MIHIR BIPIN PAREKH, MUMBAI V. DCIT CIR 16(2), MUMBAI

ITA 3377/MUM/2012

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3166 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PANGIR NO AADPPD
• Keywords: Proportionate interest; Commercial expediency
• Section: 143(3)

Judgement Text

SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.3377/MUM/2012 ( / ASSESSMENT YEAR : 2006-07 ) & ./ I.T.A. NO.7332/MUM/2012 ( / ASSESSMENT YEAR : 2008-09 ) SHRI MIHIR BIPIN PAREKH RUBY MANSION, 2 ND FLOOR 9 FORJET CROSS LANE, GOWALIA TANK MUMBAI- 400 036. / VS. D CIT - CIRCLE - 16(2) 2 ND FLOOR, MATRU MANDIR OPP. BHATIA HOSPITAL MUMBAI-400 007. %& ./ ./PAN/GIR NO. AADPP-4223-D ( &( /APPELLANT ) : ( )*&( / RESPONDENT ) ASSESSEE BY : SHRI VIMAL PUNAMIYA- LD. AR REVENUE BY : MS. KAVITA P. KAUSHIK-LD. DR / DATE OF HEARING : 21/01/2020 / DATE OF PRONOUNCEMENT : 12/03/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1.1 AFORESAID APPEALS BY ASSESSEE FOR ASSESSMENT YE ARS [IN SHORT REFERRED TO AS AY] 2006-07 & 2008-09 CONTEST SEPA RATE ORDERS OF LEARNED FIRST APPELLATE AUTHORITY. SINCE COMMON ISS UES WERE INVOLVED, THE APPEALS WERE CONSOLIDATED, HEARD TOGETHER AND NOW B EING DISPOSED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENI ENCE AND BREVITY. SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 2 1.2 THE APPEALS ARE RECALLED MATTER SINCE THE APPEA LS WERE INITIALLY DISPOSED-OFF BY THE BENCH ON 14/06/2017. HOWEVER, U PON ASSESSEES MISCELLANEOUS APPLICATION, THE SAID ORDER WAS RECAL LED VIDE MA NOS.691- 92/MUM/2017 ORDER DATED 02/04/2018 AND THE APPEALS WERE DIRECTED TO BE PUT UP FOR FRESH HEARING BEFORE THE REGULAR BENC H. ACCORDINGLY, THE APPEALS HAVE COME UP FOR FRESH HEARING FOR ADJUDICA TION BEFORE THIS BENCH. FIRST, WE TAKE APPEAL FOR AY 2006-07. ITA NO. 3377/MUM/2012, AY 2006-07 2.1 THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDE R: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE COMMISSIONER OF INCOME TAX, APPEALS-1, MUMBAI, HEREINAFTER REFERRED TO AS THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE CLAIM OF THE APPELLANT TOWARDS PAYMENT OF CUSTOM DUTY AMOUNTING TO RS.93,12,159/-. THE ASSESSEE HAS FILED AN APPLICATION DATED 31/05/2 018 U/R 11 OF THE APPELLATE TRIBUNAL RULES, 1963 FOR ADMISSION OF ADD ITIONAL GROUND OF APPEAL, WHICH IS STATED TO BE AN ALTERNATIVE GROUND ONLY WHICH DO NOT REQUIRE APPRECIATION OF NEW FACTS OR EVIDENCES. THE SAME READ AS UNDER:- WITHOUT PREJUDICE TO GROUND OF APPEAL NO.1, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE OF THE APPELLANT AND IN LAW, LEARNED CIT(A PPEALS) HAS ERRED IN NOT ALLOWING TO THE APPELLANT THE DEDUCTION OF CUSTOM DUTY TO TH E EXTENT OF RS.93,12,159/- BEING THE BUSINESS LOSS ARISING TO THE APPELLANT. SINCE THE SAME IS MERELY AN ALTERNATIVE GROUND, THE SAME IS ADMITTED AS GROUND NO.2. 2.2 THE ASSESSMENT FOR YEAR UNDER CONSIDERATION WAS FRAMED BY LD. ASSESSING OFFICER (AO) U/S 143(3) ON 23/12/2008 WHE REIN THE ASSESSEE WAS SADDLED WITH IMPUGNED DISALLOWANCE OF RS.93.12 LACS. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 31/10/20 06 DECLARING LOSS OF SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 3 RS.122.47 WHICH WAS ULTIMATELY REDUCED TO RS.29.23 LACS IN THE QUANTUM ASSESSMENT ORDER. THE STATED ADDITION, UPON CONFIRMATION BY LD. COMMISSIONER OF INCOME-TAX (APPEALS)-1, MUMBAI, [CIT(A)] VIDE IMPUGNED ORDER DATED 05/03/2012, IS UNDER CHALLENGE BEFORE US. 2.3 THE ASSESSEE IS A RESIDENT INDIVIDUAL AND STATE D TO BE DEALING IN CHEMICALS AND PIG-HAIR UNDER PROPRIETORSHIP CONCERN NAMELY M/S M.B. SALES CORPORATION. 2.4 DURING ASSESSMENT PROCEEDINGS, ITS TRANSPIRED T HAT ASSESSEES DELHI BRANCH OFFICE REFLECTED LOSS OF RS.165.82 LAC S PRIMARILY ON ACCOUNT OF THE FACT THAT IT PAID ADDITIONAL IMPORT DUTY AMOUNTING TO RS.197.60 LACS. THE SAID DUTY WAS PAID UNDER INSTRU CTIONS OF DEPARTMENT OF REVENUE INTELLIGENCE (DRI), GOVT. OF INDIA BASED ON THEIR BELIEFS THAT THE IMPORT OF EARLIER YEARS WAS UNDER- VALUED. THE MATTER OF DUTY WAS UNDER CONSIDERATION OF HONBLE SETTLEMENT COMMISSION. UPON PERUSAL OF FINAL ORDER PASSED BY SETTLEMENT COMMISS ION, IT TRANSPIRED THAT AN ADDITIONAL OCTROI DUTY OF RS.104.47 LACS WA S RELATED TO THE ASSESSEE WHEREAS THE BALANCE AMOUNT OF RS.93.12 LAC S WAS RELATED WITH OTHER PARTIES. THE DISALLOWANCE OF THIS DUTY O F RS.93.12 LACS IS THE SOLE SUBJECT MATTER OF APPEAL BEFORE US. 2.5 IN DEFENSE, THE ASSESSEE SUBMITTED THAT THOUGH THE DUTY WAS PAID IN THE NAMES OF OTHER PARTIES BUT THE SAME RELATED TO THE ASSESSEE ONLY. HOWEVER, THE SAID SUBMISSIONS COULD NOT FIND FAVOR WITH LD. AO WHO MADE DISALLOWANCE OF RS.93.12 LACS. 3. THE LD. CIT(A), DESPITE NOTICING THE FACT THAT T HE PAYMENT CHALLANS WERE IN THE NAME OF THE ASSESSEE AND THE AMOUNTS WE RE WITHDRAWN FROM SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 4 ITS BANK ACCOUNT TO MAKE THE AFORESAID PAYMENTS, CO NFIRMED THE DISALLOWANCE. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. WE HAVE CAREFULLY HEARD THE ARGUMENTS ADVANCED B Y RESPECTIVE REPRESENTATIVES AND PERUSED RELEVANT MATERIAL ON RE CORD INCLUDING DOCUMENTS PLACED IN THE PAPER-BOOK. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS MADE BY LD. AUTHORIZED REPRESEN TATIVE FOR ASSESSEE. THE JUDICIAL PRONOUNCEMENTS AS CITED BEFO RE US, HAVE BEEN DELIBERATED UPON. OUR ADJUDICATION TO THE SUBJECT M ATTER OF APPEAL WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. 5.1 THE LD. AR, EXPLAINING THE CIRCUMSTANCES THAT L ED TO PAYMENT OF ADDITIONAL IMPORT DUTY, SUBMITTED THAT THE ASSESSEE WAS MADE TO PAY ADDITIONAL CUSTOM DUTY ON THE ALLEGATION THAT IT IM PORTED HIGHER GRADE OF MATERIAL, WHICH WOULD ATTRACT MORE CUSTOM DUTY. THE ASSESSEE HAD DONE INDENTING FOR 3 FIRMS VIZ. SHRI YAMUNA IMPEX, M/S M .H.INTERNATIONAL & SHRI IMPEX, WHOSE IMPORTS WERE ALSO ACCOUNTED FOR A S ASSESSEES IMPORT BY DRI ON THE REASONING THAT THE GOODS HAD FIRST CO ME TO ASSESSEES GODOWN. THE OTHER 3 ENTITIES DISOWNED THE LIABILITY AND DID NOT PAY ANY DUTY. THEREFORE, WITH A VIEW TO SETTLE THE DISPUTE, THE ASSESSEE APPROACHED SETTLEMENT COMMISSION AND PAID DUTY FOR HIMSELF AS WELL AS FOR 3 OTHER ENTITIES ALSO. THE SAID DUTY WAS PAID B Y THE ASSESSEE HIMSELF AND ACCORDINGLY, THE DEDUCTION OF THE SAME WAS CLAI MED DURING THE YEAR. THE LD. AR SUBMITTED THAT AS PER THE PROVISIONS OF SEC.37(1), ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSI VELY FOR THE PURPOSE OF THE BUSINESS SHALL BE ALLOWABLE AND THEREFORE, S INCE THE EXPENDITURE WAS INCURRED DURING THE COURSE OF BUSINESS OUT OF C OMMERCIAL SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 5 EXPEDIENCY, THE DEDUCTION OF THE SAME WOULD BE ALLO WABLE TO THE ASSESSEE. 5.2 THE LD. AR, EXPLAINING THE CIRCUMSTANCES WHICH LED TO PAYMENT OF DUTY BY THE ASSESSEE, SUBMITTED THAT THE BUSINESS P REMISES AS WELL AS GODOWNS WERE SEALED BY DRI AND IT WAS OBLIGATORY ON THE PART OF THE ASSESSEE TO MAKE THE PAYMENT AS DEMANDED BY THE AUT HORITIES. THE FAILURE TO DO SO WOULD HAVE ADVERSELY IMPACTED ASSE SSEES BUSINESS AS WELL AS ITS GOODWILL / REPUTATION IN THE MARKET. TH E LD. AR ALSO SUBMITTED THAT GENUINE EFFORTS WERE MADE TO RECOVER THE ADDIT IONAL DUTY FROM STATED PARTIES AND DEMAND NOTICES WERE ISSUED BY LEGAL COU NSELS AGAINST THE 3 ENTITIES. HOWEVER, NOTHING COULD BE RECOVERED FROM THEM AND IT BECAME IRRECOVERABLE LOSS FOR THE ASSESSEE. THE SUPPORTING DOCUMENTS, IN THIS REGARD, HAS BEEN PLACED ON RECORD. THE LD. AR FORTI FIED THE SUBMISSIONS THAT OUT OF PAYMENT OF RS.93 LACS, THE PAYMENT CHAL LANS TO THE EXTENT OF RS.67 LACS WERE IN ASSESSEES NAME. RELIANCE HAS BE EN PLACED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT RENDERED IN CIT V/S SHREE KRISHNA GAYNODAY SUGAR LTD. (186 ITR 541) WHEREIN IT WAS OBSERVED THAT IN DETERMINING WHETHER AN EXPENDITURE WAS DEDU CTIBLE, THE ESSENTIAL TEST WHICH HAS TO BE APPLIED WAS WHETHER THE EXPENS ES WERE INCURRED FOR THE PRESERVATION AND PROTECTION OF THE ASSESSEES B USINESS FROM ANY SUCH PROCESS OR PROCEEDINGS WHICH MIGHT HAVE RESULT ED IN THE REDUCTION OF ITS INCOME AND PROFITS. THE SAID DECISION HAS BE EN RENDERED AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT R ENDERED IN CIT V/S BIRLA COTTON SPINNING AND WEAVING MILLS LTD. (82 IT R 166) WHEREIN IT WAS OBSERVED THAT THE ESSENTIAL TEST WHICH HAS TO B E APPLIED IS WHETHER THE EXPENSES WERE INCURRED FOR THE PRESERVATION AND PROTECTION OF THE SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 6 ASSESSEE'S BUSINESS FROM ANY SUCH PROCESS OR PROCEE DINGS WHICH MIGHT HAVE RESULTED IN THE REDUCTION OF ITS INCOME AND PR OFITS AND WHETHER THE SAME WERE ACTUALLY AND HONESTLY INCURRED. IT WAS NO T POSSIBLE TO UNDERSTAND HOW THE EXPENDITURE ON THE PROCEEDINGS I N RESPECT OF THE INVESTIGATION COMMISSION BY THE ASSESSEE WOULD NOT FALL WITHIN THE ABOVE RULE. EVEN OTHERWISE, THE EXPENDITURE WAS INC IDENTAL TO THE BUSINESS AND WAS NECESSITATED OR JUSTIFIED BY COMME RCIAL EXPEDIENCY. THE EARNING OF PROFITS AND THE PAYMENT OF TAXES ARE NOT ISOLATED AND INDEPENDENT ACTIVITIES OF A BUSINESS. THESE ACTIVIT IES ARE CONTINUOUS AND TAKE PLACE FROM YEAR TO YEAR DURING THE WHOLE PERIO D FOR WHICH THE BUSINESS CONTINUES. IF THE ASSESSEE TAKES ANY STEPS FOR REDUCING ITS LIABILITY TO TAX WHICH RESULTS IN MORE FUNDS BEING LEFT FOR THE PURPOSE OF CARRYING ON THE BUSINESS THERE IS ALWAYS A POSSIBIL ITY OF HIGHER PROFITS. 5.3 AU CONTRAIRE, LD. DR OPPOSING THE SUBMISSIONS DREW ATTENTION TO THE FACT THAT THE EXPENDITURE INCURRED BY THE ASSES SEE ON HIS OWN ACCOUNT HAS ALREADY BEEN ALLOWED AND THEREFORE, THE STAND OF LOWER AUTHORITIES WAS FAIR AND REASONABLE. 6. UPON CAREFUL CONSIDERATION, THE UNDISPUTED POSIT ION THAT EMERGES IS THE FACT THAT THE ASSESSEE HAS PAID CERTAIN DUTY PU RSUANT TO ACTION CARRIED OUT BY DRI. THE MATTER OF DUTY WAS FINALIZE D BY HONBLE SETTLEMENT COMMISSION AND THE ASSESSEE MADE THE PAY MENT AS DETERMINED. THE PAYMENT SO MADE AMOUNTED TO RS.197. 60 LACS OUT OF WHICH DEDUCTION TO THE EXTENT OF RS.104.47 LACS HAS ALREADY BEEN ALLOWED TO THE ASSESSEE. THE BASIS OF DISALLOWANCE OF RS.93.12 LACS IS THE FACT THAT THE PAYMENT IS NOT IN ASSESSEES ACCO UNT. HOWEVER, AS RIGHTLY POINTED OUT BY LD. AR, THE SAID PAYMENT WAS MADE BY THE SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 7 ASSESSEE HIMSELF OUT OF HIS OWN FUNDS AND SUBSTANTI AL PAYMENT CHALLANS WERE IN THE NAME OF ASSESSEES PROPRIETORSHIP CONCE RN NAMELY M/S M.B.SALES CORPORATION . THE OTHER ENTITIES DENIED THEIR LIABILITY AND DESPITE LEGAL ACTION, THE STATED AMOUNT COULD NOT B E RECOVERED FROM THEM AND THE AMOUNT EVENTUALLY BECAME IRRECOVERABLE FOR THE ASSESSEE. THEREFORE, THE SAID LOSS, IN OUR CONSIDERED OPINION , WAS INCURRED IN THE COURSE OF BUSINESS BEING CARRIED OUT BY THE ASSESSE E AND NON-PAYMENT OF THE DUTY WOULD HAVE RESULTED INTO SUBSTANTIAL LO SSES FOR THE ASSESSEE AND DAMAGED ASSESSEES REPUTATION IN THE MARKET. TH IS BEING THE CASE, THE SAID LOSS WOULD BE ALLOWABLE TO THE ASSESSEE AS A BUSINESS LOSS OUT OF COMMERCIAL EXPEDIENCY. THE RATIO LAID DOWN IN TH E CITED JUDICIAL PRONOUNCEMENTS CLEARLY SUPPORT THE CASE OF THE ASSE SSEE. THEREFORE, WE HOLD THAT THE SAID EXPENDITURE WOULD BE AN ALLOWABL E EXPENDITURE. THE APPEAL STANDS ALLOWED. ITA NO.7332/MUM/2012, AY 2008-09 7. FACTS ARE PARI-MATERIA THE SAME IN THIS YEAR. TH E ASSESSEE IS BEFORE US WITH SIMILAR GROUNDS OF APPEAL AS WELL AS ADDITIONAL GROUND OF APPEAL. THE ASSESSMENT WAS FRAMED U/S 143(3) ON 23/ 12/2010 WHEREIN THE ASSESSEE WAS SADDLED WITH INTEREST DISALLOWANCE ON ACCOUNT OF DUTY PAYMENT OF RS.93.12 LACS WHICH WAS DISALLOWED IN AY 2006-07. THE LD. AO WORKED OUT PROPORTIONATE INTEREST DISALLOWANCE F OR RS.16.44 LACS. THE SAME, UPON CONFIRMATION BY LD. CIT(A), IS UNDER FURTHER APPEAL BEFORE US. 8. WE FIND THAT INTEREST DISALLOWANCE IS CONSEQUENT IAL DISALLOWANCE. SINCE WE HAVE ALREADY DELETED THE QUANTUM DISALLOWA NCE IN AY 2006- 07, THE CONSEQUENTIAL DISALLOWANCE IN AY 2008-09 WO ULD NOT SURVIVE. SHRI MIHIR BIPIN PAREKH ASSESSMENT YEARS: 2006-07 & 2008-09 8 THEREFORE, BY DELETING THE SAME, WE ALLOW THE GROUN DS RAISED, IN THIS REGARD. 9. IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED BY THE FACT THAT LD. CIT(A) HAS ERRED IN NOT ALLOWING THE SET-OFF OF CAR RIED FORWARD OF LOSSES OF RS.5.07 LACS PERTAINING TO AY 2005-06. THE SAID ISS UE WOULD STAND REMITTED BACK TO THE FILE OF LD. AO FOR RE-ADJUDICA TION IN VIEW OF OUR DECISION FOR AY 2006-07. THE LD. AO IS DIRECTED TO VERIFY ASSESSEES CLAIM AND ALLOW THE SET-OFF OF LOSSES AS PER LAW. T HE GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. THE APPEAL STANDS PARTLY ALLOWED. CONCLUSION 10. THE APPEAL FOR AY 2006-07 STANDS ALLOWED. THE A PPEAL FOR AY 2008-09 STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12TH MARCH, 2 020. SD/- SD/- (MAHAVIR SINGH) (MANOJ K UMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 12/03/2020 SR.PS, JAISY VARGHESE !'! / COPY OF THE ORDER FORWARDED TO : 1. &( / THE APPELLANT 2. )*&( / THE RESPONDENT 3. 1 ( ) / THE CIT(A) 4. 1 / CIT CONCERNED 5. 23),4 , 4 , / DR, ITAT, MUMBAI 6. 3567 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.