D.C.I.T Cir-1, Kolkata, Kolkata V. M/s The Jute Corparation of India Ltd., Kolkata

ITA 1520/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4254 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 07-11-2016
• Assessment Year: misc
• Appeal Filed On: 24-05-2013
• Court: TRIBUNAL
• Department Lawyers: PINAKI MUKHERJEE
• Assessee Lawyers: S GHOSH; B SHYAM
• Keywords: Business expenditure; Opportunity of being heard
• Section: 143(3)

Judgement Text

1 ITA NO. 1520/KOL/2013 & CO NO.103/KOL/2013 THE JUTE CORPN. OF INDIA LTD ., AY 2005-06 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI P. M. JAGTAP, AM & SHRI K. NARASIMHA CHARY, JM] I.T.A NO. 1520/KOL/2013 ASSESSMENT YEAR: 2005-06 DEPUTY COMMISSIONER OF INCOME-TAX, VS. THE JUTE C ORPORATION OF INDIA LTD. CIRCLE-1, KOLKATA. (PAN: AABCT8820B) ( APPELLANT ) ( RESPONDENT ) & C.O. NO.103/KOL/2013 IN I.T.A NO. 1520/KOL/2013 ASSESSMENT YEAR: 2005-06 THE JUTE CORPORATION OF INDIA LTD. VS. DEPUTY COM MISSIONER OF INCOME-TAX, CIRCLE-1, KOLKATA. (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING: 07.11.2016 DATE OF PRONOUNCEMENT: 10.11.2016 FOR THE REVENUE: SHRI PINAKI MUKHERJEE, JCIT, SR. DR FOR THE ASSESSEE: S/ SHRI B. SHYAM & S. GHO SH, CA ORDER PER SHRI K. NARASIMHA CHARY, JM: THIS APPEAL BY REVENUE AND CROSS OBJECTION BY ASSES SEE ARE ARISING OUT OF ORDER OF CIT(A)-XX, KOLKATA VIDE APPEAL NO. 122/CIT(A)-XX/RA NGE-1/2011-12/KOL DATED 01.02.2013. ASSESSMENT WAS FRAMED BY ADDL.CIT, RAN GE-1, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961(HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2005-06 VIDE HIS ORDER DATED 27.12.2007. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN JUTE BUSINESS. FOR THE AY 2005-06 THEY HAD FILED THEIR RETURN OF INCOM E ALONG WITH AUDITED BALANCE SHEET AND TAX AUDIT REPORT ON 31.10.2005 DECLARING A TOTAL IN COME OF RS.2,21,49,318/-. THE RETURN WAS PROCESSED AND DEMAND WAS RAISED ON 25.07.2006 FOR R S.10,42,797/-. IN THAT PROCESS THE AO DISALLOWED A SUM OF RS.3,14,49,281/- WHICH WAS CLAI MED AS PRIOR PERIOD EXPENSES UNDER TWELVE HEADS. CHALLENGING THIS ORDER, ASSESSEE PRE FERRED APPEAL BEFORE THE LD. CIT(A). IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESS EE CORPORATION, SINCE ITS INCEPTION, BOOKED CERTAIN EXPENSES AS PRIOR PERIOD ADJUSTMENTS FOLLOWING THE PRINCIPLES OF ACCOUNTANCY 2 ITA NO. 1520/KOL/2013 & CO NO.103/KOL/2013 THE JUTE CORPN. OF INDIA LTD ., AY 2005-06 AND THE ACCOUNTING STANDARDS GOVERNED THE PREPARATI ON OF ACCOUNTS, AND IN STRICT COMPLIANCE WITH THE PROVISIONS OF LAW. HOWEVER, TH E AO DISALLOWED THE SAME WITHOUT GOING THROUGH THE FACTS INCLUDING NATURE OF EXPENSE S AND THE GENUINENESS OF MEETING THE SAME. IT WAS SUBMITTED THAT THE JUTE CORPORATION O F INDIA HAS TO ACT AS A NODAL AGENCY FOR PROCUREMENT OF RAW JUTE FROM JUTE GROWERS OR CULTIV ATORS TO PREVENT THE DISTRESS SALES BY WAY OF MINIMUM SUPPORT PRICE, IN THAT EXERCISE AT PLACE S WHERE THEY DO NOT HAVE INFRASTRUCTURE THEY HAVE BEEN PROCURING THE RAW JUTE THROUGH STATE LEVEL COOPERATIVES, AND THE EXPENSES INCURRED BY SUCH STATE LEVEL COOPERATIVES HAVE TO B E REIMBURSED ON FREIGHT AND CONVERSION CHARGES IN THE FORM OF SERVICE CHARGES APART FROM T HE PURCHASE VALUE OF THE JUTE. SINCE THE ASSESSEE WILL COME TO KNOW THE DETAILS OF SUCH CHAR GES ONLY AFTER THE YEAR OF PROCUREMENT SUCH CHARGES ARE BOOKED AS PRIOR PERIOD CHARGES. S O ALSO, IN RESPECT OF FREIGHT CHARGES PRICE SUPPORT ALSO THERE WERE NO ASCERTAINED EXPENSES DUR ING THE YEAR AS SUCH, EXPENSES WERE CRYSTALLIZED ONLY IN THE ASSESSMENT YEAR. FURTHER, THE VRS SCHEME WAS INTRODUCED AND THOUGH 18 NUMBER OF EMPLOYEES WERE GIVEN VRS IN 200 3-04 INVOKING A PAYMENT OF RS.52.29 LAKHS, THE FINAL APPROVAL AND THE AMOUNTS WERE RECEIVED ONLY IN 2004-05 AS SUCH, THESE AMOUNTS WERE ALSO TO BE BOOKED IN THE RELEVAN T ASSESSMENT YEAR. LIKEWISE, IN RESPECT OF THE INTEREST ON BANK LOAN ALSO THE AMOUNT WAS NO T BOOKED IN THE EARLIER YEAR AS IT WAS NOT KNOWN TO THE ASSESSEE BEFORE THE END OF MARCH, 2003 . LD. CIT(A) BY WAY OF ORDER DATED 01.02.2013 CONFIRMED THE ORDER OF AO IN RESPECT OF CERTAIN ITEMS BUT ALLOWED THE APPEAL IN RESPECT OF THE EXPENSES RELATING TO THE FREIGHT CHA RGES, PURCHASE PRICE SUPPORT, SERVICE CHARGES, EX GRATIA PAYMENT ON VRS AND INTEREST ON B ANK LOAN HOLDING THAT DUE TO THE PECULIAR CIRCUMSTANCES OF THE BUSINESS OF THE ASSES SEE SUCH EXPENSES WOULD NOT BE ASCERTAINED TILL LAST DATE OF THE YEAR AND SUCH EXP ENSES WERE ONLY CRYSTALLIZED IN THE RELEVANT ASSESSMENT YEAR AS SUCH, THEY COULD BE ALLOWED AS D EDUCTION. 3. CHALLENGING THE SAID ORDER OF LD. CIT(A), THE R EVENUE CAME IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF SERVICE CHARGES AMOUNTING TO RS. 5,91,284/- . 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF FREIGHT AMOUNTI NG TO RS.18,12,110/- . 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF PURCHASE PRICE SUPPORT AMOUNTING TO RS. 64,83,852/- . 3 ITA NO. 1520/KOL/2013 & CO NO.103/KOL/2013 THE JUTE CORPN. OF INDIA LTD ., AY 2005-06 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF EXGRATIA PAYMEN T OF VRS AMOUNTING TO RS. 52,29,554/- . 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST ON BAN K LOAN AMOUNTING TO RS. 2,25,0001- . ASSESSEE PREFERRED CROSS OBJECTIONS ON THE FOLLOWIN G GROUNDS: ITEM NO 1, 2 & 3 OF THE GROUNDS FOR THAT THE AO WITHOUT GOING THROUGH THE ACTUAL F ACTS OF THE TRANSACTIONS AND WITHOUT CONSIDERING THE SUBMISSION AND RELATED DOCUMENTARY EVIDENCES HAS DISALLOWED RS 5,91,284/- ON ACCOUNT OF SERVICE CHARGES, RS 18,12, 180/- AS FREIGHT AND RS.64,83,852/- AS PURCHASE PRICE OF RAW JUTE PAID/PAYABLE PROCURED THROUGH STATE CO-OPERATIVES, WHO ACTS AS AN EXTENDED ARMS OF THE CORPORATION TO ARRE ST MSP OPERATION OF RAW JUTE IN MOST REMOTE LOCALITIES WHERE THERE IS NO PROCUREMENT CEN TRE OF JCI. IT WAS EXPLAINED TO AO THAT AS PER AGREED ARRANGEMENT THE CORPORATION IS L IABLE TO PAY FREIGHT, RAW JUTE (FIBRE) VALUE AND CONVERSION CHARGES TO STATE LEVEL CO-OPER ATIVE SOCIETY TO REIMBURSE THEIR COST INVOLVED IN THE STATUTORY PROCUREMENT. THE ARGUMENT WAS BROUGHT BEFORE THE LD CIT(A) AS TO WHY SUCH EXPENSES WERE BOOKED UNDER PRIOR PER IOD ADJUSTMENT AS THERE WAS NO AMOUNT OF CERTAINTY FOR OCCURRENCE OF THE SAME IN P REVIOUS YEAR AND THE AMOUNT WAS BOOKED AS PER POLICY ADOPTED BY THE CORPORATION. LD CIT(A) AFTER CONSIDERING THE CONTENTION HAS ALLOWED THE SAME AS GENUINE PAYMENTS MADE BY THE CORPORATION FOR BUSINESS EXPENSES. ITEM NO 4 THAT THE AO WAS NOT JUSTIFIED BY REJECTING THE CLAI MS TO ALLOW PAYMENTS MADE AS EX-GRATIA TO RETIRED EMPLOYEES UNDER VOLUNTARY RETIREMENT SCH EME(VRS) AS PER APPROVED SCHEME OF GOI AND RS 52,29,554/-, WAS PAID FOLLOWING THE N ORMS OF THE SCHEME. IN SPITE OF OUR SUBMISSION IN COURSE OF ASSESSMENT PROCEEDING. WE H AVE EXPLAINED THE ACTUAL FACT FOR BOOKING SUCH EXPENSES UNDER HEAD PRIOR PERIOD EXPEN SES CONSIDERING THAT THE RELATED ORDER PASSED BY THE CORPORATION, TO LD CIT(A), WHO HAS PERUSED AND ORDERED FOR ALLOWING THE SAME AS BUSINESS EXPENSES. ITEM NO 5 THE AO IN HIS ASSESSMENT PROCEEDING HAS DISALLOWED THE PAYMENT MADE TO BANK AS INTEREST CHARGES ON LOAN DRAWN FROM THEM THOUGH BOO KED UNDER PRIOR PERIOD EXPENSES DUE TO DEBITING THE SAME IN THE MONTH OF APRIL IN B ANK STATEMENT. THE LD CIT(A) WAS APPRISED OF THE ACTUAL FACT OF THE CASE AND HAS ORD ERED FOR DELETION. 4. LD. AR ARGUED IN SUPPORT OF THE ORDER OF THE LD. CIT(A) BY REITERATING THE SAME ARGUMENTS THAT WERE ADDRESSED BEFORE THE LD. CIT(A) , WHEREAS THE LD. DR VEHEMENTLY DISPUTED THE ORDER OF THE LD. CIT(A) ON THE GROUND THAT THE MATERIAL THAT WAS PLACED BEFORE THE LD. CIT(A) WAS NOT PROPERLY VERIFIED AND THE AO WAS NOT GIVEN AN OPPORTUNITY TO VERIFY THE CORRECTNESS OF ALL THESE DOCUMENTS. HE FURTHER SUBMITS THAT THE ORDER OF LD. CIT(A) SUFFERS LACK OF REASONS AND THO UGH THE LD. CIT(A) STATED THAT HE 4 ITA NO. 1520/KOL/2013 & CO NO.103/KOL/2013 THE JUTE CORPN. OF INDIA LTD ., AY 2005-06 HAD REGARD TO THE PECULIARITY OF THE CIRCUMSTANCES OF THE BUSINESS OF THE ASSESSEE, FAILED TO ASSIGN ANY PARTICULAR REASON FOR DISAGREEING WIT H THE AO ON ANY PARTICULAR GROUND. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. LD. AR BROUGHT TO OUR NOTICE THAT THE LD. CI T(A) CONSIDERED SO MANY DOCUMENTS WHICH ARE ENUMERATED IN THE 5 TH COLUMN OF THE TABLE GIVEN AT PAGE 7 OF HIS ORDER I N SUPPORT OF HIS CONTENTION THAT THE ORDER OF THE LD. CIT(A) IS WELL CONSIDERED ONE AND DOES NOT WARRANT ANY INTERFERENCE BY THE TRIBUNAL AT THIS ST AGE. HOWEVER, WE FIND SOME SUBSTANCE AND FORCE IN THE ARGUMENTS OF THE LD. DR THAT THOUG H THE DOCUMENTS ARE SAID TO HAVE BEEN FURNISHED IN SUPPORT OF THE CONTENTIONS OF THE ASSE SSEE, THE ORDER OF THE LD. CIT(A) DOES NOT REFLECT THE CONSIDERATION OF SUCH DOCUMENTS. THE V ERY BASIS FOR THE AO TO DISALLOW THE CLAIM OF THE ASSESSEE IS THAT THOUGH IT WAS SUBMITT ED BEFORE HIM THAT THE LIABILITY WAS CRYSTALLIZED DURING THE PREVIOUS YEAR, NO DOCUMENTS OR EVIDENCE OR SUPPORTING PAPERS IN RESPECT OF SUCH CLAIM WERE FILED BEFORE HIM. IT IS PURELY OBSERVING SO AND FOR LACK OF EVIDENCE THE AO DISALLOWED THE CLAIM OF THE ASSESSE E. IN SUCH CIRCUMSTANCES, IT IS IMPERATIVE FOR THE LD. CIT(A) TO GIVE AN OPPORTUNIT Y TO THE AO OR TO REFER AND DISCUSS ALL SUCH DOCUMENTS IN HIS ORDER TO BASE HIS CONCLUSION ON SOUND REASONS. 6. IT IS THE FURTHER ARGUMENT OF THE LD. DR THAT IT IS NOT AS THOUGH ALL THE EXPENSES WERE INCURRED EITHER BY THE STATE LEVEL COOPERATIVES OR BY THE ASSESSEE IN THE LAST MONTH OF THE EARLIER PREVIOUS YEAR SO THAT THE ASSESSEE COULD GA THER THE INFORMATION ONLY DURING THE RELEVANT PREVIOUS YEAR. HE SUBMITTED THAT THE ASSE SSEE COULD HAVE GATHERED INFORMATION RELATING TO THE SERVICE CHARGES, FREIGHT CHARGES, P URCHASE PRICE SUPPORT EXPENSES ETC. ON MONTHLY BASIS AS SUCH THERE WOULD NOT HAVE BEEN ANY IMPEDIMENT FOR THE ASSESSEE TO CLAIM SUCH EXPENSES IN THE RELEVANT YEAR ITSELF INSTEAD O F POOLING THEM UP TILL THE NEXT YEAR. WE ALSO FIND SOME SUBSTANCE IN THE ARGUMENT OF THE LD. DR THAT WHEN THE VRS SCHEME WAS DECLARED AND 18 NUMBER OF EMPLOYEES OPTED FOR VRS, RELEVANT EXPENSES COULD HAVE BEEN CRYSTALLIZED IN THAT YEAR ITSELF BUT FOR WHICH FORM AL APPROVAL OF THE MINISTRY OF TEXTILES AT A LATER POINT OF TIME. 6. WE FIND THAT THE ORDER OF THE LD. CIT(A) DOES NO T ADVERT TO ANY OF THESE DETAILS AS TO WHAT NECESSITATED THE CULMINATION OF ALL THESE EXPE NSES TO BE CRYSTALLIZED ONLY IN THE RELEVANT ASSESSMENT YEAR AND HOW MUCH PART OF THE E XPENSES THAT COULD HAVE BEEN 5 ITA NO. 1520/KOL/2013 & CO NO.103/KOL/2013 THE JUTE CORPN. OF INDIA LTD ., AY 2005-06 CRYSTALLIZED IN THE RELEVANT PREVIOUS YEAR. THERE IS NO MATERIAL BEFORE US ON THESE ASPECTS TO MAKE THE THINGS CLEAR AS TO WHICH PART OF THE EXPEN SES COULD NOT BE CRYSTALLIZED IN THE PRIOR PREVIOUS YEAR AND WHICH PART OF THE EXPENSES COULD BE CRYSTALLIZED ONLY DURING THE PREVIOUS YOUR. IT IS ALSO NOT KNOWN WHAT ARE THE DOCUMENTS THAT WERE CONSIDERED BY THE LD. CIT(A) LEAD HIM TO COME TO A CONCLUSION THAT THE DISALLOWA NCE OF THESE EXPENSES HAD TO BE DELETED. IT IS ALSO NOT KNOWN WHETHER ANY OPPORTUNITY WAS GI VEN TO THE AO TO VERIFY SUCH DOCUMENTS AND TO SUBMIT A REPORT. UNDER THESE CIRCUMSTANCES, IN THE INTEREST OF JUSTICE, WE FIND IT JUST AND PROPER TO SET ASIDE THE IMPUGNED ORDER OF THE L D. CIT(A) ON THIS SCORE AND RESTORE THE MATTER TO THE FILE OF AO FOR DECIDING THE SAME AFRE SH AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD TO SUBSTANTIATE ITS CLAIM BY PRODUCI NG RELEVANT DOCUMENTS. THE APPEAL OF REVENUE IS ACCORDINGLY, ALLOWED FOR STATISTICAL PUR POSE. 7. THE CROSS OBJECTION FILED BY THE ASSESSEE IS IN SUPPORT OF THE ORDER OF LD. CIT(A) AND SINCE WE RESTORE THE MATTER TO THE FILE OF AO FOR D ECIDING AFRESH, THE CROSS OBJECTION FILED BY ASSESSEE HAS BECOME INFRUCTUOUS AND BEING DISMISSED . 8. IN THE RESULT, THE APPEAL OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSE AND THE CROSS OBJECTION OF ASSESSEE IS DISMISSED BEING INFRUCTUOU S. ORDER IS PRONOUNCED IN THE OPEN COURT ON 10.11.201 6 SD/- SD/- (P. M. JAGTAP) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :10TH NOVEMBER, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT DCIT, CIRCLE-1, KOLKATA. 2 RESPONDENT M/S. THE JUTE CORPORATION OF INDIA LTD. , 15N, NELLIE SENGUPTA SARANI, KOLKATA-700087. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .