ACIT 21(1), MUMBAI V. MAC AGRI EXPORTS, MUMBAI

ITA 935/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93174 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2015
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 13-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-02-2011
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR VORA
• Assessee Lawyers: K K LALKAKA
• Keywords: Principle of natural justice; Additional evidence; Commercial expediency
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA, AM & SHRI SANJAY GARG , JM ./ ITA N O. 935 / MUM/20 1 1 ( / ASSESSMENT YEAR : 2007 - 08 ) ACIT - 21(1), MUMBAI - 51 VS. M/S MAC AGRI EXPORTS, SATYA NIVAS CO - OP. HSG. SOC. LTD., 2 ND FLOOR, TEJPAL SCHEME, MAIN ROAD, VILE PARLE (EAST) , MUMBAI - 400057 ./ ./ PAN/GIR NO. : A A EFM 4085 F ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI VIJAY KUMAR VORA /ASSESSEE BY : SHRI K.K.LALKAKA / DATE OF HEARING : 1 3 TH APRIL , 201 5 / D ATE OF PRONOUNCEMENT 8 - 7 - 2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2007 - 08 IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T.ACT. 2. THE ONLY GRIEVANCE OF THE REVENUE RELATES TO CIT(A)S ACTION IN DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF BUSINESS LOSS INCURRED BY ASSESSEE DUE TO REJECTION OF GOODS EXPORTED. 3. R IVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF EXPORT OF AGRICULTURE PRODUCTS. THE ASSESSEE HAD CLAIMED A SUM OF RS. 36,56,092/ - AS LOSS IN THE PROFIT / LOSS DUE TO REJECTION OF EXPORTED GOODS BY THE ITA NO 935/11 2 IMPORTERS ON ACCOUNT OF INFERIOR QUAL ITY OF THE PRODUCT SUPPLIED. IN SUPPORT OF THE CLAIM THE ASSESSEE FURNISHED BEFORE THE AO THE DEBIT NOTES ISSUED BY THE FOREIGN PARTY QUANTIFYING THE AMOUNT AND NARRATING THE REASON FOR LOSS. THE ASSESSEE HAD ALSO SUBMITTED BEFORE THE ASSESSING OFFICER THA T THE IMPORTERS OF CARGO WERE REGULAR PARTIES AND THE ASSESSEE HAD T O ACCEPT THE LOSS AND MAKE PAYM ENT FOR THE SAME TO MAINTAIN ITS GOODWILL AND TO CONTINUE BUSINESS WITH THEM. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE CLAIM STATING IN THE ASSESSMENT ORDER THAT THE ASSESSEE FAILED TO PRODUCE ANY DOCUMENT OR CORRESPONDENCE WITH THOSE PARTIES TO PROVE THE GENUINENESS OF LOSS. THE ASSESSING OFFICE R FURTHER OBSERVED THAT THE LOSS WAS ACCEPTED AS SOON AS THE CLAIM FOR T HE SAME WAS MADE AND NO SUCH LOSS WAS CLAIMED IN THE PAST. IT WAS ALSO OBSERVED THAT WHEN THE ASSESSEE WAS INCURRING VARIOUS EXPEN SES LIKE LABOUR CHARGES, PACKING MATERIAL CHARGES AND SURVEY CHARGES THERE WAS NO REASON FOR THE DAMAGE OCCURRING IN TRANSIT AND THE RESULTANT LOSS. ACCORDINGLY, TH E CLAIM OF LOSS OF RS. 36,56,092/ - WAS DISALLOWED . 4. BY THE IMPUGNED ORDER THE CIT(A) DELETED THE DISALLOWANCE AFTER OBSERVING AS UNDER : - 3.5 I HAVE CONSIDERED THE ARGUMENTS OF THE LD AR AND PERUSED THE ASSTT ORDER AS WELL AS THE REMAND REPORT. IT IS PRO VEN FROM THE ASSTT ORDER AND REMAND REPORT THAT THE ASSESSEE HAD ALREADY GIVEN THE DEBIT NOTES AS WELL AS THE LEDGER A/ C OF THE PARTIES DURING THE ASSTT PROCEEDINGS ITSELF, WHICH WERE THE PRIMA FACIE ENOUGH TO PROVE THE LOSS INCURRED BY ASSESSEE DUE TO PO OR QUALITY. IN THE NORMAL COURSE WHERE THE SHORT PAYMENTS ARE MADE BY THE PARTIES TO THE SELLER OF GOODS / SERVICES, THE DEBIT NOTES ISSUED BY SUCH PARTIES ARE THE PRIMARY EVIDENCE TO SUPPORT SUCH CLAIMS. THE ASSESSEE HAS GIVEN THESES EVIDENCE BEFORE THE AO DURING ASSTT PROCEEDINGS ITSELF AS IT THOUGH T IT TO BE GOOD ENOUGH EVIDENCE. WHAT WOULD BE SUFFICIENT ITA NO 935/11 3 EVIDENCE WOULD DEPEND ON THE FACTS OF EACH CASE. IF THE AO WAS NOT SATISFIED WITH THE EVIDENCE, IT WAS HIS DUTY TO HA V E ASKED THE ASSESSEE TO FURNISH MORE SPECIFIC DOCUMENTS WHICH THE ASSESSEE COULD BE EXPECTED TO HAVE IN SUCH CIRCUMSTANCES. BUT THE AO DID NOT ASK FOR ANY FURTHER SPECIFIC EVIDENCE TO BE GIVEN. EVEN ON PRINCIPLES OF NATURAL JUSTICE, BEFORE DRAWING ANY ADVERSE CONCLUSION THE AO SHOULD HAVE AF FORDED AN OPPORTUNITY TO THE AO COMMUNICATING THAT HE WAS NOT SATISFIED WITH THE EVIDENCE FURNISHED BY THE ASSESSEE. IN CASE OF SMT PRABHADEVI S SHAH 231 ITR 1 (BOM) IT HAS BEEN HELD THAT RESTRICTION PLACED U/R 46 - A DO NOT EFFECT THE POWERS OF THE AAC U/S. 250(4).THE PURPOSE OF RULE 46 - A IS TO ENSURE THE EVIDENCE IS PRIMARILY LED BEFORE THE ITO. IN THE CASE OF NIRRNALA OVERSEAS 37 DT R 321 (DELHI TRIB), JAIPUR UDYOG LTD 227 ITR 34 5 ( RAJ) WHERE THE ASSESSEE WAS NOT GIVER: SUFFICIENT TIME TO PRODUCE EVIDENCES A ND EXPLA NATIONS, THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING DETAILS BEFORE THE AO AND THE CIT(A) WAS HELD TO BE JUSTIFIED IN ADMITTING ADDITIONAL EVIDENCE. IN CASE OF ABHAY KU MAR SHROFF , 63 ITR 144 (PAT)(TM), IT WAS HELD THAT IF THE DOC UMENTS SUBMITTED RENDER ASSISTANCE TO THE APPELLATE AUTHORITY IN PASSING AN ORDER OR ARE REQUIRED TO BE ADMITTED FOR ANY OTHER SUBSTANTIAL CAUSE IT WOULD BE RATHER DUTY OF THE AUT HORITY TO ADMIT THE SAME. IN CASE OF MST KATIJI & ORS. 167 ITR 471(SC ) IT HA S BEEN HELD THAT WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATION ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTICE DES ERVES TO BE PREFERRED. IN CASE OF M/S MAGIC SOFTWARE PVT LTD: (2 01 O - TIOL - 393 - ITAT - DEL) IN ITA NO.3451 / DEI / 2009, THE AD MISSION OF ADDITIONAL EVIDENCE AFTER OBSERVING THAT THE AO HAS NOT MADE ANY ADVER S E COMMENT IN HIS REMAND REPORT APROPOS ADDITIONAL EVIDENCE, WAS HELD TO BE JUSTIFIED. IT IS' CLEAR THAT DESPITE OF BASIC EVIDENCES GIVEN DURING ASSTT PROCEEDINGS, THE AO BY N OT ASKING MORE SPECIFIC EVIDENCES TO BE GIVEN, HAS DENIED THE ASSESSEE OF THE PROPER AND SUFFICIENT OPPORTUNITY BEFORE DRAWING THE ADVERSE INFERENCE, HENCE ONE OF THE CONDITION OR RULE 46A ARE SATISFIED. IN THE REMAND REPORT THE AO HAS NOT GIVEN ANY ADVERS E COMMENT ON THE ADDITIONAL EVIDENCES GIVEN IN 259 PAGE PAPER BOOK EXPLAINING AS TO HOW THE PROBLEM AROSE IN THE ITEMS EXPORTED, AND HOW THE APPELLANT REPEATEDLY RESISTED AND NEGOTIATED WITH THOSE PARTIES TO DISOWN THE LOSS BY EXTENSIVE EXCHANGE OF EMAILS BETWEEN THE APPELLANT AND THE CONCERNED PARTIES. THEREFORE IN VIEW OF THE RATIO LAID DOWN IN THE ABOVE DECI SIONS , THE EVIDENCES FURNISHED BY THE ASSESSEE ARE A DMITTED IN THE INTEREST OF SUBS TANTIAL CAUSE' AS THEY GO TO THE ROOT OF THE ISS UE INVOLVED. 3.6 ON MERITS OF THE CLAIM OF LOSSES, IT IS NOTED THE AO HAS NOT AT ALL DISPUTED ON THE GENUINENESS OF THE EXPORTS WHICH IS EVIDENT FROM PARA 2(II) OF THE REMAND REPORT ALSO. THE APPELLANT HAS FURNISHED PAPER BOOK OF 259 PAGES COMPRISING OF EMAILS AND OTHER D OCUMENTS WHICH CLEARLY SUGGE S T THAT THE EXPORTED AGRI PRODUCTS WERE NOT CONFORMING TO EUROPEAN STANDARDS RESULTING IN DISPOSAL OF EXPORTED CONSIGNMENT AT LESSER PRICE AND THE APPELLANT HAD TO ITA NO 935/11 4 COMPENSATE FOR THE LOSSES INCURRED BY THE IMPORTER. THE REMITTAN CES OF COMPENSATION ARE THROUGH BANKING CHANNELS OR BY WAY OF ADJUSTMENT FROM SALE PROCEEDS WHICH ARE DULY REFLECTED IN THE LEDGER A/ CS WHICH HAS ALSO NOT BEEN DISPUTED BY THE AO. THE ONLY GROUND RAISED BY AO IS THAT THE APPELLANT COULD NOT FURNISH CORRESP ONDENCE BETWEEN THE ASSESSEE AND SUCH PARTIES. ON THE OTHER HAND AS EVIDENT FROM THE CORRESPONDENCE FILED IN PAPER BOOK DURING APPELLATE PROCEEDINGS WHICH WERE ALSO GIVEN TO AO, THE APPELLANT HAD MADE ALL EFFORTS AND CORRESPONDENCES TO SEC THAT THE LOSSES WERE MINIMIZED BY SELLING THE GOODS IN THAT COUNTRIES ITSELF INSTEAD OF RECALLING THE GOODS BACK TO INDIA, WHICH WOULD HAVE LED TO FURTHER LOSS AS THE GOODS WERE PERISHABLE AGRICULTURAL PRODUCTS BUT THE AO HAS NOT AT ALL COMMENTED ANY T HING IN HIS REMAND RE PORT ON THESE DOCUMENTS FURNISHED. THE AO HAS NOT PLACED ANY MATERIAL TO SHOW THAT THE REASONS GIVEN B Y THE APPELLANT ARE INCORRECT OR INCONSISTENT THE INSISTENCE BY THE AO IN REMAND REPORT FOR PRODUCTION OF CORRESPONDENCE FROM CUSTOM AUTHORITIES FOR REJEC TION OF GOODS AND QUANTIFICATION OF LOSS IS TOTALLY MISCONCEIVED AS ALREADY EXPLAINED BY THE APPELLANT. THE VIEW OF THE AO THA T E M AIL CORRESPONDENCE CANNOT BE TAKEN AS EVIDENCE OF CORRESPONDENCE IS ALSO NOT TENABLE. IN PRESENT BUSINESS SCENARIO THAT TOO W ITH FOREIGN COUNTRIES, TODAY THE EMAILS ARE THE MOST COMMON MODES COMMUNICATION AND SOMETIMES THEY ARE MORE AUTHENTIC THAN THE HARD CO PIES OF CORRESPONDENCE AS THE EMAILS CANNOT BE BACK DATED OR MANIPULATED UNDER NORMA L CIRCUMSTANCES. TH US ALL THE FACTS NA RRATED BY THE APPELLANT PROVE BEYOND DOUBT THAT THE LOSS HAS GENUINELY OCCURRED TO APPELLANT DURING THE NORMAL COURSE OF CARRYING OUT THE BUSINESS OPERATIONS. A O CANNOT REJECT AN EXPLANATION WITHOUT BRINGING ANY POSITIVE MATERIAL AS HELD IN 33 TTJ 5 76( PUN E ). THE A O CANNOT UNREASONABLY REJECT A GOOD EXPLANATION TO CONVERT A GOOD PROOF INTO NO PROOF AS OBSERVED IN 49 ITR 112 , 120, 121 (SC). THE EXPRESSION FOR PURPOSE OF BUSINESS' HAS A WIDER CONNOTATION AND WHAT NEEDS TO BE SEEN IS WHETHER THE EXPENDITURE IS INTENDED TO GIVE BENEFIT TO THE BUSINESS DIRECTLY OR INDIRECTLY IMMEDIATELY OR IN FUTURE. THE PURPOSE HAS TO BE TESTED ON THE PRINCIPLES OF COM MER CIAL EXPEDIENCY AS HELD IN THE CASE OF S.A BUILDERS 288 ITR 1{ SC ). T HE ACTION OF THE APPELLANT IN PAYING COMP ENSATION FOR INFERIOR QUALITY OF GOODS CANNOT BE SAID TO BE DEVOID OF PRINCIPLES OF COMMERCIAL EXPEDIENCY. HENCE M MY OPINION THE DISALLOWANCE OF THE CLAIM OF LOSS BY THE AO IS NOT JUSTIFIED . ACCORDINGLY, THE ADDITION MADE BY THE AO IS DIRECTED TO BE DELET E D. 5. AGAINST THE ABOVE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE TH RO UGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT AFTER CALLING ITA NO 935/11 5 THE REMAND REPORT FROM THE AO THE CIT(A) HAS RECORDED A CATEGORICAL FINDING TO THE EFFECT THAT THE GENUINENESS OF THE EXPORT WAS NOT DOUBTED BY THE AO AND THE ASSESSEE HAS FURNISHED SUFFICIENT EVIDENCE TO PROVE THAT EXPORTED AGRI - PRODUCTS WERE NOT CONFORMING TO EUROPEAN STANDARDS RES ULTING IN DISPOSAL OF EXPORTED CONSIGNMENT AT LESSER PRICE AND THE ASSESSEE HAD TO COMPENSATE FOR THE LOSSES INCURRED BY THE IMPORTER. IT WAS ALSO OBSERVED BY THE CIT(A) THAT ASSESSEE HAS MADE ALL THE EFFORTS AND CORRESPONDENCE TO SEE THAT THE LOSSES WERE MINIMIZED BY SELLING THE GOODS IN THAT COUNTRIES ITSELF INSTEAD OF RECALLING THE GOODS BACK TO INDIA, ,WHICH WOULD HAVE LED TO FURTHER LOSS AS THE GOODS WERE PERISHABLE AGRICULTURAL PRODUCTS. WE FOUND THAT THE AO HAS NOT PLACED ANY MATERIAL TO SHOW THAT TH E ASSESSEE HAS CLAIMED BOGUS LOSS. THE DETAILED FINDING RECORDED BY CIT(A) AT PARA 3.5 AND 3.6 HAS NOT BEEN CONTROVERTED BY LD. DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING DI SALLOWANCE OF LOSSES INCURRED ON ACCOUNT OF REJECTION OF GOODS EXPORTED. 7 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08 / 07 / 201 5 . SD / - SD / - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 08 / 07/ 201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT ITA NO 935/11 6 / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//