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Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the Revenue is arising out of order of Commissioner of Income Tax (Appeals)-XII, Kolkata in appeal No.312/XX/Cir-11/09-10 dated 12.12.2011. Assessment was framed by JCIT, Special Range-14, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28.03.2001 for assessment year 1998-99.
Various grounds raised by the Revenue per its appeal out of which Ground No.5 is general in nature and does not require separate order. Remaining grounds are reproduced below:- “1. That the Ld. CIT(Appeals)-I, Kolkata was not justified in allowing the carried forw4ard the loss of Rs.29,09,04,771/-
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 2 2. That the Ld. CIT(Appeals)-I, Kolkata was not justified in deleting disallowance of Rs.4,02,31,000/- on account of closing stock in terms of Section 145A of the Act. 3. That the Ld. CIT(Appeals)-I, Kolkata was not justified in deleting the disallowance of Rs.74,46,597/- on account of earlier years liabilities not supported by documents. 4. That the Ld. CIT(Appeals)-I, Kolkata was not justified in deleting disallowance of depreciation amounting to Rs.12,48,826/- on additions made during the year on fixed assets.”
Shri Vijay Shah, Ld. Authorized Representative appeared on behalf of assessee and Ld. G. Mallikarjuna, Ld. Departmental Representative appeared on behalf of Revenue. 3. The briefly stated facts giving rise to this appeal are that the assessee in the present case is a Limited Company and engaged in the engineering business. The assessee, for the year under consideration, has filed its return of income on dated 30.11.1998 declaring a loss of Rs.29,25,79,481/-. Thereafter the case was selected for scrutiny and accordingly notices under section 143(2) r.w.s142(1) of the Act were issued. The assessment was framed by the AO under section 143(3) of the Act after making certain additions/ disallowances at NIL.
The first issue raised by Revenue in this appeal is that the learned CIT(A) erred in allowing the carried forward loss of Rs. 29,09,04,771/-.
4.1 The assessee, for the year under consideration has filed its return of income showing the losses for the amount as stated above. The assessee also submitted that the losses are arising because there is a lockout in the factory which resulted suspension of the work. The assessee also failed to produce the books of accounts and other documents at the time of assessment. Therefore the AO disallowed the claim for the losses of the assessee and frame the assessment at NIL income and subsequently the loss was not allowed to be carried forward.
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 3 5. Aggrieved, assessee preferred an appeal to ld. CIT(A) whereas assessee submitted that AO has raised total ten queries during the course of assessment proceedings – out of which eight queries were replied to the AO. Remaining two queries, were not replied as the business of assessee was under suspension due to lock-out in the factory premises. The assessee- company was declared as sick company by BIFR vide its order dated 02.04.2002 and it was on the verge of complete shut-down. The loss claimed in return of income was pertaining to the current year and not the earlier years. The major reason for the losses is due to incurrence of expenses and decline in sales. The expenses claimed by assessee in the year under consideration are more or less same in comparison to the last three years. Ld. CIT(A) observed that most of the details were submitted before AO at the time of assessment except a few of the details which could not submit on account of lock-out in the factory. It was also observed from the audit report of the assessee that it is not a qualified report and as per the report the books of account of assessee are showing are true and fair state-of-affairs of the business of assessee. Accordingly, Ld. CIT(A) deleted the addition made by AO for the entire amount except the sales tax liability, payments made to club and provision for doubtful debt aggregating to Rs.15,54,518/-.
Being aggrieved by the order of learned CIT(A), Revenue is in appeal before us.
Before us ld. DR relied on the order of AO, whereas ld. AR before us submitted paper book which is running from pages 1 to 160 and submitted that loss is arising on account of expenses claimed in the current year. The loss claimed by assessee pertains to the current year and it is not carried forward from earlier year. Ld. AR in support of its claim drew our attention on pages from 31 to 41 of the paper book where the computation of income was placed. Ld. AR also submitted that the expenses claimed by assessee are approximately same as claimed in last three years. Ld. AR in support of its
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 4 claim has submitted the statement of expenses for the last three years which are placed on page 132 of the paper book. Ld.AR further also filed audited annual account for the year ended 31.03.1998 which is placed pages 1 to 37 of the paper book. Ld. AR also relied on the order of Ld. CIT(A).
We have heard the rival contentions of both the parties and perused the materials available on record. From the aforesaid discussion, we find that the AO has disallowed all the expenses on the ground that sufficient details were not furnished at the time of assessment. However, Ld. CIT(A) deleted the addition made by AO in entirety with a few exceptions. From the facts of the case, we find that assessee failed to submit its supporting evidence at the time of assessment as the factory was under lock-out which has not been doubted. In such circumstances, we find that AO should have verified/compared the expenses from the external sources and from the history of assessee. But AO failed to do so and has disallowed all the expenses. In our considered view action taken by AO for making the disallowance for all the expenses do not hold good. The AO has not brought any defect in the audit report and the expenses claimed by assessee in comparison to the earlier years. In this connection, various courts have decided the issue in favour of assessee, some of the cited case law reproduced below:- a) CIT vs. Ranicherra Tea Co. Ltd. (1994) 207 ITR 979 (Cal) wherein it has been held that the AO was not justified in rejecting the loss return filed by the assessee in tot without examining the audit profit and loss account, balance-sheet and other statements accompanying the return. b) ITO vs. Perfecto Electricals (ITA No.1175/Kol/2011 dated 29.01.2014 where the Tribunal has held that in a case where AO has not followed the procedure laid out u/s. 144 to make best judgment assessment but has completed the assessment u/s. 143(3), he could allow or reject claims only after considering evidence as well as relevant material available with him. When audited accounts and Tax Audit Report have
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 5 been filed and auditors have certified that the assessee had maintained proper books of accounts, disallowances could not be made arbitrarily ignoring rules of justice and equity. c) Alclad Fabrication (P) Ltd. vs. DCIT (ITA No. 1383/Kol/2012 dated 09.06.2015) it has been held that it is a settled principle of law that trading results declared by the assessee cannot be disturbed without pointing out any specific defect or without invoking the provision of Sec. 145(3). In case best judgment assessment as provided in Sec. 145(3) has not been restored to by the AO, disallowances could not be made on estimate basis.
We have also found that AO has passed a vague and non-speaking order by not disclosing manner or method of computation from which he has determined the total income as NIL. Such an order has been made on the basis of pure guess and bare suspicion without reference to any evidence or material. In this connection, we rely on the judgment of Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd. vs. CIT (1954) 26 ITR 775 (SC) where the Hon’ble court has held that while passing an order, the AO should have disclosed to the assessee the material on which it is going to found its estimate and then afford the assessee full opportunity to meet the substance of any private inquiries made by the AO if it is intended to make the estimate on the foot of those enquiries. Further reliance of Hon’ble Supreme Court in the case of State of Orissa vs. Maharaja Shri B.P.Singh Deo (1970) 76 ITR 690 (SC) has held that assessment made by assessing authorities must be based on some relevant material and unreliabilit9y of material placed before them does not mean that they can proceed to levy whatever tax they may levy. Similar view has also been taken in the case of Brij Bhushan Lal Parduman Kumar vs. CIT (1978) 115 ITR 524 (SAC) where the Hon’ble Apex Court held that estimation of income must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case. We also find that assessee has filed statutory audit report under the
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 6 Companies Act, 1956 and Tax Audit report u/s. 44AB of the Act along with the return of income. Even though the assessee was acing genuine hardship due to lock out and was constrained from giving details, the assessee has produced most of the information as required by the AO. However, the AO disregarding such submissions passed an arbitrary order on the contention that books of accounts and other details could not be examined. In this regard, the coordinate Bench in the case of ACIT vs. Sitalamata Rice Mill Pvt. Ltd. (ITA No. 2317/Kol/2013 dated 01.01.2015) has held that where it was not possible for assessee to produce books of accounts since the same was in possessions of the lending bank, disregard of the assessee’s audited accounts is not justified and auditor’s report should be relied upon as evidence. In this case, reliance also placed in the case of ACIT vs. Jay Engineering Works Ltd. (1978) 113 ITR 389 (Del) wherein it has been held that income tax authorities could rely on the report of the auditors if detailed information of the claims were not available. In the assessee case, the auditor has carried out his audit and in the Audit Report given his opinions which indicates that assessee-company did maintain proper books of accounts which reflect ‘true & fair view’.
Respectfully following the aforesaid judgments of various Hon’ble Courts and the decision of the co-ordinate Bench we find no reason to interfere in the order of Ld. CIT(A). We hold accordingly. This ground of Revenue’s appeal is dismissed.
Second issue raised by the Revenue in this appeal is that the Ld CIT(A) erred in deleting the disallowance made by the AO for Rs. 4,02,31,000/- on account of closing stock u/s 145A of the Act.
The assessee has not included the amount of Excise Duty and Custom Duty payable on the closing stock of the finished goods. Accordingly the AO
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 7 enhanced the value of the closing stock by the amount of Excise and Custom duty i.e. Rs.4,02,31,000/-. 10. Aggrieved, assessee preferred an appeal to ld. CIT(A) who deleted the addition made by AO by observing as under:- “…the appellant also submitted that the above disallowance is unwarranted even on merits as the appellant has duly made the payment of above excise duty referable to the closing stock on or before the date of filing of return of income and hence the same is allowable u/s. 43B of the Act. the appellant also furnished copy of certificate issued by the Chartered Accountant dated 27.11.1998 filed along with the return of income certifying the payment of excise duty before the due date of filing the return of income.”
Being aggrieved by the order of learned CIT(A), the revenue is in appeal before us.
Before us both the parties relied on the orders of authorities below as favourable to them. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we find that Sec. 145A of the Act was inserted by Finance Act 1998 with effect from 1st April, 1999. The year before us is ending 31st March, 1998 therefore the provision of Sec.145A of the Act are not applicable to the assessee for the year under consideration. In this connection, we are relying in the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Berger Paints (India) Ltd. (2002) 254 ITR 503 (Cal) the head-note reads as under:-
“Accounts—Valuation of stock—Modvat credit—Amount representing Modvat credit is not to be added in the valuation of stock—Sec. 145A is not retrospective in nature—Collector of Central Excise vs. Dai Ichi Karkaria Ltd. (1999) 156 CTR (SC) 172 : 1999 (112) ELT 353 (SC) applied
Respectfully following the judgment of Hon’ble jurisdictional High Court in the case of Berger Paints (India) Ltd. (supra) we do not find any infirmity in the order of Ld. CIT(A). We hold accordingly.
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 8 12. Third issue raised by the Revenue in this appeal is that the learned CIT(A) erred in deleting the disallowance made by the AO for Rs. 74,46,597/- on account of earlier year liabilities not supported by documents.
The assessee in its computation of income has claimed the deduction for an amount of Rs.74,46,597/- representing the amount of fuel surcharges. The assessee claimed that these liabilities pertain to the assessment years 1993-94 to 1995-96 but arose in the current year in pursuance to the order of the High Court. These liabilities are in addition to the amount which was paid to creditors for the company. The assessee could not submit the necessary details with regard to the fuel surcharge expense except the copy of the High Court in the assessment proceedings. In the absence of documentary evidence, the AO could not verify the claim of the assessee and the same wasn’t allowed in the computation of income.
Aggrieved, assessee preferred an appeal to ld. CIT(A) who deleted the addition made by AO by observing as under:- “I have gone through the submissions and the details filed by the appellant. On perusal of the documents on record it could be noted that the AO had asked for an explanation as to why the above amount has been claimed separately although the same is already debited to P&L account. To the above, query the appellant had filed reply justifying the claim in the computation on the contention that the above amount has been debited to P&L account below the line whereas the computation has been started from the Profit/loss before debiting the said sum. Neither the AO asked for justification of the above expenditure on merit nor the appellant filed any documents relating thereto before the AO. The A/R of the appellant submitted during the course of hearing that since the above details were never asked by the AO during the course of assessment proceedings, there is no violation of Rule 46A in terms of clause (d) to Rule 46A(1). 5.5 On perusal of the details filed by the appellant it could be noted that the above liability although pertaining to earlier years was duly crystallized during the year as the same was also paid along with the current year’s bills. The appellant has produced notification issued by CESC also which provided for the recovery of the above amount in the said manner. Since the above expenditure has been duly paid during the year under consideration and the same has also been debited to profit & loss account for the current year following the mercantile system of accounting, the appellant is entitled to
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 9 deduction of the said amount in computing total income for the year under consideration. Further, there is no question of claim of the said amount in earlier years as the liability never accrued during the said years. I, therefore, direct the AO to delete the disallowance made on account of arrear fuel surcharge amounting to Rs.74,46,597/- and ground No.5 of the appellant is thus allowed.”
Being aggrieved by the order of learned CIT(A), Revenue is in appeal before us. 15. Ld DR before us submitted that the relief has been given by Ld. CIT(A) without taking the remand report from AO. Therefore, it should be restored back to the file of AO for further verification. On the other hand, Ld. AR submitted that fuel surcharge rate was finalized by CESC for the earlier years in the year under consideration. In support of its claim, Ld. AR has submitted the Notification which is placed on page 145 of the paper book and he relied on the order of Ld. CIT(A)
We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that there was a litigation on account of fuel surcharge which was settled in the year under consideration. In our considered view, the liability for fuel surcharge was crystallized in the current year, therefore, the same was accounted for in the books of account of assessee. Therefore, this expense was claimed in the year under dispute. In this connection, we rely in the judgment of Hon’ble Supreme Court in the case of CIT vs. Swadeshi Cotton and Flour Mills Private ltd. (1964) 53 ITR 134 (SC)
Business expenditure—Bonus—Year of allowability when mercantile system is followed by assessee—Claim for profit bonus for earlier year was settled by an award of the Industrial Tribunal in a later year—Liability arose in the year in which claim settled by way of an award—Accounts of earlier year could not be reopened as contended by Revenue—Bonus liability was allowable as deduction in the year in which the same was settled
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 10 Respectfully the judgment of Hon’ble Supreme Court in the case of Swadeshi Cotton and Flour Mills Pvt. Ltd. (supra) we uphold the order of Ld. CIT(A). This ground of Revenue is dismissed.
Fourth issue raised by the Revenue in this appeal is that the Ld CIT(A) erred in deleting the disallowance of depreciation made by the AO for Rs. 12,48,826/- on the additions of fixed assets made during the year.
The assessee during the year purchased new plant & machinery and other assets and claimed the depreciation on the new plant & machinery. However, the assessee failed to furnish the documentary evidence in support of the purchaser of new plant and machinery and other assets at the time of assessment. In the absence of documentary evidence the in support of the purchases of fixed assets, the depreciation for Rs. 12,48,826/- claimed by the assessee on the new assets wasn’t allowed and added to the total income of the assessee.
Aggrieved, assessee preferred an appeal to ld. CIT(A) who deleted the addition made by AO by observing as under: “6.4 I have gone through the above submissions of the appellant and I am of the view that since the accounts and supporting evidences are subject to scrutiny by the statutory auditors and also the factory was under lockout, the claim of the appellant with regard to depreciation cannot be denied in the interest of justice. The appellant has duly submitted various bills in respect of the ‘Bolt & Nut Division’. ‘Powmex Steels Division’ and ‘Screw & Fastener Division’ vide letter dated 26-03-2001. Further, the appellant has duly filed details of all additions along with reconciliation of such additions with the audited accounts. The above evidences and details are sufficient to allow the claim of the appellant for depreciation on additions to fixed assets acquired during the year. I therefore direct the AO to allow the deprecation amounting to Rs.12,48,826/- as well and hence the aggregate claim for depreciation amounting to Rs.9,20,23,154/- as claimed in the return at income needs to be allowed in the interest of justice and no disallowance on this account is called for. Hence, Ground No. 6 of appellant is allowed.”
Being aggrieved by the order of learned CIT(A), the revenue is in appeal before us.
ITA No.432/Kol/2012 A.Y. 1998-99 ITO Wd-1(3), Kol. Vs. M/s GKW Ltd. Page 11 20. Both parties before us relied on the orders of authorities below as favourable to them. We have heard the rival contentions of both the parties and perused the materials available on record. In the instant case, the AO made the addition on the ground that assessee failed to produce the supporting evidence for the fixed assets. However, Ld. CIT(A) deleted the same by observing that there is no defect in the audited accounts submitted along with reconciliation. The reason for non-submission of the bills was explained that there was lock-out in the factory premises of assessee. We find under such circumstances, the AO needs to have reliance on the external documents such as audit report and history of the assessee. In the instant case, AO did not point out any defect in the audited financial statement. Therefore, in our considered view, we do not find any infirmity in the order of Ld. CIT(A). We uphold accordingly. This ground of Revenue is dismissed.
In the result, Revenue’s appeal stands dismissed. Order pronounced in the open court 24/08/2016
Sd/- Sd/- (�या�यक सद�य) (लेखा सद�य) (N.V.Vasudevan) (Waseem Ahmed) (Judicial Member) (Accountant Member) Kolkata, *Dkp �दनांकः- 24/08/2016 कोलकाता । आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-ITO Ward-1(3), Room No. 11A, 4th Floor, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-69 2. ��यथ�/Respondent-GKW Ltd., “Central Plaza”2/6 Sarat Bose Road, Office Space No. 406, 4th Floor, Kolkata-20 3. संबं�धत आयकर आयु�त / Concerned CIT Kolkata 4. आयकर आयु�त- अपील / CIT (A) Kolkata 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता ।