BIT CORP PRIVATE LIMITED,GUNTUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), GUNTUR
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Income Tax Appellate Tribunal, VISAKHAPATNAMBENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
आयकरअपीलीयअधिकरण, धिशाखापटणमपीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAMBENCH, VISAKHAPATNAM श्रीदुव्वूरुआरएल रेड्डी, न्याधयकसदस्यएिंश्रीएसबालाकृष्णन, लेखासदस्यकेसमक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLEJUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.181/Viz/2023 (निर्धारण वर्ा/ Assessment Year : 2018-19) M/s Bitcorp Private Ltd. Vs. Asst. Commissioner of Dr.No.8-14-28, Tobacco Colony Income Tax Mangalagiri Road Circle-1(1) Guntur Guntur [PAN : AADCB4080D] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent)
अपीलधर्थी की ओर से/ Appellant by : Shri M.V. Prasad, AR प्रत्यधर्थी की ओर से/ Respondent by : Dr. Satyasai Rath, CIT(DR) सुिवधई की तधरीख/ Date of Hearing : 06.05.2024 घोर्णध की तधरीख/Date of Pronouncement : 13.06.2024 आदेश /O R D E R Per Shri S.Balakrishnan Accountant Member : Condonation of Delay : This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals) [CIT(A)],National Faceless Appeal Centre (NFAC), Delhi vide DIN & Order No.ITBA/NFAC/S/250/2022-23/1051656968(1) dated 30.03.2023, arising out of order passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act’) for the Assessment Years (A.Y.) 2018-19, with the delay of 18
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days. The assessee filed petition for condonation of delay and submitted that the reason for delay in filing the appeal belatedly was due to the closure of the business operations of the company and the death of the Chartered Accountant, regularly handling the tax matters of the company. The assessee submitted that there is no malafide intention in filing the appeal belatedly. It, therefore, pleaded to condone the delay on merits and admit the appeal for hearing, in order to meet substantial justice. We have gone through the condonation petition filed by the assessee and find that the assessee was prevented by sufficient cause from filing the appeal in time. We, therefore, condone the delay and admit the appeal for hearing in the interest of justice.
Brief facts of the case are that the assessee filed the return of income for the A.Y.2018-19 on 10.10.2018, admitting total loss of Rs.18,55,61,547/-. The case was selected for scrutiny under CASS, therefore, statutory notices u/s 143(2) and 142(1) along with questionnaire were issued and served on the assessee through ITBA portal. In response to the above notices, the assessee furnished information / documents from time to time. It was stated that the assessee is engaged in the business of trading and export of tobacco and
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its allied products. Considering the submissions made by the assessee, the Ld.AO framed the assessment by making following additions : (i) Loss on writing off of stock / undisclosed sales – 14,52,29,605 (ii) Disallowance u/s 36(1)(iii) Rs.81,00,000 (iii) Provision for investments Rs.22,97,300
While framing the assessment, the Ld.AO observed that the assessee has shown Nil stock in the impugned financial year, thereby considering the stock disappearing from the books of accounts. The Ld.AO rejected the explanation offered by the assessee, stating that the stock was overvalued in the previous years and the tobacco being a perishable product, no value could be assigned at the end of the impugned financial year as the stock has totally depleted. Similarly, the Ld.AO also rejected the contention of the assessee and disallowed the interest foregone by the assessee by extending unsecured interest free loan to the related party. Further, the Ld.AO, while considering the submissions made by the assessee with respect to disallowance of provision for investments observed that the assessee has accepted the above disallowance and thereby disallowed a sum of Rs.22,97,300/-.
On being aggrieved by the assessment order, the assessee filed appeal before the CIT(A)/NFAC and made various submissions regarding
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the writing off of stock and contested that the AO has not brought any material on record on his allegation that the assessee has sold the closing stock of tobacco in the grey market. Further, it was also stated before the Ld.CIT(A)/NFAC that the stock was more than three years old and being a perishable product, there was no market value for the same. It was also argued before the Ld.CIT(A)/NFAC that no auction bidder has come forward to purchase the stocks. However, with respect to the disallowance of interest, it was argued that the loan related parties was paid out of the realised sundry debtors and non interest bearing funds.Examining all the above submissions, the Ld.CIT(A) rejected the arguments made by the assessee and dismissed the appeal.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before us by raising the following grounds : 1. The Learned CIT(Appeals) has erred on facts and in law while passing the order. 2. On the facts and circumstances of the case and in law, the Learned CIT(Appeals) erred in confirming the disallowance of loss on write off of the closing stock / unaccounted sales of Rs.14,52,29,605/-. 3. The Learned CIT(Appeals) is not justified in confirming the disallowance of loss on write off of the closing stock / unaccounted sales merely on the reasoning that the closing stock was verified and certified in the tax audit report for the immediately preceding assessment year without appreciating that the closing stock cannot be considered to have been properly valued in the earlier years since the process loss,
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dryage loss, storage loss and handling loss were not considered in such valuation and the depletion in the value of stocks due to deterioration in quality of tobacco with passage of time was also not appraised properly resulting in overstatement of closing stock. 4. The Learned CIT(Appeals) is not justified in rejecting the claim of the appellant company that the closing stock was correctly shown at NIL on account of non-availability of any physical saleable stock after making sale of the entire saleable material available in the stock when the company closed its business during the year. 5. The Learned CIT(A) ought to have appreciated that the disallowance made by the Assessing Officer on account of loss on write off of the closing stock /unaccounted sales is based on mere surmise, conjecture and presumption that the appellant may have made unaccounted sale of stocks without an iota of evidence to establish such unaccounted sales. 6. The Learned CIT(A) ought to have seen that the allegation of the Assessing Officer that unaccounted sale of closing stock was made with the intention of avoiding repayment of bank loan is baseless and unsubstantiated since the appellant repaid the bank loan in the subsequent years as reflected in the returns filed by the appellant, by selling the land owned by the appellant company. 7. On the facts and circumstances of the case and in law, the Learned CIT(Appeals) has erred in confirming the disallowance of interest expenditure of Rs.81,00,000/- u/s 36(1)((iii) of the Income Tax Act. 8. The Learned CIT(A) ought to have appreciated that since interest free unsecured loans from associate concerns were available with the appellant, it needs to be presumed that the interest free loan to the associate concern is advanced out of such interest free funds and hence the disallowance of interest expenditure attributable to such interest free loan u/s 36(1)(iii) is not justified. 9. Without prejudice to Ground No.9, the Learned CIT(A) failed to appreciate that the interest free loan to associate concern is advanced out of the trade debtors realised during the year and hence the disallowance of interest attributable to such interest free loan u/s 36(1)(iii) is not justified.
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The appellant may add, alter, or modify or substitute any other points to the Grounds of appeal at any time before or at the time of hearing of the appeal.
Ground No.1 and 10 are general in nature and needs no adjudication.
Ground No.2 to 6 pertains to disallowance of loss on write off of the closing stock / unaccounted sales of Rs.14,52,29,605/-. The Ld.AR submitted that as per the Accounting Standard -2 issued by Chartered Accountants of India, the closing stock has to be valued at the cost price or at the market price, whichever is lower. The Ld.AR, further submitted that in tobacco business, the raw material is perishable and has very short duration of life. Since the stock was not consumed due to discontinuance of operation on account of sudden demise of the Managing Director, the stock has turned into a waste. The Ld.AR further submitted that the stock was valued as Nil since no auction bidder was also available. The Ld.AR further submitted that based on expert opinion from the industry, the statutory auditor adopted the value at Nil as it does not have any resaleable value. The Ld.AR also further submitted that the Ld.AO based on assumptions concluded that the assessee has written off the stock in the books of accounts and sold it in the grey market in
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order to avoid payment to the bankers and sundry creditors. The assessee also filed a petition under Rule 29 of ITAT Rules for producing additional evidence in the form of bank statements and audited accounts in the subsequent years to substantiate the claim that the assessee has sold the property to repay the loan taken from banks and payment to sundry creditors. He, therefore, pleaded that since the assessment is based on assumptions and surmises, it is not valid in law. He also further submitted that from the F.Y.2014-15, the assessee has not properly valued the closing stock and due to the improper valuation of the closing stock, the assessee has paid income tax on the increased profitability during the earlier years. He, therefore, pleaded that the addition may be deleted and prayed that the additional evidence may be remitted back to the Ld. CIT(A).
Per contra, the Ld.DR fully supported the orders of the revenue authorities.
We have heard both the parties and perused the material available on record. It is the case of the Ld.AO that the assessee has written off stock to the extent of Rs.14.52 crores, without providing any proper evidence regarding the valuation of the closing stock as at the end of the
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year. The Ld.AO, while disallowing the same observed that the assessee’s contention about the loss of stock is due to dryage, process, storage, and handling, which has accounted over the years was not supported with any documentary evidence and hence rejected the same. It was the contention of the assessee that the Ld.AO has disallowed the write off of closing stock, assuming that the assessee has sold it in the grey market and has realised money out of the books of accounts. However, the Ld.AO has also observed that the assessee has not declared any scrap sales during the impugned assessment year. The closing stock for the assessment year, amounting to Rs.14.52 crores is added by the Ld.AO due to non-production of any evidence by the assessee to substantiate the claim that the entire stock has become scrap. The Ld.AO observed that the assessee has made grey market sales of the closing stock which is out of the books of accounts to avoid payment to the bankers and sundry creditors. The Ld AR contention is that the AO has framed the assessment based on the assumptions and presumptions. In this connection, the assessee has filed a petition under Rule 29 of the ITAT Rules for producing the additional evidence in the form of bank statements and audited accounts for the subsequent years to substantiate the claim that the assessee has sold the immovable property to re-pay the loans taken
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from banks and also to discharge the payment due to sundry creditors. We therefore are of the considered view that the petition under Rule 29 of the ITAT Rules is allowed and the additional evidence is remitted back to the Ld. CIT (A) with a direction to call for the remand report from the Ld. AO before deciding the issue in accordance with law. Accordingly, this ground is allowed for statistical purposes.
With respect to ground No. 7 to 9 regarding disallowance of interest expenditure of Rs.81 lakhs u/s 36(1)(iii) of the Act, the Ld.AR submitted that the assessee from time to time received and paid inter corporate deposits, depending upon the requirements. The Ld.AR, therefore, argued that that the assessee has given loan of Rs.6,41,80,241/- during the impugned assessment year to M/s Gogineni Tobaccos Ltd. arising out of the sources on account of loan obtained from M/ s Tobacco Bye Products Ltd. of Rs.50 lakhs and realisation of sundry debtors of Rs.8,27,22,510/-. He, further argued that no part of the bank loan was utilised for the purpose of giving inter corporate loan to M/s Gogineni Tobacco Ltd. He, therefore, pleaded that since non interest bearing funds have been used for giving loan to the related party, interest payment cannot be disallowed.
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Per contra, the Ld.DR relied on the order of the revenue authorities.
We have heard both the sides and perused the material available on record. We find from the submissions made by the Ld.AR that the assessee has accumulated huge losses as at the end of the financial year. It was observed by the Ld.AO that the interest free loan of Rs.6.48 crores from other group companies was taken by the assessee in the preceding years, however, the contention of the assessee that the interest free loans were paid to M/s Gogineni Tobacco Ltd. does not have any nexus with the funds flow provided by the assessee. It is the observation of the Ld.AO that the assessee has outstanding liability to the bank and hence liable to pay interest thereon, but the assessee has utilised the available funds to give interest free loan to the related party, instead of repaying the outstanding loan to the bank. We also find that the assessee has not proved beyond doubt that the interest free unsecured loans have been used to give interest free unsecured loan to the related parties. We, therefore, find no merit in the argument of the Ld.AR and therefore, no interference is required into the orders of the Ld.CIT(A). We find no infirmity in the order of the Ld.CIT(A), thereby dismiss the ground raised by the assessee.
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In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 13th June,2024.
Sd/- Sd/- (एसबालाकृष्णन) (दुव्वूरुआर.एलरेड्डी) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याधयकसदस्य/JUDICIAL MEMBER लेखासदस्य/ACCOUNTANT MEMBER Dated :. 13.06.2024 L.Rama, SPS आदेशकीप्रतिलिपिअग्रेपिि/Copy of the order forwarded to:- 1निर्धाररती/ The Assessee –M/s Bit Corp Private Ltd., Dr.No.8-14-28, Tobacco Colony, Mangalagiri Road, Guntur 2.रधजस्व/The Revenue– The Asst.Commissioner of Income Tax,Circle-1(1), Guntur 3. The Principal Commissioner of Income Tax, Guntur 4.नवभधगीयप्रनतनिनर्, आयकरअपीलीयअनर्करण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधिुसधर / BY ORDER
Sr. Private Secretary ITAT, Visakhapatnam
