SHAW WALLACE DISTILLERIES LTD.,,BANGALORE vs. ACIT, BANGALORE

Ld. Counsel for the assessee at the outset submitted that penalty was levied by the AO on prior period expenditure of Rs.1,25,54,985/- disallowed during the assessment, merger expense claim of Rs.5,14,240/- and claim of advance / bad debt write off of Rs.28,22,667/-. Ld. AR submitted that out of the above amounts, prior period expenditure originally claimed consisted of three items listed as under :

As per the Ld. AR, CIT (A) on assessee’s appeal against disallowance relating to above prior period expenses mentioned at (ii) and (iii) above, had given partial relief and the addition which were upheld by the CIT (A) in quantum proceedings out of the above, were the following items :

As per the Ld. AR, though penalty was levied on all the above amounts, CIT (A) in assessee’s appeal against such levy had deleted penalty levied on prior period expenditure claim of Rs.1,49,658/- while sustaining the penalty levied on the other three items. Further as per the Ld. AR quantum proceedings were carried in appeal before this Tribunal and this Tribunal in its order in ITA no.553/Mum/2006, dt.17.05.2013 had deleted the addition relating to differential Sales-tax payment of Rs.91,89,001/- and differential property tax of Rs.23,46,492/- paid to Nagar Nigam. Thus according to him what was remaining was only the penalty relatable to Rs.4,96,780/- for obsolete stock written off. As per the Ld. AR, claim of such obsolete stock written off was dealt with by this Tribunal in appeal of the assessee at 5.4.11 of its order dt.17.05.2013. Against the total claim of Rs.25,69,780/-, as per the Ld. AR, penalty was levied only for a reason that assessee could produce details of Rs.20.73 lakhs. Disallowance to the extent of Rs.4,96,780/- was sustained by the Tribunal only for a reason that assessee could not produce documentary proof for justifying its claim. But this, according to him, would not mean that the claim made was unlawful or with any malafide intention.

Coming to the next item of penalty which was on the advance to Balbir Distilleries of Rs.37,06,054/- written off by the assessee, Ld. AR submitted that out of the said amount the CIT (A) had deleted the disallowance of Rs.33,30,000/- in quantum appeal and only Rs.3,76,054/- was sustained. Ld. AR pointed out that in further appeal of the assessee mentioned supra, this Tribunal had sustained the disallowance for reasons mentioned at para 5.3.2 of its order. As per the Ld. AR this amount was part of an advance which could not be recovered. As per the Ld. AR, AO had considered it to be a capital loss and made a disallowance. According to him this was not a reason for levy of penalty.

Continuing his arguments, Ld. AR submitted that merger expenditure of Rs.5,14,240/- disallowed by the AO was allowed for amortisation u/s.35DD of the Act. According to him just because assessee made a claim u/s.37(1) of the Act which was found to be allowable u/s.35DD of the Act, it could not be said that assessee had furnished any inaccurate particulars or made an illegitimate claim.

In so far as the last item of levy of penalty which was write off of bad debts of Rs.28,22,667/- was concerned, Ld. AR submitted that CIT (A) had deleted the levy of penalty in so far as it related to irrecoverable debts

In any case, according to him, penalty order does not specify whether levy of penalty was for concealment or for furnishing inaccurate particulars. According to him, AO had not brought out the reason why penalty was being levied and by virtue of the judgment of Hon’ble jurisdictional High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory, order of penalty ought not be sustained.

Per contra Ld. DR submitted that assessee had furnished inaccurate particulars in so far as its claim for merger expenses of Rs.5,14,240/- was concerned. Assessee had shown merger expenses other than the above sum of Rs.5,14,240/- separately and added back in its computation. However, the sum of Rs.5,14,240/- which was also merger related expenditure was included under other heads. Thereby, as per the Ld. DR, assessee had knowingly tried to make a claim which it was not eligible for. But for the careful vouching one by the AO, this would not have come to light. In so far the issue of obsolete stock was concerned, Ld. DR submitted that assessee had not given the full list of obsolete stock with values, but had given only

We have perused the orders and heard the rival submissions. In so far as levy of penalty for merger expenses is concerned, what we find is that assessee had shown a merger expenditure of Rs.15,99,298/- in its profit and loss account and suo motu added it back in its computation statement. As per the Ld. AR, merger related expenditure to the extent of Rs.5,14,240/- was accounted by the assessee under various other heads which came to light only during the course of verification. Nevertheless what we find is that even for this amount assessee was eligible for claiming 1/5th write off u/s.35DD of the Act. Thus at the best, claim can be considered to be erroneously made and not one done with any malafide intention or with any intention to conceal. Whether a particular expenditure can be related to merger cost itself is debatable. In our opinion, levy of penalty ought not have been done on such amount.

Coming to the levy of penalty relating to prior period expenditure of Rs.1,25,57,985/-, admittedly the Tribunal in assessee’s appeal vide para 5.4.10 of its order, held the differential CST of Rs.91,89,001/- to be an allowable claim. Vide the very same para it also held that differential

In so far as obsolete stock is concerned, addition was sustained for a reason that assessee could furnish details for Rs.20.73 lakhs against the claim of Rs.25,69,780/-. Tribunal has at para 5.4.11 of its order has clearly mentioned this. Tribunal has also mentioned that what assessee has produced was a list of small items. Non-production of supporting records to show value of obsolete stock could, in our opinion, be a reason for disallowance. However, we cannot say that such a claim is far fetched or an illegitimate one. Just because the claim was disallowed, in our opinion, penalty ought not have been levied on the said amount.

Coming to the disallowance of Rs.37,06,054/- towards advance to Balbir Distilleries which was written off by the assessee, this Tribunal at para 3.3 of its order mentioned supra, sustained the order of CIT (A) wherein he deleted the disallowance to the extent of Rs.33 lakhs. AO had

Coming to the last item of write off of bad debts of Rs.28,22,667/- disallowed by the AO on which penalty has been levied, CIT (A) in assessee’s appeal had deleted the penalty relatable to the sum of Rs.15,79,679/-. When the matter reached this Tribunal had vide its para 5.6.6 of its order deleted the disallowance made by the AO in full. Hence penalty levied on such amount cannot be sustained.

As a result, we are of the opinion that assessee could not have been saddled with penalty on any of the above items since the Revenue has not been able to bring out either concealment or furnishing inaccurate particulars. Levy of penalty is deleted.

Since we have deleted the penalty on merits, the question whether such levy was for concealment or filing inaccurate particulars become academic and infructuous.

In the result, appeal of the assessee is allowed.