ENERPAC HYDRAULICS (INDIA) P. LTD, MUMBAI V. DCIT 10(3), MUMBAI

ITA 5624/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1324 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2003-2004
• Appeal Filed On: 15-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUM EET KUMAR
• Assessee Lawyers: SANJEEV M SHAH; NEHA SAMPAT
• Keywords: Business expenditure; Revised return
• Section: 250

Judgement Text

ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI BEFORE, SHRI N.V. VASUDEVAN (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 5624/MUM/2009 ASSESSMENT YEARS 2003-04 DATE OF HEARING : 22.6.2010 ENERPAC HYDRAULICS (I) PVT. LTD. .. .... APPELLANT NO.1A, PEENYA INDUSTRIAL AREA PHASE II, BANGALORE 560 058 PAN AAACE8487A VS. DY. COMMISSIONER OF INCOME TAX .. RESPON DENT RANGE 10(3), AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020 APPELLANT BY : SHRI SANJEEV M. SHAH AND MS. NEHA SAMPAT RESPONDENT BY : SHRI SUMEET KUMAR O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CALLED I NTO QUESTION CORRECTNESS OF LD. CIT(A)S ORDER DATED 24 TH OCTOBER 2008, FOR ASSESSMENT YEAR 2003-04. ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 2 OF 8 2. IN GROUND NO.1, THE GRIEVANCE OF THE ASSESSEE IS AS FOLLOWS:- THE LD. CIT(A) ERRED IN LAW AND FACTS OF THE CASE IN UPHOLDING ACTION OF THE DCIT 10(3), IN MAKING AN ADDITION OF RS.9,09,076 AS UNACCOUNTED SALES IN RESPECT OF S HORTAGES IN QUANTITY OF CERTAIN ITEMS OF CLOSING STOCK. 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, AND ON PER USAL OF THE QUANTITATIVE DETAILS FURNISHED IN ANNEXURE-10 OF TH E TAX AUDIT REPORT, THE ASSESSING OFFICER OBSERVED THAT THE THERE ARE C ERTAIN SHORTAGES IN THE CLOSING STOCK. THE ASSESSING OFFICER REQUIRED T HE ASSESSEE TO SHOW CAUSE AS TO WHY THIS SHORTAGES SHOULD NOT BE TREATE D AS UNACCOUNTED SALES. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, I T WAS SUBMITTED BY THE ASSESSEE THAT THE SHORTAGES IN QUESTION CONSTIT UTE ONLY 1.17% OF THE OPENING STOCK AND PURCHASE AND IT WAS UNAVOIDAB LE COMMON SHORTAGES IN THE COURSE OF BUSINESS. IT WAS ALSO PO INTED OUT THAT THE ACCOUNTS HAVE BEEN DULY AUDITED AND THE CLOSING STO CK HAS BEEN DULY VERIFIED BY THE AUDITOR AND THAT THERE ARE NO ADVER SE COMMENTS IN THIS REGARD BY THE AUDITOR OF THE COMPANY. IT WAS, THUS, SUBMITTED THAT A BONAFIDE SHORTAGES IN THE NORMAL COURSE OF BUSINESS CANNOT BE TREATED AS UNACCOUNTED SALES. HOWEVER, THESE EXPLANATIONS D ID NOT SATISFY THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT THE ASSE SSEE HAS NOT PRODUCE ANY EVIDENCE WHATSOEVER TO EXPLAIN THESE SH ORTAGES. ON THESE FACTS, THE ASSESSING OFFICER OBSERVED THAT WHAT IS SHOWN AS SHORTAGES, IS IN FACT BEING SOLD OUT OF THE BOOKS OF ACCOUNT. ACCORDINGLY, THE ADDITION OF RS.9,09,076/- REPRESENTING THE SALE PRI CE OF ITEMS CLAIMED AS SHORTAGES WAS MADE TO THE RETURNED INCOME OF THE ASSESSEE. ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 3 OF 8 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE THE LD. CIT(A). THE LD. CIT(A), FOLLOWING HIS OWN ORDER FOR ASSESSMENT YEAR 2001-02, CONFIRMED THE ACTION OF THE ASSESSING OFFI CER AND DECLINED TO INTERFERE IN THE MATTER. THE LD. CIT(A) ALSO OBSERV ED THAT ALL THE ITEMS WHEREIN SHORTAGES HAVE BEEN SHOWN ARE HIGH VALUED I TEMS WHICH CANNOT BE EXPLAINED BY GIVING GENERAL EXPLANATION A ND THAT THE ASSESSEE HAS NOT BEEN ABLE TO BRING ON RECORD ANY F .I.R. OR CORRESPONDENCE WHICH COULD SUBSTANTIATE THE GENERAL REASON CITED BY IT. THE STAND OF THE ASSESSING OFFICER WAS, THUS, U PHELD AND IN FACT FORTIFIED BY THE LD. CIT(A). AGGRIEVED BY THE STAND SO TAKEN BY THE LD. CIT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE TH E TRIBUNAL. 5. BEFORE US, BOTH THE LEARNED REPRESENTATIVES AGREE T HAT THIS ISSUE IS NOW COVERED BY TRIBUNALS DECISION IN ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 2001-02, WHEREBY, THE TRIBUNAL HAS RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FO R ADJUDICATION DENOVO. AS A MATTER OF FACT, THE IMPUGNED ORDER PAS SED BY THE LD. CIT(A), HE HAS HIMSELF EXTRACTED THE ORDER OF THE T RIBUNAL, THOUGH INCOMPLETE, IN THIS REGARD. HE HAS REPRODUCED THE O BSERVATIONS WHICH ARE AGAINST THE ASSESSEE BUT OMITTED THE OBSERVATIO NS WHEREBY THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OF FICER FOR ADJUDICATION DENOVO. IT IS ONLY ELEMENTARY THAT THE LD. CIT(A) SHOULD HAVE FOLLOWED THE ORDER OF THE TRIBUNAL IN THE LETT ER AND SPIRIT INSTEAD OF DISTORTING THE SAME BY SELECTIVE REFERENCE TO TH E ORDER. BE THAT AS IT MAY, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTE R BACK TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION DENOVO ON THE SA ME LINES, AS WAS DIRECTED BY THE TRIBUNAL IN ASSESSMENT YEAR 2001-02 . THE OBSERVATIONS MADE BY THE TRIBUNAL IN THE ORDER DATE D 27 TH MAY 2008 ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 4 OF 8 IN RESPECT OF THE AFORESAID ASSESSMENT, SHALL APPLY MUTATIS MUTANDIS FOR THIS YEAR AS WELL. THIS GROUND IS, THUS, ALLOWE D FOR STATISTICAL PURPOSES IN TERMS INDICATED ABOVE. 6. GROUND NO.2, THE ASSESSEE HAS RAISED FOLLOWING GRIE VANCE:- 2. THE LD. CIT(A) HAS ERRED IN LAW AND FACTS OF TH E CASE IN UPHOLDING THE A.OS ACTION IN NOT CONSIDERING OUR C LAIM FOR DEDUCTION IN RESPECT OF BUSINESS EXPENSES INCURRED BY US. 7. INSOFAR AS THIS GROUND IS CONCERNED, THE MATERIAL F ACTS ARE LIKE THIS. ALTHOUGH, IN THE ORIGINAL RETURN OF INCOME FI LED BY THE ASSESSEE, THE ASSESSEE HAD MADE A CLAIM OF DEDUCTION OF EXPEN SES FOR RS.14,650 IN THE REVISED RETURN OF INCOME FILED BY THE ASSESS EE, THE ASSESSEE VOLUNTARILY DECIDED NOT TO MAKE A CLAIM AS IT DID N OT HAVE CORROBORATIVE EVIDENCE. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REVISED THE CLAIM OF DEDU CTION FOR RS.12,50,800 BY WAY OF A LETTER FILED BEFORE THE AS SESSING OFFICER. THIS CLAIM INCLUDED PAYMENT OF RS.2,75,000 TOWARDS PAINT ING CHARGES PAID TO VIVEK ENTERPRISES AND RS.9,75,800 PAID TO GRAPHI C SOLUTIONS TOWARDS PAYMENT OF ADVERTISEMENT CHARGES. THE ASSES SING OFFICER, HOWEVER, DECLINED TO ADJUDICATE ON THE CLAIM AS IT WAS NOT MADE IN THE RETURN OF INCOME FILED BY THE ASSESSEE. 8. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) REFERRED TO SUPREME COU RTS JUDGMENT IN ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 5 OF 8 THE CASE OF GOETZ INDIA LIMITED VS CIT, 284 ITR 323 , AND HELD THAT THE ASSESSING OFFICER CANNOT ENTERTAIN CLAIM FOR DEDUCT ION OTHERWISE THAN BY FILING A REVISED RETURN. THE DEDUCTIBILITY OF PA YMENTS WAS, THEREFORE, NOT CONSIDERED ON MERITS. THE ASSESSEE I S NOT SATISFIED BY THE STAND SO TAKEN BY THE LD. CIT(A) AND IS IN FURT HER APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MA TERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 10. WE FIND THAT IN THE CASE OF JT. CIT VS HERO HONDA F INLEASE LTD., 115 TTJ 758 (TM), THE TRIBUNAL HAD AN OCCASION TO D EAL WITH THE IMPACT OF SUPREME COURTS JUDGMENT IN THE CASE OF G OETZ INDIA LIMITED (SUPRA) ON THE POWERS OF THE APPELLATE AUTHORITIES. THE HONBLE THIRD MEMBER, EXPRESSING THE MAJORITY OPINION, INTER-ALIA , OBSERVED AS FOLLOWS:- IN THE SAME DECISION, IT WAS MADE CLEAR THAT THE P OWER OF THE TRIBUNAL TO ADMIT AN ADDITIONAL GROUND UNDER S. 254 IS NOT AFFECTED BY ITS DECISION. IT WAS HOWEVER CLARIF IED THAT THE CASE WAS CONCERNED WITH ONLY THE POWER OF THE A SSESSING AUTHORITY AND NOT THE APPELLATE AUTHORITY. UNDER S. 250(5), THE CIT(A) HAS THE POWER TO ALLOW THE APPELLANT TO GO INTO ANY GROUND OF APPEAL NOT SPECIFIED IN THE GROUNDS O F APPEAL IF HE SATISFIED THAT THE OMISSION OF THE GROUND FRO M THE FORM OF APPEAL WAS NOT WILFUL AND UNREASONABLE. DEALING WITH SUCH A POWER, THE BOMBAY HIGH COURT IN CIT VS. PRAB HU STEEL INDUSTRIES (P) LTD. (1988) 171 ITR 530 (BOM), HELD THAT WHERE A CLAIM FOR SPECIAL DEDUCTION WAS MADE B Y THE ASSESSEE NOT IN HIS RETURN BUT IN THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE ITO FAILED TO CONSID ER THE ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 6 OF 8 SAME, IT WAS OPEN TO THE AAC TO ENTERTAIN THE CLAIM . IN CIT VS. KANPUR COAL SYNDICATE (1964) 53 ITR 225 (SC), I T WAS HELD BY THE SUPREME COURT THAT THE POWERS OF THE CI T(A) SITTING IN APPEAL OVER AN ASSESSMENT WERE PLENARY A ND CONTERMINOUS WITH THOSE OF THE AO AND THAT HE CAN D O WHAT THE ITO CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HA S FAILED TO DO. IN THE LIGHT OF THE LAW LAID DOWN IN THIS JU DGMENT BY THE SUPREME COURT, IT WAS OPEN TO THE CIT(A) TO CON SIDER THE ASSESSEES CLAIM ON MERITS BY VIRTUE OF HIS CO-EXTE NSIVE POWER OVER THE ASSESSMENT PROCEEDINGS AND ALSO BY V IRTUE OF S. 250 (5). 11. WE ARE IN RESPECTFUL AGREEMENT WITH THE MAJORITY VI EW SO EXPRESSED BY THE HONBLE THIRD MEMBER. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE LD. CIT(A) OUGHT TO HAVE EXA MINE THE MATTER ON MERITS AND DECIDE THE ADMISSIBILITY OF DEDUCTION ON MERITS OF THE CASE. WE, THEREFORE, DEEM IT FIT AND PROPER TO RESTORE TH E MATTER BACK TO THE FILE OF THE LD. CIT(A) FOR ADJUDICATION DENOVO ON M ERITS FOR GIVING REASONABLE OPPORTUNITY TO THE PARTIES. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES IN TERMS INDICATED ABOVE. PRON OUNCED IN THE OPEN COURT TODAY ON THIS 25 TH DAY OF JUNE 2010. SD/XX SD/XX (N.V. VASUDEVAN) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 25 TH DAY OF JUNE 2010. ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 7 OF 8 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), MUMBAI 4. COMMISSIONER (APPEALS) , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, I BENCH, ITAT, MUMB AI 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR PRADEEP J. CHOWDHURY INCOME TAX APPELLATE TRIBUNAL SR. PRIVATE SECRETARY MUMBAI BENCHES, MUMBAI ITA NO. 5624/MUM/2009 ASSESSMENT YEAR : 2003-04 PAGE 8 OF 8 DATE INITIAL 1. DRAFT DICTATED ON 23.6.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 23.6.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 23.6.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 23.6.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.6.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 25.6.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER