DCIT 2(2), MUMBAI V. MULLER & PHIPPS (I) LTD, MUMBAI

ITA 1565/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0579 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 25-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K SHIVARAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE S HRI B.R. BASKARAN (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 1565 /MUM/20 1 3 ASSESSMENT YEAR: 2005 - 2006 THE DCIT - 2(2), ROOM NO. 545, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S MULLER & PHIPPS (I) LTD., GROUND FLOOR, UNIQUE INDUSTRIAL ESTATE, OFF VEER SAVARKAR MARG, PRABHADEVI, MUMBAI - 400025 PAN: AAACM3247N (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PURUSHOTTAM KUMAR (DR) RESPONDENT BY : SHRI K. SHIVARAM & MS. NEELAM JADHAV (AR) DATE OF HEARING: 03/03 /201 7 DATE OF PRONOUNCEMENT: 02 / 0 6 /201 7 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST ORDER DATED 30/11 /2012 PA SSED BY LD. CIT (APPEALS ) - 5 , MUMBAI FOR THE A S S ESSMENT YEAR 2005 - 2006 , WHEREBY THE LD. CIT(A) HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST PENALTY ORDER U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. IN THIS CASE, THE ASSESSE E DECLARED LOSS OF RS. 2,16,10,780/ - IN ITS RETURN OF INCOME. HOWEVER, THE AO PASSED THE ASSESSMENT ORDER U/S 143 ( 3) OF THE ACT DETERMINING THE TOTAL LOSS OF RS. 1,71,35,650/ - AFTER MAKING VARIOUS ADDITION S INCLUDING ADDITION OF RS. 30,85,933/ - ON ACCOUNT OF RETURN OF THE STOCK OF 2 ITA NO. 1565 /MUM/2013 ASSESSMENT YEAR: 2005 - 2006 BRUSHES AND COMBS WHICH WAS AFFECTED BY DEVASTATING FLOODS IN MUMBAI ON 26 TH JULY, 2005. ON THE BASIS OF THE SAID ADDITIONS MADE BY THE AO PENALTY PROCEEDINGS U/S 271 (1) (C) WAS INITIATED AND PENALTY UNDER THE AFORESAID SECTION, T HE ASSESSEE CHALLENGED THE PENALTY ORDER BEFORE THE LD. CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE DELETED THE PENALTY LEVIED ON ACCOUNT OF THE ADDITIONS MADE BY THE AO INCLUDING THE ADDITIONS OF RS. 30,85,933/ - AFORESAID . AGGRIEVED BY THE IMPUGNE D ORDER PASSED BY THE LD. CIT (A), THE REVENUE HAS FILED THE PRESENT APPEAL BY RAISING THE FOLLOWING EFFECTIVE GROUNDS: 1. THE ORDER OF THE CIT (A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE PENALTY IMPOSED UNDER SECTION 271 (1) (C) ON ACCOUNT OF DISALLOWANCE OF LOSS/DEVALUATION OF STOCK DUE TO GOODS DAMAGED BY FLOOD, IGNORING THE FACT THAT THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND BY CLAIMI NG SUCH LOSS PERTAINING TO SUBSEQUENT YEAR IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD INDEED FURNISHED INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C). 3. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT (A) MAY BE SET ASIDE AND THAT OF THE AO RESTORED. 3. GROUND NO. 1 OF THE APPEAL IS GENERAL IN NATURE HENCE THE SAME IS BEING ADJUDICATED ALONG WITH THE EFFECTIVE GROUND NO. 2 OF THE GROUNDS OF APPEAL. 4. BEFORE US, THE LD. DEP ARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ASSESSMENT ORDER SUBMITTED THAT THE IMPUGNED ORDER IS CONTRARY TO THE LAW AND THE FACTS OF THE CASE. SINCE , THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE HAS FURNISHED INACCURAT E PARTI CULARS OF INCOME 3 ITA NO. 1565 /MUM/2013 ASSESSMENT YEAR: 2005 - 2006 WITHIN THE MEANING OF SECTION 271 (1) (C) OF THE ACT BY CLAIMING THE LOSS PERTAINING TO THE SUBSEQUENT YEAR IN THE YEAR UNDER CONSIDERATION . THEREFORE, THE LD. CIT(A) HAS WRONGLY DELETED THE PENALTY IMPOSED BY THE AO. 5. ON THE OTHER HAN D, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE PENALTY PROCEEDINGS , THE LOSS OR DAMAGE OF ITS STOCK WAS EXPLAINED AND ACCOUNTED FOR A CCORDING TO THE ACCOUNTING STANDARDS AS - 2 REGARDING VALUATION OF INVENTORIES AND AS - 4 REGARDING CONTINGENCIE S AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE , AS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND REQUIRED TO MANDATORILY FOLLOWED UNDER COMPANIES ACT 1956 WHILE PREPARING THE ACCOUNTS. HENCE, THE ASSESSEE HAS NEITHER CONCEALED THE PARTICULARS OF ITS INCOME NOR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. THEREFORE, THE LD. CIT (A) HAS RIGHTLY DELETED THE PENALTY LEVIED ON ACCOUNT OF DISALLOWANCE OF LOSS OF STOCK DUE TO GOODS DAMAGE BY THE FLOOD. THE APPEAL OF THE REVENUE HAS NO MERIT HENCE, DESERVES DISMISSAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO GONE THROUGH THE MATERIAL PLACED BEFORE US. WE NOTICE THAT THE AO HAS MADE ADDITION OF THE LOSS ON THE GROUND THAT THE STOCK WAS DAMAGED ON 26.07.2005 I.E. DURING THE FINANC IAL YEAR 2005 - 06 AND NOT DURING THE FINANCIAL YEAR 2004 - 05. ON THE OTHER HAND, THE ASSESSEES CONTENTION WAS THAT AS PER AS - 4 , EVENTS WHICH EFFECTS THE DETERMINATION OF THE ACCOUNTS NEEDS TO BE CONSIDERED FOR ADJUSTMENTS TO THE ASSETS AND IT IS MANDATORY F OR THE COMPANY TO PREPARE THE ACCOUNTS FOLLOWING THE ACCOUNTING STANDARDS. THE AO HAS NOT DENIED THE LOSS. THE INSURANCE COMPANY HAS ALSO ADMITTED THE CLAIM OF THE ASSESSEE. THE LD. CIT (A) HAS HELD THAT SINCE THE DISPUTE IS REGARDING THE ALLOWABILITY OF T HE LOSS/DAMAGE IN THE YEAR UNDER CONSIDERATION, I T CANNOT BE SAID THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULAR OF INCOME FOR CONCEAL THE INCOME. W E FURTHER NOTICE THAT THE ASSESSEE HAS EXPLAINED AS TO WHY THE PENALTY SHOULD NOT BE IMPOSED IN THE 4 ITA NO. 1565 /MUM/2013 ASSESSMENT YEAR: 2005 - 2006 PRESENT CASE VIDE REPLY DATED 24/03/2011 TO THE NOTICE ISSUED IN CONNECTION WITH PENALTY PROCEEDINGS. THE EXPLANATION OF THE ASSESSEE IS REPRODUCED AS UNDER: - THE ACCOUNTS OF THE COMPANY FOR THE YEAR ENDED 31 - 03 - 2005, WERE PREPARED AS PER THE ACCOUNTING S TANDARDS (WHICH ARE MANDATORY FOR PREPARING THE ACCOUNTS AND TO DRAW THE PROFIT AND LOSS OF THE BUSINESS) AS PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE SAID ACCOUNTS WERE PREPARED BY FOLLOWING THE ACCOUNTING STANDARDS APPLICABLE TO THE COMPANY AND IN PARTICULAR AS - 2 - VALUATION OF INVENTORIES AND AS - 4 - CONTINGENCIES & EVENTS OCCURRING AFTER BALANCE SHEET DATE, WHICH ARE RELEVANT IN RESPECT OF THE CAPTIONED ISSUE. THE AS - 2 (VALUATION OF INVENTORIES) REQUIRES DETERMINATION OF THE VALUE AT WHICH INVENTORIES ARE CARRIED IN THE FINANCIAL STATEMENTS AND THE INVENTORIES TO BE MEASURED AT LOWER OF COST AND NET REALIZABLE VALUE. THE AS - 4 (EVENTS OCCURRING AFTER BALANCE SHEET DATE) REQUIRES WHILE PREPARING THE ACCOUNTS, TO CONSIDER SIGNIFICANT EVENTS, BOTH FAVOURABLE AND UN - FAVOURABLE, THAT OCCUR BETWEEN THE BALANCE SHEET DATE AND THE DATE ON WHICH FINANCIAL ACCOUNTS ARE APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY. IT ALSO REQUIRES TO ADJUST THE ASSETS AND LIABILITIES ON ACCOUNT OF ALL AD DITIONAL INFORMATION MATERIALLY AFFECTING THE DETERMINATION OF THE AMOUNTS RELATING TO THE CONDITIONS EXISTING AT THE BALANCE SHEET DATE. SECTION 211 (3A) OF THE COMPANIES ACT REQUIRES EVERY COMPANY TO COMPLY WITH THE ACCOUNTING STANDARDS PRESCRIBED BY IC AI AND ANY NON - COMPLIANCE THEREOF IS A PUNISHABLE OFFENCE WITH IMPRISONMENT. FOLLOWING THE STATUTORY REQUIREMENTS AND THE MANDATORY ACCOUNTING STANDARDS, THE ACCOUNTS OF THE COMPANY WERE PREPARED CONSIDERING THE DAMAGE TO THE INVENTORIES LYING AT BHIWAND I GODOWN IN JULY 2005 DUE TO FLOOD ON 26 JULY 2005, I.E. BETWEEN THE PREVIOUS END 31 - 03 - 2005 AND THE DATE ON WHICH THE ACCOUNTS WERE APPROVED BY THE BOARD OF DIRECTORS ON 27 TH OCTOBER 2005. YOUR HONOUR WILL APPRECIATE THAT THE ACCOUNTS OF COMPANY NEED TO BE PREPARED AS PER THE ACCOUNTING STANDARDS AND HENCE IT CAN NOT BE HELD THAT THE ASSESSE HAS CONCEALED ANY PARTICULARS OF HIS INCOME OR HAS 5 ITA NO. 1565 /MUM/2013 ASSESSMENT YEAR: 2005 - 2006 FURNISHED IN ACCURATE PARTICULARS OF HIS INCOME. THE PROFIT OR LOSS OF THE COMPANY OF THE PREVIOUS YEAR, (I.E. 31. 03.2005) IS REQUIRED TO BE COMPUTED IN ACCORDANCE WITH RELEVANT ACCOUNTING STANDARDS AND AS PER THE END OF THE ACCOUNTING YEAR SHOULD BE ENTERED IN THE PROFIT AND LOSS ACCOUNT CALCULATED IN THE MANNER LAID DOWN BY THE APPLICABLE RULES, PRINCIPLES AND ACCOU NTING STANDARDS. THE STOCK IS A TRADING ASSET AND ANY D A MAGE TO SUCH ASSET SHOULD BE CONSIDERED AS A BUSINESS LOSS AND THE SAID BUSINESS LOSS IS REQUIRED TO BE ACCOUNTED FOR IN THE BOOKS OF ACCOUNT IN THE MANNER LAID DOWN BY THE ACCOUNTING STANDARDS WHICH ARE MANDATORY IN NATURE. THE ASSESSEE IN NO WAY HAS CONCEALED ANY PARTICULARS THEREOF OR HAS FURNISHED WRONG OR FALSIFIED INFORMATION. THE CONCEALING OF THE PARTICULARS OF INCOME MEANS HIDING THE PARTICULARS I.E. NON - FURNISHING OF THE PARTICULARS IN RESP ECT OF THE CLAIM. 7. IN OUR CONSIDERED VIEW, SINCE THE ASSESSEE HAS OFFERED THE EXPLANATION AND ESTABLISH THAT THE CLAIM WAS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE ASSESSEES TOTAL INCOME HAVE BEEN D ISCLOSED , THIS IS NOT A FIT CASE TO IMPOSE PENALTY U/S 271(1) (C) OF THE ACT. WE THEREFORE, DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE LD. CIT (A) TO INTERFERE WITH THE SAME . ACCORDINGLY, WE UPHOLD THE ORDER PASSED BY THE LD. CIT (A) AND DISMISS GRO UND NO. 1 AND 2 OF THE APPEAL. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005 - 2006 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE , 2017 . SD/ - SD/ - ( B.R. BASKARAN ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 02 / 0 6 / 2017 6 ITA NO. 1565 /MUM/2013 ASSESSMENT YEAR: 2005 - 2006 ALINDRA PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI