Western India Bone & Fertilizer Co., Bhavnagar v. The ACIT.,Circle-2, Bhavnagar

ITA 1242/AHD/2010 | 2003-2004
Pronouncement Date: 13-08-2010 | Result: Allowed

Appeal Details

RSA Number 124220514 RSA 2010
Bench Ahmedabad
Appeal Number ITA 1242/AHD/2010
Duration Of Justice 3 month(s) 22 day(s)
Appellant Western India Bone & Fertilizer Co., Bhavnagar
Respondent The ACIT.,Circle-2, Bhavnagar
Appeal Type Income Tax Appeal
Pronouncement Date 13-08-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 13-08-2010
Date Of Final Hearing 06-08-2010
Next Hearing Date 06-08-2010
Assessment Year 2003-2004
Appeal Filed On 21-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH BEFORE SHRI G.D. AGARWAL VICE-PRESIDENT (AZ) AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.1242/AHD/2010 [ASSTT.YEAR: 2003-04] WESTERN INDIA BONE & FERTILIZER CO. VS- ACI T CIRCLE-2 7 AI-KARAM SQUARE OPP. SHISU BHAVNAGAR VIHAR CIRCLE BHAVNAGAR-364001 PAN NO.AAFW1929L (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K. MADHUSUDAN SR-DR ASSESSEE BY: SHRI B.R. PAPAT AR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-XX AHMEDABAD IN APPEAL NO. CI T(A)-XX/245/2009-10 DATED 23-02-2010. THE ASSESSMENT WAS FRAMED BY THE ACIT CIRCLE-2 BHAVNAGAR U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 20-02-2006 FOR ASSESSMENT YEAR 2003-04. 2. THE FIRST LEGAL ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN REOPE NING THE ASSESSMENT WITHOUT CONSIDERING THE VARIOUS JUDGMENTS DELIVERED BY HON BLE SUPREME COURT AND HONBLE JURISDICTIONAL HIGH COURT. FOR THIS ASSESSEE HAS R AISED THE FOLLOWING GROUND NO.1 :- 1.CONFIRMING THE ACTION OF THE AO IN RE-OPENING TH E ASSESSMENT OF THE CASE WHICH WAS BAD IN LAW AS WELL AS ON FACTS AND VIOLAT IVE OF THE RATIO OF VARIOUS JUDGMENTS DELIVERED BY VARIOUS COURTS INCLUDING BY HONBLE SUPREME COURT OF INDIA AND BY THE TERRITORIAL HIGH COURT OF GUJAR AT. 3. THE BRIEF FACTS ARE THAT THE ASSESSEE FILED RETU RN OF INCOME ON 15-10-2003 ORIGINALLY AND THE ASSESSMENT WAS FINALIZED U/S.14 3(3) ON 20-02-2006. ITA NO.1242/AHD/2010 A.Y. 2003-04 WESTERN INDIA BONE & FERTILIZER CO. V. ACIT CI RI-2 BHAVNAGAR PAGE 2 SUBSEQUENTLY THE ASSESSING OFFICER ISSUED NOTICE U /S.148 ON 02-05-2008 WHICH WAS SERVED ON 05-05-2008. THE ASSESSEE REPLIED THIS NOTICE AND INFORMED THAT THE RETURN ORIGINALLY FILED ON 15-10-2003 MAY KINDLY BE TREATED AS FILED IN RESPONSE TO NOTICE U/S.148 OF THE ACT. THE ASSESSEE ALSO REQUES TED FOR SUPPLY OF REASONS RECORDED FOR INITIATING PROCEEDINGS U/S.148 OF THE ACT. THE ASSESSEE WAS SUPPLIED THE REASON WHICH READS AS UNDER:- IN THE RETURN OF INCOME FILED BY THE ASSESSEE FOR AY 2003-04 THE ASSESSEE HAD CLAIMED DEDUCTION @ 50% U/S.80HHC AMOUNTING TO RS.883498/- ON ADJUSTED NET PROFIT OF RS.17 66 996/-. ON VERIFICAT ION OF RECORDS IT IS FOUND THAT THE NET PROFIT SHOWN BY THE ASSESSEE INCLUDED INSUR ANCE CLAIM OF RS.946816/- AGAINST THE LOSS OF STOCK DUE TO FLOOD DURING THE R ELEVANT FINANCIAL YEAR 90% OF WHICH WAS REQUIRED TO EXCLUDE WHILE CALCULATING DED UCTION U/S.80HHC. ON THE OTHER HAND ADMISSIBLE DEDUCTION U/S.80HHC WORKED OU T TO RS.457431/- AS AGAINST RS.883498/- GRANTED IN ASSESSMENT ORDER U/S .143(3). THEREFORE NOTICE U/S.148 WAS ISSUED TO ASSESS THE ESCAPED INCOME. DURING THE COURSE OF RE-ASSESSMENT PROCEEDINGS THE ASSESSEE NARRATED THE FACT THAT THE ASSESSEE-FIRM HAD LOST AN AGGREGATE STOCK AMOUN TING TO RS.9 46 382/- AGAINST WHICH THE INSURANCE COMPANY GRANTED CLAIM OF RS.9 4 6 816/-. AS A RESULT OF THIS WHILE THE ASSESSEE-FIRM REDUCED THE CLOSING STOCK B Y RS.9 46 382/- THERE WAS A CORRESPONDING CREDIT IN THE FORM OF INSURANCE CLAIM AMOUNTING TO RS.9 46 816/-. AS THE COMBINED EFFECT OF THESE TWO THERE WAS THUS A NET DEBIT OF RS.2 566/- WHICH WAS CLAIMED AS BUSINESS LOSS WHILE FURNISHING THE RETU RN OF INCOME. THE ASSESSEE-FIRM WAS ORIGINALLY ENGAGED IN THE BUSINESS OF MANUFACTU RING AND EXPORTING OF VARIOUS BONE PRODUCTS AND THERE WAS A FLOOD IN BHAVNAGAR DI STRICT IN THE MONTH OF JUNE 2002 AND THE STOCK OF THE FIRM WAS WASHED AWAY/DAMA GED IN THE SAME. SINCE THE STOCK SO LOST/DAMAGED WAS INSURED CLAIM WAS ACCORD INGLY LODGED WITH NATIONAL INSURANCE CO. LTD. THEY GRANTED INSURANCE CLAIM ON LY TO THE EXTEND OF RS.9 46 816/- AND PAID THIS BY CROSSED ACCOUNT PAYEE CHEQUES IN D UE COURSE OF TIME. THE PROFIT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT IS THUS CL EARLY NET OF THIS LOSS OF RS.2 566/- AND NOT INCLUSIVE OF THE INSURANCE CLAIM OF RS.9 46 816/- AS CLAIMED. THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80HHC ON THIS CREDIT OF I NSURANCE IN TRADING ACCOUNT AND ALSO CREDITED THE AMOUNT IN CLOSING STOCK. THE ASSE SSEE MADE THE CLAIM OF DEDUCTION U/S.80HHC OF THE ACT ON THE INSURANCE CLAIM AT RS.9 46 860/-. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION BY REDUCING 90% O F INSURANCE CLAIM UNDER CLAUSE (BAA) OF SECTION 80HHC OF THE ACT. AGGRIEVED ASSES SEE PREFERRED APPEAL BEFORE ITA NO.1242/AHD/2010 A.Y. 2003-04 WESTERN INDIA BONE & FERTILIZER CO. V. ACIT CI RI-2 BHAVNAGAR PAGE 3 CIT(A) AGAINST RE-OPENING. ON THIS ISSUE THE CIT(A) UPHOLD THE DISALLOWANCE BY GIVING FOLLOWING FINDING IN PARA-4.2 OF HIS APPELLATE ORDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSION MAD E. I FIND THAT THIS IS A CASE FOR A.Y. 2003-04 WHICH WAS RE-OPENED VIDE ISSUE OF NOTICE U/S.148 OF THE ACT DATED 02/05/2008. THE REASONS FOR REOPENING THE ASS ESSMENT WAS ALSO SUPPLIED TO THE ASSESSEE ON ITS REQUEST. THE ASSESS EE HAD SHOWN NET PROFIT INCLUSIVE OF INSURANCE CLAIM OF RS.946816/- AGAINST THE LOSS OF STOCK DUE TO FLOOD DURING THE RELEVANT FINANCIAL YEAR 90% OF WH ICH WAS REQUIRED TO BE EXCLUDED WHILE CALCULATING DEDUCTION U/S.80HHC. THE REFORE THE AO HAD REASONS TO BELIEVE THAT ASSESSEES INCOME HAD ESCAP ED ASSESSMENT AND THEREFORE REOPENED THE CASE. AS PER THE AMENDED PRO VISIONS OF SECTION 147 ASSESSING OFFICER WAS WELL WITHIN HIS RIGHTS TO ISS UE NOTICE FOR RE-ASSESSMENT. IN VIEW OF THE ABOVE GROUND AGAINST RE-OPENING OF ASSESSMENT IS DISMISSED. AGGRIEVED NOW ASSESSEE CAME IN SECOND APPEAL BEFOR E US. 4. BEFORE US LD. COUNSEL FOR THE ASSESSEE CONTENDE D THAT THE ASSESSEE HAS REASON TO BELIEVE THAT THE AFORESAID REOPENING OF T HE CASE IS PRIMARILY MADE AT THE BEHEST OF THE OBJECTION RAISED BY THE OFFICER OF TH E ACCOUNTANT GENERALS OFFICE CONDUCTING AUDIT OF THE CASE RECORDS WHICH HAS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER TILL THIS DATE. IT IS THUS A CASE OF THE AO NOT ADMITTING THE OBJECTION WHILE DEALING WITH THE AUDIT TEAM ON ONE PART AND AT THE SAME TIME REOPENING THE CASE FOR THE SAME REASON. THIS CANNOT THUS BE A VALID REASON FOR REOPENING THE CASE WHICH NECESSARILY REQUIRES BELIEF OF THE AO HIMSELF AS TO ESCAPEMENT OF INCOME AND NOT OF ANYBODY ELSE. THE ASSESSEE IN THIS REGARD RELIES ON THE DIRECT JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ADANAI EXPORT V. DCIT (1999) 240 ITR 224 (GUJ) WHERE THE HONBLE JURISDICTIONAL COURT HAS C ATEGORICALLY HELD THAT THE ULTIMATE ACTION U/S.147 MUST DEPEND DIRECTLY AND SOLELY ON T HE FORMATION OF BELIEF BY THE AO ON HIS OWN EVEN WHERE SUCH INFORMATION IS PASSED O N TO HIM BY AUDIT THAT INCOME HAS ESCAPED ASSESSMENT. IT IS FURTHER HELD THAT WHE N THE AO DID NOT HOLD BELIEF AT ANY POINT OF TIME THAT INCOME OF THE ASSESSEE HAD E SCAPED ASSESSMENT ON ACCOUNT OF ERRONEOUS COMPUTATION OF BENEFIT U/S 80HHC REC ORDING IN HIS OFFICE NOTE THAT HE HAS REASONS TO BELIEVE IS A MERE PRETENCE. THE HON BLE JURISDICTIONAL HIGH COURT WENT FURTHER TO HOLD THAT CBDT INSTRUCTION NOS.828 OF 24 TH FEBRUARY 1975 ARE ULTRA VIRES THE POWERS OF THE BOARD AND CANNOT BE PRESSED INTO SERVICE TO SUPPORT THE RE- ASSESSMENT PROCEEDINGS WAS ACCORDINGLY HELD TO BE I NVALID IN THIS CASE. ON QUERY FROM THE BENCH LD. SR-DR SHRI K. MADHUSUDAN STATED THAT THE REASONS RECORDED ARE NOT ACCORDING TO AUDIT OBJECTION RATHER IT IS O N THE BELIEF OF THE AO AND EVEN ON ITA NO.1242/AHD/2010 A.Y. 2003-04 WESTERN INDIA BONE & FERTILIZER CO. V. ACIT CI RI-2 BHAVNAGAR PAGE 4 AUDIT OBJECTION REOPENING IS PERMISSIBLE IN VIEW O F THE DECISION OF HONBLE IN THE CASE OF CIT V. P.V.S. BEEDIES PVT. LTD. (1999) 237 ITR 13 (SC). ACCORDINGLY HE STATED THAT REOPENING IS AS PER LAW AND THE SAME MA Y BE UPHELD. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT FROM THE AB OVE REASONS RECORDED IT IS NOT CLEAR WHETHER REASONS RECORDED ARE ON THE BASIS OF BELIEF OF THE ASSESSING OFFICER OR MERELY ON THE BASIS OF AUDIT OBJECTION RAISED BY AU DITOR GENERAL WHICH HAS NOT BEEN ACCEPTED BY AO. THIS FACT IS NOT COMING FROM THE RE CORD NOR THIS FACT THAT AUDIT OBJECTION HAS BEEN ACCEPTED BY AO OR NOT. THIS NEED S VERIFICATION EVEN OTHERWISE THIS ISSUE IS OPEN FOR THE AO WHETHER ON THE BASIS OF AUDIT OBJECTION THE ASSESSMENT CAN BE REOPENED OR NOT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF P.V.S. BEEDIES PVT. LTD. (SUPRA). THE AO WILL CONSIDER THIS DECISION VIS- - VIS THE FACTS OF THE CASE. ACCORDINGLY THIS APPEAL OF THE ASSESSEE IS SET ASIDE TO THE FILE OF ASSESSING OFFICER TO DECIDE IN TERMS OF ABO VE DECISION. THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. 6. THE SECOND ISSUE WHICH IS ON MERITS SINCE THE LEGAL ISSUE IS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER THIS ISSUE ALSO REMA NDED TO ASSESSING OFFICER WHO WILL DECIDE AFTER THE LEGAL ISSUE. 7. IN THE RESULT ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED ON THIS DAY OF 13 TH AUG 2010 SD/- SD/- ( G.D.AGARWAL ) ( MAHAVIR SINGH ) (VICE PRESIDENT) (JUDICIAL MEMBER) AHMEDABAD DATED : 13/08/2010 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-XX AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. /TRUE COPY/ BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD