M/s Atul Oilcake Industries Ltd, Dhoraji V. The Assistant Commissioner of Income Tax, Circle 3, RAJKOT-GUJARAT

ITA 1266/RJT/2010

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2396 (ITAT-RAJKOT)
• Duration Of Justice: 5 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-10-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 12-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIMAL I MEHTA RESPONDE
• Assessee Lawyers: RD LALCHANDANI
• Keywords: Deemed to accrue or arise in india
• Section: 143(3); 2

Judgement Text

I.T.A. NO. 1266/RJT/2010 : ASSESSMENT YEAR: 200 0 - 01 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT . [CORAM: PRAMOD KUMAR , AM AND RAJPAL YADAV, JM ] I.T.A. NO S . 1266 /RJT/ 2010 ASSESSMENT YEAR: 2000 - 01 M/S ATUL OILCAKE INDUSTRIES LTD., JETPUR ROAD, DHORAJI. . ......... ...... .... APPELLANT PAN AABCA8637K VS. ASSTT. CIT, CIRCLE - 3, RAJKOT. . . RESPONDENT APPEARANCES BY: R. D. LALCHANDANI ........... FOR THE APPELLANT VIMAL I. MEHTA .......... F OR THE RESPONDENT D ATE OF CONCLUDING THE HEARING : 8 TH OCTOBER, 2015 DATE OF PRONOUN CING THE ORDER : 4 TH JANUARY, 2016. O R D E R PER PRAMOD KUMAR , AM : THIS APPEAL IS FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 15 TH SEPTEMBER, 2010 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2000 - 01. 2. IN GROUND NO.1 THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCE : - 1. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM FOR THE WRITE OFF OF 41,41,798 BEING SPECIAL IMPORT LICENCE PREMIUM. THE C ONFIRMATION OF THE DISALLOWANCE IS NOT JUSTIFIED. I.T.A. NO. 1266/RJT/2010 : ASSESSMENT YEAR: 200 0 - 01 PAGE 2 OF 5 3. SO FAR AS THIS GRIEVANCE OF THE ASSESSEE IS CONCERNED THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS.41,41,798/ - IN RESPECT OF WRITE OFF OF SPECIAL IMPORT LICENCE PREMIUM. WHEN ASSESSING OFFICER PROBED THE MATTER FURTHER, HE FOUND THAT THE ASSESSEE WAS SHOWING INCOME, ON RECEIPT OF SPECIAL IMPORT LICENCES, ON THE BASIS OF PREVAILING MARKE T PREMIUM ON SUCH LICENCES, AND THE SPECIAL IMPORT LICENCES WERE SHOWN IN THE BALANCE SHEET AT THAT VALUE. AGAINST THIS ACCUMULATED VALUE OF RS.47,92,012.40, THE ASSESSEE SHOWED RECEIPTS OF RS.6,50,214/ - ON SALE OF LICENCE AND THE BALANCE AMOUNT OF RS.41.4 1.798/ - WAS WRITTEN OFF AS LOSS ON WRITE OFF OF SPECIAL IMPORT LICENCE. WHEN ASSESSEE WAS ASKED AS TO ON WHAT BASIS THIS LOSS HAS BEEN CLAIMED IT WAS EXPLAINED BY THE ASSESSEE THAT A RESULT OF CHANGE IN EXPORT IMPORT POLICY OF THE GOVERNMENT, THESE LICENCE S HAVE BEEN RENDERED WORTHLESS. THE ASSESSING OFFICER, HOWEVER, DECLINED THIS CLAIM ON THE GROUND THAT THE ASSESSEE HAS NOT PRODUCED SUCH UNUSED WORTHLESS LICENCES AND AS A PERSON OF AVERAGE BUSINESS SENSE WOULD HAVE PRODUCED THE UNSOLD LICENCE IN THE ORI GINAL TO SUBSTANTIATE THE CLAIM OF ZERO VALUE OF THOSE LICENSES. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. IN A VERY SCHOLARLY ANALYSIS OF THE ISSUE, LEARNED CIT(A) HELD THAT A PROVISION CAN NEVER BE MADE FOR AN INCOME AND WHATEVER IS OFFERED TO TAX IS MARKET VALUE OF LICENCE WHICH HAS BEEN DULY ACCEPTED BY THE ASSESSEE ALL ALONG. NOW THAT IT IS SO ACCEPTED, THERE IS NO PROVISION FOR ALLOWING A HYPOTHETICAL LOSS AND THE STORY ABOUT LICENCES NOT HAVING BEEN SOLD IS NOT CONVINCING EITHER ON A REFERENCE TO THE ASSESSING OFFICER, WHILE THE AMOUNTS OFFERED TO TAX, BARRING FOR A SMALL DIFFERENCE OF RS.37,790/ - WERE FOUND TO BE CORRECT. YET HE DISALLOWED THE DEDUCTION. HE OBSERVED THAT WHILE THERE ARE VARIOUS PROV ISIONS FOR DEEMED INCOME THERE IS NO REVERSE PROVISION IN THE ACT TO ALLOW ANY DEEMED LOSS . HE ALSO REFERRED TO HON BLE SUPREME COURT S JUDGMENT IN THE CASE OF GODHARA ELECTRICITY CO. LTD. VS. CIT [(1997) 225 ITR 746 (SC)] IN SUPPORT OF THE PROPOSITION THAT ONLY REAL INCOME CAN BE TAXED AND NOT A HYPOTHETICAL OR NOTIONAL INCOME, AND, DRAWING ANALOGY FROM THE SAME, CONCLUDED THAT NO HYPOTHETICAL LOSS CAN BE ALLOWED EITHER. I.T.A. NO. 1266/RJT/2010 : ASSESSMENT YEAR: 200 0 - 01 PAGE 3 OF 5 THE DISALLOWANCE OF RS.41,41,798/ - WAS THUS CONFIRMED. THE ASSESSEE IS AGGRIEVED AN D IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITIONS. 5. WE FIND THAT THERE IS NO DISPUTE ABOUT THE FUNDAMENTAL FACTUAL P OSITION THAT, DUE TO A CHANGE IN THE GOVERNMENT S EXPORT - IMPORT POLICY, THE SPECIAL IMPORT LICENCES HAVE BEEN RENDERED WORTHLESS, AND, AS SUBMITTED BY THE ASSESSEE VIDE AFFIDAVIT DATED 22 ND OCTOBER, 2013 THESE LICENCES, ON THE WRITE OFF OF WHICH THE DEDUCT ION IS CLAIMED, ARE STILL LYING UNUSED WITH THE ASSESSEE. ONCE, THESE LICENCES HAVE BEEN RENDERED WORTHLESS, THE LOSS HAS INDEED OCCURRED TO THE ASSESSEE. IT IS IMPORTANT TO BEAR IN MIND THE FACT THAT THE ASSESSEE HAD ACCOUNTED FOR THE RECEIPT OF THESE LIC ENCES ON THE BASIS OF MARKET VALUE OF THESE LOSSES, AND THEREFORE, FALL IN THE MARKET VALUE OF THESE LICENCES, BEING A LOSS INCIDENTAL TO CARRYING ON THE BUSINESS, IS A BUSINESS LOSS. IN OUR CONSIDERED VIEW, THE LOSS CLAIMED BY THE ASSESSEE INDEED MERITS A CCEPTANCE. AS FOR THE REASONING ADOPTED BY THE LD. CIT(A), WHILE WE AGREE THAT IDEALLY INCOME SHOULD HAVE BEEN SHOWN BY THE ASSESSEE ON REALIZATION OF PREMIUM, RATHER THAN ON RECEIPT OF LICENCE, BUT WHEN ASSESSING OFFICER HAS ALL ALONG ACCEPTED INCOME ON R ECEIPT OF LICENCES, IT CANNOT BE OPEN TO HIM TO DECLINE THE BUSINESS LOSS ON FALL IN VALUE OF A BUSINESS ASSET LIKE SPECIAL IMPORT LICENCE. THERE IS NO QUESTION OF HYPOTHETICAL LOSS, IT IS A REAL LOSS. THE CLAIM FOR LOSS IS A NATURAL COROLLARY TO THE INCOM E BEING OFFERED ON THE BASIS OF MARKET VALUE OF SPECIAL IMPORT LICENCE PREMIUM AND SUBSEQUENT FALL IN IT S VALUE. ONCE AN ITEM HAS BEEN PUT ON OGL (OPEN GENERAL LICENCE) LIST FOR IMPORTS, AS IN THIS CASE, THE LICENCES, WHICH WERE SHOWN AS BUSINESS ASSETS H AVE INDEED LOST THEIR REAL VALUE. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE OF RS.41,41,798/ - . THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 6. GROUND NO.1 IS THUS ALLOWED. I.T.A. NO. 1266/RJT/2010 : ASSESSMENT YEAR: 200 0 - 01 PAGE 4 OF 5 7. IN GROUND NOS. 2 & 3, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES : - 2. THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF 761700 ON ACCOUNT OF SUPPRESSED PROFIT ON SALE OF SE SOYA DECOILED CAK E. THE CONFIRMATION OF THE DISALLOWANCE IS NOT JUSTIFIED. 3. THE CIT(A) ERRED IN ENHANCING THE ADDITION BY 296100/ - [ 761700 TO 1057800] ON ACCOUNT OF SUPPRESSED PROFIT ON SALE OF SE SOYA DEOILED CAKE. 8. SO FAR AS THESE GRIEVANCES OF THE ASSESSEE ARE C ONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE SOLVENT EXTRACTED SOYA DEOILED CAKE SHORTAGE, AS WORKED OUT ON THE FACTS OF THIS CASE, WORKS OUT TO 5.33%. IT WAS EXPL AINED BY THE ASSESSEE THAT SUCH A LOSS IN QUANTITY IS A NORMAL LOSS DUE TO INHERENT NATURE OF PROCESSING AND DUE TO TRANSIT LOSS/MOISTURE LOSS/RAIN WATER DAMAGE LOSS . THE ASSESSING OFFICER, HOWEVER, DECLINED TO ACCEPT THIS PROCESSING LOSS. HE PROCEEDED T O ADOPT .5% AS REASONABLE LOSS, ON THE BASIS OF SIMILAR LOSS IN THE AY 1998 - 99, AND THE BALANCE LOSS WAS TREATED AS SUPPRESSED SALES OUT OF BOOKS OF ACCOUNTS. ON THIS BASIS AN ADDITION OF RS.7,61,700/ - WAS MADE TO THE INCOME RETURNED BY THE ASSESSEE. AGGRI EVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LD. CIT(A) IN FACT MADE AN ENHANCEMENT OF RS.2,97,100/ - TO THE QUANTUM OF ADDITION. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 9. WE HAVE HEARD T HE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 10. WE HAVE NOTED THAT THE NATURE OF PRODUCT IS SUCH THAT THE PROCESSING LOSS SIGNIFICANTLY VARIES FROM YEAR TO YEAR. AS EVIDENT FROM CHART AT PAGE 2 OF THE PAPER BOOK, THE ASSESSING OFFICER HIMSELF HAS ACCEPTED LOSSES OF 2.998% IN AY 1993 - 94 AND 3.126% IN AY 1994 - 95. IN THE PRESENT CASE, THE EXPORT WAS MADE AFTER FOUR MONTHS OF MANUFACTURE WHICH LEAD TO HIGHER WEIGHT LO SS DUE TO DRYING PROCESS. WE HAVE ALSO NOTED THAT THE BOOKS OF ACCOUNTS ARE DULY AUDITED AND THERE IS NOT EVEN I.T.A. NO. 1266/RJT/2010 : ASSESSMENT YEAR: 200 0 - 01 PAGE 5 OF 5 WHISPER OF A SUGGESTION ABOUT SALE OUTSIDE THE BOOKS OF ACCOUNTS. IN ANY CASE, THERE IS NOTHING SO SACROSANCT ABOUT LOSS OF .5% SHOWN IN THE IMME DIATELY PRECEDING YEAR. THIS ONLY SHOWS THAT WHEN PROCESSING LOSS WAS LOWER VIS - A - VIS EARLIER YEARS IT WAS SHOWN AS SUCH. IN VIEW OF THESE DISCUSSION S , AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE ON THIS COUNT AS W ELL. THE IMPUGNED ADDITION OF RS.10,57,800/ - THUS STANDS DELETED. 11. GROUND NOS. 2 & 3 ARE THUS ALLOWED. 12. GROUND NO.4 WAS NOT PRESSED. IT IS DISMISSED AS NOT PRESSED. 13. GROUND NO.5 IS IN FACT AN ARGUMENT IN SUPPORT OF GROUND NOS.2 & 3. AS GROUND N OS.2 & 3 ARE ALREADY ALLOWED, GROUND NO.5 DOES NOT NEED ANY FURTHER ADJUDICATION AS SUCH. 14. GROUND NO.6 WAS NOT PRESSED. IT IS DISMISSED AS NOT PRESSED. 15. IN THE RESULT, APPEAL IS PARTLY ALLOWED IN THE ABOVE TERMS. PRONOUNCED TODAY ON 4 TH DAY OF JA NUARY, 2016. SD/ - SD/ - ( RAJPAL YADAV ) PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 4 TH DAY OF JANUARY, 2016 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT ( 3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR I NCOME TAX APPELLATE TRIBUNAL RAJKOT