The Asst. CIT, Gandhinagar V. M/s. Tudor India Ltd., Gandhinagar

ITA 894/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9355 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-08-2015
• Assessment Year: 1999-2000
• Appeal Filed On: 23-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIV SEVA K
• Section: 143(3); 11

Judgement Text

CO NO. 109/AHD/12 AND I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT Y EARS: 1999 - 2000, 2007 - 08 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD B BENCH, AHMEDABAD [ CORAM: PRAMOD KUMAR AM AND KUL BHARAT JM ] I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT YEAR S: 1999 - 2000, 2007 - 08 ASSISTANT COMMISSIONER OF INCOME TAX GANDHINAGAR CIRCLE, GANDHINAGAR . .APPELLANT VS. TUDOR INDIA LIMITED RESPONDENT SUMAN TOWER, SECTOR NO. 11 GANDHINAGAR 382011 [PAN: AAACT1681R] CO NO. 109/AHD/12 ARISING OUT OF I.T.A. NOS. 894/AHD/12 ASSESSMENT YEAR : 1999 - 2000 TUDOR INDIA LIMITED CROSS OBJ ECTOR SUMAN TOWER, SECTOR NO. 11 GANDHINAGAR 382011 [PAN: AAACT1681R] VS. ASSISTANT COMMISSIONER OF INCOME TAX GANDHINAGAR CIRCLE, GANDHINAGAR RESPONDENT APPEARANCES BY: SHIV SEVA K , FOR THE APPELLANT SANJAY R SHAH , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : DECEMBER 1 1 , 201 5 DATE OF PRONOUNCING THE ORDER : FEBRUARY 29, 2016 O R D E R PER PRAMOD KUMAR: 1. THESE TWO APPEALS AND A CROSS OBJECTION PERTAIN TO THE SAME ASSESSEE, INVOLVE INTERCONNECTED ISSUES AND WERE HEARD TOGETHER. AS A MATTER OF CO NO. 109/AHD/12 AND I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT Y EARS: 1999 - 2000, 2007 - 08 PAGE 2 OF 7 CONVENIENCE, THEREFORE, BOTH THE APPEALS AND THE ONLY CROSS OBJECTION ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. WE WILL TAKE UP THE ITA NO. 894/AHD/2012 FIRST. IN THIS APPEAL, FILED BY THE ASSESSING OFFICER AGAINST THE O RDER DATED 9 TH JANUARY 2012 PASSED BY THE CIT(A) FOR THE ASSESSMENT YEAR 1999 - 2000, SOLITARY GROUND OF APPEAL IS AS FOLLOWS: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING EXCHANGE RATE DIFFERENCE OF RS 1,41,51,673 IN RESPECT OF OUTSTANDING CREDITORS FOR PURCHASE OF RAW MATERIALS WHICH IS ONLY A CONTINGENT LIABILITY, SINCE PAYMENT IS NOT MADE AND HENCE NOT AN ALLOWABLE EXPENDITURE. 3. BRIEFLY, THE MATERIAL FACTS. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD SHOWN A LOSS OF RS 1,41,51,673 ON ACCOUNT OF EXCHANGE FLUCTUATION. THIS LOSS REPRESENTED THE INCREASE IN LIABILITY, IN RUPEE TERMS, ON ACCOUNT OF FLUCTUATION IN EXCHANGE RATES. THE AO WAS OF THE VIEW THAT THIS IS IN THE NATU RE OF A CONTINGENT LIABILITY AS THE PAYMENT IS YET TO BE MADE. HE WAS OF THE VIEW THAT SINCE THERE IS A THEORY OF REAL INCOME, THERE SHOULD ALSO BE A CORRESPONDING THEORY OF REAL LOSS AS WELL. APPARENTLY SWAYED BY THE FEELING THAT THERE WAS NO REAL LOSS TO THE ASSESSEE AS YET, THE ASSESSING OFFICER DISALLOWED THIS LOSS AS IN THE NATURE OF A PROVISION ONLY. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). LEARNED CIT(A), RELYING UPON HON BLE SUPREME COURT S DECISION IN THE CASE OF CIT VS W OODWARD GOVERNOR INDIA PVT LTD [(2009) 312 ITR 254 (SC)] REVERSED THE ACTION OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION CO NO. 109/AHD/12 AND I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT Y EARS: 1999 - 2000, 2007 - 08 PAGE 3 OF 7 5. WHAT MAY SEEM TO BE A DICHOTOMY , AS IT DID TO THE ASSESSING OFFICER, THE PRINCIPLE OF CONSERVATISM IN ACCOUNTANCY, WHICH IS ONE OF ITS FUNDAMENTAL UNDERLYING PRINCIPLES, REQUIRES THE TRADER TO ACCOUNT FOR ANY ANTICIPATED LOSS AT THE FIRST POINT OF TIME WHEN IT CAN BE REASONABLY ANTICIPATED AND QUANTIFIED, AND WAIT TO ACCOUNT FOR THE PROFIT TILL IT HAS CRYSTALLISED AND TAKEN A FIRM SHAPE. THE CONCEPT OF REAL INCOME AND REAL LOSS, THEREFORE, ARE NOT VIEWED IN A PARALLEL MANNER AND ON THE SAME PRINCIPLES. THAT IS THE UNDERLYING PRINCIPLE GOVERNING THE VALUATION OF CLOSING STOCK ON MARKET PRICE OR COST PRICE, WHICHEVER IS LOWER. WHILE IT DOES ACCOUNTS F OR FALL IN VALUE OF CLOSING STOCK, BY SUBSTITUTING THE MARKET VALUE FOR THE COST PRICE WHEN MARKET PRICE IS LOWER, IT DOES NOT TAKE INTO ACCOUNT THE APPRECIATION OF VALUE OF STOCK UNTIL THE STOCK IS ACTUALLY SOLD. THIS PRINCIPLE OF CONSERVATISM ALSO REQUI RES ALL REASONABLY ANTICIPATED LOSSES, AS IN THIS CASE, TO BE TAKEN INTO ACCOUNT. THERE IS, THUS, NOTHING WRONG IN ACCOUNTING FOR THE ANTICIPATED LOSS EVEN THOUGH THE LOSS HAS NOT CRYSTALLIZED. THE ASSESSING OFFICER SAW SWAYED BY THE CONSIDERATIONS WHICH W ERE INCOMPATIBLE WITH THE FUNDAMENTALS OF ACCOUNTING PRINCIPLES. IN ANY EVENT, THIS ISSUE IS NOW SQUARELY COVERED, AS RIGHTLY NOTED BY THE LEARNED CIT(A) IN HIS VERY ERUDITE DECISION, BY HON BLE SUPREME COURT S DECISION IN THE CASE OF WOODWARD GOVERNOR (SU PRA). WE, THEREFORE, APPROVE THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 6. THE APPEAL FILED BY THE ASSESSING OFFICER, FOR THE ASSESSMENT YEAR 1999 - 2000 IS THUS DISMISSED. 7. AS FOR THE CROSS OBJECTION FILED B Y THE ASSESSEE, THERE IS ONLY ONE CROSS OBJECTION RAISED IN THE SAME. THIS CROSS OBJECTION IS AS FOLLOWS: LEARNED CIT(A) HAS ERRED IN NOT ALLOWING DEDUCTION OF RS 18,97,473 (OF DUTY DRAWBACK WRITTEN OFF, OFFERED FOR INCOME IN THE EARLIER YEAR) BY NOT CON SIDERING THE SAME AS DEBT WRITTEN OFF IN THE BOOKS OF ACCOUNTS. IT IS SUBMITTED TO BE SO HELD NOW. CO NO. 109/AHD/12 AND I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT Y EARS: 1999 - 2000, 2007 - 08 PAGE 4 OF 7 8. AS FAR AS THIS DISALLOWANCE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. IN THE PRESENT YEAR, THE ASSESSEE WROTE OFF THE AMOUNT OF RS 18,97, 473 WHICH WAS EARLIER SHOWN AS INCOME AND AS CUSTOM DUTY DRAWBACK RECEIVABLE. THIS DEDUCTION HAS, HOWEVER, BEEN DECLINED ON THE GROUND THAT THE DEBT WAS NEVER ACKNOWLEDGED BY THE CUSTOMS DEPARTMENT AND AS SUCH THERE IS NO QUESTION OF WRITE OFF. RELIANCE HA S ALSO BEEN PLACED ON HON BLE MADRAS HIGH COURT S JUDGMENT IN THE CASE OF CIT VS VANGUARD INSURANCE COO LTD [(1973) 97 ITR 546 (MAD)]. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 9. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATER IAL ON RECORD, WE DO SEE MERITS IN THE GRIEVANCE OF THE ASSESSEE. ONCE AN AMOUNT HAS BEEN SHOWN AS AN INCOME AND CREDITED TO THE RECEIVABLES ACCORDINGLY, ANY SUBSEQUENT WRITE OFF OF THE SAME IS A CHARGE ON THE PROFITS AND IS DEDUCTIBLE AS SUCH. THIS IS WHO LLY INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. AS FOR THE VANGUARD CASE (SUPRA), THAT WAS A CASE IN THE CAPITAL FIELD WHEREAS IN THE PRESENT CASE ADMITTEDLY THE DUES ARE IN THE REVENUE FIELD. IN PRINCIPLE, THUS, THE CLAIM OF THE ASSESSEE MERITS ACCEPTANC E. WITH THIS OBSERVATION, THE MATTER IS REMITTED TO THE FILE OF THE ASSESSING OFFICER FOR FACTUAL VERIFICATIONS AND GIVING RELIEF IN ACCORDANCE WITH THE LAW. 10. THE CROSS OBJECTION IS THUS ALLOWED. 11. WE NOW TAKE UP ITA NO. 1299/AHD/2012. THIS APPEAL, FILED BY THE ASSESSING OFFICER, CALLS INTO QUESTION CORRECTNESS OF THE ORDER DATED 21 ST MARCH 2012 PASSED BY THE CIT(A), IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2007 - 08. 12. IN THE FIRST GROUN D OF APPEAL, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: CO NO. 109/AHD/12 AND I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT Y EARS: 1999 - 2000, 2007 - 08 PAGE 5 OF 7 THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE CLAIM OF PROVISION FOR WARRANTY TO THE TUNE OF RS 82,68,122 13. LEARNED REPRESENTATIVES FAIRLY ACCEPTED, EVEN THOUGH LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY RELIED ON THE STAND OF THE ASSESSING OFFICER, THAT THE ISSUE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH S ORDER DATED 21 ST AUGUST 2015 IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07. 14. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH IN ASSESSEE S OWN CASE. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 15. GROUND NO. 1 IS THUS DISMISSED. 16. IN GROUND NO. 2, THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCE: THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITIONS MADE BY THE AO OF RS 16,38,787 IN RESPECT OF THE ASSETS WRITTEN OFF. 17. SO FA R AS THIS GRIEVANCE OF THE ASSESSING OFFICER IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD IMPORTED CERTAIN MACHINERY FROM SE DEL TUDOR. HOWEVER, FOR SOME REASONS, THE IMPORTS SO MADE WERE NOT FOUND TO BE SATISFACTORY AND THE MACHINES WERE RETURNED TO THE VENDOR. THE VENDOR ACCEPTED THE MACHINES BACK ON THE CONDITION THAT THE COST OF DISMANTLING AND FREIGHT INCURRED BY THE VENDOR WILL BE MET BY THE ASSESSEE. IT WAS IN THIS CONTEXT THAT THE ASSES SEE HAD TO BEAR RS 16,38,687. THE CLAIM OF DEDUCTION WAS DISALLOWED BY THE ASSESSING OFFICER. IN CO NO. 109/AHD/12 AND I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT Y EARS: 1999 - 2000, 2007 - 08 PAGE 6 OF 7 APPEAL, HOWEVER, LEARNED CIT(A) HELD THAT THE EXPENSE IS IN COURSE OF THE BUSINESS AND DEDUCTIBLE UNDER SECTION 37(1). THE ASSESSING OFFICER IS AGGRIEVED AND I S IN APPEAL BEFORE US. 18. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 19. LEARNED DEPARTMENTAL REPRESENTATIVE S ONLY DEFENCE FOR THE DISALLOWAN CE IS THAT ALL THIS IS AN ARRANGED TRANSACTION WITHOUT ANY GAIN TO THE ASSESSEE, BUT THAT DOES NOT APPEAL TO US BECAUSE ADMITTEDLY THE EXPENSES WERE INCURRED BY THE VENDOR AND THE MACHINES WERE INDEED SENT TO THE ASSESSEE. WHAT HAS BEEN PAID TO THE VENDOR IS ONLY REIMBURSEMENT OF COSTS INCURRED BY HIM AND WHICH DID NOT YIELD ANY BENEFIT TO THE VENDOR AS NO SALE EVENTUALLY TOOK PLACE. ON A CONSIDERATION OF ALL THESE FACTORS, IN OUR CONSIDERED VIEW, THE CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE, AS EX PENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS AND IN FURTHERANCE OF THE LEGITIMATE BUSINESS INTERESTS OF THE ASSESSEE. WE CONFIRM THE RELIEF GRANTED BY THE CIT(A) ON THIS POINT AS WELL, AND DECLINE TO INTERFERE IN THE MATTER. 20. GROUND NO. 2 IS ALSO D ISMISSED. THERE IS NO OTHER ISSUE, REQUIRING OUR ADJUDICATION, IN THIS APPEAL. 21. IN THE RESULT, WHILE BOTH THE APPEALS OF THE ASSESSING OFFICER ARE DISMISSED, THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 29 TH DAY OF FEBRUARY, 2016. SD/ - SD/ - KUL BHARAT PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD; 29 TH DAY OF FEBRUARY , 2016 CO NO. 109/AHD/12 AND I.T.A. NOS. 894 AND 1299/AHD/12 ASSESSMENT Y EARS: 1999 - 2000, 2007 - 08 PAGE 7 OF 7 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3 ) CIT (4) CIT(A) (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD