Shree Vinayaka Life Sciences Pvt.Ltd., Hyderabad V. DCIT, Hyderabad

ITA 1526/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66476 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 07-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRA
• Keywords: Unexplained investment; Capital asset; Assessment record; Revenue expenditure
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1526/HYD/2010 ASSESSMENT YEAR : 2007-08 SHREE VINAYAKA LIFE SCIENCE (P) LTD., APPELLAN T HYDERABAD. (PAN AAICS9036K) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT HYDERABAD. APPELLANT BY : SHRI MOHD. AFZAL RESPONDENT BY : SMT. VIDISHA KALRA DATE OF HEARING : 16/10/2012 DATE OF PRONOUNCEMENT : 09/11/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT-IV, HYDERABAD DATED 29/10/2010 FOR THE ASSES SMENT YEAR 2007-08. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF DRUGS AND INTERMEDIATES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD FILED ITS RETURN OF INCOME ON 29/10/2007 DECLARING TOTAL INCO ME OF RS. 1,25,14,126/-, WHICH WAS PROCESSED U/S 143(1) OF TH E ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D AFTER ISSUING 2 ITA NO. 1526/HYD/2010 SHREE VINAYAKA LIFE SCIENCE (P) LTD. STATUTORY NOTICES, THE AO COMPLETED THE ASSESSMENT U/S 143(3) AND MADE THE ADDITIONS, WHICH ARE TO BE DECIDED/DISPOSE D OF AS UNDER:- 3. GROUND NO. 1 IS GENERAL IN NATURE. 4. GROUND NO. 2 & 3 ARE DIRECTED AGAINST THE ORDER OF CIT(A) IN UPHOLDING THE DISALLOWANCE OF LOSS ON ACCOUNT OF FI RE TO AN EXTENT OF RS. 47,24,458/- TO RAW MATERIAL AND FINISHED GOODS. 5. THE AO FOUND THAT THE ASSESSEE HAD DEBITED AN AM OUNT OF RS. 47,24,458/- TOWARDS LOSS ON FIRE. HE, HOWEVER, OP INED THAT ANY LOSS THAT AFFECTS STOCKS, FOR OR ANY OTHER FACTOR, WOULD AUTOMATICALLY GET TELESCOPED INTO THE CLOSING STOCK VALUATION, WH ICH IS DONE ON ACTUAL/PHYSICAL MEASUREMENTS. HE OPINED THAT SUCH L OSS WOULD NOT BE AN ELIGIBLE DEDUCTION. THE AO WAS OF THE VIEW TH AT EVEN THE LOSS PERTAINING TO CAPITAL ASSETS, IS REQUIRED TO BE ADJ USTED AGAINST THE ASSET VALUE AND COULD NOT BE COMPUTED AS AN ALLOWAB LE REVENUE EXPENDITURE. HE FURTHER NOTED THAT EVEN THOUGH THE ASSESSEE BY WAY OF NOTICE DATED 12/10/2009 HAD BEEN REQUIRED TO EXP LAIN THE DEBIT IN RESPECT OF LOSS ON FIRE AND ITS ALLOWABILITY, THE ASSESSEE HAD NOT CHOSEN TO FURNISH ANY EXPLANATION OR OBJECTION IN T HIS REGARD. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF LOSS BY FIRE OF RS. 47,24,458/-. 6. BEFORE THE CIT(A), IT WAS SUBMITTED BY THE AR OF THE ASSESSEE THAT IN THE RELEVANT FINANCIAL YEAR, THERE WAS A FI RE ACCIDENT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 31/10/2006 DUE TO A SHORT CIRCUIT/STATIC ELECTRICITY. HE SUBMITTED THAT THE A SSESSEE HAD IMMEDIATELY SOUGHT HELP FROM THE NEAREST FIRE STATI ON, EVEN THEN, 3 ITA NO. 1526/HYD/2010 SHREE VINAYAKA LIFE SCIENCE (P) LTD. THE FIRE THAT BROKE OUT AT 1.30 AM, COULD BE CONTRO LLED ONLY AROUND 6 AM. AS PER THE ASSESSEE RAW MATERIALS LYING IN THE GODOWNS, BOTH BELONGING TO THE ASSESSEE AND OTHERS FOR JOB WORK, GOT DAMAGED. THE ASSESSEE HAD ACCORDINGLY DEBITED THE AMOUNT OF RS. 47,24,458/- TO THE PROFIT AND LOSS ACCOUNT AS LOSS BY FIRE. B EFORE THE CIT(A), THE AR OF THE ASSESSEE FURNISHED COPIES OF THE CORR ESPONDENCE WITH FIRE DEPARTMENT IN THIS REGARD. THE CIT(A) CALLED F OR A REMAND REPORT FROM THE AO AND THE REMAND REPORT HAD BEEN P ROVIDED TO THE ASSESSEE FOR ITS OBJECTIONS/COMMENTS. VIDE HIS SUBM ISSIONS DATED 14/09/10, THE AR OF THE ASSESSEE SUBMITTED THAT EVE N IN THE REMAND REPORT THE AO DID NOT STATE ANYTHING ABOUT THE DATE OF SERVICE OF THE LETTER DATED 12/10/2009, AND AS TO ON WHOM THE SAME WAS SERVED. THE AO FURTHER DID NOT MENTION THE DATE OF HEARING IN RESPECT OF THE INFORMATION CALLED FOR BY WAY OF SAID LETTER. HE AV ERRED THAT THE INFORMATION MENTIONED BY THE AO HAD BEEN CALLED FOR EARLIER ON 30/07/2009 AND OTHER PRECEDING OCCASIONS. HE MAINTA INED THAT THE AO DID NOT PROVIDE ANY OPPORTUNITY TO CLARIFY THE D OUBTS AND THEREBY FAILED TO GIVEN REASONABLE OPPORTUNITY THOUGH THE L AST NOTICE ACCORDING TO HIM WAS DATED 12/10/2009 AND THE ASSES SMENT WAS COMPLETED ON 31/12/2009. 7. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE INFORMATION/EVIDENCE SUBMITTED IN THE PAPER BOOK AS ALSO THAT AVAILABLE ON THE FILE OF THE AO, THE CIT(A) HELD TH AT THE FACT OF A FIRE ACCIDENT AT THE PREMISES OF THE ASSESSEE CAN NOT BE DENIED. HOWEVER, THE DOCUMENTS FURNISHED BY THE ASSESSEE FO R SUBSTANTIATING THE CLAIM OF LOSS BY FIRE THEMSELV ES SHOW THAT THE ASSESSEE WAS NEVER CERTAIN AND ACCURATE WITH REGARD TO THE QUANTUM OF LOSS. THE CIT(A) FURTHER HELD THAT FROM THE WORKING OF 4 ITA NO. 1526/HYD/2010 SHREE VINAYAKA LIFE SCIENCE (P) LTD. LOSS ON ACCOUNT OF FIRE BY THE INSURANCE COMPANY, A COPY WHEREOF IS AVAILABLE ON THE RECORD OF THE AO ALSO, IT IS SEEN THAT THE CLAIM IN RESPECT OF FINISHED GOODS, AS WELL AS THE LOSS OF M ATERIALS OTHER THAN LITHIUM METAL, COULD NEVER BE SUBSTANTIATED BY THE ASSESSEE. HE FURTHER HELD THAT THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT THE SAID FINDINGS OF THE INSURANCE COMPANY BY WAY OF AN Y DOCUMENTARY EVIDENCE AND THEREFORE THE CLAIM OF THE ASSESSEE RE GARDING LOSS BY FIRE OF FINISHED GOODS IS NOT CORRECT. THE CIT(A) F URTHER SUBMITTED THAT THE ASSESSEE DID NOT FURNISH ANY EVIDENCE TO S UBSTANTIATE ITS CLAIM OF LOSS BEFORE THE AO AS WELL AS BEFORE HIM. HE, THEREFORE, UPHELD THE DISALLOWANCE OF RS. 47,24,458/- MADE BY THE AO ON ACCOUNT OF CLAIM OF LOSS OF STOCK BY THE ASSESSEE. 8. BEFORE US, AT THE TIME OF HEARING, THE LEARNED C OUNSEL FOR THE ASSESSEE SHRI MHD. AFZAL SUBMITTED THAT SINCE THE M ATERIAL LOST IN FIRE WAS CHEMICAL SUBSTANCE AND, THEREFORE, DUE TO THE HEAT IT BECAME UNFIT FOR HUMAN CONSUMPTION. THE LEARNED COU NSEL SUBMITTED THAT AT PAGES 11, 12 & 13 OF THE PAPER BO OK CONTAINS I) LETTER ADDRESSED TO COMMISSIONER OF CUSTOMS & CE NTRAL EXCISE, HYDERABAD 500 004, DATED 13/03/2007. II) LETTER ADDRESSED TO THE RELIANCE INSURANCE CO. LTD., HYDERABAD, DATED 03/02/2007, AND III) LETTER ADDRESSED TO THE INSPECTOR OF POLICE, J EEDIMETLA POLICE STATION, HYDERABAD, DATED 02/11/2006. 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE BENCH REQUESTED THE ASSESSEE TO PRODUCE THE LETTER FROM THE CENTRAL EXCISE DEPARTMENT GRANTING REMISSION OF DUT Y ON THE 5 ITA NO. 1526/HYD/2010 SHREE VINAYAKA LIFE SCIENCE (P) LTD. FINISHED GOODS DESTROYED IN THE FIRE ACCIDENT. THE BENCH POINTED OUT THAT IT WAS ONLY THE CLAIM OF THE ASSESSEE, WHICH W AS ON RECORD, WHICH HAS NOT BEEN CORROBORATED BY EVIDENCE. 10. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PR ODUCED THE LETTER FROM THE CENTRAL EXCISE DEPARTMENT AS DIRECT ED BY THE BENCH. IN THE ABSENCE OF THE EVIDENCE OF CORRESPONDENCE BE TWEEN THE DEPARTMENT AND THE ASSESSEE, WE AGREE WITH THE FIND INGS OF THE CIT(A) THAT THE FACT OF A FIRE ACCIDENT AT THE PR EMISES OF THE ASSESSEE CANNOT BE DENIED, BUT, THE ASSESSEE WAS NE VER CERTAIN AND ACCURATE WITH REGARD TO THE QUANTUM OF LOSS AND FAI LED TO SUBSTANTIATE ITS CLAIM BY FURNISHING NECESSARY RECO RDS OF STOCK ETC. AND BY SHOWING THE NECESSARY CONTEMPORANEOUS ENTRIE S IN ITS BOOKS OF ACCOUNT REGARDING SUCH LOSS. HENCE, WE UPHOLD TH E ACTION OF THE CIT(A) ON THIS ISSUE AND DISMISS THE GROUND OF APPE AL OF THE ASSESSEE. 11. GROUND NO. 4 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN CONFIRMING THE ADDITION OF RS. 5,20,000/- U/S 68 OF THE ACT. 12. THE AO NOTED THAT THE ASSESSEE HAD RECEIVED CAS H LOANS OF RS. 5,20,000/- FROM 12 PERSONS DURING THE YEAR UNDER CO NSIDERATION, HOWEVER, THE ASSESSEE COULD NOT FURNISH ANY CONFIRM ATION LETTERS THOUGH THE SAME WERE SPECIFICALLY CALLED FOR. THERE FORE, THE AO DISALLOWED THE SAID AMOUNT OF RS. 5,20,000/- BY TRE ATING THE SAME AS UNEXPLAINED INVESTMENT U/S 68 OF THE ACT. 13. ON APPEAL, BEFORE THE CIT(A), THE AR OF THE ASS ESSEE SUBMITTED THAT THE SAID AMOUNTS WERE OBTAINED AS SE CURITIES FROM 6 ITA NO. 1526/HYD/2010 SHREE VINAYAKA LIFE SCIENCE (P) LTD. THE EMPLOYEES, WHO HAD JOINED THE ASSESSEE COMPANY DURING THE RELEVANT PERIOD. HE AVERRED THAT THOUGH THE SAME WE RE GENUINE LOANS, THE ASSESSEE COULD NOT FURNISH THE CONFIRMAT IONS TO SUPPORT 5THEM DUE TO PAUCITY OF TIME. HE AVERRED THAT NECES SARY EVIDENCE CAN BE PRODUCED EVEN AT THE ASSESSEES STAGE, IF AN OPPORTUNITY IS GRANTED IN THIS REGARD. 14. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) OBSERVED THAT FROM THE BREAK UP OF THE UNSECURED LO ANS AVAILABLE ON THE ASSESSMENT RECORD, IT IS FOUND THAT THE ASSESSE E HAD TOTAL UNSECURED LOANS OF RS. 89,62,171/- AS ON 31/03/2007 , OUT OF WHICH THE AMOUNTS MENTIONED ABOVE WERE RECEIVED IN CASH. THE CIT(A) NOTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSEE HAD FILED SOME CONFIRMATIONS, WHICH INCLUD E THOSE FROM T. MANJULATHA, P. NARASIMHA RAO, P. TIRUPALA REDDY AND THE LOAN AMOUNTS MENTIONED IN THE CASE OF THESE PERSONS ARE RS. 48,000/-, RS. 49,000/- AND RS. 48,000/- RESPECTIVELY. THE CIT (A) OBSERVED THAT THE ADDRESSES GIVEN BY T. MANJULATHA AND P. TI RUPALA REDDY IN TWO CONFIRMATIONS ARE ALSO DIFFERENT. THE CIT(A), T HEREFORE, HELD THAT ALL THESE PERSONS ARE HAVING MEAGER SALARY INC OME AND, THEREFORE, THEIR CREDITWORTHINESS CANNOT BE ACCEPTE D. ACCORDINGLY, HE CONFIRMED THE ADDITION OF RS. 5,20,000/- MADE BY THE ASSESSING OFFICER U/S 68 OF THE ACT. 15. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF TH E AUTHORITIES BELOW. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED BEFORE US 7 ITA NO. 1526/HYD/2010 SHREE VINAYAKA LIFE SCIENCE (P) LTD. THAT THE 12 EMPLOYEES HAVE DEPOSITED THESE AMOUNTS IN ORDER TO ACQUIRE CERTAIN SKILLS IN THE PARTICULAR FILED OF W ORK. THE DR SUPPORTED THE DISALLOWANCE CONFIRMED BY THE CIT(A) ON THE GROUND THAT NO PROOF HAS BEEN PRODUCED WITH RESPECT TO THE DEPOSITS BY THE ASSESSEE. THE BENCH AGAIN ASKED THE LEARNED COUNSEL FOR THE ASSESSEE TO PRODUCE THE APPOINTMENT ORDERS OF THE E MPLOYEES WHEREIN IT HAS BEEN INSTRUCTED TO DEPOSIT THE AMOUN TS WITH THE ASSESSEE FOR THE PURPOSE OF EMPLOYMENT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT PRODUCED THE LETTER OF APPOINT MENT AS DIRECTED BY THE BENCH. IN THESE CIRCUMSTANCES, SINCE THE REA SON FOR DEPOSITS REMAIN UNSUBSTANTIATED, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS COUNT ALSO. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAY ARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED:9 TH NOVEMBER, 2012 KV COPY TO:- 1) SHREE VINAYAKA LIFE SCIENCE (P) LTD., C/O MOHD. AFZ AL, ADVOCATE, 11-5-465, SHERSONS RESIDENCY, FLAT NO. 4 02, CRIMINAL COURT RO9AD, RED HILLS, HYDERABAD. 2) DCIT, CIRCLE 3(1), HYDERABAD. 3) THE CIT(A)-IV, HYDERABAD 4) CIT-III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYD ERABAD.