The ITO, Ward-5(1), Ahmedabad V. N.K. Industries Ltd., Ahmedabad

ITA 1910/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1727 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-03-2016
• Assessment Year: 1999-2000
• Appeal Filed On: 02-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bogus purchase; Retrospective amendment; Bad and doubtful debts; Block assessment
• Section: 143(3)

Judgement Text

, B IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA.NO.1910/AHD/2011 / ASSTT. YEAR: 1999-2000 ITO, WARD - 5(1) AHMEDABAD. VS N.K. INDUSTRIES LTD. 7 TH FLOOR, POPULAR HOUSE N.R.BATA SHOW ROOM ASHRAM ROAD AHMEDABAD. PAN : AAACN 9376 P ! / (APPELLANT) '# ! / (RESPONDENT) REVENUE BY : SHRI JAGDISH, CIT - DR ASSESSEE BY : SHRI S.N. SOPARKAR, AR / DATE OF HEARING : 03/03/2016 / DATE OF PRONOUNCEMENT: 02/05/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDER OF LD.CIT(A)-XI, AHMEDABAD DATED 13.6.2011 PASSED FOR THE ASSTT.YEAR 1999-2000. 2. SOLITARY GRIEVANCE OF THE REVENUE IS THAT THE LD .CIT(A) HAS ERRED IN DELETING PENALTY OF RS.12,42,50,000/- LEVIED UND ER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. ITA NO.1910/AHD/2011 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF MANUFACTURING N ON-EDIBLE OIL AND SELLING THE SAME IN THE EXPORT/DOMESTIC MARKET. IT HAS FILED ITS RETURN ON 31.12.1999 DECLARING TOTAL LOSS OF RS.49,36,94,190/ -. AN ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) ON 27.3.2002. THE AO HAS MADE FIVE ADDITIONS TO THE INCOME OF THE ASSESSEE, WHICH HAS REDUCED THE LOSS CLAIMED BY THE ASSESSEE. FOR THE PURPOSE OF CONTRO VERSY IN HAND, WE ARE CONCERNED WITH REGARD TO THE FIRST DISALLOWANCE. 4. THE ASSESSEE HAS MADE A PROVISION FOR BAD AND DO UBTFUL DEBTS FOR A SUM OF RS.35.50 CRORES. THIS PROVISION WAS DISALLO WED BY THE AO. THE LD.AO HAS INITIATED PENALTY PROCEEDINGS UNDER SECTI ON 271(1)(C) OF THE ACT. A SHOW CAUSE NOTICE UNDER SECTION 271(1)(C) R .W.S. 274 WAS ISSUED AND SERVED UPON THE ASSESSEE. IT EMERGES OUT FROM THE RECORD THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO HAS CONFRONTED THE ASSESSEE TO EXPLAIN AS TO HOW IT HAS CLAIMED BAD DE BTS OF RS.35.50 CRORES IN THE ACCOUNT. THE ASSESSEE HAS GIVEN THE FOLLOWI NG REPLY TO THE AO IN THE ASSESSMENT PROCEEDINGS: 'THE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACT URING OF NONEDIBLE OIL AND SELLING THE SAME IN THE EXPORT/D OMESTIC MARKET. IN THE COURSE OF EXPORT SALE, THE COMPANY U SED TO STORE THE GOODS AT KANDLA IN THE TANKS OWNED BY NARANBHAI P.P ATEL P.LTD. (NPPL). THE COMPANY CAME TO KNOW DURING A.Y. 9899 THAT NPPL HAS SOLD AWAY THE GOODS STORED BY THE COMPANY WITHOUT THE COMPANY'S KNOWLEDGE AND THEREFORE THE VALUE OF SUCH GOODS AMOUNTING TO RS. 37.07 CRORE WAS CREDITED TO SALES ACCOUNT AND DEBITED TO NPPL. OUT OF RS. 37.07 CRORE RS. 1.84 CR ORE WAS - PAYABLE TO WESTERN INDIA OIL DISTRIBUTING CO.LTD. S ISTER CONCERN OF NPPL AND THE SAID AMOUNT WAS TRANSFERRED TO NPPL ACCOUNT. ACCORDINGLY, THE BALANCE AMOUNT OF RS.35.23 CRORE W AS CLASSIFIED ITA NO.1910/AHD/2011 3 AS DOUBTFUL DEBTS, THE COPY OF ACCOUNT, OF SALES AN D NPPL FOR A. Y. 9798 AND A. Y. 9899 ARE ENCLOSED. THE COMPANY HAS FILED THE CASE AGAINST NPPL FOR REC OVERY OF THE AMOUNT, THE CASE IS PENDING BEFORE CITY COURT AHMED ABAD. THEREFORE, THE BOARD OF DIRECTORS OF THE COMPANY TH OUGHT IT FIT TO PROVIDE RS. 35.50 CRORE (RS. 35.23 CRORES OF NPPL A ND RS. 0.27 CRORE OTHER DOUBTFUL DEBTS AS PROVISION FOR DOUBTFU L DEBTS. ACCORDINGLY, THE PROVISION OF RS. 35.50 CRORE WAS M ADE IN THE ACCOUNTS FOR THE F.Y. 98 99 AND THE SAME WAS ALSO CLAIMED AS DEDUCTION U/S. 36(L)(VII) ON THE BASIS OF JUDICIAL DECISION. IT MAY FURTHER BE NOTED THAT FINANCE ACT, 2001 HAS INSERTED EXPLANATION TO SEC. 36(I)(VII) WITH RETROSPECTIVE E FFECT FROM 1-4- 1989 PROVIDING THAT THE BAD DEBTS WILL BE ALLOWED A S DEDUCTION ONLY IF THE AMOUNT IF WRITTEN OFF TO P&L ACCOUNT. I N VIEW OF THIS AMENDMENT W.R.E. THE CLAIM OF PROVISION OF BAD DEBT S OF RS. 35.50 CRORE IS WITHDRAWN AND SAME WILL BE CLAIMED IN THE YEAR IN WHICH THE AMOUNT IS WRITTEN OFF TO P&L ACCOUNT.' 5. DURING THE COURSE OF PENALTY PROCEEDINGS, IT WAS CONTENDED BY THE ASSESSEE IT HAS NOT FURNISHED ANY INACCURATE PARTIC ULARS OF INCOME. THE PROVISION WAS MADE WITH REGARD TO BAD AND DOUBTFUL DEBTS. BEFORE THE AMENDMENT CARRIED OUT IN SECTION 36(I)(VII) BY FINA NCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 1.4.1989, THE ASSESSEE WA S ENTITLED FOR THE DEDUCTION. THE LD.AO WAS OF THE OPINION THAT PRIOR TO THE AMENDMENT CARRIED OUT IN SECTION 36(I)(VII), THE ASSESSEE WAS REQUIRED TO BRING DEMONSTRATIVE EVIDENCE ON RECORD EXHIBITING THE FAC T THAT DEBTS HAS BECOME ACTUALLY BAD. SINCE, DURING THE COURSE OF A SSESSMENT PROCEEDING THE ASSESSEE HAS SURRENDERED THIS AMOUNT ON ACCOUNT OF CHANGE IN THE POSITION OF LAW, THEREFORE, IT DID NOT BRING EVIDEN CE TO THAT EFFECT. HENCE, IT WAS AN ATTEMPT AT THE END OF THE ASSESSEE TO CON CEAL THE INCOME BY ITA NO.1910/AHD/2011 4 FURNISHING INACCURATE PARTICULARS. THE AO HAS IM POSED A PENALTY OF RS.12,42,50,000/-. 6. DISSATISFIED WITH THE ACTION OF THE AO, THE ASSE SSEE CARRIED THE MATTER IN APPEAL. IT HAS SUBMITTED WRITTEN SUBMISS IONS WHICH HAVE BEEN DULY REPRODUCED BY THE LD.CIT(A). THE SUBMISSIONS MADE BY THE ASSESSEE READ AS UNDER: 5. NOW COMING TO THE MERITS OF APPEAL. IN THIS CON NECTION, THE RELEVANT PARAS OF THE WRITTEN SUBMISSIONS DATED 15- 07-2010 FILED BY THE A. R. OF THE APPELLANT ARE REPRODUCED HEREUN DER: THE ID. A.O. HAS LEVIED THE PENALTY OF RS.12,42,50, 000/- UNDER SECTION 271(1)(C) ON THE GROUND THAT THE CLAI M FOR PROVISION FOR BAD AND DOUBTFUL DEBTS WERE WRONGLY M ADE. IN THIS CONNECTION, IT MAY PLEASE BE-NOTED THAT THE AS SESSEE MADE A PROVISION OF RS. 35.50 CRORE ON ACCOUNT OF B AD AND DOUBTFUL DEBTS. THIS WAS STATED IN P & L A/C. DISTI NCTIVELY AND CLEARLY (ANNUAL REPORT ENCLOSED). THE SAME WAS CLAIMED AS DEDUCTION FOLLOWING THE GUJARAT HIGH COU RT DECISION IN THE CASE OF SARANGPUR COTTON MFG. CO. L TD. VS. CIT 143 UTR 166. THE GUJARAT HIGH COURT HELD IN THE SAID CASE THAT THE PROVISION FOR BAD AND DOUBTFUL DEBT I S ALLOWABLE AS DEDUCTION. THE FINANCE ACT, 2001 AMEND ED SECTION 36(1)(VII) WHEREBY THE PROVISION FOR BAD AN D DOUBTFUL DEBT IS NOT ALLOWABLE AS DEDUCTION WITH RESTROSPECTIVE EFFECT FROM 01-04-1989 AND THEREFORE AT THE TIME OF ASSESSMENT, THE CLAIM FOR PROVISION FOR BAD AND DOUBTFUL DEBT WAS WITHDRAWN AS CAN BE SEEN FROM PAR A NO. 4 OF ASSESSMENT ORDER. IT MAY PLEASE BE NOTED THAT CLAIM FOR PROVISION OF BAD AND DOUBTFUL DEBTS WAS NOT AGITATED ON MERITS. IT WAS W ITHDRAWN DUE TO RETROSPECTIVE AMENDMENT. ITA NO.1910/AHD/2011 5 THE A.O. MADE SEVERAL ADDITIONS WHILE COMPUTING THE INCOME AND ISSUE THE PENALTY NOTICE U/S. 271(1)(C). HOWEVER, THE A.O. HAS NOT STATED THAT THE PENALTY NOTICE U/S ! 271(1)(C) IS ISSUED IN RESPECT OF WHICH PARTICULAR ADDITION. IN FACT, THE PENALTY NOTICE IS ISSUED IN RESPECT OF ADDITION ON ACCOUNT OF BOGUS PURCHASES AND OTHER ADDITIONS. THEREFORE, ORD ER LEVYING THE PENALTY FOR WITHDRAWAL OF CLAIM FOR PRO VISION FOR BAD AND DOUBTFUL DEBTS IS BAD IN LAW. THE PROVISIONS IS ALLOWABLE U/S. 36(I)(VII); THE SC IN THE CASE OF VIJYA BANK VS. CIT 323 ITR 16 8 HAS HELD THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS ALLOWABLE AS DEDUCTION IN AS MUCH AS WHAT IS NECESS ARY IS TO WRITE OFF TO P & L A/C AND IT IS NOT NECESSARY TO C REDIT THE DEBTORS ACCOUNT. IN THE PRESENT CASE THE ASSESSEE H AS WRITTEN OFF TO P & L A/C. BY MAKING PROVISION FOR BAD AND D OUBTFUL DEBTS, THEREFORE IT IS ALLOWABLE AS DEDUCTION. OF C OURSE, THE ASSESSEE HAS WITHDRAWN THE CLAIM BUT IT CANNOT BE S AID THAT THE CLAIM WAS WRONG. SINCE THE CLAIM IS ALLOWABLE A S HELD BY SC IN THE CASE OF VIJYA BANK VS. CIT 323 ITR 168, T HE QUESTION OF LEVY OF PENALTY UNDER SECTION 271(1 )(C ) DIES BIT ARUSE, THE ASSESSEE HAS NOT FURNISHED INACCURATE PARTICULA RS OF INCOME. THE ASSESSEE HAS DISTINCTLY SHOWN AND DISCL OSED IN THE P & L A/C FILED ALONG WITH RETURN OF INCOME. TH E PROVISION FOR BAD AND DOUBTFUL DEBTS ATTRACTING THE ATTENTION OF THE AO EVEN IF THE CLAIM IS NOT ALLOWED, IT CANN OT BE SAID THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICUL ARS OF INCOME AND THEREFORE THE PENALTY CANNOT BE LEVIED A S HELD BY SC DECISION IN THE CASE OF CIT VS. RELIANCE PETRO P RODUCTS 322 ITR 128 SC. THE PENALTY IS IMPOSED ON THE FINDING OF ASSESSMENT ORDER. IT IS SETTLED LAW THAT THE PENALTY PROCEEDINGS AND ASS ESSMENT PROCEEDINGS ARE SEPARATE. THE PENALTY CANNOT BE LEV IED ON THE BASIS OF THE FINDING IN THE ASSESSMENT ORDER. I N THE ITA NO.1910/AHD/2011 6 PRESENT CASE, THE AO WHILE PASSING THE ORDER DISALL OWED THE CLAIM OF PROVISION FOR BAD AND DOUBTFUL DEBTS ON TH E GROUND THAT THE SAME IS WITHDRAWN AND THAT THE CLAI M WAS NOT GENUINE. HE HAS HELD THAT THE CLAIM IS NOT GENU INE ON THE BASIS OF THE REASONS GIVEN IN BLOCK ASSESSMENT. HOW EVER, THE A.O. WHILE LEVYING THE PENALTY SIMPLY RELIES ON THE FINDINGS OF THE ASSESSMENT ORDER. THE A.O. DOES NOT BRING AN Y MATERIAL ON RECORD TO PROVE THAT THE CLAIM WAS NOT GENUINE. IN FACT, IT SHOULD BE NOTED THAT THE ASSESSEE DID N OT AGITATE ABOUT THE GENUINENESS OF THE CLAIM SINCE IT WAS WIT HDRAWN ON THE GROUND OF RETROSPECTIVE AMENDMENT. THE A.O. HAS NOT DISCHARGED THE BURDEN. THE PENALTY CANNOT BE LEVIED ONLY ON THE BASIS OF FINDING IN THE ASSESSMENT ORDER. HE MA Y TAKE THE ASSISTANCE OF THE FINDING IN THE ASSESSMENT ORDER B UT HE HAS TO BRING SOME MATERIAL ON RECORD. IN THE ABSENCE OF SUCH MATERIAL, THE PENALTY ORDER IS BAD IN LAW AS HELD B Y SC IN THE CASES (I) ANANTHARAM VERSINGHAIAH & CO. VS. CIT 123 ITR 457 (SC) AND (II) CIT VS. KHODAY ENWARSA & SONS 83 ITR 369 (SC). - NO SPECIFIC CHARGE : THE ATTENTION IS DRAWN TO PARA NO.5 OF PENALTY ORDE R AS UNDER :- 'IN VIEW OF THE FACTS DISCUSSED HERE ABOVE AND THE FACT DISCUSSED ELABORATELY IN THE ASSESSMENT, IT IS ESTA BLISHED THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF ITS INCOM E AS A/SO FURNISHED INACCURATE PARTICULARS OF INCOME. THE ASS ESSEE COMPANY HAS FAILED TO SUBSTANTIATE THE CLAIM AND AS SESSEE HAS NOT FURNISHED ANY CONVINCING EXPLANATION IN CON NECTION WITH THE DEFAULT OF FURNISHING INACCURATE PARTICULA RS OF ITS INCOME. I AM SATISFIED THAT THIS A FIT CASE FOR LEV Y OF PENALTY U/S. ,271(1)(C)OF THE ACT.' FROM THE ABOVE IT IS SEEN THAT THE PENALTY IS LEVIE D FOR CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. THERE HAS TO BE A SPECIFIC C HARGE. THE ITA NO.1910/AHD/2011 7 AO HAS TO HOLD THAT ASSESSEE EITHER CONCEALED THE I NCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME. IN THE ABSENCE OF SPECIFIC CHARGES, THE PENALTY ORDER IS B AD IN LAW AS HELD BY GUJARAT HIGH COURT IN FOLLOWING CASES. (I) NEW SORATHIA ENGG. CO. VS. CIT 282 ITR 642 (GUJ ) (II) CIT VS. MANU ENGG. 122 ITR 506 (GUJ) (III) A.M.SHAH VS: CIT 238TTR 415 (GUJ) - THE LD. AO RELIED ON EXPLANATION-1 TO SECTION 271 (1)(C) AND CERTAIN CASE LAW. THE RELIANCE IS MISPLACED DUE TO THE FACTS AND LEGAL POSITION STATED HEREIN ABOVE. THERE FORE, THE PENALTY LEVIED IS LIABLE TO QUASHED. 5.1. DURING THE COURSE OF APPEAL PROCEEDINGS, THE A . R. FURTHER WRITTEN SUBMISSIONS DATED 02-08-2010. THE RELEVANT PARAS OF THE SAME ARE REPRODUCED HEREUNDER :- - THE ATTENTION IS DRAWN TO THE RECENT DELHI HIGH COURT JUDGMENT IN THE CASE OF CIT VS. ZOOM COMMUNICATION (P) LTD. 191 TAXMAN 179 (DEL.). THE DELHI HIGH COURT HA S HELD AS UNDER:- 'IT WAS HELD THAT SO LONG AS ASSESSEE HA S NOT CONCEALED ANY MATERIAL FACT OR ANY FACTUAL INFORMAT ION GIVEN BY HIM HAS NOT BEEN FOUND TO BE INCORRECT, HE WILL NOT BE LIABLE TO IMPOSITION OF PENALTY U/S. 271(1), EVEN IF CLAIM MADE BY HIM IS UNSUSTAINABLE IN LAW, PROVIDED THAT HE EITHER SUBSTANTIATE EXPLANATION OFFERED BY HIM OR EXPLANAT ION, EVEN IF NOT SUBSTANTIATED, IS FOUND TO BE BONA FIDE.' - IN THE PRESENT CASE, THE ASSESSEE MADE A PROVI SION FOR BAD AND DOUBTFUL DEBTS WHICH IS DISTINCTLY DISCLOSE D IN P & L A/C. THE SAME WAS NOT ADDED TO THE TOTAL INCOME WHI LE MAKING COMPUTATION OF INCOME SINCE THE PROVISION WA S ALLOWABLE AS DEDUCTION AS PER GUJARAT HIGH COURT DE CISION IN THE CASE OF SARANGPUR COTTON MFG,. CO. LTD. VS. CIT 143 ITR 166. - AT THE TIME OF ASSESSMENT, THE CASE WAS WITHDR AWN IN VIEW OF RESTROSPECTIVE AMENDMENT IN SECTION 36(1 )( VII) BY ITA NO.1910/AHD/2011 8 FINANCE ACT, 2001 WITH EFFECT FROM 1ST APRIL, 1989. IT MAY PLEASE BE NOTED THAT THE ITAT AHMEDABAD, BENCH-D IN THE CASE OF SUN PETROCHEMICALS PVT. LTD. VS. ITO - ITA NO. 1010/AHD/2009 DATED 05-06-2009 HELD THAT NO INTERES T CAN BE CHARGED WHEN THERE IS RESTROSPECTIVE AMENDMENT I N THE ACT. IF NO INTEREST CAN BE CHARGED THEN THE QUESTIO N OF LEVY OF PENALTY DOES NOT ARISE IN VIEW OF RESTROSPECTIVE AM ENDMENT. - IT THEREFORE FOLLOWS THAT THE EXPLANATION FURN ISHED BY THE ASSESSEE IS SUBSTANTIATED AND THAT THE EXPLANATI ON IS BONAFIDE, THEREFORE THE QUESTION OF LEVY OF PENALT Y DOES NOT ARISE IN VIEW OF THE DELHI HIGH COURT JUDGMENT REFE RRED TO ABOVE. 5.2. IN ADDITION TO THE ABOVE, DURING THE COURSE OF APPEAL PROCEEDINGS, THE A. R. FILED FURTHER WRITTEN SUBMIS SIONS DATED 09- 06-2011. THE RELEVANT PARAS OF THE SAME ARE REPRODU CED HEREUNDER :- - THE INCOME-TAX RETURN FOR A.Y. 1999-2000 WAS S UBMITTED ON 31-12-1999. THE ASSESSEE COMPANY CLAIAMED THE PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS. 35.50 C RORE FOLLOWING THE GUJARAT HIGH COURT DECISION IN THE CA SE OF SARANGPUR COTTON MFG. CO. LTD. VS. CIT 143 ITR 166 AS PER SECTION 36(1)(VII). SECTION 36(1)(VII) ON THE DATE OF FILING OF THE RETURN I.E. ON 31-12-199 AS UNDER :* '36(1)(VI I) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF (ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECO VERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR) ' IT THEREFORE FOLLOWS THAT THE CLAIM OF THE ASSESSEE WAS AS PER LAW. HOWEVER, FINANCE ACT, 2001 WHICH WAS ASSENTED TO BY THE PRESIDENT OF INDIA IN MAY, 2001 INSERTED THE FO LLOWING EXPLANATION WITH RESTROSPECTIVE EFFECT FROM 01-04-1 989. 'EXPLANATION- FOR THE PURPOSE OF THIS CLAUSE, ANY B AD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BA D AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE .' ITA NO.1910/AHD/2011 9 FROM THE ABOVE, IT IS SEEN THAT THE EXPLANATION PRO VIDES THAT THE PROVISION FOR BAD AND DOUBTFUL DEBT IS NOT ALLO WABLE AS DEDUCTION WITH RESTROSPECTIVE EFFECT FROM 01-04-198 9. ACCORDINGLY, THE CLAIM WAS VOLUNTARILY WITHDRAWN BY WRITING A LETTER TO THE AO . WHEN THERE IS RESTROSPECTIVE A MENDMENT, THE INTEREST CANNOT BE CHARGED AS HELD BY ITAT AHME DABAD, BENCH-D IN THE CASE OF SUN PETROCHEMICALS PVT. LTD. VS. ITO - ITA NO.1010/AHD/2009 DATED 05-06-2009. IF NO INTE REST CAN BE CHARGED WHEN THERE IS RESTROSPECTIVE AMENDME NT, THE QUESTION OF LEVY OF PENALTY DOES NOT ARISE. THE ATTENTION IS DRAWN TO THE PENALTY ORDER OF LAST PAGE. THE RELEVANT PORTION IS REPRODUCED AS UNDER :- '/ AM SATISFIED THAT THIS IS A FIT CASE FOR LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT THEREFORE, BY VIRTUE OF EXPLAN ATION-1 OF SECTION 271(1)(C) PENALTY IS LEVIABLE' THERE HAS TO BE A SATISFACTION FOR THE PURPOSE OF L EVY OF PENALTY TO THE EFFECT THAT THE ASSESSEE HAS CONCEAL ED THE INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF I NCOME. FROM THE ABOVE PARA, IT MAY PLEASE BE SEEN THAT THE SATISFACTION IS TO THE EFFECT THAT IT IS A FIT CASE FOR LEVY OF PENALTY. IT DOES NOT STATE ANYTHING ABOUT CONCEALME NT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME. THEREFORE, IN THE ABSENCE OF ADEQUATE SATISFACTION, THE PENALTY ORDER IS BADE IN LAW (DELIP N. SHROFF VS. J CIT 291 ITR 519 (SC). IN THE ABSENCE OF ANY SPECIFIC CHARGE , THE PENALTY ORDER IS BAD IN LAW AS HELD IN THE FOLLOWIN G CASES : NEW SORTHAIA ENGG. CO. VS. CIT 282 ITR 642 (GUJ) CI T VS. MANU ENGG. 122 ITR 506 (GUJ) A.M.SHAH VS. CIT 238 I TR 415 (GUJ). THE ID. AO PLACES THE RELIANCE ON EXPLANATION. HOWE VER, THE ID. AO DOES NOT STATE OR EXPRESS SATISFACTION IN WH AT MANNER, THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT BONA FIDE OR IS NOT SUBSTANTIATED. IN FACT, THE ASSESSEE HAS ALREAD Y GIVEN THE ITA NO.1910/AHD/2011 10 EXPLANATION THAT THE CLAIM WAS MADE ON THE BASIS OF GUJARAT HIGH COURT DECISION IN THE CASE OF SARANGPUR COTTON MFG. CO. LTD. VS. CIT V43 ITR 166 AND THAT THE CLAIM WAS WITHDRAWN IN VIEW OF RESTROSPECTIVE AMENDMENT. THE EXPLANATION IS BONAFIDE, THEREFORE THE PENALTY CANN OT BE LEVIED. 7. THE LD.CIT(A) HAS ALLOWED THE APPEAL OF THE ASSE SSEE AND DELETED THE PENALTY. 8. BEFORE US, THE LD.DR RELIED UPON THE ORDER OF TH E AO. HE TOOK US THROUGH THE FINDING OF THE AO RECORDED DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. HE POINTED OUT THAT SEARCH WAS CONDUC TED AT PREMISES OF THE ASSESSEE ON 24.2.1999. SURVEY WAS CARRIED OUT AT THE PREMISES OF M/S.NARANBHAI P. PATEL P. LTD. FROM THE FINDING OF THE SURVEY TEAM, IT WAS ESTABLISHED THAT THERE WAS NO SHORTAGE FOUND AT KANDLA AND NO GOODS WERE DISPATCHED TO KANDLA BY THE ASSESSEE. THUS, T HE CLAIM OF THE ASSESSEE WAS NOT PROPER. 9. ON THE OTHER HAND, THE LD.COUNSEL FOR THE ASSESS EE MADE TWO FOLD SUBMISSIONS. IN HIS FIRST FOLD OF SUBMISSIONS, HE HAS SUBMITTED THAT PENALTY ORDER WAS TIME-BARRED. IT WAS NOT PASSED W ITHIN SIX MONTHS FROM THE DATE OF ITAT ORDER RECEIVED BY THE CIT(A). AS PER SECTION 275A, THE AO WAS REQUIRED TO PASS PENALTY ORDER WITHIN SI X MONTHS. THE LD.CIT-DR POINTED OUT THAT JURISDICTION OVER THE AS SESSEE RESTS WITH THE CIT-III, AHMEDABAD. ORDER WAS SERVED ON CIT-II, AH MEDABAD. THE ASSESSEE HAS RAISED THIS PLEA ON THE GROUND THAT TH E ORDERS SERVED UPON THE CIT-II IS TO BE CONSTRUED AS SUFFICIENT SERVICE , BECAUSE, TAKING OF THE ORDER IS AN INTERNAL MECHANISM BETWEEN DIFFERENT OF FICIALS OF THE ITA NO.1910/AHD/2011 11 DEPARTMENT. AS FAR AS THIS PROPOSITION IS CONCERNE D, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS OF THE LD.COUNSEL FOR THE ASSESSEE. THE ORDER OF THE ITAT OUGHT TO HAVE BEEN SERVED ON CIT-III WHO H AS JURISDICTION OVER THE AO HAVING JURISDICTION OVER THE ASSESSEE. IF T HE ORDER WAS SERVED TO A DIFFERENT CIT, WHO DID NOT HAVE THE JURISDICTION OVER THE ASSESSEE, THEN IT COULD NOT BE ASSUMED THAT SERVICE WAS EFFECTED P ROPERLY, AND THE LIMITATION COMMENCE FROM THE SERVICE OF THAT ORDER. THE LD.CIT(A) HAS RIGHTLY REJECTED THIS CONTENTION OF THE ASSESSEE. 10. FOR THE SECOND FOLD OF SUBMISSIONS, THE LD.COUN SEL FOR THE ASSESSEE REITERATED THE CONTENTIONS AS WERE RAISED BEFORE TH E LD.CIT(A). IN ORDER TO EVALUATE THE SUBMISSIONS OF BOTH THE SIDES, WE D EEM IT PERTINENT TO TAKE NOTE OF SECTION 271(1)(C) OF THE ACT. IT READ S AS UNDER: '271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTIC ES, CONCEALMENT OF INCOME, ETC. (1) THE ASSESSING OFFICER OR THE C OMMISSIONER (APPEALS) OR THE CIT IN THE OF COURSE OF ANY PROCEE DINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON (A) AND (B) ** ** ** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. HE MAY DIREC T THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY. (I)AND (INCOME-TAX OFFICER,)** ** ** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CLA USE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM WHICH SHALL N OT BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULA RS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INAC CURATE PARTICULARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMM ISSIONER (APPEALS) OR THE CIT TO BE FALSE, OR ITA NO.1910/AHD/2011 12 (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOT AL INCOME OR SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURP OSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INC OME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED.' 11. A BARE PERUSAL OF THIS SECTION WOULD REVEAL TH AT FOR VISITING ANY ASSESSEE WITH THE PENALTY, THE ASSESSING OFFICER OR THE LEARNED CIT(APPEALS) DURING THE COURSE OF ANY PROCEEDINGS B EFORE THEM SHOULD BE SATISFIED, THAT THE ASSESSEE HAS; (I) CONCEALED HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. AS FAR AS THE QUA NTIFICATION OF THE PENALTY IS CONCERNED, THE PENALTY IMPOSED UNDER THI S SECTION CAN RANGE IN BETWEEN 100% TO 300% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE, AS A RESULT OF SUCH CONCEALMENT OF INCOME OR FURNIS HING INACCURATE PARTICULARS. THE OTHER MOST IMPORTANT FEATURES OF T HIS SECTION IS DEEMING PROVISIONS REGARDING CONCEALMENT OF INCOME. THE SEC TION NOT ONLY COVERED THE SITUATION IN WHICH THE ASSESSEE HAS CON CEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS, IN CERTAIN SITUAT ION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUTORY DEEMING FI CTION FOR CONCEALMENT OF INCOME COMES INTO PLAY. THIS DEEMING FICTION, BY WAY OF EXPLANATION-1 TO SECTION 271(1)(C) POSTULATES TWO S ITUATIONS; (A) FIRST WHETHER IN RESPECT OF ANY FACTS MATERIAL TO THE COM PUTATION OF THE TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSE E FAILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSES SEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR LEARNED CIT(APPEA L); AND, (B) WHERE IN RESPECT OF ANY FACT, MATERIAL TO THE COMPUTATION OF TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE ITA NO.1910/AHD/2011 13 EXPLANATION AND THE ASSESSEE FAILS, TO PROVE THAT S UCH EXPLANATION IS BONA FIDE AND THAT THE ASSESSEE HAD DISCLOSED ALL THE FA CTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME . UNDER FIRST SITUATION, THE DEEMING FICTION WOULD COME TO PLAY I F THE ASSESSEE FAILED TO GIVE ANY EXPLANATION WITH RESPECT TO ANY FACT MA TERIAL TO THE COMPUTATION OF TOTAL INCOME OR BY ACTION OF THE ASS ESSING OFFICER OR THE LEARNED CIT(APPEALS) BY GIVING A CATEGORICAL FINDIN G TO THE EFFECT THAT EXPLANATION GIVEN BY THE ASSESSEE IS FALSE. IN THE SECOND SITUATION, THE DEEMING FICTION WOULD COME TO PLAY BY THE FAILURE O F THE ASSESSEE TO SUBSTANTIATE HIS EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME AND IN ADDITION TO THIS THE ASSESSEE IS NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONA FIDE AND ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF THE TOTAL INCOME HAVE BEEN DISCLOSED BY THE ASSESSEE. THESE TWO SITU ATIONS PROVIDED IN EXPLANATION 1 APPENDED TO SECTION 271(1)(C) MAKES I T CLEAR THAT THAT WHEN THIS DEEMING FICTION COMES INTO PLAY IN THE AB OVE TWO SITUATIONS THEN THE RELATED ADDITION OR DISALLOWANCE IN COMPUT ING THE TOTAL INCOME OF THE ASSESSEE FOR THE PURPOSE OF SECTION 271(1)(C ) WOULD BE DEEMED TO BE REPRESENTING THE INCOME IN RESPECT OF WHICH INAC CURATE PARTICULARS HAVE BEEN FURNISHED. 12. IN THE LIGHT OF THE ABOVE, IF WE EXAMINE THE FA CTS OF THE PRESENT CASE, THEN IT WOULD REVEAL THAT THE ASSESSEE HAD CR EATED PROVISION FOR BAD AND DOUBTFUL DEBTS. THIS PROVISION WAS CREATED ON THE STRENGTH OF HONBLE GUJARAT HIGH COURTS DECISION IN THE CASE O F SARANGPURA COTTON MFG. CO. LTD.VS. CIT, 143 ITR 166 (GUJ). IT HAS FI LED ITS RETURN ON 31.12.1999. THE AMENDMENT WAS APPLIED WITH RETROSP ECTIVE EFFECT. BY ITA NO.1910/AHD/2011 14 OPERATION OF THIS AMENDED LAW, THE CLAIM OF THE BAD DEBTS CANNOT BE MADE BY CREATING A PROVISION FOR BAD AND DOUBTFUL D EBTS. ACCORDINGLY, THE CLAIM OF THE ASSESSEE BECOMES UNTENABLE, AND TH E CLAIM WAS WITHDRAWN DURING THE COURSE OF ASSESSMENT PROCEEDIN GS. IN SUCH SITUATION, THERE CANNOT BE ANY ALLEGATION AGAINST T HE ASSESSEE THAT IT HAS FURNISHED INACCURATE PARTICULARS. THE AO HAS NOT S PECIFIED CHARGE AGAINST THE ASSESSEE EITHER IN THE ASSESSMENT ORDER OR IN THE PENALTY ORDER, WHETHER THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OR CONCEALED THE INCOME. FOR THE PURPOSE OF REFERENCE , WE HAVE DRAWN AN INFERENCE THAT IMPLIEDLY IT IS FURNISHING OF INACCU RATE PARTICULARS, OTHERWISE, THE AO HAS NOT CHARGED HE ASSESSEE WITH SPECIFIC ALLEGATION. THE ASSESSEE HAS TAKEN A SPECIFIC PLEA TO THIS EFFE CT BEFORE THE LD.CIT(A). THE LD.CIT(A) HAS RECORDED A FINDING THAT THE CLAIM OF THE ASSESSEE BECAME UNTENABLE BY VIRTUE OF RETROSPECTIVE OPERATI ON OF LAW, OTHERWISE, THE ASSESSEE COULD HAVE DEMONSTRATED THE ALLOWANCE OF ITS CLAIM. ACCORDING TO US, THE ASSESSEE HAS NOT FURNISHED ANY INACCURATE PARTICULARS, WHICH CAN EXPOSE IT TO THE PENALTY PRO CEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE LD.CIT(A) HAS RIGHTLY D ELETED THE PENALTY AND WE DO NOT FIND ANY MERIT IN THIS APPEAL. IT IS DIS MISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE COURT ON 2 ND MAY, 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 02/05/2016