ACIT, New Delhi V. M/s The Handicraft & Handloom Export Corporation of India Ltd., New Delhi

ITA 2440/DEL/2013

• Counselvise Citation: 244020114 RSA 2013
• Duration Of Justice: 2 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 15-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 25-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P CHANDREKAR
• Assessee Lawyers: SURESH ANANTHARAMAN
• Keywords: Opportunity of being heard; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. H. S. SIDHU , JM ITA NO. 2440/DEL/2013 : ASSTT. YEAR : 2005 - 06 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 16(1), NEW DELHI VS M /S THE HANDICRAFT & HANDLOOM EXPORT CORPORATION OF INDIA LTD., JAWAHAR VYAPAR BHAWAN, 5 TH FLOOR, 1, TOLSTOY MARG, NEW DELHI - 110001 (APPELLANT) (RESPONDENT) CO NO. 62 / DEL/2014 : ASSTT. YEAR : 2005 - 06 M/S THE HANDICRAFT & HANDLOOM EXPORT CORPOR ATION OF INDIA LTD., JAWAHAR VYAPAR BHAWAN, 5 TH FLOOR, 1, TOLSTOY MARG, NEW DELHI - 110001 VS ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE - 16(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACH0628J ASSESSEE BY : SH. SURESH ANANTHARAMAN , CA RE VENUE BY : SH . J. P. CHANDREKAR, SR. DR DATE OF HEARI NG : 1 5 . 07 .2015 DATE O F PRONOU NCEMENT : 16 .07 .2015 ORDER PER N.K . SAINI , A.M. THE APPEAL OF THE DEPARTMENT AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 04.01.2013 OF LD. CIT(A) - XII, NEW DELHI. ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 2 2. IN THE DEPARTMENTAL APPEAL F OLLOWING G ROUNDS HAVE BEEN RAISED : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,79,958/ - MADE BY THE AO BEING AMOUNT PENAL IN NATURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.28,87,000/ - MADE BY THE AO BEING PROVISION FOR HOUSE TAX, AN UNASCERTAINED LIABILITY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1,75,95,258/ - MADE BY THE AO BEING AMOUNT DEDUCTED BY THE ASSESSEE FROM THE SALES ACCOUNT OF JAIPUR BRANCH. 4. THE APPELLANT CRAVES RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF APPEAL .' 3. VIDE GROUND NO. 1 GRIEVANCE OF THE DEPARTMENT RELATES TO THE DELETION OF ADDITION OF RS. 3,79,958/ - MADE BY THE AO CO NSIDERING THAT THE EXPENSES WERE PENAL IN NATURE. 4. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 31.10.2015 DECLARING AN INCOME OF RS. 3,01,07,060/ - WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT). LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 3 THE ASSESSEE TO JUSTIFY AS TO WHY THE FORFEITURE OF BANSA GUARANTEE AMOUNTING TO RS. 3,79,958/ - BE NOT DISALLOW ED SINCE IT WAS NOT FOUND INCIDENTAL TO THE BUSINESS ACTIVITIES. IN RESPONSE THE ASSESSEE SUBMITTED AS UNDER: THE OUTCOME OF FORFEITURE OF BANK GUARANTEE IS DUE TO REVENUE TRANSACTION IN NORMAL COURSE OF BUSINESS AND IS NOT CAPITAL IN NATURE. DETAILS ATT ACHE D AS PER ANNEXURE. 5. THE AO DID NOT FIND MERIT IN THE SUBMISSION OF THE ASSESSEE AND MADE THE ADDITION OF RS. 3,79,958/ - . 6 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT FORFEITURE OF BANK GUARANTEE WAS ON A CCOUNT OF SHORT UTILIZATION OF QUOTAS EXTENDED FOR SHIPMENT OF GOODS AND MERCHANDISE, SO IT WAS A REVENUE EXPENDITURE AND THUS QUALIFIES FOR DEDUCTION , BEING INCURRED IN NORMAL COURSE OF BUSINESS. THE LD. CIT(A) ASKED THE REMAND REPORT FROM THE AO WHO VIDE REPORT DATED 02.03.2012 STATED THAT THE ASSESSEE HAD FURNISHED EVIDENCE WITH RESPECT TO FORFEITURE OF RS. 3.80 LACS WHICH WAS A SORT OF COMPENSATION FOR NON - FULFILLMENT/SHORTFALL OF CERTAIN CONDITIONS IN EXPORT OBLIGATIONS. IN VIEW OF THE ABOVE SUBMISSION S, THE LD. CIT(A) HELD THAT FORFEITURE OF THE BANK ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 4 GUARANTEE OF RS. 3,79,958/ - WAS REVENUE IN NATURE HENCE IT WAS ALLOWABLE. 7 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR SUPPORTED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT THE FORFEITURE OF BANK G UARANTEE WAS PENAL IN NATURE. THEREFORE, THE AO RIGHTLY MADE THE ADDITION AND THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE SAME. 8 . IN HIS RIVAL SUBMISSIONS THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT APPEARS THAT THE AO HIMSELF IN HIS REMA ND REPORT ACCEPTED ON THE BASIS OF EVIDENCE FURNISHED BY THE ASSESSEE THAT THE FORFEITURE OF THE BANK GUARANTEE WAS A SORT OF COMPENSATION FOR NON - FULFILLMENT/SHORTFALL OF CERTAIN CONDITIONS IN EXPORT OBLIGATIONS. THEREFORE, IT WAS RELATED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE AND WAS REVENUE IN NATURE. IN THAT ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 5 VIEW OF THE MATTER, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 10 . NEXT ISSUE VIDE GROUND NO. 2 RELATES TO DELETION OF ADDITION OF RS. 28,87,000/ - MADE BY THE A O ON ACCOUNT OF PROVISION FOR HOUSE TAX. AS REGARDS TO THIS ISSUE THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT IT IS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDERS DATED 18.05.2012, 09.09.2011 & 17.05.2010 FOR THE ASSESSMENT YEARS 2008 - 09 , 2007 - 08 & 2006 - 07 RESPECTI VELY IN ITA NOS. 4131/DEL/2011,2987/DEL/2011& 4360/DEL/2009 RESPECTIVELY (COPIES OF THE SAID ORDER S WERE FURNISHED). THE LD. DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 11 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT A SIMILAR ISSUE HAVING IDENTICAL FACTS HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE A FORESAID REFERRED TO ORDERS OF THE ITAT. WE DEEM IT APPROPRIATE TO REPRODUCE THE RELEVANT FINDINGS GIVEN IN PARA 7 OF THE ORDER DATED 09.09.2011 IN ITA NO. 2987/DEL/2011 FOR THE ASSESSMENT YEAR 2007 - 08 WHICH READ AS UNDER: ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 6 7. WE HAVE HEARD THE PARTIE S AND PERUSED THE RECORD. IT IS NOT A CASE WHERE THE NDMC HAS RAISED DEMAND ON THE ASSESSEE ON ACCOUNT OF HOUSE/PROPERTY TAX. THE ASSESSEE IS A LICENCEE OF THE PREMISES AND THE DEMAND HAS BEEN RAISED BY THE STC. THE ABOVE FACTS HAS NOT BEEN DISPUTED BY THE REVENUE. THE DISPUTE ON PROPERTY TAX IS BETWEEN NDMC AND STC. THERE IS NO DISPUTE BETWEEN THE NDMC AND THE ASSESSEE. THUS, THE LIABILITY OF THE ASSESSEE IS TOWARDS STC AND NOT TO NDMC. AS RAISING OF DEMAND, BY STC AND ACCEPTANCE OF LIABILITY AMOUNTING TO RS. 11,40,958/ - BY THE ASSESSEE HAS NOT BEEN DISPUTED BY THE REVENUE. WE ARE OF THE CONSIDERED OPINION THAT THE IMPUGNED AMOUNT HAS ACCRUED DURING THE YEAR UNDER CONSIDERATION AND SUCH AMOUNT WAS ALLOWABLE AS A DEDUCTION IN THE YEAR UNDER CONSIDERATION. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) ON THIS ISSUE AND CONFIRM THE SAME. 12 . SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASES. WE, THEREFOR E, DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 13 . THE LAST ISSUE VIDE GROUND NO. 3 RELATES TO THE DELETION OF ADDITION OF RS. 1,75,95,258/ - MADE BY THE AO ON ACCOUNT OF AMOUNT DEDUCTED FROM THE SALE S ACCOUNT. ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 7 1 4 . FACTS RELATED TO T HIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD DEBITED THE SALES ACCOUNT OF ITS JAIPUR BRANCH UNDER THE HEAD SALES LOCAL SILVER . HE ASKED THE ASSESSEE TO JUSTIFY THE SUM OF RS. 1,75,95,258/ - W HICH WAS DEDUCTED IN THE SALES ACCOUNT OF ITS JAIPUR BRANCH UNDER THE HEAD SALES LOCAL SILVER. THE ASSESSEE SUBMITTED AS UNDER: ON 31.03.2005 A SUM OF RS. 1,75,95,258/ - HAS BEEN DEDUCTED IN THE SALES ACCOUNT OF JAIPUR BRANCH UNDER THE HEAD SALES - LOCAL SI LVER. JUSTIFICATION IS ENCLOSED BY WAY OF VOUCHERS ATTACHED. 15. THE AO DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING THAT DEBITING OF HUGE SUM ON THE LAST DATE OF THE FINANCIAL YEAR WITHOUT ANY COGENT REASON AND THAT TOO WITHOUT AN Y CORRESPONDING CREDITS IN THE RELEVANT ACCOUNT WAS NOT ACCEPTABLE. ACCORDINGLY, THE IMPUGNED ADDITION WAS MADE. 16 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: THE BULLION PRICES KEEP FLUCTUATING DAY IN AND DAY OUT. THE PRICE WHICH IS PREVAILING AT THE TIME OF BOOKING OF AN ORDER FOR DELIVERY IN A PROFORMA INVOICE IS NEVER THE SAME AT THE TIME OF ACTUAL ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 8 DELIVERY OF GOODS I.E. PASSING OF TITLE, THE VERY BASIS OF THE CONTRACT OF SALE IN LETTER AND SPIRITS OF R ECOGNITION OF REVENUE BASED ON PREVAILING ACCOUNTING STANDARDS. THE ASSESSEE CORPORATION FACILITIES IMPORT OF BULLION ON SERVICE CHARGE BASIS AND SUCH SERVICE CHARGES ARE ROUTED THROUGH SALES AND PURCHASES AND WHICH AS PER ACCOUNTING POLICY WERE BOOKED A T UNFIXED METAL PRICE PREVALENT RATES AND THEY WERE TO BE FINE TUNED AT FINAL NEGOTIATED RATES BETWEEN BUYER AND SELLER AND WHICH RESULTED IN CORRESPONDING REVERSAL OF SALES OF RS. 1.65 CRORES (NET) (INSTEAD OF 1.75 CRORES AS ALLEGED AND CORRESPONDING REVE RSAL FROM PURCHASES OF RS. 1.69 CRORES. THUS WE HAVE REPORTED MORE INCOME OF RS. 0.06 CRORES INSTEAD OF LOSS OF RS. 1.75 CRORES. THUS, THE ASSESSEE IS NO WHERE WRONG IN BRINGING THE ACCOUNTS AND SALES OF BULLION (SILVER) IN JAIPUR BRANCH TO A REAL VALUE T RANSACTION SO AS TO RECOGNIZE CORRECT PROFITS. FURTHER IT IS NOT A UNILATERAL ADJUSTMENT, BUT A PROPER CORRECTION WITHIN THE FINANCIAL YEAR FOR ARRIVING AT A CORRECT SUM CLAIMABLE FROM CUSTOMERS. THIS CAN BE UNDERSTOOD BY A SIMPLE TRADING ACCOUNT: TO PUR CHASES XXX BY SALES XXX LESS: PURCHASES REVERSED 1,69,49,269 LESS: SALES REVERSED (AND NOT 1,75,95,258 AS ALLEGED AND WRONGLY ADDED) 1,65,01,557 ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 9 THUS, THE RESULTANT INCOME REPORTED WAS RS. 4,47,712/ - AS ADDITION IN OUR PROFITS I.E. MORE INCOME REPORTED BY CORRECTING PROFORMA CURRENCY RATES MENTIONED IN THE INVOICES. 17 . THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER: FROM THE ABOVE SUBMISSION FILED BY THE ASSESS EE, IT IS CLEAR THAT ACIT HAD WRONGLY TAKEN SALES ADJUSTED AT RS. 1,75,95,258/ - BEING DEBIT IN SILVER SALES BUT HAD INADVERTENTLY MISSED TO PLACE ATTENTION ON TWO CREDITS IN SALES ADJUSTMENT OF RS. 3,42,887/ - ON 2.2.2005 AND RS. 7,50,814 ON 11.2.2005 SUM T OTALING TO RS. 10,93,701. THUS NET SALES ADJUSTMENT HAS BEEN CORRECTED TO RS. 1,65,01,557/ - AS REPORT U/S 46A AND AGAIN OVER LOOKED BY ACIT. FURTHER THE SAME BEARS A CORRESPONDING DEBIT IN PURCHASES ADJUSTMENT (DR) TO THE TUNE OF RS. 1,69,49,269/ - SHOWING N ET INCREASE OF RS. 4,47,712/ - IN PROFIT REPORT THEREBY MAKING WHOLE OF ADDITIONS OF RS. 1,75,95,258/ - AS UNCALLED FOR AND UNSUPPORTIVE. KEEPING IN VIEW OF THE ABOVE STATED FACTS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS. 1,75,95,258/ - ON ACCOU NT OF DEDUCTION IS HEREBY DELETED. HENCE THE APPEAL IS ALLOWED ON THIS GROUND. 18 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR REFERRED TO THE PAGE NO. 13 OF THE ASSESSEE S PAPER BOOK AND ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 10 SUBMITTED THAT THE ASSESSEE HAS DEBITED THE IMPUGNED AMOUNT ON 31 .03.2005 BUT NOWHERE IT IS MENTIONED THAT IT WAS ON ACCOUNT OF FLUCTUATION IN THE FOREIGN EXCHANGE AND EVEN THE LD. CIT(A) HAD NOT GONE THROUGH THE SAID LEDGER ACCOUNT WHILE ALLOWING THE RELIEF TO THE ASSESSEE. 19. IN HIS RIVAL SUBMISSIONS THE LD. COUNS EL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE ADJUSTMENT WAS MADE AT THE YEAR END ON ACCOUNT OF THE FLUCTUATION IN THE FOREIGN EXCHANGE. THEREFORE, IT WAS RELATED TO THE BUSINESS AND RIGHTLY REDUCED FROM SALES. 20 . WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, THE CLAIM OF THE ASSESSEE IS THAT THE ADJUSTMENT HAD BEEN MADE ON ACCOUNT OF FLUCTUATION IN FOREIGN EXCHANGE WHICH WAS RELATED TO THE EXPORT SALES. HOWEVER, NEITHER THE AO NOR THE LD. CIT(A) HAD MENTIONED IN THEIR RESPECTIVE ORDER THAT THE IMPUGNED AMOUNT RELATES TO THE FOREIGN EXCHANGE FLUCTUATION. IN OUR OPINION THIS ISSUE REQUIRES A FRESH EXA MINATION AT THE LEVEL OF THE AO. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND REMAND THIS LIMITED ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ITA NO.2440 /DE L/20 1 3 & CO 62/DEL/2014 THE HANDICRAFT & HANDLOOM EXPORT CORPORATION 11 ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 21 . IN THE CROSS OBJECTION OF THE ASSESSEE, NO SPECIFIC RELIEF IS SOUGHT , IT ONLY SUPPORT S THE IMPUGNED ORDER PASSED BY THE LD. CIT(A). THEREFORE, IT BECOMES INFRUCTUOUS SINCE WE HAVE CONFIRMED TWO ISSUES DECIDED BY THE LD. CIT(A) IN FAVOUR OF THE ASSESSEE AND THIRD ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO. 22 . IN THE RESULT, APPEAL OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND C O OF THE ASSESSEE IS DISMI SSED . ( ORDER PRON OUNCED IN THE COURT ON 16 /0 7 / 2015) . SD/ - SD/ - (H. S. SIDHU ) ( N. K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 /0 7 /2015 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR