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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI RAJESH KUMAR (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against the order dated 10.04.2017 passed by the Commissioner of Income Tax (Appeals)-18 (for short ‘the CIT(A), Mumbai, which pertains to the assessment year 2011-12, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the ‘Act’).
Brief facts of the case are that the assessee company engaged in the business of manufacturing and trading of alloy steel, filed its return of income for the assessment year under consideration declaring total loss at Rs. 2,53,68,830/-. The return was processed u/s 143 (1) of the Act and the AO passed assessment order u/s 143 (3) of the Act, determining the total income of the assessee at Rs. 7,04,89,450/- inter alia making addition of Rs. 8,78,26,853/- after rejecting the deduction claimed by the assessee on account Assessment Year: 2011-12 of rate difference and shortages and quality penalty and addition of Rs. 76,00,000/- on account of unexplained cash credit. In the first appeal, the Ld. CIT (A) deleted the said additions. The revenue is in appeal against the said findings of the Ld.CIT (A). 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in granting relief of Rs. 8,78,26,853/- to the assessee company in the absence of furnishing of necessary documents/explanation to show quality difference of material supplied and treating the deduction as Bad Debts. Instead of appreciating the fact that A.O. has passed detailed and speaking order by citing the fact that assessee has revised sale agreement by 50% of sale value shown in original agreement after more than 5 months of original agreement and as per test report, the Fe content of the material supplied by the assessee was 60.54% and the requirement as per the contract was 60% and above. Hence, there was no quality difference to material supplied as per contract. 2. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in deleting the addition without appreciating the fact that the assessee did not file requisite supporting evidences in respect of additions to fixed assets. 3. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in deleting the addition without appreciating the fact that assessee did not produced the supporting evidences of the source of any credit entry appearing in its books of accounts and the assessee did not produce the cash book for verification. The source of such cash deposits remained unexplained and the onus remained to be discharged despite specific opportunity provided during the course of the assessment proceedings. 4. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in deleting the addition without appreciating the fact that the order passed by the A.O. was very detailed and speaking and that the additions were correctly made. Further, the assessee’s Assessment Year: 2011-12 submissions were in the nature of additional evidences which should not have been admitted.”
Vide Ground No. 1and 2 , the revenue has challenged the action of the Ld. CIT (A) in granting relief of Rs. 8,78,26,853/- to the assessee company on the ground that the Ld. CIT (A) has deleted the addition ignoring the fact that the assessee has failed to furnish necessary documents and explanation to substantiate its claim. The Ld. Departmental Representative (DR) submitted that the assessee had claimed deduction of the said amount under the head ‘rate difference and shortage and quality penalty’. Accordingly, the assessee was asked to justify the claim and furnish details and supporting evidence. The assessee alleged that it entered into a revised agreement in October 2010 with the purchaser revising the price to USD 70 per DMT and this transaction the assessee had incurred loss of more than Rs. 8 crore. The assessee contended that the revision in price was because of difference in quality of material dispatched and non-acceptance of said material by the purchaser. Since, the assessee has failed to submit details and explanation in support of the said loss, the AO had rightly disallowed the claim and made addition of the said amount to the income of the assessee. The Ld. DR supporting the assessment order submitted that since the order passed by the Ld. CIT (A) is not in accordance with law, the same is liable to be set aside.
On the other hand, the Ld. counsel for the assessee supporting the order passed by the Ld. CIT (A) submitted that the AO disallowed the claim on the ground that assessee has not submitted necessary correspondence in support of the said claim. The assessee accordingly filed application under rule 46A of the Income Tax Rules, for admission of additional evidence before the Ld. CIT (A). The Ld. CIT(A) referred the said documents to the AO and sought remand. In response to the same, the AO submitted the remand report. However, the AO stated in his remand report that the submissions of the assessee is not in the nature of any additional evidence and as such the undersigned is of the view that the additions and disallowances have been correctly made by the AO. The Ld. counsel further pointed out that apart from the said documents, the Assessment Year: 2011-12 assessee had produced sufficient evidence before the AO to substantiate its claim. The Ld. counsel accordingly submitted that since the Ld.CIT (A) has decided the issue on the basis of evidence on record, there is no infirmity in the said order to interfere with. 6. We have heard the rival submissions and perused the material on record in the light of the rival contentions of the parties. The Ld. CIT (A) has decided this issue holding as under:- “Under these grounds of appeal
of the Appellant has disputed disallowance of Rs. 78,26,853/- on account of rate difference/shortage/quality penalty. On perusal of the assessment order I find that vide letter dated 24.03.2014 the Appellant submitted copies of export documents including copy of invoice raised on party based in China, material test report, copy of agreement etc. However, since the details were submitted very late, the AO could not verify the same and also observed that explanatory notes were not furnished by the Appellant to justify the deduction of Rs. 8,78,26,853/-. The AO therefore further observed that the Appellant had not submitted necessary correspondence in support of this claim. Accordingly the AO disallowed the claim of Rs. 8,78,26,853/-. Before me the Appellant submitted application u/r 46A and requested for admission of additional evidence. The said documents were sent to AO for his remand vide letter dated 06.01.2017 bearing reference No. CIT (A)-18/Remand Report / 2016-17. In response to the same the AO vide letter dated 15.02.2017 bearing reference no. ACIT-11(3)(1)/Remand /16-17 stated that: “The assessment order passed by the Assessing Officer is very detailed and speaking, and has been made after providing sufficient opportunities of being heard to the assessee and based on circumstantial evidence. The said submission of the assessee is not in the nature of any additional evidences and as such the undersigned is of the view, after perusal of the same, that the additions/disallowances made in the assessment order, have been correctly/rightly made.” The said remand report was confronted to the Appellant and vide rejoinder dated 03.03.2017 stated that the AO at para no. 4 of the assessment order had accepted the fact that the Assessment Year: 2011
12. Appellant had shipped the goods as per the requirement of the buyer. It was further contended that the AO had ignored various documents filed before the AO. Similarly the appellant drew my attention to para no. 4.3 of the Assessment order in which observation of the AO were mentioned. The Appellant strongly contended that, “The non-admission documents at Sr. No. 1 to 13 of the Paper Book (index II) as additional evidences would lead to miscarriage of justice. The said documents have been submitted to corroborate the facts on record. We therefore request your goodself to kindly admit the additional evidences and grant us the necessary relief.” I have carefully considered the rival submissions and find that there is substantial strength in the contention of the Appellant. The Appellant had submitted several documents during the assessment proceedings and remaining documents during the remand proceedings. However, the same were not considered by the AO and rejected as such. On perusal of the evidences as well as the additional evidences is clear that after the shipping of consignment and before the receipt of exports proceeds, the buyer rejected the goods on account of breach of contract. Therefore the goods were kept bonded at open space in China. Even after repetitive request by the Appellant, the customer of the Appellant refused to accept the goods. Subsequently after gap of 5 months the Appellant renegotiated and entered into an agreement dated 27.09.2010 at the revised price of the consigned goods for the reasoning mentioning therein. Accordingly the balance figure of Rs. 8,78,26,853/- were claimed by way of rate difference/shortage/quality penalty etc. I have carefully considered the rival submissions and find that this is a loss incidental to the carrying on of the business in the ordinary course. Alternatively the same is also in the nature of Bad debt u/s 36(2) and /or 36(1)(vii). I am therefore inclined to agree with the contention of the Appellant and directed the AO to delete the disallowance of Rs. 8,78,26, 853/-. Accordingly this ground of appeal is allowed.”
7. We notice that during the appellate proceedings, the assessee moved an application under rule 46A of the Income Tax Rules before the Ld. CIT (A) for admission of additional evidence. The Ld. CIT (A) admitted the additional evidence and sought remand report from the AO. However, the AO instead of Assessment Year: 2011-12 verifying the documents and taking necessary action sent the report stating as under:- “The assessment order passed by the Assessing Officer is very detailed and speaking, and has been made after providing sufficient opportunities of being heard to the assessee and based on circumstantial evidence. The said submission of the assessee is not in the nature of any additional evidences and as such the undersigned is of the view, after perusal of the same, that the additions/disallowances made in the assessment order, have been correctly/rightly made.”
8. From the response of the AO, it appears that the AO had made his mind not to examine the issue in the light of the additional evidence placed on record by the assessee. As pointed out by the Ld. counsel, the assessee has furnished 13 documents for admitting the same as additional evidence, which were accepted by the Ld. CIT (A) after coming to the conclusion that the said documents are essential for determining the issue in question. We further notice that the Ld. CIT (A) has decided the said issue without verifying the documents admitted as additional evidence. Hence, in our considered view, these documents require verification by the AO. We therefore, set aside the findings of the Ld. CIT (A) and send this issue back to the AO with the direction to decide ground No. 1 and 2 of the revenue’s appeal afresh, in the light of the additional evidence admitted under rule 46A of the Income Tax Rules. We further direct the AO to afford a reasonable opportunity of being heard to the assessee before deciding the same.
9. Vide Ground No. 3, the revenue has challenged the action of the Ld. CIT