Shubham food Products, Nagpur V. Income Tax Officer Ward 4(4), Nagpur

ITA 159/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1547 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 18-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: A K GANERIWAL
• Keywords: Business income; Depreciation; Opportunity of being heard; Principle of natural justice
• Section: 133A

Judgement Text

1 ITA NO. 159/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 159/NAG/2013 ASSESSMENT YEAR : 2006 - 07. M/S SHUBHAM FOOD PRODUCTS, THE INCOME - TAX OFFICER, NAGPUR. VS. WARD - 4(4), NAGPUR. APPELLANT. RESPONDENT. APPELLANT BY : SHRI A.K. GANERIWAL. RESPONDENT BY : S HRI NARENDRA KANE. DATE OF HEARING : 10 - 11 - 2015. DATE OF PRONOUNCEMENT : 10 TH DEC., 2015. O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - 19, MUMBAI (CAMP OFFICE NAGPUR) DATED 09 - 01 - 2013 AND PERTAINS TO ASSESSMENT YEAR 2006 - 07 . THE GROUNDS OF APPEAL READ AS UNDER: 1. THE ORDER PASSED BY LEARNED A.O. IS ILLEGAL, INCORRECT, BAD IN LAW AND WITHOUT NATURAL JUSTICE. 2. THE ADDITION MADE BY LEARNED AO FOR RS.4,84,497/ - I.E. ON A/C OF REMUNERATION TO PARTNERS RS.4,410/ - , ON A/C OF DEPRECIATION RS.36,992/ - , ON A/C OF LOSS FROM RICE BUSINESS RS.4,43,095/ - IS INCORRECT, BAD IN LAW AND WITHOUT NATURAL JUSTICE. 2. THE ASSESSEE HAS ALSO SUBMITTE D THE REVISED GROUNDS OF APPEAL WHICH READ AS UNDER : REVISED GROUNDS OF APPEAL: 1. THE ORDER PASSED BY LEARNED A.O . IS ILLEGAL , INCORRECT , BAD IN LAW AND WITHOUT NATURAL JUSTICE . 2 ITA NO. 159/NAG/2013 2. THE DISALLOWANCE OF LEARNED AO RS. 5 , 25 , 230 1 - INCLUDED AS BUSINESS PROFIT BEING DECLARED INCOME B Y APPLICANT DURING SURVE Y FOR THE PURPOSE OF DISTRIBUTION OF REMUNERATION TO PARTNER AND RECALCULATE THE REMUNERATION TO PARTNER AFTER DISALLOWING CERTAIN EXPENDITURE AND DISALLOWED REMUNERATION RS . 4410 1 - IS INCORRECT , BAD IN LAW AND WITHOUT NATURAL JUSTICE. 3. THE ADDITION MADE FOR RS. 36 , 992 FOR DEPRECIATION DISALLOWED BY REDUCING THE SUBSIDY RECEIVED BY APPLICANT CONSIDERED AS PART OF FIXED ASSETS AND REDUCE THE VALUE OF FIXED ASSETS IS INCORRECT , BAD IN LAW AND WITHOUT NATUR AL JUSTICE . 4. THE ADDITION MADE BY LEARNED AO FOR RS. 4 , 43 , 095 / - BY DISALLOWING THE LOSS GENERATED FROM THE TRADING BUSINESS OF RICE IS INCORRECT , BAD IN LAW AND WITHOUT NATURAL JUSTICE , 5. APPELLANT CRAVES A RIGHT TO ADD , MODIFY , ALTER OR WITHDRAW AND OF THE GROUND / S OF APPEAL DURING THE COURSE OF HEARING . 2. APROPOS THE ISSUE OF DEPRECIATION: WITH REGARD TO THE ABOVE ISSUE, LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT IN ASSESSEES OWN CASE ON IDENTICAL ISSUE FOR ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 20 - 07 - 2015 THIS TRIBUNAL HAS REMITTED THE ISSUE TO THE FILE OF THE AO . THE OBSERVATIONS OF THE TRIBUN AL WERE AS UNDER : CONSIDERING THE FACTS OF THE CASE, I AM OF THE VIEW THAT THE REVENUE AUTHORITIES HAVE IGNORED ONE OF THE VITAL FACT IN RESPECT OF THE CONDITIONS UNDER WHICH THE SUBSIDY WAS GRANTED. THE ASSESSING OFFICER HAS MENTIONED IN PARA - 4 OF THE ASSESSMENT ORDER, AS REPRODUCED ABOVE, THAT THE SUBSIDY WAS GRANTED FOR A PERIOD OF 15 YE4ARS. DUE TO THAT REASON, THE SUBSIDY WAS MENTIONED AS A LIABILITY IN THE BALANCE SHEET. IF IT WAS A LIABILITY, THEN THE ASSESSEE WAS EXPECTED TO REPAY THE AMOUNT. IF THAT WAS SO, THEN IT IS NOT JUSTIFIABLE TO HOLD THAT THE COST OF AN ASSET WAS MADE BY THE AMOUNT OF SUBSIDY GRANTED BY THE DIC . EVEN UNDER EXPRESSION010, IT 3 ITA NO. 159/NAG/2013 IS PRESCRIBED THAT WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MADE E ITHER DIRECTLY OR INDIRECTLY BY ANY AUTHORITY IN THE FORM OF SUBSIDY, THEN SO MUCH OF THE COST SHALL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSET. THEREFORE THE BASIC REQUIREMENT IS THAT THE COST OF AN ASSET SHOULD BE MADE BY THE GRANT OF SUBSIDY. AS AG AINST THAT, THE ASSESSING OFFICER HAS MENTIONED THAT THE SUBSIDY WAS IN THE FORM OF LIABILITY WHICH WAS TO BE RE - PAID BY THE ASSESSEE MAY BE AFTER A LONG PERIOD OF 15 YEARS. THE ASSESSING OFFICER HAS NOT EXAMINED THE EXACT CLAIM OF SUBSIDY PRONOU7NCED BY T HE APPROPRIATE AUTHORITY AS ALSO THE TERMS OF CLAUSES OF RE - PAYMENT OF THE SUBSIDY GRANTED. THE FIRST APPELLATE AUTHORITY HAS ALSO NOT APPRECIATED THIS FACT ALTHOUGH IT WAS VERY MUCH MENTIONED IN THE ASSESSMENT ORDER. THEREFORE, IN THE INTEREST OF NATURAL JUSTICE, I AM OF THE CONSIDERED VIEW THAT THE ISSUE SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICE TO RE - EXAMINE THE FACTS OF THE CASE AFTER PERUSING THE SCHEME UNDER WHICH THE SUBSIDY WAS GRANTED. RESULTANTLY, THE GROUND IS RESTORED BACK FOR DENOVO CONSIDERATION BY THE ASSESSING OFFICER AND HENCE THE GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES ON LY. 3. UPON CAREFUL CONSIDERATION I FIND THAT SINCE THE IDENTICAL ISSUE HAS BEEN REMITTED BY THE TRIBUNAL IN ASSESSEES OWN CASE AS ABOVE, T HIS ISSUE STANDS REMITTED TO THE FILE OF THE AO. NEEDLESS TO ADD, THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 4. APROPOS THE ISSUE OF COMPUTATION OF PARTNERS REMUNERATION. BRIEF FACTS OF THE CASE ARE THAT IT IS OBSERVED BY THE A O THAT THE SURVEY U/S 133A WAS CONDUCTED IN THE BUSINESS PREMISES AT AURANGABAD ON 26 - 10 - 2005 BY THE ITO, WARD - 2(1), AURANGABAD. DURING THE COURSE OF SURVEY OPERATION, EXCESS STOCK TO THE TUNE OF RS.7,26,111/ - AND EXCESS CASH AMOUNTING TO RS.5,25,230/ - WAS FOUND WHICH THE ASSESSEE OFFERED IT AS ADDITIONAL INCOME. THE REMUNERATION PAYABLE TO PARTNER WAS RECOMPUTED AFTER ADDING THE AMOUNT OF 4 ITA NO. 159/NAG/2013 ADDITIONAL INCOME OFFERED ON ACCOUNT OF EXCESS CASH FOUND, TO THE NET PROFIT. A.O. OPINED THAT THE INCOME OFFERED ON SURVEY CANNOT BE TAKEN INTO PROFITS FOR COMPUTATION OF PARTNERS REMUNERATION. ACCORDINGLY, EXCESS REMUNERATION OF RS.4,410/ - WAS ADDED. 5. UPON ASSESSEES SUBMISSION, LEARNED CIT(APPEALS) ASKED FOR A REMAND REPORT FROM THE AO. THE AO STATED THAT THE ASSESSEE HAS OFFERED ADDITIONAL INCOME ON ACCOUNT OF EXCESS CASH FOUND AS HE WAS UNABLE TO EXPLAIN THE SOURCE OF CASH. HE HAS NO T STATED THAT THE EXC ESS CASH WAS THE RESULT OF UNRECORDED SALE WHICH CAN BE TERMED AS BUSINESS INCOME. 6. ACCORDINGLY LEARNED CIT(APPEALS) AFFIRMED THE DECISION. 7. AGAINST THE ABOVE ORDER, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. UPON CAREFUL CONSIDERATION I FIND T HA T THE ASSESSEE HAS OFFERED ADDITIONAL INCOME ON ACCOUNT OF EXCESS STOCK AND EXCESS CASH. THE SAME HAS BEEN ASSESSED BY THE AO. NOW THE AO IS SAYING THAT THE ASSESSEE HAS NOT STATED THAT IT WAS BUSINESS INCOME. HENCE THE AO IS NOT GIVING CREDIT FOR THE SAM E FOR THE COMPUTATION OF PARTNERS INCOME. I FIND THE LOGIC EXTENDED BY THE AUTHORITIES BELOW ARE VERY STRANGE. THE ADDITIONAL INCOME HAS BEEN OFFERED BY THE ASSESSEE ON ACCOUNT OF STOCK AND CASH. THERE IS NO FINDING THAT THE ASSESSEE IS ENGAGED INTO ANY BU SINESS OTHER THAN THAT ON RECORD. IN THE COMPUTATION OF INCOME BY THE AO, THIS AMOUNT HAS NOT BEEN SEPARATELY ADDED AS INCOME FROM ANY UN SPECIFIED SOURCE. IN THESE CIRCUMSTANCES, I FIND THAT THERE IS NO JUSTIFICATION IN THE REASONING ADOPTED BY THE AUTHORI TIES BELOW. HENCE I DIRECT THAT EXCESS REMUNERATION OF RS. 4,410/ - ADDED ON ACCOUNT OF PARTNERS SALARY IS LIABLE TO BE DELETED. 9. APROPOS THE ISSUE OF DISALLOWANCE OF LOSS FROM TRADING BUSINESS. O N THIS ISSUE THE AO DOUBTED THE GENUINENESS OF ASSESSEES CLAIM OF LOSS OF RICE BUSINESS. IN RESPECT OF RICE BUSINESS THE AO HAS STATED THAT THE ASSESSEE 5 ITA NO. 159/NAG/2013 ENGAGED IN RICE BUSINESS ONLY FOR FOUR MONTH, I.E. FROM DECEMBER, 2005 TO MARCH, 2006. THE ASSESSEE PURCHASED THE RICE ONLY FROM M/S D.K. SORTEX AND SOLD TO VAR IOUS RETAIL CUSTOMERS THROUGH COMMISSION AGENT M/S SHANKARRAO GANPATRAO PATIL & CO. THE AO REJECTED THE CONTENTION OF THE ASSESSEE THAT THE PRICE OF RICE WAS GOING DOWN AND TO ARREST THE LOSS THE GOODS WERE SOLD. THE AO OBSERVED THAT T HE ACTUAL PREVAILING MARKET PRICE OF BOILED RICE DURING THE PERIOD FEBRUARY, MARCH, 2006 WAS AROUND RS.1020 TO 1225/ - . THAT E VEN THE WHOLESALER PRICE FROM WHOM ASSESSEE PURCHASED RICE IS AROUND 950 TO 1000. THAT T HE BILLS OF M/S D.K. SORTEX WERE REQUISITIONED AND EXAMINED WHE RE THE SALE OF RICE PRICE WERE OVER AND ABOVE RS.1000/ - . THAT E VEN THE MARKET ENQUIRY MADE BY THE INSPECTOR ALSO SUPPORTED THIS FINDING AND THEREFORE, THE CONTENTION OF THE APPELLANT THAT PRICE OF RICE WAS GOING DOWN WAS NOT ACCEPTED. 10. UPON ASSESSEES APPEAL, LEARNED CIT(APPEALS) CONFIRMED THE ADDITION HOLDING AS UNDER : ON THE ISSUE OF LOSS IN RICE BUSINESS, IT IS OBSERVED FROM THE ASSESSMENT ORDER THAT ASSESSING OFFICER HAS NOT MADE ANY ESTIMATION BUT HAS PROCEEDED ON FACTS AND DHAS TAKEN THE PRICE OF RICE FROM THE WHOLESALER DEALER M/S D.K. SORTEX, FROM WHOM THE ASSESSEE HAS ALSO PURCHASED. THE ASSESSEE AT HE TIME OF APPELLATE PROCEEDINGS APART FROM STATING THAT THE PRICE OF RICE WAS FALLING HAS NOT PRODUCED ANY EVIDENCE TO PROVE THAT THERE WAS A F ALL IN PRICE OF RICE IN THE MARKET. THE ASSESSEE HAS TO SUPPORT HIS CONTENTION WITH COGENT EVIDENCES, WHICH HE HAS NOT DONE SO WHEREAS THE ASSESSING OFFICER HAS MADE THE ADDITION AFTER DETAILED ENQUIRY. THEREFORE, THE ADDITION MADE BY THE AO IN DISALLOWIN G THE LOSS CLAIMED ON SALE OF RICE IS SUSTAINED. 11. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORD, LEARNED COUNSEL OF THE ASSESSEE HAS MADE THE FOLLOWING SUBMISSIONS: 6 ITA NO. 159/NAG/2013 THE BUSINESS ALWAYS HAS RISK ELEMENT AS IT IS DONE IN UNCERTAIN ATMOSPHERE. NO ONE WANTS TO TAKE LOSS, BUT THE SYSTEM OF BUSINESS ALWAYS GOVERN BY RULES OF MARKET CONDITIONS OF DEMAND AND SUPPLY, POLICIES AND PROCEDURES OF GOVERNMENT AND LOCAL AUTHORITY AND COMPETITION FROM THE OTHER BUSINESSMEN. ASSESSEE HAS PURCHASE THE RICE IN THE SEASON TO TRADE IT LATER ON AT HIGHER RATES DURING OFF SEASON. HE IS ADVISED BY THE BROKER WHO HAD WIDE EXPERIENCE IN THIS FIELD AND ACCORDINGLY THE PURCHASES ARE MADE. IT I S UNFORTUNATE, THE PRICES GO DOWN AND TO SAVE THE LOSSES, ASSESSEE SOLD THE RICE IN DECLINING MARKET. HE USED HIS PRUDENCE AND RESTRICTED THE LOSSES AND THERE IS NO REASON TO CONSIDER THE TRANSACTION AS BOGUS BECAUSE THERE IS LOSS. THE RECORDS OF SALE AN D PURCHASES ARE DULY VERIFIED AND EXAMINED BY LEARNED AO AND NOTHING IS FOUND INCORRECT. 13. UPON CAREFUL CONSIDERATION, I FIND THAT THE ASSESSEE HAS CONDUCTED RICE BUSINESS AND HAS INCURRED LOSS THEREIN. THE AO HAS DOUBTED THE ASSESSEES BUSINESS ON THE PLEA THAT THE ASSESSEE HAS DELIBERATELY INCURRED LOSS SO THAT IT CAN BE ADJUSTED AGAINST THE ADDITIONAL INCOME OFFERED BY THE ASSESSEE ON ACCOUNT OF SURVEY. FOR THIS PURPOSE THE AO HAS OPINED THAT THE SELLING RATES ADOPTED BY THE ASSESSEE WERE LOWER TH AN THE MARKET. HOWEVER, THE AO HAS NOT DOUBTED THE VERACITY OF THE PURCHASES AND SALE RECORDS OF THE ASSESSEE. THE AO HAS SIMPLY HELD THAT NO PRUDENT PERSON WOULD ENGAGE IN THIS TYPE OF ACTIVITY. HOWEVER, IN MY CONSIDERED OPINION DEHORSE OF ANY FINDING TH AT THE PURCHASE AND SALES ARE BOGUS, L OSS SUSTAINED BY THE ASSESSEE CANNOT BE TREATED AS SHAM EXCEPT ON THE BASIS OF AOS SURMISES AS TO WHAT SHOULD BE PRUDENT BUSINESS ACTIVITY. IN THIS REGARD HONBLE APEX COURT HAS HELD THAT THE AO SHOULD NOT TRY TO SI T INTO THE SHOES OF THE BUSINESS MAN. ACCORDINGLY I SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 7 ITA NO. 159/NAG/2013 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF DEC., 2015. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. NAGPUR, DATED: 10 TH DEC., 2015. COPY FORWARDED TO : 1. SHUBHAM FOOD PRODUCTS , KAILASH BHAWAN, GANDHIBAGH, JALALPURS, NAGPUR. 2. I.T.O., WARD - 4 ( 4 ), NAGPUR. 3. COMMISSIONER OF INCOME - TAX, NAGPUR. 4. CIT(APPEALS) - II, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, NAGPUR WAKODE.