ACIT, Central Circle-2, Nashik V. Bharat Glass Tube Ltd., Nashik

ITA 240/PUN/2013

• Counselvise Citation: 24024514 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 23-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B D SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 240/PN/2013 (ASSESSMENT YEAR : 2005-06) ACIT, CIRCLE-1, NASHIK .. APPELLANT VS. BHARAT GLASS TUBE LTD., PLOT NO.F-2, MIDC, MALEGAON, SINNAR, NASHIK-422 103 .. RESPONDENT PAN NO.AABCB5703D ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI B.D. SINGH DATE OF HEARING : 06-04-2015 DATE OF PRONOUNCEMENT : 10-04-2015 ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 31-12-2012 OF THE CIT(A)-II, NASHIK RELATING TO ASSESSMENT YEAR 2005-06. 2. DELETION OF DISALLOWANCE OF BREAKAGE LOSS OF RS. 21,01,279/- BY THE CIT(A) IS THE ONLY ISSUE RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF FIGURED AND WIRED GLASS AT NASHIK. IT FILED ITS RETURN OF INCOME ON 31-10- 2005 DECLARING TOTAL 2 INCOME OF RS.65,09,170/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.54,80,239/- ON ACCOUNT OF CLAIMS/BREAKAGE. HE O BSERVED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THERE WA S NO SUCH CLAIM ON THIS ACCOUNT. HE THEREFORE ASKED THE ASSESSEE T O JUSTIFY THE CLAIM. IN RESPONSE TO THE SAME, THE ASSESSEE FILED A NOTE SUBMITTING AS UNDER: BHARAT GLASS TUBE LTD. IS A COMPANY MANUFACTURING WIR ED & FIGURED GLASS AT THEIR FACTORY AT SINNAR, NASHIK. THE GLASS TEN DENCY IS BREAKABLE AND IT IS VERY LIKELY TO BREAK AT ANY POIN T OF HANDLING. THE BREAKAGE ALLOWED TO THE TUNE OF RS.54,80,239/- REPRE SENTS THE BREAKAGE INCURRED DURING TRANSPORTATION. IT IS NOMI NAL BREAKAGE AND WORKS OUT TO 1.62% OF THE TOTAL SALES. SINCE THE ASSESSEE ACCORDING TO THE AO FAILED TO FU RNISH PARTY WISE DETAILS OF BREAKAGE/CLAIMS MADE BY THEM AND SINCE I N THE IMMEDIATELY PRECEDING ASSESSMENT YEAR NO SUCH EXPEN DITURE WAS CLAIMED ON THIS ACCOUNT, THE AO HELD THAT THE BREAK AGE CLAIMED AT 1.62% IS EXCESSIVE. FURTHER, THE AO WAS OF THE OPI NION THAT THIS IS SUCH AN ITEM WHICH CAN BE RECYCLED AND REUSED FOR M AKING GLASS. HE THEREFORE ALLOWED BREAKAGE TO THE EXTENT OF 1% OF T HE TURNOVER WHICH AMOUNTED TO RS.33,78,960/-. THUS, HE DISALLOWED T HE BALANCE AMOUNT OF RS.21,01,279/-. 4. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS IT HAS FILED THE P ARTY WISE DETAILS OF SUCH LOSSES AND ALSO EXPLAINED THE REASONS FOR BREA KAGE LOSS. DESPITE FURNISHING ALL SUCH PARTY WISE DETAILS, THE AO HAS DISALLOWED SUCH LOSSES ON THE GROUND THAT PARTY WISE DETAILS WERE N OT FURNISHED. THE 3 ASSESSEE FURTHER SUBMITTED THAT DURING THE YEAR, DU E TO ERRATIC SUPPLY OF RAW MATERIAL ITEMS FROM THE REGULAR SUPPLIERS, S EVERAL NEW SOURCES WERE REQUIRED TO BE TAPPED. SOME OF THE SUPPLIERS WERE NOT QUALITY CONSCIOUS. FURTHER, THE POWER SUPPLY WAS ALSO ERRA TIC RESULTING INTO FREQUENT STOPPAGES. THEREFORE, THE GLASS PRODUCED WAS OF UNEVEN THICKNESS GIVING RISE TO BREAKAGES. THE ASSESSEE F URTHER SUBMITTED THAT THIS WAS THE PROBLEM WITH ALMOST EACH PARTY IN THE YEAR UNDER APPEAL AND THIS PROBLEM WAS UNIQUE FOR THIS PARTICU LAR ASSESSMENT YEAR. THE ASSESSEE ALSO FURNISHED CERTAIN SAMPLE C ONFIRMATIONS OF THE PARTIES CONFIRMING THE CREDITS ALLOWED TO THEM AGAINST THEIR BREAKAGE CLAIMS. IT WAS ARGUED THAT HAD SUCH CLAIM S BEEN NOT THERE THE ASSESSEE WOULD NOT HAVE REIMBURSED SUCH LOSS TO THESE PARTIES BY ACCEPTING LESSER AMOUNTS FROM THEM. THE DECISION O F HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SHEO NARAIN DUL I CHAND VS. CIT REPORTED IN 72 ITR 766 WAS BROUGHT TO THE NOTICE OF THE CIT(A). THE ASSESSEE FURTHER SUBMITTED THAT NEITHER ANY REASON WAS GIVEN BY THE AO NOR ANY COMPARATIVE INSTANCES POINTED OUT BY HIM TO SUPPORT HIS CONTENTION THAT THE BREAKAGE LOSS AT 1% IS REASONAB LE. 5. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) CALLED FOR A REMAND REPORT FROM THE AO WH O REITERATED THE SAME REASONS FOR DISALLOWANCE AS STATED IN THE ASSE SSMENT ORDER. AFTER CONSIDERING THE REMAND REPORT OF THE AO AND T HE RESPONSE OF THE ASSESSEE TO SUCH REMAND REPORT THE LD.CIT(A) DE LETED THE DISALLOWANCE BY OBSERVING AS UNDER : 4 6. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER, AP PELLANT'S SUBMISSIONS ON THE ISSUE FROM TIME TO TIME AND THE REPO RT OF AO ON THE SUBMISSIONS OF APPELLANT. I FIND THAT AO HAS NOT BEE N ABLE TO APPRECIATE THE FACTS RELATING TO BREAKAGE COMPLETELY . HE HAS NOT APPRECIATED THE DIFFERENCE BETWEEN BREAKAGES DUE TO HANDLING LOSSES DURING TRANSIT AND IN THE SHOW ROOMS OF DEALERS WIT H THE BREAKAGE LOSSES INCURRED IN MANUFACTURING PROCESS. IT IS NOT UNCOMMON TO FIND 'RECALL' OF GOODS IN THE MANUFACTURING SECTOR DUE TO DEFECTS IN MANUFACTURING PROCESS. IT NEED NOT BE A REGULAR PHE NOMENON. SUCH CAN BE A ONE TIME AFFAIR. FURTHER, THE HIGH NUMBER OF DEALERS (246 DEALERS) MAKING BREAKAGE CLAIMS ITSELF EVIDENCES THE BUSINESS NECESSITY OF SUCH LOSS FOR SURVIVAL IN THE MARKET. CONFIRMATION OF CREDIT NOTES BY DEALERS OF ASSESSEE ALSO SUPPORTS THE BREAKA GE CLAIM OF ASSESSEE. THE AR OF ASSESSEE HAS RIGHTLY POINTED OUT THAT - IN THE CASE OF SHEO NARAIN DULICHAND V/S CIT (72 ITR 766) IT IS HELD THAT 'THERE IS NO PRESUMPTION THAT WITNESS APPEARING FOR AN ASSESSEE COME FORWARD TO GIVE FALSE EVIDENCE TO OBLIGE THE ASSE SSEE'. FURTHER, NO CONTRARY EVIDENCE IS BROUGHT ON RECORD BY A.O. TO JUSTIFY DISALLOWANCE OF BREAKAGE LOSS AT RS. 21,01,279/-. AR W AS ALSO RIGHT IN POINTING OUT THAT THE DEDUCTION IS OTHERWISE ALS O ALLOWABLE U/S 36(1)(VII), IN VIEW OF SUPREME COURT DECISION IN TH E CASE OF TRF LTD. V/S CIT (190 TAXMAN 391), SINCE THE RECEIVABLE ON ACCOU NT OF BREAKAGE IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF ASSESSEE. HENCE, I ALLOW THE SECOND GROUND OF APPEAL IN FAVOUR OF ASSESSEE. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELI ED ON THE ORDER OF THE AO. 8. THE LD. COUNSEL FOR THE ASSESSEE WHILE SUPPORTIN G THE ORDER OF THE CIT(A) SUBMITTED THAT DESPITE FILING ALL PARTY WISE DETAILS BEFORE HIM THE AO HAD STATED THAT ASSESSEE HAS NOT FURNISH ED THE PARTY WISE DETAILS GIVING THE BREAKAGES. REFERRING TO PAGES 5 TO 10 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTE NTION OF THE BENCH TO THE LIST OF PARTIES GIVING DETAILS OF CRED IT NOTE NUMBER AND AMOUNTS. REFERRING TO PAGES 11 TO 15 OF THE PAPER BOOK THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO SOME SAMPLE CONFIRMATIONS FROM THE PARTIES CONFIRMING RE CEIPT OF CREDIT 5 NOTES TOWARDS BREAKAGE CLAIM. HE SUBMITTED THAT IN THE REMAND REPORT THE AO DOES NOT DISPUTE THE SUBMISSION OF DE TAILS OF PARTIES GIVING THE CREDIT NOTE NUMBER AND AMOUNT TOWARDS BR EAKAGE ACCOUNT. HE SUBMITTED THAT DURING THE IMPUGNED ASS ESSMENT YEAR THE ASSESSEE HAD PROCURED RAW MATERIALS FROM CERTAIN NE W PARTIES WHO HAD SUPPLIED INFERIOR QUALITY OF GOODS FOR WHICH TH E GLASS PRODUCED WAS OF UNEVEN THICKNESS GIVING RISE TO BREAKAGE. T HIS WAS COMPOUNDED ALSO DUE TO ERRATIC SUPPLY OF ELECTRICIT Y. HE SUBMITTED THAT SINCE THE ASSESSEE HAD ISSUED CREDIT NOTES TO THESE CUSTOMERS, THEREFORE, IT HAS NOT RECEIVED AMOUNTS TO THE EXTEN T OF CREDIT NOTES ISSUED TO THEM. THEREFORE, IF THE ASSESSEE WOULD H AVE WRITTEN OFF ALL THOSE AMOUNTS, THEN ALSO HE WOULD HAVE BEEN ALLOWED THE AMOUNT AS BAD DEBT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT REPORTED IN 190 TAXMANN 39 1. HE FURTHER SUBMITTED THAT THE BASIS OF ALLOWING 1% OF THE BREA KAGE LOSS AS AGAINST 1.62% DECLARED BY THE AO IS ALSO NOT KNOWN. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD AND THE GROUND RAISED BY THE REVENUE BE DISMISSED. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE TO BE DECIDED IN THE IMPUGNED APPEAL IS REGARDING THE ALLOWABILITY OF THE BREAKAGE LOSS DISALLOWED BY THE AO AT RS.21,01, 279/-. ON PERUSAL OF THE RECORD, WE FIND THE AO DISALLOWED TH E BREAKAGE LOSS OF 6 RS.21,01,279/- OUT OF RS.54,80,239/- CLAIMED BY THE ASSESSEE ON THE GROUND THAT ASSESSEE DID NOT FURNISH PARTY WISE DET AILS OF BREAKAGE/CLAIM MADE OR OFFERED, THAT NO SUCH CLAIM WAS MADE IN THE PRECEDING YEAR AND THAT THIS IS SUCH AN ITEM WHICH CAN BE RECYCLED AND REUSED FOR MAKING GLASS. HE THEREFORE RESTRICT ED THE BREAKAGE LOSS AT 1% OF THE TURNOVER THUS ALLOWING AN AMOUNT OF RS.33,78,960/- OUT OF THE BREAKAGE LOSS CLAIMED AT RS.54,80,239/- AND MADE DISALLOWANCE OF RS.21,01,279/-. FROM THE VARIOUS D ETAILS FURNISHED BY THE ASSESSEE IN THE PAPER BOOK, WE FIND THE ASSE SSEE HAS FURNISHED THE PARTY WISE DETAILS GIVING THE CREDIT NOTE NUMBE R AND THE AMOUNT ALLOWED TOWARDS SUCH BREAKAGE LOSS. THE AO HAS NOT DISPUTED THE FACT OF FILING OF PARTY WISE DETAILS DURING THE COU RSE OF ASSESSMENT PROCEEDINGS IN THE REMAND PROCEEDINGS. THEREFORE, THE FIRST OBJECTION BY THE AO THAT THE ASSESSEE HAS NOT FURNI SHED THE PARTY WISE DETAILS IS NOT EXISTING. FURTHER, THE BASIS OF ALLOWING 1% OF THE TURNOVER TOWARDS BREAKAGE CHARGES BY THE AO IS NOT UNDERSTOOD. IF THE AO WAS NOT SATISFIED DUE TO THE REASONS MENTION ED BY HIM, HE COULD HAVE DISALLOWED THE ENTIRE AMOUNT. HOWEVER, HE HAS NOT DONE SO AND ALLOWED 1% OF THE TURNOVER TOWARDS BREAKAGE. THIS OTHERWISE INDICATES THAT HE ALSO ACCEPTS THAT THERE WOULD BE BREAKAGES. MERELY BECAUSE THE ASSESSEE HAS NOT CLAIMED SUCH BREAKAGE LOSS IN THE PRECEDING ASSESSMENT YEAR, THE SAME IN OUR OPINION CANNOT BE A GROUND TO DENY A LEGITIMATE CLAIM MADE BY THE ASSES SEE IN THE IMPUGNED ASSESSMENT YEAR ESPECIALLY WHEN THE ASSESS EE HAS FURNISHED THE LIST OF DEALERS TO WHOM SUCH CREDIT N OTES WERE ISSUED TOWARDS BREAKAGE LOSS AND SAMPLE CONFIRMATIONS FROM SUCH PARTIES 7 WERE ALSO FILED. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE CIT(A) ON THIS ISSUE WHILE D ELETING THE DISALLOWANCE OF BREAKAGE LOSS OF RS.21,01,279/-, WE FIND NO INFIRMITY IN HIS ORDER. ACCORDINGLY, THE SAME IS UPHELD. TH E GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 10-04-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED: 10 TH APRIL, 2015 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-II, NASHIK 4. THE CIT-II, NASHIK 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE