ACIT 8(1), MUMBAI V. FEMSTEX TRADING CO. P. LTD, MUMBAI

ITA 5935/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7618 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-02-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 28-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K SHIVARAM
• Assessee Lawyers: V V SHASTRI
• Keywords: Principle of natural justice; Bad and doubtful debts
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH: MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.5935/MUM/2010 (ASSESSMENT YEAR: 2005-06) DY. COMMISSIONER OF INCOME-TAX -8 (1), ROOM NO.210, 2ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 ...... APPELLANT VS FEMSTEX TRADING CO. PVT. LTD., 228, SANJAY BUILDING, 5-B, MITTAL INDUSTRIAL ESTATE, M.V. ROAD, ANDHERI (E), MUMBAI -400 059 ..... RESPONDENT PAN: AAACF 5183 E APPELLANT-ASSESSEE BY: SHRI V.V. SHASTRI RESPONDENT-REVENUE BY: SHRI K. SHIVARAM DATE OF HEARING: 09.02.2012 DATE OF PRONOUNCEMENT: 28.03.2012 O R D E R PER R.S. PADVEKAR, JM : IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A)-16, MUMBAI DATED 26.05.2010 FOR THE A.Y. 2005-06. THE FIRST GROUND READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE, MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REBATE CLAIMED OF RS. 1,04,45,533/-, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. ITA 5935/M/2010 FEMSTEX TRADING CO. PVT. LTD. 2 2. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE IS A MERCHANT EXPORTER AND EXPORTING GOODS LIKE TEXTILE AND STEEL UTENSILS TO AFRICAN COUNTRIES. THE ASSESSEE HAS DEBITED RE BATE ALLOWED TO ITS CLIENTS ABROAD OF RS. 1,04,45,533/- TO THE PROFIT & LOSS ACCOUNT. THE ASSESSEE WAS ISSUED NOTICE U/S.148 SEEKING THE EXPL ANATION THAT EVEN THOUGH IN THE PRECEDING YEAR THE TURNOVER OF THE AS SESSEE WAS ON THE HIGHER SIDE I.E. 38.96 CRORES BUT NO REBATE WAS CLA IMED. THE ASSESSEE STATED THAT DURING THE IMMEDIATE PAST YEAR THERE WA S RECESSION IN THE BUSINESS IN GENERAL AND HUGE FINANCIAL CRUNCH IN TH E AFRICAN COUNTRIES IN PARTICULAR. THE ASSESSEE WAS FACING THE RECOVER Y OF PAYMENT OF GOODS EXPORTED AS THEIR FOREIGN CUSTOMERS STARTED T ACTICS TO DELAY THE PAYMENTS BY RAISING THE ISSUE OF QUALITY OF THE GOO DS SUPPLIED. AS A PRUDENT BUSINESSMAN TO SETTLE THE ISSUE, THE ASSESS EE ALLOWED THE REBATE TO THE PURCHASERS/CLIENTS ABROAD AS UNDER: I) M/S. ROYALDEED TRADING COMPANY RS. 44,56,719/- II) M/S. EI NASAR RS. 46,04,891/- III) M/S. AAMZA BRAND RS. 13,83,923/- THE ASSESSEE ALSO FILED THE COPIES OF THE INVOICES AND ALSO COPIES OF THE LETTER WRITTEN TO THEIR BANKERS NAMELY ING VASYA BA NK LTD. TO ALLOW WRITE OFF OF THE AMOUNTS AS PER RBI GUIDELINES. TH E ASSESSEE STATED THAT AS PER THE RBI CIRCULAR, THE ASSESSEE AS AN EX PORTER CAN WRITE OFF 10% OF THEIR INVOICE VALUE AS REBATE, DISCOUNTS OR BAD DEBTS. THE A.O. REJECTED THE CLAIM OF THE ASSESSEE AND OBSERVED THA T THE COLOURABLE DEVISE IN THE MATTER CANNOT BE DENIED AND MADE THE ADDITION TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED TH E ADDITION BEFORE THE LD. CIT (A) WHO DELETED THE SAME. THE OPERATIV E PART OF THE FINDINGS OF THE LD. CIT (A) IS AS UNDER: 2.4 I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT, ORDER OF THE AO AND FACTS OF THE CASE ARE THAT THE APPELLANT HAS DEBITED AN AMOUNT OF RS.1,04,45,533/- ON ACCOUNT OF REBATE ALLOWED TO THE PARTIES AND DEBITED BANK INTEREST OF RS.3,74,98 7/- AFTER NETTING OF INTEREST RECEIVED AND PAID TO THE BANK. THE AO HAS DISALLOWED THE REBATE ALLOWED WITH THE ARGUMENT THA T IN THE ITA 5935/M/2010 FEMSTEX TRADING CO. PVT. LTD. 3 EARLIER YEARS, NO REBATE WAS ALLOWED AND DEBITED TO THE P & L A/C AND NO COMMUNICATION WITH THE PARTIES PERUSING THEM TO MAKE THE PAYMENT WAS SUBMITTED DURING THE ASSESSMENT PRO CEEDINGS. FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS NOT ICED THAT THE COPY OF REASONS RECORDED U/S. 148 WAS PROVIDED TO T HE APPELLANT ON 15/12/2009. NOTICES U/S.142(1) AND 143(2) WERE I SSUED ON 15/12/2009 AND ONLY TWO DAYS WAS GIVEN TO THE ASSES SEE TO SUBMIT THE DETAILS BY 18/12/2009. EVEN WITHIN 2 DAY S THE APPELLANT HAS SUBMITTED ITS REPLY WHICH WAS CONSIDE RED BY THE AO IN THE ASSESSMENT ORDER. THESE FACTS PROVE THAT THE AO HAS VIOLATED THE PRINCIPLE OF NATURAL JUSTICE WHILE ALL OWING TWO DAYS FOR SUBMITTED DETAILS AND THE ASSESSMENT ORDER WAS PASSED ON 22/12/2009. ALL THE DETAILS SUBMITTED BEFORE THE AO WERE ALSO SUBMITTED BEFORE ME, ALONG WITH THE CONFIRMATION OF ING VYASA BANK LTD. I HAVE PERUSED THE DETAILS AND NOTICED TH AT ALL THE DETAILS SUBMITTED WERE SUFFICIENT EVIDENCE TO PROVE THAT REBATE ALLOWED WAS GENUINE AND WAS OVERLOOKED BY THE AO. A LTHOUGH, THE AO HAS MENTIONED IN THE REPLY OF THE APPELLANT IN THE ASSESSMENT ORDER WHERE THE APPELLANT HAS CLEARLY GI VEN THE NAME OF THE PARTIES TO WHOM REBATE WAS ALLOWED ALONG WIT H THE AMOUNT IN EACH CASE WHICH WAS FURTHER CONFIRMED BY THE BAN K CERTIFICATES OF ING VYASA BANK LTD. A COPY OF RBI CIRCULAR WAS A LSO SUBMITTED WHICH AUTHORIZED THE EXPORTERS TO WRITE O F 10% OF THEIR INVOICE VALUES AS REBATE, DISCOUNTS OR BAD DEBTS. I N THE PRESENT CASE, THE APPELLANT HAS SUBMITTED BEFORE THE AO THA T DUE TO THE DELAY OF CLEARING THE GOODS THE PARTIES IN AFRICA T O WHOM THE SALE WAS MADE HAS REFUSED TO ACCEPT THE RATES GIVEN IN T HE SALE INVOICES. THEREFORE, ON MUTUAL AGREEMENT TO RECOVER THE SALE AMOUNT DISCOUNT REBATE WAS ALLOWED OF RS.L,04,45,53 3/-. THIS AMOUNT OF REBATE ALLOWED WAS ALSO CONFIRMED BY TH E BANK CERTIFICATES WHICH PROVES THE GENUINENESS OF REBAT E ALLOWED. 2.5 ON THE OTHER HAND, THE AO HAS NO MATERIAL IN HIS POSSESSION TO PROVE THAT THIS REBATE WAS NOT ALLOWE D TO THESE PARTIES ONLY ON THE BASIS OF SUSPICIOUS, HE HAS HEL D THAT IN EARLIER ITA 5935/M/2010 FEMSTEX TRADING CO. PVT. LTD. 4 YEARS NO DISCOUNT WAS ALLOWED, ALL THESE DISCOUNT W AS ALLOWED IN THE YEAR UNDER CONSIDERATION. THERE IS NO EVIDENCE IN THE POSSESSION OF THE AO AGAINST THE ASSESSEE THAT HE H AS RECEIVED FULL AMOUNT AND WAS NOT DISCLOSED IN THE P & L A/C. THE FACT OF THE CASE THAT IN THE EARLIER YEAR, THE TURNOVER WAS MUCH MORE THAN THE YEAR UNDER CONSIDERATION AND REBATE CAN NO T ALLOWED AND MADE WITHOUT ANY EVIDENCE. THE DECISIONS RELIED UPON BY THE APPELLANT CLEARLY PROVE THAT THE AO CANNOT DIRECT T HE APPELLANT TO TELL HIM, HOW TO CONDUCT HIS BUSINESS. MOREOVER, TH E RBI CIRCULAR IS VERY CLEAR, WHERE IT IS WRITTEN THAT THE EXPORTE R TO WRITE OFF 10% TO THEIR INVOICE VALUES AS REBATE, DISCOUNTS OR BAD DEBTS. THE CASE OF THE APPELLANT IS COVERED BY THIS CIRCULAR, MOREOVER, THE AO HAS NO MATERIAL WHICH CAN BE USED AGAINST THE ASSES SEE. KEEPING IN VIEW ALL THESE FACTS AND CIRCUMSTANCES, THE DISA LLOWANCE MADE BY THE AO ON ACCOUNT OF REBATE ALLOWED OF RS.L,04 ,45.,533/- IS WITHOUT ANY EVIDENCE AND MERELY BASED ON THE SUSPIC IOUS IS NOT SUSTAINABLE, HENCE DELETED. 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD S. THE LD. COUNSEL TOOK US THROUGH THE PAPER BOOK AS WELL AS T HE RBI CIRCULAR. HE SUBMITS THAT AS PER THE RBI GUIDELINES THE ASSES SEE AS AN EXPORTER CAN WRITE OFF 10% OF THE VALUE. WE FIND FORCE IN T HE ARGUMENT OF THE LD. COUNSEL. WE FIND THAT AS PER THE EVIDENCE ON R ECORD THE BANKERS HAVE ALSO ACCEPTED THE REQUEST OF THE ASSESSEE AND REQUIRED EVIDENCE IS ON RECORD. IN OUR OPINION, THE REJECTION MADE B Y THE A.O. IS MERELY ON THE SURMISE AND HAS NO BASIS. WE DO NOT FIND AN Y REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT (A ). ACCORDINGLY, WE CONFIRM THE SAME ON THIS AND GROUND NO.1 IS DISMISS ED. 4. GROUND NO.2 READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION, MADE BY THE ASSESSING OFFICER, ON ACCOUNT OF BANK INTEREST AMOUNTING TO RS. 3,74,987/-, ITA 5935/M/2010 FEMSTEX TRADING CO. PVT. LTD. 5 DEBITED TO P/L ACCOUNT, WITHOUT APPRECIATING THE FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 5. THE A.O. HAS MERELY OBSERVED THAT THE ASSESSEE H AS BANKING INTEREST OF RS. 3,74,987/-. THE ASSESSEE HAS SHOWN FIXED DEPOSIT O F RS. 49.96 LAKHS BUT DID NOT SHOW ANY INTEREST RECEIVED ON THAT. THE ASSESSEE EXPLAINED THAT THE ASSESSEE HAS TAKEN NET FIGURE TO THE PROFIT & LOSS ACCOUNT. THE ASSESSEE FILED WORKING BEFORE T HE A.O. WHICH IS REPRODUCED IN THE ASSESSMENT ORDER, BUT TO OUR SURP RISE THE A.O. WAS NOT CONVINCED WITH THE SAID WORKING. THE LD. CIT ( A) DELETED THE ADDITION. 6. WE FIND THAT AS PER THE WORKING SHOWN IN THE ASS ESSMENT ORDER ITSELF WHICH IS IN THE FORM OF RECONCILIATION ONLY THE NET FIGURE IS TAKEN TO THE PROFIT & LOSS ACCOUNT. THE ACTION OF THE A. O., IN OUR OPINION, IS TOTALLY ARBITRARY FOR DENYING THE CLAIM OF THE ASSE SSEE. WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT ( A) AND ACCORDINGLY WE CONFIRM THE SAME. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 8TH MARCH, 2012. SD/- (J. SUDHAKAR REDDY) ACCOUTANT MEMBER SD/- (R.S. PADVEKAR) JUDICIAL MEMBER MUMBAI, DATE: 28TH MARCH, 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-16, MUMBAI. 4) THE CIT -8, MUMBAI. 5) THE D.R. H BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN