J.R. Sharma Overseas Ltd, V. ITO Ward 4 (1),

ITA 2123/DEL/2007

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4221 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-06-2016
• Assessment Year: 2001-2002
• Appeal Filed On: 27-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIMA BARNWAL
• Keywords: Depreciation; Rectification of order; Retrospective amendment; Initiation of penalty proceedings; Difference of opinion
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER, A ND SHRI L.P. SAHU, ACCOUNTANT MEMB ER I.T.A .NO. 2123 /DEL/2007 ( A.Y: 2001-02) M. S J. R. SHARMA OVERSEAS NEW DELHI PAN : AACJ 1415 F (APPELLANT) VS ITO CO. WARD 4(1) NEW DELHI (RESPONDENT) APPELLANT BY SH. AJAY WADHWA, ADV RESPONDENT BY MS. ANIMA BARNWAL, SR. DR ORDER PER CHANDRA MOHAN GARG, JM THIS APPEAL BY THE ASSESSEE HAS BEEN FILED AGAINST THE ORDER OF THE LD. CIT(A) 19/12/2006 PASSED IN FIRST APPELLATE 16/2006-07 FOR ASSESSMENT YEAR 2001-02. 2. THE SOLE MAIN EFFECTIVE GROUND RAISED BY THE ASS ESSEE READS AS FOLLOWS: DATE OF HEARING 09.06.2016 DATE OF PRONOUNCEMENT 05 .08.2016 2 ITA NO. 2123/DEL/2007 2. THE ORDER OF THE LD.CIT(A) CONFIRMING THE PENAL TY LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 IS ERRONE OUS BOTH ON FACTS AND CIRCUMSTANCES OF THE CASE. 3. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIALS PLACED ON THE RECORD OF THE TRIBUNAL. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SINCE THE RE TURN WAS FILED BELATEDLY AND NOT CLAIM FOR CARRY FORWARD LOSS OF R S.28,76,930/- WAS CLAIMED AND RETURN WAS FILED AT NIL INCOME. THE LD. COUNSEL ALSO POINTED OUT THAT AFTER MAKING ADDITIONS THE INCOME REACHED TO RS.5,70,535/- WHICH WAS FURTHER REDUCED TO RS.4,26, 373/- WHEN THE RECTIFICATION APPLICATION FILED BY THE ASSESSEE U/S 154 OF THE ACT WAS ALLOWED BY THE A.O. 4. THE LD. COUNSEL POINTED OUT THAT IN THE FIRST PA RA OF PENALTY ORDER THE A.O INCORRECTLY NOTED THAT RETURN WAS FIL ED AT RETURNED LOSS OF RS.28,76,930/-. THE LD. COUNSEL ALSO POINTED OU T HOWEVER THE CIT(A) DIRECTED THE A.O TO RECOMPUTE THE PENALTY ON RS.5,70,335/- BUT THIS PENALTY IS ALSO NOT VALIDLY SUSTAINABLE. 5. THE LD. COUNSEL SUBMITTED OUT THAT THE ASSESSEE MADE A BONAFIDE CLAIM OF STOCK WRITTEN OFF, DEPRECIATION AND EXPENS ES AND THERE WAS A 3 ITA NO. 2123/DEL/2007 TEMPORARY LULL IN THE BUSINESS OF THE ASSESSEE THUS THERE WAS BUSINESS LOSSES WHICH COULD NOT BE CLAIMED DUE TO BELATED FI LING OF RETURN. THE LD. COUNSEL POINTED OUT THAT QUANTUM AND PENALTY PR OCEEDINGS ARE SEPARATE AND THE CIT(A) REDUCED THE PENALTY TO THE TUNE OF ASSESSED INCOME AFTER MAKING ADDITIONS AND THUS THE A.O PASS ED PENALTY ORDER WITHOUT APPLICATION OF MIND AND BY IGNORING THE REL EVANT PROVISIONS OF THE ACT. THE LD. COUNSEL REITERATING THE WRITTEN S YNOPSIS DATED 9/6/2016 CONTENTED THAT ADDITION IN QUANTUM HAS RES ULTED FROM DIFFERENCE IN OPINION WHERE THE BONAFIDE CLAIM OF T HE ASSESSEE WAS NOT FOUND SUSTAINABLE DUE TO ADOPTION OF ADVERSE OPINIO N BY THE AUTHORITIES BELOW, SINCE, PENALTY WAS NOT LEVIABLE ON THE ASSES SEE. 6. THE LD. COUNSEL VEHEMENTLY POINTED OUT THAT REGA RDING STOCK WRITTEN OFF DESPITE OF BONAFIDE EFFORTS BY THE ASSE SSEE, NO DEAL OF SALE COULD BE MATERIALIZED AS BALL POINT PENS WERE ABSOL UTE BECAUSE BODY OF THE PENS CRACKED AND INK THEREIN DRIED; CONDITION O F HDPE BAGS WAS NOT GOOD AND THUS THEY ALSO BECAME ABSOLUTE; COMPUTER C OMPONENTS BECAME ABSOLUTE DUE TO ARRIVAL OF NEW TECHNOLOGY IN THE MARKET. THE LD. COUNSEL ALSO SUBMITTED THAT IN THESE CIRCUMSTAN CES THE DIRECTOR OF THE COMPANY TOOK A CONSCIOUS DECISION IN THE INTERE ST OF COMPANY TO WRITE OFF THE STOCK AS THERE WAS NO POINT OF KEEPIN G THE ABSOLUTE STOCK 4 ITA NO. 2123/DEL/2007 AND SPENDING MONEY ON STORAGE OF SUCH STOCK. THE L D. COUNSEL ALSO CONTENDED, REGARDING CLAIM OF DEPRECIATION AND OTHE R EXPENSES, THAT THE INCURRENCE AND GENUINENESS OF THE EXPENDITURE H AS NOT BEEN DOUBTED BY THE A.O AND THE SAME WAS DISALLOWED ON A CCOUNT OF NO BUSINESS ACTIVITY ALLEGATION WHICH IS NOT ACCEPTABL E. THE LD. COUNSEL ALSO CONTENDED THAT MERELY BECAUSE NO BUSINESS ACTI VITY WAS CARRIED OUT DURING THE PERIOD A COMPANY CANNOT BE DEPRIVED FORM CLAIMING EXPENSES FOR RUNNING AND MAINTAINING ITS LEGAL ASSI STANCE. PLACING RELIANCE ENTIRE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD (2010) 322 ITR 158 (S.C) THE LD. COUNSEL SUBMITTED THAT WHERE THERE IS NO FINDING TH AT THE ASSESSEE HAD EITHER CONCEALED PARTICULARS OF ITS INCOME OR FURNI SHED INACCURATE PARTICULARS OF INCOME OR SUPPRESSED THE MATERIAL FA CTS RELATING TO COMPUTATION OF INCOME PENALTY U/S 271(1)(C) OF THE ACT CANNOT BE VALIDLY LEVIED. 7. THE LD. COUNSEL ALSO SUBMITTED THAT ADDITIONS ON WHICH PENALTY HAS BEEN IMPOSED, HAS BEEN MADE BECAUSE AT DIFFEREN CE OF OPINION AND HENCE IS NO FINDING ALLEGING THAT THE CLAIMS OF THE ASSESSEE IS NOT GENUINE OR BOGUS END HENCE, PENALTY ON DEBATABLE IS SUE CANNOT BE 5 ITA NO. 2123/DEL/2007 IMPOSED. TO SUPPORT ABOVE CONTENTIONS RELIANCE HAS BEEN PLACED ON THE FOLLOWING DECISIONS/ORDERS: (I) CIT VS. BACARDI MARTINI INDIA LTD 288 ITR 288 ITR 585 [2006] [DEL] (II) ABHINAV AJMERA VS. ACIT 12 ITR [T] 290 [2011] [DELHI TRIB] (III) CIT VS. SAMBHAV MEDIA LTD 215 TAXMAN 54 [ 2013] [GUJARAT HIGH COURT] 8. REPLYING TO THE ABOVE CONTENTIONS THE LD. DR, AT THE OUTSET, POINTED OUT THAT THE TRIBUNAL ITAT, H BENCH ALLOW ED APPEAL OF THE ASSESSEE AND PENALTY WAS DELETED BY FOLLOWING THE P REPOSITION LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF VIRTUA L SOFT SYSTEMS PVT. LTD VS. CIT 289 ITR 83 (S.C) AND SUBSEQUENTLY ON TH E MISCELLANEOUS APPLICATION FILED BY THE REVENUE I.E M.A NO.528/DEL /2008 THE TRIBUNAL RELATED THE ORDER BY FOLLOWING THE RATIO OF THE SUB SEQUENT DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. GOLD C OIN FOODS PVT. LTD 172 TAXMAN 38 (S.) WHEREIN IT WAS HELD THAT THE OPE RATION OF EXPLANATION 4 TO SECTION 271(1)(C) OF THE ACT BEING CLARIFICATORY, WILL HAVE RETROSPECTIVE EFFECT. THE LD. DR ALSO POINTED OUT THAT IN VIEW OF SUBSEQUENT DIVISION OF APEX COURT THE PENALTY ORDER HAS TO BE SUSTAINED. 6 ITA NO. 2123/DEL/2007 9. THE LD. COUNSEL OF THE ASSESSEE ALSO PLACED REJO INDER, TO THE ABOVE SUBMISSION OF THE LD. DR, AND CONTENDED THAT THE TRIBUNAL ALLOWED THE APPEAL ONLY ON THE BASIS OF PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF THE VIRTUAL SO FT SYSTEMS LTD (SUPRA) AND OTHER CONTENTIONS OF THE ASSESSEE ON ME RITS AND REGARDING EXPLANATION ON THE ADDITIONS HAS NOT BEEN CONSIDERE D THIS LEAVING ASIDE THE APPLICABILITY OF EXPLANATION 4 BEING DECLARED A S RETROSPECTIVE BY THE HONBLE APEX COURT THE OTHER CONTENTIONS OF THE ASSESSEE ON MERITS OF THE ADDITIONS AND CONSEQUENT PENALTY WAS NOT CON SIDERED BY THE TRIBUNAL IN THE RELATED ORDER HENCE, THE SAME MAY B E CONSIDERED IN THIS SECOND ROUND OF PROCEEDINGS WHICH CLEARLY DEMO NSTRATE THAT PENALTY ON ALL THREE COURTS IS NOT LEVAIBLE U/S 271 (1)(C) OF THE ACT. 10. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISS ION, AT THE OUTSET, FROM THE EARLIER ORDER OF THE TRIBUNAL WE NOTE THAT THE APPEAL OF THE ASSESSEE WAS ALLOWED ONLY BY FOLLOWING THE PREPOSIT ION LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF VIRTUAL SO FT (SUPRA) AND OTHER CONTENTIONS ON MERITS HAVE NOT BEEN DEALT THEREIN. FROM THE RECTIFICATION ORDER OF THE TRIBUNAL DATED 22-5-2009 (SUPRA) WE NOTE THAT THE ORDER OF THE TRIBUNAL DELETING THE PENALTY WAS RECALLED BY FOLLOWING THE RATIO OF THE SUBSEQUENT DECISION OF H ON'BLE SUPREME 7 ITA NO. 2123/DEL/2007 COURT IN THE CASE OF CIT VS. GOLD COIN (SUPRA) AND APPEAL WAS FIXED FOR HEARING AND THUS IN THESE CIRCUMSTANCES THE APPEAL WAS REHEARD ON OTHER CONTENTIONS AND EXPLANATION OF THE ASSESSEE O N MERITS AND ALL THREE ADDITIONS WHICH WERE BASIS FOR IMPOSING PENAL TY ON THE ASSESSEE. 11. THEREFORE, IN VIEW OF ABOVE, WE DECLINE TO ACCE PT CONTENTION OF THE LD. DR THAT PENALTY SHOULD BE UPHELD BY ONLY FO LLOWING PREPOSITION LAID DOWN BY HONBLE APEX COURT IN THE CASE OF GOLD COIN (SUPRA) AS CERTAINLY PENALTY CANNOT BE DELETED ON THE LEGAL GR OUND I.E. PROSPECTIVE EFFECT OF EXPLANATION 4 TO SECTION 27(1 )(C) OF THE ACT BUT OTHER SUBMISSION, CONTENTIONS AND EXPLANATION OF TH E ASSESSEE ON THE MERITS OF THE ALL THREE ISSUES ON WHICH PENALTY HAS BEEN LEVIED HAS TO BE CONSIDERED FOR THE LOGICAL ANALYSIS AND EVALUATI ON OF THE IMPUGNED ORDER OF THE A.O AS WELL AS OF THE CIT(A). 12. NOW IN VIEW OF FOREGOING DISCUSSION WE PROCEED TO DECIDE CONTENTION OF THE ASSESSEE ON MERITS OF THE PENALTY . FIRST OF ALL WE MAY POINT OUT THAT THE THREE ADDITIONS HAVE BEEN MA DE DURING ORIGINAL ASSESSMENT PROCEEDINGS AND APPEAL OF THE ASSESSEE W AS DISMISSED ON ACCOUNT OF NON PROSECUTION WITHOUT ANY ADJUDICATION ON MERITS. IN THIS BACKDROP WHEN WE ANALYZE THE FIRS ADDITION MADE ON ACCOUNT OF STOCK 8 ITA NO. 2123/DEL/2007 WRITTEN OFF THEN WE NOTE THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE FILED LETTER OF THREE DIFFERENT PARTIES TO WHOM IMPUGNED STOCK WAS SHOWN AND THE SAME WAS REJECTED BY THEM. THERE AFTER, THE DIRECTORS OF THE COMPANY TOOK A CONSCIOUS DECISION TO WRITE OFF STOCK CONSIDERING THE CONDITION OF THE MARKET AND TO SAVE COST OF STORAGE ETC. FROM THE ASSESSMENT ORDER PARA (B) WE NOTE TH AT THE A.O HAS ALLEGED THAT THE BALL PEN COULD HAVE BEEN USED BY R EPLACING THE DRIED REFILLS AND HDPE BAGS COULD HAVE BEEN RECYCLED BUT ON THIS ALLEGATION WE AGREE WITH THE CONTENTION OF THE LD. AR THAT THE PLASTIC BODY OF BALL PEN HAS CRACKED AND FOR RECYCLING OF BAGS THE ASSESSEE IS NOT A MANUFACTURER BUT IT IS A SIMPLE TRADER WHO CANT RE CYCLE THE ABSOLUTE STOCK. 13. ON THE ISSUE OF DISALLOWANCE REGARDING OTHER DE PRECATION AND EXPENSES WE NOTE THAT IN THE IMPUGNED ORDER THE GEN UINENESS AND INCURRENCE OF EXPENDITURE HAS NOT BEEN DOUBTED AND THIS DISALLOWANCES HAVE BEEN MADE ON THE ALLEGATION OF NON-EXISTENCE A T ANY BUSINESS ACTIVITY AND DISALLOWANCES ON THESE COUNTS HAVE BEE N MADE MERELY BECAUSE NOT BUSINESS ACTIVITY WAS CARRIED OUT DURIN G THE A.Y BY THE ASSESSEE. HOWEVER, THE ADDITION BASED ON THE SAID ALLEGATIONS HAVE ATTAINED FINALITY DUE TO DISMISSAL OF APPEAL ON ACC OUNT OF NON- 9 ITA NO. 2123/DEL/2007 PROSECUTION, BUT WE MAY POINT OUT THAT THE ASSESSEE BEING A PRIVATE LIMITED COMPANY, A LEGAL ENTITY, CANNOT BE DEPRIVED FROM CLAIMING THE EXPENSES INCURRED IN RUNNING AND MAINTAINING THE EX ISTENCE OF A LEGAL ENTITY. ON THE BASIS OF ABOVE, WE ARE INCLINED TO HOLD THAT THERE IS NO SUSTAINABLE ALLEGATION BY A.O IN THE PENALTY ORDER THAT EITHER THE ASSESSEE HAS CONCEALED PARTICULARS OF ITS INCOME OR HAS FURNISHED IN ACCURATE PARTICULARS OF ITS INCOME. WE MAY POINT O UT THAT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD 322 ITR 158 (S.C) AS RELIED BY THE LD. AR , IT HAS BEEN HELD THAT MERE DISALLOW ANCE OF A CLAIM CANNOT BY ITSELF, FROM THE BASIS FOR INITIATION OF PENALTY PROCEEDINGS IN ABSENCE OF ANY MATERIAL TO SHOW THAT THE CLAIM OF T HE ASSESSEE WAS UNJUSTIFIED AND DELIBERATELY UNDER FALSE PREMISES W ITH THE INTERIOR INTENT TO EVADE FISCAL LIABILITY. THE RELEVANT OPE RATIVE PART OF SAID DECISION READS AS FOLLOWS: WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE, THERE WOULD BE NO QUESTION OF INVITING PENAL TY U/S 271(1)(C). A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO F URNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE . SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT OT FU RNISHING INACCURATE PARTICULARS . 10 ITA NO. 2123/DEL/2007 14. AT THE COST OF REPETITION WE MAY AGAIN POINT OU T THAT THERE IS NO FINDING THE ASSESSEE HAD EITHER CONCEALED THE PARTI CULARS OF ITS INCOME OR FURNISHED PARTICULARS OF INCOME OR FURNISHED PAR TICULARS OF INCOME PENALTY U/S 271(1)(C) OF THE ACT CANNOT BE HELD AS SUSTAINABLE AND WE DISMISS THE SAME. 15. ACCORDINGLY SOLE GROUND NO. 2 OF THE ASSESSEE I S ALLOWED AND IMPUGNED PENALTY AND ORDER OF CIT(A) AND THE A.O A RE SET ASIDE AND DIRECTED TO DELETE THE PENALTY. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 05/08/2016. SD/- SD/- (L.P. SAHU) (C. M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 05/08/2016 VL COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTA NT REGISTRAR ITAT NEW DELHI