HINDUSTAN ORGANICS CHEMICAL LTD, MUMBAI V. IASST CIT CIR 4(2), MUMBAI

ITA 6483/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9317 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 30-11-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 23-09-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Keywords: Period of limitation; Difference of opinion; Time period of passing order; Revenue expenditure
• Section: 43B; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E MUMBAI . , / ! ! ! ! BEFORE SHRI D. MANMOHAN, VICE PRESIDENT /AND '#$% , # . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 6483/MUM/2011 & & & & / ASSESSMENT YEAR 1999-2000 M/S. HINDUSTAN ORGANIC CHEMICALS LIMITED, HARICHANDRAI HOUSE, 81, M.K.ROAD, MARINE LINES, MUMBAI-400002. PAN: AAACH 2663 P VS. ASST. COMMISSIONER OF INCOME TAX, CIR.4(2) MUMBAI. ( '( / APPELLANT ) ( )*'( / RESPONDENT ) APPELLANT BY : SHRI K. GOPAL RESPONDENT BY : SHRI GIRIJA DAYAL (CIT DR) DATE OF HEARING : 30-11-2012 DATE OF PRONOUNCEMENT : 31-12-2012 +#, / O R D E R PER RAJENDRA,A.M. FOLLOWING GROUNDS OF APPEAL HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DT. 27-07-2011 OF THE COMMISSIONER OF INCOME- TAX (APPEALS)-11, MUMBAI : THE COMMISSIONER OF INCOME-TAX (APPEALS)- 11, MUMB AI [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN PASSING THE ORDER DATED 27.07.20 11 CONFIRMING THE ORDER PASSED BY LD. A.O. UNDER SECTION 271(1)(C) OF THE ACT WITHOUT APP RECIATING THAT THE SAME IS PASSED BEYOND THE LIMITATION PERIOD OF SIX MONTHS AS PROVIDED UND ER THE PROVISIONS OF SECTION 275(1)(B) OF THE ACT. THE APPELLANT, THEREFORE, PRAYS THAT THE O RDER PASSED UNDER SECTION 271(1)(C) OF THE ACT IS BAD IN LAW AND HENCE, THE SAME MAY BE QUASHE D. 2.THE LD.CIT (A) ERRED IN CONFIRMING THE ORDER OF T HE LD, AO. IN LEVYING CONCEALMENT PENALTY OF RS. 91,07,700/- TREATING THE FOLLOWING ADDITION S AND DISALLOWANCE AS CONCEALMENT OF INCOME OF THE APPELLANT: ITA NO. 6483/MUM/2011 M/S. HINDUSTAN ORGANIC CHEMICALS LTD. 2 SR. NO. PARTICULARS AMOUNT (RS.) A ADDITION ON ACCOUNT OF STORES & OBSOLESCENCE 6,79,000 B ADDITION ON ACCOUNT OF PROVISION FOR WAGES SETTLEMENT 24,63,000 C ADDITIONS ON ACCOUNT OF PRIOR PERIOD EXPENSES 2,2 8,80,000 D ADDITIONS ON ACCOUNT OF DEFERRED REVENUE EXPENDITURE 67,43,000 TOTAL 3,27,65,000 3.THE LD. CIT(A) FAILED TO APPRECIATE THAT THE APPE LLANT HAS NEITHER FURNISHED ANY INACCURATE PARTICULARS OF INCOME NOR CONCEALED ANY PARTICULARS OF INCOME. THE ADDITIONS AND DISALLOWANCE MADE IN THE ORDER PASSED UNDER SECTION 143(3) R.WS. 263 OF THE ACT IS MERELY ON DIFFERENCE OF OPINION. THE APPELLANT, THEREFORE, PR AYS THAT THE LEVY OF CONCEALMENT PENALTY OF RS.91,07,700/- UNDER SECTION 271(1)(C) IS UNJUSTIFI ED AND THE SAME MAY BE DELETED. 4.THE LD. CIT(A) FURTHER FAILED TO APPRECIATE THAT THE APPELLANT HAS FURNISHED ALL THE DETAILS DURING THE COURSE OF THE ASSESSMENT AND PENALTY PRO CEEDINGS CALLED BY THE LD. A.O. HENCE, THE LEVY OF PENALTY OF RS.91,07,700/- UNDER SECTION 271(1)(C) IS NOT AT ALL JUSTIFIED AND THE SAME MAY BE DELETED. 5.WITHOUT PREJUDICE TO THE ABOVE THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE APPELLANT HAS GIVEN BONA FIDE EXPLANATION WITH RESPECT TO THE ADDITIONS/DISALLOWANCES MADE IN THE ORDER PASSED UNDER SECTION 143(3) R.W.S 263 OF THE ACT. H ENCE, THE LEVY OF PENALTY AMOUNTING TO RS.91,07,700/- UNDER SECTION 271(1)(C) IS NOT AT AL L JUSTIFIED AND THE SAME MAY BE DELETED. 6.THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OF THE ABOVE GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF MANUFA CTURING OF BASIC CHEMICALS AND CHEMICAL INTERMEDIATES, FILED ITS RET URN OF INCOME ON 31.12.1999 DECLARING TOTAL LOSS OF RS. (-) 57,14,37,514/-.THE RETURN WAS PROCESSED U/S. 143(1) ON 16-03-2002 ACCEPTING THE RETURNED INCOME. SUBSEQUE NTLY, ASSESSMENT WAS COMPLETED U/S. 143(3) R.W.S. 147 OF THE ACT VIDE ORDER DATED 13-09-2006. THE ORDER DATED 13-09- 2006 WAS THE SUBJECT MATTER OF THE REVISION U/S. 26 3 OF THE ACT . LATER ON AN ORDER U/S. 143(3) R.W.S. 263 WAS PASSED VIDE ORDER DATED 10-12 -2009 MAKING FOLLOWING ADDITIONS/DISALLOWANCES: SN. PARTICULARS AMOUNT A. PROVISION FOR STORES AN D OBSOLESCENCE AND PROVISION FOR WAGE SETTLEMENT 31,42,000 B. PRIOR PERIOD EXPENSES 2,28,80,000 C. DEFERRED REVENUE EXPENDITURE 67,43,000 TOTAL 3,27,65,000 2.1. IN RESPONSE TO NOTICE ISSUED U/S. 271(1)(C) R.W.S. 274 OF THE ACT, ASSESSEE FILED REPLY BEFORE THE ASSESSING OFFICER (AO). AFTER CON SIDERING THE SAME, AO IMPOSED PENALTY AMOUNTING TO RS. 91.07 LAKHS FOR FURNISHING INACCURATE PARTICULARS AND CONCEALING THE PARTICULARS OF INCOME VIDE HIS ORDER DT. 30-06-2010. THOUGH HE HAD INITIATED THE PENALTY FOR ALL THE THREE ITEMS MENTI ONED ABOVE, BUT FINALLY HE LEVIED PENALTY ONLY ON THE FIRST TWO ITEMS NAMELY I) PROVISION FOR STORES & OBSOLESCENCE II ) PRIOR PERIOD EXPENSES. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIST APPELL ATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, FAA HE LD THAT ASSESSEE DID NOT SUBMIT ANY DOCUMENT/ EVIDENCE/ IN SUPPORT OF THE CLAIM THA T OBSOLETE STOCK HAD BEEN ACTUALLY ITA NO. 6483/MUM/2011 M/S. HINDUSTAN ORGANIC CHEMICALS LTD. 3 WRITTEN-OFF, THAT COPY OF TECHNICAL EVALUATION REPO RT WAS ALSO NOT SUBMITTED IN THIS REGARD, THAT THE PROVISION WAS ONLY ON AD HOC BASIS , THAT COPY OF ACCOUNTS FILED BY THE ASSESSEE REVEALED THAT NO WRITE-OFF OF INVENTORY ON ACCOUNT OF OBSOLESCENCE HAD TAKEN PLACE DURING THE YEAR UNDER CONSIDERATION, THAT MER E IDENTIFYING AN ITEM AS OBSOLETE AND EVEN CREATING AD HOC PROVISIONS FOR THE SAME DI D NOT IMPLY THAT THE ITEM HAD BEEN WRITTEN-OFF IN THE BOOKS/HAD BEEN DESTROYED/WAS NOT USABLE IN THE PLANT ANY MORE. WITH REGARD TO PROVISIONS OF WAGE SETTLEMENT HE HEL D THAT THE SAID DOCUMENT WAS UNDATED, THAT IT MENTIONED PAYMENT OF INTERIM RELIE F TO THE EMPLOYEES OF THE COMPANY PENDING WAGE REVISION W.E.F. 01-04-1998, THAT DOCUM ENT IN QUESTION DID NOT SHOW WHEN THE RESOLUTION WAS PASSED/PAYMENT WAS MADE, TH AT SAID ITEM WAS APPEARING IN THE BALANCE SHEET AS A LIABILITY , THAT THE ABOVE D ECISION OF THE BOARD WAS TAKEN AFTER THE END OF THE ACCOUNTING YEAR. ABOUT THE PRIOR PE RIOD EXPENSES OF RS.228 LAKHS, HE HELD THAT ASSESSEE HAD NOT SUBMITTED DOCUMENTS OR E VIDENCES PROVING CRYSTALLISATION OF PRIOR PERIOD EXPENSES. HE OBSERVED THAT PRIOR P ERIOD EXPENSES INCLUDED MAINLY SALARIES AND WAGES (148.92 LAKHS) INTEREST ON IDBI LOAN WRITTEN-OFF (RS. 10.23 LAKHS) AND SALES TAX FOR THE YEAR 1993-94, 1994-95 (86.07 LAKHS). HE FURTHER HELD THAT CLAIM OF CRYSTALLISATION OF THE ALL THE THREE LIABILITIES /PAYMENTS IN THE YEAR UNDER CONSIDERATION WAS NOT BASED ON THE FACTS ON RECORD, THAT INTEREST PAYMENT TO IDBI AND SALES TAX WERE HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT. RELYING UPON THE ORDER OF THE ZOOM COMMUNICATION DELIVERED BY HONBL E HIGH COURT OF DELHI (191TAXMAN179) AND THE CASE OF UNITED LINER AGENCIE S (STEVEDORES) [43 SOT 274 (MUM.)], HE CONFIRMED THE ORDER OF THE AO. 4. BEFORE US, AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE HAD WRITTEN-OFF OBSOLETE STOCK TO THE EXTENT OF RS. 6.79 LAKHS DURI NG THE FINANCIAL YEAR 1998-99, THAT SAME WAS ACCOUNTED FOR AS PROVISIONS IN THE BOOKS OF A/CS, THAT THOUGH THE VALUE OF OBSOLETE STOCK, AS PER THE TECHNICAL REPORT WAS RS. 99.7LAKHS AS ON 31-03-1999-YET IT HAD MADE PROVISION FOR RS. 6.79 LAKHS ONLY FOR THE AY UNDER CONSIDERATION, THAT ALL NECESSARY DOCUMENTS WERE SUBMITTED TO THE AO. ABOU T THE WAGE-SETTLEMENT, HE SUBMITTED THAT DEDUCTION WAS CLAIMED ON ACCOUNT OF INTERIM PAYMENT MADE TO EMPLOYEES PURSUANT TO RECOMMENDATION OF THE PAY COM MISSION, THAT THE ASSESSEE HAD PROVIDED RS.52.66 LAKHS FOR WAGE SETTLEMENT OF WHIC HRS.24.63 LAKHS WERE FOR THE AY UNDER CONSIDERATION, THAT THE APPELLANT HAD FURNISH ED ALL THE RELEVANT DETAILS DURING THE ASSESSMENT/APPELLATE PROCEEDINGS. HE REFERRED TO PG . NOS. 2 6 OF THE PAPER BOOK IN THIS REGARD. WITH REGARD TO PRIOR- PERIOD-EXPENSES , HE SUBMITTED THAT EXPENSES WERE CRYSTALLIZED IN THE AY 1999-2000, THAT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WHICH RECOGNISED THE INCOME AND EXPENDIT URE BASED ON THE CRYSTALLIZATION OF THE SAME, THAT FOR THE SAKE OF CLARITY, IT DIVID ED THE EXPENDITURE CONSIDERING THE PERIOD TO WHICH IT PERTAINED, HE RELIED ON THE CASE S OF NAGRI MILLS CO. LTD. (BOM) (33 ITR 681) AND JAMNADAS MORARJEE FINANCE PVT. LTD., ( ITA NO. 3875/MUM/2003). HE FURTHER SUBMITTED THAT ASSESSEE WAS A PUBLIC SECTOR UNDERTAKING, THAT IT WAS SUFFERING LOSSES, THAT IT WAS SUBJECT TO AUDIT BY COMPTROLLER AND AUDITOR GENERAL (CAG). HE RELIED UPON THE CASES OF ADITYA BIRLA NOVA LTD.,201 2 TIOL-106-692 (HIGH COURT- MUMBAI), SANKAR SHROFFINL (P) LTD.(408 SOT 113), RE LIANCE PETROL PRODUCTS (P) LTD.,(322 ITR 158). DR RELIED UPON THE ORDER OF TH E FAA. 5. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE OPINION THAT THE MATTER NEEDS FURTHER VERIFICATION. IT IS A FACT THAT ASSESSEE-COMPANY IS AN ENTERPRISE OF GOVERNMENT OF INDIA AND IS SUBJECT TO AUDIT BY CAG. IN OUR OPINION, AUDIT REPORT/OBSERVATIONS/REM ARKS OF THE CAG ARE VITAL ITA NO. 6483/MUM/2011 M/S. HINDUSTAN ORGANIC CHEMICALS LTD. 4 DOCUMENTS TO DECIDE THE ISSUES INVOLVED. IT APPEAR S THAT SAME HAVE NEITHER BEEN SUBMITTED NOR BEEN CONSIDERED BY THE REVENUE AUTHOR ITIES. FAA HAS MENTIONED THAT THE SPECIAL AUDITOR HAD FAILED TO CONSIDER CERTAIN FACTS. IF HE WAS OF THE OPINION THAT PROPER INVESTIGATION WAS TO BE CARRIED OUT BY THE S PECIAL AUDITOR, HE SHOULD HAVE CALLED FOR A REMAND REPORT. WE FIND THAT COMMENTS OFFERED BY THE ASSESSEE TO THE REPORT OF THE SPECIAL AUDITOR REQUIRE FURTHER VERIFICATION. S O, IN THE INTEREST OF JUSTICE, WE ARE RESTORING BACK THE MATTER TO THE FILE OF THE FAA TO ADJUDICATE THE ISSUES AFRESH AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE ALSO WANT TO MENTION THAT AS PER THE ASSESSEE, IT HAD SUBMITTED DOCUMENT S RELATED TO ALL THE THREE ISSUES BEFORE THE FAA WHERE AS HE HAS HELD THAT VITAL DOCU MENTS WERE NOT SUBMITTED. ASSESSEE, BEING AN UNDERTAKING OF GOVT. OF INDIA, M UST HAVE PRESERVED THE RECORD PERTAINING TO OBSOLETE STOCK/WAGE SETTLEMENT ETC., ASSESSEE IS DIRECTED TO SUBMIT THE PAPERS DURING THE FRESH HEARING BEFORE THE FAA. WE ALSO FIND THAT SOME DATES HAVE BEEN MENTIONED IN THE WAGE SETTLEMENT RESOLUTION AN D THE MINUTES OF BOARD OF DIRECTORS. ASSESSEE SHOULD PRODUCE THE ORIGINAL DO CUMENTS BEFORE THE FAA. WITH THESE OBSERVATIONS, APPEAL FILED BY THE ASSESSEE-CO MPANY IS ALLOWED IN PART. AS A RESULT, APPEAL STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER 2012 +#, . /& # $ 0 1+ 31-12-2012 . 2 3 SD/- SD/- ( . / D. MANMOHAN) ( '#$% / RAJENDRA) / VICE PRESIDENT # +4 / ACCOUNTANT MEMBER MUMBAI, 1+ DATE: 31-12-2012 TNMM +#, +#, +#, +#, . .. . )56 )56 )56 )56 7#6&5 7#6&5 7#6&5 7#6&5 / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR E BENCH, ITAT, MUMBAI 6 . GUARD FILE *65 )5 //TRUE COPY// +#, +#, +#, +#, / BY ORDER, / ' ' ' ' DY./ASST. REGISTRAR , / ITAT, MUMBAI