ITO 1(1)(1), MUMBAI V. B. TRIKAMLAL & CO. P. LTD, MUMBAI

ITA 5191/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55749 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-10-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 24-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: K SHIVARAM
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI R.K. PANDA (ACCOUNTANT MEMBER) ITA NO.5191/MUM/2010 ASSESSMENT YEAR- 1996-97 THE ITO(1)(1), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. B. TRIKAMLAL & CO. PVT. LTD., COMMERCIAL UNION HOUSE, 9, WALLACE STREET,FORT, MUMBAI-400 001 PAN - AAACB 2170K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI P.C. MAURYA RESPONDENT BY: SHRI K. SHIVARAM DATE OF HEARING :19.10.2011 DATE OF PRONOUNCEMENT: 02.11.11 O R D E R PER B.R. MITTAL, JM : THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 1996-97 AGAINST ORDER OF LD. CIT(A) DT. 26.2.2010 DISPUTING CANCELLATION OF PENALTY LEVIED U/S. 271(1)(C) OF THE ACT AMOUNTING TO RS.5, 58,000/-. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF TIMBER AN D PLYWOOD. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFICER MADE ADDITION OF RS. 12,13,355/- BY REJECTING THE CLAIM OF ASSESSEE OF D EDUCTION ON ACCOUNT OF BAD DEBT IN RELATION TO ITS TRANSACTION WITH M/S. INDIA N PLYWOOD MANUFACTURING CO. PVT. LTD. (HEREINAFTER REFERRED TO IPML), TO A SIST ER CONCERN OF ASSESSEE. THE SAID ACTION OF AO WAS CONFIRMED BY FIRST APPELLATE AUTHORITY AS WELL AS BY THE TRIBUNAL. IN VIEW OF ABOVE, AO INITIATED PENALTY PR OCEEDINGS U/S. 271(1)(C) OF THE ACT ON THE GROUND THAT ASSESSEE FURNISHED INACC URATE PARTICULARS OF ITA NO. 5191/M/10 2 INCOME ON THE ISSUE TO THE EXTENT OF RS. 12,13,000/ -. HENCE, AO LEVIED PENALTY OF RS. 5,57,980/-, THE AMOUNT OF TAX SOUGHT TO BE EVADED BY ASSESSEE BY REASON OF THE CONCEALMENT OF PARTICULARS OF ITS INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. BEING AGGRI EVED, ASSESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY. VIRTUE 3. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE HAS DELETED THE PENALTY VIDE PARA 4.3 OF THE IMPUGNED O RDER WHICH READS AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE ALONGWITH REASONS RECORDED BY THE AO AND ARGUMENTS PUT FORTH BY THE A /R OF THE APPELLANT. IT IS SEEN THAT THE AO HAS LEVIED THE PE NALTY U/S. 271(1)(C) IN RESPECT OF ADDITION OF RS. 12,13,000/- REPRESENTING BAD DEBTS IN RESPECT OF THE INDIAN PLYWOOD MFG. CO. PVT. LTD. (IPML) WHERE THE ADDITION IS CONFIRMED BY THE ITAT, MUMBAI. IT IS SEEN THAT IPML IS A SISTER CONCERN OF THE APPEL LANT THE COMPANY WAS REFERRED TO THE BIFR IN MAY 1995 AND DE CLARED A SICK COMPANY U/S. 3 OF SICA. THE AO HAS LEVIED THE PENALTY ON THE PLEA THAT THE APPELLANT HAS FURNISHED INACCURAT E PARTICULARS OF INCOME TO THE EXTENT OF RS. 12,13,000/- CLAIMING DEDUCTION OF BAD DEBTS. THE LD. AR CLAIMED THAT NO PART OF THE PARTICULARS OF THE INCOME FURNISHED BY THE APPELLANT HAS BEEN ESTA BLISHED TO BE INACCURATE NOR ANY PARTICULARS OF INCOME WAS HID DEN OR WITHHELD FROM THE KNOWLEDGE OF THE DEPARTMENT. THE ADDITION IS RESULT OF A DEDUCTION CLAIMED ON ACCOUNT OF BAD DEBTS. I HAVE CONSIDERED ALL THE ASPECT OF THE CASE. IN MY OPINI ON AN APPELLANT HAS A RIGHT TO MAKE CLAIM FOR DEDUCTION W HICH MAY OR MAY NOT BE ALLOWED WHERE THE APPELLANT MAKES CLAIM FOR PARTICULAR DEDUCTION BY DISCLOSING ALL THE RELEVANT AND NECESSARY FACTS RELATING TO THE SAME AND IN SUCH CASE THE CLA IM WILL NOT AMOUNT TO CONCEALMENT EVEN IT IS REJECTED. MERELY BECAUSE BAD DEBTS IS CLAIMED BY THE APPELLANT AS DEDUCTION ON T HE BASIS OF ITS OWN INTERPRETATION OF LAW WHICH HAS BEEN DISALLOWED BY THE AO AND THE ADDITION IS CONFIRMED BY THE ITAT, IT WOULD NOT JUSTIFY THE IMPOSING OF PENALTY U/S. 271(1)(C). THE CLAIM OF THE APPELLANT THAT IN THE YEAR 1989 CERTAIN GOODS WERE SUPPLIED TO IPML AND CERTAIN DISPUTES AROSE ABOUT THE QUALITY OF THE GOODS SUPPLIED BY THE APPELLANT, THE DEBTS WERE WRITTEN O FF SINCE THE SAME WAS NOT RECOVERABLE, CANNOT BE IGNORED ALTOGET HER. THE EXPLANATION OF THE APPELLANT APPEARS TO BE PLAUSIBL E MORE PARTICULARLY WHEN IPML WAS REFERRED TO BIFR. EVEN OT HERWISE ALSO THE IMPUGNED AMOUNT WRITTEN OFF COULD BE CONSI DERED AS ITA NO. 5191/M/10 3 LOSS INCIDENTAL TO BUSINESS OF THE APPELLANT. IT I S WELL ESTABLISHED LAW THAT PENALTY U/S. 271(1)(C) IS NOT AUTOMATIC BU T AN AO MUST CONSIDER THE CIRCUMSTANCES OF THE CASE AND THEN EXE RCISE HIS DISCRETION IN JUDICIOUS MANNER. FURTHER THE PENALT Y U/S. 271(1)(C) IS NOT MANDATORY. IN MY OPINION IT IS NOT PURPORT OF THE LAW THAT AN APPELLANT SHOULD UNDERTAKE AN EXERC ISE IN SELF- ADJUDICATION BEFORE CLAIMING ANY EXPENSES OR DEDUCT ION. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IN MY OPINION TWO VIEW ARE POSSIBLE ON THE ISSUE OF CLAIM FOR DEDUCTION OF BAD DEBTS AND AS SUCH THE PENALTY IS NOT JUSTIFIED IN SUCH CASE. ON THE BASIS OF AFORESAID DISCUSSION OF FACTS, I AM OF THE CONSIDERE D VIEW THAT THE AOS ACTION WAS NOT JUSTIFIED IN IMPOSING THE P ENALTY IN THE PRESENT CASE. ACCORDINGLY, I CONSIDER IT PROPER AND APPROPRIATE TO CANCEL THE PENALTY ORDER. HENCE, DEPARTMENT IS IN APPEAL BEFORE TRIBUNAL. 4. DURING THE COURSE OF HEARING, THE LD. DEPARTMENT AL REPRESENTATIVE SUBMITTED THAT CLAIM OF ASSESSEE OF BAD DEBT OF OUT STANDING AMOUNT FROM M/S. IPML WAS NOT GENUINE AND TO SUBSTANTIATE HIS SU BMISSION HE RELIED ON THE ORDER OF TRIBUNAL PASSED IN QUANTUM APPEAL, PAR TICULARLY PARA-5 OF SAID ORDER. THE LD. DR SUBMITTED THAT TRIBUNAL WHILE CO NFIRMING THE ADDITION IN THE QUANTUM APPEAL OBSERVED THAT ASSESSEE CLAIMED B AD DEBT IN RESPECT OF THE GOODS SUPPLIED TO M/S. IPML, WHEREAS TRIBUNAL FO UND THAT ASSESSEE KEPT ON CLOSE RELATIONSHIP AND HAD NUMEROUS TRANSACTIONS WITH THE PARTY ALL ALONG AND IN SUBSEQUENT YEARS ALSO. THEREFORE, THE TRIBU NAL OBSERVED THAT ASSESSEE CREATED AN ARTIFICIAL CLAIM OF BAD DEBT ARISING DUR ING THE COURSE OF TRADING ACTIVITY OF THE ASSESSEE. THE LD. DR SUBMITTED THAT BAD DEBT CREATED BY ASSESSEE WAS A FICTITIOUS LIABILITY WITH AN INTENTI ON TO REDUCE TAX LIABILITY AND THEREFORE ASSESSEE FURNISHED WRONG PARTICULARS OF I TS INCOME. HE SUBMITTED THAT ORDER OF AO TO LEVY PENALTY BE CONFIRMED. 5. ON THE OTHER HAND, THE LD. AUTHORISED REPRESENTA TIVE OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A) AND SUBMITTED THA T AO HAS NOWHERE IN THE PENALTY ORDER DOUBTED GENUINENESS OF AMOUNT OF BAD DEBT CLAIMED BY ASSESSEE. HE FURTHER SUBMITTED THAT THERE IS NO FI NDING BY AO IN THE PENALTY ORDER THAT THERE WAS ANY CONCEALMENT OF INCOME OR F URNISHING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. THE LD. AR S UBMITTED THAT AFTER THE ITA NO. 5191/M/10 4 AMENDMENT W.E.F. 1.4.1989, ASSESSEE HAS NOTHING TO DO WHILE CLAIMING BAD DEBT EXCEPT WRITING OFF THE OUTSTANDING LIABILITY I N ITS BOOKS OF ACCOUNT AND TO SUBSTANTIATE HIS SUBMISSION HE REFERRED THE DECISIO N OF HONBLE APEX COURT IN THE CASE OF TRF LTD. VS CIT 323 ITR 397. THE LD. A R REFERRING TO THE DECISION OF THE TRIBUNAL IN THE QUANTUM PROCEEDINGS SUBMITTED THAT THE TRIBUNAL ONLY HELD THAT CLAIM OF ASSESSEE IS NOT A BAD DEBT AND CONSIDERED IT AS A LOAN TO M/S. IPML. THE LD. AR SUBMITTED THAT C OPY OF SAID TRIBUNAL ORDER IS PLACED AT PAGES 48 TO 59 OF PAPER BOOK. THE AR FURTHER SUBMITTED THAT IN THE SUCCEEDING YEAR ALSO SIMILAR CLAIM OF THE ASSES SEE WAS DISALLOWED BY DEPARTMENT BUT NO PENALTY WAS LEVIED. THE LD. AR S UBMITTED THAT AO HAD NOT ACCEPTED THE CLAIM OF BAD DEBT BUT THERE IS NO SUCH FINDING THAT THE AMOUNT CLAIMED BY ASSESSEE AS BAD DEBT WAS NOT OUTSTANDING AND NOR IT IS A CLAIM OF DEPARTMENT THAT ASSESSEE RECEIVED THE SAID OUTSTAND ING AMOUNT. THE LD. AR SUBMITTED THAT AO LEVIED PENALTY ONLY BECAUSE IN TH E QUANTUM PROCEEDINGS, ADDITION HAD BEEN CONFIRMED. THE LD AR REFERRING T O THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS DHARAMCHAND L. SHA H 204 ITR 462 SUBMITTED THAT PENALTY PROCEEDING AND ASSESSMENT PR OCEEDING ARE SEPARATE AND DISTINCT. HE FURTHER SUBMITTED THAT MERELY BEC AUSE THE CLAIM OF ASSESSEE HAS NOT BEEN SUSTAINED IN THE QUANTUM PROCEEDINGS I T COULD NOT BE A GROUND TO LEVY PENALTY U/S. 27191)(C) OF THE ACT. 6. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTHO RITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE CLAIMED BAD DEBT OF RS. 12,13,35 5/- IN RELATION TO TRANSACTION HAD WITH M/S. IPML A SISTER CONCERN OF T HE ASSESSEE. WE OBSERVE THAT TRIBUNAL IN THE QUANTUM APPEAL STATED THAT ASS ESSEE CLAIMED BAD DEBT IN RESPECT OF GOODS SUPPLY TO M/S. IPML WHEREAS ASSESSE E KEPT ON CLOSE RELATIONSHIPS AND NUMEROUS TRANSACTIONS WITH THE PA RTY ALL ALONG AND IN SUBSEQUENT ASSESSMENT YEARS ALSO. BY DOING SO ASSE SSEE MANAGED TO CREATE AN ARTIFICIAL CLAIM OF BAD DEBT ARISING DURING THE COURSE OF TRADING ACTIVITY OF THE ASSESSEE. THE TRIBUNAL FURTHER OBSERVED THAT T HE AMOUNTS CLAIMED BY ASSESSEE AS BAD DEBT IN EFFECT REPRESENTED CASH LOA NS ADVANCED BY ASSESSEE ITA NO. 5191/M/10 5 TO IPML NOT FROM ANY BUSINESS NECESSITY BUT BECAUSE IPML WAS PART OF THE SAME GROUP OF CONCERNS. HOWEVER, WE OBSERVE THAT I T IS NOT THE CASE OF THE DEPARTMENT THAT ASSESSEE WAS NOT TO RECOVER THE SUM OF RS. 12,13,355/- FROM M/S. IPML TOWARDS ITS OUTSTANDING LIABILITY. WE ALS O OBSERVE THAT M/S. IPML HAD BECOME A SICK COMPANY AND IT WAS REFERRED TO BIF R. THEREFORE, CHANCES OF RECOVERY OF SAID AMOUNT BY ASSESSEE FROM M/S. IP ML WERE REMOTE. THE ASSESSEE CLAIMED THE SAID AMOUNT AS BAD DEBT. WE A GREE WITH LD. DR THAT THIS AMOUNT COULD NOT BE CLAIMED AS BAD DEBT BUT IT IS A WELL SETTLED LAW THAT MERELY REJECTING THE CLAIM OF ASSESSEE DOES NOT LEA D TO THE CONCLUSION THAT CLAIM OF ASSESSEE WAS NOT GENUINE. THEREFORE, WE F IND SUBSTANCE IN THE SUBMISSION OF LD. AR THAT IT IS NOT A CASE OF CONCE ALMENT OF INCOME OF ASSESSEE OR FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME BECAUSE THE AMOUNT OUTSTANDING FROM M/S. IPML IS NOT IN DISPUTE NOR IT IS IN DISPUTE THE ASSESSEE HAS WRITTEN OFF SAID AMOUNT IN ITS BOOKS O F ACCOUNT. CONSIDERING CASES CITED BY LD. AR (SUPRA) I.E. THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS PVT. LTD., 322 ITR 158, WE HOLD THAT LD. CIT(A) HAS RIGHTLY DELETED THE PENALTY LEVIED B Y AO U/S. 271(1)(C) OF THE ACT. HENCE, WE UPHOLD THE ORDER OF LD. CIT(A) AND REJECT THE GROUND OF APPEAL TAKEN BY DEPARTMENT. 7. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMIS SED. ORDER PRONOUNCED ON THIS 2 ND DAY OF NOVEMBER, 2011 SD/- SD/- ( R.K. PANDA) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 2 ND NOVEMBER, 2011 RJ ITA NO. 5191/M/10 6 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 5191/M/10 7 DATE INITIALS 1. DRAFT DICTATED ON: 31.10.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 31.11.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: