CHAWLA & SONS, MUMBAI V. I.T.O.19(2)(2), MUMBAI

ITA 6918/MUM/2012

• Counselvise Citation: 691819914 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: RAJESH SINGHVI
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDI CIAL MEMBER . / ITA NO. 6918 /MUM./ 2012 ( / ASSESSMENT YEAR : 2006 07 ) M/S. CHAWLA & SONS LINK SIDE, 50, CARTER ROAD BANDRA (EAST), MUMBAI 400 050 .. / APPELLANT V/S INCOME TAX OFFICER WAR D 19(2)(2), MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAAFC4799C / ASSESSEE BY : SHRI RAJESH SINGHVI / REVENUE BY : SMT. PARMINDER / DATE OF HEARING 11 .08.2014 / DATE OF ORDE R 14.08.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 12 TH MAY 20 12 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXXV, MUMBAI, FOR THE QUANTUM OF ASSE SSMENT PASSED UNDER SECTION 143(3) , OF THE INCOME TAX ACT, 1961 M/S. CHAWLA & SONS 2 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2006 07 , ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES OF ` 6,50,180 BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING THE VALUE OF CLOSING STOCK AT ` 24,91,601. 2 . FACTS IN BRIEF : THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF EXPORTS IN VARIOUS ITEMS AS PER ORDER RECEIVED FROM THE OVERSEAS PARTIES. DURING THE YEAR, THE ASSESSEE HAS EXPORTED BLANKETS AND TO WELS. THE ASSESSEE HAD SHOWN EXPORT SALES OF ` 2,45,79,282, AND HAS DECLARED NET PROFIT OF ` 4,63,227. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED IN THE PROFIT & LOSS ACCOUNT AN AMOUNT OF ` 26 ,00,727, ON ACCOUNT OF INDIRECT EXPENSES, BANK INTEREST, PAY ROLL, ETC. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS AND ALSO THE NATURE AND PURPOSE OF SUCH EXPENSES. IN RESPONSE, THE ASSESSEE STATED THAT THE BOOKS OF ACCOUNT AND THE SUPPORTING BILLS WERE STORED IN THE BASEMENT OF ITS PREMISES WHICH GOT DAMAGED DURING THE FLOOD IN MUMBAI ON 26 TH JULY 2005. IN THE ABSENCE OF SUCH BILLS AND THE BOOKS OF ACCOUNT, THE ASSESSING OFFICER HELD THAT IT IS VERY DIFFICULT TO ACCEPT THAT EVEN THE DETAILS AND THE BOOK S OF ACCOUNT FOR THE PERIOD AFTER THE FLOOD I.E., 27 TH JULY 2005 TO 31 ST MARCH 2008, WERE ALSO LOS T IN THE FLOODS WHICH HAD M/S. CHAWLA & SONS 3 OCCURRED ON 26 TH JULY 2005. SINCE THE ASSESSEE WAS UNABLE TO SUBSTANTIATE ITS CLAIM FOR EXPENDITURE, THE ASSESSING OFFICER PROCEEDED TO DISALLOW THE SAID EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT @ 25% AND, ACCORDINGLY, DISALLOWED THE SUM OF ` 6,50,180. 3 . ON A FURTHER PERUSAL OF THE PROFIT & LOSS ACCOUNT, THE ASSESSING OFFICER NOTED THAT THE CLOSING STOCK HAS BEEN VALUED AT NIL A S ON 31 ST MARCH 2006. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE STOCK WHICH WAS STORED IN THE BASEMENT OF ITS PREMISE WERE COMPLETE DAMAGED DURING THE FLOODS, HOWEVER, IN SUPPORT OF THE SAME, THE ASSESSEE COULD NOT FURNISH ANY E VIDENCE TO SUBSTANTIATE THE SAME LIKE IN THE FORM OF COPY OF FIR, PANCHANAMA OR CLAIM MADE BEFORE THE INSURANCE COMPANY. ACCORDINGLY, HE HELD THAT OPENING STOCK AS ON 1 ST APRIL 2005, IS PRESUMED TO BE CONTINUED TO BE PART OF THE INVENTORY AS ON 31 ST MARCH 2006 AND, ACCORDINGLY, HE VALUED THE CLOSING STOCK AT ` 24,91,601. 4 . BEFORE THE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE FILED AN AFFIDAVIT OF THE PARTNER, SHRI AMARLAL, WITH REGARD TO THE ADDITION MADE IN THE CLOSING STOCK STATING THAT STOCK WORTH ` 24 ,91,601, WAS DAMAGED IN THE FLOOD ALONG WITH OFFICE RECORDS ON 26 TH JULY 2005, WHICH WERE KEPT IN THE BASEMENT OF THE PREMISE AND THERE WAS NO INSURANCE COVER FOR THE SAME. THE LEARNED COMMISSIONER (APPEALS), IN M/S. CHAWLA & SONS 4 THE ABSENCE OF ANY PROPER EXPLANATION, DISMI SSED THE ASSESSEES CONTENTION AND UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE BILLS RELATING TO THE EXPENDITURE COULD NOT BE PRODUCED BEFORE THE ASSESSING OFFICER, HOWEVER, WHILE ASSESSING THE INCOME UNDER BEST JUDGMENT ASSESSMENT, THE ASSESSING OFFICER SHOULD ADOPT REASONABLE BASIS. HE POINTED OUT BEFORE US, THAT GOING BY THE DETAILS OF VARIOUS HEADS OF EXPENDITURE THEN IT CAN BE SEEN THAT THERE ARE CERTAIN EXPENSES WHICH DO NOT WARRANT ANY AD HOC DISALLOWANCE. T HE NATURE OF SUCH EXPENDITURE A RE DEPB APPLICATION FEES, INSURANCE ECGC, INSURANCE GENERAL, INSURANCE EXPORT, INSURANCE ON CAR, ELECTRICITY EXPENSES, ETC. IF WE REMOVE THESE EXPENSES, THEN THE TOTAL EXPENDITURE ON THE OTHER HEADS WILL COME DOWN TO ` 14,87,000. HE ALSO POINTED OUT THAT IN THE EARLIER ASSESSMENT YEAR I.E., THE ASSESSMENT YEAR 2005 06, THE ASSESSING OFFICER HAS MADE AD HOD DISALLOWANCE ON TELEPHONE EXPENSES, ETC., @ 20%. THEREFORE, AT BEST, THE DISALLOWAN CE SHOULD BE MADE @ 20% ON THE EXPENDITURE OF ` 14,87,000. REGARDING THE CLOSING STOCK, HE REITERATED THE SUBMISSIONS THAT THE STOCK GOT DESTROYED IN FLOOD AND MOST OF THE PURCHASES MADE WERE SOLD UP TO 15 TH JULY 2005. THUS, THE OPENING STOCK GOT DESTROYED AND THE PURCHASES MADE UP TO JULY 2005, WERE SOLD BEFORE THE DATE OF 26 TH JULY 2005 I.E., THE DATE IN WHICH SOME OF THE STOCKS GOT DESTROYED M/S. CHAWLA & SONS 5 IN FLOOD. IN SUPPORT OF HIS CONTENTION, HE DREW OUR ATTENTION TO SALE AND PURCHASE LEDGER FOR THE RELEVANT FINANCI AL YEAR. AS AN ALTERNATE SUBMISSION, HE SUBMITTED THAT THE GROSS PROFIT RATE IN THIS YEAR WAS 15.6% , WHEREAS IN THE EARLIER YEAR IT WAS 10.6%. THEREFORE, LOOKING TO THE GROSS PROFIT RATE NO ADDITION ON ACCOUNT OF CLOSING STOCK SHOULD BE MADE. 6 . ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ONUS WAS UPON THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT AND ALSO THAT ITS STOCK WAS DESTROYED IN THE FLOOD. IN THE ABSENCE OF ANY MATERIAL ON RECORD, SUCH AN ASSERTION AS MADE BY THE ASSESSEE CANNOT BE ACCEPTED. THUS, THE FINDING OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) ARE ABSOLUTELY CORRECT AND, ACCORDINGLY, THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) CONFIRMING THE ADDITION SHOULD BE UPHELD. 7 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD. INSOFAR AS THE ISSUE OF AD HOC DISALLOWANCE OF ` 6,50,180, ON THE AMOUNT OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD INDIRE CT EXPENSES FOR SUMS AGGREGATING TO ` 26,00,728, WE FIND THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE ITS CLAIM EITHER FROM THE BOOKS OF ACCOUNT OR ANY BILLS OR VOUCHERS. EVEN IF M/S. CHAWLA & SONS 6 THESE BOOKS OF ACCOUNT AND BILLS WERE DESTROYED IN THE FLOOD, THE ONUS WAS U PON THE ASSESSEE TO PROVE SUCH ASSERTION BY CORROBORATIVE EVIDENCE OR CIRCUMSTANTIAL EVIDENCE WHICH HAS NOT BEEN DONE SO. HOWEVER, WE AGREE WITH THE OTHER CONTENTION OF THE LEARNED COUNSEL THAT THERE ARE CERTAIN EXPENSES WHICH ARE DIRECTLY RELATED TO EXPOR T SALES AND NO AD HOC DISALLOWANCE SHOULD BE MADE ON SUCH ACCOUNT. THE EXPENSES LIKE INSURANCE ON ECGC, EXPORT, ETC., DEPB APPLICATION FEES, THE EXPENDITURE INCURED HAVE TO BE ALLOWED IN TOTO AS THEY ARE DIRECTLY RELATED TO EXPORT. FURTHER, THE INSURANCE O N CAR AND ELECTRICITY EXPENSES ALSO, NO AD HOC DISALLOWANCE SHOULD BE MADE AS THE AMOUNT IS ASCERTAINABLE DIRECTLY FROM THE RECORDS , AS THEY ARE PAID BY CHEQUES . ON THE BALANCE EXPENDITURE, WITHOUT ANY FURTHER CORROBORATIVE EVIDENCE, IT IS DIFFICULT TO ALL OW SUCH EXPENDITURE AS A WHOLE AND, THEREFORE, SOME AD HOC DISALLOWANCE IS DEFINITELY CALLED FOR. SINCE IN THE EARLIER YEARS, THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE @ 20%, THEREFORE, RELYING UPON THE SAME RATIO, WE DIRECT THE ASSESSING OFFICER TO DISALLOW OTHER HEADS OF EXPENDITURE @ 20%. THE ASSESSING OFFICER SHALL QUANTIFY SUCH EXPENDITURE AND, ACCORDINGLY, MADE DISALLOWANCE @ 20%. THUS, GROUND NO.1, IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8 . NOW, COMING TO THE ADDITION ON ACCOUNT OF CLOSING STOCK OF ` 24,91,601, WE FIND THAT THE ASSESSEE HAS REITERATED THE SAME M/S. CHAWLA & SONS 7 SUBMISSIONS THAT THE ENTIRE AMOUNT OF OPENING STOCK SHOWN AS ON 1 ST APRIL 2005, GOT DESTROYED DURING THE FLOOD ON 26 TH JULY 2005. AS REGARDS THE PURCHASES MADE DURING THE Y EAR, THE SAME HAVE BEEN CLAIMED TO HAVE BEEN SOLD MOSTLY BEFORE 26 TH JULY 2005. EVEN THE AFFIDAVIT FILED BY THE PARTNER IS MERELY A SELF CERTIFYING DOCUMENT AND THERE IS NO CORROBORATIVE EVIDENCE IN THE FORM OF FIR OR CLAIM FOR INSURANCE, ETC., TO SHOW THA T THE ASSESSEES ENTIRE STOCK WHICH WERE SHOWN AS OPENING STOCK GOT DESTROYED. THE ONUS WAS HEAVILY UPON THE ASSESSEE TO PROVE ITS CONTENTION WHICH HAS NOT BEEN DONE SO IN THE PRESENT CASE. HOWEVER, WE DISAGREE WITH THE MANNER IN WHICH THE ADDITION HAS BEE N MADE BY THE ASSESSING OFFICER , BECAUSE HE HAS TAKEN THE VALUE OF CLOSING STOCK AS ON 31 ST MARCH 2006, ON THE VALUE WHICH WERE SHOWN AS AN OPENING STOCK AS ON 1 ST APRIL 2005. ONCE THE ASSESSING OFFICER IS MAKING A BEST JUDGMENT ASSESSMENT IN THE ABSENCE O F BOOKS OF ACCOUNT, HE HAS TO ADOPT SOME REASONABLE BASIS FOR MAKING THE ADDITION. ONCE THERE IS A DISPUTE WITH REGARD TO THE VALUE OF CLOSING STOCK, THEN THE PROFIT ELEMENT OF THE CLOSING STOCK SHOULD BE MOST APPROPRIATE YARDSTICK FOR MAKING THE ADDITION. THE ASSESSEE HAD SHOWN GROSS PROFIT RATE OF 15.6%, THEREFORE, IF AT ALL THE ADDITION ON ACCOUNT OF VALUE OF CLOSING STOCK IS TO BE TAKEN THEN THE SAME SHOULD BE MADE ON THE BASIS OF GROSS PROFIT RATE OF 15.6%. ACCORDINGLY, WE HOLD THAT THE PROFIT ELEMENT ON THE VALUE OF CLOSING M/S. CHAWLA & SONS 8 STOCK SHOULD BE ADDED FOR THIS YEAR, WHICH SHOULD BE WORKED OUT AFTER APPLYING 15.6% OF ` 24,91,601. THUS, THE ADDITION ON ACCOUNT OF CLOSING STOCK SHOULD BE RESTRICTED TO 15.6% OF ` 24,91,601. ACCORDINGLY, GROUND NO.2, IS TREATED A S PARTLY ALLOWED. 9 . 9 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 14 TH AUGUST 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 14 TH AUGUST 2014 SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 14 TH AUGUST 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOW DHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI