2012 (7) TMI 528 - AT - Income Tax

Challenging a penalty levied u/s 271(1)(c ) - disallowance and consequential addition made to the total income in respect of Non- saleable/Damaged Stock written off in the Profit & Loss account - Held that - 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. 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 prove that the assessee by writing off of the stock wanted to reduce the tax liability. The quantum addition has been upheld upto Tribunal but it would not mean that 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.

Issues Involved:
1. Legality and factual correctness of the Commissioner of Income Tax (Appeals) order.
2. Penalty imposition under section 271(1)(c) barred by limitation.
3. Satisfaction recording by the Assessing Officer as per Delhi High Court's precedent.
4. Legitimacy of penalty on disallowance of non-saleable/damaged stock.
5. Bonafide nature of the write-off claim for non-saleable/damaged stock.
6. Concealment or inaccuracy in income particulars related to non-saleable/damaged stock.
7. Application of Explanation 1 to section 271(1)(c).
8. Penalty imposition in loss cases.
9. Decision not to challenge the quantum appeal order due to accumulated losses.

Detailed Analysis:

1. Legality and factual correctness of the Commissioner of Income Tax (Appeals) order:
The appellant claimed that the order of the Commissioner of Income Tax (Appeals) was both legally and factually incorrect. The Tribunal reviewed the case and found that the Commissioner upheld the penalty without adequately considering the appellant's explanations and evidence regarding the write-off of non-saleable/damaged stock.

2. Penalty imposition under section 271(1)(c) barred by limitation:
The appellant argued that the penalty was imposed beyond the limitation period as per section 275(1) of the Income-tax Act, 1961. The Tribunal did not specifically address this issue in detail but focused on the broader context of the penalty's legitimacy.

3. Satisfaction recording by the Assessing Officer as per Delhi High Court's precedent:
The appellant contended that the Assessing Officer did not record the requisite satisfaction in the assessment order, as mandated by the Delhi High Court in Madhushri Gupta's case (317 ITR 107). The Tribunal agreed, noting that the assessment order lacked explicit mention of concealment or furnishing inaccurate particulars of income, thus questioning the jurisdiction for penalty imposition.

4. Legitimacy of penalty on disallowance of non-saleable/damaged stock:
The penalty was levied due to the disallowance of Rs. 59,43,008/- related to non-saleable/damaged stock. The Tribunal examined the nature of the write-off and found that the appellant had provided detailed explanations and evidence during penalty proceedings, which were not adequately refuted by the Assessing Officer or Commissioner.

5. Bonafide nature of the write-off claim for non-saleable/damaged stock:
The appellant asserted that the write-off was a bona fide claim, approved by statutory auditors and allowed in subsequent years. The Tribunal recognized the appellant's compliance with stringent food safety regulations and the necessity to discard expired or unfit products, thus supporting the claim's bona fide nature.

6. Concealment or inaccuracy in income particulars related to non-saleable/damaged stock:
The Tribunal emphasized that penalty under section 271(1)(c) requires proof of concealment or furnishing inaccurate particulars. The appellant had disclosed all relevant facts and provided detailed evidence of the stock write-off, which was not proven false by the authorities. Hence, the Tribunal found no basis for penalty imposition.

7. Application of Explanation 1 to section 271(1)(c):
The Tribunal noted that the appellant had offered a plausible explanation for the write-off, which was not found to be false. Thus, Explanation 1 to section 271(1)(c) was not applicable, as the appellant's explanation was bona fide and substantiated.

8. Penalty imposition in loss cases:
The appellant argued that penalty should not be imposed in loss cases. The Tribunal, referencing the Supreme Court's decision in Hindustan Steel Ltd. vs. State of Orissa (83 ITR 26), highlighted that penalty is discretionary and should not be imposed automatically, especially when the appellant's actions were bona fide.

9. Decision not to challenge the quantum appeal order due to accumulated losses:
The appellant did not pursue further appeal on the quantum order due to significant accumulated losses, rendering further litigation economically unviable. The Tribunal considered this practical decision and focused on the penalty's legitimacy rather than the quantum addition.

Conclusion:
The Tribunal concluded that the penalty under section 271(1)(c) was not justified. The appellant had provided a bona fide and substantiated explanation for the stock write-off, and there was no evidence of concealment or furnishing inaccurate particulars. The penalty order lacked jurisdictional validity due to the absence of recorded satisfaction by the Assessing Officer. Consequently, the Tribunal allowed the appeal, canceling the penalty imposed.

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