The ACIT, Central Circle 22, Mumbai V. Bombay Minerals Ltd, Jam-Khambhalia

ITA 1175/RJT/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67217 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-03-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 20-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: DM RINDANI
• Keywords: Rule of consistency; Bad and doubtful debts; Commercial expediency
• Section: 27

Judgement Text

I Y : : IN THE INCOME TAX APPELLATE TRIBULAL : RAJKOT BENCH : RAJKOT .. R, V .. , BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTA VA, AM ITA NO. 1175 /RJT/2010 / ASSESSMENT YEAR 200 2 - 0 3 THE ACIT, V. M/S. BOMBAY MINERALS LTD., CENTRE CIRCLE - 22, ROOM NO.403, DWARAKA HIGHWAY, AAYAKAR BHAVAN, MUMBAI JAM - KHAMBHALIA, PAN: AAACB8993D DATE OF HEARING : 22 - 0 3 - 201 3 DATE OF PRONOUNCEMENT : 12 - 0 4 - 201 3 REVENUE BY: SHRI M.K. SINGH, DR ASSESSEE BY: SHRI D. M. RINDANI, CA / ORDER .. / D. K. SRIVASTAVA : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT (A) , JAMNAGAR ON 28.06.2010. THE APPEAL RELATES TO ASSESSMENT YEAR 2002 - 03. 2. THE ASSESSEE IS A CLOSELY HELD PUBLIC LIMITED COMPANY . IT IS A SUBSIDIARY OF M/S. ASHAPURA MINECHEM LTD. IT IS ENGAGED IN THE BUSINESS OF MINING OF MINERAL S . THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2002, DECLARING TOTAL LOSS AT RS.11,41,27,812/ - . THE RETURN WAS PROCESSED U/S 143(1)(A) OF THE INCOME - TAX ACT. NOTICE U/S 147/148 WAS THEREAFTER ISSUED PURSUANT TO W HICH THE TOTAL LOSS OF THE ASSESSEE HAS BEEN ASSESSED AT RS.2,45,76,295/ - A FTER ADDING/DISALLOWING , INTER - ALIA, A SUM OF RS.28,74,468/ - BEING THE STOCK OF M INERALS MINED BUT NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND A SUM OF RS.40,85,590/ - BEING THE DI SALLOWANCE OF WRITTEN - OFF AMOUNT S . BOTH THE AFORESAID ADDITIONS /DISALLOWANCES WERE CHALLENGED BEFORE THE CIT(A). BY HIS ORDER DATED 28.06.2010, THE LD. CIT(A) HAS DELETED THE ENTIRE ADDITION OF RS.28,74,468/ - BEING THE STOCK OF MATERIAL MINED BUT NOT TAKE N INTO BOOKS OF ACCOUNT. HE HAS RESTRIC TED THE DISALLOWANCE OF WRITTEN - OFF AMOUNT S TO RS.4,00,000/ - OUT OF TOTAL DISALLOWANCE OF RS.40,85,590/ - MADE BY THE ASSESSING OFFICER. 3. AGGRIEVED BY THE ORDER PASSED BY THE LD. CIT (A), THE REVENUE IS NOW IN APP EAL BEFORE THIS TRIBUNAL. GROUND NO.1TAKEN BY THE REVENUE READS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS.28,74,468/ - BEING THE STOCK OF MATERIAL MINED BUT NOT TAKEN I NTO THE BOOKS OF ACCOUNT WITHOUT APPRECIATING THE FACT THAT THOUGH ENTIRE MINING EXPENSES HAD BEEN DEBITED, THE STOCK LYING AT THE LOADING SITE HAD NOT BEEN CREDITED TO THE P&L ACCOUNT . 2 ITA 1175 /RJT/2010 4. THE IMPUGNED ADDITIONS HAVE BEEN MADE BY THE ASSESSING OFFICER WI TH THE FOLLOWING OBSERVATIONS: - 7.6 HUGE STOCK AT MINES NOT ACCOUNTED: - DURING THE COURSE OF PROCEEDINGS FOR AY 2004 - 05 (REFER PARA 6.10), HUGE STOCK AT MINES WAS NOT TAKEN INTO STOCK BECAUSE THE METHOD OF ACCOUNTING OF ASSESSEE IS TO SHOW IT IN BOOKS A T THE TIME OF DISPATCH. ASSESSEE TOOK THE PLEA THAT SUCH STOCK IS WORK - IN PROGRESS OF MINING CONTRACTORS. THIS CONTENTION WAS NOT FOUND TO BE CORRECT BECAUSE ON ENQUIRY IT WAS FOUND THAT THESE CONTRACTORS ARE LOCAL VILLAGERS WHO BASICALLY SUPPLY LABOURER S AND DO NOT HAVE THE CAPACITY TO INVEST IN SUCH A HUGE QUANTITY OF STOCK. TWO GROUPS OF THE CONTRACTORS VIZ. S/SHRI HARDAS KARSANDAS AMBALIA AND MERAG KANABHAI CHAVDA AND THEIR FAMILY MEMBERS ARE ASSESSED TO TAX WITH THE ITO, WD. - 3(4), JAMNAGAR. UPON SC RUTINY OF RETURNS OF THESE PARTIES, IT WAS SEEN THAT NO SUCH STOCK OR WORK - IN - PROGRESS WAS SHOWN IN THEIR BOOKS OF ACCOUNTS. THUS, BY THIS METHOD, THE ASSESSEE HAS CREATED A SITUATION WHERE MINING TO THE TUNE OF CRORES OF RUPEES TAKES PLACE BUT IT DOES NO T FIND WAY TO THE BOOKS OF ACCOUNTS AND CONSEQUENTLY, THE DEPARTMENT IS DEPRIVED OF THE OPPORTUNITY TO ASSESS THE INCOME AND TAX ON THE SAME, CORRECTLY. VIDE PARA 30 OF NOTICE DATED 1.2.2007, ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF SUCH MATERIAL (MINE D BUT NOT TAKEN INTO STOCK) ON 1 ST AND LAST DAY OF PREVIOUS YEAR. VIDE LETTER DATED 09.02.2007, ASSESSEE STATED THAT YOUR HONOUR WILL APPRECIATE THAT THERE ARE NO DETAILS AVAILABLE WITH REGARD TO THE MATERIAL MINED BUT NOT ACCOUNTED FOR. ALL THE MATER IAL FOR WHICH THE MINING EXPENSES HAVE BEEN BOOKED IS ACCOUNTED FOR. THE ASSESSEE HAS NOT FURNISHED THE REQUIRED DETAILS. THEREFORE, ONLY OPTION REMAINS IS TO ESTIMATE. DURING THE SPOT VISIT (MADE DURING ASSESSMENT PROCEEDINGS OF AY 2004 - 05) ON 22.12.2 006, STOCK OF 389715 MT WAS FOUND AT MINES AND 20% OF THE SAME WAS ADDED IN AY 2004 - 05 (FY 2003 - 04). TAKING INTO ACCOUNT THE FACTOR THAT LEVELS OF ACTIVITY IN THE PREVIOUS YEAR UNDER CONSIDERATION WERE OF LOWER SCALE 10% OF THE SOME IS ADDED AS STOCK NOT TAKEN INTO ACCOUNT. AS PER THE REASONING GIVEN IN ASSESSMENT ORDER OF AY 2004 - 05, 20% OF CLOSING STOCK IS TAKEN AS MINED BUT NOT SHOWN IN BOOKS IN AY 2004 - 05, AVERAGE RATE OF MINING PAID TO CONTRACTOR OF NON PLANT GRADE BAUXITE WAS TAKEN AT RS.82.95 PMT FOR OCTOBER NOVEMBER 2003. TAKING INFLATION INTO ACCOUNT, IT CAN BE TAKEN AT 85% (AS GAP IS OF 2 YEARS) I.E. AT RS.70.50 PER MT. SINCE NO MINING OF HIGH GRADE IS SHOWN THE ENTIRE CAN BE TAKEN AT LOW GRADE. THEREFORE, THE VALUE OF 3 ITA 1175 /RJT/2010 STOCK ADDED COMES TO RS. ( 7 .50 X 407726) THEREFORE, ADDITION OF RS.2874468 (10% OF RS.28744683) IS MADE . AS THERE IS NO ADDITION ON THIS ACCOUNT IS EARLIER YEAR. NO CREDIT IS ALLOWED FOR OPENING BALANCE. AS THIS AMOUNTS TO FURNISHING OF INACCURATE PARTICULARS, PENALTY U/S 27 1(1) (C) INITIATED . 5. ON APPEAL, THE LD. CIT(A) HAS DELETED THE ADDITION WITH THE FOLLOWING OBSERVATIONS: - 32. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE A.O. AND THE A.R OF THE ASSESSEE. THE A.O. HAS BROUGHT NOTHING ON RECORD TO INDICATE THA T THE ASSESSEE HAS CLAIMED CARRYING COST RELATING TO THE INVENTORY AS AN EXPENSE BUT HAS NOT DEFRAYED THE SAME TO THE CLOSING STOCK. THE A.O. HAS FAILED TO APPRECIATE THAT THE CLOSING STOCK DOES NOT DERIVE ITS VALUE FROM THIN AIR BUT DERIVES ITS VALUE FRO M CARRYING COST WHICH HAS TO BE FIRSTLY CLAIMED AS AN EXPENSE BY THE ASSESSEE BEFORE IT CAN BE DEFRAYED TO THE CLOSING STOCK. THE A.O. HAS DIRECTLY ASSIGNED THE VALUE TO THE CLOSING STOCK. I ALSO OBSERVE THAT AS HAS BEEN SO CONTENDED BY THE A.O. THAT AN IDENTICAL ADDITION WAS MADE IN A.Y. 2004 - 05 WHEREIN THE HONBLE ITAT, RAJKOT BENCH AT PARA - 88,89 AND 133 HAS DELETED THE ADDITION. 33. RESPECTFULLY FOLLOWING THE FINDING OF THE HONBLE ITAT, RAJKOT BENCH COUPLED WITH THE FACT THAT THE A.O. HAS BROUGHT NOT HING ON RECORD TO INDICATE THAT THE ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE IS INCORRECT AND THAT EXPENDITURE HAVE NOT BEEN PROPERLY DEFRAYED TO THE CLOSING STOCK. I DIRECT THAT ADDITION OF RS.28,74,468/ - MADE BY THE A.O. IS DELETED. 6. IN SUPPORT OF APPEAL, THE LD. D EPARTMENTAL R EPRESENTATIVE RELIED UPON THE A SSESSMENT O RDER. 7. IN REPLY, THE LD. A UTHORIZED R EPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE LD. CIT (A). HE SUBMITTED THAT IDENTICAL ISSUE WAS CONSIDERED AND DECIDED B Y TH IS T RIBUNAL IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004 - 05. 8 . WE HAVE HEARD BOTH THE PARTIES. THE FINDINGS RECORDED BY THE LD. CIT(A) IN P ARA 32 AND 33 OF HIS AP PELLATE O RDER HA VE NOT BEEN REBUTTED BY THE DEPARTMEN T. THE SUBMISSIONS MADE BY THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT SIMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004 - 05 HAS ALSO NOT BEEN REBUTT ED BY THE DEPARTMENT. RULE OF CONSISTENCY REQUIRES US TO FOLLOW THE JUDGMENTS OF CO - ORDINATE BENCHES . IN THIS VIEW OF THE MATTER, THE GROUND NO.1 TAKEN BY THE REVENUE IS DISMISSED. 4 ITA 1175 /RJT/2010 9 . GROUND NO. 2 TAKEN BY THE REVENUE READS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN RESTRICTING THE DISALLOWANCE OF WRITTEN - OFF AMOUNTS TO RS.13,53,355/ - OUT OF TOTAL DISALLOWANCE OF RS.44,85,590/ - WITHOUT APPRECIATING THE FACT THAT THE AMOUNTS ADVANCED WERE FOR NON - BUS INESS PURPOSES. 10 . THE ASSESSING OFFICER HAS MADE THE IMPUGNED DISALLOWANCE WITH THE FOLLOWING OBSERVATIONS: - 16. IN THE SCHEDULE M TO P&L A/C UNDER THE HEAD SELLING AND ADMINISTRATIVE EXPENSES - THE ASSESSEE HAS SHOWN BAD DEBTS / MISCELLANEOUS B ALANCES WRITTEN OFF. VIDE PARA 21 OF LETTER DATED 1.2.2007, THE ASSESSEE WAS REQUESTED TO FURNISH THE DETAILS OF BAD DEBTS LIKE NAMES AND ADDRESSES OF THE PERSONS IN WHOSE CASE BAD DEBTS ARE WRITTEN OFF. IN RESPONSE THEREOF, THE ASSESSEE STATED THAT - T HE SAID BALANCES WERE OUTSTANDING SINCE SEVERAL YEARS AND NO RECOVERIES WERE POSSIBLE. COMPLETE STATEMENT IS ENCLOSED AS ANNEXURE 15. ON VERIFICATION OF THE ANNEXURE 15 AND OTHER DETAILS PRODUCED DURING THE COURSE OF HEARING, IT APPEARED THAT THE BALANC E OF RS.400000 IN THE NAME OF STHANAKWASI JAIN PAUSHADH SHA WAS FOUND TO BE NOT BUSINESS DEBT. SIMILARLY, BALANCE OF RS.2337095 IN THE NAME OF M/S. DEEPALI ENTERPRISE AND RS.1347495 IN THE NAME OF SHRI NAKUM KANJI ARJAN ARE FOUND TO BE ADVANCES GIVEN TO T HE LABOUR CONTRACTORS. THE ASSESSEE HAS FAILED TO GIVE ANY COGENT REASON FOR ADVANCING SUCH HUGE SUMS TO THE THREE PARTIES. THEREFORE, THESE DEBTS AGGREGATING TO RS.4084590 ARE HELD TO BE NON - BUSINESS DEBTS AND HENCE DISALLOWED. 1 1 . ON APPEAL, THE LD. CIT (A) HAS RESTRICTED THE DISALLOWANCES TO RS.4,00,000/ - WITH THE FOLLOWING OBSERVATIONS: - 49. I HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF THE A.O. AND SUBMISSION OF THE A.R. OF THE ASSESSEE. AS FAR AS M/S. DIPALI ENTERPRISE AND SHRI NAKUM KANJI ARJA N ARE CONCERNED, THE A.O. HAS STATED THAT THESE ADVANCES ARE GIVEN TO THE LABOR CONTRACTORS. SINCE THEY ARE THE ADVANCES GIVEN TO THE LABOR CONTRACTORS, THE SAME ARE GIVEN IN THE COURSE OF THEIR BUSINESS AND THE WRITE OFF MADE BY THE ASSESSEE IS ON ACCOUN T OF COMMERCIAL CONSIDERATIONS. I THEREFORE HOLD THAT THE WRITE OFF OF RS.13,47,945/ - MADE ON ACCOUNT OF BALANCES DUE FROM SHRI NAKUM KANJI ARJAN AND BALANCE OF RS.1383751/ - DUE FROM DIPALI ENTERPRISE IS RIGHTLY CLAIMED AS BUSINESS LOSS. AS FAR AS THE BAL ANCE DUE FROM STHANAKWASI JAIN AUSHADHALAYA OF RS.4,00,000/ - IS CONCERNED, THE ASSESSEE HAS NOT BEEN IN A POSITION TO JUSTIFY AS TO HOW THE SAME RELATES TO ITS BUSINESS. I THEREFORE 5 ITA 1175 /RJT/2010 DIRECT THAT THE SAID ADDITION BE RESTRICTED TO RS.4,00,000/ - AND THE BALA NCE IS DELETED. 1 2 . IN SUPPORT OF APPEAL, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 1 3 . IN REPLY, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE LD. CIT (A). 1 4 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBMISSIONS. THE FIGURES OF DISALLOWANCES MADE BY THE ASSESSING OFFICER AND RELIEF GRANTED BY THE LD. CIT (A) AS STATED IN THE GROUNDS OF APPEAL ARE FACTUALLY INCORRECT. THE ASSESSING OFFICER H AS DISALLOWED A SUM OF RS.40,84,590/ - AND NOT RS.44,85,590/ - AS STATED IN THE GROUND OF APPEAL. SIMILARLY, THE LD. CIT (A) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.4,00,000/ - OUT OF RS.40,84,590/ - DISALLOWED BY THE ASSESSING OFFICER AND NOT RS.1 3,53,344/ - AS STATED IN THE GROUND OF APPEAL. 1 5 . THE LD. CIT (A) HAS DELETED THE IMPUGNED DISALLOWANCE AFTER RECORDING HIS FINDING OF FACT THAT THE IMPUGNED SUMS WERE WRITTEN - OFF ON ACCOUNT OF COMMERCIAL EXPEDIENCY. NO MAT ERIAL HAS BEEN PLACED BEFORE U S TO REBUT THE AFORESAID FINDING OF FACT RECORDED BY THE LD. CIT (A). IN THIS VIEW OF THE MATTER, THE ORDER PASSED BY THE CIT(A) IS CONFIRMED. G ROUND NO. 2 TAKEN BY THE REVENUE IS DISMISSED. A 12 .04 . 2013 A ORDER PRONOUNCED ON 12 .0 4. 201 3 SD/ - SD/ - ( I.. / T. K. SHARMA) ( .. E / D. K. SRIVASTAVA) / JUDICIAL MEMBER 2013 / ACCOUNTANT ME MBER RAJKOT: 12 . 0 4.2013 B T 2 0 0 / COPY OF ORDER FORWARDED TO: - 1. / APPELLANT - . THE ACIT, CC - 2, ROOM NO.403, AAYAKAR BHAVAN, MUMBAI 2. KO / RESPONDENT - M/S. BOMBAY MINERALS LTD., DWARAKA HIGHWAY , JAM - KHAMBHALIA 3. Y / CONCERNED CIT 4. - / CIT (A) , JAMNAGAR 5. KY, I Y, / DR, ITAT, RAJKOT 6. / GUARD FILE. / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY, ITAT, RAJKOT