Amtech Electronics (India) Ltd., Gandhinagar V. The ACIT.,Circle-1, Ahmedabad

ITA 2258/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6621 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-04-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 29-05-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR HRISHIKESH SR
• Keywords: Bad and doubtful debts; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 01.04.2010 DRAFTED ON:01.04.20 10 ITA NO.2258/AHD/2007 ASSESSMENT YEAR : 2001-2002 AMTECH ELECTRONICS (INDIA) LTD., E-6, GIDC ELECTONICS ZONE, GANDHINAGAR. VS. ASST. C.I.T., CIRICLE-1, AHMEDABAD. PAN/GIR NO. : AABCA 2793 A (APPELLANT) .. (RESPONDENT) APPELLANT BY : URVASHI SODHAN AD. RESPONDENT BY: KUMAR HRISHIKESH SR. A.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, AHMEDABAD, DATED 20.04.2007. 2. THE SOLE GROUND TAKEN BY THE ASSESSEE READS AS U NDER:- 2. THE LEARNED C.I.T.(A) HAS ERRED IN LAW AND FACT S IN CONFIRMING THE ADDITIONS OF RS.8,88,519/- ON ACCOUN T OF LOSS ON ACCOUNT OF LOSS ON SALE OF GOODS THOUGH FULLY EX PLAINED. THE ADDITION MADE BE DELETED. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS DECIDED AS UNDER:- THIS APPEAL IS AGAINST ORDER OF ASSESSMENT U/S. 14 3(3) R.W.S. 147 PASSED BY DY. COMMISSIONER OF INCOME-TAX, CIRCLE-1, AHMEDABAD THE GROUND OF APPEAL READS AS UNDER: - 2 - 'THE LD. DY. CIT HAS ERRED IN LAW AND ON FACTS OF T HE CASE IN DISALLOWANCE OF THE LOSS ON SALE OF ASSETS THOUGH F ULLY EXPLAINED.' 2 IN RESPONSE TO THE NOTICE OF HEARING ISSUED TO TH E AO AND THE APPELLANT, SHRI HIREN D SHAH. CA AND AUTHORIZED REP RESENTATIVE ATTENDED ON BEHALF OF THE APPELLANT AND HE WAS HEAR D. 3 THE ONLY GROUND OF APPEAL IS AGAINST DISALLOWANCE OF RS 8.88,519/- ON ACCOUNT OF LOSS ON ACCOUNT OF LOSS ON SALE OF GOODS. RELEVANT DISCUSSION IN THE ASSESSMENT ORDER IS AS U NDER 'VIDE LETTER DTD.22/6/2006 THE ASSESSEE WAS REQUIRED TO SHOW CAU SE WHY THE AMOUNT OF RS. 8,88,519/- CLAIMED IN P&L ACCOUNT UND ER 'LOSS ON SALE OF ASSET' SHOULD NOT BE DISALLOWED AND ADDED T O THE TOTAL INCOME. IN RESPONSE THERETO, THE ASSESSEE VIDE ITS REPLY DTD. 07/08/2006 HAS MAINLY CONTENDED AS UNDER- 'UNDER THE COMPETITIVE MARKET, WE HAVE TO OFFER THE SERVICES TO THE CUSTOMERS. SOME TIME, WHILE TAKING THE ENTRY IN THE REPUTED TRADE HOUSE, WE HAVE TO OFFER TOTAL FLEXIBI LITY ALONG WITH LIBERAL TRADE TERMS. IN ORDER TO TAKE AN ENTRY , WHAT WE DO IS WE SELL THE PRODUCT TO THE CUSTOMER. WE MAKE THE SALE ON SELL AND RETURN BASIS. IF CUSTOMER IS NOT SATISF IED WITH THE PERFORMANCE OF THE PRODUCT, WE TAKE IT BACK WITHOUT ANY OBLIGATION. IN SUCH CASES, PRODUCT TAKEN BACK IS US ED BY CUSTOMER AND TAXES AND DUTIES ALREADY PAID ON SALE AND NOT TO INCOME EVEN LOSS ON TAXES AND DUTIES (EXCISE & SALES TAX) THEREFORE, WE RESALE THE SAME PRODUCT TO THE OTHER PARTY AT A LOWER RATE AS COMPARED TO FIRST SALE. IT IS CALLED TRIAL ORDER IN SOME CASE. IN FACT, OUT OF 50 CUSTOMERS, THERE ARE FEW CUSTOMERS WHO ARE HOT SATISFIED AND IN SUCH CASE WE TAKE PRODUCT AND RESALE THE SAME. THE SAME PRODUCT, WHICH IS RETURNED BACK, WE SELL I T TO OTHER PARTY AND ACCORDINGLY WE ISSUE THE COMMERCIAL INVOI CE AT A DIFFERENT SALE PRICE AS THE TAXES AND DUTIES ARE AL READY PAID. OBVIOUSLY, RETURN WHEN WE SELL WILL BE AT LOWER PRI CE AS COMPARED TO THE STANDARD PRICE. THE DIFFERENCE ON SALE ON DIFFERENT OCCASION OF THE SAME PRODUCT IS TREATED AS LOSS ON SALE OF GOODS.' A STATEMENT IS ENCLOSED HEREWITH SHOWING INSTANCES ALONG WITH NECESSARY EVIDENCES.' I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE A ND ALSO THE STATEMENT FURNISHED ALONG WITH FEW INSTANCES TO GETHER WITH EVIDENCES TO SUPPORT ITS VIEW THAT THE RETURNED GOO DS ARE SOLD TO - 3 - ANOTHER PARTY AT LOWER PRICE, WHICH RESULTED IN LOS S ON SALE OF GOODS. THE INSTANCES GIVEN BY THE ASSESSEE SHOWED FIRST SA LE TO ANDHRA CEMENT LTD; PAMOROX PVT. LTD AND MARVEL DRUG PVT. L TD AND RESALE THE SAME TO TI CYCLES OF INDIA; TI CYCLES OF INDIA AND SKYLINE POWER RESPECTIVELY AS UNDER: 1 ST CLIENT INVOICE AMOUNT AND DATE ITEM SOLD RESALE TO 2 ND CLIENT INVOICE AMOUNT AND DATE ITEM SHOWN TO HAVE SOLD ANDHRA CEMENT LTD 481832 / 30.5.98 AXPERT AC VARIABLE FREQ. DRIVE MODEL:150 HP TL CYCLE OF INDIA 225000/ 31.8.2000 AXPERT AC VARIABLE FREQ. DRI VE MODEL: 125 HP PAMOROX PVT. LTD. 508742/ 30.6 98 AXPERT AC VARIABLE FREQ. DRIVE MODEL: 150 HP TI CYCLE OF INDIA 225000 / 31.8.2000 AXPERT AC VARIABLE FREQ DRIVE MODEL: 125 HP MARVEL DRUG P. LTD 55140/ 6.2.99 AXPERT KASUGA AC VARIABLE FREQ DRIVE HP 7.5 SKYLINE POWER 40000/ 3.11.2000 AXPERT KASUGA AC VARIABLE FREQ DRI VE HP 10 FROM THE ABOVE, IT CAN BE SEEN THAT THE ASSESSEE HA S NOT RESOLD THE SAME ITEM WHICH WAS ORIGINALLY RETURNED BACK BY ITS FIRST CUSTOMER AS THE MODEL/HF DIFFERS IN THE SECOND SALE FROM THE FIRST SALE. IN THE FIRST TWO CASES, THE HP IS 150 IN THE FIRST SALE, W HICH IS SHOWN AT 125HP IN THE SECOND SALE. THESE FACTS MAKE IT CRYST AL CLEAR THAT THE ASSESSEE HAS TRIED TO ADVANCE AN ARTIFICIAL STORY T O HIDE THE REAL FACT ESCAPE FROM THE TAXATION. IN OTHER WORDS THE ONLY L OGICAL INFERENCE THAT CAN BE DRAWN, BASED ON THE EVIDENCE FURNISHED BY THE ASSESSEE VIDE ITS LETTER DTD. 7.8.2006, IS THAT THE LOSS SHO WN IN THE P&L ACCOUNT IF NOT A 'LOSS ON SALE OF ASSET' IT IS ALSO NOT A 'LOSS ON SALE OF GOODS' AS CLARIFIED ABOVE. THEREFORE, THE EXPEND ITURE CLAIMED IN THE P&L ACCOUNT UNDER THE HEAD 'LOSS ON SALE OF ASS ET' OF RS.8,88,519/-, IS DISALLOWED AND ADDED TO THE TOTAL INCOME' . 4. CHALLENGING THE AO'S ACTION, THE LD. AR SUBMITT ED AS UNDER: - UNDER THE SCHEDULE OF THE PROFIT AND LOSS, THERE IS TYPOGRAPHICAL ERROR. IN FACT, IT IS TYPED AS 'LOSS ON SALE OF - 4 - ASSET', WHEREAS IT SHOULD HAVE BEEN TYPED AS 'LOSS ON SALE OF GOODS.' UNDER THE COMPETITIVE MARKET, WE HAVE TO OFFER THE SERVICES TO THE CUSTOMERS. SOME TIME, WHILE TAKING THE ENTRY IN THE REPUTED TRADE HOUSE, WE HAVE TO OFFER TOTAL FLEXIBILITY ALONG WITH THE LIBERAL TRADE HOUSE, WE HAVE TO OFFER TOTAL FLEXIBILITY ALONG WITH THE LIBERAL TRAD E TERMS. IN ORDER TO TAKE AN ENTRY, WHAT WE DO THAT WE SALE THE MACHINES TO THE CUSTOMERS. WE MAKE THE SALE ON SELL AND RETURN BASIS. IF CUSTOMER IS NOT SATISFIED WITH THE PERFORMANCE OF THE MACHINE, WE TAKE IT BACK WITHOUT ANY NEGOTIATION. IN SUCH CASES, MACHINE TAKEN BACK IS U SED BY THE CUSTOMER AND THEREFORE, WE RESALE THE SAME MACH INE TO THE OTHER PARTY AT A LOWER RATE AS COMPARED TO F IRST SALE. IT IS CALLED TRIAL ORDER. IN FACT, OUT OF 50 CUSTOMER, THERE ARE FEW CUSTOMER WHO ARE NOT SATISFIED AND IN SUCH CASE, WE TAKE MACHINE AND RESALE THE SAME. DUE TO EXCISE RESTRICTION, WE CANNOT PHYSICAL TRANS FER THE MACHINE TO THE CUSTOMER WITHOUT INVOICE TILL THE DA TE OF CONFIRMATION. THEREFORE, WE HAVE TO ISSUE THE INVOI CE FOR SUCH TYPE OF THE TRIAL SALES ORDER. WHEN WE FIRST TIME SALE THE MACHINE, WE ISSUE THE I NVOICE AS PER PRICE LIST. AS WE EXPLAINED THAT IN SOME OF THE CASES, MACHINE SOLD ARE RETURN BACK TO US. THE SAME MACHINE WHICH IS RETURNED BACK, WE SELL IT TO OTHER PARTY AND ACCORDINGLY, WE ISSUE THE FRESH INV OICE A DIFFERENT SALE PRICE. OBVIOUSLY, RETURN WHEN WE SELL WILL BE AT A LOWER P RICE AS COMPARED TO THE STANDARD PRICE LIST.' THE DIFFERENCE ON SALE ON DIFFERENT OCCASION OF THE SAME PRODUCT IS TREATED AS LOSS ON SALE OF GOODS. SUCH LOSS IS DUE TO MACHINE WHICH IS RETURN AND SUBSEQUENT SOLD AT A LOWER PRICE. A STATEMENT IS ENCLOSED HEREWITH SHOWING FEW INSTAN CES ALONG WITH THE NECESSARY EVIDENCES. ALL FIRST SALE AND SECOND SALE IS MADE TO THE UNREL ATED PARTIES. TO REMAIN IN THE COMPETITION, WE HAVE TO OFFER SUCH FLEXIBILITY TO THE CUSTOMERS. AS AGAINST THE TOTAL SALE, THE SALES RETURN AS EXPL AINED ABOVE ARE VERY FEW. - 5 - THERE ARE FEW INSTANCES HIGHLIGHTED IN THE ASSESSME NT ORDER ABOVE THE DEVIATION IN THE PRODUCT DESCRIPTIO N WE HAVE TO STATE THAT THE PRODUCT WHICH SOLD OF 150 HP HAVE A TOLERANCE LIMIT & AND THE SAME CAN BE SOLD AGAINS T AS 125 HP OR 200 HP SUCH DEVIATION IN THE PRODUCT DESCRIPTION REQUIRES MODIFICATION IN INSTALLATION. IN FACT, IF WE WRITE OFF THE RETURN PRODUCT, WE CAN CLAIM ENTIRE SALE PRICE AS BAD DEBTS. OUT MANUFACTURED PR ODUCT ENGINEERING IS SAME FOR ALL TYPES OF RANGES WITH AN INTERNAL MODIFICATION. IN VIEW OF THE ABOVE SUBMISSION, IT IS REQUESTED TO KINDLY CONSIDER OUR SUBMISSION AND ACCORDINGLY ADDITION MA DE BE DELETED.' 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE . BASICALLY, THE AR HAS REITERATED THE SUBMISSION MADE BEFORE THE AO THAT THE GOODS WHICH WERE SOLD TO CERTAIN PARTIES WERE RETUR NED BACK AND WAS SOLD TO SOME OTHER PARTIES AT A LOWER PRICE, WH ICH HAS RESULTED IN THIS LOSS. ASSESSEE HAS TRIED TO EXPLAIN THAT TH E VARIATION IN THE HP ETC AS POINTED OUT BY THE AO IN THE SECOND SALE IS NOT MATERIAL BECAUSE THE PRODUCT SOLD AS 150 HP HAS A TOLERANCE LIMIT AND THE SAME CAN BE SOLD AGAIN AS 125 HP OR 200 HP. HOWEVER , THERE IS NO EVIDENCE TO SUBSTANTIATE THIS CLAIM. THE AO HAS CLE ARLY POINTED OUT IN PARA. 3.2 OF THE ORDER THAT THE GOODS WHICH WERE OF 150HP MODEL WERE ALLEGEDLY RETURNED BACK AND WERE SOLD TO SOME OTHER PARTY AS 125 HP MODEL. IN THE OTHER CASE, GOODS RETURNED OF 7.5 HP WAS SOLD AS GOODS OF 10HP. THUS, THERE IS DIFFERENT IN THE MODEL ITSELF AND IT CANNOT BE SAID THAT THE SAME GOODS WHICH WER E RETURNED BACK BY THE FIRST PARTY WERE SOLD TO SOME OTHER PAR TY AT A LESSER PRICE. THERE IS NO EVIDENCE TO SUGGEST THAT THE SAM E GOODS WERE MODIFIED AND RE-SOLD AT A LESSER PRICE. THEREFORE, I FIND NO MERIT IN THE SUBMISSIONS OF THE ASSESSEE, WHICH IS DEVOID OF ANY EVIDENCE AND THE DISALLOWANCE MADE IS CONFIRMED. 6. IN THE RESULT, APPEAL IS DISMISSED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE, THE ASSESSEE HAS CLAIMED LOSS OF RS.8,88,519/ - UNDER THE HEAD LOSS ON SALE OF ASSETS. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE EXPLAINED THAT THE SAID LOSS WAS LOSS ON SALE OF GOODS AND DUE TO - 6 - TYPOGRAPHICAL ERROR THE SAME WAS STATED AS LOSS ON SALE OF ASSETS. THE ASSESSEE FURTHER EXPLAINED THAT DUE TO COMPETITION IN THE MARKET, THE GOODS ARE SOLD ON RETURNABLE BASIS IF CUSTOMER IS NOT SAT ISFIED WITH THE PRODUCT AFTER USING THE SAME. IN FEW INSTANCES, CUSTOMERS ACTUALLY RETURNED THE GOODS AND SUCH RETURNED GOODS ARE SOLD SUBSEQUENTLY AT A LESSER PRICE. THE DIFFERENCE BETWEEN ORIGINAL SALE PRICE AND THE SAID SALE PRICE IS DEBITED UNDER THE HEAD LOSS ON SALE OF GOODS. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE DESCRIPTION ON GOODS GIVEN IN THE SUBSEQUENT SALE INVOICE DOES NOT AGREE WITH THE DESCRIPTION IN THE FIRST SALE INVOICE AS INASMUCH AS HP MENTION ARE DIFFERENT. THE LEARNED A SSESSING OFFICER DISALLOWED THE ENTIRE CLAIM OF RS.8,88,519/-. 5. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS) THE ASSESSEE EXPLAINED THAT THE PRODUCT WHICH IS SOLD O F 150HP HAVE A TOLERANCE LIMIT AND THE SAME CAN BE SOLD AGAIN AS 1 25HP OR 200HP. SUCH DEVIATION IN THE PRODUCT DESCRIPTION REQUIRES MODIF ICATION IN INSTALLATION. 6. HOWEVER, LEARNED COMMISSIONER OF INCOME TAX(APPE ALS) DID NOT AGREE WITH THE SUBMISSION OF THE ASSESSEE AND CONFI RMED THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER. 7. BEFORE US, THE ASSESSEE REITERATED THE SUBMISSIO NS WHICH WERE MADE BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS). 8. WE FIND THAT THE EXPLANATION OF THE ASSESSEE WAS REJECTED BY THE LOWER AUTHORITIES WITHOUT VERIFICATION. THE ASSESSE E HAS ALSO NOT PRODUCED ANY EVIDENCE IN SUPPORT OF THE EXPLANATION GIVEN BY HIM. IN OUR CONSIDERED OPINION, THE ABOVE EXPLANATION NEEDS VER IFICATION BY THE DEPARTMENTAL AUTHORITIES AND THE SAME CANNOT BE REJ ECTED WITHOUT VERIFICATION. WE FURTHER FIND THAT FULL DETAILS OF LOSS OF RS.8,88,519/- - 7 - CLAIMED BY THE ASSESSEE IS NOT AVAILABLE ON RECORD AND THE DETAILS OF THE SAME WAS ALSO NOT FURNISHED BEFORE US BY BOTH THE P ARTIES. IN THE CIRCUMSTANCES, IN OUR CONSIDERED OPINION, IT SHALL BE IN THE INTEREST OF JUSTICE TO RESTORE THE ISSUE BACK TO THE FILE OF TH E LEARNED ASSESSING OFFICER FOR PROPER VERIFICATION AND THEREAFTER ADJU DICATING THE ISSUE AFRESH AS PER LAW. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES ON THE ISSUE AND REMAND THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER FOR ADJUDICATING THE ISSUE AFRESH AFTER VERIFYING THE EXPLANATION OF THE ASSESSEE AND MATERIALS FURNISHED BY THE ASSESSEE BY PASSING A SPEAKING ORDER AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 09/04/2010. SD/- SD/- (BHAVNESH SAINI) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 09/04/2010 PARAS # COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY // (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD