Diamines & Chemicals Ltd., Baroda V. The Addl. CIT.,Range-1, Baroda

ITA 1586/AHD/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9450 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NIVAS T BIDARI
• Keywords: Opportunity of being heard
• Section: 143(3); 37(1); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SHR I R. P. TOLANI , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER DIAMINES & CHEMICALS LTD. PLOT NO. 12, PCC AREA PETROCHEMICALS, BARODA - 391346 PAN: AAACD5356R (APPELLANT) VS THE ADD. COMMISSIONER OF INCOME TAX, RANGE - 1, BARODA (RESPONDENT) REVENUE BY : S H RI NIVAS T. BIDARI, CIT - D . R. ASSESSEE BY: S H RI SANJAY R. SHAH , A.R. DATE OF HEARING : 01 - 12 - 2 016 DATE OF PRONOUNCEMENT : 17 - 01 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTAN T MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2009 - 10 , AR I SES FROM ORDER OF THE CIT - I, AHMEDABAD DATED 24 - 03 - 2014 , IN PROCEEDINGS UNDER SECTION 263 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 1586 / A HD/20 14 A SSESSMENT YEAR 200 9 - 10 I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - YOUR APPELLANT BEING AGGRIEVED BY THE ORDER DATED 24 TH MARCH, - 2014 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX - I BARODA, ('CIT') UNDER SECTION 263 OF THE INCOME - TAX ACT, 1961 ('THE ACT') SETTING ASIDE THE ORDER UNDER SECTION 143(3) OF THE ACT PASSE D BY THE ADDITIONAL COMMISSIONER OF INCOME - TAX, RANGE - 1, BARODA ('THE LEARNED AO') PREFERS AN APPEAL AGAINST THE SAME ON THE FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE LEARNED CIT UNDER SECTION 263 OF T HE ACT IS BAD IN LAW AS THE ORDER OF LEARNED AO UNDER SECTION 143(3) WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. IT IS SUBMITTED THAT IT BE SO HELD NOW AND ORDER PASSED UNDER SECTION 263 OF THE ACT BE QUASHED. 1.1 THE LEARNED C IT ERRED IN LAW IN APPLYING PROVISIONS OF SECTION 263 OF THE ACT TO THE CLAIM \ OF APPELLANT IN CONNECTION WITH LOSS ON FOREIGN EXCHANGE FLUCTUATION ON REINSTATEMENT OF ADVANCES, AS WAS DONE BY LEARNED AO, AS THE SAME WAS A POSSIBLE VIEW TAKEN BY THE LEARN ED AO, AFTER DULY MAKING NECESSARY INQUIRIES AND WITH DUE APPLICATION OF MIND. IT IS SUBMITTED THAT WHEN TWO VIEWS ARE POSSIBLE AND LEARNED AO HAS ADOPTED ONE OF THE VIEWS, THE SAME CANNOT BE CONSIDERED TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE AS HAS BEEN HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD 243 ITR 83 AND SUCH ORDER CANNOT BE REVISED UNDER SECTION 263 OF THE ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. WITHOUT PREJUDICE TO FOREGOING , EVEN ON MERITS OF THE CASE THE APPELLANT'S CLAIM OF LOSS ON FOREIGN EXCHANGE FLUCTUATION ON REINSTATEMENT OF ADVANCES IS AN ALLOWABLE DEDUCTION AS HELD BY HON'BLE SUPREME COURT IN CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 254. 3. THE LEA RNED CIT ERRED IN LAW AND ON FACTS IN HOLDING THAT - I) THE ADVANCES OF US$ 15,00,000 RECEIVED BY APPELLANT WAS NEVER A LIABILITY AND WAS NOT TO BE RETURNED OR ADJUSTED; II) SUCH ADVANCE WAS NEVER A LIABILITY ON REVENUE ACCOUNT; AND III) SUCH ADVANCE AMOUNT RECEIVED WAS FOR SETTLING THE DISPUTE BETWEEN THE APPELLANT AND ITS CUSTOMER AND NOT FOR FUTURE PURCHASES AND HENCE WAS NOT A TRADING LIABILITY. I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 3 4. WITHOUT PREJUDICE TO THE FOREGOING, ASSUMING WITHOUT ACCEPTING THE FINDING OF LEARNED CIT THAT THE ADVANCES OF US$ 15,00,000 WAS NOT ON REVENUE ACCOUNT, THEN THE SAME HAS TO BE ON CAPITAL ACCOUNT. ACCORDINGLY, THE AMOUNT OF US$ 15,00,000 WRITTEN - BACK BY THE APPELLANT IN THE SUBSEQUENT AY I.E. 2010 - 11 SHOULD NOT BE TAXED IN THE SAI D YEAR BEING CAPITAL IN NATURE. IT IS SUBMITTED THAT IT BE SO HELD NOW AND DIRECTION BE GIVEN TO DEDUCT THE SAME WHILE COMPUTING TOTAL INCOME OF A.Y. 2010 - 11. 5. THE LEARNED CIT FAILED TO APPRECIATE THAT ARTICLE 2 BEARING PAGE NO. 5 OF THE AGREEMENT DATED JUNE 8, 2000 WAS INADVERTENTLY MISSED BY THE APPELLANT WHILE FURNISHING THE COPY OF THE AFORESAID AGREEMENT BEFORE THE LEARNED AO AND THE LEARNED CIT. FURTHER, EVEN IF THE AFORESAID ARTICLE 2 IS PRODUCED, IT WOULD NOT HAVE ANY IMPACT ON THE FACTS OF THE CASE OR THE CHARACTER OF THE ADVANCE RECEIVED. 6. THE LEARNED CIT FAILED TO APPRECIATE THAT - I) THE AMOUNT OF US$ 15,00,000 RECEIVED WAS FOR PURCHASES TO BE MADE BY CUSTOMER FROM THE APPELLANT; AND II) EVEN IF IT IS ASSUMED WITHOU T ADMITTING THAT SUCH AMOUNT WAS RECEIVED FOR SETTLING THE DISPUTES BETWEEN THE APPELLANT AND THE CUSTOMER, THE AFORESAID DISPUTES WERE ON ACCOUNT OF BUSINESS TRANSACTIONS BETWEEN THEM AND THUS WERE ON TRADING ACCOUNT. ALL THE GROUNDS OF APPEALS OF THE ASSESSEE ARE INTERCONNECTED SO THEY ARE DECIDED TOGETHER AS UNDER: - 3. IN THIS CASE RETURN OF INCOME D ECLARING INCOME OF RS. 2 . 47 , 07 , 660/ - WAS FILED ON 29/09/2009. THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT U/S. 143(3) AND ACCEPTED THE RETURN OF INCOME VIDE ORDER DATED 31/10/2011. SUBSEQUENTLY, THE LD. CIT(A) HAD ISSUED A SHOW CAUSE NOTICE DATED 03/03/2014. THE LD. CIT HAS FOUND THAT ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE ON ACCOUNT OF THE FOLLOWINGS: - I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 4 ' ON SCRUTINY, OF CASE RECORDS IT IS NOTICED THAT THE ASSESSEE HAD CLAIMED LOSS ON FOREIGN EXCHANGE AMOUNTING TO RS. 2,50,58,516/ - ON ACCOUNT REINSTATEMENT OF ADVANCES (USD 15,00,000) RECEIVED OUT OF TOTAL RS.2,74, 18,861/ - FOREIGN EXCHANGE LOSS WAS CLAIMED. THE ABOVE ADVANCE AMOUNT WAS FORFEITED AND OFFERED AS INCOME IN THE F.Y. 2009 - 10 RELEV ANT TO A.Y.2010 - 11. SINCE THE ABOVE ADVANCE AMOUNT WAS NOT ACTUALLY PAID AND A KIND OF PROVIS IONS ONLY, THE FOREIGN EXCHANGE FLUCTUATION L OSS CLAIMED WAS REQUIRED TO BE DISALLOWED U/S 37(1) OF THE I. T. ACT . FAILURE TO DO SO HAS RESULTED INTO UNDER ASSESS MENT ' THE LD. CIT STATED THAT THE ASSESSEE CLAIMED LOSS ON FOREIGN EXCHANGE AMOUNTING TO RS. 2,50,58,516/ - ON ACCOUNT OF RE - INSTATEMENT OF ADVANCES. THE LD. CIT FURTHER STATED THAT THE ADVANCE AMOUNT WAS NOT ACTUALLY PAID AND ONLY KIND OF PROVISION WAS MADE. THE ASSESSEE S SUBMITTED THAT ASSESSING OFFICER AT THE TIME OF HEARING IN ASSESSMENT PROCEEDINGS CALLED FOR CERTAIN INFORMATION/DETAILS WITH EXPLANATION FOR FALL IN THE PROFIT BECAUSE OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS. 2,74,18,861/ - . T HE ASSESSEE HAD ALSO SUBMITTED BEFORE THE LD. CIT THAT HON BLE SUPREME COURT IN THE CASE OF CIT DELHI VS. WOODWARD GOVERNOR INDIA PVT. LTD. AND OTHERS (312 ITR 254) HAD RULED IN FAVOUR OF THE ASSESSEE ON THE ISSUE AT HAND AND ALLOWED THE DEDUCTION OF FOREI GN EXCHANGE FLUCTUATION LOSS. THE ASSESSEE HAD ALSO STATED BEFORE THE LD. CIT THAT THE ASSESSING OFFICER HAD MADE ENQUIRY IN RESPECT OF CLAIM OF THE COMPANY AND THE ASSESSING OFFICER HAD APPLIED THE MIND TO THE SUBMISSION MADE BY THE ASSESSEE DURING THE C OURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER HAD ALLOWED THE CLAIM OF THE ASSESSEE IN VIEW OF THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA PVT. LTD. I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 5 3.1 THE CIT HAS NOT ACCEPTED THE EXPLANATION OF THE ASSE SSEE AND HELD THAT THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. HE THEREFORE SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DIRECT ED TO PASS A SPEAKING ORDER AFTER MAKING COMPLETE INVESTIGATION INTO THE NATURE OF AMOUNT RECEIVED, THE NATURE OF DISPUTE BETWEEN THE ASSESSEE AND DOW AND THE NATURE OF RIGHTS AND CLAIMS WAIVED BY THE ASSESSEE AGAINST THE DOW. 4. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL CONTENDED THAT ORDER PA SSED BY THE ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. HE FURTHER CONTENDED THAT ASSESSING OFFICER HAS TAKEN A P O SSIBLE VIEW AFTER DULY MAKING NECESSARY INQUIRES AND WITH DUE APPLICATION OF MIND. HE ALSO EMPHASIZE D ON THE ADDITION AL GROUND FILED CONTENDED THAT THE ORDER PASSED BY THE LD. CIT U/S. 263 WAS BAD IN LAW AS THE SHOW CAUSE NOTICE GIVEN BY HIM WAS ON A POINT OTHER THAN THE ONE FOR WHICH HE HELD THAT THE ORDER PASSED BY THE ASSESSING OFFICER AS ERRONEOUS AN D PREJUDICIAL TO THE REVENUE. HE ALSO RELIED ON THE JUDICIAL PRONOUNCEMENTS IN THE CASES OF CIT V/S G.K. KABRA 211 ITR 336 , COLOUR CRAFT VS. I TO 105 ITD 599 , B.S. SANGWAN V/S. ITO 53 TAXMANN.COM 402 . 5. ON THE OTHER HAND, LD. DR SUPPORTED THE ORD ER OF THE LD . CIT. HE ALSO FURNISHED WRITTEN SUBMISSION STATING THE ISSUE RELATED TO NON - INQUIRY INTO NATURE OF AMOUNT OF US$15,00,000 LAND FLUCTUATION LOSS ON RESTATEMENT. HE ALSO STATED THAT ASSESSING OFFICER WAS NOT ONLY AN I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 6 ADJUDICATOR WHAT WAS AL SO AN INVESTIGATOR AND IT IS HIS DUTY ASCERTAIN THE FACTS STATED IN THE RETURN. HE ALSO RELIED ON THE JUDICIAL PRONOUNCEMENTS IN THE CASES OF RAMPYARI DEVI SARAOGI VS. CIT (SC) 67 ITR 84, MALABAR INDUSTRIAL CO. LTD. VS. CIT (SC) 243 ITR 83, SWARUP VEGETABL E PRODUCTS INDUSTRIES LTD. VS. CIT (ALL) 187 ITR 412, GEE VEE ENTERPRISES VS. ADDL. CIT & ORS. (DEL) 99 ITR 375, ADD. CIT VS. MUKUR CORPORA TION (1978) 111 ITR 0312 (GUJ), CROMPTON GREEVES LTD. ITA NO. 1994/MUM/2013 DATED 01/02/2016. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSING OFFICER HAS ACCEPTED THE RETURN INCOME AS PER ASSESSMENT MADE U/S. 143(3) OF THE ACT ON 31/10/2011 . WE NOTICED THAT THE ASSESSEE HAD RECEIVED US $ 1.5 MILLION AS ADVANCE TO BE AD JUSTED AGAINST THE PURCHASE S TO BE MADE BY THE DOW CHEMICAL PACIFIC LTD. (DOW) AND THE ASSESSEE HAD WRITTEN BACK THIS AMOUNT IN ASSESSMENT YEAR 2010 - 11. WE HAVE ALSO SEEN THE FINDING OF THE LD. CIT STATING THAT ARTICLE 2 BEARING PAGE NO. 5 OF THE AGREEM ENT WAS NEVER PRODUCED BEFORE THE ASSESSIN G OFFICER NOR BEFORE THE LD. CIT . THE LD. CIT FURTHER STATED THAT THE SALIENT FEATURE OF THIS AGREEMENT WAS THAT IT WAS NOT ASSESSEE ALONE WHICH ENTERED INTO AG REEMENT WITH DOW, BUT OTHER COMPANIES AS WELL AS CERTAIN INDIVIDUALS WERE JOINTLY AND SEVERALLY LIABLE FOR VARIOUS TERMS AND CONDITIONS. THE LD. CIT STATED THAT THE AMOUNT WAS RECEIVED BOTH IN TERMS OF ARTICLE 2 AND 3 AND THE ASSESSEE HAD NEVER SUPPLIED A RTICLE 2 TO THE DEPARTMENT WHICH WAS THE MATERIAL CONDITIONS FOR RECEIPT OF US $ 1.5 MILLION. HE FURTHER STATED THAT BY VIRTUE OF ARTICLE 5 I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 7 THE LIABILITY TO SUPPLY GOODS AGAINST THE ADVANCE HAD EXPIRED ON JUNE 30, 2001. THE LD. CIT CONCLUDED THAT THE AMO UNT RECEIVED WAS NEVER A LIABILITY AND WAS PRIMARILY CONSIDERATION FOR ALL THE SIGNATORIES TO WAIVE THEIR CLAIM ON DOW. DOW NEVER ASKED BACK FOR MONEY NO INTEREST WAS PROVIDED AS PER THE TERMS OF THE AGREEMENT. WE FIND THAT BECAUSE OF NOT PRODUCING ARTICL E 2 BY THE ASSESSEE BEFORE THE ASSESSING OFFICER HE FAILED TO MAKE PROPER ENQUIRIES TO ASCERTAIN THE TRUE NATURE OF THE AMOUNT RECEIVED. WE HAVE ALSO CONSIDERED THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE STATING THAT THE ASSESSING OFFICER HAD TAKEN ONE POSSIBLE VIEW AFTER CONDUCTING NECESSARY INQUIRIES AS WITH THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. 243 ITR 83. IN THIS CONNECTION, WE HAVE PERUSED THE ASSESSMENT ORDER MADE BY THE ASSESSING OFFICER AND THE OTHER RELATED MATERIALS AS PER RECORD. WE FIND THAT THE ASSESSING OFFICER HAD NEITHER ELABORATED ANY KIND OF INQUIRY CONDUCTED IN THE ASSESSMENT ORDER NOR GIVEN ANY KINDS OF FINDINGS AS PER WHICH ANY POSSIBLE VIEW HAD BEEN TAKEN BY THE ASSESSING OFFICER. 6.1 WE FIND THAT ALL THE ABOVE STATED FACTS PROVE THAT THE ASSESSING OFFICER HAS NOT VERIFIED THE GENUINENESS OF THE TRANSACTIONS BY NOT OBTAINING THE ARTICLE 2 WHICH WAS THE MATERIAL CONDITION FOR RECEIPT OF US$ 1.5 MILLION . 7. WE HAVE PERUSED THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE STATING THAT THE ORDER PASSED BY THE LD. CIT U/S. 263 WAS BAD IN LAW AS THE SHOW CAUSE NOTICE GIVEN BY HIM WAS ON A POINT I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 8 OTHER THAN THE ONE FOR WHICH HE HOLD THE ORDER PASSED BY ASSESSING OFFICER AS ERRONEOUS OR PREJUDICIAL TO THE REVENUE. IN TH IS CONNECTION, WE HAVE GONE THROUGH THE SHOW CAUSE NOTICE ISSUED BY THE LD. CIT PERTAINS TO THE ISSUE OF ASSESSEE'S CLAIM OF LOSS ON FOREIGN EXCHANGE AMOUNTING TO RS. 2,50,58,516/ - ON ACCOUNT OF REINSTATEMENT OF ADVANCES (USD 15,00,000) RECEIVED OUT OF TOTA L RS.2,74, 18,861/ - FOREIGN EXCHANGE LOSS WAS CLAIMED. THE LD.CIT STATED IN THE SHOW CAUSE THAT T HE ABOVE ADVANCE AMOUNT WAS FORFEITED AND OFFERED AS INCOME IN THE F.Y. 2009 - 10 RELEVANT TO A.Y.2010 - 11. HE FURTHER STATED THE FOREIGN EXCHANGE FLUCTUATION LOS S CLAIMED WAS REQUIRED TO BE DISALLOWED U/S 37(1) OF THE I.T. ACT AND F AILURE TO DO SO HAS RESULTED INTO UNDER ASSESSMENT . IN THIS CONNECTION WE HAVE ALSO GONE THROUGH THE ASSESSMENT O R DER MADE U/S143(3) OF THE ACT BY THE ASSESSING OFFICER AND NOTICED TH AT AT PARA 3 OF THE ASSESSMENT ORDER THE ASSESSING OFFICER STATED THAT REDUCTION IN THE PROFIT OF THE ASSESSEE COMPANY HAD BEEN OCCURRED MAINLY BECAUSE OF CLAIM OF FOREIGN EXCHANGE LOSS. WE FIND THAT CLAIM OF FOREIGN EXCHANGE LOSS INDEED WAS THE MAIN ISSUE IN THE ASSESSMENT ORDER AND THE LD.CIT HAD ISSUED THE SHOW CAUSE RELATED TO THE ISSUE OF FOREIGN EXCHANGE LOSS A S MENTIONED SUPRA IN THIS ORDER , THEREFORE, THE CONTENTION OF THE ASSESSEE MENTIONED IN THE ADDITIONAL GROUND IS NOT FOUND TO BE CORRECT. IN VIEW OF THE ABOVE STATED FACTS A ND FINDINGS WE UPHOLD THE ORDER OF THE LD. CIT STATING THAT THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE DIRECTING THE ASSESSING OFFICER TO EXAMINE THE NATURE OF AMOUNT RECEIVED, THE NATURE OF DISPUTE BETWEEN THE ASSESSEE AND I.T.A NO. 1586 /AHD/20 14 A.Y. 2009 - 10 PAGE NO DIAMINES & CHEMICALS LTD. VS. ADD. CIT 9 DOW , THE NATURE OF RIGHTS AND CLAIMS WAIVED BY THE ASSESSEE AGAINST THE DOW AND TO PASS A SPEAKING ORDER AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PR ONOUNCED IN THE OPEN C OURT ON 17 - 01 - 201 7 SD/ - SD/ - ( R.P. TOLANI ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 17 /01/2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,