ITO, Kanpur V. M/s. Hari Om Steels Pvt. Ltd., Kanpur

ITA 229/LKW/2010

• Counselvise Citation: 22923714 RSA 2010
• Duration Of Justice: 4 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 06-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Keywords: Depreciation; Principle of natural justice; Corroborative evidences
• Section: 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 229/LKW/2010 ASSESSMENT YEAR: 2006 - 07 INCOME TAX OFFICER 6(1) KANPUR V. M/S HARI OM STEELS PVT. LTD. 46/146, HALSEY ROAD KANPUR PAN: AAACH7413H (APP ELL ANT) (RESPONDENT) ITA NO. 269/LKW/2010 ASSESSMENT YEAR: 2006 - 07 M/S HARI OM STEELS PVT. LTD. 46/146, HALSEY ROAD KANPUR V. INCOME TAX OFFICER 6(1) KANPUR PAN: AAACH7413H (APP ELL ANT) (RESPONDENT) DEPARTMENT BY: SHRI. ALOK MITRA, D.R. ASSESSEE BY: SHRI. SWARAN SINGH, C.A. DATE OF HEARING: 23 0 8 2014 DATE OF PRONOUNCEMENT: 23 0 9 2014 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AS WELL A S THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) PERTAINING TO ASSESSMENT YEAR 2006 - 07. SINCE THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. WE, HOWEVER, PREFER TO ADJUDICATE THEM ONE AFTER THE OTHER. I. T.A. NO.269/LKW/2010: BY THE ASSESSEE. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 2 - : 2 . THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON VARIOUS GROUNDS WHICH ARE AS UNDER: - 1. BECAUSE THE LEARNED 'CIT(A)' HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITIO N OF RS.76,04,0117 - MADE BY THE ASSESSING OFFICER (AT RS.84,65,671 / - ) ON THE GROUNDS THAT, (A) SALE OF IRON SCRAPS AND CHURA HAD BEEN MADE TO THE FIRMS/COMPANIES WHICH ARE COVERED UNDER SECTION 40A(2)(B), AND B) SUCH SALES WERE MADE AT LESSER RATE AS COMP ARED TO MARKET VALUE THEREOF. 2. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE FAILED TO APPRECIATE THAT THE GOODS SOLD WERE BROKEN AND WORN - OUT PIECE OF IRON PLATES AND THE RATE OF THE SAME CANNOT BE COMPARED WITH THE RATE OF IRON ARID STEEL PRODUCTS AND TH EREFORE THE RATES APPLIED @ RS. 17,340 / - PER MT. BY THE ASSESSING OFFICER AND AS REDUCED BY CIT(A) @ 16,084 / - PER M.T., IS CONTRARY TO THE FACTS AND MATERIAL ON RECORD AND THE PROVISIONS OF SECTION 40A(2)(B) COULD NOT HAVE BEEN APPLIED IN THE CASE OF THE 'A PPELLANT'. 3. BECAUSE THE SALE OF 686.035 MT FOR RS.30,30,175 / - AT AN AVERAGE RATE OF RS.5000 / - PER METRIC TONNE HAS BEEN DUILY ACCEPTED BY TRADE TAX AUTHORITIES IN THE CASE OF THE 'APPELLANT' IN SCRUTINY PROCEEDINGS UNDER THE TRADE TAX ACT AND NO ADVERSE INFERENCE COULD HAVE BEEN DRAWN BY THE LOWER AUTHORITIES. 4. BECAUSE IN ANY CASE AND WITHOUT PREJUDICE TO THE GROUNDS RAISED ABOVE, THE SALE RATE APPLIED BY THE GIT (APPEAL) @ 16,084 / - PER METRIC TONNE TO THE IRON SCRAP WHICH WAS IN THE NATURE OF BROKEN AND WORN - OUT PIECE OF IRON PLATES IS FAR TOO HIGH AND EXCESSIVE LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. BECAUSE THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.57,47,082 / - OF THE CLAIM OF LOSS OF FORFEI TURE OF EARNEST MONEY BY THE RAILWAY AUTHORITIES, WITHOUT APPRECIATING THAT THE APPELLANT HAS DISPUTED THE SAID FORFEITURE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 3 - : AMOUNT AND WAS CONTESTING WITH THE RAILWAY AUTHORITIES AND THE SAID LOSS WAS CRYSTALLIZED DURING THE RELEVANT FINANCIAL YEAR ONLY. 6. BECAUSE THE LEARNED CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE TRADING LOSS IS ALLOWABLE IN THE YEAR IN WHICH IT IS INCURRED WITHOUT APPRECIATING THAT THE EARNEST MONEY FORFEITED WAS ON ACCOUNT OF CONTRACTUAL LIABILITY WHICH WAS DISPUTED BY THE APPELLAN T WITH THE RAILWAY AUTHORITIES AND WAS FINALLY SETTLED AND CRYSTALLIZED IN THE RELEVANT FINANCIAL YEAR ONLY AND THEREFORE THE LOSS WAS ALLOWABLE IN THIS YEAR ONLY. 7. BECAUSE THE CASE LAWS RELIED UPON BY THE CIT (APPEAL) FOR CONFIRMING THE DISALLOWANCE OF RS.57,47,082 / - ARE DISTINGUISHABLE ON FACTS AND CANNOT BE HELD TO BE APPLICABLE IN THE CASE OF THE APPELLANT. 8. BECAUSE IN ANY CASE THE APPELLANT COMPANY HAD SHOWN THE FORFEITURE OF THE EARNEST MONEY UNDER THE HEAD 'SUNDRY DEBTORS' IN THE BALANCE SHEET AS AT 31ST MARCH 2001 AND THE SAME WAS WRITTEN - OFF AS 'BAD DEBT' DURING THE RELEVANT FINANCIAL YEAR, WHEN ALL ITS REPRESENTATION BEFORE THE RAILWAY AUTHORITIES HAD BECOME FUTILE AND THEREFORE, THE VIEW TAKEN BY THE AUTHORITIES BELOW IS NOT CORRECT IN LAW A ND ON FACTS. 9. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE . 3 . DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS MOVED AN APPLICATION FOR ADMISSION OF FOLLOWING ADDIT IONAL GROUND OF APPEAL, WITH THE SUBMISSION THAT THE LD. CIT(A) SUSTAINED THE DISALLOWANCE OF RS.57,47,082/ - ON A GROUND ENTIRELY DIFFERENT FROM THE GROUNDS TAKEN BY THE ASSESSING OFFICER. 10. THAT IN ABSENCE OF MANDATORY NOTICE ISSUED UNDER SECTION 251 (2) OF THE INCOME - TAX ACT, 1961, THE LD. CIT(A) HAS ERRED IN LAW PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 4 - : AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS.57,47,082/ - ON GROUNDS ENTIRELY DIFFERENT FROM GROUNDS TAKEN BY ASSESSING OFFICER THEREBY IGNORING THAT SUCH SUSTENANCE OF DISALLOWANCE RESUL TED IN ENHANCEMENT OF INCOME. 4 . WITH REGARD TO THIS ADDITIONAL GROUND, THE ASSESSEE HAS ALREADY RAISED GROUNDS NO. 5 TO 8, THEREFORE, THIS ADDITIONAL GROUND CAN ALSO BE DISPOSED OF ALONG WITH THOSE GROUNDS AND NO INDEPENDENT FINDING IS REQUIRED THEREIN. AC CORDINGLY, WE ADMIT THE ADDITIONAL GROUND AND WILL BE DECIDED ALONG WITH GROUNDS NO.5 TO 8 OF THE APPEAL. 5 . THROUGH GROUNDS NO.1 TO 4, THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF ADDITION OF RS.76,04,011/ - ON ACCOUNT OF DIFFERENCE IN SALES MADE TO THE FI RMS/COMPANIES COVERED UNDER SECTION 40A(2)(B) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'). 6 . THE FACTS IN BRIEF ON THIS ISSUE BORNE OUT FROM THE RECORD ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS SHOWN SALES OF SCRAP OF 1845.366 MT FOR RS.3,19,96,921/ - AT THE AVERAGE RATE OF RS.17,340/ - TO OUTSIDE PARTIES OR FIRMS/COMPANIES, WHICH ARE NOT COVERED UNDER SECTION 40A(2)(B) OF THE ACT. IT WAS ALSO NOTICED BY THE ASSESSING OFFICER T HAT ASSESSEE HAS SHOWN SALES OF 686.035 MT FOR RS.30,30,175/ - AT THE AVERAGE RATE OF RS.5,000/ - TO FIRMS/COMPANIES WHICH ARE COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSEE WAS REQUIRED TO JUSTIFY THE TRADING LOSS OF RS.71,65,321/ - IN VIEW OF THE FACT THAT IT HAD SHOWN THE SALES TO THE PARTIES WHICH ARE NOT COVERED UNDER SECTION 40A(2)(B) OF THE ACT AT AVERAGE RATE OF RS.17,340/ - PER MT AND TO THE PARTIES/ COMPANIES WHICH ARE COVERED UNDER SECTION 40A(2)(B) OF THE ACT AT THE AVERAGE RATE OF RS.5,00 0/ - PER MT. THE ASSESSING OFFICER NOTED THAT UNDER INVOICING IN SALES MADE TO THE SISTER CONCERN HAS RESULTED INTO LOSS OF RS.84,65,671/ - . PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 5 - : 7 . IN RESPONSE THERETO, ASSESSEE FILED REPLY ON 17.12.2008 WHEREIN IT WAS STATED THAT THE IRON SCRAP WAS PURCHASED FROM RAILWAY AND ON LOADING AND UNLOADING SUBSTANTIAL AMOUNT BREAKS INTO SMALL PIECE S AND CHURA, WHIC H HAS BEEN SOLD TO THE SISTER CONCERN. THE ASSESSEE FURTHER ARGUED THAT A LOT OF 70.53 MT WAS PURCHASED FROM RAILWAYS, OUT OF WHICH 50 MT TURNED OUT TO BE IRO N OF VERY LOW QUALITY, WHICH HAS BEEN SOLD TO SISTER CONCERN AT LESSER RATE. THE ASSESSING OFFICER EXAMINED THIS EXPLANATION OF THE ASSESSEE, BUT WAS NOT CONVINCED WITH IT IN THE ABSENCE OF ANY SUPPORTING EVIDENCE. HE ACCORDINGLY HELD THAT BY PASSING ON THE BENEFIT OF PROFIT OF THE COMPANY TO THE COMPANIES/FIRMS COVERED UNDER SECTION 40A(2)(B) OF THE ACT, THE ASSESSEE IS NOT ONLY VIOLATING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT BUT ALSO EVADING THE GENUINE TAX LIABILITY OF THE COMPANY. HE ACCORDI NGLY CALCULATED THE LOSS AT RS.84,65,671/ - ON UNDER VALUATION OF SALES MADE TO THE FIRMS/COMPANIES COVER E D UNDER SECTION 40A(2)(B) OF THE ACT. 8 . AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) AND REITERATED ITS CONTENTIONS BUT DID NOT FIND FAVO UR WITH HIM . 9 . AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE TRIBUNAL. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO SOME OF THE COPIES OF INVOICES APPEARING AT PAGES 454 TO 470 OF THE COMPI LATION OF THE ASSESSEE IN ORDER TO ESTABLISH THAT THESE SCRAPS WERE SOLD @ RS.5,225/ - TO RS.5,350/ - PER MT. HE HAS ALSO PLACED A CERTIFICATE ISSUED FROM LOHA VYAPAR MANDAL UTTAR PRADESH IN SUPPORT OF HIS CONTENTION THAT IN FINANCIAL YEAR 2005 - 06 THE RATE OF SCRAP WAS RS.5,000/ - TO RS.5,500/ - PER MT. BESIDES, HE HAS ALSO FILED ONE CERTIFICATE OF THE ENGINEER OF NORTHERN RAILWAY IN SUPPORT OF HIS CONTENTION THAT THE PLATES WHICH WERE PURCHASED BY IT ARE VERY BRITTLE IN NATURE AS THEY CONTAINED HIGH PERCENTA GE I.E. 38% OF CARBON AND THESE PLATES WERE DECAYED AND W O RN OUT AND RUSTED OVER MANY YEARS. IT WAS STATED IN THE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 6 - : CERTIFICATE THAT THESE PLATES WERE REPLACED BY NEW TECHNOLOGY OF CONCRETE SLEEPER. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENTED TH AT SINCE THE ASSESSEE HAS SOLD LOWER QUALITY OF SCRAP TO THE SISTER CONCERN, THE RATES OF THE SAID SCRAP WAS AT LOWER SIDE IN COMPARISON TO THE SCRAP SOLD TO OTHER PARTIES. THE LD. COUNSEL FOR THE ASSESSEE HAS FILED A BULK PAPER BOOK RUNNING INTO 496 PAGE S, BUT HAS NOT MADE REFERENCE TO ANY DOCUMENT EXCEPT FEW INVOICES ISSUED IN FAVOUR OF THE PARTIES/FIRMS COVERED UNDER SECTION 40A(2)(B) OF THE ACT . 10 . THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 11 . HAVING GIVEN A THOUG HTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT SCRAP WAS SOLD TO THE PARTIES NOT COVERED UNDER SEC TION 40A(2)(B) OF THE ACT @ RS.17,340/ - PER MT ; WHEREAS IT WAS SOLD @ RS.5,000/ - PER MT TO THE FIRMS/COMPANIES WHICH ARE COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THOUGH THE ASSESSEE HAS TAKEN A STAND THAT IT HAS SOLD INFERIOR QUALITY OF SCRAP TO THE FIR MS/COMPANIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT, BUT NO EVIDENCE WAS FILED IN THIS REGARD. HE HAS SIMPLY FILED FEW COPIES OF INVOICES ISSUED TO THE PARTIES/COMPANIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT BETWEEN THE RATE RS.5,220/ - TO RS.5,35 0/ - PER MT, BUT IT HAS NOT FILED EVEN A SINGLE INVOICE ISSUED TO THOSE PARTIES OTHER THAN PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT. IN THE ABSENCE OF INVOICES ISSUED TO OUTSIDE PARTIES, COMPARISON CANNOT BE MADE WITH REGARD TO THE NARRATION IN T HE INVOICES IN ORDER TO DETERMINE AS TO WHAT TYPE O R QUALITY OF SCRAP WAS SOLD TO OUTSIDE PARTIES OR THE PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THOUGH THE ASSESSEE HAS FILED BULK PAPER BOOK AND WRITTEN SUBMISSIONS BEFORE US, BUT IT HAS NOT FI LED A SINGLE INVOICE ISSUED TO THE OUTSIDE PARTIES TO DETERMINE THE DIFFERENCE IN PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 7 - : NARRATION GIVEN IN THE INVOICE. IN THE INVOICES FILED BEFORE US ISSUED TO THE PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT, A NARRATION WAS MADE WITH REGARD TO THE IRO N STEELS (IT WAS MENTIONED TO BE OLD SCRAP). THEREFORE, IN THE ABSENCE OF INVOICES ISSUED TO THE OUTSIDE PARTIES, IT CANNOT BE SAID THAT THE ASSESSEE HAS SOLD INFERIOR QUALITY OF SCRAP TO THE PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT AT LESSER RA TE. THE DIFFERENCE IN RATE OF SCRAP SOLD TO OUTSIDE PARTIES AND PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT ARE SUBSTANTIAL, AS THE SCRAP WAS SOLD TO THE OUTSIDE PARTIES AT RS.17,340/ - PER MT AND PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT A T RS.5,000/ - PER MT. IN FACT ONUS IS SQUARELY UPON THE ASSESSEE TO ESTABLISH THAT THE BETTER QUALITY OF SCRAP S WERE SOLD TO OUTSIDE PARTIES AND INFERIOR QUALITY OF SCRAP ARE SOLD TO PARTIES COVERED UNDER SECTION 40A(2)(B) OF THE ACT AT LESSER RATE. BUT N O EVIDENCE IS PLACED IN THIS REGARD EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE US. IN TH IS FACT OF THE MATTER, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD. 12 . WHILE CONFIRMIN G THE ADDITION, THE LD. CIT(A) HAS TAKEN A VIEW THAT THE AVERAGE PRICE OF SCRAP DURING THE YEAR WAS AT RS.15,616/ - PER MT AND HE ACCORDINGLY GIVEN A CREDIT OF THE DIFFERENCE. BUT IN THIS REGARD, THE LD. CIT(A) HAS NOT MENTIONED ANYTHING IN HIS ORDER AS TO ON WHAT BASIS HE HAS WORKED OUT THE AVERAGE PURCHASE PRICE OF SCRAP DURING THE YEAR AT RS.15,616/ - PER MT; WHEREAS THE ASSESSING OFFICER HAS WORKED OUT THE AVERAGE PRICE OF THE SCRAP SOLD TO OUTSIDE PARTIES AT RS.17,340/ - PER MT AND ACCORDINGLY WORKED OUT THE DIFFERENCE AS UNDERVALUATION OF SALES TO THE PARTIES/FIRMS COVERED UNDER SECTION 40A(2)(B) OF THE ACT. IT IS ALSO NOT CLEAR FROM THE ORDER OF THE LD. CIT(A) AS TO FOR WHAT REASON HE HAS TAKEN THE AVERAGE PRICE OF THE SCRAP DURING THE YEAR AT RS.15,61 6/ - PER MT AND COMPUTED THE SELLING RATE BY TAKING GROSS PROFIT @ 3%. THE ASSESSING OFFICER HAS NOT MADE ANY ADDITION IN THIS REGARD. ON THIS ISSUE, THE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 8 - : ASSESSING OFFICER HAS WORKED OUT UNDERVALUATION OF SALES FOR SELLING THE SCRAP TO THE PARTIES/COMPANI ES COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THIS REDUCTION IN ADDITION IS ALSO CHALLENGED BY THE REVENUE IN ITS APPEAL BY RAISING A SPECIFIC GROUND THAT THE LD. CIT(A) IS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO COMPUTE THE SELLING RATE OF I RON SCRAP SOLD TO THE SISTER CONCERN COVERED UNDER SECTION 40A(2)(B) OF THE ACT BY TAKING THE GROSS PROFIT RATE AT 3% WITHOUT ANY BASIS. SINCE WE DO NOT FIND ANY GROUND/BASIS FOR THIS DIRECTION, WE SET ASIDE THE DIRECTION OF THE LD. CIT(A) MADE IN PARAGRA PH 4.2.3 OF HIS ORDER. ACCORDINGLY, WE RESTORE THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE AND CONFIRM THE ADDITION OF RS.84,65,671/ - AS MADE BY THE ASSESSING OFFICER. 13 . GROUNDS NO.5 TO 8 AND THE ADDITIONAL GROUND RELATE TO THE ADDITION OF RS.57,47,082 / - MADE ON ACCOUNT OF DISALLOWANCE OF CLAIM OF LOSS OF FORFEITURE OF EARNEST MONEY BY THE RAILWAY AUTHORITIES. 14 . THROUGH ADDITIONAL GROUND, THE ASSESSEE HAS CHALLENGED THAT THE ASSESSING OFFICER HAS MADE ADDITION OF THIS AMOUNT ON THE GROUND THAT THE AMOUNT OF RS.57,47,082/ - WAS FORFEITED BY NORTHERN RAILWAY ON ACCOUNT OF NON - DEPOSIT OF BALANCE MONEY. T HE ASSESSEE HAS FILED A LETTER DATED 18.12.2008. AS THE ASSESSEE HAS BEEN PURSUING THE MATTER FOR ITS REFUND WITH THE HIGHER AUTHORITIES , THE D EDUCTION OF TH E SAID LOSS CANNOT BE ALLOWED IN THE IMPUGNED ASSESSMENT YEAR. WHEREAS THE LD. CIT(A) TOOK COGNIZANCE OF THE FACT THAT THE EARNEST MONEY WAS DEPOSITED DURING THE FINANCIAL YEAR 2000 - 01 AND ON ACCOUNT OF NON - DEPOSIT OF BALANCE AMOUNT, THE EARNEST MONEY WAS FORFEITED AND RAILWAY AUTHORITIES CANCELLED THE SAME VIDE ORDER/LETTER DATED 9.2.2001 AND 23.2.2001 WHICH WERE DULY COMMUNICATED TO THE ASSESSEE. THE LD. CIT(A) WAS OF THE VIEW THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT, THE LOSS WAS INCURRED DURING THE FINANCIAL YEAR 2000 - 01 CORRESPONDING TO ASSESSMENT YEAR 2002 - 03. THE LD. CIT(A) HAS ALSO OBSERVED THAT THIS LOSS IS NOT A BAD DEBT BECAUSE FOR PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 9 - : CLAIMING BAD DEBT, THE MOST IMPORTANT REQUIREMENT IS THAT SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE FINANCIAL YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER FINANCIAL YEAR. WITH THESE REASONS, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. THEREFOR E, WE DO NOT FIND THAT IT IS A CASE WHERE THE ASSESSING OFFICER HAS NOT DELIBERATED ON THIS ISSUE AND THE LD. CIT(A) HAS TAKEN SOME NEW GROUNDS FOR MAKING THE ADDITION. THE ASSESSING OFFICER HAS MADE ADDITION HAVING NOTED THAT THIS LOSS WAS NOT SUFFERED I N THE IMPUGNED ASSESSMENT YEAR, AS THE ASSESSEE IS STILL PURSUING THE CLAIM OF REFUND OF EARNEST MONEY; WHEREAS THE LD. CIT(A) HAS OPINED THAT THE LOSS CAN ONLY BE CLAIMED IN THOSE YEAR WHEN THE ASSESSEE HAS SUFFERED A LOSS, AS HE WAS FOLLOWING THE MERCANT ILE SYSTEM OF ACCOUNT ING . SINCE THE ISSUE WAS ALREADY ADJUDICATED BY THE ASSESSING OFFICER AND THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE , THOUGH ON A DIFFERENT FINDING, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), AS HE IS ARMED WITH CO - TERMIN US POWER OF THAT OF THE ASSESSING OFFICER TO EXAMINE THE OTHER ASPECT OF THE MATTER WHILE ADJUDICATING A PARTICULAR ISSUE. THEREFORE, WE FIND NO MERIT IN THE ADDITIONAL GROUND RAISED BY THE ASSESSEE AND ACCORDINGLY WE REJECT THE SAME. 15 . SO FAR AS DISALLOWAN CE OF EARNEST MONEY OF RS.57,47,082/ - IS CONCERNED, WE ARE OF THE VIEW THAT THIS AMOUNT WAS NEVER TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE FINANCIAL YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF ANY EAR LIER FINANCIAL YEAR. THEREFORE, IT CANNOT BE WRITTEN OFF UNDER SECTION 36(1)(VII) OF THE ACT. THOUGH FORFEITURE OF EARNEST MONEY IS A BUSINESS LOSS OF THE ASSESSEE, BUT IT CA N ONLY BE CLAIMED IN TH AT YEAR IN WHICH IT OCCURRED OR IT HAS BEEN FINALLY COMMU NICATED TO THE ASSESSEE O N REJECTION OF ITS REPRESENTATION AND THE ASSESSEE HAS LOST EVERY HOPE FOR RECOVERY. UNDISPUTEDLY, ASSESSEE HAS MADE DEPOSIT DURING THE FINANCIAL YEAR 2000 - 01 PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 10 - : AND ON ACCOUNT OF NON - DEPOSIT OF THE BALANCE AMOUNT, THE RAILWAY AUTHOR ITIES CANCELLED THE SALE AND FORFEITED THE EARNEST MONEY VIDE ORDER/LETTER DATED 9. 2 .2001 AND 23.2.2001 WHICH WAS DULY COMMUNICATED TO THE ASSESSEE. THOUGH IT WAS CONTENDED BEFORE THE ASSESSING OFFICER THAT ASSESSEE HAS MADE A REPRESENTATION TO THE HIGHER AUTHORITIES FOR RECOVERY OF FORFEITED AMOUNT, BUT IT IS NOT CLEAR THAT IN WHICH FINANCIAL YEAR ASSESSEE HAS RECEIVED FINAL COMMUNICATION WITH REGARD TO THE REJECTION OF ITS CLAIM FOR REFUND OF FORFEITED EARNEST MONEY. IN THAT SITUATION, LOSS CAN ONLY BE CLAIMED EITHER IN THAT YEAR IN WHICH IT OCCURRED I.E. FINANCIAL YEAR 2000 - 01 RELEVANT TO ASSESSMENT YEAR 2001 - 02 OR IN THE YEAR IN WHICH ASSESSEE RECEIVED FINAL COMMUNICATION WITH REGARD TO THE REJECTION OF ITS CLAIM AND IT LOST EVERY HOPE FOR ITS RECOVERY . NOTHING HAS BEEN FOUND ON RECORD TO PROVE THAT IN THE IMPUGNED ASSESSMENT YEAR ASSESSEE HAS RECEIVED FINAL COMMUNICATION WITH REGARD TO THE REJECTION OF CLAIM OF REFUND OF RECOVERY AND ASSESSEE HAS LOST EVERY HOPE OF ITS RECOVERY. THEREFORE, IN THE ABS ENCE OF ANY EVIDENCE, THE CLAIM OF LOSS OF THE ASSESSEE CANNOT BE ACCEPTED IN THE IMPUGNED ASSESSMENT YEAR. WE, THEREFORE, FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HAS RIGHTLY CONFIRMED THE DISALLOWANCE. I.T.A. NO.229/LKW/2010: BY THE REVENUE: 16 . IN THIS APPEAL, THE REVENUE HAS ASSAILED THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS: - 1 . THAT THE CIT(A) - II, KANPUR WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.92,211/ - ON ACCOUNT OF DEPRECIATION ALLOWANCE WITHOUT APPRECIATING T HE FACTS THAT THE ASSESSEE COMPANY DID NOT CARRY OUT ANY MANUFACTURING ACTIVITIES. 2 . THAT THE C I T(A) - I I , KANPUR WAS NOT JUSTIFIED IN DIRECTING THE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 11 - : A.O. TO COMPUTE THE SELLING RATE OF THE IRON SCRAP SO L D TO SISTER CONCERNS COVERED U/S 40A[2][B] OF THE I . T, A CT, 1961 BY TAKING GROSS PROFIT @ 3% WITHOUT ANY BASIS. 3 . THAT THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE ASSESSING OFFICER RESTORED. 17 . GROUND NO.2 WAS ALREADY ADJUDICATED BY US I N THE ASSESSEES APPEAL WHILE DEALING WITH THE ISSUE OF SALE OF SCRAP TO THE SISTER CONCERN COVERED UNDER SECTION 40A(2)(B) OF THE ACT AT LESSER RATE RESULTING INTO LOSS TO THE ASSESSEE - COMPANY. THEREFORE, WE FIND NO JUSTIFICATION TO RE - ADJUDICATE THIS IS SUE AFRESH. 18 . SO FAR AS GROUND NO.1 WITH REGARD TO ADDITION OF RS.92,211/ - ON ACCOUNT OF DEPRECIATION ALLOWANCE IS CONCERNED, WE FIND THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON THE ADMINISTRATIVE BUILDING FROM WHERE THE BUSINESS OF TRADING IS CARRIED OUT. SINCE THE ASSETS WERE USED FOR BUSINESS PURPOSES, DEPRECIATION WAS RIGHTLY ALLOWED BY THE LD. CIT(A) AND WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 19 . IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED AND THAT OF THE REVENUE IS PART LY ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENT I ONED ON THE CAPTION PAGE. SD SD [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD SEPTEMBER , 2014 JJ: 0809 PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 12 - : COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDE NT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ )