Injecto Ltd., V. ACIT, Range-1,

ITA 808/DEL/2005

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3466 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 18-02-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Additional evidence
• Section: 234B; 37(1); 143(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 808(DEL)/2005 ASSESSMENT YEAR: 2006-07 M/S URVEE CREATIONS (P) LTD., INCOME-TAX OFFICER, 6-A, SHIV MANDIR MARG, VS. WARD 18(1), NEW DELHI. MAUZPUR, NEW DELHI-110053. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJESH JAIN, C.A. RESPONDENT BY: SHRI N.K. CHAND, SR. DR ORDER PER K.G. BANSAL : AM THIS APPEAL OF THE ASSESSEE EMANATES FROM THE O RDER OF THE CIT(APPEALS)-XXI, NEW DELHI, PASSED ON 29.12.200 9 IN APPEAL NO. 80/08-09. THE ONLY SUBSTANTIVE GROUND TAKEN BY THE ASSESSEE IS THAT THE LD. CIT(APPEALS) ERRED IN UPHOLDING THE ADDITION OF RS. 12,01,340/- ON ACCOUNT OF DIMINUTION IN THE VALUE OF STOCK. G ROUND NO. 2 REGARDING NON-ENTERTAINMENT OF ADDITIONAL EVIDENCE BY THE L D. CIT(A) WAS NOT PRESSED BY THE LD. COUNSEL AND, THEREFORE, IT S TANDS DISMISSED. GROUND NOS. 3 AND 4, REGARDING THE CHARGING OF INTERES T U/S 234B, ARE STATED TO BE CONSEQUENTIAL IN NATURE. ITA NO. 808(DEL)/10 2 2. THE FACTS OF THE CASE ARE THAT THE ASS ESSEE FILED ITS RETURN OF INCOME DECLARING LOSS OF RS. 4,90,296/- ON 22.1 1.2006. THE ASSESSEE IS CARRYING ON THE BUSINESS OF MANUFACTURE OF READY -MADE GARMENTS AND EMBROIDERY WORK. APART FROM THAT HIRE CHARGES ARE ALSO RECEIVED IN RESPECT OF THE MACHINERY AND INTEREST IS RECEI VED ON DEPOSITS WITH THE BANK. IN THE COURSE OF HEARING, IT WAS FOUND THA T THE ASSESSEE DEBITED A SUM OF RS. 16,91,633/- TO THE PROFIT AND LOSS ACC OUNT IN RESPECT OF DIMINUTION IN THE VALUE OF THE STOCK. AFTER CONS IDERING THE EXPLANATION OF THE ASSESSEE IN THIS MATTER, THIS LOSS WAS DIS ALLOWED AND THE INCOME WAS COMPUTED AT RS. 12,01,340/-. AGGRIEVED BY THIS O RDER, AN APPEAL WAS FILED BEFORE THE CIT(APPEALS)-XXI, NEW DELHI, WHO DISPOSED OFF THE SAME ON 29.12.2009. THE ASSESSEE WANTED TO FI LE ADDITIONAL EVIDENCE IN THE MATTER, WHICH WAS NOT ADMITTED BY THE LD. C IT(APPEALS). AFTER CONSIDERING THE EVIDENCE BEFORE HIM AND SUBMISSI ONS MADE BY THE ASSESSEE, THE CLAIM OF THE ASSESSEE WAS REJECTE D ON THE GROUND THAT IT HAS FAILED TO ADDUCE ANY INDEPENDENT EVIDENCE WHICH W ILL INDICATE THAT LOSS HAS BEEN INCURRED DUE TO DETERIORATION IN THE QUA LITY OF THE STOCK. 3. BEFORE US, THE LD. COUNSEL REFERRED TO PAGE NOS . 5 TO 7 OF PAPER BOOK NO. 1, WHICH CONTAIN THE STATEMENT OF STOCK AS O N 31.3.2006. THE DETAILS ITA NO. 808(DEL)/10 3 ARE FURNISHED IN TERMS OF OPENING STOCK, PURCHASE S, SALES AND CLOSING STOCK. EACH ITEM HAS BEEN SHOWN SEPARATELY AND WHEREVER THE STOCK HAD BEEN DAMAGED DUE TO TERMITE-ATTACK, THE VALUE H AS BEEN REDUCED TO SHOW THE DIMINUTION IN THE VALUE OF THE STOCK. FOR EXAMPLE, THE STOCK OF SAMPLING HAS BEEN VALUED AT RS. 13,400/- IN PLACE OF OPENING VALUE OF RS. 1,13,525/-, ALTHOUGH QUANTITY REMAINS THE SAME. SIMILARLY, THE VALUE OF ASSORTED APPARELS HAS BEEN TAKEN AT RS . 5,05,400/- IN PLACE OF THE VALUE OF RS. 7,78,000/-. PAGE NO. 7 CONTAINS A COPY OF RESOLUTION PASSED IN THE MEETING OF BOARD OF DIRECTORS, HE LD ON 15.11.2005, TO THE EFFECT THAT STOCK OF FABRIC, GARMENTS AND FABRIC ATION ACCESSORIES, WHICH GOT HEAVILY DAMAGED ON ACCOUNT OF TERMITE-ATTA CK, AMOUNTING TO RS. 16,91,633/-, IS HEREBY RECOGNIZED AND ACCOUNTED F OR AS DIMINUTION IN VALUE OF STOCK. THE AUDITORS HAVE CERTIFIED T HE VALUE OF THE STOCK ON THE BASIS OF REPRESENTATION OF THE ASSESSEE COMPANY IN THE MATTER. FURTHER, THE LD. COUNSEL DREW OUR ATTENTION TO PAGE NOS. 13 T O 40 OF THE PAPER BOOK. THE PROFIT AND LOSS FOR THE YEAR ENDED ON 31.3.2007 IS AVAILABLE AT PAGE NO. 23, WHICH SHOWS THE SALE OF THE DAMAGED STOCK AT RS. 45,000/- AND CORRESPONDING DIMINUTION IN THE VALUE OF STOCK AT RS. 10,20,000/-. IT IS EXPLAINED THAT THE DAMAGED STOCK WHICH WAS VA LUED AT RS. 10,20,000/- IN THIS YEAR WAS SOLD IN THE SUBSEQUENT YEAR A T RS. 45,000/-. THESE ITA NO. 808(DEL)/10 4 ACCOUNTS HAVE BEEN ACCEPTED BY THE AO U/S 143(1) (A). THUS, THE CASE OF THE LD. COUNSEL IS THAT THERE WAS ACTUALLY DE TERIORATION OF STOCK DUE TO TERMITE-ATTACK AND THE VALUE ACTUALLY REALIZED WAS LESSER THAN THE VALUATION MADE IN THIS YEAR. 3.1 IN REPLY, THE LD. DR REFERRED TO PAGE NO. 2 OF THE PAPER BOOK, BEING A PART OF THE LETTER DATED 19.11.2008, WRITTEN BY THE ASSESSEE TO THE AO, STATING INTER-ALIA THAT THE CARRIED FORWARD STOCK OF DYED FABRICS, PACKING MATERIALS AND ACCESSORIES WAS HEAVILY DAMAGED BY TERMITE-ATTACK, WHICH HAD TO BE THROWN TO AVOID FURTHER DAMAGE TO OT HER STOCK. THE DIMINUTION IN THE VALUE OF THE STOCK ON THIS ACCOUNT WAS ASCERTAINED AT RS. 16,91,633/-. FURTHER, HE REFERRED TO ASSE SSEES LETTER DATED 28.11.2008 ADDRESSED TO THE AO AND PLACED IN THE PAPER BOOK ON PAGE NUMBERS 3 AND 4, IN WHICH IT WAS SUBMITTED THAT THE LOSS DUE TO DAMAGE BY WHITE ANT HAS BEEN INCURRED IN THE COURSE OF OPERATION OF THE BUSINESS AND, THUS, THE LOSS IS INCIDENTAL TO THE BUSINESS OPERATION. THE LOSS IS NEITHER PERSONAL NOR CAPITAL IN NATURE. THEREFO RE, THE SAME IS DEDUCTIBLE IN COMPUTING THE TOTAL INCOME U/S 37(1). IN TH E LIGHT OF AFORESAID SUBMISSIONS MADE BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE CASE OF THE LD. DR IS THAT THE LOSS IS CLA IMED ON THE BASIS OF ASSESSEES ITA NO. 808(DEL)/10 5 OWN ASSERTION AND THERE IS NO THIRD PARTY EVI DENCE TO SUPPORT THE THEORY OF DAMAGE TO STOCK BY TERMITE-ATTACK. THERE IS A DISTINCT POSSIBILITY THAT THE STOCK WAS SIPHONED OFF BY THE ASSESSE E AND SOLD WITHOUT RECORDING THE PROCEEDS THEREOF IN THE BOOKS OF ACCOUNT. THE FACTS REGARDING THE DAMAGE, IF ANY, ARE IN THE SPECIA L KNOWLEDGE OF THE ASSESSEE AND, THEREFORE, IT IS FOR IT TO ESTAB LISH WITH COGENT EVIDENCE THAT THERE WAS, IN FACT, DAMAGE TO THE STOCK. IT W AS ARGUED THAT THE LOWER AUTHORITIES HAVE TAKEN THE DECISION BY TAKING IN TO ACCOUNT INTER-ALIA ALL ATTENDANT CIRCUMSTANCES AND THAT IF THAT IS DON E, IT CAN BE SAID THAT THE DAMAGE TO THE STOCK WAS NOT PROVED. IN THIS CO NNECTION, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF S UMATI DAYAL VS. CIT (1995) 214 ITR 801. ON THE BASIS OF FACTS OF T HAT CASE, THE HONBLE COURT HELD THAT IN DECIDING SUCH A MATTER, THE CONDUCT OF THE ASSESSEE, MATERIAL ON RECORD AND ATTENDANT CIRCUMSTANCES HA VE TO BE TAKEN INTO ACCOUNT. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW:- THIS, IN OUR OPINION, IS A SUPERFICIAL APPROACH TO THE PROBLEM. THE MATTER HAS TO BE CONSIDERED IN THE LI GHT OF HUMAN PROBABILITIES. THE CHAIRMAN OF THE SETTLEMEN T COMMISSION HAS EMPHASIZED THAT THE APPELLANT D ID POSSESS THE WINNING TICKET WHICH WAS SURRENDERED TO THE RACE CLUB AND IN RETURN A CROSSED CHEQUE WAS OBTAINED. IT IS, IN OUR ITA NO. 808(DEL)/10 6 VIEW, A NEUTRAL CIRCUMSTANCE, BECAUSE IF THE AP PELLANT HAD PURCHASED THE WINNING TICKET AFTER THE EVENT SH E WOULD BE HAVING THE WINNING TICKET WITH HER WHICH SHOULD COULD SURRENDER TO THE RACE CLUB. THE OBSERVATION BY THE CHAIRMAN OF THE SETTLEMENT COMMISSION THAT FRAUD ULENT SALE OF WINNING PRACTICE IGNORES THE PREVALENT MA LPRACTICE THAT WAS NOTICED BY THE DIRECT TAXES ENQUIRY COMMITTEE AND THE RECOMMENDATIONS MADE BY THE SAID COMMITTEE WHICH LED TO THE AMENDMENT OF THE ACT BY THE FINANCE ACT OF 1972, WHEREBY THE EXEMPTION FROM TAX THAT WAS AVAI LABLE IN RESPECT OF WINNINGS FROM LOTTERIES, CROSSWORD PUZZLES, RACES, ETC., WAS WITHDRAWN. SIMILARLY, THE OBSERVATIO N BY THE CHAIRMAN THAT IF IT IS ALLEGED THAT THESE TICKE TS WERE OBTAINED THROUGH FRAUDULENT MEANS, IT IS UPON THE ALLEGER TO PROVE THAT IT IS SO, IGNORES THE REALITY. THE TRANSACTION ABOUT PURCHASE OF WINNING TICKET TAKES PLACE IN SECRET AND DI RECT EVIDENCE ABOUT SUCH PURCHASE WOULD BE RARELY AVAILABLE. AN INFERENCE ABOUT SUCH A PURCHASE HAS TO BE DRAW N ON THE BASIS OF THE CIRCUMSTANCES AVAILABLE ON THE RECOR D. HAVING REGARD TO THE CONDUCT OF THE APPELLANT AS DISCLOS ED IN HER SWORN STATEMENT AS WELL AS OTHER MATERIAL ON THE RECORD AN INFERENCE COULD REASONABLY BE DRAWN THAT THE WI NNING TICKETS WERE PURCHASED BY THE APPELLANT AFTER TH E EVENT. WE ARE, THEREFORE, UNABLE TO AGREE WITH THE VIEW O F THE CHAIRMAN IN HIS DISSENTING OPINION. IN OUR OPINION, THE MAJORITY OPINION AFTER CONSIDERING THE SURROUNDING CIRCUM STANCES AND APPLYING THE TEST OF HUMAN PROBABILITIES HAS RI GHTLY CONCLUDED THAT THE APPELLANTS CLAIM ABOUT THE AMOUNT BEING HER WINNINGS FROM RACES IS NOT GENUINE. IT CA NNOT BE SAID THAT THE EXPLANATION OFFERED BY THE APPELLANT IN RESPECT OF THE SAID AMOUNTS HAS BEEN REJECTED UNREASONABLY AND THAT THE FINDING THAT THE SAID AMOUNTS ARE INCOME OF THE APPELLANT FROM OTHER SOURCES IS NOT BASED ON EVIDENCE. 3.2 IN THE REJOINDER, THE CASE OF THE LD. COUNSEL ASS THAT NONE OF THE LOWER AUTHORITIES HAVE MADE OUT A CASE OF SIPHO NING OFF OF THE STOCK AND UNRECORDED SALE THEREOF. ITA NO. 808(DEL)/10 7 4. WE HAVE CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS MADE BEFORE US. WE MAY DEAL WITH THE ARGUMENT REGA RDING SIPHONING OFF OF THE STOCK AND ITS UNRECORDED SALE, RAISED BY T HE LD. DR FOR THE FIRST TIME BEFORE US. WE FIND THAT THERE IS NO EVIDENCE W HATSOEVER TO SUPPORT THIS ARGUMENT. IT IS A COMMON EXPERIENCE THAT OCCAS IONALLY THE GOODS GETS DAMAGED BY WHITE ANTS. THUS, THE SURROUNDING C IRCUMSTANCES DO NOT LEAD TO ESTABLISHMENT OF THE FACT THAT THE STOCK WAS SIPHONED OFF AND SOLD WITHOUT RECORDING THE PROCEEDS IN THE BOOKS OF ACCOUNT. THE FACTS OF THE CASE OF SUMATI DAYAL (SUPRA) ARE QUITE DISTINGUIS HABLE. IN THAT CASE, IT WAS MENTIONED THAT IT IS HIGHLY IMPROBABLE FOR A LAY PERSON TO WIN JACK POT IN FIVE EVENTS IN THE SAME YEAR. THE ASS ESSEE ALSO COULD NOT PRODUCE EVIDENCE REGARDING PURCHASE OF THE TICKE TS AS THERE WAS NO CORRESPONDING DEBIT ENTRY IN THE BOOKS OF ACCOUNT . IN THE INSTANT CASE, DAMAGE OF STOCK BY THE TERMITE IS NOT A HIGHLY IMPROBABLE EVENT BORDERING ON AN IMPOSSIBILITY. THEREFORE, WE DO NOT AGREE WITH THIS ARGUMENT OF THE LD. DR. 4.1 IT IS AN ACCEPTED PROPOSITION OF LAW THAT AN ASSESSEE CAN VALUE STOCK ON A METHOD CHOSEN BY IT PROVIDED IT IS FO LLOWED REGULARLY AND IT ITA NO. 808(DEL)/10 8 YIELD CORRECT PROFITS. THE VALUATION OF STOCK ON THE BASIS OF COST OR MARKET PRICE, WHICHEVER IS LOWER, IS AN ACCEPTE D METHOD OF VALUATION OF STOCK, WHICH HAS BEEN FOLLOWED BY THE ASSESSEE. THE LOSS IN THE VALUE OF STOCK IS DOCUMENTED BY THE RESOLUTION OF THE MEETI NG OF THE BOARD OF DIRECTORS HELD ON 15.11.2005. THE LD. DR HAS NO T POINTED OUT TOWARDS ANY OTHER REQUIREMENT, WHICH HAS TO BE FULFILLED IN CASE STOCK IS DAMAGED BY THE TERMITE. THUS, THERE DOES NOT SEEM TO BE ANY REQUIREMENT TO INFORM ANY AUTHORITY ABOUT SUCH A DAMAGE. THE CONTENTS OF THE RESOLUTION HAVE NOT BEEN DISPROVED BY THE LOWER AUTHORITIES BY CONDUCTING ANY FURTHER ENQUIRY INTO THE MATTER. THE CONTENTS H AVE BEEN SUMMARILY REJECTED BY THE REVENUE AUTHORITIES, WHICH IS N OT PERMISSIBLE. THE CASE OF THE ASSESSEE IS FURTHER STRENGTHENED BY THE FACT THAT THE LEFT OVER AND DAMAGED STOCK WAS SOLD FOR A SUM OF RS. 45,000 /- ONLY IN THE IMMEDIATELY SUCCEEDING YEAR. THEREFORE, IT CAN BE REASONABLY INFERRED THAT THE VALUE OF THE STOCK AT THE CLOSE OF THI S PREVIOUS YEAR WAS EVEN LESS ABOUT RS. 10.00 LAKH, AS ESTIMATED BY THE ASSESSEE. 4.2 THE AFORESAID LOSS HAS BEEN INCURRED IN THE COURSE OF CARRYING ON OF THE BUSINESS. THE SAME GETS ALLOWED ON FIRST PRINCIPLES OF ACCOUNTANCY REGARDING CONSISTENT METHOD OF VALUATION OF STOCK . THE SAME IS ALSO ITA NO. 808(DEL)/10 9 ALLOWABLE IN LAW U/S 28 OF THE ACT WHERE REAL P ROFITS OF THE ASSESSEE AND NOT THE NOTIONAL PROFITS HAVE TO BE COMPUTED FOR THE PURPOSE OF TAXATION. THE LOSS IS OF THE STOCK-IN-TRADE AND, THEREF ORE, IT IS REVENUE IN NATURE. THERE IS NO CIRCUMSTANCES EXISTING ON RECORD TO S HOW THAT THE STOCK WAS TAKEN AWAY BY THE DIRECTORS FOR PERSONAL USE AND , THEREFORE, IT CANNOT BE TERMED TO BE EVEN A PERSONAL EXPENDITURE. ACC ORDINGLY, THE SAME IS ALSO ALLOWABLE U/S 37(1) OF THE ACT. 4.3 THUS, GROUND NO. 1 IS ALLOWED. 5. THE AO IS ALSO DIRECTED TO COMPUTE INTEREST U /S 234B AFRESH ON THE BASIS OF TOTAL INCOME DETERMINED AS PER THIS ORDER. 6. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 3 0TH JULY, 2010. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 30TH JULY,2010. SP SATIA ITA NO. 808(DEL)/10 10 COPY OF THE ORDER FORWARDED TO:- URVEE CREATIONS PVT. LTD., NEW DELHI. ITO, WARD 18(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.