ORG INFORMATICS LTD, Baroda V. The ACIT.,Circle-4, Baroda

ITA 99/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1709 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-05-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 13-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAMES KURIEN
• Keywords: Business expenditure; Opportunity of being heard; Initiation of penalty proceedings; Reasonable cause
• Section: 143(3); 37(1); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD BEFORE SHRI RAJPAL YADAV, JM, & SHRI MANISH BORA D, AM. ITA NO.99/AHD/2012 ASST. YEAR: 2005-06 ORG INFORMATICS LTD., 321- ABHISHEK COMPLEX, NEAR AKSHAR CHOWK, OLD PADRA ROAD, BARODA. VS. ACIT, CIRCLE-4, BARODA. APPELLANT RESPONDENT PAN AACCS 9395K APPELLANT BY SHRI SANJAY R. SHAH, AR RESPONDENT BY SHRI JAMES KURIEN, SR. DR DATE OF HEARING: 5/5/2016 DATE OF PRONOUNCEMENT: 13/5/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . ASSESSEE IS IN APPEAL AGAINST THE ORDER OF LD. CIT (A)-III, BARODA, DATED 12.10.2011 IN APPEAL NO.CAB/III-53/10 -11 PASSED AGAINST ORDER U/S 271(1)(C) OF THE I.T. ACT, 1961 ( IN SHORT THE ACT) FRAMED FOR ASST. YEAR 2005-06 BY ACIT CIRCLE-4, BAR ODA, DATED 29.03.2010. ASSESSEE HAS RAISED FOLLOWING GROUNDS O F APPEAL :- GROUNDS OF APPEAL YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-LLL, BARODA [HEREINAFTER REFERRED TO 'LEA RNED CIT(APPEALS)'], PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING AMONGST OTHER GRO UNDS OF APPEAL. THE GROUNDS OF APPEAL SET OUT HEREUNDER ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER: ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 2 1. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS I/I CONFIRMING THE PENALTY OF RS.18,73,720/- AS LEVIED BY THE LEARNED A.O. YOUR APPELLANT SUBMIT S THAT IT HAS NEITHER FURNISHED INACCURATE PARTICULARS OF INCOME NOR CONCEALED PART ICULARS OF INCOME. UNDER THE CIRCUMSTANCES, PENALTY OF RS.18,73,720/ AS CONFIRME D BY THE CIT(A) BE DELETED. . . 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE RE WAS NO REQUISITE SATISFACTION RECORDED BY THE LEARNED A.O. FOR THE PURPOSE OF INITIATING A S WELL AS LEVYING PENALTY U/S 271 (L)(C) OF THE ACT. 3. THE LEARNED CTT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE PENALTY U/S 271(1)(C) IN SPITE OF THE FACT THAT ALL THE INFORMATION AND PART ICULARS RELATING TO THE CLAIM OF THE APPELLANT FOR OBSOLETE STOCK WRITTEN OFF AND FOR SE LLING AND DISTRIBUTION EXPENSES WERE ADEQUATELY DISCLOSED IN THE RETURN OF INCOME, AUDITED ACCOUNTS ACCOMPANYING IT AND ALSO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. YOUR A PPELLANT SUBMITS THAT THE ADDITIONS ARE CONFIRMED BY THE HON'BLE TRIBUNAL IN QUANTUM PR OCEEDINGS NOT ON THE GROUND THAT THE INFORMATION FURNISHED WAS FALSE. YOUR APPELLANT SUB MITS THAT UNDER THE CIRCUMSTANCES THE CASE OF THE APPELLANT IS FULLY COVERED BY THE RATIO OF HON'BLE SUPREME COURT DECISION IN THE CASE OF RELIANCE PETROPRODUCTS LTD. REPORTED AT 230 CTR 320 AND HENCE NO PENALTY U/S 271 (L)(C) IN THE FACTS AND CIRCUMSTANCES IN RE SPECT OF THESE TWO ISSUES SHOULD HAVE BEEN CONFIRMED BY THE CIT(A). 4. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE EXP LANATIONS OFFERED BY THE APPELLANT IN RESPECT OF THE ISSUES UNDER DISPUTE IN THE QUANTUM PROCEEDINGS ARE NOT BONA FIDE AND THAT THE APPELLANT HAS NOT BEEN ABLE TO SUBSTANTIAT E THEM. YOUR APPELLANT SUBMITS THAT THE ADDITIONS IN QUANTUM PROCEEDINGS ARE ONLY ON A DIFF ERENT VIEW TAKEN BY THE HON'BLE ITAT IN THE QUANTUM PROCEEDINGS AND HENCE PENALTY U/S 27 1 (L)(C) COULD NOT BE LEVIED IN RESPECT OF THESE ADDITIONS. YOUR APPELLANT SUBMITS THAT IT BE SO HELD NOW AND PENALTY OF RS.18,73,720/- AS LEVIED BY LEARNED A.O, AND CONFIR MED BY THE CIT(A) BE DELETED. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM RECORDS ARE THAT ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF TRA DING IN COMPUTER AND TELECOM SYSTEMS. IT FILED ITS RETURN OF INCOME ON 31.10.2005 SHOWING TOTAL INCOME AT RS.NIL. THE CASE WAS SELECT ED FOR SCRUTINY ASSESSMENT. NOTICE U/S 143(2) OF THE ACT WAS ISSUED . ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT ON 28.12.2007 AFTE R MAKING ADDITIONS OF RS.1,45,26,695/-. APPEAL BEFORE LD. CI T(A) BROUGHT PART RELIEF VIDE HIS ORDER DATED 15.10.2008 TO THE ASSES SEE AND ON FURTHER APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF LD. CIT(A) IN QUANTUM APPEAL OF ASSESSEE THE SAME WAS PARTLY ALLOWED VIDE ITS ORDER DATED 17.6.2011. ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 3 3. ON THE OTHER HAND, PURSUANT TO THE ORDER PASSED BY LD. CIT(A) ON QUANTUM, NOTICE U/S 274 R.W.S. 271(1)(C) OF THE ACT WAS ISSUED BY LD. ASSESSING OFFICER ON 28.12.2007. DURING THE COU RSE OF PROCEEDINGS U/S 271(1)(C) OF THE ACT, NECESSARY REP LY WAS CALLED FOR FROM THE ASSESSEE AS TO WHY PENALTY U/S 271(1)(C) OF THE ACT SHOULD NOT BE IMPOSED ON THE FOLLOWING TWO CONDITIONS CONF IRMED BY LD. CIT(A) :- 1) ADDITION ON ACCOUNT OF STOCK WRITTEN OFF RS. 13,59,000/- 2) DISALLOWANCE ON SELLING & DISTRIBUTION EXPENSES RS.37,61,506/- 4. HOWEVER, NO INFORMATION WAS PROVIDED BY THE ASSE SSEE BEFORE LD. ASSESSING OFFICER AND HE HAD NO OTHER OPTION EX CEPT TO GO FOR TO PASS AN EX PARTE ORDER AND ACCORDINGLY PENALTY OF R S.18,73,720/- WAS IMPOSED U/S 271(1)(C) OF THE ACT. 5. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE LD. CI T(A) WHO ALSO DISMISSED THE APPEAL AND CONFIRMED THE PENALTY U/S 271(1)(C) OF THE ACT. 6. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRIBUNAL. ASSESSEE HAS RAISED 4 GROUNDS OF APPEAL BUT THE ISS UE REVOLVES ON TWO POINTS FIRSTLY LD. CIT(A) FAILED TO APPRECIAT E THAT THERE WAS NO REQUISITE SATISFACTION RECORDED BY THE LD. ASSESSIN G OFFICE FOR THE PURPOSE OF INITIATING AS WELL AS LEVYING PENALTY U/ S 271(1)(C) OF THE ACT ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 4 AND SECONDLY AGAINST THE IMPOSITION OF PENALTY OF R S.18,73,720/- EVEN WHEN THERE WAS NO CONCEALMENT OF INCOME NOR ANY INA CCURATE PARTICULARS OF INCOME WERE SUBMITTED IN THE FINANCI AL STATEMENT. 7. AS FAR AS THE FIRST POINT REGARDING NO REQUISITE SATISFACTION BEING RECORDED, WE FIND THAT SUFFICIENT OPPORTUNITY WAS G IVEN BY LD. ASSESSING OFFICER TO THE ASSESSEE FOR HEARING ON 10 .2.2010 AND 15.3.2010 BUT NONE ATTENDED ON BEHALF OF THE ASSESS EE NOR ANY WRITTEN EXPLANATION/REPLY WAS SUBMITTED. THEREAFTER WHILE FRAMING PENALTY ORDER U/S 271(1)(C) OF THE ACT, LD. ASSESSI NG OFFICER HAS DISCUSSED IN DETAIL THE ISSUES ARISING IN THE TWO C ONFIRMED ADDITIONS ON ACCOUNT OF STOCK WRITTEN OFF OF RS.13,59,000/- A S WELL AS SELLING & DISTRIBUTION EXPENSES OF RS.37,61,506/- AND HAS OB SERVED COMPLETE SATISFACTION IN HIS PENALTY ORDER WHICH READS AS BE LOW :- 4.4 AS STATED HEREIN ABOVE THAT THE ASSESSEE DID NO T RESPOND TO THE OPPORTUNITIES ALLOWED TO IT TO REPRESENT ITS CASE. IN VIEW OF THE DETAILED DISCUSSION MADE ABOVE, IT IS HELD THAT THE ASSESSEE HAS WRITTEN OFF THE STOCK WITHOUT ANY BASIS AND HAS ALSO CLAIMED BOGUS EXPENDITURE TO REDUCE ITS INCOME AND THEREBY AVOID PAYMENT OF LEGITIMATE TAX THEREON AMOUNTS TO FILING OF INACCUR ATE PARTICULARS OF INCOME. IN THESE CIRCUMSTANCES AND THAT THE ASSESSEE HAS FAILED TO O FFER ANY PLAUSIBLE EXPLANATION, I AM SATISFIED THAT THE ASSESSEE HAS WILLFULLY, KNOWI NGLY AND WITHOUT REASONABLE CAUSE FURNISHED INACCURATE PARTICULARS OF ITS INCOME AND, THUS, TRIED TO CONCEAL THE INCOME SO AS TO EVADE PAYMENT OF TAX THEREON FOR WHICH IT IS LIABLE TO FOR PENALTY U/S.271(L)(C) OF THE INCOME-TAX ACT, 1961. I, THEREFORE, LEVY A P ENALTY OF RS.18,73,720 AS AGAINST MINIMUM PENALTY LEVIABLE AT RS.18,73,720 AND MAXIMU M PENALTY LEVIABLE AT RS.56,21,160 IN THIS CASE. ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 5 4. THIS ORDER IS PASSED AFTER TAKING PRIOR APPROVA L OF THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE 4, BARODA VIDE HIS LETTER NO. BRD /R.4/PEN. APP/CIR.4/ORGIPL/2009-2010 DATED 29.03.2010. 8. WE FURTHER OBSERVE THAT LD. CIT(A) HAS RIGHTLY H ELD THAT THE PENALTY PROCEEDINGS WERE VALID BY WAY OF OBSERVING AS UNDER :- 5.6 THUS, AFTER THE INSERTION OF SUB SECTION IB OF SEC. 271 OF THE ACT, IT IS TO BE SEER> FROM THE ORDER OF THE AO AS TO WHETHER THE SATISFAC TION FOR INITIATION OF PENALTY OR NOT IS DISCERNIBLE FROM THE ORDER OR NOT. RECENTLY, THE SAME VIEW HAS BEEN TAKEN BY HON'BLE AHMEDABAD ITAT BENCH, AHMEDABAD IN THE CASE OF KAILASHBHAI AMBALAL SHAH REPORTED IN 129 ITD 135(AHD). IN THIS REGARD, IT IS SEEN THAT THE AO HAS DISCUSSED ALL THE ISSUES ON WHICH THE PENALTY PROCE EDING U/S 271(L)(C) HAVE BEEN INITIATED, SEPARATELY IN THE ASSESSMENT ORDER AND A FTER DISCUSSING THE NATURE OF DISALLOWANCES, HAS INITIATED PENALTY PROCEEDINGS BY RECORDING SATISFACTION REGARDING EACH AND EVERY SUCH ADDITIONS/DISALLOWANCES. FROM T HE COPY OF ASSESSMENT ORDER, IT IS SEEN THAT THE AO HAD MADE A NUMBER OF ADDITIONS. IN FACT IN TOTAL HE HAD MADE SIX ADDITIONS , BUT HE HAD INITIATED PENALTY PROCEEDING S ON THREE ADDITIONS AND HE HAS NOT INITIATED PENALTY PROCEEDINGS ON OTHER THREE AD DITIONS. IN OTHER WARDS HE HAS APPLIED HIS MIND AND ARRIVED AT A SATISFACTION AS T O WHICH ADDITION REQUIRES IMPOSITION OF PENALTY AND ACCORDINGLY HE HAD INITIATED THE PEN ALTY IN A VERY REASONED AND SELECTIVE MANNER. THE ADDITION ON WHICH THE PENALTY HAS BEEN FINALLY LEVIED WAS SPECIFICALLY MENTIONED BY THE ASSESSING OFFICER FOR INITIATION OF PENALTY PROCEEDINGS IN HIS ORDER. THEREFORE, THE OBJECTION THAT THERE I S NO PROPER SATISFACTION IS WITHOUT ANY BASIS BOTH ON FACTS AS WELL AS IN LAW IN VIEW O F THE ABOVE STATED PROVISIONS OF SECTION 271(L)(C) OF THE I.T.ACT,1961. THUS, IT IS CLEAR FROM THE ASSESSMENT ORDER THAT THE AO WAS SATISFIED THAT THE ASSESSEE HAD CLAIMED DEDUCTIONS WHICH WERE NOT ALLOWABLE. ACCORDINGLY, THE ADDITIONS WERE MADE TO THE TOTAL INCOME OF THE ASSESSEE AND PENALTY PROCEEDINGS WERE INITIATED. 5.7 SO FAR AS SPECIFYING THE CHARGE FOR LEVY OF PEN ALTY IN THE PENALTY ORDER IS CONCERNED, THE AO HAS IN THE PENALTY ORDER HAS CLEARLY MENTION ED THAT THE ASSESSEE DID NOT AVAIL OF THE OPPORTUNITY OF BEING HEARD GRANTED TO IT AND TH US FILED NO EXPLANATION. HE HAS ALSO HELD THAT THE APPELLANT HAS WRITTEN OFF THE STOCK W ITHOUT ANY BASIS AND HAS ALSO CLAIMED BOGUS EXPENSES TO REDUCE THE INCOME AND HAS THEREBY AVOIDED PAYMENT OF LEGITIMATE THEREON, WHICH AMOUNTS TO FILING OF INACCURATE PART ICULARS. HE HAS FURTHER HELD THAT THE APPELLANT HAS WILLFULLY, KNOWINGLY AND WITHOUT REAS ONABLE CAUSE FURNISHED INACCURATE PARTICULARS OF INCOME AND, THUS TRIED TO CONCEAL TH E INCOME SO AS TO EVADE PAYMENT OF TAXES THEREON. IN THE PRESENT CASE, THE DEDUCTIONS CLAIMED BY THE APPELLANT WERE DISALLOWED AS THE APPELLANT HAD FILED INACCURATE PA RTICULARS OF INCOME AND HENCE IT AMOUNTED TO DEEMED CONCEALMENT OF INCOME AS PER THE PROVISIONS OF EXPLANATION 1 TO SEC.271(L)( C) OF THE ACT. IT MAY BE MENTIONED HERE THAT THE HON'BLE SUPREME COURT IN ITS DECISION IN THE CASE OF [2001] 118 TAXMAN 324 (SC)K.P. MADHUSUDHANAN HAS HE LD THAT NO EXPRESS INVOCATION OF EXPLANATION TO SECTION 271 IN NOTICE UNDER SECTION 271 IS ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 6 NECESSARY BEFORE PROVISIONS OF EXPLANATION THEREIN ARE APPLIED. THUS THE CHARGE FOR WHICH PENALTY HAS BEEN LEVIED IS DISALLOWANCE OF CL AIM OF DEDUCTIONS ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS OF INCOME AND THE AMOUNTS SO DISALLOWED ARE TO BE DEEMED TO BE INCOME IN RESPECT OF WHICH THE PARTICU LARS HAVE BEEN CONCEALED. FROM THE ORDER OF THE A.O. LEVYING THE PENALTY, IT IS CLEAR THAT THE HAS LEVIED THE PENALTY FOR FILING INACCURATE PARTICULARS OF INCOME, AS ONLY THESE WOR DS HAVE BEEN USED AND AT NO PLACE, THE WORDS 'CONCEALED THE PARTICULARS OF INCOME' HAV E BEEN USED. HENCE THE AO'S ORDER IS PERFECTLY VALID. 5.7 HENCE THE VALIDITY OF THE PENALTY PROCEEDING IS UPHELD ON THIS ACCOUNT TOO AND THE GROUND NO 1&. 2 OF THE APPELLANT ARE DISMISSED. 9. THEREFORE, IN THE GIVEN CIRCUMSTANCES AND LOOKIN G TO THE FACTS DEPICTED IN THE PENALTY ORDER U/S 271(1)(C) OF THE ACT AS WELL AS OBSERVATIONS MADE BY LD. CIT(A) IN HIS APPELLATE OR DER, WE ARE OF THE VIEW THAT LD. CIT(A) HAS RIGHTLY DISMISSED THE GROU ND OF ASSESSEE AND WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER AND ARE OF THE VIEW THAT PROPER SATISFACTION WAS MADE BY LD. ASSES SING OFFICER WHILE PASSING ORDER U/S 271(1)(C) OF THE ACT AND THE PENA LTY ORDER U/S 271(1)(C) OF THE ACT IS VALID. THEREFORE, WE FIND N O SUBSTANCE IN THE POINT RAISED BY ASSESSEE IN THE GROUND NO.2. 10. NOW WE TAKE UP GROUND NOS.1, 3 & 4 AGAINST THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT AT RS.18,73,720/-. PENALTY HAS BEEN IMPOSED ON TWO ADDITIONS RELATING TO STOCK WRITTEN OFF OF RS.13,59,000/- AND DISALLOWANCE ON ACCOUNT OF SELLI NG & DISTRIBUTION EXPENSES IN REGARD TO MIZORAM GOVT. AT RS.37,61,506 /-. 11. FIRST WE TAKE PENALTY IMPOSED ON ADDITION CONFI RMED ON DISALLOWANCE OF STOCK WRITTEN OFF OF RS.13,59,000/- . LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES A ND ON THE OTHER HAND LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BEL OW. ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 7 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WE OBSERVE THAT ASSESSEE HAS WRITTEN OFF OF STOCK IN THE PROFIT AND LOSS ACCOUNT AT RS.13,59,000/- ON ACCOUN T OF WRITE OFF OF SLOW MOVING ITEMS IDENTIFIED BY ASSESSEE AS THERE W AS NO SCOPE OF SUCH INVENTORY BEING SOLD OUT IN NORMAL COURSE OF B USINESS CYCLE IN LIGHT OF MARKET CONDITION AND TECHNOLOGICAL DEVELOP MENT. LD. ASSESSING OFFICER WHILE MAKING ADDITION OF RS.13,59 ,000/- OBSERVED AS BELOW :- 3.2. I HAVE CONSIDERED THE SUBMISSION PUT FORTH BY THE ASSESSEE. THE SAME IS NOT ACCEPTABLE. THE ASSESSEE HAS SIMPLY STATED THAT SINCE THE COMPANY HAS IDENTIFIED THE SLOW MOVING ITEMS, WHICH ARE NOT MOV ING SINCE CONSIDERABLY LONG PERIOD OF TIME HAVING REGARD TO THE NATURE OF ASSET AND NEW TECHNOLOGICAL DEVELOPMENTS AND HENCE THE COMPANY HA S DECIDED TO WRITE OFF THE SAME. THE ASSESSEE HAS NOT FURNISHED THE BASIS FOR THE PRESENT VALUATION. THE VALUATION IN THE BOOKS IS ARBITRARY AND WITHOUT ANY SCIENTIFIC BASIS. THE ASSESSEE HAS ALSO NOT SUBMITTED ANY VALUATION REPOR T IN SUPPORT OF THE PRESENT VALUE OF THESE ITEMS. IT IS STATED BY THE ASSESSEE THAT ABOVE STOCK IS NOT MOVING SINCE CONSIDERABLY LONG PERIOD , BUT: IT IS NOT UNDERSTOOD AS TO WHY THE SAID STOCK REMAINED FOR LONG PERIOD. IN THESE C IRCUMSTANCES, THE EXPLANATION SUBMITTED BY THE ASSESSEE WITH NO SUPPO RTING EVIDENCE / MATERIAL IS NOT ACCEPTABLE. THEREFORE, THE STOCK WRITTEN OFF IS. NOT ALLOWED TO THE ASSESSEE. THE SAME IS ADDED BACK TO THE TOTAL INCOM E OF THE ASSESSEE. PENALTY PROCEEDINGS U/S.271(L)(C) OF THE INCOME-TAX ACT, 19 61 ARE SEPARATELY INITIATED. 13. THEREAFTER IN APPEAL BEFORE LD. CIT(A) IT WAS O BSERVED BY LD. CIT(A) THAT ASSESSEE MADE SUCH CLAIM WITHOUT ANY TE CHNICAL REPORT AND NO MATERIAL WAS SUBMITTED TO PROVE THAT ITEMS W RITTEN OFF WERE NOT BEING SOLD IN THE MARKET AT ANY RATE AND FURTHER CL AIM WAS NOT SUPPORTED BY ANY EVIDENCE. IT WAS FURTHER OBSERVED BY LD. CIT(A) THAT ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 8 ITEMS WERE IN THE NATURE OF COMPUTER PARTS WHICH WE RE ISSUED AS LATE AT 31.12.2003 WHICH WERE JUST THREE MONTHS PRIOR TO THE ACCOUNTING YEAR 2004-05 AND LD. CIT(A) ACCORDINGLY DISMISSED T HE GROUND OF ASSESSEE. 14. AGGRIEVED, ASSESSEE WENT IN APPEAL ON QUANTUM B EFORE THE TRIBUNAL BUT COULD NOT SUCCEED AS THE CO-ORDINATE B ENCH IN ITA NO.4150/AHD/2008 FOR ASST. YEAR 2005-06, VIDE ITS O RDER DATED 17.6.2011 CONFIRMED THE DISALLOWANCE FOR WRITTEN OF F OF STOCK AT RS.13,59,000/- BY OBSERVING AS UNDER :- 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND M ATERIAL ON RECORD AND DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. THE AO SPECIFICALLY NOTED THAT THE ASSESSEE HAS NOT FURNIS HED ANY BASIS FOR UNDER- VALUATION OF THE STOCK ON ACCOUNT OF WRITING OFF OF THE OBSOLETE STOCK. NO BASIS OR SCIENTIFIC BASIS IS FILED. THE EXPLANATION OF THE A SSESSEE IS NOT SUPPORTED BY ANY EVIDENCE OR MATERIAL. THE LEARNED CIT(A) FURTHER NO TED THAT THE CLAIM OF THE ASSESSEE FOR SLOW MOVING ITEMS OR OBSOLETE STOCK IS NOT SUPPORTED BY ANY TECHNICAL REPORT. IT WAS ALSO NOTED THAT MAJORITY O F THE ITEMS HAVE BEEN ISSUED WHICH IS PRIOR TO THE ACCOUNTING YEAR. THEREFORE, S AME CANNOT BE TREATED AS SLOW MOVING OR OBSOLETE STOCK. ON CONSIDERATION OF THE A BOVE FACTS AND DETAILS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE WE FIND NO INFIRMITY IN THE FINDINGS OF THE LEARNED CIT(A) BECAUSE MAJORITY OF THE ITEMS WERE ISSUED PRIOR TO THE STARTING OF THE FINANCIAL YEAR AND FURTHER NO E VIDENCE HAS BEEN FURNISHED IN SUPPORT OF THE CLAIM OF THE ASSESSEE. IN THE ABSENC E OF ANY MATERIAL OR EVIDENCE TO SUPPORT THE CLAIM OF THE ASSESSEE, WE DO NOT FIN D ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW, IN ABSENC E OF EVIDENCE CASE LAW WOULD NOT SUPPORT CLAIM OF THE ASSESSEE. WE CONFIRM THEIR FINDINGS AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. 15. NOW EXAMINING THE ABOVE OBSERVATIONS WITH THE A NGLE OF IMPOSING OF PENALTY U/S 271(1)(C) OF THE ACT, WE FI ND THAT PENALTY U/S 271(1)(C) OF THE ACT IS IMPOSABLE IF THE ASSESSEE H AD CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 9 INCOME. THE IMPUGNED DISALLOWANCE OF STOCK WRITTEN OFF FINDS ITS ORIGINATION FROM THE BOOKS OF ACCOUNT, AS THE ASSES SEE WHICH IS MAINTAINING REGULAR BOOKS OF ACCOUNT WITH COMPLETE QUANTITATIVE DETAILS, FIGURED OUT CERTAIN SLOW MOVING ITEMS DEPI CTED AT PAGES 31 TO 34 OF THE PAPER BOOK HAVING A LIST OF 79 ITEMS WHIC H ARE MAINLY RELATED TO COMPUTER HARD-WARES AND THE SAME WERE CA TEGORIZED UNDER LIST OF ITEMS NOT MOVING FOR A LONG TIME DUE TO CHANGE IN TECHNOLOGY AND OTHER WEAR AND TEAR AND THE TOTAL OF THESE ITEMS AT RS.13,59,000/- WERE SPECIFICALLY DEBITED TO PROFIT AND LOSS ACCOUNT. CERTAINLY THIS ACTION OF ASSESSEE CANNOT BE CATEGOR IZED AS FURNISHING OF INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME BECAUSE THE SAME HAVE BEEN CARRIED OUT IN THE NORMA L COURSE OF BUSINESS AND WHEN THIS ENTRY WAS MADE BY ASSESSEE I T WAS IN THE FIRM BELIEF THAT ALL THESE ITEMS WHICH ARE SLOW MOV ING AND HAVING NO PRESENT MARKET VALUE, NEEDS TO BE CLEARED OFF FROM THE INVENTORY, SO THAT INVENTORY IS APPEARING ON THE LAST DATE OF THE FINANCIAL YEAR IS BACKED UP BY CORRECT VALUE. IT IS TRUE THAT ASSESSE E HAS BEEN UNABLE TO GIVE ANY EXPLANATION THAT WHY EARMARKED SLOW MOV ING ITEMS DO NOT HAVE ANY SCRAP VALUE BUT THIS CANNOT BE A BASIS FOR WHICH PENALTY U/S 271(1)(C) OF THE ACT CAN BE IMPOSED. WE ARE, THEREF ORE, OF THE VIEW THAT ASSESSEE SHOULD NOT BE VISITED WITH PENALTY U/ S 271(1)(C) OF THE ACT FOR THE ADDITION CONFIRMED UPTO THE STAGE OF TR IBUNAL FOR DISALLOWANCE OF STOCK WRITTEN OFF AT RS.13,59,000/- . 16. NOW WE TAKE UP IMPOSITION OF PENALTY U/S 271(1) (C) OF THE ACT ON DISALLOWANCE OF SELLING AND DISTRIBUTION EXPENSE S TOWARDS MIZORAM-E-GOVERNANCE PROJECT. DURING THE COURSE OF ASSESSMENT ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 10 PROCEEDINGS LD. ASSESSING OFFICER OBSERVED THAT ASS ESSEE HAS CLAIMED EXPENDITURE OF RS.37,61,506/- AS SELLING AN D DISTRIBUTION EXPENDITURE PAID TO MR. LARSING M. PROPRIETOR OF NO RTH EAST INFORMATION TECHNOLOGY CONSULTANCY SERVICES (NEITCS ), SHILONG BUT WHEN CONFRONTED BY LD. ASSESSING OFFICER ABOUT THE TYPE OF THE SERVICES AGAINST THIS IMPUGNED PAYMENT, ASSESSEE CO ULD NOT FURNISH ANY OTHER EVIDENCES EXCEPT THE COPIES OF BILLS DATE D 31.1.2005 AND 7.3.2005 WHICH WERE PAID THROUGH ACCOUNT PAYEE DEMA ND DRAFT. LD. ASSESSING OFFICER DISALLOWED THESE EXPENSES AS THE ASSESSEE WAS UNABLE TO BRING ON RECORD THAT NEITCS WAS CAPABLE O F DOING ANY JOB FOR THE ASSESSEE COMPANY AND THEREFORE, THIS WAS NO N-BUSINESS EXPENDITURE. FURTHER LD. CIT(A) AND THE CO-ORDINATE BENCH ALSO CONFIRMED THE VIEW TAKEN BY LD. ASSESSING OFFICER. LD. CIT(A) CONFIRMED THE ADDITION BY GIVING HIS FINDING AS BEL OW :- '5.3 / HAVE CONSIDERED THE SUBMISSIONS OF THE COUNS EL AND FACTS OF THE CASE. THE APPELLANT MADE PAYMENT OF RS.37,61,506/- TO ONE INDIVIDUAL MR. LARSING M WHO ISSUED TWO BILLS OVER A PERIOD OF TWO MONTHS. THE BILLS MENTIONED LIAISONING, PRODUCT INTIMATION AND COORDINATION SERVICES, SERVICES TOWARDS REALIZATION OF PAYMENT AND CHARGES TOWARDS PRODUCT/MATERIAL DEPLOYED. WHEN THE ASSESSING OFFIC ER ASKED THE EVIDENCES OF RENDERING THE SERVICES OR CAPABILITY O F THE SAID INDIVIDUAL TO RENDER THESE SERVICES, THE APPELLANT ONLY SUBMITTED COPY OF BILLS, AND CLAIMED THAT THE SAID PERSON IS NOT RELATED. THE IN VOICES HAVE BEEN RAISED AND THE PAYMENTS HAVE BEEN MADE BY CHEQUES. THE COMPANY EARNED MORE THAN RS.2 CRORES IN RESPECT OF MIZORAM GOVERNMENT PROJECTS. APART FROM THESE SUBMISSIONS, NO EVIDENCE IN THE FORM OF ANY DOCUMENT OR OTHER EVIDENCES TO PROVE THE INVOLVEMEN T OF THE SAID PERSON WAS FILED. EVEN WHEN IT WAS SPECIFICALLY ASK ED DURING THE APPEAL HEARING TO PROVE . WITH NECESSARY DOCUMENTARY OR OT HER EVIDENCE, THE FACT OF RENDERING SERVICES, THE APPELLANT ONLY RELI ED UPON THE BILLS ISSUED BY THE PARTY. WHEN ANY EXPENSES IS CLAIMED BY THE A PPELLANT, ONUS IS ON THE APPELLANT TO PROVE THAT THE SAME HAS BEEN IN CURRED FOR THE ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 11 PURPOSE OF BUSINESS AND IT IS NOT FOR THE ACTIVITIE S AGAINST LAW. UNLESS THE APPELLANT SUBMITS THE DETAILS AND EVIDENCES, TH E CLAIM CANNOT BE VERIFIED. IT IS HELD BY MANY JUDICIAL DECISIONS THA T MERELY MAKING PAYMENT BY CHEQUES DOES NOT PROVE ANY EXPENSE FOR B USINESS PURPOSES. IT IS CLEAR THAT THE APPELLANT DID NOT PR OVE THE RENDERING OF SERVICES AND JUST RELIED UPON THE BILLS SUBMITTED B Y THE PERSON. THEREFORE THE APPELLANT HAS NOT DISCHARGED ITS ONUS . ANOTHER ARGUMENT OF THE APPELLANT IS THAT IT RECEIV ED INCOME FROM MIZORAM GOVERNMENT, SO THE CLAIM OF EXPENSES SHOULD BE ALLOWED, GOES AGAINST IT. IN THE CASE : OF GOVERNMENT CONTRACTS/WORK, THERE CANNOT BE ANY INTERMEDIARY. MORE THAN 15% OF GROSS RECEIPT S FROM MIZORAM GOVERNMENT WAS PAID TO THE PERSON WHOSE CREDENTIALS OR BUSINESS ACTIVITY ARE NOT KNOWN. THIS CLEARLY MEANS THAT PAY MENT HAS GONE NOT FOR BUSINESS PURPOSES. THE SUBMISSION OF BILL OR TH E MENTION OF ACTIVITIES IN THE BILL IS ONLY FORM AND NOT SUBSTANCE UNLESS P ROVED WITH NECESSARY EVIDENCES. SINCE THE JOB WAS WITH THE GOVERNMENT I DO NOT SEE THE INVOLVEMENT OF ANY LEGITIMATE EXPENSE IN THE NATURE OF LIAISONING ETC. WHICH CAN BE ALLOWED U/S. 37(1). THE APPELLANT'S OT HER ARGUMENT THAT THE PARTY IS NOT RELATED IS NOT RELEVANT SINCE THE DISALLOWANCE IS MADE U/S. 37(1) AND NOT U/S, 4QA(2) (B). CONSIDERING THE SE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFI RMED.' 17. FURTHER CO-ORDINATE BENCH ALSO CONFIRMED THE AD DITION BY OBSERVING AS UNDER :- 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND D O NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE SUBMITTED TWO BILLS FOR THE PERIOD OF 2 MONTHS I.E. MARCH, 2005 A ND JANUARY, 2005 WHICH CONTAINED THE LIAISONING WORK ETC. PERFORMED BY MR. LARSING M. NO OTHER DETAILS HAVE BEEN GIVEN AS TO WHAT ACTUAL SERVICES HAVE BEE N RENDERED BY THIS PERSON FOR THE ASSESSEE. NO EVIDENCE OF RENDERING ANY SERV ICES HAS BEEN FILED ON RECORD. NO EVIDENCE IN THE FORM OF ANY DOCUMENT OR OTHER EVIDENCE HAS BEEN FILED TO PROVE INVOLVEMENT OF THE ABOVE PERSON FOR EARNING OF THE INCOME BY THE ASSESSEE. EVEN AT THE APPELLATE STAGE BEFORE THE LE ARNED CIT(A) AS WELL AS BEFORE THE TRIBUNAL, THE ASSESSEE HAS FAILED TO PRO VE AS TO WHAT SERVICES HAVE BEEN RENDERED BY THIS PERSON FOR THE PURPOSE OF BUS INESS OF THE ASSESSEE. THUS, THE ASSESSEE FAILED TO DISCHARGE THE ONUS UPON IT T O PROVE GENUINENESS OF THE EXPENDITURE INCURRED FOR THE BUSINESS OF THE ASSESS EE. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE FINDINGS OF THE AUTHOR ITIES BELOW AND IN THE ABSENCE OF ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 12 ANY EVIDENCE IN FORM OF CONTRACT WITH THE PARTY, WE ARE UNABLE TO INTERFERE WITH THE ORDERS OF THE AUTHORITIES BELOW. WE CONFIRM THE FINDINGS OF THE LEARNED CIT(A) AND DISMISS THIS GROUND OF APPEAL OF THE ASSESSEE. AS A RESULT, GROUND NO.4 OF THE APPEAL OF THE ASSESSEE IS DISMISSED. . 18. BEFORE US DURING THE PROCEEDINGS LD. AR SUBMITT ED THAT DURING THE YEAR UNDER APPEAL COMPANY EARNED MORE THAN RS.2 CRORES IN RESPECT OF MIZORAM-E-GOVERNANCE PROJECT AND THE SAM E IS FORMING PART OF THE GROSS REVENUE AND CERTAINLY EXPENDITURE WAS REQUIRED INITIALLY TO OBTAIN THE PROJECT BY WAY OF FILING NE CESSARY DOCUMENTS BEFORE THE CONCERNED DEPARTMENT AND OTHER INCIDENTA L EXPENSES RELATING TO LIAISONING AND MARKETING, PROJECT IMPLE MENTATION AND SERVICES, EFFORTS TOWARDS REALIZATION OF PAYMENTS, CHARGES TOWARDS THE PRODUCTS AND MATERIAL DEPLOYED IN VARIOUS DEPAR TMENT, NET WORKING EQUIPMENT AND PROJECT IMPLEMENTATION CO-ORD INATION SERVICES. 19. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD AND ALSO GONE THROUGH THE ORDER OF THE CO -ORDINATE BENCH. WE OBSERVE THAT THERE IS NO DISPUTE TO THE FACT THA T ASSESSEE HAS PROVIDED SERVICES TO MIZORAM-E-GOVERNANCE PROJECT A ND GROSS REVENUE AROUND RS.2 CRORES HAS BEEN EARNED FROM THI S PROJECT. ASSESSEE HAS SUBMITTED COPIES OF BILL OF NEITCS HA VING ITS ADDRESS AND TELEPHONE NUMBER OUT OF WHICH ONE BILL IS SIGNE D BY THE PROPRIETOR AND ANOTHER PASSED BY HIS ACCOUNTANT. WE ALSO OBSER VE THAT ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 13 ASSESSEE HAS CLAIMED THIS EXPENDITURE IN ITS BOOKS OF ACCOUNT ON THE BASIS OF THESE INVOICES AND HAS ALSO MADE PAYMENT B Y ACCOUNT PAYEE DEMAND DRAFTS. ADDITION HAD ALREADY BEEN CONF IRMED IN THE HANDS OF ASSESSEE FOR NOT PROVIDING DETAILS OF TYPE S OF SERVICES PROVIDED BY MR. LARSING M RELATING TO MIZORAM-E-GOV ERNANCE. BUT ON THE OTHER HAND, BEFORE IMPOSING THE PENALTY U/S 271 (1)(C) OF THE ACT AN EFFORT SHOULD HAVE BEEN MADE ON THE PART OF REVE NUE TO VERIFY THE GENUINENESS OF THE BILLS PRODUCED BY THE ASSESSEE W HICH WERE HAVING ADDRESSES AS WELL AS TELEPHONE NUMBER. BUT IT SEEMS THAT NO SUCH EFFORT WAS EVER MADE BY THE LD. ASSESSING OFFI CER BEFORE IMPOSING THE PENALTY U/S 271(1)(C) OF THE ACT. LOOK ING TO THESE FACTS WITHIN FOUR CORNERS OF PROVISIONS OF SECTION 271(1) (C) OF THE ACT, WE FIND THAT AT THE TIME OF MAKING ENTRIES IN THE BOOK S OF ACCOUNT AND CLAIMING THE EXPENDITURE, ASSESSEE WAS CERTAIN OF T HE GENUINENESS OF THE EXPENDITURE CLAIMED BY IT. HOWEVER, IN THE LATE R COURSE NECESSARY INFORMATION AS CULLED OUT BY THE REVENUE AUTHORITIE S COULD NOT HAVE BEEN COLLECTED FOR SOME REASONS OR THE OTHER. HERE WE WOULD LIKE TO MENTION BY WAY OF EXAMPLE THAT EVEN IN CASE OF UNE XPLAINED CASH CREDIT OR CREDITOR IF THE ASSESSEE IS ABLE TO PROVI DE NAME AND ADDRESSES OF THE IMPUGNED PARTIES OR CONFIRMATIONS ARE FILED BY THE ASSESSEE IN REGARD TO CERTAIN PARTIES, THEN ASSESSI NG OFFICER ISSUES LETTER TO THE ADDRESS PROVIDED BY THE ASSESSEE AND IF ANY REPLY IS NOT RECEIVED OR REPLY IS RECEIVED IN CONTRADICTION TO T HE INFORMATION PROVIDED BY THE ASSESSEE DURING ASSESSMENT THEN THE ASSESSING OFFICER GOES AHEAD TO MAKE ADDITIONS. HOWEVER, IN T HE GIVEN APPEAL RELATING TO IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT, WE OBSERVE THAT NO SUCH EFFORT HAS BEEN MADE ON THE PART OF RE VENUE TO GET THE ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 14 INFORMATION FROM MR. LARSINGH M (PROPRIETOR OF NEI TCS) AND ALSO NO OTHER EFFORTS WERE MADE TO TAKE INFORMATION ABOUT T HE BANK ACCOUNT IN WHICH THE IMPUGNED PAYMENT WAS CREDITED. ASSESSEE H AS ALREADY LOST IN APPEAL ON QUANTUM ADDITION BUT AS FAR AS P ENALTY U/S 271(1)(C) OF THE ACT, WE ARE OF THE VIEW THAT DETAILS OF TYPE S OF SERVICES PROVIDED TO ASSESSEE WERE CLEARLY MENTIONED IN THE BILLS ISSUED BY LARSINGH M, PAYMENTS WERE MADE BY ACCOUNT PAYEE DEM AND DRAFT AND ABOVE ALL THERE WAS A CORRESPONDING INCOME BY W AY OF COLLECTION ON GROSS REVENUE OF APPROXIMATE RS.2 CRORES FROM MI ZORAM-E- GOVERNANCE PROJECT AND LOOKING TO THE FACTS THAT NO EFFORTS WERE MADE BY THE REVENUE TO EXTRACT NECESSARY INFORMATION, CE RTAINLY IN SUCH CIRCUMSTANCES, ASSESSEE SHOULD NOT BE VISITED WITH PENALTY U/S 271(1)(C) OF THE ACT. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CIT(A) AND ALLOW THIS GROUND RAISED BY THE ASSESSEE. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH MAY, 2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 13/5/2016 MAHATA/- ITA NO. 99/AHD/2012 ASST. YEAR 2005-06 15 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 10/05/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 11/05/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 16/5/16 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: