Income Tax Appellate Tribunal - Chandigarh
Lakshmi Energy & Foods Ltd., Chandigarh vs Assessee on 27 November, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND Ms. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER
ITA No. 347/CHD/2013
Assessment Year: 2006-07
Lakshmi Energy & Foods Ltd., Vs The ACIT,
SCO 18-19, Sector 9-D, Central Circle-I.
Chandigarh . Chandigarh .
PAN: AAACL3147J
(Appellant) (Respondent)
Appellant by : Shri Sudhir Sehgal
Respondent by : Shri Sushil Verman
Date of Hearing : 29.10.2015
Date of Pronouncement : 27.11.2015
O R D E R
PER BHAVNESH SAINI,JM This appeal by assessee is directed against the order of ld. CIT(Appeals) Central, Gurgaon dated 23.01.2013 for assessment year 2006-07, challenging the order of ld. CIT(Appeals) in upholding the disallowance of loss sustained in sale of wheat amounting to Rs. 8,01,94,845/-. It is also claimed in the ground of appeal that authorities below are not justified in not carrying out directions given by ITAT while setting aside the order of the Assessing Officer.
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2. Briefly the facts of the case are that in this case assessment under section 143(3)/153A of the Act was completed at Rs. 42,82,36,985/- on 30.12.2008. Addition of Rs. 18,21,20,035/- was made on account of loss claimed by the assessee in respect of lifting of wheat by M/s PEC Ltd. The assessee filed appeal before ld. CIT(Appeals)-I Ludhiana against the quantum of addition of Rs. 18.21 Cr made by Assessing Officer. The ld. CIT(Appeals) vide order dated 27.10.2009 dismissed the appeal of the assessee. The assessee preferred appeal before the Appellate Tribunal, who vide order dated 26.03.2010 restored the matter back to the file of Assessing Officer for fresh adjudication. In pursuance of the order of the Tribunal, the Assessing Officer issued Show Cause Notice to the assessee to file the information regarding the matter in issue i.e.;
(i) To furnish supporting documents proving that damaged wheat was actually shifted to Kandla Port under custodianship of M/s Rishi Shipping Line CHA appointed by M/s PEC Ltd. and documentary evidence that damaged wheat was actually exported by M/s PEC Ltd.
ii) Furnish documentary evidence of legal remedy initiated of cheating against officials of M/s PEC Ltd. or any FIR lodged in the matter.
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iii) Explain if the loss was determined during the assessment year under appeal, if not, please state when was loss determined.
iv) Assessee was following mercantile system of accounting and loss could be claimed in the year in which the loss was determined. Therefore, explain as to why loss is allowable in assessment year under appeal.
3. The Assessing Officer called for information under section 133(6) on certain points from M/s PEC Ltd. M/s PEC Ltd. vide their letter dated 10.12.2010 provided the said information. It was informed by M/s PEC Ltd. that total amount realized on sale of wheat was Rs. 13,08,56,913/-. The amount of loss claimed by assessee was not intimated by M/s PEC Ltd. and it was stated that this is to be answered by the assessee. It was also informed that assessee has filed legal case before Hon'ble Punjab & Haryana High Court.
4. The assessee submitted before Assessing Officer that assessee company has filed complaint with Hon'ble Prime Minister of India and matter is pending. It was also stated that M/s PEC Ltd. have paid a sum of Rs. 8.5 Cr and offered another Rs. 1.91 Cr which has not been accepted by the assessee. It was contended that assessee's accounts are maintained on mercantile basis and when liabilities denied by M/s PEC Ltd., assessee is 4 justified in claiming the loss. The assessee has also taken alternate plea that in the period relevant for assessment year 2007-08, amount of Rs. 18.42 Cr was shown as income. The fact remains that while the loss claimed for the above assessment year was squared up by offering the same as income for assessment year 2007-08, while the fact as per copies of the account is that an amount of Rs. 8.01 Cr still outstanding against M/s PEC Ltd. which is irrecoverable. It was, therefore, requested that no adverse inference may be drawn as the rate of tax is same for assessment year under appeal i.e. 2006-07 and assessment year 2007-08. It was, therefore, submitted that if the amount is added in assessment year under appeal, the corresponding income shown in the subsequent assessment year 2007- 08 may be reduced from the income of that year and loss of Rs. 8,01,94,845/- may be allowed in subsequent assessment year 2007-08.
5. The Assessing Officer, considering the accounts of the assessee and explanation noted that the company has debited Rs. 18.42 Cr and credited Rs. 10.41 Cr. In the ledger account of M/s PEC Ltd., an amount of Rs. 8.01 Cr has been shown as debit balance. Thus, no loss is claimed in the books of account of the assessee and accordingly the liability of loss is not crystallized in assessment year under appeal and accordingly, loss 5 claimed by assessee was not allowed and addition of Rs. 18,21,20,035/- was made against the assessee.
6. The aforesaid addition was challenged before ld. CIT(Appeals) and it was explained that as per the documents on record, the loss was incurred when the liability was denied by M/s PEC Ltd. The assessee could not make recovery of the same therefore, filed a complaint before the Hon'ble Prime Minister of India and ultimately, the assessee did not get the amount in question. The assessee maintained accounts on mercantile basis. The supply of wheat, its export and loss sustained are the admitted facts by now. Since M/s PEC Ltd. denied its liability, therefore no dispute was left. The ld. CIT(Appeals), however, did not accept contention of the assessee and dismissed the appeal of the assessee on the reason that quantum of loss had not crystallized during the year because assessee have not debited any loss in the books of account.
7. The assessee is in appeal. The ld. counsel for the assessee submitted that the Assessing Officer made addition of Rs. 18,21,20,035/- however, he has restricted the addition in appeal to Rs. 8,01,94,845/- because the other amounts were the advance received from M/s PEC Ltd. and the balance amount of Rs. 1.91 Cr which was offered by M/s PEC Ltd. at the close of the financial year.
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8. The assessee has also filed additional ground of appeal which reads as under :
"That the appellant's claim f or deduction under section 80IB(11A) be a l l o we d since the appellant qual if ies and f ulfills all the conditions f or the said deduction as per order o f IT A T C h a n d i g a r h B e n c h . "
9. The ld. counsel for the assessee referred to order of ITAT Chandigarh Bench in the case of the same assessee dated 26.02.2014 for assessment year 2008-09 and 2009-10 in ITA No. 250/2013 and others. The ld. counsel for the assessee referred to para 57, 58, 68 and 69 of the aforesaid order and submitted that the Tribunal in these paras observed that assessment year 2006-07 in appeal may be taken to be the first year of the new project for the purpose of claiming deduction under section 80IB(11A). He has submitted that the Tribunal in these paras has concluded that assessee is eligible for deduction under section 80IB(11A) because the assessee started integrated business of handling, storage and transportation of foodgrains in financial year 2005-06 i.e. assessment year 2006-07. The ld. counsel for the assessee, however, fairly stated that the Tribunal did not allowed deduction in assessment year 2008-09 vide order dated 26.02.2014 because the return of income was filed late. The ld. counsel for the assessee, therefore, submitted that since this issue arise from the earlier order dated 26.02.2014, 7 additional ground may be admitted and relied upon decision of the Hon'ble Supreme Court in the case of NTPC Ltd. 229 ITR 383.
10. On the other hand, ld. DR submitted that this issue is not arising out of the impugned orders and no audit report was filed before Assessing Officer and admittedly the return of income in assessment year under appeal is also late, therefore, once assessee is not entitled for relief as claimed for in the additional ground of appeal, therefore, there is no need to admit the additional ground of appeal.
11. On consideration of the rival submissions, we are of the view that additional ground need not to be admitted at this stage. The ld. counsel for the assessee heavily relied upon order of the Tribunal dated 26.02.2014 (supra) in which certain observations have been given that assessment year 2006-07 under appeal may be taken to be the first year of the new project so as to claim deduction under section 80IB of the Income Tax Act. The similar claim of assessee was, however, rejected by the same judgement because the return of income was filed late. Admittedly, in the assessment year under appeal also, the return of income has been filed late and as such, assessee would not be entitled for deduction under section 80IB of the Act. Therefore, prima-facie there is no need to admit the additional ground of appeal. Considering the above discussion, we 8 are not inclined to admit the additional ground of appeal. The request of assessee for admission of additional ground of appeal is accordingly, rejected.
12. We have heard ld. Representatives of both the parties on merit. The ld. counsel for the assessee reiterated the submissions made before authorities below and referred to various correspondence and agreement in question to show that assessee has shifted wheat to Kandla Port through the agent of M/s PEC Ltd. which was exported by M/s PEC Ltd. and in that way, the assessee has suffered loss for which, complaint was also made to the Hon'ble Prime Minister of India. He has submitted that assessee was given advance of Rs. 8.50 Cr. and M/s PEC Ltd. offered a sum of Rs. 1.91 Cr. in assessment year under appeal totaling to Rs. 10.41 Cr. Therefore, as against claim of assessee of Rs. 18.21 Cr., the assessee suffered loss on account of wheat exported through M/s PEC Ltd. He has submitted that since liability of Rs. 8.01 Cr was denied by M/s PEC Ltd. in assessment year under appeal, therefore, liability has crystallized in assessment year under appeal and assessee is entitled for deduction in assessment year under appeal. He has submitted that even in subsequent assessment year 2007-08, assessee has made a similar claim but it was rejected by the Assessing Officer. He has submitted that assessee has booked the loss in computation of income in assessment 9 year under appeal. The assessee is following mercantile system of accounting, therefore, loss in this year cannot be disputed. He has submitted that tax liability of the assessee is same in assessment year under appeal as well as in subsequent assessment year, therefore, revenue is not going to loose anything and as such, claim of assessee may be allowed in assessment year under appeal. He has relied upon following decisions :
1. Kedar Nath Jute Manufacturing Co. ltd. v CIT 82 ITR 363
2. CIT V Southern Cables & Engineering Works 289 ITR 167
3. CIT V Sugar Dealers 100 ITR 424
13. On the other hand, ld. DR relied upon orders of the authorities below and submitted that liability has not crystallized in assessment year under appeal. The case laws relied upon by assessee are not applicable to the facts of the case and relied upon decision in the case of Swadeshi Cotton Mills 53 ITR 134 and Alembic Chemical Works Ltd. Vs. DCIT 266 ITR 47.
14. We have considered rival submissions and perused the material available on record. PB-54 is a letter written by Assessing Officer to M/s PEC Ltd. calling for information under section 133(6) vide letter dated 26.11.2010 in which the Assessing Officer asked for copy of the agreement in question dated 11.08.2004, 10 quantity of wheat lifted from assessee by M/s PEC Ltd.
and cost thereof, quantity of wheat exported by M/s PEC Ltd. and cost thereof, quantity of what sold by M/s PEC Ltd., amount paid/payable to the assessee on this account, amount of loss claimed by assessee and whether the issue has been settled by M/s PEC Ltd. PB- 56 is the reply dated 10.12.2010 by M/s PEC Ltd. to the Assessing Officer with regard to export of the wheat done by M/s PEC Ltd. on behalf of the assessee and point-wise reply was submitted. Copy of the agreement with assessee was supplied. Quantity of wheat lifted from assessee by M/s PEC Ltd. and cost was intimated. The quantity received at Kandla Port and break-up was intimated. The cost was not explained as cost of wheat was not fixed. However, M/s PEC Ltd. released an advanced payment @ Rs. 2750/- per MT. The cost of the said wheat was depending on realization of export proceeds under letter of credit minus service charges of M/s PEC Ltd. The quantity of wheat exported by M/s PEC Ltd. and the amount realized was Rs. 13.05 Cr. The quantity of wheat sold by M/s PEC Ltd. in domestic market explained. The amount paid to assessee was Rs.8.69 Cr and further the loss claimed by assessee was to be answered by the assessee himself.
14i) PB- 62 is the agreement between assessee and M/s PEC Ltd. dated 11.08.2004 in which it was agreed that M/s PEC Ltd. will pay on account to the assessee @ 11 Rs. 5500 PMT upto 50% of the receipted quantity by M/s PEC Ltd. at Gandhi Nagar/Kandla Port. The balance payment shall be realized to the assessee after realization of the export proceeds under I/C after deducting service charges etc. by M/s PEC Ltd. PB-49 is letter dated 05.03.2007 by Ministry of Commerce & Industry, Department of Commerce addressed to the assessee on account of complaint made by assessee to Hon'ble Prime Minister of India on 01.06.2006 in which the Ministry of Commerce & Industry intimated the assessee that the dispute between assessee and M/s PEC Ltd. is of commercial nature and letter of M/s PEC Ltd. dated 29.06.2006 was attached with the same reply and assessee was requested to settle the dispute with M/s PEC Ltd. The letter dated 29.06.2006 issued by M/s PEC Ltd. to the Ministry of Commerce & Industry is filed at page 50 of the Paper Book with true translation in which M/s PEC Ltd. intimated the Ministry of Commerce & Industry that assessee approached M/s PEC Ltd. for export of the wheat which the assessee had obtained through auction from State Agencies in Punjab. It was done through agreement dated 11.08.2004 and as per agreement, M/s PEC Ltd. was to export the quantities provided by the assessee at fixed margin while entire profit and loss to the account of assessee. The assessee, at the time of agreement, was confident of subsidy which was to be announced by the Government on export of the wheat which was not ultimately 12 announced by the government. The international price of wheat at that time remained low which did not meet the expectation of the assessee. The exports were made after six months of their being stored at Kandla which led to deterioration of the wheat making it total unfit for export. After finalization of the accounts, assessee was offered the balance amount of Rs. 1.91 Cr due to them but assessee refused to accept.
15. The reply of the assessee before Assessing Officer is filed at page 58 of the Paper Book dated 12.12.2010 in which the assessee explained that in assessment year 2007-08, an amount of Rs.18.42 was shown as income and assessee maintained accounts on mercantile basis, therefore, since liability was denied by M/s PEC Ltd. in assessment year under appeal, therefore, assessee correctly claimed the loss in assessment year under appeal. PB-60 shows loss of Rs. 18.42 Cr which was added in the computation of income for assessment year 2007-08. PB-1 is the computation of income filed with the return of income for assessment year under appeal i.e. 206-07 in which the assessee has claimed loss against stock of the wheat in a sum of Rs.
18,42,94,845/-. Therefore, the assessee booked the loss in assessment year under appeal as per mercantile system of accounting. The assessee filed return of income on 26.03.2007, after letter dated 05.03.2007 13 received from Department of Commerce, Ministry of Commerce & Industry.
16. The assessee also placed on record letter dated 11.03.2005 issued by M/s PEC Ltd. to the assessee in which assessee was intimated of the matter in issue with reference to the export of the wheat through M/s PEC Ltd. vide agreement dated 11.08.2004 and it was intimated that the major quantity out of the total stock has since been exported, therefore, assessee was requested to attend their office at Delhi for finalization of the accounts/stock.
16(i) The assessee has also placed on record letter dated 06.08.2005 written by assessee to M/s PEC Ltd. for settlement of the dues in response to the letter dated 11.03.205 in which the assessee has referred to their discussion with them held in March/April,2005 and the assessee requested M/s PEC Ltd. to release the total payment of Rs. 18.42 Cr within a week from the receipt of this letter. The assessee also placed on record letter dated 01.06.2006 addressed to Hon'ble Prime Minister of India regarding huge loss suffered by assessee on export of wheat through M/s PEC Ltd. and cheating and fraud by the officials of the M/s PEC Ltd. The entire facts of exports were narrated in this letter through M/s PEC Ltd. and it was highlighted that the officials of the M/s PEC Ltd. have cheated the assessee by taking kick-back in the transaction because the assessee has now been 14 offered a lesser price as against the higher price agreed at the time of export. The assessee asked for civil and criminal action in the matter against the officials of M/s PEC Ltd.
16(ii) These facts clearly prove and indicate that amount was irrecoverable in assessment year 2006-07, since the supply had concluded in the beginning of assessment year 2006-07, therefore, loss had crystallized during assessment year 2006-07 which was, therefore, rightly taken into the computation of income filed by assessee alongwith return of income. It may be noted here that ultimately when the M/s PEC Ltd. offered balance amount of r. 1.91 Cr to the assessee as per their accounts settled in assessment year under appeal, the amount was also not realized. Therefore, assessee had to take recourse in filing writ petition before Hon'ble Delhi High Court and vide order dated 03.11.2014, the balance amount determined earlier was released to the assessee.
17. Considering the above facts and material on record, it is clear that Assessing Officer did not dispute loss suffered by assessee on account of export of wheat made through M/s PEC Ltd. and the agent. It is also not in dispute that the wheat was actually shifted to Kandla Port through the agent which was exported by M/s PEC Ltd. on behalf of the assessee. The ITAT Chandigarh Bench also, while remanding the matter earlier had 15 considered this issue and observed that findings of authorities below are incorrect with regard to exports made by the assessee through M/s PEC Ltd. Therefore, the facts and circumstances and material on record clearly justify the submissions of the assessee that actually wheat was shifted to M/s PEC Ltd. who in turn have exported the same and realized the lesser amount. M/s PEC Ltd. also in their reply under section 133(6) intimated the Assessing Officer about the wheat supplied by assessee and exported and the amount realized was Rs.13.05 Cr. Therefore, as against the claim of assessee of Rs. 18.42 Cr, the lesser amount was realized by M/s PEC Ltd. As such, assessee has been able to prove that in assessment year under appeal, assessee has suffered loss on account of export of the wheat through M/s PEC Ltd. PB-52 is reply of M/s PEC Ltd. to Ministry of Commerce & Industry which shows that amounts settled prior to this reply meaning thereby, before close of financial year on 31.03.2006. Therefore, considering the averments contained in the letter of M/s PEC Ltd. dated 11.03.2005 for settlements of account (supra), representation of the assessee dated 06.08.2005 (supra) demanding release of total amount of Rs. 18.42 Cr within one week from receipt of this letter and letter dated 29.06.2006 written by M/s PEC Ltd. to Ministry of Commerce & Industry, makes it clear that wheat supplied by assessee was exported at lesser price by M/s PEC Ltd. The assessee's accounts were settled 16 by M/s PEC Ltd. by offering small amount (Rs.1.91 Cr in financial year 2005-06 against total claim of assessee of Rs. 18.24 Cr) which was refused to accept by assessee and took action against M/s PEC Ltd. but did not succeed. Therefore, on mercantile system of accounting maintained by assessee, assessee suffered loss against stock/export of wheat in assessment year under appeal and the quantum of loss has crystallized during the assessment year under appeal i.e. 2006-07.
18. Hon'ble Supreme Court in the case of Kedar Nath Jute Manufacturing Co. Ltd. 82 ITR 363 held as under :
"Statutory liability for sales-tax incurred by issue of notice by the authorities is deductible n o t wi t h s t a n d i n g the f act that the liability is disputed by the assessee and no provision f or t h e s a me h a s b e e n m a d e i n t h e a c c o u n t s , wh i c h i s m a i n t a i n e d a s p e r me r c a n t i l e s y s t e m. "
19. Hon'ble Kerala High Court in the case of Southern Cables & Engineering Works 289 ITR 167 held as under:
"Electricity Board having made a deduction towards penalty from assessee's bills for delayed supplies relating to accounting year 1989-90, liability accrued during the accounting period 1989-90 relevant to asst. yr. 1990-91 and since the assessee is following mercantile system of accounting, it ought to have claimed deduction thereof in that year itself irrespective of the fact that the assessee was making efforts to get the penalty waived and KSEB refunded certain sum to the assessee in the later year."17
20. Hon'ble Allahabad High Court in the case of Sugar Dealers 100 ITR 424 held as under :
"Forefeiture of security for inability to comply with stipulated terms of a purchase contract was attributable to business and loss occurred to assessee at the time when forefeiture took place though assessee subsequently contested his liability and took proceedings for recovery of security."
Therefore, claim of assessee of claiming loss on account of export of the wheat is justified in assessment year under appeal.
21. It may also be noted here that the Assessing Officer did not allow the similar loss in subsequent assessment year 2007-08 in order dated 143(3) of the Act dated 30.12.2010, despite the assessee has added loss on stock of Rs. 18.42 Cr in the computation of income filed for assessment year 2007-08. It may also be noted here that in assessment year under appeal i.e. 2006-07, the assessee filed return of income declaring income of Rs. 24.61 Cr and in assessment year 2007-08, the assessee declared total income of Rs. 42.79 Cr. and the assessee added Rs. 18.42 Cr in the income for assessment year 2007-08 but no benefit have been given by the Assessing Officer. It is, therefore, clear that even in the present case, the rate of tax remained the same in the assessment year under appeal i.e. 2006-07 and 2007-08 18 and revenue is not going to loose anything even if the loss and deduction is allowed in assessment year under appeal 2006-07.
22. Hon'ble Punjab & Haryana High Court in its recent unreported decision in the case of CIT V Vee Gee Industrial Enterprises in ITA No. 187 of 2014 dated 28.07.2015 following the judgement of Delhi High Court in the case of Dinesh Kumar Goyal 331 ITR 10 and decision of Hon'ble Supreme Court in the case of CIT V Excel Industries Ltd. 358 ITR 295 held as under :
8. It was conceded that even in the present case, the rate of tax remained the same in both the assessment years i.e. 2005-06 and 2007-
08. Following the above judgment of the Hon'ble Supreme Court, it must be held that the dispute raised by the revenue is essentially academic. The issue may have some tax effect in that if the department is correct and the amount ought to have been brought to tax two years earlier, there would be loss of interest for two years on the amount of 31,10,000/-. The department has not raised the claim in that regard.
We do not wish to express any opinion as to the right of the department to claim interest.
9. In the circumstances, the questions of law, therefore, are decided in favour of the assessee. The appeal, is, therefore, dismissed.
23. Considering the above discussion and material on record, we are of the view that assessee has suffered genuine loss on account of export of wheat through M/s PEC Ltd. which loss has crystallized during the assessment year under appeal. Therefore, authorities below were not justified in declining to allow deduction 19 of the same. We, accordingly, set aside the orders of authorities below and delete the addition of Rs. 8,01,94,845/- on account of disallowance of loss sustained in sale of wheat.
24. In the result, appeal of the assessee on this issue is allowed.
25. In the result, appeal of the assessee is partly allowed.
Order pronounced in the Open Court.
Sd/- Sd/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 27 t h November,2015. 'Poonam' Copy to:
The Appellant, The Respondent, The CI T(A), The CI T,DR Assistant Registrar, I TAT Chandigarh