2013 (12) TMI 553 - HC - Income Tax

Penalty u/s 271(1)(c) - Held that - The assessee was engaged in the business of food processing and packaging, for exports - Food items were perishable in nature and had expiry date beyond which they could not be sold and, therefore, the non-saleable/expired stock needed to be discarded - Products manufactured by the respondent-assessee were mainly exported to the USA - Compliance of FDA regulations, one of the most stringent requirements, was required - Details of items, which were written off, were set out, explained and elucidated by the assessee - The items included caps and cartons which had became unusable due to change in customer s specifications, change in brand name or difference in quantities etc - Details and particulars of items were made available and ascertained - The respondent assessee was eligible for deduction under Section 10B of the Act - There was no cause or reason for the assessee to deliberately write off saleable goods which could be exported in the books of accounts as non-saleable - Decided against Revenue.

Summary

Issues:
1. Condonation of delay in re-filing the appeal.
2. Impugning penalty deletion under Section 271(1)(c) of the Income Tax Act for assessment year 2001-02.
3. Contradiction between tribunal's orders and onus under Explanation 1 to Section 271(1)(c) of the Act.
4. Disallowance of provision for non-saleable and damaged goods by the Assessing Officer.

Analysis:
1. The High Court was inclined to condone the delay of 99 days in re-filing the appeal, as per C.M.No.15143/2013, filed by the appellant.

2. The appeal by the Revenue challenged the Income Tax Appellate Tribunal's order deleting penalty under Section 271(1)(c) of the Act for the assessment year 2001-02. The appellant contended that there was a contradiction between the tribunal's findings and the quantum proceedings, and the tribunal erred in holding that the assessee discharged the onus under Explanation 1 to Section 271(1)(c) of the Act.

3. The respondent-assessee, engaged in processing and export of food products, filed a return of income for the assessment year 2001-02, initially declaring a loss of Rs.20,66,59,696/- which was later revised to Rs.16,51,59,697/-. The Assessing Officer disallowed a provision for non-saleable and damaged goods, stating it was not an allowable expenditure. The Commissioner (Appeals) affirmed this finding. However, the tribunal in the quantum proceedings noted the lack of evidence for considering items as non-saleable or damaged, and that the provision made by the assessee lacked a rational basis.

4. In the impugned order, the tribunal held that the findings in the quantum order were not the sole basis for imposing a penalty. The respondent-assessee explained that perishable food items with expiry dates beyond saleability needed to be discarded. The tribunal accepted the explanation, noting compliance requirements for export to the USA, and the eligibility for deductions under Section 10B of the Act. Details of written-off items were provided, and the tribunal found no reason for the deliberate write-off of saleable goods. The tribunal also addressed the valuation of closing stock at market price based on the decrease in the value of assets.

5. Based on the factual findings and explanation provided by the assessee, the High Court concluded that no substantial question of law arose for consideration. Therefore, the appeal was dismissed.