ACIT(LTU), Circle-1, Kolkata, Kolkata V. Hidustan Copper Ltd., Kolkata

ITA 2126/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1542 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 21-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Keywords: Business income; Depreciation; Unabsorbed depreciation
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C, KOLKATA (BEFORE SHRI P. M. JAGTAP, A.M. & SHRI S.S. VISWANETHRA RAVI, J.M.) ITA NO. 2126/KOL/2014 ASSESSMENT YEAR : 2008-2009 A.C.I.T. (LTU), CIRCLE-1 KOLKATA 6 TH FLOOR, KENDRIYA UTPAD SHULIK BHAWAN 180, SHANTI PALLY KOLKATA - 700107 VS M/S. HINDUSTAN COPPER LTD. TAMARA BHAWAN, 1, ASHUTOSH CHOWDHURY AVENUE, KOLKATA 700009 PAN NO. AAACH7409R (APPELLANT) (RESPONDENT) REVENUE BY : SHRI G. MALLIKARJUNA, CIT, DR ASSESSEE BY : SHRI SANJAY BHATTACHARYA, AR DATE OF HEARING : 04.07.2017 DATE OF PRONOUNCEMENT : 12 .07.2017 ORDER SHRI P.M.JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(APPEALS) VI, KOLKATA DATED 26.03.2013. 2. THE ISSUE INVOLVED IN GROUND NO. 1 RELATES TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION OF RS. 95,42,76,924/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF ASSESSEES CLAIM FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO THE EARLIER YEARS. 3. THE ASSESSEE IN THE PRESENT CASE IS A PUBLIC SECTOR UNDERTAKING WHICH IS ENGAGED IN THE BUSINESS OF MINING AND SALES OF COPPER AND OTHER BY-PRODUCTS. THE RETURN OF INCOME ITA NO. 2126/KOL/2014 2 FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 29.09.2008 DECLARING TOTAL INCOME OF RS. 168,97,50,664/- AND BOOK PROFIT OF RS. 302,49,59,000/- UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961. IN THE ASSESSMENT ORIGINALLY COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 31.12.2010, THE TOTAL INCOME OF THE ASSESSEE WAS DETERMINED BY THE AO AT RS. 323,78,07,801/-. THE ASSESSMENT HOWEVER, WAS REOPENED BY THE AO SUBSEQUENTLY INTER ALIA FOR THE REASON THAT ASSESSEES CLAIM FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO EARLIER YEARS WAS WRONGLY ALLOWED. IN THIS REGARD, IT WAS NOTED BY THE AO THAT AS PER THE PROVISIONS OF SECTION 72 OF THE ACT, NO UNABSORBED DEPRECIATION PRIOR TO A.Y. 2001-02 COULD BE ALLOWED TO BE CARRIED FORWARD BEYOND EIGHT YEARS FROM THE END OF THE ASSESSMENT YEAR IN WHICH THE UNABSORBED DEPRECIATION WAS SUFFERED. HE ACCORDINGLY DISALLOWED THE ASSESSEES CLAIM FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1997-98, 1998-99, 1999-2000 AND 2000-01 AGGREGATING TO RS. 95,42,76,924/-. 4. THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ITS CLAIM FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1997- 08 TO 2000-01 AGAINST THE INCOME FOR THE YEAR UNDER CONSIDERATION WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(A), WHO DELETED THE SAID DISALLOWANCE AND ALLOWED THE CLAIM OF THE ASSESSEE FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1997-98 TO 2000- 01 BY FOLLOWING THE DECISION OF HONBLE GUJARAT HIGH COURT IN ITA NO. 2126/KOL/2014 3 THE CASE OF GENERAL MOTOR (INDIA) PVT. LTD. VS DCIT 354 ITR 244 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES, THIS ISSUE INVOLVED IN GROUND NO. 1 OF REVENUES APPEAL IS SQUARELY COVERED INTER ALIA BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTOR (INDIA) PVT. LTD. (SUPRA) WHEREIN IT WAS HELD THAT AFTER THE AMENDMENT MADE VIDE THE FINANCE ACT, 2001, THE BALANCE OF UNABSORBED DEPRECIATION REVIVED BACK INTO LIFE AND BECAME ELIGIBLE FOR CARRY FORWARD AND SET OFF ALONG WITH OTHER PARTS OF UNABSORBED DEPRECIATION AVAILABLE TO THE CREDIT OF THE ASSESSEE. THIS ISSUE IS THUS SQUARELY THUS COVERED IN FAVOUR OF THE ASSESSEE BY THE SAID DECISION OF HONBLE GUJARAT HIGH COURT AND IN THE ABSENCE OF ANY CONTRARY DECISION, BROUGHT TO OUR NOTICE THAT THE LEARNED DR WHICH IS IN FAVOUR OF THE REVENUE ON THIS ISSUE, WE RESPECTFULLY FOLLOW THE SAME AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE FOR SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO A.Y. 1997-08 TO 2000-01. GROUND NO. 1 OF REVENUES APPEAL IS ACCORDINGLY DISMISSED. 6. THE COMMON ISSUE INVOLVED IN THE GROUND NO. 2 AND 3 RELATES TO THE DELETION BY THE LD. CIT(A) OF THE ADDITION OF RS. 2,80,01,392/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVISIONS MADE BY THE ASSESSEE FOR NON-MOVING/OBSOLETE STOCK AND SPARES. ITA NO. 2126/KOL/2014 4 7. IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE COMPANY HAD DEBITED A SUM OF RS. 3,44,89,000/- ON ACCOUNT OF PROVISIONS FOR NON-MOVING/OBSOLETE STOCK AND SPARES. ALTHOUGH IT WAS CLAIMED BY THE ASSESSEE THAT THE SAID PROVISION FOR LIABILITY WAS BASED ON AN ASSESSMENT OF STOCK AND SPARES MADE BY TECHNICAL EXPERTISE, THE AO HELD THAT THE SAID LIABILITY WAS OF A CONTINGENT NATURE SINCE IT WAS NOT ASCERTAINABLE AT A PARTICULAR TIME PERIOD. HE ALSO HELD THE DEDUCTION AS PER ACCOUNTING STANDARD 30 WAS ALLOWABLE ONLY IN RESPECT OF PROVISIONS WHICH HAVE RECOGNISED WHEN THE COMPANY HAD A PRESENT OBLIGATION AS A RESULT OF PAST EVENT. KEEPING IN VIEW ALL THESE ASPECTS AS WELL AS THE FACT THAT THE ASSESSEE HAD NOT WRITTEN OFF THE VALUE OF STOCK AND SPARES IN HIS BOOKS OF ACCOUNTS, THE PROVISION OF RS. 3,44,89,000/- MADE BY THE ASSESSEE FOR NON-MOVING/OBSOLETE STOCK AND SPARES WAS DISALLOWED BY THE AO. 8. THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF PROVISION FOR NON-MOVING/OBSOLETE STOCK AND SPARES WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BY THE LD. CIT(A). DURING THE COURSE OF APPELLATE PROCEEDINGS, THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE: IN HIS ORDER DATED 29.03.2014, ASSESSING OFFICER STATED THAT PROVISION OF RS. 3,44,89,000/- HAS BEEN MADE FOR NON-MOVING OBSOLETE STOCKS AND SPARES WHICH ACCORDING TO HIM HAD ALLEGEDLY BEEN UNASCERTAINABLE AND THEREFORE COULD ALLEGEDLY NOT BE ALLOWED AS DEDUCTIBLE EXPENDITURE. ON THE BASIS OF HIS ABOVE OBSERVATION THE ASSESSING OFFICER DISALLOWED RS. 3,44,89,000/-. ITA NO. 2126/KOL/2014 5 THE APPELLANT SUBMITS THAT IT HAD EXPLAINED BEFORE THE ASSESSING OFFICER THAT AT THE END OF EVERY YEAR PHYSICAL VERIFICATION AND TECHNICAL ASSESSMENT WERE CARRIED OUT OF THE STOCKS AND SPARES ON THE BASIS OF SUCH VERIFICATION/ASSESSMENT, ALL OLD ITEMS OF STOCK AND SPARES, WERE IDENTIFIED AND VALUED. DEPENDING UPON THE CONDITION OF THE OLD ITEMS OF STOCK AND SPARES AND CURRENT MARKET VALUES THEREOF, THE REDUCTION IN THE EXISTING VALUES WERE AFFECTED BY MAKING ADJUSTMENT ENTRIES DESCRIBED AS PROVISION. IT WAS SUBMITTED THAT THIS PROVISION ACTUALLY REPRESENTED THE LOSS SUFFERED BY THE APPELLANT AND THEREFORE SUCH PROVISION WERE DEDUCTIBLE IN COMPUTING THE BUSINESS INCOME OF THE APPELLANT. THE APPELLANT BROUGHT TO THE ATTENTION OF THE ASSESSING OFFICER THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THIS PARTICULAR ISSUE HAD BEEN EXPLAINED BEFORE THE THEN ASSESSING OFFICER IN DETAILS. THE APPELLANT FURTHER SUBMITS THAT THE SUM OF RS. 3,44,89,000/- HAD INCLUDED THE FOLLOWING TWO MAIN ITEMS:- I) DIFFERENCE IN PHYSICAL AND BOOK STOCK AMOUNT (RS) CONSEQUENT TO PHYSICAL VERIFICATION 2,80,01,392 II) PROVISION MADE IN THE ACCOUNTS OF STORES NOT MOVED FOR MORE THAN 5 YEARS AS PER ACCOUNTING POLICY FOLLOWED BY APPELLANT 58,41,302 TOTAL 3,38,42,694 OUT OF RS. 3,44,89,000 IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT SINCE THE STOCK AND SPARE PARTS HAVE BEEN REFLECTED IN THE ACCOUNTS AT THEIR ORIGINAL COST, THE COST TOWARDS THE SHORTAGES IN QUANTITIES OBSERVED ON PHYSICAL VERIFICATION, HAD TO BE ADJUSTED BY WAY OF ACTUAL WRITE OFF, THOUGH TERMED AS PROVISION IN THE PROFIT & LOSS ACCOUNT. THE LOSS OF RS. 2,80,01,392 BEING THE ACTUAL LOSS WHICH HAD BEEN WRITTEN OFF, SHOULD HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER AS DEDUCTIBLE IN COMPUTING THE APPELLANTS BUSINESS INCOME. IT WAS ALSO SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE PARTICULAR STORES ITEMS WHICH HAD NOT MOVED FOR MORE THAN 5 YEARS, HAD BECOME USELESS FOR THE APPELLANTS BUSINESS AND SO THE COST OF THOSE UNMOVED STORES AGGREGATING TO RS. 58,41,302 SHOULD BE CONSIDERED AS AN ACTUAL LOSS TO THE ITA NO. 2126/KOL/2014 6 APPELLANT. HOWEVER, THE ASSESSING OFFICER DID NOT APPRECIATE THE APPELLANTS EXPLANATIONS AND DISALLOWED RS. 3,44,89,000. ON THE BASIS OF THE ABOVE FACTS, THE APPELLANT WITHOUT PREJUDICE TO ITS SUBMISSION THAT THE ORDER OF RE-ASSESSMENT SHOULD BE QUASHED, SUBMITS THAT SINCE THE AMOUNT OF RS. 3,44,89,000 HAD ACTUALLY REPRESENTED THE LOSS SUFFERED BY THE APPELLANT, THE ASSESSING OFFICER SHOULD NOT HAVE DISALLOWED THE SAME AND THEREFORE, THE APPELLANT SUBMITS THAT THE DISALLOWANCE OF RS. 3,44,89,000 MAY KINDLY BE DELETED. 9. KEEPING IN VIEW THE ABOVE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF THE PROVISIONS FOR NON- MOVING/OBSOLETE STOCK AND SPARES TO THE EXTENT OF RS. 2,80,01,392/- FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 8.2: I HAVE CONSIDERED THE FACTS OF THE CASE. THE AMOUNT UNDER CONSIDERATION CONSISTS OF TWO PARTS. ONE IS THE DIFFERENCE IN PHYSICAL AND BOOK STOCK CONSEQUENT TO PHYSICAL VERIFICATION WHEREAS THE OTHER IS PROVISION MADE ON ACCOUNT OF STORES NOT MOVED FOR MORE THAN 5 YEARS. THE FIRST PART AMOUNTING TO RS. 2,80,01,392/- WAS THE ACTUAL SHORTAGE IN PHYSICAL STOCK AS COMPARED TO BOOK STOCK DETECTED IN PHYSICAL VERIFICATION. THIS CAN DEFINITELY NOT BE CALLED A LIABILITY OF CONTINGENT NATURE. RATHER THE SAME WAS THE ACTUAL SHORTAGE FOUND ON PHYSICAL VERIFICATION. ALSO, THE SAME RELATES TO STOCK AND SPARES AND IS THIS ITEM OF REVENUE NATURE. IN MY OPINION, THE SAME IS ALLOWABLE AS DEDUCTION. HOWEVER, THE REMAINING PART MAINLY RELATES TO PROVISION MADE FOR STORES NOT MOVED FOR 5 YEARS AMOUNTING TO RS. 58,41,302/- (NO DETAILS HAVE BEEN GIVEN FOR THE BALANCE AMOUNT). HERE, I AGREE WITH THE ASSESSING OFFICER, THAT THIS WAS NOT AN ACTUAL LOSS BUT A PROVISION MADE ON CONTINGENT BASIS. IT IS ALSO NOTED THAT IN THE EARLIER YEARS SUCH AS ASSESSMENT YEAR 2007-08 THE APPELLANT HAS ITSELF BEEN ADDING BACK SUCH PROVISION FOR WORKING OUT TAXABLE INCOME, AS ADMITTED BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT. ITA NO. 2126/KOL/2014 7 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY THE LD. DR, ALTOGETHER NEW STAND WAS TAKEN BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT THE PROVISION FOR NON- MOVING/OBSOLETE STOCK AND SPARES TO THE EXTENT OF RS. 2,80,01,392/- ACTUALLY PERTAINED TO THE DIFFERENCE IN PHYSICAL AND BOOK STOCK AS FOUND ON PHYSICAL VERIFICATION. HE HAS SUBMITTED THAT THIS NEW STAND TAKEN BY THE ASSESSEE FOR THE FIRST TIME BEFORE HIM HOWEVER, WAS ACCEPTED BY THE LD. CIT(A) WITHOUT GIVING ANY OPPORTUNITY TO THE AO TO VERIFY THE SAME AND THIS POSITION CLEARLY EVIDENT FROM THE IMPUGNED ORDER OF THE LD. CIT(A) IS NOT DISPUTED EVEN BY THE LEARNED COUNSEL FOR THE ASSESSEE. WE, THEREFORE, CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT(A) AND ON THIS ISSUE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AFTER VERIFYING THE STAND OF THE ASSESSEE THAT THE PROVISION FOR NON-MOVING/OBSOLETE STOCK AND SPARES TO THE EXTENT OF RS. 2,80,01,392/- ACTUALLY WAS ON ACCOUNT OF DIFFERENCE IN PHYSICAL AND BOOK STOCK AS FOUND ON PHYSICAL VERIFICATION. GROUND NO. 2 AND 3 OF THE REVENUES APPEAL ARE ACCORDINGLY TREATED AS ALLOWED AS STATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JULY, 2017 SD/- SD/- (S.S. VISWANETHRA RAVI) ( P.M.JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO. 2126/KOL/2014 8 DATED: 12/07/2017 BISWAJIT COPY OF ORDER FORWARDED TO: 1 M/S. HINDUSTAN COPPER LTD., TAMARA BHAWAN, ASHUTOSH CHOWDHURY AVENUE, KOLKATA - 700009 2 A.C.I.T. (LTU), CIRCLE-1 KOLKATA 6 TH FLOOR, KENDRIYA UTPAD SHULIK BHAWAN 180, SHANTI PALLY KOLKATA - 700107 3 THE CIT(A) - 4 THE CIT - 5 DR TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA