UDAY KASHINATH PATIL, MUMBAI V. ASST CIT 20(3), MUMBAI

ITA 5521/MUM/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9537 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 01-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: POOJA SWAROOP
• Keywords: Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO. 5521/MUM/2014 : A.Y : 2009 - 10 SHRI UDAY KASHINATH PATIL C/O UDAY STRUCTURALS & ENGINEERS, 602 - 603, CRYSTAL PLAZA, ANDHERI - GHATKOPAR LINK ROAD, CHAKALA, ANDHERI (E), MUMBAI 400 099. PAN : AACPP0022B (APPELLANT) VS. ACIT - 20(3), MUMBAI (RESPONDENT) APPELLANT BY : SHRI ANIL SATHE RESPONDENT BY : MS. POOJA SWAROOP DATE OF HEARING : 05/10/2018 DATE OF PRONOUNCEMENT : 19 /12/2018 O R D E R PER G.S. PANNU , VICE PRESIDENT : THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 31 , MUMBAI DATED 23.06.2014 , PERTAINING TO THE ASSESSMENT YEAR 2009 - 10 , WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 30.12.2011 PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. ALTHOUGH THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT THE SOLITARY DISP UTE REVOLVES AROUND THE ACTION OF INCOME - TAX AUTHORITIES IN 2 ITA NO. 5521/MUM/2014 UDAY KASHINATH PATIL DISALLOWING A SUM OF ` 7 8 ,88,889/ - CLAIMED BY THE ASSESSEE AS A BUSINESS LOSS. 3. IN ORDER TO APPRECIATE THE CONTROVERSY, THE RELEVANT FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN VAR IED ACTIVITIES, NAMELY, MANUFACTURING, TRADING AND HIRING OF SCAFFOLDING AND SHUTTERING MATERIAL AND EQUIPMENT AND RELATED ERECTION CONTRACTS AND OTHER ACTIVITIES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, HE FILED A RETURN OF INCOME DECLARING A TOTAL INCOME OF ` 73,20,557 / - , WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT IN THE PROFIT & LOSS ACCOUNT ASSESSEE HAD DEBITED LOSS ON INVESTMENT AMOUNTING TO ` 78,88,887/ - . ON BEING SHOW CAUSED AS TO HOW LOSS ON INVESTMENT COULD BE ALLOWED AS A REVENUE ITEM , ASSESSEE EXPLAINED THAT THE SUM WAS INCURRED IN RELATION TO OBTAINING A DISTRIBUTORSHIP OF HERBAL PRODUCTS OF A COMPANY BASED IN CHENNAI BY THE NAME OF GALAXY AMAZE KINGDOM LTD. AS THE SAID CONCERN WENT INTO LIQUIDATION, AND SINCE THERE WAS NO POSSIBILITY OF RECOVERY OF THE AMOUNT, THE SAME WAS WRITTEN - OFF AS A BUSINESS LOSS. THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA OF THE ASSESSEE AS, ACCORDING TO HIM, ANY LOSS O N INVESTMENT WAS CAPITAL IN NATURE AND, THEREFORE, COULD NOT BE ALLOWED AS A REVENUE LOSS . 4. BEFORE THE CIT(A), ASSESSEE ASSAILED THE STAND OF THE ASSESSING OFFICER IN LAW AND ON FACTS. WE FIND THAT IN TERMS OF THE WRITTEN SUBMISSIONS MADE TO THE CIT(A), A COPY OF WHICH IS PLACED IN PAPER BOOK AT PAGES 1 TO 11, ASSESSEE EXPLAINED THE ENTIRE ARRANGEMENT WITH GALAXY AMAZE KINGDOM LTD. IN DETAIL. ASSESSEE EXPLAINED BEFORE THE CIT(A) THAT ASSESSEE DECIDED TO TAKE - UP THE DISTRIBUTORSHIP OF GALAXY AMAZE KINGDOM LTD. FOR HERBAL 3 ITA NO. 5521/MUM/2014 UDAY KASHINATH PATIL PRODUCTS, WHICH WAS A CONCERN BASED IN CHENNAI. IN TERMS OF THE ARRANGEMENT WITH THE SAID CONCERN, HE MADE PAYMENT OF ` 50,00,000/ - IN FEBRUARY, 2008 AND SO FAR AS THE YEAR UNDER APPEAL IS CONCERNED, HE MADE A FURTHER PAYMENT OF ` 78,88,889/ - . THE PAYMENTS MADE DURING THE YEAR UNDER CONSIDERATION WERE TOWARDS PROCUREMENT OF MATERIAL. HOWEVER, THE SUPPLIES WERE NOT FORTHCOMING. IT WAS POINTED OUT THAT THE SAID CONCERN ULTIMATELY WENT INTO LIQUIDATION, SO THE ACTIVITIES OF SELLING OF HERBAL PRODUCTS DID NOT FRUCTIFY. THE CLAIM OF THE ASSESSEE WAS THAT THE ASSESSING OFFICER HAS MERELY GONE BY THE NOMENCLATURE LOSS ON INVESTMENT AS STATED IN THE PROFIT & LOSS ACCOUNT, WHEREAS IN EFFECT IT WAS A CASE OF BUSINESS LOSS. ASSESSEE POINTED OUT THAT THE IMPUGNED AMOUNT IS NOT AN INVESTMENT , AS UNDERSTOOD IN THE TECHNICAL SENSE OF THE WORD, AND THAT IT WAS A CASE WHERE THE LOSS HAS BEEN SUFFERED IN THE COURSE OF CARRYING ON A BUSINESS ACTIVITY OR TRANSACTION. ASSESSEE ALSO POINTED O UT TO THE CIT(A) THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OF 2008 - 09, ASSESSEE HAD PAID A SUM OF ` 50,00,000/ - IN CONNECTION WITH THE SAME ACTIVITY AND BEFORE FILING RETURN OF THAT ASSESSMENT YEAR, IT HAD BECOME CLEAR THAT THE SAID SUM WAS IRRETRIE VABLE AND THEREFORE IT WAS CLAIMED AS A WRITE - OFF. IN AN ASSESSMENT FRAMED UNDER SECTION 143(3) FOR ASSESSMENT YEAR 2008 - 09, SUCH A LOSS STOOD ALLOWED BY THE ASSESSING OFFICER. ALL THESE ASPECTS WERE BEFORE THE CIT(A), INCLUDING A COPY OF THE MEMORANDUM OF UNDERSTANDING SIGNED BY THE ASSESSEE WITH GALAXY AMAZE KINGDOM LTD., WHICH WAS FURNISHED BY THE ASSESSEE AS ADDITIONAL EVIDENCE , AS THE SAME WAS HITHERTO NOT BEFORE THE ASSESSING OFFICER. THOUGH THE CIT(A) ADMITTED SUCH ADDITIONAL EVIDENCE IN TERMS O F RULE 46 A OF THE INCOME TAX RULES, 1962 AND ALSO OBTAINED A REMAND REPORT FROM THE ASSESSING OFFICER , HOWEVER, HE WAS NOT SATISFIED WITH THE EXPLANATION RENDERED BY THE ASSESSEE. ACCORDING TO THE CIT(A), THE AMOUNT 4 ITA NO. 5521/MUM/2014 UDAY KASHINATH PATIL IN QUESTION WAS IN NO WAY CONNECTED TO THE EXISTING BUSINESS ACTIVITY OF THE ASSESSEE AND, THEREFORE, IT WAS TO BE UNDERSTOOD AS AN INVESTMENT OF A CAPITAL NATURE AND THE CONSEQUENT LOSS IS NOT ALLOWABLE AS A BUSINESS LOSS. IN THIS MANNER, HE HAS AFFIRMED THE STAND OF THE ASSESSING OFFICER, AG AINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAS PRIMARILY REITERATED THE STAND OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES THAT THE IMPUGNED AMOUNT WAS TO BE VIEWED AS A BUSINESS LOSS INASMUCH AS THE AMOUNT WAS INITIALLY LAID OUT FOR THE PURPOS E OF BUSINESS. IN THIS CONTEXT, HE HAS TAKEN US THROUGH THE MEMORANDUM OF UNDERSTANDING ENTERED WITH GALAXY AMAZE KINGDOM LTD. DATED 02.02.2008 AND ALSO OTHER CORRESPONDENCE TO POINT OUT THAT THE NOMENCLATURE GIVEN TO THE LOSS IN THE PROFIT & LOSS ACCOUNT , I.E. LOSS ON INVESTMENT , IS NOT THE CORRECT WAY TO EXAMINE THE NATURE OF THE TRANSACTION. THE LEARNED REPRESENTATIVE POINTED OUT THAT THERE IS NO DENYING THE FACT THAT THE MONEY IN QUESTION WAS LAID OUT FOR THE PURPOSE OF BUSINESS AND THAT THE LOSS HA D INDEED INCURRED DURING THE YEAR INASMUCH AS THE MONEY COULD NOT BE RETRIEVED AS THE OTHER CONCERN TURNED OUT TO BE FRAUDULENT AND WENT INTO LIQUIDATION ALSO. IT WAS ALSO EMPHASISED THAT THE SUM ADVANCED TO THE SAID CONCERN IN THE PRECEDING ASSESSMENT YE AR OF 2008 - 09 IN TERMS OF THE SAME MEMORANDUM OF UNDERSTANDING WAS CLAIMED AS A LOSS, WHICH STOOD ALLOWED IN AN ASSESSMENT FINALISED UNDER SECTION 143(3) OF THE ACT. 6. AN ALTERNATE PLEA HAS ALSO BEEN RAISED THAT THE CORRESPONDENCE WITH GALAXY AMAZE KINGD OM LTD. CLEARLY SHOWED THAT SUBSTANTIAL PAYMENT WAS IN FACT MADE FOR PROCUREMENT OF MATERIAL AND STOCKS, WHICH WAS TO BE SOLD BY 5 ITA NO. 5521/MUM/2014 UDAY KASHINATH PATIL THE ASSESSEE IN THE AGENCY BUSINESS , AND NON - RECOVERY OF THE MONEY OR MATERIAL IN THIS CONTEXT IS CLEARLY A LOSS SUFFERED ON AC COUNT OF TRADE OR BUSINESS. 7. ON THE OTHER HAND, THE LD. DR HAS DEFENDED THE ORDERS OF THE AUTHORITIES BELOW BY PLACING RELIANCE THEREON AND ALSO REITERATING THE REASONING TAKEN BY THE LOWER AUTHORITIES, WHICH WE HAVE ALREADY NOTED IN SUFFICIENT DETAIL EARLIER AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. AS OUR DISCUSSION IN THE AFORESAID PARAS SHOW, THE SUM AND SUBSTANCE OF THE DISPUTE IS WITH REGARD TO THE DEBIT MADE IN THE PROFIT & LOSS AC COUNT OF ` 78,88,889/ - UNDER THE HEAD LOSS ON INVESTMENT. WE FIND THAT THE ASSESSING OFFICER WAS OVERLY INFLUENCED BY THE NOMENCLATURE LOSS ON INVESTMENT IN DISALLOWING ASSESSEES CLAIM. IN FACT, IT WOULD HAVE BEEN APPROPRIATE FOR THE ASSESSING OFFICE R TO EXAMINE THE NATURE OF THE TRANSACTION AND ONLY THEREAFTER DECIDE AS TO WHETHER IT IS A CASE OF BUSINESS LOSS, AS SOUGHT TO BE MADE OUT BY THE ASSESSEE, OR A CAPITAL LOSS. AFTER PERUSING THE ORDER OF CIT(A), WE FIND THAT THE AFORESAID APPROACH HAS BEE N IMPLIEDLY ACCEPTED BY THE CIT(A), SO HOWEVER, THE CIT(A) DID NOT ACCEPT ASSESSEES CLAIM OF BUSINESS LOSS AS, ACCORDING TO HER, THE AMOUNTS IN QUESTION WERE NOT LAID OUT IN CONNECTION WITH THE EXISTING BUSINESS OF THE ASSESSEE. IN THIS BACKGROUND, WE MAY NOW EXAMINE THE NATURE OF TRANSACTION. 9. AS NOTED EARLIER, ASSESSEE IS ALREADY CARRYING ON BUSINESS, WHICH IS IN THE FIELD OF MANUFACTURE, TRADING AND HIRING OF SCAFFOLDING/SHUTTERING MATERIAL AND ALSO UNDERTAKING RELATED ERECTION CONTRACTS, ETC. UN DOUBTEDLY, 6 ITA NO. 5521/MUM/2014 UDAY KASHINATH PATIL THE MEMOR A NDUM OF UNDERSTANDING OF THE ASSESSEE WITH GALAXY AMAZE KINGDOM LTD. WAS FOR THE ACTIVITY OF DEALING IN HERBAL PRODUCTS, WHICH WAS A NEW ACTIVITY, BUT THAT BY ITSELF CANNOT BE THE SOLE REASON TO SAY THAT THE ASSESSEE HAS UNDERTAKEN TO START A NEW BUSINESS IN THIS YEAR . WE SAY SO FOR MORE THAN ONE REASON. SO FAR AS THE FACTUAL ASPECT IS CONCERNED, THE UNDERSTANDING WITH GALAXY AMAZE KINGDOM LTD. IS NOT SPECIFIC TO THE YEAR UNDER CONSIDERATION AND, IN FACT, EXISTED IN THE PRECEDING ASSE SSMENT YEAR OF 2008 - 09 ALSO. PERTINENTLY, IN ASSESSMENT YEAR 2008 - 09, IN PURSUANCE TO THE VERY SAME MEMORANDUM OF UNDERSTANDING, ASSESSEE HAD EXPENDED A SUM OF ` 50,00,000/ - . THE REASON AS TO WHY THE ASSESSEE DID NOT PURSUE THIS ACTIVITY OF TRADING IN HER BAL PRODUCTS HAS BEEN CONSISTENTLY CANVASSED BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US ; I.E. THE OTHER CONCERN, GALAXY AMAZE KINGDOM LTD. , BEING A FRAUDULENT ENTITY AND ITS SUBSEQUENT GOING INTO LIQUIDATION. THIS ASPECT PREVAILED WITH THE ASSESSEE TO CLAIM THE SUM OF ` 50,00,000/ - ( PAID IN ASSESSMENT YEAR 2008 - 09 ) AS A BUSINESS LOSS, A POSITION WHICH HAS BEEN ACCEPTED BY THE R EVENUE IN AN ASSESSMENT MADE UNDER SECTION 143(3) OF THE ACT FOR ASSESSMENT YEAR 2008 - 09. NONE OF THE AUTHORITIES BELOW, A ND NOR THE DEPARTMENT HAS REBUTTED THIS ASPECT OF THE MATTER. THUS, IT CLEARLY TRANSPIRES THAT THE NATURE OF THE TRANSACTION HAS BEEN ACCEPTED TO BE IN THE REALM OF BUSINESS TRANSACTION BY THE R EVENUE ITSELF IN ASSESSMENT YEAR 2008 - 09 . MOREOVER, IN THE PRESENT YEAR, ASSESSEE LAID OUT THAT IT HAD MADE PAYMENT FOR PROCUREMENT OF MATERIAL FOR THE SAID ACTIVITY AND THAT ALSO COULD NOT FRUCTIFY BECAUSE OF THE INABILITY OF GALAXY AMAZE KINGDOM LTD. TO MAKE SUPPLIES , FOR THE REASONS WHICH WE HAVE NOTED EARLIER . THEREFORE, HAVING REGARD TO THE HISTORY AS WELL AS THE CONTOURS OF THE UNDERSTANDING BETWEEN ASSESSEE AND GALAXY AMAZE KINGDOM LTD., IT HAS TO BE IRRESISTIBLY INFERRED THAT THE AMOUNTS IN QUESTION WERE LAID OUT FOR THE 7 ITA NO. 5521/MUM/2014 UDAY KASHINATH PATIL PURPOSE OF BUSINESS. THE FACT THA T THE AMOUNT S WERE IRRETRIEVABLE BECAUSE OF THE REASONS BEYOND THE CONTROL OF THE ASSESSEE IS ALSO UNDISPUTABLE INASMUCH AS IN ASSESSMENT YEAR 2008 - 09, FOR THE VERY SAME REASON, THE IRRECOVERABILITY OF THE AMOUNT FROM GALAXY AMAZE KINGDOM LTD. HAS BEEN ACCEPTED TO BE AN ALLOWABLE LOSS. 10. THEREFORE, UNDER THESE CIRCUMSTANCES, THE ARGUMENT OF THE CIT(A) THAT THE AIM OF THE MEMORANDUM OF UNDERSTANDING TO ACQUIRE DISTRIBUTORSHIP OF HERBAL PRODUCT WAS AN ATTEMPT AT DIVERSIFICATION OF BUSINESS IN THIS YEAR CANNOT BE SUSTAINED. WHILE, IN - PRINCIPLE, THE AFORESAID INFERENCE OF THE CIT(A) MAY BE LIABLE TO BE UPHELD IN A GIVEN CASE, YET CONSIDERING THE FACTS OF THE INSTANT CASE AS ALSO THE STAND OF THE REVENUE IN THE PAST YEAR, WE DO NOT UPHOLD THE AFORESAID INF ERENCE OF THE CIT(A) IN THE INSTANT YEAR. THEREFORE, WE SET - ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE AMOUNT IN QUESTION AS BUSINESS LOSS. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPE N COURT ON 1 9 T H DECEMBER, 2018. SD/ - SD/ - ( SANDEEP GOSAIN ) JUDICIAL MEMBER ( G.S. PANNU ) VICE PRESIDENT MUMBAI, DATE : 1 9 T H DECEMBER , 2018 *SSL* 8 ITA NO. 5521/MUM/2014 UDAY KASHINATH PATIL COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, F BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI