ACIT, Cuttack V. M/s. Krishna Coke India Pvt. Ltd, Cuttack

ITA 259/CTK/2012

• Counselvise Citation: 25922114 RSA 2012
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 27-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-04-2012
• Court: TRIBUNAL
• Department Lawyers: A K AGRAWAP K MISHRA ARS
• Assessee Lawyers: MATI PARAMITA TRIPATHY
• Keywords: Principle of natural justice; Revenue expenditure; Capital expenditure
• Section: 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 259/CTK/2012 / ASSESSMENT YEAR 2007 - 08 ASST.COMMISSIONER OF INCOME - TAX, CIRCE 2(2), CUTTACK. - - - VERSUS - M/S.KRISHNA COKE INDIA P. TD., PROFESSOR PARA,CUTTACK PA N: AACCK 3728 N ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI A.K.AGRAWA/P.K.MISHRA, ARS / FOR THE RESPONDENT: / SHRI MATI PARAMITA TRIPATHY, CIT - DR / DATE OF HE ARING: 27.08.2012 / DATE OF PRONOUNCEMENT: 28.09.2012 / ORDER . . . , SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DT.19.01.2012 OF THE COMMISSIONE R OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2006 - 0 7 (WRONGLY MENTIONED IN THE MEMORANDUM OF APPEAL AS 2007 - 08 AS POINTED OUT BY THE LEARNED DR AT THE TIME OF HEARING), RAISING THE FOLLOWING ISSUES. 0L. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. FIRST APPELLATE AUTHORITY IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF STOCK LOSS OF 20,88,189 MADE BY THE AO IN THE IMPUGNED ASSESSMENT ORDER IGNORING THE FINDINGS ON RECORDS WHICH CLEARLY PROVE THAT THE PARADEEP PORT TRUST (PPT) HAD CERTIFIED THE PHYSICAL EXISTENCE OF ALL THE IMPORTED COAL TILL 20.02.2006 IN THE PPT STOCK YARD WHERE ASS ESSEE S IMPORTED COAL WAS KEPT. 02. IN THE FACTS AND CIRC UMSTANCES OF THE CASE, THE LD.CI T(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF ADDITION MADE U/S.40(A)(IA) AMOUNTING TO 41,86,571 - ON THE GROUND THAT A CLAIM FOR I.T.A.NO. 259/CTK/2012 2 REIMBURSEMENT OF EXPENSES S UPPORTED BY DOCUMENTARY EVIDENCE CAN NOT BE CONSIDERED FOR PURPOSE OF TDS U/S.194C. WHEN IT IS FOUND BY THE AO THAT THE SELLER HAD MADE PAYMENTS TO THE CONTRACTOR OF THE ASSESSEE DIRECTLY ON BEHALF OF THE ASSESSEE AND THE ASSESSEE COMPANY HAD CLAIMED SUC H EXPENSES IN ITS P&L A/C. FOR WHICH IT HAD TO DEDUCT TAX AT SOURCE U/S. 194C. 03. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF 1,81,000 ON ELECTRICITY CHARGES AS REVENUE EXPENDITURE WHERE THE SUCH ELECTRICITY CHARGES SERVICE CONNECTION FEES IS TREATED AS CAPITAL EXPENDITURE AS BECAUSE IT IS PAID ONCE FOR NEW CONNECTION FOR INSTALLATION OF ELECTRICITY UNIT IN THE PREMISES OF T HE ASSESSEE. 2. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED BY THE REVENUE AND THEIR LEGAL IMPLICATIONS. 3. ON CAREFUL CONSIDERATION OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL AND ANALYZING THE SAME IN THE LIGHT OF THE SUBMISSIONS OF BOTH THE PARTIES, THE UNDISPUTED FACTS RELATING TO THE ISSUES ARE THAT THE ASSESSEE IS A COMPANY D E RIVING INCOME FROM MANUFACTURING OF LAM COKE. IT FILED ITS RETURN FOR THE ASSESSMENT YEAR 2006 - 07 ON 30.10.2006 ON A TOTAL LOSS OF 30,23,077 . ASSESSMENT U/S.143(3) WAS COMPLETED ON A TOTAL LOSS OF 30,23,077. IN THE PROCEEDINGS U/S.263, LEARNED CIT SET ASIDE THE SAID ASSESSMENT AND DIRECTED THE ASSESSING OFFICER TO MAKE DE NOVO ASSESSMENT. ACCORDINGLY THE ASSESSING OFFICER AFTER ISSU ING NECESSARY NOTICES AND HEARING THE ASSESSEE COMPLETED THE IMPUGNED ASSESSMENT U/S. 143(3)/263 OF THE I.T.ACT,1961 MADE ADDITIONS 20,88,189 ON ACCOUNT OF STOCK LOSS, 41,86,571 U/S.40((A)(IA) AND 1,81,000 BEING THE ELECTRICITY SERVICE CONNECTION FEES HO LDING AS CAPITAL IN NATURE BESIDES MAKING ADDITIONS/DISALLOWANCES OF 1,32,431 MADE IN THE ORIGINAL ASSESSMENT ORDER. 4. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORIT Y , WHO AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES AND THE SUBMISSIONS OF THE I.T.A.NO. 259/CTK/2012 3 ASSESSEE DELETED THE ADDITIONS OF 20,88,189, 41,86,571 AND 1,81,000. HE HOWEVER, CONFIRMED THE ADDITION OF 1,32,431. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL DISPUTING THE ACTION OF THE LEARNED CIT(A) IN DELETING TH E ADDITIONS ON THE GROUNDS AS ALREADY STATED ABOVE. 6. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL MADE AVAILABLE ON RECORD AND ANALYZING THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT AS REGARDS GROUND NO.1, THE RELEVANT FACTS ARE THAT DUR ING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER FOUND THAT THE AUDI TOR IN THE AUDIT REPORT IN 3CD F ORM AT CLAUSE 28(B)(A)(VII) HAVE REPORTED SHORTAGE OF STOCK OF RAW MATERIAL OF 2600 MT. ON FURTHER VERIFICATION, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH M/S APEX ENERGY RESOURCES LTD. ON 5.9.2005 FOR PURCHASE OF 3,500 M.T. OF HARD COKING COA L. ON 6.9.2005 AN INVOICE WAS RAISED BY M/S APEX ENERGY R ESOURCES LTD. FOR 2,24,34,95 1 , WHICH WAS INCLUDED IN THE PURCHASE OF THE ASSESSEE ON DEBITING THE PURCHASE ACCOUNT. THE ASSESSEE RECEIVED ONLY 900 M.T. OF THE RAW MATERIAL AS AGAINST 3500 MT . THEREFORE, THE ASSESSEE ISSUED DEBIT NOTE FOR 1,45,77 ,72 4 TO M/S APEX ENERGY RESOURCES LTD. , CORRESPONDING TO THE INSURANCE RECE IVED BY THE SELLER AGAINST THE LOSS OF STOCK OF 2600 M.T. AND CREDITED THE PURCHASE ACCOUNT BY THAT AMOUNT. THUS THE ASSESSEES PURCHASE ACCOUNT WAS DEBITED BY 78,57,177 (I.E. 2,24,34,951 1,45,77,724 ) AS THE PURCHASE CONSIDERATION OF 900 M.T. COKING COAL. THE PURCHASE PRICE OF 900 M.T. OF COKING COAL IS FOUND OUT TO BE AT 57,68,987 ON CONSIDERATION OF THE FACT THAT PURCHASE VALUE OF 3500 M.T. OF COKING COAL WAS 2,24,34,951 THEREFORE, THE ASSESSING OFFICER FOUND THAT THE PURCHASE ACCOUNT OF THE ASSE SSEE HAS BEEN DEBITED BY AN I.T.A.NO. 259/CTK/2012 4 EXCESS AMOUNT OF 20,88,189. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE EXPLAINED AS UNDER: WITH REFERENCE TO YOUR SUMMONS DATED 7.12.2009, WE SUBMIT THE FOLLOWING DOCUMENTS DETAILS FOR YOUR KIND CONSIDERATION I N YOUR CLAUSE NO. 04 OF THE ABOVE SUMMONS THE LOSS OF 2600 MT OF COKING COAL IS DUE TO THE FLOOD AND THE SAME WAS WASHED INTO THE SEA DUE TO HEAVY RAIN AND FLOOD, BECAUSE WE HAVE PURCHASED COKING COAL ON HIGH SEAS BASIS FROM THE IMPORTER I.E. M/S APEX ENER GY RESOURCE LTD. THROUGH VESSELS BY SEA VIDE INVOICE NO. AERL/L AKE/TEGA/2005/PARADIP/019 DATED 06.09.2005 AS THIS CONSIGNMENT IS A HIGH SEAS SALE . WE HAVE CREDITED THE VALUE OF 3500 MT AND WE HAVE RECEIVED ONLY 900 MT. THEREFORE, WE HAVE ISSUED DEBIT NOTE FOR 2600 MT. . WE HAVE MADE PAYMENT FOR 900 MT ONLY. M/S APEX ENERGY RESOURCES LTD. ISSUED US CREDIT NOTE FOR THE SAID LOSS. FOR THE SAID LOSS APEX ENERGY RESOURCES HAD CLAIMED INSURANCE FROM ICICI LOMABARD GENERAL INSURANCE & THE SAME WAS SETTLED ON DATE D 27.03.2006. EXAMINING THE DETAILS WITH THE ABOVE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT IT IS ADMITTED THAT THE ASSESSEE HAS RECEIVED 900 M.T. OF MATERIAL FOR WHICH THEY HAVE MADE PAYMENT AGAINST SUCH QUANTUM OF MATERIAL RECEI PTS ALONG WITH A DEBIT NOTE FOR 2600 M.T. NOT RECEIVED BY THEM. AGAINST THE LOSS OF 2600 M.T. OF STOCK THE SUPPLIER / SELLER / IMPORTER I.E. M/S APEX ENERGY RESOURCES LTD. CLAIMED INSURANCE FROM ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. AND THE SAME WAS SETTLED ON 27.03.2006. DURING THE COURSE OF THE HEARING IT IS ARGUED THAT AS PER THE HIGH SEA SALE AGREEMENT THE LOSS WAS TO BE BORNE BY THE ASSESSEE. NO EVIDENCE COULD BE PRODUCED BY THE ASSESSEE TO ESTABLISH THAT THERE HAS BEEN ACTUALLY A STOCK LOSS OF 2600 M.T. OF THE ASSESSEE. AS PER THE DISCHARGE VOUCHER ISSUED BY THE APEX ENERGY RESOURCE LTD. TO INSURANCE COMPANY THE DATES OF LOSS WERE 12.10.2005 TO 22.10.2005 AND THERE HAS BEEN NO I.T.A.NO. 259/CTK/2012 5 INFORMATION AS TO HOW MUCH STOCK HAS BEEN LOST. IT IS ONLY THE DEBI T NOTE ISSUED BY THE ASSESSEE TO M/S APEX ENERGY RESOURCES LTD., WHERE LOSS OF 2600 M.T. OF COKING COAL IS MENTIONED. THE LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT T HE BILL OF ENTRY FOR HOME CONSUMPTION WHICH WAS SIGNED BY THE SUPERINTENDENT OF CUSTO MS, PARADEEP ON 21.02.2006 AND P.D.COM TEST BOND NO. 882/05 - 06 DATED 20.02.2006 AND TEST MEMO NO. 945/05 - 06 DATED 20.02.2006 INDICATE THE EXISTENCE OF STOCK TILL 20.02.2006. STOCK STATEMENT SUBMITTED BY THE ASSESSEE ALSO CONFIRM ED THE FACT THAT THE STOCK W AS AVAILABLE TILL FEB. 2006 AND IT WAS LOST ONLY IN THE MARCH 2006. EARLIER IT WAS A CLAIM OF THE ASSESSEE THAT THE STOCK LOSS WAS IN APRIL 2005 AND THIS CLAIM WAS REVISED DURING THE CURRENT PROCEEDING AND THE LOSS WAS DECLARED IN THE MONTH OF MARCH 2006. IF THE DISCHARGE VOUCHER AS REFERRED EARLIER IS TO BE BELIEVED THEN THE STOCK SHOULD NOT HAVE BEEN AVAILABLE WITH THE ASSESSEE TILL MARCH 2006. THEREFORE, IN VIEW OF THE FACTUAL CONTRADICTION THE ASSESSING OFFICER HAS NOT BELIEVED ASSESSEES EXPLANATION OR CLAIM THAT THERE HAD BEEN STOCK LOSS. ACCORDINGLY, THE ASSESSING OFFICER CAME TO CONCLUDE THAT THE ASSESSEE PURCHASED 900 MT OF STOCK OF RAW MATERIAL FOR WHICH HE ALLOWED DEBIT ENTRY FOR 57,68,987 AS PURCHASE CONSIDERATION AS AGAINST THE CLAIM OF 78,57,177 AND MADE ADDITION OF 20,88,189 BEING THE EXCESS DEBIT ENTRY IN PURCHASE ACCOUNT. 6.1. ON APPEAL, THE LEARNED CIT(A) DELETED THE SAID ADDITION OF 20,88,189 BY OBSERVI NG IN HIS ORDER AS UNDER : 3.3. I HAVE CAREFULLY CONSIDERED THE MATTER .THE APPELLANT HAD ENTERED INTO AN AGREEMENT CALLED HIGH SEA SALE AGREEMENT WITH M/S.APEX ENERGY RESOURCES LTD (AERL) ON 05.9.2005 TO PROCURE 3500 MT OF HARD COKING COAL. AERL RAISED ON 06.9.2005 AN INVOICE OF 2,24,34,951 TOWARDS SALE OF 3500 MT OF HARD COKING COAL. BECAUSE OF SUBSEQUENT EVENTS I.E., DUE TO FLOOD, 2600 MT OF GOODS GOT WASHED AWAY INT O THE SEA AT PARADEEP PORT. AERL HAD INSURANCE WITH ICICI LOMBARD GENERAL INSURANCE. THE SUPPLIER GOT 1,45,77,7 2 4. THE I.T.A.NO. 259/CTK/2012 6 APPELLANT HAD TO BEAR LOSS OF 20,88,189. THEREFORE, THERE IS NO MERIT IN THE DISALLOWANCE OF 20,88,189 MADE BY THE ASSESSING OFFICER. THE SAME IS DELETED. 6.2 . ON CAREFUL LY ANALYZING THE IMPUGNED ORDERS OF BOTH THE AUT HORITIES BELOW IN THE LIGHT OF THE SUBMISSIONS OF BOTH THE PARTIES AND CONSIDERING THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL, WE FIND THAT BOTH THE AUTHORITIES HAVE NOT PROPERLY EXAMINED THE ISSUE IN THE LIGHT OF FACTS ON RECORD AND EVIDENCE PRODUCED BY THE ASSESSEE. THEREFORE, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A)AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION STRICTLY FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE. 7. AS REGARDS GROUND NO.2, THE RELEVANT F ACTS ARE THAT ON EXAMINATION OF THE LEDGER ACCOUNT OF APEX ENERGY RESOURCES LTD., THE ASSESSING OFFICER FOUND CREDIT ENTRIES ON DIFFERENT DATES TOTALING 41,46,571. THE ASSESSING OFFICER OBSERVED THAT SUCH EXPENSES INCLUDE STEVEDORING CHARGES, INTRA - PORT T RANSPORTATION CHARGES ETC., WHICH ARE IN THE NATURE OF PAYMENTS ON WHICH TDS SHOULD HAVE BEEN DEDUCTED BY THE ASSESSEE. HAVING NOT DEDUCTED TAX AT SOURCE, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF EXPENSES AND ADDED THE SAME U/S. 40(A)(IA) OF THE I.T. ACT . 7.1. ON APPEAL, THE LEARNED CIT(A) DELETED THE SAID ADDITION RELYING ON THE DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF DCIT V. HASMUKH J. PATEL(10 TAXMAN.COM 229 DT.10.3.2011), WHEREIN THE ITAT HELD THAT WHERE PAYMENT MADE BY THE ASSESSEE IS NOT HING BUT REIMBURSEMENT OF FREIGHT CHARGES FOR WHICH NECESSARY MEMOS WERE ISSUED BY THE SHIPPING AGENT, SECTION 194C WAS NOT APPLICABLE. THE PAYMENTS IN QUESTION HAVE BEEN MADE BY AERL AND THE ASSESSEE HAD ONLY REIMBURSED THE AMOUNT CORRESPONDING SUCH PAYME NTS. THE LEARNED CIT(A) HAS OBSERVED THAT THE ASSESSING OFFICER HAS NOT COME OUT WITH ANY CONTRARY FINDING I.T.A.NO. 259/CTK/2012 7 ON THE CLAIM OF THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A) DULY SUPPORTED BY THE DECISION OF ITAT, AHME DABAD (SUPRA). WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND DISMISS GROUND NO.2. 8. AS REGARDS GROUND NO.3, AFTER HEARING THE RIVAL CONTENTIONS AND PERUSING THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND ALSO THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL, WE FIND THAT THE ASSESSEE CLAIMED TO HAVE PAID 1,81,000 ON28.12.2005 TOWARDS SERVICE CONNECTION FEES DEPOSITED WITH EXECUTIVE ENGINEER OFFICE AT JAJPUR. THE ASSESSING OFFICER HELD THE SAME AS CAPITAL NATURE AND THEREFORE DISALLOWED THE SAM E AND MADE ADDITION OF 1,81,000 TO THE TOTAL INCOME. IN THE CASES OF CIT V. EXCEL INDUSTRIES [122 ITR 995(BOM)], CIT V. ANAND GUM INDUSTRIES [154 ITR 680(RAJ)] AND SARABHAI M CHEMICALS V. CIT [127 ITR 74(GUJ)] IT IS HELD SERVICE CONNECTION FEE IS A REVENU E EXPENSE AS THE ADVANTAGE WAS NOT OF AN ENDURING NATURE. WHEN, THE LEARNED CIT(A) HAS DELETED THE IMPUGNED ADDITION OF 1,81,000 BEING THE FEES FOR SERVICE CONNECTION OF ELECTRICITY FOLLOWING THE ABOVE JUDICIAL PRONOUNCEMENTS, WE DO NOT FIND ANY INFIRMITY IN HIS SUCH ORDER. WE, THEREFORE, UPHOLD THE SAME DISMISS GROUNDNO.3 RAISED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/ - SD/ - ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( ) DATE: 28.09.2012 ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 259/CTK/2012 8 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : ASST.COMMISSIONER OF INCOME - TAX, CIRCE 2(2), CUTTACK. 2 / THE RESPONDENT: M/S.KRISHNA COKE INDIA P. TD., PROFESSOR PARA,CUTTACK PAN: AACCK 3728 N 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, 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 1 4.9.2012 .. 2 . DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 14.09 0.2012 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 ..