1 ITA No. 2894.Del.13
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `H' NEW DELHI
BEFORE SMT DIVA SINGH, JUDICIAL MEMBER
AND
SHRI B.C.MEENA, ACCOUNTANT MEMBER
I.T.A .No.-2894/Del/2013
(ASSESSMENT YEAR-2004-05)
M/s VA-Tech Escher Wyss Flovel Ltd. vs ACIT,
(Now Known as Andritz Hydro P. Ltd.), Circle-1,
49/5, Mathura Road, Village Prithla, Faridabad
Faridabad
PAN-AABCV2466R
(APPELLANT) (RESPONDENT)
Appellant by: Sh. Ashwani Taneja, Adv. &
Mr. Somil Agarwal, CA
Respondent by: Sh. Gagan Soot, Sr. DR
ORDER
PER DIVA SINGH, JM
This is an appeal filed by the assessee against the order dated 18.03.2013 of
CIT(A)-2, Faridabad pertaining to 2004-05 assessment year assailing the action of
the CIT(A) in confirming the penalty imposed by the AO u/s 271(1)(c) amounting to
Rs.3,94,200/-.
2. The relevant facts as emerging from the material available on record are that
the assessee in the year under consideration declared a Nil income which was
subjected to scrutiny assessment wherein various additions were made by the AO
which also resulted in income of the assessee being assessed at Nil. The facts qua
the addition on account of which penalty was imposed are found discussed in para 3
at page 10 & 11 of the assessment order. The same are reproduced hereunder for
ready-reference :-
2 ITA No. 2894.Del.13
3. "Bad debts written off:-
The assessee has claimed bed debts written off during the year amounting
to Rs.95,00,228/-. The assessee was required to file details and to justify the basis
of claim in the year under consideration. It has been stated by the assessee vide
letter dated 18/12/06 that various bad debts in respect of debtors outstanding for
more than three years have been written off. On verification of the details filed by
the assessee it is found that the assessee has also claimed the amount outstanding
in creditors misc. balances of Rs.10,98,944/-, details of which are as under:-
Sr.No. Name of the Party Amount
1. Fair Bank Morse India 361920
2. Ascent Technologies 2052
3. Satyam Infoway Ltd. 64800
4. Tanvi Internet Communication 76045
5. Arora Enterprises 11880
6. Jasbir Enterprises Corp. 11403
7. Renuka Art Press 14117
8. Sri Samwat Transport 9000
9. S.VIdya Krishan 7500
10. Central Instructions 12989
11. Dhingra Guest House 2000
12. Hten Brothers 3120
13. Kryfs Lamination 9186
14. Mehra Electronics 27500
15. Swami & Co. 7544
16. TCI Seaways 18929
17. Spares India 1000
18. Other Credit balance written off 364291
19 -do- 14810
20 -do- 78878
Total 1098944
The assessee has not filed any reason or justification of claim of creditors balances
as "Bad debts written off".
It was not established by the assessee as to how conditions prescribed under
section 36(i)(vii) read with section 36(2) are fulfilled in respect of above parties.
After considering the facts of the case and the details filed by the assessee, it is
found that the claim of bad debts in respect of the amounts mentioned above is not
correct as the condition required under the provisions of section 36(i)(vii) read
with section 36(2) of the I.T. Act are not fulfilled. Therefore the claim of bad debts
amounting to Rs.10,98,944/- is disallowed and added to the income of the
assessee. Penalty u/s 271(1)(c) is also initiated as the assessee has filed
inaccurate particulars of income."
3 ITA No. 2894.Del.13
2.1. The record shows that in the penalty proceedings, the assessee requested the
AO to keep the penalty proceedings in abeyance as the issues were under challenge
before the CIT(A). Thereafter another opportunity was granted by the AO in
response to which no one appeared accordingly penalty of Rs.3,94,200/- was
imposed vide para 4 of the penalty order holding that the assessee had furnished
inaccurate particulars of his income.
3. Aggrieved by this the assessee went in appeal before the First Appellate
Authority who not convinced with the explanation offered confirmed the action of
the AO. Aggrieved by this the assessee is in appeal before the Tribunal.
4. Ld. AR inviting attention to the material available on record and the
arguments advanced before the CIT(A) in the penalty proceedings extracted in para
4.2 of the impugned order submitted that the penalty imposed deserves to be
quashed. It was his submission that no doubt the assessee had initially agitated this
addition in the quantum proceedings before the CIT(A) however it was given up as
the assessee was not impacted by the addition made. Attention was invited to the
Assessment Order to show that despite the huge addition made by the AO by way of
various disallowances namely commission expenses amounting to Rs.2.38 crore
odd, technical consultancy expenses of Rs.43 lakh odd; traveling expenses of Rs.34
lakh odd and disallowance of various that expenses totalling 3,42,02,610/-including
the addition on account of bad debts which was the only subject matter in the
penalty proceedings the resultant income of the assessee was still assessed at Nil. In
the circumstances the assessee in its wisdom or advise did not agitate the issue
further it was also his submission that even in the subsequent years also the assessee
has been assessed at a loss and the position remained the same till date. In support
of the claim factual position of 2006-07 A. Y 2007-08 was referred to. In this
background it was argued that the claim of the assessee was a bonafide claim as
4 ITA No. 2894.Del.13
there was no motive whatsoever for the assessee to make an incorrect claim.
Notwithstanding that even on merits it was argued that had the assessee been
correctly advised the assessee could have got necessary relief in the quantum
proceedings itself as the expenditure could have been claimed u/s 37 as a business
expenditure and would have been allowed. It was argued that simply because the
claim was made under bad debts it has been disallowed the fact remains that these
were advances given to the creditors for supplies and since they were continuing
over the years the assessee as per its understanding made a claim for bad debts. In
the circumstances the explanation offered before the AO evident from the
assessment order itself and contended before the CIT(A) in the penalty proceedings
should have been considered. It was submitted that the case laws available in the
public domain on this issue supports such a view. Inviting attention to the written
submissions filed before the CIT(A) available at page 65-71, it was his submission
that the assessee has neither concealed any particulars of income nor has the assessee
furnished inaccurate particulars of income. Specific attention was invited to
judgement of the Jurisdictional High Court in the case of CIT vs Sumangal Overseas
Ltd. in ITA No-174 of 2011(Del.) (HC) reserved on 30.10.2011 copy filed in the
Court delivered on 18.11.2011, so as to contend that paras 7,8 & 9 of the said
judgment are fully applicable to the facts of the assessee's in case. The same are
reproduced hereunder for ready-reference:-
7. "It is trite law that during the penalty proceedings, it is to the Tribunal to
look into the transaction to see as to whether the claim was bona fide or it was
bogus and result of falsehood. From that angle, when the Tribunal examined the
matter, it found that on the facts of this case when advances given to the
suppliers were not written off as irrecoverable, the same was allowable under
Section 28 of the Act. A trading loss has a wider connotation than a bad debt. A
bad debt may also be a trading loss, but a trading loss need not necessarily be a
bad debt. There may be a bad debt which may not fall within the purview of
Section 36(1)(vii) of the Act, but may well be regarded as one eligible for
deduction incurred in the course of carrying on business will come under that
category and will naturally enter into computing the net total income as the real
5 ITA No. 2894.Del.13
profit chargeable to tax cannot be arrived at without setting off legitimate
trading loss.
8. On these facts, it is apparent that the claim was neither mala fide nor
false. It was a bona fide claim preferred by the assessee, who had also disclosed
all the facts relating to and material to the computation of his income.. IN these
circumstances, the assessee fulfilled both the conditions to be outside the
purview of Explanation (1) to Section 271(1)(c) of the Act. The case of the
assessee is covered by the judgement of the Supreme Court in the case of CIT vs
Reliance Petroproducts (P.) Ltd., 322 ITR 158 (SC), where it was held that the
assessee must be found to have failed to prove that his explanation is not only
bona fide, but all the facts relating to the same and material to the computation
of his income were also not disclosed by him. It was further held that the
explanation must be preceded by finding as to how and in what manner the
assessee had furnished inaccurate particulars of his income.
9. In fact, had the assessee pressed his claim in a proper manner during the
assessment proceedings, he might have even succeeded in getting the said
deduction allowed. Be as it may, in such a case, the assessee cannot be fastened
with penalty also."
4.1 Reliance was also placed upon the order of the Co-ordinate Bench in the case
of ITO Bata Steel (P.) Ltd. (2010) 33 DTR (Chd.) (Trib) 219; CIT vs Mahavir
Irrigation P. Ltd. 61 DTR 218 (Del.); Amruta Orghanics P. Ltd. Vs ITO (Pune)
rendered by Pune Bench of the Tribunal on 22.03.2013 in ITA No-1121/PN/2011.
4.2 Addressing the reasons for not being present before the AO during the
penalty proceedings attention was invited to the written submissions placed before
the CIT(A) so as to contend that the notice was issued to the assessee at the wrong
address. It was submitted that the assessee had changed his address for
correspondence and duly intimated the same to the department in 2009 itself and
despite this fact notices were sent to the wrong address.
5. The Ld. Sr. DR on the other hand places heavy reliance upon orders of the
authorities orders below. It was his submission that the assessee has cared to offer
no explanation before the AO and the explanation has been offered only before the
CIT(A) which has not been accepted. It was also his submission that the assessee
has not demonstrated by way of any evidence to show that any suit has been initiated
against the party for recovery of the amounts as the amount was not a small amount
6 ITA No. 2894.Del.13
as was an amount of Rs.10 lakh odd. Accordingly it was argued that the penalty has
rightly been levied and deserves to be confirmed.
6. We have heard the rival submissions and perused the material available on
record. It is seen that the address given by the AO in the penalty proceedings is per
"M/s Va Tech Escher Wyss Flovel Ltd., 13/1, Mathura Road, Faridabad" and the
address as metnioend in the impugned order at column No-4 is "Va Tech Hydra
India Pvt. Ltd, 49/5, Mathura Road, Vill-Prithla, Dis.-Palwal, Haryana" accordingly
the address having been changed is evident from the record.
6.1. A perusal of the impugned order shows that arguments advanced before us
remain largely identical to what has been canvassed before the CIT(A) relevant
portion thereof is extracted from the impugned order hereunder:-
4.2. "During the course of appellate proceedings, the appellant filed written
submissions, the relevant extracts of which are reproduced hereunder:-
"The assessee has neither concealed any particulars of income nor furnished any
inaccurate particulars of income. In fact, the amount of debit balance written off
during the year of Rs.10,98,944/- was in the nature of business expenditure fully
allowable u/s 37 since it related to amounts outstanding in creditors account
being in the nature of advances given to creditors for supplies and/ or services
required in the course of carrying on of the business. The same were outstanding
for a number of years and had become irrecoverable and were hence written off.
These irrecoverable amounts resulted in revenue loss to the assessee and were
deductible in computing the business income of the assessee as per the provision
of section 37(1).
This fact has been stated in the assessment order also at Para 3 where the
assessing officer has stated:
" on verification of the details filed by the assessee, it is found that the assessee
has claimed the amount outstanding in creditors misc. balances of
Rs.10,98,944/_....."
Further enclosed are the flowing as evidence of the aforestated facts:-
1. Copies of ledger account of all the parties whose balance were written off
during the year showing that they were parties with whom assessee was
having business transaction and advances made for these business
transactions were written off during the relevant assessment year. The ledger
account also demonstration the fact that the amounts were outstanding for a
long period and hence were written off when they became irrecoverable.
2. Copy of assessment order wherein A.O. has stated as a matter of fact that the
nature of the impugned amount outstanding was balance in creditors account.
7 ITA No. 2894.Del.13
Reliance is placed on the following decisions wherein it was held that
advances made in the course of business becoming irrecoverable are
allowable as deduction u/s 37."
6.2. It is also seen that in the context of the above arguments reliance has been
placed before the CIT(A) on the following decisions:-
(i) CIT Vs. Mysore Sugar Co. Ltd (1962) 46 ITR 649 (SC)'
(ii) Chenab Forest Co. Ltd. Vs. CIT (1974) 96 ITR 568 (J &K); and
(iii) Mohan Meakin Vs. CIT (Delhi HC) ITA No. 405/07 dated 11/5/2011
6.3. A perusal of page 5 of the impugned order further shows that supporting the
arguments that even on facts the assessee's claim was allowable, reliance was
placed on the following decisions:-
(i) CIT Vs. Mahavir Irrigation P. Ltd. 61 DTR 218 (Del.);
(ii) CIT Vs. Escorts Fiannce Ltd. (2010) 328 ITR 44 (Del);
(iii) Asst. CIT Vs. T. R. B. Exports (P) Ltd. 134 TTJ 49 (Chd.'B') (UO);
(iv) Rajendran & Ors Vs. Asstt. CIT 47 DTR 178 (Cehnnai `B')'
(v) Asstt. CIT Vs. Malu Electrodes (P) Ltd. 127 TTJ 599 (Nag)
6.4. Considering the material available on record and the arguments of the parties
before the Bench it is seen that consistently the assessee has claimed that the
amounts which were claimed as written off were actually advances made to its
suppliers whose names and particulars numbering -20 in total were provided to the
AO. However, since the claim put forth was for bad debts for which the assessee
failed to provide any justification the addition was made, it is a fact that the addition
was not challenged in the quantum proceedings. The argument advanced for the
said decision is that firstly it had no impact on assessee's income as it remained at
NIL over the years as such the issue was not challenged and secondly the facts
demonstrate that had the expenditure claimed as a trading loss it could have been
allowed. Reliance for the same has been palced on the decision of the jurisdictional
High Court in the case of CIT Vs. Sumangal Overseas. The explanation is stated to
be bonafide as assessee on facts had no motive to make a wrong claim as the income
over the years has remained at Nil. Full particulars were filed and no inaccurate
particulars were provided. It is a settled legal position that penalty proceedings and
8 ITA No. 2894.Del.13
quantum proceedings are separate and distinct. It is equally a settled position that
explanation offered in the penalty proceedings has to be considered by the
authorities independently in the matrix of the requirements of Section 271(1)(c). It
has consistently been argued by the assessee that even on merits the bad debt claim
could have been allowed as a trading loss. It is not the case of the department that
these advances made to the suppliers coming from earlier years were not from the
Profit & Loss A/c of the assessee. These advances to the creditors have not been
held to be sham transactions as they are coming from the earlier years. In the
aforementioned peculiar facts and circumstances we find ourselves unable to
confirm the impugned order as explanation offered by the assesse in the penalty
proceedings is bonafide and deserves to be accepted as it is neither a case of filing of
inaccurate particulars and nor is it a case of concealment. We find support from the
decision rendered by the decision of the Jurisdictional High Court in its decision
dated 18th November 2011 in ITA 174 of 2011 in the case of CIT Vs. Sumangal
Overseas Ltd. and also the decision of the Apex Court in the case of Reliance Petro
Products Ltd. 322 ITR 158 (SC) and Reliance Water Cooper (P) Ltd Vs. CIT (2012)
348 ITR 306 (SC). Accordingly for the reason given hereinabove , we are of the
view that the explanation being bonafide deserves to be accepted, the impugned
order is set aside and that the penalty imposed accordingly is quashed.
8. In the result the appeal of the assessee is allowed.
The order is pronounced in the open court on 24th of April 2014.
Sd/- Sd/-
(B.C.MEENA) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 24 /04/2014
*Amit Kumar/R. Naheed*
9 ITA No. 2894.Del.13
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
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