DCIT, Ludhiana V. M/s Girnar Impex Ltd., Ludhiana

ITA 848/CHANDI/2014

• Counselvise Citation: 84821514 RSA 2014
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 22-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 09-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K MUKHI AJAY CHAUDHARY
• Keywords: Search and seizure
• Section: 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NOS. 848/CHD/2014 ASSESSMENT YEARS: 2010-11 THE DCIT, VS. M/S GIRNAR IMPEX LTD., CC-1, LUDHIANA CHANDIGARH PAN NO. AAACG6083G (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. CHANDER KANTA RESPONDENT BY : SH. S.K MUKHI / AJAY CHAUDHARY DATE OF HEARING : 26.10.2015 DATE OF PRONOUNCEMENT : 14.12.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)-I, LUDHIANA DATED 3.7.2014 RELATING TO ASSESSMENT YEAR 2010-11. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1(I) THAT THE LD. CIT(A) ERRED IN LAW AND ON FAC TS IN DELETING THE ADDITION OF RS. 36,85,410/- BY ASSUMING THAT TH E ASSESSEE IS SURE TO INCUR THE SAID LOSS. 1 (II) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT THE CLAIMS OF THE ASSES SEE AGAINST THE PORT AUTHORITIES AND THOSE OF PORT AUTHORITIES AGAI NST THE ASSESSEE ARE STILL SUBJUDICE AND HAVE NOT ATTAINED FINALITY. 2 1 (III) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACT THAT A LOSS CANNOT BE ADJUSTE D AGAINST THE INCOME OF ANY YEAR TILL IT IS ACTUALLY INCURRED. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT AS SESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF ENGINEERING GOODS. THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT CLAIMED A L OSS OF RS. 36,85,410/- ON ACCOUNT OF STOCK LOSS AT PORT. THE ASSESSING OFFICE R REQUIRED THE ASSESSEE TO FURNISH THE EVIDENCE IN SUPPORT OF ITS CLAIM, THE A SSESSEE SUBMITTED A REPLY ON 19.2.2013 WHICH READS AS UNDER:- 2.1 THE ASSESSEE SUBMITTED THE REPLY ON 19.02.2013 WHICH IS REPRODUCED AS UNDER:- 'THE STATUS REPORT OF SGS AHMEDAHAD WAS PREPARED ON 12.01.2009 AND GOODS MERE INSPECTED ON 16.12.2008 A T MUNDRA PORT BY THEM AS PER COPY OF THE REPORT ATTAC HED, FURTHER, THE GOODS WERE LYING IN OPEN AND COMPLETE GOODS WERE RUSTED. THERE WAS WEIGHMENT LOSS ALTHOUGH NO WEIGHMENT WAS DONE. LATER ON, THE DEBIT NOTE DATED 11.11.2009 WAS RECEIVED FROM M1CT REGARDING GROUND RENT CHAISES AT RS. .75,64,678/- AS PER PHOTOCOPY OF THE DEBIT NOTE ATTACHED. IN THE STATUS REPORT, THERE IS MENTI ON OF INVOICE NO.845 AND 846 DATED 19.09.2003 AND SHIPPIN G HILL NO.1314207 AND 1314208 DATED 27.09.2003. THE DEBIT NOT WAS RECEIVED FROM MUNDRA INTERNATIONAL CONTAINER TERMINAL (P) LTD. SINCE THE DEBIT NOT WAS EXCEEDING THE VALUE OF BILLS. IN THE MEANTIME, NOTICE WAS ALSO IS SUED THROUGH LEGAL ADVISOR IN WHICH IT WAS DEARLY MENTIO NED THAT IN THE STATUS REPORT SHAFTS WERE 3936KG. AGAINST 17 165KG. SIMILARLY, IN THE STATUS REPORT BLANKS WERE 2935KG. AGAINST 4320KG. FURTHER SUIT WAS ALSO FILED IN THE COURT OF LAW IN THE ASSTT. YEAR 2010-11. SINCE THE DEBIT NOTE WAS M UCH EXCESS THAN THE VALUE OF REPORTS, THE ASSESSEE COMP ANY CLAIMED THE LOSS AND WRITTEN OFF THE SAME. THE PHOT OCOPIES 3 OF STATUS REPORT, DEBIT NOTE, LEGAL NOTICE AND SUIT FILED IS ATTACHED FOR JOUR KIND REFERENCE JUST TO SAVE FARTH ER LOSS.' THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASS ESSEE STATING THAT ASSESSEE IN ITS REPLY HAS SUBMITTED THAT THE MATTER IS IN THE C OURT OF LAW AND HE HAS FILED A SUITE FOR RECOVERY OF THE AMOUNT ALONG WITH APPLICA BLE INTEREST HE FURTHER OBSERVED THAT DISPUTE IS PENDING IN THE COURT SINCE ASSESSMENT YEAR 2004-05 AND THEREFORE, TILL THE PENDENCY OF CASE, THE AMOUNT OF LOSS CLAIMED BY THE ASSESSEE ON ACCOUNT OF STOCK LOSS OF RS. 36,85,410/- COULD N OT BE ALLOWED. ACCORDINGLY, THE ADDITION OF RS. 36,85,410/- WAS MADE TO THE TOT AL INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CONTENTION RAISED BY THE ASSESSEE BEFORE THE CIT(A) WAS THAT DURING THE ASSESSMENT YEAR 2004-05 , THE GOODS OF THE COMPANY WERE SHIPPED FROM ICD, DELHI AFTER THE CUSTOMS CLEA RANCE FOR RIYADH. THE GOODS WHICH WERE DISPATCHED BY RAIL, THROUGH CONTAI NER CORPORATION OF INDIA FOR MUNDRA PORT, KUTCH FOR ONWARD JOURNEY TO RIYADH WER E INTERCEPTED BY THE DRI AUTHORITIES AT MUNDRA PORT BY EFFECTING RAID AND TH E GOODS WERE SEIZED AGAINST WHICH THE ASSESSEE PREFERRED AN APPEAL WHICH WAS D ECIDE IN ITS FAVOUR. HOWEVER, THE RELEASE ORDER OF THE GOODS WAS RECEIVE D IN THE YEAR 2008. WHEN THE ASSESSEE VISITED MICT YARD TO COLLECT THE GOODS , IT WAS NOTICED THAT VERY SMALL QUANTITY OF GOOD WERE LYING THERE AND THAT TO O IN THE OPEN YARD OF MICT AND WERE TOTALLY RUSTED AND DIMINISHED. THE ASSESSE E ALSO ENGAGED SGS INDIA PVT. LTD. AS ITS SURVEYOR TO VISIT SITE AND VERIFY THE GOODS LYING AT SITE AND TO SUBMIT ITS REPORT WITH REGARD TO THE QUALITY AND QU ANTITY OF THE GOODS ETC. LYING THERE. AS PER THE REPORT OF THE SGS PVT. LTD. DA TED. 16.12.2008, THE ASSESSEE CAME TO KNOW THAT CERTAIN GOODS WERE NOT AVAILABLE AT THE SPOT AND THE SURVEYOR ALSO RECORDED THAT THE SHAFTS AND BLANKS WERE SHORT IN WEIGHT AS COMPARED WITH 4 THE SHIPPING BILLS / INVOICES AND PANCHNAMA. THE AS SESSEE FILED A CLAIM OF LOSS AND DAMAGES OF GOODS BEFORE MUDHRA PORT CONTAINER T ERMINAL (MICT). HOWEVER, THE MICT MADE A COUNTER CLAIM ON ACCOUNT O F GROUND RENT CHARGES OF RS. 76,64,678/-. THE ASSESSEE REALIZED THAT MICT HA D SLAPPED WITH THESE CHARGES TO NULLIFY ITS CLAIM AND, THEREFORE, THE ASSESSEE D ID NOT BOOK THE GROUND RENT CHARGES SLAPPED BY THE MICT IN ITS BOOKS OF ACCOUN T AND REDUCED THE STOCK IN ITS BOOKS OF ACCOUNT BY RS. 36,85,410/- AND CLAIMED THE SAME AS LOSS. THE ASSESSEE ALSO FILED THE RECOVERY SUITE AGAINST THE SAID LOSS AGAINST MICT AND OTHERS. IT IS STATED THAT THE SAID RECOVERY SUITE W AS FILED TO FURTHER COUNTER THE DEBIT NOTE SLAPPED BY THE MICT AND TO SAVE THE COMP ANY FROM FURTHER LOSS. IT WAS ALSO STATED BY THE ASSESSEE BEFORE THE CIT(A) T HAT ASSESSING OFFICER HAS IGNORED THE FACT THAT THE ASSESSEE HAS NOT BOOKED T HE GROUND RENT CHARGES LEVIED BY THE MICT WHICH WERE MUCH HIGHER THAN THE LOSS ON THE GOODS PILFERED AND DAMAGES CLAIMED, THEREFORE, THE ASSESSEE DID NOT CL AIM THE SAME AS LOSS. ACCORDINGLY, IT WAS SUBMITTED THAT LOSS ON ACCOUNT OF PILFERAGE AND DAMAGED GOODS CANNOT BE DENIED SIMPLY BECAUSE OF THE FACT T HAT ASSESSEE HAD FILED A SUITE FOR THE SAME. 5. THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE , OBSERVING AS UNDER:- 6. I HAVE CONSIDERED THE FACTS OF THE CASE, THE BA SIS OF DISALLOWANCE MADE BY THE ASSESSING OFFICER, THE ARG UMENTS SUBMITTED BY THE AR DURING THE ASSESSMENT PROCEEDIN GS AS WELL AS APPELLATE PROCEEDINGS. IT IS A MATTER OF FA CT THAT THE GOODS BELONGING TO THE APPELLANT COMPANY HAD BEEN L YING AT MUNDRA PORT FOR THE LAST FOUR YEARS ON ACCOUNT O F SEIZURE BY_DRI AUTHORITEIS. THE SAID SEIZURE WAS RELEASED I N FAVOUR OF THE APPELLANT ON APPEAL AND ORDER FOR THE RELEAS E OF GOODS WAS RECEIVED IN THE YEAR T2008. THE ASSESSEE DISCOVERED THAT THE GOODS HAD RUSTED BEYOND RECOVER Y AND A SURVEYOR WAS ENGAGED TO VERIFY THE GOODS LYING AT S ITE WITH 5 REGARD TO THEIR QUALITY AND QUANTITY. THE OFFICIAL S OF THE SURVEYOR COMPANY CARRIED OUT THEINSPECTION AND FOUN D OUT THAT SHAFTS WERE WEIGHING 3936 KG & BLANKS WERE WEI GHING 2935 KGS RESPECTIVELY. (THE WEIGHMENT WAS CARRIED O UT BY THEORETICAL PROCESS BY COUNTING &. MEASURING THE SI ZE OF EACH SHAFT & BLANK AVAILABLE AT THE SITE) AS AGAINS T 17165 KG OF SHAFTS 4320 KG OF BLANKS SHIPPED BY THE APPEL LANT AS IS EVIDENT FROM THE RESPECTIVE SHIPPING INVOICES & PANCHNAMA. THE APPELLANT FILED CLAIM AGAINST LOSS A ND OF GOODS BEFORE THE MUNDRA PORT BUT A COUNTER CLAIM WA S THE PORT CLAIMING GROUND RENT CHARGES OF RS.76,64,678/- VIDE DATED 11.11.2009 IN RESPECT OF GROUND RENT FROM THE YEAR ONWARDS. IT IS ON ACCOUNT OF COUNTER CLAIM FILED BY THE PORT FROM ASSESSEE WHICH WAS MUCH MORE THAN RECOVERY S UIT FILED BY THE ASSESSEE THAT THE POSSIBILITY OF RECOV ERY OF AMOUNT AS PROPOSED WAS FOUND TO BE NONEXISTENT. IT WAS UNDER SUCH CIRCUMSTANCES THAT THE LOSS OF STOCK WAS BOOKED DURING THE YEAR UNDER CONSIDERATION AS THERE WAS NO HOPE OF RECOVERING ANY AMOUNT FROM THE PORT AUTHORITIES ESPECIALLY IN VIEW OF THE GROUND RENT CHARGES OF RS.76,64,678/- CLAIMED BY THEM. IT IS SEEN THAT THE APPELLANT HAD NOT BOOKED GROUND RENT CHARGES RAISED BY MUNDRA PORT TRUST. THE ASSESSING OFFICER HAS DISALL OWED THE CLAIM OF LOSS ON THE GROUND THAT RECOVERY OF SU IT WAS PENDING AND THE SAID AMOUNT COULD BE RECOVERED AND THE LOSS HAD NOT BECOME FINAL BUT HAS IGNORED THE RELEV ANT FACT THAT PORT AUTHORITIES HAVE CLAIMED GROUND RENT FROM THE ASSESSEE, SO THAT THEY DONT HAVE TO PAY ANYTHING I N RESPECT OF DAMAGED/GOODS. IN VIEW OF THESE FACTS AN D PECULIAR CIRCUMSTANCES OF THE CASE IT BECOMES APPAR ENT THAT LOSS TO THE TUNE OF RS. 36,85,410/- IS INEVITABLE. THE SAID LOSS HAS CONCRETIZED IN THE YEAR UNDER CONSIDERATIO N AND RECOGNIZED BY THE ASSESSEE IN HIS BOOKS OF ACCOUNTS ACCORDINGLY. THE LOSS CLAIMED IS THEREFORE DIRECT ED TO BE ALLOWED AND IN THE EVENT OF ASSESSEE RECOVERING ANY AMOUNT FROM THE RECOVERY SUITE THE SAME WOULD BE REQUIRED TO BE SHOWN AS THE INCOME YEAR IN WHICH IT WOULD BE RECEI VED. 6 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT RECOVERY SUITE IS PENDING IN THE COURT SINCE ASSESSMENT YEAR 2004-05 AND, THEREF ORE, TILL THE PENDENCY OF SUITE, THE LOSS CLAIMED BY THE ASSESSEE CANNOT BE A LLOWED. IN OTHER WORDS, THE ASSESSING OFFICER TOOK THE VIEW THAT THE LOSS OF ST OCK CANNOT BE ALLOWED AS LOSS HAD NOT BECOME FINAL. HOWEVER, THE ASSESSING OFFIC ER HAS NOT DISPUTED THE AMOUNT OF LOSS CLAIMED BY THE ASSESSEE. AS REGARDS THE RECOVERY OF LOSS, IT IS CLAIMED BY THE ASSESSEE THAT ON ACCOUNT OF COUNTER CLAIM OF GROUND RENT CHARGES OF RS. 76,64,678/- FILED BY THE PORT AUTHORITIES AG AINST THE ASSESSEE WHICH WAS MUCH MORE THAN THE AMOUNT OF RECOVERY SUITE FILED BY THE ASSESSEE, THE POSSIBILITY OF RECOVERY OF AMOUNT AS CLAIMED BY TH E ASSESSEE FOUND TO BE NON- EXISTENCE. UNDER SUCH CIRCUMSTANCES, THE LOSS OF TH E STOCK WAS BOOKED DURING THE YEAR UNDER CONSIDERATION AS THERE WAS NO HOPE O F RECOVERING ANY AMOUNT FROM THE PORT AUTHORITIES ESPECIALLY IN VIEW OF THE COUNTER CLAIM MADE BY THEM. IN VIEW OF THE COUNTER CLAIM MADE BY THE PORT AUTHO RITIES THEY ARE NOT OBLIGED TO PAY ANYTHING IN RESPECT OF DAMAGED GOODS TO THE ASSESSEE. IN OUR VIEW, THE LD. CIT(A) HAS CORRECTLY OBSERVED THAT THE LOSS CLA IMED BY THE ASSESSEE IS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AND RE COGNIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT ACCORDINGLY. IN THE CASE OF HARSHA D J. CHOKSHI V CIT (2012) 80 DTR (BOM) 20, THE HON'BLE BOMBAY HIGH COURT HAS OBSERVED AS UNDER:- 10. SECTION 28 OF THE ACT IMPOSES A CHARGE ON THE PROFITS OR GAINS OF BUSINESS OR PROFESSION. THE EXP RESSION PROFITS AND GAINS OF BUSINESS OR PROFESSION IS TO BE UNDERSTOOD IN ITS ORDINARY COMMERCIAL MEANING AND T HE SAME DOES NOT MEAN TOTAL RECEIPTS. WHAT HAS TO BROU GHT TO TAX IS THE NET AMOUNT EARNED BY CARRYING ON A PROFESSION OR A BUSINESS WHICH NECESSARILY REQUIRES DEDUCTING EXPENSES AND LOSSES INCURRED IN CARRYING ON BUSINESS OR PROFESSION. THE SUPREME COURT IN THE MA TTER OF BADRIDAS DAGA V. COMMISSIONER OF INCOME TAX, REPORTED IN 34 ITR PAGE 10, HAS HELD THAT IN ASSESS ING THE AMOUNT OF PROFITS AND GAINS LIABLE TO TAX, ONE MUST 7 NECESSARILY HAVE REGARD TO THE ACCEPTED COMMERCIAL PRACTICE THAT DEDUCTION OF SUCH EXPENSES AND LOSSES IS TO BE ALLOWED, IF IT ARISES IN CARRYING ON BUSINESS AN D IS INCIDENTAL TO IT. 7. FROM THE ABOVE DECISION OF THE HON'BLE BOMBAY HI GH COURT IT IS CLEAR THAT THERE IS NO BAR IN CLAIMING A LOSS AS A BUSINESS LO SS IF THE SAME IS INCIDENTAL TO CARRYING ON OF A BUSINESS. THEREFORE, DEDUCTION OF SUCH LOSSES IS TO BE ALLOWED, IF IT ARISES IN CARRYING ON BUSINESS AND IS INCIDEN TAL TO IT. IN OUR CONSIDERED VIEW, THE CLAIM FOR DEDUCTION OF BUSINESS LOSS COUL D NOT BE DENIED MERELY ON THE GROUND THAT RECOVERY SUITE WAS PENDING AGAINST THE DEBTOR. IN OUR VIEW, THE LD. CIT(A) HAS CORRECTLY DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE AND IN THE EVENT OF ASSESSEE RECOVERING AN Y AMOUNT FROM THE MICT, THE SAME WOULD BE REQUIRED TO BE SHOWN AS INCOME FO R THE YEAR IN WHICH IT WOULD BE RECEIVED. IN VIEW OF THE ABOVE DISCUSSION, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.12.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED 14 TH DECEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR