2012 (6) TMI 512 - AT - Income Tax

Write off of obsolete Stock - consequent write back of liability of foreign creditor and offering the same for taxation - dis-allowance of loss on ground that there were no details to show that the assessee was under instructions by the foreign party to write off the liability - Held that - How a negative fact can be proved when the assessee submits that they have imported the goods and the same could not sold in so many years and with the consent of Commercial Tax authorities destroyed the goods, the fact of which was accepted by the other authority. The books of account also represents the same situation. Also, it is on record that assessee wrote back the liability in the P/L Account and offered for taxation. claim of loss of stock is genuine and hence allowed - Decided in favor of assessee. Dis-allowance of 50% of the expenditure on the reason that the assessee does not have any business activity - Held that - Since the assessee has been in the business during the year and has other income and claimed a meagre amount of Rs.1,64,828/- as expenditure, which is just enough even for maintaining its corporate identity, we are of the opinion that disallowing 50% of the amount is not warranted and is arbitrary. Penalty u/s 271(1)(c) - Held that - There is no reason for levy of penalty as the basis for levy of penalty was disallowance of the claim which was allowed therein - Decided in favor of assessee.

Issues Involved:
1. Preliminary objection on the appeals being time-barred.
2. Addition of Rs.1,38,10,972/- due to rejection of the write-off claim of opening stock of tyres and tubes.
3. Disallowance of 50% of the expenditure claimed by the assessee.
4. Penalty levied under section 271(1)(c) of the Act.

Detailed Analysis:

1. Preliminary Objection on the Appeals Being Time-Barred:
The Revenue raised a preliminary objection, arguing that the appeals were time-barred as the orders were dispatched by the CIT(A) on 12-02-2010, but the assessee filed the appeals on 15-04-2010. The assessee contended that the orders were not served and were returned with a remark "Not known." The assessee collected the orders on 08-04-2010 and filed the appeals promptly. The Tribunal examined the records and found that the orders were indeed not served until 16-02-2010 and were collected by the assessee on 08-04-2010. Therefore, the appeals were filed within the permissible time, and the Revenue's objection was rejected.

2. Addition of Rs.1,38,10,972/- due to Rejection of the Write-Off Claim of Opening Stock of Tyres and Tubes:
The assessee claimed a loss of Rs.80,24,266/- due to the write-off of opening stock of Rs.1,38,10,972/-. The AO rejected the claim, stating that the assessee did not furnish necessary details, such as agreements with M/s. Monohill (UK) and M/s. Hankook Tyres & Tubes. The assessee argued that the tyres and tubes were unsold due to quality issues and were ultimately destroyed with the consent of Commercial Tax authorities. The CIT(A) upheld the AO's decision, citing non-compliance with the AO's directions.

The Tribunal reviewed the facts and supporting documents, including the orders from Commercial Tax authorities confirming the destruction of the stock. It found that the assessee's claim was genuine and allowable, as the goods were unsold and destroyed due to quality issues, and the Commercial Tax authorities had accepted this fact. The Tribunal directed the AO to allow the loss of stock as claimed by the assessee.

3. Disallowance of 50% of the Expenditure Claimed by the Assessee:
The AO disallowed 50% of the expenditure amounting to Rs.82,000/- on the grounds that the assessee did not have any business activity. The assessee argued that it had business activities, including receiving royalty and interest, and the claimed expenditure of Rs.1,64,828/- was necessary for maintaining its corporate identity. The Tribunal found the disallowance arbitrary and unjustified, noting that the assessee had business activities and the claimed expenditure was reasonable. It directed the AO to allow the expenditure as claimed.

4. Penalty Levied Under Section 271(1)(c) of the Act:
The AO levied a penalty based on the disallowance of the stock write-off claim. Since the Tribunal allowed the assessee's appeal on the quantum of the claim, the basis for the penalty no longer existed. Consequently, the penalty levied under section 271(1)(c) was cancelled.

Conclusion:
The Tribunal allowed both appeals, rejecting the preliminary objection on the appeals being time-barred, directing the AO to allow the write-off of the stock and the full expenditure claimed, and cancelling the penalty levied under section 271(1)(c). The order was pronounced on 20.4.2012.

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