ITO 19(2)(4), MUMBAI V. NITIN MEHTA (HUF), MUMBAI

ITA 1787/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1432 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 19-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIHAR N JAMBUSARLA
• Assessee Lawyers: A R BAIWAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER ITA NO.1787/MUM/2009 ASSESSMENT YEAR : 2005-2006 INCOME TAX OFFICER 19(2)(4) R.NO.310, 3 RD FLR., PIRAMAL CHAMBERS, LALBAUG, MUMBAI 400 012. VS. NITIN MEHTA (HUF) 301, 302, PRIME PLAZA, 38A, S.V. RD., SANTACRUZ (W), MUMBAI 400 054. PAN : AAAHN0398E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI A.R. BAIWAR (DR) DEPARTMENT BY : SHRI NIHAR N. JAMBUSARLA (AR) O R D E R PER J. SUDHAKAR REDDY, A.M. THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE LEARNED CIT (A)-XIX, MUMBAI DATED 14.01.2009 FOR TH E ASSESSMENT YEAR 2005-2006. 2. FACTS IN BRIEF : THE ASSESSEE IS A HINDU UNDIVI DED FAMILY, RUNNING PROPRIETARY BUSINESS UNDER TRADE NAME ORBIT INTERN ATIONAL AND IS ENGAGED IN RESELLING OF CHEMICALS. HE FILED THE RETURN OF INCOME ON 16.08.2005 DECLARING TOTAL INCOME OF RS.1,48,990/-. DURING THE PREVIOUS YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED LOSS FROM BUSINESS OF RS.18,92,409/-. THE ASSESSING OFFICER HAS DISALLO WED THE LOSS ON GOODS DAMAGED. THE ASSESSEE HAD ORDERED FOR CERTAIN GO ODS AND TRANSFER OF OWNERSHIP OF THESE GOODS WAS INFORMED TO THE ASSESS EE ORALLY ON THE PHONE. DELIVERY OF GOODS WAS GIVEN BY KEEPING THE GOODS IN THE ASSESSEES GODOWN. FIRE OCCURRED IN THE GODOWN AND GOODS WERE LOST BY THE FIRE IN THE YEAR 2003-04. THE ASSESSEE DENY THE LIABILITY ON THE GROUND THAT THE PURCHASE IN QUESTION WAS NOT COMPLETED BY THE TIME OF FIRE A CCIDENT. SHRI HIMANSHU ITA NO.1787/MUM/2009 A.Y.: 2005-2006 2 SANGHAVI, THE BROKER WHO SOLD THE GOODS APPROACHED THE ASSOCIATION OF THE DEALERS IN CHEMICALS AND MATTER WAS REFERRED TO THE ARBITRATION COMMITTEE OF THE ASSOCIATION. THE ARBITRATION COMMITTEE HEL D THAT THE SALE OF THE GOODS TO THE ASSESSEE WAS COMPLETED AT THE TIME OF FIRE ACCIDENT. THE ASSESSEE DID NOT MAKE ANY PROVISION DURING THE ASSE SSMENT YEAR 2003- 2004. AS THE ENTIRE LOSS WAS RECOVERED FROM THE ASSESSEE ON THE BASIS OF CIVIL JURISDICTION AWARD ISSUED ON 19.05.2004 AND A S THE ASSESSEE PAID THE ENTIRE LOSS IN THE YEAR 2004-2005, THE ASSESSEE CLA IMED THE DEDUCTION IN THAT YEAR. THE ASSESSING OFFICER DISALLOWED THE C LAIM, THE GROUNDS FOR DISALLOWANCE ARE RECORDED IN PARA 4.3 PAGE 3 & 4 OF CIT(A) ORDER WHICH IS EXTRACTED FOR THE REFERENCE. 4.3 THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF THE APPELLANT ON THE FOLLOWING GROUNDS : (I) THE BILLS EVIDENCING THE PURCHASE OF THE CHEMICAL MATERIALS CLAIMED TO HAVE BEEN DAMAGED BY FIRE WAS NOT PRO DUCED BEFORE IT. (II) NO EVIDENCE IN THE FORM OF INSURANCE PAPERS OR CLAIMS WAS PRODUCED. (III) THE PROFESSIONAL FEES RAISED BY M/S. C.V. FURIA & CO. CAS DATED 29.09.2004 WHO LOOKED AFTER SALES TAX MENTIONED SALES TAX FOR THE YEAR RELATING TO THE YEAR ENDED 31.03.2004 UPTO CANCELLATION IMPLYING THEREBY NO BUSINESS WAS CARRIED O UT IN THE SUBSEQUENT YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUES TION. (IV) THE ASSESSING OFFICER FURTHER FELT THAT SINCE THE APPELLANT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IT SHOULD HAVE MADE PROVISIONS FOR THIS LOSS IN THE F.Y. 2003-04 REL EVANT TO THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2004-05 ON THE BASIS OF ARBITRATION COMMITTEE DECISION WHICH HAD GIVEN IT S FINAL AWARD PM 01.05.2003 ITSELF. THE ASSESSING OFFICER REITERATED THAT THE LIABILITY CRYSTALLISED IN F.Y. 2003-04 ON RECEIPT OF THE ARBITRATION AWARD AND CAN N OT CLAIM IN THE SUBSEQUENT YEAR. THUS TAKING ALL THE THREE FACTORS TOGETHER THE ASSESSING OFFICER DISALLOWED THE LOSS. 3. THE FIRST APPELLATE AUTHORITY ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, THE REVENUE FILED THIS APPEAL ON THE FOL LOWING EFFECTIVE GROUND. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF LOSS OF GOODS ON FIRE AMOUNTING TO RS.18,50,000/- IGNORING THE FACT THAT: (A) THE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTS AND THE LIABILITY DID NOT ACCRUE DURING THE YEAR AND (B) THE ASSESSEE COULD NOT FURNISH DOCUMENTARY EVIDE NCE IN SUPPORT OF PURCHASE OF MATERIALS WHICH WERE DAMAGED BY FI RE. ITA NO.1787/MUM/2009 A.Y.: 2005-2006 3 4. SHRI A.R. BAIWAR, THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED THE REQUIRED EVIDENCE AS SOUGHT BY THE ASS ESSING OFFICER NOR WAS HE ABLE TO PROVE THAT THE LOSS IN QUESTION CRYSTALL ISED DURING THE YEAR. HE POINTED OUT THAT THE ASSESSEE FAILED TO ESTABLISH T HAT ANY BUSINESS WAS CARRIED ON IN THE PREVIOUS YEAR RELEVANT TO ASSESSM ENT YEAR UNDER CONSIDERATION. HE SUBMITTED THAT THE ASSESSEE HAD NOT PRODUCED THE BILLS EVIDENCING PURCHASE AND ALSO THAT THERE IS CONTRADI CTION AND LACK OF CLARITY AS TO THE PLACE WHERE THE GOODS WERE STORED. HE P OINTED OUT THAT THERE WERE TWO GODOWNS AND CLAIM OF LOSS OF FIRE PERTAINING ON LY TO ONE GODOWN. HE SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE FI LE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION AND THE ASSESSEE SHOULD FILE NECESSARY EVIDENCE REGARDING THE LOSS. 5. SHRI NIHAR N. JAMBUSARLA, LEARNED AR ON THE OTHE R HAND FILED THE PAPER BOOK OF 74 PAGES AND SUBMITTED THAT THE LOSS HAS BEEN ASSESSED BY THE ASSESSING OFFICER DURING THE YEAR AND NO GROUND HAS BEEN TAKEN BY THE REVENUE ON THE ISSUE OF WHETHER THE ASSESSEE IS IN BUSINESS, OR NOT DURING THE YEAR. HE SUBMITTED THAT THE BUSINESS WAS ONLY UNDER TEMPORARY SUSPENSION. HE REFERRED TO ARBITRATION AWARD AS WE LL AS THE ORDER OF THE HONBLE HIGH COURT AND ARGUED THAT THE FACT THAT TH E ASSESSEE HAD A LOSS CANNOT BE DISPUTED. HE SUPPORTED THE ORDER OF THE FIST APPELLATE AUTHORITY AND SUBMITTED THAT THE SAME BE UPHELD. 6. RIVAL CONTENTIONS HEARD. ON THE CAREFUL CONSIDE RATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON A PERUSAL OF THE P APER ON RECORD AND THE ORDERS OF THE AUTHORITY BELOW AS WELL AS CASE LAW C ITED WE HOLD AS FOLLOWS. 7. THE GENUINENESS OF THE LOSS CANNOT BE DISPUTED, IN VIEW OF EVIDENCE PRODUCED BY THE ASSESSEE IN THE FORM OF ARBITRATION AWARD DT. 01.05.2003 AS MODIFIED ON 27.06.2003. THE ORDER OF THE HONBLE H IGH COURT FIXES THE LIABILITY ON THE ASSESSEE. THE ASSESSEE WAS DISPUT ING THE LOSS IN THE EARLIER YEAR AND THUS HAS NOT CLAIMED THE SAME IN ITS BOOKS OF ACCOUNTS IN THAT YEAR. WE FIND NO INFIRMITY IN THE SAME. THE ISSU E WHERE ASSESSEE IS ITA NO.1787/MUM/2009 A.Y.: 2005-2006 4 CONTINUING HIS BUSINESS OR NOT, IS NOT BEFORE US, A S THE REVENUE HAS NOT RAISED SUCH A GROUND. EVEN OTHERWISE THE ASSESSIN G OFFICER HAS HIMSELF ASSESSED A BUSINESS LOSS FOR THE YEAR AT RS.34,409/ -. THUS, ON THIS FACTUAL MATRIX WE UPHOLD THE FINDING OF THE FIRST APPELLATE AUTHORITY THAT THE ASSESSING OFFICER WAS WRONG IN RAISING DOUBTS ABOUT THE GENUINENESS OF THE TRANSACTION. THERE IS NO BAR IN CLAIMING THE LOSS IN A SUBSEQUENT YEAR, WHEN THERE IS ONLY A TEMPORARY SET BACK IN BUSINESS AND NOT THE FULL CLOSURE OF THE BUSINESS. IN OUR OPINION, THE LEARNED CIT(A ) HAS RIGHTLY HELD THAT THE LOSS HAS CRYSTALLISED DURING THE YEAR AND HENCE THE SAME IS ALLOWABLE DURING THIS YEAR. 8. IN THE RESULT, WE UPHOLD THIS ORDER AND DISMISS THE APPEAL OF THE REVENUE. ORDER PRONOUNCED ON THIS 18 TH DAY OF JUNE, 2010. SD/- (R.V. EASWAR) (PRESIDENT) SD/- (J. SUDHAKAR REDDY) (ACCOUNTANT MEMBER) MUMBAI, DATED 18 TH JUNE, 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-XXIV, MUMB AI 4. COMMISSIONER OF INCOME TAX, CITY-XXIV, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI