SAPA BUILDING SYSTEMS PVT. LTD., MUMBAI V. CIT(A)- 21 , MUMBAI

ITA 2729/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4058 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANTOSH THANVI
• Keywords: Opportunity of being heard; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI N.K. PRADHAN , ACCOUNTANT MEMBER ITA NO. 2729 / MUM . /2018 ( ASSESSMENT YEAR : 20 13 14 ) SAPA BUILDING SYSTEMS PVT. LTD. 726, 7 TH FLOOR, NEELKANTH BUSINESS PARK NEAR VIDYAVIHAR RAILWAY STATION VIDYAVIHAR (W), MUMBAI 400 086 PAN AAPCS4488N . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 13(2)(1) , MUMBAI . RESPONDENT ASSESSEE BY : SHRI SANTOSH THANVI REVENUE BY : SHRI NITIN WAGHMODE DATE OF HEARING 05.08.2019 DATE OF ORDER 16.08.2019 O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED APPEAL BY THE ASSESSEE ARISES OUT OF ORDER DATED 23 RD JANUARY 2018, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 21, MUMBAI, FOR THE ASSESSMENT YEAR 2013 14. 2 . THE ONLY ISSUE ARISING IN THE PRESENT APPEAL IS WITH REGARD T O THE DISALLOWANCE OF PROVISION MADE FOR OBSOLETE STOCK AMOUNTING TO ` 1,36,63,070. OF COURSE, THE ASSESSEE HAS RAISED ADDIT IONAL GROUNDS WHICH ARE ALSO IN RELATION TO THE AFORESAID ISSUE. 2 SAPA BUILDING SYSTEMS PVT. LTD. 3 . BRIEF FACTS ARE, THE ASSESSEE , A COMPANY , IS ENGAGED IN THE BUSINESS OF CONSTRUCTION ACTIVITIES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 TH NOVEMBER 2013, DECLARING LOSS OF ` 12,20,03,608. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE EXAMINING THE FINANCIAL STATEMENT OF THE ASSESSEE FOUND THAT AN AMOUNT OF ` 2,47,64,179, WAS DEBITED TO THE PROFIT & LOSS ACCOUNT TOWARDS CERTAI N PROVISIONS. OUT OF WHICH , AN AMOUNT OF ` 1,36,63,070, WAS PROVISION FOR OBSOLETE STOCK. NOTICING THIS, THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO JUSTIFY ITS CLAIM OF DEDUCTION IN RESPECT OF THE PROVISIONS MADE. ALLEGING THAT THE ASSESSEE DID NOT FURNISH ANY REPLY , THE ASSESSING OFFICER CONCLUDED THAT THE AMOUNT DEBITED TO THE PROFIT & LOSS ACCOUNT B EING IN THE NATURE OF PROVISION IS NOT ALLOWABLE. ACCORDINGLY, HE DISALLOWED THE AMOUNT OF ` 2,47,64,179. SUCH DISALLOWANCE RESULTED IN DETERMINATION O F LOSS AT ` 9,72,39,430. THE ASSESSEE CHALLENGED PART OF THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ALLOWED ASSESSEES CL AIM IN RESPECT OF THE PROVI SION FOR SERVICE TAX RECEIVABLE AMOUNTING TO ` 53,18,039. HOWEVER, HE SUSTAINED THE DISALLOWAN CE WITH REGARD TO THE PROVISION FOR OBSOLETE STOCK AMOUNTING TO ` 1,36,63,070. 3 SAPA BUILDING SYSTEMS PVT. LTD. 5 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE ASSESSEE UNDER A BUSINESS TRANSFER AGREEMENT EXECUTED ON 5 TH APRIL 2011, HAD ACQUIRED THE BUSINESS OF ORKLA INDIA PVT. LTD., ON SLUMP SALE BASIS , WHICH , ALSO INCLUDED A PART OF THE STOCK OF THAT COMPANY. SHE SUBMITTED, OVER PASSAGE OF TIME THE QUALITY OF STOCK HAS DEGRADED TO SUCH AN EXTENT THAT IT WAS NOT MARKETABLE AND THE MANAGEMENT ADOPTED A CONSERVATIVE APPROACH FOR CREATING THE PROVISION FOR THE DIMINISHING VALUE OF STOCK AS PER GENERALLY ACCEPTED ACCOUNTING POLICY. SHE SUBMITTED , SINCE THE STOC K SO ACQUIRED HAD BECOME OBSOLETE AND WAS OF NO USE, THE ASSESSEE CREATED THE PROVISION FOR WRITE OFF OF SUCH OBSOLETE STOCK. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE REFERRED TO VARIOUS DOCUMENTARY EVIDENCES INCLUDING THE BUSIN ESS TRANSFER AGREEMENT WITH ORKLA INDIA PVT. LTD., WHICH SHE SOUGHT TO FURNISH AS ADDITIONAL EVIDENCE. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE LEARNED COMMISSIONER (APPEALS) THE ASSESSEE HAD PR ODU CED ANY DOCUMENTARY EVIDENCE TO JUSTIFY THE DEDUCTION CLAIMED ON ACCOUNT OF PROVISION FOR OBSOLETE STOCK. THUS, HE SUBMITTED , IN SUCH CIRCUMSTANCES, ASSESSEES CLAIM COULD NOT HAVE BEEN ALLOWED. 4 SAPA BUILDING SYSTEMS PVT. LTD. 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIA L ON RECORD. A READING OF THE IMPUGNED ASSESSMENT ORDER WOULD REVEAL THAT IN REPLY TO THE QUERY RAISED WITH REGA RD TO THE PROVISION OF OBSOLETE STOCK, THE ASS ESSEE DID NOT FURNISH ANY REPLY. T HEREFORE, THE ASSESSING OFFICER PROC EEDED TO DISALLOW THE PROVISION CREATED FOR OBSOLETE STOCK. AS IT APPEAR S , EVEN BEFORE LEARNED COMMISSIONER (APPEALS) ALSO THE ASSESSEE DID NOT FURNISH ANY COGENT EVIDENCE TO ESTABLISH THAT THE STOCK ACQUIRED UNDER THE BUSINESS TRANSFER AGREEMENT HAVE BECOME OBSOLETE. FURTHER, LEARNED COMMISSIONER (APPEALS) HAS RECORDED A FINDING THAT THE STOCK S CLAIMED AS OBSOLETE ARE ALUMINUM GOODS AND THEIR DEMAND NEVER DIMINISH IN MARKET. PERTINENTLY, IN RESPONSE TO A QUERY RAISED BY THE BENCH, LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , VA RIOUS DOCUMENTARY EVIDENCE INCLUDING THE BUSINESS TRANSFER AGREEMENT WERE NOT FURNISHED BEFORE THE DEPARTMENTAL AUTHORITIES. HOWEVER, SHE SUBMITTED , GIVEN AN OPPORTUNITY, THE ASSESSEE WOULD FURNISH ALL THE DOCUMENTARY EVIDENCES BEFORE THE ASSESSING OFFICER TO JUSTIFY ITS CLAIM OF DE DUCTION IN RESPECT OF PROVISION FOR OBSOLETE STOCK. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION IF THE ISSUE IS RESTORED BACK TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION. IN VIEW OF THE AFORESAID, WE ARE INCLIN ED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR ENABLING THE ASSESSEE TO FURNISH ALL DOCUMENTARY EVIDENCES TO JUSTIFY ITS CLAIM OF DE DUCTION IN RESPECT OF PROVISION FOR OBSOLETE STOCK. THE ASSESSING 5 SAPA BUILDING SYSTEMS PVT. LTD. OFFICER MUST CONSIDER THE EVIDENCES FILED BY THE ASS ESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE ISSUE IS RESTORED TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION IN TERMS OF OUR OBSERVATION HEREIN ABOVE. GROUNDS R AISED ARE ALLOWED FOR STATISTICAL PURPOSES. 8 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN C OURT ON 16.08.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI