NASCENT JEWELLERY PRIVATE LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX-13(1)(1), MUMBAI

ITA 5849/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 4946 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 13-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: A VISSANJI
• Keywords: Business income; TDS; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.5849/M/2017 ASSESSMENT YEAR: 2012-13 M/S. NASCENT JEWELLERY PVT. LTD., 6, VAIBHAV JANKI KUTIR, JUHU CHURCH ROAD, JUHU, MUMBAI-400 049 PAN: AADCN4985H VS. DCIT 13(1)(1), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400614 (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SMT. A. VISSANJI, A.R. & SHRI AAMOD PRABHUDESAI, A.R. REVENUE BY : SHRI SUMAN KUMAR, D.R. DATE OF HEARING : 10.07.2019 DATE OF PRONOUNCEMENT : 13.08.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 12.06.2017 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE LD. AO TO ALLOW THE PROVISION OF RS. 37,87,0007- MADE TOWARDS BUY BACK, BEING WARRANTY IN NATURE. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) OUGHT TO HAVE HELD THAT THERE IS NO MISMATCH OF INCOME OF RS . 1,86,800/-AS PER APPELLANT'S BOOKS AND FORM 26AS AND ACCORDINGLY, OUGHT TO HAVE DIRECTED THE LD. AO TO DELETE THE ADDITION IN ITS ENTIRETY. ITA NO.5849/M/2017 M/S. NASCENT JEWELLERY PVT. LTD. 2 3. THE ABOVE GROUNDS OF APPEAL ARE DISTINCT AND SEPARATE AND WITHOUT PREJUDICE TO EACH OTHER. 4. IT IS HUMBLY PRAYED THAT THE RELIEFS AS PRAYED F OR HERE-IN-ABOVE AND/OR SUCH OTHER RELIEFS AS MAY BE JUSTIFIED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS MAY MEET THE ENDS OF JUSTICE SHOULD BE GRANTED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND, OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3. THE FACTS IN BRIEF ARE THAT THE AO OBSERVED DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THAT ASSESSEE HAS CREATED PROVISIONS FOR BUY BACK OF RS.37,87,000/- AND ACCOR DINGLY CALLED UPON THE ASSESSEE TO JUSTIFY THE ADMISSIBILITY OF T HE SAME. THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT HAS PROVID ED FOR @ 2% OF THE CURRENT SALES TOWARDS THE POSSIBLE LOSS ON POSSIBLE SALE RETURNS AGAINST CURRENT YEARS SALES. THE AO FOUND THE REPLY OF THE ASSESSEE AS NOT TENABLE AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE SAME SHOULD NOT BE ADDED TO THE INCOME OF THE ASSESSEE WHICH WAS REPLIED BY THE ASS ESSEE BY SUBMITTING THAT IT IS DEALING IN THE BRANDED JEWELL ERY AND SALES ARE MADE THROUGH STORE CHAINS. THE ASSESSEE SUBMIT TED THAT AS PER ITS SALES POLICY, IT PURCHASES BACK THE BRANDED JEWELLERY FROM THE CUSTOMERS SO SOLD AT AGREED DISCOUNTED PRICE AS PER THE WARRANTY GIVEN TO THE CUSTOMERS AT THE TIME OF SALE AND ACCORDINGLY IT HAS PROVIDED FOR RS.37,87,000/- BEIN G 2% OF THE CURRENT SALES. DURING THE YEAR THE ASSESSEE HAD REP URCHASED JEWELLERY AMOUNTING TO RS.23,56,880/-. HOWEVER, TH E AO WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE AND TR EATED THE SAME AS PURELY PROVISIONS CREATED AGAINST PROFITS W HICH ARE NOT ALLOWABLE UNDER SECTION 37 OF THE ACT AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. ITA NO.5849/M/2017 M/S. NASCENT JEWELLERY PVT. LTD. 3 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE ON THIS GROUND BY HOLDING TH AT THE PROVISIONS CREATED BY THE ASSESSEE HAS NO SCIENTIFI C BASIS. ON A QUERY TO FURNISH THE DETAILS OF LAST FIVE YEARS THE ASSESSEE SUBMITTED THAT THIS IS FIRST YEAR OF OPERATION AND THEREFORE THERE NO PAST DATA IN THE BUSINESS OF THE ASSESSEE ARE AV AILABLE. THE LD. CIT(A) ALSO NOTED THAT IN THE SUBSEQUENT YEARS OUT OF THE PROVISION CREATED DURING THE YEAR OF RS.37,87,000/- ASSESSEE UTILISED PROVISION TO THE TUNE OF RS.16,65,134/- AN D BALANCE WAS WRITTEN BACK IN THE P&L ACCOUNT. THE LD CIT(A) ALS O NOTED THAT THE BUSINESS WAS FINALLY DISCONTINUED FROM 01.01.2 013. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THIS IS THE FIRST YEAR OF O PERATION OF THE ASSESSEE AND ASSESSEE AT THE TIME OF SELLING GOODS GAVE WARRANTY TO THE CUSTOMERS THAT THE CUSTOMERS ARE FREE TO GET THE JEWELLERY RETURN AT AN AGREED PRICE. THE ASSESSEE, IN ORDER TO PROVIDE FOR LOSSES WHICH MAY RESULT FROM SALES RETURN, CREATED PROVISIONS @ 2% OF THE TOTAL SALES DURING THE YEAR. THUS, THE A SSESSEE CREATED RS.37,87,000/- ON THE TOTAL SALES @ 2%. THE LD. A. R. ALSO REFERRED TO THE AUDITED ANNUAL ACCOUNTS OF THE ASSE SSEE FILED AT PAGE NO.15 & 16 FOR THE FINANCIAL YEAR 2012-13 WHER EIN RS.21,21,866/- WAS WRITTEN BACK THE DETAILS WHEREO F ARE FILED AT PAGE NO.21 OF THE PAPER BOOK AND THE REMAINING A MOUNT OF RS.16,65,134/- WAS UTILISED TOWARDS LOSS ON REPURCH ASE OF JEWELLERY. THUS IT IS CLEAR FROM THE ABOVE THAT TH E PROVISIONS CREATED BY THE ASSESSEE HAS BEEN USED TO SET OFF TH E LOSS RESULTING FROM SALES RETURN OR OFFERED TO TAX IN TH E SUBSEQUENT YEAR BY WRITING BACK THE SURPLUS PROVISIONS. IF THE ORDER OF LD. CIT(A) IS AFFIRMED UPHOLDING THE ORDER OF AO THEN I T WOULD RESULT ITA NO.5849/M/2017 M/S. NASCENT JEWELLERY PVT. LTD. 4 IN DOUBLE TAXATION WHICH IS NOT PERMISSIBLE UNDER T HE ACT. WE ARE THEREFORE NOT IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD. CIT(A) ON THIS ISSUE . ACCORDINGLY, WE REVERSE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO ALLOW DEDUCTION OF THE PROVISIONS CREATED BY THE ASSESSEE FOR REPURCHASE OF THE JEWEL LERY. 6. THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAIN ST THE CONFIRMATION OF RS.1,86,800/- BY LD. CIT(A) AS MADE BY THE AO TOWARDS MISMATCH OF INCOME BETWEEN THE BOOKS OF AC COUNTS AND FORM 26AS. 7. THE FACTS IN BRIEF ARE THAT THE AO DURING THE CO URSE OF ASSESSMENT PROCEEDINGS FOUND THAT THERE IS A DIFFER ENCE OF RS.1,86,000/- BETWEEN THE BOOKS OF ACCOUNTS AND FO RM NO.26AS CONSISTING OF TWO AMOUNTS RS.1,25,000/- AND RS.61,8000/-. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE DIFFERENTIAL AMOUNT OF RS.61,8000/- WAS OFFERED TO TAX IN THE SUBSEQUENT YEAR WHEREAS WITH REGARD TO THE REMAININ G AMOUNT OF RS.1,25,000/- THE ASSESSEE SUBMITTED THAT THE SA ME IS NOT INCOME OF THE ASSESSEE. HOWEVER, THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE AO AND HE ADDED THE SAME T O THE INCOME OF THE ASSESSEE. 8. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DIS MISSED THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THE TDS W AS CLAIMED DURING THE YEAR AND THEREFORE CORRESPONDING INCOME HAS TO BE OFFERED IN THE SAME YEAR BY DISREGARDING THE FACT T HAT ASSESSEE HAS SHOWN THE SAME AS LIABILITY AS THE SAME REPRESE NTED THE EXCESS AMOUNT RECEIVED ON ACCOUNT OF ADVERTISING CO ST BY RAISING DEBIT NOTE. IN THE NEXT YEAR AFTER RECONCILING THE ACCOUNT WITH ITA NO.5849/M/2017 M/S. NASCENT JEWELLERY PVT. LTD. 5 THE PARTY, THE SAME WAS OFFERED TO TAX. AS REGARDS THE SECOND ADDITION OF RS.1,25,000/- WHICH WAS DUE TO DIFFEREN CE BETWEEN THE AMOUNT APPEARING AS PER FORM 26AS RS.11,25,000/ - FROM RIOTINTO DIAMONDS LTD. WHEREAS AS PER BOOKS OF ACCO UNTS THE AMOUNT WAS RS.10 LAKHS. THE ASSESSEE SUBMITTED THAT THE SAID AMOUNT IS NOT AN INCOME OF THE ASSESSEE. THE SAID P ARTY DEDUCTED TDS ON RS.11,25,000/- OF RS.22,500/- WHIC H THE ASSESSEE CLAIMED TDS IN THE CURRENT YEAR. THE LD. CIT(A) HELD THAT SAME HAS TO BE OFFERED IN THE CURRENT YEAR AS THE TDS WAS TAKEN IN THE CURRENT YEAR BY IGNORING THE ASSESSEE S SUBMISSIONS THAT THE SAME IS NOT INCOME OF THE ASSESSEE. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE OBSERVE THAT THE DIFFERENCE OF RS.61,800 /- WAS ON ACCOUNT OF EXCESS AMOUNT PAID BY THE PARTY IN RESPE CT OF RE- IMBURSEMENT OF ADVERTISEMENT COST. THE ASSESSEE C LAIMED THE TDS IN THE CURRENT YEAR WHEREAS THE AMOUNT WAS CARR IED FORWARD TO THE SUBSEQUENT YEAR AS LIABILITY AS THIS REPRESENTED EXCESS AMOUNT RECEIVED FROM THE PARTY WHEREAS THE A MOUNT FOR WHICH THE DEBIT NOTE ISSUED WAS DULY SHOWN AS INCOM E OF THE ASSESSEE. IN THE NEXT YEAR THE ASSESSEE RECONCILED THE ACCOUNT WITH THE SAID PARTY AND THE SAID AMOUNT WAS OFFERED TO TAX IN THE SECOND YEAR WHICH IS CORROBORATED FROM THE STAT EMENT OF SUNDRY CREDIT BALANCES WRITTEN BACK, A COPY OF WHIC H IS FILED AT PAGE NO.21 IN THE F.Y. 2011-12 RELEVANT A.Y. 2012-1 3. IN CASE THIS ADDITION IS CONFIRMED IT WOULD RESULT IN DOUBL E TAXATION WHICH IS NOT PERMISSIBLE UNDER THE ACT. WE ARE THE REFORE INCLINED TO SET ASIDE THE ORDER OF LD. CIT(A) AND D IRECT THE AO TO DELETE THE ADDITION OF RS.61,8000/-. SO FAR AS THE ADDITION OF RS.1,25,000/- IS CONCERNED, THE SAME IS NOT INCOME OF THE ITA NO.5849/M/2017 M/S. NASCENT JEWELLERY PVT. LTD. 6 ASSESSEE AS IS CLEAR FROM THE TAX INVOICE ISSUED BY THE ASSESSEE DATED 18.12.2011 TO RIOTINTO DIAMONDS LTD. THE BIL L IS ISSUED FOR RS.10 LAKHS FOR PROMOTIONAL COUNTERS ON WHICH VAT @ 12.5% WAS CHARGED WHICH CALCULATED AT RS.1,25,000/- . THUS THE AGGREGATE BILL AMOUNT CALCULATED AT RS.11,25,00 0/-. WE ARE, THEREFORE, INCLINED TO SET ASIDE THE ORDER OF LD. C IT(A) AND DIRECT THE AO TO DELETE THE ADDITION OF RS.1,25,000/-. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.08.2019. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 13.08.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.