Narain Jewels International Ltd., New Delhi V. DCIT, New Delhi

ITA 1592/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6670 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G JOHNSON
• Assessee Lawyers: LALITA KRISHNAMURTI
• Keywords: Depreciation; Period of limitation; Corroborative evidences; Time period of passing order; Revised return
• Section: 139(5)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 1592/DEL/2015 ASSESSMENT YEAR: 2006-07 NARAIN JEWELS INTERNATIONAL LTD., M-10, GREATER KAILASH, PART-I, NEW DELHI. PAN: AAACN 0445R (APPELLANT) VS. DCIT, CIRCLE 13(1), NEW DELHI. (RESPONDENT) APPELLANT BY MS. LALITA KRISHNAMURTI, CA RESPONDENT BY SH. G. JOHNSON, SR. DR ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-6, DELHI DATED 22.12.2014 FOR THE ASSESSMENT YEAR 2006 -07 ON THE FOLLOWING GROUNDS: 1. THAT THE SUSTAINING OF DISALLOWANCE OF TRADING LO SS OF RS. 77,10,789/- CLAIMED ON SALE OF STOCK ON THE GROUND OF GENUINENESS AND AS BEING UNSUBSTANTIATED IS UNJUST, UNWARRANTED AND NO T TENABLE ON FACTS AND LAW. 2. THAT THE SUSTAINING OF DISALLOWANCE OF SHORT TERM CAPITAL LOSS OF RS.26,35,659/- ON SALE OF FIXED ASSET ON THE GROUND OF IT BEING UNCORROBORATED IS UNJUST, UNWARRANTED AND NOT TENAB LE ON FACTS AND LAW. DATE OF HEARING 03.12.2018 DATE OF PRONOUNCEMENT 22.01.2019 ITA NO. 1592/DEL/2015 2 3. THAT WITHOUT PREJUDICE TO GROUND NO. 2 ABOVE SINC E SUCH FIXED ASSET HAD BEEN DISCARDED AND WRITTEN OFF IN THE BOOKS OF THE ASSESSEE COMPANY LOWER AUTHORITIES OUGHT TO HAVE ACCEPTED THE ALTERN ATIVE CONTENTION OF THE ASSESSEE FOR GRANTING DEDUCTION IN TERMS OF SECTION 32(1)(III) AND DIRECTED ID. ASSESSING OFFICER TO GRANT DEPRECIATION ON SUCH FIXED ASSET. 4. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PRE JUDICE TO ONE ANOTHER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED RETURN OF INCOME ON 29.11.2006 VIDE ACKNOWLEDGEMENT NO. 90227344. LATER ON, RETURN WAS REVISED ON 15.12.2006. IN THE ORIGINAL RETURN, THE ASSESSEE DECLARED NIL INCOME AND CLAIMED CARRY FORWARD BUSINESS LOSS OF RS.9,26, 794/- AND SHORT TERM CAPITAL LOSS OF RS.26,35,659/-. THE RETURN WAS SELE CTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE. IN T HE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SHOWN BUSINESS LOSS OF RS.9,26,794 /- AND SHORT TERM CAPITAL LOSS OF RS.26,35,659/- AND SAME WAS STATED TO BE CA RRIED FORWARD. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD NOT FILED RETURN OF INCOME AS PRESCRIBED U/S. 139(1). THEREFORE, IN VIEW OF SECTI ON 139(3) OF THE IT ACT, THE BUSINESS LOSS AND SHORT TERM CAPITAL LOSS CANNOT BE ALLOWED TO BE CARRIED FORWARD. HE FURTHER NOTICED FROM THE TRADING ACCOUN T THAT THE OPENING STOCK AS ON 01.04.2005 WAS AT RS.2,63,72,865/-, THE PURCHASE S WERE NIL AND SALES WERE RS.36,83,562/- AND THE CLOSING STOCK WAS AT RS.1,49 ,78,514/-. THEREFORE, THE BOOK VALUE OF THE STOCK, WHICH WAS SOLD BY THE ASSE SSEE IN THE YEAR UNDER CONSIDERATION WAS AT RS.1,13,94,351/- (2,63,72,865 1,49,78,514). THUS, THE FACT REMAINED THAT THE STOCK OF RS.1,13,94,351/- WA S SOLD FOR RS.36,63,562/-, RESULTING INTO LOSS OF RS.77,10,789/-. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF GOLD JEWELLERY. THEREFORE, THE ASSESSIN G OFFICER WAS NOT SATISFIED ITA NO. 1592/DEL/2015 3 THAT THE SALE OF GOLD JEWELLERY WOULD HAVE BEEN MAD E AT LOSS KEEPING IN VIEW THE RISING TREND OF GOLD. ACCORDINGLY, THE ASSESSIN G OFFICER ISSUED SHOW CAUSE NOTICE TO EXPLAIN AND JUSTIFY THE LOSSES INCURRED B Y THE ASSESSEE. THE ASSESSEE SUBMITTED HIS REPLY ON 07.03.2008 AS UNDER : THE SALE OF STOCK WAS ONLY OF THE READY MANUFACTURE D PIECES LYING WITH THE COMPANY SINCE LAST 10-12 YEARS. THE LOSS ON SALE OF STOCK IS BASICALLY DUE TO THE FA CT OF GETTING VERY LITTLE REASLIZATION OF THE AMOUNT SPENT ON LABOUR WASTAGE AND THE STONES SET IN MANUFACTURED PIECES. THE SALE AMOUNT BASICALLY COVER ED THE MARKET VALUE OF SILVER AND GOLD ALONG WITH A LITTLE VALUE ADDITI ON AS ON ONE HAND THE DESIGNS ARE TOTALLY OUT OF FASHION AND THE TRENDS H AVE UNDERGONE A SEA CHANGE. SECONDLY, THE SALE BEING A DISTRESS SALE MA KES AN IMPACT ON THE PRICE THAT ONE CAN GET. ALSO THE FINISH ON THE PIEC ES HAD GOT OXIDIZED AND WAS NOT SALEABLE IN ITS PRESENT STATE SO ANY BUYER WOULD HAVE TO WORK FURTHER ON THE PIECES TO BE ABLE TO SELL IT FURTHER AT A BETTER PRICE OR HE WOULD HAVE TO MELT IT AND SELL IT ONLY AT THE MARKE T VALUE OF THE METAL. TIME BEING A CONSTRAINT THIS WAS THE FASTEST AND THE BEST POSSIBLE VALUE THAT COULD BE REALIZED KEEPING ALL CIRCUMSTANCES IN MIND. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THIS REPLY AS HE DID NOT SUBMIT THE DETAILS REQUIRED BY THE ASSESSING OFFICER. AGAI N SHOW CAUSE NOTICE WAS ISSUED. THE ASSESSEE SUBMITTED REPLY ON 22.04.2008 AS UNDER : IN CONTINUATION OF OUR LETTER DATED 07.03.2008 WE FURTHER MENTION THAT THE ASSESSEE COMPANY USED TO MANUFACTURE STUDDED GO LD JEWELLERY USING VARIOUS TYPES OF PREVIOUS SEMI PRECIOUS AND OTHER S TONE. THE JEWELLERY WAS LYING WITH THE COMPANY FOR LAST 10-12 YEARS DUE TO REASONS DESCRIBED IN OUR LETTER DATED 7 TH MARCH, 2008. IN THE COST OF THE JEWELLERY A MAJOR PART WAS OF STONE SET, LABOUR AND WASTAGE. WHEN BIG SIZE D STONES ARE CUT IN SMALL SIZE TO FIT THEM IN JEWELLERY THE INTRINSIC V ALUE OR RESALABLE VALUE OF THESE STONES IS LOST TO A GREAT EXTENT. HOWEVER, IN NORMAL SALE THIS VALUE IS RECOVERED BY THE MANUFACTURE DUE TO DEMAND OF THE D ESIGN. IN PRESENT ITA NO. 1592/DEL/2015 4 CASE, THE ITEMS WERE MANUFACTURED 10-12 YEARS AGO A ND MOST OF THEM WERE FOR EXPORT. AT THE TIME OF SALE IN 2005 THERE WAS NO MARKET FOR THIS JEWELLERY AND THE COMPANY WOULD RECOVER ONLY THE ME TAL VALUE AS THIS WAS A DISTRESS SALE. THE POSITION WILL BE CLEAR FROM TH E ENCLOSED CHART WHICH GIVE THE DETAILS OF METAL PART IN THE ITEMS SOLD AN D REALIZATION TOWARDS METAL VALUE. THE INCREASE IN THE VALUE OF GOLD OVER THE PERIOD OF PURCHASE AND SALE IS APPROX 40% WHICH HAS BEEN FULLY RECOVERED AS EVIDEN CED FROM THE CHART ENCLOSED. YOU CAN SEE THAT ASSESSEE HAS NOT INCURRE D ANY LOSS ON METAL VALUE AND THE LOSS IS ON THE COMPONENTS OF COST. 3. THE ASSESSEE COULD NOT SUBSTANTIATE THE LOSS INC URRED ON THE SALE OF STOCK. THE ASSESSEE WAS GIVEN OPPORTUNITY FOR PRODU CTION OF ACCOUNT BOOKS AND SUPPORTING BILLS. THE ASSESSEE SUBMITTED CASH M EMOS/BILLS AND CASH BOOK, BUT HE DID NOT FURNISH THE STOCK REGISTER. THE ASSE SSING OFFICER OBSERVED MANY DISCREPANCIES IN THE BILLS PRODUCED FOR VERIFICATIO N. ACCORDINGLY, THE ASSESSING OFFICER CONCLUDED THAT IN ABSENCE OF ANY SUPPORTING EVIDENCE, THE GENUINENESS OF CASH SALES CLAIMED TO HAVE BEEN MADE BY THE ASSE SSEE OUT OF OLD STOCK RESULTING A LOSS OF RS.77,10,789 COULD NOT BE JUSTI FIED. THEREFORE, HE ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. HE FURTHER NOTICED THAT THE ASSESSEE HAD DEBITED INTO THE PROFIT AND LOSS ACCOUNT, THE LOSS ON SALE OF FIXED ASSETS AMOUNTING TO RS.13,80,740/- WHICH WAS DULY ADDED IN THE COMPUTATION OF INCOME AND SHO RT TERM CAPITAL LOSS OF RS.26,35,659/- WAS CLAIMED THEREIN AND WAS CARRIED FORWARD. THIS CARRY FORWARD OF SHORT TERM CAPITAL LOSS WAS DENIED BY TH E ASSESSING OFFICER AS PER SECTION 139(3) AND ADJUDICATED THE CASE ON MERITS. IN VIEW OF THIS, THE ITA NO. 1592/DEL/2015 5 ASSESSING OFFICER REQUIRED CERTAIN DETAILS FROM THE ASSESSEE, VIZ., NAME AND ADDRESS & PAN OF THE PARTIES TO WHOM PLANTS AND MAC HINERY WAS SOLD. IN RESPONSE, THE ASSESSEE FILED WRITTEN SUBMISSIONS ON 22.04.2008 AS UNDER : THE FIXED ASSETS LYING WITH THE ASSESSEE WERE IN SCR AP LIKE CONDITION BECAUSE THEY WERE NOT BEING USED FOR LAST MANY YEAR S AND WERE DUMPED. THESE ASSETS WERE SOLD TO JUNK DEALERS FOR A SUM OF RS.53,00,000/- DURING THE FINANCIAL YEAR 2005-06. WDV OF THESE ASSETS AS PER INCOME TAX ACT WAS RS.26,88,660/-. THE NAMES, ADDRESSES AND PAN OF THE PURCHASERS ARE NOT AVAILABLE WITH THE ASSESSEE. THE ASSESSING OFFICER NOTICED THAT THE INFORMATION SUBMITTED BY THE ASSESSEE IS VAGUE AND HE FAILED TO GIVE IDENTITY OF THE PART IES TO WHOM THE SALES WERE MADE. AGAIN OPPORTUNITY WAS GIVEN TO THE ASSESSEE A ND THE ASSESSEE FILED REPLY ON 15.12.2008 WHICH READS AS UNDER : AS ALREADY SUBMITTED VIDE OUR LETTER DATED 22.04.2 008, THE FIXED ASSETS LYING WITH THE ASSESSEE WERE IN SCRAP LIKE CONDITIO N BECAUSE THEY WERE NOT BEING USED FOR LAST MANY YEARS AND WERE DUMPED. THES E ASSETS HAD ALSO OUTLIVED THEIR USEFUL LIFE OF 10 YEARS. THESE ASSETS WERE SOLD TO INDIVIDUAL SMALL TIME JUNK DEALERS FOR A SUM OF RS.53,000/- DU RING THE FINANCIAL YEAR 2005-06. WDV OF THESE ASSETS AS PER INCOME TAX ACT W AS RS.26,88,660/- AS ON 01.04.2005. THEREFORE, THERE IS A SHORT TERM CAPI TAL LOSS OF RS.26,35,660/- . AS THIS SALE WAS MADE IN CASH, THE ASSESSEE DOES NOT HAVE NAMES AND ADDRESSES OF THE PURCHASERS. HOWEVER, NON AVAILABILITY OF THE NAMES AND ADDRESS OF PURCHASERS IS NO BASIS TO DISA LLOW THE CAPITAL LOSS. FURTHER SECTION 32(1)(III) ALSO PROVIDES FOR DEDUCT ION OF ANY DEFICIENCY IN THE REALIZABLE VALUE OF ANY DEPRECIABLE ASSETS SOLD , DISCARDED DEMOLISHED OR DESTROYED DURING THE YEAR. IF FOR A WHILE, YOUR CONTENTION THAT NO ASSETS WERE SOLD IS CONSIDERED TO BE TRUE, THERE IS NO DEN IAL FROM THE FACT THAT THESE ASSES HAVE BEEN DISCARDED AND WRITTEN OFF BY THE ASSESSEE AND THUS THE DEFICIENCY OF RS.26,35,660/- IS FULLY ALLOWABLE TO THE ASSESSEE U/S. 32(1)(III_ AS WELL. WE WOULD NOW LIKE TO CLAIM THE DEFICIENCY OF ITA NO. 1592/DEL/2015 6 RS.26,35,660/- U/S. 32(1)(III) AND TO THIS EXTENT T HE RETURN MAY BE DEEMED TO HAVE BEEN REVISED. ON 16.12.2008, BOOKS OF ACCOUNT AND SUPPORTING BILL S AND VOUCHERS WERE PRODUCED. HOWEVER, NO SUPPORTING EVIDENCE WITH REGA RD TO THE SALE OF PLANT AND MACHINERY COULD BE BROUGHT ON RECORD BY THE ASS ESSEE. ON 15.12.2008, THE ASSESSEE FILED REVISED COMPUTATION AND CLAIMED DISCARDED ASSETS AS LOSS U/S. 32(1)(III). THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT FILED REVISED RETURN U/S. 139(5) OF THE ACT. THEREFORE, H E FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA L TD. VS. CIT, 284 ITR 323. ULTIMATELY, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COULD NOT FILE PAN, NAMES AND ADDRESSES OF THE JUNK DEALERS TO WHOM THE MACHINERIES WERE SOLD AND SINCE THE ASSESSEE COULD NOT GET THE SALE OF PL ANT AND MACHINERY VERIFIED, THEREFORE, ON MERITS ALSO, THE ASSESSING OFFICER DI SALLOWED CARRY FORWARD SHORT TERM CAPITAL LOSS OF RS.26,35,659/-. AGGRIEVED FROM THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE APPEALED BEFORE THE LD. CIT(A ), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE UPHELD THE ACTION OF TH E ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRI BUNAL. 5. THE LD. AR SUBMITTED A WRITTEN SYNOPSIS WHICH IS AS UNDER : 1. BRIEF HISTORY: ASSESSEE COMPANY WAS INCORPORATED TO MANUFACTURE AND EXPORT STUDDED GOLD JEWELLERY. IT STARTED PRODUCTIO N IN THE YEAR 1992. THE COMPANY CONTINUED PRODUCTION TILL ABOUT 1998 AND THEREAFTER DUE TO FINANCIAL TROUBLES IT RESTRICTED ITS ACTIVITIES TO BARE MINIMUM. 2. POINT 4(J) OF AUDIT REPORT(AT PAGE 104 OF PB): T HE COMPANY WAS CARRYING OUT THE MANUFACTURING AND TRADING OF STUDDED GOLD JEWEL RY. HOWEVER, DUE TO FINANCIAL TROUBLES THE COMPANY COULD NOT PAY OFF THE LOANS TA KEN FROM BANK AND FINANCIAL ITA NO. 1592/DEL/2015 7 INSTITUTIONS. THE FINANCIAL INSTITUTIONS HSIDC AND HFC TOOK OVER THE FACTORY PREMISES AND MOST OF THE PLANT AND MACHINERY. SUBSE QUENTLY THESE ASSETS WERE SOLD BY HSIDC AND HFC AND THE SALE PROCEEDS WERE APPROPR IATED TOWARDS THEIR DUES (EXPLAINED AT PAGE 33 TO 34 OF PB). 3. POINT 4(I) OF AUDIT REPORT (AT PAGE 104 OF PB):T HE STOCK LYING IN THE FACTORY OF THE ASSESSEE WAS TAKEN OVER BY BANK OF BARODA BEFOR E THE SALE OF FACTORY BY FINANCIAL INSTITUTIONS. THIS STOCK IS BEING REFLECTED AT COST IN THE BOOKS OF THE ASSESSEE SINCE THEN. THE COMPANY HAS NOT PROVIDED ANY INTEREST ON THE LOAN OF BANK OF BARODA DURING THE YEAR AS THE MATTER IS PENDING WITH DEBT RECOVERY TRIBUNAL, (EXPLAINED AT PAGE 33 TO 34 OF PB). 4. DETAILS AND NATURE OF SALE OF STOCK AND FIXED AS SETS (EXPLAINED AT PAGE 33 TO 34 OF PB).: THE ABOVE MENTIONED FINANCIAL DIFFICULT IES CLUBBED WITH SOME PERSONAL PROBLEMS OF DIRECTORS OF THE ASSESSEE COMPANY DID N OT ALLOW THE DIRECTORS TO CARRY ON THE WORK OF THE COMPANY SMOOTHLY. THE FACTORY ST OCK WAS TAKEN OVER BY BANK OF BARODA. THE STOCK LYING AT SHOWROOM COULD ALSO NOT BE SOLD BY THE DIRECTORS BECAUSE THEY WERE BUSY IN LEGAL HASSLES AND ALSO DUE TO SOM E FAMILY PROBLEMS. HOWEVER, IN THE YEAR 2005 TO CLEAR THE STATUTORY LIABILITIES OF THE COMPANY THE FUNDS HAD TO BE RAISED. THE PROCEEDINGS FOR RECOVERY AND PROSECUTIO N HAD REACHED TO THE FINAL COMPELLING POINT WHERE THE DEPOSITS TO THE PROVIDEN T FUND DEPARTMENT HAD TO BE MADE IN THE SPECIFIC TIME ALLOTTED TO THE COMPANY. 4.1 ALSO WITH REGARDS TO THE PENDING LOANS CASE OF THE COMPANY WITH BANK OF BARODA, A CERTAIN AMOUNT HAD TO BE DEPOSITED WITH T HE BANK TO SHOW THEIR HONEST AND GOOD INTENTIONS, EFFORTS AND DESIRE TO CLEAR TH E CASE IN A CONVENIENT MANNER FOR THE COMPANY AND TO PROVE TO THE CONCERNED AUTHORITI ES OF THEIR CASE BEING THAT OF A GENUINELY AGGRIEVED PARTY OF LOSS AND PROBLEMS IN B USINESS THAT LED TO THE CURRENT SITUATION AND NOT THAT OF ANY WRONG INTENTIONS OR M ANIPULATED MALAFIDE CONDUCT. 4.2 THIS WAS A DISTRESS SALE OF THE READY STOCK I.E . READY PIECES OF JEWELLERY LYING WITH THE COMPANY MANUFACTURED 10-12 YEARS AGO. THE WHOLE STOCK LYING AT THE SHOWROOM OF THE COMPANY WAS SOLD IN THE MONTH OF JU LY, 2005 AT THE BEST POSSIBLE PRICES. 5. JUSTIFICATION OF LOSS ON SALE OF STOCK: THE SALE OF STOCK WAS ONLY OF THE READY MANUFACTURED PIECES LYING WITH THE COMPANY SINCE LA ST 10-12 YEARS. 5.1 THE LOSS ON SALE OF STOCK WAS BASICALLY DUE TO THE FACT OF GETTING VERY LITTLE REALIZATION OF THE AMOUNT SPENT ON LABOUR, WASTAGE AND THE STONES SET IN THE MANUFACTURED PIECES. THE SALE AMOUNT BASICALLY COVE RED THE MARKET VALUE OF SILVER AND GOLD ALONG WITH A LITTLE VALUE ADDITION AS FIRS TLY ON ONE HAND THE DESIGNS HAD BECOME TOTALLY OUT OF FASHION AND THE TRENDS HAD UN DERGONE A SEA CHANGE. SECONDLY, THE SALE BEING A DISTRESS SALE ALSO MAKES AN IMPACT ON THE PRICE THAT ONE CAN GET. ITA NO. 1592/DEL/2015 8 THIRDLY THE FINISH ON THE PIECES HAD GOT OXIDIZED A ND WAS NOT SALEABLE IN ITS PRESENT STATE, SO ANY BUYER WOULD HAVE TO WORK FURTHER ON T HE PIECES TO BE ABLE TO SELL IT FURTHER AT A BETTER PRICE OR HE WOULD HAVE TO MELT IT AND SELL IT ONLY AT THE MARKET VALUE OF THE METAL. TIME AND MONEY BEING A CONSTRAI NT, THIS WAS THE FASTEST AND THE BEST POSSIBLE VALUE THAT COULD BE REALIZED KEEPING ALL CIRCUMSTANCES IN MIND. 5.2 THE ASSESSEE COMPANY USED TO MANUFACTURE STUDD ED GOLD JEWELLERY USING VARIOUS TYPES OF PRECIOUS, SEMI-PRECIOUS AND OTHER STONES. THE JEWELLERY WAS LYING WITH THE COMPANY FOR LAST 10-12 YEARS DUE TO REASON S DESCRIBED EARLIER. IN THE COST OF THE JEWELLERY A MAJOR PART WAS OF STONES SET, LA BOUR AND WASTAGE. WHEN BIG SIZED STONES ARE CUT IN SMALL SIZE TO FIT THEM IN JEWELLE RY THE INTRINSIC VALUE OR RE-SALEABLE VALUE OF THESE STONES IS LOST TO A GREAT EXTENT. HO WEVER, IN NORMAL SALE THIS VALUE IS RECOVERED BY THE MANUFACTURER DUE TO DEMAND OF THE DESIGN. IN PRESENT CASE, THE ITEMS WERE MANUFACTURED 10-12 YEARS AGO AND MOST OF THEM WERE FOR EXPORT. AT THE TIME OF SALE IN 2005 THERE WAS NO MARKET FOR THIS J EWELLERY AND THE COMPANY COULD RECOVER ONLY THE METAL VALUE AS THIS WAS A DISTRESS SALE. THE POSITION WILL BE CLEAR FROM THE CHART AT PAGES 38 TO 41 OF PB WHICH GIVES DETAILS OF METAL PART IN THE ITEMS SOLD AND REALIZATION TOWARDS METAL VALUE. 5.3 THE INCREASE IN THE VALUE OF GOLD OVER THE PERI OD OF PURCHASE AND SALE IS ABOUT 40% WHICH HAS BEEN FULLY RECOVERED AS EVIDENC ED FROM THE CHART ABOVE MENTIONED. ASSESSEE HAD NOT INCURRED ANY LOSS ON TH E METAL VALUE AND THE LOSS WAS ON OTHER COMPONENTS OF COST. 5.4 HSIDC WAS THE PRIME LENDER AND ALL RECOVERY FOR MALITIES WERE DONE BY THEM. HSIDC THEN HANDED OVER THE STOCK TO BANK OF BARODA, WHO WAS HAVING CHARGE OVER THE STOCK. NO CORRESPONDENCE IN THIS REGARD HAD TAK EN PLACE BETWEEN ASSESSEE AND BANK OF BARODA AT THAT TIME. HOWEVER, COPY OF LETTE R DATED 16.10.2000 (AT PAGE 89 OF PB).WRITTEN BY HSIDC TO BANK OF BARODA IS ENCLOSED AT PAGE 87 OF PB. 5.5 THE FACTORY STOCK WAS TAKEN OVER BY BANK OF BAR ODA AND IT WAS NOT RETURNED BACK TO THE ASSESSEE. THE SALES MADE DURING THE FIN ANCIAL YEAR 2005-06 WERE ALL CASH SALE AND NAMES AND ADDRESSES OF THE CUSTOMERS WERE NOT AVAILABLE WITH THE ASSESSEE. 5.6 THE ACT DOES NOT SPECIFY OR REQUIRE FOR THE AS SESSEE TO KEEP ANY RECORD OF THE NAME OF THE PARTIES OR THEIR ADDRESSES IN CASE OF C ASH SALES. ALL SALES ARE DULY RECORDED IN THE BOOKS AS HAS BEEN VERIFIED BY AO FR OM THE CASH BOOK AND THE LEDGERS PRODUCED BY ASSESSEE COMPANY. 5.7 THE LOSS ON SALE OF STOCK IS JUSTIFIED BECAUSE (EXPLAINED AT PAGE 90 TO 92 OF PB).: A) COST OF SALE COMPRISED OF FOLLOWING COMPONENTS: - ITA NO. 1592/DEL/2015 9 I) LOW KARAT OF GOLD - 8K, 14K & 18K. II) DIAMONDS. III) COLORED GEMSTONES. IV) WASTAGE ON MANUFACTURING. V) LABOUR CHARGE FOR MANUFACTURING// B) GOLD HAD BEEN SOLD AT MARKET RATE. C) DIAMONDS AND COLORED GEMSTONES WERE: - I) VERY SMALL SIZE NOT SUITABLE FOR INDIAN MARKET . II) VERY OLD CUT NOT IN DEMAND III) LOW QUALITY THE FACTORY WAS FOR BULK PRODUCT ION AND USED TO BUY LOW QUALITY FOR LARGE QUANTITY EXPORTS ONLY. THIS QUALI TY IS NOT DEMANDED IN INDIA. SO HAD FETCHED VERY LOW VALUE ON SALE. IV) ESPECIALLY COLORED STONES HAVE NEAR ZERO RESALE VALUE. D) THE WASTAGE AND LABOUR COST OF MANUFACTURING IS TOTALLY LOST AS THE PIECES NEED TO BE EITHER BROKEN OR REMADE AS: I) THE DESIGNS WERE OUT DATED. II) THE METAL HAD OXIDIZED. III) SURFACE FINISH HAD NO SHINE AND FULL OF SCRAT CHES AND DIRT. IV) STONES WERE SCRATCHED AND DULL DUE TO DIRT COL LECTION. V) LOW KARAT GOLD JEWELLERY DOES NOT SELL IN INDIA AND MOST OTHER COUNTRIES AND WAS ALSO MADE BY ASSESSEE COMPANY FOR SALE TO SOME SPECIFIC COUNTRIES. VI) ADDITIONAL LABOUR WOULD HAVE BEEN REQUIRED TO CONVERT THE EXISTING STONES INTO SALEABLE JEWELLERY. E) MAIN LOSS IS ATTRIBUTED TO THE SALE OF STOCK OF MASTERS I.E. DYES OF ALL THEIR DESIGNS MADE IN 92.5% SILVER WHICH WAS APPROX. 30 K G OF BOOK VALUE OF APPROXIMATELY RS.32 LAKHS WHICH WAS SOLD FOR RS.4,6 0,000/- (APPROXIMATELY RS. 15,333/- PER KG) VIDE BILL NO. 1465 (AT PG 132 OF P B) DATED 11.07.2005 WHEN SILVER RATE OF 92.5% WAS ONLY RS.9,763/- KG. EVEN T HOUGH THE SALE WAS AT A RATE 50% MORE THAN MARKET RATE OF METAL, STILL THE LOSS WAS THERE, AS THE DESIGNS WERE OUTDATED AND NOT FOR THE INDIAN MARKET AND VERY LIT TLE COULD BE REALIZED TOWARDS THE LABOUR COST OF IT. F) DISTRESS SALE AS PRICES OF STONES WERE FURTHER F ALLING. MARKET FOR COLORED GEMSTONES WAS SHRINKING. G) THE GOODS WERE SOLD TO MAINLY VARIOUS SMALL TIME BROKERS IN CASH AS IS A NORMAL PRACTICE IN ASSESSEES TRADE. ITA NO. 1592/DEL/2015 10 5.8. IN VIEW OF ABOVE, TRADING LOSS OF RS.77,10(789 /- IS FULLY ALLOWABLE TO ASSESSEE. 6. THE ASSESSEE HAD GIVEN IN DETAIL, THE VARIOUS RE ASONS IN SUPPORT OF THE TRADING LOSS OF RS.77,10,789/-. THE AO HAS MERELY R EJECTED THE REASONS GIVEN BY SAYING THAT THE REPLY OF THE ASSESSEE WAS VERY GENE RAL AND THAT ALL SALES WERE MADE IN CASH BETWEEN 02.07.2005 TO 11.07.2005 AND NOWHER E THE NAME OF THE PURCHASE PARTY WAS APPEARING; 6.1 THE AO HAS FAILED TO APPRECIATE THE FACT THAT T HIS WAS A DISTRESS SALE OF OLD STOCKS LYING FOR THE LAST 10 TO 12 YEARS. THE SALE WAS MADE ONLY TO RAISE FUNDS TO CLEAR THE STATUTORY LIABILITIES OF THE COMPANY. 6.2 JUSTIFICATION OF LOSS ON SALE OF FIXED ASSETS OF RS.26,35,600/-: THE FIXED ASSETS LYING WITH THE ASSESSEE WERE IN SCRAP LIKE C ONDITION BECAUSE THEY WERE NOT BEING USED FOR LAST MANY YEARS AND WERE DUMPED. THE SE ASSETS WERE SOLD TO JUNK DEALERS FOR A SUM OF RS.53,000/- DURING THE FINANCI AL YEAR 2005-06. WDV OF THESE ASSETS AS PER INCOME TAX ACT WAS RS.26,88,660/- AS ON 01.04.2005. THEREFORE, THERE IS A SHORT TERM CAPITAL LOSS OF RS.26,35,660/- (FIX ED ASSET SCHEDULE AT PAGE 3 OF PB). THE NAME AND ADDRESSES OF THE JUNK DEALERS WERE NOT AVAILABLE WITH THE ASSESSEE. BOOKS OF ACCOUNT ALONG WITH VOUCHERS WERE ALSO PROD UCED IN ASSESSMENT PROCEEDINGS. 6.3 THE FIXED ASSETS LYING WITH THE ASSESSEE WERE IN SCRAP LIKE CONDITION BECAUSE THEY WERE NOT BEING USED FOR LAST MANY YEARS AND WE RE DUMPED. THESE ASSETS HAD ALSO OUTLIVED THEIR USEFUL LIFE OF 10 YEARS. THESE ASSETS WERE SOLD TO INDIVIDUAL SMALL TIME JUNK DEALERS FOR A SUM OF RS.53,000/- DURING T HE FINANCIAL YEAR 2005-06. W.D.V. OF THESE ASSETS AS PER INCOME TAX ACT WAS RS.26,88, 660/- AS ON 01.04.2005. THEREFORE, THERE WAS A SHORT TERM CAPITAL LOSS OF R S.26,35,660/-. AS THIS SALE WAS MADE IN CASH, THE ASSESSEE DOES NOT HAVE THE NAME A ND ADDRESS OF THE PURCHASERS. HOWEVER, NON-AVAILABILITY OF THE NAME AND ADDRESS O F PURCHASERS IS NO BASIS TO DISALLOW THE CAPITAL LOSS. 6.4 EVEN ASSUMING, AS HELD BY THE AO THAT THE SALE OF PLANT & MACHINERY WAS NOT GENUINE, THE AO IS BOUND TO GIVE THE ASSESSEE THE W HOLE OF LOSS U/S 32(1)(III) AS THE ASSET HAS BEEN TOTALLY WRITTEN OFF BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. SHE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWE R AUTHORITIES AND ALSO SUBMITTED A PAPER BOOK CONTAINING 143 PAGES. ITA NO. 1592/DEL/2015 11 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW AND HE SUBMITTED THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE THE SALES MADE AT A LOSS. THE ASSESSING OFFICER GRANTED SUFFI CIENT OPPORTUNITY TO THE ASSESSEE FOR FILING THE REQUISITE DOCUMENTS. HE COU LD FILE ONLY CASH BOOK WHICH WAS WRITTEN WITHOUT PAGE NUMBERS AND CASH MEMOS/BIL LS AND THERE WERE MANY DISCREPANCIES NOTED BY THE ASSESSING OFFICER O N THE DOCUMENTS SUBMITTED BY THE ASSESSEE. TILL COMPLETION OF ASSES SMENT, THE ASSESSEE COULD NOT FILE STOCK REGISTER OF GOODS. FURTHER, IN RESPE CT OF SHORT TERM CAPITAL LOSS CLAIMED ON SALE OF FIXED ASSETS, THE ASSESSEE ALSO COULD NOT SUBSTANTIATE HIS SALES MADE IN CASH, NAME OF THE PERSONS TO WHOM THE SALES WERE MADE. ALTERNATIVE CLAIM OF THE ASSESSEE MADE U/S. 32(1)(I II) IS ALSO NOT ACCEPTABLE. 7. AFTER HEARING BOTH THE SIDES AND PERUSING THE EN TIRE MATERIALS AVAILABLE ON RECORD, WE NOTED THAT THE ASSESSEE HAD STOPPED H IS BUSINESS SINCE LONG BACK AND DURING THE IMPUGNED YEAR, THE ASSESSEE SOL D SOME GOODS WHICH WERE LYING WITH HIM. THERE IS NO DISPUTE ON THE OPENING STOCK AS ON 01.04.2005. THE DISPUTE IS ONLY FOR THE ASSESSEE HAD SOLD OLD ITEMS ONLY ON LOSSES OF RS.77,10,789/-. ON PERUSAL OF THE ASSESSMENT ORDER, WE NOTED THAT THE ASSESSING OFFICER HAS POINTED OUT MANY DISCREPANCIE S IN THE DOCUMENTS SUBMITTED BY THE ASSESSEE, BUT HE ACCEPTED THE CASH BOOK SUBMITTED BY THE ASSESSEE AND CLOSING BALANCE SHOWN IN THE CASH BOOK ARE IN AGREEMENT WITH THE FINANCIAL STATEMENT OF THE ASSESSEE. THE FINANC IAL STATEMENTS HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. IT IS CLEAR FROM THE SUBMISSIONS OF THE ASSESSEE THAT THE GOODS WHICH HAVE BEEN SOLD WERE V ERY OLD. WHEN THE STOCK SOLD WAS VERY OLD, IT IS NOT STRANGE TO SELL THEM A T REDUCED RATE. THE ASSESSING ITA NO. 1592/DEL/2015 12 OFFICER HAS NO AUTHORITY TO COMPEL THE ASSESSEE AS TO AT WHICH RATE, AN ASSESSEE HAS TO MAKE SALE OF HIS GOODS. CONSIDERING THE FACT S AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE, GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 8. FURTHER, IN RESPECT OF GROUND NO. 2 & 3 REGARDIN G CARRY FORWARD OF SHORT TERM CAPITAL LOSS OF RS.26,35,659/- ON SALE OF FIXE D ASSET, THE LOWER AUTHORITIES HAVE EXAMINED THIS ISSUE IN DETAIL. IN THIS REGARD THE FINDING REACHED BY THE LD. CIT(A) READS AS UNDER : 4.3.1. GROUND NO. 4 OF APPEAL IS DIRECTED AGAINST DISALLOWING THE CAPITAL LOSS OF RS.26,35,660/- ON SALES OF ASSETS MADE BY THE ASSES SEE. THE ASSESSEE HAS SHOWN LOSS ON SALE OF FIXED ASSETS AMOUNTING TO RS.13,80, 740/- WHICH WAS ADDED BACK IN THE COMPUTATION OF INCOME. HOWEVER, SHORT TERM CAPI TAL LOSS OF RS.26,35,659/- WAS CLAIMED THEREIN AND WAS CARRIED FORWARD. IN VIE W OF THE SEC 139(3) OF THE IT ACT THE CLAIM OF CAM' FORWARD OF SHORT TERM CAPITAL LOSS OF RS. 26,35,659/- IS DENIED BY THE AO. ON MERITS OF THE CASE ASSESSEE WA S ASKED BY THE AO TO GIVE THE COMPUTATION OF LOSS ON SALE OF ASSETS GIVING THE NA ME, ADDRESS AND PAN OF THE PARTIES TO WHOM THE PLANT & MACHINERY WAS SOLD. IN RESPONSE THE ASSESSEE SUBMITTED THAT THE FIXED ASSETS LYING IN SCRAP LIKE CONDITION, WERE SOLD TO JUNK DEALERS FOR A SUM OF RS. 53,000/-. WDV OF THESE ASS ETS AS PER IT ACT WAS RS. 26.88,660/- AS ON 01.04.2005. THEREFORE, THERE IS A SHORT TERM CAPITAL LOSS OF RS. 26,35,660/-. THE NAMES, ADDRESSES AND PAN OF THE PUR CHASERS ARE NOT AVAILABLE WITH THE ASSESSEE. AO OBSERVED THAT THE REPLY OF TH E ASSESSEE WAS VAGUE, THEREFORE, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY IN ABSENCE OF THE NAME, ADDRESS AND PAN OF THE PARTIES, LOSS BE NOT D ISALLOWED AS NOT VERIFIABLE. IN RESPONSE ASSESSEE SUBMITTED THAT IT DOES NOT HAVE T HE NAMES AND ADDRESSES OF THE PURCHASERS. HOWEVER, NON-AVAILABILITY OF THE NA MES AND ADDRESS IS NO BASIS TO DISALLOW THE CAPITAL LOSS. SECTION 32(1 )(III) A LSO PROVIDED FOR DEDUCTION OF ANY DEFICIENCY IN THE REALIZABLE VALUE OF ANY DEPRECIAB LE ASSETS SOLD, DISCARDED, DEMOLISHED OR DESTROYED DURING THE YEAR. ASSESSEE S UBMITTED THAT EVEN IF IT IS PRESUMED THAT NO ASSETS WERE SOLD, AS THESE ASSETS HAVE BEEN DISCARDED AND WRITTEN OFF, THEREFORE, THE DEFICIENCY OF RS. 26.35 ,660/- IS FULLY ALLOWABLE TO THE ASSESSEE U/S 32(L )(III) AS WELL. THEREFORE, IT WAS SUBMITTED THAT TO THIS EXTENT THE ITA NO. 1592/DEL/2015 13 RETURN MAY BE DEEMED TO HAVE BEEN REVISED. AO OBSER VED THAT A VALID REVISED RETURN FOR THE AY 2006-07 COULD HAVE BEEN FILED ONL Y UPTO 31.03.2008. THEREFORE, THE REVISED CLAIM MADE BY THE ASSESSEE ON 15.12.200 8 AFTER EXPIRY OF LIMITATION PERIOD IS NOT ALLOWABLE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF GOETZ INDIA LTD. V. CIT 284 ITR 323. HENCE, T HE ASSESSEE'S CLAIM OF LOSS ON SALE OF ASSETS BEING DISCARDED AND WRITTEN OFF U/S 32(1 )(III) OF IT ACT BY FILING A REVISED CLAIM THROUGH ITS LETTER DT. 15.12.2008 IS REJECTED BY THE AO. FURTHER, IN ABSENCE OF ANY CORROBORATIVE EVIDENCES AO HELD THAT THE GENUINENESS OF SALES OF PLANT & MACHINERY RESULTING A SHORT TERM CAPITAL LO SS OF RS. 26,35,659/- COULD NOT BE JUSTIFIED. ACCORDINGLY, THE SAME IS DISALLOW ED BY THE AO. 4.3.2 SINCE, THE ABOVE SHORT TERM CAPITAL LOSS WAS CLAIMED BY THE APPELLANT ON ACCOUNT OF SALES OF PLANT & MACHINERY, THEREFORE, T HE ONUS WAS CLEARLY ON THE APPELLANT TO PROVE WITH CORROBORATIVE EVIDENCE THE TRANSACTION OF SALE TO SUBSTANTIATE THE CLAIM OF LOSS. IN THE ABSENCE OF C ORROBORATIVE EVIDENCE, THE DISALLOWANCE MADE BY THE AO IS FULLY JUSTIFIED. FUR THER, THE SUBMISSION THAT DEFICIENCY OF RS. 26,35,660/- IS FULLY ALLOWABLE TO THE ASSESSEE U/S 32(L)(III) AND TO THIS EXTENT THE RETURN MAY BE DEEMED TO HAVE BEE N REVISED, IS NOT SUSTAINABLE. BECAUSE NEITHER THE CLAIM WAS MADE FILING A VALID R EVISED RETURN WITHIN 31.03.2008 NOR IT A LEGAL CLAIM ON THE FACTS OF THE CASE. IN VIEW OF THE ABOVE, THE DISALLOWANCE MADE BY THE A.O. IS FULLY JUSTIFIED. TH EREFORE, APPEAL FAILED ON THIS GROUND. 9. NO CONTRARY MATERIAL IS PLACED ON RECORD ON BEHALF OF THE ASSESSEE TO DISCARD THE ABOVE FINDINGS REACHED BY THE LD. CIT(A ). WE, ACCORDINGLY, FIND NO INFIRMITY IN THE ABOVE DECISION OF LD. CIT(A) ON TH IS COUNT. ACCORDINGLY, THESE GROUNDS DESERVE TO BE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22.01.2019. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22.01.2019 *AKS*