Income Tax Appellate Tribunal - Indore
Jagdish Malpani vs Assistant Commissioner Of Income Tax on 28 September, 2004
Equivalent citations: (2005)94TTJ(INDORE)321
ORDER
I.C. Sudhir, J.M.
1. The first appellate order has been questioned by the assessee on the ground (modified vide application dt. 25th June, 2004) that on the facts and circumstances of the case, the learned CIT(A) was not justified in not accepting the business loss at Rs. 7,35,100 excluding depreciation as claimed by the appellant and also not justified in not directing the same to be carried forward.
2. The facts in brief are that search and survey were conducted at the premises of the assessee on 29th May, 1993, whereby books of account for the asst. yrs. 1992-93, 1993-94, 1994-95, i.e., till 29th May, 1993, were seized. There was fire in the strong room of IT Department in the month of June, 1993, in which the seized books of account of the assessee got burnt. The assessee suffered loss of around Rs. 40,00,000 till November, 1993, and discharged the liability of his creditors by handing over 13 acres of primary agricultural land near Misrod. The assessee prepared account on the basis of stock register available with him, copies of returns filed with ST Department and copies of accounts received from traders, i.e., from creditors and debtors. The assessee filed return of income on 10th Jan., 1995, claiming total business loss of Rs. 9,53,660 inclusive of depreciation of Rs. 2,18,560. The AO calculated the GP at Rs. 4,29,500 and after considering depreciation of Rs. 2,09,163, estimated the loss at Rs. nil. In other words, the AO estimated the expenses of Rs. 2,20,417 excluding depreciation, whereas as per the assessee the expenses claimed were Rs. 3,68,682 (thereby making addition of Rs. 1,48,265). The AO did not also accept the claim of the assessee regarding the sales amount. The AO had taken the sales at Rs. 3,41,02,528, whereas as per the assessee the sales was at Rs. 3,36,50,728 (thereby making addition of Rs. 4,51,800). Further, the appellant had claimed the closing stock of Chana at factory at 1,721 quintal, whereas the AO had taken it as a Chana Dal at factory (thereby he had made addition of Rs. 3,44,200). After making all these additions of Rs. 9,44,265 (Rs. 1,48,265 + Rs. 4,51,800 + Rs. 3,44,200), allowed depreciation of Rs. 2,09,163. The learned CIT(A) has affirmed the action of the AO which has been questioned by the assessee in the present appeal.
3. In support of the ground, the learned Authorised Representative submits that the lower authorities should have accepted the claim of the assessee prepared on the basis of stock register available with him, copies of the returns filed with the ST Department and copies of accounts received from the traders, especially when all the supporting vouchers and records seized and kept in the possession of the Department were destroyed in fire in the strong room of the Department and there was nothing specific with the assessing authority to contradict the claim of the assessee. In support of this material fact that there was fire during the month of June, 1993, in the strong room of IT Department wherein the seized books and documents of the assessee were burnt, an affidavit has been filed by the assessee. In this affidavit, placed on record, in para No. 3, the assessee has also sworn in that he had given an application on 17th June, 1993, duly signed by him along with challan of Rs. 100 vide challan No. 021/52/1993-94, dt. 17th June, 1993 for copying charges to obtain the copies of books of account and loose papers from the office of Asstt. Director of Investigation (Income-tax), Bhopal, so the IT return of asst. yr. 1993-94 should have been filed within the due date (which was 31st Oct., 1993).
4. So far addition of Rs. 1,48,265 is concerned, the learned Authorised Representative refers page No. 12 of the paper book and submits that the assessee had claimed expenses @ 1.10 per cent (Rs. 3,68,682) of the total sales of Rs. 3,36,50,728, whereas the AO without assigning any convincing reason has allowed the expenses only @ 0.65 per cent (Rs. 2,20,417 on the total sales). He points out that during the asst. yr. 1994-95 the assessee had claimed expenses @ 2.75 per cent on the total sale of Rs. 2,57,08,508 which was accepted by the AO.
5. Regarding addition of Rs. 4,51,800 made and confirmed by the lower authorities, the learned Authorised Representative refers page Nos. 12 and 13 of the paper book and submits that the AO adopted sales at Rs. 3,41,02,528 against the sales shown by the assessee at Rs. 3,36,50,728 and included the sales (sic) outside State stock of Rs. 4,51,800 in the closing stock of Rs. 17,54,433. He submits further that in case AO adopts the sales of Rs. 3,41,02,528, the closing stock which has to be reduced by Rs. 4,51,800, it will come down to Rs. 13,02,633 instead of Rs. 17,54,433. He submits that the AO thus made addition of Rs. 4,51,800 without any basis. The learned Authorised Representative refers page No. 12 of the paper book to make position more clear that, in other words, the AO added outside State stock worth Rs. 4,51,800 in the closing stock worth Rs. 17,54,433, thereby he had worked out the closing stock at Rs. 20,98,633 but he did not deduct the said outside State stock worth Rs. 4,51,800 from the sale of Rs. 3,41,02,528. Hence, the AO took the figure twice in calculation of the GP, which is an apparent error resulting in the addition.
6. Regarding addition of Rs. 3,44,200, the learned Authorised Representative submits that the AO had observed in his order that in the report submitted by authorised officer who concluded survey under Section 133A on 29th May, 1993, it has been mentioned that as per stock register maintained by the assessee, the details of opening stock of various commodities on 1st April, 1993, were as under:
(1) Chana Nil (2) Chana Dal 1721.19 Qtls. (3) Chana Chhilka and Bhusi 48.00 Qtls.
The explanation of the assessee in this regard remained that the copy of stock register found at the time of survey maintained regularly under the Essential Commodities Act and signed by the official of the IT Department during the course of survey, shows 1,721.19 qtls. of Chana, under which circumstances a presumption cannot be arrived at that there could be 1,721 qtls. of Chana Dal in place of 1,721.19 qtls. of Chana. He refers page Nos. 14 to 16 of the paper book in support.
7. The learned Authorised Representative while summing up his arguments submits that in view of aforesaid facts, the lower authorities ought to have accepted business loss of Rs. 7,35,100 excluding depreciation claimed by the assessee.
8. The learned Departmental Representative, on the other hand, justified the orders of the lower authorities.
9. After considering the arguments advanced by the parties, in view of the materials available on the record as well as orders of the lower authorities, we find force in the submissions of the learned Authorised Representative as discussed above. The claim of the assessee without assigning any convincing reason cannot simply be disbelieved and denied by the assessing authority only because the assessee was not in a position to support the details of the claimed expenditure in P&L a/c since all the relevant records seized and kept in the custody of the Department, which would have been otherwise helpful to the assessee to establish its claim, were burnt due to fire in the strong room of the Department. The addition of Rs. 4,51,800 is also apparently wrong since, as discussed above, the AO while calculating the stock at Rs. 20,98,633 included the outside State stock worth Rs. 4,51,800 without deducting the same from sales. And so far third addition is concerned, it is also apparently without any basis, since it is very much evident from page Nos. 14 to 16 of the paper book, i.e., copies of the stock register that there was stock of Chana and not the Chana Dal as alleged by the AO. We thus find no reason to disbelieve the claim of loss by the assessee and delete the addition of Rs. 7,35,100 made and confirmed in this regard by the lower authorities.
10. On the last limb of the ground regarding carry forward of the aforesaid business loss denied by the lower authorities, the learned Authorised Representative submits that return of income was filed late by the assessee because the books of account were not available with the assessee due to destruction of the same in the fire in the strong room of the Department and assessee had to collect information to file the return. Thus, the cause which resulted in filing the return delayed was beyond the power and control of the assessee and, therefore, the business loss should have been allowed to be carried forward despite the hardship of the provisions of Section 80 of the IT Act. He refers page No. 162 of the book 'Brooms Legal Maxims 10th Edn., by Herberts Broom, LL.D.', wherein under the Chapter 'Fundamental Legal Principles', the maxim 'Lex non cogit ad impossibillia. (Co. Litt. 231 b.), i.e., the law does not compel a man to do that which he cannot possibly perform, has been discussed and concluded that it is a general rule which admits of ample practical illustration, that impotentia excusat legem; where the law creates a duty or charge, and the party is disabled to perform it, without any default in him, and has no remedy over there, the law will in general excuses him. Photocopies of the relevant page Nos. 162 and 163 of the said book have been placed on record. The learned Authorised Representative also cites following judgments in support with the submission that the relevant Section 80 of the IT Act is not a charging provision or a provision imposing penalty but a machinery provision and, therefore, it should not be construed strictly keeping in view of the hardship of the assessee for which he was not at all responsible to :
(1) Tirath Singh v. Bhachittar Singh AIR 1955 SC 833; (2) CIT v. National Taj Traders (1980) 1 SCC 370; and (3) CIT v. J.H. Gotla (1985) 4 SCC 343.
11. The learned Departmental Representative, on the other hand, justifies the orders of the lower authorities in this regard.
12. We have considered the arguments advanced by the parties, in view of the materials available record, and orders of the lower authorities and the judgments relied on by the learned Authorised Representative. Admittedly, there was fire in the strong room of the Department wherein the seized books and documents of the assessee were destroyed. Had the same not been destroyed, admittedly, there was no excuse with the assessee for filing the return late. The assessee had also applied for the copies of the seized books and documents to the Department along with required challan of Rs. 100 but due to destruction of the same in the fire, these could not be supplied by the Department to the assessee. There is also no doubt that whatever reason for the delay has been assigned by the assessee which was beyond his power and control is bona fide one, but the material question before us is as to whether there is scope in the provisions of law to accommodate such person, keeping in view the exceptional facts and circumstances of the case. Though impossibility of performance is in general no excuse for not performing an obligation, yet when the obligation is one implied by law, impossibility of performance is a good excuse. The law itself and the administration of it, said Sir W. Scott, with reference to an alleged infraction of the Revenue laws, must yield to that to which everything must bend, to necessity; the law, in its most positive and peremptory injunctions, is understood to disclaim, as it does in it general aphorisms, all intentions of compelling to impossibilities, and the administration of laws must adopt that general exception in the consideration of all particular cases (page No. 162 of 'Brooms Legal Maxims, 10th Edn., by Herberts Broom, LL.D). There is also no dispute that provision laid down under Section 80 of the IT Act is a machinery provision and as per the judgment of Hon'ble Supreme Court in the case of CIT v. National' Taj Traders (supra), relied on by the learned Authorised Representative, rule of strict construction applies only to charging provision or one imposing penalty and not machinery provisions. We thus are of the definite view that there was sufficient reason beyond his power and control with the assessee for delay in filing the return and the law does not compel a man to do that which he cannot possibly perform. We find support from the ratio of decision of the Hon'ble Supreme Court in the case of CIT v. National Taj Traders (supra), that rule of strict construction applies only to charging provision or one imposing penalty and not to the machinery provisions. We thus in the interest of justice find no reason to deny the claim of carry forward of loss of Rs. 7,35,100 of the assessee only on the basis that the return was filed late due to the reason which was admittedly a bona fide one beyond the power and control of both the parties. We thus respectfully following the principle laid down in the maxim 'lex non cogit ad impossibillia' as discussed above and the ratio of judgment of Hon'ble Supreme Court in the case of CIT v. National Taj Traders (supra), direct the AO to allow the claim of carry forward of the loss while accepting the return of income filed by the assessee.
13. The ground is thus decided in favour of the assessee while setting aside orders of the lower authorities in this regard.
14. The appeal is thus allowed. ITA No. 93/Ind/2002
15. The Revenue has questioned first appellate order on the ground that the learned CIT(A) has erred in directing the AO to give benefit of unabsorbed depreciation for allowing it to be carried forward under Section 32(2) of the IT Act, 1961, holding that provisions of Section 80 of the IT Act, 1961, are not applicable to the facts of the case.
16. The assessee had claimed carry forward of depreciation of Rs. 2,18,560 which was denied by the AO on the basis that return was filed after the due date so there was no question of carry forward of business loss or, for that matter, of depreciation in view of Section 80 of the IT Act. He placed reliance on the judgment of Hon'ble Supreme Court in the case of Surana Steels (P) Ltd. v. Dy. CIT (1999) 237 ITR 777 (SC), The learned CIT(A) did not agree with the same with this observation that the said judgment of Hon'ble Supreme Court relied on by the AO is not relevant for the facts of the present case because in that case the depreciation or loss was explained in the context of Section 115J of the IT Act, 1961, and Section 205 of Companies Act, 1956. He observed further that so far as Section 32(2) of the IT Act, 1961, is concerned, the observations of the Hon'ble Supreme Court in the case of CIT v. Virmani Industries (P) Ltd. and Ors. (1995) 216 ITR 607 (SC) are relevant. The learned CIT(A) accordingly directed the AO to give benefit of unabsorbed depreciation for allowing it to be carried forward under Section 32(2) of the IT Act, 1961. Against this first appellate order, the Revenue is in appeal before us.
17. The learned Departmental Representative justifies the assessment order and the decision relied upon by him. The first appellate order, on the contrary, has been relied on by the learned Authorised Representative. He also cites the order of Pune Bench of the Tribunal in the case of Vora Industries Tools (P) Ltd. v. ITO (1992) 20 ITC 145, wherein it was held that the unabsorbed depreciation cannot be strictly called a loss, as understood in commercial parlance, though under the statute, it assumes the nature of loss of business. Therefore, the unabsorbed depreciation can be said to be a specie of the large genus 'loss'. Nonetheless, the distinct character or nature of the depreciation allowance holds out when unabsorbed depreciation allowance is carried forward along with unabsorbed development rebate or unabsorbed business loss in which case specific provisions are there regarding rule of" priority in the matter of set off.
18. After considering the arguments advanced by the parties, in view of the materials available on the record, orders of the lower authorities as well as the decision cited by the parties, we do not find reason to interfere with the first appellate order on the matter. We also find support from the order of the Tribunal in the case of Vbra Industries Tools (P) Ltd. v. ITO (supra), wherein it has been held that Section 32(2) itself is a self-contained provision for the carrying forward and set off of unabsorbed depreciation by virtue of deeming fiction of law and it is only subject to the provision of Sections 72(2) and 73(3), Both Sections 72(2) and 73(3) only provide for order of priority in case of rival claims of set off of business loss, speculation business loss and unabsorbed depreciation. The ground is rejected.
19. The appeal is dismissed.