M/s. Pithampur Poly Products Ltd.,, Indore v. The ACIT, Indore

ITA 120/IND/2010 | 2005-2006
Pronouncement Date: 15-03-2011 | Result: Allowed

Appeal Details

RSA Number 12022714 RSA 2010
Assessee PAN AABCP2017J
Bench Indore
Appeal Number ITA 120/IND/2010
Duration Of Justice 1 year(s) 13 day(s)
Appellant M/s. Pithampur Poly Products Ltd.,, Indore
Respondent The ACIT, Indore
Appeal Type Income Tax Appeal
Pronouncement Date 15-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 15-03-2011
Date Of Final Hearing 14-12-2010
Next Hearing Date 14-12-2010
Assessment Year 2005-2006
Appeal Filed On 03-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C.SHARMA ACCOUNTANT MEMBER PAN NO. : AABCP2017J I.T.A.NO.120 & 121/IND/2010 A.Y. : 2005-06 & 2006-07 M/S. PITHAMPUR POLY PRODUCTS LIMITED ACIT 1(2) 211 APOLLO TRADE CENTRE VS INDORE GEETA BHAWAN SQUARE A.B. ROAD INDORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI C.P.RAWKA FCA RESPONDENT BY : SHRI KESHAVE SAXENA CIT DR O R D E R PER R. C. SHARMA A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEARS 2005-06 AN D 2006-07 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INC OME-TAX ACT 1961. -: 2: - 2 I.T.A.NO. 120/IND/2010 A. Y. 2005-06 : 2. IN THE ASSESSMENT YEAR 2005-06 THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO ADDITION OF RS. 3 88 13 251 /- ON ACCOUNT OF CLAIM OF LOSS. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A SIC K COMPANY HAVING HUGE ACCUMULATED LOSSES. DURING THE YEAR UNDER CONSIDERATION RETURN WAS FILED AT A LOSS OF RS. 1.07 CRORE WHICH WAS ASSESSED BY THE ASSESSING OFFICER A T INCOME OF RS. 38.60 LAKHS. DURING THE YEAR THERE WAS FIR E AT ASSESSEES BUSINESS PREMISES. IN THE RETURN OF INCO ME THE ASSESSEE HAS CLAIMED LOSS OF STOCK OF FINISHED GOOD S AT 52 800 NUMBER OF BAGS AND WASTAGE OF 36.900 M. T. THE ASSE SSEE HAS REDUCED THE LOSS IN FINISHED GOODS DIRECTLY FROM TH E STOCK THE AO WORKED OUT AMOUNT OF LOSS IN TERMS OF RS. 88 13 251/- BY OBSERVING THAT LOSS OF FINISHED GOODS WAS EQUIVALEN T TO 528 M. TON. THE ADDITION SO MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). THE ASSESSEE IS IN FUR THER APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. W E FOUND -: 3: - 3 THAT THERE WAS A FIRE AT ASSESSEES BUSINESS PREMIS ES ON 15 TH JUNE 2004. STOCK BURNT IN THE FIRE WAS DIRECTLY RED UCED FROM THE QUANTITY OF STOCK WHICH IS AS UNDER :- (I) FINISHED GOODS 52 800 NOS. (II) WASTAGE 36.900 M. T. HOWEVER THE AO HAS TREATED THE LOSS OF FINISHED GO ODS EQUIVALENT TO 528 M.TON IN PLACE OF 52.800 NOS. WIT HOUT ANY BASIS. AS PER THE AUDITED ACCOUNTS PLACED ON RECORD THERE WAS PURCHASE OF RAW MATERIAL EQUIVALENT TO 813 M. T. DU RING THE ENTIRE YEAR WHICH IN RUPEE TERMS WORKS OUT TO RS. 533.28 LAKHS. TOTAL PURCHASES INCLUDING OPENING STOCK WORK S OUT TO BE RS. 5.37 CRORES DURING THE ENTIRE YEAR OUT OF W HICH ASSESSEE HAD SHOWN CONSUMPTION OF MATERIAL WORTH RS . 5.27 CRORES THEREBY LEAVING CLOSING STOCK OF RS. 10.49 L AKHS. IT APPEARS TO BE UN-THINKABLE THAT WHEN THE TOTAL PURC HASES DURING THE YEAR WAS WORTH RS. 5.37 CRORES CONSUMPT ION OF RAW MATERIAL WORTH RS. 5.27 CRORE AND CLOSING STOCK OF FINISHED GOODS WORTH RS. 10.49 CRORES HOW THERE CAN BE LOSS OF MATERIAL WORTH RS. 88.13 LAKHS ATTRIBUTABLE TO 528 M. T. IT IS EVIDENT THAT THE AO HAS NOT PROPERLY APPRECIATED QU ANTITY-WISE -: 4: - 4 PURCHASE AND CONSUMPTION OF RAW MATERIAL AND FINISH ED GOODS. THE AO HAS WRONGLY PROCEEDED TO MAKE ADDITIO N ON THE BASIS OF NO. OF BAG AS A WEIGHT OF BAGS IN TERMS OF TONES SO MANUFACTURED AND LOST IN FIRE. IN THE INTEREST OF J USTICE WE RESTORE THIS GROUND TO THE FILE OF AO AND THE ASSES SEE IS ALSO DIRECTED TO FURNISH COMPLETE BREAK UP OF THE GOODS MANUFACTURED AND ALSO GIVE FULL DETAILS OF FINISHED GOODS REMAINING AFTER LOSS BY FIRE. THE AO IS TO REWORK-O UT THE QUANTITY OF ACTUAL LOSS AND TO DECIDE THE ISSUE AFR ESH. WE DIRECT ACCORDINGLY. 5. NEXT GROUND OF THE ASSESSEE RELATES TO THE ADDITION OF RS. 1 15 17 852/- FOR THE CLAIM OF FREIGHT AND MARI NE INSURANCE ON EXPORT. 6. IN RESPECT OF THE EXPENDITURE CLAIMED THE AO ASKED THE ASSESSEE TO SUBMIT DETAILS ALONGWITH BILLS AND VOUCHERS OF THE EXPENSES. HOWEVER THE ASSESSEE FURNISHED COPY OF THE LEDGER OF EXPENSES SO INCURRED. ON THE PLEA THAT SI NCE ACTUAL EXPORT WAS MADE BY THE ANOTHER SISTER CONCERN WHIC H WAS LOCATED AT INDORE ITSELF THERE CANNOT BE ANY EXPEN DITURE BY ASSESSEE ON ACCOUNT OF FREIGHT AND MARINE INSURANCE THE AO -: 5: - 5 DISALLOWED THE EXPENSES OF RS. 1.15 CRORE. CONTENTI ON OF THE LD. AUTHORIZED REPRESENTATIVE BEFORE US WAS THAT ALL TH E PAYMENTS FOR INSURANCE CHARGES AND FREIGHT WAS MADE BY CHEQ UES AND THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUS INESS AND THE SAME WAS AS PER THE TERMS OF AGREEMENT OF EXPOR T. IT APPEARS THAT ALL THE NECESSARY EVIDENCE IN SUPPORT OF THE CLAIM OF EXPENSES HAS NOT BEEN FURNISHED THEREFORE THE AO HAS DOUBTED THE GENUINENESS OF EXPENDITURE. IN THE INTE REST OF JUSTICE THIS GROUND IS ALSO RESTORED BACK TO THE F ILE OF AO FOR DECIDING AFRESH. THE ASSESSEE IS AT LIBERTY TO FURN ISH ALL THE EVIDENCES IN SUPPORT OF ITS CLAIM OF EXPENDITURE AN D TO SUBSTANTIATE THAT THE EXPENDITURE WAS INCURRED WHOL LY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS AND NOT FOR THE PURPOSE OF GIVING ANY BENEFIT TO THE SISTER CON CERN. WE DIRECT ACCORDINGLY. 7. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO ADDITION OF RS. 71 12 690/- U/S 41(1) OF THE INCOME-TAX ACT 1961. 8. IN THE COURSE OF ASSESSMENT THE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS OF CREDITORS WITH NAMES ADDRESS PAN DURATION OF DUES FOR MORE THAN THREE YEARS. TH E ASSESSEE -: 6: - 6 FURNISHED COMPLETE DETAILS AS ASKED BY THE ASSESSIN G OFFICER WHICH WAS REPRODUCED BY HIM AT PAGE 6 OF HIS ORDER. THE AO OBSERVED THAT SINCE THE LIABILITY WAS EXISTING FOR MORE THAN 3 YEARS IN VIEW OF THE DECISION OF HON'BLE SUPREME C OURT IN THE CASE OF T. V. SUNDARAM IYENGAR 222 ITR 344 THERE WAS CESSATION OF LIABILITY. ACCORDINGLY THE ENTIRE AMO UNT WAS BROUGHT TO TAX BY INVOKING PROVISIONS OF SECTION 41 (1) OF THE ACT. BY THE IMPUGNED ORDER THE LD. CIT(A) CONFIRME D THE ACTION OF THE AO. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. DURING THE COURSE OF HEARING THE LD. SENIOR A.R. D REW OUR ATTENTION TO THE OBSERVATION OF THE LD. CIT(A) TO T HE EFFECT THAT THE MAJOR ITEMS MENTIONED AT SERIAL NOS. 3 & 4 PERT AIN TO CREDITORS AGAINST PURCHASES OF MACHINERY. TOTAL AMO UNT OF THIS WORKED OUT TO BE RS. 69.60 LAKHS. THE LD. CIT(A) OB SERVED THAT IT IS VERY DIFFICULT TO APPRECIATE AS TO WHY THE SU PPLIER OF PLANT AND MACHINERY DOES NOT INSIST FOR PAYMENT FOR MORE THAN 3 YEARS. IT IS CLEAR FROM THE ORDER OF THE CIT(A) THA T THE AMOUNT OF RS. 69.60 LAKHS PERTAINS TO CREDITOR ON ACCOUNT OF SUPPLY OF PLANT AND MACHINERY WHICH HAS NOT BEEN DEBITED AS E XPENSES -: 7: - 7 IN THE PROFIT AND LOSS ACCOUNT. THE CONDITIONS PREC EDENT FOR INVOKING THE PROVISIONS OF SECTION 41(1) IS THAT TH E AMOUNT SHOULD HAVE BEEN DEBITED TO THE PROFIT AND LOSS ACC OUNT AND THE ASSESSEE HAS TAKEN BENEFIT FOR THE SAME BY REDU CING ITS PROFIT. IN RESPECT OF PURCHASE OF PLANT AND MACHINE RY THE SAME IS CAPITAL EXPENDITURE AND THERE IS NO QUESTIO N OF DEBITING THE SAME IN THE PROFIT AND LOSS ACCOUNT. P LANT AND MACHINERY IS SHOWN AS AN ASSET AND NOT AS AN EXPEND ITURE. MERELY BECAUSE SUPPLIER OF PLANT AND MACHINERY HAS EXTENDED CREDIT FOR MORE THAN 3 YEARS OR THAT THE ASSESSEE C OULD NOT MAKE PAYMENT DUE TO THE FINANCIAL CRISIS WILL NOT E NTITLE THE AO TO BRING THE AMOUNT OF SUCH CREDIT WITHIN THE PU RVIEW OF INCOME BY INVOKING PROVISIONS OF SECTION 41(1). WE THEREFORE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AU THORITIES FOR TREATING THE AMOUNT MENTIONED AT SERIAL NOS. 3 & 4 BY THE ASSESSING OFFICER AS INCOME OF THE ASSESSEE U/S 41( 1). AS AN ABUNDANT PRECAUTION WE DIRECT THE AO TO FIRST VERI FY THAT AMOUNT OF CREDIT AS MENTIONED AT SERIAL NOS. 3 & 4 ACTUALLY PERTAIN TO SUPPLY PLANT AND MACHINERY WHICH HAS NO T BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. IF THE AO F INDS THAT THE -: 8: - 8 PURCHASE COST OF SUCH PLANT AND MACHINERY HAS NOT B EEN DEBITED TO THE PROFIT AND LOSS ACCOUNT IN EARLIER Y EARS THERE IS NO REASON FOR INVOKING PROVISIONS OF SECTION 41(1) IN RESPECT OF THESE ITEMS. ASSESSEE IS ALSO DIRECTED TO FURNISH C ONFIRMATION FROM SUPPLIER AND ALSO REASONS FOR SUCH LONG CREDIT AND THE YEAR OF ACTUAL PAYMENT THEREAFTER THE AO SHOULD VE RIFY THE SAME AND DECIDE ACCORDINGLY. IN RESPECT OF THE REMA INING ITEMS THE ASSESSEE IS DIRECTED TO FURNISH PRESENT STATUS SO AS TO ENSURE THAT THERE IS NO CESSATION OF LIABILITY. THE AO IS TO DECIDE THE ENTIRE ISSUE AFRESH AFTER CONSIDERING CO NFIRMATION FROM THESE PARTIES AND THE FACT THAT THE ASSESSEE H AS NOT CREDITED THESE AMOUNTS AS INCOME IN ITS BOOKS OF AC COUNT. WE DIRECT ACCORDINGLY. 10. NEXT GRIEVANCE OF THE ASSESSEE RELATES TO FOREIGN TRAVELLING EXPENSES OF RS. 25.65 LAKHS. IN THIS REG ARD THE AO OBSERVED IN ITS ORDER THAT THE ASSESSEE HAS NOT EST ABLISHED THAT THIS EXPENDITURE WAS INCURRED FOR THE PURPOSE OF ITS BUSINESS IN SO FAR AS GOODS WERE SOLD IN INDIA TO M/S. BULKPACK EXPORT LIMITED INDORE. BY THE IMPUGNED OR DER THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. -: 9: - 9 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE TOTAL EXPENDITURE INCURRED ON TRAVEL LING WAS RS. 25 65 963/-. AS PER THE AO SINCE THE GOODS WERE SO LD IN INDIA AND NOT EXPORTED DIRECTLY BY THE ASSESSEE THERE IS NO REASON TO INCUR THE EXPENDITURE ON FOREIGN TRAVELLING. THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT FOR P ROCURING EXPORT ORDER THE DIRECTORS OF THE ASSESSEE COMPANY HAD VISITED FOREIGN COMPANIES AND THAT GENUINENESS OF T HE EXPENDITURE INCURRED AND PAID HAS NOT BEEN DOUBTED. 12. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AFTER GOI NG THROUGH THE BALANCE SHEET AND PROFIT AND LOSS ACCOU NT OF SISTER CONCERN OF M/S. BULKPACK EXPORT TO WHOM GOODS WERE SOLD AND WHO IN TURN EXPORTED THE SAME WE DO NOT FIND A NY DEBIT OF SUCH EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT. WHENEVER ANY EXPENDITURE IS INCURRED ONUS IS ON THE ASSESSE E TO PROVE THAT EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BU SINESS AND WHEN IT IS FOUND THAT THE ASSESSEE WAS NOT EXPORTIN G THE GOODS DIRECTLY THERE APPEARS TO BE NO JUSTIFICATION FOR ANY FOREIGN TRAVEL TO BE UNDERTAKEN BY THE DIRECTORS OF THE AS SESSEE SO AS TO BRAND THE SAME FOR THE PURPOSE OF BUSINESS. TH E ASSESSEE -: 10: - 10 HAS SOLD THE GOODS TO ITS SISTER CONCERN LOCATED AT INDORE WHICH WAS EXPORTED BY ITS SISTER CONCERN. HOWEVER IT DEPENDS UPON THE TERMS AND CONDITIONS OF THE AGREEMENT BETW EEN THE SISTER CONCERN AND THE ASSESSEE AS TO PROCUREMENT O F EXPORT ORDER AND ITS EXECUTION VIS--VIS INCURRING OF EXPE NDITURE THEREON. IN THE INTEREST OF JUSTICE THIS GROUND IS ALSO RESTORED BACK TO THE FILE OF AO FOR DECIDING AFRESH AND THE ASSESSEE IS DIRECTED TO ESTABLISH THAT EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND TRAVELLING WAS UNDERTAKEN F OR PROCUREMENT OF ORDER WHICH WAS FINALLY EXECUTED TH ROUGH SISTER CONCERN. WE DIRECT ACCORDINGLY. 13. IN THE RESULT THE APPEAL FOR THE ASSESSMENT YEAR 2 005- 06 IS ALLOWED IN PART IN TERMS INDICATED HEREINABOV E. I.T.A.NO. 121/IND/2010: 14. GROUNDS RAISED IN THE ASSESSMENT YEAR 2006-07 ARE SIMILAR TO THE GROUNDS RAISED IN ASSESSMENT YEAR 20 05-06 WITH REGARD TO EXPENDITURE INCURRED ON FREIGHT AND MARIN E INSURANCE AMOUNTING TO RS. 12 88 742/-. SINCE THE E XPORT WAS NOT MADE DIRECTLY BY THE ASSESSEE THE AO HAS DECLI NED CLAIM OF EXPENDITURE ON ACCOUNT OF FREIGHT AND MARINE INS URANCE. -: 11: - 11 SIMILARLY SINCE EXPORT WAS THROUGH ASSESSEE FIRM THE AO HAS DISALLOWED FOREIGN TRAVELLING EXPENSES CLAIMED BY T HE ASSESSEE FIRM. AS DISCUSSED IN THE ASSESSMENT YEAR 2005-06 WE ARE RESTORING BOTH THESE GROUNDS TO THE FILE OF AO FOR DECIDING AFRESH IN TERMS OF OUR DIRECTIONS CONTAINED IN THE ASSESSMENT YEAR 2005-06 NARRATED HEREINABOVE. 15. IN THE RESULT THE APPEALS ARE ALLOWED FOR STATISTI CAL PURPOSES FOR BOTH THE YEARS. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 15 TH MARCH 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15 TH MARCH 2011. CPU* 22:153