MEGHRAJ SILK & RAYON INDUSTRIES P LTD, MUMBAI V. ITO 4(20(4), MUMBAI

ITA 3126/MUM/2011

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8380 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R BHOOPATHI DRS
• Assessee Lawyers: N M PORWAL
• Keywords: Rejection of books of accounts; Business income; Depreciation; Set aside; Capital Gains
• Section: 40(a)(ia); 194A; 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENCH MUM BAI BEFORE SHRI C.N.PRASAD, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT ME MBER ITA NO.3126/MUM/2011 ( ASSESSMENT YEAR: 2006-07 ) MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 163/165, 2 ND FLOOR SHEIKH MEMON STREET, ZAVERI BAZAR MUMBAI-400 002 VS. ITO, WARD-4(2)(4) MUMBAI PAN/GIR NO. A A ACM2873N APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI N.M. PORWAL, AR REVENUE BY MS. KAVITA KAUSHIK & SHRI R. BHOOPATHI, DRS DATE OF HEARING 28/02/2020 DATE OF PRONOUNCEME NT 26/05/2020 / O R D E R PER: RAJESH KUMAR (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)8, MUMBAI, DATED 01/03/2011 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING INVOKING OF PROVISIONS OF SECTION 145(3) OF THE ACT AND REJECTI NG BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT. PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BEING HAD TO FACTS OF THE CASE THE BOOKS OF ACCOUNTS OF THE APPELLANT SHOULD NOT HAVE BEEN REJE CTED. REASONS ASSIGNED BY HIM ARE WRONG AND INSUFFICIENT TO JUSTI FY INVOKING OF PROVISIONS OF SECTION 145(3) OF THE ACT AND REJECTI NG BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT. ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 2 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING REJECTION OF CLAIM BY THE LEARNED ASSESSING OFFICER OF LOSS OF S TOCK BY FLOOD OF RS. 6653796A- AND TREATING THE SAME AS CASH SALES MADE BY THE APPELLANT. PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY C ONSTRUED AND REGARD BEING HAD TO FACTS OF THE CASE LOSS OF STOCK BY FL OOD OF RS.6653796/-. SHOULD NOT HAVE BEEN REJECTED AND SAME SHOULD NOT B E TREATED AS CASH SALES EFFECTED BY THE APPELLANT. REASONS ASSIGNED B Y HIM ARE WRONG AND INSUFFICIENT TO JUSTIFY REJECTION OF CLAIM OF LOSS OF STOCK BY FLOOD OF RS. 665S796/- AND TREATING THE SAME AS CASH SALES MADE BY THE APPELLANT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING ESTIMATION OF RATE OF GROSS PROFIT AT 15% AND THEREBY ARRIVING AT GROSS PROFIT ALLEGED TO HAVE BEEN EARNED BY THE APPELLANT AT RS. 2510713/- ON ARBITRARY FIGURE OF SALES WHICH INCLUDES RS. 665379 6/- WHICH THE ASSESSING OFFICER HAS DEEMED AS CASH SALES. PROVISI ONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BE ING HAD TO FACTS OF THE CASE THE RATE OF GROSS PROFIT SHOULD N OT BE ESTIMATED AT 15% AND AMOUNT OF GROSS PROFIT SHOULD NOT HAVE BEEN ARRIVED AT RS. 2510713/-. REASONS ASSIGNED BY HIM ARE WRONG AND IN SUFFICIENT TO JUSTIFY ESTIMATING RATE OF GROSS PROFIT AT 15% AND GROSS PROFIT AT RS. 2510713/-. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING REJECTION OF EXPENSES UNDER VARIOUS HEADS AS DEBITED IN PROFIT A ND LOSS ACCOUNT OF THE APPELLANT COMPANY. MANUFACTURING AND OPERATING EXPENSES RS. 80 19498.62 PERSONAL EXPENSES RS. 139571.43 SALES & DISTRIBUTION EXPENSES RS . 297410.00 ADMINISTRATIVE EXPENSES RS. 637679.75 DEPRECIATION RS. 10743.26 EXPORT EXPENSES RS. 480.00 OUT OF INTEREST PAID RS. 1167849.00 AND THEREBY ARRIVING AT NET PROFIT OF RS. 1533414/- . PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BE ING HAD TO FACTS OF THE CASE THE ABOVE SAID EXPENSES SHOULD NOT HAVE BE EN DISALLOWED AND NET PROFIT OF THE APPELLANT COMPANY SHOULD NOT HAVE BEEN ESTIMATED AT RS. 1533414/-. REASONS ASSIGNED BY HIM ARE WRONG AN D INSUFFICIENT TO JUSTIFY REJECTING CLAIM OF SAID EXPENDITURE AND EST IMATING NET PROFIT AT RS. 1533414/-. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THAT PROFIT CHARGEABLE ON SALE OF FIXED ASSETS RS. 4567190/- IS TAXABLE UNDER THE HEAD 'CAPITAL GAIN'. PROVISIONS OF THE ACT OUGHT TO HAVE BEEN PROPERLY CONSTRUED AND REGARD BEING HAD TO FACTS OF THE CASE THE SAID INCOME IS TO ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 3 BE COMPUTED ON THE BASIS OF PROVISION OF SECTION 50 OF THE ACT .REASONS ASSIGNED BY HIM ARE WRONG AND INSUFFICIENT TO JUSTI FY ARRIVING AT CHARGEABLE PROFIT ON SALE OF FIXED ASSETS AT RS. 45 67190/- AND INCLUDING THE SAME UNDER THE HEAD 'CAPITAL GAIN'. 6. THE ORDER MADE UNDER SECTION 143 (3) OF T HE ACT BY THE LEARNED ASSESSING OFFICER AND CONFIRMED BY THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) IS ILLEGAL, BA D-IN-LAW, ULTRA VIRUS AND WITHOUT ALLOWING REASONABLE OPPORTUNITY O F THE HEARING, AND WITHOUT APPRECIATING THE FACTS, SUBMISSION AND EVIDENCES IN THEIR PROPER PERSPECTIVE AND IS LIABLE TO BE ANNULL ED / QUASHED. 7. THE LEARNED ASSESSING OFFICER ERRED IN CH ARGING INTEREST UNDER SECTION 234B, 234 C AND 234D OF THE ACT. 8. THE APPELLANT CRAVE LEAVE TO ADD, AMEND, A LTER AND / OR VARY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEAR ING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTILE SUITING AND SHIRTING, FILED ITS RETURN OF INCOME FOR AY 2006-07 ON 27/11/2008, DECLARING TOTAL LOSS OF RS.51,41,233/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO CALLED UPON THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNTS AND OTHER DETAILS, FOR WH ICH, ASSESEE HAS FAILED TO FURNISH BOOKS OF ACCOUNTS, VIDE ITS LETTE R DATED 29/12/2008, STATING THAT IT IS NOT POSSIBLE TO PRODUCE BOOKS OF ACCOUNTS, BECAUSE ALL BOOKS OF ACCOUNTS WERE DESTROYED DURING FLOOD I N MUMBAI ON 26/07/2005. THE LD. AO AFTER CONSIDERING RELEVANT S UBMISSIONS OF THE ASSESSEE AND ALSO TAKEN NOTE OF FACT THAT THE A SSESEE HAS CLAIMED HUGE LOSS FOR THE YEAR UNDER CONSIDERATION AND ALSO BY FOLLOWING CERTAIN JUDICIAL PRECEDENTS, INCLUDING TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF CT SHAH VS CIT 59 ITR 533 REJECTED BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AN D ESTIMATED PROFIT FROM THE BUSINESS BY TAKING INTO ACCOUNT AVERAGE GR OSS PROFIT DECLARED BY THE ASSESSEE FOR AY 2003-04 TO 2005-06 WHICH COMES TO 15.14%. FURTHER, THE LD. AO HAS ALSO REJECTED TH E CLAIM OF THE ASSESSEE INSOFAR AS, LOSS OF STOCK IN TRADE ON ACCO UNT OF FLOOD ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 4 CLAIMED BY THE ASSESSEE, ON THE GROUND THAT THE ASS ESSEE HAS FAILED TO JUSTIFY LOSS OF STOCK WITH ANY EVIDENCES INCLUDI NG FIR LODGED AT NEAREST POLICE STATION, COPY OF STOCK STATEMENT SUB MITTED TO INSURANCE COMPANY FOR INSURANCE CLAIM, SURVEYORS RE PORT AND STOCK STATEMENT SUBMITTED TO BANK FOR HYPOTHECATION. THER EAFTER, THE LD. AO HAS DETERMINED TOTAL SALES AT RS.1,67,38,093/- A ND ON WHICH, HE HAS APPLIED 15% GROSS PROFIT AND DETERMINED TOTAL I NCOME FROM BUSINESS AT RS.25,10,713/-. FURTHER THE LD. AO HAS ALLOWED TOTAL EXPENSES OF RS.9,77,299/- AND ARRIVED AT NET PROFIT OF RS.15,33,414/.IN ADDITION TO ESTIMATION OF PROFIT, THE LD. AO HAS ALSO MADE ADDITIONS TOWARDS PROFIT ON SALE OF ASSET AND TREATED THE SAME AS SHORT TERM CAPITAL GAIN AS AGAINST ASSESSEE ADMI SSION UNDER THE HEAD INCOME FROM BUSINESS. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE AS SESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE TH E LD.CIT(A), THE ASSESEE HAS CHALLENGED REJECTION OF BOOKS OF ACCOUN TS U/S 145(3) OF THE ACT AND ESTIMATION OF PROFIT FROM THE BUSINESS ALONG WITH CERTAIN JUDICIAL PRECEDENTS. THE ASSESEE HAS ALSO CHALLENGE D ADDITIONS MADE BY THE LD. AO TOWARDS DISALLOWANCES OF LOSS OF STOCK BY FLOOD AND CONSEQUENT TREATMENT OF THE SAME AS CASH SALES. THE ASSESSEE HAS ALSO CHALLENGED DISALLOWANCES OF 10% ADHOC EXPE NSES AND DISALLOWANCES OF INTEREST EXPENSES BY INVOKING SECT ION 40(A)(IA) OF THE ACT. THE ASSESSEE HAD ALSO CHALLENGED ADDITIONS MADE BY THE LD. AO TOWARDS PROFIT ON SALE OF FIXED RECEIPTS AND TAXING THE SAME UNDER THE HEAD CAPITAL GAIN. 5. THE LD.CIT(A) AFTER CONSIDERING RELEVANT SUBMISS IONS OF THE ASSESEE AND ALSO BY FOLLOWING THE DECISION OF HONB LE DELHI HIGH ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 5 COURT IN THE CASE OF CIT VS MOTOR GENERAL FINANCE L IMITED(SUPRA) HAS UPHELD REJECTION OF BOOKS OF ACCOUNTS AS PER TH E PROVISIONS OF SECTION 145(3) OF THE I.T.ACT, 1961. THE LD.CIT(A) HAS ALSO UPHELD DISALLOWANCES OF LOSS OF STOCK CLAIMED ON ACCOUNT O F FLOOD AND TREATED THE SAME AS CASH SALES BY HOLDING THAT EVID ENCES FILED BY THE ASSESSEE LIKE TRANSPORTATION BILLS AND AFFIDAVI T OF MRS. P.J. SANGHVI CANNOT BE CONSIDERED AS SUFFICIENT EVIDENCE S TO PROVE THAT STOCK WAS DESTROYED IN FLOOD. FURTHER, THE LD.CIT(A ) HAS UPHELD ESTIMATION OF PROFIT BY APPLYING AVERAGE GROSS PROF IT RATE OF 15% ON TOTAL SALES DECLARED BY THE ASSESSEE PLUS CASH SAL ES OF RS.66,53,796/- BEING DISALLOWANCES OF LOSS OF STOCK BY FLOOD. INSOFAR AS, DISALLOWANCES OF CERTAIN EXPENSES, INCLUDING IN TEREST, THE LD.CIT(A) HAS UPHELD DISALLOWANCES OF INTEREST OF E XPENSES U/S 40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT S OURCE. HOWEVER, ALLOWED RELIEF IN RESPECT OF ADHOC DISALLOWANCES OF 10% OF EXPENSES BY HOLDING THAT THE ASSESSEE HAS FILED NECESSARY EV IDENCES, INCLUDING BILLS AND VOUCHERS IN SUPPORT OF EXPENSES . INSOFAR AS, ASSESSMENT OF PROFIT ON SALE OF FIXED ASSETS OF RS. 45,67,190/- AND TAXING THE SAME UNDER THE HEAD CAPITAL GAINS, THE L D.CIT(A) HAS UPHELD ADDITIONS MADE BY THE LD. AO, ON THE GROUND THAT PROFIT ON SALE OF FIXED ASSETS IS ASSESSABLE AS PER PROVISION S OF SECTION 50 OF THE ACT AND SUCH PROFIT SHOULD BE TREATED AS SHORT TERM CAPITAL GAIN. AGGRIEVED BY THE LD.CIT(A) ORDER, THE ASSESEE IS IN APPEAL BEFORE US. 6. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO.1 OF ASSESSEES APPEAL IS REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE I.T.ACT, 1961. THE LD. AR FOR THE ASS ESSEE SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTI ON OF THE LD. AO ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 6 IN REJECTION OF BOOKS OF ACCOUNTS, DESPITE THE FACT THAT THE ASSESSEE HAS EXPLAINED THE REASONS FOR NON SUBMISSION OF BOO KS OF ACCOUNTS AS PER WHICH, ALL THE BOOKS OF ACCOUNTS WERE DESTRO YED IN FLOOD AND FOR WHICH NECESSARY EVIDENCES HAS BEEN FILED. THERE FORE, MERELY FOR THE REASON THAT THE ASSESSEE COULD NOT PRODUCE BOOK S OF ACCOUNTS, THE BOOKS OF ACCOUNTS CANNOT BE REJECTED U/S 145(3) OF THE ACT. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RAHUL J JAIN IN ITA NO. 857/MUM/2016 DATED 11/12/2018. 7. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORTED ORDER OF THE LD.CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. IT IS AN ADMITTED FACT THAT THERE WAS A FLOOD IN PART OF MUM BAI CITY FOR HEAVY RAIN ON 26/07/2005. THE ASSESSEE CLAIMS THAT DUE TO FLOOD, BOOKS OF ACCOUNTS WERE DESTROYED AND IT COULD NOT PRODUCE BO OKS BEFORE THE LD. AO. THE ASSESSEE FURTHER CLAIMS THAT ALTHOUGH, IT COULD NOT PRODUCE BOOKS, BUT FACT REMAINS THAT THE LD. AO HAS NOT POINTED OUT ANY DISCREPANCIES IN FINANCIAL RESULTS DECLARED BY THE ASSESSEE, OTHER THAN CITING NON PRODUCTION OF BOOKS OF ACCOUN TS. WE FIND THAT NON PRODUCTION OF BOOKS OF ACCOUNTS MAY BE A GOOD R EASON FOR REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE AC T. BUT, BEFORE INVOKING SECTION 145(3) OF THE ACT, IT IS NECESSARY TO CONSIDER THE REASONS GIVEN BY THE ASSESEE FOR NON PRODUCTION OF BOOKS OF ACCOUNTS. IN THIS CASE, THERE IS NO DOUBT OF WHATSO EVER WITH REGARD TO THE FACT THAT THERE WAS A FLOOD IN THE MONTH OF JULY, 2005, DUE TO THIS BOOK OF ACCOUNTS OF THE ASSESSEE WERE DESTROYE D. THE ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 7 ASSESSEE HAS ALSO FILED NECESSARY EVIDENCES INDICAT ING THE DESTRUCTION OF BOOKS OF ACCOUNTS DUE TO HEAVY RAINS ON 26/07/2005. BESIDES, THE ASSESSEE HAS ALSO FILED NECESSARY EVID ENCES IN FORM OF AFFIDAVIT FROM THE DIRECTORS IN SUPPORT OF HIS ARGU MENTS. UNDER THESE CIRCUMSTANCES, IT IS HIGHLY INCORRECT ON THE PART O F THE LD. AO, AS WELL AS THE LD.CIT(A) TO COME TO THE CONCLUSION THAT FIN ANCIAL RESULTS DECLARED BY THE ASSESEE ARE NOT TRUE AND CORRECT, M ERELY FOR NON FURNISHING BOOKS OF ACCOUNTS FOR VERIFICATION, THAT TO WHEN THE ASSESSEE HAS EXPLAINED THE REASONS FOR NON PRODUCTI ON OF BOOKS OF ACCOUNTS, BECAUSE THE SAME DESTROYED IN A FLOOD. TH IS LEGAL PROPOSITION IS SUPPORTED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RAHUL J JAIN (SUPRA), W HERE IT WAS CLEARLY HELD THAT THE ASSESSEE HAS FILED EVIDENCES INDICATI NG THE DESTRUCTION OF PHYSICAL ACCOUNTS DUE TO HEAVY RAINS. FURTHER, B EST JUDGMENT ASSESSMENT SHOULD NOT BE MADE AS BEST PUNISHMENT AS SESSMENT. WE, THEREFORE ARE OF THE CONSIDERED VIEW THAT THE L D. AO, AS WELL AS THE LD.CIT(A) WERE ERRED IN REJECTION OF BOOKS OF A CCOUNTS U/S 145(3) OF THE ACT AND ESTIMATION OF NET PROFIT BY T AKING AVERAGE GROSS PROFIT RATE OF 15% ON THE BASIS OF LAST THREE YEARS GROSS PROFIT DECLARED BY THE ASSESEE. HENCE, WE DIRECT THE LD. A O TO ACCEPT FINANCIAL RESULTS DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 9. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO.2 OF ASSESSEES APPEAL IS REJECTION OF CLAIM OF LOSS OF STOCK OF RS.66,53,796/- AND TREATMENT OF THE SAME AS CASH SA LES. THE LD. AR FOR THE ASSESEE SUBMITTED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING REJECTION OF CLAIM OF LOSS OF STOCK BY F LOOD WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS LOST IT S STOCK IN TRADE DUE ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 8 TO HEAVY FLOOD IN THE MONTH OF JULY, 2005, FOR WHI CH NECESSARY EVIDENCES ARE PRODUCED BEFORE THE LD. AO. THE LD. D R, ON THE OTHER HAND STRONGLY SUPPORTED ORDER OF THE LD.CIT(A ). 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MA TERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE FACTS BORNE OUT FROM THE RECORDS INDICATE THAT THE ASSESEE HAS SHIFTED ITS STOCK IN TRADE FORM ITS EXISTING PREMIS ES TO GODOWN AT BHIWANDI FOR THE REASONS THAT THE ASSESSEE WAS IN T HE PROCESS OF DISPOSING ITS FACTORY PREMISES, FOR WHICH NECESSARY EVIDENCES IN THE FORM OF INVOICES FROM TRANSPORTER M/S SIDDIVINAYAK TRANSPORT COMPANY HAS BEEN PRODUCED BEFORE THE LD. AO. THE SA ID STOCK WAS DESTROYED BY FLOODS DUE TO HEAVY RAINS ON 26/07/200 5. THE ASSESSEE HAS CLAIMED LOSS OF STOCK AND DEBITED INTO PROFIT AND LOSS ACCOUNT. THE LD. AO HAS DISALLOWED LOSS OF STOCK, O N THE GROUND THAT NO EVIDENCES REGARDING VALUE OF STOCK LYING AT BHIWANDI GODOWN COULD BE PRODUCED, INCLUDING COPY OF FIR LODGED AT NEAREST POLICE STATION, DETAILS OF CLAIM BEFORE THE INSURANCE COMP ANY AND STOCK STATEMENT SUBMITTED TO BANK. WE FIND THAT THE ASSES EE HAS PRODUCED ALL POSSIBLE EVIDENCES INCLUDING TRANSPORT ATION OF STOCK FROM EXISTING FACTORY TO GODOWN AT BHIWANDI ALONG W ITH BILLS OF TRANSPORTATION. THE ASSESSEE HAS ALSO PRODUCED EVID ENCES IN THE FORM OF NEWS PAPER REPORT TO PROVE THAT THERE WAS H EAVY FLOOD IN BIWANDI ON 26/07/2005. THE ASSESEE HAD ALSO PRODUCE D AFFIDAVIT FROM MR. P.J. SANGHVI STATING THAT GOODS TRANSFERRE D TO BHIWANDI DESTROYED DUE TO FLOODS. THEREFORE, WE ARE OF THE C ONSIDERED VIEW THAT THE LD. AO, AS WELL AS THE LD.CIT(A) WERE COMP LETELY ERRED IN DISALLOWING CLAIM OF LOSS OF STOCK BY FLOOD AND TRE ATMENT OF THE SAME AS CASH SALES DESPITE PRODUCING ALL POSSIBLE EVIDEN CES, FOR SIMPLE ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 9 REASONS THAT NO FIR WAS LODGED AT NEAREST POLICE ST ATION AND NO CLAIM WAS MADE WITH INSURANCE COMPANIES, IGNORING T HE FACT THAT THE ASSESSEE HAS FILED EVIDENCES TO PROVE THAT ITS INSU RANCE POLICY WAS EXPIRED IN THE MONTH OF APRIL AND, IT COULD NOT REN EW INSURANCE ON STOCK IN TRADE DUE TO BAD FINANCIAL CONDITIONS. FUR THER, IT HAS HIGHLY INCORRECT ON THE PART OF THE REVENUE AUTHORITIES T O ASK FOR COPY OF FIR LODGED AT NEAREST POLICE STATION, WHEN IT WAS V ERY CLEAR FROM OTHER EVIDENCES FILED BY THE ASSESEE, INCLUDING NEW S PAPER REPORT, THAT THERE WAS HEAVY FLOOD IN BHIWANDI ON JULY, 200 5. WE THEREFORE ARE OF THE CONSIDERED VIEW THAT THE LD. AO, AS WELL AS THE LD.CIT(A) WERE ERRED IN REJECTION OF LOSS OF STOCK IN TRADE C LAIMED BY THE ASSESEE ON ACCOUNT OF FLOOD AND TREATMENT OF THE SA ME AS CASH SALES. HENCE, WE DIRECT THE LD. AO TO DELETE ADDITI ONS MADE TOWARDS DISALLOWANCES OF LOSS OF STOCK IN TRADE AND TREATME NT OF THE SAME AS CASH SALES AND ALLOW THE LOSS CLAIMED BY THE ASSESE E. 11. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM GROUND NO.4 OF ASSESSEES APPEAL IS DISALLOWANCES OF INTER EST U/S 40(A)(IA) OF THE ACT, FOR NON DEDUCTION OF TAX AT SOURCE U/S 194A OF THE I.T.ACT, 1961. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT OU T OF TOTAL INTEREST DISALLOWANCES OF RS.10,59,265/-, THE SUM O F RS.8,73,918/- PAID TO BANK OF INDIA FOR WHICH NO REQUIREMENT OF D EDUCTION OF TAX AT SOURCE. FURTHER, A SUM OF RS.2,35,836/- WAS PAID TO M/S RAJAJI MEGHRAJ SANGHVI & COMPANY, FOR WHICH TAX WAS NOT DE DUCTED FOR THE REASONS THAT THE PARTY HAS FURNISHED FORM NO. 1 5G AND REQUESTED NOT TO DEDUCT TAX AT SOURCE. 12. HAVING HEARD BOTH THE SIDES AND CONSIDERED MAT ERIAL AVAILABLE ON RECORD, WE FIND THAT ALTHOUGH, THE LD. AO HAS DI SALLOWED INTEREST ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 10 PAYMENT OF RS.10,59,265/- FOR NON DEDUCTION OF TAX AT SOURCE, BUT HE HAS FAILED TO GIVE DETAILS OF INTEREST AND PARTIES TO WHOM SAID INTEREST WAS PAID. IF INTEREST IS PAID TO NATIONAL BANK, THEN AS PER THE PROVISIONS OF THE ACT, THERE IS NO REQUIREMENT OF D EDUCTION OF TAX AT SOURCE. SIMILARLY, IF ANY INTEREST PAID TO A PERSON WITHOUT DEDUCTION OF TAX AT SOURCE, BECAUSE OF THE REASONS THAT THE P ARTY HAS GIVEN FORM NO.15G, THEN THERE IS NO REQUIREMENT OF DEDUCT ION OF TAX AT SOURCE. IN THIS CASE, THE ASSESSEE CLAIMS TO HAVE P AID INTEREST TO BANK OF INDIA, A SUM OF RS.8,73,918/- AND REMAINING AMOUNT OF RS.2,35,836/- HAS BEEN PAID TO M/S RAJAJI MEGHRAJ SANGHVI & COMPANY ON THE BASIS OF FORM 15G SUBMITTED BY THEM . IF THE CLAIM OF THE ASSESEE IS CORRECT, THEN THERE CANNOT BE ANY DISALLOWANCES OF INTEREST U/S 40(A)(IA) OF THE ACT, BECAUSE THERE IS NO REQUIREMENT OF DEDUCTION OF TAX AT SOURCE ON BOTH PAYMENTS. BUT F ACTS ARE NOT CLEAR, WHETHER THE ASSESSEE HAS PLACED NECESSARY EV IDENCES BEFORE THE AO OR NOT. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE LD. AO AND DIRECT HIM TO VERIFY THE FACT IN LIGHT OF CL AIM OF THE ASSESEE THAT INTEREST IS PAID TO BANK OF INDIA AND INTEREST PAID TO M/S RAJAJI MEGHRAJ SANGHVI & COMPANY IS COVERED BY FORM NO.15G . IF THE CLAIM OF THE ASSESSEE IS CORRECT, THEN THE LD. AO I S DIRECTED TO DELETE THE ADDITIONS MADE TOWARDS DISALLOWANCES OF INTEREST U/S 40(A)(IA) OF THE ACT. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERA TION FROM GROUND NO. 5 OF ASSESSEES APPEAL IS CHARGEABILITY OF PRO FIT ON SALE OF FIXED ASSET OF RS.45,66,190/-. THE LD. AR FOR THE ASSESEE SUBMITTED THAT PROFIT ON SALE OF FIXED ASSET HAS BEEN PROPERLY COM PUTED ON THE BASIS OF PROVISIONS OF SECTION 50 OF THE ACT. HOWEV ER, THE LD. AO ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 11 WITHOUT ASSIGNING ANY REASONS HAS TAXED PROFIT ON S ALE OF FIXED ASSETS UNDER THE HEAD CAPITAL GAINS. 14. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MA TERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. AS PER PROVISIONS OF SECTION 50 OF THE I.T.ACT, 1961 ANY P ROFIT DERIVED FROM TRANSFER OF DEPRECIABLE ASSETS NEEDS TO BE TAXED AS SHORT TERM CAPITAL GAIN. IN THIS CASE, THE ASSESSEE HAS CREDIT ED PROFIT ON SALE OF FIXED ASSET TO THE PROFIT AND LOSS ACCOUNT AND TREA TED THE SAME AS BUSINESS INCOME. ON THE OTHER HAND, CLAIMS THAT SAI D PROFIT IS ASSESSABLE AS PER THE PROVISIONS OF SECTION 50 OF T HE I.T.ACT, 1961. THERE IS NO DOUBT INSOFAR AS TAXABILITY OF PROFIT O N SALE OF FIXED ASSETS IS CONCERNED, AND THE SAME IS ASSESSABLE AS SHORT T ERM CAPITAL GAIN, AS PER THE PROVISION OF SECTION 50 OF THE I.T.ACT, 1961. BUT, IN ORDER TO BRING SAID PROFIT UNDER THE PROVISIONS OF SECTIO N 50 OF THE ACT, THE ASSET SHOULD BE DEPRECIABLE ASSET. IN THIS CASE, TH ERE IS NO CLARITY ON THE NATURE OF ASSETS, WHETHER IT IS A DEPRECIABLE O R NON DEPRECIABLE ASSET. THEREFORE, WE ARE OF THE CONSIDERED VIEW THA T THE ISSUE NEEDS TO BE GO BACK TO THE FILE OF THE LD. AO TO FIND OUT THE FACT WITH REGARD TO THE NATURE OF ASSETS. IN CASE PROFIT DERIVED FRO M SALE OF FIXED ASSET IS ON ACCOUNT OF TRANSFER OF DEPRECIABLE ASSETS, TH EN THE SAME NEEDS TO BE TAXED AS PER THE PROVISIONS OF SECTION 50 OF THE ACT, UNDER THE HEAD SHORT TERM CAPITAL GAIN. ACCORDINGLY, WE SET A SIDE THE ISSUE TO THE FILE OF THE LD. AO AND DIRECT HIM TO VERIFY THE FACT AND TAKE APPROPRIATE DECISION, AS PER THE PROVISIONS OF ACT. 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO.3126/MUM/2011 MEGHRAJ SILK & RAYON INDUSTRIES PVT.LTD. 12 ORDER PRONOUNCED IN THE OPEN COURT ON THIS: 26/ 05 /2020 SD/- (C.N.PRASAD) SD/- (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 26/05/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//