M/s. Birla Electricals Ltd., Delhi V. ITO, New Delhi

ITA 4483/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77628 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 26-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G H SEMA
• Keywords: Reopening of assessment; Rejection of books of accounts; Wrong claim; Bad and doubtful debts; Difference of opinion; Corroborative evidences; Onus to prove; Change of opinion; Reassessment proceedings
• Section: 143(3); 133(6); 147; 131; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI : JUDICIAL MEMBER AND SHRI SHAMIM YAHYA : ACCOUNTANT MEMBER ITA NOS. 4483 & 5680/DEL/2013 ASSTT. YR: 2006-07 M/S BIRLA ELECTRICALS LTD., VS. INCOME-TAX OFFIC ER, 43A/1, MEZZANINE FLOOR, WARD 3(1), NEW DELHI. GURUDWARA ROAD, DILSHAD GRDEN, DELHI-110095. PAN: AAACB 5347 A ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI NIRAJ D. SHETH ADV. RESPONDENT BY : SHRI G/H. SEMA DR DATE OF HEARING: 03-03-2014 DATE OF ORDER: 11 TH APRIL, 2014. O R D E R PER R.P. TOLANI, J.M: : THESE ARE TWO APPEALS, FILED BY THE ASSESSEE ONE AGAINST THE QUANTUM AND THE OTHER AGAINST THE PENALTY U/S 271(1)(C) OF THE I.T. ACT, 1961. BOTH THE APPEALS ARE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE QUANTUM APPEAL RAISES FOLLOWING GROUNDS APPE AL: 1. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW THE COMMISSIONER OF INCOME-TAX (APPEALS) (CIT(A)) ERRED IN HOLDING THAT THE PROCEEDINGS UNDER SECTION 147 WAS VALIDLY ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 2 INITIATED. THE CIT(A) OUGHT TO HAVE HELD THAT THE P ROCEEDINGS UNDER SECTION 147 WAS NOT VALIDLY INITIATED BY THE ASSESSING OFFICER AND, HENCE, THE REASSESSMENT PROCEEDING IS INVALID AND BAD IN LAW. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN HOLDING THAT THE APPELLAN T IS NOT ENTITLED TO LOSS OF RS. 3,24,58,453/- ON THE REVALU ATION OF THE CLOSING STOCK AT THE END OF THE YEAR. 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN HOLDING THAT THE APPELLANT IS NOT ENTITLED TO DEDUCTION OF RS. 32,13,004/- AS DISCOUNT ON SALES O N THE GROUND THAT THE SAID DISCOUNT HAS BEEN GIVEN ON PREVIOUS Y EARS SALES. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN DISALLOWING RS. 12,26,420/- FRO M SALARY PAID BY THE APPELLANT AND RS. 40,159/- FROM RENT PA ID BY THE APPELLANT AS PER SECTION 40(1)(IA) OF THE ACT. 5. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) OUGHT TO HAVE ALLOWED THE DEDUCTION OF R S. 1,57,64,349/- AS BAD DEBTS UNDER SECTION 36(1)(VII) OR AS BUSINESS LOSS UNDER SECTION 28 OF THE ACT. 2. BRIEF FATS ARE: THE ORIGINAL ASSESSMENT WAS COMP LETED U/S 143(1) ON 17-8-2007, PROCESSING THE RETURN FILED ON 29-11-200 6 DECLARING TOTAL INCOME AT NIL AND CARRIED FORWARD OF LOSS AND UNABSORBED D EPRECIATION AMOUNTING TO RS. 6,73,54,090/-. THEREAFTER 148 NOTICE WAS ISSUED BY RECORDING THE REASONS THAT INCOME HAD ESCAPED ASSESSMENT AND ASKING THE A SSESSEE TO FILE A RETURN OF INCOME. THE ASSESSEE REPLIED TO CONSIDER THE ORI GINAL RETURN FILED BY IT AS THE ONE FILED IN RESPONSE TO NOTICE U/S 148. 2.1. DURING REASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED FOLLOWING FIGURES OF SALES, PURCHASE AND GROSS PROF IT FILED BY THE ASSESSEE FOR A.Y. 2006-07: ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 3 SALES RS. 16065800 PURCHASES RS. 20853514 (INCREASE/ DECREASE IN STOCK RS. 31698995 COST OF PURCHASES RS. 52552509 PROFIT/ LOSS (-) RS. 36486709 % (-) (227) AVERAGE G.P. RATE 36% IN EARLIER YEARS 2.2. THUS, THESE TRADING FIGURES RESULTED IN NEGAT IVE G.P. OF 217%. THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNT, STOCK REGISTER, BILLS AND VOUCHERS. ACCORDING TO ASSESSIN G OFFICER, THE ASSESSEE FURNISHED PARTIAL DETAILS AND NOT THE COMPLETE RELE VANT INFORMATION. CONSEQUENTLY, ASSESSEE WAS GIVEN FINAL OPPORTUNITY VIDE LETTER DATED 14-12- 2011 PROPOSING THAT OTHERWISE THE ASSESSMENT WILL BE FRAMED RECOURSING TO SEC. 144/145(3). THE LETTER IS REPRODUCED BY THE AS SESSING OFFICER IN HIS ORDER. ASSESSEE COULD PRODUCE PART DETAILS IN RESPE CT OF PARTY-WISE DETAILS AND PURCHASES WITH ADDRESSES OF PARTIES. COPIES OF STATEMENT OF ACCOUNT OF M/S BIRLA POWER SOLUTION LTD. AND M/S BIRLA INTERNA TIONAL PVT. LTD. FROM THE INFORMATION AO GATHERED THAT: (I) COMPARATIVE G.P. DETAILS WITH EARLIER YEARS AND THE REASONS FOR DECLARING NEGATIVE G.P. BY 227% IN THIS YEAR; (II) THE SUNDRY CREDITORS WERE SHOWN AT RS. 5.58 CRORES AS ON 31-3- 2005 AND AT RS. 11.20 CRORES AS ON 31-3-2006. THUS, THERE WAS A SUBSTANTIAL INCREASE ANDNO PAYMENT WAS MADE FOR TOT AL PURCHASES IN THIS YEAR AMOUNTING TO RS. 2.08 CRORES AND THERE WAS NO PAYMENT OF INDIRECT EXPENSES OF RS. 2.46 CRORES. THESE EXPE NSES SUMMED UP TO RS. 4.5 CRORES ONLY IN THAT SITUATION THE ADDITI ON OF RS. 5.61 CRORES FOR SUNDRY CREDITORS WAS SOUGHT TO BE EXPLAI NED. ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 4 (III) THE TOTAL PURCHASES AS PER P&L A/C WERE RS. 2,08,53 ,514/-. HOWEVER AS PER ANNEXURE BA, THE PAYMENTS MADE TO PE RSONS SPECIFIED U/S 40A(2)(B) TO THE AUDIT REPORT, THE FO LLOWING PURCHASES WERE REFLECTED: (A) BIRLA INTERNATIONAL PVT. LTD. RS. 2,85,36,222/ - (B) BIRLA POWER SOLUTION LTD. RS. 7,85,73,872/- 2.3. THE DETAILS FILED QUA THE PURCHASES FROM BIRLA POWER SOLUTION LTD. AND BIRLA INTERNATIONAL PVT. LTD. WERE AS UNDER: BIRLA POWER SOLUTION LTD. RS. 34,41,784/- BIRLA INTERNATIONAL PVT. LTD. RS. 30,93,130/- 2.4. THE ASSESSEE WAS ASKED TO EXPLAIN THE REFLECTI ON OF BALANCE PURCHASES AMOUNTING TO RS. 10,05,75,180/- IN THE BOOKS OF A/C AND IN CASE OF FAILURE TO EXPLAIN, TO SHOW CAUSE WHY SUCH PURCHASES SHOULD NO T BE TREATED AS UNACCOUNTED PURCHASES. 2.5. ASSESSEE REPLIED THAT DUE TO FLOODS IN THE ARE A WHICH WERE IN PUBLIC KNOWLEDGE, THE GOODS WERE DAMAGED AND STOCK OF THE ASSESSEE WAS DAMAGED IN THE FLOODS AND THAT WAS THE REASON FOR N EGATIVE G.P. BESIDES, IN THE SHIFTING OF THE RECORD FROM SION MUMBAI TO GORE GAON (MUMBAI), PART OF THE BOOKS OF A/C AND RECORD WAS MISPLACED, THEREFOR E, IT COULD NOT BE PRODUCED. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND FURTHER OBSERVED THAT AVERAGE G.P. RATE DISCLOSED BY THE AS SESSEE FOR A.Y. 2004-05, 2005-06 & 2007-08 CAME TO 36%, WHICH WAS APPLIED TO THE SALES TURN OVER OF (-) RS. 1,60,65,800/-. BY THIS WORKING THE ASSES SEES DECLARED NEGATIVE G.P. OF RS. 3,64,86,709/- STOOD CONVERTED INTO A (+ ) G.P. OF RS. 57,74,048/- WHICH RESULTED INTO AN ADDITION OF RS. 4,22,60,757/ -. A.O. FURTHER OBSERVED THAT ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 1,57,64, 349/- AS PROVISION FOR ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 5 BAD AND DOUBTFUL DEBTS IN THE YEAR. AS IT WAS ONLY A PROVISION AND NOT ACTUALLY INCURRED, THE CLAIM U/S 36(1)(VII) WAS DE NIED. 2.6. AO HELD THAT THE INDIRECT EXPENSES COULD NOT B E VERIFIED DUE TO NON PRODUCTION OF BOOKS OF A/CS AND SUPPORTING BILLS AN D VOUCHERS, AN ESTIMATED ADDITION OF RS. 10 LACS WAS OUT OF INDIRECT EXPENSE S. THUS THE ASSESSEES INCOME WAS COMPUTED AS UNDER: LOSS AS DECLARED BY THE ASSESSEE (-) RS. 6,73,54 ,090 LESS: ADDITION TO TRADING RESULTS RS. 4,22,60,7 57 DISALLOWANCE OF PROVISIONS OF BAD & DOUBTFUL DEBTS. RS. 1,57,64,349 INDIRECT EXPENSES DISALLOWED RS. 10,00,000 RS. 83,28,984 2.7. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHE RE APART FROM MERITS, THE VALIDITY OF REASSESSMENT PROCEEDINGS WAS CHALLE NGED ON THE GROUND THAT ASSESSMENT WAS REOPENED BASED ONLY ON THE FIGURES O F RETURN FILED BY THE ASSESSEE. THERE IS NO NEW INFORMATION OR MATERIAL I N THE POSSESSION OF ASSESSING OFFICER TO ARRIVE AT A BELIEF THAT INCOME HAD ESCAPEMENT. THE ADDITIONS ON MERITS WERE CONTESTED AS UNDER: I. GROSS PROFIT ADDITION : 2.8. THE NEGATIVE GP WAS CAUSED AS APPELLANT ADJUS TED THE STOCK VALUE FOR OBSOLETE, NON MOVING, SHORTAGES/ DAMAGED, UNSERVICEABLE INVENTORIES, RESULTING INTO THE GROSS LOSS OF RS.3,64,86,700/-. OUT OF THIS. THE LOSS OF RS.3,24, 58,453/- WAS ON ACCOUNT OF THE VALUATION OF THE STOCK AT REALIZABLE VALUE, WHICH WAS DAMAGED DUE TO THE FLOODS, WHICH OCCURRED IN SION AREA OF MUMBAI IN JULY 2005. DUE TO DAMAGE CAUSED FLOOD THE VALUE OF DAMAGED STOCK ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 6 BECOMES NIL AND EVEN THEY HAD NO RESALE VALUE. ASSE SSEE FILED WORKING OF THE REVALUATION OF STOCK & SUPPORTING EVIDENCE OF GOODS DAMAGED IN FLOODS. THE OTHER REASONS WHICH DECREASED THE GP WA S HUGE DISCOUNT ON THE PREVIOUS YEAR SALES AND CURRENT YEAR SALES GIVE N TO DEALERS. THESE WERE GIVEN AS GOODS SOLD TURNED OUT TO BE OF DETERI ORATED QUALITY. IN THESE COMPELLING CIRCUMSTANCES, ASSESSEE HAD TO GIV E THESE DISCOUNTS TO THE DEALER TO ENABLE THEM TO SELL THESE DEFECTIVE G OODS IN THE MARKET. THE SUPPORTING PROOF OF THE DISCOUNT GIVEN TO THE DEALERS WAS ALSO FILED. 2.9. ASSESSEE FURNISHED A RECONCILIATION OF GROSS L OSS INCURRED BY IT ALONG WITH REASONS BY FOLLOWING TABLE: RECONCILIATION OF GROSS LOSS FOR THE F.Y. 2005-06 PARTICULARS AMOUNT (RS) GROSS LOSS AS PER PROFIT & LOSS ACCOUNT 3,64,86,70 0 LESS: LOSS AGAINST STOCK RE-VALUATION 3,24,51,089 BALANCE OF GROSS LOSS 40,35,611 LESS: DISCOUNT/ SCHEME GIVEN AGAINST CURRENT YEAR SALES 22,57,700 DISCOUNT/ SCHEME GIVEN AGAINST PREVIOUS YEARS 32, 13,004 ADD: PROFIT DURING THE YEAR 14,35,093 AS PER ANNEXURE (INCLUDING SALES OF OLD STOCK) DIFFERENCE BALANCE OF GROSS LOSS/ PROFIT - 2.10. BOOKS OF ACCOUNTS OF THE APPELLANT ARE DULY A UDITED BY A CHARTERED ACCOUNTANT UNDER SECTION 44AB OF THE ACT AS WELL AS THE COMPANIES ACT: THE AUDITOR HAS THOROUGHLY VERIF IED THE DETAILS IN RESPECT OF THE INVENTORIES AND HAS NOT R EPORTED ANY ADVERSITY OR WRONG CLAIM THE DETAILS OF OPENING STO CK, CONSUMPTION AND CLOSING STOCK ARE REFLECTED IN SUCH AUDITED ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 7 FINANCIAL STATEMENTS, THE INVENTORIES HAVE BEEN VAL UED AT LOWER OF COST OR NET REALIZABLE VALUE AND ALSO CERTIFIED THA T THE COMPARISON OF COST AND NET REALIZABLE VALUE IS MADE ITEM BY IT EM BASIS. THERE HAS BEEN NO CHANGE IN THE METHOD OF VALUATION OF ST OCK AND THE OBSOLETE STOCK HAS BEEN VALUED ON THE BASIS OF NET REALIZABLE VALUE OF TILE INVENTORIES. A.O. ERRED IN HOLDING THAT NO DETAILS OF STOCK WERE PRODUCED BEFORE HIM AS ALL THE RELEVANT DETAILS AND DOCUMENTS WERE IN HIS POSSESSION. A.O. FURTHER ERRE D IN NOT TAKING COGNIZANCE OF THE AUDIT REPORT AND IN A CRYP TIC MANNER DISALLOWED THE CLAIM OF THE APPELLANT WITHOUT GIVIN G SUFFICIENT REASONS. LD. AO HAS NOT PAINTED OUT ANY SPECIFIC DISCREPANCY IN THE BOOKS OF ACCOUNT OR THE METHOD OF ACCOUNTING OF THE APPELLANT. NO COGENT REASON HAS BEEN OFFERED AS TO WHY HE HAS REJECTED THE' VALUATION OF INVENTORIES AT NET REALI ZABLE VALUE. NO EFFORT HAS BEEN MADE TO VERIFY THE NET REALIZABLE V ALUES OF THE INVENTORIES FROM THE MARKET SOURCES. RELIANCE IS PLACED ON THE RATIO OF DECISIONS IN THE CASES OF : - CIT VS. ALFA LAVAL (INDIA) LTD. 295 ITR 451 (SC); - CIT VS. WOLKEM INDIA LTD. 315 ITR 211 (RAJ.); - PEPPERI FUCHS (INDIA) LTD. VS. DCIT 6 SOT 10 (DEL); - JCIT VS. ITC LTD. 112 ITD 57 (KOL.)(SB); II. INDIRECT EXPENSES OF RS. 10,00,000/- . 2.11. WHILE COMPUTING THE TOTAL INCOME ASSESSEE ITS ELF SURRENDERED AN AMOUNT OF RS. 91,56,583/- FOR DISALLOWANCE AND CLA IMED THE BALANCE EXPENDITURE OF RS. 3,11,64,122/-.THUS, THE TOTAL IN DIRECT EXPENDITURE WORKED OUT IS AS UNDER: ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 8 TOTAL CLAIM RS. 4,03,20,705/- LESS: BAD DEBTS (-) RS. 1,57,64,349/- RS. 2,55,56,356/- 2.12. OUT OF RS. 2,55,56,356/-, ASSESSEE SUO MOTU OFFERED FOR DISALLOWANCE RS. 91.56 LACS. ASSESSING OFFICER WITHOUT GIVING AN Y JUSTIFIABLE REASON FURTHER DISALLOWED AN AD HOC AMOUNT OF RS. 10 LACS. IT WAS PLEADED THAT ASSESSEE HAVING ALREADY SUO MOTU DISALLOWED A SUBST ANTIAL AMOUNT AT LEAST COGENT REASON OUGHT TO HAVE BEEN GIVEN BY THE ASSES SING OFFICER FOR ANY FURTHER ALLEGED INCONSISTENCY IN THE CLAIM OF INDIR ECT EXPENSES WITH EARLIER YEARS OR TURN OVER BASE AND GIVEN A REASONABLE BASI S. WITHOUT SUCH OBSERVATION THE AD HOC ADDITION BECOMES PATENTLY BA SED ON PURE GUESS WORK AND CONJECTURES. RELIANCE WAS PLACED ON ITAT JODHPU R BENCH ORDER IN THE CASE OF LAKE PALACE HOTEL & MOTELS (P) LTD. VS. DCI T 81 TTJ 657, HOLDING THAT ANY AD HOC DISALLOWANCE WITHOUT A COGENT FINDI NG CANNOT BE SUSTAINED. III. BAD DEBTS : 2.13. THE GROUND WAS WITHDRAWN BY THE ASSESSEE BEFO RE LD. CIT(A). THEREFORE, IT WAS DISMISSED AS WITHDRAWN. 2.14. LD. CIT(A) REJECTED THE ASSESSEES GROUND ABO UT REOPENING OF ASSESSMENT BY FOLLOWING OBSERVATIONS: 5.2 IN THE FIRST GROUND OF APPEAL, THE APPELLANT HA S CONTESTED THE REOPENING OF THE CASE U/S 147 OF THE I.T.ACT. IT IS OBSERVED THAT THE APPELLANT HAD FILED ITS ORIGINAL RETURN OF INCO ME FOR THE RELEVANT A.Y. 2006-07 ON 29.11.2006 DECLARING ITS T OTAL INCOME AT RS.NIL. THIS RETURN OF INCOME WAS PROCESSED ON 1 7.08.2007 U/S 143(1) OF THE I.T. ACT. NO SCRUTINY TOOK PLACE IN RESPECT OF ORIGINAL RETURN OF INCOME FILED BY THE APPELLANT. S UBSEQUENTLY, THE AO NOTED THAT THE APPELLANT HAD DEBITED ITS P&L ALC BY AN AMOUNT OF RS.1,57,64,349/- ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS. HOWEVER, WHILE COMPUTING THE INCOME THE ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 9 APPELLANT HAD NOT ADDED BACK THIS AMOUNT IN ITS COM PUTATION OF INCOME. AS PER THE I.T. ACT ANY PROVISIONAL EXPENDI TURE IS NOT AN ALLOWABLE EXPENSES. HENCE IN MY OPINION THE CASE OF THE APPELLANT CLEARLY FALLS U/S 147 UNDER CLAUSE B OF E XPLANATION 2 SECTION 147 OF THE I.T. ACT. THE AO HAS DULY RECORD ED THE REASON FOR REOPENING OF THE CASE AND THE SAME WAS A LSO FOUND TO BE COMMUNICATED TO THE APPELLANT. THEREFORE, THE OBJECTION OF THE APPELLANT REGARDING THE REOPENING OF THE CAS E IS HEREBY REJECTED AND IT IS HELD THAT THE AO HAS RIGHTLY REO PENED THE CASE U/S 147 OF THE I.T. ACT. THE CASE OF GK AND DRIVE S HIFT (I) LTD. VS. CIT (259ITR, 19 SC) IS NOT APPLICABLE IN THE CA SE OF APPELLANT AS EVIDENT FROM THE RECORD THAT THE REAS ONS FOR REOPENING OF THE CASE WAS DULY COMMUNICATED TO THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 2.15. APROPOS REJECTION OF BOOKS AND ADOPTION OF G. P., LD. CIT(A) OBSERVED THAT THOUGH BOOKS OF A/C OF THE ASSESSEE WERE AUDIT ED, VOUCHERS AND DETAILS WERE NOT FULLY PRODUCED BEFORE ASSESSING OFFICER ON THE GROUND THAT THEY WERE MISPLACED DUE TO SHIFTING OF THE OFFICE FROM S ION TO GOREGAON MUMBAI. THE ASSESSING OFFICER HAS NOT RAISED ANY ALLEGATION ABOUT GENUINENESS OF ACCOUNT BOOKS OR BOGUS SALES OR PURCHASES OR INFLAT ION OF EXPENDITURE. NO MATERIAL IS BROUGHT ON RECORD TO SUGGEST INCORRECTN ESS OR INCOMPLETENESS OF BOOKS OF ACCOUNT. FROM THE AUDITORS REPORT IT WAS CLEAR THAT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT AS EARLIER A ND ASSESSING OFFICER HAD NOT POINTED OUT ANY PARTICULAR DEFECT OR DISCREPANC Y. CIT(A) WAS OF THE VIEW THAT ASSESSEES CASE DESERVED PART RELIEF AND MERE NON-PRODUCTION OF SOME VOUCHERS OF EXPENSES AND IN THE ABSENCE OF ANY FIND ING OF BOOKS OF A/C BEING DEFECTIVE OR FALSE, THE BOOKS OF ACCOUNT CANNOT BE REJECTED U/S 145(3). CONSEQUENTLY, CIT(A) FIRSTLY UPHELD THE BOOKS OF A/ C AND DELETED THE ADDITION OF RS. 57,74,048/- ON ACCOUNT OF ESTIMATI ONOF GROSS PROFIT OF 36%. IT MAY BE PERTINENT HERE TO MENTION THAT REVENUE IS NOT IN APPEAL AND HAS ACCEPTED THIS FINDING OF LD CIT(A). ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 10 2.16. QUA THE CLAIM OF GROSS LOSS OF RS. 3,64,86,7 00/- CIT(A) OBSERVED THAT IT INCLUDED FOLLOWING HEADS: LOSS ON ACCOUNT OF REVALUATION OF STOCK RS. 3,24, 51,089/- DISCOUNT GIVEN AGAINST CURRENT YEAR SALE RS. 22,5 7,700/- DISCOUNT GIVEN AGAINST PREVIOUS YEAR SALE RS. 32, 13,004/- 2.17. L OSS OF RS. 3,24,51,089/- WAS INCURRED ON ACCOUNT OF REVALUATION OF OBSOLETE/NON MOVING/DAMAGED STOCK. ASSESSEE HAD VALUED ITS OBSOLETE STOCK AT ITS REALISABLE VALUE, BEING LOWER OF THE A CTUAL COST AND THE RESULTED LOSS HAS BEEN TAKEN INTO CONSIDERATION BY THE APPEL LANT TO COMPUTE THE PROFITS CHARGEABLE TO TAX DURING THE YEAR UNDER CONSIDERATI ON. 2.18. CIT(A) OBSERVED THAT ASSESSEES AUDITORS IN F ORM NO. 3CA OF AUDIT REPORT U/S 44AB HAD REPORTED LIKE THIS: '2. (B)(II) NOTE NO.12 REGARDING VALUE OF INVENTORY CONSIDERED AS PER BALANCE/VALUED BY THE MANAGEMENT, AS STATED IN THE SAID NOTE. AS PER PROGRAMME, PHYSICAL VERIFICATION OF IN VENTORIES HAS NOT BEEN CARRIED OUT DURING THE YEAR. PROVISION FOR ABSOLETE/NON MOVING/SHORTAGES/DAMAGED AND UNSERVICE ABLE INVENTORIES AND FIXED ASSETS HAVE NOT BEEN MADE. AS EXPLAINED PROVISION/ADJUSTMENT FOR THE SALE WILL BE ACCOUNTED FOR AS AND WHEN DETERMINED(IMPACT UNCERTAINABLE). '' (II) FURTHER, IN PARA 12 OF SIGNIFICANT ACCOUNTING POLICIES APPENDED TO THE BALANCE SHEET IN SCHEDULED 18, THE AUDITORS HAVE STATED AS FOLLOWS: '12. A. INVENTORIES HAVE BEEN CONSIDERED AS PER BOO K BALANCE/QUANTITY/VALUE ESTIMATED BY THE MANAGEMENT. AS PER THE PROGRAMME, ONLY CERTAIN QUANTITIES OF INVENTORI ES HAVE BEEN PHYSICALLY VERIFIED DURING THE YEAR PROVISION/ ADJUSTMENT FOR OBSOLETE, NON MOVING SHOR TAGE/ DAMAGED, UNSERVICEABLE INVENTORIES WILL BE ACCOUNTE D FOR AS ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 11 AND WHEN DETERMINED (IMPACT UNCERTAINABLE). 2.19. CIT(A) QUA THESE REMARKS BY AUDITORS OBSERVED THAT: I. A SIMPLE READING OF THIS REPORT MADE IT CLEAR THT N O PHYSICAL VERIFICATION WAS ACTUALLY DONE BY THE MANAGEMENT AN D MERELY A CERTIFICATE TO THIS EFFECT WAS ISSUED. CONSEQUENTLY ITEM-WISE LOSS WAS NOT VERIFIABLE OR DETERMINABLE MERELY ON THE BA SIS OF DETAILS FILED BY THE ASSESSEE. II. NO PROVISION HAS BEEN MADE FOR OBSOLETE, NON MOVING SHORTAGES/ DAMAGED, UNSERVICEABLE INVENTORIES AND THESE PROVIS IONS HAVE BEEN MADE WITHOUT PHYSICAL VERIFICATION TO DETERMINE THE VALUE OF THE CLOSING STOCK. III. THOUGH THE ACTUAL IMPACT IS UNASCERTAINABLE FROM TH E INFORMATION FILED BY THE ASSESSEE, HOWEVER, THE QUANTIFICATION HAS BEEN ACCOUNTED FOR AND CLAIMED. 2.20. CIT(A) WAS OF THE VIEW THAT ASSESSEES CONTEN TIONS DESERVED TO BE REJECTED AND THUS THE ASSESSING OFFICERS ACTION OF DISALLOWING THE CLAIM OF THE LOSS OF RS. 3,24,58,453/- CLAIMED TO BE CAUSED BY OBSOLETE, NON MOVING SHORTAGES/ DAMAGED, UNSERVICEABLE INVENTORIES WAS U PHELD BY FOLLOWING OBSERVATIONS: 5.4.1. ON THESE FACS AND CIRCUMSTANCES, I AM OF THE VIEW THT T HE LOSS ON ACCOUNT OF NET REAISABLE VALUE OF THE CLOSI NG STOCK SHOWN T RS. 3,24,58,453/- AS CLAIMED BY THE APPELLA NT COMPANY IS NOT SUSTAINABLE AND THEREFORE THE AO ON THIS ACC OUNT IS HEREBY SUSTAINED. 5.4.2. IT IS FURTHER OBSERVED THAT THE APPELLANT HA S GIVEN DISCOUNT OF RS. 32,13,004/- AGAINST THE PREVIOUS YE AR SALE. SINCE THIS EXPENSE DOES NOT PERTAIN TO THE RELEVANT ASSES SMENT YEAR, THE SAME IS LIABLE TO BE DISALLOWED. HENCE THE AO I S DIRECTED TO ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 12 DISALLOW THIS EXPENSES WHILE GIVING APPEAL EFFECT T O THIS ORDER. THUS, THE ADDITION O OF RS. 4,22,60,757/- ON ACCOUN T OF REJECTION OF BOOKS OF ACCOUNTS MADE BY THE AO IS HEREBY CONF IRMED TO THE EXTENT OF RS. 3,56,71,457/- ( RS. 32,13,004/- + RS. 3,24,58,453/-) AND THE APPELLANT GETS A RELIEF OF R S. 65,89,300/- ( RS. 4,2,60,757/- - RS. 3,56,671,457/-). 3. AGGRIEVED, ASSESSEE IS BEFORE US QUA THESE GROUN DS : (I) REOPENING OF ASSESSMENT U/S 147; (II) LOSS OF RS. 3,24,58,453/- ON REVALUATION OF CLOSING STOCK; (III) DISALLOWANCE OF RS. 32,13,004/- AS PREVIOUS YEARS S ALE DISCOUNT. (IV) DISALLOWANCE OF RS. 12,26,420/- OF SALARY AND RS. 4 0,159/- OF RENT; (V) DISALLOWANCE OF DEDUCTION OF RS. 1,57,64,349/-. AS BAD DEBTS. 4. LD. COUNSEL APROPOS REOPENING OF ASSESSMENT CONT ENDS THAT THE NOTICE U/S 148 FOR REOPENING OF ASSESSMENT WAS ISSUED ON T HE BASIS OF FOLLOWING REASONS: DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2007-08 IT HAS COME TO MY NOTICE THAT THE ASSESSEE CLAIMED AN EXPENSES OF RS. 1,57,64,349 /- AS PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS RETURN FOR THE A.Y. 2006-07. SINCE THIS IS ONLY A PROVISION AND NOT ACT UAL EXPENDITURE, THE SAME IS NOT ALLOWABLE AS PER SEC. 36(1)(VII) OF INCOME TAX ACT, 1961. THEREFORE, I HAVE REASON TO B ELIEVE THAT INCOME CHARGEABLE TO TAX AMOUNTING RS. 1,57,64,349/ - HAS ESCAPED ASSESSMENT. 4.1. THESE REASONS MAKE IT CLEAR THAT NO NEW INFORM ATION CAME IN THE POSSESSION OF THE ASSESSING OFFICER AND ONLY ON THE BASIS OF RETURN FILED BY THE ASSESSEE AND DURING THE COURSE OF ASSESSMENT FO R A.Y. 2007-08 THE ASSESSING OFFICER CHANGED HIS OPINION THAT BAD DEBT PROVISION WAS NOT ALLOWABLE TO ASSESSEE. THUS THE REASON IS NEITHER B ASED ON NEW KNOWLEDGE OR INFORMATION BUT ON THE BASIS OF ASSESSEES OWN FIGU RES PROVIDED IN THE RETURN, ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 13 THEREFORE, CHANGE IN AO'S OPINION THAT THE BAD DEB TS WERE NOT ALLOWABLE. THEREFORE, THE REASSESSMENT IN QUESTION IS BAD IN L AW IN VIEW OF HONBLE SUPREME COURT JUDGMENT IN THE CASE OF KELVINATOR IN DIA AND GKN DRIVESHIFT (I) LTD. VS. CIT 259 ITR 19. IT HAS BEEN HELD BY HONBLE SUPREME COURT THAT EVEN ASSESSMENT U/S 143(1) CANNO T BE REOPENED DUE TO CHANGE OF OPINION. THEREFORE, THE REASSESSMENT BEI NG ONLY ON CHANGE OF AO'S OPINION IS BAD IN LAW, THE SAME SHOULD BE QUA SHED. IT IS FURTHER PLEADED THAT THE ASSESSING OFFICER IN THE REASONS R ECORDED ONLY BELIEVED ABOUT ESCAPEMENT OF INCOME QUA THE BAD DEBTS CLAIM. THUS THERE WAS NO JUSTIFICATION TO GO INTO OTHER ISSUES, MORE SO WHE N THE ASSESSING OFFICER HAD NOT RECORDED ANY DOUBT ABOUT THE ALLOWABILITY OF TH ESE CLAIMS. 4.2. THE APPELLANT WAS ENGAGED IN THE BUSINESS OF T RADING IN ELECTRICAL GOODS, MOST OF THE ITEMS BECAME UNUSABLE DUE TO DAMAGE BY FLOOD, AND THERE VALUE BECOMES NIL AS THE Y HAD NO RESALE VALUE. THE WORKING OF THE REVALUATION OF STO CK & SUPPORTING PROOF OF GOODS DAMAGED IN FLOODS, BESIDE THE DECREASE IN THE GP WAS DUE TO HUGE DISCOUNT GIVEN BY THE ASSESSEE ON PREVIOUS YEAR SALES AND CURRENT YEAR SALES. THIS DISCOUNTS WAS GI VEN AS THE GOODS SOLD WERE COMPLAINED TO BE OF INFERIOR QUALI TY AND COULD NOT BE SOLD IN THE MARKET. ALL THESE REASONS HAVE L ED TO THE FALL IN THE GP RATIO FOR WHICH PROPER RECONCILIATION HAS BE EN OFFERED. 4.3. IT IS SUBMITTED THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE DULY AUDITED UNDER SECTION 44AB OF THE ACT AS W ELL AS THE COMPANIES ACT. THE AUDITORS HAVE VERIFIED THE DETAI LS IN RESPECT OF THE INVENTORIES AND HAS NOT REPORTED ANY ADVERSI TY OR WRONG CLAIM. THE DETAILS OF OPENING STOCK, CONSUMPTION AN D CLOSING ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 14 STOCK ARE REFLECTED IN SUCH AUDITED FINANCIAL STATE MENTS. THE AUDITOR HAS CERTIFIED THAT THE INVENTORIES HAVE BEE N VALUED AT LOWER OF COST OR NET REALIZABLE VALUE WHICH IS LESS AND ALSO CERTIFIED THAT THE COMPARISON OF COST AND NET REALI ZABLE VALUE IS MADE ITEM BY ITEM BASIS. THERE IS NO CHANGE IN THE METHOD OF VALUATION OF STOCK AND THE OBSOLETE STOCK HAS BEEN VALUED ON NET REALIZABLE VALUE. THE A.O. ERRED IN HOLDING THAT NO DETAILS OF STOCK WERE PRODUCED AS RECORD DEMONSTRATES THAT ALL THE RELEVANT DETAILS AND DOCUMENTS WERE FILED. 4.4. THE APPELLANT IS CONSISTENTLY FOLLOWING WELL-RECOGNIZED MERCANTILE SYSTEM OF ACCOUNTING AND METHOD FOR VALU ATION OF INVENTORIES I.E. COST OR MARKET VALUE WHICHEVER IS LOWER. THE BOOK RESULTS ARE IN CONSONANCE WITH THE PRINCIPLES OF PRUDENCE AND THE METHOD OF ACCOUNTING REGULARLY FOLLOWED. TH E A.O. HAS NOT POINTED OUT ANY SPECIFIC DISCREPANCY IN THE BOO KS OF ACCOUNT OR THE METHOD OF ACCOUNTING, HAS NOT STATED ANY COG ENT REASON AS TO WHY HE HAS REJECTED THE VALUATION OF INVENTORIES AT NET REALIZABLE VALUE. NO ENQUIRY ABOUT THE NET REALIZAB LE VALUES OF THE INVENTORIES FROM THE MARKET SOURCES HAS BEEN MADE. THEREFORE THE ACTION OF THE A.O. IS UNJUSTIFIED AND ARBITRARY . 4.5. THE FACT THAT THERE WERE FLOODS IN SION MUMBAI IN JULY 2005 HAVE NOT BEEN DISPUTED BY ANY OF THE LOWER AUTHORITIES. DUE TO THESE FLOODS THE ASSESSEES SOME STOCK WAS FULLY DAMAGES AND SOME PARTIALLY DAMAGED. IN THESE CIRCUMSTANCES AS PER MERCANTILE METHOD OF ACC OUNTING AND PRUDENT BUSINESS POLICY ASSESSEE HAD TO REVALUE THE STOCK A ND BRING THE INVENTORY TO A REALISTIC VALUE AS PER SETTLED MERCANTILE SYSTEM PR INCIPLES I.E. VALUATION OF ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 15 CLOSING STOCK ON THE BASIS OF COST OR MARKET VALUE WHICH EVER IS LOW. LD. CIT(A) HAS UPHELD THE BOOKS OF A/C OF THE ASSESSEE HOLDING THEM TO BE DULY MAINTAINED ON THE BASIS OF MERCANTILE SYSTEM WHICH ARE DULY AUDITED AND CONTAIN NO DEFECTS. THE ORDER OF LD. CIT(A) UPHOLDI NG THE BOOKS HAS NOT BEEN CHALLENGED BY THE REVENUE IN AS MUCH AS NO APP EAL HAS BEEN FILED. THUS, VERACITY AND COMPLETENESS OF ASSESSEES BOOKS OF ACCOUNT STANDS ACCEPTED BY THE REVENUE. THE ADDITION HAS BEEN MADE ONLY ON AN INFERENCE THAT ASSESSEE DID NOT SUFFICIENTLY PROVE THE INVEN TORIES TO THE SATISFACTION OF ASSESSING OFFICER ABOUT THE DAMAGE OF GOODS TO THE EXTENT CLAIMED BY THE ASSESSEE. HAVING NOT DISPUTED THE FACTUM ABOUT FLOO D AND DAMAGE TO THE STOCK OF THE ASSESSEE, AT THE MOST AO MAY HAVE DIS ALLOWED SOME AMOUNT. DISALLOWING THE ENTIRE VALUATION OF THE STOCK CAUSE D BY THE DAMAGE AND OTHER FACTORS IS HIGHLY ARBITRARY AND UNJUSTIFIED. NOT A WHISPER HAS BEEN ATTRIBUTED BY AO THAT THERE WAS NO FLOODS IN SION, MUMBAI AND ASSESSEES CLAIM IS BOGUS. THE ENTIRE BASIS OF THE ADDITION IS ALLEGED INTERPRETATION OF THE AUDITORS NOTE APPENDED WITH THE AUDIT REPORT U/S 4 4AB. ACCORDING TO ASSESSEE, THERE IS NO INDICATION IN THE NOTE THAT A SSESSEES INVENTORY IN ANY WAY IS INCORRECT OR UNRELIABLE. A DOUBT HAS BEEN RA ISED THAT THE INVENTORIES HAVE NOT BEEN ACTUALLY VERIFIED BUT MERELY CERTIFIE D. ASSUMING THIS ALLEGATION IS CORRECT EVEN IN THAT CASE AT THE MOST A PART OF VALUATION OF STOCK MIGHT HAVE BEEN DISALLOWED BUT DENYING THE ENTIRE R EVALUATION CREATES A SERIOUS ABERRATION IN THE FORM OF ARBITRARINESS. RELIANCE IS PLACED ON HONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF P RASHANT S. SOSHI VS. ITO & OTHERS ( WRIT PETITION NO. 2287 OF 2009 AND O THERS) DATED 22-2-2010 OBSERVING AS UNDER: 18. FOR ALL THESE REASONS, IT IS EVIDENT THAT THER E WAS ABSOLUTELY NO BASIS FOR THE FIRST RESPONDENT TO FOR M A BELIEF THAT ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 16 ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF THE SUBSTANTIVE PROVISIONS OF SECTIO N 147. EXPLANATION (2) TO SECTION 147 CREATES A DEEMING FI CTION OF CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED AS SESSMENT. CLAUSE (B) DEALS WITH A SITUATION HWERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMEN T HAS BEEN MADE AND IT IS NOTICED BY THE ASSESSING OFFICER THA T THE AE HAS UNDERSTATED THE INCOME OR HAS CLAIMED EXCESSIVE LOS S, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN. FOR THE PURPOSE OF CLAUSE (B) TO EXPLANATION (2), THE ASSESSING OFF ICER MUST NOTICE THAT THE ASSESSEE HAS UNDERSTATED HIS INCOME OR HAS CLAIMED EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR REL IEF IN THE RETURN. THE TAKING OF SUCH NOTICE MUST BE CONSISTEN T WITH THE PROVISIONS OF THE APPLICABLE LAW. THE ACT OF TAKING NOTICE CANNOT BE AT THE ARBITRARY WHIM OR CAPRICE OF THE A SSESSING OFFICER AND MUST BE BASED ON REASONABLE FOUNDATION. THE SUFFICIENCY OF THE EVIDENCE OR MATERIAL IS NOT OPEN TO SCRUTINY BY THE COURT BUT THE EXISTENCE OF THE BELIEF IS THE SI NE QUA NON FOR A VALID EXERCISE OF POWER. IN THE PRESENT CASE, HAVIN G REGARD TO THE LAW LAID DOWN BY THE SUPREME COURT IT WAS IMPOS SIBLE FOR ANY PRUDENT PERSON TO FORM A REASONABLE BELIEF THAT THE INCOME HAD ESCAPED ASSESSMENT. THE REASONS WHICH HAVE BEEN RECORDED COULD NEVER HAVE LED A PRUDENT PERSON TO F ORM AN OPINION THAT INCOME HAD ESCAPED ASSESSMENT WITHIN T HE MEANING OF SECTION 147. IN THESE CIRCUMSTANCES, THE PETITION SHALL HAVE TO BE ALLOWED BY SETTING ASIDE THE NOTIC E UNDER SECTION 148. 4.6. APROPOS THE SECOND ISSUE, IT IS VEHEMENTLY PLE ADED THAT IN THE ZEAL OF REJECTING THE BOOK RESULTS AO DID NOT CARE TO LOOK INTO THE FACTS ABOUT DISCOUNT ON SALES OF CURRENT YEAR AND PREVIOUS YEAR S SALES. LD. CIT(A) UPHELD THE BOOK RESULTS OF THE ASSESSEE AND ALSO AL LOWED THE DISCOUNT ON CURRENT SALES. HOWEVER, WITHOUT ANY RHYME OR REASON LD. CIT(A) UPHELD THE DISALLOWANCE OF THE DISCOUNT ON SALES OF EARLIER Y EARS HOLDING THAT EXPENSES DID NOT PERTAIN TO RELEVANT ASSESSMENT YEAR. IT IS PLEADED THAT THE SALES OF THE EARLIER YEARS HAVE NOT BEEN DENIED, GENUINENESS OF PAYMENT OF DISCOUNT IN ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 17 THIS YEAR ALSO IS NOT DENIED. DISCOUNT HAS BEEN DIS ALLOWED MERELY ON THE FINDING THAT IT PERTAINS TO EARLIER YEARS WITHOUT A PPRECIATING THE CRUCIAL ASPECT THAT THE LIABILITY TO PAY DISCOUNT HAS CRYSTALLIZED DURING THIS YEAR. THE LIABILITY TO PAY THE DISCOUNT HAVING CRYSTALLIZED D URING THIS YEAR, IN THAT CASE IT IS AN ALLOWABLE EXPENDITURE IN THIS YEAR AS PER THE SETTLED PROPOSITION OF LAW. THEREFORE THE DISCOUNT OF RS. 32,13,004/- OUGH T TO HAVE BEEN ALLOWED TO THE ASSESSEE. 4.7. APROPOS GROUND NO. 3 I.E. DISALLOWANCE OF SALA RY OF RS. 12,26,420/- AND RENT OF RS. 40,159/-, THE SAME HAS BEEN DISALLO WED U/S 40(A)(IA) AS TDS WAS NOT DEDUCTED BEFORE FILING OF THE RETURN FOR TH IS YEAR. LD. COUNSEL CONTENDS THAT IN THE SUCCEEDING YEAR TDS HAS BEEN P AID THEN ALTERNATIELY A DIRECTION MAY BE GIVEN TO ALLOW THE TDS IN ACCORDAN CE WITH LAW IN THE YEAR OF PAYMENT OF TDS. 4.8. APROPOS THE DISALLOWANCE OF BAD DEBTS AMOUNTIN G TO RS. 1,57,64,349/- LD. COUNSEL FAIRLY CONCEDES THAT THIS GROUND WAS DI SMISSED AS IT WAS NOT PRESSED BEFORE CIT(A). HOWEVER, THE HONBLE SUPREME COURT IN THE RECENT CASE OF VIJAY BANK 323 ITR 166 HAS HELD TO THE EFFE CT THAT WHERE ASSESSEE BANK HAD WRITTEN OFF IMPUGNED BAD DEBT IN ITS BOKS BY WAYOF A DEBIT TO PROFIT AND LOSS ACCOUNT, SIMULTANEOUSLY REDUCING CORRESPON DING AMOUNT FROM LOANS AND ADVANCES TO DEBTORS DEPICTED ON ASSETS SIDE IN BALANCE SHEET AT CLOSE OF YEAR, ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECT ION 36(1)(VII) AND FOR THT PURPOSE, IT WAS NOT NECESSARY FOR IT TO CLOSE INDIV IDUAL ACCOUNT OF EACH OF ITS DEBTORS IN ITS BOOKS. IN THE ASSESSEES CASE IT IS THE MISCONCEPTION ON THE PART OF LOWER AUTHORITES THAT A PROVISION HAS BEEN MADE AND THE BAD DEBTS HAVE NOT BEEN WRITTEN OFF. THE FACT OF THE MATTER IS THA T ASSESSEE HAS CREATED A BAD DEBT PROVISION ACCOUNT IN WHICH BAD DEBTS HAVE BEEN CLEARLY WRITTEN OFF THOUGH NOT IN INDIVIDUAL DEBTORS ACCOUNT. THUS BAD DEBTS ARE ACTUALLY ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 18 WRITTEN OFF IN THE MANNER MENTIONED BY HONBLE SUPR EME IN VIJAY BANK (SUPRA) FOR WRITING OFF OF BAD DEBTS. LD. COUNSEL, HOWEVER, CONCEDED THAT VIJAY BANK JUDGMENT WAS RENDERED ON 15-4-2010 I.E. PRIOR TO THE MAKING THE CONCESSION BEFORE CIT(A) AS IT WAS NOT IN THE KNOWL EDGE OF THE ASSESSEE AT THAT TIME. IT IS VEHEMENTLY PLEADED THAT WHEN AN IS SUE IS CLEARLY COVERED BY HONBLE SUPREME COURT JUDGMENT WHICH IS THE LAW OF THE LAND, A MERE CONCESSION BY THE ASSESSEE IN IGNORANCE OF SUCH PRO POSITION OF LAW OF LAND CANNOT BE HELD TO BE BINDING IN AS MUCH THE DOCTRIN E OF FIAT JUSTICIA I.E. THE SUPREMACY OF THE JUSTICE HAS TO PREVAIL. 5. LD. DR ON THE OTHER HAND CONTENDS THAT (I) THERE IS NO ORIGINAL ASSESSMENT U/S 143(3) IN T HE CASE OF THE ASSESSEE AND ITS RETURN HAS BEEN PROCESSED U/S 143( 1) WHICH DOES NOT AMOUNT TO A REGULAR ASSESSMENT AND IN THE SAME WAY IT DOES NOT AMOUNT TO FORMING OF ANY OPINION BY THE ASSESSING O FFICER ON THE ISSUES. IT IS NOT THE RETURN OF A.Y. 2006-07 BASED ON WHICH THE ASSESSING OFFICER CAME TO BELIEF THAT INCOME HAD ES CAPED ASSESSMENT, RATHER IT WAS A NEW INFORMATION IN THE FORM OF ASSE SSEES RETURN OF INCOME AND RECORD FOR NEXT YEAR I.E. 2007-08. THE V ERIFICATION OFTHIS NEW RECORD REVEALED THE INFORMATION TO THE ASSESSIN G OFFICER THAT INCOME HAD ESCAPED ASSESSMENT IN A.Y. 2006-07. THUS , IT IS A CASE WHERE NO EARLIER OPINION WAS FORMED AND NEW INFORM ATION CAME IN POSSESSION OF THE ASSESSING OFFICER. THEREFORE, TH IS BEING NEITHER A CASE OF CHANGE OF OPINION NOR A CASE OF REVIEW AND THE REOPENING BEING BASED ON NEW MATERIAL AND INFORMATION ON RECO RD IN POSSESSION OF ASSESSING OFFICER, THE REOPENING HAS BEEN RIGHTL Y UPHELD BY LD. CIT(A). ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 19 (II) APROPOS THE NEXT ISSUE I.E. REVALUATION OF CLO SING STOCK, IN THE PAPER BOOK ASSESSEE HAS NEITHER FURNISHED ANY EVIDE NCE ABOUT LODGING FIR WITH THE POLICE NOR ANY REPORT FILED WITH FIRE BRIGADE DEPARTMENT IN RESPECT OF FLOOD. BESIDES, CURIOUSLY ASSESSEE HA S NOT CLAIMED ANY INSURANCE COMPENSATION FOR FLOOD DAMAGE. THE FACT A BOUT THE FLOOD IN SION, MUMBAI AREA IN THE RELEVANT PERIOD MAY BE A P UBLIC KNOWLEDGE BUT EACH AND EVERY ESTABLISHMENT WAS NOT AFFECTED B Y THE FLOOD. THEREFORE, THE BURDEN TO PROVE INCURRING OF LOSS DU E TO THE FLOOD IS ON THE ASSESSEE WHICH IS TO BE DEMONSTRATED BY REASONA BLE EVIDENCE. IT IS A MATTER ON RECORD THAT NO SUCH EVIDENCE IS FURNISH ED. LD. CIT(A) THOUGH HAS UPHELD THE BOOK RESULTS OF THE ASSESSEE, THE FACT REMAINS THAT THE C.A. OF THE ASSESSEE THEMSELVES IN THE AUD IT REPORT HAVE MENTIONED THAT (A) AS PER PROGRAM, PHYSICAL VERIFICATION OF INVENTORIE S HAS NOT BEEN CARRIED OUT DURING THE YEAR AND PROVISION FOR OBSOLETE, NON MOVING SHORTAGES/ DAMAGED, UNSERVICEABLE INVENT ORIES AND OTHER FIXTURES ASSETS HAVE NOT BEEN MADE. (B) THE INVENTORIES HAVE BEEN CONSIDERED AS PER BOOK BA LANCES/ QUANTITY/ VALUE ESTIMATED BY MANAGEMENT. (C) PROVISION/ ADJUSTMENT OF OBSOLETE, NON MOVING SHORT AGES/ DAMAGED, UNSERVICEABLE INVENTORIES WILL BE ACCOUNTE D FOR AS AND WHEN DETERMINED (IMPACT UNASCERTAINABLE). 5.1. THESE CATEGORICAL FINDINGS OF THE AUDITORS WHI CH HAVE NOT BEEN DISPUTED BY THE ASSESSEE BY ANY FURTHER EXPLANATION , SPEAK A VOLUME THAT THE PROVISION OF DEVALUATION OF STOCK WAS NOT MADE ON ANY PHYSICAL VERIFICATION, OBJECTIVE CONSIDERATION OR VERIFICATI ON. THE CLAIM HAS BEEN ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 20 MADE ON THE WISH AND WILL OF THE MANAGEMENT. IN THE ABSENCE OF ANY VERIFICATION, EVIDENCE, OBJECTIVE AUDIT, INVENTORIE S, THE REPORT OF CONCERNED OFFICER ABOUT THE EXTENT OF DAMAGE, REDUCTION IN VA LUE OF THE VARIOUS QUANTITIES OF THE ITEMS, THE ASSESSEES CLAIM BECOM ES WHOLLY UASCERTAINABLE WHICH HAS BEEN RIGHTLY POINTED OUT BY THE AUDITORS. IN THE ABSENCE OF THE CRUCIAL EVIDENCE ON RECORD THE ASSESSEES CLAIM HAS BEEN RIGHTLY DISALLOWED BY LD. CIT(A). THE JUDGMENTS CITED BY THE ASSESSEE TO THE EFFECT THAT DEVALUATION OF CLOSING STOCK INVENTORY DUE TO DAMAG E OR SLOW MOVING GOODS WAS DEMONSTRATED UNLIKE THE CASE OF THE ASSESSEE W HERE THESE ASPECTS ARE CONSPICUOUSLY MISSING. ORDER OF CIT(A) IS RELIED ON . 5.2. APROPOS DISALLOWANCE OF SALARY AND RENT U/S 40 (A)(IA) FOR WANT OF DEDUCTION DURING THE CURRENT YEAR, LD. DR HAS NO O BJECTION TO ALLOW IT IN ACCORDANCE WITH LAW WHEN-EVER THE TDS AMOUNT IS ACT UALLY PAID. 5.3. APROPOS DISALLOWANCE OF BAD DEBT, THE LD. DR C ONTENDS THAT IT IS A MATTER OF RECORD THAT THE ASSESSEE HAD NOT PRESSED THIS GROUND BEFORE CIT(A) HENCE IT WAS DISMISSED. IT HAS NOT BEEN DISPUTED TH AT HONBLE SUPREME COURT JUDGMENT IN THE CASE OF VIJAY BANK (SUPRA) EX ISTED ON BOOKS PRIOR TO THE ASSESSEES NOT PRESSING THE GROUND. UNDER THES E CIRCUMSTANCES, ASSESSEE CANNOT BE ALLOWED TO TAKE A SOMER SAULT AND AGITATE THE ISSUE WHENEVER ASSESSEE LIKES. THE VIJAY BANK JUDGMENT DOES NOT CO ME TO ASSESSEES HELP IN AS MUCH AS THE GROUND WAS NOT PRESSED BEFORE CIT(A) DESPITE THE JUDGMENT BEING AVAILABLE IN PUBLIC DOMAIN. 6. LD. COUNSEL FOR THE ASSESSEE IN REJOINDER CONTEN DS THAT AS FAR AS THE FACT ABOUT DESTRUCTION OF RECORD IN THE FLOODS IS C ONCERNED, RELEVANT INFORMATION IN THE FORM OF COMMUNICATION TO THE SAL ES-TAX DEPARTMENT AND ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 21 THE AFFIDAVIT OF THE DIRECTOR TO THIS EFFECT WAS FI LED BEFORE THE ASSESSING OFFICER AND CIT(A) WHICH IS PLACED ON PAPER BOOK 41 & 42. NEITHER THE AFFIDAVIT HAS BEEN CONTROVERTED NOR THE COMMUNICATI ON TO SALES-TAX OFFICE ABOUT THE DESTRUCTION OF RECORD DUE TO FLOOD ON 26 TH JULY 2005 IN SION, MUMBAI HAS BEEN CONTROVERTED. THEREFORE, IT IS FUTI LE TO SAY THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE WHAT-SO-EVER ABOUT DAM AGE IN THE FLOOD. 6.1. APROPOS THE GROUND ABOUT DISCOUNT PAID FOR PR EVIOUS YEARS SALES NEITHER THE SALES NOR THE GENUINENESS OF PAYMENT O F DISCOUNT HAS BEEN DOUBTED. AN ALTERNATE PLEA IS MADE THAT IF THE SA ME IS NOT ALLOWED IN THIS YEAR THEN IN THAT CASE THE DIRECTION MAY BE GIVEN T O ALLOW THE SAME IN THE PRECEDING YEAR AS PER THE OWN FINDING OF THE LD. CI T(A). 6.2. APROPOS OTHER ISSUES, LD. COUNSEL IN THE REJOI NDER RELIED ON HIS ARGUMENT IN THE GROUND-WISE SUBMISSIONS. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. IT IS AN ADMITTED FACT THAT T HE ORDER OF CIT(A) HAS NOT BEEN CHALLENGED BY THE REVENUE AND THE PARTIAL RELI EF AND FINDINGS CONTAINED THEREIN REGARDING UPHOLDING OF THE BOOK RESULTS AND THEREBY REVERSING THE FINDINGS OF REJECTION OF BOOK RESULTS BY ASSESSING OFFICER HAS BECOME FINAL. 7.1. COMING TO THE ISSUE ABOUT REOPENING OF ASSESSM ENT WE FIND MERIT IN THE ARGUMENT OF LD. DR THAT IN THE FACTS AND CIRCU MSTANCES OF THIS CASE, THE REASSESSMENT IS NEITHER BY WAY OF CHANGE OF OPINION NOR ON THE BASIS OF REVIEW OF CONCLUDED ISSUE. IN THE ABSENCE OF ANY EA RLIER ASSESSMENT BY ASSESSING OFFICER U/S 143(3) IT CANNOT BE HELD THAT ASSESSING OFFICER EXERCISED ANY OPINION ON THE FACTS OF THE CASE AS THE RETURN OF THE ASSESSEE WAS SIMPLY PROCESSED U/S 143(1). ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 22 7.2. SIMILARLY, THE BELIEF OF THE ASSESSING OFFICER FOR REOPENING OF THE ASSESSMENT IS ON THE BASIS OF NEW AND INDEPENDENT I NFORMATION I.E. RETURN AND RECORD AND SCRUTINY ASSESSMENT VERIFICATION FOR THE NEXT YEAR I.E. A.Y. 2007-08. THEREFORE, WE ARE UNABLE TO HOLD THAT THE REASSESSMENT IS BY WAY OF CHANGE OF OPINION OR THERE WAS NO NEW MATERIAL. IN THE LIGHT OF THESE OBSERVATIONS RELIANCE ON KELVINATOR INDIA AND PRASH ANT S. JOSHI (SUPRA) DOES NOT HELP THE ASSESSEES CASE. THUS WE UPHOLD THE VA LIDITY OF REASSESSMENT PROCEEDINGS. 7.3. COMING TO THE FIRST ISSUE ON MERIT I.E. REVALU ATION OF CLOSING STOCK, LD. COUNSEL FOR THE ASSESSEE IN THE REJOINDER HAS RELIE D ON LETTER OF INTIMATION TO THE SALES-TAX DEPARTMENT, INTIMATING ABOUT THE DEST RUCTION OF THE BOOKS OF ACCOUNT DATED 2-8-2006, WHICH IS AFTER MORE THAN A YEAR OF THE INCIDENT. SIMILARLY, THE AFFIDAVIT IN QUESTION HAS BEEN SWOR N ON 30 TH JULY 2007 I.E. ABOUT 2 YEARS AFTER THE INCIDENT. BE THAT AS IT MAY , IN ANY CASE THERE IS NOTHING MORE ON RECORD TO SUGGEST AS TO ULTIMATELY WHAT VIEW HAS BEEN TAKEN BY THE SALES-TAX DEPARTMENT ON THIS ISSUE. 7.4. BESIDES, THIS INFORMATION ALSO DID NOT GIVE AN Y DETAILS ABOUT THE MODE, EXTENT AND THE NATURE OF DAMAGE OF STOCK. WE ALSO NOTE THAT ASSESSEE HAS USED ONLY THE GENERALIZED WORDS LIKE OBSOLETE, NON MOVING SHORTAGES/ DAMAGED, UNSERVICEABLE INVENTORIES. IN OUR CONSIDER ED VIEW AS PER THE PROPER METHOD OF ACCOUNTING THE ASSESSEE WILL ALWAY S PREPARE SEPARATE LIST OF ITEMS IN RESPECT OF OBSOLETE, NON MOVING SHORTAGES, DAMAGED GOODS, UNSERVICEABLE INVENTORIES AND THEREAFTER A CONSOLID ATION WILL BE PREPARED. THIS IS MINIMUM, WHICH COULD HAVE BEEN DONE BY THE ASSESSEE TO JUSTIFY ITS CLAIM, IN THE ABSENCE OF EVEN MINIMUM DETAILS OF O F REDUCTION IN THE VALUE OF STOCK, THE ASSESSEES BURDEN TO JUSTIFY THE DECR EASE, REVALUATION OF THE STOCK IS NOT DISCHARGED. THE ASSESSEES STAND IS FU RTHER ADVERSELY AFFECTED BY ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 23 THE OBSERVATION OF ITS OWN AUDITORS REMARKS THAT NO PHYSICAL VERIFICATION WAS DONE AND THE INVENTORY WILL BE ACCOUNTED AS AND WHE N DETERMINED. THUS THE CLAIM OF REVALUATION OF STOCK WAS NOT SUBJECT TO AN Y ACCEPTED COMMERCIAL ACCOUNTING STANDARD OR PRACTICES BUT WAS LEFT TO TH E SOLE DISCRETION OF THE MANAGEMENT TO CLAIM IT AS AND WHEN IT LIKED. IN OUR CONSIDERED VIEW SUCH A CLAIM WHICH IS NOT SUBSTANTIATED BY PROPER DOCUMENT ATION CANNOT BE ALLOWED TO THE ASSESSEE. IN CONSIDERATION THEREOF WE UPHOLD THE ORDER OF CIT(A). THIS GROUND OF THE ASSESSEE IS DISMISSED. 7.5. COMING TO THE DISALLOWANCE OF DISCOUNT OF PREV IOUS YEARS SALES, WE FIND MERIT IN THE ARGUMENT OF LD. DR THAT ASSESSEE HAS PRODUCED NO EVIDENCE OR CONVINCING ARGUMENT TO COME TO A VIEW THAT THE L IABILITY FOR DISCOUNT OF EARLIER YEARS SALES CRYSTALLIZED IN THIS YEAR. IN T HE ABSENCE OF DISCHARGE OF SUCH A BURDEN TO PROVE CRYSTALLIZATION OF LIABILITY WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE WHICH IS UPHELD. 7.6. APROPOS FOURTH ISSUE ABOUT DISALLOWANCE OF SAL ARY AND RENT U/S 40(A)(IA) THE GROUND IN THIS YEAR IS DISMISSED. HO WEVER, WE MAY REPEAT THAT AS THE LAW MANDATES THIS EXPENDITURE SHOULD BE ALLO WED IN THE YEAR IN WHICH THE SAME IS ALLOWABLE IN ACCORDANCE WITH LAW SUBJEC T TO THE PRESCRIBED PAYMENT. THIS GROUND IS DISMISSED SUBJECT TO THESE OBSERVATIONS. 7.7. APROPOS GROUND NO. 5 I.E. DEDUCTION ON ACCOUNT OF BAD DEBTS: THIS GROUND WAS VOLUNTARILY SURRENDERED/ NOT PRESSED BY THE ASSESSEE BEFORE CIT(A), A FACT WHICH HAS NOT BEEN DISPUTED BY THE L D. COUNSEL. THE ONLY PRAYER IN THE NATURE OF COMPENSATE PLEA IS THAT ASS ESSEE BECAME SUBSEQUENTLY WISE FINDING THAT THERE ALREADY EXISTED A SUPREME C OURT JUDGMENT. WE ARE UNABLE TO SUBSCRIBE TO THIS TYPE OF SPECULATIVE APP ROACH OF THE ASSESSEE. THE ASSESSEE VOLUNTARILY WITHDREW THE GROUND WITH ALL T HE ATTENDED RISK AND ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 24 CONSEQUENCES. IN VIEW THEREOF WE SEE NO INFIRMITY I N THE ORDER OF CIT(A) IN DISALLOWING THE CLAIM OF PROVISION OF BAD DEBT. 8. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ITA NO. 5680/DEL/2013 [PENALTY APPEAL U/S 271(1)(C) ] 9. THIS IS THE APPEAL AGAINST THE IMPOSITION OF PEN ALTY U/S 271(1)(C). ON THE BASIS OF FINDINGS IN ASSESSMENT ORDER ASSESSIN G OFFICER IMPOSED A PENALTY U/S 271(1)(C) AT RS. 1,45,61,571/-. AGGRIEVED ASSES SEE PREFERRED FIRST APPEAL. BY THAT TIME THE ORDER OF LD. CIT(A) WHICH IS DISCU SSED ABOVE CAME TO BE DECIDED ALLOWING PART RELIEF TO THE ASSESSEE. THERE FORE, THE ASSESSEES APPEAL OF PENALTY WAS CONSIDERED BY CIT(A) ON THE BASIS OF RELIEF GRANTED. THE RELEVANT OBSERVATION IS AS UNDER: THEREFORE, THE ORDER U/S 271(1)(C) DATED 28-06-201 2 IS HEREBY CONFIRMED IN TERMS OF QUANTIFICATION OF PENAL AMOUN T OF 100% OF THE AMOUNT OF TAX SOUGHT TO BE EVADED TO THE EXT ENT OF THE ADDITIONS CONFIRMED BY THE CIT(APPEALS) I.E. REJE CTION OF BOOKS OF ACCOUNT RS. 3,56,71,477/- (RS. 3,24,58,453 /- LOSS ON ACCOUNT OF REVALUATION OF STOCK. RS. 32,13,004/- D ISCOUNT GIVEN AGAINST PREVIOUS YEARS SALE) BUT ALSO MODIFIED TO T HE EXTENT OF RELIEF GIVEN BY CIT(A)-VI, NEW DELHI IN THE APPEAL NO. 47/12-13 DATED 09-05-2013 I.E. RS. 65,89,300/- (S. 4,22,60,7 57 RS. 3,56,71,457) PLUS DELETION OF AD HOC ADDITION OF RS . 10,00,000/-. ON ADDITION OF RS. 12,26,420/- AND RS. 40,159/- U/S 40(A)(IA) ON ACCOUNT OF DISALLOWANCE OF SALARY AND RENT, HOWEVER , NO PENALTY U/S 271(1)(C) IS HOWEVER HELD TO BE IMPOSABLE. 9.1. THIS ORDER CLEARLY MENTIONS THAT THE CIT(A) UP HELD MINIMUM PENALTY QUA FOLLOWING ITEMS: LOSS ON ACCOUNT OF REVALUATION OF STOCK RS. 3,24, 58,453 DISCOUNT ON PREVIOUS YEARS SALES RS. 32,13,00 4 RS. 3,56,71,477 ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 25 9.2. REVENUE HAS NOT COME IN APPEAL ON DELETION OF PENALTY ON OTHER ITEMS. THEREFORE, THE PENALTY BEFORE US IS CONFINED ONLY TO THE ISSUES QUA THE DISALLOWANCE OF CLAIM OF REVALUATION OF STOCK AND DISCOUNT ON EARLIER YEARS SALES. 10. LD. COUNSEL FOR THE ASSESSEE AT THE OUT SET CON TENDS THAT ALL THE RELEVANT DETAILS IN THIS BEHALF WERE FILED BY THE A SSESSEE ALONG WITH THE RETURN OF INCOME. DETAILS ABOUT THE REVALUATION OF STOCK A ND DISCOUNT ON SALES OF PREVIOUS YEARS HAVE BEEN CATEGORICALLY PROVIDED IN THE RETURN OF INCOME BY WAY OF COPIES OF STATEMENT OF ACCOUNT; AUDITORS RE PORT. BESIDES OTHER RELEVANT INFORMATION WAS PRODUCED DURING THE COURSE OF ASSESSMENT. HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS 322 ITR 158 HAS CLEARLY HELD THAT IF THE ASSESSEE HAS FILED THE RE LEVANT DETAILS IN THE RETURN OF INCOME AND IF ANY CLAIM OF THE ASSESSEE IS DISALLOW ED OR REDUCED IT CANNOT BE HELD AS CONCEALMENT OR FURNISHING INACCURATE PARTIC ULARS AND CANNOT BE A BASIS FOR IMPOSITION OF PENALTY U/S 271(1)(C). LD. COUNSEL VEHEMENTLY RELIED ON THIS JUDGMENT. 10.1. IT IS FURTHER PLEADED THAT THE ASSESSING OFFI CER BY MAKING VARIOUS UNFOUNDED ALLEGATION REJECTED THE BOOKS OF ACCOUNT AND HELD THEM TO BE UNRELIABLE. THIS FINDING HAS BEEN CATEGORICALLY OVE R RULED BY THE LD. CIT(A) WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. THUS, WH AT REMAINS ON RECORD IS UPHOLDING OF ASSESSEES BOOKS AND MERE NO ALLOWABI LITY OF CLAIMS ON THE BASIS OF INFERENCE DRAWN FROM MATERIAL AVAILABLE ON RECORD. THE ALLEGATIONS OF FURNISHING INACCURATE PARTICULARS OR FABRICATION CANNOT BE IMPUTED TO THE ASSESSEE. THE ADVERSE INFERENCE DRAWN FROM THE REMA RKS OF THE AUDITORS MAY BE RELEVANT FOR DISALLOWING THE CLAIM BUT AS FAR AS CONCEALMENT PENALTY PROCEEDINGS ARE CONCERNED, THE BONA FIDE OF THE ASS ESSEE IS DEMONSTRATED THAT IT HAD VOLUNTARILY ENCLOSED ALL THE REPORTS ALONG W ITH THE RETURN OF INCOME. ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 26 ON THE BASIS THEREOF THE ASSESSMENT U/S 143(1) WAS MADE BY ASSESSING OFFICER AND THEREAFTER NO NOTICE U/S 143(2) WAS ISS UED. IT IS ONLY WHILE ASSESSING A.Y. 2007-08 THAT ASSESSING OFFICER HAD A RETHINKING ABOUT THE ALLOWABILITY OF THE CLAIM. IT WAS HEAVILY BIASED B ECAUSE OF AO'S REJECTION OF BOOKS OF ACCOUNTS. SINCE THE CIT(A) HAS UPHELD THE ASSESSEES BOOKS OF A/CS WHICH IS ACCEPTED BY REVENUE, THE ADVERSE INFERENC E IN THIS BEHALF HAS NO RELEVANCE. THEREFORE, THE ISSUE OF PENALTY QUA THES E ITEMS IS TO BE VIEWED ONLY FROM THE PARAMETERS LAID DOWN BY HONBLE SUPR EME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (SUPRA). 10.2. LD. CIT(A) HAS CONFIRMED THE PENALTY BY FOLLO WING OBSERVATIONS: 5.10. IN THIS CASE, CONSIDERING THE TOTALITY OF CI RCUMSTANCES AND MATERIAL ON RECORD, IT IS CLEAR THAT THE APPELLANT HAD FAILED TO DISCHARGE ITS STRICT LIABILITY TO FURNISH TRUE AND THE CORRECT PARTICULARS OF INCOME, WHILE FILING ITS RETURN OF I NCOME. EVEN REASSESSMENT PROCEEDINGS HAVE BEEN HELD TO BE LEGAL LY AND VALIDLY INITIATED BY THE AO AS HELD BY THE CIT(APP EALS) IN QUANTUM APPEAL. IN THIS CASE, NO PLAUSIBLE EXPLANAT ION HAS BEEN GIVEN BY THE APPELLANT REGARDING THE NON PRODUCTION OF BOOKS OF ACCOUNTS, SUPPORTING VOUCHERS AND STOCK REGISTER BE FORE THE AO . IN FACT, THE CIT(APPEALS) HAS ALSO CONFIRMED THE ADDITION OF RS. 3,56,71,457/- ON ACCOUNT OF REJECTION OF BOOKS OF ACCOUNT AFTER HOLDING THAT LOSS ON ACCOUNT OF NET REALIZABL E VALUE OF THE CLOSING STOCK SHOWN AT RS. 3,24,58,453/- AS CLAIMED BY THE APPELLANT COMPANY IS NOT SUSTAINABLE, AFTER FINDING FAULT IN SUBMISSION OF THE APPELLANT VIS--VIS THE AUDIT REP ORT AND WHICH IS HELD ALSO NOT IN ACCORDANCE WITH ACCOUNTIN G STANDARD 2(AS2) ISSUED BY ICAI. THE CIT(A) HAS ALSO DISALLOW ED RS. 32,13,004/- CLAIMED BY THE APPELLANT AS DISCOUNT OF THE PREVIOUS YEARS SALE. FURTHER, THOUGH THE CIT(A) DELETED THE ADDITION OF RS. 10,00,000/- MADE BY THE AO OUT OF INDIRECT EXP ENSES BUT SIMULTANEOUSLY HE MADE AN ADDITION OF RS. 12,66,579 /- ( RS. 12,26,420/-+ 40,159/-) U/S 40(A)(IA) OF THE I.T. AC T, 1961. MOREOVER, IT IS A CASE WHERE EXPLANATION 1 TO SECTI ON271 COMES INTO PLAY AS HAS BEEN RIGHTLY OBSERVED BY THE ASSESSING OFFICER (REFER ADDITIONAL CIT V. JEEVAN LAL SHAH (1 994) 205 ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 27 ITR 244 (SC). THEREFORE, ADDITION HAD BEEN MADE TO THE RETURNED INCOME OR IN THE OTHER WORDS. HERE IT IS N OT ESTABLISHED OR CANNOT BE REASONABLY REFERRED THAT A DDITION MADE TO THE RETURNED INCOME ON ACCOUNT OF NON PRODU CTION OF BOOKS OF ACCOUNT AND DRASTIC FALL IN GP RATE IS A CONTUMACIOUS SHARE CONDUCT OR ACT ON THE PART OF TH E APPELLANT ASSESSEE BUT AT THE SAME TIME, IT IS ALSO NOT ESTAB LISHED OR CANNOT BE REASONABLY INFERRED THAT THE APPELLANTS CONDUCT IS PURELY BONA FIDE. IN SUCH A SITUATION, IN THE LIGHT OF JUDGMENT OF APEX COURT IN DHARMENDRA TEXTILE PROCESSORS (SUPRA) , PENALTY U/S 271(1)(C) IS HELD TO BE CORRECTLY LEVIED BY THE AO SINCE IT IS NOT NECESSARY FOR TAX AUTHORITY TO ESTABLISH MENS R EA OR DELIBERATE OR WILLFUL ACT OF THE APPELLANT. 10.3. THE FINDINGS OF CIT(A) ARE ASSAILED ON THE GR OUND THAT ASSESSEES BOOKS OF ACCOUNT HAVE BEEN UPHELD BY THE CIT(A) HIM SELF. THEREFORE, THE FINDING OF LOWER AUTHORITIES THAT ASSESSEE FAILED T O FURNISH THE TRUE AND CORRECT PARTICULARS OF INCOME AND NO PLAUSIBLE EXPL ANATION ABOUT NON- PRODUCTION OF BOOKS OF A/CS AND SUPPORTING VOUCHERS WERE GIVEN, IS CONTRARY TO RECORD. IT IS DEMONSTRATED THAT ASSESSEE HAD FUR NISHED THE COMMUNICATION TO THE SALES TAX DEPARTMENT AND DIRECTORS AFFIDAV IT TO THIS EFFECT HAS NOT BEEN CONTROVERTED BY ANY OF THE LOWER AUTHORITIES. THERE FORE, THE ALLEGATION THAT ASSESSEE HAS FAILED TO PRODUCE ANY EVIDENCE ABOUT FLOOD AND DAMAGE IS UNFOUNDED. NON-CONSIDERATION OF THIS EVIDENCE AND T AKING AN ADVERSE INFERENCE WITHOUT VERIFYING THE EVIDENCE MAKES THE INFERENCE MISPLACED AND UNFOUNDED. SUCH ERRONEOUS OBSERVATION CANNOT BE USE D AS A BASIS FOR SUSTAINING THE PENALTY U/S 271(1)(C). BESIDES, A FA ULT HAS BEEN ERRONEOUSLY ATTRIBUTED FOR VIOLATION OF AS2 ISSUED BY ICAI WITH OUT QUOTING ANY REASON OR INSTANCE BY LOWER AUTHORITIES. 10.4. THE PENALTY QUA THE DISCOUNT OF PREVIOUS YEAR S SALES CLAIM IN THIS YEAR ALSO IS NOT JUSTIFIED IN AS MUCH AS THE SALES OF PR EVIOUS YEAR ARE NOT DISPUTED ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 28 AND GENUINENESS OF PAYMENT OF DISCOUNT IS NOT DISPU TED. THE OBJECTION RAISED IS PURELY A TECHNICAL PLEA THAT THE DISCOUNT PERTAINS TO THE SALES OF EARLIER YEARS. THUS THE ISSUE AT BEST AMOUNTS TO PO STPONEMENT OF EXPENDITURE TO SUBSEQUENT YEAR. HONBLE SUPREME COURT IN THE CA SE OF CIT VS. EXCEL INVESTMENT LTD. 358 ITR 295 HAS HELD THAT SUCH ISSU ES ARE REVENUE NEUTRAL AND SHOULD NOT BE AGITATED BY DEPARTMENT. IN THESE CIRCUMSTANCES PENALTY CANNOT BE IMPOSED FOR CHANGE IN YEAR OF CLAIM. 10.5. LD. COUNSEL CONTENDS THAT A CLAIM WHICH UNDER THE BONA FIDE IMPRESSION OF THE ASSESSEE HAS CRYSTALLIZED IN THIS YEAR CANNOT BE HELD TO BE FURNISHING OF INACCURATE PARTICULARS MERELY BECAUSE AO THINKS IT BELONGS TO EARLIER YEAR. MORE SO, WHEN THE SALES AND PAYMENTS ARE ACCEPTED. ASSESSING OFFICER HAS NEITHER ENQUIRED FROM THESE PARTIES BY ISSUING SUMMONS U/S 131 OR CALLED INFORMATION UNDER SEC. 133(6) IN PENALTY PROCEEDINGS TO BRING HOME THE CHARGE THAT ASSESSEE FURNISHED INACCURATE PART ICULARS. IN THE ENTIRE LENGTH AND BREATH OF THE ORDER IMPOSING PENALTY BY AO, IMP ORTANCE HAS BEEN ATTACHED TO REJECTION OF BOOKS AND ON ROUTINE ADVER SE INFERENCES. IT IS HELD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICUL ARS. 10.6. FURTHER RELIANCE IS PLACED ON THE RATIO OF DE CISIONS IN THE CASES OF: - CIT VS. AERO TRADES (P) LTD. 322 ITR 316 (DEL.); - CIT V. MAHANAGAR TELEPHONE NIGAM LTD. (DEL.) - CIT VS. RELIANCE PETROPRODUCTS 322 ITR 158 (SC). 11. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF CIT(A). 12. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. IT IS AN ADMITTED FACT ON THE PART OF REVENUE THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WHICH WERE REJECT ED BY THE ASSESSING OFFICER HAVE BEEN UPHELD TO BE PROPER BY LD. CIT(A) , A FINDING WHICH IS NOT CHALLENGED BY THE REVENUE. THUS, ANY INFERENCE DRA WN BY AO ON THE BASIS ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 29 OF ALLEGED FALSEHOOD OR UNRELIABILITY OF THE BOOKS OF A/CS HAS NO SIGNIFICANCE IN THE PENALTY PROCEEDINGS. 12.1. COMING TO THE MERITS OF THE CASE, THE FACT TH AT THERE WAS FLOOD IN JULY 2005 IN SION, MUMBAI AREA HAS NOT BEEN DISPUTED. TH E ASSESSEE HAS DEMONSTRATED THAT THIS EVIDENCE ABOUT INTIMATION TO SALES-TAX AUTHORITIES AND THE ASSESSEES DIRECTORS AFFIDAVIT WERE FILED. THUS , SOME MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE, WHICH HAS NOT BE EN CONTROVERTED. THUS, THE INFERENCE DRAWN ON IMPOSITION OF PENALTY IN THI S BEHALF CARRIES WITH ITSELF A DEFICIENCY OF NON-CONSIDERATION OF EVIDENCE FURNI SHED BY THE ASSESSEE. THEREFORE, A REASONABLE INFERENCE CAN BE DRAWN TO THE EFFECT THAT SOME DAMAGE WAS CAUSED TO THE ASSESSEES STOCK BY FLOOD S WHICH NECESSITATED THE MOVEMENT OF RECORD FROM SION TO GOREGAON MUMBAI. TH EREFORE, THIS PLEA OF THE ASSESSEE CANNOT BE HELD BEREFT OF EVIDENCE. FOR THE PURPOSE OF QUANTUM ADDITION, NON-DISCHARGE OF BURDEN MAY BE A VERY CRU CIAL FACTOR, HOWEVER, WHILE IMPOSING PENALTY, ONE HAS TO KEEP IN MIND THE LIGHT THROWN BY HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS ON THESE ASPECTS. THE IMPORTANCE THEREOF IS WHETHER ASSESSEE FURNISHE D THESE DETAILS ALONG WITH THE RETURN OF INCOME AND FURTHER DURING THE CO URSE OF ASSESSMENT PROCEEDINGS. FROM RECORD IT EMERGES THAT ASSESSEE H AD FURNISHED ALL THE DETAILS IN THE AUDITED STATEMENTS ALONG WITH THE AU DIT CERTIFICATES BY THE C.A. THE C.A ALSO HAS NOT DISPUTED THE DAMAGE OF GOODS I N THE FLOOD. THEY HAVE GIVEN A QUALIFIED STATEMENT ABOUT THE DEVALUATION O F STOCK WITH A QUALIFICATION THAT THE CLAIM WILL BE MADE AS AND W HEN DESIRED BY THE MANAGEMENT. THIS OBSERVATION MAY HAVE AN ADVERSE IM PACT WHILE EVALUATING QUANTUM ADDITION BUT QUA THE PENALTY PROCEEDINGS U/ S 271(1)(C), FACTS REMAIN THAT DAMAGE AND REVALUATION OF GOODS IS NOT DENIED OR DISPUTED BY THE C.A. DUE TO NON-DISCHARGE OF BURDEN THE QUANTUM ADDITION HAS BEEN CONFIRMED. IT ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 30 IS TRITE LAW THAT EVERY CONFIRMATION OF QUANTUM ADD ITION CANNOT RESULT IN IMPOSITION OF CONCEALMENT PENALTY. IN THE CONSIDERA TION OF ENTIRETY OF FACTS AND CIRCUMSTANCES I.E. UPHOLDING OF BOOKS OF A/CS O F THE ASSESSEE C.A HAVING CERTIFIED THE DAMAGE OF THE GOODS BY FLOOD THOUGH WITH A RIDER THAT THE CLAIM WILL BE MADE DEPENDING ON THE MANAGEMENT DECI SION. THE FACT REMAINS THAT THE DAMAGE IN THE FLOOD CANNOT BE REJE CTED OUT RIGHTLY OR HELD TO BE A FALSE CLAIM. THE ASSESSEE HAVING DISCLOSED ALL THE RELEVANT FACTS, PARTICULARS AND STATEMENT ALONG WITH THE RETURN OF INCOME, WE ARE OF THE VIEW THAT HONBLE SUPREME COURT JUDGMENT IN THE CASE OF RELIANCE PETRO PRODUCTS IS APPLICABLE TO THE ASSESSEES CASE. 12.2. COMING TO THE SECOND ISSUE OF PENALTYI.E. DIS ALLOWANCE OF CLAIM OF DISCOUNT ON EARLIER YEAR SALE, THE PLEA OF THE ASSE SSEE THAT EARLIER YEARS SALES AND THE PAYMENT OF DISCOUNT IS DISPUTED OR DENIED B Y THE LOWER AUTHORITIES. SINCE THE ASSESSEE FAILED TO DEMONSTRATE THAT THE F ACTUM OF ACTUAL CRYSTALLIZATION OF LIABILITY IN THIS YEAR, THE DIS ALLOWANCE HAS BEEN SUSTAINED AS PERTAIING TO EARLIER YEAR. TO PUT IT IN OTHER WO RDS, HAD THE ASSESSEE CLAIMED THIS AMOUNT IN PRECEDING YEAR IN ALL FAIRNESS IT WO ULD HAVE BEEN ALLOWED. THEREFORE, IN ACTUAL TERMS THIS IS A CASE OF POSTPO NEMENT OF A CLAIM OF EXPENDITURE. ON THIS SCORE HONBLE SUPREME COURT JU DGMENT IN EXCEL INDUSTRIES (SUPRA)HELPS ASSESSEES CASE. THESE FAC TS DO NOT LEAD TO A CONCLUSION THAT ASSESSEES CLAIM IS BOGUS OR FALSE. THE YEAR OF ALLOWABILITY MAY BE A RELEVANT FACTOR IN DECIDING THE QUANTUM AP PEAL, BUT IT CANNOT BE A DECISIVE FACTOR TO IMPOSE CONCEALMENT PENALTY. MORE SO WHEN THE ASSESSEE DISCLOSED ALL THESE PARTICULARS ALONG WITH THE RETU RN OF INCOME WHERE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF RELIANCE PETR OPRODUCTS APPLIES. THUS, IN OUR CONSIDERED VIEW SINCE THE RELEVANT PAR TICULARS WERE FILED WITH THE RETURN, FURTHER INFORMATION WAS GIVEN IN ASSESS MENT PROCEEDINGS, ITA 4483 & 5680/DEL/2013 M/S BIRLA ELECTRICALS LTD. 31 ASSESSEES BOOKS OF A/CS HAVING BEEN UPHELD TO BE C ORRECT, HONBLE SUPREME COURT JUDGMENT IN THE CASE OF RELIANCE PETROPRODUCT S (SUPRA) HELPS THE CASE OF THE ASSESSEE. 12.3. IN VIEW OF THE FOREGOINGS FACTS AND CIRCUMST ANCES WE ARE OF THE VIEW THAT ASSESSEE HAVING FILED ALL THE RELEVANT DETAILS ALONG WITH THE RETURN OF INCOME, RESPECTFULLY FOLLOWING HONBLE SUPREME COUR T JUDGMENT IN THE CASE OF RELIANCE PETROPRODUCTS (SUPRA), THE PENALTY IMPO SED ON THE ASSESSEE IS DELETED. THIS APPEAL OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, ASSESSEE QUANTUM APPEAL (ITA NO. 4483/DEL/2013) IS DISMISSED AND THE PENALTY APPEAL ( ITA NO. 5680/DEL /2013) IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 11-04-2014. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11-04-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR