Steelco Gujarat Ltd., Bharuch V. The Dy.CIT.,Circle-4, Baroda

ITA 2487/AHD/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8368 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 22-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bad and doubtful debts; Capital expenditure
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE, SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 2487/AHD/2013 (ASSESSMENT YEAR: 2003-04) STEELCO GUJARAT LTD. PLOT NO. 2, GIDC ESTATE, PALEJ, DIST. BHARUCH 392220 APPELL ANT VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCEL-4, BARODA RESPONDENT PAN: AADCS0880L /BY ASSESSEE : SHRI S. N. SOPARKAR, A.R. /BY REVENUE : SHRI K. MADHUSUDAN , SR. D.R. /DATE OF HEARING : 26.07.2017 /DATE OF PRONOUNCEMENT : 13.10.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2003-04 ARISES AGAINST THE CIT(A)-III, BARODAS ORDER DATED 31.07.2013 IN CASE NO. CAB/III-22/2012-13, UPHOLDING ASSESSING OFFICERS ACTION IMPOSING PENAL TY OF RS.12,10,000/- PERTAINING TO BAD DEBTS DISALLOWANCE OF RS.32,88,507/- IN RESP ECT OF M/S. GANPATI CAPITAL LTD. AND M/S. GUJARAT NIPPON BIMETALS PVT. LTD. INVOLVIN G FIGURES OF RS.18,50,000/- AND RS.14,38,507/-; RESPECTIVELY, IN PROCEEDINGS U/S. 2 71(1)(C) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH SIDES. CASE FILE PERUSED. ITA NO. 2487/AHD/13 [STEELCO GUJARAT LTD. VS. DCIT] A.Y. 2003-04 - 2 - 2. WE ADVERT TO RELEVANT FACTS FIRST. THIS ASSESSE E IS A COMPANY MANUFACTURING COLD ROLLED STEEL. IT FILED RETURN ON 28.11.2003 S TATING LOSS OF RS.1,66,048/-. THE ASSESSING OFFICER TOOK UP SCRUTINY. HE CAME ACROSS ASSESSEES BAD DEBT CLAIM IN QUESTION OF RS.32.88LACS (SUPRA) IN THE FORM OF ADV ANCES ALLEGEDLY NOT OFFERED AS INCOME IN EARLIER ASSESSMENT YEARS. THE ASSESSING OFFICER FIRST OF ALL OBSERVED IN ASSESSMENT ORDER DATED 28.02.2006 THAT SECTION 36(2 ) OF THE ACT DOES NOT ALLOW SUCH A CLAIM IN ABSENCE OF THE SAME BEING RECOGNIZE D AS INCOME PRECEDING ASSESSMENT YEARS. HE THEN OPINED THAT THE ABOVE ST ATUTORY PROVISION WAS A SPECIFIC ONE NEGATING APPLICATION OF GENERAL BUSINESS EXPEND ITURE U/S.37 OF THE ACT. THE ASSESSING OFFICER FURTHER INITIATED THE IMPUGNED PE NALTY PROCEEDINGS ALLEGING FURNISHING OF INACCURATE PARTICULARS OF INCOME U/S. 271(1)(C) OF THE ACT. THE ASSESSEE PREFERRED APPEAL. THE CIT(A) AFFIRMED THE ABOVE QUANTUM DISALLOWANCE IN HIS ORDER DATED 18.10.2006. THE ASSESSEE THEN FI LED ITA NO.349/AHD/2007 BEFORE THE TRIBUNAL. A CO-ORDINATE BENCH THEREIN R EMITTED THE ISSUE BACK TO THE ASSESSING OFFICERS FILE IN ITS ORDER DATED 14.05.2 010 AS UNDER: 14. FROM THE ABOVE, IT IS EVIDENT THAT THE LD. COM MISSIONER OF INCOME TAX(APPEALS) HAS RECORDED THE FINDING THAT THE AMOUNT GIVEN TO GANPA TI CAPITALS LIMITED WAS FOR OPENING L.C. AND IT IS NOT CLEAR WHETHER THE L.C. WAS FOR P URCHASE OF RAW MATERIAL OR FOR PURCHASE OF CAPITAL GOODS. IN THE CASE OF GUJARAT NIPPON BIM ETALS PVT. LTD. ALSO HE RECORDED THE FINDING IT(ASSESSMENT YEAR 2003-2004) WAS FOR DEVEL OPMENT OF MARKET AND THEREFORE WAS IN THE NATURE OF CAPITAL EXPENDITURE. HE, THEREFORE , DISALLOWED THE LOSS ON THE GROUND THAT IT WAS A CAPITAL LOSS NOT A TRADING LOSS. AT THE TI ME OF HEARING BEFORE US, IT WAS REITERATED BY THE LEARNED COUNSEL THAT THE LOSS WAS A REVENUE LOSS AND NOT A CAPITAL LOSS. HE STATED THAT L.C. WAS OPEN NOT FOR THE PURCHASE OF CAPITAL GOODS, BUT FOR RAW-MATERIAL. SIMILARLY, IT WAS CONTENDED THAT THE EXPENDITURE FOR THE DEVEL OPMENT OF THE MARKET OF THE GOODS WHICH IS BEING MANUFACTURED BY THE ASSESSEE CANNOT BE CAPITAL LOSS. HOWEVER, THE COMPLETE FACTS IN THIS REGARD IS NOT PLACED BEFORE US. WE ALSO FIND THAT NO SUCH CLAIM WAS MADE BEFORE THE ASSESSING OFFICER AND THEREFORE HE HAS ALSO NOT EXAMINED THE FACTS RELATING TO ADVANCE GIVEN TO GANPATI CAPITALS LIMIT ED AS WELL AS GUJARAT NIPPON BIMETALS PVT. LTD. 15. IN VIEW OF THE ABOVE, WE DEEM IT PROPER TO SET ASIDE THE ORDER OF THE AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FI LE OF THE ASSESSING OFFICER. WE DIRECT HIM TO EXAMINE THE FACTS OF THE CASE AND THEREAFTER RE- ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. 3. THE ASSESSING OFFICER TOOK UP CONSEQUENTIAL PROC EEDINGS THEREAFTER. THE ASSESSEE FILED TWO LETTERS DATED 31.12.1996 AND 07. 02.1997 IN CASE OF THE ABOVE FORMER ENTITY ONLY M/S. GANPATI CAPITAL IN SEEKING TO PROVE THAT THE CORRESPONDING ITA NO. 2487/AHD/13 [STEELCO GUJARAT LTD. VS. DCIT] A.Y. 2003-04 - 3 - AMOUNT OF RS.18.50 LACS (SUPRA) WAS MEANT FOR RAW M ATERIAL PURCHASES INSTEAD OF CAPITAL GOODS. IT ADMITTEDLY DID NOT FILE EVEN A S INGLE DOCUMENT QUA THE LATTER ENTITY M/S. GUJARAT NIPPON BIMETALS. THE ASSESSING OFFICE R REITERATED THE ABOVE QUANTUM DISALLOWANCE IN THESE CIRCUMSTANCES IN HIS CONSEQUENTIAL ASSESSMENT FRAMED ON 03.11.2011 AFTER CONCLUDING THAT ASSESSEE S SUPPORTIVE DOCUMENT IN RESPECT OF ABOVE FORMER ENTITY PERTAINING TO LCS A LLEGED TERMS AND CONDITIONS, SECTION 138 NOTICE ETC. NOWHERE PROVED A CASE OF RA W MATERIAL PURCHASES. THE ASSESSEE ADMITTEDLY DID NOT PREFER ANY APPEAL. QUA NTUM PROCEEDINGS THEREFORE ATTAINED FINALITY. 4. WE NOW ADVERT TO THE IMPUGNED PENALTY PROCEEDING S. THE ASSESSING OFFICER STRONGLY RELIED UPON THE ABOVE DEVELOPMENTS TO CONCLUDE THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME IN R AISING BAD DEBTS PLEA IN QUESTION. HE THEREFORE IMPOSED THE PENALTY IN QUESTION OF RS. 12.10LACS IN HIS ORDER DATED 20.04.2012. THE CIT(A) CONFIRMS THE SAME IN LOWER APPELLATE PROCEEDINGS. 5. WE HAVE HEARD RIVAL CONTENTIONS. CASE FILE PERU SED. THERE IS NO DISPUTE THAT THE IMPUGNED PENALTY EMANATES FROM BAD DEBTS DEDUCT ION DISALLOWANCE OF RS.32.88 LACS IN RESPECT OF ABOVE TWO ENTITIES M/S. GANPATI CAPITAL LTD. AND GUJARAT NIPPON BIMETALS PVT. LTD. BOTH THE LOWER AUTHORITIES FIRS T OF ALL OBSERVE THAT THE ASSESSEE DID NOT FILE ANY EVIDENCE PROVING TO HAVE ADVANCED THE MONEY IN QUESTION OF RS.18.50LACS TO THE ABOVE FORMER ENTITY FOR PURCHAS ING RAW MATERIALS SO AS TO MAKE OUT A CASE OF BAD DEBTS CLAIM. WE FIND THAT PAGES 30 TO 69 OF THE PAPERBOOK COMPRISE OF ALL SUCH PARTICULARS. PAGES 43 TO 44 P ARTICULARLY REVEAL THAT THE SAME WERE FOR THE PURPOSE OF PURCHASE OF CAST SLABS. PA GES 51 TO 52 ALSO SUBSTANTIATE ASSESSEES CASE THAT IT HAD INTENDED TO ALLOCATE TH E AMOUNT IN QUESTION TOWARDS COST OF MATERIAL. WE THEREFORE FIND NO REASON TO CONCUR WITH BOTH THE LOWER AUTHORITIES HOLDING THE ASSESSEE TO HAVE FAILED IN PROVING RAW MATERIAL ADVANCES IN RESPECT OF FORMER ENTITY. WE NOW PROCEED TO DEAL WITH M/S. GU JARAT NIPPON BIMETALS. LEARNED CO-ORDINATE BENCH IN QUANTUM PROCEEDINGS HA S ADMITTEDLY OBSERVE THAT THE ASSESSEE HAD MADE PAYMENT TO THE LATTER ENTITY FOR DEVELOPING MARKET OF ITA NO. 2487/AHD/13 [STEELCO GUJARAT LTD. VS. DCIT] A.Y. 2003-04 - 4 - MANUFACTURED GOODS. HONBLE APEX COURTS DECISION IN CIT VS. RELIANCE PETROPRODUCTS 322 ITR 158 (SC) HAS SETTLED THE LAW THAT QUANTUM AND PENALTY PROCEEDINGS ARE SEPARATE WHEREIN EACH AND EVERY DIS ALLOWANCE/ADDITION MADE IN CASE OF THE FORMER DOES NOT IPSO FACTO ATTRACT THE LATTER PENAL PROVISION. WE KEEP IN MIND THE SAID FINE DISTINCTION BETWEEN QUANTUM AND PENALTY PROCEEDINGS TO FIND THAT ASSESSEES CLAIM QUA THE LATTER ENTITY AS WELL FOR MARKETING OF MANUFACTURED GOODS WAS NOT A FALSE ONE BUT A DEBATABLE CLAIM WHE REIN IT LOST NOT ON GENUINENESS BUT ON LEGAL ASPECT. WE THEREFORE CONCLUDE THAT TH E ABOVE QUANTUM DISALLOWANCE OF BAD DEBTS IS NOT A FIT INSTANCE TO IMPOSE THE PENAL TY IN QUESTION FOR FURNISHING OF INACCURATE PARTICULARS U/S.271(1)(C) OF THE ACT. W E THEREFORE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED PENALTY AMOUNTING TO RS.12.10LACS. 6. THIS ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 13 TH DAY OF OCTOBER, 2017.] SD/- SD/- ( N. K. BILLAIYA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL M EMBER AHMEDABAD: DATED 13/10/2017 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0