ASST CIT CEN CIR 18 & 19, MUMBAI V. J.S.W. ISPAT STEEL LTD, NAVI MUMBAI

ITA 5616/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2369 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Assessment Year: 2011-2012
• Appeal Filed On: 03-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAVI TA BUNDAS
• Keywords: Depreciation; Search and seizure; Revised return; Unabsorbed depreciation
• Section: 143(3); 153A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEORE SHRI JASON P. BOAZ ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) ASSTT. COMMISSIONER OF INCOME TAX, CEN. CIR.18 & 19, ROOM |NO.401, 4 TH FLOOR, AAYKAR BHAVAN, MK ROAD, MUMBAI -20. ... APPELL ANT VS. M/S. J.S.W. ISPAT STEEL LTD., (FORMERLY KNOWN AS M/S. ISPAT INDUSTRIES LTD.) CASABLANCA, PLOT NO.45, SECTOR-11, CBD BELAPUR, NAVI MUMBAI. PAN: AAACI 6293E .... RESPONDENT APPELLANT BY : MS. SAVI TA BUNDAS RESPONDENT BY : SHRI RAKESH JOSHI DATE OF HEARING : 17/11/2015 DATE OF PRONOUNCEMENT : 20/11/2015 ORDER PER JASON P. BOAZ, A.M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-39, MUMBAI DATED 28/6/2013 FOR THE ASSESSMEN T YEAR 2011-12. 2. THE FACTS OF THE CASE BRIEFLY ARE AS UNDER:- 2 ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) 2.1 THE ASSESSEE IS A COMPANY ENGAGED IN THE PRODUC TION OF SPONGE IRON, GALVANIZED SHEETS, COLD ROLLED COILS AND HOT ROLLED COILS. A SEARCH AND SEIZURE ACTION UNDER SECTION 132 OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) WAS CONDUCTED IN THE GROUP OF CON CERNS ON 30/11/2010. FOR THE ASSESSMENT YEAR 2011-12, THE A SSESSEE FILED THE RETURN OF INCOME ON29/9/2011 DECLARING LOSS OF RS. 10,98,47,11,129/-. THE ASSESSEE SUBSEQUENTLY FILED REVISED RETURN OF I NCOME ON 29/3/2012 DECLARING LOSS OF RS.10,90,99,86,534/- AND AGAIN O N 28/9/2012 DECLARING LOSS OF RS.11,07,08,83,371/-, WHICH INCLU DED UNABSORBED DEPRECIATION OF RS.5,04,44,93,834/- AND BUSINESS L OSS OF RS.6,00,63,89,537/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 28/2/2013, WHERE IN THE INCOME OF THE ASSESSEE WAS ESTIMATED AT RS.91,00,00,000/-(NE T OF LOSSES) AS THE ASSESSING OFFICER WAS OF THE VIEW THAT THE BOOKS OF ACCOUNT ARE UNRELIABLE AND THE ADVANCE TAX PAYMENT OF RS.29.00 CRORES TRANSLATES INTO SUCH INCOME. THE ASSESSING OFFICER ALSO DID NOT ALLOW THE ASSESSEES CLAIM FOR CARRY FORWARD AND SET OFF OF EARLIER YEARS AS WELL AS CURRENT YEARS LOSSES AND UNABSORBED DEPRECIATION. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT DATED 28/ 2/2013 FOR ASSESSMENT YEAR 2011-12, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A)-39, MUMBAI. THE LD. CIT(A) DISPOSED OF THE ASSESSEES APPEAL VIDE ORDER DATED 28/6/2013, ALLOWING THE ASSESSEE PARTIAL RELIEF. 3. REVENUE, BEING AGGRIEVED BY THE ORDER OF THE CIT (A)-39, MUMBAI HAS PREFERRED THIS APPEAL RAISING THE FOLLOWING GRO UNDS:- 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) ERRED IN DISALLOWING THE ADDITION MADE BY THE AO ON THE BASI S OF ADVANCE TAX & BY 3 ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) INVESTIGATING SIX POINTS I.E. FLUCTUATION IN GP RAT IO, ERRATIC YIELD RATIO FROM SPONGE AND PLANT, DIFFERENCE IN COMMISSION DECLARED IN 153A RETURN VIZ A VIS DETAILS GIVEN TO SERVICE TAX AUTHORITY, POWER AND F UEL CONSUMPTION VIS A VIS TOTAL TURNOVER AND COMPARISON OF GP RATION OF THE A SSESSEE WITH OTHER COMPANIES & DETERMINED THE TOTAL INCOME AT RS.91,OO ,OO,OOO/- AGAINST THE TOTAL LOSS OF RS.11,07,08,83,371/- 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) FAILED TO APPRECIATE THE FACT MENTIONED BY THE AO IN HIS ASSE SSMENT ORDER AND DIRECTED THE AO TO ALLOW THE CARRY FORWARD AND SET OFF OF UNABSORBED BUSINESS LOSS AND DEPRECIATION OF EARLIER YEARS & A PPLY THE RELEVANT PROVISIONS OF THE ACT FOR THE PURPOSE DETERMINING T HE CORRECT FIGURE OF LOSS. 3. THE APPELLANT CRAVES TO LEAVE TO ADD, TO AMEND A ND/OR TO ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE. 4. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GROU NDS STATED ABOVE, THE ORDER OF THE CIT(A)-39, MUMBAI MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE GROUNDS RAISED AT SL.NOS. 3 & 4 ARE GENERAL IN NATURE AND, THEREFORE, NO ADJUDICATION IS CALLED FOR THEREON. 5. GROUND NO.1 ESTIMATION OF INCOME AT RS.91.00 CRORES 5.1 IN THIS GROUND REVENUE CONTENDS THAT THE LD. CI T(A) ERRED IN DISALLOWING THE ADDITION ON ACCOUNT OF ESTIMATION O F INCOME OF RS.91.00 CRORES MADE BY THE ASSESSING OFFICER ON T HE BASIS OF ADVANCE TAX AND THE FOLLOWING SIX POINTS I.E. (I) FLUCTUAT ION IN G.P RATIO; (II) ERRATIC YIELD FROM SPONGE IRON PLANT; (III) DIFFER ENCE IN COMMISSION DECLARED IN 153A RETURN VIS--VIS DETAILS GIVEN TO SERVICE TAX AUTHORITY; (IV) POWER AND FUEL CONSUMPTION VIS--VIS TOTAL TUR NOVER; (V) COMPARISON OF G.P. RATIO OF THE APPELLANT WITH OTHER COMPANIES AND (VI) HUGE AMOUNT OF ADVANCE TAX OF RS.29.00 CRORES PAID IN M ARCH, 2011. THE LD. DR WAS HEARD IN SUPPORT OF THE GROUND RAISED AND PL ACED RELIANCE ON THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 4 ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) 5.2 PER CONTRA, THE LD. AR SUPPORTED THE IMPUGNED O RDER OF THE LD. CIT(A) ON THIS ISSUE. THE LD. AR REITERATED THE SU BMISSIONS PUT UP BEFORE THE LD.CIT(A) AT PARA 5 TO 14 OF THE IMPUGNE D ORDER SUBMITTING THAT EACH OF THE SEVEN OBSERVATIONS OF THE ASSESSIN G OFFICER HAVE BEEN REBUTTED IN DETAIL. IT WAS SUBMITTED THAT THE ORDE R OF THE LD. CIT(A) DELETING THE ESTIMATION OF THE ASSESSEES TOTAL INC OME AT RS.91.00 CRORES BASED ON ADVANCE TAX PAYMENT OF RS.29.90 CRO RES IS IN ORDER AND IS TO BE UPHELD. IN THIS REGARD RELIANCE WAS PLACE D ON THE ORDER OF THE HONBLE APEX COURT IN THE CASE OF ACIT VS. A.R. ENT ERPRISES REPORTED IN (2013) 350 ITR 489(SC), WHEREIN IT HAS BEEN HELD TH AT IT WOULD BE DIFFICULT TO ACCEPT THE PLEA THAT THE PAYMENT OF AD VANCE TAX IS TANTAMOUNT TO THE DISCLOSURE OF INCOME OR THAT IT I NDICATES THE INTENTION OF THE ASSESSEE TO DISCLOSE COMMENSURATE INCOME IN THE RETURN OF INCOME. 5.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIAL ON RECORD. ACCORDING TO THE ASSESSING OFFICER, IN VIE W OF THE FACT THAT (I) THE ASSESSEE PAID ADVANCE TAX OF RS.29.90 CRORES IN MARCH, 2011 AND SUBSEQUENTLY DECLARED LOSS OF RS.11,07,08,83,371/-, THE BOOK RESULTS OF THE ASSESSEE WERE NOT RELIABLE AND THE OTHER DISCRE PANCIES SUCH (II) ERRATIC YIELD FROM SPONGE IRON PLANT;(III) DIFFEREN CE IN COMMISSION DECLARED IN RETURN OF INCOME VIS--VIS DETAILS GIVE N TO SERVICE TAX AUTHORITIES;(IV) POWER AND FUEL CONSUMPTION VIS--V IS TOTAL TURNOVER; (V) COMPARISON OF G.P. RATES OF THE ASSESSEE WITH OTHER COMPANIES, ETC. CALLED FOR REJECTION OF THE ASSESSEES BOOKS OF ACC OUNT AND ESTIMATION OF INCOME AT RS.91.00 CRORES ON THE BASIS OF ADVANCE TAX PAYMENTS. 5 ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) 5.3.2 IT IS SEEN THAT THE LD. CIT(A) AFTER EXAMININ G THE ASSESSING OFFICERS FINDINGS AND THE SUBMISSIONS OF THE ASSES SEE WAS OF THE VIEW THAT IF MATERIAL DEFECTS OR ANOMALIES WERE FOUND IN THE ASSESSEES BOOKS, IT WOULD BE A BASIS FOR ESTIMATION OF INCOME . THE LD. CIT(A) OBSERVED THAT, HOWEVER, IN THE CASE ON HAND, THE ES TIMATION OF THE ASSESSEES INCOME BY THE ASSESSING OFFICER BASED O N ADVANCE TAX/PAYMENTS WAS NOT CALLED FOR, WHEN THE ASSESSING OFFICER HAS FAILED TO POINT OUT DEFECTS IN THE ASSESSEES AUDITED BOOK S OF ACCOUNTS. THE LD. CIT(A) FURTHER OBSERVED THAT IN THE CASE ON HAN D, NO SUPPRESSION OF TURNOVER HAS BEEN ESTABLISHED AND THAT LOW G.P BY I TSELF IS NOT A VALID REASON FOR REJECTING THE BOOK RESULTS AND ESTIMATIO N OF INCOME. AT PARAS 9.3 AND 9.4 OF THE IMPUGNED ORDER, THE LD. CI T(A) HAS HELD AS UNDER:- 9.3 THE A.O. THUS ESTIMATED THE TOTAL INCOME FOR T HE IMPUGNED YEAR SOLELY ON THE BASIS OF THE ADVANCE TAX PAID. WHAT IS REQUI RED TO BE EXAMINED IS WHETHER THE ESTIMATE BASED ON THE ADVANCE TAX PAID CAN BE EQUATED WITH THE TOTAL TAXABLE INCOME OF A PREVIOUS YEAR. A LOW G.P. BY ITSELF IS CERTAINLY NOT A VALID REASON FOR REJECTING THE BOOK RESULTS A ND ESTIMATION OF INCOME. CERTAINLY IF THERE ARE MATERIAL DEFECTS, THE INCOME CAN BE ESTIMATED BUT IT HAS TO BE ON A SOUND BASIS. CERTAINLY, IF THERE ARE ANOMALIES NOTICED IN THE BOOKS AS MAINTAINED IT CALLS FOR ADDITION/DISALLOWA NCES, BUT IT WOULD NOT BE FAIR TO ESTIMATE THE INCOME SOLELY ON THE BASIS OF THE ADVANCE TAX REMITTED. IT IS TO BE AGREED THAT IN THE PRESENT CASE,NO SUPPRE SSION OF RECEIPTS HAVE BEEN POINTED OUT.THOUGH CERTAINLY THE ADVANCE TAX IS AN INDICATION OF THE TAXABLE PROFITS OF THE COMPANY, THE ESTIMATION MADE FOR THE PURPOSE OF ADVANCE TAX IS AT BEST ONLY AN ESTIMATE AND CANNOT PARTAKE OF T HE CHARACTER OF TOTAL TAXABLE INCOME OF A GIVEN YEAR. THE FACT THAT IN TH IS CASE THERE WAS A SEARCH ACTION AND THAT A DECLARATION WAS MADE CANNOT BE LO ST SIGHT OF. WHEN A DECLARATION IS MADE CONSEQUENT TO A SEARCH, TAXES C OMMENSURATE WITH THE DECLARATION HAVE TO BE REMITTED. THIS ARGUMENT RAIS ED BY THE APPELLANT, ON THE FACTS OF THIS CASE, CANNOT BE LOST SIGHT OF. 9.4 APART FROM POINTING OUT CERTAIN ANOMALIES, NO M AJOR DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE APPELLANT HAVE BEEN P OINTED OUT BY THE A.O. IT 6 ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) IS RECKONED THAT THE APPELLANT IS A WIDELY HELD PUB LIC COMPANY AND THAT ITS ACCOUNTS ARE SUBJECT TO STATUTORY AUDIT .. THE ESTI MATION OF INCOME IS ON THE BASIS OF PAYMENT OF TAXES, IGNORING THE AUDITED ANN UAL ACCOUNTS AND THE PAST YEARS' AFFAIRS AND WITHOUT POINTING OUT MAJOR DEFEC TS IN THE BOOKS OF ACCOUNTS AS MAINTAINED. THE PAYMENT OF TAXES CANNOT BE A BASIS FOR ESTIMATION OF INCOME. IN FACT IN THE PRESENT CASE I NCOME HAS BEEN ESTIMATED AT RS. 91,00,00,000/- WHICH IS BASED ON THE INCOME ESTIMATED FOR THE PURPOSE OF ADVANCE TAX REMITTANCE. AS PER THE SCH EME OF THE ACT THE ADVANCE TAX IS PAID ON ESTIMATE OF INCOME AND IS NO T THE FINAL TAX PAYMENT; THERE COULD BE EXCESS PAYMENT OR SHORT PAYMENT. IN FACT IT IS DURING THE PROCESS OF ASSESSMENT THAT THE A.O. HAS TO CORRECTL Y DETERMINE THE ASSESSABLE INCOME AND THE TAXES DUE. AS PER THE PRO VISIONS OF SEC. 209 WHICH LAYS THE METHOD FOR COMPUTATION OF ADVANCE TAX, IT IS STIPULATED THAT THE ASSESSEE SHALL FIRST ESTIMATE ITS CURRENT INCOME AN D INCOME TAX THERE ON HAS TO BE CALCULATED. AFTER THE SAID ESTIMATION OF CURR ENT INCOME IN ACCORDANCE WITH SECTION 210, EVERY PERSON LIABLE TO ADVANCE TA X SHALL PAY ADVANCE TAX ON THE CURRENT INCOME CALCULATED IN THE MANNER LAID DO WN IN SEC. 209. IN OTHER WORDS, THE 'CURRENT INCOME' WHICH FORMS THE BASIS F OR ADVANCE TAX IS AN ESTIMATION AND NOT THE FINAL TOTAL INCOME.AS PER P ROVISIONS OF LAW ADVANCE TAX IS PRE-ASSESSMENT COLLECTION OF TAXES WHICH IS TO BE LATER ADJUSTED TOWARDS THE INCOME TAX LEVIED ON THE TOTAL INCOME A S FINALLY DETERMINED. AN ESTIMATE BY ITS VERY NATURE HAS AN ELEMENT OF GUESS WORK AND HENCE PRONE TO BE INACCURATE. FOR THE SAID REASONS, IT HAS TO BE H ELD THAT THE PAYMENT OF TAXES CANNOT BE A BASIS FOR ESTIMATION OF INCOME. T HEREFORE, I AM UNABLE TO SUSTAIN THE ACTION OF THE A.O. IN ASSESSING THE TOT AL INCOME AT RS. 91 CRS. ALSO IGNORING THE ACCUMULATED LOSSES AS DETERMINED IN TH E EARLIER YEARS AS PER RETURNS OF INCOME FILED. 5.3.2 BEFORE US, REVENUE HAS FAILED TO CONTRAVENE T HE FINDING OF THE LD. CIT(A) IN THE IMPUGNED ORDER THAT THE ASSESSING OFF ICERS ESTIMATION OF THE ASSESSEES INCOME, PRIMARILY ON THE BASIS OF AD VANCE TAX PAID AND REJECTION OF BOOKS OF ACCOUNT WITHOUT FINDING ANY D ISCREPANCY OR SUPPRESSION OF TURNOVER, ETC., IS NOT SUSTAINABLE. WE CONCUR WITH THE VIEW OF THE LD. CIT(A) THAT IT IS DIFFICULT TO ACCE PT THE REVENUES PLEA THAT PAYMENT OF ADVANCE TAX IS TANTAMOUNT TO DISCL OSURE OF INCOME BY THE ASSESSEE OR THAT IT CAN BE THE SOLE BASIS FOR E STIMATION OF THE ASSESSEES INCOME. IN THIS FACTUAL MATRIX OF THE CASE, WE UPHOLD THE ACTION OF THE LD. CIT(A) IN DELETING THE ASSESSING OFFICERS ESTIMATION OF 7 ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) THE ASSESSEES INCOME AT RS.91.00 CRORES. CONSEQUE NTLY, GROUND NO.1 OF REVENUES APPEAL IS DISMISSED. 6. GROUND NO.2 CARRY FORWARD AND SET OFF OF BUSIN ESS LOSS AND UNABSORBED DEPRECIATION: 6.1 IN THIS GROUND, REVENUE CONTENDS THAT THE LD. C IT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW CARRY FORW ARD AND SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEPREC IATION OF EARLIER YEARS. 6.2 WE HAVE HEARD BOTH THE LD.DR FOR THE REVENUE A ND THE LD. AR FOR THE ASSESSEE. THE FACTS THAT EMANATE FROM THE RECORD ARE THAT THE ASSESSING OFFICER ESTIMATED THE ASSESSEES INCOME A T RS.91.00 CRORES, NET OF LOSSES. IN THESE CIRCUMSTANCES, AS OBSERV ED BY THE LD. CIT(A), IT IS CLEARLY EVIDENT THAT THE ASSESSING OFFICER HAD NOT EXAMINED THE ASSESSEES CLAIM FOR CARRY FORWARD AND SET OFF OF EARLIER YEARS BUSINESS LOSSES AND UNABSORBED DEPRECIATION. REVENUES CONT ENTION THAT THE LD. CIT(A) HAD DIRECTED THE ASSESSING OFFICER TO ALLOW THE ASSESSEES CLAIM IN THIS REGARD IS FACTUALLY INCORRECT. THE LD. CIT(A) , IN FACT, HAS OBSERVED AT PARA 9.4 OF THE IMPUGNED ORDER THAT SINCE THE ASSE SSING OFFICER HAD REJECTED THE ASSESSEES BOOKS OF ACCOUNT SUMMARILY , HE WOULD NOT HAVE EXAMINED THE ASSESSEES CLAIM FOR CARRY FORWA RD AND SET OFF OF BUSINESS LOSSES AND UNABSORBED LOSSES OF EARLIER YE ARS AND, THEREFORE, DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ASSE SSEES CLAIM IN ACCORDANCE WITH LAW AND ALSO TO DISPOSE OFF THE PE NDING RECTIFICATION APPLICATIONS, IF ANY, IN THIS REGARD. THE LD. AR O F THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE ORDER GIVING EFFECT T O THE IMPUGNED ORDER 8 ITA NO. 5616/MUM/2013 (ASSESSMENT YEAR : 2011-12) OF THE LD. CIT(A) DATED 31/03/2014 PLACED AT PAGE 8 5 AND 86 OF THE ASSESSEES PAPER BOOK, WHEREIN THE ASSESSING OFFICE R HAS EXAMINED AND ADJUDICATED ON THE ASSESSEES CLAIM FOR CARRY FORWA RD AND SET OFF OF UNABSORBED LOSSES AND DEPRECIATION. IN THE ABOVE F ACTUAL MATRIX, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THIS G ROUND NO.2 RAISED BY THE REVENUE AND ACCORDINGLY DISMISS THE SAME. 7. IN THE RESULT, REVENUES APPEAL FOR ASSESSMENT Y EAR 2011-12 IS DISMISSED. SD/- SD/- (RAM LAL NEGI) (JASON P. BOAZ) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 17/11/2015 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS