ADDL CIOT 6(1), MUMBAI V. ARMSTRONG WORLD INDUSTRIES (I) P.LTD, MUMBAI

ITA 3964/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3400 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-02-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 13-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI .. , !,#$ # % BEFORE SHRI B. R. MITTAL, J. M. AND SHRI SANJAY AR ORA, A. M. ./ I.T.A. NO. 3964/MUM/2011 ( ' ( )( ' ( )( ' ( )( ' ( )( / / / / ASSESSMENT YEAR: 2006-07) ASST. CIT, CIR.6(1), R.NO.506, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ' ' ' ' / VS. ARMSTRONG WORLD INDUSTRIES (INDIA) P. LTD. B-2, G 01, MARATHON INNOVA, OPP. PENINSULA CORPORATE PARK, OFF. GANPATRAO KADAM MARG, LOWER PAREL (WEST), MUMBAI-400 013 * #$ ./ + ./ PAN/GIR NO. AACCA 0171 F ( *, / APPELLANT ) : ( -.*, / RESPONDENT ) *, / # / APPELLANT BY : SHRI MANOJ KUMAR -.*, 0 / # / RESPONDENT BY : SHRI K. GOPAL ' 0 12$ / // / DATE OF HEARING : 26.02.2013 3 ) 0 12$ / DATE OF PRONOUNCEMENT : 17.05.2013 #4 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-14, MUMBAI (CIT(A) FOR SH ORT) DATED 24.02.2011, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2006-07 VIDE ORDER DATED 24.12.2009. 2 ITA NO.3964/MUM/2011 (A.Y. 2006-07) ASST. CIT VS. ARMSTRONG WORLD INDUSTRIES (INDIA) P. LTD. 2. THE APPEAL RAISES A SINGLE ISSUE, I.E., THE MAIN TAINABILITY OF THE CLAIM IN THE SUM OF RS.1.55 CRORES OUT OF THE TOTAL LOSS CAUSED BY FLOO D, BEING IN RESPECT OF THE SALVAGE VALUE OF THE DAMAGED INVENTORY. THE FACTS IN BRIEF, AND T O THE EXTENT RELEVANT, ARE THAT THE ASSESSEE IS A COMPANY MANUFACTURING VINYL FLOOR COV ERINGS AND SERVICES. IT INCURRED A LOSS OF RS.9.54 CRORES BY WAY OF DAMAGE TO STOCK-IN-TRAD E, BEING CEILINGS AND FLOORING MATERIAL, STORED AT ITS THREE GODOWNS LOCATED AT SH REE RAJLAKSHMI COMMERCIAL COMPLEX, KALHER VILLAGE, THANE, BHIWANDI ON ACCOUNT OF HEAVY RAINS ON JULY, 26 & 27, 2005, I.E., DURING THE RELEVANT PREVIOUS YEAR. THE SAID LOSS WA S INSURED BY IT WITH NATIONAL INSURANCE COMPANY LIMITED (NICL), WITH WHOM ACCORDINGLY THE C LAIM FOR LOSS WAS DULY LODGED ON 27.07.2005. THE CLAIM WAS PROCESSED BY AN INDEPENDE NT SURVEYOR, WHO ALSO CAUSED ITS VERIFICATION BY AN INDEPENDENT CHARTERED ACCOUNTANT (CA), WHO CERTIFIED THE SAID LOSS AT RS.9.38 CRORES. THE MARGINAL DIFFERENCE OF RS.16 LA KHS WAS ON ACCOUNT OF LOSS OF FIXED ASSET/S, WHICH WAS NOT COVERED BY THE INSURANCE CON TRACT (RS.7 LAKHS), AND STOCK (RS. 9 LACS) WHICH WAS LOADED IN THE LORRY AT THE TIME OF PHYSICAL STOCK VERIFICATION, SO THAT THE SAME COULD NOT BE VERIFIED/ASCERTAINED. THE LOSS FI GURE WAS, ACCORDINGLY, ADOPTED BY THE INSURER AS PER THE CAS REPORT, I.E., AT RS.938.16 LAKHS. THE INSURANCE CLAIM WAS FINALLY WORKED OUT AT RS.693.90 LAKHS ON ACCOUNT OF VARIOUS DEDUCTIONS, AS UNDER: PARTICULARS AMT (IN RS. LA KHS) VALUE OF STOCK DAMAGED DUE TO FLOODS 938.16 LESS: DEAD STOCK INCLUDED THEREIN (AMOUNT AS PER CAS REPORT) 52.74 INSURABLE LOSS 885.42 LESS: SALVAGE VALUE 155.00 NET LOSS 730.42 5% SELF ENSURED LOSS (AS PER POLICY TERMS) 36.52 TOTAL 693.90 THE CLAIM WAS RELEASED IN TWO INSTALLMENTS, I.E., O N AN INTERIM BASIS, DURING THE YEAR OF LOSS (F.Y. 2005-06, AT RS.2 CRORES) AND THE BALANCE RS.4.93 CRORES ON THE SETTLEMENT OF THE CLAIM DURING THE F.Y. 2006-07. 3 ITA NO.3964/MUM/2011 (A.Y. 2006-07) ASST. CIT VS. ARMSTRONG WORLD INDUSTRIES (INDIA) P. LTD. 2.2 IT IS THE CLAIM FOR LOSS, TO THE EXTENT IT RELA TES TO THE SALVAGE VALUE OF RS.1.55 CRORES; THE ASSESSEE CLAIMING THE ENTIRE LOSS OF RS . 9.54 CRS., WHICH IS THE SUBJECT MATTER OF DISPUTE IN THE INSTANT CASE. THIS IS AS THE ASSE SSEE DID NOT, WHILE CLAIMING THE SAID LOSS IN ITS BOOKS OR RETURN OF INCOME, REDUCE THE SAME B Y THE SAID AMOUNT. WHILE THE ASSESSEE CLAIMS THE SAME ON THE BASIS THAT IT DID NOT RELEAS E THE GOODS IN THE MARKET, WHICH WERE IN FACT DESTROYED, THE REVENUE DENIES IT THE SAME ON T HE GROUND THAT THE ASSESSEE HAS ITSELF ACCEPTED THE SALVAGE VALUE OF THE DAMAGED GOODS AT THE SAID VALUE, AND IT WAS ONLY ON THAT BASIS THAT ITS CLAIM WITH THE INSURER-COMPANY WAS S ETTLED. IT STOOD EXPLAINED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW THAT THE ACCE PTANCE OF THE SALVAGE VALUE BY IT WITH THE INSURANCE-COMPANY WOULD NOT BY ITSELF PROVE OR ESTABLISH THAT THE GOODS HAD SALVAGE VALUE TO THAT EXTENT. TENDERS INVITING OFFERS FOR D ISPOSAL OF THE DAMAGED MATERIAL WERE INVITED, AT THE INSTANCE OF THE INSURER, THROUGH AD VERTISEMENT/S IN THE LEADING NEWSPAPER/S ON 21.08.2005, IN RESPONSE TO WHICH BIDS VARYING FR OM AS LOW AS RS.6 LAKHS TO AS HIGH AS RS.1.11 CRORES WERE RECEIVED. THAT WOULD, FIRSTLY, ITSELF EXHIBIT THE WIDE RANGE IN THE ASSESSMENT OF THE SALVAGE VALUE. FURTHER, AND MORE IMPORTANTLY, THE COMPANY AS A MATTER OF POLICY DID NOT RELEASE THE GOODS BEARING ITS BRA ND NAME `ARMSTRONG IN THE MARKET IN VIEW OF THE HIGH REPUTATION ENJOYED BY ITS GOODS, W HICH COULD NOT BE ALLOWED TO BE SULLIED OR DENTED THROUGH THE RELEASE OF SUB-STANDA RD/DAMAGED GOODS. COMMUNICATIONS FROM VARIOUS TECHNICAL EXPERTS, AS WELL AS FROM ITS GROUP CONCERNS, ADVISING NON-RELEASE OF THE SAID GOODS, WERE SUBMITTED TO CLARIFY AND VA LIDATE THE COMPANYS STATED POLICY IN THIS REGARD. THE SALVAGE VALUE AT RS.1.55 CRORES WA S, HOWEVER, ACCEPTED BY IT TO AVOID ANY FURTHER DELAY IN THE SETTLEMENT OF ITS CLAIM WITH T HE INSURANCE-COMPANY, WHICH, DESPITE IT FOLLOWING AN OPEN AND TRANSPARENT PROCEDURE OF INVI TING BIDS, RESULTING IN A MAXIMUM BID OF RS.1.11 CRORES, CONTINUED TO INSIST ON A SALVAGE VALUE EQUIVALENT TO AT LEAST 25% OF THE DAMAGED GOODS FOR THE SETTLEMENT OF THE CLAIM. THE COMPANY HAD ARRANGED FOR AN ALTERNATE GODOWN AT A COST OF RS.3 LAKHS P.M., BESI DES INCURRING OTHER ADMINISTRATIVE COSTS. IT WAS TO AVOID THIS FINANCIAL LOSS, AS WELL AS THE LOGISTIC PROBLEMS ARISING DUE TO DISLOCATION OF ITS OPERATIONS, AS WELL AS TO EXPEDI TE THE RECEIPT OF THE CLAIM, WHICH STOOD ALREADY DELAYED, THAT IT HAD ACCEPTED THE SALVAGE V ALUE AT AN UNREASONABLE FIGURE OF 4 ITA NO.3964/MUM/2011 (A.Y. 2006-07) ASST. CIT VS. ARMSTRONG WORLD INDUSTRIES (INDIA) P. LTD. RS.1.55 CRORES IN SETTLING THE CLAIM. ITS RELEVANCE WAS, THUS, LIMITED ONLY TO THE SETTLEMENT OF THE CLAIM AND NO MORE; IT HAVING, AS EXPLAINED E ARLIER, DECIDED AS A MATTER OF POLICY NOT TO RELEASE THE DAMAGED GOODS IN THE MARKET. THE SAM E FOUND ACCEPTANCE WITH THE FIRST APPELLATE AUTHORITY, WHO ACCORDINGLY DELETED THE EN TIRE DISALLOWANCE OF THE SAID CLAIM BY ACCEPTING THE SALVAGE VALUE AT RS.1.55 CRORES. THE COMPANY HAD, IN FACT, SOLD THE DAMAGED GOODS DURING THE SUBSEQUENT YEAR, I.E., A.Y . 2007-08, AT RS.33 LAKHS, BEING STEEL ANGELS, AND WHICH WAS DULY OFFERED TO TAX FOR THAT YEAR. ANY FURTHER SCRAP SALES WOULD ALSO STAND TO BE OFFERED TO TAX IN THE YEAR OF SALE . ACCORDINGLY, THERE WAS NO MERIT IN THE REVENUES CASE IN DISALLOWING THE ASSESSEES CLAIM OF A COMMERCIAL/BUSINESS LOSS SUFFERED ON ACCOUNT OF RAIN FLOODS, A NATURAL CALAM ITY. AGGRIEVED, THE REVENUE IS APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 THE FACTS OF THE CASE, AS NARRATED HEREINABOVE, ARE UNDISPUTED. UNDER THE CIRCUMSTANCES, WE ARE UNABLE TO COMPREHEND THE BASI S OF THE REVENUES CASE. IT IS THE REAL AND NOT THE NOTIONAL INCOME THAT IS THE SUBJECT OF THE CHARGE TO TAX UNDER THE ACT. OF COURSE, THIS PRESCRIPTION IS AGAIN A GENERALIZE ONE , AND SUBJECT TO THE SPECIFIC PROVISIONS OF THE ACT, AS WHERE A DEEMING PROVISION APPLIES. H OWEVER, THE REVENUES CASE IS NOT BASED ON ANY SUCH PROVISION. THE MATTER IS PURELY F ACTUAL, I.E., WHETHER THE ASSESSEE HAS IN FACT SUSTAINED THE IMPUGNED LOSS OF RS.1.55 CRORES, RECKONED AS A SALVAGE VALUE OF THE DAMAGED GOODS BY THE INSURER AND THE INSUREE IN SET TLING THE INSURANCE CLAIM QUA THE LOSS INCURRED ON THE SAID DAMAGE. THE REVENUE HAS NOT BR OUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE OR SUPPORT ITS CASE THAT THE ASSESSEE DID NOT, IN FACT, SUSTAIN THE SAID LOSS. MERELY BASING, THEREFORE, ITS STAND ON THE FIGURE A DOPTED IN SETTLING THE CLAIM WOULD BE TO NO CONSEQUENCE. WE COULD HAVE APPRECIATED HAD IT, E XAMINING THE INVENTORY OF THE DAMAGED GOODS, ASCERTAINED THE NATURE OF THE DIFFER ENT ITEMS THEREOF, AND CAUSED THE ASSESSEE TO PLACE REASONABLE REALIZABLE VALUES THER EON. NO SUCH CASE HAS BEEN MADE OUT, SO THAT THE REVENUES CASE IS DE HORS ANY FACTUAL BASIS. 5 ITA NO.3964/MUM/2011 (A.Y. 2006-07) ASST. CIT VS. ARMSTRONG WORLD INDUSTRIES (INDIA) P. LTD. 3.2 SO HOWEVER, AT THE SAME TIME, IT IS UNDENIABLE THAT THE ASSESSEE HAS SOLD STEEL ANGELS (FOR RS.33 LAKHS, IN THE FOLLOWING YEAR) OUT OF THE DAMAGED GOODS, AND WHICH ALSO YIELDED SCRAP. THE SAME THUS CANNOT BE SAID TO HAVE NO VALUE AND, THUS, BEAR A NIL SALVAGE VALUE. FURTHER, IF GOODS WORTH RS. 9 LACS (WHICH TH OUGH WERE SEPARATELY CONFIRMED FOR DISALLOWANCE BY THE LD. CIT(A)) WERE ADMITTEDLY LOA DED IN TRUCK AT THE TIME OF PHYSICAL INSPECTION, SO THAT THE SAME COULD NOT BE VERIFIED AND STOOD EXCLUDED IN RECKONING THE INSURABLE LOSS, THE SAME WOULD IMPLY THAT THE COMPA NY IDENTIFIED AND WAS PRESUMABLY ABLE TO RETRIEVE CERTAIN GOODS IN GOOD OR SATISF ACTORY CONDITION, AGAIN PERHAPS FOR BEING REALIZED IN A MANNER DEEMED PROPER. IT WAS, T HEREFORE, INCUMBENT OF THE ASSESSEE TO VALUE THE SAME REASONABLY, I.E., IN TERMS OF THEIR REALIZABLE VALUES, AND CARRY OVER THE SAME AS SCRAP GOODS. METALS HAVE A BASIC PRICE AND, BESIDES, THE SCRAP MARKET IS QUITE MATURE AND ORGANIZED, INASMUCH AS THE SAID GOODS AR E RECYCLED. TO THIS EXTENT, THEREFORE, EVEN AS INDICATED BY THE BENCH DURING THE HEARING, THE ASSESSEES CASE IS DEFICIENT. WE ARE NOT, WE MAY CLARIFY, QUESTIONING THE BUSINESS D ECISION OR THE WISDOM OF THE ASSESSEE- COMPANY IN NOT SELLING THE DAMAGED GOODS AS SECOND GRADE PRODUCTS, I.E., OF CEILINGS AND FLOORINGS. 3.3 UNDER THE CIRCUMSTANCES, WE ARE THEREFORE UNABL E TO ENDORSE THE VIEW OF THE LD. CIT(A) THAT THE ENTIRE DAMAGED INVENTORY OF GOODS I S SANS ANY REALIZABLE VALUE, I.E., EVEN CONSIDERING THE DECISION OF NON-RELEASE OF GOODS BY THE ASSESSEE AS A MATTER OF BUSINESS PRUDENCE, WHICH WITHOUT DOUBT THE REVENUE CANNOT QU ESTION. WE, THEREFORE, ONLY CONSIDER IT FIT AND PROPER TO RESTORE THE MATTER BA CK TO THE FILE OF THE FIRST APPELLATE AUTHORITY, TO CAUSE A REASONABLE VALUATION OF THE I TEMS CAPABLE OF BEING SOLD AS SCRAP OR OTHERWISE, AS STEEL ANGELS, ON THE BASIS OF COURSE OF MATERIALS AND EVIDENCES BEING LED BY THE PARTIES BEFORE HIM, AND BY FOLLOWING THE DUE PR OCESS OF LAW. THE INVENTORY OF THE DAMAGED GOODS AS PREPARED BY THE ASSESSEE, AND VERI FIED BY THE CA, MAY BEAR THE NECESSARY DETAILS AND, THUS, COULD BE RELEVANT IN T HIS REGARD. THE SAID GOODS MAY FINALLY BE SOLD AT A HIGHER OR LOWER VALUE. HOWEVER, WHAT I S RELEVANT AND MATERIAL IS THE FAIR ESTIMATION OF THEIR REALIZABLE VALUE/S (AS ON 31.03 .2006), ARRIVED AT ON THE BASIS OF THE BEST 6 ITA NO.3964/MUM/2011 (A.Y. 2006-07) ASST. CIT VS. ARMSTRONG WORLD INDUSTRIES (INDIA) P. LTD. AVAILABLE INFORMATION. THE DIFFERENCE ON ACTUAL REA LIZATION WOULD STAND TO BE EITHER WRITTEN OFF OR WRITTEN BACK, AS THE CASE MAY BE, IN THE ACCOUNTS FOR THE RELEVANT YEAR/S. THAT THE INCOME TO THE EXTENT OF RS.33 LAKHS STANDS OFFERED AND BROUGHT TO TAX FOR A.Y. 2007-08 IS, IN OUR VIEW, NO GROUND FOR NOT BRINGING THE CORRECT INCOME TO TAX FOR THE RIGHT YEAR. THE ASSESSEE MAY, AGAIN, FOLLOWING THE DUE PR OCESS OF LAW, CLAIM THE LEGAL REMEDY INASMUCH AS THE SAME RESULTS IN A DOUBLE CHARGE OF THE TAX FOR A SUBSEQUENT YEAR. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. 5 16 0 70 89#: # ;1 0 1 <= ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MAY, 2013 #4 0 3 ) $# >'6 0 ? SD/- SD/- (B. R. MITTAL) (SANJAY ARORA) / JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER MUMBAI; >' DATED : 17.05.2013 .'../ ROSHANI , SR. PS #4 0 -1@ A#@)1 #4 0 -1@ A#@)1 #4 0 -1@ A#@)1 #4 0 -1@ A#@)1/ COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT . 3. B ( ) / THE CIT(A) 4. B / CIT - CONCERNED 5. @E? -1' , , / DR, ITAT, MUMBAI 6. ?F( G / GUARD FILE #4' #4' #4' #4' / BY ORDER, 8 88 8/ // /< < < < (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI