Shree Mahavir Carbon Ltd, Cuttack V. CIT, Cuttack

ITA 226/CTK/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7841 (ITAT-CUTTACK)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 22-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-04-2012
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: J M PATTNAIK
• Keywords: Depreciation; Bad and doubtful debts
• Section: 143(3); 263; 154

Judgement Text

IN THE INC O ME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : SHRI K.K.GUPTA, AM , AND SHRI K.S.S.PRASAD RAO, JM ITA NO. 226/CTK/2012 (ASSESSMENT YEAR 2007 - 08) M/S.SHREE MAHAVIR CA R BON LTD., PLOT NO.85, PHASE III, NEW INDUSTRIAL ESTATE, JAGATPU R PAN: AAECS 6716 J VERSUS COMMISSIONER OF INCOME - TAX, CUTTACK. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI J.M.PATTNAIK, AR FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR DATE OF HEARING : 22.06.2012 DATE OF PRONOUNCEMENT : 29.06.2012 OR DER SHRI K.K.GUPTA, AM : THIS APPEAL BY THE ASSESSEE IS ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX, CUTTACK ASSUMING JURISDICTION U/S.263 OF THE I.T.ACT,1961. 2. THE ASSESSEE SUBMITS THAT THE LEARNED CIT WAS NOT JUSTIFIED IN LAW IN RESTORING T HE ASSESSMENT ORDER TO THE ASSESSING OFFICER FOR RE - EXAMINATION WHICH HAS ALREADY BEEN EXAMINED BY HIM INSOFAR AS ALLOWABILITY OF DISCOUNT OF 20,37,506 WAS THE FIGURE CONSIDERED BY THE ASSESSING OFFICER IN HIS ORDER WHEN IT WAS CONSIDERED BY THE ASSESSING OFFICER THAT DISCOUNT AMOUNTING TO 61,12,431 HAVE BEEN CLAIMED AS IRRECOVERABLE DEBT BY THE ASSESSEE. ON THE ASSESSEES SUBMISSION BEFORE THE LEARNED CIT, THE LEARNED CIT DID NOT APPRECIATE THAT THE EXPENDITURE OF 20,37,506 WAS CATEGORICALLY ALLOWED BY THE ASSESSING OFFICER AS DISCOUNT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII) OF THE I.T.ACT,1961 ON THE IDENTICAL FINDINGS. 3 . INITIATING HIS ARGUMENTS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD CLAIMED OF 1,51,242 AND 1,312 TOWARDS DEMAND TAX AND FRINGE BENEFIT TAX RESPECTIVELY UNDER THE HEAD EXPENSES IN THE PROFIT AND LOSS ACCOUNT WHICH ARE NOT AL LOWABLE U/S. 40(A)(II) AND 40(A)(IC) RESPECTIVELY. ITA NO.226/CTK/2012 2 THE AUDITOR IN ITS AUDIT REPORT FOR THE ASST. YEAR:2007 - 08 HAS HIMSELF MENTIONED 1,51,242 IS INADMISSIBLE U/S. 40(A) OF THE I.T. ACT AT PAGE - 14 UNDER ANNEXURE - 1 OF P.B. AND AT THE SAME TIME CONFUSED HIMSE LF BY TREATING THE SAME AS INDIRECT TAX AS REVEALED FROM CLAUSE - 21 OF AUDIT REPORT IN PAGE - 15 OF PAPER BOOK AS ALLOWABLE EXPENDITURE. HENCE, IT IS A PRIMA FACIE MISTAKE OUGHT TO BE RECTIFIED U/S. 154 OF THE IT ACT FOR WHICH THERE IS NO NECESSITY TO INVOKE SEC - 263 OF I.T. ACT BEING A MISTAKE APPARENT FROM RECORD. FURTHER HE SUBMITTED THAT AS PER RECORD, THE FRINGE BENEFIT TAX AT 1,312 HAS ALREADY BEEN ADDED BACK WITH THE NET INCOME COMPUTED AT PAGE - 29 UNDER ANNEXURE - 1 OF THE PAPER BOOK. HENCE, IT IS NOT AT ALL JUSTIFIED TO INVOKE SEC - 263 FOR MAKING FURTHER ADDITION OF 1,312 WHICH HAS ALREADY BEEN ADDED WITH THE DISCLOSED NET IN COME AS CLEARLY REVEALED AT PAGE - 29 OF THE PAPER BOOK. THE LEARNED CIT HAVING RAISED THE ISSUE IN HIS SHOW CAUSE NOTICE ACCEPTED TO DROP THE ISSUE FOR RESTORING TO THE A.O. U/S.163. THE LEARNED COUNSEL FURTHER CONTENDED THAT THE LEARNED CIT HAS GONE THROUG H THE ORDER OF ASSESSMENT AND SUGGESTED FOR ADDITION OF 20,37,506.52 WITH THE INCOME ALREADY DETERMINED BY THE A.O. U/S. 143(3) OF THE IT ACT WITH AN ALLEGATION THE A.O. WHILE FRAMING THE ASSESSMENT ORDER WAS APPARENTLY IN ERROR IN NOT EXAMINING THE ISSU ES HAVING DIRECT IMPACT ON THE COMPUTATION OF ASSESSABLE TOTAL INCOME BEING NOT EXAMINING THE CONDITIONS LAID DOWN U/S. 36(I)(VII) OF THE IT ACT. IN THIS CONTEXT, THE LEARNED COUNSEL FOR THE ASSESSEE PERUSED PARAGRAPH - 1 OF PAGE - 2 OF THE ORDER OF ASSESSMEN T, WHICH READS AS UNDER: THE ASSESSEE - COMPANY HAD CLAIMED EXPENDITURE UNDER THE HEAD DISCOUNT ALLOWED AMOUNTING TO 81,49,937.00 OUT OF WHICH 14,27,312.00 WAS ON ACCOUNT OF DEBIT NOTE ALLOWED TO SREE METALIKS LTD. BEING NET DEBIT NOTE ADJUSTED AFTER CHARGING INTEREST ON L/C. A FURTHER DISCOUNT OF 61,12,431.00 WAS ALSO ALLOWED TO SREE METALIKS LTD. ON ACCOUNT OF DEB IT NOTE ISSUED BY THEM FOR SUPPLY OF LOW GRADE COKE. FROM THE PERUSAL OF ACCOUNT IT TRANSPIRED THAT SREE METALIKS HAD TO PAY 61,12,431.00 AS ON DT.31.03.2006. BY ALLOWING THE DEBIT NOTE OF 61,12,431.00 WITHOUT CONTESTING THE CONTENTION OF THEIR DEBTOR REGARDING ITA NO.226/CTK/2012 3 SUPPLY OF SUBSTANDARD COKE WHICH WAS NOT BACKED UP BY ANY DOCUMENTARY EVIDENCE LIKE REPORT FROM THE LABORATORY OR FROM A COMPETENT VALUER, THE ASSESSEE HAD IN FACT WRITTEN OFF A DEBT ALMOST UNILATERALLY WITHOUT COMPLETING THE FORMALITIES. THUS, THE CLAIM OF THIS ALLOWANCE WHICH IS IN THE NATURE OF WRITING OFF DEBT IS NOT ONLY AGAINST THE INTEREST OF THE COMPANY BUT ALSO AGAINST THE INTEREST OF REVENUE AND AS SUCH SHALL NOT BE ALLOWED AND CONSEQUENTLY IT SHALL BE ADDED TO THE TOTAL INCOME OF THE A SSESSEE. TAKING INTO CONSIDERATION THE ABOVE DISCUSSION MATERIALS GATHERED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AND KEEPING IN VIEW THE FACT AND CIRCUMSTANCES OF THE CASE, THE TOTAL INCOME OF THE ASSESSEE COMPANY IS COMPUTED AS UNDER : NET LOSS AS PER P & L ACCOUNT 2,16,49,784.00 ADD: DISALLOWANCE OF DISCOUNT ALLOWED AS DISCUSSED 61,12,431.00 ADD : DEPRECIATION AS PER COMPANIES ACT 10,20,980.00 LOSS 1,45,16,373.00 LESS: DEPRECIATION ALLOWED AS PER IT ACT, 1961 6,55,751.00 TOTAL LOSS 1,51,72,124.00 TAX TH EREON NIL TAX PAID NIL NET PAYABLE NIL ON THE BASIS OF ABOVE, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY CONTENDED THAT IT IS VERY MUCH CLEAR AND TRANSPARENT FROM THE ORDER OF THE ASSESSING OFFICER THAT HE HAS APPLIED HIS MIND AND CONSIDERING THE MATERIALS WHILE PASSING THE ORDER OF ASSESSMENT, AS CLEARLY REVEALED FROM THE DETAILS OF EXPENSES AT SCHEDULE - 15 UNDER ANNEXURE - 1 PAGE - 31 OF THE PAPER BOOK IN THE HEAD OF A/C. DISCOUNT ALLOWED AT 81,49,937.67. THE AO HAS EXAMINED THE SAME IN DETAILS AND DISALLOWED 61,12,431 BY EXPRESSING HIS OPINION AS THE SAID CLAIM HAS NOT BACKED UP BY ANY DOCUMENTARY EVIDENCE LIKE REPORT FROM LABORATORY OR FROM A COMPETENT VALUER. BUT, WHILE ALLOWING 20,37 ,506 THE AO HAS FULLY SATISFIED AS THE SAME AMOUNT IS DISCOUNT AS CLEARLY REVEALED FROM THE LEDGER A/CS. OF THE SAID PARTIES AS FOLLOWS: - I) SRG MINERALS AND METAL DISCOUNT 9,985.00 PAGE - 34 OF PAPER BOOK UNDER ANNEXURE - 2 II) SREE METALIKS LTD. 14,27,312.01 PAGE - 35 OF PAPER BOOK ITA NO.226/CTK/2012 4 DISALLO WING THE DEBIT NOT FOR 61,12,431.15 OUT OF CLAIM OF 75,39,743.16 PAGE - 36 OF PAPER BOOK UNDER ANNEXURE - 3. UNDER ANNEXURE - 3. III) APEX TRADING COMPANY 3,99,999.60 PAGE - 38 OF PAPER BOOK UNDER ANNEXURE - 4. IV) IDCOL F ERRO ALLOYS LTD. 209.91 PAGE - 39 OF PAPER BOOK UNDER ANNEXURE - 5. V) IDCOL FERRO ALLOYS LTD. 2,00,000.00 PAGE - 40 OF PAPER BOOK UNDER ANNEXURE - 6. THE AO HAS ALLOWED THE EXPENSES CLAIMED UNDER DISCOUNT ALLOWED TO THE ABOVE MENTIONED PARTIES AT 20,37,50 6. WHEREAS THE LEARNED CIT IN 263 PROCEEDINGS HAS TAKEN A CONTRARY VIEW BY STATING THE SAME AS BED DEBTS WHEREAS THE ENTIRE LEDGER A/CS. OF THE SAID PARTIES CLEARLY DISCLOSED THE SAME AS DISCOUNT. ON THE ABOVE FACTS, THE LEARNED COUNSEL FOR THE ASSESSEE A RGUED THAT THE LD. CIT CANNOT TAKE SUCH A EVASIVE PLEA TO INVOKE SEC - 263 OF THE IT ACT AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE BY ENFORCING SEC - 36(I)(VII) OF THE IT ACT WHICH RELATES TO BAD DEBTS. 3.1. HE FURTHER SUBMITTED THAT ORDER U/S. 263 COU LD NOT BE PASSED ON THE GROUND OF LACK OF ENQUIRY BY A.O.. THE ONLY GRIEVANCE OF CIT WAS THAT THE A.O. SHOULD HAVE MADE FURTHER ENQUIRIES RATHER THAN ACCEPTING THE EXPLANATION GIVEN BY THE ASSESSEE. IT CANNOT BE SAID TO BE A CASE OF LACK OF ENQUIRY FOR WHICH THE CIT CANNOT INVOKE SEC - 263 OF THE IT ACT. THE AO HAS REACHED TO A REASONABLE SATISFACTION AFTER DUE APPLICATION OF MIND IN REGARD TO AN ISSUE EXAMINED BY HIM DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THAN SUCH MATTER CANNOT BE REOPENED MERELY BECAUSE THE CIT IS OF THE OPINION THAT THE AO SHOULD HAVE DONE MORE OR SHOULD HAVE ACTED IN A MANNER WHICH IS CONSIDERED BY THE CIT AS MORE APPROPRIATE. EVEN THOUGH, CIT DOES NOT HAVE POWER U/S. 263 TO DIVEST AO TO VERIFY THE EXPENSES INCURRED OR NOT INCU RRED BY THE ASSESSEE. HENCE, ENTIRE ACTION U/S. 263 IS COMPLETELY ILLEGAL OUGHT TO BE ITA NO.226/CTK/2012 5 QUASHED AS PER THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS NAMELY, FAB INDIA OVERSEAS (P) LTD V. CIT [244 C TR (DEL) 380], PURANLAL AGRAWAL (HUF) V. CIT (29 VST 214 MADRAS),GUJRAT ROAD & INFRASTRUCTURE CO. LTD., V. CIT [139 TTJ (AHD.B.TRIB) 718], AND DEVELOPMENT CONSTRUCTION & ALLIED SERVICES (INDIA) P. LTD V. INCOME - TAX OFFICER [12 TAXMANN.COM 327 (MUM ITAT)]. 3.2. THE LEARNED COUNSEL FOR THE ASSESSEE PRAYED THAT THE IMPUGNED ORDER PASSED BY THE LD. CIT, CUTTACK U/S.263 MAY BE QUASHED. 4. THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT U/S.263. HE SUBMITTED THAT THE LEARNED CIT WAS WITHIN HIS JURISDICTI ON TO CONSIDER THE TREATMENT GIVEN TO THE DEBTORS AS DISCOUNT ALLOWED ADJUSTMENT WHICH CANNOT BE CLAIMED U/S.36(1)(VII). IT MEANS THAT THE DEBT WHICH BECAME BAD WHEN THE SALES WERE YET TO BE COMPLETED. HE THEREFORE, DIRECTED THE ASSESSING OFFICER TO EXAMIN E THE DETAILS OF EXPENDITURES CLAIMED UNDER THE HEAD DISCOUNT ALLOWED AGAINST WHICH THE ASSESSEE IS NOT ABLE TO ESTABLISH THE PROPER FACTS. SIMILARLY IT WAS TO BE VERIFIED FROM THE OBTAINING THE COPIES OF ACCOUNTS ON THE BASIS OF INFORMATION COLLECTED FR OM THE RESPECTIVE PARTIES TO SUBSTANTIATE THE DISCOUNT ALLOWED. HE FULLY SUPPORTED THE ORDER OF THE LEARNED CIT FOR HIS PART OF SUBMISSIONS. 5 . WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO HOLD THAT THE LEARNED CIT HAS CONSIDERED THE ISSUE OF CLAIMING OF EXPENDITURES UNDER THE HEAD DISCOUNT ALLOWED AFTER HAVING BEEN SATISFIED WITH RESPECT TO THE ISSUE REGARDING EXPENSES CLAIMED IN TH E PROFIT & LOSS ACCOUNT WHETHER COULD BE DISALLOWED U/S.40(A)(IA).THE ASSESSING OFFICER IN HIS ORDER HAS CATEGORICALLY GIVEN A FINDING WHICH IS REPRODUCED AS UNDER : ITA NO.226/CTK/2012 6 THE ASSESSEE - COMPANY HAD CLAIMED EXPENDITURE UNDER THE HEAD DISCOUNT ALLOWED AMOUNTING TO 81,49,937.00 OUT OF WHICH 14,21,312.00 WAS ON ACCOUNT OF DEBIT NOTE ALLOWED TO SREE METALIKS LIMITED BEING NET DEBIT NOTE ADJUSTED AFTER CHARGING INTEREST ON L/C . A FURTHER DISCOUNT OF 61,12,431 .00 WAS ALSO ALLOWED TO SREE METALIKS LIMITED ON ACCOUNT OF DEBIT NOTE ISSUED BY THEM FOR SUPPLY OF LOW GRADE COKE. FROM THE PERUSAL OF ACCOUNT IT TRANSPIRED THAT SREE METALIKS HAD TO PAY 61,12,431.00 AS ON 31.03.2006 . BY ALLOWING THE DEBIT NOTE OF 61,1 2,431 .00 WITHOUT CONTESTING THE CONTENTION OF THEIR DEB TOR REGARDING SUPPLY OF SUBSTANDARD COKE WHICH WAS NOT BACKED UP BY ANY DOCUMENTARY EVIDENCE LIKE REPORT FROM THE LABORATORY OR FROM A COMPETENT VALUER, THE ASSESSEE HAD IN FACT WRITTEN OFF A DEBT ALMOST UNILATERALLY WITHOUT COMPLETING THE FORMALITIES .THU S, THE CLAIM OF THIS ALLOWANCE WHICH IS IN THE NATURE OF WRITING OFF DEBT IS NOT ONLY AGAINST THE INTEREST OF THE COMPANY BUT ALSO AGAINST THE INTEREST OF REVENUE AND AS SUCH SHALL NOT BE ALLOWED AND CONSEQUENTLY IT SHALL BE ADDED TO THE TOTAL INCOME OF TH E ASSESSEE . THIS CLEARLY INDICATES THAT IT WAS THE CASE OF THE LEARNED CIT TO FURTHER VERIFY THE ORDER OF THE ASSESSING OFFICER WHEN HE HAS ALREADY NOTED THAT THE CLAIM WAS THE LOSS OF THE REVENUE AND SHALL NOT BE ALLOWED. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS ALREADY SUBMITTED THAT THE ISSUE HAS BEEN SETTLED BY THE LEARNED CIT(A) BY WAY OF A SEPARATE APPEAL THEREFORE CANNOT BE FURTHER CONSIDERED FOR SCRUTINY U/S.263 AS THE SAID ORDER STANDS MERGED IN THE ORDER FOR THE CIT U/S.263 TO ASSUME JURISDICTIO N . WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LEARNED DR INSOFAR AS THE FACTS LEADING TO CLAIM OF BAD DEBT AND ALLOWANCE OF DISCOUNT WERE CLOSELY LINKED AS OBSERVED BY THE ASSESSING OFFICER CANNOT LEAVE ANY ROOM FOR DOUBT AS SOUGHT TO BE ASSUMED BY THE LEARNED CIT U/S.263 INSOFAR AS HE HAS NOT GIVEN ANY DIRECTION TO THE ASSESSING OFFICER WHICH WOULD LEAD TO THE FINDING THAT THE ORDER OF THE ASSESSING OFFICER ITA NO.226/CTK/2012 7 WAS ERRONEOUS COUPLED WITH THE FACT THAT IT WAS PREJUDICIAL TO THE INTEREST OF REVENUE. THE F OLLOWING CASE LAWS CITED BY THE LEARNED ASSESSEE NAMELY, FAB INDIA OVERSEAS (P) LTD V. CIT [244 CTR (DEL) 380], PURANLAL AGRAWAL (HUF) V. CIT (29 VST 214 MADRAS),GUJRAT ROAD & INFRASTRUCTURE CO. LTD., V. CIT [139 TTJ (AHD.B.TRIB) 718], ARE SQUARELY APPLIC ABLE TO THE INSTANT CASE SPECIALLY THE DECISION OF THE ITAT,MUMBAI IN THE CASE DEVELOPMENT CONSTRUCTION & ALLIED SERVICES (INDIA) P. LTD V. INCOME - TAX OFFICER [12 TAXMANN.COM 327 (MUM ITAT)] WHEREIN IT IS HELD THAT COMMISSIONER WHILE SETTING ASIDE ASSESSM ENT U/S.263 SHOULD NOT GIVE SPECIFIC DIRECTION TO THE ASSESSING OFFICER TO COMPLETE ASSESSMENT IN A PARTICULAR MANNER. IN VIEW OF THE ABOVE, WE HAVE NO HESITATION IN ALLOWING THE APPEAL OF THE ASSESSEE BY QUASHING THE IMPUGNED ORDER OF THE LEARNED CIT. WE, THEREFORE, QUASH THE IMPUGNED ORDER OF THE LEARNED CIT. 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 29.06.2012 H.K.PADHEE, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.SHREE MAHAVIR CARBON LTD., PLOT NO.85, PHASE III, NEW INDUSTRIAL ESTATE, JAGATPUR 2. THE RESPONDENT: COMMISSIONER OF INCOME - TAX, CUTTACK. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY. . ITA NO.226/CTK/2012 8 APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 2 5 .06.2012 .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 2 6 .06.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..