M/S. MANGALYA TRADING OF INVESTMENTS LTD., MUMBAI V. ITO - 1(2)(1), MUMBAI

ITA 3381/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1291 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-01-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 03-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Business income; Opportunity of being heard; Principle of natural justice; Wrong claim; Bad and doubtful debts; Difference of opinion; Set aside; Liquidation
• Section: 271(1)(c); 143(3); 37(1); 27

Judgement Text

ITA NO. 3381/MUM/2007 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI R S PADVEKAR, JM ITA NO. 3381/MUM/2007 (ASST YEAR 2001-02 ) MANGALYA TRADING & INVESTMENTS LTD , MAFTLAL HOUSE 5 TH FLOOR, BACKBAY RECLAMATION MUMBAI VS THE INCOME TAX OFFICER WARD 1(2)(1), MUMBAI (APPELLANT) (RESPONDENT) PAN AAACM0682M ASSESSEE BY: SHRI VIJAY MEHTA REVENUE BY: SHRI S S RANA (DR) O R D E R PER R S PADVEKAR: IN THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE IM PUGNED ORDER OF THE LD CIT(A)-I, MUMBAI FOR THE ASSESSMENT YEAR 2001-02 DATED 29.3.207 IN WHICH THE PENALTY LEVIED BY THE A.O. U/S 271(1)(C) HAS BEEN PARTLY SUSTAINED. 2 THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GR OUNDS: I) THE CIT(A)-I, MUMBAI ERRED IN CONFIRMING THE LE VY OF PENALTY OF RS. 2,41,92,646/- U/S 271(1)( C) OF THE ACT; A) WITHOUT APPRECIATING THE FACT THAT THE INITIATI ON OF PENALTY PROCEEDINGS BY THE A.O. IS WITHOUT RECORDING HIS SA TISFACTION WITH REFERENCE TO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME, AND B) WITHOUT APPRECIATING THE FACT THAT THE APPELLAN T HAS NEITHER CONCEALED ANY PARTICULARS OF INCOME NOR FURNISHED I NACCURATE PARTICULARS OF SUCH INCOME SO AS TO JUSTIFY LEVY OF PENALTY. ITA NO. 3381/MUM/2007 2 IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABO VE THE APPELLANT FURTHER PRAYS THAT IN THE EVENT OF QUANTUM APPEAL F OR THE SAME ASSESSMENT YEAR WHICH IS PRESENTLY PENDING FOR HEAR ING BEFORE THE HONBLE ITAT BEING DECIDED FULLY/PARTLY IN FAVOUR O F THE APPELLANT RESULTING INTO NEGATIVE ASSESSED INCOME, NO PENALTY SHALL BE LEVIABLE US 271(1)( C)OF THE ACT. 3 THE FACTUAL MATRIX IN RESPECT OF THE ISSUE IN CON TROVERSY BEFORE US IS AS UNDER: 3.1 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IMPO RT AND EXPORT OF DYES, CHEMICALS, TEXTILES ETC. THE ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING THE TOTAL LOSS OF RS.6,76,24,864/- FOR THE ASSESSME NT YEAR 2001-02. THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND THE A SSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. THE A.O. MADE TWO MAJOR DI SALLOWANCES I.E. (I) LOANS AND ADVANCES WRITTEN OFF AT RS. 6,14,64,087/- AND ( II) LONG TERM CAPITAL LOSS(LTCL) AT RS.7,56,83,568/-. 3.2 SO FAR AS THE PENALTY IN RESPECT OF THE LTCL IS CONCERNED, THE LD CIT(A) HAS DELETED THE PENALTY LEVIED BY THE A.O. TO THAT EXTENT AND THE ONLY CONTROVERSY REMAIN BEFORE US IS IN RESPECT OF THE P ENALTY CONFIRMED ON THE DISALLOWANCE OF THE LOANS AND ADVANCES WRITTEN OF F CLAIMING THE SAME AS DEDUCTION AT RS.6,14,64,087/-. 3.3 THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 6,14, 64,087/- TO THE P&L ACCOUNT WHICH WAS IN RESPECT OF THE LOANS AND ADVAN CES WRITTEN OFF, WHICH PERTAINS TO THE FOLLOWING PARTIES: A) MIHIR TEXTILES LTD - RS. 3,76,82,054/- (NOW KNOWN AS MAFATLAL GAGLBHAI TEXTILES LT D) B) MATULAL MILS LTD RS. 57,11,950/- C) MAFATLAL PLYWOOD INDS LTD RS. 11,94,390/- D) MEGA WARE COMPUTERS LTD RS. 1,03,51,577/- E) MEGABYTE CONSULTANCY SERVICES P LTD RS. 21,15,370/- F) MEGATUL INDS LTD RS. 26,82,546/- G) N DEVIDAS & CO. RS. 2,01,200/- H) RAM CHEMICAL INDS. LTD RS. 7,70,000/- I) SHANTA DURGA SALES &SERVICES RS. 5,50,000/- J) MIRAG H TRIVEDI RS. 30,000/- K) NAVIN KUMAR RS. 25,000/- ITA NO. 3381/MUM/2007 3 L) SABNBIKA INVESTMENT P LTD RS. 1,50,000/- TOTAL RS. 6,14,64,087/- 3.4 THE A.O. WAS OF THE OPINION THAT THE AMOUNT WRI TTEN OFF BY THE ASSESSEE, WHICH WAS CLAIMED AS DEDUCTION DO NOT PAR TAKE THE CHARACTER OF THE BAD DEBTS U/S 36(1)(VII) W.R. SEC 36(2) OF T HE ACT. THE A.O. HAS NOTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXP ORTS OF DYESTUFF CHEMICALS, MACHINERY ETC., AND ALSO MAKING INVESTME NTS IN SHARES AND DEBENTURES AND IT IS NOT THE BUSINESS OF THE ASSE SSEE TO ADVANCE LOANS TO OTHERS. HENCE, THE ADVANCES/LOANS GIVEN TO OTHERS, WHICH WERE THE ASSESSEES SISTER CONCERNS OR ASSOCIATES COMPANIES, CANNOT BE TREATED AS DEBTS OUT OF THE BUSINESS ACTIVITY OF THE ASSESSEE. THE A.O. HAS DISCUSSED THE DIFFERENT DECISIONS OF THE HONBLE SUPREME COUR T AS WELL AS HIGH COURTS AND REJECTED THE CLAIM OF THE ASSESSEE THAT THE ADV ANCES WERE GIVEN DURING THE COURSE OF THE BUSINESS AND ARE NOT ELIGIBLE FOR THE DEDUCTION. AND THE A.O. LEVIED PENALTY U/S 271(1)(C). 4 WE ARE NOT GIVING THE FACTS IN RESPECT OF THE DIS ALLOWANCE OF THE LTCL FOR THE REASONS THAT THE PENALTY LEVIED TO THE EXTE NT OF THE SAID AMOUNT HAS BEEN DELETED BY THE LD CIT(A). 5 THE OPERATIVE PART OF THE RELEVANT FINDING OF THE A.O. FOR LEVYING THE PENALTY FOR CLAIMING THE DEDUCTION BY WRITE OFF OF LOANS AND ADVANCES IS AS UNDER: 18. A DEBT IS ALLOWABLE ONLY WHEN IT IS A DEBT AND ARISES OUT OF AND IS INCIDENTAL TO THE TRADE. EXCEPT IN MONEY LENDING TR ADE, DEBTS CAN ONLY BE SO DESCRIBED IF THEY ARE GIVEN TO THE CUSTOMERS FOR GOODS SUPPLIED. IN EVERY CASE THE DEBT IS, WAS THE DEBT DUE AS AN I NCIDENTAL TO THE BUSINESS. IF IT IS NOT OF THAT CHARACTER IT WILL BE A CAPITAL LOSS. THIS VIEW IS SUPPORTED BY THE FOLLOWING CASE LAWS: I) CIT VS ABDULLABHAI ABDUL KADAR 1961 41 ITR 5 45 (SC) II) ROOPNARAIN RAMCHANDRA VS ACIT 1978 112 ITR 8 90 (ALL) III) CIT VS ARSJASMAL MEHRA 1971 79 ITR 213(P&H) IV) CIT VS S R SUBRAMANIAM PILLAI 1950 18 ITR 85 (MAD) ITA NO. 3381/MUM/2007 4 19 IN VIEW OF THE ABOVE FINDINGS, THE CLAIM OF THE ASSESSEE THAT THE ADVANCES ARE GIVEN DURING THE COURSE OF BUSINES S AND ARE ELIGIBLE FOR WRITE OFF CANNOT BE ENTERTAINED AT ALL. THE CLA IM OF TH ASSESSEE THAT INTEREST HAS BEEN CHARGED ON SUCH ADVANCED ALSO DOE S NOT STAND TO GAIN BECAUSE WHEN THE ASSESSEE WAS BORROWING INTERE ST BEARING FUNDS IT COULD NOT HAVE ADVANCED MONEY TO ITS ASSOC IATE/SISTER CONCERNS WITHOUT CHARGING INTEREST AS HAS BEEN HELD BY VARIOUS COURTS. HOWEVER, THE FURTHER SUBMISSION THAT THE LO ANS WRITTEN OFF CONSIST OF RS. 40,81,719/- BEING THE INTEREST ACCRU ED AND THE SAME HAVE BEEN OFFERED TO TAX IN THE RESPECTIVE YEARS OF ACCRUAL NEEDS TO BE CONSISTED. FURTHER VERIFICATION OF THE ABOVE REVEAL ED THAT IN THE CASE OF RAM CHEMICAL INDUSTRIES LTD AND SHANTA DURGA SALES AND SERVICES THE ASSESSEE HAS INCLUDED THE PRINCIPAL AMOUNT ALSO UNDER THE HEAD INTEREST AND CLAIMED AS ALLOWABLE. THE SAME ARE RE DUCED FROM THE INTEREST AMOUNT WHICH IS TO BE ALLOWED AS BAD DEBTS . ACCORDINGLY, THE ASSESSEE WAS ALLOWED TO WRITE OFF ONLY RS. 35,52,61 9/- AND THE BALANCE ADVANCES CLAIMED AT RS. 6,11,69,774/- AS BA D DEBTS WAS DISALLOWED AND ADDED TO THE INCOME. 20 FROM THE ABOVE FACTS OF THE CASE IT IS CLEAR THA T THE ASSESSEE HAS TRIED TO CLAIM A BAD DEBT WHICH WAS PATENTLY NO T ALLOWABLE. IN FACT, FROM THE CIRCUMSTANCES IT WOULD BE APPARENT T HAT THE ASSESSEE WAS ALREADY AWARE OF THE FACT THAT THE BAD DEBTS CL AIMED WILL NOT BE ALLOWED BY THE DEPARTMENT AS IT IS NOT TRADE DEBTS THAT IS WHY IT HAD RESORTED TO BOGUS SALE OF SHARES TO OFF BEAT THE TA X LIABILITY IT WAS TO INCUR THE SALE OF SHARES OF SUNBELT CORPORATION. I AM SATISFIED IN THE GIVEN FACTS OF THE CASE THAT IT IS A CLASSIC EXAMPL E OF WRONG CLAIM OF BAD DEBTS AND IT WAS DONE WITH PURPOSE AND MALA FID E INTENTION TO HOODWINK THE DEPARTMENT. 21 I HOLD THEREFORE THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME AND CONSEQUENT CONCEALMENT OF INCOME TO THE EXTENT OF RS. 6,11,69,774/- AND PENALTY IS LEVIABLE ON THIS AMOUNT U/S 271(1)( C). THE QUANTUM WILL BE DETERMINED IN THE C ONCLUDING PARAGRAPHS OF THIS ORDER. 6 THE ASSESSEE HAS CHALLENGED THE PENALTY LEVIED BY THE A.O BEFORE THE LD CIT(A). THE ASSESSEE TOOK DIFFERENT PLEAS TO MAK E OUT A CASE THAT THERE IS NO JUSTIFICATION IN THE ACTION OF THE A.O. TO LEVY PENALTY. THE SUBMISSIONS ITA NO. 3381/MUM/2007 5 MADE BY THE ASSESSEE ON THE ISSUE OF CLAIM OF WRITT EN OFF OF LOANS AND ADVANCES BEFORE THE LD CIT(A) ARE AS UNDER: THE APPELLANT AT THE OUTSET SUBMITS THAT THERE IS NEITHER ANY CONCEALMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. THE APPELLANT FURTHER S UBMITS THAT THE DISALLOWANCES MADE BY THE A.O. IN THE ASSE SSMENT ORDER U/S 143(3) OF THE I T ACT ARE SOLELY ON ACCOU NT OF DIFFERENT VIEWS TAKEN ON THE SAME SET OF FACTS WHIC H AT BEST CAN ONLY BE TERMED AS DIFFERENCE OF OPINION AND CER TAINLY NOT CONCEALMENT OF INCOME OR FURNISHING OF AN INACCURAT E PARTICULARS OF SUCH INCOME. MERE DISALLOWANCE OF A CLAIM IN THE ASSESSMENT PROCEEDINGS CANNOT BE A SOLE BASIS F OR LEVYING PENALTY U/S 271(1)(C) WHICH ARE QUASI-CRIMI NAL PROCEEDING IN ITS NATURE. THE APPELLANT FURTHER SUB MITS THAT THERE IS NO MATERIAL EVIDENCE ON RECORD RELATING TO THE DISALLOWANCES MADE BY THE A.O., WHICH SUGGEST ANY CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS . IT IS THEREFORE SUBMITTED THAT MERE DISALLOWANCE IN ASSES SMENT PROCEEDINGS IS NOT A SUFFICIENT GROUND TO JUSTIFY L EVY OF PENALTY U/S 271(1)(C) OF THE I T ACT. WITH REGARDS TO THE DISALLOWANCES OF RS. 6,11,69,74 4/- BEING THE CLAIM FOR LOANS AND ADVANCES WRITTEN OFF, THE A PPELLANT SUBMITS THAT IT HAD GIVEN LOANS AND ADVANCES TO ITS VARIOUS SUBSIDIARIES/ASSOCIATES IN THE EARLIER YEARS IN THE NORMAL COURSE OF ITS BUSINESS AND ALSO TO STRENGTHEN THE FINANCIAL POSITION OF SUCH SUBSIDIARIES/ASSOCIATES. THE AGGRE GATE AMOUNT OF LOANS AND ADVANCES ALONG WITH THE INTERES T THEREON AMOUNTED TO RS. 6,52,16,871/- (6,14,64,087 + 35,52,619). THE LOANS AND ADVANCES GIVEN BY THE APP ELLANT COMPANY WERE FOR THE PURPOSE OF STRENGTHENING THE F INANCIAL POSITION OF THE APPELLANT, WHICH IN TURN WOULD HAVE IMPROVED THE INTEREST/COST OF INVESTMENTS OF THE APPELLANT I N SUCH SUBSIDIARIES/ASSOCIATES. THE INTEREST EARNED ON SUC H LOANS AND ADVANCES WERE OFFERED TO TAX AS BUSINESS INCOME AND WERE ALSO ASSESSED AS BUSINESS INCOME. THE SAID LOA NS AND ADVANCES WERE WRITTEN OFF BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION AND WERE CLAIMED AS A BUSINESS LOSS U/S 29 OF THE ACT AS THE SAID LOANS AND ADVANCES W ERE ITA NO. 3381/MUM/2007 6 IRRECOVERABLE FROM THE BORROWERS. THE APPELLANT AL TERNATIVELY ALSO PLEADED THAT SINCE THE SAID LOANS WERE GIVEN I N THE NORMAL COURSE OF CARRYING ON ITS MONEY LENDING BUS INESS THE CLAIM OF APPELLANT SHALL BE ALLOWED U/S 36(1)(VII) OF THE ACT. THE A.O. DID NOT CONSIDER THE CLAIM OF THE APPELLAN T U/S 29 OF THE ACT. THE A.O. HOWEVER, DISALLOWED THE CLAIM OF THE APPELLANT ON THE GROUND THAT THE CLAIM OF THE APPEL LANT AS BAD DEBTS IS NOT ALLOWABLE U/S 36(1)(VII) OF THE AC T. THE A.O. HAS ALL ALONG IN HIS ASSESSMENT ORDER DISCUSSED THA T THE CLAIM OF THE APPELLANT CANNOT BE ALLOWED AS BAD DE BTS U/S 36(1)(VII) OF THE ACT. THE A.O. THEREFORE MADE A DI SALLOWANCE OF RS. 6,14,64,087/- BEING THE PRINCIPAL AMOUNT OF THE LOANS AND ADVANCES WRITTEN OFF AND ALLOWED THE INTEREST O F RS. 35,52,619/- AS BAD DEBTS. THE CIT(A) HELD THAT THE APPELLANT HAS GIVEN THE S AID LOANS AND ADVANCES FOR STRENGTHENING THE FINANCIAL POSITION OF THE APPELLANT HOWEVER SINCE THE APPELLANT IS NOT IN THE BUSINESS OF MONEY LENDING THE SAID LOANS AND ADVA NCES CANNOT BE ALLOWED AS DEDUCTIBLE WHILE COMPUTING TA XABLE INCOME OF THE APPELLANT. THE CIT(A) HOWEVER GAVE A SMALL RELIEF AND CONFIRMED THE DISALLOWANCES OF RS. 6,11, 69,774/-. THE APPELLANT HAS FILED AN APPEAL BEFORE THE HONBL E TRIBUNAL AGAINST THE SAID DISALLOWANCE CONFIRMED BY THE CIT( A), WHICH IS PENDING FOR HEARING. THE APPELLANT SUBMITS THAT IT HAS DEBITED AN AMOUN T OF RS.6,52,16,871/- IN ITS PROFIT AND LOS ACCOUNT BEIN G THE LOANS AND ADVANCES WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION. THE SAID AMOUNT WAS REFLECTED IN THE P&L ACCOUNT UNDER THE HEAD LOANS AND ADVANCES WRITTEN OFF. THE APPELLANT HAS CLAIMED THE SAID AMOUNT AS BUSINESS L OSS WHILE COMPUTING ITS TOTAL TAXABLE INCOME AS THE SAI D LOANS AND ADVANCES WERE GIVEN IN THE NORMAL COURSE OF CAR RYING ON THE BUSINESS OF THE APPELLANT. THE APPELLANT HAS NO T CLAIMED THE SAID AMOUNT AS BAD DEBTS SINCE THE AMOUNT OF BA D DEBTS WAS DISCLOSED SEPARATELY IN THE P&L ACCOUNT BY THE APPELLANT. DURING THE COURSE OF ASSESSMENT PROCEED INGS THE APPELLANT SUBMITTED ALL THE DETAILS OF THE LOANS AN D ADVANCES WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION. TH E APPELLANT ALSO FILED THE COPY OF THE RESOLUTION PAS SED BY THE BOARD OF DIRECTORS FOR WRITING OFF THE SAID LOANS A ND ITA NO. 3381/MUM/2007 7 ADVANCES. THE APPELLANT ALSO SUBMITTED A DETAILED N OTE GIVING REASONS FOR WRITING OFF THE LOANS AND ADVANC ES GIVEN TO EACH BORROWER. IT WAS EXPLAINED IN THE NOTE THAT MOST OF THE BORROWER COMPANIES WERE UNDER LIQUIDATION AND/OR WE E SICK COMPANIES. SINCE THE BORROWER COMPANIES WERE NOT AT ALL IN A POSITION TO REPAY THE SAID LOANS AND ADVANCES, THE MANAGEMENT TOOK THE DECISION OF WRITING OFF THE LOA NS AND ADVANCES BY PASSING A BOARD RESOLUTION. THE APPELL ANT FURTHER SUBMITS THAT THESE LOANS AND ADVANCES WERE GIVEN IN EARLIER YEARS IN THE NORMAL COURSE OF CARRYING ON T HE BUSINESS OF THE APPELLANT AS THESE LOANS AND ADVANCES WERE G IVEN TO PROMOTE THE FINANCIAL POSITION OF SUBSIDIARIES/ASSO CIATE COMPANIES, WHICH IN TURN WOULD RESULT IN APPRECIATI ON OF INVESTMENT MADE BY THE APPELLANT IN THESE COMPANIES . THE APPELLANT WAS INTO THE MONEY LENDING BUSINESS AND W AS HOLDING A VALID MONEY-LENDING LICENSE IN THE EARLIE R YEARS WHEN SUCH LOANS AND ADVANCES WERE GIVEN TO THE SUBSIDIARIES/ASSOCIATE CONCERNS. THE APPELLANT THER EFORE SUBMITS THAT SINCE THE SAID LOANS AND ADVANCES WERE GIVEN N THE NORMAL COURSE OF CARRYING ON THE MONEY LENDING BUSINESS OF THE APPELLANT THE SAME SHOULD BE ALLOWED AS DEDU CTIBLE IN THE YEAR IN WHICH IT IS ASCERTAINED THAT SUCH LOANS AND ADVANCES ARE IRRECOVERABLE AND ARE WRITTEN OFF I.E. IN THE YEAR UNDER CONSIDERATION. THE APPELLANT SUBMITS THAT THE A.O. HAS LEVIED PENALTY SOLELY ON THE BASIS OF THE DISALLOWA NCES MADE IN IS ASSESSMENT ORDER AND CONFIRMED BY THE CIT(A). THE A.O. HAS NOT BROUGHT ON RECORD ANY MATERIAL FACT TO PROV E THAT THERE WAS CONCEALMENT OF INCOME OR FURNISHING OF IN ACCURATE PARTICULARS OF SUCH INCOME BY THE APPELLANT. THE APPELLANT SUBMITS THAT IT WAS SPECIFICALLY DISC LOSED IN ITS P&L ACCOUNT UNDER A SEPARATE HEAD ABOUT THE AMOUNT OF LOANS AND ADVANCES WRITTEN OFF. THE APPELLANT FURTH ER SUBMITS THAT IT HAS FURNISHED ALL THE DETAILS CONNE CTING THE SAID LOANS AND ADVANCES BEFORE THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE APPELLANT THEREFORE SUB MITS THAT IT HAS MADE A CLAIM AND THE SAME DID NOT FIND FAVOUR WITH THE DEPARTMENT. THIS CANNOT ATTRACT PENAL PROV ISIONS, AS THIS DOES NOT CONSTITUTE CONCEALMENT OF INCOME OR F URNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. ITA NO. 3381/MUM/2007 8 7. THE ASSESSEE ALSO TOOK THE PLEA THAT THE A.O. HA S TO REACH SATISFACTION FOR INITIATING PENALTY PROCEEDINGS IN THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF. THE SECTION CLEARLY PROVIDES THAT THE A.O. MUST REACH SATISFACTION FOR LEVYING OF THE PENALTY IN THE COURSE OF ANY PROCEED INGS UNDER THE INCOME TAX ACT AND THE A.O., NOWHERE, HAS RECORDED HIS SATISFA CTION IN THE BODY OF THE ASSESSMENT ORDER IN RESPECT OF ALLEGE CONCEALMENT O F INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE A.O. HAS MERE LY STATED IN ONE LINE AT THE END OF THE ASSESSMENT ORDER DIRECTING TO ISSUE NOTICE U/S 271(1)( C) AND MERE REFERENCE TO ISSUE NOTICE U/S 271(1)( C), ALON E CANNOT BE EQUATED WITH THE REACHING OF SATISFACTION AS CONTEMPLATED U/S 27 1(1)( C) OF THE ACT. THE ASSESSEE HAS ALSO RELIED ON THE FOLLOWING DECISIONS : I) K.C. BUILDERS V. ACIT(265 ITR 562 (SC) II) CIT V. SUSAI KALYANAMANDAPAM PVT. LTD.(271 ITR 138)(MAD) III) SHIV LAL TAK V. CIT(251 ITR 373)(RAJ) IV) CIT V. B.R. SHARMA(275 ITR 303)(DEL) V) CIT V. DAJIBHAI KANJIBHAI(189 ITR 41)(BOM) VI) CIT V. MUNISH IRON STORE(263 ITR 484)(P&H) VII) KUMAR AGENCIES 9INDIA) VS ACIT (87 ITD 69) (TM) SUBHASH GUPTA VS DCIT (85 ITD 167(JP) (TM) 8. SO FAR AS THE OBJECTIONS OF THE ASSESSEE THAT TH E A.O. HAS NOT RECORDED HIS SATISFACTION IN THE ASSESSMENT ORDER, THE SAME WAS NEGATED BY THE LD CIT(A). THE LD CIT(A) DELETED THE PENALTY RELATIN G TO THE DISALLOWANCE OF LTCL OF RS. 7,19,92,800/- BUT SUSTAINED THE PENALTY RELATING TO THE DISALLOWANCE IN RESPECT OF BAD DEBTS/LOANS AND ADVA NCES WRITTEN OFF OF RS.6,11,69,774/- 9 AS WE ARE CONCERNED WITH THE PENALTY SUSTAINED BY THE LD CIT(A) IN RESPECT OF THE DISALLOWANCE OF THE BAD DEBTS/LOANS AND ADVANCES WRITTEN OFF, WE CONSIDER IT NECESSARY TO REPRODUCE THE FINDINGS OF THE LD CIT(A) WHICH ARE IN PARA 11 OF HIS ORDER AS UNDER: ITA NO. 3381/MUM/2007 9 I HAVE CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE ORDER OF MY LD PREDECESSOR N A NO.CIT(A)/I/IT/11/04 -05 DTD 23.9.2004. THE DISALLOWANCE OF RS. 6,14,64,087/- HAS BEEN MADE BY THE A.O. ON FACTS AND ALSO IN ACCORDANCE WITH THE PROVISIONS OF I T ACT, 1961. THIS MATTER HAS BEEN ELABORATELY DISCUSSED BY MY PREDECE SSOR IN HIS ORDER A NO.CIT(A)-I/IT/11/04-05 DTD 23.9.2004 AND CONFIRM ED THE ACTION OF THE A.O. AFTER CONSIDERING THE DETAILED FACTS FOR E ACH LOAN SEPARATELY AS GIVEN BY THE APPELLANT TO THE SUBSIDIARIES IN QUANT UM APPEAL. I AGREE WITH THE FINDINGS OF MY PREDECESSOR AND HENCE THERE IS NO NEED FOR RECONSIDERATION OF THE FACTS ON DISALLOWANCE OF RS. 6,14,64,087/-. ACCORDINGLY THE GROUND OF APPEAL ON DISALLOWANCE OF RS. 6,14,64,087/- IS REJECTED. 10. AGGRIEVED BY THE ORDER OF THE LD CIT(A), THE AS SESSEE IS IN APPEAL HERE BEFORE US TO THE EXTENT OF THE PENALTY SUSTAINED. 11. THE LD COUNSEL OF THE ASSESSEE VEHEMENTLY ARGUE D THAT THERE IS NO DISPUTE IN THIS CASE THAT ALL THE LOANS AND ADVANCE S WERE GIVEN TO THE SISTER CONCERN OR ASSOCIATED COMPANIES AND IT WAS OUT OF C OMMERCIAL EXPEDIENCY. THE LD COUNSEL REFERRED TO THE DECISION OF THE SUPR EME COURT IN THE CASE OF S A BUILDERS LTD VS CIT (288 ITR 1(SC). MORE PARTI CULARLY IN PARA 33 (PAGE 9) AND SUBMITTED THAT CONCEPT OF THE COMMERCIAL EXP EDIENCY HAS BEEN ELUCIDATED AND EXPLAINED BY THE SUPREME COURT IN AB OVE DECISION AND THE SAME PRINCIPLES CAN BE APPLIED TO THE LOANS AND ADV ANCES GIVEN BY THE ASSESSEE TO ITS SISTER CONCERNS/ASSOCIATED COMPANIE S. HE FURTHER ARGUED THAT EACH AND EVERY PARTICULAR IN RESPECT OF THE SI STER CONCERN AS WELL AS THE LOANS AND ADVANCES WERE GIVEN IN THE RETURN FILED B Y THE ASSESSEE AND HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS FURN ISHED INACCURATE PARTICULARS. HE FURTHER ARGUED THAT MERELY BECAUSE THE LEGAL CLAIM OF THE ASSESSEE IS DISALLOWED THAT CANNOT BE THE BASIS FOR LEVY OF PENALTY AS NOWHERE THE A.O. COULD MAKE OUT THAT THE ASSESSEE H AS CONCEALED ANY INCOME. HE FURTHER ARGUED THAT THE LOANS AND ADVAN CES WRITTEN OFF BY THE ITA NO. 3381/MUM/2007 10 ASSESSEE WERE NOT CLAIMED AS BAD DEBTS BUT CLAIMED AS EXPENSES U/S 37(1) OF THE ACT. 11.1 THE LD COUNSEL FOR THE ASSESSEE REFERRED TO TH E DECISION OF THE ITAT, PUNE BENCH IN THE CASE OF KANBAY SOFTWARE INDIA() L TD VS DCIT (122 TTJ 721 (PUNE) TO ELUCIDATE HIS ARGUMENTS FOR EXPLAINI NG THE MEANING OF THE EXPRESSION FURNISHING OF INACCURATE PARTICULARS OF INCOME. HE ALSO RELIED ON THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE O F M/S V I P INDUSTRIES LTD DECIDED IN ITA NO.4524 AND 4383/MUM/2006 VIDE O RDER DATED 20TH MARCH 2009. HE ALSO HEAVILY RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS LTD (322 ITR 158) 11.2 THE LD COUNSEL VEHEMENTLY ASSAILED THE ORDER OF THE LD CIT(A) AND SUBMITS THAT THOUGH THE LD CIT(A) AGREED ON PRINCIP LES THAT THE ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE P ROCEEDINGS BUT HE HAS NOT AT ALL APPLIED HIS MIND TO SEE WHETHER THE MAND ATE OF SECTION 271(1)(C) ARE FULFILLED FOR LEVY OF THE PENALTY. HE ALSO VEH EMENTLY ARGUED THAT EVEN AFTER THE INSERTION OF SUB-SEC. (1B) TO SEC. 271 TH E REQUIREMENT OF IMPLICITLY SATISFACTION IS NOT DONE AWAY WITH AND IT SHOULD NO T BE THE MERE MENTIONING IN THE ASSESSMENT ORDER THAT PENALTY PROCEEDINGS AR E INITIATED. 11.3 THE LD COUNSEL ALSO REFERRED TO THE ASSESSMENT ORDER TO DEMONSTRATE THAT THE A.O. HAS STATED IN THE ASSESSMENT ORDER TH AT PENALTY PROCEEDINGS U/S 271(1)(C) ARE SEPARATELY INITIATED. HE, THEREF ORE, PLEADED THAT THERE IS NO JUSTIFICATION TO SUSTAIN THE DISALLOWANCE TO THE EX TENT OF RS. 6,11,69,774/- WHICH WAS THE LEGITIMATE CLAIM OF THE ASSESSEE BUT WAS NOT ACCEPTED. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT SO FAR AS T HE CLAIM OF LOANS AND ADVANCES WRITTEN OFF IS CONCERNED, THE DISALLOWANCE HAS BEEN FINALLY ITA NO. 3381/MUM/2007 11 CONFIRMED BY THE TRIBUNAL. WE HAVE ALSO HEARD THE L D DR, WHO SUPPORTED THE ORDER OF THE LD CIT(A). 12 WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PER USED THE RELEVANT MATERIAL BEFORE US. THE ASSESSEE IS AN EXPORT HOUSE , WHICH IS ENGAGED IN EXPORTING OF DYESTUFF CHEMICALS, MACHINERY ETC. TH E ASSESSEE IS ALSO IN THE BUSINESS OF INVESTMENT IN SHARES AND SECURITIES. TH E DISALLOWANCE OF RS. 6,11,69,774/- MADE BY THE A.O., WHICH WAS IN RE SPECT OF THE DEDUCTION CLAIMED BY THE ASSESSEE BY WRITING OFF THE LOANS AN D ADVANCES, WHICH HAS REACHED FINALITY AS SAME HAS BEEN CONFIRMED BY THE TRIBUNAL ALSO. 13 FOR ATTRACTING PENAL CONSEQUENCES U/SEC 271(1)(C ), THE AUTHORITY HAS TO EXAMINE THE DIFFERENT MANDATES OF THE SAID SECT ION AS WELL AS EXPLANATIONS BELOW SEC. 271(1)(C) AND ALL RELEVANT FACTS ARE ALSO TO BE CONSIDERED INDEPENDENTLY. IN OUR OPINION, THE LD C IT(A), WITHOUT APPLICATION OF MIND AND WITHOUT GIVING THE REASONS WHY HE IS CO NCURRING WITH THE PENALTY ORDER, CONFIRMED THE PENALTY LEVIED BY THE A.O.. THOUGH ON PRINCIPLES, THE LD CIT(A) ACCEPTED THAT THE ASSESSM ENT PROCEEDINGS ARE SEPARATE AND DISTINCT PROCEEDINGS FROM THE PENALTY PROCEEDINGS; BUT WITHOUT STATING HOW THE FACTS OF THE ASSESSEES CASE JUSTIF Y THE LEVY OF PENALTY AND MERELY RELYING ON THE ORDER OF THE LD CIT(A) IN THE QUANTUM PROCEEDINGS, HE CONFIRMED THE PENALTY. IT IS WELL SETTLED PRINCIPL E THAT EVERY JUDICIAL OR QUASI-JUDICIAL AUTHORITIES MUST GIVE THE REASONS TO SUPPORT THE FINDINGS AND CONCLUSION AND IT IS ONE OF THE LIMB OF THE PRINCIP LES OF NATURAL JUSTICE. 14 AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THIS MA TTER IS TO BE SET ASIDE TO THE FILE OF THE LD CIT(A) FOR FRESH ADJUDICATION AS LD. CIT(A) HAS NOT AT ALL RECORDED HIS REASONS FOR CONFIRMING PENALTY. WE SE T ASIDE THE MATTER TO THE CIT(A) WITH THE DIRECTION THAT HE SHOULD ADJUDICATE THE ISSUE OF PENALTY ITA NO. 3381/MUM/2007 12 AFRESH, ON THE ADDITION BY DISALLOWANCE OF CLAIM OF LOANS AND ADVANCES WRITTEN OFF, BY PASSING A SPEAKING ORDER. WE MAKE I T CLEAR THAT WE HAVE NOT EXPRESSED ANYTHING ON MERIT. IT IS FURTHER DIRECTED TO GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSED. ORDER PRONOUNCED ON THE 25 TH , DAY OF JUNE 2010. SD/- SD/- (PRAMOD KUMAR ) ACCOUNTANT MEMBER (R S PADVEKAR ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 25 TH , JUNE 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI