DCIT, CIR-5, KOLKATA, Kolkata V. M/S. Hindustan Paper Corporation Ltd., Kolkata

ITA 281/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4494 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 17-02-2014
• Court: TRIBUNAL
• Assessee Lawyers: AKKAL DUDHWEWALA ACA LD
• Keywords: Reopening of assessment; Tangible material; Valuation report; Assessment record; Reason to believe
• Section: 143(3); 147; 148

Judgement Text

ITA NO. 281/KOL/14 M/S. HINDUSTAN PAPER CORPRNLTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT ME MBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A. NO. 281/KOL/ 2014 A.Y: 2007-08 DCIT, CIR-5, KOLKATA VS. M/S. HINDUSTAN P APER CORPORATION LTD PAN: AAACH 9463K (APPELLANT) (RESPONDENT) APPEARANCES BY: SHRI VIJAY SHANKAR, CIT, SR. D.R FOR THE REVENUE SHRI AKKAL DUDHWEWALA, ACA, LD.AR FOR THE ASS ESSEE DATE OF HEARING : 02-08-2016 DATE OF PRONOUNCEMENT : 21-09-2016 O R D E R PER SHRI S.S. VISWANETHRA RAVI :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 12-11-2013 PASSED BY THE COMMISSIONER OF INCO ME TAX(APPEALS)-VI, KOLKATA FOR THE ASSESSMENT YEAR 20 07-08. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) ERRED IN HOLDING THAT THE ORDER U/S. 147 WAS NOT SU STAINABLE AS THE NOTICE U/S 148 WAS ISSUED ON THE BASIS OF CHANG E OF OPINION, IGNORING THE FACT THAT THE CASE WAS REOPENED ON THE BASIS OF REASON TO BELIEVE ON TANGIBLE MATERIALS THAT THERE WAS UNDER- ASSESSMENT OF TAXABLE INCOME AS DECIDED BY THE HON' BLE SUPREME COURT IN THE CASE OF CIT VS SUN ENGINEERING WORKS (P) LTD. REPORTED IN (198 ITR 297) WHEREIN IT IS HELD T HAT THE TERM 'ESCAPED ASSESSMENT' INCLUDES BOTH NON ASSESSMENT A ND UNDER- ASSESSMENT' . ITA NO. 281/KOL/14 M/S. HINDUSTAN PAPER CORPRNLTD 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN HOLDING THAT TH E PROVISIONS FOR DIMINUTION OF STOCK & SPARE CREATED IN EARLIER YEARS WAS BUSINESS LOSS, IGNORING THE FACT THAT THE PROVISION FOR DIMINUTION OF VALUE OF STORES AND SPARES CREATED IN THE EARLIE R YEARS AS PROVISION FOR WRITTEN BACK OF RS. 646.36 LACS DID N OT QUALIFY FOR ALLOWABLE EXPENSES AS PER PROVISIONS OF SECTION 36( 2) OF THE ACT. 3. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 3. AT THE OUTSET, THE LD.AR SUBMITS THAT THE A PPEAL FILED BY THE REVENUE IS ARISING OUT OF SAME ASSESSMENT ORDER DAT ED 22-3-2013 FRAMED U/S. 143(3) OF THE ACT ALONG WITH CROSS OBJECTION F ILED BY THE ASSESSEE HAVE BEEN DISPOSED OFF BY C BENCH OF TRIBUNAL BY A CONSOLIDATED ORDER DT. 05-11-2015 IN ITA NO.1692/KOL/2010 AND CO NO. 1 9/KOL/2011 RESPECTIVELY FOR THE ASSESSMENT YEAR 2007-08, WHERE IN THE TRIBUNAL ACCEPTED THE CONTENTION OF THE ASSESSEE THAT WRITIN G OFF RS. 656.36 WAS BEING THE VALUE OF IDENTIFIED ITEMS OF OBSOLETE AND DAMAGED STORES AND SPARES BASING ON THE VALUATION REPORT OF M/S. BAND YOPADHYAY & ASSOCIATES, COST ACCOUNTANTS. THE TRIBUNAL ALSO DE CIDED THE GROUND INVOLVING RS. 10 LAKHS AND AFTER EXAMINATION OF REL EVANT FACTS ON RECORD, THE TRIBUNAL HELD THAT THE AMOUNT OF RS. 10 LAKHS W HICH IS REMAINING AMOUNT OUT OF RS.656.36 LAKHS WAS DEBITED TO PROF IT & LOSS ACCOUNT. 4. AS MATTER STOOD THUS, THE REVENUE REOPENED THE A SSESSMENT U/S. 147 OF THE ACT WHILE THE ORIGINAL ASSESSMENT WAS MA DE U/S. 143(3) OF THE ACT. DURING SUCH PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE DID NOT COMPLY WITH THE PROCEDURE CONTEMPLATED TO VALUE THE RAW MATERIALS UNDER AS-2 VALUATION OF INVENTORIES, THEREBY THE AO ADDED /DISALLOWED THE ENTIRE AMOUNT OF RS.656.36 LAKHS. ITA NO. 281/KOL/14 M/S. HINDUSTAN PAPER CORPRNLTD 3 5. THE CIT-A HELD THAT THE PROVISIONS FOR DETERMINA TION OF STOCK AND SPARE WAS A BUSINESS LOSS OF EARLIER YEARS. HE ALSO HELD THAT THE RE-OPENING OF ASSESSMENT WAS ALSO BAD IN LAW AGAINST WHICH THE PRESENT APPEAL IS FILED CHALLENGING THE ORDER OF CIT-A BY RAISING THE AFORE MENTIONED GROUNDS. 6. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE C BENCH OF KOLKATA TRIBUNAL SUPRA DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. RELEVAN T PORTION OF OBSERVATIONS IS REPRODUCED HEREIN BELOW FOR THE SAK E OF BETTER UNDERSTANDING:- 2. FIRST WE TAKE UP ITA NO. 1692/KOL/2010 (REVENUE S APPEAL). THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINS T THE ORDER OF CIT(A) DELETING THE DISALLOWANCE MADE BY AO OF PROV ISIONS FOR WRITE OFF OF SPARES AT RS.10 LACS. FOR THIS, REVENU E HAS RAISED FOLLOWING GROUND NO.1: 1. THAT LD. CIT(A)-VI, KOLKATA HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE IN DELETING THE ADDITION ON AC COUNT OF DISALLOWANCE OF PROVISION FOR WRITE OFF OF SPARES O F RS.10 LACS WITHOUT GOING INTO THE MERIT OF THE CASE. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS D EBITED A SUM OF RS. 10 LAC UNDER THE HEAD LOSS ON ACCOUNT OF DIM INUTION IN VALUE OF STORES AND SPARES. THE AO REQUIRED THE ASS ESSEE TO EXPLAIN THE SAME. THE ASSESSEE EXPLAINED VIDE REPLY DATED 26.10.2009 BUT THE AO HAS NOT ACCEPTED THE REPLY OF THE ASSESSEE AND HENCE, HE DISALLOWED THE PROVISION FOR WRITE OFF OF STORES AND SPARES AS NOT ALLOWABLE EXPENDITURE. AGG RIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWE D THE CLAIM OF THE ASSESSEE BY RELYING ON THE ORDER OF AY 2004- 05 AND ALSO OBSERVING THAT EVEN THE AO HAS NOT MADE ANY ADDITIO N ON THE SAME ISSUE FOR AY 2006-07. FOR THIS, HE OBSERVED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND ALSO THE DETAILS FURNISHED BY THE APPELLANT. THE AO MADE THE DISALLOWANCE SINCE THE PROVISION FOR WRITE OFF OF STORES AND SPARES IS NOT AN ALLOWABLE EXPENDITURE, STORES AND SPARES ARE CONSUMABLE ITEMS OF A MANUFACTURING BUSINESS AND, THEREFORE, CONSUMPTION OF STORES IS A N ORDINARY INCIDENCE OF MANUFACTURING BUSINESS. I AGR EE ITA NO. 281/KOL/14 M/S. HINDUSTAN PAPER CORPRNLTD 4 WITH THE DECISION OF CIT(A)-V, IN ITA NO. 262 IN TH E APPELLANTS OWN CASE FOR THE AY 2004-05, BASED ON W HICH THE AO HAS NOT MADE ANY ADDITION ON THE SAME ISSUE FOR THE AY 2006-07. SINCE FACTS AND CIRCUMSTANCES OF TH E PRESENT APPEAL ARE THE SAME, AO IS DIRECTED TO ALLO W THE SUM OF RS.10,00,000. THIS GROUND IS ALLOWED. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT ASSESSEE HAD WRITTEN OFF IN ITS PROFIT & LOSS ACCOU NT THE VALUE OF OBSOLETE STORES AND SPARES AMOUNTING TO RS . 656.36 LACS. THE ASSESSEE DEDUCTED THE PROVISION CR EATED TILL 31.03.2006 FOR AN AMOUNT OF RS. 646.36 LACS AN D THE REMAINING SUM OF RS. 10 LACS WAS DEBITED TO THE PRO FIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2007. ASSESSEE CLAIMED THAT IT CARRIES SUBSTANTIAL INVENT ORY OF RAW MATERIALS, STORES AND SPARES. ACCORDING TO THE ASSESSEE, ITS PLANTS ARE LOCATED IN REMOTE AND INAC CESSIBLE AREAS OF ASSAM AND HENCE THESE PLANTS CARRY SUBSTAN TIAL INVENTORY OF RAW MATERIAL STORES AND SPARES. DUE TO HEAVY RAINS AS ALSO SUBSTANTIAL USE OF WATER AND CHEMICAL S IN MANUFACTURING PROCESS, THERE IS HIGH INCIDENCE OF CORROSION AND DAMAGE. FROM THE RECORDS, WE FIND THA T THE ASSESSEE REGULARLY CARRIES OUT PHYSICAL INSPECTION OF MATERIALS, STORES AND ASCERTAIN THE DIMINUTION IN V ALUE OF STORES AND ALSO DAMAGED AND OBSOLETE STOCK. IT IS A LSO A FACT THAT PHYSICAL INSPECTION IS CONDUCED BOTH DEPARTMENTALLY AS ALSO BY EXTERNAL AGENCIES. DURING THE YEAR UNDER CONSIDERATION M/S. BANDYOPADHYAY & ASSOCIATES, COST ACCOUNTANTS, CARRIED OUT THE VALUA TION OF SPARES AT NAGAON AND CACHAR PAPER MILLS AND IDENTIF IED ITEMS OF OBSOLETE AND DAMAGED STORES AND SPARES AND FURNISHED REPORT ON VALUATION OF STORES AND SPARES. BASED ON THE VALUATION REPORT THAT ASSESSEE WRITTEN OFF RS.656.36 LACS IN ITS PROFIT AND LOSS ACCOUNT FOR T HE YEAR ENDED 31.03.2007. HOWEVER, IN RESPECT OF THE VERY S AME ITEMS ASSESSEE HAD CREATED PROVISION IN THE EARLIER YEARS TO THE EXTENT OF RS.646.36 LACS AND THEREFORE ADJUS TING SUCH PROVISIONS, THE NET ADDITIONAL SUM OF RS. 10 L ACS ONLY WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT. WE FURT HER FIND THAT SIMILAR WRITE OFF WERE ALSO MADE BY THE ASSESS EE IN THE FINANCIAL YEAR 2003-04 AND 2005-06. THE DISALLO WANCE MADE BY THE AO IN AY 2004-05, WAS DELETED BY THE CIT(A) AND THEREAFTER COD REFUSED PERMISSION TO FIL E ITA NO. 281/KOL/14 M/S. HINDUSTAN PAPER CORPRNLTD 5 APPEAL AGAINST THE SAID APPELLATE ORDER. IN AY 2006 -07 ALSO THE ASSESSEE HAD WRITTEN OFF RS.184.07 LACS. I N THE REGULAR ASSESSMENT U/S. 143(3) FOR A. Y. 2006-07 TH E SAME AO AFTER DUE CONSIDERATION OF THE EXPLANATION AND THE CIT(A)S ORDER FOR AY 2004-05, HAD REFRAINED FR OM MAKING ANY DISALLOWANCE. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VI EW THAT THE CLAIM OF ASSESSEE, WRITING OFF IN ITS PROF IT & LOSS ACCOUNT, THE VALUE OF OBSOLETE STORES AND SPARES, I S A GENUINE CLAIM AND CIT(A) HAS RIGHTLY ALLOWED THE SA ME. 7. IN THIS APPEAL, THE REVENUE RAISED TWO GROUNDS, THE ONE BEING QUESTIONING THE ORDER OF CIT-A IN HOLDING THE ORDER PASSED UNDER SECTION 147 OF THE ACT IS NOT SUSTAINABLE. IT IS OBSERVED T HAT THE REASONS RECORDED UNDER SECTION 148(2) WHERE IN THE AO OPINED THAT TH E ASSESSEE SHOWN SEPARATELY IN PROFIT AND LOSS ACCOUNT REGARDING THE LOSS ON DIMINUTION OF VALUE OF STORES AND SPARES TO AN EXTENT OF RS.656.3 6 LACS IN THE YEAR UNDER CONSIDERATION AND WRITTEN OFF WITH THAT OF A PROVIS ION CREATED TO AN EXTENT OF RS.646.36 IN EARLIER YEARS AND IN RESPECT OF REM AINING RS. 10 LACS WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE RELEV ANT YEAR UNDER CONSIDERATION. WE FIND THAT THE ORIGINAL ASSESSMENT WAS COMPLETED AND PASSED ORDER THEREON UNDER SECTION 143(3) OF THE AC T, WHEREIN THE AO EXAMINED ALL THE RELEVANT EVIDENCE IN THE SCRUTINY PROCEEDINGS AND THEREAFTER ON GOING THROUGH THE ASSESSMENT RECORDS WHICH WERE THE SAME MADE AVAILABLE IN THE ASSESSMENT PROCEEDINGS AND TH E REOPENING OF SUCH ASSESSMENT WITHOUT THERE BEING ANY NEW MATERIAL ON RECORD IS NOT PERMISSIBLE. 8. IN RESPECT OF WRITING OFF RS.634.36 LAKS, THE CI T-A TREATED THE SAME AS BUSINESS LOSS. WE FIND THAT SIMILAR WRITE OFF W ERE ALSO MADE BY THE ASSESSEE IN THE FINANCIAL YEAR 2003-04 AND 2005-06. THE DISALLOWANCE MADE BY THE AO IN AY 2004-05, WAS DELETED BY THE CI T-A AND COD DID NOT GRANT PERMISSION TO FILE APPEAL AGAINST THE SAID AP PELLATE ORDER. IN AY ITA NO. 281/KOL/14 M/S. HINDUSTAN PAPER CORPRNLTD 6 2006-07 ALSO THE ASSESSEE HAD WRITTEN OFF RS.184.07 LACS. THE AO DID NOT MAKE ANY DISALLOWANCE TAKING INTO CONSIDERATION THE EXPLANATION OFFERED BY THE ASSESSEE AND ORDER OF THE CIT-A FOR AY 2004-05 IN THE ASSESSMENT U/S. 143(3) FOR A. Y. 2006-07. THE TRIBUNAL SUPRA FOUND THAT ASSESSEE HAD WRITTEN OFF IN ITS PROFIT & LOSS ACCOUNT THE VALUE OF OBSOLETE STORES AND SPARES AMOUNTING TO RS. 656.36 LACS AND DEDUCTED TH E SAME TO THE PROVISION CREATED TILL 31.03.2006 TO AN AMOUNT OF R S. 646.36 LACS AND THE REMAINING SUM OF RS. 10 LACS WAS DEBITED TO THE PRO FIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2007. IN VIEW OF THE ABOVE DIS CUSSION AND FOLLOWING THE FINDING OF THE C BENCH OF TRIBUNAL, WE ARE OF THE VIEW THAT THE CLAIM OF ASSESSEE, WRITING OFF IN ITS PROFIT & LOSS ACCOU NT, THE VALUE OF OBSOLETE STORES AND SPARES, IS A GENUINE CLAIM AND CIT(A) HA S RIGHTLY ALLOWED THE SAME. THUS, GROUND NOS 1AND 2 RAISED BY THE REVENU E ARE DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2016 SD/- SD/- WASEEM AHMED S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21/09/2016 ITA NO. 281/KOL/14 M/S. HINDUSTAN PAPER CORPRNLTD 7 1. THE APPELLANT/DEPARTMENT: THE DCIT, CIRCLE-5, KOLK ATA P-7 CHOWRINGHEE SQUARE, 5 TH FLOOR, ROOM NO.15, KOLKATA-69. 2 . THE RESPONDENT/ASSESSEE: M/S. HINDUSTAN PAPER COR PORATION LIMITED RUBY BUILDING 75C PARK STREET, KOLKATA-16. 3. CIT 4. CIT(A) 5. THE DEPARTMENTAL REPRESENTATIVE 6. GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA ** PRADIP SPS COPY OF THE ORDER FORWARDED TO:-