TMI Blog2012 (7) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... hat penalty should be imposed automatically - Therefore it is not a fit case for levy of penalty - the character of this written off loss was nothing but basically a provision for decrease in the value of assessee’s assets. The AO while completing the assessment has not mentioned a word that there was furnishing of inaccurate particulars or concealment of income - in fvaour of assessee. - I.T. A. No.1390/Del/2011 - - - Dated:- 13-7-2012 - Rajpal Yadav And K. D. Ranjan , JJ. Appellant by : P. C. Yadav, Advocate Akhil Mahajan, CA. Respondent by : Satpal Singh, Sr. DR. ORDER Per K. D. Ranjan, Accountat Member : This appeal by the assessee for Assessment Year 2001-02 arises out of the order of the Commissioner of Income-tax (Appeals)-XV, New Delhi. The grounds of appeal raised by the assessee are reproduced as under:- 1. That the order of the learned Commissioner of Income Tax (Appeals) is bad in law and on facts. 2. That on the facts and under circumstances of the case, the penalty imposed by the learned Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals) is barred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenge the order in quantum appeal further as it had huge accumulated losses and it was not likely to gain even the Appellant Company had succeeded in quantum proceedings by spending on litigation. 2. The only issue for consideration relates to sustaining the penalty of ₹ 23,92,060/- under sec. 271(1)(c ) of the Act. Brief facts of the case are that the assessee had made a provision of amount of non-saleable goods of ₹ 59,43,008/-. The assessee had debited the above provisions made in the profit loss account. In the assessment order under sec. 143(3) the Assessing officer had observed that the above provision was in respect of liability which was not ascertained. Moreover, no evidence regarding the above amount which was debited in the profit loss account was filed during the assessment proceedings. In view of the above the AO disallowed the amount of ₹ 59,43,008/-. 3. On appeal the learned CIT(A) upheld the addition. The assessee filed an appeal before ITAT. ITAT vide order dated 12-09-2008 after considering the facts and circumstances of the case, upheld the action of the AO. 4. During the course of penalty proceedings the AO invoked the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so became unusable and had to be written off. Also packing materials were supplied by the suppliers in pre-defined minimum lots and in most of the cases various components parts were not supplied in matching quantities as they were supplied by different parties. This left the company with unmatched quantities of components which could not be used and have to be written off. It was further submitted that the assessee had disclosed all relevant facts in Schedule 21 of the Audited Accounts the provisions for doubtful debts, claims, advances and provision for non saleable/damaged stocks. The assessee vide submission dated 11th February, 2004 and 19th March, 2007 had submitted the item-wise details in regard to the goods discarded/damaged or non useable. 6. It was further submitted that the Assessing Officer or Appellate Authority had not allowed the above expenditure merely on the pretext that the expenditure was mere provision for decrease in the value of asset and computation of such loss of inventory was not based on expert opinion. The learned AR of the assessee further submitted that there was a complete disclosure of the amount written off on account of the obsolete inventor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see further submitted that the findings of the AO in assessment order are contradictory since on one hand, he says that loss is nothing but decrease in the value of asset and on the other hand, it is alleged that the provision is in respect of unascertained liability. The diminishing in the value of asset can never be termed as liability and if the same is not a liability the question whether the liability is ascertained or unascertained, would not arise. 9. The learned AR of the assessee relying on the decision of Hon ble Delhi High Court in the case of Madhu Shree Gupta, 317 ITR 107, submitted that the AO while initiating penalty proceedings has not recorded his satisfaction. Therefore, the order passed by the AO is without jurisdiction. 10. The learned AR of the assessee further submitted that during the course of penalty proceedings the assessee has given details of each and every obsolete stock (Pages 44 to 49 of the Paper Book filed by the assessee) gathered from respective units incharge of the factory. Hence, the assessee s claim is bona fide. The AO as well as CIT(A) had not brought on record anything to prove that the details furnished by the assessee in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of export of food products which are subject to various laws such as Essential Commodities Act, 1955, Fruit Products Order, 1955 Meat Food Products Order, 1973. The AO has stated that the stock written off as provision is in the nature of unascertained liability. The AO on one hand says that the loss is nothing but decrease in the value of assets and on the other hand, it is alleged that the provision is in respect of unascertainaed liability. If it is case of decrease in value of assets, the closing stock has to be valued at cost price or market price, whichever is less. The assessee had identified certain stocks summary of which is placed at page 44 of the Paper Book. It is also a fact that in food processing industry the material whose selling life has expired or unfit for human consumption has to be written off. The value of closing stock written off cannot be treated as unascertained liability. In fact the trading assets which have become un-saleable, the value thereof has to be taken at nil. During the course of assessment proceedings the assessee could not file details of closing stock written off. Because of this reason the quantum addition has been upheld up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. 14. In the case of assessee the assessee has written off the un-saleable food products and also some of the packing material which became unuseable because of change of product etc. During the course of penalty proceedings when the assessee had filed the details of the stock written off, neither the AO nor the CIT(A) had found out any discrepancy or anything suggesting that the claim was not bona fide. The assessee has written off various items because those products could not be sold in the market being hazardous to the health. Moreover, the assessee was exporter of the goods, the profit there from would have been exempt under sec. 10B of the Act. Therefore, no motive can be attached to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Reliance Petroproducts Pvt. Ltd. (supra) we find that the assessee during the course of penalty proceedings has given details of stock written off, the addition was confirmed on the ground that the assessee had not given the details of the stock written off. The un-saleable goods have been written off in the books of account. The entries made in the books of account by the assessee are bona fide and cannot be said to be furnishing of inaccurate particulars of his income. Merely because quantum addition has been sustained, penalty u/s 271(1)(c) cannot be imposed automatically. Therefore, in our considered opinion it is not a fit case for levy of penalty. 16. The assessee had also challenged that in the assessment order the AO has not recorded finding that there was concealment of income. He has placed reliance on the decision of Hon ble Delhi High Court in the case of Madhu Shree Gupta while examining the constitutional validity of subsec. 1B of section 271(1)(c) has held that the presence of prima facie satisfaction for initiation of penalty proceedings was and remains a jurisdictional fact which cannot be wished away as the provision stands even today, i.e., post-amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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