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Deputy Commissioner of Income tax – 8 (3) , Mumbai Versus M/s S.M. Energy Teknik and Electronics Limited

2016 (5) TMI 866 - ITAT MUMBAI

Penalty levied u/s.271(1)(c) - undervaluation of WIP - Held that:- Merely because the assessee company in the instant case has accepted the addition in the quantum assessment proceedings which had attained finality , will not make the assessee automatically liable for penalty u/s 271(1)(c) of the Act whereby proper and bonafide explanations backed by sound reasoning and declarations as set out above are furnished by the assessee company , and more-so the revenue impact in quantum additions is ta .....

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le value whichever is lower and the closing WIP being valued on net realizable value which was lower than the cost in the instant case .

The ratio of the decision of Hon’ble Supreme Court in the case of Reliance Petro products Private Limited [2010 (3) TMI 80 - SUPREME COURT ] is squarely applicable in the instant case. We do not find any infirmity in the well reasoned and detailed order dated 04-01-2013 passed by the learned CIT(A) deleting the penalty levied by the A.O. and we uphol .....

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sessment year 2003-04, the appellate proceedings before the learned CIT(A) arising from the penalty order dated 25-3-2009 passed by the learned Assessing Officer (hereinafter called the A.O. ) under section 271(1)(c) of the Income Tax Act, 1961(Hereinafter called the Act ). 2. The grounds raised by the Revenue in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) reads as under:- On the facts' and in the circumstances of the case and in .....

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preciating the fact that WIP has to be valued at cost whereas the method adopted by the assesee is arbitrary and adhoc. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the ITO/AC/DCIT be restored. 3. At the time of hearing before us, none appeared on behalf of the assessee company when the appeal was called for hearing. There was also no appearance by the assessee company on the earlier occasion when the appeal was fixed for hearing on 09-07-2014. Th .....

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for the assessment year 2003-04 on 24.11.2003 declaring total loss of ₹ 3,44,59,980/- . The return of income was processed u/s 143(1) of the Act on 29.11.2003. Thereafter, scrutiny assessment was completed u/s 143(3) read with Section 143(2) of the Act after making certain disallowances/additions whereby the AO determined the reduced loss at ₹ 58,10,321/- , vide assessment orders dated 31.01.2006 passed u/s 143(3) of the Act. During the course of the assessment proceedings u/s 143(3 .....

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the buyer owing to lean period in the textile industry and the assessee company is trying to utilize the material in other similar jobs and accordingly stock has been carried at net realizable value which is in compliance with Accounting Standards AS-2 prescribed by the Institute of Chartered Accountants of India. The contention of the assessee company was rejected by the A.O. in the quantum assessment proceedings on the ground that the assessee company is following mercantile system of account .....

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01.2006 passed u/s. 143(3) of the Act. The assessee company carried the matter to the learned CIT(A) by filing the first appeal against the quantum assessment orders dated 31.01.2006 passed u/s 143(3) of the Act, which was decided in favour of the Revenue by the learned CIT(A) vide appellate orders dated 20th December, 2007. The said orders of the learned CIT(A) dated 20.12.2007 were accepted by the assessee company and it attained finality as the assessee company chose not to file second appeal .....

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34 3. CIT v. Gates Foam & Rubber Co., 91 ITR 467 (Ker). The AO held that the assessee being a company is required to maintain its books of accounts which reflect true picture of the transaction. The A.O. also relied upon the decision of Hon ble Madras High Court in the case of L.K. Sheikh Mohammed Bros v. CIT (1977) 110 ITR 808 (Madras). The onus was on the assessee company to produce genuineness of the expenses or justification of the allowance claimed in the return of income. The assessee .....

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, (2008) 172 Taxman 386(SC)(Civil Appeal No. 5065 of 2008 (Ahmedabad)), and the penalty was levied of ₹ 71,66,250/- (with respect to the afore-stated addition of ₹ 1.95 crores) by the AO vide penalty orders dated 25.03.2009 passed u/s 271(1)(c) read with explanation 1 of the Act. 5. Aggrieved by the penalty orders dated 25.03.2009 passed by the AO u/s 271(1)(c) of the Act levying , inter-alia, penalty of ₹ 71,66,250/- (with respect to the afore-stated addition of ₹ 1.95 c .....

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ear end as on 31-03-2003 as shown in the books of accounts was reduced by ₹ 1.95 crores based on technical evaluation obtained by the assessee company regarding valuation of the material based on net realizable value which is consistent with Accounting Standards AS-2 issued by the ICAI. The assessee company submitted that the claim made of the reduced WIP as at 31-03-2003 by ₹ 1.95 crores was duly declared in the return of income filed with the Revenue and complete facts were disclos .....

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er similar jobs and has obtained the technical evaluation regarding the valuation of these materials and accordingly stocks have been carried at net realizable value. Reduction for diminution in value of inventories ₹ 19,500 thousands and Doubtful advances written off ₹ 5,900 thousands have been considered in Schedule "II" of the Balance Sheet. The assessee company submitted that there is no change in the method of valuation of inventory and the deduction in the value of th .....

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vide orders dated 24/07/2012. The CIT(A) observed that the goods sent to the customers were not accepted by the customers and the value of the goods has been reduced due to rejection by the customers. The assessee company has duly disclosed all the material facts in the return of income filed with the Revenue as also in the Audited Balance Sheet as well in auditor s report. The assessee company has not concealed any fact nor submitted any inaccurate particulars of income but it was claimed that .....

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n ble Supreme Court in the case of Reliance Petro Products Private Limited(supra) and held that the facts of the instant case are squarely covered by the decision of Hon ble Supreme Court in the case of Reliance Petro Products Private Limited(supra). 7. Aggrieved by the orders dated 04-01-2013 of the learned CIT(A), the Revenue is in appeal before the Tribunal. 8. The ld. D.R. submitted that the quantum addition has been sustained by the learned CIT(A). No appeal has been filed by the assessee c .....

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the inventories owing to the rejection of the goods by the overseas customers by not accepting the deliveries of goods and non-fulfillment of their commitments owing to lean period in textile industry, hence the closing WIP being inventories were devalued by the assesssee company by ₹ 1.95 crores based on the technical evaluation obtained with respect to the valuation of these inventoriess on net realizable value which was lower than the cost by ₹ 1.95 crores , the goods were been m .....

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which the assessee company has not filed second appeal with the Tribunal and the same attained finality. But the mere acceptance of quantum additions by the tax-payer are not sufficient enough to fasten and saddle the tax-payer with the penalty u/s 271(1)(c) of the Act is now the settled proposition of law. The Revenue has to prove that the tax-payer has furnished in-accurate particulars of income or concealed the particulars of income and the tax-payer offers no explanation or the explanation i .....

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the Audited Balance Sheet and the Audit report filed with the return of income with the Revenue. During the assessment proceedings u/s 143(3) read with Section 143(2) of the Act, proper explanations were given by the assessee company as well during appellate proceedings with the learned CIT(A) during quantum, although the same did not found favour with the Revenue , which also attained finality after confirmation by the learned CIT(A) in quantum proceedings . The assessee company has given bona .....

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entories is consistent with the Accounting Standard AS-2 prescribed by the ICAI . The goods which were made by the assessee company as to the specification of the customers and which were not accepted for delivery due to non fulfillment of commitments by the buyers will in the normal circumstances have lower value as the goods were manufactured as per the specific requirements of a specific clients which may not found acceptability with the other clients, which in any case were valued by the ass .....

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ssee to evade taxes or defraud revenue , by concealing particulars of income or furnishing of inaccurate particulars of income. The assessee company made a bona-fide claim which ultimately did not found favour with the Revenue . Proper disclosures were made in the return of income filed with the Revenue and in the Audited Balance Sheet and the Auditor report . The said explanations were also furnished during the assessment and the first appellate proceedings before the learned CIT(A) in quantum .....

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s or defraud revenue. The said claim of reduced closing WIP by ₹ 1.95 crores made by the assessee company backed with technical evaluation obtained on net realizable value being lower than cost , is consistent with Accounting Standards AS-2 issued by ICAI backed with proper declaration in the return of income, Audited Balance Sheet and Auditors Report which claim did not ultimately found favour with the Revenue , will not make the assessee company exigible for penalty u/s 271(1)(c) of the .....

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