INDUSTRIAL SOLVENTS AND CHEMICALS P.LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 4792/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79021 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2002-2003
• Appeal Filed On: 20-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIYA
• Keywords: Period of limitation; Time period of passing order

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL I, BENC H MUMBAI .. , . . , !' # BEFORE SHRI H.L.KARWA, PRESIDENT & SHRI B.R.BASKARA N, AM ./ ITA NO.4792/MUM/2012 ( $ $ $ $ / ASSESSMENT YEAR :2002-03) INDUSTRIAL SOLVENTS & CHEMICALS PVT. LTD., 101, ATLANTA, 10 TH FLOOR, 201, NARIMAN POINT, MUMBAI-400 021 VS. DCIT, 3(2), MUMBAI-20 % !' ./ &' ./ PAN/GIR NO. : AAACI 1068 D ( %( / APPELLANT ) .. ( )*%( / RESPONDENT ) +, - -- - . . . . ! !! ! /ASSESSEE BY : MR. NITESH JOSHI & - -- - . . . . ! !! ! /REVENUE BY : MR. DEEPAK SUTARIYA - ,/' / DATE OF HEARING : 26 TH MAY, 2014 01$ - ,/' / DATE OF PRONOUNCEMENT : 28 TH MAY, 2014 #!2 #!2 #!2 #!2 / O R D E R PER B.R.BASKARAN (A.M.) : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 24.05.2012 PASSED BY LD CIT(A)-4, MUMBAI AND IT REL ATES TO THE ASSESSMENT YEAR 2002-03. 2 . THE PENALTY OF RS.3,40,703/- LEVIED BY THE AO U/S 271(1)(C) OF THE ACT, HAVING BEEN CONFIRMED BY LD CIT(A), THE ASSESS EE HAS FILED THIS APPEAL CHALLENGING THE ORDER OF THE FIRST APPELLATE AUTHORITY. 3 . THE FACTS RELATING TO THE CASE ARE DISCUSSED IN BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOLV ENTS & CHEMICALS. IT ALSO EXPORTS ITS PRODUCTS. AGAINST THE EXPORTS, TH E ASSESSEE COMPANY IS ITA NO.4792 /12 2 GIVEN ADVANCE LICENCES UNDER THE EXIM POLICY WHIC H ENTITLES THE ASSESSEE TO IMPORT RAW MATERIALS DUTY FREE. THE ASSESSEE WAS FOLLOWING THE METHOD OF ACCOUNTING THE VALUE OF AD VANCE LICENCES AS ITS INCOME AND CORRESPONDINGLY IT WAS SHOWN AS AN ASSET IN THE BALANCE SHEET AS AT THE YEAR END. THE VALUE OF LICENCE WAS COMPUTED AT THE RATE EQUIVALENT TO THE DIFFERENCE BETWEEN THE LOCAL MARK ET VALUE AND DUTY FREE IMPORT VALUE. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS OMITTED TO OFFER THE VALUE OF CERTAIN ADVANCE LICENCES AS ITS INCOME AND IT WAS QUANTIFIE D AT RS.15,70,418/-. IN THE ASSESSMENT PROCEEDINGS, THE AO ADDED THE ABO VE SAID AMOUNT TO THE INCOME OF THE ASSESSEE. THE ASSESSEE PREFERRED APPEAL BEFORE LD CIT(A) CHALLENGING THE SAME AND GOT PARTIAL RELIEF, I.E., THE LD CIT(A) SUSTAINED THE ADDITION TO THE EXTENT OF RS.9,54,352 /- RELATING TO THE FOLLOWING LICENCES:- (A) LICENCE NO. 03017845 - RS.2,54,717/- (B) LICENCE NO. 31002859 - RS.3,19,529/- (C) LICENCE NO. 3020272 - RS.1,85,743/- (D) LICENCE NO. 310075245 - RS.1,94,363/-(PARTLY SUSTAINED) IN THE PENALTY PROCEEDINGS, THE AO TREATED THE ADDI TION CONFIRMED BY THE LD CIT(A) AS FURNISHING OF INACCURATE PARTICULARS O F INCOME AND ACCORDINGLY LEVIED PENALTY @ 100% OF THE TAX SOUGHT TO BE EVADED, WHICH WORKED OUT TO RS.3,40,703/-. THE LD CIT(A) ALSO CO NFIRMED THE SAME AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4 . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSEE HAS BEEN FOLLOWING THE SYSTEM OF ACCOUNT FOR THE VALUE OF ADVANCE LICENCES AT THE END OF EACH YEAR, EVEN IF THE ASSESSEE DID NOT EXERCISE ITS RIGHT TO ITA NO.4792 /12 3 IMPORT THE RAW MATERIALS BY UTILIZING THE ADVANCE L ICENSES BY THE YEAR END. THE LD COUNSEL SUBMITTED THAT THE HONBLE SUPREME C OURT HAD AN OCCASION TO CONSIDER ABOUT THE TIME OF ACCRUAL OF B ENEFITS OUT OF ADVANCE LICENSES IN THE CASE OF EXCEL INDUSTRIES LTD & ORS., 358 ITR 295. IN THE ABOVE SAID CASE, THE HONBLE APEX COURT HAS HELD AS UNDER:- IN SO FAR THE PRESENT CASE IS CONCERNED, EVEN IF I T IS ASSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEFITS UNDER THE ADVANCE LICENCES AS WELL AS UNDER THE DUTY ENTITLEMENT PASS BOOK, THERE WAS NO CORRESPONDING LIABILITY ON THE CUSTOMS AUTHORITI ES TO PASS ON THE BENEFIT ON DUTY FREE IMPORTS TO THE ASSESSEE UNTIL THE GOODS WERE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENTED, AT BEST, A HYPOTHETICAL INCOME WHICH M AY OR MAY NOT MATERIALISE AND ITS MONEY VALUE IS, THEREFORE, NOT THE INCOME OF THE ASSESSEE. LEARNED COUNSEL SUBMITTED THAT THE HONBLE SUPREME COURT HAS IN CLEAR TERMS HELD THAT THE MONEY VALUE OF ADVANCE LICENCES WOULD BE IN THE NATURE OF HYPOTHETICAL INCOME UNTIL THE GOODS WERE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. ACCORDINGLY, THE LEAR NED AR SUBMITTED THAT THE IMPUGNED ADDITION RELATES TO HYPOTHETICAL INCOM E, SINCE THE ASSESSEE HAS NOT IMPORTED ANY RAW MATERIAL BY USING THE LICE NCES. LEARNED AR ACCORDINGLY SUBMITTED THAT THE PENALTY SHOULD NOT S URVIVE ON THE ADDITION SINCE IT RELATES TO A HYPOTHETICAL INCOME. 5 . ON MERITS, LEARNED AR SUBMITTED THAT THE LICENCE NO.03017845 HAVING A VALUE OF RS.2,54,717/- WAS ACTUALLY OFFERE D AS INCOME OF THE ASSESSEE IN THE EARLIER YEARS. HOWEVER, THE ASSESS EE LOST THE ORIGINAL LICENCE CERTIFICATE IN TRANSIT AND, HENCE, THE ASSE SSEE DID NOT USE THE SAME. HENCE, THE ASSESSEE CONSTRAINED TO REVERSE T HE INCOME ALREADY OFFERED BY IT, BY DEBITING THE PROFIT AND LOSS ACCO UNT. THE AO HAS, ITA NO.4792 /12 4 HOWEVER, DISALLOWED THE SAID CLAIM. WITH REGARD TO THE LICENCE NO.310075245 FOR AN AMOUNT OF RS.1,94,363/-, LEARNE D COUNSEL SUBMITTED THAT THE ASSESSEE HAS ALREADY OFFERED THE SAME AS I TS INCOME AND HAS ALSO INCLUDED THE SAME IN ITS CLOSING STOCK VALUE A ND HENCE THE ADDITION SO MADE BY THE AO REPRESENTS DOUBLE ADDITION. TO SU BSTANTIATE HIS ADDITION, LEARNED COUNSEL INVITED OUR ATTENTION TO PAGES 9, 16 TO 18 OF THE PAPER BOOK FILED BY THE ASSESSEE. IN RESPECT OF THE REMAINING TWO LICENCES, THE ASSESSEE SUBMITTED THAT THE GOVERNMEN T HAS IMPOSED ANTI- DUMPING DUTY ON THE IMPORT OF ANILINE FROM COUNTRIE S LIKE JAPAN, EUROPE & USA, SUBSEQUENT TO THE RECEIPT OF ADVANCE LICENCE B Y THE ASSESSEE. THEREFORE, FOR CLEARING THE GOODS AGAINST THESE TWO LICENCES, THE COMPANY HAD TO INCUR ADDITIONAL DUTY OF RS.17/- PER KG. MEA NING THEREBY THE IMPORT PRICE TOGETHER WITH THE DUTY WORKED OUT TO MORE THA N PREVAILING LOCAL PRICE. HENCE, THE ASSESSEE DID NOT CHOOSE TO USE THE LICEN CES AND ACCORDINGLY, DID NOT ACCOUNT FOR THE SAME. ACCORDINGLY, LEARNED AR SUBMITTED THAT THE ASSESSEE HAS FURNISHED CONVINCING REASONS IN RESPEC T OF THE ADDITIONS AND SUBMITTED THAT THE QUESTION OF FURNISHING OF IN ACCURATE PARTICULARS OF INCOME DOES NOT ARISE IN THE HANDS OF THE ASSESSEE. LEARNED COUNSEL ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD., 322 ITR 158 . 6 . ON THE CONTRARY, LEARNED DR PLACED STRONG RELIANC E ON THE ORDER PASSED BY THE LEARNED CIT(A). LEARNED DR SUBMITTED THAT THE ADDITION CONFIRMED BY THE CIT(A) IN THE QUANTUM PROCEEDINGS HAS SINCE BEEN ACCEPTED BY THE ASSESSEE BY NOT FILING ANY APPEAL B EFORE THE TRIBUNAL. THE VERY FACT THAT THE ASSESSEE HAS ACCEPTED THE AD DITIONS SHOWS THAT ITA NO.4792 /12 5 THERE IS A FLAW ON THE PART OF THE ASSESSEE. ACCOR DINGLY, HE SUBMITTED THAT THE PENALTY SHOULD BE CONFIRMED. 7 . WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY PERUSED THE RECORD. IT IS A WELL SETTLED PROPOSITION OF LAW TH AT THE ADDITIONS MADE IN THE ASSESSMENT PROCEEDINGS WOULD NOT GIVE RISE TO PENAL TY AUTOMATICALLY. THE ASSESSING OFFICER, IN THE PENALTY PROCEEDINGS, SHOULD RE-APPRECIATE THE MATTER AFRESH AND FOR THAT PURPOSE, THE FINDING GIVEN IN THE ASSESSMENT PROCEEDINGS CAN BE TAKEN AS A GOOD GUIDE . A CAREFUL PERUSAL OF THE SUBMISSIONS MADE BY LD A.R WOULD SHOW THAT T HE ADDITION OF RS.2,54,717/- RELATING TO LICENSE NO. 03017845 ACTU ALLY REPRESENTS THE DISALLOWANCE OF AMOUNT OF ADVANCE LICENCE WRITTEN O FF IN THE BOOKS, I.E., THE ASSESSEE HAD OFFERED THE ABOVE SAID AMOUNT AS I TS INCOME IN AN EARLIER YEAR AND SINCE IT COULD NOT UTILIZE THE REL EVANT LICENSE FOR IMPORTING RAW MATERIALS, THE ASSESSEE WAS CONSTRAINED TO REVE RSE THE SAME BY DEBITING THE PROFIT AND LOSS ACCOUNT. THERE SHOUL D NOT BE ANY DISPUTE THAT THE UNREALIZED INCOME, WHICH WAS OFFERED IN AN EARLIER YEAR, HAS TO BE WRITTEN OFF IN THE ACCOUNTS BY DEBITING THE PROFIT AND LOSS ACCOUNT. SINCE IT IS A CASE OF DISALLOWANCE, IN OUR VIEW, THE QUESTIO N OF EITHER CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME DOES NOT ARISE IN RESPECT OF THIS ADDITION. 8. IN RESPECT OF FOURTH ITEM OF ADDITION OF RS.1,94,3 63/- RELATING TO LICENSE NO. 310075245, THE LD A.R HAS DEMONSTRATED BEFORE US THAT THE ASSESSEE HAS INCLUDED THE SAME IN THE VALUE OF ADV ANCE LICENSES AND OFFERED THE SAME AS INCOME. THE DETAILS OF VALUE O F STOCK OF ADVANCE ITA NO.4792 /12 6 LICENSES ARE PLACED AT PAGES 9, 16-18 OF THE PAPER BOOK FILED BY THE ASSESSEE. HENCE, IT IS SEEN THAT THE LD CIT(A) HAS CONFIRMED THE ABOVE SAID ADDITION WITHOUT APPRECIATING THESE FACTUAL AS PECTS. SINCE IT REPRESENTS AN ITEM OF DOUBLE ADDITION, IN OUR VIEW, IT WOULD NOT GIVE RISE TO ANY PENALTY. 9. IN RESPECT OF THE REMAINING TWO ITEMS, THE CONTENT ION OF LD A.R IS THAT THE ASSESSEE DID NOT UTILIZE THEM AND HENCE IT WAS NOT INCLUDED THEM IN THE VALUE OF STOCK. WE HAVE NOTICED THAT THE AS SESSEE HAS BEEN FOLLOWING THE SYSTEM OF ACCOUNTING FOR THE VALUE OF ADVANCE LICENSE AT THE END OF EACH YEAR, IRRESPECTIVE OF THE FACT RELA TING TO ACTUAL UTILIZATION OF THE SAME. HOWEVER THE ABOVE SAID ACCOUNTING SYSTE M FOLLOWED BY THE ASSESSEE WAS NOT FOUND TO BE CORRECT BY THE HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES (SUPRA), WHEREIN THE H ONBLE APEX COURT HAS HELD THAT THE VALUE OF ADVANCE LICENSE FEE, TILL IT IS ACTUALLY USE, REPRESENTS ONLY A HYPOTHETICAL INCOME. EVEN OTHERWISE, THE C ASE OF THE ASSESSEE IS THAT IT DID NOT UTILIZE BOTH THE LICENSES FOR IMPOR TING THE RAW MATERIALS, SINCE THE IMPORT WAS FOUND TO BE COSTLY DUE TO IMPO SITION OF ANTI DUMPING DUTY BY THE GOVERNMENT OF INDIA. THERE SHOULD NOT BE ANY DOUBT THAT THE ADVANCE LICENSES DO NOT CARRY ANY VALUE AFTER ITS LIMITATION PERIOD, IF THE SAME WAS NOT UTILIZED FOR IMPORTING THE RAW MATERIA LS. IN OUR VIEW, THE EXPLANATIONS OFFERED BY THE ASSESSEE ARE CONVINCING AND THE SAME HAS NOT BEEN FOUND TO BE FALSE BY THE TAX AUTHORITIES. HENCE, IN OUR VIEW, THE ADDITIONS RELATING TO THE REMAINING TWO LICENSES AL SO DO NOT GIVE RISE TO ANY PENALTY. ITA NO.4792 /12 7 10. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE UNABL E TO SUSTAIN THE ORDER PASSED BY LD CIT(A). ACCORDINGLY WE SET ASID E HIS ORDER AND DIRECT THE AO TO DELETE THE PENALTY LEVIED IN RESPECT OF T HE ADDITIONS, CITED ABOVE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. + ,3 +, - 4, - &, 56 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH MAY, 2014. #!2 - 01$ ' ! 7 8# 3 28 TH MAY,2014 1 - 9 SD/- SD/- ( . . ) ( H.L. KARWA ) ( . . ) ( B.R.BASKARAN ) / PRESIDENT !' # !' # !' # !' # / ACCOUNTANT MEMBER MUMBAI ; 8# DATED 28/05/2014 ). . /PKM , . / PS #!2 #!2 #!2 #!2 - -- - ),: ),: ),: ),: ;!:$, ;!:$, ;!:$, ;!:$, / COPY OF THE ORDER FORWARDED TO : #!2 #!2 #!2 #!2 / BY ORDER, < << < / 5 5 5 5 & & & & ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. %( / THE APPELLANT 2. )*%( / THE RESPONDENT. 3. = ( ) / THE CIT(A), MUMBAI. 4. = / CIT 5. :>9 ), , , / DR, ITAT, MUMBAI 6. 9? @ / GUARD FILE. *:, ), //TRUE COPY//