M/s. Singhania & Sons(P)Ltd, Kolkata V. ACIT, Cir-10, Kolkata, Kolkata

CO 84/KOL/2012

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9424 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 13-03-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-09-2012
• Court: TRIBUNAL
• Department Lawyers: MANOJ KATARUKA
• Assessee Lawyers: SANJAY MUKHERJEE JDIT
• Section: 143(3); 14A

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND . . . . ' '' ''# '#'# '#, $% ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] & & & & / I.T.A NO. 643/KOL/2012 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2008-09 ASSISTANT COMMISSIONER OF INCOME-TAX, VS. M/S. SI NGHANIA & SONS PVT. LTD. CIRCLE-10, KOLKATA. (PAN: AADCS6078A) (,- /APPELLANT ) (./,-/ RESPONDENT ) & C.O. NO.84/KOL/2012 IN & & & & / I.T.A NO. 643/KOL/2012 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2008-09 M/S. SINGHANIA & SONS PVT. LTD. VS. ASSISTANT COM MISSIONER OF INCOME-TAX, CIRCLE-10, KOLKATA. ( CROSS OBJECTOR ) (./,-/ RESPONDENT ) DATE OF HEARING: 05.03.2014 DATE OF PRONOUNCEMENT: 13.03.2014 FOR THE APPELLANT: SHRI SANJAY MUKHERJEE, JDIT, SR. DR FOR THE RESPONDENT: SHRI MANOJ KATARUKA, ADVOCAT E $0 / ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE AND CROSS OBJECTION BY ASSES SEE ARE ARISING OUT OF ORDER OF CIT(A)-XII, KOLKATA IN APPEAL NO. 130/XII/R-10/10-1 1 DATED 04.01.2012. ASSESSMENT WAS FRAMED BY ADDL.CIT, RANGE-10, KOLKATA U/S. 143(3) O F THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2008- 09 VIDE HIS ORDER DATED 24.09.2010. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE ADDITION MADE BY AO ON ACCOUNT OF SHORTAGE OF STOCK DECLARED BY THE ASSESSEE AT 4.42% OF THE PURCHASES AND 5.02% OF SALES. FOR THIS, REVENUE HA S RAISED FOLLOWING GROUND NO.1: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF SHORTAGE OF STO CK OF RS.12,50,000/- DESPITE THE FAILURE ON THE PART OF THE ASSESSEE TO OFFER SATISF ACTORY EXPLANATION TO JUSTIFY ITS CLAIM. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE COMPANY IS A TRADER IN DYES AND CHEMICALS, COMMISSION 2 ITA NO.643/K/2012 & CO NO.84 OF 2012 SINGHANIA & SONS PVT. LTD. , AY:2008-09 AGENT AND EXPORTER OF IRON ORE FINES. THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED FROM AUDIT REPORT FORM NO. 3CA COLUMN 17 TH AT THE ASSESSEE COMPANY HAS DECLARED SHORTAGE OF IRON ORE FINES OF 12564.829 MT ON PURCH ASES OF 283866 MTS AND SALES AT 249819MT WITH A CLOSING STOCK OF 60827MT. THE AO N OTED THAT THE SHORTAGE DECLARED BY THE ASSESSEE IS AT 4.42% OF PURCHASES AND 5.02% OF SALE S. THE AO FURTHER NOTED THAT IN THE IMMEDIATELY PRECEDING YEAR, THE SHORTAGE OF PURCHAS ES AND SALES WERE AT 2.06% AND 2.04% RESPECTIVELY. THE ASSESSEE REPLIED TO THE AO THAT THE SHORTAGE IS DUE TO LOSSES IN TRANSIT BY ROAD, RAIL OR IN PORT WHICH ARE DUE TO WHOLES AND GAPS IN THE WAGON AND ALSO DURING THE LOADING AND UNLOADING IN RAILWAYS AND AT PORTS. THE PERCENTAGE INCURRED AT EACH STAGE IS 1-2% AND 1% RESPECTIVELY OF PURCHASES AND SALES. THE ASSESSEE ALSO SUBMITTED COPIES OF LOADING SHEETS ALONG WITH THE QUANTITATIVE REPORT OF GOODS ANALYSED BY T HE AGENCIES LIKE, MITRA S. K. AND S.G.S INDIA PVT. LTD. THE AO DISBELIEVED SUBMISSIONS AND MADE A DDITION OF SHORTAGE AT RS.12.50 LACS. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE LOSSES IN TRANSIT AT PORT AND OTHER LOSSES I.E. MOISTURE LOSS CONSID ERED THE ACCUMULATIVE LOSS AT 5 TO 6% AND DELETED THE ADDITION BY OBSERVING IN PARA 4 AS UNDE R: 4. REGARDING GROUND NS. 1 & 2 BOTH ARE RELATES TO DISALLOWANCE OF RS. 12,50,000/- ON ACCOUNT OF SHORTAGE OF STOCK. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE ARGUMENT PLACED BY THE A.R. GROUND NOS.1 AND 2 ARE AGAINST THE ADDITIONS OF RS.12,50,000 MADE BY THE ASSESSING OFFICER ON ACCOU NT OF SHORTAGE OF STOCK. THE ASSESSEE IS INTO THE BUSINESS OF TRADING OF DYES AND CHEMICA LS AND EXPORT OF IRON ORE AND THE TURNOVER IS RS.122,26,96,358/- AND THE EXPORT TURNO VER AS PER SCHEDULE 13 AMOUNTED TO RS.110.78 CRORES CONSISTING OF EXPORT OF IRON ORE. IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007-08, THE TOTAL TURNOVER OF THE ASSESSEE WAS RS.61.02 CRORES AND EXPORT TURNOVER WAS RS.46.02 CRORES AND THEREFORE, THERE HAS BEEN A SUBSTANTIAL RISE IN THE TURNOVE OF THE COMPANY IN RESPECT OF EXPORT SAL ES MORE THAN TWICE THE FIGURE. FROM THE QUANTITATIVE NFORMATION ALONG WITH THE AUDITED ACCOUNTS FILED BY THE ASSESSEE, IT WAS NOTED THAT THAT THERE HAS BEEN A SHORTAGE IN IRON O RE FINES TO THE EXTENT OF 12564.829 MT OF VALUE OF RS. 2,50,43,164/- WHICH IN CORNPARISON TO THE ASSESSRNENT YEAR 2008-09 WAS ON THE HIGHER SIDE. THE A.R. EXPLAINED THAT THE MAT ERIAL IRON ORE FINE ARE SUBSTANCES WHICH ARE LIKE DUST FORMAT. IT WAS EXPLAINED THAT T HERE IS NO FIXED CRITERIA FOR DETERMINING THE LOSS ON ACCOUNT OF IRON ORE FINES AS IT WAS DUE TO THE CONDITIONS OF TRANSIT LOSSES, PORT LOSSES, GROUND LOSS AND MOISTURE LOSS THAT CUMULATI VELY AT THE END OF THE YEAR THE SHORTAGE IS DETERMINED. A.R. EXPLAINED THAT THE PURCHASES H AVE NOT BEEN DOUBTED BY THE ASSESSING OFFICER AND NEITHER THE SALES AND THE ENTIRE SALE OF THE IRON ORE HAS BEEN EXPORTED AND THE ASSESSEE IS NOT MAKING ANY LOCAL SALES. IT WAS THE CONTENTION OF THE A.R. THAT THERE IS NO MENTION OF ANY ADVERSE REMARK IN THE ASSESSMENT YEAR IN RESPECT OF THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND NEITHER THE BOOKS HAVE BEEN REJECTED. THE CONTENTION OF THE A.R. HAS BEEN CONSIDERED. THE MAT ERIAL WHICH THE ASSESSEE IS EXPORTING BEING IRON ORE FINES ARE SIMILAR TO MATERIAL LIKE S AND AND DUST. PHOTOGRAPHS OF THE FINES WERE PRODUCED AND IT WAS ALSO SHOWN FROM THE PHOTOG RAPHS THAT WHERE THESE FINES ARE KEPT AT THE PORTS OF HALDIA, PARADIP AND VIZAG BEFO RE IT IS EXPORTED OUT. THE IRON ORE FINES ARE PROCURED FROM MINES IN ORISSA AND THE GOO DS ARE TRANSPORTED BY EITHER RAIL OR ROAD TO THE FINAL DESTINATION AND IN THE PROCESS OF TRANSPORTATION OF THE IRON ORE FROM THE MINES TO THE RAILWAY SIDING AND FROM THE RAILWAY TO THE PORT, THERE IS A LOSS OF APPROX. 2 TO 3% AND SOMETIMES EVEN MORE WHERE WHEN THE GOODS REMAIN IN THE PLOTS WAITING FOR ALLOTMENT OF RAKE FOR LOADING DURING THE TRANSIT IT WAS EXPLAINED THERE IS LOSS OF ANOTHER 2 3 ITA NO.643/K/2012 & CO NO.84 OF 2012 SINGHANIA & SONS PVT. LTD. , AY:2008-09 TO 3% AND WHEN THE MATERIALS ARE KEPT IN THE PORT, THERE IS LOSS ON ACCOUNT OF THEFT, GROUND LOSS, MOISTURE LOSS WHICH CUMULATIVELY BE AR OUND 5 TO 6%. THE ASSESSING OFFICER HAS FAILED TO ESTABLISH ANY NEXUS OF SUCH LOSS CLAI MED BY THE ASSESSEE TO BE SALES OUTSIDE THE BOOKS OF ASSESSEE AND/OR ANY DEFECT IN THE BOOK S OF ACCOUNTS. THERE CANNOT BE A STRAIGHT JACKET FORMULA IN CASE OF SUCH TYPE OF MAT ERIALS FOR DETERMING THE AMOUNT OF SHORTAGE YEAR TO YEAR. THE PERCENTAGE OF THE LOSS C AN VARY FROM CASE TO CASE, YEAR TO YEAR AND FROM PLACE TO PLACE. THE MAIN CRITERIA FOR THE ASSESSING OFFICER ARE TO ESTABLISH THAT THE LOSS/SHORTAGES CLAIMED BY THE ASSESSEE IS EXCES SIVE AND BOGUS WHICH HE HAS FAILED TO DO SO. THE ASSESSEE IS PROCURING MATERIAL DURING TH E WHOLE YEAR IN DIFFERENT QUANTITIES AT DIFFERENT TIMES AND ACCORDINGLY SALES ARE MADE SO T HE FINDINGS OF THE ASSESSING OFFCER THAT THE PERCENTAGE OF THE LOSS IS HIGHER IN COMPAR ISON TO THE PREVIOUS ASSESSMENT YEAR IS NOT TENABLE AS THE PERCENTAGE OF LOSSES CAN VARY ON DIFFERENT PURCHASES AND SALES MADE IN THE SAME YEAR ON ACCOUNT OF MANY REASONS AS ALREADY MENTIONED. THE ENTIRE SALES OF THE ASSESSEE OF IRON ORE FINES HAVE BEEN EXPORTED AND T HERE IS STRICT VALUATION IN VOLUME METRIC TON OF FHE QUANTITY OF PURCHASES AND EXPORTS MADE. THE APPELLANT HAS ALSO DEBITED EXPENSES PAID TO AGENCIES LIKE MITRA S.K. AND SGS I NDIA PVT. LTD. FOR VALUATION AND MEASUREMENT OF THE QUANTITY OF THE IRON ORE FINES, THE EXPENSES OF WHICH HAS BEEN ALLOWED BY THE ASSESSING OFFICER. THE PURCHASES MADE HAVE B EEN FULLY ALLOWED BY THE ASSESSING OFFICER WITHOUT ANY ADVERSE REMARKS. IN THE ABSENCE OF ANY DIRECT LINK OR REMARK BY THE ASSESING OFFICER TO PROVE THE NON-GENUINENESS OF TH E SHORTAGE CLAIMED, THE ESTIMATED DISALLOWANCE OF RS.12,50,000/- IS DELETED. THEREFO RE, GROUNDS NO. 1 AND 2 ARE ALLOWED. LD. SR. DR COULD NOT POINT OUT ANY DEFECT OR ANY ER ROR IN THE ORDER OF CIT(A) THAT LOSS CANNOT INCREASE TO 5% TO 6% FROM 1 TO 2% AS DECLARED IN EA RLIER YEARS. SINCE REVENUE COULD NOT BRING OUT ANY DISCREPANCY AND THIS IS A FACTUAL MATTER, W E FEEL THAT CIT(A) HAS RIGHTLY DELETED THE ADDITION AND WE CONFIRM THE SAME. 4. THE NEXT COMMON ISSUE IN THIS APPEAL OF REVENUE AS WELL AS CROSS OBJECTION OF ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) IN RESTRICTING THE DISALLOWANCE MADE BY AO AT RS.1,70,790/- AS AGAINST RS.4,76,842/-. REVENUE PR EFERRED THE FOLLOWING GROUND NO.2 AND ASSESSEE IN ITS CO RAISED FOLLOWING GROUNDS: 2. OF REVENUES GROUND: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) IS JUSTIFIED IN RESTRICTING THE DISALLOWANCE OF RS.4,76,842/- U/S. 14A TO RS.1,70,719/- BY NOT APPLYING THE FORMULA AS PER RUL;E 8D CORRECTLY AS APPLIED BY THE ASSESSING OFFICER. C.O. OF ASSESSEE: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE ACTION OF THE LD. CIT(A) TO CONFIRM ADDITION OF RS.170719/- U/S. 14A READ WITH RULE 8D IS BAD IN LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND MATERIAL EVIDENCES ON RECORD, THE ACTION OF THE LD. CIT(A) TO MAKE ADDITION OF RS.170 719/- U/S. 14A, READ WITH RULE 8D EVEN AFTER FINDING THAT THERE WAS NO PROXIMATE LINK OF EXPENDITURE WITH EXEMPT AND FURTHER THERE WAS NO SATISFACTION RECORDED BY THE A SSESSING OFFICER IS ERRONEOUS, UNJUSTIFIED AND EXCESSIVE. 4 ITA NO.643/K/2012 & CO NO.84 OF 2012 SINGHANIA & SONS PVT. LTD. , AY:2008-09 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO MADE DISALLOWANCE OF EXPENSES R ELATED TO EXEMPTED INCOME BY APPLYING RULE 8D OF THE I. T. RULES, 1962 (HEREINAFTER REFER RED TO AS THE RULES) FOR THE REASONS THAT THE ASSESSEE HAS NOT ADDED BACK ANY EXPENSE QUA EXEMPTE D INCOME. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO RESTRICTED THE DISALLOWAN CE AT RS.1,70,719/- BY OBSERVING AS UNDER: FURTHER THE ASSESSING OFFICER HAS ALSO NOT RECORDE D ANY SATISFAC TION OR PROVED ANY LINK TO ESTABLISH THAT BORROWED FUNDS WERE UTILIZED FOR ACQUISITION OF SHARES. IN THE ABSENCE OF ANY MATERIAL TO PROVE OTHERWISE, AND IN THE ABSENCE OF ANY SATISFACTION RECORDED BY THE ASSESSING OFFICER THE DISALLOWANCE MADE BY HIM U/S. 14A BY APPLYING RULE 8D IS NOT JUSTIFIED. IN THE INTEREST OF JUSTICE THE FORMULA AS PER RULE 8D APPLIED BY THE ASSESSING OFFICER IS MODIFIED AND THE DISALLOWANCE U/S. 14A I S RESGTRICTED AS UNDER: A= AN AMOUNT OF INTEREST RS.48,24,909/- B= AVERAGE VALUE OF INVESTMENT RS.53,00,742/- C= AVERAGE VALUE OF ASSETS RS.17,73,43,295/- THEREFORE AXB/C= RS.1,44,215/- AN AMOUNT = 0.25% OF INVESTMENT RS.26,504/- RS.1,70,719/- THE ADDITION MADE BY THE AO U/S. 14A IS TO BE RESTR ICTED TO RS.1,70,719/- AND GROUND NOS. 3 AND 4 ARE PARTLY ALLOWED AS INDICATED ABOVE. WE FIND FROM THE ABOVE THAT THE CIT(A) HAS CONSIDER ED THAT THE AO HAS NOT RECORDED ANY SATISFACTION OR PROVED ANY LINK TO EXTABLISH THAT B ORROWED FUNDS WERE UTILISED FOR THE PURPOSE OF INVESTMENT IN SHARES, THEREFORE, HE HAS RIGHTLY RES TRICTED THE ADDITION AT RS.1,70,719/-. WE CONFIRM THE SAME. 6. IN THE RESULT, APPEAL OF REVENUE AS WELL AS CO O F ASSESSEE, BOTH ARE DISMISSED. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13.03.2 014. SD/- SD/- . . . . ' '' ''# '#'# '# , $% , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13TH MARCH, 2014 12 '3' 4 JD.(SR.P.S.) 5 ITA NO.643/K/2012 & CO NO.84 OF 2012 SINGHANIA & SONS PVT. LTD. , AY:2008-09 $0 5 . 6$ )7- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT- ACIT, CIRCLE-10, KOLKATA 2 ./,- / RESPONDENT M/S. SINGHANIA & SONS PVT. LTD., 3-D , SHAKESPEARE SARANI, KOLKATA-17. 3 . 0' ( )/ THE CIT(A), KOLKATA 4. 5. 0' / CIT KOLKATA <= .' / DR, KOLKATA BENCHES, KOLKATA / ./ TRUE COPY, $0'>/ BY ORDER, ' /ASSTT. REGISTRAR .