MARVEL FRAGRANCES P.LTD, MUMBAI V. AST CIT 10(3), MUMBAI

ITA 1914/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5021 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 21-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: DR K SHIVARAM; RAHUL K MAKANI
• Keywords: Audit objection; Bad and doubtful debts; Reason to believe
• Section: 143(3); 10B; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SRI H.L. KARWA, PRESIDENT, AND SHRI N.K.BILL AIYA, AM ./ I.T.A. NO. 1914/MUM/2012 ( / ASSESSMENT YEAR : 2004-05) MRVEL FRAGRANCES PVT. LTD. 711, RAHEJA CENTRE, NARIMAN POINT, MUMBAI-400021 / VS. THE ASST. COMM. OF INCOME-TAX, RANGE-10(3), AAYKAR BHAVAN, M.K.ROAD, NEW MARINE LINES, MUMBAI-400020 !' $ ./ PAN :AACCM0455G ( '% / APPELLANT ) .. ( &''% / RESPONDENT ) '% ( ) / APPELLANT BY : SHRI DR.K.SHIVARAM & RAHUL K. MAKANI &''% ( ) / RESPONDENT BY : SHRI SURENDRA KUMAR ( *$ / DATE OF HEARING : 19-09-2013 +, ( *$ / DATE OF PRONOUNCEMENT : 19 -09-2013 -. / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A)-22, MUMBAI, DATED 18/01/2012, PERTAINING TO A.Y.2004-05. 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS OF APPEAL. WITH GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE VALID ITY OF THE REASSESSMENT AFTER THE EXPIRY OF THE FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IT IS THE CLAIM OF THE ASSESSEE THAT IT HAS DISCLOSED FULLY AND TRULY ALL 2 ITA NO.1914/MUM/2012 MS MARVEL FRAGRANCES PVT. LTD. MATERIAL FACTS NECESSARY FOR THE RELEVANT ASSESSMEN T YEAR . IN THIS CASE THE ORIGINAL ASSESSMENT WAS COMPLETED ON 31/08/2006 U/S 143(3) OF THE ACT. SUBSEQUENTLY THE CASE WAS REOPENED U/S 147 AFTER RE CORDING THE FOLLOWING REASONS FOR REOPENING THE ASSESSMENT:- IN THE INSTANT CASE, ORDER U/S 143(3) OF THE ACT WA S PASSED ON 31.08.2006 ASSESSING TOTAL INCOME AT RS.72,46,940/-. SUBSEQUE NTLY, IT HAS COME TO THE NOTICE THAT THE ASSESSEE HAS CLAIMED EXCESSIVE DEDUCTION U /S10B OF THE ACT BY INCLUDING THE INCOME OF RS.86,265 ON ACCOUNT OF BAD DEBTS REA LIZED, WHICH IS NOT FOREIGN EXCHANGE REALIZED FOR THE EXPORTS FOR THE YEAR UNDE R CONSIDERATION. FURTHER IT IS ALSO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTIO N U/S 10B OF THE ACT WITHOUT NETTING OFF THE EXPORTS PROCEEDS REALIZED BY THE AM OUNT OF RS.20,42,763/- ON ACCOUNT OF EXPENDITURE INCURRED IN FOREIGN CURRENCY . THEREFORE, I HAVE REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF THE PROVISIONS OF SECTION 147 OF THE ACT, TO THE EXTENT OF EXCESS DEDUCTION CLAIMED BY AND ALLOWED TO THE ASSE SSEE IN RESPECT OF THE INCOME ON ACCOUNT OF BAD DEBTS REALIZED AND FOREIGN CURREN CY EXPENDITURE INCURRED, BY REASON OF FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. NOTICE U/S 148 OF THE ACT IS, THEREFORE, ISSUED. 3. ACCORDINGLY NOTICE U/S 148 OF THE ACT WAS ISSUED ; THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THIS NOTICE. A PERUSAL OF THE RELEVANT DOCUMENTS BROUGHT ON RECORD BEFORE US SHOW THAT THE ASSESSMEN T HAS BEEN REOPENED ONLY ON THE BASIS OF AUDIT OBJECTION WHICH IS EXHIB ITED AT PAGE 24 OF THE PAPER BOOK. A PERUSAL OF THE SAID AUDIT REPORT SHO WS THAT THE FOLLOWING OBJECTION HAS BEEN RAISED:- RETURN OF INCOME FILED BY THE ASSESSEE-COMPANY ON 3 0.10.2004 FOR A.Y.2004-05 WAS ASSESSED U/S143(3) OF I.T. ACT, 196 1 VIDE ORDER DATED 31.08.2006. IT IS SEEN FROM THE RECORD THAT ASSESSEE HAS CLAIME R AND ALLOWED DEDUCTION U/S 10B FOR RS.40858752. SINCE UNDER THE SCOPE OF EXEM PTION SECTION 10B PROVIDES 100% EXEMPTION FOR EXPORT INCOME & NOT ANY OTHER IN COME. HOWEVER IN THE ABOVE SAID DEDUCTION INCOME FOR 86265 IS INCLUDED TOWARDS BAD DEBT REALIZED. FURTHER THE EXPORT RECEIPT DECLARED FOR RS.14,68,70,068/-. HOWEVER IT SEEN FROM NOTES TO A/C SCHEDULE C THAT ITEM NO. 6(III) THAT THE ASSESS EE HAS INCURRED AN EXPENDITURE IN FOREIGN CURRENCY FOR RS.20,42,763/- TOWARDS TRAV ELLING AND EXHIBITION EXPENSES. TO THE NET EXPORT RECEIPT IS REQUIRED TO BE CONSIDE RED AS RS.14,48,27,305/-, THE DEDUCTION U/S 10B IS RECOMPUTED AS GIVEN BELOW:- 3 ITA NO.1914/MUM/2012 MS MARVEL FRAGRANCES PVT. LTD. TOTAL PROFIT OF BUSINESS 4,08,58,752/- LESS BAD DEBT REALIZED 86,265/- 4,07,72,487/- DEDUCTION U/S 10B = 407772487 X 144827305 146870068 = 4,02,05,397/- EXCESS DEDUCTION U/S 10 B = 653355/- THIS HAS RESULTED IN EXCESS ALLOWANCES OF DEDUCTION U/S 10B FOR RS.653355 WITH CONSEQUENT SHORT LEVY OF TAX OF RS.234390/-. 4. A PERUSAL OF THE REASONS RECORDED VIS- A- VIS AUDIT OBJECTION , IN OUR HUMBLE OPINION REASONS RECORDED MUST ENSURE APPLICA TION OF MIND BY THE AO. THE HONBLE DELHI HIGH COURT IN THE CASE OF TRANSWORLD INTERNATIONAL INC. V/S JCIT 273 ITR 242 HAS HELD THAT THE PRIMARY FUNCTION OF AUDIT IN RELATION TO ASSES SMENT AND REFUND IS THE CONSIDERATION WHETHER THE INTERNAL PROCEDURE S ARE ADEQUATE AND SUFFICIENT. IT IS NOT INTENDED THAT THE PURPOSE OF AUDIT TO GO ANY FURTHER. WHETHER IT IS THE INTERNAL AUDIT PARTY OF THE INCOME-TAX DEPARTMENT OR IN AUDIT PARTY OF THE CAG, THEY PERFO RM ESSENTIALLY ADMINISTRATIVE OR EXECUTIVE FUNCTIONS AND CANNOT BE ATTRIBUTED THE POWER OF JUDICIAL SUPERVISION OVER THE QUASHING JUD ICIAL ACTS OF THE INCOME-TAX AUTHORITY. A PERUSAL OF THE ORIGINAL ASSESSMENT ORDER SHOWS THAT THE AO WAS WELL AWARE OF THE FACT THAT THE ASSESSEE HAS CLAIME D ITS BUSINESS TO BE ELIGIBLE UNDER PROVISIONS OF SECTION 10B OF THE ACT AS 100 PER CENT EOU. THEREFORE, REVISITING THE CLAIM OF THE ASSESS EE BY ISSUING NOTICE U/S 148 BASED ON THE AUDIT OBJECTION IS NOT IN LINE WITH THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT (SU PRA). 4 ITA NO.1914/MUM/2012 MS MARVEL FRAGRANCES PVT. LTD. 5. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY TH E HONBLE DELHI HIGH COURT ORDER PASSED U/S 143(3() R.W.S. SECTION 148 O F THE ACT IS QUASHED. GROUND NO. 1 IS ACCORDINGLY ALLOWED. 6. AS WE HAVE ALREADY QUASHED THE ASSESSMENT ORDER, WE DO NOT FIND IT NECESSARY TO DECIDE THE ISSUE ON MERITS. 7. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 19/09/2013 -. ( +, $ /- 19/09/2013 , , ( 0 SD/- (H.L.KARWA) SD/- (N.K.BILLAIYA) HONBLE PRESIDENT ACCOUNTANT MEMBER MUMBAI; /- /DATED : 19 TH SEPTEMBER, 2013. SHEKHAR. P.S. -. -. -. -. ( (( ( &*12 &*12 &*12 &*12 32 * 32 * 32 * 32 * / COPY OF THE ORDER FORWARDED TO : 1. '% / THE APPELLANT 2. &''% / THE RESPONDENT. 3. 4 ( ) / THE CIT- , MUMBAI. 4. 4 / CIT(A)- , MUMBAI 5. 250 &* , , / DR, ITAT, MUMBAI 6. 06 7 / GUARD FILE. -. -. -. -. / BY ORDER, '2* &* //TRUE COPY// 8 88 8 / 9 9 9 9 : : : : (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI