ACIT Circle-23 (1), V. National Cooperative Consumer Federation of India Ltd,

ITA 1376/DEL/2008

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5795 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 06-01-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 11-04-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJIV RANKA
• Assessee Lawyers: SANJAY AGGARWAL F
• Keywords: Recovery proceedings; Opportunity of being heard; Corroborative evidences
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI A. D. JAIN, JM SHRI K. D. RANJAN , AM I. T. APPEAL NO. 1376 (DEL) OF 2008. ASSESSMENT YEAR : 2004-05 ASSTT. COMMISSIONER OF INCOME-TAX, M/S . NATIONAL CO-OPERATIVE CONSUMERS CIRCLE : 23 (1), VS. FEDERATION OF INDIA LTD., N E W D E L H I. DEEPALI, 5TH FLOOR, 92 - NEHRU PLACE, N E W D E L H I. P A N / G I R NO. AAA AN 0109 N. ( APPELLANT ) ( RESP ONDENT ) ASSESSEE BY : SHRI SANJAY AGGARWAL, F. C. A. ; DEPARTMENT BY : SHRI RAJIV RANKA, SR. D.R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 4-05 ARISES OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XXVIII, NE W DELHI. 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DEL ETING THE ADDITION OF RS.47,17,284/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOSS OF STOCK. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIE TY REGISTERED UNDER THE MULTI STATE CO- OPERATIVE SOCIETIES ACT AND FUNCTIONS UNDER THE ADM INISTRATIVE CONTROL OF MINISTRY OF CONSUMER AFFAIRS AND PUBLIC DISTRIBUTION, GOVT. OF INDIA. DURING THE FINANCIAL YEAR 2002-03 2 I. T. APPEAL NO. 1376 (DEL) OF 2008. THE ASSESSEE SOCIETY ENTERED INTO EXPORT CONTRACT W ITH M/S. DISCOVERY COMPANY LTD. OF OMAN FOR EXPORTING OF 12,500 MT. OF RICE BY LIFTIN G THE REQUIRED STOCK OF RICE FROM THE FOOD CORPORATION OF INDIA [FCI] AT PREFERENTIAL RATES. M/S. CITY SHOES, NEW DELHI, WAS APPOINTED AS HANDLING AGENT FOR EXECUTION AND FINANCING OF TH E SAID RICE EXPORT CONTRACT VIDE AGREEMENT DATED 4/3/2002. IT WAS SPECIFICALLY STIPULATED IN THE SAID AGREEMENT THAT THE QUANTITY OF RICE RELEASED BY FCI FOR THE PURPOSE OF EXPORT AGAINST T HE SAID EXPORT CONTRACT SHALL BE EXPORTED BY M/S. CITY SHOES ON BEHALF OF ASSESSEE SOCIETY IN FU LL TO THE FOREIGN BUYER AND WILL NOT BE SOLD IN DOMESTIC MARKET UNDER ANY CIRCUMSTANCES. THE OT HER MAJOR CONDITIONS OF THE AGREEMENT WERE AS FOLLOWS:- (I) NCCF WILL RECEIVE PAYMENT FROM CITY SHOES FOR ONWARD REMITTANCE TO FCI OR WILL PAY TO FCI DIRECTLY ON BEHALF OF NCCF FOR DELIVERY OF STOCK OF RICE FOR THE SAID EXPORTS; (II) M/S. CITY SHOES WILL SUBMIT ALL SHIPPING DOCU MENTS TO NCCF WITHIN A PERIOD OF 15 DAYS FROM THE DATE OF EXPORT. ALL EXPORT DOCUME NTS SHALL STATE 'EXPORT BY NCCF'; (III) ALL PAYMENT OF EXPORTS WILL BE REALISED BY NCCF THROUGH THEIR BANKERS, UCO BANK, 93, NEHRU PLACE, NEW DELHI FROM OVERSEAS BANK ERS OF THE BUYERS REFERRED IN THE EXPORT CONTRACT. ONCE EXPORT PROCEEDS ARE RELE ASED TO BANKERS OF NCCF, IT WILL REIMBURSE THE COST OF GOODS, EXPORT EXPENSES E TC. TO M/S. CITY SHOES. 3. M/S. CITY SHOE WAS A PROPRIETARY FIRM OF ON E SHRI NARINDER SINGH BATRA. THE PRICE OF RICE LIFTED BY MR. BATRA FROM FCI ON BEHALF OF T HE ASSESSEE WAS MUCH MORE IN THE DOMESTIC MARKET THAN THE EXPORT PRICE. THIS FACTOR PROMPTED MR. BATRA TO DIVERT THE STOCK OF RICE LIFTED FROM FCI ON BEHALF OF NCCF TO THE DOMESTIC MARKET F RAUDULENTLY AND POCKETED THE SALE PROCEEDS. SINCE THE PRIMARY LIABILITY FOR EXPORTIN G THE RICE LIFTED FROM FCI WAS THAT OF NCCF, IT WAS RESPONSIBLE TO PAY THE HIGHER PRICE CHARGED BY FCI DUE TO THE RICE NOT HAVING BEEN EXPORTED TO OMAN, BUT THE SAME HAVING BEEN SOLD IN THE DOMESTIC MARKET. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS SUBMITTED THAT THE LOSS OF STOCKS AT RS.47,17,248/- WAS 3 I. T. APPEAL NO. 1376 (DEL) OF 2008. ATTRIBUTABLE TO DIFFERENTIAL COST BETWEEN MARKET PR ICE AND EXPORT ISSUE PRICE PAID TO FCI FOR 1105 MT. OF RICE. 3.1 THE ASSESSING OFFICER FROM EARLIER YEAR'S REC ORD FOUND THAT M/S. CITY SHOES BREACHED THE TERMS AND CONDITIONS AND FORGED THE EXPORT DOCU MENTS. M/S. CITY SHOES, THE HANDLING AGENT SUBMITTED EXPORT DOCUMENTS FOR 9395 MT. OF RI CE TO NCCF WHICH WERE FURNISHED BY NCCF TO FCI AS PER TERMS OF TRANSACTIONS, BUT ALL THE EXPORT DOCUMENTS WERE FOUND TO BE NOT GENUINE. THE BALANCE 3,105 MT. OF RICE WAS DETECT ED IN THE POSSESSION OF MILLERS, WHO CLAIMED THEIR OWN TITLE TO THE SAME. OUT OF THE SA ID QUANTITY OF 3105 MT. DOCUMENTS WERE SUBMITTED SUBSEQUENTLY IN RESPECT OF 2,000 OF MT. A ND THE BALANCE STOCK OF 1,105 MT. WAS LYING IN THE CUSTODY OF POLICE, WHICH WAS SOLD AT T HE INSTANCE OF THE DISTT. MAGISTRATE, PALWAL, AND THE SALE PROCEEDS WERE DEPOSITED IN HIS COURT I N THE FORM OF FIXED DEPOSITS, PENDING DECISION ABOUT THE RIGHT AND TITLE OF THE STOCK. T HUS THE STOCK OF 9,395 MT. OF RICE OUT OF 12,500 MT. LIFTED FROM FCI WAS NEITHER TRACEABLE NO R DELIVERED BACK TO NCCF, THE SAME WAS TREATED AS LOSS OF STOCK. SINCE THE AMOUNT REQUIRE D TO BE PAID TO FCI BEFORE LIFTING THE STOCK HAD ALREADY BEEN RECEIVED BY FCI FROM M/S. CITY SHO ES ON BEHALF OF NCCF, THE FCI RAISED THE DEMAND OF RS.5,08,86,300/- FOR THE DIFFERENTIAL RICE. AS THE STOCK OF 9,395 MT. OF RICE WAS NOT TRACEABLE, DIFFERENTIAL PRICE OF RS.3,79,72 ,150/- DEMANDED BY FCI WAS TREATED AS LOSS SUFFERED ON ACCOUNT OF LOSS OF THE SAID STOCK IN AS SESSMENT YEAR 2002-03 RELEVANT TO FINANCIAL YEAR 2003-04. 3.2 THE ASSESSING OFFICER WHILE PASSING THE ASSESS MENT ORDER UNDER SECTION 143(3) OF THE ACT DATED 20TH MARCH, 2006 HAS DISALLOWED THE LOSS SO CLAIMED BY RELYING UPON VARIOUS JUDICIAL PRONOUNCEMENTS. IT HAS BEEN HELD THAT NCC F INITIATED ARBITRATION PROCEEDINGS AGAINST THE LIABILITY ARISING OUT OF BREACH OF CONT RACT AGAINST M/S. CITY SHOES AS PER TERMS OF THE AGREEMENT. AN EX-PARTY AWARD IN FAVOUR OF NCCF HAS BEEN AWARDED FOR WHICH PROCEEDINGS OF AMOUNT HAVE BEEN FILED IN HON'BLE DE LHI HIGH COURT. FURTHER A SUM OF RS.18,39,719/- HAS BEEN RECEIVED BY NCCF TOWARDS FO REIGN REMITTANCE PRESUMABLY AGAINST EXPORT OF RICE EFFECTED BY M/S. CITY SHOES. IT HAS BEEN HELD BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2002-03 THAT THE LOSS CLAIMED WAS N OT ALLOWABLE AS ARBITRATION AWARD IN FAVOUR OF THE ASSESSEE AND A PART OF SOME AMOUNTING TO RS.80,39,719/- HAD ALREADY BEEN 4 I. T. APPEAL NO. 1376 (DEL) OF 2008. REALISED. MOREOVER, IT WAS HELD THAT THE LOSS WAS NOT CRYSTALISED SINCE PROCEEDINGS FOR EXECUTION OF AWARD IN RESPECT OF AMOUNT WAS FILED B EFORE THE HON'BLE DELHI HIGH COURT. THE LD. CIT (APPEALS) VIDE HIS ORDER DATED 28/11/2006 H AS UPHELD THE ORDER. THE LD. CIT (A) OBSERVED THAT DEDUCTION ON ACCOUNT OF MISAPPROPRIAT ION / EMBEZZLEMENT WAS ALLOWED ONLY IN THE YEAR IN WHICH THE AMOUNT BECOME IRRECOVERABLE A ND ALL CHANCES OF RECOVERY WERE LOST. THE PAYMENT OF LOSS OF AMOUNT TO FCI WAS MERELY IN TERMS OF ITS CONTRACT WITH THEM AND HAD NO BEARING ON CRYSTALLIZING OF THE LOSS. THE LD. C IT (APPEALS) FURTHER OBSERVED THAT PENDING THE RECOVERY PROCEEDINGS BEFORE HON'BLE HIGH COURT AN ARBITRATION AWARD HAVING BEEN DECIDED IN FAVOUR OF THE ASSESSEE COULD NOT BE SAID AT THE STAGE THAT LOSS HAS BECOME IRRECOVERABLE AND THERE WERE NO CHANCES FOR RECOVER Y. THE LD. CIT (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER FOR ASSESSMENT YEAR 2002-03. 3.4 THE AO FOLLOWING THE ORDER OF THE LD. CIT (APPE ALS) FOR ASSESSMENT YEAR 2002-03 MADE ADDITION IN ASSESSMENT YEAR 2004-05 BY OBSERVI NG AS UNDER :- ' 5. FROM THE ABOVE IT IS SEEN THAT THE ASS ESSEE HAS RECEIVED THE ARBITRATION AWARD IN FAVOUR AND RECOVERY PROCEEDING S ARE PENDING BEFORE THE HIGH COURT. AS HAS BEEN RELIED UPON BY VARIOUS JUD ICIOUS PRONOUNCEMENTS BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR A SSESSMENT YEAR 2003-04 AND RELIED UPON BY THE CIT (APPEALS)-XVII VIDE ORDER DA TED 28/11/2006, THE LOSS CANNOT BE TERMED AS IRRECOVERABLE AND THAT THERE AR E CHANCES OF RECOVERY. MOREOVER, THE LOSS OF STOCKS CLAIMED BY THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION BEING DIFFERENTIAL COST BETWEEN OMSS AND EXPORT ISSUE PRICE PAID TO FCI FOR 1105 MTS. RICE AMOUNTING TO RS.47,1 7,284/- CANNOT BE ALLOWED AS A LOWS IN VIEW OF THE ABOVE DISCUSSION. MOREOVER, IT WAS SEEN THAT THE STOCK OF 1105 MT WERE ALREADY RECOVERED AND HAS SINCE BEEN SOLD AT THE INSTANCE OF DISTT. MAGISTRATE, FIRST CLASS, PALWAL, AND SALE PROCEEDS HAVE BEEN DEPOSITED IN HIS COURT IN THE FORM OF A FIXED DEPOSIT PENDING DECISION ABOUT THE RIGHT AND TITLE OVER THE SAID STOCKS. TH E ASSESSEE'S TREATMENT OF THE SAID 1150 MT OF RICE AMOUNTING TO RS.47,17,284/- IS VERY MUCH RECOVERABLE AND A PART OF INCOME DURING THE YEAR INSTEAD OF CLA IMING IT AS A LOSS. IT IS APPARENTLY CRYSTAL CLEAR THAT THE STOCKS OF 1105 M/ T OF RICE HAVE ALREADY BEEN 5 I. T. APPEAL NO. 1376 (DEL) OF 2008. RECOVERED, SOLD AND THE SALE PROCEEDS ARE LYING IN THE FORM OF A FIXED DEPOSIT. WITH A LITTLE LEGAL PERSUASION, THE AMOUNT OF RS.47 ,17,284/- CAN EASILY BE RECOVERABLE AS ALREADY ARBITRATION AWARD IS IN FAVO UR OF THE ASSESSEE. THE TREATMENT MATTERED OUT BY CLAIMING THE RECOVERABLE AMOUNT OF RS.47,17,284/- AS A LOSS IS DISALLOWED AND THE SUM OF RS.47,17,284 /- IS ADDED BACK TO THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERA TION. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE I. T. ACT, 1961 HAVE BEEN INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND FOR CONCEALING THE TRUE INCOME. ' 4. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED T HAT LOSS OF RS.47,17,284/- WAS FINAL SINCE IT WAS IN RESPECT OF 1,105 MTS OF RICE, WHICH WAS IN THE CUSTODY OF POLICE AUTHORITIES AND WAS NOT EXPORTED. THE LOSS WAS ON ACCOUNT OF DIFFERENTIAL PRICE OF RICE LIFTED FOR EXPORT AND FOR LOCAL SALES. IT WAS ALSO SUBMITTED THAT REMITTANCE OF RS.18,39,790/- WAS NOT SHOWN AS RECEIPT AGAINST EXP ORT OF RICE BECAUSE THE BANK HAD NOT FURNISHED THE DETAILS OF THE PARTY WHO REMITTED THE AMOUNT AND IT WAS NOT SURE THAT THE SAID REMITTANCE BELONGED TO NCCF. FURTHER THIS REMITTAN CE COULD NOT BE IN RESPECT OF 9395 MTS OF RICE WHICH WAS NEVER EXPORTED. IT WAS ALSO SUBMITTED THAT THE SAID REMITTANCE COULD BE IN RESPECT OF 2,000 MTS OF RICE EXPORTED O UT OF BALANCE OF RS.3,105 MTS. THE ASSESSEE HAD NOT CLAIMED ANY LOSS IN RESPECT OF 2,0 00 MTS FOR WHICH FCI HAD ADJUSTED THE COST AND RELEASED THE BALANCE PAYMENT TO NCCF. IT WAS ALSO SUBMITTED THAT EX-PARTE AWARD WAS GRANTED AGAINST SHRI NARENDER SINGH BATRA , PROP. OF M/S. CITY SHOES, WHO WAS NOT TRACEABLE. THEREFORE, THE ASSESSEE HAD SUFFERE D A LOSS OF RS.47,17,284/-. IT WAS ALSO SUBMITTED THAT THE FCI HAD ENCASHED THE BANK GUARAN TEE AND SUBSEQUENT REFUNDS TO THE FEDERATION BY FCI AFTER ADJUSTMENT OF ITS DUES, HAP PENED DURING THE FINANCIAL YEA 2003-04 RELEVANT TO ASSESSMENT YEAR 2004-05, THE LOSS OF RS .47,17,284/- HAD CRYSTALLIZED DURING THE YEAR UNDER REFERENCE WHICH HAD RIGHTLY BEEN CLA IMED BY THE FEDERATION DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT (APPEALS) AFTER C ONSIDERING THE SUBMISSIONS MADE AND FACTS OF THE CASE OBSERVED THAT THE BANK GUARANTEE FURNISHED BY THE ASSESSEE TO FCI WAS ENCASHED BY THE LATTER WHICH RESULTED IN THE LOSS O F RS.47,17,284/-. HENCE THE LIABILITY FOR PAYMENT OF DIFFERENTIAL PRICE CRYSTALLISED IN THE YEAR UNDER CONSIDERATION. HE ACCORDINGLY DELETED THE ADDITION. 6 I. T. APPEAL NO. 1376 (DEL) OF 2008. 5. BEFORE US THE LD. SR. DR SUBMITTED THAT THE AMOUNT RECEIVED BY THE ASSESSEE HAS NOT BEEN ADJUSTED. MOREOVER, EX-PARTE AWARD HAD BE EN GRANTED AGAINST SHRI NARENDER BATRA. THEREFORE, THE LOSS ON ACCOUNT OF STOCK HAD NOT CRYSTALLIZED. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE SUPPORTED THE ORDER OF T HE LD. CIT (A). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. FROM THE ABOVE FACTS, WE FIND THAT THE ASS ESSEE HAD RECEIVED REMITTANCE OF RS.18,39,719/-, WHICH HAS NOT BEEN SHOWN AS RECEIPT S. THE ASSESSEE HAS STATED THAT THE BANK HAD NOT FURNISHED DETAILS OF THE PARTY WHO REM ITTED THE AMOUNT. THE ASSESSEE HAD ALSO NOT EVEN CATEGORICALLY STATED THAT THE REMITTA NCE RELATED TO 2,000 MTS OF RICE WHICH WAS EXPORTED OUT. THEREFORE, THE FACTUM OF THE EXA CT LOSS SUFFERED BY THE ASSESSEE REMAINED TO BE VERIFIED. FOR ASSESSMENT YEAR 2003- 04, ITAT, DELHI BENCH 'G' VIDE ORDER DATED 20 TH APRIL, 2007 IN ITA. NO. 4369 (DEL) OF 2006 HAS SET ASIDE AN IDENTICAL ISSUE BY OBSERVING AS UNDER :- ' 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS . AS ALREADY STATED, THE FACTS IN THE PRESENT CASE ARE NOT IN DISPUTE. WE NOTICE THAT AS FAR AS THE ASSESSEE IS CONCERNED, IT HAD AN AGREEMENT WITH FCI WHEREBY IT AGREED TO PAY THE DIFFERENCE IN PRICE AT WHICH RICE IS SOLD LOCALLY A ND THE CONCESSIONAL PRICE AT WHICH THE RICE WAS GIVEN TO THE ASSESSEE FOR THE PU RPOSES OF EXPORT, IN THE EVENT OF THE ASSESSEE NOT SUBSTANTIATING TO THE SAT ISFACTION OF FCI THAT THE QUANTITY OF RICE TO BE RELEASED WAS IN FACT EXPORTE D. ADMITTEDLY THE DOCUMENTARY EVIDENCE FILED MR. BATRA TO SUBSTANTIAT E THE EXPORT BY THE ASSESSEE OF THE QUANTITY OF RICE LIFTED FROM FCI TU RNED OUT TO BE BOGUS. THEREUPON THE ASSESSEE'S LIABILITY VIS-A-VIS THE FC I STOOD CRYSTALLIZED. THIS LIABILITY HAD NOTHING TO DO WITH THE LIABILITY OF M /S. CITY SHOES, UNDER THE AGREEMENT BETWEEN THE ASSESSEE AND M/S. CITY SHOES. IN OTHER WORDS, THE OBLIGATION OF THE ASSESSEE VIS-A-VIS FCI HAD NOTHIN G TO DO WHATSOEVER WITH THE RIGHTS OF THE ASSESSEE VIS-A-VIS M/S. CITY SHOES. BOTH THE CONTRACTS WERE INDEPENDENT AND M/S. CITY SHOES WAS NOT A PARTY TO THE AGREEMENT BETWEEN THE ASSESSEE AND FCI. IN SUCH CIRCUMSTANCES, WE FAIL T O UNDERSTAND AS TO WHY THE 7 I. T. APPEAL NO. 1376 (DEL) OF 2008. LIABILITY OF THE ASSESSEE VIS-A-VIS FCI WOULD BE DE PENDENT ON THE OUT-COME OF THE RECOVERY PROCEEDINGS BY THE ASSESSEE AGAINST MR . BATRA OF M/S. CITY SHOES. IN OUR VIEW THE REVENUE AUTHORITIES ERRED I N PRESUMING THAT THE LIABILITY OF THE ASSESSEE VIS-A-VIS FCI WAS DEPENDE NT ON THE ASSESSEE'S RIGHTS AGAINST M/S. CITY SHOES. 7. WE, HOWEVER, NOTICE THAT THE EXACT DATES ON WHICH FCI RAISED ITS DEMAND AGAINST THE ASSESSEE IN RESPECT OF THE DIFFE RENTIAL PRICE FOR FAILURE TO FURNISH EXPORT DOCUMENTS REGARDING 9395 MTS OF RICE IS NOT CLEAR FROM THE ORDERS OF THE REVENUE AUTHORITIES OR FROM THE DOCUM ENTS FILED BY THE ASSESSEE IN THE PAPER BOOK. THE DATES OF PAYMENT OF THE CON CESSIONAL RATE OF RS.565/- PER QUINTAL OF RICE BY M/S. CITY SHOES TO FCI ON BE HALF OF THE ASSESSEE ARE AVAILABLE AND ARE GIVEN IN PARA 2.5 OF THIS ORDER. THE DATES ON WHICH IT WAS DETECTED BY FCI THAT THE ASSESSEE FAILED TO FULFIL ITS EXPORT OBLIGATION OF RICE AND RAISED A DEMAND ON THE ASSESSEE FOR THE DIFFERE NTIAL PRICE IS ALSO NOT AVAILABLE. THE DATE ON WHICH THE ASSESSEE ACCEPTED ITS LIABILITY VIS-A-VIS FCI IS ALSO NOT AVAILABLE. THE DETAILS OF ACTUAL PAYME NT BY THE ASSESSEE TO FCI ARE AVAILABLE AND ARE GIVEN IN PARA 2.8 OF THIS ORDER. THESE DATES FALL WITHIN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05 A ND NOT ASSESSMENT YEAR 2003-04, WHICH IS THE PRESENT ASSESSMENT YEAR IN DI SPUTE BEFORE THE TRIBUNAL. THE DATE OF PAYMENT IN ANY EVENT IS IRRELEVANT SINC E THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. IN OUR VIEW THE L IABILITY IN QUESTION AS FAR AS THE ASSESSEE IS CONCERNED WOULD ACCRUE OR CRYSTALLI ZE WHEN FCI MAKES A DEMAND FOR THE DIFFERENTIAL PRICE AGAINST THE ASSES SEE AND THE POINT AT WHICH THE ASSESSEE UNCONDITIONALLY ACKNOWLEDGES SUCH A LI ABILITY ON ITS PART TO FCI. THE DEMAND BY THE ASSESSEE AND ATTEMPTS TO RECOVER ITS LOSS FROM M/S. CITY SHOES WOULD BE IMMATERIAL IN THIS REGARD. IN ITS C OMPLAINT DATED 1/11/2002 BY THE ASSESSEE TO THE S.H.OI., KALKAJI POLICE STATION [COPY AT PAGES 119 TO 122 OF ASSESSEE'S PAPER-BOOK]. THE ASSESSEE HAS STATED THAT FCI HAD ALREADY SERVED A NOTICE ON IT TO PAY THE DIFFERENTIAL PRICE . THE DATE ON WHICH THE ASSESSEE ACKNOWLEDGED ITS LIABILITY TO FCI HAD TO B E SEEN. IF THERE IS NO EVIDENCE OF DENIAL OF LIABILITY BY THE ASSESSEE VIS -A-VIS FCI, THEN THE DATE ON WHICH FCI RAISED A DEMAND AGAINST THE ASSESSEE WOUL D BE THE DATE ON WHICH 8 I. T. APPEAL NO. 1376 (DEL) OF 2008. THE LIABILITY OF THE ASSESSEE HAD ACCRUED. THE SUB SEQUENT ACT OF PAYMENT BY THE ASSESSEE TO FCI WOULD BY ITSELF BE EVIDENCE OF ACKNOWLEDGEMENT OF LIABILITY IN THE ABSENCE OF ANY EVIDENCE TO THE EFFECT THAT T HE ASSESSEE AT ANY TIME PRIOR TO MAKING PAYMENT DENIED ITS LIABILITY. THE ORDER OF THE LD. CIT (APPEALS) IS SET ASIDE AND THE ISSUE IS REMANDED TO THE ASSESSIN G OFFICER TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE DIRECTION S GIVEN ABOVE. ' 6.1 SINCE THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION IS IDENTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT, THE MATTER IS RESTORED TO THE FILE OF THE AO WITH THE DIRECTIONS TO VERIFY THE LOSS ACTUALLY OCCURRED TO THE ASSESSEE DURING THE YEAR AND VERIFY THE REMITTANCE OF RS.18,39,719/- WHETHER THE SAME R ELATES TO THE YEAR UNDER CONSIDERATION, TO BE ADJUSTED AGAINST THE LOSS SUFFERED BY THE ASS ESSEE ON ACCOUNT OF DIFFERENCE IN SALE PRICE OF THE RICE. THE ASSESSING OFFICER WILL ALSO KEEP IN VIEW THE OTHER DIRECTIONS OF TRIBUNAL AS ABOVE WHILE DECIDING THE APPEAL. THE AO WILL PROVIDE NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. THE NEXT ISSUE FOR CONSIDERATION RELATES T O DELETING THE ADDITION OF RS.4,26,424/- MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES. THE FACT S OF THE CASE RELATING TO THIS GROUND OF APPEAL ARE THAT THE ASSESSEE HAD SHOWN PRIOR PERIOD EXPENSES RELATING TO NAGPUR AND KOLKATA BRANCH ON ACCOUNT OF PRINTING AND STATIONAR Y RELATING TO 2002-03 FOR RS.7,913/- VIDE JB-227 DATED 29/02/2004; SALES TAX PROVISION F OR 1997-98 AND 1998-99 AT RS.1,63,358/- VIDE JB-288 DATED 31ST MARCH, 2004; A ND REDUCTION IN TRADING MARGIN OF WHEAT EXPORTED TO BANGLA DESH IN 2002-03 AT RS.2,55 ,153/- VIDE JB-515 DATED 31ST MARCH, 2004. THE ASSESSING OFFICER HAD NOT GIVEN A NY FINDING AS TO WHETHER THE EXPENSES WERE CRYSTALIZED IN THE YEAR UNDER CONSIDERATION OR NOT. IT WAS SUBMITTED BEFORE THE LD. CIT (A) THAT THOUGH THE TRANSACTIONS MADE RELATED T O EARLIER YEARS, BUT THE LIABILITY CRYSTALLIZED ONLY WHEN THE MATTER WAS SETTLED ON RE CEIPT OF BILLS, DEMANDS AND OTHER DETAILS. AS SOON AS THESE WERE SETTLED THE EXPENSE S WERE INCORPORATED UNDER VARIOUS HEADS OF SCHEDULE 'PRIOR PERIOD ADJUSTMENT ACCOUNT' . THEREFORE, THE AMOUNT OF RS.4,26,424/- WAS ALLOWABLE AS DEDUCTION. THE LD. CIT (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT LIABILITY TO PAY TH E AMOUNTS HAD CRYSTALLISED IN THE YEAR 9 I. T. APPEAL NO. 1376 (DEL) OF 2008. UNDER CONSIDERATION WHEN THE MATTER WAS SETTLED ON RECEIPT OF BILLS AND OTHER DETAILS. HE ACCORDINGLY DELETED THE ADDITION. 8. BEFORE US IT HAS BEEN SUBMITTED BY THE LD. SR. DR THAT NO DETAILS WERE FURNISHED BY THE ASSESSEE AND THERE WAS NO DOCUMENT IN SUPPOR T OF THE CLAIM THAT THE EXPENSES WERE CRYSTALLISED DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT (A) HAS ALLOWED THE CLAIM MERELY ON THE BASIS OF SUBMISSIONS MADE BY THE ASSE SSEE. HENCE, THE LD. CIT (A) IS NOT JUSTIFIED IN DELETING THE ADDITION. ON THE OTHER H AND, THE LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. AS AND WHEN LIABILITY TO PAY HAD CRYSTALLISED THE AMOUNT BECAME PAYABLE SINC E THE LIABILITY TO PAY THE AMOUNT WAS CRYSTALLISED IN THE YEAR UNDER CONSIDERATION AND, T HEREFORE, THE EXPENDITURE THOUGH INCURRED IN EARLIER YEARS IS ALLOWABLE IN THE YEAR UNDER CONSIDERATION. HENCE THE LD. CIT (A) IS JUSTIFIED IN DELETING THE ADDITION. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE VOUCHERS FOR CLAIM OF THE PRIOR PERIOD EXPENSES. NO SUPPORTING EVIDENCE HAS BEEN FILED BY THE ASSESS EE SO AS TO PROVE THAT THE AMOUNT WAS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT WITHOUT EXAMINING THE DETAILS. AT THE SAME TIME THE LD. CIT (A) HAS ALSO NOT DISCUSSED THE RELEVANT MATERIAL SO AS TO SUGGEST TH AT THE LIABILITY WAS CRYSTALLISED IN THE YEAR UNDER CONSIDERATION. THEREFORE, IN OUR CONSID ERED OPINION, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO WITH THE DIRECT ION TO EXAMINE THE CLAIM OF THE ASSESSEE WHETHER THE EXPENSES CLAIMED HAVE ACTUALLY BEEN CRY STALLISED IN THE YEAR UNDER CONSIDERATION. THE AO WILL PROVIDE SUFFICIENT OPPO RTUNITY TO THE ASSESSEE BEFORE DECIDING THIS ISSUE. 10. THE NEXT ISSUE FOR CONSIDERATION RELATES TO D ELETING THE ADDITION OF RS.11,31,450/- ON ACCOUNT OF PROVISION FOR DOUBTFUL BALANCES. IT WAS STATED BEFORE THE LD. CIT (A) THAT THE AO HAD JUST PICKED UP TWO FIGURES OF RS.7,40,399/- AND RS.3,91,051/- FROM SCHEDULE 8 OF LOAN AND ADVANCES AND HAD MADE ADDITION. IT WAS CO NTENDED THAT THE SOCIETY HAD NOT DEBITED ANY AMOUNT BY WAY OF PROVISION TO ITS PROFI T AND LOSS ACCOUNT. THE AMOUNTS 10 I. T. APPEAL NO. 1376 (DEL) OF 2008. UNDER CONSIDERATION RELATED TO EARLIER YEARS WHEN T HOSE WERE OFFERED TO TAX. THEREFORE, IT WAS PLEADED THAT NO ADDITION COULD BE MADE. THE LD . CIT (A) ON THE BASIS OF THE ABOVE FACTS, OBSERVED THAT THE DISALLOWANCE HAD BEEN MADE WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE. MOREOVER, THE ASSESSEE HAD NOT DEBIT ED THE AMOUNT WAY OF PROVISIONS TO PROFIT AND LOSS ACCOUNT AND THEREFORE, NO ADDITION COULD BE MADE IN THE HANDS OF THE ASSESSEE. HE ACCORDINGLY DELETED THE ADDITION. 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE, IT IS CLEAR T HAT THE AMOUNT OF RS.11,31,450/- REPRESENTED LOANS AND ADVANCES. THE SAID AMOUNT WA S NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE AO DISALLOWED THE AMOUNT WITHOUT GIVI NG ANY OPPORTUNITY TO THE ASSESSEE. THEREFORE, IN OUR CONSIDERED OPINION, THE AMOUNT WH ICH HAS NOT BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT CANNOT BE DISALLOWED WHILE COMPUTI NG THE TOTAL INCOME OF THE ASSESSEE. ACCORDINGLY, IN OUR CONSIDERED OPINION, THE LD. CIT (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. 12. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DE LETING THE ADDITION OF RS.2,80,560/- MADE BY THE ASSESSING OFFICER DISALLO WING THE GUEST HOUSE EXPENSES. THE AO DISALLOWED THE AMOUNT ON THE BASIS OF PAST HISTO RY OF THE CASE. BEFORE THE LD. CIT (A) IT WAS EXPLAINED THAT SINCE SECTION 37(4) WHICH DEA LT WITH SUCH DISALLOWANCE HAD BEEN OMITTED WITH EFFECT FROM 1/04/1998 AND, THEREFORE, NO DISALLOWANCE COULD HAVE BEEN MADE IN RESPECT OF GUEST HOUSE EXPENSES. THE LD. CIT (A PPEALS) ACCORDINGLY DELETED THE ADDITION. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. SECTION 37(4) OF THE ACT WAS OMITTED BY FI NANCE ACT, 1997 WITH EFFECT FROM 1/04/1998. PRIOR TO OMISSION OF SUB-SECTION (4) OF SECTION 37 DISALLOWANCE IN RESPECT OF GUEST HOUSE EXPENSES COULD HAVE BEEN MADE SUBJECT O F FULFILMENT OF CONDITIONS SPECIFIED THEREIN. SINCE FOR THE YEAR UNDER CONSIDERATION SE CTION 37(4) DOES NOT EXIST ON STATUTE, NO DISALLOWANCE COULD HAVE BEEN MADE IN RESPECT OF GUE ST HOUSE EXPENSES. THEREFORE, THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION. AC CORDINGLY, NO INTERFERENCE IS CALLED FOR. 11 I. T. APPEAL NO. 1376 (DEL) OF 2008. 14. NEXT ISSUE FOR CONSIDERATION RELATES TO DELETI ON OF ADDITION OF RS.2,16,820/- OUT OF BUSINESS PROMOTION EXPENSES BY TREATING 1/5 TH OF THE SAME BEING EXPENSES IN THE NATURE OF PERSONAL ELEMENT INVOLVED WITHOUT CITING ANY SUC H CASE. BEFORE THE LD. CIT (A) IT WAS SUBMITTED THAT THE ASSESSEE WAS A CO-OPERATIVE SOCI ETY UNDER THE MULTISTATE CO-OP. ACT HAVING 32 BRANCHES / OFFICES / UNITS. THE EXPENSES WERE INCURRED BY THE ASSESSEE ALL OVER INDIA IN ITS VARIOUS BRANCHES / OFFICES. ALL THE E XPENSES WERE INCURRED FOR THE BUSINESS OF THE ASSESSEE WHICH WAS MERELY MARKETING OF VARIOUS COMMODITIES. THE AO HAD NOT POINTED OUT ANY INSTANCE OF EXPENDITURE WHICH WAS I N THE NATURE OF PERSONAL EXPENDITURE. THE LD. CIT (APPEALS) ON CONSIDERATION OF THE ABOVE DELETED THE ADDITION. 15. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. FROM THE FACTS STATED ABOVE THE AO HAD DIS ALLOWED THE EXPENDITURE ON AD-HOC BASIS WITHOUT POINTING OUT ANY DISCREPANCY IN THE E XPENDITURE INCURRED. THE ASSESSEE IS A CO-OP. SOCIETY AND HAD BEEN INCURRING EXPENDITURE F OR THE PURPOSE OF BUSINESS. THE AO HAD NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE EXPENDITURE IN THE NATURE OF PERSONAL WAS INCURRED. IN THE ABSENCE OF ANY SUCH MATERIAL, IN OUR CONSIDERED OPINION, THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION AND HENCE NO INTERFERENCE IS CALLED FOR. 16. THE LAST ISSUE FOR CONSIDERATION RELATES TO DE LETING THE ADDITION OF RS.1,20,309/- MADE BY THE ASSESSING OFFICER BY DISALLOWING VEHICL E RUNNING EXPENSES. THE AO HAD DISALLOWED THE EXPENSES ON THE GROUND THAT THE LOG BOOK WAS NOT MAINTAINED AND PERSONAL ELEMENT OF USAGE COULD NOT BE DENIED. BEFORE THE L D. CIT (A) IT WAS SUBMITTED THAT THE BOOKS OF ACCOUNTS AND VOUCHERS WERE PRODUCED BEFORE THE AO WHICH WERE EXAMINED BY HIM. THE ASSESSEE DID NOT ALLOW ANY PERSONAL USE O F THE VEHICLES. VEHICLES WERE GIVEN TO THE OFFICERS OF THE SOCIETY FOR THE BUSINESS OF THE ASSESSEE. THEREFORE, IN THE ABSENCE OF ANY MATERIAL THE DISALLOWANCE COULD NOT BE MADE. I T WAS ALSO SUBMITTED THAT ON IDENTICAL FACTS IN ASSESSMENT YEAR 2002-03 AND 2003-04, SIMIL AR ADDITIONS WERE DELETED BY THE LD. CIT (A). THE LD. CIT (A) AFTER CONSIDERING THE FAC TS CAME TO THE CONCLUSION THAT THE ADDITION WAS MADE WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE. HE RECORDED A FINDING THAT IT WAS NOT CORRECT TO SAY THAT NO LOG BOOK WAS MAINTAINED BY THE ASSESSEE. THEREFORE, 12 I. T. APPEAL NO. 1376 (DEL) OF 2008. THE DISALLOWANCE WAS MADE WITHOUT ANY BASIS. THE L D. CIT (A) ACCORDINGLY DELETED THE ADDITION. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE MATERIAL AVAILABLE ON RECORD. FROM THE ABOVE FACTS IT MAY BE NOTED THAT THE ASSESSEE IS A CO-OP. SOCIETY OF GOVT. OF INDIA. THE ASSESSEE HAS NOT PERMITTED ITS OFFICERS / STAFF TO USE VEHICLES FOR PERSONAL USE. NO MATERIAL WAS BROUGHT ON RECORD TO SUGGEST THAT THE VEHICLES WERE USED FOR PERSONAL USE BY THE STAFF. IN THE ABSENCE OF A NY SUCH MATERIAL, DISALLOWANCE MADE ON AD-HOC BASIS CANNOT BE SUSTAINED. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT (A) DELETING THE ADDITION. 18. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED, F OR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 31 ST MARCH, 2010. SD/- SD/- [ A. D. JAIN ] [ K. D . RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 31 ST MARCH, 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 13 I. T. APPEAL NO. 1376 (DEL) OF 2008. 14 I. T. APPEAL NO. 1376 (DEL) OF 2008.