DCIT, New Delhi V. M/s. Menarini Raunaq Pharma Ltd., New Delhi

ITA 2944/DEL/2014

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3099 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 01-06-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AN D SHRI M.L.MEENA, ACCOUNTANT MEMBER ITA NO.2944/DEL./2014, A.Y. 2005-06 D.C.I.T VS. MEN ARINI RAUNAQ PHARMA LTD. CIRCLE -6(1), 412-417, AMBA DEEP, 14, KASTURBA GANDHI MARG NEW DELHI NEW DELHI PAN : AAACM4198C (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : MS. RINKU SINGH, SR. DR DATE OF HEARING : 06.02.2019 DATE OF ORDER : 28.02.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT DY. COMMISSIONER OF INCOME T AX, NEW DELHI (HEREINAFTER REFERRED TO AS 'THE REVENUE') BY FILIN G THE AFORESAID APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 12/02 /2014 PASSED BY LD. COMMISSIONER OF INCOME TAX(APPEALS)-IX, NEW DELHI QUA THE ASSESSMENT YEAR 2005-06 ON THE GROUNDS INTER ALIA THAT : ITA NO. 2944/DEL./2014 2 1. WHETHER IN THE FACT AND CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF RS. 6,11,59,512/- MADE BY THE AO ON ACCOUNT OF BOGU S SALES RETURN AFTER GROSSLY IGNORING THE FACT THAT ASSESSEE HAS FAILED TO PROVE THE GENUINENESS OF ITS CLAIM? 2. WHETHER IN THE FACT AND CIRCUMSTANCES OF THE CAS E & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF SALES TAX PAID ON SALES RETURN BY THE AO BY IGNORING TH E FACT THAT THE SAME COULD BE ALLOWED FOR THE YEAR IN WHIC H SALE HAS BEEN ACTUALLY MADE/BOOKED BY THE ASSESSEE? 3. WHETHER IN THE FACT AND CIRCUMSTANCES OF THE CAS E & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE FOREIGN E XCHANGE LOSS OF RS. 66,56,166/- BY6 ENTIRELY RELYING ON THE SUBMISSION OF THE ASSESSEE AND COMPLETELY IGNORING THE REASONS GIVEN BY THE ASSESSING OFFICER? 4. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AN D IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A MEND OR FORGO ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT T HE TIME OF THE HEARING. 2. BRIEFLY STATED THAT FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : ASSESSEE IS INTO THE BUS INESS OF MANUFACTURING OF MEDICINES HAVING LICENSING AGREEMENT AND TRADING OF PHARMACEUTICAL PRODUCT. AO NOTICED THAT THE ASSESSEE HAS REDUCED S ALES DURING THE YEAR ITA NO. 2944/DEL./2014 3 UNDER ASSESSMENT BY SHOWING SALES RETURN OF THE AMO UNT OF RS. 6,11,59,512/-. DECLINING THE CONTENTION RAISED BY T HE ASSESSEE THAT REDUCED SALES IS ON ACCOUNT OF MEDICINE NOT SOLD AN D HAVING BEEN RETURNED BACK REACHED THE CONCLUSION THAT THE ASSE SSEE HAS TRIED TO REDUCE THE SALES BY NOT MAKING CORRESPONDING ADDIT ION IN THE CLOSING STOCK AND THEREBY MADE AN ADDITION OF RS. 6,11,59,5 12/-. 3. ASSESSEE ALSO DEBITED AMOUNT OF SALE TAX ON SALE S RETURN AMOUNTING TO RS. 40,88,589/- TO THE P & L ACCOUNT WHICH HAS A LSO BEEN ADDED TO THE TAXABLE INCOME OF THE ASSESSEE BY THE AO ON THE GRO UND THAT THE SAME SHALL BE ALLOWED AS REDUCTION IN THE YEAR GOODS ARE SOLD OF. AO ALSO MADE ADDITION OF RS. 66,55,166/- DEBITED BY THE ASSESSEE TO THE P & L ACCOUNT ON ACCOUNT OF FOREIGN EXCHANGE LOSS BY THE TREATING THE SUM AS NOTIONAL LOSS. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT( A) BY WAY OF FILING THE APPEAL WHO HAS DELETED ADDITION BY PARTLY ALLOW ING THE APPEAL. FEELING AGGRIEVED THE REVENUE HAS COME UP BEFORE TH E TRIBUNAL. 5. GROUND NO. 1 IT IS THE CASE OF THE ASSESSEE THAT SALES EXECUTIVE S IN ORDER TO EARN THE INCENTIVES HAVE SHOWN FICTITIOUS SALES WHICH CA ME TO THE NOTICE OF THE COMPANY WHEN RECEIVABLES HAS PILED UP AND THE ASSES SEE HAS NOT RECEIVED ANY PAYMENT. ALLEGED FICTITIOUS SALES WERE NOTICED FOR THE PERIOD OF APRIL, ITA NO. 2944/DEL./2014 4 2004 TO JULY 2004. THEN THE ASSESSEE HAS RECOVERED GOODS WORTH RS. 6,11,59,512/- LYING WITH THE TRANSPORTERS. 6. UNDISPUTEDLY AUDITORS HAVE NOT MADE ANY COMMENT ON THE APPROPRIATENESS OF THE SALES BECAUSE THE RETURN SAL E WAS NOT INCLUDED IN THE CLOSING INVENTORY. IT IS ALSO NOT IN DISPUTE TH AT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FURNISHED PARTY WISE D ETAILS FROM WHICH UNSOLD GOODS WERE RETURNED BACK ALONG WITH COPY OF SALES RETURN INVOICES ON SAMPLE BASIS. THE LD. CIT(A) BROUGHT ON RECORD T HE FACT THAT THE ASSESSEE HAS NOT BEEN PROVIDED AN OPPORTUNITY TO EX PLAIN THE PARTY WISE DETAILS OF RETURNED GOODS FOR WHICH HE HAS FIX THE DATE OF HEARING AS 06.12.2007 BUT PROCEEDED TO FRAME THE ASSESSMENT ON 29.11.2007. HOWEVER, DURING THE APPELLATE PROCEEDING THE LD. CI T(A) CALLED THE REMAND REPORT. 7. THE LD. CIT(A) ON THE BASIS OF REMAND REPORT AND REJOINDER FILED BY THE ASSESSEE HAS RIGHTLY REACHED THE CONCLUSION THAT THE SALE RETURN FOR A PERIOD OF 4 MONTHS FROM APRIL, 2004 TO JULY, 2004 HAS BEEN DULY SUPPORTED WITH EVIDENCE THAT IT OCCURRED DUE TO MAL PRACTICES CARRIED OUT BY THE SALES REPRESENTATIVES AND MISSING ITEMS HAVE BEEN RECOVERED FROM THE TRANSPORTER. MOREOVER IT WAS NOT CASE OF THE AO THAT SALES AND SALE RETURNS ARE NOT SUPPORTED BY ACTUAL PHYSICAL STOCK OR THERE WAS AN UNACCOUNTED CASH RECEIPT IN THE HANDS OF THE ASSESS EE FOR THE UNACCOUNTED SALE. ITA NO. 2944/DEL./2014 5 8. MOREOVER THE ASSESSEE HAS SUBMITTED PARTY WISE D ETAILS OF SALES RETURN DURING FINANCIAL YEAR 2004-05 AND DETAILS OF VALUATION OF SELLABLE GOODS OUT OF RETURNED GOODS INCLUDED IN THE CLOSING STOCK AS ON 31 ST MARCH, 2005 WHICH HAS BEEN DULY EXAMINED BY LD. CIT (A). ASSESSEE HAS DULY PROVED BEFORE THE CIT(A) THAT OUT OF T OTAL QUANTITY OF THE SALE RETURN DURING THE YEAR UNDER ASSESSMENT APPROXIMATE LY 40.3% QUANTITY OF SUCH STOCK WAS RESOLD AND APPROXIMATELY 22.4% OF QU ANTITY WAS INCLUDED IN THE CLOSING STOCK BEING SELLABLE GOODS IN THE SU BSEQUENT YEARS AND REMAINING QUANTITY OF APPROXIMATELY 37.3% WAS CLAIM ED AS EXPIRED / DAMAGED STOCK WHICH WAS NOT INCLUDED WHILE COMPUTIN G THE VALUE OF THE CLOSING STOCK AS ON 31 ST MARCH, 2005. 9. SO WHEN SALE RETURNS HAS BEEN DULY PROVED WITH P HYSICAL STOCK AVAILABLE WITH THE ASSESSEE, THE LD. CIT(A) HAS RI GHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE THAT THE SAME CANNOT BE A DDED AS UNEXPLAINED INCOME. SO WE FIND NO ILLEGALITY OR PERVERSITY ON T HE FINDINGS OF FACTS RETURNED BY LD. CIT(A), HENCE, GROUND NO. 1 IS DETE RMINED AGAINST THE REVENUE. 10. GROUND NO. 2 LD. CIT(A) DELETED THE ADDITION OF RS. 40,88,589/- MADE BY THE AO ON ACCOUNT OF SALE TAX RETURN. IN THE REMAND REP ORT AO STATED THAT SINCE THE SALE HAVE ACTUALLY NOT BEEN MADE THE LIA BILITY OF SALE TAX AND THE CLAIM OF SAME IS NOT ALLOWABLE. HOWEVER, IT IS THE CASE OF THE ASSESSEE THAT ITA NO. 2944/DEL./2014 6 AT THE TIME OF MAKING THE SALE THE ASSESSEE HAS DEB ITED THE ACCOUNT OF PARTY WITH VALUE OF SALES AND SALE TAX, THUS, THE A SSESSEE HAS MADE PAYMENT OF SALES TAX TO THE GOVERNMENT. HOWEVER, WH EN THE GOODS WERE RECOVERED BY THE ASSESSEE, THE SALES TAX PAID BY TH E ASSESSEE WAS NEVER RECOVERED AND THE ASSESSEE HAS WRITTEN OF THE AM OUNT OF SALES TAX AS BAD DEBT. WHEN THE FACTUM OF SALES RETURN HAS BEEN PROV ED IN FAVOUR OF THE ASSESSEE AND PAYMENT OF SALE TAX BY THE ASSESSEE ON THE SAID FICTITIOUS SALES IS NOT DISPUTED, THE LD. CIT(A) HAS RIGHTLY ALLOWED THE SALE TAX PAID ON SALES RETURN AS BUSINESS LOSS. SO WE FIND NO ILL EGALITY OR PERVERSITY IN THE FINDINGS RETURNED BY LD. CIT(A), HENCE, GROUND NO. 2 IS DETERMINED AGAINST THE ASSESSEE. 10. GROUND NO. 3 AO DISALLOWED FOREIGN EXCHANGE FLUCTUATION LOSS OF RS. 66,55,166/- ON THE GROUND THAT THE LOSS ON EXCHANGE LOSS IS ONL Y NOTIONAL LOSS AND IS NOT A REAL LOSS. HOWEVER, LD. CIT(A) DELETED THE ADDITION BY LD. CIT(A) BY RELYING UPON DECISION RENDERED BY HONBLE SUPREM E COURT OF INDIA IN CASE CITED AS CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. (2009) 31 2 ITR 254 (SC) . IT IS CASE OF THE ASSESSEE THAT IT HAD TAKEN A FO REIGN CURRENCY LOAN OF EUR 1,500,000 DURING FY 2002-03 AND OTHER LOAN OF EUR 700,000 DURING FY 2003-04 FROM ITS PARENT BERLI N CHEMIE AG, GERMANY FOR WORKING CAPITAL REQUIREMENT AND THE FO REIGN EXCHANGE LOSS IS ON ACCOUNT OF REINSTATEMENT OF REVENUE ITEMS AT THE BALANCE SHEET DATE. ITA NO. 2944/DEL./2014 7 WHEN THE FACTUM OF AVAILING OF THE AFORESAID LOAN I S NOT DISPUTED BY THE REVENUE THEN WHY THE LOSS ON ACCOUNT OF EXCHANGE DI FFERENCES ON REVENUE ITEMS ARISING ON FOREIGN CURRENCY TRANSACTIONS HAS TO BE TREATED AS INCOME / EXPENSES DURING THE YEAR UNDER CONSIDERATION. SO , LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION ON ACCOUNT OF FOREIGN EXCHANGE LOSS BY FOLLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT IN CIT VS. WOODWARD GOVERNOR INDIA PVT. LTD. CASE. SO, GROUND NO. 3 IS DETERMINED AGAINST THE REVENUE. 11. GROUND NO. 4, 5 AND 6 ARE GENERAL IN NATURE, HENCE, NEED NO SPECIFIC FINDINGS. 12. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, PRESE NT APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH FEBRUARY, 2019. SD/- SD/- (M.L.MEENA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER D ATED 28 TH /02/ 2019 *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXVI, NEW DELHI. 5. CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI ITA NO. 2944/DEL./2014 8 DATE OF DICTATION 18.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18.02.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 28/02/2019 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 28/02/2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 28/02/2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28/0 2/2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER