DCIT RG 8(2), MUMBAI V. JAYANT AGRO ORGANICS LTD, MUMBAI

ITA 3943/MUM/2012

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5429 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 26-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 05-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H N SINGH
• Assessee Lawyers: INDIRA ANAND
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI G MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.3943/MUM/2012 ASSESSMENT YEAR : 2005-06 DCIT RANGE 8(2), MUMBAI. VS. JAYANT AGRO ORGANICS LTD., AKHANDANAND, 38, MAROL CO-OP INDUSTRIAL ESTATE, OFF M.V.ROAD, SAKINAKA, ANDHERI (E), MUMBAI 400 059. PAN AAACJ7581Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H N SINGH RESPONDENT BY : MS. INDIRA ANAND DATE OF HEARING : 1 2 .0 7 .201 8 DATE OF PRONOUNCEMENT : 25 .0 7 . 201 8 O R D E R PER G MANJUNATHA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A)-16, MUMBAI, DATED 26.03.2012, AND IT PERTAINS TO ASSESS MENT YEAR 2005-06. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BUSINESS LOSS OF ` 2,08,46,402/- WITHOUT APPRECIATING THE FACT THAT THE SAID LOSS HA D NOT CRYSTALLIZED DURING THE RELEVANT FINANCIAL YEAR AND HENCE WAS NOT ALLOWABLE UNDER THE PROVISIONS OF THE ACT.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. C1T(A) ERRED IN DELETING THE ADDITION OF ` 8,70,68,231/- MADE ON ACCOUNT OF NON- DEDUCTION OF TDS FOR TECHNICAL SERVICES AVAILED BY THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD NOT BEE N ABLE TO PROVE THAT ITA NO.3943/MUM/2012 JAYANT AGRO ORGANICS LTD. 2 THE NATURE OF THE PAYMENT IS COMMISSION AND NOT FEE S FOR MANAGERIAL SERVICES.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ` 20,00,000/- MADE ON ACCOUNT OF ASSORTMENT CHARGES PAID TO M/S. HINDUJA EXPORTS, BA NGALORE EVEN THOUGH THE ASSESSEE HAD FAILED TO ADDUCE ANY PROOF FOR THE DIAMONDS HAVING BEEN DELIVERED TO M/S. HINDUJA EXPORTS, BANGLORE AN D THE SAID DIAMONDS HAVING BEEN RECEIVED BACK BY THE ASSESSEE FROM THE SAID CONCERN'. 4. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT( APPEALS) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. ' 4. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER A NY GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF AGRO PROJECTS, FILED IT S RETURN OF INCOME FOR A.Y. 2005- 06 ON 31.10.2005, DECLARING TOTAL INCOME OF ` 1,32,92,005/-. THE ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) ON 19.12.2007 DETERMININ G TOTAL INCOME AT ` 5,26,67,630/-. SUBSEQUENTLY, THE ASSESSMENT HAS B EEN REVISED U/S. 263 OF THE INCOME TAX ACT, 1961 BY CIT, MUMBAI AND ACCORDINGLY , THE AO HAS COMPLETED ASSESSMENT U/S. 143(3) R.W.S. 263 OF THE INCOME TAX ACT, 1961 ON 14.12.2010 DETERMINING TOTAL INCOME OF ` 12,31,55,300/- INTER ALIA, MAKING ADDITIONS TOWARD S LOSS ON ACCOUNT OF MISAPPROPRIATION OF GOODS, DISAL LOWANCE FOREIGN COMMISSION PAID ON EXPORT SALES AND DISALLOWANCE OUT OF WORK ASSORT MENT CHARGES. THE ASSESSEE CHALLENGED ORDER PASSED U/S. 263 BEFORE THE HONBLE ITAT. THE ITAT VIDE ITS ORDER DATED 13.04.2018 IN ITA NO.3259/MUM/2010 HAS SET AS IDE THE REVISIONARY ORDER PASSED U/S. 263 OF THE I.T.ACT AND RESTORED THE ASS ESSMENT ORDER PASSED U/S. 143(3) OF THE ACT. 3. THE LEARNED AR FOR THE ASSESSEE, AT THE TIME OF HEARING SUBMITTED THAT THE ITAT HAS QUASHED THE ORDER PASSED U/S. 263 BY THE A SSESSING OFFICER, CONSEQUENTLY, THE ORDER PASSED BY HIM U/S. 143(3) R.W.S. 263 DOES NOT SURVIVE. THE LEARNED DR PRESENT FOR THE REVENUE FAIRLY ACCEPTED THAT ITAT H AS QUASHED THE ORDER PASSED ITA NO.3943/MUM/2012 JAYANT AGRO ORGANICS LTD. 3 U/S. 263 BY THE ASSESSING OFFICER HENCE, THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) R.W.S 263 HAS NO LEGS TO STAND AND BECO MES INFRUCTUOUS. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE FIND THAT ITAT, MUMBAI BENCH C, IN ITA NO. 325 9/MUM/2010, VIDE ORDER DATED 13.04.2018 QUASHED THE ORDER PASSED BY THE AO U/S. 263 FOR THE DETAILED REASONS RECORDED IN ITS ORDER IN PARA 8 TO 12. THE RELEVAN T PORTION OF THE ORDER IS EXTRACTED BELOW: 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE CIT REVISED ASSESSMENT ORD ER PASSED BY THE AO U/S 143(3) ON TWO ISSUES. THE CIT QUESTIONED ALLOWA BILITY OF LOSS OF STOCK DUE TO MISAPPROPRIATION AND PAYMENT OF EXPORT COMMI SSION. ACCORDING TO THE CIT, THE AO DID NOT CONDUCT NECESSARY ENQUIRIES ABOUT ALLOWABILITY OF LOSS OF STOCK AND PAYMENT OF EXPORT COMMISSION. THE CIT WAS OF THE OPINION THAT THE AO ALLOWED BOTH ITEMS WITHOUT COND UCTING NECESSARY ENQUIRIES WHICH CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE AND HENCE OPINE| THAT THE ASSESSMENT ORDER PASSED BY TH E AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 9. THE CIT HAS POWER TO REVISE ASSESSMENT ORDER, IF THE ASSESSMENT BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL- T O THE INTEREST OF THE REVENUE. TO ASSUME JURISDICTION U/S 263 OF THE AC T THE CIT HAS TO DEMONSTRATE THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. UNLESS ORDER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, THE CIT DOES NOT HAVE POWER TO REVISE THE ASSESSMENT ORDER. IN THIS CASE, THE CIT ALLEGES THAT THE AO HAS NOT COND UCTED NECESSARY ENQUIRIES IN RESPECT OF LOSS OF STOCK DUE TO MISAPP ROPRIATION AND PAYMENT OF COMMISSION. THE CIT DID NOT EXPLAIN HOW THE LOSS OF STOCK DUE TO MISAPPROPRIATION AND PAYMENT OF EXPORT COMMISSION I S CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. THE CIT IS ONLY ON THE POINT THAT THE AO HAS NOT CONDUCTED REQUIRED ENQUIRIES WHICH RESULTED PREJUDICE TO THE INTEREST OF THE REVENUE. 10. TO DECIDE WHETHER ASSESSMENT ORDER PASSED BY T HE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER EST OF THE REVENUE, ONE HAS TO UNDERSTAND THE ISSUES QUESTIONED BY THE CIT. THE CIT QUESTIONED THE ISSUE OF ALLOWABILITY OF LOSS OF STOCK DUE TO M ISAPPROPRIATION. THE ASSESSEE HAS CLAIMED LOSS DUE TO MISAPPROPRIATION O F STOCK BY ONE OF THE PROCESSORS. THE ASSESSEE HAS LODGED POLICE COMPLAIN T AND ALSO RECOVERED A PROPERTY WHICH COVERS PORTION OF LOSS CAUSED BY T HE PROCESSOR. THE REMAINING AMOUNT HAS BEEN CLAIMED AS LOSS DUE TO MI SAPPROPRIATION AND ITA NO.3943/MUM/2012 JAYANT AGRO ORGANICS LTD. 4 DEBITED TO P&L ACCOUNT. THE ASSESSEE HAS GIVEN DETA ILED NOTE IN ITS FINANCIAL STATEMENTS ABOUT THE LOSS. THE ASSESSEE CLAIMS THAT SUCH DETAILS HAS BEEN EXAMINED BY THE AO DURING ASSESSME NT PROCEEDINGS AND ON BEING SATISFIED WITH THE EXPLANATION HAS CHOSEN TO ACCEPT THE LOSS CLAIMED BY THE ASSESSEE. WE FIND MERITS IN THE ARGU MENTS OF THE ASSESSEE FOR THE REASON THAT ANY LOSS CAUSED DUE TO THEFT OR EMBEZZLEMENT OR MISAPPROPRIATION IS DEDUCTIBLE EXPE NDITURE. THIS LEGAL PROPOSITION IS SUPPORTED BY THE DECISION OF THE HON 'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS BOMBAY FORGINGS PVT LTD 206 ITR 562 (BOM), WHEREIN IT WAS HELD THAT LOSS CAUSED TO THE ASSESSE E FOR EMBEZZLEMENT DURING THE RELEVANT PREVIOUS YEAR WAS ALLOWABLE AS DEDUCTION IN COMPUTATION OF THE TOTAL INCOME. WE FURTHER OBSERVE THAT THE AO HAS CAUSED NECESSARY ENQUIRIES AT THE TIME OF ASSESSMEN T PROCEEDINGS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSMENT ORDER PASSED BY THE AO IS NOT ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IN RESPECT OF THE FIRST ISS UE QUESTIONED BY THE CIT. 11. COMING TO THE SECOND ISSUE QUESTIONED BY THE CIT, THE CIT QUESTIONED ABOUT THE PAYMENT OF EXPORT COMMISSION I N THE LIGHT OF TDS PROVISIONS AND ALSO QUESTIONED THE GENUINENESS OF S UCH PAYMENTS IN THE LIGHT OF THE FACT THAT THE ASSESSEE HAS ENGAGED IN EXPORT OF DIAMONDS FOR THE FIRST TIME; ACCORDING TO THE CIT, THE AO HAS NO T QUESTIONED THE ISSUE OF PAYMENT OF EXPORT COMMISSION AND ALSO RELEVANCE OF PAYMENT OF SUCH COMMISSION. THE CIT ALSO QUESTIONED THE APPLICABIL ITY OF TDS COMMISSION. ACCORDING TO THE CIT, THE AO DID NOT CONDUCT NECESSARY ENQUIRIES WHICH CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPORT COMMISSION I S PAID TO A NON RESIDENT FOR RENDERING SERVICES OUTSIDE INDIA FOR W HICH THE PROVISIONS OF TDS HAS NO APPLICATION. THE ASSESSEE FURTHER CONTEN DED THAT THE AO HAS CALLED FOR NECESSARY DETAILS ABOUT PAYMENT OF EXPOR T COMMISSION AND ALSO DETAILS OF COMPLIANCE TO TDS PROVISIONS. THE ASSESS EE HAS FILED NECESSARY DETAILS OF TDS AND ALSO EXPLAINED TDS PROVISIONS AR E NOT APPLICABLE TO EXPORT COMMISSION IN THE LIGHT OF CIRCULAR NO.786 D ATED 07-02-2000 ISSUED BY CBDT. WE FIND FORCE IN THE ARGUMENTS OF T HE ASSESSEE FOR THE REASON THAT FIRST OF ALL, THE AO HAS CAUSED ENQUIRI ES WITH REGARD TO THE PAYMENT OF EXPORT COMMISSION DURING ASSESSMENT PROC EEDINGS WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE HAS DISCLOS ED DETAILS OF PAYMENT OF EXPORT COMMISSION IN ITS FINANCIAL STATEMENTS. T HE ASSESSEE ALSO FURNISHED COPIES OF TAX AUDIT REPORT WHEREIN THE TA X AUDITOR HAS NOT REPORTED ANY ADVERSE REMARKS ON COMPLIANCE WITH TDS PROVISIONS. WE FURTHER NOTICE THAT THE ASSESSEE HAS GIVE COMPLETE DETAILS OF DIAMOND TRADING BUSINESS IN ITS EMAILS FILED WITH FINANCIAL STATEMENTS. THE AO, ON BEING EXPLANATIONS FURNISHED BY THE ASSESSEE HAS CO MPLETED ASSESSMENT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSMENT ORDER ITA NO.3943/MUM/2012 JAYANT AGRO ORGANICS LTD. 5 PASSED BY THE AO IS NEITHER ERRONEOUS NOR PREJUDICI AL TO THE INTEREST OF THE REVENUE ON SECOND ISSUE QUESTIONED BY THE CIT. 12. THE CIT, REVISED THE ASSESSMENT ORDER ONLY ON THE GROUND THAT ALTHOUGH THE AO HAS CAUSED NECESSARY ENQUIRIES, SUC H ENQUIRIES ARE INADEQUATE IN THE LIGHT OF FACTS OF ASSESSEE'S CASE . THEREFORE, HE OPINED THAT THE ASSESSMENT ORDER PASSED BY THE AO IS ERRON EOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT DID NOT POINT OUT HOW THE ASSESSMENT ORDER PASSED BY THE AO IS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IN RESPE CT OF THOSE TWO ITEMS. THE CIT QUESTIONED THE ENQUIRIES CONDUCTED BY THE A O AND OPINED THAT SUCH ENQUIRIES ARE INADEQUATE WHICH CAUSE PREJUDICE TO THE INTEREST OF THE REVENUE. AN ORDER OF ASSESSMENT CANNOT BE TERME D AS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS IT IS NOT IN ACCORDANCE WITH LAW. AN ASSESSING OFFICER GOING IN ACCORDANCE WITH LAW MAKES CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDE D AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE ACCORDING TO HIM, T HE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. THIS SECTION DO ES NOT VISUALISE A CASE SUBSTITUTION OF JUDGEMENT OF THE COMMISSIONER FAR THAT OF THE ASSESSING OFFICER, WHO PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. IF THE MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE BY CALLING FOR NECESSARY EVIDENCES AND THE ASSESSEE HAD GIVEN DETAILED EXPLANATIONS IN THAT REGARD, THEN MERELY BECAUSE THE AO HAS NOT RECORDED THE FINDINGS IN HIS ASSESSMENT ORDER, THE ASSESSMENT ORDER PASSED BY THE AO CANNOT BE TERMED AS ERRONEOUS. THIS LEGAL PROPOSITION IS SUPPORTED BY T HE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GABRIEL IND IA LTD (SUPRA), WHEREIN IT WAS HELD THAT IN ORDER TO EXERCISE JURIS DICTION U/S 263, THE COMMISSIONER MUST HAVE MATERIAL TO PRIMA FACIE COME TO A CONCLUSION THAT THE ORDER OF AO IS ERRONEOUS AND ALSO PREJUDIC IAL TO THE INTEREST OF THE REVENUE. IN THIS CASE, ON PERUSAL OF FACTS AVAI LABLE ON RECORD, WE FIND THAT THE ASSESSEE HAS DEMONSTRATED WITH EVIDENCES T HAT THE AO HAS CONDUCTED NECESSARY ENQUIRIES INSOFAR AS TWO ISSUES QUESTIONED BY THE CIT. THE ASSESSEE ALSO DEMONSTRATED WITH EVIDENCE T HAT THERE IS NO PREJUDICE CAUSED TO THE INTEREST OF THE REVENUE FOR ALLOWING DEDUCTIONS TOWARDS LOSS OF STOCK DUE TO MISAPPROPRIATION AND P AYMENT OF EXPORT COMMISSION AS THE LOSS ON ACCOUNT OF MISAPPROPRIATI ON IS ALLOWABLE DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS. AS REGARDS EXPORT COMMISSION, THE PROVISIONS OF TDS HAS NO APPLICATIO N. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE CIT WAS ERRED IN RE VISING THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3). HENCE, WE SET AS IDE THE ORDER PASSED BY THE CIT U/S 263 OF THE INCOME-TAX ACT, 1961 AND RESTORE THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) OF THE ACT. ITA NO.3943/MUM/2012 JAYANT AGRO ORGANICS LTD. 6 5. SINCE, THE ITAT HAS SET ASIDE THE ORDER PASSED U /S. 263, THE CONSEQUENTIAL ORDER PASSED BY THE AO U/S. 143(3) R.W.S. 263 HAS N O LEGS TO STAND AND HENCE SAME IS DISMISSED AS INFRUCTUOUS. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 25 TH JULY 2018. SD/- SD/- (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED :25 TH JULY, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI