M/s. Punjab Nylo Transmission Ltd, Jalandhar V. The Dy. Commissioner of Income-tax, Jalandhar

ITA 67/ASR/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73283 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-04-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 30-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: J S BHASIN
• Section: 72(1); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.67(ASR)/2013 ASSESSMENT YEAR:2006-07 PAN :AABCP3696B M/S. PUNJAB NYLO TRANSMISSION LTD. VS. DY.COMMR. OF INCOME TAX, NAKODAR ROAD, JALANDHAR. RANGE-1, JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.J.S.BHASIN, ADVOCATE RESPONDENT BY:SH.MAHAVIR SINGH, DR DATE OF HEARING: 30/01/2014 DATE OF PRONOUNCEMENT:28/02/2014 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDE R OF THE CIT(A), JALANDHAR, DATED 15.11.2011 FOR THE ASSESSMENT YEAR 2006-07.THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS GROSSLY MISDIRECTED HIM SELF IN LAW AND IN FACTS TO DISALLOW THE ENTIRE BUSINESS LOSS OF RS .5,59,596, BEING AN ACT OF ENHANCEMENT, ON ERRONEOUS AND INSUF FICIENT GROUNDS. ITA NO.67(ASR)/2013 2 2. THAT ON THE CONTRARY, THE LD. CIT(A) OUGHT TO HA VE REVERSED AOS ACTION WHEN THE SUBSTITUTED THE SAID LOSS BY A PRESUMPTIVE SALE PRICE OF DEAD STOCKS IN A SUM OF RS.4,76,000/- . 3. THAT THE ORDER UNDER APPEAL IS AGAINST LAW AND FACT S OF THE CASE. 2. THE BRIEF FACTS OF THE CASE ARE AS PER PAGE 4 OF AOS ORDER WHICH ARE REPRODUCED AS UNDER: THE ASSESSEE HAS CLAIMED LOSS OF RS.559596/- BUT NOT FILED ANY EVIDENCE IN SUPPORT OF THE LOSS WHEN SPEC IFICALLY HAS BEEN ASKED VIDE NOTICE DATED 23.10.2008 U/S 142(1) OF THE ACT WITH REFERENCE TO ITS REPLY DATED 27.11.2008, THERE WAS NO SPECIFIC INSTANCES O F ANY PURCHASER REJECTING THE GOODS ON ACCOUNT OF ANY DEFECT OR INJURY. THERE IS ADMISSION OF GRADUAL SALE AFTER NON-PRODUCTION BUT THERE IS NO EVIDENCE OF REJECTION OF GOODS. THE REASONS GIVING FOR DETERIORATION ARE NOT CONVINCING AS THERE WAS OTHER TRADING ACTIVITY. IN THE CIRCUMSTANCES, ASSESSEE FAILED TO DISCHARGE THE ONUS TO SUBSTANTIATE ITS CLAIM OF LOSS. ASSESSEES CLAIM IS NOT BONAFIDE IN VIEW OF THE FACT IT HAS CLAIMED LOSS IN RESPECT OF THE WHOL E OF THE RAW MATERIAL OF RS.102570/- REFLECTED IN THE OPENING STOCK AND HENC E CONTENTION IN RESPECT OF FINISHED GOODS CANNOT BE ACCEPTED MOREOVER IT AP PEARS TO DEVICE TO NEUTRALIZE INTEREST INCOME SHOW AT RS.517929/-. SIN CE THE ITEMS OF RAW- MATERIAL AND FINISHED GOODS ARE NOT PERISHABLE IN N ATURE AND DO HAVE SALE VALUE AND THE SAME IS BEING COMPUTED AS BELOW FOR T HE PURPOSES OF COMPUTING THE ASSESSEES INCOME: ITA NO.67(ASR)/2013 3 NATURE OF GOODS VALUE SALEABLE VALUE RAW MATERIAL 102570] FINISHED GOODS 452396] 476000 CONSUMABLES 4950 NIL TOTAL 4,76,000/- 3. BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE SU BMISSIONS AND THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE AO AND MA DE FURTHER ENHANCEMENT OF RS.83,596/-. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT WAS SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSE E, BEFORE THE AO WHICH SUBMISSIONS ARE REPRODUCED FOR THE SAKE OF CONVENIE NCE AS UNDER: APROPOS LOSS ON ACCOUNT OF DAMAGED GOODS AMOUNTING TO RS.559596/- IT COMPRISED OF RAW MATERIAL OF RS.1029 50/- FINISHED GOODS OF RS.452396/- AND CONSUMABLES OF RS.4250/-. THESE STOCKS WERE HELD BY THE COMPANY FOR THE LAST ALMOST TEN YE ARS. IT IS SUBMITTED THAT THE ASSESSEE COMPANY HAD BEEN IN THE BUSINESS OF A QUALITY LEATHER AND NYLON SANDWICH CONVEYOR BELTINGS. EVEN A MINOR DEFECT OR INJURY TO THE BELTINGS DURING MANUFACTURING OR H ANDLING WHILE PACKING AND FORWARDING WAS TO RESULT IN ITS REJECTI ON. SINCE, UNLIKE ORDINARY RUBBER OR LEATHER BELTING, IT WAS SANDWIC HING OF LEATHER AND NYLON FOLDED IN FABRIC WITH MECHANICAL AID, ONCE TH E BELTING FACED REJECTION, THERE WAS JUST NOTHING RETRIEVABLE WHICH COULD BE RECYCLED OR REUSED. UNFORTUNATELY, THE COMPANYS BUSINESS F OR VARIOUS INTERNAL AND EXTERNAL REASONS, STARTED DECLINING OV ER THE YEARS AND ITS PRODUCTION ALSO HAD TO BE DISCONTINUED LONGTIME BAC K. THEREAFTER, WHATEVER STOCKS WERE LEFT, THE SAME WERE GRADUALLY BEING SOLD. BUT SINCE HOWEVER, NO FURTHER PRODUCTION WAS BEING UNDE RTAKEN, IT BECAME EXTREMELY DIFFICULT TO PROCURE FRESH ORDERS EVEN TO CLEAR AND OLD STOCKS. THUS, THE STOCKS REMAINED BLOCKED FOR SEVER AL YEARS. DURING THE YEAR, ON PHYSICAL INSPECTION OF THE STOCKS TOWA RDS THE CLOSE OF ITA NO.67(ASR)/2013 4 YEAR, THE SAME WERE FOUND TO HAVE DETERIORATED/PERI SHED DUE TO PROLONGED STORAGE, MISHANDLING BY LABOUR, MOUSE BIT E AND VAGARIES OF WEATHER. THE RAW MATERIAL/CONSUMABLES COMPRISED OF NYLON TAPES, ADHESIVE, FABRIC ETC. WHICH DRIED UP AND GOT SPOILE D DUE TO LONG STORAGE. THEREFORE, THE SAID STOCKS WERE WRITTEN OF AS DAMAGED STOCKS AND WERE DUMPED BY DEBITING THE VALUE THEREOF TO P & L A/.C 4.1 THE LD. COUNSEL FOR THE ASSESSEE ALSO MADE THE SUBMISSIONS BEFORE THE LD. CIT(A), WHICH ARE AVAILABLE IN PARA 7 OF HI S ORDER. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. CO UNSEL FOR THE ASSESSEE, MR. J.S. BHASIN, ADVOCATE, WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT THE MANUFACTURING ACTIVITY HAS CEASED TO CONTINUE L ONG BACK AND THE STOCKS WHICH WERE CLAIMED TO BE WRITTEN OFF RELATED TO A P ERIOD OF 10 YEARS AGO. THE TRADING ACTIVITY AT A VERY SMALL SCALE IS CLAIMED A S AN ANCILLARY ACTIVITY. THE AO HAS DISALLOWED ONLY AN AMOUNT OF RS.4,76,000/- T HAT TOO ON ESTIMATE BASIS TREATING THE SALEABLE VALUE. THE LARGER ISSUE D INVOLVED IN THE CASE IS THAT WHETHER LOSSES RELATING TO A BUSINESS OF MANUF ACTURING WHICH IS WITHOUT FURNISHING ANY EVIDENCE OF SUCH LOSSES? THE RELIANC E OF ASSESSEE ON THE CASE OF M/S. K.J.R. INDIA (P) LTD 46 DTR (TRIB) (DEL) IS NOT APPLICABLE TO THE FACTS OF THIS CASE AS IN THAT CASE MANUFACTURING AC TIVITY WAS SUSPENDED AND TRADING IN THE PRODUCT STARTED AND RETRENCHMENT EXP ENSES WERE ALLOWED. IN THE PRESENT CASE THE MANUFACTURING HAS DISCONTINUE D LONG BACK AND LOSSES RELATING TO SAME ARE CLAIMED. THE CASE RELIED ON IS CLEARLY DISTINGUISHABLE ITA NO.67(ASR)/2013 5 AND IS OF NO HELP TO ASSESSEE. IN THE OTHER CASES R ELIED BY ASSESSEE I.E. 92 ITR 50 (MADRAS), 661 ITR 520 (P&H) AND 127 TAXMAN 443 ( MAD) THE ISSUE WAS WHETHER ON SUSPENSION OR TEMPORARY DISCONTINUED OF ONE ARUN OF BUSINESS WHEN BOTH THE BUSINESS CONTINUED TO CONSTITUTE ONE BUSINESS, EXPENSES LEGITIMATELY INCURRED SHOULD BE ALLOWED. THE FACTS ARE ENTIRELY DIFFERENT. EVEN AFTER OMISSION OF THE PROVISO TO SECTION 72(1) OF I.T.ACT W.E.F. AY 2000-01, IT IS IMPERATIVE TO ESTABLISH THE EXISTEN CE OF LOSSES WHICH IS NOT DONE IN THIS CASE. AN IMPORTANT FACTOR OF EARNING O F INTEREST ON BONDS TO THE TUNE OF RS.5,17,929/- CAN ALSO NOT TO BE OVERLOOKED AGAINST WHICH THE SET OFF IS SOUGHT APPARENTLY UNDER SECTION 71 OF THE ACT. T HE SAME IS ALSO NOT ALLOWABLE AS THE EXISTENCE OF A LOSS IN A.Y. 2006-0 7 IS NOT AT ALL ESTABLISHED. IN THE CASE OF M/S. JAMNA DAS RAMESHWAR DASS, HONB LE PUNJAB & HARYANA HIGH COURT IN 21 ITR 109 HAS HELD THAT WHERE AN ASS ESSEE CLAIMS TO SET OFF A PARTICULAR AMOUNT OF LOSS HE MIST ESTABLISH THAT HE HAS INCURRED SUCH LOSS. IN VIEW OF THE ACTION OF THE A.O. IN MAKING AN ADDITIO N OF RS.4,76,000/- INSTEAD OF DISALLOWING THE ENTIRE LOSS OF RS.5,59,596/- IS NOT CORRECT AND THE LD. CIT(A) DISALLOWED THE ENTIRE LOSS CLAIMED AT RS.5,5 9,496/- AND MADE AN ENHANCEMENT OF INCOME TO THE TUNE OF RS.83,596/- (I .E. RS.5,59,596/- - RS.4,76,000/-). ITA NO.67(ASR)/2013 6 5.1. IN VIEW OF THE ABOVE DISCUSSIONS, WE FIND NO I NFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. THUS, ALL TH E GROUNDS OF THE ASSESSEE ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.67(ASR)/2013 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH FEBRUARY, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28TH FEBRUARY, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. PUNJAB NYLO TRASMISSION LTD. JALA NDHAR. 2. THE DCIT RANGE-1, JALANDHAR. 3. THE CIT(A), JLR. 4. THE CIT, JLR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR