Tedco Granite Ltd, v. ACIT circle 16 (1),

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL ITA NO. 1691(DEL)/2007 ASSESSMENT YEAR: 2001-02 TEDCO GRANITE LTD. ASSISTANT COMMISSIONER OF INCOME M-72 CONNAUGHT PLACE VS. TAX CI RCLE 16(1) NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL JAIN & SHRI NEERAJ VAISH C.AS RESPONDENT BY: SHRI N.K. CHAND SR. DR ORDER PER K.G. BANSAL ; AM THIS APPEAL OF THE ASSESSEE EMANATES FROM THE OR DER OF THE CIT(APPEALS)-XIX NEW DELHI PASSED ON 17.1.2007 IN APPEAL NO. 18/2006-07 AND IT PERTAINS TO ASSESSMENT YEAR 2001-02. THE CORRESPONDING PENALTY ORDER WAS FRAMED BY THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 16(1) NEW DELHI ON 29.3 .2006 UNDER THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME- TAX ACT 1961. THE ASSESSEE HAS TAKEN THREE GROUNDS IN THE APPEAL THE SUM AND SUBSTANCE OF WHICH IS THAT THE LD. CIT(APPEALS) ERRED IN SU STAINING THE PENALTY OF RS. ITA NO. 1691(DEL)/2007 2 54 30 665/- UNDER THE PROVISIONS OF SECTION 271( 1)(C) OF THE ACT. THE GROUNDS WERE REVISED BY THE ASSESSEE AND THEY READ AS UNDER:- 1. THE CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF PENALTY OF RS. 54 30 665/- AS IMPOSED BY THE AO U/S 271(1)(C). 2. THE CIT(A) HAS ERRED BOTH IN FACTS AND IN LA W BY UPHOLDING THE LEVY OF PENALTY U/S 271(1)(C) BY AO WHEN THERE WAS NO FINDING IN THE ASSESSMENT ORDER O R IN THE APPELLATE ORDER THAT THE AMOUNT OF EXPENDITURE/CL AIM DISALLOWED TO THE TUNE OF RS. 1 37 31 139/- IN THE ASSESSED INCOME WAS CLAIMED BY FURNISHING INACCURATE/CON CEALING PARTICULARS OF INCOME. 3. APPELLANT CRAVES FOR GRANT OF LEAVE TO AD D ALTER AMEND OR WITHDRAW ANY GROUND OF APPEAL AT AN Y TIME BEFORE OR DURING THE HEARING OF THE APPEAL. 2. THE FACTS OF THE CASE ARE THAT THE ASSE SSEE FILED RETURN OF INCOME ON 31.10.2001 DECLARING LOSS OF RS. 5 72 51 810/ -. THE ASSESSMENT WAS COMPLETED ON 31.12.2003 U/S 144 READ WITH S ECTION 143(3)(II) DETERMINING THE TOTAL INCOME AT RS. 2 95 52 863/-. THE ASSESSEE MOVED AN APPEAL BEFORE THE LD. CIT(APPEALS) WHO PASSED TH E ORDER ON 29.7.2004 IN WHICH THE APPEAL OF THE ASSESSEE WAS PARTL Y ALLOWED. THE AO HAD ALSO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) . THESE PROCEEDINGS WERE DISPOSED OFF ON 29.3.2006 BY LEVYING PENAL TY OF RS. 54 30 665/-. THE PENALTY WAS LEVIED IN RESPECT OF THE FOLLOW ING ADDITIONS MADE IN THE ASSESSMENT ORDER:- ITA NO. 1691(DEL)/2007 3 (I) RS. 7 18 830/- ON ACCOUNT OF BAD DEBTS; (II) RS. 79 08 309/- ON ACCOUNT OF SPECIAL DROUG HT DISCOUNT; AND (III) RS. 51 04 000/- ON ACCOUNT OF DISCOUNT TO DISTRIBUTORS AND DEALERS ON OFF SEASON SALE. 2.1 IN THE PENALTY ORDER THE FINDINGS OF THE A SSESSMENT WERE REITERATED. IT WAS HELD THAT THE EXPLANATION F URNISHED BY THE ASSESSEE WAS NOT FOUND TO BE SATISFACTORY IN THE ASSE SSMENT PROCEEDINGS AND IT WAS NOT AMENABLE TO VERIFICATION AS THE REQUIS ITE DETAILS WERE NOT FILED. THEREFORE THE PROVISION CONTAINED IN SECTION 2 71(1)(C) WAS ATTRACTED. THE LD. CIT(APPEALS) CONFIRMED THE LEVY OF PEN ALTY. IN SECOND APPEAL THE PENALTY WAS DELETED ON THE GROUND THAT RE QUISITE SATISFACTION FOR INITIATION OF PENALTY WAS NOT RECORDED IN THE ASSESSMENT ORDER AND THUS THE AO HAD NO JURISDICTION TO LEVY THE PENALTY. IN APPEAL THE HONBLE HIGH COURT REVERSED THIS DECISION BY RELYING O N THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. GOLDCOIN HEAL TH FOOD PVT. LTD. (2008) 304 ITR 308. CONSEQUENTLY THE MATTER WAS RE STORED TO THE FILE OF THE TRIBUNAL FOR DECIDING THE LEVY OF PENALTY ON M ERITS. 3. BEFORE US THE LD. COUNSEL DREW OUR ATTENTION TO THE ORDER OF THE LD. CIT(APPEALS) IN QUANTUM APPEAL PLACED IN THE PA PER BOOK NO. 2 ON PAGES ITA NO. 1691(DEL)/2007 4 1 TO 13. IN REGARD TO THE BAD DEBT OF RS. 7 18 813/- IT WAS SUBMITTED BEFORE HIM THAT THE SAME WAS ON ACCOUNT OF D EDUCTION MADE BY MINISTRY OF FERTILIZER DUE TO SUB-STANDARD MATERIAL SU PPLIED BY THE ASSESSEE IN MADHYA PRADESH AND RAJASTHAN VALUED AT RS. 6 2 5 830/- AND RS. 93 000/-. THESE AMOUNTS HAD BEEN TAKEN INTO ACCOUNT WHILE ACCOUNTING FOR THE SALE OF THE FERTILIZERS BEING SINGLE SUPER PHOSP HATE. THE AMOUNTS WERE WRITTEN OFF IN THE ACCOUNTS SINCE THE DEPARTMENT REDUCED THE CLAIM OF THE SUBSIDY OF THE ASSESSEE. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM. IT WAS MENTIONED THAT IN ORDER TO CLAIM DEDUCTION U/S 36(1)(VII) READ W ITH SECTION 36(2) IT HAS TO BE SHOWN THAT (I) THE AMOUNT FORMED PART OF P ROFITS IN THE YEAR UNDER CONSIDERATION OR IN OTHER EARLIER YEAR; AND (II ) IT SHOULD BE WRITTEN OFF IN THE BOOKS OF ACCOUNT. THE ASSESSEE HAS NOT FI LED ANY EVIDENCE TO SHOW THAT THE AMOUNT OF RS. 7 18 830/- WAS ADMITTED AS INCOME OF THIS OR ANY OTHER EARLIER YEAR. THEREFORE THE ACTION OF THE AO WAS UPHELD. IN THIS CONNECTION THE LD. COUNSEL DREW OUR ATTENTION TOWARDS PAGE 18 OF THE PAPER BOOK NO. 1 WHICH FURNISHES THE SUMMARY OF THE SUBSIDY FOR THE RELEVANT ACCOUNTING YEAR SHOWING INTER-ALIA THE OPENING AMOUNT RECEIVABLE AT RS. 3 99 41 039/- AND CLAIM MADE DURING THE YEAR AMOUNTING TO RS. 1 81 88 320/- TAKING THE AGG REGATE AMOUNT RECEIVABLE ITA NO. 1691(DEL)/2007 5 TO RS. 3 10 80 031/-. THIS AMOUNT HAS BEEN DEDU CTED BY RS. 7 18 830/- ON ACCOUNT OF DEDUCTION BY THE GOVERNMENT SHOWIN G THE NET RECEIVABLE AS ON 31.3.2001 AT RS. 2 63 30 498/-. OUR ATTE NTION WAS ALSO DRAWN TO PAGE 34 OF THE PAPER BOOK NO. 2 BEING NOTE ON ACCOUNTS APPENDED BY THE AUDITORS FOR THIS YEAR IN WHICH IT IS MENTION ED THAT THE TRANSACTIONS ARE ACCOUNTED FOR ON ACCRUAL BASIS UNDER THE MERC ANTILE SYSTEM OF ACCOUNTING AND SALES INCLUDE SALES SUBSIDY FROM THE GOVERNMENT. ON THE BASIS OF THESE FACTS IT WAS SUBMITTED THA T THE LD. CIT(APPEALS) HAD ERRED IN SUSTAINING THE ADDITION FOR THE REAS ON THAT SUBSIDY RECEIVABLE HAD ALREADY BEEN ACCOUNTED FOR AND THE AMOUNT D ISALLOWED BY THE GOVERNMENT WAS DEDUCTED IN THIS YEAR WHICH HAD BEEN WRITTEN OFF FROM THE BOOKS OF ACCOUNT. THEREFORE BOTH THE CON DITIONS FOR CLAIMING THE DEBT TO BE BAD AS DEDUCTIBLE WERE SATISFIED. THE ASSESSEE COULD NOT FILE APPEAL AS IT HAD FILED PETITION BEFORE T HE BIFR FOR ITS FINANCIAL RECONSTRUCTION AND THE DISALLOWANCE HAD NO EFFEC T AS THE TAX LIABILITY WAS DETERMINED AT NIL AFTER GIVING EFFECT TO THE ORDER OF THE LD. CIT(APPEALS). NONETHELESS IT WAS ARGUED THA T SINCE THE ADDITION ITSELF WAS NOT SUSTAINABLE THE PENALTY COULD NOT HAVE BEEN LEVIED IN RESPECT OF THIS AMOUNT. ITA NO. 1691(DEL)/2007 6 3.1 IN REGARD TO THE DISALLOWANCE OF RS. 79 08 309/- ON ACCOUNT OF SPECIAL DROUGHT DISCOUNT WRITTEN OFF IN THE BOO KS OF ACCOUNT IT WAS SUBMITTED BEFORE THE LD. CIT(APPEALS) THAT THE DEALERS AND DISTRIBUTORS HAD MADE REPRESENTATIONS FOR ALLOWING DRUGHT D ISCOUNT AS THEY WERE NOT ABLE TO SELL THE FERTILIZER. IN THIS CONNECTIO N A MEETING OF THE MEMBERS OF THE FERTILIZERS ASSOCIATION OF INDIA NORT HERN REGION WAS HELD ON 29.11.2000 IN WHICH THE MARKET SITUATION WAS REVIEWED. IT WAS FOUND THAT THE STATES OF GUJARAT RAJASTHAN AND MADHYA PRADESH WERE WORST AFFECTED DUE TO INADEQUATE RAINFALL. IT WAS FURTHER SUBMITTED THAT THE ACCOUNTS DULY CONFIRMED BY T HE DEALERS OR DISTRIBUTORS IN RESPECT OF SPECIAL DRAUGHT DISC OUNT WERE FILED. THE MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS HELD ON 30.3.2001 WAS ALSO FILED IN WHICH IT WAS DECIDED TO WRITE OF F THE AMOUNT IN RESPECT OF SALES MADE IN THESE STATES DURING DECEMBER 1999 TO MARCH 2000 BY WAY OF SPECIAL DRAUGHT DISCOUNT. THIS WAS IN TH E COURSE OF BUSINESS AS THE DEALERS COULD NOT SELL THE FERTILIZERS AND THE STOCKS STARTED PILING UP WITH THEM LEADING TO LOW REALIZATION AT THEIR END. THEREFORE THEY MADE CLAIMS FROM THE COMPANY AND THE DECISI ON IN THE BOARD OF DIRECTORS WAS TAKEN IN PURSUANCE OF SUCH REPR ESENTATIONS. THE LD. CIT(APPEALS) CONSIDERED THE FACTS OF THE CAS E AND THE SUBMISSIONS ITA NO. 1691(DEL)/2007 7 MADE BEFORE HIM. IT WAS HELD THAT WHAT COULD BE WRITTEN OFF AND CLAIMED AS DEDUCTION U/S 36(1)(VII) IS TH E BAD DEBT. THIS MEANS THAT IT HAS TO BE PROVED THAT THE DEBT HAD BECOME BAD AND ACCORDINGLY IT WAS WRITTEN OFF. HOWEVER THE ASSESSEE HA S BEEN DEALING WITH THE SAME DEALERS AND DISTRIBUTORS SINCE THE WRITI NG OFF THE DEBTS AND THUS THESE DEBTS ARE NOT BAD DEBTS BUT GOOD DEB TS. THEREFORE IT WAS HELD THAT NO DEDUCTION COULD BE ALLOWED IN RESPECT OF THIS CLAIM. BEFORE US THE LD. COUNSEL REFERRED TO THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MORGAN SECURITIES & CRE DITS (P) LTD. (2007) 292 ITR 339 AND CIT VS. AUTOMETERS LTD. (2007) 292 ITR 345 IN WHICH IT WAS HELD THAT AFTER THE AMENDMENT IN SECTION 36(1)(VII) WITH EFFECT FROM 1.4.1989 IT IS NOT NECESSARY FOR THE ASS ESSEE TO PROVE THAT THE DEBT HAD BECOME BAD IN THE YEAR OF WRITE OFF. ONCE IT WAS ACCEPTED THAT THE TRANSACTION ACTUALLY TOOK PLACE THE DOUBT REGARDING GENUINENESS OF THE WRITE OFF SHALL STAND QUELLED. THUS THE QUESTION OF DETERMINATION OF THE YEAR IN WHICH THE DEBT BECAME BAD AND CONSEQUENTLY THE ALLOWABILITY IN THAT YEAR WILL HAVE TO BE SEEN FROM THE POINT OF VIEW OF THE ASSESSEE WITH REFERENCE TO THE YEAR IN WH ICH IT HAS BEEN WRITTEN OFF. THE CASE OF THE LD. COUNSEL WAS THAT ON MERIT S THE CLAIM OF THE ASSESSEE SHOULD HAVE BEEN ALLOWED AS THERE WERE GEN UINE REASONS FOR WRITING ITA NO. 1691(DEL)/2007 8 OFF THE AMOUNTS ARISING ON ACCOUNT OF DROUGH T PREVAILING IN THE STATES OF GUJARAT RAJASTHAN AND MADHYA PRADESH A S EVIDENCED BY THE MEETING OF THE MEMBERS OF FERTILIZERS ASSOCIATION OF INDIA NORTHERN REGION AND THE BOARD OF DIRECTORS OF THE ASSE SSEE COMPANY. IN SUCH A SITUATION THERE COULD HAVE BEEN NO REASON TO LEVY PENALTY IN RESPECT OF THIS CLAIM NOTWITHSTANDING THAT APPEAL W AS NOT FILED AGAINST THE ORDER OF THE LD. CIT(A) AS THERE WAS NO TAX EF FECT. 3.2 IN REGARD TO THE THIRD AMOUNT OF RS. 51 04 000/- IT WAS SUBMITTED BEFORE THE LD. CIT(APPEALS) THAT THE D EALERS WERE USUALLY ALLOWED DISCOUNT IN THE NORMAL COURSE OF BUSIN ESS. THE ASSESSEE HAD FILED DEALER-WISE DETAILS INDICATING SALES M ADE TO THEM IN THIS AND THE IMMEDIATELY PRECEDING YEAR AND THE DISCOUNT ALL OWED TO THEM. THE AFORESAID DISCOUNT WAS ALLOWED ON TOTAL SAL ES OF RS. 7.97 CRORE. THE DEALERS TO WHOM THE DISCOUNT WAS ALLOWED C ONFIRMED THE RECEIPT OF THE DISCOUNT AND SUCH CONFIRMED ACCOUNTS WER E FILED BEFORE THE AO. SUCH DISCOUNTS WERE ALSO ALLOWED IN EARLIER YEARS. THE DISCOUNTS WERE ALLOWED IN RESPECT OF OFF SEASON SALE SO THAT THERE WOULD BE NO NEED FOR THE ASSESSEE TO STORE AND HANDLE T HE FERTILIZER IN THIS PERIOD. THIS WAS A TRADE PRACTICE FAILING WHICH MORE COST WOULD HAVE TO BE ITA NO. 1691(DEL)/2007 9 INCURRED FOR STORAGE HANDLING AND TRANSPORTING THE FERTILIZERS. SUCH DISCOUNTS WERE WRITTEN OFF IN THE ACCOUNTS AS THE AMOUNT WAS NOT RECOVERABLE FROM THE DEALERS. THE LD. CIT(APPE ALS) CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE HIM . AS IN THE CASE OF SPECIAL DRAUGHT DISCOUNT IT WAS HELD THAT TH E DEBTS HAD NOT BECOME BAD AS THE ASSESSEE HAD BEEN DEALING WITH THESE VERY PARTIES EVEN AFTER WRITING OFF OF THE DEBTS. THE ARGUMENTS OF THE LD. COUNSEL IN RESPECT OF THIS AMOUNT WERE THE SAME AS IN RESPECT OF TH E SPECIAL DROUGHT DISCOUNT OF RS. 79 08 309/-. 3.3 IN BRIEF THE ARGUMENT OF THE LD. COUNSEL WAS THAT ALL THESE AMOUNTS WERE WRITTEN OFF IN THE BOOKS AND SU CH AMOUNTS HAD BEEN TAKEN INTO ACCOUNT AS INCOME IN EARLIER YEARS OR IN THIS YEAR. THEREFORE THE ASSESSEE WAS ENTITLED TO DEDUCT THESE A MOUNTS IN COMPUTING THE INCOME. THE LD. CIT(APPEALS) CONFIRMED THE A DDITION OF THESE AMOUNTS WITHOUT PROPERLY APPRECIATING THE FACTS OF T HE CASE. THE ASSESSEE DID NOT FILE APPEAL AS THE ASSESSMENT STIL L RESULTED IN A LOSS. THE ASSESSEE WAS ALSO BUSY WITH THE PROCEEDINGS BEFORE BIFR. HOWEVER THE EXPLANATION TENDERED BY THE ASSESSEE WAS N OT ONLY BONA FIDE BUT ITA NO. 1691(DEL)/2007 10 OUGHT TO HAVE BEEN ACCEPTED EVEN IN THE QUANTU M PROCEEDINGS BY THE LD. CIT(A). THEREFORE THE LEVY OF PENALTY W AS NOT JUSTIFIED. 4. IN REPLY THE LD. DR RELIED ON THE ORDER OF THE LD. CIT(APPEALS) IN QUANTUM PROCEEDINGS IN WHICH THE DISALLOWANCES O N ALL THE THREE GROUNDS WERE UPHELD BY HIM. RELIANCE WAS ALSO PLACED ON THE ORDER OF THE LD. CIT(A) IN WHICH THE LEVY OF PENALTY WAS CONF IRMED. IN PARTICULAR IT WAS HELD BY HIM THAT THE ASSESSEE DID NOT PLACE ANY MATERIAL ON RECORD TO SHOW THAT FAILURE TO RETURN THE CORRECT INCO ME DID NOT ARISE FROM ANY FRAUD OR GROSS OR WILLFUL NEGLECT ON ITS PART. ON THE OTHER HAND IT CAN BE SAID THAT THE ASSESSEE DELIBERATELY FAILED TO RETURN THE CORRECT INCOME. IT WAS SUBMITTED THAT THE ASSESSEE DID NOT FILE DEBIT NOTES FROM THE DEALERS AND DISTRIBUTORS TO SHOW THAT SPECIAL DRAU GHT DISCOUNT OR OFF SEASON SALE DISCOUNT WERE GIVEN TO THEM. THE PRACTICE OF ALLOWING OFF SEASON SALE DISCOUNT WAS ALSO NOT ESTABLISHED BY THE ASSESSEE. IN CONNECTION WITH ACCOUNTING POLICY AND THE NOTE OF THE AU DITORS IT WAS SUBMITTED THAT IT WAS GENERAL IN NATURE AND THE DETAIL S OF SPECIFIC AUDIT CONDUCTED IN RESPECT OF EITHER OF THE THREE IT EMS WERE NOT MENTIONED. RELIANCE WAS PLACED ON THE DECISION OF HONBL E MADRAS HIGH CJOURT IN THE CASE OF SHRI KAMAL BASHA VS. DEPUTY CIT 2 009-TIOL-588-HC- ITA NO. 1691(DEL)/2007 11 MAD-IT DATED 20.4.2009 A COPY OF WHICH WAS PL ACED BEFORE US. OUR ATTENTION WAS DRAWN TOWARDS PARAGRAPH 7 IN WHICH IT WAS MENTIONED THAT THE ASSESSEES ATTITUDE BEFORE THE OFFI CER WAS INCONSISTENT AND EVEN THE INCONSISTENT STAND COULD NOT BE ESTA BLISHED WITH SUPPORTIVE EVIDENCE OR MATERIAL. IN THE LIGHT OF THE DECISION OF THE APEX COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTI LE PROCESSORS 306 ITR 277 IT WAS HELD THAT THE PENALTY IS ATTRACTE D IN THIS CASE. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. THE FACTS ARE THAT THE ASSESSEE CLAIMED DE DUCTION OF THREE AMOUNTS IN RESPECT OF SUBSIDY DISALLOWED BY THE GOVERNMENT SPECIAL DROUGHT DISCOUNT AND OFF SEASON SALES DISCOUNT. IN R ESPECT OF THE SUBSIDY A DETAILED ACCOUNT WAS FILED SHOWING THE AMOU NT RECEIVABLE AT THE BEGINNING OF THE YEAR ADDITION MADE THERETO DEDUCTION ON ACCOUNT OF REFUSAL TO GRANT SUBSIDY AND THE BALANCE AMOUN T RECEIVABLE AT THE END OF THE YEAR. THIS ACCOUNT ALONG WITH THE ACCOUNT ING PRACTICE STATED IN THE NOTE BY THE AUDITOR CLEARLY ESTABLISHED THA T THE SUBSIDY WAS BEING ACCOUNTED FOR ON MERCANTILE BASIS. THEREFORE ANY AMOUNT DISALLOWED BY THE GOVERNMENT HAD TO BE DEDUCTED FROM THE SUBSIDY RECEIVABLE FOR ARRIVING AT THE CORRECT PROFIT PARTICULARLY IN RESPECT OF THE YEAR IN WHICH ITA NO. 1691(DEL)/2007 12 THE CLAIM OR PART THEREOF WAS DISALLOWED BY TH E GOVERNMENT. IN VIEW OF THE AFORESAID THE LD. CIT(A) COMMITTED AN E RROR OF FACT WHEN IT WAS MENTIONED THAT IT HAS NOT BEEN SHOWN THAT TH E AMOUNT HAD BEEN TAKEN INTO CONSIDERATION FOR COMPUTATION OF INC OME OF THIS OR ANY OTHER EARLIER YEAR. ON THE FACTS IT IS ALSO CL EAR THAT THE ASSESSEE WAS ENTITLED TO DEDUCT THIS AMOUNT ON THE BASIS OF WRITING OFF OF THE AMOUNT ON ACCOUNT OF DISCLAIMER BY THE GOVERNMENT DUE TO POOR QUALITY OF THE FERTILIZER. 5.1 IN RESPECT OF SPECIAL DROUGHT DISCOUNT IT IS CLEAR FROM THE FACT THAT DUE TO DRAUGHT IN THREE STATES INVENTORIE S WERE PILING UP WITH THE DEALERS AND DISTRIBUTORS ON ACCOUNT OF POOR SALES WHO DEMANDED DISCOUNT. SUCH DISCOUNT WAS ACTUALLY GRANTED IN THE COURSE OF THE BUSINESS FAILING WHICH THE DEALERS WOULD HA VE RETURNED THE GOODS TO THE ASSESSEE. THE ACTUAL GRANT OF DISCOUNT W AS EVIDENCED BY CONFIRMATIONS FILED BY THE DEALERS AND DISTRIBUTO RS. IN SUCH A SITUATION THE ASSESSEE WAS ENTITLED TO DEDUCT THE AMOUNT U/S 37 AS THE EXPENDITURE INCURRED IN THE COURSE OF BUSINESS. HOWEVER SINCE THE ASSESSEE HAD ACCOUNTED FOR THIS AMOUNT IN SALE S THE SAME WAS WRITTEN OFF AND CLAIMED U/S 36(1)(VII) AS BAD DEBT. THAT WOULD NOT MEAN THAT ITA NO. 1691(DEL)/2007 13 EITHER IT WAS NOT A DEBT WRITTEN OFF IN THI S YEAR DEDUCTIBLE U/S 36(1)(VII) OR THAT IT WAS NOT DEDUCTIBLE U/S 37(1) AS THE EXPENDITURE INCURRED IN THE COURSE OF BUSINESS. WHAT HAS TO BE SEEN IS THAT THE REAL INCOME OF THE ASSESSEE GOT REDUCED BY AN EQU IVALENT AMOUNT ON ACCOUNT OF THE DISCOUNT ALLOWED TO THE DEALERS AND DISTRIBUTORS. HAVING COME TO THAT CONCLUSION IT IS CLEAR THAT THE FINDING OF THE LD. CIT(APPEALS) THAT THE DEBT WAS A GOOD DEBT SUFFERS FROM FACTUAL INFIRMITY. IN VIEW OF THE FACT THAT THE DISCOU NT WAS ACTUALLY ALLOWED AND CONFIRMED BY THE DEALERS WE ALSO CANNOT ACCEDE TO THE ARGUMENT OF THE LD. DR THAT PRACTICE OF ALLOWING DR OUGHT DISCOUNT WAS NOT PROVED OR THAT THE DEBIT NOTES WERE NOT FIL ED. THE WHOLE QUESTION IS ONE OF FACT WHICH IS THAT THE DISCOUNT WAS ALLOWED IN THE COURSE OF BUSINESS FOR VALID REASONS AND THE QUANTUM THEREOF WAS CONFIRMED BY THE DEALERS. THEREFORE THE ASSESSEE WAS E NTITLED TO DEDUCTION OF THE AMOUNT IN COMPUTING THE TOTAL INCOME AND MERE FAILURE TO FILE APPEAL TO THE TRIBUNAL AGAINST THE QUANTUM ORDER WILL NO T LEAD TO AN INFERENCE IN THE PENALTY PROCEEDINGS THAT THE AMOUNT WAS WRONGLY OR FALSELY CLAIMED BY THE ASSESSEE LEADING TO A LOSS TO THE EXCHEQUER. ITA NO. 1691(DEL)/2007 14 5.2 THE FACTS IN REGARD TO OFF SEASON SALE S DISCOUNT ARE SIMILAR TO THE FACTS REGARDING SPECIAL DROUGHT DISCOUNT THAT THE SAME WAS ALLOWED IN THE COURSE OF BUSINESS AND THE AL LOWANCE WAS CONFIRMED BY THE DEALERS AND THE DISTRIBUTORS. THEREFORE THE FINDING IN RESPECT OF SPECIAL DRAUGHT DISCOUNT WILL BE APPLICABLE TO THIS DISCOUNT ALSO. 5.3 COMING TO THE LEGAL ARGUMENT IT IS HELD TH AT WHAT IS TO BE SEEN IS WHETHER THE EXPLANATION TENDERED BY THE ASSES SEE IN PENALTY PROCEEDINGS WAS BONA FIDE OR NOT. IT IS CLEAR FROM THE OR DERS OF THE LOWER AUTHORITIES THAT THEY DID NOT CONSIDER THE EXPLANATION OF THE ASSESSEE IN THE COURSE OF PENALTY PROCEEDINGS. THE AO MERELY RELIE D ON THE ASSESSMENT ORDER IN WHICH ALL EVIDENCES WERE NOT BROUGHT ON R ECORD. THE LD. CIT(APPEALS) ALSO DID NOT CONSIDER THE EXPLAN ATION TENDERED IN THE COURSE OF PENALTY PROCEEDINGS IN DETAIL BUT MER ELY STATED THAT NO EVIDENCE WAS BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT THE EXPLANATION WAS NOT MALA FIDE. THE DECISION IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (SUPRA) WAS THAT THE LEVY OF PENALTY IS CIVIL IN NATURE AND IT HAS TO BE DECIDED IN ACCORDANCE WITH THE MAIN PROVISION AND THE EXPLANATION APPENDED THERETO. THEREFORE THE E XPLANATION TENDERED BY THE ASSESSEE IN THE COURSE OF PENALTY PROCEEDI NGS HAD TO BE TAKEN INTO ITA NO. 1691(DEL)/2007 15 ACCOUNT BY THE LOWER AUTHORITIES. IF THAT IS D ONE IT BECOMES CLEAR THAT NOT ONLY IT WAS BONA FIDE BUT ALSO THAT NONE O F THE ADDITIONS WAS SUSTAINABLE IN LAW. THE FACTS OF THE CASE OF SHRI KAMAL BASHA (SUPRA) WERE DIFFERENT IN AS MUCH AS THE ASSESSEE H AD TAKEN INCONSISTENT STAND IN REGARD TO SUNDRY CREDITORS BEFORE THE LO WER AUTHORITIES AND SUCH INCONSISTENT STAND WAS ALSO NOT ESTABLISHED W ITH ANY MATERIAL ON RECORD. SUCH IS NOT THE CASE HERE. IT CANNOT BE SAID THAT FAILURE TO FILE APPEAL AGAINST THE QUANTUM ORDER FOR VALID REASONS AM OUNTS TO TAKING INCONSISTENT STAND IN THE PENALTY PROCEEDINGS. THE REASON IS THAT THE WHOLE OF THE MATTER HAS TO BE REVISITED IN PENALTY PROCEEDINGS AND MIND HAS TO BE APPLIED TO THE EXPLANATION TENDERED B Y THE ASSESSEE IN SUCH PROCEEDINGS. IF THAT IS DONE IT CAN BE RIG HTLY SAID THAT THE EXPLANATION TENDERED BY THE ASSESSEE WAS BONA FI DE. THEREFORE WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) ERRED IN UP HOLDING THE LEVY OF THE PENALTY. 6. IN THE RESULT THE APPEAL IS ALLOWED. THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 JANUARY 2010. SD/- SD/- (I.P. BANSAL) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 22ND JANUARY 2010. SP SATIA ITA NO. 1691(DEL)/2007 16 COPY OF THE ORDER FORWARDED TO:- 1. TEDCO GRANITE LTD. NEW DELHI. 2. ASSTT. CIT CIRCLE 16(1) NEW DELHI. 3. CIT 4. CIT(A) NEW DELHI. 5. THE DR ITAT NEW DELHI. ASSISTANT REGISTRAR .