DCIT, New Delhi V. M/s Exxon Mobil Lubricants P. Ltd., New Delhi

ITA 418/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86597 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-01-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 24-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARVINDER KAUR
• Keywords: Additional evidence; Wholly owned subsidiary
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B, NEW DELHI) BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 418/DEL/2011 ASSESSMENT YEAR : 2002-03 DCIT, CIRCLE 11(1), VS. M/S. EXXON MOBIL LUBRICANT S P. LTD., NEW DELHI (FORMERLY INDO-MOBIL LTD.), B-26, QUTAB INSTITUTIONAL AREA, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. PARVINDER KAUR, SR. DR RESPONDENT BY : SHRI VISHAL KALRA, ADV. ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORD ER OF LD. CIT(A) DATED 22.11.2010. THE GROUNDS OF APPEAL TAKEN BY R EVENUE ARE REPRODUCED BELOW: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 62 ,26,347/- ON ACCOUNT OF PROVISION OF STORAGE AND HANDLING CHARGE S IGNORING THE FACT THAT ASSESSEE WAS UNABLE TO GIVE DOCUMENTARY P ROOF TO SUBSTANTIATE IS CLAIM OF WHICH THE ABOVE PROVISION FOR EXPENSES WERE MADE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 51,55,300/- ON ACCOUNT OF WRITE-OFF INVENTORY IGNORING THE FACT TH AT ASSESSEE WAS UNABLE TO GIVE ANY BASIS OF AGREEMENT AND ALSO FAIL ED TO SUBSTANTIATE IS CLAIM. ITA NO.418/DEL/2011 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) HAS ERRED IN DELETING THE ADJUSTMENT OF BOOK PROFIT ON ACCOUNT OF ADDITION OF PROVISION FOR STORAGE AND HANDLING C HARGES OF RS. 62,26,347/- IGNORING THE FACT THAT ASSESSEE WAS UNA BLE TO GIVE ANY SUBSTANTIATE PROOF OF DOING IT. 2. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MARK ETING, MANUFACTURING AND DISTRIBUTION OF DIESEL AND MOBILE LUBRICANTS. THE COMPANY HAS FILED ITS RETURN OF INCOME ON 31.10.2002 DECLARING LOSS OF RS .3,65,30,752/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING ASSESSMENT PROCEEDINGS, THE A.O. MADE FOLLOWING TWO ADDITIONS BESIDES MAKIN G OTHER ADDITIONS. THE EXTRACT FROM ASSESSMENT ORDER IS REPRODUCED BELOW: I) PROVISION FOR STORAGE & HANDLING CHARGES - RS.6 2,26,347/- : SIMILARLY THE ASSESSEE CLAIMED PROVISION OF EXPENSE S FOR STORAGE AND HANDLING CHARGES AMOUNTING TO RS.62,26,347/-. IN SP ITE OF OPPORTUNITIES PROVIDED TO THE ASSESSEE TO GIVE SPEC IFIC DETAILS IN RESPECT OF WHICH THE AFOREMENTIONED PROVISION WAS M ADE. THE ASSESSEE MERELY GAVE THE DATES ON WHICH THE PROVISI ONS WERE MADE WITHOUT GIVING SPECIFIC DETAILS OF THE BILLS FOR WH ICH THE AFOREMENTIONED PROVISIONS WERE MADE. THE SAID PROVI SION BEING ADHOC IN NATURE IS, THEREFORE, DISALLOWED. II) WRITING OFF OF FINISHED GOODS RS.151.55 IOCS 4. FURTHER EXAMINATION OF THE PROFIT AND LOSS ACC OUNT REVEALED THAT THE ASSESSEE HAD CLAIMED INVENTORY WRITE OFF T O THE EXTENT OF RS.1,51 ,55,330/-. THE ASSESSEE WAS ASKED TO GIVE D ETAILS AND THE BASIS ON WHICH THE AFOREMENTIONED WRITE OFF WAS MADE. THE ASSESSEE ALSO ASKED TO GIVE DETAILS OF THE CLOSING STOCK TO WHICH THE AFOREMENTIONED WRITE OFF PERTAINED. THE ASSESSEE VIDE ITS LETTER D ATED 23RD FEBRUARY, 2005 SUBMITTED AS UNDER :- BASIS OF WRITING OFF OF FINISHED GOODS OF RS 151.55 LAKHS EMLPL (FORMERLY INDO MOBIL LIMITED) WAS A JOINT VENTURE B ETWEEN 10CL AND ITA NO.418/DEL/2011 3 MOBIL OIL PETROLEUM, WITH BOTH THE JOINT VENTURE PA RTNERS HOLDING EQUAL NUMBER OF SHARES. WITH EFFECT FROM DECEMBER 1 2, 2001, MOBIL OIL PETROLEUM ACQUIRED THE 50% SHARE OF 10CL, THERE BY MAKING THE COMPANY A 100% SUBSIDIARY OF MOBIL OIL PETROLEUM. T HE COMPANY DURING THE RELEVANT FINANCIAL YEAR AVAILED THE SERV ICES OF VARIOUS TOLL BLENDERS TO MANUFACTURE ITS PRODUCTS. 10CL WAS ONE OF THE TOLL BLENDERS. EMLPL PURCHASED RAW MATERIALS FROM JOCL A ND AT THE SAME TIME ALSO SOLD SOME FINISHED GOODS TO JOCL. EM LPL'S ACCOUNT WAS SETTLED BY IOCL BY NETTING OFF PURCHASE AND SAL E TRANSACTIONS. THE PLANT USED BY IOCL TO MANUFACTURE PRODUCTS FOR EMLPL WAS ALSO USED BY IOCL TO MANUFACTURE PRODUCTS TO MEET ITS OW N MARKET REQUIREMENTS USING SIMILAR GRADE OF RAW MATERIALS A S USED FOR EMLPL. THE STORAGE VESSELS FOR RAW MATERIAL AND MAN UFACTURED PRODUCTS USED TO BE COMMON FOR THE PRODUCTS OF EMLP L AND IOCL OWN PRODUCTS, THEREBY MAKING THE SEGREGATION O F STOCKS DIFFICULT. OVER A PERIOD OF TIME, EMLPL IMPROVED IT S INTERNAL CONTROL MECHANISM TO MONITOR THE MOVEMENT OF RAW MATERIAL A ND FINISHED GOODS. AS PART OF THIS INTERNAL CONTROL, A QUANTITA TIVE RECONCILIATION WAS INITIATED BY EMPL. A QUANTITATIVE RECONCILIATIO N WAS UNDER PROGRESS DURING 1998-99 TO 2001-2001. DURING THE FI NANCIAL YEAR 2001-02, QUANTITATIVE RECONCILIATION OF PHYSICAL ST OCKS VIS-A-VIS INVENTORY AS PER BOOKS WAS COMPLETED BETWEEN IOCL A ND EMLPL. THE QUANTITATIVE RECONCILIATION RESULTED IN A DISCR EPANCY BETWEEN .THE BOOK STOCKS AND THE PHYSICAL STOCK RESULTING IN AN INVENTORY WRITE-OFF OF RS.1.51 CRORES.' 4.1 IN VIEW OF THE SUBMISSIONS MADE BY THE ASSESSEE , IT WAS ASKED TO GIVE DETAILS OF AGREEMENTS, IF ANY, BETWEEN 10CL AN D THE ASSESSEE. THE ASSESSEE WAS UNABLE TO GIVE ANY BASIS OF AGREEMENT AND ALSO FAILED TO SUBSTANTIATE ITS CLAIM THAT THE SAID AMOUNT WAS REF LECTED IN THE CLOSING STOCK OF INVENTORY. IN VIEW OF THIS AND IN THE ABSE NCE OF ANY RECONCILIATION FIGURES BETWEEN 10EL AND THE ASSESSE E, THE AFOREMENTIONED CLAIM OF THE ASSESSEE IS DISALLOWED. 3. THE A.O. WHILE COMPUTING PROFITS AS PER SECTION 115JB, DISALLOWED PROVISIONS FOR CARTAGE AND HANDLING CHARGES BY HOLD ING THAT PROVISION FOR CARTAGE AND HANDLING CHARGES WAS NOT ASCERTAINED LI ABILITY. AGGRIEVED, THE ITA NO.418/DEL/2011 4 ASSESSEE FILED APPEAL BEFORE LD. CIT(A) AND LD. CIT (A) ALLOWED RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: (B) STORAGE AND HANDLING CHARGES AMOUNTING TO RS 6 2,26,347/-: THE PROVISION FOR STORAGE AND HANDLING CHARGES DISA LLOWED BY THE AO IS THE YEAR-END PROVISION AND RELATE TO THE EXPENSE S WHICH HAVE ACCRUED / ARISEN DURING THE RELEVANT PREVIOUS YEAR. AS PER THE MERCANTILE SYSTEM OF ACCOUNTING, THE INCOME AND EXP ENSES RELATING TO A FINANCIAL YEAR ARE REQUIRED TO BE ACCOUNTED FOR I N THE SAME FINANCIAL YEAR. THEREFORE, IN ORDER TO ACCOUNT FOR SUCH EXPEN SES IN THE FINANCIAL YEAR TO WHICH THEY RELATE TO, THE APPELLANT IN RESP ECT OF SUCH EXPENSES INCURRED FOR WHICH INVOICES WERE NOT RECEIVED TILL MARCH 31, 2002, CREATED PROVISION FOR THE SAME IN THE BOOKS OF ACCO UNTS. THE PROVISION WAS CREATED ON THE BASIS OF ESTIMATES RECEIVED FROM THE VENDORS / CREDITORS AND ON THE BASIS OF PAST EXPERIENCE. THE CREATION OF THE PROVISION ON THE ABOVE MENTIONED BASIS IS IN MY OPI NION RATIONAL AND SCIENTIFIC. THE APPELLANT HAS ENCLOSED TWO SPREAD S HEETS IN RESPECT OF EACH OF THE C& F AGENTS. THE FIRST SPREAD SHEET PRO VIDES DETAILS OF THE NAME OF THE PARTY, LOCATION OF THE PARTY, NATURE OF PAYMENT AND THE AMOUNT OF PROVISION MADE IN RESPECT OF EACH PARTY. THE SECOND SPREAD SHEET DEPICTS THE MONTH WISE DETA ILS WITH REGARD TO THE PROVISION MADE IN RESPECT OF EACH PARTY. THE DE TAILS CONTAINED IN THE SPREAD SHEET COMPRISES OF THE DATE OF MAKING PR OVISION, PAYMENTS MADE CONSEQUENTLY TO SUCH C& F AGENTS, DATE OF RECE IPT OF STATEMENTS FROM THE C& F AGENTS AND THE REASON FOR WHICH THE P AYMENTS WERE RECEIVED. THE SPREAD SHEET RECONCILE EACH ENTRY OF PROVISION MADE IN RESPECT OF EVERY MONTH WITH THE CORRESPONDING PAYME NTS MADE FOR THOSE MONTHS. THUS, A CORRELATION IS ESTABLISHED BE TWEEN THE AMOUNT OF PROVISION CREATED MONTH WISE AND THE SUBSEQUENT PAYMENTS MADE TO THE PARTIES. THE SPREAD SHEETS ARE ATTACHED AT PAGE 8 TO 41 OF THE REVISED PAPER BOOK. THE STATEMENTS RECEIVED BY THE APPELLANT FROM THE C &F AGENTS CONTAINING THE DETAILS OF PAYMENT AND T HE BILLS IN RESPECT OF MISCELLANEOUS EXPENSES HAVE BEEN ATTACHED AT PAG E 42 TO 116 OF THE REVISED PAPER BOOK. THUS FROM THE CORRESPONDING INVOICES & SUPPORTING D OCUMENTS WHICH SUBSTANTIATE THE GENUINENESS OF THE PROVISION FOR E XPENSES MADE IN THE ITA NO.418/DEL/2011 5 BOOKS OF ACCOUNTS, IT IS CLEAR THAT THE SAME RELATE TO THE SERVICES RENDERED / ACTIVITIES PERFORMED DURING THE FINANCIA L YEAR 2001-2002. ACCORDINGLY, I AM OF THE VIEW THAT THE PROVISION FO R STORAGE AND HANDLING COSTS HAS BEEN MADE ON REASONABLE AND SCIE NTIFIC BASIS. THE AO IS THEREFORE NOT JUSTIFIED IN DISALLOWING THE AB OVE PROVISION. THE PLEA OF THE APPELLANT IS ACCEPTED AND THE ADDITIONS MADE BY THE AO ON ACCOUNT OF ABOVE PROVISION STAND DELETED. 4.1 FINDING ON GROUND OF APPEAL NO. 7& 8:- FROM THE PERUSAL OF THE DOCUMENTS I INFORMATION AND SUBMISSIONS FILED BY THE APPELLANT, THERE IS NO DISPUTE TO THE FACT THAT A JOINT VENTURE EXISTED BETWEEN MOPET AND IOC, PURSUANT TO WHICH THE BLENDING ACTIVITIES WERE UNDERTAKEN BY IOC AT ITS P LANT ON BEHALF OF THE APPELLANT. FOR UNDERTAKING THE BLENDING ACTIVIT IES, IOC UTILIZED THE RAW MATERIALS OF THE APPELLANT. ALSO, THE FINIS HED GOODS BELONGING TO IOC AND THE APPELLANT WERE PLACED AT THE IOC'S P LANT AND IT WAS NOT POSSIBLE TO MADE A DISTINCTION BETWEEN THE STOC K OF THE APPELLANT AND THE IOC. FURTHER, THE JOINT VENTURE BROKE-OFF PURSUANT TO WH ICH THE PROCESS OF RECONCILIATION OF INVENTORY BETWEEN THE APPELLANT A ND IOC COMMENCED, SINCE THE INVENTORY BELONGING TO THE APP ELLANT AND IOC WAS LYING AT THE SAME PREMISES. SUBSEQUENT TO THE R ECONCILIATION ACTIVITY, THERE WAS A DIFFERENCE AMOUNTING TO RS 1. 5 CRORES (APPROXIMATELY) BETWEEN THE ACTUAL PHYSICAL INVENTO RY AND THE VALUE OF THE INVENTORY IN THE BOOKS OF THE APPELLANT. IOC REFUSED TO COMPENSATE THE APPELLANT FOR THIS DIFFERENCE IN THE INVENTORY. ALSO, NO DOCUMENTARY EVIDENCE COULD BE OBTAINED FROM IOC IN RELATION TO THE DIFFERENCE IN THE INVENTORY. IN VIEW OF THIS, THE D IFFERENCE WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. FROM THE PERUSAL OF THE MINUTES OF THE MEETINGS OF THE DIRECTORS OF IOC & THE APPELLANT DATED 10.11.01 WHEREIN THE FINA L VALUE OF INVENTORY WRITE OFF WAS DETERMINED BASED ON WHICH T HE AMOUNT TO BE WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF APPELLANT F OR RS. 1.5 CRORES WAS CARRIED OUT AND THE ACCOMPANYING DOCUMENTS DEPICTIN G THE NEGOTIATIONS IN SEPT. & OCTOBER 2001, PRIOR TO THE FINAL SETTLEMENT, I AM OF THE VIEW THAT THE SAID WRITE-OFF OF INVENTORY HAS BEEN MADE ON ITA NO.418/DEL/2011 6 THE BASIS OF THE PHYSICAL DIFFERENCE BETWEEN THE CL OSING STOCK IN THE APPELLANT'S DEPOTS AND CLOSING STOCK AS PER THE BOO KS OF ACCOUNTS. THE APPELLANT HAS ALSO SUBMITTED THE CONSOLIDATED ITEM WISE QUANTITY AS PER BOOKS & AS PER PHYSICAL VERIFICATION WHICH HAS RESULTED IN THE SHORTAGE OF STOCKS WORTH RS. 1,51,55,336/- AT PAGES 131 AND 132 OF REVISED PAPER BOOK. FURTHER, I HAVE PERUSED THE ILL USTRATIVE DETAILS OF LEDGER ACCOUNTS SHOWING HE WRITE-OFF OF INVENTORY B Y THE APPELLANT. THIS WRITE-OFF WAS CROSS-CHECKED WITH WRITE-OFF OF INVENTORY SUBMITTED BY THE APPELLANT IN THE PAPER BOOK FILED ALONG WITH THE SUBMISSIONS (PAGE NO 131 AND 132 OF THE REVISED PAPER BOOK). AL SO, THE FINANCIAL STATEMENTS REVEAL THAT THE VALUE OF WRITE-OFF OF IN VENTORY WAS ARRIVED AT ON A REASONABLE AND ADEQUATE BASIS, WHICH HAS BE EN CERTIFIED BY THE AUDITORS. ACCORDINGLY, THE CLAIM OF THE APPELLA NT IS TENABLE AND THEREFORE INVENTORY WRITE OFF FOR RS. 1,51,55,330/- IS ALLOWABLE AS DEDUCTION. FURTHER NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE AO TO SUBSTANTIATE THAT THE DISCREPANCY OF STOCK WAS A S A RESULT OF OUT OF BOOK SALES MADE BY THE APPELLANT. THE GROUND OF APP EAL THE APPELLANT IS ACCORDINGLY ACCEPTED AND THE ADDITION MADE BY TH E AO STANDS DELETED. FINDING ON GROUND NO. 13 & 15 :- I HAVE CONSIDERED AND PERUSED THE SUBMISSIONS MADE BY THE APPELLANT. THE AO IN THE ASSESSMENT ORDER HAS DISALLOWED THE P ROVISION FOR EXPENSES ON THE PREMISE THAT THE PROVISIONS WERE MA DE ON ADHOC AND ESTIMATE BASIS. WITH RESPECT TO THE PROVISION FOR T RANSPORTATION COSTS, STORAGE AND HANDLING CHARGES AND ROYALTY, ATTENTION IS INVITED TO GROUND NO 1 TO 6 WHERE THIS ISSUE HAS BEEN DISCUSSE D IN DETAIL. AS ADJUDICATED ABOVE, I AM OF THE VIEW THAT THE PROVIS ION FOR TRANSPORTATION COSTS AND PROVISION FOR DISCOUNT HAS BEEN MADE ON ADHOC BASIS AND THEREFORE ARE REQUIRED TO BE ADDED BACK FOR COMPUTING THE BOOK PROFITS U/S 115 JB OF THE ACT. H OWEVER, WITH RESPECT TO THE PROVISION FOR STORAGE AND HANDLING C HARGES AND PROVISION FOR ROYALTY, THE APPELLANT HAS BEEN ABLE TO SUBSTANTIATE THAT THE PROVISIONS WERE MADE ON RATIONAL AND SCIENTIFIC BASIS. ACCORDINGLY, THE PROVISION FOR STORAGE AND HANDLING CHARGES AND PROVISION FOR ROYALTY IS NOT REQUIRED TO BE ADDED B ACK FOR THE PURPOSE ITA NO.418/DEL/2011 7 OF COMPUTING THE BOOK PROFITS UNDER SECTION 115JB O F THE ACT, AS THESE ARE IN THE NATURE OF ASCERTAINED LIABILITIES. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. LD. D.R. AT THE OUTSET ARGUED UPON GROUND NO.1 & 3 AND SUBMITTED THAT NO DETAILS WERE PROVIDED TO A.O. REGARDING PRO VISION FOR CARTAGE AND HANDLING CHARGES AND ONLY DATE OF CREATING PROVISIO NS WERE PROVIDED AND THEREFORE, A.O. HAD RIGHTLY MADE ADDITION. IT WAS SUBMITTED THAT LD. CIT(A) HAS NOT GIVEN ANY REASONING FOR ALLOWING RELIEF TO THE ASSESSEE AND INSTEAD HE HAD GIVEN HIS OPINION THAT THE RELIEF SHOULD BE ALL OWED. LD. D.R. SUBMITTED THAT THE A.O. WAS ALSO NOT GIVEN CHANCE TO EXAMINE THE REVISED PAPER BOOK THEREFORE, AS PER THE PROVISIONS OF RULE 46A, THE M ATTER NEEDS TO BE REMANDED BACK TO THE OFFICE OF A.O. REGARDING GROU ND NO.3, LD. D.R. SUBMITTED THAT DIMINISHING IN VALUE OF STOCK NEEDS TO BE ADDED BACK AS PER THE PROVISIONS OF SECTION 115JB, THEREFORE, A.O. HA S RIGHTLY MADE THE ADDITION. 6. AS REGARDS GROUND NO.2, REGARDING WRITE OFF OF I NVENTORY THE LD. D.R. SUBMITTED THAT CLAIM WAS ALLOWED TO ASSESSEE ON THE BASIS OF REVISED PAPER BOOK, WHICH WAS NOT SENT TO A.O. FOR EXAMINATION, T HEREFORE, THE SAME ALSO NEEDS TO BE SENT BACK FOR READJUDICATION. IT WAS S UBMITTED THAT IN THE SUBSEQUENT YEAR, A SIMILAR ADDITION WAS DECIDED BY ITAT IN FAVOUR OF THE ASSESSEE BUT THE FACTS OF THE PRESENT CASE ARE DIST INGUISHABLE AS IN THIS YEAR, THE LOSSES RELATE TO EARLIER YEARS WHICH HAS BEEN W RITTEN OFF AS RECONCILIATION OF STOCK WAS GOING ON FOR MORE THAN 5 YEARS AND IN THE SUCCEEDING YEAR THE LOSS WAS RELATING TO ONLY THAT YEAR WAS CONSIDERED. 7. LD. A.R. ON THE OTHER HAND SUBMITTED THAT GROUND S NO.1 AND 3 ARE INTERCONNECTED AND LD. CIT(A) HAS HELD THAT THE LIA BILITY WAS ASCERTAINED ITA NO.418/DEL/2011 8 LIABILITY SO HE DELETED THE ADDITION UNDER THE NORM AL PROVISIONS AND UNDER THE PROVISIONS OF SECTION 115JB. IT WAS SUBMITTED THAT THE A.O. DID NOT RAISE THE QUERY REGARDING ADDITIONS AND HE MADE THE ADDITION AND THAT IS WHY, THE ADDITIONAL EVIDENCE WAS FILED AND IN THIS RESPECT O UR ATTENTION WAS INVITED TO PAPER BOOK PAGES 98-104 WHERE A COPY OF APPLICATION FOR ADDITIONAL EVIDENCE WAS PLACED. REFERRING TO REMAND REPORT, P LACED AT PAPER BOOK PAGES 105-106, LD. A.R. SUBMITTED THAT THE A.O. DID NOT EVALUATE THE ADDITIONAL EVIDENCE DESPITE GIVEN A CHANCE TO EXAMI NE THE SAME. INVITING OUR ATTENTION TO PAPER BOOK PAGES 117-118, LD. A.R. SUBMITTED THAT CFA WISE DETAILS OF PROVISION AMOUNTING TO RS.62.26 LAC S WAS PLACED AT PAPER BOOK PAGES 117-118 AND SIMILARLY, THE ITEM-WISE DET AILS OF PROVISIONS ALONG WITH NARRATION AND DATE OF PAYMENT IN THE SUBSEQUEN T YEAR WAS PLACED AT PAPER BOOK PAGES 119-152. IT WAS SUBMITTED THAT LD . CIT(A) HAD FORWARDED THESE EVIDENCES TO A.O. ON WHICH A.O. DID NOT COMME NT. AS REGARDS ARGUMENTS OF LD. D.R. THAT PROVISIONS OF RULE 46A W ERE VIOLATED, IT WAS SUBMITTED THAT THE REVENUE HAS NOT TAKEN SUCH GROUN D. 8. REGARDING GROUND NO.2 IT WAS SUBMITTED THAT IN T HE SUBSEQUENT YEAR ALSO, THERE WAS SIMILAR KIND OF LOSS WHICH WAS WRIT TEN OFF AND THE SAME WAS DECIDED IN FAVOUR OF THE ASSESSEE BY HONBLE ITAT V IDE ORDER DATED 14.07.2011 PLACED AT PAPER BOOK PAGES 30-35. HE FU RTHER SUBMITTED THAT THE SAID ORDER OF THE TRIBUNAL WAS CONFIRMED BY HON'BLE DELHI HIGH COURT VIDE ITS ORDER PLACED AT PAPER BOOK PAGES 36-39. LD. A. R. FURTHER SUBMITTED THAT IN ALL, THE LOSS ON ACCOUNT OF WRITE OFF WAS MORE T HAN RS.2 CRORES OUT OF WHICH AN AMOUNT OF APPROXIMATELY RS.1.51 CRORES WAS WRITTEN OFF IN THE PRESENT YEAR AND REMAINING AMOUNT OF RS.0.49 CRORES APPROXIMATELY WAS WRITTEN OFF IN THE SUCCEEDING YEAR. LD. A.R. SUBMI TTED THAT THOUGH ITA NO.418/DEL/2011 9 RECONCILIATION WAS MADE FOR 1998-99 TO 2001-02 BUT THE LOSS WAS DETERMINED IN THE YEAR UNDER CONSIDERATION. THEREFORE, LOSS R ELATES TO THIS YEAR ONLY. IT WAS SUBMITTED THAT ASSESSEE HAD TAKEN OVER THE BUSI NESS FROM IOC, THEREFORE, THE RECONCILIATION WAS NECESSARY. HE FURTHER SUBMI TTED THAT A PART OF LOSS HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE AND HON'BLE HIGH COURT HAS ALREADY CONFIRMED THE SAME. LD. A.R. ALSO SUBMITTED THAT W RITE OFF WAS DULY REFLECTED IN THE FINANCIAL ACCOUNTS AND WAS DULY CO NSIDERED BY BOARD OF DIRECTORS OF THE COMPANY. AS REGARDS VIOLATION OF RULE 46A, LD. A.R. SUBMITTED THAT REVISED PAPER BOOK CONTAINING PARTIC ULARS OF ITEM-WISE WRITE OFF WAS FILED WITH LD. CIT(A) ON HIS DIRECTION ONLY AND IT WAS NOT FILED AS ADDITIONAL EVIDENCE. 8. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. FIRST OF ALL, WE TAKE UP GROUNDS NO.1 & 3 WHICH ARE INTERCONNECTED. WE FIND THAT THE PROVISIONS OF RS. 62.26 LACS CONSIST OF PAYMENTS TO BE MADE TO CFA RELATING TO VARIOUS CITI ES, THE DETAILS OF WHICH ARE PLACED AT PAPER BOOK PAGES 117-118. SIMILARLY, THE ITEM-WISE DETAILS OF PROVISIONS ALONG WITH PAYMENTS MADE TO CFA IN SUCCE EDING YEAR ARE PLACED AT PAPER BOOK PAGES 119-152. FROM THE NATURE OF DE TAILS OF PROVISIONS AND THE EVIDENCE OF HAVING MADE PAYMENTS OF THE SAME IN SUBSEQUENT YEAR CLEARLY ESTABLISH THAT THE PROVISIONS WERE ASCERTAI NED LIABILITY AND THEREFORE, LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE. W E FIND THAT THE DETAILS WERE SUBMITTED TO LD. CIT(A) AS AN ADDITIONAL EVIDE NCE AS PLACED AT PAPER BOOK PAGES 98-104 AND THESE WERE DULY FORWARDED TO A.O. WHO IN HIS REMAND REPORT HAD REPLIED AS UNDER: GROUNDS NO.2 - REGARDING PROVISION FOR STORAGE AND HANDLING CHARGES RS.62,26,347/- THE AR OF THE ASSESSEE DURIN G THE COURSE OF REMAND PROCEEDINGS SUBMITTED THAT THE COMMISSION AN D HANDING ITA NO.418/DEL/2011 10 CHARGES ARE PAID AT FIXED RATES ON THE SALES MADE W HILE FOR THE EXPENSES OF TRANSPORTATION AND TELEPHONE, STATIONE RY ETC. PROVISION IS MADE ON ESTIMATE BASIS ON THE BASIS OF VOLUME OF SA LES. AS THE AR HAS STATED THAT THE PROVISION IS MADE ON ESTIMATE BASIS I..E THE LIABILITY IS UN ASCERTAINED, THE PROVISION MADE FOR REIMBURSEMEN T OF TRANSPORTATION AND TELEPHONE, STATIONERY ETC. IS NO T ALLOWABLE UNDER THE LAW. AS SUCH ASSESSEE DOES NOT DESERVE ANY RELI EF ON THIS POINT. 9. FROM THE ABOVE REMAND REPORT, WE FIND THAT DESPI TE GIVEN THE OPPORTUNITY, THE A.O. HAS NOT MADE ANY COMMENT ON T HE ADDITIONAL EVIDENCES BUT MAINTAINED THAT THE PROVISIONS FOR RE IMBURSEMENT OF TRANSPORTATION AND TELEPHONE EXPENSES ETC. WERE NOT ALLOWABLE UNDER THE LAW. HOWEVER, WE FIND THAT THESE PROVISIONS WERE ASCERTA INED LIABILITIES FOR WHICH ASSESSEE HAD FILED COMPLETE DETAILS AND ORDER OF LD . CIT(A) IS EXHAUSTIVE AND WE DO NOT FIND ANY INFIRMITY IN THE SAME. IN V IEW OF ABOVE, GROUNDS NOS.1 AND 3 ARE DISMISSED. 10. NOW, COMING TO GROUND NO.2, WE FIND THAT LD. A. R. HAS ARGUED THAT THE TOTAL AMOUNT OF LOSS ON RECONCILIATION WAS ABOU T RS.2 CRORES OUT OF WHICH A PART OF LOSS WAS WRITTEN OFF IN THE SUCCEEDING YE AR AND A PART OF IT WAS WRITTEN OFF IN THE YEAR UNDER CONSIDERATION. IT WA S FURTHER SUBMITTED THAT IN SUCCEEDING YEAR, THE SAME HAS BEEN ALLOWED BY ITAT WHICH HAS BEEN FURTHER CONFIRMED BY HON'BLE HIGH COURT. WE FIND THAT ITAT HAS CONFIRMED THE ACTION OF LD. CIT(A) IN GIVING RELIEF TO THE ASSESS EE BY HOLDING AS UNDER: THE LD. CIT(A) WHILE DELETING THE DISALLOWANCE, TO OK INTO ACCOUNT THE ASSESSEES EXPLANATION THAT THE WRITE OFF OF TH E INVENTORY WAS DUE TO A GENUINE DISCREPANCY BETWEEN THE ACTUAL STOCK F OUND ON PHYSICAL VERIFICATION AND THAT SHOWN IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THIS REMAINS UNDISPUTED BESIDES THE FACT THAT THE A SSESSEES AUDITORS HAD ALSO VERIFIED THE WRITE OFF. IT HAS BEEN CORRE CTLY HELD THAT THE WRITE OFF IS A TRADING LOSS ALLOWABLE U/S 28(1) OF THE ACT. UNDISPUTEDLY, NOTHING WAS BROUGHT ON RECORD BY THE A.O., THE STABLISH ITA NO.418/DEL/2011 11 THAT THE ASSESSEE HAD MADE ANY SALES OUT OF ITS BOO KS. THE CIT(A) CROSS CHECKED THE DETAILS OF THE ASSESSEES LEDGER ACCOUNT SHOWING THE WRITE OF THE INVENTORY WITH THE DETAILS SHOWN IN TH E ITEM WISE WRITE OFF OF INVENTORY, AS SUBMITTED BY THE ASSESSEE. THE CO NSOLIDATED ITEM WISE QUANTITY OF THE STOCK AS PER THE ASSESSEES BOOKS A ND AS PER PHYSICAL VERIFICATION HAD RESULTED IN THE SHORTAGE OF STOCK OF RS.49,47,794/-. THE FINANCIAL STATEMENT OF THE ASSESSEE REVEALED TH AT THE WRITE OFF OF THE INVENTORY WAS ON A REASONABLE BASIS, AS CERTIFI ED BY THE ASSESSEES AUDITORS. IT WAS AS SUCH THAT THE LD. CIT(A) HELD THE INVENTORY WRITE OFF TO BE A TRADING LOSS, DIRECTLY INCIDENTAL TO TH E CARRYING ON THE ASSESSEES BUSINESS. 14. HENCE, GROUND NO.2 IS FOUND TO THE SANS SUB STR ATUM AND IS REJECTED. 11. FROM THE FINDINGS OF ITAT WE FIND THAT THE TRIB UNAL HAD ALLOWED RELIEF ON THE BASIS THAT AUDITORS OF THE COMPANY HA D CERTIFIED THE LOSS AND NOWHERE IN THE ORDER, ITAT HAS MENTIONED THAT IT WA S A PART OF TOTAL LOSS OF ABOUT RS.2 CRORES. THE LD. A.R. THOUGH INVITED OUR ATTENTION TO MINUTES OF BOARD MEETING AND DETAILS OF INVENTORY LOSS BUT DID NOT BRING TO OUR NOTICE AS TO HOW SUM OF TOTAL LOSS WRITTEN OFF DURING THIS YEAR AND HOW ONLY THIS AMOUNT WAS DETERMINED TO BE WRITTEN OFF DURING THIS YEAR, WAS ARRIVED AT. WE FURTHER FIND FROM THE COPY OF P & L ACCOUNT PLAC ED AT PAPER BOOK PAGE 242 THAT IN EARLIER YEAR ALSO, THE ASSESSEE HAD WRI TTEN OFF SIMILAR INVENTORY LOSS AMOUNTING TO RS.2.13 CRORES. ON THE ONE HAND , LD. A.R. ARGUED THAT TOTAL LOSS ON ACCOUNT OF RECONCILIATION WAS ABOUT R S.2 CRORES OUT OF WHICH RS.1.51 CRORES WAS WRITTEN OFF IN THE YEAR UNDER CO NSIDERATION AND RS.49 LACS WAS WRITTEN OFF IN THE SUCCEEDING YEAR BUT THE FACT S NOTED IN THE P & L ACCOUNT REVEAL THAT IN EARLIER YEAR ALSO, A SIMILAR LOSS WAS WRITTEN OFF TO THE EXTENT OF RS.2.13 CRORES. THEREFORE, IN OUR OPINIO N, THE MATTER NEEDS TO BE READJUDICATED BY LD. CIT(A) WHO ON THE BASIS OF TO TAL AMOUNT OF LOSS ITA NO.418/DEL/2011 12 DETERMINED ON ACCOUNT OF RECONCILIATION WILL DETERM INE THE ACTUAL AMOUNT OF TOTAL INVENTORY LOSS TO BE WRITTEN OFF IN THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) WILL ALSO EXAMINE AS TO WHEN SETTLEMENT TOOK PLACE BETWEEN THE PARTIES AND WHEN THE LOSS WAS DETERMINED AND WAS RE QUIRED TO BE WRITTEN OFF. 12. IN VIEW OF THE ABOVE, THE APPEAL FILED BY REVEN UE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 13. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH FEB., 2015. SD./- SD./- (DIVA SINGH) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 06 TH FEB., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 30/1 SR. PS/PS 2 DRAFT PIOCED BEFORE AUTHOR 30, SR. PS/PS 3 DRAFT PROPOSED & PIOCED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER