M/s.Thompson Impex, Cochin V. The ACIT, Cochin

ITA 325/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96828 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 24-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: GEORGE JOSEPH
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 143(3); 37(1); 27; 37; 263

Judgement Text

ITA NO 325/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 325/COCH/2015 (ASST YEAR 2010 - 11 ) M/S THOMPSON IMPEX DOOR NO. 40/1116 ANNA MARIA COMPLEX P T USHA ROAD ERNAKULAM 682 011 VS THE ASST COM R OF INCOME TAX CIRCLE 2(2), KOCHI ( APPELLANT) (RESPONDENT) PAN NO. AADFT9814H ASSESSEE BY SH GEORGE JOSEPH REVENUE BY SH KP GOPAKUMAR, SR DR DATE OF HEARING 24 TH NOV 2015 DATE OF PRONOUNCEMENT 16 TH , DEC 2015 OR D ER PER GEORGE GEORGE . K. J M: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE , IS DIRECTED AGAINST THE ORDER OF THE CIT DATED 17.3.2015 PASSED U/S 263 OF THE I T ACT. THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. 2 THE SOLITARY ISSUE THAT ARISES FOR OUR CONSIDERATIONS IS ; WHETHER THE CIT WAS JUSTIFIED IN INVOKING HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT AND DIRECTING THE AO TO DENY THE BENEFIT OF DEDUCTION OF ADDITIONAL CUSTOMS DUTY WRITTEN OF F AMOUNTING TO RS. 19,01,626/ - ? 3 THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS: ITA NO 325/C/2015 2 THE ASSESSEE IS A PARTNERSHIP F I RM. IT IS ENGAGED IN THE BUSINESS OF IMPORTING AND TRADING IN ALUMINUM AND PVC PRODUCTS. DURING THE ASSESSMENT YEAR 2009 - 10, THE ASSESSEE HAD FILED TWO SETS OF APPLICATIONS FOR REFUND OF 4% S PECIAL ADDITIONAL D UTY (SAD) PAID B Y THE ASSESSEE FOR IMPO RTING PVC PRODUCTS IN TERMS OF N OTIFICATION NO. 102/2007 . CUS AGAINST 39 BILLS OF ENTRY FOR A TOTAL AMOUNT OF RS. 19,74,955/ - . AS PER THE SCHEME OF REFUND, THE ASSESSEE, IN ADDITION TO OTHER TERMS AND CONDITIONS, SHOULD ACCOUNT THE AMOUNT OF 4% SAD AS RECEIVABLE AND SHOULD NOT CHARGE THE AMOUNT TO PROFIT & LOSS ACCOUNT. ACCORDINGLY, THE ASSESSEE TREATED THE SAME AS RECEIVABLE IN ITS BALANCE SHEET AS AT 31 ST MARCH 2009. DURING THE FINANCIAL YEAR 2009 - 10 RELEVANT TO AY 20 10 - 10, THE TWO SETS OF APPLICATIONS OF THE ASSESSEE WERE REJECTED BY THE ASSISTANT COMMISSIONER OF CUSTOMS (REFUND) ON THE GROUND THAT THE ASSESSEE HAD FAILED TO COMPLY WITH ALL THE REQUIREMENTS PRESCRIBED BY THE NOTIFICATION NO. 102/2007.CUS. ON RECEIPT OF REJECTION ORDER FROM THE CUSTOMS AUTHORITIES, THE ASSESSEE DECIDED TO ABSORB THE LOSS AND WRITE OFF THE SAD RECEIVABLE TO THE P&L ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2010. FOR THE RELEVANT ASSESSMENT YEAR, RETURN OF INCOME WAS FILED DECLARING A SUM OF RS. 28,72,204 / - AFTER SET OFF/WRITTEN OFF OF SAD RECEIVABLE TO THE P&L ACCOUNT. THE ASSESSMENT WAS COMPLETED ACCEPTING THE CLAIM OF EXPENSES OF RS. 19,01,626/ - VIDE ASSESSMENT ORDER DATED 31.12.2012. 4 SUBSEQUENTLY, THE CIT ISSUED NOTICE U/S 263 OF THE ACT POINTING OUT THAT THE A DDITIONAL CUSTOMS DUTY WRITTEN OFF AMOUNTING TO RS. 19,01,626/ - WHICH WAS ITA NO 325/C/2015 3 ALLOWED DURING THE ASSESSMENT BY THE AO WAS NOT A ALLOWABLE EXPENDITURE AND HENCE THE ORDER OF THE AO U/S 143(3) OF THEN ACT WAS ERRONEOUS. ACCORDINGLY, T HE CIT SET ASIDE THE ASSESSMENT AND DIRECTED THE AO TO RE - DO THE ASSESSMENT BY DENYING THE DEDUCTION OF ADDITIONAL CUSTOMS DUTY WRITTEN OFF FOR AN AMOUNT OF RS. 19,01,626/ - . 5 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US , RAISING THE FOLLO WING GROUNDS: T H E O RDER OF COMMISSIONER OF INCOME TAX - II , KOCHI IS AGAINST LAW AND FACTS O F THE CASE AND H E N C E UN S USTAINABLE . 1 . THE ORDER OF THE ASSESSING OFFICER IS NOT ERRONEOUS. THE ASSESSMENT WAS COMPLETED B Y THE AS S E SSING OFFICER U / S 143(2 ). THE ASSE SSING OFFICER HAS CONVINCED HIMSELF ABOUT TH E G ENUINIT Y OF THE CLAIM BEFORE ISSUING HIS ORDER UNDER SECTION 143 ( 3). THE ORDER OF THE HONOURABLE COMMISSIONER OF INCOME TAX IS BAD IN LAW AS NO CONDITIONS WARRANTING HIS EXE RCISE OF POWERS UNDER SECTION 263 WE RE ABSENT . 2 . T HE HONOURABLE COMMISSIONER OF INCOME TA X HAS NOT CITED AN Y COGENT REASON F O R DI S ALLOWING THE CLAIM AS EXPENSE , BUT HAS STATED THAT THE AMOUNT SHOULD BE REFUNDED B Y THE A UTHORITIES. HE HA S NOT CONSIDERED THE FACT THAT THE CLAIM MADE BY THE APP ELLANT WAS REJECTED B Y THE CUSTOMS AUTHORITIES . 3 . T HE HONOURABLE COMMISSIONER OF INCOME TAX FAILED TO APPRECIATE THAT CUSTOMS DUT Y REFUND CLAIM IS AN OPTION GIVEN TO THE ASSESSEE AND NOT A MANDATORY PROVISION. ON EXERCISING S UCH AN OPTION OF REFUND, THERE WAS A CONTINGENC Y THAT THE CLAIM COULD BE REJECTED B Y THE A PPROPRIATE AUTHORITY. THE LEARNED COMMISSIONER OF INCOME TAX OUGHT TO HA V E APPRECIATED THE FACT THAT THE CLAIM OF REFUND WAS DISALLOWED B Y THE APPROPRIATE AUTHORITY. 4 . T HE HONOURABLE COMMISSIONER O F INCOME TAX HAS ERRED IN OBSERVING THAT ' S I NCE THE ABOVE EX PENDITURE WAS NOT INCURRED WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION U / S 30 TO 37 , IT SHOULD HAVE BEEN DISALLOWED ' . EXPENSE INCURRED FOR PAYMENT OF C USTOMS DUTY RELATING TO THE IMPORT OF GOODS TRADED BY THE APPELLANT CANNOT BE TREATED O TH E RWIS E THAN AS EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION '. 5 . T H E LE A RNED C OMMISSIONER OF INCOME TAX FAILED TO APPR ECIATE THAT THE ITA NO 325/C/2015 4 CUSTOMS REFUND REC E I V ABLE , WHEN REJECTED BY THE C USTOMS AUTHORITIES, CAN ONL Y BE WRITTEN OFF IN THE PROFIT AND LO S S ACCOUNT OF THE APPELLANT AND WILL FALL WITHIN THE AMBIT OF SECTION 37 AS IT IS ' LAID OUT OR EXPENDED WHOLL Y AND E X CLUSI V EL Y FOR THE PURPOSE OF BUSINESS.' 6 . THE LEARNED COMMISSIONER OF INCOM E TAX FAILED TO APPR ECIATE THAT THE CUSTOMS REFUND RECEIVABLE , WHEN REJECTED BY THE CUSTOMS AUTHORITIES, TAK ES THE NATURE OF BAD DEBTS AND WHEN THE SAME IS WRITTEN OFF , IS ALLOWABLE EXPENSE UNDER SECTION 36(1)( V II ) READ W ITH SECTION 36 (2 ) . 7 . THE LEARNED C OMMISSIONER OF INCOME TAX HAS ERRED IN NOT CO NSIDERING THE SUBMISSION DATED 19 - 08 - 2014 FILED BY THE APPELLANT AND APPELLANT CRAVES LEA V E T O CONSIDER THE SAID LETTERS AS FORMING PART OF THESE GROUNDS OF APPEAL . IN THE LIGHT OF THESE FACTS AND SUCH OTHER GR OUNDS AS MAY BE ADDUCED AT THE TIME OF HEARING , IT IS PRA Y ED THAT THE ADDITION MADE UNDER SECTION 263 OF THE ACT BY THE ASSESSING OFF ICER BE SET ASIDE AND CONSEQUENT RELIEF BE GRANTED . 6 THE LD COUNSEL FOR THE ASSESSEE REITERATED HIS SUBMISSIONS MADE BEFORE THE CIT AND RELIED ON THE GROUNDS RAISED HEREIN. THE LD AR HAD ALSO FILED A PAPER BOOK COMPRISING OF 43 PAGES , INTER ALIA ENCLOSING COPIES OF N OTIFICATION ISSUED FOR CLAIM OF REFUND, THE ORDERS OF THE ASSISTANT COMMISSIONER OF CUSTOMS (REFUND) REJ ECTING ASSESSEES CLAIM FOR REFUND, THE FINANCIAL STATEMENT OF THE ASSESSEE ETC. THE LD DR ON THE OTHER HAND SUPPORTED THE CONCLUSION OF THE CIT. 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . DURING THE FINANCIAL YEAR 2008 - 09, THE ASSESSEE IMPORTED PVC PRODUCTS AGAINST 39 B ILLS OF ENTRY. THE ASSESSEE REMITTED CUSTOMS DUTY ALONG WITH SAD AS PER CUSTOMS NOTIFICATION NO. 102/2007. WHILE IMPORTING GOODS IN INDIA, AN IMPORTER IS REQUIRED TO PAY SAD (ALSO KNOWN AS COUNTERVAILING DUT Y (CVD). THE RATIONALE BEHIND LEVYING THIS IMPORT DUTY IS TO COUNTER BALANCE VAT (I.E. TAX REVENUES OF ITA NO 325/C/2015 5 S TATE G OVERNMENT ) . THE SAD IS LEVIED AS PER SECTION 3(5) O F THE CUSTOMS TARIFF ACT. THE C USTOMS NOTIFICATION N O. 102/2007 DATED 14.9.2007, ( ATTACHED AS APPENDIX 1 TO THE PAPER BOOK FILED BY THE ASSESSEE ) PROVIDES FOR EXEMPTION OF 4% SAD LEVIABLE IN TERMS OF SEC.3(5) OF CUSTOMS TARIFF ACT 1975 IN RESPECT OF GOODS IMPORTED FOR SALES AS SUCH TO OTHERS. THIS WAS TO REMOVE THE BURDEN OF DOUBLE TAX ON SUCH T YPE OF IMPORTS. THE IMPORTER IS NOT ENTITLED FOR EXEMPTION WHEN HE IMPORTS AND CLEARS THE GOODS FOR SALE. FIRST H E HAS TO PAY THE 4% DUTY AND THEN CLAIM REFUND LATER BASED ON EVIDENCE THAT LOCAL SALES TAX/VAT HAS BEEN PAID ON SUCH GOODS. THE IMPORTER IS R EQUIRED TO FILE A REFUND CLAIM WITHIN A PERIOD OF ONE YEAR A S PER SECTION 27 OF CUSTOMS ACT (NOTIFICATION N O. 93/2008 ATTACHED AS APPENDIX 2 TO THE PAPER BOOK FILED BY THE ASSESSEE) WITH THE CUSTOMS AUTHORITIES AND SUBMIT DOCUMENTS SHOWING PAYMENT OF THIS 4% DUTY, INVOICES SHOWING SALE OF THESE GOODS, DOCUMENTS SHOWING PAYMENT OF SALES TAX/VAT ON THESE GOODS AND EVIDENCE TO SHOW THAT THE DUTY INCIDENCE HAS NOT BEEN PASSED ON TO THE BUYERS. AS PER THE C IRCULAR 102/2007 - CUSTOMS DATED 26.10.2007, THE CONDITION S T O BE SATISFIED BY AN IMPORTER T O CLAIM REFUND INCLUDE; I) HE SHOULD HAVE PAID THE 4% DUTY (SAD) II) HE SHOULD HAVE SOLD THESE GOODS THROUGH INVOICES CLEARLY INDICATING THAT NO CREDIT OF THIS DUTY WILL BE ADMISSIBLE UNDER CENVAT CREDIT SCHEME. III) AP PROPRIATE CENTRAL SALES TAX/VAT HAS BEEN PAID ON THESE GOODS. 7.1 THE ASSESSEE FILED TWO SETS OF APPLICATIONS FOR REFUND OF 4% SAD PAID BY THE ASSESSEE FOR IMPORT OF PVC PRODUCT IN TERMS OF N OTIFICATION N O. 102/2007.CUS AGAINST 39 BILLS OF ENTRY. ANTICIP ATING THAT THE CLAIM OF REFUND WILL BE APPROVED, ITA NO 325/C/2015 6 THE ASSESSEE TREATED THE AMOUNT OF RS. 19,01,626/ - BEING SAD PAID AND REFUNDABLE AS SAD RECEIVABLE IN ITS BALANCE SHEET AS ON 31.3.2009. THE ASSESSEE DID NOT INCLUDE THE SAD ELEMENT AS PART OF THE COST OF TH E MATERIALS AND , THUS , DID NOT CHARGE OFF TO THE P&L ACCOUNT IN THE FY 2008 - 09. 7.2 DURING THE FY 2009 - 10, THE APPLICATIONS WERE PROCESSED BY THE CUSTOMS DEPARTMENT. T HE APPLICATIONS WERE REJECTED BY THE ASST COMMISSIONER OF CUSTOMS (REFUND) AS THE ASS ESSEE COULD NOT FULLY COMPLY WITH THE REQUIREMENTS PRESCRIBED BY N OTIFICATION N O. 102/2007.CUS. (COPIES OF THE ORDERS ARE ATTACHED AS APPENDIX 3 AND APPENDIX 4 OF THE PAPER BOOK FILED BY THE ASSESSEE). WHEN THE CLAIM OF REFUND WAS REJECTED, THE ASSESSEE DE CIDED TO ABSORB THE LOSS AND WRITE OFF THE SAD RECEIVABLE AMOUNTING TO RS. 19,01,626/ - T O THE P&L ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2010. 7.3 ON PERUSAL OF THE ORDER S OF THE ASSISTANT COMMISSIONER OF CUSTOMS (REFUND) REJECTING THE REFUND APPLICATION, WE NOTICE THAT THE REASON FOR REJECTION WAS ON ACCOUNT OF CERTAIN DISCREPANCIES IN PROVIDING THE DETAILS IN THE CHARTERED ACCOUNTANTS CERTIFICATE, S ALES T AX OFFICERS CERTIFICATE ETC . REJECTION OF THE CLAIM OF REFUND WAS NOT ON ACCOUNT OF ANY INFRACTION OF LAW. THE CIT, WHILE INVOKING HIS REVISIONARY JURISDICTION, HAS NOT GIVEN COGENT REASON PROPOSING TO DISALLOW THE CLAIM OF THE ASSESSEE . HE HAS MERELY STATED THAT THE AMOUNT SHOULD BE REFUNDED BY THE CENTRAL EXCISE AUTHORITIES. THE CIT HAS NOT ITA NO 325/C/2015 7 APPRECIA TED THE FACT THAT THE CLAIM MADE BY THE ASSESSEE WAS REJECTED BY THE CUSTOMS AUTHORITIES AND , HENCE, THE AMOUNT SHOWN AS RECEIVABLE IN THE EARLIER YEARS , NEEDS TO BE WRITTEN OFF. EVEN OTHERWISE, WHEN SAD IS PAID IT GO TO INCREASE THE COST OF GOODS IMPORTE D, HOWEVER, SINCE REFUND WAS CLAIMED ON THESE SAD PAID, THE SAME WAS NOT CHARGED TO P&L ACCOUNT. WHEN THE CLAIM OF REFUND IS REJECTED, THE SAME NEEDS TO BE WRITTEN OFF TO THE P&L ACCOUNT. 7.4 FOLLOWING THE ORDERS OF THE TRIBUNAL SUPPORT THE STAND TAKEN BY THE ASSESSEE : I) ITAT AHMEDABAD BENCH IN THE CASE OF ACIT VS M/S RANGOLI INDUSTRIES P LTD ITA NO. 1936/AHD/2010 HAS HELD THAT DUTY PAID WHEN CANNOT BE ADJUSTED UNDER CENVAT RULES I S A BUSINESS EXPENDITURE AND ALLOWABLE UNDER THE PROVISIONS OF THE A CT . II) THE ITAT CHANDIGARH BENCH IN THE CASE OF MOHAN SHIPPING MILLS VS ACIT CIR 1 LUDHIANA (ITA NO. 1212/CHD./2011 HELD THAT ONCE THE CENVAT CREDIT CANNOT BE UTILIZED BY THE ASSESSEE, WRITE OFF OF C ENVAT CREDIT IS ALLOWABLE AS AN EXPENDITURE ALLOWABLE UN DER THE PROVISIONS OF SEC. 37(1) OF THE ACT. III) THE ITAT AHMEDBAD BENCH IN THE CASE OF GIRIDHAR FIBRES P LTD VS ACIT RANGE 1 SURAT (ITA NO. 2017/AHD/2009. 7.5 MOST IMPORTANTLY , THE CIT FAILED TO APPRECIATE THAT THE CUSTOMS REFUND WHEN REJECTED BY THE C USTOMS AUTHORITIES, TAKES THE CHARACTER AND IS AKIN TO BAD DEBTS AND WHEN THE SAME IS WRITTEN OFF, IS ALLOWABLE EXPENSE U/ S 36 (1)(VII) R.W.S 36(2) OF THE ACT. FOR THE ABOVE SAID REASONING, WE ARE OF THE VIEW THAT THE CIT WAS NOT JUSTIFIED IN INVOKING HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT AND DIRECTING THE AO TO DISALLOW THE EXPENDITURE OF RS. 19,01,626/ - . IT IS ORDERED ACCORDINGLY. ITA NO 325/C/2015 8 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH D AY OF DEC 2015 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 16 TH , DEC 2015 RAJ* COPY TO: APPELLANT RESPONDENT CIT(A) CIT , DR GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN