THE ITO 9(1)(4), MUMBAI V. M/S. DAGA PETROCHEMICALS LTD, MUMBAI

ITA 4805/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7266 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 10-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 04-07-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N JHA
• Assessee Lawyers: K SHIVARAMSHRI RAHUL HAKANI
• Keywords: Business income; Search and seizure; Additional evidence

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4805/MUM/2007 (ASSESSMENT YEAR: 2003-04) INCOME TAX OFFICER - 9(1)(4) M/S. DAGA GLOBAL CHEMI CALS LTD. ROOM NO. 224, 2ND FLOOR FORMERLY: DAGA PETROCHEMICA LS LTD. AAYAKAR BHAVAN, M.K. ROAD 112, DATTANI TRADE CENTRE MUMBAI 400020 VS. CHANDAVARKAR ROAD, BORIVALI MUMBAI 400092 PAN - AAACD 2233 M APPELLANT RESPONDENT ITA NO. 1765/MUM/2008 (ASSESSMENT YEAR: 2003-04) ACIT, RANGE 9(1) M/S. DAGA GLOBAL CHEMICALS LTD. ROOM NO. 223, AAYAKAR BHAVAN FORMERLY: DAGA PETROCH EMICALS LTD. M.K. ROAD, MUMBAI 400020 112, DATTANI TRADE CENTRE VS. CHANDAVARKAR ROAD, BORIVALI MUMBAI 400092 APPELLANT RESPONDENT REVENUE BY: SHRI R.N. JHA ASSESSEE BY: SHRI K. SHIVARAM/SHRI RAHUL HAKANI O R D E R PER B. RAMAKOTAIAH, A.M. THESE APPEALS BY THE REVENUE ARE AGAINST THE ORDER OF THE CTA IX, MUMBAI DATED 05.04.2007 AND 03.12.2007, RESPECTIVEL Y. 2. ITA NO. 4805/MUM2007 IS AGAINST THE ORDER OF THE CI T(A) IX, MUMBAI DATED 05.04.2007 IN WHICH THE CIT(A) GAVE CERTAIN R ELIEFS TO THE ASSESSEE WHICH WERE CONTESTED BY THE REVENUE. ONE ISSUE PERT AINING TO LOSS OUT OF MISCELLANEOUS ITEMS WAS REFERRED TO THE A.O. FOR EX AMINATION BY THE CIT(A) IN THE ABOVE ORDER WHICH WAS ALSO CONTESTED IN GROU ND NOS. 10 TO 12 IN THE PRESENT APPEAL. THE CONSEQUENTIAL ORDERS PASSED BY THE A.O. WERE CONSIDERED BY THE CIT(A) VIDE ORDER DATED 03.12.200 7 AND THE REVENUE IS AGGRIEVED ON THAT ORDER IN ITA 1765/ MUM/2008. SINC E COMMON ISSUES ARE THEREIN BOTH THE APPEALS THESE ARE DECIDED TOGETHER . ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 2 ITA NO. 4085/MUM/2007 3. GROUND NOS. 1, 2 & 3 PERTAIN TO THE ISSUE OF DISALL OWANCE OF EMPLOYERS AND EMPLOYEES CONTRIBUTION TOWARDS PF A ND ESIC. THE A.O. DISALLOWED RS.1,28,454/- PAID BEFORE THE DUE DATE F OR FILING THE RETURN PERTAINING TO EMPLOYERS CONTRIBUTION AND RS.93,007 /- PERTAINING TO EMPLOYEES CONTRIBUTION PAID WITHIN THE GRACE PERIO D. THE CIT(A) DIRECTED TO ALLOW THE EMPLOYERS CONTRIBUTION IF PAID BEFORE TH E DUE DATE OF FILING RETURN AND EMPLOYEES CONTRIBUTION IF PAID WITHIN THE GRAC E PERIOD. 4. AFTER HEARING THE LEARNED D.R. AND LEARNED COUNSEL WE DO NOT SEE ANY REASON TO INTERFERE WITH THE DIRECTIONS OF THE CIT( A) SINCE THEY ARE IN CONFORMITY WITH THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. 319 ITR 306 AND CIT VS. AI MIL LTD. IN ITA NO. 1063 OF 2006 DATED 23.12.2009 OF THE HON'BLE DELHI HIGH COURT. ACCORDINGLY THE GROUND NOS. 1, 2 & 3 ARE REJECTED. 5. GROUND NO. 4 PERTAINS TO THE DISALLOWANCE OF TRADE DISCOUNT OF RS.76,68,557/-. DURING THE YEAR ASSESSEE HAS DEBITE D AN AMOUNT OF RS.3,83,43,405/- IN THE P & L ACCOUNT AS TRADE DISC OUNT AND EVENTHOUGH THE ASSESSEE HAS FILED DETAILS OF EXPENSES THE A.O. DISALLOWED AN AMOUNT OF RS.76,65,557/- AT 20% ON ADHOC BASIS ON THE GROUND THAT NO PROOF WAS FILED AND THE TRADE DISCOUNT WAS EXCESSIVE. THE CIT(A) HA S CONSIDERED THE SUBMISSION, DETAILS OF EXPENSES AND FURTHER EVIDENC ES FURNISHED BY THE ASSESSEE, REMANDED THE MATTER TO THE A.O. AND ON TH E BASIS OF THE REMAND REPORT AND SUBMISSIONS, HE DELETED THE ADDITION ON FACTUAL BASIS. THE FINDINGS OF THE CIT(A) ARE AS UNDER: - 4.4 I HAVE GONE THROUGH THE CONTENTION OF THE APPE LLANT AS WELL AS THAT OF THE AO. I HAVE ALSO PERUSED THE DETAILS FIL ED BEFORE ME AS WELL AS BEFORE THE AO AND FIND SOME MERIT IN THE APPELLANT S CASE. FROM THE DETAILS FILED IT IS SEEN THAT APPELLANT HAS GIVEN T HE DETAILS OF PARTY WISE DISCOUNTS ALLOWED TO VARIOUS PARTIES AS ALSO IT IS SEEN THAT SIMILAR DETAILS WERE FILED BY THE APPELLANT BEFORE THE AO WHICH HAS NOT BEEN CONSIDERED AND LOOKING TO THE FACTS OF THE CASE I FIND SOME FO RCE IN THE ARGUMENT OF THE APPELLANT IN THIS REGARD. FURTHER IT IS SEEN FR OM THE ORDER OF THE AO THAT HE HAS DISALLOWED THE DISCOUNT UNDER THE GUISE THAT APPELLANT HAD NOT PROVED BY EVIDENCE THAT SUCH DISCOUNTS WERE ALL OWED FOR THE PURPOSE OF THE BUSINESS. I AM UNABLE TO ACCEDE TO THE AOS PROPOSITIONS IN THIS REGARD SINCE THE AO HAS NOT BROUGHT ON RECORD ANY M ATERIAL TO SHOW THAT ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 3 DISCOUNT CLAIMED BY THE APPELLANT WAS TO THE PARTIE S WHO WERE NOT ITS CUSTOMERS AND THEREFORE IN ABSENCE OF SUCH DETAIL I AM OF THE CONSIDERED VIEW THAT SUCH ADHOC DISALLOWANCE WAS NOT JUSTIFIED UNLESS THERE IS SUFFICIENT EVIDENCE TO SHOW THAT SUCH EXPENSES WERE NOT FOR THE APPELLANTS OWN CUSTOMERS. THUS LOOKING TO THE OVER ALL FACTS OF THE CASE DISALLOWANCE MADE BY THE AO IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 6. AFTER CONSIDERING THE ARGUMENTS AND EXAMINING THE R ECORD WE DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDINGS OF TH E CIT(A). SINCE THE CIT(A) HAS CONSIDERED THE ISSUE ON FACTS AND ALSO THE A.O. DID NOT FIND ANY FAULT WITH THE CLAIM OF EXPENDITURE THE GROUND IS REJECTE D. 7. GROUND NOS. 5, 6, 7, 8 & 9 PERTAIN TO THE DISALLOWA NCE OF TRANSPORT EXPENSES, FOREIGN TRAVEL EXPENSES, RENT PAID, TELEP HONE, TELEX AND FAX CHARGES ON ADHOC BASIS. 8. OUT OF THE VARIOUS CLAIMS MADE BY THE ASSESSEE THE A.O. DISALLOWED EXPENDITURE ON ADHOC BASIS OUT OF TRANSPORT EXPENSE S, FOREIGN TRAVEL EXPENSES, TELEPHONE AND TELEFAX CHARGES AND THE ENT IRE AMOUNT OF RENT PAID OF RS.8,62,282/-. IT WAS ONE OF THE CONTENTIONS THA T THE ASSESSEE WAS NOT GIVEN PROPER OPPORTUNITY AND ON ADMISSION OF FURTHE R EVIDENCES THE CIT(A) REMANDED THE MATTER BACK TO THE A.O. AND AFTER PERU SAL OF THE AMOUNTS CONSIDERED VARIOUS EXPENDITURE AS UNDER: - 5.4 I HAVE GONE THROUGH THE CONTENTION OF THE APP ELLANT AS WELL AS THAT OF THE AO. I HAVE ALSO PERUSED THE DETAILS FILED BE FORE ME AS WELL AS BEFORE THE AO AND FIND SOME MERIT IN THE APPELLANT S CASE. TRANSPORT EXPENSES: - FROM THE DETAILS FILED IT IS SEEN THAT APPELLANT HAS GIVEN THE DETAILS OF PARTY WISE TRANSPORT CHARG ES PAID TO VARIOUS PARTIES AS ALSO IT IS SEEN THAT SIMILAR DETAILS WER E FILED BY THE APPELLANT BEFORE THE AO WHICH HAS NOT BEEN CONSIDERED AND LOO KING TO THE FACTS OF THE CASE I FIND SOME FORCE IN THE ARGUMENT OF THE A PPELLANT IN THIS REGARD. FURTHER IT IS SEEN FROM THE ORDER OF THE AO THAT HE HAS DISALLOWED THE EXPENSES UNDER THE GUISE THAT APPELLANT HAD NOT PRO VED BY EVIDENCE THAT SUCH EXPENSES WERE INCURRED FOR THE PURPOSE OF THE BUSINESS. I AM UNABLE TO ACCEDE TO THE AOS PROPOSITIONS IN THIS R EGARD SINCE THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT TRA NSPORT CHARGES WERE CLAIMED FOR PARTIES EITHER NOT IN EXISTENCE OR FOR THAT MATTER SUCH EXPENSES WERE NOT INCURRED AND THEREFORE IN ABSENCE OF SUCH DETAILS I AM OF THE CONSIDERED VIEW THAT SUCH ADHOC DISALLOWA NCE WAS NOT JUSTIFIED UNLESS THERE IS SUFFICIENT EVIDENCE TO SH OW THAT SUCH EXPENSES WERE NOT FOR THE APPELLANTS OWN BUSINESS. THUS LOO KING TO THE OVERALL ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 4 FACTS OF THE CASE DISALLOWANCE MADE BY THE AO IS DE LETED. THIS GROUND OF APPEAL IS ALLOWED. TRAVELLING EXPENSES (FOREIGN): - CONSIDERING THE FACTS OF THE CASE AND ON APPRECIATING THE EVIDENCE PRODUCED I AM OF THE V IEW THAT DISALLOWANCE OF ENTIRE AMOUNT WAS UNWARRANTED AND U NCALLED FOR. HOWEVER IT CAN ALSO NOT BE SAID THAT DIRECTORS DUB AI TRIP WAS SOLELY FOR THE PURPOSE OF ITS BUSINESS. AND THEREFORE CONSIDER ING THE OVERALL FACTS OF THE CASE I AM OF THE VIEW THAT SUCH DISALLOWANCE SH OULD BE RESTRICTED TO 25% OF SUCH TRAVELLING EXPENSES AS AGAINST 100% DIS ALLOWED BY THE AO. THUS AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO 25% OF RS.3,48,232/- WHICH WILL MEET THE END OF JUSTICE. THIS GROUND OF APPEAL IS PARTLY ALLOWED. TRAVELLING EXPENSES (LOCAL): - SIMILARLY THE AO HAS ALSO DISALLOWED RS.2,74,927/- (20% OF LOCAL TRAVELLING EXPENSES OF RS.13,74,636/-. CONSIDERING THE FACTS OF THE CASE I AM NOT INCLINED TO INTERFERE WITH THE ORDER OF THE AO SINCE THE DISALLOWANCE MADE ARE NOT IN EXCESS OF REASONABLE ESTIMATE MADE BY THE AO MORE SO IN VIEW OF THE FACT THAT APPELLANT HAD NOT JUSTIFIED EACH AND EVERY VISITS T HUS THIS GROUND OF APPEAL IS DISMISSED . RENT PAID: - LOOKING TO THE FACTS THAT APPELLANT HAD CLAIMED DEDUCTION OF RENT PAID TO DIRECTORS AND THEIR RELATIVE THE AP PELLANT SHOULD HAVE FILED JUSTIFICATION FOR CLAIMING SUCH AMOUNT AND ITS REAS ONABLENESS HOWEVER CONSIDERING THE OVERALL FACTS OF THE CASE I AM OF T HE VIEW THAT DISALLOWANCE SHOULD NOT BE MADE MERELY BECAUSE THE AMOUNT WAS PAID TO RELATIVE OF THE DIRECTORS AND SINCE THE APPELLAN T HAD ALREADY FILED DETAILS OF SUCH EXPENSES IT COULD NOT BE SAID THAT NO DETAILS WERE FILED AND THEREFORE CONSIDERING THE OVERALL SITUATION DIS ALLOWANCE IS RESTRICTED TO 25% OF SUCH DISALLOWANCE. THUS AO IS DIRECTED TO DISALLOW ONLY 20% OF SUCH DISALLOWANCE. THIS GROUND OF APPEAL IS PARTLY ALLOWED. TELEPHONE, TELEX AND FAX CHARGES: - I AM IN AGREEMENT WITH THE AO THAT PART OF THE EXPENSES COULD NOT BE SAID TO BE F OR THE PURPOSE OF THE BUSINESS. HOWEVER IN THE INTEREST OF THE JUSTICE DI SALLOWANCE IS RESTRICTED TO 10% OF TOTAL EXPENSES AS AGAINST 20% MADE BY THE AO. BUSINESS PROMOTION EXPENSES: - THE APPELLANT SHOULD HAVE FILED JUSTIFICATION FOR CHARGING SUCH AMOUNT AND ITS REAS ONABLENESS HOWEVER CONSIDERING THE OVERALL FACTS OF THE CASE I AM OF T HE VIEW THAT DISALLOWANCE IS ON HIGHER SIDE AND THEREFORE CONSID ERING THE OVERALL SITUATION DISALLOWANCE IS RESTRICTED TO 10% OF SUCH DISALLOWANCE. THUS AO IS DIRECTED TO DISALLOWANCE ONLY 10% OF SUCH DIS ALLOWANCE. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 9. AFTER HEARING THE LEARNED D.R. AND THE LEARNED COUN SEL WE DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CI T(A). IT IS ONE OF THE CONTENTIONS OF THE LEARNED D.R. THAT THE RENT PAID WAS DISALLOWED IN ITS ENTIRETY AS NO EVIDENCES WERE FURNISHED. WITH REFER ENCE TO THAT CLAIM ALSO IT WAS SUBMITTED THAT THE SAME A.O. HAS ALLOWED THE EN TIRE RENT PAID IN THE ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 5 LATER YEAR AND THE CIT(A) HAS ERRED IN RESTRICTING THE RENT PAID TO A CERTAIN PERCENT AND THE ASSESSEE HAS NOT PREFERRED APPEAL B ECAUSE OF THE SMALL AMOUNT OF TAX INVOLVED IN IT. THIS ISSUE IS ALSO CO NSIDERED IN THE LIGHT OF THE FACT THAT THE A.O. ALLOWED THE CLAIM OF RENT PAID I N THE LATER ASSESSMENT YEAR. EVENTHOUGH THE ENTIRE AMOUNT IS ALLOWABLE, TH E CIT(A) HAS PARTIALLY ALLOWED, WE DO NOT FIND ANY REASON TO INTERFERE WIT H THE ORDER AS THERE IS NO CROSS APPEAL BY THE ISSUE ON THIS ISSUE. IN VIEW OF THIS THE ORDER OF THE CIT(A) CONTESTED IN THE ABOVE ISSUES ARE CONFIRMED AND REV ENUES GROUNDS ARE REJECTED. 10. GROUND NOS. 10, 11 & 12 RAISED BY THE REVENUE IN TH E APPEAL ARE ALSO SIMILAR TO THE GROUNDS RAISED IN ITA NO. 1765/MUM/2 008, HENCE THESE ARE CONSIDERED TOGETHER. 11. BEFORE COMING TO THE ISSUE THE BRIEF BACKGROUND HAS TO BE STATED AS UNDER:- 11.1 DURING THE ASSESSMENT PROCEEDINGS THE A.O., FR OM THE NOTES FORMING PART OF THE BALANCE SHEET GIVING ITEM-WISE QUANTITA TIVE AND AMOUNT-WISE DETAILS OF SALES AND PURCHASES OF VARIOUS ITEMS, NO TICED THAT OUT OF VARIOUS DETAILS OF ACETIC ACID AND CHLOROFORM, ETC. MENTION ED IN THE SCHEDULE OF PURCHASE AND SALES OF TRADED GOODS PICKED UP THE LA ST ITEM SHOWN IN THE SCHEDULE MISCELLANEOUS ITEM. AGAINST THIS ITEM W ITHOUT MENTIONING THE QUANTITY, THE TOTAL OF PURCHASES WAS SHOWN AT RS.57 ,27,82,087/-. THE CORRESPONDING SALES FIGURE OF THE MISCELLANEOUS ITE M WAS SHOWN AT RS.52,72,40,684/-. THE ASSESSING OFFICER CONSIDERED THE ABOVE AMOUNTS AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE COMPANY TO EXPLAIN WHY THE ASSESSEE COMPANY HAS CLAIMED LOSS OF RS.3,55,41,403 /- ON ACCOUNT OF SALES OF MISCELLANEOUS ITEMS. THE ASSESSEE WAS ASKED TO E XPLAIN THE DETAILS HOW IT HAD INCURRED LOSS AND ALSO TO RECONCILE FIGURES EXP LAINING THE LOSSES. IT WAS HIS CONTENTION THAT THE ASSESSEE HAS FAILED TO EXPL AIN THE LOSSES AND ACCORDINGLY HE MADE AN ADDITION OF THE ABOVE AMOUNT . BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAS NEVER CLAIMED A NY SUCH LOSS ARISING OUT OF SALES OF MISCELLANEOUS ITEMS AND THE TOTAL P URCHASES AS STATED IN THAT SCHEDULE OF RS.89,10,56,829/- TALLIES WITH SCHEDULE 15 AGAINST THE COLUMN PURCHASES AND SALES FIGURES IN THE SECOND COLUMN OF RS.94,69,87,832/- ALSO ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 6 TALLIES WITH THE TOTAL SALES SHOWN IN SCHEDULE 14 O F THE P & L ACCOUNT AND THE ASSESSEE HAS DISCLOSED AMOUNTS ONLY WITHOUT CON SIDERING THE OTHER EXPENDITURE OF EXCISE, SALES TAX, ETC. WHICH ARE BE EN WRONGLY BROUGHT UNDER THE HEAD MISCELLANEOUS A/C WHICH RESULTED IN GIVING RISE TO THE SO CALLED LOSSES ON MISCELLANEOUS ITEMS. THE ASSESSEE HAS SUB MITTED THE DETAILS OF INDIVIDUAL PURCHASES AND SALES AND FURNISHED REVISE D SCHEDULE TALLYING THE FIGURES WHICH THE CIT(A) HAS CONSIDERED IN PARA 6.5 AS UNDER: - 6.5 THE AO HAD COMPUTED THE LOSS FROM MISCELLANEOU S ITEMS BY DEDUCTION OF SALES FROM PURCHASE SHOWN IN NOTES TO ACCOUNTS WHICH ACCORDING TO THE APPELLANT SUFFERS TECHNICAL AND CL ERICAL ERROR. PURCHASES SHOWN AS PER DETAILS IN COLUMN 3 RS.5627 82087/- SALES SHOWN AS PER DETAILS IN COLUMN 3 RS.5272406 84/- LOSS COMPUTATION AS PER REVISED FIGURES PURCHASE SHOWN AS PER DETAILS IN COLUMN 3 RS.46216 3582/- SALES SHOWN AS PER DETAILS IN COLUMN 3 RS.4933392 95/- PROFIT THE APPELLANT HAS THUS IN NUT SHELL SUBMITTED THAT THERE WAS A TECHNICAL ERROR IN SHOWING THE FIGURES OF SALES AND PURCHASES WHILE MAKING THE NOTES TO ACCOUNTS AND HENCE THE SAME SHOULD NOT BE THE GROUND FOR TAKING THE ADVERSE VIEW AS ALSO ACCORDING TO THE AP PELLANT THE NOTES TO THE ACCOUNTS PREPARED AS PART OF COMPLIANCE WITH SC HEDULE VI REQUIREMENTS DOES NOT VITIATE THE ACTUAL PROFITS SH OWN IN THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN DRAWN FROM THE BOOKS OF ACCOUNTS WHERE NO DISCREPANCIES HAVE BEEN NOTICED OR FOUND BY THE AO. IT IS THUS SUBMITTED THAT ADDITION MADE BY THE AO SHOULD BE DELETED. 12. THE CIT(A) HAS OPINED THAT THE ASSESSEE IN NUTSHELL SUBMITTED THAT THERE WAS A TECHNICAL ERROR IN SHOWING THE FIGURES OF SALES AND PURCHASES WHILE MAKING THE NOTES TO ACCOUNT AND THE SAME SHOU LD NOT BE A GROUND FOR TAKING ADVERSE VIEW AS ALSO ACCORDING TO THE ASSESS EE THE NOTES TO THE ACCOUNT PREPARED IS PART OF COMPLIANCE WITH SCHEDUL E-VI REQUIREMENTS DOES NOT VITIATE THE ACTUAL PROFIT SHOWN IN THE P & L AC COUNT WHICH HAS BEEN DRAWN FROM THE BOOKS OF ACCOUNT WHERE NO DISCREPANC IES HAVE BEEN NOTICED OR FOUND BY THE A.O. THE CIT(A) HAS CONSIDERED THE ENTIRE GAMUT OF REVISED STATEMENT AND ALSO THE FACT THAT THE ASSESSEE HAS N OT CLAIMED ANY LOSS ON THE ABOVE AMOUNT AND THE ASSESSING OFFICERS PRESUM PTION THAT THE ASSESSEE INCURRED LOSS ON MISCELLANEOUS ITEMS IS NOT BORNE O UT BY THE FACTS AND RS.31175713/ - RS.(-)3,55,41,403/- ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 7 ACCORDINGLY WHILE ACCEPTING THE ASSESSEES CONTENTI ONS, HOWEVER, RESTORED THE MATER BACK TO THE A.O. TO VERIFY THE REVISED FI GURES AS SHOWN ABOVE, WHICH REFLECTS THE CORRECT STATEMENT SCHEDULE. THE CIT(A) TREATED THE GROUNDS OF APPEAL AS ALLOWED FOR THE PURPOSE OF STA TISTICS. THE REVENUE IS CONTESTING THE ABOVE DIRECTION OF THE CIT(A) IN GRO UND NOS. 10, 11 & 12. 13. THE ISSUE DID NOT STOP THERE. THE A.O. WHILE GIVING EFFECT TO CIT(A)S ORDER, HOWEVER, DID NOT GIVE EFFECT TO THE ABOVE DI RECTION OF THE CIT(A) AND PASSED AN ORDER AS UNDER VIDE ORDER DATED 20.07.200 7: - VIII. AS REGARDS THE DISALLOWANCE OF RS.3,55,41,40 3/- CIT(A) HAS OPINED THAT APPARENTLY CONVINCED THE FIGURES SHOWN IN NOTES TO ACCOUNTS. HOWEVER, DIRECTED THE ASSESSING OFFICER TO VERIFY T HE FACTS AND IF FOUND THAT SAME ARE CORRECT, THEN DELETE THE ADDITION. IT IS OBSERVED FROM RECORD THAT THE DIRECTION/DECISION OF LD. CIT(A) IS NOT AC CEPTED BY THE DEPARTMENT AND APPEAL FILED WITH ITAT ON THIS ISSUE SINCE THE LD. CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE S ACCOUNT COULD NOT BE RELIED CONSIDERING THE ADMISSION OF ASSESSEE OF HAV ING COMMITTED THE ERROR IN THE BALANCE SHEET WHILE REPORTING PRODUCT WISE BIFURCATION OF MAJOR TRADED ITEMS OF PURCHASES, SALES IN NOTES TO ACCOUNTS. FURTHER, THE CIT(A) HAD FAILED TO APPRECIATE THAT ASSESSEE COMPA NY HAD SEPARATELY CLAIMED VARIOUS EXPENSES, SUCH AS SALES TAX, EXPORT FREIGHT, INSURANCE AND TRANSPORTATION CHARGES IN THE P&L A/C AND FURTH ER CLAIMED LOSS ON ACCOUNT OF SAME EXPENSES OF MISCELLANEOUS ITEMS. FU RTHER, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO VERIFY THE REVISED FIG URE SALES AND PURCHASES WITHOUT APPRECIATING THAT THE ASSESSEE COULD NOT FU RNISH THE PROOF OF EVIDENCE FOR CLAIM OF LOSS EVEN AFTER GIVING OPPORT UNITY DURING THE ASSESSMENT AND REMAND PROCEEDINGS. 14. THIS ORDER WAS AGAIN APPEALED AGAINST AND THE CIT(A ) VIDE ORDER DATED 03.12.2007 GAVE OPPORTUNITY THE A.O. ONCE AGAIN AND DECIDED THE ISSUE DISCUSSING ELABORATELY AS UNDER: - 2.3 I HAVE GONE THROUGH THE CONTENTION OF THE APPE LLANT AS WELL AS THAT OF THE AO. I HAVE ALSO GONE THROUGH THE REMAND REPO RT SUBMITTED BY THE AO CAREFULLY AND FIND THAT THE AO HAS BROODED UPON THE TECHNICALITIES INVOLVED IN THE ISSUE AS AGAINST THE FINDING OUT OF THE TRUTH. ON FACTUAL MATRIX IT IS SEEN THAT DURING THE ASSESSMENT PROCEE DINGS THE AO OBSERVED THAT NOTES TO ACCOUNTS SHOWING QUANTITATIV E DETAILS INDICATE THAT THE APPELLANT HAD INCURRED LOSSES ON SALE OF M ISCELLANEOUS ITEMS TO THE TUNE OF RS.3,55,41,403/-. ACCORDING TO THE AO S INCE THE APPELLANT COMPANY HAD FAILED TO EXPLAIN SUCH LOSS HE DISALLOW ED THE SAME. CONSEQUENTLY THE APPELLANT COMPANY HAD PREFERRED AN APPEAL AGAINST SUCH DISALLOWANCE. IN THE APPELLATE PROCEEDINGS THE APPELLANT HAD BROUGHT TO MY NOTICE THAT THE FIGURES TAKEN BY THE AO FROM THE NOTES TO ACCOUNTS WERE ONLY IN NATURE OF INFORMATION OF PURC HASE SALES ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 8 PRODUCTION. AND THAT LOSS WAS MAINLY ATTRIBUTABLE T O WRONG ALLOCATION OF DUTIES AND TAXES WHICH WERE ADDED TO MISCELLANEOUS ITEMS AS AGAINST BIFURCATING THE SAME AGAINST EACH ITEMS. DURING THE APPELLATE PROCEEDINGS THE APPELLATE HAD ALSO GIVEN ITEMWISE D ETAILS RUNNING IN SCORES OF PAGES. THUS IT WAS SUBMITTED THAT IF THE DUTIES AND TAXES WERE CORRECTLY ALLOCATED THERE WAS NO LOSS AS ENVISAGED BY THE AO. IT WAS ALSO SUBMITTED THAT IN ANY CASE THE FIGURES SHOWS IN NOT ES TO ACCOUNTS WERE IN NO WAY AFFECTED THE PROFIT OF THE YEAR AS SHOWN IN THE PROFIT AND LOSS ACCOUNT AND THEREFORE NO ADDITION SHOULD HAVE BEEN MADE BY THE AO SINCE THE SAID NOTES TO THE ACCOUNTS WERE MERELY AN INFORMATION GIVEN AS PER STATUTORY REQUIREMENT AND MISTAKE THEREIN HAD N O BEARING ON THE PROFIT AS PER PROFIT AND LOSS ACCOUNT. ON PERUSAL O F THE DETAILS AND EXPLANATION SUBMITTED BY THE APPELLANT IT WAS SEEN THAT IT WAS MERELY A MISTAKE WHICH WAS MADE IN ALLOCATION OF DUTIES AND TAXES, AND OTHER OVERHEADS TO MISCELLANEOUS ITEMS AND THAT IT HAD IN FACT NO BEARING ON PROFIT OF THE APPELLANT COMPANY AS SHOWN IN PROFIT AND LOSS ACCOUNT WHICH WAS TAKEN FOR THE PURPOSE OF COMPUTATION OF I NCOME. FURTHER IT IS ALSO PERTINENT TO NOTE THAT IN THE INSTANT CASE BOO KS OF ACCOUNTS OF THE APPELLANT COMPANY WERE AUDITED AND THAT NO ADVERSE COMMENTS WERE MADE BY THE AUDITORS NOR THE AO HAS FOUND ANY FAULT WITH AND THEREFORE THE AO OUGHT TO HAVE CONSIDERED THE BOOK RESULT RAT HER THAN BANKING ON CERTAIN INFORMATION WHICH DID NOT HAVE ANY BEARING ON PROFIT OF THE APPELLANT COMPANY. THUS CONSIDERING THESE FACTS THE AO WAS IN MY APPELLATE ORDER DATED 5.4.07 DIRECTED TO DELETE THE ADDITION SO MADE AFTER VERIFYING THE DETAILS OF REALLOCATED FIGURES AS WAS PROVIDED BY THE APPELLANT COMPANY. HOWEVER WITHOUT APPRECIATING IN SUM AND SUBSTANCE OF THE ORDER THE AO WHILE GIVING EFFECT TO THE ORDE R OF THIS OFFICE HAS CHOSEN NOT TO DELETE THE ADDITION MERELY ON THE GRO UND THAT NOTES TO ACCOUNTS WERE FAULTY. IT IS ALSO PERTINENT TO NOTE THAT AFTER FINDINGS OUT THE FAULT WITH THE NOTES TO ACCOUNTS THE APPELLANT HAS MODIFIED THE REPORT AND HAS ALSO COMMUNICATED THE REVISED NOTES TO THE REGISTRAR OF COMPANIES. HOWEVER BANKING UPON THE EARLIER FINDING S, THE AO DID NOT ALLOW ANY RELIEF TO THE APPELLANT COMPANY. AND THER EFORE THE APPELLANT IS IN APPEAL BEFORE ME. 2.4 I HAVE CAREFULLY GONE THROUGH THE AOS SUBMISSI ONS IN THIS REGARD AS WELL AS THAT OF THE APPELLANT COMPANY. I AM UNAB LE TO SUBSCRIBE TO THE AOS STAND THAT THE REVISED FIGURES SHOULD NOT HAVE BEEN ACCEPTED SINCE IT AMOUNTED TO ADMISSION OF ADDITIONAL EVIDENCE ON THE GROUND THAT WHATEVER ADDITION WAS MADE WAS NOT ON THE BASIS OF PROFIT COMPUTED AS PER THE PROFIT AND LOSS ACCOUNT EXTRACTED FROM THE BOOKS OF ACCOUNTS WHICH WERE NOT ONLY AUDITED BUT NO FAULT HAD BEEN F OUND FROM, EVEN DURING THE ASSESSMENT PROCEEDINGS. FURTHER WHAT IS REVISED IS ONLY THE NOTES TO ACCOUNTS AND NOT THE PROFIT AND LOSS ACCOU NT WHERE FROM THE INCOME HAD BEEN COMPUTED. THUS FROM THE FACTS OF TH E CASE WHAT IS FOUND OUT IS THAT WITHOUT FINDING ANY FAULT IN BOOK S OF ACCOUNTS AND WITHOUT APPRECIATION OF CORRECTED FIGURES PRODUCED BY THE APPELLANT TO JUSTIFY ITS CLAIM THE AO HAS DENIED THE RELIEF MEAN ING THEREBY THAT THE AO HAS NOT FOUND ANY FAULT WITH AND WHATEVER IS STA TED IN SUPPORT OF THE ARGUMENT OF AO IS THAT LOOKING TO THE REVISED FIGUR ES THE DUTIES, TAXES ETC. HAD BECOME NIL AS AGAINST THE SAME WERE APPEAR ING IN EARLIER FIGURE ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 9 I AM AFRAID THAT AO HAS NOT UNDERSTOOD THE ADJUSTME NT OR ALLOCATION MADE BY THE APPELLANT COMPANY. IT WAS ALREADY EXPLA INED THAT LOSS AS IT WAS APPEARING WAS ATTRIBUTABLE TO THE FACT THAT AMO UNT OF DUTIES AND TAXES WERE INCLUDED IN GROUP OF MISCELLANEOUS ITEMS AS AGAINST ITS INDIVIDUAL ALLOCATION AND THEREFORE WHEN THE INDIVI DUAL ALLOCATION IS MADE OF SUCH DUTIES AND TAXES THE SAME IS BOUND TO BE NIL IN THE REVISED FIGURES SO GIVEN. 2.5 IT IS PERTINENT TO NOTE THAT BOARD HAS VIDE CIR CULAR DATED 11-4-1995 HAS CAST THE DUTY ON THE AO TO ADVICE THE ASSESSEE TO CLAIM BENEFIT TO HIS ADVANTAGE AND THAT HE IS NOT SUPPOSED TO TAKE ADVAN TAGE OF MISTAKE MADE BY THE ASSESSEE. THE RELEVANT PARA OF THE CIRC ULAR (CIRCULAR NO. 14(XI-35) OF 1955 DATED 11-4-1995) IS REPRODUCED AS UNDER, OFFICER OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DUTIES TO ASSIST A T AXPAYER IN EVERY REASONABLE WAY PARTICULARLY IN THE MATTER OF CLAIMING AND SECURING RELIEF AND IN THIS REGARD THE OFFICER SHOULD TAKE THE INITIATIVE IN GUIDING A TAX PAYER. 2.6. IN THE INSTANT CASE, THE AO HAS ACTED IN COMPL ETE DEFIANCE OF SPIRIT OF THE AFORESAID CIRCULAR ADDITION HAS ACTED UPON W ITHOUT APPRECIATING THE FACT THAT THE SAID NOTES TO ACCOUNTS WERE MEREL Y INFORMATION PROVIDED AS PER THE STATUTORY REQUIREMENT AS AGAINST ITS DIR ECT IMPACT ON THE PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT. IT IS ALSO RE LEVANT TO NOTE THAT AS PER THE REVISED FIGURES AND AS PER OLD FIGURES WHEN COMPARED IN TOTALITY THE FIGURES REMAINS THE SAME. THUS CONSIDERING THE FACT THAT THE AO HAS NOT POINTED OUT ANY DIRECT INFIRMITY IN THE REVISED FIGURES OF NOTES OF ACCOUNTS I AM INCLINED TO ACCEPT THE ARGUMENT OF TH E APPELLANT AND ADDITION MADE BY THE AO WAS MERELY BASED ON IRRELEV ANT MATERIAL AS AGAINST ACTUAL PROFIT DECLARED BY THE ALT AND HENCE IN ABSENCE OF ANY ADVERSE FININGS ADDITION MADE BY THE AO IN THIS REG ARD IS DELETED . 15. THE REVENUE IS AGAIN AGGRIEVED ON THIS ORDER. THE L EARNED D.R., WHILE ADMITTING THAT THE A.O. HAS NOT FOLLOWED THE DIRECT IONS OF THE CIT(A), HOWEVER, REQUESTED FOR RESTORING THE MATTER TO THE A.O. FOR EXAMINATION. 16. THE LEARNED A.R., HOWEVER, REITERATED THE SAME SUBM ISSIONS MADE BEFORE THE CIT(A) AND SAID THAT THE STATEMENT GIVEN IN THE NOTES TO THE ACCOUNTS WERE WRONGLY CONSIDERED BY THE A.O. AND TH E REVISED STATEMENTS FURNISHED WERE CORRECT AND THERE WAS NO NOTIONAL LO SS AND WHATEVER PROFIT DISCLOSED IN THE BOOKS OF ACCOUNT WAS CORRECT AND T HE A.O. ALSO DID NOT FIND OUT ANY DISCREPANCIES IN THE BOOKS OF ACCOUNT. HE A LSO SUBMITTED THAT IN INSPITE OF GIVING SO MANY OPPORTUNITIES AND REMANDI NG THE MATTER TO THE A.O., THE A.O. DID NOT FOLLOW THE INSTRUCTIONS OF T HE CIT(A) AND OBJECTED TO THE REQUEST OF SETTING ASIDE BACK TO THE A.O. ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 10 17. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ORDE R OF THE A.O. IT IS NOTICED THAT THE A.O. HAS WRONGLY TAKEN ONLY ONE IT EM OUT OF VARIOUS ITEMS GIVEN IN THE SCHEDULE AND CAME TO A CONCLUSION THAT THE ASSESSEE SUFFERED LOSS OUT OF MISCELLANEOUS ITEMS. AS FAR AS TOTALS OF THE PURCHASES AND SALES ARE CONCERNED OF ALL ITEMS THE SAME ARE TALLYING WITH S CHEDULE 14 AND 15 OF THE P & L ACCOUNT. THE ASSESSEE HAS DISCLOSED PROFITS IN TH E P & L ACCOUNT OUT OF ITS VARIOUS ACTIVITIES AND THE A.O. DID NOT FIND ANY MI STAKE IN ANY OF THE PURCHASE OR SALE DISCLOSED IN THE BOOKS OF ACCOUNT. IT IS ON LY FROM THE GROUPINGS MADE FOR THE PURPOSE OF THE NOTES TO THE ACCOUNTS THE A.O. H AS PICKED UP ONE ITEM AND ARRIVED AT THE SO CALLED LOSS WHEN IT WAS THE EXPLA NATION OF THE ASSESSEE THAT THE GROUPINGS WERE WRONGLY DONE BY EXCLUDING SALE T AX AND OTHER EXPENDITURES FROM OTHER ITEMS FROM COSTS AND PUT IT IN THE MISCE LLANEOUS HEAD BY WAY OF COMPUTER GENERATED STATEMENTS. ONCE THE ISSUE WAS B EFORE THE CIT(A), THE CIT(A) HAS EXAMINED THE DETAILS AND HAD GIVEN A CON CLUSION THAT THERE WAS NO LOSS INVOLVED IN MISCELLANEOUS ITEMS AND ALLOWED TH E GROUND BUT FOR TECHNICAL REASONS THE MATTER WAS REFERRED BACK TO THE A.O. FO R EXAMINATION BECAUSE THE SAID EXPLANATION WAS NOT CONSIDERED BY THE A.O. IN STEAD OF EXAMINING THE REVISED SCHEDULE FURNISHED REGROUPING THE ITEMS ON THE BASIS OF THE SAME BOOKS OF ACCOUNT THE A.O. CAME ON TECHNICALITIES TH AT IT WOULD AMOUNT TO ADDITIONAL EVIDENCE AND OBJECTED TO THE REVISED STA TEMENT AND MADE VARIOUS OTHER CONTENTIONS. THE CIT(A) HAS CONSIDERED ALL OF THEM IN THE SECOND ORDER AS EXTRACTED ABOVE AND CONSIDERED IN THE CORRECT PERS PECTIVE AND ALLOWED THE SAME. WHEN ASSESSEES SALES AND PURCHASES ARE TALLY ING WITH VARIOUS SCHEDULES AND THE ENTRIES ARE BASED ON THE BOOKS OF ACCOUNTS, JUST BECAUSE SOME OF THE EXPENDITURES ON OTHER ITEMS HAVE BEEN G ROUPED IN MISCELLANEOUS ITEMS HEAD, WE ARE UNABLE TO UNDERSTAND HOW THE A.O . COULD ARRIVE AT THE SO CALLED LOSS AND MADE ADDITION WHEN ASSESSEE HAS NOT CLAIMED ANY PARTICULAR LOSS OUT OF THE MISCELLANEOUS ITEMS. THE ENTIRE PUR CHASE AND SALES ARE PROPERLY RECORDED AND IT IS ONLY IN THE GROUPING IN THE SCHE DULE TO THE ACCOUNTS THE ITEMS HAVE BEEN PUT UNDER DIFFERENT HEAD BUT THAT D OES NOT MEAN THAT THE ASSESSEES BOOKS OF ACCOUNT ARE NOT IN ACCORDANCE W ITH THE SCHEDULES OF COMPANY LAW AND ASSESSEE HAS NOT MAINTAINED THE BOO KS PROPERLY. IT IS NOT THE CASE OF THE A.O. THAT BOOKS ARE NOT RELIABLE. A N HIGHER AUTHORITY LIKE CIT(A) ITA NO. 4805 & 1765/MUM/2007/08 M/S. DAGA PETROCHEMICALS LTD. 11 HAS EXAMINED THE ISSUE, CAME TO THE CONCLUSION THAT IT IS ONLY A REVISED GROUPING WHICH REQUIRES SUBSTITUTION AND STILL FELT THAT THE A.O. CAN EXAMINE THE SAME BUT SURPRISINGLY THE A.O. REFUSED TO UNDER STAND OR ACKNOWLEDGE THE FACTS. IF THE A.O. CLOSES HIS MIND AND ACTS ACCORDI NG TO HIS WHIMS AND FANCIES, THIS FORUM CANNOT COME TO THE RESCUE BY GIVING ONE MORE OPPORTUNITY TO THE A.O. FOR EXAMINING THE SAME, WHEN THE ORDERS OF THE CIT(A) ARE VERY CLEAR ABOUT THE REGROUPING AND ITS EXAMINATION. IN FACT IN THES E CIRCUMSTANCES, COSTS CAN BE LEVIED ON THE A.O. FOR MAKING AN UNNECESSARY ISS UE AND SUBJECTING THE ASSESSEE FOR LITIGATION. SINCE THE ASSESSEE HAS NOT ASKED FOR ANY COST AND IN GOOD FAITH ACCEPTED THE ORDERS OF THE CIT(A) WE REF RAIN FROM LEVYING ANY COSTS ON THE REVENUE. RAISING GROUND NOS. 10, 11 & 12 IN ITA NO. 4805/MUM/2007 ITSELF IS NOT WARRANTED AND FURTHER WHEN THE CIT(A) DECIDED THE ISSUE FACTUALLY, GOING IN APPEAL FURTHER IN ITA 1765/MUM/ 2008 ON FA CTUAL MATTERS IS UNWARRANTED. FOR THE REASONS DISCUSSED ABOVE, WE RE JECT THE GROUNDS 10,11,12 OF THE REVENUE IN ITA NO. 4805/MUM/2007 AND THE ENT IRE APPEAL IN ITA NO. 1765/MUM/2008. THERE IS NO ORDER AS TO COSTS. 18. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH MARCH 2010. SD/- SD/- (R.K. GUPTA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH MARCH 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIX, MUMBAI 4. THE CIT XIX, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.