GANDHI PAREKH INVESTMENT CORP.LIMITED, MUMBAI V. ITO 1 (1)(4), MUMBAI

ITA 4670/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2860 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 11-05-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 08-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K BEPARIDR
• Assessee Lawyers: M C NANIWADEKARAR
• Keywords: Wrong claim; Difference of opinion; Corroborative evidences

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL G BENCH MUMBAI , , BEFORE S/SHJOGINDER SINGH,JUDICIA L MEMBER & RAJENDRA,ACCOUNTANT MEMBER ./I.T.A./4670/MUM/2014 , /ASSESSMENT YEAR: 2003-04 GANDHI PAREKH INVESTMENT CORPORATION LTD., NEXT TO ASHOK MILLS, LAL BAHADUR SHASTRI MARG, GHATKOPAR (W) MUMBAI-400 086. PAN:AAACG 1993 M VS. ACIT, CIRCLE-1(1) MUMBAI-400 001. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI S.K. BEPARI-DR ASSESSEE BY: SHRI M.C. NANIWADEKAR-AR / DATE OF HEARING: 11.05.2016 / DATE OF PRONOUNCEMENT: 22.06.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 11.12.2013 OF THE CIT(A )-1,MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.EFFECTIVE GROUND OF AP PEAL IS ABOUT CONFIRMING OF PENALTY LEVIED U/S.271(1)(C)OF THE ACT. BRIEF FACTS: 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING CHEMICALS,FILED ITS RETURN OF INCOME ON 01/12/2003 DECLARING TOTAL LOSS OF RS. 1.94 CRORES.THE ASSESSING OFFICER (AO) COMPLETED ASSESSMENT ON 21/0 3/2006,U/S.143 (3) OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.(- )12.14LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT IT HAD CLA IMED RS.1.82 CRORES AS PROVISION FOR LOSS OF STOCK AND HAD DEBITED THE SAI D AMOUNT IN THE PROFIT AND LOSS ACCOUNT. AFTER CONSIDERING THE SUBMISSION OF THE AS SESSEE WITH REGARD TO THE CLAIM,THE AO HELD THAT THE ASSESSEE HAD MADE MERELY A PROVISION IN THE YEAR UNDER APPEAL,THAT THE LOSS CLAIMED BY IT HAD NOT BE EN QUANTIFIED BY ANY AUTHORITY, THAT IT WAS ONLY STATEMENT OF THE ASSESS EE THAT THE STOCK HAD NO REALISABLE VALUE,THAT THERE WAS NO SUPPORTING EVIDE NCE TO SUBSTITUTE THE CLAIM, THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT GENUINE .AGGRIEVED BY THE ORDER OF 4670/M/14-GANDHI 2 THE AO,THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)WHO CONFIRMED THE ORDER OF THE AO. ME ANWHILE,HE INITIATED PENALTY PROCEEDINGS. IN ITS REPLY TO THE SHOW CAUSE NOTICE OF PENALTY, T HE ASSESSEE STATED THAT ALL THE ACTIVITIES RELATING TO THE BUSINESS HAD EFFECTIVELY STOPPED DURING THE YEAR, THAT THE PROVISION FOR LOSS WAS DUE TO THE NON-AVAILABIL ITY OF THE BUYER TO BUY OBSOLETE STOCK LINE WITH THE COMPANY,THAT THE STOCK BEING CHEMICAL PRODUCT SHELF-LIFE WAS OVER,THAT IT BECAME HAZARDOUS WASTE, THAT GUJARAT POLLUTION CONTROL BOARD HAD ASKED THE ASSESSEE TO DISPOSE-OFF THE WASTE AT THEIR CHEMICAL WASTE DISPOSABLE SITE,THAT IT HAD TO INCUR EXPENDIT URE FOR DISPOSAL OF THE HAZARDOUS CHEMICAL WASTE,THAT THE PROVISION FOR LOS S ON STOCK HAD BECOME NECESSARY TO SHOW A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE COMPANY AS PER THE REQUIREMENTS OF THE COMPANIES ACT,THAT THE STOCK HAD NO REALISABLE VALUE, THAT THE ASSESSEE HAD NO OPTION BUT TO PROVI DE FOR THE LOSS IN THE VALUE OF THE STOCK, THAT IT HAD NEVER UTILISED ANY BENEFIT I N ANY SUBSEQUENT YEAR DUE TO THE PROVISION FOR LOSS ON STOCK, IT HAD FILED FOR DETAI LS AND HAD DISCLOSED ALL THE FACTS WITH PROPER EXPLANATION RELATING TO THE ABOUT DISAL LOWANCE DURING THE ASSESSMENT PROCEEDINGS,THAT IT HAD NEITHER CONCEALE D IN EFFECT NOT HAD FILED ANY INACCURATE PARTICULARS,THAT THE DISALLOWANCE WAS BA SED PURELY ON THE DIFFERENCE OF OPINION ON THE TREATMENT OF LOSS CLAIMED BY THE ASSESSEE, THAT THE DIFFERENCE DID NOT AMOUNT TO CONCEALMENT OR FURNISHING OF INAC CURATE PARTICULARS, THAT THE CLAIM WAS MADE UNDER BONA-FIDE BELIEF THAT SAME WAS LEGALLY ALLOWABLE. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, T HE AO HELD THAT THE ASSESSEE HAD NOT FURNISHED ANY SUPPORTING DOCUMENTS/EVIDENCE S EVEN DURING THE APPELLATE PROCEEDINGS TO ESTABLISH ITS OWN OF IDENT ITY SHOVES, THAT HIS PREDECESSOR HAD NOTED THAT THE ASSESSEE BECAME A ME MBER OF AN ENVIRONMENT CONTROL BOARD ONLY ON 11/03/ 2006, THAT THE LETTER OF GUJARAT POLLUTION CONTROL BOARD WAS DATED 27/09/2005,THAT THE ASSESSEE HAD CO NCEALED THE PARTICULARS OF 4670/M/14-GANDHI 3 ITS INCOME AS WELL AS HAD FILED INACCURATE PARTICUL ARS.THEREFORE,HE LEVIED A PENALTY OF RS. 67.13 LAKHS UNDER SECTION 271 (1) (C ) OF THE ACT. 3. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FAA,THE ASSESSEE STATED THAT IT HAD DEBITED THE P&L ACCOUNT BY AN AMOUNT OF RS. 1.8 1 CRORES, BEING PROVISION FOR LOSS ON STOCK, THAT THE STOCK WAS OLD AND WAS N O LONGER REALISABLE,THAT THE PROVISION PERTAINED TO THE FINISHED GOODS WHICH WER E MANUFACTURED IN THE YEAR 1998-99 AND THE SEMI-FINISHED GOODS WHICH WERE ATTE MPTED TO BE MANUFACTURED IN THAT YEAR,THAT IN CHEMICAL INDUSTRIES GOODS WERE NOT AT ALL REALISABLE AFTER MORE THAN FOUR YEARS,THAT IN ORDER TO PRESENT A TRU E AND FAIR VIEW OF ITS FINANCIAL POSITION THE NET REALISABLE VALUE OF THE STOCK WAS TAKEN NIL,THAT THE STOCK IN QUESTION HAD NOT AT ALL BEEN SOLD OR USED IN ANY SU BSEQUENT YEAR,THAT THE TREATMENT GIVEN BY THE ASSESSEE TO THE SAID LOSS WA S AS PER THE PROVISIONS OF ACCOUNTING STANDARDS (AS)-2,THAT THE VALUE OF THE I NVENTORY WAS TAKEN AT THE LOWER COST OR NET REALISABLE VALUE,THAT THE ASSESSE E DID NOT PREFER APPEAL BEFORE THE TRIBUNAL IN THE QUANTUM PROCEEDINGS AS EVEN AFT ER THE ADDITION THE NET INCOME OF THE ASSESSEE WAS IN NEGATIVE,THAT IT WAS CONSTANTLY MAKING LOSSES,THAT IT WOULD HAVE NO CHANCE OF ANY BENEFIT IN TERMS OF CARRY-FORWARD AND SET OFF,THAT ASSESSEE HAD NOT CLAIMED ANY BENEFIT IN THE SUBSEQU ENT YEARS, THAT IT HAD NO MOTIVE WHATSOEVER TO OVERSTATE THE LOSSES.THE ASSES SEE RELIED UPON THE CASE OF RELIANCE PETRO PRODUCTS (322 ITR 158)AND ARGUED THA T MERE MAKING OF A CLAIM WHICH WAS DISALLOWED WAS NOT SUFFICIENT TO IMPOSE C ONCEALMENT PENALTY. AFTER CONSIDERING THE ASSESSMENT ORDER,PENALTY ORDE R AND THE SUBMISSION OF THE ASSESSEE, THE FAA HELD THAT THE STOCK WAS NEITHER A SCERTAINED NOR ACTUALLY CEASED TO EXIST AS SUCH,THAT THE CLAIM WAS MADE IN THE RETURN WITHOUT PRODUCING ANY SUPPORTING EVIDENCES,THAT IT WAS CLEAR CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME,THAT THE ORDER OF THE THEN FA A,WHO HAD CONFIRMED THE ADDITION HAD BECOME FINAL,THAT THE CLAIM WAS MADE B Y THE ASSESSEE UNDER THE 4670/M/14-GANDHI 4 HEAD PROVISIONS, THAT THE CLAIM WAS NOT ASCERTAINED .HE REFERRED TO THE CASE OF PARAM JEWELLS(P.)LTD. (131 ITD ) AND UPHELD THE OR DER OF THE AO. 4. BEFORE US, THE AUTHORISED REPRESENTATIVE (AR) STATE D THAT THE ASSESSEE HAD MADE PROVISION FOR LOSS OF STOCK AS PROVIDED IN THE AS-2,THAT IT HAD FILED ALL THE NECESSARY DETAILS ABOUT THE PROVISION MADE , THAT T HERE WAS NO CONCEALMENT OF INCOME,THAT THE STOCK COULD NOT BE SOLD IN SUBSEQUE NT YEARS,THAT THE ASSESSEE WAS SUFFERING LOSSES,THAT THE CHEMICALS HAD SHORT S HELF-LIFE,THAT STOCK WAS NOT USABLE. HE REFERRED TO THE PAGE 14 OF THE PAPER BOO K.THE DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO A ND THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD MADE A PROVISION FOR CLA IMED RS.1.82 CRORES AS PROVISION FOR LOSS OF STOCK AND HAD DEBITED THE SAI D AMOUNT IN THE PROFIT AND LOSS ACCOUNT,THAT IT HAD RECEIVED NOTICE FROM POLLUTION CONTROL AUTHORITIES OF GOVERNMENT OF GUJARAT,THAT IT WAS DIRECTED TO DESTR OY THE OBSOLETE STOCK,THAT PROVISION WAS MADE AS PER AS-2,THAT IT HAD MADE PRO VISIONS FOR THE SEMI- FINISHED GOODS OF 1999, THAT THE AO HAD A DIFFERENT OPINION ABOUT THE TREATMENT TO BE GIVEN TO THE STOCK.IN OUR OPINION, WHEN TWO L EGAL INTERPRETATIONS ARE PLAUSIBLE AND THERE IS AN HONEST AND BONA FIDE DIFF ERENCE OF OPINION, PENALTY FOR CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS ,SHOULD NOT AND CANNOT BE IMPOSED.IF THE VIEW TAKEN BY THE ASSESSEE REQUIRES CONSIDERATION AND IS REASONABLY ARGUABLE,IT SHOULD NOT BE PENALISED FOR TAKING THE POSITION.IT IS SAID THAT TAXING STATUTES ARE COMPLEX AND THERE CAN BE A BONA FIDE DIFFERENCE OF OPINION ON LEGAL INTERPRETATION AND UNDERSTANDING O F A PROVISION. IT IS SAID THAT SO LONG AS THE ASSESSEE HAS NOT CONCEALED ANY MATER IAL FACT OR THE FACTUAL INFORMATION GIVEN BY HIM HAS NOT BEEN FOUND TO BE I NCORRECT,HE WILL NOT BE LIABLE TO IMPOSITION OF PENALTY UNDER SECTION 271(1 )(C) OF THE ACT,EVEN IF THE CLAIM MADE BY HIM IS UNSUSTAINABLE IN LAW,PROVIDED THAT HE EITHER SUBSTANTIATES 4670/M/14-GANDHI 5 THE EXPLANATION OFFERED BY HIM OR THE EXPLANATION, EVEN IF NOT SUBSTANTIATED,IS FOUND TO BE BONA FIDE.IF THE EXPLANATION IS NEITHER SUBSTANTIATED NOR SHOWN TO BE BONA FIDE,EXPLANATION 1 TO SECTION 271(1)(C) WOULD COME IN TO PLAY AND THE ASSESSEE WILL BE LIABLE TO FOR THE PRESCRIBED PENAL TY. PRINCIPLES OF TAXATION JURISPRUDENCE SAY THAT IN OR DER TO JUSTIFY THE LEVY OF PENALTY,TWO FACTORS MUST CO-EXIST, (I) THERE MUST B E SOME MATERIAL OR CIRCUMSTANCES LEADING TO THE REASONABLE CONCLUSION THAT THE AMOUNT DOES REPRESENT THE ASSESSEES INCOME AND (II)THE AMOUNT IN QUESTION WAS NOT DISCLOSED BY THE ASSESSEE IN HIS RETURN. EXPLANATIO N FILED BY THE ASSESSEE,ABOUT THE DISPUTED AMOUNT PLAYS A VITAL ROLE IN DECIDING THE JUSTIFICATION OF LEVYING CONCEALMENT PENALTY.IN THE MATTER BEFORE US,THE ASS ESSEE HAD DISCLOSED ALL THE NECESSARY DETAILS.IN OUR OPINION, EXPLANATION FILED BY THE ASSESSEE IN THAT REGARD WAS BONA FIDE.SECONDLY, IT IS AN ACCEPTED PRINCIPLE OF TAX-JURISPRUDENCE THAT ADDITIONS MADE DURING ASSESSMENT PROCEEDINGS CANNOT RESULT IN AUTOMATIC LEVY OF PENALTY.A PATENT WRONG AND INADMISSIBLE CLAIM,MA DE AGAINST THE CLEAR CUT PROVISIONS OF THE ACT,FALLS UNDER THE CATEGORY OF F ILING OF INACCURATE PARTICULARS OF INCOME RESULTING IN CONCEALMENT.IN THE MATTER BE FORE US,NO WRONG CLAIM WAS MADE.THE ASSESSEE HAD MADE ENTRIES IN THE BOOKS OF ACCOUNTS AS PER THE MANDATE OF AS-2.SO,IT CANNOT BE HELD THAT IT HAD CO NCEALED ITS PARTICULARS OF INCOME.IT IS NOT THE CASE OF THE AO THAT THE ASSESS EE HAD NOT DISCLOSED THE FACT OF OBSOLETENESS OF THE STOCK OR NOTICE FROM THE STA TE GOVERNMENT AUTHORITIES.THEREFORE,THERE WAS NO JUSTIFICATION OF INVOKING THE PROVISIONS OF SECTION 271(1)(C)OF THE ACT.MAKING ADDITIONS OR DIS ALLOWING CERTAIN EXPENSES DURING THE ASSESSMENT PROCEEDINGS IS TOTALLY DIFFER ENT FROM INVOKING PENAL PROVISIONS.THERE IS NO PROVISION IN THE ACT OF AUTO MATIC LEVY OF PENALTY FOR THE ADDITIONS/DISALLOWANCES MADE.SO,WE ARE OF THE OPINI ON THAT THERE WAS NO FURNISHING OF INACCURATE PARTICULARS AND THAT THE E XPLANATION GIVEN BY THE ASSESSEE WAS BONAFIDE. HERE,WE WOULD LIKE TO REFER TO THE MATTER OF RELIANCE 4670/M/14-GANDHI 6 PETROPRODUCTS LTD.(322ITR158)WHERE THE HONBLE APEX COURT HAS HELD AS UNDER: A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961,SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALM ENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHE D INACCURATE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTI ON 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN TH E RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF F URNISHING INACCURATE PARTICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY,UNLESS THE CASE IS S TRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED.BY NO STRETCH OF IMAGIN ATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INC OME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. TO ATTRACT P ENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDIN G TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUES TION OF INVITING THE PENALTY UNDER SECTION 271(1)(C) A MERE MAKING OF A CLAIM, WHICH IS NOT SU STAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURAT E PARTICULARS. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT AND CONSI DERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE DECIDE THE EFFECTIVE G ROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE A SSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE,2016. 22 , 2016 SD/- SD/- ( /JOGINDER SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 22.06.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.