STEELCO GUJARAT LTD.,BHARUCH vs. THE DY.CIT.,CIRCLE-4, BARODA

PDF · subscribers
ITA 2487/AHD/2013Status: DisposedITAT Ahmedabad13 October 2017AY 2003-044 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee had provided sufficient evidence for the advances to one company being for raw material purchases. For the other company, it was considered a debatable claim on a legal aspect rather than a false claim, thus not attracting penalty.

What were the facts?

The assessee claimed bad debts of Rs. 32.88 lacs in respect of advances made to two companies. The Assessing Officer disallowed the claim, stating it was not recognized as income in earlier years and initiated penalty proceedings under Section 271(1)(c).

What were the issues?

Whether the disallowance of bad debts warrants the imposition of penalty for furnishing inaccurate particulars of income. Whether the advances made were for raw materials or capital expenditure.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 36(2),Section 37

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH AHMEDABAD

Hearing: 26.07.2017Pronounced: 13.10.2017

PER S. S. GODARA, JUDICIAL MEMBER

This assessee’s appeal for assessment year 2003-04 arises against the CIT(A)-III, Baroda’s order dated 31.07.2013 in case no. CAB/III-22/2012-13, upholding Assessing Officer’s action imposing penalty of Rs.12,10,000/- pertaining to bad debts disallowance of Rs.32,88,507/- in respect of M/s. Ganpati Capital Ltd. and M/s. Gujarat Nippon Bimetals Pvt. Ltd. involving figures of Rs.18,50,000/- and Rs.14,38,507/-; respectively, in proceedings u/s. 271(1)(c) of the Income Tax Act, 1961; in short “the Act”. Heard both sides. Case file perused.

ITA No. 2487/Ahd/13 [Steelco Gujarat Ltd. vs. DCIT] A.Y. 2003-04 - 2 -

2.

We advert to relevant facts first. This assessee is a company manufacturing cold rolled steel. It filed return on 28.11.2003 stating loss of Rs.1,66,048/-. The Assessing Officer took up scrutiny. He came across assessee’s bad debt claim in question of Rs.32.88lacs (supra) in the form of advances allegedly not offered as income in earlier assessment years. The Assessing Officer first of all observed in assessment order dated 28.02.2006 that Section 36(2) of the Act does not allow such a claim in absence of the same being recognized as income preceding assessment years. He then opined that the above statutory provision was a specific one negating application of general business expenditure u/s.37 of the Act. The Assessing Officer further initiated the impugned penalty proceedings alleging furnishing of inaccurate particulars of income u/s.271(1)(c) of the Act. The assessee preferred appeal. The CIT(A) affirmed the above quantum disallowance in his order dated 18.10.2006. The assessee then filed ITA No.349/Ahd/2007 before the tribunal. A co-ordinate bench therein remitted the issue back to the Assessing Officer’s file in its order dated 14.05.2010 as under:

“14. From the above, it is evident that the Ld. Commissioner of Income Tax(Appeals) has recorded the finding that the amount given to Ganpati Capitals Limited was for opening L.C. and it is not clear whether the L.C. was for purchase of raw material or for purchase of capital goods. In the case of Gujarat Nippon Bimetals Pvt. Ltd. also he recorded the finding it(Assessment Year 2003-2004) was for development of market and therefore was in the nature of capital expenditure. He, therefore, disallowed the loss on the ground that it was a capital loss not a trading loss. At the time of hearing before us, it was reiterated by the learned counsel that the loss was a revenue loss and not a capital loss. He stated that L.C. was open not for the purchase of capital goods, but for raw-material. Similarly, it was contended that the expenditure for the development of the market of the goods which is being manufactured by the assessee cannot be capital loss. However, the complete facts in this regard is not placed before us. We also find that no such claim was made before the Assessing Officer and therefore he has also not examined the facts relating to advance given to Ganpati Capitals Limited as well as Gujarat Nippon Bimetals Pvt. Ltd. 15. In view of the above, we deem it proper to set aside the order of the authorities below on this point and restore the matter back to the file of the Assessing Officer. We direct him to examine the facts of the case and thereafter re-adjudicate the issue in accordance with law.

3.

The Assessing Officer took up consequential proceedings thereafter. The assessee filed two letters dated 31.12.1996 and 07.02.1997 in case of the above former entity only M/s. Ganpati Capital in seeking to prove that the corresponding

ITA No. 2487/Ahd/13 [Steelco Gujarat Ltd. vs. DCIT] A.Y. 2003-04 - 3 -

amount of Rs.18.50 lacs (supra) was meant for raw material purchases instead of capital goods. It admittedly did not file even a single document qua the latter entity M/s. Gujarat Nippon Bimetals. The Assessing Officer reiterated the above quantum disallowance in these circumstances in his consequential assessment framed on 03.11.2011 after concluding that assessee’s supportive document in respect of above former entity pertaining to LC’s alleged terms and conditions, Section 138 notice etc. nowhere proved a case of raw material purchases. The assessee admittedly did not prefer any appeal. Quantum proceedings therefore attained finality.

4.

We now advert to the impugned penalty proceedings. The Assessing Officer strongly relied upon the above developments to conclude that the assessee had furnished inaccurate particulars of income in raising bad debts plea in question. He therefore imposed the penalty in question of Rs.12.10lacs in his order dated 20.04.2012. The CIT(A) confirms the same in lower appellate proceedings.

5.

We have heard rival contentions. Case file perused. There is no dispute that the impugned penalty emanates from bad debts deduction disallowance of Rs.32.88 lacs in respect of above two entities M/s. Ganpati Capital Ltd. and Gujarat Nippon Bimetals Pvt. Ltd. Both the lower authorities first of all observe that the assessee did not file any evidence proving to have advanced the money in question of Rs.18.50lacs to the above former entity for purchasing raw materials so as to make out a case of bad debts claim. We find that pages 30 to 69 of the paperbook comprise of all such particulars. Pages 43 to 44 particularly reveal that the same were for the purpose of purchase of cast slabs. Pages 51 to 52 also substantiate assessee’s case that it had intended to allocate the amount in question towards cost of material. We therefore find no reason to concur with both the lower authorities holding the assessee to have failed in proving raw material advances in respect of former entity. We now proceed to deal with M/s. Gujarat Nippon Bimetals. Learned co-ordinate bench in quantum proceedings has admittedly observe that the assessee had made payment to the latter entity for developing market of

ITA No. 2487/Ahd/13 [Steelco Gujarat Ltd. vs. DCIT] A.Y. 2003-04 - 4 -

manufactured goods. Hon’ble apex court’s decision in CIT vs. Reliance Petroproducts 322 ITR 158 (SC) has settled the law that quantum and penalty proceedings are separate wherein each and every disallowance/addition made in case of the former does not ipso facto attract the latter penal provision. We keep in mind the said fine distinction between quantum and penalty proceedings to find that assessee’s claim qua the latter entity as well for marketing of manufactured goods was not a false one but a debatable claim wherein it lost not on genuineness but on legal aspect. We therefore conclude that the above quantum disallowance of bad debts is not a fit instance to impose the penalty in question for furnishing of inaccurate particulars u/s.271(1)(c) of the Act. We therefore direct the Assessing Officer to delete the impugned penalty amounting to Rs.12.10lacs.

6.

This assessee’s appeal is accordingly allowed.

[Pronounced in the open Court on this the 13th day of October, 2017.]

Sd/- Sd/- (N. K. BILLAIYA) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 13/10/2017

More judgments on Section 271(1)(c)

All 25,141 judgments and leading authorities on Section 271(1)(c) →

Recent GST High Court judgments

Search GST case law →