Sara Leather Industries, CHENNAI V. DCIT, Non Corporate Circle-10(1), CHENNAI

ITA 189/CHNY/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4759 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 14-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Revenue expenditure
• Section: 143(3)

Judgement Text

आयकर अपीलीय अिधकरण, ‘बी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI Įी महावीर ͧसंह, उपाÚय¢ एवं Įी मनोज क ु मार अĒवाल, लेखा सदèय के सम¢ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 189/Chny/2018 (िनधाŊरण वषŊ / Assessment Year: 2010-11) M/s. Sara Leather Industries, No. 829/1, Periyar EVR High Road, Kilpauk, Chennai – 600 010. बनाम/ Vs. DCIT Non Corporate Circle - 10(1), Chennai – 600 034. ̾थायी लेखा सं./जीआइ आर सं./PAN/GIR No. AAAFS-1730-P (अपीलाथŎ/Appellant) : (ŮȑथŎ / Respondent) अपीलाथŎ की ओरसे/ Appellant by : Shri S. Sridhar, Advocate ŮȑथŎ की ओरसे/Respondent by : Shri Sheila Parthasarathy, Addl. CIT सुनवाई की तारीख/ Date of Hearing : 16.06.2022 घोषणा की तारीख / Date of Pronouncement : 22.06.2022 आदेश / O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: This appeal by assessee is arising out of the order of Commissioner of Income Tax (Appeals)-12, Chennai in ITA No. 122/CIT(A)-12/2015-16 vide order dated 11.12.2017. Assessment was framed by DCIT, Non-Coporate Circle -10, Chennai for AY 2010-11 u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (herein after referred to as ‘the Act’) vide order dated 05.01.2016. ITA No: 189/Chny/2018 - 2 - 2. The first issue in this appeal of assessee is as regards to assumption of jurisdiction u/s. 147 of the Act raised by way of ground no. 2 & 3. 3. Ld. Counsel for the assessee made statement at bar that assessee is not interested in prosecuting this ground and hence the same may be dismissed as withdrawn. Ld. DR has not objected to the same. Hence, this ground is dismissed as withdrawn. 4. The next issue is as regards to the order of the CIT(A) sustaining the disallowance of advances to the extent of Rs. 2,53,18,959/- to one M/s. Shafeeque Leathers under the sunder debtors written off and claimed as business loss. For this assessee has raised the following ground no. 4, 5 & 6 which is reproduced as under: “4. The CIT (Appeals) erred in sustaining the disallowance of the advance to the extent of Rs.2,53, 18,959/- reflected in the name of M/s Shafeeque Leathers under sundry balances upon rejecting the claim for such loss/deduction in the computation of taxable total income as capital loss/loss in the capital field and consequently erred in sustaining the addition of such amount in the computation of taxable total income without assigning proper reasons and justification. 5. The CIT (Appeals) failed to appreciate that having not questioned the absence of enduring benefit and further having noticed the commercial prudence of the Appellant in writing off the said advance, the sustenance of the said addition from para 6 of the impugned order was wrong, erroneous, unjustified, incorrect and not sustainable in law. 6. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law.” 5. Brief facts are that the assessee firm is doing business of manufacturing and export of finished leather. The assessee in its books claimed sundry balances written off in the name of M/s. Shafeeque Leathers to the extent of ITA No: 189/Chny/2018 - 3 - Rs. 2,53,18,959/- and debited the same to the profit and loss account. The AO required the assessee to explain as to why the advances paid were not treated as capital in nature as the same was to acquire a tannery firm as a whole and loss has to be treated as capital loss. The assessee in reply stated that on promise to supply leather or lease out tannery for the benefits of the assessee for finished leather, the assessee gave these advances to M/s. Shafeeque Leather and Shafeeque Leathers asked more advances to tide away their problems with their bank. Accordingly, they forcibly sold their tannery. It was stated that the payments were made for supply of finished leather and not for acquiring tannery. The Assessing Officer was not convinced and not accepted the arguments of the assessee for the reason that the assessee is not doing any money lending business and hence advances cannot be treated as write off of balances outstanding and accordingly treated the write off claimed as capital loss. Aggrieved, assessee preferred appeal before the CIT(A). CIT(A) simpliciter confirmed the action of the AO vide para 6.1 and 6.2, which is reproduced as under: “6.1 In the present case, the appellant had entered into a one time transaction with Ms. Shafeeque Leathers to acquire a tannery business. It is an altogether new leather processing unit. It is not a routine expenditure or a trade debt in the ordinary course of appellant’s business. Appellant has paid a huge sum of Rs. 2,53,18,595/- for the new venture and the entire amount was. forfeited. Out of the total sundry balances written off amounting to Rs.2,53,48,103-, only Rs.29,144/- is pertaining to two other concerns, which are part of the regular business transactions of the appellant. The sundry balance of Rs.2,53,18,959/- written off in the case of M/s. Shafeeque Leather is not in the ordinary course of existing business and is not in the nature of revenue expenditure. 6.2. The appellant could not prove that the above transaction was part of the routine business activity. It also could not produce any evidence to show that the recipient of payment denied the liability which was a provision crystallized during the year and the said payment was made within the scope of current business operations. The appellant has written off the amount under "sundry balances". ITA No: 189/Chny/2018 - 4 - The payment given by the appellant to M/s.Shafeeque Leathers is clearly not in the nature of sundry advances. Without prejudice to the above finding, it is also found that the appellant has not proved that the above amount was eligible for any write off as per provisions of the I.T. Act. The addition is confirmed.” Aggrieved, assessee preferred an appeal before this Tribunal. 6. Before us, Ld. Counsel for the assessee Shri. S. Sridhar, stated that the relevant details could not be produced before the CIT(A) to show that the recipient of the payment denied the liability which was provision crystallized materialized during the year. The assessee has write off these amounts under sundry balance and the payments given to the assessee are for purchase of finished leather and not acquiring the tannery. He stated the relevant details could not be filed neither before the AO nor before the CIT(A). Hence, requested the matter may be restored back to the file of CIT(A) on merits only. On the other hand, Ld. Sr. DR strongly opposed setting aside of the matter but could not controvert the above arguments made by the Ld. Counsel for the assessee. 7. We have heard the rival contentions and gone through the facts and circumstances of the case. We notice that the assessee has raised a specific ground for not providing opportunity of being heard before passing of the order in violation of principles of natural justice. We noted that the assessee could not file the details as to how these advances are in the nature of revenue and are for the purpose of purchase of finished leather any agreement is available ITA No: 189/Chny/2018 - 5 - or not, this needs to be verified. The assessee is free to file any evidence on merits and CIT(A) will examine the same and will decide the issue accordingly. 8. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on 22 nd June, 2022. Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य /ACCOUNTANT MEMBER Sd/- (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चेɄई / Chennai; िदनांक / Dated : 22-06-2022 JPV आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आय ु Èत (अपील)/CIT(A) 4. आयकर आय ु Èत/CIT 5. ͪवभागीय ĤǓतǓनͬध/DR 6. गाड[ फाईल/GF