WELLKNOWN TEXTILES INDUSTRIES LTD, MUMBAI V. ITO 4(3)(3), MUMBAI

ITA 2343/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87815 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 05-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 10-04-2012
• Court: TRIBUNAL
• Keywords: Cost of acquisition; Wrong claim; Bad and doubtful debts
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.2343/MUM/2012 ASSESSMENT YEAR: -2006-07 M/S WELLKNOWN TEXTILES INDUSTRIES LTD. 145-C, SANGAM BUILDING DR. VITGAS STREET GAYWADI, KALBADEVI, MUMBAI 400002. VS.` ITO 4(3)(3) AAYKAR BHAVAN M.K. ROAD, MUMBAI. APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 17.01.2012 OF CIT(A) ARISING FROM PENALTY ORDER PASSED U/S 271(1) (C) OF THE INCOME TAX ACT FOR A.Y. 2006-07. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: - 'THE LD. CIT(A) IS ERRED IN CONFIRMING THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S 271 (1)(C) OF RS. 11,00,000/- 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 32,08,804/- ON ACCOUNT OF CLAIMS WRITTEN OFF. ON THE QUERY OF THE ASSESSING OFFICER, THE ASSESSEE SU BMITTED THAT IT ASSESSEE BY SHRI NARESH JAIN REVENUE BY SHRI VIJAY KUMAR BORA DATE OF HEARING 05.01.2015 DATE OF PRONOUNCEMENT 09.01.2015 M/S WELLKNOWN TEXTILES INDUSTRIES LTD. 2 | P A G E IS PURCHASING RAW MATERIALS FROM RELIANCE INDUSTRI ES PRODUCTS. THE ASSESSEE RAISED THE CLAIMS FOR RATE DIFFERENCE/QUANTITY DISCOUNT ET C., DURING FINANCIAL YEAR 2003- 04. THE ASSESSEE FURNISHED THE DETAILS OF THE CLAIM OF RATE IFFERENCE AND DISCOUNTS. THE RELIANCE INDUSTRIES HAS ACCEPTED ONLY PART CLAIM OF THE ASSESSEE AND ACCORDINGLY THE BALANCE AMOUNT OF RS. 32,08,804/- WAS WRITTEN OFF BY THE ASSESSEE. THE ASSESSEE PRODUCED THE DEBIT NOTE RAISED UPON THE RELIANCE IND USTRIES. THE ASSESSING OFFICER ISSUED NOTICE U/S 133(6) TO THE RELIANCE INDUSTRIES FOR VERIFICATION OF THE CLAIM OF THE ASSESSEE. IN RESPONSE TO THE NOTICE, THE RELIANCE I NDUSTRIES FURNISHED THE REPLY WHEREIN AS PER THE LEDGER ACCOUNT ONLY TWO CREDIT NOTES HAV E BEEN ISSUED IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER HELD THAT THE CLAIM WRITTEN OFF WERE IN THE NATURE OF PRIOR PERIOD EXPENSES AND ACCORDINGLY DISALLOWED TH E SAME. 3. THE ASSESSEE CHALLENGED THE ACTION OF ASSESSING OFFICER OF DISALLOWANCE OF CLAIM BEFORE CIT(A) BUT COULD NOT SUCCEED. THE ASSESSEE ACC EPTED THE ORDER OF CIT(A) AS NO FURTHER APPEAL WAS FILED. IN THE MEANTIME THE ASSES SING OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) IN RESPECT OF DISALLOWANC E OF WRITTEN OFF AMOUNT OF RS. 32,08,804/- AND LEVIED PENALTY OF RS. 11,00,000/- V IDE ORDER DATED 21.03.2011. THE ASSESSEE FILED THE APPEAL AGAINST THE PENALTY ORDER BEFORE THE CIT(A) AND CONTENDED THAT ALL THE DETAILS WERE FURNISHED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WHICH WERE EXAMINED BY THE ASSESSING OFFICER INCLUDING THE COPIES OF DEBIT NOTES. THERE IS NO CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS OF INCOME BY THE ASSESSEE ATTRACTING THE PENALTY PROCEEDINGS. THE CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE LEVY OF PENALTY. 4 BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE HAS REITERATED ITS CONTENTION THAT THE AMOUNT WRITTEN OFF DURING THE Y EAR PERTAINS TO THE CLAIM RAISED BY THE ASSESSEE AGAINST THE RELIANCE INDUSTRIES ON ACC OUNT OF RATE DIFFERENCE AND QUANTITY DISCOUNT. SINCE THE RELIANCE INDUSTRIES HAS ACCEPTE D ONLY PART CLAIM OF THE ASSESSEE AND M/S WELLKNOWN TEXTILES INDUSTRIES LTD. 3 | P A G E ACCORDINGLY THE BALANCE AMOUNT WAS WRITTEN OFF BY TH E ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS EXAMINED T HE RECORD AND ALSO VERIFIED THE CLAIM FROM THE RELIANCE INDUSTRIES. HE HAS FURTHER C ONTENDED THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND OF PRIOR PERIOD EXPENSES, THEREFORE, THE CLAIM OF THE ASSESSEE WAS NOT FOUND TO BE BOGUS O R INCORRECT BUT IT WAS A BONAFIDE CLAIM OF THE ASSESSEE. THE CIT(A) HAS CONFIRMED THE DISALLOWANCE OF ASSESSEE IN THE QUANTUM APPEAL ON THE GROUND THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITION U/S 36(2) FOR WRITING OFF THE DEBTS. THE LD. AUTHORIZED R EPRESENTATIVE HAS SUBMITTED THAT THE AMOUNT OF CLAIM IN QUESTION WAS REDUCED FROM TH E PURCHASE COST IN THE YEAR OF PURCHASE OF RAW MATERIAL. THUS IT WAS DULY OFFERED TO TAX AND WHEN THE ASSESSEE CLAIM BECOME IRRECOVERABLE AS THE RELIANCE INDUSTRIES HAS NOT ACCEPTED THE FULL CLAIM OF REBATE THEN THE WRITTEN OFF THE AMOUNT IS AN ALLOWABL E CLAIM. EVEN IF THE ASSESSEE HAS ACCEPTED THE ORDER OF CIT(A), THE CLAIM OF THE ASSE SSEE CANNOT BE CONSIDERED AS BOGUS OR MALAFIDE. THEREFORE, THE PENALTY U/S 271(1)(C) I S NOT ATTRACTED. HE HAS RELIED UPON THE FOLLOWING DECISIONS:- (I) CIT VS. EASTMAN INTERNATIONAL (2014) 41 TAXMANN .COM 239(PUNJAB & HARYANA HC) (II) CIT VS. KEVIN PROCESS TECHNOLOGIES (P) LTD. ( 2013) 40 TAXMANN.COM 249 (GUJARAT HC) (III) CIT VS. ANR. VS. MANJUNATHA COTTON & GINNING FACTORY (2012) 263 CTR (KAR) 153. 5. THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED T HAT IN THE CASE OF CIT VS EASTMAN INTERNATIONAL (SUPRA), THE HON'BLE PUNJAB & HARY ANA HIGH COURT HAS HELD ON THE IDENTICAL FACTS THAT DISALLOWANCE OF CLAIM BEING PRIOR PERIOD EXPENSES DOES NOT WARRANT PENALTY. SIMILARLY IN CASE OF CIT VS. KEVIN PROCESS TECHNOLOGIES (P) LTD (SUPRA), THE ISSUE BEFORE THE HON'BLE HIGH COURT WAS L EVY OF PENALTY AGAINST THE DISALLOWANCE OF BAD DEBTS ON THE GROUND OF PRIOR PERI OD EXPENSES AND THE HON'BLE HIGH M/S WELLKNOWN TEXTILES INDUSTRIES LTD. 4 | P A G E COURT HAS HELD THAT MERELY BECAUSE CERTAIN CLAIMS WE RE MADE AND THOSE CLAIMS WERE DISALLOWED ON THE BASIS THEREOF ADDITIONS WERE MADE, THAT WOULD NOT IPSO FACTO LEAD TO PENALTY PROCEEDINGS. 6. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON T HE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE ITSELF HAS ADMITTED THE WRONG CLAIM. HE HAS FURTHER CONTENDED THAT THIS IS NOT A VOLUNTARY DISCLOSURE O R OFFER OF THE AMOUNT TO TAX BUT ONLY WHEN THE ASSESSING OFFICER HAS QUESTIONED THE CLAIM OF THE ASSESSEE, THE ASSESSEE ACCEPTED THE DISALLOWANCE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE AMOUNT OF RS. 32,08,804/- WAS WRITTEN O FF BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ON THE GROUND THAT THE RELIANCE INDUSTRIES HAS NOT ACCEPTED THE CLAIM OF REBATE ON RATE DIFFERENCE AND QUANTITY DISC OUNT. IT IS PERTINENT TO NOTE THAT IN THE YEAR OF PURCHASE I.E. A.Y. 2004-05, THE ASSESSE E HAS RAISED THE CLAIM FOR RATE DIFFERENCE AND QUANTITY DISCOUNTS AGAINST THE RELIA NCE INDUSTRIES IN RESPECT OF PURCHASE OF RAW MATERIAL. THEREFORE, THE PURCHASE COST WAS T AKEN INTO ACCOUNT AFTER REDUCING THE DISCOUNT CLAIMED BY THE ASSESSEE. ONCE THE PURCHASE COST IS TAKEN INTO ACCOUNT AFTER REDUCING THE DISCOUNT CLAIMED BY THE ASSESSEE AND SU BSEQUENTLY THE CLAIM OF DISCOUNT WAS NOT FULLY ACCEPTED BY THE SUPPLIER (RELIANCE IND USTRIES) THEN THE WRITING OFF AMOUNT WHICH WAS NOT ACCEPTED BY THE SUPPLIER WOULD NOT AMOUNT TO BOGUS CLAIM OR ABSOLUTELY IMPERMISSIBLE CLAIM. THOUGH THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND OF PRIOR PERIOD EXPEN SES AS IT WAS REGARDING THE PURCHASE OF RAW MATERIALS IN THE F.Y. 2003-04 RELEV ANT TO AY 2004-05, HOWEVER, IT CANNOT BE REGARDED AS A INCORRECT OR FALSE CLAIM. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS ALSO RAISED THE OBJECTION ABOU T THE ALLOWABILITY OF THE WRITTEN OFF FOR WANT OF SATISFACTION OF THE CONDITION UL/ 36(2) . IT IS PERTINENT TO NOTE THAT WHEN THE M/S WELLKNOWN TEXTILES INDUSTRIES LTD. 5 | P A G E ASSESSEE HAS REDUCED THE PURCHASE PRICE OF RAW MATE RIAL BY THE AMOUNT OF CLAIM OF DISCOUNT THEN THE AMOUNT IN QUESTION WAS ALREADY OF FERED TO TAX FOR THE A.Y. 2004-05. THE ASSESSING OFFICER MADE AN ENQUIRY BY ISSUING NO TICE U/S 133(6) AND FOUND THAT THE RELIANCE INDUSTRIES HAS ACCEPTED ISSUANCE OF ONLY T WO CREDIT NOTES AGAINST THE CLAIM OF ASSESSEE, THEREFORE, THE ASSESSING OFFICER HIMSELF DID NOT FIND THAT THE CLAIM OF THE ASSESSEE IS BOGUS. EVEN, OTHERWISE, NO SUCH FINDING WAS GIVEN BY THE ASSESSING OFFICER THAT THE CLAIM IS BOGUS AND THE DISALLOWANCE WAS MAD E ONLY ON THE GROUND OF PRIOR PERIOD EXPENSES. ONCE THE FACT OF DISCOUNT CLAIMED BY THE ASSESSEE FROM THE PURCHASE PRICE IS NOT DISPUTED THEN THE DISALLOWANCE OF WRIT ING OFF THE CLAIM DURING THE YEAR UNDER CONSIDERATION WOULD NOT LEAD TO THE CONCLUSIO N THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED THE P ARTICULARS OF INCOME WHEN ALL THE RELEVANT RECORDS WERE DULY FURNISHED AND EXAMINED B Y THE ASSESSING OFFICER. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT MERE DISALLOWANCE OF CLAIM OF WRITING OFF WOULD NOT IPSO FACTO ATTRACT THE LEVY OF PENALTY ULS 271(1)(C). HENCE THE PENALTY LEVIED U/S 271(1)(C) IS DELETED 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUCNED IN THE OPEN COURT ON THIS 9 TH DAY OF JANUARY 2015. SD/- SD/- (RAJENDRA) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 9-01-2015 SKS SR. P.S, M/S WELLKNOWN TEXTILES INDUSTRIES LTD. 6 | P A G E COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI