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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 02/04/2013 of the ld. First Appellate Authority, Mumbai.
The only ground raised in this appeal pertains to confirming the levy of penalty of Rs.8,29,912/-, u/s 271(1)(c) of the Income tax Act, 1961 (hereinafter the Act).
During hearing of this appeal, the crux of argument advanced by Shri S.S. Khandelwal, ld. counsel for the assessee, is that following three additions were made by the ld. Assessing Officer:
Amount On account of Remarks Rs.19,44,270/- difference in opening stock since Allowed by sales return was included in the Tribunal opening stock Rs.2,93,595 Writing of off obsolete stocks Confirmed Rs.2,27,709/- Bad debt written off Sent back to Assessing Officer by the Tribunal Total-24,65,574
Before us, the stand of the assessee is that so far as the amount of Rs.19,44,270/- is concerned, it was allowed by the Tribunal, whereas, the amount of Rs.2,27,709/- was sent back to the Assessing Officer but the same was confirmed as the assessee did not appear before the Assessing Officer. It was contended that the amount from Sales Tax and Excise Department were written off as the same could not be recovered. The ld. counsel placed reliance upon the decision from Hon’ble Apex Court in CIT vs Reliance Petro Products Ltd. 322 ITR 158 (SC) to the effect that mere making a claim, which is not sustainable in law, itself does not amount to concealment of income or furnishing of inaccurate particulars of income. On the other hand, the ld. DR, defended the conclusion arrived at in the impugned order.
2.1. We have considered the rival submissions and perused the material available on record. We find that in the appeal of the assessee on quantum addition (ITA No.626/Mum/2011), vide order dated 04/09/2012, so far as, the addition of Rs.19,44,270/-, made by the Assessing Officer and confirmed by the ld. Commissioner of Income Tax (Appeals), on account of opening stock, is concerned, the Tribunal considering the totality of facts, the addition was deleted. The relevant portion of the same is reproduced hereunder for ready reference:-
“2. The issue raised in ground No. 1 relates to the addition of Rs. 19,44,270/- made by the A.O. and confirmed by the ld. CIT(A) on account of opening stock.
The assessee in the present case is a company which is engaged in the business of manufacturing and export of pharma products. During the year under consideration, no manufacturing activity was carried out by the assessee. However, exports were stated to have been made of the products manufactured in the earlier year. In the P&L account, the assessee had declared such sales as well as sale of DEPB aggregating to Rs. 22.88 lacs and after claiming various expenses totaling to Rs. 31.67 lacs, the net loss of Rs. 8.79 lacs was declared in the return of income filed for the year under consideration on 23-10-2007. During the course of assessment proceedings, the A.O. found that the assessee has shown opening stock of finished goods of Rs. 19,44,270/- but there was no such closing stock shown in the immediately preceding year. In this regard, the explanation offered by the assessee was that goods worth Rs. 19,44,270/- were sold in the immediately preceding year to Protech Biosystems P. Ltd. for further export but since the export order was cancelled by the Protech Biosystems P. Ltd., the exports could not took place. It was submitted that the goods sold to Protech Biosystems P. Ltd. thus were returned back during the year under consideration on Ist April, 2006 and the same were supplied to another
concern M/s Polygon for export on 18-4-2006. It was contended that the goods returned by Protech Biosystems P. Ltd. were treated as opening stock by the assessee of the year under consideration and the sale thereon was also duly declared as income. The A.O., however, found that the new order for export of goods was placed by Polygon on 6-3-2006. According to him, it was beyond imagination that the said order was accepted by the assessee when it was not even aware of the rejection of goods. He also was not convinced with the treatment given by the assessee to the rejected goods as opening stock without routing the same through the P&L account. In this regard, the explanation offered by the assessee that the rejected goods having been received after the end of the immediately preceding year, the same were straight-away taken in the opening stock was not found acceptable by the A.O. He held that the assessee was aware of the rejection of goods by Protech Biosystems P. Ltd. in the earlier year itself and the same should have been routed through the P&L account of that year, which was the right course. Accordingly, he did not accept the opening stock of Rs. 19,44,270/- shown by the assessee and made an addition to that extent to the total income of the assessee.
The addition of Rs. 19,44,270/- made by the A.O. by rejecting its claim of opening stock was challenged by the assessee in an appeal filed before the ld. CIT(A) and the submissions made before the A.O. on this issue were reiterated on behalf of the assessee before the ld. CIT(A). It was further contended on behalf of the assessee that even if the goods returned had been taken into P&L account of earlier year, the effect on profit would have been the same, but the A.O. failed to appreciate this position. The ld. CIT(A) did not find merit in the submissions made on behalf of the assessee and confirmed the addition made by the A.O. on this issue observing that there was failure on the part of the assessee to establish that the goods supplied to Protech Biosystems P. Ltd. were actually returned by the said party or received by the assessee. He held that there was no material to establish the return of such goods to the assessee and supply of the same to another party during the year under consideration.
The ld. counsel for the assessee invited our attention to the P&L account of the assessee for the year under consideration placed at page 1 of his paper book to point out that the goods worth Rs. 19,44,270/- supplied by the assessee to Protech Biosystems P. Ltd. for export purpose in the earlier years were duly declared by the assessee in the P&L account for that year. He submitted that after the said sale, the assessee was left with no closing stock of finished goods in A.Y. 2006-07 and the goods were supplied in the year under consideration to M/s Polygon only from the goods returned by Protech Biosystems P. Ltd. which were supplied in the earlier year. He submitted that since the said goods were returned back on 1-4-2007, the assessee included the returned goods as the opening stock. He contended that had the assessee accounted for the sales returned in the earlier year and included the same in the closing stock as suggested by the A.O., the effect would have been the same as was achieved by the assessee by including the same directly in the opening stock. As regards the supply of goods to Protech Biosystems P. Ltd. in the earlier year, the return of goods so supplied by the said party and further supply of the goods so returned to M/s Polygon, the ld. counsel for the assessee submitted that sufficient evidence was produced by the assessee before the A.O. as well as the ld. CIT(A) to establish these facts. He took us through the copies of the relevant documents placed in his paper book and pointed out that the bill raised by the assessee on Protech Biosystems P. Ltd. on 27-2-2006 (copy placed at page 3 of the paper book) was sufficient to shows that 102330 boxes of Lorpils Tablets were supplied by the assessee for Rs. 19,44,270/- during the earlier year. He also invited our attention to copy of the ledger account of the said party to show that the said sale made on 27-2-2006 was duly accounted for by the assessee in its books of account. He also invited our attention to the copy of letter written by Protech Biosystems P. Ltd. to the Supdt. of Central Excise, Pune Division, Pune (copy placed at page 7 of the paper book) to point out that a request was made by the said party to the Excise Department to permit them to take back the container lying at JNPT Port as a result of cancellation of the order by the purchaser. He submitted that the said permission was granted by the Supdt. of Central Excise on 27- 3-2006 as per the copy of letter placed at page 9 of the paper book and since the assessee had meanwhile received another order for supply of the same goods from M/s Polygon, the goods returned were exported by the assessee at the instance of M/s Polygon as is evident from the copies of corresponding bills placed at page 15 & 18 of the paper book. He contended that there was thus sufficient evidence brought on record by the assessee to show that the export of goods was made during the year under consideration from the goods returned by another party which were supplied in the immediately preceding year and there was no reason for the authorities below to reject the claim of the assessee of the goods returned merely because the said returned goods were directly included by the assessee in the opening stock without routing the same through P&L account. He contended that the final effect of the transactions, whether routed through P&L account or directly included in the opening stock, was the same and the addition on this issue thus is not sustainable.
The ld. D.R. strongly relied on the orders of the authorities below in support of the Revenue’s case on this issue. He submitted that the accounting treatment given by the assessee to the returned goods as opening stock was not correct and there was also no evidence to establish that the goods returned were exported by the assessee in the year under consideration.
We have considered the rival submissions and also perused the relevant material available on record. As explained by the ld. counsel for the assessee, 102330 boxes of Lorpils Tablets were supplied by the assessee to Protech Biosystems P. Ltd. under Invoice dated 27-2-2006 (copy placed at page 3 of the paper book) for Rs. 19,44,270/- for the purpose of export and the said sale was duly accounted for by the assessee in its books of account as is evident from the copy of P&L account placed at page 1 of assessee’s paper book. The export order received by M/s Protech Biosystems P. Ltd., however, was cancelled by the concerned buyer and consequently a request was made by Protech Biosystems P. Ltd. to the Excise Deptt. to allow them to take back the container lying at JNPT Port vide letter dated 17-3-2006 (copy placed at page 7 of the assessee’s paper book). The said request was accepted by the Excise Deptt. vide letter dated 27-3-2006 (copy placed at page 9 of assessee’s paper book) and thereafter the goods returned by Protech Biosystems P. Ltd. were exported by the assessee as per the order of Polygon during the year under consideration (copies of invoices are placed at page 15 & 18 of the assessee’s paper book). The said export was also supported by the copies of bills and other documents, the copies of which are placed on record in the paper book filed by the assessee. Having regard to all these documents placed on record by the assessee, we find that the initial sale of goods made by the assessee in the earlier year, the return of goods so sold and fresh export of the goods so returned in the year under consideration was duly supported by documentary evidence and there was no justifiable reason to doubt or dispute the return of goods so sold by the assessee merely because the said goods were directly entered by the assessee in the opening stock of the year under consideration instead of routing the same through P&L account of the earlier year. As rightly contended by the ld. counsel for the assessee, the effect of both these treatments would have been the same and when the export of goods made by the assessee in the year under consideration was duly declared by it as income and the said export was possible only out of returned goods which were supplied in the earlier year in the absence of any stock of finished goods available with the assessee, we are of the view that the claim of the assessee of the returned goods included in the opening stock should be accepted. In that view of the matter, we delete the addition made by the A.O. and confirmed by the ld. CIT(A) on this issue and allow ground No. 1 of assessee’s appeal.”
2.2. It is noted that the ld. Assessing Officer levied penalty on account of difference of stock of Rs.19,44,270/-, writing off of the obsolete stock of Rs.2,93,595/- and bad debts written off to the extent of Rs.2,27,709/-, totaling Rs.24,65,574/-. Since, the Tribunal has deleted the addition of Rs.19,44,270/-, therefore, on this addition, penalty will not survive.
2.3. So far as, writing off of obsolete stock of Rs.2,93,595/- is concerned, the addition was affirmed by the Tribunal. The relevant portion from the order of the Tribunal is reproduced hereunder for ready reference:-
“8. The issue raised in ground No. 2 relates to the addition of Rs. 2,93,595/- made by the A.O. and confirmed by the ld. CIT(A) by disallowing the assessee’s claim for write off of opening stock.
The opening stock of Rs. 2,93,595/- representing packing material such as aluminum foil, corrugated boxes as well as obsolete raw material was written off by the assessee. The claim of the assessee of having written off the stock as obsolete raw material, packing material etc. was not accepted by the A.O. in the absence of any documentary evidence filed by the assessee. He also observed that the same might have been disposed of by the assessee without accounting for the proceeds realized. Accordingly the claim of the assessee for deduction on account of opening stock written off was disallowed by the A.O. On appeal, the ld. CIT(A) confirmed the disallowance made by the A.O. on this issue for the same reasons as given by the A.O.
The ld. counsel for the assessee invited our attention to the schedule -9 of the Balance sheet placed at page 2 of the assessee’s paper book to point out that the closing stock of Rs. 2,93,595/- was available with the assessee as on 31-3-2006. He contended that the said stock comprising of stock of old packing material as well as raw material which had become obsolete after expiry of short life was written off by the assessee during the year under consideration as the business was already closed and the same should be allowed as deduction as rightly claimed by the assessee.
The ld. D.R., on the other hand, submitted that no evidence whatsoever has been produced by the assessee either before the authorities below or before the Tribunal in support of its claim of having written off of the stock of packing material and raw material and in the absence of the same, the claim of the assessee on this issue cannot be allowed. 12. After considering the rival submissions and perusing the material available on record, we find no justifiable reason to interfere with the impugned order of the ld. CIT(A) confirming the disallowance made by the A.O. on account of assessee’s claim of having written off of the opening stock of packing material and raw material in the absence of any documentary evidence to support and substantiate the same. Ground No. 2 of assessee’s appeal is accordingly dismissed.”
2.4. It is noted that the stand of the assessee was that as per schedule-9 of the balance sheet, it was pointed out that closing stock of Rs.2,93,595/- was available with the assessee as on 31/03/2006, which was comprising of stock of old packing material as well as raw material which had become obsolete and the same was written off by the assessee. It is not the case that the assessee hides something as the business of the assessee had already been closed. We note that under the facts available on record, it was a good case on quantum addition but not for levy penalty as neither there is concealment nor inaccurate particulars of such income were furnished by the assessee. Even otherwise, if a wrong claim is made by the assessee in itself, it does not tantamount to concealing of income or furnishing of inaccurate particulars.
The assessee gets support from the decision of Hon’ble Apex Court in Reliance Petro Products, 322 ITR 158 (SC), therefore, we delete the penalty on the issue of closing stock of Rs.2,93,595/-.
2.5. So far as, levy of penalty on the issue of bad debt written off amounting to Rs.2,27,709/- is concerned, we find that the Tribunal vide aforesaid order dated 04/09/2013 after considering the totality of facts that the assessee failed to satisfactorily establish that the conditions stipulated in section 36(2) of the Act were satisfied, in order to claim the deduction on account of bad debt written off. The matter was remanded by the Tribunal to the file of the Assessing Officer to consider the plea of the assessee. Since, the addition in question does not survive, no penalty would survive and the impugned action of the Assessing Officer is hereby set-aside.
Finally, the appeal of the assessee is allowed.
This Order was pronounced in the open on 24/02/2016.