M/s SAB Industries Limited, Chandigarh V. ACIT, Central Circle II, Chandigarh

ITA 626/CHANDI/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7364 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: RAJESH GARG
• Keywords: Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH B , CHANDIGARH , ! '# $ % & '# , BEFORE: SHRI SANJAY GARG, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.626/CHD/2018 / ASSESSMENT YEAR : 2007-08 M/S SAB INDUSTIES LTD., SCO 49-50, SECTOR 26, CHANDIGARH. THE A .C.I.T., CENTRAL CIRCLE-II, CHANDIGARH. ./PAN NO: AACCS5078H /ASSESSEE BY : SHRI RAJESH GARG, SR.ADV. / REVENUE BY : SHRI MANJIT SINGH, CIT DR ! /DATE OF HEARING : 18.03.2019 '#$% ! /DATE OF PRONOUNCEMENT: 30.04.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, GURGAON (IN SHORT CIT(A) DATED 23.2. 2018 AGAINST THE LEVY OF PENALTY U/S 271(1)(C) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT). 2. BRIEF FACTS RELATING TO THE CASE ARE THAT ASSES SMENT IN THIS CASE WAS COMPLETED VIDE ORDER U/S 143(3) DA TED 29.12.2009 AT AN INCOME OF RS.5,81,83,100/- AGAINST THE RETURNED INCOME OF RS. 1,25,33,010/- AFTER MAKING A DDITIONS ON VARIOUS POINTS. THE ASSESSEE CONTESTED THE ADDIT IONS ITA NO.626/CHD/2018 A.Y.2007-08 2 MADE BEFORE THE CIT(A) AND THEN BEFORE THE HON'BLE ITAT. OUT OF THE ADDITIONS MADE IN THE ASSESSMENT ORDER O F RS.456.50 LACS, THE ADDITION MADE OF RS.11,99,660/- ON ACCOUNT OF PRIOR PERIOD EXPENSES, WHICH REPRESENT ED WRITE OFF OF EXPENDITURE INCURRED ON BEHALF OF ITS SUBSID IARY M/S LAVAN CHEMICAL LTD. WAS UPHELD BY THE HON'BLE ITAT, CHANDIGARH VIDE ORDER DATED 10.08.2016 IN ITA NO. 1329/CHD/2010. PENALTY PROCEEDINGS WERE INITIATED B Y ISSUE OF NOTICE U/S 274 R.W.S. 271(L)(C) OF THE I.T. ACT, 1961 DATED 29.12.2009. 3. DURING THE COURSE OF THE SAME, THE ASSESSEE SUBMITTED REPLY STATING THAT THE NOTICE ISSUED U/S 274 OF THE ACT WAS BAD IN LAW AS IT DID NOT SPECIFY THE LIMB OF SECTION 271(1)(C) OF THE ACT ON WHICH PENALTY PROCEEDINGS HAS BEEN INITIATED. ON MERITS, THE ASSESSEE CONTENDED THAT OUT OF THE TOTAL ADDITION M ADE OF RS.456.50 LACS ONLY RS.11.99 LACS I.E. 2.63 % HA D BEEN UPHELD AND THE MAJORITY I.E. 98% HAD BEEN DELETED AND FURTHER THAT THE ASSESSEE HAD FILED AN APPEAL BEFORE THE ON HIGH COURT AGAINST THE MEAGER ADDITION UPHELD ALSO. IT WAS FURTHER CONTENDED THAT WHILE THE A.O. HAD MADE THE ADDITION HOLDING THAT T HE EXPENSES CLAIMED WERE PRIOR PERIOD, THE I.T.A.T. HA D UPHELD 2.63% OF THE SAME FOR THE REASON THAT THE EXPENSES DID NOT RELATE TO THE ASSESSEE BUT TO ITS SUBSIDIARY COMPANY. IT WAS, THEREFORE, CONTENDED TH AT THESE CONTRARY FINDINGS ITSELF PROVED THAT THE ISSU E ITA NO.626/CHD/2018 A.Y.2007-08 3 WAS DEBATABLE AND HENCE, NO PENALTY WAS LEVIABLE. T HE ASSESSEE ALSO CONTENDED THAT ALL MATERIAL FACTS RELATING TO THE IMPUGNED EXPENSES HAD BEEN DISCLOSE D AND MERELY BECAUSE THE EXPLANATION OF THE SAME WAS NOT BELIEVED, IT COULD NOT BE HELD THAT THE ASSESSE E HAD CONCEALED OR FURNISHED ANY INACCURATE PARTICULA RS OF INCOME. THE A.O. DID NOT ACCEPT THE CONTENTION O F THE ASSESSEE AND HELD THAT THE ASSESSEE HAD CLAIMED THE EXPENSES THOUGH IT WAS NOT ALLOWABLE AS PER SECTION 36(1)(VIII) OF THE ACT, WHICH WAS NOT A BON AFIDE MISTAKE AND, THEREFORE, WAS FIT CASE FOR IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. ACCORDINGLY, PENA LTY @ 100% OF THE TAX SOUGHT TO BE EVADED IN RESPECT OF THE CONCEALED INCOME OF RS.11,99,660/- WAS LEVIED AMOUNTING TO RS.4,03,810/-. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT(A), WHO UPHELD THE ORDER OF THE A.O. STATING THAT SINCE THE I.T.A.T. HAD HELD THAT THE IMPUGNED EXPENSES DID NOT RELATE TO THE BUSINESS OF THE ASSESSEE, THE CLAIM MADE BY THE ASSESSEE OF THE IMPUGNED EXPENSES TO RS.11,99,660/- TANTAMOUNTED TO FURNISHING INACCURATE PARTICULARS OF INCOME AND HEN CE, THE ASSESSEE WAS LIABLE TO PENALTY U/S 271(1)(C) OF THE ACT. 5. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US, RAISING FOLLOWING GROUNDS: 1. THAT THE LD. CIT(APPEALS) HAS ERRED IN LAW BY NOT ITA NO.626/CHD/2018 A.Y.2007-08 4 ADJUDICATING THE ISSUE THAT THE NOTICE U/S 274 AS WELL AS ORDER U/S 271(L)(C) ISSUED BY THE LD. ASSESSING OFFICER IS BAD IN LAW AND ON FACTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E NOTICE ISSUED U/S 274 DATED 29.12.2009 AND THE PENALTY ORDER PASSED BY THE LD. ASSESSING OFFICER U /S 271(L)(C) IS NOT TENABLE AS THE REQUISITE REASON AN D SATISFACTION, AS REQUIRED UNDER THE PROVISIONS OF T HE ACT HAS NOT BEEN RECORDED BY THE LD. ASSESSING OFFICER. THEREFORE, THE PENALTY OF RS.403810/-IS NO T LEVIABLE AND THE SAME MAY PLEASE BE DELETED. 3. THAT THE LD. CIT(APPEALS) HAS ERRED IN CONFIRMING THE PENALTY WRONGLY IMPOSED BY IGNORING THE FACT TH AT THE CLAIM MADE BY THE ASSESEE IS A LEGAL BONAFIDE CLAIM WHICH IS DISALLOWED BEING DEBATEABLE. THEREFO RE, THE PENALTY OF RS.403810/- IS NOT LEVIABLE AND THE SAME MAY PLEASE BE DELETED. 6. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR ASSESSEE MADE ARGUMENTS ON THE MERITS O F THE CASE REITERATING THE CONTENTIONS MADE BEFORE TH E LOWER AUTHORITIES AGAINST THE LEVY OF PENALTY. THE LD. COUNSEL FOR ASSESSEE CONTENDED THAT THE ASSESSEE COULD NOT BE CHARGED WITH HAVING CONCEALED OR FURNISHING ANY INACCURATE PARTICULARS OF INCOME SIN CE UNDISPUTEDLY ALL MATERIAL FACTS RELATING TO THE IMPUGNED EXPENSES HAD BEEN DISCLOSED BY THE ASSESSE E AND ITS CLAIM HAD BEEN DISALLOWED ON A DIFFERENT GROUNDS BY THE A.O. AND UPHELD BY THE I.T.A.T. ON A TOTALLY DIFFERENT GROUND AND FURTHER THE I.T.A.T. H AD REDUCED THE DISALLOWANCE TO 2.63% OF THAT MADE BY T HE A.O. IT WAS CONTENDED THAT IT WAS A CASE OF NOT BELIEVING THE EXPLANATION FURNISHED BY THE ASSESSEE AND NOT FINDING IT TO BE FALSE. IT WAS CONTENDED TH AT THE ABOVE FACTS ESTABLISHED THE BONAFIDES OF THE ASSESSEE AND THUS THE PENALTY LEVIED OUGHT TO BE ITA NO.626/CHD/2018 A.Y.2007-08 5 DELETED. OUR ATTENTION WAS DRAWN TO THE CONTENTIONS MADE BEFORE THE A.O. REPRODUCED AT PAGE 2 OF THE PENALTY ORDER AS UNDER: FURTHER SUBMITTED THAT THE AMOUNT OF RS.11.99'LACS WRITTEN OFF WAS RECOVERABLE ON ACCOUNT OF EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF LAVAN CHEMICAL LIMITED, A SUBSIDIARY COMPANY IN CONNECTION WITH THE IMPLEMENTAT ION OF PROJECT AT IRAN. THE ASSESSEE HAS BOOKED THE EXPENDITURE AS RECOVERABLE FROM LAVAN CHEMICAL LIMIT ED IN THE AY 2006-07, HOWEVER SINCE THE SAME IS NOT RECOVE RED FROM LAVAN CHEMICAL LIMITED, THE SAME HAS BEEN WRITTEN OFF AND DEBITED TO THE P & L ACCOUNT UNDER THE HEAD PRE VIOUS YEAR EXPENSES DURING AY 2007-08. HOWEVER, LD. AO HAS DISALLOWED THE EXPENSES HOLDING THAT AS THE ASSESSE E IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE EXPENSES SHOULD HAVE BEEN DEBITED IN THE YEAR WHEN LOSS ACTUALLY OCCURRED, HOWEVER LD. ASSESSING OFFICER HA S ERRED IN CONSIDERING THE FACT THAT THE ASSESSEE HAS DEBIT ED THE EXPENSES IN THE CURRENT ASSESSMENT YEAR SINCE THEY B ECAME IRRECOVERABLE IN THE CURRENT YEAR ITSELF AND LOSS HAS ACTUALLY OCCURRED IN THE CURRENT YEAR. IT IS AN ADMITTED FACT THAT THE REVENUE EXPENSES HA VE ACTUALLY BEEN INCURRED BY THE ASSESSEE. THE LD. AO H AS TAXED THE AMOUNT ON THE GROUND THAT ASSESSEE IS FOL LOWING MERCANTILE SYSTEM OF ACCOUNTING, SO THE EXPENDITURE SHOULD HAVE BEEN DEBITED IN THE YEAR WHEN LOSS IS ACT UALLY INCURRED. HOWEVER THE HON'BLE ITAT HAS CONFIRMED THE ADDITION ON TOTALLY DIFFERENT CONTENTION BY HOLDING TH AT THE EXPENDITURE HAS BEEN INCURRED ON BEHALF OF SUBSIDIARY COMPANY. THEREFORE THE CONTRADICTORY CONTENTIONS IN THIS REGARD PROVE THAT THE ISSUE IS DEBATABLE. AT THE MOST THE EXPENDITURE CLAIMED BY THE ASSESSEE MAY BE SAID TO BE A CAPITAL LOSS INSTEAD OF REVENUE LOSS BUT THAT TOO CANNOT PENALIZE ASSESSEE WITH THE CONCEALMENT PROCEEDINGS. THE HON'BLE P & H HIGH COURT IN THE CASE OF CIT VS AMTEK AUTO LTD. 3218 TAXMAN 124 HAS HELD THAT MERELY FOR THE REASON THAT ASSESSEE HAS CLAIMED EXPENDITURE AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE WILL NOT RENDER THE ASSESSEE LIABLE TO PENALTY PROCEEDINGS. REGARDING LD. AO' S CONTENTION THAT THE EXPENSES SH OULD HAVE BEEN CLAIMED IN EARLIER YEARS IT IS SUBMITTED THA T THE LIABILITY TO INCUR EXPENSES IS NOT CRYSTALLIZED DURING T HE PREVIOUS YEAR; RATHER IT WAS SHOWN AS RECOVERABLE SU M FROM LAVAN CHEMICAL COMPANY. THE AMOUNT HAS ALREADY BEEN OFFERED TO TAX AS CREDITED DURING THE AY 2006-07 BY REDUCING THE ALLOWABLE REVENUE EXPENDITURE TO THAT EXTENT AN D THE SAME CANNOT BE TAXED AGAIN IN THE AY 2007-08 AT THE TIME OF WRITING OFF. THE AMOUNT WRITTEN OFF DURING THE Y EAR HAS ITA NO.626/CHD/2018 A.Y.2007-08 6 BEEN SHOWN UNDER THE HEAD PRIOR PERIOD ADJUSTMENT O NLY TO COMPLY WITH THE ACCOUNTING PRINCIPLES PRESCRIBED FOR THE COMPANIES. THEREFORE, SINCE THE AMOUNT SHOWN AS INCOM E IN EARLIER YEARS HAS BEEN WRITTEN OFF IN THE CURRENT YE AR AS NON RECOVERABLE, THE SAME IS ALLOWABLE U/S 36(L)(VII) AS AMOUNT OF DEBT WRITTEN OFF. THE RELIANCE HAS BEEN PLACED ON TH E FOLLOWING JUDGMENTS IN THIS REGARD: GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT S AND CHEMICAL INDS LTD. VS CIT 213 ITR 523 DELHI HIGH COURT JUDGMENT DATED 04.11.2015 IN THE CA SE OF JET LITE (INDIA) LTD VS CIT 2015-(379)-ITR-0185-DEL ITAT CHANDIGARH IN THE CASE OF MUNJAL SALES CORPORATI ON VS ACIT (2004) 90 TTJ 782. FURTHER SUBMITTED THAT IN THE PRESENT CASE, ALL THE MATERIAL FACTS WERE DISCLOSED. HAVING DISCLOSED ALL THE MATERIA L FACTS, THE ONUS UPON THE ASSESSEE STOOD DISCHARGED. FURTHER MORE, PENALTY IS LEVIABLE IN THE CASES OF CONCEALMENT OR IN ACCURATE PARTICULARS OF INCOME AND NOT FOR THE DIFFERENCE IN TAKING LEGAL VIEWS ON A GIVEN SET OF FACTS. MERELY NON-BELIEVING A N EXPLANATION GIVEN BY THE ASSESSEE WOULD NOT LEAD TO L EVY OF PENALTY AUTOMATICALLY, UNLESS THE EXPLANATION IS NOT F OUND TO BE BONA FIDE. NO PENALTY FOR CONCEALMENT IS LEVIABLE IN CASES OF TWO VIEWS BEING POSSIBLE AND THE REASONABLE VIEW OF THE ASSESSEE CANNOT BE DISREGARDED NOR CAN THE VIEW TAKE N BY THE REVENUE BE ADOPTED AS THE ONLY BASIS FOR PENALT Y. FURTHER MERELY BECAUSE ADDITION HAD BEEN MADE AND CLAIM OF THE ASSESSEE IS DISALLOWED, DID NOT BY ITSELF, JUSTIFY IMPOS ITION OF PENALTY. THE ASSESSEE'S CLAIM HAS NOT SUSTAINED ON ACC OUNT OF LEGAL COMPLICATIONS, BUT, THAT DOES NOT MEAN THAT ASSES SEE IS A GUILTY OF CONCEALMENT OF INCOME CHARGEABLE TO TAX AND HAS FURNISHED THE INACCURATE PARTICULARS. 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE DISPUTE BE FORE US RELATES TO LEVY OF PENALTY U/S 271(1)(C) OF THE ACT ON DISALLOWANCE OF CLAIM OF WRITE OFF EXPENSES AMOUNTING TO RS.11.99 LACS. UNDISPUTEDLY, ALL PARTICULARS RELATING TO THE CLAIM OF WRITE OFF MADE BY THE ASSESSEE HAD BEEN TRULY DISCLOSED AND THERE IS NO ALLEGATION THAT ANY FACT RELATING TO WRITE OFF WAS FALSE ITA NO.626/CHD/2018 A.Y.2007-08 7 OR INCORRECT. IT IS ONLY THE CLAIM OF THE ASSESSEE WHICH WAS FOUND UNTENABLE, ON ACCOUNT OF WHICH DISALLOWANCE WAS MADE AND PENALTY LEVIED ON THE ADDITION SO RESULTING. UNDENIABLY, THE DISALLOWANCE OF CLAIM MADE BY THE A.O. AND UPHELD BY THE I.T.A.T. I S ON TOTALLY DIFFERENT GROUNDS. WHILE THE A.O. HAD DISALLOWED THE CLAIM FOR THE REASON THAT IT RELATED TO EARLIER YEARS, THE I.T.A.T. UPHELD THE DISALLOWANCE ON FINDING THAT IT WAS NOT INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. ALSO WHILE THE A.O. HAD MADE DISALLOWANCE OF THE ENTIRE CLAIM OF THE ASSESS EE OF WRITE OFF AMOUNTING TO RS.456.50 LACS, THE I.T.A .T. HAD FOUND MOST OF THE CLAIM MADE BY THE ASSESSEE TO BE CORRECT EXCEPT FOR MEAGER SUM OF RS.11.99 LACS BEING JUST 2.63% OF THE ENTIRE CLAIM . ON ACCOUNT OF THE ABOVE FACTS, WE AGREE WITH THE LD . COUNSEL FOR ASSESSEE THAT THE ISSUE WAS NOT A CLEAR CASE OF A TOTALLY UNTENABLE CLAIM MADE BY THE ASSES SEE BUT WAS MORE OF A DEBATABLE ISSUE AND WITH THE ASSESSEE HAVING DISCLOSED COMPLETE AND TRUE PARTICULARS RELATING TO WRITE OFF EXPENSES AND ONLY THE CLAIM HAVING NOT BEEN FOUND ACCEPTABLE, WE AGREE WI TH THE LD. COUNSEL FOR ASSESSEE THAT THE ASSESSEE CANN OT BE SAID TO HAVE FURNISHED ANY INACCURATE PARTICULAR S OF INCOME OR CONCEALED ANY PARTICULARS OF INCOME SO AS TO ATTRACT LEVY OF PENALTY U/S 271(1)(C) OF THE ACT . THE PENALTY SO LEVIED IS, THEREFORE, DIRECTED TO BE DEL ETED. ITA NO.626/CHD/2018 A.Y.2007-08 8 GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS, THEREFORE, ALLOWED. NO ARGUMENTS WERE MADE VIS--VIS THE LEGAL ISSUE RAISED IN GROUND NOS.1 AND 2. THE SAME ARE, THEREFO RE, DISMISSED. 9. IN EFFECT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- $ % & '# (SANJAY GARG) (ANNAPURNA GUPTA) /JUDICIAL MEMBER () /ACCOUNTANT MEMBER +$ /DATED: 30 TH APRIL, 2019 * # * #&' ()*) / COPY OF THE ORDER FORWARDED TO : 1. + / THE APPELLANT 2. ',+ / THE RESPONDENT 3. - / CIT 4. - ( )/ THE CIT(A) 5. )./' 0 , !0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35 / GUARD FILE #& / BY ORDER, / ASSISTANT REGISTRAR