PARUL P. SHAH, MUMBAI V. ITO 17(2)(1), MUMBAI

ITA 5244/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75323 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 15-01-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 17-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: D C JAIN
• Keywords: Business income; Wrong claim; Bad and doubtful debts; Corroborative evidences
• Section: 143(3)

Judgement Text

, LH LHLH LH IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL C CC C BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . , . , ! ! ! ! '# '# '# '# BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO, AM , AM , AM , AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.5244/MUM/2012 5244/MUM/2012 5244/MUM/2012 5244/MUM/2012 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2004-05) MRS. PARUL P. SHAH, C/O- D.C. JAIN & CO., 75, BOMBAY MUTUAL BLDG., 293, DR. D. N. ROAD, FORT, MUMBAI-400001 % % % % / VS. INCOME TAX OFFICER 17(2)(1), PEERAMAL CHAMBERS, LALBAUG, MUMBAI-400012 #' ! ./ ( ./ PAN/GIR NO. :AOIPS6497K ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) $% $%$% $% ,- ,- ,- ,- . / . / . / . / /ASSESSEE BY : SHRI D. C. JAIN # # # # . / . / . / . / / REVENUE BY : SMT. PARMINDER % % % % . .. . -! -! -! -! / DATE OF HEARING : 15 TH JANUARY 2014 01& 01& 01& 01& . .. .-! -! -! -! /DATE OF PRONOUNCEMENT: 22 ND JANUARY 2014 ' 2 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 1.6.2012 OF CIT(A) ARISING FROM PENALTY ORDER PASSE D U/S 271(1)(C) OF THE INCOME TAX ACT FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER PASSED BY THE ASSESSING OFFICER LEVYING PENALTY OF ` 318361/- U/S 271(1)(C) OF I. T. ACT. 2. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, DELETE THE GROUND OF APPEAL AT OR BEFORE THE HEARING OF APPEAL . ITA NO.5244/M/2012 PARUL P. SHAH 2 3. IN THE ASSESSMENT FRAMED U/S 143(3) THE A.O HAS DISALLOWED THE CLAIM OF BAD DEBTS OF ` 6,94,125/- AS WELL AS ADMIN ISTRATIVE EXPENSES OF ` 3,37,706/- BY PRO-RATA BASIS OF SHARE TRADING AND L ONG TERM CAPITAL GAIN. THE DISALLOWANCE OF BAD DEBTS HAS BEEN CONFIRMED UP TO THE STAGE OF THIS TRIBUNAL HOWEVER, THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE REGARDING EXPENSES OF INTEREST AGAINST SHARE TRADING ACTIVITY AND THE REMAINING EXPENSES WERE ALLOCATED ON PRO-RATA BASIS. THUS, A PARTIAL RELIEF WAS GRANTED BY THE CIT(A) IN RESPECT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES. THE A.O CONSEQUENTIALLY LEVIED THE PENALT Y U/S 271(1)(C) OF ` 3,18,361/- BEING 100% TAX SOUGHT TO BE EVADED. 4. BEFORE US THE LD. A.R OF THE ASSESSEE HAS SUBMIT TED THAT THE BAD DEBTS OF THE ASSESSEE WAS DISALLOWED ON THE GROUND THAT THE ASSESSEE WAS BOTH AN INVESTOR AS WELL AS TRADER IN SHARES AND ON LY ON ACCOUNT OF TRADING IN SHARE THE QUESTION OF BAD DEBTS IS RELEVANT. THE LD. A.R HAS FURTHER POINTED OUT THAT THE DEBTS IN QUESTION ARE EXISTING IN THE BOOKS OF THE ASSESSEE SINCE THE ASSESSMENT YEAR 1999-2000 AND WE RE ACCEPTED BY THE REVENUE. HE HAS FURTHER SUBMITTED THAT ONLY IN THE YEAR UNDER CONSIDERATION THE ASSESSEE WRITTEN OFF THE DEBTS BY TREATING THE SAME AS NON-RECOVERABLE THEREFORE, THE DISALLOWANCE OF THE CLAIM OF BAD DEBTS WOULD NOT AMOUNT TO FURNISHING INACCURATE PARTICULA RS OF INCOME OR CONCEALMENT OF THE INCOME BY THE ASSESSEE. THE CLAI M OF THE ASSESSEE WAS NOT A BOGUS OR FALSE CLAIM BUT IT WAS DISALLOWE D AS THE AUTHORITIES HAVE NOT ACCEPTED THE SAME IN THE LIGHT OF THE PROV ISIONS OF THE ACT. THE LD. A.R OF THE ASSESSEE HAS FURTHER SUBMITTED THAT SINCE THESE WERE OLD ITA NO.5244/M/2012 PARUL P. SHAH 3 DEBTS AND CONSIDERABLE TIME HAS LAPSED THEREFORE, T HE ASSESSEE COULD NOT PRODUCE THE SUPPORTING EVIDENCE HOWEVER, WHEN THE D EPARTMENT HAS ACCEPTED THE CLAIM OF DEBTS RIGHT FROM THE ASSESSME NT YEAR 1999-2000 THEN IN THE YEAR WRITTEN OFF IT CANNOT BE TREATED A S BOGUS CLAIM. THE LD. A.R HAS FORCEFULLY CONTENDED THAT THE CLAIM OF BAD DEBTS IS BONAFIDE AND THE AMOUNT IS OUTSTANDING IN THE BOOKS OF ACCOUNT F OR A LONG PERIOD AND THEREFORE, THE DEBTS BECAME UNRECOVERABLE. AS REGAR DS, THE ADMINISTRATIVE EXPENSES DISALLOWED ON THE PRO-RATA BASIS THE LD. A.R OF THE ASSESSEE HAS SUBMITTED THAT THIS CLAM WAS NEITH ER CONCEALMENT OF FACTS NOR FURNISHING OF INACCURATE PARTICULARS OF I NCOME. THE DISALLOWANCE WAS MADE BY THE AUTHORITIES ON THE GROUND THAT THE ASSESSEE IS HAVING BOTH TRADING IN SHARES AND LONG TERM CAPITAL GAIN T HEREFORE, THE ADMINISTRATIVE EXPENSES WERE APPORTIONED IN THE PRO -RATA BASIS. THE LD. A.R HAS POINTED OUT THAT THOUGH THE CIT(A) HAS CONF IRMED THE LEVY OF PENALTY HOWEVER, THE ISSUE OF LEVY OF PENALTY AGAIN ST THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES HAS NOT BEEN SPECIFICALLY D ISCUSSED. APART FROM HIS CONTENTION OF MERIT THE LD. A.R HAS FURTHER POI NTED OUT THAT THE ASSESSING OFFICER HAS ALSO COMMITTED THE ERROR WHIL E QUANTIFYING THE PENALTY AT ` 3,18,361/- BECAUSE THE A.O FAILED TO A PPLY THE CORRECT AVERAGE RATE OF TAX IN THE CASE OF THE ASSESSEE WHI CH IS ABOUT 15% BECAUSE OF THE MAJORITY OF THE INCOME OF THE ASSESS EE IS FROM LONG TERM CAPITAL GAIN. ON THE OTHER HAND, THE LD. D.R HAS RE LIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE A SSESSEE HAS FAILED TO PROVE THE CLAIM OF BAD DEBTS THEN THE LEVY OF PENAL TY U/S 271(1)(C) IS JUSTIFIED. ITA NO.5244/M/2012 PARUL P. SHAH 4 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE TOTAL INCOME ASSESSED BY THE A.O IS ` 37,73,960/- OUT OF WHICH THE INCOME FROM LONG TERM CAPITAL GAIN IS ` 21,27,880/-. THE ASSESSING OFFICE R WHILE COMPUTING THE PENALTY AGAINST THE DISALLOWANCE ON ACCOUNT OF BAD DEBTS AND ADMINISTRATIVE EXPENSES APPEARS TO HAVE APPLIED INC ORRECT AVERAGE TAX AND THIS IS BECAUSE THE INCOME FROM LONG TERM CAPIT AL GAIN WAS NOT TAKEN INTO ACCOUNT. THUS, WE FIND THAT THERE IS AN APPARENT MISTAKE IN THE PENALTY ORDER U/S 271(1)(C) AND IF THE CORRECT AVER AGE TAX IS APPLIED THE PENALTY IN QUESTION SHOULD HAVE BEEN LESS THAN 50% OF THE PRESENT AMOUNT OF PENALTY. WE FURTHER NOTE THAT THE REVENUE HAS NOT DISPUTED THE FACT THAT THE DEBTS WHICH WERE WRITTEN OFF BY THE A SSESSEE DURING THE YEAR ARE APPEARING IN THE BOOKS OF THE ASSESSEE SINCE TH E ASSESSMENT YEAR 1999-2000 AND WERE ACCEPTED BY THE DEPARTMENT. THER EFORE, ONCE THE DEBTS IN QUESTION WERE ACCEPTED FOR THE EARLIER ASS ESSMENT YEARS THEN EVEN IF THE CLAIM OF BAD DEBTS IS DENIED BECAUSE OF THE REASON THAT THE ASSESSEE COULD NOT PRODUCE THE RELEVANT RECORD THE SAME CANNOT BE SAID TO BE A BOGUS OR FALSE CLAIM. FURTHER WHEN THESE DE BTS ARE APPEARING IN THE BOOKS OF ACCOUNT AND OUTSTANDING FOR A CONSIDER ABLE TIME SHOWS ON THE FACE OF IT THAT IT IS NOT A BOGUS CLAIM. THE DI SALLOWANCE OF CLAIM OF BAD DEBTS BECAUSE THE AUTHORITIES ARE NOT SATISFIED FOR WANT OF RELEVANT MATERIAL AND EVIDENCE AND FURTHER THE ASSESSEE WAS ENGAGED IN THE SHARE TRADING AS WELL AS INVESTMENT IN SHARES WOULD NOT L EAD TO THE CONCLUSION THAT THE CLAIM OF BAD DEBTS IS A BOGUS CLAIM. AS RE GARDS, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES WE NOTE THAT THE A.O ALL OCATED THE ITA NO.5244/M/2012 PARUL P. SHAH 5 ADMINISTRATIVE EXPENSES ON THE PRO-RATA BASIS IN TH E RATIO OF BUSINESS INCOME AND LONG TERM CAPITAL GAIN. THE CIT(A) IN QU ANTUM APPEAL GRANTED RELIEF TO THE ASSESSEE TO THE EXTENT OF INT EREST EXPENDITURE AND CONFIRM THE PRO-RATA DISALLOWANCE IN RESPECT OF OTH ER ADMINISTRATIVE EXPENSES. IT IS CLEAR FROM THE FACTS THAT THE CLAIM OF THE ASSESSEE IS NEITHER BOGUS NOR ABSOLUTELY WRONG BUT THE DISALLOW ANCE IS ONLY BECAUSE OF ALLOCATION BY THE AUTHORITIES AS THE ASSESSEE WA S A TRADER AS WELL AS INVESTORS IN SHARES. THE ALLOCATION OF ADMINISTRATI VE EXPENSES ON ACCOUNT OF THE CAPITAL GAIN FROM THE SALE AND PURCHASE OF S HARES WOULD NOT AMOUNT TO CONCEALMENT OF INCOME OR INACCURATE PARTICULARS OF INCOME WHEN ALL RELEVANT DETAILS WERE FURNISHED BY THE ASSESSEE. WE FURTHER NOTE THAT IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS M ADE A BOGUS CLAIM BUT THE EXPENSES ACTUALLY INCURRED BY THE ASSESSEE WERE DISALLOWED AS THE SAME WERE ALLOCATED ON PRO-RATA BASIS. THE ALLOCATI ON OF EXPENSES IS NOT PER SE DISALLOWANCE BUT THIS WAS DIVIDED BETWEEN THE INCO ME FROM CAPITAL GAIN AND BUSINESS INCOME. AS IT WAS NOT A DISALLOWA NCE OF EXPENDITURE BUT ALLOCATION BETWEEN THE BUSINESS INCOME AND CAPITAL GAIN THEREFORE, WE ARE OF THE VIEW THAT THE SAME WOULD NOT ATTRACTS THE LE VY OF PENALTY U/S 271(1)(C). SIMILARLY, AS DISCUSSED ABOVE WHEN THE A SSESSEE HAS BROUGHT ON RECORD THE FACT THAT THE BAD DEBTS ARE LONG OUTS TANDING IN THE BOOKS OF ACCOUNT OF THE ASSESSEE THEN THE DISALLOWANCE OF TH E CLAIM WOULD NOT IF SO FACTO AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INC OME OR CONCEALMENT OF INCOME ATTRACTING THE LEVY OF PENALT Y U/S 271(1)(C). HENCE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE PENA LTY LEVIED U/S 271(1)(C) (THOUGH QUANTIFIED INCORRECTLY) IS DELETED. ITA NO.5244/M/2012 PARUL P. SHAH 6 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF JANUARY 2014 SD/- SD/- ( . ) ! '# (D. KARUNAKARA RAO) ACCOUNTANT MEMBER ( ) $ '# (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 22 ND JANUARY 2014 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI