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Gandhi Parekh Investment Corporation Ltd. Versus ACIT, Circle-1 (1) , Mumbai

2016 (6) TMI 939 - ITAT MUMBAI

Penalty levied u/s. 271(1)(c) - provision for loss of stock claimed - Held that:- Explanation filed by the assessee, about the disputed amount plays a vital role in deciding the justification of levying concealment penalty. In the matter before us, the assessee had disclosed all the necessary details. In our opinion, explanation filed by the assessee in that regard was bona fide. Secondly, it is an accepted principle of tax-jurisprudence that additions made during assessment proceedings cannot r .....

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of obsoleteness of the stock or notice from the state government authorities. Therefore, there was no justification of invoking the provisions of section 271(1)(c)of the Act. Making additions or disallowing certain expenses during the assessment proceedings is totally different from invoking penal provisions. There is no provision in the Act of automatic levy of penalty for the additions/disallowances made. So, we are of the opinion that there was no furnishing of inaccurate particulars and that .....

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f the Act. Brief Facts: 2. Assessee-company, engaged in the business of manufacturing chemicals, filed its return of income on 01/12/2003 declaring total loss of ₹ 1. 94 crores. The Assessing Officer (AO) completed assessment on 21/03/2006, u/s. 143 (3) of the Act, determining the income of the assessee at Rs. (-)12. 14lakhs. During the assessment proceedings, the AO found that it had claimed ₹ 1. 82 crores as provision for loss of stock and had debited the said amount in the profit .....

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ed an appeal before the First Appellate Authority (FAA) who confirmed the order of the AO. Meanwhile, he initiated penalty proceedings. In its reply to the show cause notice of penalty, the assessee stated that all the activities relating to the business had effectively stopped during the year, that the provision for loss was due to the non-availability of the buyer to buy obsolete stock line with the company, that the stock being chemical product shelf-life was over, that it became hazardous wa .....

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e stock, that it had never utilised any benefit in any subsequent year due to the provision for loss on stock, it had filed for details and had disclosed all the facts with proper explanation relating to the about disallowance during the assessment proceedings, that it had neither concealed in effect not had filed any inaccurate particulars, that the disallowance was based purely on the difference of opinion on the treatment of loss claimed by the assessee, that the difference did not amount to .....

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Control Board was dated 27/09/2005, that the assessee had concealed the particulars of its income as well as had filed inaccurate particulars. Therefore, he levied a penalty of ₹ 67. 13 lakhs under section 271 (1) (c) of the Act. 3. During the appellate proceedings, before the FAA, the assessee stated that it had debited the P&L account by an amount of ₹ 1. 81 crores, being provision for loss on stock, that the stock was old and was no longer realisable, that the provision pertai .....

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id loss was as per the provisions of Accounting Standards (AS)-2, that the value of the inventory was taken at the lower cost or net realisable value, that the assessee did not prefer appeal before the Tribunal in the quantum proceedings as even after the addition the net income of the assessee was in negative, that it was constantly making losses, that it would have no chance of any benefit in terms of carry-forward and set off, that assessee had not claimed any benefit in the subsequent years, .....

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ces, that it was clear case of furnishing inaccurate particulars of income, that the order of the then FAA, who had confirmed the addition had become final, that the claim was made by the assessee under the head provisions, that the claim was not ascertained. He referred to the case of Param Jewells(P. )Ltd. (131 ITD ) and upheld the order of the AO. 4. Before us, the Authorised Representative (AR) stated that the assessee had made provision for loss of stock as provided in the AS-2, that it had .....

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provision for claimed ₹ 1. 82 crores as provision for loss of stock and had debited the said amount in the profit and loss account, that it had received notice from pollution control authorities of government of Gujarat, that it was directed to destroy the obsolete stock, that provision was made as per AS-2, that it had made provisions for the semifinished goods of 1999, that the AO had a different opinion about the treatment to be given to the stock. In our opinion, when two legal interp .....

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the assessee has not concealed any material fact or the factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law, provided that he either substantiates the explanation offered by him or the explanation, even if not substantiated, is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, Explanation 1 to section .....

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tal role in deciding the justification of levying concealment penalty. In the matter before us, the assessee had disclosed all the necessary details. In our opinion, explanation filed by the assessee in that regard was bona fide. Secondly, it is an accepted principle of tax-jurisprudence that additions made during assessment proceedings cannot result in automatic levy of penalty. A patent wrong and inadmissible claim, made against the clear cut provisions of the Act, falls under the category of .....

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271(1)(c)of the Act. Making additions or disallowing certain expenses during the assessment proceedings is totally different from invoking penal provisions. There is no provision in the Act of automatic levy of penalty for the additions/disallowances made. So, we are of the opinion that there was no furnishing of inaccurate particulars and that the explanation given by the assessee was bonafide. Here, we would like to refer to the matter of Reliance Petroproducts Ltd. (322ITR158)where the Hon b .....

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