Shri Navnit M.Shah, Nadiad v. The Dy.CIT.,Kheda Circle,, Nadiad

ITA 679/AHD/2010 | 2006-2007
Pronouncement Date: 27-10-2016 | Result: Allowed

Appeal Details

RSA Number 67920514 RSA 2010
Assessee PAN AJWPS7649Q
Bench Ahmedabad
Appeal Number ITA 679/AHD/2010
Duration Of Justice 6 year(s) 7 month(s) 26 day(s)
Appellant Shri Navnit M.Shah, Nadiad
Respondent The Dy.CIT.,Kheda Circle,, Nadiad
Appeal Type Income Tax Appeal
Pronouncement Date 27-10-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 27-10-2016
Assessment Year 2006-2007
Appeal Filed On 03-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE SHRI D. K. TYAGI JM AND A. MOHAN ALANKAMON Y AM) ITA NO.679/AHD/2010 A. Y.: 2006-07 SHRI NAVNIT M. SHAH PROP. NABROS EXPORTS MATRUCHHAYA BHATHIRATANA NAKA KHEDA VS THE D. C. I. T. KHEDA CIRCLE AAYAKAR BHAVAN NADIAD PA NO. AJWPS 7649 Q (APPELLANT) (RESPONDENT) APPELLANT BY URVASHI SHODHAN AR RESPONDENT BY SHRI DINESH SINGH SR. DR DATE OF HEARING: 29-03-2012 DATE OF PRONOUNCEMENT: 20-04-2012 O R D E R PER A. MOHAN ALANKAMONY: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARN ED CIT(A)-IV BARODA DATED 28-01-2010 IN APPEAL NO.CAB/IV-N-75/08 -09 FOR ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED 5 GROUNDS IN HIS APPEAL WHEREIN GROUNDS NO.3 4 AND 5 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. 3. GROUND NO.2 OF THE APPEAL OF THE ASSESSEE IS NOT PRESSED AND HENCE NOT CONSIDERED FOR ADJUDICATION. ITA NO.679/AHD/2010 (AY: 2006-07) SHRI NAVNIT M. SHAH VS DCIT KHEDA CIRCLE KHEDA 2 4. THE LONE SURVIVING GROUND FOR ADJUDICATION IS GROUND NO.1 OF THE APPEAL WHICH IS REPRODUCED HEREIN BELOW: THE LEARNED CIT(A) ERRED IN LAW IN CONFIRMING THE PENALTY LEVIED U/S 271(1) (C ) OF THE ACT ON THE ADDITION OF RS.14 92 683/- 5. FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN I NDIVIDUAL FILED ITS RETURN OF INCOME ON 13-11-2006 DECLARING TOTAL INCO ME OF RS.4 39 03 403/-. THE ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED VIDE ORDER DATED 30-12-2008 DETERMINING T OTAL INCOME OF RS.4 54 53 410/- WHEREIN ADDITION FOR RS.14 92 683/ - WAS MADE ON ACCOUNT OF CESSATION OF LIABILITY FOR PAYMENT OF CO MMISSION. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MERCHANT EXP ORTER OF PHARMACEUTICAL FORMULATION SURGICAL ITEMS AND OTHE R RELATED PRODUCTS. THE ACTIVITIES OF THE ASSESSEE BEING EXPO RT OF THESE ITEMS TO VARIOUS COUNTRIES ACTING AS AGENT TO THE MANUFAC TURERS AND SELLING ITS PRODUCTS BY APPOINTING SALES PERSONNEL AT VARIO US LEVELS. THE ASSESSEE ALSO CARRIES OUT LIAISON WORK PAPER WORK FOR COMPLIANCE OF RULES AND REGULATIONS OF GOVERNMENT AUTHORITIES LIK E CUSTOMS DRUG AUTHORITIES ETC. WHILE PURSUING SUCH ACTIVITIES TH E ASSESSEE HAD APPOINTED MR. BIMAL DAHAL STAYING AT KEIV UKRAINE AS HIS AGENT FOR INTERNATIONAL OPERATION. ON VERIFICATION OF THE ACC OUNTS IT WAS NOTED BY THE LEARNED AO THAT THERE WAS SUBSTANTIAL AMOUNT OF OUTSTANDING COMMISSION TO BE PAID TO MR. BIMAL DAHAL. THE LEARN ED AO QUESTIONED THE ASSESSEE WITH RESPECT TO SUCH LARGE OUTSTANDING AMOUNT OF COMMISSION CREDITED TO THE ACCOUNT OF MR. BIMAL DAHAL. THE ASSESSEE EXPLAINED THAT PAYMENTS WERE NOT MADE TO MR. BIMAL DAHAL BECAUSE CERTAIN PROCEDURES WERE PENDING AND M OREOVER THE AMOUNT COULD NOT BE PAID DUE TO FINANCIAL INSTABILI TY. HOWEVER ON VERIFICATION OF THE ACCOUNTS THE ASSESSEE ADMITTED THAT FOR AN AMO UNT ITA NO.679/AHD/2010 (AY: 2006-07) SHRI NAVNIT M. SHAH VS DCIT KHEDA CIRCLE KHEDA 3 OF RS.14 92 683/- THERE WAS CESSATION OF LIABILITY SINCE THAT AMOUNT WAS ATTRIBUTABLE TO CERTAIN IRRECOVERABLE BAD DEBTS FROM THE PURCHASERS AND AS PER THE TERMS & CONDITIONS THE C OMMISSIONS FOR SALE WERE NOT PAYABLE WHEN SUCH BAD DEBTS OCCURRED. SUBSEQUENTLY BASED ON THE ABOVE ADMISSION THE ASSESSEE VOLUNTAR ILY TREATED THE SAME AS INCOME AND PAID TAX ACCORDINGLY. WHEN THE L EARNED AO ISSUED NOTICE U/S 271 (1) (C) OF THE ACT DATED 05-0 6-2009 THE ASSESSEE FURNISHED REPLY VIDE LETTER DATED 11-06-20 09 AS UNDER: WITH REFERENCE TO ABOVE WE WOULD LIKE TO INFORM Y OUR GOODSELF THAT WE HAVE SUBMITTED A LETTER FOR CESSATION OF LI ABILITY IN RESPECT OF COMMISSION NOT BE PAID IN RESPECT OF BAD DEBT DURING OUR ASSESSMENT PROCEEDING. ALL THE FACT RECORD/DATA WE HAVE SUBMITTED DURING T HE ASSESSMENT PROCEEDING. WE HAVE GIVEN ALL THE DATA OURSELF BEFORE ANY INQUI RY BY YOUR GOODSELF. 5.1 HOWEVER THE LEARNED AO AFTER PERUSING THE SUBM ISSION CAME TO THE CONCLUSION THAT THE REASON FURNISHED BY THE ASSESSEE IS NOT TENABLE SINCE THE ASSESSEE DID NOT DISCLOSE HIS TRU E AND CORRECT INCOME DELIBERATELY. THE LEARNED AO ALSO NOTED THAT IT WAS PROVED BEYOND DOUBT THAT THE ASSESSEE HAS WILLFULLY FURNIS HED INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALED HIS INC OME AND ACCORDINGLY PENALTY WAS LEVIED 5.2 WHEN THE MATTER WAS BROUGHT UP BEFORE THE LEARN ED CIT(A) THE LEARNED CIT(A) CONFIRMED THE ADDITION WITH THE FOLL OWING OBSERVATION: ITA NO.679/AHD/2010 (AY: 2006-07) SHRI NAVNIT M. SHAH VS DCIT KHEDA CIRCLE KHEDA 4 I NOW TAKE UP APPELLANTS CONTENTIONS ON MERITS OF THE MATTER. APPELLANTS MAIN CONTENTION AT THE APPEAL STAGE IS THAT CESSATION OF LIABILITY OCCURRED IN F. Y. 2008-09 AN D NOT IN F. Y. 2005-06 AND SECTION 41(1) WAS THEREFORE NOT APPLIC ABLE FOR A. Y. 2006-07 OR AT THE TIME OF FILING RETURN FOR A. Y . 2006-07. APPELLANT HAS CONTENDED THAT ASSESSING OFFICER WRON GLY INTERPRETED ADMISSION BY THE APPELLANT REGARDING CE SSATION OF LIABILITY THROUGH LETTER DATED 19.12.2008 TO BE CES SATION OF LIABILITY IN A.Y. 2006-07. THIS CONTENTION OF APPEL LANT IS NOT BORNE OUT BY LETTER DATED 19.12.2008 FILED BY THE A PPELLANT DURING ASSESSMENT PROCEEDINGS COPY OF WHICH IS AT PAGE NO.38 OF THE PAPER BOOK FILED DURING APPELLATE PROC EEDINGS. THIS LETTER WAS TITLED ASSESSMENT PROCEEDINGS FOR A. YR. 2006- 07 AND APPELLANT BESIDES ADMITTING CESSATION OF L IABILITY OF RS.14 92 683/- ENCLOSED PROOF OF PAYMENT OF TAX OF RS.5 02 500/- FOR A.Y. 2006-07 WITH THE LETTER. IF AS PER APPELLANT THE LIABILITY HAD CEASED FOR THE PERIOD PERTAINING TO A. Y. 2009-10 WHERE WAS THE NEED TO PAY TAX FOR A. Y. 2006-07 DURING THE ONGOING ASSESSMENT PROCEEDINGS? FURTHER AS PER APPELLANTS OWN ADMISSION LIABILITY OF COMMISSION WAS CONSIDERED AS CEASED DUE TO NON RECOVERY OF DEBTS I N RESPECT OF ORDERS FOR WHICH THIS COMMISSION HAD BEEN DEBIT ED. THESE DEBTS WERE WRITTEN OFF AND CLAIMED AS BAD DEBS IN A . Y. 2006- 07. WHEN THE REASON FOR CESSATION OF LIABILITY IN R ESPECT OF COMMISSION WAS NOON RECOVERY OF DEBTS IN RESPECT OF TRANSACTIONS FOR WHICH COMMISSION WAS DEBITED THE LIABILITY TOWARDS COMMISSION OBVIOUSLY CEASED SIMULTANEOUSLY WHEN THESE DEBTS WERE WRITTEN OFF AS BAD. APPELLANTS CO NTENTION THAT APPLICATION OF SECTION 41(1) WAS NOT DURING F.Y. 20 05-06 IS THEREFORE NOT TENABLE. IT IS A CASE WHERE APPELLA NT CLAIMED THE BAD DEBTS IN THE RETURN OF INCOME BUT FAILED TO WRI TE BACK CORRESPONDING COMMISSION AMOUNT DEBITED AND OFFER I T AS INCOME IN THE SAME RETURN OF INCOME FILED. APPELLAN TS CONTENTION THAT HE HIMSELF OFFERED THE COMMISSION A MOUNT FOR TAXATION CANNOT BE ASSIGNED MUCH WEIGHTAGE SINCE IT WAS ONLY AFTER DETECTION BY THE ASSESSING OFFICER AND ON BEI NG LEFT WITH NO CHOICE THAT APPELLANT AGREED TO THE ADDITION. TH E DECISION IN THE CASE OF BHARAT IRON & STEEL INDUSTRIES 199 ITR 67 (GUJ) ITA NO.679/AHD/2010 (AY: 2006-07) SHRI NAVNIT M. SHAH VS DCIT KHEDA CIRCLE KHEDA 5 WAS ON DIFFERENT FACTS. THE COURT HELD THAT CLAIM O F REFUND OF EXCISE DUTY WAS NOT FINAL TILL DROPPING OF REVIEW O R REVISIONAL PROCEEDINGS (WHICH WAS A DATE NOT FALLING IN THE RE LEVANT ASSESSMENT YEAR) AND ONLY THEN THE LIABILITY CEASED . IN THE PRESENT CASE AS DISCUSSED THE LIABILITY TOWARDS C OMMISSION CEASED DURING F. Y. 2005-06 AND THERE IS NO BASIS T O CONTEND THAT IT CEASED SUBSEQUENTLY. IT IS HELD THAT ASSESS ING OFFICER WAS JUSTIFIED IN COMING TO A CONCLUSION THAT APPELL ANT FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF ADDI TION OF RS.14 92 683/-. PENALTY U/S. 271 (1) (C) OF RS.5 02 437/- IS CONFIRMED. 6. BEFORE US AT THE BEGINNING OF THE HEARING THE L EARNED AR SUBMITTED THAT IN THE ASSESSEES OWN CASE FOR ASSES SMENT YEAR 2005- 06 IN ITA NO.966/AHD/2009 DATED 05-08-2011 ON THE SAME FACTS AND ISSUE THE TRIBUNAL HAD DELETED THE PENALTY. THE LEARNED AR THEREFORE PRAYED THAT PENALTY LEVIED FOR THE RELEV ANT ASSESSMENT MAY ALSO BE DELETED. ON THE OTHER HAND THE LEARNED DR SUPPORTED THE ORDERS OF THE REVENUE. 6.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE FACTS AND THE ISSUES INVOLV ED IN BOTH THE ASSESSMENT YEARS ARE IDENTICAL. THE ASSESSEE HAD BY OVERSIGHT NOT RECOGNIZED THE INCOME ARISING OUT OF CESSATION OF O LD LIABILITY AND MOREOVER THE ISSUE IS DEBATABLE. FURTHER THE TRIBUN AL FOR THE EARLIER ASSESSMENT YEAR 2005-06 AFTER DELIBERATING THE ISSU E IN DETAIL AND AFTER CONSIDERING THE VARIOUS CASE LAWS ARRIVED AT THE FOLLOWING DECISION:- CASE LAWS RELIED (I) CIT VS NELLAI TRADING AUTOMOBILE AGENCY 288 I TR 577 ITA NO.679/AHD/2010 (AY: 2006-07) SHRI NAVNIT M. SHAH VS DCIT KHEDA CIRCLE KHEDA 6 (II) CIT VS NATH BROS. EXIM INTERNATIONAL LTD. 288 ITR 670 (III) CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (IV) RAJASTHAN SPINNING & WEAVING MILLS 2009 TIOL 62- SC (V) CIT VS SAHABAD CO-OP. SUGAR MILLS LTD. 322 ITR 73 (P&H) AND (VI) CIT VS SIDHARTHA ENTERPRISES 322 ITR 80 (P&H) CONCLUSION 5. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE FOR IMPOSITION OF PENALTY. THE AO NOTED IN THE ASSESSME NT ORDER THAT AS PER THE TERMS OF AGREEMENT WITH THE AGENT T HE ASSESSEE IS REQUIRED TO MAKE PAYMENT ONLY ON REALIZATION OF EXPORT BILLS. THE OUTSTANDING LIABILITIES TOWARDS SUCH COMMISSION PAYMENT ARE SHOWN IN THE BALANCE SHEET. HOWEVER DURING THE YEAR THE ASSESSEE HAS WRITTEN OFF A SUM OF RS.95 65 462/- AS BAD DEBT. SINCE THE ASSESSEE MADE A CLAIM OF BAD DEBT THERE FORE CORRESPONDING AMOUNT OF COMMISSION SHOULD HAVE BEEN OFFERED FOR TAXATION. THE ASSESSEE ON REALIZING THE MISTAKE SUBMITTED BEFORE THE AO THAT THE CORRESPONDING AMOUNT OF COMM ISSION EXPENSES WHICH WAS TO BE WRITTEN OFF WOULD COME TO RS.7 31 865/- AND ACCORDINGLY SURRENDERED THE SAME FOR THE PURPOSE OF TAXATION. IT IS THEREFORE CLEAR FROM T HE ABOVE FACTS THAT THERE WAS FULL DISCLOSURE OF ALL THE RELEVANT MATERIALS. IT CANNOT BE SAID THAT CONDUCT OF THE ASSESSEE ATTRACT ED PENALTY PROVISIONS. THE ASSESSEE WHEN REALIZED THE MISTAKE IMMEDIATELY CALCULATED THE CORRESPONDING COMMISSION TO BE DISALLOWED ON CLAIM OF BAD DEBT. THE EXPLANATION OF FERED BY THE ASSESSEE WAS THUS PLAUSIBLE AND SHOULD HAVE BEEN AC CEPTED BY THE AUTHORITIES BELOW AND WOULD ALSO REVEAL THAT THERE WAS NO INTENTION ON THE PART OF THE ASSESSEE TO CONCEAL THE INCOME. ITA NO.679/AHD/2010 (AY: 2006-07) SHRI NAVNIT M. SHAH VS DCIT KHEDA CIRCLE KHEDA 7 THE HONBLE SUPREME COURT IN THE CASE OF CIT VS MUN IN 313 ITR (ST) 30 OBSERVED THAT WHERE ASSESSEE DOES NOT INCLUDE PARTICULAR ITEMS IN THE TURNOVER UNDER BONA FIDE BELIEF THAT HE IS NOT LIABLE TO DO SO IT WOULD NOT BE RIG HT TO TREAT THE RETURN AS FALSE RETURN INVITING PENALTY. THE FACTS OF THE CASE CLEARLY PROVE THAT THOUGH THE ASSESSEE WAS ENT ITLED FOR DEDUCTION OF COMMISSION WHICH WAS SHOWN IN THE BALA NCE SHEET BUT PART OF THE CLAIM SHOULD HAVE BEEN WRITTE N BACK ON MAKING CLAIM OF BAD DEBT. THUS THE ASSESSEE DISCLO SED ALL THE FACTS IN THE RETURN OF INCOME AS WELL AS TO THE AUT HORITIES BELOW BUT BECAUSE OF CLAIM OF BAD DEBT PART OF THE COMMIS SION WOULD HAVE TO BE DISALLOWED TO WHICH THE ASSESSEE IMMEDIA TELY ACCEPTED ON REALIZING THE MISTAKE. THEREFORE AT TH E BEST IT SHOULD HAVE BEEN TREATED THAT IN THE OPINION OF THE ASSESSEE THE CLAIM OF COMMISSION WAS JUSTIFIED BUT BECAUSE O F CLAIM MADE ON ACCOUNT OF DEDUCTION OF BAD DEBT CORRESPON DING COMMISSION SHOULD HAVE BEEN DISALLOWED AS PER THE O PINION OF THE AO. CONSIDERING THE ABOVE DISCUSSIONS WE ARE O F THE VIEW THE ASSESSEE OFFERED BONA FIDE EXPLANATION BEFORE T HE AUTHORITIES BELOW AND THE EXPLANATION OF THE ASSESS EE WAS NOT FOUND TO BE FALSE. THEREFORE LEVY OF PENALTY IN TH E MATTER IS NOT JUSTIFIED. WE ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND CANCEL THE PENALTY. 6.2 SINCE THE ISSUES AND THE FACTS FOR THE RELEVANT ASSESSMENT YEAR ARE IDENTICAL WITH THAT OF THE EARLIER ASSESSMENT Y EAR 2005-06 WHICH HAS ALREADY BEEN ADJUDICATED BY THE TRIBUNAL IN FAV OUR OF THE ASSESSEE WE ARE INCLINED TO FOLLOW THE SAME. ACCOR DINGLY ON MERITS THE APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE. ITA NO.679/AHD/2010 (AY: 2006-07) SHRI NAVNIT M. SHAH VS DCIT KHEDA CIRCLE KHEDA 8 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20-04-2012 SD/- SD/- (D. K. TYAGI) JUDICIAL MEMBER (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ LAKSHMIKANT DEKA/ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD