CLOSING STOCK AT ` 15,28,694/- AND ` 4,34,666/- ON ACCOUNT OF DEDUCTION CLAIMED U/S 80HH C ON THE GROUND THAT THE TRIBUNAL HAS RESTORED THESE ISSUES TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. HE, HOWEVER, SUSTAINED THE PENALTY LE VIED BY THE A.O. ON ACCOUNT OF INSURANCE CLAIM WRITTEN OFF ON THE GROUN D THAT THE INSURANCE CLAIM WAS REJECTED WAY BACK IN THE YEAR 1997-98. T HE LETTER BASED ON WHICH THE ASSESSEE CONTENDED BEFORE THE A.O. THAT IT HAD RIGHTLY WRITTEN OFF THE AMOUNT IN THE CURRENT YEAR IS DATED 27.7.2004. THE LETTER FALLS IN THE PERIOD AFTER THE END OF THE CURRENT ACCOUNTING YEAR. THE A SSESSEE, THEREFORE, WAS VERY MUCH AWARE THAT THE LETTER, BASED ON WHICH THE CLAIM WAS FINALLY REJECTED BY THE INSURANCE COMPANY, DID NOT SUPPORT ITS CASE OF WRITE OFF OF THE IMPUGNED SUM IN THE CURRENT YEAR. IN FACT THE EXPLANATION OF THE ASSESSEE THAT THE IMPUGNED SUM WAS AN ALLOWABLE DED UCTION IN THE CURRENT 3 ITA NO.1528/MUM/2010 KHANNA INDUSTRIAL PIPES P. LTD. YEAR IS A FALSE EXPLANATION AND HAS BEEN RIGHTLY RE JECTED BY THE A.O. SINCE THE CONDITIONS PRESCRIBED IN EXPLANATION 1 ARE SATI SFIED, THEREFORE, THE LEVY OF PENALTY BY THE A.O. ON THIS AMOUNT IS JUSTIFIED. ACCORDING TO HIM, THE VARIOUS CASE LAWS CITED BEFORE HIM BY THE ASSESSEE DO NOT SUPPORT THE CASE. HE ACCORDINGLY CONFIRMED THE LEVY OF PENALTY ON THE ADDITION MADE BY THE A.O. ON ACCOUNT OF INSURANCE CLAIM WRITTEN OFF AMOU NTING TO ` 53,72,000/-. 6. AGGRIEVED BY SUCH ORDER OF THE LD. CIT(A), THE A SSESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CLAIM MADE BY THE ASSESSEE WAS A GENUINE CLAIM. THE ONLY DISPUTE IS REGARDING THE YEAR OF ALLOWABILITY. HE SUBMITTED THAT THE EXPLANATION GI VEN BEFORE THE A.O. WAS NOT FALSE OR UNTRUE. IT WAS A BONAFIDE EXPLANATION AND WAS NOT MALAFIDE. REFERRING TO THE DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE IN THE QUANTUM APPEAL, HE DREW THE ATTENTION OF THE BENCH TO PARA 8 OF THE ORDER AND SUBMITTED THAT THE TRIBUNAL FOLLOWING THE DECIS ION OF THE SPECIAL BENCH OF THE ITAT CHANDIGARH IN THE CASE OF GULATI SAREE CENTRE VS. CIT 240 ITR (AT) 94 HAD HELD THAT THE CLAIM OF LOSS IN THE CASE OF THE ASSESSEE CAN BE ALLOWED IN 2005-06 AND NOT IN 2004-05. ACCORDINGLY , IT WAS HELD THAT THE CLAIM CANNOT BE ALLOWED IN THIS YEAR. HE SUBMITTED THAT IN VIEW OF THE ABOVE, IT CAN BE SAID THAT THE DISPUTE AROSE REGARD ING THE YEAR OF ALLOWABILITY OF THE CLAIM. REFERRING TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. M.S. BINDRA & SONS (P) LTD. [2011] 198 TAXMAN 451, HE SUBMITTED THAT WHERE ASSESSEE HAD DISCLOSED ALL FAC TS IN RETURN OF INCOME FILED WITH DEPARTMENT AND HAD OFFERED AMOUNT IN QUE STION FOR ASSESSMENT IN SUBSEQUENT ASSESSMENT YEAR, IT COULD NOT BE A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME THEREOF. REFERRING TO THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNA L IN THE CASE OF ITO VS. PATHAK CONSTRUCTION & FINANCE PVT. LTD. IN ITA NO. 4295/M/2007 DTD. 15.7.2010 FOR A.Y. 2001-02, HE SUBMITTED THAT WHERE THE A.O. HIMSELF WAS OF 4 ITA NO.1528/MUM/2010 KHANNA INDUSTRIAL PIPES P. LTD. THE VIEW THAT INCOME HAS TO BE ASSESSED FOR SOME OT HER YEAR OR IN CASES WHERE THE YEAR OF ASSESSABILITY IS DEBATABLE, NO PE NALTY CAN BE IMPOSED FOR CONCEALMENT OF INCOME. REFERRING TO THE DECISION O F THE TRIBUNAL IN THE CASE OF DCIT VS. MS. AISHWARYA RAI 12 SOT 114, HE SUBMIT TED THAT EVERY ADDITION MADE IN THE COURSE OF AN ASSESSMENT U/S 143(3) CANN OT BE MECHANICALLY TREATED AS THE BASIS FOR IMPOSING PENALTY. REFERRI NG TO THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. M ANILAL TARACHAND REPORTED IN 254 ITR 630, HE SUBMITTED THAT WHEN THE RE IS DISPUTE REGARDING THE YEAR IN WHICH PARTICULAR RECEIPT WAS ASSESSABLE , THERE WAS NO CONCEALMENT OF INCOME AND THEREFORE NO PENALTY U/S 271(1)(C) CAN BE LEVIED. 8. THE LD. D.R., ON THE OTHER HAND, WHILE SUPPORTIN G THE ORDER OF THE LD. CIT(A) RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ESCORTS FINANCE LTD. REPORTED IN [2010] 188 TAX MAN 87 (DELHI) AND SUBMITTED THAT WHEN THE EXPLANATION GIVEN BY THE AS SESSEE IS NOT BONAFIDE PENALTY U/S 271(1)(C) IS LEVIABLE. HE ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILES PR OCESSORS [2008] 306 ITR 277. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF A.O. AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT AN AMOUNT OF ` 53,72,000/- WAS DISALLOWED BY THE A.O. BEING INSURANCE CLAIM WRITTE N OFF ON THE GROUND THAT THE CLAIM OF LOSS AFTER TAKING OVER M/S K. MANISH G ASES PVT. LTD. BY THE ASSESSEE COMPANY IS NOT ALLOWABLE SINCE THE LOSSES, IF ANY, IS RELATED TO A.Y. 1999-2000 AND BELONGS TO M/S K. MANISH GASES PVT. L TD. FURTHER, THE ASSESSEES CLAIM OF INSURANCE CLAIM WRITTEN OFF DID NOT ACCRUE/ARISE DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2004-05. THE AB OVE ADDITION MADE BY THE A.O. WAS SUSTAINED BY THE LD. CIT(A) AND ON FURTHER APPEAL, THE TRIBUNAL VIDE ORDER DATED 29.5.2009 IN ITA 2545/2008 FOR A.Y . 2004-05 UPHELD THE 5 ITA NO.1528/MUM/2010 KHANNA INDUSTRIAL PIPES P. LTD. SAME BY HOLDING THAT THE CLAIM CAN ONLY BE ALLOWED IN A.Y. 2005-06 AND NOT IN A.Y. 2004-05. IN VIEW OF THE ORDER OF THE TRIBU NAL, THE GENUINENESS OF THE CLAIM MADE BY THE ASSESSEE, IN OUR OPINION, CANNOT BE DOUBTED. THE DISPUTE IS REGARDING THE YEAR OF ALLOWABILITY OF THE CLAIM. UNDER THESE CIRCUMSTANCES, WE HAVE TO SEE AS TO WHETHER THE LEV Y OF PENALTY U/S 271(1)(C) IS JUSTIFIED OR NOT ?. 10. WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF MANILAL TARACHAND (SUPRA) HAS HELD THAT WHEN THERE IS DISPU TE REGARDING THE YEAR IN WHICH A PARTICULAR RECEIPT IS ASSESSABLE, THEN THER E IS NO CONCEALMENT OF INCOME, THEREFORE, NO PENALTY U/S 271(1)(C) CAN BE LEVIED. WE FIND THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S P ATHAK CONSTRUCTION & FINANCE PVT. LTD. (SUPRA) WHILE DELETING THE PENALT Y U/S 271(1)(C) HAS HELD THAT WHEN THE A.O. HIMSELF IS OF THE VIEW THAT INCO ME HAS TO BE ASSESSED FOR SOME OTHER YEAR OR IN CASES WHERE THE YEAR OF ASSES SABILITY IS DEBATABLE, NO PENALTY CAN BE IMPOSED FOR CONCEALMENT OF INCOME. SIMILARLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF M.S. BINDRA & SONS (P.) LTD. HAS HELD THAT WHERE ASSESSEE HAS DISCLOSED ALL FACTS IN RETURN OF INCOME FILED WITH DEPARTMENT AND HAD OFFERED AMOUNT IN QUESTION FOR A SSESSMENT IN SUBSEQUENT ASSESSMENT YEAR, IT COULD NOT BE A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THER EOF. WHILE DELIVERING THIS JUDGMENT, THE HONBLE HIGH COURT HAS CONSIDERED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DHAMENDRA TEXTILE PROC ESSORS (SUPRA). SINCE THE DISALLOWANCE OF INSURANCE CLAIM OF ` 53,72,000/- WAS MADE ON ACCOUNT OF DISPUTE RELATING TO THE YEAR OF ALLOWABILITY, T HEREFORE, IN VIEW OF THE DECISIONS CITED ABOVE, WE ARE OF THE CONSIDERED OPI NION THAT IT IS NOT A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE A.O. TO CANC EL THE PENALTY LEVIED BY HIM. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORD INGLY ALLOWED. 6 ITA NO.1528/MUM/2010 KHANNA INDUSTRIAL PIPES P. LTD. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 8.6.2011. SD/- SD/- ( D K AGRAWAL ) JUDICIAL MEMBER ( R K PANDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 8 TH JUNE, 2011. RK COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT, CITY -9, MUMBAI 4 CIT(A) -20, MUMBAI 5 DR BENCH G 6 MASTER FILE /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI 7 ITA NO.1528/MUM/2010 KHANNA INDUSTRIAL PIPES P. LTD. DRAFT DICTATED ON 2.6.2011 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 3.6.2011 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS