M/s K.K. Kohli & Brothers Pvt. Ltd., Faridabad V. ACIT, Faridabad

CO 427/DEL/2012

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2941 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 09-01-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 26-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SEEMA RAJ
• Keywords: Rejection of books of accounts; Depreciation; Additional evidence; Bad and doubtful debts; Onus to prove; Revised return
• Section: 43B; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 3883/DEL/2012 (ASSESSMENT YEAR : 2007-08) ACIT CIRCLE II, B BLOCK, CGO COMPLEX, NH-IV, FARIDABAD. VS K.K. KOHLI & BROTHERS P. LTD. (NOW SRS I TECH P. LTD.) E-18, NEHRU GROUND, IIND FLOOR, NIT, FARIDABAD. (PAN:AAACK7408H) CO NO. 427/DEL/2012 (IN ITA NO. 3883/DEL/2012) (ASSESSMENT YEAR : 2007-08) K.K. KOHLI & BROTHERS P. LTD. (NOW SRS I TECH P. LTD.) E-18, NEHRUGROUND, IIND FLOOR, NIT, FARIDABAD. AAACK7408H VS ACIT CIRCLE II, B BLOCK, CGO COMPLEX, NH-IV, FARIDABAD. ASSESSEE BY SH. SUDHIR SEHGAL, CA REVENUE BY MS. SEEMA RAJ, CIT (DR) ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THE APPEAL HAS BEEN PREFERRED BY THE REVENUE AGAIN ST THE ORDER OF THE CIT (A), FARIDABAD DATED 26.04.2012 AN D PERTAINS TO ASSESSMENT YEAR 2007-08. THE C.O. HAS BEEN FILED B Y THE ASSESSEE. DATE OF HEARING 09.01.2017 DATE OF PRONOUNCEMENT ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 2 2. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROCESSING OF FABRICS THROUGH A PROCESSING HOUSE AT FARIDABAD AND TRADING OF FABRICS. BRIEF FACTS OF THE CASE ARE THAT THE RETU RN OF INCOME WAS FILED AT AN INCOME OF RS. 3,42,590/-. THE CASE WA S SELECTED FOR SCRUTINY AND THE STATUTORY NOTICE U/S 143(2) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS ISSUED. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SOLD 62% OF ITS LAND AFTER DEMOLIS HING THE BUILDING AND HAD DECLARED LONG TERM CAPITAL GAINS ON THE SAL E OF LAND AND SHORT TERM CAPITAL GAIN ON SALE OF BUILDING, LAND A ND MACHINERY AND FURNITURE ETC. THE ASSESSING OFFICER HAS NOTED THA T THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNTS DESPITE SEVERAL O PPORTUNITIES BEING GIVEN. THE ASSESSING OFFICER PROCEEDED TO IN VOKE THE PROVISIONS OF SECTION 144 OF THE ACT AND PASSED A B EST JUDGMENT ASSESSMENT. THE ASSESSEE HAD DECLARED GROSS LOSS A T 31.71% ON SALES OF RS. 14.14 CRORES AS AGAINST THE GROSS PROF IT OF 7.68% DISCLOSED ON THE SALES OF RS. 21.54 CRORES IN THE P RECEDING YEAR. IT WAS THE ASSESSEES CONTENTION BEFORE THE AO THAT TH E LOSS HAD OCCURRED ON ACCOUNT OF CLOSURE OF BUSINESS AND SALE OF OLD STOCK. HOWEVER, THE ASSESSING OFFICER ESTIMATED THE LOSS A T 20% AND MADE AN ADDITION OF RS. 1,56,86,871/-. THE ASSESSING OF FICER ALSO ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 3 DISALLOWED THE ASSESSEES CLAIM OF BAD DEBTS OF RS. 1,43,72,485/- ON THE GROUND THAT THE ASSESSEE HAD FAILED TO DISCHARG E THE ONUS TO PROVE THAT THE DEBTS HAD ACTUALLY BECOME BAD. THE ASSESSING OFFICER ALSO DISALLOWED CLAIM OF SHORT TERM CAPITAL LOSS ON THE SALE OF PLANT AND MACHINERY ON THE GROUNDS THAT THE BLOCK O F PLANT AND MACHINERY DID NOT CEASE TO EXIST. FURTHER, THE ASS ESSING OFFICER ALLOWED DEPRECIATION @15% INSTEAD OF 80% AS WAS ADM ISSIBLE IN ACCORDANCE WITH THE RULES ALTHOUGH THE ASSESSEE HAD CONTENDED BEFORE THE AO THAT IT HAD INADVERTENTLY CLAIMED DEP RECIATION ON BOILER @50% ALTHOUGH THE DEPRECIATION ON BOILER WAS ADMISSIBLE AT 80%. THE ASSESSING OFFICER ALSO MADE DISALLOWANCE OF RS. 53,860/- U/S 43B OF THE ACT AND A FURTHER DISALLOWANCE OF R S. 2,71,431/- U/S 40(A)(IA) OF THE ACT. THE ASSESSMENT WAS COMPLETE D AT AN INCOME OF RS. 4,42,81,091/-. 2.1 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD. FIRST APPELLATE AUTHORITY CHALLENGING THE ACTION OF THE A SSESSING OFFICER IN FRAMING THE ASSESSMENT U/S 144 OF THE ACT AND MAKIN G AN ADDITION OF RS. 1,56,86,871/- ON ACCOUNT OF GROSS LOSS. THE ASSESSEE ALSO CHALLENGED THE OTHER ADDITIONS AND DISALLOWANCES. ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 4 2.2 LD. CIT (A) CONFIRMED THE ADDITION ON ACCOUNT O F GROSS PROFIT BY RESTRICTING IT TO THE EXTENT OF RS. 30 LAKH. THE L D. CIT(A) ALSO RESTRICTED THE ADDITION ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS TO RS. 18,18,058/-. FURTHER, THE LD. CIT (A) ALLOWED THE ASSESSEES CLAIM OF DEPRECIATION ON BOILER @80% INSTEAD OF 50% AS CLAIMED IN THE RETURN OF INCOME. THE LD. CIT (A) ALSO DELETED THE ADDITION OF RS. 53,860/- MADE U/S 43B OF THE ACT AND ALSO THE DISAL LOWANCE OF RS. 2,71,431/- U./S 40(A)(IA) OF THE ACT. LD. CIT(A) A LSO ALLOWED THE ASSESSEES GROUND CHALLENGING THE DISALLOWANCE OF S HORT TERM CAPITAL LOSS OF RS. 1,48,776,639/- . 2.3 AGGRIEVED THE DEPARTMENT HAS FILED THE FOLLOWIN G GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETI NG THE ADDITION OF RS. 1,26,86,871/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FALL IN GP RATE AS THE ASSESS EE HAD INTENTIONALLY NOT PRODUCED THE BILLS AND VOUCHERS W ITH BOOKS OF ACCOUNT IN ORDER TO VERIFY BOOK RESULTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETI NG THE DISALLOWANCE OF RS. 1,25,54,427/- MADE BY THE AO ON ACCOUNT OF BAD DEBTS WRITTEN OFF AS THE ASSESSEE HA S FAILED TO DISCHARGE THE ONUS TO PROVE THAT THE DEBTS HAD A CTUALLY BECOME BAD. ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 5 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) HAS ERRED IN FACTS AND IN LAW IN ALLOWI NG THE DEPRECIATION OF RS. 72,69,675/- @ 80% INSTEAD OF RS . 22,71,774/- ALLOWED BY THE AO AS THE ASSESSEE ITSEL F HAD CLAIMED DEPRECIATION AT DIFFERENT RATE IN THE PAST AND ALSO FAILED TO SUBSTANTIATE ITS CLAIM BY NOT SUPPLYING T HE NECESSARY EVIDENCES THAT THE MACHINERY FULFILL ALL THE CONDITIONS LAID DOWN IN RULE 5 ITEM 8(IX) OF THE DEPRECIATION SCHEDULE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN DELETI NG THE DISALLOWANCE OF RS. 1,48,76,639/- MADE BY THE AO ON ACCOUNT OF SHORT TERM CAPITAL LOSS CLAIMED ON BLOCK OF ASSETS (HAVING 15% RATE OF DEPRECIATION) WHICH DID NOT CEASE TO EXIST. 5. THAT THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 2.4 THE GROUNDS TAKEN IN C.O. BY THE ASSESSEE ARE A S UNDER:- 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPEALS), FARIDABAD HAS ERRED IN CONFIRMING THE AD DITION OF RS. 30 LACS AS PER FINDING GIVEN AT PAGE 20 OF T HE ORDER OF CIT (A). 2. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 18,18,0 58/- ON ACCOUNT OF BAD DEBTS AS PER PARA 6.2 OF THE ORDER. 3. THAT THE RESPONDENT CRAVES LEAVE TO ADD OR AMEND ANY ROUND OF CROSS OBJECTIONS BEFORE THE APPEAL IS FINA LLY HEARD OR DISPOSED OF. ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 6 3. LEARNED CIT DR SUBMITTED THAT THE BOOKS OF ACCOU NTS WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER AND THE SAME WAS EVIDENT FROM THE COPY OF ORDER SHEET PLACED ON RECORD. SHE REFUTED THE ASSESSEES CLAIM THAT BOOKS HAD BEEN PRODUCED BEFOR E THE ASSESSING OFFICER AND SUBMITTED THAT THE COPY OF LETTER MENTI ONING THAT BOOKS HAD BEEN PRODUCED WAS WRITTEN BY HAND AND THE VERAC ITY OF THE SAME WAS NOT VERIFIABLE. IT WAS SUBMITTED THAT ONL Y SOME RECORDS WERE PRODUCED FOR THE PURPOSE OF FRINGE BENEFIT TAX ASSESSMENT AND, THEREFORE, THE ASSESSING OFFICER WAS VERY MUCH JUST IFIED IN INVOKING THE PROVISIONS OF SECTION 144 AND MAKING A BEST JUD GMENT ASSESSMENT. SHE FURTHER SUBMITTED THAT WHILE RESTR ICTING THE ADDITION ON ACCOUNT OF GROSS LOSS, THE LD. CIT (A) HAD ESTIMATED THE ADDITION AT RS. 30 LAKH WITHOUT PROVIDING ANY BASIS FOR SUCH VALUATION. SHE ALSO SUBMITTED THAT THE ASSESSEE CO ULD NOT JUSTIFY THE REASON FOR FALL IN THE RATIO OF GROSS PROFIT. 3.1 ON THE ISSUE OF ALLOWING RELIEF TO THE ASSESSEE ON ACCOUNT OF BAD DEBTS, RELIANCE WAS PLACED BY THE LD. CIT DR ON THE ORDER OF THE ASSESSING OFFICER. 3.2 ON THE ISSUE OF DEPRECIATION HAVING BEEN ALLOW ED @80% ON BOILERS, IT WAS SUBMITTED THAT THE SAME HAD BEEN AL LOWED BASED ON ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 7 THE REVISED TAX AUDIT REPORT ALTHOUGH THERE WAS NO PROVISION IN THE INCOME TAX ACT TO PERMIT FILING OF A REVISED TAX AU DIT REPORT. IT WAS SUBMITTED THAT THE ASSESSEE SHOULD HAVE REVISED THE RETURN AND THEN ONLY THE BENEFIT OF INCREASED DEPRECIATION WOU LD HAVE BEEN PERMISSIBLE. IT WAS ALSO SUBMITTED THAT THE LD. CI T (A) HAD ALLOWED ADDITIONAL EVIDENCE TO BE FILED BEFORE HIM AND NO R EMAND REPORT WAS CALLED FOR FROM THE ASSESSING OFFICER IN THIS REGAR D. 3.3 IT WAS FURTHER SUBMITTED THAT AS FAR AS THE IS SUE OF SHORT TERM CAPITAL LOSS ON SALE OF PLANT AND MACHINERY WAS CON CERNED, THE BLOCK OF ASSETS HAD NOT CEASED TO EXIST AND AS SUCH, THE SAME WAS NOT ALLOWABLE. 4. IN RESPONSE, THE LD. AR SUBMITTED THAT THE BOOKS OF ACCOUNTS WERE DULY AUDITED BY THE STATUTORY AUDITORS WHICH I NCLUDED VOUCHING OF PURCHASES, SALES AND EXPENSES. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAD CALLED FOR VARIOUS INFORMATION AND DETAILS IN RELATION TO THE ACCOUNTS ON VARIOUS DATES WHICH WERE DULY FURNISHED AND WERE ALSO TEST CHECKE D BY THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT T HE DETAILS OF OPENING AND CLOSING STOCKS ALONG WITH QUALITATIVE D ETAILS WERE GIVEN IN THE TAX AUDIT REPORT ALONG WITH RELEVANT EVIDENC ES OF VALUATION OF ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 8 STOCK AND NO SPECIFIC DEFECTS WERE FOUND BY THE ASS ESSING OFFICER IN SUCH DETAILS. OUR ATTENTION WAS DRAWN TO PAGE 3 OF THE ASSESSMENT ORDER WHEREIN THE ASSESSING OFFICER HAS OBSERVED TH AT FROM THE DETAILS AND EXPENDITURE FILED AND RECORD PRODUCED F ROM TIME TO TIME, THE FOLLOWING DISCREPANCIES WERE FOUND DURING THE C OURSE OF ASSESSMENT PROCEEDINGS. LD. AR ALSO SUBMITTED THAT AN AFFIDAVIT BY MR. JATINDER BAHL, ACCOUNTANT WAS ALSO ON RECORD WH ICH STATES THAT HE HAD PRODUCED THE BOOKS OF ACCOUNTS FOR THE YEAR UNDER CONSIDERATION BEFORE THE ASSESSING OFFICER AND THAT THE ASSESSING OFFICER HAD PERUSED THE BOOKS. HE ALSO DREW OUR AT TENTION TO COPIES OF REPLIES DATED 26.10.09, 6.11.09, 25.11.09, 11.12 .09 AND 21.12.09 WHICH WERE FILED BEFORE THE ASSESSING OFFICER DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS SUBMITTED THAT IN T HE LIGHT OF THESE DETAILS FILED, IT WAS VERY MUCH EVIDENT THAT THE AS SESSING OFFICER HAD DULY EXAMINED THE BOOKS OF ACCOUNTS AND CONSEQUENTL Y, THE FRAMING OF ASSESSMENT U/S 144 OF THE ACT WAS BAD IN LAW. L D. AR FURTHER SUBMITTED THAT THE FALL IN THE GROSS PROFIT RATIO W AS DUE TO THE DISCONTINUATION OF MANUFACTURING ACTIVITY AND CONTI NUATION OF ONLY TRADING ACTIVITIES W.E.F. JUNE 2006. IT WAS SUBMIT TED THAT THIS FACT REMAINED UNDISPUTED. IT WAS ALSO SUBMITTED THAT TH E REMAINING ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 9 STOCK AFTER THE CESSATION OF MANUFACTURING ACTIVITI ES HAD TO BE CLEARED AND THIS STOCK MAJORLY INCLUDED REJECTED FA BRIC, SALES RETURNS ETC. WHICH FETCHED A LESSER PRICE IN THE MARKET. H ENCE, THERE WAS A FALL IN THE VALUATION OF CLOSING STOCK AND A CORRES PONDING FALL IN THE GP RATIO. LD. AR ALSO RELIED ON A PLETHORA OF JUDG MENTS TO SUPPORT HIS CONTENTION THAT THE ASSESSING OFFICER COULD NOT FRAME ASSESSMENT U/S 144 OF THE ACT WITHOUT HAVING REJECT ED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND AS SUCH, NO ADDI TION COULD HAVE BEEN MADE ON ACCOUNT OF VARIANCE IN THE GP RATIO WI THOUT THE REJECTION OF BOOKS OF ACCOUNTS. LD. AR ALSO DREW O UR ATTENTION TO THE VARIOUS PAPERS FILED BEFORE THE LD. CIT (A) IN SUPP ORT OF THE ASSESSEE HAVING DISCONTINUED MANUFACTURING ACTIVITIES WHICH INCLUDED DETAILS OF POWER AND FUEL EXPENSES, COPY OF LETTER SUBMITTE D TO THE REGIONAL DIRECTOR OF ESI, FARIDABAD STATING THE DISCONTINUAT ION OF MANUFACTURING ACTIVITIES, COPIES OF LETTERS SUBMITT ED TO REGIONAL PF COMMISSIONER AND JOINT COMMISSIONER, MUNICIPAL CORP ORATION, FARIDABAD STATING DISCONTINUATION OF MANUFACTURING ACTIVITY. 4.1 ON THE ISSUE OF BAD DEBTS, THE LD. AR PLACED RE LIANCE ON CBDT CIRCULAR 12/2016 DATED 30.5.2016 WHICH PROVIDES THA T CLAIM FOR ANY DEBT OR PART THEREOF IN ANY PREVIOUS YEAR SHALL BE ADMISSIBLE U/S ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 10 36(I)(VII) OF THE ACT IF IT IS WRITTEN OFF AS IRREC OVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR THAT PREVIOUS YEAR. H E SUBMITTED THAT THE IMPUGNED AMOUNTS WERE DULY WRITTEN OFF IN THE B OOKS OF ACCOUNTS OF THE ASSESSEE COMPANY AND, THEREFORE, TH E SAME WERE ALLOWABLE AS BAD DEBTS. 4.2 ON THE ISSUE OF ENHANCED RATE OF DEPRECIATION AS WELL AS SHORT TERM CAPITAL LOSS ON MACHINERY SOLD, IT WAS SUBMITT ED THAT THE RATE WAS ADMISSIBLE IN TERMS OF THE DEPRECIATION RATES P ROVIDED IN THE INCOME TAX RULES AND FOR THIS PURPOSE, IT WAS NOT N ECESSARY TO CALL FOR A REMAND REPORT FROM THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT THE LD. CIT(A) HAS HIMSELF GIVEN A C ATEGORICAL FINDING THAT THE PLANT AND MACHINERY WAS SOLD DURING THE YE AR AND THAT THE BLOCK HAD CEASED TO EXIST AND AS SUCH THE ASSESSEE S CLAIM FOR SHORT TERM CAPITAL LOSS WAS ALSO ALLOWABLE. 4.3 ON THE GROUNDS TAKEN IN THE C.O., LD. AR SUBMIT TED THAT THE LD. CIT (A) HAD ERRED IN CONFIRMING THE ADDITION OF RS. 30 LAKH ON ACCOUNT OF GP AS THE LD. CIT (A) HAD CONFIRMED THE ADDITION ON THE BASIS THAT THE CLOSING STOCK SHOULD HAVE BEEN VALUE D AT 14.08 PER METRE INSTEAD OF RS. 9.40 PER METRE WHEREAS THE ASS ESSEE HAD VALUED THE STOCK OF 305287 METRE AT RS. 14.08 PER M ETRE AND ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 11 252684 METRES AT RS. 9.40 PER METRE. IT WAS SUBMIT TED THAT THE LD. CIT (A) HAD MADE AN ADDITION OF RS. 5 PER METRE ON THE ENTIRE STOCK OF 557971 METRE WHICH WAS ERRONEOUS. 4.4 ON THE SECOND GROUND TAKEN BY THE ASSESSEE IN T HE C.O. REGARDING SUSTENANCE OF RS. 18,18,058/- ON ACCOUNT OF BAD DEBTS, IT WAS SUBMITTED THAT THIS COMPRISED OF INTEREST RECEI VABLE WHICH HAD BEEN BOOKED BY THE ASSESSEE AS ITS INCOME IN THE PR EVIOUS YEAR WHICH WAS EVIDENCED FROM PAGE 162 OF THE PAPER BOOK . IT WAS SUBMITTED THAT THIS AMOUNT ALSO ADHERED TO THE COND ITIONS LAID DOWN IN SECTION 36(2) OF THE ACT THAT (I) THE SAME HAS B EEN BOOKED BY THE ASSESSEE AS ITS INCOME AND THAT (II) THE SAME HAD B EEN ENTERED IN THE BOOKS OF ACCOUNTS. IT WAS SUBMITTED THAT SINCE THE INCOME HAD BEEN BOOKED WHICH HAD BECOME IRRECOVERABLE, THE CLAIM OF BAD DEBT SHOULD BE ALLOWED, ELSE THE SAME WOULD AMOUNT TO DO UBLE TAXATION. 5. THE LD. CIT DR RELIED ON THE FINDINGS OF THE LD . CIT (A) IN THE CASE OF ASSESSEES C.O. AND SUBMITTED THAT THESE FINDING S BE UPHELD. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. AS FAR AS THE D EPARTMENTS GROUND CHALLENGING THE DELETION OF ADDITION OF RS. 1,26,86,871/- MADE ON ACCOUNT OF FALL IN GP RATE AND THE RELATED GROUND OF ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 12 INVOKING THE PROVISIONS OF SECTION 144 ARE CONCERNE D, IT IS SEEN THAT THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE ACTION OF THE ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SEC TION 144 WAS NOT JUSTIFIED WHEN THE BOOKS OF ACCOUNTS WERE PRODUCED AND COMPLIANCES WERE MADE DURING THE COURSE OF ASSESSME NT PROCEEDINGS. LD. CIT (A) HAS HELD THAT EVEN WHEN T HE ASSESSING OFFICER HAD CHOSEN TO PROCEED ON PASSING A BEST JUD GMENT ASSESSMENT ORDER, THE ADDITION WAS REQUIRED TO BE M ADE ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE LD. CIT (A) H AS ALSO NOTED THAT THE ASSESSING OFFICER HAD NOT CITED ANY REASON FOR NOT ACCEPTING THE GROSS LOSS @31.71%, AS DECLARED BY THE ASSESSEE, BU T ADOPTING THE RATE OF 20% INSTEAD. HE HAS ALSO NOTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS SPECIFICAL LY ASKED ABOUT THE VALUATION OF CLOSING STOCK. THE LD. CIT (A) HA S FURTHER OBSERVED THAT ON THE BASIS OF THE SALES BILLS FILED, THE AVE RAGE SALE PRICE OF FABRIC WORKED OUT TO RS. 14 PER METRE WHEREAS THE A VERAGE RATE OF FABRIC FOR WHICH NO SALE BILLS HAD BEEN FILED WORKE D OUT TO RS. 9.20 PER METRE. LD. CIT (A) HAS FURTHER OBSERVED THAT T HE ITEMS IN CLOSING STOCK INVENTORY WERE MENTIONED AS COTTON FABRICS WITHOUT ANY MENTION OF SPECIFIC QUALITY OR BRAND IDENTIFICATION AND AS SUCH, THE ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 13 VALUATION OF STOCK WAS NOT AMENABLE FOR VERIFICATIO N. THEREAFTER, THE LD. CIT (A) PROCEEDED TO ESTIMATE THE DIFFERENCE IN VALUATION AT RS. 5 PER METRE AND RESTRICTED THE ESTIMATION OF UNDER-VA LUATION OF CLOSING STOCK TO RS. 30 LAKH. A PERUSAL OF THE ASSESSMENT ORDER ALSO SHOWS THAT ALTHOUGH THE ASSESSING OFFICER HAS PROCEEDED O N BEST JUDGMENT ASSESSMENT U/S 144 OF THE ACT ON THE GROUND THAT BO OKS OF ACCOUNTS WERE NOT PRODUCED, THE LD. CIT (A) HAS GIVEN A FIND ING THAT IN VIEW OF THE BOOKS OF ACCOUNTS HAVING BEEN PRODUCED, THE ASS ESSING OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF SEC TION 144 OF THE ACT. HOWEVER, THE LD. CIT (A) HAS NOT SPECIFICALLY ADDRE SSED THE ISSUE OF REJECTION OF BOOKS OF ACCOUNTS. A PERUSAL OF THE A SSESSMENT ORDER ALSO SHOWS THAT ALTHOUGH THE ASSESSING OFFICER HAS NOT ACCEPTED THE GP LOSS RATE AT 31.71%, HE HAS NOT GIVEN ANY REASON ING FOR ADOPTING THE LOSS RATE AT 20%. THE ENTIRE CASE OF THE ASSES SING OFFICER SEEMS TO BE BASED ON THE ALLEGATION THAT BOOKS OF ACCOUNT S WERE NOT PRODUCED BEFORE HIM. LD. AR HAS FILED COPY OF THE ENTIRE ORDER SHEET AND HAS SUBMITTED THAT THE ORDER SHEET DOES NOT MEN TION THAT THE BOOKS OF ACCOUNTS WERE NOT PRODUCED. IT HAS BEEN S UBMITTED BY THE LD. AR THAT IN VIEW OF NOT MENTIONING THE SPECIFIC NON-PRODUCTION OF BOOKS OF ACCOUNTS, IT GOES OUT IN ASSESSEES FAVOUR TO PROVE THAT THE ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 14 BOOKS OF ACCOUNTS WERE DULY PRODUCED. THE LD. AR H AS ALSO CONTENDED THAT THE DETAILS OF VALUATION OF CLOSING STOCK WERE FILED WHICH HAD NOT BEEN CONTRADICTED BY THE ASSESSING OF FICER. 6.1 ON DUE CONSIDERATION OF THE ENTIRE FACTUAL MATR IX ON THIS ISSUE, WE DO FEEL THAT IRRESPECTIVE OF THE FACT AS TO WHET HER THE BOOKS OF ACCOUNTS WERE DULY PRODUCED OR NOT PRODUCED BEFORE THE ASSESSING OFFICER, THE FACT REMAINS THAT THE VALUATION OF CLO SING STOCK HAS BEEN MADE WITHOUT CATEGORISING IT IN TERMS OF SPECIFIC Q UALITY OR BRAND. THE LD. CIT (A) HAS ALSO NOTED THAT ALTHOUGH MANUFA CTURE, PURCHASES AND SALES DETAILS WERE FILED BEFORE THE A SSESSING OFFICER IN RESPECT OF TRADING OF FABRIC, THE ASSESSEE HAD NOT FILED QUANTITATIVE DETAILS AND AS SUCH, THE STOCK OF TRADING GOODS, IN CLUDED IN THE CLOSING STOCK WAS NOT ASCERTAINABLE. THE LD. CIT ( A) HAS ALSO NOTED THAT THE ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH TH AT THE VALUATION OF STOCK AS ON 31.03.2007 WAS BASED ON SALE RATE PR EVAILING ON THAT DAY. LD. CIT (A) HAS ALSO NOTED THAT THE AVERAGE R ATE OF FABRIC WAS RS. 52.51 PER METRE AT A STOCK OF 623830 METRES ON 31.03.2006 WHEREAS THE AVERAGE RATE OF VALUATION AS ON 31.03.2 007 WORKED OUT TO RS. 11.96 PER METRE ON A STOCK OF 557971 METRES AND THUS, THERE WAS A DRASTIC FALL IN THE RATE OF VALUATION EVEN WH EN THE MAJOR ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 15 PORTION OF THE STOCK WAS OUT OF OPENING STOCK. GIV EN THE CIRCUMSTANCES, WE FEEL THAT THE LD. CIT (A) HAD NO OPTION BUT TO MAKE A REASONABLE ESTIMATE, SPECIALLY WHEN INDIVIDU AL DETAILS IN TERMS OF QUALITY AS WELL AS QUANTITY WERE NOT AVAIL ABLE. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTMENT COULD N OT SUGGEST ANY OTHER ALTERNATE METHOD OF VALUATION WHICH COULD HAV E REASONABLY BEEN ADOPTED BY THE LD. CIT (A) EXCEPT ARGUING THAT THERE WAS NO BASIS FOR SUCH ESTIMATION. 6.2 IN GROUND NO. 1 OF THE C.O., ASSESSEE HAS CHALL ENGED THE SUSTENANCE OF ADDITION OF RS. 30 LAKH AND THE LD. A R HAS SUBMITTED THAT THE CLOSING STOCK OF THE ASSESSEE INCLUDED TWO TYPES OF STOCK I.E. I) WHICH HAD BEEN SOLD UP TO THE DATE OF SIGNING OF AUDIT REPORT MEASURING 305287 METRES AND; II) WHICH WAS STILL UN SOLD MEASURING 252864 METRES. IT HAS BEEN CONTENDED BY THE LD. AR THAT THE LD. CIT (A) APPLIED THE DIFFERENTIAL RATE IN VALUATION @RS. 5/- PER METRE ON THE ENTIRE STOCK INSTEAD OF THE STOCK REMAINING UNSOLD I.E. 2526784 METRES. THIS CONTENTION OF THE ASSESSEE AP PEARS LOGICAL TO US AND WE ARE OF THE CONSIDERED OPINION THAT THE AS SESSEE SHOULD BE ALLOWED BENEFIT OF THE SAME. THEREFORE, WHILE REJE CTING THE DEPARTMENTS GROUNDS, WE PARTLY ALLOW GROUND NO. 1 OF THE ASSESSEES ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 16 C.O. BY RESTRICTING THE ADDITION TO RS. 15,26,435/- (305287 MTRS. X RS. 5/-). THUS, GROUND NO. 1 OF THE DEPARTMENTS A PPEAL STANDS DISMISSED WHEREAS GROUND NO. 1 OF THE ASSESSEES C. O. STANDS ALLOWED. 6.3 COMING TO GROUND NO. 2 OF THE DEPARTMENTS APPE AL AND GROUND NO. 2 OF THE ASSESSEES C.O., THE HON'BLE APEX COUR T IN THE CASE OF TRF LIMITED VS CIT REPORTED IN 322 ITR 3497 (S.C.) HAS HELD THAT AFTER 1 ST APRIL, 1989 IT IS NOT NECESSARY FOR THE ASSESSEE T O ESTABLISH THAT THE DEBT INCURRED HAS BECOME IRRECOVERABLE AND THAT IT IS ENOUGH IF THE BAD DEBT HAS BEEN WRITTEN OFF AS IRRE COVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. CBDT CIRCULAR N O. 12/2016 DATED 30 TH MAY 2016 ALSO SUPPORTS THE CASE OF THE ASSESSEE. THEREFORE, WE FIND NO REASON TO INTERFERE IN THE FI NDING OF THE LD. CIT (A) IN DELETING THE DISALLOWANCE OF RS. 1,25,54,427 /- MADE ON ACCOUNT OF BAD DEBTS WRITTEN OFF. 6.4 AS FAR AS THE ASSESSEES C.O. CHALLENGING THE S USTENANCE OF RS.18,18,058/- ON ACCOUNT OF INTEREST RECEIVABLE IS CONCERNED, WE FIND THAT THE AMOUNTS HAVE BEEN SHOWN AS INTEREST I NCOME RECEIVABLE DURING EARLIER ASSESSMENT YEARS AND AS S UCH, THE ASSESSEE HAS ALREADY PAID TAX ON THE SAME. THEREFO RE, FOR THE ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 17 PURPOSES OF SECTION 36(2), THE CONDITIONS LAID DOWN THEREIN HAVE DULY BEEN MET BY THE ASSESSEE. THEREFORE, THERE IS NO REASON AS TO WHY THESE AMOUNTS SHOULD NOT BE ALLOWED AS BAD DEBT . WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) O N THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THIS ADDITIO N OF RS. 18,18,058/- ALSO. IN THE RESULT, GROUND NO.2 OF THE DEPARTMENT S APPEAL IS DISMISSED AND WHEREAS GROUND NO. 2 IN ASSESSEES C. O. IS ALLOWED. 6.5 AS FAR AS GROUND NO. 3 OF THE DEPARTMENTS APPE AL IS CONCERNED, IT IS SEEN THAT BOILER FALLS UNDER ITEM NO. 8(IX) U NDER THE HEAD ENERGY SAVING DEVICES IN THE CHART PRESCRIBING THE RATES OF DEPRECIATION UNDER THE INCOME TAX RULES. DEVICES UNDER THIS HEA D ARE ELIGIBLE FOR DEPRECIATION @80% UNDER THE HEAD PLANT & MACHI NERY. THEREFORE, ALTHOUGH THE ASSESSEE HAD NOT CLAIMED DE PRECIATION AT THE CORRECT RATE INITIALLY, THE ACTION OF THE LD. CIT ( A) IN ALLOWING DEPRECIATION TO THE ASSESSEE AT THE CORRECT RATE CA NNOT BE FAULTED WITH. THE AUDITOR HAS CERTIFIED THAT THE BOILER CO MPRISED OF FLUIDIZED BED COMBUSTION BOILER WITH STREAM TURBINE PURCHASED FROM M/S INDUSTRIAL BOILERS LTD., NEW DELHI WHO HAD CONFIRMED THE SUPPLY TO THE ASSESSEE BY GIVING THE INVOICE NOS. D ATED 7.4.2004, 24.09.2004 AND 29.03.2005. THE LD. CIT (A) HAS NOT ED THAT IT IS AN ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 18 ADMITTED FACT THAT AS PER CERTIFICATE DATED 8.12.20 09 ISSUED BY SUPPLIER OF THE BOILER AND SUBMITTED BEFORE THE ASS ESSING OFFICER ALONG WITH LETTER FILED ON 22.12.2009, THE ASSESSEE HAD PURCHASED FLUIDIZED BED COMBUSTION BOILER WHICH IS SPECIFICAL LY COVERED UNDER ITEM (IX) ENERGY SAVING DEVICES OF THE DEPRECIATI ON SCHEDULE UNDER THE HEADING (A)(A) AS IGNIFLUID/FLUIDISED BED BOILE RS ELIGIBLE FOR DEPRECIATION @80%. IN THE PROCEEDINGS BEFORE US, T HE DEPARTMENT COULD NOT NEGATE THE FACT THAT THE BOILERS WERE IN FACT ELIGIBLE FOR DEPRECIATION @80% AND THE ONLY CAUSE OF GRIEVANCE W AS THAT THE ASSESSEE DID NOT FILE A REVISED RETURN. CONSIDERIN G THE OVERALL FACTUAL MATRIX, WE ARE OF THE CONSIDERED OPINION TH AT THE LD. CIT (A) HAS NOT COMMITTED ANY ERROR IN ALLOWING DEPRECIATIO N AT THE CORRECT RATE EVEN THOUGH THE ASSESSEE HAD CLAIMED DEPRECIAT ION AT A LESSER RATE IN THE RETURN FILED. THEREFORE, WE FIND NO RE ASON TO INTERFERE ON THIS ISSUE AND WE DISMISS GROUND NO. 3 OF THE DEPAR TMENTS APPEAL. 6.6 AS FAR AS GROUND NO.4 OF THE DEPARTMENTS APPEA L CHALLENGING THE DELETION OF DISALLOWANCE OF RS. 1,48,76,639/- O N ACCOUNT OF SHORT TERM CAPITAL LOSS IS CONCERNED, IT IS SEEN THAT THE LD. CIT(A) HAS DISCUSSED THE ISSUE IN PARA 6.6 OF THE IMPUGNED ORD ER AND THE SAME IS BEING REPRODUCED BELOW FOR READY REFERENCE:- ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 19 6.6. GROUND NO. 8 OF APPEAL RELATES TO DISALLOWANC E OF SHORT TERM CAPITAL LOSS OF RS. 1,48,76,639/- ON SAL E OF PLANT AND MACHINERY. THE APPELLANT HAS CLAIMED SHORT TERM CAPITAL LOSS OF RS.67,43,584/- AND RS.8,75,249/- ON SALE OF BUILDING AND FURNITURE, RESPECTIVELY, WHICH IS NOT IN DISPUT E. ON THE BLOCKS OF COMPUTER, BOILER AND MOTOR CARS, THE APPE LLANT HAS CLAIMED DEPRECIATION AS THESE BLOCKS DID NOT CEASE TO EXIST DESPITE SMALLER SALES IN THE BLOCK OF MOTOR CAR AND COMPUTER. THE REMAINING PLANT AND MACHINERY HAVE BEEN SOLD FO R A CONSIDERATION OF RS. 1,49,70,400/- AGAINST THE AGGR EGATE OPENING WDV OF RS. 3,05,68,863/- (I.E. RS.2,79,96,4 88/- PLUS RS.L 1,57,791/- PLUS RS. 14,14,585/-). THE AO HAS HELD THAT THE BLOCK OF PLANT AND MACHINERY DID NOT CEASE TO EXIST ON THE GROUND THAT THE BOILER AND MOTOR CARS FELL I N THE SAME BLOCK OF PLANT AND MACHINERY ELIGIBLE FOR 15% DEPRE CIATION. THE ENTIRE SALE CONSIDERATION OF RS. 1,49,70,400/- HAS, THEREFORE, BEEN ALLOCATED AGAINST THE WDVS OF RS.2,79,96,488/-, RS. 11,57,791/- AND RS.14,14,585/ -, PROPORTIONATELY. THE SHORT TERM CAPITAL LOSS OF RS. 7,21,825/- HAS, HOWEVER, BEEN ALLOWED AGAINST THE WDV OF RS. 14,14,585/- AS THE MACHINERIES IN THIS BLOCK WERE E LIGIBLE FOR 50% RATE OF DEPRECIATION, BEING MACHINERIES PURCHAS ED UNDER TUFF SCHEME. AS A RESULT, THE SHORT TERM CAPI TAL LOSS OF RS. 1,48,76,639/- HAS BEEN DISALLOWED OUT OF TOT AL LOSS OF RS. 1,55,98,464/- ON SALE OF MACHINERIES WITH CONSE QUENTIAL ALLOWANCE OF FURTHER DEPRECIATION OF RS.13,22,785/- . THE APPELLANT HAS CONTENDED THAT U/S 2(11) OF THE ACT R EAD WITH RELEVANT ENTRY IN HEADING III, DEPRECIATION ON CAR WAS ADMISSIBLE @ 20% AND ON MACHINERY @ 25% UPTO A.Y. 2 006- 07 AND THE BLOCKS OF ASSETS OF MOTOR CAR AND MACHIN ERY WERE SEPARATE. HOWEVER, THE RATE OF DEPRECIATION ON MACH INERY WAS REDUCED FROM 25% TO 15% AND ON CAR FROM 20% TO 15% FROM A.Y.2007-08. THEREFORE, EVEN THE RATE OF DEPRE CIATION FOR PLANT AND MACHINERY AND CAR WAS 15%, THE BLOCK OF A SSETS AS PER DEPRECIATION CHART WERE SEPARATE. AS PER THE DECISION IN PARA 6.3 ABOVE, I HAVE ALREADY ALLOWED DEPRECIAT ION ON BOILER @80% AND THE MOTOR CARS FALL UNDER DIFFERENT BLOCK OF ASSETS, ALTHOUGH RATE OF DEPRECIATION IS 15% AS APP LICABLE TO MACHINERY AND PLANT OTHER THAN THOSE COVERED BY SUB ITEMS ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 20 (2), (3) AND 8 BELOW THE TABLE AND SUB ITEM (2) BEI NG MOTOR CARS, OTHER THAN THOSE USED IN BUSINESS OF RUNNING THEM ON HIRE. CONSEQUENTLY, THE DISALLOWANCE OF SHORT TERM CAPITAL LOSS OF RS. 1,48,76,639/- MADE BY THE AO IS DELETED AS THE BLOCK OF PLANT AND MACHINERIES OTHER THAN MOTOR CAR , COMPUTER AND BOILER CEASED TO EXIST. THE AO IS DIRE CTED TO WITHDRAW DEPRECIATION OF RS. 13,22,785/- ALLOWED IN THE ORDER. GROUND NO. 8 OF APPEAL IS ALLOWED. 6.7 IN VIEW OF THE CATEGORICAL FINDING BY THE LD. C IT (A), WHICH COULD NOT BE NEGATED BEFORE US, WE FIND NO REASON T O INTERFERE ON THIS ISSUE AND WE UPHOLD THE SAME. WE ACCORDINGLY REJEC T GROUND NO. 4 OF THE DEPARTMENTS APPEAL. 13. IN THE FINAL RESULT, THE APPEAL OF THE DEPARTME NT STANDS DISMISSED WHEREAS THE C.O. OF THE ASSESSEE STANDS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.04.2017 SD/- SD/- (N.K. SAINI) (SUDHANSHU SRI VASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 05.04.2017 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI ITA 3883/D/12 & CO 427/D/12 ASSESSMENT YEAR 2007-08 21