TURAKHIA FERROAMET P.LTD,MUMBAI vs. ASST CIT CEN CIR 45, MUMBAI

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-50, Mumbai, dated 09.12.2016, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 28.03.2013 for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal: “1. On the facts and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the action of Learned Assessing Officer in disallowing the claim of loss due to rejection of goods amounting to Rs. 2,23,07,062/-, without considering the facts and circumstances of the case.

During the course of the assessment proceedings it was inter alia observed by the A.O, that the assessee had claimed a loss of Rs.2,23,07,082/- due to rejection of goods in its „Profit and loss account‟. On being queried, it was submitted by the assessee that the loss has emanated from the rejection of 515.864 MT of Hot rolled Steel Wire Rods that were exported by it in the immediately preceding year to M/s Ammetal FZCO, UAE. It was the claim of the assessee, that it had imported 2985.975 MTS Hot rolled Steel Wire rods from M/s Cargill International Trading Pte. Ltd., China, vide Bill of Entry, dated 25.09.2008, out of which 515.864 MT were exported to M/s Ammetal FZCO, UAE, on 16.10.2008. In order to fortify its aforesaid claim, the assessee had furnished with the A.O copy of its „Sale account‟ for the preceding year viz. financial year 2008-09, which therein substantiated the factum of exports made to the aforesaid party. It was the claim of the assessee that post 2008 worldwide economic crisis price of steel had witnessed a steep decline, which had resulted to a substantial decline of demand for all variants of steel and alloys in the global market. It was brought to the notice of the A.O, that due to the worldwide recession there was crash of prices of steel and its alloys to the extent of USD 1000 (approx) per MT to USD 300 (approx) per MT during the period viz. August, 2008 to September, 2008. It was submitted by the assessee, that under the aforesaid circumstances M/s Ammetal FZCO, UAE had declined to accept the material at the price at which it was billed to it. In order to substantiate its aforesaid claim, the assessee had furnished the photocopies of its correspondence with M/s Ammetal FZCO, UAE. Apart therefrom, it was submitted by the assessee, that it also had various telephonic communications with M/s Ammetal FZCO, UAE for settlement of dispute. However, as all efforts of the assessee to persuade the importer to settle the dispute had gone in vain and the latter had outrightly declined to accept the goods, therefore, it was finally compelled to accept the rejection of goods. In the backdrop of the worldwide fall in prices of steel and its alloys, it was submitted by the assessee, that it was also not commercially viable on its part to lift the goods from Dubai P a g e | M/s Turakhia Ferromet Pvt. Ltd Vs. Assistant Commissioner of Income Tax, CC-45 and bring back the same to India. Also, it was the claim of the assessee, that as the assessee had exported the goods without a letter of credit facility, therefore, it was also conversant of the fact that there was no security for the payment. Under the aforesaid circumstances, as submitted by the assessee, having been left with no other alternative, it was thus compelled to accept the offer of M/s Ammetal FZCO and therein sell the aforesaid material through the latter in Dubai. It was submitted by the assessee, that under the aforesaid circumstances M/s Ammetal FZCO, UAE had sold the material at the best possible prices with the approval of the assessee for a consideration of AED 753859 (UAE currency) i.e equivalent to USD 205159 @ USD 397.99. After reducing its cost of selling and import expenses M/s Ammetal FZCO, UAE had remitted the balance amount of AED 349354 i.e equivalent to USD 95145.11 @ USD 184 to the assessee. In order to fortify its aforesaid claim, the assessee had placed on record the photocopies of its correspondence with M/s Ammetal FZCO, along with a summary of the local transactions and the related expenses which were incurred by the latter in order to facilitate the sale of goods as per the instructions of the assessee. On the basis of the aforesaid facts, it was the claim of the assessee, that being faced by the aforesaid compelling circumstances it had however managed to recover the gross price as per the rates as were prevailing in the global market as per LME Steel Billet price graph. On the basis of the aforesaid facts, it was submitted by the assessee, that the sale of the goods at a substantially lower price due the rejection of the same by the importer had resulted to a loss of Rs.2,23,07,082/- during the year under consideration. Also, in order to substantiate the veracity of its aforesaid claim of loss, the assessee had furnished with the A.O its entire correspondence with its banker viz. Bank of India, Branch: Mandvi, Mumbai, wherein the assessee after bringing the entire state of affairs which had led to loss in respect of the aforesaid export transaction had sought the approval of the bank for „writing off‟ the outstanding amount of USD, 4,36,194.81 (equivalent to Rs.2,23,07,082/-). Further, the entire correspondence of the bank with Reserve Bank of India for their approval to allow „write off‟ the unrealised export bill amounting to USD 436,194.81 (invoice amount USD 531339.92 less amount received USD 95,146.11) in respect of the shipment made by the assessee to M/s Ammetal FZCO, Dubai, vide its Shipping bill No. 5486405, dated 29.09.2008 was also filed with the A.O. Copy of the letter dated 13.12.2013 of the RBI issued to the assesses bank i.e Bank of India, Branch: Mandvi, Mumbai, permitting the „writing off‟ the unrealised export sale proceeds of USD 436,194.81, in respect of the aforesaid P a g e | M/s Turakhia Ferromet Pvt. Ltd Vs. Assistant Commissioner of Income Tax, CC-45 goods exported by the assessee to M/s Ammetal FZCO, UAE was also furnished with the A.O. However, the A.O was not persuaded to accept the aforesaid claim of loss of the assessee for multiple reasons viz. (i), that, the correspondence and the joint declaration of the assessee and M/s Ammetal FZCO, Dubai, did not reveal the nature of dispute; (ii) that, the copies of the correspondence between the assessee and its importer was not authenticated by a third party; (iii) that, no reason was discernible from the correspondence between the assessee and M/s Ammetal FZCO for rejection of goods; (iv) that, M/s Ammetal FZCO despite having rejected the goods had sold them in the local market and also exported part of the same; (v) that, no supporting documents evidencing the realisation of sale proceeds were furnished by the assessee; (vi) that, the returned goods had not been included by the assessee in its closing inventory; and (vii) that, the assessee failed to justify the allowability of its loss under Sec.36 or Sec.37 on the basis of supporting documentary evidence. Accordingly, the A.O declined to allow the loss of Rs.2,23,07,082/- claimed by the assessee and after inter alia making the aforesaid addition assessed its income at Rs.22,31,03,034/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) after deliberating on the issue under consideration was not persuaded to subscribe to the claim of the assessee, and upheld the view taken by the A.O in context of the issue under consideration.

Being aggrieved with the order of the CIT(A), the assessee has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) for the assessee at the very outset of the hearing of the appeal took us through the facts of the case. It was averred by the ld. A.R, that the assessee in the immediately preceding year i.e A.Y. 2008-09 had imported 2985.975 MTS of Hot rolled Steel Wire rods from M/s Cargill International Trading Pte Ltd., China. Out of the aforesaid, it had exported 515.864 MTS of Hot rolled Steel Wire rods to M/s Ammetal FZCO, UAE, on 16.102008. It was submitted by the ld. A.R that on the earlier occasions also the assessee had carried out export to the aforesaid concern viz. M/s Ammetal FZCO, UAE, and the latter had duly honoured the transaction and remitted the exports sale proceeds. It was submitted by the ld. A.R, that post 2008 worldwide economic crisis in Financial year 2008-09, there was a worldwide crash in the prices of steel and its alloys. In order to fortify his aforesaid claim, the ld. A.R had placed on record the extract of the London Metal Exchange P a g e | M/s Turakhia Ferromet Pvt. Ltd Vs. Assistant Commissioner of Income Tax, CC-45 Steel Billet futures, which revealed that there was a worldwide creash in the price of steel during the period 01.09.2008 to 30.12.2008. It was submitted by the ld. A.R, that in the backdrop of the worldwide crash in steel prices the aforesaid importer viz. M/s Ammetal FZCO, UAE in the garb of its claim that the goods exported were of defective quality, and also that there was a delay on the part of the assessee in complying with its commitments, had declined to accept the material. It was the claim of the ld. A.R, that despite lots of persuasion by the assesee, the aforesaid importer did not agree to accept the goods. Under the aforesaid circumstances, as submitted by the ld. A.R, the assessee being left with no other alternative and also being conversant of the fact that the price of steel had witnessed a crash worldwide, therefore, negotiated with the importer for selling the goods at the best possible price in Dubai. It was submitted by the ld. A.R, that the assessee while taking the aforesaid decision was also not oblivious of the fact that it would not be commercially viable for it to lift the goods from Dubai and bring back the same to India. In order to verify the aforesaid factual position, the ld. A.R took us through the correspondence between the assessee and the aforesaid importer viz. M/s Ammetal FZCO, UAE. It was submitted by the ld. A.R, that M/s Ammetal FZCO, UAE had thereafter with the consent of the assessee sold the material and after reducing its cost of selling and import expenses, therein remitted the balance amount of AED 349354 equivalent to USD 95145.11 @ USD 184 to the assessee. Our attention was drawn to the copy of the correspondence of the assessee and also the complete details of the selling and import expenses, after deducting which the amount had been remitted to the assessee. The ld. A.R submitted, that as the assesee had suffered a loss of Rs.2,23,07,082/-during the year under consideration on account of the aforesaid short realisation of export sales proceeds which was backed by rejection of goods, therefore, it had applied to its bankers i.e Bank of India, Branch: Mandvi, Mumbai for “writing off” the balance amount due from the aforesaid importer viz. M/s Ammetal FZCO, UAE. Further, it was submitted by the ld. A.R, that the assesses bank had thereafter sought the approval of the Reserve Bank of India for “writing off” the aforesaid balance amount of sale consideration. It was submitted by the ld. A.R, that the Reserve Bank of India, vide its letter dated 13.12.2013, had after necessary deliberations agreed to the request of the assessee for “writing off” the unrealised export bill amount of USD 436,194.81 in respect of the aforesaid export transaction of the assessee with M/s Ammetal FZCO, UAE. In order to substantiate its aforesaid claim, the ld. A.R had drawn our attention to the correspondence of P a g e | M/s Turakhia Ferromet Pvt. Ltd Vs. Assistant Commissioner of Income Tax, CC-45 the assesses bank i.e Bank of India, Branch : Mandvi with RBI. Also, the ld. A.R had taken us through the letter dated 13.12.2013, on the basis of which the assessee was allowed to “write off” the unrealised export sale proceeds amounting to USD 436,194.81. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that though the loss suffered by the assessee from the aforesaid export transaction was irrefutably proved to the hilt by the assessee on the basis of the aforesaid documentary evidence, however, the lower authorities had whimsically declined to allow the same.

Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities.

We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, and also the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought by the assessee for adjudicating, as to whether the lower authorities were right in law and the facts of the case in declining the assesses claim of “loss” pertaining to its export transaction with M/s Ammetal FZCO, UAE. Admittedly, the assessee had exported 515.864 MT of Hot rolled alloy steel wire rods on 16.10.2008 to M/s Ammetal FZCO, UAE. As is discernible from the export documents, the assessee had exported the goods on DA 90 days basis. Assessee had duly accounted for the exports sales of Rs.2,56,10,584/- on 16.10.2008 in its „books of accounts‟ for the immediately preceding year i.e Financial year 2008-09. As observed by us hereinabove, it is the claim of the assessee that post 2008 worldwide economic crisis the price of steel had sharply crashed, as a result of which, there was a substantial decline of demand for all variants of steel and its alloys in the global market. Resultantly, during the period falling between August, 2008 to September 2008, the price of steel had witnessed a sharp decline from USD 1000 per MT (approx.) to USD 300-350 (approx) per MT, which position continued as such till middle of the year 2009. We find substance in the aforesaid claim of the assessee, which is supported by him on the basis of the LME Steel Billet Price Graph extracted from London Metal Exchange (LME) website. We have perused the correspondence of the assessee with its importer viz. M/s Ammetal FZCO, UAE, and find that the latter had declined to accept the goods exported by the assessee, for certain reasons viz. (i) steel coils were rusted and at places pitting had also started; (ii) as there was an inordinate delay in negotiation of documents P a g e | M/s Turakhia Ferromet Pvt. Ltd Vs. Assistant Commissioner of Income Tax, CC-45 by the assessee, therefore, timely clearance of the material could not be carried out leading to heavy port charges; (iii) that the market prices of the product had crashed and the same was clearly attributable to the delay caused by the assessee; and (iv) that their customers had declined to accept the goods. Also, we find, that as is discernible from the correspondence, though the assessee had tried its level best to settle the dispute, however, all its efforts had gone in vain. As the importer had in clear and unequivocal terms declined to accept the goods, therefore, under the aforesaid compelling circumstances the assessee had yielded to the offer of the importer viz. M/s Ammetal FZCO, UAE, which had vide its letter dated 13.05.2009 (Page 54 of APB) agreed to sell the material at the best possible price in Dubai. As can be gathered from the records, the assessee being left with no choice, and also not being oblivious of the fact that it was not commercially viable to lift the goods from Dubai and bring back the same to India, therefore, accepted the proposal of the importer, who had agreed to sell the said products in Dubai after deducting the expenses (on actual basis) which would be incurred for facilitating the sale transactions. It is in the backdrop of the aforesaid facts, we find that the assessee as a prudent businessman had to bear the loss in the normal course on its business in respect of the aforesaid export transactions. As is discernible from the records, the assessee as against its invoice of USD 531,339.92 had received an amount of USD 95,145 on 14.07.2009. Resultantly, the assessee had suffered a loss of USD 4,36,194.81 i.e INR 2,23,07,082/-.

We have perused the records furnished by the assesses to substantiate the veracity of its aforesaid claim of loss viz. (i). correspondence with the importer viz. M/s Ammetal FZCO, UAE (ii). details of the expenses borne by M/s Ammetal FZCO, UAE in the course of selling of goods in Dubai, and (iii). the joint declaration of the assessee and the aforesaid party, dated 03.10.2010. In our considered view, the fact that the assessee had suffered the aforesaid loss stands duly substantiated on the basis of the facts emerging from the aforesaid documents. Apart therefrom, we find, that the assessee had applied to its bank i.e Bank of India, Branch, Mandvi for “writing off” the balance amount of export sale proceeds amounting to USD 4,36,194.81 which had become irrecoverable under the aforesaid circumstances. Also, we have perused the correspondence between the assesses bank i.e Bank of India,Branch: Mandvi, and the Reserve Bank of India, Mumbai, wherein the bankers had sought the approval of RBI for P a g e | M/s Turakhia Ferromet Pvt. Ltd Vs. Assistant Commissioner of Income Tax, CC-45 allowing “writing off” the unrealised export bill amount of USD 436,194.81 [i.e invoice amount USD 531339.92 (minus) amount received USD 95,145.11] in respect of the aforesaid export transaction of the assessee with its importer viz. M/s Ammetal FZCO, UAE. As is discernible from the records, RBI, Mumbai, vide its letter dated 13.12.2013 addressed to the Asst. General Manager Bank of India, Branch: Mandvi (i.e the assesses bank) had agreed to the request of the assessee for allowing “write off” of the unrealised export bill amount of USD 436,194.81. In the backdrop of the aforesaid facts, we are of the considered view, that now when the authenticity of the claim of the assessee that it had suffered a loss of USD 436,194,81 i.e INR 2,23,07,082 in respect of transaction under consideration, had been vetted and verified by the Reserve Bank of India, which had allowed the bank to proceed with the “writing off” the unrealised export bills by the assessee, therefore, we find no justification in disbelieving the veracity of the aforesaid claim of loss of the assessee. As regards the observation of the A.O, that the loss claimed by the assessee was not to be accepted, for the reason, that the correspondence and the joint declaration filed by them did not inspire much confidence, we are afraid, the same does not find favour with us. Not only the documentary evidence furnished by the assessee to substantiate its claim of loss suffered in the course of the aforesaid export transaction had been proved beyond doubt, but also the fact that the “writing off” the unrealised export sale proceeds amounting to USD 436,194.81 had been allowed by the RBI, further fortifies its aforesaid claim. Also, we are unable to persuade ourselves to subscribe to the view taken by the lower authorities, that as the documents filed by the assessee are not authenticated by a third party, therefore, the same do not inspire much of confidence. In our considered view, the aforesaid reasoning of the A.O is devoid of any force and thus cannot be accepted. In fact, it is not a case that the revenue had placed on record any irrefutable documentary evidence which would dislodge the authenticity of the aforesaid claim of the assessee. As regards the observations of the A.O, that now when the goods exported to M/s Ammetal FZCO, UAE were rejected, then as to why the same were not included in the inventory of the assessee, we are afraid is an absolute fallacious and misconceived view. As observed by us hereinabove, it is not a case where the goods after having been rejected were received back by the assessee. In fact, it is a case where the goods exported on being rejected were sold at an amount below the sale price. We have given a thoughtful consideration to the observations of the lower authorities and find no justifiable reason as to why the duly