The ACIT.(OSD), Circle-5, Ahmedabad V. Paras Pharmaceuticals Ltd., Ahmedabad

ITA 277/AHD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9796 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-09-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 31-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ASHWIN C SHAH
• Keywords: Capital asset; Wrong claim; Bad and doubtful debts

Judgement Text

I.T.A. N O. 277 /AHD/201 2 ASSESSMENT Y EA RS : 200 3 - 04 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR , AM AND MAHAVIR PRASAD , JM ] I.T.A. NO. 277 /AHD/201 2 ASSESSMENT Y EAR: 200 3 - 04 A.C.I.T. (OSD), CIRCLE - 5, AHMEDABAD. .................. . APPE LLANT VS. PARAS PHARMACEUTICALS PVT. LTD. ..... ...... . ... . . RESPONDENT PARAS HOUSE, 6 - B, SATAR TALUKA SOCIETY, POST: NAVJIVAN, AHMEDABAD 380 014. [PAN: AAACP 9268 J] APPEARANCES BY: KAMLESH MAKWANA FOR THE A PPELLANT ASHWIN C. SHAH FO R THE RE SPONDENT DATE OF CONCLUDING THE HEARING : 0 9 .0 9 .2016 DATE OF PRONOUNC ING THE ORDER : 07 . 1 2 .2016 O R D E R PER PRAMOD KUMAR , AM : 1 . THIS APPEAL, FILED BY THE ASSESSING OFFICER, CHALLENGES CORRECTNESS OF THE ORDER DATED 28 TH NOVEMBER, 2011, PASSE D BY THE LEARNED CIT(A), IN THE MATTER OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961, ON THE FOLLOWING GROUND S : - 1. THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE PENALTY LEVIED U/S.271(1)(C) OF THE I .T. ACT ON THE DISALLOWANCE OF PROVISION FOR DOUBTFUL LOANS OF RS.48,07,140/ - MADE BY THE ASSESSING O FFICER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CA S E, TH E LD. COMMISSIONER OF INCOME T AX (A) OUGHT TO HAVE UPHELD THE ORDER OF T HE ASSESSING O FFICER. I.T.A. N O. 277 /AHD/201 2 ASSESSMENT Y EA RS : 200 3 - 04 PAGE 2 OF 4 3. IT IS, THEREFORE, PRAYED THAT T HE ORDER OF T HE LD. COMMISSIONER OF INCOME T AX (A) MAYBE SET - ASIDE AND THAT OF THE ASSESSING O FFICER BE RESTORED. 2. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE IS A MANU FACTURER OF PHARMACEUTICAL PRODUCTS. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS.48,07,140/ - UNDER THE HEAD DOUBTFUL LOANS. THIS CLAIM WAS DISALLOWED BY THE ASSESSING OFFICER INTER ALIA ON THE GROUND THAT IT IS ONLY A PR OVISION. IT WAS ALSO NOTED THAT WHAT HAS BEEN CLAIMED AS A DEDUCTION IS WRITE OFF OF SECURITY DEPOSIT WITH RELIANCE INDUSTRIES LIMITED, WHICH WAS IN CAPITAL FIELD , AND , THEREFORE, DISALLOWABLE. IN APPEAL, THIS DISALLOWANCE WAS DELETED. HOWEVER, WHEN THE MATTER TRAVELLED IN APPEAL BEFORE A CO - ORDINATE BENCH OF THIS TRIBUNAL, THE DISALLOWANCE WAS RESTORED. WHILE DOING SO, THE CO - ORDINATE BENCH OBSERVED AS FOLLOWS : - '5. WE, THUS FIND THAT IN THE APPEAL BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2001 - 02 THE FACTS WERE THAT THE ASSESSEE TREATED THE AMOUNT ADJUSTED BY THE RIL AGAINST THE SECURITY DEPOSIT AS BAD DEBT /LOSS. THE TRIBUNAL HAS HELD SUCH BAD DEBT/LOSS IS ALLOWABLE. HOWEVER, WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE IN ITS BOOKS OF ACCOUNT H AS NOT TREATED RS.48,07,140/ - AS BAD DEBT OR LOSS BUT IT HAS MADE MERELY A PROVISION AGAINST THE SAID AMOUNT AS PROVISION FOR DOUBTFUL DEBTS. THUS, IT IS NOT IN DISPUTE THAT THE ASSESSEE WHILE PREPARING ITS ACCOUNTS FOR THE YEAR UNDER CONSIDERATION HAS TRE ATED THE AMOUNT RECEIVABLE FROM RIL AS DOUBTFUL AND NOT AS BAD DEBT/LOSS. IN THESE CIRCUMSTANCES, IN OUR CONSIDERED VIEW, THE EARLIER DECISION OF THE TRIBUNAL RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE IS DISTINGUISHABLE ON FACTS. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE COULD NOT BRING ANY MATERIAL BEFORE US TO SHOW THAT THE FACTS OF THE ASSESSMENT YEAR WERE EXACTLY THE SAME AS FACTS INVOLVED IN THE YEAR UNDER APPEAL. THE LEARNED ASSESSING OFFICER HAS CATEGORICALLY ST ATED THE ABOVE FACTS THAT THE DEPOSIT WAS TREATED AS MERELY DOUBTFUL AND NOT AS A LOSS ASSET BY THE ASSESSEE DURING THE YEAR UNDER APPEAL IN THE ORDER OF ASSESSMENT. WE FIND THAT THE ASSESSEE COULD NOT BRING ANY MATERIAL BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) OR BEFORE US TO SHOW THAT THE AMOUNT RECEIVABLE FROM RIL WERE IN FACT BECOME LOSS OR BAD AND IT WAS SO TREATED BY THE ASSESSEE ALSO. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS HELD THAT LOSS OF SECURITY DEPOSIT EVEN DURING TH E COURSE OF BUSINESS AND FOR THE PURPOSE OF BUSINESS AND NOT FOR ACQUIRING ANY CAPITAL ASSET IS ALLOWABLE AS BUSINESS LOSS. HOWEVER, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT RS.48, 07,140/ - I.T.A. N O. 277 /AHD/201 2 ASSESSMENT Y EA RS : 200 3 - 04 PAGE 3 OF 4 RECEIVA BLE BY THE ASSESSEE IN FACT BECAME BAD OR LOSS ASSET. MOREOVER, THE TREATMENT GIVEN BY THE ASSESSEE IN THE ACCOUNTS I TSELF SHOWS THAT THE ASSESSEE HAS ALSO NOT TREATED THE SAME AS BAD/LOSS ASSET DURING THE YEAR UNDER CONSIDERATION BUT MERELY TREATED THE S AME AS DOUBTFUL OF RECOVERY. IN OUR CONSIDERED OPINION ACTUAL BUSINESS LOSS IS ONLY ALLOWABLE AS DEDUCTION TO THE ASSESSEE AND NOT THE PROBABLE LOSS WHICH IS DOUBTFUL. IN OUR CONSIDERED OPINION, DEDUCTION FOR LOSS OF MONEY ADVANCED DURING THE COURSE OF BU SINESS AND FOR CARRYING ON OF THE BUSINESS BONAFIDEIY TREATS THE SAME AS ACTUAL LOSS OF THE BUSINESS. THEREFORE, IN OUR CONSIDERED VIEW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.48,07 , 140/ - MADE BY THE LEARNED ASSESSING OFFICER BECAUSE THE ASSESSEE HAD TREATED THE SAME AS DOUBTFUL ASSET DURING THE YEAR AND NOT AS LOSS ASSET. WE, THEREFORE, SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON THIS ISSUE AND RESTORE THAT OF TH E LEARNED ASSESSING OFFICER. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED.' 3 . IT IS IN THIS BACKDROP THAT THE PENALTY UNDER SECTION 271(1)(C) WAS IMPOSED IN RESPECT OF THE ABOVE DISALLOWANCE. WHILE SO IMPOS ING THE PENALTY, THE ASSESSING O FFICER RELIED UPON THE FINDINGS OF THE ASSESSING O FFICER, AND HON BLE SUPREME COURT S JUDGMENT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (306 ITR 277). IN APPEAL, LEARNED CIT (A) ONCE AGAIN REVERSED THE STAND OF THE ASSESSING O FFICER. IT WAS OBSERVED THAT A MERE MAKING OF WRONG CLAIM CANNOT BE VISITED WITH PENALTY UNDER SECTION 271(1)(C). RELIANCE WAS PLACED ON HON BLE S UPREME C OURT S JUDGEMENT IN THE CASE OF CIT VS . RELIANCE PETRO PRODUCTS PVT . LTD . (322 ITR 158). IT WAS ALSO NOTED THAT THERE IS NOTHING MO RE THAN DISALLOWANCE BEING CONFIRMED BY THE TRIBUNAL IN SUPPORT OF TH E IMPUGNED PENALTY. THE PENALTY WAS THUS DELETED. AGGRIEVED BY THE STAND SO TAKEN BY THE LEARNED C IT(A), THE ASSESSING O FFICER IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENT IONS , PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 5. WE FIND THAT WHAT HAS BEEN CLAIMED AS DEDUCTION IS WRITE OFF OF SECURITY DEPOSIT, PLUS INTEREST THEREON , ON ACCOUNT OF DEFAULT BY THE CUSTOMERS TO R ELIANCE INDUSTRIES I.T.A. N O. 277 /AHD/201 2 ASSESSMENT Y EA RS : 200 3 - 04 PAGE 4 OF 4 LIMITED ASSESSEE S PRINCIPAL. ON THE FACE OF THIS TRANSACTION , THE LOSS SO INCURRED DOES SEEM TO BE INCIDENTAL TO BUSINESS , EVEN THOUGH, ON MERITS, THE CLAIM MAY NOT HAVE BEEN ALLOWABLE AS HELD BY THE CO - ORDINATE BENCH. WHILE EXAMINING THE MATTER FROM THE POINT OF VIEW OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) , IT IS NOT REALLY NECESSARY THAT THE CLAIM OR EXPLANATION OF THE ASSESSEE SHOULD BE PROVED TO THE HILT. AS LONG AS THE EXPLANATION IS REASONABLE, IT S HOULD BE ACCEPTED. IN THE PRESENT CASE, THERE MAY BE ERROR IN TREATMENT GIVEN TO THE LOSS BY THE ASSESSEE , BUT THAT ERROR DOES NOT MAKE IT A FIT CASE FOR PENALTY. THE GENUINENESS OF WRITE OFF, AND THE NATURE OF DEVELOPMENTS TRIGGERING THIS WRITE OFF, ARE NOT IN DISPUTE. IN THIS VIEW OF THE MATTER, IRRESPECTIVE OF WHETHER OR NOT THE LOSS INCURRED BY THE ASSESSEE IS T A X DEDUCTIBLE, THE MERE DISALLOWANCE OF THIS CLAIM CANNOT BE VISITED WITH PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THAT IS PRECISELY WHAT HAS HAPPENED. ON THESE F ACTS, THUS, THE LEARNED CIT(A) WAS Q UITE JUSTIFIED IN DELETING THE IMPUGNED PENALTY. WE UPHOLD HIS ACTION AND DECLINE TO INTERFERE I N THE MA T TER. 6. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON 7 TH DAY OF DECEMBER , 2016. SD/ - S D / - MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 7 TH DAY OF DECEMBER , 2016. COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD