PERFECT CIRCLE INDIA LTD, MUMBAI V. ASST CIT 5(2), MUMBAI

ITA 4375/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71620 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 27-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bonafide belief; Wrong claim; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH, MUMBAI , BEFORE SHRI H.L.KARWA , PRESIDENT & SHRI N.K.BILLAIYA , AM ITA NO. 4375 / MUM/ 20 1 2 ( ASSESSMENT YEAR : 20 0 5 - 20 0 6 ) PERFECT CIRCLE INDIA LIMITED, 10, PRASAD CHAMBERS, OPERA HOUSE, CHARNI ROAD, MUMBAI - 400 004. VS. ACIT 5(2), MUMBAI - 20. PAN/GIR NO. : A A A C P 0482 E ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI RAJESH ATHAVALE /REVENUE BY : SHRI SANJEE V JAIN DATE OF HEARING : 2 9 TH DATE OF PRONOUNCEMENT : 31 ST OCTOBER, 2013 O R D E R PER N.K.BILLAIYA , AM : THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST THE ORDER OF THE CIT(A) - 9 , MUMBAI , DATED 27 - 3 - 2012 , PERTAINING TO ASSESSMENT YEAR 20 0 5 - 200 6 . 2 . THE ONLY GRIEVANCE OF THE ASSESSEE IS TH AT THE CIT(A) ERRED IN CONFIRMING THE PENALTY OF RS. 7,03,945/ - UNDER SECTION 271(1)(C) OF THE ACT. IT A NO. 4375 / 1 2 2 3 . A PERUSAL OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT, DATED 31.12.2008, SHOW THAT THE AO HAS INITIATED PENAL PROCEEDINGS IN RESPECT O F TWO DISALLOWANCES (I) BAD DEBTS WRITTEN OFF OF RS. 5,30,184/ - AND (II) ADVANCES WRITTEN OFF OF RS.13,93,559/ - . IN QUANTUM APPEAL, THE CIT(A) CONFIRMED THE ADDITIONS MADE BY THE AO AND THE TRIBUNAL IN ITA NO.638/M/2010 HAS CONFIRMED THE FINDINGS OF THE CIT(A) IN RESPECT OF THESE TWO DISALLOWANCES. IN THE PENALTY PROCEEDINGS, THE ASSESSEE STRONGLY CLAIMED THAT IT HAS NOT FILED ANY INACCURATE PARTICULARS OF INCOME NOR IT HAS CONCEALED ANY PARTICULAR OF INCOME. MERELY BECAUSE THE ASSESSEE COULD NOT SUBSTANT IATE ITS CLAIM IN RESPECT OF BAD DEBTS WRITTEN OFF AND THE ADVANCES WRITTEN OFF IN THE QUANTUM APPEAL THAT BY ITSELF CANNOT BE A BASIS FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE SUBMISSION OF THE ASSESSEE WAS REJECTED BY THE AO, WHO WAS O F THE FIRM BELIEF THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME IN RESPECT OF THE AFORE - STATED CLAIMS AND, THEREFORE, LIABLE FOR PENALTY UNDER SECTION 271(1)(C) OF THE ACT AND ACCORDINGLY LEVIED THE PENALTY AT RS. 7,03,945/ - , BEING 10 0% OF THE TAX SOUGHT TO BE EVADED. 4 . AGGRIEVED BY THE ACTION OF THE AO, THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) CONFIRMED THE LEVY OF PENALTY MADE BY THE AO HOLDING THAT IN QUANTUM APPEAL, THE TRIBUNAL H AS UPHELD THE DISALLOWANCES. NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE US. IT A NO. 4375 / 1 2 3 5 . LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ASSESSEE HAS WRITTEN OFF BAD DEBTS AS A NORMAL BUSINESS PRACTICE BY WHICH THE ASSESSEE IS WRITING OFF DEBTS EVERY YE AR BASED ON THE AGE OF OUTSTANDING AMOUNTS. THE COUNSEL FURTHER SUBMITTED THAT SO FAR AS THE ADVANCES OF RS.13,93,559/ - IS CONCERNED, THE ASSESSEE HAS PAID OCTROI DUTY ON THE PURCHASE OF RAW MATERIAL IN FINANCIAL YEAR 1998 - 99 AND WAS UNDER BONAFIDE BELIEF THAT THIS OCTROI DUTY SHALL BE REFUNDED TO IT BY THE LOCAL MUNICIPAL AUTHORITIES. THEREFORE, INSTEAD OF DEBITING THE OCTROI DUTY TO ITS PROFITS AND LOSS ACCOUNT, IT DEBITED IN ITS BOOKS AS AMOUNT RECEIVABLE AND IT HAS WRITTEN OFF DURING THE YEAR UNDER CONS IDERATION AS THE AMOUNT WAS NEVER REFUNDED TO THE ASSESSEE. IT IS THE SAY OF THE LEARNED COUNSEL THAT ON BOTH THE ACCOUNTS I.E BAD DEBTS WRITTEN OFF AND WRITTEN OFF OF ADVANCES, THE ASSESSEE HAS NOT FILED ANY INACCURATE PARTICULARS NOR HAS CONCEALED ANY PA RTICULAR OF INCOME. THEREFORE, THE PENALTY LEVIED DESERVES TO BE CANCELLED. 6. PER CONTRA , LEARNED DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE ORDERS OF THE AUTHORI TIES BELOW AND ALSO THE APPELLATE ORDER IN QUANTUM PROCEEDINGS. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS CLAIMED BAD DEBTS OF RS. 5,30,184/ - FOR WHICH IT COULD NOT SUBSTANTIATE ITS CLAIM OF WRITE OFF BY SUBMITTING NECESSARY DETAILS. THIS BY ITSELF DOES N OT TANTAMOUNT TO FILING OF INACCURATE PARTICULARS OR MAKING A FALSE IT A NO. 4375 / 1 2 4 CLAIM. THE DEBTORS WERE VERY MUCH IN EXISTENCE IN THE BOOKS OF ACCOUNTS AND THE ASSESSEE , TAKING A COMMERCIAL DECISION, DECIDED TO WRITE OFF THESE DEBTS. THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE APPELLATE AUTHORITIES BUT IT HAS NOT BEEN STATED ANYWHERE THAT THE CLAIM WAS BOGUS OR FALSE. SIMILARLY, IN THE CASE OF WRITE OFF OF OCTROI DUTY, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PAID OCTROI DUTY IN FINANCIAL YEAR 1998 - 99. IT IS ALSO NOT IN DISPUTE THAT THE SAME WAS NEVER CHARGED TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE BEING UNDER BONAFIDE BELIEF THAT THIS OCTROI DUTY WILL BE REFUNDED TO IT SOME DAY, SHOWED IT AS ADVANCES IN ITS BALANCE SHEET. HAVING NOT RECEIVED THE REFUND OF THE SAID OCTROI DUTY, THE ASSESSEE ONCE AGAIN TOOK A COMMERCIAL DECISION TO WRITE OFF THE SAME. ONCE AGAIN IT HAS NOT BEEN STATED ANYWHERE THAT THE CLAIM OF THE ASSESSEE IS BOGUS OR FALSE. ON BOTH THE COUNTS, WE DO NOT FIND ANY JUSTIFIABLE REASON OR CA U SE TO SADDLE THE ASSESSEE WITH PENALTY UNDER SECTION 271(1) (C). THE CLAIM OF THE ASSESSEE MAY NOT BE SUSTAINABLE IN THE APPELLATE PROCEEDINGS BUT NEVERTHELESS, CANNOT BE SAID TO BE FALSE CLAIM. THEREFORE, DRAWING SUPPORT FROM THE RATIO LAID DOWN BY THE H O N BLE S UPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS LIMITED, REPORTED IN 322 ITR 158 , WE ALLOW THE APPEAL OF THE ASSESSEE AND DIRECT THE AO TO CANCEL THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. 8 . RESULTANTLY , THE APPEAL OF THE ASSESSEE IS ALLOW ED. IT A NO. 4375 / 1 2 5 ORDER PRONOUNCED IN THE OPEN COURT ON 31/10 / 2013 . SD/ - ( ) ( H.L.KARWA ) SD/ - ( ) ( N.K.BILLAIYA ) / PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; DATED : 31/10/ 2013 /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI