Unifood India Pvt. Ltd, Sambalpur V. DCIT, Sambalpur

ITSSA 118/CTK/2013

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3257 (ITAT-CUTTACK)
• Duration Of Justice: 3 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 28-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MOHAPATRA
• Keywords: Depreciation
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH , CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND KULDIP SINGH JUDICIAL MEMBER ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 M/S. UNIFOOD INDIA PVT LTD., NAYAPARA, SAMBALPUR. VS. DCIT, CIRCLE 1(1), SAMBALPUR PAN/GIR NO. AAACU 5420 D (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI PRAJNA RAJ MOHANTY, AR/SAMBULAL AGARWAL, FCA REVENUE BY : SHRI A.K.MOHAPATRA, CIT , DR DATE OF HEARING : 20 /04/ 2017 DATE OF PRONOUNCEMENT : 26 /04/ 2017 O R D E R PER N.S.SAINI, AM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - BERHAMPUR , DATED 11.3.2013, FOR THE ASSESSMENT YEAR 2009 - 2010 . 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS THAT THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER DISALLOWING THE LOSS OF RS.3,27,93,214.00 CLAIMED IN THE RETURN OF INCOME AND 2 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 ESTIMATING THE INCOME OF THE ASSESSEE AT 1.5% OF THE GROSS TURNOVER OF RS.14,98,58,124.00 AND MAKING ADDITION OF RS.22,47,870/ - . 3 . T HE BRIEF FACTS OF THE CASE ARE THE ASSESSEE DERIVES INCOME FROM TRADING IN FOOD GRAINS SUCH AS PADDY, RICE MAIZE AND PEAS. DURING THE COURSE OF ASSESSMENT PROCEEDING , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS GROSS TURNOVER OF RS.14,98,58,124.00 AS AGAINST MATERIAL CONSUMED AT RS.15,60,03,322/ - AND NET LOSS OF RS.3,27,93,214/ - . ON A SHOW CAUSE NOTICE ISSUED BY THE ASSESSING OFFICER, THE ASSESSEE EXPLAINED THAT THE NET LOSS WAS DUE TO THE FACT THAT IT HAD PROCURED A VERY HUGE QUANTITY OF NON - BASMATI RICE FOR EXPORT. HOWEVER, AS THE EXPORT POLICY WAS CHANGED ON 31.3.2008, BANNING SUCH EXPORT , THE ASSESSEE WAS SADDLED WITH A HUGE STOCK AND ALSO THE PRICE OF THE PRODUCE FELL IN THE DOMESTIC MARKET. THE STOCK WAS ALSO IMPOUNDED BY THE COLLECTOR, GANJAM FOR ALMOST 4 MONTHS WHICH RESULTED IN DETERIORATION IN QUALITY. THIS RESULTED IN DISTRESS SALE OF PRODUCE WHICH HAS ALSO DETERIORATED IN QUALITY WHICH APPARENTLY RESULTED IN A LOSS. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE THE BOOKS OF ACCOUNT AND THE BILLS AND VOUCHERS IN SUPPORT O F THE VARIOUS EXPENSES CLAIMED AND, THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT AND CONSIDERING T HE PAST HISTORY OF THE ASSESSEE ESTIMATED PROFIT @ 1.5% OF THE GROSS TURNOVER AN D DETERMINED TOTAL INCOME AT RS.22,47,870/ - . 3 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 4 . ON APPEAL BEFORE THE CIT(A), THE ASSESSEE ARGUED THA T DUE TO SALES BEING EFFECTED AT LOWER PRICE THAN THE PURCHASE PRICE AND FALL IN TURNOVER FROM RS.97.23 CRORE TO RS.14.98 CRORE, AND THE FACT THAT THE DETE NTION OF 2 LOADED SHIPS ON 19.02.2008 BY THE CUSTOMS DEPARTMENT, A BAN IMPOSED ON 31.03.2008 BY GOVT, OF INDIA FOR EXPORT OF NON - BASMATI RICE , THE ASSESSEE SUFFERED A HUGE LOSS. IT WAS ARGUED THAT THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE HAS NOT MAINTAINED THE REGULAR BOOKS OF ACCOUNT, WHICH IS NOT CORRECT AND THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNT, WHICH ARE DULY AUDITED AND AUDIT REPORTS WERE FILED BEFORE THE ASSESSING OFFICER AND COPIES OF WHICH WERE FILED BEFORE THE CIT(A). IT WAS ARGUED THAT THE REJECTION OF AUDITED PROFIT AND LOSS ACCOUNT WITHOUT ANY JUSTIFIABLE REASON BEING STATED IN THE IMPUGNED ORDER AND INVOKING THE PROVISIONS OF SECTION 145 WAS NOT SUSTAINABLE IN LAW. THE ASSESSING OFFICER HAS RESORTED TO SECTION 145 SOLELY DUE TO LOSS SHOWN BY THE ASSESSEE DURING THE YEAR UNDER APPEAL AS AGAINST PROFIT SHOWN IN EARLIER ASSESSMENT YEARS, WHICH HAVE BEEN ACCEPTED BY HIM. 5 . THE CIT(A) CALLED FOR A REMAND REPORT AND THE ASSESSI NG OFFICER VIDE HIS LETTER NO. 8283 DATED 2.3.201 2 STATED THAT THE PROFIT SO ESTIMATED @ 1.5% OF THE GROSS TURNOVER BASED ON THE NET PROFIT SHOWN BY THE ASSESSEE FOR THE IMMEDIATELY PRECEDING THREE ASSESSMENT YEARS I.E. 2006 - 0 7 TO 2008 - 09. 4 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 6 . IN REPLY TO THE REMAND REPORT OF THE ASSESSING OFFICER, THE ASSESSEE STATED THAT NO INFIRMITY IN THE SUBMISSION MADE HAS BEEN POINTED OUT BY THE ASSESSING OFFICER IN THE REMAND REPORT. THE AVERAGE NET PROFIT RATE HAS BEEN WRONGLY STATED AS NOT LESS THAN 1 % AS AGAINST LESS THAN 0. 1 0%. THE CORRECT RATE BEING WORKED OUT AT 0.09%. ACCORDINGLY, IN THE ASSESSMENT ESTIMATING THE NET PROFIT AT 1.5% OF THE TURNOVER ON THE ERRONEOUS PRESUMPTION THAT THE AVERAGE RATE OF NET PROFIT SHOWN BY THE ASSESSEE IN THE EARLI ER THREE YEARS WAS LESS THAN 1.00% AS AGAINST 0.10% CANNOT BE SUSTAINED. CONSIDERING THE VALID REASONS FOR HUGE LOSS INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AS ENUMERATED IN THE WRITTEN SUBMISSION, THE RETURNED LOSS MAY BE ACCEPTED. 7. THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT FACT THAT THE CASH BOOK, LEDGER AND OTHER BOOKS INCLUDING BILLS AND VOUCHERS WERE NOT PRODUCED BEFORE THE ASSESSING OFFICER HAS B EEN CONTROVERTED BY THE A.R. OF THE ASSESSEE AND T HE SAME HAVE ALSO NOT BEEN PRODUCED BEFORE HIM. IN VIEW OF THE SAME , HE DID NOT FIND ANY INFIRMITY IN THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOK RESULTS AND ESTIMATING PROFIT. SO FAR AS THE RAT E OF PROFIT IS CONCERNED, THE ASSESSING OFFICER HAS REFERRED TO THE FACT THAT THE RATE OF P ROFIT DISCLOSED BY THE ASSESSEE WAS LESS THAN 1%. THE A.R. OF THE 5 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 ASSESSEE HAS ARGUED THAT THE RATE OF PROFIT IS IN F ACT AROUND 0.1 0 % AND NOT 1% AS STATED BY THE ASSESSING OFFICER . THE DETAILS SUBMITTED BY THE A.R. OF THE ASSESSEE RELATING TO THE RATE OF PROFIT IN EARLIER YEA RS HAVE BEEN CONFIRMED BY THE ASSESSING OFFICER IN HIS REMAND. CONSIDERING THE SAME AND THE PECULIAR FACTS RELATING TO THE RELEVANT ASSESSMENT YEAR REGARDING CHANGE IN EXPORT POLICY E TC., THE CIT(A) FOUND I T REASONABLE TO DIRECT THAT THE PROFIT FOR THE IMPUGNED ASSESSMENT YEAR BE ESTIMATED AT 1% OF THE TOTAL TURNOVE R INSTEAD OF 1.5% MADE BY THE ASSESSING OFFICER. 8 . BEING AGGRIEVED AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 9 . BEFORE US, LDAUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MA DE BEFORE THE LOWER AUTHORITIES. 10 . ON THE OTHER HAND, LD DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXPORT OF NON - BASMATI RICE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED LOSS OF RS.3,27,93,214/ - AGAINST THE TURNOVER OF RS.14,98,58,124/ - . THE ASSESSEE EXPLAINED THAT IN THE IMMEDIATELY PRECEDING PREVIOUS YEAR, 6 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 THE CENTRAL GOVERNMENT ALL OF A SUDDEN MADE A CHANGE IN GOVERNME NT POLICY AND BANNED EXPORT OF NON - BASUMATI RICE ON 7.2.2008. THI S SUDDEN CHANGE IN THE FOREIGN TRADE POLICY OF THE GOVERNMENT CAUSED THE ABOVE EXTRA ORDINARY LOSS TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE EXPLAINED THAT THE AS SESS EE HAD EXPORT ORDER OF MORE THAN RS.1500 CRORES IN HAND ON 7.2.2008. TO EXECUTE THE ABOVE EXPORT ORDER NOT ONLY THE ASSESSEE HAD PROCURED RICE IN LARGE QUANTITY BUT ALSO GIVEN ADVANCE FOR PURCHASE ON THAT DATE FOR WHICH IT HAS TO SUBSEQUENTLY PURCHASE RICE WHEREVER THE CHANCES OF RECOVERY OF ADVANCE WAS NOT SURE. BESIDES ABOVE, THE STOCK AND ADVANCES OF TWO SHIPMENTS OF RICE WERE READY IN THE PORT TO BE EXPORTED TO BANGALADESH. THE LOADING IN THE SHIPMENT WAS MADE DURING THE PERIOD 6.2.2008 TO 15.2.2 008. IT WAS POINTED OUT THAT EVEN BEFORE 7.2.2008 THE GOVERNMENT AUTHORITIES HAVE NOT STOPPED THE LOADING OF RICE IN THE SHIP AND PERMITTED THE ASSESSEE TO LOAD RICE IN THE SHIP UPTO 15.2.2008 FOR EXPORT. HOWEVER, AFTER THIS, THE SHIP WAS NOT ALLOWED TO G O AND ULTIMATELY THE STOCK LYING IN THE SHIP WAS SEIZED BY THE COLLECTOR, GANJAM ON 19.2.2008, WHICH WAS LATER ON RELEASED AFTER FOUR MONTHS. THE ABOVE ACTION OF THE GOVERNMENT CAUSED DETERIORATION IN QUALITY OF RICE AND CONSEQUENTLY, RESULTED IN LOSS. 12 FURTHER, AS THE ASSESSEE WAS NOT ALLOWED TO EXPORT, THE RICE HAD TO BE SOLD IN THE DOMESTIC MARKET IN DISTRESS AT A LESSER PRICE. AS THE STOCK COULD NOT BE LIQUIDATED WITHIN THE STIPULATED TIME, THE 7 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 INTEREST BURDEN OF THAT WAS ALSO INCREASED AND ALSO HAND LING CHARGES WAS REQUIRED TO BE PAID TO NATIONAL BULK HANDLING CORPORATION. THE ASSESSEE ALSO POINTED OUT THAT IN THE IMMEDIATELY PRECEDING YEAR, ITS TURNOVER WAS TO THE TUNE OF RS.97,23,54,928/ - WHICH WAS REDUCED TO RS.14,98,58,124/ - BECAUSE OF THE ABOV E UNEXPECTED SITUATION. HE THUS POINTED OUT THAT THE BUSINESS CONDITION OF THE YEAR UNDER CONSIDERATION WAS QUITE DIFFERENT FROM THE BUSINESS CONDITION WHICH WERE PREVAILING IN THE EARLIER YEARS. THE LOWER AUTHORITIES HAVE IGNORED THE ABOVE CHANGE IN THE BUSINESS CONDITION IN ESTIMATING THE INCOME OF THE YEAR UNDER CONSIDERATION. THE LOWER AUTHORITIES WERE NOT AT ALL JUSTIFIED IN ADOPTING THE RATE OF PROFIT SECURED BY THE ASSESSEE IN EARLIER YEARS AS ALSO THE RATE AT WHICH INCOME WAS EARNED BY THE ASSESS EE DURING THE RELEVANT YEAR. THE LOWER AUTHORITIES SHOULD HAVE TAKEN INTO CONSIDERATION THE CHANGED BUSINESS SITUATION IN ESTIMATING THE INCOME OF THE YEAR UNDER CONSIDERATION. 14 . WE FIND FORCE IN THE ABOVE EXPLANATION OF THE ASSESSEE AND IN OUR CONSIDER ED VIEW, BEFORE APPLYING THE PAST RESULTS, THE LOWER AUTHORITIES SHOULD HAVE FACTORED IN THE CHANGE IN THE TRADING SITUATION WHICH TOOK PLACE DURING THE YEAR UNDER CONSIDERATION. IN OUR CONSIDERED VIEW, ON THE ABOVE FACTS, WHEREIN DISTRESS SALE WAS MADE BY THE ASSESSEE IN THE DOMESTIC MARKET, THE RESULTANT LOSS SUFFERED BY THE ASSESSEE CANNO T BE IGNORED. THE LOSS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME CAN BE SUMMARIZED AS UNDER: 8 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 SL.NO. PARTICULARS AMOUNT 1. CROSS LOSS ON SALES. RS.61,45,198/ - 2. HANDLING CHARGES TO NBHC RS.11,26,156/ - 2. BANK INTEREST RS.1,68,07,869/ - 3. DEPRECIATION RS. 3,31,070/ - 4. BANK CHARGES RS. 4,50,725/ - 5. OTHER EXPENSES RS.79,32,196/ - TOTAL: RS.3,27,93,214/ - 15 . WE FIND THAT THE FACT THAT THE EXPENSES RELATING TO SERVICE CHARGES PAID TO NATIONAL BULK HANDLING CORPORATION, BANK INTEREST, BANK CHARGES AND DEPRECIATION CANNOT BE HELD AS NON - VERIFIABLE AND, THEREFORE, THE DISALLOWANCE OUT OF THE SAME IS NOT WARRANTED. O NLY GROSS LOSS OF RS.61,45,198/ - AND OTHER EXPENSES OF RS.79,32,196/ - BOTH AGGREGATING TO RS.1,4 0,77,394/ - CAN AT BEST BE HELD AS NOT FULLY VERIFIABLE OR SUPPORTED BY VOUCHERS. KEEPING IN VIEW THE ENTIRE FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR CONSIDERED VIEW, IT SHALL MEET THE ENDS OF JUSTICE TO DISALLOW ON ESTIMATE 30% OF ABOVE RS.1,40,77,39 4/ - TO ESTIMATE THE LOSS SUFFERED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, WHICH WORKS OUT TO RS.42,23,218/ - . THEREFORE, WE DIRECT THE ASSESSING OFFICER TO ACCEPT THE BUSINESS LOSS OF THE ASSESSEE OF THE YEAR UNDER CONSIDERATION AT RS.2,85,69 ,996/ - . WE ACCORDINGLY MODIFY THE ORDERS OF LOWER AUTHORITIES. THUS , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 16 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRO NOUNCED IN THE OPEN COURT ON 26 /04/2017 IN THE PRESENCE OF PARTIES. 9 ITA NO.118/CTK/2013 ASSESSMENT YEAR : 2009 - 2010 SD/ - SD/ - (KULDIP SINGH) ( N.S SAINI) JUDICIAL MEMBER A CCOUNTANT MEMBER CUTTACK; DATED 26 /04/2017 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : M/S. UNIFOOD INDIA PVT LTD., NAYAPARA, SAMBALPUR. 2. THE RESPONDENT. DCIT, CIRCLE 1(1), SAMBALPUR 3. THE CIT(A) BERHAMPUR 4. PR.CIT , SAMBALPUR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//