Hindustan Coca- Cola Marketing Company Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 1244/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6738 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-07-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 05-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL
• Section: 143(3); 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 1244//DEL/2013 ASSTT. YRS: 2004-05 HINDUSTAN COCA-COLA MARKETING VS. DCIT CIRCLE 12(1) , COMPANY PVT. LTD., NEW DELHI. ORCHID CENTRE, 3 RD FLOOR, DLF GOLF COURSE ROAD, SECTOR-53, GURGAON. PAN: AABCH 1541 D ( APPELLANT ) (RESPONDENT) APPELLANT BY : MR. SACHIT JOLLY ADV. RESPONDENT BY : SHRI AMRIT LAL SR. DR DATE OF HEARING : 25/07/2016. DATE OF ORDER : 29/07/2016. O R D E R PER S.V. MEHROTRA, A.M: THIS IS ASSESSEES APPEAL AGAINST THE ORDER DATE D 26.12.2012 PASSED BY THE LD. CIT(A)-X, NEW DELHI, RELATING TO A.Y. 2004-05. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE IN ITS APPEAL: 1. THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE O F RS. 40,00,000/- CLAIMED UNDER THE HEAD PROVISION! WRITE -OFF OF CONTAINER ON LOAN ON ACCOUNT OF FRAUD COMMITTED BY EMPLOYEES. 2 2. THE CIT (A) ERRED IN FAILING TO APPRECIATE THAT EXPENSE IS IN THE NATURE OF LIABILITY IN PRAESENTI AND NOT IN THE NATURE OF CONTINGENT LIABILITY. 3. THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE ON ACCOUNT OF EMPLOYEE'S FRAUD ON THE GROUNDS THAT LIABILITY I S NOT CRYSTALLIZED AND IS BASED ON ESTIMATION. 4. THE CIT(A) ERRED IN NOT CONSIDERING THE DETAIL F ILED ALONG WITH THE FIRST INVESTIGATION REPORT IN POLICE STATI ON WHILE UPHOLDING THE DISALLOWANCE AS UNCRYSTALLIZED LIABIL ITY. 5. APPELLANTS CRAVE LEAVE TO ADD TO, ALTER, AMEND, MODIFY OR DELETE ANY OF THE ABOVE GROUNDS AT THE TIME OF OR B EFORE THE HEARING OF THE APPEAL AS THEY MAY BE ADVISED. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 29.12.2006 AT AN ASSESSED LOSS OF RS. 128,84,65,840/-. THEREAFTER, LD. CIT PASSED ORDER U/S 263 ON 25.3.20 09 AND SET ASIDE THE ASSESSMENT, INTER ALIA, ON FOLLOWING ISSUE: CLAIM AND ALLOWABILITY OF RS. 40,00,000/- TOWARDS PROVISION/ WRITE OFF OF CONTAINERS ON LOAN AS REVENUE EXPENDIT URE. 4. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE POINTED OUT THAT THE ORDER PASSED BY THE COMMISSIONER U/S 263 HAS BEEN U PHELD BY THE TRIBUNAL. ACCORDINGLY, IN VIEW OF THE ORDER PASSED U/S 263, THE AO PROCEEDED TO MAKE THE ASSESSMENT. AS REGARDS THE CLAIM OF PROVIS ION/ WRITE OFF OF CONTAINERS ON LOAN, THE ASSESSEE SUBMITTED BEFORE T HE AO THAT EMBEZZLEMENT OF RS. 40 LAKHS WAS COMMITTED BY ONE OF THE DISTRIB UTORS, WHICH WAS 3 DISCOVERED BY THE ASSESSEE IN CHENNAI, TAMILNADU. IT WAS FURTHER SUBMITTED THAT AFTER THE DISCOVERY OF THE EMBEZZLEMENT A TEAM WAS DEPUTED AT THE CONCERNED STATION AND AFTER FULL INVESTIGATION A FI R WAS LODGED AND THE AMOUNT WAS DEBITED TO P&L A/C. THE AO DID NOT ACCE PT THE ASSESSEES CONTENTION AND DISALLOWED THE SAME, INTER ALIA, OBS ERVING THAT THE SAME WAS MERELY A PROVISION AND, THEREFORE, COULD NOT BE ALL OWED. 5. LD. CIT(A) CONFIRMED THE AOS ACTION, INTER ALIA , OBSERVING THAT NO SCIENTIFIC BASIS FOR CLAIMING THE AMOUNT WAS PROVID ED EITHER BEFORE THE AO OR DURING THE APPELLATE PROCEEDINGS. HE POINTED OUT THAT IT IS AN ESTABLISHED POSITION OF LAW THAT UNLESS THERE IS A CRYSTALLIZED LIABILITY AND IN SOME CASES LIKE PROVISION FOR WARRANTY , IF THERE IS A SUITABL E AND SCIENTIFIC METHODOLOGY FOR ARRIVING AT ANY PROVISION THAT SUCH CLAIM CAN A T ALL BE CONSIDERED AS A DEDUCTION. HOWEVER, IN THE PRESENT CASE IT WAS MERE LY AN ESTIMATED CLAIM WHICH HAD NOT CRYSTALLIZED AND NO SCIENTIFIC BASIS FOR MAKING THE CLAIM HAD BEEN PROVIDED BY THE ASSESSEE. LD. COUNSEL REFERRED TO PAGE 43 TO 46 OF PB WHEREIN THE FIR LODGED BY THE ASSESSEE DATED 17.5.2 004 IS CONTAINED. HE SUBMITTED THAT AFTER DETAILED EXAMINATION OF THE ST OCK, THE FIR WAS LODGED. LD. COUNSEL FURTHER REFERRED TO PAGE 107 OF THE PB WHEREIN THE SCHEDULE H OF ADMINISTRATION, SELLING AND DISTRIBUTION EXPENSE S IS CONTAINED, IN WHICH IT WAS CLEARLY STATED THAT DEBIT OF RS. 40 LAKH WAS TOWARDS PROVISION/ WRITE 4 OFF OF CONTAINERS ON LOAN. THUS, HE POINTED OUT THA T IT WAS ONLY PART AMOUNT OF PROVISION BUT THE BALANCE AMOUNT OF RS. 37.59 LA KH WAS TOWARDS ACTUAL WRITE OFF. HE RELIED ON FOLLOWING DECISIONS IN SUPP ORT OF HIS CONTENTION THAT EMBEZZLEMENT LOSS IS AN ALLOWABLE LOSS: - BADRIDAS DAGA VS. CIT 44 ITR 10 (SC); - ASSOCIATED BANKING CORPORATION OF INDIA LTD. VS. C IT 56 ITR 1 (SC); AND - PUNJAB STEEL STOCKHOLDERS SYNDICATE LTD. VS. CIT 12 5 ITR 519 (P&H). 6. LD. SR. DR SUBMITTED THAT SINCE POLICE HAS NOT F ILED FINAL REPORT, THEREFORE, IT IS STILL AN UNCERTAINED LIABILITY. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. IN THE FIR THE ASSE SSEE, INTER ALIA, STATED AS UNDER: WE HAVE RECONCILED THE EMPTY RGB AND SALE OF BEVER AGE ACCOUNT AS A MATTER OF ROUTINE AND FOUND HUGE DEFIC IT OF EMPTY RGBS THAT HAVE NOT REACHED THE FACTORY. FURTHER RG BS CONTAINING BEVERAGES WERE ALSO NOT DULY ACCOUNTED F OR. THEREFORE, WE HAVE REQUESTED MR. BHOJRAJAN AS WELL AS MR. ANANDA NARAYANAN TO COME TO OUR OFFICE WITH ALL ACC OUNTS AND ITS SUPPORTING IN THE FIRST WEEK OF FEBRUARY. SINCE THEY HAVE NOT COME TO OUR OFFICE AND PRODUCED RECORDS, WE HAVE ST OPPED SUPPLIES TO PERUNGUDI C&FA. ALSO, AN INTERNAL AUDIT OF RECONCILIATION OF RGB AND BEVERAGE ACCOUNT WAS UNDE RTAKEN IN ALL THE C& FAS. OUR COMPANY HAS ME AND DEPUTED M/S J. VENKATESH SR. FINANCE OFFICER, S. SELVAKUMAR SR. FI NANCE 5 EXECUTIVE DURING 1 ST WEEK OF APRIL TO PERUNDGUDI DEPOT. OUR AUDIT TEAM TOOK ABOUT 20 DAYS TO COMPLETE THE AUDIT . IN THE COURSE OF AUDIT, IT CAME TO OUR NOTICE THAT C&FA PR OPRIETOR MR. BHOJARAJAN IN CONNIVANCE WITH HIS EMPLOYEES AND OUR EMPLOYEE J. ANANDA KRISHNAN HAS COLLECTED MONEYS FR OM FOUR ROUTE AGENTS AS PER THE DETAIL GIVEN BELOW: SL. NO. DATE RECEIPT NO. VALUE IN RS. 1 26.09.2003 11401 45,140.00 2 26/09/2003 11402 55,000.00 3 26/09/2003 11403 59,000.00 4 17/09/2003 27,000.00 FIRST 3 RECEIPTS WERE SIGNED BY THE C&FAS EMPLOYEE S AND THE LAST ONE BY OUR EMPLOYEE MR. J. ANANDA KRISHNAN. IT WILL BE VERY IMPORTANT TO NOTE THAT FIRST THREE RECEIPTS WE RE DATED 26/09/2003 AND THE FOURTH ONE IS DATED 17/09/2003 W HICH CANNOT HAPPEN IN ANY ACCOUNTING SYSTEM. THIS WILL C LEARLY ESTABLISH CONNIVANCE AND CHEATING COMMITTED BY OUR EMPLOYEE, C&FA AND HIS EMPLOYEES. FURTHER, IT REVEALED IN THE COURSE OF THE AUDIT, HUGE QUANTITY OF THE EMPTY RGBS AND FIL LED STOCKS OF BEVERAGES WORTH WERE MISSING FROM C&FA AND THEY AR E NOT PROPERLY ACCOUNTED FOR. THE C&FA HAS SUBMITTED STOC K MOVEMENT REPORT EVERY MONTH IN WHICH THEY HAVE GIVE N FALSE FIGURES TO THE EFFECT THAT STOCKS WHICH WERE NOT AV AILABLE IN THE DEPOT AS IF THAT THEY ARE PHYSICALLY AVAILABLE IN T HE C&FA. IN THE MONTH OF DECEMBER REPORT SUBMITTED BY THE C&FA REVEALED THAT THE CLOSING STOCK FOR THE MONTH NOVEMBER WAS N OT SHOWN AS OPENING STOCK FOR THE MONTH OF DECEMBER. THEREBY , WE HAVE INCURRED A LOSS OF RS. 35,73,157/- OVER AND ABOVE T HE CASH OF RS. 1,86,140/- WHICH WAS NOT CREDITED TO COMPANYS ACCOUNT . 8. A BARE PERUSAL OF THE AFOREMENTIONED CONTENTS OF FIR CLEARLY SHOWS THAT ASSESSEE HAD RESORTED TO EXTENSIVE RECONCILIAT ION OF ITS STOCK AND THEREAFTER LODGED FIR FOR RS. 35,73,157/- TOWARDS S TOCK OVER AND ABOVE THE CASH OF RS. 1,86,140/-. LD. CIT(A) HAS OBSERVED THA T ASSESSEE HAS NOT 6 RESORTED TO ANY SCIENTIFIC METHOD FOR ASCERTAINING THE LOSS. WE DO NOT THINK THAT THERE CAN BE ANY OTHER BETTER METHOD ADOPTED B Y ASSESSEE EXCEPT RECONCILING THE ENTIRE STOCK AND THEREAFTER FILING THE FIR FOR ARRIVING AT THE ACTUAL LOSS. WE, THEREFORE, DO NOT FIND ANY BASIS F OR CONCLUDING THAT T HE LOSS CLAIMED BY ASSESSEE TO THE EXTENT OF RS. 37,59,297/ - WAS NOT ON SCIENTIFIC BASIS. HOWEVER, FOR THE BALANCE AMOUNT BEING RS. 40 ,00,000 37,59,297= 2,40,703/-, THE ASSESSEE HAS NOT PROVIDED ANY BASIS AND, THEREFORE, PROVISION CAN BE HELD TO BE DISALLOWABLE TO THIS EXTENT ONLY. 9. AS FAR AS ALLOWABILITY OF EMBEZZLEMENT AMOUNT IS CONCERNED, HONBLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA (SUPRA) HAS, INTER ALIA, OBSERVED AS UNDER: LOSS RESULTING FROM EMBEZZLEMENT BY AN EMPLOYEE OR AGENT IN A BUSINESS IS, HOWEVER, ADMISSIBLE AS A DEDUCTION UNDER SECTION 10(1) OF THE INDIAN INCOME- TAX ACT IF IT A RISES OUT OF THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO I T. IT MAKES NO DIFFERENCE IN THE ADMISSIBILITY OF THE DEDUCTION WH ETHER THE EMPLOYEE OCCUPIES A SUBORDINATE POSITION IN THE EST ABLISHMENT OR IS AN AGENT WITH LARGE POWERS OF MANAGEMENT, IT IS A QUESTION TURNING ON THE FACTS OF EACH CASE WHETHER THE EMBEZZLEMENT IN RESPECT OF WHICH DEDUCTION IS CLAIM ED TOOK PLACE IN THE CARRYING ON OF THE BUSINESS . 10. FURTHER, IN THE CASE OF ASSOCIATED BANKING CORP ORATION OF INDIA LTD. (SUPRA), THE HONBLE SUPREME COURT HAS OBSERVED THA T SO LONG AS THERE IS A REASONABLE PROSPECT OF RECOVERY OF THE AMOUNTS EMBE ZZLED, TRADING LOSS IN A COMMERCIAL SENSE CANNOT BE DEEMED TO HAVE RESULTED. 11. IN THE PRESENT CASE, THE CONTENTION OF LD. COUN SEL FOR THE ASSESSEE IS THAT THERE WAS NO REASONABLE PROSPECT OF RECOVERY OF THE AMOUNTS INASMUCH AS THE ASSESSEE WAS COMPELLED TO FILE FIR. 7 12. FURTHER, IN THE CASE OF PUNJAB STEEL STOCKHOL DERS SYNDICATE LTD. (SUPRA), HONBLE PUNJAB & HARYANA HIGH COURT HAS, I NTER ALIA, OBSERVED AS UNDER: IF AN EMBEZZLEMENT IS PROVED BY TIN ASSESSEE, THE SAME CAN BE CLAIMED AS BUSINESS LOSS. EMBEZZLEMENT IS A CRIMINA L OFFENCE, AND IF, IN A GIVEN CASE, CRIMINAL PROCEEDINGS HAVE BEEN LAUNCHED, IT 'MAY BE ONE OF THE RELEVANT PIECES OF EVIDENCE FOR PROVING THE LOSS BUT THE CULMINATION OF SUCH PROCEE DINGS IN THE CONVICTION OF THE ACCUSED IS NOT NECESSARY TO PROVE THE LOSS. IF AN ASSESSEE IS ABLE TO PLACE RELEVANT MATERIAL BEFO RE THE AUTHORITIES FOR PROVING THE LOSS IRRESPECTIVE OF TH E FACT WHETHER THE ACCUSED CHARGED WITH EMBEZZLEMENT HAS BEEN CONV ICTED OR NOT THE AUTHORITIES CANNOT REFUSE TO CONSIDER THE M ATERIAL O~ THE GROUND THAT THE CONVICTION OF THE PERSON ACCUSED OF EMBEZZLEMENT HAS NOT BEEN RECORDED. 13. IN VIEW OF ABOVE DISCUSSION, THE ASSESSEES APP EAL IS PARTLY ALLOWED AND THE AO IS DIRECTED TO ALLOW THE LOSS TO THE EXT ENT OF RS. 37,59,297. 46. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCEMENT IN OPEN COURT ON 29/07/2016. SD/- SD/- ( C.M. GARG ) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29/07/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.