2012 (6) TMI 512 - AT - Income Tax

Tribunal allows appeals, rejects time-barred objection, directs write-off and expenditure, cancels penalty.

M/s MONOHILL (INDIA) PVT LTD Versus INCOME TAX OFFICER

M/s MONOHILL (INDIA) PVT LTD Versus INCOME TAX OFFICER - TMI 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.