DCIT, New Delhi V. M/s. Swarovski India Pvt. Ltd., New Delhi

ITA 5976/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2997 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2002-2003
• Appeal Filed On: 05-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST IMPUGNED DATED PASSED
• Keywords: Transfer pricing; Bad and doubtful debts

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT ME MBER ITA NO.5976/DEL/2014 ASSESSMENT YEAR: 2002-03 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 8.8.2014, PASSED BY LD. CIT(AP PEALS)-XX, NEW DELHI IN RELATION TO THE PENALTY PROCEEDINGS U/S 271( 1)(C) FOR THE ASSESSMENT YEAR 2002-03. THE REVENUE IS MAINLY AGGRI EVED BY DELETION OF PENALTY ON ACCOUNT OF FOLLOWING ADDITIONS:- DCIT CIRCLE-7(1) NEW DELHI. VS. SWAROVSKI INDIA PVT. LTD., 1A-1D, VANDANA BUILDING 11, TOLSTOY MARG NEW DELHI 110 001 PAN AAGCS4052D (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI KAUSHLENDRA TIWARI, SR. DR ASSESSEE BY : SHRI NITIN BANSAL, CA DATE OF HEARING 14/03/2018 DATE OF PRONOUNCEMENT 19/03/2018 2 I) DISALLOWANCE OF RS. 39,98,196/- OUT OF ADVERTISEME NT AND PUBLICITY EXPENSES; II) DISALLOWANCE OF RS. 99,95,581/- ON ACCOUNT OF PR OVISION FOR OBSOLETE GOODS; III) DISALLOWANCE OF RS. 8,03,947/- ON ACCOUNT OF PR OVISION FOR DOUBTFUL DEBTS AND ADVANCES. 2. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN SO FAR AS THE ADDITION ON ACCOUNT OF DISALLOWANCE O F FIRST TWO ITEMS, I.E., DISALLOWANCE OF RS. 39,98,196/- OUT OF ADVERTIS EMENT AND PUBLICITY EXPENSES; AND DISALLOWANCE OF RS. 99,95,5 81/- ON ACCOUNT OF PROVISION OF OBSOLETE GOODS IS CONCERNED, THE SAME STANDS DELETED BY THE TRIBUNAL IN THE QUANTUM PROCEEDINGS VIDE ORDER DA TED 19.9.2016 PASSED IN ITA NO. 3472/D/2010. LD. DR ALSO ADMITTED TH AT THESE TWO ADDITIONS HAVE BEEN DELETED BY THE TRIBUNAL. 3. THUS, ONCE WITH REGARD TO DISALLOWANCE ON ACCO UNT OF ADVERTISEMENT AND PUBLICITY EXPENSES AND ON ACCOUNT OF PROVISION OF OBSOLETE GOODS STANDS DELETED IN THE QUANTUM PROCEED INGS FROM THE STAGE OF THE TRIBUNAL, THEN THERE REMAINS NO REASONS TO CONFIRM OF PENALTY U/S 271(1)(C) ON SUCH ADDITIONS. ACCORDINGLY , PENALTY LEVIED ON THE QUANTUM OF AFORESAID TWO DISALLOWANCES IS DIRECTE D TO BE DELETED AND TO THIS EXTENT ORDER OF LD. CIT (A) IS ALSO CONFIR MED. 3 4. AS REGARDS THE DISALLOWANCE OF RS. 8,03,947/- ON ACCOUNT OF PROVISION OF DOUBTFUL DEBTS, THE FACTS IN BRIEF ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD CLAIMED DEDUCTION AGAINST HIS TAXABLE INCOME ON ACCOUNT OF THE FOLLOWING:- I) PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS . 2,89,475; II) PROVISION FOR DOUBTFUL ADVANCES AMOUNTING TO RS. 5,10,254; III) ADVANCES WRITTEN OF AMOUNTING TO RS. 4,21 8. THE AFORESAID AMOUNTS WERE ALSO DISCLOSED AS SEPARA TE LINE OF ITEMS APPEARING IN SCHEDULE 13 OTHER EXPENSES OF THE AU DITED FINANCIALS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AS SESSEE HAD FURNISHED DETAILS AND CLARIFICATIONS IN RESPECT OF THE NATURE OF ABOVE ITEMS ALONGWITH THE JUSTIFICATION OF ITS CLAIM. IT WAS SUBMITTED THAT THE PROVISION FOR DOUBTFUL DEBTS OF RS. 2,89,475/- RELAT ED TO OLD DUES FROM THE CUSTOMERS OF M/S. SPA AGENCIES INDIA PVT. LTD. WHI CH WAS TAKEN OVER BY THE ASSESSEE; AND PROVISION FOR DOUBTFUL ADVA NCES AMOUNTING TO RS. 5,10,254/- PERTAINED TO SPECIAL VALUATION BRANC H LOADING ON CUSTOMS DUTIES @ 1% WHICH CUSTOMS DEPARTMENT CHARGED ON GOODS IMPORTED BY THE ASSESSEE FROM ASSOCIATED ENTERPRISES WHICH WAS DOUBTFUL OF RECOVERY FROM THE CUSTOMS DEPARTMENT. IT W AS FURTHER SUBMITTED THAT IN A.Y 2003-04 ASSESSEE HAD GOT RELIEF F ROM THE LD. CIT (A) ON AN IDENTICAL SET OF FACTS IN THE SUBSEQUENT YEAR, I.E., A.Y. 2003- 04, WHEREIN THE LD. CIT (A) FOLLOWING THE JUDGMENT OF THE HONBLE APEX 4 COURT IN THE CASE OF VIJAYA BANK VS. CIT [323 ITR 16 6 (SC)] HAS DELETED THE DISALLOWANCES AND UPHELD ASSESSEES CLAI M. HOWEVER, AO HAS CONFIRMED THE SAID PENALTY ON THE GROUND THAT SAME HAS BEEN UPHELD BY THE LD. CIT (A) IN THE QUANTUM PROCEEDINGS I N THIS YEAR AND ASSESSEE HAS FAILED TO SUBSTANTIATE THE CLAIM OF DEDUCTI ON. 5. LD. CIT (A) HAS DELETED THE PENALTY ON THESE DISALLOWANCES AFTER OBSERVING AND HOLDING AS UNDER:- THE APPELLANT HAS SUBMITTED THAT IN RESPECT OF THI S GROUND RELATING TO THE DISALLOWANCE OF PROVISION FOR DOUBT FUL DEBTS AND ADVANCES, THE APPELLANT HAS OBTAINED COMPLETE RELIE F FROM CIT (A) IN IDENTICAL FACTS FOR AY 2003-04 IN VIEW OF THE DE CISION OF THE APEX COURT IN THE CASE OF VIJAYA BANK V. CIT AND AN R. 323 ITR 166(SC). THE HONBLE SUPREME COURT IN CIT VS. RELIA NCE PETROPRODUCTS PVT. LTD.; 322 ITR 158 HAS HELD THAT : A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LA W, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETU RN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. CONSIDERING THE FACT OF THE CASE, I AM OF THE VIEW THAT THIS IS A DEBATABLE ISS UE. ACCORDINGLY, THE AO IS DIRECTED TO CANCEL THE PENALTY U/S 271(1) (C) IMPOSED ON THE SAID DISALLOWANCE OF RS. 8,03,947/- ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR DOUBTFUL BETS AND ADV ANCES. 6. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F RECORD, WE FIND THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE B Y THE TRIBUNAL IN THE QUANTUM PROCEEDINGS ON THE GROUND THAT, FIRSTLY , DEDUCTION U/S 5 36(1)(VII) IS ALLOWABLE ON ACTUAL WRITE-OFF; AND SECO NDLY, CONDITION PRECEDENT FOR SUCH DEDUCTIBILITY AS SET OUT U/S 36(2) H AS NOT BEEN FULFILLED. NO DEDUCTION ON ACCOUNT OF BAD DEBT OR ANY PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING OF THE INCOME WHICH IS WRITTEN- OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. IN SO FAR AS THE FIRST AMOUNT OF RS. 2,89,475/- , THE TRIBUNAL HELD THAT THIS REPRESENTS AMOUNT OF DEBTORS ACQUIRED BY THE AS SESSEE FROM SPA AGENCIES INDIA P. LTD. AND WRITING IT OFF DURING THE YEAR ITSELF DOES FULFIL THE CONDITIONS LAID DOWN UNDER THE AFORESAID PR OVISION, BECAUSE, THIS AMOUNT WAS NEVER BEEN TAKEN INTO ACCOUNT IN COMPUTI NG THE INCOME OF THE ASSESSEE IN THE CURRENT YEAR OR IN EARLI ER YEAR. ALTHOUGH SUCH DEBT MIGHT HAVE BEEN CONSIDERED IN THE COMPUTATION OF INCOME OF ERSTWHILE SPA AGENCIES INDIA P. LTD. IN THE EARLIER YEARS BUT DOES NOT SATISFY THE CONDITIONS IN THE HANDS OF THE ASSESSEE. 7. BEFORE US LD. DR HAD STRONGLY RELIED UPON THIS OBSERVATION OF THE TRIBUNAL AND SUBMITTED THAT ONCE ASSESSEES CLAIM F OR PROVISION FOR DOUBTFUL DEBTS HAS NOT BEEN FOUND TO BE CORRECT, THEN THE PENALTY HAS RIGHTLY BEEN LEVIED BY THE AO. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAD FURNISHED ENTIRE PARTICULARS OF THE PROVISION OF DOUBTFUL DEBTS AND ADVA NCES IN THE SCHEDULE 13 OF BALANCE SHEET, WHEREIN IT HAS BEEN AC TUALLY WRITTEN OFF. THUS, THERE COULD NOT BE A CASE OF FURNISHING OF INA CCURATE PARTICULARS 6 OF INCOME AND MOREOVER IN THE SUBSEQUENT YEARS ON SIM ILAR SET OF FACTS, LD. CIT(A) HAS DELETED THE SAID ADDITION AND THE REFORE IT CANNOT BE HELD THAT THE PENALTY SHOULD BE LEVIED IN THIS YEAR. HE THUS STRONGLY RELIED UPON THE ORDER OF THE LD. CIT (A). 8. AS DISCUSSED ABOVE, THE ASSESSEE DURING THE YE AR HAS CLAIMED DEDUCTION ON ACCOUNT OF THREE ITEMS SHOWN UNDER THE HE AD PROVISION FOR DOUBTFUL DEBT AND DOUBTFUL ADVANCE FOR SUMS AGGREG ATING TO RS. 8,03,947/- WHICH WAS DISCLOSED AS SEPARATE LINE OF ITEMS APPEARING IN SCHEDULE 13- OTHER EXPENSES OF THE BALANCE SHEET. I N SO FAR AS THE PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS. 2,89,4 75/- IS CONCERNED THE SAME PERTAINED TO OLD DEBTS RECOVERABLE BY SPA AGEN CIES INDIA (P) LTD. WHICH WAS TAKEN OVER BY THE ASSESSEE ALONGWITH OT HER ASSETS. ONCE THIS FACT IS NOT DENIED THAT THE SAID AMOUNT REPRESE NTS THE AMOUNTS OF THE DEBTORS ACQUIRED BY THE ASSESSEE FROM SP A AGENCIES INDIA P LTD. AND WHICH HAS BEEN WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION AS IRRECOVERABLE, THEN SUCH A CLAIM CAN NOT BE SAID TO ATTRACT PENAL PROVISION U/S 271(1)(C) SPECIFICALLY WHE N THERE IS OBSERVATION IN THE QUANTUM PROCEEDINGS BY THE TRIBUNA L THAT SUCH DEBTS MIGHT HAVE BEEN CONSIDERED IN THE COMPUTATION O F INCOME OF SPA AGENCIES INDIA P LTD. IN THE EARLIER YEARS. IF THA T IS SO THAT THE DEBTS HAVE BEEN TAKEN OVER BY THE ASSESSEE AND HAS AC TUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT, THEN THE CLAIM OF THE ASSESSEE CAN 7 BE HELD TO BE BONAFIDE SPECIALLY WHEN IN THE SUBSEQUE NT YEARS SIMILAR CLAIM OF WRITE OFF OF PROVISION OF DOUBTFUL DEBTS HAS BEEN ALLOWED IN THE QUANTUM PROCEEDINGS. AT LEAST THERE IS NO FURNISHING OF INACCURATE PARTICULARS BY THE ASSESSEE. ACCORDINGLY, WE HOLD TH AT LD. CIT(A) HAS RIGHTLY DELETED THE PENALTY ON ACCOUNT OF PROVISION O F DOUBTFUL DEBTS AMOUNTING TO RS. 2,89,475/-. 9. IN SO FAR AS THE PROVISION FOR DOUBTFUL ADVAN CES OF RS. 5,10,254/-, THE SAME REPRESENTED AMOUNT OF 1% OF LOAD ING OF CUSTOMS DUTIES WHICH CUSTOMS DEPARTMENT CHARGED DUE TO IMPORT F ROM ASSOCIATED COMPANIES. THIS HAS BEEN TREATED AS DOUBTFU L ADVANCES FOR WHICH ASSESSEE HAS TREATED TO BE IRRECOVERABLE. THERE IS NO OTHER MATERIAL BROUGHT ON RECORD BY THE AO THAT THESE ADVANCE S ARE IN FACT NOT RECOVERABLE OR ASSESSEES CLAIM IS NOT BONAFIDE. IN ANY CASE MERE MAKING OF A CLAIM OF WRITE-OFF OF DOUBTFUL ADVANCE WH ICH HAS NOT BEEN RECOVERED WILL NOT LEAD TO INFERENCE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME WHEN ON A SIMILAR FACTS AND CIR CUMSTANCES IT HAS BEEN ALLOWED BY THE REVENUE AUTHORITIES IN THE SUB SEQUENT YEAR. THUS, ON THIS AMOUNT ALSO NO PENALTY IS LEVIABLE. IN SO FAR AS THE SMALL AMOUNT OF RS. 4,218/- FOR THE ADVANCES WRITTEN OFF, THE LD. COUNSEL HAS SUBMITTED THAT THESE REPRESENTS ADVANCES GIVEN TO VARI OUS PERSONS DURING THE COURSE OF BUSINESS WHICH HAVE BEC OME IRRECOVERABLE OVER THE PERIOD OF TIME AND HENCE WERE WRITTEN OFF. OVER 8 THIS CLAIM ALSO, WE DO NOT FIND ANY REASON TO HOLD THA T IT IS UNSUSTAINABLE CLAIM OR AMOUNTS TO FURNISHING OF INACCU RATE PARTICULARS OF INCOME. ACCORDINGLY, THE ORDER OF THE L D. CIT (A) CANCELLING THE PENALTY IS UPHELD. 10. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH MARCH, 2018. SD/- SD/- (PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19/03/2018 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI