V2 Retail Ltd., Kolkata V. DCIT, Circle - 10(2), Kolkata , Kolkata

ITA 612/KOL/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2449 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 05-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MD USMAN
• Assessee Lawyers: NIRAV SHETH
• Keywords: Reopening of assessment; Bogus purchase
• Section: 143(3); 147; 148

Judgement Text

1 ITA NO. 612/KOL/20 18 A.Y. 2009-2010 V2 RETAIL LI MITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 612/KOL/2018 ASSESSMENT YEAR: 2009-2010 V2 RETAIL LIMITED,................................. ............................................APPELLA NT CHHAPARIA & ASSOCIATES, CHARTERED ACCOUNTANTS, 8, CAMAC STREET, SHANTINIKETAN BUILDING, 5 TH FLOOR, ROM NO 2, KOLKATA-700 017 [PAN: AABCV 5632 P] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ............................RESPONDENT CIRCLE-10(2), KOLKATA, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI R.P. AGARWAL, SR. COUNSEL, SHRI K.K. CHHAPARIA , FCA & SHRI NIRAV SHETH, FCA, FOR THE APPELLANT MD. USMAN, CIT, D.R. , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : SEPTEMBER 25, 201 8 DATE OF PRONOUNCING THE ORDER : NOVEMBER 14, 2018 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ):- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-4, KOLKATA DAT ED 25.01.2018. 2. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH IS APPEAL ARE THAT THE ASSESSEE IS A COMPANY, WHICH IS ENGAGED IN THE BUSI NESS OF TRADING OF READYMADE GARMENTS, TEXTILES AND ACCESSORIES. THE R ETURN OF INCOME FOR 2 ITA NO. 612/KOL/20 18 A.Y. 2009-2010 V2 RETAIL LI MITED 2 THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 27. 09.2009 DECLARING A LOSS OF RS.135,24,57,920/-. IN THE ASSESSMENT ORIGI NALLY COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 08.12.2011, THE TOTAL LOSS OF THE ASSESSEE-COMPANY WAS DETERMINED BY THE ASSESSING OF FICER AT RS.1,15,40,13,969/- AFTER MAKING CERTAIN ADDITIONS. ON APPEAL, THE LD. CIT(APPEALS) ALLOWED A PART RELIEF TO THE ASSESSEE AND ACCORDINGLY THE TOTAL LOSS OF THE ASSESSEE-COMPANY WAS RECOMPUTED B Y THE ASSESSING OFFICER AT RS.125,69,09,249/- AFTER GIVING EFFECT T O THE ORDER OF THE LD. CIT(APPEALS). THEREAFTER IT WAS NOTICED BY THE ASSE SSING OFFICER THAT THE ASSESSEE-COMPANY HAD UNDER-VALUED ITS CLOSING STOCK AND ALSO CLAIMED DEDUCTION FOR BOGUS PURCHASES. HE ACCORDINGLY REOPE NED THE ASSESSMENT AND ISSUED A NOTICE UNDER SECTION 148 ON 21.03.2014 AFTER RECORDING THE REASONS. IN RESPONSE TO THE SAID NOTICE, THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 05.05.2014 SHOWING A TOTAL LOSS OF RS.135,22,38,140/-. THE ASSESSEE-COMPANY ALSO RAISED CERTAIN OBJECTIONS CHALLENGING THE VALIDITY OF REOPENING OF ASSESSMENT. THE ASSESSING OFFICER DID NOT FIND THE SAID OBJECTIONS RAISED BY THE ASSESSEE TO BE SUSTAI NABLE AND OVERRULING THE SAME, HE PROCEEDED TO COMPLETE THE REASSESSMENT UNDER SECTION 147 OF THE ACT. DURING THE COURSE OF REASSESSMENT PROCE EDINGS, THE ASSESSEE- COMPANY WAS CALLED UPON BY THE ASSESSING OFFICER TO EXPLAIN THE STOCK OF RS.97.26 CRORES WRITTEN OFF BY IT DURING THE YEAR U NDER CONSIDERATION. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE-C OMPANY THAT THE STOCK TO THAT EXTENT WAS WRITTEN OFF ON ACCOUNT OF SHRINK AGE, SLOW-MOVING, NON- MOVING, OBSOLETE, DAMAGED GOODS, ETC. THIS EXPLANAT ION OF THE ASSESSEE- COMPANY WAS NOT FOUND ACCEPTABLE BY THE ASSESSING O FFICER IN THE ABSENCE OF RELEVANT DETAILS AND DOCUMENTS FURNISHED BY THE ASSESSEE. HE NOTED THAT NO EVIDENCE WHATSOEVER WAS PRODUCED BY T HE ASSESSEE TO SHOW THE MARKET PRICE OF THE SLOW-MOVING, NON-MOVING, OB SOLETE AND DAMAGED GOODS. HE ALSO FOUND THAT THERE WAS NOT EVEN ANY VA LUATION REPORT FILED BY THE ASSESSEE TO SUPPORT THE VALUE OF STOCK WRITTEN OFF AND THE METHODOLOGY OF ESTIMATION OF INVENTORY. HE ACCORDIN GLY DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF W RITE OFF OF CLOSING 3 ITA NO. 612/KOL/20 18 A.Y. 2009-2010 V2 RETAIL LI MITED 3 STOCK AND MADE ADDITION TO THE EXTENT OF RS.97.26 C RORES TO THE TOTAL INCOME OF THE ASSESSEE. HE ALSO MADE A FURTHER ADDI TION OF RS.10,16,67,300/- ON ACCOUNT OF BOGUS PURCHASES AND DETERMINED THE TOTAL LOSS OF THE ASSESSEE-COMPANY AT RS.18,26,41,9 49/- IN THE ASSESSMENT COMPLETED UNDER SECTION 147/143(3) VIDE AN ORDER DA TED 20.03.2015. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 147/143(3) OF THE ACT, AN APPEAL WAS PREFERRED BY T HE ASSESSEE BEFORE THE LD. CIT(APPEALS) AND SINCE THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CLAIM FOR WRITE OFF OF S TOCK OF RS.97.26 CRORES WERE NOT FOUND ACCEPTABLE BY HIM, THE LD. CIT(APPEA LS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ISSU E BY OBSERVING THAT THE WRITE-OFF OF STOCK REPRESENTED PROVISION ONLY, WHIC H COULD NOT BE ALLOWED AS DEDUCTION. TO ARRIVE AT THIS CONCLUSION, THE LD. CIT(APPEALS) RELIED ON THE ORDER OF HIS PREDECESSOR PASSED IN ASSESSEES O WN CASE FOR A.Y. 2010- 11, WHEREIN A SIMILAR CLAIM OF THE ASSESSEE FOR WRI TE OFF OF STOCK WAS DISALLOWED BY THE FIRST APPELLATE AUTHORITY WITH A RIDER THAT THE STOCK SO WRITTEN OFF HAS TO BE TREATED AS A PART OF CLOSING STOCK. THE LD. CIT(APPEALS) ACCORDINGLY DIRECTED THE ASSESSING OFF ICER TO ADD THE AMOUNT OF RS.97.26 CRORES TO THE VALUE OF CLOSING S TOCK AS ON 31.03.2009 BUT REFRAINED HIMSELF FROM GIVING ANY DIRECTION FOR THE IMPACT OF THE SAME ON THE OPENING STOCK OF THE SUBSEQUENT YEAR. AS REG ARDS THE OTHER ISSUE RELATING TO ADDITION OF RS.10,16,67,300/- MADE ON A CCOUNT OF BOGUS PURCHASES, THE LD. CIT(APPEALS) HELD THAT THE ENTIR E AMOUNT OF BOGUS PURCHASES COULD NOT BE TREATED AS THE INCOME OF THE ASSESSEE AND ONLY PROFIT ELEMENT INVOLVED THEREIN AS ESTIMATED AT THE RATE OF 2% COULD BE TREATED AS THE INCOME OF THE ASSESSEE. HE ACCORDING LY SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS ISSU E ONLY TO THE EXTENT OF RS.20,33,346/-. AGGRIEVED BY THE ORDER OF THE LD. C IT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBU NAL ON THE FOLLOWING GROUNDS:- 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE NOTICE U/S 148 OF THE INCOME TAX ACT DOES NOT SATISFY THE STATUTORY 4 ITA NO. 612/KOL/20 18 A.Y. 2009-2010 V2 RETAIL LI MITED 4 REQUIREMENTS FOR ISSUE OF SUCH NOTICE AND AS SUCH A LL THE PROCEEDINGS UNDER SECTION 143(3)/147 OF THE ACT IS VOID AB INITIO AND IS LIABLE TO BE QUASHED. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING ADDITIONS OF RS.1,07,42,67,300/- ON PRE-CONCEIVED NOTIONS AND SU RMISES AND DOESN'T SATISFY THE BASIC CRITERIA I.E., 'REASO NS TO BELIEVE' FOR ISSUE OF NOTICE U/S 148 OF INCOME TAX ACT, 1961 . 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWING RS.97,26 ,00,000/- REPRESENTING WRITE-OFF OF INVENTORY IN THE PROFIT & LOSS ACCOUNT OF THE INSTANT YEAR. THE LD. CIT-(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. 4. WITHOUT PREJUDICE TO THE ABOVE, THE ADDITIONS OF RS.97,26,00,000/- MADE BY LD. ASSESSING OFFICER IN THE ORDER PASSED UNDER SECTION 147/143(3) IS VOID AB-INITO, S INCE THERE WAS NO FAILURE ON THE PART OF THE APPELLANT COMPANY TO DISCLOSE THE SAID WRITE OFF OF STOCK IN ITS ANNUAL ACCOUNTS, WHICH WAS SUBMITTED DURING ORIGINAL ASSESSMENT PROC EEDINGS. THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E A.O. 5. WITHOUT PREJUDICE TO THE ABOVE, THE LD. ASSESSIN G OFFICER SHOULD HAVE GIVEN SPECIFIC OBSERVATION THAT EVEN IF SUCH WRITE- OFF OF INVENTORY IS NOT ALLOWABLE IN THE INSTANT YE AR, BEING IN THE NATURE OF PROVISION FOR DIMINUTION IN THE VALUE OF STOCK, DEDUCTION MAY BE CLAIMED IN A. Y. 2011-12 IN WHICH ALL THE STOCK OF THE COMPANY HAS BEEN SOLD. THE LD. ASSESSI NG OFFICER HAS ERRED IN NOT FOLLOWING THE PRINCIPLE ADOPTED WI TH RESPECT TO WRITE OFF OF STOCK IN A.Y. 2010-11 WHICH WAS ALL OWED IN A.Y. 2011-12, CONSIDERING THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL) DATED 21-03-2014 FOR A.Y. 2010-11 READ WITH ORDER UNDER SECTION 144A IN A.Y. 2011-12, BY VIRTUE OF WHICH THE WRITE OFF OF INVENTORY WAS HELD TO BE A PROVISI ON AND ALLOWED IN THE YEAR OF SALE OF STOCK, LE. A. Y. 201 1-12. THE LD, CLT(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. 6. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER HAS ERRED IN DISALLOWING AN AMOUN T OF RS.10,16,67,300/- ALLEGING ACCOMMODATION ENTRY IN T HE FORM OF BOGUS PURCHASES. THE LD. CIT(A) HAS ERRED IN CON FIRMING THE ADDITION OF RS.20,33,346/- BEING 2% OF THE PURCHASE AMOUNT OF RS.10,16,67,300/-. 7. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER HAS ERRED IN TREATING RS.10,16,67 ,300/- AS BOGUS PURCHASES WITHOUT FINDING ANY DEFECTS IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY. THE LD. ASSESSIN G OFFICER DID NOT CONSIDER THE SUBMISSION OF THE APPELLANT CO MPANY THAT 5 ITA NO. 612/KOL/20 18 A.Y. 2009-2010 V2 RETAIL LI MITED 5 THERE WAS NO SCOPE OF BOGUS PURCHASES AS THE APPELL ANT COMPANY WAS MAINTAINING QUANTITATIVE DETAILS OF GOO DS IN SAP SOFTWARE (A WORLDWIDE RECOGNIZED SOFTWARE FOR MAINT AINING HUGE VOLUME OF DATA). THE LD. CIT(A) HAS ERRED IN C ONFIRMING THE ADDITION OF RS.20,33,346/- BEING 2% OF THE PURC HASE AMOUNT OF RS.10,16,67,300/-. 8. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSESSING OFFICER HAS ERRED IN MAKING ADDITION ON A CCOUNT OF ALLEGED BOGUS PURCHASE OF RS.10,16,67,300/- BY RELY ING UPON STATEMENT OF SOME PARTIES, WITHOUT ALLOWING ANY OPP ORTUNITY TO THE APPELLANT COMPANY TO CROSS-EXAMINE THE PERSO NS MAKING SUCH ALLEGED STATEMENTS, DESPITE SPECIFIED R EQUESTS MADE BY THE APPELLANT. THE LD. CIT-(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.20,33,346/- BEING 2% OF THE PURCHASE AMOUNT OF RS. 10,16,67,300/-. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ALTHOUGH THE ASSESSEE HAS RAISED AS MANY AS EIGHT GROUNDS IN THIS APPEAL, THE LD. COUNS EL FOR THE ASSESSEE, AT THE TIME OF HEARING, HAS NOT PRESSED GROUNDS NO. 1 TO 4 AND 6 TO 8. THE SOLITARY GROUND THAT NOW SURVIVES FOR OUR CONSIDERA TION IS GROUND NO. 5 AND THE LIMITED RELIEF THAT IS SOUGHT BY THE ASSESS EE-COMPANY IN THE SAID GROUND AS SUBMITTED BY ITS LD. COUNSEL IS THAT THE PROVISION MADE BY THE ASSESSEE FOR WRITE OFF OF STOCK HAVING BEEN DISALLO WED BY THE AUTHORITIES BELOW AND THE AMOUNT OF SUCH PROVISION HAVING BEEN ADDED TO THE VALUE OF CLOSING STOCK, THE VALUE OF OPENING STOCK OF THE SUBSEQUENT YEAR/(S) IS LIABLE TO BE INCREASED TO THAT EXTENT TILL THE STOC K SO WRITTEN OFF IS FINALLY SOLD BY THE ASSESSEE-COMPANY IN THE PREVIOUS YEAR R ELEVANT TO A.Y. 2011- 12. WE FIND MERIT IN THIS CONTENTION OF THE LD. COU NSEL FOR THE ASSESSEE. SINCE THE VALUE OF CLOSING STOCK AS FINALLY DETERMI NED IS TO BE AUTOMATICALLY CARRIED FORWARD AS THE VALUE OF OPENI NG STOCK FOR THE IMMEDIATELY SUCCEEDING YEAR, WE ARE OF THE VIEW THA T THIS CORRESPONDING EFFECT IS REQUIRED TO BE GIVEN BY THE ASSESSING OFF ICER AUTOMATICALLY WITHOUT EVEN ANY SPECIFIC DIRECTION, ESPECIALLY WHE N THE VALUE OF CLOSING STOCK AS DETERMINED AFTER MAKING THE ADDITION ON AC COUNT OF DISALLOWANCE OF THE PROVISION MADE FOR WRITE OFF OF CLOSING STOC K HAS BEEN ACCEPTED BY 6 ITA NO. 612/KOL/20 18 A.Y. 2009-2010 V2 RETAIL LI MITED 6 THE ASSESSEE AND IT HAS BECOME FINAL. WE ACCORDINGL Y ALLOW GROUND NO. 5 OF THE ASSESSEES APPEAL. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 14, 2018. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER VICE-P RESIDENT (KZ) KOLKATA, THE 14 TH DAY OF NOVEMBER, 2018 COPIES TO : (1) V2 RETAIL LIMITED, CHHAPARIA & ASSOCIATES, CHARTERED ACCOUNTANTS, 8, CAMAC STREET, SHANTINIKETAN BUILDING, 5 TH FLOOR, ROM NO 2, KOLKATA-700 017 (2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10(2), KOLKATA, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME TAX (APPEALS)-4, KOLKA TA, (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.