INNOVA STAINLESS P. LTD, MUMBAI V. ITO WD 5(2)(1), MUMBAI

ITA 4059/MUM/2010

• Counselvise Citation: 405919914 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 02-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Assessee Lawyers: A K GHOSH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI P.M.JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 4059 /MUM/2010. ASSESS MENT YEAR : 2006-07. INNOVA STAINLESS PVT. LTD., THE INCOME-TAX OFFICER, 52/52A, NANUBHAI DESAI ROAD, VS. WARD-5(2)(1), ISLAMPURA STREET, C.P. TANK, MUMBAI. MUMBAI 400004. PAN AABCI 3777L. APPELLANT. RESPONDENT. APPELLANT BY : SHR I A.K. GHOSH. RESPONDENT BY : SHRI O.A. MAO. DATE OF HEA RING : 02-11-2011. DATE OF PRONOUNCEM ENT : 18-11-2011. O R D E R PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-9, MUMBAI DATED 10-03-2010. 2. IN GROUND NO. 1 AND 2, THE ASSESSEE HAS CHALLENG ED THE DISALLOWANCE OF RS.28,115/- AND RS.24,330/- MADE BY THE AO AND CONF IRMED BY THE LEARNED CIT(APPEALS) OUT OF FREIGHT CHARGES AND CONSUMABLE STORES RESPECTIVELY. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF STEEL. THE RETURN OF I NCOME FOR THE YEAR UNDER 2 ITA NO.4059/MUM/2010 ASSESSMENT YEAR:2006-07 CONSIDERATION WAS FILED BY IT ON 29-11-2006 DECLARI NG TOTAL INCOME OF RS.2,63,056/-. IN THE PROFIT & LOSS ACCOUNT FILED A LONG WITH THE SAID RETURN, FREIGHT CHARGES AMOUNTING TO RS.2,81,152/- AND CONSUMABLE S TORES AMOUNTING TO RS.2,43,307/- WERE DEBITED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE SAID EXPENSES CL AIMED BY THE ASSESSEE WERE MAINLY INCURRED BY WAY OF CASH. HE, THEREFORE, HELD THAT THE SAME WERE NOT FULLY VERIFIABLE AND THE CLAIM OF THE ASSESSEE FOR THE SA ID EXPENSES WAS DISALLOWED BY HIM TO THE EXTENT OF 10%. ON APPEAL, THE LEARNED CI T(APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE OBSERVING THAT THE EXPENSES INCURRED BY THE ASSESSEE ON FREIGHT AND CONSUMABLE STORES IN C ASH WERE NOT FULLY VERIFIABLE. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE EXPENSE S CLAIMED BY THE ASSESSEE ON FREIGHT AND CONSUMABLE STORES HAVE BEEN DISALLOWED BY THE AUTHORITIES BELOW TO THE EXTENT OF 10% MERELY BECAUSE THE SAME WERE INCURRED IN CASH. THE BASIS FOR MAKING THE SAID DISALLOWANCE AS GIVEN BY THE AUTHOR ITIES BELOW IS THAT THE SAME WERE NOT VERIFIABLE. HOWEVER, NOT A SINGLE INSTANCE HAS BEEN POINTED OUT EITHER BY THE AO OR BY THE LEARNED CIT(APPEALS) TO SHOW THAT ANY UNVERIFIABLE ELEMENT WAS INVOLVED IN THE EXPENSES CLAIMED BY THE ASSESSEE ON FREIGHT AND CONSUMABLE STORES. IN THE ABSENCE OF ANY SUCH INSTANCE SPECIFICALLY PO INTED OUT BY THE AUTHORITIES BELOW, WE FIND NO JUSTIFICATION IN THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ADHOC BASIS OUT OF F REIGHT AND CONSUMABLE STORES AND DELETING THE SAID DISALLOWANCE, WE ALLOW GROUND NO. 1 AND 2 OF THE ASSESSEES APPEAL. 5. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.2,07,100/- MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF DISALLOWANCE OF ITS CLAIM FOR ADVANCE WRITTEN OFF. 3 ITA NO.4059/MUM/2010 ASSESSMENT YEAR:2006-07 6. THE ASSESSEE COMPANY HAD GIVEN ADVANES ON 08-11- 2005 AND 10-11-2005 AGGREGATING TO RS.2,07,100/- FOR EXHIBITION TO BE H ELD IN CHAINA. HOWEVER, IT COULD NOT PARTICIPATE IN THE SAID EXHIBITION AND ASKED FO R THE REFUND OF ADVANCE AMOUNT WHICH WAS NOT ALLOWED. THE SAID ADVANCE, THEREFORE, WAS WRITTEN OFF BY THE ASSESSEE COMPANY AND CLAIMED AS DEDUCTION. ACCORDIN G TO THE AO, THE AMOUNT OF ADVANCE WRITTEN OFF BY THE ASSESSEE HAD NOT BEEN TA KEN INTO ACCOUNT IN COMPUTING ITS INCOME OF THE PREVIOUS YEAR OR ANY EARLIER YEAR AND THE CONDITION STIPULATED IN SECTION 36(2) THUS WAS NOT SATISFIED. HE, THEREFORE , DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF ADVANCE WRITT EN OFF. ON APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE AFTER HAVING FOUND THAT THE ASSESSEE COMPANY HAD COME TO KNOW ABOUT THE NON REFUND OF ADVANCE ONLY BY WAY OF A LETTER DATED 13-04-2006. H E HELD THAT THE ACTION OF THE ASSESSEE COMPANY IN WRITING OFF THE ADVANCE AMOUNT ON 08-12-2005 THUS WAS PRE- MATURED AND IT WAS NOT ENTITLED TO CLAIM DEDUCTION ON ACCOUNT OF ADVANCE WRITTEN OFF IN THE YEAR UNDER CONSIDERATION. 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS NOTED BY THE LEARNED CIT(APP EALS) IN HIS IMPUGNED ORDER, THE FACT OF NON REFUND OF ADVANCE HAD COME TO THE K NOWLEDGE OF THE ASSESSEE ONLY ON `13-04-2006 I.E. IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007-08 AND THIS POSITION HAS NOT BEEN DISPUTED EVEN BY THE LEA RNED COUNSEL FOR THE ASSESSEE. HE, HOWEVER, HAS CONTENDED RELYING ON THE GUIDANCE NOTE ON ACCRUAL BASIS OF ACCOUNTING ISSUED BY THE ICAI THAT EVENTS OCCURRI NG AFTER THE DATE OF FINANCIAL STATEMENTS BUT BEFORE THE FINALIZATION THEREOF SHOU LD BE TAKEN INTO CONSIDERATION FOR RECOGNIZING THE RELEVANT COST/LOSSES. IN OUR OPINI ON, THE SAID GUIDANCE NOTE MAY BE RELEVANT FOR THE PURPOSE OF PREPARING FINANCIAL STA TEMENTS AS PER THE COMPANIES ACT. HOWEVER, IN SO FAR AS THE ALLOWABILITY OF ANY LOSS UNDER THE INCOME-TAX ACT IS 4 ITA NO.4059/MUM/2010 ASSESSMENT YEAR:2006-07 CONCERNED, THE SAME CAN BE CLAIMED IN THE PREVIOUS YEAR IN WHICH IT HAS BEEN ACTUALLY INCURRED. IN THE PRESENT CASE, THE LOSS DU E TO NON REFUND OF ADVANCE CAN BE SAID TO BE INCURRED BY THE ASSESSEE ONLY ON 13-04-2 006 I.E. IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007-08 WHEN THE ASSESS EE COMPANY BECAME AWARE OF THE LOSS FOR THE FIRST TIME. IN OUR OPINION, THE AS SESSEE COMPANY THUS WOULD BE ENTITLED TO CLAIM THE SAID LOSS ONLY IN THE PREVIOU S YEAR RELEVANT TO ASSESSMENT YEAR 2007-08 IN ACCORDANCE WITH LAW AND NOT IN THE YEAR UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY THE AO ON ACCOU NT OF ADVANCE WRITTEN OFF AND DISMISS GROUND NO. 3 OF THE ASSESSEES APPEAL. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF NOV., 2011. SD/- SD/- (B.R. MITTAL) ( P.M. JAGTAP) JUDICIAL MEMBER ACCO UNTANT MEMBER MUMBAI, DATED: 18 TH NOV., 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, I-BENCH. (TRUE COPY) BY ORDE R ASSTT. REGI STRAR, ITAT, MUMBAI BEN CHES, MUMBAI , WAKODE