ITO, Panipat V. M/s Mahaluxmi Spinniers (P) Ltd., Panipat

ITA 3865/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4205 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 30-03-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 11-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SAHOTA
• Assessee Lawyers: P C GOYAL
• Keywords: Capital asset; Capital expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL I.T.A.NO. 3865(DEL)/2009 ASSESSMENT YEAR: 2006-07 INCOME-TAX OFFICER, M/S MAH ALAXMI SPINNERS (P) LTD., WARD-1, PANIPAT. VS. BARSAT R OAD, PANIPAT. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.S. SAHOTA, SR. DR RESPONDENT BY: SHRI P.C. GOYAL, C.A. ORDER PER K.G. BANSAL ; AM THIS APPEAL EMANATES FROM THE ORDER OF THE CIT (APPEALS), KARNAL, PASSED IN APPEAL NO. 68/PPT/2008-09 AND IT PERTA INS TO ASSESSMENT YEAR 2006-07. THE CORRESPONDING ORDER OF ASSESSMENT WAS FRAMED BY THE INCOME-TAX OFFICER, WARD-1, PANIPAT, ON 25.11.2 008, UNDER THE PROVISION OF SECTION 143(3) OF THE INCOME-TAX ACT , 1961. 2. GROUND NO. 1 IS THAT ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN DELETING THE A DDITIONS OF RS. 20,930/-, RS. 8,020/- AND RS. 1,19,360/- MADE BY THE AO ON ACC OUNT OF INTEREST-FREE ITA NO. 3865(DEL)/2009 2 ADVANCES GIVEN TO M/S AJAY & COMPANY, M/S BATLIBO I LTD. AND OTHER PARTIES RESPECTIVELY FOR SUPPLY OF RAW-MATERIAL . 2.1 THE FACTS OF THE CASE, AS MENTIONED IN THE ASSESSMENT ORDER, ARE THAT THE ASSESSEE HAD MADE ADVANCES TO VARIOU S PARTIES, THE DETAILS OF WHICH ARE AS UNDER:- SL. NO. NAME & DATE OF ADVANCE AMOUNT I) M/S SARASWATI COTTON CO., AHMEDABAD. 01.04.2005 RS. 23,00,000/- II) M/S ABHISHEK ENTERPRISES 10.09.2005 RS. 4,00,000/- 15.09.2005 RS. 3,00,000/- 03.10.2005 RS. 3,00,000/- 15.11.2005 RS. 4,50,000/- III) M/S AJAY & CO. 01.04.2005 RS. 1,74,394/- IV) M/S BATLIBOI LTD., NEW DELHI. 01.04.2005 RS. 71,000/- V) ADVANCES TO RAW-MATERIAL SUPPLIERS 01.04.2005 RS. 9,94,720/- 2.2 IT WAS SUBMITTED THAT THE ADVANCES WERE MAD E FOR THE PURPOSE OF BUSINESS. IN ORDER TO PROVE THIS CONTENTION, CO PIES OF ACCOUNT OF VARIOUS PARTIES WERE FILED. THE AO DID NOT AGREE WIT H THE SUBMISSIONS OF THE ASSESSEE. HE CAME TO THE CONCLUSION THAT THE I NTEREST-BEARING LOANS WERE DIVERTED AS INTEREST-FREE ADVANCES TO THE AFO RESAID PARTIES. THEREFORE, ITA NO. 3865(DEL)/2009 3 INTEREST AMOUNTING TO RS. 5,08,450/- WAS DISALLOW ED, THE DETAILS OF WHICH ARE AS UNDER:- S. NO. NAME OF THE PARTY INTEREST AMOUNT (RS.) (I) SARASWATI COTTON COMPANY 2,76,000/- (II) M/S ABHISHEK ENTERPRISES 84,140/- (III) M/S AJAY &COMPANY 20,930/- (IV) M/S BOTLIBOI LIMITED 8,020/- (V) ADVANCES TO RAW-MATERIAL SUPPLIERS 1,19,360/- TOTAL: 5,08,450/- 2.3 AGGRIEVED BY THIS ORDER, THE ASSESSEE MOVED AN APPEAL BEFORE THE CIT(APPEALS), KARNAL. HE CONFIRMED THE DISALLOWA NCE IN RESPECT OF ADVANCES GIVEN TO M/S SARASWATI COTTON COMPANY AND M/S ABHISHEK ENTERPRISES. HOWEVER, IT WAS ALSO HELD THAT A DVANCES WERE GIVEN TO M/S AJAY & COMPANY, BATLIBOI LTD. AND OTHERS IN THE COURSE OF BUSINESS AND, THEREFORE, THERE WAS NO DIVERSION OF INTEREST-BE ARING LOAN IN RESPECT OF THESE PARTIES. THUS, THE DISALLOWANCES OF RS. 2 0,930/-, RS. 8,020/- AND RS. 1,19,360/- WERE DELETED. THIS ORDER IS STATED TO HAVE BEEN ACCEPTED BY THE ASSESSEE. (I) IN THE CASE OF M/S AJAY & COMPANY, IT WAS MENTIONED THAT THE ASSESSEE HAD GIVEN AN ADVANCE OF RS. 5.00 LAKH ON 10.6.2004. OUT OF THIS ADVANCE, AN AMOUNT OF RS. 3,25,606/- WAS ADJUSTED AGAINST BILL NO. 578 DATED 9.3.2004, LEAVING A BALANCE OF RS. 1 ,74,394/-. THE BALANCE ITA NO. 3865(DEL)/2009 4 AMOUNT WAS CARRIED FORWARD TO THE NEXT YEAR A ND ADJUSTED AGAINST BILL NO. 63. SINCE THIS AMOUNT WAS ADVANCED IN TH E REGULAR COURSE OF BUSINESS, IT WAS HELD THAT THE INTEREST COULD N OT HAVE BEEN DISALLOWED BY THE AO. (II) IN THE CASE OF BATLIBOI LTD., IT WAS ME NTIONED THAT THE AMOUNT OF RS. 71,000/- WAS ADVANCED TO THIS PARTY AS SECURITY AS SPARE-PARTS FOR THE TEXTILE MACHINERY WERE PURCHASE THROUGH IT. THE DETAILS OF PURCHASES MADE THROUGH THIS PARTY WERE ALSO SUBMITTED. THEREFORE, IT WAS HELD THAT THE SECURITY DEPOSIT WAS MADE IN THE REGULAR COU RSE OF BUSINESS. (III) COMING TO THE ADVANCE OF RS. 9,94,720/-, IT WAS MENTIONED THAT THE SAME WAS MADE TO FIVE PERSONS FOR PURCHASE OF FACTORY-LAND FROM THEM. IN SUPPORT OF THIS CONTENTION, AN AGREEMENT DATED APRIL, 1997 WAS FILED, WHICH SHOWS THE PAYMENT OF AFORESAID ADVANCE TO THE VENDORS. THE PROPERTY COULD NOT BE TRANSFERRED TO THE NAME O F THE ASSESSEE BECAUSE OF THE POLICY FOLLOWED BY THE HARYANA URBAN DEVELO PMENT AUTHORITY (HUDA FOR SHORT). BUT, FACTORY BUILDING WAS CONSTRUCTED ON THE LAND. SUBSEQUENTLY, THE LAND WAS TRANSFERRED TO THE N AME OF THE ASSESSEE AS EVIDENCED BY THE COPY OF LAND REVENUE RECORD. T HUS, THE ADVANCE WAS ITA NO. 3865(DEL)/2009 5 MADE NOT FOR SUPPLY OF RAW-MATERIAL BUT FOR PURCH ASE OF LAND, USED FOR CONSTRUCTION OF FACTORY BUILDING, ON WHICH THE PROCESS OF MANUFACTURE WAS BEING CARRIED ON BY THE ASSESSEE. IN VIE W OF THE AFORESAID, THE DISALLOWANCE OF INTEREST ON THIS AMOUNT WAS ALSO DELETED. 3. BEFORE US, THE LD. DR REFERRED TO THE FIND INGS OF THE AO AND THE LD. CIT(APPEALS). IT WAS SUBMITTED THAT NO EVIDEN CE WAS FILED BEFORE THE AO TO SHOW THAT THE AFORESAID ADVANCES WERE MADE IN THE COURSE OF BUSINESS OF THE ASSESSEE. 3.1 IN REPLY, THE LD. COUNSEL REFERRED TO PA GES 6, 7 AND 35 OF THE PAPER BOOK. PAGES 6 AND 7 IS THE REPORT OF THE AO DATED 2.3.2009, SUBMITTED TO THE LD. CIT(APPEALS) IN WHICH DETA ILS OF ALL THE ADVANCES HAVE BEEN MENTIONED. IT WAS SUBMITTED THAT NO TRANSACTION WAS MADE BY THE ASSESSEE WITH THESE PARTIES IN THIS YEAR. IT WAS FURTHER SUBMITTED THAT THE LAND WAS TRANSFERRED IN THE NAME OF THE ASSESSEE ON 4.9.2007. THIS DATE DOES NOT FALL IN THE YEAR UNDER CONSID ERATION. IT WAS ALSO SUBMITTED THAT DUE TO FAILURE ON THE PART OF THE ASSESSEE TO ESTABLISH THAT THE ADVANCES WERE MADE FOR THE PURPOSE OF BUSI NESS, INTEREST AMOUNTING TO RS. 5,08,450/- WAS RIGHTLY DISALLOWED IN VIEW O F THE DECISION OF ITA NO. 3865(DEL)/2009 6 HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., (2006) 286 ITR 1. 3.2 COMING TO THE CASE OF THE ASSESSEE, HE REF ERRED TO PAGES 11 AND 19 TO 23 OF THE PAPER BOOK. PAGE 11 IS A PART OF THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). IN RESPECT OF M/S AJA Y & COMPANY, IT IS MENTIONED THAT THE ASSESSEE HAD FURNISHED A COP Y OF THE LEDGER ACCOUNT TO THE AO, WHICH SHOWS THAT THE AMOUNT OF RS. 1,74 ,394/- REPRESENTED THE BALANCE AMOUNT FROM ADVANCE OF RS. 5.00 LAKH G IVEN ON 10.6.2004 FOR PURCHASE OF COTTON. IT HAD SUPPLIED GOODS W ORTH RS. 3,25,606/- VIDE BILL NO. 578 DATED 9.3.2005 AND THE REMAINING GOODS WERE SUPPLIED VIDE BILL NO. 63 DATED 13.3.2009. THESE BILLS HAVE BEEN PLACED ON PAGES 20 AND 21 OF THE PAPER BOOK. IN THE CASE OF BATLI BOI LIMITED, IT WAS SUBMITTED THAT THE AMOUNT WAS SECURITY DEPOSIT FOR SUPPLY OF SPARE- PARTS OF IMPORTED MACHINERY INSTALLED BY THE A SSESSEE AND PURCHASED FROM SAURER CZECH A.S., CZECH REPUBLIC. BATLIBOI LIMITED WAS AN AGENT OF THE FOREIGN SUPPLIER. THE SECURITY WAS GIVEN IN THE IMMEDIATELY PRECEDING YEAR. THE BILL FROM THE FOREIGN PARTY WAS PLACED IN THE PAPER BOOK ON PAGES 22 AND 23, AND THE SHIPPING DOCUME NT HAS BEEN PLACED IN THE PAPER BOOK ON PAGE 24. IN REGARD TO TH E ADVANCE TO FIVE PERSONS, ITA NO. 3865(DEL)/2009 7 IT WAS SUBMITTED THAT THEY WERE THE SELLER OF LAND, WHICH WAS USED BY THE ASSESSEE FOR CONSTRUCTION OF FACTORY BUILD ING. THE ADVANCE WAS GIVEN TO THEM IN THE YEAR 1997. THE LAND COU LD NOT BE TRANSFERRED IN THE NAME OF THE ASSESSEE DUE TO THE POLICY OF HU DA AND, THEREFORE, THE AMOUNT WAS SHOWN UNDER THE HEAD LOANS AND ADVANCES SINCE THEN. THE LAND WAS TRANSFERRED IN THE NAME OF THE AS SESSEE ON THE ORDER OF HONBLE PUNJAB & HARYANA HIGH COURT DATED 4.5 .2007 AND THEREAFTER THE LAND WAS MUTATED IN THE NAME OF THE ASSE SSEE. THE AGREEMENT FOR PURCHASE OF LAND HAS BEEN PLACED IN THE PAPER BOOK ON PAGES 26 TO 31. 3.3 ON THE BASIS OF THESE FACTS, THE CASE OF THE LD. COUNSEL WAS THAT ALL THE ADVANCES WERE MADE IN THE COURSE OF B USINESS AND, THEREFORE, THE LD. CIT(APPEALS) RIGHTLY DELETED THE DISALLOWA NCE IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS. CIT(APPEALS) & ANOTHER (2007) 288 ITR 1. 3.4 IN THE REJOINDER, THE LD. DR SUBMITTED THAT THE LAND IS A CAPITAL ASSET AND THE ISSUE, WHETHER, THE INTEREST REL ATABLE TO THE ADVANCE DISALLOWED BY THE AO WAS A CAPITAL EXPENDITURE? REQUIRES FURTHER EXAMINATION. THEREFORE, IT WAS AGITATED THAT EITHER THE TRIBUNAL MAY ITA NO. 3865(DEL)/2009 8 DECIDE THIS ISSUE OR RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE SAME. 3.5 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND RIVAL SUBMISSIONS. FROM THE FACTS MENTIONED BY THE LD. CIT(APPEA LS) IN THE IMPUGNED ORDER, IT IS CLEAR THAT ADVANCES WERE MADE TO M/S AJAY & COMPANY AND BATLIBOI LTD. FOR PURCHASE OF RAW-MATERIAL AND SPARE-PARTS RESPECTIVELY. THIS FACT STANDS ESTABLISHED ON THE BASIS O F THE BILLS FROM AJAY & COMPANY AND SAURER CZECH A.S. , BATLIBOI LTD . BEING AN AGENT OF THE FOREIGN SUPPLIER. THEREFORE, IT IS CLEAR TH AT THE ADVANCES WERE MADE IN THE COURSE OF BUSINESS. IN THE CASE OF S.A. BU ILDERS LTD. (SUPRA), THE HONBLE SUPREME COURT HELD THAT ALLOWABILITY OR OTHERWISE OF INTEREST SHOULD BE CONSIDERED NOT ONLY U/S 36(1)(III) B UT ALSO UNDER SECTION 37 OF THE ACT. IF IT IS FOUND THAT THE INTEREST WA S PAID FOR THE PURPOSE OF BUSINESS, THE INTEREST WILL HAVE TO BE ALLOWED I N COMPUTING THE TOTAL INCOME. FROM THE FACTS, IT IS CLEAR THAT THE REVENUE HAS NOT BEEN ABLE TO ESTABLISH THAT ADVANCES TO THESE TWO PARTIES WE RE NOT FOR THE PURPOSE OF BUSINESS. ON THE OTHER HAND, THE ASSESSEE HAS FAIRLY ESTABLISHED THAT THE ADVANCES WERE MADE FOR PURCHASE OF RAW-MATERIAL AND SPARE-PARTS. THEREFORE, IT CANNOT BE SAID THAT BORROWED FUNDS WERE DIVERTED FOR ITA NO. 3865(DEL)/2009 9 NON-BUSINESS PURPOSES. IN THE CASE OF ABHISHEK INDUSTRIES LTD., THE FINDINGS OF HONBLE PUNJAB & HARYANA HIGH COURT ARE THAT INTEREST ON BORROWED CAPITAL COULD BE ALLOWED ONLY IF THE SAME HAS BEEN USED FOR THE PURPOSE OF BUSINESS. WHERE FUNDS ARE DIVERTED TO A SISTER CONCERN WITHOUT STIPULATION OF INTEREST, IT WILL BE FOR THE ASSESSEE AND NOT TO THE REVENUE TO SHOW THAT THE ADVANCES WERE OUT OF OWN FUNDS. IN THE INSTANT CASE, THE FUNDS HAVE BEEN ADVANCED TO THIRD PAR TIES FOR THE PURPOSE OF BUSINESS. AS MENTIONED EARLIER, THE ASSESSEE HAS ESTABLISHED THIS FACT. THEREFORE, THE RATIO OF THE AFORESAID CASE IS NOT APPLICABLE TO THIS CASE. THUS, IT IS HELD THAT THE LD. CIT(APPEALS) RIGH TLY DELETED THE DISALLOWANCE OF INTEREST IN RESPECT OF THESE TWO PARTIES. 3.6 COMING TO THE ADVANCE FOR LAND, THE LIMITED CASE OF THE REVENUE NOW BEFORE US IS THAT THE EXPENDITURE COULD BE CAPITAL IN NATURE. WE ARE UNABLE TO AGREE WITH THIS SUBMISSION FOR THE R EASON THAT ALTHOUGH THE ADVANCE WAS MADE FOR ACQUISITION OF A CAPITA L ASSET, THERE IS NO DOUBT THAT THIS CAPITAL ASSET ALONG WITH BUILDING THEREON HAS BEEN USED IN THIS YEAR FOR THE PURPOSE OF BUSINESS. THEREFORE, PROVISO TO SECTION 36(1)(III) IS NOT APPLICABLE ON THE FACTS OF THI S CASE. THUS, IT IS HELD THAT ITA NO. 3865(DEL)/2009 10 THE LD. CIT(APPEALS) WAS RIGHT IN ALLOWING TH E INTEREST RELATABLE TO THIS PARTY ALSO. 3.7 IN THE RESULT, GROUND NO. 1 IS DISMISSED. 4. GROUND NO. 2 IS THAT THE LD. CIT(APPEALS) ERR ED IN DELETING THE ADDITION OF RS. 10,76,049/- MADE BY THE AO ON ACC OUNT OF FIRE LOSS IN THE BACKGROUND THAT NO COGENT REASON WAS FURNI SHED BEFORE THE AO AND THE REASONS WERE FURNISHED ONLY BEFORE THE LD. CIT(APPEALS). 4.1 THE FACTS MENTIONED IN THE ASSESSMENT OR DER ARE THAT THERE WAS A FIRE IN THE FACTORY PREMISES OF THE ASSESSE E IN AN EARLIER YEAR. THE ASSESSEE FILED FIR WITH POLICE. INTIMATION ABO UT THE FIRE WAS ALSO GIVEN TO THE INSURANCE COMPANY. THE CLAIM OF THE ASSE SSEE WAS SETTLED IN THIS YEAR AND THE INSURANCE COMPANY ISSUED A CHEQU E OF RS. 34,01,809/- TO THE ASSESSEE. THE CASE OF THE AO IS THAT T HE SURVEYORS REPORT WAS NOT FILED AND THE INSURANCE COMPANY NOWHERE MEN TIONED THAT THE LOSS TO THE ASSESSEE ON ACCOUNT OF FIRE AMOUNTED TO RS. 10,76,049/-. THEREFORE, THE LOSS WAS DISALLOWED FOR LACK OF PROPER EVID ENCE. IT WAS ALSO INCIDENTALLY MENTIONED THAT THIS ADDITION WO ULD ALSO COVER THE SLIGHT ITA NO. 3865(DEL)/2009 11 FALL IN THE GROSS PROFIT RATIO TO SALES IN THI S YEAR. AGGRIEVED BY THIS ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(APPEALS). THE LD. CIT(APPEALS) OBTAINED THE SURVEYORS REPORT FROM THE INSURANCE COMPANY, WHICH WAS FORWARDED TO THE AO FOR COMMENTS. AFTER CONSIDERING VARIOUS EVIDENCES ON RECORD AS WELL AS THE R EPORT OF THE AO, IT WAS MENTIONED THAT THERE IS NO DISPUTE ABOUT THE F ACT THAT FIRE OCCURRED IN THE FACTORY PREMISES OF THE ASSESSEE ON 31.12.2003. THIS STAND ESTABLISHED BY THE FIR, INSURANCE CLAIM AND THE REPORT OF FIRE BRIGADE. THE FIRE LED TO LOSS OF STOCK, AND DAMAGE TO BUILDING AND PLA NT AND MACHINERY. THE INSURANCE COMPANY ALLOWED A ONLY A PART OF T HE LOSS CLAIMED BY THE ASSESSEE UNDER VARIOUS HEADS. THE DETAILS OF THE CLAIM MADE AND THE CLAIM ALLOWED ETC. WERE NARRATED AS UNDER:- S.NO. ITEM ESTIMATED CLAIM ON SALE PRICE (RS.) ACTUAL CLAIM ON COST BASIS (RS.) CLAIM ALLOWED BY INSURANCE CO. (RS.) DIFFERENCE (RS.) 1. STOCK LOSS 4,692,250 4,052,858 3,017,686 1,035,172 2. DAMAGE TO BUILDING DAMAGE TO PLANT & MACHINERY 234,000 990,000 425,000 (FOR BOTH BUILDING & PLANT & MACHINERY 95,394 303,730 35,000 TOTAL: 5,916,250 4,477,858 3,416,810 1,070,172 ADD OTHER 5,877 ITA NO. 3865(DEL)/2009 12 CHARGES/DEDUCTIONS BY INSURANCE CO. NET LOSS CLAIMED BY ASSESSEE 1,076,049 4.2 THE LD. CIT(APPEALS) DID NOT CONCUR WITH T HE AO ON HIS SUBMISSION THAT THE SURVEYORS REPORT CANNOT BE TAKEN INTO ACCOUNT AS THE SAME WAS NOT FILED IN THE COURSE OF ASSE SSMENT PROCEEDINGS. THE REASON IS THAT SUCH A REPORT IS A CONFIDENTIAL DOCUMENT AND THE SAME IS NOT MADE AVAILABLE TO THE ASSESSEE. IN SUCH A CIRCUMSTANCE, THE AO SHOULD HAVE SUMMONED THE REPORT, WHICH HE DID N OT DO. THE REPORT WAS CALLED FOR BY ISSUANCE OF SUMMONS BY HIM IN THE AFORESAID BACKGROUND OF FACTS. THE AO DID NOT FURNISH THE REPORT ON MER ITS ON THE GROUND THAT SUCH A REPORT WAS NOT SUBMITTED BEFORE HIM IN THE COURSE OF ASSESSMENT PROCEEDINGS. IN ABSENCE OF THAT, THE LD. CIT( APPEALS) CONSIDERED THE REPORT AND DISMISSED THE PRIMA FACIE SUBMISSION OF THE AO THAT THE INSURANCE COMPANY HAD ALLOWED GENUINE LOSS T O THE ASSESSEE AND, THUS, THE FURTHER CLAIM OF RS.10,76,049/- WAS NOT GEN UINE. IN THIS CONNECTION, IT IS MENTIONED THAT IT IS A WELL KNOWN FACT T HAT THE INSURANCE COMPANIES DO NOT REIMBURSE THE WHOLE OF THE LOSS OCCURR ING BY WAY OF FIRE OR OTHERWISE. THE REIMBURSEMENT DEPENDS UPON THE CON TRACT BETWEEN THE ITA NO. 3865(DEL)/2009 13 INSURANCE COMPANY AND THE INSURED PERSON. THUS, THE ARGUMENT OF THE AO IN THIS BEHALF WAS HELD TO BE NOT TENABLE. 4.3 COMING TO THE MERITS OF THE CLAIM, IT IS MENTIO NED THAT THE ASSESSEE HAD FILED A COPY OF STOCK REGISTER MAINTAINED UNDER THE CENTRAL EXCISE RULES. THE LOSS WAS CLAIMED ON THE BASIS OF TH IS REGISTER, WHICH WAS ACCEPTED BY THE ASSISTANT COMMISSIONER, CENTRAL EXC ISE DIVISION, PANIPAT, WHO ALLOWED REMISSION OF THE DUTY ON THE BASIS OF THE ENTRIES IN THE STOCK REGISTER. THEREFORE, IT WAS HELD THAT THE LOSS CLAIMED IN RESPECT OF RAW- MATERIAL WAS GENUINE. 4.4 COMING TO REPAIRS OF BUILDING, AND PLANT & MAC HINERY, IT IS MENTIONED THAT THE EXPENDITURE WAS IN THE NATURE OF CURRE NT REPAIRS, REQUIRED TO BE CARRIED OUT ON ACCOUNT OF FIRE-DAMAGE. THE INS URANCE COMPANY ALLOWED ONLY A PART OF THE CLAIM. THEREFORE, IT WAS H ELD THAT OUT OF THE EXPENDITURE MADE BY THE ASSESSEE ON CURRENT RE PAIRS, THE PART WHICH WAS NOT REIMBURSED BY THE INSURANCE COMPANY, REPR ESENTED GENUINE LOSS. THUS, THE LOSS ON THESE COUNTS WAS ALSO ALLO WED. ITA NO. 3865(DEL)/2009 14 4.5 BEFORE US, THE LD. DR REFERRED TO THE FIN DINGS FURNISHED BY THE LD. CIT(APPEALS) IN PARAGRAPH 11 OF HIS ORDER. IT WAS SUBMITTED THAT THE EXPENDITURE IN RESTORATION OF BUILDING, AND PLA NT & MACHINERY WAS CLAIMED TO BE IN THE NATURE OF CURRENT REPAIRS. THIS ARGUMENT WAS NOT SUBMITTED BEFORE THE AO AND, THEREFORE, THE MATTER MAY BE RESTORED TO HIS FILE TO DETERMINE THIS ISSUE AFRESH. 4.6 IN REPLY, THE LD. COUNSEL REFERRED TO PAGE 32 OF THE PAPER BOOK, BEING VARIOUS SCHEDULES OF THE BALANCE-SHEET FO R THE YEAR ENDED ON 31.03.2004. SCHEDULE 10 SHOWS AN AMOUNT OF RS. 4 4,77,85/- RECEIVABLE FROM THE INSURANCE COMPANY. THUS, IT WAS POINTED O UT THAT SOON AFTER ASCERTAINING THE LOSS, CLAIM WAS LODGED WITH T HE INSURANCE COMPANY AND THE ASSESSEE CREDITED A SUM OF RS. 44,77,858/- TO THE PROFIT AND LOSS ACCOUNT, BEING THE AMOUNT RECEIVABLE FROM THE INS URANCE COMPANY. THE FIRE HAD TAKEN PLACE IN FEBRUARY, 2003. THE CLA IM WAS SETTLED ON 25.1.2006, A DATE FALLING IN THIS YEAR. THE ASSESSEE WAS ALLOWED LOWER LOSS THAN THE CLAIM MADE. THEREFORE, THE DIF FERENTIAL AMOUNT WAS CLAIMED AS A LOSS IN THIS YEAR. THE ASSESSEE WAS NOT PROVIDED WITH THE SURVEYORS REPORT BY THE INSURANCE COMPANY. IN VIEW THEREOF, THE ASSESSEE HAD REQUESTED THE AO TO ISSUE SUMMONS T O THE INSURANCE ITA NO. 3865(DEL)/2009 15 COMPANY WITH A VIEW TO OBTAIN THE REPORT. TH IS WAS NOT DONE BY THE AO. HOWEVER, THE LD. CIT(APPEALS) FOUND IT NEC ESSARY TO OBTAIN THE REPORT FOR DECIDING THE ISSUE AT HAND. THEREFORE , HE ISSUED SUMMONS TO THE INSURANCE COMPANY AND OBTAINED THE REPORT. THE REPORT WAS FORWARDED TO THE AO TO FURNISH HIS ARGUMENT ABOUT ADMISSIBILITY OR OTHERWISE OF THE CLAIM OF LOSS. HOWEVER, THE A O OBJECTED TO THE CONSIDERATION OF THE REPORT, BUT DID NOT FURNISH HIS COMMENTS ON MERITS OF THE CLAIM MADE BY THE ASSESSEE. THE LD. CIT(AP PEALS) EXAMINED THE DETAILS AND CAME TO THE CONCLUSION THAT THE AC TUAL LOSS WAS MORE THAN THE AMOUNT REIMBURSED BY THE INSURANCE COMPANY. RELIANCE WAS PLACED ON THE ORDER OF THE LD. CIT(APPEALS) TO ARGUE THAT THE LOSS WAS DEDUCTIBLE IN COMPUTING THE TOTAL INCOME. 4.7 IN THE REJOINDER, THE LD. DR REITERATED T HAT THE CLAIM REQUIRES TO BE CONSIDERED BY THE AO AFRESH AS SURVEYORS R EPORT WAS NOT FILED BEFORE HIM. 4.8 WE HAVE CONSIDERED THE FACTS OF THE CASE AN D RIVAL SUBMISSIONS. THE FACTS ARE THAT FIRE TOOK PLACE IN THE FACTORY BUILDING OF THE ASSESSEE IN THE YEAR 2003. THE ASSESSEE ASSE SSED THE LOSS AND LODGED ITA NO. 3865(DEL)/2009 16 THE CLAIM WITH THE INSURANCE COMPANY IN PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05. THE LOSS WAS ASSE SSED AT RS. 44,77,858/-. ACCORDINGLY, A PROVISION WAS MADE IN THE ACCOU NT REGARDING CLAIM RECEIVABLE FROM THE INSURANCE COMPANY. THE CLAIM WAS SETTLED ON 25.1.2006, I.E., IN THIS YEAR, AT A LOWER AMOUNT THAN THE AMOUNT CLAIMED BY IT. THE DETAILS OF THE AMOUNT CLA IMED, ALLOWED AND THE DIFFERENCE HAVE BEEN MENTIONED BY US WHILE SUMMARIZING THE ORDER OF THE LD. CIT(APPEALS). THE RESULT WAS THAT THE AMOUNT RECEIVED BY THE ASSESSEE WAS LESSER THAN THE CLAIM BY AN AMO UNT OF RS. 10,76,049/-. THE QUESTION IS WHETHER, THIS LOSS IS DEDUC TIBLE IN COMPUTING THE INCOME OF THIS YEAR? 4.9 HAVING CONSIDERED THE FACTS AND SUBMISSIO NS OF BOTH THE PARTIES, IT IS CLEAR THAT THE LOSS, IF ANY, PERTAINS TO TH IS YEAR AS THE CLAIM WAS SETTLED IN THIS YEAR. THEREFORE, WE ARE OF TH E VIEW THAT THE LD. CIT(APPEALS) RIGHTLY PROCEEDED TO DETERMINE TH E AMOUNT OF ACTUAL LOSS INCURRED BY THE ASSESSEE ON ACCOUNT OF FIRE. 4.10 THE CASE OF THE LD. DR IS THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE AO AS THE SURVEYORS REPORT WA S NOT FILED BEFORE HIM. WE ITA NO. 3865(DEL)/2009 17 ARE UNABLE TO AGREE WITH THIS SUGGESTION OF TH E LD. DR FOR THE SIMPLE REASON THAT THE REPORT WAS NOT MADE AVAILABLE TO THE ASSESSEE ON THE GROUND THAT IT WAS A CONFIDENTIAL DOCUMENT OF T HE INSURANCE COMPANY. HOWEVER, THE LD. CIT(APPEALS) THOUGHT IT NECE SSARY TO OBTAIN THE REPORT AND HE ISSUED SUMMONS TO THE INSURANCE CO MPANY. IN PURSUANCE THEREOF, THE REPORT WAS FILED BY THE INSURANCE COMPANY BEFORE THE LD. CIT(APPEALS). WE ARE OF THE VIEW THAT THE LD. CIT(APPEALS) WAS COMPETENT TO CALL FOR THE REPORT AS HIS POWE RS ARE CO-TERMINUS WITH THE POWERS OF THE AO. IT WAS ALSO NECESSARY TO OBT AIN THE REPORT FOR ADJUDICATING THE CLAIM ON MERITS. THUS, WE DO NOT FIND ANYTHING WRONG IN HIS ACTION OF OBTAINING THE REPORT. HAVING OBTAINED THE REPORT, HE FORWARDED IT TO THE AO FOR HIS COMMENTS. THE AO REFUSED TO FURNISH THE COMMENTS ON THE GROUND THAT THE REPORT WAS N OT FILED BEFORE HIM. IN THE BACKGROUND OF THE FACTS MENTIONED ABOVE, SUC H AN ARGUMENT WAS AN UNREASONABLE ARGUMENT ADVANCED BY THE AO. THER EFORE, WE ALSO DO NOT FIND ANYTHING WRONG WHEN THE LD. CIT(APPEALS) PROCEEDED TO EXAMINE THE REPORT AND OTHER RECORDS TO DECIDE THE ISSUE ON MERITS. IT MAY BE MENTIONED THAT HE FOLLOWED THE PRINCIPLES OF N ATURAL JUSTICE IN LETTER AND SPIRIT WHEN THE AO WAS GRANTED AN OPPORTUNITY TO STATE THE CASE OF THE ITA NO. 3865(DEL)/2009 18 REVENUE ON THE BASIS OF THE REPORT. THEREFORE, T HE PLEA OF THE LD. DR IN THIS MATTER IS REJECTED. 4.11 COMING TO THE MERITS, THE LD. CIT(APPEALS) BASED HIS FINDINGS ON THE EXCISE REGISTER AND THE SURVEYORS REPOR T. IT IS CLEAR FROM HIS FINDING THAT THE ASSESSEE INCURRED A LOSS OF RS . 10,35,172/- ON ACCOUNT OF DAMAGE TO STOCK-IN-TRADE, WHICH HAS BEEN WORKED OUT ON THE BASIS OF DIFFERENCE IN COST PRICE OF THE DAMAGED STOCK- IN-TRADE AND THE CLAIM ALLOWED BY THE INSURANCE COMPANY. SINCE THIS LO SS IS EVIDENCED BY THE EXCISE REGISTER, AND IT IS ON REVENUE ACCOUN T, WE DO NOT SEE ANY REASON AS TO WHY THIS LOSS IS NOT DEDUCTIBLE IN COMPUTING THE TOTAL INCOME. THUS, WE UPHOLD THE ORDER OF THE LD. CIT(A) IN THIS MATTER. 4.12 THE LOSS IN RESPECT OF BUILDING, AND PLANT & MACHINERY WAS CLAIMED AT RS. 2.25 LAKH ON COST BASIS I.E., ON THE BASIS OF EXPENDITURE INCURRED IN RESTORATION OF THESE ASSETS SO AS TO MAKE THEM WORKABLE FOR THE PURPOSE OF BUSINESS. THE INSURANCE COMPANY ALLOWED RS. 95,394/- IN RESPECT OF DAMAGE TO BUILDING, AND RS. 3,03,730 /- IN RESPECT OF PLANT & MACHINERY, AGGREGATING TO RS. 3,99,124/-. THUS, THE ACTUAL LOSS WAS RS. 25,876/-, AGAINST WHICH THE LD. CIT(APPEALS) HA S MENTIONED THE FIGURE OF ITA NO. 3865(DEL)/2009 19 RS. 35,000/-. THIS SEEMS TO BE AN ARITHMETICAL MISTAKE, WHICH IS CORRECTED NOW. THE INSURANCE COMPANY ALSO DEDUCTED A SUM OF RS. 5,877/- AS OTHER CHARGES, LEADING TO A TOTAL LOSS OF RS. 31,753/ - ON BOTH THESE COUNTS. THE ONLY ARGUMENT MADE BY THE LD. DR IS THAT THE IS SUE REGARDING THE EXPENDITURE BEING IN THE NATURE OF CURRENT REPAIR S WAS NEITHER PUT UP BEFORE THE AO NOR EXAMINED BY HIM. WE FIND THA T THE CLAIM HAS BEEN MADE ON THE BASIS OF ACTUAL EXPENDITURE INCURR ED FOR RESTORING BUILDING AND PLANT & MACHINERY TO WORKING CONDITION. SU CH AN EXPENDITURE CANNOT BE OF CAPITAL NATURE. SOME PORTION OF THE EXPENDITURE HAS BEEN REIMBURSED BY THE INSURANCE COMPANY. THEREFORE, T HE DIFFERENCE BETWEEN THE CLAIM AND THE ALLOWANCE IS THE NET EXPENDIT URE ON CURRENT REPAIRS. THE AMOUNT IS NOMINAL AND HAS BEEN CONSIDERED BY TH E LD. CIT(APPEALS). IN THESE CIRCUMSTANCES, WE DO NOT THINK IT FIT TO R ESTORE THE MATTER TO THE FILE OF THE LD. CIT(APPEALS). HOWEVER, THE AO IS DIR ECTED TO RECTIFY THE FIGURE OF LOSS, BEING RS.10,66,925/- (RS.10,35,172/- PLU S RS. 31,753/-). THUS, THIS GROUND IS PARTLY ALLOWED. 5. GROUND NO. 3 IS THAT ON THE FACTS AND IN THE CI RCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 20,000/- ITA NO. 3865(DEL)/2009 20 MADE BY THE AO ON ACCOUNT OF REPAIRS AND MAINT ENANCE EXPENSES AS THE ASSESSEE COULD NOT PRODUCE ALL THE VOUCHERS. 5.1 IN THIS CONNECTION, IT IS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE INCURRED EXPENDITURE OF RS. 3,51,052/- ON REPAIRS AND MAINTENANCE, PRINTING AND STATIONERY, ADVERTISEME NT AND PUBLICITY, FEES AND TAXES AND REBATES AND DISCOUNTS. THESE EXPENSES WERE NOT CONSIDERED FOR THE PURPOSE OF FRINGE BENEFIT TAX. A SUM O F RS.20,000/- WAS DISALLOWED FOR UN-VOUCHED AND UN-DETAILED EXPENSES. THE LD. CIT(APPEALS) MENTIONED THAT THE AO HAS NOT POINTED TOWARDS ANY EXPENDITURE FOR WHICH VOUCHER OR DETAIL HAS NOT BEEN PRODUCED. ON TH E OTHER HAND, THE ASSESSEE SUBMITTED THAT COMPLETE BOOKS OF ACCOUN T WERE PRODUCED BEFORE THE AO AND THERE WAS NO SUCH EXPENDITURE AS MENTIONED IN THE ASSESSMENT ORDER. THEREFORE, THE ADDITION WA S DELETED AS HAVING BEEN MADE MERELY ON GUESS WORK AND SUSPICION. 5.2 BEFORE US, THE LD. DR REFERRED TO THE FIND INGS OF THE AO AND THE LD. CIT(APPEALS) AND SUBMITTED THAT COMPLETE DETAI LS AND VOUCHERS OF THE EXPENSES WERE NOT FURNISHED BEFORE THE AO. IN REPLY, THE LD. COUNSEL ITA NO. 3865(DEL)/2009 21 REFERRED TO THE FINDINGS OF THE LD. CIT(APPEALS) THAT COMPLETE BOOKS WERE PRODUCED, WHICH INCLUDED THE DETAILS OF E XPENSES AND VOUCHERS. 5.3 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. THE LD. DR HAS NOT BEEN ABLE TO DISPL ACE THE FINDINGS OF THE LD. CIT(APPEALS) THAT DETAILS AND VOUCHERS OF ALL T HE EXPENSES WERE AVAILABLE AND PRODUCED. IN VIEW THEREOF, WE D O NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(APPEALS). 6. IN THE RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9 APRIL, 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 09 .04.2010. SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. M/S MAHALUXMI SPINNERS (P) LTD., PANIPAT. 2. ITO, WARD-1, PANIPAT. 3. CIT(A) 4. CIT, NEW DELHI. 5. DR, ITAT, NEW DELHI. ASSISTANT REGISTRA R.